author: SETH, Circuit Judge.

text:
    Nancy H. OCRANT, Appellant, v. DEAN WITTER & COMPANY, INC., Appellee.
    No. 74-1012.
    United States Court of Appeals, Tenth Circuit.
    Argued July 12, 1974.
    Decided Sept. 18, 1974.

      John W. McKendree, of Hemminger, McKendree, Vamos & Elliott, P. C., Denver, Colo., for appellant.
    D. Monte Pascoe, Denver, Colo. (Ireland, Stapleton, Pryor & Holmes, P. C., and William G. Imig, Denver, Colo., with him on the brief), for appellee.
    Before HILL, SETH and HOLLOWAY, Circuit Judges.
   SETH, Circuit Judge.

Nancy H. Ocrant, the plaintiff, appeals from a directed verdict for the defendant in her action premised on allegedly unauthorized transactions in an account maintained in her name with the defendant brokerage house. Her complaint listed several theories upon which she sought to recover.

The plaintiff, during the period with which we are concerned, was married to Lawrence Ocrant, an active investor in the stock market and a licensed broker. He maintained several large accounts with the defendant Dean Witter’s Denver office, all of which were managed by Lewis A. Waldbaum, an agent and vice president of the firm. Mr. Ocrant was a daily visitor to the Denver Dean Witter offices, and he and Mr. Waldbaum were close personal friends and their families were together on numerous social occasions. Throughout the period in question Mr. Ocrant actively directed the transactions in his accounts. He was a heavy trader, and the turnover in his accounts was rapid. Many of his securities were held for only a few days before being sold or traded.

On August 13, 1968, Mr. Waldbaum opened account number 68-16409 in the name of Nancy H. Ocrant. The account was ostensibly to be a nondiscretionary, nonmargin account, meaning that only Mrs. Ocrant or her designated attorney in fact could authorize transactions in the account. The subsequent handling of the account, however, belies this status. In contrast to her husband, Mrs. Ocrant was an unsophisticated investor with very little knowledge of the operation of the stock market. As a result she gave virtually no attention to the handling of her account and relied exclusively on her husband’s judgment and expertise in this area. Thus, under her husband’s direction her account was managed in much the same fashion as the other Ocrant accounts, that is, with heavy trading and rapid turnover. Dean Witter, however, was unable to produce a power of attorney designating either Mr. Ocrant or Mr. Waldbaum with authority to make transactions from the account, and there was no testimony that one was ever executed.

Beginning in October 1969 Mr. Ocrant begin to acquire large blocks of Standard Oil of California shares in both his and his wife’s accounts. Mrs. Ocrant does not challenge any of the transactions in her account prior to this point, but rather asserts that with the acquisition of the Standard of California shares the character of her account changed, and that it was her husband’s intention to develop her account into a permanent source of income and security for her. Thus, while there is some conflict in the record on this matter, the plaintiff’s position is that the Standard shares were being acquired as a permanent, blue-chip investment, and the heavy trading in the account was thereafter to cease. There is evidence in the record that this change in status was communicated to Mr. Waldbaum in a very general fashion during various social occasions, and the Standard shares were sometimes thereafter referred to as “Nancy’s nest egg.” As was characteristic of the Ocrant-Waldbaum business transactions, however, nothing was ever set forth in writing. In any event, between October 1969 and January 1970 some 14,400 shares of Standard Oil of California were purchased for Mrs. Ocrant’s account.

The disputed transactions occurred in January and February 1970, and are shown in tabular form as follows:

No. of Settlement Purchased
Shares Stock Date or Sold
2800 Standard Oil Jan. 27 1970 Sold
1400 Standard Oil Jan. 27, 1970 Sold
900 Standard Oil Jan. 28, 1970 Sold
600 Standard Oil Jan. 30, 1970 Sold
300 Standard Oil Jan. 30, 1970 Sold
800 Standard Oil Jan. 30, 1970 Sold
1000 Standard Oil Feb. 4, 1970 Sold
600 Standard Oil Feb. 5, 1970 Sold
300 Standard Oil Feb. 17, 1970 Sold
1000 Standard Oil Feb. 17, 1970 Sold
4700 Standard Oil Feb. 18, 1970 Sold
2100 Reading & Bates 0D Jan. 27, 1970 Purchased
500 Reading & Bates 0D Jan. 27, 1970 Purchased
4000 Reading & Bates 0D Jan. 27, 1970 Purchased
2300 Reading & Bates 0D Feb. 19, 1970 Purchased
100 Reading & Bates 0D Jan. 28, 1970 Purchased
1000 Reading & Bates 0D Jan. 28, 1970 Sold
100 Reading & Bates 0D Feb. 19, 1970 Sold
1400 Reading & Bates 0D Feb. 24, 1970 Sold
100 Reading & Bates 0D Feb. 24, 1970 Sold
2800 Reading & Bates 0D Feb. 24, 1970 Sold
700 Reading & Bates 0D Feb. 25, 1970 Sold
2900 Reading & Bates 0D Feb. 25, 1970 Sold

The result was that between January 27 and February 18, 1970, all 14,400 shares of Standard Oil of California were sold from the account; 9,000 shares of Reading & Bates OD were acquired on January 27 and 28, 1970, and those shares were subsequently sold between January 19 and 25, 1970. All of these transactions, according to the plaintiff, were accomplished without her knowledge or authorization. There is some dispute in the record whether they were directed or authorized by Mr. Ocrant. It is undisputed, however, that Dean Witter in accordance with its routine procedures mailed transaction confirmation slips as well as monthly account statements to the plaintiff. Mrs. Ocrant acknowledges receipt of these, but maintains it was her practice simply to put such mail on her husband’s desk since she had little understanding of it.

Other events of considerable significance also occurred during the same period as the disputed transactions. On January 6, 1970, Mrs. Ocrant negotiated a $403,000 non-purpose loan from Dean Witter, using her Standard Oil shares as collateral. The amount of the loan was approximately one-half the market value of the collateral shares at that time. Furthermore, on January 27, 1970, the settlement date of the first Standard Oil sales, Mrs. Ocrant was issued a check in the amount of $50,000 as proceeds of the sale. Thereafter, the following checks were also issued: $119,000 on February 25; $51,979 on February 25; $4,970 on March 16; and $27.50 on April 16, for total disbursements to Mrs. Ocrant from the account, including the loan, of $628,976.50 between January and May 1970. Each of the checks was promptly endorsed by Lawrence Ocrant and deposited in joint accounts maintained by him and his wife. The loan from Dean Witter was repaid with the proceeds from the sales.

While Mr. Ocrant conceded that he learned of the Standard Oil sales no later than March 1970, when he received the February account statement, Mrs. Ocrant denies having actual knowledge of the transactions until a November 1970 reconciliation meeting with her then estranged husband. She does, however, remember a meeting at the Dean Witter offices in January or February involving herself, her husband, and Mr. Waldbaum, at which her husband expressed concern over the Reading & Bates purchases and was attempting to learn the fund from which the purchases were made. In any event, Mrs. Ocrant’s objection to the Standard Oil sales was not made known to Dean Witter until December 1970. In the interim, on July 27, 1970, Mr. Waldbaum, the executive in charge of the Ocrant accounts, committed suicide.

Without separately describing the several theories for relief advanced by the plaintiff, we shall say only that we agree with the district court that the breach of contract claim is the essence of the action, and that the other theories either turn on the same factors or were not adequately developed by plaintiff’s proof at the trial to become issues. We must also agree that the key elements of the case are the agency relationship between Mrs. Ocrant and her then husband, and the delay of over nine months between the last Standard Oil sale and notice of Mrs. Ocrant’s objections to Dean Witter.

Turning first to the agency question, we find uncontroverted proof that for purposes of management of the account, Lawrence Ocrant was his wife’s agent throughout the period in question. Despite the informal manner in which the defendant conducted its business with the Ocrants, we are nevertheless convinced that Lawrence Ocrant was clothed with complete authority to direct the management of his wife’s account. Mrs. Ocrant, herself, testified to this authority repeatedly. For over a. year prior to the first Standard Oil acquisition, securities passed through Mrs. Ocrant’s account in much the same fashion as her husband’s and most if not all transactions were consummated without her specific approval. The fact that in, October 1970 the objectives of the account may have changed from speculation to long-term growth and security would have no effect on the agency relationship. Mrs. Ocrant continued to rely exclusively on her husband’s skill and judgment in this regard also, and he directed the acquisition of the Standard Oil shares. Mrs. Ocrant continued simply to refer her monthly statements and confirmation slips to her husband. Nowhere in the record is there indication that Mr. Ocrant’s traditional and well-established authority to handle the account was terminated. Although never reduced to writing, a clear example of the principal-agent relationship was shown.

Mrs. Ocrant relies on the Rules of the New York Stock exchange and particularly Rule 408 thereof to show that the agency power of her husband was never properly established. Rule 408 does in' fact indicate a requirement that an agency be established in writing before a member, allied member, or an employee of a member organization exercises diseertionary power in a customer account. We note, however, that this rule appears to extend only to the exercise of authority by the hroker agent, and thus would not reach Mr. Ocrant’s authority. Furthermore, while we recognize that in an appropriate case, violations of exchange rules designed for customer protection might give rise to a private cause of action (see, e. g., Buttrey v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 410 F.2d 135 (7th Cir.), cert. denied 396 U.S. 838, 90 S.Ct. 98, 24 L.Ed.2d 88), such a case is not now before us. Throughout this action Mrs. Ocrant has stressed her complete reliance on her husband’s skill and expertise to excuse her own inattentiveness and inaction. She cannot now reject that reliance for purposes of disaffirming his activities.

