author: CUMMINGS, Circuit Judge.

text:
    PORTAGE PLASTICS COMPANY, INC., Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
    No. 71-1555.
    United States Court of Appeals, Seventh Circuit.
    Heard En Banc Dec. 13, 1972.
    Decided March 2, 1973.

      John O. Olson, U. S. Atty., Madison, Wis., Fred B. Ugast, Acting Asst. Atty. Gen., Thomas L. Stapleton, Atty., Department of Justice, Tax Division, Washington, D. C., for defendant-appellant.
    James Urdan, Milwaukee, Wis., for plaintiff-appellee.
    Before SWYGERT, Chief Judge, and KILEY, FAIRCHILD, CUMMINGS, PELL, STEVENS and SPRECHER, Circuit Judges.
   CUMMINGS, Circuit Judge.

This appeal presents the question whether plaintiff qualified as a small business corporation within the meaning of Section 1371(a) of the Internal Revenue Code, thus supporting its timely elections under Section 1372(a) not to be subject to corporate income taxes for the fiscal years 1961, 1962 and 1963. The district court upheld plaintiff’s qualification (301 F.Supp. 684), but a panel of this Court reversed by divided vote (470 F.2d 308). On en banc consideration, we now affirm the district court’s refund judgment.

The facts were largely stipulated, but other facts were found after a bench trial. There is no dispute as to the facts, and only the essential ones reflected in the testimony or found by the district court will be stated in this opinion.

Plaintiff, a plasties manufacturer, is a Wisconsin corporation with its principal place of business in Portage, Wisconsin. It adopted the accrual method of- accounting, with its fiscal years ending May 31. It was organized on June 1, 1957, and its Articles of Incorporation authorized 1,000 shares of common stock with a par value of $10 per share. Effective January 23, 1962, the Articles were amended to increase the authorized shares to 20,000 shares of common stock of the same par value. No other class of common stock was authorized.

During the first of the fiscal years in question, plaintiff’s stockholders were William G. Hamilton, Ann Hamilton Kirk, Eugene Palmbach and William Hamilton, Jr., and in the latter two fiscal years, Armand Cimaroli was an additional stockholder.

According to the testimony of the secretary-treasurer of plaintiff, its organizers “did not want to sacrifice any of the equity of the corporation” to obtain working capital but found a very unfavorable reception from banks in regard to loans. As a result, on June 1, 1957, William G. Hamilton’s mother, Mrs. Elizabeth Berst, and his aunt, Miss Sara Garnett, agreed to advance the plaintiff $12,500 each and in exchange received standard business note forms. These instruments obligated plaintiff to pay Mrs. Berst and Miss Garnett $12,500 apiece on June 1, 1962, in Portage, Wisconsin, and contained the following provision for “Interest: 5% of the net profit before taxes.” At the time of issuance, the parties verbally agreed that on June 1, 1962, either or both of the ladies could renew the June 1, 1957, instruments at their request for a similar 5-year period. Both ladies exercised their renewal options, and accordingly, on June 1, 1962, two identical renewal instruments were executed. In June of 1963, Mrs. Berst and Miss Garnett exchanged those instruments for 245 shares each of common stock of plaintiff.

There was no oral or written agreement for the repayment of the $25,000 advanced by the ladies in the event of default in payment of the stipulated “interest.” Plaintiff did not establish a sinking fund to provide for the retirement of the obligations within the time periods provided.

Mrs. Berst and Miss Garnett executed separate agreements in June 1959, subordinating for a year all their rights pertaining to the instruments in favor of the City Bank of Portage, Wisconsin, a lender to plaintiff. On February 8 and March 26, 1962, respectively, they agreed to subordinate their rights in the instruments in favor of the First National Bank of Chicago, another lender to plaintiff.

The original and renewal instruments were recorded as Notes Payable on the books and records of the corporation and were shown as Long-term Debt and as Notes Payable on the annual audit reports prepared by its certified public accountants and on financial statements furnished to banks and other creditors. The accrual and payment of the amounts denoted as “interest” in the instruments were recorded on the books and records of the corporation in the Accrued Interest Payable account. The payments to each lady were as follows: $957.87 in 1959; $4,916.05 in 1960; $4,737.31 in 1961; $3,323.79 in 1962; and $2,245.03 in 1963. These payments reflected the unexpectedly fast growth of the corporation.

In the first year of operation, plaintiff lost $13,485.08, but thereafter earned substantial sums in each fiscal year. During the years in question, plaintiff had a relatively high debt to equity ratio because it found it necessary to borrow funds to fulfill the increasing needs for capital engendered by rapid expansion. No actual distributions were made with respect to the common stock until fiscal year 1962, when $40,000 was distributed, and in fiscal year 1963, when $36,000 was distributed. The primary reason for such distributions was to enable the shareholders to meet their tax obligations brought about as a result of plaintiff’s timely election to be taxed pursuant to the provisions of Subchapter S of the Internal Revenue Code for the fiscal years ending in 1961,1962 and 1963.

The Commissioner of Internal Revenue determined that plaintiff was ineligible to make the statutory election not to be subject to corporate income taxes for these three fiscal years on the ground that it had more than one class of stock and was therefore not a small business corporation as defined in Sub-chapter S. Accordingly, in January 1965, the Commissioner first notified plaintiff that he was claiming deficiencies in the amount of what he decided was the proper corporate income tax for the years 1961 through 1963. Plaintiff paid the deficiencies asserted and thereafter sued to recover income taxes and statutory interest in the amount of $164,733.13, plus interest. The district court held that plaintiff was entitled to such a refund because it “qualified as a small business corporation within the meaning of Section 1371(a) so as to be eligible to elect under Section 1372(a) not to be subject to corporate income taxes for its fiscal years 1961, 1962 and 1963.” 301 F.Supp. at 694. We affirm.

Section 1371(a) of the Internal Revenue Code provides as follows:

“Small business corporation. — For purposes of this subchapter, the term ‘small business corporation’ means a domestic corporation which is not a member of an affiliated group (as defined in section 1504) and which does not—
“(1) have more than 10 shareholders ;
“(2) have as a shareholder a person (other than an estate) who is not an individual;
“(3) have a nonresident alien as a shareholder; and
“(4) have more than one class of stock.”
(26 U.S.C. § 1371(a))

It is conceded that plaintiff met the first three requirements of the statute, but the Commissioner contends that the instruments issued to Mrs. Berst and Miss Garnett in exchange for their advances of $12,500 apiece were contributions to plaintiff’s capital rather than loans and constituted a second class of stock, thus disqualifying plaintiff as a small business corporation. On the other hand, plaintiff contends that the advances were loans, but in any event did not constitute another class of stock within the meaning of the statute.

Applying the traditional tests of the thin capitalization doctrine, the district court held that the advances in question constituted contributions to capital. The court was impressed by the fact that the rate of interest was fixed at a percentage of net profits, thus placing the risks of the venture upon Mrs. Berst and Miss Garnett. The court was also impressed by the following factors: on two occasions their rights under the instruments were subordinated to bank loans; plaintiff had a comparatively high ratio of debt to equity; there was no provision for acceleration of payment of principal in case of default in interest payments; and plaintiff’s plastics business had been a marginal operation, rendering its anticipated returns speculative in nature. In the aggregate, these factors were found clearly to outweigh those suggesting that the advances constituted loans. The entire panel of this Court agreed with the district court’s conclusion that the advances were contributions to capital rather than loans under the criteria of the thin capitalization doctrine, but that decision is unnecessary to review here. The point at issue is whether the criteria heretofore developed to determine the debt versus equity question in other contexts are determinative of the question whether another “class of stock” exists within the meaning of Section 1371(a) (4).

Both in the district court and here, the Government relied on Treasury Regulation § 1.1371-1(g), which provides in pertinent part:

“Obligations which purport to represent debt but which actually represent equity capital will generally constitute a second class of stock. However, if such purported debt obligations are owned solely by the owners of the nominal stock of the corporation in substantially the same proportion as they own such nominal stock, such purported debt obligations will be treated as contributions to capital rather than a second class of stock.” (T.D. 6904, 1967-1 Cum.Bull. 219)

The Government of course points to the inapplicability of the second sentence of the Regulation because Mrs. Berst and Miss Garnett were then not stockholders of the plaintiff corporation, so that the proportionality exception of the Regulation was inapplicable. It is the Government’s position that the tests of the thin capitalization doctrine determine the existence of a second class of stock if the instruments in question do not come within the exception of the Regulation’s second sentence. The underlying argument does little more than postulate the ubiquitous utility of those tests. Then the Government simply states: “Every instrument representing an advance to a corporation is either stock or debt. There is no such thing as non-stock equity. Corporate obligations that have been recharacterized as equity, are preferred stock for tax purposes.”

While holding that these advances constituted contributions to capital rather than loans, the district court concluded that “it does not appear that the traditional debt-equity tests applied in other areas of tax litigation are relevant to the general purpose of Subchapter S or to the two conceivable purposes of the one class of stock requirement * * *” (301 F.Supp. at 692). Consequently, the court analyzed the instruments in question in the light of the statutory purposes to ascertain whether they would be served by a conclusion that they constituted a second class of stock, disqualifying plaintiff from eligibility for Subchapter S status. The judge’s perceptive analysis led him to conclude:

“ * * * that the general purpose of Subchapter S to permit small businesses to select a form of organization without regard to tax consequences would be served by a conclusion that plaintiff was eligible to elect to be taxed as a small business corporation during the years in question. It further appears that the purposes of the one class of stock requirement, to avoid administrative complexities and to limit the advantages of Subchapter S status to small corporations, would not be served by a conclusion that the instruments in question constituted a second class of stock within the meaning of § 1371(a)(4).” (301 F.Supp. at 694)

In the panel’s prior opinion herein, the majority was of the view that the criteria heretofore developed to determine the debt versus equity question under the thin capitalization doctrine and used by the district court to conclude that the advances by Mrs. Berst and Miss Garnett were contributions to capital rather than loans were determinative of the existence of a second class of stock. Thus the majority upheld the validity of Treasury Regulation § 1.1371-1(g) and held that thereunder, once the district court had concluded the advances were contributions to capital, that ipso facto meant they constituted a class of stock, the proportionality exception being inapplicable.

