author: WOOLSEY, District Judge.

text:
    THE JOHN F. HARRIS. THE WYOMISSING. HARRIS et al. v. PORT READING R. CO.
    District Court, S. D. New York.
    Sept. 5, 1929.
    Park, Mattison & Lynch, of New York City (Anthony V. Lynch, Jr., of New York City, of counsel), for libelant.
    Maeklin, Brown, Lenahan &, Speer, of New York City (Horace L. Cheyney, of New York City,.of counsel), for the Wyomissing and respondent.
   WOOLSEY, District Judge.

My decision in this ease is that the libel must be dismissed as against the tug Wyo-missing, but that the libelant may recover against the Port Reading Railroad Company in personam.

The facts are in the main admitted.

On Sunday morning, April 3, 1927) at about 6:15 a. m. the tug Wyomissing arrived with a flotilla of nineteen light coal barges at Port Reading. The barges were arranged in six tiers of three barges to the tier with one single barge aft of the last tier. This was not unusually large for a New York Harbor coal flotilla.

The first five tiers, fifteen barges in all, were worked in by the Wyomissing alongside barges already moored to the light stakes, which are to the southward of the Port Reading Piers, and the bargees in charge moored them to the stakes or to the barges already lying moored there.

The last tier of three barges, and the single barge above mentioned, were worked in to the slip south of Reading Pier No. 2 and there moored.

None of the barges in the flotilla was moored so that it extended outside of Pier 2.

The method of disposing of the barges was usual, and was similar to the method the pilot of the Wyomissing had always previously followed without having any damage result.

After having thus disposed of the barges in'its care, the Wyomissing inquired at the office of the terminal for orders, and, not having received further orders, returned to New York to lay up for Sunday.

The somewhat tenuous evidence by Dunn, the only witness for the libelant, bargee of the coal barge Sable, which was next forward of the Harris in the flotilla, does not show any negligence on the part of the Wyomis-sing.

I do not think that any fault can be attributed to her. This disposes of the proceeding in rem against the tug.

Under the in personam branch of the libel, however, the situation is different.

Since the decision of the Circuit Court of Appeals for this circuit in the ease of Doherty v. Pennsylvania Railroad Company, 269 F. 959, it is settled that a coal barge in the situation of the Harris under such an arrangement as was made in the instant ease is in the possession of the railroad company under a contract of bailment from the time it is delivered to the railroad tug in New York City until it is returned loaded with coal to New York City.

Some time Sunday afternoon the barges, which had been moored alongside those at the light stakes, began to swing out on the ebb tide, and the Harris, which had been the outside or port barge in the fourth tier of the flotilla, was pressed on the wreck of a steamer which lay inshore from the stakes, and of which the railroad company had knowledge.

If the position of this wreck was correctly marked on the blueprint of the Port Reading Terminal by the respondent’s witnesses, it is, perhaps, difficult to see how the accident happened. However, it did happen, and damage to the Harris resulted, for which this libel was filed.

The tug of the railroad company, the Penneoyd, was at the terminal, but, although she apparently had steam up, she was not fully manned and was not available for any emergency.

It is true that the weather was good when the Wyomissing left for New York, but, as is shown by what happened in this case, bad weather is not the only risk to which a group of barges moored to light stakes, and without motive power, may become subject.

I think that, if the Penneoyd or some other tug employed by the railroad company had been available and reasonably vigilant, the swing of the barges at the light stakes could have been cheeked and the damage to the Harris prevented.

Consequently the railroad company as bailee of the Harris was negligent in its care of her and is, therefore, liable in personam.

An interlocutory decree providing for a dismissal of the libel against the Wyomissing and for a recovery against the Port Reading Railroad Company with a reference to a commissioner for the assessment of damages suffered by the Harris may be submitted for my signature.

As each party has prevailed in part, there will not be any costs, except the costs, if any, of the reference.


source: Caselaw Access Project

license: Public Domain

text:
    TICE TOWING LINE v. JAMES McWILLIAMS BLUE LINE et al.
    District Court, S. D. New York.
    Jan. 29, 1931.

      Park, Mattison & Lynch, of New York City (Anthony V. Lynch, of New York City, of counsel), for libelant.
    Leo J. Curren, of New York City, for James McWilliams Blue Line.
    Burlingham, Veeder, Fearey, Clark & Hupper, of New York City (Chauncey I. Clark and Norman M. Barron, both of New York City, of counsel), for Director General of Railroads.
   WOOLSEY, District Judge.

I overrule the first exception to the Commissioner’s report and confirm the amount of the salvage fixed by him for barges and eargo at $1,000.

I sustain the second and third exceptions to the Commissioner’s report.

The result of these rulings is that the li-belant may have a decree providing for an award of $1,000 recoverable primarily against the Director General and secondarily against the James McWilliams Blue Line.

I. This libel for salvage is the sequel of other litigations in which the Director General was held for negligent mooring at New-town Creek on February 4, 1920, of the coal laden barges Blue Girl and W. H. Elliott while under contract to tow them within the port of New York. James McWilliams Blue Line v. Davis, Director General (D. C.) 273 F. 622, affirmed 285 F. 312 (C. C. A.). It now comes before me on exceptions 1» the report of Earle Farwell, Esq., as Commissioner. His report has been printed in full in 1930 American Maritime Cases at page 1834 and, consequently, it is unnecessary to refer to it except incidentally.

II. Judge A. N. Hand, in a short opinion, dated December 30, 1924, held the Director General primarily liable to the salvor for the award and referred the ease to a Commissioner , to find the value of the cargo salved.

-He said:

“This is a libel against the respondent for salvage services in the rescue of two barges with their cargoes in the East River. The latter brings in the Director General of Railroads upon the theory that the negligent operation of a tug by the agents of the latter occasioned the necessity for the salvage service, and that the Director General should accordingly bear any loss to the respondent occasioned thereby. The Director General pleads res adjudieata because in former action damages were recovered against him by the respondent for injury to its barges. It is argued on behalf of the Director General that any salvage for which the respondent might be made liable here should have been included as damages in the former action. The Director General also pleads the two year Statute of Limitations provided in the Salvage Act.
“In the case of British & Foreign Marine Ins. Co. v. Kilgour S. S. Co. [D. C.] 184 F. 174, Judge Hough held that the amount for which a libelant might be held liable for salvage could be added to the damages recovered by such libelant in a suit by it against a third party for negligence where the salvage services became necessary owing to such negligence.
“As a matter of fact no attempt was made in the former litigation (which is referred to herq under the plea of res adjudieata) to recover anticipated salvage payments as one of the items of damage. The salvors were not a party to that litigation and, therefore, cannot be bound.
“Unless the salvage has been paid, — certainly unless it had been completely adjusted with the salvors, — it could not be treated as an item of damage without an adjudication by which they were bound as parties. Here there has been clear prima facie proof of sal-wage services. An attempt is made by bringing in the Director General under the Fifty-sixth Rule to hold him liable for the payment of salvage services occasioned by his negligence which he has never paid and which he could not have been compelled to pay in the state of the pleadings in the former action. I think the plea of res adjudieata must therefore be overruled, and the Director General held liable unless the Statute of Limitations is a bar. But the Director General is not liable for salvage; he is only liable to indemnify the person whose property was salved for losses occasioned by the negligence of a tug which the government was then operating. This cause of action would not accrue until the primary liability was in some way established. The Statute of Limitations had therefore not run at the time the Director General was brought in under the Fifty-sixth Rule.

“Inasmuch as sufficient testimony as to the value of the cargo has not been introduced, I shall only direct an interlocutory decree for the libellant, under which the Director General shall be primarily, and the Mc-Williams Blue Line secondarily liable, referring the question of the amount of salvage to be awarded to Pierre M. Brown, Esq.”

Earle Farwell, Esq., the Commissioner, who was substituted for Pierre M. Brown, Esq., originally appointed in pursuance of this opinion, found as the salved values involved, which were admitted or agreed, the following:

W. H. Elliott........ , 3,500.

Yessels’ salved total. $15,500.00 Blue Girl Cargo..... $7,363.25

W. H. Elliott Cargo.. 6,822.38

Cargoes salved total. $14,185.63

The Commissioner fixed $1,000 as the total award for the salvage of these values and allocated the proportion thereof to be assessed as salvage award against the barges alone as $532, to which amount he limited the libelant’s total recovery.

• The three exceptions filed by the salvor to the Commissioner’s report and now before me may be summarized as follows:

First. That the amount awarded libelant is inadequate.

Second and Third. That the award was limited to the proportion chargeable against the barges — the salved vessels — only, and excluded any award for services rendered to the cargoes thereof.

Having regard to the circumstances of the weather on the night of the salvage, cf. McWilliams v. Davis (C. C. A.) 285 F. 312 at pages 314-315-, and the promptness and skill of the service, I agree with the Commissioner that $1,000 is a proper award for the total salvage. I also agree that, proportionately assessed, $522 is a fair proportion of the award to be assessed against the barges alone. I do not agree, however, that this amount is all that is recoverable by the libelant herein.

