author: LEVIN H. CAMPBELL, Circuit Judge.

text:
    In the Matter of BOSTON AND MAINE CORPORATION, Debtor. The GROUP OF INSTITUTIONAL BONDHOLDERS, Appellant, Robert W. MESERVE, Trustee of the Property of Boston and Maine Corporation, Debtor, Appellee.
    No. 73-1069.
    United States Court of Appeals, First Circuit.
    Heard June 5, 1973.
    Decided Aug. 23, 1973.

      Jerome Preston, Jr., Boston, Mass., with whom Lewis H. Weinstein, Philip Burling, and Foley, Hoag & Eliot, Boston, Mass., were on brief, for appellant.
    Robert G. Parks, Boston, Mass., with whom Mulcahy & Mulcahy, and Charles W. Mulcahy, Jr., Boston, Mass., were on brief, for Robert W. Meserve, trustee, appellee.
    John L. Davidson, Jr., St. Louis, Mo., with whom Greenfield, Davidson & Man-delstamm, St. Louis, Mo., Richard Ely, Alan L. Lefkowitz, Tom L. Peterson, and Ely, Bartlett, Brown & Proctor, Boston, Mass., were on brief, for Passaconaway Co., intervenor appellee.
    John T. Collins, Boston, Mass., with whom Sherburne, Powers & Needham, Robert H. Quinn, Atty. Gen., Com. of Mass., and Mark Furcolo, Asst. Atty. Gen., Boston, Mass., were on brief, for the State of N. H., The Com. of Mass., and Vermont Railway, Inc., intervenors appellees.
    Before COFFIN, Chief Judge, Me-ENTEE and CAMPBELL, Circuit Judges.
   LEVIN H. CAMPBELL, Circuit Judge.

Appellant, called the Group of Institutional Bondholders (Group), consists of insurance companies *holding first mortgage bonds of the debtor, the Boston and Maine Corporation (B&M). The Group is now appealing from orders of the reorganization court allowing the trustee of the B&M to make certain capital expenditures. We affirm.

B&M is a medium-sized railroad corporation operating in Massachusetts, Maine, New Hampshire, Vermont and for a short distance in New York. From earlier prosperity, the B&M deteriorated after 1958 into financial distress, operating through the 1960’s on the verge of bankruptcy. In early 1970 the B&M had accumulated unpaid property taxes exceeding five million dollars, and bond interest was in arrears; it was placed in reorganization under § 77 of the Bankruptcy Act, 11 U.S.C. § 205, upon petition of the four insurance companies that constituted the appellant Group. Trustees were appointed by the district court in the spring of 1970.

The trustees at first attempted to reopen a merger proposal, rejected in the late 1960’s by the B&M’s stockholders, that would have joined the B&M with the Norfolk & Western system. The Interstate Commerce Commission (ICC) in 1971 turned down this proposal as “pri-ma facie impracticable.” At the same time it rejected the Group’s application for abandonment of the B&M’s entire line. Later in 1971, at the ICC’s request and after they were able to improve the B&M’s cash position substantially, the trustees submitted a preliminary reorganization plan. In 1972 twenty-one days of hearings were held on this and alternative plans by an Administrative Law Judge who, early in 1973, issued a report approving, with modifications, the trustees’ proposed plan. He rejected the Group’s second proposal which, like the first, called for the prompt liquidation of the B&M. He ordered the trustee to submit a “definitive plan for reorganization” by June 30, 1974, and set the hearing on that plan for September 9, 1974.

The trustee’s plan requires, to bring about a successful reorganization, the realization of operating economies; provision of maintenance sufficient to keep essential services in operation; sale of unprofitable trackage and real estate, including a sale to Massachusetts of all Boston commuter operations; successful attempts to secure tax abatements; and ultimately recapitalizing a much smaller, but self-sustaining, freight railroad. At the hearing before the Administrative Law Judge proposals from other interested parties indicate the possibility of merger with neighboring lines. Stockholders of the Maine Central, who control the Bangor & Aroostook, a Maine freight line, are seeking control of the B&M and, according to the ICC judge, could play a role in the reorganization and refinancing arrangements. Presumably it was to allow factors such as these to jell, as well as to permit further negotiations with Massachusetts and New Hampshire over the possible sale of parts of the B&M line and operations, that the Administrative Law Judge continued the proceedings until mid-1974.

Against this background the Group, or such as is left of it, appeals from the district court’s approval of six petitions by the trastee to make certain capital expenditures. All of the expenditures would facilitate continued operation of the railroad. The Group asserts that the capital expenditures, especially those for the repair of the Hoosac. Tunnel, are unreasonable, but it relies primarily upon allegations of statutory and constitutional error: it says that under § 77, if creditors oppose expenditures on the ground that there is no reasonable prospect of successful reorganization, and introduce evidence to support that contention, the court müst make a finding “as to whether or not the Railroad is probably reorganizable.”

We disagree. Section 77 does not contemplate that a court will make, as a matter of course, an unaided judgment on reorganizability before the ICC has considered the matter and certified a plan to the court. It instead provides in detail for a multi-staged effort by the ICC, creditors and court to develop, if feasible, a satisfactory reorganization plan. The ICC is an expert agency invested with “primary responsibility for the development of a suitable plan.” Ecker v. Western Pac. R. Corp., 318 U.S. 448, 468, 63 S.Ct. 692, 705, 87 L.Ed. 892 (1942). Section 77 “manifests the intention of Congress to place reorganization under the leadership of the Commission, subject to a degree of participation by the Court.” Id.

Doubtless the court, perhaps even without consulting the Commission, could terminate a reorganization proceeding were it manifestly frivolous or brought in bad faith. That is plainly not the case here. The trustees, the ICC Administrative Law Judge after hearings, and Passaconaway have expressed the belief that the B&M is reorganizable. We have examined the trustee’s plan, the Administrative Law Judge’s Recommended Report and Order, and the testimony of the Group’s expert. While the trustee and the ICC judge acknowledge that reorganization of the B&M presents unique problems, they think it can be done and describe a variety of factors bearing on the likelihood of success. We cannot say that the prospects of reorganization are so dim that the process established by Congress for developing, refining and considering a plan should be short-circuited by a court’s summary attempt to substitute its own premature and likely ill-informed judgment as to reorganiza-bility. Under § 77 the court’s plain duty is to defer at this juncture to the ICC.

We do not say that senior creditors must sit by for years while their security evaporates. Section 77(g) permits the reorganization court, on motion of any party or on its own motion, “after hearing and after consideration of the recommendation of the Commission”, to dismiss the reorganization proceedings if “there is undue delay in a reasonably expeditious reorganization.” The Group did not formally make a motion under § 77(g) but instead sought to raise re-organizability collaterally to its objections to capital expenditures. Even were we charitably to treat its objections as, in effect, a § 77(g) motion, we nevertheless would conclude that the court, under the circumstances presented, did not abuse its discretion in failing to rule specifically on reorganizability and in otherwise denying the motions.

The same delay could be justified in one case but “undue” in another. We would therefore not necessarily limit § 77(g) dismissal to circumstances in which a plan had been certified and approved, although not expeditiously carried out. Were the ICC and other parties to the reorganization to be unduly lethargic in evolving an initial plan, an injured party might, upon a proper showing, invoke § 77(g). Indeed, we would even agree with appellants that in unusual circumstances a party might be entitled to a preliminary ruling on reor-ganizability if the party could demonstrate peculiar and major irreparable injury that would make any additional delay “undue.” Each case turns on its own facts; the court must consider and weigh the effect of delay on all parties and on the public interest as well.

The Group has failed to demonstrate, with any precision, the extent to which the passage of time is affecting its security. Obviously the B&M’s tax and interest liabilities, and other priority indebtedness such as administrative expenses, continue to mount; but while we know in a general way that the claims against the bondholders’ security increase with time, the record here does not inform us as to how badly off they are, and will be, and appellant made no serious effort to marshall and present such information in the reorganization court. This information is important, since the greater the bondholders’ cushion and the slower the rate at which their security is eroding, the less dire for them the consequences of delay even if attempts at reorganization should ultimately fail.

Further, the Group has not demonstrated that the alternative plan it proposes — the expeditious liquidation of the B&M’s assets — would necessarily be desirable, particularly for the unsecured creditors who are also entitled to protection of their assets. Canada Southern R. Co. v. Gebhard, 109 U.S. 527, 536, 33 S.Ct. 363, 27 L.Ed. 1020 (1883). Cf. Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 597, 55 S.Ct. 854, 79 L.Ed. 1593 (1935). The ICC judge is of the opinion that summary liquidation would have adverse consequences for the bankrupt’s estate. Even if it were shown that a distress sale would be best for secured creditors as a group, we cannot say that it would protect adequately the interests of the junior creditors, and from the viewpoint of the public interest it would seem still less desirable. The twin objects of § 77 are to conserve the debtor’s assets for the benefit of all creditors and to preserve the ongoing railroad in the interest of the public. Continental Illinois National Bank & Trust Co. v. Chicago, R. I. & Pac. Ry., 294 U.S. 648, 671-680, 55 S.Ct. 595, 79 L.Ed. 1110 (1935); New Haven Inclusion Cases, 399 U.S. 392, 431, 90 S.Ct. 2054, 26 L.Ed.2d 691 (1970). While these objects cannot be pursued to the point of unfair discrimination against one class of creditors, and the secured creditors cannot be made to devote their property, uncompensated, to the public welfare, cf. Note, Takings and the Public Interest in Railroad Reorganizations, 82 Yale L.J. 1004 (1973), the present record falls short of presenting facts sufficient to raise the issues of discrimination among creditors or unconstitutional taking.

