source: Caselaw Access Project

author: EUGENE A. WRIGHT, Circuit Judge: KILKENNY, Circuit Judge

license: Public Domain

text:
    Robert RUIZ, Plaintiff, v. HAMBURG-AMERICAN LINE, a corporation, et al., Defendant-Third-Party Plaintiff-Appellant, v. JONES STEVEDORING COMPANY, Third-Party Defendant-Appellee.
    No. 71-1247.
    United States Court of Appeals, Ninth Circuit.
    April 23, 1973.
    Francis L. Tetreault (argued), William E. Kane, Paul A. Dezurick, Graham & James, San Francisco, Cal., for appellant.
    Robert Sikes (argued), Sikes, Pinney & Matthew, North Hollywood, Cal., for appellee.
    Before WRIGHT, KILKENNY, and CHOY, Circuit Judges.
   EUGENE A. WRIGHT, Circuit Judge:

This was a typical three-party suit arising from an injury to a longshoreman. Ruiz, employed by Jones Steve-doring (Jones), was injured while working on a vessel, the M.V. Koln, owned by Hamburg-American (Hamburg). As a Sieracki seaman, Ruiz sued Hamburg, alleging unseaworthiness of the vessel. Hamburg brought a third-party action seeking indemnity from Jones, alleging (1) that Jones breached his Ryan warranty of workmanlike performance, and (2) that Jones was obligated under an express contractual provision to hold Hamburg harmless against any claim for personal injury arising out of Jones’ work on the vessel.

The two actions were tried together. Ruiz was awarded a favorable verdict, and has since settled his claim against Hamburg. His claim is not before this court. The indemnity action resulted in a jury verdict against Hamburg.

The Hamburg-Jones contract provided indemnity to the shipowner for claims arising from injuries to longshoremen, other than those due to the “sole fault” of Hamburg. Hamburg attempted to prove fault or negligence of Jones as the cause of the accident and its evidence was substantial.

On the final afternoon of a ten-day trial, Jones introduced its defense theory. With circumstantial evidence it attempted to show that members of the ship’s crew had removed a safety device and that this was the sole cause of the injury to Ruiz.

Ruiz, a member of the longshore gang working around Hatch Number 3, was injured when the hatch cover fell on him. It had been stored vertically and had to be lowered and pulled over the empty hatch with a cable. The leading edge fell on Ruiz as he stood on the hatch coaming trying to locate the end of the cable which he was to fasten to the cover.

Jones’ witnesses, produced at the end of the trial, provided some evidence that members of the ship’s crew were near Hatch 3 from 30 to 45 minutes before the accident and that the longshoremen had not worked at that hatch from 5:30 p. m. to 6:45 p. m. The accident occurred shortly after 6:45 p. m.

Sehoder, a superintendent for Jones, testified to a conversation with the ship’s chief officer about 5:45 p. m. The mate had asked if the ship’s crew could close Hatch 3, and Sehoder firmly refused permission, as long as there were longshoremen aboard the vessel. Sehoder added that the mate then spoke in German to a junior, officer who went in the direction of the ship.

On the night of the accident, said Sehoder, the ship’s officers and crew “were very anxious to sail” to avoid possible fog conditions. Another longshoreman testified that, when he left the hatch area at 5:30 p. m., some 3% feet of cable was hanging from the winch platform in the direction of the hatch. Ruiz and others added that, when they arrived later, the cable was hanging much lower and into the hatch opening.

After all parties had rested and before oral argument, counsel for Hamburg moved to reopen and for a continuance, in order that he might bring from Germany to testify crew members who had been aboard the ship on the day of the accident. Counsel claimed surprise because he had been misled by answers to interrogatories which indicated that Jones did not contend that crew members had handled any ship’s gear at Hatch 3. The motions were denied and the trial was concluded with closing arguments.

In argument, counsel for Jones urged repeatedly that Hamburg had failed to call any members of the crew to refute the story of crew involvement as testified to by the longshoremen. Footnote 7 details some of the remarks.

After the adverse jury verdict, Hamburg moved for a new trial on these grounds: (a) surprise, (b) prejudicial misconduct of opposing counsel in oral argument and (c) insufficiency of the evidence to justify the verdict. The trial court denied the motion and we granted leave for it to consider Hamburg’s motion under Civil Rule 60(b) for relief from judgment because of newly discovered evidence, surprise and misrepresentation by Jones.

The trial court denied this motion, finding that Hamburg had not exercised due diligence. From this denial, Hamburg has appealed and its appeal has been consolidated under Rule 3(b) of Federal Rules of Appellate Procedure with the appeal from the denial of motions for directed verdict, judgment n.o. v. and new trial.

In considering motions for a continuance, new trial, and for relief of judgment under Rule 60(b), the trial court is free to exercise its discretion, and its decision will be overturned on appeal only for abuse of that discretion. In States Steamship Co. v. Philippine Airlines, 426 F.2d 803, 804 (9th Cir. 1970), we said:

“Whether the judge misused or abused his discretion, of necessity, depends upon the facts of each case. This court has never attempted to fix guidelines, although a good rule of thumb might be to follow Judge Ma-gruder’s oft-quoted phrase in In Re Josephson, 218 F.2d 174, 182 (1st Cir. 1954), that the exercise of discretion of the trial judge should not be disturbed unless there is ‘a definite and firm conviction that the court below committed a clear error of judgment in the conclusion it reached upon a weighing of the relevant factors.’ ”

DENIAL OF CONTINUANCE

Given the obvious genuine surprise to Hamburg’s counsel when Jones introduced its “crew involvement” defense on the afternoon of the last day of trial, coupled with the misleading nature of Jones’ reply to interrogatory No. 22, it does not seem to us that a request for a continuance was unreasonable. Had the members of this panel been in a position to exercise the discretion reposing in the trial judge, we would have granted the continuance in the interest of justice.

However, we cannot say that the action of the district judge was so unreasonable and arbitrary as to amount to an abuse of his discretion. The trial had already taken ten days, and Hamburg had rested. Further, the record shows no mention by Hamburg’s counsel, in his informal request for a reopening and a continuance, of the length of time it would take to produce the German witnesses. We recognize the desire of the trial judge to conclude expeditiously an already lengthy case. The calendar congestion in the district courts is well known, and we do not wish to discourage conscientious attempts to reduce it. Under these circumstances, therefore, we are unwilling to find an abuse of discretion.

NEW TRIAL BASED UPON SURPRISE, MISREPRESENTATION, AND PREJUDICIAL ARGUMENT BY COUNSEL FOR JONES

The trial court characterized Jones’ replies to the interrogatories of Hamburg as “ambiguous” on the issue of crew involvement. Jones argues that its answer to interrogatory No. 22 was true since, at best, it had only circumstantial evidence of crew involvement. We do not find this distinction between direct and circumstantial evidence compelling. The interpretation of knowledge and information urged by Jones would substantially subvert the purposes underlying the discovery devices of the Federal Rules of Civil Procedure, i. e., “to reduce the amount of litigation, to narrow the issues and to avoid surprises and to promote justice.” Dill Mfg. Co. v. Acme Air Appliance Co., Inc., 2 F.R.D. 151, 153 (E.D.N.Y.1941).

Our analysis of Jones’ replies to Hamburg’s interrogatories leads us to conclude that Jones misrepresented its position. Thus Hamburg was justifiably surprised at trial when a new defense was offered. Some courts have gone so far as to hold that failure to disclose a defense before trial warrants a new trial. See, e. g., Burton v. Weyerhaeuser Timber Co., et al., 1 F.R.D. 571 (D.Ore.1941); Jones v. Pennsylvania R.Co., 35 F.Supp. 1017 (E.D.N.Y.1940).

We need not go so far in our holding that when a party in its answers to interrogatories misleads another party into believing that a defense will not be offered at trial, the later introduction of that defense will support a motion for a new trial. Misleading and evasive answers to interrogatories justify the court’s viewing with suspicion the contentions of the party so answering. See, e. g., Alamo Theatre Co., Inc., et al. v. Loew’s Inc., et al., 22 F.R.D. 42 (N.D.Ill.1958); Zielinski v. Philadelphia Piers, Inc., 139 F.Supp. 408 (E.D.Penn. 1952).

The trial court, finding the answers to the interrogatories merely ambiguous, exercised its discretion in denying the motion for a new trial. In addition to our conclusion that the answers were unequivocal and not ambiguous, we note that counsel for Jones made extensive use in closing argument of the fact that Hamburg failed to call members of the crew in rebuttal.

Counsel even went so far as to intimate, falsely, that prior to the trial Hamburg was aware of the testimony one of Jones’ key witnesses would give. Although generally comment on the failure to call available rebuttal witnesses is proper, under these circumstances, in light of Jones’ misrepresentation in the answers to interrogatories and its incorrect intimation, as noted above, we are convinced that the judgment cannot stand.

The Supreme Court has said that discretion “[w]hen invoked as a guide to judicial action . . . means a sound discretion . . . exercised . with regard to what is right and equitable under the circumstances and the law, and directed by the reason and conscience of the judge to a just result.” Langnes v. Green, 282 U.S. 531, 51 S.Ct. 243, 75 L.Ed. 520 (1931). We are not bound to stay our hand and place our stamp of approval on a result which we deem unjust. Commercial Credit Corp. v. Pepper, et al., 187 F.2d 71 (5th Cir. 1951).

Accordingly, we conclude that the combination of all the errors below, when considered in light of the exceedingly thin evidence in support of the verdict, dictates a conclusion that the trial court abused its discretion in denying the motion for a new trial. We cannot escape the “definite and firm conviction that the court below committed a clear error of judgment.”

The judgment is reversed and the case remanded for a new trial. We deny Hamburg's request that we direct a verdict in its favor, since we are not convinced that “the evidence is such that without weighing the credibility of the witnesses there can be but one reasonable conclusion as to the verdict.” Brady v. Southern R. R., 320 U.S. 476, 479, 64 S.Ct. 232, 234, 88 L.Ed. 239 (1943).

Reversed.

