author: FRIENDLY, Circuit Judge:

text:
    TRICO PRODUCTS CORPORATION, Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent.
    Nos. 29, 30, Dockets 72-1391, 73-1181.
    United States Court of Appeals, Second Circuit.
    Argued Oct. 12, 1973.
    Decided Nov. 23, 1973.

      Frank G. Raichle, Buffalo, N. Y. (Raichle, Banning, Weiss & Halpern and Ralph L. Halpern, Buffalo, N. Y., of counsel), for petitioner.
    Warren Ogden, N. L. R. B. (Peter G. Nash, Gen. Counsel; John S. Irving, Deputy Gen. Counsel; Patrick Hardin, Associate Gen. Counsel; Elliott Moore, Acting Asst. Gen. Counsel; William F. Wachter, and Richard A. Cohen, N. L. R. B., of counsel), for respondent.
    Before FRIENDLY, ANDERSON and MANSFIELD, Circuit Judges.
   FRIENDLY, Circuit Judge:

What began as a rather minor incident in the research engineering and metallurgy departments of Trico Products Corporation (Trico) has subsequently developed into a vigorously contested dispute before the National Labor Relations Board and has finally led to a Board order imposing substantial back pay' liability on the company. The escalation of this teapot-sized tempest into a serious legal struggle is attributable to a combination of inept handling by lower and middle management and the Board’s unwarranted modifications of the basically sensible recommendations of the Administrative Law Judge.

I.

Trieo’s business is the manufacture and sale of automotive windshield wipers and other automotive products. Starting at the end of 1969, the company began to suffer a progressive decline in business due in part to a reduction in the number of automobiles produced and in part to the phasing out of other automotive products. Trico had responded with significant reductions in hourly-paid personnel. On May 14, 1970, J. W. Frey, its Vice President for Finance, circulated a directive to all foremen and department heads on the subject of salaried personnel. Frey’s memorandum referred to the gloomy business outlook and urged careful review of operations and efforts at cost reduction, “particularly through reduced overtime and elimination of non-eritical work and/or personnel.” He promised that “In the event we are advised of personnel not critically needed in any department, we will attempt to reassign the employees.” This led to a limited reduction in salaried employees.

On September 15 a heavy blow fell in the form of a nationwide strike at General Motors, which was one of Trico’s most important customers. This led to the immediate layoff of-another 139 hourly paid employees, bringing the total number down to about 2080 from approximately 3000 at the beginning of 1969.

Among the salaried employees were twelve technicians in Department 54 (Research Engineering), headed by Allan McIntyre, and eight in Department 88 (Metallurgical), directly headed by Michael Tutko although under the general supervision of McIntyre, who reported to Raymond Deibel, Vice President of Engineering. McIntyre and Tutko had been resisting cuts in their departments, arguing that the men had been highly trained at Trico’s expense and would be needed when the existing adversities were overcome.

It was in this setting that the incident occurred which precipitated the unfair labor practice charge. The employees had long been displeased over a requirement that they submit “Project Logs” detailing what they had done each day and how much time they had spent on each assignment. Trico was later to explain, evidently to the employees’ satisfaction, that these reports were needed for patent protection, but apparently there had been a failure of communication on this score. On October 16, with what on the most charitable view must be considered a classic example of bad timing, three Department 54 employees, Vastóla, Clark and Soponski, decided the moment had arrived to bring matters to a head. On the following Monday, October 19, Vastóla prepared a petition, which we reproduce in the margin. This was signed by all the employees in the two departments, and placed in the inter-office mail on October 20.

When he learned of the petition, McIntyre called Vastóla into his office and inquired about it. After Vastóla had outlined the contents and purpose of the petition, McIntyre expressed the hope that the petition wasn’t “worded too strongly because something like this could be taken two ways. Mr. Deibel could look at this and recognize the fellows have a problem and have a complaint or he could hit the ceiling.” When Vastóla responded that the petition was indeed strongly worded, McIntyre suggested that it be held off until he could talk with Deibel when the latter returned from vacation rather than “hit him with a petition when he walks in the door.” Later in the morning McIntyre summoned Clark, Soponski and McTigue, a metallurgical technician, into his office. The conversation was similar to that with Vastóla and ended with McIntyre’s suggesting that the three talk to other employees with a view to holding up the petition. Still later in the day McIntyre had all the available Department 54 and 88 employees come into his office. He reiterated his request that they hold off and give him a chance to talk to Deibel, since submission of such a petition at the particular time could have an adverse effect on wage increases and “just eould make someone mad.” Despite McIntyre’s efforts, the employees held a meeting and decided to go ahead.

The next morning McIntyre, who apparently had learned of the decision, allegedly told Soponski that he “had been too good to the guys” and that if they were “going to step on his toes,” he was “going to change his ways.” McIntyre called another general meeting that afternoon, which was largely a rehash of what had gone before. After the meeting, Tutko called an employee who had not been present to urge him not to support sending the petition; Tutko stated that the petition might cause repercussions and that it would not be wise to send it at the time because of the raise evaluations scheduled for November. Later in the week Tutko asked employee Sparks how he could “be so stupid” as to sign the petition and added, “Do you realize what is going to happen next week when Mr. Deibel gets back?”

On October 27, his first day back at the plant, Deibel called a meeting of the employees of the two departments. He said he first wished to discuss the petition but had some bad news to announce afterwards. He expressed disapproval of the petition which, in his view, made it look to management as if the engineering departments could not solve their own problems; he added that he particularly disliked use of the word “demand.” Deibel then explained the purpose of the logs to the satisfaction of the employees. Turning to the “bad news,” he referred to the continuing General Motors strike and the possibility of one at Ford. Because of Trico’s poor economic condition, there would have to be a layoff or, as he preferred to call it, a furlough, effective on October 30. He read the names of eight employees to be laid off; these, chosen in inverse order of seniority, included the three originators of the petition. Each laid-off employee was given a letter stating that his employment had been terminated “because of a reduction in personnel, based on seniority, caused by business conditions.” The letter summarized what the employee’s duties had been and stated that it was “a pleasure” to recommend him for suitable employment.

At the unfair labor practice hearing, Deibel asserted that the layoffs were not caused by the petition. He said that before he went on his vacation Frey had appealed to him “to continue an effort to keep our non-productive overhead down.” Deibel testified that he had met with his subordinates on several occasions during the summer and fall to discuss the problem of excess manpower in various departments. In mid-October, McIntyre, Tutko, and R. A. Batt, Dei-bel’s assistant, held a meeting in which Batt told the department heads that they would have to give serious consideration to implementing layoffs. Deibel claimed that he had finally decided on a layoff during the last weekend of his Caribbean cruise and had telephoned the decision to Batt on the morning that he returned. During their conversation, Batt asked Deibel whether he had seen the petition. When Deibel said he had not, Batt suggested that he look through his mail. Upon finding the petition, Deibel said he was disappointed, and arranged to meet with Batt, McIntyre and Tutko. At the meeting, he allegedly assured them that the petition did not bother him but that economic conditions required a layoff in the production research area. McIntyre and Batt said they had done some work on this but would like more time. Deibel told them to prepare a list of employees they would consider cutting, and repeated that he could easily straighten out the employees about the logs. At a second meeting later that morning, Tutko agreed to the layoff of two of his employees and McIntyre agreed to give up four. Deibel subsequently decided to lay off a total of eight.

Deibel’s bland account of the sequence of events and his own motivations was somewhat discredited by employee testimony concerning post-layoff statements by Tutko, most of which he conceded to be truthful. McTigue reported that Tutko had told him, “They think they’ve gotten rid of the troublemakers,” and added that he had wárned the employees not to send the petition. Tutko told another employee, “See what I told you last week would happen. Now you know.”

II.

On a complaint charging various violations of § 8(a)(1), the Administrative Law Judge found that Trico had coer-cively interrogated employees and threatened them with reprisals with respect to an activity protected by § 7. He declined to credit Deibel’s testimony that his decision to make the layoffs had fully matured while he was basking in the Carribbean sun and before he knew of the petition; he thought it strange, as we do, that on the morning of his return Deibel “would not first consult with Frey, or other Company officials, before so hastily laying off these experienced employees.” On the other hand, with equal good sense, he found that “even absent such [protected] activity, the employees laid off on October 30, 1970 ultimately would have been laid off at some future date due to economic conditions and Respondent’s overall program to reduce non-productive work.” In addition to the facts already related, he deemed it “particularly significant that none of the laid off employees were replaced by the hiring of any new employees,” since this “clearly demonstrates that Respondent was able to continue the operation of its business with this lesser number of employees.” He therefore declined to order reinstatement (although he directed that the names of the laid-off employees be placed on a preferential hiring list) and limited the amount of back pay, which was to be determined in a compliance proceeding, to the amount the laid-off employees “would have earned from the date of discrimination to the date they would have been normally laid off, absent the discrimination, less net earnings during said period.” On the other hand, he included in his recommendations a “broad order” directing Trico to cease and desist from “[i]n any other manner interfering with, restraining or coercing its employees in the exercise of rights guaranteed them by Section 7 of the Act.”

Both Trico and the UAW, the charging party, excepted to the Administrative Law Judge’s decision although the General Counsel did not. The Board adopted most of the findings of the Administrative Law Judge but disapproved his decision in one important respect, namely, his conclusion that the petition merely accelerated a layoff which in any event would have occurred relatively soon. It concluded that Trico had apparently believed that because salaried technical personnel were difficult to replace, they should not be laid off no matter what the company’s economic condition. The Board further found that “although the question of taking layoff action was debated and was discussed by Deibel with his department heads on a number of occasions following Frey’s directive, all had commonly agreed that all their employees should be retained.” Since Trico had presented no evidence of contemporaneous layoffs in other departments, the Board perceived “no relevance in the fact that the eight employees named in the complaint were not replaced.” Accordingly, it directed that Trico offer the employees reinstatement to their former jobs or, if these no longer exist, to substantially equivalent positions and that the company make the employees whole for any loss of earnings, apparently until the end of time.