It is fundamental that absent statutory requirements, no particular formalities are needed to establish the principal-agent relationship. Rather, the relationship exists if the conduct of the parties manifests the willingness of one person to have another act for him subject to his control, and the consent of the other so to act. Appleby v. Kewanee Oil Co., 279 F.2d 334 (10th Cir.). The undisputed conduct of Mrs. Ocrant and her husband amply demonstrates such a relationship.

The disposition of the Standard Oil of California shares as the transaction challenged must be examined in light of the agency relationship. As mentioned, there is some dispute in the record whether Mr. Ocrant authorized the sale of the Standard Oil shares from his wife’s account. Mr. Ocrant testified that he did not, and that he did not even learn of the sale until March 1970, when he examined the February account statement. For purposes of the directed verdict, we accept Mr. Ocrant’s testimony, and therefore assume that at the time the Standard Oil was sold and the Reading & Bates was purchased, the transactions were accomplished without authority from either the principal or the agent. Thus we must consider the effect of the delay of over nine months between settlement of the last Standard Oil sale and Mrs. Ocrant’s making known her objections to the sale.

Mrs. Ocrant disclaims actual, specific knowledge of the sales until the November reconciliation meeting with her husband, and thereby seeks to excuse the delay. The record, however, is uncon-troverted that the monthly account statements and confirmation slips were mailed to Mrs. Ocrant and received by her. The fact that she chose not to examine them herself but to simply refer them to her husband cannot therefore excuse her lack of knowledge. Furthermore, Mr. Ocrant admits to having known of the Standard Oil sales as early as March 1970. In view of the continuing agency relationship between him and his wife, that knowledge must be imputed to Mrs. Ocrant. Scroggs v. Harkness Heights Land Co., 76 Colo. 597, 233 P. 831 (Colo.). Throughout the period in question Mrs. Ocrant demonstrated a continuing reluctance to familiarize herself with the affairs of her account at Dean Witter as well as a continuing exclusive reliance on her husband’s considerable experience and knowledge as to brokers’ practices and as to the market. Such an attitude on her part when coupled with the absence of evidence or allegation that relevant information was withheld or concealed from her simply cannot excuse her inaction.

We are reluctant, whether under the name of estoppel, ratification, or waiver, to prevent a customer, by his mere silence, from holding his broker-agent accountable for unauthorized transactions. Nevertheless, we feel that the peculiarities of the transactions, when considered in light of the unusual facts of this case, necessitate the application of such a doctrine here. The account was in the name of Nancy Ocrant. For virtually any other purpose, however, Dean Witter’s customer was Lawrence Ocrant. By his wife’s own testimony, the husband’s managerial authority and recommendations were unchallenged. Mrs. Ocrant’s interest was not sufficient to cause her to examine the monthly account statements or transaction confirmation slips. It was in this context that Lawrence Ocrant learned no later than March 1970 of the Standard Oil sales. The record also shows that before this time, Lawrence Ocrant had accepted and negotiated checks drawn by Dean Witter representing the proceeds of the sales that were taking place. These proceeds were deposited in his and his wife’s joint accounts. In view of the size of the checks, it is difficult to suppose that even so active a trader as Mr. Ocrant would be unaware of their source. In any event, we are left with an uncontro-verted and unexplained delay of nine months between discovery of the sales and notice of Mrs. Ocrant’s objections. Furthermore, the record shows that at least during the first five months of this period, the market price of Standard Oil of California was such that the shares could have been replaced for considerably less than the price for which they were sold. That an investor of Lawrence Ocrant’s sophistication and awareness did' not avail himself of this opportunity, had there been a mistake, suggests ratification of the original sales.

Looking at eases which have dealt with similar delays in similar circumstances, we find precedent for foreclosing Mrs. Ocrant from recovery. In Nash v. J. Arthur Warner & Co., Inc., 137 F.Supp. 615 (D.Mass.), the investors’ continued acceptance of confirmation slips and statements which fully disclosed the challenged transactions was cited as a basis for barring recovery in an action for churning. An eleven-month delay in objecting to a short sale transaction was found to be a ratification and waiver, and estopped the investor from recovering in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bocock, 247 F.Supp. 373 (S.D.Tex.). Compare also Royal Air Properties, Inc. v. Smith, 312 F.2d 210 (9th Cir.), and Herald Co. v. Seawell, 472 F.2d 1081 (10th Cir.).

Whether characterized as ratification, waiver, estoppel, or laches, we believe the totality of the undisputed facts compelled the trial court to direct the verdict for the defendant as it did. This court has often voiced the standard for directing a verdict. In Moore v. Shultz, 491 F.2d 294 (10th Cir.), we offered the following formulation:

“ . . . This standard which we have said is to be applied to both judgments n.o.v. and to directed verdicts is that the evidence must be viewed in the light most favorable to the party opposing the motion (together with inferences which may be fairly drawn therefrom), and the verdict not directed nor the motion' granted unless the evidence points all one way, and is susceptible of no reasonable inferences which sustain the position of the party against whom the motion is directed. The motion must also be denied if the evidence and the inferences, so examined, are such that reasonable men may reach different conclusions . . . . ”

We have applied this standard to the evidence and undisputed facts of this case, and we are convinced that the district court was correct.

The judgment is therefore affirmed.


source: Caselaw Access Project

author: HUFSTEDLER, Circuit Judge: BRUCE R. THOMPSON, District Judge EUGENE A. WRIGHT, Circuit Judge

license: Public Domain

text:
    Austin C. PALMER and Helen M. Palmer, husband and wife, Appellees, v. Gladys S. WILSON et al., Appellants.
    Nos. 73-1936, 73-2705, 73-2706.
    United States Court of Appeals, Ninth Circuit.
    Aug. 16, 1974.
    Bruce R. Thompson, District Judge, concurred and filed an opinion.
    Eugene A. Wright, Circuit Judge, concurred in part and dissented in part and filed an opinion.

      Sanford N. Diller (argued), San Jose, Cal., for appellants.
    Ronald Senoway (argued), San Francisco, Cal., for appellees.
    Before HUFSTEDLER and WRIGHT, Circuit Judges, and THOMPSON, District Judge.

       Honorable Bruce Thompson, District of Nevada, sitting by designation.

   HUFSTEDLER, Circuit Judge:

Plaintiffs Austin and Helen Palmer brought this action under the Truth in Lending Act, 15 U.S.C. §§ 1601-1665, to recover the statutory penalty and attorney fees provided in section 1640 and to enforce their right of rescission pursuant to section 1635. The district court granted plaintiffs’ motion for summary judgment and awarded both forms of relief requested; the defendants appeal.

The record before the district court at the time of plaintiffs’ motion for summary judgment revealed that the note signed by the Palmers and the Broker’s Loan Statement with which they were supplied omitted several credit terms required to be disclosed by the Truth in Lending Act, as implemented by Federal Reserve Board Regulation Z (12 C.F.R. § 226). The documents given to the Palmers failed to state the “total of payments” due (12 C.F.R. § 226.8(b)(3)) and failed to disclose the “amount financed” (id. § 226.8(d)(1)). Finance charges were not described in the uniform terms required by the regulations. (See, e. g., id. § 226.8(d)(2).) The defendants also failed to disclose properly the details of plaintiffs’ right to rescind.

The district court correctly held that these omissions violated the Truth in Lending Act and that plaintiffs were entitled to summary judgment. The defendants do not contest the fact that they omitted credit terms required to be disclosed by the Act, but rather argue that they are entitled to the benefits of the statutory exemption for violations that are “not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error.” (15 U.S.C. § 1640(c).) The defendants’ omissions and mislabeling of terms were not the result of clerical errors, which are the only violations this section was designed to excuse. (See Ratner v. Chemical Bank New York Trust Co. (S.D.N.Y.1971), 329 F.Supp. 270, 281-282 & n. 17.) Both the Broker’s Loan Statement and the Installment Note in issue were printed, standard form instruments. The omissions and misstatements were part of defendants’ usual credit practice and did not occur in spite of procedures designed to avoid unintentional violations of the Act.

In Eby v. Reb Realty, Inc. (9th Cir. 1974), 495 F.2d 646, we rejected defendants’ contention that plaintiffs cannot successfully pursue both damages under section 1640 and rescission under section 1635. No election of remedies is required. The liability provision of section 1640 is a “civil penalty,” which, unlike section 1635, is not intended to make the borrower whole.

Defendants also argue that the district court erred in enforcing plaintiffs’ right of rescission because plaintiffs failed to tender the money loaned them at the time they notified defendants of their decision to exercise their right to rescind. Although tender of consideration received is an equitable prerequisite to rescission, the requirement was abolished by the Truth in Lending Act. Section 1635(a) provides that an obligor exercises his right of rescission solely by notifying the creditor within prescribed time limits of his intention to rescind. Section 1635(b) provides that upon exercise by the debtor of his right of rescission, “any security interest given by the obligor becomes void . . . . ” Within ten days after receipt of notice of rescission, “the creditor shall return to the obligor any money or property given as earnest money, downpayment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction.” Only then, “[u]pon the performance of the creditor’s obligations under [section 1635],” must the obligor tender the property to the creditor. Section 1635(b) expressly provides that prior to performance of the required actions by the creditor, “[i]f the creditor has delivered any property to the obligor, the obligor may retain possession of it.”

