author: WINTER, Circuit Judge:

text:
    UNITED STATES of America, Appellee, v. Chester Ray LOONEY, Appellant. UNITED STATES of America, Appellee, v. Bobby James SCATES, Appellant. UNITED STATES of America, Appellee, v. Larry Eugene SEARCY, Appellant. UNITED STATES of America, Appellee, v. Robert Edward GRUBB, Appellant. UNITED STATES of America, Appellee, v. Edwin ACEVEDO, Appellant. UNITED STATES of America, Appellee, v. German ROSARIO, Appellant.
    Nos. 73-2002 to 73-2005, 73-2008 and 73-2009.
    United States Court of Appeals, Fourth Circuit.
    Argued April 4, 1974.
    Decided July 29, 1974.
    Michael J. Blackford, Charlotte, N. C., for appellant in Nos. 73-2002, 73-2003 and 73-2004.
    Jerry W. Whitley, Charlotte, N. C., for appellant in No. 73-2005.
    Laurence Jeffrey Weingard, New York City (Musehio, Weingard & Broud-ny, New York City, on brief), for appellant in No. 73-2008.
    Ronald J. Veneziano, New York City [Court-appointed counsel] (Mario & Veneziano, New York City, on brief), for appellant in No. 73-2009.
    David B. Sentelle, Asst. U. S. Atty. (Keith S. Snyder, U. S. Atty., on brief), for appellee in Nos. 73-2002, 73-2003, 73-2004, 73-2005, 73-2008 and 73-2009.
    Before HAYNSWORTH, Chief Judge, and WINTER and CRAVEN, Circuit Judges.
   WINTER, Circuit Judge:

Nine defendants were indicted in a single count indictment for conspiracy to violate divers provisions of 18 U.S.C. § 922 relating to the possession, sale and transportation of firearms. Of the nine, one has never been apprehended, five pleaded guilty, and three pleaded not guilty but were convicted in a jury trial. All were sentenced to the maximum term of five years, notwithstanding that in accordance with its plea bargain the government stated that it would not oppose probation for some.

The eight sentenced defendants all appealed. In a separate proceeding, we reversed the convictions of Oren Dean Ledbetter and Henry Gene Ledbetter and granted them a new trial. In their appeals, the government confessed error because the record failed to show either that the Ledbetters were represented by counsel, or had validly waived counsel. We consider now the appeals of Looney, Scates, Searcy, Grubb, Acevedo, and Rosario. The only contention that they present having merit and warranting discussion is that the length of their sentences rests in part on highly prejudicial information, to which they had no opportunity to respond, which was received by the district judge ex parte. We agree. We vacate their sentences and direct that they be sentenced anew by another district judge.

I.

Succinctly stated, the conspiracy of which Looney was convicted and to which the other defendants pleaded guilty involved the procuring of firearms from a firearm dealer in South Carolina, and the transportation of them to New York City for resale. During the period of the conspiracy which lasted about twelve months, approximately 3,576 handguns were purchased, and most of these were transported to and distributed throughout New York City.

The factual basis for defendants’ contention in this appeal arose from the trial of Looney and the two Ledbetters. At the time that they were tried, none of the defendants had been sentenced. While the record does not reflect the facts with certainty, it is agreed by those who were present that, before the trial was resumed after a luncheon recess, the district judge entered a room near the courtroom, in which a number of government witnesses, Looney’s attorney, Scates and Searcy were present.. The other defendants and other counsel were not present. The district judge made inquiry of a government witness about papers that he had in his possession. The contents of the papers were described, and perhaps the papers themselves exhibited to the district judge; but, in any event, the district judge gained knowledge of how certain of the guns purportedly had been seized in New York in connection with the commission of certain crimes.

Following the jury verdicts of guilty, sentence was pronounced on Looney, the two Ledbetters, Acevedo and Rosario. Following some introductory comments, the district judge stated:

Now, some member from New York —I don’t know which one of the two it was — in talking in the District Attorney’s room, said that certain people were killed by some of these 3,576 guns in New York State. These guns were taken from people who committed murder and those were the ones that were the murder weapons. 165 of this 3,576 guns were recovered and that was for crimes committed by individuals that had one of these guns in their possession, or maybe more, and, of course, they talked about some of them bringing $150.00. They cost $17.50 down here, I believe. They speak of them as Saturday night specials, and things of that kind, ,22’s and ,38’s, all of them dangerous (emphasis added).

The district judge’s appraisal of the significance of the information which he had obtained appears from his following additional comment:

So America better take stock of itself and this case here is evidence of how ordinary individuals can enter into a conspiracy, can enter into a crime which has ramifications by which, well, you can shoot everybody in Charlotte with 3,576 guns, and they wouldn’t like that either — not enough mortuaries, not enough cemetaries, not enough places to put them. So it’s a bad situation, gentlemen, pne of the worse places you can try with no deaths resulting right in our area. Fortunately for all of the parties, the maximum punishment in the case is relatively small amount of time and from that, of course each of them if they behave properly will be eligible for parole if they’re sentenced to prison after they served one-third of the time. It’s a bad case and I think it deserved severe punishment within the range of humanity toward another.

Scates, Searcy and Grubb, who could not be present when the other defendants were sentenced, were the subject of a separate sentencing procedure. At their sentencing, the district judge stated:

COURT: . and the officers in New York I believe it was 165 guns they have seized thus far taken from individuals who have been arrested and charged with offenses, and I believe there were thirty-three people killed with these guns. I have forgotten the numbers (emphasis added).
MR. SENTELLE [THE PROSECUTOR] : We don’t know the numbers of that. There have been some people.
COURT: But 165 of these guns have been seized thus far. They check against the numbers. So just turning these Saturday nights specials loose there in New York City as a result of this, they will be killed from now on out until the guns are worned out. These gentlemen here, they worked in a terrific situation.

At both of the two sentencing proceedings, the district judge rebuffed the offer of counsel for some of the defendants to refute some of his statements or to present evidence of mitigating circumstances.

From the several statements of the district judge, it seems clear that he was greatly impressed by his understanding of the number of homicides perpetrated in New York by the use of guns which defendants had caused to be distributed in that city, and that the severity of the sentences he imposed is attributable, at least in part, to this understanding. Whether there had been homicides in New York by the use of guns supplied by defendants, and, if so, how many, were facts which were not disclosed in the evidence adduced at the trial of Looney and the two Ledbetters. They nowhere appear in the record; there is no suggestion that they should remain confidential; and their accuracy is unverified. Indeed from the response of the prosecutor at the second sentencing, it appears that some of the facts remembered by the district judge were neither established nor provable.

II.

We think that resentencing of the defendants is required under our decision in United States v. Powell, 487 F.2d 325 (4 Cir. 1973). Powell involved a car theft ring operating interstate in violation of the Dyer Act. The defendant Powell was indicted with five others including his mother and two brothers, but was tried separately from his relatives. The same district judge presided over Powell’s trial and that of his mother and two brothers. Powell’s mother was acquitted, one brother was convicted on a single count and sentenced to eighteen months, and the other brother was convicted of three counts and sentenced to two and one-half years. Powell was convicted of a single count and was sentenced to five years. The reason for the much stiffer sentence meted out to Powell appeared in the trial court’s comments after Powell’s counsel had spoken and Powell had exercised his right of al-locution. The district judge noted that he had not disclosed the probation report to defense counsel but stated that he was basing his sentencing only on the facts brought out at trial. ' The judge then stated that the defendant was the “ringleader” of the group and was responsible for getting his brothers in trouble. There was no support in the record for these two findings.

Writing for a unanimous panel, Judge Butzner noted that federal sentences are generally unreviewable, see, Gore v. United States, 357 U.S. 386, 393, 78 S.Ct. 1280, 2 L.Ed.2d 1405 (1958), but pointed out that a sentence cannot stand “if it is based on assumptions concerning the defendant’s criminal record that are ‘materially false,’ Townsend v. Burke, 334 U.S. 736, 741, 68 S.Ct. 1252, 92 L.Ed. 1690 (1948), or if it is founded ‘in part upon misinformation of constitutional magnitude.’ United States v. Tucker, 404 U.S. 443, 447, 92 S.Ct. 589, 592, 30 L.Ed.2d 592 (1972).” 487 F.2d at 328. Extending the rule which requires the vacating of sentences based on false information to sentences based on assumptions not supported in the record, we held that a remand for resentencing was necessary:

There is no dispute that the materiality of the judge’s findings that Powell was the ringleader of the auto theft group and that he led his brothers astray. These were the sole reasons cited by the judge for sentencing Powell to a prison term twice as long as that imposed on one of his brothers who had been convicted under more counts of the indictment than Powell. Misinformation or an unfounded assumption concerning facts of this importance is sufficient to render the sentencing procedure invalid. 487 F.2d at 328.