III. The question of importance in this ease, therefore, arises, not out of the amount at which the award was fixed, but out of the respective liabilities for cargo’s proportion thereof as between the carrying barges and their negligent bailee tug.

It should be observed in this connection that, as Judge Augustus Hand held, there cannot be a direct claim for salvage against the Director General, operator of the negligent bailee tug, because the salvage suit was not brought within two years of the salvage service as required by the provisions of the Salvage Act of August 1,1912. Title 46, U. S. C., § 730 (46 USCA § 730). That is the law of this ease.

Thus the liability of the Director General is by way of indemnity only under Admiralty Rule 56 (28 USCA § 723). •

Such being the practice situation, it must next be determined what decree should be rendered in the exercise of the substantive equity which is one of the characteristic attributes of admiralty courts.

IY. The situation is this:

A sues B, a barge owner, on a cause of action for salvage which has arisen against B and in favor of A owing to the fault and neglect of C, the operator of a bailee tug.

B impleads C as indemnitor for any amount whieh may be found due from him for the salvage service.

The cargoes on B’s barges are not before the court.

Under settled principles, C, as operator of the bailee tug, is liable for negligence causing damage to her tow, including salvage required to be paid by the tow as a consequence of such negligence. British & Foreign Marine Ins. Co. v. Kilgour S. S. Co. (D. C.) 184 F. 174.

The question here is whether the absence of cargo on B’s barges should reduce A’s recovery against B proportionately, and, consequently, reduce the amount for which C is liable over to B.

This question is of first rate interest and importance, and its proper decision requires some consideration of the authorities here and in England.

V. I hold, under the authorities hereinafter cited, that a salvor is entitled to a salvage award as against any one wh'om he may háve benefited by successful salvage services.

The problem in this case is to determine —in the absence of the cargo — whether any party before the court was benefited by the salvage of the cargo, and, if so, which party was benefited and in what way.

The barges were private carriers and the relationship of the owners of the coal cargoes to the barges and the owner thereof was that of bailor and bailee.

If the coal cargoes had been lost or damaged and the owner of the barges had been sued for such loss or damage, it could not have defended by alleging and proving that the loss or damage was due to the negligence of the tug which it had engaged to help it perform its contract to carry the cargoes. Taylor Bros. Lumber Co., Inc., v. Sunset Lighterage Co. et al., 43 F.(2d) 700, 702 (C. C. A. 2); The Moran No. 10 (D. C.) 41 F.(2d) 255, 256 ; Schoonmaker Conners Co. v. Lambert Transp. Co., 268 F. 102, 104 (C. C. A. 2), and cases there cited. And see, also, The Harper No. 145, 42 F.(2d) 161, 164 (C. C. A. 2).

Nor could the owner of the barges-have claimed freedom from liability to their cargoes under section 3 of the Harter Act, title 46 U. S. C., § 192 (46 USCA § 192), on the ground that the loss was due to negligent management or navigation by the tug.

There are two reasons for this:

First. Because the Harter Act does not' apply to private carriers such as these barges. The G-. R. Crowe, 294 F. 506, 508 (C. C. A. 2), affirming Judge Ward’s decision in the District Court for this district, 287 F. 42f>.

Second. Because the Harter Act does not apply to the carriage of cargo wholly within the same port — in this case the Port of New York — but applies so far as domestic commerce is concerned only to carriage of cargo “to and from,” i. e., between different ports in the United States. Cf. Sacramento Navigation Co. v. Salz, 273 U. S. 326, 332, 47 S. Ct. 368, 71 L. Ed. 663; The Hugh O’Donnell (D. C.) 22 F.(2d) 410; The Nettie Quill (D. C.) 124 F. 667, 669; In re Piper Aden Goodall Co. (D. C.) 86 F. 670, 671; The E. A. Shores, Jr. (D. C.) 73 F. 342, 347.

Consequently the salvage service rendered by the libelant relieved the barge owner in this ease from the risk of the liability to which it could have been held if the coal cargoes had been lost or damaged.

VI. A claim for salvage may be maintained in personam against any party whoso relationship to the vessel or thing salved is such that he might have been liable in respect of its damage or loss, Duncan v. The Dundee Perth and London Shipping Co., Scotch Session Cases, vol. V, 4th Series, 742; The Five Steel Barges, 15 Prob. Div. 142, 146, 6 Asp. Mar. Cas. 580, 582; The Port Victor, 9 Asp. Mar. Cas. 163, 165, 166, affirmed 9 Asp. Mar. Cas. 182, 183, or who, though not its owner, is benefited by its being salved, as was the ease where the salving of cargo gave the United States an opportunity to impose customs duties on it. United States v. Cornell Steamboat Co., 202 U. S. 184, 26 S. Ct. 648, 50 L. Ed. 987; Id., 137 F. 455 (C. C. A. 2), in which the principles of the British eases just cited were discussed and approved.

And see, also, for another and earlier enforcement of this principle by Judge Benedict, Seaman v. Erie R. R. Co., 21 Fed. Cas. pages 918, 920, No. 12582 decided in 1868.

Duncan v. The Dundee Perth and London S. S. Co., Scotch Session Cases, vol. V, 4th Series, page 742, the earliest British ease in which the principle under discussion seems to have been involved, was decided in 1878. In that case a British vessel, which was running coastwise as a common carrier with a general cargo, was salved. The necessity for her salvage arose from the actionable negligence of her master. The salvors sued her owner alone in personam without joining any of the cargo or any of the cargo owners.

The Lord President, Inglis, said at page 748: “The ease, then, stands in this position; The master of a vessel received into his possession, as a carrier, a great variety of goods, to be carried from Dundee to London, belonging to a very great number of different owners altogether unconnected with one another. If he had lost these goods he and his owners would have been answerable for the value. The salvors saved not only his ship but saved these goods, and enabled him, as turned out afterwards, and his owners, to trans-ship these goods at Dundee into another vessel belonging to the company, and in that vessel to carry them to London and deliver them at their destination. What would have been the consequence to the master and the owners, and to the owners particularly, if the pursuer, instead of allowing trans-shipment to take place, had laid an embargo on these goods, and said ‘No, these goods shall not leave Dundee until my claim is satisfied, or security is found to satisfy it.’ I cannot conceive a more inconvenient or oppressive proceeding on the part of salvors than that would have been. And it is said that the sal-vors have lost really all opportunity of making good their claim because they failed to follow that very inconvenient and oppressive procedure.. I cannot listen to that allegation.”

Lord Shand said at page 751: “The ease then comes to this, that the carrier of these goods being absolutely bound to deliver them at the end of the voyage, the salvage has directly enured to his benefit, for it has enabled him to fulfil his contract and to earn the freight which he charged for these goods. On the ground that it is established in this case as matter of fact that the benefit of this salvage, in so far as regarded the cargo, enured directly to the carrier, I am of opinion that he is liable for the salvage which is here claimed.”

In The Five Steel Barges, 15 Prob. Div. 142, a ease which arose in 1890, the President, Sir James Hannen, without having had the Scotch ease called to his attention, said at page 146: “As to the two (barges) which have been given up to the Government, I think it is perfectly clear on the authorities that an action in personam lies against the owners of a vessel which has been saved, even though the property has been transferred to others, and the lien lost. In this case, however, the property does not appear to have been in the defendant, because it would, I think, under the contract, to which reference has been made, be in the Government. But on this point I am of opinion that the right to sue in personam is not confined to the ease of the defendant being the actual legal owner of the property saved. I think it exists in eases where the defendant has an interest in the property saved, which interest has been saved by the fact that the property is brought into a position of security. The jurisdiction which the Court exercises in salvage eases is of a peculiarly equitable character. The right to salvage may arise out of an actual contract; but it does not necessarily do so. It is a legal liability arising out of the fact that property has been saved, that the owner of the property who has had the benefit of it shall make remuneration to those who have conferred the benefit upon him, notwithstanding that he has not entered into any contract on the subject. I think that proposition equally applies to the man who has had a benefit arising out of the saving of the property. In this ease the defendants were under contract with the Government to supply them with barges at a certain price. Payment was to be made by certain instalments, of which only one remained unpaid at the time of the services. I think, if Mr. Barnes’ argument is well founded — -viz., that those instalments were all paid on condition that the barges should be delivered all within twelve months of the date of the contract — it would follow that, if defendants had not been in a position to deliver the barges within the twelve months, then either they would have been liable in damages for not performing the contract, or liable to make restitution of the in-stalments which had been paid them on conditions not fulfilled by them. It appears to me, therefore, that they had substantially an interest to the full amount of the barges at the time of the services, and that the same moral obligation to which the law has given force in the case of an owner applies to those who have an interest in the property. That is certainly the business-like view of the matter; and I do not forget that the defendants insured themselves to the full value of these barges, and described themselves as being the owners. In conclusion, I award £200 as salvage, independently of the towage contract.”

In The Port Victor, 9 Asp. Mar. Cas. 165, decided in 1901, government stores were being carried at the risk of the charterers of the Port Victor, and these stores were saved from a danger for which the charterers were legally responsible. It was held that the charterers were liable to pay salvage, and that there was a personal liability to do so quite apart from the liability of the res.

