author: LEWIS R. MORGAN, Circuit Judge:

text:
    Nicholas M. BLOCK, II, Executor, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
    No. 74-1178.
    United States Court of Appeals, Fifth Circuit.
    Feb. 3, 1975.

      Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Tax Div., Dept, of Justice, Washington, D. C., William J. Schloth, U. S. Atty., Ronald T. Knight, Asst. U. S. Atty., Macon, Ga., Dennis M. Donohue, Atty., Tax Div., Dept, of Justice, Washington, D. C., for defendant-appellant.
    Benjamin M. Garland, J. Patrick Meyer, Jr., Macon, Ga., for plaintiff-appellee.
    Before THORNBERRY, MORGAN and CLARK, Circuit Judges.
   LEWIS R. MORGAN, Circuit Judge:

Nicholas M. Block, as executor of the estate of Earle Henry Block, brought a claim for a refund of estate taxes assessed by the Commissioner of Internal Revenue and paid by the estate. A jury in the Middle District of Georgia returned a special verdict in favor of the estate, finding that a trust established by the decedent within three years of his death to benefit members of his family was not primarily motivated by his contemplation of death. Judgment in the amount of $91,752.04 was entered for the estate, and the United States appeals. We affirm.

I.

Approximately 28 months before his death, Earie H. Block established an irrevocable inter vivos trust with himself as trustee. The trust instrument provided that the trust income was to be paid to the settlor’s sister-in-law Elizabeth Block for her life, and upon her death, to her two sons, Nicholas and Herbert, Jr., for their lives, with the remainder to their lineal descendants. The corpus of the trust consisted of income-producing securities valued at $400,153.14. The assets of this trust were not included in the decedent’s gross estate on the estate tax return filed by the executor.

The Commissioner assessed a deficiency based on section 2035 of the Internal Revenue Code of 1954, 26 U.S.C.A. § 2035, which provides for the inclusion in a decedent’s gross estate of property gratuitously transferred by him within three years of his death and “in contemplation of death.” The deficiency was assessed against only the actuarial value of the secondary life estates and remainder interest, or 65% of the trust’s total value; the Commissioner did not contest the life motives of the decedent in establishing a life estate for Elizabeth. Rather, the Commissioner asserted that the decedent had separate and distinct motives for establishing the interests for his nephews and their descendants, that they were gifts “in contemplation of death,” and that the death motives should govern the estate tax consequences of that actuarially determined portion of the trust.

Pursuant to its “split-gift” theory, the Government requested the trial court to rule that any evidence regarding the decedent’s life motives for establishing Elizabeth’s interest was irrelevant to the case and therefore inadmissible. The court declined to do so, but did allow the Government to introduce into evidence testimony and exhibits which related to the decedent’s motives ' for establishing his nephews’ life interests and the remainder. The Government also requested that the jury be instructed to disregard evidence related to the decedent’s motivations for establishing Elizabeth’s life estate. The trial court did not accept the Government’s theory of the case and instructed the jury to look at the trust as a whole and to determine the dominant motive for establishing it. On appeal, the Government urges that the introduction of evidence regarding the motivation for Elizabeth’s life estate and the instruction to determine the decedent’s dominant motive for the entire trust, as opposed to the secondary life estates and remainder only, were prejudicial error.

II.

The determination of whether any particular transfer of property was made “in contemplation of death,” within the meaning of section 2035, is rarely a clear-cut question, for it necessarily involves deciding the state of mind of a person who is not available to testify. In addition, there are often competing or ambiguous motives which must be balanced and weighed against each other. The task is perhaps most complicated in the case of gifts made in trust. They frequently represent a comprehensive and complex plan benefitting multiple parties over a period of years. As Chief Justice Hughes noted in United States v. Wells, 283 U.S. 102, 119, 51 S.Ct. 446, 452, 75 L.Ed. 867 (1931), “There is no escape from the necessity of carefully scrutinizing the circumstances of each case to detect the dominant motive of the donor in the light of his bodily and mental condition, and thus to give effect to the manifest purpose of the statute.” That purpose, of course, is to tax in the estate gifts made during life which are intended to be substitutes for testamentary dispositions, thereby preventing evasion of the estate tax. United States v. Wells, 283 U.S. 102, 116-117, 51 S.Ct. 446 (1931); Bel v. United States, 452 F.2d 683, 687 (5th Cir. 1971), cert. denied, 406 U.S. 919, 92 S.Ct. 1770, 32 L.Ed.2d 118.

In all of the varying factual circumstances, which have presented contemplation of death questions, only a few have dealt with the split-gift theory whereby a gift which was on the surface a single transfer may be considered as two gifts (or more) and the dominant motive determined for each separate gift thus broken down.

In Garrett’s Estate v. Commissioner, 180 F.2d 955 (2d Cir. 1950), the court approved the splitting of a single trust for estate tax purposes where the corpus of the trust consisted of income-producing securities and thirty life insurance policies. The deed of trust directed the trustees to pay the premiums on the policies out of the income produced by the securities in the trust; the remainder of the income was paid out to the beneficiaries. Three-tenths of the income had been used to maintain the life insurance policies. The court affirmed a holding by the Tax Court that the life insurance policies and three-tenths of the securities had been transferred in contemplation of death. Under the provisions of the trust, it was sufficiently clear that the settlor intended for the life insurance policies to be kept intact, for enjoyment by the beneficiaries only after his death. There was no evidence to contradict the overriding testamentary motive that this scheme bespoke. The court said:

At first blush it may indeed seem curious to hold that only a part of a single trust fund had been transferred in contemplation of death; usually, the question is whether, taking the gift as a whole, the testamentary motive predominates. However, it becomes plain on reflection that one motive may dispose the settlor to convey one kind of property, and another, another kind; and that it is quite irrelevant that he groups the two in one deed. One must distinguish between a conflict of motives, which might have to be resolved, in deciding whether Whiteacre, for instance, was conveyed in contemplation of death, and an unambiguous motive to convey Whiteacre coupled with an equally unambiguous, though contradictory, motive to convey Blackacre, though one deed conveyed both. 180 F.2d at 957.

The split-gift theory thus explained is a sound and logical approach to effectuating the intent of the contemplation of death statute. It is indeed clear that the decedent Garrett could have had motives for transferring the life insurance policies which contradicted his motives for placing income-producing securities in the same trust. These distinct motives are capable of isolation from each other, and the separate property to which each motive relates is easily identified.

On the other hand, in the case before us, the Government seeks to differentiate between the decedent’s motives for benefitting each separate beneficiary. While there might be factual situations extraordinary enough to warrant such an approach, this case does not present the occasion. The record reveals numerous life-associated motives behind Earle Block’s gift in trust to his deceased brother’s family. At the time the trust was established, Earle Block was leading an active life, a heart condition having stabilized. He had been close to his brother and sister, both of whom predeceased him. After their deaths, he transferred his familial affection to his brother’s widow Elizabeth and her two sons. He had promised his dying brother that he would set up a trust fund to insure that Elizabeth would be able to continue her accustomed life style. He had made prior gifts in trust to each of his nephews, as well as gifts of automobiles and stock. There was testimony that he did not trust his nephews’ financial judgment. The total picture painted by this evidence is that of a settlor who desired to benefit close family members in a manner consistent with both their needs and his own sound tax and estate planning. The beneficiaries themselves were a single family unit. Indeed, Herbert, Jr.’s main support came from his mother after his father’s death, thus the primary life estate also benefitted him. To be sure, estate planning was a factor in fleshing out the plans for the trust, and the decedent was counseled by an attorney who specialized in tax matters. But those facts alone, which constitute the entirety of the Government’s evidence below, simply do not justify the Government’s unrealistic attempt to fragment a coherent, unified trust plan into separately motivated pieces.

The only two courts which have considered the split-gift argument in a factual situation similar to the one before us have likewise concluded that it was “unrealistic” to fragment the motives behind separate interests in the same trust. Cleveland Trust Company v. United States, 421 F.2d 475 (6th Cir. 1970), cert. denied, 400 U.S. 819, 91 S.Ct. 35, 27 L.Ed.2d 46 (1970); Studebaker v. United States, 211 F.Supp. 263 (N.D.Ind. 1962), modifying 195 F.Supp. 841. In both Studebaker and Cleveland Trust, the Government sought to separate a life interest in a trust from the remainder, conceding that the life beneficiary’s interest had been given with predominantly life motives. Earle Block’s provision for intervening life estates benefitting Elizabeth’s sons does not alter the similarity of the basic facts.

The Government has suggested that our failure to apply a split-gift theory to the facts now before us extends an open invitation to estate planners to dispose of large portions of wealth with inter vivos trusts established under the protective umbrella of a life associated motive for some small part of the trust. We simply point out that in such a case the asserted life motive would of course be balanced against other testamentary motives under the prevailing test to look at the dominant motive for the trust as a whole. If indeed it is a pretext, we have little doubt that it will not suffice to carry the estate’s burden to disprove the statutory presumption that gifts made within three years of death are made in contemplation of death. Proving the negative, that the transfer was not in contemplation of death, “is seldom a light burden.” Berman v. United States, 487 F.2d 70, 72 (5th Cir. 1973).

