author: VAN OOSTERHOUT, Senior Circuit Judge. HEANEY, Circuit Judge,

text:
    Tom J. GIALDE, Appellee, v. TIME, INC., Appellant. TIME, INC., Petitioner, v. Honorable John W. OLIVER, Judge of the United States District Court for the Western District of Missouri, Respondent.
    Nos. 72-1776, 73-1030.
    United States Court of Appeals, Eighth Circuit.
    Submitted March 14, 1973.
    Decided June 20, 1973.

      Heaney, Circuit Judge, concurred in part and dissented in part and filed opinion.

      Harold R. Medina, Jr., Cravath, Swaine & Moore, New York City, for Time, Inc.
    Joseph Schlozman, Schlozman & De-Feo, Kansas City, Mo., for Gialde.
    Before VAN OOSTERHOUT, Senior Circuit Judge, HEANEY, Circuit Judge and VAN SICKLE, District Judge

       Sitting by designation.

   VAN OOSTERHOUT, Senior Circuit Judge.

This is an action by plaintiff Tom J. Gialde against Time, Inc., for actual and punitive damages based upon an article and photograph which appeared in the June 12, 1970, issue of Life Magazine published by Time showing plaintiff as a member of a golfing group at Ocean Springs, Mississippi. The article, which was published with the photograph, referred without naming plaintiff to eighteen individuals pictured therein as “four of Kansas City’s leading Mafiosi and their golfing associates.”

Plaintiff’s action is based upon invasion of his right of privacy both on a “false light” and “disclosure of private facts” theory. In a separate count, liability is predicated on libel.

This appeal is from an order of the trial court dated November 29, 1972, which overruled Time’s motion for summary judgment and granted plaintiff’s motion to compel Denny Walsh, a Life investigator, to disclose the source of his information verifying the truth of certain portions of the published article. The order in pertinent part reads:

“Ordered that defendant’s motion for summary judgment should be and the same is hereby denied. It is further
“Ordered that plaintiffs’ motion to compel answers should be and the same is hereby granted. It is further
“Ordered that within ten (10) days, the parties prepare, serve, and file their respective suggestions in regard to:
(a) Why both of the above entitled causes should not be consolidated for trial pursuant to Rule 42(a); and
(b) Assuming that consolidation is proper, what additional discovery, if any, either party desires before the consolidated cases be set for trial. The parties shall confer and advise each other as to their views concerning the completion of the deposition of Denny Walsh. It is further
“Ordered that the Court has fully considered the question frequently discussed at various pretrial conferences as to whether a certification should be made to the Court of Appeals pursuant to Section 1292(b), Title 28, United States Code of the questions presented by the pending motions.
“We have concluded that such certification would not be proper under the circumstances of this case. We simply are unable to convince ourselves that an immediate appeal would materially advance the ultimate termination of this litigation. The ultimate termination of this litigation, in our judgment, will be advanced most rapidly by a consolidated trial on the merits of both cases.”

Notice of appeal from such order, served and filed on December 7, 1972, reads:

“Notice is hereby given that defendant hereby appeals pursuant to Section 1291 of Title 28 of the United States Code to the United States Court of Appeals for the Eighth Circuit from the decision and order of this Court filed and entered in this action on November 20, 1972, which decision and order required answers by defendant and by Denny Walsh identifying the person who supplied information to Walsh for use in connection with the preparation and publication of the article with respect to which this action has been instituted, denied defendant’s motion for summary judgment, and denied defendant’s application for certification pursuant to Section 1292(b) of Title 28 of the United States Code.”

Plaintiff filed motion to dismiss the appeal for lack of jurisdiction on January 9, 1973, with supporting memorandum. Such motion to dismiss is resisted by defendant.

Defendant on January 9, 1973, filed petition for writ of mandamus pursuant to 28 U.S.C. § 1651 and Rule 21, F.R.A. P. In substance, defendant seeks an order requiring the trial court to vacate its opinion and order of November 20, 1972, and to grant defendant’s motion for summary judgment. Defendant states that its petition is filed as an alternate to its appeal and that if this court determines that it has no jurisdiction to entertain the appeal, it grant defendant relief on its petition for writ for the reasons urged in its brief on appeal.

This court by order filed January 17, 1973, consolidated the mandamus action, No. 73-1030, with case No. 72-1776 pending on appeal; ordered that the motion to dismiss the appeal in No. 72-1776 for lack of jurisdiction be submitted with the appeal on the merits, and further ordered that pursuant to Rule 21, F.R.A.P., respondent Honorable John W. Oliver file answer to the mandamus petition and supporting brief by February 12, 1973, and for service of the mandamus petition and the order thereon.

Plaintiff Gialde filed answer to the petition denying defendant was entitled to the relief sought. The appeal in case No. 72-1776, the motion to dismiss the appeal and the petition for a writ in case No. 73-1030 were all pursuant to prior order argued and submitted on March 14, 1973.

The threshold issue for our determination of defendant’s appeal in case No. 72-1776 is whether this court has appellate jurisdiction to consider the appeal. We dismiss the appeal in No. 72-1776 for lack of appellate jurisdiction.

Courts of appeal have only such jurisdiction as is conferred upon them by Congress. Twenty-eight U.S.C. § 1291 is the statute governing this appeal and appeals generally. Transportation-Corn. Div. v. St. Louis-San Francisco Ry., 419 F.2d 933 (8th Cir. 1969); Bohms v. Gardner, 381 F.2d 283, 285 (8th Cir. 1967); Pauls v. Secretary of Air Force, 457 F.2d 294, 297-298 (1st Cir. 1972).

Certain exceptions exist such as those found in 28 U.S.C. § 1292 and Rule 54(b), Fed.R.Civ.P., none of which are here applicable.

Section 1291 gives Courts of Appeal jurisdiction of “appeals from all final decisions of the district courts of the United States.” A final decision generally is one which ends litigation and leaves nothing for the court to do but execute the judgment. Catlin v. United States, 324 U.S. 229, 233, 65 S.Ct. 631, 89 L.Ed. 911 (1945); Bohms v. Gardner, supra.

It is entirely clear that the order here appealed from does not terminate the litigation. The portion of the order denying summary judgment does not end the litigation. It leaves the validity of plaintiff’s claim open for trial on the merits, leaving open an appropriate motion for a directed verdict or other relief. Defendant has cited no case which supports its view that an order denying summary judgment is appealable. We have found no such case. There are, however, many cases holding an order denying summary judgment is not a final order and hence not appealable, including the following: Refrigerated Food Line, Inc. v. Republic Industries, Inc., 449 F.2d 756 (8th Cir. 1971); Upper Mississippi Towing Corp. v. West, 338 F.2d 823, 825 (8th Cir. 1964); Alexander v. Pacific Maritime Ass’n, 332 F.2d 266, 268 (9th Cir. 1964) ; Chappell & Co. v. Frankel, 367 F.2d 197, 199 (2d Cir. 1966).

The order also sustains plaintiff’s motion to compel Time employee Walsh to answer certain questions. The motion sets out the questions plaintiff desires to have Walsh answer. Walsh by affidavit and deposition taken in New York where he apparently resides states that he obtained corroboration of the information (obtained by Time from another source) that four named parties shown in the picture were Kansas City Mafia members and that others were associates from an unnamed “federal enforcement man” located at Kansas City, Missouri. Walsh refused to answer questions as to the name of the informer or the government department which employed the informer. Such refusal was based upon a claim that the information was given to him as a reporter in confidence and that the naming of the informer would subject the informer to reprisal by his superiors and likewise subject the informer to reprisal by the parties pictured in the photograph. The trial court order heretofore set out is general and imposes no sanctions or penalties upon Walsh or his employer Time. The order is preliminary, not a final order.

Plaintiff in his brief in support of his motion to dismiss the appeal states that he is unable to locate Walsh for further testimony and that there is a difference of opinion between counsel whether an agreement existed between counsel that Walsh would submit to further questioning if the court ruled he should answer the questions which he refused to answer. A serious question exists under the incomplete record before us whether Walsh as an individual is under any legal obligation to submit to further questioning.

The general rule appears to be that a preliminary order such as here involved is not a final appealable order. Duffy v. Dier, 465 F.2d 416 (8th Cir. 1972); Childs v. Kaplan, 467 F.2d 628 (8th Cir. 1972); United States v. Anderson, 150 U.S.App.D.C. 336, 464 F.2d 1390 (1972); United States v. Ryan, 402 U.S. 530, 532, 91 S.Ct. 1580, 29 L.Ed.2d 85 (1971); Cobbledick v. United States, 309 U.S. 323, 60 S.Ct. 540, 84 L.Ed.2d 783 (1971); Alexander v. United States, 201 U.S. 117, 26 S.Ct. 356, 50 L.Ed. 686 (1906); Pauls v. Secretary of Air Force, 457 F.2d 294 (1st Cir. 1972); Borden Co. v. Sylk, 410 F.2d 843 (3d Cir. 1969); 9 Moore’s Federal Practice ¶ 110.13 [2].

While the Supreme Court cases just cited involve criminal proceedings, we note that § 1291 covers civil as well as criminal cases. We see no reason why the statute as finality should receive a different interpretation in civil cases than in criminal cases. See Childs v. Kaplan, supra.

The discovery order here appealed from applies no sanctions. There is no certainty that the defendant will ultimately refuse to answer questions propounded by the court, nor is it established what sanctions, if any, may be applied by the court in event Walsh persists in his refusal. Before contempt can be imposed, due process requires that Walsh be afforded an opportunity to show cause why he should not be adjudged in contempt. The Supreme Court in United States v. Ryan, supra, states:

“But compliance is not the only course open to respondent. If, as he claims, the subpoena is unduly burdensome or otherwise unlawful, he may refuse to comply and litigate those questions in the event that contempt or similar proceedings are brought against him. Should his contentions be rejected at that time by the trial court, they will then be ripe for appellate review.
. Only in the limited class of cases where denial of immediate review would render impossible any review whatsoever of an individual’s claims have we allowed exceptions to this principle.” 402 U.S. 530, 532-533, 91 S.Ct. 1580, 1582.

The trial court in the order appealed from has placed no sanctions on defendant Time based on Walsh’s refusal to answer questions. What, if any, sanctions can or should be imposed on Time by reason of Walsh's refusal to answer questions propounded remains an open and unadjudicated question.

