author: WILLIAM E. MILLER, Circuit Judge.

text:
    UNITED STATES of America, Plaintiff-Appellee, v. William Darryl BLAKEMORE, Defendant-Appellant.
    No. 73-1288.
    United States Court of Appeals, Sixth Circuit.
    Argued Oct. 3, 1973.
    Decided Dec. 13, 1973.
    Wm. H. Allison, Jr. (Court Appointed), Louisville, Ky., on brief for defendant-appellant.
    James H. Barr, Asst. U. S. Atty., for plaintiff-appellee; George J. Long, U. S. Atty., on brief.
    Before PHILLIPS, Chief Judge, Mc-CREE and MILLER, Circuit Judges.
   WILLIAM E. MILLER, Circuit Judge.

This is an appeal from a criminal conviction in the district court. The defendant-appellant, William Darryl Blake-more, was convicted in the court below on a charge of possessing a sawed-off .12 gauge shotgun in violation of 26 U. S.C. § 5861(d). He was given a five year sentence to run concurrently with a ten year sentence he had received in state court for armed robbery.

The appellant makes a number of contentions on appeal, one of which is that the trial judge erred in allowing the prosecutor to comment in his argument to the jury that the defendant’s failure to call four prospective witnesses would give rise to an inference that their testimony would be unfavorable to the defendant. We deem it unnecessary to discuss the other assigned grounds for reversal since in our view this issue is critical.

The appellant and the prosecutor each presented a list of prospective witnesses to the trial judge for his use in conducting the voir dire. The appellant’s list contained six names. During the course of the trial, the appellant called one witness from his list to testify. The prosecutor stipulated to the testimony of another defense witness on the list. At the close of the appellant’s case, the prosecutor, out of the presence of the jury, asked for a ruling from the court as to whether the government could properly comment in closing argument on the appellant’s failure to call four of the prospective defense witnesses to testify. The court ruled, without inquiry as to why the witnesses were not called or as to what their testimony would be, and over the appellant’s objection, that such comment was proper.

Following the court’s ruling, the appellant’s attorney, making the opening argument consistent with the local practice and apparently in an attempt to lessen the impact of the prosecutor’s anticipated comments, advised the jury that he had not called the remaining defense witnesses because the government’s case was too weak to convict the appellant. Then the prosecutor, in the closing argument, made the following statement to the jury:

“Ladies and gentlemen, I’d like to point out to you, at the beginning of the trial the defendant and his counsel, Mr. Allison, indicated he had several witnesses to call, approximately four. Those witnesses were not called. The fact that they were not called would permit you to draw an inference that their testimony of those four individuals was unfavorable to the defendant and that’s the reason they were not called.”

The court gave no instructions to the jury on this point.

An adverse inference is permitted from the failure of a defendant to call witnesses if they are “peculiarly within [his] power to produce” and if their testimony would “elucidate the transaction.” Wynn v. United States, 130 U.S.App.D.C. 60, 397 F.2d 621, 625 (1967). See also United States v. Young, 150 U.S.App.D.C. 98, 463 F.2d 934 (1972); Gass v. United States, 135 U.S.App.D.C. 11, 416 F.2d 767 (1969). Most courts have carefully restricted application of the “uncalled or missing witness” rule to situations where both of these elements are present. E.g. Pennewell v. United States, 122 U.S.App.D.C. 332, 353 F.2d 870 (1965). This two part analysis should be strictly applied. It first must be determined if the uncalled witnesses are peculiarly within the control or power of one party. The appellant urges that the four uncalled defense witnesses were not within his “control” because they were equally available to the government. “Availability” of a witness to a party must take into account both practical and physical considerations. Stewart v. United States, 135 U.S.App.D.C. 274, 418 F.2d 1110, 1115 (1969). Thus whether a person is to be regarded as peculiarly within the control of one party may depend as much on his relationship to that party as on his physical availability. Milton v. United States, 71 App.D.C. 394, 110 F.2d 556 (1940). In the present case, all four of the uncalled witnesses were present in the courtroom. The court did not specifically find that there was a special relationship of any kind between the appellant and any of the four prospective defense witnesses. Nor is there in the record any indication of relationship.

In addition to the element of control, it must be found, before an adverse inference may be drawn, that the anticipated testimony of the uncalled witnesses will “elucidate the transaction.” The record in this case is barren of any inquiry by the court into the probable testimony of the four uncalled witnesses. As the court did not acquaint itself with the circumstances or conditions which would justify an adverse inference surrounding the failure of the defense to call the four witnesses, and as a specific objection was made by defense counsel to the court’s ruling, we think it was error to allow the government to advise the jury that an adverse inference could be drawn. The resulting prejudice from such comments is compounded in this ease by the circumstantial nature of the evidence against the appellant. The jury was already required to deal with inferences from the circumstantial evidence on which the government’s case was almost entirely based. We are not, therefore, prepared to say that the government’s comments on the failure of the defense to call the four witnesses was harmless or innocuous. Indeed, such comments would appear to have been clearly damaging to the defense.

When counsel for either side intends to argue to the jury for an adverse inference to be derived from the absence of witnesses, an advance ruling from the trial court should be sought and obtained, as was done here. The trial court, however, before ruling on the appropriateness of such argument, must make the pertinent inquiries and findings indicated above. Furthermore, if such argument is to be permitted, and the operative facts appear to be in doubt or in dispute, an instruction should be given to the jury defining the conditions under which the inference might properly be drawn. Gass v. United States, 135 U.S.App.D.C. 11, 416 F.2d 767, 775 (1969). By these practices the risk of vitiating the entire trial by improper argument as to the absence of witnesses can be obviated. Although, as stated, the prosecution in this case did ask for and receive a favorable advance ruling from the trial judge before making its comments to the jury, the trial judge unfortunately failed, despite appellant’s specific objection, to make the necessary inquiries or determinations to support his ruling permitting the comments to be made.

We therefore reverse appellant’s conviction and remand for a new trial.

      . Some of these witnesses were under subpoena and some appeared voluntarily. We find it unnecessary to make a distinction between them for the purposes of our analysis in this case. Apparently the trial Judge in qualifying the prospective jurors on voir dire had the defense witnesses identified merely to determine whether any juror was acquainted or had any connection with them. The jurors were in no way advised as to what the testimony of any witness on the defense list would be.

      . At chambers the following colloquy occurred : (Mr. Allison for the defendant-appellant, Mr. Partin for the government)
      MR. PARTIN: It would be the position of the United States that it would be proper in closing argument for the United States to note that there were certain witnesses subpoenaed on behalf of the defendant, these witnesses were not called to testify, which would permit the jury to draw an inference that their testimony would have been unfavorable to the defendant’s position.
      MR. ALLISON: I don’t see that there is any relevance to it. Now, is it the U. S. Government’s position that the Government feels that it has a right to comment on witnesses not only subpoenaed, but the whole prospective witness list?
      * * He * *

      BY THE COURT: Not — he says that this — that this right enures to him by the fact that you told the Court that you had these witnesses and you had me to voir dire the jury predicated that these were going to be your witnesses.
      It’s his intention here to show or infer that you expected in some manner to gain by just alerting the jury that you had all these witnesses, but he says now that they’re not entitled to make that inference but in fact they are entitled to make the inference to the contrary because they were not going to help you. You wanted to benefit from a long list, so now the other end of it says he ought to benefit because of the fact you don’t use it. And that’s the rationale, as I understand it.
      MR. PARTIN : Yes, sir.
      BY THE COURT: ... But you alerted the Court that you had a — several witnesses ostensibly available to you which would assist you in the defense of this case and provide you with — with under-girding testimony for your position, and I voir dired the jury based on that showing of yours. Then you didn’t use several of them. The United States feels that under those circumstances he lias the right, legitimately, to comment about it. *****
      The Court rules that he may make comment in his closing argument concerning these witnesses who have been indicated as potential possible prospective witnesses by the defendant but who were not called to testify.

      . In some cases both sides have been allowed to argue adverse inferences to the jury in situations where both had equal ability to produce the witness and it was debatable which party might have been expected to call a witness. A review of these decisions reveals that the testimony of the disputed witness in each case was obviously essential to the full development of the facts. E. g., United States v. Jackson, 257 F.2d 41 (3d Cir. 1958). No analogous situation exists in this case.

