text:
    George FELDMAN, Trustee in Bankruptcy of Leasing Consultants Incorporated, Bankrupt, Plaintiff-Appellant, v. NATIONAL BANK OF NORTH AMERICA, Defendant-Appellee.
    No. 453, Docket 74-2086.
    United States Court of Appeals, Second Circuit.
    Argued Jan. 9, 1975.
    Decided Jan. 28, 1975.

      George A. Hahn, Daniel A. Zimmerman, New York City (Hahn, Hessen, Margolis & Ryan, New York City, on the brief), for plaintiff-appellant.
    Anthony J. D’Auria, New York City (Cole & Deitz, New York City, on the brief, Homer Kripke, New York City, of counsel), for defendant-appellee.
    Before KAUFMAN, Chief Judge, and FEINBERG and MANSFIELD, Circuit Judges.
   IRVING R. KAUFMAN, Chief Judge:

The facts in this case bear strong resemblance to those in Feldman v. First National City Bank, 511 F.2d 460 (2d Cir. 1975) and Feldman v. Chase Manhattan Bank, N.A., 511 F.2d 468 (2d Cir. 1975), decided today. In 1969 LCI had purchased a North America Sabre Liner from Jack Adams Aircraft Sales, Inc. for $800,000, and then leased the plane to Grant Company for a term of eight years, at a rental of $11,593.75 per month. On March 13, 1970, National Bank of North America [National]' loaned LCI $500,000, receiving in return a promissory note calling for repayments, at the monthly rate of $11,122.50. The note was secured by a chattel mortgage on the Sabre Liner leased to Grant, which provided that in case of default National could

take possession of . the Mortgaged Property . . . and collect and receive all rents, issues, profits, revenues and other income

In addition to the chattel mortgage, National received an assignment of the LCI-Grant lease. National recorded its chattel mortgage with the Federal Aviation Administration, as it was required to do by 49 U.S.C. § 1403. It also took possession of the lease and filed UCC-1 financing statements — designed to cover its interest in the rentals — with the Register of the City of New York, and with the New York Secretary of State.

Thereafter, Grant made its monthly payments to a checking account maintained by LCI at National. On the twentieth of each month National would debit the account in satisfaction of the payments due under the note given it by LCI. The bank continued to do so, with the consent of the trustee, even after LCI was adjudicated bankrupt on October 16, 1970, an event constituting default under the mortgage. In 1973, however, after National had received $440,-562.50 in post-petition payments over more than two years, Feldman belatedly interposed an objection to any further collections. In the latter part of 1973, Grant purchased the Sabre Liner for $433,705.58. The sale was made pursuant to a stipulation entered November 12, 1973 between the bank and LCI, and the proceeds were deposited in the general funds of the estate, with the exception of $160,473.44, the balance due National under its promissory note. According to the terms of the stipulation, that sum was put in escrow until a determination of the trustee’s claims could be made. By the same agreement National consented to toll the running of the statute of limitations against the trustee.

Feldman began this action on January 31, 1974, seeking recovery of the post-petition payments made to National, as well as the $160,473.44 held in escrow. Relying on his status as a judicial lien creditor under § 70c of the Bankruptcy Act, 11 U.S.C. § 110(c), he maintained that the lease assignment was unenforceable against a bankruptcy trustee, since it was not perfected in compliancé with the recording provisions of the Federal Aviation Act, 49 U.S.C. § 1403. Forced to deal with the properly perfected chattel mortgage as well, Feldman suggested that because the right to rentals had been conveyed by the unrecorded assignment, the chattel mortgage only covered LCI’s reversionary interest in the Sabre Liner. He also maintained that National was barred by laches from asserting its interest in the proceeds from the sale of the plane. Although it might at one time have been able to foreclose on LCI’s reversionary interest, Feldman argued, National had lost its right to do so by failing to act during the more than three years since LCI’s initial default.

The district court granted the bank’s motion for summary judgment. It found the trustee’s attack on the enforceability of the unrecorded lease assignment irrelevant, since National’s chattel mortgage clearly allowed it to collect post-bankruptcy rentals. Judge Weinstein accordingly held that National was entitled to the payments already made, as well as the $160,473.44 being held in escrow.

We affirm.

I

We have today held, in Feldman v. First National City Bank, 511 F.2d 460 (2d Cir. 1975), that the two year period of limitations provided by § lie of the Bankruptcy Act, 11 U.S.C. § 29(e), bars a trustee from asserting his status under § 70c of the Act beyond two years from the date of adjudication. In this case the stipulation to toll the statute of limitations was executed on November 12, 1973, more than three years after LCI was adjudicated bankrupt. The complaint filed January 31, 1974 was, therefore, untimely.

II

We need not, however, rest our affirmance in this case solely upon the statute of limitations. We hold also that Judge Weinstein was plainly correct in his conclusion that the chattel mortgage conferred a right on National to receive the rental payments, as well as the $160,473.44 held in escrow. The unambiguous language of that agreement empowered the bank to “collect and receive all rents” in the event of LCI’s default. Indeed, in a petition to sell the aircraft filed in the District Court for the - Eastern District of New York during June of 1971, the trustee clearly admitted that “[t]he $844,687.50 [representing rental payments still due under the Grant lease] is subject to a recorded mortgage in the hands of National Bank of North America.” It is also undisputed that LCI’s adjudication in bankruptcy was an event constituting default under the terms of the mortgage. Finally, Feldman admits that the mortgage — whatever security it might have covered — was properly perfected by filing with the Registry of the Federal Aviation Administration. Under these circumstances the trustee’s argument that the chattel mortgage conferred no interest in the Grant rentals is totally without merit.

It is true, of course, that National collected the post-petition rentals without having instituted foreclosure proceedings. But the bank can hardly be faulted for not having pressed its foreclosure rights, when the trustee permitted it, without any objection whatsoever, for a period of approximately three years, to debit LCI’s checking account monthly in satisfaction of payments due under the secured note. In re Berdick, 56 F.2d 288 (S.D.N.Y.1931). See In re Brose, 254 F. 664 (2d Cir. 1918). For the same reason, Feldman’s claim that National is barred by laches from collecting the $160,473.44 held in escrow is devoid of merit.

Affirmed.

      . On March 7, 1969, Grant had already paid a $25,000 deposit to Jack Adams toward the purchase of the Sabre Liner. Apparently unable to pay the remainder of the purchase price, Grant then turned for financing to LCI, which bought the plane on April 11, 1969.
      The trustee has contended, both in the district court and on appeal, that Grant was given an oral option to purchase the plane for an additional payment of $79,500 upon the termination of the lease. He would conclude from this fact that the LCI-Grant agreement was really a conditional sales contract, see 49 U.S.C. § 1301(16)(b), and that the chattel mortgage relied upon by National could therefore not have conveyed a security interest in the Sabre Liner itself. The short answer to this contention is that the oral option was not — indeed could not have been. — recorded, and so is ineffective against National, absent a showing that it had actual notice. 49 U.S.C. § 1403(c).

      . National also attempted to record the lease assignment with the FAA, but failed because it neglected to submit the original lease agreement or a duplicate with ink signatures, as required by the Registry.

      . Because of the conclusion he reached on this question, the district judge found it unnecessary to rule upon the bank’s claim that Feldman’s action was barred by the Bankruptcy Act’s two year statute of limitations. 11 U.S.C. § 29(e).


source: Caselaw Access Project

author: IRVING R. KAUFMAN, Chief Judge:

license: Public Domain

text:
    George FELDMAN, as Trustee in Bankruptcy of Leasing Consultants Incorporated, Bankrupt, Plaintiff-Appellee, v. CHASE MANHATTAN BANK, N.A., Defendant-Appellant.
    No. 76, Docket 74-1277.
    United States Court of Appeals, Second Circuit.
    Argued Jan. 9, 1975.
    Decided Jan. 28, 1975.
    George A. Hahn, Daniel A. Zimmerman, New York City (Hahn, Hessen, Margolis & Ryan, New York City, on the brief), for plaintiff-appellee.
    Andrew J. Connick, New York City (Milbank, Tweed, Hadley & McCloy, New York City, on the brief; Barry G. Radick, New York City, of counsel), for defendant-appellant.

