author: BREWSTER, District Judge.

text:
    BERTELSEN & PETERSEN ENGINEERING CO. v. UNITED STATES.
    No. 4146.
    District Court, D. Massachusetts.
    April 6, 1931.

      Joseph Wiggin, Lispenard B. Phister, and John W. Lowrance, all of Boston, Mass., for plaintiff.
    Frederick H. Tarr, U. S. Atty., and J. Duke Smith, Sp. Asst. U. S. Atty., both of Boston, Mass.
   BREWSTER, District Judge.

In its petition and amended petition the petitioner seeks to recover (a) the balance of an overpayment of 1917 income and profit tax, and (b) an additional sum claimed to be due for interest.

The overpayment of the 1917 tax was in part credited against an additional assessment for the year 1918 and an additional assessment for the year 1919. The validity of the additional assessment for the year 1918 is attacked on two grounds: First, that the petitioner received no notice of the deficiency as prescribed by law; and, second, that it was not made within the period of limitation as extended by the taxpayer's agreements.

The first ground is readily disposed of on the facts of the ease.

The determination of the deficiency in the amount of the 1918 tax was made subsequent to the effective date of the Revenue Act of 1924. This act provided (section 280 [26 USCA § 1064 note]) that: “If after the enactment of this Act the Commissioner determines that any assessment should be made in respect of any income, war-profits, or excess-profits tax imposed by the * * * Revenue Act of 1918, * * * the amount which should be assessed * * * shall be computed as if this Act had not been enacted, but the amount so computed shall be assessed, collected, and paid in the same manner and subject to the same provisions and limitations * * * as in the ease of the taxes imposed by this title. * * * ”

On September 16, 1925, the Deputy Commissioner sent a notice to the petitioner that an audit of its income and profit tax return for the year 1918 had resulted in a determination of a deficiency of $34,555.68 in the tax for the year 1918, and that if, after consideration of additional evidence in ease of a protest, a deficiency was finally determined by the Bureau to be due from the taxpayer, a notice would be sent under the provisions of section 274 (a) of the Revenue Act of 1924. On January 23, 1926, a notice was sent in accordance with the provisions of said .section 274 (a), 26 USCA § 1048 note. This section gave the taxpayer 60 days within which to file an appeal with the Board of Tax Appeals. Before the expiration of this 60-day period, the Revenue Act of 1926 was enacted, and, no appeal having been filed, the ease came under section 283 (c) of the act, 26 USCA § 1064 (e), which provided as follows: “If before the enactment of this Act the Commissioner has mailed to any person a notice under subdivision (a) of section 274 of the Revenue Act of 1924 (whether in respect of a tax imposed by Title II of such Act or in respect of so much of an'income, war-profits, or excess-profits tax imposed by any of the prior Acts enumerated in subdivision (a) of this section as was not assessed before June 3, 1924), and if the 60-day period referred to in such subdivision has not expired before the enactment of this Act and no appeal has been filed before the enactment of this Act, such person may file a petition with the Board in the same manner as if a notice of deficiency had been mailed after the enactment of this Act in respeet of a deficiency in a tax imposed by this title. In such eases the 60-day period referred to in subdivision (a) of section 274 of this Act shall begin on the date of the enactment of this Act, and the powers, duties, rights, and privileges of the Commissioner and of the person entitled to file the petition, and the jurisdiction of the Board and of the courts, shall, whether or not the petition is filed, be determined, and the computation of the tax shall be made, in the same manner as provided in subdivision (a) of this section.”

Subdivision (a) of section 283 (26 USCA § 1064 (a) provided, in substance, that the amount of the tax should be determined as if the act had not passed, but that it should be assessed, collected, and paid in the same manner and. subject to the provisions and limitations of the act of 1926.

The above-quoted section 283 (c) operated to extend the time within which an appeal could be filed to 60 days after February 26, 1926, the effective date of the act, and during this period no assessment of the deficiency could be made. Revenue Act of 1926, § 274 (a), 26 USCA § 1048.

It appears to be conceded that the assessment was not actually made until July 27, 1926. The Bureau sent no other or further notice of the additional assessment uutil October, 1927, when the petitioner received a certificate of overassessment respecting the tax for the year 1917, which showed that it had been credited against the additional taxes for the years 1918 and 1919.

I do not find in either the Revenue Act of 1924 or the Revenue Act of 1926 any provision which required the Commissioner to give to the petitioner any notices other than those which appeared to have been given in this ease. In other words, I find that the Commissioner complied with all the requirements of law respecting notice of the additional assessment.

The more difficult question is whether the assessment of an additional tax for the year 1918 was made within the period of limitation as extended by written waivers on file in the Bureau.

' The return of 1918 ineomé was filed on the 16th day of June, 1919, and the period within which additional assessments could be made under statutes then extant expired on the 16th day of June, 1924. On January 8, 1924, the taxpayer signed a waiver which extended the period within which the assessment of 1918 taxes could be made to January 8, 1925. On February 23, 1924, it signed another waiver respecting the 1917 and 1918 taxes, which operated to extend the time for assessing .these taxes to January 8, 1926. On February 27, 1924, it signed a third waiver respecting the 1918 and 1917 taxes, but this waiver only operated to extend the time for one year from its date. It will be noted that this waiver was for a lesser period than the second waiver signed February 23, 1924. On October 30, 1924, the petitioner signed a fourth waiver respecting the assessment of 1918 taxes which contained the following provisions: “This waiver is in effect from the date it is signed by the taxpayer and will remain in effect for a period of one year after the expiration of the statutory period of limitation within which assessments of taxes may be made for the year or years mentioned, or the statutory period of limitation as extended by Section 277 (b) of the Revenue Act of 1924, or by any waivers already on file with the Bureau.”

All of these waivers were executed by the taxpayer, and the authority of the officer who signed is not questioned. They were also signed on behalf of the United States by the Commissioner of Internal Revenue.

It is the contention of the petitioner that the first and second waivers given under dates of January 8, 1924, and February 23, 1924, should be wholly disregarded. It is the petitioner’s claim, made in argument, that the third waiver of February 27, 1924, extending the time to February 27,1925, was given in substitution for the earlier waivers, and that the waiver of October 30, 1924, extended the time only to February 27, 1926.

From correspondence between the petitioner and the Bureau, it appears that certain • subordinates in the Internal Revenue Bureau proceeded upon an erroneous belief that the statutory period of limitation as extended would expire early in 1925. On October 24, 1924, the chief of the section wrote the petitioner asking for a renewal waiver for the years 1917 and 1918, stating that these were desirable in view of the early expiration of the waivers at present on file for these years. Presumably it was in response to this communication that the fourth waiver of October 30, 1924, was given.

It must be conceded that, if at the time when this letter was written the third waiver (that of February 27, 1924) was to be treated as the only waiver on file in the Bureau, then the period of limitation would have expired February 27, 1925, but if, as was the fact, other waivers then on file extended the time to January 8, 1926, the waiver of October 30, 1924, operated to fur» ther extend the period to January 8, 1927. Whether this statement that the waivers were presently to expire was based upon a definite understanding between the parties that the waivers of January 8, 1924, and of February 23, 1924, were to be treated as void, or whether it was due to the fact that the writer was not aware that they were on file, are matters of conjecture. Upon the evidence, it is equally probable that more than one clerk in the Bureau was dealing with the taxpayer, and for that reason unnecessary waivers were obtained. The fact still . remains that they were all given by the taxpayer, and that none of them had been withdrawn. Nor does the evidence establish any agreement that they were not to be given full force and effect as waivers duly filed with the Bureau. I must find, therefore, on the evidence that they were all on file at the time the petitioner signed the waiver of October 30, 1924, wherein it expressly assented to an extension of the time for one year beyond the statutory period of limitation as extended by any waiver already on file with the Bureau. The extent of its assent must be gathered from the writing signed on its behalf, and we cannot vary its terms and give it an effect as if it read “or the statutory period as extended by one of the three waivers already on file with the Bureau.”

