author: GIBSON, Chief Judge.

text:
    Melba OLSON, Appellant, v. REMBRANDT PRINTING CO., Appellee.
    No. 74-1407.
    United States Court of Appeals, Eighth Circuit.
    Submitted Jan. 17, 1975.

    Decided Feb. 12, 1975.

      A. Thielens Phillips, St. Louis, Mo., filed appendix and briefs for appellant.
    Micalyn S. Harris, St. Louis, Mo., filed brief for appellee.
    Before GIBSON, Chief Judge, LAY, HEANEY, BRIGHT, ROSS, STEPHENSON and WEBSTER, Circuit Judges, en banc,

      . Argument in this case was heard by a panel of this court November 15, 1974. Because of a possible conflict with our prior decision in Richard v. McDonnell Douglas Corp., 469 F.2d 1249 (8th Cir. 1972), a hearing en banc was suggested and thereafter ordered upon a majority vote of the active judges of the court. See Rule 7 of the Local Rules of this Court. Reargument was not deemed necessary, and submission to the court en banc is on the basis of the record and briefs of the parties.

   GIBSON, Chief Judge.

We are presented on this appeal with a question as to the proper statute of limitations governing the filing of a charge of employment discrimination under Title VII of the Civil Rights Act of 1964. Specifically in question is the relationship of the Missouri statutory limitation of 90 days for the filing of a charge with the Missouri Commission on Human Rights to the extended 300-day limitation period for filing charges with the Equal Employment Opportunity Commission (EEOC) in “deferral” states provided by 42 U.S.C. § 2000e— 5(e).

Plaintiff Melba Olson filed this action in the District Court December 19, 1973, followed with an amended complaint on February 5, 1974. In substance she claims Rembrandt Printing Company unlawfully discriminated against her in the terms and conditions of her employment on the basis of her sex. Jurisdiction in the District Court was predicated upon 42 U.S.C. § 1981 and 28 U.S.C. § 1343(4), § 706(f) of Title VII, and upon the Equal Pay Act of 1963, 29 U.S.C. § 206(d). Rembrandt filed a motion to dismiss for lack of jurisdiction, asserting Olson’s noneompliance with the statute of limitations for filing an EEOC claim, the inapplicability of § 1981 to claims of sex discrimination, and failure to state a claim for relief under 29 U.S.C. § 206(d). The District Court granted the motion April 12, 1974, determining that Olson’s administrative complaint was not timely filed, a condition precedent to bringing a federal action. It further concluded that the absence of any allegation of racial discrimination was fatal to her cause of action under 42 U.S.C. § 1981 and 28 U.S.C. § 1343(4). It did, however, sustain jurisdiction under the Equal Pay Act. Leave was granted plaintiff to file a second amended complaint setting forth her claim under the Equal Pay Act. Instead of filing a second amended complaint plaintiff takes this appeal.

We are faced with a threshold question as to our appellate jurisdiction under 28 U.S.C. § 1291. Rembrandt contends that the decision of the District Court is not “final” within the meaning of § 1291 because the dismissal was only of plaintiff’s complaint and not of her cause of action since leave to amend was given. However, since Olson chose not to plead further and would now be barred from doing so by the statute of limitations, thus waiving her right to file an amended complaint, we think the District Court’s order dismissing the complaint is a final and appealable order. Richard v. McDonnell Douglas Corp., 469 F.2d 1249 n. 1 (8th Cir. 1972).

Plaintiff was employed by Rembrandt as a stripper-platemaker from February 1, 1971, until October 1, 1971, when she resigned, an event she claims was a constructive discharge. She filed her charge with the EEOC April 3, 1972, more than 180 days after termination of her employment. Acting pursuant to § 2000e — 5(c) and EEOC regulation, the EEOC deferred her charge to the Missouri Commission on Human Rights on April 5, 1972.

Although the charge was not filed within 90 days of the discriminatory act as required by § 296.040, the Missouri Commission accepted the charge. On July 31, 1972, it returned the charge to the EEOC for processing due to its backlog of complaints. The EEOC, after investigation, issued its determination November 28, 1972, that Olson had been paid a disparate wage and had been subjected to disparate terms and conditions of employment on account of her sex. The EEOC determined that this ultimately led to her being constructively discharged, in part because of her sex within the meaning of Title VII.

Conciliation attempts proved fruitless. The EEOC issued Olson a right-to-sue letter December 6, 1973, and the initial complaint was filed December 19, 1973. The District Court dismissed Olson’s employment discrimination allegations as not timely filed with the EEOC, holding that the filing of a charge with the EEOC within the time limits of § 2000e-5(e) is a jurisdictional prerequisite to commencement of a court action. We agree that timely filing of an EEOC charge is a prerequisite to court action. See Moore v. Sunbeam Corp., 459 F.2d 811, 821 n. 26 (7th Cir. 1972); Choate v. Caterpillar Tractor Co., 402 F.2d 357, 359 (7th Cir. 1968); cf. Pacific Maritime Association v. Quinn, 491 F.2d 1294, 1295 (9th Cir. 1974). But see Boudreaux v. Baton Rouge Marine Contracting Co., 437 F.2d 1011, 1014-15 n. 6 (5th Cir. 1971).

The District Court reasoned that the charge was not timely filed under § 2000e — 5(e), as not filed within 180 days with the EEOC. Even though vicariously filed with the Missouri Commission on Human Rights during the 300-day period set out in § 2000e — 5(e) by referral from the EEOC to the Missouri Commission, the charge did not meet the 90-day limitation period of Mo.Rev.Stat. § 296.040. The District Court felt that there had to be a timely filing with the state to give the plaintiff the benefit of the 300-day limitation period for claims initially filed with a state or local agency, noting that § 2000e-5(e) does not provide a 300-day period for initial filing with a state or local agency. See Dubois v. Packard Bell Corp., 470 F.2d 973 (10th Cir. 1972).

We agree with the District Court and the Dubois court that it would not be in keeping with the intent of Congress to allow one individual 300 days to file a charge because of the fortuitous circumstance that the state where the claim arose is a deferral state, when another individual in a non-deferral state will have only 180 days in which to file. The purpose underlying the extended period in a deferral state is to give the state agency an initial opportunity to process the claim without jeopardizing the federal right, not to extend by 120 days the time for assertion of this federal right.

We do not think it is entirely accurate to state, however, that a timely state filing is required to obtain the benefit of the extended filing period with the EEOC. While the purpose of the extended filing provision was to ensure that the federal remedy not be lost while the states were given an opportunity to act in the employment discrimination area and not to give complainants an extra 120 days, neither do we think it was the intent of Congress to allow states to frustrate the federal remedy by imposing limitation periods shorter than the federal which a complainant must meet to receive benefit of the extended filing period.

In so saying we are not passing upon the validity of any state limitation period as applied to claims of employment discrimination filed with it, but merely noting that the state ■ limitation period cannot govern the efficacy of the federal remedy. Thus a complainant in a deferral state will have at least 180 days in which to file with the state or local agency to receive the benefit of the deferral period, limited, of course, by the requirement that the charge must be filed within 30 days after the state or local agency terminates its action.

In § 2000e — 5(e), Congress in 1972 adopted a 180-day period within which a claim must be filed with the EEOC. The one exception to this 180-day period is that a complainant with a state or local remedy is given 300 days in which to file a complaint with the EEOC provided he “has initially instituted proceedings with a State or local agency.” While Olson argues that this provision, in effect, gives her 300 days in which to initially file her complaint, a position accepted by the EEOC, such a position is not supportable by the statute or legislative history underlying it.

While we agree that “the statute leaves much to be desired in clarity and precision,” Cunningham v. Litton Industries, 413 F.2d 887, 889 (9th Cir. 1969), there is no doubt as to what the extended filing period in § 2000e — 5(e) was intended to accomplish. In the 1964 Act a complainant was given 90 days in which to file a charge of employment discrimination. However, due to the proviso in then § 2000e — 5(b) that the charge must first be made with a state or local agency if one exists, an additional 120 days was given to file a charge with the EEOC to allow a complainant to pursue his state or local remedies without prejudicing his federal right.

The extended filing period was not intended as a bonus for complainants residing in a deferral state but as a means of effecting an accommodation between the federal right and the requirement of pre-amendment § 2000e— 5(b) of initial resort to an available state or local agency.