      . A review of the case law does not reveal a uniform definition of the types of relationships that should be considered in this analysis. In Milton v. United States, 71 App.D.C. 394, 110 F.2d 556 (1940), an employer-employee relationship was held to be sufficient to make the uncalled witness peculiarly within the control of the appellant. Although it has been stated that the employer-employee rule is generally applicable in civil cases (See Annot. 68 A.L.R.2d 1072 (1957)), Milton is a criminal case. One early case, cited by most recent decisions concerning the uncalled witness rule, is Egan v. United States, 52 App.D.C. 384, 287 F. 958 (1923), where the court stated :
      “The general rule is that no such inference may be drawn by a jury because a party fails to call as a witness one who is in a legal sense a stranger to him and is equally available to the other side. Jordan v. Austin, 161 Ala. 585, 50 So. 70; Cullum v. Colwell, 85 Conn. 459, 83 A. 695; State v. Fitzgerald, 68 Vt. 125, 34 A. 429; Wood v. Agostines, 72 Vt. 51, 47 A. 108; Briody v. The Persian Monarch (D. C.) 49 F. 669; The Oregon, 9 Cir., 133 F. 609, 629.” Hayden v. New York Railway Co., 233 N.Y. 34, 134 N.E. 826.
      As mentioned earlier, practicality is the touchstone in this situation. There may be a relationship of such description (legal, personal, practical or perhaps even social) between a prospective witness and one party that would in a pragmatic sense make his testimony unavailable to the opposing party regardless of physical availability. Obviously the potential situations are too numerous and varied to make possible a comprehensive and definitive enumeration. The trial judge, using his sound discretion, must determine the sufficiency of the relationship by ascertaining the practical effect of any connection between the prospective witness and the party against whom the inference is sought to be used as well as the materiality of the witness’ testimony; or conceivably in some situations these issues should be left to the jury under proper instructions.

      . The harmless error approach is available where the facts clearly point to the defendant’s guilt. E. g. United States v. Jones, 140 U.S.App.D.C. 1, 433 F.2d 1107 (1970) (fingerprints on a rifled money box not accessible to the public). We do not regard the evidence in this case to be of sue!) cogency or strength.


source: Caselaw Access Project

author: OAKES, Circuit Judge:

license: Public Domain

text:
    GARLOCK, INC., Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
    No. 60, Docket 72-2108.
    United States Court of Appeals, Second Circuit.
    Argued Oct. 24, 1973.
    Decided Dec. 12, 1973.
    Robert D. Whoriskey, New York City (Curtis, Mallet-Prevost, Colt & Mosle and Winthrop R. Munyan, Lester D. Bailey, and Alfred Grotell, New York City, of counsel), for appellant.
    David E. Carmack, Washington, D. C. (Scott P. Crampton, Asst. Atty. Gen., of the United States, Meyer Rothwacks, and Elmer J. Kelsey, Washington, D. C., on the brief), for appellee.
    Before SMITH, MANSFIELD and OAKES, Circuit Judges.
   OAKES, Circuit Judge:

This is an appeal from a decision of the Tax Court, 58 T.C. 423 (1972) determining deficiencies in income tax from the appellant, Garlock, Inc. (Garlock), for its fiscal year ending December 27, 1964, in the sum of $93,335.83, and that-ending December 26, 1965, in the sum of $27,061.49. These determinations were made on the basis that Garlock, S.A. (S.A.), a Panamanian corporation and originally a wholly owned subsidiary of appellant, was a “controlled foreign corporation” (CFC) within the meaning of § 957(a) of the Internal Revenue Code of 1954, as amended, and against the claim that § 951 of the Internal Revenue Code of 1954, as amended, is unconstitutional. Section 951, which was enacted in 1962, provides that a United States shareholder of a CFC must include in income its pro rata share of the corporation’s “subpart F income,” as defined in § 952, whether or not that income has been distributed to the shareholder. All of S.A.’s income was subpart F income, and there is no question that appellant is a “United States shareholder” within .§ 951(b). Thus the primary question before the court is whether S.A. was a CFC during 1964 and 1965 within § 957 (a), which provides in pertinent part as follows:

The term “controlled foreign corporation” means any foreign corporation of which more than 50 percent of the total combined voting power of all classes of stock entitled to vote is owned (within the meaning of § 958 (a) ), or is considered as owned by applying the rules of ownership of § 958 (b) , by United States shareholders on any day during the taxable year of such foreign corporation.

(Emphasis added.) While appellant-concedes that it owned 50 per cent of the “total combined voting power” of all classes of stock' entitled to vote, it contends that it did not own “more than 50 per cent” thereof so that S.A. was not a CFC. We disagree and affirm the Tax Court.

Appellant in 1964 and 1965, the tax years in question, was a publicly owned and listed manufacturer of industrial components such a3 gaskets, packings and seals. In 1958 it had organized S.A. with $50,000 in paid-in capital and for the purpose of marketing appellant’s products in Europe and Asia. Through December, 1962, S.A. had one class of common stock issued and outstanding, all of which was owned by appellant. On December 4, 1962, however, the president of appellant submitted a written report to his board of d.rectors proposing a recapitalization of appellant’s subsidiary, S.A. That report, quoted in full in the Tax Court opinion, urged that, because the Revenue Act of 1962 contains provisions taxing earnings of CFC’s after January 1, 1963, whether or not those earnings were repatriated as dividends, “To avoid this tax result it will be necessary to change the capital stock structure and voting rights in such a way that Garlock, S.A., will no longer be a ‘controlled foreign corporation’ as defined in the Revenue Act.”

The report went on to spell out the proposed revision of the S.A. capital structure: Garlock would retain a $100,-000 common stock investment (1,000 shares, $100 par) but S.A. would create a new issue of $100,000 callable, cumulative preferred stock (1,000 shares, $100 par), the preferred shares each to be entitled to one vote along with each common share. The report went on to propose that S.A. would “place this stock [the preferred] with foreign investors who understand our motives and are willing to vote their stock with us in return for an ample dividend rate — probably 8 per cent.” It pointed out that Garlock would be “protected from loss of actual control by the following provisions in the preferred stock: a. Stock callable at any time. b. Preferred stock transferrable [sic] only with consent of Garlock, S.A.” The report mentioned specifically two foreign investors who had been approached and had said that they “understood the situation,” and expressed the belief that one of them would “invest” in the new preferred stock when issued.

The report was approved by Garlock’s board of directors at the December, 1962, board meeting and the necessary authority delegated to management; the recapitalization was duly carried out by the directors and shareholders of S.A. under Panamanian law. The same special meeting of S.A. shareholders authorizing the recapitalization and the issuance of voting preference stock also amended the articles of incorporation to provide for the election of directors by a majority vote for terms of from one to five years, the term to depend upon the vote at the time of the respective election, and elected four directors to serve for a term of five years or until their successors were elected and qualified. These four included Garlock’s president, vice president, export manager, and assistant secretary.

One of the two specifically mentioned investors in appellant’s president’s report was Willard International Financial Co., Ltd. (Willard), a Bahamian corporation, which happened to have as counsel the same law firm which was tax counsel to appellant. Willard was the parent corporation of Canadian Camdex Investments, Ltd. (Camdex), a Canadian corporation; Camdex subscribed to the S.A. preferred stock. While the call-ability provision and absolute restrictions on transferability were not included as terms of the subscription agreement, it was provided that the shares were to be transferable only with the prior written consent of the board of directors of S.A., which consent was not to be “unreasonably withheld.” Additional safeguards to the subscriber included: (1) a provision for arbitration in the event of any dispute between the holders of the preferred and common shares as to any corporate matter relating to the business or affairs of S.A. or the rights, obligations or ownership of the preferred stock; (2) a provision to the effect that at all times S.A. was to retain a net current asset or working capital position of at least 200 per cent of the total par value of the preferred stock, i. e., $200,000, in the absence of which any preferred shareholder could demand a purchase at par by S.A.; and (3) a provision giving each preferred shareholder the right after one year from date of issue, on 120 days’ written notice, to sell the preferred stock to S.A. at par.

