author: TUTTLE, Circuit Judge:

text:
    MILLER BOX, INC. and Northport Box, Inc., Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.
    No. 73-1388.
    United States Court of Appeals, Fifth Circuit.
    Jan. 23, 1974.
    Rehearing and Rehearing En Banc Denied Feb. 22, 1974.

      Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, John Murray, Lynn W. Ross, Jr., Gary R. Allen, Attys., Tax Div., U. S. Dept, of Justice, Washington, D. C., Wayman G. Sherrer, U. S. Atty., William D. Mallard, Jr., Charles D. Stewart, Asst. U. S. Attys., Birmingham, Ala., for defendant-appellant.
    Winston B. McCall, Birmingham, Ala., for plaintiffs-appellees.
    Before TUTTLE, DYER and MORGAN, Circuit Judges.
   TUTTLE, Circuit Judge:

The government appeals from a judgment based upon a jury verdict which determined that salaries totalling $1,143,041' over a two year period paid to the general manager of two box manufacturing corporations completely controlled by his brother, in addition to a salary of $24,000 paid to him as manager of a partnership box manufacturing company, were reasonable and thus deductible by the corporations as a part of their operating expenses. The government’s appeal is based solely upon its contention that the trial court erred in not ordering a directed verdict or entering a judgment n. o. v. in its favor.

The question arises because of the provisions of the Internal Revenue laws. Section 162 of the Internal Revenue Code of 1954 (26 U.S.C.A. § 162) provides :

“A. Section 162: Trade or Business Expenses.
(a) In General — There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including—
(1) a reasonable allowance for salaries or other compensation for personal services actually rendered;

Before discussing the standard to be applied by the trial court in the granting of a judgment n. o. v., as set out by this Court in Boeing Company v. Ship-man, 411 F.2d 365 (5 Cir., 1969), we think it necessary to outline a little more precisely the relationships and the history of the corporations and partnership, as well as the persons involved.

In 1948 Garden Miller, Sr., and James Hinton, organized a partnership, which was owned 50 per cent by Miller, 45 per cent by the James Hinton family and 5 per cent by George Hinton (the employee whose salary later raised the litigated issues before the court). The partnership was engaged in the manufacture of wooden boxes and boxes designed to carry ammunition. By late 1965, the war in Viet Nam was increasing, and the business of Miller Box partnership was increasing, and it was “getting more successful in securing contracts and . . . [was] getting bigger and more contracts,” and “the outlook in the industry was good.” In December 1965 James Hinton entered into a contract with his brother, George Hinton, to become the manager of a box plant that either James or a corporation organized by him would build. The contract called for George to be compensated on the basis of 20 per cent of the net earnings of the plant, before taxes, with no minimum guarantee. At that time George Hinton was the manager of the partnership’s plant, earning a salary of $7600. He also owned and operated a farm in the area.

As of March 1, 1966, James Hinton caused Miller Box, Inc. to be formed. He retained 75 shares of the stock totall-ing 100 shares. Garden Miller, Jr., the son of James’ partner, originally owned five shares, which he later disposed of to the company. Thereafter, James Hinton owned 75 shares, George Hinton 5 shares, and Paul W. Bryant, football coach of the University of Alabama, owned 20 shares. A plant had been built and equipped with the necessary machinery for about $100,000, and the' taxpayer, Miller Box, Inc., commenced its operations on March 1, 1966. When fully operative it employed about 200 people. George Hinton undertook his duties as general manager of the new corporation, continuing to be general manager of the partnership’s plant. In the taxpayer’s complaint, in its suit for refund, which is the suit that is now before the court, the taxpayer, Miller Box, Inc., alleged that the salary paid George L. Hinton, Jr. “was paid pursuant to a bona fide contract entered into in December, 1965, whereby 20 per cent of net earnings before taxes was to be paid as his compensation.” (Emphasis added.) The only contract entered into in December 1965 is Exhibit No. 1, tendered in evidence on behalf of taxpayer. This is the contract mentioned above, which is made not between the taxpayer and George Hinton, but between James Hinton, an individual, and his brother, George, before taxpayer was incorporated.

At the time George Hinton undertook the management of the taxpayer’s new plant, Mary Jean Hinton, a sister of James and George, was named “plant manager” (for which she received a salary in fiscal 1967 of $14,200, and in 1968 a salary of $30,000), and Garden Miller, Jr., the son of Miller of the Miller Box Company partnership, was named assistant plant manager under a contract which provided him with a salary that equalled 5 per cent of net profits before taxes and before deduction of George Hinton’s salary (Miller’s salary under this formula amounted to $49,343 for fiscal 1967).

The new corporation prospered, largely undoubtedly through the efforts of George Hinton and Garden Miller, Jr., and the success of the partnership in obtaining profitable contracts, but the partnership, Miller Box, was obtaining government contracts for the manufacture of ammunition boxes faster than they could be produced by the partnership’s plant and Miller Box, Inc.’s new plant. Thereupon James Hinton decided that he would organize an additional corporation to be known as Northport Box, Inc. This corporation was organized to begin business on December 1, 1966, whereupon George Hinton became general manager of that corporation as well. Northport was a smaller plant employing “about 130” employees. Again, it is alleged in the claim for refund that he acquired this position with Northport Box, Inc. “pursuant to a bona fide contract entered into in December 1965, whereby 20 per cent of net earnings be-, fore taxes was to be paid as his compensation.”

Garden Miller, Jr. also assumed a dual role, this time by becoming “plant manager” of Northport Box, Inc. His 5 per cent contract with Northport produced a salary for fiscal 1967 of $71,951, which, when added to the salary that he received while working simultaneously for Miller Box, Inc., equals $121,294.

George Hinton’s salary from Miller Box, Inc., the larger plant, for the year ending February 28, 1967, amounted to $197,372. His salary from Northport Box, Inc., the smaller plant, for the year ending November 30, 1967 amounted to $287,805. His salary from Miller Box, Inc. for the fiscal year ending February 29, 1968 amounted to $657,845. When there is added to this the sum of $24,000, Mr. Hinton’s minimum estimates as to the salary he received from the partnership for managing its plant as general manager as well, we find that his services were compensated during the two fiscal years involved by payments to him of $1,167,022.

Under his 5 per cent contract, Garden Miller, Jr. received $49,343 from Miller Box, Inc. for fiscal 1967, $71,951 from Northport Box, Inc. for fiscal 1967, and $164,461 from Miller Box, Inc. for fiscal 1968. (This amount was disallowed by the trial court on motion j. n. o. v. apparently because there was no proof that Miller performed any specific services for this corporation in 1968).

One essential fact to be constantly borne in mind is that Miller Box Company, the partnership consisting of Garden Miller, Sr. and James Hinton, obtained all of the government contracts for the making of the boxes by the several plants. The partnership ran at full capacity at its own plant; it then allocated to Miller Box, Inc. contracts which enabled it to operate on a two-shift schedule until need for further capacity caused Mr. Hinton to incorporate North-port Box, Inc. Thus, we have the interrelationship of James Hinton and Garden Miller, Sr. obtaining and allocating business to two corporations, which, in turn, paid the compensation here under attack to the brother of one partner and the son of the other.

The only documentary evidence relating to the several contracts consisted of (1) contract executed in December, 1965 between James Hinton and his brother, George, under the terms of which it was mutually agreed that George would devote his time and energies to the operation of box manufacturing plants to be provided by James either directly or by the organization of a corporation, and that the compensation to be paid to George would amount to 20 per cent of the net profits before taxes; (2) a contract executed on March 28, 1966, between Miller Box, Inc. and Garden Miller, Jr. to run for an indefinite period of time commencing on the date of his contract and continuing thereafter on a month to month basis with no action of either party necessary to the continuation of this employment agreement, the compensation for such services to be 5 per cent of the net profits prior to taxes and prior to the consideration of compensation to be paid to George Hinton, Jr.; (3) minutes of a special meeting of stockholders and directors of Miller Box Company, dated November 18, 1966, authorizing the employment of Paul W. Bryant by Miller Box, Inc. at a salary of $60,000 a year, and electing the said Bryant to the Board of Directors of the corporation; (4) contract dated November 23, 1966, between Miller Box, Inc. and Paul W. Bryant, engaging his services to fun until terminated by thirty days notice by either party at $60,000 per year; (5) contract dated December 17, 1966 between Northport Box, Inc. and Garden Miller, Jr. for compensation to be computed at 5 per cent of the net profits before taxes and before compensation paid to George Hinton (it was under this contract of employment that Miller became plant manager of North-port Box, Inc.).

No written contract was introduced showing the employment by either of the two corporations of George Hinton. Neither is there in evidence any assignment of Hinton’s contract with his brother, James, entered into on December 15, 1966. There is no evidence in the record as to when the corporations actually made a contractual relationship with George Hinton, other than the fact that he undertook the duties of general manager and was paid a salary based upon the agreed percentage formula. In response to questions by counsel at the trial, Mr. James Hinton testified as follows:

Q. Now, Mr. Hinton, with respect to the contract with Garden Miller and George Hinton, those contracts were taken off by both Northport Box and Miller Box and ratified and transferred— transfer was ratified by the Board of Directors of each corporation ?

A. That is correct.

Q. And the corporations assumed the obligations of these parties, and did they assume the obligations to perform for both corporations under those contracts ?

A. That is correct.

Taxpayers did introduce minutes of a directors meeting authorizing the employment of Mr. Bryant at $60,000 per year. In the absence of any similar proof of Board action with respect to George Hinton, presumably, the witness meant that the corporations simply acted with respect to George Hinton as if the original contract between the Hinton brothers had been their own obligation, which, of course, it was not.

No dividends were either considered or declared by either corporation for the fiscal years 1967 or 1968.