We are here concerned with amended Title VII. However, except for an enlargement of time for filing a charge from 90 to 180 days and concomitant extension of the deferral provision to 300 days, there were no substantive changes made in § 2000e-5(d) (renumbered § 2000e — 5(e)).

Thus a charge of employment discrimination must be filed within 180 days whether or not the complainant is . in a deferral state. If in a deferral state it must be filed with the state or local agency within 180 days. The complainant is then given the extended period for filing with the EEOC to allow him to pursue his state claim without waiving possible relief under the Federal Act.

Application of the above analysis to the present case requires affirmance of the District Court’s dismissal of Olson’s complaint as not timely filed. The charge was not filed within 180 days of the alleged act of discrimination with the state agency and thus Olson is not entitled to the benefit of the 300-day extended filing period.

A prior Eighth Circuit case, Richard v. McDonnell Douglas Corp., 469 F.2d 1249 (8th Cir. 1972), presented facts substantially similar to the instant case. The defendant argued for dismissal on the ground that Richard’s complaint was not filed within 210 days of the discriminatory act. In adopting the tolling concept of Vigil v. American Telephone & Telegraph Co., 455 F.2d 1222 (10th Cir. 1972), and Anderson v. Methodist Evangelical Hospital, Inc., 464 F.2d 723 (6th Cir. 1972), the court did not discuss the failure of Richard to file her charge within the then 90-day limitation period, but held that “initial receipt of the original charges by the EEOC serves to toll the running of the statute of Limitations.” Richard, supra 469 F.2d at 1251. Richard did not directly pass on the question of whether a charge is timely filed with the EEOC when it was not filed with the state commission within the state’s limitation period or filed with the EEOC within the 180-day period and then referred by the EEOC to the state commission for processing.

Olson makes several other arguments that we feel require discussion in the context of this case. She argues that regardless of the result we reach on the applicable limitations period, her complaint was timely as it alleged continuing violations of Title VII, and that neither the 180-day nor the 300-day limitation period bars claims of “continuing” discrimination. While we have recognized that “compelling circumstances” may be sufficient to warrant a finding of “continuing” discrimination, Richard v. McDonnell Douglas Corp., 469 F.2d 1249, 1253 (8th Cir. 1972), it is clear that those compelling circumstances do not exist in this case.

The rationale underlying the allowance of actions for continuing discrimination is to provide a remedy for past actions which operate to discriminate against the complainant at the present time. Marquez v. Omaha District Sales Office, 440 F.2d 1157, 1160 (8th Cir. 1971). See Developments in the Law — Employment Discrimination and Title VII of the Civil Rights Act of 1964, 84 Harv.L.Rev. 1109, 1210-12 (1971). Termination of employment either through discharge or resignation is not a “continuing” violation. It puts at rest the employment discrimination because the individual is no longer an employee.

As we noted in Richard, to construe loosely “continuing” discrimination would undermine the theory underlying the statute of limitations. While the continuing discrimination theory may be available to present employees, cf. Griggs v. Duke Power Co., 401 U.S. 424, 429-30, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971), even though on layoff, Cox v. United States Gypsum Co., 409 F.2d 289 (7th Cir. 1969); Sciaffra v. Oxford Paper Co., 310 F.Supp. 891 (D.Me.1970), we do not think this theory has validity when asserted by a former employee. For such a former employee the date of discharge or resignation is the controlling date under the statute, and a charge of employment discrimination must be timely filed in relation to that date.

Further, Olson claims that even if her individual claim is untimely she has standing to represent a class of current and discharged employees. In view of our disposition of the case upon the aforementioned grounds, we do not decide this question. We have noted that it may be appropriate for a discharged employee to bring a class action attacking employment discrimination generally. Reed v. Arlington Hotel Co., 476 F.2d 721 (8th Cir. 1973). However, the District Court did not make a determination that this was or was not an appropriate suit for class action treatment. Plaintiff was given leave to file a second amended complaint and chose not to do so. Until the District Court determined that it had jurisdiction it was unnecessary to make a class determination.

The dismissal of the cause of action under Title VII is affirmed.

      . 42 U.S.C. § 2000e et seq. as amended by the Equal Employment Opportunity Act of 1972, Pub.L. No. 92-261, 86 Stat. 103, reprinted in U.S.Code Cong. & Admin.News, 122 (1972). Hereafter, unless otherwise indicated, references to section numbers will be to those of the 1972 Act.

      . Mo.Rev.Stat. § 296.040 (1969), V.A.M.S., provides in pertinent part:
      7. The commission shall establish rules of practice to govern, expedite, and effectuate the foregoing procedure and its own actions thereunder. Any complaint filed pursuant to this section must be so filed within ninety days after the alleged act of discrimination.

      . We use “deferral” states to indicate those states having a state or local agency with authority to grant or seek relief from unlawful employment practices as defined in 42 U.S.C. §§ 2000e-2 and 2000e-3. In such jurisdictions the EEOC must defer exercise of its jurisdiction to the state or local agency for 60 days in order to give the state or local agency an opportunity to act. 42 U.S.C. § 2000e-5(c). Missouri is a “deferral” state, 29 C.F.R. § 1601.12 (1974), its Commission on Human Rights having received provisional approval from the EEOC as being able to exercise authority in the area of unlawful employment practices.

      . 42 U.S.C. § 2000e-5(f)(3).

      . The District Court’s determination that 42 U.S.C. § 1981 is only available to remedy racial discrimination is not challenged on this appeal. We therefore intimate no view as to the correctness of this conclusion.

      . 28 U.S.C. § 1291 provides:
      The courts of appeals shall have jurisdiction of appeals from all final decisions of the district courts of the United States * * * except where a direct review may be had in the Supreme Court.

      . 29 C.F.R. § 1601.12 (1972).

      . Section 706 of Title VII, as amended by § 4(a) of the Equal Employment Opportunity Act of 1972, 42 U.S.C. § 2000e-5(e), provides:
      A charge under this section shall be filed within one hundred and eighty days after the alleged unlawful employment practice occurred * * * except that in a case of an unlawful employment practice with respect to which the person aggrieved has initially instituted proceedings with a State or local agency with authority to grant or seek relief from such practice * * * such charge shall be filed by or on behalf of the person aggrieved within three hundred days after the alleged unlawful employment practice occurred, or within thirty days after receiving notice that the State or local agency has terminated the proceedings under the State or local law, whichever is earlier, and a copy of such charge shall be filed by the Commission with the State or local agency.

      . See Case No. KC7-5-315, 1973 CCH EEOC Dec. j] 6024 (1969), wherein the Commission concludes that compliance with state statutes of limitation is not a prerequisite to its jurisdiction. The Commission interprets § 2000e-5(e) to give a person in a deferral state 300 days or 30 days after termination of state proceedings in which to file with the EEOC.
      Since the Act does not make commencement of proceedings with the Commission dependent in any way upon the substance of state or local action or inaction, the latter provision [§ 2000e-5(e)] is a limitation upon the extent of the primary jurisdiction granted by [§ 2000e-5(c)]. Both sections cannot be read as granting primary exclusive jurisdiction to the extent that the operations of a state statute of limitations could oust the Commission of jurisdiction entirely, since such a reading is refuted absolutely by the plain terms of the Act.

        Case No. KC7-5-315, supra at 4047 n. 1 (emphasis in original). Accord, Case No. KC7-3187, 1973 CCH EEOC Dec. fl 6058 (1969). Cf. 29 C.F.R. § 1601.12(b)(l)(v).

      . That this was the intention of Congress appears from the remarks of Senator Humphrey during the floor debate:
      Section 706(d) [§ 2000e-5(d)j establishes a 90-day period of limitations on the filing of a charge, with appropriate provisions to extend the period in the situation in which prior resort is had to a State agency. Moreover, section 706(d) is carefully worded to protect an individual who, in good faith, unnecessarily seeks to comply with the requirement of initial resort to State or local authority. Such a person will not lose his right to relief simply because the • 90-day period for filing with the Federal Commission has elapsed while he seeks to pursue State remedies.
      110 Cong.Rec. 12721-25 (1964), reprinted in EEOC Legislative History of Titles VII and XI of Civil Rights Act of 1964 at 3006 [hereinafter Leg.Hist.]. The same theme is echoed in the remarks of Senator Dirksen:
      The additional 120 days is to allow him to pursue his remedy by State or local proceedings.
      Leg.Hist. at 3018.

