author: STEPHENSON, Circuit Judge.

text:
    UNITED STATES of America, Appellee, v. Eugene Isaac PITTS, Appellant.
    No. 74-1142.
    United States Court of Appeals, Eighth Circuit.
    Submitted Oct. 15, 1974.
    Decided Dec. 10, 1974.
    Rehearing and Rehearing En Banc Denied Jan. 13, 1975.

      Christopher C. Mercer, Jr., Little Rock, Ark., for appellant.
    Richard M. Pence, Jr., Asst. U. S. Atty., Little Rock, Ark., for appellee.
    Before VOGEL, Senior Circuit Judge, and LAY and STEPHENSON, Circuit Judges.
   STEPHENSON, Circuit Judge.

The primary issue on this appeal concerns the sufficiency of the evidence to support appellant’s conviction, by a jury, of possession of counterfeit United States federal reserve notes with intent to defraud in violation of 18 U.S.C. § 472 (1970) . Appellant also asserts three other grounds for reversal which involve the court’s failure to grant a new trial based upon allegedly prejudicial misconduct in the presence of the jury panel and a claim that a witness’s prior felony conviction was improperly introduced into evidence. We affirm.

Appellant Pitts, a law student at home on spring vacation, was attending an afternoon showing of a motion picture at a Little Rock theater with three friends. These four young men were, according to the testimony of the doorman, the only persons seated on the right-hand side of the nearly empty auditorium.

When what appeared to be a counterfeit $20 bill was discovered in the ticket seller’s afternoon receipts, the theater management summoned the local police and the United States Secret Service. Just as the police arrived at the theater, one of Pitts’s companions was in the lobby buying some popcorn. Although this individual claimed not to have seen the police, the doorman testified that he noticed that Pitts and his friends had altered their seating arrangements within a few moments after their companion reentered the auditorium.

Meanwhile, the Secret Service Agent. had arrived at the theater, examined the . suspect $20 bill, and determined that it was counterfeit. The doorman stated that he had been observing Pitts and his friends since their entry into the theater and pointed them out to the authorities. Appellant and his friends were taken by the police to a room in the theater and questioned.

A subsequent search of the theater uncovered two “wadded up” counterfeit $20 bills on the floor directly in front of the seat in which appellant had been sitting when he was approached by the officers. When Pitts was informed of this discovery during questioning, he replied that he knew nothing at all about any counterfeit money, including those particular bills However, later examination of the bills by the Secret Service revealed that one of appellant’s fingerprints was present on one of the counterfeit notes.

Appellant insisted that he be allowed to conduct his own defense as to both counts of the indictment brought against him. However, the district court on its own motion appointed an attorney with criminal trial experience to sit with appellant and be available for consultation. The facts outlined above were basically undisputed at the trial. The exception was the doorman’s testimony with regard to the changing of seats by appel-’ lant and friends. Two of Pitts’s companions stated that they did not recall any changing of seats. Appellant did not testify. The jury found Pitts guilty on both counts of possession of counterfeit money with intent to defraud. He was given two concurrent three year sentences with two years of each sentence suspended. Following two unsuccessful motions for a new trial, this appeal was filed.

Appellant contends that the district court erred in denying his motion for a judgment of acquittal which was made at the close of the government’s case and renewed at the close of the entire case. While appellant does not dispute that the bills were counterfeit, he alleges that the government’s evidence was insufficient to prove the other essential elements of the crimes charged, namely that he knowingly possessed the counterfeit bills with an intent to defraud. We disagree and hold that the evidence, viewed in the light most favorable to the jury’s verdict, United States v. Gaskill, 491 F.2d 981, 982 (8th Cir. 1974); United States v. Hutchinson, 488 F.2d 484, 489 (8th Cir. 1973), cert. denied 417 U.S. 915, 94 S.Ct. 2616, 41 L.Ed.2d 219 (1974); United States v. Pope, 415 F.2d 685, 686 (8th Cir. 1969), cert. denied, 397 U.S. 950, 90 S.Ct. 973, 25 L.Ed.2d 132 (1970), supports the convictions.

Direct physical control of the counterfeit bills need not be shown in order to prove possession. As the district court properly instructed the jury, constructive as well as actual possession will satisfy the requirements of § 472. In United States v. Hutchinson, supra, 488 F.2d at 488, we stated that “ ‘ [constructive possession’ has been generally defined as knowingly having both the power and the intention to exercise dominion and control over the property.” See also United States v. Click, 493 F.2d 1209, 1211 (8th Cir. 1974). Applying this standard to the facts of the case before us, we find ample evidence to support the jury’s finding of possession.

The fact that the counterfeit bills were found on the floor in front of where appellant was sitting is not disputed. This proximity to the bills establishes that Pitts had the requisite power to control them. The evidence of appellant’s fingerprint on one of the bills demonstrates that appellant had had possession of that bill and that he, at some point, intentionally exercised direct control over it. From these facts the jury was entitled to find possession.

In a counterfeiting case the government must also prove that the defendant knew that the bills were counterfeit, United States v. Musquiz, 445 F.2d 963, 966 (5th Cir. 1971), and that he had a general intent to defraud unknown third parties with those bills, United States v. Wilkerson, 469 F.2d 963, 969 (5th Cir. 1972), cert. denied, 410 U.S. 986, 93 S.Ct. 1515, 36 L.Ed.2d 184 (1973). These essential elements of the crime are seldom provable by direct evidence. United States v. Castens, 462 F.2d 391, 394 (8th Cir. 1972). Because proof of these elements requires a finding as to the defendant’s state of mind at a given moment, a jury in the usual case must rely on circumstantial evidence in order to determine whether the requisite mental condition existed. United States v. Cervantes, 466 F.2d 736, 739-740 (7th Cir.), cert. denied, Panas v. United States, 409 U.S. 886, 93 S.Ct. 108, 34 L.Ed.2d 143 (1972); United States v. Kimbrough, 481 F.2d 421, 423-424 (5th Cir.), cert. denied, 414 U.S. 1114, 94 S.Ct. 845, 38 L.Ed.2d 741 (1973). In reaching its verdict, the jury is entitled to scrutinize and make reasonable inferences from defendant’s conduct and from all facts surrounding the incident in question. Castens, supra, 462 F.2d at 393-394; Kimbrough, supra, 481 F.2d at 424; United States v. Sheiner, 410 F.2d 337, 340 (2d Cir.), cert. denied, 396 U.S. 825, 90 S.Ct. 68, 24 L.Ed.2d 76 (1969).

The record in this case discloses three facts which the jury could have considered in reasonably inferring that appellant had guilty knowledge and an intent to defraud. The doorman testified that appellant and his friends altered their seating arrangement in the theater shortly after the arrival of the police. Both knowledge and intent may be inferred from such “furtive” conduct. Paz v. United States, 387 F.2d 428, 430 (5th Cir. 1967); United States v. Forzano, 190 F.2d 687, 688 (2d Cir. 1951). Similarly, the jury could have viewed the wadded and crumpled bills in front of appellant’s seat as evidence of an attempt to abandon the bills when threatened by the arrival of the officers. Paz, supra, 387 F.2d at 430; United States v. Kelley, 186 F.2d 598, 602-603 (7th Cir), cert. denied, 341 U.S. 954, 71 S.Ct. 1004, 95 L.Ed. 1375 (1951).

Finally, appellant’s false exculpatory statement, in which he denied any knowledge whatsoever concerning the bills prior to the discovery of his fingerprint on one of them, could have been seen by the jury as a guilty man’s desperate attempt to avoid arrest. In United States v. Merrill, 484 F.2d 168, 170 (8th Cir.), cert. denied, 414 U.S. 1077, 94 S.Ct. 594, 38 L.Ed.2d 484 (1973), we noted that “[a] long line of cases holds that false exculpatory statements are properly admissible as substantive evidence as tending to show guilt.” Once admitted here, the jury could have reasonably decided to accept the inferences of guilty knowledge and intent to defraud that arose from Pitts’s false statement. See also United States v. Lacey, 459 F.2d 86, 89 (2d Cir. 1972).

We hold that under the totality of the circumstances in this ease the jury could reasonably infer that appellant was aware of the spurious nature of the counterfeit notes and possessed them with intent to defraud. Since the jury’s determination is supported by the evidence, it may not be set aside. Castens, supra, 462 F.2d at 394. Denial of appellant’s motion for a judgment of acquittal was not error.

Appellant next contends that the trial court abused its discretion when it denied his pro se motion for a new trial. In that motion appellant alleged that he had just become aware of the fact that prior to the selection of the jury, one of the defense witnesses was arrested in the courthouse in the presence of the jury panel.

Assuming that appellant made his motion on the ground that this incident amounted to newly discovered evidence, we do not believe that the well-established prerequisites for a new trial were satisfied here. United States v. McWilliams, 421 F.2d 1083, 1084 (8th Cir.), cert. denied, 397 U.S. 1070, 90 S.Ct. 1515, 25 L.Ed.2d 694 (1970). Furthermore, even if the arrest did take place as alleged by appellant, no prejudice to the appellant has been demonstrated. United States v. Price, 464 F.2d 1217, 1219 (8th Cir.), cert. denied, 409 U.S. 1040, 93 S.Ct. 522, 34 L.Ed.2d 489 (1972). In any event, the trial court carefully instructed the jury as to what constituted evidence and directed them to consider only evidence presented before the jury in determining the issue of guilt. Denial of the motion for a new trial under these circumstances was not error.

Following the denial of this first motion, appellant filed a petition for a hearing on his motion for a new trial. In this petition appellant advanced several additional arguments as grounds for a new trial. The trial court’s denial of the petition, following consideration of government briefs and affidavits which had been filed in response to appellant’s charges, was within its discretion. United States v. Dara, 429 F.2d 513, 514 (5th Cir. 1970). See also Batsell v. United States, 403 F.2d 395, 402-403 (8th Cir. 1968), cert. denied, 393 U.S. 1094, 89 S.Ct. 865, 21 L. Ed.2d 785 (1969).

