author: SOLOMON, District Judge:

text:
    John R. HUDSPETH, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. Roger HUDSPETH and Jamie Hudspeth, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. Ronald J. HUDSPETH and Jane Hudspeth, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
    Nos. 73-1966 to 73-1968.
    United States Court of Appeals, Ninth Circuit.
    Jan. 28, 1975.

      Herman Simon (argued), New York City, for petitioners-appellants.
    Alfred S. Lombardi (argued), Tax Div., U. S. Dept, of Justice, Washington, D.C., for respondent-appellee.
    Before CHAMBERS and HUFSTEDLER, Circuit Judges, and SOLOMON, District Judge.

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

   OPINION

SOLOMON, District Judge:

Taxpayers in these three cases, which were consolidated for trial, appeal from an adverse decision of the Tax Court of the United States. The Tax Court decision affirmed the determination of the Commissioner of Internal Revenue (Commissioner) that the taxpayers owed income tax deficiencies for 1966 of more than $3,500. The Tax Court held that they were not entitled to interest deductions under Section 163(a) of the Internal Revenue Code of 1954. This interest was purportedly paid under purchase money mortgages on land transferred to them in 1965 by their parents. The Court found there was no bona fide indebtedness upon which interest was due. We affirm in part and reverse in part.

In 1965, the parents owned more than 1,500 acres of land in Crook County, Oregon. This land was irrigated from a facility operated by the Bureau of Reclamation of the United States Department of Interior (Bureau). Under federal law, the quantity of federally irrigated land which can be owned by one person is limited to 160 acres; a husband and wife can own 320 acres.

No rules of attribution apply to members of a family. An owner of irrigated land in excess of the Bureau’s limitation may therefore preserve ownership of the land within the family group as long as each family member does not own more than 160 irrigated acres. An owner of acreage in excess of 160 acres who fails to divest himself of the excess, could be compelled to sell the excess at a price appraised by the Bureau as dry land. Irrigation service to the land will be withdrawn if the owner fails to dispose of the excess.

When the Bureau notified the parents that they had to dispose of their excess acreage, they consulted an attorney and a tax specialist. The parents could not make gifts to their children, the taxpayers here, because the parents did not have enough money to pay the gift taxes. The parents decided to sell 320 irrigated acres to each of the married sons and 160 acres to the single son. In May, 1965, the parents’ attorney sent the children the documents necessary to accomplish the sale together with a letter from the parents explaining the land transfers. The children did not know of the transaction until they received the letter and documents.

Under the plan, the parents would deed the land to the children, the children would sign nonnegotiable notes and purchase money mortgages, and the children would lease the land back to the parents. The parents’ letter explained that they intended to provide the children with the means to pay their notes. Specifically, the annual rent to be paid on the lease would be supplemented with annual cash gifts so that the total of these two amounts would cover the annual payments on the notes. The two married taxpayers would each owe $96,000 to be paid in $15,000 annual payments; the single taxpayer would owe $48,000 with $7,500 annual payments. These' payments would include six per cent interest on the unpaid balance.

The leases were for 12 years. The married taxpayers were to receive $3,000 annual lease payments for the first eight years and $12,000 for the last four years. The single taxpayer was to receive $1,500 a year rent for the first eight years and $6,000 for the last four years. The parents, who were the lessees, had an option to renew the leases for an additional five years at $12,000 a year for the married taxpayers and $6,000 for the single taxpayer.

The children accepted the proposal, and signed the documents.

In May, 1966, one year after the land sales, the parents’ records show they received $3,000 from the married taxpayers and $1,500 from the single taxpayer; none of the taxpayers’ bank account statements show these payments. These entries represented the parents’ payment of rent to the taxpayers and the parents’ receipt of partial mortgage payments from the taxpayers.

In December, 1966, the parents gave $12,000 to each married taxpayer and $6,000 to the single taxpayer. The taxpayers immediately deposited the parents’ checks in their personal bank accounts and issued their checks to the parents for the same amount. Before they received the parents’ check, no taxpayer had enough money in his account to cover his personal check. These check transfers, together with the May entries, satisfied the taxpayers’ 1966 mortgage obligation.

On their 1966 federal income tax returns, the married taxpayers each reported $3,000 rental income, and the single taxpayer reported $1,500 rental income. Each taxpayer claimed as a deduction that portion of his annual mortgage payment which was allocable to interest on the indebtedness, in other words, $5,217 for the married taxpayers and $2,609 for the single taxpayer.

The parents, on their amended 1965 federal income tax return, filed in December, 1967, showed a profit of $140,-215 on the land sales, but paid no tax because they had an operating loss of $534,572. On their 1966 return, they reported interest income of $5,217 from each married taxpayer and $2,609 from the single taxpayer; they paid no tax because they reported an operating loss of $453,150.

The Commissioner disallowed the taxpayers’ interest deductions on the ground that there was no bona fide indebtedness. The Tax Court upheld that determination and the taxpayers appealed.

The Tax Court found that title to the property passed to the children but that the parents had intended to make gifts of the land to their children in installments to take advantage of the annual gift tax exclusions under Section 2503(b) of the Internal Revenue Code. They adopted the plan previously describee] to carry out that objective. The Tax Court also found that the taxpayers’ obligations to make mortgage payments probably would not have been enforceable if the parents failed to make the annual gifts. All parties knew that the taxpayers did not have enough money to make the annual mortgage payments, unless they received the annual gifts. The Tax Court concluded “ . . . that [the taxpayers] were not parties to bona fide sales and that the amounts claimed as interest deductions were not paid on bona fide indebtedness.”

We agree that title to the property passed to the children, but in our view it was by sale rather than gift. The sales price was $48,000 for the 160-acre tract and $96,000 for the 320-acre tracts. The parents, because of these sales and the leases, were legally obligated to make lease payments of $1,500 to the single taxpayer and $3,000 to the married taxpayers. The children were legally obligated to make the annual mortgage payments. If the payments were not made, the parents were privileged to foreclose the mortgages and recover the property. They could not have obtained deficiency judgments against their children because Oregon law does not permit deficiency judgments on purchase money mortgages.

The parents were under no legal obligation to continue to make annual gifts to the children although they expected to do it. The children’s obligation to make the annual payments continued regardless of whether the parents made these gifts.

We affirm that part of the Tax Court decision which held that the portion of each mortgage installment which came from the exchange of checks in December, 1966, to and from the children was a gift and cannot be used as the basis for a deduction for interest by the children on their tax returns. Nevertheless, the gifts were effective to forgive the accrued interest which exceeded the amount of the lease payments and to reduce the principal by the balance. We hold, therefore, that the taxpayers were entitled to take deductions for interest of not to exceed the amount they received as lease payments.

Affirmed in part and reversed in part. Remanded to the Tax Court for action consistent with this opinion.

      . The taxpayers are three brothers and the wives of the two married brothers. In this opinion “taxpayer” shall refer to the family unit, including the wife. Because this case involves transactions with parents, the taxpayers are also referred to as “the children.”

      . The value of dry land is only a small fraction of the value of irrigated land.

      . For example, interest for one year on $96,-000 is $5,760. A lease payment of $3,000 would all be applied to interest, leaving $2,760 of unpaid interest. The exchange of $12,000 checks wiped out the $2,760 interest and the balance of $9,240 would be applied on principal, leaving a balance of $86,760. - The taxpayer could take a $3,000 interest deduction for that year. The interest for the next year would be $5,206, of which $3,000 would be paid from the lease money. $2,206 of the $12,000 gift would pay the rest of the interest and the principal would be reduced by $9,794 to $76,966. Again the taxpayer could deduct $3,000 for interest expense. He could deduct the $3,000 lease payment for interest each year until the interest on the principal became less than $3,000; then the deduction would be limited to the actual interest for that year.


source: Caselaw Access Project

author: PER CURIAM.

license: Public Domain

text:
    John E. BURKE, Petitioner-Appellant, v. The UNITED STATES and the United States Army, etc., Respondents-Appellees.
    No. 74-1196.
    United States Court of Appeals, Seventh Circuit.
    Heard Nov. 15, 1974.
    Decided Jan. 16, 1975.

      Robert E. Henke, Neenah, Wis., for petitioner-appellant.
    William J. Mulligan, U. S. Atty., D. Jeffrey Hirschberg, Asst. U. S. Atty., Milwaukee, Wis., for respondents-appellees.
    Before BARNES, Senior Circuit Judge, and CUMMINGS and TONE, Circuit Judges.

       Senior Circuit Judge Stanley N. Barnes of the Ninth Circuit is sitting by designation.

   PER CURIAM.

This appeal is from the denial of a petition for writ of habeas corpus. The verified petition shows that Burke was inducted into the United States Army on June 14, 1973. At the Armed Forces Entrance and Examining Station in Milwaukee, Wisconsin, he supplied the examining physicians with reports of four private physicians purportedly showing that he suffered from allergic rhinitis and bronchial asthma. Burke alleged that his induction was unlawful because it was contrary to those Army Regulations which specifically prohibit the induction of men who suffer from “chronic atrophic rhinitis” or, under certain circumstances, “bronchial asthma.” He further alleged that there was “no basis in fact” for the Army physicians’ finding that he was fit for active duty.

On the following day, the district court enjoined respondents from removing petitioner from the jurisdiction of the court until a judicial decision could be made. The respondents filed a motion to dismiss the petition for writ of habeas corpus on its merits. In an accompanying brief, they stated that the doctors at the Armed Forces Entrance and Examining Station considered Burke fit for military service and therefore certified him as acceptable.

