author: McENTEE, Circuit Judge.

text:
    HIRAM RICKER & SONS, Plaintiff-Appellee, v. STUDENTS INTERNATIONAL MEDITATION SOCIETY, Defendant-Appellant.
    No. 73-1273.
    United States Court of Appeals, First Circuit.
    Heard June 6, 1974.
    Decided July 17, 1974.

      George R. Halsey, Boston, Mass., with whom Robert I. Deutsch and Ruboy, Deutsch & Krasnow, Boston, Mass., were on brief, for appellant.
    Enid M. Starr, with whom Bernard A. Dwork and Barron & Stadfield, Boston, Mass., were on brief, for appellee.
    Before COFFIN, Chief Judge, Mc-ENTEE and CAMPBELL, Circuit Judges.
   McENTEE, Circuit Judge.

This is a diversity action based on a contract. Plaintiff-appellee Ricker owns a 2500-acre resort complex in Poland Springs, Maine, which includes lodgings, a golf course and a beach. At the beginning of 1970, only the golf course and a single adjacent building, the Poland Springs Lodge, were actually in use and open to the public. In February 1970, representatives of the defendant-appellant Society contacted Ricker about taking over some of the unused facilities from June 28 to July 26 for a course to train new instructors of transcendental meditation. After some negotiation, Ricker agreed to furnish rooms, facilities and three vegetarian meals and a snack per day for the course participants. In exchange, the Society was to pay Ricker based on a specified schedule of room rates and the number of persons who would attend. The Society would be responsible for the headcount necessary to determine its final bill. The training course was held at the Poland Springs complex on the dates scheduled. The Society paid Ricker a total of $185,000 in a series of payments, some in advance and some during the course.

Ricker brought this action seeking $77,508.36 as the balance allegedly due on the contract. Alternatively, Ricker sought the same amount on the theory of quantum meruit. In response, the Society counterclaimed for return of the $185,000 in payments already made. At trial, Ricker presented evidence tending to show that more persons attended the training course than were accounted for in the Society’s payments. Ricker also presented evidence that the Society improperly reduced some of the agreed-upon room rates as it made its calculations. The Society presented evidence to rebut these assertions. With respect to its counterclaim, it also presented evidence tending to show that the rooms and dining facilities which Ricker provided were dirty and inadequate. Finally, the Society raised the issue whether under Maine law Ricker could recover at all under the contract or in quantum meruit, in view of its apparent failure to obtain certain licenses required by statute.

The district court submitted all issues to the jury. With respect to licenses, it instructed:

“ . . . if you should find from the evidence in this case that the plaintiff was not licensed under the statutes that I have just read to you . . . you would be warranted in finding for the defendant on the claim brought by the plaintiff against the defendant.” (Emphasis added.)

The jury returned a verdict for Ricker in the amount of $65,780.00 and rejected the Society's counterclaim. The court entered judgment on the verdict, adding $9,494.16 in interest.

The Society raises a variety of issues on appeal. We will consider them in an order somewhat different from that set forth in the briefs.

Offer of Settlement — The Society contends that the district court improperly admitted evidence of an offer to settle Ricker’s claim. However, we hold that the evidence to which the Society objects was not an offer to settle within the meaning of the rule calling for exclusion.

The precise testimony was this. Saul Feldman, the president of Ricker, became increasingly dissatisfied with the size of the periodic payments the Society made to him during the one-month training course. Feldman felt that more persons had attended the course than the Society would concede. On July 26, the last day of the course, he called on Jerry Jarvis, a Society executive. At this time, pursuant to their contract, Feld-man anticipated receipt of the final payment. He testified:

“[Jarvis] passed me a yellow sheet of paper saying, ‘This is what we owe you. If you agree and sign a release absolving us from any and all damage and all future bills we will pay you.’ It was $44,000.”

Counsel for the Society moved to strike this testimony on the ground that it was an inadmissible offer of settlement. The court refused.. Whereupon the yellow sheet itself was received in evidence and read to the jury by Ricker’s counsel, again over objection. Nothing on the sheet referred to an offer of settlement. It was entirely a series of calculations, which concluded that the Society owed Ricker a final bill of $44,163.25.

It is, of course, true that evidence of settlement negotiations is generally inadmissible. On the other hand, there is a “well-recognized exception regarding admissions of fact as distinguished from hypothetical or provisional concessions conditioned upon the settlement’s completion.” NLRB v. Gotham Indus., Inc., 406 F.2d 1306, 1313 (1st Cir. 1969). See generally 4 Wigmore, Evidence § 1061 (Chadbourn rev. 1972). In the instant case, the yellow sheet handed to Feldman on the final day of the course represented the Society’s “unconditional assertion” of what it thought it actually owed Ricker based on the contract. See 4 Wigmore, supra, at 34. It was not a hypothetical or conditional sum intended only to forestall the additional costs of litigation. Indeed, although Ricker was unhappy about the size of the early payments, until it received the Society’s final payment offer of $44,000, it could not determine whether it had an actual controversy with the Society. The rule excluding offers of settlement is designed to encourage settlement negotiations after a controversy has actually arisen. It also prevents admission of evidence that does not represent either party’s true belief as to the facts. Neither policy would have been served by excluding Feldman’s testimony about the Society’s final payment offer, or the yellow sheet on which that offer was calculated.

Hearsay Objections — As indicated earlier, Ricker did not handle the registration of course participants. Instead, it was to rely upon the Society’s headcount in determining the final bill under the contract. During the course, however, Feldman became suspicious of the Society’s tally because he seemed to be serving far more meals than warranted. Therefore, on three occasions he asked several of his maintenance employees to go around from building to building, counting the number of persons occupying each room. According to Feldman, they reported their findings to him in note form, indicating more guests than the Society asserted. Feldman said the notes were destroyed and that later, from memory, he compiled tables of upward “adjustments” to the figures the Society had submitted to him. These adjustments were admitted into evidence over objection.

As both parties agree, the tables of adjustments compiled by Feldman were hearsay. They were based on reports to him by maintenance employees who themselves were not present in court to testify. Ricker asserts that the evidence was nonetheless admissible under the business-records exception to the hearsay rule. 28 U.S.C. § 1732 (1970). We disagree. A crucial aspect of the business-records exception is that entries be prepared as a regular part of the business. “The entry offered must of course be a part of a series of entries or reports, not a casual or isolated one.” 5 Wigmore, Evidence § 1525 (3d ed. 1940) (emphasis in original). See Palmer v. Hoffman, 318 U.S. 109, 63 S.Ct. 477, 87 L.Ed. 645 (1943). Otherwise, there is no basis for the presumption of reliability which is at the heart of the exception. The room-check here by Ricker’s maintenance employees was hardly the kind of regular, systematic business activity which is encompassed by the exception. The method they employed, see note 6 supra, hardly warranted a presumption of reliability. Moreover, another requirement of the exception is that entries be made contemporaneously with the transaction. 5 Wig-more, supra, § 1526. Here, Feldman made the entries, from memory, at least a week after the maintenance employees last reported to him. For this reason also, there is no basis for a presumption of reliability. Therefore, the exhibits were improperly admitted. Instead Ricker should have called the maintenance employees as witnesses.

Ricker alternatively contends that even if there was error it was harmless. Again, we disagree. The documentary listing of purported “short” counts by the Society was likely to have a profound effect on the jury’s factfinding. This was the strongest evidence supporting Ricker’s contention that the Society cheated in counting the number of course participants. A new trial is therefore warranted.

Licenses — Although the preceding holding requires at least a new trial, we also must consider the licensing issue raised by the Society because this could preclude a judgment for Ricker in any event. As we indicated earlier, the court submitted to the jury the question of whether Ricker possessed certain licenses required by Maine statutes at the time the training course was held. Specifically these were the “victualer’s” license, Me.Rev.Stats.Ann. tit. 30, § 2751 (1973' Supp.), and the sanitation license, Me.Rev.Stats.Ann. tit. 22, § 2482 (1965). Moreover, by using the phrase “you would be warranted” the court’s instruction allowed the jury to find for Ricker even if it was not properly licensed at the time of the course.

The Society contends that this was an error in two respects. First, it asserts that the evidence, conclusively established that Ricker did not have either type of license during the course, with one exception. Therefore, it claims that the question was improperly submitted to the jury. Second, the Society contends that under Maine law the absence of the licenses absolutely precluded recovery by Ricker either on the contract or in quantum meruit. Therefore, it claims additional error in the jury instruction which permitted a verdict for Ricker even if it had no licenses.

We agree with the first contention. It is clear from the record that Ricker’s victualer’s license expired on the Tuesday after the first Monday in May 1970. The expiration date is established by statute, see Me.Rev.Stats.Ann. tit. 30, § 2752 (1973 Supp.), and expressly stated on the face of the license itself. Feld-man testified that he thought the license, which was issued in December 1969, was valid for at least a year. But his assumption, even if in good faith, cannot validate an otherwise invalid license. Similarly, the present record Conclusively establishes that with two partial exceptions, Ricker did not have sanitation licenses for any of its buildings used by the Society. See note 10, supra. Therefore, there was no reason for the court to have submitted these questions to the jury.

The issue of whether the absence of these licenses precluded any recovery by Ricker is far more troubling. Maine law controls this question and the Maine court has not spoken on the subject since 1897, when it decided Randall v. Tuell, 89 Me. 443, 36 A. 910. There, the court construed a victualer’s-license statute virtually identical to the one now in effect It held that a hotel-owner who failed to obtain such license was barred from recovering $28 on a contract with a woman he boarded for two weeks. Although the licensing statute itself did not provide for this ancillary consequence, the Maine court said:

“It is the general doctrine, now settled by great weight of authority, that where a license is required for the protection of the public, and to prevent improper persons from engaging in a particular business, and the license is not for revenue merely, a contract made by an unlicensed person in violation of the act is void.” Id. at 445, 36 A. at 910.

The Randall court examined the legislative purpose behind the victualer’s-li-cense statute and concluded that it was intended to protect the public rather than to raise revenue. Therefore, the unlicensed hotel-owner did not recover. See also Stanwood v. Woodward, 38 Me. 192 (1854).

