author: INGRAHAM, Circuit Judge:

text:
    Albert BROWN, Plaintiff-Appellant, v. FINANCIAL SERVICE CORPORATION, INTERNATIONAL, a Georgia corporation, Defendant-Appellee.
    No. 72-3002.
    United States Court of Appeals, Fifth Circuit.
    Feb. 7, 1974.

      Arnold D. Schatzman, Herbert Stettin, Miami, Fla., for plaintiff-appellant.
    Carl H. Hoffman, Miami, Fla., for defendant-appellee.
    Before AINSWORTH, DYER and IN-GRAHAM, Circuit Judges.
   INGRAHAM, Circuit Judge:

This Florida diversity case presents questions of basic contract law. Plaintiff-appellant Albert Brown filed suit against Financial Service Corporation, International (FSC), a Georgia corporation, alleging that it breached its contract to repurchase certain stock which had been issued to Brown while he was employed by the company’s wholly owned subsidiary, Financial Service Corporation of America. FSC counterclaimed for the balance due on a promissory note held by it and executed by Brown in November 1968 shortly after he became employed by the company. Although we fundamentally disagree with the district court’s reason for granting summary judgment to FSC on Brown’s claim, we affirm that decision and also affirm the lower court’s summary judgment award to FSC on its counterclaim.

I.

The operative facts are undisputed. In November 1968 negotiations between FSC and Brown culminated in Brown’s employment by the company as a senior vice president and director of its subsidiary, Financial Service Corporation of America. The compensation package arranged for Brown included a $40,000 a year salary plus bonuses, a new or used Cadillac, and, most significantly for our purposes, an agreement to sell Brown 4000 shares of FSC’s non-publicly held stock at $5 a share. Brown began work in mid-November of 1968. In late May 1969 William Branch, FSC’s assistant secretary and the person in charge of issuing the company’s stock, wrote a letter to Brown concerning the 4000 shares of stock to be issued pursuant to the employment bargain. This letter summarized the ways in which the stock purchase could be financed, as well as describing the various steps necessary to finalize the transaction. Enclosed with this letter was the Stock Purchase Agreement which set forth the specific terms of the purchase. This document is the source of the present difficulties.

The controversial provision deals with the disposition of the stock when the purchaser ceases to work for the company. For ease of reference we will call this the repurchase provision, and it provides:

“When, for any reason, Representative’s employment with the Company terminates, the Company shall have one year from the date of such termination to repurchase any shares sold under this agreement for their fair market value at the time of such repurchase, which fair market value shall be the price adopted for the Company’s stock by the Board of Directors of the Company in the most recent meeting of the Board preceding the termination of Representative’s employment at which such action was taken. This option to repurchase shall be exercised by the Company sending written notice of its intent to exercise to Representative at his last address as shown on the Company’s records. Such notice shall specify the time, place, and manner in which the repurchase shall occur. Thereafter, at the time and place and in the manner so specified the Company shall make payment for the stock to be repurchased in cash or by check and Representative shall, immediately upon making of such payment, deliver to the Company valid title to said stock and all certificates evidencing said stock free of all claims, liens, and encumbrances of any nature whatever.”

In response to Branch’s letter Brown called Branch sometime between May 29, 1969 and June 6, 1969, to discuss the stock purchase transaction. Although the content of this conversation is in dispute, all agree that it took place and that it precipitated a letter from Brown to Branch which accompanied the signed stock purchase agreement when it was returned, via the mails, to Branch’s office in Atlanta. This cover letter, dated June 6, 1969, discussed several matters relating to the purchase, but the significant element at this point is the reference to the repurchase or termination of employment clause; Brown wrote as follows:

“I wanted also to confirm the discussion you and I had yesterday on the phone on questions that I had raised. Referring to the termination of employment clause in the stock purchase agreement, while it is stated that the company shall have one year to repurchase any shares, we agreed that the company would repurchase almost immediately after termination. if

Branch received Brown’s letter but took no further action other than to issue the 4000 shares of stock once the financing had been arranged.

In the fall of 1969 the relationship between Brown and FSC began to deteriorate and it was agreed, on what appear to be rather amicable terms, that Brown’s employment would end on January 15, 1970. For reasons not entirely clear and unnecessary to relate in order to resolve the present appeal, Brown and FSC encountered problems in settling up following his termination. Although FSC was at one time willing to repurchase the stock for $10 a share and hold the proceeds until a final determination was made of amounts allegedly owed to FSC by Brown, Brown would not agree to this offer. FSC subsequently decided that its. financial condition was such that it would not repurchase the stock. Left with 4000 shares of apparently unmarketable stock, Brown filed suit in November 1970 seeking damages from FSC for the alleged breach of its contract to repurchase the stock. He also alleged that the company had failed to sell him the additional 1000 shares mentioned in the employment agreement, thus reasoning that FSC was liable for the difference between the purchase price of this stock and the price due upon repurchase. In addition to denying liability FSC counterclaimed for $11,600, asserting that Brown was liable for this amount as the unpaid balance on a promissory note executed by Brown and held by FSC.

After the parties stipulated that the case was a proper one for summary judgment, the trial court granted FSC’s motion in Brown’s suit and in its counterclaim. The court decided that the pa-rol evidence rule precluded it from considering anything other than the stock purchase agreement to determine whether FSC had a duty to repurchase Brown’s stock. The court reasoned as follows:

“Upon reading and analyzing paragraph 3 [the repurchase clause] the Court is convinced that the company was not obligated to repurchase but merely possessed an option. There is no ambiguity in the stock purchase agreement; its terms are clear. The cover letter of June 6, 1969 and any conversations between Brown and Branch prior to [or] contemporary to the stock purchase agreement may not vary its terms. The parol evidence rule . . . precludes varying an unambiguous written agreement by evidence of a contemporaneous oral understanding. . . .”

Rejecting Brown’s defense that he was not liable for the balance due on the note because FSC had breached the employment agreement of which the note was an integral part, the court held for FSC on its counterclaim.

The significant issue on appeal is, stated broadly, whether the trial court erred in holding that FSC did not have a duty to repurchase the 4000 shares of stock. Although we take an altogether different view of the case than did the trial court, we reach the same result regarding FSC’s obligation to repurchase. Other issues raised concern FSC’s asserted liability on the 1000 additional shares of stock and the propriety of the court’s holding on the counterclaim. Because of our resolution of the repurchase issue against Brown, there is no need to consider his contention relative to the 1000 shares, and we affirm without further discussion the court’s holding that Brown is liable on the promissory note.

II.

The flaw in the trial court’s analysis is its implicit conclusion that the stock purchase agreement represented the complete agreement of the parties and that therefore Brown’s cover letter had no legal significance according to the parol evidence rule. The parol evidence rule is a rule of the substantive law of contract, and its purpose is to preserve the sanctity of a written agreement once it is determined that the writing fully states the agreement of the parties. See South Florida Lumber Mills v. Breuchaud, 51 F.2d 490 (5th Cir., 1931), cert. den., 284 U.S. 659, 52 S.Ct. 37, 76 L.Ed. 558; Everglade Lumber Co. v. Nettleton Lumber Co., 111 Fla. 333, 149 So. 736 (1933); Sears v. James Talcott, Inc., 174 So.2d 776 (Fla. App.1965). Of necessity then the first question is whether the writing fulfills this function so as to be an integration of the parties understanding. Carolina Metal Products Corp. v. Larson, 389 F.2d 490 (5th Cir., 1968); Florida Capital Corp. v. Robert J. Bissett Const. Inc., 167 So.2d 595 (Fla.App.1964); see G. Grismore, Principles of the Law of Contracts, § 94 (J. Murray ed. 1965). To answer this question a court should consider the writing as well as 'the circumstances surrounding its execution, Florida Capital Corp. v. Robert J. Bissett Const. Inc., supra, at 599, and parol and extrinsic evidence may be used in making this determination. Carolina Metal Products Corp. v. Larson, supra, 389 F.2d, at 493. We hold that Brown’s cover letter should have been considered as a part of the parties’ agreement concerning the terms of the stock purchase. See Johnson v. Smith, 84 So.2d 722 (Fla.1956); Holcomb v. Bardill, 214 So.2d 522 (Fla.App.1968).

Without doubt a covering letter may constitute a part of the total agreement. Gateway Co., Inc. v. Charlotte Theaters, Inc., 297 F.2d 483 (1st Cir., 1961); see Johnson v. Smith, supra; Fraser v. Lewis, 187 So.2d 684 (Fla. App.1966). Here the cover letter itself clearly establishes that its purpose was to summarize in writing the content of a telephonic conversation concerning the purchase agreement; the cover letter specifically discusses terms of the stock purchase agreement. Moreover, the letter not only accompanied but was a cover to the signed stock purchase agreement when it was returned to Branch’s office in Atlanta, And finally, Branch realized that at least to some extent the letter modified the terms of the purchase agreement. In short, the existence of the cover letter and the circumstances surrounding the execution of the stock purchase agreement preclude the conclusion that it was intended by the parties as the final memorial, the integration, of their understanding concerning the terms of the stock sale. Consideration of the cover letter would not, therefore, violate the parol evidence rule because the cover letter was a part of the contract. For this reason it was erroneous for the trial court to reject the cover letter when determining the rights and liabilities of the parties under the purchase agreement.

