author: ALDRICH, Senior Circuit Judge:

text:
    The STATE OF MONTANA, acting By and Through the BOARD OF ADMINISTRATION OF the PUBLIC EMPLOYEES’ RETIREMENT SYSTEM OF the STATE OF MONTANA, Plaintiff-Appellant, v. UNITED STATES of America, and Caspar W. Weinberger, as Secretary of Health, Education and Welfare of the United States of America, Defendants-Appel-lees.
    No. 72-2038.
    United States Court of Appeals, Ninth Circuit.
    Dec. 27, 1973.

      Michael J. Hughes, Sp. Asst. Atty. Gen., Robert L. Woodahl, Atty. Gen., State of Montana, Helena, Mont., for plaintiff-appellant.
    Otis L. Packwood, U. S. Atty., Butte, Mont., Kenneth A. Rutherford, U. S. Dept, of Justice, Morton Hollander, Chief App. Section, Robert M. Feinson, Civ. Div., U. S. Dept, of Justice, Washington, D. C., for defendants-appellees.
    Before ALDRICH, ELY and WALLACE, Circuit Judges.

      Hon. Bailey Aldrich, Senior Circuit Judge of the First Circuit, sitting by designation.

   ALDRICH, Senior Circuit Judge:

This is a test suit for recovery of a tax paid by the State of Montana, assessed upon it by the Secretary of HEW as an employer contribution due, assert-edly, on account of fees collected and lawfully retained by a Mr. Howard, a justice of the peace for performing marriage ceremonies. The district court decided in favor of the Secretary, and the State appeals.

Montana justices of the peace perform various duties for which statutory fees are set. Effecting a marriage is one of six activities grouped under the final heading, “Miscellaneous fees.”

“Miscellaneous fees. The following miscellaneous fees shall also be collected by justices of the peace, to wit:

“For performing the marriage ceremony and returning certificate to clerk of the district court, five dollars.”

Montana Rev.Code § 25-304 (1947) - Howard, and some other justices of the peace are paid salaries and are required to remit to the State, all fees collected except those listed as miscellaneous fees. Mont.Rev.Code § 25-305 (1947). The issue in this case is whether Howard’s thus retained fees are to be regarded as wages received by him qua State employee or, as the State contends, are earnings with which it is unconnected.

Pursuant to the Social Security Act, 42 U.S.C. §§ 410(a)(7), 418, and a responsive agreement between the Secretary and Montana, the State is required to pay an amount equal to the sum of the employer’s and employee’s taxes which would be imposed with respect to the wages paid .the State’s employees if the services were employment within the meaning of 42 U.S.C. § 418. The State does not question that a justice of the peace is an employee under this definition. It takes the position, however, that because performing a marriage ceremony is optional with the justice, and is “a service for the persons whose marriage he is solemnizing ... the justice is not in the ‘employ’ of the County.”

The fact that a justice of the peace may decline to perform marriages is of little relevancy. That an employee may choose whether or not to do particular work does not change its character if undertaken. We need think only of voluntary overtime, or voluntary assumption of the work of another employee. The test is not the employee’s right to refuse the work, but its nature if performed.

Equally, from whom he receives payment should not control. It must be obvious that an employer may choose whatever method of effecting compensation he sees fit, see 20 C.F.R. § 404.1026 (1973), and it should make no difference whether the third party pays the employer, who, in turn, compensates the employee, or whether the third party, at the employer’s direction, pays the employee himself. Nor, in the light of the statutory scheme, can there be any doubt of the fact that the payment here is made at the State’s direction.

Particularly unsupportive of its position is the State’s argument that a justice of the peace can waive his fee. We note that the statute does not state this but, if anything, is cast in the opposite direction. See § 25-304, ante. But it may be conceded that since the justice is not required to remit or, currently, to report miscellaneous fees, no one will complain if he chooses to perform the service for nothing. Again, however, the fact that a justice may refuse payment, just as he may refuse to undertake the activity in the first place, does not affect the character of either the activity or the payments he in fact receives.

We come to the only possibly troublesome question, the State’s contention that the work is a purely personal venture. The two analogies the state makes to certain independent contractors are not helpful. We see a substantial difference between the justice’s statutorily authorized activity and that of a golf professional employed by a club who, in addition to his club duties, is permitted to give private instruction, Ridge Country Club v. United States, 135 F.2d 718 (7th Cir. 1943), or that of a taxi-driver who, for a fixed rental, leases a cab from a company, Magruder v. Yellow Cab Co., 141 F.2d 324 (4th Cir. 1944).

Effecting a marriage is very much a state function. See Mont.Rev.Code §§ 48-102 through 48-124. +The state’s interest in the performance of this function is not only statutorily defined, but would seem self-evident. See In re Shun T. Takahashi’s Estate, 113 Mont. 490, 129 P.2d 217 (1942). We may doubt whether a member of the public who pays a fee to a justice of the peace for the entry of a judgment by confession or for furnishing the transcript on appeal (§ 24-301), or who pays a fee for performing a marriage ceremony or for furnishing copies of papers on file (§ 25-304), thinks of the justice as a state employee in the first two instances, but not as one in the latter, or even whether the justice himself makes this distinction.

It is true that members of the clerical profession, and certain others, are allowed to perform marriage ceremonies, Mont.Rev.Code § 48-116 (1947), and that clerics, vis-a-vis the state, may well be thought of as independent contractors. We see no necessary inconsistency. Indeed, in addition to the fact that the justices are on the state’s regular payroll, and that their marriage performing powers arise directly out of their position as state employees, they are controlled in a significant manner in which the clerics are not, viz., they are limited to a $5 maximum charge. The clerics can charge what they please. There is, accordingly, as to the justices a significant incremental element of control.

In sum, we conclude that Mr. Howard was performing an employer-oriented service, and that the marriage fees he was allowed to retain were part of his overall compensation.

Affirmed.

      . The other listed activities are furnishing copies of papers on file, taking acknowledgments, jurats and giving attention to lost property pursuant to statute (§ 20-410).

      . Now, seemingly, all other. Montana Const, art. VII § 5 (1972). See Justice Court Reform in Montana, 34 Mont.L.Rev. 122, 135 (1973).

      . We need not concern ourselves with the State’s argument that it has no means of knowing how many fees a justice did or did not receive. We have no doubt that the State is capable of providing a reporting system if, under the law, it is obliged to make contributions.


source: Caselaw Access Project

author: WEICK, Circuit Judge.

license: Public Domain

text:
    Willie JOHNSON, Jr., Plaintiff-Appellant, v. RAILWAY EXPRESS AGENCY, INC., et al., Defendants-Appellees.
    No. 73-1306.
    United States Court of Appeals, Sixth Circuit.
    Argued Oct. 11,1973.
    Decided Nov. 27, 1973.
    Rehearing Denied Jan. 15, 1974.

      William L. Robinson, New York City, for plaintiff-appellant; William E. Caldwell and Ural B. Adams, Jr., Ratner, Su-garmon & Lucas, Memphis, Tenn., Jack Greenberg, New York City, on brief.
    George E. Morrow and Saul C. Belz, Memphis, Tenn., for defendants-appel-lees; Saul C. Belz, Burch, Porter & Johnson, Martin, Tate, Morrow & Mar-ston, Memphis, Tenn., and James L. Highsaw, Highsaw & Mahoney, Washington, D. C., on brief.
    Before WEICK, Circuit Judge, O'SULLIVAN, Senior Circuit Judge, and ALLEN, District Judge.

       The Honorable Charles M. Allen, Judge, United States District Court for the Western District of Kentucky, sitting by designation.

   WEICK, Circuit Judge.

This appeal is from an order of the District Court dismissing plaintiff’s complaint which alleged employment discrimination.

Plaintiff-appellant, Willie Johnson, filed timely charges with Equal Employment Opportunity Commission (EEOC) 1967 in which he alleged that his employer, Railway Express Agency, Inc. (REA), discriminated against him with regard to seniority rules and job assignments. Johnson further asserted that he had been discharged by REA because of his race (black). Johnson also charged the Brotherhood of Railway Clerks Tri-State Local and the Lily of the Valley Local with maintaining segregated Locals.

On December 22, 1967 EEOC filed a report concluding that the company and the unions had engaged in discriminatory practices; however, it was not until January 15, 1971 that Johnson received his notice of right to sue letter from EEOC. Initially Johnson was unable to retain a lawyer to file suit authorized by the letter. On February 12, 1971 District' Judge Bailey Brown allowed Johnson to file the EEOC notice-letter with the Clerk as satisfying the duty to institute suit within thirty days from date of receiving notice. Judge Brown further allowed Johnson to proceed in forma pawperis and appointed an attorney to represent him. The court-appointed attorney filed an amended complaint on March 18, 1971, setting forth iri more detail Johnson’s claims.

At this point both defendants moved for summary judgment supported by affidavits. The unions also propounded to plaintiff interrogatories, which he answered. Plaintiff submitted no affidavits in opposition to these motions.

On June 14, 1971 the Court entered an order which—

(1) dismissed all claims based on statutes other than Title VII of the 1964 ■ Civil Rights Act as barred by Tennessee’s one-year statute of limitations,

(2) denied the defendants’ claims that the filing of the EEOC notice-letter was insufficient to meet the thirty-day filing requirement,

(3) granted the two unions’ motions for summary judgment, holding that the plaintiff had no claim against them under the 1964 Civil Rights Act,

(4) granted the motion of REA for summary judgment regarding improper supervisory training, and

(5) denied REA’s motion for summary judgment regarding Johnson’s claims of discriminatory discharge, denial of promotional opportunities, and discrimination in job assignment.

After this ruling, REA offered Johnson one hundred fifty dollars in settlement of the case; Johnson refused. Subsequently the case was assigned for trial and Johnson’s court-appointed attorney, with the Court’s permission, withdrew from the case on January 14, 1972. On that date the Clerk of the District Court, acting pursuant to the Court’s direction, wrote a letter to Johnson giving him thirty days in which to obtain a new attorney or have his case dismissed without prejudice. Johnson did not obtain a new attorney within such time, and on February 16, 1972 Judge Brown entered an order dismissing the action without prejudice. We need not determine the propriety of this order because it was a final order from which no appeal was taken.

On February 17, 1972 William Caldwell, now one of Johnson’s lawyers, wrote to Judge Brown informing him that he, Caldwell, was looking for financial support which would enable him to take Johnson’s case. The letter was clearly not an announcement that Caldwell was his counsel; the letter stated only that he might be Johnson’s counsel at some point in the future. Later Caldwell found such financial support and did undertake to represent Johnson. On May 31, 1972 a second complaint was filed against REA and the unions, with Caldwell acting as counsel for Johnson.

