author: ALFRED T. GOODWIN, Circuit Judge:

text:
    MARRIOTT CORPORATION, Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent. INTERNATIONAL ASSN. OF MACHINISTS & AEROSPACE WORKERS, AFL-CIO, Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent. NATIONAL LABOR RELATIONS BOARD, Petitioner, v. LUFTHANSA GERMAN AIRLINES, Respondent.
    Nos. 72-1990, 72-2129, 72-2207.
    United States Court of Appeals, Ninth Circuit.
    Jan. 9, 1974.
    Rehearing Denied Feb. 7, 1974.

      Marcel Mallet-Prevost, Asst. Gen. Counsel, NLRB, Allison W. Brown, Jr. (argued), Washington, D. C., Abraham Siegel, Director, Region 31, NLRB, Los Angeles, Cal., for NLRB.
    David A. Maddux, Sheppard, Mullin, Richter & Hampton, Los Angeles, Cal., A. D. Gallay (argued), Fellner & Rovins, New York City, for Lufthansa.
    Robert M. Simpson, Rose, Klein & Marias, Los Angeles, Cal., Plato E. Papps, Washington, D. C., for IAM.
    Charles A. Kothe, Kothe & Eagleton, Richard L. Barnes (argued), Tulsa, Okl., Pillsbury, Madison & Sutro, San Francisco, Cal., Wayne S. Bishop, Akin, Gump, Strauss, Hauer & Feld, Washington, D. C., for Marriott Corp.

      Before TRASK and GOODWIN, Circuit Judges, and THOMPSON, District Judge.

       The Honorable Bruce R. Thompson, United States District Judge for the District of Nevada, sitting by designation.

   ALFRED T. GOODWIN, Circuit Judge:

The National Labor Relations Board seeks enforcement of an order vitiating a “hot cargo” agreement between an airline-employer subject to the Railway Labor Act, 45 U.S.C. § 151 et seq., and a union representing catering employees. In the companion case, the food-service contractor injured by the boycott seeks damages. The administrative decision is ¡reported as Machinists Union, 197 N.L.R.B. No. 18, 80 L.R.R.M. 1305 (May 31, 1972).

The Marriott Corporation alleged unfair labor practices under § 8(e) of the Labor-Management Relations Act (LMRA), 1947, 29 U.S.C. § 158(e), by Lufthansa German Airlines and the International Association of Machinists and Aerospace Workers, AFL-CIO (IAM), the exclusive collective-bargaining representative of Lufthansa’s catering employees. IAM appeals the NLRB ruling which found an unfair labor practice, and the Board petitions for enforcement of its order against both IAM and Lufthansa.

I. JURISDICTION

The jurisdiction of the NLRB was asserted under §§ 8(e) and 10(a) of the LMRA, 29 U.S.C. §§ 158(a) and 160(a). The union contends that the Board has no jurisdiction because one party to the challenged contract is a regulated carrier under the Railway Labor Act.

Since 1961, Lufthansa has recognized IAM as the exclusive bargaining representative for all Lufthansa employees engaged in its food catering department. Lufthansa has employed its own catering crews in New York City, and has contracted for catering services at other airports from which it operates. This practice was reflected in collective-bargaining agreements executed by Lufthansa and IAM for the years 1964-70. As of 1969, Lufthansa had contracts with Marriott, a nonunion caterer, for Chicago and Los Angeles food service, and was discussing a contract for certain John F. Kennedy Airport catering services. IAM voiced its disapproval of Lufthansa’s contracts with a nonunion caterer, and eventually, in 1971, Lufthansa and IAM executed a renewal collective-bargaining agreement containing a provision which in effect required Lufthansa to cease doing business with Marriott and to contract only with union caterers. When Lufthansa informed Marriott that the airline would have to terminate the Los Angeles and Chicago contracts, Marriott instituted these proceedings.

For the purposes of the LMRA, a “labor organization” is defined in terms of its function as between “employees” and “employers,” 29 U.S.C. § 152(5), and “employees” and “employers” are defined, in relevant part, as not including “any person subject to the Railway Labor Act.” 29 U.S.C. § 152(2), (3). Lufthansa is a carrier by air within the meaning of § 201 of the Railway Labor Act, 45 U.S.C. § 181, and, therefore, is not an employer within the meaning of § 2(2) of the Labor-Management Relations Act.

Based upon its findings that 88 per cent of IAM’s members are employees within the meaning of § 2(3) of the LMRA, and that more than 96 per cent of IAM’s collective-bargaining agreements are with employers within the meaning of § 2(2) of the Act, the Board concluded that IAM is a labor organization within the meaning of § 2(5) of the Act. The Board further found that the IAM-Lufthansa agreement was primarily aimed at Marriott and Marriott’s status as a nonunion caterer, and was not for the purpose of preserving work for unit employees, and therefore constituted an unlawful hot-cargo agreement. See Woodwork Manufacturers Ass’n v. NLRB, 386 U.S. 612, 87 S.Ct. 1250, 18 L.Ed.2d 357 (1967).

Because the findings made by the Board were supported by substantial evidence, and because the inferences drawn by the Board were reasonable, we have no basis to deny enforcement of the Board’s order. See ICC v. Louisville & N.R.R., 227 U.S. 88, 94, 33 S.Ct. 185, 57 L.Ed. 431 (1913); Universal Camera Corp. v. NLRB, 340 U.S. 474, 490, 71 S.Ct. 456, 95 L.Ed. (1951); NLRB v. Winkel Motors, Inc., 443 F.2d 38 (9th Cir. 1971); NLRB v. Millmen & Cabinet Makers, Local 550, 367 F.2d 953 (9th Cir. 1966).

The Board was required to decide whether Congress, in enacting § 8(e) of the LMRA, intended to outlaw hot-cargo agreements only when they were executed by statutory “labor organizations” and “employers” or whether, despite the seemingly clear language of the section, Congress intended to enact in § 8(e) a ban on hot-cargo agreements as broad as the ban of § 8(b)(4)(B), which applies not merely to any statutory' “employer” but to “any person.”

The Board, after analyzing the case law and legislative history concluded that the latter, broader interpretation of § 8(e) was correct and that the Board therefore had the power under § 8(e) to rule upon the IAM-Lufthansa agreement. The Board found support for this conclusion in the fact that this case involved not a “pure and simple” dispute between an air carrier and its employees' union over the terms and conditions of the airline employees’ employment, but rather a dispute between the air carrier and the union, on the one hand, and a noncarrier (Marriott) on the other, with regard to employment conditions affecting noncarrier employees. Cf. Railroad Trainmen v. Terminal Co., 394 U.S. 369, 377, 89 S.Ct. 1109, 22 L.Ed.2d 344 (1969); Teamsters Union v. New York, N. H. & H. R. Co., 350 U.S. 155, 76 S.Ct. 227, 100 L.Ed. 166 (1956).

We have examined the reasoning of the majority of the Board in light of the statutory language, the related legislative history, and the case law and find it convincing. Whether the issue involves a jurisdictional determination or a substantive application, the experienced judgment of the Board is entitled to great weight on such questions of law and statutory interpretation. See Medo Photo Supply Corp. v. NLRB, 321 U.S. 678, 681-682 n. 1, 64 S.Ct. 830, 88 L.Ed. 1007 (1944); Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 58 S.Ct. 459, 82 L.Ed. 638 (1938); NLRB v. Retail Clerks Int'l Ass'n, 243 F.2d 777, 779 n. 2 (9th Cir. 1956). The cease-and-desist order is entitled to enforcement.

II. COMPENSATORY DAMAGES AND LITIGATION COSTS

Marriott sought from the Board an order requiring the union to pay compensatory damages for lost business and costs of redress. The Board’s order failed, without comment, to provide such relief. Section 10(c) of the LMRA, 29 U.S.C. § 160(e), authorizing the Board to enjoin employers and unions from violating the Act and to order them to take affirmative action, has been construed as giving the Board broad authority to create new remedies. See, e. g., Southern S.S. Co. v. NLRB, 316 U.S. 31, 46, 62 S.Ct. 886, 86 L.Ed. 1246 (1942).

Whether and to what extent damages may serve the policies of the Act in a given case is a complex problem for the Board to decide in light of its administrative experience and knowledge. The primary purpose of the Act is to protect the public interest and the policies of the Act by mitigating the effects of the violation and preventing future violations. Compensation, like any other remedy, should be ordered only when it will serve this primary purpose. See, e. g., UAW v. Russell, 356 U.S. 634, 642-643, 78 S.Ct. 932, 2 L.Ed.2d 1030 (1958).

In this case, the language of § 8 (e) at least supports the view that the Board might not have jurisdiction. It was only after resort to the legislative history and careful consideration thereof-that the Board settled upon a reading of that section which rendered the Lufthansa-IAM agreement an unfair labor practice within the Board’s jurisdiction. We cannot say, therefore, that the Board abused its discretion in not awarding damages. Accordingly, we do not revise the Board’s order. We express no opinion on the power of the Board to award such affirmative relief. See Lipman Motors v. NLRB, 451 F.2d 823, 828-829 (2d Cir. 1971); Herald Co. v. NLRB, 444 F.2d 430 (2d Cir.), cert. denied 404 U.S. 990, 92 S.Ct. 532, 30 L.Ed.2d 541 (1971). Cf. Food Store Employees, Local 347 v. N.L.R.B., 155 U.S.App.D.C. 101, 476 F.2d 546 (1973).

In its bi’ief in this court, Marriott has for the first time requested reimbursement for litigation expenses. Section 10(e) of the LMRA, 29 U.S.C. § 160(e), provides that no objection not urged before the Board may be considered by the court unless excused by extraordinary circumstances. Marriott has not shown the necessary extraordinary circumstances to excuse its failure to request costs and attorney fees before the Board. See NLRB v. Ochoa Fertilizer Corp., 368 U.S. 318, 322, 82 S.Ct. 344, 7 L.Ed.2d 312 (1961); NLRB v. Swain & Morris Constr. Co., 431 F.2d 861 (9th Cir. 1970). Therefore, Marriott’s request for reimbursement of costs and attorney fees must be denied.

