author: MYRON L. GORDON, District Judge. STEVENS, Circuit Judge

text:
    ALBERTO-CULVER COMPANY, a Delaware corporation, Plaintiff-Appellee, v. Fritz SCHERK, Defendant-Appellant.
    No. 72-1158.
    United. States Court of Appeals, Seventh Circuit.
    Argued Feb. 21, 1973.
    Decided Aug. 2, 1973.
    Rehearing Denied Oct. IS, 1973.

      Robert F. Hanley, Lynne E. McNown, Chicago, 111., for defendant-appellant.
    Francis J. Higgins, A. Charles Lawrence, Chicago, 111., for plaintiff-appellee.
    Before STEVENS, Circuit Judge, GRANT, Senior District Judge, and GORDON, District Judge. ■

       Senior District Judge Robert A. Grant of the Northern District of Indiana is sitting by designation.

       District Judge Myron L. Gordon of the Eastern District of Wisconsin is sitting by designation.

   MYRON L. GORDON, District Judge.

This is an interlocutory appeal. The district court found that it had jurisdiction over both the parties and the subject matter of this lawsuit. Also, the district court refused to stay the proceedings before it while the parties arbitrated their dispute before the International Chamber of Commerce tribunal in Paris, France. The court enjoined the parties from such arbitration.

The appellee urges that the findings and order of the district court are not appealable under 28 U.S.C. § 1292(a)(1) and has moved for dismissal of the appeal. -For the reasons set forth in this opinion, we find that this court may properly entertain the appeal, and we affirm the decision of the district court.

The plaintiff-appellee, Alberto-Culver (Alberto) is a Delaware corporation with its principal offices situated in Illinois. It manufactures and distributes toiletries and hair products in national and international markets.

The defendant-appellant, Fritz Scherk (Scherk) is a German citizen who presently resides in Switzerland. Prior to the transactions here in issue, Scherk was engaged in the manufacture and sale of cosmetic products for sale in western Europe. The principle manufacturing operations were conducted by Scherk in facilities situated within Berlin, Germany, and owned by Scherk through a sole proprietorship called Fir-ma Ludwig Scherk (FLS).

Scherk also owned interrelated business entities known as Scherk Esta-blissement Vaduz (SEV), a Lichtenstein entity which has no counterpart in the United States, and Lodeva Herstellung und Vertrieb Kosmetischer Artikel GMBH (Lodeva), a German entity which has no counterpart in the United States. SEV was operated by Scherk as a holding company licensing the sale and distribution of Scherk’s cosmetics on an international basis under a variety of trademarks. The Lodeva entity was dormant and remains so.

In June, 1967, Alberto contacted Scherk in Germany to explore the possibility that Scherk might sell his European cosmetic business. In November, 1967, Fred Maeding of Alberto visited Scherk in Germany to pursue negotiations for such acquisition. In December, 1967, Alberto’s president, Leonard H. Lavin, met with Scherk’s representative, Benjamin Navon, in Chicago, Illinois. The negotiations were terminated.

In February, 1968, Alberto contacted Scherk in Berlin and negotiations were resumed. An agreement in principle was reached at this time concerning the basic terms for Alberto’s acquisition of Scherk’s business entities, SEV, FLS, and Lodeva; the details of the agreement were hammered out in Melrose Park, Illinois, during a 3-day meeting held in late May and early June, 1968. Scherk was present in Illinois for this latter meeting. A written document was ultimately prepared and signed in Vienna, Austria, by Scherk in February, 1969.

Among other things, the agreement between Alberto and Scherk provided that SEV was to be converted to a stock corporation and that Alberto was to acquire 100% of the stock of the new corporation. Accordingly, the parties entered into an escrow agreement by which Scherk assigned all of his rights in SEV to the escrow agent who was to accomplish the conversion and hold the certificates until closing.

The agreement also provided that as to the acquisition of SEV that:

“The parties agree that if any controversy or claim shall arise out of this agreement or the breach thereof and either party shall request that the matter shall be settled by arbitration, the matter shall be settled exclusively by arbitration in accordance with the rules then obtaining of the International Chamber of Commerce, Paris, France, by a single arbitrator, if the parties shall agree upon one, or by one arbitrator appointed by each party and a third arbitrator appointed by the other arbitrators. In case of any failure of a party to make an appointment referred to above within four weeks after notice of the controversy, such appointment shall be made by said Chamber. All arbitration proceedings shall be held in Paris, France, and each party agrees to comply in all respects with any award made in any such proceeding and to the entry of a judgment in any jurisdiction upon any award rendered in such proceeding. The law of the State of Illinois, U.S.A. shall apply to and govern this agreement, its interpretation and performance.”

The agreement provided that as to the acquisition of FLS that:

“The parties agree that if any controversy or claim shall arise out of this agreement or the breach thereof, the matter shall be settled exclusively by arbitration in accordance with the rules then obtaining of the International Chamber of Commerce, Paris, France, by a single arbitrator, if the parties shall agree upon one, or by one arbitrator appointed by each party and a third arbitrator appointed by the other arbitrators. In case of any failure of a party to make an appointment referred to above within four (4) weeks after notice of the controversy, such appointment shall be made by said Chamber. Unless otherwise agreed, all arbitration proceedings shall be held in Paris, France, and each party agrees to comply in all respects with any award made in any such proceeding and to the entry of a judgment in any jurisdiction upon any award rendered in such proceeding. The laws of the State of Illinois, U.S.A. shall apply to and govern this agreement, its interpretation and performance.”

The closing of the transaction was accomplished in Geneva, Switzerland, in June, 1969. Nearly one year later, Alberto discovered that the trademark rights purchased from Scherk were subject to substantial encumbrances. A dispute arose, and Alberto attempted to rescind the purchase agreement; it tendered the business to Scherk, who refused to accept the tender.

Scherk first took steps to institute arbitration in early 1971; however, a request for arbitration was not filed with the International Chamber of Commerce until November 9, 1971. Alberto commenced the instant action in the district court for the northern district of Illinois on June 11, 1971, alleging that it was defrauded in the acquisition of these businesses in violation of Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq.

As pertinent here, 28 U.S.C. § 1292(a) provides:

“The courts of appeals shall have jurisdiction of appeals from:
(1) Interlocutory orders of the district courts . . . granting, continuing, modifying, refusing or dissolving injunctions. . . .”

The- appellee contends that the district court’s order preliminarily enjoining Scherk from proceeding with arbitration in Paris and denying a stay of its own proceedings is not an interlocutory injunction within the meaning of 28 U.S.C. § 1292(a)(1). We disagree.

The practical result of the district court’s order is to terminate Scherk’s recourse to arbitration of the dispute before the International Chamber of Commerce in Paris and as such, the order qualifies as an “injunction” within the meaning of 28 U.S.C. § 1292(a) (1). Et-telson v. Metropolitan Life Insurance Co., 317 U.S. 188, 63 S.Ct. 163, 87 L.Ed. 176 (1942); Shanferoke Co. v. West-chester Co., 293 U.S. 449, 55 S.Ct. 313, 79 L.Ed. 647 (1935); Merritt-Chapman & Scott Corp. v. Pennsylvania Turn. Com’n, 387 F.2d 768 (3d Cir. 1967); Cuneo Press v. Kokomo Jam-dler’s Union No. 34, 235 F.2d 108 (7th Cir. 1956). Accordingly, the motion to dismiss the appeal may not be granted.

The district court based its refusal to stay the proceedings and granted an injunction to bar the parties from proceeding with arbitration before the Paris tribunal on the authority of Wilko v. Swan, 346 U.S. 427, 74 S.Ct. 182, 98 L. Ed. 168 (1953). That case held that section 14 of the Securities Act of 1933, 15 U.S.C. § 77a et seq., voided agreements made in connection with the purchase of securities to arbitrate disputes which may arise in the future; the aggrieved party has a nonwaivable right to have his dispute determined in a judicial forum. In resolving the conflict between the United States Arbitration Act and the Securities Act of 1933, the Court stated at page 438, 74 S.Ct. at page 188:

“Two policies, not easily reconcilable, are involved in this case. Congress has afforded participants in transactions subject to its legislative power an opportunity generally to secure prompt, economical and adequate solution of controversies through arbitration if the parties are willing to accept less certainty of legally correct adjustment. On the other hand, it has enacted the Securities Act to protect the rights of investors and has forbidden a waiver of any of those rights. Recognizing the advantages that prior agreements for arbitration may provide for the solution of commercial controversies, we decide that the intention of Congress concerning the sale of securities is better carried out by holding invalid such an agreement for arbitration of issues arising under the Act.”

The appellant seeks to limit the rule of Wilko v. Swan to domestic transactions and asserts that the correct rule for international transactions is found in M. S. Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 92 S.Ct. 1907, 32 L.Ed. 2d 513 (1972). However, the Bremen ease did not involve the sale of securities and is, therefore, not controlling.

We agree with the district court that the appellant had sufficient contacts within the United States to give the court personal jurisdiction over the appellant. See McGee v. International Life Insurance Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957); International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). The question of the district court’s jurisdiction turns on whether the transaction here in issue involves “securities” within the purview of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. We conclude that it does.