While the case originated with a suit for refund for an alleged overpayment of taxes by the two corporations for the two fiscal years 1967 and 1968, the trial court separated the year 1968 for the purpose of making a final judgment in favor of the taxpayers, and we have here for consideration only an appeal from the judgment affirming the jury’s verdict with respect to the reasonableness of the 1967 salaries for George Hinton and Garden Miller. The Internal Revenue Service contended that Miller Box, Inc. unreasonably accumulated surplus in the year 1968 within the concept of Section 531 of the Internal Revenue Code, and, since that issue was delayed by virtue of renegotiation proceedings pending against the company, the trial court did not enter a final judgment on the jury’s verdict that George Hinton’s salary of $657,845 for fiscal 1968 was deductible. However, since the two years were tried together, and since the trial court has already by order, though not in final form, approved the jury’s finding as to the 1968 salary paid to George Hinton, we have included statements concerning this item because we consider it relevant to the whole question of reasonableness of the 20 per cent contingent salary which Miller Box, Inc. was paying to George Hinton.

We deal here with a jury verdict approved by the trial court, and adhered to by the trial court upon the denial of a petition for judgment as to the 1968 amount n. o. v., but which the trial court has not made the basis of a final judgment allowing recovery by the corporate plaintiff for 1968 in the refund suit, pending further proceedings not related to the salary question dealing with the 1968 fiscal year.

The issues were drawn in this case by the disallowance by the Internal Revenue Service of the amounts of compensation shown. The Director determined that reasonable compensation for the services of George Hinton for fiscal 1967 was $60,000, to be paid by Miller Box, Inc., and $30,000 to be paid by Northport Box, Inc. The Director found that reasonable compensation for Garden Miller, Jr., for the year 1967, would be $41,000 by Miller Box, Inc., and $41,000 by Northport Box, Inc. The Director also found that reasonable compensation for fiscal 1968 for George Hinton would bé $60,000.

The burden is on the taxpayer to prove the correctness of claimed deductions.

This may also be expressed by saying that a determination by the Commissioner on the reasonableness of compensation is deemed to be correct and the taxpayer has the burden of overcoming that determination as to what is a reasonable amount. See Botany Mills v. United States, 278 U.S. 282, 49 S.Ct. 129, 73 L.Ed. 379 (1928); Miles-Conley Co. v. C. I. R., 173 F.2d 958, 960 (4th Cir. 1949).

The standard by which a trial court determines whether a motion for directed verdict or for judgment notwithstanding the verdict should be entered has been stated by this court in Boeing Company v. Shipman, supra, 411 F.2d at 374, where this court said:

On motions for directed verdict and for judgment notwithstanding the verdict the Court should consider all of the evidence — -not just that evidence which supports the non-mover’s case —but in the light and with all reasonable inferences most favorable to the part opposed to the motion. If the facts and inferences point so strongly and overwhelmingly in favor of one party that the Court believes that reasonable men could not arrive at a contrary verdict, granting of the motions is proper. On the other hand, if there is substantial evidence opposed to the motions, that is, evidence of such quality and weight that reasonable and fair-minded men in the exercise of impartial judgment might reach different conclusions, the motions should be denied, and the case submitted to the jury. A mere scintilla of evidence is insufficient to present a question for the jury. The motions for directed verdict and judgment n. o. v. should not be decided by which side has the better of the case, nor should they be granted only when there is a complete absence of probative facts to support a jury verdict. There must be a conflict in substantial evidence to create a jury question.

The nature of the proof in such a case as this must be viewed in light of Treasury Regulations dealing with Section 162, quoted above. Because of the significance of these Regulations to the determination of the' ease we quote them here in full:

B. Treasury Regulations on Income Tax, 1954 Code (26 C.P.R.): Section 1.162 — 7: Compensation for Personal Services.
(a) There may be included among the ordinary and necessary expenses paid or incurred in carrying on any trade or business a reasonable allowance for salaries or other compensation for personal services actually rendered. The test of deductibility in the ease of compensation payments is whether they are reasonable and are in fact payments purely for services.
(b) The test set forth in paragraph (a) of this section and its practical application may be further stated and illustrated as follows:
(1) Any amount paid in the form of compensation, but not in fact as the purchase price of services, is not deductible. An ostensible salary paid by a corporation may be a distribution of a dividend on stock. This is likely to occur in the case of a corporation having few shareholders, practically all of whom draw salaries. If in such a ease the salaries are in excess of those ordinarily paid for similar services and the excessive payments correspond or bear a close relationship to the stock-holdings of the officer of employees, it would seem likely that the salaries are not paid wholly for services rendered, but that the excessive payments are a distribution of earnings upon the stock. .
(2) The form or method of fixing compensation is not decisive as to deductibility. While any form of contingent compensation invites scrutiny as a possible distribution of earnings of the enterprise, it does not follow that payments on a contingent basis are to be treated fundamentally on any basis different from that applying to compensation at a flat rate. Generally a free bargain between the employer and the individual made before the services are rendered, not influenced by any consideration on the part of the employer other than that of securing on fair and advantageous terms the services of the individual, it should be allowed as a deduction even though in the actual working out of the contract it may prove to be greater than the amount which would ordinarily be paid.
(3) In any event the allowance for the compensation paid may not exceed what is reasonable under all the circumstances. It is, in general, just to assume that reasonable and true compensation is only such amount as would ordinarily be paid for like services by like enterprises under like circumstances. The circumstances to be taken into consideration are those existing at the date when the contract for services was made, not those existing at the date when the contrace is questioned.

A careful reading of the record in this case convinces us that all of the evidence with all reasonable inferences most favorable to the taxpayers that can be drawn therefrom does not rise to that modicum of evidence described as “substantial” so as to require submission of the issue to a jury. We conclude, therefore, that the trial court erred in denying the motion for directed verdict and, thereafter, for denying the motion for judgment n. o. v. filed by the government.

It is apparent that the affairs of James Hinton, Garden Miller, Sr., and George Hinton, who operated the partnership Miller Box, the corporation Miller Box, Inc. and the corporation North-port Box, Inc., (both of which were completely dominated by James Hinton) were treated casually and informally. All parties seem to have overlooked the fact that once Miller Box, Inc. and Northport Box, Inc. were incorporated each of them became completely separate entities subject to the requirement that they operate within the requirements of the provisions of the Internal Revenue laws respecting the limitations placed on them as to amounts that could be deducted for services of officers and employees as a part of the expense of operation. It would be impossible for the jury to make a finding that compensation paid by Miller Box, Inc. was reasonable merely by proof that George Hinton worked very long hours six or seven days a week for Miller Box, Inc. and Northport Box, Inc. and Miller Box, the partnership, without differentiating between the services performed for each. The same, of course, is true as to North-port Box, Inc. It had its own obligation to establish the fact that the salary paid to George Hinton was both reasonable and for services actually rendered to it. This could not be done by showing the tremendous activity testified to by James Hinton and George Hinton as to the latter’s work habits dealing with the problems of the partnership, Miller Box, Inc., Northport Box, Inc. and his 400 acre farm which according to his testimony he visited once or twice a month.

The significance of the need to present evidence to the fact finder to support a claimed deduction for compensation by each of George Hinton’s employers separately is made plain from the fact that he was paid $197,372 as general manager of Miller Box, Inc., a corporation employing 200 employees and he was paid as general manager of Northport Box, Inc. a salary of $287,805 although this was a plant with 130 employees and was not incorporated until nine months after Miller Box, Inc. had been operating on a rising demand for ammunition boxes because of the escalation of the Viet Nam War.

The need for differentiating the obligations of the separate corporations to justify their deductions for salaries is further glaringly illustrated by the fact that the jury was permitted to consider the issue of reasonableness of Garden Miller, Jr.’s salary of $164,461 paid to him for the fiscal year 1968 by Miller Box, Inc. at a time when he was no longer assistant plant manager of that corporation but was plant manager of Northport Box, Inc. and there was an utter lack of evidence as to services performed by him for Miller Box, Inc. This amount was set aside by the trial court on .a motion for judgment n. o. v.

We consider it putting the matter mildly to state that the court’s credulity would be gravely taxed if it were argued seriously that any person, no matter how qualified and no matter how hard working, who was not in a position of close family relationship to the owners of a business would have been able to benefit from a contract, terminable at will, which earned him such astounding sums as were paid to George Hinton and Garden Miller, Jr. for their services in managerial capacities of these two box manufacturing companies. It must be remembered that in addition to these two persons both corporations had a full panoply of plant managers,' superintendents, foremen and the like as readily testified to be George Hinton. It must also be borne in mind that neither of these officials had the responsibility of obtaining the contracts from the government, although they testified that they helped prepare the figures to enable the partnership to bid on the contracts. The business was obtained solely by the partnership consisting of the brother of George Hinton and the father of Garden Miller, Jr. and parcelled out by it to the two corporations which then paid out these tremendous salaries to the two employees.

The taxpayers’ principal contention to support these large deductions is that the contract entered into in December, 1965, was a contingent percentage contract, and that the fact that the percentage- of profit proved out to be so enormous was purely fortuitous and was not to have been anticipated because no one knew how profitable the business was going to be. While we do not intend to invade the province of the fact finder, and although it is not necessary to our conclusion in this case, because of the lack of evidence to support the reasonableness of the compensation, we think it is important to point out the following facts: The contracts are to be viewed not as of December, 1965, but, as it relates to the Miller Box, Inc. salary agreement with George Hinton, as of a date no earlier than March 1, 1966, and possibly later, and no earlier than December 1, 1966, as to the employment “contract” with Northport Box, Inc. because that is the date on which the latter taxpayer started business. The same is substantially true with respect to the employment of Miller. The employment contract between him and Miller Box was not signed until March 28, 1966, and that with Northport was executed on December 17, 1966. Before obligating themselves to pay salaries that were as open ended as these were, if they intended to deduct the amounts paid for corporate income tax purposes, they were required to determine what was reasonable compensation, “fair and advantageous” to them as corporations (Regs. 1.162-7(b)(2) supra).