      Before KAUFMAN, Chief Judge, and FEINBERG and MANSFIELD, Circuit Judges.
   IRVING R. KAUFMAN, Chief Judge:

This case presents still another chapter, and a few new characters, in the seemingly endless saga of the bankruptcy of Leasing Consultants Incorporated [LCI]. The familiar pattern of lease, loan, and security, seen in two other cases decided today, see Feldman v. First National City Bank, 511 F.2d 460 (2d Cir. 1975); Feldman v. National Bank of North America, 511 F.2d 465 (2d Cir. 1975), is present here too. In this case LCI purchased the plane, a Cessna 411, from Sunny South Corp. and leased it to Devcon International Corporation (formerly Zinke-Smith, Inc.) for five years at $2,430.40 per month. LCI enlisted the help of Chase Manhattan Bank, N.A. [Chase] in paying off a mortgage on the Cessna held by a Florida bank. In return for its $140,963.20 loan, Chase received an assignment of the Devcon lease on July 11, 1967, and a chattel mortgage covering the plane itself the following day.

One week later, on July 19, 1967, Chase recorded its chattel mortgage with the Federal Aviation Administration Registry. It also took possession of the lease and the lease assignment, though apparently neither document was recorded, either with the FAA or elsewhere. Devcon agreed to render its monthly rent payments directly to Chase, and continued to do so without protest by the trustee after LCI consented to adjudication in bankruptcy on October 14, 1970.

During the fall of 1971, however, Devcon became delinquent in its payments, and early the following year Chase seized the plane, intending to sell it at a public auction on March 21. Shortly before the sale was to take place, Devcon filed suit against Chase and LCI in the District Court for the Southern District of Florida, asking that the sale be enjoined, and the lease reformed to include a- nominal purchase option which it alleged LCI had given orally. A temporary restraining order issued, and in May of the same year Devcon added a cause of action against Chase for wrongful seizure of the Cessna. On January 23, 1973, the claim against Chase was dismissed pursuant to a settlement agreement whereby Chase was paid $18,000 in satisfaction of the rentals still due under the lease, and in return assigned its chattel mortgage to Devcon. The claim for reformation of the lease proceeded to trial in March of that year in the Florida court, but before a verdict was rendered, Feldman — LCI’s trustee in bankruptcy— sold his interest in the plane to Devcon for $20,000 pursuant to a settlement agreement.

Feldman then began this action on March 22, 1973, seeking recovery of the $35,460 in post-petition rentals paid by Devcon to Chase, plus the $18,000 given in satisfaction of future rentals on January 23, 1973. Here too, as in the Citibank and National cases, supra, the trustee contended that the bank’s right to the rentals under its unrecorded lease assignment, see 49 U.S.C. § 1403(c), was subordinate to the claim of the trustee acting under § 70c of the Bankruptcy Act, 11 U.S.C. § 110(c). Relying upon its chattel mortgage, Chase counterclaimed for the market value of the Cessna at the time Feldman sold it to Devcon.

The district court granted summary judgment to Feldman. It found that recording under the Federal Aviation Act was the exclusive method for perfecting an interest in an assignment of a lease. The court also held that Chase could not assert any rights under the chattel mortgage, since it had assigned all its interest in the plane to Devcon on January 23, 1973.

I

We believe that Feldman’s claim in this case, as in Feldman v. First National City Bank, 511 F.2d 460 (2d Cir. 1975), and Feldman v. National Bank of North America, 511 F.2d 465 (2d Cir. 1975), would have been barred by the two year statute of limitations set forth in § lie of the Bankruptcy Act, 11 U.S.C. § 29(e). But Chase failed in both the District Court and this court to raise any objection to the timeliness of the trustee’s action. Under these circumstances we are obliged to consider the defense as waived. Fed.R.Civ.P. 8(c), 12(b); Strauss v. Douglas Aircraft Co., 404 F.2d 1152, 1155 (2d Cir. 1968); 1A Collier, Bankruptcy ¶ 11.12 at 1204; ¶ 11.13 at 1213 (14th ed. 1974).

II

Because it assigned its rights under the properly perfected chattel mortgage to Devcon by the agreement of January 23, 1973, Chase is consequently left in the position of asserting its interest in the $53,460 in post-petition payments pursuant to the lease assignment. Whatever may be the merits of the trustee’s argument that this interest was unperfected, we find convincing reasons for holding that Feldman should be barred from challenging it by reason of equitable estoppel considerations.

At the time Chase released its rights under the chattel mortgage, LCI’s bankruptcy petition had been on file in the court for almost two and one-half years. During that entire period of time the trustee had not given the slightest indication that he found any infirmity with the lease assignment procedures. Indeed, Chase continued throughout that period to collect rentals from Devcon with Feldman’s acquiescence. Shortly before the stipulation of discontinuance was entered, in December 1972 or January 1973, Daniel Zimmerman, the trustee’s attorney, for the first time indicated to Chase that he might seek recovery of the post-petition rentals, but only if Feldman were unsuccessful in his defense of the Florida action. By that time, however, Chase and Devcon had long since reached agreement upon the terms of settlement. At a conference held on April 13, 1972 and attended by the trustee as well as representatives of the bank and lessee, it was agreed that — in return for a release — Devcon would remit to Chase the $18,000 subsequently paid, in satisfaction of the remaining rentals due and in reimbursement of Chase’s expenses incurred in taking possession of the plane. Doubtless relying on the earlier negotiations, and on the trustee’s failure for more than two years to attack the lease assignment, as well as the uncertainty of Feldman’s belated threat to sue, Chase relinquished its acknowledged rights under the mortgage. For the same reasons, the bank had taken no steps subsequent to August 18, 1970 to seek any of the remedies against LCI for which the mortgage made provision. Among the bank’s prerogatives under that document was its authorization to enforce “any . rights or remedies accorded by the Uniform Commercial Code.” Section 9-504(1) of the Code permits a secured party “after default [to] . . . lease the collateral,” and to apply the proceeds toward “satisfaction of the indebtedness secured by the security interest undér which the disposition is made.” N.Y.U.C.C. § 9-504(1) (McKinney’s Consol.Laws, c. 38, 1964).

Accordingly, we find that the bank reasonably relied upon the trustee’s action in failing to assert, and in ultimately surrendering, its interest under the chattel mortgage. This court is not without power to prevent the inequity which would follow from allowing Feldman belatedly to attack the lease assignment with which Chase is left. Feldman v. Trans-East Air, Inc., 497 F.2d 352 (2d Cir. 1974). Cf. Parsons v. Lipe, 158 Misc. 32, 286 N.Y.S. 60, 107-109 (Spec.T. Sup.Ct. Onondaga Co. 1933), aff’d per curiam 269 N.Y. 630, 200 N.Y. 31 (1936); Restatement of Restitution § 142 (1937).

Reversed.

      . Devcon alleged that Chase had seized the plane without providing notice in writing, as was required by the terms of the lease.


author: PER CURIAM.

text:
    In re Lionel MINTZER, Appellant.
    No. 74-1388.
    United States Court of Appeals, First Circuit.
    Argued Dec. 4, 1974.
    Decided Dec. 26, 1974.
    Henry D. Katz, Boston, Mass., with whom Joseph J. Balliro, Boston, Mass., was on brief, for appellant.
    George F. Kelly, Sp. Atty., Dept, of Justice, with whom James N. Gabriel, U. S. Atty., Gerald E. McDowell, and Jeffrey M. Johnson, Sp. Attys., Dept, of Justice, were on brief, for appellee.