Section 3(a) (10) of the Securities Exchange Act of 1934 provides:

“(10) The term ‘security’ means any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit, for a security, or in general, any instrument commonly known as a ‘security’; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, •draft, bill of exchange, or banker’s acceptance 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 United States Supreme Court determined in Tcherepnin v. Knight, 389 U.S. 332, 88 S.Ct. 548, 19 L.Ed.2d 564 (1967) that this language is to be construed broadly to effect the purposes of the act, one of which is “to protect investors through the requirement of full disclosure by issuers of securities”. At page 338, 88 S.Ct. at page 554, the Court stated:

“As used in the 1933 [Securities Act] and 1934 [Securities Exchange Act] Acts, security ‘embodies a flexible rather than a static principle, one that is capable of adaptation to meet countless and variable schemes devised by those who seek the use of money of others on the promise of profits.’ ”

This mandate to construe broadly the term “security” compels our conclusion that the agreement to incorporate the SEV entity, and to transfer the assets of the SEV, FLS and Lodeva entities in exchange for cash and promissory notes involves a “security” within the meaning of the Securities Exchange Act of 1934. Movielab, Inc. v. Berkey Photo, Inc.,.452 F.2d 662 (2d Cir. 1971); Lawrence v. Securities and Exchange Comm., 398 F.2d 276 (1st Cir. 1968).

We find that the district court did not abuse its discretion in refusing to stay the proceedings before it, pending arbitration. The order appealed from is

Affirmed.

STEVENS, Circuit Judge

(dissenting).

In the two decades since the Supreme Court considered the collision between the two conflicting policies which made Wilko v. Swan such a close case, there have been several important developments which significantly affect the wisdom of applying the rule of that case to a transaction such as this. On the other hand, the relevant statutory language has not changed materially and it is not easy to identify a principled basis for distinguishing that case from this. Nevertheless, since I am persuaded that Congress did not intend the Exchange Act of 1934 to hamper the ability of American firms to acquire foreign businesses, I believe this arbitration clause should be enforced.

Since 1953 the policy of encouraging the settlement of disputes by arbitration has received increasingly strong endorsement, see, e. g., Metro Industrial Painting Corp. v. Terminal Construction Co., 287 F.2d 382, 385 (2d Cir. 1961); Prima Paint v. Flood & Conklin, 388 U. S. 395, 404, 87 S.Ct. 1801, 18 L.Ed.2d 1270; Halcón International, Inc. v. Monsanto Australia Ltd., 446 F.2d 156 (7th Cir. 1971), cert, denied, 404 U.S. 949, 92 S.Ct. 286, 30 L.Ed.2d 266. During this period overseas commercial activities of American business enterprises have expanded dramatically, adding emphasis to the value of arbitration as a method of adjusting international business disputes.

“For at least two decades we have witnessed an expansion of overseas commercial activities by business enterprises based in the United States. The barrier of distance that once tended to confine a business concern to a modest territory no longer does so. Here we see an American company with special expertise contracting with a foreign company to tow a complex machine thousands of miles across seas and oceans. The expansion of American business and industry will hardly be encouraged if, notwithstanding solemn contracts, we insist on a parochial concept that all disputes must be resolved under our laws and in our courts. Absent a contract forum, the considerations relied on by the Court of Appeals would be persuasive reasons for holding an American forum convenient in the traditional sense, but in an era of expanding world trade and commerce, the absolute aspects of the doctrine of the Carbon Black case have little place and would be a heavy hand indeed on the future development of international commercial dealings by Americans. We cannot have trade and commerce in world markets and international waters exclusively on our terms, governed by our laws, and resolved in our courts.” M/S Bremen v. Zapata OffShore Co., 407 U.S. 1, 8-9, 92 S.Ct. 1907, 1912, 32 L.Ed.2d 513.

An excessively paternalistic attitude toward American overseas investment will inevitably make American capital less attractive to foreign firms.

At the same time, the coverage of the Exchange Act of 1934 has been growing at a pace which makes it operative in situations quite unlike those in which the Securities Act of 1933 typically applies. The holding in Wilko v. Swan rested, in part, on the fact that the 1933 Act was intended to give special protection to the relatively uninformed, individual investor.

“While a buyer and seller of securities, under some circumstances, may deal at arm’s length on equal terms, it is clear that the Securities Act was drafted with an eye to the disadvantages under which buyers labor. Issuers of and dealers in securities have better opportunities to investigate and appraise the prospective earnings and business plans affecting securities than buyers. It is therefore reasonable for Congress to put buyers of securities covered by that Act on a different basis from other purchasers.
“When the security buyer, prior to any violation of the Securities Act, waives his right to sue in courts, he gives up more than would a participant in other business transactions. The security buyer has a wider choice of courts and venue. He thus surrenders one of the advantages the Act gives him and surrenders it at a time when he is less able to judge the weight of the handicap the Securities Act places upon his adversary.” 346 U.S. 427, 435, 74 S.Ct. 182, 98 L.Ed. 168.

The Exchange Act of 1934 also provides essential protections for the individual investor trading in the impersonal securities market. Insofar as that Act proscribes insider trading, “sales against the box” by controlling persons, manipulative and deceptive practices in connection with purchases and sales over a stock exchange, and similar aspects of transactions between the average investor and a relatively more sophisticated broker, dealer, or insider, quite obviously the rationale of Wilko v. Swan would preclude the enforceability of an agreement to waive a judicial remedy under the Act. For in such situations the same kind of disparity in either information or bargaining power is likely to be present, and there is no more reason to favor arbitration than in disputes arising under the 1933 Act.

But with the application of Rule 10(b)(5) to negotiated transactions in which the amount at stake typically justifies an independent audit or other verification of the property being purchased or sold, and the transfer of securities is a function of the form in which the parties elect to cast their transaction, quite different considerations apply. To the extent that reliance on statutory protection plays a relatively less significant part in the investment decision, there is a correspondingly lesser justification for a prohibition against any waiver of the benefits of the Act. Moreover, in transactions which are sufficiently large and complex that the parties typically contemplate the possibility of future controversy, the method of resolving foreseeable disputes is itself a proper subject of bargaining. In the international market, the inability to agree on a neutral forum quite clearly may have an impact on the price of the transaction, or even the acceptability of a prospective purchaser. The reason for the rule of Wilko v. Swan simply does not fit this case.

In view of the substantial identity between the language of § 14 of the 1933 Act, and § 29(a) of the 1934 Act, it is not easy to give the two provisions different interpretations. Nevertheless, since even Wilko v. Swan approves a measure of license in reading § 14, and since even the same words in different parts of the same statute may be read differently, I am persuaded that § 29(a) may be read to permit enforceability of certain agreements to arbitrate disputes which involve a claimed violation of the 1934 Act.

Section 29(a) prohibits the plaintiff from waiving the defendant’s compliance with any “provision” of the Act. For present purposes, the relevant “provision” of the 1934 Act is § 27 which authorizes the plaintiff to bring a civil action in the federal district court. There is no language in the Act obligating the defendant to act in “compliance with” § 27. What is waived — if the arbitration agreement is enforced- — is plaintiff’s right to sue rather than defendant’s obligation to comply with the Act. Thus, enforcement of the arbitration agreement is consistent with a literal reading of the text of §§ 27 and 29(a).

It is not, however, entirely consistent with the reading given § 14 of the 1933 Act by the Supreme Court in Wilko v. Swan. But that reading depended less on the text of the statute than on its underlying policy. The text of the 1933 Act, like the text of the 1934 Act, renders void any waiver by a plaintiff of defendant’s obligation to comply with the statute. Neither text expressly applies to the plaintiff’s waiver of his right to sue in a federal court. Moreover, the rule of Wilko v. Swan does not entirely prohibit the plaintiff’s waiver of that right; the case merely decided when plaintiff may not waive a right— namely, before the dispute under the 1933 Act has arisen. Thus, I do not read Wilko v. Swan as a case giving fixed meaning to ambiguous statutory language. Rather, I believe it is more fairly construed as a case holding that in certain situations the enforceability of arbitration agreements should be denied as contrary to the public policy expressed in the statute as a whole, and extending the literal coverage of § 14 of the Act to achieve that purpose. The same rationale justifies an expansion of the coverage of § 29 la) of the 1934 Act beyond its literal meaning to find unen-forceability of arbitration agreements which would defeat the purposes of that Act. But in a case such as this, and no doubt in less extreme eases as well, I would interpret § 29(a) as meaning no more than it actually says, and respect what I regard as the stronger policy mandated by § 201 of the Federal Arbitration Act, 9 U.S.C. § 201.

The dispute between these parties over the alleged shortage in defendant’s inventory of European trademarks, a matter covered by contract warranties and subject to pre-closing verification, is the kind of commercial dispute for which arbitration is entirely appropriate. In my opinion, the fact that the “fraud” language of Rule 10(b)(5) has been included in the complaint is far less significant than the desirability of having the Court of Arbitration of the International Chamber of Commerce in Paris, France, decide the various questions of foreign law which should determine the rights of these parties. I would require this representative of the American business community to honor its bargain.

I respectfully dissent.

      . The district court was reversed by a divided court of appeals, Wilko v. Swan, 201 F.2d 439 (2d Cir. 1953), which was in turn reversed by a divided Supreme Court. See dissenting opinion of Mr. Justice Frankfurter, 346 U.S. at 439, 74 S.Ct. 182 and concurring opinion of Mr. Justice Jackson, id. at 438, 74 S.Ct. 182.