It has long been established that secured creditors may be required to defer realizing on their security for a reasonable time to permit the trustees to make efforts to reorganize the railroad. Continental Illinois National Bank & Trust Co. v. Chicago, R. I. & Pac. Ry., supra. As the Supreme Court has said, during the reorganization period “the collateral will decline in value; . . . . A claim that injurious con-

sequences will result to the pledgee or the mortgagee may not, of course, be disregarded by the district court; but it presents a question addressed not to the power of the court but to its discretion — a matter not subject to the interference of an appellate court unless such discretion be improvidently exercised.” Id,, at 677, 55 S.Ct. at 606.

Given the relatively short time that has elapsed since the filing of the petition under § 77, the diligence of the trustee and the ICC, and the absence of any showing of irreparable harm, the district court was plainly right to respect the procedures of § 77. The time may soon come when the deferral, in the interest of others, of appellant’s rights becomes so oppressive as to raise the issues the Group now seeks to assert. By inserting § 77(g), and by imposing time limits throughout § 77, Congress reflected awareness that a reorganization proceeding might be so unreasonably delayed as to be “subversive of the spirit in which [§ 77] was conceived and adopted.” Id. at 685, 55 S.Ct. at 610. How much damage and risk a secured creditor may be required to accept in the interest of reorganization is no easy question. See New Haven Inclusion Cases, supra, 399 U.S. at 490-491, 90 S. Ct. 2054. But we say with some confidence that appellant has failed to show that it is no longer in the zone of permissible bankruptcy regulation but is instead in the zone where equitable principles, § 77(g), and the Fifth Amendment entitle it to relief from further delay.

As to the Group’s more detailed complaints, we have reviewed the complained of orders and the record. We agree with the 10th Circuit in Van Schaick v. McCarthy, 116 F.2d 987, 993 (10th Cir. 1941), that during the period before a satisfactory and proper plan is worked out, the trustees may be permitted to make expenditures that are “reasonably necessary to preserve and protect [the relevant public and private] interests and maintain the integrity of the railroad, so that it may be turned over to the reorganized company as a going concern.” During the 1960’s the B&M apparently ceased to maintain or modernize its facilities. Part of the trustee’s plan is to engage in rehabilitation and maintenance sufficient to attract customers and to prevent the line from falling into such a state that it may become impossible to rehabilitate profitably. We find nothing to suggest that the reorganization court exceeded sound discretion by approving expenditures for the transfer of 50 employees to Billerica, Massachusetts; for air conditioning at Billerica; for automatic grade crossing signals at Mechanicsville, New York; for purchase of snow blowers; and for entering into a substantial salary agreement with its chief executive officer, see Smucker v. Nassau County, 183 F.2d 447 (2d Cir. 1950), upon whom, more than anyone else, the responsibility for future success or failure may depend.

Similarly, the court was warranted, from the findings of the special master, which were based, we think, on substantial evidence, in allowing expenditures for repair of the Hoosac Tunnel. The findings were not clearly erroneous and, while alternative plans were proposed, and the decision involves subjective judgment, we are not persuaded that the reorganization court did not act reasonably and in the best interests of the railroad, its creditors, and the public.

Finally, the court did not exceed its allowable discretion in deferring its ruling on the so-called draw downs. Depending on future events, deferral offers potential benefits as well as hazards to appellant. We cannot now review the propriety of whatever rulings the court may later make. Such rulings, as the reorganization court has stated, will be made only after a full hearing.

Affirmed.

      . The Group originally included four insurance companies holding first mortgage bonds in the face amount of $14,198,000, or about 30 percent of the outstanding total. On December 27, 1972, $10.3 million of the bonds were sold by two of the insurance companies to an independent dealer. These bonds were subsequently purchased by Passaconaway Company, now the largest single bondholder. The Group currently represents only slightly more than $4.1 million. Passaconaway has intervened in the proceedings to oppose the Group’s position and support the position of the trustee.

      . Report and Order recommended by Victor A. von Rinteln, Administrative Law Judge, ICC Dkt. 26115 (Feb. 13,1973).

      . By early 1973 two of the original three trustees had resigned, and no new trustees had been appointed.

      . Section 77 (g) provides :
      If in light of all the existing circumstances there is undue delay in a reasonably expeditious reorganization of the debtor, the judge, in his own discretion, shall, on motion of any party in interest or on his own motion, after hearing and after consideration of the recommendation of the Commission, dismiss the proceedings. Upon the filing of such an order of dismissal, all right, title, or interest of the trustee or trustees shall vest by operation of law in the debtor unless otherwise provided by such order.

      . Some information on the current prospects of the bondholders is available to this court, but it is of sucli uncertain and speculative nature that we take little account of it in reaching our decision. It is particularly important that there is no definitive indication of the rate at which the railroad’s assets are depreciating and the rate at which priority indebtedness is displacing the bondholders’ claims to the available assets. Thus, even though we believe that an adequate cushion exists for tire bondholders today, we have no way to tell about tomorrow.
      The outstanding principal amount of the first mortgage bonds is $48,090,376. Accrued and unpaid interest, and interest on the unpaid interest, total $12,562,408.47, so that the total indebtedness on the bonds is $60,-652,784.47. According to the Administrative Law Judge’s Report, p. 35, real estate and other tax claims taking jrriority over the bonds are currently approximately $14.5 million. Xo estimate of other claims prior to those of the bondholders is available to us, but in order to fully satisfy all bondholders it is clear that at least $75 million must be available.
      Several estimates of the value of the B & M have been made. The Financial and Statistical Statements of the B & M list the total transportation property less depreciation and amortization at $181,464,474. This book value figure, however, bears no necessary relation to tlie currently realizable value on sale or liquidation. A Coverdale & Colpitts valuation of all B & M properties except land and some buildings put the gross value at $46,000,000 and tlie net salvage value at $26,700,000. The market value of B & M land has been variously estimated from a high of $182,749,000, assuming that the land is devoted to transportation corridor use and that the Massachusetts Bay Transportation Authority (MBTA) agrees to purchase the Boston area passenger lines, to a low of $106,533,100, which assumes that some land will be sold in small parcels for nontranspor-tation use. The B & M also has a liquidated but unpaid claim of $18,000,000 due from the MBTA for some of its Boston properties. Thus, according to the Administrative Law Judge’s Report, the “lowest” value of the railroad, assuming liquidation and salvage of all except the Boston transportation corridors, would be $151,731,487. Higher values can be obtained by assuming that some portions of the railroad would be sold as a going concern for values as high as gross replacement value; these estimates range to $375,188,387.
      Even though some of these properties have depreciated since the time the estimates were made, the value of the B & M continues to be substantially in excess of the value needed to satisfy the bondholders. Much of the value is in real estate that, if present trends continue, may appreciate rather than depreciate over time. The Group argues for a rather lower valuation based on immediate liquidation, and asserts that such a sale would bring $89 to $117 million. From this they subtract an erosion of the bondholder’s position that adds, to the $14.5 million now due in taxes, an additional depreciation of $11.5 million, sundry losses of $6.0 million, and future erosion of all sorts at approximately $11.2 million per year. (App. 690; 1882-95) Taking the Group’s figures at face value, the security available to meet the $75 million in claims is still $71.5 to $99.5 million. [The “additional depreciation” above may be overstated, since based on depreciable property of only $26.7 million. The Group neglects to count as an asset the $18 million claim against the MBTA. In addition, the “erosion” figures failed to account for possible appreciation in the value of the raw real estate.] It thus appears that by either the values used by the Administrative Law Judge or those proposed by the Group there is currently security sufficient to satisfy the bondholders.
      To the available security must be added the expenditures, approved in this opinion, for capital improvements. For example, the Hoosac Tunnel, unless it is repaired, may soon have no value at all; it may be, although we do not know, that the repairs add more to the value of the Tunnel, and thus to the security of the bondholders, than they cost. If so, the expenditures increase rather than decrease the well-being of bondholders as a group. Against this must be balanced the possibility of eventual cessation of railroad operations; the Hoosac in repaired condition is valuable only to an operating railroad. The concern of the Group is that, if operations cease, the investment in the Hoosac will become valueless. But it is precisely this kind of fine balancing of probabilities that is addressed to the reorganization court’s discretion. Since the Group has not, and perhaps cannot, demonstrate with any certainty that it is suffering from the continued operation and repairs to the B & M, the statutory and constitutional claims are inappropriate at this time.


source: Caselaw Access Project

author: WISDOM, Circuit Judge:

license: Public Domain

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Jerry Eugene GRAVITT, Defendant-Appellant.
    No. 72-3163.
    United States Court of Appeals, Fifth Circuit.
    Aug. 30, 1973.
    Certiorari Denied Jan. 7, 1974.
    See 94 S.Ct. 879.

      John E. Roberts, Marianna, Fla. (Court-appointed), for defendant-appellant.
    William H. Stafford, Jr., U. S. Atty., Pensacola, Fla., Clinton Ashmore, Asst. U. S. Atty., Tallahassee, Fla., Robert L. Crongeyer, Jr., Asst. U. S. Atty., Pensacola, Fla., for plaintiff-appellee.
    Before WISDOM, DYER and INGRAHAM, Circuit Judges.
   WISDOM, Circuit Judge:

This ease involves the constitutionality of a warrantless search of an automobile. The defendant-appellant, Jerry Gravitt, was convicted on three counts of transporting firearms and ammunition in interstate commerce, in violation of 18 U.S.C. § 922(g) (l)-(2). We affirm.

I.

