author: ELY, Circuit Judge:

text:
    In re MULTIDISTRICT VEHICLE AIR POLLUTION M.D.L. NO. 31. STATE of CALIFORNIA et al., Appellees, v. AUTOMOBILE MANUFACTURERS ASSOCIATION, INC., et al., Appellants. Robert MORGAN, Appellee, v. AUTOMOBILE MANUFACTURERS ASSOCIATION, INC., et al., Appellants. CITY OF PHILADELPHIA et al., Appellees, v. AUTOMOBILE MANUFACTURERS ASSOCIATION, INC., et al., Appellants. STATE of NEW YORK, Appellee, v. AUTOMOBILE MANUFACTURERS ASSOCIATION, INC., et al., Appellants. CITY OF NEW YORK et al., Appellees, v. AUTOMOBILE MANUFACTURERS ASSOCIATION, INC., et al., Appellants. CITY AND COUNTY OF DENVER, Appellees, v. AMERICAN MOTORS CORPORATION et al., Appellants.
    No. 71-1241.
    United States Court of Appeals, Ninth Circuit.
    June 4, 1973.
    See also, D.C., 52 F.R.D. 398.

      Robert L. Stern (argued), of Mayer, Brown & Platt, Chicago, 111., Lloyd N. Cutler (argued), of Wilmer, Cutler & Pickering, Washington, D. C., Walter J. Williams, Detroit, Mich., Forrest A. Hainline, Jr., of Cross, Wrock, Miller & Vieson, Ross L. Malone, Robert A. Nitsehke, of General Motors, Detroit, Mich., Richard C. Warmer, of O’Melveny & Myers, Julian O. Von Kalinowski, of Gibson, Dunn,-& Crutcher, G. William Shea, Philip K. Verleger, Jack D. Fudge, David A. Destino, of McCutchen, Black, Verleger & Shea, Carl J. Schuck, of Overton, Lyman & Prince, Marcus Matt-son, of Lawler, Felix & Hall, Carla H. Hills, Atty., of Munger, Tolies, Hills & Rickershauser, Harvey M. Grossman, of Pacht, Ross, Warne, Bernhard & Sears, Los Angeles, Cal., Kirkland, Ellis, Hodson, Chaffetz & Masters, Chicago, 111., Alan N. Halkett, of Latham & Watkins, Los Angeles, Cal., John H. Schafer, III, of Covington & Burling, Washington, D. C., for appellants.
    David Berger (argued), Philadelphia, Pa., George C. Mantzoros, Asst. Atty. Gen. (argued), New York City, David I. Shapiro (argued), of Dickstein, Shapiro & Galligan, Washington, D. C., Evelle J. Younger, Atty. Gen., Los Angeles, Cal., Ronald Bloomfield, Atty. Gen., New York City, Anthony C. Joseph, Herbert Davis, Ellen Friedman, Deputy Attys. Gen., Los Angeles, Cal., Edward G. Bauer, Jr., City Sol., Philadelphia, Pa., Max P. Zall, City Atty., Denver, Colo., J. Lee Rankin, Corp. Counsel for the City of New York, Norman Redlich, First Asst. Corp. Counsel, New York City, Harold E. Kohn, Bruce W. Kauffman, Edward F. Mannino, John M. Elliott, of Dilworth, Paxson, Kalish, Levy & Coleman, Herbert B. Newberg, H. Laddie Montague, Jr., Philadelphia, Pa., Perry Goldberg, Chicago, 111., Leo T. Zuckerman, Denver, Colo., Jerome S. Wagshal, of Dickstein, Shapiro & Galligan, George Kauffman, Washington, D. C., for appellees.
    Before HAMLIN, BROWNING and ELY, Circuit Judges.
   OPINION

ELY, Circuit Judge:

This certified interlocutory appeal under 28 U.S.C. § 1292(b) arises from pretrial proceedings in Multidistrict Air Pollution Control Litigation (C.D.Cal. M.D.L. 31), which is a consolidation of numerous actions under 28 U. S.C. § 1407. In re Motor Vehicle Air Pollution Control Equipment, 311 F. Supp. 1349 (Jud. Panel Mult. Lit. 1970.) Since this appeal is from denial of motions to dismiss, factual allegations are east most favorably to the appellees. See Conley v. Gibson, 355 U.S. 41, 78 S. Ct. 99, 2 L.Ed.2d 80 (1957).

As early as 1953, the nation’s automobile manufacturers and their trade association allegedly conspired to eliminate competition among themselves in the research, development, manufacture, installation and patenting of automotive air pollution control devices. Appellees urge that this horizontal antitrust conspiracy was motivated: (1) by appellants’ conviction that antipollution devices are externalities, whose development would increase price without concomitant spur to consumer interest; (2) by the apprehension that the first competitor to perfect such a device would garner exclusive contracts with governmental purchasers; and (3) by the fear that technological realization of the devices would prompt laws compelling their use.

Appellees argue that this conspiracy inflicted financial losses that would not have occurred but for the conspiracy-induced absence of antipollution equipment. Governmental entity appellees claim losses resulting from diminution in value of, and expenditures in connection with, government property and interests. Crop farmer appellees assert direct damage to crop yields. Variously proceeding in their individual capacities, as parens patriae and as class representatives, all appellees seek treble damages and equitable relief under sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15, 26.

On appeal, appellants challenge the District Court’s rulings that appellees have standing to sue under sections 4 and 16 of the Clayton Act, that certain appellees may proceed as parens patriae, and that others may proceed as class representatives under Fed.R.Civ.P. 23.

1. STANDING UNDER SECTION 4

Appellees ground their claims for treble damages on section 4 of the Clayton Act, 15 U.S.C. § 15, which reads:

“Any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent, without respect to amount in controversy, and shall recover threefold the damages by him sustained, and the cost of suit including a reasonable attorney’s fee.”

Read literally, this statute could afford relief to all persons whose injuries are causally related to an antitrust violation. Recognizing the nearly limitless possibilities of such an interpretation, however, the judiciary quickly brushed aside this construction. Instead, a measured approach has prevailed; ¿ourts have impressed a standing doctrine so as to confine the availability of section 4 relief only to those individuals whose protection is the fundamental purpose of the antitrust laws. Cf. Barlow v. Collins, 397 U.S. 159, 90 S.Ct. 832, 25 L.Ed.2d 192 (1970); Association of Data Processing v. Camp, 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970); Mount Clemens Industries, Inc. v. Bell, 464 F.2d 339, 341-344 (9th Cir. 1972). Unfortunately, no “bright line” has yet emerged to divine this group, and courts have formulated varied definitions.

In this case, however, the District Court declined to apply any of the extant definitions, choosing instead to expand the coverage of section 4:

“We are now concerned with the phrase ‘injured in his business or property by reason of anything forbidden in the antitrust laws’ in the light of the allegations of these complaints, rather than the traditional, legalistic approach defined by the eases cited by defendants in their motion to dismiss. Each of the plaintiffs allege injury to their respective business or property by reason of anti-trust violations of the defendants.
“Plaintiffs may fail in their proof, but until then, they should be given the benefit of employing ‘any available remedy to make good the wrong done.’ ” [footnote citing J. I. Case Co. v. Borak, 377 U.S. 426, 433, 84 S. Ct. 1555, 12 L.Ed.2d 423 (1964); Bell v. Hood, 327 U.S. 678, 684, 66 S.Ct. 773, 90 L.Ed. 939 (1946)].

52 F.R.D. 398, 401 (C.D.Cal.1970). In the aftermath of the Supreme Court’s recent decision in Hawaii v. Standard Oil Co., 405 U.S. 251, 92 S.Ct. 885, 31 L.Ed.2d 184 (1972), however, we cannot so easily disregard the so-called “traditional, legalistic approach” of the cases.

Judicial constructions of standing under section 4 have keyed on the phrases “business or property” and “by reason of” as indicating twin requisites for standing. First, a plaintiff must allege injury to his “business or property”, a term definitively limited to interests in commercial ventures or enterprises : “the words ‘business or property’ . . . refer to commercial interests or enterprises.” Hawaii, supra at 264, 92 S.Ct. at 892. See Control Data Corp. v. IBM, 306 F.Supp. 839, 845 (D.Minn.1969) (corporate plaintiff not in legal existence at time of antitrust violation is without commercial injury). Secondly, a plaintiff must allege that the injury suffered was occasioned “by reason of” an antitrust violation. Hawaii, supra at 263-264 n.14, 92 S.Ct. 885.

Applying the first predicate, since neither the government’s individual claims, nor their class claims, nor their parens patriae claims allege any injury to commercial ventures or enterprises, the governmental entities cannot seek recovery under section 4 of the Clayton Act. In contrast, the farmers satisfy the first requisite, since a diminished crop yield, for example, would constitute injury to commercial interests.

Application of the second prong of the standing formulation is more difficult since “by reason of” has consistently eluded efforts at uniform definition or application. Compare, e. g., Mulvey v. Samuel Goldwyn Productions, 433 F.2d 1073 (9th Cir. 1970) with, Fields Productions, Inc. v. United Artists Corp., 432 F.2d 1010 (2d Cir. 1970), aff’g, per curiam 318 F.Supp. 87 (S.D.N.Y.1969), cert. denied, 401 U.S. 949, 91 S.Ct. 932, 28 L.Ed.2d 232 (1971); and compare Steiner v. 20th Century-Fox Film Corp., 232 F.2d 190 (9th Cir. 1956) and Congress Building Corp. v. Loew’s, Inc., 246 F.2d 587 (7th Cir. 1957) with Melrose Realty Co. v. Loew’s, Inc., 234 F.2d 518 (3d Cir.), cert. denied, 352 U.S. 890, 77 S.Ct. 128, 1 L.Ed.2d 85 (1956) and Harrison v. Paramount Pictures, Inc., 115 F. Supp. 312 (E.D.Pa.1953), aff’d, 211 F.2d 405 (3 Cir.), cert. denied, 348 U.S. 828, 75 S.Ct. 45, 99 L.Ed. 653 (1954); and compare Volasco Products Co. v. Lloyd A. Fry Roofing Co., 308 F.2d 383 (6th Cir. 1962), cert. denied, 372 U.S. 907, 83 S.Ct. 721, 9 L.Ed.2d 717 (1963) with South Carolina Council of Milk Producers, Inc. v. Newton, 360 F.2d 414 (9th Cir.), cert. denied, 385 U.S. 934, 87 S.Ct. 295, 17 L.Ed.2d 215 (1966). The resulting confusion prompted speculation that the Supreme. Court would disapprove judicial application of “by reáson of” to limit potential antitrust claimants. In Hawaii, however, the Court appeared to approve the standing doctrine to require more from a would-be plaintiff than some remote connection in the causal chain.

“The lower courts have been virtually unanimous in concluding that Congress did not intend the antitrust laws to provide a remedy in damages for all injuries that might conceivably be traced to an antitrust violation.”

