text:
    UNITED STATES of America, Plaintiff-Appellee, v. William Joseph SCANLAND, Defendant-Appellant.
    No. 73-2819.
    United States Court of Appeals, Fifth Circuit.
    June 14, 1974.

      J. M. Druhan, Jr., Mobile, Ala. (Court-appointed), for defendant-appellant.
    Charles White-Spunner, U. S. Atty., Irwin W. Coleman, Jr., Asst. U. S. Atty., Mobile, Ala., for plaintiff-appellee.
    Before GEWIN, GOLDBERG and CLARK, Circuit Judges.
   GEWIN, Circuit Judge:

I

In a two-count indictment William J. Scanland was charged with passing two counterfeit twenty dollar bills in violation of 18 U.S.C. § 472. After a jury trial a guilty verdict was returned, and he was sentenced to a five year term of imprisonment on each count; the terms to be served consecutively.

The appellant presents two principal issues for our review. First, he contends that the district court erred in admitting evidence of a prior “bad” act of a similar nature to the offense alleged in the indictment since the prosecution stated at an Omnibus hearing that such evidence would not be relied upon to prove knowledge or intent. Second, he asserts that it was error to limit his inquiry concerning other counterfeit bills in circulation. Finding merit in his first contention we reverse and remand.

II

Scanland was identified by the clerks of two business establishments as the man who successfully passed a counterfeit twenty dollar bill in their store. His distinctive red hair apparently aided in establishing his identity. His modus operandi had been the same at both stores; he would pay for a small purchase with a twenty dollar bill. Both clerks became suspicious because of the bill’s peculiar appearance and the appellant’s nervous behavior. Each of these twenty dollar bills was established to be counterfeit by expert testimony.

Earlier the same day the appellant attempted to pass a twenty dollar bill at a third business establishment. In this instance, however, the clerk, Michael Palmer, rejected the bill because of its appearance and returned it to appellant. He then received another bill from Scan-land that looked genuine. Mr. Palmer identified Scanland and testified that he made a small purchase with a twenty dollar bill.

An assistant United States Attorney ' notified appellant’s counsel by letter of this prior incident but stated that because the Government could not show or prove that the bill was indeed counterfeit, the incident was not included in the indictment. Notwithstanding the agreement reached at the Omnibus hearing or the subsequent letter, at trial the prosecution introduced this prior occurrence in order to establish the necessary-intent to defraud. A primary defense of the appellant was his lack of that intent. He maintains that he came into possession of the bills innocently.

Ill

When the Government and the accused voluntarily enter into pre-trial agreements we believe the parties are entitled to rely on such agreements in the preparation of their case. Subsequent developments, of course, may make it necessary for either or both parties to be released from their Omnibus hearing agreements. We expressly refuse to diminish the sound discretion vested in the district court to grant such releases. Even minimal standards of fairness, however, would require a sound analysis of the attempted deviation. The court should inquire as to whether reasonable notice was given to the adversary of the change in strategy. Furthermore, the potential for prejudice should be balanced against the reason for the release.

The Government contends that its letter to the defense counsel provided adequate notice. Although the letter provided notice of the Government’s knowledge of the incident it did not provide notice of the intention to introduce evidence of it at trial. Indeed, the letter seems to reaffirm the Omnibus agreement and explain the reason for it. The prosecution also asserts that prior to the actual trial the witness to the previous similar act, Michael Palmer, testified at an in camera hearing, the purpose of which was to negate the existence of im-permissibly suggestive photographs for identification. It is contended that it should have been clear to the defense that witnesses so interrogated were to be used at trial. Even if it should have been clear to the appellant’s counsel that Michael Palmer would testify and that his testimony was to be used in violation of the agreement, we cannot say this action provided reasonable notice especially in view of the fact that the mentioned hearing took place at the first day of the trial. The in camera hearing occurred during the lunch recess after the jury had been chosen in the morning and before the trial began in the early afternoon. Even a clear and express notice at this time may leave inadequate time to alter trial preparation. Moreover, defense counsel should be able to rely on such an agreement. It should not be presumed that the commitment would be breached in such a casual manner.

Inadequate notice is one factor to be weighed in determining potential prejudice. As mentioned earlier a principal defense strategy was innocent possession. This theory is much less plausible if three similar acts are proved in a short time span than it would be if only two such acts were shown. Given reasonable notice of the change in Government tactics a defendant would likely revise his theory of defense. At least there should be enough time allowed to properly consider a possible change in defense strategy. The appellee argues, however, that the appellant’s failure to initially base his objection specifically on the Omnibus agreement clearly shows that there was no reliance on the agreement and, therefore, no resulting prejudice. But the appellant continuously objected to testimony by Mr. Palmer regarding the previous similar act. Apparently when it became clear to the appellant how Mr. Palmer’s testimony was to be used his counsel requested an opportunity to review the Omnibus Hearing Report. Later counsel indicated that he was unaware that the prior incident was to be introduced. We feel that appellant’s specific objection was raised in a timely manner, and any shortcoming in articulating the objection is easily explainable by the unexpected nature of the issue. We cannot say that there was no potential for prejudice.

Despite the lack of reasonable notice and the potential for prejudice there may be some cases where the reason for the requested release from an agreement set forth in an Omnibus Hearing Report will outweigh all other factors. Not only might the release be necessary, but it might be quite justifiable in light of subsequent events. In the present case, however, the district court in making its ruling advanced no substantial reason for releasing the Government from its agreement. It only stated that it questioned the value of Omnibus reports and cited a departure by the appellant. Furthermore, we do not regard the apparent lack of communication in the United States Attorney’s office to be an overwhelming reason for release.

Having established that the departure from the agreement was erroneously allowed in this instance, the appellee would now assert that the error was harmless. We have previously explained the possible prejudice to the appellant’s innocent possession defense theory, and upon these facts we cannot say that the evidence of a prior attempt to pass a “peculiar looking twenty” was harmless beyond a reasonable doubt.

IV

Because the question may arise on retrial we shall briefly discuss the appellant’s contentions with respect to the limitation of his inquiry regarding other counterfeit bills in circulation. In a motion to produce which was denied the appellant asked the district court “to order the United States to produce at the time of trial any and all bills alleged to be counterfeit in its possession, bearing the same serial numbers as the bills charged in the indictment against this defendant.” At trial upon cross-examination of a Secret Service agent the appellant’s counsel asked if he knew of any notes in circulation in Mobile County with the same or similar serial numbers. The agent replied that he did know of such bills, but when he was asked if he could produce them the prosecution objected stating the matter had already been decided. The prosecution objection was sustained.

The appellant hoped to establish that a large number of bills were in circulation, and this arguably would tend to prove that he came into possession of the bills innocently. The Government contends that the appellant’s requests were too broad and were properly denied. Neither request was limited to the time period of the alleged offenses. The motion to produce was not specifically limited to Mobile County. The request at trial involved both the same and similar serial numbers. While not unmindful of a district court’s broad discretion concerning matters of relevancy it may be that counterfeit bills circulating in the same county, with the same or similar serial numbers, during the same time as the alleged offenses would indeed have possible relevancy on the question of intent. If the proper predicate is laid and a timely request is made by the appellant, the district court should cautiously and carefully consider granting such a request. Reversed and remanded.

      . Section 472 provides :
      “Whoever, with intent to defraud, passes, utters, publishes, or sells, or attempts to pass, utter, publish, or sell, or with like intent brings into the United States or keeps in possession or conceals any falsely made, forged, counterfeited, or altered obligation or other security of the United States, shall be fined not more than $5,000 or imprisoned not more than fifteen years, or both.”

      . The Omnibus Hearing Report at 11(e) provides :
      The defense requests the following information and the Government states:
      (1) The Government will not rely on prior acts or convictions of a similar nature for proof of knowledge or intent.
      The agreement was signed by Government counsel, appellant’s counsel, the appellant and a United States Magistrate. The Omnibus Hearing Report was approved by the district court and expressly adopted as binding upon the parties with no exceptions.

      . Four days after the Omnibus hearing the assistant United States Attorney wrote a follow-up letter to appellant’s counsel and stated in part as follows:
      There is, however, one other place where a Simmons spread involving Scanland was shown and this person positively identified the photograph of Scanland in a Simmons spread. I would have put it in the indictment or used it to show prior acts except for the fact that this person, Michael Palmer, at Pak-a-Sak Food Store No. 22, Three Notch Road, Mobile, Alabama, called the Secret Service on January 7, 1973, and advised that a white male attempted to pass a $20 bill that looked bad and that it looked blurred and too dark. The bill was tendered for a small purchase and Mr. Palmer refused to accept the $20 bill. He was then given another bill that looked good. In view of the fact that I could not show the hill was counterfeit, I did not put it in the indictment. (Emphasis added)

      . The confusion apparently resulted from a lack of communication between the assistant United States Attorney who handled the pre-trial aspects of the case and the United States Attorney who served as Government counsel at trial.

      . See 1 O. Wright, Federal Practice and Procedure § 293 at 575 (1969).

      . See note 3, supra.

      . It may be appropriate for the district court in weighing the potential for prejudice to analyze other possible defense theories.

      . [Defense Counsel] All right, I would object, and also at this time reemphasize my objections to any testimony by Michael Palmer. I believe Your Honor — I wasn’t clear on what you said, whether you were going to reserve your opinion or make a charge on it.
      [THE COURT] I will make a charge on it as to like or similar circumstances, and how the jury can consider it.
      [Defense Counsel] I would like the opportunity to review the report from the omnibus hearing to see what the official report says.
      [THE COURT] On What?
      [Defense Counsel] On that particular aspect, prior convictions and prior actions, and those type of things.
      [THE COURT] As to whether the government will rely on those?
      [Defense Counsel] Yes sir.
      [THE COURT] All right. I will take a look at it.