In Eby v. Reb Realty, Inc., supra, we recognized that interaction of the right of rescission and the civil penalty provision of section 1640 can sometimes result in an unduly harsh penalty for violations of the Truth in Lending Act. This, is particularly true where, as appears to be the case here, the decree granting rescission does not condition the relief upon the debtor’s restoration of consideration, the creditor is reduced to the status of an unsecured creditor, and the debtors are judgment proof. Accordingly, in Eby we concluded that, although “sections 1635 and 1640 do not set forth exclusive remedies, we do' not say that a court must always grant both forms of relief when requested. . . In the absence of any clear congressional statement, we think a request for both forms of relief is addressed to a court’s sense of equity and may properly be denied in appropriate cases.” Similarly, when an obligor seeks both to rescind and to recover statutory penalty and attorney fees, the district court has equitable power to grant both forms of relief; the court may condition the granting of rescission on the debtor’s compliance with the court’s order to tender to the creditor the principal of the loan that the debtor has received. The propriety of such a conditional decree of rescission, of course, will depend on the equities present in a particular case, as well as consideration of the legislative policy of full disclosure that underlies the Truth in Lending Act and the remedial-penal nature of the private enforcement provisions of the Act.

“When an obligor exercises his right to rescind under subsection (a), lie is not liable for any finance or other charge, and any security interest given by the obligor becomes void upon such a rescission. Within ten days after receipt of a notice of rescission, the creditor shall return to the obligor any money or property given as earnest money, downpayment, or otherwise, and shall take any action necessary or appropriate to reflect the termination of any security interest created under the transaction. If the creditor has delivered any property to the obligor, the obligor may retain possession of it. Upon the performance of the creditor’s obligations under this section, the obligor shall tender the property to the creditor, except that if return of the property in kind would be impracticable or inequitable, the obligor shall tender its reasonable value. Tender shall be made at the location of the property or at the residence of the obligor, at the option of the obligor. If the creditor does not take possession of the property within ten days after tender by the obli-gor, ownership of the property vests in the obligor without obligation on his part to pay for it.”

Although some district courts have conditioned rescission on tender of repayment by the debtor when both rescission and damages were sought (e. g., Ljepya v. M. L. S. C. Properties (N.D. Cal.1973), 353 F.Supp. 866), the court below apparently was unaware that it had the equitable power to condition its decree. Accordingly, we vacate the judgment and remand the case for consideration of the propriety of conditioning the grant of rescission on repayment by the Palmers. Upon remand the district court may decide to invite submission of additional affidavits or may hold an evidentiary hearing on this point. It may also require the defendants to submit a proposed plan for repayment that is consistent both with the defendants’ desire to recover the amount of principal loaned to the Palmers and with the Palmers’ current financial situation.

The judgment is vacated and the cause remanded for further proceedings consistent with the views herein expressed.

BRUCE R. THOMPSON, District Judge

(concurring):

I concur with Judge Hufstedler but go farther. I believe that a court fashioning a decree in this type of case under the Truth in Lending Act must do equity and cannot ignore the plaintiffs’ unpaid obligation for the principal sum of $9,300. Section 1635(b), Title 15, United States Code. If a rescission is demanded and effectuated without litigation, this Section requires the obligor to return the property or its reasonable value to the creditor. This, together with the Act’s failure to void the principal obligation along with the security, is, for me, clear indication of Congressional intent that a complete windfall to the victim was not intended.

In the present case, defendants did not counterclaim for $9,300. Under Rule 13(a) of the Federal Rules of Civil Procedure, this is a compulsory counterclaim and the cause of action is lost if not asserted. Whatever tactical considerations may have influenced defendants’ pleading, the net result of the judgment appealed from would be that plaintiffs have received $9,300 plus a judgment for $5,400 and are free from any obligation. This is so obviously inequitable and not in conformity with the intent of the legislation that it cannot be countenanced.

EUGENE A. WRIGHT, Circuit Judge

(concurring in part and dissenting in part):

I concur in the majority opinion insofar as it holds that the defendants are not entitled to the protection of 15 U.S. C. § 1640(c)’. I respectfully dissent, however, from that portion of the majority opinion dealing with the equitable power of the district court to condition rescission on repayment by the plaintiffs. I would affirm the judgment of the district court.

Section 1635(b) provides that upon the debtor’s election to rescind, the creditor’s security interest in the debtor’s home becomes void. There is no requirement that the debtor tender payment before rescission. Nor is there a provision that the security interest is merely voidable by petitioning the district court. Thus, when the plaintiffs exercised their right to rescind by notifying the defendants, the security interest automatically became void and unenforceable.

The majority opinion would permit the district court effectively to reinstate the security interest that § 1635(d) declares void, at least as it affects the rights of the debtor and creditor inter se. If rescission is conditioned on repayment and if the plaintiffs do not repay, the security interest would presumably still be in force. This is in direct conflict with § 1635(b). Indeed, conditioning the voiding of a security interest on repayment is effectively no remedy at all because, after repayment, the security interest has fulfilled its purpose and has lost its vitality.

Although the majority speaks of conditioning rescission on repayment, the remedy might be interpreted to mean merely that plaintiffs’ obligation to repay the principal can be incorporated into the judgment of the district court and enforced by a court imposed lien. This would rescind the security interest, but the defendant would become a judgment creditor with a court imposed lien on plaintiffs’ home. It would alter the creditors’ right vis-a-vis third-party creditors, but it would permit the defendants to foreclose in the event of nonpayment.

But § 1635 was not enacted to benefit third-party creditors. Its purpose is “to blunt unscrupulous sales tactics by giving homeowners a means to unburden themselves of security interests exacted by such tactics.” Eby v. Reb Realty, Inc., 495 F.2d 646 (9th Cir., 1974), citing 114 Cong.Rec. 1611 (1968) (remarks of Congressman Cahill). A court imposed lien subject to foreclosure on default might unburden third-party creditors, but it would not unburden the homeowner as intended by § 1635.

A final possible interpretation of the “condition” is that the district court may simply incorporate into its judgment the obligor’s obligation, arising after rescission, to repay the principal. Presumably the defendants’ interest under this interpretation could not be foreclosed but rather could be executed according to the respective rights of judgment creditors and debtors. Presumably, the debtor would be protected by homestead rights and any others accorded judgment debtors. This would relieve the debtor of the burdens of the security agreement, replacing them only with those burdens § 1635 leaves undisturbed, i. e. the burden of a judgment debtor of a general creditor.

This remedy would not directly frustrate the intent of § 1635(b), but neither is it necessary to protect the defendants’ rights. They could have a similar result by suing on the debt in state court. Of course, incorporating this potential state judgment into the district court’s decree would be judicially economical. But Fed.R.Civ.P. 13 concerning counterclaims is the proper vehicle on which the defendants should pursue their interest in avoiding repeated litigation. If Rule 13 would not permit a counterclaim or if the creditor declines to avail himself of its provisions, the court should not give him judgment on what essentially is a counterclaim. Moreover, reducing the creditor’s rights to judgment without a trial on the merits deprives the obligor of the opportunity to assert whatever defenses he may have.

It is true that in Eby v. Reb Realty, Inc., supra, we held that a request for both rescission and a civil penalty was “addressed to a court’s sense of equity.” This is somewhat inconsistent with the absolute wording of § 1635 and § 1640. But accepting the conclusion of Eby, I would limit the court’s equitable discretion to cases where a civil penalty would be an inequitable windfall to an overreaching debtor. There is no evidence whatever of over-reaching by the plaintiffs ; they sought merely to enforce their statutory remedies.

Of course, the rescission of a creditor’s security interest is a harsh remedy if the debt is not otherwise collectible, but the defendants could have avoided it by complying with the requirements of the Act. Moreover, the possibility that the principal debt will be uncollectible is a common circumstance in cases of this sort. It is hardly an unusual situation where we might infer Congress did not intend the result. Although the remedy might be harsh, it is the one Congress adopted, and I would not substitute our judgment for its.

One aspect of the majority opinion should be noted. Since Eby is the source of equitable discretion relied upon by the majority, the holding appears limited to cases where the debtor seeks both rescission and a civil penalty. Where only rescission is sought, Eby no longer applies.

I would hold that plaintiffs are entitled to unconditional rescission under § 1635 and a civil penalty under § 1640. I would not permit the district court to enforce defendants’ right to repayment. Accordingly, I would affirm the judgment of the district court in all respects.

      . Other violations of the Act’s disclosure provisions committed by defendants are described in the opinion of the district court, Palmer v. Wilson (N.D.Cal.1973), 359 F.Supp. 1099, 1101-1102.

      . 15 U.S.C. § 1635(b) provides in full:


author: PHILLIPS, Chief Judge.

text:
    R. Brooks BATES, Individually and as Superintendent of the Russell County Board of Education, et al., Defendants-Appellants, v. Leslie DAUSE and Robert Garner, Plaintiffs-Appellees.
    No. 73-2111.
    United States Court of Appeals, Sixth Circuit.
    Argued June 21, 1974.
    Decided Sept. 12, 1974.
    Ben B. Fowler, Stites, McElwain & Fowler, Frankfort, Ky., on briefs, for defendants-appellants.
    Arthur L. Brooks, Brooks, Sullivan & Molloy, Lexington, Ky., on briefs, for plaintiff s-appellees.
    Before PHILLIPS, Chief Judge, and EDWARDS and PECK, Circuit Judges.
   PHILLIPS, Chief Judge.

This appeal grows out of the demotion and transfer of the principals of two elementary schools by action of the Superintendent of Schools and Board of Education of Russell County, Kentucky. Both principals were demoted to classroom teachers. Both had acquired tenure under the Kentucky Teachers’ Tenure Statute, K.R.S. §§ 161.720-161.810.