In a decision and order reported at 371 F.Supp. 349 (E.D.Wis.1974), the district court granted the respondents’ motion to dismiss, vacated the prior restraining order and remanded Burke to the custody of the respondents pursuant to his induction order. However, the court granted an injunction which prevented the Army from exercising control over Burke pending a determination of this appeal.

In his decision, the district judge noted that Burke had not presented to the court the reports of his four private physicians supposedly demonstrating that he has allergic rhinitis and bronchial asthma. Next, the court held that Burke was required to exhaust his administrative remedies within the Selective Service System, citing United States ex rel. Taylor v. Fritz, 446 F.2d 36 (8th Cir. 1971). In that case, the Court of Appeals noted that Taylor had appealed the ruling of the Armed Forces Entrance and Examining Station doctor that he was physically acceptable for induction to the Surgeon General, who affirmed that ruling before Taylor applied for a writ of habeas corpus. The Taylor case is relevant to show that Burke could have appealed his medical acceptability to the Surgeon General, but inasmuch as respondents have abandoned the exhaustion doctrine as a ground for affirmance, we do not consider whether he was required to do so.

Apart from the exhaustion rule, the district judge determined that Burke’s petition must be dismissed because there was “a disagreement as to the existence or degree of the petitioner’s claimed maladies between the army’s doctors and the petitioner and, presumptively, his doctors.” The court held that it should not resolve these conflicting views because a court should not review the discretionary judgment of military officers made within the scope of their authority, citing Orloff v. Willoughby, 345 U.S. 83, 73 S.Ct. 534, 97 L.Ed. 842.

The following Army Regulations provide the pertinent “causes for rejection” applicable to inductees during peacetime:

“a. Allergic Manifestations.
(1) Allergic rhinitis (hay fever). See paragraph 2-38.
(2) Asthma. See paragraph 2-26b.” (U 2-39)
* * * * * *
“a. Allergic manifestations.
(1) Chronic atrophic rhinitis.
(2) Hay fever if severe; and if not controllable by antihistamines or by desensitization, or both.” (K 2-28)
* * * * * #
“b. Bronchial asthma, except for childhood asthma with a trustworthy history of freedom from symptoms since the 12th birthday.” (112-26b)

Under these regulations Army doctors must decide whether the claimed maladies actually exist and must also make discretionary evaluations, such as whether there is a “trustworthy history of freedom from symptoms [of bronchial asthma] since the 12th birthday,” whether the rhinitis is chronic and whether the hay fever is controllable by antihistamines or desensitization. Because these regulations require such discretionary medical evaluations, a court cannot properly review the Army doctors’ findings and make its own fact-finding as the arbitrator of differing medical opinions. Byrne v. Resor, 412 F.2d 774, 775 (3d Cir. 1969); see Orloff v. Willoughby, 345 U.S. 83, 73 S.Ct. 534, 97 L.Ed. 842. Absent some highly unusual circumstance, the courts are not permitted to inquire into a registrant’s physical fitness. United States v. Sowul, 447 F.2d 1103, 1105 (9th Cir. 1971), certiorari denied, 404 U.S. 1023, 92 S.Ct. 698, 30 L.Ed.2d 672; United States v. Shunk, 438 F.2d 1204, 1204-1205 (9th Cir. 1971). We hold that presentation of the opinions of private physicians, which are contrary to those of the induction center’s doctors, is not such a “highly unusual circumstance.”

Petitioner relies primarily on United States v. Beckett, 457 F.2d 785 (9th Cir. 1972), and Kempf v. Commanding Officer, Fort Des Moines Examining and Entrance Station, 339 F.Supp. 320 (D.Ia. 1972). In Beckett, the examining physician erroneously believed that a generalized allergic reaction to insect bites or stings was not a “cause for rejection.” Because the examining doctor misapplied the regulations, Beckett’s conviction for refusal to submit for induction was reversed. In Kempf, a civilian doctor under contract to the Army found petitioner fit despite his contention that he suffered from strabismus coupled with documented diplopia, which together constitute a “cause for rejection.” The district court held that the examining doctor misapplied the term “documented diplopia” because he misunderstood the meaning of “documented.” The court reversed the finding of fitness, but made it clear that it could do so only because the doctor misapplied the regulation and because “documented” is a legal, rather than medical, term, stating:

“The Government has moved to dismiss Kempf’s petition, asserting that the matter of physical examination is a determination made by the military and is not subject to review. The Court notices that there are several federal eases containing language to the effect that courts are not permitted to inquire into a registrant’s physical fitness or into decisions of Army medical examiners and that a letter of a private physician contrary to the Army’s findings is not enough to trigger court inquiry. [Citations omitted.] Insofar as these decisions deal with inquiry into discretionary judgments made by Army medical examiners, this Court agrees with them. It has long been held that federal courts cannot review the discretionary judgment of a military officer made within the scope of his authority. Orloff v. Willoughby, 345 U.S. 83, 73 S.Ct. 534, 97 L.Ed. 842 (1953). Thus, if the question before the Court was whether Kempf had strabismus, the Court would be compelled to defer to the judgment of the Army medical examiners, at least if there was a basis in fact for that decision. See United States v. Hansen, 327 F.Supp. 1090 (D.Minn.1971). Of course, the medical examiners indicate that Kempf has strabismus. The issue, then, is whether Kempf has ‘documented diplopia.’ This is not a pure medical question. Rather, it is a legal question, since, the term documented is a legal, not a medical, term. The Court knows of no case holding that a federal court must defer to the judgment of the Selective Service System or the Army’s medical examiners when the issue involved is a legal issue.” (339 F.Supp. at 326.)

Burke has not alleged that the examining doctors misapplied the regulations, nor has he pointed to any legal terms in the pertinent regulations which were misinterpreted. Thus Beckett and Kempf are distinguishable. Burke claims to have certain “causes for rejection”, the Army’s doctors disagree. In the absence of an allegation that the Army’s doctors misunderstood the regulations, the district court correctly refused to review their discretionary judgment.

Order affirmed.

      . See text of regulations infra.

      . Taylor did not appeal his I-A classification to the Selective Service Appeal Board and to that extent had failed to exhaust his administrative remedies. However, the district court and the 8th Circuit considered the merits and decided there was a basis in fact for his I-A classification and that he suffered no denial of due process.

      . Army Regulation 40-501, Chapter 1, Section II, paragraph 1-3, explains the effect of the presence of a “cause for rejection.” It provides in pertinent part:
      “b. Medically unacceptable. Medical examiners will report as ‘medically unacceptable’ by reason of medical unfitness all individuals who possess any one or more of the medical conditions or physical defects listed in this regulation as a cause of rejection * *

      . These paragraphs appear in Chapter 2 of Army Regulations 40-501, Sections XIII, XIV and XIX.


author: EUGENE A. WRIGHT, Circuit Judge: ELY, Circuit Judge

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Daniel E. MANNING and David A. Wooldridge, Defendants-Appellants.
    Nos. 74-1095, 74-1341, 74-1395.
    United States Court of Appeals, Ninth Circuit.
    Dec. 23, 1974.
    Rehearing Denied, February 24, 1975.

      James N. Barber (argued), Salt Lake City, Utah, for defendants-appellants.
    Gregory C. Glynn, Asst. U. S. Atty., Los Angeles, Cal. (argued), for plaintiffappellee.
    Before LUMBARD, ELY and WRIGHT, Circuit Judges.

       Senior Circuit Judge, United States Court of Appeals for the Second Circuit.

   OPINION

EUGENE A. WRIGHT, Circuit Judge:

Appellants were convicted of conspiracy and multiple counts of violating the registration and antifraud provisions of the Securities Act and Exchange Act and mail fraud. They argue that their convictions should be reversed because of prejudicial jury misconduct, erroneous instructions to the jury, delay in production of exculpatory material, insufficient evidence, reliance on the advice of counsel, and delay in the bringing of indictments against them. We affirm.

Appellants were participants in a wide-ranging scheme to defraud the public by the sale of unregistered stock of several shell corporations with minimal assets. The unregistered stock was sold on the basis of false and misleading statements as to the actual assets and prospects of the corporations involved. Although eight persons were indicted for this conspiracy, only five stood trial. The remaining three, including Robert A. Eisenberg, the purported counsel of the appellants, were at the time of the trial fugitives in foreign countries. Of the five who were tried, only the appellants were convicted; charges against the other defendants at trial were either dismissed or resulted in verdicts of acquittal.

A major element of the scheme was the attempt to shield the sale of unregistered stock under then Rule 133 of the Securities and Exchange Commission, 17 C.F.R. § 230.133. Appellants distributed the stock of their two shell corporations, Empire Oil and Capitol Holding, through purported shareholders of corporations which supposedly were acquired in merger transactions. Had such mergers actually taken place and had the distributees in fact been shareholders of the merged companies, Rule 133 would have permitted limited sales of the stock received to the general public, despite the lack of a registration statement. Such sales could not have been made if the purpose of the entire transaction had been in fact the sale of such unregistered stock.

By padding the shareholder lists of Empire Oil and several corporations they purportedly acquired through merger, appellants sold unregistered Empire Oil and Capitol Holding stock to the public, using friends, innocent third parties and fictitious persons as “stockholders” and conduits.

Sales of such stock were halted by the S.E.C. on January 15, 1969. The acts comprising elements of the charged conspiracy ended on December 31, 1969. A Criminal Reference Report of the S.E.C. was transmitted to the Department of Justice in October of 1971, the issue was referred to the U. S. Attorney in March of 1972, and the indictments were returned by the Grand Jury on February 14, 1973.

Appellants were sentenced to four years on the conspiracy count and to two years on each of several separate counts, the latter sentences to run concurrently with each other but consecutively to the conspiracy sentence. Appellant Wooldridge was fined $10,000 on the conspiracy count while Manning was fined $8,000 on the conspiracy count and $2,000 on an anti-fraud count.