      . Judicial support for arbitration was slow to manifest itself. In an interesting footnote to his opinion in Kulukundis Shipping Co. v. Amtorg Trading Corp., 126 F.2d 978 (2d Cir. 1942), Judge Frank reviewed early examples of legislative approval of arbitration to support his comment : “In the light of the clear intention of Congress, it is our obligation to shake off the old judicial hostility to arbitration.” Id. at 985. See id. at 985 n. 24a.

      . As Judge Gordon points out, the Zapata case did not involve the sale of securities and therefore is not controlling here. Moreover, the Chief Justice expressly limited his opinion to international agreements “unaffected by fraud,” 407 U.S. at 12, 92 S.Ct. 1907. Nevertheless, I believe the policy considerations which underlie that decision are relevant here.

      . The brief for the Securities and Exchange Commission, Amiens Curiae, emphasized the statutory concern for the disadvantaged position of the average investor.
      “Congress conceived that securities are ‘intricate merchandise’, and that the public interest demanded legislation which would recognize the gross inequality of bargaining power between the professionals in the securities business and the average investor.” Amicus Brief, p. 15.
      “The Securities Act of 1933 was designed primarily to protect the less informed members of the public against the professionals, in the light of past experience which indicated that misrepresentations not infrequently were made and that under pre-existing law it was extremely difficult for the customer to obtain adequate redress.” Id. at 33.
      “Contrary to the purpose of Congress, the decision below gives no recognition to the grossly unequal positions of the securities firm and the average customer who, before effecting a purchase, is requested to sign a fine-print form agreement.” Id. at 45-46.

      . “Any condition, stipulation, or provision binding any person acquiring any security to waive compliance with any provision of this title or of the rules and regulations of the Commission shall be void.” 48 Stat. 84, 15 U.S.C. § 77n.

      . “Any condition, stipulation, or provision binding any person to waive comiiliance with any provision of this title or of any rule or regulation thereunder, or of any rule of an exchange required thereby shall be void.” 48 Stat. 903, 15 U.S.C. § 78cc(a).

      . The text of § 14 does not support the limitation of the holding to stipulations made before any controversy arose. Moreover, the language prohibiting waiver of “compliance with any provision of this title” could easily have been read to relate to substantive provisions of the Act without including the remedy provisions.

      . See, e. g., Puerto Rico v. Shell Co., 302 U.S. 253, 258-259, 58 S.Ct. 167, 82 L.Ed. 235; Helvering v. Stockholms Enskilda Bank, 293 U.S. 84, 87-88, 55 S.Ct. 50, 79 L.Ed. 211; Atlantic Cleaners & Dyers, Inc. v. United States, 286 U.S. 427, 433, 52 S.Ct. 607, 76 L.Ed. 1204; Grand Lodge v. King, 335 F.2d 340, 344-345 (9th Cir. 1964).

      . Section 27 provides :
      “Sec. 27. The district courts of the United States, the Supreme Court of the District of Columbia, and the United States courts of any Territory or other place subject to the jurisdiction of the United States shall have exclusive jurisdiction of violations of this title or the rules and regulations thereunder, and of all suits in equity and actions at law brought to enforce any liability or duty created by this title or the rules and regulations thereunder. Any criminal proceeding may be brought in the district wherein any act or transaction constituting the violation occurred. Any suit or action to enforce any liability or duty created by this title or rules and regulations thereunder, or to enjoin any violation of such title or rules and regulations, may be brought in any such district or in the district wherein the defendant is found or is an inhabitant or transacts business, and process in such cases may be served in any other district of which the defendant is an inhabitant or wherever the defendant may be found. Judgments and decrees so rendered shall be subject to review as provided in sections 128 and 240 of the Judicial Code, as amended (U.S.C., title 28, secs. 225 and 347). No costs shall be assessed for or against the Commission in any proceeding under this title brought by or against it in the Supreme Court or such other courts.” 48 Stat. 902-903, 15 U.S.C. § 78aa.

      . In the court of appeals the issue in Wilko v. Swan was stated.as “whether the 1933 Act evidences a public policy which forbids referring the controversy to arbitration.” 201 F.2d at 443. That court accurately pointed out that the question was not expressly answered by the statutory language: “Although the question is not free from doubt and Judge Goddard’s opinion presents a strong argument against the conclusion we have reached, we do not find in the purpose or in the language of the statute, any policy argument strong enough to override the policy of the Arbitration Act. If Congress had intended to forbid arbitration in a suit based on section 12(2), we believe it would have expressed such intent.” Id. at 445.

      . See Coenen v. R. W. Pressprich & Co., 453 F.2d 1209, 1213 (2d Cir. 1972).

      . In the Summary of Argument in its brief Amicus Curiae in the Supreme Court, the Securities and Exchange Commission relied primarily on statutory policy rather than statutory language: “The arbitration provision should be held invalid because of conflict with the policy of Congress, and as an attempted waiver of the customer’s statutory rights prohibited by Section 14 of the Act.” Amicus Brief, p. 11. Its public policy argument was also advanced independently of § 14: “Wholly apart from the inclusion of an express anti-waiver provision in a statute, public policy prohibits the recognition and enforcement of stipulations limiting or preventing access to the courts where the statutory rights involved, although conferred on a private party, are affected with a public interest.” Id. at 23.

      . See Reader v. Ilirscli & Co., 197 F. Supp. 111 (S.D.N.Y.1961), holding that a broker could not compel a customer to arbitrate a claim for losses allegedly re-suiting from a violation of the margin requirement of § 7 of the 1934 Act.
      It is interesting to note that in Axelrod & Co. v. Kordich, Victor & Neufeld, 451 F.2d 838 (2d Cir. 1971), after demonstrating that § 28(b) of the 1934 Act made it perfectly clear that § 29(a) did not preclude enforcement of the compulsory arbitration rules of the New York Stock Exchange, Judge Timbers, who had presented the oral argument on behalf of the S. E. C. in Wilko v. Swan, see 346 U.S. at 427-428, 74 S.Ct. 182, 98 L.Ed. 168, thought it appropriate to add this dictum:
      “Moreover, the policy considerations relied on by the Supreme Court in Wilko are inapposite here. The Supreme Court found that the non-waiver provision there involved was designed to protect investors. 346 U.S. at 431, 74 S.Ct. 182. Without such provision, financial houses might escape statutory liability by taking advantage of the inferior bargaining position of customers. But the legislative policy of protecting investors will not be thwarted by compelling an exchange member to arbitrate, at the instance of a nonmember, a dispute which is arbitrable under the exchange’s constitution.” Id., 451 F.2d at 842-843.
      My appraisal of this case is not supported by a provision comparable to § 28(b), but I consider it plain that the policy of the 1934 Act would not be thwarted by enforcing this agreement, whereas' the strong countervailing policy identified by the Chief Justice in Zapata will be compromised if it is not enforced.


source: Caselaw Access Project

author: CUMMINGS, Circuit Judge.

license: Public Domain

text:
    Max MUNSON et al., Plaintiffs-Appellees, v. AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, Defendant-Appellant. Max MUNSON et al., Plaintiffs-Appellants, v. AMERICAN NATIONAL BANK AND TRUST COMPANY OF CHICAGO, Defendant-Appellee.
    Nos. 72-1609, 72-1610.
    United States Court of Appeals, Seventh Circuit.
    Heard April 9, 1973.
    Decided July 24, 1973.
    As Amended on Denial of Rehearing Aug. 21, 1973.

      Gale L. Marcus, Chicago, 111., for Munson.
    Richard S. Wisner, James D. Mowen, Dom J. Rizzi, Chicago, 111., for American Nat’l Bank & Trust.
    Before SWYGERT, Chief Judge, and KILEY and CUMMINGS, Circuit Judges.
   CUMMINGS, Circuit Judge.

Pursuant to the terms of an escrow agreement, one Jack Walsh was to deposit $2,500,000 with the Chicago Title and Trust Co. (Chicago Title) as es~ crowee, whereupon Chicago Title was to disburse that amount by its own drafts to the various parties to the agreement. When on December 16, 1969, Walsh deposited what purported to be a $2,500,000 certified check drawn on a Florida bank payable to his order, Chicago Title issued, among 133 others, its draft in the amount of $80,000 to Gale L. Marcus as payee and as agent and attorney for plaintiffs Max Munson (Mun-son) and Munson Mortgage and Investment Corp. (Munson Mortgage Co.). The $80,000 draft was issued in payment of a pre-existing debt Walsh owed Munson, reduced from $130,000 by agreement. On December 17, 1969, Marcus endorsed the draft in blank and delivered it to Munson who, acting individually and on behalf of Munson Mortgage Co., used it to purchase from defendant three cashier’s checks and $1,000 in cash. Only two of these cashier’s checks are pertinent here: one was made out to the Continental Illinois National Bank for deposit to Country Life Insurance Co. in the amount of $38,299.27 and one to Munson Mortgage Co. for $32,595.96. Munson brought the former check to the Continental Illinois National Bank where he directed that it be deposited to the account of the Country Life Insurance Co. to cover a bad check previously issued to that company by Munson Mortgage Co. He deposited the $32,595.96 check in the account of Munson Mortgage Co., and numerous checks were issued against it.

On Friday, December 19, 1969, Chicago Title learned that the $2,500,000 check purportedly funding the escrow bore a fraudulent certification and was drawn against an account that had only $1.98 in it. It thereupon stopped payment on the escrow drafts it had issued and accordingly advised defendant that it had stopped payment on the $80,000 draft. On Sunday, December 21, 1969, Marcus was advised by telephone by Chicago Title that payment had been stopped on the $80,000 draft; on the next day defendant gave Marcus notice of the dishonor; and on December 23, Marcus learned of defendant’s debiting his account for the $1,000 cash that had been given on December 17. Pursuant to an indemnity agreement entered into by Chicago Title and defendant, also on December 22 defendant stopped payment on its cashier’s checks purchased by plaintiffs.