405 U.S. at 263 n.14, 92 S.Ct. at 891-892. Although the Court cited cases in support from every circuit, it failed to distinguish essentially two disparate analytical techniques — the “direct injury” and the “target area approaches— employed by different circuits.

Courts adhering to the “direct injury” test focus principally on the relationship between the alleged antitrust violator and the claimant. Generally, if the claimant is separated from the violator by an intermediate antitrust victim, standing is denied by attaching conclusory labels such as “remote”, “indirect”, and “consequential”. Resurrecting notions of privity, this test thus arbitrarily forecloses otherwise meritorious claims simply because another antitrust victim interfaces the relationship between the claimant and the alleged violator. Moreover, the “direct injury” requirement has engendered among some adherents a regrettable tendency to deny standing to any plaintiff who happens to fall within certain talismanic rubrics: “creditor”, “landlord”, “lessor”, “franchisor”, “supplier”. This disposition is, we think, unsatisfactory insofar as it transforms judicial inquiry into a mere search for labels.

In contrast, courts employing the “target area” approach focus on claimant’s relationship to the area of the economy allegedly injured by the defendant.

“[T]o state a cause of action under the anti-trust laws a plaintiff must show more than that one purpose of the conspiracy was a restraint of trade and that an act has been committed which harms him. He must show that he is within that area of the economy which is endangered by a breakdown of competitive conditions in a particular industry. Otherwise he is not injured ‘by reason’ of anything forbidden in the anti-trust laws.”

Conference of Studio Unions v. Loew’s Inc., 193 F.2d 51, 54-55 (9th Cir. 1951), cert. denied, 342 U.S. 919, 72 S.Ct. 367, 96 L.Ed. 687 (1952). To attain standing, a plaintiff must thus allege that the antitrust violation injured a commercial enterprise of the plaintiff in the area of the economy in which the elimination of competition occurred. Standing is denied, on the other hand, if the claimant’s commercial activity occurred outside that area of the economy. See id. Hence the “target area” approach provides a logical and flexible tool for analyzing whether a particular claimant falls within the class of persons slated by Congress for protection under section 4 of the Clayton Act.

“[T]he basic and underlying purposes of the anti-trust laws [are] to preserve competition and to protect the consumer. Recovery and damages under the anti-trust law is available to those who have been directly injured by the lessening of competition and withheld from those who seek the windfall of treble damages because of incidental harm.”

Id. at 55. See Karseal Corp. v. Richfield Oil Corp., 221 F.2d 358, 365 (9th Cir. 1955).

The “direct injury” approach to section 4 was implicitly undermined by the Supreme Court in Perkins v. Standard Oil Co., 395 U.S. 642, 89 S.Ct. 1871, 23 L.Ed.2d 599 (1969), rev’g 396 F.2d 809 (9th Cir. 1968). Attention centered on whether “fourth level” price discrimination is proscribed by section 2 of the Clayton Act, as amended by section 13 of the Robinson-Patman Act, 15 U.S.C. § 13. A panel of our court, focusing on the indirect commercial relationship between claimant and defendant, had concluded in the negative:

“Section 2(a) of the Act does not recognize a causal connection, essential to liability, between a supplier’s price discrimination and the trade practices of a customer [removed four rungs] . on the distributive [sic] ladder . . . .”

396 F.2d at 816. In the Supreme Court’s reversing opinion, Mr. Justice Black admonished that this direct-indirect “limitation is wholly artificial and is unwarranted by the language or purpose of the Act.” He reasoned that “the competitive harm done ... is certainly no less because of the presence of an additional link in this particular distribution chain from the producer to the retailer.” 395 U.S. at 648, 89 S.Ct. at 1874. Though applying a different section of the Clayton Act, the opinion argues forcefully by analogy against “direct injury” analysis. The Court eschewed consideration of the nexus between claimant and defendant and concentrated instead on the nature of the “competitive harm”.

Direct support of the “target area” approach also emerges from the Supreme Court’s opinion in Perkins, supra. The plaintiff had appended an auxiliary claim under section 4 for injuries allegedly suffered in his individual capacities as creditor, landlord, and broker. In constructing its analytical framework, our court unfortunately — but quite understandably — indiscriminately j uxtaposed cases espousing both the “direct injury” and the “target area” tests. We resurrected-notions of privity, and, attaehing the determinative “lessor” label, concluded that the plaintiff’s claim was comprised of elements not “properly the subject of damages.” 396 F.2d at 815. The Supreme Court’s reversal was grounded solely on a “target area” quotation from Karseal Corp. v. Richfield Oil Corp., 221 F.2d 358, 363 (9th Cir. 1955) that the Court applied consistently with its disposition of the section 2 issue. The Court avoided any categorical characterization of claimant as, for example, a “lessor” or a “creditor”, and affirmed the propriety of section 4 relief by emphasizing the economic impact of the anticompetitive conduct.

Perkins therefore clarifies any ambiguity inhering in Hawaii’s failure to adopt expressly either of the two predominant judicial glosses on the language “by reason of”. By repudiating all those aspects of the “direct injury” test that distinguish it from the “target area” approach, and by embracing and applying the latter, the Court in Perkins, at least inferentially, impresses its imprimatur upon the “target area” approach articulated by this court: a plaintiff has standing under section 4 of the Clayton Act if the claimed losses fall “within that area of the economy which is endangered by a breakdown of competitive conditions in a particular industry.” E. g., Mulvey v. Samuel Goldwyn Productions, 433 F.2d 1073 (9th Cir. 1970) ; Hoopes v. Union Oil Co., 374 F. 2d 480, 485 (9th Cir. 1967); Karseal Corp. v. Richfield Oil Corp., 221 F.2d 358 (9th Cir. 1955); Conference of Studio Unions v. Loew’s Inc., 193 F. 2d 51 (9th Cir. 1951), cert. denied, 342 U.S. 919, 72 S.Ct. 367, 96 L.Ed. 687 (1952). A proper application of “by reason of” focuses on whether the anti-competitive conduct directed against an area of the economy injured business operations conducted by the claimant in that sector of the economy. The resulting two-step approach first requires identification of the affected area of the economy and then the ascertainment of whether the claimed injury occurred within that area.

Here the crop farmers’ complaint alleges that the automobile manufacturers conspired

“(a) To eliminate all competition among the automobile manufacturers in the research, development, manufacture and installation of motor vehicle air pollution equipment;
“(b) To eliminate competition . . . in the purchase of patents and patent rights from other parties covering motor vehicle air pollution equipment.”

It is manifest from these averments that the area of the economy against which anticompetitive conduct was allegedly directed was that concerned with research, development, manufacture, installation and patenting of automotive air pollution control devices. No commercial interest of the crop farmers falls within this area. Not only were the crop farmers not targets of the alleged conspiracy, they were not even on the firing range. Accordingly, the farmers lack standing under section 4 of the Clayton Act, to maintain this action. Upon remand, therefore, all actions arising under section 4 will be dismissed.

Insofar as the common weal was injured the federal- government was the proper party to seek redress; and, in fact, it attempted to do so. See Note 1, swpra. If the Government did not prosecute its action with sufficient vigor, the remedy lies in executive or legislative reform, not in judicial overreaching.

11. STANDING UNDER SECTION 16

Appellees’ claims for injunctive relief are based on section 16 of the Clayton Act, 15 U.S.C. § 26, which reads in relevant part:

“Any person, firm, corporation, or association shall be entitled to sue for and have injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the antitrust laws when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity, under the rules governing such proceedings . . . .”

As the Court noted in Hawaii, supra, 405 U.S. at 260, 92 S.Ct. 885, 31 L.Ed.2d 184, this section varies significantly from section 4 insofar as the broader language of section 16 lacks mention of “business or property”, an omission signalling different standing requirements. This treatment is fully justified by the difference between the remedies available under each section. In contrast to section 4, section 16 does not involve punitive and potentially disastrous judgments for treble damages and attorneys’ fees; neither is there the potential threat of duplicative recoveries. See Hawaii, supra at 261-264. Consequently, courts have not exercised the same pronounced restraint in granting standing under section 16 as they have done under section 4. As we observed in Hawaii v. Standard Oil Co., 431 F.2d 1282, 1284-1285 (9th Cir. 1970), aff’d, 405 U.S. 251, 92 S.Ct. 885, 31 L.Ed.2d 184 (1972):

“[Section 16] is far broader than § 4. Any person may secure injunctive relief against threatened loss or damage by violation of the antitrust laws. Section 4 provides for recovery of treble damages only by a person injured in his business or property by [reason of] such a violation.”

Unlike standing under section 4, standing under section 16 does not require an injury to “commercial interests” but only an injury cognizable in equity. For example, housing segregations enforced by an antitrust conspiracy of realtors constitutes an injury to excluded minority members that confers standing for injunctive relief under section 16, see Bratcher v. Board of Realtors, 381 F.2d 723 (6th Cir. 1967), although not for treble damages under section 4. Since all appellees herein have alleged “threatened loss or damage” to interests cognizable in equity, they have standing to seek equitable protection under section 16 of the Clayton Act.

We emphasize that we now intimate no conclusions as to either the merits of the equitable claims or the availability of any form of injunctive relief. These issues must, in the first instance, be resolved by the District Court.

III. PARENS PATRIAE

At common law, the concept of parens patriae invested the English Sovereign with powers and duties — the “royal prerogative” — to protect certain interests of his subjects! See Hawaii, supra, 405 U.S. at 257-260, 92 S.Ct. 885. In this country the parens patriae function expanded somewhat and devolved upon the states that, to some extent, ceded it to the federal government. See Massachusetts v. Mellon, 262 U.S. 447, 485-486, 43 S.Ct. 597, 67 L.Ed. 1078 (1923); Public Utilities Commission v. United States, 356 F.2d 236, 241 n.1 (9th Cir.), cert. denied, 385 U.S. 816, 87 S.Ct. 35, 17 L.Ed.2d 54 (1966). Hence, the federal government and the states, as the twin sovereigns in our constitutional scheme, may in appropriate circumstances sue as parens patriae to vindicate interests of their citizens. E. g., Hawaii, supra; Georgia v. Pennsylvania Railroad Co., 324 U.S. 439, 65 S.Ct. 716, 89 L.Ed. 1051 (1945); North Dakota v. Minnesota, 263 U.S. 365, 44 S.Ct. 138, 68 L.Ed. 342 (1923); Pennsylvania v. West Virginia, 262 U.S. 553, 43 S.Ct. 658, 67 L.Ed. 1117 (1923); New York v. New Jersey, 256 U.S. 296, 41 S.Ct. 492, 65 L. Ed. 937 (1921); Georgia v. Tennessee Copper Co., 206 U.S. 230, 27 S.Ct. 618, 51 L.Ed. 1038 (1970); Kansas v. Colorado, 206 U.S. 46, 27 S.Ct. 655, 51 L.Ed. 956 (1907); Missouri v. Illinois, 180 U.S. 208, 21 S.Ct. 331, 45 L.Ed. 497 (1901); Louisiana v. Texas, 176 U.S. 1, 20 S.Ct. 251, 44 L.Ed. 347 (1900). On the other hand, political subdivisions such as cities and counties, whose power is derivative and not sovereign, cannot sue as parens patriae, although they might sue to vindicate such of their own proprietary interests as might be congruent with the interests of their inhabitants.