Jerry Gravitt and his two brothers, Ronnie and Eddie, were arrested outside a lounge in Panama City Beach, Florida, early in the morning on May 15, 1971. The police briefly searched the men at the time of their arrest, and found six .38-caliber revolver shells in one of the defendant’s pockets. At the police station, officers searched them more thoroughly. On Jerry Gravitt they found a .38-caliber Colt revolver in one of his western-style boots. On Ronnie Gravitt they found a set of car keys and a motel key. The room key was to room 125 in the Tradewinds Motel in Panama City Beach.

Immediately after finding these keys, the police officers proceeded to the Tradewinds Motel. At the desk they discovered that the name on the registration card for room 125 corresponded with the name on false identification cards found on the defendant. He and his brothers had checked in on the morning of May 14, and had prepaid rent for three days. After this check at the desk, the officers went to the motel parking lot, where they found a 1965 Buick in the parking space reserved for room 125. Ronnie Gravitt’s key fitted this automobile. One of the officers drove the car to the police station. At the station, he and another officer conducted a thorough search of the vehicle. They testified that in taking custody’ of the car and in searching its contents, they followed standard police procedures designed to safeguard the property of arrested persons.

The search of the Gravitts’ car revealed a small arsenal: a bomb, consisting of a quarter of a pound of “Flex-X” military explosive with a piece of nylon cord wrapped around it, and a number 12 blasting cap; a 6-volt heavy duty Rayovac battery capable of detonating the bomb; an M-l type 30-caliber carbine; a 12-gauge Remington model 11 shotgun loaded with five rounds of “00” buckshot ammunition; and a .45-caliber fully automatic rifle, with a 30-round magazine attached, fully loaded. In addition to the ammunition in the loaded guns, the officers found ten loose rounds of .45-caliber ammunition, and three loose rounds of 12-gauge “00” buckshot ammunition.

On the afternoon of May 16, a day and a half after Jerry Gravitt’s arrest, two agents of the Alcohol, Tobacco, and Firearms Division of the Treasury Department came to the Bay County Jail to question him. During the course of the interview Gravitt confessed to the crimes with which he'was later charged. He told the agents that he and his brothers had left Atlanta late in the evening on May 13 and had arrived in Panama City Beach early the next morning, when they checked into the Tradewinds Motel. He said that they had brought with them the weapons found in the car, and related that he had procured all of those weapons while he had been in Georgia. He admitted that he was a fugitive from Georgia, and that he had already served over four years on one robbery conviction. Although there was agreement as to what Gravitt said during the interview, Gravitt and the agents gave conflicting testimony about the circumstances of the confession. The agents testified that they had shown Gravitt a form advising him of his rights to counsel and to remain silent. He stated that he did not need counsel, and that his statements were made freely and voluntarily. Gravitt admitted he had been shown a form advising him of his rights, but contended that he had been induced to make his confession by the agents’ promises that they would not prosecute his brothers if he would admit that the guns were his. The agents denied having made these promises.

Jerry and Ronnie Gravitt were indicted on a four-count indictment. Count II of the indictment was quashed. The defendants were convicted on each of the other three counts. Count I charged them with interstate transportation of firearms by persons who were fugitives from justice, in violation of 18 U.S.C. § 922(g)(2). Count III charged them with interstate transportation of firearms by persons who had been convicted of crimes punishable by imprisonment for more than one year, in violation of 18 U.S.C. § 922(g) (1). Count IV charged interstate transportation of ammunition by persons who had been convicted of crimes punishable by imprisonment of more than one year, also in violation of § 922(g)(1). The defendants were sentenced to imprisonment of five years on each of the three counts. Their sentences on the first and third counts were to run consecutively; their sentences on the fourth count were to run concurrently. Ronnie Gravitt chose not to appeal his conviction.

Jerry Gravitt asserts three grounds for reversal. First, he contends that the search of his automobile violated the fourth amendment, and that therefore the weapons found during that search should have been excluded from evidence. Second, he urges that his confession was not made voluntarily, and that the agents’ testimony about it therefore should also have been excluded. Finally, he argues that a verdict of acquittal should have been directed because the Government did not introduce sufficient evidence apart from the defendant’s confession to prove the corpus delicti of the offense.

II.

This Court has consistently recognized that the fourth amendment is not violated when the police take custody of the property of persons they arrest to store that property for safekeeping. United States v. Rosenberg, 5 Cir. 1972, 448 F.2d 1183; United States v. Boyd, 5 Cir. 1971, 436 F.2d 1203; United States v. Lipscomb, 5 Cir. 1971, 435 F.2d 795. In those, and other cases that might be cited, we recognized that when the police take custody of any sort of container — • be it an automobile, suitcase, or any other thing in which property may be stored — it is reasonable to search the container to itemize the property to be held by the police. Boyd, 436 F.2d at 1185; Lipscomb, 435 F.2d at 800-801. These decisions reflect, of course, the underlying principle that the fourth amendment proscribes only unreasonable searches. Lipscomb, 435 F.2d at 800, citing Terry v. Ohio, 1968, 392 U.S. 1, 9, 88 S.Ct. 1868, 20 L.Ed.2d 889, 899. In Lipscomb we articulated the considerations underlying the view that custodial seizures and accompanying inventory searches are reasonable:

It cannot be denied that to prevent escape, self-injury, or harm to others, the police have a legitimate interest in separating the accused from the property found in his possession. An inventory is then ‘necessary both to preserve the property of the accused while he is in jail and to forestall the possibility that the accused may later claim that some item has not been returned to him.

435 F.2d at 800.

Our view is in accord with decisions of other circuits. For example, United States v. Blackburn, 6 Cir. 1968, 389 F. 2d 93; Cotton v. United States, 9 Cir. 1967, 371 F.2d 385, 392-393, have joined Lipscomb in citing the need to protect the property of the accused as well as to protect the police from ungrounded claims. The American Law Institute’s Model Code of Pre-Arraignment Procedure adopts a view substantially in accord with the decisions in this and the other circuits. ALI, Model Code of Pre-Arraignment Procedure § 230.-6(3) (Off.Draft No.l, July 1972).

In this case, the search of Gravitt’s automobile was lawful under the standards announced in Lipscomb and applied in Boyd and Rosenberg. The officers here testified that it was standard operating procedure for them to take the automobile of an accused into custody when doing so was necessary to protect the automobile or its contents while the accused was in custody. There can be little doubt that taking custody of the car was necessary here. The officers had arrested men who were travelling in a strange town and whom the officers expected to turn over to Georgia authorities in a few days. The Florida authorities would be held responsible for all the property these men had with them in Panama City Beach. This expectation gave them added reason to itemize the property in the ear. In these circumstances both the seizure of the car and the inventory of its contents were not only constitutionally reasonable but necessary and desirable actions for the police to take.

We do not lose sight of the dangers inherent in recognizing a police power to undertake custodial seizures and inventory searches. We recognize, as we did in Lipscomb (see 435 F.2d at 801), the possibility that the police might abuse that power by using it as a pretext to excuse themselves after the fact in circumstances where unjustifiedly they had failed to secure a search warrant. But, as in Lipscomb, we find little evidence in the case before us to suggest that the search we are examining was pretextual, and we repeat that we are “[not] willing to say that the possibility of a pre-textual search is so great . . . that as a matter of law we must condemn the concept of a stationhouse inventory of personal property”. Id. We are conscious, too, of the possibility that the police, in some circumstances warranting some limited form of inventory search, may often conduct searches which range beyond what is required by any legitimate police need. See Brett v. United States, 5 Cir. 1970, 412 F.2d 401, 406; ALI, A Model Code of Pre-Arraignment Procedure § 230.6, Commentary at 191. But we are confident that here, as in other contexts, reviewing courts will be fully capable of assuring that the scope of the intrusions involved will be tailored to the specific public interests which lie at the root of the finding that the intrusions are reasonable. Cf. Adams v. Williams, 1972, 407 U.S. 143, 92 5. Ct. 1921, 32 L.Ed.2d 612; Sibron v. New York, 1968, 392 U.S. 40, 65, 88 S. Ct. 1889, 1904, 20 L.Ed.2d 917, 936; Terry v. Ohio, 1968, 392 U.S. 1, 17-19, 88 S.Ct. 1868, 1878, 20 L.Ed.2d 889, 904; Warden v. Hayden, 1967, 387 U.S. 294, 310, 87 S.Ct. 1642, 1652, 18 L.Ed.2d 782, 784 (Fortas, J., concurring). Admittedly, the thoroughgoing search of the car in this case, during which the officers looked into the trunk and glove compartment and under the seats, was an intrusion of relatively serious magnitude. We might not be prepared to say that whenever the police have to seize a car for safekeeping they will be entitled to search it so thoroughly. But here, as we have pointed out, the police needed to be certain that they had inventoried the contents of the car completely, given that the men they had arrested were far from home and given the fact that the officers had to deliver the men and their property to authorities of another jurisdiction. In these circumstances, we cannot say that even the relatively serious intrusion involved was not tailored to the police needs we have found to have been involved.

III.

The appellant’s second and third contentions present few problems.

A. There is no basis for the appellant’s contention that his confession was improperly admitted. The trial judge’s actions complied in every respect with the provisions of the Omnibus Crime Control and Safe Streets Act of 1968, 18 U.S.C. § 3501 (1970), governing the admissibility of confessions in federal criminal trials. He conducted a hearing out of the presence of the jury to determine the voluntariness of the confession, and he permitted the jury to hear testimony going to the issue of vol-untariness.

B. There is also no basis for the appellant’s third contention. Gravitt claims that the evidence was insufficient to support the conviction, because the Government failed to prove the corpus delicti on the basis of evidence other than the confession. He asserts that there was no evidence other than his confession tending to prove that the firearms in question had ever been in Georgia or that they were transported between states. Therefore, the argument goes, the receipt of the confession into evidence was improper, and the conviction must be reversed.