Appellants claim that the trial judge erred in refusing to grant a new trial after several jurors reported alleged misconduct on the part of the forelady. The judge held an evidentiary hearing, questioned the jurors involved, and concluded that no prejudice to the defendants resulted from the conduct of the juror in question. We find no abuse of discretion on the part of the judge in refusing to grant a new trial. Holt v. United States, 218 U.S. 245, 31 S.Ct. 2, 54 L.Ed. 1021 (1910), United States v. Brumbaugh, 471 F.2d 1128 (6th Cir.), cert. den. 412 U.S. 918, 93 S.Ct. 2732, 37 L.Ed.2d 144 (1973). No error was involved in relying on questions submitted by counsel rather than permitting them personally to cross-examine the jurors. United States v. Handy, 454 F.2d 885, 892 (9th Cir. 1971), cert. den. 409 U.S. 846, 93 S.Ct. 49, 34 L.Ed.2d 86 (1972).

The appellants argue that the trial court erred in refusing to accept their proposed instruction with respect to the vicarious liability of co-conspirators. The judge’s instructions in this respect were proper. First, the proposed instruction is not a correct statement of the holding in Kotteakos v. United States, 328 U.S. 750, 66 S.Ct. 1239, 90 L.Ed. 1557 (1946), since it precludes any liability except for acts in which they “knowingly and willingly participated.” Kotteakos held that it was error for the judge to instruct that conspiratorial liability could be premised on the overt act of any defendant when the underlying acts involved separate and independent conspiracies involving only a single central figure. This holding did not undercut the settled rule that a co-conspirator could be held liable for reasonably foreseeable acts committed in furtherance of the common illegal objective, Pinkerton v. United States, 328 U.S. 640, 66 S.Ct. 1180, 90 L.Ed. 1489 (1946).

Second, given the strong evidence of a single, unified conspiracy, the instruction of the judge was proper. Blumenthal v. United States, 332 U.S. 539, 68 S.Ct. 385, 92 L.Ed. 425 (1947); United States v. King, 472 F.2d 1 (9th Cir.), cert. den. 414 U.S. 864, 94 S.Ct. 40, 38 L.Ed.2d 84, reh. den., 414 U.S. 1033, 94 S.Ct. 463, 38 L.Ed.2d 325 (1973).

Appellants also argue that the evidence was insufficient to sustain their convictions. A careful review of the evidence indicates that there was substantial evidence to support the jury’s verdict on the general conspiracy charge and on count 9 where the evidence of the appellants’ fraudulent conduct is overwhelming.

The appellants’ contention that the government failed to prove willful violation of the registration and antifraud provisions of the Securities Act and Exchange Act is without basis. See United States v. Murdock, 290 U.S. 389, 54 S.Ct. 223, 78 L.Ed. 381 (1933), United States v. Custer Channel Wing Corporation, 376 F.2d 675 (4th Cir.), cert. den. 389 U.S. 850, 88 S.Ct. 38, 19 L.Ed.2d 119, reh. den. 389 U.S. 998, 88 S.Ct. 458, 19 L.Ed.2d 503 (1967).

The assertion that the appellants’ actions were immunized by reliance on the legal advice of their alleged co-conspirator Eisenberg misreads the law in this respect. Bisno v. United States, 299 F.2d 711 (9th Cir. 1961), cert. den. 370 U.S. 952, 82 S.Ct. 1602, 8 L.Ed.2d 818 (1962). Their actions in utilizing fictitious stockholders and nominees negative any claim that they thought they were acting lawfully. Moreover, it appears from the evidence that they did not treat Eisenberg as an independent, unbiased legal advisor, United States v. Piepgrass, 425 F.2d 194, 198 (9th Cir. 1970), United States v. Shewfelt, 455 F.2d 836, 839 (9th Cir.), cert. den. 406 U.S. 944, 92 S.Ct. 2042, 32 L.Ed.2d 331 (1972). Similarly, their claimed lack of knowledge about the provisions of the securities law provides no defense here, United States v. Wolfson, 405 F.2d 779 (2d Cir. 1968), cert. den. 394 U.S. 946, 89 S.Ct. 1275, 22 L.Ed.2d 479 (1969).

The exclusion of testimony of Alex Chaplin was proper since it was not relevant to the issue before the court. Mr. Eisenberg’s persuasiveness in other business dealings is not material to the question of the complicity of the appellants in the conspiracy actually before the court.

It is further asserted that the prosecution improperly delayed in providing appellant Manning an opinion letter by Eisenberg until shortly before trial, citing Brady v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963). The letter indicated that certain Empire Oil shares were exempt from registration. Similar letters were introduced as part of the prosecution’s case. In light of the discussion, supra, of appellants’ claim of good faith reliance on advice of counsel, this material cannot be construed as exculpatory. In any event, appellants have failed to show that they were in any way prejudiced by the delay in production of the letter.

Finally, the appellants argue that their right to a speedy trial and due process rights were violated by the three-and-a-half-year delay between the acts constituting their conspiracy and their indictment. The Supreme Court has held that a similar delay did not violate defendants’ rights:

[T]he Sixth Amendment speedy trial provision has no application until the putative defendant in some way becomes an “accused,” an event that occurred in this case only when appellees were indicted

United States v. Marion, 404 U.S. 307, 313, 92 S.Ct. 455, 459, 30 L.Ed.2d 468 (1971).

In stock selling schemes of complexity and magnitude, such as the scheme disclosed by the record of this case, considerable time is necessarily involved in assembling and verifying all the evidence which may be relevant to the government’s decision to prosecute those thought to be culpable.

Appellants have failed to show that the length of time between the conspiratorial acts and indictment has prejudiced their defense, or has involved harassment, or was the intentional ploy of the prosecution to gain a tactical advantage, United States v. Erickson, 472 F.2d 505, 507 (9th Cir. 1973).

The judgment of the district court is Affirmed.

ELY, Circuit Judge

(concurring):

I concur in my Brother Wright’s majority opinion. At the same time, however, I feel obliged to express my concern over the misconduct of one of the jurors, as well as that of the District Court’s bailiff. The district judge properly and repeatedly admonished the jurors that none of them was to discuss the proceedings with any other person prior to the submission of the cause for their deliberation. Notwithstanding, the fore-lady of the jury apparently defied the court’s admonition.

At a post-trial hearing on the question of jury misconduct, the forelady admitted that she asked the court’s bailiff early in the trial whether one could borrow money from a bank to buy stock. The bailiff answered to the effect that he thought not. Furthermore, at some other time during the trial, the forelady had telephoned a bank office to make the same inquiry.

The forelady apparently believed that the answers to her questions were in some way related to the legal issues in the trial. At the jury misconduct hearing, two of the other jurors testified that during the course of the jury’s deliberations, the forelády mentioned the bailiff’s answer to her question. When the district judge asked the forelady whether she had mentioned the bailiff’s opinion during deliberations, she repled that she could not remember.

While the indiscretions of the forelady are deplorable and, in the light of the judge’s admonitions, inexcusable, I have concluded from my reading of the entire transcript of the post-trial hearing that the forelady’s actions did not likely affect the jury’s ultimate determinations. Both of the jurors who testified about the forelady’s conversation with the bailiff and her later mention of the conversation during jury deliberations insisted very positively that their decisions as to the guilt or innocence of the defendants on the offenses charged in the indictment were wholly unaffected by the forelady’s comments. Consequently, I agree with my Brothers that the trial court’s refusal to grant a new trial because of jury misconduct did not constitute an abuse of the court’s discretion.

I am confident that the district judge has taken such necessary measures as to assure that the court’s bailiff will not again commit such an indiscretion as he so thoughtlessly committed during the trial of this case.

      . Defendants’ requested instruction No. S14:
      “You may not attribute these acts of Robert Eisenberg to the Defendants in this case unless you have knowledge that they knowingly and willingly participated with him in accomplishing these acts.”

      . Since the sentences for the substantive counts were identical and were to run concurrently, we need not examine the evidence adduced in support of the other counts, Jordan v. United States, 416 F.2d 338 (9th Cir. 1969), cert. den. 397 U.S. 920, 90 S.Ct. 930, 25 L.Ed.2d 101, reh. den. 397 U.S. 1018, 90 S.Ct. 1233, 25 L.Ed.2d 433 (1970); Benton v. Maryland, 395 U.S. 784, 791, 89 S.Ct. 2056, 23 L.Ed.2d 707 (1969).

      . The bailiffs testimony concerning his conversation with the forelady was as follows:
      “BY THE COURT:
      Q. Mr. Torres, did you, during the pend-ency of this case, or its deliberations, have any conversation with Mrs. McDonald on any subject involving securities, or otherwise "akin to the subjects being discussed in the case?
      A. I had a conversation, your Honor, with her, but not in regard to this matter on trial.
      * * * * * *
      Q. Okay. Can you now relate to us what the foreman said, what you said, and what anybody else said in that conversation.
      * * st= * * *
      A. She says, ‘Frank, can I ask you a question?’ She says, ‘It has nothing to do with this case at all.’
      I said, ‘The answer is “No,” but go ahead.’
      She said, ‘Can you go to a bank to borrow money to buy [stock]?’
      And I said, T don’t know.’ I says, ‘I can tell you what happened to me about ten years or more ago. I went to my credit union and told the man I wanted to borrow 100 percent money to buy 100 percent stock. He says, “You can’t do it.” ’
      I says, ‘That is all I can tell you.’ And that was the extent of that conversation at that time.”