This appeal does not fall within 28 U.S.C. § 1292(b). Under such section an appeal is authorized when the district court certifies that its order involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate determination of the litigation and the Court of Appeals in its discretion permits an appeal from the order. Here, as shown in the order quoted, the District Court refused to make the required certification and on the contrary, stated that an immediate appeal would not advance the ultimate termination of the litigation. No application has been made to us pursuant to the statute to permit an interlocutory appeal.

Both the required court certification and the consent of the Court of Appeals in the exercise of its discretion to an interlocutory appeal appear to be prerequisites to such an appeal. In denying an appeal under § 1292(b) in Refrigerated Food Line, Inc., 449 F.2d 756, 757 (8th Cir. 1971), we held:

“Appellants, advisedly, do not contend that the appeal falls within the class of orders from which an appeal is allowed as a matter of right under § 1292(a). They have not, however, met the requirements for the allowance of permissive appeals set forth in § 1292(b), in that the District Court did not certify that an immediate appeal was desirable, and in that the appellants did not apply to this Court for permission to appeal. See Hodgson v. United States Slicing Mach. Co., 370 F.2d 565 (3rd Cir. 1967).” To like effect see Chappell & Co. v. Frankel, supra.

Mr. Justice Blackmun, while a member of this court, in Bohms v. Gardner, supra, stated:

“Section 1291 has its origin in § 22 of the Judiciary Act of 1789, 1 Stat. 73, 84. The Supreme Court has observed that by it ‘Congress has long expressed a policy against piecemeal appeals.’ ” 381 F.2d 283, 285 (many supporting cases cited.)

The Third Circuit in Borden v. Sylk, supra, in a well-considered opinion with which we agree, has answered plaintiff’s contention that an appeal from a discovery order should be allowed upon the basis of eases cited such as Gillespie v. United States Steel Corp., 379 U.S. 148, 85 S.Ct. 308, 13 L.Ed.2d 199 (1964); Cohen v. Beneficial Loan Corp., 337 U.S. 541 (1949); and Covey Oil Co. v. Continental Oil Co., 340 F.2d 993 (10th Cir. 1965), holding the discovery order appealed from is not a final order which is appealable and concludes, saying:

“Every interlocutory order involves, to some degree, a potential loss. That risk, however, must be balanced against the need for efficient federal judicial administration as evidenced by the Congressional prohibition of piecemeal appellate litigation. To accept the appellant’s view is to invite the inundation of appellate dockets with what have heretofore been regarded as non-appealable matters. It would constitute the courts of appeals as second-stage motion courts reviewing pretrial applications of all non-party witnesses alleging some damage because of the litigation.
“To accept the appellant’s view is also to invite a geometrical increase in the already unacceptable delay between the date of filing and trial in the metropolitan district courts. The present case, filed over three years ago and now held in abeyance pending the outcome of this appeal, is a splendid example of the Homeric proportions that such litigation can assume. Our overburdened courts have little time or appetite for such protractions.” 410 F.2d 843, 846.

See United States v. Fried, 386 F.2d 691, 693-695 (2d Cir. 1967); 9 Moore’s Federal Practice ¶ 110.13 [2].

The case before us illustrates the wisdom of the general rule limiting appeals to final orders. The appeal attempted here will greatly delay disposition of the ease and likely substantially increase the cost of the litigation. Defendant has filed an appendix consisting of 510 printed pages, a printed brief of 57 pages, a printed supplement of 57 pages, a printed reply brief of 15 pages, plus a 19 page supplement. Plaintiff has filed a 53 page brief. In addition, many exhibits have been submitted.

The printing bill on this appeal will be large, as well as attorneys’ fees for both parties in preparing and presenting this appeal, and there will likely be transcript costs incurred. There may be merit in plaintiff’s contention that appeals such as this from nonfinal orders may be burdensome on many litigants and make the cost of litigation prohibitive for persons of modest means.

The trial judge who has the feel of the case by reason of his long contact therewith has expressed his considered view that an interlocutory appeal would not advance the ultimate termination of this litigation. If the case had proceeded to trial, it likely would have been completed before this time. As well-stated in Borden, supra, the consideration of interlocutory appeals in situations not authorized by statute would add greatly to the burden of appellate courts.

We are convinced that the orders appealed from are not final orders and hence we have no jurisdiction to entertain the appeal from the November 20, 1972, order.

We note that defendant has presented an excellent brief on the merits. We do not reach such issues and express no view on the merits of plaintiff’s cause of action. Defendant retains the right to assert the errors here raised upon appeal from final judgment.

Plaintiff has filed a motion for imposition of penalties pursuant to Rule 38, F.R.A.P., upon the ground that the appeal is frivolous. We do not consider this appeal to be frivolous and dismiss the motion for penalties.

We now reach Time’s petition for relief under 28 U.S.C. § 1651. Mandamus is an extraordinary remedy reserved for extraordinary situations. In Will v. United States, 389 U.S. 90, 88 S.Ct. 269, 19 L.Ed.2d 305 (1967), the Court discussed the limited function of mandamus. In that case, the Government as petitioner sought to strike a discovery order by the trial court. The Court of Appeals granted the writ. The Supreme Court reversed. In the course of the opinion, the Court states: “The preemptory common-law writs are among the most potent weapons in the judicial arsenal. ‘As extraordinary remedies, they are reserved for really extraordinary causes.’ ” 389 U.S. 90, 107, 88 S.Ct. 269, 280.

Defendant relies on its brief in the 72-1776 appeal to support its petition for the writ. Defendant is attempting to use the writ as a substitute for an interlocutory appeal. Nothing is urged in addition to the contentions made on the appeal to support the issuance of the writ. Defendant has failed to meet the burden resting upon it to show extraordinary circumstances which would entitle it to mandamus. The petition for the writ is dismissed.

The appeal in case No. 72-1776 is dismissed for want of appellate jurisdiction. The petition for writ in case No. 73-1030 is denied.

HEANEY, Circuit Judge,

(concurring in part and dissenting in part).

I concur in the majority opinion insofar as it holds that the District Court’s order denying defendant’s motion for summary judgment is not appealable. I would hold, however, that the District Court’s order requiring the disclosure of the names of anonymous and confidential news sources is subject to immediate review by mandamus.

In Cervantes v. Time, Inc., 464 F.2d 986 (8th Cir. 1972), cert, denied, 409 U. S. 1125, 93 S.Ct. 939, 35 L.Ed.2d 257 (1973), we held that the use of confidential news sources by the press is protected by the First Amendment — that “to compel a newsman to breach a confidential relationship merely because a libel suit has been filed against him would seem inevitably to lead to an excessive restraint on the scope of legitimate news gathering activity.” Id. at 993, n. 10. We stated:

“ * * * [T] o routinely grant motions seeking compulsory disclosure of anonymous news sources without first inquiring into the substance of a libel allegation would utterly emasculate the fundamental principles that underlay the line of cases articulating the constitutional restrictions to be en-grafted upon the enforcement of State libel laws. * * * ”

Id. at 993 (Footnote omitted.).

The disclosure of such sources is appropriate only if the plaintiff makes a “concrete demonstration that the identity of defense news sources will lead to persuasive evidence on the issue of malice.” Id. at 994. To this limited extent, our Court has recognized a qualified jounalist privilege under the First Amendment. The defendant argues that the disclosure 'of the informants’ names sought here will substantially impair the rights recognized in Cervantes.

In cases in which comparable information deserving special protection has been ordered disclosed, some courts have deemed the order a “final one,” subject to immediate review under 28 U.S.C. § 1291. Fears v. Burris Manufacturing Co., 436 F.2d 1357 (5th Cir. 1971) (government records); Carr v. Monroe Manufacturing Company, 431 F.2d 384 (5th Cir. 1970), cert, denied, 400 U.S. 1000, 91 S.Ct. 456, 27 L.Ed.2d 451 (1971) (government records); Covey Oil Company v. Continental Oil Company, 340 F.2d 993 (10th Cir. 1965) (trade secrets) . Other courts, including this one, have held that such orders are subject to immediate appellate review through mandamus or other extraordinary writ. Bristol-Myers Company v. Honorable Miles W. Lord, United States District Judge, etc., et al., Nos. 73-1284, 73-1285 (8th Cir. May 31, 1973) (attorney-client communication) ; Pfizer, Inc. v. Lord, 456 F.2d 545 (8th Cir. 1972) (attorney-client communication); Metros v. United States District Court for Dist. of Colo., 441 F.2d 313 (10th Cir. 1971) (name of anonymous source for issuance of search warrant); Harper & Row Publishers, Inc. v. Decker, 423 F.2d 487 (7th Cir. 1970), aff’d by an equally divided Court, 400 U.S. 348, 91 S.Ct. 479, 27 L.Ed.2d 433 (1971) (attorney-client communication); United States v. Hemphill, 369 F.2d 539 (4th Cir. 1966) (name of anonymous complainant to Secretary of Labor). But, see International Business Machines Corporation, etc., et al. v. United States of America, 480 F.2d 293 (en banc) (2nd Cir., 1973), rev’g International Business Machines Corp. v. United States, 471 F.2d 507 (2nd Cir. 1972). These opinions either expressly or impliedly reject the notion that an acceptable alternative to immediate appellate review is to hazard a contempt citation and then to seek review if one is found in contempt.

In Pfizer, the District Court ordered the disclosure of information allegedly protected by the attorney-client privilege. We held that immediate review was available under mandamus, stating:

“ * * * We are persuaded, rather, that the claim of privilege asserted by petitioners involves a ‘really extraordinary’ question, and we agree with the following observation from the opinion of the Seventh Circuit Court of Appeals in Harper & Row Publishing Co. v. Decker, 423 F.2d 487, 492 (7th Cir. 1970):
“ ‘ . . . [Bjeeause maintenance of the attorney-client privilege up to its proper limits has substantial importance to the administration of justice, and because an appeal after disclosure of the privileged communication is an inadequate remedy, the extraordinary remedy of mandamus is appropriate.’
“That decision was affirmed without opinion by a divided Supreme Court, 400 U.S. 348, 91 S.Ct. 479, 27 L.Ed.2d 433 (1971). Cf. Hartley Pen Co. v. United States District Court, 287 F.2d 324 (9th Cir. 1961). Due consideration of all aspects of this discovery order, in light particularly of possible consequences which review on appeal might prove inadequate to remedy impels us to hold that mandamus is an appropriate vehicle for review of the question raised by the present petition.”

Pfizer, Inc. v. Lord, supra, 456 F.2d at 548.