      . [Defense Counsel] Well, I disagree. My objection, is to the relevance of the thing, the relevancy from the time Favre told me he wasn’t going to use it because he didn’t have the bill. It was not relevant because he didn’t have a bill, and it is still not relevant because he doesn’t have a bill. That is my position.
      [THE COURT] Your position is that— your objection is to the relevancy — not the fact that you were prejudiced by the fact that the government said it was not going to attempt to rely on that?
      [Defense Counsel] No sir. I can’t say. I did not know that until after we got into the case itself that that was back in the objection — I mean in the record. But the reason for my objection was based on that basis, that it was irrelevant, and the basis of my argument is because of what I was told at that time and what is in this agreement from the government. I can’t put it in compartments. I don’t think it is possible.

      . [THE COURT] Well, as to what the Omnibus hearing really accomplishes, I don’t know. I think that counsel goes through these omnibus hearings and then promptly files the thing and forgets what is contained in it. For instance, the Omnibus hearing report here advises the Court that the defendant would rely on an alibi, and the Court was prepared to charge on alibi, and then there was no reference to alibi. The defendant can’t be prejudiced by that because there is nothing contained in the Omnibus hearing that could prejudice the defendant if he changed his mind totally. So I am not implying that. All I am saying is that I question the net worth, and always have, of these Omnibus reports. I am going to let the evidence stand as is and I will charge them.

      . See note 4, supra.

      . Because we reverse and remand on the basis of the violated agreement it is not necessary to discuss the admissibility of this particular alleged prior bad act. Upon remand, however, the district court should examine United States v. Broadway, 477 F.2d 991 (5th Cir. 1973) and United States v. Yaughn, 493 F.2d 441 (5th Cir. 1974) slip op. p. 442. Nevertheless, we do note that the testimony concerning the prior act of passing “funny 20’s” in Yaughn was sought to depict a witness’ participation in the charged offense, not the defendant’s state of mind or guilty knowledge.

      . The existence of a large number of similar counterfeit bills in circulation is apparently a two edged sword. Many a prosecutor would not be reluctant to see the inference arise that a large counterfeiting ring was operating in the area.

      . Cf. Cotton v. United States, 361 F.2d 673, 676 (8th Cir. 1966). In Cotton the court noted the possible relevance of a large number of other bills in circulation in that it would tend to prove innocent possession. The court did not reverse, however, for it found that the trial court’s action in closing the door to this inquiry was well within its broad discretionary powers.


source: Caselaw Access Project

author: GEWIN, Circuit Judge:

license: Public Domain

text:
    J. C. BELLAH and wife Fem Bellah, Plaintiffs-Appellants, v. The FIRST NATIONAL BANK OF HEREFORD, Hereford, TEXAS, Defendant-Appellee.
    No. 73-2867.
    United States Court of Appeals, Fifth Circuit.
    June 14, 1974.
    Herbert C. Martin, Jay U. Kirkman, Amarillo, Tex., for plaintiffs-appellants.
    D. Wesley Gulley, Hereford, Tex., for defendant-appellee.
    Before GEWIN, THORNBERRY and SIMPSON, Circuit Judges.
   GEWIN, Circuit Judge:

J. C. and Fern Bellah (the Bellahs), husband and wife, appeal from a district court order dismissing their complaint alleging that the First National Bank of Hereford (the Bank) had committed violations of 15 U.S.C. § 78j(b) (1970) and Rule 10b-5 promulgated pursuant thereto. Jurisdiction under the aforementioned Securities Exchange Act of 1934 was premised on the assertion that a promissory note and deed of trust securing the note, both of which were issued by the Bellahs, and a certificate of deposit, subsequently issued by the Bank, were securities. Disagreeing with this assertion, the district court dismissed the complaint with prejudice for lack of jurisdiction of the subject matter. We affirm except to the extent that dismissal was with prejudice as to the alleged claim based on the certificate of deposit.

I

This suit had its inception in a 1963 loan by the Bank to the Bellahs to aid them in the development of a livestock business. Continuing misfortunes left the indebtedness unliquidated, and hence on March 20, 1967, the Bellahs executed a six-month promissory note, secured by a deed of trust on real property in favor of the Bank, for the principal sum of $259,121.82. This note renewed all prior credit extended to them. The an-. ciliary deed of trust conveyed 17 tracts of their real property as collateral, inferior to prior liens on the real estate. This combined obligation was subsequently twice renewed.

The most recent renewal is the subject of the instant litigation. On January 29, 1969, the Bellahs executed a promissory note of six-months maturity, collat-eralized by a deed of trust. They allege in their complaint that the Bank made several misrepresentations concomitant with the execution of the note, inter alia, that the Bellahs need not worry about foreclosure as long as the prior and superior deeds of trust were kept current. This misrepresentation purportedly induced them to forego the initiation of federal bankruptcy reorganization proceedings. In December of 1969, they also arranged for $50,000 to be deposited in the Bank, through the First Mortgage Company of Houston, in exchange for which a certificate of deposit was issued. The Bellahs claim that this transaction was negotiated upon the agreement by the Bank that an equivalent amount would be loaned to them for the purpose of financing and recycling cattle. This latter exchange, allegedly effected to raise the capital structure of the Bank and thereby enable it to make the additional $50,000 loan, never materialized. Moreover, the Bellahs’ delinquency on the January 12, 1969 note prompted the Bank to foreclose and sell the real estate covered by the deed of trust.

The complaint asserted three potential bases for finding subject matter jurisdiction: (1) the note; (2) the deed of trust; and (3) the certificate of deposit. In a truncated opinion, the district court elected to treat the note and ancillary deed of trust as one, and held that irrespective of whether the note and deed of trust were commercial or investment in nature, they fell within the exemption of notes maturing in less than 9 months. See 15 U.S.C. § 78c(a)(10). The court failed to address the contention that the certificate of deposit was a security.

II

It is in this posture that the case is before us on appeal. The district court correctly considered the note and accompanying deed of trust collectively as one potential basis of jurisdiction. Indeed, if the note were not characterizable as a security, it is difficult to conceive of how the deed of trust which secured it could be so characterized. Accordingly, we proceed to consider whether the note and deed of trust or the certificate of deposit are securities.

A. Note and Deed of Trust

The definitional section of the Securities Exchange Act of 1934, 15 U.S.C. § 78c(a) (10) (1970) provides that unless the context otherwise requires:

“(10) The term ‘security’ means any note . . . but shall not include any note . . . which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.”

Despite the seemingly absolute mandate of this language, numerous other courts have refused to ritualistically apply the section. See Zeller v. Bogue Electric Manufacturing Corp., 476 F.2d 795, 800 (2d Cir. 1973); Sanders v. John Nuveen & Co., Inc., 463 F.2d 1075, 1080 (7th Cir.), cert. denied, 409 U.S. 1009, 93 S. Ct. 443, 34 L.Ed.2d 302 (1972); SEC v. Vanco, Inc., 283 F.2d 304 (3d Cir. 1960), aff’g, 166 F.Supp. 422, 423 (D.N.J. 1958); United States v. Hill, 298 F. Supp. 1221, 1226-1227 (D.Conn.1969); Anderson v. Francis I. duPont & Co., 291 F.Supp. 705, 708 (D.Minn.1968); cf. United States v. Rachal, 473 F.2d 1338, 1343 (5th Cir. 1973). Rather, they have deemed notes with maturity dates not exceeding nine months to be subject to the Securities Exchange Act of 1934 where the notes constituted investment paper, not commercial paper. Illustrative of the reasoning underlying such dispositions is that expressed in Zeller v. Bogue Electric Manufacturing Corp., supra at 800:

“[T]he mere fact that a note has a maturity of less than nine months does not take the case out of Rule 10b-5, unless the note fits the general notion of ‘commercial paper’ . It does not follow . . . that every transaction within the introductory clause of § 10, which involves promissory notes, whether of less or more than nine months maturity, is within Rule 10b-5. The Act is for the protection of investors, and its provisions must be read accordingly.”

See also Sanders v. John Nuveen & Co., supra at 1080.

This reasoning gives due recognition to the Supreme Court’s admonition in SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 195, 84 S.Ct. 275, 285, 11 L.Ed.2d 237, 248 (1963) that anti-fraud securities legislation is to be read “not technically and restrie-tively, but flexibly to effectuate its remedial purposes” and is compatible with that expressed in SEC v. C. M. Joiner Leasing Corp., 320 U.S. 344, 350-351, 64 S.Ct. 120, 123, 88 L.Ed. 88, 93 (1943) that:

“However well these rules [of statutory construction] may serve at times to aid in deciphering legislative intent, they long have been subordinated to the doctrine that courts will construe the details of an act in conformity with its dominating general purpose, will read text in light of context and will interpret the text so far as the meaning of the words fairly permits so as to carry out in particular cases the generally expressed legislative policy.” (footnote omitted.)

And it is this reasoning which led us to approve in United States v. Rachal, 473 F.2d 1338, 1343 (5th Cir. 1973) an instruction given by a trial court which provided that the exemption of short-term notes from the registration provisions of the Securities Exchange Act of 1933 applied only to commercial not investment paper. Since the ’33 and ’34 Acts, while not precisely the same, are virtually identical, see Zeller v. Bogue Electric Manufacturing Corp., supra at 799-800; Anderson v. Francis I. duPont & Co., supra at 708, we think that this court’s approval of the instruction in Rachal portends our holding that the exemption for short-term paper under the Securities Exchange Act of 1934 applies only to commercial paper and not investment paper. To this extent, the district court’s exclusive reliance on the maturity date of the note was misplaced.

The disposition of this appeal hence ultimately hinges upon whether the note executed by the Bellahs can be eharac-terized as commercial or investment in nature. In this vein, McClure v. First National Bank of Lubbock, 352 F.Supp. 454 (N.D.Tex.1973), appeal pending, No. 73-1376; Lino v. City Investing Co., 487 F.2d 689 (3d Cir. 1973); and Sanders v. John Nuveen & Co., supra, are particularly instructive.