All of the defendants moved for dismissal or, in the alternative, for summary judgment. The case was assigned to District Judge Wellford, who ruled on these motions on January 25, 1973. First, the Court dismissed Johnson’s claims against the unions on grounds of res judicata, holding that the present suit involved the same parties and the same subject matter decided in the first action where summary judgment was granted by Judge Brown. Second, the Court held that Johnson’s claims of violation of his civil rights under 42 U.S.C. § 1981 through 1988, were barred by Tennessee’s one-year statute of limitations. Third, the Court found that Johnson did not pursue properly his administrative remedies under the Railway Labor Act. Fourth, the Court held that res judicata barred Johnson’s claims against REA on the issue of supervisory training. Fifth, the Court ruled that Johnson’s failure to refile a lawsuit within thirty days from February 16, 1972 (the date of dismissal without prejudice) resulted in a failure to comply with the thirty-day filing requirement.

We will deal first with the thirty-day filing requirement since failure to meet it results in a lack of jurisdiction. Goodman v. City Prods. Corp., 425 F.2d 702 (6th Cir. 1970).

Johnson contends that he was not required to file suit within thirty days after dismissal without prejudice. He argues that the only statutory requirement is that he file his original suit within thirty days after receipt of his notice-letter. We disagree. We rely on our decision in Bomer v. Ribicoff, 304 F.2d 427 (6th Cir. 1962), and the decision in McClendon v. North American Rockwell Corp., 2 CCH Employment Prac. Dee., Par. 10,243 (C.D.Cal.1970).

In Bomer, plaintiff’s request for increased benefits under the Social Security Act was denied on August 4, 1959. He was advised that he could file a civil action within sixty days, challenging this determination, since there was a statutory procedure for such challenge within that time span. He filed such suit on September 30, 1959. On May 5, 1960, on his motion his case was dismissed without prejudice. Plaintiff later refiled his action on May 1, 1961. The Government moved to dismiss, contending that the plaintiff failed to commence suit within sixty days after notice of the final decision on August 4, 1959. The District Judge granted the Government’s motion and dismissed the ease. In affirming, Judge Shackelford Miller wrote for a unanimous court:

An action dismissed without prejudice leaves the situation the same as if the suit had never been brought. A. B. Dick Co. v. Marr, 197 F.2d 498, 502, C.A. 2nd; cert. denied, 344 U.S. 878, 73 S.Ct. 169, 97 L.Ed. 680, rehearing denied, 344 U.S. 905, 73 S.Ct. 282, 97 L.Ed. 699; Bryan v. Smith, 174 F.2d 212, 214, C.A. 7th. In the absence of a statute to the contrary a party cannot deduct from the period of the statute of limitations the time during which the action so dismissed was pending. Humphreys v. United States, 272 F.2d 411, 412, C.A. 9th; Willard v. Wood, 164 U.S. 502, 523, 17 S.Ct. 176, 41 L.Ed. 531; DiSabatino v. Mertz, 82 F.Supp. 248, 249-250, M.D.Pa.
The right of action here sought to be enforced is one created by statute and is limited by the provisions thereof as to the time within which the right must be asserted. Such conditions operate as a condition of liability rather than as a period of limitation and there can be no recovery unless the condition precedent is fulfilled. Zeller v. Folsom, 150 F.Supp. 615, 617, N.D.N.Y.; Coy v. Folsom, 228 F.2d 276, 279-280, C.A. 3rd; Ewing v. Risher, 176 F.2d 641, C.A. 10th; Scott v. Railroad Retirement Board, 227 F.2d 684, 686, C.A. 7th. (304 F.2d at 428, 429)

Additionally, in Kington v. United States, 396 F.2d 9 (6th Cir. 1968), we held that filing of previous actions in state and federal courts, which were voluntarily dismissed, did not toll the two- ' year statute of limitations of the Federal Tort Claims Act. 28 U.S.C. § 2401(b).

McClendon, supra, is the case factually closest to the one at bar. There, plaintiff received a right to sue letter on January 15, 1968, and filed an action on January 19, 1968 which was dismissed without prejudice on September 9, 1969. On October 29, 1969, fifty days later, the plaintiff filed another complaint, identical to the first. Defendant moved for dismissal on the ground that the court lacked subject matter jurisdiction since the complaint was not filed within thirty days following receipt of the right to sue letter.

In McClerúdon the District Court noted that the effect of voluntary dismissals without prejudice, absent a savings statute, was to create a situation the same as though the suit had never been brought. The Court stated:

Even assuming that the jurisdictional time period should begin to run anew as of the date of voluntary dismissal was entered, such a position would be of no benefit to plaintiff in this case. Dismissal was ordered on September 9, 1969. Suit, however, was brought on October 29, some fifty days later. Thus even if the Section 706(e) time period of thirty days was tolled by the first suit, plaintiff’s new suit would still be jurisdictionally defective. 2 CCH E.P.Dec. at 974.

Although Bomer and McClendon are authority for the proposition that the filing of a suit which was dismissed without prejudice did not toll the thirty-day filing requirement of Title VII, the District Court was of the view that the complaint should have been refiled within thirty days after such dismissal. But, even extending the time an additional thirty days, the new suit was still jurisdictionally defective because it was not filed within that time.

We are of the opinion that the District Court was clearly correct in holding that at a minimum Johnson had to file the new case within thirty days from the date of dismissal without prejudice.

Any other holding would result in plaintiff’s having no time limitation to refile in this type of an action after the action had been dismissed without prejudice. Such latitude for a plaintiff would create uncertainty, delay in processing his claim, and the possibility of stale claims being pursued. Here, the claim was already stale before the initial suit was filed. 42 U.S.C. § 2000e-5(e) was meant to eliminate such possibilities.

Any error that was committed was an error in favor of appellant Johnson. He failed to comply even with the District Court’s liberal interpretation of the requirement by his failure to file within thirty days after dismissal. The Title VII claims are thus barred since the Court was without jurisdiction to hear the charges set forth in the new complaint filed on May 31, 1972.

The second question for consideration is whether Johnson’s claims under 42 U.S.C. §§ 1981, 1982 and 1983, were time-barred by a Tennessee statute of limitations. Both Judge Brown’s first ruling and Judge Wellford’s later order found that these claims were time-barred. We agree. It is the duty of Federal Courts to apply the state statute of limitations most analogous to these actions. Appellant agrees with this but differs only as to what is the most analogous statute.

We feel that the most analogous statute is Title 28, Section 304, of the Tennessee Code. It reads as follows:

Personal tort actions — Malpractice of attorneys — Civil rights actions — • Statutory penalties. — Actions for libel, for injuries to the person, false imprisonment, malicious prosecution, criminal conversation, seduction, breach of marriage promise, actions and suits against attorneys for malpractice whether said actions are grounded or based in contract or tort, civil actions for compensatory or punitive damages, or both, brought under the federal civil rights statutes, and statutory penalties shall be commenced within one (1) year after cause of action accrued.

Appellant contends that. while this state statute, Section 304, is appropriate for Sections 1983 and 1985 actions, it is not appropriate for § 1981 actions. However, Snyder v. Swann, 313 F.Supp. 1267 (E.D.Tenn.1970), held this precise statute applicable to a Section 1981 action.

Appellant further contends that his complaint sounds in contract and is governed by a six-year statute of limitations. In our opinion, the complaint sounds in tort rather than in contract. Moreover, the very language of the state statute refers to “civil actions . brought under the federal civil rights statutes.” Thus, the tort-contract dichotomy does not have to be resorted to, given the preciseness of the state statute.

Finally on this point, appellant argues that filing of the charges with the EEOC tolls the statute of limitations under 42 U.S.C. § 1981. We reject this claim. In Williams v. Hollins, 428 F.2d 1221 (6th Cir. 1970), we declined to toll the statute in a section 1983 action during the time when plaintiff was in a Tennessee jail, since Section 301 of Title 28 of the Tennessee Code did not contain any such savings clause. In addition, appellant concedes the Title VII and Section 1981 claims are independent. Thus, no reason exists for stopping the running of a state statute of limitations while a charge is pending before the EEOC.

We have considered other points assigned as error, but in view of our disposition of the case they do not require discussion.

The judgment of the District Court is affirmed.

ORDER ON PETITION FOR REHEARING

This cause came on to be heard on the petition for rehearing, with a suggestion that it be heard en banc; and no Judge having requested that a vote be taken on whether said petition should be heard en banc, the petition for rehearing was referred to and was considered and determined by the panel.

The basis of the first part of our opinion was that when a Title VII (1964 Civil Rights Act) action was dismissed without prejudice, the plaintiff against whom the order was entered had thirty days to refile the complaint. Failure to meet this requirement was held to result in a jurisdictional defect.

Appellant’s basic argument in his brief supporting the petition for rehearing is that the Tennessee Savings Statute, T.C. A. 28-106, grants an entire year after such dismissal without prejudice to refile in the State Court. Appellant argues that this state statute is applicable because the federal statute involved gives no guidance as to time limitations.

It is clear that in civil rights actions brought under 42 U.S.C. §§ 1981 through 1988, a state statute of limitations is looked to because the federal statute is silent. Madison v. Wood, 410 F.2d 564 (6th Cir. 1969). However, Title VII of the 1964 Civil Rights Act is far from silent in regard to a limitations period for actions brought pursuant to the Act. It grants to claimants thirty days from the date of receipt of a right-to-sue letter from the Equal Employment Opportunity Commission (hereinafter referred to as EEOC) within which to file suit in the Federal District Court.

The state statute of limitations and its savings clause are never reached in this case because the federal statute is not silent. While the language of the federal statute may not cover the situation precisely, it indicates a clear policy that should be looked to before a state statute is embraced. The federal statute provides that claimants have thirty days from receipt of a right-to-sue letter, to file law suits. If they have only thirty days to file initially, it is difficult to see why claimants should have more than thirty days to refile after dismissal without prejudice, particularly when such refiling is ordered by the Court.

The requirement of refiling within thirty days seems ample time. A complaint is easily drawn and filed; indeed, in this case all that need be done is to refile the original complaint. In these cases of alleged employment discrimination, there is no latent injury waiting to be discpvered which would justify an extended period of time in which to refile. The complainant already knew what his grievance was, as it had been pending before EEOC for more than three years before he was authorized to file suit in the District Court. There is no reason not to expect expeditious processing of such claims in accord with a thirty-day requirement.