      . See summary of procedures by Representative Dent in the Congressional Record March 8, 1972, reprinted in BNA, The Equal Employment Opportunity Act of 1972 (1973) at 297, which provides in pertinent part:
      Procedures Where State Equal Employment Opportunity Law Exists
      (1) A charge must be filed within 180 days after the occurrence of an alleged unlawful employment practice.
      If a charge is initially filed with a state or local agency, such charge must be filed with the Commission within 300 days after the alleged unlawful practice has occurred or within 30 days after receipt of notice that the state or local agency has terminated its proceedings.


source: Caselaw Access Project

author: Mr. Justice CLARK. GIBSON, Chief Judge

license: Public Domain

text:
    ELOT H. RAFFETY FARMS, INC., Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
    No. 74-1392.
    United States Court of Appeals, Eighth Circuit.
    Submitted Nov. 15, 1974.
    Decided Feb. 26, 1975.
    Rehearing and Rehearing En Banc Denied March 20, 1975.

      William S. Estabrook, III, Atty., Tax Div., Dept, of Justice, Washington, D. C., for defendant-appellant.
    James E. Reeves, Caruthersville, Mo., for plaintiff-appellee.
    Before GIBSON, Chief Judge, CLARK, Associate Justice, Retired, and HEANEY, Circuit Judge.

         Associate Justice Tom C. Clark, United States Supreme Court, Retired, sitting by designation.

   Mr. Justice CLARK.

This appeal involves a claim for refund of $44,553.35 in federal income taxes paid by Elot H. Raffety Farms, Inc., a Missouri corporation, in the taxable years ending March 31 of 1964, 1967, 1968, 1969, and 1970. The United States District Court for the Eastern District of Missouri granted recovery. We reverse.

From the record, it appears that in early 1965 taxpayer, through its president and principal stockholder (Elot Raffety), agreed orally with L. D. Joslyn, a Missouri attorney, and the Rolwing-Moxley Company (the “Missouri partners”) to conduct cotton farming operations in the Republic of Mexico. They agreed that Raffety Farms would own a one-half interest in the enterprise and each of the other partners would own a one-quarter interest. Elot Raffety himself would act as the manager.

When it was discovered that Mexican law effectively prohibits farm operations by foreign nationals, attorney Joslyn employed Mexican counsel and instructed him to take whatever steps were necessary to enable them to farm there legally. Shortly thereafter, the Mexican lawyer organized El Sombrero Sociedad de Responsibilidad Limitada to conduct the farming business. Under its charter, El Sombrero was authorized to lease land to process cotton, and in general to do all lawful acts related to an agricultural business. The business capital was fixed at 3,000,000 pesos to be provided by three Mexican organizers; the number of members of the company was limited to twenty-five; and the business was to be conducted by an administrator, Luis Vargas Nunez. No conveyance or assignment of any interest in El Sombrero was ever made to the taxpayer, nor did El Sombrero in fact ever issue any stock. The three Mexicans whose names appeared in El Sombrero’s articles of organization never contributed any capital to .the business, nor did they perform any services for which they were paid by the taxpayer.

During the taxable years in question, taxpayer and the Missouri partners put up substantial sums of money towards the cost of operations of El Sombrero. Taxpayer advanced $200,000 in 1966 and an additional $22,000 in 1967; Joslyn and Rolwing-Moxley matched those amounts. In exchange, however, no notes were issued by El Sombrero; there was no provision for interest; and no interest was paid. No security was established for the money so advanced. There was no fixed maturity date for repayment; indeed, no money so advanced was even required to be repaid, and none was repaid.

In the summer of 1965, Luis Vargas Nunez, acting in his capacity as administrator for El Sombrero, executed some 30 leases for farming land on the east coast of Mexico near Tampico, totalling thousands of acres. A few months later, in April of 1966, Raffety moved to Mexico and commenced operations. In the name of El Sombrero, he opened and maintained bank accounts, contracted for goods and services, and borrowed almost half a million dollars from Cook & Company, signing the promissory notes om El Sombrero’s behalf. From the first, however, adverse fortune plagued the business.

Approximately 7,300 acres of cotton had been planted and had come up when Hurricane Inez struck in the first week of October, 1966, leaving less than 600 bales of cotton harvestable. The next year, after an initial dry season, crops were just coming up when Hurricane Beulah hit, drowning the cotton and making the acreage impossible to cultivate. Turning to safflower as a wintertime stopgap, Raffety planted that crop in November and December of 1967, but by the time it was harvested in the Spring of 1968, financial difficulties had caught up to El Sombrero, forcing the company to cease operations. Since payments on the Cook & Company loans were overdue, that creditor sued in Mexican court and obtained a judgment for $95,052.78 against El Sombrero as an organizational entity. At the trial both Raffety and Señor Nunez appeared on behalf of El Sombrero.

Taxpayer never recovered its original advances to El Sombrero. Subsequently a complaint was filed in federal district court seeking a refund on income taxes paid between 1964 and 1970, and contending, alternatively, that the losses were deductible from income as:

(1) operating losses under 26 U.S.C. § 165(a);
(2) bad debt losses under 26 U.S.C. § 166(a)(1); or
(3) ordinary business expenses under 26 U.S.C. § 162(a).

In response the Government argued that the advances were simply contributions to the capital of an “association” taxable as a corporation and must be characterized as capital losses under 26 U.S.C. § 165(f).

In a memorandum decision, D.C.Mo., 369 F.Supp. 653, filed December 27, 1973, the district court found as follows:

Although this S. de R. L. is an association taxable as a corporation under the Code, the Court is of the opinion that it must be disregarded for tax purposes as it was but a passive entity.
The El Sombrero S. de R. L. was not organized for the purpose of avoiding taxes. Rather, it was organized upon the advice of Mexican legal counsel to allow the Missouri partners to farm in Mexico without being in violation of Mexican law. However, the S. de R. L. performed no substantial business function.

The court drew attention to the taxpayer’s regular business of farming in Missouri and concluded that the Mexican cotton-growing operation was no more than an extension of its existing business. The lost advances were therefore ordinary and necessary expenses, deductible under 26 U.S.C. § 162(a). We cannot agree with the trial court.

The district court correctly classified El Sombrero as a corporate entity, i. e., an “association” under the Code. The relevant rule is that:

An unincorporated organization shall not be classified as an association unless such organization has more corporate characteristics than noncorporate characteristics. [Treas.Reg. § 301.-7701-2(a)(3).]

The key factors to be considered are continuity of life, centralization of management, liability for corporate debts limited to corporate property, and free transferability of interests. Treas.Reg. § 301.7701 — 2(a).

Under Mexican law, it is clear that El Sombrero did have more corporate characteristics than non-corporate ones. Its liability was limited to its capital; its management was centrally controlled in the hands of an administrator; its life was continuous for at least 20 years, without limitation by death or separation of any of the members; it was required to have an annual meeting and an annual accounting; the fiscal year was the calendar one; the liquidation of the corporation was to be handled by the manager or other person designated by the members; and there could be only 25 members. Although the members of El Sombrero did not formally enjoy the right of free transferability of interests, the organization must be treated as a corporate entity since it possessed the remaining characteristics. Nevertheless, as we noted above, the district court chose to disregard El Sombrero’s legal form and to focus on its “passive” nature. We think this puts the shoe on the wrong foot.

Since any income tax deduction is a matter of legislative grace, the claimant bears the burden of proving that he comes within its provisions. Interstate Transit Lines v. Commissioner, 319 U.S. 590, 593, 63 S.Ct. 1279, 87 L.Ed. 1607 (1943). In the business area, once a corporate entity has been identified, it may not be disregarded in respect to taxation if it was intended to “have some real substantial business function, or if it actually engages in business.” Jackson v. Commissioner, 233 F.2d 289, 290 (2d Cir. 1956). Here, El Sombrero did have an intended purpose and did engage in business. Indeed, it was the sine qua non of the Missouri group’s being permitted to farm in Mexico. Without it, not one acre of land could have been leased, not one dollar borrowed, not one field plowed, nor one seed planted. It was the business entity through which the entire enterprise functioned and in whose name its operations were performed. As the Supreme Court has stated in Moline Properties v. Commissioner, 319 U.S. 436, 438, 63 S.Ct. 1132, 1134, 87 L.Ed. 1499 (1943):

The doctrine of corporate entity fills a useful purpose in business life. Whether the purpose be to gain an advantage under the law of the state of incorporation or to avoid or to comply with the demands of creditors or to serve the creator’s personal or undisclosed convenience, so long as that purpose is the equivalent of business activity or is followed by the carrying on of business by the corporation, the corporation remains a separate taxable entity. [Emphasis added]

Cf. Omaha Public Power District v. O’Malley, 216 F.2d 764 (8th Cir. 1954).