This argument misstates the law. The requirement is only that there be extrinsic evidence corroborating the confession as a whole, which, taken together with the confession, is sufficient to support a finding of guilt beyond a reasonable doubt. Smith v. United States, 1954, 348 U.S. 147, 75 S.Ct. 194, 99 L.Ed.2d 192; United States v. Abigando, 5 Cir. 1971, 439 F.2d 827. There is no requirement that there be evidence extrinsic to the confession proving every element of the offense, and no requirement that the extrinsic evidence be sufficient to establish the corpus delicti. If there is extrinsic evidence tending to corroborate the confession, the confession as a whole is admissible; and some elements of the offense may be proven entirely on the basis of a corroborated confession. See Smith, 348 U.S. at 156, 75 S.Ct. 194; Abigando, 349 F.2d at 832-833.

We deem it unnecessary to catalogue here all of the extrinsic evidence corroborating Gravitt’s confession, or to detail specific pieces of evidence tending to confirm the truth of the story he gave the officers. There was in - the record testimony by the registration clerk at the motel, by two filling station attendants who had serviced Gravitt’s car on the morning of May 14, and by the two Panama City Beach police officers, substantiating parts of Gravitt’s story. Indeed, virtually every item of extrinsic evidence tended in one way or another to corroborate Gravitt’s substantially complete account of the crime. His was an amply corroborated confession. Taken with the other evidence in the record, it could readily support the jury’s finding that his guilt was established beyond a reasonable doubt.

Affirmed.

      . That count had charged the defendants with the possession of firearms not regístered in the National Firearms Registration and Transfer Record, in violation of 26 U. S.G. § 5861(d) (1970).

      . There is an unexplained discrepancy between the list of firearms the indictment sets out under Count' I and that it sets out under Count III. Under Count I, the indictment lists as the firearms in question the bomb, the shotgun, the rifle, and the carbine, all of which were found in the car, and adds to the list the revolver found in the appellant’s boot during the search at the station. Under Count III, the indictment lists only the firearms found in the car; it makes no mention of the revolver. We do not perceive any reason for this discrepancy. Certainly the interstate transportation of the revolver would seem to be as much a violation of subsection (g) (1) as it is of subsection (g) (2). No reason for the difference appears from anything in the record, and none was adduced in the briefs or on argument on this appeal.
      The search of Gravitt’s person at the sta-tionhouse was conceded to be valid, presumably as a search incident to an arrest. There was thus no question about the propriety of admitting the revolver into evidence.

      . Cotton having been validly arrested and taken- to the police station, the officer would have been derelict in his duty if he had left the car unattended in a dark alley in the middle of the night. The police have as much a duty to protect the property of a suspect as they have to protect the property of the rest of us, and that is what they did in this case by towing the car to the police impound. They also liad a duty to keep a record of the property that they had impounded so that it could be returned to the suspect or to its owner in due course.
      Cotton v. United States, 371 F.2d at 392.

      . The Commentary to this section of the ALI Code states that, “The Supreme Court has not had occasion to confront ‘custodial’ or ‘inventory’ search problems as they relate to the arrested individual’s person and accoutrements.” ALI, Model Code of Pre-Arraignment Procedure, § 230.6, Commentary at 189. IVe are in basic agreement with this statement, and our reading of the Supreme Court eases convinces us that none clearly controls our decision here. However, the facts of some of them are very similar to the facts before us, and we feel that it is necessary to state explicitly why we believe those cases do not constitute controlling precedent. Four cases need to be noted in this regard.
      The first is Preston v. United States, 1964, 376 U.S. 364, 84 S.Ct. 881, 11 L.Ed.2d 777. In that case the police had impounded and searched the car of a man they had arrested on vagrancy charges, claiming they suspected the car might be stolen. In an opinion by Justice Black, a unanimous Supreme Court held the search unconstitutional. The search there might have been defended on grounds similar to those on which we uphold the search in this case, since after the arrest the car apparently was sitting unprotected on an open city street. But the Government did not raise that theory in the case; instead, it relied on the theory that the search was lawful as a search incident to an arrest. The Supreme Court’s opinion is devoted entirely to a rejection of that theory. And the Court, in a later opinion, also written by Justice Black, has made it clear that the Preston holding was limited to a ruling that automobile searches of the kind involved there were not permissible as searches incident to an arrest. See Cooper v. California, 1966, 386 U.S. 58, 59-60, 87 S.Ct. 788, 17 L.Ed.2d 730. We conclude, therefore, as the Supreme Court itself apparently did in Cooper, that Preston does not in any way affect the validity of custodial searches.

        Cooper itself is the second of the four cases that need to be noted. In that case the Court, by a 5-4 margin, upheld the search of an automobile seized and searched pursuant to a California statute requiring that the police hold the automobiles in which narcotics were found until a forfeiture proceeding could be held. California law provided for the forfeiture of any automobile in which narcotics were found. The Court upheld the seizure, apparently on the basis of the government interest embodied in the forfeiture statutes, and upheld the search on grounds similar to the grounds on which we rest here :
      The forfeiture of petitioner’s car did not take place until over four months after it was lawfully seized. It would be unreasonable to hold that the police, having to retain the car in their custody for such a length of time, had no right, even for their own protection, to search it.
      386 U.S. at 61-62, 87 S.Ct. at 791. Cooper of course supports our view here; we do not rely on it squarely because it does not address the question whether custodial purposes justified seizing the car in the first place.
      The other two cases are Harris v. United States, 1968, 390 U.S. 234, 88 S.Ct. 992, 19 L.Ed.2d 1067, and Coolidge v. New Hampshire, 1971, 403 U.S. 443, 91 S.Ct. 2022, 29 L.Ed.2d 564. In Harris the police liad impounded a car as evidence. A policeman found a registration card, on the metal stripping over which the door closes, when he opened the door to close the windows to protect the car from the rain. The Court did not reach the question of the permissibility of a custodial search or seizure, because it held, in a per curiam opinion, that the officer’s act in opening the windows of the car was not a “search”. Coolidge, among the four, is the case most distant from the one before us. In Coolidge, the police seized an automobile which was lawfully and safely parked outside the defendant’s home. The State in that case did not even seek to justify the seizure and subsequent search as custodial. It resorted instead to four other grounds, which need not be detailed here. The Court rejected all of those grounds and held the search unconstitutional.

      . On oral argument the appellant placed much stress on the fact that the motel rent was prepaid for two days beyond the time of the seizure of the car, and that the car therefore could have remained where it was, in the motel parking lot, for two more days. The argument was that the police did not in fact have to seize the car to protect it, at least not until the time it was entitled to remain where it was had expired. AVe cannot accept this suggestion. For us, the crucial fact is that the officers had every reason to expect that the detention of the Gravitts would last a good deal longer than two days. Given that fact, it was reasonable for the officers to take the car whenever it was most convenient for them to do so; and presumably it was most convenient immediately following the arrest, when they were at the motel with the car keys. Indeed, the officers’ immediate seizure of the car may have been warranted on grounds beyond convenience. There were some dangers involved in allowing the car to sit unattended at the motel for two days, although to be sure the motel management would not have had it towed away during that time. The car might have been stolen or damaged while standing there; or something inside it might have been taken. The officers’ action in immediately taking custody of the car appears to have been the prudent thing to do.
      The appellant also noted repeatedly on argument that two days was sufficient time for the officers to procure a search warrant. We scarcely need explain why this fact is irrelevant. The government interests which made- this search reasonable were, as we have stressed, the police interest in protecting the property of the accused and in protecting themselves. It was not an interest in gathering evidence, such as seizing contraband or dangerous weapons. That is usually involved when a search is made on the basis of a warrant or on grounds that there exists probable cause combined with exigent circumstances. Where interests of the former kind are involved, it is of course of no consequence whether or not there was probable cause. Where it is irrelevant whether there is probable cause, there is no need for the Government to get a warrant. The warrant requirement is operative only when there is a need to determine probable cause. If no warrant need ever have been obtained, then a fortiori the fact that there was time in which to obtain one is irrelevant.

      . Requiring corroboration of a confession does not mean that the Government must introduce independent evidence on every element of the crime. Requiring independent proof of every element would go beyond the purpose of the rule which is intended to establish the reliability of confessions. United States v. Abigando, 439 F.2d at 832-833.

      . [C]orroborative evidence need not be sufficient, independent of the statements, to establish the corpus delicti.

      Opper v. United States, 1954, 348 U.S. 84, 93, 75 S.Ct. 158, 164, 99 L.Ed. 101.


author: GOLDBERG, Circuit Judge:

text:
    GUARDIAN LIFE INSURANCE COMPANY OF AMERICA, Plaintiff-Appellee, v. John B. EAGLE et al., Defendants, Robert M. Eagle, Independent Executor of the Estate of John B. Eagle, Deceased, and Eagle Lincoln Mercury, Inc., Defendants-Appellants.
    No. 73-1687
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    Sept. 10, 1973.
    Rehearing Denied Oct. 4, 1973.

      B. F. Coker, Joe K. Hendley, Dallas, Tex., for defendants-appellants.
    Larry M. Lesh, Dallas, Tex., for plaintiff-appellee.
    Before THORNBERRY, GOLDBERG and RONEY, Circuit Judges.

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

   GOLDBERG, Circuit Judge:

This diversity case arises from an attempt by Guardian Life Insurance Company, plaintiff-appellee, to rescind a $100,000 policy on the life of the late John B. Eagle on the ground that Eagle knowingly and intentionally made false statements concerning his physical condition on the policy application. The trial court ordered cancellation of the insurance and denied the counter-claim of Eagle’s beneficiaries, defendants-appellants, for the face value of the policy. We affirm.