The second basis for our decision was that appellant’s civil rights claims under 42 U.S.C. § 1981 were barred by the Tennessee one-year statute of limitations, T.C.A. 28-304. Appellant’s employment was terminated in June, 1967, and the complaint was not filed until March 18, 1971. T.C.A. 28-304 applies to “civil actions for compensatory or punitive damages, or both, brought under the federal civil rights statutes .” Appellant appears not to attack the controlling nature of this statute but rather its constitutionality. Appellant argues that the statute is arbitrary since it places the same limitations period on all federal civil rights statutes.

We see nothing about the statute that violates equal protection or due process rights of any individual. T.C.A. 28-304 is not directed solely at civil rights claims, and even if it were, it would not necessarily be arbitrary in a constitutional sense. The statute applies also to a wide variety of personal tort actions and to claims of malpractice against attorneys.

Appellant relies on Hunter v. Erickson, 393 U.S. 385, 89 S.Ct. 557, 21 L.Ed.2d 616 (1969) and suggests that this statute of limitations creates an explicit racial classification. This contention is obviously unfounded because citizens of all races are entitled to take advantage of the federal civil rights statutes.

Finally, appellant argues that the filing of his Title VII.claim with the EEOC tolls the state statute regarding his claims under 42 U.S.C. § 1981. In a letter supplementing his brief supporting his petition for reconsideration, appellant cites Macklin v. Spector Freight Systems, Inc., 156 U.S.App.D.C. 69, 478 F.2d 979, 994-995 (1973), in which the Court stated in a footnote (n. 30) that the filing of charges with the EEOC tolled the statute of limitations on a Section 1981 action. We decline to adopt this position.

It appears to us that the footnote in Macklin v. Spector, supra, is inconsistent with the rationale in the text of the opinion. Speetor had argued that since no complaint had been lodged with the EEOC, plaintiff’s Section 1981 action had to be dismissed. The Court held, and we think correctly, that no exhaustion of EEOC procedures was necessary to bring a Section 1981 claim, because § 1981 constitutes a cause of action separate and independent from a Title VII claim. The Court said:

“. . . Section 1981 and Title VII, in truth, provide for such radically different schemes of enforcement and differ so widely in their substantive scopes that using the policies behind the latter to create procedural barriers to actions under the former would stretch to the breaking point courts’ customary duty to accommodate allegedly conflicting legislation.” 478 F.2d at 996.

If the two actions “differ so widely in their substantive scopes” the filing of one should not toll the statute of limitations on the other. The Court suggested in the relevant footnote that the basic reason for such tolling was a Congressional desire to favor informal means of accommodation provided for under Title VII. We think that there is enough flexibility in the federal trial system so that conciliation processes will not be destroyed if a Section 1981 case is heard while a Title VII claim is being processed. Jenkins v. General Motors Corp., 354 F.Supp. 1040 (D.Del.1973).

In Jenkins the Court also held that no tolling effect on § 1981 claims took place with the filing of Title VII charges with the EEOC. The Court relied heavily on the reasoning in Young v. International Tel. & Tel. Co., 438 F.2d 757 (3d Cir. 1971). Young held that Title VII claims and § 1981 claims were separate and independent, and that Title VII imposed no jurisdictional barriers to a § 1981 action. We agree with this reasoning and with that included in the text of the opinion in Macklin v. Speetor, supra.

The petition for rehearing is denied.

      . The District Court held that many of the issues raised by the plaintiff in his second suit were decided against him in the first action in which the Court granted summary judgment against the plaintiff, and reconsideration was barred by the doctrine of res judicata. Johnson did not appeal from these summary judgments. We agree with the District Court that the unions have a complete defense on the ground of res judicata, and that the company likewise has such defense only so far as the claim of improper supervisory training is concerned.


author: MERRILL, Circuit Judge:

text:
    OCEAN SHORE RAILROAD COMPANY, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
    No. 71-2900.
    United States Court of Appeals, Ninth Circuit.
    Dec. 11, 1973.
    Carl Hoppe (argued), Eckhoff, Hoppe, Slick, Mitchell & Anderson, Bruce H. Johnsonbaugh, San Francisco, Cal., C. John Bernt, San Rafael, Cal., for plaintiff-appellant.
    Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, William S. Estabrook (argued), Tax Div. Dept, of Justice, Washington, D. C., James L. Browning, Jr., U. S. Atty., San Francisco, Cal., for defendant-appellee.
    Before MERRILL, KOELSCH and SNEED, Circuit Judges.
   OPINION

MERRILL, Circuit Judge:

This case has to do with the Ocean Shore Railroad, a project of high promise to residents of the San Francisco Bay Area in the early years of the century. Since 1920 appellant corporation (taxpayer) has been engaged in dissolution and liquidation of assets in connection with which a dispute respecting income tax has reached us.

In 1905 a corporation was organized to construct and operate a railroad between San Francisco and Santa Cruz. It promptly ran into financial difficulties and, in 1911, taxpayer was organized to take over its operations. Taxpayer operated the railroad unprofitably until 1920 when its board of directors resolved to discontinue service and to dissolve and liquidate the corporation. Track and rolling stock were sold by the end of 1921, leaving taxpayer with its right of way and other assorted parcels of real property.

A series of events then occurred difficult both to reconstruct and to comprehend. One seems to be witnessing a form of the old shell game with the railroad right of way serving as the subject of the prestidigitation.

In 1929 taxpayer granted to Selah Chamberlain, representing a group of associates, an option to purchase the right of way for $100,000. Chamberlain assigned the option ‘to his associate George Middleton, who in 1933 formally exercised it, and on February 20, 1934, signed a contract with taxpayer to purchase the property by paying the $100,000 in installments over a period of four years. Middleton, having performed this function, then assigned the contract to Chamberlain.

An escrow was established pursuant to the terms of the agreement, and a deed to Chamberlain was executed by taxpayer and deposited in escrow. By February, 1938, the full purchase price had been paid into escrow', the sale had been consummated and Chamberlain and his associates were entitled to delivery of the deed.

In the interim, however, certain events had occurred.

In its income tax returns for 1934 to 1938 taxpayer reported a cost basis for the right of way of $1,657,717.19, and a sale price of $100,000 received by installments, with a resulting loss of $1,557,717.19.

On November 23, 1934, a Nevada corporation, Ocean Shore Railroad, Inc., was organized. On November 27, 1934, taxpayer transferred its right of way to the new corporation for 250 shares of the latter’s stock, this being all of the Nevada corporation’s capital stock.

On, June 24, 1935, the State of California instituted condemnation proceedings against the new corporation as owner of the right-of-way property.

In August, 1935, Chamberlain died. On June 25, 1936, the Nevada corporation deeded the right-of-way property back to taxpayer, and taxpayer returned the 250 shares of stock.

On March 15, 1937, taxpayer wrote its shareholders advising:

“The Group which has purchased the right of way of this company in San Mateo County desires to take over all of the outstanding stock of the company, a part of which you now hold.
Your Directors have studied this matter carefully and see no reason why all of the outstanding stock of the company should not be turned over to them, as by so doing it would save you the expense of legally dissolving the corporation upon completion of liquidation.
The stock would not be delivered to this group until they have paid in full the agreed price, and there now remains but one more payment for them to make, upon which they will be deeded the entire right of way of your company.”

Over 90 per cent, of the shareholders sent in their stock to the escrow, with instructions that it was not to be delivered until the full purchase price had been paid and any remaining assets had been transferred by taxpayer to trustees for the shareholders.

So things stood in 1938, when the full purchase price agreed upon was paid into escrow. Chamberlain’s associates were then entitled to delivery of both the deed and the surrendered shares of stock. Instead the deed was returned to taxpayer, the escrow holder noting in the file that the escrow was closed “by reason of the death of the grantee and the failure of the deal.” The shares of stock have remained in escrow ever since.

In December, 1942, taxpayer was added as a defendant in the condemnation suit, and in September, 1961, it received a settlement from the state in the sum of $1,778,380 for 119.146 acres of right-of-way property. In its income tax return for 1961 taxpayer reported a cost basis for the property of $1,778,156.31, resulting in no gain or loss.

The Internal Revenue Service rejected this report. Instead it determined that taxpayer had taken over the purchasers’ cost basis. It recognized that certain additional sums had been expended by the purchasers over the years on improvements to the property, bringing the basis for the whole of the property up to $673,742.21. It allocated this basis among the various parcels and determined that the basis of the condemned property was $339,984.31, and that with certain selling expenses taxpayer had realized a capital gain of $1,408,118.60. Taxpayer paid the resulting deficiency and sued for refund. The District Court upheld the Service, and taxpayer has taken this appeal.

The question presented is whether taxpayer is entitled to claim its own original cost basis, or must take the basis of the purchasing group. We agree with the District Court that the latter is the correct answer.

Taxpayer contends that the parties abandoned the right-of-way sale and that the sale became one of corporate stock, leaving title and ownership of the real property in the taxpayer. We cannot agree that the legal and tax consequences of what occurred was abandonment of the sale of the property.

By their option and purchase agreement, the purchasing group- made it plain that it was the right of way property that they were after, and not the corporation. That agreement never'was rescinded or repudiated. Under California law, there was a completed sale of the land to the Chamberlaíh group. Legal title to the land passed when all the conditions of the escrow were met; physical delivery of the deed was not necessary. Hagge v. Drew, 27 Cal.2d 368, 165 P.2d 461, 465 (1945); Todd v. Vestermark, 145 Cal.App.2d 374, 302 P.2d 347, 349 (Dist.Ct.App.1956); Holman v. Toten, 54 Cal.App.2d 309, 313-314, 128 P.2d 808, 810-811 (Dist.Ct. App.1942). When the purchase price was fully paid, then, the sale was a completed transaction with the rights of the purchasers to the property fully established and with their tax basis fixed as the purchase price. When the purchasers took steps which had the effect of relinquishing their interest in the right of way back to the corporation which they then controlled — by declining to take and record the deed, and instead acquiescing in Ocean Shore’s continuing to act as owner — this amounted to a nontaxable contribution to taxpayer’s capital. See 26 U.S.C. § 118. Retaking the property in this manner, taxpayer assumed its contributors’ basis. See 26 U.S.C. § 1015. Only to this extent have the purchasers made an investment in the right of way.

