author: MANSFIELD, Circuit Judge:

text:
    In the Matter of BECK INDUSTRIES, INC., in Proceedings for the Reorganization of a corporation, Debtor. Jack FELDMAN et al., Appellants, v. TRUSTEES OF BECK INDUSTRIES, INC., Appellees.
    No. 582, Docket 72-2277.
    United States Court of Appeals, Second Circuit.
    Argued March 20, 1973.
    Decided April 30, 1973.

      Donald N. Rothman, Baltimore, Md. (Robert E. Sharkey, Gordon, Feinblatt, Rothman, Hoffberger & Hollander, Ober, Grimes & Schriver, Baltimore, Md., Winer, Neuburger & Sive, New York City, of counsel), for appellants.
    Milton S. Gould, New York City (Martin I. Shelton, Herman A. Bursky, Shea Gould Climenko & Kramer, New York City, of counsel), for appellees.
    Before SMITH, FEINBERG and MANSFIELD, Circuit Judges.
   MANSFIELD, Circuit Judge:

The issue on this appeal is whether the Bankruptcy Court had jurisdiction under 11 U.S.C. §§ 511 and 516(4) to restrain Maryland state court proceedings against a wholly-owned subsidiary of the debtor in Chapter X proceedings, Beck Industries, Inc. (hereinafter “Beck”). The subsidiary, Webster Clothes, Inc. (hereinafter “Subsidiary”), had been newly created by Beck for the purpose of entering into a corporate acquisition but subsequent to the acquisition the Subsidiary also was a self-sustaining, viable, autonomous entity engaged in the conduct of its own business, which was separate and distinct from that of Beck. Judge John M. Can-nella affirmed the order of Referee Asa Herzog who, by restraining the Maryland court proceedings, in effect found that the assets of Subsidiary constituted “property” of Beck within the meaning of the Bankruptcy Act and thus that the Bankruptcy Court had jurisdiction. The decision was based on the premise that Subsidiary was a mere adjunct or instrumentality of the debtor, permitting the court to disregard its separate corporate existence and pierce the corporate veil. For reasons stated below, we find that the Bankruptcy Court was without jurisdiction to restrain the Maryland court proceedings and we therefore reverse the restraining order.

THE FACTS

The record, which consists of various affidavits and documentary exhibits, reveals the following: In early 1969, negotiations were conducted between Beck, which was a conglomerate, Webster Clothes, Inc. (hereinafter “Webster-Md.”), which was a Maryland corporation, and the latter’s stockholders regarding the acquisition by Beck of Webster-Md., a long-established, closely-held, going corporate concern engaged in the manufacture and the sale of men’s clothing. The form of the transaction was to be a triangular three-party merger, which would conform to the requirements for a hybrid “Type A” form of tax-free reorganization as prescribed by the Internal Revenue Code, 26 U.S.C. §§ 368(a)(1)(A) and 368(a)(2)(D). The hybrid “Type A” merger permits a subsidiary to exchange its parent’s stock for shares of a third corporation being acquired in a statutory merger in which the third corporation is merged into the subsidiary. Such a transaction qualifies as a tax-free “A” reorganization if: (1) none of the subsidiary’s stock is used, and (2) the exchange would have been an “A” type reorganization if the acquired corporation had merged directly into the parent. Here Webster-Md. was to be merged into Subsidiary, which would be newly formed for the purpose. Subsidiary would acquire the property of Webster-Md., giving to the Webster-Md. stockholders shares of Beck stock in exchange for their Webster-Md. stock.

The transaction was set forth in two documents, both dated May 6, 1969: (1) the Plan and Agreement of Reorganization (hereinafter “Plan & Agreement”) which was entered into by Webster-Md., its stockholders, Beck, and Subsidiary; and (2) the “Articles and Agreement of Merger” (hereinafter “Merger Agreement”) which was entered into between Subsidiary and Webster-Md.

Under the terms of these documents, Webster-Md. was to be merged into Subsidiary, which would become the surviving corporation. The Webster-Md. stockholders would receive approximately $2.5 million worth of Beck stock, or 84,388 shares, in immediate payment for their Webster-Md. stock. In the event that on December 31, 1971, the market value of 84,388 shares of Beck stock should be less than 150% of its market value on May 6, 1969, then according to an “Adjustment of Consideration” (set forth in the Plan & Agreement), Subsidiary would make a deferred payment to Webster-Md.’s former stockholders by delivering to them sufficient additional shares of Beck stock to increase the total value of Beck shares held by them to 150% of the value of such shares on May 6, 1969.

The Plan & Agreement sets forth a series of obligations and warranties that extend from both Beck and Subsidiary to Webster-Md. and to the latter’s stockholders. In Paragraph 3(f) Beck undertook, should the provisions of the “Adjustment of Consideration” be invoked, to apply to the American Stock Exchange (“AMEX”) for the listing of additional shares and covenanted to “take such steps as may be necessary to maintain the existence and solvency of Beck Subsidiary.” In Paragraph 6 of the Plan & Agreement Beck and Subsidiary make a series of parallel representations and warranties. For instance, Paragraph 11(e) provided: “BECK and BECK Subsidiary hereby agree to indemnify and hold harmless the stockholders against and in respect of any and all damage, deficiency, loss, claims, demands, actions, suits, proceedings, judgments and assessments resulting from any misrepresentations, breach of warranty or nonfulfillment of any agreement, obligation or covenant to be performed by Beck or Beck Subsidiary. . . . ” (emphasis added). Correspondingly, Beck and Subsidiary received in Paragraphs l(a-d) certain assurances and remedies from Webster-Md. and its stockholders.

On July 10, 1970, the American Stock Exchange suspended trading in Beck Common Stock and thereafter its shares were traded only in the Over-the-Counter market. On May 27, 1971, Beck filed a petition for reorganization under Chapter X of the Bankruptcy Act, which was approved by order of the district court on that date. In addition to the appointment of the Trustees and the delineation of their powers and duties the order restrained all persons from interfering with the Bankruptcy Court’s exclusive jurisdiction over the debtor and its property.

“enjoined and stayed from commencing or continuing any action at law or suit or proceeding in equity against said debtor or said trustees in any court, or from executing or issuing or causing the execution or issuance out of any Court of any writ, process, summons, attachment, subpoena, replevin, execution or other process for the purpose of impounding or taking possession of or interfering with or enforcing a lien upon any property owned by or in the possession of the said debtor or said Trustees, and from doing any act or thing whatsoever to interfere with the possession or management by said debtor or said Trustees of the property and assets of the within estate, or in any way interfere with said trustees in the discharge of their duties herein, or to interfere in any manner during the pendency of this proceeding with the exclusive jurisdiction of this Court over said debtor and said trustees and their respective properties. ...”

Needless to say, on December 31, 1971, the 84,388 Beck shares received by Webster-Md.’s former stockholders were not worth 150% of their value on May 6, 1969, and because of the Chapter X proceeding Beck was unable to comply with the “Adjustment of Consideration” as set forth in the Plan & Agreement.

On January 13, 1972, Jack Feldman, et al., the appellants (hereinafter “the Feldmans”), who, as the former owners of about 65% of the Webster-Md. shares, were participants in the merger, instituted an action in the Circuit Court of Baltimore City, Baltimore, Maryland, against Subsidiary by filing a Bill of Complaint which sought, among other things, to cancel and rescind the Merger Agreement. Neither Beck nor its Trustees were named as defendants. In Count I of the Bill, the Feldmans claimed that the inability of Subsidiary to deliver additional shares of Beck stock having the value required by the “Adjustment of Consideration” provisions of the Plan & Agreement

“constitute [d] a total failure of the consideration promised to Plaintiffs [the Feldmans] by the Defendant in exchange for the delivery by the Plaintiffs of all their stock in Webster-Md. to the Defendant and in consideration for Plaintiffs’ actions which caused Webster-Md. to agree to the merger of Webster-Md. into the Defendant.”

The prayer for relief sought the cancellation and rescission of the Merger Agreement, the return to the Feldmans of the shares necessary to restore them to their prior percentage of equity in Webster Clothes (65%) and an accounting.

Under Paragraph 11(e) of the Plan & Agreement, Count II sought indemnification by Subsidiary for damages and losses “resulting from the breach or non-fulfillment of any agreements, obligations or covenant to be performed by Beck under the Plan & Agreement or Merger Agreement” including the pro-rata share of $2.7 million. In Count III, essentially the same relief was sought, this time based on Subsidiary’s breach of its own covenants under Paragraph 11(e). Count IV sought damages in the sum of $2,425,746.63.

The Baltimore Circuit Court, upon the Feldmans’ ex parte motion, issued an order enjoining Subsidiary, “its officers, agents, servants, employees, and attorneys, and all other persons in active concert and participation with it from doing any of . . . ” an enumerated list of acts which might facilitate the depletion of Subsidiary’s assets by Beck. Neither the Bill of Complaint nor the ex parte petition for injunctive relief named Beck as a defendant.

The instant action arose from the Trustees’ attempt to enjoin the Maryland proceedings. Although the Maryland proceedings failed to name Beck as a defendant and were directed against Subsidiary, the Trustees of Beck, on January 21, 1972, claiming a violation of the Chapter X protective order prayed for an order to show cause why the Feldmans “should not be enjoined from taking any further steps or actions in the Maryland proceedings and why they should not be restrained from in any other manner interfering with the possession or management by the Trustees of the estate. . . . ” On the same date Judge Cannella signed the order to show cause containing a provision staying until his hearing of the issue any further steps in the Maryland proceedings and ordering the respondents (the Feldmans) to vacate the ex parte Maryland order. By stipulation filed on January 25, 1972, the Feldmans agreed to vacate the Maryland ex parte order and the Trustees agreed to refrain from entering into any unusual transactions with Subsidiary.

In a decision dated April 19, 1972, Referee Herzog granted the motion to restrain further proceedings in the Maryland action. Conceding the validity of the general rule “that Section 116(4) does not authorize the Chapter X court to enjoin prosecution of a suit against a wholly independent subsidiary . . .” the Referee found that the “equities demanded departure from the general rule” because Subsidiary is “an independent entity by virtue of the sheerest-fiction” and “was a mere adjunct or instrumentality” of Beck, and as such, the corporate veil which separated Beck and Subsidiary should be pierced, at least with regard to the instant transaction with the Feldmans. By so doing, the Bankruptcy Court, exercising its jurisdiction under §§ 511 and 516(4), was able to reach the Maryland action.