In the instant cases, even if we overlook the manifest impropriety of the district judge’s ex parte interrogation of government witnesses while the trial was in progress, the fact is that the severity of the sentences was influenced by the private information which the district judge elicited. The information lacks record support; its accuracy is not established; it does not appear to be confidential; and Acevedo and Grubb were denied the opportunity to challenge it or attempt to explain it away. We hold that under these circumstances Powell requires resentencing of all defendants.

III.

Accordingly, we affirm defendants’ convictions but vacate their sentences and remand the cases for resentencing. Since the error was one created by the district judge, we think that the appearance of justice, as a minimum, requires that resentencing be before another district judge.

Vacated and remanded.

       The parties and counsel who were present agree that the place was a witness room nearby the courtroom and not any part of the office of the United States Attorney.


source: Caselaw Access Project

author: KILEY, Senior Circuit Judge. JAMESON, Senior District Judge

license: Public Domain

text:
    Forrest T. AKERS et al., Plaintiffs-Appellees, v. GENERAL MOTORS CORPORATION, Defendant-Appellant.
    No. 73-1781.
    United States Court of Appeals, Seventh Circuit.
    Argued Feb. 22, 1974.
    Decided Aug. 2, 1974.

      Herbert C. Snyder, Jr., Indianapolis, Ind., for defendant-appellant.
    Irving Jaffe, Acting Asst. Atty. Gen., Neil H. Koslowe, Atty., U. S. Dept, of Justice, Washington, D. C., for plaintiffs-appellees.
    Before KILEY, Senior Circuit Judge, SPRECHER, Circuit Judge, and JAME-SON, Senior District Judge.

       Senior District Judge William J. Jameson of the District of Montana is sitting by designation.

      . Article III, Sec. 2(a) of the Supplemental Agreement provides as follows :
      Section 2. Accrual of Credit Units
      (a) For Work Weeks commencing on or after September 3, 1961, Credit Units shall be credited at the rate of % of a Credit Unit for each Work Week for which an Employee receives any pay from the Company and for Work Weeks commencing on or after January 1, 1962, for which he does not receive pay from the Company but for which he receives a Leveling Week Benefit.

   KILEY, Senior Circuit Judge.

The United States Attorney and Solicitor of Labor filed suit in the district court under § 9 of the Military Selective Service and Training Act of 1967 (Act), on behalf of plaintiffs, three returning veterans. The suit sought to compel plaintiffs’ employer, General Motors Corporation (GM), to award them credit units allegedly accrued during their military service under GM’s Supplemental Unemployment Benefit Plan (SUB). Plaintiffs claimed that they were entitled to include those credit units in determining eligibility for and duration of SUB benefits due them during periods of layoff after reinstatement. Both GM and plaintiffs filed motions for summary judgment. The district court granted plaintiffs’ motion. We affirm.

Plaintiffs Akers, Cooper and Furst were employed by GM during June and August 1968, until they entered the armed forces. Akers and Cooper were actually working for GM when they were called to active duty; Furst was in a layoff status. After their separation from the armed forces, each plaintiff filed a timely application with GM for reinstatement pursuant to § 9 of the Act, and was reinstated. GM immediately placed Akers and Furst in a layoff status, and Cooper returned to active employment but was placed in a layoff status about two months later.

GM and plaintiffs’ Union had established SUB in their collective bargaining agreement, to provide weekly benefit payments supplementing state unemployment compensation. Under SUB, the length of time an employee in a layoff status receives benefits is based on the number of “credit units” he has accrued. These units are consumed during layoff periods as weekly benefits supplementing unemployment benefits. Hoffman v. Bethlehem Steel Corporation, 477 F.2d 860 (3rd Cir. 1973). Credit units are accrued “for each Work Week for which an Employee receives any pay from the Company” and for work weeks “for which he does not receive pay from the Company but for which he receives a [so-called] Leveling Week Benefit.” So that whether an employee actually works or not, one-half credit unit accrues to his benefit each week. No employee under SUB may accrue to his credit at any one time more than 52 units.

The collective bargaining agreement expressly provided that an employee was not entitled to any SUB benefits while in military service, but would be entitled, on reinstatement to work, to be given the credits he accrued before entering service. However, it further provided that “[seniority will accumulate during the period” in which he is to be given a leave of absence to enter the service.

When GM, after reinstating plaintiffs, placed them in layoff status, it did not take into account SUB credit units accrued by the veterans during their respective periods of military service in computing the amount and duration of their SUB benefits. This suit in behalf of plaintiffs followed, claiming that GM thereby violated § 9 of the Act. The district court decided in favor of plaintiffs on the ground that SUB benefits were a “perquisite of seniority,” and that under § 9 plaintiffs were accordingly entitled to the credit units.

The issue: Are returning veterans under the SUB plan here entitled to be given credit units during the period of their military service as part of the obligation owed them by GM under § 9(b)(B)(i) to restore them upon reinstatement to positions of “like seniority, status, and pay.”

If SUB benefits are a “perquisite of seniority,” the language of para. 112 of the Agreement and of § 9 of the Act clearly support the district court’s decision. Assuming arguendo plaintiffs are entitled to the benefits under § 9, the collective bargaining agreement to the contrary must give way. Hoffman v. Bethlehem Steel Corporation, supra, at 863.

Had plaintiffs not entered the military service, they would have been entitled under the collective bargaining agreement to accrue credit units at the rate of one-half credit for any week they received “any pay,” and for weeks in which they received no pay (for example, in layoff status) they would receive a leveling week benefit while awaiting unemployment compensation. We do not understand how GM can argue that “while on layoff” plaintiffs would not have accrued credit units in view of the clear language of Article III, Sec. 2(a) of the Supplemental Agreement. While in service, plaintiffs could not have lost “seniority” benefits; that would offend the Congressional purpose of § 9. Under the “escalator” rule announced in Fishgold v. Sullivan Drydock & Repair Corp., et al., 328 U.S. 275, 66 S.Ct. 1105, 90 L.Ed. 1230 (1946), plaintiffs here, having stepped off the escalator when entering service, as returning veterans stepped back on at the place they would have occupied had they not gotten off the escalator.

GM argues that plaintiffs are not entitled to the credits because while in service they were not then actively employed and that mere continuation of the employment relationship does not give them the right to the credits. There is no merit in this argument. They lost no seniority while in military service and under SUB were not required to perform actual work in order to receive benefits. See Accardi v. Pennsylvania R. Co., 383 U.S. 225, 86 S.Ct. 768, 15 L. Ed.2d 717 (1966).

We think plaintiffs’ situations are analogous to those of the employees in Accardi. There, plaintiffs had been denied credit for years of “compensated service,” while serving three years in military service, in determining the amount of severance pay based on the length of service with the railroad. The bargaining agreement defined a month of compensated service as any month in which an employee worked “one or more days.” The. Second Circuit had held that the severance pay was not includa-ble within “seniority, status, and pay.” The Supreme Court unanimously reversed. The Court thought that a different result, validating the definition of “compensated service” in the agreement, would lead to the “bizarre result” that no distinction would be made between a man who worked “one day a month for seven months” and one who worked every day of the year. p. 230, 86 S.Ct. p. 772. The Court, in consideration of the “real nature” of the severance payments, held that the failure to credit Accardi with “compensated service” for the period of his military service was a loss of seniority in violation of § 8(b)(B), the predecessor to § 9(b) (B)

Under GM’s contention here, an employee in a layoff status and doing no actual work is entitled, under the bargaining agreement, to accrue leveling week benefit credits; yet a veteran, also doing no actual work, is precluded by the Agreement from the same credits and benefits. See Foster v. Dravo Corporation, 490 F.2d 55, 59 (3rd Cir. 1973). Under GM’s contention, when the returning veteran steps back on the escalator after his military service, he loses what the non-veteran has gained. We reject the contention because clearly, under SUB, credit units accrue as time passes, whether an employee does or does not work. We think the contention if sustained would discriminate against the veterans by depriving them of an important element of seniority due them and would be a “bizarre result” as in Accardi and thus offend the liberal Congressional purpose of § 9.

The Supreme Court in Accardi stated that in determining seniority, the returning veteran is to be treated as though he had been continuously employed in the period of his service, p. 228, 86 S.Ct. 768, and that the term “seniority” should not be limited by a “narrow and technical meaning,” p. 229, 86 S.Ct. p. 771. The Congressional intention was to preserve for returning veterans the rights and benefits which would “automatically accrue to them” had they not entered the service. Id.

In view of the SUB provision of the Agreement, as supplemented, we think that had plaintiffs not entered the service, they would automatically have accrued the credits as time passed. Since time, then, was the operative factor, the gaining of credits was related to seniority. When plaintiffs were reinstated, they were entitled not only to the credits they had when they entered service, but also to the additional credits they would have had, had they not entered. They had that right because they were continuously employed during that time. See Accardi v. Pennsylvania R. Co., supra.