The escrowed shares of stock do not alter the situation. Contrary to taxpayer’s contentions, it does not appear that there ever was any suggestion on either side that the nature of the sale transaction was to be changed — that money was being paid for something different, and that an entirely different agreement was in effect. The payment of the purchase price was never conditioned on the deposit of stock. It remained conditioned on the deposit of a deed. Although certificates for over 90 per cent, of the stock were eventually sent in to éscrow, the balance of over 8 per cent, has never made its appearance and some original shareholders apparently still retain their interest. The letters of instruction accompanying the surrendered certificates made it plain that it was compliance with the terms of the agreement of February 20, 1934, that was the condition for delivery of the certificates to the purchasers. Delivery of the stock was to await such time as' the corporation was wholly without assets, so that what would be transferred was the corporate shell.

This is not to say that the substance of an executory contract of sale can never be changed in mid-stream with different tax consequences attaching upon its completion. It is simply to say that this did not occur here. Amid all the mysterious maneuvering that did take place, formalities essential to such a change or recasting were wholly lacking.

Judgment affirmed.

      . It seems apparent that condemnation of a portion of the property by the State of California for highway use was in prospect. Chamberlain agreed to defend any condemnation proceedings that might be commenced, and taxpayer assigned to Chamberlain any cause of action it might have for damages caused by trespass of “Joint Highway District No. 9.”

      . Although this letter bears the date March 15, 1937, the form letter enclosed, which was to accompany the certificates back to escrow, was dated “Feb. —, 1934,” and recited, “It is our understanding that you have this day entered into an agreement to purchase,” etc.


author: IRVING R. KAUFMAN, Chief Judge:

text:
    SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellant, v. SPECTRUM, LTD., et al., Defendants, Stuart Schiffman, Defendant-Appellee.
    No. 93, Docket 72-2369.
    United States Court of Appeals, Second Circuit.
    Argued Nov. 14, 1973.
    Decided Dec. 4, 1973.

      Theodore Sonde, Asst. Gen. Counsel, Washington, D. C. (Walter P. North, Acting Gen. Counsel, David Ferber, Sol., Mark Q. Connelly, Atty., Securities and Exchange Commission, Washington, D. C., on the brief), for plaintiff-appellant.
    Barry Feiner, New York City (Fei-ner, Curtis, Smith & Goldman, New York City, on the brief), for defendant-appellee.
    Before KAUFMAN, Chief Judge, and SMITH and OAKES, Circuit Judges.
   IRVING R. KAUFMAN, Chief Judge:

The securities laws provide a myriad of safeguards designed to protect the interests of the investing public. Effective implementation of these safeguards, however, depends in large measure on the members of the bar who serve in an advisory capacity to those engaged in securities transactions. The standard of diligence demanded of the legal profession to meet this responsibility is a matter on which we are required to comment in the resolution of this appeal.

On April 2, 1971, the Securities and Exchange Commission [SEC] filed a complaint charging twelve defendants, including the appellee, Stuart Schiffman, with participation in a partially successful scheme to distribute over one million unregistered shares of the common stock of Spectrum, Ltd. in violation of the registration provisions of the Securities Act of- 1933 [the 1933 Act] (15 U.S.C. § 77e) and the antifraud provisions of that Act (15 U.S.C. § 77q(a)) and of the Securities Exchange Act of 1934 [the 1934 Act] (15 U.S.C. § 78j(b)). Although the Commission has obtained permanent injunctions against at least ten of the defendants, it was unsuccessful in its effort to gain preliminary injunctive relief against Schiffman, an attorney who allegedly prepared an opinion letter on the basis of which some of the unregistered securities were sold. Judge Tenney, after reviewing the affidavits, cross-affidavits, exhibits, and depositions filed by the SEC and by Schiffman, denied the SEC’s request for an evidentiary hearing, on the grounds that there were no material facts in dispute, and concluded that Schiffman’s conduct, although perhaps negligent, did not rise to a violation of the securities laws. Upon a careful examination of the record, we find the existence of a highly material factual conflict. Accordingly, we reverse and remand to Judge Tenney for an evidentiary hearing in which the disputed issues can be resolved.

I.

A detailed account of the intricacies of the multi-party stock manipulation venture which prompted this action, the principal features of which were unchallenged below, is set forth in the extensive supporting affidavit filed by the SEC. For purposes of this appeal, however, we limit our recitation to background information necessary for an understanding of Schiffman’s alleged role in the scheme.

In September, 1969, Louis Marder, representing the Westward Investment Corporation, and Bernard Goldenberg and Joseph Dye, representing Spectrum, Ltd., agreed to a merger of Westward into Spectrum. The purpose of this merger was to provide a vehicle for the distribution of unregistered Spectrum securities which could later be sold to an unwitting public.

Section 5(c) of the 1933 Act states that “it shall be unlawful for any person, directly or indirectly ... to sell . . . any security unless a registration statement has been filed as to such security.” 15 U.S.C. § 77e. To avoid this registration requirement, a plan was devised, principally by Marder and Goldenberg, which relied on a two-step procedure for securing exemption from Section 5. First, a large block of unregistered Spectrum common stock would be issued to the shareholders of Westward in the merger of Westward into Spectrum. This stock would be exempt from the registration mandate of Section 5 pursuant to Commission Rule 133,® which provided that the exchange of shares between a surviving corporation and the shareholders of a disappearing corporation in the course of a merger would not be considered a “sale” within the purview of Section 5. Second, under Section 4(1) of the 1933 Act, the recipients of this unregistered Spectrum stock would be able to dispose of these securities, again without the filing of a registration statement as a predicate to the transaction, as long as the seller was not deemed to be “an issuer, underwriter or dealer” under the Act.

For Marder, who controlled Westward, successful implementation of this plan presented one obvious stumbling block • — Rule 133 classified a controlling shareholder of the “constituent corporation” (Westward) as an “underwriter” and, therefore, a person not qualified for exemption under Section 4(1). Accordingly, prior to the merger Marder commenced distributing some of his Westward shares to various friends, many of whom, as the court below found, were in fact unaware of their status as Westward shareholders. Following the merger, Marder intended to effect the sale of the Spectrum stock received by his acquaintances in transactions which, because of the stock’s nominal ownership by non-controlling former Westward shareholders, would appear to satisfy the criteria for a Section 4(1) exemption.

The stage was set for the successful charade upon consummation of the Spectrum-Westward merger on November 10, 1969. Of the 4,596,465 shares of Spectrum stock issued in the exchange, approximately one million shares went to Marder’s corps of nominees. By obtaining the necessary stock powers from these individuals, Marder was in a position to begin the illicit sale of unregistered Spectrum securities.

On the day of the merger, November 10, Spectrum’s general counsel, Morton Berger, wrote an opinion letter to Spectrum’s transfer agent in which he instructed the agent on the proper classification of the Spectrum shares then being issued. Berger’s letter, based upon representations by Goldenberg and Marder, included his opinion that the merger complied with' the requirements of Rule 133 and that certain recipients of the newly-issued Spectrum stock should receive shares labelled “restricted”- — i. e. not for public sale — because these former Westward shareholders, whom Berger listed, were considered to be “underwriters” pursuant to Rule 133(c). Berger concluded his letter by opining that the remaining former Westward shareholders, whose names Berger did not recite, could be issued Spectrum securities without a restrictive legend.

On November 25, 1969, Berger wrote a second letter, this time to the president of Spectrum, in which he listed those persons who had received unrestricted shares of Spectrum stock pursuant to the merger. This letter, however, was not in the form of an opinion letter.

Retracing our steps, on November 13 and November 28, 1969, Marder delivered for sale a total of 125,000 shares of unrestricted Spectrum stock, nominally owned by William and John Doyen, to Michael Gardner, a principal at the registered broker-dealer firm of Gardner Securities. Gardner balked at the sale of these unregistered securities, despite their unrestricted nature, insisting upon an opinion letter which stated that these shares were considered exempt from the registration requirements of Section 5. Although Marder possessed the Berger letters of November 10 and November 25, Gardner viewed them as insufficient, apparently because the November 10 letter failed to specify the individuals entitled to exemption, while the November 25 letter did not purport to be an opinion letter.

Although Gardner called Berger about preparing the requisite opinion letter, Berger refused to issue such a letter on behalf of any shareholder. Because of this refusal, Gardner communicated with Schiffman stating that he wished to discuss a securities matter the details of which Gardner failed to provide on the telephone. Schiffman responded by meeting Gardner at his office.

It is at this juncture — Schiffman’s debut so to speak — that the crucial factual controversy arises. According to Schiff-man’s affidavit submitted in opposition to the motion for a preliminary injunction, he visited Gardner’s office twice in late November. On the first occasion, he and Gardner spoke in general terms about Gardner’s securities business and Gardner introduced him to James Morse, one of Gardner’s clients. At the second meeting, several days later, Morse was again present at Gardner’s office. On this occasion, Morse mentioned that a friend of his, a Mr. Doyen, was in need of some help and asked Schiffman if he would speak to Doyen. After Schiffman agreed, Morse telephoned Doyen. Morse handed the instrument to Schiffman and Doyen proceeded to explain to Schiffman that he owned some unregistered stock in Spectrum, Ltd. for which he wanted an opinion letter that would indicate that the securities could be sold without registration. Schiffman allegedly responded that since he had no knowledge of the underlying transactions, he would be hesitant to write such a letter. But, Schiffman claims that his reluctance was overcome when Morse showed him the two Berger letters. Schiffman then proceeded to advise Doyen that he would prepare an opinion letter which would “verify” Berger’s opinion.

Schiffman’s version of these meetings at Gardner’s office is sharply in conflict with Gardner’s recollection of the events, as described in his affidavit submitted by the SEC. Gardner recalls only one meeting with Schiffman at which not only Morse was present but Louis Marder as well. Gardner’s affidavit then notes, quite specifically, that

I [Gardner] introduced Schiffman to Marder and Morse for the purpose of Schiffman representing Marder and Morse. Marder and Morse asked Schiffman, in my presence, to prepare an opinion letter for securities of Spectrum that were going to be sold by Marder and Morse. [emphasis added]

The affidavit concludes with the statement : ■

I do not recall at any time .
Morse telephoning one William Doyen, giving the telephone to Schiffman, and Schiffman speaking to Doyen about an opinion letter to be prepared by Schiffman concerning either Doyen’s stock, or any other stock.