For the foregoing reasons, we find no error in the rulings and instructions of the trial court and the judgment of the district court is

Affirmed.

      . Section 2035 of the Internal Revenue Code of 1954 provides:
      (a) General rule. — The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, in contemplation of his death.
      (b) Application of general rule. — If the decedent within a period of 3 years ending with the date of his death (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth) transferred an interest in property, relinquished a power, or exercised or released a general power of appointment, such transfer, relinquishment, exercise, or release shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this section and sections 2038 and 2041 (relating to revocable transfers and powers of appointment); but no such transfer, relinquishment, exercise, or release made before such 3-year period shall be treated as having been made in contemplation of death.


source: Caselaw Access Project

author: GODBOLD, Circuit Judge:

license: Public Domain

text:
    ALPHA PORTLAND CEMENT COMPANY, Defendant-Appellant, v. Willie C. REESE, Plaintiff-Appellee.
    No. 74-1290.
    United States Court of Appeals, Fifth Circuit.
    Feb. 3, 1975.

      William F. Gardner, Birmingham, Ala., for defendant-appellant.
    U. M. Clemon, Birmingham, Ala., Barry Goldstein, James M. Nabrit, III, Jack Greenberg, Morris J. Bailer, Marilyn Holifield, New York City, for plaintiff-appellee.
    Before GODBOLD and MORGAN, Circuit Judges, and BOOTLE, District Judge.
   GODBOLD, Circuit Judge:

Again we consider the relationship between suits for racial discrimination in employment under § 1 of the 1866 Civil Rights Act, 42 U.S.C. § 1981 (1970), and the administrative remedies under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq.

In Sanchez v. Standard Brands, Inc., 431 F.2d 455 (CA5, 1970), we held that a plaintiff asserting an individual claim for racial discrimination under Title VII must first exhaust his Title VII Equal Employment Opportunity Commission remedies and that the claim raised in the suit must be “like or related” to the charge filed previously with the EEOC.

In Caldwell v. National Brewing Co., 443 F.2d 1044 (CA5, 1971), cert. denied, 405 U.S. 916, 92 S.Ct. 931, 30 L.Ed.2d 785 (1972), an individual claim for racial discrimination was brought under § 1981, and we held that the plaintiff need not exhaust his. Title VII EEOC remedies.

In Hill v. American Airlines, Inc., 479 F.2d 1057 (CA5, 1973), an individual claim for racial discrimination in employment was brought under both Title VII and § 1981. We held that it was unnecessary to determine under Sanchez whether the plaintiff’s claim was like or related to his EEOC charge, since under Caldwell § 1981 was a completely inde- ' pendent remedy and the plaintiff could proceed under § 1981 even if none of his claims were even remotely related to those pressed before the EEOC.

In the present case appellee Reese, a Negro, filed a charge of discrimination with the EEOC, complaining that Alpha discharged him because of race. Long thereafter the Commission found that there was reasonable cause to believe Reese would not have been discharged but for his race. The Commission’s findings indicate that the scope of its investigation did not go beyond Reese’s claim of a racially discriminatory discharge. After receiving a “right to sue” letter in 1973 Reese brought this action under both Title VII and § 1981. The complaint set forth an individual claim relating to Reese’s discharge and class action claims alleging racial discrimination against blacks in hiring, dismissal, job assignment and classification, and promotion.

The District Judge held that plaintiff could properly maintain a class action under F.R.Civ.P. 23, and the employer does not contend that determination is erroneous. The trial judge considered himself bound by Hill and concluded that the independent remedy of § 1981 compelled him to permit a class action attack on a broader panoply of alleged discriminatory practices than those either presented to the Commission or like or related thereto. Inviting reversal, the District Judge made the necessary certification, 28 U.S.C. § 1292(b), and we granted leave for an interlocutory appeal. The order of the District Court was correct and is affirmed. .

Plaintiff concedes, of course, that his individual and class allegations under Title VII must, under Sanchez, be like or related to the charge filed with the EEOC, but he contends that neither his individual nor class allegations asserted under § 1981 need meet that standard. Alpha agrees that, under Hill, plaintiff’s individual allegations under § 1981 need not meet the “like or related” test but Alpha argues that the class action allegations must meet that test. Thus the controversy centers on whether the scope of a § 1981 class action, otherwise proper under F.R.Civ.P. 23, is limited by the “like or related” standard.

The independence of the § 1981 remedy has been stated repeatedly. The Supreme Court recently traced the legislative history of Title VII and said:

[L]egislative enactments in this area have long evinced a general intent to accord parallel or overlapping remedies against discrimination. In the Civil Rights Act of 1964, 42 U.S.C. § 2000a et seq., Congress indicated that it considered the policy against discrimination to be of the “highest priority.” Newman v. Piggie Park Enterprises, Inc., supra, 390 U.S., [400] at 402, [88 S.Ct. 964, at 966, 19 L.Ed.2d 1263], Consistent with this view, Title VII provides for consideration of employment-discrimination claims in several forums. See 42 U.S.C. § 2000e-5(b) (EEOC); 42 U.S.C. § 2000e-5(c) (State and local agencies); 42 U.S.C. § 2000e — 5(f) (federal courts). And, in general, submission of a claim to one forum does not preclude a later submission to another. See 42 U.S.C. § 2000e-5(b) and (f); McDonnell Douglas Corp. v. Green, supra [411 U.S. 792, 93 S.Ct. 1817, 36 L.Ed.2d 668]. Moreover, the legislative history of Title VII manifests a congressional intent to allow an individual to pursue independently his rights under both Title VII and other applicable state and federal statutes. The clear inference is that Title VII was designed to supplement, rather than supplant, existing laws and institutions relating to employment discrimination, [footnote 8 omitted]

Alexander v. Gardner-Denver Co., 415 U.S. 36, 47-49, 94 S.Ct. 1011, 1019, 39 L.Ed.2d 147, 158 (1974). This language further supports the independent remedy principle which this court set forth at length in Caldwell and Hill.

The employer, as did the District Judge, urges that permitting a class action under § 1981 without the restraints of Sanchez is a bad policy which invites-appellees to bypass entirely or in part the conciliatory machinery provided under Title VII. Accepting that proposition arguendo, the policy choice is one already made by the Congress in creating Title VII as a remedy supplemental to and separate from that existent under § 1981.

No substantial authority supports the employer’s argument. All circuits which have addressed the issue have held that § 1981 is an independent remedy and EEOC procedures need not be employed prior to a § 1981 action. Young v. International Telephone & Telegraph Co., 438 F.2d 757 (CA3, 1971); Hill v. American Airlines, Inc., supra; Long v. Ford Motor Co., 496 F.2d 500 (CA6, 1974); Macklin v. Spector Freight Systems, Inc., 156 U.S.App.D.C. 69, 478 F.2d 979 (1973). See also Brady v. Bristol-Meyers, Inc., 459 F.2d 621 (CA8, 1972). The single circuit that held that one suing under § 1981 must plead a reasonable excuse for failure to exhaust EEOC remedies, Waters v. Wisconsin Steel Works, 427 F.2d 476 (CA7), cert. denied, 400 U.S. 911, 91 S.Ct. 137, 27 L.Ed.2d 151 (1970), appears to have abandoned that position in favor of the majority principle. Waters v. Wisconsin Steel Works, 502 F.2d 1309 (CA7, 1974). We are unable to find any language or theory presented in these opinions which would support Alpha’s proposed limitation on the independent remedy principle. The rationale underlying this principle has been expressed:

Section 1981 and Title VII, in truth, provide for such radically different schemes of enforcement and differ so widely in their substantive scopes that using the policies behind the latter to create procedural barriers to actions under the former would stretch to the breaking point courts’ customary duty to accommodate allegedly conflicting legislation.

Macklin v. Spector Freight Systems, Inc., 156 U.S.App.D.C. 69, 86, 478 F.2d at 996 (1973). This rationale extends to the present case also. There appears to be no reason for labeling § 1981 an independent remedy for purposes of individual complaints but not an independent remedy for purposes of class actions. Section 1981 is available to plaintiffs without regard to Title VII limitations.

In Smith v. Delta Airlines, Inc., 486 F.2d 512 (CA5, 1973), plaintiff filed a charge with the Commission asserting discharge because of race and subsequently sued under Title VII and § 1981 raising class action claims regarding jobs, hiring and promotions. The District Court’s ruling that plaintiff could not be a representative of the class unless he was entitled to reinstatement was error under Huff v. N. D. Cass Co. of Alabama, 485 F.2d 710 (CA5, 1973) (en banc). This court remanded with the statement that “the trial court- should proceed to a determination of whether the claims made adequately stated a class action within the contemplation of this Court in Sanchez v. Standard Brands, Inc.” 486 F.2d at 515. Alpha acknowledges that the issue it raises was not directly raised in Smith, and we assume that the language concerning Sanchez does not mean that the court would have refused to find jurisdiction under § 1981 if it had reached that question.

