text:
    MITCHELL v. LAY et al.

    No. 6340.

      Circuit Court of Appeals, Ninth Circuit.
    Feb. 24, 1930.
    Rehearing Denied April 6, 1931.

      E. Forrest Mitchell, State Insurance Com’r., and Frank L. Guerena, both of San Francisco, Cal., for appellant.
    Reisner & Deming, of San Francisco, Cal., for appellee Helen Lay.
    Bronson, Bronson & Slaven, of San Francisco, Cal., for appellee Lumbermen’s Reciprocal Ass’n.
    Marshall B. Woodworth, of San Francisco, Cal., for appellee Samuel M. Shortridge, Jr.
    Before RUDKIN and WILBUR, Circuit Judges, and SAWTELLE, District Judge.

      Certiorari denied 61 S. Ct. 656, 75 L. Ed. —.

   WILBUR, Circuit Judge.

This action is brought on the equity side of the United States District Court for the Northern District of California by the appellee Helen Lay against the appellee Lumbermen’s Reciprocal Association, a Texas corporation, and resulted in the appointment of appellee as receiver for the Lumbermen’s Reciprocal Association. After appointment of a receiver the appellant was cited by him to appear in court to show cause why he should not be enjoined from further, proceeding with an- action in the superior court and from interference with the property of the Lumbermen’s. Reciprocal Association, and after a hearing upon the receiver’s petition and appellant’s counter motion to vacate the receivership was denied, and an injunction was issued. From these orders appellant takes this appeal. The appellees moved to dismiss .the appeal, and, reserving the jurisdictional question, have also argued and submitted the appeal on the merits. In order to understand the situation presented by the appeal it will be necessary to state the facts in some detail.

The bill in equity, hereinafter referred to as the complaint, filed by appellee Helen Lay, who will hereinafter be referred to as the plaintiff, alleged as follows: That the appellee Lumbermen’s Reciprocal Association, the defendant therein named, is a corporation organized under the laws of the state of Texas, conducting an insurance business within the state of California; that the defendant was insolvent, that its license to do insurance business in the state of Texas was suspended by the insurance commissioner in that state on July 23, 1930, and that its license to do business in California was suspended by the order of the insurance commissioner for the state of California, the appellant herein, on the next day, July 24, 1930. As a basis for the allegation of insolvency plaintiff alleges- that the liabilities of the defendant exceeds the value of its' assets by approximately $325,0t)0, and that there are a great many outstanding claims against the defendant arising out of its policies of insurance which are unpaid and cannot be paid, for the reason that the defendant had not sufficient cash to satisfy the same. It is also alleged that the liability of the defendant consists largely of claims arising out of policies issued by the defendant in Texas, in California, and in other states; that the amount of “known valid unpaid claims now outstanding against the defendant in the State of California aggregate approximately $75,000, and that defendant is indebted to other California residents in the sum of approximately $3,000.” Plaintiff alleged that the defendant has the following assets located in the state of California: Cash on hand, $7,000; accounts receivable, $60,000; securities on deposit with the insurance commissioner of the state of California, in lieu of a bond required of workmen’s compensation insurance carriers by the laws of the state of California, of the approximate value of $81,000. That all said assets are located in the city and county of San Francisco, state of California, within the jurisdiction of this court; that policyholders to whom policies have been issued by the defendant are entitled to cancel their policies, and that the insolvency of the defendant will no doubt result in the cancellation” of the policies and a claim for refund of unearned premiums; that it may be “reasonably anticipated that as soon as tbe insolvency of the defendant becomes generally known a great many suits will be instituted against defendant by claimants within the State of California and elsewhere and that a great many attachments will be levied upon the property and assets of defendant within the State of California; that the expense of a proper defense of said suits will be very great, thereby further impairing the defendant’s present insolvent financial condition, and that by reason of said multiplicity of actions the assets of the defendant will be largely consumed and dissipated.”

It is alleged that, by reason of the facts therein stated, “it is necessary, in order to protect the said claim of plaintiff and the said claims of other creditors of the defendant residing in the State of California and within the jurisdiction of this court, that a receiver be appointed by this court to take possession of the business and assets of defendant within the jurisdiction of this court and that said assets and the business of defendant within this State and within the jurisdiction of this court be administered by such receiver under the order and direction of this court and that all creditors be enjoined from bringing any action against or levying any attachment against the property of defendant to the end that the rights of all claimants against and creditors of defendant within the jurisdiction of this court may be properly and adequately protected; that unless such receiver be appointed and such injunction issue, the assets of defendant now located in the State of California and within the jurisdiction of this court will be largely dissipated and consumed by reason of said multiplicity of actions and by reason’ of a withdrawal and transfer from the State of California to the State of Texas, for the purpose of payment of claims of residents of Texas and of other states, of property and funds of defendant now located within the jurisdiction of this court; that if such receiver is appointed and such injunction issue plaintiff and the other claimants against defendant residing within the jurisdiction of this court may and probably will receive substantially the full amount of their said claims, but not otherwise. *. * * That plaintiff has no adequate remedy at law and can have relief only in equity and therefore files this bill of complaint in behalf of herself and of all the creditors of defendant who may hereafter join herein.”

Plaintiff prays that the court will administer all the assets of the defendant within the state of California and fix the rights of the creditors of the defendant in the state of California and within the jurisdiction of the court, and that a receiver be appointed to take possession of all the assets of the defendant within the jurisdiction of the court, to collect money due defendants, to bring suits at law, reinsure all risks now insured against by defendant, to employ attorneys, and counsel and other officers, agents, and employees, to administer the assets and business of the defendant within the jurisdiction of the court; to do all acts necessary to properly administer the business and property of the defendant and the payment of claims against defendant; that the officers of the defendant be required to transfer all of its property and assets located within the state of California and within the jurisdiction of the court to the receiver, that all persons be enjoined from instituting suits or actions at law or in equity against the defendant, attaching or taking other legal processes against the property of the defendant within the jurisdiction of the court and from interfering with the possession of the receiver. The plaintiff prays for other relief which 'need not be specified in further detail, except to say that the court was asked to adjudicate the claims of all creditors within the jurisdiction of the court and after doing so to direct the payment of the same by the receiver out of the assets of the defendant located within the jurisdiction of the court. The complaint was verified the 29th day of July, 1930, and on that day the appellee was appointed receiver. On July 31, 1930, Wright Morrow, of Houston, Tex., was appointed receiver of the Lumbermen’s Reciprocal Association in and for the state of Texas. On August 1, 1930, the appellant, in pursuance of his duties as insurance commissioner and in conformity with the law of the state of California (Stats. 1919, p. 265), began an áction in the superior court of the city and ’ county of San Francisco, state of California, to liquidate the affairs of said association and praying the court to appoint him receiver of the association, as provided by said statute of California. Thereupon, an order of the superior court was issued restraining the local agent of the association, E. J. Brockman, from disposing of the property of the association, and to show cause why the appellant should not be appointed receiver. This order was served on E. J. Brockman on August 2, 1930. On August 6, 1930, the defendant association filed an answer herein admitting the allegations of the complaint and joining in the prayer of the plaintiff praying that such decree be made in the premises as may be just and proper for the full protection of the plaintiff, the defendant, and all creditors of defendant.

Plaintiff alleges in her complaint that her husband was killed July 18, 1930, in an industrial accident while working for the "Bos Construction Company, that this company was insured against the consequences of industrial accident by a policy of insurance issued by the defendant; .that she filed an application for compensation on July 24;-that the Industrial Accident Commission of California, in pursuance of the Workmen’s Compensation Law of that state, had made an award in her favor and against the defendant insurance company for the sum of $5,000 on July 28, 1930. The plaintiff alleges that the "next day, July 29, 1930, she made a demand upon the managing agent of the defendant for the state of California, E. J. Brockman, for the sum of $5,000, in conformity with the terms of the award, but alleges “that said sum has not been paid nor has any part thereof”; that at the time of making the demand she was informed by said agent that defendant was insolvent.

The Workmen’s Compensation Law of California provides for the docketing of an award in the office of the clerk of the superior court, that thereupon and thereafter it has the effect of a judgment and an execution can be issued to collect the same in conformity with the usual practice in case of executions issued upon other judgments. Cal. Stats. 1917, c. 586, § 21, pp. 831, 851. No reason is alleged why the plaintiff could not have immediately docketed her judgment and caused an execution to be issued thereon. The award, however, was still subject to the control of the Industrial Accident Commission during the twenty-day period, within which the law permits an application for rehearing. Id., §§ 65, 66, pp. 874, 875. In addition to the above remedy the plaintiff had recourse to the special fund of $80,000 deposited for the benefit of those securing awards under the Workmen’s Compensation Laws of California to be paid upon the order of the appellant insurance commissioner. To that extent she is a preferred creditor, as will presently appear. An act of the Legislature of- the state of California for the protection of the beneficiaries of Workmen's Compensation insurance policies against the default or insolvency of insurance carriers issuing policies provides for the filing of a bond by the insurance ■ company to secure payment to employees of the insured who secure awards for injuries, or in lieu thereof a deposit as in the case at bar. Section 11 of the act (Stat. of Cal. 1917, p. 295) provides that such deposit shall be subject to the same conditions as the bond (Stat. of Cal. 1917, e. 200, p. 292, as amended, Stat. of Cal. 1919, c. 334, p. 611). This deposit is made with the state treasurer through the insurance commissioner “as security for the payment of its obligations on said business done in this state, and said deposit shall not be withdrawn except upon the written order of the insurance commissioner in payment of compensation claims, but shall be forthwith payable by the state treasurer to the insurance commissioner upon such order; provided, that any such deposit, or any remainder thereof, may be repaid to such carrier upon satisfactory showing to the insurance commissioner that every liability to pay compensation shall have been reinsured with a solvent carrier or fully paid and discharged. Said deposit shall be used only for the payment of compensation claims so long as there shall remain unpaid any such' claim or any part thereof.” Section 11.