The government contends that, even if the waiver of February 23, 1924, be wholly disregarded, then the other waivers togethe/ with the statutory provisions suspending the running of the statute of limitations carry the period beyond July, 1926. It has already appeared that, if the waiver of February 23, 1924, is to be eliminated from consideration, then the taxpayer had assented in the other waivers to an extension of the period of limitation to February 27, 1926. Section 277 (b) of the Revenue Act of 1926, 26 USCA § 1057 (b) suspended the running of the statute of limitation during the period in which the Commissioner was prohibited from making the assessment and for 60 days thereafter.

In the ease at bar, the running of the statute of limitation was suspended January 23, 1926, which was 35 days prior to the expiration of the period as extended, according to the contention of the petitioner. This suspension continued, according to sections 277 (b) and 283 (c), until 120 days after February 26, 1926, or to June 26,1926, with 35 days of the extended time still to run. It is argued by the government that these 35 days should be added to the 120 days, which would bring the expiration of the period to beyond the 27th day of July, when the assessment was made. I am unable to adopt the views of the government on this point. I believe that if the taxpayer had assented to an extension of the period of limitation only to February 27, 1926, the assessment to be valid must have been made within 120 days from the effective date of the Revenue Act of 1926. It is true that before this extended period had expired the statute of limitation was suspended, and an assessment made before that period of suspension had expired would have been valid, but if, at the expiration of that 120 days, the period of limitation, as extended by agreement, had also expired, any assessment made thereafter would be too late.

This question, however, becomes moot, inasmuch as I have concluded that the petitioner by its agreements extended the period of limitation to January 8, 1927.

I find and rule that the assessment of $34,555.68 was valid and the credit to that extent of the overpayment was a proper credit.

As to the question of interest, the credits and refund having been made subsequent to the passage of the Revenue Act of 1926, the liabilities of the defendant for interest on the overpayment must be determined Avith reference to the provisions of that statute. United States v. Boston Buick Co., 282 U. S. 476, 51 S. Ct. 206, 75 L. Ed.-. Decided February 2, 1931.

Section 1116 (a) of that act (26 ÜSCA § 153 note) is as follows: “Upon the allowance of a credit or refund of any internal-revenue tax erroneously or illegally assessed or collected * * * or of any sum which was excessive or in any manner wrongfully collected, interest shall be allowed and paid on the amount of such credit or refund at the rate of 6 per centum per annum from the date such tax, * * * or sum was paid to the date of the allowance of the refund, or in the ease of a credit, to the due date of the amount against which the credit is taken, but if the amount against which the credit is taken is an additional assessment made under the Revenue Act of 1921, the Revenue Act -of 1924, or this Act (February 26, 1926), then to the date of the assessment of that amount.”

The government, in the ease of the credits, refused to adopt the date of the assessment as the date to which interest should be computed, but adopted the due dates of the amounts against which the credits were taken, and in respect of the additional tax for 1918 took March 15, 1919, as the due date and March 15, 1920, as the due date for the 1919 additional assessment. Inasmuch as the overpayments were all made subsequent to March 15, 1918, no interest was alloAved on the amount credited against the additional 1918 tax, and interest on the amount credited against the 1919 additional assessment was computed only to March 15, 1920. The petitioner contends that it is entitled to have the interest computed from the dates of the overpayments to July 27, 1926, the date of the additional assessments for the years 1918 and 1919.

The application and interpretation of section 1116 (a) has been construed by the Court of Claims in Riverside & Dan River Cotton Mills, Inc., v. United States, 37 F. (2d) 965; Graniteville Manufacturing Co. v. United States, 39 F.(2d) 746; National Equipment Co. v. United States, 39 F.(2d) 757; and that court has uniformly held that, when an overpayment of taxes has been credited against a deficiency for any year prior to 1921, “interest should be alloAved from the date of the overpayment to the due date of the amount against which the credit is taken, and that the words ‘due date’ used in this section mean the date fixed by the statute for the payment of the tax, or the several installments thereof. * * “ ” Riverside & Dan River Cotton Mills, Inc., v. United States, at page 968 of 37 F.(2d).

Counsel calls attention to the language of section 1116 (a) to the effect that, if the amount against which the credit is taken is an additional assessment made under the Revenue Act of 1921, the Revenue Act of 1924, or this act, then the interest is to be computed to the date of the assessment, and argues that in the case at bar the additional assessment was made under the act of 1926. This same argument was advanced in Riverside & Dan River Cotton Mills, Inc., v. United States, supra, at page 969 of 37 F. (2d) and was met by the court in the following language: “Plaintiff lays much stress upon the provisions of sections 280 of the Revenue Act of 1924 (26 USCA § 1064 note) and 283 of the Revenue Act of 1926 (26 USCA § 1064), as showing, as it insists, that the additional assessment here involved was an assessment made under the Revenue ■Act of 1926, but, in our opinion, this contention is without force. The Revenue Act of 1924 repealed the Revenue Act of 1921, but provided that that act should remain in force for the assessment and collection of all taxes imposed by such act, and the Revenue Act of 1926 repealed the Revenue Act of 1924, but contained a similar provision relating to the previous act in force for the assessment and collection of all taxes, imposed thereby. Section 280 of the Revenue Act of 1924 and section 283 of the Revenue Act of 1926 related to the procedure to be followed in the determination, assessment, and collection of deficiencies under those acts. These sections did not confer the authority to make an assessment for prior years; that authority was conferred by the prior revenue acts which were retained in force for that purpose, and it was this that Congress had in mind when it provided in section 1116 (26 USCA § 153 note) as to the payment of interest on credits in ease of an additional assessment ‘made under’ certain acts.”

I agree with the conclusions reached by the learned court in the ease of Riverside & Dan River Cotton Mills, Inc., v. United States, supra, and accept as adequate the reasons stated in the opinion. It follows, therefore, that the defendant, in computing the interest, proceeded upon a proper construction of the act which imposed its obligations to pay interest, and that the amount allowed as interest on the overpayment was substantially correct. There seems to be a slight error in computation of the interest on the second payment "Constituting the overpayment for 1917. The date of the payment was August 8, 1919, instead of August 18, 1919. This would entitle the petitioner to 10 days’ additional interest computed upon $4,710.64 credited against the 1919 taxes and upon $22,013.06, the balance of the refunded overpayment of 1917 taxes made August 8, 1919. Ten days’ interest on these two amounts would aggregate $44.07, for which amount the petitioner is entitled to recover.


source: Caselaw Access Project

author: BRYANT, District Judge.

license: Public Domain

text:
    KILLINGSWORTH v. ÆTNA LIFE INS. CO.
    No. 721.
    District Court, E. D. Texas, Jefferson Division.
    April 25, 1931.

      Beard & Abney, of Marshall, Tex., for plaintiff.
    Harry P. Lawther, of Dallas, Tex., for defendant.
   BRYANT, District Judge.

The above-entitled matter was tried before Honorable W. L. Estes, District Judge, deceased, and a motion for a new trial therein filed during his lifetime. At the time of the filing of the motion for a new trial, the following order was entered thereon by Judge Estes: “It is directed that the Clerk file the within motion and the same is taken under consideration. Jurisdiction of the case is retained for the purpose of disposing of same motion.”

As the successor to Judge Estes, the author of this opinion is requested to act upon this motion for a new trial, pursuant to the provisions of section 776, title 28, USCA. As the evidence in such cause was taken in stenographic notes and perpetuated in record form, he is satisfied that he can and should pass upon such motion.

The plaintiff, during the pendency of the suit, married one George Hagemyer and the cause proceeded to judgment under her new name.

The principal question raised in the motion for a new trial involves essentially the interpretation and the effect of the testimony relating to the circumstances of the death of one Ike Killingsworth, the husband of the plaintiff.

The suit was on the double indemnity clause of the insurance policy issued by defendant, upon the life of Ike Killingsworth, deceased.