On September 26, 1972, Judge Cannel-la, essentially approving Referee Her-zog’s reasoning, affirmed the order and pierced the corporate veil. The question before us is whether the Bankruptcy Court had jurisdiction to enter the injunction.

THE LAW

Under 11 U.S.C. § 511 the Bankruptcy Court in Chapter X proceedings has “exclusive jurisdiction of the debtor and its property, wherever located.” Section 516(4) provides in pertinent part that the court may “enjoin or stay until final decree the commencement or continuation of a suit against the debtor or its trustee or any act or proceeding to enforce a lien upon the property of the debtor” (emphasis added). In determining whether Subsidiary or its assets constitute “property” of the debtor within the meaning of the Act, we must note that Beck’s sole interest in Subsidiary is its ownership of Subsidiary’s outstanding stock. Ownership of all of the outstanding stock of a corporation, however, is not the equivalent of ownership of the subsidiary’s property or assets. See In Re Gobel, Inc., 80 F.2d 849, 851 (2d Cir. 1936); Klein v. Board of Tax Supervisors, 282 U.S. 19, 23-24, 51 S.Ct. 15, 75 L.Ed. 140 (1930); Liman v. Midland Bank Ltd., 309 F.Supp. 163, 167 (S.D.N.Y.1970). Even though the value of the subsidiary’s outstanding shares owned by the debtor may be directly affected by the subsidiary’s disputes with third parties, “Congress did not give the bankruptcy court exclusive jurisdiction over all controversies that in some way affect the debtor’s estate.” Callaway v. Benton, 336 U.S. 132, 142, 69 S.Ct. 435, 441, 93 L.Ed. 553 (1949);

Consistent with this approach is the general rule — upon which the parties, the Referee and the District Judge agree — that § 516(4) of the Bankruptcy Act does not authorize the Chapter X court to enjoin a suit against a solvent independent subsidiary of the debtor merely because its stock is held by the debtor in reorganization. See In Re Gobel, Inc., supra; In Re South Jersey Land Corp., 361 F.2d 610 (3d Cir. 1966); 6 Collier on Bankruptcy, ¶ 3.11 at 501; cf. Greenbaum v. Lehrenkrauss Corp., 73 F.2d 285 (2d Cir. 1934) (equity receiver of parent could not enjoin a suit against the subsidiary).

The foregoing general rule was established as the law of this Circuit in the leading case of In Re Gobel, Inc., supra, where we reversed a district court order which had enjoined certain state court proceedings directed at the debtor’s subsidiary. Gobel, Inc., the debtor in the bankruptcy proceedings, had voted the common stock of its subsidiary, Decker & Sons, in favor of a sale of Decker’s assets to Armour & Co. The appellant therein, which had leased certain equipment to Decker, sought to compel Decker to establish a fund to pay-off the lease (which Armour had refused to assume) and later sought damages for breach of the lease. We found that the Bankruptcy Court had no jurisdiction to restrain the action against Decker, stating “it is plain that the suit was not against this debtor nor was it a judicial proceeding to enforce any lien upon its estate. The assets of the Decker corporation were involved, not the Decker stock, which was part of the debtor’s estate. . But mere financial interest of a bankrupt estate in the outcome of the litigation pending in state courts does not authorize the issuance of an injunction against such prosecution.” 80 F.2d at 852. Gobel was followed as recently as 1966 in In Re South Jersey Land Corp., supra, and no basis is offered for rejecting its reasoning, which is not seriously questioned. In Re Federal Biscuit Co., 203 F. 37 (2d Cir. 1913), and In Re Collier, 4 F.Supp. 700 (S.D.N.Y.1933), which are relied upon by the debtor, are clearly distinguishable. There the third party’s enforcement of its rights would, unlike the situation here, result in seizure and sale of property owned by the debtor, which had been deposited by it to secure a surety bond.

Absent a showing by the Trustees that Subsidiary was a mere sham or alter ego of Beck, the present case is governed by Gobel, since the Maryland suit herein is directed solely against Subsidiary and not against any property of the debtor (Beck). If rescission were granted in the Maryland action, Subsidiary would be ordered to return to Webster-Md. the assets which Subsidiary had obtained from Webster-Md. as a result of the merger and to return to the former Webster-Md. stockholders the Webster-Md. shares which Subsidiary had received from them in exchange for the 84,388 Beck shares transferred by it to them. In return Subsidiary would receive back the 84,388 shares of Beck stock, which concededly are worth very little. Beck would still own the stock of Subsidiary, but the assets of Subsidiary would be worth much less. If, rather than rescission, damages were granted, Beck would still own the stock of Subsidiary, but the value of Subsidiary would be reduced by a sum approximating the amount of the damages. In either event Beck would not be deprived of its property, i. e., Subsidiary’s outstanding shares. Admittedly there is no attempt by the Maryland plaintiffs to impress a lien upon the shares of Subsidiary owned by its parent-debtor (Beck) or to obtain relief against the debtor. The sole effect of a judgment against Subsidiary, therefore, would be to lower the value of Subsidiary’s outstanding shares. Thus, under traditional reasoning the dispute between appellants and Subsidiary is a controversy which might affect the worth of the debtor’s estate, see Callaway v. Benton, supra, but not title to its “property.”

In short, absent proof that Subsidiary was a mere sham or conduit rather than a viable entity, the Maryland suit is not a “proceeding to enforce a lien upon the property of the debtor” as that phrase is used in § 516 of the Bankruptcy Act and the Bankruptcy Court therefore lacks jurisdiction. Apparently accepting the view that under the general rule the district court would not have the power to issue injunctive relief at the instance of the parent debtor with respect to its Subsidiary’s dealings with third persons, the Trustees of the debtor argue, and Referee Herzog and Judge Cannella agreed, that Subsidiary’s separate corporate existence should be treated as a sham or mere formal technicality permitting the court to pierce the corporate veil and treat Subsidiary’s property as that of the parent-debtor (Beck), at least for the purpose of restraining appellants’ Maryland suit. In their view Subsidiary is not a distinct and separate entity from Beck but merely its instrumentality, newly created solely as a means of consummating the merger in a way that would benefit the stockholders of Webster-Md. but not with a view to conferring any benefit on Beck. Upon this assumption the Bankruptcy Court swept aside the corporate veil in the interest of getting to what it believed to be the substance of the transaction and of the resulting relationship of the parties.

Were we to accept the factual premises underlying the decisions of the Referee and of the district court, we would have no difficulty agreeing with their conclusion. It must be conceded that the general rule against enjoining a suit against a solvent subsidiary of the debtor is not inflexible, see 6 Collier on Bankruptcy ¶ 3.11 at 500 (14th ed. 1972) and that the meaning of the term “property” turns on the particular facts of each case, see In Re South Jersey Land Corp., supra, 361 F.2d at 613, which may in some instances permit piercing of the corporate veil. However, where a debtor seeks to pierce that veil on the ground that its subsidiary is a mere dummy or alter ego, the burden of proof is on the debtor. Upon the record before us the Trustees failed completely to sustain that burden. On the contrary, it is apparent that Subsidiary was formed for the mutual benefit of the parties and that thereafter, far from being a “mere instrumentality” of Beck, it operated as a viable, independent going commercial concern.

While Subsidiary may have been a mere shell when, immediately prior to the merger, it was formed and the transaction was structured to conform to the hybrid “Type A” form of corporate reorganization, Internal Revenue Code, 26 U.S.C. §§ 368(a)(1)(A) and 368(a) (2) (D), the proof is clear and undisputed that ever since the merger it has functioned as a self-sustaining enterprise, which conducts the going business of Webster Clothes, Inc. Since the merger Subsidiary, furthermore, has operated that business in substantially the same manner as it had been operated prior to the merger. It has traded under its own name (Webster Clothes, Inc.), has had its own separate assets, creditors and obligations, and has consistently held itself out to the general public and trade creditors as a business separate and distinct from Beck. In Maryland it has assets customarily associated with active clothing concerns, including leasehold interests in retail stores, its clothing factory, fixtures, equipment, inventory and bank accounts. There has been no commingling of assets between Beck and Subsidiary. There is no evidence that Subsidiary has had grossly inadequate capital, that the debtor-parent pays its debts, or that its sources of business is dependent in any way upon that of its parent. Nor is there any indication that in the conduct of its affairs since the merger Subsidiary’s separate and independent corporate entity has been disregarded.

Thus, at least subsequent to the merger, it is hardly open to dispute that Subsidiary has been a vital and viable independent entity. We cannot accept or agree with the Referee’s characterization of Subsidiary as a “devious . legal rigamarole,” and “independent entity by the sheerest fiction,” and an “adjunct or instrumentality of the parent, Beck.” These conclusions, being unsupported by the record, are clearly erroneous. On the contrary, the record reveals a carefully constructed commercial transaction in which parties of relatively equal bargaining strength, represented by able counsel, negotiated and bargained for a distinct operating subsidiary that was to conduct its own independent business.

Both the Plan & Agreement and the Merger Agreement carefully delineated a transaction through which the business of Webster Clothes would continue to be carried on by Subsidiary as a separate bona fide operating entity. Moreover, Subsidiary and Webster-Md. bargained for and received from each other reciprocal rights and assurances, distinct from Beck’s rights and obligations. Paragraph 11(e), supra, of the Plan & Agreement provided that “Beck and Beck Subsidiary” (emphasis added) would each separately indemnify and hold harmless the Webster-Md. stockholders against losses, damage and the like. Correspondingly, the representations made by the stockholders were for the benefit of both Beck and the Beck Subsidiary. See, e. g., Paragraph 11(d) of Plan & Agreement.