      . One juror testified as follows:
      “BY THE COURT:
      Q. Do you remember any statement by the jury forelady about a conversation with Frank Torres, our bailiff, on any matter of securities?
      A. Yes. They were talking — I ■ didn’t hear the whole conversation. I believe they were talking about loans, taking a loan from a bank to borrow securities being illegal.
      Q. Was any reference thereafter made to that conversation?
      A. Yes. Later in deliberations she made a reference, ‘Well, when I was talking to Frank about it, even he said — ’
      It was on some of the loans that were taken out by the defendants for the corporation, and at the time of the conversation * * * [another juror] * * * said, ‘Well, you can’t talk about the case’, you know. And she says, ‘Well, we are not. That has nothing to do with the case.’
      So we dropped it. Then later in deliberations she mentioned it, and right away * * * [another juror] * * * said, ‘Well, I thought you said that had nothing to do with this case.’
      She says, ‘Well, I was just referring to them borrowing money and then putting it into securities,’ you know, which to her was illegal.
      Which I said, T don’t know. It was not mentioned in court. I don’t know if it is or isn’t.’
      Q. In essence you said, ‘Whatever wasn’t mentioned in court we have to forget about it.’
      A. Yes.”
      The other juror’s testimony was similar:
      “BY THE COURT:
      Q. * * * What, if anything, did the forelady tell you about the possible illegality of selling securities of a company that had no assets?
      A. Well, that is where the borrowing money thing came in. She had told us that — we were discussing Mr. Manning’s borrowing money to put into the company from banks, and she had a discussion before deliberation with Frank, the bailiff, about borrowing money to put into securities, was it illegal—
      Q. With whom? _______ ___
      A. With Frank, the [bailiff] * * * She was talking to him one day before we went into deliberations about it being illegal to borrow money to buy securities. And I told her, and * * * [another] juror also told her, ‘We don’t think you ought to be discussing that.’
      She said, ‘It has nothing to do with this case.’

        But then during deliberations she brought that up, Frank had said such-and-such. And I told her, ‘I thought you said that had nothing to do with the case when you were discussing it.’ ”


author: FRIENDLY, Circuit Judge:

text:
    STERLING DRUG, INC. et al., Plaintiff-Appellants, v. Caspar W. WEINBERGER, Secretary of Health, Education and Welfare, and Alexander M. Schmidt, Commissioner of Food and Drugs, Defendants-Appellees.
    No. 549, Docket 74-2477.
    United States Court of Appeals, Second Circuit.
    Argued Dec. 18, 1974.
    Decided Jan. 7, 1975.

      William F. Weigel, New York City (Rogers, Hoge & Hills, James B. Swire, E. Carrington Boggan, James H. Luther, Jr., and Roger M. Rodwin, New York City, of counsel), for plaintiffs-appellants.
    Jerry L. Siegel, Asst. U. S. Atty. (Paul J. Curran, U. S. Atty., S. D. N. Y., and Gerald A. Rosenberg, Asst. U. S. Atty., of counsel), for defendants-appellees.
    Before FRIENDLY, TIMBERS and GURFEIN, Circuit Judges.
   FRIENDLY, Circuit Judge:

Six and a half years after the Food and Drug Administration began its bumbling efforts to withdraw approval of the New Drug Application (NDA) for Alevaire, an aerosol prescription drug administered to patients with chronic respiratory diseases, on the ground of lack of substantial evidence that it will have the effect it is represented to have under the conditions of use set out in its labeling, the case is back again — only a few months after we thought we had sent it on its way to agency disposition, Sterling Drug, Inc. v. Weinberger, 503 F. 2d 675 (2 Cir. 1974). On this occasion it is here on appeal from a decision by Judge Pierce in the District Court for the Southern District of New York denying an injunction and dismissing the complaint in an action by the plaintiff manufacturers and distributors for a declaratory judgment declaring that the FDA’s proposal of August 1, 1974, to withdraw approval of the NDA pursuant to a notice of opportunity for hearing published on August 13, 1974, 39 F.R. 29013, was barred by res judicata in part and illegal in remaining part and for an injunction to prevent the FDA from withdrawing approval of the NDA. We affirm, although, with respect to the res judicata argument, on an analysis differing from that of the district court.

We shall not repeat the ancient and medieval history of FDA and court proceedings relating to Alevaire which are recounted in Judge Bryan’s opinion of last May, 503 F.2d 675, but will confine the narration to subsequent developments. The notice of August 13, 1974, after summarizing the prior proceedings, went into a discussion substantially as follows: “It is possible to conclude that Alevaire is a combination product, with several ingredients intended to contribute to the overall claimed therapeutic effect.” The chief basis for this is that “in its labeling the sponsor has at times indicated adherence to this interpretation.” “On the other hand, it is also possible to consider Alevaire as a single active component, tyloxapol, with a vehicle that happens to have some activity of its own in the treatment of patients with difficulty in mobilizing pulmonary secretions,” as indicated by recent packaging. It is by no means surprising that the same product could be either a “fixed combination” or a “single entity” drug, depending upon how it is characterized by its manufacturers and distributors, since the statutory authority underlying these FDA actions lays stress on representations of effectiveness made in the drug’s labeling. How the product is categorized has important bearing, however, on the nature of the “adequate and well-controlled investigations,” 21 U.S.C. § 355(d), necessary to sustain the burden of “substantial evidence that the drug will have the effect it purports or is represented to have,” 21 U.S.C. § 355(e), and thus justify a hearing. If Alevaire is a combination, demonstration of effectiveness “would require, at a minimum, a study includifig groups treated with water alone, water plus bicarbonate, water plus tyloxapol, water plus bicarbonate plus tyloxapol.” See 21 C.F.R. 3.86 & 314.lll(a)(5)(ii)(a)(4). On the other hand, if Alevaire is a single active component in a several component vehicle, the evidence need only show “that Alevaire is more effective than its admittedly active vehicle.” See 21 C.F.R. 314.111(a)(5)(ii)(a)(4). This would demand only “a two-group trial: patients treated with the vehicle (water, bicarbonate, and glycerin) alone vs. patients treated with Alevaire.” The Bureau of Drugs was presently of the view, based in part on the pre-1970 labeling, that Alevaire is a fixed combination drug product. Any request for a hearing should either provide evidence of effectiveness as a fixed combination drug product or demonstrate that Alevaire is a single entity drug product and is effective as such. Failing the submission of evidence warranting a hearing, the Bureau proposed to withdraw approval of the NDA on the ground of ineffectiveness. Requests for a hearing had to be filed by September 12 and supporting evidence by October 15, 1974. See 21 C.F.R. 314.200. Plaintiffs requested such a hearing on September 10 but did not follow up by submitting data to support that request.

Instead the manufacturers began this action in the district court on September 30, 1974, against the Secretary of Health, Education and Welfare and the Commissioner of Food and Drugs. The theory of the complaint was as follows: By the proceedings culminating in our last decision, the defendants had formally conceded and abandoned any claim that the effectiveness of Alevaire as a single component drug can only be tested against its vehicle, and relitigation of that issue was barred on grounds of res judicata and/or collateral estoppel. With respect to the claim that Alevaire was a fixed combination drug and ineffective as such, the notice published on August 13 showed that the FDA would be unable to meet the “new information” test prescribed by § 505(e)(3) of the Food, Drug and Cosmetics Act, 21 U.S.C. § 355(e)(3). Plaintiffs sought a declaration that defendants were barred by res judicata and/or collateral estoppel from withdrawing approval of the NDA for Alevaire on the ground that effectiveness must be demonstrated by comparing Alevaire to its vehicle and that they were barred by statute from proceeding against Alevaire as a fixed combination. Plaintiffs also moved for preliminary injunctive relief to prevent defendants from proceeding with the August 1 proposal to withdraw approval of the NDA and for permanent injunctive relief to prevent defendant’s action on that or any other like proposal.

On October 1, Judge Pierce ordered defendants to show cause why they should not be temporarily enjoined from proceeding on their proposal to withdraw approval of the NDA during the pendency of this action. The order was returnable on October 10, on which day the order was consolidated with a trial on the merits and that trial completed. On October 23, Judge Pierce signed a stipulation in which the parties agreed that plaintiffs would be given an extension of time during which to file data in support of their request for a hearing from October 15 until 15 days after the district court’s decision on the motion for a preliminary injunction.

Judge Pierce rendered an opinion on October 31 denying the motion for an injunction and dismissing the complaint. He concluded that he need not reach the merits of plaintiffs’ arguments since the complaint must be dismissed for failure to exhaust administrative remedies. On November 12, 1974, a panel of this court granted an injunction pending the hearing of an expedited appeal; at argument on December 18 this panel extended the injunction pending decision.

Plaintiffs’ basic position is that we have entered a brave new world with respect to injunctions against the conduct of administrative proceedings. We are told in effect that the warning against judicial intrusion in Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 58 S.Ct. 459, 82 L.Ed. 638 (1938), long regarded as the leading case in this area, is old-hat and that Leedom v. Kyne, 358 U.S. 184, 79 S.Ct. 180, 3 L.Ed.2d 210 (1958), has become the seminal decision. Plaintiffs seemingly are not concerned with the Supreme Court’s statement that:

The Kyne exception is a narrow one, not to be extended to permit plenary district court review of Board orders in certification proceedings whenever it can be said that an erroneous assessment of the particular facts before the Board has led it to a conclusion which does not comport with the law.