One of the greatest admiralty judges of the last generation, Sir Francis Jeune, then president of the Probate and Admiralty Division, referred to the ease of The Five Steel Barges, decided hy Sir James Hannen, and also to the Scotch ease of Duncan v. Dundee Shipping Co., and, after quoting from the decisions in both cases, said at page 566:

“It was argued before me that the present ease can be distinguished from that of The Five Steel Barges on the ground that in that ease the defendants had a lien for the price of the barges, and so, for practical purposes, were the owners, although the property in law was no doubt in the Government. It was contended that the claim for salvage is limited to claims against the owners, or at least against the persons who, like carriers, are in possession of the goods at the time of the salvage, but that in the present case the defendants were not the owners of the goods, nor were ever in possession of them. A legal foundation for this review was sought in the argument that the Admiralty action in per-sonam is based on the supposition that the goods were allowed by the salvors to be returned to their former possessor on the terms that he should be liable to pay the salvage reward. I think that this contention is based on too narrow a view of the right of a salvor, and, in my opinion, the nature and origin of the Admiralty action for salvage do not impose any limits on that right narrower than those indicated by Lord Hannen and Lord Shand in the cases I have mentioned. * * *

“The true view is, I think, that the law of Admiralty imposes on the owners of property saved an obligation to pay the person who saves it simply because, in the view of that system of law, it is just he should, and this conception of justice naturally imposes a proportionate obligation on any person whose interest in the property is real, though falling short of that of ownership. I see no reason, therefore, why I should not follow the view of Lord Hannen and of the Scotch Court of Session, that a man who has had a benefit arising out of the saving of the property is liable to a claim for salvage no less than the actual owner of it.”

The case then went to the Court of Appeal, The Port Victor, 9 Asp. Mar. Cas. (N. S.) 182. That court consisted of Lord Al-verstone, Lord Chief Justice, Smith, Master of the Rolls, and Romer, L. J. — a very strong Court — and Sir Francis Jeune’s decision was affirmed unanimously. The view of the Court of Appeal was shortly and most emphatically stated in an opinion by the Master of the Rolls, at page 184: “We are asked to overrule the President of the Admiralty Division on a point as to which he has, no doubt, special knowledge, and we are asked to reverse the authority of Sir James Hannen, who of all men was a man of peculiar knowledge on that point — namely, as to whether an action in personam for salvage was properly brought in the Admiralty Court. The judgment of .Sir James Hannen in The Five Steel Barges was delivered in 1890, after the judgment of the Scotch Court of Session in Duncan v. Dundee, Perth and London Shipping Company, and curiously enough the Scotch ease was not brought to the attention of Sir James Hannen when he decided the ease of The Five Steel Barges. Therefore, we have, independently of each other, four Scotch judges and afterwards Sir James Hannen spontaneously arriving at the same conclusion. Now we are asked in the year 1901 to say that all of those five learned judges were wrong in what they decided in those cases. I myself am prepared to rest my judgment upon the judgment of Sir James Hannen, and I will say this, that having read this judgment through twice during the argument of this ease, I consider it is founded upon common sense. A clearer judgment was never delivered by any learned judge, and I refuse to say it is wrong. I think this appeal ought to be dismissed.”

The principles laid down in the eases just discussed have not only been approved by the Circuit Court of Appeals for this circuit in United States v. Cornell Steamboat Company, 137 F. 455, 459, 460 (1905), but have been adopted as the law by the Supreme Court of the United States in the appeal of that ease, United States v. Cornell Steamboat Company, 202 U. S. 184, 26 S. Ct. 648, 50 L. Ed. 987, which was decided in 1906.

In that case a tug owned by the Cornell Steamboat Company had saved a certain lot of sugar in bags on board the lighter Bangor in New York harbor from the imminent risk of being destroyed by fire. Duties in the sum of $6,000 were saved to the United States by this service.

The Supreme Court affirmed the decision of the Circuit Court of Appeals holding the United States liable for salvage. Mr. Justice Brown, one of the most experienced of admiralty judges, in writing the opinion of the court, dealt with the eases which I have cited thus (202 U. S. at pages 193-195, 26 S. Ct. 648, 651, 50 L. Ed. 987): .

“The ease of Five Steel Barges, L. R. 15 Prob. Div. 142, is authority for the proposition that- the remedy in personam is not confined to the legal owner of the property saved, but extends to one who has a direct pecuniary interest in such property. This was an aetion against five barges, two of which belonged to the government, with whom the defendants were under contract to build and deliver the barges. An action in rem was brought against the three barges, and an action in personam against the defendants, who had contracted with the government and given it possession of the two barges. The court sustained the aetion in personam thinking it ‘perfectly clear that an aetion in personam lies against the owners of a vessel which has been saved, even though the property has been transferred to. others and the lien lost/ Continuing, the president of the court, Sir James Hannen, observed: ‘I think it exists in eases where the defendant has an interest in the property saved, which interest has been saved by the fact that the property is brought into a position of security. The jurisdiction which the court exereises in salvage eases is of a peculiarly equitable character. The right to salvage may arise out of an actual contract, but it does not necessarily do so. It is a legal liability arising out of the fact that property has been saved; that the -owner of the property, who has had the benefit of it, shall make remuneration to those who have conferred the benefit upon him, notwithstanding that he has not entered into any contract on the subject. I think that proposition equally applies to the man who has had a benefit arising out of the saving of the property/ This last sentence is particularly applicable to this ease.

“In the subsequent ease of The Port Victor, 9 Asp. Mar. L. Cas. 163, the same court decided that where government stores were being carried at the risk of charterers, these charterers were liable to pay salvage in a personam aetion, apart from the liability of the stores in rem. The ease was decided largely upon the authority of Five Steel Barges and Duncan v. Dundee, P. & L. Shipping Co., 5 Sc. Sess. Cas. 4th Series, p. 742, and was affirmed by the court of appeals in an opinion by Lord Alverstone (9 Asp. Mar. L. Cas. 182), in which great deference was shown to the decision of Sir James Hannen. See also Carver, Carriage by Sea, § 324a.

“Although courts of admiralty have no general equity jurisdiction, and cannot afford equitable relief in a direct proceeding for that puipose, they may apply equitable principles to subjects within their jurisdiction, and, in the distribution of proceeds in their possession or under their control, may give effect to equitable claims. 2 Parsons, Shipping, 344. Bearing in mind that the duties in this case had been actually collected, were in the hands of the government, and had been saved to it by the exertion of the sal-vors, who had been awarded salvage for saving the sugar upon which the duties had been collected, a strong case is presented for the allowance of salvage, which should not be lost sight of in determining the principles applicable to the situation.”

So far as the Director General, as operator of the negligent bailee tug, is concerned, what has just been said above would apply to him if he were open now to a direct suit for salvage, but, as time has precluded such a suit, he must be remitted entirely to his position as indemnitor of the barge owner through whom alone he can now be reached.

VII. The tug and tow were in effect one vessel. Sacramento Navigation Co. v. Salz, 273 U. S. 326, 332, 47 S. Ct. 368, 71 L. Ed. 663; The Columbia, 73 F. 226 (C. C. A. 9); The Hugh O’Donnell (D. C.) 22 F.(2d) 419; The Bathgate (D. C.) 19 F.(2d) 663, affirmed 25 F.(2d) 103, 104 (C. C. A. 3).

Negligence of the tug which put the cargoes and the barges in jeopardy was similar in its legal effect to actionable negligence for which any shipowner who was a private carrier would be responsible.

The next point to consider, therefore, is the incidence of a salvage award when the necessity for the salvage arises from an actionable breach of the shipowner’s duty to cargo.

VIII. Perhaps the leading work on salvage is “The Law of Civil Salvage” by the late Lord Justice Kennedy, formerly of the English Court of Appeal.

In the second edition of that book, on page 297, this proposition, which is universally recognized as sound salvage law, is laid down: “ * * * The shipowner cannot look to the cargo-owner for any contribution to the salvage where the occasion for the salvage service has arisen through a breach of contract or duty on the part of the shipowner himself, or of those for whose conduct he is responsible” — citing The Ettrick, 6 Prob. 127; Strang, Steel & Co. v. Scott, 14 App. Cas. 691, 698; Schloss v. Heriot, 14 C. B. N. S. 59.

The author further says, at page 298: “If the owner of eargo has been compelled to pay the salvor for services which have been rendered necessary by a breaeh of contract or duty on the part of the shipowner or his servants, he is entitled to be indemnified by the shipowner in respect of this expenditure. In The Princess Royal, the facts alleged were that that vessel had been improperly injured, and then improperly abandoned at sea by her master; and the plaintiffs, the assignees of the bill of lading for goods on board of her, had been obliged, in order to get possession of their goods, to pay the amount of remuneration due to the persons who had salved her. They then proceeded in rem against The Princess Royal (1870 L. R. 3 A. & E. 27, 41) in the Admiralty Court (under the 24 Viet. c. 10, s. 6), to recover the amount of the payment, as well as damages for delay of delivery, and Sir Robert Phillimore held that the action was maintainable.”