III.

The decision that the parties’ contract is embodied in both the cover letter and the stock purchase agreement does not, of course, end the matter. For now there are arguably inconsistent contractual provisions dealing with the same subject matter — that is, the rights and duties of the parties on the purchaser’s termination of employment. We agree with the trial court that the stock purchase agreement standing alone does not impose a duty on the company to repurchase Brown’s stock. The problem is that the cover letter says “we agree that the company would repurchase almost immediately after termination.” Interpreting these words in the manner urged by Brown would lead to the conclusion that this language means that the company had an obligation to repurchase the stock and that this repurchase must occur immediately after termination. Two duties are thus created: (1) the duty to repurchase; and (2) the duty to do so immediately after termination. Obviously this interpretation is in direct conflict with the interpretation of the agreement as giving the company an option to repurchase but imposing no affirmative duty.

There is, however, another interpretation which could be accorded to this language from the cover letter. Rather than treating this statement as creating two duties, it could-be interpreted as imposing only a duty on the company to exercise its option immediately on termination. In the circumstances of this case it is this interpretation which we adopt as representing the intention of the parties at the time this contract was consummated. We reach this conclusion on the basis of the following analysis in which we apply several well established principles for the interpretation and construction of contracts.

The first principle is that in interpreting contractual language to determine the rights and obligations of the parties to the agreement the contract must be considered as a whole in an effort to give meaning to all of its provisions. See Union Central Life Ins. Co. v. Neuhoff, 157 Fla. 98, 24 So.2d 906 (1946); Blackshear Mfg. Co. v. Fralick, 88 Fla. 589, 102 So. 758 (1925). See generally 3 Corbin on Contracts, § 549 (1960). Florida courts have long recognized that “[i]f clauses in the instrument are repugnant to each other, they must be reconciled, if possible . . . . ” McNair & Wade Land Co. v. Adams, 54 Fla. 550, 45 So. 492, 493 (1907). To interpret the language in Brown’s letter as creating a duty in the company to repurchase his stock would render completely nugatory one of the crucial provisions of the document which he signed and returned to FSC. We would have to totally disregard the language in the purchase agreement conferring an option to the company to repurchase. By interpreting the disputed language in Brown’s letter as going only to the time of repurchase rather than establishing such a duty, we afford meaning and significance to all parts of the contract. This interpretation also fulfills our duty to reconcile provisions which at first glance appear repugnant to each other.

The principle that conflicting provisions should be reconciled in order to give meaning to all parts of the contract might not warrant interpreting Brown’s language as we have. Another established rule of contract interpretation, however, is that courts may look to subsequent action of the parties to determine the interpretation that they themselves placed on the contractual language. LaLow v. Codomo, 101 So.2d 390 (Fla.1958). The conduct of both parties subsequent to Brown’s termination leaves us convinced that neither FSC nor Brown believed that the company had an affirmative duty to repurchase his shares.

The voluminous record made on the parties’ cross-motions for summary judgment is replete with correspondence from Brown to FSC and vice versa. A good portion of these communications deal directly with the disposition of Brown’s stock. Understandably since Brown would have received $40,000 from the sale, he was anxious for this to occur so that he could retire the note negotiated to finance the purchase in the first place. But none of his many letters exhorting the company to hurry up and repurchase his stock speak in terms of an affirmative obligation on the part of FSC. Likewise, when FSC offered to repurchase and hold the proceeds until the final accounting was completed, the offer spoke in terms of FSC’s right to repurchase instead of a duty to do so. Brown even mentioned in two letters to two different officers of FSC that he might hold the stock until the company went public. The extensive correspondence between Brown and FSC simply does not support the interpretation now sought by Brown. Considering the contract as a whole, the circumstances surrounding its execution, and the conduct of the parties subsequent thereto, our conclusion is that this contract does not impose a duty on FSC to repurchase the 4000 shares of stock issued to Brown.

The judgment of the district court is affirmed.

      . Financial Service Corporation of America is also a Georgia corporation, but is registered as a foreign corporation in Florida and does business there. It appears that FSCA is a licensed broker/dealer, a member of the Midwest and Boston Stock Exchanges and is engaged in the sale of mutual funds, securities and other related investments. Mr. Brown was the company’s sales manager for Florida and officed in Fort Lauderdale. He was a Florida citizen at the time this law suit was filed. It is unclear from the record whether Mr. Brown was the senior FSCA official in Florida, but it is safe to say that he had a significant hand in the company’s operations there.

      . The employment contract also stated that 1000 additional shares of FSC stock would be sold to Brown when they became available. Subsequently this stock was available at a price of $7 a share. For reasons we are unable to discern either the company failed to offer this stock to Brown or he failed to purchase it.

      . The full text of this letter is as follows:
      FINANCIAL SERVICE CORPORATION
      May 29, 1969
      Mr. Albert A. Brown 4100 Galt Ocean Drive Ft. Lauderdale, Florida 33308 Dear Al:
      In accordance with your previously expressed interest in purchasing shares of Financial Service Corporation, International stock, we are enclosing the following forms :
      Sign and Return
      (1) Stock Purchase Agreement (2 copies) 1
      (2) Promissory Note (2 copies) 1
      (3) Stock Powers (1) 1
      (4) Affidavit (2 copies) 1
      (5) Offering Circular
      Do not return

        All items which you are to execute must he received in our office within ten (10) days from the date of this letter. If these documents have not been returned, we will assume that you are no longer interested in purchasing the stock.
      The prospectus mentions a price per share of $5.00. The value of FSCI stock is determined by its Board of Directors at regular intervals. The price per share of this offering to you was set at $5.00 on July 1, 1968.

        The Stock Purchase Agreement outlines the terms and conditions of your investment in FSCI stock. Please read it carefully..
      There are several methods which can be used to pay for your FSCI stock. 1. Obviously, a cash payment will be the least expensive to you. If you choose this method, please return your check with the other documents.
      2. Financing through a local bank connection may be your next choice. It is probable that more attractive terms are available locally, plus the advantage of strengthening your personal banking relationship. If this method is to be used, a check should also accompany the above executed documents.
      (R-721)
      3. You may wish to avail yourself of the financing plan available through the Citizens and Southern Bank in Atlanta, Georgia, which is described on the last page of your Stock Purchase Agreement, Appendix A.
      4. Finally, a combination of the above can be arranged.
      If you select option 3 or 4, you must execute the Note and Stock Powers which are enclosed. The Note evidences your agreement to pay the balance of the purchase price not paid in cash at the time of your purchase. The security for the Note will be your FSCI stock. Therefore your stock certificates will be held as collateral until the Note is paid in full. A Stock Power is included for each certificate that will be issued.
      The Affidavit evidences your understanding of the restrictions placed on the transferability of the shares you propose to purchase. This document is necessary because of State and Federal security laws.
      When you have executed these documents and returned them to us as outlined above, we will issue certificates in your name and either mail them to you or deliver them to the Bank depending on the payment method you select.
      Very truly yours, /s/ William H. Branch, Jr. Assistant Secretary

      . This letter reads:
      June 6, 1969
      Mr. William Branch
      Financial Secretary
      Financial Service Corp. of America
      Financial Service Building
      148 Cain Street
      Atlanta, Georgia 30303
      Dear Bill:
      As per your letter of May 29, 1969, I am indicating by the enclosures — stock purchase agreement and affidavit — my desire to purchase the 4,000 shares of stock indicated on the agreement. I have not returned the promissory note or stock powers because I should like very much to finance this purchase locally if I can. I have just not had the time this week to do anything along these lines — but I am certainly intent on purchasing this stock through a loan whether it be through a local banking institution or through an Atlanta bank.
      I wanted also to confirm the discussion you and I had yesterday on the phone on questions that I had raised. Referring to the termination of employment clause in the stock purchase agreement, while it is stated that the company shall have one year to repurchase any shares, we agreed that the company would repurchase almost immediately after termination. We also agreed that the market value of the stock was actually determined twice each year — in June and December. I referred to this item because of the reference in that same clause No. 3 in the stock purchase agreement which refers to the meeting of the Board “at which such action was taken”.
      Furthermore, we also agreed that the 15% charge referred to. in clause No. 1 of the agreement for collection by an attorney would only be in effect if the principal and interest of the note were not collectible.
      We also agreed that if I were to anticipate payment of the note or of any portion of the note, I would receive a corresponding refund or reduction of interest charges.
      Referring to paragraph No. 4, miscellaneous, we agreed that the reference to either party having the right to offset or cancel existing indebtedness, referred to a standard approach to the cancelling of indebtedness by offsetting it with other sources of dollars.
      (R-725) The only other comment made in our discussion was that this stock purchase agreement was different from the one issued to some men in the company which called for repurchase of a portion of a man’s stock holdings if he did not earn specific or required amount of dollars during a prior twelvemonth period. This arrangement did not apply to me in that this agreement calls for the repurchase by the company at a fair market value at the time of such repurchase.
      By the way, I am including two copies of the stock purchase agreement since I would like a completed one returned to me for my files.
      Kindest regards, FINANCIAL SERVICE CORP. OF AMERICA ALBERT A. BROWN Senior Vice President AAB/jp Enclosures

      . The purchase of the 4000 shares was financed by Brown’s note for $20,002. The stock served as collateral for this loan and immediately after its execution FSC discounted the note with an Atlanta bank. In March 1970, when FSC offered to repurchase Brown’s shares, the note had a payoff of $18,059.87.