The absence of recorded formal action with respect to the authorization of the contract for compensation paid to George Hinton and the absence of any showing as to when the stockholders or directors gave the appropriate consideration to a determination of what would be reasonable makes it impossible to know exactly when George Hinton’s contract of employment at 20 per cent of profits before taxes was actually made a legally binding determination by the taxpayer. It is clear that at the time Miller Box, Inc. started its operation, it did so because of the fact that the partnership had more business from the United States Government than it was able to handle in its then existing plant. It is clear from the evidence that Garden Miller, Jr.’s contract was formally executed by Miller Box, Inc. on March 28, 1966, which, although during the first month of operation, was also at a time when the corporation which employed him had been brought into existence by persons holding contracts whose value had already been demonstrated. Even more, so far as employment by Northport Box, Inc. is concerned, both George Hinton and Garden Miller, Jr. were employed at least nine months after Miller Box, Inc. had been operating and after the partnership owners concluded that they had more business than could be handled both in the partnership plant and in the Miller Box, Inc. plant.

These comments are made to indicate that it is clear that the time for evaluating the employment contracts by these two corporations was not December, 1965.

In order that it may be clear that we have not failed to comprehend fully whatever strength may be said to lie in evidence on behalf of the taxpayer, we quote from the taxpayer’s brief as to the performance of these two employees: First, as to George Hinton:

George Hinton went to work at six every morning and he was there at midnight to one o’clock getting home. He was available for phone calls from truck drivers all during the night. On Saturdays and Sundays he generally worked shorter hours, 12 to 14 hours, which included working at Northport as well as Miller Box. He had to be at the plant around six in the morning to start one plant, and would get it started at seven and would then make his rounds to the other plant, running two shifts through 12:15. He was there practically every night until closing.
During the day he bought lumber, made new designs on machinery, new layouts to put the machinery and set up different lines. He also attended to his trucks which were running approximately 27 trucks and 35 to 40'' trailers. He did his own hiring on truck drivers, made truck reports to the various states which they ran from Tuscaloosa to Illinois and from Alabama to Canada. He had authority to veto any hiring or firing of employees. He had to go to the arsenal quite often on reject boxes and on occasion drive the trucks for a rush load when the driver was out. He helped figure bids for government contracts. He scheduled production based on orders received and was in charge of packaging, dispatching and routing shipments to consignees. He ran the two plant sites and was on the management team for both plants. There were weekly, almost daily, conferences as to what was to be done at which plant.

Second, as to the services of Garden Miller, Jr. as assistant plant manager of Miller Box, Inc., and later in the year as plant manager of Northport Box, Inc.:

Garden Miller, Jr. performed services for Miller Box, Inc. primarily in connection with quality control, production control, and inventory control, helping and maintaining production. His work covered the inspection of boxes, maintenance of machines, development of new machines. He made suggestions as to the firing and hiring of certain employee personnel and made reports on difficulties with labor and their performance, trying to keep the labor costs down as much as possible. After he took over the additional duties as plant manager of the Northport Box plant, he hired and trained personnel, supervised production, and worked closely with George Hinton, carrying out orders for George Hinton. He became an expert with inspection, which is always a problem with any manufacturing production, and he would go to the arsenal and get matters corrected. It was also his responsibility when machines were transferred from one place to another to see that the machinery was running correctly at both plants.
While he spent most of his time at Northport Box after becoming plant manager, he continued to spend a large amount of time at Miller Box, Inc. with problems regarding rejected boxes, new machines, helping to work new machines in the production line where they would be placed, and working out how much labor it would take to use them. He would also meet together there as a member of the management team for both plants and discuss the common problems that the two plants had. He held a B.3. degree from the University of Alabama with two majors — one in Industrial Management and one in General Business —and had worked in the box business for the partnership, Miller Box Company, during the prior approximately ten years, starting with summertime work and going to work on a full time basis in the summer of 1964.

While these excerpts from the appel-lees’ briefs do not, of course, include every bit of evidence adduced on behalf of the taxpayers, it may properly be assumed that they do present the best case possible in support of their position. There should be added, however, with respect to the taxpayers’ claim as to the reasonableness of George Hinton’s salary the fact which was testified to on trial about the possibility of his having accepted an offer of a friend to go into a fifty-fifty partnership with him for the manufacture of boxes. The testimony further indicates that the December, 1965 contract between James Hinton and George Hinton was entered into as a means of persuading the latter not to consider seriously the proposition of his friend. There was no evidence as to the likelihood that if such a new organization had been created it would have had any real success or opportunity in obtaining contracts for the box manufacturing as to which the partnership Miller Box had been so successful. It, therefore, is no evidence as to the value of George Hinton’s services to the two corporations which were later organized.

Two additional facts should be noted with respect to Garden Miller, Jr. The first is that he was 23 or 24 years old, according to the year here dealt with at the time of his employment by these two corporations. At the time of the employment contract by Miller Box, Inc. with him he had been working for Miller Box, the partnership consisting of his father and James Hinton in their plant at wages of approximately $200 a week. Moreover, while counsel was justified in the quoted portion of the statement relating to Garden Miller’s activities to say “he continued to spend a large amount of time at Miller Box, Inc.,” this statement must be held to have been severely modified by Miller’s own testimony on cross-examination during which the following occurred.

Q. Now your office after you became manager at Northport’s plant, manager at Northport Box, Inc., your office was physically located at Northport, Inc., right?

A. Correct.

Q. But you would make maybe on the average one trip a week over to Miller Box, Inc., to coordinate-liaison, correct?

A. One trip a week would be hard to say. On an average I believe it would be more than that.

Q. Would it not be a true statement to say as follows, on the average you went to Miller Box, Inc. once a week, and you may stay a full morning or sometimes a longer or shorter period of time, would that be a fair statement, referring specifically to your time from Northport Box, Inc. when you were plant manager, how much' time you would spend over here, would that not be a fair and truthful and accurate statement sir?

A. It would certainly be approximation.

Q. Would it be an approximation that you would give the jury? A. Yes.

There are two other matters as to which there can be no dispute, which we are satisfied must put a gloss on the generalized statements dealing with the duties of George Hinton and Garden Miller, Jr. These two corporations were not engaged in highly technical or complex operations of the kind sometimes dealt with by the tax court or the appellate courts in an effort to determine what might be reasonable compensation for management. Cf. Mayson Manufacturing Co. v. Commissioner of Internal Revenue, 178 F.2d 115 (6th Cir. 1949). The testimony of the principal entrepe-neur of these three businesses, James Hinton showed very clearly that in the realm of the manufacturing industry the operation must be deemed a simple one. Mr. Hinton testified

Well an ammunition box is a wooden box consists primarily wood, (sic) But it is assembled with nails, hardware used for — to put the top on to secure the top, rope handles to pick the box up, and primarily those are the ingredients making ammunition boxes .

Again, the evidence touching on the activities of George Hinton with respect to the purchasing of lumber must be viewed in light of the other fact that Miller Box, Inc. engaged Coach Bryant at a salary of $60,000 per year. In support of the taxpayer Miller Box, Inc.’s contention that this was a reasonable salary to be paid to him it adduced testimony that was undisputed to the effect that he was personally responsible for the obtaining of some million board feet of lumber and that but for his efforts the plant might have been shut down as much as 15% of the time.

Primarily, the difficulty with the taxpayers’ case is that there is a recitation of undifferentiated activities for, and on behalf of, two entirely separate corporations each of which paid salaries in excess of those which the Commissioner determined to be reasonable under the circumstances. The evidence shows intense activity by George Hinton in the realm of long hours, which would normally be required if he held down two full time jobs. The evidence did not indicate to what extent the activities described in the foregoing statement exercised by George Hinton were performed for the partnership in return for his $12,000 to $15,000 salary received from it. It must be borne in mind that the partnership itself was the obligated person under the contract with the government. There is no evidence that George Hinton’s and Garden Miller’s having to “go to the arsenal quite often on reject boxes” was to discharge an obligation of the partnership or for one taxpayer or the other.

In brief, there is nothing stated as to the activities of either of these employees that they did anything other than work full time in the day to day operations of any manufacturing plant, unless we consider the statement that “on occasion [George Hinton had to] drive the trucks for a rush load when the driver was out.”

There is not a line of evidence in this record that seeks to put a money value either by estimate, opinion or demonstrated fact of any of the activities performed by these two employees. Not even the employees themselves undertook to testify that in their opinion the compensation paid them, even under the contingency formula, was reasonable. There was, of course, no proof offered by the taxpayers of comparable compensation arrangements by competitors or others in the same business. The only such proof adduced by witnesses for the taxpayers came in cross-examination of Mr. James Hinton. In the course of this cross-examination he conceded that Northport Box, Inc. could have hired a plant manager at the time it engaged Garden Miller, Jr. (whose compensation for fiscal 1967 equalled $71,000) for $25,000 to $35,000 per year.

The significance of this is pointed up by language of the Board of Tax Appeals, the antecedent of the tax court, quoted with approval in Crescent Bed Co. v. Commissioner of Internal Revenue, 133 F.2d 424 (5th Cir. 1943) in an opinion written by Judge Sibley:

The respondent [Director] has allowed salaries of $25,000 each to the two officers as a reasonable compensation for services rendered. It was petitioner’s burden to demonstrate that such salaries were unreasonably small. This the record made at the hearing does not do. We have no evidence of salaries paid by comparable firms, nor any suggestion of proof that it would have cost more than $25,000 per year to replace either of the two officers. On the facts before us we hold that petitioner has not proven respondent’s determination to be error. 133 F.2d 424, 425.