For the reasons detailed in the dissenting opinion (470 F.2d at 316), incorporated herein by reference, we conclude that the traditional thin capitalization doctrine tests for determining whether a purported loan should be treated as an equity contribution in order to prevent improper tax avoidance in other contexts are not suitable for determining whether a purported loan constitutes a second class of stock within the meaning of Section 1371(a)(4). The Fifth Circuit has also recently so concluded in Shores Realty Co., Inc. v. United States, 468 F.2d 572 (1972); see Amory Cotton Oil Co. v. United States, 468 F.2d 1046 (5th Cir. 1972).

As can best be divined, the purpose of the single class of stock requirement was none other than to avoid the administrative complexity in the allocation of income which would result with more than one class of stock when preferred dividends were paid in excess of current earnings from undistributed but taxed prior earnings. Because the shareholders of a Subchapter S corporation are pro rata taxed on the corporation’s undistributed taxable income for any year, if in a subsequent year dividends in excess of current earnings are distributed to preferred shareholders, the common stockholders will have already been taxed on the excess going to the preferred shareholders. But under the existing provisions of the Code, the common shareholders could only receive a capital loss benefit for the previously taxed income which they did not receive. Section 1376(a). Consequently, some sort of refund mechanism would be necessary to prevent the inequity to the common shareholders, and this is the administrative problem Congress evidently sought to avoid through the single class of stock requirement.

Although the district court accurately pointed out that this problem could not occur in the instant case because “interest” on the advances was to be paid only out of net profits before taxes, it further appears that the problem is not encountered in any case- so long as interest is treated as interest. This is because shareholders are permitted a deduction for the excess of interest payments over earnings in any year, and hence they are adequately compensated for having been previously taxed on the earnings out of which interest payments may later be made. 26 U.S.C. § 1374(a), (d)(1); see 26 U.S.C. § 1376(b). Indeed, assuming that the general problem of allocation of earnings and losses between various classes of stock was a Congressional concern in enacting the single class of stock requirement, the district court recognized that the problem arises only if the interest payments are first re-characterized as dividends (301 F.Supp. at 693). The same principle applies to the particular administrative problem which occurs when dividends are paid to preferred shareholders in excess of current earnings — it is a problem only if the payments are recharacterized as dividends in the first place. The Government concedes as much when it states, “Once the notes have been recharacter-ized as equity, they present the same tax accounting problems with respect to the Subchapter S treatment of the corporation’s undistributed taxable income and net operating loss as are presented by preferred stock.” (Principal appellate brief for the United States, p. 13; emphasis supplied.)

The earlier dissenting opinion in this cause and the Fifth Circuit’s opinion in Shores Realty, supra, have demonstrated that just because the purported loans come out on the capital contribution end on the thin capitalization test scale is not a sufficient reason to make that initial recharacterization. In enacting the single class of stock requirement, there is no evidence of a Congressional design to ensure that what is debt for corporate purposes be insulated from the risks of the business venture to such an extent that the doctrine’s tests would not re-characterize it as equity if used for tax avoidance. And generally, in enacting Subchapter S, Congress has evinced no concern with the manner in which a small business corporation is capitalized in terms of how the contributors furnish money or property to the corporation. Quite the contrary, for the primary policy underlying the enactment of Subchap-ter S is “to permit businesses to select the form of business organization desired without the necessity of taking into account major differences in tax consequences.” Moreover, in seeking to approximate partnership tax treatment, it is difficult to understand why Congress would view differentiation among participants in the venture as to the form and extent of their participation as inherently bad from an economic policy standpoint.

The Government argues that if the taxpayer’s denomination of the advances is to control, the corporation can avoid the single class of stock requirement by simply attaching a label of debt to any instruments different from the common stock of the corporation. But this argument is nothing else than a contention that a corporation should not be able to secure Subchapter S treatment through a sham in a scheme of improper tax avoidance. Assuming the advantage of Subchapter S election itself can properly be considered improper tax avoidance, this case hardly fits the Government’s hypothetical. It does not exemplify an instance of masquerading instruments as debt in order to evade any qualification requirement for Subchapter S status. The capital structure of the plaintiff was established and its common stock and the instruments in question were issued in 1957 when Subchapter S did not exist. Even considering Mrs. Berst and Miss Garnett as shareholders, plaintiff would have had no more than seven shareholders during any of the taxable years in question, would not have had a corporation, trust, or partnership as a shareholder, and would have had no alien shareholders. Section 1371(a) (1) — (3). The existence of a business purpose for the issuance of debt instruments to Mrs. Berst and Miss Garnett is not questioned. And, simply stated, the Commissioner has never contended that the capital structure of the plaintiff was adopted with a view toward taking advantage of Subehapter S by evading the requirements for qualification thereunder.

Furthermore, it ill suits the Government to argue that the tests of the thin capitalization doctrine are justified to prevent the above, hypothetical “evasion” because those tests were designed to prevent tax avoidance through the use of debt in contexts where treatment as debt would subvert underlying congressional policy to afford benefits for debt when “the funds were advanced with reasonable expectations of repayment regardless of the success of the venture * * * [and were not] placed at the risk of the business * * Gilbert v. Commissioner, 248 F.2d 399, 406 (2d Cir. 1957); see Commissioner v. Meridian & Thirteenth R. Co., 132 F.2d 182, 186, 188 n. 7 (7th Cir. 1942). The Government does not have a comparable economic policy underlying its desire to thwart supposed spurious labeling through use of the thin capitalization doctrine tests. Apparently the Government is concerned solely with a nefarious tax avoidance motive in denominating certain advances as debt, but if that is a justifiable concern, it would seem only logical to attack the problem directly, instead of through the blunderbuss» application of the thin capitalization doctrine tests. Moreover, it seems that Treasury Regulation § 1.1371-1 (g) cannot be justified on the Government’s argument, since that Regulation would apparently allow a corporation seeking to qualify for or retain Subehapter S status deliberately to put a label of debt on instruments that otherwise would have been denominated preferred stock in order to evade the single class of stock requirement — so long as the purported debt obligations were held by the shareholders in substantially the same proportion that they owned the nominal stock.

Finally, it is unnecessary to decide whether the advances in question were properly recharacterized as equity contributions under the tests of the thin capitalization doctrine, for in determining whether the instruments held by these ladies constituted a second class of stock, there is no occasion to utilize those tests. Even if they constituted contributions to capital according to those criteria, the Commissioner has not persuaded' us that they must be considered as a second class of stock within the meaning of the statute. To the extent that Treasury Regulation 1.1371-1(g) calls for a contrary result, it is arbitrary and beyond the power of the Commissioner.

Affirmed.

      . See 26 U.S.C. § § 1371 (a) and 1372 (a).

      . Principal appellate brief for the United States, p. 28 (footnote omitted).
      Although Treasury Regulation § 1.1371-1 (g) states that obligations actually representing equity capital will “generally” constitute a second class of stock, the Government has not argued that the regulation admits of any exception other than that set forth in its second sentence. On the contrary, as the Fifth Circuit also found in Amory Cotton Oil Co. v. United States, 468 F.2d 1046, 1054 (5th Cir. 1972), “ * * * the construction advanced, in fact insisted upon, by the Commissioner is that the regulation is mandatory in operation unless the specific exception of proportionality is applicable.” Accord : Shores Realty Co., Inc. v. United States, 468 F.2d 572, 576-578 (5th Cir. 1972).
      The proportionality exception adds to, rather than detracts from, the regulation’s arbitrariness since the fact that debt is held proportionately by the shareholders is a factor traditionally considered to militate in favor of recharacterization as equity. See, e. g., Henderson v. United States, 245 F.Supp. 782 (M.D.Ala.1965) ; Cataline Homes, Inc., 23 CCH Tax Ct. Mem. 1361, 1367 (1964) ; Caplin, The Caloric Count of a Thin Incorporation, 43 Marq.L.Rev. 31, 57, 69 (1959).

      . As emphasized in the prior dissenting opinion, this conclusion in no way forecloses use of the thin capitalization doctrine tests to recharacterize purported debt as equity where appropriate to deny particular tax benefits wrongfully taken in those cases where tax avoidance through the use of debt is still available in the Subchapter S context and in those cases where it is peculiarly available within the confines of Subchapter S. 470 F.2d at 318 and n. 9.

      . S.Rep. No. 1622, 83d Cong., 2d Sess. 453-454 (1954).

      . Whatever problems that exist with “leakage” of previously taxed but undistributed earnings when a shareholder transfers stock before interest is paid out of them in a year giving rise to a net operating loss, these problems are inherent in the provisions of Subehapter S and exist regardless of the nature of the loan. See Note, 41 N.Y.U.L.Rev. 1012, 1018-1019 (1966) ; Note, 67 Colum.L.Rev. 494, 513-514 (1967).

      . See 470 F.2d at 320 n. 12.

      . S.Rep. No. 1983, 85th Cong., 2d Sess. 87 (1958), U.S.Code Cong. & Admin.News 1958, p. 4791; see S.Rep. No. 830, 88th Cong., 2d Sess. 146 (1964), U.S.Code Cong. & Admin.News 1964, p. 1313.

      . For the argument contra, see Bravenec, The One Class of Stock Requirement of Subehapter S — A Round Peg in a Pentagonal Hole, 6 Houston L.Rev. 215, 260-261 (1958) ; Note, 41 N.Y.U.L.Rev. 1012, 1017 (1966).

      . The Subchapter S provisions were enacted in 1958 as part of The Technical Amendments Act of 1958.

      . See note 2, supra.


source: Caselaw Access Project

author: KILEY, Circuit Judge.

license: Public Domain

text:
    NATIONAL LABOR RELATIONS BOARD, Petitioner, v. VISUAL EDUCOM, INCORPORATED, Respondent.
    No. 72-2002.
    United States Court of Appeals, Seventh Circuit.
    Argued May 22, 1973.
    Decided Sept. 19, 1973.

      Peter G. Nash, Gen. Counsel, Joseph C. Thackery, Atty., N. L. R. B., Washington, D. C., for petitioner.
    James J. Crowley, Jr., Newark, N. J., for respondent.
    Before CLARK, Associate Justice, KILEY, Circuit Judge, and CAMPBELL, Senior District Judge.