Appellant’s final contention is that the trial court erred in admitting evidence of a prior felony conviction of a defense witness when there was no prior showing that the credibility of that witness was in issue. We note that no objection was made to the admission of this evidence at trial. Under these circumstances, allowing the prior felony conviction to be introduced was not plain error and will not be reviewed in this court. Petschl v. United States, 369 F.2d 769, 773 (8th Cir. 1966). See also United States v. Ambrose, 483 F.2d 742, 748-749 (6th Cir. 1973); United States v. Rosebar, 150 U.S.App.D.C. 164, 463 F.2d 1255, 1258 n. 10 (1972); United States v. Thomas, 429 F.2d 407, 408 (5th Cir. 1970); United States v. Villahermosa, 411 F.2d 599 (9th Cir.), cert. denied, 396 U.S. 918, 90 S.Ct. 242, 24 L.Ed.2d 196 (1969).

We have carefully reviewed the record in this case and find no error.

Affirmed.

ON PETITION FOR REHEARING EN BANC

The Court having considered petition for rehearing en banc filed by counsel for appellant and, being fully advised in the premises, it is ordered that the petition for rehearing en banc be, and it is hereby, denied.

Considering the petition for rehearing en banc as a petition for rehearing, it is ordered that the petition for rehearing also be, and it is hereby, denied.

Judge Lay would vote for a rehearing by the panel on the ground that the evidence is insufficient to sustain this conviction and insufficient to show proof of intent to defraud.

      . That statute provides in relevant part: Whoever, with intent to defraud * * * keeps in possession * * * any falsely made, forged, counterfeited, or altered obligation or other security of the United States [shall be punished].

      . The motion by appellant did not specify the grounds upon which it was being made. However, because it was made 13 days after the jury’s verdict, it was untimely unless made on the basis of newly discovered evidence. Fed.R.Prim.P. 33. See also United States v. Bryant, 430 F.2d 237, 240 (8th Cir. 1970).

      . Affidavits by the arresting officers state that the arrest was made out of the presence of the jury, that there were no witnesses, and that no disturbance was created.


source: Caselaw Access Project

author: DONALD RUSSELL, Circuit Judge: BRYAN, Senior Circuit Judge

license: Public Domain

text:
    Baxter K. WILLIAMS et al., Appellees, v. The ALBEMARLE CITY BOARD OF EDUCATION, a Public Body Corporate, Appellant.
    No. 73-1479.
    United States Court of Appeals, Fourth Circuit.
    Argued Oct. 3, 1974.
    Decided Dec. 3, 1974.
    Richard Lane Brown, III, Albemarle, N. C. (Richard L. Brown, Jr., and Brown, Brown & Brown, Albemarle, N. C., on brief), for appellant.
    J. LeVonne Chambers, Charlotte, N. C. (Chambers, Stein, Ferguson & Lan-ning, Charlotte, N. C. and Jack Green-berg and Norman J. Chachkin, New York City, on brief), for appellees.
    Before HAYNSWORTH, C. J., BRYAN, Senior Circuit Judge, and WINTER, CRAVEN, BUTZNER, RUSSELL, FIELD and WIDENER, Circuit Judges, sitting en banc, on resubmission.
   DONALD RUSSELL, Circuit Judge:

The basic facts herein are sufficiently-detailed in the opinion of the original panel which heard the case and need not be restated. In its opinion, the original panel affirmed the District Court’s finding that the appellee Williams, formerly a school principal employed by the appellant school district, had “suffered racial discrimination in his demotion from principal to assistant principal in the appellant school system but reversed its award of damages to the appellee. It rested the denial of damages on the ground that the appellee had, by his unreasonable refusal to accept alternative employment offered by the appellant school district at the time of the “demotion” failed to mitigate, as he was obligated his damages. The appellee petitioned for a rehearing on this denial of damages. Rehearing was granted for the purpose of reviewing that denial. On rehearing, we set aside the decision of the original panel on the matter of the ap-pellee’s right to damages and affirm the decree of the District Court granting damages.

In reaching this conclusion, we assume the correctness of the school board’s contention that a teacher or school administrator, “demoted” or discharged illegally may be precluded from the recovery of damages therefor by an unreasonable refusal to accept alternative employment. See United States v. Chesterfield County School District (4th Cir. 1973) 484 F.2d 70, 76; Rolfe v. County Board of Education (6th Cir. 1968) 391 F.2d 77, 81. But whether the refusal to accept alternative employment is so unreasonable as to preclude recovery of damages by the improperly discharged or demoted employee requires a weighing of many facts and circumstances. Comparability in salary, which apparently the appellant school district assumes to be the sole test of a reasonable offer of alternative employment, is only one fact to be considered in this connection. Comparability in status is often of far more importance — especially as it relates to opportunities for advancement or for other employment— than comparability in salary. Accordingly, a discharged or demoted employee is not required in mitigation of damages, to accept alternative employment of an “inferior kind”, or of a more “menial nature”, or employment outside of his usual type or for which he is not sufficiently qualified by experience, or employment the inferiority of which might injuriously affect the employee’s future career or reputation in his profession. Whether the discharged or demoted teacher reasonably refused the alternative employment for any of these reasons is ordinarily a factual issue to be resolved by the District Court, whose decision will be reversed only for clear error. Green v. Kaynar Manufacturing Co. (9th Cir. 1966) 369 F.2d 375, 376; American Trading Co. v. Steele (9th Cir. 1921) 274 F. 774, 783.

The District Court in this case, it is conceded, made no explicit finding that the appellee’s refusal of the offer of alternative employment was reasonable. However, such a finding is implicit in the findings made and conclusions reached by the District Court. The sole basis on which the school district pressed on the District Court its defense of failure by the appellee to mitigate his damages was that he had inexcusably refused alternative employment. Thus, the issue of the right of the appellee to damages turned entirely on whether the appellee had unreasonably refused alternative employment, as offered by the appellant school district. When the District Court found that the appellee was entitled to damages, it necessarily found that he had not unreasonably refused that alternative employment. And the appellant school district, with commendable frankness, concedes that this is a proper construction of the District Court’s findings. The sole issue on appeal is accordingly whether such implicit finding was clearly erroneous. We perceive no such clear error in the finding.

The alternative position offered the appellee was one that, unlike that of school principal, involved actual teaching. The appellee had been exclusively engaged in administrative duties for several years and felt a possible lack of present qualification to engage in actual teaching. Moreover, there can be little question that the alternative employment was of a kind “inferior” to that previously followed by the appellee; so much necessarily follows from the District Court’s finding that the alternative employment constituted a “demotion”. 'A “demotion”, too, may reasonably be calculated to reflect on one’s professional competency and to affect his career and professional reputation. More importantly, the acceptance of the alternative employment in this case could well have been regarded as an acquiescence by the appellee in his racially discriminatory demotion. To require such acquiescence would mean that one who has been discriminated against would be obliged, in order to mitigate damages, to submit to the very discrimination of which he complains and which the Court has found. These circumstances, whether taken singly or in combination, insulate the District Court’s finding against any claim of clear error.

The defendant school district raised during oral argument two subsidiary questions. It urged that any award of interest be terminated as of the date in 1973 when the school district offered the appellee reinstatement as a principal. This offer, however, was not made until after the appellee had accepted another position for the school year 1973-4. To sustain the school district’s position would be to require the appellee, in order to mitigate damages, to violate his contract made with another school, a contract forced on him by the wrong of the appellant school district. The appellant school district by its belated offer, could not impose on the appellee in this situation the unreasonable burden of violating his contract with the other school. Similarly we find no merit in the appellant school district’s argument on the allowance of costs.

Since the appellant school district has taken no exception to the calculation of damages as made by the District Court (except as to the right to interest after the offer of reinstatement as principal to which we earlier adverted and which, in our opinion, did not authorize a termination of appellee’s right to interest), the decree of the District Court awarding damages to the appellee is affirmed.

BRYAN, Senior Circuit Judge

(dissenting) :

Although recognizing the keen riposte of the majority opinion on rehearing, I remain pursuaded to the original panel’s determination in respect to the damage claim. In this I assess as “clearly erroneous” the District Court’s implied finding that appellee Williams had not “unreasonably refused the alternative employment”.

There was no solid ground for his declination of the assistant principalship held out to him as alternative employment. That his objection was not really based on loss of rank, prestige or stature is disclosed by his request “that my time be split between the two schools, assistant at the junior high school and assistant at the senior high school”. (Accent added.) Note that one of these is of lower grades than the Albemarle school in which he was to serve as assistant principal.

In giving the Superintendent of Schools his reasons, he said the “salary was fine but that he didn’t want to teach” for “he didn’t feel qualified to teach”. The new position did entail teaching 50% of the time in his own field (science). Williams’ subsequent conduct utterly repudiates his pose of teaching to account for his decision.

In the very next employment he obtained — at Barber-Scotia College for the session following his termination in Al-bermarle — he bound himself “to giving full time during the academic year [while Acting Registrar] to teaching the subjects assigned by the College Administration” at a salary of $2000.00 less than he would be paid at Albemarle. (Accent added.) Again, in the two immediately succeeding years — 1970-71 and 1971-72 — while he was principal in Pender Countv, he “sp'mt in teaching” three hours a day, divided between two schools Q.E.D.: thus he unreasonably refused the Albemarle employment. The finding of the District Court is plainly unfounded in predicating damages on the contrary argument.

Truth is that of the $6767.35 awarded Williams by the District Court as damages, $5723.56 consisted of expenses incurred in accepting and occupying teaching jobs, the very objection he interposed against the appointment suggested to him by Albemarle.

It is a misconception to expound the panel’s holding as requiring the appellee to accede to the demotion in order to mitigate damages or, put another way, the holding was that the available mitigation exacted of him, as a prerequisite to its receipt, his consent to the demotion. The tender and acceptance of it were not conditioned upon surrender of any claim he might have for injury incident to the demotion. His annual salary remained undiminished; his claim to the salary supplements of his previous office was not nullified. In addition, recovery for any harm done his reputation through assigning him to some teaching duties was not foreclosed.

The School Board should not be saddled with damages and costs on so tenuous and capricious assertions as appel-lee Williams’.