The present case is an even more compelling one than Pfizer for the exercise of our mandamus jurisdiction. First, as in Pfizer, appeal after disclosure would not be an adequate remedy to protect the asserted privilege. Disclosure of an informant’s name is an irreversible act. Once such disclosure occurs,' any subsequent appeal is futile, and the defendant in effect loses -the opportunity to present to this Court its assertion that the disclosure violates those First Amendment rights which we recognized in Cervantes. And since the anonymous informer has disclosed the names of individuals allegedly involved in organized criminal activity, there is the risk that he will be subjected to physical violence or other reprisals.

Second, this ease involves interests protected by the First Amendment which deserved permanent protection. Immediate review will enable this Court to discharge its responsibility to insure that no greater disclosure of news source is ordered than is essential to protect the plaintiff's interest in the protection of his reputation.

Third, in oral argument before this Court, both parties expressed the opinion that the disclosure of news sources is irrelevant to the present cause of action.

Finally, since the order to disclose sources is addressed to a former employee of the defendant, it would appear that the defendant is powerless to prevent him from disclosing the news sources rather than hazarding being found in contempt. The defendant is unable to choose contempt rather than disclosure and is, thus, “ ‘powerless to avert the mischief of the order’ ” unless allowed immediate appellate review. United States v. Doe, 455 F.2d 753, 757 (1st Cir.), vacated sub nom. Gravel v. United States, 408 U.S. 606, 92 S.Ct. 2614, 33 L.Ed.2d 583 (1972), quoting from Perlman v. United States, 247 U.S. 7, 13, 38 S.Ct. 417, 62 L.Ed. 950 (1918).

For the foregoing reasons, this Court should exercise its mandamus jurisdiction and reach the merits of the defendant’s claim. If we did so, it would be necessary to reverse the District Court’s order in view of the concession that the names of the anonymous news sources are irrelevant and in view of the failure of the plaintiff to make a concrete demonstration that the identity of the news sources will lead to persuasive evidence on the issue of malice.

      . The consolidation proposed in the order is with case No. 20352-1, Anthony J. Giambrone, et al., v. Time, Inc. The consolidation issue is not involved in this appeal.

      . Upon the record before us, serious doubt exists whether the Missouri federal court has acquired jurisdiction over Walsh, who is not a party to the action, which would authorize such court to order the answering of the questions. Walsh apparently is a resident of New York where his affidavit was made and his deposition taken. Rule 37 (a) (1) provides that application for an order to a deponent who is not a party shall be made to the court in the district where the deposition is being taken. Rule 37 (b),(l) provides that failure to answer a question after being directed to do so by the court in which the deposition is being taken may be considered a contempt of that court. There is considerable doubt under the record whether the Missouri court has authority to order Walsh to appear in Missouri. See Rule 45 (d) (2). Such are matters which could possibly be raised in event that an order to show cause were issued on a contempt charge.

      . In Bristol-Myers Company v. Honorable Miles W. Lord, United States District Judge, etc., et al., Nos. 73-1284, 73-1285 (8th Cir. May 31, 1973), this Court took jurisdiction under mandamus and denied relief on the merits.

      . This concession was not made before the District Court.


source: Caselaw Access Project

author: CUMMINGS, Circuit Judge. WILLIAM J. CAMPBELL, Senior District Judge

license: Public Domain

text:
    James E. ANDERSON and Alice Anderson, Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Appellant.
    No. 72-1210.
    United States Court of Appeals, Seventh Circuit.
    Heard Feb. 27, 1973.
    Decided June 14, 1973.
    William J. Campbell, Senior District Judge, dissented and filed opinion.

      Scott P. Crampton, Asst. Atty. Gen., John A. Townsend, Atty., Tax Div., U. S. Dept. of Justice, Washington, D. C., for appellant.
    David J. Creagan, Jr., Chicago, Ill., for appellees.
    Before SWYGERT, Chief Judge, CUMMINGS, Circuit Judge, and CAMPBELL, Senior District Judge.

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

   CUMMINGS, Circuit Judge.

This appeal involves an asserted $21,897.64 deficiency in income taxes for 1966. The question is whether taxpayer’s payments made to satisfy an apparent liability under Section 16(b) of the Securities Exchange Act of 1934 (15 U. S.C. § 78p(b)), which requires a corporate insider to surrender to his employer profit from short-swing trading in the corporation’s stock, are to be treated as a long-term capital loss or as ordinary and necessary business expense deductible under Section 162(a) of the Internal Revenue Code of 1954. With Judges Dawson and Quealy dissenting, the Tax Court decided that the payments constituted ordinary and necessary business expense. 56 T.C. 1370. In so doing it adhered to its decision in William M. Mitchell, 52 T.C. 170 (1969), refusing to follow the Sixth Circuit, which reversed Mitchell, 428 F.2d 259 (6th Cir. 1970), certiorari denied, 401 U.S. 909, 91 S.Ct. 868, 27 L.Ed.2d 807. We also reverse the Tax Court.

The facts are not in dispute. The Tax Court found that in 1962 and in 1963 taxpayer James E. Anderson, a vice president of Zenith Radio Corporation, purchased 1,000 shares of Zenith common stock for $14,038.90 under an employee stock purchase agreement. On April 1 and 7, 1966, he sold those shares for $162,923.21, resulting in a capital gain of $148,884.31. On April 11, 1966, he purchased 750 shares of Zenith common stock for $49,312.50 under another employee stock purchase agreement with Zenith.

About a month after the April 11 purchase, Zenith’s legal department advised taxpayer that the April 1 and 7 sales and the April 11 purchase fell within the insider, short-swing-profit prohibition of Section 16(b) of the Securities Exchange Act, entitling Zenith to the profit realized by taxpayer. Subsequently in 1966, taxpayer paid Zenith $51,259.14, the amount demanded, in two installments.

In his 1966 tax return, taxpayer treated the $148,884.31 gain realized on the sale of the 1,000 shares of Zenith stock as a long-term capital gain. He also deducted the $51,259.14 he paid Zenith under Section 16(b) as an ordinary and necessary business expense. However, the Commissioner determined that the payments to Zenith should be treated as long-term capital losses rather than ordinary losses, resulting in a deficiency in the amount of $21,897.64. The Tax Court made an ultimate finding of fact that the payments to Zenith were made to preserve taxpayer’s employment with Zenith and avoid injury to his business reputation. It held that the payments were an ordinary and necessary business expense, deductible under Section 162(a) of the Internal Revenue Code of 1954.

The issue here is whether the rule of Arrowsmith v. Commissioner of Internal Revenue, 344 U.S. 6, 73 S.Ct. 71, 97 L. Ed. 6, applies to require that the payments in satisfaction of the 16(b) liability be characterized in the same terms as the profit realized on the sale of the stock, namely as a long-term capital transaction. In Arrowsmith the taxpayers reported distributions in corporate liquidation as long-term capital gains. In a later year, they were required as transferees to pay a judgment rendered against the corporation, and they attempted to treat the payment as an ordinary business loss. Pointing out that this treatment allowed a much larger deduction than capital loss treatment (Id. at 7, 73 S.Ct. 71), the Supreme Court held that the loss was capital because the liability was imposed on taxpayers as transferees of the liquidation distribution assets and not based on any ordinary business transaction of theirs apart from the liquidation proceedings. Id. at 8, 73 S.Ct. 71.

In Mitchell, the Tax Court found the touchstone of the Arrowsmith rule to be an integral connection between the tax transaction in question and the earlier taxable event. 52 T.C. at 174. It could find no such connection because the earlier taxable event was only the sale of stock and not the subsequent repurchase. No liability grew out of the sale, which as soon as it occurred was a “completed transaction,” and upon the later purchase “nothing of tax consequence took place.” Since the transaction in question — the 16(b) payment — “grew directly and solely from the ‘sale-purchase’ occurrence, which has only securities law significance,” the Tax Court found no integral relationship between the sale and the payment. Id. at 174-175.

The Sixth Circuit concluded that had the Tax Court considered the application of Arrowsmith in United States v. Skelly Oil, 394 U.S. 678, 89 S.Ct. 1379, 22 L.Ed.2d 642 it would have concluded, as did the Sixth Circuit, that only a capital loss was available to Mitchell. In Shelly Oil, taxpayer reported income subject to a 27½% oil depletion allowance, and in a later year sought to deduct the full amount of refunds it was required to make. The Supreme Court held that “the Code should not be interpreted to allow respondent ‘the practical equivalent of double deduction,’ ” and, hence, that “the deduction allowable in the year of repayment must be reduced by the percentage depletion allowance * * 394 U.S. at 684, 89 S.Ct. at 1383. The Court found the case “really no different” from Arrowsmith, and stated:

“The rationale for the Arrowsmith rule is easy to see; if money was taxed at a special lower rate when received, the taxpayer would be accorded an unfair tax windfall if repayments were generally deductible from receipts taxable at the higher rate applicable to ordinary income. The Court in Arrowsmith was unwilling to infer that Congress intended such a result.” Id. at 685, 89 S.Ct. at 1383.

In our case the Tax Court reconsidered its position but adhered to its view in Mitchell, adding to the reasoning therein that this case was different from Arrow smith and Shelly Oil because taxpayer did not make the 16(b) payment to Zenith in the same capacity as he sold the stock. That is, “[t]he sale was made by petitioner in his capacity as a stockholder of Zenith. His obligation to make the payment in question arose out of his status as an employee of Zenith. Neither the sale or purchase nor the combination thereof imposed any obligation upon him.” 56 T.C. at 1374-1375.

We conclude that Arrowsmith, with and without the benefit of its interpretation in Shelly Oil, is applicable to this case and find the Tax Court’s distinctions unpersuasive.

Although no 16(b) liability would have attached had taxpayer simply sold his stock and not made an advantageous repurchase within six months, the fact that liability is predicated on the sale-purchase occurrence does not mean the 16(b) payments were not integrally related to the earlier sale. It certainly seems the most apt characterization to say that the payments represent a portion of the sales proceeds, and adjustment on the sale price. The amount of liability is calculated by subtracting from the sales proceeds the lowest purchase price within the six-month period. Gratz v. Claughton, 187 F.2d 46, 50-52 (2d Cir. 1951), certiorari denied, 341 U.S. 920, 71 S.Ct. 741, 95 L.Ed. 1353; Smolowe v. Delendo Corp., 136 F.2d 231, 239 (2d Cir. 1943), certiorari denied, 320 U.S. 751, 64 S.Ct. 56, 88 L.Ed. 446; II Loss, Securities Regulation, 1062-1063 (1961). And notably interest on the 16(b) payments may be required from the date of the sale preceding the purchase. B. T. Babbit, Inc. v. Lachner, 332 F.2d 255, 258 (2d Cir. 1964).