In McClure v. First National Bank of Lubbock, supra, Juanita McClure, a one-half owner of common stock in and Secretary of Gaines City Development (GCD), was allegedly induced by the First National Bank of Lubbock and her former husband who was president of GCD to execute a $200,000 note from GCD to the bank supposedly to liquidate the corporation’s bad debts. This note was secured by a deed of trust which mortgaged to the bank a parcel of land which constituted substantially all the assets of the corporation. Further inquiry revealed that the proceeds of this loan were actually applied in payment of her former husband’s debt to the bank and not in payment of corporate obligations. Moreover, several years later, McClure executed a separate collateral agreement, pledging to the bank a portion of all her own stock for the purpose of securing a new note which would renew and extend the original note issued by GCD. GCD’s delinquency in fulfilling these obligations prompted the bank to institute foreclosure proceedings, pursuant to which all its real estate was sold to the bank.

The district court held that jurisdiction of the subject matter was lacking. Characterizing the alleged transactions as involving no more than mere internal corporate mismanagement, 352 F.Supp. at 458, it concluded that “the transactions involved amount to little more than ordinary commercial loans not intended to be covered by the Act. These transactions are totally unrelated to the abuses involving ‘trading for speculation or investment,’ which abuses Congress in 1934 sought to eliminate.” 352 F.Supp. at 457-458.

Lino v. City Investing Co., supra, and Sanders v. John Nuveen & Co., supra, employ reasoning similar to that adopted in McClure. In Lino, a 10b-5 action was instituted by a purchaser of a franchise sales center license for which promissory notes had been issued to the franchisor in partial payment. The Third Circuit characterized the notes as commercial and not investment in nature because it defined logic to assume that City Investing Co. purchased Lino’s note and gave as payment, a right to operate a franchise sales center. And in Sanders, the Seventh Circuit expressed its view that “[w]hen a prospective borrower approaches a bank for a loan and gives his note in consideration for it, the bank has purchased commercial paper.” 463 F.2d at 1080 (dicta).

We think that the reasoning articulated in these cases is compelling, and supports the conclusion that the note issued by the Bellahs in this case was commercial paper and not investment paper. The record reveals that in extending the loans, the Bank merely intended to aid the Bellahs in the operation of their livestock business. It is bereft of any evidence indicating that the Bank sought to profit from the successful operation of this enterprise. This court’s previous remonstrations that under the Act, almost all notes are securities, see Rekant v. Desser, 425 F.2d 872, 878 (5th Cir. 1970); Lehigh Valley Trust Co. v. Central Bank of Jacksonville, 409 F.2d 989, 991-992 (5th Cir. 1969), imply that some notes are not. We merely hold that notes issued in the context of a commercial loan transaction fall beyond the purview of the Act.

Our disposition is buttressed by a recognition of the unsalutary consequences that would be generated by a contrary result. First, in view of the previously acknowledged similitude of the ’33 and ’34 Acts, notes subject to the anti-fraud proscriptions of the latter would be amenable to the registration provisions of the former. Registration is a costly procedure, both temporally and financially speaking. Subjection of loan transactions involving a promissory note to the registration requirements would inevitably wreak havoc on the commercial paper market. We have grave doubts that such a result was sought by Congress. Second, the Securities Act of 1933 and the Securities Exchange Act of 1934 create for participants in note transactions a broad but nevertheless not boundless federal forum for vindicating their grievances. We doubt that Congress intended by these Acts to render federal judges the guardians of all beguiled makers or payees. Where, as here, complaints are spawned by a commercial loan transaction, recourse must be had to state not federal courts. Mindful of these policy considerations and the reasoning employed by courts in adumbrating the commercial-investment dichotomy, we reject the Bellahs’ claim that the note and the ancillary deed of trust are securities.

B. Certificate of Deposit

Section 78e(a) (10) of the Securities Exchange Act of 1934 includes as a security a “certificate of deposit, for a security.” Under the judicial gloss placed on this language, a certificate of deposit issued in exchange for currency is not encompassed within the section because currency is not a security. Superintendent of Insurance of State of New York v. Banker’s Life & Casualty Co., 300 F.Supp. 1083, 1099 (S.D.N.Y. 1969) , aff’d, 430 F.2d 355 (2d Cir. 1970), rev’d on other grounds, 404 U.S. 6, 92 S.Ct. 165, 30 L.Ed.2d 128 (1971); SEC v. Fifth Avenue Coach Lines, Inc., 289 F.Supp. 3, 31 (S.D.N.Y.1968) aff’d on other grounds, 435 F.2d 510 (2d Cir. 1970). To the extent that the Bellahs rely on a contrary proposition, their argument is thus unavailing.

We confess, however, that we have endeavored in vain to divine the precise theory upon which their contention is bottomed. Despite a scrutinizing examination of the record and the briefs on appeal, and attempts to elicit guidance from counsel at oral argument, we have been able to ascertain only that the Bellahs invoke as support for their position two cases, Superintendent of Insurance of State of New York v. Banker’s Life & Casualty Co., 300 F.Supp. 1083 (S.D.N.Y.1969), and Young v. Seaboard Corp., 360 F.Supp. 490 (D.Utah 1973). The understandable failure of the district court to address the certificate of deposit issue compounds the difficulty posed by the nebulous argument presented on appeal. Nevertheless, notwithstanding these impediments to review, we undertake to explore the applicability of the aforementioned decisions to the instant case.

Clearly, Superintendent of Insurance of State of New York v. Banker’s Life & Casualty Co., 300 F.Supp. 1083 (S.D.N. Y.1969) provides no comfort. This much is manifest by the fact that the district court expressly refrained from reaching the question of whether certain certificates of deposit issued in order to conceal the depletion of Manhattan Casualty Company’s assets by Banker’s Life & Casualty Company and two individual defendants were securities. See 300 F.Supp. at 1099. Moreover, the district court intimated in dicta that the certificates of deposit could not qualify under the Securities Exchange Act of 1934 either as evidences of indebtedness or as notes. See 300 F.Supp. at 1100.

Young v. Seaboard Corp., 360 F.Supp. 490 (D.Utah 1973) is of similar inutility. There, shareholders of the now defunct National Bank of Coalville, instituted a section 10b-5 action, claiming that the Seaboard Corporation (Seaboard) had fraudulently precipitated the demise of the bank. Seaboard allegedly caused one million dollars to be deposited in the bank in exchange for certificates of deposit and payment of an illegal finder’s fee. The deposits and finder’s fees prompted the bank to make at least $450,000 in bad loans, purportedly to Seaboard’s designees.

The reasoning employed in treating these deposit and loan transactions as

purchases or sales of securities is somewhat obtuse. The court appears to have relied on two theories. First, the certificates of deposit could be characterized as short-term promissory notes under Zeller v. Bogue Electric Manufacturing Corp., supra. But, as we noted earlier, Zeller endorsed the investment-commercial dichotomy which we countenanced and then applied adversely to the Bellahs’ contentions. In support of the second theory to which it attached no appellation, the district court cited Teherepnin v. Knight, 389 U.S. 332, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967) where the Supreme Court held that withdrawa-ble capital shares in an Illinois Savings & Loan Association, City Savings Association of Chicago, could qualify as a security under the ’34 Act. In reaching this conclusion, the Supreme Court had observed that shareholders were dependent on the skill and efforts of City Savings in making sound loans because Illinois law tied the payment of dividends on withdrawable capital shares to an ap portionment of the profits. See 389 U. S. at 339-339, 88 S.Ct. at 554, 19 L.Ed. 2d at 570. And throughout the opinion, the Court emphasized the investment character of the scheme. Again, it is this characteristic which we have re-

peatedly found absent in the transactions between the First National Bank of Hereford and the Bellahs. Accordingly, we fail to discern how Young v. Seaboard Corp., supra, adds force to the Bellahs’ contention. Thus, on the basis of the arguments presented on this appeal, we conclude that the certificate of deposit is not a security.

Ill

To reiterate, we hold that the note and ancillary deed of trust executed by the Bellahs to the Bank is commercial and not investment paper and hence is not embraced by the Securities Exchange Act of 1934. We also conclude that the argument pressed upon us with respect to the certificate of deposit is similarly inefficacious. To this extent, the district court’s order is affirmed.

We do not believe, however, that the Bellahs’ complaint should be dismissed with prejudice in its entirety. Although not through any fault of the district court, it would appear that the Bellahs may not have had a plenary opportunity to ventilate their claims concerning the certificate of deposit. The arguments which have been presented on appeal have been categorically rejected. And because of the essential commercial nature of the transactions between the Bellahs and the Bank, we are skeptical of the possibility that any additional light which could be shed on this matter would warrant a conclusion contrary to that which we have reached. Nevertheless, lest their rights be forsaken in any respect by the limited review of their certificate of deposit contention, we shall not foreclose them from an opportunity to pursue that theory of liability in the district court, if they are able and inclined to do so. Accordingly, we affirm the dismissal of the complaint, except to the extent that the dismissal was with prejudice as to the certificate of deposit. In all other respects the judgment of the district court is affirmed.

Modified and affirmed.

      . Section 10(b), 15 U.S.C. § 78j(b), provides that:
      “It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or any facility of any national securities exchange—
      (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.”
      17 C.F.R. § 240.10b-5 stipulates that:
      “It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,
      (a) To employ any device, scheme, or artifice to defraud,
      (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
      (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,
      in connection with the purchase or sale of any security.”

      . A review of the complaint filed by the Bel-lahs suggests that this omission was readily understandable. The first four paragraphs of the complaint refer only to the note and deed of trust transactions. Paragraph five catalogues twelve alleged fraudulent inducements, the last of which revolved around the certificate of deposit transaction. Thus, it is only through a benevolent reading that the complaint could be deemed to posit the certificate of deposit as a predicate for subject matter jurisdiction.