Again the author says, at page 210: “In salvage, the cargo is primarily, and equally with the ship, liable for payment of the award. The shipowner who pays the cargo’s share of it, is clearly entitled to reimburse* ment, unless, the need for the salvage having arisen from his actionable wrong, the owner of cargo has a good defense, under the rule of avoiding circuity of action.”

The rule thus laid down in Kennedy on Civil Salvage, is also to be found in Carver on Carriage by Sea (7th Ed.) § 354, page 502, where it is said:

“But where the salvage services became requisite in“ consequence of fault on the part of the ship, the shipowner cannot claim contribution from the owner of the cargo (The Ettrick (1881) 6 P. D. 127; The Cargo ex Capella (1867) L. R. 1 & A. & E. 356), notwithstanding that he may have satisfied his full liability to damages for negligence, by taking proceedings for limiting his liability, and paying £8 a ton into Court (The Princess Royal (1870) L. R. 3 A. & E. 27, 41).”
“And where the cargo owners have been compelled to pay salvage in consequence of improper acts of the master, e. g., a wrongful abandonment of the ship, they may claim repayment from the shipowner, and may proceed in rem against the ship for the amount (The Princess Royal (1870) L. R. 3 A. & E. 27, 41).”

In The Loyal (D. C.) 198 F. 591, Judge Holt said, at page 592: “The Apollinaris Company, the owner of the cargo, claims that, if any recovery for salvage is had, it should be had against the F. W. Jarvis Company, on the ground that the vessel was un-seaworthy. I think that that claim is cor*-reet.”

Judge Holt held that, inasmuch as the Jarvis Company could not limit its liability, it should be liable for the full salvage.

The Circuit Court of Appeals affirmed this decision, The Loyal (1913) 204 F. 930, in an opinion written by Judge Noyes, who said at page 931:

“That the lighter ‘Loyal’ was unseaworthy seems established beyond question. She sprang a leak without having been subjected to any sea peril. The only inference in such circumstances is of unséaworthiness. Besides, the history of the vessel leads to the same conclusion.
“The owner of the lighter was under obligation to the owner of the cargo to assume any salvage award caused by unseaworthiness of its vessel. The vessel-owner had a written contract with the cargo-owner for lighterage services covering an extended period. This lighterage contract implied an obli- ■ gation that the lighters to be furnished under it should be seaworthy and if this one were in fact unseaworthy (as we have found she was) and if the unseaworthiness made the salvage services necessary (as it unquestionably did) the salvage award ran properly against the vessel-owner subject to any right to limit its liability.-”

The ease of The Lackawanna (D. C.) 22(1 E. 1000, .is also-interesting in this connection.

There suit was brought for salvage against a steamship by a wrecking company which had got her off the strand, and it was held that, while in general ship and cargo must proportionately bear salvage expenses where there is a common peril, yet, where salvage services are rendered necessary by the ship’s negligence or unseaworthiness, the cargo may be relieved from contribution and the vessel bound for the entire expense.

Judge Hazel said at page 1002': “It is asserted that the salvage services in their entirety were made necessary by the fact that the steering gear of the Lackawanna was defective, as a result of which she came into collision with the barge Chieftain. The Circuit Court of Appeals has sustained this view. The Lackawanna, 210 P. 262, 127 C. C. A. 80. Although, generally speaking, the ship and cargo must proportionately bear the salvage expenses where there is a common peril, yet, where the salvage services are rendered necessary by the ship’s negligence, the cargo may be relieved from contribution and tbe vessel bound for tbe entire expense. International Navigation Co. v. Atlantic Mutual Ins. Co., supra [(D. C.) 100 F. 304]; The Irrawaddy, 171 U. S. 187, 18 S. Ct. 831, 43 L. Ed. 130. The employment of the tug James A. Reid by the master of the Lackawanna to assist in floating her was an employment for salvage services, and no doubt gave rise to a maritime lien on the ship. If the salvors had elected to proceed against both the vessel and cargo, and had recovered against them both, the cargo, in my opinion, because of the unseaworthiness of the vessel or her negligent navigation, could have recovered from the vessel the amount for which it was held liable to the claimant. The Wildcroft, 201 U. S. 378, 26 S. Ct. 467, 50 L. Ed. 794; Strang, Steel & Co. v. Scott, 14 App. Cas. 601.”

The libelant should not, therefore, because cargo is not before the court, have his recovery cut down in favor of a negligent bailee barge owner when that bailee is before the court, and as between himself and cargo would be liable for the salvage of the cargo if cargo also were there.

As noted above, the direct liability for salvage of the Director General is precluded by the provisions of the Salvage Act of August 1, 1912 (46 USCA §§ 727-731), but direct liability for salvage is not sought here. Liability is sought against the Director Gen•erál and was imposed by Judge Hand by way •of indemnity only for damages incurred by the barge owner owing to the liability for a salvage service which was rendered necessary by the negligence of the Director General. For as operator of the railroad tug he was bailee, appointed by the owner of the barges, ■of both the barges and their cargoes, and as such liable for negligence. Doherty v. Penn. R. R. Co., 269 F. 959, 962 (C. C. A. 2); The Wyomissing (D. C.) 51 F.(2d) 242, 1929 A. M. C. 1575; The Drifter and The White City (D. C.) 35 F.(2d) 1006, 1007.

Vis-a-vis the owner of the cargoes, therefore, the Director General as operator of the railroad tug was bailee of a bailee. His negligence has already been adjudicated, McWil-liams Blue Line v. Davis (C. C. A.) 285 F. 312, and he has been held liable for damages in respect thereof and is now liable for this shlvage as a hitherto unrecoverable part of those damages.

IX. The recovery in an admiralty suit may be imposed as justice requires in whole or in part and primarily or secondarily on the several parties. Cf. Dailey v. City of New York (D. C.) 119 F. 1005; The Sarnia, 261 F. 900 (C. C. A. 2).

Here I think it is clearly just that the libelant’s recovery should be payable primarily by the Director General because in his capacity as operator of the bailee tug in charge of the salved property he gave occasion for the salvage services.

McWilliams Blue Line, though primarily liable for the salvage as such, is entitled to indemnity from the Director General. The decree should, therefore, provide that the li-belant’s claim shall be first payable by the' Director General, and, after remedies against him are exhausted, by the McWilliams Blue Line.

X. A final decree may be submitted in accordance herewith giving costs on the libel to the libelant, payable primarily by the Director General and secondarily by the James McWilliams Blue line. The James McWil-liams Blue Line may have the costs as petitioner under the 56th Rule (28 USCA § 723) against the Director General.

Unless its form is agreed, this deeree may be settled on three days’ notice.

       Here quoted in full.


author: BYERS, District Judge.

text:
    THE SOCONY NO. 24. THE RUFUS T. GENT. THE GREYSTONE. STANDARD TRANSP. CO. v. NEW YORK TRAP ROCK CORPORATION et al.
    No. 12190.
    District Court, E. D. New York.
    June 3, 1931.
    Supplemental Opinion June 11, 1931.

      Frederick W. Park, of New York City, for claimant.
    Burlingham, Veeder, Fearey, Clark & Hupper, of New York City (Frederic Conger, of New York City, of counsel), for respondent impleaded.
   BYERS, District Judge.

Motion on behalf of the respondent-im-pleaded for an order requiring the petitioner (namely, the claimant) to file an amended petition in the salvage suit herein, eliminating from its present pleading entitled “libel and petition” affirmative allegations of fault against Long Island Railroad Company for fire damage to its barges, which constitute a separate cause of action, and for such other and further relief, etc.

On June 28, 1930, at about 3:00 a. m., the libelant’s tug Soeony No. 24 rendered salvage service to the scows Rufus T. Gent and Grey-stone, moored at the Long Island Railroad Company’s dock in Newtown Creek, in assisting in putting out a fire on the barge Gent and, when her mooring lines were burned, in towing her away from the pier which was afire, and making her fast alongside the fire boat, and in putting out the fire on the barge Greystone, and assisting in extinguishing the fire on the dock.

The owner of Soeony No. 24 filed a libel against the scows for salvage services, and an answer on the part of the claimant, namely, the owner of the scows, apparently has been filed, and the cause is at issue on the calendar of this Court.

Under date of December 16, 1930, and after the said proceedings had been had, the claimant, filed its petition and libel against the Long Island Railroad Company, the object of which is to implead that company in the salvage proceeding, and the petitioner prays that process may issue against the railroad company and that it may be cited to appear and answer the libel herein and also the libel and petition, and a decree is sought that, if there is any salvage due the libelant, the railroad company is responsible therefor, and that it pay the same accordingly with interest and costs, and that the libel be dismissed as against the petitioner (the claimant), etc., and that the court will otherwise right and justice administer in the premises.

The said libel and petition, in addition to seeking to impose upon the railroad company liability for the salvage claimed, asserts damages to the scows, caused by the fire, in a sum in excess of $9,000.00, and a decree is sought to be obtained against the railroad company by reason thereof.