The Board will prepare and submit a judgment enforcing its order.

      . This section was added to the Act in 1959, and, in relevant part, provides :
      “It shall be an unfair labor practice for any labor organization and any employer to enter into any contract or agreement, express or implied, whereby such employer ceases or refrains or agrees to cease or refrain from handling, using, selling, transporting or otherwise dealing in any of the products of any other employer, of to cease doing business with any othel person, and any contract or agreement entered into heretofore or hereafter containing such an agreement shall be to such extent unenforcible and void * * Section 8(b)(4)(B), 29 U.S.C. §
      158(b) (4) (B), forbids a labor organization to cause any individual employed by any person to engage in certain conduct designed to force or require any person to cease doing business with any other person.

      . Woodwork Manufacturers Ass’n v. NLRB, 386 U.S. 612, 87 S.Ct. 1250, 18 L.Ed.2d 357 (1967) ; Railroad Trainmen v. Jacksonville Terminal Co., 394 U.S. 369, 89 S.Ct. 1109, 22 L.Ed.2d 344 (1969).


source: Caselaw Access Project

author: McENTEE, Circuit Judge.

license: Public Domain

text:
    NARRAGANSETT WIRE CO., Petitioner, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent, Appellee.
    No. 73-1340.
    United States Court of Appeals, First Circuit.
    Argued Jan. 10, 1974.
    Decided Feb. 8, 1974.

      Alan P. Cusick, Providence, R. I., for petitioner-appellant.
    Robert S. Watkins, Atty., Tax Div., Dept. of Justice, with whom Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, and Bennet N. Hollander, Attys. Tax Div., Dept. of Justice, were on brief, for respondent-appellee.
    Before ALDRICH, McENTEE and CAMPBELL, Circuit Judges.
   McENTEE, Circuit Judge.

This appeal is from a Tax Court decision sustaining the Commissioner’s determination of a $46,213.61 deficiency in taxpayer’s return for 1966, which for the period from July 1-December 31 was consolidated with that of an affiliate, Transarizona Resources, Inc. Taxpayer contends first, that a consent to extension of the statute of limitations signed by its president was invalid and therefore the determination of deficiency was barred, and second, that expenses of a receiver in charge of Transarizona assets between February 1963 and November 1966 were properly deducted on the consolidated return as ordinary and necessary business expenses of the affiliate which accrued after July 1, 1966. We reject both contentions and affirm the Tax Court’s decision.

With respect to the first contention, taxpayer timely filed its return on May 17, 1967, so that absent further action the statute of limitations on assessment of additional taxes would have expired three years later on May 17, 1970. Int.Rev.Code of 1954, § 6501(a). However, on March 10, 1970, taxpayer’s president, at the Commissioner’s request, consented in writing to an extension of the limitations period until June 30, 1971. See Int.Rev.Code of 1954, § 6501(c)(4) (authorizing extensions). Therefore, the notice of deficiency, issued May 17, 1971, was not barred by the statute of limitations unless the president’s consent to extension was for some reason invalid.

In contending that the consent was invalid, taxpayer does not claim that its president lacked the power to sign a consent on behalf of the corporation. Nor does taxpayer claim that the Internal Revenue Service pressured the president into signing before he could consult with others. Instead, taxpayer cites the undisputed fact that it had previously designated an individual to act as its representative in proceedings before the Commissioner, and argues that the Commissioner was obligated to request extensions of the statute of limitations only from such representative and not from any other corporate officer, including the president. Although no provision of the tax code or the regulations creates such obligation, taxpayer finds it implicit in a procedural rule of the Internal Revenue Service, 26 C.F.R. § 601.-505(b) (1973). Because the Commissioner, by requesting the consent directly from the president, breached this alleged obligation, taxpayer claims that the consent so obtained was invalid.

The short answer to this contention is that taxpayer’s representative learned well before the original limitations period had expired that the president had executed the requested waiver. Yet instead of complaining about its alleged invalidity because requested of and executed by the president rather than himself, the representative entered into a discussion with the Service as to the waiver’s legal meaning. This implied recognition by him of the basic validity of the waiver, in spite of the manner of its presentation, until after the period of limitations had expired constitutes a clear case of estoppel against the taxpayer. See Glus v. Brooklyn E. Dist. Terminal, 359 U.S. 231, 79 S.Ct. 760, 3 L.Ed.2d 770 (1959); Bergeron v. Mansour, 152 F.2d 27, 30 (1st Cir. 1945).

Taxpayer’s second contention, concerning deductibility of receiver’s expenses of its affiliate, arises from the following facts. Transarizona was organized as an Arizona corporation in 1956 for the purpose of engaging in copper mining. On October 4, 1962, it was petitioned into receivership by its principal creditor, Southern Arizona Bank & Trust Co. (the Bank). By this time Transarizona had ceased mining operations. On October 15, 1962, the Superior Court of Arizona appointed one Owens as receiver, with authority “to incur such expenditures as may be necessary for the preservations [sic] and conservation of [Transarizona] property.” However, the former principal shareholder of Transarizona refused to reimburse Owens for any such expenses, thus threatening his ability to carry out the court’s mandate. As a consequence, the Bank assumed the responsibility of supporting the receiver’s activities, obviously hoping in that way to preserve the value of its claims against Transarizona. In February 1963, Bank officials and Owens arrived at an informal understanding that the latter would finance his own activities as receiver and be reimbursed by the Bank at some later date. During the next three years the receiver’s primary activity consisted of trying to find a buyer for Transarizona’s dormant property. He failed to do so. Transarizona never resumed mining operations during this period.

Taxpayer entered the picture on January 21, 1966, when it replaced the Bank as principal creditor of Transarizona by purchasing the Bank’s claims, and related mortgages. The purchase agreement included the following provision:

“6. Southern Arizona Bank & Trust Company hereby agrees that upon payment of the sum hereinabove set forth by Narragansett Wire Co., that it will release Narragansett Wire Co., its successors and assigns, from all obligations due for any purpose, service, or expenses heretofore incurred in connection with all notes and mortgages described in paragraph 2. above, and all attorneys fees, receiver’s fees, commissions, interests, and costs incurred by any of the signatories in Cause # 16997, Superior Court of the State of Arizona, in and for the County of Pinal, as above stated. Holesapple, Conner, Jones, McFall, & Johnson, Sherwood B. Owens, and Myles C. Stewart, and each of them hereby agrees with Narragansett Wire Co. that they will look entirely to Southern Arizona Bank & Trust Company for payment of their fees, commissions, costs, and expenses as said hereinabove and will not assert any claim therewith against Narragansett Wire Co.”

Three days later, on January 24, the Bank paid Owens the sum of $136,875 for his expenses as receiver during the preceding three years. Thereafter, during the remainder of 1966, taxpayer paid Owens on a monthly basis the total additional sum of $10,254.57. Owens’ services during this later period continued to be administrative and advisory, as Transarizona still failed to resume operations. On July 1, 1966, taxpayer acquired 100 percent of Transarizona’s common stock, and thus was entitled to file a consolidated return with Transarizona for the ensuing period, July 1-December 31. The receivership formally ended November 9, 1966, at which time the superior court gave final approval to Owens’ submitted expenses extending back to February 1963.

In its consolidated return for the period July 1-December 31, 1966, taxpayer sought to deduct a total of $147,129.57 in receiver’s expenses as a business expense of' Transarizona pursuant to Int.Rev.Code of 1954, § 162(a). In other words, taxpayer sought to deduct all sums paid to Owens during 1966 by both itself and the Bank, such sums covering services rendered since February 1963. The Commissioner disallowed these claimed deductions in their entirety and the Tax Court sustained that determination.

In order for an item to be deducted under § 162(a), taxpayer must show that it was an “expense” both “ordinary” and “necessary,” which was “paid or incurred during the taxable year” for “carrying on any trade or business.” Commissioner v. Lincoln Savings & Loan Ass’n, 403 U.S. 345, 352, 91 S.Ct. 1893, 1898, 29 L.Ed.2d 519 (1971).

With respect to the $136,875 payment to Owens by the Bank in January 1966, the Tax Court found as a fact that the receiver’s expenses which this payment covered had been assumed by the Bank and thus could not be an “expense” deductible by Transarizona. This finding was amply supported by the agreement itself and by the testimony of Owens. It surely was not “clearly erroneous” and must be affirmed. See Crepeau v. Commissioner, 438 F.2d 1228 (1st Cir. 1971) (per curiam).

With respect to the total of $10,254.57 paid by taxpayer to Owens during the remainder of 1966, we can assume arguendo that these payments were made on behalf . of Transarizona and thus unlike the January payment, represented an “expense.” However, we agree with the Tax Court that taxpayer has failed to show that these payments to the receiver were for the purpose of “carrying on any trade or business.” The Commissioner has long held that only those expenses of a receiver “incurred in carrying on the business of the bankrupt taxpayer” are deductible by such taxpayer under § 162(a) or its precursor statutes. I.T. 2004, III—1 Cum. Bull. 292 (1924). See also 4A J. Mertens, The Law of Federal Income Taxation, § 25.58 (1972 rev.). In the instant case, it is agreed that Transarizona never resumed mining operations during the course of the receivership. Instead, the receiver’s primary function was to locate a prospective purchaser for the company or its assets. Following the sale of the Bank’s claims to taxpayer, the receiver continued to provide solely administrative or advisory services until the receivership formally ended in November 1966. Nowhere in the record has taxpayer shown that its payments to Owens reflected expenses he had incurred in carrying on the business of Transarizona. The plain fact is that Transarizona did not carry on business.

In view of the preceding holdings, we need not reach the issue of whether the receiver’s expenses, if otherwise deductible, accrued to Transarizona during the relevant tax period, July 1-December 31, 1966.

Affirmed.

      . T.C.Memo. 1973-135.

      . The president of a corporate taxpayer ordinarily does possess the power to sign a consent form on behalf of it. Liberty Baking Co. v. Heiner, 37 F.2d 703, 704 (3d Cir. 1930).