      Before COFFIN, Chief Judge, McENTEE and CAMPBELL, Circuit Judges.
   PER CURIAM.

The appellant was called as a witness before a grand jury. Although granted immunity for his testimony, he was recalcitrant when he appeared and was as a consequence held in contempt pursuant to 28 U.S.C. § 1826(a).

The district court had, in an effort to expedite matters, permitted the witness to seek government affirmance or denial of wiretapping, under 18 U.S.C. § 3504, prior to his grand jury appearance. This was not required, because appellant was not yet an “aggrieved person” as defined by the statute. Gelbard v. United States, 408 U.S. 41, 54, 92 S.Ct. 2357, 33 L.Ed.2d 179 (1972); see In re Lochiatto, 497 F.2d 803, 806 (1st Cir. 1974). But the district judge reasoned that time would be saved by extending the privilege before the witness was brought before the grand jury. The government was, then, asked to affirm or deny the existence of wiretaps at the hearing where the witness was granted immunity (October 10, 1974).

In response to the court’s request of October 10 that the government affirm or deny the existence of taps, the United States Attorney submitted an affidavit on October 16 in which he swore that he knew of no electronic surveillance by which the plaintiff was aggrieved other than those conducted pursuant to E.B.D. 71-98 and E.B.D. 71-168. Appellant, however, refused to answer when called before the grand jury on October 23, and the government moved for an order of contempt on October 25. Appellant subsequently challenged the government’s disclosure as inadequate; the government then searched its files and discovered a subsequent wiretap, E.B.D. 71 — 203, revealing it at the contempt hearing on November 12. The materials, authorizations and affidavits of need along with a time-length affidavit, required by Lochiatto, 497 F.2d at 808, pertaining to all wiretaps so revealed were made available or were already in the hands of appellant’s counsel prior to the witness’ grand jury appearance. In addition, the government attorney affirmed under oath that all questions to be asked were derived exclusively from E.B.D. 71 — 98.

Defendant asserts that the requirement to “affirm or deny” incorporates a requirement to search central federal records and all state records. Further, that once the wiretaps have been revealed, the grand jury witness must be given an opportunity to develop a case that some of the taps (presumably those shown to be illegal under Lochiatto) are “arguably relevant” to the questions posed. These arguments are premised on the language of 18 U.S.C. § 3504(a)(1):

“upon a claim of a party aggrieved that evidence is inadmissible because it is the primary product of an unlawful act or because it was obtained by ex ploitation of an unlawful act, the opponent of the claim shall affirm or deny the occurrence of the alleged unlawful act?’. [Emphasis supplied.]

and 18 U.S.C. § 2518(10)(a):

“any aggrieved person . . . may move to suppress the contents of any intercepted wire or oral communication, or evidence derived therefrom if

We think that in a grand jury proceeding, the policies articulated in United States v. Calandra, 414 U.S. 338, 94 S.Ct. 613, 38 L.Ed.2d 561 (1974), foreclose the broad inquiry argued by appellant. Logical development of the Supreme Courts concern for expeditious grand jury proceedings precludes mini-trials on each witness’ rights; witnesses cannot be entitled to unlimited evidentiary exploration. In Lochiatto we indicated that the resolution of the legality of the wiretap was for the judge but that (unlike the trial situation) investigation of the legality for these purposes and in this type of proceeding would be confined to facial violations or error in the authorizations or legal invalidity that appears from a limited exploration. Lochiatto, 497 F.2d at 808. Appellant argues that we should interpret “primary product” or “evidence . . . obtained by exploitation”, § 3504(a)(1), or “contents of an intercepted wiretap”, § 2518(10)(a), to require a judicial determination of “arguable relevancy” of the content of taps, other than the ones the United States Attorney avers were used, to questions formulated. A similar inquiry, appellant argues, was mandated in Alderman v. United States, 394 U.S. 165, 89 S.Ct. 961, 22 L.Ed.2d 176 (1969).

But Alderman was a post-conviction case exploring the Fourth Amendment question of what must be excluded from trial evidence. The exclusionary rule has since been restricted to the trial context in Calandra, supra, and we think we must lean heavily on the latter ease in acknowledging that greater rights exist for criminal defendants than for grand jury witnesses. The witness’ rights here depend exclusively on the statute. We think it inconsistent with Lochiatto to permit the kind of exploration requested here.

While relevance is normally a judicial question, we think a grand jury witness is adequately protected where the government- affirms the existence of wiretaps and gives access to the materials as required in Lochiatto, if the government also swears by affidavit that it did not have or use any other wiretaps or any of the taps the court determines to be illegal in the formulation of the questions to the witness. See In re Grand Jury Investigation (Testa), 486 F.2d 1013, 1016-1017 (3d Cir. 1973). The sworn statement on penalty of perjury which, should the witness become a defendant, would be followed by broad discovery of government materials gives the witness as much protection as can be reconciled with expeditious handling of the grand jury. This is not the proper forum for declarations on the validity of wiretaps which are not directly related to the proceeding.

Appellant argues briefly on appeal that the affidavit supporting E.B.D. 71 — 98 was in part based on evidence obtained from a prior tap on another’s telephone. In the district court, however, although one paragraph of a 23 paragraph motion for discovery related to the same tap, the claim argued to the court was that since E.B.D. 71 — 98 was the result of a “cumulative investigation”, appellant was entitled to discovery of all taps relating to that investigation from 1968 to 1974. Such a blanket inquiry we deem foreclosed by Calandra, supra. As to whether or not a “mother tap” appears sufficiently relevant as to require its discovery in proceedings relating to a subsequent tap, we imply no opinion, agreeing with the government that the issue was not raised with sufficient specificity before the district court. The appellant received all the information he was entitled to at the time. His citation for contempt is affirmed.

Affirmed.

      . E.B.D. 71-98 was previously found to be a legal wiretap and E.B.D. 71-203 was previously admitted to have been authorized by Will Wilson, compare In re Marcus, 491 F.2d 901 (1st Cir. 1974) with United States v. Giordano, 416 U.S. 505, 520, 94 S.Ct. 1820, 40 L.Ed.2d 341 (1974), facts both the district court and appellant’s counsel were apprised of prior to the contempt hearing. The government offered the contents of the 71-98 tap for court examination in support of its affidavit that all questions and information were derived therefrom. Moreover, appellant’s attorney had been in possession of the documents supporting all three taps (E.B.D.s 71-98, 71-168, and 71-203) for a substantial time prior to the contempt hearing of November 12. Under all these circumstances, appellant’s contention that he was denied a reasonable time for preparation of his defense, Fed. R.Crim.Proc. 42(b), recognized as applicable to such proceedings by United States v. Alter, 482 F.2d 1016, 1020-1024 (9th Cir. 1973), is without merit.

      . While we think this, at least as to federal authorities, is a salutary practice, and may be mandated in other contexts, see Gelbard v. United States, 408 U.S. 41, 56, 92 S.Ct. 2357, 33 L.Ed.2d 179 (1972), we also think that at this proceeding all that can be required is that those conducting the grand jury proceeding affirm that they have no knowledge of and have not in any way employed other taps in formulating lines of inquiry or questions to be posed to the witness. See discussion infra.

      . The Act provides another forum for challenging taps and recovery of damages if the Act is violated, 18 U.S.C. § 2520.


text:
    In re Lionel MINTZER, Appellant.
    No. 75-1009.
    United States Court of Appeals, First Circuit.
    Submitted Jan. 23, 1975.
    Decided Jan. 29, 1975.
    Joseph J. Balliro and Henry D. Katz, Boston, Mass., on brief, for appellant.
    James N. Gabriel, U. S. Atty., Gerald E. McDowell and Jeffrey M. Johnson, Sp. Attys., U. S. Dept, of Justice, on brief, for appellee.
    Before COFFIN, Chief Judge, and McENTEE and CAMPBELL, Circuit Judges.
   PER CURIAM.