An action was brought against the Superintendent of Schools and certain members of the Board of Education in their individual capacities under 42 U. S.C. § 1983 and 28 U.S.C. § 1343. By amendments to the pleadings, plaintiffs also asserted that their claims under the State Teachers’ Tenure Statute were cognizable in federal court on the theory of pendent jurisdiction. The District Court assumed pendent jurisdiction and rendered judgments of $5,948 in favor of one principal and $8,175 in favor of the other, against the Superintendent of Schools and four members of the Board of Education, all in their individual capacities.

We reverse on the ground that the record shows no deprivation of any rights, privileges or immunities of ap-pellees secured by the Constitution and laws of the United States so as to support an action under § 1983; and that, since the federal claim does not have substance sufficient to confer subject matter jurisdiction on the District Court, that court erred in assuming pendent jurisdiction under the Kentucky Teachers’ Tenure Act and the common law of Kentucky.

The two school principals, Leslie Dause and Robert Garner, were delegates to the Kentucky Education Association and the Russell County Education Association. In February 1970 the K.E.A. called a walk-out of teachers of all Kentucky public schools served by its members. As delegates to the K.E.A. both Dause and Garner voted in favor of this strike. At a meeting of the County Education Association Dause and .Garner reported on the strike recommendations of the K.E.A. and stated that they had supported the resolution calling for the strike. In the meantime the Russell County Board of Education adopted a resolution opposing the strike and calling on teachers to remain at their posts. A walkout of teachers from the Russell County school system took place on February 23 and lasted for six days. Both Dause and Garner supported the strike by local teachers, including teachers in the schools they served as principals, but both personally reported to their desks at their respective schools during school hours on each day of the strike.

In Jefferson County Teachers Association v. Board of Education, 463 S.W. 2d 627 (Ky.1970), the Court of Appeals of Kentucky held this strike to be illegal and that an injunction restraining the strike did not violate the teachers’ constitutional rights of free speech and public assembly. This decision reiterated the Kentucky rule that teachers in the public schools commit an illegal act when they participate in a strike.

The Board of Education, upon the recommendation of the County Superintendent of . Schools, sent letters to Dause and Garner giving notice that they would not be employed as principals during the ensuing school year, but would be transferred to other schools as classroom teachers. The reasons stated in the letters were:

1. That their removal as principals would improve communications between the Board’s central office and their respective schools.

2. That cooperation of the principals with the Office of the County Superintendent had been less than desired.

3. That their removal would give an opportunity for new and improved leadership for the schools.

4. That with their qualifications and experience, Dause and Garner could make a contribution as classroom teachers in their new assignments.

Both principals experienced a decrease in compensation and an increase in transportation expenses as a result of their demotions and transfers.

The Superintendent of Schools and the four board members against whom the judgments were rendered are no longer in office.

The District Court made a finding of fact to the effect that the action taken by the Superintendent of Schools and the Board of Education in demoting and transferring Dause and Garner was in retaliation for their activities in supporting the strike. On the record before us, we cannot say that this finding of fact is clearly erroneous. Rule 52(a), Fed.R.Civ.P.

This court has held that a public school teacher who is discharged for the exercise of First Amendment rights may maintain an action under § 1983. Orr v. Trinter, 444 F.2d 128, 134 (6th Cir. 1971), cert. denied, 408 U.S. 943, 92 S. Ct. 2847, 33 L.Ed.2d 767, rehearing denied, 409 U.S. 898, 93 S.Ct. 95, 34 L.Ed.2d 157 (1972), citing Pickering v. Board of Education, 391 U.S. 563, 88 S.Ct. 1731, 20 L.Ed.2d 811 (1968). However, as said by Judge McCree speaking for the court in Whitsel v. Southeast Local School District, 484 F.2d 1222, 1229 (6th Cir. 1973), “a balance must be struck between a claim of First Amendment protection and the need for orderly administration of a school system. that case we held that the record supported the conclusion that the school teacher there involved was discharged for insubordination and not for the advocacy of ideas. See also Hetrick v. Martin, 480 F.2d 705 (6th Cir. 1973). In

Although these two school principals would have a right of action under § 1983 if discharged or demoted for the exercise of freedom of speech, we decline to recognize any federal constitutional right on the part of the principal of a public school to urge and encourage teachers under his jurisdiction to commit illegal acts, or as in the present case to engage in an illegal school strike.

The judgments against the Superintendent of Schools and the members of the Board of Education were rendered by the District Court in the exercise of pendent jurisdiction. In United Mine Workers of America v. Gibbs, 383 U.S. 715, 725, 86 S.Ct. 1130, 1138, 16 L.Ed.2d 218 (1966), the Supreme Court stated that an essential prerequisite of the exercise of pendent jurisdiction is “[t]he federal claim must have substance sufficient to confer subject matter jurisdiction on the court.” In Price v. United Mine Workers of America, 336 F.2d 771, 775 (6th Cir. 1964), this court said: “When a substantial federal claim is asserted the federal court has jurisdiction to fully determine it including its local aspects.” (Emphasis supplied.) See also Patrum v. Greensburg, 419 F.2d 1300 (6th Cir. 1969), cert. denied, 397 U.S. 990, 90 S.Ct. 1125, 25 L.Ed.2d 398 (1970).

Kentucky has a strong Teachers’ Tenure Law for the protection of teachers in the public schools of the Commonwealth. K.R.S. §§ 161.720-161.810. Notice of charges and a due process hearing are required, with a right of judicial review in the State courts. K.R.S. § 161.790.

The Court of Appeals of Kentucky has not been penurious in protecting and enforcing the rights of teachers under this statute and under the common law of the Commonwealth, including the af-firmance of judgments against school officials in appropriate cases. Snapp v. Deskins, 450 S.W.2d 246 (Ky.1970); Board of Education of McCreary County v. Stephens, 449 S.W.2d 421 (Ky.1970); Osborne v. Bullitt County Board of Education, 415 S.W.2d 607 (Ky.1967); Board of Education of Nelson County v. Lawrence, 375 S.W.2d 830 (Ky.1963); Babb v. Moore, 374 S.W.2d 516 (Ky. 1964).

This statute should be administered by the Courts of the Commonwealth of Kentucky, and not by the federal judiciary. Transfer of jurisdiction to federal courts cannot be accomplished by the procedural device of filing an unsubstantial action under § 1983, coupled with a prayer for exercise of pendent jurisdiction.

The judgment of the District Court is reversed, without prejudice to any rights that Leslie Dause and Robert Garner may have to proceed in the State Courts of Kentucky.

      . Other parties were litigants in the District Court and other issues were adjudicated there. This appeal involves only that portion of the judgment which awarded damages to the two appellee school principals.


author: LAY, Circuit Judge.

text:
    Michael T. FOSTER, Appellee, v. DAY & ZIMMERMANN, INC., Appellant, and Mason & Hanger-Silas Mason Co., Inc., Appellant. Michael T. FOSTER, Appellee, v. DAY & ZIMMERMANN, INC., Appellant, and Mason & Hanger-Silas Mason Co., Inc., Appellee.
    Nos. 74-1085, 74-1124.
    United States Court of Appeals, Eighth Circuit.
    Submitted June 13, 1974.
    Decided Sept. 13, 1974.

      Thomas K. Berg, Minneapolis, Minn., for appellant.
    Thomas 'F. Daley, Jr., Davenport, Iowa, for appellee.
    Before LAY, HEANEY and ROSS, Circuit Judges.
   LAY, Circuit Judge.

On July 25, 1969, the plaintiff, Michael T. Foster, received serious injuries while enrolled in the Army Reserve Officers Training Program at Ft. Benning, Georgia, when a hand grenade exploded in his hand during a training exercise. The grenade had been assembled in Texas by the defendant Day & Zimmer-mann, Inc. It contained a fuse manufactured by the defendant Mason & Hanger-Silas Mason Co., Inc., at their plant in Burlington, Iowa. The plaintiff filed suit in the United States District Court for the Southern District of Iowa and recovered a jury verdict against both defendants in the sum of $151,800.-00. The defendants appeal the district court’s denial of a judgment n. o. v. or a new trial.

The defendants charge as error (1) that the district court improperly applied the Iowa law of strict liability; (2) that the plaintiff failed to prove all of the essential elements of strict liability; (3) that the trial court improperly instructed that plaintiff could recover under the doctrine of res ipsa loquitur; and (4) that the defendants were not liable since they were entitled to the defense of governmental immunity.

We affirmed the judgment of the district court.

Choice of Iowa Law

The district court determined that the state of Iowa, the state where the grenade fuse had been manufactured, had the most significant relationship to the parties and the litigation. It therefore applied the doctrine of strict liability. The defendants urge that Georgia, the state of injury, has the most relevant contact. Georgia does not apply strict liability. See Whitaker v. Harvell-Kil-gore Corp., 418 F.2d 1010 (5th Cir. 1969).

The district court was bound in this diversity case to apply the Iowa law of conflict of laws. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941). The Supreme Court of Iowa has consistently adhered to the significant relationships concept in conflict of law cases. See Berghammer v. Smith, 185 N.W.2d 226 (Iowa 1971); Fuerste v. Bemis, 156 N.W.2d 831 (Iowa 1968); Flogel v. Flogel, 257 Iowa 547, 133 N.W.2d 907 (1965). In Fabricius v. Horgen, 257 Iowa 268, 132 N.W.2d 410 (1965), the Iowa Supreme Court adopted as controlling the list of relevant contacts set forth in the Restatement:

(2) Important contacts that the forum will consider in determining the state of most significant relationship include:
(a) the place where the injury occurred,
(b) the place where the conduct occurred,
(c) the domicil, nationality, place of incorporation and place of business of the parties, and
(d) the place where the relationship, if any, between the parties is centered.
(3) In determining the relative importance of the contacts, the forum will consider the issues, the character of the tort, and the relevant purposes of the tort rules of the interested states.