We have already concluded that, inasmuch as appellee states failed to allege any injury to their “commercial interests”, they lack standing qua parens patriae, or in any other capacity, to seek relief under section 4 of the Clayton Act. Moreover, our court has recently held that a state cannot sue as parens patriae under section 4 on behalf of its citizen-consumers for injuries suffered by them. California v. Frito-Lay, Inc., 474 F.2d 774 (9th Cir. 1973). Their parens patriae suit under section 16 of the Clayton Act, however, presents a separate but readily manageable issue.

In Georgia v. Pennsylvania Railroad Co., supra, the Supreme Court upheld Georgia’s parens patriae action under section 16 for an injunction against a conspiracy between large railroad companies. The analysis of that case rendered in Hawaii, supra, 405 U.S. at 259-260, 92 S.Ct. 885, bespeaks the continuing availability of parens patriae actions under section 16 for injunctive relief for injuries to a state’s economy. Insofar as the state appellees have alleged injury to their economies, they have standing under section 16. In reaffirming this principle, we quote the presaging language of Mr. Justice Holmes:

“[T]he State has an interest independent of and behind the title of its citizens, in all the earth and air within its domain. It has the last word as to whether its mountains shall be stripped of their forests and its inhabitants shall breathe pure air.
“It is a fair and reasonable demand on the part of a sovereign that the air over its territory should not be polluted . . that the forests on its mountains . . . should not be further destroyed or threatened . . . that the crops and orchards on its hills should not be endangered

206 U.S. at 237-38, 27 S.Ct. at 619.

IV. CLASS ACTIONS

In light of our determination that all appellees lack standing to seek antitrust damages, the District Court must reevaluate the propriety, under Fed.R.Civ.P. 23(b) (3), of the class actions for equitable relief. In addition, the court may need to examine the applicability of Fed.R.Civ.P. 23(b)(2). Both in anticipation of probable changes among the parties plaintiff, and in deference to the accumulated experience of district courts in framing classes under Rule 23, we deem it inappropriate at this juncture to comment further upon the class action issues.

' Affirmed in part; reversed and remanded in part.

      . These are the progeny of a civil antitrust action filed by the federal government against the largest domestic automobile manufacturers and the Automobile Manufacturers’ Association. In October of 1969, the Government accepted a consent decree, United States v. Automobile Mfgrs. Ass’n, 307 F.Supp. 617 (C.D.Cal. 1969) aff’d per curiam sub nom. New York v. United States, 397 U.S. 248, 90 S.Ct. 1105, 25 L.Ed.2d 280 (1970), the text of which is reported in 1969 Trade Cas. ¶[72,907.
      Similar factual claims were presented to the original jurisdiction of the Supreme Court in Washington v. General Motors Corp., 406 U.S. 109, 92 S.Ct. 1396, 31 L.Ed.2d 727 (1972). After the Court declined to assume jurisdiction in that case, and after this court accepted certification of the present appeal, an additional spate of actions was filed in the District Court under the multi-district tag-along procedures.

      . Sucli compulsion would be unattractive to manufacturers insofar as required use of an externality would likely increase price while not necessarily increasing demand, thus diminishing overall product marketability and profit.

      . See, e. g., Loeb v. Eastman Kodak Co., 183 F. 704 (3d Cir. 1910) (limiting standing under section 7 of the Sherman Act, predecessor of section 4 of the Clayton Act). Cf. Southern Pacific Co. v. Darnell-Taenzer Lumber Co., 245 U.S. 531, 534, 38 S.Ct. 186, 62 L.Ed. 451 (1918) (Holmes, J.) '(“the endlessness and futility of the effort to follow every transaction to its ultimate result”). See also L. Green, The Rationale of Proximate Cause 122-23, 195-97 (1927); Pollock, The “Injury” and “Causation” Elements of a Treble-Damage Antitrust Action, 57 Nw.U.L.Rev. 691, 697-700 (1963).

      . Even some commentators who have lauded the ingenuity of the district court’s decision recognize its clear departure from prior law. See, e. g., 12 B.C.Ind. & Com. LJEtev. 686 (1971) ; Note, 24 Vand.L.Rev. 126 (1970).

      . See, e. g., Klingsberg, Bull’s Eyes & Carom Shots, XVI Antitrust Bull. 351, 368-69 (1971).

      . We have employed the terms “target area” and “direct injury” only as convenient, shorthand methods of identifying the two major approaches to the interpretation of “by reason of”. Use of either label in other cases, in contrast, has frequently suggested an approach opposite that so denominated here. E. g., Perkins v. Standard Oil Co., 396 F.2d 809 (9th Cir. 1968) (court labeled approach “target area” but employed the “direct injury” analysis), rev’d, 395 U.S. 642, 89 S.Ct. 1871, 23 L.Ed.2d 599 (1969). Likewise, some courts have failed to perceive significant distinctions between the tests. E. g., Nationwide Auto Apprasier Serv., Inc. v. Ass’n of Cas. & Sur. Cos., 382 F.2d 925 (10th Cir. 1967). It is to be hoped that the resolution suggested in our present opinion will obviate the use of either label in the future.

      . We do not mean to imply that each circuit falls neatly into one of the two jngeonholes. Only the Eighth Circuit and ours, for example, have consistently followed the “target area” approach, e. g., Mulvey v. Samuel Goldwyn Productions, 433 F.2d 1073 (9th Cir. 1970); Sanitary Milk Producers v. Bergjans Farm Dairy, Inc., 368 F.2d 679, 688-689 (8th Cir. 1966) (Blackmun, J.), and even they have diverged occasionally. E. g., Perkins v. Standard Oil Co., supra note 6. The First, Third, Sixth and Tenth Circuits, on the other hand, generally apply the test we label “direct injury”. E. g., Reibert v. Atlantic Richfield Co., 471 F.2d 727 (10th. Cir. 1973); Kauffman v. Dreyfus Fund, 434 F. 2d 727, 732-734 (3d Cir. 1970), cert. denied, 401 U.S. 974, 91 S.Ct. 1190, 28 L.Ed.2d 323 (1971); Volasco Products Co. v. Lloyd, A. Fry Roofing Co., 308 F.2d 383, 394-395 (6th Cir. 1962); Miley v. John Hancock Mut. Life Ins. Co., 148 F.Supp. 299 (D.Mass.), aff’d per curiam, 242 F.2d 758 (1st Cir.), cert. denied, 355 U.S. 828, 78 S.Ct. 38, 2 L.Ed.2d 41 (1957). The Second, Fourth and Fifth Circuits have formulated their own particular mixtures of the two tests, e. g., Calderone Enterprises Corp. v. United Artists Theatre Circuit, Inc., 454 F.2d 1292 (2d Cir. 1971); Dailey v. Quality School Plan, Inc., 380 F.2d 484 (5th Cir. 1967); South Carolina Council of Milk Producers, Inc. v. Newton, 360 F.2d 414 (4th Cir. 1966), although the approach of the Second more closely resembles the “direct injury” test and that of the Fourth and Fifth, the test of “target area”. The Seventh Circuit’s approach is uncertain, although it appears closer to “target area”. Compare Sandidge v. Rogers, 256 F.2d 269 (7th Cir. 1958) with Congress Building Corp. v. Loew’s, Inc., 246 F.2d 587 (7th Cir. 1957). In ascribing positions to the various circuits, we have ignored self-descriptions and have attempted to analyze their actual approaches.

      . See, e. g., Kauffman v. Dreyfus Fund, 434 F.2d 727 (3d Cir. 1970), cert. denied, 401 U.S. 974, 91 S.Ct. 1190, 28 L. Ed.2d 323 (1971) (“shareholder”); Nationwide Auto Appraiser Serv., Inc. v. Ass’n of Cas. & Sur. Cos., 382 F.2d 925 (10th Cir. 1967) (“franchisor”) ; Volasco Products Co. v. Lloyd A. Fry Roofing Co., 308 F.2d 383 (6th Cir. 1962) (“supplier”) ; Miley v. John Hancock Mut. Life Ins. Co., 242 F.2d 758 (1st Cir.), aff’g per curiam 148 F.Supp. 299 (D. Mass.), cert. denied, 355 U.S. 828, 78 S.Ct. 38, 2 L.Ed.2d 41 (1957) (“creditor”) ; Melrose Realty Co. v. Loew’s, Inc., 234 F.2d. 518 (3d Cir.), cert. denied, 352 U.S. 890, 77 S.Ct. 128, 1 L. Ed.2d 85 (1956) (“owner-lessor”).

      . See, e. g., South Carolina Council of Milk Producers, Inc. v. Newton, 360 F.2d 414 (4th Cir.), cert. denied, 385 U.S. 934, 87 S.Ct. 295, 17 L.Ed.2d 215 (1966).

      . Examples of plaintiffs falling' within one or more of these markets, as appellants concede, include an alleged inventor and a manufacturer of motor vehicle air pollution control equipment who claim losses from asserted inability to market their devices.

      . “Standing” under section 4 actually enoapsulizes two distinct ingredients. First, a plaintiff must demonstrate that the interests allegedly injured by the defendant fall within the scope of antitrust protection. This requirement, whieli arises from judicial constructions of “business or property” and “by reason of”, is satisfied in the manner set fortli in our opinion. A second and distinct ingredient demands that a i>laintiff show that the defendant’s conduct contributed to his injury. This cause-in-fact requirement also derives from “by reason of”. Once these two standing issues are resolved in favor of a plaintiff, the court can proceed to determine if the defendant’s conduct violated the antitrust laws and, then, to ascertain the consequent damages.

      . In antitrust suits, allowance of attorneys’ fees is limited to that proportion of the fee attributable to a successful suit for damages. If only equitable relief is sought or obtained, counsel fees are generally not awarded to a successful plaintiff. See Trans World Airlines, Inc. v. Hughes, 312 F.Supp. 478, 482 (S.D.N.Y.1970) (dictum) modified on other grounds and aff’d, 449 F.2d 51 (2d Cir. 1971), rev’d on other grounds, 409 U.S. 363, 93 S.Ct. 647, 34 L.Ed.2d 577 (1973); Union Leader Corp. v. Newspapers of New England, Inc., 218 F. Supp. 490, 491 (D.Mass.1963) (dictum), vacated on other grounds, 333 F.2d 798 (1st Cir.), cert. denied, 379 U.S. 931, 85 S.Ct. 329, 13 L.Ed.24 343 (1964); Decorative Stone Co. v. Building Trades Council, 23 F.2d 426, 428 (2d Cir. 1928); Ring v. Spina, 84 F.Supp. 403, 408 (S.D.N.Y.1949) (dictum); Alden-Rochelle, Inc. v. American Society of Composers, Authors & Publishers, 80 F.Supp. 888, 899-900 (S.D.N.Y.1948). But cf. Hall v. Cole, 412 U.S. 1, 93 S.Ct, 1943, 36 L.Ed.2d 702 (1973) (dictum).