In any event, Gardner was evidently satisfied that Schiffman would write the opinion letter because, sometime before its preparation, he proceeded to sell 50,000 shares of Spectrum stock jointly owned by the Doyens. As for Schiff-man, he claims to have arranged a conference with Berger so that he could learn more about the Spectrum stock for which he had agreed to write an opinion letter.

What transpired at this meeting between Schiffman and Berger is also the subject of conflicting documentary versions. Both men agree that Berger gave Schiffman the two letters dated November 10 and November 25. Berger, however, in his affidavit submitted in the preliminary injunction proceeding, added that he warned Schiffman that he “suspected that this stock [the unregistered Spectrum securities] was going to be traded by a control person and therefore the stock should not be freely traded.” This account did not appear in Berger’s two prior depositions, also part of the record below. Schiffman, on the other hand, in his reply affidavit, denied that Berger uttered any warning whatsoever.

It is uncontroverted that following this meeting Schiffman prepared an opinion letter which closely paralleled the Berger opinion letter of November 10 with one key addition — it contained the names of those shareholders, mentioned only as a group by Berger, who could sell their Spectrum stock in a transaction exempt from the registration requirement of Section 5. Although Schiffman’s letter, dated December 4, was addressed to Doyen, Schiff-man delivered it to Gardner’s office because Schiffman had never received Doyen’s address. Subsequently, on December 8, Schiffman sent a second letter to Doyen, again through Gardner’s office, in which Schiffman stated that his opinion letter of December 4 was not to be used for the sale of unregistered Spectrum stock. No such caveat, however, was incorporated in the December 4 letter.

The use to which Schiffman’s opinion letter of December 4 was put is a matter of some uncertainty. The SEC has alleged that in January, 1970, Marder showed the Schiffman letter to “Canadian citizen # 1” in order to assure this anonymous Canadian that the Spectrum shares that he had agreed to purchase from Marder could be traded without registration. The SEC charges that “Canadian citizen # 1” subsequently sold 15,000 shares of this unregistered Spectrum stock in the Canadian market. Although these allegations were never contested by Schiffman, they also remain unsupported by any independent evidence.

Eighteen months after this documentary joust commenced, Judge Tenney, on October 10, 1972, denied the SEC’s request for a preliminary injunction to enjoin Schiffman from further violations of §§ 5(a), 5(c) and 17(a) of the 1933 Act and § 10(b) of the 1934 Act. He concluded that there was no evidence, apart from the bare allegations by the SEC, that any unregistered Spectrum stock had been sold on the basis of Schiffman’s opinion letter. Recognizing that Schiffman might still have violated the securities laws as an aider and abettor, the district court, after pronouncing a standard of liability which required actual knowledge of the illegal scheme, found a dearth of' credible evidence in the papers before him to sustain a finding of such knowledge on Schiffman’s part. Judge Tenney finally noted that even if Schiffman were considered negligent in preparing his opinion letter, there had been no showing that, "unless enjoined, he would be likely to run afoul of the law in the future.

II.

We should note, at the outset, that had the denial of temporary injunctive relief been based solely on the failure to demonstrate a propensity for future violations, we would hesitate before disturbing such conclusion. SEC v. Bangor Punta, 331 F.Supp. 1154 (S.D.N.Y.1971), aff’d sub nom. Chris-Craft Industries, Inc. v. Piper Aircraft Corp., 480 F.2d 341, 393-395 (2d Cir. 1973), cert. denied, 414 U.S. 924, 94 S.Ct. 234, 38 L.Ed.2d 158 (1973). Judge Tenney, however, went well beyond this rationale, finding no evidence whatsoever of any violation, nor even sufficient factual uncertainty to justify an evidentiary hearing. It is especially as to this latter holding, the declination to hold an evidentiary hearing, that we find error for we believe that the district judge failed to properly heed our admonition that “a judge should not resolve a factual dispute on affidavits or depositions for then he is merely showing a preference for ‘one piece of paper to another.’ Sims v. Greene, 161 F.2d 87, 88 (3d Cir. 1947).” Dopp v. Franklin National Bank, 461 F.2d 873, 879 (2d Cir. 1972).

As in Dopp, we need give no special deference to the district court’s finding that there were no material issues of fact in dispute for “we are in as good a position as [he] to read and interpret the pleadings, affidavits and depositions. . . . ” Ibid. Examination of this record, moreover, discloses a sharp factual conflict bearing heavily on the critical question of Schiffman’s actual knowledge of the scheme to illicitly distribute unregistered Spectrum stock at the time he agreed to draft the December 4 opinion letter.

On Schiffman’s part, he has steadfastly maintained that he was ignorant of the Marder plan. Yet, these protestations of innocence are met squarely on two fronts — by the affidavits of Gardner and Berger. Although we do not disagree with the district court that the Berger affidavit would seem to be incredible on its face in light of Berger’s failure to make any mention of his alleged warning to Schiffman in the course of two prior depositions, we cannot overlook the dispute between Gardner and Schiffman over the events and participants at the crucial meeting at Gardner’s office in late November, 1969. If Gardner’s statement that Marder personally asked Schiffman for an opinion letter so that Marder could sell unregistered Spectrum stock is true — and only a hearing could determine this — then Schiffman’s claim of unawareness of the scheme would appear thin. To be sure, Gardner’s veracity may be questioned, but no more nor less than Schiffman’s, in view of Schiffman’s stake in the outcome of this lawsuit. Accordingly, since oral testimony is a medium far superior for evaluating credibility than the cold written word, we consider an eviden-tiary hearing essential to the proper disposition of this case. See SEC v. Frank, 388 F.2d 486 (2d Cir.1968).

III.

Since our decision necessitates further proceedings in the lower court, we would be remiss if we failed to comment on the appropriate rule of law to be applied by the district judge. Judge Tenney properly recognized that if Schiffman’s opinion letter were in fact used to sell unregistered Spectrum stock in violation of Section 5, although his status as an “underwriter” might be uncertain, he could be liable, nevertheless, as an aider and abettor to Marder’s illicit venture. SEC v. North American Research & Development Corp., 424 F.2d 63, 82 (2d Cir. 1970). In assessing liability as an aider and abettor, however, the district judge formulated a requisite standard of culpability — actual knowledge of the improper scheme plus an intent to further that scheme — which we find to be a sharp and unjustified departure from the negligence standard which we have repeatedly held to be sufficient in the context of enforcement proceedings seeking equitable or prophylactic relief. SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1096 (2d Cir. 1972); Hanly v. SEC, 415 F.2d 589, 596 (2d Cir. 1969); SEC v. Texas Gulf Sulfur Co., 401 F.2d 833, 854-855 (2d Cir. 1968) (en banc), cert. denied, sub nom. Kline v. SEC, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969). Cf. Lanza v. Drexel, 479 F.2d 1277, 1304 (2d Cir. 1973) (enbanc).

We do not believe, moreover, that imposition of a negligence standard with respect to the conduct of a secondary participant is overly strict, at least in the context of this case. The legal profession plays a unique and pivotal role in the effective implementation of the securities laws. Questions of compliance with the intricate provisions of these statutes are ever present and the smooth functioning of the securities markets will be seriously disturbed if the public cannot rely on the expertise proffered by an attorney when he renders an opinion on such matters. Schiffman, himself, realized that his opinion letter of December 4 could be used in due course to sell unregistered securities and sought to prevent that use by his subsequent letter to Doyen of December 8. This belated effort was ineffectual, however, since the limitation expressed in the second letter could hardly affect the potency of the December 4 opinion letter which remained unrestricted on its face.

We do not find persuasive the argument by one recent commentator that since “the alleged aider and abettor will merely be engaging in customary business activities, such as loaning money, managing a corporation, preparing financial statements, distributing press releases, completing brokerage transactions, or giving legal advice, [a requirement that he] investigate the ultimate activities of the party whom he is assisting [may impose] a burden upon business activities that is too great.” Ruder, Multiple Defendants in Securities Law Fraud Cases: Aiding and Abetting, Conspiracy, In Pari Delic-to, Indemnification and Contribution, 120 U.Pa.L.Rev. 597, 632-633 (1972). In the distribution of unregistered securities, the preparation of an opinion letter is too essential and the reliance of the public too high to permit due diligence to be cast aside in the name of convenience. The public trust demands more of its legal advisers than “customary” activities which prove to be careless. And, to be sure, where expediency precludes thorough investigation, an attorney can prevent the illicit use of his opinion letter by prohibiting its utilization in the sale of unregistered securities by a statement to that effect clearly appearing on the face of the letter.

Nor does Professor Ruder’s analogy to the strict scienter requirement for criminal liability of an aider and abettor seem appropriate to gauge the quality of conduct sufficient to warrant injunctive relief in a civil action. Cf. United States v. Peoni, 100 F.2d 401, 402 (2d Cir. 1938). The disparate consequences cannot be glossed over when striking the balance between private rights and the public interest.

We could not conclude without emphasizing that the standard of culpability we find appropriate for the author of an opinion letter in an action for injunctive relief only should not be construed to apply to more peripheral participants in an illicit scheme or, for that matter, to criminal prosecutions or private suits for damages. Those questions are not before us.

Nor do we suggest that the degree of scienter may not be highly relevant to a determination of whether the defendant has the propensity to commit future violations, a requisite to injunctive relief. In this regard, the SEC has indicated on this appeal that, subsequent to the argument of the instant case in the district court, Schiffman has been enjoined for violations of the securities laws on two separate occasions and has pleaded guilty to a third such violation. On remand of this case, we can see no reason for precluding the SEC from introducing this evidence on the propensity issue.

For the reasons stated, the order of the district court is reversed and the case remanded for further proceedings, In light of the untoward delay, we strongly urge that the hearing on the application for a preliminary injunction be consolidated with the trial on the merits pursuant to Fed.R.Civ.P. 65(a)(2), and the case advanced for disposition.

      . Spectrum, Ltd., Louis Israel Marder, Central National Fund, James W. Morse, Michael Gardner, Michael Karfunkel, George Karfunkel, Stuart Sehiffman, Quido Benigno, Edward T. Carroll, Bernard L. Goldenberg, and Joseph W. Dye.

      . These injunctions have been entered upon consent or default or, in the case of Spectrum, upon the Commission’s motion for summary judgment. SEC v. Spectrum, Ltd., 54 F.R.D. 70 (S.D.N.Y.1972).

      . We do not consider Judge Tenney’s statement that Schiffman “may have been guilty of some negligence in preparing the opinion letter” to constitute an express finding of such negligence. Nor do we believe the record to be sufficiently certain in its description of Schiffman’s conduct to permit a finding of negligence at this preliminary stage.