Four years after Randall, the Maine court relied upon it in holding that an unlicensed insurance broker could not recover commissions he had earned under an employment contract. Black v. Security Mut. Life Ass’n, 95 Me. 35, 49 A. 51 (1901). In addition, the Maine court has cited Randall with apparent approval in four other decisions, the most recent being in 1964. Thacher Hotel, Inc. v. Economos, 160 Me. 22, 197 A.2d 59 (1964); Lipman v. Thomas, 143 Me. 270, 61 A.2d 130 (1948); Donahue v. City of Portland, 137 Me. 83, 15 A.2d 287 (1940); Hinckley v. Giberson, 129 Me. 308, 151 A. 542 (1930).

Yet even though the Randall decision has never been repudiated or modified since 1897, we are unclear whether the Maine court would apply it today to the facts of the instant case so as to preclude recovery by Ricker either on the contract or in quantum meruit. A number of factors contribute to these doubts.

The most significant one is the extremely large sum of money involved in the present litigation. The Randall decision barred recovery of $28. Even giving due weight to inflation, clearly the equitable considerations are far different in the instant case where the Society seeks to bar recovery of $65,780 plus interest. Moreover, if Randall did control, the Society logically could argue for return of the $185,000 it had earlier paid on the contract. Thus, Ricker could lose at least $65,780 — and possible more than $250,000 — simply for its failure to comply with two licensing statutes which expressly provide for combined penalties of not more than $150. See Me.Rev. Stats.Ann. tit. 22, § 2487 ($100 maximum) ; id. tit. 30, § 2751 ($50 maximum) ,

The Maine court has never faced this sort of situation. However, a leading commentator, reviewing the holdings of other jurisdictions, has summarized them as follows:

“It must be remembered that in most cases the statute itself does not require these forfeitures. It fixes its own penalties, usually fine or imprisonment of minor character with a degree of discretion in the court. The .added penalty of non-enforceability of bargains is a judicial creation. In most cases, it is wise to apply it; but when it causes great and disproportionate hardships its application may be avoided. It is true that the method of avoidance may be by specious distinctions. It may be denied that the statute in the case is for the protection of public health and morality; [footnote omitted] or the court may find that the specific transaction was only sporadic and exceptional and that the unlicensed plaintiff was not really carrying on the business or profession. [footnote omitted]” 6A Corbin on Contracts § 1512, at 714-15 (1962) (emphasis added).

Putting aside the cases applying “specious distinctions,” we note two separate methods by which courts in other jurisdictions have avoided unduly harsh application of Randall-type rules. First, they have simply made an equitable exception to such rules in the interest of justice. “Justice requires that the penalty should fit the crime; and justice and sound policy do not always require the enforcement of licensing statutes by large forfeitures going not to the state but to repudiating defendants.” 6A Corbin, supra, at 713. Thus, in John E. Rosasco Creameries, Inc. v. Cohen, 276 N.Y. 274, 11 N.E.2d 908 (1937), the New York court held enforceable a contract for $11,-000 even though the plaintiff milk dealer was unlicensed. Among its reasons, the court noted that “if the contract is declared unenforceable, the effect will be to punish the plaintiff to the extent of a loss of approximately $11,000 and permit the defendants to evade the payment of a legitimate debt.” More recently, the California Court of Appeal similarly declined, despite the fact of no license, to invalidate a $40,000 contract. The court stressed the equitable considerations :

“Despite the illegality of the contract, plaintiff should not be denied relief. The rule requiring courts to withhold relief under the terms of an illegal contract is based on the rationale that the public importance of discouraging such prohibited transactions outweighs equitable considerations of possible injustice as between the parties. [citations omitted] However, the rule is not an inflexible one to be applied in its fullest rigor or under any and all circumstances. A wide range of exceptions has been recognized. [citations omitted] Where the public cannot be protected because the transaction has already been completed, no serious moral turpitude is involved, defendant is the one guilty of the ‘greatest moral fault,’ and defendant would be unjustly enriched at the expense of plaintiff if the rule were applied, the general rule should not be applied, [citation omitted] In such circumstances, equitable solutions have been fashioned to avoid unjus't enrichment to a defendant and a disproportionately harsh penalty upon the plaintiff, [citation omitted]”

Southfield v. Barrett, 13 Cal.App.3d 290, 294, 91 Cal.Rptr. 514, 516 (1970). See also Fomco, Inc. v. Joe Maggio, Inc., 8 Cal.Rptr. 459, 356 P.2d 203 (Cal.1960), vacated on other grounds, 55 Cal.2d 162, 10 Cal.Rptr. 462, 358 P.2d 918 (1961); Schloss v. Davis, 213 Md. 119, 131 A.2d 287 (1957). Second, at least two courts have allowed unlicensed plaintiffs to recover the reasonable value of their work, relying on equitable considerations presented by the facts. See Wood v. Black, 60 So.2d 15 (Fla.1952); Gatti v. Highland Park Builders, 27 Cal.2d 687, 166 P.2d 265 (1946); cf. Crawford v. Holcomb, 57 N.M. 691, 262 P.2d 782 (1953) (dictum). This alternative would not necessarily require an explicit exception to the Randall decision because there the Maine court did not consider the possibility of a restitutionary remedy. Thus, it is possible under Maine law that even if Ricker cannot recover on its contract with the Society, it could still recover in quantum meruit.

Of course, the fact that other jurisdictions have declined to enforce Randall-type rules in extreme situations such as the present one would not necessarily affect our interpretation of Maine law if the Maine court had expressed a desire to enforce Randall strictly in all situations. Instead, however, the Maine court itself has not precluded recovery on a contract for failure to possess a license since its decision in Black in 1901. Also, although Randall was cited with apparent approval relatively recently in Thacher Hotel and Lipman, supra, it is significant that the citations in both of these cases came as the court was distinguishing Randall, declining to extend its holding to newer fact situations. Thus, it is considerably uncertain whether the Maine court' would extend Randall to this case, and if not, which of the alternative approaches outlined above it might follow. In sum, Randall cannot, in our view, be deemed a clear precedent controlling the instant case.

In this situation the wisest course would be to certify the license issue to the Maine court for decision, pursuant to Me.Rev.Stats.Ann. tit. 4, § 57 (1973 Supp.) and Maine Rule of Civil Procedure. Therefore, in reversing the judgment and remanding for a new trial because of the hearsay error, we instruct the district court first to certify to the Supreme Judicial Court of Maine the question of whether Ricker’s failure to comply with the Maine statutes on victualer’s licenses and sanitation licenses bars its recovery of any. judgment against the Society either in contract or in quantum meruit. In so certifying, it may frame the question in such manner as it deems appropriate and should also ask any additional related questions it deems necessary in order to instruct the jury as to the applicable principles of Maine law. Hence it may wish to inquire whether and to what extent a Maine jury would be entitled to consider the lack of either license in determining whether there was substantial performance of any contract. Obviously, if the Maine court determines that recovery is barred on both grounds, then there will be no need for a new trial.

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

      . The Society is a nonprofit California corporation, the purpose of which is to spread the teachings of Maharishi Mahesh Yogi, an exponent of transcendental meditation. The Maharishi was also named as a defendant in Ricker’s complaint, but the district court directed a verdict in his favor at the close of Ricker’s evidence. Ricker does not appeal that decision.

      . There was no formal contract. Instead, the basic agreement was embodied in certain correspondence admitted into evidence. Some modifications were made subsequently and several others were disputed at trial.

      . This figure is taken from Ricker’s amended complaint. Initially, Ricker sought $76,899.-36.

      . Although this case was brought in the District Court for the District of Massachusetts, the parties agree that the law of Maine governs the substantive issues in the case. The contract was largely negotiated in Maine and wholly executed there.

      . The court further said:
      “I instruct you that it will be your duty, and your duty alone, from the evidence before you to determine whether or not the plaintiff was licensed and, if so, is he then entitled to be paid for any balance of the contract? If you find he was not Ii-censed and therefore he is not entitled to be recompensed you will find for the defendant or you would be warranted in finding for the defendant.” (Emphasis added.)

      . “The housekeepers or housemen who are in charge of each building, when they made their inspections, would let me know if every bed in that house was used or if there was some beds that were not being used. I believe they arrived at that by observing the beds and the bedding and by looking in the closet or in the bathroom to see if there were two toothbrushes or two different size shoes or different kind of clothes, and they would — when they made their three checks, they would say, ‘All beds are being used except’ and they would note the exception, that two beds, one not used, or three beds, one not used.”

      . Strictly speaking, it was double hearsay. Feldman’s entries themselves were a form of hearsay. The information from employees on which he based those entries was separate hearsay.

      . “§ 2751. License required
      No person shall be a common innkeeper, victualer or tavernkeeper without a license, under a penalty of not more than $50.”

      . “§ 2482. License; required
      No person, corporation, firm or copart-nership shall conduct, control, manage or operate, for compensation, directly or indirectly, any catering establishment, or establishments preparing foods for vending machines dispensing foods other than in original sealed packages, or any eating or lodging place, recreational or overnight camp, unless the same shall be licensed by the department.”
      Note that this statute requires a separate license for each building, while the victualer’s license is obtained by the individual operating such buildings.

      . Midway through the course, two of the seven buildings were inspected and received sanitation licenses. However, one of these licenses was made “conditional” because of health hazards found on the premises. The other buildings used by the .Society never had a license during the entire course.

      . The only difference was that the former statute omitted the words, “or tavernkeeper.” See n. 8 supra.

      . In Thacher Hotel, the court distinguished Randall in holding that a hotel-owner’s recovery on a management contract was not precluded by an alleged defect in compliance with a liquor-license statute. Similarly, in Lipman, the court distinguished Randall in holding that a poultry supplier’s recovery on a sales contract was not precluded by its failure to file a certificate required by statute. The Lipman court said of Randall: “[T]he decision is based on public policy and the prohibitory character of the statute.” 143 Me. at 274, 61 A.2d at 132. Speaking generally of the cases it was distinguishing, the court added, “The purpose of the statutes involved in these cases would be wholly thwarted unless the contracts were held void, and are not therefore decisive of the case at bar.” Id. at 274-275, 61 A.2d at 132. The citations of Randall in Donahue and Hinckley were largely collateral to the holdings in those cases.

      . .This assumes, of course, that the Randall decision on victualer’s licenses applies by analogy to sanitation licenses. The Maine court has never so held.

      . The precise amount at stake in the Black case, supra, is not stated. However, the insurance commissions there could hardly have amounted to the extremely large sums involved here.