Appellants allege three points of error: (1) that there is insufficient evidence to support the trial court’s finding that John Eagle knowingly made false statements with the intent to induce action by Guardian; (2) that Guardian has waived its right to rely on Eagle’s allegedly fraudulent statements by its negligence in conducting the initial investigation; and (3) that Guardian is estopped from claiming that it was misled by Eagle since its agent had knowledge of Eagle’s condition.

The first point can be quickly dispatched. The parties do not dispute that under Texas law an insurance company seeking to rescind a policy on the basis of false statements in the application struggles under the heavy burden of proving that the statements were (1) false, (2) known by the insured to be false, (3) material to the company’s risk, (4) made with the intention of inducing reliance, and (5) actually relied upon. See Clark v. National Life & Accident Insurance Co., 1947, 145 Tex. 575, 200 S.W.2d 820. Following trial below the very able district judge made detailed findings of fact, and he held against appellants on each of these five specifications. Although appellee’s original burden was great, it is more than equalled by the barrier confronting appellants here- — the necessity of demonstrating that the findings of the court below are clearly erroneous. 52(a) F. R.Civ.P. In this instance, the task has proven impossible of performance; for when district court findings of fact are challenged “[t]he question is not simply whether the reviewing court would have found otherwise but whether the trial court could permissibly find as it did.” Movible Offshore, Inc. v. The M/V Wilken A. Falgout, 5 Cir. 1973, 471 F. 2d 268, 271. The record shows ample evidence on which the district court could have based its findings. The court was not required to believe, given the nature and seriousness of Eagle’s condition and the frequency, duration, and variety of his medical examinations, that he was unaware of his medical history or had forgotten about previous treatments.

Appellants’ second contention of error rest largely on the decision of this Court in Jefferson Amusements Co. v. Lincoln National Life Ins. Co., 5 Cir. 1969, 409 F.2d 644. Like the present case, Jefferson involved an attempt by an insurance carrier to defeat liability on a life insurance policy under Texas law by proof of fraudulent statements concerning the health of the insured. Quoting an earlier Mississippi diversity decision, this Court noted that:

“The mere fact that the insurer makes an independent investigation . does not absolve the applicant from telling the truth nor lessen the right of the insurer to rely upon his representations, UNLESS THE INVESTIGATION either discloses the falsity of the representations or DISCLOSES FACTS WHICH WOULD PUT A PRUDENT PERSON ON FURTHER INQUIRY.”

Apperson v. United States Fidelity & Guaranty Co., 5 Cir. 1963, 318 F.2d 438, 441 [emphasis added by Jefferson Court]. Appellants argue for the application of this rule to prevent rescission on the basis of Eagle’s incomplete answers to questions concerning prior hospitalization and his physician’s non-responsive replies to a request for more detailed information. Appellants contend that Dr. McNamara’s reply, in particular, would have prompted a prudent insurer to suspect concealment of relevant medical information.

The matter of appellee’s prudence in accepting the policy on the evidence before it was argued in the district court. Questions concerning the industry practice were put to appellee’s expert witness on cross-examination. There is no allegation here that the trial judge had inadequately instructed himself on the law, and it is the clear rule in this Circuit that questions concerning the diligence and justified reliance of an insurance company are issues of fact to be governed on appeal by the clearly erroneous standard. Apperson v. United States Fidelity & Guaranty Co., supra, at 442. See also Trawick v. Manhattan Life Insurance Co. of N.Y., N.Y., 5 Cir. 1971, 447 F.2d 1293. Jefferson, which upheld the determination of the trier of fact on the matter of rescission, is not to the contrary. And we cannot say that the statements elicited of appellee’s expert, hedged as they were with comments on the great range of conduct within the insurance trade, satisfy appellant’s burden of presenting evidence indicating clear error. Rule 52(a) F.R. Civ.P.

The final argument in favor of reversal is based on the Texas rule that false representations by the insured are not sufficient justification for rescission of a policy if the insurance carrier had knowledge of the true situation. Dossett v. Franklin Life Ins. Co., 1924, 276 S.W. 1097 (Tex.Com.App., Sec. B, opinion adopted, Tex.Sup.Ct.). As in the case of all corporate persons, appellee’s knowledge must be evaluated on the basis of the information known to its agents. Appellants contend that by paying Eagle’s personal physician, Dr. McNamara, to conduct the medical examination, appellee transformed the doctor into its own agent for the purpose of considering the policy, and that McNamara’s knowledge of Eagle’s condition should therefore be attributed to appellee. This point has some support in the statutory and case law. See Article 21.02, Insurance Code, V.A.T.S.; Jefferson Amusement Co. v. Lincoln National Life Insurance Co., supra,; First Texas Prudential Ins. Co. v. Nute, 1932, 53 S.W.2d 807 (Ct. of Civil Appeals, El Paso). However, it is the clear rule in Texas that, under certain special circumstances, the insured or his beneficiaries can be estopped from setting up the agent’s knowledge as a protection against the consequences of fraud.

The decision of the Supreme Court of Texas in Odom v. The Insurance Company of the State of Pennsylvania, 1970, 455 S.W.2d 195, directs that an estoppel should operate against the insured where, as in this case, “an application for insurance is attached to and made part of the policy and is accepted and retained by the insured . . .” 455 S.W.2d at 199 & n. 3. And in Willis v. Texas Prudential Ins. Co., 1937,101 S.W. 2d 857 (Ct. of Civil Appeals, Ft. Worth), rescission of a life insurance policy was permitted in spite of an agent’s knowledge of the insured’s actual physical condition because the attached policy specifically provided — in langauge nearly identical to that used in Eagle’s application form — that only the president, vice-president, or secretary of the company had authority to waive contract provisions or receive additional information.

Appellants attempt to distinguish these cases on the ground that the allegedly incorrect statements made in Odom and Willis were provided as warranties, and were consequently subject to more stringent standards of interpretation and finality than are appropriate here. Appellants contend that in the instant case Eagle’s statements must, as a matter of state law, be considered mere representations. This result is required, we are told by Article 3.44(4), V.A.T.S., which provides “[t]hat all statements made by the insured shall, in the absence of fraud, be deemed representations and not warranties.” However, this statutory cover offers cold comfort. For we are faced here with detailed district court findings that Eagle’s representations were not made “in the absence of fraud.” The able trial judge found every element necessary to make out a case of fraud under the Texas Insurance Code. We have before us findings that material facts were deliberately misrepresented in order to induce the subsequent reliance. See National Life & Accident Ins. Co. v. Kinney, 1926, 282 S.W. 633 (Ct. of Civil Appeals, Ft. Worth). Since these findings are not clearly erroneous, the provision of Article 3.44 classifying all application statements as representations is entirely inapplicable.

Moreover, appellants’ distinction between representations and warranties provides them with little protection in their attempt to escape the effect of these Texas precedents. It is far from clear that the policy provisions in Willis were considered warranties by the Court of Civil Appeals. Although Willis does ambiguously refer to the contested portion of the insurance application as a “stipulation,” the opinion also notes the contract specification, identical to the Texas statute cited here, that “all Statements of the Insured shall, in the absence of fraud, be deemed representations and not warranties.” 101 S.W.2d at 858. A reading of the Willis opinion indicates that the Texas court was not concerned in that case with the label attached to the policy provision, but rather based its award of rescission on the contract language limiting the authority of agents to waive terms and receive information — language that closely parallels the contract between Eagle and appellee.

Likewise in Odom, though the term warranty appears explicitly in the insurance contract, the Texas Supreme Court in no way relied on that aspect of the agreement, but chose to base rescission exclusively on the fact that, as in this case, the application was attached to and made part of the policy. We cannot, consistent with Erie, interpret state decisions as turning on elements that were clearly insignificant to the deciding tribunals. Appellants have offered no adequate bases on which to distinguish these controlling Texas precedents and none appear in the record or in the findings below.

Affirmed.

      . This action was instituted by Guardian against John B. Eagle and Eagle Lincoln-Mercury, Inc. While the suit was pending, John Eagle died, and Robert M. Eagle, executor of the estate of the insured, was made a party.


author: ROSS, Circuit Judge. GIBSON, Circuit Judge

text:
    UNITED STATES of America, Appellee, v. Robert V. STEINHILBER, Appellant.
    No. 73-1056.
    United States Court of Appeals, Eighth Circuit.
    Submitted June 11, 1973.
    Decided Aug. 29, 1973.

      Donald L. Mason, Kansas City, Mo., for appellant.
    Anthony P. Nugent, Jr., Asst. U. S. Atty., Kansas City, Mo., for appellee.
    Before GIBSON, LAY and ROSS, Circuit Judges.
   ROSS, Circuit Judge.

Robert V. Steinhilber appeals his conviction, by a jury, of violating the provisions of 15 U.S.C. § 1717. The indictment alleged that Steinhilber knowingly and willfully made untrue statements of a material fact in a “Statement of Record” filed with the Department of Housing and Urban Development, an agency of the United States of America. The principal issues on appeal are whether the evidence was sufficient to prove that the statements were false, and, whether ¿the evidence was sufficient to prove that Steinhilber “knowingly and willfully” made false statements. Finding the evidence insufficient to prove that Steinhilber “knowingly and willfully” made false statements, we reverse and order the entry of a judgment of acquittal.

The two count indictment charged that on May 23, 1969, and May 25, 1969, Steinhilber made identical misrepresentations, relative to the housing development he was involved in, to the Department of Housing and Urban Development. In a “Statement of Record” filed with the Government, Steinhilber was asked to “[s]tate the availability of the water supply and whether the supply will be adequate to serve the anticipated population of the area.” Steinhilber answered, in part, “Current programming by the village calls for the installation of a water tank with a capacity of 304,000 gallons of water. This tank is being constructed and is scheduled for installation this year.”, and “In addition, the village has made arrangements for future use of Lake Winnebago as a source of water and a purification plant is now being built.” (Emphasis supplied.) The Government claims that the emphasized portions of the preceding quotations were false, and were knowingly and willfully made with knowledge of their falsity.