The appellant is a recalcitrant witness who, though granted “use immunity”, refused to testify when called before the grand jury on the ground that the questions to be propounded were the product of an unlawful wiretap. The district court examined the wiretap that the government asserted was the sole basis for the questions, E.B.D. 71-98, and found it to be lawful. We upheld the district court procedure and ruling that the appellant was in contempt under 28 U.S.C. § 1826(a). In re Mintzer, 511 F.2d 471 (1 Cir. 1974). In that appeal appellant raised for the first time the claim that the wiretap was authorized on the basis of another tap previously determined to be unlawful, E.B.D. 70-112. We found this claim inadequately preserved but did not foreclose the possibility of further redress in the district court on that issue.

Seeking to vacate the judgment of contempt, the appellant did pursue the matter in the district court. In examining the claim, the district court limited its investigation to those documents specified in In re Lochiatto, 497 F.2d 803 (1st Cir. 1974). Finding that the affidavit in support of E.B.D. 71-98, which alone informed the questions to be posed, revealed that E.B.D. 70-112 was only tangential and that probable cause existed independent of the evidence expressly related to E.B.D. 70-112, the district court refused to vacate its finding of contempt.

The appellant’s present argument is the now familiar one: that the district court did not have enough evidence before it to legitimate its conclusion and that a more thorough evidentiary hearing was required to determine that there was in fact independent, untainted evidence to support the authorization. To support this claim the appellant cites cases applicable in non-grand jury contexts, United States v. Cales, 493 F.2d 1215 (9th Cir.- 1974); United States v. Magaddino, 496 F.2d 455 (2d Cir. 1974). We reiterate the position that we enunciated in Lochiatto, supra. The grand jury context is unique, the policy of expedition is strong and the potential liability of the immunized witness clearly distinguishable from that of a defendant or from the rights of a plaintiff under 18 U.S.C. § 2520. The district court properly limited its inquiry and reached a conclusion that was supported by the evidence before it.

Affirmed.


text:
    HYDROMECHANIKI, S. A. and Eupalinos, Ltd., Appellants, v. MacDONALD CONSTRUCTION COMPANY, Appellee.
    No. 74-1722.
    United States Court of Appeals, Eighth Circuit.
    Submitted Feb. 14, 1975.
    Decided Feb. 27, 1975.
    C. Perry Bascom, St. Louis, Mo., for appellants.
    William C. Dale, Jr., Biggs, Curtis, Casserly & Barnes, Clayton, Mo., for appellee.
    Before BRIGHT, ROSS and STEPHENSON, Circuit Judges.
   PER CURIAM.

This is an appeal from the dismissal of an involuntary petition in bankruptcy. Hydromechaniki, S.A., and Eupalinos, Ltd., two Greek businesses, filed the petition against MacDonald Construction Company, a Missouri corporation, on September 26, 1972. No other creditors joined in the petition. The Greek companies alleged that they were creditors of MacDonald and that MacDonald had less than twelve creditors. Under 11 U.S.C. § 95(b), three creditors must join in an involuntary petition unless the alleged bankrupt’s creditors total less than twelve. If there are less than twelve creditors, it is sufficient if only one signs the petition.

In its answer MacDonald alleged, inter alia, that it had at least twelve creditors. Pursuant to 11 U.S.C. § 95(d), a list of 24 creditors, as of the date of the petition, was included with the answer. The court caused notice to be mailed to these creditors on April 16, 1973, and a hearing was set for May 29, 1973, to determine whether MacDonald had more than eleven creditors and to give the creditors an opportunity to be heard.

By the May 29 hearing no other creditors had joined Hydromechaniki and Eupalinos, and only these two creditors were represented at the hearing. The Greek companies then tendered interrogatories to the court and served them upon the alleged bankrupt. These were designed to determine whether the listed creditors qualified under 11 U.S.C. § 95. Judge Wangelin indicated that the interrogatories would not be filed at that time and took the matter under consideration. On September 17, 1973, the petition was dismissed on the ground that insufficient creditors had joined in the petition. The creditors moved for reconsideration and to amend or set aside the judgment on September 27, 1973, and the district court referred this motion to the bankruptcy judges for consideration. On January 11, 1974, the motion was overruled by the bankruptcy judge, and Hydromechaniki and Eupalinos appealed from this order to the district court. In August of 1974 the district court affirmed the order of the bankruptcy judge. Hydromechaniki and Eupalinos appeal the dismissal of their petition and denial of their motion to set aside or amend the judgment. We affirm the judgment of the district court.

Between April 13, 1973, when the list of creditors was filed by MacDonald, and May 29, 1973, the date of the hearing, the petitioning creditors made no effort to contact any of the twenty-four creditors listed by MacDonald. The reason given by them is that it would have been improper to do so. We have held that in the absence of bad faith or fraud there is no impropriety in inducing creditors to join in an involuntary petition. Missco Homestead Association v. United States, 185 F.2d 280, 283 (8th Cir. 1950), aff’g In re Missco Homestead Association, 86 F.Supp. 511 (E.D.Ark.1949). In fact, this seems to be one of the reasons a list of creditors is required to be filed when the answer alleges that there are more than eleven creditors. Advisory Committee’s Note, Bankruptcy R. 104(e); 3 Collier on Bankruptcy ¶ 59.18 [1] at 621 (14th ed. 1974).

The district judge clearly indicated that the May 29 hearing was “for the purpose of determining whether MacDonald Construction Company had more or less than 12 creditors . . . The statute provides:

[When] the answer avers the existence of [twelve or more] creditors . the • court shall . . . delay the hearing upon such petition for a reasonable time, to the end that the parties in interest shall have an opportunity to be heard. . . [I]f prior to or during such hearing, a sufficient number of qualified creditors shall join therein, the case may be proceeded with, but otherwise it shall be dismissed.

11 U.S.C. § 95(d) (emphasis added).

The petitioning creditors were clearly under notice that unless they showed there were not twelve creditors or solicited others to join in the proceedings by the hearing date, their petition was in peril of being dismissed. Nevertheless they took no action to discover possible inaccuracies in the list of creditors during the month and a half before the hearing, nor did they attempt to solicit other creditors to their cause during that time. As of the date of the oral arguments in this appeal they still had not contacted any of the creditors on the list.

Proceedings such as these should be handled expeditiously. The petitioning creditors were given an adequate opportunity to protect their interests at the hearing and failed to do so. Accordingly, under the circumstances of this case, the dismissal of the petition was not an abuse of discretion.

The judgment of dismissal is affirmed.


author: SWYGERT, Chief Judge. CASTLE, Senior Circuit Judge

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Charles D. McCORKLE, Jr., Defendant-Appellant.
    No. 73-1084.
    United States Court of Appeals, Seventh Circuit.
    Argued Dec. 7, 1973.
    Decided April 8, 1974.

      William A. Barnett, Charles R. Purcell, Chicago, 111., for defendant-appellant.
    James R. Thompson, U. S. Atty., Thomas R. Mulroy, Jr., Asst. U. S. Atty., Chicago, 111., for plaintiff-appellee.
    Before SWYGERT, Chief Judge, CASTLE, Senior Circuit Judge, and CAMPBELL, Senior District Judge.

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

   SWYGERT, Chief Judge.

Defendant Charles D. McCorkle, Jr. was convicted of wilfully failing to file federal income tax returns for 1965, 1966, and 1967 in violation of 26 U.S.C. § 7203. At trial it was stipulated that the defendant had substantial gross income in each of the three years at issue and that he was therefore required to file returns for those years. The evidence was uneontradicted that defendant filed no tax returns for the years 1965, 1966, and 1967. Accordingly, the sole issue before the jury was whether defendant’s failure to file was wilful.