Furthermore, the Tax Court has given only dubious, conceptual justification for isolating the earlier sale from the payments in question and insulating the latter from capital transaction treatment. After all, as the dissenting opinion of the Tax Court noted, the 16(b) payments were “inextricably intertwined with taxpayer’s April 1966 stock transactions.” Bifurcating the sale and payments smacks of artificiality, and characterizing the sale-purchase occurrence as without tax significance could only have been done in a vacuum. Since there is hardly anything inevitable about whether the 16(b) payments inherit the capital character of the sale transaction, we think the purpose and operation of Section 16(b) relevant to the determination. “Congress intended the statute to curb manipulative and unethical practices which result from the misuse of important corporate information of the personal aggrandizement or unfair profit of the insider.” Bershad v. McDonough, 428 F.2d 693, 696 (7th Cir. 1970), certiorari denied, 400 U.S. 992, 91 S.Ct. 458, 27 L.Ed.2d 440. In its operation “ * * * the statute was intended to be thoroughgoing, to squeeze all possible profits out of stock transactions * * * ” within its embrace. Smolowe v. Delendo Corp., 136 F.2d 231, 239 (2d Cir. 1943). If an insider taxpayer may through short-swing trading realize profit taxable at favorable capital gains rates, and then take an ordinary business expense deduction when he disgorges part of that profit under 16(b), he may profit handsomely from his short-swing dealing. Indeed, in the instant case, if the taxpayer were allowed to offset his $51,259.14 payments against ordinary income, he would receive a net tax profit of $21,897.64 as a result of his short-swing trading. Thus the Government would be subsidizing approximately 43% of taxpayer’s Section 16(b) liability. Without good reason, we are unwilling to interpret the Internal Revenue Code so as to allow this anomalous result which severely and directly frustrates the purpose of Section 16(b). See United States v. Skelly Oil, 394 U.S. 678, 685, 89 S.Ct. 1379, 22 L.Ed.2d 642; cf. Tank Truck Rentals, Inc. v. Commissioner of Internal Revenue, 356 U.S. 30, 78 S.Ct. 507, 2 L.Ed.2d 562.

The Tax Court’s attempted distinction based on the assertedly different capacities of the taxpayer when selling his stock and when disgorging his short-swing profits is also unpersuasive. Taxpayer sold his stock as an insider, more specifically as an officer-shareholder. The demand for payment was addressed to him in that very same capacity. Evidently what the Tax Court meant by its capacity distinction is that the taxpayer was prompted to make the payment to protect his employee status. But nothing in Arrowsmith, or in Skelly Oil suggests that the purpose of the taxpayer in satisfying the demand must be rooted in the exclusively identical capacity in which the profit was realized and the demand was made.

Moreover, the Tax Court’s statement that taxpayer’s obligation to make the payment was not imposed by the combination sale-purchase is unrealistic. Although there was no adjudication of Section 16(b) liability, neither has taxpayer suggested any defense whatsoever. Taxpayer engaged in a cash-for-stock transaction that resulted in a sale and purchase within the six-month statutory period, and such a transaction is “clearly encompassed within the purview of § 16(b).” Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 593, 93 S.Ct. 1736, 1744, 36 L.Ed.2d 503. In such cases the liability is, as a practical matter, inexorable. See II Loss, Securities Regulation 1043 (1961). Where, as here, the taxpayer has not proposed any defense theory, much less raised substantial doubt about his liability, to allow him an ordinary deduction merely because he pays promptly instead of awaiting litigation is untenable.

Finally, if not apparent from the above, we need not review the Tax Court’s determination that the taxpayer’s payment was motivated by a desire to preserve his employment with Zenith and avoid injury to his business reputation. As did the Sixth Circuit, we find this business purpose to be irrelevant in determining whether the rule of Arrowsmith applies. 428 F.2d at 259.

We have considered the remaining arguments advanced by the taxpayer and find them to be without merit.

Reversed and remanded for entry of decision for the Commissioner.

WILLIAM J. CAMPBELL, Senior District Judge

(dissenting).

I respectfully dissent. In light of the Tax Court’s ultimate finding that the taxpayer's payment to Zenith was made to preserve his employment and to avoid injury to his business reputation, this seems to me to be a case wherein such expenditures fall squarely within the definition of deductible business expenses under § 162(a) of the Internal Revenue Code of 1954. 26 U.S.C. § 162(a); Lawrence M. Marks, 27 T.C. 464, 467 (1956), (Acq.1966-1 CB-2); Joseph P. Pike, 44 T.C. 787 (1965), (Acq.1968-2 CB-2).

The majority has concluded that the taxpayer’s purpose in making the payments is “irrelevant,” and in reliance upon Arrowsmith and its progeny has reversed the Tax Court. See, Arrow-smith v. Commissioner, 344 U.S. 6, 73 S.Ct. 71, 97 L.Ed. 6 (1952); United States v. Skelly Oil Co., 394 U.S. 678, 89 S.Ct. 1379, 22 L.Ed.2d 642 (1969). My reading of Arrowsmith convinces me that its application is limited to the situation where two separately taxable transactions are really but elements of one continuous or integrated transaction, and the taxpayer’s capacity with respect to those transactions is identical. Here, as the Tax Court specifically found, the sale was made by the taxpayer in his capacity as a shareholder of Zenith, yet his obligation to make the payment in question is attributable to his status as an employee of Zenith. Standing alone, neither the sale, the purchase nor the combination thereof imposed any obligation on him with respect to the payment to Zenith. I would conclude, therefore, that the very limited holding of Arrow-smith is inapposite.

In my view, the real thrust of the majority's opinion is that it would be “anomalous” and somehow inequitable to permit the taxpayer to “profit” by way of a tax advantage from his short-swing dealing in apparent violation of § 16(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78p(b)). In short, the majority would invoke the Internal Revenue Code to enforce the policies of the Securities Exchange Act of 1934. However, general equitable considerations have no place in the administration of tax laws. See Lewyt Corp. v. Commissioner of Internal Revenue, 349 U.S. 237, 240, 75 S.Ct. 736, 99 L.Ed. 1029 (1955). Equally uncontrolling to an interpretation of the Code are this Court’s and the Commissioner’s views of legislative policy and statutory symmetry. United States v. Shirah, 253 F.2d 798, 800 (4th Cir. 1958). It is these considerations that I would find “irrelevant” to our task of interpreting the revenue laws.

In my view the criteria of statutory construction are the words of the statute themselves, when clear and unambiguous. The Tax Court’s ultimate finding that the payments were made by the taxpayer for a business purpose stands unchallenged. That court therefore concluded that they were deductible business expenses under § 162(a) of the Code. I would affirm.

      . In pertinent part, Section 16(b) provides :
      “For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of sueli issuer (other than an exempted security) within any period of less than six months, unless such security was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such beneficial owner, director, or officer in entering into such transaction of holding the security purchased or of not repurchasing the security sold for a period of exceeding six months. * * (15 U.S.C. § 78p(b))

      . Although normally the liability formula is the sales price less the lowest purchase price, where, as here, the purchase is made under an option acquired more than six months prior to its exercise, the amount of liability is calculated by subtracting from the sales proceeds the lowest market price of any security of the same class within six months before or after the date of the sale. 17 C.F.R.. § 240.16b-6 (a) and (b). See Kornfeld v. Eaton, 327 F.2d 263, 265 (2d Cir. 1964).

      . The Tax Court has reaffirmed its reasoning in this case in Nathan Cummings, 60 T.C. 91 (1973).

      . But see Rabinovitz, Effect of Prior Year’s Transactions on Federal Income Tax Consequences of Current Receipts or Payments, 28 Tax L.Rev. 85 (1972).

      . See note 3, supra.

      . It is of course immaterial that the present taxpayer apparently paid Zenith less interest than may be required under law.

      . If the taxpayer makes his 16(b) payment in a year subsequent to the year he reports his gain from the sale, the tax impact of his deduction for that payment will depend upon his marginal tax rate and sources of income, even though the character of the deduction is limited by the nature of the sale. Nevertheless, so limiting the nature of the deduction makes the tax law substantially neutral with regard to 16(b) and precludes the untoward possibility of an insider-taxpayer deliberately availing himself of a windfall net tax profit through short-swing trading. Moreover, the discrepancies in the tax impact may be viewed “as an unavoidable consequence of the annual accounting system.” United States v. Skelly Oil Co., 394 U.S. 678, 681, 89 S.Ct. 1379, 1381.

      . It has been suggested by commentators that the proper solution is to add the 16(b) payment to the basis of the purchased shares. Insofar as this suggestion is predicated upon the inapplicability of Arrowsmith in a sale-purchase situation because “the requirement of repayment arises most directly from the purchase,” we reject it. See Rabinovitz, supra, note 5 at 109. Insofar as it is predicated on the view that a capital loss deduction in the year of repayment will be less likely to produce the economic equivalent of a reduction of the amount realized in a prior year’s sale than an addition to the basis of the purchased shares, we need not decide the appropriateness of this alternative since, in addition to the fact that the parties have not argued it, both the sale and the repayment occurred in the same taxable year. See Lokken, Tax Significance of Payments in Satisfaction of Liabilities Arising Under Section 16(b) of the Securities Exchange Act of 1934, 4 Ga. L.Rev. 298, 321 (1970). In such a situation a capital loss deduction is most appropriate. Id. at 315.


author: STEVENS, Circuit Judge.

text:
    UNITED STATES of America, Plaintiff-Appellee, v. David BOOKER, Defendant-Appellant.
    No. 72-1653.
    United States Court of Appeals, Seventh Circuit.
    Argued Feb. 28, 1973.
    Decided June 19, 1973.
    Thomas H. Ramsey, Chicago, Ill., for defendant-appellant.
    James R. Thompson, U. S. Atty., William T. Huyck, Terry M. Gordon, Asst. U. S. Attys., Chicago, Ill., for plaintiff-appellee.
    Before SWYGERT, Chief Judge, and STEVENS and SPRECHER, Circuit Judges.
   STEVENS, Circuit Judge.

A jury composed of five black and seven white persons found defendant, a black, guilty of violating 21 U.S. C. § 841(a)(1). In his conduct of the voir dire, the trial judge committed error by refusing to interrogate prospective jurors on the subject of possible racial prejudice. The government contends that the error was harmless because the evidence of guilt is overwhelming and five of the jurors were black. We disagree.