      . The Gatti court stressed that plaintiff had “substantially complied” with the licensing requirement at issue there. In the instant case, at least with respect to the victualer’s license, it can be argued that Ricker substantially complied based on the fact that it had a valid license at the time it negotiated the contract with the Society. See Latipac, Inc. v. Superior Court, 64 Cal.2d 278, 49 Cal.Rptr. 676, 411 P.2d 564 (1966).

      . The considerations on when to certify recently set forth by the United States Supreme Court in Lehman Bros. v. Schein, 416 U.S. 386, 94 S.Ct. 1741, 40 L.Ed.2d 215 (Apr. 29, 1974) and by the Maine court in White v. Edgar, 320 A.2d 668 (Me.1974), fully support certification in the instant case.

      . Although several other issues were raised by the parties, we do not reach them in light of our disposition.


source: Caselaw Access Project

author: SNEED, Circuit Judge: ELY, Circuit Judge

license: Public Domain

text:
    UNION OIL COMPANY et al., Appellants, v. James J. OPPEN and John J. Masterson et al., Appellees.
    No. 72-2855.
    United States Court of Appeals, Ninth Circuit.
    June 7, 1974.
    Max K. Jamison (argued), Robert K. Wrede, Alfred T. Smith,-of McCutchen, Black, Verleger & Shea, Allyn O. Kreps, Girard E. Boudreau, Jr., Frank G. Ker, Richard H. Zahm, Douglas C. Gregg, George C. Bond, Sam A. Snyder, of O’Melveny & Myers, Walter O. Schell, Richard B. Goethals, Thomas J. Kelley, Jr., Miles W. Newby, Jr., B. J. Roose, of Schell & Delamer, Los Angeles, Cal., for appellants.
    James W. McCord (argued), Thomas M. Crehan, of Bodkin, Breslin & Luddy, Los Angeles, Cal., James J. Oppen (argued), Santa Barbara, Cal., Paul L. Tepper, of Moriarity & Tepper, North Hollywood, Cal., Ronald W. Cook, of Price, Postel & Parma, Santa Barbara, Cal., for appellees.
   OPINION

Before ELY and SNEED, Circuit Judges, and SOLOMON District Judge.

SNEED, Circuit Judge:

This is another case growing out of the Santa Barbara oil spill of 1969. The plaintiffs are commercial fishermen. Each of their complaints alleges that the cause of action has been brought under the provisions of the Outer Continental Shelf Lands Act of 1953, 43 U.S.C. § 1331 et seq.; that the defendants joined in an enterprise, the day-to-day operation of which was within the control and under the management of defendant'Union Oil Company, to drill for oil in the waters of the Santa Barbara Channel; that during the period commencing on or about January 28, 1969, vast quantities of raw crude oil were released and subsequently carried by wind, wave and tidal currents over vast stretches of the coastal waters of Southern California; and that as a consequence the plaintiffs have suffered various injuries for which damages are sought. Jurisdiction rests on 28 U.S.C. § 1333 and 43 U.S.C. § 1333(b).

On May 1, 1970, counsel for all parties to this suit entered into a Stipulation which was approved by the district court. This Stipulation, inter alia, provided for the consolidation of certain cases, attorneys’ fees, the use of special masters, the allocation of authority among counsel for the various plaintiffs with respect to control of any negotiations and the preservation of certain rights on behalf of both plaintiffs and defendants.

For the purposes of the present appeal, however, the most important provisions in this Stipulation are those which deal with the facts and with the extent to which the defendants have agreed to pay the plaintiffs for their damages. The relevant portion of the Stipulation relating to the facts reads as follows:

On or about January 28, 1969, oil began to escape under and near Union Oil Company of California’s Platform “A” located on the Outer Continental Shelf of the United States in the Santa Barbara Channel. The undersigned agree that the following is a fair statement of the facts with respect to the Santa Barbara Channel occurrence (hereinafter “occurrence”):
A. Certain operations conducted on Platform “A” resulted in the release of unascertained amounts of crude oil from the ocean floor underneath and near Platform “A”.
B. Such crude oil release was carried by natural forces of winds and tides to various areas of the ocean’s surface and towards and in some instances to the adjacent coast lines.
C. An unascertained amount of damage has resulted from said occurrence.

Paragraph 3 of the Stipulation, which sets out the defendants’ undertaking to pay damages, provides as follows:

In order to provide a basis for the disposition of the above referenced claims it is agreed by the undersigned defendants that they will pay to the above referenced persons and/or plaintiffs who are, or who by reason of subsequent joinder herein become, parties hereto, all legally compensable damages arising from a legally cognizable injury caused by the aforementioned occurrence as such damages are determined pursuant to the following provisions; provided however, that the payment assumed hereby will not exceed such amount and such claim as said defendants or their contractors would be responsiblue for in the case of negligence. Payment of said damages persuant hereto shall operate as an assignment of said claims to said defendants. No claim for punitive or exemplary damages shall be asserted and no such damages shall be awarded. (emphasis added).

In May of 1972, the defendants moved for partial summary judgment before the special masters to strike from plaintiffs’ prayers “that item of damage usually denominated as ‘ecological damage’.” More specifically, the defendants sought to eliminate from the prayers any element of damages consisting of profits lost as a result of the reduction in the commercial fishing potential of the Santa Barbara Channel which may have been caused by the occurrence. According to the defendants, such long-term ecological damage is not compensa-ble under the law and thus is not within their undertaking as set forth in the Stipulation.

The motion was denied by the special masters in a brief order which recognized that injuries resulting from “an interference by defendants with [plaintiffs’] economic right to fish in public waters” were legally compensable. The defendants then went into district court to object to this order, and again moved for a partial summary judgment.

Once more the motion was denied. In his order the district judge first observed that paragraph 3 of the Stipulation, although carefully phrased, had the practical effect of a confession of liability for tort negligence. Continuing, the judge accepted the defendants’ statement of the issue, viz:

Does the alleged diminution of the aquatic life of the Santa Barbara Channel claimed to have resulted from the occurrence constitute a legally compensable injury to the Commercial Fishermen claimants?

The district judge then went on to hold that such a question must be answered in the affirmative. This result, he pointed out, is in no way dependent on whether the plaintiffs have a proprietary interest in, or ownership of, the sea life in the Santa Barbara Channel. As the district judge saw it, “the loss of a prospective economic advantage occasioned by the alleged diminishment of the quantities of available sea life formed a sufficient basis for the recovery under the law of negligence.”

The district judge certified the order as a proper subject for an interlocutory appeal, and the defendants petitioned this Court for leave to appeal under 28 U.S.C. § 1292(b). The petition was granted, and the issue now before us is whether the district court properly denied the defendants’ motion. We hold that the district court properly interpreted paragraph 3 of the Stipulation, and that its action in denying the defendants’ motion was proper.

I.

The Applicable Law

Determination of the proper law by which the defendants’ motion for partial summary judgment is to be judged turns out to be analytically complex ‘but less significant functionally than one-would have imagined. As the plaintiffs assert in their complaints, these cases are brought under the Outer Continental Shelf Lands Act (“Lands Act”), 43 U.S. C. § 1331 et seq. Pursuant to Section 1333(a)(1) of this Act, federal law is made applicable “to the subsoil and seabed of the Outer Continental Shelf and to all artificial islands and fixed structures which may be erected thereon. . . .” However, as the Supreme Court has pointed out in Rod-rigue v. Aetna Casualty Company, 395 U.S. 352, 365, 89 S.Ct. 1835, 23 L.Ed.2d 360 (1969), state law is adopted as a surrogate for federal law under the Act to the extent that such state law is “applicable and not inconsistent with other Federal laws.” See 43 U.S.C. § 1333(a)(2). Thus, when applied in the context of the Act, state law becomes federal law federally enforced. 395 U.S. at 365, 89 S.Ct. 1835.

It is apparent from the briefs of the parties that their analysis did not advance beyond the point of concluding that, since there appeared to be no inconsistent federal law, the law of California was controlling. However, this Court’s opinion in Oppen v. Aetna Insurance Company, 485 F.2d 252 (9th Cir., 1973), makes clear that the parties’ analysis is not necessarily determinative of the issue before us. There remains yet a third possibility — i. e. that admiralty law is exclusively applicable to the present controversy. As was said in Aetna Insurance, the Lands Act does not eliminate this possibility.

The Supreme Court in Executive Jet Aviation, Inc. v. City of Cleveland, 409 U.S. 249, 93 S.Ct. 493, 34 L.Ed.2d 454 (1972), has instructed us that the determination of whether the admiralty jurisdiction of the federal courts embraces a tortious act depends, not only on the place of the tort, but also on whether the wrong bears a significant relationship to a traditional maritime activity. Id. at 268, 93 S.Ct. 493. Acting on this instruction, this Court in Aetna Insurance hqld that an injury to maritime vessels and an interference with their right of navigation, resulting from the same oil spill which is involved here, constituted a maritime tort cognizable in admiralty. In so holding, it was reeog-nized that the “activity” whose relationship to traditional maritime activity was to be examined was that of the injured party, not that of the tortfeasor. For this reason, the fact that drilling for oil from fixed platforms located over the outer Continental Shelf is not in itself a traditional maritime activity was held not to constitute a basis for refusing to classify the wrong as a maritime tort.

It follows that in order to determine the applicability of admiralty law to the facts of this case, it is necessary to inquire whether a reduction in plaintiffs’ anticipated profits, caused by what for present purposes we must assume to be the negligent conduct of the defendants, bears a significant relationship to traditional maritime activity. Were it necessary for this issue to be decided to dispose of this case, our inclination would be to hold that such a relationship does exist. In numerous ways, the fishing industry is clearly a part of traditional maritime activity; and to assert otherwise would amount to a repudiation of much of maritime history. For example, fishermen have been treated as seamen for purposes of enforcing their rights against the fishing vessel and its owner; see e. g., Old Point Fish Company v. Haywood, 109 F.2d 703 (4th Cir., 1940) ; The Z R-3, 18 F.2d 122 (W.D. Wash.1927). See also 46 U.S.C. §§ 531-534; Gilmore and Black, The Law of Admiralty 257 (1957) (hereinafter cited as Gilmore and Black); Robinson, Admiralty 281 (1939); and the vessels themselves have been the object of federal legislation designed to afford their owners many of the benefits which the law otherwise provides to maritime vessels generally. See, e. g., 46 U.S.C. § 922 (The Ship Mortgage Act).