The government, in this case, saw fit to introduce into evidence executive salaries from comparable firms engaged in the box manufacturing business, firms which were conceded to be major competitors of the taxpayers here. The following tables summarize these payments.

Competitor Chief Executive Officer Plant Manager

Marvel Box Co. $10,250 — $13,500 $10,250 — $12,000

Milan Box Co. $37,750 — $39,700 $37,750-$39,700

Ozark Box Co. $54,298 — $65,246

Bennett Box Co. $100,000 $13,000 — $32,500

We think a further comment is in order, because of the stress placed by the taxpayers on the contingency feature of these employment contracts. It must be borne in mind that it is the duty of the Directors of the corporation, ordinarily placed on them by their obligation to the stockholders, but in any event placed on them so far as deductibility for tax purpose is concerned, by the Internal Revenue laws, to bargain with an employee for “fair and advantageous terms” to obtain the services of such individuals. Thus, Miller Box, Inc. had the obligation to make a fair and advantageous contract for the employment of George Hinton at whatever time (which is not disclosed in the record before us) it actually undertook to carry out the terms of the agreement made between James Hinton and George Hinton in December, 1965. It was under no obligation to hire George Hinton at all by reason of the personal agreement, because it was an entirely separate legal entity. Of course, the same is true of North-port. Moreover, the personal contract on its face does not appear to be for any certain term and, so far as appears, could be terminated at will.

In sum, therefore, we are without doubt that there is a complete absence of probative facts to support the jury verdict as to the reasonableness of the amounts paid to George Hinton and Garden Miller, Jr. for either or both of the corporations for which they worked. This leaves no alternative to this Court but to conclude that the Director’s determination as to reasonable salaries for the persons and taxpayers concerned must stand.

The judgment of the trial court is reversed and the case is remanded for further proceedings not inconsistent with this opinion.

      . A copy of the minutes of a stockholders’ meeting in November 1966 certified that the only stockholders were James Hinton and George Hinton. It is not clear when or how Mr. Bryant became a stockholder. At the November meeting he was given a contract of employment by the corporation at $60,000 per year, primarily to assist in procuring lumber. He was then elected a director.

      . Following the jury’s answers to special interrogatories that George Hinton’s salary payments by Miller Box, Inc., of $197,372 for the fiscal year ending February 28, 1967, and by Northport Box, Inc. of $287,805 for the fiscal year ending November 30, 1967, and by Miller Box, Inc. of $657,845 for the fiscal year ending February 29, 1968 were “reasonable compensation” the government filed its motion for judgment n. o. v. as to each amount to the extent that it exceeded the salaries determined by the Commissioner to be reasonable; these amounts are discussed later. The trial court entered an order denying this motion' and made an adjudication in favor of the respective taxpayer corporations for tax refunds for both 1967 and 1968, but withheld entering a final judgment for 1968 pending resolution of the section 531 claim of the government.

      . It is to be noted that the director does not undertake to say that the $60,000 salary determined by him to be reasonable compensation to be paid by Miller Box, Inc. is to be compensation for the full time devoted by George Hinton, for the Commissioner also found that the payment by Northport Box, Inc. of $30,-000 for the same year would be reasonable and it is to be remembered that in addition he received a salary of between $12,000 and $15,000 from the partnership Miller Box.

      . As will be pointed out later, the government did offer such evidence, but at this point we are dealing only with the absence of adequate proof by petitioners to overcome the presumption in favor of the Director’s determination as to reasonable compensation.

      . If Miller Box, Inc., acting through an independent Board of Directors, which of course it did not have, had determined to make an employment contract with George Hinton only at a flat salary of $60,000 a year and he had been willing to accept it- he might well have had a suit against his brother James for not having carried out the obligations which James assumed in the 1965 contract, but this is a matter with which Miller Box, Inc., the taxpayer, is not concerned. The same, of course, is true, but to a much more significant extent, with respect to Northport Box, Inc. This corporation was organized after nine months of successful operation of Miller Box, Inc. Its success was assured at least to the extent that its incorporation represented the unqualified best judgment of all of the persons who had been engaged in this lucrative business for several years. The reasonableness of the contract made must be viewed as of that time, and entirely unrelated to whatever obligations James I-Iinton as an individual and George Hinton, his brother had undertaken towards each other a year previously.


source: Caselaw Access Project

author: SIMPSON, Circuit Judge:

license: Public Domain

text:
    Mrs. Thomas J. BALLENGER et al., Plaintiffs-Appellees, v. MOBIL OIL CORPORATION, Defendant-Appellant.
    No. 72-2715.
    United States Court of Appeals, Fifth Circuit.
    Jan. 23, 1974.
    Rehearing Denied Feb. 22, 1974.

      John G. Tucker, Beaumont, Tex., Maurice E. Amidei, Dallas, Tex., for defendant-appellant.
    Gilbert T. Adams, Ernest J. Browne, Jr., Beaumont, Tex., for plaintiffs-appel-lees.
    Before COLEMAN and SIMPSON, Circuit Judges, and ESTES, District Judge.
   SIMPSON, Circuit Judge:

Mobil Oil Corporation appeals from an adverse jury verdict in a diversity suit brought against it by the survivors of Thomas J. Ballenger. The deceased was at’ all relevant times an employee of Mobil and died from burns sustained after an explosion and fire in Mobil facilities located in Beaumont, Texas, on April 23, 1970. Mrs. Ballenger and the two surviving minor children brought suit under Art. 8306, Sec. 5, Vernon’s Ann.Civ. St., alleging gross negligence on the part of Mobil. The Texas statute permits recovery of punitive damages from an employer for work related injuries despite compensation under the applicable Workman’s Compensation law; but only if the plaintiff can prove gross negligence as defined by the statute and, further, that some actual damages were sustained (although the actual damages so proved can not be recovered if a Workman’s Compensation award has been made).

The trial court denied Mobil’s motion for directed verdict at the close of all the evidence and submitted the case to the jury upon special interrogatories. The jury found that Mrs. Ballenger sustained $125,000.00 and each child $75,000.00 in actual damages. The jury also found Mobil to have been grossly negligent and determined punitive damages in the amount of $100,000.00 for each plaintiff. The jury found that Mobil was grossly negligent in furnishing defective machinery, instruments and an unsafe place to work, and an inadequate inspection of the same, each of which acts of gross negligence was found to be a proximate cause of Ballenger’s injuries and death. Judgment was entered below for the punitive damages awarded after denial of Mobil’s motion for Judgment n. o. v. This appeal timely followed. We hold that the trial court erroneously submitted the ease to the jury and reverse and render.

FACTS

The decedent worked in the “Alkalation Two Unit”, which is owned and operated by Mobil, and adjoins 'the “Five Gas Plant East Unit”, another Mobil installation. Five Gas Plant East is approximately one half block square in area and shares a common control room with the Alkalation Two Unit where Ballenger worked. Customary procedure at the time of his death was for one man to remain in the control room at all times and another to be on the grounds of the Gas Plant. The explosion and fire occurred in furnaces located in the Alkalation Two Unit caused by equipment problems in the adjoining gas plant.

On the day in question a Mobil employee, Carl Reese, was engaged in routine work at the gas plant involving a “water wash drum”. This is a cylindrical drum about 10 feet high and 30 feet long. Its function is essentially to cleanse the butane Mobil produces to render it sufficiently pure to be sold for commercial use. The process employed is one of pumping both butane and water into the drum under pressure. The water separates from the butane inside the drum and drops to the bottom. From there the water is fed into a sewer and removed from the grounds. The butane occupies the space above the water and is pumped out of the drum for storage elsewhere. In order to keep roughly the proper 50-50 mix of butane and water, a regulator valve automatically opens and closes the opening through which the water passes into the sewer. When the water level rises too high, the regulator opens to permit more water to flow into the sewer. Too low a water level automatically activates an opposite result.

Between the water and butane in the wash drum a layer periodically developed consisting of impurities left over from the cleansing process. This waste residue drained into the sewer beneath the drum but only after the water had been entirely removed. Because the automatic action of the regulator valve kept the drum half filled with water, it was necessary to perform a manual operation to remove the residue above the water level. Two methods were available to workmen responsible for this task. Some chose to manipulate the “controller,” an external float device which caused the regulator valve to open or close according to its measurement of the water level in the drum. By manually pushing the controller to a point indicating excessive water, one could cause the valve to open and thereby drain the water, and then the residue, into the sewer. The alternate method was to use a hand valve located underneath the vessel to draw off the water and residue through a bypass line. On April 23, 1970, Carl Reese was performing the above described task, using the hand valve to bypass the normal- route and drain off water and residue. After completing the job leaving only butane in the drum, Reese manually closed this valve by turning it as far as he could to the closed position. Butane nevertheless began escaping from the drainage pipe and running into the sewer. The evidence indicated but did not establish conclusively that the automatic regulator control valve had stuck in a wide open position after Reese closed the manual bypass. Reese thereupon called out to the employee in the control room and to Ballenger in the adjacent alkalation unit for help in stopping the flow from butane. Ballenger’s death was directly caused by an explosion and fire in the escaping butane gas in the sewers near the alkalation unit furnaces. Ballenger was burned over 87 percent of his body and died eight days later.

Mobil presents nine assignments of error on appeal. We summarize the issues raised: (1) was the finding of gross negligence, requisite to establishment of Mobil’s liability, error as a matter of law? (2) was there proof of gross negligence by a vice principal, officer or supervisory employee of Mobil for whose acts Mobil could be held responsible? (3) was it error for the trial court to allow plaintiff’s counsel to inform the jury that the actual damages it might determine could not be awarded because plaintiffs had already received benefits under the state Workman’s Compensation law? (4) was it error to allow plaintiffs’ counsel to argue to the jury with .respect to the deceased’s actual pain and suffering? (5) did the trial court erroneously overrule Mobil's objection to hearsay evidence regarding rumors of employee dissatisfaction with-the past performance of the regulator valve on the water wash drum in question? Our view of the first question raised, the failure of the evidence to establish gross negligence as a matter of law is dispositive of this appeal. We therefore pretermit discussion of the other points raised.