      . The Securities Act of 1933 and the Securities Exchange Act of 1934 address the short-term commercial paper exemption in different fashions. As was indicated supra, the ’34 Act provides for the exemption in its definitional section. See 15 U.S.O. § 78c (a) (1970). In contrast, the ’33 Act, 15 U.S.O. § 77c(a) (1970) exempts short-term notes from the registration requirements set forth in 15 U.S.O. § 77c (1970), but not from the Acts anti-fraud proscriptions. Section 77c (a) exempts:
      “(3) Any note, draft, bill of exchange, or banker’s acceptance which arises out of a current transaction or the proceeds of which have been or are to be used for current transactions, and which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.”
      The SEC has endeavored to explicate the requirements of this section in Securities Act Bel. No. 4412, 26 Fed.Reg. at 9159. This release provides that:
      “The legislative history of the Act makes clear that section 3(a) (3) applies only to prime quality negotiable paper of a type not ordinarily purchased by the general public, that is, paper used to facilitate well recognized types of current operational business requirements and of a type eligible for discounting by Federal Reserve banks.”
      This release, instructive as to the ’34 Act’s exemption for short-term notes, Zeller v. Bogue Electric Manufacturing Corp., supra at 800, has been construed to disqualify from characterization as commercial paper, a note issued by an individual or corporation in precarious financial condition. See Sanders v. John Nuveen & Co., Inc., supra at 1079; United States v. Hill, supra at 1227. In these two cases, suits were brought seeking to subject the makers of promissory notes to the Securities Exchange Act of 1934. In contrast, in this case, the maker of a promissory note seeks to invoke the Act’s prophylactic protection. While we do not disparage the conclusions reached in Hill and Sanders, we do suggest that a maker cannot bring the notes he executes within the Act' merely by demonstrating his own lack of fiscal integrity. While the investment-commercial dichotomy is not intractable, it is not as chameleon-like as the Bel-lahs’ contention would render it.

      . The Bellahs proffered the argument that the promissory note which formed the basis for this 10b-5 action should not be viewed in isolation from the prior notes, the obligations of which it renewed. Were a ritualistic application of the short-term note exemption to be countenanced, the purposes of the Act could be easily undermined by short-term notes issued and then renewed over a protracted time period. However, our conclusion that the exemption applies only to commercial paper warrants preter-mission of the Bellahs contention.

      . The commercial-investment dichotomy is also addressed in Zeller v. Bogue Electric Manufacturing Corp., supra, City National Bank v. Vanderboom, 290 F.Supp. 592 (W.D.Ark.1968), aff’d, 422 F.2d 221 (8th Cir.), cert. denied, 399 U.S. 905, 90 S.Ct. 2196, 26 L.Ed.2d 560 (1970); SEC v. Fifth Avenue Coach Lines, Inc., 289 F.Supp. 3 (S.D.N.Y. 1968), aff’d on other grounds, 435 F.2d 510 (2d Cir. 1970); Davis v. Avco Corp., 371 F.Supp. 782, 787 (N.D.Ohio 1974); SEC v. Thunderbird Valley, Inc., 356 F.Supp. 184 (D.S.Dakota 1973); Joseph v. Norman’s Health Club, Inc., 336 F.Supp. 307 (E.D.Missouri 1971).

      . Counsel for the Bank assumed that the Bellahs were contending that the certificate of deposit transaction was an investment contract. This assumption was reasonable in view of the Bellahs’ reference in their brief to Safeway Portland Employees Credit .Union v. C. H. Wagner & Co., 335 F.Supp. 116 (D.Or.1971). This case involved a scheme wherein defendant Wagner & Company solicited purchases of certificates of deposit issued by a bank, holding out as an inducement to purchase, Wagner & Company’s promise to pay %% interest at maturity. The purchases of the certificates of deposit enabled the bank to make loans to substandard borrowers who would pay Wagner & Company a broker’s fee. Because of the investment nature of the scheme, the court held that an investment contract existed. Again, the investment character is lacking in the instant case.

      . We quote, in full, the district court’s analysis :
      “In the opinion of the court, under plaintiffs’ claim both th§ deposit transactions and the loan transactions would be purchases or sales of securities within the meaning of section 3(a) (10) of the Securities Exchange Act of 1934, 15 U.S.C. § 78c(a)(10), section 10(b) of that act and rule 10b-5. As to certificates of deposit, see: Tcherepnin v. Knight, 389 U.S. 332, 344, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967); Bromberg, Securities Law, supra, § 4.6(312), (373). But see S.E.C. v. Fifth Avenue Coach Lines, Inc., 289 F.Supp. 3, 38 (S.D.N.Y.1968) (dictum), aff’d 435 F.2d 510 (2d Cir. 1970), questioned in Zeller v. Bogue Electric Manufacturing Corp., supra at 93,621 [cite to CCH] (“[t]he district court opinion contains dicta with which we would not agree, see 289 F.Supp. 3, 38 [S.D.N.Y.1968]”). As to short term promissory notes, see: Zeller v. Bogue Electric Manufacturing Corp., supra; Sanders v. John Nuveen & Co., 463 F.2d 1075 (7th Cir.), cert. denied, 409 U.S. 1009, 93 S.Ct. 443, 34 L.Ed.2d 302 (1972); Bromberg, Securities Law, supra, § 4.6(371). But see S.E.C. v. Fifth Avenue Coach Lines, Inc., supra, 289 F.Supp. at 38 (dictum), questioned in Zeller v. Bogue Electric Manufacturing Corp., supra at 93,621; L. Loss, 1 Securities Regulation 546 (1969)” (footnotes omitted).
      360 F.Supp. at 495-496.

      . The court in Tcherepnin v. Knight, supra, relied extensively upon SEC v. W. J. Howey Co., 328 U.S. 293, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946) and SEC v. C. M. Joiner Leasing Corp., 320 U.S. 344, 64 S.Ct. 120, 88 L. Ed. 88 (1943). The definition of an investment contract, formulated in Howey, emphasizes the investment nature of an enterprise. The Court stated that “[t]he test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others.” SEC v. W. J. Howey & Co., 328 U.S. at 301, 66 S.Ct. at 1104, 90 L.Ed. at 1251 (Emphasis added). And in SEC v. C. M. Joiner Leasing Corp., 320 U.S. at 351, 64 S.Ct. at 123, 88 L.Ed. at 93, the Court defined the reach of the Securities Act of 1933 “to include by name or description many documents in which there is common trading for speculation or investment." (emphasis added).


author: TUTTLE, Circuit Judge:

text:
    SHELL CHEMICAL COMPANY, a Division of Shell Oil Company, Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent.
    Nos. 73-1399, 73-1401.
    United States Court of Appeals, Fifth Circuit.
    June 14, 1974.

      Vincent J. Apruzzese, Francis A. Mas-tro, Springfield, N. J., for petitioner.
    Lawrence M. Cohen, Chicago, Ill., Otto F. Wenzler, Labor Relations Counsel, Chamber of Commerce of U. S. A., Washington, D. C., amicus curiae.
    Elliott Moore, Deputy Associate Gen. Counsel, Stanley Zirkin, Glen M. Ben-dixsen, Chief of Spec. Litigation, N. L. R. B., Washington, D. C., Bernard L. Sa-moff, Reg. Director, Philadelphia, Pa., for respondent.
    Robert F. O’Brien, Camden, N. J., for intervenor Teamsters Local 676 Union.
    Before TUTTLE, GEWIN and RO-NEY, Circuit Judges.
   TUTTLE, Circuit Judge:

These cases are before us on the petitions of Shell Chemical Company (Shell) to review two decisions by the National Labor Relations Board (Board). They stem from charges filed by Shell with the Board against Teamsters Local 676 for picketing and other conduct in violation of section 8(b)(4)(D) and section 8(b)(7) of the National Labor Relations Act (Act). Carried with the suit dealing with the section 8(b)(4)(D) charge, petition No. 73-1399, is a motion by the Board to dismiss the petition for want of jurisdiction.

FACTS

Shell is a Delaware corporation engaged in the manufacture and non-retail sale of chemicals at its plant located in West Deptford, New Jersey. For the past ten years, Catalytic, Inc., (Catalytic) has performed maintenance services at Shell’s plant. In connection with this work, Catalytic employed a truck driver named^ William Pollinger. Pollinger functioned primarily as a truck driver, transporting Catalytic personnel and equipment to the job site, and occasionally operated a forklift. During this time Catalytic was a party to a collective bargaining agreement with Local 676 of the Teamsters, of which Pollinger is a member. On December 9, 1971, Catalytic laid off eleven of its employees, including Pollinger, because Shell had increased the amount of maintenance work done by its own employees and withdrawn from Catalytic the use of its truck and forklift which had been operated by Pollinger. Catalytic still employed fourteen or fifteen men at the Shell plant.

Subsequent to Pollinger’s lay off and the return of the truck to Shell, Catalytic employees walked to the job site and equipment deliveries were handled by other means. The truck, which had been driven by Pollinger but which was owned by Shell, was driven by a number (approximately eight) of Shell employees, who handled maintenance support tasks involving the truck on an ad hoc basis. At no time after Pollinger’s lay off did Shell employ anyone classified as a truck driver.