The condition of the bond which is referred to in the above provision in regard to the deposit provides, in substance, that, if the insurance carrier fails to pay an award of the Industrial Accidént Commission on account of workmen’s compensation within thirty days after the same becomes final, the surety will forthwith pay said award or awards to said insurance commissioner as trustee for said beneficiary. The bond further provides that, if the insurance carrier shall suspend payment or become insolvent, or a receiver shall be appointed therefor, the surety will pay said awards to the extent of its liability under the bond upon the expiration of thirty days after the same becomes final, without regard to any proceedings for the liquidation or reinstatement of said insurance carrier. It provides that the Industrial Accident Commission may make an award directly against the surety in event the award is not paid within thirty days after the same becomes final, said award to be in favor of the insurance commissioner as trustee for the beneficiary of such award, provided a copy of the judgment against the surety may be entered by the clerk of the superior court of any city or city and county of San Francisco. The bond also provides for the “payment of legal costs, including reasonable attorneys’ fees, incurred in all actions or proceedings taken to enforce páyment-of said bonds or payment of said awards or said judgments against said surety.”

It is not necessary in this action to determine (Stat. of Cal. 1917, e. 200 supra, p. 292, § 2) whether the deposit in the office of the treasurer of the state of California is to be paid out'upon the order of the insurance commissioner in the amount of, and in the order of, the awards made by the Industrial Accident Commission against said insurance company, or whether in case of liquidation the fund is to be divided pro rata between those who have suffered losses covered by such policies. It would seem clear that, before the plaintiff was justified in coming into a court of equity for the appointment of a receiver and the liquidation of the affairs of the insurance company, she should have exhausted her remedy against this special fund deposited for her benefit. Whether, upon the ground of diversity of citizenship and in default of any judicial proceeding in the state courts, a federal court of equity might enforce the rights of a nonresident to such fund or take jurisdiction thereof, is a question not involved in this case, for there is no claim that there has been any default or misconduct on the part of any one with reference to the deposit in question. The plaintiff has not attempted to secure any part of said fund by any of the methods provided by law, and therefore is not in a position to invoke the jurisdiction of a court of equity to enforce rights which she herself has not undertaken to secure according to the proeedure outlined by the state law.

It appears further from the complaint that the period for a rehearing of the said award made to plaintiff had not yet expired, and that therefore the award was not final at the time the complaint was filed in the district court. Subsequently, as appears by affidavits filed on the hearing of appellee’s motion for an injunction, the Industrial Accident Commission set aside the said award. Thus plaintiff is now the holder of an unliquidated claim which she is prosecuting in the proper state tribunal which has exclusive jurisdiction thereof. She cannot, under these circumstances, invoke the jurisdiction of the federal court by bringing a new action on the ground of a diversity of citizenship in support of her unliquidated. claim which is pending for liquidation upon her application therefor before the state tribunal.

Appellees claim however, that the defects of the complaint are cured by the answer of the defendant corporation, admitting the award, admitting its failure to pay the same and its insolvency. It is uniformly held that consent of the defendant cures some of the deficiencies of such a complaint, such as the failure to pursue legal remedies. In re Metropolitan Railway Receivership, 208 U. S. 90, 110, 28 S. Ct. 219, 52 L. Ed. 403, citing Brown, Bonnell & Co. v. Lake Superior Iron Co., 134 U. S. 530, 10 S. Ct. 604, 33 L. Ed. 1021; Town of Mentz v. Cook, 108 N. Y. 504, 508, 15 2 N. E. 541; Horn v. Pere Marquette R. Co. (C. C.) 151 P. 626, 633. The answer of the defendant corporation, however, cannot change the fact that the plaintiff is prosecuting her claim for an award in the state tribunal, that the matter was pending before that tribunal at the time she commenced this action, as the award was not yet final, and that she is entitled to payment from a special fund pledged for the payment thereof and amply sufficient therefor, in the hands of the officers of the state of California, that plaintiff is not entitled to ask a court of equity to assist her to resort to the general assets of the insolvent association until she has exhausted the fund pledged for the payment of her claim, and that her appeal for the assistance of a court of equity to liquidate the affairs of the insolvent corporation in the interest of herself and other creditors is without merit because of the special security for her claim which she does not allege is insufficient to fully pay the same.

This brings us to a consideration of the nature of the order appealed from and the right to appeal therefrom. A petition was filed in this action by the receiver alleging the pendency of the above-mentioned proceeding-in the state court, and praying that the appellant insurance commissioner be enjoined from further, proceedings in that action and from interfering with the possession of the receiver with reference to the property of the defendant in his possession. An order to show cause was served upon the appellant. He appeared, filed an answer, and evidence was introduced on his behalf. In the meantime the proceedings in the state court were continued by the superior court pending the action of the District Court, and after the above-mentioned hearing the District Court entered the order from which this appeal was taken. The order is general in its terms in that it prohibits the insurance commissioner from prosecuting the suit he had instituted in the state court and from interfering in any way with the possession of the receiver or with any of the property of the corporation within the jurisdiction of the court. Under this order the appellees claim the right to the possession of the fund of $80,000 now in the custody of the state treasurer as security for the claim of workmen under the Workmen’s Compensation Law of California as well as all the other property “within the jurisdiction of the court.” Whether or not the order can properly be given the broad construction contended for by the appellees without reference to the writ of injunction issued in pursuance thereof is a point that we need not consider. A writ of injunction was issued by the clerk of the District Court on the 3d of October, apparently in pursuance of the order of court theretofore made reciting the proceedings had in the court as aforesaid. This writ issued in the name of the court is in' the form of a judgment ordering and decreeing certain things which need not be stated in detail. 'It is sufficient to say that the insurance commissioner is enjoined from interfering in any way with the duties of the receiver by bringing or prosecuting or maintaining any suit or suits or proceedings in any court of concurrent jurisdiction, “whose purpose or object is or will be to direct and dispossess this court of its jurisdiction over the subject matter and parties plaintiff and defendant in the above-entitled suit, or whose purpose and object it is, or will be, to dispossess or in any manner interfere with the possession of the receiver of said defendant, Lumbermen’s Reciprocal Association. * * * The Insurance Commissioner * * * is enjoined from instructing, advising or informing any banks within the jurisdiction of this court, in which moneys or securities or other property of said defendant are on deposit or in possession of said banks, to refuse to'pay the same over or deliver the same to the said receiver, or from interfering with any money or securities of the defendant on deposit or in the possession of any bank within the jurisdiction of this court.”

The appellant insurance commissioner is also thereby directed to pay or deliver to the receiver all moneys, securities, bonds, or collateral in the possession or under the control of the insurance commissioner or other person acting under his direction belonging to the defendant. This general language, it is claimed, applies to the deposit in the custody of the state treasurer to the order of the insurance commissioner of $80,000, and it is claimed requires the state treasurer to surrender that deposit to the receiver.

It will be observed that this injunction prohibits the insurance commissioner from performing the duties imposed upon him by a state statute (Cal. Stat. 1919, c. 178, p. 265, as amended, Cal. Stat. 1921, c. 599, p. 1017), which provides for the liquidation of insolvent insurance companies which have been engaged in business in the state of California. The constitutionality of this state statute is not disputed. The order appealed from directs that the appellant insurance commissioner violate his official duty under such statute by turning over to the receiver of the federal court a fund that was in the custody of the state through its officers for the protection of creditors of the insolvent insurance company before this action was begun. And these orders are made notwithstanding that there is no claim that the insurance commissioner has neglected his duty, but solely on the ground that he is endeavoring to perform his duty as defined in the state statute. The mere statement of this situation is sufficient to show the impropriety of the order of the court. Dodds v. Palmer Mountain Tunnel Co. (C. C.) 188 F. 447; Rev. St. § 720 (28 USCA § 379). So far as the appellant’s application for a receivership was concerned it had been begun before the insurance commissioner was cited to appear and the federal court had no right to enjoin the further prosecution of that action, Hamilton v. Walsh (C. C.) 23 F. 420, 429; Lanning v. Osborne (C. C.) 79 E. 657; City of Lee’s Summit v. Jewel Tea Co. (C. C. A.) 217 E. 965; Kansas City Gas Co. v. Kansas City (D. C.) 198 E. 500; Chapman v. Brewer, 114 U. S. 158, 5 S. Ct. 799, 29 L. Ed. 83; Sargent v. Helton, 115 U. S. 348, 6 S. Ct. 78, 29 L. Ed. 412, although the trial court had a right to protect its receiver in the possession of the property of which he had already taken possession on the ground that the federal court had just acquired jurisdiction thereof.

Upon the return of the order to show cause the appellant moved for an order vacating the receivership. This application was denied, and from this order also the appeal was taken.

At this juncture we pause to consider appellee’s motion to dismiss so far as the motion is based upon the claim that the appellant is not entitled to appeal from the order granting the injunction or from the ■order refusing to vacate the receivership on the ground that the appellant is not a party to the action, and that the appellant did not ask permission to intervene in the action, thalt therefore he is a stranger to the action and not entitled to the appeal from the orders made. It is true that the appéllant is not a party to the original action, but when he was brought into court by the process of the court at the instigation of the parties to the> action or of the receiver he became a party to the ancillary proceedings and entitled to appeal from the judgment rendered against him. The judgment therein rendered was as to him final and appealable as such. Gas & Electric Securities Co. v. Manhattan, etc., Corp. (C. C. A.) 266 F. 625; see, also, O’Neil v. Welch (C. C. A.) 245 P. 261; Ward v. Foulkrod (C. C. A.) 264 F. 627.