In Chase v. United States, 468 F.2d 141, 147 (7th Cir. 1972), we held that the possibility of prejudice from a relatively minor omission from the voir dire did not justify a new trial because the evidence of guilt was overwhelming. For purposes of decision, we accept the government’s appraisal of the evidence in this case, but, nevertheless, we cannot characterize the omission as minor. Indeed, under settled law, it is of critical importance.

In Aldridge v. United States, 283 U.S. 308, 51 S.Ct. 470, 75 L.Ed. 1054, a black defendant charged with the murder of a white policeman requested that the court ask prospective jurors whether they entertained any racial prejudice. The Supreme Court reversed the judgment of conviction because the request was refused. While the facts of that case presented a greater risk that racial prejudice would actually affect the deliberations of the jury than does the record before us, the underlying rationale of Chief Justice Hughes’ opinion for the Court is applicable. He stated, in part:

“If in fact, sharing the general sentiment, they were found to be impartial, no harm would be done in permitting the question but if any one of them was shown to entertain a prejudice which would preclude his rendering a fair verdict, a gross injustice would be perpetrated in allowing him to sit.
* * -X- * * *
“The argument is advanced on behalf of the government that it would be detrimental to the administration of the law in the courts of the United States to allow questions to jurors as to racial or religious prejudices. We think that it would be far more injurious to permit it to be thought that persons entertaining a disqualifying prejudice were allowed to serve as jurors and that inquiries designed to elicit the fact of disqualification were barred. No surer way could be devised to bring the processes of justice into disrepute.” 283 U.S. at 314-315, 51 S.Ct. at 473.

In United States v. Robinson, 466 F.2d 780 (7th Cir. 1972), this court held that Aldridge is not limited to cases involving a black defendant and a white victim. See also United States v. Gore, 435 F.2d 1110 (4th Cir. 1970). We think it equally plain that the presence of some black jurors does not cure the error committed during the voir dire. For if even one member of the jury harbors racial prejudice against the accused, his right to trial by an impartial jury is impaired.

In Aldridge, as here, the error was committed in a federal court. For that reason reversal need not rest on a constitutional ground. It is nevertheless significant that a unanimous Supreme Court recently reversed a state judgment because the trial judge refused to ask prospective jurors about possible prejudice against black people. Ham v. South Carolina, 409 U.S. 524, 93 S.Ct. 848, 35 L.Ed.2d 46. There was perhaps a greater risk of prejudice against Ham because of his participation in civil rights activities than against the appellant in this case, but the Court’s appraisal of the error as violative of the “essential demands-of fairness” protected by the Due Process Clause, 409 U.S. at 526, 93 S.Ct. 848, persuades us that on direct review of a federal conviction we should reverse without attempting to appraise the actual likelihood of prejudice to this appellant.

Two other points merit brief comment. The court refused defendant’s motion that an informer be called as the court’s witness and, after the defendant then called the informer as his own witness, the court also refused to instruct the jury that the testimony of an informer should be weighed with special care. We agree with the government that in this case neither refusal was reversible error. In view of the informer’s relationship with the prosecution, however, and the more important consideration that technical rules based on which side calls a witness are clearly less significant than fundamental requirements of fairness, see Chambers v. Mississippi, 410 U.S. 284, 295-298, 93 S.Ct. 1038, 1045, 1047, 35 L.Ed.2d 297 (1973), we think the district judge would have been well advised either to call the informer as a court’s witness or at least to give the jury an appropriate cautionary instruction.

Finally, we find no merit in defendant’s argument that the evidence established entrapment as a matter of law.

Reversed and remanded.

      . It is, of course, essential that the judge tailor his instruction to the circumstances of the case and avoid the error of using a standard instruction that is inappropriate, for example, when a type of witness usually called by one side is called by the other or by the court. Cf. Cool v. United States, 409 U.S. 100, 93 S.Ct. 354, 34 L.Ed.2d 335.


author: TIMBERS, Circuit Judge:

text:
    UNITED STATES of America, Appellee, v. Joseph SCAFO, Appellant.
    No. 868, Docket 73-1163.
    United States Court of Appeals, Second Circuit.
    Argued May 7, 1973.
    Decided June 8, 1973.

      Conrad F. Ferrigno, New York City (David M. Markowitz, New York City, on the brief), for appellant.
    Thomas R. Pattison, Asst. U. S. Atty., Brooklyn, N. Y. (Robert A. Morse, U. S. Atty., L. Kevin Sheridan and Raymond J. Dearie, Asst. U. S. Attys., Brooklyn, N. Y., on the brief), for appellee.
    Before SMITH, MULLIGAN and TIMBERS, Circuit Judges.
   TIMBERS, Circuit Judge:

This is another in a series of recent cases in our Court involving application of the Second Circuit Rules Regarding Prompt Disposition of Criminal Cases. 28 U.S.C.A. App. (Supp.1973).

The narrow issue on this appeal is whether, in computing the six-month period within which the government must be ready for trial pursuant to Rule 4 of the Prompt Disposition Rules, such period begins on the date of arrest or on the date of promulgation of the Prompt Disposition Rules. We hold, in accordance with the plain language of Rule 4 itself, that the six-month period begins with the date of arrest.

Joseph Scafo appeals from (1) a judgment of conviction after jury trial entered January 29, 1973 in the Eastern District of New York, John F. Dooling, District Judge, on one count of stealing goods which were part of a foreign shipment, in violation of 18 U.S.C. § 659 (1970), and from (2) an order entered January 19, 1973 by Orrin G. Judd, District Judge, denying appellant’s motion to dismiss the indictment because of the government’s failure to comply with the Prompt Disposition Rules.

Both the judgment and order now appealed from were entered following remand by this Court on a prior appeal, United States v. Scafo, 470 F.2d 748 (2 Cir. 1972), when we vacated the original judgment of conviction and ordered the district court to make findings more specific than it had made in denying a previous motion to dismiss for failure to comply with the Prompt Disposition Rules.

Upon remand, Judge Judd did make specific findings of fact on the motion to dismiss, and again denied the motion. Also in accordance with our remand, Judge Dooling thereafter entered a new judgment of conviction. It is from Judge Judd's second order denying the motion to dismiss and from the new judgment of conviction that the instant appeal has been taken.

For the reasons below, we reverse the order denying the motion to dismiss the indictment, and we remand the case to the district court with instructions to vacate the judgment of conviction and to dismiss the indictment.

I.

A brief summary of prior proceedings in this case is necessary to an understanding of our decision.

On August 10, 1969, two cartons — one containing watches from Italy, the other pearls from Japan — were stolen from a locked wire mesh cage for high value shipments in the American Airlines Cargo Terminal at John F. Kennedy International Airport, Queens, New York.

On August 18, 1969, appellant Scafo and one Leonard Turano, both employees of American Airlines, were arrested and charged with the theft of the two cartons. They were arraigned before a United States Commissioner, waived preliminary hearing, and were released on their own recognizances.

For a period of nearly two years, the case remained dormant — until July 28, 1971 when Scafo was indicted.

On August 12,1971, Scafo was presented for plea before Judge Judd. He pleaded not guilty. On that date in an oral motion, and on the following day in a written motion, he moved to dismiss the indictment because of the failure of the government to comply with the Prompt Disposition Rules. A hearing was held before Judge Judd on August 20, at which time the motion was denied in open court.

Following a pretrial conference before Judge Dooling on November 22, 1971, Scafo was tried before Judge Dooling and a jury beginning January 21, 1972. After a three day trial, the jury returned a verdict of guilty as charged. On March 24, 1972, he was sentenced to a three year prison term, all but four months of which was suspended, and was ordered on probation for three years. He has been enlarged on his own recognizance pending appeal.

On the first appeal, the principal issue was the propriety of Judge Judd’s denial of Scafo’s motion to dismiss the indictment for failure to comply with the Prompt Disposition Rules. In an opinion filed December 20, 1972, we vacated the judgment of conviction and remanded for a hearing and further findings on the motion to dismiss. 470 F.2d at 751. After noting that the government had argued that a number of “exceptional circumstances” justified a period of delay within the meaning of Rule 5(h) of the Prompt Disposition Rules, and that Judge Judd apparently had concluded that the government had satisfied its burden under the Rules, we concluded that “the details of [the ‘exceptional circumstances’] were not developed at the hearing, and Judge Judd made no findings of fact as to what actually occurred- and the delay or delays excused thereby.” 470 F.2d at 750.

Upon remand, in accordance with our directions, Judge Judd promptly held a further hearing on January 4, 1973. Additional evidence was taken, including testimony by counsel for Seafo and counsel for the government. In a memorandum opinion filed January 19, 1973, Judge Judd, after summarizing the prior proceedings, the evidence and the applicable law, made the following findings of fact:

“1. That the charges against defendant Joseph Seafo and Leonard Turano were reassigned to Assistant United States Attorney Pattison on about March 17,1971.
2. That the delay of a little more than two months after January 5, 1971 [the date on which the Prompt Disposition Rules were announced] in making the reassignment was caused by exceptional circumstances, namely, the impact of the new Rules and the resignation of the Assistant who previously had the case, and that this period should be excluded from the six-months computation.
3. That a reasonable period to explore the possibility of a guilty plea by defendant Seafo should be excluded from the six-months computation; and in this ease, that a period of one month should be allowed for that purpose.
4. That a reasonable period to prepare the government’s case should also be excluded, particularly in view of (a) the importance of Leonard Turano’s testimony for the government, (b) his assertion of fears which deterred him from cooperating, and (c) the necessity of reaching a judgment as to whether it was sound policy to let him plead guilty to a misdemeanor; and that a period of at least sixty days should be allowed for this purpose.
5. That all the periods mentioned should be treated as excusable delay, occasioned by exceptional circumstances, outside the six-months period.

6. That the delays in prosecution did not prejudice the defendant.” Judge Judd concluded that these various periods of excusable delay brought the government within the six-months period permitted by the Prompt Disposition Rules. He held that there had been no violation of those Rules. He denied the motion to dismiss the indictment.

Pursuant to our instructions, Judge Judd referred the case to Judge Dooling for resentencing. On January 29, 1973, Judge Dooling resentenced Seafo, imposing the same sentence as originally imposed on March 24, 1972, and entered a new judgment of conviction.