III.

We shall consider in the first instance the conclusions with respect to coercive interrogation and threats. Trico contends with some persuasiveness that McIntyre and Tutko were endeavoring to help the employees, not interfering with, restraining, or coercing them in the exercise of their undoubted right to protest about working conditions. According to the company, McIntyre and Tutko were merely trying to dissuade the employees from taking action which had little chance of accomplishing anything and might suggest to management that the men were reluctant to report what work they were doing because they had very little to do.

We sustain Trico’s position with respect to the interrogation. Neither the Administrative Law Judge nor the Board made any attempt to analyze this in light of the five standards which we announced in Bourne v. NLRB, 332 F.2d 47, 48 (2 Cir. 1964), and have applied in cases too numerous for citation. The interrogation here failed to meet at least four of the five. Trico had no history of hostility to concerted activities or anti-union discrimination; the interrogation was not directed at obtaining information on which to base action against individual employees; the questioner was not high in the company’s hierarchy; and the replies were truthful. Even as to the remaining criterion, whether the employee was “called from work to the boss’s office” and there was “an atmosphere of ‘unnatural formality’,” the second branch was not met.

We must reach a different conclusion with respect to the alleged threats. If we were sitting as triers of fact, we might well agree with Trico that in view of all the circumstances, McIntyre and Tutko were endeavoring to dissuade rather than to intimidate. However, the requirement that we sustain findings “with respect to questions of fact if supported by substantial evidence on the record considered as a whole,” 29 U.S.C. § 160(e) and (f), applies to inferences as well as to findings of evidentiary facts. Radio Officers’ Union v. NLRB, 347 U.S. 17, 48-52, 55-56, 74 S.Ct. 323, 98 L.Ed. 455 (concurring opinion of Mr. Justice Frankfurter) (1954). During otherwise informal and candid exchanges of views, the supervisors’ threats of wage reevaluation, especially in light of Deibel’s subsequent precipitous action, supplied a sufficient basis for the conclusion that the petitioners were coerced in violation of § 8(a)(1).

We likewise sustain the finding that the petition was a cause of the employees being laid off when they were. To be sure, Deibel testified that he was not disturbed by the petition and evidently succeeded in persuading the employees that their protest was ill-founded. Yet the Board was not bound to credit his claim that it was a mere coincidence that he ordered the layoffs within a few hours of his receipt of the petition, and at the same meeting at which he mildly rebuked the employees for sending it. See NLRB v. Dorn’s Transportation Co., 405 F.2d 706, 713 (2 Cir. 1969); United Aircraft Corp. v. NLRB, 440 F.2d 85, 91-92 (2 Cir. 1971). The case would indeed stand differently if Deibel had limited the October 27 meeting to answering the petition, had thereafter discussed the layoff problem with Frey or other members of top management who were unaware of the petition or were demonstrably unaffected by it, and had then done exactly what he did here. The exercise of employee rights protected by § 7 cannot forever disable an employer from taking action deemed appropriate in light of economic needs. But if an officer with power to fire has too low a flash point, the company must bear the consequences.

We take a different view with respect to the reversal of the findings of the Administrative Law Judge that an early layoff was in the cards in any event. Although “[t]he ‘substantial evidence’ standard is not modified in any way when the Board and its examiner disagree,” nevertheless “evidence supporting a conclusion may be less substantial when an impartial, experienced examiner who has observed the witnesses and lived with the case has drawn conclusions different from the Board’s than when he has reached the same conclusion,” Universal Camera Corp. v. NLRB, 340 U.S. 474, 496, 71 S.Ct. 456, 95 L.Ed. 456 (1951). We have frequently applied this principle. See NLRB v. James Thompson & Co., 208 F.2d 743, 745-746 (2 Cir. 1953); NLRB v. Park-Edge Sheridan Meats, Inc., 341 F.2d 725, 728-729 (2 Cir. 1965); NLRB v. River Togs, Inc., 382 F.2d 198, 203-204 (2 Cir. 1967). In this case the evidence supporting the Board’s conclusion that the eight employees would not have been shortly laid off but for the petition is not substantial “on the record considered as a whole,” even if the Administrative Law Judge’s decision is not taken into account. To anyone having ordinary business sense it would be obvious that a company which had been obliged to cut its production employees by a third and was threatened with the possibility of having to cut by more was not going to maintain its research departments at full strength indefinitely, at least in the absence of evidence that they were engaged in projects vital to the future success of the company. The evidence is wholly consistent with this view. The Board attempted to minimize the force of Frey’s directive of May 14, 1970, by saying that Frey offered to transfer unneeded salaried employees “if possible.” This ignores the deterioration between May 14 and October 30, including the General Motors strike, which continued until November 12, and the attendant layoff of another 139 production employees, as well as the prospect of further deterioration in the future. To be sure, McIntyre and Tutko were fighting to keep their organizations intact, as department heads normally do, but it is uncontradicted that in mid-October Batt told them “Look, let’s be serious about this. We have to really consider laying people off.” In the face of this and other testimony we have recited, the Board’s finding that “although the question of taking layoff action was debated and was discussed by Deibel with his departmental heads on a number of occasions following Frey’s directive, all had commonly9 agreed that all their employees should be retained,” lacks substantial evidentiary support. We likewise fail to comprehend why the fact that the layoffs of October 30 were largely confined to Departments 54 and 88 deprives of relevance “the fact that the eight employees named in the complaint were not replaced.” What the Board seems to be saying is that Trico was so intent on punishing the eight men for making a protest which the company easily satisfied them to have been unwarranted that it was willing to forego for years services needed for the effective conduct of its business. This passes understanding. The Administrative Law Judge was far more convincing in finding that the unfair labor practice merely accelerated the layoffs. The situation is the one, familiar in other contexts, “where a part of the harm caused would clearly have resulted from the innocent conduct of the defendant himself, and the extent of the harm has been aggravated by his tortious conduct;” in such instance the damages should be apportioned as between the tortious and the innocent conduct. Restatement of Torts 2d § 433A at 437.

We shall therefore strike the portion of the order mandating reinstatement and restore the. direction of the Administrative Law Judge that the names of the laid-off employees be placed on a preferential hiring list. We shall also eliminate the Board’s provision for back pay and restore that of the Administrative Law Judge. While compliance proceedings will be necessary to determine the amount of back pay, these are not to be used to circumvent our decision that the petition merely accelerated a layoff that would shortly have occurred. The issue in the compliance proceeding is not whether but when. Trico may offer additional evidence as to what the men in the two departments had been doing in the months preceding the layoffs, what the anticipated future work load was, how much this could and probably would be trimmed or postponed in light of economic circumstances, and- how the work has been handled with the decreased force. The General Counsel, in turn, may inquire what was done in other departments and, if there was a difference, why. We mention these lines of inquiry as illustrative and not by way of limitation. The Board shall then determine on the basis of all relevant evidence the earliest date or dates when the employees would have been laid off in the absence of the petition — unless the parties should find it in their best interest to reach some agreement on this score.

Finally, we see no justification for the “broad order” recommended in paragraph 1(c) of the decision of the Administrative Law Judge. He offered none except a conclusory reference to “the nature and extent of the unfair labor practices herein found.” As explained in Fremont Newspapers, Inc. v. NLRB, 436 F.2d 665, 674-675 (8 Cir. 1970), the phrase “in any other manner” here used is quite different from an order restraining an employer found to have committed § 8(a)(1) violations from engaging in “other like or related acts,” as sanctioned in NLRB v. Express Publishing Co., 312 U.S. 426, 437, 61 S. Ct. 693, 85 L.Ed. 930 (1941). The instant order would convert any future § 8(a)(1) charge against Trico, however unrelated to the conduct here at issue, into a contempt proceeding. Such orders should be reserved for egregious cases, of which this surely is not one. Accordingly, we shall eliminate paragraph 1(c) from the Administrative Law Judge’s order, as adopted by the Board; paragraphs (a) and (b) afford all the protection needed and warranted.

The petitions to review and to enforce are respectively granted and denied to the extent indicated. Settle order on ten days notice. No costs.

      . Trico suggests that the timing was not accidental since tiie employees feared that further logs would show they lacked sufficient work. However, the Board did not draw that inference or the still more cynical one that the incident might have been staged at this particular time for the very purpose of causing Trico to overreact.

      . TO: Mr. A.E. McIntyre October 19, 1970 Mr. M.J. Tutko
      We, the undersigned, strongly protest the use of “Weekly Project Logs” in departments # 54 and # 88. We feel that the use of “Daily Project Logs” is a discriminatory labor practice in that the use of such “Project Logs” is not a requirement of all Technical Departments. Since the use of any discriminatory practice is prohibited by Federal Law, we demand the immediate end of the use of “Daily Project Logs.” If this situation is not immediately remedied, the National Labor Relations Board will be asked to arbitrate,
      cc: F. Bresse — R. A. Deibel — R. A. Batt Bresse was Trico’s Chairman of Labor Relations ; Batt was Administrative Engineer and assistant to Deibel. Deibel was on vacation at the time the petition was sent and did not return until October 27.

      . That the eight employees were “laid of£,” not discharged, is confirmed by their receipt of supplemental unemployment payments from Trico and Blue Cross-Blue Shield protection which is not accorded to discharged employees, and by the recall, following settlement of the General Motors strike, of the two technicians with the highest seniority.

      . Although the company has apparently not hired to fill the vacancies, the Board decision noted that two of the eight employees (one of them a sponsor of the petition) were reinstated in March and April, 1971. We were advised at argument that none of the others had been rehired or replaced.