We conclude that the order is appealable in its aspect as an injunction, and also as to the order refusing to vacate the receivership which was an essential part of the final judgment on the hearing. Of the latter aspect of the judgment or order appealed from it should be observed that the question is not the abstract one of whether or not specific provision is made in section 129 .of the Judicial Code (28 USCA § 227) for an appeal from an order refusing to vacate a receivership. Ordinarily the right to appeal from the order appointing receiver which is authorized by section 129 is amply sufficient to protect the parties, and an appeal from an .order refusing to vacate the receivership would be entirely unnecessary and it would tend to excuse the defendant from appealing from the order appointing a receiver which it is his duty to do if he is dissatisfied therewith, but when the question is raised by a person who is brought into the court after the receiver is appointed and who has had no opportunity and no right to appeal from the order appointing a receiver, the situation is entirely different. His first opportunity to be heard with reference to the appointment of a receiver is upon his application to have the receivership vacated. In the case at bar the order made denying his motion to vacate the receivership was a part of the judgment, - final as to him, which was rendered by the trial court, and was appealable as such. As we have already pointed out, the allegations of the complaint are insufficient to justify the appointment of a receiver or the issuance of an injunction. So far as the complaint is helped out by the admissions and the consent of the defendant corporation, as we have already pointed out, such consent is insufficient to justify the district court in impounding the assets of the corporation to the exclusion of the insurance commissioner charged under the laws of the state with the duty of administering the assets of the corporation after securing his appointment as a receiver, and to the exclusion of ancillary receivers appointed by the state or district after domiciliary receivers had been appointed.

We have thus far dealt with the motion to dismiss solely on appellees’ claim that the orders appealed from are not appealable. In addition thereto, appellees interpose certain procedural objections which will now be considered. After the filing of the petition for appeal and the allowance thereof, a citation was issued returnable within thirty days, as provided by the rules of this court. The citation was not served upon the appellees until after the return day. The marshal had declined to serve the citation on the ground that the return day thereof had passed, and the trial court refused to issue a new citation or extend the time for perfecting the appeal, whereupon an application was made here in open court, appellees appearing to object thereto, and the time for perfecting the appeal was extended. Thereafter citation was served upon appellees by a citizen of the United States and not by the marshal. Unless the service of citation before the return day thereof is jurisdictional, the action of this court already taken excuses the appellant from a strict compliance with the rules governing an appeal. The object of the citation is to give notice to the appellees that the appellant, whose appeal has been allowed, intends to prosecute his appeal, and, where the appellees have actual notice as they had in this case, the object of the citation has been fulfilled. Unless the appeal is taken in open court and the appellees are thereby given actual or constructive notice thereof, the service of the citation is necessary to perfect the appeal. The order allowing the appeal in this case was made in chambers, and therefore the service of the citation was necessary. The service of the citation is not jurisdictional, however, and may be dispensed with by this court if the appellees have or are given notice of the prosecution of the appeal. Berliner Gramaphone Co. v. Seaman (C. C. A.) 108 F. 714; Hunn v. Lewis (C. C. A.) 25 F.(2d) 271; Osage Oil & Ref. Co. v. Mulber Oil Co. (C. C. A.) 38 F.(2d) 396.

The motion to dismiss is denied. The orders appealed from are reversed. The court is directed to settle the accounts of the receiver and to order the receiver to turn over to the appellant all property seized under its order by the receiver as soon as the appellant has secured an appointment as receiver thereof in the action now pending in the state court.


source: Caselaw Access Project

author: CHASE, Circuit Judge L. HAND, Circuit Judge

license: Public Domain

text:
    F. S. ROYSTER GUANO CO. v. W. E. HEDGER CO., Inc.
    No. 296.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.
    L. HAND, Circuit Judge, dissenting.
    Appeal from the District Court of the United States for the Southern District of New York.
    Libel by the F. S. Royster Guano Company against the W. E. Hedger Company, Inc. Decree for libelant, and respondent appeals.
    Single & Single, of New York City (Forrest E. Single and Loring R. Lecraw, both of New York City, of counsel), for appellant.

      Charles P. Hickox and Robert S. Erskine, both of New York City, for appellee.
    Before MANTON, L. HAND, and CHASE, Circuit Judges.
   CHASE, Circuit Judge

(after stating the facts as above).

The facts as stated above were not disputed. It is claimed by the libelee, however, that the gist of the action is the breach of a contract to procure insurance of goods to be carried by water, and that such a contract is not cognizable in admiralty. We would have no quarrel with the appellant’s version of the law applicable if we could agree that it has comprehended correctly the cause of action in suit. Virginia-Carolina Chemical Co. v. Chesapeake Lighterage & Towing Co. (C. C. A.) 279 P. 684; The City of Clarksville (D. C.) 94 F. 201; Marquardt v. French (D. C.) 53 F. 603.

There was no breach of any contract to procure insurance. On the contrary, insurance quite satisfactory to all concerned was procured and went into effect. That part of the contract was fully performed at New York. When the barges left New York in tow for Toledo, the only portion of the contract still executory on the part of the libelee was the carriage of the rock by water. That this was a maritime contract no one doubts. We are now concerned only with the manner in which the libelee attempted to perform it. Having obtained insurance as agreed, the conditions of that insurance relating to carriage became a part of its contract with the libelant, and it was bound to carry the rock in whatever manner would comply with the terms of the insurance policy it had chosen. When the rock left New York, the libelant had the express promise of the libelee to tow it to Toledo, and the implied promise to tow it on from Buffalo only after inspection had been made as provided in the insurance policy. The requirement to carry with such inspection was not a separate undertaking. Inspection at Buffalo was but an agreed incident of the one and only carriage contract itself, as much so as if the original agreement between the parties had had nothing to do with insurance, but had expressly provided for such an inspection before the rock was exposed to the perils of a lake'voyage. Because the continued validity of the insurance in force was dependent upon such inspection, which had become an implied condition of, not a condition precedent to, the carriage, the consequences of a breach of such contractual duty extend to and -affect a nonmaritime subject embraced in the original contract which included both a maritime agreement to carry goods and- a non-maritime agreement to place insurance upon them. When the nonmaritime agreement to procure insurance was performed at New York, there remained to be performed only a purely maritime contract, which had for one of its requirements inspection at Buffalo. The subject-matter of the contract itself, rather than the effect of its breach, is the test by which the nature of the agreement is to be determined, and the only obligation the libelee is charged with having failed to perform is that of carrying the rock by water from New York to Toledo in the manner agreed upon. This manner of carriage was open to whatever agreement the parties saw fit to make so long as no law was violated, and an inspection of boats and cargo before venturing upon the lake at Buffalo is so plainly an aid to the safe carriage of the goods that it cannot be divorced from the transportation of which it was but an incident and held to be the basis of a separate and distinct undertaking which created any new or nonmaritime obligations. This rock and these boats were not to be taken to Buffalo for inspection as the object to be attained, but were to be inspected at Buffalo the better to enable the maritime contract to carry the rock to Toledo by way of Buffalo to be safely performed. Compare Loma Fruit Co. v. International Nav. Co. (C. C. A.) 11 F.(2d) 124, 126, 127; Nash v. Bohlen (D. C.) 167 F. 427.

The District Court held the measure of damages -to be “the net loss from destruction of or injury to the cargo,” and that is said to be erroneous. There can be no doubt that the libelant lost whatever insurance it could have collected but for the libelee’s failure to carry with inspection as agreed. This makes the damages recoverable the same as in cases where there has been a breach of a contract to insure. In such cases liability as the insurer is enforced. Morris v. Summerl, Fed. Cas. No. 9,837; Marquardt v. French (D. C.) 53 F. 603. If the insurance company would have been liable for “the net loss,” there was no error in the computation of damages. None of the rock reached its destination. One cargo was an actual total loss. The three other cargoes were necessarily sold at an intermediate port and became a salvage loss. Under these circumstances the correct method of adjustment is to deduct the net amount realized from the sale from the value stated in the policy, and the remainder reflects the compensable loss under the policy. There is no occasion for proeeeding -with reference to the rules- obtaining in the adjustment of a particular average loss. London Assurance v. Companhia De Moagens Do Barreiro, 167 U. S. 149, 168, 17 S. Ct. 785, 42 L. Ed. 113; La Fonciere Compagnie D’Assurances v. Koons (C. C. A.) 75 F. 110. See Id. [D. C.] 71 F. 978.

It fairly appeared that the libelee represented to the libelant before the trial of the action against the insurance company in the state court, and the president of the libelee testified in that suit, to the effect that the clause in the open policy providing for inspection at Buffalo had been understood and agreed by the libelee and the insurance company to mean inspection of equipment at the beginning of the season rather than inspection on each particular voyage. In reliance upon such representation, the libelant sued the insurance company, and incurred expense in prosecuting that fruitless suit. This expense was apparently incurred in good faith in an attempt to recover insurance which this libelee then insisted Was recoverable, and was made necessary by the libelee’s breach of its carriage contract. Its reasonable amount is therefore recoverable in an action on the contract. Straus v. Victor Talking Mach. Co. (C. C. A.) 297 F. 791, 811; Chambers v. Upton (C. C.) 34 F. 473; New York State Marine Ins. Co. v. Protection Ins. Co., Fed. Cas. No. 10,216; Town of Duxbury v. Vermont Central Ry. Co., 26 Vt. 751. The evidence tending to show the amount reasonably, necessarily, and actually expended for this purpose was not contradicted. It was sufficient prima facie- proof of this element of damage.

Decree affirmed.

L. HAND, Circuit Judge

(dissenting).