On December 13, 1971, Moses Jackson, Local 676 Business Agent, unsuccessfully protested Pollinger’s lay off to Catalytic. Attempting a different tack, on December 21, Jackson wrote a letter to Shell which stated in part: “On behalf of Mr. Pollinger, we request’ that he be permitted to remain on the job performing his duties as before, and the terms of the Teamsters Local 676 agreement covering him be permitted to remain in effect’.” Shell replied suggesting that Local 676 direct its request that Pollin-ger be reinstated to Catalytic. Thereafter, on January 20, 1972, Local 676 set up a picket line and picketed the Shell plant for twenty-two days, ceasing on February 11. The pickets carried signs stating, “Shell unfair to William Pollinger/unfair to Teamster Local 676.” Meanwhile, Local 676 had written, on January 26, Shell a letter stating it was not seeking recognition from Shell as Pollinger’s bargaining representative, and added, “We simply request that you employ Mr. Pollinger under similar conditions with similar duties to those he enjoyed while employed by his former employer.”

On February 9, 1972, the Board conducted an election at Shell’s plant for a unit of production and maintenance employees, including those employees doing the maintenance formerly performed by the laid off Catalytic employees. This election was held pursuant to a petition filed on December 22, 1971, (shortly after Catalytic had laid off eleven employees doing maintenance work at Shell’s plant) by the Oil, Chemical and Atomic Workers International Union (OCAW). Teamsters Local 676 did not intervene or participate in any manner in that election. In June, 1972, OCAW was certified as the representative of the Shell employees. At no time has OCAW claimed assignment for its members of the truck driver job previously held by Pollinger. In fact no such particular job any longer existed.

On January 27, 1972, Shell filed charges alleging that Teamsters Local 676 had violated the Act, section 8(b)(4)(D), by attempting to force Shell to assign work to Local 676 rather than to the employees represented by OCAW, and section 8(b)(7), by picketing Shell with a recognitional object. In processing the section 8(b)(4)(D) charge, the Board instituted the prerequisite proceeding under section 10 (k) of the Act. The Board found that the object of Local 676 picketing was to gain reinstatement for Pollinger, and did not involve a contest with another union over the work performed by Pollinger. Accordingly, the Board concluded that no jurisdictional dispute existed between the unions within the meaning of section 10(k) and quashed the notice of hearing under section 10(k). 199 N.L.R.B. No. 95 (1973). In their motion to dismiss, the Board asserts that the quashing of the notice of hearing is not reviewable under the Act, therefore denying jurisdiction to this Court. In the proceeding on the section 8(b)(7) charge, the Board concluded that the picketing by Local 676 did not have a recognitional object. Finding no violation of section 8(b)(7), the complaint was dismissed. Shell petitions for review.

SECTION 10(k) AND REVIEWABILITY

Except as authorized by statute, a court of appeals does not have jurisdiction to review actions of the Board. American Federation of Labor v. NLRB, 308 U.S. 401, 404, 60 S.Ct. 300, 84 L.Ed. 347 (1940). Section 10 of the Act, 29 U.S.C.A. § 160, is the sole provision vesting review with the courts of appeal. The Board argues, and the structure of the Act and case law support, that “order” as employed in sections 10(e) and section 10(f) refer to an order issuing from an unfair labor practice proceeding. In section 10(c), which first utilizes the term “order,” and in section 10(f), under which petitioner must establish the jurisdiction of this Court, the order referred to is clearly that resulting from the culmination of the procedure outlined in section 10(b) and (c), 29 U.S.C.A. § 160(b) and (c), which involves either the dismissal of an unfair labor practice complaint or the granting of relief relating to an unfair labor practice. The courts of appeal have consistently viewed the Board’s actions accepted for review in this framework. In Laundry Workers v. NLRB, supra, 197 F.2d 701, where this Court specifically addressed the question oí what constitutes a final order under section 10(f), we stated:

“Agreeing with, we adopt as our own, the following from the brief of the Board:
‘Under the decisions of the Supreme Court and the courts of appeals it has long been established that the phrase “a final order of the Board”, as used in this section, refers solely to an order of the Board either dismissing a complaint in whole or in part or directing a remedy for the unfair labor practices found — in either case an order entered as the culmination of the procedure described in Section 10(b) and (c) of the Act.
‘Accordingly, attempts to obtain review in the courts of appeals of Board action, short of an order issued at the completion of the procedure specified in 10(b) and (c), have uniformly failed. Thus, it has been held that 10(f) does not confer jurisdiction upon the courts of appeals : to review certifications,
which the Board has either issued or declined to issue, at the conclusion of representation proceedings under Section 9; to review other Board decisions in representation proceedings, respecting such things as the holding of an election, the appropriateness of particular units, and the labor organizations eligible to appear on the ballot; or to review the Board’s action in scheduling hearings in unfair labor practice cases.
‘Similarly, it has been held that the action of the General Counsel, in dismissing an unfair labor practice charge and declining to issue a complaint, is not a “final order” within Section 10(f), so that the courts of appeals are without jurisdiction to review such action’.”
Id. at 703.

Since a section 10 (k) proceeding is not the dismissal of a complaint of an unfair labor practice or the granting of relief, as provided in section 10(b) and (c), the quashing of the notice of a section 10(k) proceeding should not be considered a reviewable order under section 10(f).

The legislative history of section 10 (k) is not conclusive on this question, but does offer some support for denying review. When section 10(k) was added to the Act, Congress did not amend section 10(e) and (f) or indicate any intention to expand the term “final order.” Congress, in fact, rejected a proposal which would have achieved this result. The Taft-Hartley Act, as originally drafted, provided only that a jurisdictional dispute was an unfair labor practice. Section 10 (k) was added in the Senate Bill which required the appointment of arbitrators by the Board to determine any jurisdictional dispute. Their decision was to be given the status of “a final order of the Board.” Sen.Rep.No.105, 80th Congress, 1st Sess. at 40; I Legislative History of the Labor Management Relations Act of 1947, at 466 (1948). In a conference of the House and Senate committees, however, Congress decided not to employ the arbitration approach and» rejected these provisions.

The purpose and structure of section 10 (k) evince that Congress was providing for the resolution of jurisdictional disputes, labor organizations competing for the same work assignment, without the cumbersome, fault determining, and coercive process of an unfair labor practice proceeding under section 8(b)(4)(D). The Supreme Court in NLRB v. Plasterers’, etc., Union, 404 U. S. 116, 122 n. 10, 92 S.Ct. 360, 365, 30 L.Ed.2d 312 (1972), described the interaction of a section 10 (k) proceeding with a section 8(b)(4)(D) unfair labor practice charge:

“The § 10 (k) determination is not binding as such even on the striking union. If that union continues to picket despite an adverse § 10(k) decision, the Board must prove the union guilty of a § 8(b)(4)(D) violation before a cease-and-desist order can issue. The findings and conclusions in a § 10 (k) proceeding are not res judi-cata on the unfair labor practice issue in the later § 8(b)(4)(D), determination. International Typographical Union, 125 N.L.R.B. 759, 761 (1959). Both parties may put in new evidence at the § 8(b)(4)(D) stage, although often, as in the present cases, the parties agree to stipulate the record of the § 10 (k) hearing as a basis for the Board’s determination of the unfair labor practice. Finally, to exercise its powers under § 10 (k), the Board need only find that there is reasonable cause to believe that a § 8(b)(4)(D) violation has occurred, while in the § 8(b)(4)(D) proceeding itself the Board must find by a preponderance of the evidence that the picketing union has violated § 8(b)(4)(D). International Typographical Union, supra, at 761 n. 5 (1959).”

When an unfair labor practice charge, other than 8(b)(4)(D), is filed under section 10(b), a preliminary investigation is made to determine whether the charge has enough prima facie merit to warrant issuance of a complaint. If so, a formal adjudication of the unfair labor practice follows. In contrast, the section 10(k) process does not take this usual course. As the Supreme Court noted in NLRB v. Plasterers’, etc., Local Union No. 79, supra, 404 U.S. at 122 n. 10, a complaint on a section 8(b)(4)(D) charge does not issue until after the provisions of section 10 (k) have been satisfied.

Under section 10 (k) the Board issues a notice for a hearing. If the dispute has been adjusted, or if the Board finds no reasonable cause to believe that section 8(b)(4)(D) has been violated, because, as here, no jurisdictional dispute exists, the notice of hearing is quashed and the charge dismissed. If the parties achieve a voluntary settlement of the dispute, or if the Board decides the dispute under section 10(k) and the parties comply, the unfair labor practice complaint is also dismissed. In each of these situations, the unfair labor practice charge under section 8(b)(4)(D) is precluded from adjudication. The point is that there is no adjudication as provided for in section 10(b) and (c) which is reviewable under section 10(f). Granted that “the impact of the section 10 (k) decision is felt in the § 8(b)(4)(D) hearing because for all practical purposes the Board’s award determines who will prevail in the unfair labor practice proceeding,” but its function is merely to set in motion the machinery for determining whether a complaint under section 8(b)(4)(D) should issue. Manhattan Construction Company v. NLRB, supra, 198 F.2d at 321. It is the subsequent section 8(b)(4)(D) proceeding which adjudicates the unfair labor practice charge and which is appealable under section 10(f). Based on the relationship of a jurisdictional dispute and a section 8(b)(4)(D) unfair labor practice, the Court of Appeals for the District of Columbia concluded, similarly, in Bricklayers, etc., supra, 475 F.2d 1316, that a section 10(k) determination is not a “final disposition” or adjudication within the meaning of the Administrative Procedure Act, 5 U.S.C.A. § 554.

Only if there is a determination of the dispute under section 10 (k) and a subsequent refusal to comply, does a complaint issue on the unfair labor practice charge and proceed to a Board order. That is, in fact, the only manner in which a section 10(k) work award is reviewable — on review of a section 8(b)(4)(D) order. NLRB v. Local 991, International Longshoremen’s Association, supra, 332 F.2d at 69-71. In this regard, the non-reviewable nature of a section 10 (k) proceeding is like the representational certification procedure of section 9. A Board certification of a union as an employee bargaining representative is only reviewable if the employer refuses to bargain and an order under section 8(a)(5) issues from an unfair labor practice proceeding. The certification itself is not reviewable. American Federation of Labor v. NLRB, supra, 308 U.S. at 408-412.