WIDENER, Circuit Judge, concurs in this dissent.

      . Both parties to the appeal describe in their briefs the demotion as one from principal to vice-principal. This follows the language in the answer of the appellant school district to the interrogatories directed at it by the appellee. In this answer, it is stated that the appellee was advised by the appellant’s superintendent that “his work would be that of an assistant principal at either the Junior or Senior High Schools.” At oral argument, counsel for the appellee referred to the written offer of alternative employment as made thé appellee. In this written offer, it is stated that the appellee’s duties in the alternative employment “will be made by the superintendent of schools.” We do not, however, find this inconsistent with the answer given by the school district in its answer to the appellee’s interrogatories. Actually, it would seem the answer to the interrogatory supplemented and made clear the somewhat indefinite statement appearing in the written offer.

      . N. L .R. B. v. Madison Courier, Inc. (1972) 153 U.S.App.D.C. 232, 472 F.2d 1307, 1327; see cases collected in Annotation, 44 A.L.R. 3d 629, at pp. 641, 644, 646, and 651.

      . His testimony is that in the Pender schools his salary was $1133.00 per month for 10% months — exceeding his Albemarle salary by more than $2000.00 annually. The District Judge made no finding on this item.


author: VAN OOSTERHOUT, Senior Circuit Judge.

text:
    Beatrice HARWELL, Individually, and Beatrice Harwell, as Administratrix of the Estate of Roy R. Harwell, Deceased, Appellee, v. WESTCHESTER FIRE INSURANCE COMPANY, Appellant.
    No. 74-1441.
    United States Court of Appeals, Eighth Circuit.
    Submitted Nov. 13, 1974.
    Decided Dec. 9, 1974.
    Rehearing and Rehearing En Banc Denied Jan. 20, 1975.
    Certiorari Denied April 28, 1975.
    See 95 S.Ct. 1681.

      Michael E. Hale, Little Rock, Ark., for appellant.
    Eugene J. Mazzanti, Little Rock, Ark., for appellee.
    Before VAN OOSTERHOUT, Senior Circuit Judge, HEANEY, Circuit Judge, and MEREDITH, Chief District Judge.

       The Honorable James H. Meredith, Chief Judge, Eastern District of Missouri, sitting by designation. '

   VAN OOSTERHOUT, Senior Circuit Judge.

This is a timely appeal by the defendant insurer from final judgment entered against it and order overruling its motion for judgment n. o. v. Beatrice Har-well, individually and as administratrix of the estate of her husband, brought this action for damages sustained as a result of the death of Mr. Harwell, a pedestrian on U.S. Highway 59, alleged to have been caused by the negligent operation by Dorothy Lyssyj of her automobile. This action is a direct action against the defendant insurer based upon the uninsured motorist provision in a policy issued by the defendant to decedent Harwell. It is agreed that such policy was in full force and effect and that Dorothy Lyssyj is an uninsured motorist. Jurisdiction based on diversity of citizenship and the requisite amount is established.

Defendant made timely motions for directed verdict at the close of plaintiff’s evidence and again at the close of all the evidence and made motion for judgment n. o. v. subsequent to the judgment entered against it on a jury verdict for $10,000.00 damages plus a penalty of $1,200.00 and $3,600.00 attorneys’ fees awarded under Arkansas Statute 66-3238. Such motions were based upon the ground that there is no substantial evidence to support a finding that Dorothy Lyssyj was guilty of any act of negligence. All such motions were overruled.

The sole issue upon this appeal is whether the court erred in holding that there was sufficient evidence presented to support a jury finding that Dorothy Lyssyj was negligent in any respect asserted in the operation of her automobile. For reasons hereinafter stated, we hold that there is no substantial evidence to support the jury finding of negligence. We shall first set out the applicable Arkansas law and then apply such law to the facts of the case.

Federal courts follow the conflict of laws rules prevailing in the forum state. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 496-497, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The Arkansas conflict rule is that the issue of the sufficiency of the evidence is procedural and thus is determined by Arkansas law. Bell Transportation Co. v. Morehead, 246 Ark. 170, 437 S.W.2d 234, 237 (1969). Both parties have argued the case on the basis that Arkansas law controls. As we have frequently noted, the Supreme Court in Dick v. New York Life Ins. Co., 359 U.S. 437, 444-445, 79 S.Ct. 921, 3 L.Ed.2d 935 (1959), raised but declined to resolve the issue of whether the state or federal test of sufficiency of the evidence to support a verdict should be applied where federal jurisdiction is based on diversity of citizenship. For a good discussion of eases arising since Dick, see Wetzel v. Eaton Corp., 62 F.R.D. 22, 25-26 (D.C.Minn.1973) . We need not reach such issue here as we have determined that the federal test and the Arkansas test of sufficiency of the evidence are substantially the same. Marshall v. Humble Oil & Refining Co., 459 F.2d 355, 358-359 (8th Cir. 1972); Bennett v. Wood, 271 F.2d 349, 351 (8th Cir. 1959).

In McKim v. Northwestern National Casualty Co., 505 S.W.2d 756 (Ark. 1974) , the court affirmed a directed verdict for the defendant in a pedestrian case very similar factually to the case before us. No eyewitness testimony was offered in that case. The plaintiff could not recall evidence leading to the accident as he suffered from retrograde amnesia caused by his injuries. The court recognized the rule that “a well-connected train of circumstances is as cogent of the existence of a fact as an array of direct evidence, . . . and that any issue of fact in controversy can be established by circumstantial evidence when the circumstances adduced are such that reasonable minds might draw different conclusions.” 505 S.W.2d at 757. The court held:

[W]e have no hesitancy in concluding that at most, appellant’s evidence would do nothing more than afford the jury a choice of possibilities. When the evidence presents no more than such choice we have said that it is not substantial. Kapp v. Sullivan Chevrolet Co., 234 Ark. 395, 353 S.W. 2d 5 (1962). In the case at bar the appellant alleged: (a) failure to keep lookout, (b) inadequate warning, (c) excessive speed, (d) lack of required control, and (e) inadequate headlights. Applying the facts and circumstances established, we are simply unable to say that either of the allegations is supported by substantial evidence. Possibility of proximate cause is not enough; a reasonable probability must be shown by substantial evidence. [505 S.W.2d at 757-758.]

In our present case numerous specifications of negligence were asserted. The court submitted only two of such specifications to the jury, lookout and control. The court expressed the view that excessive speed had not been established and refused to submit such issue. The court also refused to submit other asserted specifications of negligence.

The only witness who gave any testimony as to physical facts underlying the accident is Officer Faultry of the Houston Police Department. The accident occurred about 9:00 p. m. on Saturday, December 16, 1972. Faultry arrived at the scene of the accident about an hour and twenty minutes after it had happened. The highway involved, U.S. Highway 59, is at the point of the accident a four-lane black topped highway with two thirteen feet lanes for travel in each direction. The night speed limit is sixty-five miles per hour. There are no pedestrian crosswalks in the accident vicinity. There are some commercial buildings on each side of the highway but they do not light up the highway. The highway was dark and Officer Faultry used his flashlight to examine the road. Mrs. Lyssyj was driving north on the highway. Faultry found bloody marks and scrapings ón the highway that indicated that the decedent at the time he was hit was three feet west of the east edge of the pavement. The officer found no evidence of skid marks at that location. The right front parking light of the car was knocked out and flesh was found on the right side of the car. The decedent’s body had been moved before the officer arrived. Decedent’s clothing was dark in color. The traffic on the highway was light at the time of the officer’s arrival. There is no testimony as to the extent of traffic at the time of the accident.

The State patrol had examined the accident scene before Faultry arrived but such officers were not produced as witnesses. Plaintiff’s answers to interrogatories disclosed that the plaintiff was aware of Mrs. Lyssyj’s address and that she listed eight prospective witnesses, five with Houston addresses. Mrs. Lys-syj was not called as a witness and only Officer Faultry gave any testimony which had any bearing upon the accident.

There is no evidence as to decedent’s movements just prior to the accident and there is no evidentiary basis for an inference that Mrs. Lyssyj by maintaining a proper lookout could have observed the pedestrian in a position of danger in time to avoid the accident. The night was cold. We do not know whether decedent was walking or running across the highway. We do not know the direction in which he was headed. If he came from the east and suddenly entered only three feet into the highway, it is unlikely that he could have been seen in time to avoid the accident. There is no evidence whether there was traffic in the west lane which might prevent Mrs. Lyssyj from seeing the decedent if he were moving in an easterly direction or which might prevent her from avoiding the accident by turning to the left. During the course of the directed verdict argument the trial court observed:

He was either just coming on [or] just going off. In the event she was in the right lane of a two-lane road that was ten feet within her own lane, she could have avoided him, and thir- ■ teen more feet in the lane adjacent which was also going in the same direction, so twenty three feet to go around if she — well, the strongest circumstance is that she did not see the man. There were no skid marks before or after. She had children in the car.

The burden of proof is upon the plaintiff to show negligence on the part of the car operator. In our present case as in McKim, the evidence offers the jury no more than a choice of possibilities. A reasonable probability that Mrs. Lyssyj’s negligence caused the accident has not been established by substantial evidence. In Bennett v. Wood, supra, we stated, citing supporting authorities, “[c]ourts have uniformly held that verdicts cannot be based solely upon conjecture or speculation.” 271 F.2d at 351.

We do not reach defendant’s^ contention that decedent was guilty of contributory negligence as a matter of law.

The judgment is reversed. The ease is remanded to the trial court with direction to sustain the motion for judgment n. o. v. and to dismiss the complaint.


author: PER CURIAM:

text:
    Richard WONG, Plaintiff-Appellant, v. The BON MARCHE, Defendant-Appellee.
    No. 73-3353.
    United States Court of Appeals, Ninth Circuit.
    Jan. 7, 1975.
    Richard Wong, in pro. per.
    Mary A. Ottinger Hege, Seattle, Wash, (argued), for defendant-appellee.
    Before HAMLEY, ELY and TRASK, Circuit Judges.
   OPINION

PER CURIAM:

This appeal by Richard Wong challenges the dismissal of his claim against The Bon Marche for alleged unfair employment practices under 42 U.S.C. § 2000e — 2(a)(1). Jurisdiction was properly sought in the district court under 42 U.S.C. § 2000e — 5(f)(3) and in this court on appeal.