      . The UAW, which had been seeking to represent Trico employees, got into the proceeding at an early stage. The union first charged that the eight technicians had been laid off because of union organizational activities. Discovering that it would not be able to prevail on that point, the union amended the charge to allege that the company had interfered with, restrained and coerced the employees for engaging in protected activities, namely, signing and circulating the project log petition.

      . The Board asserted that besides the eight employees from departments 54 and 88, Trico “laid off none of its salaried technical personnel after March 1970.” However, Frank Breese, the head of the company’s labor relations department, testified that a number or salaried personnel, including employees in tne technical departments, were laid off during 1970. Company records introduced at the hearing indicated that at least 22 salaried employees were laid off between March and the end of October, 1970.

      . In Bourne we held that the five standards only applied to interrogation that was “not itself threatening.” 332 F.2d at 48. McIntyre’s October 20 inquiries were much more akin to innocent information-gathering than to coercive grilling.

      . Our fear that they may be has been enhanced by the contention of Board counsel that the change in the back pay provision was not material since, under the Board’s language, the employees are to be made whole only “for any loss of earnings they have suffered in consequence of the unlawful layoffs.” In its brief, the Board contends that it altered the Administrative Law Judge’s findings only because the claim of no available work was not properly a part of the unfair labor practice hearing, but should have been postponed until the compliance proceedings. In its opinion, however, the Board did not simply vacate the Administrative Law Judge’s finding on that account, but considered the question of available work on the merits and strongly implied a decision that the layoffs would not ultimately have occurred for economic reasons. In NLRB v. Dazzo Products, Inc., 358 F.2d 136 (2 Cir. 1986), cited by Board counsel, there was no reason to think the employer’s contentions with respect to limitations on back pay would not be fairly considered in the compliance proceedings. Here, in view of the Board’s decision, there is every reason to think the company’s contention might be deemed foreclosed if we do not direct otherwise.


source: Caselaw Access Project

author: PER CURIAM: FEINBERG, Circuit Judge

license: Public Domain

text:
    UNITED STATES of America, Appellee, v. James CARFORA, Appellant.
    No. 313, Docket 73-1824.
    United States Court of Appeals, Second Circuit.
    Argued Oct. 4, 1973.
    Decided Nov. 21, 1973.

      Feinberg, Circuit Judge, filed a dissenting opinion.
    H. Elliot Wales, New York City, for appellant. j
    Robert B. Hemley, Asst. U. S. Atty., New York City (Paul J. Curran, U. S. Atty., Kenneth R. Feinberg and John D. Gordan III, Asst. U. S. Attys., on the brief), for appellee.
    Before MEDINA, FEINBERG and TIMBERS, Circuit Judges.
   PER CURIAM:

On this appeal from a judgment entered May 4, 1973 in the Southern District of New York, Múrray I. Gurfein, District Judge, after extensive eviden-tiary hearings, revoking probation and imposing a two year term of imprisonment to be suspended after four months, the sole issue is whether the district judge abused his discretion. We hold that he did not. We affirm.

Revocation of appellant’s probation was a sequel to his conviction on January 14, 1972, after a four day jury trial before Judge Gurfein, of nine counts of mail fraud in connection with his fraudulent purchase of tickets from certain airlines in violation of 18 U.S.C. § 1341 (1970). On March 6, 1972, Judge Gur-fein imposed what strikes us as a lenient sentence: two years probation and a $2500 fine to be paid in installments under the supervision of the probation office. In addition to the usual conditions of probation, a special condition was imposed requiring appellant to make full restitution to the defrauded airlines by April 1,1972.

Shortly after being placed on probation, appellant was charged with violating his probation. On June 20, 1972, the probation office filed a revocation petition charging that appellant had violated the provision that he make restitution. After notice to appellant, Judge Gurfein held an evidentiary hearing on June 26, at the conclusion of which he stated that he would not consider poverty as a ground for revocation; he modified the restitution schedule and required appellant to make payments to the airlines thereafter through the probation office in monthly installments. ■

On August 16, 1972, the probation office filed a second revocation petition charging that appellant had violated his probation in three respects: he had failed to report to the probation officer on August 15; he had failed to make the July restitution payment to TWA which he had been ordered to make; and he had made a first installment payment to Eastern Airlines with a check that had bounced. Beginning September 26, 1972 and extending through January 30, 1973, hearings on this revocation petition were held on six separate days. Appellant was required to produce his books and records. He testified on his own behalf. Testimony was taken from appellant’s creditors. His bank records were received in evidence.

On May 4, 1973, Judge Gurfein filed an opinion setting forth findings of fact in support of his conclusion that probation should be revoked. While it is true that the judge did not find in haec ver-ba that appellant was financially able to make the payments to the airlines which he had been ordered to make, the entire tenor of the findings when read in the context of the record as a whole leaves us with the firm conviction that it was appellant’s refusal to make the restitution payments to the airlines, although financially able to do so, that lead to revocation of his probation. After all, the restitution payments due were relatively small: $390 to Eastern Airlines and $364.65 to TWA. The judge found, among other things, that appellant’s wholly owned company, Worldwide Electric Corporation, owned a truck, although appellant had falsely testified that it did not own an automobile; certainly a truck is an asset of value. Appellant testified that he had been “robbed” on April 5 and 13, 1972, although he did not report such robberies until the day before the first revocation hearing; presumably one does not claim to have been robbed unless property of value is taken especially when the robberies are offered as an explanation of a loss of assets. There was other evidence of appellant’s financial ability to make the restitution payments.

Our careful examination of the record satisfies us that Judge Gurfein’s findings are fully supported by the evidence and that they more than adequately warrant his exercise of discretion in revoking probation. The record as a whole clearly establishes that Judge Gurfein intended to, and did, revoke appellant’s probation on the ground that he did not fail to make the payments to the airlines because of penury and that he did have the means to pay.

We find no merit in appellant’s claims that his probation was revoked on grounds not charged and that the district court did not find that appellant had violated any specific conditions of probation.

We hold that Judge Gurfein acted well within the broad discretion granted to district judges in determining that probation should be revoked.

Affirmed.

FEINBERG, Circuit Judge

(dissenting) :

I dissent from affirmance of the order revoking probation. I would remand to have Judge Gurfein make specific findings as to the basis for his order. A remand is necessary because it is not at all clear that Carfora’s probation was revoked because of his willful failure to make restitution payments. Indeed, it is just as probable — if not more so — that his probation was revoked because he did not conduct himself as an honest businessman, a grievous fault, to be sure, but not one charged in the Government’s petition to revoke his probation. If thatc is the case, a serious constitutional issue, ignored by the majority opinion, is raised. The majority concedes that Judge Gurfein “did not find in haec verba that appellant was financially able to make the payments . he had been ordered to make.” It may well be that this finding was omitted not inadvertently but because the judge revoked probation on a wholly different ground. Under such circumstances, we should remand to be sure of the basis for revocation.

The judgment appealed from was a sequel to Carfora’s conviction over a year before of mail fraud, 18 U.S.C. § 1341. Carfora’s fraudulent transactions had included the purchase of airplane tickets without intent to pay from Trans World Airlines and Eastern Airlines. In sentencing Carfora in March 1972, Judge Gurfein noted, among other things, that Carfora had had no other recent trouble with the law and was starting to develop a legitimate business. The sentence was lenient — a fine of $2,500 and two years probation, including a special condition that Carfora make full restitution to the defrauded airlines by April 1,1972.

On June 20, 1972, the United States Probation Office filed a petition to re-volee Carfora’s probation charging him with failure to make restitution. At a hearing on June 26, Carfora admitted the default but pleaded inability to pay because of assorted unforeseen business difficulties. Expressing an unwillingness to “punish a man if he doesn’t have money to pay,” Judge Gurfein declined to find a violation of probation and modified the special condition of probation to permit Carfora to make restitution in the form of installment payments.

On August 16, 1972, a second petition to revoke probation was filed in the district court. This time the Probation Office charged that Carfora had violated the conditions of probation by: (1) making a first installment payment of $390 to Eastern Airlines with a check that “bounced”; (2) failing to make a July restitution payment of $364.65 to Trans World Airlines; (3) failing to report to his probation officer on August 15, 1972. At a hearing in September, Carfora did not deny the first two charges; rather, he again excused his failure to make restitution on the ground that he was unable to pay, this time claiming both illness and business difficulties. With respect to the third charge, he claimed an innocent mistake about the scheduled date of the meeting with the probation officer. Judge Gur-fein reserved decision pending further inquiry into Carfora’s financial situation, and ordered Carfora to make his financial records available to the Government. Five more hearings were held, at which the Government introduced, among other things, extensive evidence of Carfora’s various shady dealings with his creditors.

Finally, on May 4, 1973, the judge revoked Carfora’s probation, and sentenced him to a two-year term of imprisonment, four months to be served in prison, with the remainder of the sentence suspended. In a written opinion, the judge first recounted the history of the revocation proceedings and then restated the charges specified in the Government's petition of August 16, 1972. See note 1 supra. After declaring that he would accept appellant’s explanation for his failure to meet with his probation officer, the judge noted:

It developed that there had been instances where Carfora allegedly committed fraud upon creditors and breaches of ethical business conduct. He was informed that the Government was making these charges.

The judge then found that the Government had established 11 instances of such misconduct, including Carfora’s use of different corporate and trade names to mislead his suppliers and lenders, false testimony concerning the assets possessed by his companies, creation of fictitious accounts receivable to mislead his creditors, and issuance of cheeks with intent to pass bad checks or with reckless disregard of the state of his bank balance, which was insufficient. Of the 11 instances cited by the judge, most supported the inference that Car-fora was without funds.

The judge concluded:

The picture presented is of a struggling, marginal small business man who is willing to rely on shady practices to keep going. He has avoided bankruptcy thus far but at the expense of unwitting lenders. His practices, as disclosed, do not show a probationer worthy of trust.