The Accardi decision was relied upon by the Third Circuit in Hoffman v. Bethlehem Steel Corporation, supra. The district court there construed a bargaining agreement provision closely similar to the one before us and held that SUB benefits were not perquisites of seniority because the credits accrued on the basis of actual work. The court of appeals stated that although the SUB provision appeared to be related to actual work, the reality was the possibility of “bizarre results” as in Accardi since the Bethlehem plan did not distinguish between an employee who worked one hour and one who worked forty hours in a week. Accardi was also followed by the Second Circuit, Friendly, J. dissenting, in Palmarozzo v. Coca Cola Bottling Co. of New York, Inc., 490 F.2d 586 (2nd Cir. 1973), a severance pay case. Although he implicitly approved the Hoffman decision, Judge Friendly dissented on his construction of the SUB benefits there that the benefits were based on “performance rather than tenure.”

We are unimpressed by the GM argument that the SUB benefits are a “form of deferred pay” or “forced savings” for past work. The “leveling week” benefit can hardly be called pay or savings, and eligibility for the SUB benefits arises from the mere fact of continuing the relationship of employment. See Ewert v. Wrought Mfg. Co., 477 F.2d 128 (7th Cir. 1973). SUB credit units accrue solely according to the length of time that the beneficiary is an employee. The fact that there is a maximum of 52 credits aceruable under SUB at any one time, we think, is immaterial. That may become material, however, in computing the credit units to which plaintiffs are entitled.

We follow Accardi and Hoffman, supra, in holding that plaintiffs are entitled to be given credit units during the period of their military service as part of GM’s obligation under the SUB Agreement, as supplemented, and § 9.

There remain the questions of the number of credit units and the amount of SUB benefits to which each plaintiff is entitled. The complaint filed on behalf of the plaintiffs did not specify amounts. In its “Judgment” from which this appeal was taken, the district court adjudged “that each plaintiff shall have and recover of defendant an amount equal to the supplemental unemployment benefits lost by each plaintiff.” It further ordered that “Defendant shall compute each said amount in accordance with the findings of fact and conclusions of law entered herein; and shall file a proposed amended judgment specifying the amount due to each plaintiff with the Court within thirty (30) days.” The record fails to reflect whether or not the proposed amended judgment was ever filed. Accordingly, we remand for further proceedings consistent with this opinion as appropriate.

Affirmed and the cause remanded for further proceedings.

JAMESON, Senior District Judge

(concurring):

The question of whether SUB benefits are perquisites of seniority within the meaning of the Military Selective Service Training Act of 1967 (50 U.S.C.App. § 459) is a close one. I concur in the result reached in Judge Kiley’s opinion.

First, the SUB credits do not appear to be conditioned exclusively on the performance of work. “Those (rights) which accrue with the passage of time are seniority rights . . . . ” Hoffman v. Bethlehem Steel Corporation, 477 F.2d 860, 863 (3rd Cir. 1973). To be eligible for SUB credits an employee need only receive “any pay from the Company” during a work week. The term “any pay” is ambiguous. Apparently, an employee receiving pay while on vacation, sick leave, temporary layoff or an authorized leave of absence would accumulate SUB credits. Thus, no actual work would be required. Because the Act is to be liberally construed for the benefit of returning veterans, this ambiguity must be resolved in favor of the appellees.

Second, I agree with the Third Circuit that a SUB plan of this nature, provides seniority-type rights. As stated in Foster v. Dravo Corporation, 490 F.2d 55, 59 (3rd Cir. 1973): “The plan is a way of conferring, in diminished stature, one of the chief advantages of seniority, protection against economic loss in a period of diminishing employment.” While the SUB credits are not seniority rights in the traditional sense, nevertheless, applying the liberal construction rule to the term “seniority,” I conclude that the SUB benefits are perquisites of seniority.

      . 50 U.S.C.App. § 459 (1970).

      . The same status Furst -had when he entered the service.

      . United Auto Workers.

      . A benefit in the form of % credit unit per week awarded under SUB, in limited periods, to an employee laid off out of line of seniority temporarily pending an adjustment of the work force. Credit units accrued in this or any other manner under SUB have no fixed value in terms of either time or money, but are merely a means of determining eligibility for and duration of SUB benefits. Article III, Sec. 1 of the Supplemental Agreement.

      . Article III, Sec. 5, Supplemental Agreement.

      . Agreement, para. 112.

      . Section 9(b) (B)(i) reads in relevant part as follows:
      § 9(b) [50 U.S.C.App. § 459(b)]
      (b) Reemployment rights.
      In the case of any such person who, in order to perform such training and service, has left or leaves a position (other than a temporary position) in the employ of any employer and who (1) receives such certificate, and (2) makes application for reemployment within ninety days after he is relieved from such training and service
      ;Js * $ $ $
      (B) if such position was in the employ of a private employer, such person shall—
      (i) if still qualified to perform the duties of such position, be restored by such employer or his successor in interest to such position or to a jjosition of like seniority, status, and pay;
      unless the employer’s circumstances have so changed as to make it impossible or unreasonable to do so ; .
      It is not disputed that plaintiffs’ positions in 1968 were not “temporary” and that they were “still qualified to perform the duties of such position [s].” GM, of course, does not claim that its circumstances had changed so “as to make it impossible or unreasonable to do so.”

      . Aside from the pertinent language of § 9(b) (B)(i), supra note 8, § 9(c) provides that a returning service man should “be . . . restored without loss of seniority.”

      . See note 5, supra.

      . In the instant case, the obvious purpose and “real nature” of SUB is to confer one of the chief advantages of seniority — protection against economic loss in a period of diminishing employment. Foster v. Dravo Corporation, 490 F.2d 55, 59 (3rd Cir. 1973).

      . The Hoffman court did not discuss that part of the SUB provision under which employees who did no work earned credit units.

      . The courts in both Aooardi and Hoffman determined that the possibility of “bizarre results” (not the actual existence thereof) conclusively refuted the contention that the rights at issue there were a form of deferred pay for work performed rather than strict seniority rights.

      . SUB plan, Article III Section 2(a) states that an employee will receive credit units “for each Work Week for which . . . (he) receives any pay from the Company and for Work Weeks . . . for which he does not receive pay from the Company but for which he receives a Leveling Week Benefit.” (Emphasis added).

      . Article III Section 2(d) requires that an employee be on the Active Employment Boll before he is eligible to accrue SUB credits. Article IX includes on the Active Employment Roll employees on vacation, sick leave, temporary layoffs or authorized leaves of absence.

      . Fishgold v. Sullivan Drydock & Repair Corp., et al., 328 U.S. 275, 285, 66 S.Ct. 1105, 90 L.Ed. 1230 (1946).

      . In Hoffman v. Bethlehem Steel Corporation, 477 F.2d 860 (3rd Cir. 1973), the court, dealing with a SUB plan similar to that involved in the present action, concluded that the SUB credits were perquisites of seniority.

      . The Supreme Court in Accardi v. Pennsylvania R. Co., 383 U.S. 225, 229, 86 S.Ct. 768, 771, 15 L.Ed.2d 717 (1966), directed: “The term ‘seniority’ is not to be limited by a narrow, technical definition but must be given a meaning that is consonant with the intention of Congress as expressed in the 1940 Act.”


author: MOORE, Circuit Judge:

text:
    FUR INFORMATION AND FASHION COUNCIL, INC., et al., Plaintiffs-Appellants, v. E. F. TIMME & SON, INC., Defendant-Appellee.
    No. 970, Docket 73-2687.
    United States Court of Appeals, Second Circuit.
    Argued May 29, 1974.
    Decided July 31, 1974.
    Certiorari Denied Nov. 18, 1974.
    See 95 S.Ct. 498.

      Oliver P. Howes, Jr., New York City (Nims, Howes, Collison & Isner, New York City, and Kenneth R. Umans, New York City, of counsel), for plaintiff s-appellants.
    Charles L. Trowbridge, New York City (Gifford, Woody, Carter & Hays, New York City, and Bondy & Schloss, New York City, and David E. Nieren-berg, New York City, of counsel), for defendant-appellee.
    Before MOORE and FEINBERG, Circuit Judges, and WEINFELD, District Judge.

       Of the Southern District of New York, sitting by designation.

   MOORE, Circuit Judge:

Plaintiffs appeal from a final judgment and order dismissing their complaint and denying their motion for a preliminary injunction. There being no diversity of citizenship, jurisdiction was asserted under the Trademark Act of 1946 (the so-called Lanham Act), 15 U. S.C. § 1051 et seq., Section 43(a), 15 U. S.C. § 1125(a), of which contains the basis of, and prerequisites for, jurisdiction. In essence that section provides that any person who uses in connection with any goods any false representation, including words tending to falsely represent the same (such goods being entered into commerce) shall be liable in a civil action to any person damaged or likely to be damaged by “any such false description or representation.”