The defendant raises several issues for our review, the most important of which are: whether the trial court erred in limiting defendant’s cross-examination of the Government’s witnesses, two Internal Revenue agents; and whether the court properly instructed the jury on the issue of wilfulness. The defendant charges error in both respects. We agree.

I

In an effort to prove defendant’s wilful failure to file, the Government presented testimony from two Internal Revenue Service agents, Joseph Powers, an Internal Revenue officer, and Paul Neuhauser, a special agent of the Internal Revenue Service. Both agents testified about statements made by the defendant during the course of conversations conducted by the agents with the defendant during 1969 prior to indictment. On cross-examination the trial court denied defendant’s counsel the opportunity to question the agents as to additional statements defendant made to them which allegedly tended to show defendant’s lack of wilfulness. The Gov-eminent contends that the trial court properly limited the scope of the cross-examination in that the testimony of the Internal Revenue Service agents as to these additional statements defendant made to them was inadmissible hearsay. The Government also argues that the testimony sought to be elicited was irrelevant.

Admittedly the statements of defendant testified to by the agents on direct examination were hearsay, but were allowable under the recognized hearsay exception of statements against interest. With respect to the statements by defendant sought to be brought out on cross-examination, the Government properly identifies them as self-serving hearsay declarations. Nonetheless, the principle of verbal completeness prescribes that the defendant may bring out on cross-examination that testimony which might qualify, explain, limit or contradict the portion offered by the Government on direct examination. As the Sixth Circuit stated in Banning v. United States, 130 F.2d 330, 338 (6th Cir. 1942):

It frequently happens that on direct examination of a witness as to a conversation, transaction or other matter, counsel will bring out only such parts as are favorable to the party he represents. When this occurs, it is the right of the cross-examiner to put the trial court in possession of the full details respecting the matters within the scope of the direct examination.

Having utilized hearsay statements on direct with respect to the conversations between the defendant and the agents, the Government cannot object to the usage of testimony on cross-examination that brings out the whole of those conversations simply due to the hearsay nature of that testimony.

The Government seeks support from our decisions in United States v. Seyfried, 435 F.2d 696 (7th Cir. 1970), and United States v. Lehman, 468 F.2d 93 (7th Cir. 1972). . We find those decisions inapposite in resolving the instant appeal, for in neither decision did we confront the problem of verbal completeness. In Seyfried we held that the portion of a confession by a third party which exonerated the defendant of any criminal activity was inadmissible due to the fact that the exonerating statement was not a declaration against the third party’s penal interest. In Lehman we rejected the defendant’s attempt to elicit through his witness hearsay statements made to the witness hours after the defendant’s confession to Revenue agents; we held that the hearsay declarations did not come within the res gestae exception to the hearsay rule.

The Government urges that the proffered testimony sought to be produced on cross-examination was irrelevant to the issue of wilfulness. Specifically the Government argues that the proffered testimony was not relevant to a showing of defendant’s state of mind at the time he failed to file. The Government’s view of relevancy is unduly restrictive for it cannot be gainsaid that a defendant’s subsequent conduct and statements may tend to show an innocent state of mind at a prior time. Our review of the proffered testimony indicates that it is highly relevant to the determination of defendant’s state of mind at the time the returns were due and that the trial court erred in excluding it.

II

The defendant claims that the trial court erroneously instructed the jury on the meaning of wilfulness as utilized in section 7203. It is asserted that the trial court’s error emanates from an improper distinction between the meaning of wilfully as used in the tax felony statutes, e. g., 26 U.S.C. § 7201, and as it is used in the tax misdemeanor statutes such as section 7203. Any semantic confusion which previously existed with respect to the meaning of wilfully has been eliminated by the Supreme Court’s decision in United States v. Bishop, 412 U.S. 346, 93 S.Ct. 2008, 36 L,Ed.2d 941 (1973). In Bishop it is made clear that there is no distinction in the meaning of “wilfully” as utilized in both tax felony and tax misdemeanor statutes. Accordingly, as used in section 7203 wilfully contemplates “a voluntary, intentional violation of a known legal duty.” United States v. Bishop, supra at 360, 93 S.Ct. at 2017. The Court in Bishop, adhering to its longstanding interpretation of “wilfully” annunciated in United States v. Murdock, 290 U.S. 389, 398, 54 S.Ct. 223, 78 L.Ed. 381, (1933) and Spies v. United States, 317 U.S. 492, 498, 63 S.Ct. 364, 87 L.Ed. 418 (1943), noted that proof of wilfulness requires a demonstration of “ ‘bad faith or evil intent’ ” or “ ‘evil motive and want of justification in view of all the financial circumstances of the taxpayer.’ ” 412 U.S. 360, 93 S.Ct. at 2017.

The asserted erroneous trial court instructions on wilfulness were as follows:

You are further instructed that the wilfulness which the Government must prove beyond a reasonable doubt does not require the Government to prove that the defendant had a purpose to evade a tax or to defraud the Government. For example, one might honestly plan and intend to pay the tax revenues due the Government at some future time subsequent to the required filing date and, hence, have no intent to defaud the Government of taxes, but if one intentionally fails to file a return at the time when required by the law with full knowledge that he was required to do so, and it is immaterial whether or not at that time he could or could not pay the tax that was due, I instruct you that this is all that is necessary for the Government to prove to establish the offense of a willful failure to file the tax retúrns. In other words, lady and gentlemen, the intent to report income and pay the tax sometime in the future is not a defense to the charge of willfully failing to file tax returns. The willful failure to make a return is made an offense under the laws of the United States, without regard to the existence of a tax liability and punctuality is important to the fiscal system and sanctions are imposed by the law to assure punctual as well as faithful performance of one’s duties.
******
Now, the word “wilful” has a number of different meanings depending upon the context in which it is used. As used in this statute — and I am talking now about United States Code, Title 26, Section 7203, the word “wilful” means voluntary, purposeful, deliberate and intentional, as distinguished from accidental, inadvertent or negligent.
The failure to act is willfully done if done voluntarily and purposefully and with a specific intent to fail to do what the law requires to be done; that is to say, with a bad purpose to disobey and disregard the law. I charge you that the only bad purpose necessary for the Government to prove in this case is the deliberate intention not to file returns, which the defendant knew he was required to file at the time that he was required to file them.
The law does require proof of specific intent before the defendant can be convicted. Now, “specific intent” means more than general intent to commit the act; to establish specific intent the Government must prove, beyond a reasonable doubt, that Charles McCorkle knowingly did an act which the law forbids, purposefully intending to violate the law and knowing that such act would violate the law. Such intent may be determined by you from all of the evidence which has been sumitted in this case.

The above instructions required a mere finding of an intention not to file returns without more. The court explicitly directed the jury that it need not concern itself with whether the defendant intended to defraud the Government. Moreover, the court’s instructions had the effect of eliminating justifiable excuse as a consideration in resolving the issue of wilfulness. The instructions failed to properly charge the jury on the element of wilfulness.

The Government contends that certain of the other instructions given correctly described the element of wilfulness and that consequently the charge taken as a whole was proper. We cannot agree. It is not enough to say that the total charge is rendered proper because the jury may choose to follow the correct statement of the law rather than the incorrect statement of law. Having uttered the incorrect instructions on the element of wilfulness, no additional instruction on wilfulness, albeit correct, could neutralize the misstatement. As the Fifth Circuit has stated: “Instructions to the jury must be consistent and not misleading. The fact that one instruction is correct does not cure error in giving another inconsistent one.” Mann v. United States, 319 F.2d 404, 410 (5th Cir. 1963).

The judgment of conviction is reversed and the case is remanded for a new trial.

CASTLE, Senior Circuit Judge

(dissenting).