GROSS NEGLIGENCE AND PUNITIVE DAMAGES

Extensive testimony and argument at trial were devoted to the question of whether Mobil was grossly negligent in its use and inspection of the water wash drum and, more specifically, the regulator valve thought to be the cause of the accident. There was, of course, no dispute as to the degree of negligence required to be proved in order for plaintiffs to prevail. That formula has been enunciated in a long line of Texas eases construing the applicable Texas Statute, Art. 8306, Sec. 5, V.A.C.S. It is as follows :

“Gross negligence, to be the ground for exemplary damages, should be that entire want of care which would raise a presumption of a conscious indifference to consequences. Such indifference is morally criminal and if it leads to actual injury may well be regarded as criminal in law.”

Sheffield Division, Armco Steel Corp. v. Jones, Tex.1964, 376 S.W.2d 825, 828, quoting Southern Cotton Press & Mfr. Co. v. Bradley, 1880, 52 Tex. 587. (emphasis supplied)

Decisions with respect to gross negligence have focused largely on two aspects of this standard. The first is whether the plaintiff has demonstrated the requisite state of mind on the part of the defendant, a “conscious indifference” to the rights and safety of others. See, e. g., Helms v. Universal Atlas Cement Co., 5 Cir. 1953, 202 F.2d 421; Missouri Pacific Ry. Co. v. Shuford, 1888, 72 Tex. 165, 10 S.W. 408; Texas Pacific Coal and Oil Co. v. Robertson, 1935, 125 Tex. 4, 79 S.W.2d 830. The other line of inquiry deals with whether the plaintiff can show a complete lack of any care by the defendant, which if shown raises a presumption of conscious indifference even without evidence as to mental state. A distinction between ordinary care on the one hand and slight care on the other has long been recognized by the Texas courts. The exercise of even slight care defeats the presumption.

“ * * There can be no partial exercise of ‘ordinary care.’ It exists, as a decree, in completeness, or it is totally wanting in any given case. While in a given case, ‘ordinary care’ may not exist,.yet there may exist at least slight care.”

Sheffield Division, Armco Steel Corp., supra, 376 S.W.2d at 829, quoting Missouri Pacific Ry. Co. v. Shuford, supra, 10 S.W. at 410-411.

The two concepts are mutually exclusive, however, and this is crucial to the outcome of this case. While a complete lack of care raises a presumption of conscious indifference, a showing of any care whatever conclusively establishes the contrary — that there could not have been a conscious indifference to the rights and welfare of others as required under the statute. Bennett v. Howard, 1943, 141 Tex. 101, 170 S.W.2d 709. The appellees’ evidence at trial dealt extensively with the issue of negligence. Their counsel argues strenuously on brief and in oral argument that Mobil’s claim of at least some care in the maintenance and inspection of its regulator valves is illusory. Our review of the evidence in the light of the relevant authorities leads us to a contrary view.

Appellees’ trial strategy necessarily was to direct as much evidence and data as possible to the issue of Mobil’s negligence in order to persuade the jury to find the existence of gross negligence. In defense Mobil sought both to rebut plaintiffs’ evidence of specific instances of negligence and further to show that it had exercised some care, however slight, in order to preclude a finding of gross negligence. While the evidence as to Mobil’s negligence was thus not wholly without contest, it nonetheless sufficed in the judgment of the trial judge to warrant submission to the jury.

Much of the trial evidence dealt with Mobil’s processing of “work orders.” These were standardized forms with perforated carbon copies used for transmitting requests for equipment, repair or general servicing from Mobil employees to management. Plaintiffs-Ap-pellees sought to show that Mobil had been notified of a defect in the regulator valve involved in the accident, yet chose to ignore it to maximize productivity. One plaintiffs’ witness, A. T. Pate, testified to seeing two work orders while working at Mobil requesting repair of this regulator valve. One of these, prepared by Mobil employee Harvey Harrell, received in evidence read, “Please repair dump regulator under No. 17 water wash drum. This regulator sticks.” The record is not conclusive whether any repair was done, but the cumulative effect of the evidence indicates no repair was in fact made in compliance with Harrell’s work order. J. L. Martel, another employee, testified that he also had seen two work orders asking repair of this regulator and did not believe that the work had been done. George W. Wharton was unit process foreman at the time of the accident and was authorized to approve or disapprove work orders. He testified that he approved 99 out of every 100 work order requests that reached him, though he could not recall any specific order as to this water wash drum. Some hearsay evidence was received showing that Mobil employees complained often (though apparently only to each other) about the sticking of this regulator valve. While this testimony appears to have persuaded the jury on the question of whether the work orders were honored, there is no indication that Mobil was aware of the employee dissatisfaction.

Harvey Harrell testified further that about thee months prior to the accident the regulator in No. 17 water wash drum had stuck in a partially open position while he was draining off some residue. He blocked off the flow of butane by use of an alternate valve and called an “instrument” (repair) man. The valve was put back in service by the instrument man and Harrell filled out the work order already alluded to after the valve was again operative.

Employee J. L. Martel testified for the plaintiffs in connection with the management and union safety committees, of which he was a member at the time of the accident. This group made periodic safety inspections and each area of the plant was inspected at least every three months. One of the committee’s functions was to check the disposition of work orders and forward recommendations to Mobil with respect to unsafe equipment. Martel said that the valve in question had been the subject of work orders and the failure of Mobil to repair it had been communicated to the company in the union report at least three times during the year prior to the accident. These reports are the subject of a monthly meeting between the union safety committee and Mobil’s safety representatives.

Mobil in defense introduced copies of monthly union safety reports covering February, 1969, through January, 1970, and one dated April 20, 1970, only three days prior to Ballenger’s fatal accident. Occasional reference is made to Gas Plant # 5 in the 1969 reports, but no mention is made of the water wash drum or regulator valve. The January and April of 1970 reports list Gas Plant # 5 under the “no recommendation” category.

Appellees also presented testimony involving a work force reduction implemented by Mobil at a time prior to the accident. A number of employees objected to the reduction and the issue went to arbitration. Mobil’s interpretation of the collective bargaining agreement as permitting the reduction in force was accepted by the arbitrators. The trial testimony was inconclusive as to the effect upon plant safety of the reduction, and as to whether the presence of an additional employee on the plant grounds at the time of Ballenger’s accident would have increased safety.

For our purposes it is unnecessary to reach a conclusion as to whether this evidence sufficed to establish gross negligence prima facie. Assuming that it did, we look to Mobil’s proof to determine whether that evidence clearly demonstrated “some care” as opposed to “a total want of” care in the maintenance and operation of the equipment responsible for the accident.

Plaintiffs-Appellees rely almost exclusively on Phillips Oil Co. v. Linn, 5 Cir. 1952, 194 F.2d 903 as to this issue. This court in Phillips applied a standard of care test established by the Texas jurisprudence in an unbroken line of decisions and reaffirmed in 1964 by the Supreme Court of Texas in Sheffield Division, Armco Steel Corp. v. Jones, supra. Phillips approved a finding of gross negligence by a jury, one of the rare instances in which “a plaintiff in a case like the one at bar has carried the seemingly impossible burden imposed by this (Texas) view of gross negligence.” Woolard v. Mobil Pipe Line Co., 5 Cir. 1973, 479 F.2d 557, 565.

The employee in Phillips was killed while operating a sandblasting machine. A hose attached to the machine was marked “H.P. Air,” meaning high pressure air, but in reality carried high pressure gas. A spark from the blasting operation ignited the gas and the employee was killed. The evidence established that the employee’s foreman had known for a substantial period of time that the hose was mismarked and that a consequent lethal danger existed. The foreman at one time wrote “gas” on the hose in soapstone but the marking had worn off some time prior to the accident, as the foreman testified that he had expected. It was held that the soapstone marking was tantamount to no care at all. In the absence of any other conduct evidencing any care this was the basis for the defendant’s liability.

The issue before us is similar in all respect to that in Phillips. We must decide whether Mobil’s proof showed its exercise of any care whatsoever. Only thus may Phillips be distinguished. An affirmative response to the question seems to us inescapable.

We have alluded above to Harvey Harrell’s testimony concerning work orders and also about the occasion when he found the regulator valve sticking partially open. His solution was to use the block valve located above the regulator to seal the pipe completely so that nothing could escape. This block valve was a safety measure, a device to be used in the event that the regulator valve did stick. The record is silent as to why the operator on the day in question did not (or could not) use this block valve, but its purpose and existence are undisputed.

A similar situation obtained in Loyd Electric Co. v. De Hoyos, Tex.Civ.App. 1966, 409 S.W.2d 893. There an employee was killed while working with inflammable fuel, some of which was contained in drip pans situated near electrical connections. An accidental ignition of the fuel in the drip pans by a spark from the electrical connection caused the fatal accident. While a safer clamp for the electrical connection was available, it was held that the use of any clamp, coupled with the fact that fire extinguishers previously used to prevent fire damage were nearby, established the exercise of some care by the employer. In the instant case while a single block valve may not have been the best way to safeguard against regulator malfunction, it was an acceptable way, and was one that had worked successfully in the past.

The work order and safety committee system at Mobil evidences further care by the defendant. The view most favorable to the appellees is that the work order requests recalled by the witnesses were not honored and that the union safety committee communicated that fact to Mobil. Accepting that view, the existence of the system itself still evidences some care under principles established by the Texas courts, unless of course the system was a mere sham, a matter not even attempted to be shown by appellees. The plaintiffs’ evidence only shows that the system did not operate as effectively as it was intended to on the occasion in question.