KILKENNY, Circuit Judge

(dissenting) :

Inasmuch as I do not have a definite and firm conviction that the trial judge committed a clear error of judgment in the conclusions which he reached, I would hold that he did not abuse his discretion and would affirm the judgment.

      . Seas Shipping Co. v. Sieracki, 328 U.S. 85, 66 S.Ct. 872, 90 L.Ed. 1099 (1946).

      . Ryan v. Pan-Atlantic Corp., 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133 (1956).

      . The contract between Hamburg and Jones included the following clause:
      The stevedoring company agrees to indemnify and hold harmless the steamship company against any claim or action whatever, which may be made or brought by an employee of the steve-doring company, or any other person or persons, for personal injury or death sustained on or around the company’s vessels arising out of the work of the stevedoring company, excepting where such injury or death is caused solely by the fault of the ship’s officers, crew, or equipment.

      . Hamburg claimed Jones was at fault in four respects: (1) in failing to properly inspect the work area; (2) in failing to instruct its longshoremen on the proper operation of the hatch in question; (3) in using an improper work method in closing the hatch; and (4) in failing to close the hatch before commencing to wing in a shoreside boom.
      Hamburg’s presentation was highly persuasive. The evidence was undisputed that the longshore gang of which Ruiz was a member was unaware of the type of hatch cover on the No. 3 hatch. The gang boss, Harrison, and the other longshoremen testified that they were operating under the impression that the hatch cover had a leading full lid instead of the leading half that it actually had. Further, it was uncontroverted that Jones had failed to instruct its crew on the proper way to close a hatch with a leading half lid. It was also undisputed that the gang boss did not inspect the working area of the No. 3 hatch prior to attempting to close the hatch.

      . 22. Do you, your attorneys or your representatives have knowledge and/or information that any member of the crew of or any officer of the M. V. Koln touched, handled, or in any way worked any of the ship's gear or equipment used to raise and secure and/or lower and secure the Xo. 3 MacGregor hatch cover on said vessel?
      A. Xo.

      . In denying the motion for relief of judgment, the trial judge placed special emphasis on Jones’ answer to the following interrogatory:
      5. State the names, addresses, employers and positions with same of all persons who you, your attorneys or persons acting on your behalf know or believe to have knowledge or information of the facts concerning the injury which is the subject of this action. A. See the answer to Interrogatory No. 1 [which listed the names of 21 longshoremen and Jones’ employees]. In addition, it is believed that officers, crew members, or representatives of [Hamburg] have such knowledge or information.
      The trial judge concluded that this answer, coupled with Jones’ reply to Interrogatory No. 9 wherein it contended that the hatch was designed, maintained, and operated by Hamburg in an unsafe manner, constituted notice to Hamburg that Jones considered the issue of crew involvement still very much alive despite its answer to Interrogatory No. 22.
      In so finding, the trial court overlooked Jones’ answers to the following interrogatories :
      9. With respect to your allegation in your Answer and Counterclaim to Third-Party Complaint that [Hamburg] is barred from any indemnity from you by its conduct or that of its officers, employers or representatives, which was a material breach of the stevedoring contract, please set forth each and every fact upon which you base your allegation.
      A. [Hamburg] provided a hatch, hatch coverings, and attendant mechanisms that were not in a condition fit for safe stevedoring of the vessel, particularly at the No. 3 hatch, in that said gear and equipment was defectively designed, maintained, and operated in an unsafe manner, in a way that was not apparent to [Jones] in the course of it’s [sic] stevedoring duties.
      10. Please set forth the name, address, position and employer of each and every person you, your attorneys or persons acting on your behalf know or believe to have knowledge of the facts set forth in your answer to interrogatory No. 9.
      A. See those persons named in the answer to Interrogatory No. 1.
      15. If you contend that the injury which is the subject of this suit was caused solely by the fault of the ship’s officers, crew or equipment, please set forth each and every fact upon which you base your contention.
      A. See the answer to Interrogatory No. 9.
      16. Please set forth the name, address, position and employer of each and every person you, your attorneys or your representatives know or believe to have knowledge of the facts set forth in your answer to the preceding interrogatory.
      A. See tiie answer to Interrogatory No. 1.-
      In these answers, Jones specifically disclaimed any “knowledge or belief” that members of the ship’s crew had knowledge that the injury was caused by the ship’s officers, crew or equipment. These answers, and the answer to Interrogatory No. 22, are not made “ambiguous” by a general reference that crew members have “knowledge or information of the facts concerning the injury.” We find instead that by its answers Jones misled Hamburg into believing that the issue of crew involvement was not involved in the suit at the time of the interrogatories.

      . We quote at some length portions of counsel’s closing argument:
      H? sfc % %

      “Anyway, another clue in this is when a party in the trial does not bring in evidence to counter something that is going to come against them. You know, as reasonable people you can certainly infer that, well, either they didn’t have the evidence to bring in or it was not good evidence.
      “Now that is a reasonable assumption. All of us are attorneys and supposed to be knowing what we are doing.
      * ¡i! * 5ÍÍ *
      “But now, let’s go even a step further: When you don’t have eye witnesses, you have something that can be called physical evidence, or it can be called circumstantial evidence. It has all kinds of names, the loudest and strongest evidence in this entire case from my client Jones Stevedoring Company is silence. Silence on the part of the ship owner.
      “Now picture this : This case has been going on for almost two years. This ship owner, the HAMBURG AMERICAN LINE, secured the services of Graham and James. They are sued. Let’s just see what their frame of mind might be back in March of 1968. They are sued for a quarter of a million dollars, and they have hatch logs, they obtain them from us, hatch logs as to what went on here.
      “As soon as they looked at the hatch logs, any reasonable lawyer or any reasonable office or the HAMBURG AMERICAN LINE themselves would have said immediately, ‘There is a gap here. These longshoremen were not at that place between 5 :30 and 6:45. What did go on at this crucial time? We have got to show that our ship’s crew was not there, so let’s contact the offices immediately, the ship’s crew, run them down, talk to them, find out what happened at that Hatch No. 3. Let’s take their positions if they are not here, let’s get them in here and show' that we were not there.
      “Wo have got $250,000 at stake here. Better, yet, we have so many ships coming in here all the time with all these names — just have them come over here, just have one of them, even, the Chief Officer. The expenses wouldn’t make any difference with this type of a lawsuit.
      “So who appears for the ship owner here to testify? ‘Yes, I was the mate on duty. I was the boatswain. I was in charge of the deck crew of the vessel. My men did not work the No. 3 and were not up there between 5:30 and 6:45 — and my record is proven.’
      “Who is here to say that? Silence.
      “Now it seems logical that if you are defending the case, you would have somebody .here. That is the way it appears to me. That is the way I would be defending it, that is either good or bad, but there is silence.
      “Who appeared here to say, ‘Well, we were not in a hurry to get away by 7:00 o’clock p. m. We had no reason to. The fog was not coming in. We had no reason to get that hatch closed as soon as possible.’ Who came in and said that? Silence.
      * *
      “Now why wouldn’t you bring in somebody? As a lawyer, there are only two reasons why, maybe there is only one. If you bring him in, the truth is going to come out — we don’t want him in here, and did you notice that in the record here, in the evidence in this trial, which is all any of us can consider, nowhere has there ever been any excuse in the record made at all why these men were not here. Nothing has been said that they all died or they are all in prison — nothing.
      “Now, one other thing, it is sort of like the first reason, T just hate to submit him to cross-examination.’
      “Now all our men were in here, you noticed that. He picks out some little thing here and some little thing there that does not fit exactly, some of the longshoremen see things a little differently. If they were all telling precisely the same story you better watch out for this type of thing, but we had them all here, everybody could talk to them, examine them. But I would have loved to have started in on the ship’s officer — but I didn’t have any chance. Why? They were not here.
      “Had they been in California or somewhere and I had subpoenaed them, they would be here — but they are not.
      “Owning all of the ships, that list that he went through, I am sure that HAMBURG AMERICAN could have had at least one of their mates here to testify. The silence is deafening and you are reasonable people and practical people as to what really goes on in these things.”


author: HAYS, Circuit Judge:

text:
    UNITED STATES of America, Appellee, v. Nicholas R. FINO et al., Appellants.
    Nos. 500, 561 to 566, Docket 72-2017, 72-2054 to 72-2059.
    United States Court of Appeals, Second Circuit.
    Argued Jan. 26, 1973.
    Decided May 1, 1973.

      Frederick W. Read, III, U. S. Dept, of Justice, Washington, D. C. (John T. Elfvin, U. S. Atty., Buffalo, N. Y„ Sidney M. Glazer, Dept, of Justice, Washington, D. C., on the brief), for appel-lee.
    Peter L. Parrino, Buffalo, N. Y. (Par-rino & Cooper, Buffalo, N. Y., on the brief), for appellants Nicholas R. Fino, Rosalie L. Fino, Joseph M. Giallella, Nicholas Alberti and Anthony J. Tripi.
    Joseph D. Bermingham, Jr., Buffalo, N. Y. (Doyle, Diebold & Bermingham, Buffalo, N. Y., on the brief), for appellant Joseph Randazzo,
    James P. Renda, Buffalo, N. Y., for appellant Gaetano C. Agro.
    Before MOORE, HAYS and FEIN-BERG, Circuit Judges.
   HAYS, Circuit Judge:

These are appeals from convictions entered after a trial by jury in the United States District Court for the Western District of New York on charges of conducting a gambling business in violation of 18 U.S.C. § 1955 and of conspiracy to commit that offense in violation of 18 U.S.C. § 371. All the appellants were convicted on the substantive count and all but Agro and Randazzo on the conspiracy count.

Nicholas Fino was sentenced to concurrent terms of three years and to fines totalling $30,000; Rosalie Fino and Agro to two years probation; Gial-lella, Alberti, Randazzo and Tripi to 18 months imprisonment and, in the case of Agro and Tripi, to fines respectively of $5,000 and $10,000.

Most of the relevant facts .are undisputed. Nicholas Fino supervised a large-scale gambling operation in the Buffalo, New York area. The location of the betting office to which “writers” who accepted bets on horse races telephoned their bets changed frequently. At one time it was at the home, of Agro and at a later time at the home of Nicholas Fino. Gialella Tripi and Rosalie Fino took bets over the betting office telephones from the “writers” who reported the bets in code. Fino, Alberti, Tripi and Randazzo from time to time computed the balances in the accounts of the individual “writers.”