       Associate Justice Tom C. Clark, United States Supreme Court, Retired, sitting by designation.

       Senior Judge William J. Campbell of the United States District Court for the Northern District of Illinois, sitting by designation.

   KILEY, Circuit Judge.

The National Labor Relations Board (Board) petitions for enforcement of its order, pursuant to 10(e) of the Act, 29 U.S.C. § 151 et seq., granting summary judgment that, inter alia, Visual Edu-com, Incorporated (Respondent), of Michigan City, Indiana, upon request, bargain collectively with the Union with respect to “rates of pay, wages, hours and other terms and conditions of employment.” We order enforcement.

On August 20, 1971 the Union filed a representation petition with the Board seeking to represent a unit of the Respondent’s employees. A consent election was held on October 8, 1971, and resulted in 55 votes for, and 49 against, the Union. Eleven ballots were challenged. Pursuant to stipulation, three of the challenges were sustained and the remaining eight ballots were opened and counted. The final tally was 57 for, and 55 against, the Union.

The Respondent filed two timely objections to the election. The Regional Director conducted an ex parte investigation of the objections and found that there was no warrant for setting aside the election. The Respondent filed exceptions, supported by affidavits, and requested a hearing to resolve factual issues. A three member panel of the Board adopted the Regional Director’s holdings, and on March 10, 1972 certified the Union. Thereafter the Union requested the Respondent to bargain, and it refused. Subsequently, on April 13, 1972, the Regional Director filed a complaint “alleging” the Respondent’s unfair labor practice under § 8(a)(1) and (5) of the Act. The Respondent answered and the General Counsel then moved for summary judgment, asserting that all the issues raised in the answer had previously been litigated. The Board panel transferred the proceedings to the Board, which found that “all factual and legal issues raised ha[d] been determined . . . by a prior Board determination,” and ordered the Respondent to bargain.

The Respondent opposed entry of summary judgment on the ground that material issues of fact existed. Its position is that having filed exceptions to the Regional Director’s report, it was entitled to an evidentiary hearing oh its objections.

The question before us is whether there are material issues of fact needing decision and whether denial of a hearing invalidated the Union certification as bargaining representative. The Respondent has the burden of persuasion. NLRB v. Red Bird Foods, Inc., 399 F.2d 600, 602 (7th Cir. 1968). It contends that the objections as a whole, examined in the light of the evidence supporting its objections, disclose factual misrepresentations which were substantial departures from truth, made so near the election as to prevent the Respondent from effectively refuting, or to allow the employees to independently evaluate, Union misrepresentations. For these reasons it contends the impact of these misrepresentations reasonably could have unduly inhibited the free choice of the employees in the election. The possible impact is said to be especially crucial in view of the close vote. The Respondent concedes that “if” the certification is proper the bargaining order should be enforced.

The consent election was scheduled in September 1971, to be held on October 8, 1971. The Respondent began its campaign with a speech on August 25 and continued with letters to its employees on September 15, 22 and 30, and another speech on October 6. These communications emphasized how management was working to represent the best interests of the employees. The campaign material stressed that the Respondent had overcome financial problems and was on the way to profits and to providing stable employment with competitive wages and benefits. The Respondent stated it knew of “no union that kept a plant open for the employees” under similar economic conditions.

Additionally, Respondent made the following representations: Union campaign promises meant nothing; a wage contract had to be negotiated; the only certainty if the Union won was monthly Union dues; employees “may be subject to threat or coercion” which should be reported to the Board; employees’ votes are secret and can be cast safely; signed cards “mean nothing;”. and no employee would lose a job because of his vote.

In subsequent campaign material Respondent asserted: if the Union won, employees would have to pay at least $6.50 per month dues; many unions had increased dues “again and again;” employees may be subject to “special fees and assessments,” “can be threatened” with suspension from the Union for non-attendance at meetings, and forced to picket at some other company; the Respondent was “strongly opposed” to unionization, was “100% non-union” but if a majority of employees voted for the Union there would be no inequities among employees and the Respondent would bargain in good faith; and, finally, in slack periods the Respondent would have to move people around, but Union security rules often blocked this “need [of] agility.”

At a Union meeting on October 6, 1971 Lawson, a Union representative, spoke to the “30-40” employees in attendance. His statements at that meeting are the subject of the two objections filed by the Respondent with the Regional Director. The objections are that the Union falsely represented that the Respondent “was financially able to increase wages, that . . . [it] made a profit of four cents on every dollar” it spent for employees’ insurance; and that it misrepresented that “specific companies” were part of the Respondent and were unionized.

The Respondent supported its objections with the names of seven witnesses, all employees, who attended the Union meeting. Each of these employees, after the meeting, asked the Respondent about the truth of Lawson’s statements. The Respondent provided the Regional Director with a summary of anticipated testimony of the witnesses.

I

The Regional Director took testimony from the Respondent’s witnesses and his report set forth the substance of their testimony relevant to Lawson’s alleged misrepresentation concerning management profit from its employee insurance plan. The witnesses all agreed that Lawson talked about the Respondent’s employee insurance payments and, although expressing it differently, each indicated the thrust of Lawson’s statement was that the Respondent was profiting from the employee insurance plan. The report recites the substance of Lawson’s testimony: employees should not pay any cost of insurance; it was to the Respondent’s benefit to pay insurance premiums because of tax considerations; and the Respondent could deduct insurance premiums as an “operating” expense.

We disagree with the Regional Director’s appraisal of the testimony of the five witnesses. He describes the testimony of B and C as “grossly conflicting” and of A and E as “conflicting.” It is true: Witness A did not “remember too much,” “didn’t pay too much attention” and did not “remember his explanation.” Witnesses C and D, respectively, said they “didn’t understand what [Lawson] was saying,” and “didn’t understand what he was trying to explain.” And E said “I can’t remember too much about the meeting. . . .” Nevertheless, each of the five stated Lawson talked about insurance and gave the impression that the Respondent benefited by paying employees’ insurance premiums.

Lawson’s testimony is not contrary to the witness’ impressions. Also he and the witnesses agreed that what he said was prompted by a question “from the floor.” And both he and they agreed he used a blackboard in explanation.

The Respondent’s second objection was aimed at Lawson’s statement that plants owned by the Respondent in the East were unionized. This statement was made in response to a Respondent campaign letter of September 30, 1971 that it was 100% non-union. Here again the discussion was prompted by questions from the floor.

Lawson’s testimony in the Director’s report is that he discussed the probable unionization of other companies named on the letterheads. The résumés of testimony of A, B, C, D and E differ in some respects as to what Lawson said. Their impressions indicate that Lawson may have stated that it was not true that the Respondent was 100% non-union. The Regional Director took the evidence of the witnesses “most favorably” for the Respondent and found that Lawson was “misled by an inference” he drew from the Respondent’s letterhead and “asserted or suggested” one of the Respondent’s plants was organized.

While we disagree, as noted above, with the Regional Director’s characterization- of the five witnesses’ testimony as inconsistent and unreliable, we agree with his finding that quite “independently]” the alleged misrepresentation concerning insurance payments was not “reasonably calculated to affect the results of the election;” and that the insurance matter was not a campaign issue.

The evidence reported by the Director did not compel him to find that the witnesses’ various impressions of Lawson’s statements were likely to interfere with their free choices in casting ballots. Assuming, arguendo, the validity of the tenuous claim that the Respondent had no time between 9:00 a. m. October 7 and 2:00 p. m. October 8 to answer Lawson, we are not shown what it would have said in rebuttal. The closeness of the vote does not, on this record, require that the election be set aside. See Red Bird-Foods, Inc., supra. As we have noted by references to the Respondent’s literature, the campaign was vigorous, and Lawson’s statement concerning insurance was not entirely untrue and was invoked by questions from his audience. We think the Regional Director applied proper criteria in his report and cannot say that he has not properly balanced the elements needed for his decision that the election was not tainted by Lawson’s statement about insurance. Follett Corp. v. NLRB, 397 F.2d 91 (7th Cir. 1968).

The Regional Director could properly decide on the basis of the testimony that Lawson’s probable assertion about unionization, while untrue, was not likely to affect the outcome of the election. The recollections of the witnesses were so vague that it is not reasonable to infer that any one of them would carry away resentment against the Respondent for stating in the September 30, 1971 letter that it was 100% non-union. The Regional Director could balance the vagueness of the recollections, the “wide latitude” allowed in the Board election campaigns, Linn v. United Plant Guard Workers, 383 U.S. 53, 60, 86 S.Ct. 657, 15 L.Ed.2d 582 (1966), citing Stewart-Warner Corp., 102 N.L.R.B. 1153, 1158 (1953), and the “good sense” of the employees in deciding whether or not to believe the Respondent was 100% non-unionized. Id.

We hold that the Respondent has not succeeded in carrying its burden of showing that the Regional Director erred in his conclusions from the testimony of the five witnesses.

II

We see no merit in the Respondent’s contention that the certification is invalid because Respondent was denied a hearing on its objections to the election. It did not ask the Regional Director for a hearing on its objections. Despite its burden under the law, it merely gave the Board the names of seven witnesses. The Regional Director’s investigation sufficed to dispose of the objections made, Louis-Allis Company v. NLRB, 463 F.2d 512, 520 (7th Cir. 1972), since no material issues of fact were raised in the testimony of the five witnesses and Lawson which could be resolved only by a hearing. Id.

The Regional Director recommended on January 28, 1972 that the objections be overruled. The Respondent did not ask for a hearing until it formally filed exceptions before a panel of the Board. It urged for the first time in the exceptions that the certification be set aside because Lawson’s statements raised substantial and material factual issues. It had the burden of showing by specific evidence that the election was unfair. Fones v. NLRB, 431 F.2d 417, 420 (5th Cir. 1970). It filed, in support of its exceptions, an officer’s and several employee’s affidavits which had not been submitted to the Regional Director. The Board panel on March 10, 1972 adopted the Regional Director’s findings and conclusions and recommended the exceptions be overruled and that the Union be certified as bargaining representative. It found that the exceptions “raise [d] no substantial issues of fact or law which would warrant” setting aside the Regional Director’s findings and conclusions “or require a hearing.” It certified the Union as bargaining representative.