My brothers agree that if the contract had involved only a promis'e to procure insurance, and no insurance had been procured, this libel would not lie in the admiralty. There are difficulties in applying this, when such a promise is contained in a general contract of carriage; it imposes upon the shipper the choice of foregoing access to an admiralty court upon the contract of carriage, or of abandoning his right of action on the promise to procure insurance. He can hardly bring two suits on the same contract, and in his suit in the admiralty he cannot by hypothesis include the promise to .procure insurance. If I were free, I think I might hold that the promise was merely an incident to the general contract of carriage, and came within the admiralty’jurisdiction along with the rest. However, the authorities cited by my brothers are quite in point, and with them I accept the doctrine that one cannot sue in the admiralty .upon such a promise, even when so incorporated.

The amended libel here set up no cause of suit upon the breach of the promise to carry, because though it does allege that the goods were not delivered, it does not allege any actionable wrong in that failure. The only breach was in not securing the inspection upon which the continued validity of the coverage depended .while on the Great Lakes. That inspection was not part of the - performance of the promise to carry; the respondent would not' have been liable as carrier, had it failed to get it. Indeed it was no part-of any express undertaking at all, but merely an implied part of procuring-the coverage. Had the respondent agreed only to take out a policy for the Great Lakes, it appears to me impossible to say that it would have performed merely by getting a certificate from the underwriters, upon whose validity there was an unperformed condition precedent. The. promise was not to get a certificate, but insurance; the breach would have been only of that promise. Certainly, .it can make no difference that the promise here included insurance on the Barge Canal as well; the breach remained the same, the absence of the stipulated insurance.

Hence I cannot see how this case can be turned into the breach of a contract of carriage, and unless we were prepared to overrule the decisions which hold that a promise to procure insurance contained in such a contract may not be sued on in the admiralty, I cannot concur. None of us is prepared to overrule them.


author: CHASE, Circuit Judge

text:
    THE LAWRENCE J. TOMLINSON. SEABOARD TERMINALS CORPORATION v. PETTERSON.
    No. 313.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.

      L. HAND, Circuit Judge, dissenting.
    See, also, 29 F.(2d) 797.
    Arthur Lovell, of New York City (Leo J. Curren, of New York City, of counsel), for appellant.
    Kirlin, Campbell, Hickox, Keating & McGrann, of New York City (Robert S. Erskine and Henry P. Elliott, both of New York City, of counsel), for appellee.
    Before MANTON, L. HAND, and CHASE, Circuit Judges.
   CHASE, Circuit Judge

(after stating the facts as above).

The disposition of these appeals narrows down to what should be put upon implied warranties. There was no misrepresentation or fraudulent concealment of any known material fact. Ordinarily, a boat chartered for a specified use is impliedly warranted, the charter being silent as to that, to be suitable for the known purpose for which it is to be used. It must be that to be seaworthy for the service intended. The Addison E. Bullard (C. C.A.) 287 F. 674, 677. But, where the charterer takes a dirty boat and agrees to clean it, the implied warranty of seaworthiness is only to the effect that it will be suitable for the contemplated use when properly cleaned. This barge was suitable for the carriage of molasses. When cleaned, it would be fit to carry gasoline. While it had previously carried creosote and fuel oil, it does not appear that the condition of the tank was other than would be expected after having carried such cargoes and then carried molasses. Thus far there is no room fór a difference of opinion.

The parties cannot reach common ground as to what cleaning was to be required. The appellant insists it was only such cleaning as would rid the tank of molasses. Its position may be stated briefly that the owner warranted the barge to be seaworthy for the carriage of gasoline when the molasses was cleaned out. The appellee holds firmly to the claim that all the appellant was entitled to get was a tank barge which had carried molasses for its last cargo and which would be seaworthy for the transportation of gasoline when put into whatever condition of cleanliness was necessary for that purpose, whether this required the removal of molasses or the residue of anything else of a nature which did not interfere with carrying molasses. We cannot read clause 6 of the charter party without reaching the conclusion that the language there used casts upon the appellant the burden and the risk of cleaning for gasoline carriage a barge described quite generally merely as having been last used as a molasses carrier. Whatever residue may have been, left from previous cargoes, about which no questions were asked and concerning which the owner had no reason to believe any information was desired, cannot be looked upon other than as adding to the task of cleaning. The charterer undertook without qualification to perform that task, and did it in whatever way and with whatever thoroughness, or lack of it, that it saw fit. The result was unexpected delay and expense for additional cleaning and loss from discoloration of cargoes. But how much, if any, of this was due to the inexperience or incompetence of the man in charge of the cleaning cannot be determined. Nor would it be of benefit now to do that or to have explained why the appellant put the first cargo into a dirty tank or why it continued to use the tank still dirty after the first cargo had been discolored. It is enough for present purposes to point out that the owner was in no way responsible for the inadequate cleaning or the use of the tank before it was properly cleaned. At most, he would be liable for the added cost and loss of time required for cleaning, provided he were liable at all under his contract. He allowed three days “free time in which to do the work,” but this was no warranty that it could be done in three days. It was rather the owner’s contribution toward the work and the measure of his contractual duty in respect to it.

Since the withholding of charter hire was unjustified in the absence of any liability on the part of the owner for the unclean condition of the tank,

Both decrees are affirmed.

L. HAND, Circuit Judge, dissents without opinion.


author: SWAN, Circuit Judge.

text:
    UNITED STATES ex rel. POVLIN v. HECHT, United States Marshal.
    No. 327.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.

      Samuel Falk and Ilo Orleans, both of New York City, for relator-appellant.
    George Z. Medalie, U. S, Atty., of New York City (Thomas J. Todarelli, Asst. U. S. Atty., of New York City, of counsel), for respondent-appellee.
    Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
   SWAN, Circuit Judge.

The indictment, which was filed at the April, 1928, term of the District Court of the United States for the Western Division of the Eastern District of Arkansas, charges “Shepherd S. Polvin” with violation of the Mann Act (36 Stat. 825 [18 USCA §§ 397-404]), in that on June 15, 1927, he transported a woman named Lucille from Arkansas to Illinois for an immoral purpose forbidden by the statute. Upon this indictment removal proceedings under the statute (18 USCA § 591) were instituted in December, 1929, in the Southern district of New York, where appellant resided. At the hearing before the United States commissioner, the government offered in evidence the indictment, over the objection of appellant, and then proved the identity .of appellant with the defendant in the indictment hy the testimony of Mrs. Hess, a sister of the woman named therein, who had appeared before the grand jury. Since identity was clearly established, appellant’s contention that it was error to receive the indictment in evidence is without merit. United States ex rel. Mouquin v. Hecht, 22 F.(2d) 264 (C. C. A. 2).

A. removal proceeding upon the same indictment had previously been had before a commissioner for the Eastern district of New York; the appellant then residing in that district. In that proceeding the appellant was discharged on the ground that the government had failed to prove probable cause. A transcript of the record of that proceeding was introduced in evidence hy appellant, and it is now urged that the former decision should have been followed on the present hearing; the evidence in both being substantially the same. The utmost that can be said, however, is that a decision favorable to the accused on a former hearing is persuasive but not conclusive on a second application for removal. United States v. Levy, 268 U. S. 390, 394, 45 S. Ct. 516, 69 L. Ed. 1010. So the merits of the present decision must be considered.

In removal proceedings the court is not to determine the guilt or innocence of the accused, but only to inquire whether there is probable cause to believe him guilty of the offense charged and justify his removal for trial. Morse v. United States, 267 U. S. 80, 83, 45 S. Ct. 209, 69 L. Ed. 522; United States ex rel. Hughes v. Gault, 271 U. S. 142, 150, 46 S. Ct. 459, 460, 70 L. Ed. 875; United States v. Hecht, 11 F.(2d) 128,132 (C. C. A. 2). The government rested after putting in the indictment and the testimony of Mrs. Hess identifying appellant as the person against whom the indictment was brought. This undoubtedly made a prima facie case for removal. Beavers v. Henkel, 194 U. S. 73, 24 S. Ct. 605, 48 L. Ed. 882; Price v. Henkel, 216 U. S. 488, 491, 30 S. Ct. 257, 54 L. Ed. 581. But the indictment is not conclusive (Tinsley v. Treat, 205 U. S. 20, 27 S. Ct. 430, 51 L. Ed. 689), and appellant contends that the prima facie ease was overthrown by his own denials and the cross-examination of Mrs. Hess.

It appears that the woman Lucille had been living with Povlin at Little Bock, Ark., where he was a medical student, so that they were generally thought to be husband and wife, though he testified they were not such. When his medical course was completed, they took a train together to Chicago, where Lucille had previously been employed, and there occupied the same room for two days. She then went to work in Chicago, and he proceeded on to his home in New York to begin work there. Five months later she joined him in New York, where she afterwards died. Mrs. Hess testified:

“My sister told me and Dr. Povlin told me that she was going to go to Chicago to take a job and stay there until Dr. Povlin established himself in New York.”

On this testimony it is argued that the purpose of the journey was to seek employment for the woman in Chicago and consequently, even if Povlin’s denial that he had anything to do with her transportation be disregarded, the purpose of illicit intercourse as an actuating motive for the journey, is shown to have been lacking. Numerous eases have held that such a motive is an essential element of the crime, Alpert v. United States, 12 F.(2d) 352 (C. C. A. 2); Drossos v. United States, 16 F.(2d) 833 (C. C. A. 8)Sloan v. United States, 287 F. 91 (C. C. A. 8); Van Pelt v. United States, 240 F. 346 (C. C. A. 4); Fisher v. United States, 266 F. 667 (C. C. A. 4); though it need not be the sole motive, Ghadiali v. United States, 17 F. (2d) 236 (C. C. A. 9), certiorari denied, 274 U. S. 747, 47 S. Ct. 660, 71 L. Ed. 1328. Hence the conclusion is urged that there was no probable cause to justify commitment for removal.

