author: IRVING R. KAUFMAN, Circuit Judge:

text:
    In the Matter of the NEW YORK, NEW HAVEN AND HARTFORD RAILROAD COMPANY, Debtor.
    Nos. 690, 691, Dockets 71-2101, 72-1009.
    United States Court of Appeals, Second Circuit.
    Argued April 23, 1973.
    Decided May 10, 1973.
    Manny H. Smith, Atty., I. C. C., Washington, D. C. (Harlington Wood, Jr., Asst. Atty. Gen., Irwin Goldbloom, Sp. Litigation Counsel, James F. Dauseh, Atty., Dept, of Justice, Washington, D. C., Fritz R. Kahn, Gen. Counsel, Leonard S. Goodman, Associate Gen. Counsel, I. C. C., Washington, D. C., on the brief), for appellants United States and Interstate Commerce Comm.
    Joseph Auerbach, Boston, Mass. (James Wm. Moore, Joseph W. Bishop, Jr., New Haven, Conn., Sullivan & Worcester, Nancy F. Gans, Boston, Mass., on the brief), for appellee Richard Joyce Smith, Trustee of the Property of the New York, New Haven & Hartford Railroad Co., Debtor.
    Before BREITENSTEIN, KAUFMAN and MANSFIELD, Circuit Judges.

       United States Court of Appeals, Tenth Circuit, sitting by designation.

   IRVING R. KAUFMAN, Circuit Judge:

This appeal involves a skirmish in the larger and seemingly endless battle of the bankrupt New York, New Haven and Hartford Railroad (“New Haven”) and the bankrupt Penn Central Transportation Co. (“Penn Central”) to achieve a workable long-term solution to their financial problems. We are asked to enter the fray and interpret § 77(c) (2) of the Bankruptcy Act, 11 U.S.C. § 205(c)(2), which provides, in pertinent part, that the “trustees [appointed by the district court under § 77(c)(1) to administer the railroad’s affairs] and their counsel shall receive only such compensation from the estate of the debtor as the judge may from time to time allow within such maximum limits as may be approved by the [Interstate Commerce] Commission.” Our intervention is sought in the context of an appeal from two orders of Judge Anderson, sitting in the District Court for the District of Connecticut, who was ably supervised the current New Haven reorganization proceedings since their inception in July, 1961. In Order No. 652, entered on August 30, 1971, Judge Anderson awarded to Foster Kent Sistare, Esq., $8,425.00 as compensation for services rendered and $3,144.40 for expenses. Sistare previously had been appointed by the court as “court’s counsel” to perfect an equitable lien and constructive trust declared by Judge Anderson upon New Haven- assets transferred to the Penn Central. The payment was ordered without prior submission of the claim to the Commission. Order No. 656, entered on November 9, 1971, concerned a claim, unrelated to the claim presented by Sistare, filed by Tate & Ervin, a Philadelphia law firm, in connection with services performed as a Special Counsel to the New Haven trustee. Although Judge Anderson referred to the Commission Tate & Ervin’s request for $4,646.00 compensation, he allowed, without referral, payment of $2,055.28 for disbursements.

The Commission appealed from both orders. It argues here that under § 77(e)(2) of the Bankruptcy Act, any payments to these attorneys out of the debtor’s estate that have not been submitted to the Commission are invalid. The New Haven trustee asserts, however, that § 77(c)(2) cannot control payments to Sistare — for either compensation or disbursements — because he is neither one of the “trustees” nor “their counsel”. As for the expense claims of Tate & Ervin, it is the trustee’s position that the term “compensation” as used in § 77(c)(2) does not include disbursements and, accordingly, § 77(c)(2) does not govern the award of expenses to that firm. As to Sistare, we agree with the trustee that no -prior submission to the Commission was required because Sistare was not counsel to the trustee. Accordingly, Order No. 652 is affirmed. We were informed at oral argument, however, that all disbursement claims of Tate & Ervin, including the claim that is the subject of this appeal, have been submitted voluntarily to the Commission. In light of this development, we conclude that the appeal from Order No. 656 should be dismissed for mootness.

I.

A discussion of the New Haven reorganization proceedings, especially their relationship to the ill-starred merger of the Pennsylvania Railroad and the New York Central Railroad, will prove helpful in placing the orders under consideration in their proper context.

Prior to its inclusion in the Penn Central system, the New Haven was the largest railroad in New England and the sixth largest in the Northeast region. New Haven Inclusion Cases, 399 U.S. 392, 401, 90 S.Ct. 2054, 26 L.Ed.2d 691 (1970). In addition to a crucial role as a commuter line, most particularly in the New York City area, “its freight service [was] considered to be of extreme importance to the industrial well-being of southern New England.” New York, N. H. & H. R. R. Trustees Discontinuance of Passenger Service, 327 I.C. C. 77, 80 (1965). Despite its importance, however, “[t]he financial history of the New Haven . . . for decades [has been] a history of extreme vicissitudes,” 399 U.S. at 402, 90 S.Ct. at 2063. To its dismay, the railroad is no stranger to the Bankruptcy Court. The New Haven first filed a petition for reorganization in 1935 and did not emerge from those proceedings until 1947. Although all but the most senior secured interests were eliminated during this reorganization, the New Haven was still unable to operate as a viable enterprise. By 1961, the railroad’s monthly cash deficit approached $1.5 million and on July 7, 1961, its management again filed a petition for reorganization under § 77 of the Bankruptcy Act. The Connecticut district court approved the petition and trustees were appointed to administer the failing railroad.

During succeeding years, the court appointed trustees continued to operate the New Haven’s passenger and freight lines despite staggering losses. Since the previous decade had demonstrated convincingly that the New Haven’s traffic patterns could not generate sufficient revenues to meet its costs, no serious consideration was ever given to a reorganization plan that left the New Haven as an independent operating enterprise. Instead, the trustees concentrated their efforts on seeking a merger with a larger, financially healthy railroad. The eagerly hoped for panacea soon appeared when, in March, 1962, the Pennsylvania Railroad and the New York Central Railroad formally sought merger approval from the Commission. Within three months, the New Haven trustees filed a petition with the Commission seeking inclusion of the New Haven’s operations in the merged railroad system.

On April 6, 1966, after more than four years of continued deficit operations by the New Haven, the Commission approved the proposed merger, subject to the condition that the “Pennsylvania New York Central Transportation Company ... be required to include in the transaction all the New York, New Haven and Hartford Railroad Company . . . upon such fair and equitable terms as the parties may agree subject to the approval of the Bankruptcy Court and the Commission.” Pennsylvania R. R.—Merger—New York Central R. R., 327 I.C.C. 475, 553 (1966), modified in other respects, 330 I.C.C. 328, aff’d sub nom., Erie-Lackawanna R. R. v. United States, 279 F. Supp. 316 (S.D.N.Y.1967), aff’d sub nom., Penn-Central Merger and N & W Inclusion Cases, 389 U.S. 486, 88 S.Ct. 602, 19 L.Ed.2d 723 (1968). After the Commission’s decision was filed, the New Haven trustees and the Pennsylvania and New York Central Railroads submitted to the Commission a Purchase Agreement which contemplated an exchange of all of the New Haven’s assets for cash and securities of the Penn Central. Upon receipt of the Purchase Agreement, the Commission conducted an independent review and concluded that $125 million was a “fair and equitable” price for New Haven’s assets. Pennsylvania R. R.—Merger—New York Central R. R., 331 I.C.C. 643 (1967). Almost immediately thereafter, different classes of New Haven bondholders challenged the Commission’s evaluation. Review was sought simultaneously in a three-judge district court in the Southern District of New York, pursuant to 28 U.S.C. § 2325, and in the Connecticut district court. Both courts independently concluded that $125 million was an inadequate price and remanded to the Commission for further proceedings. New York, N. H. & H. R. R. Co., First Mortgage 4% Bondholders’ Committee v. United States, 289 F.Supp. 418 (S.D.N.Y.1968); In the Matter of New York, N. H. & H. R. R. Co., 289 F.Supp. 451 (D.Conn.1968).

The Commission then proceeded to hold further hearings. On December 2, 1968, it announced a reevaluation of New Haven’s assets at $140 million. New Haven bondholders again challenged the Commission’s evaluation in both district courts.

By this time, however, New Haven’s financial condition had become so desperate that despite a compelling public need for its services, train operations could no longer be continued under these circumstances. Accordingly, on December 24, 1968, Judge Anderson authorized immediate transfer of all New Haven assets to Penn Central, “leaving the exact amount and form of consideration to be paid by Penn Central to be settled finally at a later date.” In the Matter of New York, N. H. & H. R. R. Co., 457 F. 2d 683, 685 (2d Cir. 1972). Thus, New Haven’s only remaining “asset” is its right to receive “fair and equitable” compensation from Penn Central.

The second round of proceedings brought by objecting bondholders in the two district courts was concluded in mid-1969. In May of that year, the Connecticut district court again rejected the Commission’s evaluation as too low, finding that a more accurate asset value was approximately $175 million. In the Matter of New York, N. H. & H. R. R. Co., 304 F.Supp. 793 (D.Conn.1969). The three-judge district court, however, approved the Commission’s revised evaluation. New York, N. H. & H. R. R. Co., First Mortgage 4% Bondholders’ Committee v. United States, 305 F.Supp. 1049 (S.D.N.Y.1969). Since a direct appeal to the Supreme Court of the three-judge court’s decision was taken under 28 U.S.C. § 1253, the Supreme Court granted certiorari to the Court of Appeals for the Second Circuit in advance of its judgment on an appeal taken from the decision of the Connecticut district court so that both cases could be heard together. 28 U.S.C. §§ 1254(1), 2101(e).

The Supreme Court’s decision, handed down on June 29, 1970, affirmed Judge Anderson’s evaluation of the New Haven assets. New Haven Inclusion Cases, supra. Unfortunately, the Court’s decision did not terminate the dispute. Only eight days prior to the Supreme Court’s decision, the mighty Penn Central filed its petition for reorganization under § 77 of the Bankruptcy Act in the District Court for the Eastern District of Pennsylvania. Since Penn Central securities, which overnight became virtually worthless, were to comprise a significant portion of the payment to the New Haven estate, the Supreme Court remanded the case for “[fjurther proceedings before the Commission and the appropriate federal courts ... to determine the form that Penn Central’s consideration to New Haven should properly take and the status of the New Haven estate as a shareholder or creditor of Penn Central.” 399 U.S. at 489, 90 S.Ct. at 2108.