Our conclusion that “like or related” is not a jurisdictional bar to a class action for employment discrimination under § 1981 does not mean that likeness or relatedness has no relevance in such a suit. Rule 23 is still on the books, and the trial judge defining classes and subclasses, deciding who are proper class representatives and exercising the broad discretion he enjoys in employment dis-. crimination class action cases may find “like or related” to be a tool in his analysis with regard to the calls of Rule 23. We have held that the Sanchez standards do not override Rule 23 from without. But to the extent that the presence or absence of likeness or relatedness falls within the requisites of Rule 23, it is not excluded from the judge’s consideration.

Affirmed.

      . The plaintiff in Hill also sought to maintain a class action, but the District Court dismissed that portion of the complaint on the basis of failure to meet the requirements of Rule 23, F.R.Civ.P., and we affirmed this holding. 479 F.2d at 1059.

      . Plaintiff makes no argument that his class allegations are like or related to the charges he filed with the EEOC. Rather he rests solely on the argument that the class allegations asserted under § 1981 are not subject to the “like or related” standard.

      . Title VII was enacted in 1964, prior to the resurrection of § 1981 as a remedy for private racial discrimination in employment. See Jones v. Alfred H. Mayer Co., 392 U.S. 409, 88 S.Ct. 2186, 20 L.Ed.2d 1189 (1968), and Sanders v. Dobbs House, Inc., 431 F.2d 1097 (CA5, 1970), cert. denied, 401 U.S. 948, 91 S.Ct. 935, 28 L.Ed.2d 231 (1971). However, extensive amendments to Title VII were enacted in 1972, and Congress refused to modify Title VIFs role as a supplemental remedy.
        See Alexander v. Gardner-Denver Co., supra, 415 U.S. at 48, 94 S.Ct. at 1019, 39 L.Ed.2d at 158, n. 9.

      . See, e. g., 42 U.S.C. § 1981 (Civil Rights Act of 1866); 42 U.S.C. § 1983 (Civil Rights Act of 1871).

      . [. .] The report of the Senate Committee responsible for the 1972 Act explained that the “provisions regarding the individual’s right to sue under Title VII, nor any of the provisions of this bill, are meant to affect existing rights granted under other laws.” S.Rep.No.415, at 24, 92d Cong., 1st Sess. (1971). [. . .]

      . Kinsey v. Legg, Mason & Co., 60 F.R.D. 91 (DCDC, 1973), which held that § 1981 class claims could not be raised if they were not like or related to EEOC charges, relied on the first Waters case which now apparently has been abandoned by the Seventh Circuit. Furthermore we do not view the rationale of Kinsey as convincing in light of the independent remedy principle which is firmly established in this circuit.

      . Defendant argues that the result reached in this case will adversely affect the rights of the class which may not be well represented by plaintiff and his use of § 1981. We think, however, that class members are adequately protected by the requirements of Rule 23. Even if we considered it desirable as a matter of policy to erect additional hurdles before a plaintiff bringing a § 1981 class action, it is for Congress, not the courts, to raise them.


author: SIMPSON, Circuit Judge:

text:
    Katie Mae ANDREWS and Lestine Rogers, Plaintiffs-Appellants-Cross-Appellees, v. The DREW MUNICIPAL SEPARATE SCHOOL DISTRICT et al., Defendants-Appellees-Cross-Appellants.
    No. 73-3177.
    United States Court of Appeals, Fifth Circuit.
    Feb. 3, 1975.

      Charles Victor McTeer, Greenville, Miss., Johnnie E. Walls, Jr., Willie L. Bailey, Greenwood, Miss., Lewis Myers, Jr., Oxford, Miss., Catherine P. Mitchell, Mound Bayou, Miss., for plaintiff s-appellants-cross-appellees.
    Nancy Stearns, New York City, for Center for Constitutional Rights, amicus curiae.
    A. F. Summer, Atty. Gen., Wm. A. Allain, 1st Asst. Atty. Gen., Heber Lad-ner, Jr., Jackson, Miss., Champ T. Ter-ney, Jr., Indianola, Miss., for defendants-appellees-cross-appellants.
    Linda Colvard Dorian, Wm. A. Carey, Gen. Counsel, Julia P. Cooper, Asst. Gen. Counsel, Washington, D. C., for Equal Employ.
    Before BELL, SIMPSON and INGRA-HAM, Circuit Judges.
   SIMPSON, Circuit Judge:

This suit attacking the validity of the Drew Municipal School District’s rule against employing parents of illegitimate children was initiated by two such parents, both mothers, against whom the rule militated. Named as defendants were the Drew Municipal School District (the District), George Ferris Pettey, its Superintendent, and the individual members of the District’s Board of Trustees (the Board).

The complaint sought declaratory and injunctive relief to “redress the deprivation of rights and privileges and immunities of the plaintiffs guaranteed by the (sic) 42 U.S.C. 1981, 1983 et seq., Title VI of the Civil Rights Act of 1964, 42 U.S.C. Section 2000d et seq., the Fifth and Fourteenth Amendments to the United States Constitution. Plaintiffs further asked for declaratory relief under 28 U.S.C. Section 2201, 2202.” Jurisdiction was invoked under Title 28 U.S.C. Section 1343.

Following a series of hearings the district court decided the case on the merits, holding that the rule violated both the Equal Protection Clause and the Due Process Clause of the Fourteenth Amendment. Andrews v. Drew Municipal Separate School District, N.D.Miss. 1973, 371 P.Supp. 27. We affirm for reasons stated below.

In the Spring of 1972, Superintendent Pettey learned that there were some teacher aides presently employed in the District who were parents of illegitimate children. Disturbed by this knowledge, Pettey immediately implemented an unwritten edict to the effect that parenthood of an illegitimate child would automatically disqualify an individual, whether incumbent or applicant, from employment with the school system. There is no doubt that the policy is attributable solely to Pettey; there was no evidence that he sought either the prior advice or the consent of the Board.

Mrs. Fred McCorkle is one of the administrators responsible for implementing the unwed parent policy. As Coordinator of Elementary Instruction for the school district, she is in charge of the teacher aide program and recommends to Pettey who shall be hired to fill teacher aide vacancies. All potential teacher aides must submit an application to Mrs. McCorkle who then interviews them and investigates their applications. The investigation consists of consultations with other administrative staff members as well as the principals of the various schools concerning their knowledge of the applicant.

Both plaintiffs-appellees, Lestine Rogers and Katie Mae Andrews, were victims of the unwed parent policy. Les-tine Rogers was hired as a teacher aide in the Fall preceding the initiation of the rule, although her application stated that she was single and had a child. After the Pettey policy rule was announced,. Mrs. McCorkle informed Ms. Rogers that because she was the parent of an illegitimate child, she would not be re-hired for the following year. Katie Mae Andrews, on the other hand, knew about the Pet-' tey rule prior to applying for a teacher aide position. Although she too was the mother of an illegitimate child, she did not so indicate on her application. Mrs. McCorkle learned of Ms. Andrews’ illegitimate child in the course of her investigation of the application. She made a written notation of her finding on the application, and refused to consider Ms. Andrews further.

From the beginning, unwed mothers only, not unwed fathers, were adversely affected by the rule. This factor coupled with the conclusion that the policy, by its nature, could only be applied against females, led the district court to hold alternatively that “assuming a rational relation does exist between the Drew policy and legitimate educational objectives, the rule creates an inherently suspect classification based on sex, i. e. single women, which cannot survive strict scrutiny mandated by the Fourteenth Amendment.” 371 F.Supp. at 35. The district court’s primary holding was that the rule “has no rational relation to the objectives ostensibly sought to be achieved by the school officials and is fraught with invidious discrimination; thus it is constitutionally defective under the traditional, and most lenient, standard of equal protection and violative of due process as well.” Ibid, at 31. Thus this appeal concerns a policy or rule that has not only been held to violate equal protection for alternative reasons, but has also been held to violate due process. On the basis relied upon by the district court of traditional notions of equal protection, because the policy created an irrational classification, we affirm.