      . See, e. g., Georgia v. Pennsylvania R. R., 324 U.S. 439, 65 S.Ct. 716, 89 L.Ed. 1051 (1945); Georgia v. Tennessee Copper Co., 206 U.S. 230, 27 S.Ct. 618, 51 L.Ed. 1038 (1907).

      . While we do not reach the issues of predominance or manageability under Rule 23(b)(3), we note that problems could have arisen in that respect. See Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2d Cir. 1973). Compare, e. g., Chicken Delight, Inc. v. Harris, 412 F.2d 830 (9th Cir. 1969) with Siegel v. Chicken Delight, Inc., 271 F.Supp. 722 (N.D.Cal.1967). Of particular concern might have been the putative class oí farmers, over 115,000 in number, who produce a variety of crops in differing localities and conditions throughout the United States. Cf. Diamond v. General Motors Corp., 20 Cal.App.3d 374, 97 Cal.Rptr. 639 (Ct.App.1971). See generally Wright & Miller, 7A Federal Practice and Procedure: Civil § 1781 (1972).


source: Caselaw Access Project

author: PER CURIAM:

license: Public Domain

text:
    Thomas E. KEANE and Paul T. Wigoda, individually and on behalf of all other residents of the City of Chicago, Ellinois, Appellants, v. GENERAL MOTORS CORPORATION et al., Appellees.
    No. 71-1343.
    United States Court of Appeals, Ninth Circuit.
    June 4, 1973.
    Jerome H. Torshen (argued), Lawrence H. Eiger, Chicago, 111., for appellants.
    G. William Shea (argued), of Mc-Cutchen, Black, Verleger & Shea, Los Angeles, Cal., Robert L. Stern (argued), of Mayer, Brown & Platt, Chicago, 111., Lloyd N, Cutler (argued), of Wilmer, Cutler & Pickering, Washington, D. C., Hammond E. Chaffetz (argued), of Kirkland, Ellis, Hodson, Chaffetz & Masters, Chicago, 111., Thomas C. Lynch, Atty. Gen., Los Angeles, Cal., William J. Scott, Atty. Gen., Chicago, 111., Ronald Bloomfield, Atty. Gen., New York City, Robert W. Warren, Atty. Gen., Madison, Wis., James A. Maloney, Atty. Gen., Santa Fe, N. M., George F. Kugler, Jr., Atty. Gen., Trenton, N. J., Robert S. Killiam, Atty. Gen., Hartford, Conn., Max P. Zall, City Atty., Denver, Colo., J. Lee Rankin, Corp. Counsel for the City of New York, R. F. Outcault, Jr., Marcus Mattson, Robert Henigson, of Lawler, Felix & Hall, Richard H. Borow, of Irell & Manella, Carla A. Hills, of Munger, Tolies, Hills & Riekershauser, Julian O. von Kalinowski, of Gibson, Dunn & Crutcher, Harvey M. Grossman, of Pacht, Ross, Warne, Bernhard, Sears & Nutter, Alan N. Halkett, of Latham & Watkins, Richard C. Warmer, of O’Melveny & Myers, Philip K. Verleger, Jack D. Fudge, of McCutchen, Black, Verleger & Shea, Los Angeles, Cal., Kenneth P. Kimmel, Santa Monica, Cal., Benjamin F. Schwartz, of Schwartz & Alschuler, Los Angeles, Cal., William J. A. Sturtz, Long Beach, Cal., Perry Goldberg, Roger W. Barrett of Mayer, Brown & Platt, Joseph DuCoeur, of Kirkland, Ellis, Hodson, Chaffetz & Masters, Chicago, 111., David I. Shapiro, of Dickstein, Shapiro & Galligan, John H. Schafer, III, of Covington & Burling, Washington, D. C., David Berger, of Cohen, Shapiro, Berger, Polish & Cohen, Philadelphia, Pa., D. S. Bowie, Jr., Allentown, Pa., of Mack Trucks, Inc., Bruce W. Kauffman, of Dilworth, Paxson, Kalish, Levy & Coleman, Harold E. Kohn, Philadelphia, Pa., Forrest A. Hainline, Jr., of Cross, Wroek, Miller & Vieson, Walter J. Williams, Paul A. Heinen, William E. Huth, of Chrysler Corp., Ross L. Malone, Robert A. Nitschke, of General Motors, Detroit, Mich., William C. Marchiondo, Albuquerque, N. M., Norris L. O’Neill, Hartford, Conn., Leo T. Zuckerman, of Denver, Colo., for appellees.
    Before HAMLIN, BROWNING, and ELY, Circuit Judges.
   OPINION

PER CURIAM:

This treble damage action under section 4 of the Clayton Act, 15 U.S.C. § 15, was directed against the three largest domestic automobile manufacturers. It was instituted by ten Chicago aider-men, individually and on behalf of that city’s residents under Rule 23. Their claim is bottomed on the same factual allegations presented in In re Multidistrict Vehicle Air Pollution, M.D.L. No. 31, 9 Cir., 481 F.2d 122, in which our opinion has this day issued. The District Court held that the action could not be maintained under Rule 23 and this interlocutory appeal, under 28 U.S.C. § 1292(b), followed.

We need not reach the class action issues since the disposition of this appeal is controlled by our resolution of the standing issue under section 4 of the Clayton Act in Multidistrict Vehicle Air Pollution, swpra. The appellants here alleged no injuries to commercial ventures or enterprises, and since they lack the requisite standing, the District Court will, upon remand, dismiss the action in its entirety.

Remanded with directions.


author: STEVENS, Circuit Judge.

text:
    UNITED STATES of America, Plaintiff-Appellant, v. Willie Eugene CLAY, Defendant-Appellee.
    No. 72-1654.
    United States Court of Appeals, Seventh Circuit.
    Argued Feb. 23, 1973.
    Decided June 18, 1973.
    Rehearing En Banc Denied July 19, 1973.

      James R. Thompson, U. S. Atty., William T. Huyck, Gordon B. Nash, Jr., Asst. U. S. Attys., Chicago, 111., for plaintiff-appellant.
    Paul E. Freehling, Chicago, 111., for defendant-appellee.
    Before KILEY, PELL and STEVENS, Circuit Judges.
   STEVENS, Circuit Judge.

The district court found that a delay of about eight months between arrest and indictment was not prejudicial to the defendant, but because the delay was unnecessary, he dismissed the indictment. The government appeals. We hold (1) that the order is appealable, and (2) that the district court erred.

Defendant was accused of making sales of heroin on June 9 and June 17, 1971, in violation of 18 U.S.C. § 841. He was arrested on June 27, posted bond shortly thereafter, and waived preliminary hearing on July 6, 1971. The indictment was not returned until February 24, 1972, nearly eight months later. Defendant pleaded not guilty and later, on March 30, 1972, moved to dismiss the indictment on the ground that the preindictment delay was “unnecessary” within the meaning of Rule 48(b) .

The trial judge directed the parties to file simultaneous affidavits, the defendant to describe any prejudice caused by the delay and the government to explain why the delay had been necessary. Defendant complied, but the government did not. The court found that “defendant has not made a showing of any particularized or demonstrable prejudice.” But in view of the government’s failure to file any affidavit, the court was forced to conclude that the delay was unnecessary.

The district court noted its “duty to monitor the progress of litigation before it” and ruled that the decisive issue was whether the delay was necessary:

“However, the crux of Rule 48 is not the length of delay, it is not even the prejudice occasioned to the defendant as a result of the delay; it is whether, irrespective of the time interval involved the delay was necessary.” Tr. 70-71.

The determination that the delay was unnecessary therefore led to the order of dismissal.

I.

Although the trial judge may have intended to dismiss the indictment with prejudice, such a result would have been unwarranted. The order of dismissal did not adjudicate the merits of the government’s charge. Nor did it rest on a finding that the defendant’s constitutional right to a speedy trial had been denied. Indeed, the court expressly disavowed any such ground for his decision.

It is, of course, well settled that a Rule 48 dismissal may rest on a non-constitutional ground, such as “want of prosecution,” and normally such a dismissal is without prejudice to a subsequent prosecution . We believe a dismissal for the purpose of “calendar control” is in the same category. We therefore construe the district court’s order as a dismissal without prejudice.

Our construction of the order does not foreclose appealability. Since the dismissal terminated the prosecution, “albeit without prejudice, it meets the test of finality.” See Mann v. United States, 113 U.S.App.D.C. 27, 304 F.2d 394, 395-396 n. 1 (1962). The order is covered by both the language of the statute describing our appellate jurisdiction and also by the language used by the Supreme Court in United States v. Marion, 404 U.S. 307, 312, 92 S.Ct. 455, 30 L.Ed.2d 468. The Court there stated:

“Appellees had not been placed in jeopardy when the District Court rendered its judgment. The trial judge based his ruling on undue delay prior to indictment, a matter that was beyond the power of the Government to cure since reindictment would not have been permissible under such a ruling. The motion to dismiss rested on grounds that had nothing to do with guilt or innocence or the truth of the allegations in the indictment but was rather a plea in the nature of confession and avoidance, that is, where the defendant does not deny that he has committed the acts alleged and that the acts were a crime but instead pleads that he cannot be prosecuted because of some extraneous factor, such as the tolling of the statute of limitations or the denial of a speedy trial.” (Emphasis added.)

In this case, if the district court’s ruling were correct, re-indictment would not have been permissible. After the entry of the order of dismissal, it was obviously, too late to shorten the preindictment delay that had already occurred. Moreover, the issue of necessity had been determined adversely to the government. Therefore, even if the dismissal was technically without prejudice, as a practical matter, assuming the correctness of that order, there was no possibility of another indictment that would withstand an identical motion to dismiss.

The Marion indictment had been dismissed prior to January 2, 1971, the effective date of § 14(a) of the Omnibus Crime Control Act of 1970, 84 Stat. 1870. Since the order dismissing that indictment sustained “a motion in bar” within the meaning of the Criminal Appeals Act prior to its amendment, see 404 U.S. at 312, 92 S.Ct. 455, the appeal was taken directly to the Supreme Court *.

The clause in the prior statute expressly authorizing appeals from dismissals sustaining such motions was eliminated by the 1970 amendment. It might, therefore, be argued that such orders may no longer be appealed to any court. We think it is perfectly clear, however, that this kind of “decision, judgment, or order of a district court dismissing an indictment” is now appealable to a court of appeals. The language of the statute in its present form literally covers all such orders; they were not previously appealable to this court only because of the former exception from court of appeals jurisdiction for those orders which were directly reviewable by the Supreme Court. The removal of that exception merely transferred appellate jurisdiction of orders sustaining motions in bar from the Supreme Court to the courts of appeal. Although we do not find this specific change explained in the legislative history, the purpose to eliminate technical distinctions and to avoid unnecessary direct appeals to the Supreme Court is manifest and supports a literal reading of the broad language defining our jurisdiction.