Our preference for maritime law as the law by which the defendants’ motion for partial summary judgment is to be measured is strengthened when Section 1333(a)(2) of the Lands Act is closely examined. The use of state law as a surrogate for federal law is limited to “that portion of the subsoil and seabed of the outer Continental Shelf, and artificial islands and fixed structures erected thereon, which would be within the area of the State if its boundaries were extended seaward to the outer margin of the outer Continental Shelf . ” (emphasis added). 43 U.S.C. § 1333(a) (2). The sea, as such, is not mentioned in the Act; nor in our view was it intended to be. Quite understandably state law, which can intrude only to a limited extent in matters traditionally subject to admiralty jurisdiction, see Askew v. American Waterways Operators, Inc., 411 U.S. 325, 93 S.Ct. 1590, 36 L.Ed.2d 280 (1973); Skiriotes v. Florida, 313 U.S. 69, 76-77, 61 S.Ct. 924, 85 L.Ed. 1193 (1941); Manchester v. Massachusetts, 139 U.S. 240, 11 S.Ct. 559, 35 L.Ed. 159 (1891), was not intended to embrace traditional maritime activity.

As the Supreme Court in Rodrigue v. Aetna Casualty Company, supra, has indicated, in enacting the Lands Act Congress chose to treat drilling platforms as artificial islands rather than as ships subject to admiralty jurisdiction in order to afford the workers on such islands the protections to which they would otherwise be entitled by reason of their citizenship in the adjacent states —subject, of course, to federal enforcement and the power of the federal government to make inconsistent laws and regulations. However, in order to serve this purpose, it is not necessary for us to read the Act as requiring that state law be treated as federal law for purposes of determining the consequences of torts which occur in and on the sea, and which have the required nexus with traditional maritime activity. Thus, it would appear that an injury which occurs in the sea, as is the case here, should not be held to be properly cognizable under the provisions of the Lands Act.

We are, however, not driven to the choice between maritime law and the law of California. So far as our research reveals, neither forum has made a definitive ruling on the precise issue before us. As a consequence, it has become necessary for us to examine a fairly large body of authorities, drawn from numerous jurisdictions and secondary sources, in order to reach what we regard as the proper resolution of this dispute. In that the same authorities and sources must be examined and evaluated without regard to whether this process is characterized as an examination of admiralty law or the law of California, we are convinced that under either body of law the actions of the special masters and the district judge in denying the defendants’ motion for partial summary judgment were correct.

Moreover, maritime law itself frequently looks to both the statutory and decisional law of the states for sources from which to fashion its principles. See Moragne v. States Marine Lines, Inc., 398 U.S. 375, 90 S.Ct. 1772, 26 L.Ed.2d 339 (1970) (new maritime cause of action for wrongful death to be implemented by reference to other federal law and state statutory and decisional law); Shutler, Pollution of the Sea By Oil, 7 Houston L.Rev. 415, 434 (1970); Comment, Oil Pollution of the Sea, 10 Harv.Int.L.J. 316, 347 (1969). Although in some instances this derivative assistance may entail the application of state law principles, unlike our diversity jurisdiction there is no requirement — albeit some scholars have suggested such a course for certain areas in admiralty— that state law be adopted. See Robertson, Admiralty and Federalism 194-201 (1970) and the authorities cited therein.

In any event, we shall proceed in a manner that we believe is faithful to the spirit of California tort law in disposing of the issue before us. For this reason we are content to say that for purposes of this case we regard it as irrelevant whether our efforts are designated as an exposition of admiralty law or the law of California.

II.

Recovery for Pure Economic Loss in Negligence: The General Rule.

Defendants support their motion for partial summary judgment by pointing to the widely recognized principle that no cause of action lies against a defendant whose negligence prevents the plaintiff from obtaining a prospective pecuniary advantage. See, e. g., Prosser, Law of Torts 952 (4th ed. 1971) (hereinafter Prosser); Harvey, Economic Losses and Negligence, 50 Can.Bar Rev. 580 (1972); Note, 49 Can.Bar Rev. 619 (1971) ; Note, Negligence and Economic Loss, 117 The Solicitors’ Jour. 255 (1971); Note, Negligent Interference with Economic Expectancy: The Case for Recovery, 16 Stan.L.Rev. 664 (1964). See also Restatement (Second) of Torts, Tent.Draft No. 14, § 766B. As the defendants see it, any diminution of the sea life in the Santa Barbara Channel caused by the occurence, which, it must be remembered, is attributable to the defendants’ negligence by reason of the parties’ Stipulation, consists of no more than the loss of an economic advantage which is not a “legally cognizable injury” and thus not “legally compensable.”

Their argument has strength. It rests upon the proposition that a contrary rule, which would allow compensation for all losses of economic advantages caused by defendant’s negligence, would subject the defendant to claims based upon remote and speculative injuries which he could not foresee in any practical sense of the term. Accordingly, in some cases it has been stated as the general rule that the negligent defendant owes no duty to plaintiffs seeking compensation for such injuries. In other of the cases, the courts have invoked the doctrine of proximate cause to reach the same result; and in yet a third class of cases the “remoteness” of the economic loss is relied upon directly to deny recovery. The consequence of these cases is that a defendant is normally relieved of the burden to defend against such claims, and the courts of a class of cases the resolution of which is particularly difficult.

The general rule has been applied in a wide variety of situations. Thus, the negligent destruction of a bridge connecting the mainland with an island, which caused a loss of business to the plaintiff who was a merchant on the island, has been held not to be actionable. Rickards v. Sun Oil Company, 41 A.2d 267, 23 N.J.Misc. 89 (1945). A plaintiff engaged in commercial printing has been held unable to recover against a negligent contractor who, while engaged in excavation pursuant to a contract with a third party, cut the power line upon which the plaintiff’s presses depended. Byrd v. English, 117 Ga. 191, 43 S.E. 419 (1903); contra, J. W. Moore (North Shields) Ltd. v. Sharp, 108 Sol.J. 453 (1964). But see S. C. M. (U. K.) v. W. J. Whittall & Sons, Ld., [1970] 3 All E. R. 245; Seaway Hotels Ltd. v. Gragg, [1959] Ont. 177, 17 D.L.R.2d 292 (High Ct.), aff’d [1959] Ont. 581, 21 D.L.R.2d 264 (Ct.App.1960). A defendant who negligently injures a third person entitled to life-care medical services by the plaintiff is liable to the third person but not to the plaintiff. Fifield Manor v. Finston, 54 Cal.2d 632, 7 Cal.Rptr 377, 354 P.2d 1073 (1960) (subrogation also denied because third party’s claim riot assignable). The operators of a dry dock are not liable in admiralty to charterers of a ship, placed by its owners in the dry dock, for negligent injury to the ship’s propeller where the injury deprived the charterer of the use of the ship. Robins Dry Dock & Repair Company v. Flint, 275 U.S. 303, 48 S.Ct. 134, 72 L.Ed. 290 (1927). Mr. Justice Holmes, in writing this opinion, observed that “. . . a tort to the person or property of one man does not make the tort-feasor liable to another merely because the injured person was under a contract with that other, unknown to the doer of the wrong.” 275 U.S. at 309, 48 S.Ct. at 135.

The citation of cases applying the general rule could be extended, but this abridged collection is sufficient to emphasize the point that it operates in a wide variety of settings. For purposes of our analysis, however, one further setting in which the rule has been applied requires mention — that being the area of the law dealing with products liability. In this area, the issue is usually couched in terms of whether a purchaser can recover in tort from a negligent manufacturer, with whom the purchaser is not in privity, for economic losses caused by the failure of the purchased article to perform in accordance with the purchaser’s reasonable expectations. Defendants in the present action rely heavily on California cases which indicate that no such recovery is possible.

In Seely v. White Motor Company, 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965), for example, the plaintiff, who had purchased a truck for use in his business, sought to recover from the manufacturer damages representing both the cost of repairs and lost profits attributable to defects in the performance of the truck as well as that portion of the purchase price which he had previously paid. The manufacturer had expressly warranted the truck “to be free from defects in material and workmanship under normal use and service” and had limited its liability thereunder “to making good at its factory any part or parts thereof. . . . ” The trial court permitted a recovery of the lost profits and the previously paid portion of the purchase price, but denied recovery for the cost of repairs. On appeal, the manufacturer contended that the damage award allowed by the trial court had exceeded that permissible under the theory of strict liability in tort, which theory had superseded the law of warranty in California by reason of Greenman v. Yuba Power Products, Inc., 59 Cal.2d 57, 27 Cal.Rtpr. 697, 377 P.2d 897 (1962).

The Supreme Court of California held that the abandonment of warranty did not extend to the commerical aspects of a transaction. As to those aspects, it was held that recovery must be based on the principles of warranty law and not on strict liability in tort. Inasmuch as the defendant in Seely had warranted that the truck was “free from defects in material and workmanship under normal use and service,” the damages allowed by the trial court were held to have been proper. This was true, observed the court, even though they would not have been had the doctrine of strict liability in tort been applicable. The court’s observation was bolstered by dictum, upon which the defendants in this case place great reliance, which stated that under California law pure economic losses are not recoverable in an action based on negligence. The dictum consists of the following statement:

A consumer should not be charged at the will of the manufacturer with bearing the risk of physical injury when he buys a product on the market. . . . Even in actions for negligence, a manufacturer’s liability is limited to damages for physical injuries and there is no recovery for economic loss alone.

63 Cal.2d at 18, 45 Cal.Rptr. at 23, 403 P.2d at 151. (emphasis added).

Two things should be said concerning the court’s reference to the scope of liability in negligence. The first is that it must be understood as having been made in the context of an unavoidable undertaking to fix the spheres in the field of products liability within which warranties and strict liability were to operate. Too much should not be made of a restraint imposed on the scope of liability for negligence when it has been developed for the purpose of preserving an area within which warranties can function. The second is that this restraint has been cogently criticized as being unnecessary to an appropriate accommodation of warranty and tort liability. See Franklin, When Worlds Collide : Liability Theories and Disclaimers in Defective Product Cases, 18 Stan.L. Rev. 974, 1002-03 (1966). The recovery of economic losses sustained by an ultimate consumer, even absent privity with a negligent manufacturer, may or may not be desirable; but its allowance, in any event, would not make warranty principles redundant.

III.