      . Although not before us on this appeal there is a related suit filed by Financial Service Corporation of America against Brown for damages allegedly sustained while Brown was in the company’s employment.

      . As to the 1000 shares Brown claims that he should have been issued this stock at $7 a share and that the company was obligated to repurchase at $10 a share. See note 2, supra. He would then have realized a $3000 profit, and it is this amount which he claims as damages. Since we hold that there is no obligation to repurchase, his claim is without merit. According to the district court’s opinion FSC is willing to sell him 1000 shares at $7 a share.

      . Perhaps our conclusion in this regard will be clearer if we backtrack to the question of whether there was a contract at all. Branch’s initial letter was clearly an offer to sell 4000 shares of stock to Brown. This letter included the terms of the purchase and covered such things as offering price, the number of shares, the methods by which the purchase could be financed, and other relevant considerations concerning the transaction. If Brown had signed the stock purchase agreement at this point and returned it without further action, then FSC would have had an acceptance of its offer. But Brown did not do this; instead he called Branch and discussed with him certain aspects of the purchase, including but not limited to, what would happen in the event he left FSC’s employment. Brown’s cover letter is an outward manifestation of his failure to assent unequivocally to the terms of the stock purchase agreement. As such, Brown’s action of signing the purchase agreement and attaching his cover letter was nothing more than a counter offer. FSC would have been warranted in refusing to issue the -stock to Brown until it liad his assurance that he agreed without reservation to the terms of the purchase agreement. But Branch, although realizing that Brown did not agree completely, issued the stock to him anyway. This act was legally an acceptance of the terms of Brown’s counter offer. It is clear then that the parties contract includes both the signed stock purchase agreement and the cover letter.

      . As Judge Tuttle once noted:
      “It is axiomatic that the first task of a court in contract interpretation is determining from the agreement itself and the ' surrounding circumstances what the intent of the parties was. If, after examining all these sources of information, it is still not possible to determine the intent of the parties, courts can rely on rules of law which purport to determine what, in certain circumstances the parties intended, when, in fact, no one really knows what was intended. . . ” Southern Bell T & T v. Florida East Coast Ry. Co., 399 F.2d 854, 856 (5th Cir., 1968).

      . See note 5, supra.

      . We agree with FSC’s statement in its brief that this offer, made on March 12, 1970, to repurchase was not an attempt to exercise its option but was only an effort to resolve its dispute with Brown.


source: Caselaw Access Project

author: AINSWORTH, Circuit Judge:

license: Public Domain

text:
    In the Matter of The Complaint of Gypsum Carrier, Inc., Bareboat Charterer, and Oceanic Carrier, Inc., Owner of the MOTOR SHIP PACIFIC CARRIER, for exoneration from or limitation of liability. GYPSUM CARRIER, INC., Third Party Plaintiff-Appellant, v. UNION CAMP CORPORATION, Third Party Defendant-Appellee.
    No. 73-1651.
    United States Court of Appeals, Fifth Circuit.
    Feb. 8, 1974.
    George H. Chamlee, Gustav R. Du-bus, III, Savannah, Ga., for Gypsum Carrier, Inc.
    Kirk M. McAlpin, Atlanta, Ga., Stanley R. Wright, Jacksonville, Fla., for Union Camp Corp.
    Spencer Connerat, Jr., Savannah, Ga., for the Seaboard Coast Line Railroad Co.
    Fred S. Clark, Savannah, Ga., Manuel A. Sequeira, Jr., New York City, for Underwriters of Seaboard Coast Line Railroad Co.
    Edward T. Brennan, Savannah, Ga., for M/Y Mariner & M/V Costos Frange.
    W. J. Snowden, Moore-McCormack Lines, Inc., New York City, Courtney W. Stanton, Asst. Atty. Gen. of Ga., Atlanta, Ga., for Ga. Ports Authority.
    Thomas S. Gray, Jr., Savannah, Ga., for Hamburg-Suderamerikanische Dampsehiffahrts Gesellsehaft.
    Gignilliat & Abbott, Savannah, Ga., for Aztec Trading Co. S. A.
    Julian F. Corish of Corish, Smith, Remler & Moore, Savannah, Ga., for American Oil Co.
    Before GEWIN, AINSWORTH and MORGAN, Circuit Judges.
   AINSWORTH, Circuit Judge:

The question for decision in this matter is whether there is jurisdiction in •admiralty of claims of the bareboat charterer and the owner of a vessel against a shore-based paper mill, engaged in a non-maritime manufacturing activity, on allegations that smoke emitted from the mill so obstructed navigation as to cause the vessel to collide with a railroad bridge spanning the waterway on which it was proceeding to sea.

-On April 23, 1971, the M/S PACIFIC CARRIER, owned by Oceanic Carrier, Inc., and under bareboat charter to Gypsum Carrier, Inc., appellants herein, discharged a cargo of gypsum rock at Savannah, Georgia, and was proceeding downstream on the Savannah River ship channel bound for Halifax, Nova Scotia.-As the vessel approached a railroad bridge spanning the channel, it suddenly became engulfed in smoke, fumes and gases emanating from the smokestacks of a pulp and paper mill owned by Union Camp Corporation, situated on the bank of the channel immediately upriver from the bridge, causing loss of all visibility by the vessel’s crew and resulting in a collision by the vessel with the bridge. Both bridge and vessel sustained heavy damage.

Seaboard Coast Line Railroad Company, owner of the bridge, immediately filed an in rem action for damages against the vessel and caused its seizure. Gypsum Carrier, Inc. thereafter instituted the present exoneration and limitation of liability proceeding (pursuant to 46 U.S.C. §§ 183-189), in which Oceanic Carrier, Inc., the shipowner, intervened. Gypsum and Oceanic later filed in this limitation proceeding a third-party complaint and cross-claim, respectively, under Rule 14(c), Fed.R.Civ.P., against Union Camp, the allegations contained therein charging that the smoke emitted by the paper mill interfered unreasonably with the vessel’s use of the waterway and constituted a nuisance and an obstruction to navigation. In the cross-claim of Oceanic there were further allegations that Union Camp’s activities violated the Georgia Air Quality Control Act (Chapter 88-9, Code of Georgia) as well as federal regulations pertaining to navigation lights and signals (33 C.F.R. §§ 68.01-10 et seq.). The acts complained of were said to be the proximate cause of the collision. The parties sought damages and recovery over, and that all judgment of claimants in the limitation proceeding be entered against third-party defendant Union Camp under Rule 14(c), Fed.R.Civ.P.; and Oceanic sought in the event of a finding of mutual fault divided damages in accordance with the admiralty rule.

This appeal arises out of the district court’s order sustaining Union Camp’s motions to dismiss for lack of admiralty jurisdiction, the third-party complaint and cross-claim of shipowners against it. An interlocutory appeal was authorized under 28 U.S.C. § 1292.

We have carefully analyzed the order of the district court which dismissed the impleader and cross-claim for lack of admiralty jurisdiction over Union Camp, as well as the two decisions on which the district judge apparently justified his conclusions, namely, Executive Jet Aviation, Inc. v. City of Cleveland, Ohio, 409 U.S. 249, 93 S.Ct. 493, 34 L.Ed.2d 454 (1972), and Peytavin v. Government Employees Insurance Company, 5 Cir., 1972, 453 F.2d 1121. In our view, the cited cases not only do not support the conclusion reached by the district court, but to the contrary sustain admiralty jurisdiction herein. Accordingly, we reverse the order of the district court dismissing the impleader and cross-claim of shipowners against Union Camp.

A secondary issue raised below is whether the doctrine of ancillary jurisdiction extends to admiralty as well as to civil impleader so as to dispense with any requirement of an independent basis of admiralty jurisdiction to implead a third party under Rule 14(c), Fed.R. Civ.P. We do not reach this question inasmuch as the maritime nature of the claims herein furnishes the independent basis required for admiralty jurisdiction under the rule.