The complaint stated the suit to be “of a civil nature for unfair competition, and commercial disparagement.” The defendant, E. F. Timme & Son, Inc., a manufacturer “of synthetic textile fabrics, some of which simulate in appearance the fur of wild and farm raised animals but which do not consist of or contain animal fur * * * ” is charged with having “broadcast nationally, advertisements of defendant’s said goods which carried the false implication that buying defendant’s products would save tigers and leopards from being killed for use of their fur in garments despite defendant’s knowledge that the Endangered Species Conservation Act, 16 U.S. C. §§ 668a-668c [668aa-668cc], protects tigers and leopards from being killed for such purposes.” (Complaint, par. 22). Additionally, plaintiffs assert an implication from these ads that “plaintiffs and all those similarly situated are responsible for the illegal killing of said animals for commercial purposes.” (Complaint, par. 23). To bring the union employees into the “similarly situated” category, the complaint charges that “there will be a general loss of union jobs and depression of wages throughout the commercial fur industry” (Complaint, par. 26), i. e., if sales of the fur manufacturing industry are reduced.

The two television ads complained of are described in the trial court’s opinion:

The Court [the District Court] viewed these two Ads. They are produced in color. The fact that 40% of the New York market continues to view television in black and white with the significant motivation for the choice of leopard (with contrasting spots) and tiger (with stripes) over a monochromatic fur.
The Leopard Ad, sixty seconds in length, begins with color scenes of animals in their natural habitat, including hippopotami swimming, antelopes running in a pack and a leopard with her cub.
The leopard is then viewed through what are apparently the sights of a large firearm. The scene fades. A gunshot is heard. The scene shifts to a cocktail party ostensibly in the United States. A fashionably dressed woman admires the leopard coat of another. The voice of an unseen male speaks:
Man’s Voice: There are too many women who want leopard coats in the world and too few leopards. Timme makes fake furs every bit as beautiful as the originals. We think people should wear our fake fur and leave the leopard coats where they belong, on leopards.
Woman: Buy me one before the jungle runs out of them.
Man’s Voice: Timme. Makers of Timmetation Fake Furs, and fabrics for just about every thing else.
This is followed by a picture of examples of various other Timme fabrics used for upholstery and apparel.
The Tiger Ad, sixty seconds long, is to the same effect. A lovely girl appears in color next to a friendly and affectionate tiger. She says:
He [the tiger] is wearing a real tiger coat. I’m wearing a fake fur by Timme. Although it’s virtually impossible to tell the difference, a Timme fur costs far less money.
Perhaps even more important, it didn’t cost a tiger his life. The beauty of a Timme fake is that you can wear a beautiful coat and he [the tiger] can keep his.
This is followed by the voice of an unseen male, naming Timme as a maker of fake furs and fabrics.

The trial judge then found:

Words are inadequate to describe the mordant effect of these Ads on the viewer. In the Leopard Ad, a woman of fashion makes an insensitive reference to the fact that leopards are threatened with extinction, and requests her escort (not shown on camera) to buy her one before it is too late. Her self-indulgent attitude and frivolous demeanor contrasts directly and unfavorably with the words and tone of the ecologist-announcer.
Persons who would wear natural tiger or leopard coats [and, by extension, all who would wear natural fur] are portrayed as anti-social, anti-environment, or otherwise in a bad light. The two-fold innuendo exists: (1) by selecting Timmetation fur over natural fur, a customer will save money and save the life of a fur bearing animal, and (2) that the American fur industry is responsible for the killing of endangered tigers and leopards [and, by extension, are criminals].

Notwithstanding these findings, the trial judge held that the complaint did not state a cause of action under Section 43(a) because the misrepresentations did not involve an inherent quality or false description of the defendant’s own products. Alternatively, the judge ruled that the ads were protected by the First Amendment and that, in any event, the equities did not justify the award of preliminary injunctive relief.

At the outset, this court must observe that it disagrees with the trial court’s findings of false implications and innuendoes. Since these findings consist primarily of inferences drawn from viewing the ads and since this court has also viewed them, the findings are subject not to the “clearly erroneous” test but to the stricter standard of review applicable to interpretations of documentary evidence. See, e. g., United States ex rel. Lasky v. LaValle, 472 F. 2d 960, 963 (2d Cir. 1973); Severi v. Seneca Coal & Iron Corp., 381 F.2d 482, 488 (2d Cir. 1967); Orvis v. Higgins, 180 F.2d 537, 539 (2d Cir.), cert. denied, 340 U.S. 810, 71 S.Ct. 37, 95 L.Ed. 595 (1950). Under this standard, the trial court’s findings are erroneous and, accordingly, we set them aside. We are convinced that these ads carry no implications, false or otherwise, that plaintiffs, including their union employees, go about the country illegally killing tigers and leopards for commercial purposes. In fact, the court is prepared to take judicial notice that the numbers of tigers and leopards in this country is limited to zoological gardens and itinerant circuses. Equally unrealistic is the thought that a potential purchaser of one of defendant’s imitation leopard coats makes the purchase with the thought that she (probably) is saving a leopard from being killed. To the contrary she knows that no real leopards are available — hence, if her desires compel her to appear in spots, she must resort to such imitation as is available. Furthermore, a cloth imitation of any fur is far less expensive and many purchasers for this reason are willing to compromise for less than the “real thing.”

The ads seem to this court to do no more than to tout, in a rather pointed fashion, the advantages of imitation over natural furs: The imitation furs resemble the real thing, are less expensive, and can be purchased without necessitating the death of a live animal. These representations are either true or acceptable puffing. The fact that the particular animals pictured in the ads are endangered species whose skins may not be bought in this country seems beside the point. The impact of the ads on the real fur industry would probably not have been lessened if defendant had added a sentence of narrative indicating that the federal government, abhorring the wanton destruction of rare animals, had prohibited the importation of real tiger and leopard skins.

By one of the many miracles of modern science, fibers are produced from natural gas which can be fabricated into a textile material somewhat resembling fur. This textile material, in turn, can' be treated so as to produce cloth having the appearance of the skins of tigers and leopards. Defendant has also capitalized on a play on words by merging its name “Timme” with “imitation” and using “Timmetation” as its name for its “fake furs.” To the contrary of false representation, there is complete, truthful disclosure concerning defendant’s products. The innuendoes sought to be drawn by plaintiffs from the other comments in the TV ads regarding tigers and leopards are without foundation.

Returning to Section 43(a), the only basis for jurisdiction, the statute specifically requires a “false description or representation” used “in connection with any goods or services.” Since there are no false descriptions or representations concerning defendant’s goods, plaintiffs take umbrage at the trial court’s limitation of the statute to representations concerning “inherent quality or characteristic of defendant’s product,” claiming that such an interpretation is unduly restrictive. We agree with the trial court’s construction of Section 43(a), namely, that it was intended to apply only to misrepresentations relating to the inherent qualities of defendant’s own goods. See Samson Crane Co. v. Union Nat’l Sales, Inc., 87 F.Supp. 218, 221-222 (D. Mass.1949), aff’d on opinion below, 180 F.2d 896 (1st Cir. 1950); Bernard Foods Industries, Inc. v. Dietene Co., 415 F.2d 1279, 1282-1284 (7th Cir. 1969), cert. denied, 397 U.S. 912, 90 S.Ct. 911, 25 L.Ed.2d 92 (1970).

From a reading of the statute itself, it seems quite obvious that its purpose was to prevent false descriptions of the goods being offered. Unfair competition, and commercial disparagement, except as they might be incidental to false representation, are not embraced within the statute. And in enacting Section 43(a), Congress could hardly have intended to flood the federal courts with claims that an advertiser had misrepresented the social desirability of its products or disparaged the ecological sensitivity of its competitors.

In final analysis, plaintiffs’ real grievance is the fear (which they claim is already an actuality) that in this evermore-increasing environmentally conscious age, there is, will, or may be a popular revulsion against the killing of animals to provide for personal adornment. Whether this will eventuate is not for court speculation; it will depend upon the temper of the people as expressed through their legislative representatives. To the true environmentalist, the killing of any animal to make a fur garment may be repulsive. Plaintiffs themselves introduced ten letters from the public addressed to “The American Fur Industry” strongly disapproving of such killing, all apparently in reaction to a specific ad by the American Fur Industry promoting fur coats made of muskrat, Russian raccoon, Alaska seal ahd Norwegian Bluefox. Tigers and leopards were not the subject of the letters but lynx, mink, fox and sable.