Steinhilber was a developer of a housing development known as Lake Winnebago. Steinhilber was also on the Board of Trustees of the incorporated Village of Lake Winnebago. On March 14, 1969, the Village of Lake Winnebago entered into a contract with Universal Tank & Iron Works, Inc., (Universal) for the construction of a 300,000 gallon above ground water tank. Thereafter “engineering function drawings” and “foundation drawings” were prepared. Steel was ordered for fabrication of the tank. The site for the tank was surveyed, and soil samples were taken and the test results were submitted to Universal. On May 5, 1969, Universal was paid the sum of $2,790. On that same day a letter was written to Universal by a Mr. Hart at the direction of Steinhil-ber which said in pertinent part:

“I am writing to inform you to place the 304,000 gallon water tank on a ‘Hold Stand-by Status’ until further notice. This is required due to labor conditions that now exist in the Kansas City area. . . ■ .
As bad as we would like to try to get the installation work done, there are certain ‘nasty’ aspects of the strike that have required almost all in the home building industry to strictly enforce this ‘shut down’. We will keep you informed as to the earliest possible date for installation.
We do desire to hold this contract in effect and as soon as the labor conditions are settled we will activate the work order for you to proceed. I will return shop drawings tomorrow with related data.”

The letter was received by Universal on May 7, 1969. On June 11, 1969, Universal advised Mr. Hart, by letter, that “with the ‘hold’ status still applicable on this contract, and with no apparent reconciliation of the problem in view, we can only allot to this project a lesser priority in our production schedule and proceed with other work that is unencumbered. . . . ”

Sometime near the 1st of April, 1969, the Village of Lake Winnebago and the Eimco Corporation entered into a contractual relationship whereby Eimco agreed to construct a water purification plant for the Village. The engineering planning of the project was then begun by Eimco. On May 7, 1969, Eimco received a letter from Jack Hart, written at the direction of Steinhilber, and dated May 5, 1969, the pertinent parts of which were almost identical with the letter to Universal quoted above.

On May 9, 1969, Eimco wrote a letter to the Village of Lake Winnebago stating that “[w]e are continuing with the drawings and this particular ‘Hold’ will not interfere with those at all . ” On May 21, 1969, and June 3, 1969, Eimco requested approval of shop drawings. On July 14, 1969, Eimco acknowledged receipt of the shop drawings as approved. Fabrication for the plant was to take approximately four and one-half months, and on September 4, 1969, Eimco directed a wire communication to its Kansas City agent inquiring relative to the Lake Winnebago project : “Please advise status of strike. Our management is anxious to ship as quickly as possible. . . . ” On October 23, 1969, a memo was directed to the Kansas City agent relative to the Lake Winnebago job: “We are waiting for your advice on this job. We now have the equipment manufactured and will be faced with storage charges if we cannot ship. Will the customer accept shipment?”

Neither the water tank nor the water purification plant, which were to work in conjunction with each other, was ever placed at the Lake Winnebago development. From approximately April 1, 1969, to October 1, 1969, there was a' construction labor strike in the Kansas City area.

Sufficiency of the Evidence

As Steinhilber properly concedes, our standard of review with regard to challenges to the sufficiency of the evidence must be that which views the evidence in the light most favorable to the Government, with all the inferences which may be properly drawn therefrom. See, e. g., Glasser v. United States, 815 U.S. 60, 80, 62 S.Ct. 457, 86 L.Ed. 680 (1942). But as we have often said:

“It is true that the government is entitled to the benefit of all reasonable inferences to be drawn from the evidence. However, where the government’s evidence is equally' strong to infer innocence of the crime charged as it is to infer guilt, the verdict must be one of not guilty and the court has a duty to direct an acquittal. . ” United States v. Kelton, 446 F.2d 669, 671 (8th Cir. 1971). Accord, United States v. Williams, 470 F.2d 1339,1343 (8th Cir. 1973).

Throughout the trial of this case both parties attached different meanings to the phrases “being constructed” and “being built”. Steinhilber argued that on the dates the statements were made the construction process had begun, while the Government contended that actual construction had not begun at the time the statements were made.

It is Steinhilber’s contention that the phrases “being constructed” and “being built” are subject to two different meanings and are therefore ambiguous. Consequently, he contends that it was incumbent upon the Government to “negative any reasonable interpretation that would make the defendant’s statement factually correct.” United States v. Dio-go, 320 F.2d 898, 907 (2d Cir. 1963). See also Johnson v. United States, 410 F.2d 38, 45 (8th Cir.), cert, denied, 396 U.S. 822, 90 S.Ct. 63, 24 L.Ed.2d 72 (1969). The Government argues, on the other hand, that the words had only one accepted meaning and therefore it was for the jury to determine whether the statements were false by applying the commonly understood meaning of the terms. See Seymour v. United States, 77 F.2d 577, 584 (8th Cir. 1935).

We note the ambiguity question because it pertains to whether Steinhilber “knowingly and willfully” made false statements. The importance of this problem was aptly pointed out in United States v. Diogo, supra, 320 F.2d at 906 n. 6:

“In prosecutions for . . . false representations the problem of interpreting ambiguous statements is frequently merged into the issue of mens rea. . . . If a defendant has not intended, by his statement, to assert the proposition which the Government has proved to be false, then he cannot ordinarily, of course, be said to have ‘knowingly’ uttered a false statement. ft

It is undisputed that the Government was required to prove that Steinhilber made the statement “knowing” it to be untrue. As early as 1875 the courts in this Circuit recognized that the word “knowingly” meant that the defendant must have a “certain and clear perception of the falsity of the claim made.” United States v. Bittinger, 24 F.Cas. 1150 (No. 14,599) (W.D.Mo.1875). Mr. Justice Blackmun while a member of this Court, has reminded that “carelessness or lack of wisdom is not equivalent to [a] knowledge of falsity . . ..” Jacobs v. United States, 359 F.2d 960, 966 (8th Cir. 1966). And as this Court has emphasized:

“ ‘Often the line between honest belief and purposeful misrepresentation is fine and indistinct, between the two however lies guilt or innocence, and where the evidence is evenly balanced between guilt and innocence, a conviction cannot stand.’ ” Gay v. United States, 408 F.2d 923, 931 (8th Cir.), cert, denied, 396 U.S. 823, 90 S.Ct. 65, 24 L.Ed.2d 74 (1969), quoting Estep v. United States, 140 F.2d 40, 45 (10th Cir. 1943).

In determining whether a statement is made with knowledge of its falsity:

“[i]t is well established that we must look to the meaning intended by the [defendant], rather than to the interpretation of the statements which the . authorities did in fact make, or even to the interpretations which the authorities might reasonably have made. . . .” United States v. Diogo, supra, 320 F.2d 905-906.

Following these principles, we hold that here the meaning of the words in question was ambiguous and the Government had the burden of negating the claim that the defendant “did not know the falsity of his statement at the time it was made, or that it was the product of an accident, honest inadvertence, or duress.” Bryson v. United States, 396 U.S. 64, 69-70, 90 S.Ct. 355, 359, 24 L.Ed.2d 264 (1969). In our opinion, this burden was not met. Without contradiction, the evidence demonstrated that Steinhilber never intimated or stated prior to making the alleged false statement that the tank and the water plant would not be placed in working order at the development. At that time money had been paid to Universal, surveys of the tank site had been made, soil samples had been taken, steel had been ordered, and engineering and shop drawings had been started. Likewise, with regard to the purification plant, it is clear that engineering and design work continued through the month of May, and significantly it appears that the water purification plant was eventually built.

Of equal significance, we think, is the testimony of the Universal and Eimco officials with regard to the meaning of the words “being constructed” and “being built”. Both officials unequivocally testified, as government witnesses, that such activities as design and engineering drawings were part of the “construction process”. But when the government counsel asked whether Universal or Eimco had actually put together the tank or the water purification plant at the time the statements were made the officials answered in the negative. This further strengthens Steinhilber’s contention that his choice of words was ambiguous, and subject to two meanings.

The Government’s ease primarily rested on the two letters placing the tank and the water purification plant on a “Hold Stand-by Status”. We do not think, however, that these letters have any tendency to prove that Steinhilber “knowingly” lied some two and one-half weeks later when he said the tank was “being constructed” and the “water purification plant” was “being built”. The letter to Universal clearly stated that the contract was not to be cancelled. And importantly the letter spoke essentially of delaying installation, and it indicated that shop drawings would be returned the next day. This evidence, coupled with the fact that Universal did not place the construction of the tank on a lesser 'production priority until June 11, 1969, leads us to the firm conclusion that the construction process could very well have been understood by Steinhilber to be under way on May 23, 1969, and May 25, 1969. Furthermore, the Eimco letter, very similar to the Universal letter, clearly did not stop the “construction process” as understood by Steinhil-ber because two days after receipt of the letter Eimco wrote that the “ ‘hold’ will not interfere” with the continued preparation of the shop drawings. And the evidence indicates that on May 23, 1969, and May 25, 1969, Eimco was continuing to work on the shop drawings.

If this were a contract action, we might be constrained to strictly construe Steinhilber’s words against him. This, however, is a criminal action. Put simply, we do not believe that the Government proved beyond a reasonable doubt that Steinhilber knowingly and willfully made false statements in his answers to the questions.

For the reasons hereinbefore expressed, the judgment of conviction is reversed, and the trial court is ordered to enter a judgment of acquittal.