Boire v. Greyhound Corp., 376 U.S. 473, 481, 84 S.Ct. 894, 899, 11 L.Ed.2d 849 (1964) . They are likewise not discouraged over the fact that the two cases cited by them for the proposition that “Leedom has been increasingly followed and used to check illegal agency action,” namely Boire v. Miami Herald Publishing Co., 343 F.2d 17 (5 Cir.), cert. denied, 382 U.S. 824, 86 S.Ct. 56, 15 L.Ed.2d 70 (1965) , and FTC v. J. Weingarten, Inc., 336 F.2d 687 (5 Cir. 1964), cert. denied, 380 U.S. 908, 85 S.Ct. 890, 13 L.Ed.2d 796 (1965), reversed injunctions granted by district courts. Nothing advanced by plaintiffs persuades us to depart from the general position we took after full analysis, only two years ago, that the most that can be extrapolated from Leedom v. Kyne is that an injunction may be issued “if an agency refuses to dismiss a proceeding that is plainly beyond its jurisdiction as a matter of law or is being conducted in a manner that cannot result in a valid order,” Pepsico, Inc. v. FTC, 472 F.2d 179, 187 (2 Cir. 1972) (footnote omitted), cert. denied, 414 U.S. 876, 94 S.Ct. 44, 38 L.Ed.2d 122 (1973) — a “possibly over-generous” standard we found not to have been met by the plaintiff there. Until otherwise instructed we shall continue to regard Myers as stating the general rule and Leedom v. Kyne as being what the Supreme Court says it is — a narrow exception.

Relying on the per curiam reversal of Otis & Co. v. SEC, 85 U.S.App.D.C. 122, 176 F.2d 34, in SEC v. Otis & Co., 338 U.S. 843, 70 S.Ct. 89, 94 L.Ed. 516 (1949), defendants would apparently contend that even our Pepsico formulation goes too far in permitting an injunction when a plaintiff relies on a claim of res judicata and that such a claim can never constitute a sufficient basis for enjoining a new administrative proceeding. It is hard to see why this should be so as a matter of principle, and we would be reluctant to extract so broad a proposition from a per curiam reversal made on a petition for certiorari without oral argument and supported by three citations, none of which dealt with res judicata, The Otis case involved the effect of a prior judicial determination, SEC v. Harrison, 80 F.Supp. 226 (D.D.C.1948), motion to vacate denied, D.C.Cir., Feb. 21, 1950 (unreported), rehearing denied, 87 U.S.App.D.C. 232, 184 F.2d 691 (1950), vacated as moot, 340 U.S. 908, 71 S.Ct. 290, 95 L.Ed. 656 (1951), not on the ultimate issue before the SEC — expelling Otis , from the National Association of Securities Dealers and revoking its broker-dealer registration — but on whether there was sufficient evidence of fraud to justify piercing the attorney-client privilege and thus securing testimony in an investigative proceeding from attorneys who allegedly had acted at Otis’ bidding to bring a suit that freed Otis from what had become a burdensome underwriting. The Court’s decision could have rested on the basis that, even without the attorneys’ testimony, in such an administrative proceeding the SEC might hold the circumstances to have been sufficiently suspicious to transfer the burden of going forward to Otis. The very court of appeals that had been reversed in the Otis case has not given it so expansive a reading. Elmo Division of Drive-X Co., Inc. v. Dixon, 121 U.S.App. D.C. 113, 348 F.2d 342 (1965).

We thus prefer to rest our ruling with respect to the “single active component” theory, the part of the FDA’s case claimed to be barred by res judicata, not on the broad interdiction claimed by defendants but on a different ground relating to the facts of this case. This is that “[o]nly a final decision can be res judicata.” 2 Davis, Administrative Law Treatise § 18.06, at 584 (1958). We have searched the record in vain for a determination by the FDA or a reviewing court that Alevaire had been proved to be effective as a single active component drug. The reinstatement of the NDA on June 14, 1973, 38 F.R. 15861, see 503 F.2d at 679, clearly was not such a determination; it stated merely that, upon reviewing the petition for reconsideration, the FDA had concluded that the requests for a hearing should be reevaluated under 21 U.S.C. § 355(f) & (h). Compare Jenkins v. Macy, 357 F.2d 62, 66-67 (8 Cir. 1966). Neither can we find such a determination in the August 7, 1973, notice of withdrawal of approval, 38 F.R. 21515, see 503 F.2d at 679-680. Apart from the point that this notice has been set aside at plaintiffs’ request, a determination that Alevaire had not been shown to be effective as a fixed combination drug, which the FDA considered it to be on the basis of the labeling used when the NDA became effective and appearing in the Physicians’ Desk Reference book as late as 1971, did not preclude a fallback to the position that Alevaire had also not been proved effective as a single active component drug if that was what, as plaintiffs now seem to contend, it really is. When this court set aside the August 1973 notice of withdrawal on plaintiffs’ claim that they had not been given adequate notice of the specific grounds on which the FDA proposed to withdraw approval (lack of substantial evidence that the product was effective as a fixed combination drug) and indicated doubts about the FDA’s ability to prevail on that basis, 503 F.2d at 683, the FDA was entitled to proceed in the alternative and advance again the theory that Alevaire was not effective as a single active component drug, since that issue had never been adjudicated. Compare FTC v. Raladam Co., 316 U.S. 149, 62 S.Ct. 966, 86 L.Ed. 1336 (1942); NLRB v. Zimnox Coal Co., 336 F.2d 516 (6 Cir. 1964). The case would stand differently if, during the period when the FDA was proceeding on the single active component theory, it had found that the studies submitted by plaintiffs had established Alevaire to be effective as such; in that event the FDA would be bound to show some new evidence that would call its earlier decision into question before a new proceeding on that theory could be justified. Compare H.S.D. Co. v. Kavanagh, 191 F.2d 831, 846 (6 Cir. 1951), and 2 Davis, supra, § 18.03, at 562. But the most that the FDA had ever determined on that score was that plaintiffs’ petition for reconsideration and the materials supporting it justified reevaluation of their request for a hearing on the efficacy of Alevaire as a single component drug, 38 F.R. 15861, and later, in the order which we vacated, that there was no need to decide that question since in its view Alevaire was a fixed combination drug, 38 F.R. 21515. This would hardly create res judicata in private civil litigation, much less under the “qualified or relaxed set of rules”, see 2 Davis, supra, § 18.03, at 568, properly applicable to proceedings by an agency charged with responsibility to protect the public against ineffective drugs.

There is even less merit in plaintiffs’ request that the FDA should also be enjoined from proceeding on the theory that Alevaire is ineffective as a fixed combination drug — exactly what this court said it might do, 503 F.2d at 683. The argument is that the August 1974 withdrawal notice is predicated only on old information, to wit, the former labeling and the NAS-NRC study, and not on the “new information . . . evaluated together with the evidence available when the application was ápproved”, which the statute requires, see note 3 supra. Although we need not decide the point, there appears to be merit in defendants’ contention that “newness” dates from the time of the grant of the NDA rather than from the date of the last previous agency action. At least that is an entirely reasonable reading of 21 U.S.C. § 355(e)(3) and the FDA can scarcely be so hobbled by its statutory authority that after initial use of an NAS-NRC study it is thereafter barred from relying upon it again. Compare Bell v. Goddard, 366 F.2d 177 (7 Cir. 1966). At minimum we agree with Judge Pierce that the FDA’s contentions on this branch of the case are sufficiently meritorious that they should be initially determined by the agency. There is no such apparent, indeed, conceded, action in violation of the statute as in Leedom v. Kyne, supra, 358 U.S. at 187, 79 S.Ct. 180, 3 L.Ed.2d 210.

Plaintiffs have requested that, in the event of affirmance, we allow them a still further period for furnishing the data, information and analysis relied on to justify a hearing, which the August 1, 1974, order had required to be filed by October 15, 1974. When the motion for a stay was before us, we warned plaintiffs’ counsel that he should not assume that further extensions would be granted but should begin the preparation of the necessary studies. While we would thus be abundantly justified in granting only the shortest of further extensions, we think it better to allow some additional time rather than create a new ground for procedural argument. We shall therefore extend the date for filing the information until February 19, 1975. This date will stand, save as it may be extended by the FDA, regardless of any further petitions that plaintiffs may file —unless, of course, one of these should be granted.

Affirmed.

      . The notice cited package inserts used until 1970 which were said to indicate that at least two of the named ingredients were considered active.

      . A “single entity” drug carried in a vehicle which is therapeutically active is not, according to the notice, “a contradiction in terms,” since any vehicle for such an aerosol drug, whether it is saline or water, will be therapeutically active.

      . See 21 U.S.C. § 355(e) (emphasis added), which provides in pertinent part:
      The Secretary shall, after due notice and opportunity for hearing to the applicant, withdraw approval of an application with respect to any drug under this section if the Secretary finds ... (3) on the basis of new information before him with respect to such drug, evaluated together with the evidence available to him when the application was approved, that there is a lack of substantial evidence that the drug will have the effect it purports or is represented to have under the conditions of use prescribed, recommended, or suggested in the labeling thereof .

      . The notice added that “[g]lycerin, apparently intended to affect aerosol droplet size, could be added to all groups.”

      . The notice pointed out that
      In this instance, a comparison of Alevaire with water or saline does not address the question of whether tyloxapol is an active drug, since any difference seen favoring Alevaire could be the result of bicarbonate.

      . We are not clear whether the demonstration could be made by plaintiffs’ stipulating not to engage in labeling that would represent Alevaire to be effective as a combination. In any event, they have not offered to do this.

      . See note 3 supra.

      . No subsequent Supreme Court decision would call this into question. The only subsequent Second Circuit decision cited, Diapulse Corp. v. FDA, 500 F.2d 75 (2 Cir. 1974), where the court found that the acts of the FDA there challenged were unauthorized as a matter of law, is consistent with the Pepsico formulation, as is, for similar reasons, the decision in American Nursing Home Ass’n v. Cost of Living Council, 497 F.2d 909 (Temp. Em.Ct.App.1974), where, in any event, the Leedom v. Kyne standard was not in issue. And we have not been pointed to any other subsequent decision of another circuit that would lead us to reconsider our position.