As purchasers of the cashier’s checks, plaintiffs brought this action against defendant for wrongful stoppage of payment. The individual and corporate plaintiffs respectively requested punitive damages in the sums of $3,000,000 and $2,000,000 in Count I of the complaint, alleging malice as “the gist of the action.” In Count II of the complaint, added later, plaintiffs requested compensatory damages in the amount of $71,895.23 — the sum of the two cashier’s checks above mentioned and the $1,000 debit of Marcus’ account — allegedly sustained as a result of defendant’s dishon- or of its cashier’s checks and debit of plaintiffs’ counsel’s account. The district court entered judgment in favor of defendant on Count I. It granted plaintiffs’ motion to strike the defenses to Count II, entered judgment on the pleadings in favor of plaintiffs on that count in the sum of $71,895.23, and denied defendant’s motion for summary judgment. Defendant has appealed from the district court’s adverse rulings on Count II and plaintiffs have cross-appealed from the adverse judgment on Count I.

I

As to Count I claiming punitive damages, it is settled by controlling Illinois law that generally such damages may be recovered only where the allegedly wrongful act is accompanied by wantonness, malice, oppression or circumstances of aggravation. Knierim v. Izzo, 22 Ill.2d 73, 87, 174 N.E.2d 157, 165 (1961). It was a question of law for the district judge to resolve whether the facts of this case brought it within the rule in which punitive damages may be assessed. Smith v. Hill, 12 Ill.2d 588, 594, 147 N.E.2d 321, 325 (1958). This record entitled him to conclude that there were no factors warranting the imposition of punitive damages. As he said, the bank exercised the due care of an ordinarily reasonable and prudent person under the circumstances. Therefore, Count I need not have been submitted to a jury, as demanded by plaintiffs. We hold that the judgment for the bank as to Count I was warranted.

II

Defendant first argues, and this is the substance of its first separate defense, that plaintiffs cannot enforce defendant’s obligation to honor its cashier’s checks because “there is a total failure of consideration in this case.” Its argument is as follows: In purchasing the cashier’s checks, plaintiffs incurred an obligation to pay for them. Under Ill. Rev.Stat.1971, ch. 26, §§ 2-511(3) and 3-802(1) (b), the giving of the $80,000 draft was only a conditional discharge of that obligation, and that conditional discharge was defeated when the $80,000 draft was dishonored. Defendant then somehow equates the dishonor of the draft with a failure of consideration and argues that whether or not plaintiffs are holders in due course of the cashier’s checks, they are not immune to the defense of failure of consideration because they dealt with defendant. Ill.Rev.Stat. 1971, ch. 26, §§ 3-305(2), 3-306 (c). Defendant has mischaracterized the transaction and studiously avoided the controlling Uniform Commercial Code provision. Ill.Rev.Stat.1971, ch. 26, § 4-303 provides, in pertinent part:

“Any knowledge, notice or stop-order received by, legal process served upon or setoff exercised by a payor bank, whether or not effective under other rules of law to terminate, suspend or modify the bank’s right or duty to pay an item or to charge its customer’s account for the item, comes too late to so terminate, suspend or modify such right or duty if the knowledge, notice, stop-order or legal process is received or served and a reasonable time for the bank to act thereon expires or the setoff is exercised after the bank has done any of the following:
“(a) accepted or certified the item * * -X- ”

By definition a cashier’s check is a bill of exchange drawn by a bank

upon itself and accepted in advance by the act of issuance. State of Pa. v. Curtiss Nat. Bank, 427 F.2d 395, 398 (5th Cir. 1970); Ross v. Peck Iron & Metal Co., 264 F.2d 262, 269 (4th Cir. 1959); Brady on Bank Cheeks, 10 (1969 ed.). After issuance defendant bank simply had no right to countermand the cashier’s checks. State of Pa. v. Curtiss Nat. Bank, supra; National Newark & Essex Bank v. Giordano, 111 N.J.Super. 347, 268 A.2d 327, 329 (1970); Ross v. Peck Iron & Metal Co., supra. When Chicago Title stopped payment on the $80,000 draft, to be sure defendant had a right of recourse on that instrument or on the underlying obligation. As Ill. Rev.Stat.1971, ch. 26, § 3-802(1) (b) states, “If the instrument is dishonored action may be maintained on either the instrument or the obligation.” But the rights of recourse are all defendant had. Dishonor of the $80,000 draft gave defendant no more right to countermand its cashier’s checks than it would have given defendant a right to refuse to pay cash it had already paid. “The transaction is not executory but rather an executed transaction of purchase and sale.” National Newark & Essex Bank v. Giordano, supra, 268 A.2d at 328. Hence we are at a loss to understand how the dishonor, which itself gave rise to defendant’s rights to proceed against the drawer, transferor or obligor and extinguished no liability, can provide a defense of “failure of consideration.”

Defendant also asserted three separate defenses in the nature of an offset against any liability for wrongful dishonor of its cashier’s checks and moved for summary judgment thereon. Its position here is well taken, and summary judgment should have been granted.

Besides asserting its right to recover from plaintiffs on their underlying obligation to pay for the cashier’s checks, defendant claimed any liability to plaintiffs was also offset by their liability on the $80,000 instrument arising from the indorsement contract (Ill.Rev. Stat.1971, ch. 26, § 3-4Í4(l)) and from their warranties of transfer (Ill.Rev. Stat.1971, ch. 26, §§ 4-207(2) (d) and 4-207(2), final sentence). It is necessary only to consider the viability of the indorsement and warranty liabilities of plaintiffs, for if plaintiffs have been discharged on the instrument, they are also discharged on the underlying obligation. Ill.Rev.Stat.1971, ch. 26, § 3-802(1) (b).

By virtue of Ill.Rev.Stat.1971, ch. 26, § 4-207(2)(d), plaintiffs as transferors warranted that “no defense of any party is good against [them].” If plaintiffs were not holders in due course of the $80,000 draft, it appears from related state court litigation that Chicago Title does have a defense against plaintiffs on the $80,000 draft. See Ill.Rev.Stat.1971, ch. 26, § 3-306(b). Plaintiffs have argued at length their holder in due course status, but suffice it to say we think there was at least substantial factual question as to whether the events leading up to and surrounding the escrow agreement put plaintiffs on notice that Walsh was in no financial position to write an indefensible check for $2,500,000 and even as to whether or not the plaintiffs acted in good faith. See Ill.Rev.Stat.1971, ch. 26, § 3-302(1).

Resolution of these factual questions will be unnecessary, however, because plaintiffs’ liability on their indorsement and their coextensive warranty of transfer is clear. By the indorsement on the $80,000 draft of their conceded agent Gale Marcus, plaintiffs engaged that upon dishonor and any necessary notice of dishonor and protest they would pay the instrument according to its tenor at the time of their indorsement to defendant (Ill.Rev.Stat.1971, ch. 26, § 3-414(1)), and by their transfer of the draft to defendant they independently warranted the same thing. Ill. Rev.Stat.1971, ch. 26, § 4-207(2). After Chicago Title dishonored the $80,000 draft by stopping payment on it, defendant gave Marcus timely notice of dishon- or, thus preserving its right to charge plaintiffs. See Ill.Rev.Stat.1971, eh. 26, §§ 3-501, 3-502, 3-507, 3-508(1), (3) and (8), 3-511(2) (b).

Plaintiffs’ counter to their asserted liability under Ill.Rev.Stat.1971, ch. 26, §§ 3-414(1) and 4-207(2), as well as on the underlying obligation, is that defendant has either waived its rights or is estopped from claiming them. The argument is that defendant by its custom and practice would cash checks or issue cashier’s checks in exchange for ordinary drafts for clients of its attorney-customers without regard to the amount in the attorney’s account and in sole reliance on the drawer of the draft. Plaintiffs 'contend that an agreement arose from this course of dealing whereby defendant waived its rights against the indorser or transferor on the instrument or the underlying obligation. However, in no way can the service defendant extended to its attorney-customers be turned into a waiver of its rights of recourse under the law of negotiable instruments. The fact that defendant chose not to take certain precautions before cashing drafts or issuing its cashier’s checks in exchange therefor does not mean it waived its rights to charge secondary parties in the event those drafts were later dishonored. Considering the pleadings and all the deposition testimony, we find no genuine factual issue as to the existence of any course of dealing whereby defendant surrendered its rights of recourse against plaintiffs. See Vermilion County Production Credit Ass’n v. Izzard, 111 Ill.App.2d 190, 196-197, 249 N.E:2d 352 (1969). As a matter of law, plaintiffs were not discharged of their obligations on the $80,000 instrument and the underlying obligations thereof. Ill.Rev.Stat.1971, ch. 26, § 3-601(2); see Cheltenham Stone and Gravel Co. v. Gates Iron Works, 124 Ill. 623, 626-628, 16 N.E. 923 (1888); Lechleiter v. Lechleiter, 330 Ill.App. 517, 523-524, 71 N.E.2d 845 (1947).

Consequently, it was error to strike defendant’s second, third and fourth offset defenses to Count II, and in accordance with the foregoing discussion, defendant was entitled to summary judgment in its favor on Count II.