We have in this country an enactment with respect to tigers and leopards, 16 U.S.C. secs. 668aa-668ec, undoubtedly an attempt by our own laws to discourage slaughter in foreign lands. In former days we have had legislation to prevent the slaughter of birds about to become extinct whose plumage was coveted to adorn certain millinery headpieces when such were in vogue. More recently an entire industry (cigarettes) has been affected by restrictive legislation. The W.C.T.U. campaigned for decades not only to disparage but to wipe out, if possible, the hard liquor industry. Their dire prognostications of the deleterious effect of alcohol on the human race must have appeared — at least to the liquor industry and certain enthusiastic consumers of its products — to have been false. What additional animals or articles may be added to the proscribed lists will depend upon popular will. For the moment it is enough to say that the trial court’s decision not to grant a preliminary injunction and to dismiss the complaint was wholly justified upon the law and the facts.

Since the second cause of action (tortious conduct under New York law) is concededly “pendent”, the trial court properly allowed it to fall when its support was removed. We agree with his conclusion that such action, if any, as may exist, should be left for resolution by the state court, namely, the question “whether, under state law, a justiciable issue is presented.”

In view of our decision that defendant’s advertising of its products contained no false representations cognizable under Section 43(a), it is unnecessary to pass upon defendant’s First Amendment arguments.

Judgment and order affirmed.

      . Plaintiffs include fur garment manufacturers, wholesalers, retailers, dealers and labor unions, and trade associations in the American fur industry.

      . The hearing on the preliminary injunction motion and the trial on the merits were consolidated by the trial court and resulted in the judgment entered on September 21, 1973.

      . § 1125. False designations of origin and false descriptions forbidden
      (a) Any person who shall affix, apply, or annex, or use in connection with any goods or services, or any container or containers for goods, a false designation of origin, or any false description or representation, including words or other symbols tending falsely to describe or represent the same, and shall cause such goods or services to enter into commerce, and any person who shall with knowledge of the falsity of such designation of origin or description or representation cause or procure the same to be transported or used in commerce or deliver the same to any carrier to be transported or used, shall be liable to a civil action by any person doing business in the locality falsely indicated as that of origin or in the region in which said locality is situated, or by any person who believes that he is or is likely to be damaged by the use of any such false description or representation.


author: HILL, Circuit Judge.

text:
    CIRCLE K CORPORATION, INC,. Petitioner-Appellee, v. EQUAL EMPLOYMENT OPPORTUNITY COMMISSION, Respondent-Appellant.
    No. 72-1367.
    United States Court of Appeals, Tenth Circuit.
    Argued Sept. 14, 1972.
    Decided Aug. 13, 1974.

      John F. Goemaat, Washington, D. C. (William A. Carey, Gen. Counsel, John de J. Pemberton, Jr., Deputy Gen. Counsel, Julia P. Cooper, Chief App. Div., Washington, D. C., Ellis Bert, Regional Atty., Albuquerque, N. M., on the brief), for respondent-appellant.
    Frank P. Dickson, Jr., Albuquerque, N. M., for petitioner-appellee.
    Before HILL, HOLLOWAY and BARRETT, Circuit Judges.
   HILL, Circuit Judge.

This is an appeal from a denial by the United States District Court for the District of New Mexico of the cross-petition of the Equal Employment Opportunity Commission (EEOC) seeking enforcement of a Demand for Access to Evidence served on Circle K Corporation, Inc. (Circle K). The information sought related to purported discriminatory hiring practices on the basis of national origin in violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq.

A charge of discrimination on the basis of national origin was filed by Rum-ie E. McBride on October 14, 1968. In her charge, she alleged that she had initially applied for employment with Circle K as a cashier on May 7, 1968, and was told to return upon completion of a cashier training program in which she was enrolled. Upon her completion of the course, she returned to Circle K and was told she would be contacted within three weeks to a month to take a polygraph examination. She was never contacted and, on October 10, 1968, she returned to Circle K to renew her application. She was refused employment and told that she had no experience or training and did not qualify as a cashier. The charge was deferred to the New Mexico Fair Employment Practices Commission, and following termination of those proceedings, the EEOC assumed jurisdiction.

The EEOC, in investigating the charge, determined that certain information regarding Circle K’s polygraph testing program was necessary. Following Circle K’s refusal to make this information available, the EEOC issued its Demand for Access to Evidence. The information sought consisted, basically, of a list of all applicants and present employees subjected to the polygraph examination, their racial-ethnic identity and whether they were accepted or rejected; documentation of the nature, standardization and validity of the polygraph test and a list of questions asked of each applicant; qualifications of the examiners who administered the tests; testimony under oath of all knowledgeable employees and officers; and all related matters.

Circle K filed its petition to set aside or to modify the Demand, and the EEOC cross-petitioned for enforcement. The trial court decided favorably to Circle K, and set aside the Demand on the basis that the information sought was not relevant or material to the charge, and that the demand was burdensome and too broad as to geographic area and scope of inquiry.

The filing of charges by one claiming to be aggrieved authorizes the EEOC to investigate the charge for the purpose of determining the existence of reasonable cause to believe the charge is true. In its investigatory role, the EEOC is entitled to require the charged party to disclose relevant and material information concerning the charged discriminatory practice. The charge filed against Circle K was sufficient to give notice of the practice or violation to be investigated, and thereby activate the discovery process.

Relief from the EEOC’s demand cannot be based on Circle K’s contention that the charging party had not been subjected to the polygraph examination and therefore cannot be an aggrieved party. Standing may be upheld absent any subjection to a discriminatory employment practice.

Nor can enforcement of the demand be defeated on Circle K’s allegation that compliance would be unduly burdensome. The charge is sufficient to state the unlawful practice to be investigated, and the information sought is relevant to the EEOC investigation; therefore the Demand is proper.

The judgment of the trial court is reversed, and the case is remanded with instruction to enforce the Commissioner’s Demand.

      . See Love v. Pullman Co., 404 U.S. 522, 92 S.Ct. 616, 30 L.Ed.2d 679 (1972); Barela v. United Nuclear Corp., 462 F.2d 149 (10th Cir. 1972).

      . 42 U.S.C. § 2000e-8(a).

      . 42 U.S.C. § 2000e-8(c), (d).

      . Graniteville Co. (Sibley Div.) v. EEOC, 438 F.2d 32 (4th Cir. 1971).

      . See Mountain States Tel. & Tel. Co. v. EEOC, 466 F.2d 541 (10th Cir. 1972); Sparton Southwest, Inc. v. EEOC, 461 F.2d 1055 (10th Cir. 1972).

      . Graniteville Co. (Sibley Div.) v. EEOC, supra.

      . See Local 104, Sheet Metal Workers v. EEOC, 439 F.2d 237 (9th Cir. 1971); Carr v. Conoco Plastics, Inc., 423 F.2d 57 (5th Cir. 1970), cert. denied, 400 U.S. 951, 91 S.Ct. 241, 27 L.Ed.2d 257; Georgia Power Co. v. EEOC, 412 F.2d 462 (5th Cir. 1969).


author: ENGEL, Circuit Judge.

text:
    Thomas H. HUTTON and Betty Hutton, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.
    No. 73-1623.
    United States Court of Appeals, Sixth Circuit.
    Argued Feb. 6, 1974.
    Decided July 5, 1974.
    Wesley Filer, Tax Div., Dept, of Justice, for defendant-appellant; Scott P. Crampton Asst. Atty. Gen., Meyer Roth-waeks, William A. Friedlander, Attys., Tax Div., Dept, of Justice, Washington, D. C., on brief; Thomas F. Turley, Jr., U. S. Atty., of counsel.

      Charles P. Cobb, Memphis, Tenn., for plaintiffs-appellees; Dale Woodall, Evans, Petree, Cobb & Edwards, Memphis, Tenn., on brief.
    Before MILLER, LIVELY and EN-GEL, Circuit Judges.
   ENGEL, Circuit Judge.

In this case the government appeals from a judgment of the United States District Court for the Western District of Tennessee, refunding to taxpayer plaintiffs Thomas H. Hutton and Betty Hutton $36,872.66 in federal income taxes and interest which the trial court found had been improperly assessed against them for the years 1964-1966. The basis for the refund was the trial court’s determination that certain payments received by the taxpayer during those years in retirement of corporate notes held by him were received in exchange for capital assets and, thus, were taxable as capital gain to the extent they exceeded the taxpayer’s basis under Section 1232(a)(1) of the Internal Revenue Code of 1954 as amended. The government contends the payments were dividend income under Sections 301 and 316 of the Code.

The facts reported here are a summary of the extensive findings made by the trial judge, following the non-jury trial of the case.

Taxpayer Thomas H. Hutton and his late father, C. E. Hutton, were the controlling stockholders of Chuck Hutton, Inc., a Chrysler automobile dealership and distributorship located in Memphis, Tennessee. All other stock in the corporation was held by or for the benefit of members of the Hutton family.