      . The consent form was left at taxpayer’s corporate offices on February 19, 1970. Thus, nineteen days elapsed until the president signed, during which time he was free to consult anyone.

      . Procedures for designating a representative are set forth in 26 C.F.R. §§ 601.502-.504 (1973).

      . The rule does not expressly impose the requirement which taxpayer asserts with respect to statutes of limitations. Instead, it provides that where a taxpayer’s representative unreasonably delays or hinders a tax examination or investigation by failing to furnish, after repeated request, necessary nonprivileged information, revenue agents can contact the taxpayer directly for such information. However, the rule is entitled, “Gases where taxpayer may be contacted directly,” and thus may well contain a negative pregnant to the effect that in cases not meeting its specifications the taxpayer may not be contacted directly. We need not decide this question, in view of our holding that taxpayer is estopped from raising it.

      . We express no view on the Tax Court’s holding that procedural rules such as § 601.-505(b) are merely “directory” in legal effect and thus violation of one will not bar valid assessment of a deficiency. Luhring v. Glotzbach, 304 F.2d 560 (4th Cir. 1962). It may be, however, that a violation of a procedural rule which is shown to have prejudiced a taxpayer’s position would bar subsequent assessment of a deficiency. Cf. United States v. Leahey, 434 F.2d 7 (1st Cir. 1970).

      . This shareholder was Transcontinental Resources, Ltd., a Canadian corporation, which owned 78.2 percent of Transarizona shares.


author: GIBBONS, Circuit Judge.

text:
    ESTATE of Thomas W. STREETER, Deceased, et al., Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
    No. 72-1500.
    United States Court of Appeals, Third Circuit.
    Argued March 5, 1973.
    Reargued Nov. 16, 1973.
    Decided Jan. 11, 1974.

      Morris B. Abram, James B. Lewis, Michael A. Varet, New York City, for appellants; Paul, Weiss, Rifkind, Wharton & Garrison, New York City, of counsel.
    Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Paul M. Ginsburg, Charles R. Burnett, Tax Div. Dept. of Justice, Washington, D.C., for appellee.
    Argued March 5, 1973
    Before GIBBONS and HUNTER, Circuit Judges, and MUIR, District Judge.
    Reargued en bane Nov. 16, 1973
    Before SEITZ, Chief Judge, and VAN DUSEN, ALDISERT, ADAMS, GIBBONS, ROSENN, HUNTER, WEIS and GARTH, Circuit Judges.
   OPINION OF THE COURT

GIBBONS, Circuit Judge.

This is an appeal by taxpayers from a decision of the United States Tax Court holding that they were not entitled to deduct as administration expenses on an estate tax return auctioneers commissions of $490,292.89 paid by the decedent’s testamentary trustees to Parké-Bernet Galleries, Inc. in connection with the sale of decedent’s “Americana Collection.” The tax court’s findings of fact and opinion are in T.C. Memo 1971-260. We affirm.

The decedent, a lawyer and a New Jersey resident, died testate on June 12, 1965. His will, admitted to probate in Morris County, New Jersey, named the same persons as executors and testamentary trustees. The named fiduciaries qualified in both capacities, obtaining letters testamentary and .letters of trusteeship from the Surrogate of Morris County on June 25, 1965. One of the principal assets of the estate was the decedent’s “Americana Collection” of some 4800 books, maps and other historical manuscripts and objects. By Article TWENTY-FIRST of the will decedent bequeathed the “Americana Collection” “ . . . to my trustees hereinafter named in Article TWENTY-SIXTH of this my Last Will and Testament, IN TRUST, NEVERTHELESS, for . . . [certain] purposes set forth in that article.” Paragraph 1 of ARTICLE TWENTY-FIRST provided:

“1. I direct my trustees to dispose of [my Americana Collection] by sale, leaving it to the sole discretion of my trustees whether the sale or sales shall be of all or part or parts thereof and whether the sale or sales shall be entirely or partially at public auction or entirely or partially at private sale. The time of sale or sales of my ‘Americana Collection’ and the terms of the sale or sales shall be within the sole discretion of my trustees, who shall have no personal liability for the extension of any credit or credits in connection with such sale or sales which may prove unwise or for any other errors in judgment.”

In paragraphs 2 and 3 of the same article the decedent directed the trustees to pay cash in the amount of $174,000 to named institutions out of the proceeds of sale of the “Americana Collection”. In paragraph 4 decedent directed that if the net proceeds of sale of the “Americana Collection” should exceed $174,000 the first $240,000 of such excess should be paid by the trustees to certain of the named institutions in designated proportions. Paragraph 5 of Article TWENTY-FIRST provided:

“5. In directing that my ‘Americana Collection’ be sold, I have in mind that some items in the collection have a low market value and that it would be inadvisable to include such items in a public sale. Accordingly, I authorize my trustees to dispose of by gift to any public or institutional library parts of the ‘Americana Collection’ not in the aggregate exceeding Ten Thousand Dollars ($10,000) in appraised value.”

In paragraph 6 of the same article the decedent authorized the trustees to retain four prominent bibliophiles as consultants in the disposition of his book collection and to pay each an honorarium. Paragraph 7 of Article TWENTY-FIRST provided:

“7. It is my wish that the sale of my ‘Americana Collection’ shall be completed within twenty-one (21) years from the date of my death and I direct that the proceeds from the sale of said ‘Americana Collection’ be applied by my trustees in the following order:
“(a) To the payment of all expenses and charges incident to carrying out the trust, including the honorarian to be paid to each of the consultants hereinbefore named.
“(b) To the payment of the bequests to the institutions named in Article TWENTY-FIRST, paragraphs 2 and 3 thereof.
“(c) To the payment of the balance of said proceeds, if any, when and as received, in equal shares to my children then living at the time of such receipt, and the issue then living of any deceased child or children of mine, such issue of any deceased child to receive per stirpes the share that such child would have received if then living.”

Decedent was survived by his wife, one of those named executrix and trustee, and four children. The disposition in Article TWENTY-FIRST, paragraph 7 (c) .was the same as the disposition made in Article TWENTY-SECOND of the decedent’s residuary estate. On or about March 4, 1966 the executors transferred to the trustees the “Americana Collection”. On May 25,1966 the trustees made an agreement with Parke-Bernet Galleries, Inc. pursuant to which Parke-Bernet would act for them in the sale of the “Collection”. A series of seven public auctions were conducted at six-month intervals beginning in October 1966 and ending in October 1969. In these sales the trustees realized gross proceeds of $3,101,902.00, incurred Parke-Bernet commissions of $490,292.89, and received net proceeds of $2,611,609.11. On their U.S. Fiduciary Income Tax Returns for the years 1966 through 1969 the trustees reported the net proceeds received in each year from Parke-Bernet. The executors, in the estate-tax return, treated the $490,292.89 of commissions paid to Parke-Bernet as expenses of the estate, deducting that amount from gross estate. In calculating a deficiency in estate tax the Commissioner determined that the Parke-Bernet commissions were expenses of the trust and disallowed the deduction on the estate tax return. The Tax Court sustained the Commissioner. This appeal followed. It presents the sole issue whether the $490,292.89 was a’ proper estate tax deduction.

If the executors had been empowered by the will to sell assets to effect distribution auctioneer fees, 'stipulated to be reasonable, would have been deductible. Treas.Reg. § 20.2053-S(d) (2). Taxpayers contend that the sale in this case was the functional equivalent of a sale by executors in order to effect distribution, and should be treated equivalently. This result is precluded by the governing statute and regulations. The Internal Revenue Code of 1954 in § 2053 provides in part:

“(a) General Rule.—For purposes of the tax imposed by § 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate such amounts— (2) for administration expenses ... as are allowable by the laws of the jurisdiction . under which the estate is being administered.”

The regulations under this section of the Code in § 20.2053-3 provide in part:

“(a) In general. The amounts deductible from a decedent’s gross estate as ‘administration expenses’ . are limited to such expenses as are actually and necessarily incurred in the administration of decedent’s estate; that is, in the collection of assets, payment of debts, and distribution of property to the persons entitled to it. The expenses contemplated in the law are such only as attend the settlement of an estate and the transfer of the property of the estate to individual beneficiaries or to a trustee. Expenses not essential to the proper settlement of the estate, but incurred for the individual benefit of the heirs, legatees or devisees, may not be taken as deductions . ”

If the trustees were legatees, who incurred auctioneers’ commissions for their own benefit, the expense is a trust expense and not an estate tax deduction.

The decedent did create a trust. He gave his trustees discretion to perform their duties over twenty-one years. No such period is ordinarily afforded for the administration of an estate. There are differences between the post of executor and that of testamentary trustee, in obligation, in accountability, and in duties. 1 A. Scott, Trusts § 6 (3d ed. 1967); Restatement (Second) of Trusts § 6 (1959). See In re Rogers’ Estate, 13 N.J. 508, 512, 100 A.2d 527, 530 (1953), which states that it is:

“firmly established that a fiduciary must act in one or the other of his fiduciary capacities, and ‘cannot, in his administration of any part of the property committed to him, be said to act in a duplex character’ .... Each act generally must be performed either in the capacity of executor (or administrator) or in the capacity of trustee, and the reasons for this placement of duty and responsibility, which are legion, are apparent in suits premised on alleged fiduciary neglect.”

The executors had neither duty nor power to sell the “Americana Collection”. They turned it over intact to trustees who had that duty and power, and who, judging from the results, performed well. That the executors might have done as well is beside the point. The trustees were legatees. The validity of the trust would undoubtedly be recognized in New Jersey had it been contested. See, e. g., In re Voorhees, 93 N.J.Super. 293, 298, 225 A.2d 710, 713 (1967); In re Steelman’s Estate, 87 N.J.Eq. 270, 273-274, 99 A. 612, 614 (1917). It seems clear that the auctioneer’s fees would, under New Jersey law, be expenses of the trust, not of the estate. This being so they do not qualify for deduction under § 2053. See Treas. Reg. § 20.2053.1.