The background of the parties’ creation of separate and distinct obligations is clear. Beck did not want to pay immediately the full agreed-upon price, which would require transfer at once of Beck shares worth approximately $3.75 million for Webster-Md.’s outstanding shares. Instead it wanted to exchange Beck shares worth approximately two-thirds of the price at the time of the merger, i. e., $2.5 million, and defer payment of the balance until December 31, 1971, in the hope that by that time the value of the Beck shares might appreciate to $3.75 million, which would render unnecessary transfer of additional Beck shares. The Webster-Md. stockholders, on the other hand, wanted to be assured that if no such appreciation in value of the Beck shares should occur they would receive from Subsidiary, to which Webster-Md.’s assets would in the meantime have been transferred, the balance of the purchase price. It was part of this arrangement that Subsidiary, which would have acquired Webster-Md.’s assets, be maintained as a separate operating entity rather than have its assets exposed to Beck’s liabilities by having Beck acquire them directly.

Nor are we persuaded that the equities, as between the debtor and the Webster-Md. stockholders, weigh in favor of disregarding Subsidiary’s separate corporate existence. It is true that one of the reasons for the organization of Subsidiary as a distinct entity was to shape the contours of the transaction to conform to Internal Revenue Code, §§ 368(a)(1)(A) and 368(a)(2)(D), so that the Webster-Md. stockholders could defer recognition for tax purposes of the gain, with the Beck shares received by them having the same tax basis as the Webster-Md. shares exchanged by them. See 26 U.S.C. §§ 354(a)(1) and 358(a)(1). At the same time the Webster-Md. stockholders minimized the risk of their not receiving any deferred payment to which they might become entitled on December 31, 1971, by obtaining Subsidiary’s independent covenant to exchange any additional Beck shares that might come due under the provisions for “adjustment of Consideration,” and by transferring the Webster-Md. assets to Subsidiary rather than permitting them to be commingled with Beck’s property.

But Beck also stood to gain substantial benefits from the organization of Subsidiary and from the tripartite form of the transaction. A direct merger of Webster-Md. into Beck would have obligated Beck to assume all of the obligations and debts of the clothing firm. The interposition of Subsidiary, on the other hand, provided Beck with a measure of insulation from such liability. Where a parent corporation desires the legal benefits to be derived from organization of a subsidiary that will function separately and autonomously in the conduct of its own distinct business, the parent must accept the legal consequences, including its inability later to treat the subsidiary as its alter ego because of certain advantages that might thereby be gained. In short the parent cannot “have it both ways.” The words of the Supreme Court in Schenley Distillers Corp. v. United States, 326 U.S. 432, 437, 66 S.Ct. 247, 249, 90 L.Ed. 181 (1946), although stated in another context, are appropriate:

“While corporate entities may be disregarded where they are made the implement for avoiding a clear legislative purpose, they will not be disregarded where those in control have deliberately adopted the corporate form in order to secure its advantages.

Also, by employing this three-party transaction, Beck might have been able to treat the acquisition, for accounting purposes, as a “pooling of interests” rather than as a purchase. See ARB No. 48 (Jan. 1957) printed in 2 APB Accounting Principles 6081 (1969), amended by APB Opinion No. 16 (Aug. 1970). As such “some of the current costs of the assets, including goodwill” might not be reflected on the books of the acquiring corporation. See APB Opinion No. 16, ¶ 35 (Aug. 1970). Finally, the form of the transaction may well have obviated the necessity of Beck’s obtaining approval of the merger by its own shareholders, thereby avoiding the delay, cost and effort involved in preparing and distributing a proxy statement and of obtaining the percentage of stockholder approval required by Delaware law.

Thus, although Subsidiary was a child of the merger, it was conceived and created by the two parties as a viable operating entity pursuant to a perfectly legitimate business arrangement from which each mutually derived benefits. Under the circumstances it was error to conclude that the equities justified piercing of the corporate veil. Indeed to deny the Webster-Md. stockholders the right to enforce the separate independent covenants for which they, like other creditors of Subsidiary, lawfully bargained would be inequitable.

Finally, the Trustees contend that restraint of the Maryland suit will facilitate their administration of the debtor’s estate, already a complicated task, since they will otherwise be forced to divert their energies to defense of that suit in an inconvenient forum in order to preserve the value of the debtor’s stock interest in Subsidiary. In our view this argument puts the cart before t)ie horse. The corporate veil cannot be disregarded merely because it would make for “an efficient and economical administration” of the debtor’s estate, Greenbaum v. Lehrenkrauss, 73 F.2d 285, 287 (2d Cir. 1934). As we stated in In Re Gobel, supra: “Though facility in reorganization is desirable, it is not the sole consideration.” 80 F.2d at 853. We have found that piercing the corporate veil here is not warranted. If it is desirable for the Bankruptcy Court to have jurisdiction of all litigation involving subsidiaries, solvent or not, of the debtor, the answer lies with Congress.

The order restraining the Maryland court action is reversed.

      . Title 11, § 511 of the Bankruptcy Act provides:
      “Where not inconsistent with the provisions of this chapter, the court in which a petition is filed shall, for the purposes of this chapter, have exclusive jurisdiction of the debtor and its property, wherever located.”

      . Section 516(4) of Title 11 provides:
      “Upon the approval of a petition, the judge may, in addition to the jurisdiction, powers, and duties in this chapter conferred and imposed upon him and the court—
      * * * * *
      “(4) in addition to the relief provided by section 29 of this title, enjoin or stay until final decree the commencement or continuation of a suit against the debtor or its trustee or any act or proceeding to enforce a lien upon the property of the debtor.”

      . Since all of the evidence is documentary we are in as good a position as the district court to appraise and evaluate it. Orvis v. Higgins, 180 F.2d 537, 539 (2d Cir.), cert. denied, 340 U.S. 810, 71 S.Ct. 37, 95 L.Ed. 595 (1950); Norment v. Stilwell, 135 F.2d 132 (2d Cir.), cert. denied, 320 U.S. 763, 64 S.Ct. 68, 88 L.Ed. 455 (1943); 5A J. Moore, Federal Practice ¶ 52.04 (2d ed. 1971).

      . 26 U.S.C. § 368(a)(1)(A) provides:
      “ (a) Reorganization.—

      “(1) In general. — For purposes of parts I and II and this part, the term ‘reorganization’ means' — •
      “(A) a statutory merger or consolidation. . . . ”
      26 U.S.C. § 368(a)(2)(D) provides:
      “(a) Reorganization.—
      “(2) Special rules relating to paragraph (1).—
      •!• ¡3 -h •?»
      “(D) Statutory merger using stock of controlling corporation. — The acquisition by one corporation, in exchange for stock of a corporation (referred to in this subparagraph as ‘controlling corporation’) which is in control of the acquiring corporation, of substantially all of the properties of another corporation which in the transaction is merged into the acquiring corporation shall not disqualify a transaction under paragraph (1) (A) if (i) such transaction would have qualified under paragraph (1) (A) if the merger had been into the controlling corporation, and (ii) no stock of the acquiring corporation is used in the transaction.”

      . During the negotiations Subsidiary was named “Beck-Webster Inc.” Upon consummation of the merger the name .was changed to “Webster-Clothes Inc.” In order to avoid confusion on the part of the reader we have labelled the Delaware subsidiary “Subsidiary” throughout rather than initially call it by one name, then denominate it by another.

      . The Order provided in pertinent part that all persons are:

      . “Jack Feldman; Nancy I. Feldman Gim-bel ; Abraham Feldman; Lena Feld-man ; Julius Feldman; Selma Feld-man ; Helen W. Feldman; Abraham Feldman and Edward E. Obstler, Personal Representatives for Louis S. Feld-man, deceased; Doris Feldman Hyatt; Leba Ann Feldman Rotker; Florence L. Kobernick; Linda D. Duritz; Rose Feldman; Norma Feldman Schrago; Bernice Elain Suser; Stephen Suser; Abraham Feldman, Trustee of Nancy llene Feldman. Gimbel; Jack Feld-man, Trustee under the Will of Edward Feldman; Mercantile Safe Deposit & Trust Co., Trustee of Suzanne Louise Feldman; Mercantile Safe Deposit & Trust Co., Trustee of Nancy llene Feldman Gimbel; and Mercantile Safe Deposit & Trust Co., Trustee under Will of Edward Feldman.”

      . See footnote 6 supra and accompanying text.

      , We express no view on the merits of the Maryland proceedings, which of course are not before us.

      . The cases relied on by Beck are all distinguishable and at most stand for the proposition that the general rule is flexible, and that the corporate form will be pierced when the equities so require. For example, in Hamilton Ridge Lumber Sales Corp. v. Wilson, 25 F.2d 592 (4th Cir. 1928), a lumber manufacturing company, which was in financial difficulty, and a bank to which it was indebted, organized a sham sales corporation for the sole purpose of securing the lumber company’s debt to the bank. The sales company “purchased” lumber in return for notes which were then discounted by the bank. The sales corporation never had actual possession of the lumber, had been organized solely for this one transaction, and never transacted any other business. The court, ignoring the separate corporate entities, properly found that there had been neither a valid sale nor pledge and that the transaction “was not bona fide to the extent that there was a real sale of the lumber in question. The Sales Corporation had no real business existence, had in' fact no organization by which it could transact business. . . . ” 25 F.2d at 594. The situation in the present case is entirely different. Subsidiary, unlike the sales corporation in Hamilton Ridge, is a bona fide going commercial concern.

      . The Trustees do not argue that other creditors of Subsidiary should be deprived of their right to enforce their claims separately against Subsidiary.


source: Caselaw Access Project

author: RIVES, Circuit Judge: LEWIS R. MORGAN, Circuit Judge BY THE COURT:

license: Public Domain

text:
    Otis Ray FITZGERALD, Petitioner-Appellant, v. Dr. George J. BETO, Director, Texas Department of Corrections, Respondent. Appellee.
    No. 73-3459.
    United States Court of Appeals, Fifth Circuit.
    May 24, 1973.
    Rehearing Granted Sept. 11, 1973.
    Lewis R. Morgan, Circuit Judge, concurred specially and filed opinion.
    John L. Jeffers, Jr., Houston, Tex., court appointed, for petitioner-appellant.
    John L. Hill, Atty. Gen., W. Barton Boling, Austin, Tex., for respondent-ap-pellee.
    Before RIVES, GOLDBERG and MORGAN, Circuit Judges.
   RIVES, Circuit Judge:

After exhausting all remedies available in the state courts, Fitzgerald, an inmate of the state prison at Huntsville, Texas, petitioned for habeas corpus in the federal district court. With interruptions by parole, Fitzgerald has served in the state prison since 1947. So far as the record reflects, he served continuously from March 22, 1954 until May 8, 1967, when he was paroled. His parole was revoked February 4, 1971, and he was returned to prison. His ha-beas petition concerns- a life sentence, under the Texas enhancement statutes, imposed by a state court in 1954 following conviction by a jury for the offense of robbery by assault. His primary ground asserted for habeas relief is incompetency of counsel; his secondary ground is that he was denied due process when his parole was revoked without a hearing. We do not reach the secondary ground because we reverse with directions on the primary ground.