The death of the insured from gunshot wounds, was proven, and the prima facie right of the plaintiff to recover was thus established. The defendant introduced the man who inflicted the wounds, and by him undertook to show that the death was occasioned by the wrongful conduct of the insured, rather than by accident, and other witnesses whose testimony tended to corroborate.

There was no other witness to the killing, but evidence relating to the physical circumstances attending the tragedy was introduced by both parties to the suit. For instance, the plaintiff had the sheriff of the county give the slayer’s explanation ■ respecting the wounds received by the deceased near the back or side of his head, which it was claimed was inconsistent with the testimony of the slayer on 'the trial. The plaintiff showed that the deceased was in a good humor when he went to the home of the slayer, where the killing occurred; and that the body, after being wounded, was removed from the im'mediate spot where the deceased was slain. There are perhaps other circumstances set forth in the record, calculated to disprove or to eorroborate-the accuracy of the testimony.

The ease was submitted to the jury in a fashion that predicated the right of the plaintiff to recover upon a finding by them, from all the evidence, that the death of the insured was not precipitated or caused by his own wrongful conduct. The jury were told substantially that, if they should find that the death was not accidental, but that the deceased provoked or conducted himself so as to cause his death, they should find for the defendant. The verdict for the plaintiff, therefore, comprehends a finding that the death was accidental, in the sense that it was not invited or provoked.

The defendant is now urging a motion for a new trial, on the proposition that when the defendant’s testimony was uncontradieted in essential respects, and showed the insured to have been in the wrong and to have caused or occasioned the controversy that resulted in his death, the presumption of accident attaching by reason of proof that the death resulted from gunshot wounds was overcome. The point is that, in such 'a state of affairs, the plaintiff, as a matter of law, is not entitled to recover.

The case of Smith v. Insurance Co. (C. C. A.) 31 F.(2d) 280, 281, a decision .by Judge Bryan, has been cited as sustaining this contention. But I do not concur in this view. There a judgment had been rendered for the defendant upon findings of fact by the court that the conduct of the deceased brought about his own death. It was appealed upon the ground that the court should have adopted as correct the proposition that, “upon the whole evidence and admissions in defendant’s answer, the burden is on the defendant to prove that the death was the result of causes enumerated in the exception* contained in the double indemnity clause of the policies and specially pleaded in defense.” In the course of the opinion it was stated that, “upon the submission by appellee of evidence tending to show that the insured was committing an assault in violation of law, the presumption was rebutted, and it was then incumbent on appellant to take the initiative again, and show by other evidence that death was accidental. * * * The proposition of law which appellant sought to have the trial court adopt would have relieved her of the burden of proof which she assumed as plaintiff in the suit.”

It is manifest that the court in that case had under consideration a case where the prima facie ease had been overcome. The testimony in behalf of the defendant had been credited by the trial court. A presumption arose, when the death was shown to have resulted from gunshot wounds, that the killing was accidental, “but that presumption only made out a prima facie case in the absence of evidence to the contrary.” The evidence to the contrary, when believed, overcame the presumption. The evidence manifestly was credible evidence, because the judgment rendered was in favor of the defendant. To have given, in that state of the record, the instruction that was proposed, would, said Judge Bryan, have relieved the plaintiff of the burden she assumed when she brought the ease, that is, to show that the death was accidental. Obviously this record shows different conditions. The prima facie case was not overcome, because the jury did not credit the defendant’s testimony.

The ease of Welch v. Creech, reported in 88 Wash. 429, 153 P. 355, L. R. A. 1918A, 353, better illustrates the proposition here. The plaintiff sued the defendant for damages occasioned by the wrongful killing of her husband. The court directed the jury to find for the plaintiff, and the point was made that such charge was error, inasmuch as there was no evidence of negligence on the part of the defendant, no evidence tending to show a wrongful act. There was no evidence of negligence in the ease,- and so the question was whether the burden was upon the plaintiff to show, not only the fact of the killing, but that it was wrongful.

The jury were charged that “the fact of such killing, standing alone, unexplained and unexcused, would entitle plaintiff to recover whatever damage may be shown, but the defendant has pleaded and introduced evidence for the purpose of showing that he was excusable' for the killing — that is, he was lawfully acting in self-defense. And you are instructed that the burden of proof is on the defendant to show this fact by a preponderance of the evidence. If, there-fore, upon a full and fair consideration of all the evidence in the case, you believe from such evidence that the defendant was lawfully acting in self-defense, you will return a verdict in his favor, otherwise you will find against him on that point, and you will then consider as to the amount of damages.”

A prima facie case was made out when the killing was shown, and, when the killing was reasonably accounted for, the question of whether the prima facie case had been met was one for the jury.

The mere fact that evidence was introduced establishing a defense would not be sufficient to overcome the presumption. It must be evidence of such a nature that the jury would believe it. The prima facie case and incidental presumption of law only puts a burden upon the defendant to speak to the extent, at least, of rebutting the presumption. If what the defendant says about it is not credited, then the presumption is not met.

Now, in this case, the jury were plainly charged that they should consider all the testimony and determine whether the death was the result of an accident, as that term has been defined to them, or whether, by his own wrongful conduct, the deceased precipitated or caused the tragedy. If no further evidence had been introduced than the fact that the death resulted from gunshot wounds, the plaintiff was palpably entitled to recover. If the death was the result of the deceased’s own wrongful1 conduct, as the de'fendant’s testimony tended to show, then the defendant should have recovered. The jury, having that issue before them, decided that the defendant’s testimony was not to be credited, and therefore a verdict was had in favor of the plaintiff.

The same contention as is here urged seems to have been made by this same defendant in the easei of Ætna Life Insurance Co. v. Mrs. Lottie Gallaway, 45 F.(2d) 391, in the Fifth Circuit Court of Appeals, under very similar circumstances, as, at page 42 of the brief for. the appellant in that case, it is stated: “The shooting unexplained made out a prima facie case for the plaintiff. But when the defendant introduced evidence explaining the shooting, the rule is that the presumption that the death was accidental was rebutted and that then, upon the whole case, the burden was on the plaintiff to establish that the death was accidental” —citing authorities. But in that state of the evidence and in response to this contention the Circuit Court of Appeals said, 45 F.(2d) 391, at page 392: “The trial judge was fully justified by the evidence and circumstances in rejecting Compton’s testimony [the slayer’s] that such statement was made by the insured.1” Here it was equally the province of the jury to reject the testimony of the slayer of the deceased as to the circumstances surrounding the killing, and especially so where such testimony was contradicted by the physical facts and other circumstances surrounding the killing.

The other ground of the motion for a new trial is as follows:

“The verdict was also contrary to the Charge of the Court in this: The Court instructed the jury that if they should return a verdict for the Plaintiff, they should find for said Plaintiff in the sum of $5,000 with interest thereon from the 7th day of January, 1929, together with the sum of'$600 as penalty, as provided for by the Statute, together with such additional sums as they might find from the evidence to be a reasonable attorney’s fee to be paid to the Plaintiff in this connection, and the verdict of the jury was as follows: ‘We, the jury, find for the Plaintiff, Mrs. Ethel V. Hagemyer against the Defendant for the sum of $5,000 with interest thereon at the rate of six per cent, per annum from January 7th 1929 and for twelve per cent, of said sum of $5,000 and interest, as their statutory penalty and damages and for the further sum of $1,000 attorney’s fee.’
“The judgment of the court entered upon said verdict is erroneous and contrary to the Charge of the Court to the jury in this: That judgment was • rendered in favor of the Plaintiff, Mrs. Ethel V. Hagemyer for the sum of $5,000 with interest thereon at the rate of six per cent, per annum from January 7th, 1929', together with 12% of said sum of $5,000 and interest, as statutory penalty and damages and for the further sum of $1,000 as attorney’s fee,.making in all the sum of $6,977.07.”

It is not necessary to detail the allegations of the petition relating to the claimed elements of recovery and whether or not they were sufficiently comprehensive to include the recovery of the 12 per cent, statutory penalty upon interest upon the $5,000, because the court in its charge specifically limited recovery for the plaintiff “in the sum of five thousand dollars with interest thereon from the 7th day of January, 1929, together with the sum of six hundred dollars as penalty.”