The instant appeal is from Judge Judd’s order of January 19, 1973 denying the motion to dismiss the indictment and from the new judgment of conviction entered January 29, 1973. On this appeal, appellant has focused on whether the district court erred in finding that the reasons for the delay asserted by the government satisfied the “exceptional circumstances” provision of Rule 5(h). We find it unnecessary to determine the sufficiency under the Rules of each of the reasons asserted. We hold that, regardless of those reasons, the government failed to comply with the Rules, and the indictment must be dismissed.

II.

The Second Circuit Rules Regarding Prompt Disposition of Criminal Cases were promulgated on January 5, 1971, to take effect on July 5, 1971. The essential construction problem before us on this appeal is whether, when the Circuit Council noted in its Statement accompanying the Rules that “[t]he rules are designed to apply equally to all cases now pending as well as to all cases commenced in the future”, it meant that on July 5, 1971 all cases six months or older would be subject to the full effect of the Rules, or rather that on July 5, 1971 all cases pending as of January 5, 1971 would be deemed to have had their first relevant prosecutorial act on January 5. The result in this case turns on which of these alternative interpretations is correct: if the former, the relevant period of delay would be computed from August 18, 1969 (date of arrest); if the latter, the period of delay would be computed from January 5, 1971 (date of promulgation of Rules).

During the short life of the Rules, there has been a paucity of reported decisions dealing with pre-1971 cases. This suggests that the offices of the United States Attorneys in the Circuit made good use of the six-month grace period before the effective date to prepare certain of their eases for prompt trial, and otherwise to dispose of those cases considered less worthy of the limited resources of personnel, money and time available to the offices. What is important to remember is that this was exactly the purpose of the delay in implementing the Rules — and not, as the assumption below seems to have been, to provide for a blanket commencement of the six-month period specified in Rule 4 to begin January 5. Indeed, it may be surmised that it was no more than coincidence that both Rule 4 and the post-announcement buffer specified identical periods of six months. The key appears to lie in the language of the Circuit Council’s Statement quoted above — that the Rules are to apply equally to cases pending on January 5, 1971 and to those commenced thereafter. We are unable to read that language to mean that for a case pending on January 5 a delay in prosecution from August 18, 1969 can be totally ignored.

The few reported decisions which have involved a similar chronology have agreed, some by implication. In United States v. Counts, 471 F.2d 422 (2 Cir. 1973), the defendant was indicted on December 3, 1970, and trial did not commence until April 10, 1972. We referred to this as a “delay of 16 months”, but held that, since the government had filed a notice of readiness for trial before the effective date of the Rules and in fact was ready for trial at all relevant times, no violation of the Rules had occurred. See also United States v. Nathan, 476 F.2d 456, 461 (2 Cir. 1973) (arrest June 1970, indictment August 1970, government ready for trial June 1971, trial June 1972); United States v. Infanti, 474 F.2d 522, 527-29 (2 Cir. 1973) (chronology similar to that in instant case; claim under Eules rejected because not raised below) . In our opinion on the prior appeal in the instant case, the point was made quite directly:

“The rules were promulgated on January 5, 1971, with an effective date of July 5, 1971. They applied to cases pending and to those to be commenced in the future. Since Scafo was not indicted until July 28, 1971, this ease was fully subject to the new rules. Unless saved by an exception to the Rules, the nearly two year delay between the arrest and the indictment clearly violated Rule b, which requires the Government to be ready for trial within six months of the date of the arrest.” 470 F.2d at 750 (emphasis added).

Early in the history of the Eules, moreover, the office of the United States Attorney for the Eastern District of New York argued that it was the intent of the Circuit Council, with respect to cases pending as of the July 5, 1971 effective date, that the six-month period specified in Eule 4 should begin to run on July 5. That contention was squarely rejected by the District Court for the Eastern District of New York on October 8, 1971:

“This construction ... is contrary to the clear mandate of the Second Circuit that on the effective date the provisions of the Criminal Case Eules, including the six-month readiness requirement of rule 4, are applicable to all pending cases. The Second Circuit underscored its intent by instructing the Government’s attorneys to use the six-month period between promulgation and effective date ‘to determine which cases should be reached for trial and which cases should be discontinued.’ ” United States v. Kaye, 334 F.Supp. 326, 328 (E.D.N.Y.1971) (emphasis deleted).

The underlying premise of these eases is that the January 5, 1971 promulgation date has no bearing on the computation of any period of delay. The six-month delay between the promulgation date and the effective date was intended solely as a buffer period. It was not meant to imply that, in all cases pending on January 5, 1971, the period of delay should be computed from that date. This is consistent with the plain language of the Eules and the Circuit Council’s Statement appended thereto.

We hold that the appropriate period within which the government was required to be ready for trial should have been computed from August 18, 1969, the date of arrest. This being so, even if we were to accept Judge Judd’s findings that the various periods of delay on the part of the government were occasioned by exceptional circumstances, the government would still be wide of the mark of complying with the six-month readiness period prescribed by Eule 4.

Since we find that the government clearly violated the Prompt Disposition Eules, we hold that the district court erred in denying the motion to dismiss the indictment.

III.

In view of its importance in the administration of the Prompt Disposition Eules (as well as the district court Eule 50(b) plans, see note 6, supra), we think it is appropriate to direct attention to what appears to have been the district court’s misapprehension of what constitutes the government’s readiness for trial. This focuses upon the other end of the period of delay relevant to the evaluation of a motion to dismiss under the Prompt Disposition Rules.

Throughout its opinion, the district court speaks of the period of delay between the arrest and indictment of Scafo. Nowhere did the court find, or indeed even question, that the government was in fact ready for trial on the date the indictment was returned. There is no presumption that having sufficient evidence to warrant an indictment is necessarily an indication that the government is ready for trial within the meaning of Rule 4. For aught that appears in this record, no notice of readiness, either formal or informal, was ever transmitted to either the district court or the defendant prior to the time of the trial.' As we recently have stated, “under Rule 4 the Government must communicate its readiness for trial to the court in some fashion within the six-month period, as extended pursuant to Rule 5.” United States v. Pierro, 478 F.2d 386, 389 (2 Cir. 1973) (emphasis added). Nothing in the instant case suggests that the court at any time was so informed. We are unwilling to accept the view that the filing of an indictment, even after a delay of two years, is enough to satisfy the government’s burden referred to in Pierro.

Finally, in view of our holding above, we do not reach the merits of appellant’s objections to the district court’s findings that the reasons for delay asserted by the government satisfied the “exceptional circumstances” provision of Rule 5(h). While we have serious doubts as to the sufficiency of certain of the reasons for delay asserted by the government, we believe, in view of our holding above, that such issues are best left for another day.

Reversed and remanded with instructions to vacate the judgment of conviction and to dismiss the indictment.

      . See, e. g., United States v. Lasker, 481 F.2d 229 (2 Cir. 1973) (mandamus vacating order dismissing indictments) ; United States v. Ouomo, 479 F.2d 688 (2 Cir. 1973) (motion to dismiss denied; judgments of conviction vacated) ; United States v. Fernandez, 480 F.2d 726 (2 Cir. 1973) (denial of motion to dismiss affirmed; judgment of conviction reversed on other grounds) ; United States v. Pierro, 478 F.2d 386 (2 Cir. 1973) (order dismissing indictment vacated) ; United States v. Boatner, 478 F.2d 737 (2 Cir. 1973) (denial of motion to dismiss and judgment of conviction affirmed) ; United States v. Nathan, 476 F.2d 456 (2 Cir. 1973) (denial of motion to dismiss and judgments of conviction affirmed) ; United States v. Rollins, 475 F.2d 1108 (2 Cir. 1973) (order dismissing indictment vacated; on subsequent appeal, second order dismissing indictment vacated (2 Cir. Oct. 31, 1973)) ; Hilbert v. Dooling, 476 F.2d 355 (2 Cir. 1973) (en banc) (mandamus directing dismissal of indictment) ; United States v. Poliak, 474 F.2d 828 (2 Cir. 1973) (remanded for further findings _ on motion to dismiss) ; United States v. Infanti, 474 F.2d 522 (2 Cir. 1973) (denial of motion to dismiss affirmed; one judgment of conviction affirmed, one reversed on other grounds) ; United States v. Yalot, 473 F.2d 667 (2 Cir. 1973) (remanded for further findings on motion to dismiss ; on subsequent appeal, denial of motion to dismiss affirmed, 481 F.2d 22 (2 Cir. 1973)) ; United States v. Strayborn, 471 F.2d 661 (2 Cir. 1972) (denial of motion to dismiss and judgment of conviction affirmed) ; United States v. Counts, 471 F.2d 422 (2 Cir. 1973) (denial of motion to dismiss and judgments of conviction affirmed) ; United States v. Scafo, 470 F.2d 748 (2 Cir. 1972) (remanded for further findings on motion to dismiss; on subsequent appeal — instant case — denial of motion to dismiss reversed and case remanded to vacate conviction and dismiss indictment) ; United States v. Pacelli, 470 F.2d 67 (2 Cir. 1972) (denial of motion to dismiss and judgment of conviction affirmed) ; United States v. Singleton, 460 F.2d 1148 (2 Cir. 1972) (denial of motion to dismiss and judgment of conviction affirmed).
      See generally Comment, Speedy Trials and The Second Circuit Rules Regarding Prompt Disposition of Criminal Cases, 71 Colum.L.Rev. 1059 (1971).

      . Apparently some time after his arrest on August 18, 1969 — we are not told when— Turano pleaded guilty to a charge of possession of the proceeds of the theft. United States v. Scafo, supra, 470 F.2d at 750 n. 2. We have not been informed as to the disposition of Turano’s case. For further details of the evidence adduced at Scafo’s trial, see our earlier opinion. 470 F.2d at 749-50.

      . lie also raised a question of the admissibility of certain hearsay testimony. As to this, we held that, even if error had been committed, “[i]n view of the overwhelming evidence of Scafo’s guilt, [such error] was clearly harmless error.” 470 F.2d at 750.

      . This last finding would be of significance only with respect to Scafo’s constitutional speedy trial claim. No such claim has been raised on appeal.

      . “The district court should make findings of fact on the issues. If the district court finds, after taking such additional evidence as may be relevant, that the motion should be denied, it shall enter new final judgment based upon the record as supplemented by further testimony and findings, thereby preserving to the appellant his right to further appellate review.” 470 F.2d at 751.