GIBSON, Circuit Judge

(dissenting).

I respectfully dissent. The majority’s statement of the law is precise, however, my disagreement lies with the application of the law to this case. In short, the majority holds that the District Court had a duty to direct an acquittal on the grounds that the evidence was equally strong to infer innocence since the phrases alleged by the Government to be false were so ambiguous as to indicate that the defendant could not have had the requisite mens rea. Implicit in such a holding is the conclusion that the jury has not made a reasonable inference that the defendant “knowingly and wilfully” made false statements to the Department of Housing and Urban Development (HUD).

Concededly, the phrases “being constructed” and “being built” and the factual circumstances in this case could lead to differing inferences. One inference that could be made and could have been accepted by the jury is that the defendant interpreted his initial dealings with Universal and Eimco to mean that the tank and plant were “being constructed” and “being built,” and, therefore, his statements to HUD were not false and he did not possess the requisite mens rea. Another inference can be made and must have been found by the jury, since a verdict of guilty was rendered. The jury, in order to have been consistent with its verdict, must have concluded that the defendant knew that the tank and plant were not now “being constructed.” A “hold by” status was placed on the water system two weeks prior to the statements and no actual “on site” work was being performed at the time the defendant made the statements to HUD. Quite conceivably, the Kansas City construction strike was a convenient coincidence for the defendant to claim later that he was constructing the water system at the time the statements were made based on the preliminary matters accomplished and that his statements in this context were ambiguous. The fact that the water system was at the least being delayed and the failure of the defendant to so inform HUD can be viewed as strong evidence that the statements made were false and that the defendant knew them to be false. Further, the jury could have properly considered that, even despite the construction strike, a “hold” given at the defendant’s direction on May 5, 1969, on the fabrication of the plant at Eimco’s factory, was not necessary and offered circumstantial evidence on the defendant’s wilfullness. A diligent developer would certainly have continued with the fabrication of the system, so that it could be installed immediately after the construction strike was terminated.

I cannot say, as the majority concludes, that the Government’s evidence was “equally strong to infer innocence of the crime charged as it is to infer guilt.” United States v. Kelton, 446 F. 2d 669, 671 (8th Cir. 1971) (emphasis added). In reviewing the record in this case, I find that the Government’s evidence established beyond a reasonable doubt that the statements made were false and that the defendant “wilfully and knowingly” made these false statements. The sole purpose of the statements was to secure HUD’s approval of the project. Approval was predicated on representation of an existing fact that an adequate water supply system was in the process of being constructed and would be completed within the near future. Obviously the requirement is for the protection of the public in dealing with promoters who are long on promises and short on performance.

A reviewing court must accept the evidence in a light most favorable to the jury’s verdict. West v. United States, 359 F.2d 50, 54 (8th Cir. 1966). Further, all conflicts in the evidence and all reasonable inferences as might be reasonably drawn from the evidence must be resolved in favor of the jury’s verdict. United States v. Valez, 431 F.2d 622, 627 (8th Cir. 1970); United States v. Holt, 427 F.2d 1114, 1116 (8th Cir. 1970); Hanger v. United States, 398 F.2d 91, 108 (8th Cir. 1968), cert, denied, 393 U.S. 1119, 89 S.Ct. 995, 22 L.Ed.2d 124 (1969); Cross v. United States, 392 F.2d 360, 361 (8th Cir. 1968); Aron v. United States, 382 F.2d 965, 970 (8th Cir. 1967). Our jurisprudence is interwoven with the concept of democracy and accordingly places reliance upon a jury to try the facts of each case. The jury resolves conflicts in evidence, determines questions of fact, and reaches a verdict. The question of the defendant’s wilfullness and the interpretation of the contested statements involved factual determinations for the jury to resolve. The jury’s reasonable inferences that the statements were false and that the defendant knowingly and wilfully made those statements should be accepted by this Court.

Since the case was properly presented to the jury by the District Court’s instructions, the jury’s factual determinations should stand. I would affirm a judgment of conviction.

      . We are unaware of any reported decisions dealing with the false statement provisions of 15 U.S.C. § 1717. As a consequence, throughout this opinion, we have made reference to decisions based upon other false statement statutes. See, e. g., 18 U.S.C. § 1001. 15 U.S.C. § 1717 differs somewhat from other false statement statutes in that it uses the word “willfully”, but does not also use the word “knowingly”. The jury in this case was instructed that the false statement must be made both “willfully” and “knowingly”. The Government does not challenge the propriety of the instruction. In any event, we think the term “willfully” encompasses the element of “knowingly” for the purposes of this statute.

      . We obviously do not mean that the jury must accept as conclusive the meaning suggested by the defendant at trial. Rather the inquiry is: what did the defendant mean when he uttered the words?


author: PHILLIPS, Chief Judge.

text:
    NASH & ASSOCIATES, INC., et al., Plaintiffs-Appellants, v. LUM’S OF OHIO, INC., et al., Defendants-Appellees.
    No. 73-1049.
    United States Court of Appeals, Sixth Circuit.
    Argued June 8, 1973.
    Decided Sept. 5, 1973.

      Charles E. Pierson and Daniel G. LaPorte, Akron, Ohio, on brief, for plaintiffs-appellants.
    James B. Koplow, Cleveland, Ohio, on brief, for defendants-appellees.
    Before PHILLIPS, Chief ■ Judge, LIVELY, Circuit Judge, and O’SULLIVAN, Senior Circuit Judge.
   PHILLIPS, Chief Judge.

Appellant Nash and Associates, Incorporated (Nash) brought suit on September 21, 1971, against Lum’s of Ohio 283 Corporation, Lum’s Incorporated (Lum’s) and Full Disclosure Sales, Incorporated (Full Disclosure) alleging fraudulent statements and omissions in connection with the offer and sale of a fast food restaurant franchise. Suit was brought under §§ 12(2) and 17(a) of the Securities Act of 1933, 15 U.S.C. §§ 771(2) and 77q(a) and § 10(b) of the Securities Exchange Act of 1934, 15 U. S.C. § 78j(b); also under Rule 10b-5 promulgated under the latter statute. Additionally pendent jurisdiction was asserted for common law fraud and for violations of the Ohio blue sky laws.

On December 3, 1971, Lum’s moved for dismissal on the ground that the complaint failed to state a claim upon which relief could be granted or in the alternative for summary judgment. Rules 12(b)(6) and 56, Fed.R.Civ.P. Both parties filed affidavits. On August 23, 1972, District Judge Thomas D. Lambros held that the franchise package did not constitute a security under either federal act. Pendent jurisdiction over the state issues was declined and the suit dismissed.

Full Disclosure never filed an answer to the complaint and a default was entered by the Clerk. The District Court denied Nash’s application for the entry of a default judgment on the ground that Lum’s defense of lack of federal subject matter jurisdiction inured to the benefit of the defaulting party. On this appeal Nash asserts that the District Court erred in holding that neither the initial offer nor the actual franchise agreement constituted securities under the federal statutes. It is further urged that the District Court erred in declining pendent jurisdiction over the state law claims and in not entering a default judgment against Full Disclosure.

We affirm.

Viewing the affidavits submitted by the parties in the light most favorable to the appellant, we agree with the District Court that there are no genuine issues of material fact. Rule 56, Fed.R.Civ.P. We find that the initial offer and the actual agreement envision nothing more than a traditional franchise agreement. As such the arrangement is beyond the scope of the federal securities legislation. Chapman v. Rudd Paint & Varnish Co., 409 F.2d 635 (9th Cir. 1969); Wieboldt v. Metz, 355 F. Supp. 255 (S.D.N.Y.1973); See, Note, 33 Ohio St.L.J. 718 (1972).

In 1968, the Nash promoters became interested in obtaining a Lum’s restaurant franchise in the Akron, Ohio area. The promoters were encouraged by Lum’s Ohio sales agent, Full Disclosure, to visit the franchisor’s corporate headquarters in Miami, Florida. At that time they were exposed to a new restaurant franchise being promoted known as Abner’s Beef House. After speaking to various sales agents and reading the company’s literature, Nash decided to purchase an Abner’s franchise.

Nash selected a manager, who was trained by Lum’s, and the restaurant opened in February of 1970. Within three months thereafter, Lum’s decided to discontinue its Abner’s operations. Thus the anticipated national advertising campaign did not materialize and Nash failed to prosper.

Nash brought this suit to rescind the franchise agreement and to recover its expenses. The central issue is whether either the offer or the agreement constitutes an investment contract and therefore a security under the federal statutes. An examination of the affidavits and the agreement convinces us that it is not.

At the time the parties began their negotiations, Lum’s was a solvent and well established owner, operator, and franchisor of fast food restaurants. The corporation had over 200 restaurants open and had gross sales of over $27,000,000. It is clear that the franchisor was to provide a great deal of assistance to the franchisee and this fact is stressed in Lum’s promotions. However, although the assistance was to be extensive, it also is clear that nothing more than assistance was contemplated and that the ultimate responsibility for local success rested with the franchisee.

The franchisee was .to select a site and this location was subject to the approval of Lum’s. Had the franchisee desired assistance in locating a site, the franchisor agreed to provide it. After a site was agreed upon, the franchisor agreed to provide architectural plans, including adaptations to meet local requirements. The plan also called for Lum’s originally to lease the building and then sublease it to Nash.

Lum’s further agreed to train the franchisee and his employees and to provide a special crew to operate the restaurant for the first two weeks. Extensive bookkeeping and advertising services were also promised.