The verdict of the jury was as follows: “We, the jury, find for the plaintiff, Mrs. Ethel V. Hagemyer against the defendant for the sum of $5,000 with interest thereon at the rate of six per cent, per annum from January 7th 1929 and for twelve per cent, of said sum of $5,000 and interest, as the statutory penalty and damages and for the further sum of $1,000 attorney’s fee.” The instructions of the court, as to the amount of recovery were in no wise excepted to, and to the extent that the verdict allows a 12 per cent, recovery upon the interest upon the amount of $5,000 appears to be excessive.

Without reference to the amount that plaintiff might legally have recovered under the allegations of her petition, discussion of which does not appear to be necessary under the facts of this ease, the verdict appears to be slightly excessive under the instructions of the court, which were not excepted to and which were binding upon the jury in its findings. However, as the excess is susceptible of exact computation and amounts to the sum of $40.40, and as the verdict of the jury is otherwise clear, definite, and specific,.'it would seem that this is a ease demanding exercise of the practice of permitting a remittitur.

If a remittitur is filed by plaintiff in the sum of $40.40, as of the date of judgment herein and within thirty days from the date hereof, the motion for new trial will be denied, otherwise the same will be granted.


author: KERRIGAN, District Judge.

text:
    HERRMANN v. DORAN, Com’r of Industrial Alcohol.
    No. 2634.
    District Court, N. D. California, S. D.
    Feb. 19, 1931.

      Edmond F. Maher, of San Francisco, Cal., for petitioner.
    George J. Hatfield, U. S. Atty., I. M. Peekham, Asst. U. S. Atty., and Edgar R. Bonsall, Atty., Bureau of Prohibition, all of San Francisco, Cal., for respondent.
   KERRIGAN, District Judge.

This is a petition for a review of the action of the Supervisor of Permits in refusing petitioner’s application for an increased allowance of alcohol and wine under an existing basic permit. Petitioner is engaged in the manufacture of certain nonbeverage compounds under approved formulae. The basic permit for 1930 held by him when suit was filed allowed him 100 wine gallons of alcohol and 3,000 gallons of wine. The history of this permit will be referred to later. On March 11, 1930, application was made for an increase of the allowance to 3,000 wine gallons of alcohol and 30,000 gallons of wine. There was considerable delay in passing upon this application, and petitioner finally filed a bill, June 4, 1930, asking that failure to pass upon the application be deemed a denial thereof, and seeking a review of this denial. The following day, no hearing having been had, the Prohibition Administrator disapproved the application, whereupon petitioner filed his amended bill upon the basis of which all subsequent proceedings have gone forward. After joinder of issue the ease was referred to the local Supervisor of Permits to hold a hearing upon petitioner’s application of March 11, 1930, the procedure followed being that adopted in Smith v. Foster (D. C.) 15 F. (2d) 115. The Supervisor has concluded that petitioner is not entitled to the increase sought and the matter is now before me upon motion to review this decision.

It has been agreed between counsel that the issue now before me is whether or not the permit for the increased allowances sought should issue, and not whether the original disapproval of the application, June 5, 1930, was unwarranted. In determining this question I have examined the voluminous transcript of the testimony before the Supervisor with great care and have come to the conclusion that petitioner has not sustained the burden of proof to establish the reasonable necessity for the increase sought, which was upon him.

It appears that petitioner, Herrmann, has been for .some years engaged in the manufacture of various nonbeverage products using alcohol as an ingredient. Prior to 1930 the basic permit issued to him permitted the use of alcohol only and made no reference to wine. Under this permit he prepared various tonics and extracts, but made no wine tonics. As attorney in fact for another, however, and under a different basic permit, he made and sold a wine tonic known as “Yin Zymo,” which was apparently widely sold and from which he received considerable profit. In September, 1929, a revision of formula for this tonic became necessary, chiefly because of a new regulation requiring that all such tonics contain at least 30 per cent, solids. He procured this revision and at the same time procured a permit for himself for the manufacture of a wine tonic to he called “Old Abbey "Wine Tonic” with a formula identical with the new Yin Zymo formula, a proceeding which resulted in the revocation by the owner of the Yin Zymo formula of Herrmann’s power of attorney. Earlier in that month Herrmann had applied for a renewal of Ms own basic permit for alcohol, asking for 6,400 proof gallons, the amount allowed him in 1929. January 1, 1930, his permit for that year was issued to him, calling for 100 wine gallons of alcohol. Prior to its issuance he had had a conference with the Prohibition Administrator, who had informed him that the basic permits were being cut down as a matter of policy, but that increases would be grante'd as need was shown. No protest was made by Herrmann upon this drastic reduction. Shortly afterwards he applied for the addition of an allowance of 6,000 gallons of wine to his permit, and 3,000 gallons were allowed. This was the first allowance of wine under Herrmann’s own permit. He had made no “Old Abbey” tonic up to this time, and commenced its manufacture on or about February 10, 1930. The permit for the sale of this product was “limited,” i. e., restricted petitioner to sales to wholesale druggists, whereas his permit for Yin Zymo allowed him to sell to grocers, etc., and was unlimited. After 29 days of manufacture of “Old Abbey” tonic, the application for increase with which we are concerned was filed.

It is apparent that petitioner was required to establish his needs in what was essentially a new business, so far as the Old Abbey tonic was concerned. Lou-Val Co. v. Wynne (C. C. A.) 34 F.(2d) 721. It is also to be considered that the fact that petitioner’s right to a basic permit for 100 wine gallons of alcohol and 3,000 gallons of wine was unchallenged does not demonstrate that he is worthy of confidence for whatever amount he may ask. Driscoll v. Campbell (C. C. A.) 33 F.(2d) 281. This is particularly true where the permit authorities have agreed to grant increases shown to be reasonably necessary.

The difficulty here is with petitioner’s showing. A mere statement of needs based upon optimistic estimates' as to the growth of business is not sufficient. Nor are comparisons based upon petitioner’s past experience with another wine tonic (Vin Zymo), of established trade-name, lighter medication, a lower percentage of solids, sold under an unlimited permit affording a wider market, of any appreciable weight in fixing the present need. The' evidence as to the disposition of petitioner’s product during the brief period prior to this application is equally unsatisfactory as a basis for fixing petitioner’s requirements, as it appears that the major portion of this disposition was by consignment to various wholesalers and not by outright sales. Quaker Industrial Alcohol Corporation v. Blair (D. C.) 19 F.(2d) 235. It further appears that the consigned product was not finding a ready market. In other words, this .evidence did not establish a bona fide market for Old Abbey tonic. On this state of the evidence the Supervisor of Permits was warranted in holding that petitioner had not established his right to an increase of allowance of liquors for use in making Old Abbey tonic.

His conclusion in this regard is reinforced by the presence in the record of evidence which need not be reviewed in detail tending to show that petitioner had conducted his operations in the past in such a way as to justify putting him to strict proof of the necessity for increased allowances.

Some mention is made in argument of a supposed admission, by failure to deny in the answer on file, of the necessity for an increase in petitioner’s alcohol allowance for use in the manufacture of other compounds than Old Abbey tonic. In view, however, of the fact that the reference of this matter to the Supervisor ,of Permits was for a hearing upon the application of March 11, 1930, I view the state of the pleadings in this regard as immaterial. The proof offered by petitioner as to his need for alcohol in the manufacture of Old Abbey tonic is open to the objections mentioned above. The proof as to his requirements in the manufacture of other products is likewise insufficient.

In holding that the applieaton made by petitioner was properly denied, I do not determine that he may not be entitled to an increase upon a proper showing; indeed, the authorities have virtually agreed that properly proved increased needs will be supplied. This order is made without prejudice to other and further applications for increased allowances to the proper authorities.