Therefore the judgment of the district court is affirmed on Count I and reversed on Count II with directions to enter judgment for the defendant.

      . The third, for $8,104.77 payable to Richard H. Roberts, was paid by Chicago Title.

      . See Schulze v. Rayunec, 350 F.2d 666, 668 (7th Cir. 1965), certiorari denied, 382 U.S. 919, 86 S.Ct. 293, 15 L.Ed.2d 234, which acknowledges that a debtor-creditor relationship exists between the purchaser of cashier’s checks and the issuing bank. Plaintiffs could not maintain the action on the $38,299.27 cashier’s check itself payable to the Continental Illinois National Bank for deposit to Country Life Insurance Co. since they are neither payees nor holders thereof. Further, as purchasers it is unclear how plaintiffs could claim to have suffered damages in the amount of the check since it appears the check was taken in payment of the corporate plaintiff’s debt, and Ill.Rev.Stat.1971, ch. 26, § 3-802(1) (a) provides that “ * * * where an instrument is taken for an underlying obligation * * * the obligation is pro tanto discharged if a bank is the drawer * * Plaintiffs’ suggestion that they are “in effect suing herein as the Agent of Country Life to the extent of its claim” (Reply Brief in Support of Plaintiffs’ Motion to Strike Separate Defenses to Count II, pp. 14-15) is entirely unsubstantiated.
      With regard to the $32,595.93 cashier’s check payable to Munson Mortgage Co., it is not alleged in the complaint that plaintiffs are presently in possession of or have title to the instrument.

      . “Subject to the provisions of this Act on the effect of an instrument on an obligation (Section 3-802), payment by check is conditional and is defeated as between the parties by dishonor of the check on due presentment.” The Illinois statutory references throughout are to the Uniform Commercial Code adopted in Illinois. The history of the Code is discerningly recapitulated in Henson, Secured Transactions Under the Uniform Commercial Code 1-5 (1973). Professor Henson’s estimable hornbook, dealing with UCC Article 9, also contains useful precepts for interpreting the Code (at 6-15).

      . “Unless otherwise agreed where an instrument is taken for an underlying obligation * * * the obligation is suspended pro tanto until the instrument is due or if it is payable on demand until its presentment. If the instrument is dishonored action may be maintained on either the instrument or the obligation * *

      . But see note 2, supra. Since plaintiffs must be bringing this action as purchasers for breach of contract rather than on the instruments, it is difficult to understand the relevance of plaintiffs’ holder in due course status vel non with respect to the cashier’s checks.

      . “To the extent that a holder is a holder in due course he takes the instrument free from * * * all defenses of any party with whom the holder has not dealt except * * (Emphasis supplied.)

      . “Unless he has the rights of a holder in due course any person takes the instrument subject to * * * the defenses of want or failure of consideration * *

      . The only case of pertinence under the Uniform Commercial Code relied on by defendant is Wilmington Trust Co. v. Delaware Auto Sales, 271 A.2d 41 (Sup.Ct. Del.1970). In that case the court held that where a bank mistakenly exchanged its cashier’s check for a personal check drawn on it over a stop-payment order, the bank could assert a personal defense of failure of consideration against the payee of the cashier’s check and stop payment thereon. Research reveals no case which has approved of the Delaware court’s analysis and, on the contrary, it has been brought into serious question. See Brady on Bank Checks, 5 and n. 9, 73 n. 57, 150 and n. 6 (1973 Supp.). We think the Illinois courts would decline to follow it in this case.


author: STEVENS, Circuit Judge.

text:
    HOMEMAKERS HOME AND HEALTH CARE SERVICES, INC. (formerly Homemakers, Inc.), Appellant, v. CHICAGO HOME FOR the FRIENDLESS, Appellee. CHICAGO HOME FOR the FRIENDLESS, Appellee, v. HOMEMAKERS HOME AND HEALTH CARE SERVICES, INC. (formerly Homemakers, Inc.), and Homemakers— North Shore, Inc., Appellants.
    No. 72-1674.
    United States Court of Appeals, Seventh Circuit.
    Argued May 29, 1973.
    Decided Sept. 11, 1973.

      Richard E. Alexander, Chicago, 111., for appellants.
    David C. Hilliard, Chicago, 111., for ap-pellee.
    Before FAIRCHILD, PELL and STEVENS, Cricuit Judges.
   STEVENS, Circuit Judge.

Plaintiff-Appellant’s complaint sought a declaratory judgment establishing the validity of its registration of the service mark “HOMEMAKERS” used in connection with health, family and household service — namely, nursing, companionship, visiting, housekeeping, domestic help, maids, cooks and home maintenance. The district court held that the term was merely descriptive and entered judgment directing the Patent Office to cancel the registration in accordance with the provisions of 15 U. S.C. § 1119.

Defendant-Appellee’s counterclaim alleged that the word “homemakers” had achieved secondary meaning in the Chicago area as a part of defendant’s trade name, and that plaintiff’s use of that word constituted unfair competition. The district court held that the proof sustained the allegations of the counterclaim, enjoined plaintiff from using the word “homemakers” as a part of its trade name in Cook County, and ordered an accounting of profits.

We think neither party is entitled to a monopoly in the use of the term “homemakers.” Accordingly, we affirm the judgment for the defendant on the complaint and reverse the judgment on the counterclaim.

I.

The Parties.

Plaintiff, “Homemakers Home and Health Care Services, Inc.,” formerly “Homemakers, Inc.,” is in business for profit. Defendant, “Chicago Home for the Friendless,” is a charitable concern. We shall use the term “Homemakers, Inc.” to refer both to the plaintiff and, where appropriate, to its franchisee, “Homemakers — North Shore, Inc.,” a corporation which has also been named as a counterdefendant. We shall refer to defendant as “Chicago Home.”

The business now operated by Homemakers, Inc. was started by a Mr. and Mrs. Bailing who were furnishing temporary nursing and housekeeping personnel in Joliet, Illinois, in the summer of 1964. They incorporated as “Homemakers, Inc.” on March 30, 1965. They supplied members of the public with nurses, nurses’ aids, housekeepers, cooks, and similar domestic personnel on a temporary basis. The customers paid Homemakers, Inc. for these services; the temporary personnel, who were employees of Homemakers, Inc., received their wages from the company.

In 1965 Homemakers, Inc. began a program of franchising. In January, 1966, it applied for a registration of “HOMEMAKERS” as a service mark, and in October of 1966 advertised nationally that its franchises were available. The registration issued without opposition on March 7, 1967. A licensee opened an office in Evanston, Illinois, in early 1969; later that year Homemakers, Inc. merged into the Upjohn Company. At trial it offered to prove that its promotional expenses were approximately $348,000 in 1970, $623,000 in 1971, and were budgeted at $750,000 for 1972; it also offered to prove that sales by Homemakers, Inc. throughout the United States in 1971 were in excess of eight million dollars; and finally, that 34 franchisees in various parts of the country had been granted licenses to use the mark “HOMEMAKERS.”

Chicago Home was chartered as a not-for-profit corporation in 1859. Its two principal activities are providing foster care services and homemaker services. The latter involve the placing of trained welfare persons in homes on a charitable basis. The family makes no payment for this help and the homemaker works under the supervision of a trained social worker. These services are supported by direct charitable contributions and indirectly by grants from various Community Chests in the Chicago metropolitan area. In 1962 Chicago Home opened a district office in Oak Park; the office is described as “West Suburban Homemaker Service.” From 1966 to 1971 several other branch offices in the Chicago area have used similar geographic designations. Chicago Home’s expenses incurred in the provision of homemaker services have grown from $100,000 in 1962 to over $700,000 in 1971. In 1967 it provided 18,860 days of homemaker services.

The two litigants are not competitors. The customers of Homemakers, Inc. are not the recipients of charity; the families serviced by Chicago Home cannot afford the services of Homemakers, Inc.

II.

The Complaint.

We have no doubt that the district court correctly concluded that “homemakers” is merely a descriptive term.

Plaintiff argues that the court erred by not requiring defendant to adduce evidence to overcome the presumption of validity established by the registration. The court was entitled, however, to rely on the evidence contained in plaintiff’s case-in-chief.

In view of the fact that the mark consists of nothing more than one descriptive word, the presumption of validity “may be easily overcome.” The two reasons for refusing to protect marks which are merely descriptive apply with special force to one word terms. Since there is the greatest likelihood that such terms will form a part of the trade name used by competitors, there is a corresponding probability that the word will not unambiguously advise the public of the source of the goods or services. Moreover, monopoly rights in a single common word, as opposed to combinations of different words, involve a much more substantial infringement upon common speech.

Plaintiff argues alternatively that if the court had accepted its offer of proof, secondary meaning would have been demonstrated. We question that conclusion but reject the argument for a different reason. The registration of the mark in 1967 was not issued pursuant to 15 U.S.C. § 1052(f) ; thus, it was not granted on the theory that the term had acquired any secondary meaning. The subsequent acquisition of secondary meaning may entitle the owner to trade name protection but cannot retroactively establish the registrability of a mark that should not have been accepted for registration in 1967. For the rights stemming from that registration, if it were valid, would entitle the owner to protection from the date of registration.

It is perfectly clear from the record that the term “homemakers” had not acquired a secondary meaning which would have supported registration of a descriptive term in 1967. Since plaintiff’s offer of proof related to subsequent developments, the proffered evidence would not save the registration.