Id. at 414, citing Restatement (Second) Conflict of Laws, Tentative Draft No. 9 § 379.

The district court noted that five states have arguably relevant contacts with this litigation. The accident and injury occurred on a military reservation in Georgia. The allegedly defective fuse was manufactured in Iowa, the forum state, while the grenade was assembled in Texas. The plaintiff resided in the state of Washington at the time of his injury but lived in Oregon at the time of trial. On the relative strength of these contacts, the district court ruled that Iowa law should be applied since Iowa was the forum state and the fuse had been manufactured there. In discarding the relevancy of the place of injury, the court observed:

Because of the nature of the product and the place of its use, most of the reasons given for applying the lex loci delicti do not apply here. This particular product, used only for army training, poses no danger to the general population of Georgia; the state has no burden of hospitalization or treatment of persons injured by its use; and the users of this product in Georgia will more than likely be residents of other states. Under these particular circumstances Georgia has little interest in the outcome of this litigation.

We agree that under the facts presented, Georgia has little if any contact with or interest in the parties or in the subject matter of this litigation. The fact that Iowa is the forum state, at least under the Restatement rule, is not a factor deemed relevant to the test. We hold that Iowa, as the state of manufacture, has an interest in this litigation which outweighs any entertained by the state of Georgia. We therefore conclude that the law of Iowa was properly applied.

Sufficiency of Evidence: Strict Liability

The defendants urge that, even if Iowa law is controlling, it was not proper to apply strict liability under the facts present here. Their argument is based upon their belief that neither the fuse nor the grenade in question were placed in the stream of commerce since they were manufactured exclusively for and on behalf of the United States Government. Thus, they urge, one of the primary justifications for the doctrine of strict liability, that of the public’s interest in ensuring that only safe products are placed in the stream of commerce, is absent.

In adopting strict liability in 1970, the Iowa Supreme Court quoted with approval the following passage from Suvada v. White Motor Co., 32 Ill.2d 612, 210 N.E.2d 182 (1965):

[I]t seems obvious that public interest in human life and health, the invitations and solicitations to purchase the product and the justice of imposing the loss on the one creating the risk and reaping the profit are present and as compelling in cases involving motor vehicles and other products, where the defective condition makes them unreasonably dangerous to the user, as they are in food cases.

Hawkeye-Security Ins. Co. v. Ford Motor Co., 174 N.W.2d 672, 684 (Iowa 1970).

In making the grenade and its component parts the defendants knew that it was made for military personnel and that it was to be used by them. We believe the public interest in human life and health requires the protection of the law against the manufacture of defective explosives, whether they are to be used by members of the public at large or members of the public serving in our armed forces. It is true that the defendants here did not solicit the use of their product, yet they most certainly did reap the profits from its production. When these factors are considered together, the defendants’ argument is unpersuasive.

The defendants also urge that to be liable under the law of strict liability as contained in § 402(a) of the Restatement (Second) of Torts, they must “sell” their product. Here, they say, they did not purchase the raw materials which went into their products but rather assembled them from materials and according to specifications provided by the government. Thus, it is urged, they did not sell a product but a service. We likewise reject this argument. Section 402(a) of the Restatement (Second) of Torts makes the principles of strict liability applicable to “any person engaged in the business of selling products for use or consumption.” Restatement (Second) of Torts, § 402(a), Comment f. The defendants were paid for each fuse and each grenade produced. They clearly were within the chain of distribution of a product supplied for use and consumption by others. We believe this is all that is required.

In Delaney v. Towmotor Corp., 339 F.2d 4 (2d Cir. 1964), the Second Circuit was presented with a non-sale situation. There, a manufacturer supplied a forklift to another for demonstration purposes. When the plaintiff was injured, the defendant argued against the application of strict liability on the ground that he was a bailor, not a seller. The court said:

We realize that the latest version of the section of the Restatement of Torts Second dealing with a manufacturer’s liability, § 402A(1) (Tent. Draft No. 10, 1964), speaks of “one who sells any product in a defective condition * * *.” But we think the Court of Appeals would regard this, as we would, as a description of the situation that has most commonly arisen rather than as a deliberate limitation of the principle to cases where the product has been sold, intentionally excluding instances where a manufacturer has placed a defective article in the stream of commerce by other means. We can see no sensible reason why Delaney’s rights against Tow-motor should be less extensive on the facts here than if Towmotor had first sold the hilo to its distributor, or than if it had sold the machine to Hogan, for a nominal down payment, subject to return if Hogan was not satisfied after a trial period.

Id. at 6.

Whether the manufacturer “sells” his product in the normal sense of that word, leases it, or supplies it for a sole purchaser under contractual arrangements such as those present here, the policy considerations involving the doctrine of strict liability remain the same.

Res Ipsa Loquitur

The defendants also urge that the trial court erred by instructing the jury that the plaintiff could recover on the alternative theory of res ipsa loquitur. Defendants contend that (1) the plaintiff failed to demonstrate that the defendants had exclusive control of the instrumentality which caused the injury, and (2) the plaintiff failed to discount other probable causes for the accident.

The trial court submitted the following instruction to the jury on the issue of exclusive control:

It is not necessary that the instrumentality or object be under the exclusive control of the defendant at the time injury or damage was sustained, provided that you find that there was no change in the condition of the grenade or fuse after the time they left each of the defendants’ plants.

The defendants do not question this instruction. They urge, however, that the evidence did not support a finding that there was no change in condition after the fuse and grenade left the defendants’ respective plants. In Thompson v. Burke Engineering Sales Co., 252 Iowa 146, 106 N.W.2d 351 (Iowa 1960), the Iowa Supreme Court cited with approval Escola v. Coca-Cola Bottling Co., 24 Cal.2d 453, 150 P.2d 436 (1944), where the California Supreme Court said:

It is not necessary, of course, that plaintiff eliminate every remote possibility of injury to the bottle after defendant lost control, and the requirement is satisfied if there is evidence permitting a reasonable inference that it was not accessible to extraneous harmful forces and that it was carefully handled by plaintiff or any third person who may have moved or touched it. Cf. Prosser, supra, p. 300. If such evidence is presented, the question becomes one for the trier of fact (see, e. g., MacPherson v. Canada Dry Ginger Ale, Inc., 129 N.J.L. 365, 29 A.2d 868, 869), and, accordingly, the issue should be submitted to the jury under proper instructions.

Id. at 439.

We have examined the record and find that the plaintiff has met that burden here. The customary handling of fuses after they are manufactured by the Mason Company was shown as well as the manner in which grenades are handled after they are shipped by the Day & Zimmermann plant in Texas. The evidence would allow the jury to find that extreme measures were taken to ensure against any damage or tampering with the fuses or grenades after manufacture. On the basis of this evidence the jury could have properly inferred that no change in the condition of the fuses or grenades occurred after they left the possession of the defendants.

The defendants also urge that the plaintiff had the burden of excluding all other possible explanations for the injury other than the defendants’ negligence. Professor Prosser has observed :

But the inference of negligence may also arise where a definite cause is known, or where the accident is more or less a mystery, with no particular cause indicated. When a gasoline filling station mysteriously explodes, many possible explanations can be suggested, but the most likely one may be negligence on the part of those in charge. The plaintiff is not required to eliminate with certainty all other possible causes or inferences, which would mean that he must prove a civil case beyond a reasonable doubt. All that is needed is evidence from which reasonable men can say that on the whole it is more likely that there was negligence associated with the cause of the event than that there was not. It is enough that the court cannot say that the jury could not reasonably come to that conclusion.

Prosser, The Law of Torts, 223 (3d ed. 1964).

We are satisfied that the plaintiff offered sufficient evidence to create a jury question on this issue.

Governmental Immunity

The defendants next assert that, as contract suppliers of government munitions, they are entitled to the protections of governmental immunity. They base this claim on Pumphrey v. J. A. Jones Construction Co., 250 Iowa 559, 94 N.W.2d 737 (1959). In that case, a landowner sued a contractor who had been hired by the government to construct a lock on the Mississippi River. The contractor, acting in strict compliance with his contract, used dynamite and the resulting vibrations damaged the plaintiff’s property. Iowa recognizes the doctrine of liability without fault in blasting cases, but the Iowa Supreme Court held the contractor immune from suit under an extension of governmental immunity. Pumphrey, however, is not authority for the invocation of governmental immunity in this case. The court in Pumphrey made it perfectly clear that the controlling factor was the absence of fault. Here, the plaintiff’s claim is based on proof of the defendants furnishing a defective product. The doctrine of strict liability is not a doctrine of liability without fault. It merely removes the necessity for proving negligence. The doctrine of sovereign immunity may not be extended to cover the fault of a private corporation, no matter how intimate its connection with the government. See Whitaker v. Harvell-Kilgore Corp., 418 F.2d 1010 (5th Cir. 1969).

The Feres Doctrine

Finally, the defendants argue that since the plaintiff is barred from suing the government directly under the doctrine of Feres v. United States, 340 U.S. 135, 71 S.Ct. 153, 95 L.Ed. 152 (1950), and that since the government has contractually agreed to reimburse them for any damages they may be required to pay, the plaintiff should also be barred from suing them. In Feres the Supreme Court held that the Federal Tort Claims Act did not extend to a serviceman injured while on duty.

In contrast, if here an injured serviceman reaps an indirect benefit from the government by reason of the indemnity agreement, it is because the United States has contractually consented to give it. Congress could similarly give consent for the government to be sued directly by a serviceman under the Federal Tort Claims Act, but as yet has refrained from doing so. Furthermore, the government’s contract here is one of indemnity. This relationship is between the government and the defendants. The plaintiff’s right of recovery against these defendants cannot be so easily avoided by a contract to which the plaintiff was not a party. Contractual indemnification by the government cannot artificially create sovereign immunity. This theory was fully rejected in the Whitaker case, supra. We agree.