The General Counsel's motion for summary judgment asserted that the Respondent was attempting to relitigate before the Board issues already litigated before the Regional Director. This assertion was noted in the Board panel’s subsequent order transferring" the proceedings to the Board in Washington and issuing a rule for the Respondent to show cause why summary judgment should not be granted.

We disagree with the Respondent that it “supplied” to the Regional Director prima facie evidence of Union misconduct requiring that the election be set aside. The several belated affidavits were not before the Regional Director. Neither have we been shown that those affidavits could not have been obtained before the Regional Director filed his report by a diligent recognition of Respondent’s legal burden. Instead the Respondent rested its objection upon the Director’s investigation.

We conclude that on the objections made before the Regional Director no hearing was requested and none necessary.

Order enforced.

      . The parties stipulated and the Board found that the unit of “ [p] roduction and maintenance employees . . . excluding all office clerical employees, professional employees, guards, and supervisors” was an appropriate unit for collective bargaining within § 9(b) of the Act.

      . Local 1392, International Brotherhood of Electrical Workers, APL-OIO.

      . An employer representative later testified that two of the named witnesses did not attend the meeting. Those who did testify were identified in the Regional Director’s report as A,B, C, D and E.

      . Witness A said Lawson “quoted something like the Company made 40 per person off the insurance . . . . ” Witness B thought Lawson said “we would probably find the Company is making 40 on every insurance dollar.” Witness O said Lawson said “they [the Respondent] get a certain percentage back.” Witness D remembered Lawson saying the “Company was coming out ahead on insurance.” Finally, Witness E testified that Lawson said the Respondent was “4¢ ahead on each of us” at the end of the year.

      . The Respondent asserts that the names on their letterhead were product names and not company names. Witness C said he “understood” the names of the supposed unionized plants “to be names of the company products.”


author: JOHN W. PECK, Circuit Judge.

text:
    The ROGERS MANUFACTURING COMPANY, Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent.
    No. 72-2103.
    United States Court of Appeals, Sixth Circuit.
    Argued June 8, 1973.
    Decided Oct. 24, 1973.

      Edward C. Kaminski, Buckingham, Doolittle & Burroughs and Herndon & Bartlo, Akron, Ohio, for petitioner.
    Russell H. Gardner, N. L. R. B., for respondent; John D. Burgoyne, Atty., Peter G. Nash, Gen. Counsel, John S. Irving, Deputy Gen. Counsel, Patrick Hardin, Associate Gen. Counsel, Elliott Moore, Asst. Gen. Counsel, N. L. R. B., on brief.
    Before WEICK, EDWARDS and PECK, Circuit Judges.
   JOHN W. PECK, Circuit Judge.

Petitioner Rogers Manufacturing Company (hereinafter Company) pursuant to Section 10(f) of the National Labor Relations Act, 29 U.S.C. § 160(f), filed this petition for review and vacation of an order of the National Labor Relations Board (hereinafter Board) finding violations by the Company of Sections 8(a)(1), 8(a)(3), and 8(a)(5) of the Act. The Board has filed a cross-application for enforcement of its order, which is reported at 197 NLRB 180.

The pertinent facts are as follows. In February of 1969, a local union of the United Auto Workers was certified as bargaining representative of the petitioner’s production and maintenance employees at its Akron, Ohio, plant. Negotiations for a first contract began the following April but failed and in June of 1969 the Union called a strike. The period of the strike was marked with incidents of violence as the Company continued to operate with non-striking and replacement employees. After a short period, however, the Union decided to abandon the strike if it could secure reinstatement of the striking employees. In August of 1969, the Company informed the Union that the reinstated strikers would not be given credit for their previously accrued seniority. The Union thereupon rejected the Company’s conditional reinstatement offer considering the offer a demand for “super-seniority” for the replacements, and filed charges with the Board in May and June of 1970 respecting, inter alia, the reinstatement condition. Subsequently a settlement was reached providing that the Company agreed to bargain with the Union and would not grant su-perseniority to replacement employees.

Negotiations then resumed until October 15, 1970, when during a bargaining session a company spokesman announced that a petition seeking decertification of the Union had been filed with the Board by several employees. The spokesman raised the question as to whether it would be an unfair labor practice for the certified union and the company to continue to negotiate and arrive at a contract under the circumstances. After a colloquy in which the chief company spokesman repeated his concern that the continued negotiations would violate the Act, the chief union spokesman asserted, “You are refusing to meet with us.” The company spokesman replied, “No, we are not refusing to meet with you, there is danger of violating the law,” and the union spokesman replied, “If that is the situation, there is no point in having any further meetings.” A month later when the petition was ultimately dismissed by the Board, negotiations resumed. In March of 1971, the Union “unconditionally returned to work” and asked for reinstatement of the strikers. The Company took no action toward the reinstatement until April when the employees were notified that they were to report for interviews at which time they were allegedly advised that they would be treated, for seniority purposes, as new employees pending a Board ruling on the matter. All twenty-six strikers seeking reinstatement were offered jobs but for sixteen the jobs were a step down to more hazardous work. Only one of the sixteen accepted. In June of 1971, the Union terminated the strike and renewed its offer to return to work. Although the Company immediately offered reinstatement, the Company’s relatively short deadline for a response was not met and the offer was not renewed.

The Board, in affirming the findings of the Trial Examiner, found that the Company improperly suspended negotiations while the decertification petition was pending; that it delayed offers of reinstatement until April of 1971; that it improperly cancelled the strikers’ seniority ; that post-settlement unfair labor practices warranted setting aside the August, 1970 settlement agreement; that the Company improperly insisted upon superseniority; that in December of 1969 the insistence upon superseniority became a cause of or prolonged the strike; and that the Company’s failure to offer reinstatement in March of 1971 to the strikers of their former or substantially equivalent jobs was a violation of the Act. The Board’s order, inter alia, requires reinstatement and reimbursement of lost pay for the twenty-six strikers.

The Board found that the suspension of negotiations in 1970 was attributable to the Company and that this conduct, together with the Company’s delay in reinstating and granting to the strikers their pre-strike rights, justified setting aside the settlement agreement. The suspension of negotiations was viewed as a direct breach of the settlement agreement and the other actions were seen as substantial independent and unfair labor practices. We conclude that there is substantial evidence on the record as a whole to support the Board’s findings.

We turn to the issue arising out of the Company’s suspension of negotiations. This Court has recently held that under some circumstances an employer may be warranted in refusing to bargain with a union about whose majority he has a good faith doubt, see N. L. R. B. v. Dayton Motels, Inc., 474 F.2d 328, 331-332 (6th Cir. 1973), but the mere filing of a decertification petition is of itself insufficient justification. Cf. Allied Industrial Workers, AFL-CIO Local Union No. 289 v. N. L. R. B., 476 F.2d 868, 881 (D.C.Cir. 1973). Rather, evidence indicating that a good faith doubt was reasonably grounded must be advanced. Contrary to the Company’s argument, however, the fact that certain employees did not support the strike or that replacement employees were hired is insufficient evidence that the employees have repudiated the union as its bargaining representative. See, Allied Industrial Workers, AFL-CIO Local Union No. 289 v. N. L. R. B., supra. As a matter of fact, the Company’s engagement in unfair labor practices during the strike, such as are hereinafter discussed, the demand for superseniority, casts a shadow on allegations of good faith. We agree with the Board that the Company has not met its burden in this respect.

In addition, it is well settled that “an employer must bargain with a union for a reasonable period without regard to its majority status where the bargaining relationship arose as a result of a settlement agreement.” N. L. R. B. v. Universal Gear Service Corp., 394 F. 2d 396, 398 (6th Cir. 1968). Therefore, even assuming that the Company had a good faith doubt as to the Union’s majority at the time the decertification petition was filed, the Company plainly obligated itself in the August settlement agreement to bargain with the Union but broke off negotiations two months later. Under these circumstances, we conclude that the Board properly found that the Company’s suspension of negotiations in October of 1970 was violative of Section 8(a)(5) and (1) of the Act.

As regards the Board’s findings that the Company violated Section 8(a)(3) of the Act by delaying its offers of reinstatement to the strikers until April of 1971 and by cancelling the strikers’ seniority, the Company maintains that the strikers were not entitled to either reinstatement offers or back pay while they continued their strike.

The record indicates that the Union made an unconditional offer to abandon the strike and return to work, effective March 1, 1971. However, it was more than a month later when the Company responded to the applications for reinstatement. The law is settled that economic strikers are entitled to their former positions upon their unconditional application for reinstatement, absent some legitimate and substantial business justification. And the burden of proving such justification is on the employer who denies or delays reinstatement. N. L. R. B. v. Hartmann Luggage Co., 453 F.2d 178, 181 (6th Cir. 1971), citing N. L. R. B. v. Fleetwood Trailer Co., 389 U.S. 375, 378, 88 S.Ct. 543, 19 L.Ed.2d 614 (1967). The record reveals that only assembly room work was not then available and testimony from the Company works manager acknowledges “some vacancies in the press and press operators.” We conclude that the Company has failed to detail sufficient and legitimate business justifications for the delay and that there is sufficient evidence to support the finding of the Board.

The returning strikers were advised by the Company that they were to be treated as new employees until such time as the Board ruled otherwise, but the law is clear that returning strikers are entitled to receive all their former rights and privileges, including seniority. N. L. R. B. v. Robinson, 251 F. 2d 639, 641-642 (6th Cir. 1958). The record contains considerable support for a finding of violation of this standard, as the Board found.

The Company also argues that the complaint herein did not allege discrimination against the strikers as economic strikers but only as unfair labor practice strikers. We are satisfied that any variance was not prejudicial. Evidence on this point was introduced without objection and the Company had adequate notice of the matters in issue. As quoted with approval in Rea Trucking Co. v. N. L. R. B., 439 F.2d 1065, 1066 (9th Cir. 1971), “‘The Board . has an obligation to decide material issues which have been fairly tried by the parties even though they have not been specifically pleaded.’ [citations omitted].” Compare, N. L. R. B. v. Johnson, 322 F.2d 216, 219-220 (6th Cir. 1963), cert, denied, 376 U.S. 951, 84 S.Ct. 968, 11 L.Ed.2d 971.