III.

The Counterclaim.

Although the counterclaim is based on several different laws, all the actions are based on the common proposition that counter defendant’s use of the term “homemakers” in its name misleadingly implies that Chicago Home is the source of the services provided. In other words, Chicago Home claims the term as a trade name. In proving its counterclaim, Chicago Home -must, of course, accept the consequences of the position it persuaded the court to adopt in the principal case. We therefore start with the proposition that “homemakers” is a descriptive term. Chicago Home may not claim the description “homemakers” as a trade name unless it proves that the term has acquired a secondary meaning which identifies Chicago Home as the source of the services in question. Jewel Tea Co. v. Kraus, 187 F.2d 278, 283 (7th Cir. 1950). Although the district court ruled that Chicago Home was entitled to trade name protection, we find insufficient evidence to establish the proposition that the term “homemakers” identifies Chicago Home as the source of homemaking services.

The word has been used by Chicago Home to describe the services it provides, and also has been used as a part of a longer geographic name for certain local offices. Neither of these types of use remotely justifies the conclusion that the term has acquired the requisite secondary meaning to support the common law right to protection of a trade name. The record shows that other parties, such as the “Homemakers Service Department in the Public Assistance Division of the Cook County Department of Welfare” and the “National Council for Homemaker Service” make a comparable use of this descriptive word. The word itself does not identify Chicago Home as a source.

We therefore affirm the judgment of the district court directing cancellation of plaintiff’s registration and reverse the judgment granting relief to Chicago Home on the counterclaim.

      . Registration No. 825,460 dated March 7, 1967, pursuant to Application No. 236,257 filed January 12, 1966.

      . For example, the registration itself is for “household services” such as “housekeeping” ; plaintiff advertises that “services are to be provided when mother is ill or away”; and the original articles of incorporation describe this service as “homemaking service.”

      . See Shaw-Barton, Inc. v. John Baumgarth Co., 313 F.2d 167, 169 (7th Cir. 1963). In that case a different application of the term “homemakers” was also held descriptive and not entitled to trademark protection. See also John Morrell & Co. v. Reliable Packing Co., 295 F.2d 314, 316 (7th Cir. 1961).

      . Cf. E. F. Drew & Co. v. Pam Industries, Inc., 299 F.2d 777, 779 (7th Cir. 1962).

      . That section provides:
      “ (f) Except as expressly excluded in paragraphs (a)-(d) of this section, nothing in this chapter shall prevent the registration of a mark used by the applicant which has become distinctive of the applicant’s goods in commerce. The Commissioner may accept as prima facie evidence that the mark has become distinctive, as applied to the applicant’s goods in commerce, proof of substantially exclusive and continuous use thereof as a mark by the applicant in commerce for the five years next preceding the date of the filing of the application for its registration.”

      . The United States Court of Customs and Patent Appeals has held that if the validity of a registration depends on the secondary meaning of the mark, registrability “must be determined on the basis of facts as they exist at the time when the issue of registra-bility is under consideration.” McCormick & Co. v. Summers, 354 F.2d 668, 674, 53 CCPA 851 (1966). See also Roselux Chemical Co. v. Parsons Ammonia Co., 299 F.2d 855, 863, 49 CCPA 931 (1962).

      . The district court found violations of the common law Illinois, 15 U.S.C. § 1125(a), 121% Ill.Rev.Stat. §§ 311-318, and 140 Ill. Rev.Stat. § 22.

      . Thus, for example, Chicago Home’s 1967 annual report includes statistics describing “the amount of homemaker service provided-by our Agency,” but the names which are featured in the report are the corporate name and the phrase “child and family services.”

      . Thus, for example, the name “West Suburban Homemaker Service” is used as one of Chicago Home’s telephone listings.


author: KILEY, Circuit Judge.

text:
    Andrew PASHA, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
    No. 72-1289.
    United States Court of Appeals, Seventh Circuit.
    Argued April 9, 1973.
    Decided Aug. 16, 1973.
    James R. Thompson, U. S. Atty., William T. Huyck and Ann P. Sheldon, Asst. U. S. Attys., Chicago, III., for defendant-appellant.
    Raymond J. Smith, Chicago, 111., for plaintiff-appellee.
    Before SWYGERT, Chief Judge, KIL-EY and CUMMINGS, Circuit Judges.
   KILEY, Circuit Judge.

This is an appeal by the government from a judgment in a coram nobis proceeding brought by plaintiff Pasha to vacate his earlier conviction; and to recover a fine paid by him and recover the value of his automobile forfeited to the government — both with interest. We affirm, except as to the award of interest.

Pasha was convicted in 1963 under a two count indictment charging that he violated 26 U.S.C. § 7203 by wilfully failing to pay a special occupational gambling tax and by failing to file with the Internal Revenue Service an informational return required by § 7203. He served a one year sentence and paid a $2,000 fine. In 1961 Pasha forfeited his automobile under a district court judgment in a governmental libel suit under 49 U.S.C. § 781 upon the grounds that he had engaged in gambling without paying a special tax and without registering as required by 26 U.S.C. § 7203.

In January, 1968 the Supreme Court decided Marchetti v. United States, 390 U.S. 39, 88 S.Ct. 697, 19 L.Ed.2d 889 (1968), and Grosso v. United States, 390 U.S. 62, 88 S.Ct. 709, 19 L.Ed.2d 906 (1968). In both cases the Supreme Court reversed convictions, under somewhat similar taxing statutes, on the ground that Marchetti and Grosso, who asserted their Fifth Amendment privilege against self-incrimination, “may not be criminally” punished for failure to comply with the statutory requirements.

On September 9, 1970 Pasha filed his “Motion in the Nature of a Motion for a Writ of Error Coram Nobis,” invoking the Fifth Amendment and 28 U.S.C. § 1651(a), the All Writs Act; and relying upon Marchetti and Grosso, this court’s United States v. U. S. Coin and Currency, 393 F.2d 499 (7th Cir. 1968), cert, granted, 393 U.S. 949, 89 S.Ct. 375, 21 L.Ed.2d 361, affirmed, 401 U.S. 715, 91 S.Ct. 1041, 28 L.Ed.2d 434 (1971), and the decision of the Fifth Circuit in United States v. Lucia, 416 F.2d 920 (5th Cir. 1969).

Instead of answering, the government, on January 18, 1971, moved to stay further proceedings pending a determination of the retroactivity of Marchetti and Grosso. The motion noted that this court had given retroactive effect to those decisions in Zizzo v. United States, 431 F.2d 913, 915 (7th Cir. 1970). The motion was granted. No answer was ever filed, but after continuances on government motions, on October 29, 1971 Pasha moved for entry of an order granting the relief sought.

The district court dismissed the indictment and set aside the conviction, and ordered the clerk of the court to return the fine and to pay Pasha the reasonable market value of his automobile, plus interest on both payments.

The government concedes that coram nobis is the appropriate action for vacating the conviction and sentence ' that has been served. But it argues that for the purpose of recovering a money judgment against the United States coram nobis is inappropriate and that “[I]f plaintiff has any remedy” it is under the Tucker Act, 28 U.S.C. § 1346(a)(2).

The Tucker Act provides for original jurisdiction in both the district courts and the Court of Claims of, among other civil actions:

Any other civil action or claim against the United States, not exceeding $10,000 in amount, founded either upon the Constitution, or any Act of Congress, or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or un-liquidated damages in cases not sounding in tort. For the purpose of this paragraph, an express or implied contract with the Army and Air Force Exchange Service, Navy Exchanges, Marine Corps Exchanges, Coast Guard Exchanges, or Exchange Councils of the National Aeronautics and Space Administration shall be considered an express or implied contract with the United States.

In United States v. Rothstein, 187 F. 268, 270 (7th Cir. 1911), a Tucker Act case, this court affirmed the judgment of the district court “sitting as a court of claims.” The district court had dismissed an indictment against Rothstein, set aside his conviction and ordered restitution to him of a fine paid by him “voluntarily” following a plea of nolo contendere and conviction under an un-constitutinal statute. Justice Holmes, in United States v. Emery, 237 U.S. 28, 32, 35 S.Ct. 499, 59 L.Ed. 825 (1915) — a suit to recover unjustified taxes paid under protest — indicated that the forerunner of § 1346(a)(2) was not to be “construed strictly and read with an adverse eye.” The district court there was “sitting as a court of claims” and entered judgment for the taxpayer. The Supreme Court affirmed.

Judge Augustus N. Hand, in Compag-nie General Transatlantique v. United States, 21 F.2d 465, 466 (S.D.N.Y.1927), affirmed, 26 F.2d 195 (2d Cir. 1928), extended the Emery holding to recovery of a fine in a Tucker Act suit where the suit “reasonably involve [s] the application of a law of Congress.” Judge Bonsai of the United States District Court for the Southern District of New York, in deciding for plaintiff in her suit under § 1346(a)(2), Jaekel v. United States, 304 F.Supp. 993, 997 (S.D.N. Y.1969), relied upon Emery and Com-pagnie, stating that where “ . taxes, fines or penalties are unlawfully imposed” suit under § 1346(a)(2) was an appropriate remedy. In United States v. One 1961 Red Chevrolet Impala Sedan, 457 F.2d 1353, 1358 (5th Cir. 1972), the court vacated “without prejudice” a district court judgment denying motions under Rule 60(b)(4) F.R.Civ.P. • — to dismiss the information, set aside a prior forfeiture and recover money — on the ground that the remedy was improper. The court of appeals agreed with the government’s concession that the proper remedy was under the Tucker Act.-

Presumably in Red Chevrolet the government challenged the proposed remedy in the district court. Here there was no challenge to the coram nobis remedy. We cannot say that the court in Red, Chevrolet would have vacated a district court judgment in a coram nobis proceeding in view of its decision in United States v. Lucia, 416 F.2d 920 (5th Cir. 1969). True, there the coram nobis was stated by the court as seeking only to vacate and set aside “judgments and sentences.” Lucia at 922. Although Lucia had been fined $10,000, no reference is made to the fine in the opinion.