Taxpayers, relying principally on authorities dealing with inclusion of corpus of inter vivos trusts in a decedent’s estate for estate tax purposes, contend that we should not read § 2053(a) of the Code and § 20.2053-3 (a) of the Regulations to mean what they obviously say. Section 2053(b) deals with the expenses of such nontestamentary trusts, providing:

“ . . . [T]here shall be deducted in determining the taxable estate amounts representing expenses incurred in administering property not subject to claims which is included in the gross estate to the same extent such amounts would be allowable as a deduction under subsection (a) if such property were subject to claims, and such amounts are paid before the expiration of the period of limitation for assessment provided in section 6501.”

The regulations issued under § 2053(b) make it clear that the property referred to in that section is not property passing through the estate and then to a testamentary trust, but property not passing through the estate at all. The regulations recognize estate tax deductions in two categories. The first category includes amounts payable out of property subject to claims which are allowable by the law of the probate jurisdiction. Treas.Reg. § 20.2053-1 (a) (1). The second category includes amounts representing expenses incurred in administering property which is included in the gross estate but is not subject to claims. Treas.Reg. § 20.2053-1 (a) (2). The regulations go on to provide which expenses may be deducted in the first category.

§ 20.2053-3 Deduction for expenses of administering estate
“(a) In general. The amounts deductible from a decedent’s gross estate as ‘administration expenses’ of the first category (see paragraphs (a) and (c) of § 20.2053-1) are limited to such expenses as are actually and necessarily incurred in the administration of the decedent’s estate; that is, in the collection of assets, payment of debts, and distribution of property to the persons entitled to it. The expenses contemplated in the law are such only as attend the settlement of an estate and the transfer of the property of the estate to individual beneficiaries or to a trustee, whether the trustee is the executor or some other person. Expenditures not essential to the proper settlement of the estate, but incurred for the individual benefit of the heirs, legatees, or devisees, may not be taken as deductions.”

The regulations also make clear which expenses may be deducted in the second category:

§ 20.2053-8 Deduction for expenses in administering property not subject to claims
“(a) Expenses incurred in administering property included in a decedent’s gross estate but not subject to claims fall within the second category of deductions set forth in § 20.2053-1, and may be allowed as deductions if they—
(1) Would be allowed as deductions in the first category if the property being administered were subject to claims; and
(2) Were paid before the expiration of the period of limitation for assessment provided in section 6501.
Usually, these expenses are incurred in connection with the administration of a trust established by a decedent during his lifetime. They may also be incurred in connection with the collection of other assets or the transfer or clearance of title to other property included in a decedent’s gross estate for estate tax purposes but not included in his probate estate.”

Since the trust estate which incurred the expenses here passed through the decedent’s estate and was subject to claims, its expenses are neither first category nor second category expenses of administration, but rather expenses of a legatee. The taxpayers urge that their functional approach is adopted in Treas. Reg. § 20.2053-3(b)(3) which provides:

“(3) Except to the extent that a trustee is in fact performing services with respect to property subject to claims which would normally be performed by an executor, amounts paid as trustees’ commissions do not constitute expenses of administration under the first category, and are only deductible as expenses of the second category to the extent provided in § 20.-2053-8.”

This provision doés impose a functional limitation on' the amount of deduction allowable in the second category, but it does not enlarge the category beyond that contemplated by § 2053(b) of the Code; that is, the category of inter vivos transfers subject to taxation in an estate by operation of the tax law, but not a part of the probate estate.

The 1954 Code and Regulations, so read, are entirely consistent with pre1954 case law. Prior to 1954, when a decedent made an inter vivos transfer in trust and the corpus of the trust was subject to claims on the decedent’s estate and includable therein for estate tax purposes, the courts recognized the deductibility of trustee expenses similar to those which would have been incurred by the executor had he performed the same services. See Commissioner v. Bronson, 32 F.2d 112 (8th Cir. 1929). When a decedent made an inter vivos transfer in trust which was not subject to claims but was included in the decedent’s estate for estate tax purposes, the courts recognized that only the net value of the inter vivos trust was includable, recognizing that expenses and commissions were incurred by the trust estate. See Haggart’s Estate v. Commisioner, 182 F.2d 514 (3d Cir. 1950); Commissioner v. Davis, 132 F.2d 644 (1st Cir. 1943). But where the trust property involved was essentially a testamentary disposition, the courts recognized that distribution by the executor completed administration of the probate estate for purposes of the estate tax administrative expense deduction. Estate of James P. Smith, 6 B.T.A. 911, 913 (1927). Cf. Sharpe’s Estate v. Commissioner, 148 F.2d 179 (3d Cir. 1945); 4 Mertons, Law of Federal Estate and Gift Taxation. § 20.34, n.74 (1959). Congress when it adopted § 2053 of the 1954 Code did not intend a change in the existing law. See S.Rep.No.1622, 83d Cong., 2d Sess. 474 (1954) (reprinted in 3 U.S.Code Cong, and Admin.News 5117 (1954)); H.R. Rep.No.1337, 83d Cong., 2d Sess. A318 (1954) (reprinted in 3 U.S.Code Cong, and Admin.News 4460 (1954)).

That by choosing a testamentary trust rather than directing a sale by his executors the decedent has lost a large estate tax deduction which might otherwise be available may seem a harsh result. But we cannot redraft the instrument chosen by the decedent. The decision of the Tax Court will be affirmed.

      . With a minor exception not relevant for present purposes. (Tax Court Stipulation of Facts, paragraph 25)


author: HAYS, Circuit Judge:

text:
    C. E. H. McDONNELL, as Trustee in Reorganization of Equitable Plan Company, Plaintiff-Appellant, v. AMERICAN LEDUC PETROLEUMS, LTD., et al., Defendants, and Ruby Schinasi, Defendant-Appellee.
    No. 34, Docket 73-1172.
    United States Court of Appeals, Second Circuit.
    Argued Oct. 30, 1973.
    Decided Jan. 23, 1974.

      Robert S. Stitt, New York City (George W. Taliaferro, Jr., and Thacher, Proffitt & Wood, New York City, on the brief), for plaintiff-appellant.
    David E. Pitcher, Jr., New York City (Corbin, Bennett ,& Delehanty, New York City, on the brief), for defendantappellee.
    Before MOORE, HAYS and FEINBERG, Circuit Judges.
   HAYS, Circuit Judge:

C. E. H. McDonnell, a trustee in reorganization of the Equitable Plan Company, commenced this action against Mrs. Ruby Schinasi and others to recover losses suffered by Equitable. The district court originally found Mrs. Schinasi not guilty of fraud. On appeal we remanded for consideration of the trustee’s claim that Mrs. Schinasi was negligent in performance of her duties as a director and officer of Equitable. 456 F.2d 1170 (2d Cir. 1972). On remand the district court found Mrs. Schinasi not guilty of any negligence which proximately caused Equitable’s losses. On this appeal we hold that the facts found by the district court establish Mrs. Schinasi’s negligence as a matter of law with respect to certain acts. We therefore reverse in part and remand.

I. FACTS

The previous decisions of this court and the district court have described the demise of the Equitable Plan Company. In this opinion we shall focus on certain aspects of the facts which are germane to this appeal.

Mrs. Schinasi had been a friend of one Lowell Birrell for many years. In 1953 Birrell decided to purchase Equitable and to mask his ownership by using Mrs. Schinasi as a front. Birrell persuaded Mrs. Schinasi to invest in Equitable. California Investment Company (Calico) was formed to take title to Equitable’s stock. Birrell told appellee, and she believed, that she actually owned Calico and, through it, Equitable. In fact Calico was owned by a succession of corporations controlled by Birrell.

Although she had little business experience prior to 1953, Mrs. Schinasi served as a director of Equitable from October, 1953 to July, 1957 and as its president from April 4, 1954 until February 1, 1957. At no time did she actively participate in the management of the firm.

After the takeover by Calico, Equitable pursued a questionable loan policy. It made several large loans (referred to by the California Division of Corporations as the “Eastern loans”) to speculative firms controlled by Birrell. These loans were often secured by shares of the borrower’s stock or stock of other unstable concerns controlled by Birrell.

In April, 1955, after discovering Equitable’s new policies, the California Division of Corporations, which regulates industrial loan companies like Equitable, conducted hearings with respect to Equitable’s operations. At the conclusion of the hearings the Division required Mrs. Schinasi to promise under oath to keep the recently hired Blau and Seltzer, as co-managers of the corporation and “to allow them to have a free hand in the loans they will make.” She also promised that Equitable would make no further loans to companies associated with Birrell and that the then existing loans of this type would be liquidated as rapidly as possible. Thereafter Mrs. Schinasi took no action with respect to the Eastern loans except to remind Birrell that they should be paid. Whenever asked to sign papers she did so unhesitatingly in the belief that her promise required her to do so.

Between 1954 and 1957 Mrs. Schinasi received five warnings about mismanagement of Equitable. These warnings were in the form of letters and memoranda from various persons associated with Equitable. Appellee neither investigated the statements contained in these warnings nor passed them on to the Division of Corporations. Instead, she gave them to Birrell, who was the object of many of the complaints, and accepted his assurances that the problems mentioned would be corrected.

On May 25, 1956, after a series of disagreements with Birrell (who, despite appellee’s promise to let Blau and Seltzer control loan-making policy, continued to exercise considerable authority over that policy), Blau and Seltzer left Equitable. On June 1, 1956 Harry Slavin took managerial control of the company. Mrs. Schinasi maintained her passive role in the company’s affairs. In the ensuing period Equitable renewed many of the practices to which the Division of Corporations had objected. Equitable’s financial position deteriorated until July 1, 1957, when the Division suspended the authority of Equitable to make loans. On December 20, 1957 the Division took control of Equitable for the purpose of liquidating it.

II. THE DECISION OF THE DISTRICT COURT

The district court held, and we agree, that the appellee’s fiduciary duties are defined by California law, since Equitable was a California corporation with offices only in that state and since Equitable’s investors were primarily Californians.