The decision of the Supervisor of Permits is affirmed. Judgment for defendant, with costs.


author: BYERS, District Judge.

text:
    TRICO PRODUCTS CORPORATION v. E. A. LABORATORIES, Inc.
    No. 5411.
    District Court, E. D. New York.
    April 24, 1931.
    George T. Bean, of New York City, for plaintiff.
    Duell, Dunn & Anderson, of New York City, for defendant.
   BYERS, District Judge.

This is a motion by the plaintiff in a patent cause to strike paragraphs 3 to 8, inr.lusive, of the answer; said paragraphs being captioned “As a Counterclaim and Defense.”

Upon the hearing, the defendant consented that paragraph 8 be stricken, and that so much of the motion as was directed to the description of these several paragraphs as a counterclaim was consented to. It remains, therefore, to consider whether the motion should be granted as to paragraphs 3 to 7, inclusive, as a defense.

The bill of complaint is in conventional form and, in addition to formal allegations from which it appears that both the plaintiff and the defendant are New York corporations, the granting of letters patent of the United States Nos. 1,434,655, 1,391,887 and 1,434,657, to Walter A. Garratt, and the assignment thereof through a third person 'to the plaintiff, are pleaded; these averments are followed by suitable allegations describing the plaintiff’s business, and the manufacture and sale by it of devices covered by the said patents, and alleged infringement of these patents.by the defendant; the prayer for relief is for the conventional relief in a patent cause where infringement is asserted.

The answer, which is called “Answer and Counterclaim,” admits the allegations which refer to the incorporation of both parties, and the fact that their respective places of business are in the state of New York. There being no diversity of citizenship, it is obvious that the matters pleaded as a counterclaim could not be permitted to stand as such, which probably accounts for the concession at the hearing as to so much of the motion.

The matters comprehended in paragraphs 3 to 8, inclusive, set forth, upon information and belief, that the plaintiff has brought this action in bad faith, for the purpose of giving the appearance of judicial sanction to the campaign which the plaintiff has instituted to ruin the defendant’s business through the medium of slandering (sic) defendant’s competing product, harassing and deceiving the trade and the public, and trying this case out of court, to the defendant’s alleged 'damage of $25,000; that the plaintiff brought this suit with full knowledge that the patents are devoid of any practical or commercial utility, and that the defendant has not infringed upon said patents; that the patents were offered for sale during the year 1927 for a nominal consideration to this defendant, who declined to purchase them, and that they were acquired by the plaintiff solely for the inequitable purpose for which they are now being used against the defendant, and that, prior to the said purchase, the plaintiff knew that the defendant was developing for manufacture and sale the devices complained of in competition with the similar produet which the plaintiff was also developing; and that the defendant has been engaged in this district in the manufacture of such devices, which have been and are of high quality, and have met with general favor, and the defendant enjoys a high reputation and has established a profitable business; that, pursuant to the unlawful intent which the defendant attributes to the plaintiff, the latter has instructed and permitted its salesmen and agents to notify defendant’s customers of the institution of this suit, and that the devices manufactured by the defendant are an infringement upon 'plaintiff’s said patents, and that such customers should not purchase the defendant’s product because they would be liable to suffer confiscation thereof by the plaintiff, and that infringement of the patents in suit would result, and that the plaintiff enjoys a monopoly of the business involved; that the public and defendant’s customers have been intimidated, and have canceled contracts, or have refused to make contracts of purchase, as the result of these things, and that, by reason of the premises, the plaintiff has entered this court of equity with unclean hands. In paragraph 8, the defendant prays for an injunction pendente lite, and for an accounting by reason of the said unlawful acts of the plaintiff.

. As stated, the said paragraph 8 has been stricken on consent.

The sole question remaining on this motion is as to the sufficiency of the allegations contained in paragraphs 3 to 7, inclusive, as matters of defense. It will be seen that-none of the allegations referred to, if established by proof, would affect the question of ownership, patentability or infringement. If such allegations were so to be sustained, it is conceivable that they might affect the plaintiff’s remedy, but not the issues tendered by the bill.

The reasoning which would hold these allegations to have been improperly pleaded as a defense is parallel to that found in the case of General Electric Co. v. Minneapolis Electric Lamp Co. (D. C.) 10 P. (2d) 851, at page 854. In granting motions to strike certain paragraphs of an answer interposed in a patent cause, the court used the following language:

“At the hearing on the motion for preliminary injunction a motion was also made by plaintiff to strike out divisions III, Y, VI, and VIII of defendant’s answer. The ground alleged for the motion is that the facts set forth in said divisions, respectively, do not constitute a defense to the complaint, and that the facts set forth in division VIII do not constitute a counterclaim cognizable in equity.
“These divisions of the answer set up, in substance, that plaintiff has been guilty of violating the Anti-Trust Laws of the United States (Comp. St. § 8820 et seq. [15 USCA § 1 et seq.]); that it is engaged in a conspiracy to monopolize the entire business of the manufacture and sale of electric lamps; that as a part of said conspiracy it has engaged in efforts to destroy defendant’s business by refusing to sell lamps to defendant, and by canceling a contract once existing between them.
“It is well settled that the mere fact that a party may be guilty of violating the AntiTrust Laws will not deprive him of his right to maintain a suit for injunction on account of infringement of a patent owned by him. Brown Saddle Co. v. Troxel (C. C.) 98 F. 620; Virtue v. Creamery Package Mfg. Co., 179 F. 115, 102 C. C. A. 413.
“The maxim, ‘He who comes into equity must come with clean hands,’ applies only to cases where the unconscionable conduct of the plaintiff is directly connected with the subjeet-matter of the suit. The maxim does not mean, that the general conduct of a plaintiff must have been above reproach, nor even that the plaintiff’s conduct towards the defendant as to other matters must have been fair and equitable. Langley v. Devlin, 95 Wash. 171, 163 P. 395, 4 A. L. R. 32, note, 44, 65; Talbot v. Independent Order of Owls, 220 F. 660, 136 C. C. A. 268; Bentley v. Tibbals, 223 F. 247, 138 C. C. A. 489; Trice v. Comstock, 121 F. 620, 628, 57 C. C. A. 646, 61 L. R. A. 176; American Sugar Refining Co. v. McFarland (D. C.) 229 F. 284.”

It is believed that the foregoing points to the necessary decision herein to be made.

The eases cited by the defendant are not to the contrary effeet.

In Panay Horizontal Show Jar Co. v. Aridor Co. (C. C. A.) 292 F. 858, the patent was adjudged to be invalid, and the facts concerning the plaintiff’s conduct therein portrayed are not shown to be similar to the matters pleaded in this answer.

In Gerosa et al. v. Apco Mfg. Co. (C. C. A.) 299 F. 19, appropriate relief was given to a defendant, where plaintiff’s patent was held to be invalid, and plaintiff had circularized consent decrees under a false guise, and otherwise improperly characterized the defendant, but the relief was granted as incident to a counterclaim, and there is none in this case, nor could there be for jurisdictional reasons.

Motion granted.


author: FRANK J. COLEMAN, District Judge.

text:
    THE CONSORT. UNITED STATES v. NATIONAL FIRE INS. CO. et al.
    District Court, S. D. New York.
    Feb. 19, 1931.
    Robert E. Manley, Acting U. S. Atty., and Charles H. Wythe, Sp. Asst. U. S. Atty., both of New York City.
    Bigham, Englar, Jones & Houston, of New York City (M. Detels and C. W. Harvey, both of New York City, of counsel), for respondents.
   FRANK J. COLEMAN, District Judge.

There are presented only questions of fact, whether the cargo steamer Consort was seaworthy when she commenced her voyage and, if not, whether due diligence had been ■used to make her so. She left New York for La Pallice, France, on July 2, 1920, and within 18 hours four tubes of her starboard boiler were found blistered. When less than 2% days out, other tubes in both boilers were found blistered, and the process continued until on the fifth day two of them were leaking so badly as to necessitate plugging. The condition grew worse with more tubes leaking and even bursting, until it became imperative to seek refuge in the Azores in order to make repairs and replenish the water supply. There it was found that 37 tubes out of 528 in both boilers required replacement.