In 1959 C. E. Hutton, as president of Chuck Hutton, Inc. (hereinafter Hutton Company), commenced negotiations on behalf of the company to buy all of the outstanding stock of the Bragg Auto Company, an Arkansas corporation, which had for years prior thereto operated a Chrysler dealership selling Plymouths and Chryslers in West Memphis, Arkansas.

At the time Bragg was incorporated in 1945, its four stockholders, apparently men of means and good repute in the West Memphis area, contributed a total capital of $82,000. The company operated profitably through 1951, lost relatively small amounts of money from 1952 through 1956, the losses becoming gradually greater until 1958 when the company discontinued selling automobiles. The several stockholders from time to time made loans to the company to cover its mounting indebtedness until, by October 31, 1959, a total of $231,404.30 was owed to the three stockholders of Bragg and one A. J. Thomas.

Negotiations carried on by C. E. Hutton in 1959 resulted in an agreement whereby Chuck Hutton Company agreed to acquire all of the stock in Bragg for the sum of $1,000. At the same time, it was also agreed that the outstanding indebtedness, then represented by four separate promissory notes given by Bragg, was to be transferred to the purchaser of the stock for a further sum of $19,000 which would then be deposited with a West Memphis attorney as escrow agent until the transaction could be finalized. It had also been agreed between C. E. Hutton and Thomas H. Hutton that they individually would, for that same price, take over and hold the notes in their own names.

The trial judge found that the purpose of Chuck Hutton Company in acquiring the stock of Bragg was to enable it to expand into the West Memphis, Arkansas sales area. Chuck Hutton had a long established policy of expansion through the purchase of existing dealerships elsewhere in the country. The trial court further found that a motive in this particular ease was a policy decision by Chrysler Corporation in 1959 which prohibited the sale of both Plymouth and Dodge automobiles by the same dealer. Thus, Chuck Hutton Company stood to lose one of its franchises in the Memphis area unless it could establish another independent agency.

Promptly after acquisition, the name of Bragg Auto Company was changed to Chuck Hutton of Memphis, Inc., reflecting further Chrysler Corporation instructions. Very little by way of tangible assets was owned by Bragg, but the trial court found that the evidence established that the reasons for the purchase were “sound from a management standpoint.” The trial court further accepted the testimony of the taxpayer that the original plan to operate both corporations as independent dealerships in their respective areas failed when it was discovered less than 30 days after the transaction was consummated, in early 1960, that C. E. Hutton was terminally ill with leukemia. This circumstance, plus the sudden availability to the Huttons of the interest of another agency in Memphis resulted in a decision by Chuck Hutton Company to abandon its original plan to establish a dealership in West Memphis.

The trial court found upon the evidence that transfer of the notes in question was not made on the books of the corporation until December of 1960. However, the court found that it had at all times been understood that ownership of the notes would pass to the father and son as individuals and not to Chuck Hutton Company. The court accepted in explanation of this decision testimony that Chuck Hutton Company was already heavily indebted to C. E. Hutton, presumably because its successful but rapid expansion into other states had placed heavy demands upon its capital. After the closing of the stock sale, certain inventory was transferred from Chuck Hutton Company to Bragg at book value. Thereafter Bragg engaged in the sale and distribution of Dodge automobiles until it was dissolved in 1966 as a result of certain requirements imposed by Chrysler Corporation.

Taxpayer and his father each owned notes equalling one half of their total face value. C. E. Hutton died on October 16, 1961, and his estate became the owner of his share of the notes.

It is the retirement of the notes at their full face value by Bragg which gives rise to the dispute here.

The following reflects the schedule of payments made:

Date T. H. Hutton Estate of Chas. E. Hutton
9/12/63 $12,350.00 $12,350.00
8/20/64 12.500.00 12.500.00
9/10/65 13,325.66 13,325.67
5/ 4/66 12.500.00 12.500.00
9/28/66 65,000.00 65,000.00
$115,675.66 $115,675.67

Based upon the foregoing facts and others recited in his opinion, District Judge Robert M. McRae, Jr. found, contrary to the government’s contention, that the four notes held by the stockholders of Bragg Auto Company in the first instance represented a valid corporate indebtedness of Bragg and not a contribution to capital as claimed by the government.

Our careful review of the entire record satisfies us that there was ample evidence to support Judge McRae’s finding in this regard, a finding which he reached after the close scrutiny of all of the evidence before him and a matching of that evidence against the criteria utilized by courts in making such determinations. See Donisi v. Commissioner of Internal Revenue, 405 F.2d 481 (6th Cir. 1968); Smith v. C. I. R., 370 F.2d 178 (6th Cir. 1966).

Having concluded that the payments made to Bragg Auto by its stockholders in the 1950’s did, in fact, constitute loans and not contributions to capital, the trial court then proceeded to determine whether the promissory notes evidencing those loans retained their character when purchased by the Huttons. He found that C. E. Hutton and taxpayer Thomas H. Hutton purchased the notes “at a separate consideration for $19,000.” The full face value of C. E. Hutton’s interest in the notes was included in the latter’s estate for estate tax purposes and federal estate tax paid thereon.

In its argument before the district court, the government urged, as it did unsuccessfully in Imperial Car Distributors v. Commissioner of Internal Revenue, 427 F.2d 1334 (3rd Cir. 1970), that the economic realities of the total transaction compelled the court to ignore the form of the transaction and recognize its substance. Economic realities, the government claimed, clearly showed the notes to have been worthless, in effect “an economic nullity,” and their use as merely a scheme to avoid the heavy taxation which would have resulted from their treatment as ordinary income to the taxpayer. The trial judge disagreed, finding:

“The evidence in this case does not establish that the purchase of Bragg Auto was a sham or for the purpose of avoiding taxes. The evidence does establish the reasons for the purchase of Bragg Auto as being sound from a management standpoint, such as the availability of a customer list, and the desire to purchase an existing agency with support of local residents.
“The efforts made to locate in West Memphis are supported by the evidence and attest to the fact that the purchase was at the time it was made considered to be in the best interest of Chuck Hutton Co. The refusal of Chrysler to select a site and the terminal illness of C. E. Hutton support the ultimate failure to locate in West Memphis.
“By the same token, the dissolution of Chuck Hutton Co. of Memphis, Inc. in 1966 does not appear to have been the result of any “tax gimmick” which had at that time succeeded. Again there is evidence that the liquidation was the result of Chrysler policy change which necessarily carries much weight in the business decisions of its dealers.”
The court, thereupon, went on to hold: “Having concluded that the original indebtedness was not a contribution to capital but was in fact a loan, then Imperial Car Distributors, Inc. v. Commissioner [Commissioner of Internal Revenue], supra, becomes controlling.”

In Imperial Car Distributors, Inc. v. Commissioner of Internal Revenue, supra, four individual investors negotiated the purchase of Imperial, a wholly owned corporate subsidiary of Hambro Automotive Corporation. Imperial at the time owed Hambro over $115,000 for merchandise, the debt being converted into notes payable to Hambro in the amount of $129,000. The four investors entered into an agreement to buy all of the stock in Imperial for $2,150 and also to pay an additional $2,500 for an assignment of the notes which were thereupon transferred to the four investors. Thereafter, Imperial prospered and regained solvency, finally paying off the notes to the investors at their face value. The third circuit, in Imperial, acknowledged that the burden is upon the taxpayer in the first instance to establish the existence of a true original indebtedness rather than a disguised capital contribution. Noting that this burden had been met in Imperial by a stipulation acknowledging the existence of a legitimate and outstanding debt, and further that the acquisition agreement listed the notes as bargained for and sold for a separate consideration, the Court of Appeals for the Third Circuit observed:

“Under these circumstances, we think it was incumbent upon the government to demonstrate some workable theory explaining why the redemption of these notes should be regarded as a disguised payment of dividends.” 427 F.2d 1336.

The government in Imperial was unable to show that the acquisition of the corporation by the investors was a sham, and the notes were therefore held to constitute valid indebtedness the redemption of which resulted in capital gain to the taxpayer, to the extent the payment exceeded his basis in the notes.

Applying the same rationale to the facts of this case, District Judge McRae held that the good faith and legitimate business purpose of the entire transaction having been established and shown not to be a sham, the originally valid notes, which had been bargained for and purchased at a separate consideration, “retained their status as valid corporate indebtedness after they became the property of the Huttons.”