The district court found no authority for plaintiff’s claim that California law imposes a higher standard of care on directors of financial institutions than on directors of other corporations. The standard for all directors is-“that degree of care that men of common prudence take of their own concerns.” National Automobile & Casualty Insurance Co. v. Payne, 261 Cal.App.2d 403, 67 Cal.Rptr. 784 (1st Dist. 1968). We agree with both findings.

Applying this standard, the district court found that Mrs. Schinasi had been negligent in failing to examine the books of the company. However, the court held that this failure to act did not proximately cause any loss to Equitable.

The court found other acts and omissions excused by the promise to the Division of Corporations. It held that Mrs. Schinasi had interpreted the promise to bar interference with the management of the company. Without deciding whether this interpretation was correct the lower court held it not unreasonable, and it concluded that her interpretation was protected by the business judgment rule. The court therefore absolved appellee of any liability.

III. THE PROMISE TO THE DIVISION OF CORPORATIONS

The California Division of Corporations ordered the April, 1955 hearings when it discovered the loan policy adopted by Equitable’s new management. At the close of the hearings Birrell promised that no new loans would be made to companies with which he was associated, and that outstanding loans to such companies would be liquidated as soon as possible. Mrs. Schinasi knew the purpose of the hearings and attended the session at which these promises were made. Immediately after the promise by Birrell the following colloquy occurred between Mrs. Schinasi and Mr. Pearce, the Deputy Commissioner of the Division of Corporations:

Mr. Pearce: Now, Mrs. Schinasi, is it your intention provided Mr. Seltzer and Mr. Blau are successful from the standpoint of making profits for Equitable Plan Company, without binding yourself, of course, if cause exists in the future, is it your present intention to keep them on as permanent co-managers of the Company ?
Mrs. Schinasi: .Yes.
Mr. Pearce: And is it your intention since you are the sole equity owner of the Company that owns the sole equity in Equitable Plan and, therefore, would be in a position to change the Board almost without notice on special meeting, to allow Mr. Seltzer and Mr. Blau who have made a contract of employment with the firm, carrying incentive to them as well as salary in proportion somewhat to the profits they are able to make, to allow them to have a free hand in the loans they will make ?
Mrs. Schinasi: It is my intention to so do.

There is room for disagreement about how far the Division intended this promise to restrict Mrs. Schinasi’s activities in the company. We cannot agree with the trustee’s claim that after the hearings she should have intensified supervision. But neither can we accept appellee’s view that the promise required her to remain passive and to sign whatever papers were presented to her. The hearings and the promises took place in the context of the Division’s grave dissatisfaction with Equitable’s loan policies and its insistence that this policy change. The promise referred only to loan-making policy and not to other aspects of the management of the corporation. The promise cannot excuse illegal purchases of stock or abuse of expense accounts, which we shall discuss further below.

The promise to leave loan-making policy to Blau and Seltzer must be reconciled with the prohibition on loans to companies associated with Birrell. Giving the appellee the benefit of the doubt we think that the reasonable interpretation of the promise is that appellee would not interfere with loan-making policy, except that she would not knowingly permit or abet loans which violated the order of the Division of Corporations. At the least Mrs. Schinasi should have informed the Division of violations of its orders. Instead she permitted and ratified such acts.

The business judgment rule protects only reasonable acts of a director or officer. Burt v. Irvine Co., 237 Cal.App.2d 828, 851-855, 47 Cal.Rptr. 392, 407-409 (1st Dist. 1965). Appellee’s interpretation of her promise to the Division of Corporations was, in several respects, not reasonable.

IV. ALLEGED ACTS OF NEGLIGENCE

A. Purchase of Swan-Finch Common Stock

On July 2, 1956 appellee executed a letter authorizing a purchase by Equitable of 8,800 shares of Swan-Finch common stock. Under the California Industrial Loan Law it was improper for an industrial loan company to invest in common stocks.

In California a corporate officer is liable to the corporation for statutory violations committed by him while acting as an agent of the corporation. Southern Counties Thrift Co. v. Rairdon, 47 Cal.App.2d 770, 771, 118 P.2d 828, 829 (4th Dist. 1941). The district court found appellee not liable for this because of her promise to the Division of Corporations. But Mrs. Schinasi promised only to allow Blau and Seltzer “a free hand in the loans they will make.” This cannot be reasonably construed as requiring her to authorize an illegal purchase of stock, especially when Swan-Finch was a Birrell company. We therefore reverse on this point and remand for determination of damages.

B. Renewal of Prohibited Loans

In June, 1954 Equitable made three loans of $150,000 each to Echo Falls Oil Corp. (through L. L. Constantin & Co.), Greater New York Industries, and Bartels Brewing Co. All were dominated by Birrell. Appellee knew of these loans when made. In May and December of 1956 these loans were renewed in violation of the order of the Division of Corporations.

Appellant claims, and submits documents tending to show, that Equitable’s journals for May, 1956 show the renewals of the June, 1954 loan and that an examination of the books would have informed appellee of the renewals. The district court found that appellee was negligent in failing to examine the books, but that this negligence did not proximately cause any loss to Equitable because it would not have alerted her to any wrongdoing. However, Mrs. Sehinasi knew that such renewals would violate the April, 1955 order, and therefore if examination of the books would have informed her of the renewals it would have alerted her to wrongdoing.

We therefore remand for determination of whether the books contain such information as appellant alleges and, if necessary, for determination of damages.

C. Confirmation of Prohibited Loans

The trustee alleges, and submits documents tending to show, that in June, 1956 Mrs. Sehinasi executed two receipts confirming loans which violated the order of the Division of Corporations. The court below, apparently believing this act justified by the promise to the Division, made no findings of fact on this issue. We have held that the promise cannot justify affirmative acts which violated the order of the Division. We therefore remand for determination of whether appellee actually signed these receipts and to what extent she knew or should have known that the companies to which these loans were made were dominated by Birrell. Based on these findings the court must also determine the damages to be assessed.

D. Mrs. Schinasi’s Expense Account

The trustee alleges that over $50,000 was charged to Mrs. Schinasi’s expense account during her association with Equitable. This sum falls into three categories. First, there is money received and used by appellee for legitimate purposes. Of course she is not liable for this amount.

Second, Mrs. Sehinasi often took amounts of cash and handed them to Birrell or his personal friends. A reasonable person would not do this without prior assurances that the money would be spent for legitimate corporate purposes, and subsequent proof that it had been so spent. Further, a reasonable person would not have charged such cash withdrawals to an expense account rather than indicating the true purpose for the funds. We therefore remand for determination by the district court of how much damage the corporation suffered by use of these funds for non-corporate purposes.

Third, there are sums which were charged to appellee’s expense account but which she never received. The trustee claims that these charges were listed in a private ledger to which the general ledger referred. The district court made no findings on this claim. As the district court found appellee- negligent for failure to examine the books of the company, it follows that this failure was the proximate cause of the loss of these expenses charged to her but never received by her. We therefore remand for consideration of the trustee’s claim that the records were available to appellee and, if so, of damages.

CONCLUSION

The depositors of Equitable, who lost their money, had a right to believe that Mrs. Sehinasi, as director, president, and purported sole equity owner of Equitable, would exercise reasonable diligence to protect their interests rather than accede to the looting of the Company. We cannot exonerate her for her failure to discharge her duties to the investors.

Remanded for further proceedings not inconsistent with this opinion.

      . We note that Blau and Seltzer left Equitable on May 25, 1956 after a deterioration of the relations between Blau and Birrell. The disagreements concerned Blau’s refusal to make certain loans proposed by Birrell. On June 1, 1956 Harry Slavin took managerial control of the company. Mrs. Schinasi had promised to leave control of the loan-making policy to Blau and Seltzer. Their departures after disputes with Birrell should have alerted her because Equitable’s relations with Birrell had been the object of the April, 1955 hearings. Again, she should at least have consulted the Division. She failed to do so. As a result, during the tenure of Slavin Equitable was systematically looted to shore up Birrell’s shaky financial enterprises.

      . The district court found that even had she done so “. . . there is no evidence that the Division would have undertaken a more extensive investigation. . . . ” This seems to conflict, however, with the court’s finding that the Division, though acting competently, “was frequently unaware of significant facts because they were withheld” and that several matters “which would have called for further investigation and action by the Division were not brought to its attention.” Indeed, the court specifically found that had the Division known of the violations of its orders which occurred after Slavin took control of the company “it would have acted immediately to halt them.” Thus to the extent that Mrs. Schinasi knew, or should have known through examination of the books, of these violations, her negligence must be deemed a proximate cause of the corporation’s losses.


author: ELY, Circuit Judge:

text:
    PERERA COMPANY, INC., Appellant, v. Jack R. GOLDSTONE, Debtor-Defendant, Fireside Thrift Co., Intervenor and Appellee. PERERA COMPANY, INC., Appellee, v. Jack R. GOLDSTONE, Debtor-Defendant, Fireside Thrift Co., Intervenor and Appellant.
    Nos. 71-2653, 71-2958.
    United States Court of Appeals, Ninth Circuit.
    Jan. 9, 1974.

      Patrick J. Maloney, Jr., of Sullivan, Roche & Johnson and Theodore A. Kolb (argued) San Francisco, Cal., for Fireside Thrift Co.
    K. Lambert Kirk, San Francisco, Cal. (argued) for Perera Co., Inc.
    Patrick J. Kearns, San Francisco, Cal., for Jack R. Goldstone.
    Before ELY, TRASK and WALLACE, Circuit Judges.
   OPINION

ELY, Circuit Judge:

Here, we have an appeal by appellant Perera, plaintiff below, from a judgment subordinating its rights as a judgment creditor to those of Fireside Thrift Co., (hereinafter “Fireside”), a post-judgment intervenor claiming a prior inventory lien. Fireside has cross-appealed from the District Court’s order denying Fireside’s claim for the cost of certain bond premiums.