The scheme of the Act was drawn by Congress to allow appeal under section 10(e) and (f) only from a final order stemming from the unfair labor practice procedure of section 10(b) and (c). Other matters, such as determining the presence of a prima facie complaint for an unfair labor practice or certifying labor representatives, Congress meant to leave exclusively with the Board. Like these, a quashing of the notice of hearing under section 10 (k) is not adjudicatory in nature or final as defined by section 10(f). The motion of the Board to dismiss for want of jurisdiction is granted.

THE SECTION 8(b)(7) VIOLATION

Consolidated on this appeal, is also a petition for review of the dismissal of a complaint by the Board charging a violation of section 8(b)(7)(C). This provision, 29 U.S.C.A. § 158(b)(7)(C), states:

“It shall be an unfair labor practice for a labor organization or its agents
(7) to picket or cause to be picketed, or threaten to picket or cause to be picketed, any employer where an object thereof is forcing or requiring an employer to recognize or bargain with a labor organization as the representative of his employees, or forcing or requiring the employees of an employer to accept or select such labor organization as their collective bargaining representative, unless such labor organization is currently certified as the representative of such employees: (C) where such picketing has been conducted without a petition under section 159(c) of this title being filed within a reasonable period of time not to exceed thirty days from the commencement of such picketing. . . .”

The principle element of a section 8(b)(7) violation is for an uncertified union to picket with “an object” of “forcing or requiring” an employer to recognize the picketing union as his employees’ bargaining agent, or “forcing or requiring” the employees to organize as members of the union. Therefore, central to a finding of an unfair labor practice under section 8(b)(7) is a determination of the object of the picketing. Here, in rejecting Shell’s claim that the picketing had a recognitional or representational purpose, the Board stated:

“. . . We find that by picketing to enforce these demands, Respondent was merely attempting to obtain employment for Pollinger with wages and working conditions similar to those which he enjoyed under his former employer. Accordingly, we find from the above that the general counsel has not proven that Respondent violated section 8(b)(7)(C) of the Act and therefore we shall dismiss the complaint.”

Shell would have this Court reverse the holding of the Board, and find that the picketing had a recognitional object.

The Board relied on Fanelli Ford Sales, Inc., 133 NLRB 1468 (1961), to support their ruling. Fanelli expressly reversed Lewis Food Co., 115 NLRB 890 (1956), under which the Board had promulgated a ruling that established any picketing for reinstatement as recognitional and, therefore, violative of section 8(b)(7). In Fanelli, the Board rejected Lewis Food Co.:

“The Lewis Food case held, member Peterson dissenting, that a strike or picketing by a union to obtain reinstatement of a discharged employee ‘necessarily’ is to compel recognition or bargaining on such matter and that such conduct violates Section 8(b)(4)(C) of the Act. Our dissenting colleague would apply Lewis Food to the present 8(b)(7) situation. It may be not be gainsaid, of course, that picketing for an employee’s reinstatement may in some circumstances be used as a pretext for obtaining recognition as collective-bargaining representative of all employees in a certain unit. Before we are willing to infer such broader objective, some more affirmative showing of such object must be made than exists here. So far as this record indicates, Respondent’s picketing would have ceased if the Employer, without recognizing or, indeed, exchanging a word with the Respondent, had reinstated Marrone. We find in this case that the picketing was directed solely at securing Marrone's reinstatement. We further find that such conduct does not violate section 8(b)(7) of the Act. We accordingly overrule Lewis Food to the extent inconsistent herewith.”

We agree with the Board’s position in Fanelli that not all picketing for reinstatement is per se recognitional picketing.

Shell contends that the union’s objective manifestations undermine the Board’s finding. Shell places great importance on the first letter composed by the union. Considering the other factors and the second letter, the first correspondence would “not create a presumption that the picketing is unlawful.” McCleod v. Local 140, Bedding, Curtain and Drapery Workers Union, 207 F.Supp. 525, 528 (S.D.N.Y.1962). Furthermore, the Board, which is charged with investigative and fact finding responsibilities, could appropriately find that the second letter was a clear explanation of the union’s aims. Nor does the wording of the picket signs indicate a recognitional purpose — “Shell unfair to William Pollinger/unfair to Teamsters Local 676.” Signs analogous to the one used by the union in this case, have been held not to be persuasive evidence of a recognitional objective.

At all times the union’s actions were consistent with the Board’s finding that their objective was to obtain the return of the truck driving job to Pollinger. The union first made inquiries to Catalytic for Pollinger’s rehire. When this proved inadequate, Shell was approached. During part of this time an election for bargaining representative was being conducted at Shell’s plant. The union did not intervene or participate in these proceedings or preliminary maneuvers leading to certification. At no time had the union attempted to obtain authorization cards from Shell’s employees or organize them in any manner.

Shell argues that the Board’s decision in Waterway Terminals, 193 NLRB 65, finding a section 8(b) (7) violation is controlling. There, Waterway, a freight interchanger unloading freight from barges and reloading it upon trucks and rail cars, terminated its contract with the company employed to do most of the reloading onto the railway cars. The work was then done by Waterway employees who were represented totally by IBU. ILWU represented the sixty to seventy employees displaced by the cancelling of the subcontract. ILWU attempted to convince Waterway to retain these employees and bargain with ILWU as their representative. When Waterway refused, ILWU picketed with the stated purpose of reinstatement of these sixty to seventy employees. The Board found a violation of section 8(b)(7). In the present case, the Board distinguished Waterway:

“Thus, in Waterway Terminals, the Respondent labor organization demanded as the price for withholding pickets an arrangement whereby its members would effect a mass displacement of the employees of Waterway who were represented by another labor organization. As the Trial Examiner pointed out in that case:
‘Viewed realistically, the immediate objective of Respondent’s demands and the inadvertible consequence of Waterway’s acquiescence would have been the establishment of [Respondent] as the dominant voice in the representation of sixty or seventy employees affected by the change.’
“Here, however, Respondent was seeking the employment by Shell of only one employee at a time when no labor organization represented any of its employees. Shell’s total work force was in excess of 130 employees. Thus it is clear that Respondent would not have had a dominant voice in the representation of Shell’s employees if Shell had hired Pollinger and reassigned those employees who had been performing Pollinger’s truck driving duties.”

While agreeing with the Board that Waterway is not controlling, we do not adopt the Board’s “dominant voice” standard. The number of employees whose reinstatement is sought compared to the number of employees in the production unit involved, is certainly one factor which may weigh heavily in determining the picketing’s objective. The fact, that in this ease, the reinstatement of only one employee is sought by the union is the mainstay supporting the Board's decision. But it is not necessary to exclude situations involving less than majority control or subterfuges such as a few employees fronting for the union. Just as an artfully worded picket sign is not determinative, the number of employees seeking reinstatement should not be the only factor examined. The object of picketing in a section 8(b)(7) complaint is primarily a fact determination. Therefore, all elements of proof relevant to the issue are important.

The standard of review requires that the Board’s dismissal of the complaint be supported by substantial evidence in the record. 29 U.S.C.A. § 160(f). Considering the findings concerning the actions the union did and did not take on which the Board based its dismissal, we conclude there was substantial evidence in the record to indicate that the object of the picketing was reinstatement.

Motion to dismiss petition No. 73-1399 is granted. The petition for review in No. 73-1401 is denied.

      . Section 8(b)(4)(D), 29 U.S.C.A. § 158(b) (4) (D), provides, in pertinent part, that it “shall be an unfair labor practice for a labor organization or its agents: (4) (i) to engage in ... or encourage a strike, . . . or (ii) to threaten, coerce, or restrain any person engaged in commerce or in an industry affecting commerce, where in either case an object thereof is :
      “(D) forcing or requiring any employer to assign particular work to employees in a particular labor organization or in a particular trade, craft, or class rather than to employees in another labor organization or in another trade, craft, . or class, unless such employer is failing to conform to an order or certification of the Board determining the bargaining representative for employees performing such work. 11

      . Section 8(b)(7), 29 U.S.C.A. § 158(b)(7), in relevant part, makes it an unfair labor practice for a union to picket an employer “where an object thereof is forcing or requiring an employer to recognize or bargain with a labor organization as the representative of his employees ... (C) where such picketing has been conducted without a petition under section 159(c) of this title being filed within a reasonable period of time not to exceed thirty days from the commencement of such picketing. ...”

      . Section 10 (k), 29 U.S.C.A. § 160 (k), provides :
      “(k) Whenever it is charged that any person has engaged in an unfair labor practice within the meaning of paragraph (4) (D) of section 158(b) of this title, the Board is empowered and directed to hear and determine the dispute out of. which such unfair labor practice shall have arisen, unless, within ten days after notice that such charge has been filed, the parties to such dispute submit to the Board satisfactory evidence that they have adjusted, or agreed upon methods for the voluntary adjustment of, the dispute. Upon compliance by the parties to the dispute with the decision of the Board or upon such voluntary adjustment of the dispute, such charge shall be dismissed.”

      . This is the complement provision of section 10(f) which allows the Board to petition the court of appeals for enforcement of its “final orders.”

      . Section 10(f) provides, in part:
      “Any person aggrieved by a final order of the Board granting or denying in whole or in part the relief sought may obtain a review of such order in any United States court of appeals in the circuit wherein the unfair labor practice in question was alleged to have been engaged in or wherein such person resides or transacts business, or in the United States Court of Appeals for the District of Columbia, by filing in such court a written petition praying that the order of the Board be modified or set aside. . . . Upon the filing of such petition, the court shall proceed in the same manner as in the case of an application by the Board under subsection (e) of this section, and shall have the same jurisdiction to grant to the Board such temporary relief or restraining order as it deems just and proper, and in like manner to make and enter a decree enforcing, modifying, and enforcing as so modified, or setting aside in whole or in part the order of the Board; the findings of the Board with respect to questions of fact if supported by substantial evidence on the record considered as a whole shall in like manner be conclusive.”