Some Exceptions to the General Rule.

Doubt concerning the scope of Seely dictum is strengthened when the numerous exceptions or qualifications to the general rule are considered.

Prosser recognizes that a recovery for pure economic losses in negligence has been permitted in instances in which there exists “some special relation between the parties.” Prosser at 952. The failure of the plaintiff to obtain a contract because of a telegraph company’s negligent transmission of a message has been held to be legally cognizable, and is cited as an example of the “special relationship” qualification. Id., at 952, n. 79. See also McQuilkin v. Postal Telegraph Cable Company, 27 Cal.App. 698, 151 P. 21 (1915) (injury from lost advantageous contract must not be remote and uncertain). Other examples which have been cited are the negligent failure to perform a gratuitous promise to obtain insurance, and the negligent delay in acting upon an application for insurance. See Prosser, at 952, n. 80, 81.

A more recent development in California law involves the right to recover, absent privity, from a defendant whose negligent failure to obtain a proper attestation of the will of a third party has deprived the plaintiff of a bequest which had been granted in the improperly attested will. Biakanja v. Irving, 49 Cal.2d 647, 320 P.2d 16 (1958). On appeal to the Supreme Court of California, the plaintiff’s pure economic loss was held to be a legally cognizable injury, a position which has been subsequently reaffirmed in Lucas v. Hamm, 56 Cal.2d 583, 15 Cal.Rptr. 821, 364 P.2d 685 (1961) (recovery denied because of the absence of negligence).

The approach adopted by the California Supreme Court in Biakanja is particularly instructive. After stating that the question before it was “whether defendant was under a duty to exercise due care to protect plaintiff from injury and was liable for damages caused plaintiff by his negligence even though they were not in privity of contract,” the court stated:

The determination whether in a specific case the defendant will be held liable to a third person not in privity is a matter of policy and involves the balancing of various factors, among which are the extent to which the transaction was intended to affect the plaintiff, the foreseeability of harm to him, the degree of certainty that the plaintiff suffered injury, the closeness of the connection between the defendant’s conduct and the injury suffered, the moral blame attached to the defendant’s conduct, and the policy of preventing future harm.

49 Cal.2d at 650, 320 P.2d at 19 (1958). It is thus obvious that California does not blindly follow the general rule upon which the defendants here rely.

It is but a short step from these two California cases to a body of law existing both in this country and in the British Commonwealth in which defendants engaged in certain professions, businesses, or trades have been held liable for economic losses resulting from the negligent performance of tasks within the course of their callings. One Commonwealth scholar has stated that “in a proper • case a person may recover economic loss caused by the negligence of persons such as bankers, commission agents, real estate agents, accountants, surveyors, valuers, analysts, insurance brokers, stock brokers, government employees, doctors, architects, car salesmen who undertake to have cars insured, car testers, and drawers of cheques.” Harvey, Economic Losses and Negligence, 50 Can.Bar Rev. 580, 603-04 (1972). See also, Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A. C. 465.

The American cases reflect a similar development. There are numerous cases indicating that economic losses may be recovered for the negligence of pension consultants, accountants, architects, attorneys, notaries public, test hole drillers, title abstractors, termite inspectors, soil engineers, surveyors, real estate brokers, drawers of checks, directors of corporations, trustees, bailees and public weighers.

Recovery for pure economic loss legally attributable to the defendant’s negligence has also been recognized in traditional maritime settings. Thus, fishermen in Scotland who worked under a profit-sharing arrangement with the owner of a trawler damaged by the defendant’s negligence have been permitted to recover their portion of the anticipated profits of the fishing venture even though they suffered no physical injury. Main v. Leask [1910] S.C. 771 (Ct. of Session). More important, however, is the fact that this Circuit has reached precisely the same conclusion in an admiralty proceeding. Carbone v. Ursich, The Del Rio, 209 F.2d 178 (9th Cir., 1953). In so doing, we refused to apply the teaching of Robins Dry Dock and Repair Company v. Flint, supra, to the situation with which the fishermen were confronted, and observed:

This long recognized rule [the right of fishermen to recover .their share of the prospective catch] is no doubt a manifestation of the familar principle that seamen are the favorites of admiralty and their economic interests entitled to the fullest possible legal protection. These considerations have given rise to a special right comparable to that of a master to sue for the loss of services of his servant, or the right of a husband or father to sue for the loss of services of wife or child.

209 F.2d at 182.

Another instance in which a claim for economic loss, unaccompanied by any physical injury to the person or property of the claimant, has been recognized under admiralty law is illustrated by Aktieselskabet Cuzco v. The Sucarseco, 294 U.S. 394, 55 S.Ct. 467, 79 L.Ed. 942 (1935). The issue before the Court in that case was whether the owners of cargo, shipped on a vessel which ultimately collided with defendant’s vessel, could recover for their general average contribution when both vessels were at fault and both were damaged. The Supreme Court held in the affirmative. Although the cargo was physically damaged by the collision, this fact appears to have had no bearing on the Court’s resolution of the issue. Rather, the Court recognized that the right of the cargo owners to have their general average contribution restored sprang directly from the tort and was in no sense derivative or’ parasitically dependent upon the presence of a physical injury.

The right to recover for economic losses which are parasitic to an injury occurring to person or property is not questioned. See e. g., Reynolds v. Bank of American National Trust and Savings Association, 53 Cal.2d 49, 345 P.2d 926 (1959) (loss of use of airplane destroyed by defendant’s negligence held to be recoverable). Furthermore, this is the case even though frequently the magnitude of the economic loss so far overshadows that of the physical injury as to warrant the assertion that the general rule, barring recovery absent a physical injury, is but a formalism. See Harvey, supra at 585, 594-95.

This much abridged catalogue of exceptions and qualifications to the general rule can be brought to a close for purposes of our analysis by calling attention to several cases in which pollution of a stream has enabled one whose business is injured thereby to recover his lost profits. For example, in Fort Worth & Rio Grande Railway Company v. Hancock, 286 S.W. 335 (Tex.Civ.App.1926) the plaintiff, who operated a swimming pool in the channel of a river, was permitted to recover lost profits which had resulted from the defendant’s negligent pollution of the river. Similarly, downstream riparian owners, engaged in operating a business dependent upon fishing, have been permitted to recover for the injury to their business caused by the pollution of the stream. See Masonite Corporation v. Steede, 198 Miss. 530, 547, 23 So.2d 756 (1945); Hampton v. North Carolina Pulp Company, 223 N.C. 535, 27 S.E.2d 538 (1943). It should be noted that in each of these cases the plaintiff was a riparian owner, and in the latter two there was no indication that the defendant’s conduct was merely negligent and not intentional. However, in neither Masonite nor Hampton does there appear any recognition that mere negligence would have absolved the defendants. Both assumed the existence of a nuisance which could well have rested upon the defendants’ negligent conduct. See Prosser at 575.

Moreover, the plaintiffs’ status as ri-parians does not make improper the classification of these cases as exceptions to, or qualifications of, the general rule which is relied upon by the defendants. in the present action. The injury for which damages were sought in each case was the loss of anticipated profits —a pure economic loss as that term is normally understood. To permit ripari-anship to transmute this loss into an ordinary property loss for the purpose of allowing recovery does no harm. However, harm would be done if the fact that the plaintiffs in this case are not riparian owners was held to deprive them of the comfort these authorities provide.

IV.

The Instant Action.

It is thus apparent that we are not forclosed by precedent from examining on its merits the issue presented by the defendants’ motion for partial summary judgment. As we see it, the issue is whether the defendants owed a duty to the plaintiffs, commercial fishermen, to refrain from negligent conduct in their drilling operations, which conduct reasonably and foreseeably could have been anticipated to cause a diminution of the aquatic life in the Santa Barbara Channel area and thus cause injury to the plaintiffs’ business.

In finding that such a duty exists, we are influenced by the manner in which the Supreme Court of California has approached the duty issue in tort law. In holding that the mother of a child, killed by the defendant’s negligent operation of an automobile, could recover for emotional disturbance and shock even though she was not within the zone of physical impact, the court in Dillon v. Legg, 68 Cal.2d 728, 69 Cal.Rptr. 72, 441 P.2d 912 (1968) stated that:

Defendant owes a duty, in the sense of a potential liability for damages, only with respect to those risks or hazards whose likelihood made the conduct unreasonably dangerous, and hence negligent, in the first instance. (See Keeton, Legal Cause in the Law of Torts (1963) 18-20; Seavey, Mr. Justice Cardozo and the Law of Torts (1939) 52 Harv.L.Rev. 372; Seavey, Principles of Torts (1942) 56 Harv.L. Rev. 72.)
Harper and James state the prevailing view. The obligation turns on whether ‘the offending conduct fore-seeably involved unreasonably great risk of harm to the interests of someone other than the actor. [T]he obligation to refrain from particular conduct is owed only to those who are foreseeably endangered by the conduct and only with respect to those risks or hazards whose likelihood made the conduct unreasonably dangerous. Duty, in other words, is measured by the scope of the risk which negligent conduct foreseea-bly entails.’ (2 Harper & James, The Law of Torts, supra, at p. 1018; fns. omitted.)
* * * * * *
Since the chief element in determining whether defendant owes a duty or an obligation to plaintiff is the foreseeability of the risk, that factor will be of prime concern in every case. Because it is inherently intertwined with foreseeability such duty or obligation must necessarily be adjudicated only upon a case-by-case basis.

68 Cal.2d at 739-740, 69 Cal.Rptr. at 79, 441 P.2d at 919-920.

While it is true that the earlier decision of the California Supreme Court in Biakanja does not accord “foreseeability of the risk” the commanding position which it was afforded in Dillon v. Legg, we can not escape the conclusion that under California law the presence of a duty on the part of the defendants in this case would turn substantially on foreseeability. That being the crucial determinant, the question must be asked whether the defendants could reasonably have foreseen that negligently conducted drilling operations might diminish aquatic life and thus injure the business of commercial fishermen. We believe the answer is yes. The dangers of pollution were and are known even by school children. The defendants understood the risks of their business and should reasonably have foreseen the scope of its responsibilities. To assert that the defendants were unable to foresee that negligent conduct resulting in a substantial oil spill could diminish aquatic life and thus injure the plaintiffs is to suppose a degree of general ignorance of the effects of oil pollution not in accord with good sense.