No answer to the libel and petition has been filed, although over four months had expired at the date of said motion, the notice of which indicates that it was made on April 27, 1931.

On the argument of the motion, it was asserted that there is no justification for the practice adopted by the petitioner (who is also the claimant), within the purview of Admiralty Rule 56.

It is thought that the case of Tice Towing Line v. Director General, 51 F.(2d) 243, 1925 A. M. C. 417, is an authority for bringing in the respondent-impleaded under that rule. In that ease, a libel was filed against the respondent for salvage services in the rescue of two barges with their cargoes, in the East River; the respondent brought in the Director General of Railroads, upon the theory that the negligent operation of the tug by his agents occasioned the necessity for the salvage services and the burden of loss should, therefore, fall upon him. The opinion states:

“But the Director General is not liable for salvage; he is only liable to indemnify the person whose property was salved for losses occasioned by the negligence of a tug which the government was then operating. This cause of action would not accrue until the primary liability was in some way established. The Statute of Limitations [asserted as a defense by the Director General] had therefore not run at the time the Director General was brought in under the Fifty-sixth Rule.”

See, also, Evans v. New York & P. S. S. Co. (D. C.) 163 F. 405. In the latter case, reference is made to the suggestion that a third party may not be petitioned in, unless the cause against it is a maritime cause, but that suggestion is disposed of adversely.

Moreover, Smith v. Burnett, 173 U. S. 430, 19 S. Ct. 442, 43 L. Ed. 756, is a ease in which a libel in an admiralty cause on the part of a vessel against a wharfinger was sustained, where the latter had been guilty of negligence and want of reasonable care toward the vessel moored at the wharf owned by the appellant.

Hustede v. Atlantic Refining Co. (D. C.) 68 F. 669, was an admiralty cause based upon a libel filed by the owner of a steamship against the wharfinger, the ship having been destroyed by fire occasioned by burning oil on the surface of the river, alleged to have proceeded from the wharf in question. The libel was dismissed on the merits, that is to say, the court found that the fire did not originate as alleged; by implication, therefore, if the libelant had been able to prove the facts which it alleged, its libel would have been sustained.

The latest phase of the litigation referred to in Tice Towing Line v. Director General, supra, is found in Tice Towing Line, libelant, v. James McWilliams Blue Line, respondent and petitioner, and Director General of Railroads, impleaded-respondent (D. C.) 51 F.(2d) 243, 1931 A. M. C., at page 805. The report of the special master appointed in the first case above cited was confirmed in part, and Judge Woolsey discusses the nature of the liability of the Director General by way of indemnity, and also the form of the decree to be entered.

In accordance with the views expressed in the cases referred to, it is thought that the practice adopted by the petitioner-libelant in this case is proper, and that the motion should be denied.

Settle order on notice.

Supplemental Opinion.

The opinion filed herein on the 3d inst. is deficient in failing to make specific reference to the reason why it is thought that no separate libel need be filed by the claimant in reference to the fire damage alleged in the pleading which was the subject of the motion.

The same facts which will determine the liability of the Long Island Railroad Company to indemnify the claimant against salvage will of necessity establish its responsibility or lack of it for the fire damage; therefore that issue need be tried but once, although the damages are composed of two elements.

It is thought that, if separate pleadings were deemed to be requisite in the interests of the respondent-impleaded, a motion to accomplish that purpose should have been made within a reasonable time after the pleading called- “libel and petition” was filed, and no sufficient reason appears at this late date why the respondent-impleaded cannot present the issues which it desires to have litigated, by an appropriate pleading to be filed without further delay.

The foregoing is intended to supplement the opinion heretofore filed herein.

       Opinion by Judge A. N. Hand quoted in full in opinion of Judge Woolsey in Tice Towing Line v. James McWilliams Blue Line (D. C.) 51 F.(2d) 243.


text:
    UNITED STATES v. NASH et al.
    District Court, S. D. New York.
    June 25, 1931.
    George Z. Medalie and John A. Wilson, both of New York City, for the United States.
    Isaac Siegel, of New York City, for defendant Richard Nash.
    Charles Sylvester, of New York City, for defendant Philip A. deStefano.
   WOOLSEY, District Judge.

This is one of those comparatively rare eases in which cumulative sentences are indicated as appropriate.

I shall impose sueh sentences.

I. The defendants now to be sentenced have been convicted on two counts.

On the first count they have been found guilty under title 18, U. S. C., § 91 (18 USCA § 91), of bribery of an officer of the United States, for which the penalty is not more than three times the amount of the bribe, in this case $1,000, and imprisonment for not more than three years.

They have also been found guilty under the second count, under the Conspiracy Statute, title 18, U. S. C. § 88 (18 USCA § 88), of conspiracy to commit an offense against the United States denounced under the Bribery Statute, title 18, U. S. C. § 91 (18 USCA §91). The penalty for sueh conspiracy is a fine not more than $10,000 or imprisonment for not more than two years, or both.

The situation in this ease is unusual, and I think that perhaps it is unique, in that here a sworn narcotic officer of the United States was held guilty of having conspired with a former narcotic officer to bribe another narcotic officer of the United States not to recognize a certain fugitive from justice.

II. The question before me at the present stage of the ease is the quantum of the punishment which the defendants should receive.

On such a question I must look at the real situation as to sentences and time to be. served.

Under the provisions of title 18, U. S. C. § 710 (18 USCA § 710), for deductions from sentences for good conduct, on a sentence of five years, there will be deductions of eight days for each month, and as there are sixty months in five years that makes a deduction of 480 days, or one year and 115 days.

So that on a five-year sentence, assuming that the defendants behave themselves in a manner satisfactory to. the prison authorities, they will automatically get the rebate from their sentences just above mentioned and will serve only three years and 250 days.

A similar rule of reduction for good behavior applies under the same statute on a three-year sentence.

Consequently .if I should give a three-year sentence the defendants would-be entitled to a deduction of 252 days and would serve only two years and 113 days.

What I have said does not take into consideration any possible earlier release by the parole.

III. The crime of which the defendants have been found guilty is so heinous in its nature and so subversive of all good government, and the situation shown is to my mind so serious, that after considering the matter carefully ever since the verdict, and after reading all the authorities which I have been able to find on the subject of sentences, I have decided to sentence the defendants here to a fine of $3,000 and three years imprisonment on the first count, and two years and $10,000 on the second count, and to provide that the prison terms are to be served consecutively and not concurrently.

IY. It is settled law that conspiracy to commit an offense is an entirely different crime from the offense itself. United States v. Rabinowich, 238 U. S. 78, pages 83 to 88, 35 S. Ct. 682, 59 L. Ed. 1211.

Cumulative sentences for offenses constituting separate crimes, although committed practically at the same time, and as part of the same criminal intent, were approved in Blitz v. United States, 153 U. S. 308, 317, 14 S. Ct. 924, 38 L. Ed. 725. See also Ebel-ing v. Morgan, 237 U. S. 625-, 35 S. Ct. 710, 59 L. Ed. 1151.

Cumulative sentences for conspiracy and for the substantive crime to which the conspiracy was pointed have been approved in Humphries v. Biddle, Warden of Leavenworth, 19 F.(2d) 193 (C. C. A. 8); Hostetter v. United States, 16 F.(2d) 921 (C. C. A. 8).

When it is considered that the sale of unstamped drugs is punishable under the Harrison Anti-Narcotic Act, title 26, U. S. C. § 705, by a fine of $2,000 or five years’ imprisonment, or both, and that the illegal importation of drugs, under the Act of February 9, 1909, 21 U. S. C. §§ 173 and 174 (21 USCA §§ 173, 174), is punishable by a fine of $5,000 and ten years’ imprisonment, it is quite clear that a crime sueh as has been committed by these defendants is not too heavily punished by a cumulative sentence resulting in five years’ imprisonment and accompanying fines in the full amount allowed under the statutes involved.

For the crime which the defendants have committed is among the most serious of crimes from the standpoint of the government, and in the ease of the defendant Nash it is aggravated by the fact that he was an officer of the United States and, consequently, occupied a fiduciary relationship towards his government whose officer, Laehanauer, he has been held guilty of bribing.

Y. (a) Consequently it is the sentence and judgment of this court that Richard Nash, under the first count of the indictment, be imprisoned in the Federal Penitentiary at Atlanta, Ga., for three years and pay a fine in the sum of $3,000 to the United States, and that under the second count, he be imprisoned in the Federal Penitentiary at At-: lanta, Ga., for a period of two years and pay a fine in the sum of $10,000 to the United States government; and that the prison sentence under the second count is to commence as soon as the prison sentence under the first count may end and be served consecutively and not concurrently.

(b) It is the sentence and judgment of this court that Philip A. DeStefano, under the first count of the indictment, be imprisoned in the Federal Penitentiary at Atlanta, Ga., for three years and pay a fine in the sum of $3,000 to the United States, and that under the second count he be imprisoned in the Federal Penitentiary at Atlanta, Ga., for a period of two years and pay a fine in the sum of $10,000 to the United States; and that the prison sentence under the second count is to commence as soon as the prison sentence under the first count may end and be served consecutively and not concurrently.