II.

The delay issue most frequently presented to an appellate court is the question whether the defendant’s constitutional right to a speedy and fair trial was impaired by the passage of time. Although prejudice to the defendant is only one of the four factors to be weighed in resolving that issue, see Barker v. Wingo, 407 U.S. 514, 532-533, 92 S.Ct. 2182, 33 L.Ed.2d 101, we may assume arguendo that delay would always be considered harmless error unless the defendant-appellant made a persuasive showing of prejudice. That assumption is of no avail to the government in this case, however, because, as we have already pointed out, Rule 48(b) authorizes dismissals on non-constitutional grounds and, as the district court correctly noted, expressly authorized dismissals in certain cases in which no prejudice has been shown. Thus, the mere fact that no prejudice was shown does not require reversal.

On the other hand, the mere fact that some unnecessary delay occurred does not require affirmance. “Rule 48(b) is a codification of the inherent power of a court to dismiss a case for want of prosecution.” In order to maintain control of its calendar, a court has the power to require the parties to proceed with diligence and to meet deadlines established by court rule or order. If cases are completely inactive for prolonged periods, or perhaps simply too old to be kept on an active calendar, a court surely has power to enter an order of dismissal for want of prosecution even though neither litigant has been prejudiced by the delay. Moreover, the court may properly threaten to enter such an order as a means of requiring litigants to pursue their matters to an expeditious conclusion. But if no unusual circumstances are shown, past delay does not justify dismissal of a case which is in fact going forward with appropriate speed. There were no special circumstances in this case which called for the exercise of judicial discretion.

Prior to the indictment on February 24, 1972, the defendant made no request for relief of any sort. After the indictment was returned and the case was assigned to the district court’s calendar, it went forward with appropriate speed. The arraignment was held on March 15 and the motion to dismiss was filed on March 30. The motion was answered on April 10 and argued and decided on April 28. Although a more expedited schedule could have been set, there was no significant period of inactivity while the case was on the district court’s calendar. Therefore, although we agree that Rule 48(b) provides the court with a device for control of its calendar, that purpose does not justify the order entered here.

The order rested on the court’s holding that a period of approximately eight months of unnecessary pre-indictment delay required dismissal. We have no doubt that a district court has the power to promulgate a rule which would lead to the dismissal of indictments returned after such a period of unnecessary or unexplained delay. However, such a rule should be applied uniformly within the district and enforced only after the United States Attorney is aware that such a consequence will automatically follow a delay of that magnitude. Absent such forewarning, or some other showing justifying an exercise of discretion in this particular ease, we hold that it was error to dismiss the indictment simply because unnecessary delay of approximately eight months occurred before the indictment was returned.

Reversed and remanded for trial.

      . “If there is unnecessary delay in presenting the charge to a grand jury or in filing an information against a defendant who has been held to answer to the district
      court, or if there is unnecessary delay in bringing a defendant to trial, the court may dismiss the indictment, information or complaint.” Fed.R.Crim.P. 48(b).

        The defendant also attacked the pre-indictment delay under the Fifth and Sixth Amendments to the Constitution. These claims were correctly rejected by the lower court (Tr. 69), and are not pressed on appeal.

      . Tr. 69. Appellant contends on appeal that his affidavit was sufficient to establish prejudice, but we are satisfied that the court’s finding in this respect was correct.

      . He concluded his oral opinion by stating: “The indictment is dismissed and the defendant is discharged and ordered to go hence without a day.” Tr. 73.

      . “We also agree that a dismissal based on a finding that the constitutional right to a speedy trial has been denied bars all further prosecution of the accused for the same offense.” Mann v. United States, 113 U.S.App.D.C. 27, 304 F.2d 394, 397 (1962).

      . “Appellant says, however, that the dismissal was granted under Fed.R.Crim.P. Rule 48(b), for ‘want of prosecution,’ and that this is equivalent to a finding that he had been denied his constitutional right to a speedy trial, which finding is res adjudicata and cannot now be re-examined. But even accepting appellant’s contention that this was a Rule 48(b) dismissal, the conclusion does not follow. That Rule is much broader than he imagines. Undeniably, it implements the constitutional guarantee of a speedy trial. See Pollard v. United States, supra, 352 U.S. [354] at 361, n. 7 [77 S.Ct. 481, 1 L.Ed.2d 393], But it goes further. As the Committee Note indicates, Rule 48 (b) ‘is a restatement of the inherent power of the court to dismiss a case for want of prosecution.’ And that power is not circumscribed by the Sixth Amendment. There are many cases in which the court, moved by the plight of an accused unable to make bond, will, and should, enlarge him, even though there has been no violation of the Speedy Trial Clause. If the judge could not do so, except with prejudice to a subsequent prosecution within the limitation period, serious inequity would result.” Mann v. United States, 113 U.S.App.D.C. 27, 304 F.2d 394, 398 (1962).

      . Dortch v. United States, 203 F.2d 709, 710 (6th Cir. 1953).

      . ‘‘In a criminal case an appeal by the United States shall lie to a court of appeals from a decision, judgment, or order of a district court dismissing an indictment or information as to any one or more counts, except that no appeal shall lie where the double jeopardy clause of the United States Constitution prohibits further prosecution.” 18 U.S.C. § 3731.

      . At the time of the Marion appeal, the Criminal Appeals Act, 18 U.S.C. § 3731, provided in relevant part:
      “An appeal may be taken by and on behalf of the United States from the district courts direct to the Supreme Court of the United States in all criminal cases in the following instances:
      “From the decision or judgment sustaining a motion in bar, when the defendant has not been put in jeopardy.
      “An appeal may be taken by and on behalf of the United States from the district courts to a court of appeals in all criminal cases in the following instances :
      “From a decision or judgment setting aside, or dismissing any indictment or information, or any count thereof except where a direct appeal to the Supreme Court of the United States is provided by this section.” 63 Stat. 97. (Emphasis added.)

      . See note 7, supra.

      . See the last two paragraphs of the quotation from 18 U.S.C. § 3731, as it existed prior to amendment, set out in footnote 8, supra.

      . The explanation of the amendments to the Criminal Appeals Act in the Conference Report states, in part:
      “The Senate amendment contained provisions not in the House bill which amended the Criminal Appeals Act, section 3731 of title 18, United States Code, in the following significant respects:
      “1. Technical distinctions in pleadings as limitations on appeals by the United States were eliminated and in their place the Government was authorized to appeal any decision or order terminating a prosecution execute an acquittal.
      “4. A provision was included declaring that the Criminal Appeals Act should be liberally construed.”
      U.S.Code Cong.Admin.News 1970, p. 5848.
      Tlie decision is United States v. Ponto, 454 F.2d 657 (7th Oir. 1971), rested on two objections to appealability, neither of which is present here. The constitutional objection is inapplicable, see United States v. Marion, 404 U.S. 307, 92 S.Ot. 455, 30 L.Ed.2d 468; and the statutory objection has been remedied, see United States v. McCreery, 473 F.2d 1381 (7th Cir. 1973). See also United States v. Esposito (7th Cir., June 12, 1973).

      . See United States v. Lee, 413 F.2d 910, 912 (7th Cir. 1969), cert. denied, 396 U.S. 1022, 90 S.Ct. 595, 24 L.Ed.2d 515; United States v. Lewis, 406 F.2d 486, 493-494 (7th Cir. 1969), cert. denied, 394 U.S. 1013, 89 S.Ct. 1630, 23 L.Ed.2d 39; United States v. Jones, 403 F.2d 498, 500 (7th Cir. 1968), cert. denied, 394 U.S. 947, 89 S.Ct. 1280, 22 L.Ed.2d 480; United States v. Deloney, 389 F.2d 324 (7th Cir. 1968), cert. denied, 391 U.S. 904, 88 S.Ct. 1652, 20 L.Ed.2d 417.

      . Moore’s Federal Practice, ¶[48.03[1].

      . Cf. Mann v. United States, 113 U.S.App.D.C. 27, 304 F.2d 394, 398 (1962).

      . Of course, if such delay violated the Constitution, dismissal is necessary. See United States v. Marion, 404 U.S. 307, 319, 92 S.Ct. 455, 30 L.Ed.2d 468; Pollard v. United States, 352 U.S. 354, 361 n. 7, 77 S.Ct. 481, 1 L.Ed.2d 393.

      . “The public interest in a broad sense, as well as the constitutional guarantee, command prompt disposition of criminal charges.” Strunk v. United States, 412 U.S. 434, 439, n. 2, 93 S.Ct. 2260, 2263, 37 L.Ed.2d 56 (June 11, 1973).


author: TUTTLE, Circuit Judge.

text:
    Donald Bryan STRICKLAND, Jr., a minor through Mrs. Joyce Ann Lockridge Strickland, Guardian ad Litem, et al., Plaintiffs-Appellees, v. TRANSAMERICA INSURANCE COMPANY et al., Defendants-Appellants.
    No. 72-2612.
    United States Court of Appeals, Fifth Circuit.
    July 3, 1973.
    Rehearing and Rehearing En Banc Denied Aug. 9, 1973.

      Boris F. Navratil, Baton Rouge, La., for Transamerica Ins. Co. and others.
    David W. Robinson, Baton Rouge, La., for Carner and others.
    John L. Avant, Baton Rouge, La., for Strickland.
    Paul H. Due, Baton Rouge, La., for Sibley and Brabham.
    Walter G. Monsour, Baton Rouge, La., for Hall.
    Robert J. Vandaworker, Baton Rouge, La., for Liberty Mutual Ins. Co.
    Before TUTTLE, THORNBERRY and DYER, Circuit Judges.
   TUTTLE, Circuit Judge.

This appeal involves five consolidated lawsuits resulting from the collapse of a crane used in the erection of a large office building by Henry C. Beck Company, a building contractor. Four of the eases were brought by employees or survivors of employees of Henry C. Beck Company, the fifth being a claim by an employee of a subcontractor. The principle issue is whether these five plaintiffs are entitled to recover damages from the building superintendent employed by the Henry C. Beck Company on the building project.

The accident, which forms the subject matter of this lawsuit, occurred on October 6, 1967, during the construction of a twenty-four story office building in Baton Rouge, Louisiana. The contractor, Henry C. Beck Company, was at that time utilizing on the building site, a large tower crane capable of being elevated as construction of the building progressed. On the day of the accident the crane was being raised from the 20th to the 21st floor when it fell suddenly, killing two and injuring three workers. Killed were Donald Strickland and Ronnie Brabham, both employees of the Henry C. Beck Company. Ferd Sibley and J. Y. Hall, Beck employees, and John G. McKellar, an employee of an electrical subcontractor, were seriously injured.