Much of the evidence against the appellants consisted of recordings of conversations overheard in the course of court-authorized wiretaps.

The appellants contend (1) that the use of the wiretap evidence was improper in several respects; (2) that 18 U.S. C. § 1955 is unconstitutional; (3) that the court erred in permitting the jury to consider events occurring before the effective date of 18 U.S.C. § 1955; (4) that the court erred in submitting both counts of the indictment to the jury; (5) that the court erred in its charge to the jury by defining the word “conduct” too broadly; and (6) that the convictions of Agro and Randazzo were “contrary to law and against the weight of the evidence.”

(1) The Wiretaps. 1

Appellants’ first contention with respect to the wiretap evidence is that Section 2518 of Title 18, authorizing court-approved wiretaps, is unconstitutional. In United States v. Tortorello, 480 F.2d 764 (2d Cir. 1973) this Court upheld the constitutionality of that statute. In the Tortorello case the court ruled specifically on each of the areas in which these appellants challenge the statute, particularity, notice and duration and found no constitutional defect. See also United States v. Cox, 449 F.2d 679 (10th Cir. 1971), cert. denied, 406 U.S. 934, 92 S.Ct. 1783, 32 L.Ed.2d 136 (1972); United States v. Cox, 462 F.2d 1293 (8th Cir. 1972); United States v. Cafero, 473 F.2d 489 (3d Cir. 1973).

Appellants also argue that § 1955(e) creates an unconstitutional presumption. That section states that if a gambling operation is shown to have had five or more persons involved in conducting it in violation of state law and has operated for two or more days then for the purposes of probable cause for the issuance of warrants, the statutory requirement of a gross daily revenue of $2000 shall be deemed to have been satisfied. We would uphold that presumption for the purposes of probable cause, see United States v. Palmer, 465 F.2d 697, 699 (6th Cir. 1972), cert. denied, 409 U.S. 874, 93 S.Ct. 119, 34 L.Ed.2d 126 (1972), but even without it there was abundant evidence to establish the probable cause required for the issuance of the orders in this case.

Appellants’ argument with respect to probable cause for the issuance of the wiretap orders is not directed at the factual basis for the issuance of these orders. The facts alleged were, as we have said, abundantly sufficient to justify the orders. What appellants seek to attack is the statutory provision that requires “a full and complete statement as to whether or not other investigative procedures have been tried and failed or why they reasonably appear to be unlikely to succeed if tried or to be too dangerous.” Appellants argue that the facts presented in the affidavits on which the wiretap orders were based try to show that there was insufficient basis for the issuance of a search warrant. By reason of this showing, say the appellants, the government having conceded the absence of probable cause for one type of search, cannot claim the existence of probable cause for another type, i. e., the wiretap. However the appellants’ conclusion does not follow from their premises. It is entirely reasonable to require, as the statute does, that the government show its reasons for not proceeding by way of search warrants without thereby establishing the absence of probable cause for a wiretap. This is exactly what the government did in the present case.

Appellants’ objections to the procedure employed by the Department of Justice for authorizing the wiretap must fail. See United States v. Pisacano, 459 F.2d 259 (2d Cir. 1972); United States v. Becker, 461 F.2d 230 (2d Cir. 1972); United States v. Fiorella, 468 F.2d 688 (2d Cir. 1972).

Appellants urge that the wiretap orders conferred broader powers than are authorized by the minimization requirements of 18 U.S.C. § 2518, and that the agents in executing the wiretaps exceeded the limits imposed by the orders. As to the scope of the orders the appellants’ principal point is that the orders did not specify in detail the exact methods the agents should use in minimizing interception of communications of which the interception was not authorized. The orders did in fact contain a considerable amount of specification (for example as to hours of the day when the telephones could be tapped). Appellants do not suggest what additional specification should have been included. As the government points out it was impossible for the court to provide detailed definitions of the types of conversations which should be intercepted, since the exact contents of the conversations could hardly be known in advance of listening to them at least in part. Under these circumstances general instructions on minimization are to be considered as compliance with Section 2518.

The nature of the appellants’ objections to the alleged failure of the agents to observe the minimization limitations imposed by the orders can be gathered from the appellants’ claim that incoming calls were monitored under the first of the wiretap orders although that order authorized the tapping of outgoing calls only. Examination of the order and the papers on which it was based demonstrates clearly that the order contemplated tapping of incoming as well as outgoing calls, as, in common sense it must have done, with respect to a gambling operation of the type here involved.

Appellants claim that many telephone calls having nothing to do with gambling operations were monitored by the agents. The figures show, however, that only a very small proportion of the recorded calls (about two percent) were not concerned with gambling. We accept the finding of the district court that “the evidence established a good faith effort on the part of the monitoring agents to discontinue all calls believed to be of a non-pertinent nature.”

(2) Constitutionality of Section 1955.

This court has ruled that Congress did not exceed its constitutional authority under the Commerce Clause in enacting Section 1955. United States v. Becker, 461 F.2d 230 (2d Cir. 1972). See also United States v. Riehl, 460 F.2d 454 (3d Cir. 1972); United States v. Harris, 460 F.2d 1041 (5th Cir. 1972), cert. denied, 409 U.S. 877, 93 S.Ct. 128, 34 L.Ed.2d 130 and Schneider v. United States, 459 F.2d 540 (8th Cir. 1972), cert. denied, 409 U.S. 877, 93 S.Ct. 129, 34 L.Ed.2d 131.

(3) The Ex Post Facto Claim.

Appellants’ contention that the admission of certain evidence relating to events prior to the effective date of 18 U.S.C. § 1955 constitutes a violation of the ex post facto clause of the Constitution is without merit. Evidence of behavior antedating the adoption of the statute was admissible as bearing on the existence and purpose of the conspiracy and the significance of later behavior. See United States v. Smith, 464 F.2d 1129, 1133 (2d Cir. 1972). The district court received the testimony subject to an entirely appropriate limiting instruction.

(4) Submission of Both Substantive and Conspiracy Counts to the Jury.

The contention that it is error to submit to the jury counts under both 18 U.S.C. § 371 and § 1955 was raised and rejected by this court in United States v. Becker, supra, where the court said, 461 F.2d at p. 234:

“as long as the conspiratorial concert of action and the substantive offense underlying it are not coterminous and fewer participants are required for the commission of the substantive offense than are named as joining in a conspiracy to commit it, there is no infirmity in the conspiracy indictment.”
(5) Definition of “conduct” in the Trial Court’s Charge to the Jury.

The trial court’s definition of “conduct” in its charge to the jury was entirely correct. See United States v. Becker, supra.

(6) Sufficiency of the Evidence as to Agro and Randazzo.

The evidence against Agro and Randazzo was sufficient to support their convictions. '

The evidence showed that the betting office was operated at Agro’s house during a part of the period covered by the indictment. There was evidence based on monitored calls that on at least two occasions Agro accepted bets over the telephone listed in his name.

The evidence against Randazzo showed that on at least two occasions he did the computations at the weekly accounting of the “writers.”

Since we find no infirmity in the convictions, we affirm.


author: HILL, Circuit Judge.

text:
    COMMERCIAL IRON & METAL CO., Plaintiff-Appellant, v. BACHE & CO., INC., and Irving J. Louis, Jr., Defendants-Appellees.
    No. 72-1383.
    United States Court of Appeals, Tenth Circuit.
    Argued and Submitted March 27, 1973.
    Decided April 26, 1973.
    Rehearing Denied May 22, 1973.
    David G. Palmer, Denver, Colo. (Edwin S. Kahn and James C. Bull, Denver, Colo., on the brief), for plaintiff-appellant.
    George H. Colin, New York City (Raymond J. Turner, Denver, Colo., on the brief), for defendants-appellees.

      Before PICKETT, HILL and BARRETT, Circuit Judges.
   HILL, Circuit Judge.

Appellant Commercial Iron & Metal Co. (Commercial) brought suit in Colorado federal district court to recover money damages against or rescind its contract with the metals department of Bache & Co., Inc. (Bache). Commercial is a limited partnership engaged in the metal and iron business in Denver, Colorado. Bache is a Wall Street corporation which, among other things, engaged in the metals business and has its principal place of business in New York City. Jurisdiction was invoked under diversity of citizenship, 28 U.S.C. § 1332, and the exclusive jurisdiction of federal courts over securities violations, 15 U.S.C. § 78aa. The trial court, after viewing the pleadings, affidavits and exhibits, granted Bache’s motion for summary judgment on the ground that Commercial’s action in federal district court was improperly brought since the parties mutually agreed in their contracts to submit disputes to arbitration.

The principal parties in this action are Morey S. Duman (Duman), the sole general partner of Commercial, and Irving J. Louis, Jr. (Louis), a first vice president of Bache and head of its metals department. During May, 1969, Louis telephoned Duman to urge him to open an account with Bache. Duman followed this suggestion and traded in general commodities through Commercial’s margin account. Duman later switched the account to one not requiring marginal deposits and traded in electrolytic copper. During the four month period from April 7 to August 7, 1970, Bache sold three million pounds of electrolytic copper to Commercial at an average price of nearly 66 cents per pound, a financial undertaking of two million dollars. Between April and the first scheduled delivery in December, 1970, copper prices plunged. As a result Commercial refused to accept delivery of the shipments. Bache thereafter liquidated the contracts at a loss of $537,175.