YI. I shall not admit the defendants to bail.

So far as this court is concerned, they must be remanded to the custody of the United States marshal at once in order that the execution of the sentences may begin.

I have read over my somewhat voluminous notes taken on the trial and my charge to the jury herein.

I do not think there is any reversible error.

I feel, therefore, that the defendants had a fair trial.

The jury deliberated a long time, and in finding them guilty ■ and in acquitting the defendant Keane, the jury came to the conclusion to which I myself should have come on the evidence adduced herein.

There is not, therefore, in this case any element involving the conviction of these defendants in any reasonable doubt, and, consequently, there is not any reason whatever, in my opinion, for suspending the execution of the sentences which I have just imposed.


author: RITTER, District Judge.

text:
    In re HOLLYWOOD BOND & MORTGAGE CO.
    No. 968.
    District Court, S. D. Florida.
    April 15, 1931.

      John W. Whelan, of Hollywood, Fla., for bankrupt.
    Ella J. Stollberg and C. H. Landefeld, Jr., both of Hollywood, Fla., for intervening creditors.
   RITTER, District Judge.

On November 28, 1930, a petition in voluntary bankruptcy was filed by the Hollywood Bond & Mortgage Company; said petition showing that the company had liabilities of $47,554.76 and- assets of $37,594.84, and that the directors had passed a resolution, a copy of which is attached to the petition, stating that the company is insolvent and unable to pay its debts, a<nd directing that a petition in bankruptcy be filed on its behalf by C. R. Gilliland, its vice president. On the next day, adjudication in bankruptcy was made and the same was referred to the referee, and thereafter, upon due procedure, a trustee in- bankruptcy was appointed. The petitioners here present the fact that on the 3d day of April, 1930, a bill of complaint was filed in the circuit court of the Twenty-Second judicial circuit in and for Broward county, state of Florida, by Charles Erickson, one of the petitioners and movants, against Hollywood Bond & Mortgage Company -and others, as a stockholder for and in behalf of all stockholders, setting up misconduct and fraud on the part of the officers and directors of the company in conducting its affairs, asking for an accounting, for the appointment of a receiver, an injunction restraining the officers and directors from acting for the administration of the assets of the said company, and sale and distribution of the proceeds of the stockholders and creditors, and that said corporation may be dissolved by order of the court. A temporary receiver was appointed by said state court, but an appeal was taken from such appointment to the Supreme Court of the state of Florida, and a supersedeas bond was' posted and a supersedeas was made effective pending said appeal. The said receiver never took possession of -any of the property of the said company. Thereafter the Supreme Court of the state of Florida, 130 So. 281, affirmed the action of the lower court in the making of a temporary appointment of said receiver. The bankruptcy petition in this cause being filed, the state receiver never had in his possession prior to the filing of the ■bankruptcy petition any property whatsoever of the bankrupt company. It is asserted that under these circumstances the plaintiff should not have been adjudged a bankrupt in .this court, and the petition should have been dismissed because the state court receiver had possession of the property or was entitled to the possession of the property and to carry through the administration of the company’s effects, and this court should not interfere therewith.

I do not find that in the state of Florida there is any law permitting a state court to dissolve a corporation, as applied for in the bill of complaint aforesaid. The general rule is that, unless by statutory authority a court has no power to dissolve a corporation. The statute in the state of Florida, section 6023, Compiled General Laws of Florida 1927, permits three or more creditors or stockholders of a corporation the right to petition for a receiver, but said statute was not invoked in the state court, evidently because the action was brought by one stockholder for the appointment of a receiver.

The effect of a supersedeas in the state court proceedings is set forth in Continental National Building & Loan Association et al. v. Scott, 41 Fla. 421, 27 So. 726, a Florida case. The law is there established that in the state of Florida, where an appeal is ordered to act as a supersedeas, “such supersedeas does not have the effect of discharging the receiver, but simply suspends his authority as such pending the supersedeas. Such supersedeas suspends the decree appointing him as receiver, and makes it his duty at once to cease all action as receiver, and to restore the properties that have come to his hands as such to the possession of the party from whose custody they were taken by the decree superseded.” Such being the law of Florida, the receiver of the state court could not have in his possession any of the property of the bankrupt pending the appeal. The title and possession of the bankrupt was not disturbed. The bankruptcy court comes into possession of all the bankrupt’s property upon the filing of the petition. Under these circumstances, the petitioners relied upon the case of In re Associated Oil Co., Inc., 271 F. 788, 789, wherein Judge Foster, District Court, held that the bankruptcy court would not act, but would leave the matter in the state court and give possession of the property to the state receiver.

I do not dispute the correctness of the ruling of Judge Foster in this ease, but I think the facts in the instant case are very different from the facts upon which Judge Foster acted. In re Beaver Cotton Mills (D. C.) 275 F. 498; Struthers Furnace Co. v. Grant (C. C. A.) 30 F.(2d) 576; In re United Grocery Co. (D. C.) 239 F. 1016. In this Associated Oil Company Case, the bankruptcy schedules showed the assets to be far in excess of the liabilities, and showed that the resolution of the company authorizing the voluntary petition was illegal. In that case also the state proceedings were under certain sections of the Louisiana law which establish a different situation in reference to supersedeas on appeal from the appointment of a receiver than exists in Florida.

In Reynaud v. Uncle Sam Planting & Mfg. Co., 152 La. 50, 92 So. 731, 732, the court says, in reference to an appeal from an order appointing a receiver: “Section 4 of Act No. 159 of 1898 provides that a suspen-sive appeal may be taken from a judgment appointing a receiver. The effect of such an appeal, as provided by section 4, is to suspend the functions of that official, except such functions as may be necessary to preserve the property of the corporation.”

The Florida law goes further and deprives the receiver of all property whatsoever in his possession, and suspends the decree appointing him, while the Louisiana law, it would seem, simply suspends the functions of the receiver, leaving his possessory rights standing until the determination of the appeal, nor are the other facts present in this ease which moved the chancellor in the Associated Oil Company Case, to decide that the better justice would be in the recognition of the state receiver and the abandonment of the bankruptcy proceedings. I think this view is borne out further by the decision of Judge Burns in Re Hammond Motors Co., Inc. (D. C.) 13 F.(2d) 901, 902. Judge Burns follows Judge Foster in a case arising under the laws of the state of Louisiana. Judge Burns states: “There is, therefore, presented a ease in which a great degree of forbearance should be exercised by a court of bankruptcy toward a state court, vested with the possession and control of ‘property, where its jurisdiction first attached.”

Judge Bums specifically discusses the Louisiana law upon which his decision is based, and holds that the receivership subsists pending a suspensive appeal, and that such existence continues independently of the ultimate affirmance or reversal of the judgment appointing the receiver, who continues to function, though his general administration is suspended, and that the property is effectually in the control of the court first seized of jurisdiction, as fully as if no appeal was taken. Therefore the court says, by failure of the creditors' to act by involuntary proceedings within four months after such appointment, the jurisdiction of the state court became fixed and is not subject to interference.

The facts and law applicable to the facts in the above decisions in this circuit are quite different, therefore, from those presented to me in the instant case. Here the state receiver never had and could not have possession and control of the property of the bankrupt pending the appeal, and the same was therefore not within the jurisdiction of the state court. The state court had no power to dissolve the corporation, as the proceedings sought, and could only have an accounting as prayed for. The bankruptcy court alone can completely administer the estate and protect all parties in interest. The Bankruptcy Act (11 USCA) is paramount, and its jurisdiction is exclusive of all other courts. Somewhat similar facts and. the decisions of the United States Supreme Court are considered and referred to in the case of In re American & British Mfg. Corp. (D. C.) 300 F. 839, 849. In re Dressler Producing Corporation (C. C. A.) 262 F. 257.

I hold that this court has jurisdiction, and I do not feel that equity would require the relinquishment of bankruptcy proceedings in favor of the state court under the circumstances of this case. I see no reason why there should be any serious conflict. The voluntary petition is regular. It shows insolvency and the consent of the company to be adjudged a bankrupt. A trustee has been elected after adjudication. This court can control the procedure of the trustee and see that the rights of all parties in interest are secured and conserved. This will be done by continuing the state court aetion to final determination.


text:
    FORD MOTOR CO. v. DEXTER et al.
    District Court, S. D. New York.
    June 24, 1931.
    Greene & Hurd, of New York City (George F. Hurd, Edward E. Weadock, and James L. Dohr, all of New York City, of counsel), for plaintiff.
    Root, Clark & Buckner, of New York City (Emory R. Buckner and I. Bernard Hal-pern, both of New York City, of counsel), for defendants.
   WOOLSEY, District Judge.

I shall direct a verdict for the plaintiff in this case on the second and third causes of aetion contained in the .complaint and for the defendants on the fourth and fifth causes of aetion.

I understand that in the first cause of aetion a settlement has been agreed on at a certain figure.