I respectfully dissent. The trial court properly limited the cross-examination of the Internal Revenue Service agents to exclude from evidence certain self-serving statements made by the defendant, McCorkle, to the agents. Such statements were inadmissible hearsay unprotected by any exception to that evidentiary rule (unlike McCorkle’s admissions to which the agents testified on direct examination). The doctrine of verbal completeness does not have currency in this application, where the self-serving statements are clearly unrelated to the admissions so that it is highly unlikely that the former was ever intended to qualify or to explain the latter. Cf., United States v. Lehman, 468 F.2d 93 (7th Cir. 1972). Moreover, the testimony sought to be elicited was irrelevant to a showing of McCorkle’s state of mind at the time he chose not to file his tax returns. It is most doubtful that a suspect’s subsequent statements to government agents would accurately reflect an innocent state of mind at a prior time. It seems more probable to expect that such statements would reflect a self-serving, exculpatory purpose.

Moreover, I cannot agree that the trial court erroneously instructed the jury on the meaning of wilfulness as expressed in 26 U.S.C. § 7203. Wilfulness is satisfied only by a finding that the taxpayer committed “a voluntary, intentional violation of a known legal duty.” United States v. Bishop, 412 U.S. 346, 360, 93 S.Ct. 2008, 2017, 36 L.Ed.2d 941 (1973). The Supreme Court explicitly established in Bishop a standard of scienter for conviction under the statute, as the majority pointed out. The instructions of the trial court fully comported with the Supreme Court’s interpretation of the statute. The trial court stated to the jury:

“the word ‘wilful’ means voluntary, purposeful, deliberate and intentional, as distinguished from accidental, inadvertent or negligent.”

The court further emphasized that the scienter requirement could only be met by a finding of a deliberate intention not to file tax returns. The trial court thus properly focused on the pertinent legal duty involved in this case in defining “bad purpose.” As the court correctly noted, an intent to evade tax or to defraud the government is legally irrelevant to a finding of the intentional violation present in this case, as is a justification based on either inability to pay taxes or an intention to report and pay taxes some time in the future.

Respectfully, I would affirm the judgment of the trial court.

      . Section 7203 provides:
      Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return (other than a return required under authority of section 6015), keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, .upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution.

      . We find defendant’s contentions with respect to his motion to suppress certain statements made to agent Powers to be without merit. United States v. Lehman, 468 F.2d 93 (7th Cir. 1972). In addition, in view of our holding we need not reach the remaining issues presented by the defendant.

      . We are aware of course that the trial judge did not have the benefit of United States v. Bishop at the time the instructions were given.


author: CASTLE, Senior Circuit Judge. SWYGERT, Circuit Judge

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Charles D. McCORKLE, Jr., Defendant-Appellant.
    No. 73-1084.
    United States Court of Appeals, Seventh Circuit.
    Argued en banc Dec. 10, 1974.
    Decided Feb. 24, 1975.
    Rehearing and Rehearing En Banc Denied April 1, 1975.

      Charles R. Purcell, William A. Barnett, Chicago, 111., for defendant-appellant.
    James R. Thompson, U. S. Atty., Gary L. Starkman, Asst. U. S. Atty., Chicago, 111., for plaintiff-appellee.
    Before SWYGERT, Chief Judge, CASTLE, Senior Circuit Judge, FAIRCHILD, CUMMINGS, PELL, STEVENS, SPRECHER and TONE, Circuit Judges.
   CASTLE, Senior Circuit Judge.

Defendant Charles D. McCorkle, Jr. was convicted by a jury of willfully failing to file federal income tax returns for 1965, 1966 and 1967 in violation of 26 U.S.C. § 7203. The sole issue before the jury was whether McCorkle’s failure to file was willful.

On appeal, a panel of this court reversed McCorkle’s conviction, holding that the trial court incorrectly instructed the jury on the issue of willfulness and erred in limiting McCorkle’s cross-examination of two Internal Revenue Service agents. Subsequently, a majority of the active judges on this court voted to rehear the case en banc. After carefully reviewing McCorkle’s contentions, we affirm his conviction.

I.

McCorkle argues that in order to find that he willfully failed to file his tax returns, .United States v. Bishop, 412 U.S. 346, 361, 93 S.Ct. 2008, 36 L.Ed.2d 941 (1973) requires an intent to defraud the Government or other similar “bad purpose or evil motive.” He asserts, therefore, that the trial court’s instructions directing the jury that it need not be concerned with whether the defendant intended to evade taxes or defraud the Government precluded the jury from determining that his failure to file was not willful.

Prior to the Supreme Court’s decision in Bishop, this court was confronted with the same argument as is presented here in United States v. Matosky, 421 F.2d 410 (7th Cir.), cert. denied 398 U.S. 904, 90 S.Ct. 1691, 26 L.Ed.2d 62 (1970). In finding no error in the instructions on willfulness in that case, we held that:

[T]he defendant’s motive need not be restricted to an intent to defraud the Government in order for there to be a violation of § 7203. Rather, the Government has proven its case when it has established beyond a reasonable doubt: that the defendant was required to file a return; that he knew that he was so required; and that he willfully or purposefully, as distinguished from inadvertently, negligently, or mistakenly, failed to file such a return. His reasons for failing to so file are irrelevant under § 7203, so long as the above facts are shown. Id. at 413 (Footnote omitted).

Thus, Matosky established that in order for the violation to be willful, the government need only prove a deliberate intention not to file returns which the defendant knew should be filed. Although Bishop disapproved our statement that the meaning of willfulness under the tax felony statutes would differ from its meaning under such tax misdemeanor statutes as § 7203, we believe the definition of willfulness enunciated in Matosky complies with the uniform meaning adopted by the Court in Bishop.

In Bishop, the Court held that “willfully” has the same meaning in both tax misdemeanor and tax felony statutes. The Court stated that the word “willfully” in these statutes “generally connotes a voluntary, intentional violation of a known legal duty,” 412 U.S. at 360, 93 S.Ct. at 2017, and went on to rule that “we therefore shall continue to require, in both tax felonies and tax misdemeanors that must be done ‘willfully,’ the bad purpose or evil motive described in [United States v. Murdock, 290 U.S. 389, 54 S.Ct. 223, 78 L.Ed. 381 (1933)].” 412 U.S. at 361, 93 S.Ct. at 2017. Contrary to the defendant’s contentions, we believe that the Court employed the terms “bad purpose” and “evil motive” as a convenient method of referring to the longer definition of “willfully” as a “voluntary, intentional violation of a known legal duty,” and not as engrafting an intent to defraud requirement or other similar evil purpose on that definition. Examination of the bad purpose or evil motive described in Murdock supports this conclusion.

The defendant in Murdock refused to supply information concerning his tax liability to federal revenue officials, fearing that such information would lead to prosecution under state law. Subsequently, the defendant was prosecuted for willfully failing to supply information under a statutory predecessor to § 7203. His defense was that he relied in good faith on his privilege against self-incrimination, and that therefore his refusal to supply the information requested could not be termed “willful.” The trial court, in its charge to the jury, stated that it believed the defendant to be guilty.

The Supreme Court, in affirming the appellate court’s reversal of the defendant’s conviction, held that the trial court judge had improperly expressed his opinion that the defendant was guilty. The Court arrived at this result because it first concluded that to find that the defendant willfully violated the statute, it must be found that the defendant acted not only voluntarily, but also with “bad faith or evil intent.” 290 U.S. at 398, 54 S.Ct. 223. Then, because it was not undisputed or admitted that “defendant’s assertion of the privilege was so unreasonable and ill founded as to exhibit bad faith and establish willful wrongdoing,” 290 U.S. at 396, 54 S.Ct. at 226, the Court found that the trial court’s comment had invaded the province of the jury. The implication of Murdock, therefore, is that had it been undisputed that the defendant knew that his reliance on the privilege was invalid, the trial court’s comment would not have constituted error, and the conviction, without any further showing by the government, would have been upheld. Thus, the evil motive described in Murdock that would have satisfied the requirement of willfulness would have been the defendant’s voluntary refusal to supply information, knowing that such refusal was wrongful.