It is not easy to revoke probation especially when care must be taken not to penalize penury. But I have come to the sad conclusion that probation is not enough of a deterrent for Carfora.

In this court, Carfora argues that the judgment must be set aside because his probation was revoked on a ground never charged in the revocation petition, his failure to conduct himself as an honest businessman. This, says appellant, violated his due process right to be informed of the charges against him. The Government responds that the judge revoked probation on two of the written grounds originally charged, see note 1 supra, and even if that were not so, the judge was entitled to revoke Carfora’s probation because of his fraudulent business practices.

The dispute over the basis for revocation of probation in this case underlines my own threshold difficulty with the appeal : I simply am not sure of the theory upon which the district court acted. If the judge revoked probation because Carfora was able, but unwilling, to pay the restitution installments to Eastern Airlines and Trans World Airlines, it may be that this ground for decision would be sufficiently supported by the evidence. However, the district court made no finding that Carfora had the financial means to make the installment payments, a crucial issue under our holding in United States v. Wilson, 469 F.2d 368 (2 Cir., 1972). See United States v. Taylor, 321 F.2d 339, 341-342 (4th Cir. 1963). Indeed, the judge’s opinion suggests, in its description of Carfora as a struggling businessman who has managed to stave off bankruptcy only by defrauding creditors, that the court believed appellant to be in serious financial difficulty. Initially, the evidence concerning Carfora’s shady business practices was admitted to impeach appellant’s description of his financial situation. Despite this, the record supports Carfora’s position that at least during and after the third hearing the Government presented Carfora’s allegedly unethical business dealings as an independent ground for revoking probation. And the district court’s discussion of these dealings, which constitutes the bulk of its opinion, makes no mention of the limited purpose for which evidence concerning them was initially received; in fact, it refers to the alleged instances of unethical conduct as “charges” which the Government was making against appellant. Thus, it appears quite possible that this conduct provided the basis for the court’s decision to revoke probation.

If this is so, however, other issues immediately become significant. There is no question that the demands of due process extend to proceedings for revocation of probation. Gagnon v. Scarpelli, 411 U.S. 778, 93 S.Ct. 1756, 36 L.Ed.2d 656 (1973); Morrissey v. Brewer, 408 U.S. 471, 92 S.Ct. 2593, 33 L.Ed.2d 484 (1972) Carfora contends that an essential element of due process is written notice of the specific charges which form the basis of an attempt to revoke probation. Gagnon, 411 U.S. at 786, 93 S.Ct. 1756; Morrissey, 408 U.S. at 488-489, 92 S.Ct. 2593. The Government does not claim that it ever filed a written amendment to its petition or specification of charges, as it apparently represented it would. See note 3 supra. Instead, the Government argues that the requirements of due process were met since Carfora received oral notice of the additional charges and a full opportunity to confront and controvert the evidence against him. I express no view on these issues, except to observe that the due process questions are substantial. (Contrast, for example, the generality of the oral notice, quoted in note 3 supra, with the specificity of the written charges in the revocation petition, quoted in note 1 supra.) However, I think it inappropriate to consider and decide grave constitutional issues, if this is unnecessary.

Accordingly, I would remand so that the district court can clarify the basis of the probation revocation, making such supplemental findings, on the record as it now exists, as are appropriate. For the reasons already stated, affirmance on the present record is unjustified.

      . Judge Gurfein dismissed tliis asserted ground for revocation of probation, having found that there was a mix-up in dates and tliat appellant should have tlie benefit of the doubt.

      . The specifications in the petition were as follows:
      1. IN THAT PARTIAL RESTITUTION PAYMENT OF $390 BY THE PROBATIONER PAYABLE TO EASTERN AIRLINES INC., BY POST-DATED CHECK DUE AND PAYABLE ON 7/15/72, WAS RETURNED TO THE PAYEE MARKED “ACCOUNT CLOSED”.
      2. IN THAT THE PROBATIONER FAILED TO MAKE PARTIAL RESTITUTION PAYMENT OF $364.65 TO TRANSWORLD AIRLINES INC. (TWA) THROUGH THIS OFFICE DURING THE MONTH OF JULY, 1972.
      3. IN THAT HE FAILED TO REPORT ON 8/15/72 AS DIRECTED BY THE PROBATION OFFICER.

      . On October 25, and November 29, 1972, and January 15, January 24, and January 30, 1973.

      . The judge opened the November 29, 1972 hearing by stating:
      The purpose of this hearing was to enable the Government to present evidence other than merely evidence that Mr. Oar-fora is unable to make restitution for financial reasons.
      In response, counsel for the Government stated:
      The Government at this point is ready, although not today, to do two things, and one is to prove that Mr. Carfora deliberately failed to make restitution and that he did have funds available with which he could have made restitution.
      The second is that the Government believes it will be prepared to prove that Mr. Carfora committed crimes after March, 1972, and will be able to file an amended or supplemental probation violation. [Emphasis added.]
      Later in the same hearing, Judge Gurfein remarked to Carfora:
      There is only one reason I haven’t revoked your probation, and that is because I don’t want to put a man in under circumstances where it looks as though I am doing it because he is a poor man and for no other reason, but it seems to me the thing bristles with other reasons, if it develops.

      . In Gagnon (probation) and in Morrigsey (parole), the Supreme Court addressed itself to the requirements of due process in revocation proceedings before administrative officials. I see no reason why such requirements would not be at least as strict where the revocation proceeding is held before the sentencing judge.

      . It is notable that, at the very last hearing on January 30, 1973, the judge stated to counsel for the Government:
      What I need from you is a succinct statement of what you claim are the grounds for the revocation of probation, and you can have the assistance of the probation department in that. Get that for me, we will close the hearings then and I will see wliat we can do.
      Subsequently, after all the evidence was in, the Government did produce a memorandum of law listing the specific charges of unethical business conduct it was making against Carfora.


author: TIMBERS, Circuit Judge:

text:
    UNITED STATES of America, Appellee, v. Burnie McCALL, Appellant.
    No. 288, Docket 73-2260.
    United States Court of Appeals, Second Circuit.
    Submitted Oct. 4, 1973.
    Decided Nov. 27, 1973.

      Burnie McCall, appellant pro se.
    Paul J. Curran, U. S. Atty., John H. Gross and John D. Gordan, III, Asst. U. S. Attys., New York City, for appellee.
    Before MEDINA, FEINBERG and TIMBERS, Circuit Judges.
   TIMBERS, Circuit Judge:

Appellant Burnie McCall appeals from a judgment of conviction entered upon a jury verdict returned December 6, 1972 after a three day trial before Harold R. Tyler, Jr., District Judge, in the Southern District of New York, findftag McCall guilty of conspiracy to sell narcotic drugs without receiving a written order form from the buyer in violation of 26 U.S.C. §§ 4705(a) and 7237(b) (1964).

On appeal McCall raises two major claims of error, each of which was considered and rejected by the district court: (1) that his conviction was barred by the double jeopardy clause of the Fifth Amendment; and (2) that he was convicted on the basis of illegally seized evidence. Other subordinate claims of error also are raised.

We affirm.

I.

In early May 1970, co-conspirators Richard Alston and Rose Diggs, at the suggestion of McCall, met in New Orleans. Alston persuaded Diggs to buy heroin from him and McCall on consignment. Later that month, McCall and Alston took an eighth of a kilogram of heroin and an ounce of cocaine to Diggs’ house in New Orleans. There they met James Williams and sold him the cocaine. Williams, unknown to them, was a government informant. McCall and Alston then gave the heroin to Diggs on consignment. She paid them for it after selling it to a customer.

On June 6, 1970, Emma Jean Brown, at the request of McCall, gave a package of heroin to Diggs in New Orleans. McCall had entrusted the heroin to Brown to hold while they travelled together by airplane to that city. Thereafter, twice a month from June, 1970 until late February, 1971, Dixie Mae Quinn, Diggs’ courier, made trips to New York City to pick up from Alston heroin which had been supplied by McCall. Quinn transported this heroin to Diggs in New Orleans. After selling the heroin, Diggs paid McCall and Alston either by sending Western Union money orders to them in New York or by paying them in person when they were in New Orleans making deliveries to her of additional narcotics.

On November 20, 1972, McCall was charged in a one count indictment in the Southern District of New York with conspiring with Alston, Diggs, Quinn, Brown, Williams and Junius James to sell narcotic drugs without obtaining a written order form from the buyer. After a three day jury trial before Judge Tyler, the jury found McCall guilty on December 6, 1972. The evidence included the testimony of four accomplice witnesses, the testimony of an agent of the Bureau of Narcotics and Dangerous Drugs and documentary corroboration. The evidence established that McCall and Alston sold large amounts of heroin to Diggs for distribution in New Orleans. McCall did not testify and offered no evidence.

On April 2, 1973, Judge Tyler held a hearing to determine whether evidence from an illegal state wiretap had been used in McCall’s prosecution. At the conclusion of the hearing, the judge held that there had been no taint and denied McCall’s motion to dismiss the indictment on that ground. He also denied McCall’s motion to dismiss the indictment on the ground of double jeopardy. On April 6, McCall was sentenced to seventeen years imprisonment. He is presently serving that sentence.

II.

Appealing pro se, McCall first contends that his conviction was barred by the double jeopardy clause of the Fifth Amendment. On October 6, 1970, prior to the Southern District indictment on which he was convicted, he had been indicted in the Western District of New York for violations of 18 U.S.C. § 371 (1970) and 21 U.S.C. § 174 (1964). The earlier indictment was dismissed after a jury had been empanelled but before any evidence was introduced. McCall argues that his conviction in the Southern District was for the same crime as. charged in the previously dismissed indictment and therefore was barred by the double jeopardy clause. We disagree. The two indictments charged violations of different statutes and were based on different narcotics transactions.