I. On November 1, 1922, the defendants were the owners of all the capital stock qf a coal company known as the Dexear Pocahontas Coal Company, and on that day a representative of the plaintiff, in pursuance of negotiations which had lasted for some three weeks prior thereto, made and signed an agreement for the purchase of the stock of the Dexear Pocahontas Coal Company, hereinafter called Dexear, in the following form:

“Agreement between Ford Motor Company, party of the first part, and George M. Dexter and William H. Carpenter, parties of the second part.
“The party of the first part agrees to exchange the shares of stock enumerated on the annexed list for thirty-five hundred (3500) shares of the capital stock of the Dexear Pocahontas Coal Company, formerly known as the J. B. B. Coal Company, on or before the 15th day of November, 1922, and the parties of the second part agree that they will forthwith deposit with the Battery Park National Bank certificates properly endorsed in blank for said thirty-five hundred (3500) shares of the Dexear Pocahontas Coal Company, and the party of the first part agrees that it will on or before said 15th day of November, 1922, deposit with the said Battery Park National Bank certificates endorsed in blank, under the rules of the New York Stock Exchange, for the shares of stock set forth in Schedule ‘A’ herewith annexed, and the parties hereto mutually authorize the said Battery Park National Bank to deliver the shares of stock of the Dexear Pocahontas Coal Company to the party of the first part, and the stock enumerated on the annexed list (Exhibit ‘A’) to the parties of the second part.
“The parties of the second part agree to indemnify and hold harmless the party of the first part from any loss or injury which it may sustain by reason of the existence of any claim presented against'the Dexear Pocahontas Coal Company within six months from November 1st, 1922, for any liabilities arising because of mine accidents, torts or contracts which do not appear on the books of said Company on October 31st, 1922, and which are not for current merchandise, supplies and labor; and except contract and sales set forth on Exhibit ‘B’ hereto attached.
“Dated — Nov. 1st, 1922
“Ford Motor Co. W. B. Mayo
“George M. Dexter
“W. H. Carpenter”

On the next day the same parties made and signed a supplementary agreement which was in the form of a letter and which reads as follows:

“New York City, November 2nd, 1922 “Ford Motor Company, Detroit, Mich.
“Gentlemen: Attention: Mr. W. B. Mayo. It is understood between us that the price is $1,250,000.00 for our physical assets and leaseholds at Twin Branch, West Virginia, that we are to assume the payment of the outstanding bonds amounting to $40,-000.00, which amount we will deduct from your price of $1,250,000.00 and you assume the payment thereof, leaving a net balance of $1,210,000.00.
“The inventory supplies and store merchandise has been fixed at $90,000.00, which, added to the $1,210,000.00, makes a total of $1,300,000.00 for all the physical assets and leaseholds and the store and mine supplies; the Ford Motor Company to pay the bonds.
“In addition to the above, the net current assets, as of October 31st, 1922, were fixed at $100,000.00, which added to the amount of $1,300,000.00, makes a sum of $1,400,000.00, and it is understood and agreed that if the net current assets do not equal $100,000.00, as shown on attached statement, we are to refund to you any such difference, and in the event of the net current assets totaling more than $100,000.00 the Ford Motor Company will pay to us such difference.
“Attached hereto is a balance sheet as of October 1st, 1922, which we believe to be substantially correct.
“Yours very truly,
“Geo. M. Dexter
“W. H. Carpenter
“Ford Motor Co. W. B. Mayo”

To this letter there was annexed a balance sheet of Dexear as of September 30, 1922.

The purpose of these agreements was to arrange an exchange of securities which would prevent the incidence of any capital profits tax on the defendants, but to leave open for future adjustment the question whether any cash had to be paid by either party to the other in order to arrive at the exact amount intended by the parties as the purchase price under their transaction.

II. Subsequent thereto, the Treasury assessed against Dexear for the year 1920 additional excess profits and income taxes which, with interest, totaled $37,088.81, and for the year 1921 additional excess profits and income taxes which, with interest, totaled $129,583.05.

These additional assessments involved a challenge by the Treasury of the income tax returns filed by Dexear on March 15, 1921, and March 15, 1922, respectively, when it was owned by the defendants.

When these returns were thus challenged, the exchange, of securities referred to in the contracts had taken place, and the Ford Motor Company was the owner of the Dexear stock.

III. The controversy involved in this interesting and unusual ease centers about the meaning of the supplementary contract of November 2, 1922, embodied in the letter from the defendants to the Ford Motor Company above set forth.

That contract provides that “it is understood and agreed that if the net current assets do not equal $100,000.00, as shown on attached statement, we are to refund to you any such difference, and in the event of the net current assets totalling more than $100,-000.00, the Ford Motor Company will pay to us such difference.”

Net current assets obviously are found by deducting current liabilities from current assets.

I think that, whether the defendants were aware that there might be some ^additional tax liability, although they did not know the amount thereof, or whether they were not aware that there was any additional tax liability, the tax liability subsequently imposed by the government was a current liability at the time of the contracts of November 1 and 2,1922.

This is evidenced practically by the fact that the government assessed interest from the respective tax dates in addition to the amount of the tax.

The only possible theory on which interest could have been assessed, of course, was that the money was due Cm the respective tax dates and had been withheld by Dexear until the assessment. For the theory of interest is that it is damages for failure to pay money when due.

If authority in regard to this principle be needed in connection with an income tax situation, the case of Union Pacific R. R. Co. v. Bowers (D. C.) 21 F.(2d) 856, 857, affirmed (C. C. A.) 24 F.(2d) 788, affords it.

The situation was well summarized by Judge Goddard,in 21 F.(2d) 856, at page 857, where he said: “I do not think that the contention urged by plaintiff is in accordance with the intention of those who drew or passed the statute, or with a fair construction of it, and, of course, the result urged by plaintiff would place in a favored group those who delayed filing accurate returns, and permit them to file a correct return and pay their tax any time prior to the time the bureau could reach the return for audit, and, if the plaintiff’s counsel are correct in their contention, whether the filing of the proper return or payment of tax was intentionally delayed would make no difference. Clearly, it seems to me that the 'deficiency’ came into existence on March 15, 1922, for it was then that the short payment or deficiency arose. No change in respect to the legal status of the obligation to pay the full tax occurred between that date and the date upon which it was paid. The obligation to pay is not, under the statute, made contingent upon the examination of the return by the Commissioner.”

The same principle seems to have been recognized by the Circuit Court of Appeals for the Fifth Circuit in United States v. Russell, 22 F.(2d) 249, 251, reversed on other grounds 278 U. S. 181, 49 S. Ct. 121, 73 L. Ed. 255; and also United States v. Lam (D. C.) 26 F.(2d) 830, 831; Riverside & Dan River Cotton Mills, Inc., v. United States (Ct. Cl.) 37 F.(2d) 965, 969. See, also, in connection with the date of accrual of a tax, United States v. Anderson, 269 U. S. 422, 440, 441, 46 S. Ct. 131, 70 L. Ed. 347.

The excess profits and income taxes for 1920 and 1921, though subsequently assessed against D excar, were therefore due and payable at the time the contracts of November 1 and 2, 1922, were entered into between the parties.

An agreement such as that contained in the letter of November 2, 1922, with regard to the adjustment of net current assets necessarily looks to the future and its operation has to be determined by subsequent events. It necessarily would cover unknown current liabilities as well as those which might be suspected or might be known.

IY. The parties hereto have throughout evidenced perfect fairness in connection with those subsequently assessed taxes; they joined in an effort to reduce them and succeeded in part in doing so; when paid by the plaintiff, they were paid without prejudice to the plaintiff’s rights, if any, under the contract above set forth.

The only question, therefore, here open, is the question of whether these tax liabilities fall under the provisions dealing with net current assets in the contract of November 2d.

I think that they necessarily do and that they decreased the net current assets of Dex-car well beyond the vanishing point.

If the parties cannot agree on the amount for which judgment is to be entered hereunder, they will have an opportunity, when the ease is called again for trial, of making proofs in regard thereto.

Y. On the fourth and fifth causes of action, which sound in fraud, I think that the plaintiff must fail.

In such a cause of action the plaintiff must prove a representation, the falsity thereof, a scienter, the fact that he was deceived, and his resulting injury. Southern Development Co. v. Silva, 125 U. S. 247, 250, 8 S. Ct. 881, 31 L. Ed. 678; Ochs v. Woods 221 N. Y. 335, 338, 117 N. E. 305; Reno v. Bull, 226 N. Y. 546, 550, 124 N. E. 144.

A verdict must go for the defendants on these two causes of action because the plaintiff has failed to show scienter on the defendants’ part by a preponderance of the evidence.

YI. The trial in this case was suspended on February 2,1931, and it was then agreed that the ease might proceed at sueh a later date as might be fixed by the court, with a jury of one, who was then sworn.