Commercial promptly instituted this action. Its position was that Louis on behalf of Bache induced Commercial to enter into a discretionary account with Bache in early 1970 by means of untrue and misleading representations. Commercial alleged these misrepresentations to be: (1) the price of copper was bound to rise; (2) Louis had special information and contacts which would assure Commercial a profit; and (3) the account would be carefully managed and supervised in all respects by Louis and Bache. Commercial further alleged that while Louis was buying the electrolytic copper for Commercial he failed to disclose that: (1) from a technical standpoint it appeared likely that copper prices would fall rather than rise; (2) from a fundamental standpoint it appeared likely that copper prices would fall rather than rise; (3) Bache’s sophisticated customers were generally selling rather than buying copper; and (4) Bache and Louis failed at any time up through December 14, 1971, to hedge or close out plaintiff’s open position, despite the fact that primary and other copper prices had experienced the sharpest decline in years. Commercial charges that Louis’ misrepresentations violate Rule 10B-5(1), (2) and/or (3) and were perpetrated by use of the mails and interstate telephone calls. Commercial further asserts that Louis’ wrongful conduct violated the fiduciary duty of a broker to his customers, and violated New York’s Blue Sky Law (the Martin Act).

Appellees in their answer deny acting as broker for Commercial during the period in qúestion. Bache contends that it sold as principal to Commercial the electrolytic copper; in support of this assertion it introduced the 15 contracts between Bache and Commercial for the copper. These contracts, all of which are identical and are signed by Duman,' expressly and unequivocally identify Bache as seller and Commercial as buyer. In corroboration of the charge that Commercial understood the buyer-seller relationship, a contract identical to those in dispute was introduced showing that in 1969 Commercial purchased and accepted delivery on electrolytic nickel cathodes from Bache. Other exhibits were introduced demonstrating that on previous occasions Commercial had accepted delivery on electrolytic copper. Finally appellees attacked the jurisdiction of a federal district court to hear the action since all the contracts in dispute provide for arbitration of any claim or controversy arising out of or in connection with the agreement.

The trial court after reading through the pleadings, exhibits and affidavits held there was no genuine issue of material fact with respect to (a) federal jurisdiction and the arbitration clauses contained in the contracts; (b) the execution and delivery of the 15 contracts; and (c) the absence in the transactions between the parties of discretionary authority or dealings and of the common enterprise and promotional efforts, necessary to find an “investment contract.” As no material issues of fact were alleged, summary judgment for appellees was accordingly granted.

Our court has been explicit in defining under what conditions summary judgment may be granted. The ultimate purpose of summary judgment is to pierce the allegations of the pleadings to show there are no genuine issues of material fact. If there is an absence of material issues then the movant is entitled to judgment as a matter of law. 6 J. Moore, Federal Practice, fl 56.02 [10], at 2043 (2d ed. 1972). Because the effect of summary judgment is a judgment in bar, however, the courts should be careful in granting such motions.

. [W]hile it is the duty of the trial court to grant a motion for summary judgment in an appropriate case, the relief contemplated by Rule 56 is drastic, and should be applied with caution to the end that litigants will have a trial on bona fide factual disputes. Under the rule no margin exists for the disposition of factual issues, and it does not serve as a substitute for a trial of the case nor require the parties to dispose of the litigation through the use of affidavits. The pleadings are to be construed liberally in favor of the party against whom the motion is made.

Machinery Center, Inc. v. Anchor National Life Insurance Co., 434 F.2d 1, 6 (10th Cir. 1970); Bushman Construction Co. v. Conner, 307 F.2d 888 (10th Cir. 1962).

The lower court, in granting summary judgment, was forced to determine whether the disputes arising out of the contracts signed by Bache and Commercial would be resolved in federal court or by arbitration as provided by the United States Arbitration Act of 1925, 9 U.S.C. §§ 1-14. If the contracts are no more than contracts to purchase copper at a future date, the arbitration clause found in each contract is binding on our court and precludes us from exercising jurisdiction. See Caloric Stove Corp. v. Chemical Bank & Trust Co., 205 F.2d 492 (2d Cir. 1953). If the contracts are investment contracts, however, the judicial forum cannot be waived by the contracting parties. Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L.Ed. 168 (1953).

Determining what constitutes an investment contract is no easy matter. As used in the Securities Acts, “investment contract” is a “nebulous' term, difficult of definition and even more difficult of application.” Belhumeur v. Dawson, 229 F.Supp. 78, 81 (D.Mont.1964). Its purpose is “to meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.” SEC v. W. J. How-ey Co., 328 U.S. 293, 299, 66 S.Ct. 1100, 1103, 90 L.Ed. 1244 (1946). The Court has defined investment contract as:

a contract, transaction or scheme. whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party, it being immaterial whether the shares in the enterprise are evidenced by formal certificates or by nominal interests in the physical assets employed in the enterprise.

SEC v. Howey, supra at 298-299, 66 S.Ct. at 1103.

Commercial takes the position that commodities transactions may be the subject matter of an investment scheme which is itself an investment contract and security. It necessarily follows that if the' investment scheme constitutes an investment contract it falls within the definition of a security as provided in § 3'of the Securities Exchange Act, 15 U. S.C. § 78e(a)(10). Commercial also urges since the facts alleged in its complaint and Duman’s affidavit establish an investment scheme by Louis, the lower court erred in granting a motion for summary judgment.

Bache contends there is no investment contract under the Howey definition because the parties entered into individual, direct transactions involving the purchase and sale of copper. It is their position that elements of general offering, common enterprise, and reliance on the efforts of a manager or promoter for the achievement of profit are lacking. Appellees therefore urge us to accept the reasoning in Sinva, Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 253 F.Supp. 359 (S.D.N.Y.1966), where it was found that a sugar futures contract was not a securities contract. It was simply an agreement for the delivery of a specified quantity of a commodity at a given future time.

We do not agree with Bache’s position that Commercial raised no material issues with respect to the securities laws. In Sinva the issue was whether sugar futures contracts were securities. In our case the issue is whether the investment scheme of Louis constitutes an investment contract. If Louis’ statements to Duman, as alleged in appellant’s complaint, implied that all investment decisions would be made by Louis, while promising Commercial large profits, we might have a discretionary account constituting an investment contract even though the copper contracts which lay behind the arrangements are not themselves securities. See Continental Marketing Corp. v. SEC, 387 F.2d 466 (10th Cir. 1967), cert. denied, 391 U.S. 905, 88 S.Ct. 1655, 20 L.Ed.2d 419 (1968); Berman v. Orimex Trading, Inc., 291 F.Supp. 701 (S.D.N.Y.1968); Maheu v. Reynolds & Co., 282 F.Supp. 423 (S.D. N.Y.1967).

Commercial in its complaint and Du-man in his affidavit allege that Louis stated: (1) he had special information and contacts which would assure Commercial a profit and (2) that he would carefully manage and supervise Commercial’s account in all respects. As the court emphasized in Maheu v. Reynolds & Co., supra at 429:

The line [between what is a security and what is not] is drawn where neither the element of a common enterprise nor the element of reliance on the efforts of another is present.

Appellant’s complaint raises an issue as to Commercial’s reliance on Louis’ representations which must be resolved before a court can determine the status of Bache and Louis.

Appellees and the lower court relied heavily on the fact that Commercial signed contracts which identified Commercial as the buyer and Bache as the seller, thereby proving that the contracts were purchase contracts with all terms and conditions stated in the instruments. We do not place such reliance on these written “purchase contracts.” Although Duman signed each contract upon receiving it from Bache’s office in New York City, Louis admitted in his deposition that it was Bache’s procedure to close the balancing transaction on the same day they received the order; it was not their policy to wait for a written contract before entering into the balance of the transaction. Duman also stated that he considered the contract completed over the phone. The terms and conditions of the contract were therefore made over the telephone rather than stated in the written contract. Under these conditions it is necessary for us to look outside the written document to determine the agreement between both parties. SEC v. C. M. Joiner Leasing Corp., 320 U.S. 344, 64 S.Ct. 120, 88 L.Ed. 88 (1943); Anderson v. Francis I. duPont & Co., 291 F.Supp. 705 (D. Minn.1968).

The lower court erred in granting ap-pellee’s motion for summary judgment at this stage of the proceeding. There are issues of material fact which cannot be determined by reading over the pleadings, affidavits and exhibits. Commercial’s allegations cannot be proved unless it is given an opportunity to present evidence backing up its assertions. For the court to grant summary judgment at this stage of the proceeding effectively denies Commercial the opportunity to prove its charges of fraud. Commercial’s allegations in its complaint are stringently denied by Bache and Louis. The affidavit of Duman and Louis are contradictory in material respects, and the only way to sift through these contradictory statements is by allowing Commercial to present evidence on its charges.

We must emphasize that we are in no manner implying that Commercial’s agreement with Bache constituted an investment contract. At this stage of the proceedings we do not have the evidence before us to make such a determination. Our decision only states that appellant’s complaint and affidavit allege issues of material fact which cannot be resolved without further proceedings.

The order granting summary judgment is set aside, and the action is remanded for further proceedings consistent with this opinion.

      . Rule 10B-5 Employment of Manipulative and Deceptive Devices.
      It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of a national securities exchange,
      (1) to employ any device, scheme or artifice to defraud;
      (2) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, not misleading, or
      (3) to engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person,
      in connection with the purchase or sale of any security.

      . The term “security” means any note, stock, treasury stock, bond debenture, certificate of interest or participation in any profit sharing agreement or in any collateral-trust certificate, preorganization-certifieate or subscription, transferable share, investment contract, voting trust certificate, certificate of deposit for a security, or in general, any investment commonly known as a “security”. .


author: PER CURIAM: CHAMBERS, Circuit Judge

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Curtis Howe SPRINGER (a/k/a Curtis H. Springer) and Helen Springer, husband and wife, et al., Defendants-Appellants.
    No. 71-2309.
    United States Court of Appeals, Ninth Circuit.
    Nov. 30, 1972.
    Rehearing Denied March 5, 1973.

      George W. Nilsson (argued), Monta W. Shirley, Los Angeles, Cal., for defendants-appellants.
    Carl J. Strass, Atty. (argued), Edmund B. Clark, Atty., Kent Frizzell, Asst. Atty. Gen., Washington, D. C., Ernestine Tolan, Asst. U. S. Atty., William D. Keller, U. S. Atty., Los Angeles, Cal., for plaintiff-appellee.
    Before HAMLEY and WRIGHT, Circuit Judges, and POWELL, District Judge.

       The Honorable Charles L. Powell, United States District Judge for the Eastern District of Washington, sitting by designation.