      . In going along with plaintiffs to this extent we are not, as defendants suggest, thinking the unthinkable thought that the Otis decision was wrong. We suggest only that if the Court meant to promulgate so broad a principle as defendants suggest, it would have done something more than cite three cases having only a general bearing.

      . Compare Developments in the Law — Res Judicata, 65 Harv.L.Rev. 818, 873 (1952):
      Nonstatutory issues may also often have a delusive appearance of similarity. Thus, in a questionable decision, a circuit court enjoined the SEC from proceeding to expel Otis & Co. from an SEC-controlled association because in a prior suit the Commission had failed to show the prima facie fraud necessary to pierce Otis’ attorney-client privilege. [Citing Otis & Co. v. SEC, 85 U.S.App.D.C. 122, 176 F.2d 34, rev’d on other grounds, 338 U.S. 843, 70 S.Ct. 89, 94 L.Ed. 516 (1949)]. The existence of fraud was the determining factor in both cases, but application of collateral estoppel seems unjustified since a more serious defalcation may well be necessary to break down a rule of evidence than to expel Otis from the association. Even were the issues the same, the Otis decision [by the court of appeals] might also be criticized because it permits a court to prevent investigations which Congress apparently intended the SEC to undertake.

      . In Kaiser-Frazer Corp. v. Otis & Co., 195 F.2d 838 (2 Cir.), cert. denied, 344 U.S. 856, 73 S.Ct. 89, 97 L.Ed. 664 (1952), this court held that Otis had no obligation to perform the contract since the issuer’s registration statement was false and misleading and that the allegedly collusive nature of the suit instituted by the attorneys was thus irrelevant. Thereafter the SEC held, in the revocation proceeding, that it was unnecessary to consider the res judicata effect of the prior judicial decision concerning the attorney-client privilege since, even if that issue were resolved against Otis, revocation would not be justified because of “the alleged use of a device to avoid performance of an illegal and unenforceable contract between an issuer and an underwriter,” In re Otis & Co., 35 SEC 650, 655 (1954).

      . The majority consisted of Judge Pretty-man, who spoke with particular authority on questions of administrative law, and now Chief Justice Burger. Neither the majority opinion nor Judge Fahy’s dissent referred to Otis.

      . The FDA clearly did not abandon its objection to the validity of the investigations submitted by plaintiffs to support their claim that Alevaire is effective as a single entity drug. It acknowledged that some of the criticisms of its previous objections to the studies were “well-founded”:
      However, the Commission[er] also finds that another analysis of these two studies, which would take into account the several valid objections made in the petition for reconsideration, would be a meaningless and unnecessary endeavor. Even assuming that the studies are adequate and well-controlled investigations comparing Alevaire with other control substances, a conclusion not warranted by analysis of the investigations, the studies cannot demonstrate the effectiveness of Alevaire because their design precludes assessments respecting the contribution each of the three components of Alevaire makes to the claimed effectiveness of the drug.
      38 F.R. 21516 (emphasis added).


author: ROBERT P. ANDERSON, Circuit Judge:

text:
    In the Matter of SAPPHIRE STEAMSHIP LINES, INC., Bankrupt-Appellant. J. Read SMITH, Trustee-Appellant, v. WINTHROP, STIMSON, PUTNAM & ROBERTS, Attorneys for E. Bergendahl Co., Inc. (New York) and E. Bergendahl Co., Inc. (Philadelphia), Creditors, Appellees.
    No. 158, Docket 74-1533.
    United States Court of Appeals, Second Circuit.
    Argued Nov. 7, 1974.
    Decided Jan. 14, 1975.

      Louis P. Rosenberg, Brooklyn, N. Y. (Alfred A. Rosenberg, and William Steingesser, Brooklyn, N. Y., on the brief), for trustee-appellant.
    Terence H. Benbow, New York City (Winthrop, Stimson, Putnam & Roberts, New York City, Attorneys pro se, appellees, Victor S. Trygstad, and Steven A. Berger, New York City, on the brief), for appellees.
    Joseph L. Alioto, Sp. Counsel to the Trustee, pro se, San Francisco, Cal. (Robert E. Sher, Washington, D. C., and Robert A. Randick, Jr., San Francisco, Cal., on the brief).
    Before KAUFMAN, Chief Judge, and ANDERSON and MULLIGAN, Circuit Judges.
   ROBERT P. ANDERSON, Circuit Judge:

Sapphire Steamship Lines, Inc. (Sapphire), prior to its adjudication as a bankrupt, instituted an action to recover treble damages from several of its competitors for alleged antitrust violations. After bankruptcy intervened, the trustee, J. Read Smith, was substituted as plaintiff and was duly authorized by court order to retain Joseph L. Alioto as special counsel to prosecute the action.

Negotiations between the special counsel and counsel for the antitrust defendants resulted in a settlement offer of $1.600,000 in July, 1970. It was the position of the special counsel that, although plaintiff had a strong case on the question of liability, there was insufficient evidence on the issue of damages to warrant further negotiations. Based upon the recommendation of the special counsel that the $1,600,000 was “fair and reasonable”, the bankruptcy court issued an order authorizing the trustee to accept that amount in settlement of the suit.

Several creditors of the bankrupt, including the United States and two corporate creditors represented by Winthrop, Stimson, Putnam & Roberts (Winthrop, Stimson), opposed this settlement and jointly moved for a reconsideration of the order, supporting their motion with legal memoranda relating to the issue of damages.

The bankruptcy court granted the motion for reconsideration, and “[primarily because . . . [of] evidence produced . - by the Government” at the hearing, vacated the original order and withdrew its approval of the settlement offer.

At various times during the renewed settlement negotiations, counsel for the antitrust defendants requested conferences with the Assistant United States Attorney who was representing the Government’s interest as a creditor in the bankruptcy proceeding. Defendants argued that the priority claims of the United States would be substantially met if the particular offer then under discussion were approved and for that reason, they urged the Government to withdraw its opposition. Lawyers from Winthrop, Stimson also attended these conferences and participated in the discussions at the request of the Assistant United States Attorney.

When the settlement offer was increased from $1,600,000 to $2,000,000, Mr. Alioto again recommended acceptance but the Government and Winthrop, Stimson were still opposed and the bankruptcy court, therefore, never approved of the new offer.

Finally, after continued two-way negotiations — between defendants and special counsel, and between defendants and the Assistant United States Attorney, who requested and received assistance from Winthrop, Stimson — a settlement offer was made in the amount of $2,473,070. The Government recommended acceptance of this offer and the settlement was formally approved by the bankruptcy court, although Winthrop, Stimson opposed this offer also.

Thereafter Winthrop, Stimson filed claims for its services with the bankruptcy court in the amount of $175,000, plus disbursements. It claimed that, by reason of its efforts, a better settlement was obtained and the estate was substantially augmented to the benefit of all creditors. None of the creditors opposed this fee application and several affirmatively endorsed it.

The bankruptcy court, however, rejected Winthrop, Stimson’s application on two grounds: (1) Winthrop, Stimson could not take full credit for the reconsideration and subsequent disallowance of the first settlement; and (2) at no time did it act as counsel to the trustee, but argued solely for its own clients, to whom it was required to look for payment.

The United States District Court on petition for review of the decision of the bankruptcy court, remanded the claims with instructions to compensate Winthrop, Stimson for the fair and reasonable value of its services. The district court found that while Winthrop, Stimson may . not have been solely responsible for the setting aside of the first settlement order, it had made a contribution toward that result and also to the $800,-000 increase in the bankruptcy estate.

The trustee and Sapphire appeal from the district court’s order granting Winthrop, Stimson counsel fees from the bankruptcy estate. They argue on this appeal that the finding that Winthrop, Stimson’s services contributed to the enhancement of the estate in a specified amount is clearly erroneous. Although it is true, as they point out, that the fund was created by the third offer of $2,473,070 which Winthrop, Stimson continued vigorously to oppose, the district court’s finding that the activities of the Winthrop, Stimson firm contributed to the reconsideration and disapproval of the first two offers is supported by the record, and, because the rejections of the first two offers were prerequisites for the proposal and eventual acceptance of the final settlement, it is a reasonable inference that Winthrop, Stimson “contributed to” the creation of the additional $800,000 fund. In spite of this finding, however, the district court was in error in holding that Winthrop, Stimson was entitled to fees from the bankruptcy estate.

As a court of equity, the district court, sitting in bankruptcy, has the power to order the payment of fees from the estate to compensate counsel who, in advancing their own client’s interest, have benefited all creditors. But equity is grudgingly administered in the award of counsel fees. See, Grace v. Ludwig, 484 F.2d 1262 (2 Cir. 1973). This is especially true in bankruptcy proceedings where responsibility is designed to be centralized in the trustee in an effort to preserve the estate from applications for allowances by numerous importunate claimants. See, In re New York Investors, 130 F.2d 90, 91-92 (2 Cir. 1942). As a rule, therefore, the fee of a creditor’s attorney is not to be paid from the bankruptcy estate. See, Guerin v. Weil, Gotshal & Manges, 205 F.2d 302 (2 Cir. 1953).

Winthrop, Stimson recognize this rule but argue that it is entitled to have its fee paid from the estate under an exception for situations in which (1) the trustee has refused or neglected to act and (2) the applicant has conferred a tangible benefit on all the creditors by acting in the trustee’s stead.