The survivors of the two decedents and the three injured workers filed these actions in the United States District Court for the Middle District of Louisiana against several defendants, all but three of which were dismissed from the suit. The three defendants remaining were William Edward Carner, who was employed by the Henry C. Beck Company as the building superintendent on the project, Transamerica Insurance Company, the alleged liability insurer of William Carner, and 451 Florida Corporation, owner of the building.

Following a trial limited to the issue of liability, by its answers to special interrogatories, the jury found that Carner had been guilty of negligence and further that he was an executive officer of Henry C. Beck Company and therefore an insured under Transamerica’s liability policy issued in behalf of the company. Thereafter, a trial was held on the issue of damages resulting in judgments in favor of the various plaintiffs against William Carner and Transamerica in amounts totaling $715,000. Carner and Transamerica now appeal, both contending that as a matter of law Carner, as an officer of the corporation, could not be held personally liable in tort to the various plaintiffs. Transamerica contends separately (and adversely to Carner) that Carner is not, for a variety of reasons, within the coverage of the liability policy issued to the Beck Company. We affirm the judgments of the trial court.

The evidence in the case shows that the crane involved in the accident was a large construction crane variously referred to as a climbing crane, tower crane, or hammer crane. During the course of the construction the tower of the crane would project through several floors of the building with a hole left in each floor just large enough to accommodate it. Prior to the accident the crane was resting on the 17th floor with the tower projecting up through the 18th, 19th and 20th floors. After the concrete on the 20th floor had been fully poured, it became necessary to “jump” the crane to its next higher position, where its base would rest on the 18th floor. In order to make the jump a special climbing ladder was attached to the 20th floor which, upon engagement of the climbing mechanism, would bear the entire weight of the crane during the jumping operation. Just prior to the accident the jumping crew had successfully maneuvered the crane through one climbing cycle. However, in attempting to engage the next higher gusset of the climbing ladder, there was a sudden loud crack and the entire crane dropped straight downward, being stopped in its downward progress only when the top cross-boom hit the 20th floor. The boom struck Strickland, Brabham, and Sibley, killing Strickland and Brabham and injuring Sibley. Hall and McKellar, who were at the base of the tower, were injured.

At trial plaintiffs proceeded on two separate theories in support of their claims that Carner should be held personally liable to them for their injuries. First they contended that Carner was negligent in making the decision to elevate the crane just one day after the concrete on the 20th floor had been poured, thus exposing this “green” concrete to excessive stress, and second, in permitting the crane to be elevated by workers who were unfamiliar with it and whom he failed to instruct or train in the proper procedures for raising the crane.

There is no dispute in this case that it was Carner who made the decision to jump the crane one day after the concrete had been poured. This appears to have been the usual procedure. However, plaintiffs’ expert witness, a Mr. Morcom, testified that in his opinion the concrete on the 20th floor would have been over-stressed by the load applied to it in the process of elevating the crane and that good engineering practices had not been followed in allowing the green concrete to be subjected to such a stress. As he said:

“. . . [T]his is a very large load and you are concentrating it at one point. It’s just too large a load to put on green concrete is what it amounts to.”

Although defendants’ expert witness, a Dr. Carver, was of the view that the particular concrete would have obtained in one day compressive strength more than adequate to support the weight of the crane there was, we think, sufficient evidence, provided by Mr. Morcom, from which the jury could have concluded that concrete failure was the cause of the accident. Moreover, Mr. Morcom had noted that while the concrete might have obtained sufficient compressive strength to support the crane, the concrete nonetheless would not be good enough in its other characteristics to carry down into the shoring system and not be overstressed when the crane was jumped.

Plaintiffs further established, through the testimony of Ferd Sibley, that during a prior jump the supporting concrete had developed cracks around the area of the crane shaft and that Carner had been made aware of that fact but nonetheless ordered the jump to be completed. Finally, plaintiffs showed that Carner was familiar with certain specifications in the building contract which required that during a three to seven day curing period (depending on the type of concrete used):

“The concrete shall be protected from damaging mechanical disturbance particularly load stresses, heavy shocks, and excessive vibration. All finished concrete surfaces shall be protected from damage caused by construction equipment, materials, or by rain or running water. Self-supporting structures shall not he loaded in such a way as to over-stress the concrete.” (emphasis added).

With respect to their second theory plaintiffs introduced the testimony of a Mr. Steele, who qualified as an expert witness with respect to the crane in question and who stated that the procedure for jumping the crane followed at this particular job site was incorrect and unsafe. It was further established that Carner was familiar with the method which the jump crew used in elevating the crane and although he himself had been fully instructed in the proper procedures for doing so, he failed so to instruct the crew.

It is appellants’ contention that even if the foregoing facts affirmatively establish a breach of a legal duty on earner’s part, it was the breach of a duty owed exclusively to the Henry C. Beck Company and not personally to the individual plaintiffs, and that as a consequence Carner cannot, as a matter of Louisiana law, be held liable to the plaintiffs. This contention is based on the well-settled principle of Louisiana jurisprudence that:

“the breach of a legal obligation by a corporate officer due and owing only to the corporation, whether it be misfeasance, malfeasance or nonfeasance, is no concern of a third party and does not give rise to any cause of action by the latter, against corporate officers.” Adams v. Fidelity and Casualty Company of New York, supra, at 501.

However, it is equally well-settled, as the court in the Adams case said,

“[A]n injury suffered by a third party which is due to the breach of a legal obligation which the corporate " officer or officers owed to the third party, whether it also involved the breach of a duty due to the corporation, would give rise to a cause of action against the corporate officers for the breach of such legal obligation. It would matter not whether the breach of a legal obligation due and owing by a corporate officer to a third party was the result of misfeasance, malfeasance, or nonfeasance.” Id.

The difficulty, of course, in cases such as this one lies in ascertaining under what circumstances a particular duty will be deemed to be owed exclusively to the corporation, thus absolving a corporate officer of personal liability to an injured employee. The dividing line, at best, is a thin one. However, having carefully examined the case law of Louisiana we conclude that plaintiffs stated a good cause of action against Carner personally and that substantial evidence supported the jury’s verdict which should, therefore, not be overturned.

The Adams case involved a suit for damages filed by the surviving widow of a worker who had been killed when an iron reel, weighing over 500 pounds, fell upon him from a stack of steel on his employer’s premises. The court held that as to certain of the defendant corporate officers the petition stated a good cause of action inasmuch as it charged them with having seen the reel upon the stack of steel in a dangerous and perilous position “and having allowed it to remain or having failed to have it removed, although each had the authority and the duty to do so.” 107 So.2d at 508. The court went on to say,

“[T]he petition charges the three named defendants with having failed to perform a duty which each owed to the decedent and every other employee or person who might pass near this stack of steel or be upon the stack of steel in the performance of his duty as was the decedent for there was a duty on the part of each of these officials to use care and see that due care was used so as not to injure any third person and if they saw the reel on top of the stack of steel in a perilous and dangerous postion, . . . then their failure to act by allowing the reel to remain or to have it removed constituted a breach of that duty, whether the breach be considered one of omission or commission. The petition shows by its allegations that by virtue of their position they had the authority to have had the reel which they saw in a perilous and dangerous position removed from the stack of steel.” Id. (Emphasis added.)

The door to liability for “sins of omission” by corporate officers thus having been opened many of the more recent cases have involved allegations of failure to perform certain duties, quite frequently with respect to providing a safe place in which to work. In accordance with the policy considerations of workmen’s compensation laws the Louisiana courts have sought to weed out the type of claim in this area which ought not, as a policy matter, give rise to personal liability on the part of corporate officers. Despite apparently conflicting lines of jurisprudence in the more recent decisions there is a common thread which we perceive as running through all of them; that is, that a cause of action against officers or agents of the corporate employer is properly stated where such officer-agent knew or should have known of a specific hazard, had the authority to correct or prevent it, and either failed to do so or in some other way actively participated in allowing the harm to occur. Thus in Maxey v. Aetna Casualty and Surety Company, 255 So.2d 120 (La.App. 3rd Cir. 1971), writs refused, 260 La. 123, 255 So.2d 351, the plaintiff, who was injured in a sawmill accident, alleged in sum that the executive officers were negligent in failing to furnish him a safe place to work and to install certain safety devices. Although his petition was later amended to allege that the defendant officers knew or should have known of the safety defects in the sawmill equipment involved, the court was of the view that the failures thus alleged — which related primarily to providing a safe place for the plaintiff to work — would constitute a breach of duty which the officers owed only to the corporation. It concluded, therefore, that no cause of action had been stated. See also, Dulaney v. Fruge, 257 So.2d 827 (La.App. 3rd Cir. 1972), writs refused, 261 La. 482, 259 So.2d 921.

Similarly in Fontenot v. Insurance Company of North America, 271 So.2d 323 (La.App. 3rd Cir. 1972), writs granted La., 273 So.2d 295, plaintiff had alleged that the duty of providing supervision, safety rules, and instructions concerning the work involved had been delegated to the defendant executive officers, that they knew or should have known what plaintiff’s job entailed, and that they failed to instruct plaintiff as to the safe practices and procedures for undertaking his work. The court, in denying the existence of a cause of action, noted:

However, plaintiff has not alleged knowledge of a specific hazard. She alleges only that the defendants ‘knew and were well acquainted with the job routinely performed by Victor L. Fontenot and the usual operating procedures of the sodium niti-ate tank and were familiar, or should have been familiar, with the operations being conducted by Victor L. Fontenot and his co-employees at the time of the accident.’ Plaintiff has thus alleged no more knowledge on the part of the defendants than any supervisor would have of the functions performed by those under his authority. His lack of allegations that the routine itself was dangerous enough to put the defendants on notice of any hazards which threatened Fontenot and his failure to allege specific hazard or danger of which the defendant knew or should have known, points out this failure to attribute fault to defendants.” 271 So.2d at 329. (Emphasis added).

In LeJeune v. Liberty Mutual Insurance Company, 261 So.2d 280 (La.App. 3rd Cir. 1972), the evidence showed that the accident in question has been caused by the improper tightening of certain guy wires thus causing the derrick to fall. However, none of the defendants had been present at the time the wires were tightened or when the accident occurred and the court, in concluding that it was error for the jury to find the defendants negligent pointed out that there was no evidence “showing that any of the defendants in this suit ordered that the wires be tightened or that they had any knowledge of the fact that they had been tightened.” 261 So.2d at 284. To the same effect is Dever v. Employer’s Liability Assurance Corporation Ltd., 266 So.2d 455 (La.App. 4th Cir. 1972), writs denied, 263 La. 312, 268 So.2d 256, in which plaintiff argued that the officials and supervisory employees of the company owed him the duty to keep the crane in safe working condition and that their failure to implement a maintenance program, and adequately to supervise the operation of the crane, constituted negligence thus making the individual officers and supervisors personally liable in tort. The court refused to hold the defendant officers personally liable, noting that:

“none of these persons were [sic] present at the time of the occurrence nor did they give any orders or do any act directly connected with the crane operation that took place and led to the accident,”

and that even if

“the jury concluded that machinery failure was the cause, we cannot conclude that the defendants had reasonable grounds to know that the air system would fail.” 266 So.2d at 460. (Emphasis added.)