The district court denied habeas corpus on the state court record and without a further evidentiary hearing. The relevant facts and events are almost entirely undisputed.

Fitzgerald has been convicted of two separate robberies by assault, the first conviction in McLennan County, Texas, in May, 1947, and the second in Anderson County, Texas, in March, 19^. For the first offense Fitzgerald received a five-year sentence. For the second offense he was sentenced to imprisonment for life, the sentence which he is now serving. His conviction for the second offense was affirmed on June 26, 1954, by the Court of Criminal Appeals of Texas in an opinion which recited the pertinent facts as follows:

“The offense is robbery, with a prior conviction for the same offense alleged to enhance the punishment; the punishment, life imprisonment.
“It was shown that the appellant and his wife presented themselves at the Anderson County jail for the purpose of making an accident report; that, unknown to the appellant, his parole had been revoked, and the ‘process’ for his arrest was in the hands of the officers; and that the appellant was placed temporarily in a cell on the ground floor. Prior to being so incarcerated, the appellant was not searched. When the officers attempted to move the appellant to an upstairs cell in the jail he drew a pistol on them and caused them to go into the cell which he had been occupying. Thereupon, the appellant forced the jailer, at pistol point, to deliver to him the keys to such cell, which he used to lock up the officers so as to prevent them from further interfering with his escape. Appellant did escape and carried the jail keys with him. It was further proven that the appellant had been convicted of robbery in Mc-Lennan County in 1947 and received a five-year sentence.
“The appellant offered no defensive testimony.
“It is upon these facts that this prosecution is based.”

Fitzgerald v. State, 1954, 160 Tex.Cr.R. 414, 271 S.W.2d 428.

Fitzgerald was paroled on May 8, 1967, but his parole was revoked without a hearing on February 4, 1971. Fitzgerald petitioned for habeas corpus in the Third District Court of Anderson County, Texas, on both of the asserted grounds — (a) incompetency of counsel, and (b) revocation of parole without a hearing. Following an evidentiary hearing the state judge presiding entered findings of fact and conclusions of law and denied habeas relief on both grounds. On September 23, 1971, the Texas Court of Criminal Appeals, without written order but simply on the trial court’s findings, denied Fitzgerald’s application for appeal.

On March 3, 1972, the federal district court denied Fitzgerald’s habeas petition, saying in part:

“The record in this case indicates that Petitioner was represented in his State Trial by two attorneys of his own choosing and therefore Petitioner’s claim in this regard is without merit because it does not appear that the State denied Petitioner any rights under the laws or Constitution of the United States, and Petitioner has failed to raise any substantial federal question with this allegation. McGriff v. Wainwright, 431 F.2d 897 (5th Cir. 1970). Further, this Court finds from the record in this case that the attorneys for Petitioner in the State Court represented him throughout the trial of the case and throughout the appellate process in the State Court, and finds that Petitioner’s attorneys did not fail to give effective assistance to Petitioner.”

At the evidentiary hearing in state court on Fitzgerald’s petition for habeas corpus, his appointed attorney called as witnesses Fitzgerald himself and John B. McDonald, who had been the District Attorney of Anderson County, Texas, who prosecuted Fitzgerald in 1954. The State called no witnesses on its own. McDonald’s testimony was consistent with Fitzgerald’s and, indeed, gave detailed information on the subject at issue.

Fitzgerald testified he had no consultation with his attorneys as to conduct of the trial prior to the day of trial and had no knowledge of their making any investigation.

McDonald testified that on the morning of Fitzgerald’s trial for robbery by assault, March 22, 1954, he first met Fitzgerald’s two lawyers. He had not been acquainted with them previously. The facts of the robbery case which resulted in a life sentence were that Fitzgerald had escaped from the Anderson County jail by taking the sheriff’s key and locking the sheriff in a cell. McDonald was concerned that the law of robbery required an intention to convert stolen property permanently and that he would be unable to demonstrate such an intention on these facts. He testified that he offered Fitzgerald’s lawyers a ten-year sentence in return for a guilty plea. Defense counsel were “completely indifferent” to this proposal, even though a life sentence was at stake under the enhancement statutes, because they believed the facts would not support a robbery conviction as a matter of law. The evidence is undisputed that the district attorney’s offer of a ten-year sentence in return for a guilty plea was not communicated by defense counsel to Fitzgerald.

McDonald further testified that both defense attorneys appeared in court to try the case in very “unkempt” condition and “smelled of strong drink”; and, moreover, that his subsequent investigation indicated that neither had ever received any formal legal training.

McDonald’s most crucial testimony concerned his proof for purposes of enhancement of a prior conviction for robbery by assault. He testified that as of the day of trial he did not have a witness to identify the Otis Ray Fitzgerald being tried in Anderson County as the same man who had been convicted of robbery by assault in McLennan County in 1947. He said that without such testimony he would have been unable to establish the prior conviction for purposes of enhancing punishment and that, without testimony identifying Fitzgerald as the same man who had been convicted in McLennan County, he would not have introduced the prior conviction in evidence. However, Fitzgerald’s attorneys obligingly solved this problem for the district attorney by agreeing in advance of trial to put their client on the witness stand for the “limited” purpose of acknowledging to the jury that he was the same man who had been previously convicted in McLennan County of robbery by assault. McDonald’s exact testimony on this point bears repeating:

“I would say as of the date of trial, I had not found anybody in McLennan County who was willing to come over here and testify that this man was the same and identical man that had been convicted in McLennan County. I did have, I had talked to an assistant district attorney, and I do not recall his name at this time, who was with the district attorney’s office in McLennan County, I had talked with him over the telephone and he was willing to come but he would give me no assurance that he could make the necessary identification, because he said he had no independent recollection of the fact of identification at that time. I was prepared to bring this witness from Waco but it was going to necessitate the trial going over one more day and I advised the Court and I advised Col. Shown and Judge Martin of that fact and to obviate the necessity of bringing a witness over here, they agreed they would put Mr. Fitzgerald on the witness stand and have him stipulate that he was the same and identical person that was convicted in McLennan County.” (App. p. 34.)

McDonald went on to characterize as a “windfall” the agreement of defense counsel to put their client on the stand for the “limited” purpose of advising the jury of his criminal record, and he said that defense counsel seemed “anxious to try the case and get it over with and get out of town.” McDonald’s testimony on this matter is undisputed, and it is clear from the record before this Court that Fitzgerald was put on the witness stand by his own lawyers for the sole purpose of testifying to the jury that he had previously been convicted of robbery by assault in McLennan County. This jury was considering not only the question related to enhanced punishment but also Fitzgerald’s guilt or innocence as to the Anderson County robbery.

Finally, McDonald testified that after the trial he was troubled by the quality of Fitzgerald’s representation and subsequently wrote letters to the Texas Board of Pardons and Paroles, one in 1950 and another in 1971, suggesting that the life sentence was excessive and recommending parole.

The foregoing is substantially all of the evidence on the issue of incompetency of counsel.

The legal principles which control the decision of this appeal have just been settled in the case of Limmie West, III v. State of Louisiana, 5th Cir., 478 F.2d 1026. What was said in that opinion need not be repeated here. The opinion in that case declared the law in this Circuit to be that the due process and equal protection clauses of the Fourteenth Amendment assure a state defendant effective representation by counsel whether the attorney is one of his choosing or court-appointed and, further, that the applicable standard should be that stated in McKenna v. Ellis, 5th Cir. 1960, 280 F.2d 592, 599. Applying that standard, it is clear from the undisputed facts that Fitzgerald was denied the effective assistance of counsel. The judgment denying habeas corpus is therefore reversed and the case is' remanded with directions to grant Fitzgerald’s petition for habeas corpus.

Reversed with directions.

LEWIS R. MORGAN, Circuit Judge

(specially concurring):

I agree with the majority that Fitzgerald’s petition for habeas corpus relief should be granted. Because the law in this circuit is far from clear on the constitutional right to challenge a conviction on the grounds of incompetence of retained counsel and because I find sufficient state action in this case without reaching that point, I would decline the temptation to rest this decision on such broad grounds.

I am satisfied here that the conduct of Fitzgerald’s retained counsel was such that • it was, or should have been patently obvious to the prosecutors and trial court that he was being denied effective assistance of counsel. In fact, the testimony of the prosecuting district attorney is ample evidence that he knew Fitzgerald was not being given proper representation. Both the judge and the prosecutor have a duty to ensure that a defendant is afforded a fair trial. Glasser v. United States, 315 U.S. 60, 62, 62 S.Ct. 457, 86 L.Ed. 680 (1942); Mooney v. Holohan, 294 U.S. 103, 55 S.Ct. 340, 79 L.Ed. 791 (1935). When it becomes apparent to the trial judge or the prosecutor that the defendant’s attorney is so ineffective and incompetent that the proceedings have become a mockery or farce, these state court officials are obligated to take steps to protect the defendant’s constitutional rights. Failure to execute this duty may be charged to the state and may amount to a violation of due process. See Williams v. Beto, 5 Cir. 1965, 354 F.2d 698; Davis v. Bomar, 6 Cir. 1965, 344 F.2d 84, cert. den., 382 U.S. 883, 86 S.Ct. 177, 15 L.Ed.2d 124 (1965); United States ex rel. Darcy v. Handy, 3 Cir. 1953, 203 F.2d 407 (Maris, J.).

Therefore, I feel it unnecessary in this case to reach the broad question which the majority finds controlling.

ON PETITION FOR REHEARING AND PETITION FOR REHEARING EN BANC

Before JOHN R. BROWN, Chief Judge, WISDOM, GEWIN, BELL, THORNBERRY, COLEMAN, GOLDBERG, AINSWORTH, GODBOLD, DYER, SIMPSON, MORGAN, CLARK, RONEY and GEE, Circuit Judges.