After Red Chevrolet was decided, a district court in United States v. Lewis, 342 F.Supp. 833, 834 (E.D.La.1972), stated that Lewis “appropriately seeks via the writ of coram nobis” to set aside his conviction and noted that he further sought repayment of his fine. The district court found jurisdiction under the All Writs Act. The court brushed aside the government argument that Lewis should be denied relief because he paid the fine “voluntarily,” and ordered vacation of sentence and restitution of the fine paid.

The government does not argue that the district court lacked jurisdiction. Clearly the court had subject matter jurisdiction under the Tucker Act. That Act does not prescribe any particular pleading. In the circumstances of this case we treat the motion as embracing a claim for recovery of the money and value of the car under the Tucker Act. While the government concedes that Pasha’s motion is appropriate for restoring his legal position as an innocent citizen, it asserts an interest in prohibiting the economic restitution until he ehoses the “appropriate” remedy.

We hold that the district court did not err in not remitting Pasha to a separate suit with a different label to gain his economic restitution. We have not hesitated to ignore labels in pleadings when to do otherwise substantial prejudice might have resulted. Where, as here, equitable considerations abound, we sustain the district court’s judgment on the ground that having properly taken jurisdiction of the motion to set aside the conviction, the court could also decide to avoid piecemealing the cause of action and save judicial resources by disposing of all issues before it.

It is true that this court in United States v. Campbell, 278 F.2d 916 (7th Cir. 1960), and United States v. Kiger, 315 F.2d 778 (7th Cir. 1963), held, under United States v. Morgan, 346 U.S. 502, 74 S.Ct. 247, 98 L.Ed. 248 (1954), that use of coram nobis is to be narrowly limited. We do not, however, unduly extend the narrow interpretation of co-ram nobis by deciding that the district court did not err in ordering payment to Pasha of the amount of the fine and the amount of the value of his car.

Had defendants challenged Pasha’s motion in the district court, that court would most likely have granted him leave to amend his motion by asserting his claim, for recovery of fine and of proceeds of the forfeiture, under the Tucker Act. We have no disposition to vacate the judgment on the government’s belated challenge in this court, since it failed even to respond to Pasha’s motion in the district court.

We are not persuaded that the doctrine of sovereign immunity precludes the coram nobis proceeding. Congress has given consent to sue the United States in the Tucker Act and has not required any specific form of pleading for recovery.

We see no merit either in the government’s contention, based upon 19 U.S.C. §§ 1613 and 1618, that Pasha is not entitled, under the ■ Tucker Act, to recover the proceeds of the forfeiture sale of his automobile. These sections deal with proceedings before the Secretary of the Treasury regarding proceeds of forfeited property. The sections are wholly inapposite here. The statutes relied upon do not take away the jurisdiction of courts in matters over which they have jurisdiction under the Constitution and the Tucker Act. See The Ermis, 33 F.2d 763, 764 (S.D.Fla.1929). We are not persuaded by the government’s argument that Pasha should not recover the value of his automobile because it was sold after the forfeiture proceedings.

The government contends that the district court erred in awarding interest on the fine and proceeds of the forfeiture sale. Pasha’s brief does not directly contest the argument, and we think he has probably conceded the point. In any event, we think the court erred in awarding interest. There is no provision for interest in the Tucker Act. See United States v. Tillamooks, 341 U. S. 48, 49, 71 S.Ct. 552, 95 L.Ed. 738 (1951).

For the reasons given, the judgment is affirmed as to recovery of the principal sums, and is reversed as to the award of interest.

      . The parties stipulated that value to he $4,600.

      . In United States v. Gettinger, 272 U.S. 734, 47 S.Ct. 276, 71 L.Ed. 499 (1927), the Supreme Court reversed the district court’s overruling of a demurrer to a complaint seeking recovery of a fine after the district court had set aside the conviction following its decision that the statute subject of suit was unconstitutional. The Supreme Court, on the only issue before it, held that the district court had no jurisdiction to bind the United States to repay a fine because Gettinger reserved in a nolo contendere plea a “right” to recover the fine should the Act subject to indictment be declared unconstitutional.


author: TRASK, Circuit Judge:

text:
    INTERNATIONAL VIDEO CORPORATION, Plaintiff-Appellee, v. AMPEX CORPORATION, Defendant-Appellant.
    No. 71-1935.
    United. States Court of Appeals, Ninth Circuit.
    Sept. 4, 1973.
    Francis A. Even (argued), John F. Flannery, of Fitch, Even, Tabin & Lue-deka, Chicago, 111., J. Bruce McCubbrey, San Francisco, Cal., for defendant-appellant.
    Karl A. Limbach (argued), Richard E. Peterson, Thomas A. Gallagher, of Lim-bach, Limbach & Sutton, San Francisco, Cal., for plaintiff-appellee.

      Before CHAMBERS and TRASK, Circuit Judges, and TAYLOR, District Judge.

       Honorable Fred M. Taylor, Senior United States District Judge for the District of Idaho, sitting by designation.

   TRASK, Circuit Judge:

This is an appeal from an order dismissing both a complaint for declaratory-judgment and a counterclaim for patent infringement on the basis that there was no actual or justiciable controversy between the parties. Appellant, Ampex Corporation (Ampex), claims the court had no authority to dismiss its counterclaim over its objection and challenges the court’s discretion in refusing to award attorneys’ fees. We affirm.

International Video Corporation (International), the plaintiff-appellee, originally sought a declaratory judgment that it was not infringing an Ampex patent covering video tape recording apparatus. Ampex unsuccessfully sought dismissal of the action asserting by way of Motion to Dismiss, that there was no justiciable controversy. Thereafter, Ampex “reluctantly” filed a compulsory counterclaim to prevent waiver of its right to sue International for patent infringement. Fed.R.Civ.P. 13(a). The counterclaim alleged :

“Without hereby waiving its denial of the existence heretofore of a justi-ciable controversy between the Plaintiff, International Video Corporation, and the Defendant, Ampex Corporation, with respect to the Defendant’s Patent 2,956,114, or to infringement thereof by the Plaintiff; and without waiving its right of review of the District Court’s denial of the Defendant’s motion to dismiss the declaratory judgment complaint herein for want of justiciable controversy; and to prevent possible loss of right for failure to assert what may be held to be a compulsory counterclaim, the Defendant counterclaims against the Plaintiff, IVC, ...” C.T. at 71.

A year later, International having changed its position completely, filed a Motion to Reopen Defendant’s Motion to Dismiss, arguing that the factual context of the action had changed and that the action should be dismissed as Ampex had previously suggested. The court granted International’s motion explaining:

“In effect, plaintiff argues that the circumstances giving rise to this action have so changed that it would serve no useful purpose to proceed further. In light of plaintiff’s presentation, this argument is persuasive. Although the parties may still be in some disagreement over the patent in question, the changes in circumstances referred to by plaintiff demonstrate that ‘there are no longer adverse parties with sufficient legal interests to maintain the litigation.’ 6A Moore’s Federal Practice j[ 57.13, at 3074 (2d ed. 1966). See Cover v. Schwartz, 133 F.2d 541 (2d Cir.), cert, denied, 319 U.S. 748, [63 S.Ct. 1158, 87 L.Ed. 1703] (1942). Therefore, the motion to reopen is granted, and the complaint is dismissed.
“Dismissal of the complaint does not require dismissal of the counterclaim. See Altvater v. Freeman, 319 U.S. 359, [63 S.Ct. 1115, 87 L.Ed. 1450] (1943). However, defendant has made it clear both in the counterclaim itself, and in opposing plaintiff’s motion, that the counterclaim was reluctantly filed to protect against a waiver under Federal Rule of Civil Procedure 13(a). Since the complaint has been dismissed, defendant need fear waiver no longer. There being no actual controversy between the parties, the counterclaim is also dismissed.” C.T. at 236.

Ampex does not challenge that part of the court’s order dismissing International’s complaint. However, it has appealed dismissal of its counterclaim.

Ampex contends that the dismissal of its counterclaim for patent infringement was error because it has never agreed to a voluntary dismissal under Rule 41(a)(2), Fed.R.Civ.P. and because the prerequisites for an involuntary dismissal under Rule 41(b) or (c) have not been met. Ampex argues that dismissal of a complaint does not necessarily require dismissal of a counterclaim which has a jurisdictional basis independent of the main action. See McGraw-Edison Co. v. Preformed Line Products Co., 362 F.2d 339 (9th Cir. 1966). Here, Ampex asserts, there was such an independent jurisdictional basis for the counterclaim —federal patent jurisdiction. Ampex relies on Pioche Mines Consolidated, Inc. v. Fidelity-Philadelphia Trust Co., 206 F.2d 336 (9th Cir. 1953), where a similar order of dismissal of a counterclaim was reversed because the counterclaim rested independently upon separate federal grounds for jurisdiction, specifically, diversity of citizenship.