In Executive Jet, supra, a jet airplane, taking off from an airport adjacent to Lake Erie in Cleveland, Ohio, struck a flock of seagulls, causing it to crash and sink in the navigable waters of nearby Lake Erie. The owners of the airplane brought suit in admiralty for its loss. The question before the Supreme Court was “whether the petitioners’ suit for property damage to the aircraft, allegedly caused by the respondents’ negligence, lies within federal admiralty jurisdiction.” 409 U.S. at 250, 93 S.Ct. at 495. The Court held that it did not, concluding that “maritime locality alone is not a sufficient predicate for admiralty jurisdiction in aviation tort eases,” 409 U.S. at 261, 93 S.Ct. at 501, and after a comprehensive discussion of the complexities of problems involved in the application of the strict locality test, said further:

“All these and other difficulties that can arise in attempting to apply the locality test of admiralty jurisdiction to aeronautical torts are, of course, attributable to the inherent nature of aircraft. Unlike waterborne vessels, they are not restrained by one-dimensional geographic and physical boundaries. For this elementary reason, we conclude that the mere fact that the alleged wrong ‘occurs’ or ‘is located’ on or over navigable waters —whatever that means in an aviation context — is not of itself sufficient to turn an airplane negligence case into a ‘maritime tort.’ It is far more consistent with the history and purpose of admiralty to require also that the wrong bear a significant relationship to traditional maritime activity. We hold that unless such a relationship exists, claims arising from airplane accidents are not cognizable in admiralty in the absence of legislation to the contrary.” (Emphasis supplied.)

409 U.S. at 268, 93 S.Ct. at 504.

The holding in Executive Jet, as indicated from the foregoing language of the opinion, is confined of course to aircraft. Nevertheless, the Court spoke with approval of the increasing tendency of Congress and the courts to predicate maritime jurisdiction generally on the relationship of the wrong to maritime activities instead of on the locality of the tort alone. In this respect it said:

“In sum, there has existed over the years a judicial, legislative, and scholarly recognition that, in determining whether there is admiralty jurisdiction over a particular tort or class of torts, reliance on the relationship of the wrong to traditional maritime activity is often more sensible and more consonant with the purposes of maritime law than is a purely mechanical application of the locality test.” (Emphasis supplied.)

409 U.S. at 261, 93 S.Ct. at 501.

As an example of cases holding that admiralty jurisdiction was improperly invoked because the tort, while having a maritime locality, lacked a significant relationship to maritime navigation and commerce, the Court in Executive Jet cited Peytavin v. Government Employees Insurance Company, 5 Cir., 1972, 453 F.2d 1121, the second ease relied on by the district court in dismissing the claims against Union Camp below. In Peytavin, we concluded that a claim for whiplash injuries sustained by an automobile passenger as the result of a rear-end collision with another automobile was not within the jurisdiction of admiralty, notwithstanding the fact that plaintiff’s vehicle was parked on a floating pontoon in navigable waters. Our reasoning was that the claim lacked “substantial connection with maritime activities or interests.” 453 F.2d at 1127.

Both Executive Jet and Peytavin represent a departure from application of the strict locality rule. They stress sub-stantiality of the connection between the tort and maritime activities as a more realistic criterion. In the instant case, if locality of the tort were the only factor having a maritime connection, admiralty jurisdiction would be lacking. However, the locality of the tort, the Savannah- River channel, where the “substance and the consummation of the injury” presumably occurred, is only one maritime-connected factor. This is not one of those “borderline” problem cases, alluded to in Executive Jet devoid of any relationship between- the tort and traditional maritime activities other than location. The combination of factors in the instant case, in the context of -admiralty jurisdiction, supplies what was lacking in Executive Jet and Pey-tavin — a substantial maritime connection. Unlike the aircraft in Executive Jet and the colliding automobiles in Pey-tavin, the motor vessel PACIFIC CARRIER is by its very essence maritime. The alleged cause of its collision with the railroad bridge, i. e., the smoke emitting from Union Camp’s smokestacks, constituted a navigational hazard by obstructing the vision of the ship’s crew. The activities of the shipowners at the time of the collision were essentially maritime — the transporting of cargo. by vessel on navigable waters. Thus the fact that the agency said to have obstructed navigation here had a nonmari-time origin is irrelevant to any issue since it caused injury to a vessel then under way on navigable waters. The maritime nature of the tort is therefore undeniable. Executive Jet and Peytavin are not opposed to our holding here; to the contrary, the propriety of our determination is supported by those decisions.

Appellee makes much of the fact that its paper mill is land based and engaged in a non-maritime industry, in its attempt to avoid admiralty jurisdiction. But this fact is not decisive. See Kelly v. Smith, 5 Cir., 1973, 485 F.2d 520. In Kelly, the issue presented was whether claims for injuries inflicted on waterborne, fleeing deer poachers, by hunting rifles fired from shore by club members of a private hunting club, were within admiralty jurisdiction. We analyzed Executive Jet and Peytavin and found that under the rationale of those decisions the circumstances in Kelly were sufficiently related to maritime activities to sustain admiralty jurisdiction. “[Fjirearms — and the injuries they caused,” we said, “are not so inherently indigenous to land as to preclude any maritime connection.” 485 F.2d at 526. By analogy, smoke and the wind that blows it across a body of water, as well as the resultant hazard and obstruction to navigation, are much less inherently indigenous to land. The vesssel in Kelly was a 15-foot outboard motor boat, being used as a getaway vehicle by the escaping poachers. By comparison the vessel here is an ocean-going, bulk-cargo carrier, actively engaged in maritime commerce at the time of the collision. We emphasized in Kelly the traditional concern of admiralty for the safety of maritime commerce, saying:

“Policy militates toward admiralty jurisdiction in this case. The admiralty jurisdiction of federal courts stems from the important national interest in uniformity of law and remedies for those facing the hazards of waterborne transportation. Rifle fire directed at a vessel, albeit a small one, on a major commercial artery, and injuring the pilot, presents sufficient danger to maritime commerce for the federal courts of admiralty to assume jurisdiction . . . .” 485 F.2d at 526.

When we consider the navigational hazards caused by blinding smoke and gases, as evidenced by the extensive damage both .to vessel and bridge in this case, the Kelly parallel is clear. The tort claims of the shipowners here are of far greater substance in a maritime context than were those approved by us in Kelly.

Several cases cited by appellant, though pr^-Executive Jet, are agreeable in principle with the holding in that case, and are pertinent to the issue of maritime jurisdiction here. Locality is still a viable consideration under Executive Jet, and it is apparent that the courts in the following cases stressed this principle. It is also true, as in Executive Jet, that these eases involved torts of a maritime nature. For example, in this circuit’s case of Southern Bell Telephone & Telegraph Co. v. Burke, 5 Cir., 1933, 62 F.2d 1015, we were concerned with a libel in admiralty by a shipowner for injury to its vessel’s smokestack while passing through' the draw span of a highway bridge over a river and coming in contact with telephone lines strung from one bank of the river to the other. We rejected the respondent’s contention that there was no jurisdiction in admiralty as follows:

“The wrong and the injuries complained of having been wholly consummated while the steamer was traveling in the navigable waters of the United States, the claim based thereon is within the admiralty jurisdiction. Atlee v. Packet Co., 21 Wall. 389, 22 L.Ed. 619; Philadelphia, Wilmington & Baltimore R. R. Co. v. Philadelphia & Havre de Grace Steam Towboat Co., 23 How. 209, 16 L.Ed. 433; Panama Railroad v. Napier Shipping Co., 166 U.S. 280, 17 S.Ct. 572, 41 L.Ed. 1004; Cleveland, Terminal & V. Railroad Co. v. Steamship Co., 208 U.S. 316, 28 S.Ct. 414, 52 L.Ed. 508, 13 Ann.Cas. 1215. We are of opinion that there is no merit in the suggestion to the effect that the asserted claim was kept from being cognizable in admiralty by the circumstance that the thing with which the steamer collided was connected solely with upland beyond the shore or border of the river, no part of it being in or covered by navigable waters. Gonsalves v. Morse Dry Dock Co., 266 U.S. 171, 45 S.Ct. 39, 69 L.Ed. 228; F. S. Royster Guano Co. v. Outten (C.C.A. 4 Cir.) 266 F. 484.”

In The America, D. C., E.D.N.Y., 1940, 34 F.Supp. 855, a barge owner filed a proceeding in admiralty against the owner of a tanker with which it collided and defendant impleaded E. I. DuPont & Company on allegations that it allowed its shore-based plant to emit fumes or gases over the adjacent waters in such volume and density that claimant of the vessel was unable to navigate and to avoid doing the damage for which the libel was filed. To- respondent’s exception to the jurisdiction the court held:

“The following cases indicate that a cause in personam in admiralty exists, if it be proven that a tort arising on land takes effect on navigable waters, to the injury of a vessel on behalf of which the cause is asserted: Philadelphia, W. & B. R. R. Co. v. Philadelphia, etc., Co., 23 How. 209, 16 L.Ed. 433; Leonard v. Decker, D.C., [2 Cir.] 22 F. 741; Galena, D. D. & M. Packet Co. v. Rock Island, etc., 6 Wall. 213, 18 L.Ed. 753; The Normannia, D. C., [2 Cir.] 62 F. 469, at 472; Hermann v. Port Blakely Mill Co., D. C., [9 Cir.] 69 F. 646; Dorrington v. Detroit, 6 Cir., 223 F. 232, at 242; Smith v. Lampe, 6 Cir., 64 F.2d 201.”