An examination of the other factors mentioned in Biakanja only strengthens our conclusion that the defendants in this case owed a duty to the plaintiffs. Thus, the fact that the injury flows directly from the action of escaping oil on the life in the sea, Askew v. American Waterways Operators, Inc., 411 U.S. at 333 n. 5, 93 S.Ct. 1590, the public’s deep disapproval of injuries to the environment and the strong policy of preventing such injuries, all point to existence of a required duty.

The same conclusion is reached when the issue before us is approached from the standpoint of economics. Recently a number of scholars have suggested that liability for losses occasioned by torts should be apportioned in a manner that will best contribute to the achievement of 9 an optimum allocation of resources. See e. g., Calabresi, The Cost of Accidents, 69-73 (1970) (hereinafter Calabresi); Coase, The Problem of Social Cost, 3 J. Law & Econ. 1 (1960). This optimism, in theory, would be that which would be achieved by a perfect market system. In determining whether the cost of an accident should be borne by the injured party or be shifted, in whole or in part, this approach requires the court to fix the identity of the party who can avoid the costs most cheaply. Once fixed, this determination then controls liability.

It turns out, however, that fixing the identity of the best or cheapest cost-avoider is more difficult than might be imagined. In order to facilitate this determination, Calabresi suggests several helpful guidelines. The first of these would require a rough calculation designed to exclude as potential cost-avoid-ers those groups/activities which could avoid accident costs only at an extremely high expense. Calabresi at 140-43. While not easy to apply in any concrete sense, this guideline does suggest that the imposition of oil spill costs directly upon such groups as the consumers of staple groceries is not a sensible solution. Under this guideline, potential liability becomes resolved into a choice between, on an ultimate level, the consumers of fish and those of products derived from the defendants’ total operations.

To refine this choice, Calabresi goes on to provide additional guidelines which, in this instance, have proven none too helpful. For example, he suggests an evaluation of the administrative costs which each party would be forced to bear in order to avoid the accident costs. Calabresi at 143-44. He also states that an attempt should be made to avoid an allocation which will impose some costs on those groups or activities which neither consume fish nor utilize those products of the defendants derived from their operations in the Santa Barbara Channel. Calabresi at 144-50. On the record before us, we have no way of evaluating the relative administrative costs involved. However, we do recognize that it is probable that by imposing liability on the defendants some portion of the accident costs in this case may be borne by those who neither eat fish nor use the petroleum products derived from the* defendants’ operations in Santa Barbara.

Calabresi’s final guideline, however, unmistakably points to the defendants as the best cost-avoider. Under this guideline, the loss should be allocated to that party who can best correct any error in allocation, if such there be, by acquiring the activity to which the party has been made liable. Calabresi at 150-52. The capacity “to buy out” the plaintiffs if the burden is too great is, in essence, the real focus of Calabresi’s approach. On this basis there is no contest — the defendants’ capacity is superior.

Our holding that the defendants are under a duty to commercial fisherman to conduct their drilling and production in a reasonably prudent manner so as to avoid the negligent diminution of aquatic life is not foreclosed by the fact that the defendants’ negligence could constitute a public nuisance under California law. Contrary to the situation that existed in Oppen v. Aetna Insurance Company, supra, in which we held that an interference with the public’s right of navigation in the navigable waters of California did not vest a private cause of action in those who lost the use of their private pleasure craft, in the case now before us the plaintiffs assert an injury to their commercial enterprises, not to their “occasional Sunday piscatorial pleasure.” Id. at 260. The right of commercial fishermen to recover for injuries to their businesses caused by pollution of public waters has been recognized on numerous occasions. See Masonite Corporation v. Steede, supra; Hampton v. North Carolina Pulp Company, supra; Prosser, Private Action for Public Nuisance, 52 Va.L.Rev. 997, 1013-16 (1966). The injury here asserted by the plaintiff is a pecuniary loss of a particular and special nature, limited to the class of commercial fishermen which they represent.

This injury must, of course, be established in the proceedings that will follow this appeal. To do this it must be shown that the oil spill did in fact diminish aquatic life, and that this diminution reduced the profits the plaintiffs would have realized from their commercial fishing in the absence of the spill. This reduction of profits must be established with certainty and must not be remote, speculative or conjectural. See McCormick, Damages, 97-101 (1935). These are not small burdens, nor can they be eased by our abhorrence of massive oil spills. All that we do here is to permit the plaintiffs to attempt to prove their case, and to reject the idea urged upon us by the defendants that a barrier to such an effort exists in the form of the rule that negligent interference with an economic advantage is not actionable.

Finally, it must be understood that our holding in this case does not open the door to claims that may be asserted by those, other than commercial fishermen-, whose economic or personal affairs were discommoded by the oil spill of January 28, 1969. The general rule urged upon us by defendants has a legitimate sphere within which to operate. Nothing said in this opinion is intended to suggest, for example, that every decline in the general commercial activity of every business in the Santa Barbara area following the occurrences of 1969 constitutes a legally cognizable injury for which the defendants may be responsible. The plaintiffs in the present action lawfully and directly make use of a resource of the sea, viz. its fish, in the ordinary course of their business. This type of use is entitled to protection from negligent conduct by the defendants in their drilling operations. Both the plaintiffs and defendants conduct their business operations away from land and in, on and under the sea. Both must carry on their commercial enterprises in a reasonably prudent manner. Neither should be permitted negligently to inflict commercial injury on the other. We decide no more than this.

Affirmed.

ELY, Circuit Judge

(concurring):

I concur in the result. Since, however, the written briefs filed by the parties contain no discussion of admiralty law, I conclude that all of the parties believed that, under their stipulation, thé controversy would be resolvgd by application of California’s law relating to torts. I therefore disassociate myself from that portion of my Brother Sneed’s opinion which deals with the law of admiralty. I view those comments as constituting dictum unnecessary to our disposition of the appeal.

       Honorable Gus J. Solomon, Senior United States District Judge, District of Oregon, sitting by designation.

      . The practice of “working on a lay” — - i. e. sharing the proceeds of a catch — does cause the rights of fishermen to be distinguishable in certain respects from those of other seamen, who generally work for wages. One example of this would be the vulnerability of the lay to maritime liens of suppliers. See Gilmore and Black at 558 n. 209. However, these differences, in our view, are not sufficient to remove the activities of such fishermen from traditional maritime activity.

      . The purpose of the Act was to promote private investment in shipping as well as to protect the United States, which was the principal source of credit in the post-World War I period. See generally Gilmore and Black at 568-92. See also Canfield, The Ship Mortgage Act of 1920, 22 Mich.L.Rev. 10 (1923). Prior to 1935, the coverage of the Ship Mortgage Act, 46 U.S.C. § 911 et seq. was such that its coverage excluded “practically the entire commercial fishing fleet.” Gilmore and Black supra at 575. As amended, however, it permitted the inclusion of fishing vessels subject to certain general limitations. Act of June 27, 1935, C. 319, 49 Stat. 424 ; 46 U.S.O. § 922.

      . We decline to reach the issue of whether defendants’ oil drilling operations constitute an “ultrahazardous activity” and express no opinion as to the applicability of this doctrine to the facts presently before us.

      . See, e. g., The Federal No. 2, 21 F.2d 313 (2d Cir., 1927) ; Chelsea Moving & Trucking Co. v. Ross Towboat Co., 280 Mass. 282, 182 N.E. 477 (1932) ; Byrd v. English, 117 Ga. 191, 43 S.E. 419 (1903) ; Brink v. Wabash R. R., 160 Mo. 87, 60 S.W. 1058 (1901) ; Attorney General for New South Wales v. Perpetual Trustee Co., 85 Commw.L.R. 237, 286 (K.B.1951) (Austr.).

      . See, e. g., The Federal 2, supra note 4; Chelsea Moving & Trucking Co. v. Ross Towboat Co., supra note 4; Byrd v. English, supra note 4; La Societe Anonyme de Remorguage a Helice v. Bennetts [1911] 1 K.B. 243 (1910) ; Cattle v. Stockton Waterworks Co., L.R. 10 Q.B. 453 (1875).

      . See, e. g., Northern States Contracting Co. v. Oakes, 191 Minn. 88, 253 N.W. 371 (1934). For a discussion of this area, see particularly Note, Negligent Interference with Economic Expectancy: The Case for Recovery, supra at 674 — 75.

      . In Oreenman, the California Supreme Court held that a consumer, not in privity with the manufacturer of a defective product, could not recover under a theory based on breach of warranty for personal injuries which he had sustained as a result of the product’s malfunction. In its opinion, the court indicated that such damages were cognizable under strict liability in tort, and in doing so stated that:
      . . . rules defining and governing warranties that were developed to meet the needs of commercial transactions cannot properly be invoked to govern the manufacturer’s liability to those injured by their defective products unless those rules also serve the purposes for which such liability is imposed.
      59 Cal.2d at 63, 27 Cal.Rptr. at 701, 377 P.2d at 901.

      . The dictum of the California Supreme Court in Seely, quoted above, has been applied by this Court to deny recovery in the products liability setting where the plaintiff has brought an action in negligence rather than under a theory of strict liability. See Bright v. Goodyear Tire & Rubber Co., 463 F.2d 240 (9 Cir. 1972). While our opinion does contain language sufficiently broad to suggest that the Seely distinction between warranty and tort recovery may be applicable beyond this setting, we are of the view that such a reading unduly expands our decision in that case. For the reasons outlined in the text, we therefore decline to so apply it.