Wong, a pharmacist, had been employed by The Bon Marche for approximately 16 months before his discharge on September 17, 1970. His claim was that he was discharged because he was Chinese. He pursued his administrative remedies through the Washington State Human Rights Commission and the EEOC. Both of those agencies found that no probable cause existed to believe that The Bon Marche had engaged in unlawful employment practices. On February 12, 1973, Wong received his “Notice of Right to Sue” letter from the EEOC. Under 42 U.S.C. § 2000e-5(f)(l) he had 90 days in which to file a civil action in his own behalf. He did not file until the 91st day and the district court dismissed the claim on that ground. We feel compelled to affirm.

Appellant urges that he acted diligently to present his claim to the court and that this diligence should justify the one-day delay. Without reciting all of the details of his efforts we note that the 90-day period for filing a complaint expired on May 14, 1973. On March 6, 1973, he had sought the services of an attorney to draft a formal complaint for him. The complaint was prepared and delivered to him prior to the filing deadline but the exact date is not clear from the record. On April 13, 1973, he had taken his “Right to Sue” letter to the district court to commence the action but “the documents were not treated as a formal complaint and were not filed.” Appellant’s Brief at 4. He tells us in his pro se appeal that he did not learn that he could file his formal complaint himself until too late.

The Notice of Court’s Ruling signed by the district judge is as follows:

“Defendant’s Motion to Dismiss is granted, on the basis that suit is barred by the ninety-day limitation period. Plaintiff had counsel during a portion of this period, who prepared and released to him a draft complaint. Plaintiff was aware that he could file the complaint himself. He failed to do so within the time required.” C.T. at 51.

The Civil Rights Act of 1964, 42 U.S.C. § 20Ó0e et seq., the predecessor of the Equal Employment Opportunity Act of 1972, provided that a complaint could be filed within 30 days after receipt of a “Right to Sue” letter. The 1972 Act, extended that time to a 90-day period. We do not find anything either in the plain language of the statute or in its legislative history which would indicate that the time limitation may be forgiven or extended if the complainant has acted diligently. The contra, rather, is strongly indicated. The aggrieved individual knows about the EEOC office because he has filed his claim there. He receives official notice of his right to sue and the time within which that suit must be filed. The enlargement of the limitation period from 30 days to 90 days provides ample time for a grievant to file his complaint.

The decided cases on the subject of the 90-day period for filing suit in federal court are somewhat divided. Holding that the limitation period is jurisdictional are: Genovese v. Shell Oil Co., 488 F.2d 84 (5th Cir. 1973); Archuleta v. Duffy’s Inc., 471 F.2d 33 (10th Cir. 1973); Goodman v. City Products Corp., Ben Franklin Division, 425 F.2d 702 (6th Cir. 1970). Compare Huston v. General Motors Corp., 477 F.2d 1003 (8th Cir. 1973); Stebbins v. Nationwide Mutual Insurance Co., 469 F.2d 268 (4th Cir. 1972), cert. denied, 410 U.S. 939, 93 S.Ct. 1403, 35 L.Ed.2d 606 (1973).

We have considered the problem in Gates v. Georgia-Pacific Corp., 492 F.2d 292 (9th Cir. 1974). In that case the grievant was notified by the Commission that it was closing her case for lack of jurisdiction. It did not advise her that a civil action could be filed against the employer within the 30-day period then applicable. When she was later properly notified in accordance with the Commission’s regulations, 29 C.F.R. 1601.25, of her right to file a civil action, such action was timely filed. Although we referred to equitable principles which “may operate to toll the 30-day requirement,” we carefully restricted the holding to the facts of that case and expressed no opinion on the form of notice “which might trigger the 30-day period under other circumstances.”

Here we find circumstances of quite a different nature. The 90-day letter was sent and received and clearly notified appellant of his right to file the civil action. This having been done, we hold that the requirement for filing a complaint within the 90-day period was jurisdictional, Genovese, supra; Archule-ta, supra; Goodman, supra. The claimed diligence of appellant or his own confusion does not constitute a defense. Moreover, were we to pass upon the merits of such a defense we would have no difficulty in finding that it had not been sustained.

Judgment affirmed.

      . Appellant’s Memorandum in Support of Motion to Appeal would indicate this date as April 13, 1972. C.T. at 66. Appellant also states that as of the same date his application for a court-appointed attorney was denied.

      . Public Law 92-261, 86 Stat. 103, 42 U.S.C. § 2000e-5(f)(l), states in relevant part:
      “If a charge filed with the Commission is dismissed by the Commission the Commission . . shall so notify the person aggrieved and within ninety days after the giving of such notice a civil action may be brought against the respondent named in the charge Upon application by the complainant and in such circumstances as the court may deem just, the court may appoint an attorney for such complainant and may authorize the commencement of the action without the payment of fees, costs, or security.”


author: WEICK, Circuit Judge.

text:
    Donald L. MAINS and Joyce G. Mains, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. F. E. GOODING, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
    No. 74-1469.
    United States Court of Appeals, Sixth Circuit.
    Jan. 13, 1975.

      H. Thompson Nicholas, Jr., Cincinnati, Ohio, Bruce W. Powell, Powell & Powell, Columbus, Ohio, for plaintiffs-appellants.
    William W. Milligan, U. S. Atty., Columbus, Ohio, Scott P. Crampton, Meyer Rothwacks, Gilbert Andrews, Gary R. Allen, Louis Bradbury, Chief, Appellate Section, Tax Div., Dept, of Justice, Washington, D. C., for defendant-appel-lee.
    Before WEICK and ENGEL, Circuit Judges, and O’SULLIVAN, Senior Circuit Judge.
   WEICK, Circuit Judge.

The suits in the District Court were for refund of federal income taxes paid for the year 1966 by taxpayers Donald L. and Joyce G. Mains, in the amount of $8,025.01, plus interest, and by taxpayer F. E. Gooding in the amount of $105,-578.64, plus interest. Claims for refund had been timely filed and were disallowed.

The cases were consolidated for trial and were heard by the District Court without a jury. The District Court, in a written opinion, held that distribution of the entire proceeds of sale of a portion of the capital assets of Gooding Amusement Company, Inc. and Thrills Unlimited, Inc., amounting to $363,632, made to the shareholders of the corporations, was not entitled to capital gain treatment under § 331 of Title 26 of the Internal Revenue Code as being made in partial liquidation of the corporations, but was dividends properly taxable as ordinary income. 372 F.Supp. 1093 (S.D.Ohio, 1974). Judgment was entered in favor of the Government, and taxpayers appealed.

Mr. Gooding owned 64.3% of the stock of Gooding Amusement, 60% of the stock of Thrills Unlimited, both Ohio corporations, and was the chief executive officer of said corporations. Mr. Gooding’s daughter, Joyce G. Mains, owned 16.6% of the stock of Gooding Amusement, and 35.7% of the stock of Thrills Unlimited. Donald Mains is the husband of Joyce G. Mains.

Gooding Amusement was engaged in carnival business, contracting with fairs, trade shows, and expositions to provide rides and other forms of entertainment. Thrills Unlimited was incorporated to own certain large, dangerous rides, and to lease them to Gooding Amusement for a percentage of the gross receipts.

Gooding Amusement was divided into ten operating units, of which the most profitable was unit number three, called the “Southern Route.” In the year ending July 31, 1966 the Southern Route provided 38% of the gross income of Gooding Amusement, and 47.91% of its expenses.

In contrast to the other units, the Southern Route had some equipment which was used exclusively by it; and its playing contracts remained almost the same from year to year. The Southern Route’s general manager, Hal Eifort, controlled its day to day operation on the road, and was only lightly supervised by Gooding Amusement’s home office in Columbus, Ohio.

Gooding Amusement kept its books and records at its home office and had its bank account there for all operations. It purchased all the equipment used by the Southern Route, paid any privilege deposits required by fair boards, and made most of the expenditures required for ticket printing and advertising. However, Mr. Eifort arranged and paid for newspaper advertising for the various playing dates.

During the “off season” all of the rides and equipment were stored in one place on Gooding’s property.

On April 5, 1966 Gooding Amusement and Thrills Unlimited adopted plans of complete liquidation pursuant to IRC § 337. The following day Gooding Amusement contracted to sell the Southern Route’s equipment, contracts, and trade name to a Delaware corporation for $350,000. Gooding Amusement also agreed not to compete with the purchaser for one year. Concurrently Thrills Unlimited contracted to sell a ride, called the “Mad Mouse,” to the Delaware corporation for $25,000. The purchaser was given an option to buy the remaining assets of the two corporations within one year, but it did not exercise the option. The entire proceeds of sale, totaling $363,632, were distributed to the shareholders of the two corporations.

Both corporations filed information returns of said plans pursuant to IRC § 337.

Gooding Amusement and Thrills Unlimited were unable to liquidate within one year and therefore could not avail themselves of the advantages of IRC § 337. On March 24, 1967 they amended their plans of liquidation to plans of partial liquidation. The corporations filed information return forms 966 describing the plans as plans of partial liquidation under IRC §§ 331(a)(2) and 346(a)(2).

The corporations had substantial accumulated earnings and profits and liquid assets. Although their incomes were substantial, dividends were relatively small.

Because of the ill health of Mr. Good-ing the corporations later entered into a management contract with an unrelated corporation, including an option to purchase the stock or assets. While this appeal was pending the option was exercised, according to statements in appellants’ reply brief.

Distributions by a corporation to its shareholders receive ordinary income treatment under IRC §§ 301 and 316, assuming adequate earnings and profits, unless the Internal Revenue Code provides otherwise. One of the exceptions is a distribution made in partial liquidation of a corporation. IRC § 331(a)(2). “Partial liquidation” is defined in IRC § 346 which is set out in relevant part in footnote 4. The District Court concluded that the distributions were not made in partial liquidation of the corporations pursuant to IRC §§ 346(a)(2) and 346(b). The Court held that the pretrial order in the case precluded consideration of IRC § 346(a)(1), but stated in a footnote that the distributions could not qualify under that subsection in that there had been no series of distributions in redemption of all of the stock of the two corporations. 372 F.Supp. 1093, 1104, n. 11.