The ease will be continued on Tuesday, June 30,1931, at 10 o’clock a. m. and a verdict will be directed for the plaintiff in accordance with the above at that time on the seeond and third causes of action for such amount as may be agreed by the parties, or then shown by the proofs to be due; and for the defendants on the fourth and fifth alleged causes of action.


text:
    WILSON et al. v. BOWERS.
    District Court S. D. New York.
    June 26, 1931.
    Taylor, Blanc, Capron & Marsh, of New York City (Russell L. Bradford, and Edwin E. Peterson, both of New York City, of counsel), for plaintiffs.
    George Z. Medalie, U. S. Atty., of New York City (George B. Schoonmaker, of New York City, of counsel), for defendant.
   WOOLSEY, District Judge.

There must be a judgment for the plaintiff herein for $3,039, with interest from July 14,, 1922, as demanded, and an order for judgment accordingly may be entered.

The defendant’s motion for judgment of dismissal is, therefore, denied.

I. The complaint in this ease was filed on July 13, 1926, and alleged that on the 21st day of May, 1909, a contract was entered into between the decedent Arthur R. Wilson, Franklin H. Wilson, and Edgar H. Betts which provided, inter alia, as follows:

“First: Before Arthur R. Wilson sell or assign or transfer his stock to any other paz*ty, he shall make a written offer of his said stock to Franklin H. Wilson at $6.66-2/3 'per share payable within four months from the date of the receipt of said offer’, and if within said four months said Fránklin H. Wilson does not accept and pay for said stock then at the expiration of said four months the said Arthur R. Wilson shall make a written offer of his said stock to Edgar H. Betts at $6.66-2/3 per share payable within a second period of four months from the date of the receipt of said seeond offer’, and the said Arthur R. Wilson shall not sell, assign or transfer said stock to any other party unless within said seeond period of four months said Edgar H. Betts fails to accept and pay for said stock.
“Seeond: Upon the death of said Arthur R. Wilson said Franklin H. Wilson shall have the right for four months after the qualification of the Executors or Administrators of said deceased to purchase from the estate of Arthur R. Wilson all of said shares of stock formerly property of Arthur R. Wilson at said price of $6.66-2/3 per share, and in the event of said right not being exercised within said period of four months by said Franklin H. Wilson then said Edgar H. Betts, for a period of four months next ensuing after the expiration of said first four months, during which said Franklin H. Wilson had the right to purchase said stock, shall have the right to purchase all of said stoek formerly property of said Arthur R. Wilson at said price of $6.66-2/3 per share.”

The answer to this complaint was filed by the government on December 7,1926, but withdrawn, and a motion to dismiss the complaint was substituted by agreement therefor.

There was also a stipulation .between the parties to the effect that, for the purpose of the determination of the tax on the estate of Arthur H. Wilson under title 4, of the Revenue Act of 1918, the value of the 3,000 shares of the capital stock of the Earl So Wilson Company owned by Arthur R. Wilson was $23.55 a share at the time of his death, unless the agreement above referred to, attached to the complaint, determined the value for the purpose of their tax at $6.66% per share, in which event the tax already paid on the basis of that valuation was the true and proper tax due and payable by the estate of Arthur R. Wilson.

II. In the year 1909,' Arthur R. Wilson, deceased, Eranklin H. Wilson, and.Edgar H. Betts, as executors, plaintiffs herein, were partners in the firm of Earl So Wilson.

Desiring to combine' the dilectas per-sonarum of their then partnership with the advantages of a corporate organization, they formed a corporation, the Earl So Wilson Company,'parceled out the stock among them, and entered into a contract among themselves with regard to the stock of the corporation. The portions of the contract relevant on these motions are given above.

The former partners operated under corporate organization without change in their organization, or their contract, until 1921, when Arthur R. Wilson died leaving a will in which he bequeathed his share of the stock of the corporation to Eranklin H. Wilson.

Under the provisions of title 4, §§ 401 and 402, of the Revenue Act of 1918 (40 Stat. 1096, 1097), the United States assessed a federal estate tax against the estate of Arthur R. Wilson, claiming that the value of the stock owned by Arthur R. Wilson and left by him to Eranklin H. Wilson was $23.55 a share.

At the time of his death, Arthur R. Wilson owned 3,000 shares of the common stock of the Earl & Wilson Company, and the exeeutors claimed that the value of these shares, owing to the agreement aforesaid, was $20,000.

The Commissioner of Internal Revenue, however, fixed the value of these 3,000 shares at $70,650, and assessed an additional estate tax of $3,039 against the estate.

This is the subject-matter of the present action, and was paid under appropriate reservation in the event of its recovery if the assessment by the government was wrong.

III. In effect, what happened was that Arthur R. Wilson left to Eranklin H. Wilson his share of their common business.

If he had not left the 3,000 shares of stock which he owned to Eranklin H. Wilson, the latter would have had the right, within four months after the qualification of the exeeutors of Arthur R. Wilson, to have purchased the stock from the estate for the sum of $20,000; that is, at $6.66% per share.

This right could have been enforced in equity. See Scruggs v. Cotterill, 67 App. Div. 583, 73 N. Y. S. 882; Matter of Fieux, 241 N. Y. 277, 281, 283, 149 N. E. 857.

IV. The relevant statutes are as follows:

“Sec. 401. That (in lieu of the tax imposed by Title II of the Revenue Act of 1916, as amended, and in lieu of the tax imposed by "Title IX of the Revenue Act of 1917) a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 403) is hereby imposed upon the transfer of the net estate of every decedent dying after the passage of this Act, whether a resident or nonresident of the United States: * * *
“Sec. 402. That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated—
“(a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate. * * * ” 40 Stat. 1096, 1097.

The first point made by the plaintiffs is that the 3,000 shares of stock subject to the Eranklin H. Wilson option, and also to the residual option of Edgar H. Betts under the terms of the contract, was not an asset of Arthur R. Wilson’s estate beyond the amount provided for by the option because

(1) it was not subject to the payment of charges against his estate.

(2) It was not subject to' the expenses of its administration.

(3) It was not subject to distribution as part of his estate.

The ease of Crooks v. Harrelson, 282 U. S. 55, 51 S. Ct. 49, 75 L. Ed. 156, is cited as supporting the position that, in view of the situation here, the additional estate tax could not properly be assessed against these 3,000 shares of stoek in the Earl & Wilson Company under discussion.

In the Harrelson Case, a provision of the Missouri law exempted real property situated in that state from the expense of administration, and the Court, consequently, held .that the value of the real property was not subject to the federal estate tax.

I think the contract enforceable in equity by Franklin H. Wilson and, failing enforcement by him, by Edgar H. Betts, brings this estate within the scope of the decision in Crooks v. Harrelson, unless the government were able to establish that Franklin H. Wilson and Edgar H. Betts had both refused to exercise their options.

It was not, however, necessary for Franklin H. Wilson to exercise any option, because he received the shares while still subject -to his option from the estate, and, as he accepted the legacy, the opportunity for Edgar H. Betts to exercise any option lapsed.

But even if this point of view is wrong, I think that the reasoning of the Court of Appeals of New York in the Matter of Fieux, 241 N. Y. 277, 149 N. E. 857, effectually disposes of the case in favor of the plaintiffs.

Y. When the situation is analyzed further, it- seems to me quite clear that what really happened in this case was that the executors of Arthur R. Wilson’s estate took his 3,000 shares of stoek in the Earl & Wilson Company cum onere, that is, with the burden of the successive options of Franklin H. Wilson and Edgar H. Betts, and that, consequently, at the time of his death the value of those shares of his estate was not any greater than the value fixed by these options, which were irrevocable so far as the estate was concerned.

It is quite true that subsequent events, that is, the failure both of Franklin H. Wilson and Edgar H. Betts to exercise their options, might have resulted in an increased value to the estate of the 3,000 shares; but that could not have been determined until the period during which the options were exercisable had lapsed; that is, for a period of eight months after the qualification of his executors.

The value of an estate for the purpose of inheritance taxation is determinable as of the date of decedent’s death, and I think, therefore, that as of the date of decedent’s death, there is not any question but that the value of the stock was limited to the amount payable by Franklin H. Wilson or by Edgar H. Betts, as decedent’s associates in the event of their exercising the binding option of the contract of 1909.

YI. The fact that Franklin H. Wilson was the legatee of these 3,000 shares, as well as the person who had the first option, is merely a coincidence which does not affect the legal rights of the government in the situation, for an agreement of such a kind as this is not subject to attack on the ground that it is made in contemplation of death. As Judge Crane said of a similar agreement in the Matter of Fieux, 241 N. Y. 277, at page 280, 149 N. E. 857: “Each of the parties made a like covenant and agreement. The five were therefore mutually bound by an irrevocable contract entered into upon good and valuable consideration to do two things— not to dispose of any of his stoek, but to hold it intact for the benefit of the other four parties, and, second, to sell his stock at par to his associates at their election on his severance of his connection with the corporation by voluntary act or by his death.”

In that case, to be sure, the option was exercised. The principle laid down, however, there, as here, is that a binding option on stoek of such a kind as is here involved, being enforceable in equity, is a burden on the stoek which reduces its value at the death of its owner to the amount which has to be paid under the option:

Settle order for judgment in favor of the plaintiffs on two days’ notice.