      . See note 2 supra.

      . 17 C.F.R. § 230.133 (1973). Rule 133 was rescinded effective January 1, 1973. 37 Fed.Reg. 23636 (1972). It has been replaced by Rule 145, 17 C.F.R. § 230.145 (1973), which no longer provides a registration exemption for securities issued in the course of a merger.

      . Rule 133 conditioned exemption on the submission of the merger proposal to a vote of the disappearing corporation’s shareholders. Although no such vote was taken, Marder apparently hoped to conceal this omission. We should add that even if a vote had been taken, the distribution would not have qualified for a Rule 133 exemption because of the existence of the illicit scheme at the time of the merger agreement. SEC v. Micro-Moisture Controls, Inc., 148 F.Supp. 558, 562 (S.D.N.Y.1957).

      . Schiffman makes much of the fact that Berger, whose opinion letter of November 10 was a critical element in the scheme, was not joined as a defendant below. Although Berger’s conduct was far from exemplary, we see no reason to question the Commission’s discretion in declining to name Berger in the complaint.

      . We agree with Judge Tenney that whether there were two meetings at Gardner’s office, as Schiffman contends, or only one, as Gardner recalls, is not material to the issue before us.

      . According to Schiffman’s reply affidavit, the SEC has filed four complaints against Gardner for various violations of the securities laws and, in at least one of these actions, Gardner has consented to the issuance of a permanent injunction enjoining Gardner and Gardner Securities from further violations.

      . Although the SEC has alleged that Mar-der actually used Schiffman’s opinion letter in the sale of unregistered Spectrum stock, proof of such use must await the evidentiary hearing.

      . The term “underwriter” has been broadly defined to include anyone who directly or indirectly participates in a distribution of securities from an “issuer” (Marder) to the public. SEC v. North American Research & Development Corp., 424 F.2d 63, 72 (2d Cir. 1970). Because the record is unclear, we decline to decide whether the extent of Schiffman’s alleged participation in the scheme would be sufficient to qualify him as an “underwriter.”

      . Although we have enunciated the negligence test principally in cases involving the anti-fraud provisions of the securities laws, the registration requirement embodied in Section 5 is designed to perform the identical function of protecting investors “by promoting full disclosure of information thought necessary to informed investment decisions.” SEC v. Ralston Purina Co., 346 U.S. 119, 324, 73 S.Ct. 981, 984, 97 L.Ed. 1494 (1953). Accordingly, we believe that, in a proceeding by the SEC seeking prophylactic relief, we would be undermining this salutary mechanism by an overly fine appraisal of conduct which contributes to its circumvention.

      . See SEC v. Kelly, Andrews & Bradley, Inc., 341 F.Supp. 1201 (S.D.N.Y.1972); SEC v. D’Onofrio, 72 Civ. 3507 (default judgment entered December 11,1972).

      . We do not intend by this opinion to indicate any view on the ultimate decision on the merits.

      . See United States v. Akiyoshi Yamada, 72 Crim. 363 (guilty plea entered April 3, 1973).


author: HOLLOWAY, Circuit Judge.

text:
    P. D. CASPER et al., Plaintiffs-Appellants, v. Glen M. NEUBERT, Executor of the Estate of Gerald L. Reasor, Deceased, et al., Defendants-Appellees.
    No. 72-1695.
    United States Court of Appeals, Tenth Circuit.
    Argued and Submitted March 30, 1973.
    Decided Dec. 19, 1973.
    Rehearing Denied Feb. 1,1973.

      LeRoy Powers, Oklahoma City, Okl., for plaintiffs-appellants.
    Charles P. Ames, Oklahoma City, Okl. (Ames, Daugherty, Bynum, Black, Ash-abranner & Rogers, Oklahoma City, Okl, were on the brief), for defendant-ap-pellee, Neubert.
    Before SETH and HOLLOWAY, Circuit Judges, and KERR, District Judge.

       The Honorable Ewing T. Kerr, Chief Judge, for the District of Wyoming, sitting by designation.

   HOLLOWAY, Circuit Judge.

This diversity action seeks to enforce a lien against oil.and gas leaseholds for the unpaid balance of their purchase price and to impress a constructive trust on a portion of the income from the leases. The defendant executor asserted several defenses, primarily the failure to present timely claims against the estate as required by the Oklahoma Probate Code. The District Court granted summary judgment for the defendant on the grounds that no vendor’s or equitable lien may be enforced under Oklahoma law against the leasehold interests and that the claims were barred for non-presentment to the executor. We agree as to the ruling on the equitable lien theory but cannot ' agree with the summary judgment rejecting the remaining claims.

The principal facts are undisputed. In 1967 the plaintiffs were owners of varying undivided interests in several oil and gas leases. Mr. Reasor owned the remaining interests in each of these leases. On December 21, 1967, the plaintiffs contracted to sell their interests to Mr. Reasor for a total price of $95,-000. Although the contract provided neither a specific date for transfer of the interests nor the precise procedures for payment, it did stipulate that the plaintiffs were to receive the income from the interests sold from the dates of first production until January 1, 1968. Assignments of some of the leases were made in January, 1969, at which time Mr. Reasor made a partial payment of $15,-000. The remaining interests were transferred in June, 1969, whereupon Mr. Reasor made additional payments totalling $37,440.

No further payments were made, and Mr. Reasor died in October, 1969. Throughout the period of these transactions the income from the leases was held in suspense, pending the release of liens and encumbrances. It appears that the income on at least one of the leases was released prior to Mr. Reasor’s death. Release of the remaining income, however, was obtained by Mr. Neubert as executor of the estate. The estate has made no payments of any kind to any of the plaintiffs.

Ancillary probate proceedings on Mr. Reasor’s estate began in March, 1970. The notice to creditors was first published on March 6, 1970, and no question as to its sufficiency is raised. In addition to the published notice, plaintiff Lambdin was notified personally by letter dated March 5, 1970. The plaintiffs made no attempt to present their claims to the estate during the two month period allowed by 58 O.S.A. § 331. The plaintiffs had no contact with the estate until March, 1972, when the events preliminary to this action transpired.

Thus since no claims were presented by the plaintiffs following the executor’s notice to creditors the question is raised as to whether the claims made are barred. See 58 O.S.A. §§ 331 and 333. The plaintiffs contend that either a statutory vendor’s lien under 42 O.S.A. § 26 or an equitable lien should be imposed on the leasehold interests to secure the unpaid balance of the purchase price, and that a constructive trust should be imposed on the claimed portion of the lease income. As to such equitable claims the plaintiffs say that the requirement of presentation to the executor does not apply.

First we turn to the plaintiffs’ proposition that they are entitled to a vendor’s lien against the oil and gas leaseholds under 42 O.S.A. § 26 which provides as follows:

“ § 26. Vendor’s lien for price of realty. — One who sells real property has a special or vendor’s lien thereon, independent of possession, for so much of the price as remains unpaid and unsecured, otherwise than by the personal obligation of the buyer, subject to the rights of purchasers and in-cumbrancers, in good faith, without notice. R.L.1910, § 3847.”

The District Court held that the statute does not apply to oil and gas leasehold interests for the reason that they are not “real property” within the meaning of the statute. Authorities were reviewed holding that the leasehold is a chattel real, an incorporeal hereditament and a profit a prendre.

With respect to the rights under an oil and gas lease Oklahoma has adopted the qualified ownership theory recognizing the right to explore for oil and gas and reduce them to possession, a right described as an incorporeal her-editament and a profit a prendre. See Rich v. Doneghey, 71 Okl. 204, 177 P. 86, 89. The leasehold interest has been described variously as a chattel real, an incorporeal hereditament and a profit a prendre by the Oklahoma courts. See Continental Supply Co. v. Marshall, 152 F.2d 300, 305-06 (10th Cir.), cert. denied, sub nom. Federal National Bank v. Continental Supply Co., 327 U.S. 803, 66 S.Ct. 962, 90 L.Ed. 1028. We must however, focus on the statute involved to decide whether an oil and gas lease is “real property” within its meaning. The sense in which the term “real property” is used in the statute in question is controlling. Nicholson Corp. v. Ferguson, 114 Okl. 10, 243 P. 195, 199.

In Oklahoma law we find a clear statutory policy to protect vendors against the inequity of a vendee accepting conveyance of property and refusing to pay the purchase price. The policy is demonstrated by 42 O.S.A. § 26, adopted in the early statutes, creating a vendor’s lien for the price of real property. As a complement to the real property vendor’s lien, 42 O.S.A. § 29 in the same early statutes created a seller’s lien on personal property for its price, dependent on possession. Thus with no apparent gap in the protection afforded to the vendor the statutes covered real and personal property. And we note that Article 12, § 3, of the Oklahoma Constitution in limiting the application of the homestead exemption provides that:

“ . . .no property shall be exempt for any part of the purchase price while the same or any part thereof remains in the possession of the original vendee, or in possession of any purchaser from such vendee . . ■. ”.

The provision creating the seller’s lien on personalty, 42 O.S.A. § 29, was repealed with adoption of the Uniform Commercial Code in Oklahoma. See 12A O.S.A. § 10-102. The current provisions relating to the remedies of the seller of personalty are provided in 12A O.S.A. §§ 2-703 and 2-706, but are inapposite to protect the seller of an oil and gas lease. Moreover the definition of “goods” in 12A O.S.A. § 2-105(1) clearly excludes the interest of an oil and gas lessee. 12A O.S.A. § 2-107(1), dealing with goods to be severed from realty, provides that a contract for the sale of timber, minerals or the like is a contract for the sale of goods within this Article of the Code, if they are to be severed by the seller. Both the Uniform Code Comment and the Oklahoma Code Comment to § 2-107 recognize that the Code applies only if the timber, minerals, etc., are to be severed by the seller. And the Oklahoma Code Comment says that, “[i]f the timber, etc., is to be severed by the buyer, the transaction is not a contract to sell goods, but to sell realty, and therefore is not governed by the Code.”

Thus since the buyer — lessee has the right to sever, the seller’s remedies of the Commercial Code are denied to vendors of oil and gas leases and the Code points to real property law for such protection. And there would be a serious gap in the protection of vendors if the real property vendor’s lien provided by 42 O.S.A. § 26 were held not applicable to oil and gas leases — a gap contrary to the policy shown by Oklahoma law protecting vendors.