Under the bills of lading the cargo owners were bound to contribute in general average to the expenses of seeking the refuge and making the repairs, provided due diligence had been used to render the ship seaworthy at the commencement of the voyage. The respondent insurance companies guaranteed this contribution, and the present suit is brought to recover it from them.

The trouble was caused either by fuel oil in the water supplied to the boilers or by scale formed on the tubes from minerals in the water. In either case the water in the tubes was kept from direct contact with certain areas of the walls of the tubes, with the result that those spots became superheated and the metal in them softened, permitting the pressure within to produce swellings or blisters which finally leaked or even burst. Libelant can recover only in ease the cause of the trouble was fuel oil in the water, because if it was scale the ship was not seaworthy when she commenced the voyage. The blisters could not have been caused by scale within so short a time unless either the tubes were not clean when she started or seawater was admitted into the boilers, and the latter would not have occurred unless the condenser leaked. Either of these contingencies would have rendered the vessel unseaworthy at her departure, and should with due care have been discovered.

Libelant contends the blisters were caused by fuel oil which entered the water supply through a break in the coil of a fuel oil heater. The oil had to be heated before being supplied to the furnáee, and this was aecom.plished by leading it through copper coil in a tank which was filled with live steam. The steam from this tank was not put through

the ship’s condenser, but was gradually condensed as it was led through a trap in the fire room, thence through an inspection box and finally mixed with the main condensate in the filter box. If a break occurred in the coil, the oil would mingle with the live steam in the tank and might to some extent be carried into the stream of water supplied to the boilers.

A break in the coil would be entirely consistent with due care to make the ship seaworthy, because, whether it occurred before or after the departure, it is undisputed that reasonable care would not have disclosed it except through the presence of oil in the trap or in the inspection tank. The ship was supplied with an additional heater and with ordinary care in the operation of the ship the oil would have been discovered and the defective heater discontinued before damage was done to the tubes. The damage which actually occurred and resulted in the general average loss was caused by negligence in operation, and not by negligence in making her seaworthy, if it was caused by fuel oil in the water.

Libelant had the burden of proving due care in regard to the ship’s seaworthiness at her departure, and consequently had the burden of proving that the blistering was caused by fuel oil. Libelant, however, had previously advanced three entirely different explanations of the trouble, each of which had to be abandoned as untenable. In the statement of general average the adjuster reported that the defects which developed in the tubes were eaused by the straining of the ship in the rough weather of the voyage; in the libel it is alleged, that the trouble was caused by the splitting of the tubes and salting of the boiler water; and during much of the trial it was contended that it was lubricating oil from the circulator which got into the tubes. These three contentions are abandoned in libelant’s brief as untenable, and reliance is placed solely on the fourth and last, which was first proposed in the midst of .the trial.

Furthermore, the evidence to support libelant’s final position is far from satisfactory. In the first place, there is no log entry which supports it and it was first mentioned in testimony at the trial more than ten years after the occurrence. In the second place, there is direct conflict between libelant’s own witnesses as to whether fuel oil got into the tubes, and libelant concedes the untruthfulness in other respects of the officers who testified that it di'd.

The chief engineer testified that when they were two days out he discovered oil in the inspection tank indicating a leak in the coil of the fuel oil heater, and that he immediately discontinued that heater and substituted another. This was not mentioned in the log. He said the inspection tank was supposed to be examined every hour, that it was regularly examined every four hours, and that he himself examined it twice a day, so that even if a leak did develop in the heater, it probably did not long remain undiscovered. He testified he saw the oil in the first section of the filter box, and the fact that he did not see it in the other three sections may indicate that it had not reached them and consequently did not get into the tubes. When questioned in reference to the cause of the damage, he replied, “Well, it might have been caused by the fuel oil.” The second assistant engineer testified that he had seen a break about three inches long in a coil taken from a fuel oil heater, but he does not state when this was and he may well have referred to a break which the rough log records as having occurred on July 15th after the ship had reached the Azores; and it is likely that the chief engineer also had that incident in mind when he testified that the break occurred within two or three days after departure from New York. The firgt assistant engineer, on the other hand, testified that the trouble was caused, not by fuel oil, but by lubricating oil from the circulator.

In support of the respondents’ contention that the trouble was caused by scale in the tubes, there is the allegation in the libel that the boiler water became salted during the voyage from New York; the entry in the log on July 8th (when the first two plugs were put into the leaky tubes) “blew down the port boiler to get out any scale”; entries on July 11th that the condenser was leaking; the entry in the rough log on July 13th, the day the boat arrived at the Azores, that 28 ferrules of the main condenser were “leaking bad”; the entry in the rough log on July 14th that one tube in the condenser was plugged; and the entry on the rough log on July 21st while the boat was still at the Azores that four more tubes in the condenser were plugged. The testimony of respondents’ experts, particularly Stanley’s, as to the improbability of fuel oil causing the damage to the tubes and the probability that it was scale due to a leak of salt water in the condenser, seemed to me credible.

I am convinced that due care was not used before departure in the examination of the boiler tubes and of the* condenser. Libelant is in the unfortunate position of insisting on the gross and almost unbelievable negligence of the ship’s officers in her operation after she started, and at the same time contending that they used due care in preparation for the voyage. Without reviewing the numerous contradictions and improbabilities of their testimony, I find that they did not adequately test the condenser nor inspect the boiler tubes and that through this neglect scale was permitted to form and cause the blistering.

Libel dismissed.


author: ATWELL, District Judge.

text:
    In re BRYSON.
    No. 461.
    District Court, N. D. Texas, San Angelo Division.
    May 4, 1931.

      Critz & Woodward, of Coleman, Tex., for bankrupt.
    Nat Harris, of Waco, Tex., and Crager & Dickey, of Ballinger, Tex., opposed.
   ATWELL, District Judge.

The Farmers’ & Merchants’ State Bank filed specifications of objections to the discharge of the bankrupt and alleged: (1) That he had concealed assets from his receiver and trustee in that he had knowingly, willfully, and fraudulently omitted property from his schedules; (2) that he had made a false oath in relation to a proceeding in bankruptcy with reference to a material matter, in that he had legal title to a large amount of property which he did not schedule; (3) that he had entered into conspiracy with Ellen E. Bryson, his mother, for the purpose of placing some of his property beyond the reach of his creditors in order to hinder, delay, and defraud them, setting out a description of approximately six thousand acres of land in Concho county, Tex.

Specifications 2 and 3 revolve around an aggregate of six thousand acres of land that were deeded to the bankrupt by his father and mother contingently. He was to have a life estate provided he kept the assessments and taxes against the same paid.

The record shows that similar deeds were made to some of the other children; that the bankrupt, after the death of his father, did not comply with the covenants of the deed and allowed taxes for the years 1918 and 1920 to become overdue and suffered the state to bring foreclosure suits. Thereupon his surviving mother brought suit against him to cancel the deed and secured a judgment to that effect. There is nothing in the record which suggests that there was any collusion in this suit. A reputable attorney was employed, who testifies that nothing of that sort was disclosed to him, and the testimony of the mother and the bankrupt leave no ground for such conclusion. The mother filed a similar suit against at least one of the other children and recovered the land.

The fact that she permitted the bankrupt to make use of a part of the land upon an arrangement between themselves may be accounted for upon maternal grounds and without any conclusion of fraud. It is disclosed that she mortgaged and sold a number of the tracts. The transaction with Barker which was concluded by the bankrupt for his mother is no evidence to the contrary.

I do not find a sufficient support for either specification 2 or 3.

Specification 1 relates to a wholly different matter.

The bankrupt is more than forty years of age, and while it does not appear that he had extended school advantages, it does appear that he enjoyed public school through the sixth or seventh grade. But school learning is not essential to the spontaneous expression of a fact or a truth.