      . The Prompt Disposition Rules have since been superseded by plans promulgated by the various district courts within the circuit, and approved by the Judicial Council, in accordance with Fed.R.Crim. P. 50(b). Those plans became effective April 1, 1973. Nevertheless, unlike certain other problems left open by the Prompt Disposition Rules but settled in the Rule 50(b) plans, see, e. g., Hilbert v. Dooling, 476 F.2d 355, 356 n. 2 (2 Cir. 1973) (en banc), it is possible that the issue on the instant appeal may recur under the new formulations, although with the passage of time this will become increasingly unlikely.

      . Rule 4 provides that “[i]n all cases the government must be ready for trial within six months from the date of the arrest, service of summons, detention, or the filing of a complaint or of a formal charge upon which the defendant is to be tried (other than a sealed indictment), whichever is earliest.”

      . “The six-month period before the rules become operative should provide sufficient time for United States Attorneys to determine which cases should be reached for trial and which cases should be discontinued, since the need for such action has already been brought to their attention on numerous occasions. The six-month period also permits the Council to consider any further suggestions regarding the content of the rules.” Statement of the Circuit Council to Accompany Second Circuit Rules Regarding Prompt Disposition of Criminal Cases, 28 U.S.C.A. App. (Supp. 1973).

      . A preliminary draft of the Prompt Disposition Rules originally specified a delay of ninety days, rather than six months, from the date of promulgation to the effective date. The ensuing discussion of the draft resulted in a general agreement that ninety days might not be sufficient time for the offices of the United States Attorneys to prepare for the effective date. Accordingly, the gestation period was increased to six months. This would suggest that the Circuit Council intended no Rule 4-type impact to be afforded the pre-July 5, 1971 grace period before the Rules became effective.

      . While a pretrial conference was held on November 22, 1971, there is no indication. that the government stated its readiness for trial even at that time.


author: BENNETT, Judge:

text:
    Philip G. KUEHN and Margery Kuehn v. The UNITED STATES.
    No. 38-73.
    United States Court of Claims.
    July 13, 1973.
    As Amended on Denial of Rehearing Sept. 25, 1973.
    George D. Webster, Washington, D. C., attorney of record, for plaintiffs.
    Gilbert E. Andrews, with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant. Joseph Kovner, Washington, D. C., and Charles E. Auslander, Jr., of 'Counsel.
    Before COWEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG, and BENNETT, Judges.
   ON DEFENDANT'S MOTION TO DISMISS

BENNETT, Judge:

The matter to be decided is defendant’s motion to dismiss the petition on the ground that the court lacks jurisdiction due to the plaintiff’s failure to file a timely claim for tax refund. The primary issue to be resolved is whether, on the facts admitted for purposes of the motion, it can be said that the plaintiff filed a valid “informal” claim for refund within the period required by statute. Upon consideration of the motion and briefs, without oral argument, it is concluded that the plaintiff did not file a timely informal refund claim and that the motion to dismiss the petition should be granted.

On April 14, 1964, the plaintiff organized a Texas corporation known as the Academy of Electro Data Systems, Inc., of which he was the sole stockholder. On July 29, of the same year, the plaintiff filed an election pursuant to IRC § 1372 (1954) to treat the Academy as a small business under IRC §§ 1371-79, effective for the taxable year beginning January 1, 1964. The IRS District Director, in a letter dated November 4, 1964, notified the plaintiff that the election was considered valid, effective July 1, 1964. During 1964 and 1965, the Academy showed net operating losses which were reflected in the plaintiff’s individual returns for those years. Thereafter, on December 12, 1966, the IRS notified the plaintiff that the election made in 1964 has not been timely filed and was therefore considered invalid. The plaintiff’s protest of this change was rejected by the IRS.

After dealing with the net loss on his 1965 return, the taxpayer attempted to take advantage of the unused balance by carrying it forward and later deducting it on his 1968 tax return. The attempted deduction in 1968 of the 1965 loss was improper, however, since the net loss should first have been carried back 3 years to 1962 and then 1963, making these the years in which adjustments should have been made to the taxpayer’s returns. Both the plaintiff and the defendant are now agreed that this was the proper way to treat the net loss. The plaintiff sought to take advantage of these adjustments by filing formal claims for refund on January 22, 1971, in which he claimed $8,224.25 for 1962 and $11,731.88 for 1963. The IRS rejected these claims on the ground that the Academy had not qualified for small business treatment in 1964 and 1965; therefore, the plaintiff was not entitled to take advantage of the Academy’s loss. The plaintiff filed his petition in this court on February 16, 1973, in which he challenged the validity of the IRS determination.

The defendant argues that since section 7422(a) of the Code requires the filing of a valid claim for refund as a condition precedent to the maintenance of any suit for the refund of taxes, and since section 6511(d)(2)(A), defining the limitation period within which claims for refunds due to net operating loss carrybacks must be filed, required the filing of such a refund claim in this case prior to April 15, 1969; the taxpayer’s claim, filed January 22, 1971, was untimely. The plaintiff admits to not having filed a timely formal claim for refund by the end of the limitations period on April 15, 1969, but urges instead that his 1968 income tax return, filed April 14, 1969, in which he attempted to carry forward his 1965 loss as a deduction, when coupled with information available to the IRS, constituted an acceptable informal claim for refund of his 1962 and 1963 taxes. Any deficiencies in the form of the refund claim are claimed to be retroactively cured by the formal claims filed on January 22, 1971.

There have been numerous cases dealing with the issue of what constitutes an informal refund claim. “ * * [E]ach case must be decided on its own peculiar set of facts with a view towards determining whether under those facts the Commissioner knew, or should have known, that a claim was being made.” Newton v. United States, 163 F.Supp. 614, 619, 143 Ct.Cl. 293, 300 (1958). The general test is whether “[t]he Corn-missioner’s attention should have been focused on the merits of the particular dispute” by the alleged informal claim. Angelus Milling Co. v. Commissioner, 325 U.S. 293, 297, 65 S.Ct. 1162, 1165, 89 L.Ed. 1619 (1945); see also United States v. Kales, 314 U.S. 186, 62 S.Ct. 214, 86 L.Ed. 132 (1941). The court, therefore, in dealing with this issue must carefully examine the facts presented in order to determine if the Commissioner did have notice, sufficient to focus his attention on the merits of the plaintiff’s claim.

The facts involved in Byron Weston Co. v. United States, 87 F.Supp. 955, 115 Ct.Cl. 232 (1950), appear to come closest to those now before the court. The taxpayer there suffered a $40,000 loss in 1942, the unused portion of which it first tried to deduct from its 1943 income by carrying forward the net loss. According to the carryback rules then in effect, the 1942 loss should have been deducted from 1941 income. By the time the plaintiff realized the mistake, the time for filing a claim applicable to 1941 had lapsed. The, taxpayer argued that the attempted deduction in 1942 constituted an informal claim for refund of the 1941 taxes. The court did not agree, saying that “no claim for refund of 1941 taxes was ever filed until after the running of the statute.” [Emphasis in original, 87 F.Supp. at 957, 115 Ct.Cl. at 235.]

The plaintiff argues that a similar conclusion should not be reached in this case, citing the more recent decision of the court in American Radiator & Stand. Sanitary Corp. v. United States, 318 F.2d 915, 162 Ct.Cl. 106 (1963). In that case; the taxpayer had mentioned in three places on his 1949 tax return that he had certain amounts that were refundable due to the excess cost of replacing inventory involuntarily lost in prior years. This written component, when taken together with information available to a revenue agent, who had audited the taxpayer’s accounts and knew the precise amounts and years involved for the excess cost of replacing the lost inventory, was sufficient to conclude that “before the expiration of the three-year period, a responsible employee of the Internal Revenue Service had ‘notice fairly advising the Commissioner of the nature of the taxpayer’s claim.’ ” 318 F.2d at 921, 162 Ct.Cl. at 116. The plaintiff does not discuss the holding in Byron Weston, but contends that the decision in American Radiator established the new rule that an informal refund claim need only contain a written component (the 1949 tax return), and the knowledge of the revenue agent as to the specifics of the years and amounts in question in order to be valid. The taxpayer contends that both of these elements are present in the case now before the court since his attempt to take the deduction in 1968 constituted the written component which, when combined with information available or known by IRS agents, would afford the IRS the necessary notice making the 1968 return a valid informal refund claim. The issue, therefore, is whether these facts more nearly resemble those in Byron Weston or those in American Radiator, assuming that both are still good law.

The court’s opinion in American Radiator contains a lengthy analysis of the cases that had been decided up to 1963, which dealt with the same issue, including Byron Weston. Those decisions were relied upon by the court rather than distinguished or reversed by it. The distinctions between American Radiator and this case (or Byron Weston) are most clearly drawn by looking to the content of the written memorandum in each case. In American Radiator the taxpayer had noted on his 1949 tax return that he was due certain estimated refunds as the result of the excess costs incurred in replacing inventory lost in prior years. It was more than a simple attempt to take a deduction which was not allowed, as in this case and Byron Weston. The specific amounts and the years subject to the refund were not mentioned on the return, but were known to the IRS agent handling the taxpayer’s audit, who expected formal refund claims to be filed. Therefore, the defendant was not misled by the absence of these items in the return itself. The crucial point was that the 1949 return made it clear, at that time, that the plaintiff was claiming credit for a tax refund. The same is not true in this case. Here, the plaintiff’s attempt to take the deduction in 1968 did not provide notice to the defendant that it was also seeking, in the alternative, a refund applicable to 1962 and 1963, although the IRS may have known that this was likely. It has been held on numerous occasions that, simply because the IRS has access to information that could make it think the taxpayer might desire to claim a refund, “the Internal Revenue Service is not required to weigh circumstantial evidence in order to determine whether a taxpayer is asking for a tax refund.” Barenfeld v. United States, 442 F.2d 371, 375, 194 Ct.Cl. 903, 912 (1971); see also Fruehauf Corp. v. United States, 477 F.2d 568, 201 Ct.Cl. -- (1973); Commercial Solvents Corp. v. United States, 427 F.2d 749, 192 Ct.Cl. 339, cert. denied, 400 U.S. 943, 91 S.Ct. 242, 27 L.Ed. 2d 247 (1970); Rosengarten v. United States, 181 F.Supp. 275, 149 Ct.Cl. 287, cert. denied, 364 U.S. 822, 81 S.Ct. 60, 5 L.Ed.2d 53 (1960). “Availability of information is not equivalent to notice that a claim is asserted based on that information. That claim must somehow be communicated to the Service.” Union Pac. R. R. v. United States, 389 F.2d 437, 445, 182 Ct.Cl. 103, 113 (1968). It seems necessary to conclude that this plaintiff had to do something more than merely attempt to deduct an item in 1968, if he were going to give the IRS clear notice of his intent to claim a refund applicable to 1962 and 1963. To reach the conclusion urged by this plaintiff could lead to the conclusion in other cases that anytime a taxpayer’s deduction is disallowed by the IRS and the taxpayer pays the amount at issue, the IRS would be required to assume that the taxpayer had made an informal claim for refund simply 'by claiming the deduction. Such a result would be unworkable, and would circumvent the purpose behind the requirement that a refund claim clearly inform the IRS that a refund is being sought.