Upon remand, Judge Anderson determined that the Penn Central’s bankruptcy, and the attendant decline in value of its securities, rendered the earlier plan for compensation to the New Haven estate wholly inádequate. Moreover, the Penn Central’s hopeless financial condition indicated that its general creditors would emerge from the Penn Central reorganization proceedings empty-handed. Judge Anderson, therefore, sought to give the New Haven estate secured-creditor status by declaring “an equitable lien ... on all of the former assets transferred by the New Haven to Penn Central, exclusive of (a) rolling stock and (b) the New Haven’s one-half interest in -the excess income from the Grand Central [Terminal] properties” and, as to “the latter item of property [by declaring] a constructive trust in favor of the New Haven estate.” In the Matter of New York, N. H. & H. R. R. Co., 330 F.Supp. 131, 142 (D. Conn.1971).

This order provoked immediate action by Judge Fullam of the Eastern District of Pennsylvania, who was overseeing reorganization of the Penn Central. Believing that Judge Anderson lacked jurisdiction to enter an order affecting Penn Central assets, Judge Fullam enjoined any person “from taking any action which would enforce, collect, or cause to be perfected or paid any claim against the [Penn Central] or its estate arising out of the inclusion of the New Haven into the [Penn Central], other than in these proceedings, or which would interfere with the primary jurisdiction of this Court to deal with properties in its possession or under its control . . . .”

On June 22, 1971, Judge Anderson responded with the following order:

For the purpose of implementing this court’s Order [imposing an equitable lien and a constructive trust on assets formerly owned by the New Haven], this court, on its own motion, appoints Foster Kent Sistare, Esquire, as the court’s counsel to take such steps . . . as he may deem necessary or appropriate to preserve the equitable lien and constructive trust declared by this court ....

Sistare then made appropriate filings in Massachusetts, Rhode Island, Connecticut, and New York to record the equitable lien on assets formerly owned by New Haven and now held by the Penn Central.

The Penn Central trustees, however, who had appeared before Judge Anderson to object to entry of the equitable lien order, appealed that order to this court. On March 17, 1972, we reversed Judge Anderson, holding that he lacked subject matter jurisdiction to issue the order. In the Matter of New York, N. H. & H. R. R. Co., 457 F.2d 683 (2d Cir. 1972). Recognizing that the Commission is a “common denominator” between the Connecticut and Pennsylvania district courts, the case was remanded to the Commission to “consolidate the Penn Central reorganization and New Haven inclusion proceedings so as to consider the terms of the New Haven inclusion as ‘a portion of the reorganization of Penn Central . . . .’” Id. at 691.

Thus, at the present time, the New Haven estate is a shell, awaiting determination in the Penn Central reorganization of the amount and form of compensation it will receive as payment for the assets earlier transferred to the Penn Central. Having set forth this history, essential for a complete understanding of the context in which we decide this case, we now turn to consideration of the two orders before us.

II.

The claim for compensation and reimbursement filed by Sistare on August 26, 1971, detailed the expenditures in time and money made in an effort to perfect the equitable lien, described earlier, fixed by Judge Anderson. It sought compensation of $8425.00 for services performed by Sistare and his associates between June 23 and July 15, 1971. In addition, Sistare sought reimbursement of itemized expenses totalling $3,144.40. More than $1,200 of this sum represented actual recording fees and travel expenses incurred by Sistare; the balance consisted of payments by Sistare to other attorneys retained by him to assist in the recording procedures.

The Commission contends that Judge Anderson erred in refusing to initially refer Sistare’s claim to it for determination of maximum limits. It seeks to rely on either § 77(c)(2), previously quoted, which gives the Commission authority to set a ceiling on compensation of trustees and their counsel, or, in the alternative, on § 77(c) (12), which provides, in part, that “ [w] ithin such maximum limits as are fixed by the Commission, the judge may make an allowance, to be paid out of the debtor’s estate, for the actual and reasonable expenses (including reasonable attorney’s fees) incurred in connection with the proceedings and plan by parties in interest and by reorganization managers and committees or other representatives of creditors and stockholders . . . . ”

A consideration of the precise statutory language as it applies to the instant facts demonstrates -the error of the Commission’s argument. As Judge Anderson made abundantly clear during a hearing held on November 9, 1971, he appointed Sistare “in order to prevent a judgment of this Court from being turned into an utter futility .... It had nothing to do with the [New Haven] Trustee. The Trustee didn’t have a thing to do with it. This was entirely the Court’s action.” Indeed, the Commission concedes that in light of Judge Fullam’s order, “it would have been improper for the New Haven trustee to have himself attempted to record the lien or to have retained counsel to perform that task.” Since Sistare was not counsel to the trustee, the Commission cannot assert authority over his compensation under § 77(c)(2) merely because his appointment was triggered by the trustee’s inability to undertake this task or because perfecting the equitable lien may have benefitted the New Haven estate.

Similarly, § 77(c) (12) does not provide the Commission with jurisdiction over payments to Sistare for compensation and disbursements. Since Sistare was appointed by Judge Anderson as “court’s counsel,” § 77(c) (12) would apply only if we reached the extraordinary conclusion that Judge Anderson is either a party in interest or a reorganization manager, a suggestion we reject as totally devoid of merit.

The Commission urges us, however, to give an expansive reading to either § 77(c)(2) or § 77(c)(12) in order to maximize its powers to review payments made in connection with a reorganization proceeding. We recognize that Congress, in granting the Commission authority to establish payment ceilings, sought “to restrain the former practices common to equity receiverships by which exorbitant fees were obtained by the reorganizers.” 5 Collier, Bankruptcy ¶ 77.28 at 591. But we do not believe that this legislative purpose dictates a stretching of carefully constructed language in this concededly sui generis situation. Certainly the district court does not require the Commission’s assistance in passing upon Sistare’s modest claims. Indeed, if Congress intended to indicate a belief that courts lacked the competence of the Commission to pass on compensation in any circumstances, it hardly would have authorized, as it has, judicial allowance of compensation for a special master appointed under § 77(c) (13) without prior submission to the Commission for establishment of maximum limits. We conclude, therefore, that since Sistare does not fall within the confines of §§ 77(c)(2) or 77(c) (12), submission of his claim for compensation and disbursements to the Commission was not required.

III.

The Commission has appealed as well from Judge Anderson’s refusal to refer to it for approval Tate & Ervin’s claim for expenses in the amount of $2,055.28. Since the fortunes of the New Haven were so tightly linked to the Penn Central reorganization, Judge Anderson authorized the New Haven trustee to “intervene generally in the proceedings for reorganization of Penn Central” and “to employ local counsel in Pennsylvania that can represent [the trustee] before the United States District Court for the Eastern District of Pennsylvania .” Tate & Ervin were retained to perform these services. Since the firm was counsel to the New Haven trustee, its claim for hourly compensation has been submitted to the Commission. The dispute centers, therefore, on whether the reference in § 77(c)(2) to “compensation” includes out-of-pocket disbursements, such as travel expenses, telephone charges, and duplication costs, or is limited solely to payments for an attorney’s services.

The Commission urges us to construe the term “compensation” to include disbursements in order to preclude the possibility that attorneys may be paid twice for the same item of expense. Such overlapping is theoretically possible because in setting maximum limits for hourly compensation, the Commission includes an allowance for general overhead expenses, such as rent and secretarial salaries, involved in operating a law office. If attorneys are allowed to present their expense claims to the district court without prior submission to the Commission, it is conceivable, the Commission argues, that the district court might allow payment of some expenses already approved by the Commission in computing hourly compensation.

The trustee, in response, points to a provision in § 77(e) (12) which allows payment from the debtor’s estate, within limits set by the Commission, “for the actual and reasonable expenses incurred in connection with the proceedings and plan and reasonable compensation for services in connection therewith by trustees under indentures . . . .” It is urged that this clause demonstrates Congressional awareness of the distinction between hourly compensation and expenses; therefore, the limited reference in § 77(c)(2) to “compensation” compels the conclusion that disbursements are not included within the meaning of that term. In addition, the Commission concedes that in an earlier decision involving the law firm of Sullivan & Worcester, also counsel to the New Haven trustee, it did not require prior submission of disbursement claims. New York, N. H. & H. R. R., 312 I.C.C. 697, 700 (1962). Finally, we note that even after maximum limits have been approved by the Commission, claims are still subject to allowance by the district court, which then could eliminate any overlapping amounts in the payments.

Although the Commission urges us to reach a determination on the merits of this part of the dispute, we are unable to do so, given the present posture of the appeal. As noted in our reference to the Sullivan & Worcester case, supra, the Commission’s current position represents a turnabout from its earlier approach. Indeed, the November 9, 1971, hearing before Judge Anderson appears to be the first occasion at which the trustee was apprised of the Commission’s view. In light of the Commission’s new policy on submission of disbursement claims, Tate & Ervin not only has submitted all subsequent disbursement claims to the Commission, but by letter dated February 8, 1972, the firm voluntarily submitted the disbursement claims which are the subject of the instant appeal to the Commission “for the fixing of maximum limits thereon.”

Counsel’s obvious willingness to submit their claims to the Commission effectively eliminates any controversy between the parties as to the correct interpretation of the term “compensation” in § 77(c)(2), since the Commission may now exex’cise the reviewing authority it has sought to establish in this proceeding. Thus, the facts “demonstrate that ‘there is no reasonable expectation . ’ ”, United States v. W. T. Grant Co., 345 U.S. 629, 633, 73 S.Ct. 894, 897, 97 L.Ed. 1303 (1953), quoting from United States v. Aluminum Co. of America, 148 F.2d 416, 448 (2d Cir. 1945), that Tate & Ervin subsequently will refuse to submit its disbursement claims to the Commission. The appeal, therefore, has become moot. See Gray v. Board of Trustees of the University of Tennessee, 342 U.S. 517, 72 S.Ct. 432, 96 L.Ed. 540 (1952); Watkins v. Chicago Housing Authority, 406 F.2d 1234 (7th Cir. 1969); Greater Houston Chapter of the American Civil Liberties Union v. Houston Independent School District, 391 F.2d 599 (5th Cir. 1968); 6A Moore, Federal Practice ¶ 57.13. Moreover, we do not deem it appropriate to render an advisory opinion simply because a similar question may arise in the future. Accordingly, the appeal from Judge Anderson’s refusal to direct that Tate & Ervin’s disbursement claims be referred to the Commission is dismissed as moot.