Camdex subscribed for the full $100,-000 of S.A. preferred with money from its parent, Willard, and retained 10 per cent of the 1,000 shares it thus received, selling 350 shares in February of 1963 to Nederlandse Overzee Bank, N.V., 350 shares to a nominee company for the Bank of Nova Scotia, and the remaining 200 shares to American African Finance Corp., a corporation organized under the law of French Somaliland. At the time of the issuance of the preferred stock the 8 per cent dividend rate it carried exceeded the interest rate prevailing in the foreign market. On October 1, 1963, the board of directors under Panamanian law duly amended S.A.’s bylaws to increase the number of directors from four to five; three Garlock men were retained, but the president of Willard (who was also an officer of Camdex) was added to the board as was the managing director of a Canadian investment banking concern which was the ultimate purchaser of the 350 shares bought for the Bank of Nova Scotia. No meeting of the shareholders of S.A. was held in 1963, but at an April 1, 1964, shareholders’ meeting the five directors elected at the directors’ meeting on October 1, 1963, were duly elected for one year or until their successors were elected and qualified. They were similarly re-elected on April 7, 1965. The above are the essential facts, and while the Tax Court opinion covers them in more detail, they will do for our purposes.

Appellant argues principally that § 957 (a) makes the CFC test only the simple mechanical one of ownership of more than 50 per cent of the voting stock, regardless of the ownership of the voting power. That is, appellant would read the words of the statute, “more than 50 per cent of the total combined voting power of all classes of stock entitled to vote,” with utmost literality. Appellant argues that the Tax Court majority opinion substituted an “actual control” test for the numerical statutory test and thereby ignored the plain meaning of the statute, erroneously interpreted the legislative intent and erroneously applied the doctrine of substance over form.

But, to go to the heart of the matter, the Tax Court opinion relied squarely on Treas.Reg. § 1.957-1 (b) (2). This regulation provides, inter alia, that any arrangement to shift formal voting power away from United States shareholders “will not be given effect if in reality voting power is retained.” It provides further that “The mere ownership of stock entitled to vote does not by itself mean that the shareholder owning such stock has the voting power of such stock for purposes of section 957.” In the very situation of this case, where another class of stock is outstanding, the regulation states that

the voting power ostensibly provided such other class of stock . will be disregarded [1] if the percentage of voting power ... is substantially greater than its proportionate share of the corporate earnings, [2] if the facts indicate that the shareholders of such other class of stock do not exercise their voting rights independently or fail to exercise such voting rights, and [3] if a principal purpose of the arrangement is to avoid the classification of such foreign corporation as a controlled foreign corporation under section 957.

(Emphasis added.) Here the Tax Court properly found, on the basis of the original “report” to appellant’s board of directors, that a principal purpose of the arrangement was to avoid the classification of S.A. as a CFC; appellant cannot and does not argue to the contrary. While it is suggested that the holders of the preferred could have exercised voting rights independently, in fact there is no indication that they did so, and indeed at all times a majority of the board of directors consisted of appellant’s officers. Finally, the percentage of mathematical voting power of the preferred shareholders (50 per cent) was substantially greater than its proportionate share of the corporate earnings: in 1963, 1964 and 1965 S.A.’s net profit was $94,-260.61, $173,382.60 and $50,171.20 respectively, but the preferred shareholders received dividends of only $8,000 per year — in other words, in the year 1965 a maximum of 16 per cent. The regulation, in short, applies exactly to the case at hand. Appellant’s argument that the preferred shareholders of S.A. did exercise their voting rights independently, Brief at 44, is not seriously pressed. Rather, the appellant claims that the regulation must be held invalid as an arbitrary and unsanctioned extension of the statute, one contrary to the “legislative intent.”

We believe, however, that the regulation, as applied to the facts in this case, is proper and within the direct aim and purpose as well as the plain meaning of the statute. The test in the statute is one of ownership of “voting power,” a term which, to be sure, is open to at least two different interpretations: appellant’s would relate it solely to the record ownership of the number of votes attached to all classes of stock entitled to vote; appellee’s interpretation is that ownership of voting power is to be determined after full consideration of legal and equitable aspects of ownership. The statute was enacted to help effectuate “elimination of the tax haven device,” as set forth in President Kennedy’s recommendations on tax revision, see H.R.Doc. No.140, 87th Cong., 1st Sess. 7 (1961). The Ways and Means Committee report on the Revenue Act of 1962 stated that “Your committee has also ended tax deferral for American shareholders in certain situations where the multiplicity of foreign tax systems has been taken advantage of by American-controlled businesses to syphon off sales profits from goods manufactured by related parties either in the United States or abroad.” H.R.Rep.No.1447, 87th Cong., 2d Sess. 58 (1962). See also S.Rep.No.1881, 87th Cong., 2d Sess. 2, 78-80 (1962). In floor debate on the bill Senator Kerr specifically referred to the fact that, if the bill were passed, “It will no longer be possible to flout our tax laws by simply setting up an address company, say in Panama, to sell goods in Europe which did not originate in Panama, which never in fact were in Panama, and which had nothing to do with Panama.” 108 Cong.Rec. 17752 (1962). As Secretary of the Treasury Dillon had testified, the Administration’s “primary objective in this field . . . [was] to preserve the integrity of the U.S. dollar and to help in the balance of payments. .” Hearings Before the House Committee on Ways and Means on the President’s 1961 Tax Recommendations, 87th Cong., 1st Sess. 348 (1961). In the light of this legislative history, the ap-pellee’s implementation of congressional intent by promulgation of regulations consistent with the statutory design seems to us plainly correct.

Taxpayers generally are fond of quoting Judge Learned Hand’s statement that “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” Helvering v. Gregory, 69 F.2d 809, 810 (2d Cir. 1934), aff’d, 293 U.S. 465, 55 S.Ct. 266, 79 L. Ed. 596 (1935). It is sometimes forgotten, however, that it was in that very case that Judge Hand’s opinion for this court held that a series of transactions which suited the verbal definition of corporate reorganization in the Revenue Act of 1928 nevertheless did not meet the statutory requirements because the transactions lacked a business purpose

and the words of the Act made it evident that the aim of Congress was to approve only reorganizations having such a purpose. As Judge Hand said with reference to the tax statute there involved, “the meaning of a sentence may be more than that of the separate words, as a melody is more than the notes, and no degree of particularity can ever obviate recourse, to the setting in which all appear, and which all collectively create.” Id. at 810-811. So too, here, it does not advance the cause a very great deal to say that the “purpose” of Congress or the “intent” of Congress was violated by the regulations adopted. Certainly as the statute indicates, Congress had generally in mind the elimination of the tax avoidance device known as “tax haven” corporations. The language it used is subject to the interpretation — one given to it by the Treasury — that it is “real” voting power and not the mere mechanical number of votes with which Congress was concerned. As Professor Cox reminded us some time ago, “legislative intention” is really simply a metaphor, which “does not state an all-sufficient rule; it enjoins a point of view and sets a goal to which the judge aspires even while he knows it is beyond attainment.” Cox, Judge Learned Hand and the Interpretation of Statutes, 60 Harv.L.Rev. 370, 372 (1947). It is significant here that the taxpayer sought out parties who understood both its motives and its situation. It is significant also that the terms of the arrangement worked out were such that the preferred shareholders would have no interest in disturbing the taxpayer’s continued control. The stock was made attractive by paying a rate in excess of market for the money advanced. The stake of the preferred shareholders was, moreover, quite limited, since the moment the current asset value of S.A., or its working capital was not maintained at a level of — , at least 200 per cent of the total par value of the preferred, i. e., $200,000, any preferred shareholder could demand a purchase by S.A. at par; indeed, after one year the preferred shareholders had the right on 120 days’ written notice to require S.A. to purchase the preferred at par, that is, to have his original investment returned in full.

While the arbitration provision in respect to unresolved matters we might assume to be proper under Panamanian law — without indicating whether indeed Panamanian law was applicable or, if applicable, that the provision would be valid — there is no question but that there would be little or no reason ever to resort to such an unrealistic way of running a corporation in light of the working capital and provisions for the repurchase of the preferred stock above recounted. We say “unrealistic” because the picture of corporate sales, management and other decisions in the fast-moving international trade world of the mid-1960’s being made through the process of arbitration under the rules of the International Chamber of Commerce is very nearly risible — the product, perhaps, of an imaginative tax lawyer’s drafting contemplation, surely not a working solution to real business needs. Without belaboring the point one is tempted to think of the arbitration provisions of the subscription agreement as sugar coating on the taxpayer’s Treasury Department pill.

While in a given ease the issuance of a different class of stock with equal voting rights might meet the “voting power” requirement in the statute, quite obviously Congress could not generally have conceived all the ramifications of corporate laws around the world which might cleverly be utilized to make a preferred stock which was rather readily redeemable and carried only a very small percentage of the earnings as interest the equivalent in voting power of common stock held by the United States shareholders.