We admit to sharing some of the government’s expressed skepticism concerning the intent and purpose of a transaction which was so beneficial to the taxpayer and which saw him funnel to himself in the form of capital gains so large a sum of money from so small and questionable an investment. We are also aware of the many cases in this circuit and elsewhere which admonish us, particularly where federal tax laws are concerned, that “In cases where the legal characterization of economic facts is decisive, the principle is well established that the tax consequences should be determined by the economic substance of the transaction, not the labels put on it for property law (or tax avoidance) purposes.” Union Planters National Bank of Memphis v. United States, 426 F.2d 115, 118 (6th Cir. 1970). Likewise, “In the field of taxation, administrators of the laws, and the courts, are concerned with substance and realities, and formal written documents are not rigidly binding.” Helvering v. F. & R. Lazarus & Co., 308 U.S. 252, 255, 60 S.Ct. 209, 210, 84 L.Ed. 226 (1939). See also Commissioner of Internal Revenue v. Hansen, 360 U.S. 446, 79 S.Ct. 1270, 3 L.Ed.2d 1360 (1959).

It is urged by the government here that the economic realities of the transaction compel us to conclude that a motive of tax avoidance had to be present and dominant at all times, and particularly when the notes in question passed through the hands of Mr. C. E. Nance, escrow agent, and the books of Hutton Company and to the taxpayer and his father. Economic reality, it is urged, would have compelled the Hutton Company, but for an expected tax advantage, to have cancelled the notes rather than to have passed them even to a new and friendly holder who could thus potentially seek reimbursement for the face amount while having invested less than ten percent thereof. See Knetsch v. United States, 364 U.S. 361, 365, 81 S.Ct. 132, 134, 5 L.Ed.2d 128 (1960), in which the Supreme Court upheld the finding by the trial court that a tax sham existed where “no economic gain could be achieved . . . without regard to tax consequences”.

The government in this regard, however, is taking issue with the factual findings of the trial court which in fact found economic reality beyond tax consequences when it determined that the transactions involved, viewed in their entirety, reflected valid business motivations on the part of the Hutton Company. Indeed the trial court found that the Company had a business motivation for the transfer of the notes to taxpayer and his father, to avoid further indebtedness.

While the factual issue may be close, we must, of course, accept the findings of the trial court unless we conclude they are clearly erroneous, F.R.C.P. 52, i. e. unless we are left with a “definite and firm conviction that a mistake has been committed”. United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948). We are unable to so find.

While much of the evidence before the trial judge was documentary in nature, it was also incumbent upon him to weigh the testimony of the several witnesses who testified to the transaction or parts of it. It is clear from that testimony and the trial judge’s treatment of it that the acquistion of Bragg, whatever may have been its potential for tax avoidance schemes, was not solely for such purposes, if indeed they provided any motive at all at the outset. The plaintiffs fully carried their burden of proof insofar as it was necessary to show that the acquisition of Bragg was but one phase of a multiple phase program of expansion of the Hutton Company by acquisition of dealerships of Chrysler products throughout the country under circumstances in which the dealership had failed or was failing. Their success elsewhere gave C. E. Hutton and his son good reason to believe they could duplicate it in the West Memphis, Arkansas area by acquiring the interests of a floundering but potentially competing agency.

The trial court’s finding regarding the taxpayer’s intent in acquiring Bragg was a key finding on the issue of whether a tax sham was involved. Imperial Car, supra,. While different inferences may indeed be possible, it is not for this court to substitute its judgment for the factual findings and inferences of the trial court. See Donisi v. Commissioner of Internal Revenue, supra. The importance of the function of the trial court in cases such as this was ably stated by Justice Brennan in Commissioner of Internal Revenue v. Duberstein, 363 U.S. 278, 80 S.Ct. 1190, 4 L.Ed.2d 1218 (1960):

“Decision of the issue presented in these cases must be based ultimately on the application of the fact-finding tribunal’s experience with the mainsprings of human conduct to the totality of the facts of each case. The nontechnical nature of the statutory standard, the close relationship of it to the data of practical human experience, and the multiplicity of relevant factual elements, with their various combinations, creating the necessity of ascribing the proper force to each, confirm us in our conclusion that primary weight in this area must be given to the conclusions of the trier of fact.” 363 U.S. at 289, 80 S.Ct. at 1198.

The principal thrust of the government’s case below was that the notes in question had never from their inception amounted to valid corporate indebtedness of Bragg, but were rather a thinly disguised contribution to capital. The trial judge’s finding to the contrary is amply supported by the evidence and, indeed, there is little to rebut such a finding.

The government further sought below to demonstrate that even if the notes once represented a valid corporated indebtedness, they lost that character when obtained by the taxpayer. In this regard, the government concedes that “the transactions involved herein took the form of payments on corporate indebtedness which would ordinarily give rise to capital gains income to the extent of the retirement proceeds over the holder’s basis in the surrendered notes. See Section 1232(a) (1) of the Internal Revenue Code of 1954 . ... ” and

“Thus, if mere form controls, the district court was correct in holding that taxpayer realized capital gains income.”

We agree with the government that mere form should not control. Planters National Bank of Memphis v. United States, supra. But we are of the opinion that the district court properly looked to the entire transaction in assessing the economic realities, and correctly applied the law to the facts found by it in ruling that, under those facts, the form used reflected substance.

“It is of course true that the contractual form of a transaction cannot control the imposition of tax liability when the realities of the transaction show that form does not represent a bona fide and actual agreement. But it is equally true that the form of a contract is the considered and chosen method of expressing the substance of contractual agreements between parties and the dignity of contractual right cannot be judicially set aside simply because a tax benefit results either by design or accident. Form, absent exceptional circumstances, reflects substance. We do not find present in this case any of the traditional exceptional circumstances that justify the piercing of form to impose an ex-eeptional tax liability.” Edwards v. C. I. R., 415 F.2d 578, 582 (10th Cir. 1969).

On the facts before it the district court found that the entire transaction, including the transfer assignment of the notes to taxpayer in the first instance, the acquisition of Bragg by the Hutton Company, and the ultimate payment of the notes were prompted by valid business considerations, were not a “sham” and the dissolution of Bragg in 1966 was not the result of any “tax gimmick”. This finding is not clearly erroneous.

In addition to its principal challenge, the government now argues, for the first time on this appeal, that even if the notes represented a valid corporate indebtedness in taxpayer’s own hands, nonetheless the repayment of those notes should be treated as a dividend because it was made with assets transferred to Bragg from Hutton Company. In this regard, the government urges that we adopt and apply on appeal the principles of Sammons v. Commissioner of Internal Revenue, 472 F.2d 449 (5th Cir. 1972), a theory neither advanced nor litigated below.

In Sammons, funds received by taxpayer in retirement of a debt, the validity of which was not questioned, were held to constitute a dividend, where the debt was paid with funds transferred from corporations controlled by the taxpayer. Sammons articulated tests, which, if met, result in dividend treatment of funds received by the taxpayer regardless of the existence of a valid indebtedness. Among these is a subjective test of intent intended to differentiate between normal business transactions and “those transactions designed primarily to benefit the stockholder”. Sammons, supra, at page 451. The government urges that we adopt Sammons in this circuit and apply it to the case now before us. We leave this interesting suggestion to another case and another day.

The general rule is that an appellate court will not entertain an argument based upon a theory not litigated below. Helverson v. Wood, 309 U.S. 344, 60 S.Ct. 551, 84 L.Ed. 796 (1940); Allen Industries v. C. I. R., 414 F.2d 983 (6th Cir. 1969). The government, however, urges that application of Sammons here would merely require a proper interpretation and application of the law without the need for new or amplified factual determination, an exception to the general rule. Frederick Steel Co. v. Commissioner of Internal Revenue, 375 F.2d 351 (6th Cir. 1967). On the contrary, we believe that application of Sammons would indeed require additional and different factual findings not made by the court below. Further, we are not disposed to remand for that purpose, as suggested as an alternative to outright reversal, because we find that, whatever may be the merits of Sammons generally, the evidence on the record in this case would not support a finding that its tests have been met in at least two particulars.

In the first place, it is not nearly so clear as the government contends that the monies which the taxpayer received in retirement of the notes came in fact from the Chuck Hutton Company. It is true that inventory had been transferred from the Chuck Hutton Company to Bragg after Bragg was acquired in 1960, but it is also true that Bragg thereafter operated as a going concern and actually involved itself in the profitable sale of automobiles before finally liquidating six years later. It required five separate payments between 1963 and 1966 in order to retire the notes. Obviously, much took place during that period. The trial judge was not called upon to determine to what extent, if any, the assets transferred from Chuck Hutton Company to Bragg ultimately found their way to taxpayers by way of the payment of the notes. We cannot supply that void on appeal. Moreover, we believe it manifest from the record and the findings of the trial judge, findings which we hold not to be clearly erroneous, that the entire transaction was carried out for valid and legitimate corporate business reasons. Those reasons, already fully set forth earlier in this opinion and by the trial judge, refute any assertion by the government that the primary purpose of the transfer of the monies to Bragg was to benefit the taxpayer through affording him capital gains treatment in the repayment of the notes.

Accordingly, the judgment of the district court is affirmed.