The result in the foregoing cases is fully consistent, we think, with the earlier case of Chaney v. Brupbacher, 242 So.2d 627 (La.App. 4th Cir. 1970), in which a vice-president and superintendent of the corporation which employed plaintiff’s decedent was held liable in a wrongful death action. The court said,

“[W]e are of the opinion that Scott J. Owens, vice-president and superintendent of Aldach, was personally negligent in ordering the crane moved to or in allowing it to remain in a dangerous proximity to the wires, without removing the boom center portions to reduce its height below the wires without having the wires de-energized or insulated, when his purpose was to have workmen using the crane to move steel beams from the driveway to a location under the wires.
“Having set the stage for a slip of the crane boom to kill Chaney, Owens’ negligence was a proximate cause of Chaney’s death.” 242 So.2d at 631, 632.

The foregoing cases, while hardly exhaustive of the Louisiana jurisprudence on this issue, fairly outline, we think, the basis for personal liability of a corporate officer. In this case the trial court instructed the jury in part as follows:

“ . . . [Y]ou cannot under Louisiana law have liability to the plaintiff unless the plaintiffs have shown by a preponderance of the evidence that he had personal knowledge of some dangerous condition or activity or that he should have had personal knowledge of such dangerous condition or activity which ultimately resulted in the accident, and that he had authority to correct that condition but failed to do so.”

We are of the view that this instruction, in light of the Adams case and its progeny, contained a correct statement of the applicable law.

Turning to the facts of this case it is noted that Carner himself ordered the crane to be jumped on the day of the accident. Although it may have been the usual procedure on this particular building site to raise the crane a single day after the concrete on the topmost floor had been poured, the regularity of the procedure, undertaken in the past without incident, would not necessarily absolve Carner of personal liability. See Canter v. Koehring Company, supra. Carner knew that on a prior jump the concrete around the crane shaft had developed cracks and was further aware that the building contract specified a three to seven day curing period prior to stressing freshly-poured concreté. Under these circumstances the jury could well have concluded that Carner knew or should have known that there might be a concrete failure in raising the crane on “green” concrete.

While there appears to us to be ample evidence to support a finding that concrete failure was the cause of the accident, plaintiffs at trial urged alternatively, and most vigorously, that the accident may have been caused by the jump crew’s utilization of improper and unsafe methods for raising the crane. Here again, even if this were concluded by the jury to be the cause of the accident, we think there was a sufficient personal nexus between Carner and its occurrence to establish an adequate foundation for a finding of personal liability. Carner ordinarily supervised the raising of the crane and the testimony showed that he was aware of the proper procedures for doing so. In suffering improper procedures to be followed by the jump crew, despite his own personal and superior knowledge of proper procedures, Carner could well have anticipated that an accident in jumping the crane might ultimately occur. Therefore, earner’s failure to take affirmative action to prevent it, that is, his failure to correct the crew’s jumping the crane in a manner which Carner knew or should have known might result in an accident, was sufficient for the jury, we think, under the rule announced in the Adams case — and the “specific hazard” rule announced in the Fontenot case — to find constituted a breach of a duty which Carner owed personally to these individual plaintiffs. We, thus, conclude that the jury’s verdict of personal negligence on the part of Carner was not, as a matter of Louisiana law, unsustainable. We do not know which theory the jury accepted as having caused the accident but we conclude that the evidence would have supported a verdict on either. We, therefore, affirm the verdict in that respect.

It is next argued that the trial court stacked the deck against defendants in its instructions and interrogatories to the jury. We note that the special interrogatories were submitted to the jury in the following order:

“(1) At the time of the accident, was Mr. William E. Carner an executive officer of the Henry C. Beck Company?
(2) Was Mr. William E. Carner guilty of negligence ?”

It is further noted that the Court instructed the jury as follows:

“After considering all of these criteria [relative to executive officer status], you must decide whether Mr. Carner was or was not an executive officer of the Beck Company. After you make that decision, you must decide whether or not Mr. Carner was personally guilty of negligence which was the proximate cause of this accident.” (Emphasis added.)

Appellants urge that this charge, together with the inverse ordering of the interrogatories, invited the jury to determine first that Carner was covered by the terms of Transamerica’s liability-policy issued to the Beck Company and then to decide whether or not he was negligent. Under these circumstances, it is argued, the jury would be more likely to find Carner personally negligent if it had first found that he was covered by liability insurance.

We would emphasize that it is particularly important in these Louisiana cases, wherein there is a right of direct action by an injured party against insurance companies, to protect insurance defendants from any prejudice arising from the knowledge imparted to the jury that if there is a recovery it will be the insurance company that will pay. However, it should be pointed out that appellants did not object either to the order of the interrogatories as given or to the specific instructions given by the trial court as quoted above. At the conclusion of the court’s instructions counsel for appellants in behalf of Transamerica objected only to the fact that the issue of Transamerica’s liability under the policy had been submitted to the jury at all, that is, Transamerica contended that the issue of its liability should have been tried separately from the issue of earner’s liability. Since appellants thus failed to object specifically to those portions of the charge and the interrogatories which they now claim to have prejudiced their defense, error cannot be assigned on these grounds. See Fed.R.Civ.P. 51.

As to the question whether Transamerica’s liability under the policy should have been tried separately from the issue of earner’s liability for personal negligence, we are, of course, in this diversity litigation bound by Louisiana law. In Louisiana, unlike most other states, a liability insurer may be sued directly by the injured party. While this rule of law might be perceived by some as creating injustice in certain cases the Louisiana Revised Statutes, Section 22:655 specifically provides:

“The injured person . . . shall have a right of direct action against the insurer within the terms and limits of the policy . . . and said action may be brought against the insurer alone or against both the insured and insurer jointly and in solido

In this case the trial court strictly adhered to the Louisiana rule that neither the face amount of the policy nor a copy thereof should be permitted to go to the jury. Since the issue of liability on the part of the insurance company and on the part of Carner involved many of the same witnesses and since the damage issue was severed from the liability issue by the trial court, we do not think there was an abuse of discretion in the trial court’s refusal to sever the case against Transamerica from that against Carner. Indeed the prejudice to Transamerica, if any, was certainly no greater than if Transamerica had been sued alone, as permitted by the statute, rather than jointly with Carner. And our conclusion is buttressed by the fact that Transamerica raised no objection to its liability being determined along with that of Carner until plaintiffs had rested their ease.

Transamerica next contends, adversely to Carner, that Carner as a matter of law was not covered by the general liability policy issued to the Henry C. Beck Company. It urges first that Carner simply was not an executive officer of the company and thus could not have been within the coverage of the policy which extended only to directors, stockholders, and executive officers. In support of this contention Transamerica argues that in this diversity litigation we should not apply Louisiana law but rather the law of Texas which is the lex loci contractus. We, however, are inclined to agree with the appellees on this issue that the law of Louisiana is controlling. Under Louisiana law we think there is ample authority to support the jury’s conclusion, whether the issue be treated as one of fact or of law, that Carner was an “executive officer” as that term is generally understood. Berry v. Aetna Casualty & Surety Company, 240 So.2d 243 (La.App. 2nd Cir. 1970), writs refused, 256 La. 914, 240 So.2d 374 (1970), U.S. cert. denied, 401 U.S. 1005, 91 S.Ct. 1255, 28 L.Ed.2d.541.

Transamerica further urges that Carner is not afforded coverage under the policy because of one of two exclusions contained therein. These exclusions provide that insurance coverage does not apply:

“(g) To any obligation for which the insured or any carrier as its insurer may be held liable under any workmen’s compensation, unemployment compensation, or disability benefits law, or under any similar law; .
(h) To bodily injury to any employee of the insured arising out of and in the course of his employment by the insured; but this exclusion does not apply to liability assumed by the insured under any incidental contract;”

It is Transamerica’s position that the first of these exclusions applies to claims of those who are injured in a manner such that the Henry C. Beck Company would be liable to them for workmen’s compensation benefits and that the second of the exclusions removes from coverage bodily injury claims of employees of the Beck Company. In sum, the company contends that the words “insured,” as used in these exclusions refers to the insured, that is, the Henry C. Beck Company, and that since four of the five suits in this case were based on claims for bodily injuries sustained by Beck employees and since the fifth suit involved injuries sustained by an employee of a subcontractor whose claims for such injuries were covered under the Louisiana Workmen’s Compensation law, both exclusions become operative in this case and as a consequence there is no coverage under the policy for Carner. This construction of the insurance policy’s exclusions runs directly counter to the Louisiana Supreme Court’s construction of a similar policy in Pullen v. Employers’ Liability Assurance Corporation, 230 La. 867, 89 So.2d 373 (1956). However, Transameriea urges that we adopt, notwithstanding the Erie doctrine, a different construction (and the one which Transameriea champions), which this court in Hughes v. Chitty, 415 F.2d 1150 (5th Cir. 1969), applied to like exclusions in an admiralty ease. Inasmuch as Chitty did not involve diversity litigation, we apparently did not in that case follow, nor did we allude to, Louisiana law. In this case, of course, we are bound to do so. Therefore, in view of the rule announced in the Pullen case we are of the opinion that the exclusions upon which Transamerica here relies do not exclude coverage under these circumstances for earner or others similarly situated.

We are of the view that there was no error in the proceedings of the trial court. The judgment is, therefore, affirmed.

      . The I-Ieury O. Beck Company, being liable to each of the plaintiffs for workmen’s compensation benefits, was not named as a defendant in any of these suits since the exclusive remedy against it was for workmen’s compensation.

      . Transamerica was the liability insurer of the Henry C. Beck Company under a standard general liability j)olicy which extended coverage to “any executive officer, director or stockholder” of the company acting within the scope of his duties.

      . The 451 Florida Corporation was absolved of liability by the jury and is not involved in this appeal.

      . Carner was not, however, present at the site when the accident occurred.

      . In Louisiana recovery of workmen’s compensation benefits from the employer is not the exclusive remedy for an injured employee. Section 23:1101 of the Louisiana Revised Statutes provides an additional cause of action by such an employee against “third persons” other than the employer, including directors, executives, officers, or agents of the employer. See e. g. Adams v. Fidelity and Casualty Company of New York, 107 So.2d 496 (La.App.4th Cir. 1958) ; Lee v. Griffith, 140 So. 142 (La.App.2nd Cir. 1932). The statute provides:
      “When an injury for which compensation is payable under this Chapter has been sustained under circumstances creating in some person (in this Section referred to as third person) other than the employer a legal liability to pay damages in respect thereto, the injured employee or his dependent may claim compensation under this Chapter and the payment or award of compensation hereunder shall not affect the claim or right of action of the injured employee or his dependent against such third person, nor be regarded as establishing a measure of damages for the injury ; and such injured employee or his dependent may obtain damages from or proceed at law against such third person to recover damages for the injury.”