Woolard v. Mobil Pipe Line Co., supra, recently presented this court with an analogous dispute. There an employee at a metering station was killed when liquid petroleum gas he was handling ignited. The work procedures and safety devices may have evidenced a lack of ordinary care on the part of the defendant, the court said, but “the obstacle to recovery of exemplary damages is the fact that Mobil Pipe Line had taken measures to avoid such a tragedy . . .” Woolard v. Mobil Pipe Line Co., supra, 479 F.2d at 566. The situation here, as in Woolard is one of insufficient care, not one of no care whatsoever.

Mobil’s equipment inspection system further distinguishes this case from Phillips. That system was designed and intended to reveal defects in things such as the regulator valve involved here. Every four years a “unit turnaround” was performed, and all equipment was serviced. The hose in Phillips could have remained mismarked or unmarked forever, but a faulty valve at Mobil would be serviced and repaired at the very least by the time of its scheduled inspection. Four years is arguably an unreasonable maintenance interval but provision for it nonetheless must still be viewed as the exercise of some care.

CONCLUSION

Our holding today conforms with both the Texas Supreme Court’s interpretation of gross negligence in Art. 8306, Sec. 5, V.A.C.S., and the application of that interpretation by this court in diversity cases raising the issue. A plaintiff may not recover exemplary damages if a defendant has shown the exercise of some care with respect to the causal factors involved. Mobil met the burden of showing that it exercised such care. Upon remand the lower court is directed to enter judgment for Mobil.

Reversed and rendered.

      . We noted in Woolard, 497 F.2d at 565 :
      “As these cases indicate, the Texas view of gross negligence contemplates something just short of intentional wrongdoing. Indeed, the summary contained in 13 Tex.Jur. Sec. 133 and quoted approvingly in Sheffield, supra, states that recovery of exemplary damages requires a showing, not merely that defendant could have or ought to have foreseen the injury, but that ‘he acted intentionally or willfully or with that degree of “gross negligence” which approximates a fixed purpose to bring about the injury of which Plaintiff complains.’ The Texas standard demands both advertence to an unreasonable risk of harm to the plaintiff and an entire want of care (not merely a failure to take reasonable precautions) to avoid harm to the plaintiff.”


author: RONEY, Circuit Judge:

text:
    Richard JOHNSON, Jr., and Frank Hill, Plaintiffs-Appellants-Cross Appellees, v. GEORGIA HIGHWAY EXPRESS, INC., Defendant-Appellee-Cross Appellant.
    No. 72-3294.
    United States Court of Appeals, Fifth Circuit.
    Jan. 21, 1974.

      Elizabeth Rindskopf, Howard Moore, Jr., Atlanta, Ga., Jack Greenberg, William L. Robinson, Morris J. Bailer, Charles Stephen Ralston, New York City, for plaintiffs-appellants.
    John W. Wilcox, Jr., Thomas M. Kuna, Atlanta, Ga., for defendant-appel-lee.
    Before THORNBERRY, AINS-WORTH and RONEY, Circuit Judges.

      . The American Bar Association has recently recommended that state and local associations abandon “minimum” or “suggested” fee schedules which are under attack from the Justice Department as violations of the antitrust laws. See 59 A.B.A.J. p. 1435 (1973), reporting the adoption of the following resolution by the Association’s Board of Governors:
      In order to avoid possible future dispute or litigation, and
      (a) Without the expression of any opinion upon questions of existing legal right or obligation, and
      (b) Notwithstanding the most recent opinion issued by this Association’s Committee on Ethics and Professional Responsibility with regard to ethical propriety of the voluntary consideration by lawyers of fees customarily charged for particular legal services in given localities;
      The American Bar Association recommends that state and local bar associations that have not already done so give serious consideration to withdrawal or cancellation of all schedules of fees, whether or not designated as “minimum” or “suggested” fee schedules.

   RONEY, Circuit Judge:

The question on this appeal concerns the adequacy of attorneys’ fees awarded by the District Court in a Title VII class action. Plaintiffs challenge as inadequate the $13,500.00 awarded for their alleged 659.5 billable hours accrued during more than four years of litigation. We are called upon to review the award and set appropriate standards to better enable District Courts to arrive at just compensation.

This “across-the-board” action to remedy employment discrimination made unlawful by Title VII of the Civil Rights Act of 1964, 42 U.S.C.A. § 2000e et seq., was filed February 27, 1968. On June 24, 1968, the District Court entered an order holding that the action could not be maintained as a class action, and upholding defendant’s jury demand. Plalintiff took an interlocutory appeal, resulting in this Court’s reversing the District Court on both issues. 417 F.2d 1122 (5th Cir. 1969).

On remand, the case proceeded to trial on the merits. After a three-day trial (Jan. 31-Feb. 3, 1972) the District Court entered a final order on March 2, 1972, finding a variety of discriminatory practices by defendant and granting class relief to plaintiffs. In that order, the court provided that an application for an award of attorneys’ fees and costs pursuant to Section 706 (k) of Title VII of the Civil Rights Act of 1964 would be entertained.

Pursuant to this ruling, plaintiffs requested an award of $30,145.50. In support of their request they submitted: (1) a schedule of fees based on the affidavits of counsel as to their time spent on this matter, in all 659.5 hours exclusive of trial time; (2) six affidavits from the five attorneys employed by plaintiffs in this action; (3) three exhibits showing in chronological order the daily time spent by three of the plaintiffs’ attorneys; and (4) a memorandum of law in support of the motion.

After an appropriate hearing, the District Court filed its order on August 8, 1972, and made the following findings of fact with respect to attorneys’ fees:

“1. A hearing on the matter of attorneys’ fees in the primary action in this case was held, and evidence presented by both parties, on June 9, 1972.
“2. With respect to the question of attorneys’ fees in the primary action, I find that reasonable attorneys’ fees, in the Atlanta, Georgia area, for the job performed for the plaintiffs RICHARD JOHNSON, JR. and FRANK HILL, are Thirteen Thousand Five Hundred Dollars ($13,500. 00). The above amount in this finding is based, generally, on sixty (60) man days of work at Two Hundred Dollars ($200.00) per day, generally considered to consist of from six (6) to seven (7) productive hours, which amounts to Twelve Thousand Dollars ($12,000.00), and three (3) trial days for two attorneys at Two Hundred Fifty Dollars ($250.00) per trial day per attorney, or One Thousand Five Hundred Dollars ($1,500.00).”

The judgment of the District Court stated that

“The Defendant GEORGIA HIGHWAY EXPRESS, INC. shall pay to the Plaintiffs in the primary action in the present case reasonable attorneys’ fees in the amount of Thirteen Thousand Five Hundred Dollars ($13,500.-00), based on what this Court has determined is reasonable in this locality for the job performed by legal counsel on behalf of the Plaintiffs. Given the experience of counsel for the Plaintiffs at the time these services were performed, the award of this Court is based on sixty (60) man days at the rate of Two Hundred Dollars ($200.-00) per day, or Twelve Thousand Dollars ($12,000.00), and three (3) trial days for two (2) attorneys at the rate of Two Hundred Fifty Dollars ($250.-00) per day per attorney, or One Thousand Five Hundred Dollars ($1,500.00).
“In making this award of reasonable attorneys’ fees to the Plaintiffs, I further note that I am aware of the accomplishments of some of the attorneys for the Plaintiffs. At the time when some of these services were rendered, however, they were rendered by attorneys who had been at the bar for only a relatively few years, and there is a relatively standard practice within the Atlanta, Georgia community with respect to the age and experience of attorneys and the compensation involved therein.”

Plaintiffs appeal from this judgment. Defendant cross-appeals.

Section 706(k) of Title VII of the Civil Rights Act of 1964, 42 U.S.C. A. § 2000e-5(k), provides that:

In any action or proceeding under this subchapter the Court, in its discretion, may allow the prevailing party a reasonable attorney’s fee as part of the cost of the litigation.

The purpose of this provision is to effectuate the congressional policy against racial discrimination. Clark v. American Marine Corp., 320 F.Supp. 709 (E. D.La.1970), aff’d, 437 F.2d 959 (5th Cir. 1971). In discussing a similar provision in Title II, the United States Supreme Court observed that

If [the plaintiff] obtains an injunction, he does so not for himself alone but also as a “private attorney general,” vindicating a policy that Congress considered of the highest priority. If successful plaintiffs were routinely forced to bear their own attorneys’ fees, few aggrieved parties would be in a position to- advance the public interest by invoking the injunctive powers of the federal courts. Congress therefore enacted the provision for counsel fees — not simply to penalize litigants who deliberately advance arguments they know to be untenable but, more broadly, to encourage individuals injured by racial discrimination to seek judicial relief ....

Newman v. Piggie Park Enterprises, Inc., 390 U.S. 400, 401-402, 88 S.Ct. 964, 966, 19 L.Ed.2d 1263 (1968). This Court, as part of its obligation “to make sure that Title VII works,” has liberally applied the attorney’s fees provision of Title VII, recognizing the importance of private enforcement of civil rights legislation. See Clark v. American Marine Corp., supra; Rowe v. G. M. Corp., 457 F.2d 348 (5th Cir. 1972); Long v. Georgia Kraft Co., 455 F.2d 331 (5th Cir. 1972); Lee v. Southern Home Sites Co., 444 F.2d 143 (5th Cir. 1971).

We are mindful that it is within the discretion of the District Court whether to award attorney’s fees against a party. Weeks v. Southern Bell Tel. & Tel., 467 F.2d 95 (5th Cir. 1972); Culpepper v. Reynolds Metals Co., 442 F.2d 1078 (5th Cir. 1971). See 6 Moore, Federal Practice 54.77. This Court, however, may review the District Court’s determination as to a reasonable fee. B-M-G Investment Co. v. Continental/Moss Gordin, Inc., 487 F.2d 892, 893 (5th Cir. 1971). It is under this authority that we undertake to review the award in this ease.