We agree with the appellee that the preferred shareholders’ voting power here was “illusory.” We agree also that the regulation is valid and proper as applied to the facts presented. The argument that § 951, which requires an American shareholder to include in income his pro rata share of a CFC’s profits, is unconstitutional we think borders on the frivolous in the light of this court’s decision in Eder v. Commissioner, 138 F.2d 27, 28 (1943). That case held constitutional the foreign personal holding provisions of the income tax laws upon which subpart F was patterned, permitting taxation of United States shareholders on the undistributed net income of Colombian corporations even though Colombian law made the taxpayer unable to receive such income in the United States in excess of $1,000 per month. See also Alvord v. Commissioner, 277 F.2d 713 (4th Cir. 1960); Marsman v. Commissioner, 205 F.2d 335 (4th Cir. 1953).

Judgment affirmed.

      . Appellant argues that the Treasury originally proposed either a voting power or a value of stock test but that since Congress used only the former, there was a “conscious decision to limit the definition of a controlled foreign corporation.” Appellant’s Brief at 21. This does not mean, however, that the voting power test ultimately adopted was to be applied strictly mechanically, as appellant would have it. Nor does it follow that, because the statute requires that the requisite percentage of voting power be owned only on any one day in the taxable year, Congress was thereby rejecting effective voting control as the test in a case where that effective voting control was vested in the United States shareholder.

      . The subscription agreement, Exhibit 8, was in the form of a letter from Camdex accepted by S.A. It does not refer to any particular law to govern the interpretation or operation of the agreement. The arbitration paragraph (2) provided, inter alia, that there would be one arbitrator, that he would be chosen by the president of the International Chamber of Commerce, and that tiie arbitration would be held in New York City. Canadian, Bahamian and New York law are all possible alternatives to Panamanian law; there may be others.

      . For example, under New York law, were it held to apply, a corporation’s affairs cannot be run under an agreement depriving directors of their power to act for and in the best interests of the corporation. Ripley v. Storer, 139 N.Y.S.2d 786 (Sup.Ct.), aff’d, 286 App.Div. 844, 142 N.Y.S.2d 269 (1955), modified on other grounds, 309 N.Y. 506, 132 N.E.2d 87 (1956).

      . Appellant argues that tlie “constitutional” issues presented in Eder were in fact “apparently” waived in that case and that, therefore, Eder does not control our decision here. We disagree with appellant’s reading of Eder, and note particularly Judge Frank’s explicit reference to and paraphrase of Heiner v. Mellon, 304 U.S. 271, 281, 58 S.Ct. 926, 82 L.Ed. 1337 (1938). Whatever may be the continuing validity of the doctrine of Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 189, 64 L.Ed. 521 (1920), as applied to the facts in this case it has no validity under Mellon. See also cases cited 138 F.2d at 29 n. 2.

      . This renders inapplicable such cases as Granite Trust Co. v. United States, 238 F.2d 670 (1st Cir. 1956), relied upon by appellant, where the transfer of 20.5 per cent of the stock of a wholly owned subsidiary to a friendly party was held to give the parent less than SO per cent of “combined voting power” so as to permit it to recognize a loss on liquidation of the subsidiary under § 112(b) (6) of the Int.Rev.Code of 1939. There the voting power transferred was real.


author: TUTTLE, Circuit Judge:

text:
    ALOHA AIRLINES, INC., Plaintiff-Appellee, v. HAWAIIAN AIRLINES, INC., Defendant-Appellant.
    No. 73-1557.
    United States Court of Appeals, Ninth Circuit.
    Nov. 29, 1973.
    Rehearing Denied Jan. 29, 1974.
    See also, D.C., 58 F.R.D. 429.

      Joseph M. Alioto, San Francisco, Cal. (argued), for defendant-appellant.
    Maxwell M. Blecher, Los Angeles, Cal., for plaintiff-appellee.
    Before TUTTLE,  HUFSTEDLER and KILKENNY, Circuit Judges.

      Of the Fifth Circuit, sitting by designation pursuant to 28 U.S.O. § 294(d) (1970)'.

   TUTTLE, Circuit Judge:

This appeal from an interlocutory order denying the defendant-appellant’s motion to dismiss D.C., 349 F.Supp. 1064, is here by order of this court allowing interlocutory appeal under 28 U. S.C.A. § 1292(b).

The issue is a narrow one, but one that is important and timely for interlocutory consideration because of the decision of the Supreme Court in Hughes Tool Company v. Trans World Airlines, Inc., 409 U.S. 363, 93 S.Ct. 647, 34 L.Ed.2d 577 (1973).

The significance of the Hughes case here is plain when we note that this, like Hughes, is a case of alleged antitrust violations of section 2 of the Sherman Act, 15 U.S.C.A. § 2, which alleged violations had previously been the subject of certain proceedings before the Civil Aeronautics Board. In Hughes the Court, reversing the decision of the Court of Appeals for the Second Circuit, 332 F.2d 602 (2d Cir. 1964), held that the principal acts alleged as the grounds of an antitrust suit had all been the subject of express orders approving them, previously entered by the CAB in the proper exercise of its statutory duties, and that, therefore, all of these acts, as well as other conduct which “was no more than the kind of conduct the CAB had approved” were immunized from antitrust laws. We must, therefore, determine whether the acts of HAL which Aloha alleged as the basis of its antitrust suit and the actions of the CAB relative to them here fit the pattern of those found by the Court in Hughes to immunize them from the antitrust laws.

The following undisputed history of the case is taken largely from the decision of the trial court, preliminary to its order denying HAL’s motion to dismiss:

Aloha and defendant HAL are both air carriers incorporated in the State of Hawaii. By virtue of certificates of public convenience and necessity issued to them by the Civil Aeronautics Board, they provide nearly all air transportation of persons, property and mail among the several islands of the State of Hawaii.

In the original complaint of July 3, 1972, plaintiff alleged that defendant, beginning as early as 1968 and continuing through 1970, engaged in an attempt to monopolize this inter-island air transportation system in violation of section 2 of the Sherman Act, 15 U.S.C.A. § 2. Plaintiff listed seven acts which defendant allegedly undertook "with the predatory intent and purpose of eliminating plaintiff as a viable competitor” and “with full knowledge of its impact on plaintiff and with the intent of injuring or destroying plaintiff.” These are: (1) excessive (vis a vis the needs of the public) flight schedules; (2) excessive purchasing, ordering, leasing (or agreeing to lease) of aircraft; (3) misrepresenting its schedules to the public; (4) providing below cost servicing to interstate air carriers between stops; (5 & 6) publicizing the fact that plaintiff and defendant should merge, while twice in bad faith renouncing merger agreements into which defendant had entered; and (7) opposing before the CAB plaintiff’s request for a subsidy. As a result of these alleged practices, plaintiff claims it was damaged in the amount of $7,700,000 and prays for treble damages under section 4 of the Clayton Act, 15 U.S.C.A. § 15.

Pursuant to Fed.R.Civ.P. 12(c), defendant moved for an order dismissing plaintiff’s complaint on the grounds that (1) it fails to state a claim upon which relief can be granted and/or (2) the trial court lacked jurisdiction over the subject matter and parties. Alternatively, on the same basis, defendant moved under Fed.R.Civ.P. 56 for an order of summary judgment as to all the claims alleged in the complaint.

Defendant’s motions were based on four contentions. First, the CAB has exclusive jurisdiction over the subject matter of this action. Second, the CAB has primary jurisdiction and the Court should await further proceedings by the Board. Third, plaintiff’s complaint fails to allege the necessary elements for an attempt to monopolize which is prohibited by section 2 of the Sherman Act. Fourth, Eastern Railroad Conference v. Noerr Motor Freight, 365 U.S. 127, 81 S. Ct. 523, 5 L.Ed.2d 464 (1961) forbids any antitrust claim based on defendant’s opposition to Aloha’s subsidy request before the CAB.

The trial court found none of HAL’s arguments convincing and denied the motion to dismiss. Subsequently, the Supreme Court decided the Hughes case, and HAL renewed its motions, which were again denied. This Court granted interlocutory appeal. We affirm.