“Traditional” equal protection analysis requires that legislative classifications must be sustained as long as the classification itself is rationally related to a legitimate governmental interest. United States Department of Agriculture v. Moreno, 1973, 413 U.S. 528, 93 S.Ct. 2821, 37 L.Ed.2d 782; Jefferson v. Hackney, 1972, 406 U.S. 535, 92 S.Ct. 1724, 32 L.Ed.2d 285; Weber v. Aetna Casualty & Surety Co., 1972, 406 U.S. 164, 92 S.Ct. 1400, 31 L.Ed.2d 768. To find the governmental objective ostensibly served by the rule, we turn to the testimony of Superintendent Pettey, the rule’s originator and explicator. Pettey’s avowed objective was to create a scholastic environment which was conducive to the moral development as well as the intellectual development of the students. Certainly this objective is not without legitimacy. See Shelton v. Tucker, 1960, 364 U.S. 479, 81 S.Ct. 247, 5 L.Ed.2d 231; Adler v. Board of Education, 1952, 342 U.S. 485, 72 S.Ct. 380, 96 L.Ed. 517. Schools have the right, if not the duty, to create a properly moral scholastic environment. See Beilan v. Board of Education, 1958, 357 U.S. 399, 78 S.Ct. 1317, 2 L.Ed.2d 1414. But the issue is not simply whether the objective itself is legitimate, but rather whether the Pettey rule “advances that objective in a manner consistent with the Equal Protection Clause,” Reed v. Reed, 1971, 404 U.S. 71, 76, 92 S.Ct. 251, 254, 30 L.Ed.2d 225. We hold that it does not.

The District offers three possible rationales through which it asserts that its rule under attack furthers the creation of a properly moral scholastic environment: (1) unwed parenthood is prima facie proof of immorality; (2) unwed parents are improper communal role models, after whom students may pattern their lives; (3) employment of an unwed parent in a scholastic environment materially contributes to the problem of school-girl pregnancies.

The first of these postulates violates not only the Equal Protection Clause, but the Due Process Clause as well. The law is clear that due process interdicts the adoption by a state of an irrebuttable presumption, as to which the presumed fact does not necessarily follow from the proven fact. See Cleveland Board of Education v. LaFleur, 1974, 414 U.S. 632, 94 S.Ct. 791, 39 L.Ed.2d 52; Vlandis v. Kline, 1973, 412 U.S. 441, 93 S.Ct. 2230, 37 L.Ed.2d 63; Stanley v. Illinois, 1972, 405 U.S. 645, 92 S.Ct. 1208, 31 L.Ed.2d 551. Thus, unless the presumed fact here, present immorality, necessarily follows from the proven fact, unwed parenthood, the conclusiveness inherent in the Pettey rule must be held to violate due process. We agree with the district court that the one does not necessarily follow the other:

By the rule, a parent, whether male or female, who has had such a child, would be forever precluded from employment. Thus no consideration would be given to the subsequent marriage of the parent or to the length of time elapsed since the illegitimate birth, or to a person’s reputation for good character in the community. A person could live an impeccable life, yet be barred as unfit for employment for an event, whether the result of indiscretion or not, occurring at any time in the past. But human experience refutes the dogmatic attitude inherent in such a policy against unwed parents. Can it be said that an engaged woman, who has premarital sex, becomes pregnant, and whose fiance dies or is killed prior to their marriage, is morally depraved for bearing the posthumous child? The rule allows no compassion for the person who has been unwittingly subjected to sexual relations through force, deceptive design or while under the influence of drugs or alcohol, yet chooses to have the child rather than to abort it. The rule makes no distinction between the sexual neophyte and the libertine. In short, the rule leaves no consideration for the multitudinous circumstances under which illegitimate childbirth may occur and which may have little, if any, bearing on the parent’s present moral worth. A past biological event like childbirth out of wedlock, even if relevant to the issue, may not be controlling; and that it may be considered more conventional or circumspect for the infant to be surrendered to others for upbringing rather than be reared by the natural parent is hardly determinative of the matter. Furthermore, the policy, if based on moral judgment, has inherent if unintended defects or shortcomings. While obviously aimed at discouraging pre-material (sic) sex relations, the policy’s effect is apt to encourage abortion, which is itself staunchly opposed by some on ethical or moral grounds. It totally ignores, as a disqualification, the occurrence of extra-marital sex activity, though thought of by many as a more serious basis for moral culpability. Indeed, the superintendent’s fiat, altogether unsupported by sociological data, equates the single fact of illegitimate birth with irredeemable moral disease. Such a presumption is not only patently absurd, it is mischievous and prejudicial, requiring those who administer the policy to “investigate” the parental status of school employees and prospective applicants. Where no stigma may have existed before, such inquisitions by overzealous officialdom can rapidly create it. 371 F.Supp. at 33 — 34 (footnotes deleted).

We observe also that there are reasonable alternative means through which to remove or suspend teachers engaging in immoral conduct; means that guarantee the teacher a public hearing on the merits and right of appeal. 5 Miss.Code Sec. 6282-26 (1971 Supp.). By denying a public hearing to which all other teachers charged with immoral conduct are entitled, the policy denies unwed parents equal protection of the laws. Insofar as the rule inextricably binds unwed parental status to irredeemable immorality, it violates both due process and equal protection.

The school district urges a second rationale for its rule based upon the holding in McConnell v. Anderson, 8 Cir. 1971, 451 F.2d 193:

“What the school board looks at is whether, moral considerations aside, proper educational growth can be furthered and respect for marriage ingrained by employing unwed parents. The question then becomes whether the open and notorious existence of the status as an unwed parent would injure the affected students.” Reply Brief of Defendants/Appellants, p. 5.

McConnell, a male homosexual, had been offered a position at the University of Minnesota pending approval of the Board of Regents. While Board action was pending, McConnell and a male friend attempted to obtain a marriage license, an event which generated at least four local newspaper articles as well as local radio and television news coverage. Following this action the Board disapproved McConnell’s appointment with the statement that his “personal conduct, as represented in the public and University news media, is not consistent with the best interest of the University.” 451 F.2d at 194. In upholding the Board of Regents’ decision, the Eighth Circuit specified that McConnell was not denied employment because of his homosexual tendencies or his desire to continue homosexual conduct clandestinely, but rather because of his “activist role in implementing his unconventional ideas concerning the societal status to be accorded homosexuals,” which would have had the effect of forcing “tacit approval of this socially repugnant concept” upon the University. 451 F.2d at 196.

We do not consider McConnell supportive of the District’s position. The record before us contains no evidence of proselytizing of pupils by the plaintiffs and reveals instead that each plaintiff, along with her illegitimate offspring, is living under the same roof as her parents, brothers and sisters. It would be a wise child indeed who could infer knowledge of either plaintiff’s unwed parent status based on the manner of plaintiffs’ existence. As the district court observed:

“In the absence of overt, positive stimuli to which children can relate, we are convinced that the likelihood of inferred learning that unwed parenthood is necessarily good or praiseworthy, is highly improbable, if not speculative. We are not at all persuaded by defendants’ suggestions, quite implausible in our view, that students are apt to seek out knowledge of the personal and private family life-styles of teachers or other adults within a school system (i. e. whether they are divorced, separated, happily married or single, etc.), and, when known, will approve of and seek to emulate them.” 371 F.Supp. at 35.

In our view then, the school district’s second offered justification for the unwed parent policy also falls short of equal protection requirements.

The third rationale proffered by the school district in hopes of salvaging the Pettey rule, that the presence of unwed parents in a scholastic environment materially contributes to school-girl pregnancies is without support, other than speculation and assertions of opinion, in the record before us.

Because we hold that the Board rule under attack violated traditional concepts of equal protection, we find it unnecessary to discuss numerous other issues urged on appeal by appellees or in their behalf by amici curiae; for example, whether the rule creates a suspect classification based upon race or sex, or whether it infringes upon some constitutionally protected interest such as the right to privacy or the right to procreation.

Finally we find insufficient justification to reverse on cross-appeal the district court’s denial of attorney fees.

Affirmed.

      . In paragraphs 11, 12 and 13 of the complaint, the plaintiffs detailed their claims of violations of their rights under the heading “VIOLATIONS OF LAW”. The refusal by the defendants to employ plaintiff Andrews and the termination of the plaintiff Rogers was asserted to delegate the plaintiffs into an unconstitutionally created classification based upon their race, sex and unmarried parent status in violation of the constitutional and statutory provisions enumerated in the text, including Title VI of the Civil Rights Act of 1964, 42 U.S.C., Section 2000d. It was further alleged that Andrews was refused employment because of her race, sex and single parent status and that Rogers was discharged from her teachers’ aide position because of her race, sex and single parent status, all in violation of the same constitutional and statutory provisions.
      The district court’s decision, Andrews v. Drew Municipal Separate School District, N.D.Miss.1973, 373 F.Supp. 27, contains no findings or conclusions with respect to violation of Title VI of the Civil Rights Act, Title 42, U.S.C., Sec. 2000d.
      The complaint contained no assertion that Title VII of the Civil Rights Act of 1964, the Equal Employment Opportunities provision, Title 42, U.S.C. § 2000e et seq., was violated. No assertion of any violation of Title VII was made during the district court proceedings, and the district judge made no findings or conclusions as to violations of Title VII.

      . Pettey in testimony indicated confusion as to the expanse of the policy he had promulgated. He was positive that the rule should apply to all instructional personnel. Upon questioning, he expanded the list to include not only teachers and teacher aides, but also secretaries, librarians, dieticians, cafeteria operators, nurses, social workers, school principals, school volunteers and even PTA presidents. Although he was not positive, he did not think the rule should apply to bus drivers, janitors or maids.