In its brief, taxpayer argues that El Sombrero was “a fictional farce” that conducted no business operations itself. In particular, appellant stresses that Nunez, the so-called “administrator” of El Sombrero, had absolutely nothing to do with the operation of the business in Mexico. Taxpayer states:

Luis Vargas Nunez did not handle the business of El Sombrero. There was no accounting or administration made annually and when the business was liquidated in 1968, it was not carried out by Mr. Nunez. Nunez had nothing to do with the management of the farming business and the three Missouri partners had equal voice and control in the management of the partnership affairs.

The bald facts of the record are to the contrary.

El Sombrero obtained and signed, through its administrator Nunez, leases on the 7,300 acres of land on which it conducted farming operations in Mexico; it received and paid out the funds (including those paid in by Raffety Farms and now claimed as deductions) used in the Mexican operation; it contracted for goods and services, bought machinery, and created a line of credit; it negotiated loans; and, finally, when the end came, it suffered a suit by Cook & Company in the Mexican courts in which administrator Nunez appeared for the company. While it is true that Elot Raffety personally supervised the actual farming, the entire operation was conducted in El Sombrero’s name.

The record disproves that El Sombrero was, as taxpayer insists, “a sham and a dummy organization” created for the purpose of evading Mexican law. On the contrary, it emerges as a viable, commercially active company operating on a million-dollar scale in Mexico which afforded to its true owners complete protection from personal liability. Taxpayer may not escape liability in a foreign nation’s courts under one theory and then seek an advantage in this nation’s courts by contending its opposite. That El Sombrero may not have been operated in complete accord with Mexican law or its charter is, at this late date, an irrelevancy.

Alternatively, taxpayer urges that El Sombrero be viewed as, at most, an agent or nominee for the Missouri partners and that the losses are therefore attributable to the latter. We must reject this contention, for nothing in the record suggests that El Sombrero acted in the name of Raffety Farms, Joslyn, or Rolwing-Moxley in the conduct of its affairs with third parties. See Harrison Property Management Co., Inc. v. United States, 475 F.2d 623, 201 Ct.Cl. 77 (1973).

Since the entity status of El Sombrero must be recognized, appellant’s three claimed bases for deductions must accordingly be rejected. Raffety Farms paid the $222,000 at issue into the Mexican venture as a start-up expense and received a pure equity interest in El Sombrero proportionate to that contribution; no intent to repay or other indicia of a loan existed. Unquestionably, this capital investment may not be characterized as a “debt” under the bad debt loss provision of 26 U.S.C. § 166(a)(1). Further, we cannot accept the claim that El Sombrero was a mere extension of taxpayer’s on-going farming activities in Missouri; it had no relationship with Raffety Farms’ other agricultural operations. El Sombrero was a separate and distinct enterprise operating in a foreign country and in conjunction with other parties. Its expenditures for labor, equipment, and leases cannot be characterized as taxpayer’s ordinary and necessary business expenses under 26 U.S.C. § 162(a). Hagan v. United States, 221 F.Supp. 248 (W.D.Ark.1963), and Lutz v. Commissioner, 282 F.2d 614 (5th Cir. 1960), on which appellant relies, are therefore inapposite. The losses sustained by the Mexican operation are El Sombrero’s alone, and, since taxpayer’s interest in that company was a capital asset, may be deducted under 26 U.S.C. § 165 only to the extent allowed in §§ 1211-1212. See 26 U.S.C. § 165(f).

The judgment is reversed.

GIBSON, Chief Judge

(dissenting).

I respectfully dissent. While this case presents a close question, to me the Mexican entity, El Sombrero, was not a corporation and should not be treated as a corporation for tax purposes because it served no business function other than to enable the taxpayer to operate in Mexico. The taxpayer and its associates sought to carry on a profit-making venture as a partnership and were advised by Mexican counsel that formal creation of a “limited liability company” would be legally required for conducting business in Mexico. Even after counsel created the entity, however, it was operated as a partnership in every respect. The sole purpose of the Mexican entity was to provide an assumed name to enable the Missouri partnership to operate lawfully in Mexico. Tax avoidance played no part in the taxpayer’s decision to create it.

The majority’s decision in this case is another application of an anomalous principle under which the taxpayer always loses. If the substance of the transaction favors the Government, we look to substance (which we should); if it favors the taxpayer, we ignore it and look to form. It is improper in this case to impute corporate characteristics where there were none so as to deny the claimed operating loss of what was obviously a partnership venture. Whenever taxation is allowed to depend upon form rather than substance, “the door is opened wide to distortions of the tax laws.” Landa v. Commissioner, 93 U.S. App.D.C. 265, 269, 211 F.2d 46, 50 (1954). Here, as elsewhere, the decision should turn on substance regardless of the outcome. Estate of Smith v. Commissioner, 313 F.2d 724, 730 (8th Cir. 1963).

I believe the entity as it was actually formulated and used by the partners did not possess sufficient corporate characteristics, even viewed under the Treasury Regulations cited by the majority, to warrant limiting the taxpayer to capital loss deductions by labeling this nebulous entity a corporation. It was in reality no more than a sham. None of the Missouri partners subscribed to the Articles which created the entity; they couldn’t even read the Spanish language of the Articles, and were not informed of their specific contents until the IRS provided them a translation. They were issued no stock, notes, assignments, or other conveyance evidencing their interests in the entity. Nor did they receive any assurance of dividends, interest, security or a fixed dafe for repayment of their advancements of operating funds.

Moreover, none of the Mexican subscribers (fictional owners) made any actual investment in the partnership or Mexican entity and only one participated in its affairs. Indeed, they were practically unknown to the Missouri partners and no money was invested by the partners in their behalf. The figurehead administrator’s activities appear to have been limited to signing documents with which he was unfamiliar or uninterested. He did not conduct the 1968 liquidation of the entity as the Articles purported to require. Nor were any required annual meetings conducted or accountings rendered. In sum, the entity was never capitalized or managed according to the provisions of its organizational Articles.

Three of the four characteristics relevant under Treas.Reg. § 301.7701 — 2 (1960), as amended by T.D. 6797 (1965), if present at all in the Mexican entity, existed in form only. First, while the entity purported to enjoy continuity of life by withstanding death or separation of any of the fictional members, the portion of the Articles treating the subject failed to provide for other contingencies such as bankruptcy or insanity of a member which might otherwise cause dissolution of a partnership. And, of course, the investing Missouri partners themselves were in no way affected by the entity’s Articles. They had no documented legal interest nor association with it and their partnership did not enjoy continuity of life. See Uniform Partnership Law, Mo.Rev.Stat. § 358.310 (1969, V.A.M.S.).

Second, while the general partners formally appeared to enjoy limited liability shielded by the Mexican entity, they all in fact did not. Because of the entity’s obvious fictional nature, the partners were apparently unable to borrow sufficient capital under its name alone without adding Mr. Raffety’s personal guaranty. As a result, Raffety himself was ultimately held personally liable .for some of the venture’s debts in litigation in a Mexican court.

The third characteristic, centralized management, was not present because the fictional administrator merely performed ministerial acts as an agent under the direction of his principal, the Missouri partnership. Treas.Reg. § 301.-7701-2(c)(3) and (4). Although the Articles purported to empower the administrator to transact any of the entity’s business, in fact he had no authority to make business decisions on its behalf independent of the Missouri partners. The partners agreed from the start .that they alone would share management and control of the venture equally with the understanding that Mr. Raffety would conduct the business and farming operations personally in Mexico, using the entity’s name rather than his own. And while the entity itself extended no actual authority to Raffety to act on its behalf, the Missouri partnership surely did. As an example, Raffety personally drew all checks in the entity’s name to pay the venture’s farming expenses.