The position of HAL urged upon the trial court is essentially that all of the actions alleged in the complaint deal with problems that are within the exclusive authority of the CAB, and, therefore, the trial court was precluded from exercising its normal antitrust jurisdiction. In effect, the argument runs that since section 411 of the Federal Aviation Act, 49 U.S.C.A. § 1381, *gives to the CAB power and authority to investigate “unfair or deceptive practices or imfoAr methods of competition in air transportation,” (Emphasis added) this is an explicit commitment to the CAB of sole jurisdiction to deal with any such acts as may be charged to air carriers. They, of course, point to no provision of the statute which expressly immunizes such conduct from charges of Sherman Act violation.

To the contrary, there is a section of the Act, section 414, 49 U.S.C.A. § 1384, which does immunize certain ac~ tions authorized, approved or required by other sections of the Act from the antitrust laws.

There is nothing in the Hughes opinion that modifies the established rule enunciated in the Hughes case when decided in the Court of Appeals that:

“The proposition has so often been stated that it has become hornbook law that immunity from the operation of the antitrust laws is not lightly to be inferred from the enactment of a regulatory statute, see Georgia v. Pennsylvania R. Co., 324 U.S. 439 [65 S.Ct. 716, 89 L.Ed. 1051].” 332 F.2d 602, 606.

In fact the author of the Court’s opinion in Hughes while writing for the Court earlier, stressed the fact that only those matters “normally thought of as antitrust problems” (Emphasis added) that are “expressly entrusted to the CAB are withdrawn from consideration by the Courts.” See Pan American World Airways, Inc. v. United States, 371 U.S. 296 at 304, 305, 83 S.Ct. 476, 9 L.Ed.2d 325 (1963).

The jurisprudence, therefore, seems to have been, prior to the Court’s decision in Hughes, that in those areas of air carrier operations as to which the CAB was given autonomy to issue orders dealing with the certification, supervision of tariffs, mergers, borrowings, and interlocking interests of air carriers, the CAB had exclusive jurisdiction to the extent that the courts would not second guess what the Board in its expertise had authorized by order. For example, if the CAB granted a certificate to carrier A for service between two terminal points, a competing carrier could not bring an antitrust charge against carrier A that the mere granting of the certificate and the competition flowing from it was in violation of the antitrust laws, no matter how the new carrier was motivated or how destructive its competition. Such conduct was immunized from “antitrust” action by section 414, supra, 49 U.S.C.A. § 1384.

Moreover, the Supreme Court had held that the Board’s jurisdiction under section 411 to investigate and put an end to unfair practices alleged to have resulted from orders lawfully entered under authority of sections 408 and 409 gave the CAB exclusive jurisdiction to put a stop to such conduct. The Court said in Pan American World Airways v. United States, 371 U.S. 296, 83 S.Ct. 476, 9 L. Ed.2d 325:

“It seems to us, therefore, that the Act leaves to the Board under § 411 all questions of injunctive relief against the division of territories or the allocation of routes or against combinations between common carriers and air carriers.” (footnote omitted) (Emphasis added). 371 U.S. at 310, 83 S.Ct. at 485.

In the Hughes case, Trans World Airlines had filed an antitrust suit against Hughes Tool Company. A default judgment of $145,000,000 with 7%% interest was affirmed by the Court of Appeals for the Second Circuit. 449 F.2d 51 (1971). As stated by the Court in its opinion “The crux of TWA’s complaint was the use by Toolco of its control over TWA to control and dictate the manner and method by which TWA acquired aircraft and the necessary financing thereof.” 409 U.S. 366, 93 S.Ct. 650.

The Court then stated the issue :

“Another defense of Toolco was that those transactions were under the control and surveillance of the Civil Aeronautics Board and by virtue of the Federal Aviation Act of 1958 these transactions have immunity from the antitrust laws.
“It is our view that the Court of Appeals erroneously rejected that defense. This result, we think, is required by sections 408 and 414 of the Federal Aviation Act and by our prior decision in Pan American World Airways v. United States, 371 U.S. 296 [83 S.Ct. 476, 9 L.Ed.2d 325] (1963).”

The Court’s opinion then recited the facts that had occurred during the period 1944-1960: Tooleo had by 1944 obtained practical control of TWA by acquiring 45%o% of the outstanding stock of the airline; it had obtained subsequent authorizations, including Board approval of the acquisition of up to 80% of the TWA stock by Tooleo in 1950. During this time many purchases and financial arrangements were expressly authorized by the Board under section 408. The Court stressed the fact that each of these Board orders was subject to the requirement contained in the original order of the Board that specific orders of the Board would be required with respect to each transaction dealing with the acquisition of additional aircraft and the financing thereof. Following the placing by Tooleo of the stock in a voting trust in 1950, at the insistence of the financial institutions involved in the program, TWA, now no longer under the control of Tooleo, filed suit against the latter alleging violations of the antitrust laws, which violations the Supreme Court describes as follows:

“As analyzed by the Court of Appeals in its opinions filed in this case, the complaint rested principally on Tool-co’s conduct as controlling stockholder during the years 1955-1960 .
“As respects its defense that CAB control and surveillance gave it immunity from the antitrust suit, Tooleo relies on Pan American World Airways v. United States, 371 U.S. 296 [83 S.Ct. 476, 9 L.Ed.2d 325]. The Court of Appeals distinguished that case, saying that there the unlawful division of territories and allocation of routes were directly ‘within the ambit of powers explicitly granted the Board by the Congress,’ 332 F.2d at 608. The Court of Appeals said that the present case was different because, in its view, the continuing supervision of the Board over the Tool-co-TWA relationship was general and not related to a specific conduct that gave rise to violations of the antitrust laws.” Id. at 372-378, 93 S.Ct. at 656.

The Court then made it plain that the facts in Hughes were not to be distinguished from those in Pan American so far as their being matters that were explicitly committed to the CAB was concerned. The Court said:

“One difficulty with the conclusion of the Court of Appeals that these transactions, unlike those involved in the Pan American case, were ti’ansactions on which the Board might take action but did not do so, is that it misconstrues the record. As noted, from 1944 through 1960 every acquisition or lease of aircraft by TWA from Tooleo and each financing of TWA by Tooleo required Board approval. Each transaction -was approved by the Board and each approval was an order under section 408, for the Board regarded its transactional orders as modifications or interpretations of its antecedent control order. Each of the modification orders recited the finding of the Board that the transactions were ‘just and reasonable and in the public interest.’ ” Id. at 379, 93 S.Ct. at 657.

The Court then for the second time stated that the Federal Aviation Act does not completely displace the antitrust laws. The Court said “We by no means hold that the Federal Aviation Act completely displaces the antitrust laws. Pan American, 371 U.S. at 305 [83 S.Ct. 476].” The Court then, it seems to us made clear the thrust of its holdings as to the extent to which the antitrust laws were displaced in the circumstances of that case.

“But where, as here, the CAB authorizes control of an air carrier to be acquired by another person or corporation, and where the CAB specifically authorizes as in the public interest specific transactions between the parent and the subsidiary, the way in which that control is exercised in those precise situations is under the surveillance of CAB, not in the hands of those who can invoke the sanctions of the antitrust laws. As noted, the parent company which controls an air carrier is subject to pervasive control by the CAB. The control which CAB is authorized to grant or to deny under. § 408 involves an appraisal of the impact of that control in terms of monopoly and competition; and the ongoing supervision entrusted to the CAB by § 415 is broad enough to put all transactions between parent and subsidiary — as originally conceived or subsequently exercised — under CAB supervision.” Id. at 387-388, 93 S.Ct. at 662.

In the case before us there is no order of the CAB authorizing the conduct which has been made the basis of the antitrust complaint filed by Aloha. HAL takes the position, however, that the fact that section 411 of the Act provides that the Board may, upon its own initiative or upon complaint by any air carrier, investigate and determine whether any air carrier has been or is engaged in unfair or deceptive practices or unfair methods of competition in air transportation and if it should find the existence of such practices, it shall issue a cease and desist order amounts to an explicit commitment of exclusive authority to the Board to deal in all aspects with charges of unfair competition.

To be sure, Pan American held that the CAB had exclusive jurisdiction to halt certain alleged anticompetitive practices, but the alleged practices in that case had been the subject of specific orders of the CAB dealing with “the division of territories or the allocation of routes or . . . combinations between common carriers and air carriers” —all matters within the Board’s primary jurisdiction under section 408 or section 409. In contrast, the CAB has not issued any orders authorizing or restraining HAL’s past conduct of which Aloha complains.