Cases decided after Bishop have also interpreted that decision to mean that willfulness only requires an intentional violation of a known legal duty. United States v. Hawk, 497 F.2d 365 (9th Cir.), cert. denied, 419 U.S. 838, 95 S.Ct. 67, 42 L.Ed.2d 65 (1974); United States v. Klee, 494 F.2d 394 (9th Cir.), cert. denied, 419 U.S. 835, 95 S.Ct. 62, 42 L.Ed.2d 61 (1974); United States v. Smith, 493 F.2d 906 (5th Cir. 1974) (dictum). Thus, in United States v. Hawk, supra, at 368, the court found that the thrust of Murdock was that the requirement of willfulness is satisfied by proof that the act was done voluntarily and with knowledge that it was wrongful, and concluded that the terms bad purpose and evil motive are merely “convenient shorthand expression[s]” for the required elements of proof. Consequently, we reject the argument that intent to defraud is essential to prove that a violation is willful, and conclude that Bishop did not alter the definition of willful as set forth in Matosky.

Examination of the instructions in this case shows that in three instances the trial court correctly charged the jury that willfulness requires both an intentional failure to file, and knowledge by the defendant that he was under a legal obligation to do so. The defendant’s contention that other statements in the court’s charge might have misled the jury is without merit when the statements are considered in context and in light of the proper instructions that were given.

Finally, McCorkle argues that the instructions had the effect of eliminating justifiable excuse as a consideration in resolving the issue of willfulness. However, as we noted in Matosky, supra, 421 F.2d at 413, only an inadvertent failure to file or “a bona fide misunderstanding as to [defendant’s] . . . duty to make a return” would constitute “justifiable excuses.” Since the instructions required the jury to find an intentional violation of a known legal duty, it would have been essential for the jury to conclude that McCorkle’s conduct was unjustified. United States v. Kaczmarek, 490 F.2d 1031 (7th Cir. 1974). We find the trial court’s instructions to be proper.

II.

McCorkle next claims that the trial court erroneously limited his cross-examination of two Internal Revenue Service agents by excluding testimony concerning portions of conversations between McCorkle and the two agents after admitting testimony concerning other parts of the conversations during direct examination of the agents. The officers testified on direct examination that McCorkle admitted his failure to file his federal tax returns for the decade 1957 — 1967 and that he also recalled being advised that he could file his returns without payment or with only partial payment of the tax due. McCorkle further admitted to the agents that copies of purported tax returns for 1959-1960 furnished to a savings and loan association were fictitious, and that amounts representing estimated tax payments supplied to his accountant to present the appearance of diligent tax filing, were also fictitious.

At trial, McCorkle offered to prove that he also told the agents during these conversations that (1) he failed to file because he did not have the money to pay the tax due; (2) he did not file because of the possible criminal consequences arising from his failure to file earlier returns; (3) he did not file because he had been contemplating suicide; (4) he did not file because he feared the government, on learning of his tax liability, would place liens on his property and jeopardize his business; (5) he was involved in a divorce suit with his wife at the time of the investigation and the returns would have been voluntarily filed when the divorce was final; (6) he timely filed all employer’s returns; (7) he offered to cooperate with the agents; (8) he offered to pay his civil liabilities; and (9) he kept accurate records of supplemental income, which would have been properly included on his returns.

The statements of McCorkle testified to by the revenue agents on direct examination are hearsay, but are receivable against him as admissions of a party opponent. IV J. Wigmore, Evidence § 1048 (Chadbourn rev. 1972). The hearsay statements which McCorkle sought to bring out on cross-examination, however, are properly characterized as self-serving, and are generally not admissible. IV J. Wigmore, supra, at 5; see United States v. Seyfried, 435 F.2d 696 (7th Cir.), cert. denied 402 U.S. 912, 91 S.Ct. 1393, 28 L.Ed.2d 654 (1971). Nonetheless, McCorkle argues that the doctrine of verbal completeness permits him to bring out the whole of the conversations.

The right of a party to offer into evidence the remaining portion of an utterance is, however, not absolute. Wig-more lists two corollaries which limit the exercise of the doctrine of verbal completeness:

(a) No utterance irrelevant to the issue is receivable;
(b) No more of the remainder of the utterance than concerns the same subject, and is explanatory of the first part, is receivable;
. VII J. Wigmore, Evidence § 2113, at 524 (3d ed. 1940) (Emphasis and citations omitted).

Applying these corollaries, we find that the proffered testimony was properly excluded.

First, since we have ruled that proof of intent to defraud the government is not required to establish the willfulness necessary for conviction under § 7203, it is apparent that essentially all of the testimony which McCorkle sought to introduce was of no relevance to whether McCorkle intentionally failed to file returns knowing that he was legally obliged to do so. The only evidence which might have been relevant was the declaration by McCorkle that he did not have the funds to pay the tax due. That only would have been the case, however, if McCorkle believed that the returns could not be filed without a remittance, but the evidence was undisputed that McCorkle’s attorney advised him as early as 1963 that he could file returns without making tax payments at the same time.

Second, the doctrine of verbal completeness is not applicable here because McCorkle’s self-serving declarations do not qualify or explain his admissions. McCorkle contends that the proffered testimony would fully explain his state of mind at the time the returns were due. However, while the excluded testimony might be probative of McCorkle’s general state of mind, it does not explain or qualify the mental state relevant for conviction under § 7203. Thus, the conversations at issue resemble the report in Gencarella v. Fyfe, 171 F.2d 419, 422 (1st Cir. 1948), where the court, in admitting into evidence only portions of a police report, dismissed an argument based on the doctrine of verbal completeness, observing that “the admissible and inadmissible parts of the report were readily severable from one another, and the separate parts have no bearing to explain or qualify each other.” See also United States v. Seyfried, supra, 435 F.2d at 698. Accordingly, we find no error in the trial court’s exclusion of the proffered testimony.

III.

The defendant argues that the trial court erred by not suppressing his admission that he failed to file tax returns for 1966, 1967 and 1968 made at a June 20, 1969 meeting with revenue agent. Joseph Powers, who was assigned to the Collection Division of the Internal Revenue Service. He asserts that IRS News Release No. 897, issued October 3, 1967, which requires agents of the IRS Intelligence Division to warn taxpayers of their constitutional rights, is applicable to Powers, and that Powers’ failure to comply with the procedures provided for in the Release mandates suppression of his admission.

Inquiry into the tax matters of the defendant began with an anonymous telephone call received at the Information Desk of the Intelligence Division of the IRS, alleging that McCorkle had not filed income tax returns for the years 1966-1968. The information was evaluated as having “no criminal potential,” and the matter was referred to the Collection Division, which in turn assigned the case to agent Powers. Prior to meeting McCorkle, Powers knew that a routine check had disclosed that the files of the Collection Division did not contain McCorkle’s returns. Powers then met with McCorkle on June 20, 1969, identified himself as a revenue officer, but did not warn the defendant of his constitutional rights. Later, McCorkle made his admission. After a second meeting at which McCorkle and his attorney were present, the matter was referred back to the Intelligence Division for criminal investigation.

The defendant argues that although the Collection Division conducts civil investigations, under the circumstances of this case Powers was acting as an agent of the Intelligence Division conducting a criminal inquiry. The defendant concedes that United States v. Dickerson, 413 F.2d 1111, 1117 (7th Cir. 1969) , in which we prospectively required revenue agents to give Miranda warnings at the inception of the first contact with taxpayers after the case has been transferred to the Intelligence Division, is not applicable here because that case was decided after the meeting between Powers and McCorkle occurred. He urges, however, that even though Dickerson does not apply, Powers’ failure to follow the IRS Release requires suppression of his admission. Compare United States v. Leahey, 434 F.2d 7 (1st Cir. 1970) and United States v. Heffner, 420 F.2d 809 (4th Cir. 1969) with United States v. Lehman, 468 F.2d 93, 104 (7th Cir.), cert. denied 409 U.S. 967, 93 S.Ct. 273, 34 L.Ed.2d 232 (1972). Assuming without deciding that a failure to follow the procedure outlined in the Release would have that consequence, the argument cannot succeed because the Release applies only to “[ijnvestigation of suspected criminal tax fraud . . conducted by Special Agents of the IRS Intelligence Division,” and thus, where the investigation is not criminal in nature, the Release, like the Dickerson rule (413 F.2d at 1116 n. 10) does not require warnings.