There is no question as to this Court’s standard of review. A District Court finding that a distribution was not made in partial liquidation, but was essentially equivalent to a dividend, is a finding of fact which cannot be disturbed unless it is clearly erroneous or was induced by an erroneous view of the law. United States v. Carey, 289 F.2d 531, 537 (8th Cir. 1961); Estate of Chandler v. Commissioner of Internal Revenue, 228 F.2d 909 (6th Cir. 1955).

We will now consider the sections of the Internal Revenue Code which taxpayers claim require capital gains treatment.

I

IRC § 346(a)(2)

The only requirement of § 346(a)(2) which is in issue is whether the distributions by the corporations were “not essentially equivalent to a dividend.” According to the legislative history of the section, qualification under this subsection depends primarily on the existence of a bona fide corporate contraction. Such a corporate contraction qualifies to the same extent as under previous law. 3 1954 U.S.Code Cong. & Ad.News, p. 4680, 4899.

From the stockholder’s point of view a pro rata distribution in partial liquidation of a corporation is similar to an ordinary dividend. Distributions in partial liquidation are “characterized by what happens solely at the corporate level . . . .” 3 1954 U.S.Code Cong. & Ad.News, at 4680, although §§ 331 and 346 are concerned with the tax treatment of the shareholder.

Because a distribution qualifying under § 346(a)(2) possesses many of the characteristics of a dividend taxed at ordinary income rates, the sale or distribution of assets claimed to constitute a corporate contraction must be a significant event in the history of the corporation if sale or distribution of assets is not to become a convenient pretext for bail-out of earnings and profits at capital gain rates. Bittker & Eustice, Fed. Income Taxation of Corporations & Shareholders, If 9.52, 3d Ed.

The District Court held that the sale and distribution was not a § 346(a)(2) contraction. The Court stated that a corporation must sell and distribute a significant percentage of its net worth, and that the percentages attributable to the sales of the Southern Route and the Mad Mouse, 5.19% and 1.41% respectively, were not significant. In addition the Court stated that purchases of new equipment after the sale, by the two corporations, resulted in no real contraction at all, and that business activity, meas- . ured by the number of playing days, was not appreciably affected.

The taxpayers contend that this Court should not regard Thrills Unlimited as having a corporate existence separate from Gooding Amusement for purposes of determining the applicability of § 346(a)(2) to distributions made by Thrills Unlimited. They argue that Thrills Unlimited’s only business was to lease equipment to Gooding Amusement, and therefore its fortunes were tied closely to the fortunes of Gooding Amusement. However, the taxpayers offered no evidence that Thrills Unlimited and Gooding Amusement were not treated as two distinct corporations. Thrills Unlimited was not a subsidiary of Gooding Amusement, and Gooding Amusement had a number of shareholders who were not shareholders of Thrills Unlimited. Distributions from Thrills Unlimited must qualify independently, if they qualify at all.

The District Court found that Thrills Unlimited purchased new equipment in the year of the sale and during the following two years for amounts totaling approximately $149,000, about six times the sale price of the Mad Mouse, and that Thrills Unlimited was engaged in a plan of expansion. These findings are supported by the evidence. Doris Relyea testified concerning equipment purchases made by Thrills Unlimited, and admitted writing a letter to the Internal Revenue Service to justify the accumulation of earnings and profits in Thrills Unlimited, stating that Thrills had plans to expand.

It is clear that in the year of the sale and during the years immediately following, Thrills Unlimited expanded its commitment of capital to equipment. In order for a distribution to qualify as a distribution in partial liquidation under § 346(a)(2) the amount of capital actually committed to the corporate business must be significantly reduced. Rev.Rul. 67-299, 1967-2 Cum.Bull. 138; Estate of Charles D. Chandler, 22 T.C. 1158, 1166 (1954), aff’d, 228 F.2d 909 (6th Cir. 1955).

Although a sale or other disposition of assets may be a potential corporate contraction, there is no contraction if funds are used to expand another part of the business so that the potential contraction is offset.

The book value of the equipment sold by Gooding Amusement as the Southern Route was $98,237. During the fiscal year of the sale it purchased $100,740 of new equipment. The taxpayers point out that Gooding Amusement purchased some equipment every year to replace old equipment, and they assert that even after a plan of liquidation was adopted such purchases were necessary to maintain the company’s contracts and goodwill.

Purchases were $77,702 in 1965 and $62,173 in 1964 fiscal years. An examination of Gooding Amusement’s balance sheets indicates that the company did not expand its capital commitment to productive assets prior to 1966.

Where a corporation regularly replaces worn equipment, purchases of such equipment in amounts not substantially exceeding previous years’ purchases should not be regarded as an expansion of the business. However, Gooding Amusement purchased equipment in 1966 which exceeded that purchased in the years immediately preceding. At least to the extent of a substantial increase in the amount spent for purchases of equipment, the District Court can consider such purchases as expansion of the remaining business to compensate for the sale of the Southern Route.

The District Court used a net worth test to determine that there had been no contraction, not taking into account the purchase of new equipment. Determination of whether there exists a corporate contraction must be made on the facts of each case. The relative percentage of the assets sold to the entire net worth of the corporations is only one factor to be considered. Certainly the approximate percentage of the productive assets of the corporation, including working capital, equipment, and inventory, attributable to the assets disposed of, is of basic importance. That percentage must be substantial. Rev.Rul. 67 — 299, 1967 — 2 Cum.Bull. 138; Estate of Charles D. Chandler, supra. See McCarthy v. Conley, 341 F.2d 948, 955 (2d Cir. 1965).

Considering the increased purchase of equipment and the relatively small fraction of the assets disposed of, the District Court’s finding that there was not a contraction is supported by substantial evidence, and is not clearly erroneous.

II

IRC § 346(b)

The only requirement of this subsection that is in issue is that the distribution be “attributable to the corporation’s ceasing to conduct ... a trade or business . . . .” The issue is whether the Southern Route constituted a trade or business. Treas.Reg. § 1.346-1(c)(2) (1955) refers to Treas.Reg. § 1.355 — 1(c) for a definition of the term “active conduct of a trade or business.” Treas.Reg. § 1.355-l(c) (1955), in pertinent part, is as follows:

. [A] trade or business consists of a specified existing group of activities being carried on for the purpose of earning income or profit from only such group of activities, and the activities included in- such group must include every operation which forms a part of, or a step in, the process of earning income or profit from such group. Such group of activities ordinarily must include the collection of income and the payment of expenses.

Some overlap between the trade or business and the remainder of the corporation must be expected. Rev.Rul. 56-451, 56 Cum.Bull. 208 concerned a corporation which published four trade magazines. The magazines had separate offices, separate editorial and advertising sales staffs, and separate accounts on the books of the corporation. However, the general officers of the corporation and, of more importance, the production workers served all of the magazines. The Internal Revenue Service held that the metal trade magazine was a trade or business separate from the rest for purposes of IRC §§ 355, 361, and 368. See also Treas.Reg. § 1.355-l(d), Example 15.

Blaschka v. United States, 393 F.2d 983, 184 Ct.Cl. 264 (1968), identifies two major factors in determining the existence of an actively conducted trade or business. The first requirement is that each of the parts alleged to constitute a trade or business must produce a substantial part of the combined corporate income. The second requirement is that there be some form of separation of supervision and control.

There is no question that the Southern Route provided a large part of the total income of Gooding Amusement. If it was a trade or business it was an actively conducted trade or business. However, the Southern Route did not include every step in the process of earning income. Several important operations were conducted by the home office. The same evidence shows that there was no real separation of control, although the Southern Route’s general manager necessarily controlled its day to day operations in the field.

Mr. E. C. Redman testified that privilege deposits were paid by the home office, tickets were bought, and major advertising expenditures, such as for color posters, also were made by the home office. New equipment was purchased by the home office, and the equipment used by all units was stored at a common place, with no apportionment of overhead. This indicates that Mr. Eifort’s control of the Southern Route was limited to its operation while it traveled its route, and also that the Southern Route did not pay all of its expenses.

Moreover, Mrs. Relyea testified that during the time of Mr. Gooding’s ill health, when Mr. Eifort, by reason of the good relationships that he had built with the fair boards, was negotiating for the Southern Route contracts, she (Mrs. Re-lyea) sat in on some of the sessions. This shows the existence of lack of separation of supervision, although circumstances made only light supervision necessary.

In our opinion the District Court’s determination that the Southern Route did not constitute a separate trade or business, is supported by substantial evidence and is not clearly erroneous.

Ill

IRC § 346(a)(1)

The District Court held that the final pretrial order precluded reliance by the taxpayers on IRC § 346(a)(1). We disagree.

The first pretrial order provided:

E. Issues—
Whether or not the items of income received by the plaintiffs for the calendar year ending December 31, 1966 from Gooding Amusement Co. and Thrills Unlimited, Inc. were ordinary dividends or partial liquidation dividends.

There is nothing in this order which limits the taxpayers to any particular section of the Internal Revenue Code.

The final pretrial Order contained in the Appendix, on which the District Court relied, is in relevant part as follows:

IV. AGREED STATEMENTS AND LISTS:

A. General Nature of the Claims of the Parties
1. The plaintiffs claim that distributions received by them in 1966 as stockholders of Gooding Amusement Company, Inc. and Thrills Unlimited, Inc. qualified as partial liquidations under Section 346 of the 1954 Internal Revenue Code.
2. The defendant claims that the distributions do not qualify as partial liquidations, in which case they are taxable to the plaintiffs as dividends.
******
C. Issues of Fact and Law Whether the distributions in question qualify as partial liquidations under Section 346(a)(2) or Section 346(b) of the 1954 Internal Revenue Code.
In the case of Section 346(a)(2), qualification depends upon whether plaintiffs can establish that the distributions were “not essentially equivalent to a dividend.”
In the case of Section 346(b) qualification depends upon whether plaintiffs can establish that the distributions were attributable to the termination of an “actively conducted * * * trade or business” within the meaning of that section. (A. 17 — 18)

It will be noted therefrom that A — 1. of the Order states the nature of the claim of the taxpayers, that the distributions “qualified as partial liquidations under Section 346 of the 1954 Internal Revenue Code.” This would include subsection (a)(1) as well as (a)(2) and (b). The fact that the Government in A — 2. did not agree with that claim does not prevent the taxpayers from asserting it.