      . The Board and its individual members were unaware of the rule until the commencement of this action. The evidence indicates, however, that the Board then ratified the policy and all actions taken under it.

      . Across the top front of Ms. Andrews’ application, Mrs. McCorkle wrote, “Single with a child 3 or 4.” On the back of the application, Mrs. McCorkle wrote:
      “This applicant would have been hired in January 1973 if I had not received information from Mrs. Clara Robinson and others at James Elementary that she had a child. The applicant stated on her application that she was single and had no children. When she called by phone in January I informed her of the school policy and have had no contact with this applicant since then.”

      . Because we affirm upon traditional equal protection grounds, we do not consider the district court’s alternative finding of a sex based classification or its legal conclusion that such classifications are inherently suspect.

      . If a state investigates the moral character of an individual upon whom it intends either to bestow a benefit or to impose a burden, due process requires that such inquiry look to present moral character. Thus, in Schware v. Board of Bar Examiners of New Mexico, 1957, 353 U.S. 232, 77 S.Ct. 752, 1 L.Ed.2d 796, the Supreme Court held that the New Mexico Board of Bar Examiners violated an applicant’s due process rights by refusing to consider his evidence of present good moral character in disallowing him membership to the bar. The Board relied instead on negative inferences drawn from Schware’s past, in that approximately fifteen years prior to entering law school, he was a member of the Communist party, made use of aliases and had an arrest record. In reversing the Board’s denial of admission, the Court noted that “if (Schware) otherwise qualifies for the practice of law and is admitted to the bar, the State has ample means to discipline him for any future misconduct.” 353 U.S. at 247, n. 20, 77 S.Ct. at 760, n. 20.

      . The conclusiveness of the Pettey rule was testified to by Superintendent Pettey himself:
      Q. So I take it, Mr. Pettey, that a person who supposedly has a, quote, illegitimate child, as you put it, that fact, no matter when it took place or no matter under what circumstances it took place, is prima facie evidence of a lack of morality:
      A. It would be to me, yes.
      * * * * * *
      THE COURT: Mr. Pettey, you do not think the facts or circumstances under which an illegitimate birth occurred is at all relevant to the issue of good character or bad character?
      A. No sir. That would be hard to get at. I think the fact that the birth occurred without the benefit of matrimony is, to me, proof enough of the
      THE COURT: Is conclusive?
      A. Yes sir.
      ******
      THE COURT: . . Suppose a woman had an illegitimate child and then later married either the father of the child or another man. When she presented herself to you she showed she was married and had a child, one child. Would you consider her for employment?
      A. No, sir, I would not.

      . Sec. 6282-26 reads, in pertinent part:

        Suspension of superintendent, principal, or teacher — notice—appeal.—For incompetence, neglect of duty, immoral conduct, intemperance, brutal treatment of a pupil or other good cause the county superintendent of education or superintendent of the municipal separate school district, as the case may be, may remove or suspend any . . . teacher in any school district, but before being so removed or suspended the . . . teacher shall be notified of the charges against him and'he shall be advised that he is entitled to a public hearing upon said charges at a date to be fixed in such notice. . . . From the decision made at said hearing the . teacher shall be allowed an appeal to the state board of education . . .. Any party aggrieved by the said ruling of the state board of education may effect an appeal therefrom to the chancery court

      . We think it significant also that upon request, McConnell was given an opportunity to appear before the Board of Regents with counsel to present information claimed to support his application. It was only after this hearing that the Regents adopted the resolution to disapprove the appointment.

      . Both the Equal Employment Opportunity Commission and the Center for Constitutional Rights filed Amicus Curiae briefs before this court urging that the basis for our decision be broadened to include some or all of these issues. Both Amici sought and were denied leave to participate in oral argument.

      . Despite his alternative ground of decision, discrimination as to sex in violation of the Fourteenth Amendment, the district judge denied the award of attorneys’ fees in a separate order entered after his injunctive and declaratory decree. No reasons were assigned. Because of the strong congressional policy against unlawful discrimination in employment, Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e; Weeks v. Southern Bell Tel. & Tel. Co., 5 Cir. 1969, 408 F.2d 228, we would seriously consider reversal for failure to award attorneys’ fees, if we could base our affirmance on that congressional policy’s proper vindication. See Clark et al. v. American Marine Corporation, 5 Cir. 1971, 437 F.2d 959, affirming per curiam, Clark et al. v. American Marine Corporation, E.D.La.1970, 320 F.Supp. 709; cf. Newman v. Piggie Park Enterprises, 1968, 390 U.S. 400, 88 S.Ct. 964, 19 L.Ed.2d 1263. But review of the finding of discrimination as to sex, especially since no Title VII violation was asserted by the pleadings or dealt with by the trial court, (Note 1, supra) presents a thicket we deem it unwise to enter. In the procedural posture which has evolved, we perceive no error in the refusal to award attorneys’ fees.


author: MARIS, Circuit Judge.

text:
    ESTATE of George T. KLEIN, Deceased, Shirley Klein, Personal Representative and Shirley Klein, Petitioners-Appel-lees, v. COMMISSIONER OF INTERNAL REVENUE, Defendant-Appellant.
    No. 74-1437.
    United States Court of Appeals, Seventh Circuit.
    Argued Nov. 4, 1974.
    Decided Dec. 17, 1974.

      Scott P. Crampton, Asst. Atty. Gen., Arthur L. Bailey, Atty., Dept, of Justice, Tax Div., Washington, D. C., for defendant-appellant.
    Robert M. Weiss, Milwaukee, Wis., for petitioners-appellees.
    Before MARIS, CUMMINGS and PELL, Circuit Judges.

       Of the Third Circuit, sitting by designation.

   MARIS, Circuit Judge.

This is an appeal by the Commissioner of Internal Revenue from a decision of the Tax Court determining the income tax liability of George T. and Shirley Klein for the years 1966, 1967 and 1968. The facts were stipulated and may be summarized as follows:

In 1957 George T. Klein organized Organic Compost Corporation of Wisconsin, with its principal office in Germantown, Wisconsin. Until his death in 1972, Klein was president and sole stockholder of the Wisconsin corporation which was given the authority to make, use and sell organic compost embodying an improved process for which Klein held United States Patent No. 2750269, issued to him in 1956. In December 1959, Organic Compost Corporation of Pennsylvania was formed under the laws of Pennsylvania with its principal office in Oxford, Pennsylvania. In the years 1966, 1967 and 1968, Klein owned 24% of the issued stock of the Pennsylvania corporation.

In 1960 Klein entered into an agreement with the Pennsylvania corporation which was, in effect, an assignment of the patent monopoly held by Klein but only as to certain specified eastern states and the District of Columbia. Klein retained the patent rights as to all other areas. Under the terms of the agreement with the Pennsylvania corporation the licensee received the exclusive right to make, use and sell organic compost embodying the patented process for the life of the patent, the right to grant sublicenses and the right to bring and maintain suits against infringers in the licensee’s own name. The licensor was to receive an annual minimum royalty of $7,500.00 and a percentage, increasing as the dollar volume of sales increased, of the licensee’s gross sales of all organic compost embodying the patented process. The licensee agreed to keep records and to make them available for the licensor’s inspection. The licensor retained the right to terminate the agreement in the event of the licensee’s insolvency, the commission of an act of bankruptcy or the making of an order for compulsory liquidation. The treatment for tax purposes of the royalties received by Klein in the three years in question, pursuant to his agreement with the Pennsylvania corporation, is the subject of the present controversy.

In 1968 Organic Compost Corporation of Texas was formed. Klein was a less-than-25% stockholder. In the same year Klein and the Texas corporation entered into an exclusive license agreement which transferred to the Texas corporation the exclusive right to make, use and sell organic compost embodying Klein’s patented process in the limited area of eight southern and central states. Royalties under the agreement with the Texas corporation were received after the taxable years in issue and are not here involved.

A second agreement by Klein with Organic Compost Corporation of Pennsylvania was entered into in December 1969, expanding the Pennsylvania corporation’s territorial license to include the entire United States. The Pennsylvania corporation then entered into sublicens-ing agreements with the Wisconsin and Texas corporations. On May 3, 1971, Klein assigned to the Pennsylvania corporation his entire interest in Patent No. 2750269, valued by the Pennsylvania corporation at $1,221,967. In exchange, Klein received 8,146 newly issued shares of stock of the Pennsylvania corporation with a book value of $150 per share, the total book value of the 8,146 shares being $1,221,900. Just prior to this transaction, 4,000 shares of stock of the Pennsylvania corporation were outstanding. On the same date, articles of merger were entered into by the three corporations and on June 30, 1971 the Texas and Pennsylvania corporations were merged into the Wisconsin corporation.