We realize that the oil and gas leasehold interest has been classified for purposes of other statutes as not constituting real estate or real property. E. g., First National Bank v. Dnnlap, 122 Okl. 288, 254 P. 729 (an oil and gas lease is not “real estate” for purposes of the statute creating a judgment creditor’s lien); Duff v. Keaton, 33 Okl. 92, 124 P. 291 (the oil and gas lease by a guardian of a minor’s estate is not a “conveyance of real estate” under Probate Code procedural provisions).

On the other hand Continental Supply Co. v. Marshall, 152 F.2d 300 (10th Cir.), cert. denied, sub nom. Federal National Bank v. Continental Supply Co., 327 U.S. 803, 66 S.Ct. 962, 90 L.Ed.2d 1028, held that a mortgage on an oil and gas leasehold was a real estate mortgage for purposes of the recording statutes and the opinion discusses several cases treating the leasehold interest as relating to real estate or real property for various purposes. Id. at 306. And we note that Galer Oil Co. v. Pryor, 172 Okl. 302, 47 P.2d 97, 102, held that the lien created by the vendor’s lien statute on real property applies upon sale of a mineral interest which, like the right created by an oil and gas lease, has been described as an incorporeal right for some purposes. See Rich v. Doneghey, 71 Okl. 204, 177 P. 86, 89; Cuff v. Koslosky, 165 Okl. 135, 25 P.2d 290, 292; E. Kuntz, A Treatise on the Law of Oil and Gas § 3.2.

The views of a resident District Judge on the unsettled law of his state are persuasive and ordinarily accepted. Sade v. Northern Natural Gas Co., 483 F.2d 230 (10th Cir.). However the Oklahoma statutes generally afford remedies to protect vendors against the inequity resulting when an agreed purchase price is not paid. In view of the broad remedial purposes of the statutes we are convinced that 42 O.S.A. § 26 should be liberally construed to afford the protection of a vendor’s lien in these circumstances. See Taylor v. B. B. & G. Oil Co., 207 Okl. 288, 249 P.2d 430 (second syllabus of the Court); see also McGreevy v. Constitution Life Ins. Co., 238 Cal.App.2d 364, 47 Cal.Rptr. 711, 714.

Since we conclude that a vendor’s lien may exist in these circumstances, the bar for non-presentment of the claims under 58 O.S.A. §§ 331 and 333 does not apply. The vendor’s lien has been recognized in Oklahoma as an equitable charge on the land. See Stuart v. Westerheide, 144 Okl. 150, 289 P. 721; Clark v. Ellison, 180 Okl. 630, 71 P.2d 609, 613. Such equitable claims are not required to be presented to the executor. Johnson v. Hazaleus, 338 P.2d 345, 349 (Okl.); Grayson v. Crawford, 189 Okl. 546, 119 P.2d 42, 45. Moreover, recognizing the vendor’s lien against the property despite non-presentment of the claim does not deny operation to the statute requiring presentment of claims. See Stuart v. Westerheide, supra, 289 P. at 724. The claim for the unpaid purchase price is still denied enforcement against the general assets of the estate.

For these reasons we must disagree with the holding that a vendor’s lien may not apply against the oil and gas leasehold interests. We conclude that the summary judgment as to this claim must be set aside. Of course we express no view that the plaintiffs must prevail on this basis when consideration is given to any defenses available and to all the circumstances relevant as to the propriety of enforcing the lien.

Secondly, the plaintiffs also argue that' they are entitled to an implied equitable lien on the oil and gas leases. As to this theory the District Court also granted summary judgment against the plaintiffs. The opinion reasoned that grantor’s implied liens are not recognized in Oklahoma.

We are persuaded that the Oklahoma authorities would not support recognition of such an equitable lien theory apart from the statutory vendor’s lien discussed earlier. The State statutes provide that liens are created by contract or by operation of law. 42 O.S.A. § 6. However equitable liens have been enforced where unconscionable conduct, inequitable circumstances or agreements for property to be subject to liens are demonstrated. E. g., Bredy v. Cantrell, 205 Okl. 9, 234 P.2d 381; Jackson v. Jackson, 196 Okl. 580, 167 P.2d 51; Benson v. Benson, 194 Okl. 309, 151 P.2d 416; Grayson v. Crawford, 189 Okl. 546, 119 P.2d 42. Other Oklahoma cases state that liens may be created only by agreement or some fixed rule of law and that it is not a function of the courts to create them. See First State Bank v. Ware, 71 Okl. 1, 174 P. 273, 274; see also Taylor v. B. B. & G. Oil Co., 207 Okl. 288, 249 P.2d 430; National Cash Register Co. v. Stockyards Cash Market, 100 Okl. 150, 228 P. 778; Young v. J. A. Young Machine & Supply Co., 203 Okl. 595, 224 P.2d 971.

The plaintiffs here, however, on brief to the District Court made it clear that their equitable lien theory is based on the defendant’s admission of the contract, transfer of the properties, the failure to pay the full purchase price, and receipt and retention of income which, under the contract, belongs to the plaintiffs, and incidental agreements covered by an explanatory affidavit of Mr. Lambdin, discussed below. Plaintiffs stated that they rely on a “legal inequity” created by receipt and retention of properties not paid for and the withholding of funds admittedly belonging to plaintiffs. Thus the plaintiffs rely on no claim of unconscionable conduct or inequitable circumstances appearing to bring them within the cases recognizing an equitable lien against particular properties, except as to the claim of a constructive trust as to the income, discussed below. As to the claim for an equitable lien on the leaseholds, not based on the vendor’s lien statute, we sustain the ruling in favor of the defendant.

Third, there remains the claim of the plantiffs that a constructive trust should be imposed on a portion of the income held by the executor which plaintiffs allege they were to have received under the sales contract. Our record indicates that a substantial portion of these funds was received by the executor in 1970 and 1971 at times after the notice to creditors was given and after the two-month claim period had elapsed. Moreover, as noted above, such an equitable claim need not be presented to the executor. See Pfleider v. Smith, 370 P.2d 17 (Okl.). Thus the constructive trust claim may not be denied for non-presentment. On remand we conclude that the plaintiffs are entitled to consideration of their claim against the suspense funds under constructive trust principles.

The plaintiffs also urge that error occurred when consideration of an affidavit by appellant Lambdin was refused on grounds of the Dead Man’s statute, 12 O.S.A. § 384. On appeal they say the affidavit covered incidental matters merely explanatory of the admitted contract.

The plaintiffs argued to the District Court that the affidavit was not essential but explanatory to establishment of the equitable lien. The affidavit as to conversations and oral agreements with the deceased, subsequent to the admitted contract, was incompetent under the statute in considering this equitable lien claim. See Pfleider v. Smith, 370 P.2d 17 (Okl.). Whether such testimony by Mr. Lambdin may be admissible for other purposes, or in determining the amount of any recovery, was not ruled on .by the District Court and may be considered on remand.

Accordingly the judgment is affirmed as to denial of the claim of an equitable lien against the oil and gas leaseholds; as to the remaining claims for a vendor’s lien against the leaseholds under 42 O. S.A. § 26 and a constructive trust on portions of the income received by defendant, the judgment is vacated and the case is remanded for further proceedings.

      . It is alleged that the parties agreed to allow the non-producing leases described in the contract to expire. The sum to be credited to the estate as a result of the deletion of these leaseholds is in dispute.

      . Plaintiffs urge the proposition that the District Court erred by granting summary judgment relief for which the defendant had not moved and which the allegations of the answer did not support. They say the answer admitted that “an equity situation exists” so that judgment against the equitable lien claim could not be entered.
      However, the response of the defendant to the plaintiffs’ motion for summary judgment included the statement that the defendant should be granted a summary judgment denying the plaintiffs the equitable lien they seek, and a request for an order denying such a lien. Plaintiffs were entitled to an opportunity to present opposing affidavits and to submit proofs opposing such a motion for summary judgment. See Adams, et al. v. Campbell County School District et al., 483 F.2d 1351 (10th Cir.).
      We are satisfied there was no prejudice to the plaintiffs in this respect. After defendant’s response both parties were given an opportunity to file further briefs before the summary judgment ruling. Also the District Court entertained a motion for reconsideration and amendment of the judgment. The plaintiffs made no claim that additional affidavits or proofs of any sort could be developed, and they demonstrate no prejudice to them by the procedure followed in entering summary judgment against the equitable lien claim. On the state of the pleadings and record we feel the Court did not err in the summary judgment ruling against the equitable lien claim.


author: TUTTLE, Circuit Judge:

text:
    FLORIDA POWER & LIGHT COMPANY, Plaintiff-Appellant, v. R. O. PRODUCTS, INC., Defendant-Appellee.
    No. 73-2222.
    United States Court of Appeals, Fifth Circuit.
    Feb. 15, 1974.
    Rehearing Denied April 3, 1974.
    William B. Killian, Barry R. Davidson, Miami, Fla., for plaintiff-appellant.
    Ceeyl L. Pickle, Jeanne Heyward, Miami, Fla., for defendant-appellee.
    Before TUTTLE, GOLDBERG and RONEY, Circuit Judges.
   TUTTLE, Circuit Judge:

This diversity case concerns the applicability of the Florida tort doctrine of contributory negligence as a defense in a breach of implied warranty action. Appellant Florida Power and Light Co. sued appellee R. O. Products in the Southern District of Florida, claiming breach of implied warranties of fitness and merchantability in hydraulic outrigger units sold by R. O. Products to Florida Power. Florida Power operates trucks equipped with hydraulic outrigger devices for use in power line construction and maintenance. A Florida Power employee was driving one of its trucks when the left front outrigger extended unexpectantly and struck a vehicle operated by Roberts. The Roberts’ car was damaged; the occupants suffered injuries and sued Florida Power. The damages Florida Power asserts against R. O. Products result from Florida Power’s settlement of its claims with the Roberts. The jury found a breach of warranty by R. O. Products, but held that Florida Power was contributorily negligent and that such negligence proximately caused the damage. Appellant’s contention is that the trial court erroneously instructed the jury that contributory negligence which was a proximate cause of Florida Power’s injury would bar recovery for a breach of implied warranty by R. O. Products.

In order to properly discuss this point, it is necessary that the district court’s charge on contributory negligence be reproduced in its entirety:

Now, in addition to denying that there was any breach of warranty, the defendant R. O. Products maintains that it has no liability to the plaintiff because of:

1. The alleged negligence of plaintiff’s employee, Henry Franz, in his pre-operation inspection as to whether the outrigger was down and/or the alleged negligence of Franz in the operation of the truck; and

2. The alleged negligence of plaintiff Florida Power & Light through its employees in not checking the outrigger system for air in view of prior knowledge that the hydraulic systems on previously delivered trucks had air in their lines.