It would be difficult, if not impossible, to formulate a rule of general application as to what evidence will overcome the prima facie case for removal made by the indictment. Clearly, denial of guilt by the accused, even though corroborating testimony is offered, is not necessarily enough. Magnus v. Keville, 6 F.(2d) 157 (C. C. A. 1); United States v. Mathues, 19 F.(2d) 22 (C. C. A. 3); Burton v. Smithers, 31 F.(2d) 966 (C. C. A. 4). On the other hand, evidence of innocence may be such as to rebut the ease made by the indictment. United States v. Hecht, 11 F. (2d) 128 (C. C. A. 2); United States v. Glass, 25 F.(2d) 941, 944 (C. C. A. 3); Johnson v. Hotchkiss, 35 F.(2d) 914 (C. C. A. 9). In discussing the subject in Meehan v. United States (C. C. A.) 11 F.(2d) 847, 849, Judge Denison said:

“ * * *■ The eases usually speak of it [the indictment] as prima facie evidence, not of guilt, but of the existence of probable cause. This is perhaps another way of saying that it raises an initial presumption, which might as well be arbitrary as evidential, which continues until it is in some vital' particular overcome by entirely convincing testimony. Wherever there is affirmative-proof, unchallenged except by the indictment, demonstrating lack of guilt, removal should be denied; if the conclusion of no probable cause is put in any substantial doubt by proofs in addition to the indictment, the removal should be made.”

We are willing to accept this exposition as a correct statement of the law, and so, apparently, is appellant, as he quotes it without criticism. But the application of the rule so stated does not, in our opinion, lead to a reversal of the judgment below. The crucial question is the purpose of appellant in taking Lucille to Chicago. On this issue many circumstances, prior as well as subsequent to the journey, will be relevant, including the prior relations of this man and woman, their conduct on the way and after their arrival, the fact that appellant was leaving Little Rock permanently — in short, everything which may throw light upon his motives for the journey. His testimony as to his purpose would, of course, not be conclusive; and the testimony of Mrs. Hess as to what Lucille and Povlin told her as to their purpose is but one of the circumstances bearing on his actual purpose. Nor does the fact that part of the defense -evidence came from a government witness seem of special significance, inasmuch as the testimony related only to evidentiary facts. The ultimate fact of appellant’s purpose is not so clearly demonstrated to have been innocent that we can say in the words of Judge Denison that the initial presumption raised by the indictment is “overcome by entirely convincing testimony.” In this respect the present record differs from United States v. Hecht, supra, where this court pointed out that the case was not in the class' in which conflicting inferences could be drawn from the evidence. Here the situation is analogous to that involved in Rodman v. Pothier, 264 U. S. 399, 44 S. Ct. 360, 68 L. Ed. 759, where the ultimate issue involves the consideration of many facts, and the inferences to be drawn from them wei’e held to be for the court where the indictment was found. It may well be that on the trial the government will be unable to-prove its ease, particularly since the woman, is dead, but, as Mr. Justice Holmes declared in United States ex rel. Hughes v. Gault, supra, on a removal proceeding, the magistrate-“is not intended to hold a preliminary trial- and if probable cause is shown on the gov-eminent side, he is not to set it aside because on the other evidence he believes the defendant innocent.”

Finding no error, we must affirm the order.


author: MACK, Circuit Judge.

text:
    UNITED STATES ex rel. GROSSBERG v. MULLIGAN, Acting U. S. Marshal.
    No. 311.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.
    David P. Siegel, of New York City (Leo H. Klugherz and Milton B. Seasonwein, both of New York City, of counsel), for petitioner-appellant.
    George Z. Medalie, U. S. Atty., of New York City (Ellamarye Pailor, Asst. U. S. Atty., of New York City, of counsel), for respondent-appellee.
    Before L. HAND, CHASE, and MACK, Circuit Judges.
   MACK, Circuit Judge.

Relator pleaded guilty to a mail fraud indictment after a jury had acquitted his co-defendant and disagreed as to his guilt; thereupon he was ordered placed on probation for two years. By the express terms of the order, he was directed to report once in each month to the probation officer; what he was to report and how he was to act under probation were not specified in the order. The judge, however, gave him verbal instructions as to his conduct, and the probation officer, pursuant to the Probation Act § 4 (title 18, U. S. Code, § 727 [18 USCA § 727]), furnished him with a written statement of the conditions of probation and gave him further written instructions as to his conduct.

Some months later, on the receipt of complaints that relator was committing acts similar to those for which he had been tried, the probation officer filed an application for revocation of the probation and imposition of sentence. Relator was duly notified of the fact and the substance of the application. A full hearing was had before the judge who had tried the ease. Relator testified in his own behalf. The judge, after stating that he. had given some terms of probation verbally and that these had been broken, imposed a sentence of imprisonment for a year and a day. Appeal therefrom was dismissed for failure to file the record in proper time.

Thereupon a writ of habeas corpus was sued out. This writ was dismissed on the ground that the question of jurisdiction to revoke the probation had been raised and decided adversely to relator in the revocation proceedings. The cause is before us on an appeal from the order dismissing the writ.

Relator asserts lack of jurisdiction to sentence him, on his contention that under the Probation Act § 1 (18 USCA § 724), jurisdiction to revoke probation and impose sentence is dependent upon allegation and proof that some term or condition expressed in the' probation order has been broken, and that there was neither allegation nor proof of a breach of the only express condition, to report monthly to the probation officer.

Ex parte United States, 242 U. S. 27, 37 S. Ct. 72, 61 L. Ed. 129, L. R. A. 1917E, 1178, Ann. Cas. 1917B, 355, held that, at common law, sentence must be imposed and could not be permanently suspended after conviction or plea of guilty, and that, on application of the government, the District Judge could be mandamused to impose sentence. By the Probation Act § 1 (18 USCA § 724), however, the courts are given the power “to suspend the imposition or execution of sentence and to place the defendant upon probation for such period and upon such terms and conditions as they may deem best.” They may “revoke or modify any condition of probation”; 'the term of probation, however, may not exceed five years. By Probation Act § 2 (18 USCA § 725), the defendant may be brought before the court for sentence not only within the probation period, but even thereafter; the only limitation is that it be within the maximum period for which sentence could have been imposed. The court may thereupon “revoke the probation or the suspension of sentence, and may impose any sentence which might originally have been imposed.”

We express no opinion on a defendant’s right, in order to forestall the risk of the imposition of sentence in the distant future, to waive suspension and probation and to demand an immediate sentence. If relator had such a right, he waived it by expressly consenting to probation and suspension. It is unnecessary, too, to determine whether under the act the court may suspend sentence without any order of probation in view of its power by the express provisions of section 725 to revoke suspension and impose sen-, tenee after the probation period has ended; in this case, there was a probation order. The court therefore clearly had jurisdiction of relator and of the subject-matter of the revocation of his probation and the imposition of sentence.

The act itself has no express restrictions on the power to revoke the probation or to modify the terms, conditions, or time thereof. These are matters for the exercise of a sound judicial discretion. The remedy for an abuse of such discretion or for other irregularities or errors in the exercise of the jurisdiction is solely by appeal, not by writ of habeas corpus. Craig v. Hecht, 263 U. S. 255, 44 S. Ct. 103, 68 L. Ed. 293.

However desirable it may be that .at least the general terms of the probation be expressed in the order, nevertheless, in the absence of a statutory requirement and in view of the fact that the suspension of sentence may continue even after the probation period is ended, we cannot deem the insertion of the terms and conditions of probation in the order as requisite to its validity or as a jurisdictional prerequisite to the revocation of probation. We concur in the conclusion reached in this respect in Hollandsworth v. U. S. (C. C. A.) 34 F.(2d) 423. See, too, Campbell v. Aderhold (D. C.) 36 F.(2d) 366. Such, too, has been the construction of analogous provisions in state acts. See Commonwealth v. McGovern, 183 Mass. 238, 66 N. E. 805; Finer v. Commonwealth, 250 Mass. 493,146 N. E. 23; People ex rel. Valiant v. Patton, 221 N. Y. 409, 117 N. E. 614.

Viewed in another aspect, jurisdiction in the present ease was clear. At least one condition .was expressly stated in the order; relator was to report monthly to the probation officer. While the application for revocation was not based upon a mere failure to report, but upon the charge that relator was continuing in his former course of conduct contrary to the verbal terms of probation imposed by the court, nevertheless in substance and effect the jurisdiction of the court was invoked to interpret the probation order. Although not in terms so stated, what the court actually did was to construe the word “report” in the light of all of the surrounding circumstances including the verbal instructions. On writ of habeas corpus its conclusions aato the proper interpretation of the order are not reviewable.

The order dismissing the writ of habeas corpus must therefore be affirmed


author: L. HAND, Circuit Judge.

text:
    In re EUREKA UPHOLSTERING CO., Inc. In re SHULMAN et al.
    No. 356.
    Circuit Court of Appeals, Second Circuit.
    April 6, 1931.
    Mark H. Shulman, of New York City, and Henry Rubin, of Brooklyn, N. Y., for appellants.
    David Haar, of New York City, for appellee.
    Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
   L. HAND, Circuit Judge.

The petitioning creditors filed a petition for adjudication of the bankrupt on May 20, 1930, and got a receiver appointed on the same day, who was later appointed trustee, but who never applied to the court for the appointment of an attorney. It may, however, be assumed arguendo that, while acting as receiver he consulted with the attorneys for the petitioning creditors, availed himself of their services, and, as far as he was free to act, actually retained them as his attorneys. They examined the bankrupt and witnesses before the referee, attended meetings of creditors at one of which a composition was discussed, procured an order for the sale of the estate, discovered and secured certain concealed property, attended the sale of the assets, conferred with the receiver, and with creditors and debtors of the bankrupt, and prepared the receiver’s accounts and his fina) report. The referee and judge thought these services only “routine” and allowed one hundred dollars. The attorneys appealed.