In their joint federal income tax returns for 1966, 1967 and 1968, George T. and Shirley Klein reported royalties received from the Pennsylvania corporation in those years as long-term capital gain, claiming eligibility for such favorable tax treatment under § 1235 of the Internal Revenue Code of 1954. The Commissioner, also relying on § 1235 as interpreted by Treas.Reg. 1.1235— 2(b)(l)(i), as amended, determined that the royalties received pursuant to the 1960 agreement with the Pennsylvania corporation were taxable as ordinary income and he assessed deficiencies for the three years totalling $104,510.14. The Kleins filed a petition in the United States Tax Court for redetermination of the deficiencies. The Tax Court, following its earlier decision in Rodgers v. Commissioner, 1969, 51 T.C. 927, held that the petitioners were entitled under § 1235 to capital gains treatment and that to the extent that Treas.Reg. 1.1235 — 2 indicated the contrary, it was invalid. 61 T.C. 332. The Commissioner thereupon took the appeal to this court which is now before us.

Section 1235(a) of the Internal Revenue Code of 1954 provides:

“§ 1235. Sale or exchange of patents
“(a) General. — A transfer (other than by gift, inheritance, or devise) of property consisting of all substantial rights to a patent, or an undivided interest therein which includes a part of all such rights, by any holder shall be considered the sale or exchange of a capital asset held for more than 6 months, regardless of whether or not payments in consideration of such transfer are—
“(1) payable periodically over a period generally conterminous with the transferee’s use of the patent, or
“(2) contingent on the productivity, use, or disposition of the property transferred.”

Section 1.1235 — 2 of the Treasury Regulations, as amended by T.D. 6852, October 1, 1965, provides in pertinent part:

“§ 1.1235-2 Definition of terms
“(b) All substantial rights to a patent. (1) The term ‘all substantial rights to a patent’ means all rights (whether or not then held by the grantor) which are of value at the time the rights to the patent (or an undivided interest therein) are transferred. The term ‘all substantial rights to a patent’ does not include a grant of rights to a patent—
“(i) Which is limited geographically within the country of issuance;
“(iii) Which grants rights to the grantee, in fields of use within trades or industries, which are less than all the rights covered by the patent, which exist and have value at the time of the grant;
“(c) Undivided interest. A person owns an ‘undivided interest’ in all substantial rights to a patent when he owns the same fractional share of each and every substantial right to the patent. It does not include, for example, a license limited geographically, . . . ”

The sole issue which this appeal presents is whether the transfer of rights to his patent in a limited geographical area which Klein made to the Pennsylvania corporation in 1960 was a transfer of “all substantial rights” to the patent, within the meaning of § 1235 which would entitle him to the right under that section to treat the transaction as a sale of a capital asset as he did in his 1966, 1967 and 1968 income tax returns. The Tax Court held that it was such a transfer and that the provisions of Treasury Regulation 1.1235 — 2 which indicated the contrary were invalid. We conclude that the Tax Court erred in so holding, and that the Treasury Regulation is valid and correctly defines the term “all substantial rights to a patent” as used in § 1235 of the Revenue Act and that it supports the Commissioner’s deficiency determination.

Prior to the enactment of § 1235 in the Internal Revenue Code of 1954, § 117 of the Internal Revenue Code of 1939 provided the criteria for the treatment as capital gain of amounts received upon the transfer of patent rights. Under subsection (a)(4) of that section the determinative question was merely whether a “sale or exchange” had taken place. Patent law specifically authorizes the assignment of a patent or of any interest therein or the grant of exclusive rights thereunder to the whole or any part of the United States, 35 U.S.C. § 261. Under § 117(a)(4) royalties based on the use of transferred patent rights had been treated as capital gains for income tax purposes. Myers v. Commissioner, 1946, 6 T.C. 258; Kronner v. United States, 1953, 110 F.Supp. 730, 126 Ct.Cl. 156; United States v. Carruthers, 9 Cir. 1955, 219 F.2d 21. And it was so held in the case of a transfer of patent rights limited to a particular geographical area. Marco v. Commissioner, 1955, 25 T.C. 544. The Commissioner, however, had announced in 1950 in Mimeograph 6490, 1950 — 1 CB 9, that if in the case of a transfer of patent rights payment was to be measured by royalties based on the production, sale or use of the property transferred or payable periodically over the period of the transferee’s use of the property, he would regard the royalties thus paid as ordinary income and not capital gain. It was, in part, to settle the question thus raised that § 1235 of the 1954 Code was enacted. As we have seen, paragraphs (1) and (2) of § 1235(a) deal with this precise problem by providing that the payment of the purchase price in the form of such a periodic or contingent royalty shall not affect the legal nature of such a transaction as a sale or exchange of a capital asset.

Section 1235(a) went further, however, to provide, as we have seen, that the transfer of patent rights shall be considered a sale or exchange of a capital asset only if “all substantial rights to a patent, or an undivided interest therein which includes a part of all such rights” are included in the transfer. In Rodgers v. Commissioner, 1969, 51 T.C. 927, the Tax Court took the view that this language of § 1235 was not intended to exclude from capital gains treatment a transfer of patent rights limited geographically, and it followed and applied that decision in the present case. We cannot agree with this conclusion.

The use of the word “substantial” is doubtless in recognition of the rule applied in Allen v. Werner, 5 Cir. 1951, 190 F.2d 840; Allied Chemical Corp. v. United States, 2 Cir. 1967, 370 F.2d 697, and similar cases, that the retention by the transferor of minor rights under the patent shall not affect the character of a transfer as a sale entitled to capital gains treatment. But we think that the statutory requirement that the “substantial rights” transferred shall be “all” of them, even in the case of the transfer of an undivided interest in them, indicates a Congressional intention that the transfer of a part of the patent rights, divided off from the rest by a limitation on their use or the geographical area of their exercise, shall not be deemed a sale or exchange of a capital asset. In reaching this conclusion we have been mindful of the canon that the words of a statute, and this includes a revenue act, should be given their ordinary everyday meaning. Crane v. Commissioner, 1947, 331 U.S. 1, 6, 67 S.Ct. 1047, 91 L.Ed. 1301; Malat v. Riddell, 1966, 383 U.S. 569, 570, 86 S.Ct. 1030, 16 L.Ed.2d 102.

We are fortified in our conclusion by the legislative history of § 1235. In the Senate Committee Report on the Code it is stated:

“By ‘undivided interest’ a part of each property right represented by the patent (constituting a fractional share of the whole patent) is meant (and not, for example, a lesser interest such as a right to income, or a license limited geographically, or a license which conveys some, but not all, of the claims or uses covered by the patent).”

In thus stating that transfers of undivided interests which are included within the definition of the section are not to be confused with transfers of patent rights limited to specific uses or geographical areas the Senate Finance Committee indicated, we think, that such limited transfers were not intended to be included within the parameters of § 1235.

By T.D. 6852, approved October 1, 1965, the Secretary of the Treasury amended Treas.Reg. § 1.1235-2, which defines “all substantial rights to a patent” as used in § 1235 of the 1954 Code, by adding to subsection (b) the following language, inter alia:

“The term ‘all substantial rights to a patent’ does not include a grant of rights to a patent—
“(i) Which is limited geographically within the country of issuance;
“(iii) Which grants rights to the grantee, in fields of use within trades or industries, which are less than all the rights covered by the patent, which exist and have value at the time of the grant; . . . ” 1965-2 CB, p. 289.

The Secretary has broad authority under § 7805(a) of the Internal Revenue Code of 1954 to promulgate reasonable regulations implementing the provisions of the revenue laws. The regulations may, of course, be amended from time to time when the Secretary deems it appropriate, as, for example, when it appears from the decisions of the courts that provisions of the laws may be so ambiguous as to require further implementation or interpretation. Such regulations “must be sustained unless unreasonable and plainly inconsistent with the revenue statutes”. Commissioner v. South Texas Lumber Co., 1948, 333 U.S. 496, 501, 68 S.Ct. 695, 698, 92 L.Ed. 831. Here our independent inquiry into the language and history of § 1235 has led us to the conclusion that transfers of patent rights limited to a geographical area were not intended by Congress to be included with the statutory term “all substantial rights to a patent”, the transfer of which might give rise to a capital gain. We, therefore, cannot say that § 1.1235 — 2 of the Regulations as amended by T.D. 6852 is in this regard unreasonable or inconsistent with § 1235 of the Code.

We need only add that our conclusion is supported by recent decisions of the Courts of Appeals for the Sixth and Ninth Circuits, Fawick v. Commissioner, 6 Cir. 1971, 436 F.2d 655, and Mros v. Commissioner, 9 Cir. 1974, 493 F.2d 813. In each of these decisions subsection (b)(l)(iii) of Regulation 1.1235 — 2, as amended, was upheld over the Tax Court’s decision of invalidity. It is true that clause (iii) relating to use division was involved in those cases whereas here we are dealing with clause (i) relating to geographical division. But we see no difference in principle between the two with respect to the problem with which we are here concerned.

Reversed and remanded.

      . Shirley Klein, the widow of George T. Klein, is a party to this suit as personal representative of his estate and in her own right, having filed joint tax returns with her late husband.