In 1961 Perera obtained a default judgment against the defendant debtor, and a writ of execution was issued on Perera’s behalf against the debtor’s merchandise. Fireside, by depositing $30,000 in cash into the registry of the court, obtained a stay of execution and an order approving the release of the property to the debtor defendant in .order to permit an orderly sale. Fireside then filed a post-judgment claim to test the priority of its lien. Lengthy legal proceedings, incuding a cross-complaint for damages brought by Perera against Fireside and later dismissed, long delayed the determination of the priorities. In 1965 the court permitted Fireside to substitute a surety bond for its cash deposit, and Fireside paid premiums on that bond until the action was resolved. Finally, in 1971, the District Court held that Perera’s interest in the property was junior and inferior to that of Fireside and ordered that the surety bond posted by Fireside be exonerated.

Perera raises a number of issues. First, Perera argues that the trial court erred in not permitting it a jury trial. The appellee responds, correctly we think, that Perera was not entitled to a jury trial once the cross-complaint had been dismissed, since the enforcement of liens is a long established and well recognized function of the courts of equity. Proctor v. Arakelian, 208 Cal. 82, 98, 280 P. 368 (1929). But more clearly dispositive is the fact that the record reveals that Perera expressly waived its now asserted right to a jury trial.

Perera’s second contention is that the trial court abused its discretion in refusing to dismiss Fireside’s complaint in intervention for lack of prosecution. It argues that Rule 69, Fed.R. Civ.P., which provides that federal supplementary proceedings in aid of a judgment and execution shall be in accordance with state law, required that section 583 of California’s Code Civ.Proc. be applied. On its face, the statute provides for the mandatory dismissal of a complaint in a civil action that has not been brought to trial within five years from the date of the complaint’s filing. Even if applicable, section 583 has been interpreted by California’s supreme court as not applicable in cases wherein delay is unavoidable. Brunzell Construction Co. v. Wagner, 2 Cal.3d 545, 86 Cal.Rptr. 297, 468 P.2d 553 (1970); General Motors v. Superior Court, 65 Cal.2d 88, 52 Cal.Rptr. 460, 416 P.2d 492 (1966); Rose v. Knapp, 38 Cal.2d 114, 237 P.2d 981 (1951) .; Christin v. Superior Court, 9 Cal.2d 526, 71 P.2d 205 (1937). In the case at hand, the district judge found that Perera’s 1.5 million dollar cross-complaint was the source of unavoidable delay. We cannot say that this finding was without substantial evidentiary support; hence, the court’s conclusion that section 583 should not be applied was not clearly erroneous.

Third, Perera argues that Fireside’s complaint in intervention failed to state a claim on which relief could be granted, in that inventory liens were not expressly mentioned as a protected security device in California’s 1961 third party claims statutes. We need not reach the merits of this argument, for in 1961, Perera and Fireside stipulated in writing to waive any procedural defects on the part of Fireside in presenting its inventory claim. Moreover, they also then agreed that there should be a judicial determination, on the merits, as to which lien was superior.

Finally, Perera contends that, as a matter of law, Fireside’s lien was inferior to its own. Perera bases this argument on the grounds that its lien was first in time and that Fireside obtained its inventory lien with actual knowledge of Perera’s prior lien. The District Court held that Perera’s original lien was lost by its assignor’s failure to segregate the property and by allowing the property covered by the original lien to' be sold or co-mingled with the remaining inventory so that it could not be identified. Thus, held the court, the only lien retained by Perera was the lien of the writ of execution, which was junior and inferior to Fireside’s inventory lien. We are not persuaded that the District Court’s findings and conclusion in this respect should be disturbed.

As to the cross-appeal, Fireside relies on Local Rule 124(e)(7) of the Northern District of California. This Rule provides that items taxable as costs shall include “Premiums on undertaking bonds or security required by law or by order of the court or necessarily incurred by a party to secure a right accorded him in the action or proceeding.” The District Court found that the bond, while posted pursuant to a court order, was not required by that order, but only permitted by it. The court further found that the effect of the bond was to release money which had been deposited in lieu of goods. Fireside conceded that it had no claim for the loss of use of the money or the merchandise. And the proceedings themselves did not accord to Fireside the right to the use of the money or access to the goods. The successive releases of them were exclusively for the benefit of Fireside, and at its own option.

In all respects, the challenged judgment and order of the District Court are

Affirmed.

      . The parties shall bear the costs which each, respectively, has incurred in connection with this appeal.


author: VAN DUSEN, Circuit Judge.

text:
    FOOD FAIR STORES, INC., Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent.
    No. 73-1309.
    United States Court of Appeals, Third Circuit.
    Argued Nov. 5, 1973.
    Decided Jan. 18, 1974.

      Joseph Bell, John B. Nason, III, Kleinbard, Bell & Brecker, Philadelphia, Pa., for petitioner.
    Robert G. Sewell & Margery E. Lieber, Attys., NLRB; Peter G. Nash, Gen. Counsel, John S. Irving, Deputy Gen. Counsel, Patrick Hardin, Associate Gen. Counsel, and Elliott Moore, Asst. Gen. Counsel, NLRB, for respondent.
    M. Kalman Gitomer, Peter M. Stern, Kenneth F. Kahn, Blank, Rome, Klaus & Comisky, Philadelphia, Pa., for amicus curiae, Food Employer’s Labor Relations, Inc.
    Before VAN DUSEN, HUNTER and GARTH, Circuit Judges.
   OPINION OF THE COURT

VAN DUSEN, Circuit Judge.

This case is before the court upon the petition of Food Fair Stores, Inc. (hereinafter the “Company”) to review and set aside an order of the National Labor Relations Board issued against the Company on March 12, 1973, and reported at 202 N.L.R.B. No. 51. The Board has filed a cross-application for enforcement of its order. This court has jurisdiction of the proceeding under section 10(e) and (f) of the National Labor Relations Act (hereinafter the “Act”), as amended, 29 U.S.C. § 151 et seq., since the alleged unfair labor practices occurred in Philadelphia where the Company has a food distribution center from which it supplies retail stores in Pennsylvania and southern New Jersey.

In the course of its business, the Company employs some 200 full-time truck drivers and some 20 to 30 “casual” truck drivers. The casual drivers are those called on to replace a regular driver who is absent or on vacation. The Company’s truck drivers, casual as well as regular, are represented by Food Drivers, Helpers and Warehousemen Employees Local 500, IBT (hereinafter the “Union”). The Company and the Union are parties to a collective bargaining agreement between Food Employer’s Labor Relations, Inc., amicus curiae here, representing 18 employers in the food distribution and processing industry, including Food Fair, and four local unions, including Local 500. The agreement is in effect from January 1, 1971, through December 31, 1973, and covers both casual and regular drivers. The provisions relevant to the case are reproduced in the footnote below, which includes the prohibition against work stoppages in Article 28.

The casual drivers subsequently became dissatisfied with a number of Company practices, and on November 6, 1971, between 14 and 18 of the casual drivers met to review them. Uppermost among these grievances was their frustration in achieving permanent status as truck drivers. The next day, the casuals presented their problems to Union shop steward Emberger, who agreed to arrange a meeting with Union officials.

On November 16 the casuals met with Emberger, Union Secretary-Treasurer William Brown, and Union Vice-President William O’Farrell. After hearing their grievances, Brown told the drivers there was nothing the Union could do for them. When the men insisted that an effort be made to arrange a meeting with the Company, O’Farrell consented and tried, unsuccessfully, to reach Robert McIntyre, the Company’s Assistant Director of Industrial Relations. During this meeting, the casual drivers mentioned the possibility of a protest “demonstration.”

After the meeting, Emberger, O’Farrell, and probably Brown remained to await a call from McIntyre. When McIntyre did not call, O’Farrell called him again and requested a meeting. McIntyre suggested a meeting November 19. O’Farrell told him that unless a meeting was arranged immediately, the casual drivers might demonstrate the following night. McIntyre replied that if they did, there would be no meeting until work recommenced. McIntyre also reminded O’Farrell that as Union officials, he and Brown had an obligation under the contract to make sure that there was no interruption in the Company’s operations and told him that if he expected any problem in that regard it was incumbent on him personally to see that it was resolved. O’Farrell assured him that he would do everything possible to keep the men in line.

The following day, November 17, some of the casual drivers gathered at the home of one of their group to await an answer to their request for a meeting with the Company. When they did not receive a call, they telephoned the Union. They were told that the Company had not responded and apparently was not going to meet with the casual drivers. On hearing this, they began to prepare signs for a “demonstration.”

Between 8:30 and 10:00 P.M. on the night of November 17, the casual drivers began picketing the entrances to the Company’s distribution center. The pickets were peaceful and orderly and did not interfere with other workers entering or leaving the center. At about 10:00 P.M., Union representatives Emberger, Brown, and O’Farrell arrived. Brown, in the presence of Company representatives, told the pickets that their activity was not authorized or sanctioned by the Union and that they should disperse. The pickets, with apparent sarcasm, thanked Brown and continued picketing until about 3:30 P.M. on November 18, when the pickets were served with a state court injunction. The walkout thus lasted approximately 18 hours. During this time, only one casual driver was available for work, and many regular drivers also failed to report for work.

On November 18 the Company terminated the 21 casual drivers who had participated in the walkout and thereafter refused to recall them. Following their discharge, the casual drivers attempted to have the Union file a grievance on their behalf, but the Union refused to do so. Thereafter the casual drivers filed a charge against the Union, alleging that it had denied them fair representation, but that charge was subsequently withdrawn.

The instant charge against the Company was filed on November 23, 1971, and a complaint was issued against the Company in June 1972. Following a hearing, the Decision, including Finding of Fact and Conclusions of Law, as well as a recommended Order, of the Administrative Law Judge was issued on November 17, 1972. On March 13, 1973, the Board affirmed the rulings, findings and conclusions of such judge and adopted his recommendations. In its decision the Board found that the protest walkout in this case was concerted activity protected by section 7 of the Act and that the right of the employees to engage in a walkout of less than 24 hours’ duration had not been waived in the collective bargaining agreement. The Board held, therefore, that the Company had violated section 8(a)(1) of the Act by discriminating against the 21 casual drivers who had participated in the walkout.