To qualify for this exception, however, a creditor’s attorney must satisfy a third requirement, i. e. the bankruptcy court must have formally authorized such attorney to act instead of the trustee. In re New York Investors, Inc., supra; In Re Porto Rican American Tobacco Co., 117 F.2d 599 (2 Cir. 1941); In re Progress Lektro Shave Corporation, 117 F.2d 602 (2 Cir. 1941).

In this case Winthrop, Stimson qualifies under neither the first nor the third requirements of the exception. A trustee “refuses” or “neglects” to act when he fails to satisfy a duty imposed upon him by the Bankruptcy Act, which requires that he marshall the assets of the bankrupt and, as with all his substantive duties, exercise reasonable care in so doing. 11 U.S.C. § 75. The trustee in this case did not refuse or neglect to pursue Sapphire’s antitrust cause of action, nor did the district court find that he violated his duty of care in that pursuit. Although subsequent events established that the strategic decision to recommend acceptance of the first offer of $1,600,000 was á mistake of judgment, to conclude therefrom, that the trustee “refused” or “neglected” to act would encourage creditors and their attorneys constantly to “second-guess” the trustee’s decisions. Such a result would contravene the policy of preserving the estate by centralizing responsibility in the trustee.

Winthrop, Stimson concedes that it failed to secure court approval to act on behalf of the trustee, but argues that the third requirement of the exception should not apply where the trustee has not acted in the best interests of the estate. And, it asserts that its own successful opposition, to the special counsel’s recommendations which the trustee was willing to accept, demonstrates that the trustee in this case defaulted in the fulfillment of his duty.

Although this court has waived prior court approval in “special circumstances,” and the payment of fees was allowed to objecting counsel who had successfully opposed exorbitant fee applications of the trustee and his counsel, which the trustee obviously would not oppose, In re New York Investors, supra, 130 F.2d at 92, Winthrop, Stimson’s services in this case were not brought about by any such “special circumstances.” To waive the prior approval requirement for all cases in which counsel may successfully oppose the trustee would contravene the policy of the Bankruptcy Act, and is not necessary for the protection of creditors. If Winthrop, Stimson or its clients entertained any doubt as to the trustee’s sincerity in the prosecution of the antitrust suit or had lost confidence in the special counsel’s competence to represént the estate, their remedy was to apply to the district court for appropriate relief — such as removal of the trustee, or disqualification of the special counsel and substitution of either Winthrop, Stimson or other counsel in the antitrust suit.

Although the district court found, in effect, that Winthrop, Stimson satisfied the second requirement in that it conferred a tangible benefit on the estate, the general rule governs this case and, despite the purported equities, Winthrop, Stimson does not qualify for the exception to the rule proscribing the payment of fees to counsel for a creditor in bankruptcy proceedings.

The order of the district court is therefore reversed.

      . The Government introduced evidence at the hearing that several key witnesses were now available who theretofore were reluctant to testify or were otherwise not available. As a result the Bankruptcy Court found “proving damages was not quite as hopeless as had first appeared.” The Assistant United States Attorney has deposed in the present action and stated that Winthrop, Stimson provided material assistance in locating those witnesses and in uncovering relevant documentary evidence.

      . This is 20% of $873,070, the amount by which the original offer was increased, and breaks down to an average of $100 .per man-hour devoted to this matter.

      . The district court opinion is reported at 373 F.Supp. 727 (S.D.N.Y.1974).

      . Although the evidence produced by the Government “primarily” influenced the Bankruptcy Judge to vacate his original order approving the first offer, Judge Herzog impliedly recognized that Winthrop, Stimson contributed to his decision when he stated in his memorandum opinion that “the attorney for the creditors cannot take full credit for the disapproval of the first offer.”

      . The District Court had remanded the recommendation of the Bankruptcy Judge on the allowances to be paid from and by reason of the creation of the settlement fund for reconsideration and further proceedings not inconsistent with its opinion. Matter of Sapphire Steamship Lines, Inc., supra, 373 F.Supp. at 734. Only that aspect of the decision dealing with Winthrop, Stimson’s equitable entitlement to fees has been appealed to this Court. The judgment of this Court does not affect the District Court order as it relates to reconsideration of the fees payable to Joseph L. Alioto. The Bankruptcy Judge, therefore, must now reconsider his recommendation as to the fees payable to Special Counsel and decide specifically whether he is entitled to a percentage of the entire fund or only the $1,600,000 to which he directly contributed his services.

      . Sartorius v. Bardo, 95 F.2d 387 (2 Cir. 1938), upon which Winthrop, Stimson places great weight, does not warrant a different result. In that case it was held
      . . if a creditor successfully opposes a proposal of the trustee, it is no answer to his demand for payment to say that the trustee was in charge; by hypothesis his intervention was necessary. Hence the judge would not have been justified in denying this part of the petition [even though he had not approved petitioner’s actions in advance] if any substantial advantage could be traced to the services.” 95 F.2d 390.
      This holding was modified, however, by the subsequent decision of this Court in In re New York Investors, 130 F.2d 90, 92, from which time the rule in this Circuit has been that the prior approval requirement is waived only in cases where compensation is sought for opposing allowances to trustees and their counsel.


author: McCREE, Circuit Judge.

text:
    Leoda NEWPORT, Plaintiff-Appellee, v. CINCINNATI, NEW ORLEANS AND TEXAS PACIFIC RAILWAY, a Division of Southern Railway, Defendant-Appellant.
    No. 74-1782.
    United States Court of Appeals, Sixth Circuit.
    Feb. 5, 1975.

      Don S. Stansberry, Jr., Baker, Worthington, Crossley & Stansberry, Huntsville, Tenn., for defendant-appellant.
    Richard W. Krieg, Morton, Lewis, King & Jones, John K. King, Knoxville, Tenn., for plaintiff-appellee.
    Before CELEBREZZE, PECK and McCREE, Circuit Judges.
   McCREE, Circuit Judge.

This is an appeal from the denial of a motion for judgment notwithstanding the verdict or in the alternative for a new trial, entered after the jury returned a verdict for plaintiff-appellee in the amount of $55,000. Jurisdiction is based on diversity of citizenship, and the law of Tennessee applies.

The case arises out of a railroad crossing accident in which plaintiff’s decedent was killed. On January 14, 1970, shortly before 4 p. m., Leland Newport, a resident of Scott County, Tennessee, was driving his truck in a westerly direction on Carson Road, a public road in Scott County. This road is intersected by two sets of railroad tracks constituting the main line of the Cincinnati, New Orleans & Texas Pacific Railway. The intersection is known as Pemberton Crossing and vehicular traffic is warned of the railroad tracks by a erossbuck warning sign located on the northeastern corner of the crossing.

The railroad tracks south of Pemberton Crossing appear to be straight and level to a motorist driving west on Carson Road. Moreover, for a distance in excess of fifty feet east from Pemberton Crossing, Carson Road is also straight and level. The railroad right-of-way extends fifty feet east of the center line of the eastern set of tracks.

Along the eastern right-of-way of the railroad south of Carson Road there is a bank covered with weeds and debris which, to some extent, prevents motorists driving west on Carson Road from seeing railroad trains traveling north. Nevertheless, a motorist who is driving west is able to see fifty feet to the south of Pemberton Crossing when he is on Carson Road fifty feet from the eastern track of the railroad; ninety feet when he is forty feet away; and four hundred fifty feet when he is twenty feet away. Near the crossing, on the western side of the track is a factory from which noise emanates.

Leland Newport approached Pemberton Crossing from the east on Carson Road. At approximately the same time, one of appellant’s trains was proceeding north on the eastern set of, tracks at approximately 32 miles per hour and was, at the time Newport was proceeding into the crossing, some 75 to 80 feet south of it. The train had been continuously blowing its whistle for a quarter of a mile south of the crossing.

Despite the train whistle and the crossbuck, Newport, who had driven across Pemberton Crossing before, drove straight into the path of the train without looking or stopping or even slowing down. When he approached within fifteen feet of the tracks and gave no indication that he was aware of the approaching train, the train’s engineer put the train into emergency in a futile attempt to stop it. Nevertheless, the train and the truck collided and Newport sustained fatal injuries.

On October 9, 1973, Leoda Newport, the wife of the deceased, filed a complaint alleging that her husband was killed because the Railroad was negligent in the operation of its train, in maintaining the right-of-way adjacent to the crossing, and in failing to employ warning devices other than a crossbuck at Pemberton Crossing. The Railroad denied that it was negligent in any of these respects and responded that plaintiff’s action was barred because her husband’s conduct constituted proximate contributory negligence.

The case was tried on March 14, 1974, before a jury which returned a verdict for plaintiff. On April 1, 1974, the Railroad’s post-trial motions were denied.

On appeal, the Railroad contends that a judgment should have been entered for it for two reasons: (1) because it was guilty of no negligence which was the proximate cause of the accident and the death of Leland Newport; and (2) because Leland Newport was guilty of proximate contributory negligence as a matter of law.

We conclude, after a careful examination of the record and of Tennessee law, that Leland Newport’s failure to stop or slow down, or even look for approaching trains at Pemberton Crossing despite the presence of a clearly visible crossbuck ^warning sign, constituted, as a matter of law, contributory negligence which was a proximate cause of his death. In light of this conclusion, we need not determine whether the Railroad was negligent in any respect.

As a general rule, “[t]he law in Tennessee, as elsewhere, provides that whether or not a plaintiff acted with due care is [a question] for determination by the jury.” Doane Agricultural Service, Inc. v. Coleman, 254 F.2d 40, 43 (6th Cir.), cert. denied, 358 U.S. 818, 79 S.Ct. 29, 3 L.Ed.2d 60 (1958), citing Osborn v. City of Nashville, 182 Tenn. 197, 185 S.W.2d 510 (1945). Nevertheless, in some cases, where reasonable minds could reach only one conclusion — -that plaintiff failed to exercise ordinary care and that his negligence was the proximate cause of his injury — it is appropriate to remove the case from the jury’s consideration.