      . The Wisconsin corporation continued to produce the patented product subject to the terms of Klein’s agreement with the Pennsylvania corporation and subject later to the terms of an agreement with a Texas corporation hereinafter described.

      . S.Rep.No.1622, 83d Cong., 2d Sess., 1954 U.S.Code Cong. & Admin.News, p. 5082.


author: GODBOLD, Circuit Judge: RIVES, Circuit Judge

text:
    Donald BOUCHILLON, Petitioner-Appellant, v. W. J. ESTELLE, Jr., Director, Texas Department of Corrections, Respondent-Appellee.
    No. 74-2459.
    United States Court of Appeals, Fifth Circuit.
    Jan. 29, 1975.
    James H. Randals, Staff Counsel for Inmates, Texas Dept, of Corrections, Huntsville, Tex., for petitioner-appellant.
    John L. Hill, Atty. Gen., Joe B. Dib-rell, Asst. Atty. Gen., Austin, Tex., Calvin Botley, Asst. Atty. Gen., Houston, Tex., for respondent-appellee.
    Before RIVES, GODBOLD and GEE, Circuit Judges.
   GODBOLD, Circuit Judge:

By this habeas suit appellant attacks a 1946 Texas state conviction used for enhancement. State remedies have been exhausted. Relying on Santobello v. New York, 404 U.S. 257, 92 S.Ct. 495, 30 L.Ed.2d 427 (1971), and United States ex rel. Culbreath v. Rundle, 466 F.2d 730 (CA3, 1972), he claims that his 1946 sentence was void because the court did not accept the prosecution’s plea bargain recommendation of a suspended sentence and instead sentenced him to two years’ confinement. Under Texas law, had the suspended sentence been imposed, the conviction could not have been used for enhancement.

Nothing more than a prosecutorial recommendation was promised, and that bargain was performed. Santobello requires neither that the court accept the prosecutor’s recommendation nor that the defendant be permitted to withdraw his plea after the recommendation is rejected. Culbreath does not hold that there is an unequivocal right to withdraw the plea but rather suggests that as a matter of policy the judge’s discretion should be exercised in favor of withdrawal in most circumstances. In the case before us the state court record reveals that the prosecutor’s recommendation was refused “when some new complaints came to the attention of the Court.”

Our conclusion makes it unnecessary for us to consider whether the new constitutional rule urged by appellant should, if adopted, be retroactively applied.

Affirmed.

RIVES, Circuit Judge

(specially concurring):

I concur in the result, but for different reasons. In Santobello the Supreme Court not only held constitutional the practice of plea bargaining but strongly approved that practice as an essential component of the administration of criminal justice to be properly administered and encouraged (404 U.S. at 260, 261, 92 S.Ct. 495). In well-considered dicta, the Supreme Court went beyond the agreement between an accused and a prosecutor and discussed the duty of the court:

“There is, of course, no absolute right to have a guilty plea accepted. Lynch v. Overholser, 369 U.S. 705, 719, [82 S.Ct. 1063, 1072, 8 L.Ed.2d 211] (1962); Fed.Rule Crim.Proc. 11. A court may reject a plea in exercise of sound judicial discretion.
“This phase of the process of criminal justice, and the adjudicative element inherent in accepting a plea of guilty, must be attended by safeguards to insure the defendant what is reasonably due in the circumstances. Those circumstances will vary, but a constant factor is that when a plea rests in any significant degree on a promise or agreement of the prosecutor, so that it can be said to be part of the inducement or consideration, such promise must be fulfilled.” (Emphasis added.)

404 U.S. at 262, 92 S.Ct. at 498.

I agree with the Third Circuit’s expression in Culbreath that “if the judge ultimately determines that the interest of justice would not be served by accepting the Government’s recommendation made pursuant to such agreement the defendant should be permitted to withdraw his guilty plea, particularly where, as here, there is no Government claim of prejudice or harm.” 466 F.2d at 735.

In the present case, Bouchillon apparently did not ask to withdraw his plea of guilty, but he urges that the trial court should have made certain that the defendant understood the advantage of making such a request, or should have affirmatively offered him an opportunity to withdraw his plea of guilty. Assuming that since Santobello such an affirmative duty is placed on the court when it refuses to accept the prosecutor’s recommendation, I would hold that under the tests prescribed in Stovall v. Denno, 1967, 388 U.S. 293, 297, 87 S.Ct. 1967, 18 L.Ed.2d 1199, the rule should not be applied retroactively. I therefore specially concur.

      . The only authority cited in Culbreath is a reference to proposed amendments to the Federal Rules of Criminal Procedure not yet adopted.


author: PER CURIAM:

text:
    UNITED STATES of America, Plaintiff-Appellant, v. Kenneth M. CRUMPLER, Defendant-Appellee.
    No. 74-2193.
    United States Court of Appeals, Fifth Circuit.
    Jan. 29, 1975.
    Anthony J. P. Farris, U. S. Atty., Charles F. Sandoval, James R. Gough, Asst. U. S. Attys., Houston, Tex., for plaintiff-appellant.
    Thomas G. Sharpe, Jr., Brownsville, Tex., for defendant-appellee.
    Before RIVES, GODBOLD and GEE, Circuit Judges.
   PER CURIAM:

The government appeals from an order suppressing as evidence contraband arms, seized by police officers who had entered defendant’s premises without a warrant. The government asserts that the entry was valid because the officers suspected that a burglary of the premises was in progress, and that the subsequent seizure was valid under the plain view doctrine or the doctrine of exigent circumstances. The District Judge assumed, without deciding, that the entry was valid. He held that the government had failed to establish the plain view exception, it having failed to produce as a witness the officer who seized the particular items or any other officer who could identify them as having been in plain view. We agree. Nor does the record sustain the alternative theory that when officers took possession of the contraband, some of which was in closed boxes which they opened, and carried it to police headquarters, they were acting to safeguard the seized items from loss.

The notice of appeal, filed pursuant to 18 U.S.C. § 3731, did not contain the certificate required by that section nor was such a certificate filed within 30 days thereafter. We raised this matter on our own motion and a certificate then was filed. We agree with other circuits that failure to timely file the certificate is not jurisdictional. United States v. Kleve, 465 F.2d 187 (CA8, 1972) and United States v. Welsch, 446 F.2d 220 (CA10, 1971).

Affirmed.


author: BELL, Circuit Judge: JOHN R. BROWN, Chief Judge

text:
    Dr. Allen SHAW, Plaintiff-Appellant, v. The HOSPITAL AUTHORITY OF COBB COUNTY and its individual members, et al., Defendants-Appellees.
    No. 74-1018.
    United States Court of Appeals, Fifth Circuit.
    Jan. 29, 1975.

      Richard H. Still, Jr., Marietta, Ga., for plaintiff-appellant.
    Werner Strupp, Howard Adler, Jr., Washington, D. C., for Am. Podiatry Assoc.
    Irma B. Glover, Garvis L. Sams, A. Harris Adams, Marietta, Ga., for defendants-appellees.
    Before BROWN, Chief Judge, and BELL and MORGAN, Circuit Judges.
   BELL, Circuit Judge:

We are required in this appeal to apply the “procedural due process — liberty or property interest” principle outlined in Board of Regents v. Roth, 1972, 408 U.S. 564, 92 S.Ct. 2701, 33 L.Ed.2d 548, to the claim of a podiatrist to staff privileges in a public hospital. We vacate and remand for further consideration.

The complaint against the defendants, the Hospital Authority and its individual members, claimed arbitrary conduct on their part in denying appellant staff privileges at Cobb General Hospital, a hospital under the supervision of the defendants. The component parts of this general claim are alleged denials of substantive and procedural due process as well as equal protection, all as afforded appellant by the Fourteenth Amendment.

Appellant, Dr. Shaw, is a Doctor of Podiatric Medicine and Surgery licensed to practice in the State of Georgia. His competence and individual qualifications have not been challenged by the defendants. He has been granted staff privileges at Bolton Road Hospital in Atlanta, Georgia, and at Doctor’s Hospital in Tucker, Georgia, both private hospitals. He is currently engaged in the practice of his profession in the immediate vicinity of Cobb General Hospital.

Appellant’s application for staff membership at Cobb General Hospital was denied on the basis of the by-laws of the Hospital Authority and by the by-laws of its “Medical-Dental Staff” which allow membership only to full-practice physicians and duly licensed dentists. A podiatrist such as Dr. Shaw would not come within this definition as Ga.Code Ann. § 84-601, defines “podiatry” as “diagnosis, medical, surgical, mechanical, manipulative and electrical treatment of the human foot and leg” and states that “[n]o podiatrist shall do any amputation or use any anesthetic other than local.” Thus podiatrists do not hold full-practice licenses because under Ga.Code Ann. § 84-901 the “practice of medicine” is not defined as limited to any area of the body. Further the power to grant licenses to practice podiatry is vested in the State Board of Podiatry Examiners while the power to grant licenses to practice medicine is vested in the Composite State Board of Medical Examiners. Dentists are also limited by law to one area of the body (See Ga.Code Ann. § 84-701 et seq.) and they are licensed other than by the Composite Board of Medical Examiners. The Hospital Authority explains its exception for dentists on the grounds that they perform functions which are not offered by other members of the medical community. This is not the case with podiatrists, as the services they provide are already available from the existing staff, specifically orthopedic surgeons.