The Court made it plain in Pan American that such jurisdiction was restricted to prospective relief since the Court said “ [t] he Board has no power to award damages or to bring criminal prosecutions.” This was noted at the point in which the Court was recognizing limitation on the kinds of relief that were committed to the Board. The dissenting opinion by Mr. Justice Brennan was based largely upon the distinction made by the Court between the granting of exclusive jurisdiction to the Board as to injunctive matters while leaving to the antitrust court the handling of damage claims.

We conclude, therefore, that the grant of authority to the Board by section 411 does not withdraw from the antitrust litigants the right to proceed for damages alleged to have occurred by reason of antitrust violations of the kind with which the Board has authority to deal only by issuing a cease and desist order.

HAL has a further prong to its attack on the judgment of the trial court. It says that the same issue now before the antitrust court has already been litigated and resolved partially in favor of Aloha and partially against it. This contention is based upon the fact that on September 16, 1968, Aloha filed a petition with the CAB seeking subsidies for the period beginning on that date because it apprehended a continuation of already existing alleged unfair competitive practices by Hawaiian — principally excessive uneconomical overscheduling of flights. Such a subsidy procedure is authorized under 49 U.S.C.A. § 1376(a) and (b).

The petitioner requested a subsidy-award of $1,784,784.00 for the year beginning September 16, 1968, and a like amount for each year thereafter. Thereafter Hawaiian Airlines filed a similar petition on October 7, 1968. In its presentation to the CAB Aloha alleged that HAL had engaged in uneconomic scheduling practices throughout 1968 and 1969. On May 16, 1972, the CAB awarded Aloha a subsidy of $789,-000.00 for losses which it sustained during the period September 16, 1968, through February 29, 1969. This subsidy was awarded on the finding that for the five and one-half month period Aloha’s losses were due to “ . . . the uneconomic competition of Hawaiian [Airlines].” As to the rest of the period for which Aloha’s claim for subsidies was being considered by the Board it was decided that “Quite apart from the wisdom or unwisdom of Aloha’s action from a competitive standpoint, it was clearly not ‘economical and efficient’ within the meaning of the first standard of the Act.” The Board, in its opinion stressed the fact “[t]hat the standards for the award of subsidy are somewhat more stringent than the standards governing generally the sound management of a carrier has long been clear,” citing Transatlantic Final Mail Rate case, 19 CAB 464, 520 (1954).

The contention by HAL as to this subsidy is two-fold. In the first place it claims that Aloha has received compensation for any actions that would normally be considered as relevant to an antitrust suit arising from excessive scheduling of flights when it received the subsidy award for the five and one-half month period. In the second place it contends that the provisions for subsidy awards is an adequate substitute for the failure elsewhere in the Act to provide for the awarding of damages for conduct that would normally justify the bringing of an antitrust complaint.

The treatment of this claim by the Board in this case, together with a careful reading of the Act itself, makes it plain that the awarding of a subsidy is in no sense intended to compensate one competing carrier for losses inflicted upon it by unfair trade practices committed by another. The subsidy provisions are merely a stopgap to assist a carrier, whose continued existence is recognized to be in the public interest by the Board, to keep its head above water so long as its failure to do so is not the result of its own dishonest, uneconomical or inefficient management. It is to be noted that it has nothing to do with the reimbursement of lost profits which might otherwise have been legally earned by the injured carrier which, under the antitrust laws is not held to the strict accountability of. stringent economy and competence of management required of applicants for subsidies.

In the case before the Board it not only disallowed a substantial amount of the requested subsidy representing items which may very well normally have been includable in the operating expenses of a plaintiff in an antitrust damage suit, but the Board itself drew attention to the fact that the standards for the award of subsidy are somewhat more stringent than the standards governing generally the sound management of a carrier. The Board said in the Transatlantic Final Mail Rate case, supra:

“We are of the firm conviction that every carrier which requires subsidy support must make its management decisions after careful consideration of the effect they will have on the carrier’s subsidy requirements. Factors of airline prestige or competitive advantage which may be of primary concern in management decisions in other industries must give way to the effect on required subsidy where the government is called upon to furnish a substantial portion of the total costs of operation.”

So, too, the Court of Appeals for the District of Columbia Circuit said in Trans World Airlines, Inc. v. Civil Aeronautics Board, 128 U.S.App.D.C. 126, 385 F.2d 648 at 657, cert. denied, 390 U.S. 944, 88 S.Ct. 1029, 19 L.Ed.2d 1133 (1968):

“A subsidy agency may realistically stress diligence to avoid excessive advertising and selling expense since restraints that normally operate on corporate management may be subdued in the case of a subsidized operation, where the managers may be influenced by the possibility if not the prospect that current subsidized advertising expenditures would' attract customers who would remain, in good measure, as patrons in the later subsidy free period. The danger of spiral-ling selling costs is manifest where subsidies are payable to carriers who compete with each other.”

Under Aloha’s certificate to operate in the State of Hawaii it would, in fact, be remiss if it did not apply for a subsidy to see it through a period of such losses as would threaten its viability as a carrier. Since such subsidies are measured by the amount which is necessary when added to “all other revenue of the air carrier ... to maintain air transportation to the extent and of the character and quality required for the commerce of the United States, the Postal Service, and the national defense,” it is clear that such subsidy is no measure of anticipated profits which might be recoverable in an antitrust action. Neither, therefore, can the provision of subsidies be considered as a substitute for damages that may be owed to a carrier either for the period of the subsidy itself or the presubsidy or post subsidy periods included within an antitrust action.

Little need be said of the other argument of HAL to the effect that the filing of a petition by Aloha against HAL under section 411 complaining of the same overscheduling and other conduct by HAL was either a binding recognition by Aloha that the CAB had exclusive jurisdiction over the matters there at issue or that it amounted to an election of remedies which would bar a subsequent action for damages in the antitrust court. As has already been indicated, there is no way in which the CAB can award damages for Sherman Act violations. To the extent that the Supreme Court has recognized that certain problems dealing with prospective conduct are exclusively confined to the CAB by section 411, the recognition of such jurisdiction does not exclude the right of a complaining carrier to resort to the courts in matters which do not fall within such jurisdiction. A claim for past damages is such a matter. In this case the complaint alleges damages from a conspiracy beginning in 1968 and running through 1970, after which time the parties had made an agreement with respect to scheduling that caused a dismissal of the section 411 complaint filed by Aloha and a counter-complaint filed by HAL. It is apparent that the parties concluded that they had obtained all that they could reasonably hope to get before the Board under a section 411 type hearing when they agreed by stipulation to a reduction in the overscheduling complained of by Aloha and bound themselves by stipulation to a scheduling program to be effective until July, 1973. Aloha could not, and does not now, contend that the overscheduling practices of the earlier period continued beyond the effective date of the new agreement. It does not claim damages in the antitrust suit for any conduct subsequent to December 31, 1970. We conclude, therefore, that the commencement and termination of the section 411 proceedings do not bar an antitrust action seeking damages only for conduct alleged to continue from 1968 through 1970, merely because this overscheduling produced a subsidy for part of the period for Aloha and resulted in a compromise solution for the future scheduling of the two airlines in a section 411 proceeding.

We still have for consideration the contention by HAL that even though the CAB may not have had exclusive jurisdiction over all matters dealing with the actions alleged by it as a basis for its antitrust action, it nevertheless had primary jurisdiction. As stated in appellant’s brief, “[a]t the very least, the antitrust action in the district court below must be stayed pending exercise by the CAB of its primary jurisdiction to resolve Aloha’s claims of unfair competition.”

In light of the proceedings that have already been held by the CAB in the subsidy matter and the section 411 hearings, it is difficult to understand precisely what the appellant considers should now be remanded to the Board for further consideration before the unfair competition claims are ripe for court action. It is significant that there is not now, nor has there ever been, any authority in the Board under section 411 or elsewhere to make a factual determination as to the existence vel non of all the ingredients of an antitrust suit under the Sherman Act. While there are questions of the application of the doctrine of collateral estoppel to be resolved by the trial court when it considers what effect is to be given to the determinations made by the CAB in the subsidy proceedings that there was uneconomical scheduling by HAL causing the right to a subsidy by Aloha, the elements to be proved as to the existence of Sherman Act violations would under no circumstances be a matter for the Board to decide. It is difficult, therefore, to see how the court should defer to the Board to permit the parties to seek findings of fact there which would not obviate the necessity for the antitrust court to litigate other issues.