The facts demonstrate that Powers was not conducting a criminal investigation in disguise. Powers testified that his duties as a revenue officer are to collect delinquent taxes and to pick up delinquent returns. Knowledge that McCorkle’s returns were not in the Collection Division files would be essential to those duties, and does not indicate that he suspected criminal activity. The fact that the tip which led to the investigation originated in the Intelligence Division does not make Powers an agent of that Division, especially since the information was evaluated as having no criminal potential. United States v. Robson, 477 F.2d 13, 17 (9th Cir. 1973). Once the matter was referred to the Collection Division, the Intelligence Division relinquished all control over it, and Powers’ investigation was completely independent. The existence of the possibility of criminal prosecution does not turn Powers’ inquiry into one to which the procedures required by the IRS News Release applies. See United States v. Awerkamp, 497 F.2d 832, 835 (7th Cir. 1974). Accordingly, we find that the trial court properly denied McCorkle’s motion to suppress.

IV.

Lastly, McCorkle asserts that the trial court erred by permitting voir dire, in the absence of the jury, as to the relevancy of the testimony of his witness James Donnelly, and by subsequently concluding that the testimony was irrelevant and that the witness should not testify. In United States v. Dellinger, 472 F.2d 340, 408-409 (7th Cir. 1972), cert. denied 410 U.S. 970, 93 S.Ct. 1453, 35 L.Ed.2d 706 (1973), we stated that departure from the normal procedure of allowing the witness to be questioned in ordinary course in the presence of the jury “should be directed only when an intention to engage in prejudicial conduct is clearly shown.” The defendant, however, did not object to the procedure employed by the trial court, and the testimony elicited on voir dire was clearly not relevant. Consequently, there was at most harmless error. Fed.R.Crim.P. 52(a).

The judgment of the district court is affirmed.

Affirmed.

SWYGERT, Circuit Judge

(concurring).

Reconsideration of the issue of wilfulness in light of the petition for rehearing, oral argument, a re-examination of the record, and Judge Castle’s persuasive opinion has led me to the conclusion that my original view, expressed in the prior opinion in this case, which I authored, was in error. I am willing to agree that the scienter requirement of the statute does not encompass specific intent to defraud the Government, although I do maintain that a purposeful, voluntary failure to file a return does in a conceptual sense contain the latent intent to defraud the Government by not reporting income on which a tax may be assessed. A review of the instructions to the jury in this case now convinces me that the element of wilfulness was properly covered by the district judge and that the conviction in this case must therefore be affirmed.

      . That section provides:
      Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return (other than a return required under authority of section 6015), keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution.

      . The instructions on the element of willfulness were as follows:
      You are further instructed that the wilfulness which the Government must prove beyond a reasonable doubt does not require the Government to prove that the defendant had a purpose to evade a tax or to defraud the Government. For example, one might honestly plan and intend to pay the tax revenues due the Government at some future time subsequent to the required filing date and, hence, have no intent to defraud the Government of taxes, but if one intentionally fails to file a return at the time when required by the law with full knowledge that he was required to do so, and it is immaterial whether or not at that time he could or could not pay the tax that was due, I instruct you that this is all that is necessary for the Government to prove to establish the offense of a willful failure to file the tax returns. In other words, lady and gentlemen, the intent to report income and pay the tax sometime in the future is not a defense to the charge of willfully failing to file tax returns. The willful failure to make a return is made an offense under the laws of the United States, without regard to the existence of a tax liability and punctuality is important to the fiscal system and sanctions are imposed by the law to assure punctual as well as faithful performance of one’s duties.
      Now, the word “wilful” has a number of different meanings depending upon the context in which it is used. As used in this statute — and I am talking now about United States Code, Title 26, Section 7203, the word “wilful” means voluntary, purposeful, deliberate and intentional, as distinguished from accidental, inadvertent or negligent.
      The failure to act is willfully done if done voluntarily and purposefully and with a specific intent to fail to do what the law requires to be done; that is to say, with a bad purpose to disobey and disregard the law. I charge you that the only bad purpose necessary for the Government to prove in this case is the deliberate intention not to file returns, which the defendant knew he was required to file at the time that he was required to file them.
      The law does require proof of specific intent before the defendant can be convicted. Now, “specific intent” means more than general intent to commit the act; to establish specific intent the Government must prove, beyond a reasonable doubt, that Charles McCorkle knowingly did an act which the law forbids, purposefully intending to violate the law and knowing that such act would violate the law. Such intent may be determined by you from all of the evidence which has been submitted in this case.

      . The instructions provided:
      1) . . .if one intentionally fails to file a return at the time when required by law with full knowledge that he was required to do so is all that is necessary for the Government to prove

        2) The failure to act is willfully done if done voluntarily and purposefully and with a specific intent to fail to do what the law requires to be done; that is to say, with a bad purpose to disobey and disregard the law. I charge you that the only bad purpose necessary for the Government to prove in this case is the deliberate intention not to file returns, which the defendant knew he was required to file at the time that he was required to file them.
      3) . the Government must prove beyond a reasonable doubt that Charles McCorkle knowingly did an act which the law forbids, purposefully intending to violate the law and knowing that such act would violate the law.

      . Wigmore also lists a third corollary which pertains to how the testimony is to be treated if admitted.

      . It is also claimed that the trial court improperly excluded the results of a polygraph examination of the defendant. As was the case with the testimony sought to be elicited on cross-examination, however, the offer of proof clearly demonstrates that the results of the test were irrelevant to a determination of the defendant’s willfulness.
      At oral argument, the defendant strenuously urged that the jury should be permitted to consider these extraneous matters in order to permit the jury to exercise its power as “conscience of the community,” and to acquit the defendant even though there may be clear evidence of a criminal violation. The jury, of course, is free to exercise this prerogative, but only on facts relevant to the legal issues involved. See United States v. Burkhart, 501 F.2d 993, 996-997 (6th Cir. 1974).

      . That release provides in part:
      In response to a number of inquiries the Internal Revenue Service today described its procedures for protecting the Constitutional rights of persons suspected of criminal tax fraud, during all phases of its investigations.
      Investigation of suspected criminal tax fraud is conducted by Special Agents of the IRS Intelligence Division. This function differs from the work of Revenue Agents and Tax Technicians who examine returns to determine the correct tax liability.
      Instructions issued to IRS Special Agents go beyond most legal requirements to assure that persons are advised of their Constitutional rights.
      On initial contact with a taxpayer, IRS Special Agents are instructed to produce their credentials and state: “As a special agent, I have the function of investigating the possibility of criminal tax fraud.”
      If the potential criminal aspects of the matter are not resolved by preliminary inquiries and further investigation becomes necessary, the Special Agent is required to advise the taxpayer of his Constitutional rights to remain silent and to retain counsel. IRS said although many Special Agents had in the past advised persons, not in custody, of their privilege to remain silent and retain counsel, the recently adopted procedures insure uniformity in protecting the Constitutional rights of all persons.

        Reprinted in 7 CCH 1967 Stand.Fed.Tax.Rep. 1! 6832.

      . The IRS Intelligence Division enforces the Criminal provisions of the Internal Revenue Code, while the Collection Division conducts civil actions to enforce collection of taxes. See 9 J. Mertens, Law of Federal Income Taxation §§ 49.74-49.76 (rev. ed. 1971).