BY THE COURT:

A member of the Court in active service having requested a poll on the application for rehearing en banc and a majority of the judges in active service having voted in favor of granting a rehearing en banc,

It is ordered that the cause shall be reheard by the Court en banc with oral argument on a date hereafter to be fixed. The Clerk will specify a briefing schedule for the filing of supplemental briefs.

      . Fitzgerald’s counsel contended that the recited facts did not constitute robbery and relied upon Bailey v. State, 139 Tex.Cr. R. 260, 139 S.W.2d 599. The Texas Court of Criminal Appeals affirmed, distinguishing Bailey as follows :
      “In the Bailey case the keys were not taken from the jail. Appellant testified that he obtained them during a fight with the jailer and intended to use them to lock the jailer in the cell, drop the keys out of his reach and escape from the jail.
      “But here the keys were actually taken from the jailer by means of an assault, were appropriated by appellant and taken away.” (271 S.W.2d 428.)

      . District Judge William Steger also denied Fitzgerald’s request for a certificate of probable cause, necessary under 28 U.S.C. § 2253, for the present appeal. Judge Morgan of this Court later entered an order granting Fitzgerald’s application for certificate of probable cause, and bis application for appointment of counsel.


author: WEIS, Circuit Judge.

text:
    In the Matter of The CENTRAL RAILROAD COMPANY OF NEW JERSEY, Debtor. Appeal of Frances A. DUGAN, Individually and as Administratrix ad Prosequendum of the Estate of Charles A. Dugan, Deceased, et al. Appeal of Lloyd HOAK et al.
    Nos. 72-1511 and 72-2092.
    United States Court of Appeals, Third Circuit.
    Submitted on briefs April 13, 1973.
    Decided May 30, 1973.
    Roger H. McGlynn, Newark, N. J., and Arnold B. Elkind, New York City, for appellants.
    Roger C. Ward, Pitney, Hardin & Kipp, and Stanley Weiss, Carpenter, Bennett & Morissey, Newark, N. J., for appellee.
    Before ADAMS, GIBBONS and WEIS, Circuit Judges.
   OPINION OF THE COURT

WEIS, Circuit Judge.

The perplexing problem of the priority applicable to personal injury claims of employees of a railroad in reorganization proceedings is presented to the Court by petitioners here. The appellants have been determined to be entitled to recover from the debtor under the Federal Employers Liability Act for death in one instance and injuries in other accidents which occurred while the railroad was being operated by the Receiver in the course of reorganization under § 77. In several instances judgments were obtained after jury trials and in other eases settlements were approved by the reorganization court. That Court refused to. allow interest on any of the judgments or settlements and ordered that the claims be satisfied by payments from a fund derived from operating expenses on an “as available” basis.

The following table will illustrate the rather typical delay between date of liquidation of the claim by judgment or settlement and the date of final payment:

Name of Creditor Amount of Claim Obtained by Judgment or Settlement Date Date of of Final Liquidation Settlement

Dugan $57,150.24 J Apr. 6, 1971 Mar. 28, 1972

Koch 25,330.00 J Nov. 17, 1971 July 28, 1972

Hoak 30,000.00 J Motion for appeal withdrawn Aug. 4, 1972. No payment to date.

Paletsky 94,000.00 May 12,1972 Partial payment $11,000. Mar. 27, 1973; Balance unpaid.

Rydzewski 10,000.00 S May 26, 1972 Nov. 5, 1971

Horkan 15.000. 00 S Sept. 20, 1972 Jan. 7, 1972

Iveson 15.000. 00 s Aug. 2, 1972 Dec. 6, 1971

On October 13, 1967, in the early stages of the reorganization, the District Court signed Order No. 53 authorizing the trustees to settle and pay certain personal injury claims in amounts not exceeding $15,000.00 and to submit to the Court a list of pending cases every six months thereafter.

The Receiver established a system for paying claims of this nature by allocating $35,000.00 monthly, from income to payment of claims of less than $15,000.00 and paying seriatim, as funds become available, those cases over $15,000.00 which required Court approval.

On November 13, 1967 an order was entered permitting the trustees to pay all current freight and miscellaneous interline accounts.

The District Court was sympathetic with the plight of the personal injury claimants but was much concerned about the precarious financial position of the debtor which has continued to lose money in substantial amounts. Since the public interest required the operation of the railroad to continue, the Court felt that it had to be careful so that the trustees did not use the funds in such a manner as to curtail the functioning of the bankrupt line.

The general rule is that, unless it should develop that sufficient funds are available, no interest is payable thereafter on claims which have accrued on the date of bankruptcy. However, Congress has given special recognition to personal injury claims of employees of railroads in reorganization by enacting subsection (n) to § 77 of the Bankruptcy Act, 11 U.S.C. § 205(n), which reads in pertinent part:

“(n) In proceedings under this section, and in equity receiverships of railroad corporations now or hereafter pending in any court of the United States, claims for personal injuries to employees of a railroad corporation, claims of personal representatives of deceased employees of a railroad corporation, arising under State or Federal laws * * * shall be preferred and paid out of the assets of such railroad corporation as operating expenses of such railroad.”

As Collier points out, “The policy which underlies the preferred treatment of injured employees is understandable as an attempt to cause the business and those who have contributed to its financing to bear the personal risk assumed by those actually operating the enterprise. Such treatment is constitutional [citations] and must be classed as remedial legislation entitled to a liberal interpretation [citations].”

As further justification, it has been said, too, that claims for personal injuries which accrue after the receivership has commenced obtain a preference not because of any virtue of their own but because they are committed by the receiver and the receiver being an officer of the Court, the Court will pay its own obligations first. See Underhay, Tort Claims In Receiverships and Reorganizations, (1936) 22 Iowa Law Review 60.

Personal injury claims under the Federal Employers Liability Act when reduced to judgment accrue interest as a matter of right. There is no equitable rule which would require that the employees or their survivors be required to take less than the full amount of their claim in order to have funds available for other creditors whose transactions occurred in a purely commercial setting. If freight and interline claims are paid promptly and in full, there is no overriding consideration requiring injured employees to finance, even partially, the continued operation of the railroad to the benefit of investors, more particularly, the bondholders, however worthy their position. The Eighth Circuit Court of Appeals recognized this general proposition in Reconstruction Finance Corporation v. Missouri-Kansas-Texas R. Co., 122 F.2d 326 (8th Cir. 1941), when it gave priority to a personal injury claim over other operating expenses.

In Powell v. Link, 114 F.2d 550 (4th Cir. 1940), interest was awarded on a prereceivership judgment for personal injuries. There the Court emphasized that § 205(n) was remedial and should be liberally interpreted.

Similarly, in Bankers Trust Co. v. Florida East Coast Ry. Co., 31 F.Supp. 961 (S.D.Fla.1940), interest was awarded from the date of judgment on a personal injury claim which had arisen before the reorganization took place. In that ease, however, the Court pointed out that there were sufficient funds to pay interest on other claims in the same class.

We recognize the difficult cash position of the debtor in this case and appreciate the concern of the reorganization court to serve the public interest by continuing the operation of the road. In order to do so it is of course necessary to meet payroll expenses as they accrue. Much of the claims in the category of the petitioners in this case do represent a loss of wages. Had they not been injured, the employees’ wages would have been paid as due and the men would have had the use of the funds. Since payment was postponed because of injury or terminated because of death in one instance, we see no equity in depriving the claimants of interest which merely represents a charge for the use of the money.

We are concerned, moreover, with the delay between the dates of judgment and satisfaction of the claims. As the Court indicated at the hearing on April 10, 1972, there was some question whether the $35,000.00 monthly allocation should be increased, and that consideration should be given to that possibility. We agree and remand for the purpose of making findings on the practicality of increasing the funding from operating expenses to liquidate claims in this category at the earliest feasible dates.

In this suit the petitioners also ask that the bond of the Receiver-Trustee be increased. We find that it was not erroneous for the District Court to deny this request and see no further need to consider that issue.

The order of the District Court is reversed with instructions to award interest on personal injury claims of employees from the date of judgment or approval of settlement and the ease is remanded with directions to make appropriate determinations on what sum of money may realistically be allocated from operating funds on a monthly basis to expedite satisfaction of these claims.

      . 5 Collier on Bankruptcy, 14th Ed. § 77.21, f.n. 25.


author: MOORE, Circuit Judge:

text:
    STANDARD DRY KILN COMPANY, a corporation, Appellant, v. BITUMINOUS FIRE AND MARINE INSURANCE COMPANY, a corporation, Appellee.
    No. 26403.
    United States Court of Appeals, Ninth Circuit.
    May 4, 1973.
    Rehearing Denied July 2, 1973.

      Walter J. Cosgrave (argued), Frank Lagesen, James H. Gidley, Maguire, Kester & Cosgrave, Portland, Or., for appellant.
    J. Anthony Giacomini (argued), Stanley C. Jones, Klamath Falls, Or., for appellee.
    Before BROWNING, MOORE and WRIGHT, Circuit Judges.

       The Honorable Leonard P. Moore, Senior United States Circuit Judge, United States Court of Appeals for the Second . Circuit, sitting by designation.

   MOORE, Circuit Judge:

Plaintiff-appellant, Standard Dry Kiln Company (Standard), appeals from a judgment dismissing its complaint against defendant-appellee Bituminous Fire and Marine Insurance Co. (Bituminous). The case was tried without a jury (Gus J. Solomon, Judge) largely upon facts and exhibits stipulated in a comprehensive pre-trial order, interrogatories and answers thereto, requests for admissions and responses thereto, and résumés of the testimony of various witnesses. Out of all this material the trial court had, and this Court has, to try to piece together such agreement, if any, which may form the basis of such rights as may have been created thereby.

Basic to the factual structure is an insurance policy PC-2-19552 issued under date of January 14, 1966, by Bituminous to Standard. The policy covered Standard’s employees with respect to workmen’s compensation (W.C.) (Coverage A) and employer’s liability (“bodily injury by accident”) (Coverage B). Item 3 of the policy limited the scope of Coverage A to Indiana and Tennessee; an All States Endorsement extended the policy’s coverage to areas outside Indiana and Tennessee. However, the All States Endorsement was not to apply to some twenty states, including Oregon.