      . This procedure is designed to take advantage of the Commission’s expertise in railroad reorganization matters by having it set a maximum amount of compensation which is fair and reasonable in light of the work involved. See 5 Collier, Bankruptcy ¶ 77.28.

      . The firm’s present name is Gratz, Tate, Spiegel, Ervin & Ruthrauff. We refer to it throughout this opinion as Tate & Ervin.

      . This statute provides that “[a]n . injunction restraining the enforcement, operation or execution ... of any order of [the Commission] shall not be granted unless the application therefor is heard and determined by a district court of three judges. . . . ”

      . Section 77 (a) of the Bankruptcy Act provides that the district court in which a petition for reorganization is filed “shall, during the pendency of the proceedings . . . have exclusive jurisdiction of the debtor and its property wherever located.” We held that this provision gave the Pennsylvania district court “ex-elusive jurisdiction ... to determine all rights and interests in all of Penn Central’s property, including the former property of the New Haven.” 457 F.2d at 687. The Commission does not argue that this reversal made Judge Anderson’s appointment of Sistare wholly invalid.

      . The claim stated that the attorneys had silent 168.5 hours performing this work, and sought compensation at the rate of $50.00 per hour.

      . After counsel for the Commission, Mr. Dausch, had concluded his argument, counsel for the trustee stated :
      Mr. Moore: Your Honor, I had wanted to clear up two things. But the last statement by Mr. Dausch may remove one of them.
      I did not realize that the Commission had ever contended that it had jurisdiction to approve the costs and expenses.
      Sullivan & Worcester have from the very beginning submitted the matter of compensation to the Commission. . . . But the costs and expenses have never been handled by the Commission.
      But is that the position you are now contending for, sir?
      Mr. Dausch : Yes, sir.


source: Caselaw Access Project

author: FEINBERG, Circuit Judge:

license: Public Domain

text:
    UNITED STATES of America ex rel. Arnold CLEVELAND, Relator-Appellee, v. J. Leland CASSCLES, Superintendent of Great Meadow Correctional Facility, Comstock, New York, Respondent-Appellant.
    No. 713, Docket 73-1139.
    United States Court of Appeals, Second Circuit.
    Argued April 16, 1973.
    Decided May 25, 1973.

      Michael Colodner, Asst. Atty. Gen. (Louis J. Lefkowitz, Atty. Gen., State of New York, Samuel A. Hirshowitz, First Asst. Atty. Gen., on the brief), for respondent-appellant.
    Howard L. Ganz, New York City, for relator-appellee.
    Before CLARK, Associate Justice, and WATERMAN and FEINBERG,. Circuit Judges.

      Retired Associate Justice of the Supreme Court of the United States, sitting by designation.

   FEINBERG, Circuit Judge:

In this habeas corpus proceeding, petitioner Arnold Cleveland sought the writ from the United States District Court for the Southern District of New York on the ground that, after a guilty plea in the Supreme Court, New York County, he had been denied due process of law because of the manner in which a ten-year state sentence had been imposed. After a hearing in the district court, Judge Marvin E. Frankel granted the writ unless the state resentenced petitioner. The state appeals, and we remand to allow the state court to consider new evidence adduced before Judge Frankel.

I

Petitioner and a co-defendant were indicted in 1969 on a number of charges, all growing out of the robbing and stabbing of a woman in a hallway in lower Manhattan. In October 1970, petitioner pleaded guilty to robbery in the first degree, a Class B felony, “to cover the indictment.” Four days earlier, petitioner’s co-defendant had pleaded guilty to a Class C felony, a lesser crime, and had received a five-year sentence. In December 1970, when petitioner appeared for sentence, it was agreed that the sentence would dispose of not only the indictment already referred to, but also an unrelated indictment charging felonious possession of heroin. Petitioner then received the ten-year sentence, which he claims was unconstitutionally imposed.

Petitioner’s objection to the sentencing procedure challenges the basis for the sentencing judge’s belief that it was petitioner, rather than his co-defendant, who actually had stabbed the victim. At the time of the guilty plea, the state judge asked petitioner whether he admitted that he had stolen $18 from the victim and had stabbed her. Petitioner made no comment, but his counsel asked for and received an off-the-record bench conference with the judge. Thereafter, the judge rephrased his question so that petitioner admitted only that he and his co-defendant had stolen the money and that in the course of the theft a knife had been used which resulted in the stabbing of the woman.

At the sentencing some seven weeks later, the question whether petitioner had done the stabbing arose again. In urging the court to impose a sentence of 5 to 15 years, the prosecutor said:

After the pocketbook had been taken by Mr. Cleveland’s co-defendant and after this man fled with the pocketbook this defendant, and for no purpose whatever, stabbed this woman, requiring hospitalization for some period of time. This was information which I received from a witness who was standing within feet, in fact, had been in conversation with the defendant and his co-defendant prior to the robbery and saw everything quite clearly so she reports to me. It’s my feeling, Your Honor, that this defendant stabbed this woman and did it for no purpose whatever, and in light of the psychiatric report which indicates that this man is unethical, I suggest, Your Honor, that this man is a sociopath and is not fit to remain in our society ....

In response to this, defense counsel first argued that the co-defendant had received five years and that he and petitioner “would be co-equals as far as guilt is concerned.” The prosecutor and the judge then stated that the prior criminal record of the two defendants differed considerably. When the prosecutor again emphasized that “the other defendant had not taken part in the stabbing,” the following ensued:

Mr. Chance [defense counsel]: In drawing that distinction it is very discriminating and the position that he actually took was that because this man had used the knife.

The Court: I certainly think the man who uses the knife is entitled to more.

Mr. Chance: That’s not my point, Judge.

The Court: He’s earned it.

Mr. Chance: My point is that he would not be entitled to that vast distinction that he recommends. What you do I don’t know. If it goes to that depth there should be a hearing on the question of whether or not his statements the District Attorney has told you are hearsay or true, that he deliberately stabbed her or somebody told him who’s watched him stab her. I think that’s important. That’s ten years difference he’s recommending.

The state judge then proceeded to impose sentence. He first commented that he would not follow the recommendation of either counsel. The judge next listed petitioner’s sizeable prior criminal record, after which the judge said:

This October he has reached his pinnacle by actually not only robbing this lady but also stabbing her, and there doesn’t seem to be any mitigating circumstances for the stabbing. It was after the robbery was completed.

The judge then sentenced petitioner to a ten-year term. Neither petitioner nor his counsel made any further reference in court to the question of who did the stabbing.

The above relates the essential aspects of the state trial court record as it came to the federal district court. After petitioner brought his application for a writ of habeas corpus, Judge Frankel appointed counsel for him. Thereafter, both sides filed briefs; after reviewing them, the judge pointed out in a memorandum opinion that petitioner

does not actually say now, under oath (and thus subject to possible federal penalties for perjury), that he was not the wielder of the knife. If his petition were to be granted, however, the purpose would be to afford him an opportunity to place such sworn testimony before the sentencing judge. Unless he plans to do that, the judge’s reliance upon the prosecutor’s statement (heresay or no) cannot approach constitutional error.

In response, petitioner filed an affidavit in the district court in which he swore “to the fact of Not being the knife wielder.” A few weeks later, Judge Frankel held in a thorough opinion that the state court had denied petitioner due process when it allowed casual hearsay, accepted “over a protest,”

to “establish” the brutal stabbing for which petitioner has been assessed some indeterminate part of 10 years in prison.

The judge ordered the state to release petitioner unless it proceeded to have him resentenced within 60 days in a hearing that gave him an opportunity “to contest the assertion” that he had done the stabbing. The judge left open “the precise nature or extent” of the hearing on that issue.

II

There is no doubt, as the district judge recognized, that except for the claimed improper reliance on hearsay to establish the identity of the knife-wielder, there could be no valid constitutional objection to the state court sentence. Petitioner faced a maximum of 25 years in prison upon his guilty plea, and the sentence was well below that. The comparison to the five-year sentence his co-defendant received was not persuasive: Petitioner was sentenced not only on a more serious robbery charge but also on a narcotics charge. In addition, petitioner’s criminal record was apparently substantially more extensive than that of his co-defendant. The conclusion of the district court that petitioner had been denied due process had to be — and was — based solely on the state judge’s reliance upon the prosecutor’s hearsay statement. Citing Williams v. New York, 337 U.S. 241, 69 S.Ct. 1079, 93 L. Ed. 1337 (1949), and other cases, the state argues to us principally that the law is clear that a judge may rely upon hearsay information in imposing sentence. Petitioner responds with other decisions of the Supreme Court, e. g., Townsend v. Burke, 334 U.S. 736, 68 S. Ct. 1252, 92 L.Ed. 1690 (1948), and of the courts of appeals, including this one, which hold that a defendant cannot constitutionally be sentenced upon the basis of assumptions that are “materially untrue.” Id. at 740-741, 68 S.Ct. 1252. While the issues thus raised are interesting, we find ourselves most persuaded by another of the state’s arguments, to which we now turn.

Judge Frankel held that unless petitioner submitted to him an affirmation under oath that he had not stabbed the victim, the state judge’s “reliance upon the prosecutor’s statement (hearsay or no) cannot approach constitutional error.” From this, the state questions how, if a federal judge “on collateral attack of a state conviction could not find constitutional error on the record before the state court judge,” he can nonetheless rule that the state court judge “committed constitutional error by not considering evidence that was never before him ?” While the syllogism is not impervious to attack, e. g., the federal habeas judge is not necessarily confined to the state court record, it has considerable force. It must be remembered that petitioner at no time asserted in the state court that he had not stabbed the victim. When, at the sentencing proceeding, the prosecutor renewed the accusation and revealed the source of the information as a nearby eye-witness, petitioner did not immediately deny the charge. At that juncture, his counsel merely pointed to the treatment accorded the co-defendant. Only after -the prosecutor had again emphasized the stabbing did petitioner’s counsel advert to the issue at all. Even then, there was no flat denial, only a vague claim that “If it goes to that depth, there should be a hearing on the question of whether . . . [the District Attorney’s statements] are hearsay or true.” It would be technical to point out that, of course, the prosecutor’s statements could be both. Putting such niceties aside and going to the heart of the matter, we feel that the flat denial finally made in the federal district court was an important new fact. As the state points out, a clear denial differs from what amounted to “a bare request to put the prosecution to its proof.” For purposes of sentencing, considering the hearsay in the latter situation, as the state judge did, is simply not the same as doing so in the former.