There has been much discussion in this case as to whether under the terms of the collective bargaining agreement the Company has the right to discharge employees who engage in work stoppages of less than 24 hours’ duration. The Company argues that Article 11, section 1, of the agreement provides for “immediate discharge” of any employee who participates in an unauthorized strike or walkout and that its right to apply this sanction is in no way abridged by Article 8, section 9. According to the testimony of Mr. McIntyre, the purpose of the disputed clause in Article 8, section 9, was not to forbid discharge during the first 24 hours of an unauthorized strike, but rather to create an exception for workers discharged during that period from the provision that workers disciplined for participation in a wildcat strike are not entitled to have recourse to the grievance procedures of the agreement. In support of this construction, the Company points out that the 24-hour clause appears in the article of the agreement dealing with the grievance procedure, rather than the one concerning discharge, and, furthermore, that Article 8, section 9, contains a provision absolving the Union of any possible liability for wildcat strikes, which the Company maintains was the quid pro quo for the 24-hour clause. However, the Board rejected this interpretation, since it found that the clear meaning of Article 8, section 9, on its face was to limit the employer’s right of discipline during the first 24 hours of an unauthorized work stoppage to all reasonable measures short of discharge.

It is unnecessary for this court to resolve this dispute, for whether the agreement is read to permit the discharge of strikers during the first 24 hours of an unauthorized work stoppage or not, the walkout in this case was not protected by section 7 of the Act and, therefore, the Company’s discharge of the employees who participated in the walkout did not violate section 8(a)(1) of the Act. Section 7 guarantees employees the right “to engage in other concerted activities for the purposes of collective bargaining or other mutual aid or protection.” In defining the scope of concerted activities to be afforded the protection of the Act, courts have generally excluded two types of employee conduct, both involved here—unauthorized strikes and strikes in breach of a collective bargaining agreement.

The question of whether unauthorized strikes are “concerted activities” in which employees have a right to engage poses an important issue of policy. As this court observed in N.L.R.B. v. Rubber Rolls, Inc., 388 F.2d 71, 73 (3d Cir. 1967):

“The problem is a fundamental one, for it involves the sometimes incompatible policies of conferring on the collective bargaining agent selected by a majority of the employees the exclusive authority to speak for all of them and of permitting employees the right to individual expression over matters affecting their conditions of employment.”

Nearly all of the circuits that have been confronted with this issue have followed the decision of the Fourth Circuit in N.L.R.B. v. Draper Corp., 145 F.2d 199 (4th Cir. 1944), and have treated unauthorized strikes as unprotected activity per se. See Plasti-Line, Inc. v. N.L.R.B., 278 F.2d 482 (6th Cir. 1960); N.L.R.B. v. Sunbeam Lighting Co., 318 F.2d 661 (7th Cir. 1963); Harnischfeger Corp. v. N.L.R.B., 207 F.2d 575 (7th Cir. 1953); N.L.R.B. v. Illinois Bell Telephone Co., 189 F.2d 124 (7th Cir.), cert. denied, 342 U.S. 885, 72 S.Ct. 173, 96 L.Ed. 663 (1951); N.L.R.B. v. Tanner Motor Livery, Ltd., 419 F.2d 216 (9th Cir. 1969); N.L.R.B. v. Sunset Minerals, Inc., 211 F.2d 224 (9th Cir. 1954). This approach is supported by recent Supreme Court decisions holding that because of the interest of section 9(a) of the Act in a union's status as exclusive bargaining agent, some of the section 7 rights of the employees may be exercised only in accordance with the majority choice of the union. See Scofield v. N.L.R.B., 394 U.S. 423, 89 S.Ct. 1154, 22 L.Ed.2d 385 (1969); N.L.R.B. v. Allis-Chalmers Mfg. Co., 388 U.S. 175, 87 S.Ct. 2001, 18 L.Ed.2d 1123 (1967).

The principal exception to the general unwillingness of courts to grant the protection of the Act to unauthorized strikes was the decision in N.L.R.B. v. R. C. Can Co., 328 F.2d 974 (5th Cir. 1964), where the Fifth Circuit distinguished between unauthorized activity which supported union objectives and that which opposed them, holding that the former was protected. In N.L.R.B. v. Rubber Rolls, Inc., supra at 73 of 388 F.2d we expressed in dicta our approval of the R. C. Can decision, noting that in some situations unauthorized activity by employees might enhance the authority of the union and aid the collective bargaining process. Since then, however, the Fifth Circuit has cast doubt on the continued viability of the approach taken in R. C. Can and has warned that its decision there should be read rather narrowly. N.L.R.B. v. Shop Rite Foods, Inc., 430 F.2d 786, 790-791 (5th Cir. 1970).

The unauthorized walkout in this case was carried out against the wishes of the Union, which, in compliance with its contractual obligation under Article 8, section 9, sought to induce the casual drivers to return to their work. It violated the provision of Article 8, section 9, of the agreement which gives the Union sole authority to call any strikes not in violation of the agreement. And the purpose of the walkout was in part to protest against certain substantive portions of the agreement concerning seniority to which the Union had assented. Under these circumstances, it is clear that the activity of employees should not be granted the protection of the Act; otherwise, the status of the Union as exclusive bargaining agent would be weakened and the orderly resolution of industrial conflicts envisioned by the Act would be impaired. The employees had available to them a contractual grievance procedure, and their proper course was to press their claims through it, rather than to engage in an unauthorized strike.

In addition, the law is clear that strikes carried out in violation of a no-strike provision in a collective bargaining agreement are not protected by the Act, and therefore the discharge of employees who engage in such strikes is not an unfair labor practice. See Atkinson v. Sinclair Refining Co., 370 U.S. 238, 246, 82 S.Ct. 1318, 8 L.Ed.2d 462 (1962); Mastro Plastics Corp. v. N.L.R.B., 350 U.S. 270, 280, 76 S.Ct. 349, 100 L.Ed. 309 (1956); N.L.R.B. v. Rockaway News Co., 345 U.S. 71, 80, 73 S.Ct. 519, 97 L.Ed. 832 (1953); N.L.R.B. v. Sands Mfg. Co., 306 U.S. 332, 344, 59 S.Ct. 508, 83 L.Ed. 682 (1939). Whether a particular collective bargaining agreement includes a waiver of the employees' right to strike, and the extent of any such waiver, "turns upon the proper interpretation of the particular contract . . . [which] must be read as a whole and in light of the law relating to it when made." Mastro Plastics Corp. v. N.L.R.B., supra at 279 of 350 U.S., at 356 of 76 S.Ct. Thus, we must look to the terms of the agreement in this case to determine if the walkout of the casual drivers violated any waiver of their right to strike contained therein.

Article 28, section 5, provides that “[t]here shall be no work stoppages or threats thereof except as specifically-permitted under the provisions of Article 8.” The Company argues that the only work stoppage specifically permitted in Article 8 is that provided for in section 7 in cases where one of the parties to the agreement fails to comply with an arbitrator’s award. However, the Board found that Article 8, section 9, also contained an exception to the no-strike clause of Article-28, section 5, for strikes of less than 24 hours’ duration. The Board apparently reasoned that Article 8, section 9’s prohibition against discharges during the first 24 hours of an unauthorized strike implied that work stoppages lasting less than 24 hours are permitted. In support of this conclusion, the board relied on its decision in Wagoner Transportation Company, 177 N.L.R.B. 452, enforced, 424 F.2d 628 (6th Cir. 1970) (per curiam), a case involving a contractual provision nearly identical to the 24-hour clause here. Adopting the decision of the Trial Examiner, the Board held there “that to the extent that the Agreement prohibited the Respondent from exacting the extreme penalty of discharge on employee-participants in wildcat strikes of less than 24 hours’ duration, such strikes are protected activities under the provisions of Section 7 of the Act which guarantees to employees the right to engage in ‘concerted activities for the purpose of collective bargaining or other mutual aid or protection,’ ” Id. at 457.

We find this reasoning unpersuasive. Even assuming that the 24-hour clause prohibits the discharge of employees who participate in an unauthorized walkout lasting less than 24 hours, it does not follow, as a matter of sound construction or of logic, that such a walkout is thereby excepted from the no-strike provision of the agreement and is, therefore, protected by the Act. Article 28, section 5, of the agreement forbids all work stoppages “except as specifically permitted under the provisions of Article 8.” Article 8, section 7, clearly creates an exception for cases where a party has failed to comply with an arbitrator’s award. However, there is nothing in the language of Article 8, section 9, that specifically permits an unauthorizes walkout of less than 24 hours’ duration. Furthermore, no intent to do so can be inferred from a prohibition of discharge during such a walkout. The purpose of that prohibition would seem to be to give the employees who participate in an unauthorized work stoppage a day to reconsider their action before being subject to the extreme penalty of discharge. However, there is no question that under the terms of Article 8, section 9, the Company retains the power to impose reasonable discipline short of discharge upon employees who participate in an unauthorized work stoppage lasting less than 24 hours. That provision is consistent with the other terms of the agreement only on the assumption that such a strike is still illegal under the agreement. While it is true' that the source of that illegality may be the unauthorized nature of the strike, rather than the work stoppage itself, the policy behind the language of Article 8, section 9, can hardly be said to permit strikes of less than 24 hours’ duration. Thus, the strike in this case was in violation of the no-strike clause of the collective bargaining agreement and, hence, was not protected by the Act.

For the foregoing reasons, we hold that in discharging the casual drivers who participated in the walkout of November 17-18, 1971, the Company did not commit an unfair labor practice as defined in section 8(a)(1) of the Act. The Company’s petition to review and set aside the March 12, 1973, order of the Board will, therefore, be granted and the Board’s cross-application for enforcement of that order will be denied.