The final corporate characteristic, free transferability of interests, was present neither in form nor in substance. No shares of stock or any other evidence of equity ownership was ever issued to the Missouri partners or their nominees. The Government conceded that the interests of even the fictional owners of the Mexican entity were not freely transferable because the Articles contained restrictions. And if in reality the Missouri partners’ interests in the entity were none other than their partnership interests, transfer of the interests was restricted under Missouri law. See Uniform Partnership Law, Mo.Rev.Stat. § 358.270 (1969). It thus appears that the association of El Sombrero had more noncorporate characteristics than corporate characteristics and should under Treas.Reg. § 301.7701 — 2 be characterized as a noncorporate entity.

It further appears that even if the concept of a taxable association is stretched to include the Mexican entity in this case, the District Court correctly concluded that the entity should be disregarded for tax purposes because it was altogether passive. While the practice of disregarding a corporate entity is not to be lightly applied in any context, this case presents the proper exceptional situation that warrants it.

The entity here performed no substantial business function and actually engaged in no business. Its purpose, as the District Court found, was solely to allow the Missouri partners to farm in Mexico without violating Mexican law. Such a purpose cannot be considered the equivalent of commercial or “business activity” as that term is used in Moline Properties, Inc. v. Commissioner, 319 U.S. 436, 438-39, 63 S.Ct. 1132, 87 L.Ed. 1499 (1943), because it is inert. Moreover, following its organization the entity did not itself' carry on any business. Raffety’s personal Mexican farming activities on behalf of the partnership, with no more connection to the entity than the use of its name, cannot be characterized as conduct of business by the entity. The test of conducting business under Jackson v. Commissioner, 233 F.2d 289, 290-91 (2d Cir. 1956), is the actual business functioning of the entity itself, if any, not the taxpayer’s aim to be accomplished by using it. The entity here should thus be disregarded for tax purposes just as it was for all others, and the partners’ operating loss recognized as their own, not merely as that of the Mexican entity. See Paymer v. Commissioner, 150 F.2d 334, 337 (2d Cir. 1945).

I would affirm the judgment of the District Court for the reasons stated by Judge Wangelin and would further hold that the Mexican entity was not an association taxable as a corporation.

      . Having guaranteed payment of the notes for El Sombrero, Raffety was made a party to the litigation, and his private airplane was temporarily seized when Cook & Company levied on the company’s assets. It was apparently returned subsequently.

      . The documents in this case make unmistakably clear that the parties perceived El Sombrero as a separate entity. For example, on May 17, 1967, attorney Joslyn (one of the Missouri partners) wrote to one John Baldridge of Tampico, Mexico, regarding acquisition of land by the company, saying:
      Sombrero has continued to prepare this farmland since its first oral agreement was reached in Tampico and has expended much money, time and effort thereon.
      Moreover, the contract for establishing credit with Cook & Company, signed by Luis Vargas Nunez, as administrator of El Sombrero, and Elot Raffety, as guarantor, specifically designated El Sombrero as “The Grower”, not Mr. Raffety. The tenth paragraph of this document obligated the grower “to continue delivering to the company [Cook] . . . the crops and fruits”. And the eleventh paragraph obligated the grower “to sell to the company . . . the entire cotton crop . Furthermore, by letter to Cook & Company on September 17, 1968, Elot Raffety himself, representing El Sombrero, requested “a full accounting of the relationship between El Sombrero and your Company” and notes that Cook has in its possession “a good bit of our machinery and undoubtedly have sold some of it but we have had no word as to either the detailed account or credits on it . ” Significantly, the letter closes with the observation that “Mr. Joslyn wrote you asking for an accounting and he says he has heard nothing.” The letter is signed “Sombrero S. de R. L.” on the typewriter and below it appears the name of “Elot Raffety”.

      . So too, it is unavailing to appellant that the Missouri partners believed that they were only forming a limited partnership. The status of a taxpayer is determined not by what the taxpayer thought, but by the terms of the instrument which created it. Wholesalers Adjustment Co. v. Commissioner, 88 F.2d 156 (8th Cir. 1937).

      . The “Missouri partnership” was formed in 1965 by oral agreement between three partners:
      (1) the taxpayer, Elot H. Raffety Farms, Inc., a Missouri corporation engaged in farming in Missouri and Illinois, acting through its president and principal stockholder, Mr. Raffety Qh interest);
      (2) Mr. L. D. Joslyn, a Missouri attorney Qh interest); and
      (3) Rolwing-Moxley Company, a corporation which Joslyn partly owned, engaged in producing cotton and other farm products (’A interest).
      The partnership was formed solely for the purpose of conducting farming operations in Mexico. The three partners agreed to share the profits and losses of their Mexican venture in proportion to their interests Qh, 'A, and ‘A respectively). They considered themselves to be general partners having equal shares in management and control but delegated authority to Mr. Raffety to administer the Mexican operations personally.
      Of the three partners, only the taxpayer corporation, Elot H. Raffety Farms, Inc., is a party to this litigation.


author: WILLIAM E. DOYLE, Circuit Judge.

text:
    Yvonne A. ADAMS et al., Plaintiffs-Appellants, v. CAMPBELL COUNTY SCHOOL DISTRICT, CAMPBELL COUNTY, WYOMING, et al., Defendants-Appellees.
    No. 74-1478.
    United States Court of Appeals, Tenth Circuit.
    Argued Jan. 23, 1975.
    Decided Feb. 28, 1975.

      Jerry D. Anker, of Lichtman, Abeles, Anker & Nagle, P. C., Washington, D. C. (Lawrence J. Sherman, of Lichtman, Abeles, Anker & Nagle, P. C., Washington, D. C., and Ronald W. Hofer, of Leimbeck, Aspinwall & Hofer, Casper, Wyo., on the brief), for plaintiffs-appellants.
    R. R. Bostwick of Murane, Bostwick, McDaniel, Scott, Greenlee & Owens, Casper, Wyo. (Wade Brorby, of Morgan & Brorby, Gillette, Wyo., on the brief), for defendants-appellees.
    Before BREITENSTEIN, BARRETT and DOYLE, Circuit Judges.
   WILLIAM E. DOYLE, Circuit Judge.

This is a civil rights action which arises under 42 U.S.C. § 1983 and 28 U.S.C. §§ 1331 and 1343. It results from the non-renewal by the Campbell County, Wyoming School Board of the contracts of appellants as teachers in the high school at Gillette, Wyoming. The Complaint alleges that there existed a connection between the non-renewal of appellants’ employment and activities of plaintiffs which were constitutionally protected. Appellees denied this. They asserted that there were other reasons. The district court, after an extensive and full trial, made specific findings that the activities which the plaintiffs had relied on were not the causes of the School Board’s action in not renewing the contracts. In addition, the court made positive findings as to the causes and determined that these pertained to the manner of carrying out course work. The trial court’s findings are supported by the evidence, are not clearly erroneous and hence we affirm.

The activities which are in issue in this case took place during the academic year 1969-70.

The three appellants were first year contract, non-tenured teachers. Only appellant Brooks who had taught for one year at Northeastern Shelby County Consolidated School District in Indiana had had previous teaching experience. Appellant Adams had in the spring of 1969 graduated from the University of Wyoming. Appellant Wiseman had graduated the previous spring from Colorado State College at Greeley, Colorado.

I.

EVIDENCE AS TO THE CAUSES FOR NOT RENEWING THE CONTRACTS

The decisions not to renew the contracts took place after the principal of Gillette High School, Mr. MacDonald, recommended that the appellants not be rehired for the school year 1970-71. It was the School Board’s final decision as to whether they should be rehired and that body approved the recommendation of Mr. MacDonald.

Reasons given by MacDonald for not rehiring:

The evidence of actions of plaintiffs which allegedly were constitutionally protected was presented by the plaintiffs. At trial they called the principal, Mr. MacDonald, as an adverse witness and questioned him as to the reasons for his recommendation of non-renewal. His testimony as to plaintiff Adams was that he could obtain better teachers; that her seating arrangements in class were too informal and that there was a lack of discipline in the classroom; that she engaged on one occasion in a loud argument with another teacher in an area where students could overhear what was being said; that she, together with Mr. Wiseman and a Miss Armel who, although terminated did not join the action, tended to have a clique and to cause disharmony among the remaining members of the faculty. He also said that she discussed current events in class and did not devote full attention to English, the course she was assigned to teach.