In Tennessee, “a railroad crossing is a warning of danger and a motorist is required to exercise ordinary care for his own safety, including the precautions of stopping, looking and listening where ordinary care would require as much.” Maxwell v. Western Atlantic R.R. Co., 295 F.Supp. 740, 745 (E.D.Tenn.), aff’d, 406 F.2d 1326 (6th Cir. 1967). In that case, thiá court affirmed a judgment n. o. v. for the railroad in an action where the facts disclosed that plaintiff’s decedent attempted to cross railroad tracks without stopping to look for approaching trains .even though it was clear that he should have known he was at a train crossing.

In Fluckey v. Southern Ry. Co., 242 F. 468, 470 (6th Cir. 1917), this court, again applying Tennessee law, affirmed a directed verdict for the railroad rendered because plaintiff’s decedent was guilty of proximate contributory negligence and explained:

Upon the first question, it is unnecessary to go into great detail. We are satisfied that the court below was right. When the automobile reached a point 40 feet from the rail, the buildings and the standing cars on the driver’s left had so far ceased to obstruct his view that he could see 120 feet along the straight'5 track upon which the car was approaching, and at that moment the car was not more than 100 feet from the point of collision. It was broad daylight, there was neither smoke nor dust to obscure the view, there was no other moving train to drown the noise of the approaching car, nor was there anything to distract the driver’s attention. It is not to be disputed that, if the driver had looked at the first instant when looking would do any good, he would have seen the car coming. He was familiar with the crossing, and knew that, by reason of the obstructions, it was a dangerous crossing and must be approached cautiously. His clear duty was not only to look as soon as he could see, but to have his machine under such control that, if necessary, he could stop before getting into the danger zone. . . . [citations omitted].
Under these undisputed facts, there can be no tenable basis for a finding that Mr. Fluckey exercised that degree of care which would be observed by a reasonably prudent man in such a situation.

In this case, although the railroad permitted debris to accumulate on the eastern side of the track to the south of Carson Road thereby obscuring the southerly view of a motorist approaching the crossing from the east, the undisputed facts disclose that.the crossbuck sign was clearly visible to Leland Newport and that he failed to look, stop or slow down for an approaching train. If he had slowed down and looked after seeing the crossbuck sign, the evidence of physical facts, including the sight measurements of a civil engineer already referred to and photographs of the crossing submitted as part of the record in this appeal, render inescapable the conclusion that Leland Newport would have seen the train. See Southern Railway Co. v. Hutson, 170 Tenn. 5, 91 S.W.2d 290 (1936). A motorist who proceeds across a railroad track without looking for danger of which he is warned by a crossbuck sign cannot be said to have exercised due, or any, care for his own safety, and if his view is obstructed, he should slow down or, if necessary, stop to permit him to see whether it is safe to cross.

We hold, therefore, as a matter of law, that Leland Newport’s failure to slow down and look for approaching trains after being apprised of that danger by the crossbuck sign constituted contributory negligence which proximately caused his injury. Accordingly, the district court erred in refusing to grant appellant’s motion for judgment notwithstanding the verdict.

Reversed and remanded with instructions to enter a judgment for appellant notwithstanding the verdict.


author: MERRILL, Circuit Judge:

text:
    In the Matter of the Complaint of LIBERTY SHIPPING CORPORATION, a foreign corporation, owner of the MOTOR SHIP DON JOSE FIGUERAS, for Exoneration from or Limitation of Liability, Plaintiff. NEW YORK MERCHANDISE CO., INC., et al., Plaintiffs-Appellees, v. LIBERTY SHIPPING CORPORATION, Defendant-Appellant.
    No. 73-2995.
    United States Court of Appeals, Ninth Circuit.
    Jan. 23, 1975.

      Sam L. Levinson (argued), of Levinson, Friedman, Yhugen, Duggan & Bland, Seattle, Wash., for defendant-appellant.
    Robert H. Thede (argued), of Derby, Cook, Quimby & Tweedt, San Francisco, Cal., for plaintiffs-appellees.
   OPINION

Before MERRILL and WALLACE, Circuit Judges, and SKOPIL, District Judge.

MERRILL, Circuit Judge:

The question here presented is whether the shipowner, appellant Liberty Shipping Corporation, was properly held liable for damage to cargo caused by fire at sea.

In its memorandum of opinion the district court stated:

“The cargo damage involved in this case proximately resulted from two causes: fire and the unseaworthiness of the DON JOSE FIGUERAS. Each contributed to the damage in No. 3 hatch, but the damage in hatches 1, 2, and 4 proximately resulted from the unseaworthiness.
The cause of the fire is unknown.
The unseaworthiness consisted of:
(1) An incompetent master and crew. They were not properly trained in the use of the vessel’s fire-fighting equipment, principally the C02 system. They did not possess elemental knowledge of the properties, function and use of C02.
(2) Deficiencies in the vent closing devices, particularly at No. 3 hatch, which rendered the attempt to seal off the cargo holds, requisite to the successful use of C02, ineffective.
Fire is the peril most dreaded by all mariners, and a peril most difficult to combat in a fully laden ship. This being so, it was incumbent upon the vessel’s owners to see that the master and crew were fully trained in the operation and use of the fire-fighting equipment, and to ascertain that the vent dampers were in such condition as to effectively seal off the cargo holds. In this they wholly failed.”

The court’s statements respecting unseaworthiness are supported by findings of fact which in turn are amply supported by the record. We find no merit in appellant’s contentions to the contrary. The court’s appraisal of the competence of master and crew is supported by expert testimony as to the proper methods to use in smothering a fire in a cargo hold, and by testimony as to the manner in which the master and crew sought to smother this fire, and is further supported by rational inferences flowing from such testimony. The court’s findings as to the vent dampers are amply supported by the record.

Appellant contends that the district court decision disregards the owner’s immunity from liability for damage to cargo caused by fire as granted both by the Fire Statute, 46 U.S.C. § 182, and by the Carriage of Goods By Sea Act (“COGSA”), 46 U.S.C. § 1304.

The Fire Statute provides:
“No owner of any vessel shall be liable to answer for or make good to any person any loss or damage, which may happen to any merchandise whatsoever, which shall be shipped, taken in, or put on board any such vessel, by reason or by means of any fire happening to or on board the vessel, unless such fire is caused by the design or neglect of such owner.”
COGSA, § 1304(2), provides:
“Neither the carrier nor the ship shall be responsible for loss or damage arising or resulting from — •
******
(b) Fire, unless caused by the actual fault or privity of the carrier * *.”

In two respects appellant contends that the owner’s immunity has been disregarded.

First, it notes that the owner is immune unless the fire was caused by “the design or neglect” of the owner (Fire Statute), or “the actual fault or privity of the carrier” (COGSA). Since the district court found that the cause of the fire was unknown, appellant contends that Cargo has failed to meet its burden.

Appellant reads the statutes too narrowly. In Asbestos Corp. Ltd. v. Compagnie De Navigation, etc., 480 F.2d 669, 672 (2d Cir. 1973), it was held, with citation of substantial supporting authority, that “exception to the general statutory exemptions applies where the shipowner’s negligence did not cause ignition of the fire but where damage to the cargo could have been prevented despite the ignition of the fire had it not been for the negligence of the shipowner.”

In that case, as here, appellants sought a narrow construction of both the Fire Statute and COGSA. The court stated:

“Under their construction, a fire ignited because of lack of due diligence by the shipowner would result in liability, but failure to maintain equipment adequate to extinguish a nonnegligently ignited fire before it causes the damage would not. Judge Levet rejected this construction. He held that an inexcusable condition of unseaworthiness of a vessel, which in fact causes the damage — either by starting a fire or by preventing its extinguishment— will exclude the shipowners from the exemption of the Fire Statute and COGSA. We agree.”

480 F.2d at 672.

In turn, we agree.

Appellant next contends that the district court has, contrary to the statutory exemptions, placed upon the owner strict liability for the loss suffered by cargo. Appellant reasons that the court, by attributing responsibility for cargo damage jointly to the fire and to unseaworthiness, has placed upon the owner the traditional nondelegable duty to make the ship seaworthy and thus has imposed strict liability. The statutory exemptions, it is contended, do not permit the imposition of liability by nondelegable duty. Appellant relies on Earle & Stoddart, Inc. v. Ellerman’s Wilson Line, Ltd., 287 U.S. 420, 53 S.Ct. 200, 77 L.Ed. 403 (1932), where it was held that owner liability for loss attributable to unseaworthiness cannot be imposed on the theory of a nondelegable duty created by implied warranty; and that the statutory requirement that there be design or

neglect on the part of the owner precludes such a result.

However, the district court’s holding here was entirely consistent with Earle & Stoddart. COGSA provides, 46 U.S.C. § 1303(1):

“The carrier shall be bound, before and at the beginning of the voyage, to exercise due diligence to—
(a) Make the ship seaworthy *

In the case before us liability was not based on the traditional elements by which an owner is held liable for unseaworthiness of his vessel — those related to warranty and nondelegable duty. Here there was owner neglect and actual fault constituting failure to exercise the due diligence required by COGSA through permitting the vessel to put to sea without having properly trained the master and crew in the use of fire-fighting equipment and without having remedied deficiencies in the vent closing devices. Where the unseaworthy conditions that were the cause of the fire damage existed by reason of owner neglect or actual fault, the exemptions created by the Fire Statute and COGSA do not apply.

Judgment affirmed.

       Honorable Otto R. Skopil, Jr., United States District Judge for the District of Oregon, sitting by designation.