The Hospital Authority of Cobb County is the governing body of Cobb General Hospital, a public hospital constructed with state and federal funds under the Hill-Burton Act, 42 U.S.C.A. § 291 et seq. Therefore its acts in precluding Dr. Shaw from staff privileges are state acts subject to the provisions of the Fourteenth Amendment. Sosa v. Board of Managers of Val Verde Memorial Hosp., 5 Cir., 1971, 437 F.2d 173; Foster v. Mobile County Hosp. Bd., 5 Cir., 1968, 398 F.2d 227.

Appellant made application for staff privileges at Cobb General on April 19, 1973. He expressed a desire to meet with the executive committee of the Medical-Dental Staff to discuss a change in its by-laws, indicating that he was aware that same did not provide for podiatrists on the staff. Dr. Shaw was invited to and attended the meeting of May 8, 1973 in which he was given some 30 minutes to pass out literature and answer questions. After Dr. Shaw left the meeting, the Executive Committee decided to recommend to the Hospital Authority that no change be made in the Staff by-laws.

Dr. Shaw was informed of this action and his attorney responded with a letter to the Hospital Authority objecting to the rejection of Dr. Shaw’s application on the basis of the by-laws and appealing on Dr. Shaw’s behalf to the members of the Hospital Authority to reconsider the rejection. The attorney stressed that his client could not be denied staff membership on the basis of by-laws which were unreasonable, arbitrary and discriminatory. A reply to the attorney stated that his letter had been presented to the Hospital Authority at its regular meeting on June 20, 1973 and that “[t]he Authority did not feel it appropriate to direct the Staff to change its by-laws nor did the Authority take any action toward changing its own by-laws.”

Appellant contends that the Hospital Authority’s denial of his application on the basis of by-laws which exclude podiatrists as a class while admitting dentists, who are also limited by law to one area of the body, is a violation of his equal protection rights. He maintains that he is licensed by the State of Georgia to perform certain operations and that the hospital facilities are necessary for the convenience of his patients who reside in Cobb County, the area of his practice, and alleges this to be a denial of substantive due process. He also claims a denial of procedural due process with respect to the hearing process.

In the view we take of this case, we reject the equal protection claim and find it unnecessary to denominate, as such, any issue as to substantive due process. We do find a liberty interest subject to procedural due process safeguards, and because this case was not considered by the defendants on this basis, we direct that it be reconsidered.

Under the equal protection claims, appellant attacks the classifications created by appellee’s by-laws, arguing that all those licensed by the State of Georgia to practice the healing arts are members of one class. He contends that granting staff privileges to full-practice physicians and dentists while denying them to podiatrists creates classifications which have no rational basis. We believe that this argument is too attenuated. Such a class is too large to be meaningful and we are unable to equate the various branches of the healing arts which would necessarily be included. Therefore, we reject appellant’s equal protection claim. The facts simply do not make out a case of persons similarly situated within the equal protection clause treatment requirement “that all persons similarly circumstanced shall be treated alike.” Royster Guano Co. v. Virginia, 1920, 253 U.S. 412, 415, 40 S.Ct. 560, 562, 64 L.Ed. 989, 991.

Finally, Dr. Shaw contends that he was denied procedural due process because his application was considered in summary fashion by appellee. His criticism is aimed at the thirty-minute hearing before the Medical-Dental Staff and the Hospital Authority’s refusal to consider changing its by-laws on the strength of this hearing. Before the requirements of procedural due process apply there must be a deprivation of interest encompassed by the Fourteenth Amendment’s protection of liberty and property. Board of Regents v. Roth, supra.

Although both the terms “liberty” and “property” are broad and not defined with exactness, National Ins. Co. v. Tidewater Co., 1949, 337 U.S. 582, 646, 69 S.Ct. 1173, 1209, 93 L.Ed. 1556, 1596 (Frankfurter, J., dissenting); Meyer v. Nebraska, 1923, 262 U.S. 390, 399, 43 S.Ct. 625, 626, 67 L.Ed. 1042, 1045, a number of cases have construed these terms. Liberty is not confined to mere freedom from bodily restraint but extends to the full range of conduct which the individual is free to pursue. Bolling v. Sharpe, 1954, 347 U.S. 497, 499-500, 74 S.Ct. 693, 694-695, 98 L.Ed. 884, 887. Contemplated within this term is the right to practice any of the common occupations of life, and for others to engage the individual to perform those acts which are his occupation. These rights are within the Fourteenth Amendment. Meyer v. Nebraska, supra, 262 U.S. at 400, 43 S.Ct. at 627. Appellant, in seeking staff privileges at appellees’ hospital, seeks to engage in his occupation as a podiatrist and this is a liberty interest protected by the Fourteenth Amendment. He is therefore entitled to a hearing conforming to minimal requirements of procedural due process of notice and an opportunity to be heard.

This brings us to the question whether appellant was afforded such a hearing. We conclude that he was not.

There are two principal reasons for the shortcoming in procedural due process. The first is that a hearing before the Medical-Dental Staff would not suffice as a hearing before the Hospital Authority. Although the Authority may properly delegate many decisions to the Staff, Sosa v. Board of Managers, supra, 437 F.2d at 177, these two groups are separate and each have their own set of by-laws which preclude podiatrists from staff privileges. There is no evidence that a change in the Medical-Dental Staff by-laws would automatically result in a change in the Hospital Authority’s by-laws. Therefore, Dr. Shaw must be afforded hearings before both groups.

Appellees argue that appellant did not request a hearing before the Authority and so they were justified in relying upon the recommendation of the Medical-Dental Staff. This argument is without merit in the face of the District Court’s finding that appellee had determined not to change its by-laws despite appellant’s failure to request a hearing. This is relatively unimportant, in any event, in view of our disposition of the other basis of procedural due process denial.

We find that the hearing accorded appellant was not conducted on the proper legal standard as to his underlying right, i. e., the liberty interest. The procedural due process to which Dr. Shaw was entitled had to be fashioned for and directed to that liberty interest.

Because his application was not so considered, we vacate the judgment of the District Court and remand with direction that the application of Dr. Shaw be reconsidered by defendants and the Medical-Dental Staff on a basis not inconsistent herewith.

Vacated and remanded.

JOHN R. BROWN, Chief Judge

(concurring):

I concur in the opinion and the result. I would emphasize, however, that in the procedural due process hearing the intrinsic reasonableness of the regulation is the principal matter for inquiry.

While I would join in the Court’s conclusion that the practice of podiatry and medicine do not coalesce, the practice of podiatry is a statutorily recognized right to engage in procedures and techniques which might be characterized as “medically radical”. The State of Georgia recognizes that persons of this profession have significant professional qualifications, responsibilities, and privileges.

Considering all that Georgia permits and encourages them to do, the question perhaps boils down to whether any rational basis exists for denying podiatrists, or more important their patients, the essential facilities of a twentieth century hospital. Before podiatrists can be relegated in the performance of their duties to a garret, there must be a rational basis for regulations which effectively deny access to modern hospital facilities. The due process hearing, if conducted with due process, may therefore precipitate a serious question of equal protection.

      . Ga.Code Ann. § 84-601 has since been amended to clarify this. “Podiatry shall not be deemed to be included in the expression ‘licensed doctors of medicine,’ ‘doctors of medicine,’ ‘doctors of medicine licensed to practice in this State’ and the like.” [1973] Ga.L. 824-825.

      . Appellant relies on Woodbury v. McKinnon, 5 Cir., 1971, 447 F.2d 839, where we held that once a staff member, a doctor had a right to reappointment until the governing authorities determined after a hearing conforming to the minimum requirements of procedural due process that he did not meet the reasonable standards of the hospital. This was the extent to which he was entitled to substantive due process. The Roth decision renders this argument unnecessary. Regardless of the label of substantive due process, our inquiry centers on whether Dr. Shaw had a liberty or property interest protected by the Fourteenth Amendment.

      . After examining the nature of the classification and the interest involved, we agree that the rational basis rather than the compelling state interest test is applicable. See Shapiro v. Thompson, 1969, 394 U.S. 618, 89 S.Ct. 1322, 22 L.Ed.2d 600. Cf. Hayman v. Galveston, 1927, 273 U.S. 414, 47 S.Ct. 363, 71 L.Ed. 714.

      . In finding that Dr. Shaw has a liberty interest, we need not reach the question whether he has a claim of entitlement amounting to a property interest. For a discussion see Board of Regents v. Roth, supra; Goldberg v. Kelly, 1970, 397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287.