In the Government’s brief the following statement was made:

This issue was not listed in the pretrial order and indeed, taxpayers’ counsel stated at trial that the provisions of Section 346(a)(1) dealing with complete liquidations were not applicable to this case. (p. 14)

It was further stated in the Government’s brief:

Counsel for taxpayers conceded in his opening statement at trial that Section 346(a)(1) was not involved herein stating (I — R. 22):
The second definition [346(a)(2)]— the first one does not apply in our case since we do not have a complete liquidation — which is the one that the case revolves about * *.
After denying this was an issue in the case and after all the evidence had been introduced on that basis, taxpayers turn about and raise the issue for the first time in their post-trial brief, (p. 37).

An examination of the court reporter’s transcript of opening statements of counsel reveals that the above statements attributed (in the government’s brief) to taxpayers’ counsel, were not made by him, but on the contrary they were made by Mr. Thomaseh, who was counsel for the Government.

The opening statement of counsel for the taxpayers contained, among others, the following statements:

* * * The Internal Revenue Code sections that we are immediately concerned with are Sections 331 and 346 of the Internal Revenue Code of 1954.
These sections define and provide for exchange or capital treatment with respect to shareholders on distributions made in connection with partial liquidations of corporations.
Section 346 defines partial liquidation in three different terms:
(1) One of a series of distributions made—
THE COURT: Let’s not go into that, Mr. Nicholas. Just tell me, in a general way, without going into the sections applicable, what you expect to prove here today and by whom you expect to prove it.
MR. NICHOLAS: I expect to prove
(1) that the distribution, the disposition made in 1966, was a partial liquidation and a definite substantial contraction in the activities of the Gooding Amusement Company;
(2) that this was part of the complete plan of [8] liquidation that has never been abandoned, and which in fact is being implemented right today, right now;
(3) I intend to prove that this Southern route was a distinct, autonomous operating business unit in itself, and the termination qualified as a partial liquidation under Section 346.
That’s specifically, Your Honor, what I think, our evidence is going to show in detail, the documentary evidence. (App. 21 — 22).

One of the purposes which the pretrial conference serves is to expedite disposition of cases by simplifying the issues and eliminating surprise. Rule 16 of the Federal Rules of Civil Procedure provides that the pretrial order “when entered controls the subsequent course of the action, unless modified at the trial to prevent manifest injustices.”

Rule 15(b) of Fed.R.Civ.P. provides: When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings.

Where an issue, not included in the pretrial order, is actually tried by the parties, the aforementioned policies served by Rule 16 would not be served by the trial Court’s refusal to consider the issue. Rule 16 should be read in the light of Rule 15(b). Wallin v. Fuller, 476 F.2d 1204, 1209-1210 (5th Cir. 1973); Bucky v. Sebo, 208 F.2d 304, 305 (2d Cir. 1953). See Mayfield v. First Nat’l. Bank, 137 F.2d 1013, 1016 (6th Cir. 1943).

As discussed below, the continuing existence of a plan of complete liquidation is relevant to a partial liquidation under § 346(a)(1). It is irrelevant to the existence of a partial liquidation pursuant to § 346(a)(2) or § 346(b).

F. E. Gooding, by codicil to his Will, directed his executors either to sell his stock in Thrills Unlimited and Gooding Amusement or to vote the stock for liquidation. The Will and Codicil were admitted as plaintiffs’ Exhibit 23, without objection by the Government. E. C. Redman, who was an accountant for and a director of Gooding Amusement, testified that efforts were made to find a purchaser for the balance of the two corporations after the sale of the Southern Route; and Doris Relyea, an officer and director of the two corporations, testified that the corporations continued to have plans of complete liquidation. (App. pp. 40, 41, 42, 77, 78, 82, 83.) All of this evidence was admitted without objection.

Finally, Government counsel cross-examined Mr. Redman, attempting to elicit his agreement that § 346(a)(1) could not apply. (App. pp. 100, 101.)

The opening statements by both taxpayers’ and Government counsel indicate that they each intended to make § 346(a)(1) an issue in the case.

No evidence pertaining to partial liquidation under § 346(a)(1) was excluded by the trial Court; however, there were no findings of fact nor conclusions of law adopted concerning the applicability of § 346(a)(1) to the distributions. We decline to regard footnote 11 of the trial Court’s opinion as adequate consideration of this important issue. The Court stated that the distribution would not qualify because there had been no series of distributions in redemption of all of the corporations’ stock.

The series of distributions leading to a complete liquidation need not be completed by the time an action is brought or a judgment is rendered. Maguire v. Commissioner of Internal Revenue, 222 F.2d 472 (7th Cir. 1955).

The only real question in this case concerning the subsection is whether the taxpayers clearly proved that there was a settled and continuing informal plan to liquidate the corporations. Blaschka v. United States, 393 F.2d 983, 988, 184 Ct.Cl. 264 (1968); Maguire v. Commissioner of Internal Revenue, supra, 222 F.2d at 479; Horn & Hardart Baking Co. v. United States, 34 F.Supp. 89, 90 (E.D.Pa.1940). There is conflicting evidence on this issue. The District Court must also' consider the alleged exercise of the option made during pendency of the appeal.

In no event would we want to hold that an otherwise valid claim for refund should be denied by a Court merely because the claimant may have also relied on inapplicable subsections of a section of the Internal Revenue Code.

The judgment of the District Court is affirmed as to the claims under Sections 346(a)(2) and 346(b) of the Internal Revenue Code, and is reversed as to the claim under Section 346(a)(1), and is remanded for a new trial on said Section 346(a)(1) claim.

It is ordered that two-thirds of the costs be assessed against appellants and one-third against the United States.

      . Both corporations had accumulated earnings and profits exceeding the amount of the distribution made by the respective corporations. Under IRC § 331(a)(2) distributions made in partial liquidation of a corporation are treated as made in part or in full payment in exchange for the stockholder’s stock. If the stock qualifies as a capital asset in the stockholder’s hands, any gain is capital gain.

      . F. E. Gooding died on August 14, 1972, and his estate was substituted as a party plaintiff to this action.

      . On August 31, 1966, after Gooding Amusement had distributed $346,009 as a partial liquidating dividend, and $8,540 as an ordinary dividend, it had earned surplus of $1,364,453 and current assets and investments of $1,177,350. Total assets were $1,942,462. A similar situation, albeit on a smaller scale, obtained with Thrills Unlimited.

      . Section 346. Partial Liquidation Defined, (a) In general. — For purposes of this sub-chapter, a distribution shall be treated as in
      partial liquidation of a corporation if—
      (1) the distribution is one of a series of distributions in redemption of all of the stock of the corporation pursuant to a plan; or
      (2) the distribution is not essentially equivalent to a dividend, is in redemption of a part of the stock of the corporation pursuant to a plan, and occurs within the taxable year in which the plan is adopted or within the succeeding taxable year, including (but not limited to) a distribution which meets the requirements of subsection (b).
      For purposes of section 562(b) (relating to the dividends paid deduction) and section 6043 (relating to information returns), a partial liquidation includes a redemption of stock to which section 302 applies.
      (b) Termination of a business. — A distribution shall be treated as a distribution described in subsection (a)(2) if the requirements of paragraphs (1) and (2) of this subsection are met.
      (1) The distribution is attributable to the corporation’s ceasing to conduct, or consists of the assets of, a trade or business which has been actively conducted throughout the 5-year period immediately before the distribution, which trade or business was not acquired by the corporation within such period in a transaction in which gain or loss was recognized in whole or in part.
      (2) Immediately after the distribution the liquidating corporation is actively engaged in the conduct of a trade or business, which trade or business was actively conducted throughout the 5-year period ending on the date of the distribution and was not acquired by the corporation within such period in a transaction in which gain or loss was recognized in whole or in part.

      . One justification offered for distinguishing the tax treatment given distributions in partial liquidation after a corporate contraction from the tax treatment of ordinary dividends, is that in the case of a corporate contraction and distribution “the stockholders no longer retained a continuing interest in the same business but rather in a materially reduced one.” 1 Mertens, Law of Fed. Income Taxation, § 9.69. This rationale contemplates that the contraction is a significant event in the history of the corporation.

      . Separate manufacturing plants owned by one corporation, but having a common sales outlet, are separate trades or businesses. Blaschka v. United States, 393 F.2d 983, 991, 184 Ct.Cl. 264 (1968), distinguishes this example. “Each plant was a viable entity, capable of producing the product from beginning to end.”

      . Despite this holding the District Court in fn. 11 of its opinion, stated:
      In any event, the sales in question would not qualify as a partial liquidation under Section 346(a)(1) in that there has been no series of distributions in redemption of all of the stock of the two corporations.


author: GEWIN, Circuit Judge:

text:
    BLUE BELL, INC., Plaintiff-Appellant, v. FARAH MANUFACTURING COMPANY, INC., Defendant-Appellee.
    No. 74-1131.
    United States Court of Appeals, Fifth Circuit.
    Feb. 27, 1975.
    Rehearing Denied April 4, 1975.

      John B. Luscombe, Jr., El Paso, Tex., Alfred P. O’Hara, Marie V. Driscoll, New York City, for plaintiff-appellant.
    J. Malcolm Harris, El Paso, Tex., William C. Conner, Henry W. Koster, New York City, for defendant-appellee.
    Before GEWIN, AINSWORTH and GEE, Circuit Judges.
   GEWIN, Circuit Judge:

In the spring and summer of 1973 two prominent manufacturers of men’s clothing created identical trademarks for

goods substantially identical in appearance. Though the record offers no indication of bad faith in the design and adoption of the labels, both Farah Manufacturing Company (Farah) and Blue Bell, Inc. (Blue Bell) devised the mark “Time Out” for new lines of men’s slacks and shirts. Both parties market their goods on a national scale, so they agree that joint utilization of the same trademark would confuse the buying public. Thus, the only question presented for our review is which party established prior use of the mark in trade. A response to that seemingly innocuous inquiry, however, requires us to define the chameleonic term “use” as it has developed in trademark law.