The three count indictment in the Western District charged McCall and Ronald Williams with conspiracy to violate 21 U.S.C. § 174 by “receiving, concealing, buying, selling and facilitating the transportation, concealment and sale of narcotic drugs” after importation into the United States with knowledge that the narcotics had been imported. That indictment also charged McCall and Williams in separate counts with concealing, selling and facilitating the transportation, concealment and sale of 138.6 grams of heroin in violation of 21 U.S.C. § 174. The evidence which the government intended to adduce at the Western District trial was held by District Judge John T. Curtin to have been derived from an illegal wiretap. Accordingly, Judge Curtin dismissed the indictment on October 20, 1971 after having empanelled a jury.

We hold that the double jeopardy clause does not bar McCall’s conviction now before us on appeal. The Southern District indictment charged a conspiracy to violate 26 U.S.C. §§ 4705(a) and 7237(b). The Western District indictment charged a conspiracy to violate 21 U.S.C. § 174 and a substantive violation of that section. The dismissal of the prior indictment did not preclude McCall’s prosecution in the instant case because in order to support a claim of double jeopardy it must be shown that the offenses charged were in law and fact the same offenses. United States v. Pacelli, 470 F.2d 67, 72 (2 Cir. 1972), cert. denied, 410 U.S. 983 (1973); Dryden v. United States, 403 F.2d 1008 (5 Cir. 1968). Conviction of McCall on the Western District indictment, unlike a conviction of 'the offense charged in the Southern District, would have required a showing that he had “knowledge of importation”. United States v. Nathan, 476 F.2d 456, 459 (2 Cir. 1973). Moreover, to convict McCall on the Western District indictment, the government would not have been required to prove an agreement to transfer or sell narcotics without an order form nor an agreement contemplating any sale. In contrast, such evidence was required for a conviction on the Southern District indictment.

Finally, McCall’s claim of double jeopardy is without merit on the further ground that the conspiracy charged in the Western District is entirely different from the conspiracy charged in the Southern District. Different evidence would be required to support convictions on the two indictments. See United States v. Cioffi, 487 F.2d 492, 496-98 (2 Cir. 1973); United States v. Pacelli, supra, 470 F.2d at 72; United States v. Barzie, 433 F.2d 984, 985 (2 Cir. 1970); Dryden v. United States, supra, 403 F.2d at 1009. The overt acts charged in the two indictments are different. The alleged co-conspirators are different. And the Western District indictment charged a narcotics operation between Buffalo and New York City, whereas the instant conviction from which McCall appeals involved a narcotics operation between New York City and New Orleans.

III.

McCall also challenges on various grounds the post verdict taint hearing held on April 2, 1973. Initially McCall claims that his conviction should be reversed because he was entitled to a hearing before trial rather than after the verdict to determine if the prosecution was based on evidence from an illegal wiretap. This contention is without merit. As we recently held in United States v. Tortorello, 480 F.2d 764, 785 n. 18 (2 Cir. 1973), cert. denied, 414 U.S. 866 (1973), although we disapprove of the practice it is within the district court’s discretion to hold a post verdict taint hearing. We hold on the facts of the instant case that the court did not abuse its discretion in postponing the taint hearing until after trial.

McCall next contends that the district court erred in concluding that the Southern District indictment and conviction were not procured by the use of evidence which was the fruit of the illegal wiretaps. After a full evidentiary hearing, the court concluded that “there is a clear-cut demarcation between the scheme and conduct which was obviously the subject of the Buffalo indictment and the scheme and conduct which was the subject of the Southern District of New York indictment, at least sufficient by a great deal, in my judgment, to avoid any illegal taint of a significant nature. . . . ” Transcript of April 2, 1973 Hearing, at 104. In so holding, the court found that McCall was neither indicted nor convicted on the basis of evidence which was the fruit of illegal taps. The court also found that the illegal taps were not the source of all information concerning McCall. These findings are not erroneous.

We have carefully considered all of appellant’s claims of error and find them to be without merit.

Affirmed.

      . Sections 4705(a) and 7237(b) were repealed by the Comprehensive Drug Abuse Prevention and Control Act of 1970, Pub. L. No. 91-513, §§ 1101(b)(3)(A), 1101(b) (4) (A), 84 Stat. 1292, (1970). The repealer, which became effective on May 1, 1971, contained a saving provision, § 1103(a), pursuant to which prosecution for any violations of law occurring prior to the effective date of repeal are not affected by the repeal. See United States v. Ross, 464 F.2d 376, 379-80 (2 Cir. 1972).

      . On May 18, 1973, Chief Judge Friendly denied McCall’s motion dated May 2, 1973 for the appointment of counsel on appeal under the Criminal Justice Act. Subsequently, on June 20, 1973, the district court reconsidered McCall’s earlier motion in the district court and again denied counsel. We reject McCall's contention that these denials violated his constitutional rights. The affidavits, including that of McCall himself, showed that he was not eligible for appointmnt of counsel under the Act.

      . Similar to 26 U.S.C. §§ 4705(a) and 7237(b) (1964), 21 U.S.C. § 174 (1964) has been repealed. See note 1 supra.

      . The relevant portions of the statutes upon which the two indictments were based are as follows:
      21 U.S.C. § 174:
      “Whoever fraudulently or knowingly imports or brings any narcotic drug into the United States . . . contrary to law, or receives, conceals, buys, sells, or in any manner facilitates the transportation, concealment, or sale of any such narcotic drug after being imported or brought in, knowing the same to have been imported or brought into the United States contrary to law, or conspires to commit any of such acts in violation of the laws of the 'United States, shall be imprisoned not less than five or more than twenty years and, in addition, may be fined not more than $20,000.”
      26 U.S.C. § 4705(a) :
      “It shall be unlawful for any person to sell, barter, exchange, or give away narcotic drugs except in pursuance of a written order of the person to whom such article is sold, bartered, exchanged, or given, on a form to be issued in blank for that purpose by the Secretary or his delegate.” 26 U.S.C. § 7237(b) :
      “Whoever commits an offense, or conspires to commit an offense, described in section 4705(a) . . . shall be im-
      prisoned not less than 5 or more than 20 years and, in addition, may be fined not more than $20,000.”

      . At the beginning of the trial, MeOall moved for a taint hearing. He alleged that certain state wiretaps which had illegally intercepted his conversations provided the basis for his federal prosecution. Although the government conceded that the state wiretaps were illegal, it informed the district court that evidence obtained from such wiretaps had not been used directly or indirectly in the McCall investigation and would not be used at trial. Judge Tyler then decided to hold a taint hearing, if necessary, after the verdict.

      . Judge Tj’ler stated that he delayed holding the taint hearing until after trial because “the Government unequivocally represented on the record that they did not use, directly or indirectly, the fruits of the illegal Buffalo taps in the presentation and preparation of this case, both before the grand jury and before trial to a petit jury.” Transcript of April 2, 1973 Hearing, at 106. Therefore, after “check [ing] the record” and considering McCall’s accusation and “in the interests of accepting the word of an officer of this Court and in the interests of saving time and a great deal of . . . public money”, the court declined to hold a hearing prior to the case going to the jury.

      . McCall’s main factual contention was that the government learned from the illegal taps of the activities of Brown and Diggs and therefore suspected McCall of criminal conduct. As Judge Tyler observed, this argument fails to take account of the New Orleans investigation and ignores the roles played by informant Williams, BNDD Agent Allen Johnson, Jr. and Chief Investigator Bruce Jensen. On the basis of the investigations conducted by these three it was determined, solely upon the information they discovered, that a case could be made out against McCall.


author: COFFIN, Chief Judge.

text:
    Earl WILLAMETZ, Plaintiff-Appellant, v. Joseph SUSI et al., Defendants, and Hartford Accident and Indemnity Company, Trustee, Appellee, and Anthony J. Orlando, Trustee.
    No. 73-1267.
    United States Court of Appeals, First Circuit.
    Argued Nov. 5, 1973.
    Decided Dec. 20, 1973.
    J. Francis Hayden, New York City, for appellant.
    Robert B. Stimpson, Boston, Mass., with whom Jaffee & Stimpson, Boston, Mass., was on brief, for appellees, Hartford Accident and Indemnity Co. and Anthony J. Orlando.
    Before COFFIN, Chief Judge, ALD-RICH and CAMPBELL, Circuit Judges.
   COFFIN, Chief Judge.

This is an appeal from an order which granted appellee Hartford’s motion to release certain funds which Hartford had originally deposited in the district court on condition that the court enjoin the enforcement of a New York judgment against it. While such an order has interlocutory aspects in that the action is still pending in the district court, see Louisiana National Bank v. Whitney, 121 U.S. 284, 7 S.Ct. 897, 30 L.Ed. 961 (1887), we subscribe to the rule of Cohen v. Beneficial Industrial Loan Corp., 337 U.S. 541, 546, 69 S.Ct. 1221, 93 L.Ed. 1528 (1949), and treat this appeal as one falling “in that small class . too important to be denied review and too independent of the cause itself to require that appellate consideration be deferred until the whole ease is adjudicated.”

The procedural history relevant to the present ease goes back almost ten years. The complaint alleges that the appellant, a resident of Connecticut, obtained a New York judgment against appellee Susi doing business as Susi Contracting Company, for $16,602.31, entered on August 12, 1964, and that Susi is further indebted to the appellant in the sum of $83,168. for accrued rentals and damage to equipment. The complaint also states that Susi’s only asset is a New York judgment for $153,816.62 recovered on May 15, 1968 against appellee Orlando, who is a resident of Massachusetts. Ap-pellee Hartford posted an appeal bond on behalf of Orlando, after which time Susi’s judgment against Orlando was affirmed in the New York court and further leave to appeal denied. Susi then sued Hartford in New York on the appeal bond and recovered a judgment against Hartford for $178,456.73, entered June 5, 1972.