As pointed out by the Supreme Court in Ricci v. Chicago Mercantile Exchange, 409 U.S. 289, 93 S.Ct. 573, 34 L.Ed.2d 525 (1973), the court should stay an antitrust action for prior administrative proceedings under the doctrine of primary jurisdiction if is is likely that a prior agency adjudication of the matters before it will be a material aid to the court in disposing of the antitrust suit. See 409 U.S. at 304, 305, 93 S.Ct. 573. In the case before us, it appears that the CAB has done its full task with respect to the matters that are now being urged in the antitrust action. It was requested to, and it did, grant a áubsidy for conduct occurring during a period of five and one-half months midway between the start and the conclusion of the alleged antitrust conspiracy, based upon “uneconomical scheduling.” It is to be noted that this is all that it need find in order to grant subsidy. It was not requested to, and it did not, find the other ingredients present which would be required in the bringing of an antitrust action. It also held hearings under the section 411 proceedings until the parties, by agreement, obtained by stipulation, the relief they sought for the future, which is all the relief the CAB could have given them in any event.

As pointed out by the trial court the CAB could in no event have authorized by order the conduct which has here been made the basis of the antitrust action. It goes without saying that the CAB could not, by any order entered by it, authorize overscheduling (which it found to exist) with “the predatory intent and purpose of eliminating plaintiff as a viable competitor” and “with full knowledge of its impact on plaintiff and with the intent of injuring or destroying plaintiff.”

Subsequent to oral argument counsel has called attention to the case Price v. Trans World Airlines, Inc., 481 F.2d 844 (9th Cir. 1973). In the Price case a plaintiff suing on behalf of a class of non-first class passengers brought an action under sections 1 and 2 of the Sherman Act, 15 U.S.C.A. §§ 15 and 22, alleging an unlawful combination and conspiracy based on the allegation that first class passengers were given headsets to be used in conjunction with inflight movies without charge, but that coach passengers were required to pay a charge for the use of such headsets. The plaintiff appealed to this Court a dismissal of the suit below and this Court modified the order of dismissal and directed that the case be remanded to the trial court with directions “to stay all proceedings in accordance with the views expressed” in the opinion. The views expressed by the Court were, to the effect that the charge for the use of headsets was a matter of tariff-making for the Board, a function expressly committed to the Board under section 406 of its expertise. The Court found that since, therefore, a determination by the Board that the $2.00 charge would be a proper rate to be fixed for this inflight service this would eliminate any issue to be tried in the antitrust action. Thus, this Court applied the same standard as did the Supreme Court in Ricci, supra. It felt it appropriate to defer to the expertise of the CAB fact findings that were confided explicity to the Board for its final determination, as is the case with respect to the making of tariffs.

Moreover, we find nothing inconsistent between our views here and the Price case, even though we here should consider that this was a matter as to which the Board was expressly charged to exercise its primary jurisdiction. As we have pointed out, the CAB here has already dealt to the full extent of its ability with the matters at issue and there is nothing further to be remanded to it even though the principle of primary jurisdiction were to apply. It has already determined that Aloha was injured by unecomical overscheduling by HAL. It has no authority under section 411 to make any inquiry or find any facts with respect to the existence of “predatory intent” or purpose to eliminate or destroy Aloha. Nothing else the Board could do would make unnecessary the fact finding in an antitrust suit by the district court.

The other matters raised by appellant need not now be dealt with since the interlocutory appeal was merely from the denial by the trial court of motions to dismiss the complaint or for summary judgment or judgment on the pleadings urged by the defendant. All other matters with which the trial court dealt are still at an interlocutory stage, and will be subject to further orders of that court as the record may develop. We hold merely that the trial court did not err in denying the motions.

The judgment is affirmed.

      . “The Board may, upon its own initiative or upon complaint by any air carrier, foreign air carrier, or ticket agent, if it considers that such action by it would be in the interest of the public, investigate and determine whether any air carrier, foreign air carrier, or ticket agent has been or is engaged in unfair or deceptive practices or unfair methods of competition in air transportation or the sale thereof. If the Board shall find, after notice and hearing, that such air carrier, foreign air carrier, or ticket agent is engaged in such unfair or deceptive practices or unfair methods of competition, it shall order such air carrier, foreign air carrier, or ticket agent to cease and desist from such practices or methods of competition. Pub.L. 85-726, Title IV, § 411, Aug. 23, 1958, 72 Stat.”

      . “Any person affected by any order made under sections 1378, 1379, or 1382 of this ti-tie shall be, and is hereby, relieved from the operations of the ‘antitrust laws,’ as designated in section 12 of Title 15, and of all other restraints or prohibitions made by, or imposed under, authority of law, insofar as may be necessary to enable such person to do anything authorized, approved, or required by such order. Pub.L. 85-726, Title IV, § 414, Aug. 23, 1958, 72 Stat. 770.”

      . Subparagraph (b) dealing with “rate-making elements” provides as follows:
      “(b) In fixing and determining fair and reasonable rates of compensation under this section, the Board, considering the conditions peculiar to transportation by aircraft and to the particular air carrier or class of air carriers, may fix different rates for different air carriers or classes of air carriers, and different classes of service. In determining the rate in each case, the Board shall take into consideration, among other factors, (1) the condition that such air carriers may hold and operate under certificates authorizing the carriage of mail only by providing necessary and adequate facilities and service for the transportation of mail; (2) such standards respecting the character and quality of service to be rendered by air carriers as may be prescribed by or pursuant to law; and (3) the need of each such air carrier (other than a supplemental air carrier) for compensation for the transportation of mail sufficient to insure the performance of such service, and together with all other revenue of the air carrier, to enable such air carrier under honest, economical, and efficient management, to maintain and continue the development of air transporation to the extent and of the character and quality required for the commerce of the United States, the Postal Service, and the national defense.”

      . Two items of expense claimed by the carrier but disallowed by the Board were “promotion and sales expenses” of $177,133.00 and a write-off of $44,976 for a Viscount aircraft after a ground accident.


author: COLEMAN, Circuit Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. William Morris HODGES, II, Defendant-Appellant.
    No. 73-2805
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    Dec. 27, 1973.

      William F. Walsh, Houston, Tex., William M. Ravkind, Dallas, Tex., W. B. “Bennie” House, Jr., Houston, Tex., for defendant-appellant.
    William S. Sessions, U. S. Atty., James E. Bock, Asst. U. S. Atty., San Antonio, Tex., for plaintiff-appellee.
    Before GEWIN, COLEMAN and MORGAN, Circuit Judges.

       Rule 18, 5 Cir.; See Isbell Enterprises, Inc. v. Citizens Casualty Co. of New York et al., 5 Cir., 1970, 431 F.2d 409, Part I.

   COLEMAN, Circuit Judge:

On May 25, 1972, in the Eastern Division of the United States District Court for the Western District of Texas, William Morris Hodges, II, was sentenced on his plea of guilty to possessing with intent to distribute marihuana, 21 U.S. C., § 841(a)(1). The sentence was that he be committed to the custody of the Attorney General for imprisonment for the period of five years and two years special parole time, the execution thereof suspended and defendant placed under supervised probation for five years.

Thereafter, the United States Attorney filed a motion to revoke probation, alleging that during the period of his probation, Hodges had conspired to import marihuana into the United States and to distribute the same.

An evidentiary hearing was held before District Judge Jack Roberts on June 21, 1973. The evidence indicated overwhelmingly that Hodges had, indeed, violated the terms of his probation. Thereupon, the District Court revoked probation and imposed the sentence which originally had been suspended. Hodges gave notice of appeal and, so far as the record reveals, is at large under $15,000 bond.

As already indicated, the evidence presented by the United States was

more than ample to warrant revocation.

The appellant vigorously complains of the testimony given by one Larry Gene Baugh, who had been granted immunity. This attack could go only to the credibility of Baugh, which Counsel for Hodges subjected to a searching, but ineffective, dissection. Obviously, the District Judge credited Baugh’s testimony. That ended this aspect of the case.

During the course of the revocation hearing, it was developed that, in return for immunity, Larry Gene Baugh on May 24, 1973, had given a statement to the United States Attorney which had incriminated Hodges in illegal marihuana activities. When Baugh took the stand, his counsel, invoking the Jencks Act, 18 U.S.C., § 3500, moved for the production of this statement. The Government objected on the grounds that the statement involved other individuals not yet indicted or tried and further contended that the Jencks Act refers only to “trials” and not “hearings”. The objection was sustained and the statement was not produced.