As to Wiseman, according to MacDonald, he played records including “Alice’s Restaurant” and “Hair” in class and in doing so disturbed other classes. He did not cover the material; he also was part of the exclusive clique; and the students complained that they were not learning anything.

As to Brooks, Mr. MacDonald said that he was often late to work on Mondays; that he had trouble getting along with the staff; that on one occasion he had an altercation with one of the coaches; and that in another instance he was guilty of insubordination toward MacDonald in that he refused to allow his students to go to a general assembly until after an embarrassing confrontation with MacDonald.

There is no controversy as to the existence of differences between MacDonald, Wiseman and Adams as to teaching methods and course content, nor is there any dispute concerning the general assembly incident between Brooks and MacDonald. Appellants’ positions are that their many and varied activities, all of which were forms of expression (First Amendment), were the actual reasons and that appellees’ assigned reasons were in effect pretexts.

Appellants’ versions as to the terminations:

An underground newspaper was published by some of the students, and Adams and Wiseman say that they were blamed for having published it. MacDonald testified, however, that he accepted Adams’ and Wiseman’s statements that they had nothing to do with this paper and that this was not a causal factor.

Adams and Wiseman had a book club for students which was conducted once every two weeks from 7:00 to 9:00 p. m. at one of their homes. They testified that MacDonald questioned them about the club and expressed his opinion that it was unnecessary to have it in the evening and away from the school. MacDonald agreed that he had asked about it and that he could not understand why the club was conducted outside the school. The appellants, however, said that MacDonald asked them if they were pushing Communist propaganda, dabbling in drugs and serving alcohol. They also said that MacDonald mentioned the book club as a reason for their non-renewal. It is to be noted, however, that the book club continued throughout the academic year 1969-70.

Brooks wore an arm band for a short time in the fall as a symbol of mourning for the soldiers killed in Viet Nam. It does not appear that any big issue existed on this account. MacDonald did speak to Brooks about it, and it seems doubtful, since it was not a continuing incident, that it could have played any part in the failure to renew.

MacDonald admitted that he did not favor Adams and Wiseman discussing issues such as the war and flag burning in their English classes. Both Adams and Wiseman admitted that they spent a portion of their class time discussing political matters. Wiseman said that he had discussions on the war, long hair, hippies and drugs.

There was a dispute as to how frequently the mentioned records were played. Wiseman, according to MacDonald, played them so frequently that it disturbed other teachers. Wiseman denied this.

The incident between Brooks and MacDonald regarding the assembly occurred around noon on February 18, 1970. Brooks had full notice that an assembly was to be held. He had scheduled tests for the whole day and he tried to get in touch with MacDonald to persuade him that the pep rally should be held at another time. He said that when he was unable to reach MacDonald he merely decided to keep the class in the room. When the class did not show up at the assembly MacDonald came to the room and ordered Brooks to send the children to the pep rally (or assembly) and Brooks, in the presence of the children, refused to do so. The resulting confrontation in the presence of the students proved embarrassing to MacDonald and led to a complaint being made to the superintendent plus a meeting between Brooks, MacDonald and the assistant superintendent.

It was on March 10 that the Board held its personnel meeting and gave its approval for the termination or non-renewal of the employment of Brooks, Adams and Wiseman.

II.

THE TRIAL COURT’S FINDINGS

The trial court found in favor of the defendants. From the evidence, the court determined that the non-renewal of appellant Adams was not occasioned by the publication of the underground newspaper; by alleged membership in Students for a Democratic Society; by Adams’ possible threat to authority; or by suspicions that she was communistically inspired and a radical agitator, that she engaged in subversive tactics, that she was too liberal and too advanced, and that she might jeopardize a bond issue in the school district. The court’s findings as to cause were: she failed to maintain ordinary seating arrangements for the students; she failed to maintain the student discipline as requested by her principal; she failed to devote sufficient time to grammar as requested by the principal. The court said that the allegations of the complaint that her contract was not renewed because of conduct which was protected by the Constitution of the United States were not established by a preponderance of the evidence.

As to Wiseman, the court found that the non-renewal was because of poor teaching practices and because there were better English teachers available. The court went on to find that non-renewal was not, as he alleged, a result of his hair being too long; telling students in class that long hair was okay; the playing of the two records mentioned above; saying that the flag was merely a symbol and not the country; publication of an underground newspaper; the discussions regarding rights of free speech in the class and in the community; his being a subversive threat to the bond issue; or his refusal to teach that the war in Viet Nam was a good war. As to Wiseman, the court also found that the non-renewal was not on account of conduct protected by the Constitution of the United States.

Similarly, as to Brooks, the court found that none of the grounds which he had alleged as reasons for his dismissal or non-renewal had been proven to be such by a preponderance of the evidence, including the fact that his hair was too long; that he was sympathetic with young revolutionaries; that he was a subversive threat; that he participated in a peace march; that he was too liberal and a threat to the bond issue; that he was discriminated against regarding press releases. The court found instead that he had not been renewed because of insubordination.

III.

THE ISSUE ON APPEAL

This case differs from Rampey v. Allen, 501 F.2d 1090 (10th Cir. 1974), cert. denied, - U.S. -, 95 S.Ct. 827, 42 L.Ed.2d 838 (1975), Smith v. Losee, 485 F.2d 334 (10th Cir. 1973), cert. denied, 417 U.S. 908, 94 S.Ct. 2604, 41 L.Ed.2d 212 (1974) and also the Supreme Court decisions in Perry v. Sindermann, 408 U.S. 593, 597, 92 S.Ct. 2694, 33 L.Ed.2d 570 (1972) and Pickering v. Board of Education, 391 U.S. 563, 88 S.Ct. 1731, 20 L.Ed.2d 811 (1968) in that we do not reach the issue considered in those cases, namely, whether the conduct in question which resulted in termination constituted a violation of the teachers’ First Amendment rights. The trial court’s ruling that these alleged First Amendment incidents did not enter into the decisions reduces this appeal to a review of the findings and conclusions on this subject.

The fact that the Board adopted the recommendations of the superintendent and of Mr. MacDonald, the principal, rather than making its own findings does not undermine the validity of the proceedings. It does require, however, that MacDonald’s reasons be considered as well as the Board’s. See Rampey v. Allen, supra. In Rampey, as in the case at bar, the Board itself did not give any reasons for non-renewal. In Smith v. Losee, supra, the procedure was the same. In Cook County College Teachers Union Local 1600 v. Byrd, 456 F.2d 882 (7th Cir.), cert. denied, 409 U.S. 848, 93 S.Ct. 56, 34 L.Ed.2d 90 (1972), it was said that the reasons given by the department chairman, the dean of faculty, the president and executive vice-president were the important reasons even though the Board of Governors had to make the final decision. Contrary to plaintiffs’ assertions, the trial court did consider MacDonald’s reasons in making its findings.

The key to decision in this case is what the actual reasons were, whether the trial court made findings with reference to ' those reasons and whether the court’s findings are fully supported. In this case the reasons were adequately shown and were adopted by the court in accordance with the evidence. '

We are aware that even non-tenured teachers cannot be dismissed for exercising constitutional rights. This principle is well recognized. See Perry v. Sindermann, supra; Pickering v. Board of Education, supra; Rampey vAllen, supra; James v. Board of Education, 461 F.2d 566 (2d Cir.), cert. denied, 409 U.S. 1042, 93 S.Ct. 529, 34 L.Ed.2d 491 (1972); Parducci v. Rutland, 316 F.Supp. 352 (M.D.Ala.1970). But that is not the problem here.

IV.

INSUFFICIENCY OF THE EVIDENCE TO ESTABLISH CONSTITUTION- i AL VIOLATIONS AS THE CAUSE ; OF NON-RENEWAL

Since the plaintiffs-appellants’ position is that it was their exercise of First Amendment rights which resulted in their separation, they have the burden of proof as to this. Smith v. Losee, supra; Fluker v. Alabama State Bd. of Educ., 441 F.2d 201 (5th Cir. 1971). Since there was substantial evidence to support the trial court’s findings that plaintiffs had failed to meet their burden, a reversal would require a determination that the findings were clearly erroneous, that “on the entire evidence [the court] is left with the definite and firm conviction that a mistake has been committed.” United States v. United States Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948). No such showing has been made.