This raises the question whether, after petitioner had filed the crucial affidavit below, Judge Frankel was justified in going ahead rather than remitting petitioner to a motion for re-sentence in the state courts, as the state suggested. The judge rejected this course because it “would trivialize what we enshrine as the Great Writ.” He also pointed out that any claim of failure to exhaust state remedies came in as “a last-minute suggestion,” and that, as a practical matter, an order requiring a state resentencing hearing was not that “much more” than allowing a “motion for” such a hearing. Against this, other considerations come to mind. The federal-state relationship is subject to considerable stress whenever a federal court is asked to review a state court conviction. Certainly, intrusions should be confined to those absolutely necessary. To this end, the habeas corpus statute itself, 28 U.S.C. § 2254(b), (c), commands a federal district court to stay its hand where adequate and available state remedies remain unexhausted. And the thought that the state’s claim of failure to exhaust was no more than a “last-minute suggestion” is not persuasive when it is remembered that the state so argued only after petitioner, for the first time, had unequivocally denied that he had stabbed the victim. Moreover, the law surrounding problems of sentencing involved in this case — even in nonconstitutional aspects of federal criminal procedure — is in flux and presents difficult problems, as our recent decisions in United States v. Needles, supra note 2, and United States v. Brown, 470 F.2d 285 (2d Cir. 1972), indicate. Indeed, a somewhat less tangible, but no less persuasive, consideration counselling against premature federal court intervention is reflected in Judge Frankel’s own question “how seemly is it for a federal nisi prius judge to hold invalid a state sentence for denial of an opportunity to contest adverse allegations when we still, as of now, claim discretion to withhold the contents of presentence reports? See Fed.R.Crim.P. 32(c)(2).” Viewed in this light, we think that the difference between ordering the state to grant a resentencing (on pain of releasing defendant from custody) and requiring petitioner to move for one is, practically, quite significant.

Under these circumstances, and in light of a presently available state remedy, we believe that the district judge should not have decided the eonstitutional issue until the state sentencing court had a chance to deal with the new factual allegation. See Developments in the Law—Federal Habeas Corpus, 83 Harv.L.Rev. 1038, 1096 (1970) (“. . . evidence . . . clearly crucial to the claim . . . should first be presented to the state if the exhaustion rule is to be an effective one.”) We find persuasive the state’s suggestion that petitioner be required to use his remedy under N.Y. Crim.Proc. Law §§ 440.10, 440.20 to bring to the attention of the state sentencing judge petitioner’s explicit sworn denial, never made in the state court, so that the state court may consider the significance of this new fact and how to deal with it. See United States ex rel. Gentile v. Mancusi, 426 F.2d 238 (2d Cir. 1970); United States ex rel. Boodie v. Herold, 349 F.2d 372 (2d Cir. 1965); cf. United States ex rel. Figueroa v. MCMann, 411 F.2d 915 (2d Cir. 1966) (per curiam). Accordingly, we remand with instructions to dismiss petitioner’s application for a writ without prejudice to renewal after he has exhausted this available state remedy. We are grateful, as was Judge Frankel, to Howard L. Ganz for his admirable representation of petitioner as assigned counsel.

Case remanded.

      . E. g., Williams v. Oklahoma, 358 U.S. 576, 584, 79 S.Ct. 421, 3 L.Ed.2d 516 (1959); Manley v. United States, 432 F.2d 1241, 1245 (2d Cir. 1970) (en banc); United States v. Doyle, 348 F.2d 715 (2d Cir.), cert. denied, 382 U.S. 843, 86 S.Ct. 89, 15 D.Ed.2d 84 (1965).

      . Petitioner also cites, among other authorities, United States v. Needles, 472 F.2d 652 (2d Cir. 1973); United States v. Weston, 448 F.2d 626 (9th Cir. 1971), cert. denied, 404 U.S. 1061, 92 S.Ct. 748, 30 L.Ed .2d 749 (1972); United States v. Malcolm, 432 F.2d 809, 816 (2d Cir. 1970).

      . Brief for Respondent-Appellant, at 18.

      . Id. at 19.

      . The judge also cited contrary authority. See Preliminary Draft of Proposed Amendments to Fed.R.Crim.P. 32(c), 52 F.R.D. 451 (1971). See also United States v. Picard, 464 F.2d 215 (1st Cir. 1972); United States v. Janiec, 464 F.2d 126 (3d Cir. 1972).

      . In a letter sent to this court following oral argument, the state represented that petitioner could raise his claim anew, in light of his now explicit and unequivocal denial, in a “motion to set aside sentence,” despite the fact that the claim of improper sentencing procedure was raised through the state’s appellate courts, and notwithstanding the language of N.Y. Crim.Proc. Law § 440.20(2). Under that section, a state court must deny such a motion “. . . when the ground or issue raised . . . was previously determined on the merits upon an appeal from the judgment or sentence. . . . ” As the Attorney General reads the statute, a new allegation of fact is not such a “ground or issue,” cf. id. §§ 440.10(2) (a), (b), (d), and we assume that he will make that position known to the sentencing court. Should the state court disagree with the Attorney General’s reading, petitioner may, of course, renew his request for relief in federal court.

      . We are also aware that in petitioner’s brief to the Appellate Division, his then counsel argued that petitioner had “expressly denied” the hearsay assertion. This claim was not borne out by the record, as we have already made clear, and we do not know whether the Appellate Division also so concluded, in affirming without opinion. People v. Cleveland, 38 A.D.2d 891, 330 N.Y.S.2d 288 (1st Dep’t 1972), In any event, the point is that on the record before the federal district court, the express denial had never been brought to the attention of the state sentencing judge.


author: OAKES, Circuit Judge:

text:
    Clifford IRVING et al., Plaintiffs-Appellants, v. Elliot H. GRAY, District Director of Internal Revenue, District of Manhattan, and Clarence I. Fox, Director of International Operations of the Internal Revenue Service, Defendants-Appellees.
    No. 629, Docket 72-2153.
    United States Court of Appeals, Second Circuit.
    Argued April 4, 1973.
    Decided June 1, 1973.

      Geoffrey M. Kalmus, New York City (Maurice N. Nessen, and Harold P. Weinberger, New York City, of counsel), for plaintiffs-appellants.
    Scott P. Crampton, Asst. U. S. Atty. Gen., Washington, D. C. (Whitney North Seymour, Jr., U. S. Atty., for the S. D. New York; David P. Land, Milton Sherman, Asst. U. S. Attys., Meyer Roth-wacks, John J. McCarthy, Crombie J. P. Garrett, George F. Lynch, Attys., Tax Div., Dept, of Justice, Washington, D. C., of counsel), for defendants-appellees.
    Before KAUFMAN, Chief Judge, and ANDERSON and OAKES, Circuit Judges.
   OAKES, Circuit Judge:

The appellants, Clifford and Edith Irving and Richard Suskind, maintain that the Internal Revenue Service, while seizing the appellants’ funds for taxes which were in jeopardy, failed to follow the procedures for such assessments mandated by the Internal Revenue Code and must therefore, return the seized funds to be distributed among appellants’ creditors. The district court’s opinion, favoring the IRS, is printed at 344 F.Supp. 567 (S.D.N.Y.1972) (Frankel, J.).

The appellants were participants in the “Hughes hoax.” This, as everyone knows, was a scheme by Clifford Irving and Richard Suskind to write and sell an “authorized” version of the life of billionaire recluse Howard Hughes, when in fact there was no authorization therefor by Hughes. McGraw-Hill, Inc., the duped publishing house, contracted with Irving to purchase this book. During 1971 McGraw-Hill made payments to Irving totaling $765,000 — $100,000 as advance royalties, $15,000 for expenses, and $650,000 in cheeks made out to Howard Hughes for supposedly participating in and authorizing the work. Most of the $650,000 was placed in a Swiss bank account by Edith Irving who used assumed names and false papers to convince the bank that the checks to Hughes were made out to her.

Before the book was published the hoax was discovered. All three received various federal and state sentences in June of 1972. Subsequently Mrs. Irving received a Swiss sentence also.

While the hoax was being discovered and the Irvings and Suskind were maintaining their innocence, they were residents of Ibiza. The Internal Revenue Service, fearing that the appellants would take what money they had in the United States and flee without paying income taxes, took action to safeguard the United States tax interest in those assets consisting of moneys held by Merrill Lynch, Pierce, Fenner & Smith, Inc. (Merrill Lynch). On February 4, 1972, while federal and state grand juries were investigating the hoax, the IRS sent letters addressed to appellants which declared the taxable period from January 1 to December 31, 1971, immediately terminated and their income tax for that period immediately due and payable. Pursuant to the provisions of § 6201(a) of the Code, the Internal Revenue Service immediately assessed the amounts declared to be due. The total taxes assessed were $512,111, of which $243,118 was assessed against Edith Irving, $246,993 against Clifford Irving and $22,000 against Richard Suskind. On the same date, the Service served notices of levy on Merrill Lynch, demanding payment of the amounts held in the taxpayers’ securities accounts. Pursuant to the levies, Merrill Lynch subsequently forwarded to IRS the total amount of $91,322.92; $86,458.18 from Edith Irving’s account; and $4,864.74 from Richard Suskind’s account. It is this money which the taxpayers claim was improperly taken and must be either deposited with the district court or redeposited with Merrill Lynch, to be available for all creditors, including McGraw-Hill and counsel.

At the time that the taxpayers instituted this action, they had not yet filed income tax returns for the year 1971, although they could have done so at any time after February 4, 1972, when the Service declared their 1971 taxes immediately to be due. Instead, they waited until the last permissible day, June 15, 1972, to file their returns. In lieu of filing a tax return the taxpayers filed a request with IRS for an administrative revenue ruling. In their request, they sought to reduce their 1971 taxable income in respect to the $765,000 embezzled from McGraw-Hill, and the right to future income tax deductions for all amounts not exceeding $765,000 which they might repay to McGraw-Hill.