Meanwhile, the appellant filed a writ of attachment and garnishment against Orlando and Hartford in Massachusetts and commenced this action in the federal district court. Hartford, fearing double liability if the New York judgment were enforced and if the appellant were successful in the federal court, requested the district court to enjoin the enforcement of the New York judgment against it pending determination of the present action. The district court granted the injunction on condition that Hartford deposit with the clerk of the district court an amount of money equaling the New York judgment of $178,456.73.

Several months later, Hartford filed a motion to release $59,485.57 of the fund deposited in the district court. Hartford based its motion on the fact that soon after it had deposited the fund, the New York court determined that one of Susi’s former attorneys had a lien against the fund which took priority over the claims of any other creditors, and ordered Hartford to pay $59,485.57 to the attorney. Therefore, according to Hartford, since the appellant could be entitled to no more of the original judgment against Orlando than the amount left over after the attorney’s lien had been paid, the fund deposited in court should be reduced by that amount. The district court, looking to the law of New York under which an attorney’s lien has priority over other creditors, granted the motion.

The appellant contends that the district court erred in ordering a release of a part of the fund because, inter alia, the fund had originally been deposited with the unconditional assurance by Hartford that the entire sum would be payable either to Susi or to the appellant, and further, because a release of a part of the fund would have the effect of giving Susi’s former attorney a priority over the claims of the appellant without the appellant ever having an opportunity to contest either the legality of the priority or the amount of the lien.

Before dealing with the merits of appellant’s arguments, mention should be made of the problem of diversity in the present action. Since jurisdicton is grounded on diversity of citizenship, and both the appellant and appellee Hartford are residents of Connecticut, it would seem that the federal court lacks jurisdiction. Treinies v. Sunshine Mining, 308 U.S. 66, 71, 60 S.Ct. 44, 84 L.Ed. 85 (1939). But the question really turns on whether Hartford, as stakeholder for Orlando, is merely a formal party or necessary and indispensable to the action. If the latter, there can be no diversity. Although it is well settled that a stakeholder is considered necessary and indispensable where a cause of action exists against it to recover property which it resists giving up voluntarily, Massachusetts and Southern Construetion Co. v. Cane Creek Township, 155 U.S. 283, 285, 15 S.Ct. 91, 39 L.Ed. 152 (1894); Johnson v. Middleton, 175 F.2d 535 (7th Cir. 1949); 3A Moore ¶19.08, the stakeholder is not considered necessary and indispensable where, as here, no cause of action exists against it “because it has not been determined which of the other parties is entitled to payment”, Salem Trust Co. v. Manufacturer’s Finance Co., 264 U.S. 182, 190, 44 S.Ct. 266, 68 L.Ed. 628 (1924). This is not a case where Hartford might, on some view of the facts, be legally obligated to pay twice. Cf. National Life Ins. Co. v. Pingrey, 141 Mass. 411, 6 N.E. 93 (1886). Hartford’s only interest in the present action is to avoid paying out a sum which exceeds the amount owed by Orlando to Susi. Because Hartford is indifferent as to how this sum is carved up between Susi, Susi’s attorney, and the appellant, Hartford’s interest cannot be considered so necessary that not to consider it “may be wholly inconsistent with equity and good conscience.” Shields v. Barrow, 17 How. 130, 139, 15 L.Ed. 158 (1854); cf. Stevens v. Loomis, 334 F.2d 775 (1st Cir. 1964).

We need not give a definitive answer to this tangled question of diversity, however, because even assuming that the jurisdictional prerequisites have been met, appellant’s instant claim is clearly without merit.

Although Hartford did represent to the district court that the fund would be payable to the appellant or to Susi, and the court conditioned its original order granting Hartford’s motion to enjoin the enforcement of Susi’s judgment against it, upon Hartford’s deposit of the entire sum into the court, we fail to see why such representations or conditions are binding after circumstances have changed. Unlike the fund in Hansen v. United States, 340 F.2d 142 (8th Cir. 1965), cited by the appellant, the fund in the present ease was not deposited to satisfy a judgment. Rather, it was created as an equitable device, Cooks v. Fowler, 141 U.S.App.D.C. 236, 437 F.2d 669 (1970), designed to retain the res until all the claims to it could be adjudicated. As such, appellant had no direct right to the fund, and its disposition was entirely within the discretion of the same court that created it. 28 U.S.C. § 2042. Since the New York court had ordered Hartford to pay the attorney’s lien, it was not inequitable that the fund deposited with the district court should be reduced by that amount which, under concepts of full faith and credit, Huron Holding Corp. v. Lincoln Mine Operating Co., 312 U.S. 183, 194, 61 S.Ct. 513, 85 L.Ed. 725 (1941), a federal court would be unlikely to award the appellant.

The sole question is whether the appellant has made such a showing of abuse of discretion as to require that the district court’s order be vacated. The appellant asserts that the district court’s decision to allow a withdrawal of part of the fund had the effect of destroying the appellant’s claim to $59,485.57, the amount of the attorney’s lien' in the New York judgment, and that this occurred without the appellant having had an opportunity to challenge the validity or the amount of the lien in the district court. Even if we were to accept the assertion as true, we do not see how this can be construed as an abuse of the district court’s discretion. It is well settled under New York law that “creditors of the client may only assert and enforce their claims against the portion of the judgment remaining after the attorneys’ lien has been paid or otherwise discharged.” Application of Peters, 271 App.Div. 518, 67 N.Y.S.2d 305 (1946); see also Orth v. Service Fire Insurance Co., 56 Misc.2d 569, 289 N.Y. S.2d 536 (1968); New York Judiciary Law § 475. Thus, the appellant is entitled to no more than the amount of the debt remaining after the attorney’s lien had been paid out.

Clearly, then, the district court did not abuse its discretion in ordering a release of part of the fund in the amount of the attorney’s lien. “It ought to be and it is the object of courts to prevent the payment of any debt twice over.” Harris v. Balk, 198 U.S. 215, 226, 25 S. Ct. 625, 628, 49 L.Ed. 1023 (1905).

Affirmed.


author: WILLIAM E. DOYLE, Circuit Judge.

text:
    M. Richard ANDREWS, Plaintiff-Appellee and Cross-Appellant, v. Linden BLUE et al., Defendants-Appellants.
    Nos. 73-1393, 73-1394.
    United States Court of Appeals, Tenth Circuit.
    Argued and Submitted Oct. 17, 1973.
    Decided Nov. 29, 1973.

      Robert C. Burnstein, Oakland, Calif. (Stephen T. Susman of Berenbaum, Ber-enbaum & Susman, Denver, Colo., on the brief), for appellants.
    Wm. Rann Newcomb, Denver, Colo. (Philip A. Rouse and J. Robert Fowler, Denver, Colo., on the brief), for plaintiff-appellee and cross-appellant.
    Before SETH and DOYLE, Circuit Judges, and TALBOT SMITH, District Judge.

       Of the Eastern District of Michigan, sitting by designation.

   WILLIAM E. DOYLE, Circuit Judge.

-Plaintiff-appellee obtained a judgment in the court below amounting to $100,973.10 from defendants-appellants Linden Blue, James N. Blue and H. Gregory Austin. Several theories were advanced. Claims under § 12 of the Securities Act of 1933 (15 U.S.C. § 77a et seq.); the Securities and Exchange Act of 1934 (15 U.S.C. § 78a et seq.); and Rule 10b-5. Pendent claims under the Colorado Securities Act and other principles of Colorado law were also alleged. The controversy arose out of a joint venture in real estate. This property appreciated substantially in value. The basic contention which threads through all of the claims of plaintiff-ap-pellee at trial was that various legal maneuvers were employed by defendants-appellants, all being designed to diminish the value of the 20 percent interest of the plaintiff-appellee in the property and simultaneously to enhance the value of the interests of the appellants.

This transaction began in October 1968 at which time the appellants, the Blues and Austin, entered into an agreement with appellee Andrews. Under the terms of this agreement Andrews contributed $36,899.22 and further agreed to use his real estate expertise as a consultant for the enterprise.

The agreement allowed the Blues faction to determine the type of organizational entity which was to be employed to develop the property (called Cherry Creek) provided that the share of Andrews’ 20 percent would not be diluted or diminished. Andrews was not given the right to share in the management or in any decision to sell, mortgage or dispose of the property.

Andrews invested the agreed sum and devoted substantial time to the development of the property. The property was never developed by the individual parties. In July 1969, title was conveyed to a newly formed corporation called Cherry Creek Drive, Inc. At this time Austin was paid the amount of his investment and thereafter his participation was limited to his serving as attorney for the enterprise. In this capacity he acted in conjunction with the Blues to the extent that the trial court considered him to be a participant in the transaction which produced the economic injury to Andrews.

Prior to the merger there were 20 shares of issued stock in Cherry Creek Drive, Inc. All were issued in the names of the Blues and four shares were held by them for plaintiff’s 20 percent interest.

The parties did not develop the property, and in the latter part of 1970 the Blues informed Andrews of an impending merger with a corporation called Medic-Shield Nursing Centers, Inc. At the same time they discussed with Andrews the possibility of buying out his interest.

The Blues had, prior to the merger, encumbered the property with a $90,000 mortgage. The proceeds were used by them for purposes other than the enterprise. Andrews was not told of this.

In correspondence with the Blues, Andrews, in discussing recognition of his interest under the proposed merger, stated that he would not object to the merger if he received listed stock in es-ehange for his interest in the property or guarantee that his (Andrews’) shares would be registered so “that they will be marketable by me without limitation as to time following the registration.”

Again, on October 15, 1970, Andrews wrote to James N. Blue asking for figures and detailed information concerning the assets of Medic-Shield. The letter noted the failure of Blue to respond to his prior request.