      . Gediman v. Anheuser Busch, Inc., 299 F.2d 537 (2nd Cir., 1962) (pension consultant) ; Rusch Factors, Inc. v. Levin, 284 F.Supp. 85 (D.C.R.I.1968) (accountant) ; United States v. Rogers & Rogers, 161 F.Supp. 132 (S.D.Cal.1958) (architect) ; Lucas v. Hamm, 56 Cal.2d 583, 15 Cal.Rptr. 821, 364 P.2d 685, cert. denied, 368 U.S. 987, 82 S.Ct. 603, 7 L.Ed.2d 525 (1962) (attorney) ; Biakanja v. Irving, 49 Cal.2d 647, 320 P.2d 16 (1958) (notary public) ; Gagne v. Bertran, 43 Cal.2d 481, 275 P.2d 15 (1954) (test hole driller) ; Northwestern Title Ins. Co. v. Flack, 6 Cal.App.3d 134, 85 Cal.Rptr. 693 (1970) (title abstractor) ; Viotti v. Giomi, 230 Cal.App.2d 730, 41 Cal.Rptr. 345 (1964) (title abstractor) ; Hardy v. Carmichael, 207 Cal.App.2d 218, 24 Cal.Rptr. 475 (1962) (termite inspector) ; M. Miller Co. v. Central Contra Costa Sanitary Dist., 198 Cal.App.2d 305, 18 Cal.Rptr. 13 (1961) (soil engineer) ; Roberts v. Karr, 178 Cal.App.2d 535, 3 Cal.Rptr. 98 (1960) (surveyor) ; Granberg v. Turnham, 166 Cal.App.2d 390, 333 P.2d 423 (1958) (real estate broker) ; Hawkins v. Oakland Title Ins. & Guar. Co., 165 Cal.App.2d 116, 331 P.2d 742 (1958) (title abstractor) ; Park State Bank v. Arena Auto Auction, Inc., 59 Ill.App.2d 235, 207 N.E.2d 158 (1965) (drawer of check) ; Ryan v. Kanne, 170 N.W.2d 395 (Iowa 1969) (accountant) ; Shatterproof Glass Corp. v. James, 466 S.W.2d 873, 46 A.L.R.3d 968 (Tex.Civ.App.1971) (accountant) ; Durham v. Wichita Mill & Elevator Co., 202 S.W. 138 (Tex.Civ.App.1918) (director of corporation) ; Doyle v. Chatham & Phenix Nat’l Bank, 253 N.Y. 369, 171 N.E. 574 (1930) (trustee) ; New York Int’l Products Co. v. Erie R. R., 244 N.Y. 331, 155 N.E. 662 (1927) (bailee) ; Glanzer v. Shepard, 233 N.Y. 236, 135 N.E. 275 (1922) (public weigher). See, generally Freeman, Opinion Letters and Professionalism, 1973 Duke L.J. 371 (1973).


author: FEINBERG, Circuit Judge: MOORE, Circuit Judge

text:
    Martin F. SOKOLOFF, Petitioner, v. William SAXBE, Attorney General of the United States and John R. Bartels, Jr., Administrator, Drug Enforcement Administration of the Department of Justice, Respondents.
    No. 1148, Docket 74-1313.
    United States Court of Appeals, Second Circuit.
    Argued June 25, 1974.
    Decided July 25, 1974.

      Raymond B. Grünewald, Brooklyn, N. Y. (Grünewald, Turk & Gillen, Brooklyn, N. Y., on the brief), for petitioner.
    Allan P. ^lackinnon, Atty., U. S. Dept, of Justice (Henry E. Petersen, Asst. Atty. Gen., Dept, of Justice; Robert J. Rosthal, Deputy Chief Counsel, Allyn Myles Carnam, Atty., Drug Enforcement Administration, on the brief), for respondents.
    Before MOORE AND FEINBERG, Circuit Judges, and PALMIERI, District Judge.

       Of the United States District Court for the Southern District of New York, sitting by designation.

   FEINBERG, Circuit Judge:

Martin F. Sokoloff, M.D., petitions for review of a decision of the Administrator, Drug Enforcement Administration, which revoked his certificate of registration to distribute certain drugs under the Controlled Substances Act (the Act). Dr. Sokoloff argues that the Administrator erred in basing his order on the doctor’s conviction on three ■ counts of illegal distribution of amphetamine sulfate tablets, which was entered after a plea of nolo contendere. Petitioner also objects to certain procedures followed by the Administrator. For the reasons stated below, we deny the petition for review.

I

Petitioner has been a practicing physician since 1957. In November 1972, he was indicted in the United States District Court for the Eastern District of New York on nine counts of distributing amphetamine sulfate and amphetamine hydrochloride tablets, Schedule II controlled substances under the Act. In February 1973, he was issued a certificate of registration to distribute Schedule II, III, IV and V controlled substances by the Bureau of Narcotics and Dangerous Drugs (now known as the Drug Enforcement Administration). In June 1973, pursuant to a plea bargaining agreement, petitioner pled nolo con-tendere before Judge Harold R. Tyler, Jr., sitting by designation, to three counts of distributing amphetamine sulfate tablets. 21 U.S.C. §§ 841(a)(1), 842(a)(1), 829(a). A judgment of conviction was entered thereupon and petitioner was fined $250 on each count; he was also placed on unsupervised probation for two years. As a special condition, Dr. Sokoloff was forbidden to stock amphetamines in his office for that period although he was permitted to prescribe them for his patients. At the combined pleading-sentencing hearing, Judge Tyler warned petitioner that there was no guarantee that the plea of nolo contendere would protect him from disciplinary action by federal administrative agencies or state medical licensing boards. While declining to make any recommendations to such agencies, the judge stated that he assumed petitioner would continue to practice medicine and noted that, in his view, “considerable positive effect” should be given to petitioner’s background, particularly his military record as a physician. The judge concluded:

Doctor, you look like a decent fellow, except for his horrible affair. As long as you are prepared to accept it as a bitter lesson and I’m sure you’ll not do this thing again, I’m confident you will continue your days as an effective practitioner and I wish . you well in that regard.

In September 1973, the Administrator issued petitioner an order to show cause why his certificate of registration should not be revoked because of his conviction, pursuant to 21 U.S.C. § 824. That section provides in relevant part:

(a) A registration ... to manufacture, distribute, or dispense a controlled substance may be suspended or revoked by the Attorney General upon a finding that the registrant — •
******
(2) has been convicted of a felony under . . . any . . . law of the United States, or of any State, relating to any substance defined in this subchapter as a controlled substance; . . . [Emphasis added.]

Thereafter; a contested hearing was held before Administrative Law Judge Thomas A. Ricci at which the key issue was whether a conviction after a plea of nolo contendere is a conviction within the meaning of section 824(a)(2). In December 1973, the ádministrative law judge ruled that it was, holding that “the nolo contendere plea in this case resulted in the substantial equivalent of a criminal conviction and that therefore the registrant’s license may lawfully be revoked.” Nevertheless, he gave considerable weight to Judge Tyler’s view that the special condition of probation forbidding petitioner to stock amphetamines was sufficient to ensure his compliance with the law and accepted petitioner’s contention that to forbid him to prescribe Schedule II substances (which include such important pain-killing drugs as morphine, demerol and dilau-did) would mean “effective curtailment of his capacity to practice the medical profession.” Accordingly, the administrative law judge recommended that petitioner’s certificate of registration not be revoked. The administrative record was then certified to the Administrator for final decision, as required by 21 C. F.R. § 316.65(b).

In February 1974, the Administrator released his decision revoking petitioner’s certificate of registration for substances covered by Schedules II, III, IV and V. He agreed with the administrative law judge that petitioner’s conviction after a plea of nolo contendere was a conviction within the meaning of section 824(a)(2). But he held that a conviction “for three illegal sales of highly dangerous drugs” warranted revocation in order to curtail petitioner’s capacity “to continue breaking the law and in the process to destroy human lives.” He found that the special condition of probation was inadequate to ensure compliance with the law; there was no reason to believe that petitioner could be safely trusted with Schedule II drugs other than amphetamines, and administrative experience had demonstrated that the illegal sale of prescriptions was as dangerous as the illegal sale of the drugs themselves. The Administrator did suggest, however, that prompt consideration would be given to an application by petitioner for a new registration certificate limited to Schedules III, IV and V. Dr. Sokoloff subsequently made such an application ; this was granted in April 1974 although a request for a new certificate covering Schedule II substances was denied.

II

Petitioner’s first contention in this court is that a conviction after a plea of nolo contendere is not a conviction for purposes of revoking a certificate of registration under section 824(a)(2). He notes that a plea of nolo contendere, unlike a guilty plea, is an admission of guilt only with respect to the criminal case in which it is entered and cannot be used as an admission in a civil case for the same act. Yet here, petitioner argues, in a proceeding unquestionably civil in nature, the Administrator erroneously used the nolo contendere plea as an admission of guilt to a felony charge and the facts alleged in the indictment.

We cannot accept the argument. Section 824(a)(2) requires for revocation a finding that the registrant has been convicted of a drug-related felony. To establish this, the Administrator properly relied not upon any admission implied by the plea but upon the uncontested fact of petitioner’s conviction. To be sure, there is some logic to petitioner’s fallback position that a conviction entered upon a nolo plea assumes the characteristics of the plea itself. See Bruce v. Leo, 129 Colo. 129, 267 P.2d 1014, 1017 (1954). But the effect of a nolo plea is not governed entirely by logic; if it were, the plea might be abolished “because indubitably the plea does admit the facts and is intended to do so.” Pfotzer v. Aqua Systems, Inc., 162 F.2d 779, 785 (2d Cir. 1947) (L. Hand, J.). “The only relevant question is what are the limitations which the law assures the accused that he will be entitled to invoke, if he files the plea. That is a mere question of what the courts have decided — one alternative is no more rational than the other . ' . . .’’Id. Where, as here, a statute (or judicial rule) attaches legal consequences to the fact of a conviction, the majority of courts have held that there is no valid distinction between a conviction upon a plea of nolo contendere and a conviction after a guilty plea or trial. Masters v. CIR, 243 F.2d 335, 338-339 (3d Cir. 1957) (appellant’s conviction after nolo plea admissible in civil tax fraud suit to impeach his testimony) ; Maryland State Bar Ass’n v. Agnew, 318 A.2d 811 (Md.Ct.App.1974) (disbarment proceeding) ; In re Lewis, 389 Mich. 668, 209 N.W.2d 203, 208-209 (Sup.Ct.Mich. 1973) (same); Lee v. Wisconsin State Bd. of Dental Examiners, 29 Wis.2d 330, 139 N.W.2d 61 (1966) (revocation of license to practice dentistry); In re Eaton, 14 Ill.2d 338, 152 N.E.2d 850 (1958) (disbarment); Kravis v. Hock, 136 N.J.L. 161, 54 A.2d 778, 780-782 (N. J.Ct.Err. & App.1947) (liquor license); ABA Project on Minimum Standards for Criminal Justice, Standards Relating to Pleas of Guilty § 1.1(a) at 14-15 (Approved Draft 1968); Note, Nolo Contendere — Its Use and Effect, 52 Calif.L.Rev. 408, 414-16 (1964).