In Smith v. Lampe, 6 Cir., 1933, 64 F.2d 201, two vessels collided in a thick fog allegedly because of the negligent signalling by respondent with the horn of his automobile to the vessels in the fog. Libelant contended that respondent’s actions negligently interfered with the navigation of the boats and that the negligence was the proximate cause of the damage. The Sixth Circuit answered the jurisdictional question holding that the suit was properly brought in admiralty and rejected respondent’s contention that “if any tort was committed, it was committed on land,” thus making the action one at common law rather than admiralty. The court said that where the negligent act originates on land and the damage occurs on water, the cause of action is within the admiralty jurisdiction; that “the locality of the thing to be considered is that of the thing injured, and' not of the agent causing the injury, and that when the injury is to a vessel afloat, even though the negligence originated on land, the tort is maritime, and within the admiralty jurisdiction.” Id. at 202.

Whether we apply the criterion of Executive Jet and look to “the relationship of the wrong to traditional maritime activity,” 409 U.S. at 261, 93 S.Ct. at 501, or the virtually identical test of Peytav-in to determine if the tort has a “substantial connection with maritime activities or interests,” 453 F.2d at 1127, we reach the definite conclusion that the claims asserted against Union Camp are maritime in nature and clearly within admiralty jurisdiction.

Reversed.

      . Rule 14, Fed.R.Civ.P.:

        Third-Party Practice * * * * *
      (c) Admiralty and Maritime Claims. When a plaintiff asserts an admiralty or maritime claim within the meaning of Rule 9(h), the defendant or claimant, as a third-party plaintiff, may bring in a third-party defendant who may be wholly or partly liable, either to the plaintiff or to the third-party plaintiff, by way of remedy over, contribution, or otherwise on account of the same transaction, occurrence, or series of transactions or occurrences. In such a case the third-party plaintiff may also demand judgment against the third-party defendant in favor of the plaintiff, in which event the third-party defendant shall make his defenses to the claim of the plaintiff as well as to that of the third-party plaintiff in the manner provided in Rule 12 and the action shall proceed as if the plaintiff had commenced it against the third-party defendant as well as the third-party plaintiff. As amended Jan. 21, 1963, eff. July 1, 1963; Feb. 28, 1966, eff. July 1, 1966.

      . The district judge noted in his order that “diversity apparently exists between the shipowner and Union Camp. It is possible that some remedy is available to the shipowner at this stage of the litigation independently of admiralty.”

      . The Supreme Court in Executive Jet expressed its dissatisfaction with such a test: “The petitioners’ argument, if accepted, would make jurisdiction depend on where the plane ended up — a circumstance which could be wholly fortuitous and completely unrelated to the tort itself. The anomaly is well illustrated by the hypothetical case of two aircraft colliding at a high altitude, with one crashing on land and the other in a navigable river. If, on the other hand, the respondents’ position were adopted, jurisdiction would depend on whether the plane happened to be flying over land or water when the original impact of the alleged negligence occurred. This circumstance, too, could be totally fortuitous. If the plane in the present case struck the birds over the Cleveland Lakefront Airport, admiralty jurisdiction would not lie; but if the plane had just crossed the shoreline when it struck the birds, admiralty jurisdiction would attach, even if the plane were then able to make it back to the airport and crash land there. These are hardly the types of distinctions with which admiralty law was designed to deal.” 409 U.S. at 267, 93 S.Ct. at 504.

      . It is interesting to note that the Supreme Court did not irrevocably foreclose the possibility of characterizing as maritime even an aircraft under circumstances where the function of the airplane would parallel the function of the vessel: “An aircraft in that situation [flying from New York to London and crashing in the mid-Atlantic] might be thought to bear a significant relationship to traditional maritime activity because it would be performing a function traditionally performed by waterborne vessels.” (Emphasis supplied.) 409 U.S. at 271, 93 S.Ct. at 506. In the instant case we have a vessel performing a funetion traditionally performed by a vessel, the transportation of cargo on navigable waters.

      . The traditional locality test for determining when a tort is within the admiralty jurisdiction historically dates back to The Plymouth, 70 U.S. (3 Wall.) 20, 35, 36, 18 L.Ed. 125 (1866) : “[T]he wrong and injury complained of must have been committed wholly upon the high seas or navigable waters, or, at least, the substance and consummation of the same must have taken place upon these waters to be within the admiralty jurisdiction.” Despite such broad language, the Supreme Court said in Executive Jet, “that this Court has never explicitly held that a maritime locality is the sole test of admiralty tort jurisdiction.” 409 U.S. at 261, 93 S.Ct. at 499.

      . 409 U.S. at 259, 93 S.Ct. at 498.

      . ‘‘It should also be noted that, in attempting to determine exactly what constitutes a tort for maritime jurisdictional purposes, the courts have generally made ‘tort’ synonymous with ‘injury’, and have looked to the place where the impact causing the injury occurred, rather than to the place where the negligent act occurred.” 7A, Moore, Federal Practice § .325 [2] n. 4.


author: SIMPSON, Circuit Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Frank DeVOE, Defendant-Appellant.
    No. 73-1562.
    United States Court of Appeals, Fifth Circuit.
    Feb. 8, 1974.
    For opinion after remand see 493 F.2d 776.
    Melvyn Kessler, Miami, Fla., for defendant-appellant.
    Robert W. Rust, U. S. Atty., Robert C. Byrne, Harold F. Keefe, Asst. U. S. Attys., Miami, Fla., for plaintiff-appel-lee.
    Before BROWN, Chief Judge, and GODBOLD and SIMPSON, Circuit Judges.
   SIMPSON, Circuit Judge:

Frank DeVoe was indicted by a federal grand jury in two counts for violations of Title 21 U.S.C. Sec. 841(a)(1). Count I charged knowing and intentional possession with intent to distribute approximately 1.0 gram of heroin on July 5, 1972. Count II charged knowing and intentional distribution thereof on the same date.

After one mistrial, declared because of a deadlocked jury, the appellant was retried -on November 14, 1972 resulting in a jury verdict of guilty as to each count of the indictment. A motion for new trial was denied January 8, 1973, and DeVoe was sentenced on January 24, 1973 to concurrent 18 months prison terms, to be followed with a special parole term of three years. Notice of appeal was filed timely on January 29, 1973 following denial of the motion for new trial. The appellant then filed before this court a Motion for Remand, which alluded to an additional motion for new trial filed and then pending before the trial court. This motion was based on alleged newly discovered evidence, said to bear directly on the question of guilt or innocence and not available to or known to DeVoe or his counsel at the time of trial. The evidence was alleged to have been in the government’s possession at the time of trial. The government filed a response which alluded to the evidence and made some superficial admission of a lack of complete candor with appellant and his attorney. An administrative panel of this court denied the Motion for Remand on June 23, 1973 and denied rehearing of that motion on July 21, 1973. The trial court on July 2, 1973 denied the motion for new trial, without prejudice to refiling after conclusion of this appeal.

We sketch very briefly the evidence at trial leading to DeVoe’s conviction. Government agents said they met with a confidential informant on July 5, 1972 at Denny’s Restaurant on Sheridan Street in Hollywood, Florida. He was searched for weapons, contraband and narcotics and proceeded with Detective Thomas by car to 110 N.W. 8th Avenue, Dania, Florida, DeVoe’s home. Agent Charette kept the two under surveillance. Thomas stated that he and the informant met appellant and a white female near appellant’s door and entered the house with them, that the informant talked with DeVoe while the young lady showed Thomas over the house, and that he (Thomas) witnessed an aluminum packet being passed from DeVoe to the informant. Thomas gave DeVoe twenty dollars and received the packet from the informant. Thomas and the informant left, the agent again searched the informant and found him “clean”, and conducted a field test which proved the packet contents to be heroin. The other agent Charette verified this testimony except that he said he did not see the exchange.

In his defense the defendant denied the entire government testimony, saying he had never seen agent Thomas before trial. He said that on the evening of July 4 he and a young lady, Lorraine Shapiro visited several night clubs before returning early the morning of July 5 to her apartment at the Escape Motel on Birch Road in Fort Lauderdale, Florida, where they slept until 1:30 the afternoon of July 5. Upon awaking, they went to the China House (a café), ate something there and went separately to appellant’s house-where they watched television until 6:00 p. m. At that time the two went to DeVoe’s mother’s home. He said he did not see Thomas or anyone else that afternoon other than the other occupants of his house. DeVoe also offered the testimony of two character witnesses. Miss Shapiro was not called nor was the reason for her absence alluded to.

At trial, appellant’s counsel sought information as to the name and whereabouts of the confidential informant, since he might “possibly want to subpoena him as a witness favorable to the defense”. Agent Charette testified that the informant had made no statements favorable to the defense and the prosecuting attorney gave similar assurances, asserting that disclosure of his identity might endanger his life, as he was then in custody. Agent Charette stated that he knew where the informant was held and that he was available to testify if called. The government was not required to produce him or to disclose his identity.