It is of course recognized that the Board may not consider matters properly disposed by a settlement agreement “unless there is a breach of the agreement or a subsequent independent violation of the Act by the parties to the agreement.” Lincoln Bearing Co. v. N. L. R. B., 311 F.2d 48, 50 (6th Cir. 1962). See, also, N. L. R. B. v. Superior Tool & Die Co., 309 F.2d 692, 695 (6th Cir. 1962). We conclude that certain illegal pre-settlement conduct by the Company indicates that unfair labor practices were committed after execution of the settlement agreement and that such acts justified setting aside the agreement. We further conclude that it was proper for the Board to consider, as it did, whether the Company’s pre-settlement unfair labor practices converted the existing economic strike into an unfair labor practice strike even though the original charges made no specific allegation to that effect. N. L. R. B. v. Lasko Metal Products, Inc., 363 F.2d 529 (6th Cir. 1966). In particular, in this case it is clear that the Company was timely informed by a consolidated complaint that such an issue would be raised.

As to the actual activities, the record establishes that after the strike had been conducted for a short period, the Union sought to abandon it and concentrated on securing the reinstatement of the strikers. However, beginning in August of 1969, the Company demanded superseniority for the replacements as the price for reinstating the strikers. As noted by the Trial Examiner, Section 10(b) of the Act, 29 U.S.C. § 160(b), prohibits the Board from basing any finding of a violation of the Act on an event occurring more than six months before service upon the company of the charge filed with the Board. Since service was not effected until May 15, 1970, the applicable cut-off date was November 15, 1969. The first meeting subsequent to this date at which super-seniority was demanded was December 3, 1969. Therefore, as found by the Trial Examiner and affirmed by the Board, December 3 is the earliest date on which the Company may be found to have violated the Act by its insistence on superseniority and on which the strike may be found to have been prolonged because of such insistence.

Turning to the issue of superseniority, it is settled that insisting upon superseniority for strike replacements constitutes a refusal to bargain in violation of Section 8(a)(5) and (1) of the Act. N. L. R. B. v. Erie Resistor Corp., 373 U.S. 221, 230-237, 83 S.Ct. 1139,10 L.Ed.2d 308 (1963); Philip Carey Manufacturing Co. v. N. L. R. B., 331 F.2d 720, 726-729 (6th Cir. 1964), cert, denied, 379 U.S. 888, 85 S.Ct. 159, 13 L. Ed.2d 92. As the Company concedes in its brief, “[T]here is substantial evidence to support a finding that [the Company] proposed superseniority for strike replacements some time in 1969.” Likewise, we conclude that there is substantial evidence to demonstrate that from August of 1969 through May of 1970, after which the settlement agreement was reached, the Company adhered to this demand and that such insistence interfered with the reaching of an accord on reinstatement of the strikers. Indeed, such evidence substantially supports the Trial Examiner’s conclusion, affirmed by the Board, that the Company’s pre-settlement insistence on superseniority for nonstriking and replacement employees from December 3, 1969, violated Section 8(a)(5) and (1) of the Act.

It is clear also that the Board had a substantial basis for inferring that the Company’s unlawful insistence on superseniority prolonged the strike and thus on December 3, 1969, converted the existing economic strike into an unfair labor practice strike. The fact that unresolved contractual issues may have remained is not crucial since a single area of disagreement (in this case the demand for superseniority) need not be the sole cause for failure to agree. Philip Carey Manufacturing Co. v. N. L. R. B., supra, 331 F.2d at 728; United Steelworkers of America, AFL-CIO, Local 5571 v. N. L. R. B., 130 U.S.App.D.C. 369, 401 F.2d 434, 437 (1968), cert, denied, 395 U.S. 946, 89 S.Ct. 2020, 23 L. Ed.2d 465. We find substantial evidence on the record that the Company’s position on superseniority was consistent until execution of the settlement agreement and contributed to the prolongation of the strike.

In addition, following the conversion of the strike to an unfair labor practice strike, the strikers were entitled to unconditional reinstatement to any of their former jobs for which no replacements had been hired prior to the date of the conversion, N. L. R. B. v. International Van Lines, 409 U.S. 48, 50-51, 93 S.Ct. 74, 34 L.Ed.2d 201 (1972), and the reinstatement should have been to the same job (or its substantial equivalent) held by the striker prior to the strike. G. P. D., Inc. v. N. L. R. B., 406 F.2d 26, 32 (6th Cir. 1969). The Trial Examiner found, and the record supports the findings, that sixteen strikers were offered less desirable and more hazardous work than they previously performed prior to the strike. The record also reveals that the Company had hired thirteen replacements in the area in which sixteen workers formerly worked, i. e., the assembly area, subsequent to the date of the strike conversion, December 3, 1969. Consequently, those strikers who were regularly employed in the assembly area before the strike should have been offered reinstatement to the thirteen positions. It is noted that the Trial Examiner unexplainably ordered that fourteen strikers were entitled to reinstatement in the assembly area. We leave to compliance proceedings the question of which striker may not be entitled to reinstatement.

One other matter requires our attention. The Company charges that the Trial Examiner unlawfully made over 170 changes to the transcript, some of which have allegedly altered the testimony to a substantial degree. The multitude of the changes highlights the irregularity and we approach it with considerable caution. We first acknowledge a trial judge’s sua sponte power to correct the record in accordance with his memory. N. L. R. B. v. W. B. Jones Lumber Co., 245 F.2d 388, 392 (9th Cir. 1957). See also, 7 Moore’s Federal Practice § 75.08 [1] (1972). We also note the Trial Examiner’s explanation that the changes were “based not only on his recollection of his own remarks, as well as those of the witnesses and counsel, but also on extensive notes taken by him at the hearing, and the context in which the questioned items appear.” Principally, the Company objects to the addition of the words “without superseniority” to a witness’s testimony, thereby materially altering what had been recorded as the testimony. We are satisfied from a review of the record that the modification of the testimony is corroborated by testimony by the same witness to the same effect in two other places in the transcript, neither of which are challenged by the Company. Finally, in this regard, we are convinced that the record supports the Board’s finding that the Company insisted upon superseniority.

All other contentions of the Company we conclude to be without merit. The Board’s order is affirmed and enforcement is granted.

      . The effect of the Company’s offer would be that the strikers, upon their return to work, would find their seniority rights subordinated to those of the replacements so that in the event of a subsequent layoff the strikers would be dismissed before any of the replacements and the replacements would be the first to be recalled. In other words, the replacements would have “superseniority.”


author: VAN OOSTERHOUT, Senior Circuit Judge.

text:
    MOTOR CARRIERS COUNCIL OF ST. LOUIS, INC., et al., Appellees, v. LOCAL UNION NO. 600, Affiliate of International Brotherhood of Teamsters, Chauffers, Warehousemen and Helpers of America, Appellants.
    No. 73-1023.
    United States Court of Appeals, Eighth Circuit.
    Submitted Sept. 10, 1973.
    Decided Nov. 7, 1973.

      Harry H. Craig, St. Louis, Mo., for appellants.
    Charles Alan Seigel, St. Louis, Mo., for appellees.
    Before VAN OOSTERHOUT, Senior Circuit Judge, and LAY and ROSS, Circuit Judges.
   VAN OOSTERHOUT, Senior Circuit Judge.

This is an appeal by Local Union No. 600, Affiliate of International Brotherhood of Teamsters, Chauffers, Ware-housemen and Helpers of America, hereinafter Local 600, from judgment determining that Local 600 had engaged in a strike in breach of an existing collective bargaining agreement containing a no-strike clause and that Local 600 was liable to plaintiffs for damages caused by such strike. Jurisdiction of the District Court is established by 29 U.S.C. § 185.

Plaintiff Motor Carriers Council of St. Louis, Inc., is a Missouri corporation organized to aid its members in the settlement of labor disputes and in other matters. The individual plaintiffs are members of the Council and are engaged in the business of common carriers of freight and are employers of members of Local 600.

Prior to the opening of the trial, it was agreed by the court and counsel that the liability issue, which was common to all parties, be first tried with the damage issue reserved for later determination in event liability is established. The liability issue was tried to Judge Harper. A well-considered memorandum opinion (not reported) was filed December 14, 1972, setting forth the findings of fact and conclusions of law and the basis upon which the liability was determined. Incorporated in the order is a 28 U.S.C. § 1292(b) certification. This court permitted an interlocutory appeal on the liability issue.

Plaintiffs and Local 600 were parties to a National Master Freight Agreement and a Central States Area Supplemental Agreement entered into on or about April 1, 1967, covering a three-year period with provision for termination and renewal thereof.

The pertinent parts of the agreement as set out in the trial court’s opinion are:

thereafter unless written notice of desire to terminate the Agreement is served by either party upon the other at least sixty (60) days prior to date of expiration.
Article 37 of the National Agreement provides in part, page 50, as follows:
Section 1. This Agreement shall be in full force and effect from April 1, 1967, to and including March 31, 1970, and shall continue from year to year
Section 2. Where no such cancellation or termination notice is served and the parties desire to continue said Agreement but also desire to negotiate changes or revisions in this Agreement, either party may serve upon the other a notice at least sixty (60) days prior to March 81, 1970, or March 31st of any subsequent contract year, advising that such party desires to revise or change terms or conditions of such Agreement.
Section 3. Revisions agreed upon or ordered shall be effective as of April 1, 1970, or April 1st of any subsequent contract year. The respective parties shall be permitted all legal or economic recourse to support their requests for revisions if the parties fail to agree thereon.
Article 43 of the Central States Supplemental Agreement, page 63, provides in part:
The Union and the Employers agree that there shall be no strike, lockout, tie-up or legal proceedings without first using all possible means of settlement, as provided for in this Agreement, and in the National Agreement, if applicable, of any controversy which might arise.

By letter dated December 17, 1969, Local 600 served upon each of the plaintiffs a notice that it desired “to negotiate changes or revisions in the National Master Freight Agreement and in all area, regional and local supplements * * * for the contract period commencing April 1, 1970, as provided in Article 37 thereof.”