There are two questions worthy of discussion. The first is whether the IRS had sufficient authority under § 6851 of the Internal Revenue Code of 1954 to bill the taxpayers and levy on their Merrill Lynch accounts or whether IRS had to act under the authority of § 6861. The second is whether the IRS could employ § 6851 to terminate a preceding taxable year and, if not, whether this technical error entitled the taxpayers to injunctive relief.

The taxpayers maintain that the IRS’s action against them constituted the assessing of a deficiency under § 6861. Section 6861(b) requires that if a jeopardy assessment under § 6861(a) is made then the Secretary of the Treasury or his delegate must send the assessed taxpayer a notice of deficiency within 60 days of the assessment. Such a deficiency notice allows the assessed taxpayer to file a petition in the United States Tax Court seeking a redetermination of the deficiency. When the IRS determines a deficiency and fails to issue a deficiency notice, then pursuant to § 6213(a) tax collection may be enjoined. To support their position that they were entitled to deficiency notices pursuant to § 6861(b), the taxpayers rely upon Schreek v. United States, 301 F.Supp. 1265 (D.Md.1969), a case in which no appealable order has yet been entered but which has concededly been followed by three other district courts. Lisner v. McCanless, 356 F.Supp. 398 (D.Ariz 1973) (appeal pending); Rambo v United States, 353 F.Supp. 1021 (W.D. Ky.1972) (appeal pending); Clark v. Campbell, 341 F.Supp. 171 (N.D.Tex. 1972). In Schreck as in this case, the IRS, acting pursuant to § 6851(a), terminated the taxpayer’s taxable year prior to the end of the calendar year. The taxpayer filed a suit in the district court seeking injunctive relief because the IRS failed, as here, to issue a notice of deficiency.

Schreck’s holding that IRS was required to issue a notice was based on two erroneous premises. First, it reasoned that since § 6851 contains no independent assessment authority, the assessment was necessarily made pursuant to § 6861(a). But § 6201(a) is an alternative authorization for IRS assessment which requires no deficiency letter. Section 6201(a), which along with § 6851 existed prior to § 6861, allows the IRS to make an assessment without waiting until the taxpayer has made a deficient payment of his income taxes. We agree with Williamson v. United States, 31 Am.Fed.Tax R.2d 73-800 (7th Cir. 1971), in which the Seventh Circuit stated:

the deficiency notice requirement cannot be read into § 6851 because the assessment made under the section is not a deficiency as defined in § 6211. That section defines a deficiency as the amount by which the “tax imposed” exceeds the amount shown on the tax return. The assessment in this case was not an imposed tax, but merely an amount which the I.R.S. believed justified the termination of the taxable year. Since no return had been filed at the date of the assessment, no deficiency was determinable.

See also Parrish v. Daly, 350 F.Supp. 735, 736 (S.D.Ind.1972). Williamson receives support from three tax court cases which ruled that taxes declared to be due and owing pursuant to the provisions of § 6851, and its predecessor provisions, do not constitute deficiencies within the meaning of the Internal Revenue Code. Puritan Church — The Church of America v. Commissioner, 10 CCH Tax Ct.Mem. 485 (1951), aff’d per curiam, 93 U.S.App.D.C. 129, 209 F.2d 306 (1953), cert. denied, 347 U.S. 975, 74 S.Ct. 787, 98 L.Ed. 1115 (1954); Ludwig Littauer & Co. v. Commissioner, 37 B.T.A. 840 (1938); DaBoul v. Commissioner, 429 F.2d 38 (9th Cir. 1970) (affirming the order of the Tax Court dismissing the taxpayer’s petition). We believe that the reasoning of Williamson and Parrish is correct and that the assessment made by IRS here was not a deficiency assessment governed by § 6861. Sections 6861 and 6213(a) do not apply in the case of a jeopardy assessment made in respect to a departing or concealing taxpayer assessed under § 6201(a) pursuant to § 6851(a).

The second erroneous premise of Schreck was that no forum other than the Tax Court may be available to adjudicate partial tax determinations made by the IRS pursuant to § 6851(a). But this premise like the first was based on the incorrect belief that a tax deficiency had been determined and charged. Here, as explained above, no deficiency has yet been determined and the taxpayers therefore do not yet have the opportunity to petition the Tax Court. The taxpayers are not without remedy, however, for they could have had their complaint of an overpayment heard in the district court below if they had filed full-year returns reporting overpayments of tax; they could have commenced plenary refund actions six months after filing the returns. Treas. Reg. § 301.6402-3 (b) (1958); Int.Rev. Code of 1954 §§ 7422(a) & 6532(a).

The taxpayers’ second argument is that the IRS cannot use § 6851 to terminate a taxable year which has, in a calendar sense, already ended. Here the IRS used § 6851 on February 4, 1972, to declare all taxes for 1971 immediately due, and its action was perfectly proper. Section 6851(a) on its face clearly permits such action when it says that the “Secretary or his delegate shall declare the taxable period . . . immediately terminated” on the “income tax for the current or the preceding taxable year” (emphasis added). Appellants argue that § 6851 requires that to make the 1971 tax immediately due IRS should have declared the taxable period from January 1, 1972, to February 4, 1972, “immediately terminated.” We do not read § 6851(a) so rigidly. The very case upon which the taxpayers rely, United States v. Johansson, 62-1 U.S. Tax Cas. ¶ 9130 at 83,197 (S.D.Fla. 1961), aff’d in part and remanded in part, 336 F.2d 809 (5th Cir. 1964), supports instead the Government’s position. There the IRS terminated the boxer Johansson's 1960 calendar tax year in February of 1961. Soon afterward, in March of 1961, following another heavyweight title fight, the IRS filed an amended complaint to terminate Johansson’s 1961 taxable year. Thus Johansson appears to be on all fours with this case. Nor does our interpretation of § 6851(a) mean, as appellants contend, that the IRS may terminate “any taxable period it chose” without using § 6861 procedures and thereby giving taxpayers “tickets to the Tax Court.” Section 6851(a) refers only to “the current or the preceding taxable year,” in this case short-period 1972 or 1971. The important point is that § 6851 was enacted to allow the IRS to prevent taxpayers from fleeing the country with taxable funds. Here the taxpayers do not maintain that the IRS did not have probable cause to believe that the taxpayers were likely to flee. Under such circumstances Congress has given IRS a little leeway to protect the revenues.

The taxpayers may, of course, eventually prevail in their claim that the IRS has claimed more to be due than actually is due. But this is a question to be litigated in due course after the taxpayers have filed their tax returns. As stated by the court below in rejecting the taxpayers’ requests for equitable relief, “. . . it is bearable inequity that those whose ‘bold plans' are frustrated may suffer potentially costly inconveniences.” 344 F.Supp. at 573. In any event, because the taxpayers have an adequate legal remedy to recover any excessive taxes charged by the IRS, because there was no deficiency assessment made, and because they do not come before us with clean hands we would not be able to grant them injunctive relief even if we believed that they had been assessed too much by the IRS. Enochs v. Williams Packing & Navigation Co., 370 U.S. 1, 7, 82 S.Ct. 1125, 8 L.Ed.2d 292 (1962).

Judgment affirmed.

      . § 6861. Jeopardy assessments of income, estate, and gift taxes
      (a) Authority for making. — If the Secretary or his delegate believes that the assessment or collection of a deficiency, as defined in section 6211, will be jeopardized by delay, he shall, notwithstanding the provisions of section 6213(a), immediately assess such defi-eiency (together with all interest, additional amounts, and additions to the tax provided for by law), and notice and demand shall be made by the Secretary or his delegate for the payment thereof.
      (b) Deficiency letters.- — If the jeopardy assessment is made before any notice in respect of the tax to which the jeopardy assessment relates lias been mailed under section 6212(a), then the Secretary or his delegate shall mail a notice under such subsection within 60 days after the making of the assessment.
      Int.Rev.Code of 1954, § 6861(a), (b).

      . § 6213. Restrictions applicable to deficiencies ; petition to Tax Court
      (a) Time for filing petition and restriction on assessment. — Within 90 days, or 150 days if the notice is addressed to a person outside the States of the Union and the District of Columbia, after the notice of deficiency authorized in section 6212 is mailed (not counting Saturday, Sunday, or a legal holiday in the District of Columbia as the last day), the taxpayer may file a petition with the Tax Court for a redetermination of the deficiency. Except as otherwise provided in section 6861 no assessment of a deficiency in respect of any tax imposed by subtitle A or B or chapter 42 and no levy or proceeding in court for its collection shall be made, begun, or prosecuted until such notice lias been mailed to the taxpayer, nor until the expiration of such 90-day or 150-day period, as the case may be, nor, if a petition has been filed with the Tax Court, until the decision of the Tax Court has become final. Notwithstanding the provisions of section 7421 (a), the making of such assessment or the beginning of such proceeding or levy during the time such prohibition is in force may be enjoined by a proceeding in the proper court.
      Int.Rev.Code of 1954, § 6213(a).

      . § 6851. Termination of taxable year
      (a) Income tax in jeopardy.—
      (1) In general. — If the Secretary or his delegate finds that a taxpayer designs quickly to depart from the United States or to remove his property therefrom, or to conceal himself or his property therein, or to do any other act tending to prejudice or to render wholly or partly ineffectual proceedings to collect the income tax for the current or the preceding taxable year unless such proceedings be brought without delay, the Secretary or his delegate shall declare the taxable period for such taxpayer immediately terminated, and shall cause notice of such finding and declaration to be given the taxpayer, together with a demand for immediate payment of the tax for the taxable period so declared terminated and of the tax for the preceding taxable year or so much of such tax as is unpaid, whether or not the time otherwise allowed by law for filing return and paying the tax has expired; and such taxes shall thereupon become immediately due and payable. In any proceeding in court brought to enforce payment of taxes made due and payable by virtue of the provisions of this section, the finding of the Secretary or his delegate, made as herein provided, whether made after notice to the taxpayer or not, shall be for all purposes presumptive evidence of jeopardy.
      Int.Rev.Code of 1954, § 6851(a)(1).

      . § 6201. Assessment authority
      (a) Authority of Secretary or delegate. — The Secretary or his delegate is authorized and required to make the inquiries, determinations, and assessments of all taxes (including interest, additional amounts, additions to the tax, and assessable penalties) imposed by this title, or accruing under any former internal revenue law, which have not been duly paid by stamp at the time and in the manner provided by law ....
      Int.Rev.Code of 1954, § 6201(a).