The defendant thus alleges that plaintiff may not recover from defendant because plaintiff itself was contributorily negligent under the facts of this case, which contributory negligence was a proximate cause of the accident in question.

The Court has determined, and now instructs you as a matter of law, that if the plaintiff was guilty of contributory negligence, it should not be permitted to recover in this case where it is seeking to recover damages allegedly resulting from a breach of warranty.

The burden is upon the defendant to prove plaintiff was contributorily negligent under the facts of this case, and that the contributory negligence was a proximate cause of the accident in question.

It is your province to determine whether the acts or omissions of, [are] attributable to, the plaintiff Florida Power & Light were negligent so as to bar their claim against the defendant R. O. Products.

Such a determination involves two issues:

1. Was the plaintiff, through its employees, negligent in its pre-operation inspection of the outrigger or negligent in the actual operation of the truck?

2. Was such negligence the proximate cause of the accident in question?

* * -X- -X- -X- *

Now, if you determine there was negligence on the part of the plaintiff, you next determine whether such negligence was a proximate cause of the accident in question.

Damage is proximately caused by an act or failure to act whenever it appears from the evidence in the case that the act or omission played a substantial part in bringing about or actually causing the damage, and that the damage was either a direct result or a reasonably probable consequence of the act or omission.

This does not mean, however, that the law recognized only one proximate cause of an injury or damage, consisting of only one factor or thing, or the conduct of only one person. On the contrary, many factors or things, or the conduct of two or more persons, may operate at the same time, either independently or together, to cause injury or damage. In such a case, each may be a proximate cause. (Emphasis supplied).

The sole question on appeal is whether this jury instruction was permissible under Florida law.

This Court in diversity eases under the Erie doctrine is bound by the recent Florida decision in Coleman v. American Universal of Florida, Inc., 264 So.2d 451 (Fla.App.1972), which held that contributory negligence is available as a defense in breach of implied warranty actions. The court in Coleman, supra at 452, 454, concluded:

An examination of the authorities cited by the parties to this appeal shows that the eases-are pretty evenly divided on the question before us— whether contributory negligence is a bar to an action for breach of implied warranty. Even the text writers are evenly divided. . . . We have found, and the parties to this appeal have cited, no Florida cases in point.
•* * -X* -X- •» *
In this legal situation, with the authorities fairly evenly divided, we are inclined to the view that contributory negligence is available as a defense in an action for breach of an implied warranty, even though it may superficially look as though we are thereby approving a tortious defense in an action ex contractu.
* -X- * -X- -X- *
In the light of the said conclusion and the foregoing authorities, we examine anew the jury instructions which are the subject of this appeal and find that in essence they pertain to misuse of the product (the scaffolding) or to the plaintiff’s conduct as the sole proximate cause of his injuries.

Therefore, the following jury instructions were held proper by the Coleman court, supra at 452:

Now, in addition to denying that there was a warranty and that the equipment was defective, the Defendant makes two affirmative defenses. One of these defenses — in one of these defenses, it says that Joel M. Coleman was negligent in the way he used the scaffold and therefore his negligence contributed to his injury.
* -X' -X- * # *
Negligence is the failure to use reasonable care; and reasonable care is that degree of care which a reasonably careful person would use under like circumstances. Negligence may consist either in doing something that a reasonably careful person would not do under like circumstances or in failing to do something that a reasonably careful person would do under like circumstances.
* * * * * «• Now, if even though the equipment was defective and contributing to causing the injury, yet, if Mr. Coleman was negligent and his negligence was the legal contributing cause, then he can’t recover damages. (Emphasis supplied).

The appellant in this case urges that the holding in Coleman is not blanket approval of the defense of contributory negligence in breach of implied warranty cases, but is endorsement of the availability of the defense in only limited factual situations. It is asserted that the import of the extensive quotation by the Coleman court from 2 Frumer and Friedman, “Products Liability,” § 16.-01 [3] is that in order for the defense of contributory negligence to be available in breach of warranty cases, (1) the contributory negligence must be the sole proximate cause of the injury, or, (2) the contributory negligence must be either misuse of the product, or, failure to guard against a defect or possibility of a defect existing, when the risk has been known or should have been known. Finally, the appellant’s contention is that the last paragraph of the decision clearly limits the Coleman holding to merely allowing contributory negligence as a defense in a breach of implied warranty action in these limited situations:

In light of the said conclusion and the foregoing authorities, we examine anew the jury instructions which are the subject of this appeal and find that in essence they pertain to misuse of the product (the scaffolding) or to the plaintiff’s conduct as the sole proximate cause of his injuries. (Emphasis supplied). 264 So.2d at 454.

On the other hand, the appellee refers to the language in the Coleman decision which unequivocally states “we are inclined to the view that contributory negligence is available as a defense in an action for breach of an implied warranty . . . 264 So.2d at 454. In addition, the appellee points out that Coleman not only authorizes the defense based on misuse, but also, approves of the defense when lack of due care constitutes the contributory negligence. This is clearly reflected, asserts the ap-pellee, in the court’s following statement that lack of due care is a proper defense :

Oiir philosophy in this matter was well expressed by Schreiber and Rheinbold in their “Products Liability” (Chap. 5, page 32) in their concluding remarks, as follows:

“As is readily apprehended,- contributory negligence in the defense of a product liability action is a can of worms. But, if this is recognized that there is no such thing as ‘contributory negligence’ and that the defense contemplated is that of abnormal, unintended, or unforeseen use, or is that of assumed risk, or that of lack of due care, then there may perhaps be order brought out of the chaos. However, it is strongly suggested that even these defenses are, in the absence of uncontro-vertible facts, no panacea for defendants. There are much better ways to beat a product liability claim than relying on contributory negligence, an illusory defense.” (Emphasis supplied). 264 So.2d at 454.

Therefore, one portion of the appellee’s rebuttal is that lack of due care, and not simply misuse of the product, was contemplated by the Coleman court as constituting the kind of contributory negligence which would bar recovery for breach of implied warranty.

The second segment of appellee’s argument is that appellant’s assertion that the district court erred in instructing the jury on proximate cause is without merit for two reasons. First, appellant failed to object to the jury instruction on proximate cause, and secondly, the court correctly charged the jury in accordance with Florida law that contributory negligence bars recovery when it is a proximate cause of the injury.

Our initial comment is that the Coleman opinion is indeed ambiguous regarding the extent to which contributory negligence is available as a defense in breach of warranty cases. However, we find it unnecessary to resolve this confusion in the instant case, because even assuming arguendo the limitations urged by the appellant were adopted, the charge given by the district court appears to pass muster under Coleman. That is, whatever the holding of Coleman — be it blanket approval or limited acceptance of the contributory negligence defense in breach of warranty cases — if the charge there was proper, the jury instruction in the instant case does not constitute prejudicial error.

To illustrate this point, we proceed ar-guendo to interpret the last paragraph as limiting the availability of the defense and to assume that the Coleman decision permits use of contributory negligence only when a plaintiff’s contributory negligence constitutes misuse of a product or when a plaintiff’s conduct is the sole proximate cause of the injuries. First, it is noted that the last paragraph contains a disjunctive “or,” thus implying that the charge should have been limited to “misuse” or “sole proximate cause,” but not both. The charge given by the Coleman court does not include the specific terminology “misuse” or “sole proximate cause,” but simply refers to the “way he used the scaffold” and “the legal contributing cause.” If this language “the way he used the scaffold” supports a limitation of contributory negligence to being “misuse” of a product in the Coleman jury instructions, then certainly a similar limitation can be found in the charge in the instant ease. The charge in this appeal expressly delineated the potential contributory negligence to be the employee’s inspection of the outriggers or operation of the truck on which the outriggers were attached, and not conduct unrelated to the outriggers, the product sold by appellee. Therefore, the jury instruction referred to “misuse” with specificity at least equal to that in Coleman, and thus would comply with Coleman, even if its precise holding were that the defense of contributory negligence in breach of warranty cases is only available in these limited circumstances.

Since the charge met the “misuse” requirement, it would not have to incorporate the “sole proximate cause” language. Furthermore, the Coleman instruction did not require the contributory negligence to be the “sole proximate cause,” but only “the legal contributing cause.” This language is quite ambiguous, for it is not clear whether this means “a proximate cause” or “the sole proximate cause.” “The” legal contributing cause could arguably imply the “sole” cause. However, the better interpretation seems to be that the Coleman instruction regarding causation viewed in its entirety implies that the plaintiff’s negligence must only be “a proximate cause.” The charge is read as requiring only that the negligence contribute to the injury, i. e., be contributory or a proximate cause, and not the sole cause. The charge could have easily stated “sole proximate cause,” if that were intended. Thus, the instruction in Coleman only, at best, incorporates one of the alternative limitations, a “misuse” standard, accompanied by “a proximate cause” charge.

Consequently, in the instant case the district court arguably, in effect, incorporated a “misuse” charge, at least to the specificity found in Coleman, and “a- proximate cause” charge. The Florida law at the time of this litigation was well established that any contributory negligence was an absolute bar to recovery; thus, the contributory negligence had to be only a proximate cause, and not the sole proximate cause to bar recovery. We do find that the appellant properly raised the proximate cause issue on appeal, since the objection at the trial level was to the entire charge regarding contributory negligence which encompassed the proximate cause aspect, but we conclude that the charge regarding proximate cause was in accordance with the Florida law on contributory negligence at that time and did not run afoul of Coleman.

One final observation is in order. The summary of cases adopting contributory negligence as a defense in breach of warranty eases in Annot., 4 A.L.R.3d 501 (1965), indicates that a significant number of these decisions have circumscribed application of the defense of contributory negligence in breach of warranty actions. This annotation was also cited in Coleman. Nevertheless, the Coleman opinion is ambiguous on this point, and clarification of its implications regarding this matter must await another decision of the Florida courts. We do not determine whether Coleman’s holding incorporates limitations on the application of the defense, but only that this charge given in the instant case complies with Coleman, whether or not those standards are adopted.

Affirmed.

      . We are cognizant of Hoffman v. Jones, 280 So.2d 431 (Fla.1973), where the Florida court replaced the absolute-bar theory of contributory negligence with the comparative negligence principle. Both parties in this appeal conceded the Hoffman case, decided on July 10, 1973, had no retroactive application to the instant lawsuit,