The two employees of Standard, Sullivan and Morrison, whose injuries gave rise to this controversy, were working on a Standard job in Oregon when, on October 11, 1966, they were injured. Under Oregon law they became entitled to and received workmen’s compensation awards totalling $15,703.23 collectively. At this point the rights of the parties would appear to be quite clear. The policy covered only Indiana and Tennessee for workmen’s compensation; the All States endorsement excluded Oregon; therefore, Bituminous was under no liability whatsoever. The relations, however, between Bituminous and Standard did not remain static. Instead of standing firmly on a no-liability position, Bituminous itself retreated- — possibly for business reasons — from any such position.

The trial court and we, in an effort to discover the real intentions of the par-tie’s have to rely chiefly upon the many communications which thereafter passed between them.

As stated, policy PC-2-19552 contained under its “Insuring Agreements” two coverages:

Coverage A — Workmen’s Compensation: To pay promptly when due all compensation and other benefits required of the insured by the workmen’s compensation law.
Coverage B — Employers’ Liability: To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury by accident or disease, including death at any time resulting therefrom, sustained in the United States of America, its territories or possessions, or Canada by any employee of the insured arising out of and in the course of his employment by the insured either in operations in a state designated in Item 3 of the declarations or in operations necessary or incidental thereto.

Under an exclusion the policy was not to apply to:

(f) under coverage B, to any obligation for which the insured or any carrier as his insurer may be held liable under the workmen’s compensation or occupational disease law of a state designated in Item 3 of the declarations, any other workmen’s compensation or occupational disease law, any unemployment compensation or disability benefits law, or under any similar law.

On October 13, 1966, two days after the accident Standard wrote to its representative in Klamath Falls, Oregon, the scene of the accident enclosing reports to be filled out for each injury and referring to Bituminous Casualty Corporation as its “Workmen’s Compensation carrier” and its policy as number PC-2-19552.

An inter-office memorandum dated November 23, 1966 from Bituminous’ Indianapolis office to its Home Office regarding the Morrison and Sullivan claims, posed the question, “ [A] re we legally obligated to furnish coverage, or would we want to concede and furnish coverage for the two claims?” (Exh. 59).

From the Home Office then came a Bituminous inter-office memorandum regarding the two Oregon claims. It stated, in effect, that Bituminous’ previously asserted position that it was not licensed to issue W.C. insurance in Oregon “was in error”; that the All States Endorsement excluding Oregon was a 1960 form; and that “ordinarily the attachment on that endorsement to the policy effective January 1 would have eliminated Oregon by X-ing it out.” The memorandum (Exh. 7) ended with the somewhat critical paragraph, stressed by Standard:

With all this and other factors we feel that it is for the best interest of the Company and the industry to accept coverage on these claims and endorse the policy with Oregon coverage effective January 1, 1966 and pick up the necessary premium.

Now is injected into the situation an entirely different element. If the policy was to be endorsed with Oregon coverage effective January 1, 1966, and the necessary premium be paid, it would appear that the language of PC-2-19552 would establish Standard’s rights with respect to the Morrison-Sullivan claims.

Bituminous made its position clear by its letter to the President of Standard dated December 22, 1966 (Exh. 8), wherein it stated “we will reimburse you for any payments made by the Oregon Industrial Accident Fund with reference to the [Morrison-Sullivan] cases.” This reimbursement was to be “[w]ithout waiving any provisions of our W.C. Policy, PC-2-19552 with your company, * * Since Bituminous understood that Standard was responsible to the State (Oregon), the reimbursement was to be made after Standard had paid the State the W.C. payments due.

Within Bituminous’ office a “state of confusion” existed. First, there was a “little confusion” between bituminous’ agent (The McLane Company) about Oregon coverage. (Bituminous Inter-Office Memo, Feb. 3, 1967, Exh. 9). Then there was “confusion between the Home Office and the Indianapolis Branch as to whether or not it was permissible for us [Bituminous] to write Oregon workmen’s compensation.” Id. The doubt and confusion were “finally resolved through Harry Fay [Bituminous], that we [Bituminous] were going to pay these two workmen’s compensation claims in Oregon and, evidently, we’ll have to take this payroll and apply it to Indiana rates.” Id. To this memorandum [addressed to Home Office Premium Audit Dept.] was affixed (longhand) the words, “Bill all Oregon payroll as Indiana @ Ind. rates for W.C. & show as Ind. for Liab.” (Exh. 9).

Under date of February 22, 1967, an invoice of The McLane Company with reference to “Premium Audit Adjustment of Workmen’s Compensation policy for the period 1-1-66 to 1-1-67” on which was endorsed “Workmen’s Comp.”, showed for PC-2-19552 a net additional premium of $1,218.11 with a statement that “auditor of Bituminous was here to check on Oregon figures.” (Exh. 10). There is, therefore, no doubt that Bituminous adjusted its premium for this policy to include Standard’s Oregon employees.

Not until October 6, 1967, did Standard receive any notice from an attorney for Morrison and Sullivan that additional claims, the basis of this suit, were being made by them against Standard for their injuries. (Exhs. 27, 28). These letters were forwarded to Bituminous, Bituminous replied (October 16, 1967) that it had “agreed only to assume the responsibility for the provisions and benefits of the Workmen’s Compensation Law. The agreement did not extend to assume responsibility for the penalties provided in the Oregon Law, granting a right of action for damages in cases of employees injured while exployed [sic] by a non-complying employer.” (Exh. 62).

On January 24, 1968, and April 2, 1968, summonses and complaints were received in actions, respectively, by Morrison and Sullivan demanding damages for pain, suffering, permanent injury, impairment of future earning capacity, medical expenses, and lost wages. As to each of these actions, Standard advised Bituminous that in view of Bituminous’ denial of coverage, it (Standard) was proceeding with the defense of the cases but would hold Bituminous responsible for any judgment together with attorneys’ fees and costs of defense (Exhs. 13, 14).

Bituminous’ agent, The McLane Company, now re-enters the picture. Christie, who signed PC-2-19552, writing to the president of Dura Containers, Inc. (Standard’s parent company), recited the pre-January 1, 1966, situation, and said, “when the loss occurred, I took the position that our ‘All States’ endorsement should operate and coverage should be afforded. At first the company did not agree with this contention but I was advised later that they would entertain the question and, in all probability, would pay the claim.” (Exh. 55). The McLane Company by letter of May 1, 1968, asked Bituminous the question which Standard now seeks to have us resolve, namely, since it appeared that Bituminous had already “admitted liability under the Compensation Act of Oregon as evidenced by the payments which you have presently made”, “why [should not] the coverage “B”, Employers’ Liability section of coverage, * * * respond in the matter of the lawsuits presently filed.” Christie’s conclusion was that “perhaps coverage B should respond at this time.” (Exh. 17).

This letter evoked a reply from the Bituminous Home Office (Fay) that Bituminous had merely reimbursed Standard for what Standard had reimbursed the Oregon Compensation Fund; that Bituminous had not admitted liability under the policy; and that the Morrison-Sullivan suits “fall within certain penalty provisions of the Oregon Law” and that “the penalty provisions of the Law would not be covered under the policy because of exclusion (d) in the Standard Dry Kiln Workmen’s Compensation policy which excluded coverage under coverage B(l) to punitive or exemplary damages. That is the essence of the two suits for damages.” (May 6, 1968, Exh. 18).

Judgments in the Morrison-Sullivan suits were obtained against Standard for a total collectively of $41,059. After deducting the $15,703.23 paid by Standard to the Oregon Workmen’s Compensation Department, the judgments were satisfied by Standard’s paying $25,393.-95. To recover this sum, together with attorneys’ fees, costs, and expenses, this suit was brought for $35,556.17.

Although the suit is said to arise “as a result of the mutual mistake of the parties, the employer’s policy did not designate Oregon under Item 3” and “For reformation of the employer’s policy to include Oregon under Item 3”, our task is to adjudicate the rights of the parties in the light of all the facts, the policy, PC-2-19552, and Bituminous’ actions after its issuance.

Bituminous argues that its commitment of December 22, 1966, to reimburse for Standard’s W.C. payments to the Oregon Fund must be limited to that provision under the policy, namely, Coverage A, which covered W.C. payments. It must be remembered that as of this date, December 22nd, there had been no threat or institution of the personal injury suits which did not arise until the following October. Therefore, the letter of that date cannot be construed as an acceptance of only W.C. liability and a rejection of personal injury liability covered by Coverage B. Bituminous further argues that Coverage A and Coverage B are mutually exclusive and that Exclusion (f), supra, establishes this. However, Exclusion (f) says no more than that Coverage B does not apply to any obligation under Coverage A. In this case the policy covered the W.C. payments to the Oregon Fund (Coverage A) and the “damages because of bodily injury by accident” under Coverage B. Quite naturally Coverage B did not cover liabilities under Coverage A. Applying both coverages to this case, we have a W.C. liability of $15,703.23 under Coverage A and a personal injury liability of $25,393.95 under Coverage B, obtained by deducting the Coverage A. Liability from that under Coverage B. Thus, there is no double liability or any inconsistency between the two coverages.

Bituminous states (Brief p. 9) that “Plaintiff’s contentions are based upon evidence of efforts by all parties to try to find some coverage for Standard where no coverage existed, all of which efforts were made after the loss occurred.” It is true that the efforts were made post-loss, but they were made by Bituminous after the claims had been submitted to them. It was Bituminous which agreed to the W.C. payments; Bituminous which considered Oregon not excluded from the All States exclusion; Bituminous which calculated the premiums under PC-2-19552 as if Oregon were included; and Bituminous which accepted the premiums under PC-2-19552 as if Oregon had been included.

The evidence clearly establishes that Bituminous calculated the premium on the basis of the Oregon payroll and that it was to cover the policy PC-2-19552— not some separate W.C. coverage excluding personal injury liability.

The trial court quite properly concluded that the Comprehensive Liability Policy, CL-2-805648, also issued to Standard by Bituminous, and which contained an exclusion for employee bodily injuries “arising out of and in the course of his employment * * * ”, did not apply to Standard’s claim.