      . Section 250(g) of the Revenue Act of 1918, 40 Stat. 1084, is almost identical to § 6851; § 6861 was enacted into law as § 279 of the Revenue Act of 1926, 44 Stat. 59.

      . At any time after February 4, 1972, when the IRS made its assessments and collected taxes, the taxpayers could have filed income tax returns for the year 1971, reporting overpayments of taxes. As early as August 5, 1972, therefore, they could have commenced refund actions. Taxpayers argue that Flora v. United States, 357 U.S. 63, 78 S.Ct. 1079, 2 L.Ed.2d 1165 (1958), aff’d on rehearing, 362 U.S. 145, 80 S.Ct. 630, 4 L.Ed.2d 623 (1960), requires that the full amount of an assessment be paid before a claim for refund suit under 28 U.S.C. § 1346(a)(1) may be filed. The Flora “full payment” rule is inapplicable here, however, since there a deficiency had teen determined and taxpayer had paid only a portion of it before seeking his refund claim in a federal district court. Here, as we have said, no deficiency has yet been determined.

      . In oral argument the taxpayers raised the additional contention that the wording of § 6658, dealing with a penalty tax for attempts to violate § 6851, demonstrates that assessments under § 6851 as well as under § 6861 are deficiency. assessments and therefore require a notice of deficiency. The taxpayers apparently have missed the significance of the fact that § 6658 states that a penalty tax shall be imposed on the “amount of the tax [due] or deficiency in the tax.” (Emphasis supplied.) The “or” in this language supports our reasoning that there has not been a deficiency asserted here and makes the taxpayers’ reliance upon § 6658 unavailing.


author: ROSS, Circuit Judge.

text:
    Thos. F. BURNS, on behalf of himself and on behalf of all other persons similarly situated, Appellant, v. AMERICAN NATIONAL BANK AND TRUST COMPANY, a National Banking Association, Appellee. Fred FISHER, on behalf of himself and on behalf of all other persons similarly situated, Appellant, v. The FIRST NATIONAL BANK OF CHICAGO, CHICAGO, ILLINOIS, Appellee.
    Nos. 72-1135, 72-1507.
    United States Court of Appeals, Eighth Circuit.
    Submitted March 12, 1973.
    Decided April 20, 1973.
    Bright, Circuit Judge, with whom Mehaffy, Circuit Judge, joined, dissented and filed opinion.
    Everett Meeker, Washington, Iowa, for appellant Fisher.
    J. Bradley Littlefield, Portland, Or., for appellant Burns.
    Before MATTHES, Chief Judge, and MEHAFFY, GIBSON, LAY, HEANEY, BRIGHT, ROSS and STEPHENSON, Circuit Judges.
   ROSS, Circuit Judge.

These cases present identical jurisdictional questions under provisions of the National Bank Act. Both Burns and Fisher brought an action in federal court against a national bank seeking to recover usury penalties for themselves and for other members of their class, under 12 U.S.C. §§ 85 and 86. In both cases the defendant bank filed a motion to dismiss on the ground that the court lacked subject matter jurisdiction. These motions were sustained and the cases were dismissed by the trial courts on the ground that under 28 U.S.C. § 1348 federal courts do not have jurisdiction over actions brought against national banks by individuals unless diversity or a federal question, as well as the jurisdictional amount, is pleaded under 28 U.S.C. § 1332 or § 1331.

Both of these cases were originally heard by panels of this Court. In Burns, which was submitted October 19, 1972, and decided December 27, 1972, a divided panel affirmed the trial court’s determination that it lacked subject matter jurisdiction under 28 U.S.C. § 1348. On January 9, 1973, a different panel of this Court heard the Fisher case, and on January 15, 1973, orders were entered in both cases granting a combined en banc hearing.

We hold that jurisdiction may be founded on 28 U.S.C. § 1337, and reverse and remand for further proceedings.

Section 1348 provides as follows:

“The district courts shall have original jurisdiction of any civil action commenced, by the United States, or by direction of any officer thereof, against any national banking association, any civil action to wind up the affairs of any such association, and any action by a banking association established in the district for which the court is held, under chapter 2 of Title 12, to enjoin the Comptroller of the Currency, or any receiver acting under his direction, as provided by such chapter.
“All national banking associations shall, for the purposes of all other actions by or against them, be deemed citizens of the States in which they are respectively located.”

The principal question here is the proper interpretation of the final sentence of this section. The banks claim that this shows an intention of Congress to eliminate federal jurisdiction over suits against national banks except under 28 U.S.C. §§ 1331 or 1332; and appellants claim that this section was intended only to eliminate the right of national banks to claim original or removal jurisdiction solely on the basis of being a nationally chartered corporation. We adopt the latter view.

Originally Congress provided that national banks could only be sued in federal court. However, Congress later adopted § 4 of the Act of July 12, 1882, which provided:

“ ‘[T]he jurisdiction for suits hereafter brought by or against any association . . . shall be the same as, and not other than, the jurisdiction for suits by or against banks not organized under any law of the United States .... And all laws and parts of laws of the United States inconsistent with this proviso be, and the same are hereby, repealed.’ ” Mercantile National Bank v. Langdeau, 371 U.S. 555, 565, 83 S.Ct. 520, 526, 9 L.Ed.2d 523 (1963).

Section 1348 was derived from the Act of March 3, 1887, which reenacted § 4 of the 1882 Act in modified form. As the Supreme Court stated in Mercantile National Bank v. Langdeau, supra, 371 U.S. at 565-566, 83 S.Ct. at 526,

“[§] 4 of the 1882 Act and the 1887 Act were designed to overcome the effect of §§ 563 and 629 Rev.Stat. which allowed national banks to sue and be sued in federal district and circuit courts solely because they were national banks, without- regard to diversity, amount in controversy or the existence of a federal question in the usual sense. Section 4 apparently sought to limit, with exceptions, the access of national banks to, and their suability in, the federal courts to the same extent to which non-national banks are so limited.

“Decisions of this Court have recognized that § 4 purported to deal with no more than matters of federal jurisdiction. As we observed in Continental National Bank v. Buford, 191 U.S. 119, 123-124, 24 S.Ct. 54, 48 L.Ed. 119:

‘The necessary effect of this legislation was to make national banks citizens of the states in which they were respectively located, and to withdraw from them the right to invoke the jurisdiction of the circuit courts of the United States simply on the ground that they were created by, and exercised their powers under acts of Congress. No other purpose can be imputed to Congress than to effect that result.’ ” (Footnotes omitted.)

In Herrmann v. Edwards, 238 U.S. 107, 35 S.Ct. 839, 59 L.Ed. 1224 (1915), the Supreme Court held that there was no federal jurisdiction in a' suit against directors of a national bank for wrongdoing and breach of trust. But the Court made clear that there was nothing alleged in the complaint upon which to base jurisdiction except the allegation that the defendant was a national bank. The Supreme Court analyzed the predecessor statute to § 1348 as follows:

“Under the provisions of the Act of 1882 long prior to their reenactment in 1888, it had been conclusively established that because a corporation was a national bank, created under an act of Congress, gave it no greater right to remove a case than if it had been organized under a state law. Leather Manufacturers’ Bank v. Cooper, 120 U.S. 778, 7 S.Ct. 777, 30 L.Ed. 816.” Id. at 111, 35 S.Ct. at 839.

At first glance Herrman, Buford, and Cooper do seem to stand for the proposition that absent jurisdiction under §§ 1331, 1332 or 1348, there can be no jurisdiction. However, it should be noted that in those cases jurisdiction was claimed simply on the basis of the fact that a national bank was involved. Moreover, jurisdiction under an act regulating commerce, 28 U.S.C. § 1337, was not even provided for until 1911, subsequent to all of these decisions except Herrmann. Therefore, the Supreme Court did not have the advantage of this additional jurisdictional provision when it decided those cases.

In Cupo v. Community National Bank & Trust Co., 438 F.2d 108, 110 (2nd Cir. 1971), the Second Circuit disposed of the argument that 28 U.S.C. § 1348 precludes jurisdiction in actions under another section of the National Bank Act, 12 U.S.C. § 61, in these words:

“Defendants urge this court to reject the holding in Murphy v. Colonial Federal Savings and Loan Association, 388 F.2d 609, contending that that holding is in direct conflict with the Congressional policy behind the enactment of 28 U.S.C. §§ 1348 and 1349. We reject this contention. It appears reasonably clear that section 1348 was designed to grant federal jurisdiction in certain limited situations involving winding up of the affairs of the national banks and to establish citizenship for diversity purposes in cases where federal court jurisdiction is based on diversity of citizenship. Cf. Austin v. Altman, 332 F.2d 273, 276 (2d Cir. 1964). The last sentence of the provision clearly indicates that Congress contemplated other common law actions involving national banks being brought in the federal courts only where diversity of citizenship exists, but in no way negates federal jurisdiction under grants such as section 1337. See also, 12 U.S.C. § 94, regulating venue. Thus section 1348 cannot be read as implying that only the actions enumerated in that section can be brought in federal court. Since the claim in this case establishes the existence of an independent federal question on the basis of the alleged violation of 12 U.S.C. § 61, section 1348 is no bar.” (Footnotes omitted.)

In our opinion, § 1348, like its predecessor statutes, was intended to eliminate the right of national banks to claim original or removal jurisdiction solely on the basis of being a nationally chartered corporation, and was not intended to eliminate jurisdiction in all suits involving national banks except those actions specifically permitted in the first paragraph thereof.

The district court in Burns held that jurisdiction in cases involving national banks may be founded in §§ 1331 and 1332 as well as § 1348 where the prerequisites of those sections are met. It is inconsistent, however, to recognize jurisdiction where there is a federal question, as contemplated in § 1331, yet deny it where there is a more specific federal question arising from the commerce clause. The sole question thus becomes whether or not the sections of the National Bank Act relating to usury, 12 U. S.C. §§85 and 86, properly come within the classification of an “Act of Congress regulating commerce.” 28 U.S.C. § 1337.

Section 85 limits the amount of interest which can lawfully be charged by a national bank to the interest allowed by the state wherein the bank is located. To this extent, it places national banks upon the same competitive footing as state banks having their place of business within the same state. But § 86 provides that in cases where usurious interest is charged, recovery may be had against a national bank in double the amount of the interest paid, and it sets a two-year period within which the action for recovery must be commenced. Congress has thus imposed upon national banks a penalty provision that may be different from those imposed by the individual states on state banks in two significant ways. The enforcement of that penalty provision is the basis for the action in those eases.