The identity of the confidential informant, one King, became known to defense counsel after sentence and a sworn statement from him exculpating DeVoe was attached to the appellant’s Motion for Rehearing denied by a panel of this court July 21, 1973.

DeVoe contends in this appeal that the conviction should be reversed because of suppression by the appellee United States of evidence favorable to the defendant, in violation of Fifth Amendment due process, based on the claimed newly discovered evidence.

The principle was clearly established by Mooney v. Holohan, 1935, 294 U.S. 103, 55 S.Ct. 340, 79 L.Ed. 791, that a prosecutor’s non-disclosure of evidence favorable to a defendant violates due process where he -deliberately deceives a court and jury by presenting testimony known to him to be perjured. Pyle v. Kansas, 1942, 317 U.S. 213, 63 S.Ct. 177, 87 L.Ed. 214, extended the rule to state convictions where state authorities knowingly used perjured testimony and suppressed evidence favorable to the accused. Pyle has been construed to mean that the “suppression of evidence favorable” to the accused is in itself sufficient to constitute denial of due process. Almeida v. Baldi, 3 Cir. 1952, 195 F.2d 815.

Later cases hold that the prosecutor must reveal known contrary statements of his witnesses despite his belief that their current testimony is true. Giles v. Maryland, 1967, 386 U.S. 66, 87 S.Ct. 793, 17 L.Ed.2d 737. The majority in Brady v. Maryland, 1963, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215, held that, at least where defense counsel requests disclosure:

“* * * the suppression by the prosecution of evidence favorable to an accused upon request violates due process where the evidence is material either to guilt or punishment, irrespective of the good faith or bad faith of the prosecution.” (emphasis supplied).

The appellant urges that his conviction be reversed under the circumstances now brought forth. The appellant suggests two possible views of the actions of the prosecution: (1) that the prosecution knew that if the informant came forward he would deny the testimony of the agents, and that the suppression was thus knowingly carried out; and (2) that the prosecution was acting-in good faith and did not suspect that King was prepared to repudiate his prior identification and inculpation of DeVoe. In either event, it is asserted that Brady’s teachings mandate a new trial. Regretfully, the United States has not, either on brief or in oral argument, realistically met the thrust of appellant’s contentions.

We do not think that we should attempt decision of the question presented, but rather believe it should be determined by the trial court in the first instance. As we did in United States v. Barson, 5 Cir. 1970, 434 F.2d 127, 131, we adapt to our purposes here the limited remand procedure used by 'the Supreme Court in Alderman v. United States, 1969, 394 U.S. 165, 89 S.Ct. 961, 22 L.Ed.2d 176. The trial judge is directed to consider the motion for new trial on grounds of newly discovered evidence upon an amplified record and thereupon make appropriate findings of fact and conclusions of law as to whether the conviction of DeVoe should be permitted to stand. Such a hearing should be held and the results thereof certified to this Court within ninety-days from the date of this opinion. Our determination as to whether finally to affirm the judgment below or to reverse and remand for new trial will follow such certification. Jurisdiction of this appeal is retained in this Court during the limited remand for the stated purpose.

Remanded with instructions.

      . Both Dania and Hollywood are communities nearby Fort Lauderdale, Florida.

      . In the situation of a state prisoner Fourteenth, rather than Fifth Amendment due process is involved, but the standard is the same. See Bolling v. Sharpe, 1954, 347 U.S. 497, 74 S.Ct. 693, 98 L.Ed. 884.

      . Recent decisions of this court, following the Supreme Court’s decision in Couch v. United States, 1973, 409 U.S. 322, 93 S.Ct. 611, 34 L.Ed.2d 548, have emphasized the due process basis for requiring complete disclosure by the United States of proceedings leading to plea negotiations with a co-defendant. United States v. Tashman, 5 Cir. 1973, 478 F.2d 129; United States v. Cawley et al., 5 Cir. 1973, 481 F.2d 702; United States v. Fonte-not, 5 Cir. 1973, 483 F.2d 315. The prosecutor must fully and fairly disclose any material facts in his possession which may affect the guilt or innocence of the defendant on trial.


text:
    ESTATE of Joseph M. MEADE, Deceased, First National Bank of Florence, Executor, and Hazel B. Meade, Petttioners-Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant. William S. and Elizabeth KING, Petitioners-Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellant.
    No. 73-1456.
    United States Court of Appeals, Fifth Circuit.
    Feb. 7, 1974.
    Rehearing Denied March 5, 1974.

      Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Donald H. Olson, Attys., Tax Div., U. S. Dept, of Justice, Lee H. Henkel, Jr., Chief Counsel, I. R. S., Washington, D. C., for respondent-appellant.
    J. Gilmer Blackburn, Decatur, Ala., for petitioners-appellees.
    Before GEWIN, AINSWORTH and MORGAN, Circuit Judges.
   AINSWORTH, Circuit Judge:

Taxpayers incurred legal expenses in connection with the settlement of a civil antitrust claim that had been assigned to them in pro rata shares as distribu-tees in a corporate liquidation. These cases present the question whether the legal expenses are deductible from ordinary income under section 212 of the Internal Revenue Code of 1954, or whether, under section 263 of the Code, they must be capitalized and offset against long-term capital gain realized by taxpayers from the settlement.

The pertinent facts have been fully stipulated. Joseph M. Meade and William S. King were the sole shareholders of the Alabama Wire Company, Inc. In 1963, that corporation and its wholly owned subsidiary employed an Atlanta, Georgia, law firm to advise whether Kaiser Aluminum and Chemical Corporation, in connection' with its dealings with Alabama Wire and its subsidiary, had violated the federal antitrust laws. For this initial employment, which ceased in early 1964, the Atlanta firm was paid legal fees by Alabama Wire and its subsidiary.

The name of Alabama Wire was thereafter changed to Terrace Corporation, and, on February 15, 1965, the corporation was liquidated. Among the proceeds of the liquidation was the potential claim against Kaiser Aluminum, which, the parties have stipulated, had no ascertainable value at that time. Meade and King, individually, thus acquired ownership of the potential antitrust claim. Meade received a one-third interest in the claim, and King received a two-thirds interest, in accordance with their proportionate ownership of the distributing corporation.

Based upon a later opinion of Atlanta counsel, Meade and King, in 1965, retained the firm to pursue the antitrust claim on their personal behalf. An agreement was entered whereby the firm would be paid a monthly retainer fee plus 20 per cent of any amount recovered. When it was subsequently determined that San Francisco counsel should be employed to bring the suit against Kaiser Aluminum in California, the agreement was modified to provide that a retainer of $10,000 would be paid to San Francisco counsel (which amount was to be credited against future retainer charges due Atlanta counsel), and that both counsel would share a 33 per cent participation in any amount recovered.

Suit was brought against Kaiser Aluminum in 1965 in the names of Meade and King, individually, as assignees of the cause of action of Alabama Wire and its subsidiary. Treble damages of $9,000,000 were sought. The case was settled in 1966 for $900,000, of which Meade received $300,000, and King, $600,000. On his respective 1966 income tax return, each reported the proceeds of the settlement as additional long-term capital gain from the liquidation of Terrace Corporation.

Pursuant to the aforementioned agreement with counsel, Meade and King, in 1966, paid legal fees and litigation expenses totaling $320,993.67. Meade paid one third of that amount, and King paid two thirds. Each claimed the full amount so paid by him as a deduction against ordinary income on his 1966 tax return. The Commissioner disallowed these deductions and treated the entire amount of legal expenses as an offset against the long-term capital gain realized by taxpayers from their antitrust claim. This resulted in an asserted deficiency for the taxable year 1966 in the amount of $29,991.37 for Meade and $65,221.26 for King. Taxpayers filed petitions with the Tax Court for a rede-termination of their deficiencies. Upon the consolidation of the cases, the Tax Court held that the attorneys’ fees and expenses are properly deductible under section 212(1) as payments for the production of income. 31 CCH Tax Ct. Mem. 935 (1972). This Court has jurisdiction under section 7482 of the Internal Revenue Code of 1954. We reverse the decision of the Tax Court.

• The stock of Terrace Corporation constituted a capital asset in the hands of the taxpayers of Terrace Corporation. Thus, the proceeds of the liquidation of Terrace Corporation, received in exchange for their Terrace stock, constituted capital gain to taxpayers. Since the antitrust claim was included as part of the proceeds of the liquidation, the fair market value of the claim ordinarily would have entered into the computation — made at that time — of taxpayers’ capital gain from the liquidation. See section 331 of Internal Revnue Code of 1954.- In this instance, ■however, the potential claim had no ascertainable fair market value at the time of distribution, and no value was assigned to it for purposes of computing taxpayers’ capital gain from the liquidation. The liquidation therefore remained an “open transaction,” and, for tax purposes, the amounts subsequently received from the antitrust claim related back to the initial exchange. See Burnet v. Logan, 283 U.S. 404, 51 S.Ct. 550, 75 L.Ed. 1143 (1931); Dennis v. C.I.R., 5 Cir., 1973, 473 F.2d 274, 285; C.I.R. v. Carter, 2 Cir., 1948, 170 F.2d 911; Westover v. Smith, 9 Cir., 1949, 173 F.2d 90. It being undisputed that the Terrace stock was a capital asset in taxpayers’ hands, taxpayers and the Commissioner agree that taxpayers had long-term capital gain upon the settlement with Kaiser Aluminum in 1966.