The mother and father of the bankrupt, by frugal lives, had accumulated over a million dollars worth of west Texas lands. It was community property. They made a contractual joint will and codicil vesting in the survivor all of such lands during the life of such survivor. Upon the death of the survivor the children were to share equally in what remained. This was a vested interest which passed to the bankrupt. 70a, par. 5, Bankruptcy Act, 11 USCA § 110 (a) (5); Caples v. Ward, 107 Tex. 341, 179 S. W. 856. See, also, Vellacott v. Murphy (C. C. A.) 16 F.(2d) 700. As to the rule in some other states, see In re Martin (C. C. A.) 47 F.(2d) 498; Suskin v. Rumley (C. C. A.) 37 F.(2d) 304, 307, 68 A. L. R. 768.

The father died more than ten years before the bankrupt filed his petition. The bankrupt had borrowed approximately $25,-000 from a local bank. He had no property that would justify such a credit save and except that he was an heir — a child — of the Brysons.

There is some testimony which tends to show that the mother of the bankrupt advised him to go forward and take advantage of the relief that the bankrupt law allowed and furnished him the money to pay the attorney’s fee. Each side places its own construction upon what was said. Be that as it may, the bankrupt filed his solemn schedules. Each page of the schedules was signed by him. One of the pages is headed, “Property in reversion, remainder or expectancy, including property held in trust for the debtor or subject to any power or right to dispose of or to charge.” Beneath these words on that particular page of the schedules, in brackets, is this: “[N. B. and particular description of each interest must be entered. If all or any of the debtor’s property has been conveyed by deed of assignment, or otherwise, for the benefit of creditors, the date of such deed should be stated, the name and address of the persons to whom the property was conveyed, the amount realized from the proceeds thereof, and the disposal of the same, so far as known to the debtor.]”

The schedule further calls for a particular description; the interest in the 'land; supposed value of the interests; rights and powers; legacies and bequests. To all of these inquiries on this page of his schedules the bankrupt wrote naughts, indicating none, and then signed the entire page. In re Dorgan (D. C.) 237 F. 507.

The bankrupt says that he did not read the will after his father’s death until a few days before his examination in bankruptcy upon the question of his discharge. Upon this suggestion it is argued that he did not “wilfully and knowingly,” within the severe meaning of the statute, conceal. T realize that there must be • particularity and there must be proof by a fair preponderance of credible testimony. In re Garrity (C. C. A.) 247 F. 310; In re Merritt (C. C. A.) 28 F. (2d) 679; In re Slocum (C. C. A.) 22 F.(2d) 282; In re Delmour (D. C.) 161 F. 589.

But did a grown man with a family and children, and with the potential interest in his father’s vast estate and ranches, fail to advise himself as to what his father had done for him? It was probably the occasion of personal speculation, and the subject of family discussion. See In re Leslie (D. C.) 119 F. 406.

It would be trifling with the Bankruptcy Law to allow a bankrupt to be relieved upon a plea of ignorance from responsibility for such a situation by the mere statement that he did not know anything about it. He should have disclosed in his schedule his expectancy, In re Goldman (C. C. A.) 37 F.(2d) 97, and when he did not do so, under the facts as shown here, he knowingly, willfully, and fraudulently concealed that which he should have revealed, and this concealment makes it impossible for the court to discharge him. In re Stoddart (D. C.) 114 F. 486; Farmers’ Savings Bank v. Anton (C. C. A.) 1 F.(2d) 103; In re Slocum, 22 F.(2d) 282; In re Becker (D. C.) 106 F. 54.

He also omitted to schedule certain sheep and cows.

An order will be drawn overruling specifications 2 and 3 and sustaining specification 1, and denying the bankrupt his discharge, and there will be included in the order the fixing of a fee of $100 for the special master, C. T. Dalton, Esquire, referee.


text:
    MURPHY et al. v. JOHNSON et al.
    No. 172.
    District Court, N. D. Texas, San Angelo Division.
    May 5, 1931.

      H. S. Garrett and H. R. Wilson, both of Port Worth, Tex., for the motion.
    Del W. Harrington, of El Paso, Tex., opposed.
   ATWELL, District Judge.

Eliza Murphy, joined by her husband, W. H. Murphy, residents of Texas, and, Mrs. Martha Nichols, joined by her husband, J. P. Nichols, residents of New Mexico, complain of W. S. Johnson, Volley Johnson, and Lela Johnson, of Texas, of Stanley Benekenstein, L. P. Benckenstein, and S. P. Benekenstein, of Texas, of John N. Levis, Albert Cotter Levis, and Mary L. Easthope, of Illinois, of the Texas Company, a Texas corporation, of the Texas Company, a Delaware corporation, of the Humble Oil & Refining Company, a Texas corporation, and of the Phillips Petroleum Company, an Oklahoma corporation, and seek recovery of two tracts of land, one containing 80 acres patented to Murphy, and the other containing 82% acres patented to Johnson, lying in Brown county, Tex., and for $500,000 damages. They also allege that the reasonable rental value of the land is $100,000, and that the suit is brought as well to try title as for damages. They allege that they were the owners of and were in possession of an undivided one-half interest in the lands, and that on the 1st of January, 1926, the. defendants unlawfully entered upon the said premises and ejected plaintiffs therefrom, and unlawfully withhold from them the possession thereof.

In the second count they show: That they were the children of the defendant Johnson and his deceased wife, Esther. That at the time of her death there was considerable community personal property. That the only children were the two plaintiffs. That the father made no partition of the community estate, but continued to hold it together and operate the same as his own, and used it to purchase the lands sued for. That by reason of the purchase of the lands with the said funds the plaintiffs became and still are the owners of an undivided one-half interest therein. That in 1926 oil was discovered near the land and the defendants Johnson executed oil and gas leases to the defendants 'Texas Company, and that those companies took $250,000 worth of oil and gas products therefrom. That they are unable to state the exact amount, but that the defendants have a complete showing in their books as to the quantity and value, and they pray for an accounting. That along about the same time, in January, 1926, tine defendants Johnson attempted to sell and convey to the defendant Humble Oil & Refining Company certain oil and gas leases ou the second tract, and that the Humble Company has taken from the same $250,000 worth of oil and gas, but the exact amount will be disclosed by the defendants’ books and records, and they pray for an accounting. That the defendants Benckenstein and the defendants Levis and Easthope are claiming interest in the two tracts and in the mineral rights thereof, the interest and nature and extent of which the plaintiffs are unable to allege with certainty, but that all of such interests are subordinate to the plaintiffs’ interests. ■ That the plaintiffs were the owners, as aforesaid, of an undivided half interest in the said land and of an undivided half interest in the oil and gas and mineral rights in and under the same, and that the defendants each and all, with full knowledge and notice of the right and title of the plaintiffs, wrongfully and unlawfully committed waste upon the said land and wrongfully converted to their use and benefit the oil and gas produced from the said land in the manner and quantity alleged, to plaintiffs’ damage in the sum of $500,000. That the oil and gas leases to the defendants Texas Company and Humble Company provided for the payment to the defendants Johnson and to the other defendants, in accordance with their respective claims, and' interests in said mineral rights, of one-eighth of all of the oil and gas produced from the said land as royalty, and that they have so paid sums of money to the said defendants, but the plaintiffs are unable to state the amount, save that it is at least $100,000, which the said defendants have converted, half of which is the property of the plaintiffs. That the amounts and exact dates of such payments are unknown, but that the corporate defendants, as well as the other defendants, have books and records which will show in detail the same, and they pray an accounting, and ask for their half interest in such royalty as well as their interest in the land. They then pray for judgment against the defendants for the title and possession of the half undivided interest in and to all of the said land and premises, and that they have judgment against the defendants, jointly and severally, for the value of their half' interest in all of the oil and gas produced from said land.

The defendant Texas Company ahly opposes the motion to remand on the ground that the matters alleged against it are separable controversies. It also claims that the Texas Company of Texas is no longer in existence, and that it was erroneously made a party.