Judgment affirmed.

      . In urging the place of injury rule, defendants adopt Judge Friendly’s reasoning in George v. Douglas Aircraft Co., 332 F.2d 73 (2d Cir.), cert. denied, 379 U.S. 904, 85 S.Ct. 193, 13 L.Ed.2d 177 (1964):
      Extra-state manufacturers are not entitled to have their goods enter a state on easier terms as to liability than the state establishes generally. . . . Even more clearly if a state has decided in general that persons injured within its borders . . . should not be allowed to recover . . . except for negligence, there would be little reason to accord a greater degree of protection because the chattel causing the injury was made in another state which has shown a broader concern for the general welfare of its citizens by imposing strict liability.

        Id. at 77. See 78 Harv.L.Rev. 881 (1965); see also Note, Products Liability and the Choice of Law, 78 Harv.L.Rev. 1452, 1463-64 (1965).

      . As an alternative basis for its ruling, the district court observed that, even if the relationships between Georgia and Iowa were equal, Iowa would apply “the better rule of law.” See Fuerste v. Bemis, 156 N.W.2d 831 (Iowa 1968). Here, the court felt that would mean the imposition of strict liability. We agree. The adoption of the law of strict tort liability in Iowa, as in all states, was a recognition of those policy considerations summarized by the court in Hawkeye-Security Ins. Co. v. Ford Motor Co., 174 N.W.2d 672 (Iowa 1970):
      “The purpose of such liability is to insure that the costs of injuries resulting from defective products are borne by the manufacturers that put such products on the market rather than by the injured persons who are powerless to protect themselves. Sales warranties serve this purpose fitfully at best. * * *”

        Id. at 683, citing Greenman v. Yuba Power Products, Inc., 59 Cal.2d 57, 27 Cal.Rptr. 697, 700, 377 P.2d 897, 900 (1963).

      . For other “non-sale” situations see, e. g., Stewart v. Budget Rent-A-Car Corp., 52 Haw. 71, 470 P.2d 240 (1970) (leased automobile); Bachner v. Pearson, 479 P.2d 319 (Alaska 1970) (leased airplane); McClaflin v. Bayshore Equipment Rental Co., 274 Cal.App.2d 446, 79 Cal.Rptr. 337 (1969) (lessor of defective stepladder); Price v. Shell Oil Co., 2 Cal.3d 245, 85 Cal.Rptr. 178, 466 P.2d 722 (1970) (lessor of gasoline tank truck); Perfection Paint & Color Co. v. Konduris, 258 N.E.2d 681 (Ind.App.1970) (paint supplier gave lacquer remover to customer to remove defective paint supplied by defendant). And see generally cases discussed by Frumer & Friedman, Products Liability, § 16A(4) (b) at 264 et seq.

      . The Iowa court said :
      The rule is thus stated in 43 Am.Jur., Public Works and Contracts, Section 83, pages 827, 828: “As a general rule, a private contractor in the construction of a public improvement under a contract with duly authorized public authorities is not liable for any injury, direct or consequential, to owners of private property that may result as a necessary incident from the prosecution of the work in a proper manner, which would otherwise be a nuisance. The theory is that one who contracts with a public body for the performance of public work is entitled to share the immunity of the public body from liability for incidental injuries necessarily involved in the performance of the contract, where he is not guilty of negligence. In other words, when the act or failure to act which causes an injury is one which the contractor was employed to do and the injury results not from a negligent manner of doing the work, but from the performance thereof, the contractor is entitled to share the immunity from liability which the public enjoys * * See also 69 A.L.R. 489, Annotation, and Los Ange-les Dredging Company v. City of Long Beach, 210 Cal. 348, 291 P. 839, 843, 71 A.L.R. 161.

        Id. at 742.

      . The government’s specifications did not call for the defendants to assemble a defectively made grenade. We observed in Passwaters v. General Motors Corp., 454 F.2d 1270 (8th Cir. 1972):
      Often the concept of strict liability is confused with liability that is absolute. Such confusion is understandable when one compares older editions of tort casebooks. The indexes of such books use the heading of “Strict Liability” in reference to cases dealing with absolute liability, e. g., Fletcher v. Rylands, 3 Hurl. & C. 774, L.R. 3 H.L. 330 (1868). See F. Bohlen, Cases on Torts, 634 (4 Ed. 1941).
      “Some quibbler may allege that this is liability without fault. It is not. As made clear above, a plaintiff relying upon the rule must prove a defect attributable to the manufacturer and causal connection between that defect and the injury or damage of which he complains. When able to do that, then and only then may be recover against the manufacturer of the defective product.” Piercefield v. Remington Arms Co., 375 Mich. 85, 133 N.W.2d 129, 135 (1965).

        Id. at 1277 n. 7.

      . Even government-created corporations are not immune from suit unless expressly so created. In Keifer & Keifer v. Reconstruction Finance Corp., 306 U.S. 381, 59 S.Ct. 516, 83 L.Ed. 784 (1939), the Supreme Court said:
      The starting point of inquiry is the immunity from unconsented suit of the government itself. As to the states, legal irresponsibility was written into the Eleventh Amendment; as to the United States, it is derived by implication. Monaco v. Mississippi, 292 U.S. 313, 321 [54 S.Ct. 745, 747, 78 L.Ed. 1282 J. For present purposes it is academic to consider whether this exceptional freedom from legal responsibility rests on the theory that the United Statés is deemed the institutional descendant of the Crown, enjoying its immunity but not its historic prerogatives, cf. Langford v. United States, 101 U.S. 341, 343 [25 L.Ed. 1010], or on a metaphysical doctrine “that there can be no legal right as against the authority that makes the law on which the right depends.” Kawananakoa v. Polyblank, 205 U.S. 349, 353 [27 S.Ct. 526, 527, 51 L.Ed. 834], But because the doctrine gives the government a privileged position, it has been appropriately confined.
      Therefore, the government does not become the conduit of its immunity in suits against its agents or instrumentalities merely because they do its work. United States v. Lee, 106 U.S. 196, 213, 221 [1 S.Ct. 240, 254, 261, 27 L.Ed. 171]; Sloan Shipyards v. U. S. Fleet Corp., 258 U.S. 549, 567 [42 S.Ct. 386, 388, 66 L.Ed. 762], For more than a hundred years corporations have been used as agencies for doing work of the government. Congress may create them “as appropriate means of executing the powers of government, as, for instance, ... a railroad corporation for the purpose of promoting commerce among the states.” Luxton v. North River Bridge Co., 153 U.S. 525, 529 [14 S.Ct. 891, 892, 38 L.Ed. 808], But this would not confer on such corporations legal immunity ....

        Id. at 388-389, 59 S.Ct. at 517.

      . We note here, as in Whitaker, the contract between the government and Day & Zimmer-mann also requires the latter to carry liability insurance. The possible overall effect of this obligation on the indemnity relationship is not before us.


author: SPRECHER, Circuit Judge. WILLIAM J. CAMPBELL,

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Casimir STASZCUK, Defendant-Appellant.
    No. 73-1869.
    United States Court of Appeals, Seventh Circuit.
    Argued April 4, 1974.
    Decided Sept. 10, 1974.
    Reheating En Banc Granted Dee 23, 1974.
    William J. Campbell, Senior District Judge, concurred and filed an opinion.

      Sherman C. Magidson, Warren D. Wolfson, Chicago, 111., for defendant-appellant.
    James R. Thompson, U. S. Atty., Gary L. Starkman, Asst. U. S. Atty., Chicago, 111., for plaintiff-appellee.
    Before PELL and SPRECHER, Circuit Judges, and CAMPBELL, Senior District Judge.

       Senior District Judge William J. Campbell of the Northern District of Illinois is sitting by designation.

   SPRECHER, Circuit Judge.

In 1967 defendant was elected aider-man from the 13th ward in the City of Chicago. According to the evidence viewed in a light most favorable to the government, defendant accepted three payments of $3,000 each from a “zoning consultant,” Al C. Allen. Allen testified he made the payments on behalf of his clients in return for defendant’s agreement not to oppose their applications for zoning amendments relating to three pieces of property in the 13th ward.

Defendant was convicted by a jury on three counts of Hobbs Act violations, four counts of mail fraud, and two counts of filing false income tax returns. He was sentenced to nine concurrent sentences of eighteen months each.

I. Hobbs Act Counts

The indictment charged defendant with obstructing, delaying and affecting commerce “by means of extortion,” in that he “obtained property not due either him or his office . . . with [Allen’s] consent being induced under color of official right.” The indictment specified that Allen feared he would be unable to procure the zoning changes “unless he compensated defendant to refrain from objecting to such . change[s] as a member of the Chicago City Council. ...”

Apparently this is one of the first prosecutions under section 1951 to rely solely on subsection b(2)’s definition of extortion as “the obtaining of property from another, with his consent, induced . . . under color of official right.” All reported Hobbs Act cases charging extortion relied on the “wrongful use of actual or threatened force, violence, or fear” section of the definition. The only exception is United States v. Kenny, 462 F.2d 1205 (3d Cir.), cert. denied, 409 U.S. 914, 93 S.Ct. 233, 34 L.Ed.2d 176 (1972), in which defendants were charged with extortion through wrongful use of fear or under color of official right.

Defendant concedes, as we believe he must, that under the Hobbs Act “color of official right” may replace the coercion of “force, violence, or fear.”