It seems almost elementary that Congress regulates national banks primarily under the commerce clause, and that the National Bank Act, including 12 U.S.C. §§ 85 and 86, is an Act regulating commerce for purposes of § 1337.

“It is true that federal regulation of finance is not grounded in the commerce power alone. As Chief Justice Hughes explained in Norman v. B. & O. R.R., 294 U.S. 240, 303, 55 S.Ct. 407, 414, 79 L.Ed. 885 (1935):
The broad and comprehensive national authority over the subjects of revenue, finance and currency is derived from the aggregate of the powers granted to the Congress, embracing the powers to lay and collect taxes, to borrow money, to regulate commerce with foreign nations and among the several states, to coin money, regulate the value thereof, and of foreign coin, and fix the standards of weights and measures, and the added express power ‘to make all laws which shall be necessary and proper for carrying into execution’ the other enumerated powers.
See also McCulloch v. State of Maryland, 17 U.S. (4 Wheat.) 316, 406, 4 L.Ed. 579 (1819). But to found jurisdiction upon § 1337, it is not requisite that the commerce clause be the exclusive source of Federal power; it suffices that it be a significant one.” Murphy v. Colonial Federal Savings and Loan Association, 388 F.2d 609, 615 (2nd Cir. 1967).
See also, Partain v. First National Bank of Montgomery, 467 F.2d 167, 172 (5th Cir. 1972); Cupo v. Community National Bank & Trust Co., supra, 438 F.2d at 110.

The Fifth Circuit has joined the Second Circuit in holding that 28 U.S.C. § 1337 gives federal courts jurisdiction in suits brought under specific provisions of the National Bank Act. In Partain v. First National Bank of Montgomery, supra, 467 F.2d at 167, the plaintiff brought suit under 12 U.S.C. §§85 and 86 (as did both Burns and Fisher) and the Fifth Circuit held that jurisdiction was established under § 1337.

We hold therefore that the district courts had jurisdiction in each of these cases under § 1337. In view of this holding, we do not reach the question of whether or not there is also jurisdiction under 28 U.S.C. § 1355 which gives the districts courts original jurisdiction of any action for recovery of a fine or penalty incurred under any Act of Congress. Neither do we reach the question of whether or not these suits were properly brought as class actions.

Fisher originally failed to allege jurisdiction under 28 U.S.C. § 1337. After the trial court sustained defendant’s motion to dismiss, Fisher moved to amend his complaint to include such an allegation. The trial court declined to permit the amendment stating as follows:

“This finding does not rest upon the court’s general discretion to disallow amendments, but upon the court’s conclusion that the amended complaint would be subject to dismissal as not stating a cause of action upon which relief could be granted. Authorities cited by defendant hold there is no need for the court to indulge in ‘futile gestures’ under such circumstances.”

(In its original ruling the trial court considered and rejected the argument that jurisdiction was established under 28 U.S.C. § 1337.) Upon remand the trial court is directed to permit the filing of the “Second Amendment to Complaint” filed in the district court on May 19, 1972.

Both cases are reversed and remanded for further proceedings consistent with the views expressed in this opinion.

BRIGHT, Circuit Judge, with whom MEHAFFY, Circuit Judge, joins (dissenting).

We dissent. The jurisdictional question is whether federal courts should entertain federal usury claims for less than $10,000 against national banks in nondiversity suits. In our view, 28 U. S.C. § 1348 precludes federal jurisdiction under 28 U.S.C. § 1337 in these suits.

Section 1348 contains two parts; a first paragraph granting federal jurisdiction in certain specific controversies relating to national banks (winding up affairs and actions to enjoin Comptroller of the Currency), and a second paragraph restrictive of other actions. This second paragraph provides:

All national banking associations shall for the purposes of all other actions by or against them, be deemed citizens of the States in which they are respectively located.

The majority have agreed with appellants’ argument that the present actions may be brought in federal court pursuant to 28 U.S.C. § 1337 as suits arising under an Act of Congress regulating commerce since the National Bank Act constitutes a regulation of national banks under the commerce power. The majority conclude that the restrictive jurisdictional effect of § 1348 “[1] was intended to eliminate the right of national banks to claim original or removal jurisdiction solely on the basis of being a nationally chartered corporation, and [2] was not intended to eliminate jurisdiction in all suits involving national banks except those actions specifically permitted in the first paragraph [of § 1348].” Majority opinion, supra, at 27. While we agree with the second aspect of this conclusion, we do not believe that the jurisdictional impact of § 1348 was intended to be as limited as the majority suggest.

As we understand the position of the appellee-banks, they would concede federal jurisdiction in suits in which national banks are parties where, under similar circumstances, an action in federal court might lie against a state chartered bank. These suits would include actions involving federal questions or diversity of citizenship and for an amount in excess of $10,000 under 28 U.S.C. §§ 1331 and 1332.

Additionally, jurisdiction would certainly lie against either state or national banks pursuant to § 1337 where the gist of the action alleged monopolistic practices in violation of the Sherman Act or the Clayton Act, which are acts of Congress “ * * * protecting trade and commerce against restraints and monopolies.” Moreover, other federal statutes which apply equally to business operations of both state and federal banks afford litigants the right to sue these institutions in federal court. Examples include provisions of the Fair Labor Standards Act, 29 U.S.C. § 216(b), and of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-5(f).

The Supreme Court, in Mercantile National Bank v. Langdeau, 371 U.S. 555, 559-560, 565, 83 S.Ct. 520, 9 L.Ed.2d 523 (1963), noted that initially national banks probably could be sued only in federal courts. But in 1864 Congress authorized concurrent jurisdiction in certain state courts. Concurrent jurisdiction existed until the enactment of § 4 of the Act of July 12, 1882, ch. 290, 22 Stat. 162, the predecessor to § 1348, which enactment restricted the federal jurisdiction over national banks. A proviso to § 4 of this Act read:

“[T]he jurisdiction for suits hereafter brought by or against any association . . . shall be the same as, and not other than, the jurisdiction for suits by or against banks not organized under any law of the United States . . . And all laws and parts of laws of the United States inconsistent with this proviso be, and the same are hereby, repealed.” [Mercantile National Bank, supra, 371 U.S. at 565, 83 S.Ct. at 526 (footnote omitted).]

The Court observed:

Section 4 apparently sought to limit, with exceptions, the access of national banks to, and their suability in, the federal courts to the same extent to which non-national banks are so limited. [Id. at 566, 83 S.Ct. at 526 (footnote omitted).]

Elaborating on the legislative intent underlying § 4, the Court stated:

The proviso to § 4 of the 1882 Act first appeared as an amendment offered on the floor of the House by Representative Hammond, pursuant to the order of the House fixing the assignment of the bill H.R. 4167 as a special order. * * * Mr. Hammond succinctly stated the purpose of his amendment as follows: “My amendment, therefore, declares that the jurisdictional limits for and as to a national bank shall be the same as they would be in regard to a State bank actually doing or which might be doing business by its side; that they shall be one and the same.” * * * Mr. Robinson then asked, “As I understand the gentleman’s proposed amendment, it is simply to this effect, that a national bank doing business within a certain State shall be subject for all purposes of jurisdiction to precisely the same regulations to which a State bank, if organized there, would be subject.” Mr. Hammond replied, “That is all.” * * *. [Id. n.22 (citations omitted).]

Since the passage of this 1882 Act, the Supreme Court has consistently denied access to federal courts in suits against national banks not coming within the jurisdictional requirements of 28 U.S.C. §§ 1331, 1332, or 1348, and their predecessor provisions. See, e. g., Leather Manufacturers’ Bank v. Cooper, 120 U.S. 778, 7 S.Ct. 777, 30 L.Ed. 816 (1887); Whittemore v. Amoskeag National Bank, 134 U.S. 527, 10 S.Ct. 592, 33 L.Ed. 1002 (1890); Herrmann v. Edwards, 238 U.S. 107, 35 S.Ct. 839, 59 L. Ed. 1224 (1915). Cf Continental National Bank v. Buford, 191 U.S. 119, 24 S.Ct. 54, 48 L.Ed. 119 (1903).

In Leather Manufacturers’, the Supreme Court construed the effect of § 4 of the Act of July 12, 1882, as follows:

[The Act] provided in clear and unmistakable terms that the courts of the United States should not have jurisdiction of such suits thereafter brought, save in a few classes of cases, unless they would have jurisdiction under like circumstances of suits by or against a state bank doing business in the same state with the national bank. The provision is not that no such suit shall be brought by or against such a national bank in a federal court, but that a federal court shall not have jurisdiction. This clearly implies that such a suit can neither be brought nor removed there; for jurisdiction of such suits has been taken away, unless a similar suit could be entertained by the same court by or against a state bank in like situation with the national bank. Consequently, so long as the act of 1882 was in force, nothing in the way of jurisdiction could be claimed by a national bank because of the source of its incorporation. A national bank was by that statute placed before the law in this respect the same as a bank not organized under the laws of the United States. [120 U.S. at 781, 7 S.Ct. at 778.]

In Whittemore, plaintiff had sought to hinge federal jurisdiction on provisions of the National Bank Act which authorized criminal prosecution and a civil action by the Comptroller of the Currency for forfeiture of a banking franchise. The circuit court dismissed on nonjurisdictional grounds. The Supreme Court reversed and directed that the case be dismissed for lack of jurisdiction.

In a subsequent comment on its Whittemore decision, the Court in Herrmann noted:

* -x- -x- [T]his court concluding that the Act of 1882 excluded jurisdiction as a Federal court, the action of the court below in dismissing for want of compliance with the equity rule was reversed and the case remanded with directions to dismiss for want of jurisdiction as a Federal court. Of course this conclusion involved deciding that in the absence of a Federal controversy concerning the interpretation of some provision of the national bank act raising what might be considered by analogy a Federal question in the sense of § 709, Rev.Stat., a mere assertion of liability on the part of directors for wrongs for which they might be responsible at common law, afforded no basis for jurisdiction. Indeed, that this conception was the one upon which the decision was rested is shown by the fact that in the course of the opinion it was pointed out that neither the provisions of § 5209, Rev.Stat., providing for criminal punishment of directors of national banks in certain cases, nor § 5239, Rev.Stat., giving certain powers to the Comptroller of the Currency in certain instances, were involved in the cause of action so as to give rise to a Federal question upon which the jurisdiction could be based. [238 U.S. 112-113, 35 S.Ct. 840.]