   PER CURIAM:

The United States brought this action against Curtis Howe Springer and others for ejectment, an injunction, and damages in connection with defendants’ use of their unpatented mining claims on real property owned by the United States in San Bernardino County, California.

The United States moved for a partial summary judgment permanently enjoining defendants from using the real property in question for any purpose other than prospecting, mining or processing of minerals, and uses reasonably incident thereto. The district court held that while the Government was not entitled to a permanent injunction at that stage of the proceedings, it “may well be entitled to an injunction pendente lite” enjoining defendants from using the property for non-mining and non-prospecting purposes. United States v. Springer, 321 F.Supp. 625, 627 (C.D.Cal.1970).

The court noted in its opinion that, for many years, defendants have been using the property for the purpose of operating a resort hotel with related facilities, for the manufacture of “health” foods, and for such other purposes as the preparation of printed materials and tape recordings for radio broadcasts. The court also observed that defendants were maintaining on the property “four guestroom buildings aggregating 59 units, a dining room with kitchen facilities, an administration building, a chapel-meeting room, indoor and outdoor mineral baths, a number of out buildings, electrical facilities and various other structures and facilities.” 321 F.Supp., at 626.

The district court entered the partial summary judgment on December 18, 1970. In reliance thereon the Government, on December 29, 1970, filed a motion for an injunction pendente lite. Such an injunction was entered on June 18, 1971. It enjoins defendants pending disposition of the action or further order of the court from engaging in ten classified activities, as set out in the margin. Defendants have appealed from the entry of this injunction pen-dente lite.

An injunction pendente lite is, in essence, a preliminary injunction. See Rule 65, Fed.R.Civ.P. “Ordinarily, the grant or denial of a preliminary injunction is a matter within the discretion of the district court, and it will not be reversed absent an abuse of that discretion.” Douglas v. Beneficial Finance Co. of Anchorage, 469 F.2d 453 (9th Cir. 1972).

Defendants present a variety of arguments why the district court erred in entering the injunction pendente lite. Insofar as they pertain to the limited issues relevant here as to what use one who has unpatented mining claims may make of the land, and whether these claimants are making impermissible use of such lands, we think these arguments are fully answered in the opinion of the district court. We adopt the district court’s reasoning as our own, reject defendants’ arguments, and hold that the district court did not abuse its discretion.

“3. Letting, renting or leasing rooms, quarters or facilities to any person or persons, or entity or entities, not engaged in the prospecting for, mining or processing of minerals and uses reasonably incident thereto.
“2. Inviting or permitting, or in any manner inducing, any person or persons, whether or not for money, to come onto or be on said real property and premises or to live on said real property and premises other than those persons employed or acting in the prospecting for mining or processing of minerals and uses reasonably incident thereto.
“3. Operating, using, maintaining, repairing or constructing any improvements, buildings, structures, fixtures, facilities or equipment of any kind on said real property and premises, except such as are used in the prospecting for, mining or processing of minerals and uses reasonably incident thereto, and operating an electrically driven hammer mill referred to as the ‘grist mill.’
“4. Building, maintaining or repairing roads or airplane landing strips or runways on said real property and premises, for any use other than in the prospecting for, mining or processing of minerals and uses reasonably incident thereto.
“5. Preparing, mixing, blending, packaging, or preparing for mailing, selling or giving away, or receiving contributions for any food, foods or food products on said real property and premises, whether known by the name Basic Foods, Basie Food Products, Zzyzx or Zzyzx Brand, or any other name.
“6. Preparing, printing, binding, distributing, or preparing for mailing, at said real property and premises, any written or graphic material of any kind whatever, however produced or reproduced, except insofar as the same is used in the prospecting for, mining or processing of minerals and uses reasonably incident thereto.

We have set out above only the tip of the iceberg with regard to the proceedings which have been had, or are in progress, concerning this controversy. It is to be expected that defendants will, as they have in the past, seek stays from any available court or judge in an effort to keep their operations on these Government lands in progress as long as possible. For the assistance of any court or judge which is hereafter asked to grant such a stay, we here set out in the margin the long history of such efforts in this court to date.

“7. Preparing, recording, reproducing, distributing, or j)reparing for mailing, at said real property and premises, any sound recordings of any kind whatever, for radio broadcast or otherwise.
“8. Constructing, using, maintaining, operating or repairing, any pools, lakes, baths or devices of any kind to contain water on, in or under said real property and premises, except insofar as the same may be used in the prospecting for, mining and processing of minerals and uses reasonably incident thereto.
“9. Drilling or in any manner constructing any wells on, in or under said real property and premises, or using, operating, maintaining or repairing any presently existing wells thereon, therein or thereunder, except insofar as the same is used in the prospecting for, mining or processing of minerals and uses reasonably incident thereto.
“10. Extracting, mining, processing or using sand and gravel found on said real property and premises for the purposes of operating, maintaining, repairing or constructing improvements, buildings, structures, fixtures or facilities of any kind on said premises, except insofar as is necessary in the prospecting for, mining and processing of minerals and uses reasonably incident thereto.”

The stay entered on October 16, 1972, is vacated. The order granting an injunction pendente lite is affirmed.

ON PETITION FOR REHEARING AND SUGGESTION FOR REHEARING IN BANC

The petition for a panel rehearing is denied.

Pursuant to Rule 35(b), Federal Rules of Appellate Procedure, appellant’s suggestion for a rehearing in banc was transmitted to the judges of the court who are in regular active service. One such judge requested a vote on the suggestion, but only this judge voted for an in banc rehearing. The suggestion for a rehearing in banc has therefore been rejected.

CHAMBERS, Circuit Judge

(dissenting from the refusal of the court to take the case en banc).

Springer is operating some kind of a health spa on mining claims on government land.

This involves several buildings built on the claims and the use of some spring water claimed to contain health-giving minerals. It is not contended the business is an unlawful one.

What the panel has done is to approve the granting of a temporary injunction where no final judgment or decree has been entered. No threatened irreparable injury was ever proved. Certainly by final judgment a landowner is entitled to have one adjudged to be on the land improperly and is entitled to have the defendant put off by mandatory injunction, but not now.

What we do is to approve the practice of giving the government “two bites at the cherry,” — one is on preliminary injunction and the second is on trial on the merits.

There was no balance of convenience here in favor of government. Any damage done was when the establishment was erected. It is not suggested that any real damage has been done since then.

Although the case is not mentioned, the panel has quietly overruled such cases as McCarthy v. Bunker Hill and Sullivan Mining and Concentrating Company, 164 F. 927 (9th Cir. 1908), a case that has stood for 65 years. There, mines were polluting the Coeur d’Alene River. On a temporary injunction request, this court said “no.” Comparatively the damage in the McCarthy case was horrendous. Here, no present damage is shown.

It is very troublesome that the panel opinion refers to the fact that Springer has been convicted of a number of offenses. I thought the day was long past when we forfeited a man’s legal rights because he had been previously convicted of a crime or crimes.

      . Defendants are enjoined, pending disposition of the action or further order of the court, from:

      . There are now pending before the Department of the Interior two complaints in contests filed by the Bureau of Land Management against the mining claims here in issue. There have also been contempt proceedings in the district court, and an eviction order. Springer has made several attempts to obtain title or possession under non-mining laws, as follows: Desert Land Application — Los Angeles Nos. 087266 and 087267, July 12, 1951, finally rejected in Decision A-27305, September 25, 1957; Recreation and Public Purposes applications Nos. LA-0153617 and LA-0158843, November 14, 1957, and June 17, 1958, final appeal dismissed November 18, 1964; non-mineral application No. R-07418, January 10, 1966, appeal denied April 28, 1970.
      Springer has been convicted of various offenses in connection with the use of these lands, some on pleas of guilty. These convictions include eighteen counts of false advertising concerning remedies for hemorrhoids, heart disease, “nerves,” thyroid and goiter; and violations of the California State Health and Safety Code pertaining to misbranding foods.

      . On August 19, 1971, a judge of this court granted Springer a stay of the district court injunction pendente lite, to September 2, 1971. On August 26, 1971, a two-judge panel of this court granted Springer a further stay, reserving the right of the Government to move for reconsideration. The Government moved for reconsideration and, on September 9, 1971, a two-judge panel of this court denied reconsideration. Early in 1972, the Government renewed its motion to lift the stay of the district court’s injunction. On January 31, 1972, a two-judge panel of this court set aside the stay.
      On February 10, 1972, a two-judge panel of this court denied Springer’s motion to stay the district court injunction. On February 18, 1972, the same panel denied Springer’s renewed petition for a stay. On September 5, 1972, another two-judge panel of this court denied Springer’s motion to stay district court contempt hearings, but expedited the hearing of this appeal. On October 6, 1972, the district court entered an order of eviction from the premises, except as to those engaged in mining operations including maintenance work and cooking for workers. On October 16, 1972, a judge of this court stayed the enforcement of the eviction order pending the hearing of the appeal calendared for November 1, 1972.


author: DONALD RUSSELL, Circuit Judge:

text:
    ETHYL CORPORATION, Appellee, v. ENVIRONMENTAL PROTECTION AGENCY, Appellant (two cases).
    Nos. 72-2355, 72-1005.
    United States Court of Appeals, Fourth Circuit.
    Argued Feb. 6, 1973.
    Decided May 10, 1973.

      William Kanter, Atty., U. S. Dept, of Justice (Harlington Wood, Jr., Asst. Atty. Gen., Brian P. Gettings, U. S. Atty., and Walter H. Fleischer, Atty., U. S. Dept, of Justice, on brief) for appellant.
    E. Milton Farley, III, Richmond, Va. (Joseph C. Carter, Jr., David F. Peters, T. S. Ellis, III, Carl W. Tobias, Hunton, Williams, Gay & Gibson and Frederick P. Warne, Richmond, Va., on brief) for appellee.
    Before BUTZNER, RUSSELL and WIDENER, Circuit Judges.
   DONALD RUSSELL, Circuit Judge:

The Administrator of EPA resists an application by Ethyl Corporation filed under the Freedom of Information Act, to require the production of seven documents containing medical and scientific data and considered by him in connection with the issuance of proposed lead regulations under the Clean Air Act. He contended initially that the documents were exempt from production by the terms of Section (b)(5) of the Act. When the District Court, after hearing testimony and considering affidavits submitted, expressed the intention to require production of the- strictly factual parts of the documents, the Administrator requested a continuance in order to permit him to consider whether to claim “executive privilege”. The continuance was granted and the Administrator did file thereafter with the Court an affidavit in which he claimed “executive privilege”. Despite this claim by the Administrator, the District Court examined the documents in camera, determined that parts thereof contained purely factual material not inextricably intertwined with policy-making processes, and ordered the same produced. The Administrator has appealed and, pending appeal, secured a stay of the order.