      . These subsections outline the procedure for initiating and conducting the adjudication of an unfair labor practice complaint.

      . American Federation of Labor v. NLRB, supra, 308 U.S. at 405-408; Anthony v. NLRB, 204 F.2d 832 (6th Cir. 1953); Manhattan Construction Co. v. NLRB, 198 F.2d 320 (10th Cir. 1952); Laundry Workers v. NLRB, 197 F.2d 701 (5th Cir. 1952); General Drivers, Chauffeurs, and Helpers v. NLRB, 179 F.2d 492 (10th Cir. 1950); Lincourt v. NLRB, 170 F.2d 306 (1st Cir. 1948).

      . In Laundry Workers, the petitioner was seeking to review the Board’s refusal to issue a subpoena duces tecum, as a final order under section 10(f)’.

      . Manhattan Construction Company v. NLRB, supra, 198 F.2d 320; Trane Company v. NLRB, 68 L.R.R.M. 3024 (6th Cir. 1968) (per curiam granting of motion to dismiss); Rafel & Company v. Local 9, IBEW, 47 L.R.R.M. 2897 (7th Cir.), cert. denied, 366 U.S. 948, 81 S.Ct. 1902, 6 L.Ed.2d 1241 (1961) (per curiam granting of a motion to dismiss). Cf. Bricklayers, etc. v. NLRB, 155 U.S.App.D.C. 47, 475 F.2d 1316 (1973). Contra, Waterway Terminal Co. v. NLRB, 467 F.2d 1011 (9th Cir. 1972).

      . Although relevant, the elimination of the final order status of a section 10 (k) proceeding can probably be attributed to a rejection of the arbitration approach rather than a concern with the issue of review. Cf. NLRB v. Radio, etc., Engineers, 364 U. S. 573, 581-582, 81 S.Ct. 330, 5 L.Ed.2d 302 (1961).

      . Congress was seeking a no penalty resolution of jurisdictional disputes in order to protect employers and the public from becoming “the helpless victims of quarrels that do not concern them at all.” H.R.Rep.No. 245, 80th Congress, 1st Sess. at 23, cited in NLRB v. Radio Engineers, supra, 364 U.S. at 581, n. 20. Or as phrased by the court in Bricklayers, etc., supra, 475 F.2d at 1320:
      “The threat to or coercion of the employer which gives rise to the charge of the unfair labor practice [section 8(b)(4)(D)] is sought by Congress through section 10 (k) to be ended so that the work can proceed. Voluntary settlement is encouraged. If this does not eventuate, hope remains that the ensuing determination of the dispute by the Board will solve the matter.”

      . This process is aptly illustrated by the procedural description in NLRB v. International Longshoremen’s and Warehousemen’s Union, 378 F.2d 33 (9th Cir. 1967), and NLRB v. Local 991, International Longshoremen’s Association, 332 F.2d 66, 69-71 (5th Cir. 1964).

      . NLRB v. Plasterers’, etc., Union No. 79, supra, 404 U.S. at 126-127.

      . See Laundry Workers v. NLRB, supra, 197 F.2d at 703.

      . Lest it appear that the failure to allow review of this action by the Board deprives the employer of some right to protect itself against this kind of picketing we think it appropriate to make the following comment. Upon the assumption that the Board was correct in. dismissing the section 10 (k) proceeding on the ground that the dispute or the conduct of the Teamsters relative to Shell and its employees was not a “jurisdictional” dispute, it makes no difference to Shell that the action of the Board is not reviewable. Because if upon review we still have the view that the Board was correct in its determination that this was not a jurisdictional dispute, the Act does not afford any remedy to the picketed employer. In other words, it is only if either the Board in a section 10 (k) proceeding or the court on review, assuming we reviewed it, determines that this dispute was jurisdictional, assigns the work to OOAW, and the Teamsters continue to picket, that Shell would have relief through a section 8(b) (4) action.
      Shell urges the damage accomplished by the alleged unfair picketing as demanding relief. The Supreme Court in Garner v. Teamsters Union, 346 U.S. 485 [74 S.Ct. 161, 98 L.Ed. 228] (1953), however, has pointed out:
      “The detailed prescription of a procedure for restraint of specified types of picketing would seem to imply that other picketing is to be free of other methods and sources of restraint. For the policy of the National Labor Management Relations Act is not to condemn all picketing but only that ascertained by its prescribed processes to fall within its prohibitions. Otherwise, it is implicit in the Act that the public interest is served by freedom of labor to use the weapon of picketing.” Id. at 499-500.
      Shell still had alternate causes of action under the Act for any illegal picketing. In fact, Shell filed other charges under section 8(b)(4)(B), secondary boycott, and section 8(b)(7)(G), recognitional picketing, and has sought damages in a suit in New Jersey under section 303, 29 U.S.C.A. § 187. While the other unfair labor practice charges have had no success, the damage suit is still viable. It withstood a motion for summary judgment; the court finding that the section 10 (k) proceeding did not “possess any attributes of finality,” therefore, lacking any res judicata effect. Some small scope has also been left by the Norris-LaGuardia Act, 29 U.S.C.A. § 107, for the issuance of injunctions by federal courts. Finally, to the extent that the picketing is not forbidden or protected by the Act but is prohibited by state law, Shell is free to pursue its remedies in the state court. Cf. Garner v. Teamsters Union, supra, 346 U.S. at 488; Algoma Plywood Co. v. Wisconsin Board, 336 U.S. 301, 313, 69 S.Ct. 584, 93 L.Ed. 691 (1949); Hill v. Florida ex rel. Watson, 325 U.S. 538, 539, 65 S.Ct. 1373, 89 L.Ed. 1782 (1945); Allen-Bradley Local v. Wisconsin Board, 315 U.S. 740, 748-751, 62 S.Ct. 820, 86 L.Ed. 1154 (1942).

      . See Comment, Illegal Picketing under Section 8(b) (7) — A Reexamination, 68 Colum.L.Rev. 745 (1968).

      . NLRB v. Suffolk County District Counsel of Carpenters, 387 F.2d 170 (2d Cir. 1967); NLRB v. Local 239, International Brotherhood of Teamsters, 340 F.2d 1020 (2d Cir. 1965).

      . See NLRB v. Knitgoods, 403 F.2d 388, 390 (2d Cir. 1968) (“The wording of the signs, the solicitation of authorization cards, the threats of boycott and the general application of economic pressure are substantial evidence of the recognitional nature of the picketing.”).

      . NLRB v. United Brotherhood of Carpenters and Journeymen of America, Local 745, 450 F.2d 1255 (9th Cir. 1971); Teamsters Local Union No. 5 v. NLRB, 405 F.2d 864 (5th Cir. 1968).


author: PER CURIAM:

text:
    Michael SILVERS, Petitioner-Appellant, v. Honorable Clarence DOWLING and Milton Stire, Civil Sheriff, Respondents-Appellees.
    No. 73-2430.
    United States Court of Appeals, Fifth Circuit.
    June 24, 1974.
    Ronald Tanet, New Orleans, La., Robert Eugene Smith, Atlanta, Ga., for petitioner-appellant.
    Clarence J. Dowling, State Dist. Judge, State Dist. Court, Sec. “B”, William Glenn Burns, New Orleans, La., William J. Guste, Jr., Atty. Gen., L. J. Hymel, Asst. Atty. Gen. of La., Baton Rouge, La., for respondents-appellees.
    Gera Brupbacher, pro se and Alma Reboul, pro se, amicus curiae, for Society to Oppose Pornography, Inc.
    Before BELL, SIMPSON and IN-GRAHAM, Circuit Judges.
   PER CURIAM:

Appellant, a Louisiana lawyer, sought federal habeas corpus relief on due process grounds from a one day prison sentence imposed for contempt in a Louisiana trial court. The district court denied relief on the merits. Without expressing any view whatever on the merits, we vacate and remand with direction that the complaint be dismissed for failure to exhaust state remedies. Despite an appeal to the Supreme Court of Louisiana, Silvers v. Dowling, 1972, 262 La. 1077, 266 So.2d 216, cert. den., 411 U.S. 944, 93 S.Ct. 1922, 36 L.Ed.2d 406, the due process grounds urged in the federal habeas court have never been presented to the state courts. Controversies involving the conduct of lawyers in state courts would seem to be near the heart of the principles of comity on which the exhaustion of state remedies doctrine is based.

Vacated and remanded with direction.


author: HASTINGS, Senior Circuit Judge.

text:
    UNITED STATES RAILWAY EQUIPMENT CO., Plaintiff-Appellant, v. PORT HURON AND DETROIT RAILROAD COMPANY, Defendant-Appellee.
    No. 73-1288.
    United States Court of Appeals, Seventh Circuit.
    Argued Jan. 21, 1974.
    Decided May 2, 1974.
    Leonard Schanfield, Robert R. Tepper, Chicago, Ill., for appellant.
    Kent Chandler, Jr., Robert F. Forrer, Chicago, Ill., for appellee.
    Before SWYGERT, Chief Judge, HASTINGS, Senior Circuit Judge, and CUMMINGS, Circuit Judge.
   HASTINGS, Senior Circuit Judge.

This action was brought by United States Railway Equipment Company against Port Huron and Detroit Railroad Company to recover amounts allegedly due under a lease agreement covering four hundred railroad box cars. Plaintiff lessor is an Illinois corporation whose principal place of business is in Illinois, and defendant lessee is a Michigan corporation whose principal place of business is in Michigan. The complaint invoked the diversity jurisdiction of the District Court for the Northern District of Illinois.