The petition was irregular in form, since it should have been made by the petitioning creditors themselves. In re Medina Quarry Co., 191 F. 815 (C. C. A. 2). Passing this, it is apparent that the position of an attorney for petitioning creditors has been misconceived. Apparently the appellants suppose that by acting upon the retainer of the receiver as his attorneys, they acquired that status and may recover on that basis. This is not true. The forty-fourth General Order in Bankruptcy (11 USCA § 53) provides that no attorney shall be appointed for a receiver, except by order of court and upon petition of the receiver, supported by the proposed attorney’s affidavit. Local Rule 4 of the Eastern District of New York is to the same general effect, though a little more stringent in form. A similar rule was before the Supreme Court in Weil v. Neary, 278 U. S. 160, 49 S. Ct. 144, 73 L. Ed. 243, where it was held that its disregard not only prevented the attorney from recovering any compensation, but even invalidated an agreement to share the fees of the attorney actually appointed by the court. The order and the rule were passed to control serious abuses and are to be strictly observed; without an order of court upon full presentation of the relation of the proposed attorney with all other interests involved, not only may he not be retained, but he can recover nothing, no matter how beneficial, or how arduous, his services. He is confined to such an allowance as may reward him for acting for the petitioning creditors, which in the absence of a contest on the petition involves only simple duties.

The appellants argue that they may at least recover under section 64b (2), 11 USCA § 104 (b) (2), since their services have been the means of recovering a substantial amount for the estate. In this too they are mistaken. While that section does indeed justify such an award after motion to compel the receiver or trustee to undertake a litigation (In re Stearns Salt & Lumber Co., 225 F. 1 [C. C. A. 6]), this is a condition upon the right, at least after a receiver has been appointed (In re Medina Quarry Co., supra). The receiver is responsible for the collection of the assets (In re Felson [D. C.] 139 F. 275, 280), and he alone can authorize any charges against them. If any creditor, petitioning or other, learns facts which lead him to suppose that property has been concealed, he may, and indeed he should, advise the receiver, and if the receiver prove slack, he may apply to the referee to stir him to action. The referee or the judge may then authorize the creditor to proceed, and he will be entitled to his reward under section 64b (2), but not otherwise.

Only in this way can claims be avoided for volunteered services, which may or may not have been such as the receiver would, or should, have authorized. The appellants are thus in the dilemma, either of having acted upon an unauthorized retainer of the receiver, which the general order and rule forbid, or of having acted under section 64b (2), while there was a receiver, on whom the primary duty devolved to take action, and whose primacy had not been displaced by an order of the court. On no theory could they therefore run up charges which may be recognized.

In conclusion, we cannot ignore the curious notion which this application discloses, that an attorney may recover for what are not legal services at all. For example, in the petition at bar are items for arranging for the sale of the assets, hiring truckmen to carry back concealed property to the bankrupt’s place of business, safeguarding the property, going along with the truck, checking up. what was found, stirring up a criminal prosecution, getting hold of an accountant, collecting accounts due, inquiring of a pledgee of accounts as to any equity, examining the bankrupt’s papers, and more of the sort. The implication behind these claims is that the receiver’s attorney may recover, as for legal services, for discharging the duties of the receiver himself. This is an error, due to the confusion that has come to pervade the whole relation of attorneys to a bankrupt estate, except for which it would seem scarcely necessary to say that the receiver or trustee, and he alone, can recover for services in collecting the estate, and that his statutory fees are the limit of his compensation for these. Any truly legal services he may require are indeed in another class, but his attorney, when he has one, cannot take on his duties, and then recover for them under the guise of legal services, which they are not. It is true that the line is not always easy to draw, but it is there, and referees should draw it straitly, else the estate will be burdened with a duplication of charges. Receivers may perhaps be too poorly paid to discharge their duties; if so, the system will not work. But no such considerations can disguise or justify an allowance to their attorneys for putting themselves in their place.

Order affirmed.


text:
    In re KANE.
    No. 244.
    Circuit Court of Appeals, Second Circuit.
    March 16, 1931.

      Sydney H. Palmer, of Jamaica, N. Y., for creditor-appellant.
    Harold L. Turk; of Brooklyn, N. Y., for bankrupt-appellant.
    Garfield & Seligson, of New York City (M. V. Seligson and G. B. Garfield, both of New York City, of counsel), for creditor-respondent.
    Before L. HAND, CHASE, and MACK, Circuit Judges.
   MACK, Circuit Judge.

On petition of one Sondak, filed in the Supreme Court of the state of New York, appellant Kane yvas required to show cause why he should not be required to pay $3,060, with interest, alleged by the petition to have been delivered to him as petitioner’s attorney, and to have been converted by him to his own use. On July 25, 1930, the order entered thereon granting the motion and directing the payment over of the money with interest recited that Kane had appeared in person but had failed to oppose .the application. Kane was adjudicated a bankrupt on the same day.

On further motion of Sondak and on order to show cause personally served on Kane, who did not appear in opposition thereto, the court found that he haá willfully refused to comply with the earlier order, thereby impairing the petitioner’s right to the amount specified. For Kane’s misconduct and disobedience and neglect and refusal to comply with the judgment, he was ordered fined the sum of $3,060 and committed to jail, charged with contempt, until he should have paid such sum to the petitioner.

Appellant Mercogliano, alleging himself to be a creditor of Kane, filed a petition in the bankruptcy court reciting that Sondak’s claim was dischargeable in bankruptcy, and that if, pursuant to the order, bankrupt paid the $3,060, a preference in Sondak’s favor would be created, and that, should Sondak be able to enforce the payment, he would receive a preference over all other creditors, contrary to the Bankruptcy Act (section 60 [11 USCA § 96]).

Reciting further that, if the sheriff should execute the state court order, the bankrupt, to avoid incarceration might pay such sum to the sheriff, and such payment, if so made, would deplete the bankrupt’s estate and create a preference in Sondak’s favor, and that no trustee in bankruptcy had been elected, petitioner prayed for an order directing the bankrupt and Sondak to show cause why they should not be restrained from paying the $3,060 out of the bankrupt’s funds, and why the sheriff and Sondak should not be restrained from taking any further steps in connection with any orders of the state court in the matter. - °

Affidavits of bankrupt and of other of his alleged creditors were subsequently filed in support of the motion.

The opinion filed by the District Judge states that the petition in the state court shows that the money was received by the bankrupt while acting in a fiduciary capacity, and that it would appear therefore that the claim is not dischargeable in bankruptcy; that the bankruptcy court would not go back of the proceeding had in the state court; that the bankrupt has been restrained from disposing of his assets; that in the affidavit filed by him no claim is made that he has any money in his possession. An order was thereupon entered denying the motion.

From that order Mercogliano, as an alleged creditor, appealed, and Kane, the bankrupt, joined therein.

1. The order was entered upon a petition and motion made only by the alleged creditor, Mercogliano. Bankrupt was not a party thereto, unless it be as a respondent. As such he was successful, inasmuch as the motion was denied; apart therefrom, he has no standing, merely because he filed an affidavit in support of the motion. Mercogliano, whose motion was denied, is the only party in interest who could appeal from the order. Kane’s appeal must therefore be dismissed.

2. It appears from Kane’s affidavit in support of the motion that a receiver had been appointed in the bankruptcy proceedings. If there were any danger that the bankrupt would take assets that should properly have been in the hands of the receiver and pay them under the state judgment or fine in order to avoid incarceration, the proper party to apply for an order restraining sueh a proceeding would be the receiver after his appointment, and not a creditor, unless indeed some grave emergency were shown, sueh as the inability or refusal of the receiver to act and the consequent danger to the assets of the estate. No such showing was made in the bankruptcy court, and for this reason, apart from all else, the motion should properly have been, denied. Furthermore, it nowhere appears that the receiver had or was entitled to get any money or property or that there was any danger of depleting the bankruptcy estate.

3. Nowhere does it appear that either the receiver or' the bankrupt had in his possession any money that might have come to the bankrupt after the filing of the petition in bankruptcy. Property and moneys so acquired do not belong to his estate in bankruptcy, and are therefore not subject to the control of the bankruptcy court. The possibility that family or friends might be ready to raise money for a composition with or a payment to. creditors, and that, to avert his arrest, they might instead be induced to give it to Sondak, affords no basis for the order prayed for. No legal wrong would be committed against his creditors in bankruptcy or his estate in bankruptcy, if, in this way, Sondak should obtain satisfaction of his judgment. .

4. It is clear on this record that no suggestion was made in the District Court to treat the motion as coming under section 9a(2) of the Bankruptcy Act, 11 USCA § 27(a) (2), and thus as one to prevent the arrest of the bankrupt on civil process on the ground that this might interfere with his proper attendance upon the bankruptcy court or the proper, performance of the duties imposed upon him by the act.

Whether or not a creditor has such an interest as would enable him, instead of the bankrupt, to move in this respect, we need not now consider. For, in any event, there is no absolute immunity from arrest. Inasmuch as the court may impose terms sueh as the giving of a bond before granting sueh protection (In re Lewensohn [D. C.] 99 F. 73; affirmed [C. C. A.] 104 F. 1006),- it would seem that the granting or withholding of sueh immunity and the terms, if any, to be imposed, are within the sound discretion of the bankruptcy court. Furthermore, under General Order XXX, 11 USCA § 53 (see In re Francisco [D. C.] 245 F. 216), the habeas corpus writ may well suffice to secure the presence of the bankrupt in so far as he may be needed in the course of the proceedings.

Appeal of Kane dismissed. Order affirmed.