After a full development of the facts in the district court both parties moved for summary judgment. The motion of Farah was granted and that of Blue Bell denied. It is not claimed that summary judgment procedure was inappropriate; the controversy presented relates to the application of the proper legal principles to undisputed facts. A permanent injunction was granted in favor of Farah but no damages were awarded, and Blue Bell was allowed to fill all orders for garments bearing the Time Out label received by it as of the close of business on December 5, 1973. For the reasons hereinafter stated we affirm.

Farah conceived of the Time Out mark on May 16, after screening several possible titles for its new stretch menswear. Two days later the firm adopted an hourglass logo and authorized an extensive advertising campaign bearing the new insignia. Farah presented its fall line of clothing, including Time Out slacks, to sales personnel on June 5. In the meantime, patent counsel had given clearance for use of the mark after scrutiny of current federal registrations then on file. One of Farah’s top executives demonstrated samples of the Time Out garments to large customers in Washington, D. C. and New York, though labels were not attached to the slacks at that time. Tags containing the new design were completed June 27. With favorable evaluations of marketing potential from all sides, Farah sent one pair of slacks bearing the Time Out mark to each of its twelve regional sales managers on July 3. Sales personnel paid for the pants, and the garments became their property in case of loss.

Following the July 3 shipment, regional managers showed the goods to customers the following week. Farah received several orders and production began. Further shipments of sample garments were mailed to the rest of the sales force on July 11 and 14. Merchandising efforts were fully operative by the end of the month. The first shipments to customers, however, occurred in September.

Blue Bell, on the other hand, was concerned with creating an entire new division of men’s clothing, as an avenue to reaching the “upstairs” market. Though initially to be housed at the Hicks-Ponder plant in El Paso, the new division would eventually enjoy separate headquarters. On June 18 Blue Bell management arrived at the name Time Out to identify both its new division and its new line of men’s sportswear. Like Far-ah, it received clearance for use of the mark from counsel. Like Farah, it inaugurated an advertising campaign. Unlike Farah, however, Blue Bell did not ship a dozen marked articles of the new line to its sales personnel. Instead, Blue Bell authorized the manufacture of several hundred labels bearing the words Time Out and its logo shaped like a referee’s hands forming a T. When the labels were completed on June 29, the head of the embryonic division flew them to El Paso. He instructed shipping personnel to affix the new Time Out labels to slacks that already bore the “Mr. Hicks” trademark. The new tags, of varying sizes and colors, were randomly attached to the left hip pocket button of slacks and the left hip pocket of jeans. Thus, although no change occurred in the design or manufacture of the pants, on July 5 several hundred pair left El Paso with two tags.

Blue Bell made intermittent shipments of the doubly-labeled slacks thereafter, though the out-of-state customers who received the goods had ordered clothing of the Mr. Hicks variety. Production of the new Time Out merchandise began in the latter part of August, and Blue Bell held a sales meeting to present its fall designs from September 4r-6. Sales personnel solicited numerous orders, though shipments of the garments were not scheduled until October.

By the end of October Farah had received orders for 204,403 items of Time Out sportswear, representing a retail sales value of over $2,750,000. Blue Bell had received orders for 154,200 garments valued at over $900,000. Both parties had commenced extensive advertising campaigns for their respective Time Out sportswear.

Soon after discovering the similarity of their marks, Blue Bell sued Farah for common law trademark infringement and unfair competition, seeking to enjoin use of the Time Out trademark on men’s clothing. Farah counter-claimed for similar injunctive relief. The district court found that Farah’s July 3 shipment and sale constituted a valid use in trade, while Blue Bell’s July 5 shipment was a mere “token” use insufficient at law to create trademark rights. While we affirm the result reached by the trial court as to Farah’s priority of use, the legal grounds upon which we base our decision are somewhat different from those un-dergirding the district court’s judgment.

Federal jurisdiction is predicated upon diversity of citizenship, since neither party has registered the mark pursuant to the Lanham Act. Given the operative facts surrounding manufacture and shipment from El Paso, the parties agree the Texas law of trademarks controls. In 1967 the state legislature enacted a Trademark Statute. Section 16.02 of the Act explains that a mark is “used” when it is affixed to the goods and “the goods are sold, displayed for sale, or otherwise publicly distributed.” Thus the question whether Blue Bell or Farah established priority of trademark use depends upon interpretation of the cited provision. Unfortunately, there are no Texas cases construing § 16.02. This court must therefore determine what principles the highest state court would utilize in deciding such a question. In view of the statute’s stated purpose to preserve common law rights, we conclude the Texas Supreme Court would apply the statutory provision in light of general principles of trademark law.

A trademark is a symbol (word, name, device or combination thereof) adopted and used by a merchant to identify his goods and distinguish them from articles produced by others. Lanham Act § 45, 15 U.S.C. § 1127; Clairol, Inc. v. Gillette Co., 270 F.Supp. 371 (E.D.N.Y.1967); see Vernon’s Tex.Code Ann., Bus. & Comm. § 16.01(5) (1968). Ownership of a mark requires a combination of both appropriation and use in trade, United Drug Co. v. Theodore Rectanus Co., 248 U.S. 90, 39 S.Ct. 48, 63 L.Ed. 141 (1918). Thus, neither conception of the mark, Rolley, Inc. v. Younghusband, 204 F.2d 209 (9th Cir. 1953); Modular Cinemas of America, Inc. v. Mini Cinemas Corp., 348 F.Supp. 578 (S.D.N.Y.1972), nor advertising alone establishes trademark rights at common law. Minnesota Mining and Manufacturing Co. v. Minnesota Linseed Oil Paint, Inc., 229 F.2d 448, 43 CCPA 746 (1956); Consumers Petroleum Co. v. Consumers Co. of Illinois, 169 F.2d 153 (7th Cir.), cert. denied, 335 U.S. 902, 69 S.Ct. 406, 93 L.Ed. 437 (1949); Gray v. Armand Co., 58 App.D.C. 50, 24 F.2d 878 (1928). Rather, ownership of a trademark accrues when goods bearing the mark are placed on the market. Wallace & Co. v. Repetti, 266 F. 307 (2d Cir.), cert. denied, 254 U.S. 639, 41 S.Ct. 13, 65 L.Ed. 451 (1920).

The exclusive right to a trademark belongs to one who first uses it in connection with specified goods. McClean v. Fleming, 96 U.S. 245, 24 L.Ed. 828 (1877); 3 R. Callman, Unfair Competition, Trademarks and Monopolies § 76.-2(c) (3d ed. 1969). Such use need not have gained wide public recognition, Kathreiner’s Malzkaffee Fabriken v. Pastor Kneipp Medicine Co., 82 F. 321 (7th Cir. 1897); Waldes v. International Manufacturers’ Agency, 237 F. 502 (S.D.N.Y.1916), and even a single use in trade may sustain trademark rights if followed by continuous commercial utilization. Ritz Cycle Car Co., v. Driggs-Seabury Ordnance Corp., 237 F. 125 (S.D.N.Y.1916).

The initial question presented for review is whether Farah’s sale and shipment of slacks to twelve regional managers constitutes a valid first use of the Time Out mark. Blue Bell claims the July 3 sale was merely an internal transaction insufficiently public to secure trademark ownership. After consideration of pertinent authorities, we agree.

Secret, undisclosed internal shipments are generally inadequate to support the denomination “use.” Trademark claims based upon shipments from a producer’s plant to its sales office, and vice versa, have often been disallowed. Sterling Drug, Inc. v. Knoll Chemische Fabriken, 159 U.S.P.Q. 628 (TTAB 1968); Black Panther Co., Inc. v. Godfrey L. Cabot, Inc., 121 U.S.P.Q. 533 (TTAB 1949); L & C Hardtmuth, Inc. v. Koh-I-Noor Pencil Factory, 101 U.S.P.Q. 492 (Comm’r 1954); Proctor and Gamble Co. v. Jacqueline Cochran, Inc., 102 U.S.P.Q. 492 (Comm’r 1954); Dickerson v. Wyan-dotte Chemical Corp., 91 U.S.P.Q. 345 (Comm’r 1951). Though none of the cited cases dealt with sales to intra-corpo-rate personnel, we perceive that fact to be a distinction without a difference. The sales were not made to customers, but served as an accounting device to charge the salesmen with their cost in case of loss. The fact that some sales managers actively solicited accounts bolsters the good faith of Farah’s intended use, but does not meet our essential objection: that the “sales” were not made to the public.

The primary, perhaps singular purpose of a trademark is to provide a means for the consumer to separate or distinguish one manufacturer’s goods from those of another. Personnel within a corporation can identify an item by style number or other unique code. A trademark aids the public in selecting particular goods. As stated by the First Circuit:

But to hold that a sale or sales are the sine qua non of a use sufficient to amount to an appropriation would be to read an unwarranted limitation into the statute, for so construed registration would have to be denied to any manufacturer who adopted a mark to distinguish or identify his product, and perhaps applied it thereon for years, if he should in practice lease his goods rather than sell them, as many manufacturers of machinery do. It seems to us that although evidence of sales is highly persuasive, the question of use adequate to establish appropriation remains one to be decided on the facts of each case, and that evidence showing, first, adoption, and, second, use in a way sufficiently public to identify or distinguish the marked goods in an appropriate segment of the public mind as those of the adopter of the mark, is competent to establish ownership

New England Duplicating Co. v. Mendes, 190 F.2d 415, 418 (1st Cir. 1951) (Emphasis added). Similarly, the Trademark Trial and Appeal Board has reasoned:

To acquire trademark rights there has to be an “open” use, that is to say, a use has to be made to the relevant class of purchasers or prospective purchasers since a trademark is intended to identify goods and distinguish those goods from those manufactured or sold by others. There was no such “open” use rather the use can be said to be an “internal” use, which cannot give rise to trademark rights.