Actual negotiations for changes and revisions of the bargaining agreement were commenced in Washington in February of 1970. Agreement was reached on many issues prior to March 31, 1970, but no agreement had been reached on pay increases. Negotiations continued and an agreement was reached on the monetary issues in the early morning of April 2. A supplemental agreement reflecting the changes agreed upon was signed about April 28 by the appropriate representatives of the employers and the Union. Local 600 signed the supplemental agreement which was effective as of April 1, 1970.

At approximately 12 :01 a. m. on April 1, 1970, Local 600 authorized and directed the driver employees of each employer plaintiff to strike and cease work. The strike followed and the cessation of work continued until on or about May 8, 1970.

Local 600 does not deny the existence of the no-strike clause contained in Article 43 heretofore set out. Local 600’s primary contention is that the contract containing the no-strike clause terminated on March 31, 1970, because no new agreement as to contract modifications and revisions had then been reached. The trial court rejected such contention upon the basis of the following reasoning:

Local 600 contends that, because many of the issues were still not resolved on March 31, 1970, because there was still a significant disparity between the parties’ positions on wages, and because of the participation by the Federal Mediation and Conciliation Service on April 1, 1970, the bargaining had reached an impasse. This conclusion is untenable. The record clearly shows that there was no impasse. During the period of January 7th through April 28th, 1970, there was no interruption in the negotiations, there was no time when any party refused to come to the bargaining table, and there was no final contract proposal submitted by either party.
Simply because the parties had not yet agreed on certain changes and revisions by March 31, 1970, does not mean that the parties had failed to agree within the meaning of the contract. Obviously, the terminology “fail to agree” was intended to mean something in the nature of an impasse or deadlock. If this were not the case the parties would always “fail to agree” upon the commencement of any negotiations, thus permitting “all legal or economic recourse” by the parties at that point. It is evident that this was not the intent of the parties. By a clear preponderance of the evidence plaintiffs have shown that there was no failure to agree within the meaning of Section 3 of Article 37 of the National Agreement. Local 600 violated Article 43 of the Central States Supplemental Agreement when it authorized the strike which lasted from April 1, 1970, to May 8, 1970.

We agree with such determination.

Section 1 of Article 37 provides for the notice to be given to terminate the contract. Section 2 provides for notice to be given where the parties desire the contract to continue but also desire to negotiate some changes in the agreement. Local 600 concedes the notice it served was a Section 2 notice. Section 2 contains no provision for termination if the negotiations are not consummated by March 31, 1970. Section 3 provides that revisions agreed upon shall be effective as of April 1. Such provision recognizes the possibility that negotiations may not be completed by April 1 and assures that any agreement entered into shall be effective retroactively to April 1. The contract ultimately entered into honors the provision that the contract be effective as of April 1.

The last sentence of Section 3 reads: “The respective parties shall be permitted all legal or economic recourse to support their requests for revisions if the parties fail to agree thereon.” Such sentence neither expressly nor by fair implication provides for the termination of the 1967 contract if agreement is not reached by March 31. The court in the portion of the opinion heretofore quoted treated the contract as being unambiguous. The issue of whether a contract is ambiguous is one of law for resolution by the trial court in the first instance, subject to review by the appellate court. Metropolitan Paving Co. v. City of Aurora, 449 F.2d 177, 181 (10th Cir. 1971); Pipkin v. FMC Corp., 427 F.2d 353, 356 (5th Cir. 1970); Steele v. McCargo, 260 F.2d 753, 758 (8th Cir. 1958).

As stated by Judge Hand in Eddy v. Prudence Bonds Corp., 165 F.2d 157, 163 (2d Cir. 1947), “appellate courts have untrammelled power to interpret written documents.” However, we agree with the trial court that the contract when considered as a whole is not ambiguous in the respects here material and agree with the trial court’s interpretation of the contract.

If contrary to our holding immediately above, the contract should be considered ambiguous, the result here would be no different. The extrinsic evidence strongly supports the interpretation made.

As Judge Harper points out, the Central States Supplemental Agreement, Section 68, provides: “The term of this Supplemental Agreement is subject to and controlled by all the provisions of Article 37, of the National Agreement between the parties hereto.” Frank Fitzsimmons, who headed the national union bargaining committee, repeatedly advised Local 600 that the negotiations were continuing, that the strike that Local 600 was conducting was not authorized and that Local 600 should order its members to return to work. The interpretation of the national contract by the national officers is entitled to great respect.

We reject Local 600’s contention that the national union bargaining team had no authority to represent Local 600 upon the basis stated in Judge Harper’s well-reasoned opinion. The pertinent portion of the opinion reads :

Much of defendant’s evidence at trial was directed toward the position of defendant that the International Union and the National Union negotiating team did not have authority to represent defendant. Defendant apparently abandoned this position since its only contention in its post trial brief is that “plaintiffs have failed to establish by a clear preponderance of the evidence that the parties had not failed to agree on revisions in the April 1, 1967, contract on its expiration date of March 31, 1970.
Local 600 had authorized the national negotiating committee to negotiate for it the 1970 National Agreement. The power of attorney Local 600 gave the national negotiating committee on November 6, 1966, had not been revoked and was still in force for the 1970 negotiations. Both the International Union and Local 600 considered that the National Negotiating Committee had the authority to negotiate on behalf of Local 600 with respect to the National Agreement. Although Donald Lane testified that it was never his understanding that the National Negotiating Committee could negotiate on behalf of Local 600 after March 31, 1970, there is nothing to indicate the authority of the National Negotiating Committee would end at this point. At no time did Local 600 advise anyone that it was not being represented by the National Negotiating Committee.

Local 600’s contention that plaintiffs should have submitted the subject matter of this action through grievance committee procedures lacks merit. This issue was not raised in the trial court by pleadings or otherwise. Issues not raised in the trial court cannot afford a basis for reversal upon appeal absent unusual circumstances. Smith v. American Guild of Variety Artists, 368 F.2d 511, 514 (8th Cir. 1966); Sisco v. McNutt, 209 F.2d 550, 553 (8th Cir. 1954). No extraordinary circumstances which would warrant a departure from the general rule above stated have been shown.

Defendants have failed to demonstrate that Judge Harper’s decision on the liability issue is induced by any erroneous view of the law or that his fact findings are not supported by substantial evidence or are clearly erroneous.

Affirmed.


author: BARNES, Senior Circuit Judge. SWYGERT, Chief Judge

text:
    John Randall ACKER et al., Plaintiffs-Appellees, v. Curtis W. TARR, Director of Selective Service of the United States, et al., Defendants-Appellants.
    No. 72-1369.
    United States Court of Appeals, Seventh Circuit.
    Argued April 18, 1973.
    Decided Sept. 17, 1973.

      Harlington Wood, Jr., Asst. Atty. Gen., William D. Appier, Atty., Dept, of Justice, Washington, D. C., James R. Thompson, U. S. Atty., William T. Huyck, Asst. U. S. Atty., Chicago, Ill., for defendants-appellants.
    Geoffrey G. Gilbert, Joseph Beeler, Chicago, Ill., for plaintiffs-appellees.
    Before SWYGERT, Chief Judge, and MURRAH  and BARNES, Circuit Judges.

       Honorable Alfred P. Murrah, Senior Circuit Judge for the Tenth Circuit, and Stanley N. Barnes, Senior Judge for the Ninth Circuit, each sitting by designation.

   BARNES, Senior Circuit Judge.

The Government appeals from the grant of injunctive relief to a Selective Service registrant prior to induction. Plaintiff-Appellee, John Randall Acker, was classified II-S by Local Board No. 121 while he was attending Parsons College. Upon his graduation in August 1969, he enrolled in a tool and die apprenticeship training program operated by Kenlee Form Rite Corporation (herein Kenlee), a small tool and die shop owned by registrant’s father. Kenlee was registered with the United States Department of Labor, Bureau of Apprenticeship; and its five year Apprenticeship Program had a Certificate of Registration for the trade classification in which Acker was enrolled. The Illinois State Director of Selective Service issued a Certificate of Acceptance for deferment purposes. Apprentice Deferment Request, SSS Form 171, was executed by the President of Kenlee on behalf of Acker in Mid-January, 1970. If accepted, Acker would have been placed in Class II-A, apprenticeship deferment.

On January 29, 1970, Local Board 121 re-opened Acker’s classification and placed him in Class I-A. An appropriate appeal was taken and the State Appeal Board for the Northern District of Illinois unanimously affirmed the classification on January 13, 1971. On January 25, 1971, Acker was ordered to report for induction on February 10, 1971. His complaint was filed on February 4, 1971, and a temporary restraining order was issued preventing his induction. A permanent injunction was entered on February 4, 1972.

His complaint sought an injunction against his induction, an order of mandamus requiring Local Board 121 to place him in Class II-A, and a declaratory judgment that Operations Bulletin 338 was unauthorized by the Military Selective Service Act of 1967. Jurisdiction was predicated on 28 U.S.C. § 1331 (federal question), 28 U.S.C. § 1361 (action to compel an officer of the United States to perform his duty), and 28 U.S.C. §§ 2201-2202 (declaratory judgments). Our jurisdiction rests in 28 U.S.C. § 1291.

Acker’s claim to a Class II-A deferment is based on § 6(h)(2) of the Military Selective Service Act of 1967, 50 U.S.C. App. § 456(h)(2), which authorizes the President to prescribe rules and regulations for occupational and apprenticeship deferments. The apprenticeship deferment is implemented by 32 C. F.R. § 1622(b) (1970). It provides in part:

“In Class II-A shall be placed any registrant satisfactorily . . . engaged in an approved apprentice training program, such deferment to continue until such registrant fails to pursue satisfactorily such full-time course of instruction or training, or until the expiration of the period of time normally required to complete such course of full-time instruction or training.”