       A memorandum.


author: AUGUSTUS N. HAND, Circuit Judge.

text:
    NELSON BROS. COAL CO. v. PERRYMANBURNS COAL CO., Inc.
    No. 287.
    Circuit Court of Appeals, Second Circuit.
    March 16, 1931.
    Pickett & Pickett, of Brooklyn, N. Y. (Walter H. Pickett, of Brooklyn, N. Y., of counsel), for appellant.
    William P. Purdy, of New York City (John E. Purdy, of New York City, of counsel), for appellee.
    Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.
   AUGUSTUS N. HAND, Circuit Judge.

The appellant, Perryman-Burns Coal Company, Inc., through its salesman Thompson, made an oral contract with the appellee, Nelson Bros. Coal Company, to sell to the appellee approximately 400 tons of coal. The oral contract was made over the telephone on October 31,1924, by Thompson with P. W. H. Nelson, Sr., who was the president of the buyer and died prior to the trial. The agreement was confirmed by a written memorandum of sale made the same date, and sent by Thompson on behalf of Perryman-Burns Coal Company, Inc., to the buyer.

The memorandum provided that the coal should be loaded into the buyer’s barge Harlem, and that it should be sold at $12.49 per gross ton, f. o. b. the Undereliff Coal Piers of the Erie Railroad. Thompson’s testimony established that the barge was to be towed by the seller’s tug to the buyer’s coal yards at the Gowanus Canal in Brooklyn, and that the buyer was to pay the railroad freight on the coal to Undereliff Piers, the charges at the piers, including trimming, and the. towage. He also testified that the seller was to take out a marine insurance policy on the barge and coal but for the account of the buyer.

The coal was loaded into the barge Harlem at Undereliff Piers and towed to a point at Brooklyn not far from the buyer’s dock. After lying at this place for a few days, the barge was moved up to or near the coal yards, and some time during the night of November 25,1924, she sank with the coal on board.

The barge was subsequently raised and the coal salvaged by Merritt, Chapman & Scott Wrecking Company. It was thereafter sold for the account of whom it might concern, and the proceeds of sale were paid to Perryman-Burns Coal Company by consent of the Nelson Bros. Coal Company. Thereafter Perryman-Burns Coal Company, Inc., commenced an action in the New York Supreme Court against the Northwestern Fire & Marine Insurance Company (130 Misc. Rep. 396, 223 N. Y. S. 559), which had insured the eoal, to recover on the marine policy, and alleged in its complaint that it owned the eoal, that the policy issued by the insurance company was against perils of the sea, that the barge while seaworthy sank.owing to unusual tidal conditions in the Gowanus Canal, and that Perryman-Burns Coal Company, Inc., had, by reason of this casualty, incurred salvage expenses amounting to $1,-067.11, which were losses payable under the policy. The court held that Perryman-Burns Coal Company, Inc., the plaintiff in that action, did not have any interest in the coal at the time of the sinking of the barge because the title had passed to Nelson Bros. Coal Company. It also held that the harge was unseaworthy and that her sinMng was due to unseaworthiness, and it directed judgment for the insurance company accordingly.

Nelson Bros. Coal Company thereupon filed this libel, alleging that it had gone to expense in raising the Harlem and her cargo of coal, that Perryman-Burns Coal Company, Inc., was the owner of the eoal, and that there was due libelant for such services as its proportionate contribution in general average the sum of $1,067.11.

Perryman-Burns Coal Company’s defense to the libel was that the title passed to the eoal when it was loaded on the libelant’s barge at Undercliff Piers, and that, even if that was not so, the sinking was due to the unseaworthiness of the barge. In either event there would be no obligation to make good a contribution in general average. As our decision on the first issue determines the case, we shall not discuss the second. On final hearing of the present cause in admiralty the trial judge held that the title to the eoal was in the respondent, and granted a decree that respondent pay its contribution in general average amounting to $1,067.11 accordingly.

The libelant principally relied on the admissions of Perryman-Burns Coal Company, Inc., in the complaint in the Supreme Court action to establish that the latter, and not itself, was the owner .of the eoal. The proof of loss signed by the Perryman-Burns Coal Company in accordance with the requirements of the marine insurance company contained a statement that “the interest of the insured in the property was that of owner.” Of course these admissions were not conclusive, even though they had some probative force. In view of all the testimony, they amounted to little more than an opinion expressed by Perryman-Burns Coal Company as to its legal rights — an opinion with which it may be noted the New York Supreme Court did not agree.

The libelant called Thompson as a witness and proved by him that he had testified before the New York Court that “delivery and acceptance are assumed to take place at the same time when the cargo is broken and unloaded. Acceptance does not take place until the cargo is broken and unloaded.” Thompson, as we have said, had represented Perryman-Burns Coal Company, Inc., in making the sale. He somewhat qualified his former testimony at the trial of the present ease when asked whether he had agreed with Nelson Bros. Coal Company that they should have the privilege of approving the eoal and inspecting it as it was unloaded before they accepted it, by saying: “I think that was understood, not expressly implied. * * * That is more or less customary.” We do not regard these answers as showing in whom the title to the eoal was vested. On both occasions Thompson was attempting to state his views as to when the title passed, and was relying upon a supposed custom, which was neither shown to be general or to be known to the purchaser, if indeed it was proved in any sense. The most that the custom amounted to, if it existed, was that a purchaser had a right to. inspect coal when it was unloaded and to reject it if it did not meet contract requirements.

In general, where a sale is made f. o. b. the point of shipment, title passes to the seller upon delivery to the carrier, and the goods sold are at the buyer’s risk. United States v. R. P. Andrews & Co., 207 U. S. 229, 28 S. Ct. 100, 52 L. Ed. 185; Standard Casing Co. v. California Casing Co., 233 N. Y. 413, 135 N. E. 834; Rosenberg Bros. Co. v. Buffum Co., 234 N. Y. 338, 137 N. E. 609. This rule would seem to apply- with special strength where the eoal was loaded into a barge belonging to the purchaser. In the present case the buyer was to pay.both freight and insurance as well as trimming and other expenses at Undereliff. A right to- inspect and reject the coal if it did not meet contract requirements would not prevent the passage of title.

In Louisville & Nashville R. R. v. United States, 267 U. S. 395, 45 S. Ct. 233, 236, 69 L. Ed. 678, where the United States reserved the right to test eoal after transportation and reject it if it did not come up to specification, it was held that such a right “was not inconsistent with transfer of title * * • at the time of delivery of the coal on cars at the mine.” Delaware, Lackawanna & Western R. R. v. United States, 231 U. S. 363, 34 S. Ct. 65, 58 L. Ed. 269; Illinois Cent. R. Co. v. United States, 265 U. S. 209, 44 S. Ct. 485, 68 L. Ed. 983.

The libelant makes the further point that, because the barge was sunk near the coal yards of the buyer and had not been towed to its final destination at the buyer’s dock, there was a failure on the part of_ the seller to com- ■ píete its towing contract, and the title had not passed. But, if the seller, by neglecting to bring the barge up to the dock, failed in a slight degree to complete the carriage of the coal, that circumstance had nothing to do with the passage of title in a ease of this kind. In Louisville & Nashville R. R. v. United States, 267 U. S. at page 400, 45 S. Ct. 233, 69 L. Ed. 678, though the seller had contracted to transfer the coal from the railroad cars to barges, it was held that the title passed when the coal was placed on the cars.

We think that the statements by Perry-man-Burns Coal Company, Inc., which were made in connection with the former litigation, were no more than matters of opinion, and that it was clearly under a misapprehension as to when as a matter of law the title to the coal passed. While the statements may have had some prima facie significance in favor of the libelant, they are far outweighed by the other circumstances, which show that-the title to the coal passed to libelant when it was, loaded on. its barge at Undereliif Piers. It surely can have no claim to a contribution in general average based on expenditures in respect to its own coal and barge.

The decree is reversed, with direction to dismiss the libel.


text:
    THE HOG ISLAND. SGOBEL & DAY v. EXPORT S. S. CORPORATION. CUNEO et al. v. SAME.
    Nos. 237, 238.
    Circuit Court of Appeals, Second Circuit.
    March 16, 1931.

      Finkler & McEntire, of New York City, for appellants.
    Kirlin, Campbell, Hickox, Keating & McGrann, of New York City (L. DeGrove Potter and Michael F. Whalen, both of New York City, of counsel), for appellee.
    Before L. HAND, CHASE, and MACK, Circuit Judges.
   CHASE, Circuit Judge

(after stating the facts as above).

As the damage to these ehestnuts was due to heat, decay, putrefaction, and sweat, it falls within the exceptions,to the bills of lading, and the vessel is not liable unless it is proved that the heat, decay, putrefaction, and sweat was caused by its negligence. The Toyohashi Maru (D. C.) 13 F.(2d) 871; The Florinda (C. C. A.) 31 F.(2d) 262; The Bencleugh (C. C. A.) 10 F.(2d) 49.

Whether the stowage was negligent or. not and whether the holds in which the chestnuts were stowed were suitable for such cargo and equipped with adequate means of ventilation were questions of fact. Expert witnesses, well qualified to know, testified that the ventilation supplied was ample for such goods and' that the stowage was not negligent. The ■ evidence to the contrary, notwithstanding that these chestnuts were damaged, falls short of carrying the burden as to negligent stowage and leaves the proof of seaworthiness for the purpose of carrying these goods abundantly established. The lower court so found, and the record supports it.

There has been some suggestion that the sweating was caused by disease in the chestnuts and by wetting of the bags before they were laden on the ship. We do not undertake to determine the actual cause of the damage, but confine ourselves to the issue which goes only to the point of deciding whether, under the contract of carriage, the proof in these cases is sufficient to charge the appellee with liability for it.

Both decrees are affirmed.


author: SWAN, Circuit Judge. MANTON, Circuit Judge

text:
    BROWN’S “SHAMROCK” LINENS, Limited, v. BOWERS.