The pertinent portion of the Jencks Act reads as follows :

“In any criminal prosecution brought by the United States, no statement or report in the possession of the United States which was made by a Government witness or prospective Government witness (other than the defendant) shall be the subject of subpoena, discovery, or inspection until said witness has testified on direct examination in the trial of the case.”

The Jencks Act, in plain language, applies only to a criminal prosecution, and this Court has so held, Campbell v. Eastland, 5 Cir., 1962, 307 F.2d 478, cert. denied, 371 U.S. 955, 83 S.Ct. 502, 9 L.Ed. 2d 502.

We have also held Jencks Act discovery not to be available in a pre-trial hearing on a motion to suppress, United States v. Montos, 5 Cir., 1970, 421 F.2d 215, 220, cert. denied, 397 U.S. 1022, 90 S.Ct. 1262, 25 L.Ed.2d 532.

The Tenth Circuit has held Jencks applicable to motions to vacate sentence and the Fourth Circuit agrees. United States v. Kelly, 10 Cir., 1959, 269 F.2d 448; United States v. White, 4 Cir., 1965, 342 F.2d 379. The Ninth Circuit disagrees, Beavers v. United States, 9 Cir., 1965, 351 F.2d 507.

We are of the opinion that the Jencks Act had no application to the revocation hearing here in issue. Hodges had pleaded guilty to the offense, he had been sentenced, and there was no attack on the validity of that sentence. The question was whether or not he should be required to serve the sentence for failure to observe the terms of his probation. No question of guilt or innocence was involved. It is not to be overlooked that the Jencks Act not only speaks in terms of a criminal prosecution but proceeds to provide that if the United States elects not to comply with a Jencks order the trial court may, in its discretion, declare a mistrial. Obviously, therefore, the Act was intended to apply only to those proceedings conducted for the purpose of ascertaining the guilt or innocence of a defendant when put to trial under an appropriate indictment or information.

The Judgment of the District Court, revoking probation for Hodges, is Affirmed.


author: PER CURIAM.

text:
    SLAY WAREHOUSING COMPANY, INC., a corporation, Appellant, v. RELIANCE INSURANCE COMPANY, a corporation, Appellee.
    No. 73-1422.
    United States Court of Appeals, Eighth Circuit.
    Submitted Oct. 17, 1973.
    Decided Jan. 2, 1974.

      Edward R. Joyce, St. Louis, Mo., for appellant.
    Joseph L. Leritz, St. Louis, Mo., for appellee.
    Before LAY and BRIGHT, Circuit Judges, and EISELE, District Judge.

       G. Thomas Eisele, District Judge, Eastern District of Arkansas, sitting by designation.

   PER CURIAM.

This case is before the Court for the second time. As a result of the first appeal the Court remanded the case for a redetermination of damages. See Slay Warehousing Co. v. Reliance Insurance Co., 471 F.2d 1364 (8th Cir. 1973). Upon remand the parties entered into a stipulation as to the amount of damages due appellant. Left to the trial court under the stipulation was the question of pre judgment interest. Slay Warehousing contended that it was entitled to interest computed from July 1, 1965, the date of its demand for certain payments pursuant to the insurance contract between the parties. The trial court denied the request for interest and appellant has brought that denial before this Court for review.

Missouri law governs the issue and the relevant statute reads as follows: Creditors shall be allowed to receive interest at the rate of six per cent per annum, * * * for all moneys after they become due and payable, on written contracts.

Mo.Rev.Stat. § 408.020 (1949). The Supreme Court of Missouri consistently has held the statute requires an award of pre judgment interest where the amount due is readily ascertainable though not strictly liquidated. See Denton Construction Co. v. Missouri State Highway Commission, 454 S.W.2d 44, 59-60 (Mo.1970); Laughlin v. Boatmen’s National Bank, 354 Mo. 467, 189 S.W.2d 974, 979-980 (1945). In addition, the Missouri Court has recognized that prejudgment interest on a readily ascertainable sum is not in the nature of a penalty, but is a part of the measure of damages. Indeed, the award of prejudgment interest in a case in which Section 408.020 is applicable is not a matter of court discretion; it is compelled. See Denton Construction Co., supra, 454 S.W.2d at 60.

Thus the issue for this Court becomes whether the amount due under the insurance contract was readily ascertainable. On July 1, 1965 plaintiff made demand upon defendant for a sum representing an amount expended in salvage operations, initiated in an attempt to mitigate damages that resulted from an accident covered under the defendant’s policy. Although the sum demanded was far in excess of the sum finally stipulated as owing, the supporting statements that accompanied the July 1, 1965 demand provided a basis to ascertain the amount owed appellants; therefore, the statute applies and prejudgment interest must be paid from the date of demand. See United States Fidelity & Guaranty Co. v. Empire State Bank, 448 F.2d 360, 368-369 (8th Cir. 1971); American Insurance Co. v. First National Bank, 409 F.2d 1387, 1392 (8th Cir. 1969); Eastmount Construction Co. v. Transport Manufacturing & Equipment Co., 301 F. 2d 34, 42-43 (8th Cir. 1962). Accordingly, we reverse and remand for entry of judgment in accordance with this opinion.

Reversed and remanded.

      . “On principle there is no reason for denying interest when the action is in quantum meruit and the claim is unliquidated in the sense that the amount is to be measured and determined by the standard of the reasonable value of the services * * * If the defendant is liable * * * he is under a legal duty to liquidate the sum due and interest should be allowed from the time when he should have paid.” Laughlin v. Boatmen’s National Bank, 189 S.W.2d 974, 979 (Mo.1945).


author: PER CURIAM:

text:
    J. W. HOWARD, Plaintiff-Appellee, v. Caspar W. WEINBERGER, Secretary of Health, Education and Welfare, Defendant-Appellant.
    No. 73-3128
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    Feb. 13, 1974.
    Rehearing Denied March 18,1974.
    Ira De Ment, U. S. Atty., Kenneth E. Vines, Asst. U. S. Atty., Montgomery, Ala., Walter H. Fleischer, David M. Cohen, Dept, of Justice, Washington, D. C., for defendant-appellant.
    Clellon K. Baeder, Auburn, Ala., for plaintiff-appellee.

      Before WISDOM, AINSWORTH and CLARK, Circuit Judges.

      Rule 18, 5 Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty Company of New York et al., 5 Cir., 1970, 431 F.2d 409, Part I.

   PER CURIAM:

The Secretary of Health, Education and Welfare appeals from a decision of the district court granting a so-called default judgment against the Secretary in favor of claimant for disability insurance benefits. We reverse for the following reasons:

1. Granting a default judgment by the district court under the circumstances here was arbitrary and constituted an improvident use of judicial discretion. The complaint was filed on February 12, 1973, and served on February 14, 1973. On April 16, 1973, the day on which answer was. due, the Government filed a motion for extension of time to answer until June 15, due to an alleged inability to prepare the transcript of the administrative record. This motion was denied by the court on April 17. On April 19, plaintiff filed a motion for a default judgment. On April 20, the court considered this motion and ordered the Government to show cause, within 15 days, as to why the default judgment should not be entered. On May 3, the Government filed a motion for leave to file answer out of time, stating that the United States Attorney was then in possession of the administrative transcript. This motion was amended on May 7 so as to add the defendant’s answer and the transcript. The motion, as amended, was denied by the court on May 10. The court then entered a default judgment against defendant on June 1. The Government’s amended motion dated May 7, to add the Government’s answer and transcript, should have been granted; it antedated the default judgment of June 1, and the ends of justice would have been better served by allowing the amended motion so as to put the merits of the case before the trial court.

2. The district judge used an erroneous standard in his written opinion when he held that there was substantial evidence in the record to sustain claimant’s claim. The function of a reviewing court is to determine whether the Secretary’s decision. If there is, the decision must be upheld. See, e. g., Brown v. Finch, 5 Cir., 1970, 429 F.2d 80, 82; Herridge v. Richardson, 5 Cir., 1972, 464 F.2d 198, 199.

Reversed and remanded.

      . Section 205(g) of the Social Security Act [42 U.S.C. § 405(g)] provides in pertinent part that
      “As part of his answer the Secretary shall file a certified copy of. the transcript of the record including the evidence upon which the findings and decision complained of are based. The court shall have power to enter, upon the pleadings and transcript of the record, a judgment affirming, modifying, or reversing the decision of the Secretary, with or without remanding the cause for a rehearing. The findings of the Secretary as to any fact, if supported by substantial evidence, shall be conclusive.”