Operations Bulletin No. 338 was issued by the Director of the Selective Service to clarify “Executive Order 11527 to phase out occupational and paternity deferments and to provide for non-degree student deferments . . . ” It stated that a Class II-A deferment would not be issued to a registrant whose II-S classification terminated upon “graduation, age, or unsatisfactory performance.” Discretion was left in the Local Board, however, to permit the II-A classification on top of the II-S classification in certain circumstances. Since Acker had received a II-S deferment for four years and had successfully completed his college program, the Local Board refused to grant him the additional deferment, impliedly concluding that he was either unsatisfactorily performing full time work, or, that the period of time normally required to complete such full time instruction had expired. The Government argues that § 10 (b)(3) of the Act, 50 U.S.C. App. § 460 (b)(3), precludes judicial review. That section provides in relevant part:

“The decisions of such local board shall be final, except where an appeal is authorized and is taken in accordance with such rules and regulations as the President may prescribe . . . No judicial review shall be made of the classification or processing of any registrant . by local boards, appeal boards, or the President, except as a defense to a criminal prosecution . after the registrant has responded either affirmatively or negatively to an order to report for induction . . .: Provided, That such review shall go to the.question of the jurisdiction herein reserved to local boards, appeal boards, and the President only when there is no basis in fact for the classification assigned to such registrant.”

Based on Oestereich v. Selective Service System Local Board No. 11, 393 U.S. 233, 89 S.Ct. 414, 21 L.Ed.2d 402 (1968); Clark v. Gabriel, 393 U.S. 256, 89 S.Ct 424, 21 L.Ed.2d 418 (1968), and Breen v. Selective Service Local Board No. 16, 396 U.S. 460, 90 S.Ct. 661, 24 L.Ed.2d 653 (1970), the district court held that § 10(b)(3) did not constitute a bar to judicial review. It determined that II-A classifications are non-discretionary, and ordered Local Board 121 to place Acker in Class II-A. We hold that § 10(b) (3) bars judicial review of Acker’s I-A classification, and therefore reverse.

In Oestereich, supra, the Supreme Court held that § 10(b)(3) did not bar judicial review where a registrant was undeniably entitled to an exemption. This rule was extended to include registrants who had a statutory right to a deferment, Breen, supra. Mr. Justice Blackmun summarized and clarified the rule in Fein v. Selective Service System, 405 U.S. 365, 92 S.Ct. 1062, 31 L.Ed.2d 298 (1972). Speaking for a majority of the court, he stated at 374 to 375, 92 S.Ct. at 1069 to 1070:

“Thus Oestereich, Gabriel, Breen, and Boyd [Boyd v. Clark, 287 F.Supp. 561 (SDNY 1968)] together establish the principles (a) that § 10(b)(3) does not foreclose pre-induction judicial review in that rather rare instance where administrative action, based on reasons unrelated to the merits of the claim to exemption or deferments, deprives the registrant of the classification to which, otherwise and concededly, he is entitled by statute, and (b) that § 10 (b) (3) does foreclose pre-induction judicial review in the more common situation where the board, authoritatively, has used its discretion and judgment in determining facts and in arriving at a classification for the registrant. In the latter case the registrant’s judicial review is confined — and constitutionally so —to the situations where he asserts his defense in a criminal prosecution or where, after induction, he seeks a writ of habeas corpus. By these cases the Court accommodated constitutional commands with the several provisions of the Military Selective Service Act and the expressed- congressional intent to prevent litigious interruption of the Selective Service process.”

In effect, the district court concluded that Acker’s case fell within the first category of cases. In doing so, it incongruously avoided a decision on the validity of Operations Bulletin 338. With that authority left intact, Acker’s right to a II-A deferment is anything but certain. And, as has been said, in discretionary matters the Boards have the right to make mistakes. Acker’s case falls within Justice Blackmun’s second category of cases (discretionary acts) and § 10(b)(3) operates to bar judicial review. Thus, reversal is required.

The district court did comment, in dicta, on the type of discretion which Operations Bulletin 338 places in the local board. It stated that it did not believe that there was support for such discretion in this Circuit. The decision in McCarthy v. Director of Selective Service System, 460 F.2d 1089 (7th Cir. 1972), however indicates that there is support, relying as it does on Gregory v. Tarr, 436 F.2d 513 (6 Cir. 1971), as well as Fein, supra (405 U.S. at 375, 92 S.Ct. at 1069) and stating:

“Section 10(b)(3) is (now) understood to mean what it says except in such highly unusual and strictly limited circumstances as were present in Oestereich and Breen.” Cummings, J., in McCarthy, supra, 460 F.2d p. 1092.

See also: Schrader v. Selective Service System Local Board No. 76 of Wisconsin, 470 F.2d 73, 76, et seq. (7th Cir. 1972), cert, denied, 409 U.S. 1085, 93 S.Ct. 689, 34 L.Ed.2d 672 (1972), and cases cited in Barker v. Tarr (No. 71-1659, decided August 8, 1972) (7th Cir.).

We realize that all circuits have not agreed with our interpretation, but in view of the language in Fein, supra, and the cases cited in Barker v. Tarr, supra, from Czepil v. Hershey, 425 F.2d 251 (7th Cir. 1970) to the present, we are satisfied with our previous holdings.

For these reasons, the decision of the district court granting an injunction is vacated, and the matter remanded with instructions to dismiss the complaint. The appellee upon induction, will have other remedies available.

SWYGERT, Chief Judge

(dissenting).

There is a single question to be decided by this court: whether Operations Bulletin 338 is authority for Local Board 121 to have denied Acker the mandatory classification of II-A as an apprentice in a properly qualified apprentice program. If Operations Bulletin 338 validly restricts the deferment, then section 10(b)(3), 50 U.S.C. App. § 460(b)(3), bars preinduction judicial review of the denial of the II-A classification. If the Bulletin impermissibly restricts the granting of the deferment, then prein-duction judicial review is proper since, according to the stipulated facts, Acker was legally qualified for the deferment.

The majority avoids this issue and holds that since the district court did not specifically hold that Operations Bulletin 338 was invalid, the deferment was dis-cretional and therefore the court had no jurisdiction to make a preinduction review of the denial of the deferment.

The President, under authority of 50 U.S.C. § 456(h)(2), promulgated 32 C.F. R. § 1622.22(b) (1970) which provides in pertinent part: “In Class II-A shall be placed any registrant satisfactorily . . . engaged in an approved apprentice training program. . . .” (emphasis added.) Acker was engaged in such a program and the language of the regulation mandates that he be given the deferment. Operations Bulletin 338 which was issued by the Director of the Selective Service System attempts to restrict the regulation by applying the “anti-pyramiding” restrictions of 50 U. S. C. App. § 456(h)(1) to 50 U.S.C. App. § 456(h)(2) and 32 C.F.R. § 1622.-22(b) (1970). If the President wanted to limit apprenticeship deferments to those who had not had a II-S student deferment or to those who did not graduate from college, he could have so provided in the regulation. The authorizing statute does not allow the Director of the Selective Service System to issue such regulations, only the President. The Director’s attempt to do so indirectly through Operations Bulletin 338 is accordingly invalid.

Since Acker was entitled to a II-A classification and was denied that classification by “administrative action, based on reasons unrelated to the merits of the claim ... to the deferment,” section 10(b)(3) does not foreclose preinduction judicial review.

McCarthy v. Director of Selective Service System, 460 F.2d 1089 (7th Cir. 1972), cited by the majority does not support the majority’s holding since McCarthy unlike Acker had a questionable claim to a II-A deferment for he was only a part time teacher whereas Acker had met all the requirements of being in a qualified apprentice program. We said in dicta that the local board’s reliance on Local Board Memorandum No. 96 was “not tantamount to the clearly unauthorized actions of the local boards in Oestereich and Breen, which relied on extraneous factors not in any way germane to respective statutory qualifications for exemption or deferment.” 460 F.2d at 1092.

The anti-pyramiding purpose of Operations Bulletin 338 was extraneous to the issue of whether Acker’s employment in the apprentice program was “found to be necessary to the maintenance of the national health, safety, or interest.” Local Board Memorandum No. 96 was, however, germane to the question of whether McCarthy’s employment as a teacher was necessary to the maintenance of the national health, safety, or interest. In this case, the local board had a duty to classify Acker' as II-A since' he met all of the regulatory criteria.

For the reasons stated above, I respectfully dissent.

      . The majority fails to explain why they hold that the complaint must be dismissed by the district court since the complaint alleges the invalidity of the Bulletin and the district court did not rule on this issue. If plaintiff is not to receive a ruling on the validity of the Bulletin in this court, the least that is required is that he be allowed a ruling- in the district court. For if plaintiff is correct, and I believe that he is, the deferment is mandatory and not discretionary, and the district court therefore had jurisdiction.

      . Fein v. Selective Service System, 405 U.S. 365, 374, 375, 92 S.Ct. 1062, 31 L.Ed.2d 298 (1972).

      . Oestereich v. Selective Service System, 393 U.S. 233, 89 S.Ct. 414, 21 L.Ed.2d 402 (1968), allowed preinduction judicial review where the registrant was entitled to an exemption. Breen v. Selective Service Board, 396 U.S. 460, 90 S.Ct. 661, 24 L.Ed.2d 653 (1970), allowed such review where the registrant had a statutory right to a deferment. The fact that Acker’s right to the deferment is provided by regulation pursuant to statute does not differentiate his case from the others.

      . “A full-time graduate student shall not be considered for occupational deferment because he is engaged in teaching part time.” 460 F. 2d at 1091.

      . 50 U.S.C. App. § 456(h) (2).


author: HEANEY, Circuit Judge.

text:
    Ellsworth BROWN et al., Appellees, v. UNITED STATES of America et al., Appellants. Ellsworth BROWN et al., Appellees, v. UNITED STATES of America et al., Appellees, Cheyenne River Sioux Tribal Council; Wayne Ducheneaux, a Member of the Cheyenne River Sioux Tribal Council, Appellant.
    Nos. 73-1611, 73-1111.
    United States Court of Appeals, Eighth Circuit.
    Submitted Sept. 13, 1973.
    Decided Oct. 9, 1973.

      Charles Poches, Jr., Fort Pierre, S. D., for appellants.

      • John A. Morrissey, South Dakota Legal Services, Eagle Butte, S. D., for appellees.
    Before HEANEY, STEPHENSON and WEBSTER, Circuit Judges.
   HEANEY, Circuit Judge.