      . The same result was reached in Canter v. Koehring Company, 267 So.2d 270 (La.App.3rd Cir. 1972), writs granted, 263 La. 233, 267 So.2d 726, in which the Louisiana court said :
      “The trial judge was clearly correct in finding Frenzel negligent. He knew the shipping weight of the vessel, had supervised the addition thereto of the appurtenances and knew that this was added weight. Frenzel had supervisory control and had the duty to advise the rigger of the weight to be lifted. If he did not know the weight, lie should have requested this information from Pitts-burg’s engineers or some other reliable source. Why didn’t he do this? Maybe it was because he had never done so before. . . • . In any event, Frenzel failed in his duties.” 267 So.2d at 275.

      . Indeed this theory was the only theory specifically pleaded by each of the plaintiffs in their complaints. However, we note that Rule 15(b) of the Federal Rules of Civil Procedure provides:
      “When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues.”
      Under this rule it plainly appears that the theory of concrete failure was made a tona fide issue in the case and could have been considered by the jury in reaching its verdict.

      . Fontenot v. Insurance Company of North America, supra.

      . At trial counsel for appellants stated:
      “With respect to Transamerica Insurance Company, I want to again re-urge my motion that the issue be taken from the jury. That motion is based upon the proposition that the question of whether Mr. Carner was an insured had nothing to do with the determination of whether or not he was negligent. The questions in this case were split— the issues were split to be tried, the issue of liability first and then the question of quantum. Whether Mr. Carner was guilty of the kind of negligence that should make him liable to these plaintiffs is solely the issue that should be before this jury; and the question of whether or not he might also be an insured is totally irrelevant to that issue. For that reason the issue should have been taken from the jury.”

      . In Elbert v. Lumberman Mutual Casualty Company, 202 F.2d 744 (5th Cir. 1953) Judge Rives in a dissenting opinion said:
      “Suits by the injured party directly against the insurer may operate justly under the Civil Law of Louisiana where jury verdicts are not important, but where there is a common law right of trial by jury, as in the federal courts, it has been repeatedly recogized that juries are more prone to find liability and to assess heavy damages against a liability insurance company than against the insured. The mere mention of insurance to a jury is reversible error in all but four states of the union. [Citation omitted]. With both the insured and the insurer present, the federal courts could, in furtherance of justice and to avoid prejudice, order separate trials as to the cause of action against the insured and as to the existence and coverage of the policy.”

      . This is so, we think, for two reasons: First, the Louisiana courts adhere to the principle of lex loci delicti in tort actions, see Johnson v. St. Paul Mercury Insurance Company, 256 La. 289, 286 So. 2d 216 (1970) ; second, there being no Texas case cited to us which is dispositive of this “executive officer” issue, under the Louisiana conflicts of law rules the law of a foreign state, in the absence of proof to the contrary, is presumed to be the same as the law of the forum state. See, Succession of Gibson, 186 La. 723, 173 So. 185 (1937).

      . We note that Transameriea could have eliminated any ambiguity in exclusion (g) and (h) merely by qualifying the term “the insured” with the descriptive term “named” preceding the word insured. In fact the policy reflects that Transameriea did so specifically describe the insured as “the named insured” in many of the other exclusions contained in its policy.
      Moreover, Transameriea did not raise any issue specifically with respect to these exclusions until after the jury had returned its verdict. Under Rule 8(c), Federal Rules of Civil Procedure, these exclusions should have been specially pleaded as an affirmative defense.


author: AINSWORTH, Circuit Judge.

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Perry Russell TUNNELL, Defendant-Appellant.
    No. 72-3787.
    United States Court of Appeals, Fifth Circuit.
    July 18, 1973.
    Rehearing and Rehearing En Banc Denied Oct. 31, 1973.

      J. W. Tyner, Jerry Bain, Tyler, Tex., for defendant-appellant.
    Roby Hadden, U. S. Atty., Tyler, Tex., Richard P. Slivka, Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Atty., Dept, of Justice, Tax Div., Washington, D. C., for plaintiff-appellee.
    Before AINSWORTH, GODBOLD and INGRAHAM, Circuit Judges.
   AINSWORTH, Circuit Judge.

Perry Russell Tunnell was convicted on each of three counts for willfully attempting to evade federal income tax during the years 1965, 1966, and 1967, in violation of 26 U.S.C. § 7201 (1970). The central issue on appeal concerns the sufficiency of the Government’s evidence based on the net worth method. We affirm.

I.

One of the essential elements which the Government had to prove was that taxpayer owed tax on at least some unreported income for each of the three years named in the indictment. Because taxpayer’s records were inadequate, the Government utilized the so-called “net worth method” described and approved in the leading Supreme Court case of Holland v. United States, 348 U.S. 121, 125, 75 S.Ct. 127, 130, 99 L.Ed. 150 (1954):

In a typical net worth prosecution, the Government, having concluded that the taxpayer’s records are inadequate as a basis for determining income tax liability, attempts to establish an “opening net worth” or total net value of the taxpayer’s assets at the beginning of a given year. It then proves increases in the taxpayer’s net worth for each succeeding year during the period under examination and calculates the difference between the adjusted net values of the taxpayer’s assets at the beginning and end of each of the years involved. The taxpayer’s nondeductible expenditures, including living expenses, are added to these increases, and if the resulting figure for any year is substantially greater than the taxable income reported by the taxpayer for that year, the Government claims the excess represents unreported taxable income. In addition, it asks the jury to infer willfulness from this understatement, when taken in connection with direct evidence of “conduct, the likely effect of which would be to mislead or to conceal.” Spies v. United States, 317 U.S. 492, 499 [63 S.Ct. 364, 368, 87 L.Ed. 418].

See also United States v. Newman, 5 Cir., 1972, 468 F.2d 791, cert. denied, 411 U.S. 905, 93 S.Ct. 1527, 36 L.Ed.2d 194 (1973); Lee v. United States, 5 Cir., 1972, 466 F.2d 11. In the present case the Government determined the correct taxable income and tax to be the amounts set out below, compared to the taxable income and. tax actually reported by Tunnell on his returns, as follows:

Government Determination Tunnell Reported
Year Income Tax Income Tax
1965 $ 9,236.73 $ 971.55 $ 181.52 $ 142.08
1966 35,579.77 5,942.14 2,241.98 113.33
1967 34,783.42 7,738.31 (20,864.63) -0-

To rely on determinations of income by the net worth method, it was necessary that the Government establish Tunnell’s opening net worth at the start of 1965 with reasonable certainty, introduce evidence supporting the inference that his net worth increased due to currently taxable income, and negate all reasonable explanations and leads furnished by Tunnell which were inconsistent with guilt. See Holland, 348 U.S. at 132, 135, 137, 75 S.Ct. at 134-136. In examining the record we find that the Government sustained its burden.

Based on a detailed financial analysis, the Government determined Tunnell’s assets on December 31, 1964 to be $57,686.89, including cash on hand, cash in banks, the Pines Motel and Trailer Park, some farm land he inherited, mobile homes, automobiles, trucks, and deferred expenses. But he had offsetting liabilities of $64,447.55, so the Government set his opening net worth at a deficit of $6,760.66, which we find to. be fully supported by the record. Counsel for taxpayer objected to the Government’s introduction into evidence of tax returns for 1962, 1963, and 1964, and when the jury during its deliberations requested the 1963 and 1964 returns, counsel also objected to the district judge’s allowing the jury to see the returns again. These returns were admissible and could be viewed by the jury at its request, because the small amounts of income reflected in these returns were relevant to corroborate the asserted deficit net worth as of December 31, 1964. The returns consistently showed the taxpayer had little income during the prior three years. Furthermore, the district judge gave the jury a proper limiting instruction that the documents could only be considered for the limited purpose of determining Tunnell’s opening net worth.

The Government showed that the likely source of Tunnell’s net worth increases was from taxable income, as opposed to exempt income, by showing that he could have had income from the Pines Motel other than that reported. Appellant objected to testimony that this motel, in addition to providing the taxable income generally expected, also provided Tunnell with an opportunity for income from prostitution activities. This was necessarily admissible to fulfill the Government’s responsibility under Holland of showing a likely source for the unreported income over the three-year period. Tunnell, himself, volunteered the information to a Government agent that he had two to four girls working for him during all three years of 1965 through 1967 and that he made as much as $12,000 from their prostitution in one year. This income was taxable even if it was unlawful. See James v. United States, 366 U.S. 213, 219, 81 S.Ct. 1052, 1055, 6 L.Ed. 246 (1961).

The only leads furnished by taxpayer as inconsistent with guilt were that he had available $20,000 to $21,000 from the sale of a motel in Galveston during the prior tax year of 1964, that he “floated” checks, and that he borrowed money to live on during the years 1965 through 1967. The sale of the motel was reported on his 1964 return as a loss, and the correctness of that return was not disputed by the Government. Thus no tax was due on the proceeds received from the sale at an amount less than the basis. But contrary to appellant’s assertion in his brief that he had $20,000 available as a result of the sale, testimony by one of two other people with interests in the motel indicates that a promissory note of about $15,000 had to be paid after the sale and the remaining $5,000 from the sale was divided among three people, so that Tunnell probably got less than $2,000.

“Floating” checks was defined as writing a- check in excess of the amount in the bank account but then depositing money from another account in time to cover the check. Evidence indicates that Government agents thoroughly reviewed Tunnell’s assets and liabilities and bank accounts to negate either his borrowing money or his floating checks as sufficient to account for the net worth increases.

II.

As inferred by the Supreme Court from the words “willfully attempts” in the statute, the second and third necessary elements for conviction are evil motive by the defendant Tunnell and an affirmative act to carry out his scheme to evade tax. See 26 U.S.C. § 7201 (1970); Spies v. United States, 317 U.S. 492, 63 S.Ct. 364, 87 L.Ed. 418 (1943). See generally United States v. Bishop, 412 U.S. 346, 93 S.Ct. 2008, 36 L.Ed.2d 941 (1973). Here the consistent pattern of understating large amounts of income coupled with evidence of inadequate records kept by taxpayer permits an inference of willfulness sufficient to create a jury question. See generally Holland, supra, 348 U.S. at 139, 75 S.Ct. at 137; Holbrook v. United States, 5 Cir., 1954, 216 F.2d 238, cert. denied, 349 U.S. 915, 75 S.Ct. 605, 99 L.Ed. 1249 (1955). The requisite affirmative act can be found in the filing of false tax returns for each year in the indictment.

Appellant raises several other points which we have considered and find to be without merit.

Affirmed.

      . Section 7201 reads as follows :
      Any person who willfully attempts in any manner to evade or defeat any tax imposed by this title or the payment thereof shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.

      . This evidence thus differs from that presented in Armes v. Commissioner, 5 Cir., 1971, 448 F.2d 972, 975-976 n. 2, where the evidence of prostitution activities never reached beyond suspicion and innuendo.