The reasonableness of the award is to be judged by the abuse of discretion standard of review. Weeks v. Southern Bell Tel. & Tel. Co., supra; Culpepper v. Reynolds Metals Co., supra. But in utilizing this standard we must carefully review the basis upon which the District Court made its award.

It is at this juncture that we have difficulty with the District Court order. The judgment does not elucidate the factors which contributed to the decision and upon which it was based. No correlation to the facts and figures submitted by the plaintiff is visible. Sixty work days were allotted by the Court with six to seven productive hours per day as the standard. Compensation was computed at $200 per day which averages out to between $28.57 and $33.-33 per hour depending on which productivity scale is used. Neither of these figures match the minimum fee scale in Atlanta, Georgia. Furthermore, no differentiation was made by the District Court between the experienced and the non-experienced attorneys representing plaintiff. Yet, the award was supposedly considered in light of the Atlanta community practices. The District Court order leaves unexplained the disal-lowance of between 239.5 to 299.5 of the 659.5 hours claimed. Whether they reflected duplicated effort among the attorneys, improperly charged hours, time deemed unessential, or were merely overlooked is not answered in the order.

It is for these reasons that we must remand to the District Court for reconsideration in light of the following guidelines:

(1) The time and labor required. Although hours claimed or spent on a case should not be the sole basis for determining a fee, Electronics Capital Corp. v. Sheperd, 439 F.2d 692 (5th Cir. 1971), they are a necessary ingredient to be considered. The trial judge should weigh the hours claimed against his own knowledge, experience, and expertise of the time required to complete similar activities. If more than one attorney is involved, the possibility of duplication of effort along with the proper utilization of time should be scrutinized. The time of two or three lawyers in a courtroom or conference when one would do, may obviously be discounted. It is appropriate to distinguish between legal work, in the strict sense, and investigation, clerical work, compilation of facts and statistics and other work which can often be accomplished by non-lawyers but which a lawyer may do because he has no other help available. Such non-legal work may command a lesser rate. Its dollar value is not enhanced just because a lawyer does it.

(2) The novelty and difficulty of the questions. Cases of first impression generally require more time and effort on the attorney’s part. Although this greater expenditure of time in research and preparation is an investment by counsel in obtaining knowledge which can be used in similar later cases, he should not be penalized for undertaking a case which may “make new law.” Instead, he should be appropriately compensated for accepting the challenge.

(3) The skill requisite to perform the legal service properly. The trial judge should closely observe the attorney’s work product, his preparation, and general ability before the court. The trial judge’s expertise gained from past experience as a lawyer and his observation from the bench of lawyers at work become highly important in this consideration.

(4) The preclusion of other employment by the attorney due to acceptance of the case. This guideline involves the dual consideration of otherwise available business which is foreclosed because of conflicts of interest which occur from the representation, and the fact that once the employment is undertaken the attorney is not free to use the time spent on the client’s behalf for other purposes.

(5) The customary fee. The customary fee for similar work in the community should be considered. It is open knowledge that various types of legal work command differing scales of compensation. At no time, however, should the fee for strictly legal work fall below the $20 per hour prescribed by the Criminal Justice Act, 18 U.S.C.A. § 3006A(d)(l), and awarded to appointed counsel for criminal defendants. As long as minimum. fee schedules are in existence and are customarily followed by the lawyers in a given community, they should be taken into consideration.

(6) Whether the fee is fixed or contingent. The fee quoted to the client or the percentage of the recovery agreed to is helpful in demonstrating the attorney’s fee expectations when he accepted the case. But as pointed out in Clark v. American Marine, supra,

[t]he statute does not prescribe the payment of fees to the lawyers. It allows the award to be made to the prevailing party. Whether or not he agreed to pay a fee and in what amount is not decisive. Conceivably, a litigant might agree to pay his counsel a fixed dollar fee. This might be even more than the fee eventually allowed by the court. Or he might agree to pay his lawyer a percentage contingent fee that would be greater than the fee the court might ultimately set. Such arrangements should not determine the court’s decision. The criterion for the court is not what the parties agreed but what is reasonable.

320 F.Supp. at 711. In no event, however, should the litigant be awarded a fee greater than he is contractually bound to pay, if indeed the attorneys have contracted as to amount.

(7) Time limitations imposed by the client or the circumstances. Priority work that delays the lawyer’s other legal work is entitled to some premium. This factor is particularly important when a new counsel is called in to prosecute the appeal or handle other matters at a late stage in the proceedings.

(8) The amount involved and the results obtained. Title VII, 42 U.S.C.A. § 2000e-5(g), permits the recovery of damages in addition to injunctive relief. Although the Court should consider the amount of damages, or back pay awarded, that consideration should not obviate court scrutiny of the decision’s effect on the law. If the decision corrects across-the-board discrimination affecting a large class of an employer's employees, the attorney’s fee award should reflect the relief granted.

(9) The experience, reputation, and ability of the attorneys. Most fee scales reflect an experience differential with the more experienced attorneys receiving larger compensation. An attorney specializing in civil rights cases may enjoy a higher rate for his expertise than others, providing his ability corresponds with his experience. Longevity per se, however, should not dictate the higher fee. If a young attorney demonstrates the skill and ability, he should not be penalized for only recently being admitted to the bar.

(10) The “undesirability” of the case. Civil rights attorneys face hardships in their communities because of their desire to help the civil rights litigant. See NAACP v. Button, 371 U.S. 415, 443, 83 S.Ct. 328, 9 L.Ed.2d 405 (1963); Sanders v. Russell, 401 F.2d 241 (5th Cir. 1968). Oftentimes his decision to help eradicate discrimination is not pleasantly received by the community or his contemporaries. This can have an economic impact on his practice which can be considered by the Court.'

(11) The nature and length of the professional relationship with the client. A lawyer in private practice may vary his fee for similar work in the light of the professional relationship of the client with his office. The Court may appropriately consider this factor in determining the amount that would be reasonable.

(12) Awards in similar cases. The reasonableness of a fee may also be considered in the light of awards made in similar litigation within and without the court’s circuit. For such assistance as it may be, we note in the margin a list of Title VII cases in this and other Circuits reviewed in the consideration of this appeal.

These guidelines are consistent with those recommended by the American Bar Association’s Code of Professional Responsibility, Ethical Consideration 2-18, Disciplinary Rule 2-106. They also reflect the considerations approved by us in Clark, v. American Marine Co., supra.

To put these guidelines into perspective and as a caveat to their application, courts must remember that they do not have a mandate under Section 706(k) to make the prevailing counsel rich. Concomitantly, the Section should not be implemented in a manner to make the private attorney general’s position so lucrative as to ridicule the public attorney general. The statute was not passed for the benefit of attorneys but to enable litigants to obtain competent counsel worthy of a contest with the caliber of counsel available to their opposition and to fairly place the economical burden of Title VII litigation. Adequate compensation is necessary, however, to enable an attorney to serve his client effectively and to preserve the integrity and independence of the profession. The guidelines contained herein are merely an attempt to assist in this balancing process.

We are mindful of the difficult job of the trial judge in cases of this kind, and that in all probability his decision will be totally satisfactory to no one. The cross-appeals taken in this ease are witness to the usual view of parties litigant to such an award. The trial judge is necessarily called upon to question the time, expertise, and professional work of a lawyer which is always difficult and sometimes distasteful. But that is the task, and it must be kept in mind that the plaintiff has the burden of proving his entitlement to an award for attorney’s fees just as he would bear the burden of proving a claim for any other money judgment.

In cases of this kind, we encourage counsel on both sides to utilize their best efforts to understandingly, sympathetically, and professionally arrive at a settlement as to attorney’s fees. Although a settlement generally leaves every litigant partially dissatisfied, so does a judicial award for attorney’s fees.

By this discussion we do not attempt to reduce the calculation of a reasonable fee to mathematical precision. Nor do we indicate that we should enter the discretionary area which the law consigns to the trial judge.

By remand of this case, we voice no observation or intimation as to the correctness of the amount awarded. We merely vacate the award and remand for reconsideration in the light of this opinion, and for the entry of an order fixing a reasonable fee which reflects the considerations which led to it. In sum, we hold it to be an abuse of discretion not to consider the factors we approved in Clark v. American Marine Co., and which we amplify here, and that a meaningful review requires a record that reflects such consideration.

Vacated and remanded.

      . The hours allocated for each plaintiff’s attorney were
      Howard Moore, Jr. 303 hours
      Charles S. Ralston 29 hours
      Gabrielle K. McDonald 228 hours
      Elizabeth R. Rindskopf 38 hours
      Morris J. Bailer 61.5 hours
      There were three days of trial attended by Mr. Ralston, Mrs. Rindskopf, and Mr. Bailer.

      . Culpepper v. Reynolds Metals Co., 421 F. 2d 888, 891, n. 3 (5th Cir. 1970).

      . See n. 3, supra.

      . Fifth Circuit: Peters v. Missouri Pacific R.R. Co., 483 F.2d 490 (5th Cir., 1973) ; Weeks v. Southern Bell Tel. & Tel., 467 F. 2d 95 (5th Cir. 1972) ; Rowe v. G.M. Corp., 457 F.2d 348 (5th Cir. 1972) ; Long v. Georgia Kraft Co., 455 F.2d 331 (5th Cir. 1972) ; Culpepper v. Reynolds Metals Co., 442 F.2d 1078 (5th Cir. 1971) ; Clark v. American Marine Corp., 320 F.Supp. 709 (E.D.La.1970), aff’d 437 F.2d 959 (5th Cir. 1971) ; Drew v. Liberty Mutual Ins. Co., 480 F.2d 69 (5th Cir., 1973) ; Franks v. Bowman Transp. Co., (N.D.Ga. June 29, 1972) ; Bing v. Roadway Express, (N.D.Ga. May 19, 1972), vacated, 485 F.2d 441 (5th Cir. 1973) ; Baxter v. Savannah Sugar Refining Corp., 350 F. Supp. 139 (S.D.Ga.1972) ; LeBlanc v. Southern Bell Tel. & Tel., 333 F.Supp. 602 (E.D. La.1971) ; Humphrey v. Southwestern Portland Cement, 5 F.E.P. Cases 897 (W.D.Tex. 1973) .