We, therefore, conclude that Bituminous by its post-loss position with respect to policy PC-2-19552 did, in fact decide “for the best interest of the Company and the industry to accept coverage on these claims and endorse the policy with Oregon coverage effective January 1, 1966 and pick up the necessary premium.” (Exh. 7). Having picked it up, Bituminous should respond to the obligation created thereby.

The decision of the trial court is reversed with instructions to enter judgment in favor of Standard in the amount of $25,393.95 plus such interest, expenses, costs, and attorneys’ fees both on the trial and the appeal as to the court may seem just and proper.

      . Judge Solomon’s opinion below is unreported. Standard Dry Kiln Co. v. Bituminous Fire & Marine Ins. Co., Civil No. 69-13 (D.Or., filed July 10, 1970).

      . Bituminous Casualty Corp., the parent corporation of Bituminous Fire & Marine Ins. Co., was licensed by the State of Oregon to issue W. C. insurance. (Exh. 58). Bituminous Fire & Marine, the company which actually issued Standard its W. C. policy was licensed by the State of Oregon to write all forms of casualty insurance except W. C. (Exh. 59). Bituminous Casualty reinsured Bituminous Fire & Marine 100% with respect to policy No. PC-2-19552.

      . Under Oregon law an employee injured on the job is normally limited in the damages he can recover to the amount of his W. C. award. (ORS 656.018 (1967)) Where, however, the injured employee’s employer is not covered by W. O. insurance (a “non-complying employer”), Oregon law provides that the damages such an employee may recover are not limited to the amount of the W. O. award, but may also include a judgment at common law. (ORS 656.-020, 656.002(15) (1967)).

      . The claim that the “non-complying employer” provisions of Oregon’s W. C. law are “penalty” provisions providing “punitive or exemplary” damages has apparently been abandoned by Bituminous on this appeal.

      . Other jurisdictions have reached a similar conclusion with respect to the question: May both Coverage A and Coverage B apply to the same injury in the appropriate circumstances? Each lias concluded, as do we, that this question must be answered in the affirmative. See, Keys Eng’r Co. v. Boston Ins. Co., 192 F.Supp. 574 (S.D.Fla.1961); Brickley v. Offshore Shipyard, Inc., 270 F. Supp. 985 (E.D.La.1967); cf. Danek v. Hommer, 28 N.J.Super. 68, 100 A.2d 198 (1953) aff’d, 15 N.J. 573, 105 A.2d 677 (1954).


author: BELL, Circuit Judge: THORNBERRY, Circuit Judge PER CURIAM: THORNBERRY, Circuit Judge

text:
    Preston JULIAN, Plaintiff-Appellee, v. MITSUI O. S. K. LINES, LTD., In Personam, and M/V MEIJYUSAN, In Rem, Defendant-Third-Party Plaintiff-Appellant, v. STRACHAN SHIPPING COMPANY, Third-Party Defendant-Appellee.
    No. 72-2259.
    United States Court of Appeals, Fifth Circuit.
    May 23, 1973.
    Rehearing and Rehearing En Banc Denied July 9, 1973.
    Thornberry, Circuit Judge, dissented and filed opinion and also dissented from denial of rehearing.

      Joseph D. Cheavens, Houston, Tex., for plaintiff-appellant.
    Theodore Goller, Houston, Tex., for Strachan Shipping Co.
    Ned Johnson, Beaumont, Tex., for Julian.
    Before BELL and THORNBERRY, Circuit Judges, and GROOMS, District Judge.
   BELL, Circuit Judge:

This case arises out of the familiar Sieracki-Byan longshoreman-shipowner-stevedore admiralty dispute. The injured longshoreman sued the shipowner alleging both unseaworthiness of the ship and negligence of its officers, agents and crew. The district court found the ship unseaworthy, but reduced the -.longshoreman's damages by 95 per cent as a result of his contributory negligence. In the shipowner’s third party complaint against the stevedore to recover any damages paid to the longshoreman, the district court held that the shipowner was not entitled to indemnity from the stevedore. Two reasons were given in support of the judgment for the stevedore: (1) that the stevedore did not breach its warranty of workmanlike performance; and (2) that the shipowner, by furnishing an unseaworthy vessel, hindered the stevedore’s performance so as to preclude indemnity.

This appeal involves only the indemnity claim by the shipowner against the stevedore. The question presented is whether the longshoreman’s contributory negligence is merely a factor to be weighed in determining whether the 'stevedore has breached its warranty of workmanlike performance, or whether any contributory negligence constitutes a breach of the stevedore’s warranty as a matter of law.

The rule in this Circuit is that contributory negligence “. . . is a factor to be taken into consideration on the issue of breach of the contractor’s [stevedore’s] implied warranty.” Lusich v. Bloomfield Steamship Company, 5 Cir., 1966, 355 F.2d 770, 778. See also United States Lines Co. v. Williams, 5 Cir., 1966, 365 F.2d 332, 336; D/S Ove Skou v. Hebert, 5 Cir., 1966, 365 F.2d 341, 350. Cf. Diaz v. Western Ventures, Inc., 5 Cir., 1972, 467 F.2d 1361, 1362-1363.

We are asked to reconsider our position in light of the rule prevailing in the Second, Fourth, and Ninth Circuits, that any contributory negligence on behalf of the longshoreman is imputed to the stevedore and constitutes a breach of the stevedore’s warranty as a matter of law. See e. g. McLaughlin v. Trelleborgs Angfartygs A/B, 2 Cir., 1969, 408 F.2d 1334; United States Lines v. Jarka Corp., 4 Cir., 1971, 444 F.2d 26; Arista Cia DeVapores, S. A. v. Howard Terminal 9 Cir., 1967, 372 F.2d 152.

Under the 1972 amendments to the Longshoremen’s and Harbor Workers’ Compensation Act, 33 U.S.C.A. § 901 et seq., the longshoremen’s right to sue a shipowner is limited to claims based upon negligence of the shipowner alone. The doctrine of unseaworthiness is no longer available to injured longshoremen. The effect of limiting the shipowner’s liability to his own negligence is to obviate the need for indemnity from the stevedore. Consequently the amendments provide that the stevedore employer shall not be held liable to a shipowner for damages paid by the shipowner to longshoremen and any warranties to the contrary shall be void. 33 U.S.C.A. § 905(b). These amendments did not become effective until November 1972. The instant case was tried in 1971 and final judgment in the district court was entered on March 21, 1972.

Without further consideration of the previous decisions of this Circuit or the conflict with those of the other circuits, we note that Congress has removed the underlying basis for the decisions. Moreover, we are not convinced that our prior decisions are unsound. We thus proceed to the merits on the “factor” approach.

The district court found that the longshoreman’s conduct was “so grossly careless that a court might characterize the injury as wholly self-inflicted.” However, the court did find that the ship possessed a defectively designed step which rendered it unseaworthy. Therefore, the court actually reduced the longshoreman’s damages by 95 per cent rather than 100 per cent, stating that application of comparative negligence principles should seldom result in complete exoneration of unseaworthiness. In view of these findings, we hold that the longshoreman’s contributory negligence was so substantial as to require the conclusion that the stevedore breached its warranty of workmanlike performance. This result follows even though we apply the rule that contributory negligence is only a factor to be considered in deciding whether the warranty is breached.

Finding a breach of the stevedore’s warranty, we proceed next to the question whether the shipowner’s conduct was as the district court held, sufficient to preclude indemnity. The district court found that the ship was “defectively designed and unseaworthy because the only available route by which a longshoreman might proceed from the No. 5 hold to the main deck involved a 26% inch drop for which no ladder or step had been provided”. The longshoreman in the instant case injured himself while trying to negotiate this 26% inch drop.

The district court was presented with a situation of negligence imputed to the stevedore on the one hand and unseaworthiness on the part of the ship on the other. The court could not prorate damages but they were in fact prorated by the contributory negligence holding and the subsequent holding on indemnity. The court left a five per cent charge against the shipowner for unseaworthiness by denying indemnity. Under the “factor” rule we cannot say that this was error.

Affirmed.

THORNBERRY, Circuit Judge

(dissenting) :

Although, as the majority points out, the 1972 amendments to the Longshoremen’s and Harbor Workers’ Act greatly diminish the importance of this case as precedent, our duty to decide it correctly is not diminished. With deference, I must disagree with one important aspect of the majority’s reasoning and with the result it reaches.

First, in considering the question of the stevedore’s breach of warranty of workmanlike performance, I believe we should follow the per se rule of the Second, Fourth, and Ninth Circuits that the longshoreman’s negligence constitutes a breach of warranty of workmanlike performance as a matter of law. This rule accords better with the precedents and with logic than the majority’s factor approach. If the longshoreman’s negligence is imputed to the stevedore — and it is imputed in this Circuit as in others, see United States Lines Company v. Williams, 5th Cir. 1966, 365 F.2d 332, 334 n. 4—then it is difficult to understand how the stevedore, having negligently contributed to the cause of an accident through the acts of the longshoreman, might nevertheless avoid breaching its warranty of workmanlike performance, the essence of which is to perform its work “properly and safely.” Ryan Stevedoring Company v. Pan-Atlantic S/S Corporation, 1955, 350 U.S. 124, 133, 76 S.Ct. 232, 237, 100 L.Ed. 133. Lusich v. Bloomfield Steamship Company, 5th Cir. 1966, 355 F.2d 770 and United States Lines Company v. Williams, supra, upon which the majority rely, do contain language supporting the factor approach, but I do not read them to establish that approach in this Circuit. Those cases reversed because the trier of fact had failed to consider the longshoreman’s negligence at all on the question of breach of warranty, but did not limit the scope of that consideration to that due a “factor” or otherwise preclude the per se approach. In this ease, of course, the per se approach yields the same results as the factor approach of the majority: the warranty of workmanlike performance was breached.