In return for these services and the use of the Abner’s name, the franchisee agreed to pay $15,000 in franchise and development fees. The franchisee was also bound to purchase an equipment package from the franchisor for $34,000 or to purchase an equivalent. Monthly rental was $1,641.67 plus 5% of gross sales. An additional 2% of gross sales was to be paid into an advertising account. Further an Abner’s franchisee was required to meet certain quality standards in products, accessories, and building maintenance. A prescribed amount of insurance had to be carried and financial reports filed. In addition Nash was required to send at least three employees to the franchisor’s training school.

While neither the Securities Act nor the Exchange Act specifically include franchise agreements within their definition of a security, both include investment contracts. § 2(1) of the Securities Act, 15 U.S.C. § 77b(l) and § 3(a)(10) of the Exchange Act, 15 U.S.C. § 78c(a)(10). It is the contention of Nash that its agreement constitutes an investment contract.

In determining whether a particular transaction qualifies as an investment contract the treatment afforded a transaction will not turn on the title employed by the parties. The courts will look through form to economic reality in light of the entire transaction. S.E.C. v. C. M. Joiner Leasing Corp., 320 U.S. 344, 64 S.Ct. 120, 88 L.Ed. 88 (1943); See, Tcherepnin v. Knight, 389 U.S. 332, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967). The term investment contract was defined by the Supreme Court in S.E.C. v. W. J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946) as:

“an investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party. . . . ” 328 U.S. at 298-299, 66 S. Ct, at 1103.

While Howey dealt with an investment contract under the Securities Act, the definition is equally applicable to the Exchange Act. Tcherepnin v. Knight, supra.

Howey emphasized the need for flexibility in examining a potential investment contract in order to, “meet the countless and variable schemes devised by those who seek the use of the money of others on the promise of profits.” 328 U.S. at 299, 66 S.Ct. at 1103.

The major stumbling block for franchisees attempting to employ the protection of the securities statutes has been the Howey requirement that profits are to come solely from the efforts of others. In the traditional franchise arrangement the franchisee manages the local business and it therefore can not be said that his return comes solely from the efforts of others. However even in those situations where the franchisee has had virtually no control over the local operation, some courts have refused to declare the agreement an investment contract. See, Mr. Steak, Inc. v. River City Steak, Inc., 324 F.Supp. 640 (D.Colo.1970), aff’d, 460 F.2d 666 (10th Cir. 1972). See also, S.E.C. v. Koscot Interplanetary, Inc., CCH Fed. Sec.L.Rep. ff 93,96.0 (N.D.Ga.1973).

In response to the definitional difficulties under the Howey requirements, some authorities have advocated a less restrictive approach. The Ninth Circuit recently found an investment contract in a situation where the investor was required to perform some personal services. The Court distinguished the investor’s nominal duties from those managerial services necessary to determine the ultimate success or failure of the enterprise. S.E.C. v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476 (9th Cir. 1973). California authorities would consider an enterprise to involve an investment contract when the investor’s capital is subject to the risks of the promoter’s business. See, Silver Hills Country Club v. Sobieski, 55 Cal.2d 811, 13 Cal.Rptr. 186, 361 P.2d 906 (1961). See also, 49 Ops.Cal.Atty.Gen. 124 (1967). Still other authorities would require an investor to demonstrate both lack of managerial control and the subjection of the investment to the risks of the promoter’s business. State v. Hawaii Market Center, Inc., 485 P.2d 105 (Hawaii 1971); S.E.C. Securities Act Release No. 5211, Exchange Act Release No. 9387 (November 30, 1971). The latter position was applied by the same District Court that had previously issued the Mr. Steak opinion. Venture Investment Co., Inc. v. Schaefer, 3 Blue Sky L.Rep. If 71,031 (D.Colo.1972), aff’d on other grounds, 478 F.2d 156 (10th Cir. 1973).

We find the general concept of less restrictive approach attractive in view of the broad remedial purposes of the federal legislation and the importance of flexibility as stressed in Howey. However we need not now set forth the extent to which this Circuit would apply any of these theories. Here it is apparent that the franchise before us would not qualify as an investment contract under any of these positions. We therefore postpone establishing criteria until we are presented with a factual situation requiring it.

In the present case the contested agreement has none of the traditional qualities of a security. The franchisor is adequately capitalized and the franchisee is in control of his own business. This situation is not within the scope of either the Securities Act or the Exchange Act. Nash has invested in its own business. It has purchased the right to use a name and to receive many specialized services. Nor can it be said that a multimillion dollar franchisor was in need of the appellant’s fees for its initial capital or that Abner’s was a highly speculative venture.

Accordingly we hold that neither the offer nor the actual franchise agreement constituted an investment contract. Therefore the judgment of the District Court on the federal securities claims is affirmed. As the federal issues were dismissed before trial, the District Court’s decision to decline pendent jurisdiction over the state issues was also proper. United Mine Workers v. Gibbs, 383 U.S. 715, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). This court further holds that the District Court did not abuse its discretion in refusing to enter a default judgment against Full Disclosure.

Affirmed.

      . At the time of the transaction giving rise to this suit, Full Disclosure was operating under the name of E.C.K. Chivers & Associates, Incorporated.

      . The Mr. Steak decision is more extensively reviewed in 24 Vand.L.Rev. 638 (1971).


author: McWilliams, circuit judge.

text:
    Monique PREUX, Petitioner, v. IMMIGRATION AND NATURALIZATION SERVICE, and John L. Todd, District Director, Respondents.
    No. 73-1083.
    United States Court of Appeals, Tenth Circuit.
    Argued and Submitted July 12,1973.
    Decided Sept. 7, 1973.
    James R. Barash, Colorado Springs, Colo. (Loa E. Bliss, Colorado Springs, Colo., on the brief), for petitioner.
    Bruce R. Heurlin, Atty., Dept, of Justice (John L. Murphy, Chief, Government Regulations Section, Crim. Div., Washington, D. C., on the brief), for respondents.
    Before BREITEN STEIN, Mc-WILLIAMS and BARRETT, Circuit Judges.
   McWilliams, circuit judge.

Monique Preux, a Belgian national, has filed in this court pursuant to 8 U. S.C. § 1105(a) a petition to review an order of the Immigration and Naturalization Service that she be deported. In our view the- order of deportation is proper and should be affirmed.

Preux first entered the United States on a visitor’s visa on November 28, 1969, and while in the United States gave birth to a child. Preux thereafter returned with the child to Belgium and later reentered the United States with the child on June 25, 1971, on a six months nonimmigrant visitor’s visa. Accordingly, the visitor’s visa expired on December 24, 1971. Preux, however, did not then leave the country and has thereafter at all times resisted efforts to deport her.

After deportation proceedings, an order was entered that she be deported pursuant to the provisions of 8 U.S.C. § 1251(a)(2). The precise grounds for deportation, and this we deem to be of importance, was simply that she had overstayed the time limitation in her visitor’s visa and was accordingly no longer lawfully within the United States.

Preux concedes that she has overstayed her visitor’s visa, but asserts that because of the ameliorative provisions of 8 U.S.C. § 1251(f) she cannot be deported. Accordingly, 8 U.S.C. § 1251(f) is at the heart of the present controversy. That statute reads as follows:

“The provisions of this section relating to the deportation of aliens within the United States on the ground that they were excludable at the time of entry as aliens who have sought to procure, or have procured visas or other documentation, or entry into the United States by fraud or misrepresentation shall not apply to an alien otherwise admissible at the time of entry who is the spouse, parent, or a child of a United States citizen * *

It is Preux’s theory of the case that she obtained her six months visitor’s visa as the result of fraud and misrepresentation, the fraud and misrepresentation being that when she obtained the six months visitor’s visa she had a concealed intent not to leave at the end of six months and, on the contrary, intended to stay permanently in the United States, and that had she revealed her true intent in this regard she would have been denied a visitor’s visa. Such, according to Preux, brings into play the humanitarian provisions of 8 U.S.C. § 1251(f) and precludes her deportation.

This precise argument has been recently considered, and in each instance rejected, by the Ninth and Seventh Circuits. Lourdes Cabuco-Flores v. Immigration and Naturalization Service, 477 F.2d 108 (9th Cir. 1973), and Milande v. Immigration and Naturalization Service, 484 F.2d 774 (7th Cir. 1973).

In Cabuco-Flores, the Ninth Circuit held that a deportation order based on overstaying one’s visitor’s visa did not bring into play the provisions of 8 U.S. C. § 1251(f) because the deportation order “did not depend directly or indirectly upon the asserted misrepresentation in obtaining the visa.”

In Milande, the Seventh Circuit “agreed” with the ruling in Cabuco-Flores and in like fashion held that the provisions of 8 U.S.C. § 1251(f) are “available only when the fraud is relevant to the charge for which deportation is sought.”

Accordingly, in both Cabuco-Flores and Milande, it was held that one subject to a deportation order on the grounds that his visitor’s visa had expired could not invoke the provisions of 8 U.S.C. § 1251(f) on the plea that when he obtained his visitor’s visa he did so with fraud and misrepresentation in that he did not intend to leave when his visitor’s visa expired and that he intended to stay permanently in the United States. We subscribe to both the reasoning and the result in Cabuco-Flores and Milande.

We are not unaware of Immigration and Naturalization Service v. Errico, 385 U.S. 214, 87 S.Ct. 473, 17 L.Ed.2d 318 (1966), which did not deal with an overstayed visitor’s visa, but concerned two persons who had gained entry into the United States as immigrants, as opposed to visitor status, by fraud and misrepresentation. However, as was deemed to be true in both Cabuco-Flores and Milande, we believe our disposition of the present controversy to be in full accord with the reasoning of Errico. Errico suggests to us, too, that the provisions of 8 U.S.C. § 1251(f) may operate as a waiver of a deportation charge if, and only if, the deportation charge “results directly from the misrepresentation.” Such is not true in the instant case.

Order affirmed.