This appeal involves the treatment of taxpayers’ legal expenses in connection with the settlement of the anti-trust claim. Taxpayers contend that these legal expenses are deductible from ordinary income as expenses incurred “for the collection of income” under section 212(1). The Commissioner argues that the legal expenses must be capitalized and offset against taxpayers’ capital gain because they were incurred in connection with the disposition of a capital asset, the Terrace Corporation stock, within the meaning of section 263.

Section 162(a) of the Code permits an individual or corporate taxpayer to deduct all ordinary and necessary expenses paid or incurred in carrying on a trade or business. Section 212 permits an individual not engaged in a trade or business to deduct similar expenses paid or incurred “for the production or collection of income” and “for the management, conservation, or maintenance of property held for the production of income.” The concept of capital expenditures, on the other hand, limits the deductions permitted for such gain-seeking expenses under sections 162 and-212. Although section 263, which deals with capital expenditures, explicitly denies a deduction only for certain types of expenditures, it is clear that the section does not provide an exclusive list. C.I.R. v. Lincoln Savings and Loan Association, 403 U.S. 345, 358, 91 S.Ct. 1893, 1901, 29 L.Ed.2d 519 (1971). The limits of nondeductibility for capital expenditures are found in the case law. Here, we are guided by fundamental doctrine recently noted by the Supreme Court in Woodward v. C.I.R., 397 U.S. 572, 575, 90 S.Ct. 1302, 1305, 25 L.Ed.2d 577 (1970): “It has long been recognized, as a general matter, that costs incurred in the acquisition or disposition of a capital asset are to be treated as capital expenditures.” More specifically, expenses incurred by shareholders in effecting the liquidation of their corporation — our concern in this case — ordinarily constitute capital expenditures, which enter into the computation of gain or loss arising from the distribution. See, e. g., Third National Bank v. United States, 6 Cir., 1970, 427 F.2d 343; Helgerson v. United States, 8 Cir., 1970, 426 F.2d 1293; Estate of McGlothlin v. C.I.R., 5 Cir., 1967, 370 F.2d 729.

The Supreme Court’s recent decisions in Woodward v. C.I.R., supra, and its companion ease, United States v. Hilton Hotels Corporation, 397 U.S. 580, 90 S.Ct. 1307, 25 L.Ed.2d 585 (1970), shed further light on the principles applicable to this appeal. In those cases, the Court unanimously held that expenses of litigation that arise out of the acquisition of a capital asset are capital expenses. The eases presented two substantially identical situations. Taxpayers incurred legal expenses in appraisal proceedings in connection with a purchase of dissenting shareholders’ stock that was required under local law. Taxpayers argued that the “primary purpose” test should be applied in determining the de-ductibility of the costs of acquiring or disposing of property. That rule, developed in the context of expenditures to defend or perfect title to property, provides that such expenditures are capital in nature only where the taxpayer’s primary purpose in incurring them is to defend or perfect title. See, e. g., Treas.Reg. on Income Tax § 1.263(a)-2(e); Rassenfoss v. C.I.R., 7 Cir., 1946, 158 F.2d 764; Industrial Aggregate Co. v. United States, 8 Cir., 1960, 284 F.2d 639, 645. The primary purpose of their expenditures in the appraisal proceedings, taxpayers argued, related not to the acquisition of title, but to the price to be paid for the stock, and, therefore, their expenditures should not be characterized as acquisition costs.

In rejecting the taxpayers’ claims in Woochvard and Hilton Hotels, the Supreme Court found the primary purpose test inapplicable to the situations before it: “A test based upon the taxpayer’s ‘purpose’ in undertaking or defending a particular piece of litigation would encourage resort to formalisms and artificial distinctions.” Woodward v. C.I.R., 397 U.S. at 577, 90 S.Ct. at 1306. Instead, the Court adopted the “origin” test, choosing to consider the origin and character of the claim for which the expenditures were made. On the basis of that test, the Court held that the determination of a purchase price by litigation is clearly part of the process of acquisition and should be treated as part of the cost of the stock that the taxpayers acquired. In so holding, the Court noted that “ancillary expenses incurred in acquiring or disposing of an asset are as much part of the cost of that asset as is the price paid for it.” Woodward v. C.I.R., 397 U.S. at 576, 90 S.Ct. at 1305. We find the Court’s reasoning compelling in its application to the facts before us.

As we noted above, the exchange in the liquidation of taxpayers’ stock for the Terrace assets resulted in capital gain treatment to the taxpayers. The exchange remained an open transaction until the proceeds of the antitrust claim were collected by taxpayers. Since the open transaction event qualified for capital gain treatment, the amounts ultimately collected from the settlement do also. In effect, the proceeds of the settlement constituted additional consideration for taxpayers’ stock in Terrace Corporation. While taxpayers have agreed with the Commissioner that the liquidation should be kept open in order to include the proceeds of the settlement as capital gains, taxpayers seek to close that transaction for the purpose of characterizing the legal expenses involved as deductible expenses for the collection of income. The Supreme Court’s “origin of the claim” test prevents us from agreeing with taxpayers.

The “origin” test was first set forth by the Court in United States v. Gilmore, 372 U.S. 39, 83 S.Ct. 623, 9 L.Ed.2d 570 (1963). There it was held that legal expenses incurred by a taxpayer in defending a divorce suit were nondeductible personal expenses even though taxpayers’ securities holdings, and possibly his business reputation, would be affected by the outcome of the case. The Court sustained the Government’s position that deductibility depended on the “origin and nature” of the claim against the taxpayer, and found that the claim arose out of the personal relationship of marriage. The Court stated the proper test as follows: “[T]he origin and character of the claim with respect to which an expense was incurred, rather than its potential consequences upon the fortunes of the taxpayer, is the controlling basic test of whether the expense was ‘business’ or ‘personal’ and hence whether it is deductible or not under § 23(a)(2) [section 212 of the 1954 Code].” 372 U.S. at 49, 83 S.Ct. at 629. It was this test that the Court adopted in Woodward in determining that the origin of the particular litigation involved was found in the process of the acquisition of a capital asset, and that therefore the expenses of the litigation were nondeductible capital expenses.

Although there is admittedly a distinction between the two situations, we think it clear that the Court adopted this test, not only with respect to the acquisition of a capital asset, but also for determining whether legal expenses are incurred in the process of disposition of property. See Woodward v. C.I.R., 397 U.S. at 576, 578 n. 7, 90 S.Ct. at 1305, 1306 n. 7; Third National Bank v. United States, 6 Cir., 1970, 427 F.2d 343, 344; Munn v. United States, 1972, 455 F.2d 1028, 1033, 197 Ct.Cl. 233. Substantially the same problems arise in each determination. In both the disposition and acquisition of property, a determination must be made of the tax consequences of monetary outlays in connection with contesting the value of certain capital assets. The uncertainty and difficulty of considering the taxpayer’s motive in incurring expenses are present in both situations. For the deductibility of payments to depend upon such subjective considerations would, as the Court noted in Woodward, encourage resort to “formalisms and artificial distinctions.”

Applying the “origin” standard to the facts before us, we are convinced that the antitrust claim against Kaiser Aluminum — as it rested in the hands of these taxpayers — had its origin in the process of the disposition of their stock in Terrace Corporation. The claim was part of the Terrace assets received by taxpayers in the liquidation of the corporation, and taxpayers’ disposition of their stock was an open transaction for purposes of the collection of the proceeds of the settlement. Thus, the valuation of the claim against Kaiser Aluminum was vital to the disposition of taxpayers’ stock, and the litigation necessary for this determination was an integral part of the overall transaction. Hence, the expenses incurred in the litigation that led to the settlement are properly treated as part of the cost of the stock that the taxpayers exchanged in the liquidation.

Taxpayers have directed our attention to two circuit court decisions, Naylor v. C.I.R., 5 Cir., 1953, 203 F.2d 346, and C.I.R. v. Doering, 2 Cir., 1964, 335 F.2d 738, which presented problems similar to the one before us. In Naylor, taxpayer gave an option to purchase certain stock, which was a capital asset in his hands, at a price based on the stock’s net asset value shown on the books of the company on a certain date. The purchaser exercised his option, but thereafter a dispute arose over the valuation, and taxpayer hired an attorney to negotiate with the purchaser concerning the value of the shares. Taxpayer’s expenses in connection with the valuation were held deductible under the predecessor of section 212(1).