We do not say that there is a complete dearth of evidence in support of plaintiffs’ claims. But evidence on behalf of the appellees was substantial in support of their view that the cause for non-renewal was deficiencies in teaching rather than the conduct suggested by appellants, and it cannot be denied that there were a large number of teachers available at the time, whereby MacDonald might well have been able to hire better teachers.

There is one item that warrants special mention and that is MacDonald’s statement that one reason for his recommendations for Adams and Wiseman was that they and one other teacher had a clique which created disharmony and undermined morale among the other members of the faculty. This is quite different from the problem in Rampey, supra, in which the president’s complaint was that the faculty members associated with one another and the students.

As to Brooks, his insubordination fully justified his non-renewal. As to termination because of political views, there is a conflict on this, with Brooks saying that he was terminated on this account and MacDonald saying that he was not. The manifest weight of the evidence does not support Brooks on this issue either.

Plaintiffs also argue that teachers have a First Amendment right to discuss controversial subjects and use controversial materials in the classroom.. Undoubtedly they have some freedom in the techniques to bp employed, but this does not say that they have an unlimited liberty as to structure and content of the courses, at least at the secondary level. Thus in a small community like Gillette the Board members and the principal surely have a right to emphasize a more orthodox approach, for example, and it would seem that they may insist that record playing and current events do interfere with this program. We have found no law which allows a high school teacher to have the broad latitude which appellants seek.

In Pickering v. Board of Education, supra, the Supreme Court held the firing of a teacher to be impermissible where it was based on a letter of criticism (to the editor) sent to a local paper. At the same time, the Court recognized that teachers’ First Amendment rights are not absolute when it said:

At the same time it cannot be gainsaid that the State has interests as an employer in regulating the speech of its employees that differ significantly from those it possesses in connection with regulation of the speech of the citizenry in general. The problem in any case is to arrive at a balance between the interests of the teacher, as a citizen, in commenting upon matters of public concern and the interest of the State, as an employer, in promoting the efficiency of the public services it performs through its employees.

391 U.S. at 568, 88 S.Ct. at 1734.

In the case at bar the teaching methods of Adams and Wiseman may have had educational value as the expert testified, but this is not equivalent to saying that they had a constitutional right absolute in character to employ their methods in preference to more standard or orthodox ones.

Ahern v. Board of Education, 456 F.2d 399 (8th Cir. 1972) involved a high school teacher who allowed students to participate in subject matter and behavior decisions. While the teacher was absent a substitute slapped a student. This caused the plaintiff to be upset and to spend class time formulating a regulation on corporal punishment. She refused to stop even though the principal requested her to do so. The Eighth Circuit rejected her contention that her subsequent discharge constituted an abridgment of her constitutional freedom. The court ruled instead that she did not have a constitutional right to persist in a course of teaching, conduct or behavior which was contrary to the dictates of her employers. See also Drown v. Portsmouth School District, 451 F.2d 1106 (1st Cir. 1971), upholding a non-renewal because of a teacher’s being too innovative and unconventional, and Fluker v. Alabama State Board of Education, 441 F.2d 201 (5th Cir. 1971), allowing the college to terminate two teachers in favor of successors who had better qualifications.

Plaintiffs finally argue that their evaluations as teachers were good and that this entitled them to be rehired. We are not in a position to second guess the appellee school authorities on this subject. See Cook County College Teachers Union Local 1600 v. Byrd, supra. See also Clark v. Holmes, 474 F.2d 928 (7th Cir. 1972), cert. denied, 411 U.S. 972, 93 S.Ct. 2148, 36 L.Ed.2d 695 (1973) (no constitutional right to override judgment of superiors as to proper content of particular course); Simard v. Board of Education, 473 F.2d 988 (2d Cir. 1973) (school can justifiably demand more than competent classroom instruction); Knarr v. Board of School Trustees, 317 F.Supp. 832 (N.D.Ind.1970), aff’d, 452 F.2d 649 (7th Cir. 1971) (school can terminate ‘■'teacher who is chronically late, advises students to disobey the dress code, is rude to other teachers and uses classroom as a personal forum.)

In sum, we must hold that the trial court’s findings as to the reasons for termination were supported by the evidence. We are bound also to affirm the trial court’s finding and conclusion that the plaintiffs failed to prove that they were fired because of conduct which was protected by the Constitution.

It follows that the judgment of dismissal was proper and that it should be and is hereby affirmed.

      . MacDonald, like President Carter in Rampey, found their association with one another divisive. In Rampey, however, the court found that by “divisive” President Carter meant they disagreed with him. Here MacDonald testified that the plaintiffs’ cliquishness alienated them from the rest of the faculty and that faculty morale was, at the time, very important. There is no evidence that MacDonald considered the clique bad merely because they had different viewpoints on - some issues. Finally, in Rampey the court noted that the relationship between Carter and the professors was not one which required personal loyalty. Here, unlike Rampey, and Pickering v. Board of Education, 391 U.S. 563, 88 S.Ct. 1731, 20 L.Ed.2d 811 (1968), a question of “harmony among coworkers” and “personal loyalty and confidence” is involved.

      . Keefe v. Geanakos, 418 F.2d 359 (1st Cir. 1969) (A tenured teacher, who was also head of the English department, was suspended and about to be fired for assigning an article from Atlantic Monthly to his senior English class. The article used and discussed an extremely offensive “dirty” word, which the teacher discussed in class, explaining its origin, context, and the reason the author used it. The court held the teacher was entitled to a preliminary injunction against his discharge hearing because he was likely to prevail on his claim (1) that he was entitled as a matter of academic freedom to use the article and discuss the word and (2) he had inadequate warning that his action would be considered improper.) Mailloux v. Kiley, 323 F.Supp. 1387 (D.Mass.), aff’d, 448 F.2d 1242 (1st Cir. 1971) (A teacher in a junior English class wrote the word “fuck” on the board and asked for a definition as part of a discussion about taboo words. The next day the teacher was suspended and within the month he was discharged. The court held that while the teacher’s technique could be supported, it was not plainly permissible. Thus a school could discharge a teacher under these circumstances, but only where the teacher had notice that the method should not have been used.) Parducci v. Rutland, 316 F.Supp. 352 (M.D.Ala.1970) (The teacher assigned a Kurt Vonnegut story to her junior English class. The next day she was called in to explain herself and was told she might be dismissed. About two weeks later, after a hearing, she was dismissed. The court held that while the right of academic freedom was not absolute, the teacher had been fired in violation of her First Amendment rights. The court emphasized that the teacher had no way of knowing that assigning the story was prohibited conduct.) Note that in each of these cases the plaintiff was fired during the school term, not merely non-renewed.


author: PER CURIAM.

text:
    Margaret PURNELL et al., Plaintiffs-Appellees, v. Joel EDELMAN, Director of Illinois Department of Public Aid, et al., Defendants-Appellants.
    Nos. 74-1051, 74-1052.
    United States Court of Appeals, Seventh Circuit.
    Argued April 4, 1974.
    Decided April 10, 1974.

      William J. Scott, Atty. Gen., Jerrald B. Abrams, Asst. Atty. Gen., Chicago, 111., for defendants-appellants.
    Jonathan M. Hyman, Marianne R. Smigelskis, Alan Dockterman, Chicago, 111., for plaintiffs-appellees.
    Before PELL and SPRECHER, Circuit Judges, and CAMPBELL, Senior District Judge.

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

   PER CURIAM.

This action was originally brought to challenge the Illinois Department of Public Aid’s policy which authorized payment of emergency financial assistance for the purpose of maintaining utility services of public aid recipients only after such utility services had been discontinued. The complaint alleged that the emergency assistance program had been established and funded pursuant to 42 U.S.C. § 606(e)(1), that § 606(e)(1) provides that emergency assistance is to be given to “avoid destitution,” that federal regulations implementing the program require that emergency assistance be given “forthwith,” and that Illinois had identified the termination of utility services as a type of destitution warranting emergency assistance through the use of funds appropriated under § 606(e)(1). The thrust of plaintiffs’ complaint is that a program which provides emergency relief for the termination of utility services only after those utility services have been terminated does not “avoid destitution.” Accordingly, plaintiffs sought an order in the district court which would require the Department to provide such emergency assistance prior to the termination of utility services.