We affirm.

The Freedom of Information Act was intended to express in statutory form the firm obligation of governmental agencies to make disclosure to “any person” of identifiable information and facts in their possession, limited only by certain specific exemptions. Specifically, it denied the federal agency any right to “refuse disclosure of materials covered by the Act for any reason other than one contained in the exclusionary section of the legislation.” The legislative history of the Act makes it clear that the obligation to produce thereby mandated is to be construed broadly and the exemptions from such obligation narrowly. In short, the Act makes disclosure the rule and secrecy the exception. And, lest the Congressional purpose be thwarted by the inevitable tendency of the agency towards secrecy, Congress, discarding the usual principle of deference to administrative determinations, provided for any “aggrieved citizen” denied disclosure a judicial remedy in the District Court, which was directed to “determine the matter de novo”, with the burden on the agency itself “to sustain” its claim for exemption. By-such provision, Congress imposed on the federal courts “the responsibility of determining the validity and extent of the claim [of exemption], and insuring that the exemption is strictly construed in light of the legislative intent.”

The specific exemption on which the Administrator relies authorizes non-disclosure of “inter-agency or intra-agency memorandums or letters which would not be available by law to a party other than an agency in litigation with the agency.” This exemption has been authoritatively construed as differentiating in treatment between “materials reflecting deliberative or policy-making processes on the one hand, and purely factual, investigative matters on the other”, between material that deals “solely with matters of law or policy” and those that are “matters of a factual nature”. The Act never “intended to place ‘factual material’ within the coverage of the fifth exemption.” ******Simply because a document contains both purely factual material and “materials reflecting deliberative or policy-making processes” does not render the document automatically exempt from discovery. Congress never “intended to exempt an entire document merely because it contained some confidential information.” And this construction of the exemption was given authoritative approval in Mink when Justice White said that “in the absence of a claim that disclosure would jeopardize state secrets, see United States v. Reynolds, 345 U.S. 1 [73 S.Ct. 528, 97 L.Ed. 727] (1953), memoranda consisting only of compiled factual material or purely factual matetial contained in deliberative memoranda and severable from its context would generally be available for discovery * * 410 U.S. at 87, 93 S.Ct. at 836. In that case, Justice White stated that Exemption 5 of the Act was not to be applied “woodenly” as authorizing the “withholding of factual material otherwise available on discovery merely because it was placed in a memorandum with matters of law, policy or opinion.” He pointed out that the proper application of the exemption makes discoverable factual material in memoranda, even though the memoranda include protected law, policy, or opinion or recommendations, if the “purely factual material appearing in those documents [is] in a form that is severable without compromising the private remainder of the documents.”

Ordinarily, when the issue of severa-bility, as stated in Mink, arises, the Court will review in camera the documents in controversy. But, as Mink declares, such in camera review “need not be automatic”. If the agency is able to establish, whether “by surrounding circumstances” or otherwise, that the documents “are purely advisory and contain no separable, factual information” or if the agency discloses “the factual portions of the contested documents” and shows “that the excised portions constitute the bare bones of protected matter”, in camera inspection may be avoided.

In this case, it is freely conceded by the Administrator that the documents in question contain in part scientific, medical, economic and technological data of a purely factual nature. The District Court found from an in camera review of the documents that such factual data were “severable without compromising the private remainder of the documents.” That this conclusion is correct was substantiated by the subsequent concession made by the Administrator himself. Thus, the District Court permitted the Administrator to, and the Administrator did, “select from the documents that the Court has [had] examined en camera [sic], those matters which they [he] would agree are purely factual or scientific, as distinguished from advice, recommendations, opinions and other material reflecting deliberative and policy making processes.” After receiving this compilation by the Administrator, the District Court commented that there were few or no significant differences between the material in the documents found by him to be purely factual and not intertwined with the decisional processes of the Administrator, and those agreed by the Administrator to be so purely factual. The Administrator does not dispute this statement of the District Court. We assume, therefore, there is no substantial difference between the material found by the District Court to have been “purely factual” and severable from protected material and that so found by the Administrator’s own representative. Under those circumstances, it is thus incontestable that in a substantial sense the material, the disclosure of which he resists, is not within Exemption 5 both under the findings of the District Court’s in camera inspection and under the admission made by the Administrator’s representative at trial.

As a last-line defense to disclosure, however, the Administrator invokes “executive privilege”. Such privilege was well recognized long before the enactment of the Freedom of Information Act. The extent and scope of the privilege, which is regarded as in part constitutional in origin and in part common law, have been explicated in the numerous decisions in which the issue has arisen. While the claim is one to be asserted initially by “the head of the department which has control over the matter” inquired into, resolution of the right to secrecy is not left to “the caprice of executive officers”; rather, it is for the courts to “determine whether the circumstances are appropriate for the claim of privilege.” United States v. Reynolds (1953) 345 U.S. 1, at 8-10, 73 S.Ct. 528, at 532, 97 L.Ed. 727.

In determining when the claim may be properly invoked, the Courts have for long classified the information sought under two broad headings. This was the procedure followed by Justice White in Mink. The first classification relates to what has been often described as “state secrets” or matters relating to national security, either military or diplomatic. The second classification consists of “official information”, represented in this case by “intra-office advice on policy.” The right to disclosure differs markedly with the two classifications. Because they pose patent dangers to the public interest, “(Disclosures that would impair national security or diplomatic relations are not required by the courts.” And while courts are “to determine whether the circumstances are appropriate for the claim of privilege” on this ground, the judgment of the Executive that disclosure might impair “national security or diplomatic relations” is conclusive, unless the Court finds that the privilege is asserted arbitrarily or capriciously; and, in considering the issue or arbitrariness or capriciousness, the Court is not ordinarily entitled to examine in camera the contested documents. The second classification, on the other hand, as it relates to this case, applies to “official information”, and covers “materials reflecting deliberative or policy-making processes,” as distinguished from purely factual material. The disclosure of such materials involves a far lesser danger to the public interest than the disclosure of “state secrets” and has always been sub-jeet to a much less stringent rule for discovery and a broader scope of judicial review. In camera examination by the Court of the contested documents in order to determine the acceptability of the claim is generally an accepted practice in this situation.

Congress was obviously aware of these two broad classifications of material, over which the claim of “executive privilege” might be asserted and, in the Freedom of Information Act, attempted to give to each classification its precise, established judicial right of immunity from discovery. Thus, in Subsection (1) of the Exemptions, the Act invested with immunity from disclosure all matters “specifically required by Executive order to be kept secret in the interest of the national defense or foreign policy.” As Mink makes clear, the test whereby disclosure of these “state secrets” is to be governed under the Act “was to be simply whether the President has [had] determined by Executive Order that particular documents are to be kept secret.” This was in keeping with established precedent. But, so far as government documents not qualifying as “state secrets” are concerned, the Act, as authoritatively construed in Mink, merely codified the existing law by granting protection only to those portions of a government document that were a part of the “deliberative or policy-making processes” of government and not to those portions that constituted the “purely factual” material therein, “sev-erable without compromising the private remainder of the documents.”

The claim of “executive privilege” in this case is no more than a restatement of the Administrator’s claim for exemption under Section (b) (5) of the Act and no broader than the rights given the Administrator under that Section. As the Court recognized in Philadelphia Newspapers, Inc. v. Department of H. & U. D. (D.C.Pa.1972) 343 F.Supp. 1176, 1178, the right of immunity, as asserted by the Administrator in this case, is the same, whether it be claimed as an exemption under Section (b) (5) or under the heading of “executive privilege”. Thus, the claim of “executive privilege” gives no added stature to the Administrator’s claim of exemption under Exemption 5 and is equally unavailing as a basis for reversal of the District Court’s conclusion.

Affirmed.

      . Environmental Protection Agency.

      . 5 U.S.C. § 552.

      . 42 U.S.C. § 1857f-6e.

      . Sterling Drug, Inc. v. F.T.C. (1971) 146 U.S.App.D.C. 237, 450 F.2d 698, 703.

      . Hawkes v. Internal Revenue Service (6th Cir. 1972) 467 F.2d 787, 792, n. 6.

      . Soucie v. David (1971) 145 U.S.App.D.C. 144, 448 F.2d 1067, 1080; Wellford v. Hardin (4th Cir. 1971) 444 F.2d 21, 25 ; Fisher v. Renegotiation Board (1972) 153 U.S.App.D.C. 398, 401, 473 F.2d 109, 112.

      . Section 552(a)(3), 5 U.S.C.; Soucie v. David, supra.

      . Bristol-Myers Company v. F.T.C. (1970) 138 U.S.App.D.C. 22, 424 F.2d 935, 938, cert. den., 400 U.S. 824, 91 S.Ct. 46, 27 L.Ed.2d 52.

      . Environmental Protection Agency v. Mink (1973) 410 U.S. 73, 89, 93 S.Ct. 827, 837, 35 L.Ed.2d 119.