In short, the congressional history and the interpretation given this history by the Supreme Court furnish persuasive authority that Congress sought to restrict federal court jurisdiction in suits by or against national banks to the same extent that state banks or parties suing state banks are denied jurisdiction.

Here, limitation of the allowable rate of interest which a bank many charge represents a basic regulation common to both state and federal banking laws. The federal usury law is grounded in state regulation, for § 85 of the National Bank Act permits a national bank to charge interest “at the rate allowed by the laws of the State * * Access to federal courts would be denied appellants if they had brought similar actions against state banks under state law. To permit appellants access to federal court in the instant cases violates the strong congressional policy underlying § 1348 that state and national banks be treated alike under similar circumstances for jurisdictional purposes. Thus, we would reject § 1337 as a jurisdictional basis for these actions.

In so concluding, we note that the jurisdictional significance of § 1337 has been greatly expanded since its enactment in 1911, Murphy v. Colonial Federal Savings and Loan Ass’n, 388 F.2d 609, 614-615 (2d Cir. 1967). The juris-dictionally restrictive provisions culminating in § 1348, however, were enacted and subsequently interpreted by the Supreme Court against the backdrop of then existing provisions of the National Bank Act including the usury sections derived from the Act of June 3, 1864, ch. 106, § 30, 13 Stat. 108. Under these circumstances, we think it extremely doubtful that Congress in later enacting § 1337 intended a modification of the existing specific jurisdictional provisions governing national banks.

Absent some direction from Congress or an additional pronouncement from the Supreme Court, and in light of the ever mounting caseloads of the federal courts, we are reluctant to extend our jurisdiction to controversies involving national banks, which appear to have been generally and satisfactorily handled by state courts for over 90 years.

      . Section 1337 provides as follows:
      “The district courts shall have original jurisdiction of any civil action or proceeding arising under any Act of Congress regulating commerce or protecting trade and commerce against restraints and monopolies.”

      . The majority holds only that § 1348 is no bar to these suits involving national banks being brought in federal court under 28 U.S.C. § 1337, a special jurisdictional statute extending the purview of the federal courts to cases arising under an act of Congress regulating commerce. We address our dissent to this limited holding.

      . In Continental National Bank v. Buford, 191 U.S. 119, 124, 24 S.Ct. 54, 56, 48 L.Ed. 119 (1903), the Supreme Court recognized the right to invoke jurisdiction under existing jurisdictional statutes of general application despite the enactment of predecessor provisions to § 1348. The Court said:
      Of course, notwithstanding the acts of 1882 and 1888, there remained to a national bank, independently of its Federal origin, and as a citizen of the State in which it was located, the right to invoke the original jurisdiction of the circuit courts in any suit involving the required amount, and which, by reason of its subject-matter, and not by reason simply of the Federal origin of the bank, was a suit arising under the Constitution or laws of the United States.


author: PER CURIAM.

text:
    Leonard L. EDSALL, Plaintiff-Appellant, v. PENN CENTRAL TRANSPORTATION COMPANY, Defendant-Appellee.
    No. 72-1995.
    United States Court of Appeals, Sixth Circuit.
    Argued April 20, 1973.
    Decided May 22, 1973.

      John Ruffalo, Youngstown, Ohio, for plaintiff-appellant.
    Thomas R. Skulina, Cleveland, Ohio, for defendant-appellee; John F. Dolan, Cleveland, Ohio, of counsel.
    Before PHILLIPS, Chief Judge, and McCREE, and LIVELY, Circuit Judges.
   PER CURIAM.

We consider the appeal of a Federal Employers’ Liability Act claimant whose complaint was dismissed without prejudice on September 6, 1972, because neither he nor his counsel of record appeared in court to proceed with the trial of his case when it was called on September 5. The trial date had been set in an order filed by the District Judge on July 21, 1972, and the order further provided:

No additional continuance will be granted, and it is FURTHER ORDERED that in the event John Ruf-falo, Sr. is unable to proceed on the date heretofore indicated, replacement counsel will be prepared to proceed as aforesaid.

Although the order of dismissal purported to be without prejudice, the three-year statute of limitations (45 U.S.C. § 56) had run on one of plaintiff’s claims, and the statute ran on plaintiff’s other claim two weeks later.

Appellant’s counsel argues that he did not appear to try the case because he had been ill and had so apprised the court in July. He claims that he endeavored to telephone the District Judge a few days before the trial date but that the Judge was unavailable. (This period included the Labor Day weekend.)

We regard the attorney’s efforts as totally insufficient. He could have but did not write to the court to request a continuance. He could have but did not ask another lawyer to answer the call of the case to explain his absence and to request a continuance. He could have but did not arrange for his client to be present to explain the indisposition of his lawyer and to request a continuance. He could have but did not obtain replacement counsel to try the case in his stead (he did manage to secure replacement counsel by October 1).

The failure to accord opposing counsel and the court this minimum consideration and courtesy in these days of crowded calendars would ordinarily have fully justified the drastic sanction of dismissal of the cause. However, there are special circumstances here. The record does not indicate that Mr. Edsall knew of the requirement in the July 21 order that he be prepared to proceed with replacement counsel if Mr. Ruffalo should have been unavailable, and in the absence of the affirmative showing of such knowledge we are reluctant to punish the client for the behavior of the lawyer. Further, plaintiff’s claims are now time-barred and the dismissal thus effectively prevents plaintiff from ever having his day in court. And, the relief he seeks is based on a remedial and humanitarian statute that was specially enacted by Congress to afford relief to employees from injury incurred in the railway industry. See Urie v. Thompson, 337 U.S. 163, 69 S.Ct. 1018, 93 L.Ed. 1282 (1949).

Accordingly, as we said in Berardi v. Pure Oil Corporation, 456 F.2d 98, 99 (6th Cir. 1972), “we are hard-pressed to find an abuse of discretion in the court’s dismissal, and do so only because we believe that the interests of justice require that [appellant] be afforded one more opportunity to conform [his actions] to the court’s orders.” Any further delay occasioned by appellant or his counsel will not evoke the same special solicitude on our part, and we expressly reject counsel’s contention that the court was without power to enter the dismissal order. We reverse only because in balancing the equities, the interest of the employee who claims injury (not his counsel) outweighs, if only slightly so, the interest of the railroad and the concern of the court for its calendar, on these facts.

We decline to consider the issues relating to discovery because as the ease now stands they are interlocutory in nature and review of them may never be required.

Reversed and remanded for further proceedings consistent herewith. Costs will abide the outcome of the case on its merits.

      . The letter, dated July 20, 1972, read as follows:
      Dear Judge Krupansky:
      I am enclosing herewith a letter from Dr. John N. McCann of Youngstown, Ohio in respects to his medical advice relating to my present physical condition.
      Dr. McCann, as you will note, advises that I cease activities for a period of one month and will evaluate me again at that time as to the likelihood of my resuming my activities or whether to continue on the basis of his original medical advice or on a restricted activity basis.
      I regret that I am unable to fulfill my obligations at this time but matters concerning my health must be given first priority. As soon as my physician advises me that I can return to active duty, I will notify you.
      SS: John Ruffalo


text:
    Elizabeth Elaine CRAIG, Administratrix of the Estate of Robert J. Craig, Deceased, Plaintiff-Appellant, v. UNITED STATES of America, Timkin Roller Bearing Company, et al., Defendant-Appellee, Litton Systems, Inc., Appellee.
    No. 72-2055.
    United States Court of Appeals, Ninth Circuit.
    May 17, 1973.

      Walter P. Christensen, San Diego, Cal., for plaintiff-appellant.
    Charles W. Rees, Jr., Lawrence L. Pillsbury, of Mclnnis, Fitzgerald, Rees & Sharkey, San Diego, Cal., for defendant-appellee.
    Before CHAMBERS, BROWNING and CHOY, Circuit Judges.
   OPINION

PER CURIAM.

Appellant appeals from an order of the district court entered in an admiralty action denying her motion to amend a libel for wrongful death to change the name of defendant McKiernan-Terry Corp. to Litton Systems, Inc. after the two-year statute of limitations had run.

Previously in the same action, after the two-year statute of limitations had elapsed, appellant had moved to amend the libel to change the name of defendant DOE I to Litton Systems, Inc. Upon denial of that motion, appellant had appealed and this court affirmed the denial in Craig v. United States et al., 413 F.2d 854 (9th Cir. 1969), cert. denied 396 U. S. 987, 90 S.Ct. 483, 24 L.Ed.2d 451 (1969) (Craig I).

Appellant contends that the amendment now sought merely corrects a “misnomer” and thus the second sentence of Rule 15(c), F.R.Civ.P. does not apply. The second sentence of Rule 15 (c) was added by 1966 amendment accompanied by the following Advisory Committee Note:

“Rule 15(c) is amplified to state more clearly when an amendment of a pleading changing the party against whom claim is asserted (including an amendment to correct a misnomer or misde-scription of a defendant) shall ‘relate back’ to the date of the original pleading. [Emphasis added.] [3 Moore’s Federal Practice 15.01(9)]”.

Rule 15 (c), therefore, is applicable to the proposed amendment.

In Craig I, we applied the rule and held (1) that within the statutory period, Litton had not received notice, formal or informal, of the institution of the action, and (2) that due to its non-receipt of such notice, Litton would be prejudiced in maintaining its defense on the merits, should the amendment be allowed. Also in Craig I, appellant contended Litton had had notice because prior to the running of the statute it had investigated the incident resulting in her decedent’s death in which a seaman also had been injured and had filed suit. We held there that “It cannot be said that [Litton’s] notice of the incident, but not of the institution of this action, within the statutory period, did not prejudice Litton in maintaining its defense to the action.” The issues of notice and prejudice may not be relitigated as appellant now attempts.

The order of the district court is affirmed.

      . In pertinent part Rule 15(c) reads:
      (c) Relation Back of Amendments. Whenever the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment relates back to the date of the original pleading. An amendment changing the party against whom a claim is asserted relates back if the foregoing provision ls satisfied and, within the period provided by law for commencing the action against him, the party to be brought in by amendment (1) has received such notice of the institution of the action that he will not be prejudiced in maintaining his defense on the merits, and (2) knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against him.