Process was served upon defendant at its offices in Michigan pursuant to the Illinois long-arm statute, Ill.Rev.Stat. 1971, ch. 110, §§ 16, 17. Thereafter, defendant appeared specially and moved the court to dismiss the cause for want of personal jurisdiction over the defendant, or, in the alternative, to transfer the cause to the Eastern District of Michigan pursuant to Title 28, U.S.C. § 1404(a). On January 31, 1973, the district court granted defendant’s motion to dismiss, and on February 20, 1973, the court denied plaintiff’s motion for reconsideration. Memorandum opinions were filed in response to both motions and are reported at 58 F.R.D. 588. This appeal followed.

The pertinent facts, as presented by the complaint and by affidavits submitted by the parties, are for the most part undisputed. Such conflicts as do exist must be resolved in plaintiff’s favor for purposes of determining whether a prima facie case for in personam jurisdiction has been established. O’Hare International Bank v. Hampton, 7 Cir., 437 F.2d 1173, 1176 (1971). However, as to the following facts there would appear to be no substantial disagreement.

Defendant is a closely held corporation whose principal assets are 19.08 miles of railroad track extending from Port Huron to Marine City, all in St. Clair County, Michigan; two locomotives ; and two cabooses. By agreement dated December 14, 1961, plaintiff leased four hundred box cars to defendant. The lease was effective by its terms until June 1, 1970, with an option in the lessee to extend the lease for five additional years. By letter to defendant dated June 3, 1970, plaintiff acknowledged that the option would not be exercised by defendant; however, this same letter confirmed the parties’ agreement to extend the lease until August 31, 1970, and thereafter on a month to month basis until terminated by either party. The complaint alleges that defendant has refused to pay $107,766.60, which represents a portion of the rent due for the period September 1, 1970, to February 29, 1972, under the rental computation clause contained in the 1961 agreement.

Both the 1961 agreement and the 1970 extension thereof were solicited, without defendant’s request, by plaintiff’s agent, in person, at defendant’s offices in Port Huron, Michigan. Prior to the signing of the original 1961 contract, George Duffy, an agent of defendant, visited plaintiff’s shop in Blue Island, Illinois, for the purpose of inspecting plaintiff’s facilities there. After the contract was executed, Duffy returned to plaintiff’s Blue Island shop to inspect the paint scheme of the cars prior to the first delivery under the lease.

None of the negotiations concerning the 1970 extension agreement took place in Illinois. The 1970 agreement was first signed by plaintiff in Illinois, and then forwarded to defendant in Michigan where it was “acknowledged and accepted.” The signing sequence with respect to the 1961 agreement is not entirely clear, the only evidence being the dates on which the signatures of the parties’ authorized agents were notarized, each in their respective states. The last notarized signature was that of plaintiff’s agent, in Illinois.

The four hundred cars leased under the 1961 agreement constituted defendant’s entire fleet of box cars. According to the lease terms, plaintiff was obligated to maintain the cars in good working order at its own expense. At least 288 of the 400 cars were actually repaired by plaintiff under the lease; the vast majority of these repairs were conducted in plaintiff’s Blue Island, Illinois shop. The Blue Island facility was listed in the Official Railway Equipment Register as the home repair shop for defendant’s leased ears.

Defendant maintains no office in Illinois, nor does it generally conduct business there. Paragraph 20 of the 1961 agreement specifies that rights and obligations under the lease are to be governed by Illinois law. Also relevant here is Paragraph 5 of the lease, which requires that rental payments be made at plaintiff’s Chicago, Illinois office, or at such other place as plaintiff may direct.

It is agreed that personal jurisdiction over defendant was here achieved, if at all, pursuant to Rule 4, Fed.R.Civ.P., and § 17(1) (a) of the Illinois Civil Practice Act, Ill.Rev.Stat.1971, ch. 110. Section 17(1) (a) provides, in pertinent part:

“§ 17. Act submitting to jurisdiction — Process. (1) Any person, whether or not a citizen or resident of this State, who in person or through an agent does any of the acts hereinafter enumerated, thereby submits such person * * * to the jurisdiction of the courts of this State as to any cause of action arising from the doing of any such acts:
(a) The transaction of any business within this State; * *

The district court concluded that defendant’s contacts with Illinois were insufficient under the due process clause to enable Illinois to exercise jurisdiction over defendant. See International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L.Ed. 95 (1945); Nelson v. Miller, 11 Ill.2d 378, 143 N.E.2d 673 (1957). In reaching this conclusion the court emphasized that plaintiff initiated the transaction by soliciting defendant in Michigan; that “no part of the 1970 agreement, the subject matter of the instant suit, was performed by defendant, or any of its agents, while physically present in Illinois”; and that “[n]o negotiations concerning [the 1970] agreement were held in Illinois.”

We believe the district court was unduly restrictive in considering only the parties’ actions with respect to the 1970 agreement as jurisdictionally significant. That the cause of action may be based upon an alleged breach of the 1970 agreement does not preclude it from “arising from” the transaction of business prior to 1970. See Consolidated Laboratories, Inc. v. Shandon Scientific Co., 7 Cir., 384 F.2d 797, 801 (1967). Since practically all of the 1961 agreement was incorporated by reference into the 1970 contract, including that portion of the rental clause which provides the basis for plaintiff’s claim, the negotiation and performance of both the 1961 and 1970 contracts may be regarded as a single business transaction for purposes of long-arm jurisdiction.

Thus viewed, the present case becomes substantially indistinguishable from O’Hare International Bank v. Hampton, supra. O’Hare was an action by an Illinois banking association against non-resident guarantors of the obligations owed a resident lessor by a non-resident lessee of an airplane. We quote in full the facts which there were held sufficient to confer jurisdiction under § 17(1)(a):

“Both plaintiff and its assignor, the original lessor of the lease here involved, are legal residents of Illinois. Negotiations for the lease were commenced by a phone call to the lessor’s Chicago office by one of the defendants; subsequent discussions with at least one of the defendants occurred in Illinois. The lease was not accepted until executed in Illinois and payments under it were to be made at Chicago, Illinois, or at such other place as the lessor shall designate. The guaranty in question specifically provided that it ‘shall be construed according to the law of the State of Illinois, in which State it shall be performed. * * *’ ” 437 F.2d at 1176-1177.

In concluding that these facts established the requisite “minimum contacts” with Illinois, Judge Pell observed:

“The defendants certainly must have contemplated the effects in lili-nois of a failure to make the monthly-rental payments. * * * Furthermore, the fact that the guaranty was to be construed according to Illinois law and performed in that state clearly demonstrates that the defendants ‘invoked the benefits and protection’ of the state. * * *” 437 F.2d at 1177 (citations omitted).

The only significant fact present in O’Hare which is missing here is that in O’Hare the defendant initiated the lease negotiations by contacting plaintiff’s assignor in Illinois. In the context of the present transaction between corporations, involving substantial sums of money, we cannot regard such difference as controlling. The present lease contemplated and in fact produced substantial on-going activity within Illinois, a factor apparently not present in O’Hare.

Two recent Illinois Appellate Court decisions have confirmed the accuracy of O’Hare as a statement of Illinois law. See Cook Associates, Inc. v. Colonial Broach & Machine Co., 14 Ill.App.3d 965, 304 N.E.2d 27 (1973); Colony Press, Inc. v. Fleeman, 17 Ill.App.3d 14, 308 N.E.2d 78 (1974). Colony Press involved the issue “whether defendant’s placement of a single interstate telephone order, his return of a corrected copy of that order and the acceptance of that order shipped f.o.b. Chicago, constituted the ‘transaction of any business,’ within the meaning of the ‘long arm’ statute * * * ” 17 Ill.App.3d at 17. In concluding that the long-arm statute did apply, the court specifically rejected the argument that the “benefits and protection” test which Illinois has applied in tort cases does not apply in determining jurisdiction under § 17(1) (a). See Gray v. American Radiator & Standard Sanitary Corp., 22 Ill.2d 432, 176 N.E.2d 761 (1961). With respect to the in terrorem argument that the court’s decision would allow large mail order houses to force distant buyers to defend suits in Illinois, the court responded as follows :

“It may not in fact be proper to require an out of state customer of a mail order house to defend an action here. However, this is not before us. Section 17 of the Civil Practice Act reflects a conscious purpose to assert jurisdiction over non-resident defendants to the extent permitted by the due process clause. * * * Illinois courts have recognized under this attitude that jurisdiction is not merely dependent upon contacts with this state but upon such factors as the nature of the business transaction, the applicability of Illinois law, the contemplation of the parties and the likelihood that witnesses would be found here. * * * Here, defendant is a business company that had voluntarily entered into a business transaction with an Illinois plaintiff with plaintiff’s performance wholly conducted within Illinois. Also, Illinois law would be applicable in disputes arising under this contract. * *' * In addition, * * * it may be said that defendant benefited from the services of the State of Illinois in the protection of these goods from theft and fire prior to their actual movement out of Illinois. * * * We conclude that there were sufficient minimum contacts in this one transaction for purposes of in personam jurisdiction so as not to offend traditional notions of fair play and substantial justice in requiring defendant to defend this action in Illinois.” 17 Ill.App.3d at 19-20 (citations omitted, emphasis added).

See also, In-Flight Devices Corp. v. Van Dusen Air, Inc., 6 Cir., 466 F.2d 220 (1972); Scovill Manufacturing Co. v. Dateline Electric Co., 7 Cir., 461 F.2d 897 (1972); Fisons Ltd. v. United States, 7 Cir., 458 F.2d 1241, cert. denied, 405 U.S. 1041, 92 S.Ct. 1312, 31 L.Ed.2d 581 (1972); Consolidated Laboratories, Inc. v. Shandon Scientific Co., supra.

Since the district court did not rule thereon, we intimate no views as to the merits of defendant’s alternative motion to transfer the cause to the Eastern District of Michigan.

In light of the foregoing, the judgment of the district court is reversed and the cause is remanded for further proceedings not inconsistent with this opinion.

Reversed and remanded.