      . Ackerly v. Ley (1969) 137 U.S.App.D.C. 133, 420 F.2d 1336, 1341, n. 7.
      Wu v. National Endowment for Humanities (5th Cir. 1972) 460 F.2d 1030, cited by the Administrator, illustrates the distinction. In that case, the contested documents consisted of “opinions, not facts, and are thus protected by exemption (5)” (at 1033). The decision, however, very clearly recognized that “purely factual material, * * * is not protected from disclosure * * (at 1032)

      . Consumers Union of U. S., Inc. v. Veterans Admin. (D.C.N.Y.1969) 301
      See, also, Bristol-Myers Company v. F.T.C., supra, at 939 (424 F.2d) :
      “Purely factual reports and scientific studies cannot be cloaked in secrecy by an exemption designed to protect only ‘those internal working papers in which opinions are expressed and policies formulated and recommended.’ ”

      . Grumman Aircraft Engineer Corp. v. Renegotiation Bd. (1970) 138 U.S.App.D.C. 147, 425 F.2d 578, 580; Simons-Eastern Company v. United States (D.C. Ga.1972) 55 F.R.D. 88, 89; Fisher v. Renegotiation Board, supra, at 115 (473 F.2d) ; see, also, Sterling Drug, Inc. v. F.T.C., supra, at 704 (450 F.2d), where the Court remanded the proceedings to permit the District Court to review the materials in question and determine whether it contained factual material that was properly discoverable.
      In Wellford v. Hardin, supra, at 770 (315 F.Supp. 768), the Court said:
      “It is a violation of the Act to withhold documents on the ground that I)arts are exempt and parts non-exempt. In that event, ‘suitable deletions’ may be made; * *

      . Mink, supra, 410 U.S. at 91, 93 S.Ct. at 838.
      S.Rep. No. 3219, 88th Cong., 2d Sess., 13-14:
      “Exception No. 5 [of the Freedom of Information Act] would exempt ‘intra-agency or interagency memoranda or letters dealing solely with matters of law or policy.’ * * * Exception No. 5 has been included to cover this situation, and it will be noted that there is no exemption for matters of a factual nature.” (Italics added.)

      . Sterling Drug, Inc. v. F.T.C., supra, at 703 (450 F.2d.).

      . Mink, supra, 410 U.S. at 93, 93 S.Ct. at 839.

      . Cf., Ackerly v. Ley, supra, at 1340 (420 F.2d):
      “Again, however * * *, we confess to a considerable lack of enthusiasm for the caliber of the Commissioner’s performance in this seemingly erratic discharge of his responsibilities under the Freedom of Information Act.”

        See, also, M. A. Schapiro & Co. v. Securities and Exchange Com’n. (D.C.D.C.1972) 339 F.Supp. 467, 469, where the Court remarked that the subsequent release of parts of the contested material "is an indication on their jiart as to the merits of their initial assertions.”

      . Davis, The Information Act: A Preliminary Analysis, 34 U. of Chi.L.Rev. 761, 764 (1967).

      . United States v. Reynolds, supra, at 7 (345 U.S.), 73 S.Ct. 528; Totten, Administrator v. United States (1875) 92 U.S. 105, 107, 23 L.Ed. 605; Note, Administrative Law — Freedom of Information Act, 25 Vand.L.Rev. 397, 400 (1972).

      . See, Carl Zeiss Stiftung v. V. E. B. Carl Zeiss, Jena (D.C.Cir. 1966) 40 F.R.D. 318, 324, n. 15.

      . Kaiser Aluminum & Chemical Corp. v. United States (1958) 141 Ct.Cl. 38, 157 F.Supp. 939 at 944-945. See, also, United States v. Marchetti (4th Cir. 1972) 466 F.2d 1309, 1317, cert. denied 409 U.S. 1063, 93 S.Ct. 553, 34 L.Ed.2d 516.

      . United States v. Reynolds, supra, at 7 (345 U.S.), 73 S.Ct. at 532.

      . Epstein v. Resor (9th Cir. 1970) 421 F.2d 930, 7 A.L.R.Fed. 870, cert. denied, 398 U.S. 965, 90 S.Ct. 2176, 26 L.Ed.2d 549.

        Mink, supra, 410 U.S. at 93, 93 S.Ct. at S39.

      . See, Pilar v. SS Hess Petrol (D.G.Md. 1972) 55 F.R.D. 159, 162:
      “ * * * by its terms and tenor, the statute [Freedom of Information Act] creates no new exemption for agency files; in the several exemptive provisions it merely recognizes and codifies the existing judicially and congres-sionally created exemptions.”

      . Mink, supra, 410 U.S. at 82, 93 S.Ct. at 833.
      Soucie v. David, supra, at 1079, n. 48 (448 F.2d) puts it:
      “But to qualify for the first exemption, the Government need show only that the record is ‘specifically required * * * to be kept secret’ pursuant to an Executive order; review of the propriety of keeping it secret is then limited to determining that the administrative decision was not arbitrary and caxjricious.”

        See, also, Committee for Nuclear Responsibility, Inc. v. Seaborg (1971) 149 U.S.App.D.C. 393, 463 F.2d 796, 798.

      . Mink, supra, 410 U.S. at 91, 93 S.Ct. at 838.

        See, Soucie v. David, supra, at 1077 (448 F.2d).
      It is of interest, too, that the proposed Rules of Evidence for the United States Courts and Magistrates make this same distinction between “state secrets” and “official information” and establish the same rules governing the production of such materials as are set forth in the Freedom of Information Act (Rule 509). This similarity was noticed by the Court in Mink. 410 U.S. at 89, n. 16, 93 S.Ct. at 837.


author: THORNBERRY, Circuit Judge:

text:
    GENERAL ELECTRIC CREDIT CORPORATION, Plaintiff-Appellant, v. T. R. GRUBBS, d/b/a T. R. Grubbs Tire & Appliance, Defendant-Appellee.
    No. 29961.
    United States Court of Appeals, Fifth Circuit.
    April 13, 1973.
    Rehearing Denied May 14, 1973.

      Hubert D. Johnson, Dallas, Tex., for plaintiff-appellant.
    J. R. Cornelius, Bill J. Cornelius, Jefferson, Tex., for defendant-appellee.
    B. A. Britt, Jr., Texarkana, Tex., for Goodyear Tire & Rubber Co.
    Roby Hadden, U. S. Atty., Tyler, Tex., for United States.
    Before GEWIN, THORNBERRY and CLARK, Circuit Judges.
   THORNBERRY, Circuit Judge:

General Electric Credit Corporation (GECC), plaintiff below, appeals from a judgment denying it recovery on a note and awarding defendant-appellee Grubbs a $20,000 recovery on his counterclaim. We reverse the judgment below.

Grubbs operated an appliance store in Jefferson, Texas, and sold General Electric products. He financed his purchases of inventory by means of two distinct arrangements with GECC, a wholly-owned subsidiary of General Electric Corporation. Pursuant to the first of these arrangements, known as trust receipts financing or “floor planning,” he paid ten percent of the price of inventory purchased from General Electric, and borrowed the balance from appellant. Merchandise purchased under this arrangement was held by Grubbs in trust, and he was to pay GECC the balance of the purchase price promptly upon sale of the merchandise to a customer. Should Grubbs fail to pay the balance promptly upon sale to the customer, the sale was referred to as a “sale out of trust.”

Under the second financing arrangement — the one giving rise to the note upon which appellant brought suit— Grubbs sold to GECC chattel mortgages, notes, and other accounts generated by his sales to customers. The 1955 agreement governing these sales of “chattel paper” obligated GECC to purchase only those accounts that it deemed “acceptable.” If a customer defaulted on two or more installments under an account sold to GECC, Grubbs was required, upon demand by GECC, to repurchase that account for cash. If, thirty days after GECC had demanded the repurchase of a defaulted account, Grubbs had not repurchased it, then Grubbs became obligated to repurchase all of the accounts he had sold to GECC, whether they were in default or not.

By March 1964, ninety-four of the accounts that Grubbs had sold to GECC, amounting to roughly $67,000, were in default by two or more installments, and Grubbs had not repurchased them as required by the 1955 agreement. Rather than forcing Grubbs to repurchase all of the outstanding accounts sold to GECC (which by this time numbered 671 and amounted to roughly $270,000, exclusive of the ninety-four defaulted accounts), or suing him on his repurchase obligation, GECC proposed that Grubbs execute a note representing the amount due in cash under the repurchase obligation ($67,000) payable in monthly $1500 installments beginning on April 11, 1964. Grubbs and his wife signed the note, telling GECC representatives that they “owed it and had to pay it anyway.” Grubbs and his wife testified that appellant induced them to sign the note by assuring them that they would have the sole right to make collections and repossessions under the ninety-four accounts, and by promising to continue purchasing Grubbs’ customers’ accounts “as before,” which Grubbs understood to mean that appellant would purchase substantially all of the chattel paper he tendered. GECC officials, however, testified that Grubbs’ obligation to pay the note was not contingent upon GECC’s continued purchase of chattel paper. It is clear, nonetheless, that even if appellant did undertake to “continue” purchasing chattel paper from Grubbs “as before,” this would obligate appellant to purchase only the accounts it considered “acceptable”: appellant promised to do nothing more than it was required to do under the 1955 agreement, and that agreement was not materially modified by the March 1964 note.

After paying the first $1500 installment on April 11, 1964, Grubbs refused to make further payments; and GECC sued to recover the balance on September 3, 1964. In October 1966 Grubbs amended his answer in several material respects. First, he asserted that the note was unenforceable because of fraudulent inducement and total failure of consideration. Secondly, he asserted a “cross-action” (actually, a counterclaim against appellant and a third-party action against General Electric Corporation) alleging that appellant and General Electric had violated federal and Texas antitrust laws and that they had embarked upon a scheme resulting in the total destruction of Grubbs’ business. The trial judge, sitting without a jury, heard testimony for two days, and then declared the note unenforceable for fraud and failure of consideration, awarded Grubbs a $20,000 recovery against GECC alone on his claim of “destruction of his business,” and denied all other claims for relief (including the alleged antitrust violations).