Andrews wrote to the Blues and Austin on October 26, 1970. He again called attention to his demands for information. In this letter he expressed dissatisfaction with the proposed merger, pointing out that the value of the shares received would be far less than his cash investment if the shares could not be transferred. Following this the Blues sought to allay Andrews’ fears and apparently succeeded judging from his letter of March 5, 1971, which stated that he was reassured by the fact that he would receive listed stock on the same basis as the Blues. He added that the transaction was satisfactory to him so long as his stock was worth the current market value of the land.

In a subsequent letter, however, James N. Blue wrote that Andrews would receive 20 percent of the 81,923 shares received by Cherry Creek Drive, Inc. in connection with the merger. The letter went on to say that Medic-Shield stock was then traded over the counter, although it was not listed on any stock exchange.

It is thus clear that Andrews sought stock which would after the merger be freely marketable. Ultimately his object • was to prevent dilution of his interest in the real estate.

The proxy statement advising of a special shareholders meeting on March 12, 1971 of Medic-Shield stated that Medic-Shield would be merged with certain real estate companies of which Cherry Creek Drive, Inc. was one and that the surviving company’s name would be Colorado & Western Properties Corporation. The statement represented that the Blues owned 100 percent of Cherry Creek Drive, Inc. Prior to the merger Austin wrote the attorney for Medic-Shield assuring him that Andrews could neither approve nor disapprove of the merger since he had no voting rights in the Cherry Creek Drive, Inc. stock.

The mentioned proxy statement was not sent to Andrews. The Blues and Austin apparently believed that he was not entitled to such notice. Interestingly, however, mention was made of the proxy statement in an original draft of Blue’s letter of March 11, 1971 to Andrews, but the letter as finally written was changed so as to omit this sentence.

On June 17, 1971, Andrews received a stock certificate for 16,385 shares of the merged corporation. These shares were issued to him in satisfaction of his 20 percent interest in the Cherry Creek property. The stock certificate has a restrictive legend which reads as follows:

These securities have not been registered under the Securities Act of 1933. They may not be sold or offered for sale in whole or in part in the absence of an effective registration statement covering them under the act, or an opinion of counsel satisfactory to the company that such registration is not required.

As an indication of the greatly enhanced value of the Cherry Creek property at the time in question, a contract for the sale of this property was entered into on February 15, 1971 by the Blues for a purchase price of $1,049,990.49. Notwithstanding this, Andrews’ 16,000 plus shares of the merged corporation had a negligible value at the time of the merger. Had the stock not been restricted it would have sold for a total price of approximately $47,000. The restrictive legend, however, greatly reduced it. Its exact value is not an issue because it is clear from the record that Andrews elected to rescind the transaction. The great variance between the value of his stock and the value of his 20 percent interest in the real estate is the bone of contention in the case. Andrews promptly tendered his stock into court and commenced the present action.

The district court granted relief under seven of the plaintiff’s eight claims. As previously noted, counts one and two of the complaint set up claims for relief under § 12 of the Securities Act of 1933. Count three charged a Rule 10b-5 violation and the trial court treated these two together. Relief was also granted on the breach of contract and fiduciary obligation claims. One single money judgment was entered as a result of several theories of liability.

THE ISSUES ADVANCED ON APPEAL.

The points posed by the defendants in seeking reversal of the judgment in favor of the plaintiff include:

The trial court’s ruling that the issuance of the Colorado and Western stock was not exempt from registration;

The court’s ruling that the interest on the 1968 real estate contract was a “security” within the meaning of the Securities Acts;

The ruling that the plaintiff was not barred or estopped by his conduct; and

The court’s ruling that defendants violated their contractual and fiduciary duties.

Defendants also contend:

The action being one in rescission, the measure of damages must be limited to the amount which plaintiff originally invested.

In his cross-appeal Andrews contends:

That it was error for the trial court to disallow the $90,000 second deed of trust which the Blues had placed on the property in question before computing the 20 percent equity of Andrews in the property; and

That the trial court ought to have awarded reasonable attorney fees to him in accordance with a claimed right under the Colorado Securities Act.

I. Exemption from Registration

Defendants claim that the issuance of Colorado & Western stock to the plaintiff was not a public offering within the meaning of Section 4(2) of the Securities Act of 1933, which exempts private offerings from the consequences of the registration requirements, thus making Section 12(1) inapplicable.1

The trial court ruled that Andrews was not a knowledgeable investor and that he did not have access to the available information.

The trial court’s conclusion was entirely in accord with the Supreme Court’s decision in S.E.C. v. Ralston Purina, 346 U.S. 119, 73 S.Ct. 981, 97 L.Ed. 1494 (1953). The Securities and Exchange Commission had in that case tried to enjoin Ralston Purina from offering unregistered stock to its employees. The court was called on to determine the meaning of the term “public offering”. In doing so the court looked to the purpose of the statute which was to protect the investor by promoting full disclosure of information considered necessary to make informed investment decisions. 346 U.S. at 124, 73 S.Ct. 981. It interpreted Section 4(2) in accordance with its purpose, concluding that the transaction is exempt from registration only when an offeree has had sufficient access to information similar to that made available to the offeree in a registration statement. So considered, an offering is private when made “to those who are shown to be able to fend for themselves.” 346 U.S. at 124, 73 S. Ct. at p. 984.

Defendants argue that plaintiff was a sophisticated investor with access to all relevant information. This argument fails, not only because the trial court’s findings to the contrary were based on substantial evidence, but also because of the fiduciary relationship and the duty to disclose arising therefrom. The duty was particularly clear in view of the repeated specific inquiries directed by plaintiff to the defendants. Plaintiff had a basis for believing that his 20 percent interest in the enterprise would be protected. He was not placed on notice that defendants were carrying out legal maneuvers designed to depreciate plaintiff’s interest and enhance their own.

Was the offering exempt because the other offerees might have been able to fend for themselves? We conclude that it was not. The statute is intended to promote full disclosure to every investor regardless of his particular business background. See Hill Corp. v. American International Franchises, Inc., 448 F.2d 680, 690 (5th Cir. 1971). Ral-ston Purina rejects the idea that an exemption exists based only on the individual sophistication of the offeree and without regard to his actual knowledge concerning the issuer.

Our court has held that the Ralston Purina standard of disclosure applies to all offerees. See Lively v. Hirschfeld, 440 F.2d 631, 633 (10th Cir. 1971). So the situation is not altered by the fact, if it be a fact, that the other offerees of Colorado & Western were able to fend for themselves.

The small number of shares issued does not cause the offering to be private. The Ralston Purina decision deals with this also. See 346 U.S. at 125, 73 S.Ct. at p. 981; see also S.E.C. Securities Act Release No. 285: Jan. 24, 1935.

Nor does the restrictive legend on the face of the shares serve to make the offering private. It is said that the legend is a precaution to prevent illegal distributions. It does not serve ás a basis for exemption from registration.

Defendants also claim that the offering was exempt because they were neither issuers nor underwriters and hence are within the sweep of Section 4(1) of the 1933 Act. Section 2(11) of the 1933 Act provides that an issuer includes any person directly or indirectly controlling the issuer. Here defendants controlled the issuer Colorado and Western. As a legal consequence they were issuers. But they were also “underwriters.” The shares distributed to plaintiff were first issued to the Blues, who in name at least were the sole shareholders of Cherry Creek Drive, Inc. Under Section 2(11) of the 1933 Act they were underwriters because they received Colorado and Western shares for redistribution, and Austin was also an underwriter because of his participation. See Quinn and Company v. S.E.C., 452 F.2d 943 (10th Cir. 1971).

It is clear that defendants have failed to sustain the burden which the law imposes on sellers of unregistered securities to prove an exemption. Lively v. Hirschfeld, supra; Garfield v. Strain, 320 F.2d 116 (10th Cir. 1963); Woodward v. Wright, 266 F.2d 108 (10th Cir. 1959).

II. Whether the Plaintiff’s Property Interest was in Law a Security

Appellants’ contention is that plaintiff’s percentage interest in the 1968 real estate venture failed to meet the statutory definitions contained in the Securities Acts, state and federal. The Securities and Exchange- Act of 1934 § 3(a)(10) defines the term broadly and extensively.

The trial court considered this interest to be plainly an investment contract and we agree, notwithstanding defendants’ extensive argument that it is not.

The Supreme Court in S.E.C. v. W. J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946) considered contracts to sell citrus groves to be investment contracts with management obligations on the seller. It gave effect to prior state court definitions and broadly defined the term as

a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal ■ certificates or by nominal interests in the physical assets employed in the enterprise.

328 U.S. at 299, 66 S.Ct. at p. 1103.

The Court characterized its definition as a flexible rather than a static principle, one capable of embracing a wide variety of schemes. 328 U.S. at 299, 66 S.Ct. 1100.

This Howey definition is now a standard one. The only possible escape for the defendants is the fact that the profits in an investment contract ordinarily originate “solely from the efforts of others.” Defendants point out that Andrews was to be a consultant in the development. This argument carries little weight. Andrews’ role as a consultant was nil. It existed in name only. He had no managerial status. The Blues regarded and treated him as an outsider devoid of management rights — as one who should be satisfied to have his money returned.

Our cases in appraising this relationship have had regard for substance rather than form. Continental Marketing Corp. v. S.E.C., 387 F.2d 466 (10th Cir. 1967); Woodward v. Wright, supra. See Vincent v. Moench, 473 F.2d 430 (10 Cir. 1973), and see Commercial Iron & Metal Co. v. Bache & Co., 478 F.2d 39 (10th Cir. 1970); Gilbert v. Nixon, 429 F.2d 348 (10th Cir. 1970).

We hold therefore that the contract reference to Andrews as a consultant did not deprive the relationship of its character as an investment contract. The predominant aspect was investment looking to profits rather than management with attendant risk taking. Defendants must now bear the consequences of having relegated Andrews to an insignificant position.

We must also reject the defendants’ argument that the Rule 10b-5 claim fails for lack of proof of scienter. Certainly intent in the odious or malicious sense is not required. The requisite knowledge of falsity is adequately evidenced. See Mitchell v. Texas Gulf Sulphur Co., 446 F.2d 90 (10th Cir. 1971).