    No. 300.
    Circuit Court of Appeals, Second Circuit.
    March 16, 1931.
    MANTON, Circuit Judge, dissenting.
    Robert H. Montgomery, of New York City (Thomas G. Haight, of Jersey City, N. J., and Roswell Magill, of New York City, of counsel), for appellant.
    George Z. Medalie, U. S. Atty., of New York City (Harry G. Herman, Asst. U. S. Atty., of New York City, of counsel), for appellee.
    Before MANTON, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

      Certiorari denied 51 S. Ct. 657, 75 I* Ed. —.

   SWAN, Circuit Judge.

The plaintiff is a corporation organized under the laws of Great Britain, and during the year 1918 it was engaged in the business of importing and selling in the United States linens and other textiles. Being a foreign corporation, the assessment of its war profits and excess profits tax was required, by section 327(b) of the Revenue Act .of 1918, to be computed by the Commissioner in accordance with section 328 (40 Stat. 1093). That section reads in part as follows:

“Sec. 328. (a) In the cases specified in section 327 the tax shall be the amount which bears the same ratio to the net income of the taxpayer * * * for the taxable year, as the average tax of representative corporations engaged in a like or similar trade or business, bears to their average net income * * * £or gugk year. * * *
“In computing the tax under this section the Commissioner shall compare the taxpayer only with representative corporations whose invested capital can be satisfactorily determined under section 326 and which are, as nearly as may be, similarly circumstanced with respect to gross income, net income, profits per unit of business transacted and capital employed, the amount and rate of war profits or excess profits, and all other relevant facts and circumstances.”

The complaint alleges upon information and belief that for the year 1918 the ratio of the average tax to the average net income of representative corporations engaged in like business and similarly circumstanced to plaintiff in the respects specified in the statute, did not exceed the sum of 25 per cent., and it charges that the Commissioner failed to use this ratio, but illegally assessed against plaintiff a tax which was 44.8 pereent. of its net income for said year, resulting in an illegal exaction of some $19,600., for the recovery of which this suit w„as brought after a claim for refund had been rejected. Thus it is apparent that the complaint attacks the correctness of the ratio used by the Commissioner and asks the court to review all the comparative data which under the statute must enter into his determination of such ratio. The District Court held that section 328 vested in the Commissioner administrative discretion in the computation of the tax which was not subject to judicial control on the mere allegation of error or illegality. Its opinion may be found in 41 F.(2d) 862. The correctness of this view is the sole question presented by this appeal.

A majority of the court are of opinion, as was the judge below, that the law is set-tied adversely to appellant’s contention by Williamsport Wire Rope Co. v. United States, 277 U. S. 551, 48 S. Ct. 587, 72 L. Ed. 985. There it was held that the Court of Claims was without jurisdiction to review the Commissioner’s refusal to grant a domestic corporation a' special assessment, because the Commissioner’s determination involved administrative discretion which could only properly be exercised by an official or a body having wide experience with the class of problems concerned. It is true that there the precise question was whether conditions existed which entitled the domestic taxpayer to a special assessment, the Commissioner having computed its' tax by the normal method; while here the foreign taxpayer is required to have a special assessment, and the question is whether it has been rightly computed. But the considerations which controlled the answer to the former question are equally .applicable to solution of the latter, and were, we think, present to the mind of the court, as indicated by the following quotations from the opinion of Mr. Justice Brandeis (pages 558, 559 of 277 U. S., 48 S. Ct. 587, 589)

“* _* * The task imposed on the Commissioner by sections 327 and 328 was one that could only be performed by an official or a body having wide knowledge and experience with the class of problems concerned. For the requirement of a- special assessment under paragraph (d) of section 327, and its computation in all cases, are dependent on ‘the average tax of representative corporations engaged in a like or similar trade or business.’- [Italics ours.]

“ * * * What are ‘representative corporations engaged in a like or similar trade or business;’ which corporations are ‘as nearly as may be, similarly circumstanced with respect to gross income, net income, profits per unit of business transacted and capital employed, the amount and rate of war profits or excess profits, and all other relevant facts and circumstances’ — these are all questions of administrative discretion.”

In Blair v. Oesterlein Mach. Co., 275 U. S. 220, 226, 48 S. Ct. 87, 89, 72 L. Ed. 249, it was said that “there is no inherent impossibility, or, indeed, serious difficulty in reviewing judicially any determination authorized by sections 327 and 328,” but this language was used with reference to a review b’y the Board of Tax Appeals, and must, in the light of the later Williamsport decision, be so limited. Whether, upon appeal from the Board, a Circuit Court of Appeals has power to review a decision of the Board in respect to special assessment under these sections, we need not now say. See Ryan Car Co. v. Commissioner, 44 F.(2d) 26 (C. C. A. 7); cf. Cramer & King Co. v. Commissioner, 41 F.(2d) 24 (C. C. A. 3).

The interpretation of the Williamsport opinion which we adopt was also adopted by the Court of Claims in Chicago Frog & Switch Co. v. United States, 67 Ct. Cl. 662, cert. denied 280 U. S. 579, 50 S. Ct. 32, 74 L. Ed. 629. That was a ease identical with the suit at bar, except that the complaining taxpayer was a domestic corporation. See, also, Clinton Iron & Steel Co. v. Heiner, 30 F.(2d) 542, 544 (D. C. W. D. Pa.). The fact that special assessment is mandatory for a foreign corporation and permissive for a domestic one furnishes no basis for distinction-when each is attacking the Commissioner’s computation on the ground that he selected improper comparatives in determining the assessment which he made.

The judgment is affirmed

MANTON, Circuit Judge

(dissenting).

Section 327(b) of the 1918 Act (40 Stat. 1057, 1093) requires that the taxpayer, if a foreign corporation, be assessed as to its war profits and excess profits taxes under section 328(a). The Commissioner had no occasion, nor was it his duty, to determine as an administrative act whether the taxpayer was entitled to this special assessment under section 328(a), as was the requirement in Williamsport Wire Rope Co. v. United States, 277 U. S. 551, 48 S. Ct. 587, 72 L. Ed. 985, for there the Commissioner was dealing with a domestic corporation. The error below rested in the court’s determination that the discretionary power conferred on the Commissioner went beyond the determination of whether or not a domestic corporation was entitled to a special assessment under section 328, and in holding that the Commissioner had the additional administrative discretion, which was not reviewable in the courts, of determining the questions suggested in section 328(a). No discretion was reposed in the Commissioner as to computation of the special assessment. Section 328 explicitly directs how the assessment is to he made. Section 328 provides that “the tax shall be the amount which bears the same ratio to the net income of the taxpayer (in excess of the specific exemption of $3,000) for the taxable year, as the average tax of representative corporations engaged in a like or similar trade or business, bears to their average net income (in excess of the specific exemption of $3,000) for such year. In the ease of a foreign corporation the tax shall be computed without deducting the specific exemption of $3,000 either for the taxpayer or the representative corporations.”

The mandatory effect of section 328 was to compel the Commissioner, in computing the tax, to use as comparatives, only representative corporations whose invested capital can be satisfactorily determined and that the ratio shall be determined upon regulations prescribed by the Commissioner, with the approval of the Secretary. And section 327 provides “where the Commissioner is unable to determine”; and where “the Commissioner is unable satisfactorily to determine;” and where “the Commissioner finds * * * that the tax * * * would * * * work upon the corporation an exceptional hardship.”

This phrase of section 327 indicates an intent, as the Williamsport Case held, to confer a discretionary nonreviewable power on the Commissioner. But the phrase of section 328 is mandatory and requires the Commissioner to ascertain the average fax of the “representative corporations engaged in a like or similar trade or business.” The rest is a mathematical calculation. The task thus imposed upon the Commissioner is no different from many similar ones required in ascertaining gross income, net income, invested capital, depreciation, and allowance, which are necessary to compute the ordinary income and excess profits tax of the taxpayer. It is so well settled as to require no citation of authority to say that such determinations by the Commissioner are reviewable by the courts. The” Commissioner has made the computation, which is complained of, and the courts may reach a different conclusion if the evidence produced shows error in his determination of the representative corporations he has used for comparison or errors in the computations made as the bill of complaint charges. The question for the court on the trial would be whether the Commissioner has followed the mandatory directions of the statute in a manner free from error.

The right to sue the collector for an unjustified collection has long been recognized as a common-law remedy. United States v. Emery, etc., Co., 237 U. S. 28, 35 S. Ct. 499, 59 L. Ed. 825. The District Court has jurisdiction in a suit such as this under section 41, title 28, U. S. Code (28 USCA § 41). Unless the Revenue Act of 1918 withdrew this jurisdiction, it must still exist. No provision of the act takes away this jurisdiction or otherwise limits it. It would be no serious difficulty to review the issue presented of whether a Commissioner followed out the direction of section 328 in making the assessment. Nothing in the Williamsport Case (see page 558 of 277 U. S., 48 S. Ct. 587, 72 L. Ed. 985) indicates that the court found Congress intended to abrogate the common-law right of taxpayers to sue the internal revenue collector, and that ease held merely that the courts will not review the discretionary determination of the Commissioner as to whether special relief should be given to any domestic corporation in any given ease.

The Court of Claims in Frederick Warne & Co. v. United States, 62 Ct. Cl. 363, 369 said, referring to section 328: “The statute is in positive terms, and expressly points out its applicability to foreign corporations. Why a discrimination between foreign and domestic corporations was deemed advisable is not for judicial determination. The act used mandatory terms and mentions foreign corporations as not entitled to the exemption provided in section 302.”

And, as pointed out in Blair v. Oesterlein Mach. Co., 275 U. S. 220, 226, 48 S. Ct. 87, 89, 72 L. Ed. 249, “there is no inherent impossibility, or, indeed, serious difficulty in reviewing judicially any determination authorized by sections 327 and 328.”

For these reasons it was error to dismiss the bill, and the judgment should be reversed.