This class action was brought by six enrolled members of the Cheyenne River Sioux Tribe against the Tribal Council, its Chairman, the United States Government, and the Secretary of Interior. The plaintiffs complained that the Tribal Council was malapportioned and that they, and those they sought to represent, were under-represented on the Council. They sought declaratory and injunctive relief on the theory that the malappor-tionment violated the one-man, one-vote principle and, thus, denied them equal protection of the laws as guaranteed by the Indian Civil Rights Act, 25 U.S.C. § 1302(8).

The Tribal Council is the governing body of the Tribe. It is comprised of three members elected at-large — the tribal chairman, the secretary, and the treasurer — and fifteen councilmen elected from prescribed districts. At the time the suit was commenced, the fifteen councilmen were from thirteen districts. The Council is charged with supervision of elections, and Article III, Sec. 3 of the Tribe's Constitution provides in part;

“That the Council shall have the power to both redistrict the reservation and its precincts and to reassign the number of councilmen to be elected from each district in proportion to the number of qualified voters residing therein, or on a population basis.”

The Council had failed to reapportion itself after repeated requests by the plaintiffs; and finally after being denied relief by the tribal court, this action was brought in the District Court.

On September 1, 1972, the District Court granted a temporary restraining order enjoining the Council from conducting the Tribal Council election scheduled for September 5,1972. A hearing on the plaintiffs’ motion for a preliminary injunction was held on October 2, 1972. On October 26, 1972, the District Court: (1) preliminarily enjoined the Tribal Council from holding an election until further order of the District Court or until an acceptable apportionment plan was submitted; (2) gave the Tribal Council until December 1, 1972, to submit a plan; and (3) authorized councilmen whose terms had expired to hold office pending submission of the requested plan. No plan was submitted by the Council; and on December 13, 1972, an amendment to the October 26, 1972, order was filed by the District Court. It provided that the councilmen continued in office beyond their expired term be restrained from further action as councilmen until they were reelected under a suitable apportionment plan. A trial was held by the District Court on January 4, 1973. The District Court observed that the number of eligible voters per councilman varied by as much as eight hundred percent under the then existing apportionment plan and found that the Council was malapportioned. It ordered that three apportionment plans be submitted to the District Court by January 9, and that these plans be submitted to a general meeting of the Tribe for agreement on a single plan by January 12, 1973.

The plans were submitted and those present at the tribal meeting indicated a preference for “Plan Number 2.” The District Court found that the plan complied with the one-man, one-vote principle. In an order filed on January 15, 1973, the District Court ordered that an election under the plan be held on February 16, 1973. It declared that all seats on the Council were to be vacated on February 15, 1973. It further stated that the plan would be only in effect for the ordered election and that the new Council could develop a new plan on its own so long as it was consistent with the one-man, one-vote principle.

The approved plan is based on “eligible voters” and is derived from the Tribe’s “1972 Eligible Voter List” of 1,448 names. The plan divides the reservation into one single-member district and six multi-member districts. Fifteen councilmen are to be elected from the districts. Given the numbers of eligible voters and councilmen, ideally apportioned districts would each have ninety-seven eligible voters per councilman. Under the plan, no district deviates from this ideal by more than thirteen percent.

The appellant, a member of the Council prior to its reapportionment, filed a motion in the District Court to stay execution of its January 15 order. The District Court denied the appellant’s motion. The appellant appealed to this Court; and pending consideration of the appeal, again moved for a stay of the District Court’s order of January 15, 1973. That motion was denied; the election was held as scheduled; a new Tribal Council was installed; and the appeal is now before us.

The appellant’s primary contentions on appeal are that the District Court:

(1) was without jurisdiction in this dispute between the Tribe and its members;

(2) erred by allowing the Tribal Council to be sued despite its sovereign immunity ;

(3) erred by allowing the plaintiffs to bring this suit without first exhausting their tribal remedies; and

(4) approved an invalid apportionment plan in that it was derived by considering the number of eligible voters rather than the population of the Tribe.

The questions of jurisdiction and sovereign immunity are identical to those raised in Mary Daly et al. v. Crow Creek Sioux Tribe et al., 483 F.2d 700, at 704-705 (8th Cir. 1973). We there held that federal courts had jurisdiction of this type of action, and that the defense of sovereign immunity was not available to a Tribal Council in this type of action. The exhaustion question is also simply answered. The plaintiffs sought relief in the Tribal Court and were denied an effective timely remedy.

The question as to the validity of the plan approved by the District Court requires closer scrutiny. The Tribe’s Constitution provides that apportionment may be based on either “population” or “qualified voters.” Use of either basis is permissible under the Supreme Court’s decision in Burns v. Richardson, 384 U.S. 73, 86 S.Ct. 1286, 16 L.Ed.2d 376 (1966). The approved plan, however, does not appear from the record to have been based on either. Statements made at oral argument indicate that the basis used, the “1972 Eligible Voter List,” did not account for all those who were eligible or qualified to vote. Moreover, the record does not disclose that the use of the “1972 Eligible Voter List” would bring about an apportionment substantially approximating that which would result from the use of “population” or “qualified voters” as a basis for apportionment. See, Bums v. Richardson, supra.

Under these circumstances, we have no alternative but to remand this matter to the District Court with instructions to- it to first determine if the “1972 Eligible Voter List” substantially includes all those qualified to vote or within the “voter population.” See, n. 4, supra. If it does, the apportionment plan may continue without further interruption. If it does not, the District Court is to retain jurisdiction and to instruct the Tribal Council to adopt an apportionment plan based on either the Tribe’s “citizen population” or its “voter population.” Id In such event, the District Court should require the plan to be submitted to it in sufficient time to give it an opportunity to review and approve the plan before the September, 1974, tribal election.

Pending the District Court’s review, the presently-elected Council members shall remain in office. See, Mary Daly, et al. v. Crow Creek Sioux Tribe, et al., supra. If it is found that a new plan needs to be adopted, elections for all the Council positions are to be held in September of 1974.

Each party to this appeal is to be responsible for its own costs.

Remanded to the District Court for action consistent with this opinion.

      . The approved plan provides
      DISTRICT NUMBER NUMBER OF ELIGIBLE VOTERS NUMBER OF COUNCILMEN NUMBER OF ELIGIBLE VOTERS PER COUNCILMAN
      1 183 2 92
      2 107 1 107
      3 181 2 91
      4 173 2 87
      5 440 4 110
      6 185 2 93
      7 179 2 90

      . The appellant also contends that the District Court erred: (1) in allowing substitution of counsel for the Tribal Council midway through the proceedings, thereby depriving the appellant — an incumbent councilman — of representation at and notice of all subsequent proceedings; and (2) by holding further hearings and entering orders subsequent to the filing of a Notice of Appeal by the Tribe’s counsel from the District Court’s grant of a preliminary injunction.
      We disagree. The Tribe’s Constitution permitted the Tribal Chairman to substitute counsel. Representation of a tribe by an attorney who does not have a contract with the Tribe that had been approved by the Secretary of the Interior is not prohibited by 25 U.S.C. § 81. We read the statute as only governing the right to be compensated from tribal funds. Moreover, substituted counsel fairly represented the Council in the District Court, and made reasonable efforts to notify the appellant and others of all proceedings. Finally, the District Court was correct in proceeding despite the Notice of Appeal because the Council had requested that the appeal be withdrawn, and the appellant took no steps to protect his individual right to appeal.

      . Neither term is specifically defined by the Tribe’s Constitution, but “population” seems to refer to all those who are enrolled members of the Tribe who live on the reservation irrespective of their eligibility to vote. “Qualified voters,” on the other hand, would seem to include only those Tribe members who are twenty-one years of age or over, and have maintained legal residence on the reservation for at least one year prior to the election. See, “Cheyenne River Sioux Tribe Constitution,” Art. V, § 1.

      . In Burns v. Richardson, 384 U.S. 73, 91, 86 S.Ct. 1286, 16 L.Ed.2d 376 (1966), the Court indicated that there are at least three permissible bases for apportionment' — (1) “total population(2) “citizen population and (3) “voter population.” The Court did not define any of the three, but appropriate definitions are as follows : (1) “total population” refers to all persons living within a prescribed area; (2) “citizen population” refers to all those within the area who are citizens of the area — this is simply referred to as “population” by the Tribe’s Constitution ; (3) “voter population” refers to all those within the prescribed area who would be entitled to vote in elections and is the same as “qualified voters” in the instant case. This group would include those who have not complied with such requirements as registration, but could vote if they were to fulfill such requirements.

      . The Court, in Burns, approved a temporary reapportionment plan for the State of Hawaii which was based on “registered voters.” It approved the plan only because the record clearly showed that the use of this basis resulted in an apportionment plan which was not substantially different from that which would have resulted if a permissible basis, state citizen population, had been used. Id. at 96, 86 S.Ct. 1286.

      . This Court stated in Mary Daly et al. v. Crow Creek Sioux Tribe et al., 483 F.2d 700 at 706 (8th Cir. 1973), that “[t]he apportionment plan must be based on the population of the Tribe and not solely those eligible to vote.” See also, Melvin White Eagle, etc., et al. v. Philomene One Feather et al., 478 F.2d 1311, at 1315 (8th Cir. 1973). This case, however, differs significantly from Mary Daly in that the Constitution of the Crow Creek Sioux Tribe did not specify a basis for apportionment while bases are specified in the Cheyenne River Sioux Tribe’s Constitution. Absent such guidance, the Court in Mary Daly was bound to utilize that basis which would best achieve equal protection of the laws for the Tribe members. The Tribal Councils are responsible for governing all members of their Tribes and not just those eligible to vote. Moreover, the apportionment of an Indian Tribal Council usually involves relatively small numbers; and in order to avoid magnifying errors, it seems advisable to use the largest representative basis available. In view of these facts, we are convinced that the preferable basis for apportionment is the population of the Tribe, and it was proper for the Court in Mary Daly to require its use. However, where the Tribe’s Constitution specifies other bases which are permissible under the Burns v. Richardson, supra, decision, we are without the power to declare that the bases may not be used. However, we do have the authority to insure that the basis used does, in fact, comply with Burns v. Richardson, supra.
        Tribe will be given an opportunity to comment on the data and plans submitted by the Tribal Council, and submit data and a plan to the District Court if they desire to do so.

      . We contemplate that the Bureau of Indian Affairs will cooperate in preparing the statistical data required on remand, and that the appellant and other members of the