For the above reasons, it is concluded • that the taxpayer’s attempt to take the deduction in 1968 did not constitute an informal claim for refund. The taking of further evidence, as requested by the plaintiff, in order to determine precisely what the IRS agents knew of the plaintiff’s claim up to April 15, 1969, is unnecessary once it is determined that the written memorandum of the claim (the 1968 tax return) was insufficient. One further argument raised by the plaintiff in opposing the defendant’s motion to dismiss appears to be an afterthought, considering the abbreviated treatment it received from both parties, but it should, nonetheless, be briefly discussed.

Plaintiff’s last argument relies on sections 1311-15 (the mitigation provisions) of the Code, which sections if applicable would allow the taxpayer to obtain the benefit of the 1965 loss even if the statute of limitations is found applicable in this case. The taxpayer leans specifically on section 1312(4) as the basis for seeking an adjustment. Section 1312(4) sets forth as one of the circumstances of adjustment in mitigation of the statute of limitations a situation where “[t]he determination disallows a deduction or credit which should have been allowed to, but was not allowed to, the taxpayer for another taxable year, or to a related taxpayer.” The taxpayer is arguing here that the IRS dis-allowance of his attempt to deduct the 1965 loss in 1968 was, to use the words of the Code, a “determination which disallowed a deduction which should have been allowed to, but was not allowed to, the taxpayer for another taxable year.” In other words, he 'is contending that because the deduction was disallowed in 1968, and it should have been allowed for 1962 and 1963, section 1312(4) allows an adjustment to be made to the prior years even though closed at the time the 1968 deduction was disallowed.

The difficulty with the taxpayer’s argument is that it ignores the statutory requirement that there be a “determination” within the meaning of the mitigation sections. Section 1313, which immediately follows the section upon which taxpayer relies, provides:

§ 1313. Definitions.
(a) Determination.

For purposes of this part, the term 'determination” means — ■

(1) a decision by the Tax Court or a judgment, decree, or other order by any court of competent jurisdiction, which has become final;
(2) a closing agreement made under section 7121;
(3) a final disposition by the Secretary or his delegate of a claim for refund.
* * * * * *
(4) under regulations prescribed by the Secretary or his delegate, an agreement for purposes of this part, signed by the Secretary or his delegate and by any person, relating to the liability of such person (or the person for whom he acts) in respect of a tax under this subtitle for any taxable period.

See also, Rev.Rul. 73-82, 1973 Int.Rev. Bull. No. 7, at 36-37. None of the facts alleged by the taxpayer constitutes a determination with respect to the taxpayer’s 1968 return.

For all of the above reasons, the defendant’s motion to dismiss is granted. The plaintiff’s petition is dismissed.

      . The petition was amended to include the plaintiff’s former wife, Margery Kuehn (presently Mrs. David Y. Uihlein), as a party plaintiff since the 1962 and 1963 tax returns now under consideration were filed jointly by the named plaintiff and his then wife. For convenience, party-plaintiffs will be referred to in the singular.


author: SKELTON, Judge.

text:
    CALVIN-HUMPHREY CORPORATION, a Delaware corporation, v. The UNITED STATES.
    No. 295-72.
    United States Court of Claims.
    July 13, 1973.
    William T. Hannan, Washington, D. C., attorney of record for plaintiff. De-Lancey W. Davis, Washington, D. C., of counsel.
    Jonathan U. Burdick, Burke, Va., with whom was Asst. Atty. Gen. Kent Frizzell, for defendant.
    Before COWEN, Chief Judge, and SKELTON, NICHOLS, KUNZIG, and BENNETT, JJ.
   ON DEFENDANT’S MOTION TO DISMISS OR FOR SUMMARY JUDGMENT

SKELTON, Judge.

This case involves the question of whether or not an abutting property owner who owns all of the property surrounding an “original” alley which is closed by action of the city council of the District of Columbia must pay for the alley in accordance with the requirements of the city council. The case is before us on defendant’s motion to dismiss or for summary judgment.

The plaintiff, Calvin-Humphrey Corporation, along with the Washington Medical Center, Inc., owned lots 41, 39, and 23 in square 106 of the City of Washington, D.C. The Washington Medical Center conveyed its interest to the plaintiff. There was an alley between and abutting on the lots above-described that was an “original” alley, which means that it was an alley owned by the United States when the City of Washington was first platted and laid out. These lots abut on Avenue K. northwest and 18th Street, northwest. The plaintiff' wished to build a building on these lots, and in order to do so it was necessary to close the alley above-described. It made an application to the District of Columbia City Government for such closure. The plaintiff was told that the alley could be closed provided a small tract of land which adjoins lot 39 and lot 843 of said square 106 would be dedicated for alley purposes, and provided further that the plaintiff would pay the City Government the sum of $76,904. At first, the plaintiff protested the requirements for the payment of money, the protest being made orally. However, later on the plaintiff filed a written application for the closing of the alley and agreeing to the terms required by the City Government, namely, the payment of the $76,904 and the dedication of the small tract of land for alley purposes described above. The final deal was that the plaintiff would be required to pay a total sum of $92,084 for the alley which was to be closed, minus the sum of $15,-180 credit which it was to receive for the value of the new alley space which was to be dedicated by plaintiff. Both areas were valued at $80 a square foot. This required the plaintiff to pay to the D.C. Government $76,904, as stated above, which it paid.

After the deal was agreed upon, the plaintiff appeared to be highly satisfied and was in fact anxious to conclude the deal on the above basis. This is shown by the letter of April 23, 1969, signed both by the plaintiff and its attorney, who is the attorney for plaintiff in this case, which appears as Defendant’s Exhibit J in its brief. This letter, addressed to the Acting Surveyor of the District of Columbia states, among other things, as follows:

The terms outlined in your letter are acceptable to the abutting property owners, our clients, namely, Calvin-Humphrey Corporation and Washington Medical Center, Inc. * * *
* * # * * *
I wish to express our appreciation to you and your office for the excellent manner in which you handled this matter, * * *.

Thereafter, the plaintiff paid said sum of $76,904 and the alley was closed by resolution of the D.C. City Council. Since the ownership of the alley was in the United States, as it was an “original” alley of the City of Washington, this sum of money was deposited in the Treasury of the United States to the credit of the government. The plaintiff proceeded to build its building on the property above the closed alley, and after the building was completed, it filed this suit for the recovery of said $76,904 claiming that for many years there had been a custom in the City of Washington not to charge abutting property owners for the closing of an alley. Furthermore, it contended that in the resolution of the city council closing the alley, it was stated that the council was proceeding under 7 D.C.Code § 303, which is a section of the Code which authorizes the closing of an alley in exchange for other property being dedicated as an alley. Such section of the Code does not provide for any money to be paid for the alley being closed. The plaintiff therefore argues that the council having proceeded under that particular section was not entitled to collect any money from the plaintiff for the closing of the alley. The government counters with the proposition that other provisions of the Code, even though not recited in the resolution closing the alley, fully authorized the collection of money for the closing of the alley, and in particular where the alley is owned by the United States Government.

It develops that the legislation relating to the closing of alleys in the District of Columbia originated with the Act of March 3, 1901, 31 Stat. 1429. The Act was amended on February 23, 1905, by 33 Stat. 733. There was additional legislation relating to alley closing which was adopted in the so-called Street Adjustment Act of December 15, 1932, 47 Stat. 747, codified as Chapter 4 of Title 7 of the D.C.Code. D.C.Code Sections 7-302, 303, 304, 325, 330, 401, and 409 are particularly applicable to this case.

D.C.Code Section 7-302 provides that if the alley to be closed is an “original” alley, the commissioners may sell the land at a price not less than the assessed value of contiguous lots. If the alley is not an “original” alley, the title thereto shall revert to the owners of the abutting land.

Section 303 authorizes the commissioners to accept the dedication of an alley in connection with the closing of an existing alley and provides that the title to the land in the closed alley shall revert to the abutting land owners. Nothing is provided in this section for the payment of any money.

Section 304 provides that if the title to the closed alley is in the United States, the land shall be sold as provided in section 302, and if the title is not in the United States, the land shall revert to the abutting property owners.

Sections 325 and 330 provide that all money derived from the sale of land in which the United States is interested shall be paid into the Treasury of the United States by the District of Columbia Commissioners to the credit of the United States.

Section 401 provides that the commissioners may close any alley which is no longer useful and the property so closed will revert to the abutting property owners subject to the payment of such compensation as the D.C. Commissioners may decide. However, such section provides that if title to such land is in the United States, the property shall not revert to the owners of the abutting property, but may be disposed of by the commissioners as they see fit.

The government contends that the plaintiff waived any right it had to claim reimbursement for the money which it paid by reason of its voluntary payment thereto and that it is estopped to now claim a refund. We do not need to reach this question. It appears that although the Council only referred to section 303 in its resolution closing the alley and accepting the dedication of the new alley, it was proceeding at the same time under all the other provisions of the Code which authorized it to collect money for the United States for the closing of an “original” alley, the title to which was in the United States. That is what was done in this case and the money was paid into the Treasury of the Government. This appears to be in full conformance and compliance with the provisions of the various sections of the Code mentioned above.

Our attention has been called to a recent decision of the District Court of the District of Columbia in Carr v. District of Columbia, 312 F.Supp. 283 (D.D. C. 1970), in which it was held that the D. C. Government was not entitled to collect money from abutting property owners for the closing of an alley. Wé have carefully considered that opinion and have concluded that it is confined strictly to the closing of an alley dedicated by developers and that it does not apply to an “original” alley, the title of which is in the United States. In that case the court refers several times to the fact that the property “reverted” to the property owners. In our case, there is no reversion to the property owners because neither they nor their predecessors in title owned the land on which the alley was established, but the title thereto was in the United States. Accordingly, the decision in the Carr ease does not apply to our case.

Therefore, the defendant’s motion for summary judgment is granted, and plaintiff’s petition is dismissed.