        First Circuit: United States v. Gray, 319 F.Supp. 871 (D.R.I.1970).

        Fourth Circuit: Lea v. Cone Mills, Inc., 467 F.2d 277 (4th Cir. 1972) ; Robinson v. Lorillard Corp., 444 F.2d 791 (4th Cir. 1971). Sixth Circuit: Manning v. International Union, 466 F.2d 812 (6th Cir. 1972).

        Seventh Circuit: Bowe v. Colgate-Palmolive, 416 F.2d 711 (7th Cir. 1969) ; Batiste v. Furnco Construction, 350 F.Supp. 10 (N.D. Ill.1972).

        Eighth Circuit: Parham v. Southwestern Bell Tel. Co., 433 F.2d 421 (8th Cir. 1970) ; Vogel v. T.W.A., 346 F.Supp. 805 (W.D.Mo. 1971) .

        Ninth Circuit: Schaeffer v. San Diego Yellow Cabs, Inc., 462 F.2d 1002 (9th Cir. 1972) ; Malone v. N. A. Rockwell Corp., 457 F.2d 779 (9th Cir. 1972) ; Rosenfield v. Southern Pacific Co. (C.D.Calif. Dec. 2, 1971). Tenth Circuit: Barela v. United Nuclear Corp., 462 F.2d 149 (10th Cir. 1972) ; Evans v. Sheraton Park Hotel (D.C.D.C. Dec. 27, 1972) ; Brito v. Zia Co. (D.C.N.M.1972).


author: DUNIWAY, Circuit Judge:

text:
    Louis Perez CERDA, Petitioner-Appellant, v. UNITED STATES of America, Respondent-Appellee.
    No. 73-2077.
    United States Court of Appeals, Ninth Circuit.
    Nov. 7, 1973.

      Sull Lawrence, Beverly Hills, Cal., for petitioner-appellant.
    William D. Keller, U. S. Atty., Eric A. Nobles, Daniel W. Henry, Asst. U. S. Attys., Los Angeles, Cal., for respondent-appellee.
    Before DUNIWAY, HUFSTEDLER and WALLACE, Circuit Judges.
   OPINION

DUNIWAY, Circuit Judge:

This is the fourth time that Cerda’s case has been before this court: Cerda v. United States, 9 Cir., 1968, 391 F.2d 219 (appeal from conviction; affirmed) ; Cerda v. United States, 9 Cir., 1970, 424 F.2d 544 (appeal from denial of motion under 28 U.S.C. § 2255; affirmed) ; Cerda v. United States, 9 Cir., 1972, 462 F.2d 943. In the 1972 case we reversed an order denying Cerda’s renewed motion under 28 U.S.C. § 2255 and remanded for an evidentiary hearing. That hearing was held, the court denied the motion, and Cerda again appeals. We affirm.

In our 1972 opinion we suggested three areas to be explored: (1) whether the informant, Holmes, was an addict, motivated by a desire to avoid an immediate threat of prosecution and imprisonment, as he stated in his affidavit; (2) whether the government made a good faith effort to locate the informant for the trial; (3) Cerda’s sentencing contention under the Narcotics Addiction Rehabilitation Act. At the hearing, the third matter was expressly abandoned by Cerda and his appointed counsel.

The hearing lasted two and a half days, and the court made oral findings. He first found that the government had made the maximum reasonable effort to locate Holmes, and had made no misrepresentation on that subject to the court. That finding is fully supported by the record.

The court also found that Holmes’ affidavit was false, that he was not subject to any pending prosecution or potential prosecution and was not motivated by any desire to escape such prosecution; that no narcotic was promised or supplied to him, and thus, by implication, that the government has not knowingly used perjured testimony. This finding, too, is fully supported by the record. Thus there is no ground for vacating the conviction and sentence. If this were a motion for a new trial, the court could properly have denied it. A fortiori, the court properly denied the § 2255 motion.

On this appeal, Cerda does not argue otherwise. What he does complain about is that he was unable to have Holmes testify at the hearing. On the first day of the hearing, counsel for both sides told the court that the government had found Holmes in Oklahoma and was bringing him to Los Angeles that evening. The court asked government counsel to see that Holmes would be available at the courthouse for an interview by Cerda’s counsel at 9:00 the next morning, and the hearing was adjourned until 10:30. The court, in response to government counsel’s statement that he also wanted to interview Holmes, said:

“Of course. Your man is bringing him, isn’t he. The plane is due here tonight, isn’t it?
. Now, if you want to see him before that or after that, of course, you can see him any time you want to.
. Both of you are to have, if the witness is willing, a full opportunity to talk with the witness.
But the priority must be given to Mr. Lawrence since it is his subpoena.”

An agent of the Bureau of Narcotics found Holmes in Oklahoma and flew with him to Los Angeles. He knew that Holmes had made an affidavit, but not its contents. During the flight, he warned Holmes of his constitutional rights and questioned him about making the affidavit. Holmes told him that Cerda had prepared it, and that there had been some “pressure,” the nature of which he did not state, to sign it. Because of that “pressure,” he was transferred from McNeil Island, where he and Cerda were confined at the time, to another institution. He told the agent that he got $15.00 as a reward for his services in Cerda’s case, after he signed a statement about the case. He said that he had never received heroin from any agent, nor had Cerda.

At a little before 9:00 the next morning, the government attorney interviewed Holmes for about twenty minutes. Holmes asked if the goverriment was prosecuting him. Counsel said “No, you have simply been brought here as a witness for the defense.” He then went over Holmes’ two affidavits, and a statement that he gave to an agent before the trial. Some of Holmes’ statements contradicted what was in the affidavits; some did not. Finally, Holmes asked whether he could be prosecuted for anything in his affidavits. Government counsel testified:

“I explained to Mr. Holmes, as I had at the outset, that the Government had been requested to locate him for Mr. Cerda’s use, and that the Government did not represent him, did not represent Mr. Cerda, and that, as I told him at the outset, and as I assumed he knew from his many arrests himself, that he didn’t have to talk to me; that at any time he wished to stop talking, he had that choice. And that I could arrange for the court to appoint an attorney for him.
. Mr. Holmes indicated that he felt that he was, in effect, ‘damned if he did, and damned if he didn’t,’ and that he thought probably he ought to have an attorney.
At that point I told Mr. Holmes that I would not seek to question him anymore, and would contact the clerk to obtain an attorney for him before any further questioning.”

A message was received at about 9:15 stating that Cerda’s counsel was waiting to interview Holmes. Government counsel testified:

“I indicated to Mr. Holmes that the court had ordered that we make him available for an interview by Mr. Lawrence, the defense attorney and —‘Mr. Cerda’s attorney’ is the way I put it to him. And that, therefore, before actually obtaining an attorney for him, I would like to take him down and introduce him to Mr. Lawrence, and let him explain to Mr. Lawrence what had taken place.
I indicated to Mr. Holmes that, No. 1, he had indicated he didn’t wish to speak further until he had counsel, and that I didn’t want to violate that right; and I thought we ought to get down and talk to Mr. Lawrence as quick as possible, and obtain counsel for him so that the court would not be delayed at 10:30 when we were scheduled to proceed.
I relayed the substance of the prior conversation about wanting counsel to Mr. Lawrence, and turned to Mr. Holmes and asked him, ‘Is that correct, Mr. Holmes?’ He indicated, ‘Yes, that is correct.’ ”

Thereafter a deputy public defender was obtained to represent Holmes. He consulted with Holmes and advised him to refuse to testify on the ground that, if he did, he might incriminate himself as having made a false affidavit or given a government agent a false statement within the meaning of 18 U.S.C. § 1001. He asked that Holmes be granted immunity, which was refused. Holmes did refuse to testify. After some discussion, the court sustained his refusal. Cerda’s counsel, although he had asked that Holmes be required to answer, three times said “no” to the court’s question, “do you want to be heard further.”

Because the witness declined to answer, the court received his affidavits in evidence in support of Cerda’s § 2255 motion.

Counsel for Cerda argues that government counsel deprived him of his opportunity to interview Holmes “in violation of the Trial Court’s express order granting priority to Cerda’s counsel.” We disagree. The court made no order that Cerda’s counsel was to be the first to interview Holmes. The language of the court referred only to the amount of time to be available for interviews, not to the sequence in which the interviews were to occur.

Counsel for Cerda asserts that the government deprived him of Holmes’ testimony by delaying a warning as to possible prosecution until conclusion of the interview. The fact is that no such warning ever came from the government. It was Holmes who raised the question, and it was his appointed counsel, not government counsel, who advised him not to testify.

Counsel asserts that the government should have granted Holmes immunity. No case supports this claim. We reject it. United States v. Jenkins, 9 Cir., 1972, 470 F.2d 1061, 1063-1064; Earl v. United States, 1966, 124 U.S. App.D.C. 77, 361 F.2d 531, 533-535.

Counsel claims that he was deprived of Holmes’ testimony by the testimony of government counsel as to what Holmes said to government counsel about the case. It was Cerda’s counsel who offered Holmes’ affidavits in evidence. The government was not thereby deprived of its right to contradict them by Holmes’ out-of-court statements, which were lawfully obtained.

We find no impropriety here.

Affirmed.