      . Thomas and Betty Hutton, husband and wife, filed joint returns for the years in question, and thus sued jointly for refund. However, only Thomas Hutton was involved in the transactions giving rise to the income disputed in this case. Thus, hereinafter the word “taxpayer” will be used to refer to Thomas Hutton only.

      . § 316. Dividend Defined

      (a) General Rule. — For purposes of this subtitle, the term “dividend” means any distribution of property made by a corporation to its shareholders—
      (1) out of its earnings and profits accumulated after February 28, 1913, or’ (2) out of its earnings and profits of the taxable year (computed as of the close of the taxable year without diminution by reason of any distributions made during the taxable year), without regard to the amount of the earnings and profits at the time the distribution was made.
      Except as otherwise provided in this subtitle, every distribution is made out of earnings and profits to the extent thereof, and from the most recently accumulated earnings and profits. To the extent that any distribution is, under any provision of this subchapter, treated as a distribution of property to which section 301 applies, such distribution shall be treated as a distribution of property for purposes of this subsection. '

      . While Bragg’s franchise was not transferred or included in its assets at the time the stock was purchased, the transaction was encouraged by Chrysler.

      . To avoid confusion, we shall continue herein to refer to that company as “Bragg.”

      . The trial court found that among the advantages in the acquisition of the Bragg Company were “the obtaining of an existing customer list; the acquiring of records showing accounts receivable experience and the goodwill of those who had been doing business in the particular area where the expansion was to occur.”

      . The trial court further found that the notes were held by the Hutton Company in an escrow account, that the books never reflected that company as being the owner of the notes, and that the escrow account was closed when the notes were transferred.

      . While Bragg had shown operating profits in 1964 and 1965, it had no accumulated earnings and profits at the time it was liquidated in October 1966. It will be noted that in the year of liquidation, payments totalling $77,500 were made each to taxpayer and his father’s estate.

      . In Smith v. C.I.R., supra, this court held the following criteria are to be considered in making the factual determination of whether payments to a corporation constitute 'a loan of contribution to capital: “the presence or absence of a maturity date of the obligation, the name given to the writing (if any) evidencing the claimed obligation, the source of payments and repayments, the adequacy or inadequacy of capitalization, identity (or lack of identity) of interest between creditor and stockholder, the corporation’s ability to obtain financing from independent lending institutions, and the timing of the advance with reference to the organization of the corporation.” (370 F.2d at 180). Smith held that the trial court’s finding in this regard could not be disturbed unless clearly erroneous.

      . We do not attach the significance to this fact that the trial court did. The government correctly points out in its brief that the ultimate estate tax liability was not increased by the inclusion of the notes at their face value, for in so doing, the value of the stock left to the estate was reduced, x>ro tanto, and hence the value of the estate for tax purposes. We note, however, that this was not the sole or even controlling factor in the trial court’s ultimate conclusions regarding taxpayer’s intent.

      . See Imperial Car Distributors, Inc. v. Commissioner of Internal Revenue, supra, at 1336, n. 4, where that court, citing P. M. Finance Corp. v. Commissioner of Internal Revenue, 302 F.2d 786 (3rd Cir. 1962) stated:
      “A different situation is presented where the validity of the debt is questioned from the outset. In such a case, the burden is upon the taxpayer to establish the existence of true indebtedness rather than a disguised capital contribution.”

      . The court below then went on to consider the issue of whether or not the payments of the notes in 1966 should be construed as dividends where there were neither current earnings and profits in 1966 nor accumulated earnings or profits from prior years available in such year. The court concluded that payments made in 1966, as well as those made in previous years, were not dividends. This issue is not before us, as the government has advanced no objection to the trial court’s treatment thereof.

      . In that case, this court noted that determinations of fact made by the trial court in a tax case, “including factual inferences from the undisputed basic facts, may be set aside on appeal only if they are clearly erroneous.” 405 F.2d at 482.

      . In Sammons v. Commissioner of Internal Revenue, supra, Sammons was the owner of 99% of Reserve Life Insurance Company which owned substantially all of the stock of Standard Steel Works. Standard in turn owned Aero-Test Equipment Company. Aero encountered financial difficulty and was unable to meet its obligations which included $142,000 in debts which Sammons had acquired through the discount purchase of accounts due other Aero creditors. Reserve and other corporations controlled by Sammons thereupon transferred a large sum of money to Aero, which funds were used to repay Aero’s obligations including the $142,000 debt to Sammons. While the validity of the debt as held by Sammons was itself not questioned, its repayment with funds transferred to Aero by corporations controlled by Sam-mons with the intent that such funds be used to benefit him, was held to constitute a dividend. Sammons held that, initially, two tests must be met for the intercorporation transfer of funds to result in a dividend to a shareholder: (1) an objective test: did the transfer cause funds or other property to leave the control of the transferor corporation and did it allow the stockholder to exercise control over such funds either directly or indirectly through some instrumentality other than the transferor corporation ? and (2) a subjective test: was the transfer made primarily for the benefit of the stockholder? In addition, where, as in Sammons, the alignment of the corporations involved in the transfer is vertical rather than horizontal, two additional criteria must be met: “A transfer of funds by a corporation to another corporation which the former owns directly or indirectly can be a constructive dividend to the controlling stockholder only if (1) the funds are diverted away from the parent-subsidiary corporate structure and come within the control of the stockholder, and (2) no adequate consideration for the diversion passes from the stockholder to the corporation.” 472 F.2d at 454.

      . We note, however, that in McLemore v. Commissioner, 32 T.C.M. 59 (1973) affirmed per curiam by this court, 494 F.2d 1350 (decided and filed May 3, 1974), the Tax Court relied in part upon Sammons v. Commissioner of Internal Revenue, supra, in deciding that the transfer of funds between related corporations resulted in a dividend to the taxpayer-shareholder of both corporations.

      . In Frederick Steel Co. v. C.I.R., supra, this court recognized an exception to the general rule that issues not raised before the trial court will not be considered on appeal, when it agreed to hear an argument made for the first time on appeal, that a particular statute was applicable to the case. The court noted the issue was purely one of the “application of the statute to determine the taxes due,” and required no additional findings of fact. 375 F.2d at 355. See also, Black Motor Co. v. Commissioner of Internal Revenue, 125 F.2d 977 (6th Cir. 1942).


author: PER CURIAM:

text:
    William M. HICKOK, Petitioner-Appellant, v. UNITED STATES of America, Respondent-Appellee.
    No. 74-1047.
    United States Court of Appeals, Ninth Circuit.
    Aug. 7, 1974.

      Milton Stern, Jr., San Francisco, Cal., for petitioner-appellant.
    Gary K. Shelton, Asst. U. S. Atty., San Francisco, Cal., for respondent-ap-pellee.
    Before CHAMBERS and KOELSCH, Circuit Judges, and REAL, District Judge.

       Honorable Manuel L. Real, United States District Judge, Central District of California, sitting by designation.

   OPINION

PER CURIAM:

Appellant was convicted of four counts of attempting to evade federal income taxes (26 U.S.C. § 7201) and four counts of preparing and filing false and fraudulent corporate income tax returns (26 U.S.C. § 7206(1)). This conviction was affirmed on appeal United States v. Hickok, 481 F.2d 377 (9th Cir. 1973).

Appellant was sentenced to serve one year in jail on each count (concurrently) and to pay an aggregate of $60,000 in fines to the United States. The judgment and Order of Commitment provided in pertinent part:

“ . . . . said sentences with reference to imprisonment ONLY are to run concurrently. . The defendant is Ordered to stand committed until the fine is paid.”

Orally the trial judge at the time of sentence pronounced sentence substantially as set forth in the judgment and order of commitment except that his oral statement included a reference to the fine:

. to stand committed until the fine is paid or he is otherwise discharged by due course of law.”

Appellant paid the fine and demanded release from his imprisonment. To clarify his intent, the trial judge filed an amended judgment and order of commitment deleting the “stand committed” language of the original judgment.

Appellant complained by filing a Petition to Vacate Amended Judgment Pursuant to Title 28 U.S.C. § 2255. This petition was denied and defendant appeals.

Appellant can have no complaint cognizable on appeal. The original oral sentence and judgment and order of commitment used the words of art “stand committed” which apply only to the fine imposed. These words of art have no reference or application to the imprisonment portion of the imposed sentence. The words simply refer to imprisonment to compel the payment of a fine or discharge as provided in 18 U.S. C. § 3569.

This disposition of the appeal makes it unnecessary to reach the claimed error that appellant was not present when the trial court filed its “clarification.” We intimate no opinion on this issue.

The judgment is affirmed.

      . This imprisonment can result even where no “term of imprisonment” has been imposed.
      18 U.S.C. § 3565; see Panno v. United States, 203 F.2d 504, 509-510 (9th Cir. 1953).