Defendant argues, rather, that his acceptance of three $3,000 payments for not opposing the zoning changes was not under color of official right because it was not related to his official functions. An alderman need not oppose or favor a particular zoning application, and defendant offered some evidence that the City Council does not always act consistent with an alderman’s position on a zoning change in his ward. His only authorities for this proposition are People v. Samuels, 188 Misc. 607, 71 N.Y.S.2d 562 (1947), and Collier v. State, 55 Ala. 125 (1876). In Samuels a tax collector was charged with extortion for accepting a fee to “straighten out” a claim which he had no power to settle, compromise or influence. The court held that the statute covered only situations where the service provided by the official was within the scope of his public employment. In Collier a county attorney accepted fees for giving professional advice as a private attorney. The court held he may have accepted money under .false pretenses, but since the fees did not relate to his official function he had not committed extortion.

The government presented sufficient evidence of an alderman’s influence over zoning applications in his own ward that the jury could conclude defendant’s official functions encompassed the unbiased consideration and treatment of all zoning applications. The payments were made to defendant to influence his exercise of the political power he held as alderman over zoning applications. To accept money in return for an agreement not to oppose such applications — in effect to suspend independent judgment on the merits of such zoning changes — constitutes obtaining property from another, with his consent, induced under color of official right. The evidence supports defendant’s convictions for extortion.

Conviction under the Hobbs Act, however, requires proof that the extortion had at least an arguably de mini-mus effect on interstate commerce. United States v. DeMet, 486 F.2d 816 (7th Cir. 1973), cert. denied, 416 U.S. 969, 94 S.Ct. 1991, 40 L.Ed.2d 558 (1974). To satisfy this jurisdictional element of the crime, the government presented evidence that on the rezoned properties in counts I and II were built apartment buildings that could not have been constructed under the previous zoning. Certain materials used in the construction of these buildings were shipped in interstate commerce. Because the rezoning, procured through extortion, created a demand for construction materials to be shipped into Illinois, the effect on interstate commerce in counts I and II was direct and demonstrable.

The property in count III had to be rezoned to permit construction of an animal hospital. Once the zoning change was made, however, the veterinarian for whom the hospital was to be built backed out of the deal. The owner instead erected buildings which were proper under the previous zoning. To show the rezoning’s effect on interstate commerce under count III, the government presented the testimony of one of three potential contractors, who said his company would have used materials from interstate commerce if it had been awarded the contract to construct the animal hospital.

The government cites several eases for the proposition that any potential effect on commerce satisfies the Hobbs Act. In United States v. Pranno, 385 F.2d 387 (7th Cir. 1967), cert. denied, 390 U.S. 944, 88 S.Ct. 1028, 19 L.Ed.2d 1132 and 390 U.S. 972, 88 S.Ct. 1094, 19 L.Ed.2d 1183 (1968), there was no delay in construction because the extortion money was paid and the building permit issued. The court upheld the Hobbs Act convictions because “it was only necessary to prove that delay would have been caused had the owner and contractor refused payment and defendants carried out their threat to withhold the permit.” 385 F.2d at 390. But here the result of the extortion payment was exactly the same as if no extortion or rezoning had occurred: no shipment of materials in interstate commerce.

The court in United States v. Hyde, 448 F.2d 815, 836 (5th Cir. 1971), cert. denied, 404 U.S. 1058, 92 S.Ct. 736, 30 L.Ed.2d 745 (1972), made the point that there is no requirement “the company be engaged in an interstate transaction at the moment of the extortion to support federal jurisdiction.” But the victim companies did participate in interstate activities within a year of the payoffs which permitted them to stay in business.

The victim in United States v. Tropiano, 418 F.2d 1069 (2d Cir. 1969), cert. denied, 397 U.S. 1021, 90 S.Ct. 1258, 25 L.Ed.2d 530 (1970), purchased trucks from an out-of-state corporation. By surrendering his right to solicit additional customers in response to extortionate threats by a competitor, the victim “automatically limited his future orders” for the trucks. The owner of the count III property, however, was not engaged in interstate commerce at the time of the extortion; the rezoning did not promote any future interstate activities because he never built the animal hospital.

We agree that the effect of the extortion on commerce does not have to be simultaneous with the extortion. Indeed, it followed the extortion by some months in counts I and II. But when the effect never materializes — despite the failure or success of the extortion— the commerce element of the Hobbs Act is not established. Cf. United States v. Critchley, 353 F.2d 358 (3d Cir. 1965).

The convictions on counts I and II are affirmed; the conviction on count III is reversed.

II. Mail Fraud Counts

Applications for zoning changes are introduced before the City Council and referred to the Committee on Buildings and Zoning. The committee sets a date for a public hearing and sends form notices to occupants of buildings within 150 feet of the subject property. Four such notices are the mailings charged in the four mail fraud counts. Defendant argues that the committee’s mailing of these notices was not in furtherance of his scheme to defraud.

We begin with the proposition that “statutes such as section 1341 should be carefully and strictly construed in order to avoid extension beyond the limits intended by Congress.” United States v. Kelem, 416 F.2d 346, 347 (9th Cir. 1969), cert. denied, 397 U.S. 952, 90 S.Ct. 977, 25 L.Ed.2d 134 (1970). To support federal criminal jurisdiction, the mailing must be, in the words of the statute, “for the purpose of executing such scheme or artifice.” The connection between the fraud and the use of the mails “must be real and proximate, not merely abstract or remote.” United States v. Brickey, 296 F.Supp. 742, 748 (E.D.Ark.1969).

The requisite connection was established in Pereira v. United States, 347 U.S. 1, 74 S.Ct. 358, 98 L.Ed. 435 (1954), where the victim used the mails to procure the cash she turned over to defendants. A letter or inquiry in response to a newspaper advertisement satisfied the statutory requirement in United States v. Hopkins, 357 F.2d 14 (6th Cir.), cert. denied, 385 U.S. 858, 87 S.Ct. 107, 17 L.Ed.2d 84 (1966). And the mailing of an I.R.S. interest-payment notice to legitimize a fictitious loan was considered integral to the pretense in United States v. Isaacs, 493 F.2d 1124, 1151 (7th Cir.), cert. denied, 417 U.S. 976, 94 S.Ct. 3184, 41 L.Ed.2d 1146 (1974).

But a use of the mails that is not a step toward receipt of the fruits of the scheme is not covered by section 1341. United States v. Maze, 414 U.S. 395, 94 S.Ct. 645, 38 L.Ed.2d 603 (1974); Kann v. United States, 323 U.S. 88, 65 S.Ct. 148, 89 L.Ed. 88 (1944); Henderson v. United States, 425 F.2d 134 (5th Cir. 1970); Richardson v. United States, 150 F.2d 58 (6th Cir. 1945). In Maze the Supreme Court held a perpetrator of a classic credit-card swindle could not be prosecuted under section 1341-, The delay in transmitting invoices was caused by distance rather than by the mail service itself. Since the defendant would have preferred that the invoices never be mailed, the mailings could hardly be said to further his scheme.

With these precedents in mind, let us examine the role of the committee’s notices of public hearings in defendant’s scheme. The purpose of the notices was to provide an opportunity for affected persons to state objections to the proposed zoning changes. Yet Allen’s testimony and the timing of the payments after committee approval was assured, imply that the zoning amendments had to go through before defendant would be paid. As in Maze, the purpose of the mailings conflicted with, rather than promoted, defendant’s scheme to defraud.

In actual fact, the notices had little effect on the procedure of passing the amendments. They produced no witnesses at the Schaefer and Prokop-Za-brodski hearings. one witness at the Harris hearing had received a notice. Two other witnesses identified themselves as adjacent owners, but their addresses were not on the notice list. All three objected to the zoning change.

From either a theoretical or a factual point of view, the committee’s mailing of notices seems too remote from defendant’s scheme to support a conviction under section 1341.

The government has three theories to truncate the remote connection between the mailings and defendant’s scheme. The first is that the mailings would not have occurred if defendant had not agreed to support the amendments. This “but for” argument may show defendant “caused” the mailings, but is irrelevant to the purpose of the mailings.

The second theory is that the mailings contained misrepresentations. See United States v. Smothers, 435 F.2d 209 (7th Cir. 1970), cert. denied, 403 U.S. 906, 91 S.Ct. 2208, 29 L.Ed.2d 681 (1971); United States v. Williams, 424 F.2d 344 (5th Cir 1970). These cases involved false bills of lading and fraudulent and misleading corporate reports. The government says the “latent” misrepresentation in the public-hearing notices is the impression that the committee will objectively consider the recipient’s objections, when in fact the payoff to defendant has made the public hearing a sham.

Because the notices contained no false information as such, they are not in the same category as the mailings in Smothers and Williams. They are much more like the mailings in Parr v. United States, 363 U.S. 370, 80 S.Ct. 1171, 4 L.E.2d 1277 (1960), and United States v. Brickey, 296 F.Supp. 742 (E.D.Ark. 1969), In Parr, school trustees mailed legitimate tax bills and receipts with the intention of misappropriating part of the collections. The Supreme Court held the mailings did not contain misrepresentations. In Brickey the mailings were routine letters among an insurance company, its independent agencies and its insureds. The government argued that, by allowing company routine to continue, its president was committing fraud because he knew the company was about to become insolvent through his own looting. The court held the mailings were not fraudulent in themselves, were not misrepresentations of solvency under the circumstances and could not support a prosecution under section 1341.