The Note

On appeal, Grubbs reiterates three theories advanced in the court below in support of his claim that the note was unenforceable because of total failure of consideration. First, he argues that he was required to pay the note only if appellant continued to purchase and pay him for chattel paper tendered to it, and that GECC breached this obligation while the note was still current. As mentioned earlier, it is not at all clear what appellant promised in return for Grubbs’ signing the note, but in no event did it undertake more than to continue purchasing only “acceptable” paper, as it had done under the 1955 agreement. In any event, after Grubbs had made the first payment on April 11, 1964, he tendered approximately $2600 in accounts to GECC, who at first refused to accept them because they were unacceptable credit risks, but who later accepted accounts worth approximately $1580. Rather than sending Grubbs the cash, however, appellant credited this amount to reserve accounts (established to insure Grubbs’ performance of his obligations under the financing arrangements) to cover some $1700 in worthless checks (drawn by Grubbs and by his customers) that Grubbs had tendered as customer payments on accounts sold to GECC and as remittances from Grubbs in payment for trust receipt merchandise. Since the financing arrangements required Grubbs to cover any worthless checks he sent to GECC, there was no practical difference between sending Grubbs the cash and crediting his account to cover the checks. This incident, therefore, was not a failure of consideration. Likewise untenable is the claim that the note was induced by a fraudulent promise to continue purchasing Grubbs’ chattel paper. In refusing to accept some accounts, and in crediting the proceeds of others to the reserve accounts, GECC did no more than it had a right to do under the original agreements with Grubbs.

The second alleged instance of failure of consideration was appellant’s sending “direct pay” notices to Grubbs’ customers, instructing them to make remittances directly to GECC. Appellant was authorized to make collections on accounts that it had purchased; but Grubbs argued that in some cases a notice was sent to a customer, one of whose accounts had been purchased by GECC but whose other account either had not been sold to GECC or had been charged back to Grubbs pursuant to the March 1964 note. These customers, unable to distinguish between accounts owed to GECC and accounts owed to Grubbs, simply stopped paying Grubbs altogether, although Grubbs allegedly was to have the sole right to make collections and repossessions on the ninety-four defaulted accounts represented by the March note. As of August 1964, when the direct pay notices were sent, however, Grubbs was in default on the note, having repudiated it in May or June; and Grubbs will not be heard to justify that repudiation by events occurring months later. It is even possible that sending the direct pay notices to the ninety-four defaulted accounts was not in violation of the March agreement, because GECC officials testified that Grubbs was to have a right to make collections on those accounts only if he continued paying the note.

Thirdly, Grubbs contends that termination of trust receipts financing before his franchise expired was a failure of consideration. But there is absolutely no evidence that continuation of trust receipts financing was promised in consideration for the note. Moreover, when trust receipts financing was terminated in August 1964, Grubbs was “short” by over $6,000 due to “sales out of trust,” and admittedly could not make up the shortage.

In summary, the trial court erred by denying recovery to GECC on the note. Appellant is entitled to recover the balance due under the note, plus reasonable attorneys’ fees (Vernon’s Tex.Rev.Civ. Stat.Ann. art. 2226).

The Counterclaim

Here we are concerned only with GECC’s alleged liability for the acts it committed pursuant to the scheme to “totally destroy” Grubbs’ business. The trial court exonerated General Electric Corporation, and denied Grubbs’ claims under the antitrust laws; and Grubbs does not allege that that part of the judgment was erroneous.

Besides the conduct which we have seen to be authorized by Grubbs’ agreements with GECC, the allegedly wrongful acts fall roughly into four categories: (1) failure to credit Grubbs for the price of some inventory removed from his floor when trust receipts financing was terminated; (2) “slanderous accusations” by GECC employees that Grubbs had cheated both his customers and GECC by failing to remit customer payments on accounts purchased by GECC; (3) the mailing of “direct pay” notices to accounts that Grubbs had the exclusive right to collect; (4) appellant’s wrongful repossession from customers of merchandise on which it had no lien, and its sale of that merchandise without giving Grubbs the right to bid.

“Slanderous Accusations”: Several of Grubbs’ customers testified that men who “represented themselves to be” or “purported to be” GECC employees visited them in 1964 and 1965, and said that Grubbs had swindled them and cheated GECC by failing to remit to GECC customer payments collected by Grubbs and owed to GECC under accounts GECC had purchased. In order to hold GECC liable for these statements, Grubbs of course had the burden of proving that the men were in fact GECC employees and that the statements were made in the course of their employment; but we have combed the record in vain for competent proof of either of these elements. The customers’ recollections of what the men represented themselves to be was hearsay, and Texas courts hold that such testimony, even if admitted without objection, is no proof at all of agency or scope of employment. Lewis v. J. P. Word Transfer Co., 119 S.W.2d 106 (Tex.Civ.App., Dallas 1938, writ ref’d). Even if the “men” themselves had testified, their testimony standing alone would not have supported a finding of agency. Robertson Tank Lines, Inc. v. VanCleave, 468 S.W.2d 354 (Tex.1971). Grubbs was not entitled to any recovery for the allegedly “slanderous accusations” made to his customers.

“Direct Pay" Notices: From our review of the record, we cannot say that the trial court clearly erred in determining that GECC was liable to Grubbs for the injury caused by sending “direct pay” notices to customers some of whose accounts were owed solely to Grubbs. We are, however, unable to determine how many of Grubbs’ (as distinct from GECC’s) accounts were sent the notices, or to determine the amount of customer payments that Grubbs lost when his customers stopped paying in reliance on the notices. We accordingly remand to the court below for determination of the amount of damages due Grubbs for GECC’s mailing the direct pay notices.

Wrongful Repossession and Sale: Again, appellant does not seriously dispute Grubbs’ claim of damages for GECC’s repossession from customers of merchandise on which GECC had no lien. Some of the repossessed merchandise had been purchased from Grubbs on open account, and Grubbs had not financed his purchase of the merchandise with GECC. Other repossessed merchandise was covered by the ninety-four defaulted accounts represented by the March 1964 note, and we cannot say that the trial court clearly erred in finding that Grubbs had the sole right to make collections and repossessions on these accounts. GECC disposed of this repossessed merchandise in two sales. During the first, Grubbs and his wife’s brother-in-law were permitted to bid on the merchandise after opening the bids of other prospective purchasers. Grubbs was not, however, permitted to bid at the second sale. But again we are compelled to remand to the court below for a precise determination of the amount of damages caused by the wrongful repossessions and sale.

Needless to say, we cannot accept the trial court’s award of $20,000 as a blanket recovery for “destruction of Grubbs’ business.” The evidence tended to show that Grubbs had been operating at a loss prior to the events giving rise to the instant suit, and that it was only a matter of time until his business failed. On remand, Grubbs’ recovery is to be limited to (1) credit for “trust receipt” merchandise which was not credited to him when trust receipts financing was terminated, (2) Grubbs’ losses on accounts which he had the sole right to collect, caused by the mailing of the “direct pay” notices, and (3) credit for merchandise wrongfully repossessed from Grubbs’ customers and sold.

In summary, we reverse as to the trial court’s failure to award GECC a judgment on the note; we reverse the award of $20,000 in damages on Grubbs’ counterclaim, and remand for a precise determination of damages on his counterclaim.

Costs shall be taxed to appellee.

Reversed and remanded.

      . Under the “floor plan” agreement, GECC had the right to accept the customer’s account in lieu of Grubbs’ payment of the balance.

      . In 1963, Grubbs had executed another note to GECC, representing his liability to repurchase $69,000 in defaulted paper sold to GECC.

      . GECC had brought suit in state court in Marion County, Texas. By his amended pleading, Grubbs made the United States a party to the suit, in order to obtain a determination of priorities among a number of judgment lienholders including the United States (which had obtained judgment under a note assigned to the Small Business Administration). The United States removed the suit to the United States District Court for the Eastern District of Texas.

      . As to tiie acts committed in furtherance of this scheme, Grubbs claimed that GECC had refused to purchase any chattel paper from him after execution of the March 1964 note; that GECC employees had repossessed merchandise covered by some of the ninety-four defaulted accounts charged back to Grubbs pursuant to the note, and in so doing had slandered Grubbs; that GECC had notified Grubbs’ customers not to make further payments to him; and that GECC had wrongfully terminated trust receipts financing before Grubbs’ franchise had expired. Many of the acts alleged as a basis for recovery under the counterclaim against GECC were also asserted as defenses to the note.

      . Under Texas law, Grubbs’ pre-existing repurchase obligation was itself sufficient consideration for the 1964 note. Tex.Rev.Civ.Stat.Ann. (Bus. & Comm.) arts. 3.303, 3.408, V.A.T.S.; West Coast Mining Co., Inc. v. Security National Bank, 442 S.W.2d 821 (Tex.Civ.App., Amarillo, 1969, writ ref’d n. r. e.).

      . In response to a hypothetical question, a GECC official testified that GECC violated the March 1964 agreement by crediting $1530 to Grubbs’ reserve account instead of sending him the cash. But the hypothetical question made no reference to the worthless checks that Grubbs had sent to GECC; thus, this testimony affords no basis for finding failure of consideration in appellant’s crediting the money to the reserve account.

      . Although Grubbs sought affirmative recovery for appellant’s failure to purchase and pay for some customers’ accounts and for terminating trust receipts financing in August 1964, the foregoing discussion has shown that none of these acts was improper under Grubbs’ agreements with GECC.

      . Appellant concedes that Grubbs is entitled to credit for such merchandise. The trial produced only a rough estimate (approximately $1,000) of the amount of this credit, and on remand the trial court must establish precisely the amount of credit due Grubbs.

      . Appellant contends that these statements, made between July 1964 and January 1965, give rise to a cause of action in slander ; since recovery was not' sought for them until October 1966, when Grubbs amended his pleading, Grubbs’ recovery for these statements is, says appellant, barred by the Texas one-year statute of limitations applicable to slander. On the other hand, Grubbs argues that the statements were merely part of a scheme designed to ruin his business, and that the one-year statute is inapplicable under Brown v. American Freehold Land Mortgage Co., 97 Tex. 599, 80 S.W. 985 (1904). Owing to the approach we take to this part of Grubbs’ counterclaim, we intimate no view as to this controversy.

      . None of these men testified at trial.

      . The representations of agency cannot even be brought within the amorphous confines of Texas’ “res gestae” exception to the hearsay rule. Grubbs made no attempt to show that the purported agents were “in the instant grip of violent emotion, excitement or pain,” 1 McCormick & Ray, Texas Law of Evidence 684 (2d ed. 1956), while “representing” themselves to be GECC agents.