On November 2, 1973, the district court entered an order granting plaintiffs’ motion for summary judgment. This order was entered after the district court had examined verified pleadings, interrogatories, depositions, affidavits filed by the parties and stipulations submitted by the parties in compliance with the court’s pretrial order. In an accompanying Memorandum of Decision, the district judge found that the Illinois program was established and federally funded pursuant to § 606(e)(1), and that the “primary legal issue presented by this case is whether the standards of the Social Security Act require Illinois to furnish emergency utility assistance while the recipient is still receiving utility services.” The district judge held that the failure to give timely assistance occurred when the Department of Public Aid permitted the utility services to be discontinued: “In refusing to authorize assistance when the termination of service is imminent and otherwise unavoidable, this court holds that this failure constitutes a violation of I.D.P.A.’s duty pursuant to 45 C.F.R. §§ 233, 120(a)(5) to provide assistance ‘forthwith’ when confronted with an emergency situation.” On November 19, 1973, the district court entered an order declaring invalid the policy of requiring the discontinuance of utility services prior to the receipt of emergency assistance, on the ground that that policy violated 42 U.S.C. § 606(e)(1) and 45 C.F.R. § 233.-120(a)(5). The order enjoined the defendants from refusing to grant emergency assistance for the payment of overdue utility payments when utility termination is imminent and otherwise unavoidable.

The Order further ordered defendant Edelman to

“issue and distribute in the normal manner to his agents and employees within thirty days from the entry of this Order, such directives as may be necessary to repeal the prohibition against granting emergency assistance prior to termination of utility service when such termination is imminent and otherwise unavoidable and requiring that emergency assistance be provided prior to the termination of utility services in order to prevent such termination for recipients of Aid to Families with Dependent Children when such termination is imminent and otherwise unavoidable . . ..”

Defendant Edelman was ordered to submit copies of the aforesaid directives to the district court for its approval at least seven days prior to the issuance of the directives. The district court order specifically provided that “nothing in this order shall restrict defendants’ ability to modify or rescind its participation in the Emergency Assistance Program ..” In addition, paragraph 8 of the district court’s order stated that “this order is applicable only to the emergency assistance given by the defendant for which he received federal reimbursement pursuant to 42 U.S.C. § 606(e)(1), and this order is inapplicable to any emergency assistance given which is paid for wholly with State of Illinois funds.”

Subsequent to the issuance of the court’s order, defendants moved for a rehearing. This motion was denied. Defendants thereafter filed a proposed official bulletin which was submitted to the court in an effort to comply with the order of November 19, 1973. Plaintiffs also filed a suggested bulletin. The district court found the defendants proposed bulletin unacceptable, and adopted the bulletin proposed by the plaintiffs. Shortly thereafter, the defendants moved to vacate the court’s order adopting the bulletin proposed by the plaintiffs, asserting for the first time that since October 1, 1973, Illinois had ceased to participate in the Federal Emergency Assistance Program for the purpose of providing emergency assistance to recipients threatened by the termination of utility services. Defendant’s motion was denied by the district judge on January 2, 1974, and on January 10, 1974, the Department filed its notice of appeal.

On appeal, the Department argues that the original emergency assistance policy regarding termination of utility services comported with federal requirements promulgated under § 606 (e)(1). With respect to this contention, we believe the district court’s decision was eminently correct. The Social Security Act requires that the emergency funds be issued to “avoid destitution”; the regulations issued pursuant thereto require that the funds be issued “forthwith.” Once the state has designated that § 606(e)(1) funds shall be used to provide emergency assistance with respect to the termination of utility services, the state must employ emergency procedures which effectively avoid such destitution.

The state’s policy of paying emergency funds only after termination results in the loss of utility services to public aid recipients for periods of at least two days, and the evidence indicates that some plaintiffs suffered a loss of such services for as much as five days due to a five-step bureaucratic process employed by the Department of Public Aid. As the plaintiffs convincingly argue, the federal program is not designed merely to cure destitution that has already occurred. Its purpose is to a void destitution. Since the purpose of the program is to prevent a welfare recipient from becoming destitute, the district court properly found that the only effective way of doing so was to require the payment of emergency funds once the recipient had received a final notice of termination and could establish that he or she is without immediately accessible resources sufficient to prevent termination of utility services.

Defendants next contend that the district court’s order adopting the bulletin suggested by plaintiffs constitutes a usurpation of executive and legislative authority. Defendants’ contention in this regard is wholly without merit. It is undisputed that the district court had jurisdiction to determine whether the Department’s emergency assistance policies were in conformity with the requirements of the Social Security Act. It would be an anomalous result indeed to conclude that the court lacked the necessary authority to issue orders which effectively enforce the court’s decision. In the instant case, the court ordered defendant Edelman to issue and distribute such directives as may be necessary to repeal the prohibition against granting emergency assistance prior to termination of utility services when such termination is imminent and otherwise unavoidable. Edelman was ordered to submit copies of such directives to the court for its approval at least seven days prior to issuance thereof. The defendant failed to propose, in a timely manner, a bulletin which implemented the court’s order to the satisfaction of the district judge. The court therefore adopted the proposed bulletin submitted by the plaintiffs, and ordered that it be promulgated by the Department of Public Aid. In doing so, the court did not usurp the authority of the executive or the legislature, but simply took the minimal action necessary to enforce its own order.

Finally, the defendants contend that since October 1, 1973, at which time the Department of Public Aid implemented the Consolidated Standard System (commonly known as the “flat grant” system), emergency assistance funds provided under § 606(e)(1) are not used for the purpose of restoring utility services which have been terminated for non-payment of utility bills. The defendant argues that, to the limited extent that emergency assistance is provided to restore utility services, the funds expended for this purpose are no longer reimbursable under § 606(e)(1). Accordingly, the Department argues that it is no longer bound by the district court’s order of October 19, 1973, pointing to the language of that order which limits its applicability “only to emergency assistance given by the defendant for which he received federal reimbursement pursuant to 42 U.S.C. § 606(e)(1) . . ..” The order provides that it is inapplicable to any emergency assistance given which is paid for wholly with State of Illinois funds.

We do not agree with plaintiffs’ contention that the failure to raise this mootness argument at the district court precludes its consideration on appeal, particularly since the defendant moved in the court below to vacate the district court’s order on this very ground. The plaintiffs further argue that defendant’s contention in this regard is contrary to the stipulation of facts presented to the district court, and “if what the defendants stipulated to below is indeed not a fact, a number of new legal issues are presented that would have to be litigated. The defendant’s attempt to reduce his participation in the emergency assistance program may have violated the Social Security Act, or it may create distinctions, arbitrariness or arbitrary presumptions that violate due process or equal protection. If the source of funding changes, so does the legal complexion of the case.”

This appeal does not present for our consideration any issue specifically addressed to the legality of the changes allegedly adopted by the Department after November 19, 1973 with respect to the payment of emergency assistance funds on behalf of public aid recipients. Moreover, the plaintiffs correctly note that “it is by no means clear that the defendant had abandoned federal funding. His allegations in that regard are no more than unsworn assertions of counsel.” Since the court’s order of November 19, 1973 applied only to emergency assistance for which the defendant received federal reimbursement pursuant to 42 U.S.C. § 606(e)(1), these unresolved issues of fact must be considered and determined by the district court. If the Department is providing emergency assistance with respect to utility service through the use of federal funds under § 606(e)(1), the court’s order should be enforced. If not, under the language of the court’s order of October 19, 1973, the Department is not bound to provide emergency assistance prior to the termination of utility services.

Accordingly, the summary judgment of the district court is affirmed and the district court order adopting' the proposed bulletin submitted by plaintiffs is vacated, and this cause is remanded to the district court for determination as to whether the Department of Public Aid had discontinued payment of emergency assistance funds reimbursable under § 606(e)(1) with respect to the termination of utility services and for further proceedings consistent with the view expressed herein. As the issue is not before us, we offer no opinion as to the legality of the changes in the Department’s emergency assistance programs which were allegedly initiated on October 1, 1973.

Affirmed in part. Vacated and remanded in part.