The government’s third theory is that the public-hearing notices “lulled” nearby residents, the most direct victims, into believing their due process rights were being respected when actually they had been subverted by defendant’s scheme. The only cases that have accepted “lulling” letters to support mail-fraud convictions have been instances of reassurances that were integral parts of the schemes in allowing the perpetrators to continue profitable relationships with their victims. United States v. Sampson, 371 U.S. 75, 83 S.Ct. 173, 9 L.Ed.2d 136 (1962); United States v. Goldberg, 401 F.2d 644 (2d Cir. 1968), cert. denied, 393 U.S. 1099, 89 S.Ct. 895, 21 L.Ed.2d 790 (1969). Where, as here, the mailings are not used to conceal and continue a fraud, the “lulling” theory has been rejected. United States v. Maze, 414 U.S. 395, 94 S.Ct. 645, 38 L.Ed.2d 603 (1974); Kann v. United States, 323 U.S. 88, 65 S.Ct. 148, 89 L.Ed. 88 (1944); Henderson v. United States, 425 F.2d 134 (5th Cir. 1970).

We conclude that section 1341 does not encompass defendant’s scheme to defraud' because the mailings were not made in furtherance of that scheme. The convictions on counts IV, V, VI and VII must be reversed.

III. Voir Dire

Defendant claims the district court erred in refusing to ask several questions of prospective jurors. These questions were proposed by defendant not to establish grounds for challenges for cause, but to provide guidance in the exercise of peremptory challenges.

The first question was whether any of the panel had previously served on a jury. The district judge has the necessary discretion to decide whether to ask this question. United States v. Ruggiero, 472 F.2d 599 (2d Cir.), cert. denied, 412 U.S. 939, 93 S.Ct. 2772, 37 L.Ed.2d 398 (1973).

The second group of questions requested by defendant was designed to elicit more information about the prospective jurors’ personal, social and associational backgrounds than the district judge’s questions produced. After reading the transcript of the voir dire, we are satisfied that the background information obtained by the judge and by additional questioning by defendant reached the “happy mesne point” that provided “some basis for a reasonably knowledgeable exercise of the right to challenge.” United States v. Lewin, 467 F.2d 1132, 1137 (7th Cir. 1972). We do not approve the judge’s refusal to ask male jurors about their marital status and their spouse’s occupations while asking female jurors the same questions, but such refusal does not rise to the level of reversible error.

The next refused question was whether the prospective juror or his family member or close friend had ever applied for a job with the federal government. Defendant’s argument is that an unsuccessful application would prejudice the venireperson against public officials in general. We do not accept this theory and believe the proposed question was irrelevant to the case.

The final unasked question was whether the prospective juror had ever taken a position with respect to any zoning change. The judge had already asked the panel whether they, had ever tried to change the zoning on property they owned and had explained the nature of the charges against defendant. There is no requirement that a matter “be explored in numerous substantially similar questions, with tedious repetitions, of only slightly variant shadings of meaning.” United States v. Lewin, 467 F.2d 1132, 1138 (7th Cir. 1972). The panel was adequately alerted to this possible area of prejudice.

Lewin and United States v. Dellinger, 472 F.2d 340 (7th Cir. 1972), cert. denied, 410 U.S. 970, 93 S.Ct. 1443, 35 L.Ed.2d 706 (1973), are two recent cases from this circuit finding error in the restriction of questioning on voir dire. In Lewin the two main witnesses were employees of the Better Government Association and the Chicago Daily News. The panel should • have been asked whether they contributed to the BGA or were employed by either organization. In Dellinger the court refused to inquire into three areas in which conventional jurors were likely to be prejudiced against the unconventional defendants. Neither case provides a parallel for the thorough, detailed voir dire in the present case.

We wish to note our concurrence in Judge CAMPBELL’S concurring opinion.

The convictions on counts I, II, VIII and IX are affirmed. The convictions on counts III, IV, V, VI and VII are reversed.

WILLIAM J. CAMPBELL,

Senior District Judge (concurring).

I concur fully in Judge SPRECHER’s excellent opinion, and wish only to briefly state my own views with respect to defendant’s contention that his actions constituted no more than the acceptance of a bribe, and that his conduct was therefore not extortionate in character. The government need not demonstrate that a defendant, charged with extortion under color of official' right, has obtained the property of another through the use of force, duress, fear or the threat of same. The evidence need only demonstrate that the public official has obtained from the “victim” something of value to which the official is not entitled, in return for something that should have been provided without payment, The office held by the official provides the coercive impetus which generates the payment.

In the instant case, the alderman’s duties included the objective and unbiased evaluation of applications for zoning variances. Staszcuk was paid money by virtue of his office as alderman so that the powers of that office would not be misused to the detriment of the payor, or at a minimum, to insure that the zoning application would receive the fair and unbiased consideration which it should have been afforded without the encouragement of additional compensation. Thus, the office provided the duress which rendered the acceptance of money by Staszcuk extortion under color of official right.

That is not to say, however, that, as the government contends in the instant case, there is no distinction between the acceptance of a bribe by a public official and extortion under color of official right. For example, assume that a public official has been paid a sum of money to induce him to use his position and influence to obtain a building permit on behalf of an applicant who is clearly not entitled under the law to such a permit. In such a case, the money which the public official receives is not being paid to prevent the coercive use of his office, but rather to assist the payor in his efforts to obtain something to which he is not lawfully entitled. As the court stated in United States v. Pranno, 385 F.2d 387, 390 (7th Cir. 1967) “it might be solely a bribe and not extortion if the record showed that the issuance of the permit was illegal . . .”.

Finally, contrary to the defendant’s contention in the instant case, bribery and extortion are not necessarily mutually exclusive offenses. Pranno, supra at 390. A single payment may be made for more than one purpose, particularly where there exists some question regarding whether the payor is legally entitled to that for which he tenders payment. Where such is the case, the government need only prove the extortionate element of the transaction to support a charge of extortion under color of official right.

      . 18 U.S.C. § 1951(a) : “Whoever in any way or degree obstructs, delays, or affects commerce or the movement of any article or commodity in commerce, by robbery or extortion or attempts or conspires to do so . . . shall be fined not more than $10,000 or imprisoned not more than twenty years, or both.”

      . 18 U.S.C. § 1341: “Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, . . . for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined not more than $1,000 or imprisoned not more than five years, or both.”

      . 26 U.S.C. § 7206(1).

      . Another such case is pending on appeal in this court. United States v. Braasch, Nos. 74-1000-1017 and 74-1105.

      . See United States v. Kenny, 462 F.2d 1205, 1229 (3d Cir.), cert. denied, 409 U.S. 914, 93 S.Ct. 233, 34 L.Ed.2d 176 (1972), in which the court approved submission of the case to the jury under instructions allowing conviction for extortion through fear or under col- or of official right. See also Chief Judge Swygert’s concurrence in United States v. DeMet, 486 F.2d 816, 822-823 (7th Cir. 1973), cert. denied. 416 U.S. 969, 94 S.Ct. 1991, 40 L.Ed.2d 558 (1974); United States v. Sutter, 160 F.2d 754, 756 (7th Cir. 1947); and Stern, Prosecution of Local Political Corruption under the Hobbs Act, 3 Seton Hall L.Kev. 1 (Fall 1971), written by the prosecutor of the Kenny case.

      . And of Allen’s impression of an alderman’s influence. Cf. United States v. Varlack, 225 F.2d 665 (2d Cir. 1955).

      . There are no cases definitively holding that the effect on commerce either must be or need not be an adverse effect. But surely the word “affects” in the phrase “obstructs, delays, or affects” is superfluous if it is interpreted to mean “affects adversely.”

      . United States v. Pranno, 385 F.2d 387 (7th Cir. 1967), cert. denied, 390 U.S. 944, 88 S.Ct. 1028, 19 L.Ed.2d 1132 and 972, 88 S.Ct. 1094, 19 L.Ed.2d 1183 (1968); United States v. Kramer, 355 F.2d 891 (7th Cir. 1966); Anderson v. United States, 262 F.2d 764 (8th Cir.), cert. denied, 360 U.S. 929, 79 S.Ct. 1446, 3 L.Ed.2d 1543 (1959); Hulahan v. United States, 214 F.2d 441 (8th Cir.), cert. denied, 348 U.S. 856, 75 S.Ct. 81, 99 L.Ed. 675 (1954).
      Since the extortion directly facilitated the flow of building materials in interstate commerce, we need not depend on a “depletion of assets” theory to show an effect on commerce. Thus we need not decide whether Allen or his clients were the victims of the extortion, or whose assets were depleted.

      . United States v. Augello, 451 F.2d 1167 (2d Cir. 1971), cert. denied, 405 U.S. 1070, 92 S.Ct. 1518, 31 L.Ed.2d 802 (1972), is a similar case.

      . The government argues we must accept any potential effect of extortion as satisfying the Hobbs Act, or eliminate the offense of attempted extortion under section 1951, since the only effect of an attempt must be a potential effect. This is a frivolous argument, since the government can prove what the result of an extortion attempt would have been if the extortion had been successful. If the extortion is successful and there is still no effect on commerce, the extortioner has not violated the Hobbs Act.

      . It is not clear from tlie record whether the committee is required by law to send these notices or does so as a courtesy to affected persons.

      . There was one witness at the Schaefer hearing who was not on the notice list but who asked for an opportunity to talk with area residents before the committee passed on the amendment. He said that, based on what he had learned at the hearing, “I don’t believe we would have any objection. ...” (Gvn’t Ex. 1-6.)

      . These witnesses and the attorney representing Harris all believed Harris wanted a zoning amendment to operate a pillow factory, while the record shows Harris, Allen and defendant knew the amendment was necessary for construction of an animal hospital.

      . Counts VIII and IX, for filing false income tax returns, were not challenged on appeal except under the voir dire argument.