      . “ARTICLE 8
      Grievance and Arbitration Procedure Section 1.
      Grievances involving disputes concerning the application or interpretation of the express terms of this Agreement shall be handled in the manner provided for by this Article.
      * * * * *
      Section 7.
      The decision of the arbitrator shall be final and binding upon all parties. Failure to comply with arbitrator’s award within ten (10) days after receipt thereof shall permit either party legal and/or economic recourse.
      * * * * *
      Section 9.
      It is further mutually agreed that the Local Union will within two (2) weeks of the date of the signing of this Agreement serve upon the Employer a written notice, which notice will list the Union’s authorized representatives having the sole authority to act for the Union in calling or instituting strikes or any stoppage of work which are not in violation of this Agreement and the Union shall not be liable for any activities unless so authorized. It is further agreed that in all cases of an unauthorized strike, slowdown, walk out or any unauthorized cessation of work in violation of this Agreement, the Union shall not be liable for damages resulting from such unauthorized acts of its members. While the Union shall undertake every reasonable means to induce such employees to return to their jobs during any such period of unauthorized stoppage of work mentioned above, it is specifically understood and agreed that the Employer, during the first twenty-four (24) hour period of such unauthorized work stoppage, shall have the sole and complete right of reasonable discipline short of discharge and such union members shall not be entitled to or have any recourse to any other provisions of this Agreement. After the first twenty-four (24) hour period of such stoppage and if sucb stoppage continues, however, the Employer shall have the sole and complete right to immediately discharge any Union member participating in any unauthorized strike, slowdown, walk out, or any other cessation of work, and such Union member shall not be entitled to or have any recourse to any other provisions of this Agreement.”
      “ARTICLE 11
      Discharge or Suspension
      Section 1. Cause for Dismissal or Suspension
      No employee may be dismissed or suspended without just cause, except for lack of business.
      Nothing shall prohibit Union from investigating any dismissal or suspension and resorting to the grievance procedure provided in Article 8. Until the case has been discussed with the Business Agent, no employee may be dismissed or suspended except (a) where lack of business causes the dismissal or suspension, or (b) where the provisions of this Article provide for immediate discharge.
      # * # * *
      The parties agree that causes for dismissal without first discussing the matter with the Business Agent, shall be the following.
      1. Calling an unauthorized strike or walkout.”
      “ARTICLE 28
      Mutual Guarantees
      Section 5.
      All grievances shall be processed in orderly fashion through the steps provided in Article 8 of this Agreement. There shall be no threats by any Steward, Business Agent, Employer or his representative. There shall be no work stoppages or threats thereof except as specifically permitted under the provisions of Article 8.”

      . Under the terms of the agreement, the casual drivers were unable to acquire seniority or permanent status. Although the Company had in the past granted permanent status to casual drivers with longer service, this practice had been stopped two years before. Further discontent stemmed from the claim of the casual drivers that they had been denied access to the contractual grievance procedure, having allegedly been advised by their union that they had no right to file grievances except witli regard to “monetary” matters. Other complaints against the Company related to: (1) the requirement that the casuals sign employment forms which did not contain the name of the driver replaced and that they sign these forms in blank when working Saturdays (not a regular work day), thereby depriving them of the opportunity of acquiring eligibility for permanent status; (2) the denial of three days’ work during a holiday week to the casual drivers, thus depriving them of holiday pay under the contract; (3) the dispatching of casuals without regard to their length of service; and (4) the denial of sufficient work to casuals in a quarterly period to qualify them for health and welfare benefits.

      . McIntyre testified that he was faced with a November 17 deadline for negotiations with another union, not involved in this proceeding, and that November 19 was the earliest day he could meet with the Union.

      . The Administrative Law Judge found'that these activities constituted a work stoppage (p. 9 of Administrative Law Judge’s Decision). Furthermore, although under Article 11, Section 1, only the calling of an unauthorized strike constitutes cause for immediate discharge, the Administrative Law Judge also found that this language was intended to outlaw unauthorized strikes, not merely the calling of such strikes, and that in any event, since the casuals acted concertedly in their decision to “demonstrate,” it may be said that they called the strike by common consent (p. 14 of Administrative Law Judge’s Decision). Neither of these findings has been made an issue on appeal.

      . The Board’s order requires the Company to cease and desist from threatening to impose the penalty of discharge on employees for engaging in unauthorized work stoppages lasting less than 24 hours, and in any like manner interfering with, restraining or coercing employees in the exercise of section 7 rights. Affirmatively, it requires the Company to restore each of the casual employees to his former position, without prejudice to any of the rights and privileges enjoyed by them, to make them whole for any loss of earnings they may have suffered by reason of the Company’s action, and to post the appropriate notices.

      . Of course, if the Board’s interpretation of this provision is correct, then these discharges would violate the terms of the agreement. However, the discharge of employees in violation of an agreement does not necessarily constitute a violation of section 8(a) (1), which makes it an unfair labor practice for an employer to interfere with, restrain, or coerce employees in the exercise of the rights guaranteed in section 7. If the activity for which employees are discharged is not protected by section 7, there can be no violation of section 8(a)(1). In that case, the employees’ remedy for any breach of the agreement would be under either the terms of the agreement (see note 7, infra) —a procedure that makes use of the expertise of an arbitrator in interpreting the terms of the agreement (of. Collyer Insulated Wire, 192 N.L.R.B. No. 150 (1971))—or section 301 of the Labor Management Relations Act, 29 U.S.C. § 185.

      . “R. C. Can concerned a very narrow set of circumstances in which the minority action was directed toward a specific previously considered and articulated union objective. If union objectives are characterized in general terms—such as wages, job security, conditions of employment and the like—one can assume that in the great majority of instances minority action will be consistent with one or more of those objectives. If R. C. Gan is not applied with great care it would allow minority action in a broad range of situations and permit unrestrained undercutting of collective bargaining.” N.L.R.B. v. Shop Rite Foods, Inc., supra, at 790.

      . Article 8, section 1, states : “Grievances involving disputes concerning the application or interpretation of the express terms of this agreement shall be handled in the man ner provided for by this Article.” In addition, Article 11, section 1, provides: “Nothing shall prohibit Union from investigating any dismissal or suspension and resorting to the grievance procedure provided in Article 8.” Furthermore, the Board specifically found as follows:
      “The contention that casual drivers were denied access to the grievance procedure is not borne out by the record. The record fairly establishes that shop stewards have actually presented grievances, albeit orally and informally, with favorable results, without resorting to the grievance procedure. More importantly, at least one formal grievance, involving the very issue for which the casuals engaged in the work stoppage, was carried to the arbitration stage and settled, without the intervention of the arbitrator, by achieving what the casuals sought here, namely the assignment of casual drivers as permanent drivers on the seniority list.” (P. 13 of Administrative Law Judge’s Decision.)

      . We note that the Company representative, Mr. McIntyre, had offered to meet with the Union to discuss the casual drivers’ grievances on November 19, on the condition that the casual drivers not stage a walkout. See p. 391 and note 3, supra. This offer apparently was never communicated to the casual drivers by the Union representatives. However, the Company cannot be held responsible for the lack of communications between the employees and their chosen bargaining agents and should not be made to suffer the consequences thereof.

      . In its brief, Food Employer’s Labor Relations, Inc., amicus curiae, argues that since the question of whether there is a violation of the Act depends exclusively on an interpretation of the agreement, the Board should have followed its decision in Collyer Insulated Wire, 192 N.L.R.B. No. 150 (1970), and deferred to the decision of the arbitrator provided for in the grievance procedure of the agreement. The Board recognized in Collyer that contract interpretation is a function peculiarly within the expertise of an arbitrator and that deferral is appropriate where “it appears that the arbitral interpretation of the contract will resolve both the unfair labor practice issue and the contract interpretation issue in a manner compatible with the purposes of the Act.” Subsequently the Board held that questions involving waiver of the right to strike, such as those presented here, may be appropriate for deferral. National Tea Co., 198 N.L.R.B. No. 62 (1972).
      We do not think that these past application's of its deferral policy required the Board to defer to arbitration in this case. In National Tea the unfair labor practice charge was filed after grievances had been processed through to a neutral tribunal’s award upholding the discharges. The Board’s deferral there involved the application not of the Collyer doctrine but rather of the principles of Spielberg Mfg. Co., 112 N.L.R.B. 1080 (1955), concerning deferral to an outstanding arbitral award. In this case the arbitration process vfas not even invoked, much less completed. Furthermore, the Board has indicated that it will not rule on deferral issues in the abstract; it requires that the party seeking deferral raise it as an affirmative defense, before the Administrative Law Judge, stating why deferral is appropriate for a particular case. See MacDonald Engineering Co., 202 N.L.R.B. No. 113, CCH Labor Law Rep. ¶ 25,192 at p. 32,459 (1973) ; Montgomery Ward & Co., 195 N.L.R.B. No. 136 at p. 725, n. 1 (1972). In its brief, the Board suggests two reasons for this rule. First, the failure to raise such a defense may indicate that neither party to the contract desires arbitration—a factor clearly mitigating against deferral. Second, the rule assures that the Board will have the opportunity of deciding whether to defer to arbitration after hearing all the facts relevant to the appropriateness of deferral in each particular situation. In this case, however, the Company did not raise the deferral issue before either the Administrative Law Judge or the Board, but rather defended on the merits, urging the acceptance of its interpretation of the 24-hour clause. We therefore do not feel that this is a ease iñ which the Board was required to defer to arbitration.

      . The language of the Board’s finding makes its reasoning somewhat unclear since it simply runs together the issues of whether the 24-hour clause of Article 8, section 9, prohibits discharge and of whether it creates an exception to the no-strike provision: “Reasonably interpreted, viewed in light of the evident purpose of the provision, it is found that the proviso excludes from the prohibition against work stoppages those of less than 24 hours as a cause for immediate discharge.” (P. 16 of Administrative Law Judge’s decision.)

      . Indeed, the Board specifically found that the unauthorized work stoppage of the casual drivers was “in violation of the no-strike clause” (p. 9 of Administrative Law Judge’s decision). This finding flatly contradicts the Board’s holding that the strike was protected activity (see p. 12 and note 10, supra). That contradiction serves to highlight the confusion in the Board’s analysis because of its failure to separate the question of the Company’s right to discharge striking employees during the first 24 hours of an unauthorized work stoppage from that of whether strikes of less than 24 hours’ duration are excepted from the no-strike provision of the agreement.