Defendants’ argument that they made no omissions nor materially false and misleading statements to the plaintiff must also fail. The trial court’s finding that “relevant information repeatedly requested by [plaintiff] was not supplied and, most assuredly, the information concealed from him was material” is sustained by the evidence. The detailed information concerning the nature and effects of the 1971 merger was actionable material non-disclosure.

III. The Defenses of Estoppel and Waiver as a Bar to Plaintiff’s Claims

The court’s finding Qthat plaintiff was not barred or estopped from seeking to rescind the merger is fully supported by the evidence. To have an effective estoppel or waiver there must be full knowledge on the part of the plaintiff. Where, as here, the crucial information was withheld or concealed the crucial element is not present. Plaintiff did not become aware of the legend on the face of the shares until June 17, 1971, at which time the shares were issued to him. There was no undue delay in tendering the shares back to the defendants and to the Clerk of the Court incident to the commencement of suit.

Defendants’ argument that the terms of the contract itself created a binding estoppel is also untenable. Defendants are not allowed to violate the Securities Acts under the guise of the contractual provisions. The contract cannot be used as a shield for wrongdoing amounting to statutory fraud.

IV. The Measure of Recovery

Damages were assessed on the theory of rescission effective at the time of the merger. Defendants maintain that the rescission relates back to the original investment and cannot take effect at the later date when plaintiff exercised the option to rescind. Defendants would thus return to plaintiff his original investment.

The security statutes which defendants have violated all permit a rescission type of remedy. See 15 U.S.C. § 771 (Claims 1 and 2: statute specifically permits a rescission remedy for violations of §§ 12(1) and 12(2) of the Securities Act of 1933); 15 U.S.C. § 78j, 17 C.F.R. § 240..10b-5, and 15 U.S.C. § 78cc(b) (Claim 3: statute makes contracts or transactions void when they violate the statute); and 1963 C.R.S. § 125-1-21 (Claim 4: Colorado Securities Act specifically permits rescission remedy.)

Defendants’ effort to relate back to the original investment is understandable. It is a difference between $36,899.-22, the amount invested, and over $100,000, which the court considered to be 20 percent of the net proceeds of the sale.

The trial court correctly selected the later date. Obviously plaintiff did not have a right to rescind until the attempt was made to give him stock which had a value which was far out of proportion to the value of the property. There can be no question about the issue of shares in the merged corporation being a purchase or sale.

Ordinarily, of course, the consequence of rescission would be return of the property. But the real estate had been sold to a bona fide purchaser ; hence the next best solution was to give plaintiff the proceeds. Plaintiff was entitled to the fair value of his interest as of the time of the unlawful merger. Young v. Taylor, 466 F.2d 1329, 1336 (10th Cir. 1972). In a rescission action the proper measure is the amount lost rather than value of the bargain. Estate Counseling Service, Inc. v. Merrill Lynch, Pierce, Fenner and Smith, Inc., 303 F.2d 527 (10th Cir. 1962); Esplin v. Hirschi, 402 F.2d 94 (10th Cir. 1968), cert. denied, 394 U.S. 928, 89 S.Ct. 1194, 22 L.Ed.2d 459. Thus, we cannot accept defendants’ argument that the actual award is to be measured by the benefit of the bargain. As we have indicated, the rescission takes effect on the illegal merger and not on the original purchase.

The trial court utilized the figure $1,049,990.49 as a starting basis for the award. This represented the contract price of the Cherry Creek real property. At the time of closing the value was increased somewhat but this was due to the purchaser moving the closing date forward one month. The trial court also subtracted the two encumbrances in arriving at the net figure.

We are unable to understand why the second mortgage loan was subtracted by the court in computing plaintiff’s damages. We noted above that this $90,000 loan was obtained by the Blues and its proceeds were used by them. In the light of this we are unable to agree that the plaintiff’s net share should be affected by this loan. Accordingly, the trial court’s determination of the net value by subtracting the $90,000 second loan is clearly erroneous and the judgment must be modified in respect to this by adding 20 percent of $90,000 to it. Similarly, plaintiff has pointed out in his brief that the trial court neglected to deduct a five percent sales commission fee ($52,499) from the total equity of the property prior to computing plaintiff’s 20 percent interest. We agree with plaintiff that there is no reason to exonerate him from bearing his fair share of the expenses of sale. Plaintiff’s recovery should thus be reduced by an amount equal to 20 percent of $52,499. In all other respects the court correctly determined the matter and correctly computed it as well.

V. The Claim for Allowance of Attorneys’ Pees under the Colorado Securities Act

Plaintiff asserts that a finding of liability of defendants under the Colorado Securities Act also entitles him to a mandatory award of reasonable attorneys’ fees. He relies on 1963 C.R.S. § 125-1-21(1), which states:

Any person who . . . [improperly offers or sells a security in violation of the statute] ... is liable to the person buying the security from him, who may sue to recover the consideration paid for the security, together with interest at six per cent per year from the date of payment, costs, and reasonable attorneys’ fees, less the amount of any income received on the security, upon the tender of the security and any income received on it, or for damages if he no longer owns the security.

The trial court construed this provision as permissive rather than mandatory, and declined to award attorneys’ fees in this case. We agree with this ruling.

The argument based on Young v. Taylor, supra, is a circuitous one, and it does not offer authority for the proposition that the award is mandatory. Generally attorneys’ fees are not allowed unless they are specifically authorized by contract or by statute. See 25 C.J.S. Damages § 50; 15 Am.Jur. §§ 142-146. See also Spencer v. Murphy, 6 Colo.App. 453, 41 P. 841 (1895); Publix Cab Corn-pany v. Colorado National Bank, 139 Colo. 205, 338 P.2d 702, 715 (1959). We perceive no error in the trial court’s determination.

VI.

We have considered the contentions in the briefs concerning breach of fiduciary duty of defendants to plaintiff in the 1968 agreement and the breach of contract claims. In view of the affirmance of the securities claims it is unnecessary to articulate the reasons for af-firmance of these claims since the plaintiff is entitled to but one recovery.

Accordingly, the judgment is generally affirmed. It is reversed as to the reduction of plaintiff’s recovery in connection with the $90,000 mortgage noted above. The cause is remanded in respect to this latter item with directions to add to the judgment in the amount indicated. The Court is also directed to make an appropriate adjustment charging Andrews with his share of the real estate commission.

      . Section 4. The provisions of Section 5 shall not apply to .
      (2) transactions by an issuer not involving any public offering.
      Section 5 defines in detail the registration statement violations.

      . Section 12 authorizes a civil action for fraudulent offer or sale of a security.

      . The court said: “What is said in Sill York Oorp. is fully applicable to Andrews, lie was doing his best to find out what the deal was all about, but he was given the run around and was actually misled. He had invested some $36,000 and a lot of his time in the venture;" he thought that he owned a 20% interest in readily saleable real estate which had appreciated greatly in value and he wasn’t told that the stock which would be issued to him would be lettered and that if it could be sold at all, it could be sold only for an amount far less than his investment and even farther less than the fair value of the 20% interest lie thought he owned in the real estate. Moreover, although he was a sophisticated real estate investor, he was a babe in the woods when it came to stocks. He, and insofar as the Blues and Austin are concerned, because of their conduct which was unknown to Medic-Shield, others needed the protection of the Act. Defendants have the burden of proving an exemption. The defendants Blue and Austin have not met that burden within the pronouncements of Lively v. Hirschfield (1971) 10 Cir., 440 F.2d 631.
      Defendants additionally urge that plaintiff had access to all relevant information, but he didn’t. In fact, relevant information repeatedly requested by him was not supplied, and, most assuredly, the information concealed from him was material.”

      . The legislative history is in accord with this approach. See H.R.Rep. No. 85, 73rd Cong. 1st Session (1933) pp. 5, 7, 15-16.

      . See I Loss, Securities Regulation 657 n. 53 (2d ed. 1961).

      . Non-Public Offering Exemption, S.E.C. Release No. 4552, Nov. 6, 1962. See also United States v. Custer Channel Wing Corp., 376 F.2d 675 (4th Cir. 1967).

      . The definition includes the term “investment contract” among a vast group of terms apparently designed to cover all indicia of property excepting only money and negotiaable paper.
      The Colorado Securities Act also includes investment contract and its definition is no less broad. See 1963 C.R.S. § 125-1-12.

      . Such an exchange of ownership interests in a merger transaction is clearly a “purchase or sale” under Rule 10b-5. S.E.C. v. National Securities, 393 U.S. 453, 89 S.Ct. 564, at 572, 21 L.Ed.2d 668 (1969). In that case, minority stockholders in company A who had, on the basis of fraudulent information, been convinced to vote for a merger of A into Company B, were held to have “purchased” shares of B stock with their own exchanged A stock. The court specifically stated that the “no sale doctrine” (Commission’s Rule 133, 17 C.F.R. § 230.133) did not apply to 10b-5 cases, which arise under § 10(b) of the 1934 Securities Act, but only to cases arising under § 5 of the 1933 Act. In our ease, claims one and two did arise under § 5 of the 1933 Act. However, following the same type of reasoning followed by the Supreme Court, which emphasized the broad protective purposes of the Securities Acts, the “no sale doctrine” of Rule 133 should not operate as a bar here, since by its terms it only applies when the minority stockholders have had an opportunity to vote on the proposed merger. Plaintiff was given no such opportunity. This court should rather follow the cases which call for a broad definition of “purchase or sale,” see Knauff v. Utah Construction & Mining Co., 408 F.2d 958 (10th Cir. 1969) (a 10b-5 case) and regard plaintiff’s forced exchange of his interest in Cherry Creek for Colorado and Western stock as a “purchase or sale” under all of the Federal securities laws involved in this case.