We have twice previously demonstrated our adherence to the majority rule. In Pfotzer v. Aqua Systems, Inc., swpra, 162 F.2d at 785, we held that a conviction of a criminal violation of the antitrust laws based on a nolo plea was admissible to impeach the testimony of the pleader in a private treble damage action. We so ruled although we recognized the risk that the jury might regard the plea as an admission of the operative facts and thus negate the limiting effect of pleading nolo contendere rather than guilty. Id. Even more directly on point, we held in United States ex rel. Bruno v. Reimer, 98 F.2d 92 (2d Cir. 1938) (per curiam),,that a conviction after the New Jersey equivalent of a nolo plea was a conviction within the meaning of a federal statute authorizing deportation of any alien twice convicted and sentenced to imprisonment for at least one year for crimes involving moral turpitude. In rejecting petitioner’s argument to the contrary, we commented:

The relator might succeed if deportation depended upon his admission of the commission of a crime . ; but since it depends upon conviction and sentence, conviction and sentence are the only relevant facts, and the accused may be deported whenever these have been procured by any lawful procedure, as in this case they were.

Id. at 92-93. Accord, Ruis-Rubio v. Immigration & Naturalization Service, 380 F.2d 29 (9th Cir.) (per curiam), cert. denied, 389 U.S. 944, 88 S.Ct. 302, 19 L.Ed.2d 302 (1967).

We see no reason to interpret the statute in this case any differently. On the contrary, protection of the public is a strong policy reason for adhering to the majority rule in interpreting this drug control legislation. As the administrative law judge stated with regard to petitioner’s argument:

To permit him, now that the very license which imposed the restriction against criminal conduct is at stake, to say it never happened, would make a mockery of the law.

Accordingly, we hold that petitioner’s conviction after a nolo plea was a conviction within the meaning of section 824(a)(2).

Ill

Petitioner also maintains that various procedural errors by the Administrator denied him due process of law and rendered the decision to revoke his registration arbitrary and capricious. After a thorough review of the record, however, we conclude that none of the alleged procedural deficiencies deprived petitioner of any substantial right.

Petitioner notes that 21 U.S.C. § 824(c) requires the Administrator to serve “an order to show cause why registration should not be denied, revoked, or suspended” before taking such action. Here the order referred only to revocation and did not specify suspension as an alternative sanction. Petitioner claims that as a result he was deprived of an opportunity to show that suspension was a preferable sanction and the administrative law judge was thus given no option to recommend suspension. The argument is without merit. In the proceedings before the administrative law judge, petitioner made no effort to clarify the range of available remedies or any specific request for suspension rather than revocation. Moreover, the administrative law judge’s opinion demonstrates that he was fully aware of his authority to recommend less than total revocation. Indeed, he made just such a recommendation, urging that the special condition of probation was a sufficient sanction.

Petitioner next relies on 5 U.S. C. § 557(b), reproduced in the margin, and argues that where, as here, the agency did not preside at the reception of the evidence, the presiding employee must initially render a decision which becomes the decision of the agency unless there is an appeal to the agency itself. Petitioner asserts that section 557(b) was violated because the initial decision by the administrative law judge was modified by the Administrator without the filing of any request for review. The argument overlooks the fact that the Drug Enforcement Administration is an agency which, in the language of section 557(b), requires “the entire record to be certified to it for decision.” See 21 C.F.R. § 316.65. Consequently, the administrative law judge only recommends a decision and the Administrator makes the final determination in every case.

Petitioner also argues that, although the Administrator commented on the findings of fact and conclusions of law of the administrative law judge, he himself made no specific findings of fact. Without such a factual basis, petitioner maintains, the “flat revocation” of his certificate was a denial of due process and an abuse of discretion. We disagree. In context, it is clear that the Administrator accepted those findings and conclusions which he did not explicitly reject. Moreover, the Administrator expressly found that petitioner had been convicted of a drug-related felony, a sufficient basis for revocation, and explained his reasons for regarding the special condition of probation as an inadequate sanction. See end of Part I, supra. Furthermore, judicial review of the imposition of sanctions by an administrator charged by Congress with the implementation of a statutory policy is severely limited; the only issue is whether the administrator has made “an allowable judgment in [his] choice of the remedy.” Butz v. Glover Livestock Comm’n Co., 411 U.S. 182, 189, 93 S.Ct. 1455, 1459, 36 L.Ed.2d 142 (1973). In this case, the Administrator, entrusted by Congress with the task of curbing serious problems of drug abuse, certainly made an allowable choice of remedy in revoking petitioner’s registration for Schedule II substances because of “his conviction for three illegal sales of highly dangerous drugs.”

Nevertheless, it seems to us that permanent revocation of petitioner’s registration would be unduly harsh under the circumstances. Petitioner is a first offender; the sentencing judge found that his background should be given “considerable positive effect” and that it was unlikely he would again violate the drug laws. His capacity to practice medicine is, all seem to agree, seriously affected by the revocation. Accordingly, we suggest that the Administrator give careful consideration to any application by petitioner for a new Schedule II certificate after the passage of one year from the effective date of its revocation. Cf. Fink v. SEC, 417 F.2d 1058, 1060 (2d Cir. 1969); Vanasco v. SEC, 395 F.2d 349, 353 (2d Cir. 1968).

We have considered petitioner’s other arguments and find them to be without merit.

The petition for review is denied.

MOORE, Circuit Judge

(concurring):

I am willing to concur only because I give full faith and credit to the majority’s suggestion to the Administrator that careful consideration be given to petitioner’s application for a new Schedule II certificate. In my opinion, too much emphasis has been placed on the technical aspects of the nolo contendere plea and not enough on the circumstances under which it was tendered.

When petitioner’s case came on before Judge Tyler for plea, there had already been extensive conversations between counsel for government and petitioner and the court. The court had made “certain suggestions and indeed in effect made a sentence bargain for consideration by the defendant.” The suggested “sentence bargain” was that if petitioner were to plead nolo contendere to the first three counts, the court would commit itself to impose a fine ($250 on each count), unsupervised probation and an injunction, in effect, that petitioner was not to stock amphetamines in his office during the probation period (two years). There was no injunction against petitioner’s prescribing such drugs “under sound and accepted medical principles.” The court, assuring itself that petitioner understood this “sentence bargain,” asked petitioner whether, under these circumstances, he was still willing to plead nolo contendere to which petitioner replied in the affirmative. The court continued by making sure that there was no ambiguity in petitioner’s mind as to “my bargain on behalf of this court.” At the same time, the court emphasized that it could not assure petitioner as to what a medical society or federal agency might do. However, “implicit in one of [the court’s] conditions” was the assumption that petitioner “will be able to continue his practice” and that all the court asked was that petitiomer “agree not to stock amphetamines in his office.”

Shortly thereafter, a proceeding was commenced by the Drug Enforcement Administration to revoke petitioner’s registration. A hearing was held before Judge Ricci (Administrative Law Judge). The judge with judicial discernment found in the nolo contendere cases “judicial discourse seemingly exalting words over reality.” and that “determinations affecting the rights of individuals and the public are made upon the turn of a phrase, decided by a play on words.” This he determined not to do. Instead he gave “weight to the valued judgment of the District Court judge” who had “participated in the discussion that precede the nolo conten-dere plea.” His conclusion that “I respectfully recommend that the Attorney General not revoke the registration certificate in this case.” should, in my opinion, also be accorded weight.

The Administrator rejected this recommendation, treating petitioner, despite the “sentence bargain” under which petitioner had pleaded, as one “who has been convicted.”

As Judge Ricci pointed out, there are many “legal authorities found in libraries” dealing with nolo contendere. Rather than pull these volumes from the shelves and read the stories of other cases, I would prefer to read the record of this ease and endeavor to dispense justice upon the facts here presented. However, since the majority has given both petitioner and Administrator the right to take future steps, I am willing to concur.

      . 21 U.S.C. § 812(b)(2) defines Schedule II controlled substances as follows:
      (A) The drug or other substance has a high potential for abuse.

        (B) The drug or other substance has a currently accepted medical use in treatment in the United States or a currently accepted medical use with severe restrictions.
      (C) Abuse of the drug or other substances may lead to severe psychological or physical dependence.
      The list of Schedule II controlled substances may be found at 21 U.S.C. § 812(c) and 21 C.F.B.. § 1308.12.

      . The Masters court bluntly described the limited effect of a plea of nolo contendere:
      There is no valid distinction between a judgment of conviction based on a plea of “nolo contendere” and such judgment entered after a plea of “guilty”. The former is an attempted face saving process. A trial judge may at times consent to that procedure but when it is followed by judgment of conviction and sentence it merely provides a surface language cloak which is completely removed by the judgment and sentence.
      243 F.2d at 338.

      . The administrative law judge wrote:
      And finally, Section 304 [21 U.S.C. § 824(b)] itself literally reveals a congressional intent that the administrative hand of government not exact the full measure of judicial retribution in each and every case. Section 304(b) reads as follows :
      “The Attorney General may limit revocation or suspension of a registration to the particular controlled substance with respect to which grounds for revocation or suspension exists.”

      . 5 U.S.C. § 557 (b) provides :
      When the agency did not preside at the reception of the evidence, the presiding employee . . . shall intially decide the case unless the agency requires, either in specific cases or by general rule, the entire record to be certified to it for decision. When the presiding employee makes an initial decision, that decision then becomes the decision of the agency without further proceedings unless there is an appeal to, or review on motion of, the agency within time provided by rule. . . . When the agency makes the decision without having presided at the reception of the evidence, the presiding employee . . . shall first recommend a decision.

      . At oral argument, it was revealed that the Drug Enforcement Administration has no formal procedures for parties to submit to the Administrator exceptions to the administrative law judge’s recommended decision. 5 TJ.S.C. § 557(c) provides in relevant part:
      (c) Before a recommended, initial, or tentative decision, or a decision on agency review of the decision of subordinate employees, the parties are entitled to a reasonable opportunity to submit for the consideration of the employees participating in the decisions—
      (1) proposed findings and conclusions; or
      (2) exceptions to the decisions or recommended decisions of subordinate employees or to tentative agency decisions ; and
      (3) supporting reasons for the exceptions or proposed findings or conclusions.
      Since petitioner has not argued that he had no opportunity to submit material to the Administrator, the issue is not significant in this case. However, we believe that the Drug Enforcement Administration would be well advised to make certain that it is in compliance with section 557 (c).