Doering involved a fact pattern slightly different from Naylor. In Doering, taxpayer owned stock in Argosy Pictures Corporation, which had contracted to produce certain films for distribution by Republic Pictures Corporation. A dispute arose between the corporations as to the amount of Argosy’s participation in the proceeds under the contract, but Argosy liquidated before a settlement was effected. Because the claim had no ascertainable fair market value at the time, the transaction remained “open” for tax purposes. In redemption of his stock, a capital asset, taxpayer received cash and a pro rata portion of Argosy’s claim against Republic. Thereafter, in effecting a settlement of the dispute over the terms of Argosy’s contract with Republic, taxpayer incurred legal expenses. The full Tax Court, - four judges dissenting, allowed him to deduct the expenses under section 212 because they were incurred for the “collection of income.” A divided panel of the Second Circuit affirmed.

We think that the Naylor and Doering decisions have been considerably eroded by Woodward and Hilton Hotels, which arrived at results different from Naylor and Doering, though all four cases presented similar fact situations. See Helgerson v. United States, 8 Cir., 1970, 426 F.2d 1293, 1298. See generally 4A Mertens, Law of Federal Income Taxation § 25A.15; B. Bittker & J. Eustice, Federal Income Taxation of Corporations and Shareholders 11-82 (1971). Naylor and Doering are, however, distinguishable from the Supreme Court decisions and from the eases before us.

We see Naylor as holding that if a disposition of a capital asset has been consummated, and subsequent controversy concerns no more than enforcement of the terms of the agreement, then the problem is one of collection of income under section 212. See Munson v. McGinnes, 3 Cir., 1960, 283 F.2d 333, 335, cert. denied, 364 U.S. 880, 81 S.Ct. 171, 5 L.Ed.2d 103. As the Court noted in Naylor, “[t]he situation called for the services of an attorney to collect the proceeds of a sale of a capital asset. Petitioner’s attorney was employed after an enforceable contract of sale existed.” 203 F.2d at 347. Similarly, Doering involved legal expenses that were found to be a cost of collecting sums due the taxpayer under “a fully executed and enforceable contract.” 39 T.C. 647, 650.

In Woodward and Hilton Hotels, on the other hand, the problem was treated as one of the establishment of a purchase price in the acquisition of a capital asset. The transactions there were clearly considered incomplete until the litigation to set a purchase price had concluded. “The whole process of acquisition required both legal operations— fixing the price, and conveying title to the [stock] . . . . ” United States v. Hilton Hotels Corporation, 397 U.S. at 584, 90 S.Ct. at 1309. So also in the cases before us, we are concerned with transactions not consummated until the claim against Kaiser Aluminum had been settled. Establishment of the value of the antitrust claim was a contingency on which the finality of taxpayers’ stock disposition depended. By contrast, in Naylor and Doering, fully enforceable agreements existed, and litigation involved only the interpretation and enforcement of those agreements. Accordingly, the legal expenses involved in those cases may more easily fit within the concept of expenses incurred for the collection of income than taxpayers’ expenses in the cases before us.

Reversed.

      . Taxpayers are the Estate of Joseph M. Meade, deceased, and Hazel B. Meade, his widow, and William S. King and Elizabeth King, husband and wife. After this litigation was initiated, Joseph Meade died, and his estate was substituted as a party in this proceeding. Taxpayers’ wives are parties because joint income tax returns were filed in 1966.
      As used herein, the term taxpayers refers to Joseph M. Meade and William S. King.

      . The record indicates that on the day following the liquidation of Terrace Corporation taxpayers transferred their respective interests in the antitrust claim to a partnership owned by them in the same proportions. The partnership filed a U. S. Partnership Return of Income for the taxable year 1966. Because in these circumstances the partnership was a mere conduit for tax purposes, its existence is not material to our analysis or decision in this case. See section 702(b) of the Internal Revenue Code of 1954.

      . Meade and King paid from a joint bank account a total of $56,326.67 for monthly advances for legal fees and expenses. The remainder of the fees previously agreed to, which amounted to $264,667, was paid following settlement of the suit.

      . Section 162(a), 26 U.S.C. § 162(a), provides in pertinent part:
      § 162. Trade or business expenses (a) In general. — There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business

      . Section 212, 26 U.S.C. § 212, provides:
      § 212. Expenses for production of income In the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year—
      (1) for the production or collection of income;
      (2) for the management, conservation, or maintenance of property held for the production of income; or
      (3) in connection with the determination, collection, or refund of any tax.

      . For purposes of this distinction between capital expenses and ordinary expenses, sections 162 and 212 are construed in the same manner, with the exception that section 212 permits deductions “for the ordinary and necessary expenses of nonbusiness profitmaking activities.” Woodward v. C. I. R., 397 U.S. 572, 575 n. 3, 90 S.Ct. 1302, 1305 n. 3, 25 L.Ed.2d 577 (1970).

      . Section 263, 26 U.S.C. § 263, provides in part:
      § 263. Capital expenditures (a) General rule. — No deduction shall be allowed for—
      (1) Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate.

      . See, e. g., Spreckels v. Helvering, 315 U.S. 626, 62 S.Ct. 777, 86 L.Ed. 1073 (1942); Helvering v. Winmill, 305 U.S. 79, 59 S.Ct. 45, 83 L.Ed. 52 (1938); Helgerson v. United States, 8 Cir., 1970, 426 F.2d 1293, 1296; Spangler v. C. I. R., 9 Cir., 1963, 323 F.2d 913, 918-919; Alphaco, Inc. v. Nelson, 7 Cir., 1967, 385 F.2d 244; Treas.Regs. on Income Tax § 1.263(a)-2(e). See also United States v. Mississippi Chemical Corp., 405 U.S. 298, 92 S.Ct. 908, 31 L.Ed.2d 217 (1972); C. I. R. v. Lincoln Savings & Loan Association, 403 U.S. 345, 91 S.Ct. 1893, 29 L.Ed.2d 519 (1971); Pacific Transport Co. v. C. I. R., 9 Cir., 1973, 483 F.2d 209. The Commissioner acknowledges, however, that not all expenses attributable to capital assets are necessarily required to be capitalized, see Treas.Regs. on Income Tax § 1.212-1 (b) ; nor are they necessarily deductible, see Treas.Regs. on Income Tax §§ 1.212-1 (k) and (n), and 1.263(a)-2.

      . Tlie chief distinction between Woodward and Hilton Hotels was that in the latter case, under local law, taxpayers had received title to the dissenters’ stock prior to the appraisal litigation, whereas in Woodward title passed after the litigation. The Court found the distinction to be of no consequence. United States v. Hilton Hotels Corporation, 397 U.S. at 584, 90 S.Ct. at 1309.

      . The result we reach in this appeal is in harmony with several decisions rendered prior to the Woodward and Hilton Hotels cases. See, e. g., Munson v. McGinnes, 3 Cir., 1960, 283 F.2d 333, cert. denied, 364 U.S. 880, 81 S.Ct. 171, 5 L.Ed.2d 103; Spangler v. Commissioner, 9 Cir., 1963, 323 F.2d 913. See also United States v. Morton, 8 Cir., 1968, 387 F.2d 441; Alphaco, Inc. v. Nelson, 7 Cir., 1967, 385 F.2d 244; Towanda Textiles, Inc. v. United States, 1960, 180 F.Supp. 373, 377, 149 Ct.Cl. 123.
      Our decision is also strongly supported by the case law subsequent to Woodward and Hilton Hotels. See, e. g., Helgerson v. United States, 8 Cir., 1970, 426 F.2d 1293, 1297-1298; Third National Bank v. United States, 6 Cir., 1970, 427 F.2d 343; Anchor Coupling Co. v. United States, 7 Cir., 1970, 427 F.2d 429, cert. denied, 401 U.S. 908, 91 S.Ct. 866, 27 L.Ed.2d 806 (1971); Ransburg v. United States, 10 Cir., 1971, 440 F.2d 1140; Munn v. United States, 1972, 455 F.2d 1028, 197 Ct.Cl. 233; Clark Oil and Refining Corp. v. United States, 7 Cir., 1973, 473 F.2d 1217. See also 22 J. Public Law 233 (1973).

      . Taxpayers also place some reliance on Petschek v. United States, 2 Cir., 1964, 335 F.2d 734, a case that the Supreme Court in Woodward referred to as “a borderline case [under the origin test] of whether legal expenses were incurred in the disposition of property.” 397 U.S. at 578 n. 7, 90 S.Ct. at 1306 n. 7. In Petschek, taxpayer was permitted to deduct legal fees expended in prosecuting a claim for compensation against funds created by foreign governments after they had confiscated corporations in which taxpayer held stock. We think that case must be distinguished from the cases at bar because there taxpayer’s property “had been confiscated long before the fees were paid and [taxpayer’s] efforts were directed toward reimbursement rather than to recovery of the property itself . . . .” 335 F.2d at 735. Consequently, under the “origin” test the legal expenditures are much less susceptible of relation back to the disposition of property-— the confiscation — than are the fees incurred by taxpayers in the cases before us. See 335 F.2d at 736-737.