On the question whether the district court clearly erred in finding the shipowner was guilty of such conduct as to preclude indemnity I disagree with the majority’s result. The only fault of the shipowner was furnishing a ship with a twenty-six and one-half inch step — a condition found to be unseaworthy. The district court concluded, “Although the step did constitute an unseaworthy condition, it was not particularly formidable to those who follow an active trade and its hazards might easily have been avoided by the use of ordinary care.” The defectiveness of the step contributed only five percent to the cause of the accident. In these circumstances, when the shipowner’s conduct is weighed against the stevedore’s breach of warranty of workmanlike performance, Waterman S/S Corporation v. David, 5th Cir. 1966, 353 F.2d 660, I do not believe the shipowner’s conduct could reasonably be found sufficient to preclude recovery to which it would otherwise be entitled. Its conduct did not “prevent or seriously handicap the stevedore in his ability to do a workmanlike job.” Albanese v. N. V. Nederl. Amerik Stoomv. Maats., 2nd Cir. 1965, 346 F.2d 481; see also Corbin on Contracts § 1264.

Accordingly, I would, reverse the judgment below denying indemnity.

ON PETITION FOR REHEARING AND PETITION FOR REHEARING EN BANC

PER CURIAM:

The Petition for Rehearing is denied and no member of this panel nor Judge in regular active service on the Court having requested that the Court be polled on rehearing en banc, (Rule 35 Federal Rules of Appellate Procedure; Local Fifth Circuit Rule 12) the Petition for Rehearing En Banc is denied.

THORNBERRY, Circuit Judge

(dissenting) :

I dissent as to the denial of the petition for rehearing.

      . Seas Shipping Co. v. Sieracki, 1946, 328 U.S. 85, 66 S.Ct. 872, 90 L.Ed. 1099; Ryan Stevedoring Co. v. Pan-Atlantic S/S Corp., 1956, 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133.

      . The Third Circuit has taken a position somewhat near the rule of this Circuit. See Shaw v. Lauritzen, 3 Cir., 1970, 428 F.2d 247, 250-251, where the court approved a jury instruction which provided:
      “If you find [the Stevedore’s negligence] was a substantial factor in causing the injury, the shipowner ... is entitled to recover . . . against the stevedore . . . ”.


author: HASTINGS, Senior Circuit Judge.

text:
    George Joseph ORITO, by Robert E. Sutton, his attorney, Petitioner-Appellee, v. Sanger POWERS, Administrator, State of Wisconsin, Department of Health and Social Services, Division of Corrections, Respondent-Appellant.
    No. 72-1931.
    United States Court of Appeals, Seventh Circuit.
    Argued April 17, 1973.
    Decided May 25, 1973.

      Robert W. Warren, Atty. Gen., Thomas J. Balistreri, Asst. Atty. Gen., Madison, Wis., for respondent-appellant.
    Robert E. Sutton, Milwaukee, Wis., for petitioner-appellee.
    Before HASTINGS, Senior Circuit Judge, and CUMMINGS and STEVENS, Circuit Judges.
   HASTINGS, Senior Circuit Judge.

This appeal from an order of a federal district court granting the petition of George Joseph Orito for a writ of habeas corpus presents an important jurisdictional issue for review. The question is whether the United States District Court for the Eastern District of Wisconsin had jurisdiction pursuant to Title* 28, U.S.C.A. § 2241(a), to issue a writ of habeas corpus on behalf of a prisoner who, at the time he filed his petition, was confined in a federal penitentiary in Sandstone, Minnesota. A second and subsidiary question is whether a particular publication entitled Riviera Girls was obscene as a matter of law.

Prior to September 17, 1971, petitioner was tried and convicted in the United States District Court for the Central District of California for violation of Title 18, U.S.C.A. § 1462 (importation or transportation of obscene matters) in Case No. 71-2506-FW. He was sentenced to serve a term of three years and was then committed to and incarcerated in the Federal Correctional Institution at Sandstone, Minnesota. While serving this term at Sandstone, petitioner was tried by a jury and convicted by the Circuit Court of Milwaukee County, Wisconsin, on September 17, 1971, of possessing obscene pictures with intent to sell the same, in violation of § 944.21 (1), Wis.Stats. He was sentenced to an indeterminate term of five years’ imprisonment in the Wisconsin State Penitentiary at Waupun, Wisconsin. The sentence was to be served in part concurrently with the remainder of the three-year federal commitment he was then serving at Sandstone. Petitioner was returned to Sandstone, serving time there on both the federal and state commitments. The Wisconsin trial court denied his motion for a new trial on November 3, 1971. His conviction was affirmed on June 6, 1972, on appeal to the Wisconsin Supreme Court. Orito v. State, 55 Wis.2d 161, 197 N.W.2d 763. This exhausted his state court remedies.

On November 19, 1971, the Wisconsin Department of Corrections sent a letter to the warden of the Federal Correctional Institution at Sandstone requesting “that we be notified approximately 60 days prior to the subject’s [Orito’s] eventual release from your institution so we may determine if subject should be returned to this institution, or if a concurrent parole agreement can be arranged.” The letter went on to say that it “should not be considered as a Detain-er” but did request a set of fingerprints and three photographs of Orito.

In that posture, while confined in a federal institution in Minnesota serving concurrent California federal and Wisconsin state terms of imprisonment, on July 10, 1972, petitioner filed his Wisconsin federal petition for habeas corpus relief directed to his Wisconsin state conviction, together with an emergency petition for bail pending the disposition of his habeas petition. Respondent Administrator of the Division of Corrections filed a response in opposition on August 2, 1972. On August 5, 1972, the Supreme Court of the United States, pursuant to an order by Associate Justice Blaekmun, ordered petitioner admitted to bail pending final disposition of his appeal from the California federal conviction. On August 11, 1972, the Wisconsin federal court denied petitioner’s emergency petition for bail in the federal habeas proceeding.

On August 30, 1972, the Wisconsin federal district court, Judge Myron L. Gordon presiding, in a decision on the merits of the habeas petition, 347 F. Supp. 150, found:

“Although the Wisconsin authorities have not filed a formal detainer with the federal correctional institution at Sandstone, it is clear that the federal authorities have been notified of the state conviction and consider that notice to constitute a ‘hold’ upon Mr. Orito.
“In view of the admission to bail authorized by the United States Supreme Court, I conclude that the petitioner is in fact restrained of his liberty by reason of the conviction in the state court of Wisconsin. Thus, I find that this court has jurisdiction to issue a writ of habeas corpus under 28 U.S.C. § 2241(a).”

We agree. Judge Gordon also countermanded his prior order of August 11, 1972, and admitted petitioner to bail pending final disposition of the habeas corpus petition. Actual issuance of the writ of habeas corpus was stayed pending the outcome of this appeal.

JURISDICTION

Relying upon the literal language of § 2241(a), supra,, that writs of habeas corpus may be granted by “the district courts * * * within their respective jurisdictions,” respondent contends that this phrase has been construed to limit the power of federal district courts to issue writs of habeas corpus to prisoners confined within the particular court’s territorial jurisdiction, citing Ahrens v. Clark, 335 U.S. 188, 68 S.Ct. 1443, 92 L.Ed. 1898 (1948); United States ex rel. Brown v. New York Board of Parole, E.D.N.Y., 301 F.Supp. 1232 (1969), and cases cited therein.

Whatever vitality Ahrens v. Clark, supra, and cases following it may have had was severely undercut and to a large extent overruled by the recent decision of Braden v. 30th Judicial Circuit Court, 410 U.S. 484, 93 S.Ct. 1123, 35 L.Ed.2d 443 (1973). In Braden, a petitioner then serving a sentence in an Alabama prison applied to a Kentucky federal district court for a writ of habeas corpus. He alleged denial of his constitutional right to a speedy trial in a pending Kentucky state court indictment charging him with storehouse breaking and safe-breaking. He sought an order directing Kentucky to afford him an immediate trial on the three-year-old Kentucky indictment. The Supreme Court phrased the issue as follows: “We are to consider whether, as petitioner was not physically present within the territorial limits of the District Court for the Western District of Kentucky, the provision of 28 U.S.C. § 2241(a) that ‘[w]rits of habeas corpus may be granted by the . . . district courts within their respective jurisdictions’ (emphasis supplied), precluded the District Court from entertaining petitioner’s application.” 411 U.S. at 485, 93 S.Ct. at 1125. The Kentucky federal district court found it had jurisdiction. The Court of Appeals for the Sixth Circuit reversed. The Supreme Court, divided on the question of the vitality of Ahrens v. Clark, supra, reversed the court of appeals and held that “petitioner’s absence from the Western District of Kentucky did not deprive that court of jurisdiction, and * * * the court below erred in ordering the dismissal of the petition on jurisdictional grounds.” 411 U.S. at 500, 93 S.Ct. at 1132.

We find that Braden is fully disposi-tive of the jurisdictional question in the case at bar and affirm the district court on that issue.

OBSCENITY

As earlier herein set out, Orito was convicted on a charge of violating a Wisconsin statute proscribing the possession of obscene material for sale. The material in question consisted of a so-called magazine, without textual matter, on each page of which was a still picture of a posturing nude female, which left nothing to the viewer’s imagination. It needs no further “free advertising” here.

The Wisconsin state court jury and the Supreme Court of Wisconsin each found the material to be obscene as a matter of fact and law under prevailing local community standards. It is quite understandable that many would be filled with a sense of righteous indignation and disgust with the presentation of such photographs for sale. Indeed, as a matter of federal-state comity, we regret the necessity of disagreeing with an eminent state court of last resort.

Nevertheless, as we read and understand the repeated decisions of the Supreme Court of the United States interpreting the First Amendment to the Federal Constitution, as applied to the states by the Fourteenth, Wisconsin may not constitutionally convict Orito for selling this magazine. The most thorough exposition of this question we have seen is the exhaustive treatment in Huffman v. United States, D.C.Cir., 470 F.2d 386, 399-401 (1971), on rehearing, id. at 404 (1972). On the authority of Huffman and the Supreme Court cases cited therein, we feel compelled to conclude that the district court did not err in holding this material protected.

The judgment of the district court is in all respects affirmed.

Affirmed.

      . “§ 2241. Power to grant writ
      “(a) Writs of habeas corpus may be granted by tlie Supreme Court, any justice thereof, the district courts and any circuit judge within their respective jurisdictions. * * * ”

      . We note a continued expansion of traditional notions of habeas corpus by the same division of the Supreme Court in Hensley v. Municipal Court, 411 U.S. 345, 93 S.Ct. 1571, 36 L.Ed.2d 294 (1973).