We may assume that the Texas corporation was not in existence at the date of the entering of the suit and that the suit as to the two tracts clearly includes two separable, controversies, one against the Texas Company of Delaware, with the other natural persons; and pne against the Humble Company of Texas, and the same natural persons. But the division of the Texas Company from the men and women defendants who are alleged to be interested in tract No. 1 is a more difficult matter.

We must first bear in mind that under the Texas system a suit in trespass to try title, as well as for damages, and for an equity, is not only permitted, but is approved. Whatever must happen to such a suit after it reaches the national court is immaterial upon the question of removability; that it must be carved and repleaded is immaterial.

The question of proper parties and indispensable parties is quickly solved when we realize that the suit is one for the title and possession of lands. Even under the national rule, and even conceding that the plaintiffs are interested in recovering from the Texas Company, and the Texas Company only, that which the Texas Company has appropriated or wasted, there is no authority to require a plaintiff to bring a number of suits against a number of tenants, or squatters, or trespassers, who are jointly holding and occupying and possessing a plaintiff’s property, either real or personal.

Mr. Justice Brewer, in Massachusetts & S. Construction Company v. Cane Creek, 155 U. S. 285, 15 S. Ct. 91, 92, 39 L. Ed. 152, said, “Where the object of an action or suit is to recover the possession of real or personal property, the one in possession is a necessary and indispensable, and not a formal, party.” To the same effect and quoted with approval in the above cause is the case of Wilson v. Oswego Township, 151 U. S. 56, 14 S. Ct. 259, 264, 38 L. Ed. 70. These cases, together with others, were cited in Salem Company v. Manufacturers’ Company, 264 U. S. 190, 44 S. Ct. 266, 68 L. Ed. 628, 31 A. L. R. 867, in an opinion by Mr. Justice Butler.

An indispensable party is a party who has such an interest that a final decree cannot be made without either affecting that interest, or leaving the controversy in such a condition that its final determination may he wholly inconsistent with equity and good conscience. Niles-Bement v. Iron Moulders' Union, 254 U. S. 80, 41 S. Ct. 39, 65 L. Ed. 145. A final decree could not be made in either the equity branch of this suit nor in the law branch of this suit without all of the parties that are now before the court being before the court. To go forward with some of them out would be wholly inconsistent with that equity which seeks to put an end to litigation by doing complete and final justice, and, therefore, it must he concluded that they are indispensable parties within this long-established rule.

The case of Barney v. Latham, 103 U. S. 205, 26 L. Ed. 514, which is a satisfactory criterion for separable controversies, and which holds that the right of removal depends upon the case disclosed by the pleadings when the petition therefor is filed, reasoned two separate and distinct controversies in that case. One was as to the lands held by the land company, and in respect to which the land company was the only necessary party on one side, with the plaintiffs on the other, and the second cause was as to the moneys collected from the sales of lands before the land company was formed, and as to which only the natural persons named as defendants were the necessary parties on the one side and the plaintiffs on the other. One was a controversy about land and the other about money — separate suits, each distinct in itself. Hyde v. Rubel, 104 U. S. 409, 26 L. Ed. 823. The issues made by the pleadings do not create separate controversies, but only show the questions which are in dispute between the parties as to their one controversy, was said in that ease as applicable to the pleadings there, and may be said in this case as applicable to the pleadings here as between the artificial Texas companies and the natural persons upon one side, and the plaintiffs upon the other. The controversy, so far as the Texas Company is concerned, is for both lands and money.

That the corporation had a lease which, under the Texas authorities, Stephens v. Mid-Kansas Oil & Gas Co., 113 Tex. 160, 254 S. W. 290, 29 A. L. R. 566; Thomason v. Reed (Tex. Civ. App.) 263 S. W. 1069; Texas Co. v. Daugherty, 107 Tex. 234, 176 S. W. 717, L. R. A. 1917F, 989; Ehlinger v. Clark, 117 Tex. 547, 8 S.W.(2d) 666; Liberty Central Trust Company v. Gilliland Oil Co. (D. C.) 297 F. 494, creates an interest in the ground, is of no consequence here. Under the allegations of the petition the natural persons entered with the Texas Company upon lands and' property belonging to the plaintiffs. They ousted the plaintiffs therefrom. They are still in possession. During the time of such ouster and possession they have appropriated certain properties which'in place were realty, and which after separation were personalty. The union of the cause so as to seek recovery for both is, as already observed, permissible in the state court, and is therefore binding on this court for jurisdictional purposes, even though pleadings would be ordered recast if the cause were properly before this court. In the present ease the complaint is so framed that it is impossible, from a reading of it, to state positively that the whole subject-matter of the suit can be determined in a separate controversy between the plaintiffs and the Texas Company. Meyer Drug Co. v. Dollar (D. C.) 44 F.(2d) 57. In order to justify a removal on the ground of a separate controversy, there must be, by the very terms of the statute, a controversy “which can be fully determined as between” the party so seeking to remove and the plaintiffs ; by the settled construction of this section the whole subject-matter of the suit must be capable of being finally determined as between them, and complete relief afforded as to the separate cause of action, without the presence of others originally made parties to the suit. This was Mr. Justice Gray’s observation (Torrence v. Shedd, 144 U. S. 527, 12 S. Ct. 726, 36 L. Ed. 528), quoted with approval in the Wilson Case. See, also, Davidson v. Montana-Dakota Power Co. (D. C.) 22 F.(2d) 688; Boatmen’s Bank v. Fritzlen (C. C. A.) 135 F. 650; City of Winfield v. Wichita Natural Gas Co. (C. C. A.) 267 F. 47. That'the plaintiffs and the Texas Company might determine between themselves as to how much oil the Texas Company took out of their lands does not satisfy the full measure of the suit, because the plaintiffs are seeking to recover the lands from the Texas Company also. Likewise the plaintiffs have a right' to join trespassers who act together. So there are at least two controversies in this many-sided suit in which the Texas Company must keep company with the natural persons who are also defendants.

In the ease of Chesapeake & Ohio R. Co. v. Cockrell, 232 U. S. 152, 34 S. Ct. 278, 280, 58 L. Ed. 544, Mr. Justice Van Devanter said that “here the plaintiff’s petition, as is expressly conceded, not only stated a good cause of action against the resident défendants, but, tested by the laws of Kentucky, as it should be, stated a case of joint liability on the part of all of the defendants. As thus stated the ease was not removable, the joinder of the resident defendants being apparently the exercise of a lawful right.” The opinion then continued, “As they admittedly were in charge of the movement of the train, and their negligence was apparently the principal matter in dispute, the plaintiff had the same right, under the laws of Kentucky, to insist upon their presence as real defendants as upon that of, the railway company.”

As important and as unquestioned as is the right of the nonresident citizen to fight a battle in the national court when the suit presents a separable controversy, there is an overriding concomitant right of a plaintiff to so carve his action as to join together in the same such controversies as may be necessary to its solution, and, when a plaintiff does so, the pleader’s knife may not separate one of the issues in such a suit and require its settlement in a forum other than that chosen by the plaintiff. To restate it, the plaintiffs here ask for their land and also for damages and for an equitable remedy with a beneficial recovery. They are entitled to have them go forward together.

Counsel press the thought that, if a removal is doubtful it will be resolved in favor of the nonresident who removes, since the motion to remand, if granted, affords no appellate relief. Such authorities as Boatmen’s Bank v. Fritzlen (C. C. A.) 135 F. 650; In re Mississippi River Power Co. (D. C.) 241 F. 194; McLaughlin v. Western Union Telegraph Co. (D. C.) 7 F.(2d) 177; Niccum v. Northern Assurance Co. (D. C.) 17 F.(2d) 160; Commonwealth of Ky. v. Powers (C. C.) 139 F. 452; Bon v. Midwest Refining Co. (D. C.) 30 F.(2d) 410; Kline v. Murray (D. C.) 7 F.(2d) 404, support this thought. But, despite the learning displayed in the presentment of the argument against the motion to remand, it is free from doubt. Clearly the ease was not removable, and must be remanded.

Removability depended upon diversity, and, there being no separableness and a local citizen being on each side, the local court is the proper court.