Sterling Drug, Inc. v. Knoll A. G. Chem-ische Fabriken, supra at 631.

Farah nonetheless contends that a recent decision of the Board so undermines all prior cases relating to internal use that they should be ignored. In Standard Pressed Steel Co. v. Midwest Chrome Process Co., 183 U.S.P.Q. 758 (TTAB 1974) the agency held that internal shipment of marked goods from a producer’s manufacturing plant to its sales office constitutes a valid “use in commerce” for registration purposes.

An axiom of trademark law has been that the right to register a mark is conditioned upon its actual use in trade. Rolley, Inc. v. Younghusband, 204 F.2d 209 (9th Cir. 1953); Waldes v. International Manufacturers’ Agency, 237 F. 502 (S.D.N.Y.1916); Dickerson v. Wyandotte Chemical Corp., 91 U.S.P.Q. 345 (Comm’r 1951); 3 R. Callman, Unfair Competition, Trademarks, and Monopolies § 76.2(K) (3d ed. 1969). Theoretically, then, common law use in trade should precede the use in commerce upon which Lanham Act registration is predicated. Arguably, since only a trademark owner can apply for registration, any activity adequate to create registrable rights must perforce also create trademark rights. A close examination of the Board’s decision, however, dispels so mechanical a view. The tribunal took meticulous care to point out that its conclusion related solely to registration use rather than ownership use.

It has been recognized and especially so in the last few years that, in view of the expenditures involved in introducing a new product on the market generally and the attendant risk involved therein prior to the screening process involved in resorting to the federal registration system and in the absence of an “intent to use” statute, a token sale or a single shipment in commerce may be sufficient to support an application to register a trademark in the Patent Office notwithstanding that the evidence may not show what disposition was made of the product so shipped. That is, the fact that a sale or a shipment of goods bearing a trademark was designed primarily to lay a foundation for the filing of an application for registration does not, per se, invalidate any such application or subsequent registration issued thereon.
sis * * * * *
Inasmuch as it is our belief that a most liberal policy should be followed in a situation of this kind [in which dispute as to priority of use and ownership of a mark is not involved], applicant’s initial shipment of fasteners, although an intra-company transaction in that it was to a company sales representative, was a bona fide shipment.

Standard Pressed Steel Co. v. Midwest Chrome Process Co., supra at 764 — 65 (Emphasis added).

Priority of use and ownership of the Time Out mark are the only issues before this court. The language fashioned by the Board clearly indicates a desire to leave the common law of trademark ownership intact. The decision may demonstrate a reversal of the presumption that ownership rights precede registration rights, but it does not affect our analysis of common law use in trade. Farah had undertaken substantial preliminary steps toward marketing the Time Out garments, but it did not establish ownership of the mark by means of the July 3 shipment to its sales managers. The gist of trademark rights is actual use in trade. Modular Cinemas of America, Inc. v. Mini Cinemas Corp., 348 F.Supp. 578 (S.D.N.Y.1972). Though technically a “sale”, the July 3 shipment was not “publicly distributed” within the purview of the Texas statute.

Blue Bell’s July 5 shipment similarly failed to satisfy the prerequisites of a bona fide use in trade. Elementary tenets of trademark law require that labels or designs be affixed to the merchandise actually intended to bear the mark in commercial transactions. Persha v. Armour & Co., 239 F.2d 628 (5th Cir. 1957). Furthermore, courts have recognized that the usefulness of a mark derives not only from its capacity to identify a certain manufacturer, but also from its ability to differentiate between different classes of goods produced by a single manufacturer. Western Stove Co. v. George D. Roper Corp., 82 F.Supp. 206 (S.D.Cal.1949). Here customers had ordered slacks of the Mr. Hicks species, and Mr. Hicks was the fanciful mark distinguishing these slacks from all others. Blue Bell intended to use the Time Out mark on an entirely new line of men’s sportswear, unique in style and cut, though none of the garments had yet been produced.

While goods may be identified by more than one trademark, the use of each mark must be bona fide. See, e. g., Old Dutch Foods, Inc. v. Dan Dee Pretzel & Potato Chip Co., 477 F.2d 150 (6th Cir. 1973) (continuous utilization of the second mark for over thirty years). Mere adoption of a mark without bona fide use, in an attempt to reserve it for the future, will not create trademark rights. Circle Cab Co. v. Springfield Yellow Cab Co., 137 N.E.2d 137 (Ohio App. 1954); Western Leather Goods v. Blue Bell, 178 U.S.P.Q. 382 (TTAB 1973). In the instant case Blue Bell’s attachment of a secondary label to an older line of goods manifests a bad faith attempt to reserve a mark. We cannot countenance such activities as a valid use in trade. Blue Bell therefore did not acquire trademark rights by virtue of its July 5 shipment.

We thus hold that neither Farah’s July 3 shipment nor Blue Bell’s July 5 shipment sufficed to create rights in the Time Out mark. Based on a desire to secure ownership of the mark and superiority over a competitor, both claims of alleged use were chronologically premature. Essentially, they took a time out to litigate their differences too early in the game. The question thus becomes whether we should continue to stop the clock for a remand or make a final call from the appellate bench. While a remand to the district court for further factual development would not be improper in these circumstances, we believe the interests of judicial economy and the parties’ desire to terminate the litigation demand that we decide, if possible, which manufacturer first used the mark in trade.

Careful examination of the record discloses that Farah shipped its first order of Time Out clothing to customers in September of 1973. Blue Bell, approximately one month behind its competitor at other relevant stages of development, did not mail its Time Out garments until at least October. Though sales to customers are not the sine qua non of trademark use, see New England Duplicating Co. v. Mendes, supra, they are determinative in the instant case. These sales constituted the first point at which the public had a chance to associate Time Out with a particular line of sportswear. Therefore, Farah established priority of trademark use; it is entitled to a decree permanently enjoining Blue Bell from utilization of the Time Out trademark on men’s garments.

The judgment of the trial court is affirmed.

      . Compare Western Stove Co. v. George D. Roper Corp., 82 F.Supp. 206 (S.D.Cal.1949) (first commercial sale controls, despite opposing party’s prior conception and advertisement of the mark) with Charles Pfizer & Co. v. R. J. Moran Co., 125 U.S.P.Q. 201 (1960) (prior commercial sale is not determinative; drug manufacturer who first conceived of the mark and appended it to drugs for experimental purposes has rights superior to drug producer who initially placed goods on the market).

      . The documents do not disclose whether this valuation represents the retail or wholesale price.

      . Specifically, the district court made the following factual determinations:
      c. On July 3, 1973, Defendant, Farah Manufacturing Company, Inc., made interstate shipment of men’s slacks bearing “TIME OUT” labels, and the shipment on such date was a good faith step in a continuous and uninterrupted program of marketing of “TIME OUT” slacks. The shipment of July 3, 1973, was to Farah’s regional sales managers also employed by Farah Sales Corporation, a wholly owned subsidiary of Farah Manufacturing Company, Inc. The garments shipped were sold to and paid for by the regional sales managers. The shipment was made to enable sales personnel to exhibit the labeled garments to customers to solicit orders. The garments shipped were exhibited to customers and orders were solicited and obtained therefor. As a result of such shipment and marketing program, orders for Farah’s TIME OUT slacks were received in substantial volume such that prior to submission hereof, Farah had received orders from retail stores for some 204,403 units of TIME OUT garments, representing retail sales value of some $2,751,-935.00.
      d. The Plaintiff, Blue Bell, Inc., sought to establish a new TIME OUT division within the company and to this end incorporated a new corporation under the name TIME OUT, INC. At the time of Plaintiff’s claimed first use of the trademark on July 5, 1973, the new corporation had not been formed and there was no established business in the new division nor did Plaintiff have any established line of garments known or identified as TIME OUT garments. In an effort to reserve the trademark “TIME OUT” for a contemplated new line of garments and/or for a contemplated new division within the company, Plaintiff randomly tagged and shipped with a supplemental “TIME OUT” label, garments manufactured by its HICKS-PONDER division, which garments had been ordered, shipped and sold bearing the “MR. HICKS” trademark.
      The trial court reached the following conclusions of law:
      4. Defendant Farah’s shipment of TIME OUT labeled garments in interstate commerce on July 3, 1973, was a good faith step in a continuous and uninterrupted program of placing labeled goods on the market and soliciting orders therefor, and constituted a valid first use of the trademark. Such actions on the part of the Defendant Farah constituted use of the mark within the meaning of Art. 16.02, Business and Commerce Code of the State of Texas, in that TIME OUT labels were placed on tags or labels affixed to the goods and the goods were sold, displayed for sale, and otherwise publicly distributed in the state. Such use preceded any use of the trademark by Plaintiff Blue Bell.
      5. Plaintiff Blue Bell’s shipment of “MR. HICKS” garments carrying a supplemental “TIME OUT” label on July 5, 1973, was an attempt to reserve the trademark for a line of garments or line of business not yet established or existing. Such shipment was a token use insufficient in law to give Plaintiff prior rights to the trademark. Moreover, Plaintiff’s claimed first use on such date came after Defendant’s first use of the trademark.

      . 15 U.S.C. §§ 1051-1127. Federal courts have original jurisdiction over actions arising under the Lanham Act. 15 U.S.C. § 1121. In the absence of federal registration, however, state law controls infringement and unfair competition claims. El Chico, Inc. v. El Chico Cafe, 214 F.2d 721 (5th Cir. 1954).

      . Vernon’s Tex.Code Ann., Bus. & Comm. §§ 16.01-16.28 (1968).

      . Vernon’s Tex.Code Ann., Bus. & Comm. § 16.27 (1968); see also Arnold, Proposed New Texas Trademark Statute, 4 S.Tex.L.J. 1, 7 (1958).

      . We intimate no view as to whether the Texas statute’s definition of use embracing “display for sale” would change the common law rule. Vernon’s Tex.Code Ann., Bus. & Comm. § 16.02 (1968).

      . Appendix at 498.

      . Appendix at 391.