We conclude that Rule 41 is inapplicable to the dismissals in this case which were predicated on lack of jurisdiction. Rule 41, cited by appellant, applies to voluntary dismissals and involuntary dismissals other than dismissals for lack of jurisdiction. Rule 12 dismissals for lack of jurisdiction are non-discretionary and are to be entered whether the parties object or not.

Ampex’s argument must fail because it ignores the crucial threshold question — whether a justiciable controversy exists — underlying the court’s orders of dismissal. If there is no controversy, there is no jurisdiction in a constitutional sense regardless of whether statutory jurisdiction might otherwise be properly founded.

In hearing the original motion to dismiss brought by appellant Ampex, the court concluded that a justiciable controversy existed. Ampex has never retreated from its original argument that the declaratory judgment complaint was dismissable for want of a justiciable controversy. The mere filing of a compulsory counterclaim does not establish a justiciable controversy where none previously existed. Cf. Dragor Shipping Corp. v. Union Tank Car Co., 378 F.2d 241 (9th Cir. 1967). The Ampex counterclaim shows on its face that no justiciable controversy is being asserted. The counterclaim expressly asserts Ampex’s continuing position that the alleged dispute raised by International’s complaint does not amount to a justiciable controversy. The counterclaim was filed nonetheless because it might be considered a compulsory counterclaim which Ampex could lose forever if not then asserted. A comparison of the International complaint for declaratory judgment with the Ampex counterclaim for patent infringement convinces us that identical issues are involved in each. We do not quite understand how one can be dismissed for want of a justiciable controversy without the dismissal of the other. Both dismissals are required because the court lacks jurisdiction to adjudicate unless there is an actual controversy. This court has stated:

“Compulsory counterclaims are required to be dismissed only when the complaint is dismissed for want of jurisdiction.” Pioche Mines Consolidated, Inc. v. Fidelity-Philadelphia Trust Co., supra, 206 F.2d at 336.

Here the complaint was dismissed for want of an actual controversy and dismissal of the counterclaim was mandatory because it suffered from the same fatal jurisdictional defect.

Although the court’s conclusion that the International complaint should be dismissed for lack of an actual controversy has not been directly attacked, we have nevertheless considered that finding and agree that it is not clearly erroneous. The court’s original conclusion that jurisdiction existed was based on the testimony and arguments by the parties and was strongly urged by the plaintiff-appellee, International. When the court was asked by that same party, which had reversed its position, to reconsider the appellant’s motion to dismiss, there was no longer a party arguing that a controversy existed. Ampex weakly maintained that the court should be bound by its original determination but Ampex produced no new evidence concerning the controversy. Ampex does not appear to be claiming, even now, that an actual controversy exists; rather, Ampex contends it will be prejudiced by a dismissal. The damages it could recover should it ever elect to bring a new infringement claim against International may be less than the amount it could recover if the date of the counterclaim in this action were used as the triggering date for the assessment of damages under the patent marking statute, a statutory limitation upon the recovery of damages, 35 U.S.C. § 287. The court avoided any injury to the interests of Ampex by providing that the dismissal of the counterclaim was without prejudice to its right to refile the claim. In answer to the claim that the amount of recoverable damages might be less, the court promptly stipulated that if Ampex refiled its claim within six months from the date of dismissal, it would be permitted to assert damages and rights retroactively to the date of the filing of the counterclaim. Ampex did not refile its claim within that grace period. Under these circumstances where neither party appears to be asserting that any real controversy exists, and the rights of Ampex could be fully protected, the court properly concluded that the complaint and counterclaim should both be dismissed.

Appellant further contends that the district court abused its discretion in refusing to award Ampex attorneys’ fees occasioned by International’s suit. Ampex argues that International’s capricious change of position and the resultant dismissal of the action mandate such an award. Appellant predicates the court’s authority to award attorneys’ fees on Rule 41(a)(2) which provides for “terms and conditions” in dismissal orders.

International does not dispute that the court had the power to award attorneys’ fees but maintains that the court’s discretionary conclusion against such an award should be sustained. International points out that Ampex’s conduct was not so exemplary and International’s so heinous that equity would require an award of attorneys’ fees in this case. Allowance of attorneys’ fees is normally within the judicial discretion of the trial court. Lea v. Cone Mills Corp., 467 F.2d 277 (4th Cir. 1972). Furthermore, an award of attorneys’ fees is ordinarily improper in the absence of a statute or under the most unusual circumstances. Maier Brewing Co. v. Fleischmann Distilling Corp., 359 F.2d 156 (9th Cir. 1966). We conclude that there was no abuse of discretion in denying appellant’s request for an award of its attorneys’ fees.

Affirmed.

      . Rule 41(a)(2) provides in pertinent part:
      “If a counterclaim lias been pleaded by a defendant prior to the service upon him of the plaintiff’s motion to dismiss, the action shall not be dismissed against the defendant’s objection unless the counterclaim can remain pending for independent adjudication by the court.”

      . Rule 12(h) provides, for instance :
      “. . . whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action.”

      . U.S.Const., art. Ill, § 2. The test for a justiciable controversy was suggested in Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 512, 85 L.Ed. 826 (1941) :
      “Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient' immediacy and reality to warrant the issuance of a declaratory judgment.”

      . Ampex has counterclaimed saying at the same time that it challenges jurisdiction. Query: could Ampex challenge jurisdiction after losing on the merits of the counterclaim?


author: PER CURIAM:

text:
    FINISH ALLATOONA’S INTERSTATE RIGHT, INC., also known as “Fair”, and Richard L. Fullerton, Plaintiffs-Appellants, v. Claude S. BRINEGAR, as Secretary of Transportation of the United States of America, and Bert K. Lance, as Director of the Georgia Department of Transportation (formerly the State Highway Department), Defendants-Appellees.
    No. 73-2289
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    Aug. 31, 1973.
    Hugh G. Head, Jr., Kathleen J. Parker, Atlanta, Ga., for plaintiffs-appellants.
    Arthur K. Bolton, Atty. Gen., Marion 0. Gordon, Asst. Atty. Gen., John W. Stokes, Jr., U. S. Atty., Beverly B. Bates, Asst. U. S. Atty., Atlanta, Ga., Wallace H. Johnson, Asst. Atty. Gen., George R. Hyde, Neil T. Proto, Attys., Dept, of Justice, Washington, D. C., for defendants-appellees.
    Before GEWIN, COLEMAN and MORGAN, Circuit Judges.

       Rule 18, 5 Cir.; Isbell Enterprises, Inc. v. Citizens Casualty Company of New York et al., 5 Cir., 1970, 431 F.2d 409.

   PER CURIAM:

This action arises from the efforts of a group of private citizens to stop the construction of a section in Interstate Route 75 through northern Georgia. The proposed route crosses Lake Alla-toona and other property protected by Section 4(f) of the Department of Transportation Act of 1966, 49 U.S.C. § 1653(f). After the Secretary of Transportation approved a route for the last remaining section of Interstate 75 in the area, plaintiffs filed suit in the Northern District of Georgia requesting in-junctive and declaratory relief to prevent the Secretary from implementing the proposed plan. The district court denied relief, 355 F.Supp. 933. We affirm.

Interstate 75 crosses Georgia in a north-south direction, connecting Tennessee and Florida. It is complete within the state except for a 24-mile section in the vicinity of Lake Allatoona. Lake Allatoona is owned and operated by the Corps of Engineers. It is used for flood control, hydroelectric power and recreational purposes. At least eight different routes for the final segment of Interstate 75 have been considered by the state and federal departments of transportation, and after much negotiation, a route designated Line “T” was decided upon.

As the district court stated in its findings of fact:

Prior to the approval of the location of 1-75 along Line “T,” the State, with the assistance of state, federal, and private agencies, prepared a comprehensive environmental impact statement. The impact statement includes in-depth reports by an acoustical engineering firm, the National Recreation and Park Association and an interdisciplinary study by the Georgia Institute of Ecology at the University of Georgia. In addition, the Secretary of Transportation prepared a detailed report treating various alternatives for the location of 1-75. In that regard, the Secretary concluded that feasible and prudent alternatives to Line “T” did not exist. The Secretary also suggested specific design measures intended to minimize harm to the environment.

After the Secretary approved Line “T” as the route for the final section of Interstate 75, this suit was filed. The individual plaintiff, Richard Fullerton, is president of the corporate plaintiff, Finish Allatoona Interstate Right, Inc. (FAIR). Plaintiffs sought to prevent implementation of the Secretary’s decision by alleging numerous substantive and procedural irregularities as grounds for injunctive and declaratory relief.

Plaintiffs’ two major contentions are that the route approved by the Secretary must be enjoined because there exists a “feasible and prudent alternative” to the route within the meaning of 49 U.S.C. § 1653(f). The district court found that the route proposed by the plaintiffs also makes use of land protected by the Department of Transportation Act, and therefore is not a “feasible and prudent alternative” to the proposed route. In addition, plaintiffs have failed to meet the burden of showing that the route proposed by the government fails to minimize harm to the environment.

Plaintiffs also allege that the Secretary’s decision to approve Line “T” was based on the fact that the route crossed or adjoined property owned by several prominent citizens. The district court correctly found that there is no evidence in the record to support such an allegation.

In addition, plaintiffs have made a “shotgun” attack on every aspect of the decision to approve Line “T.” We have been unable to determine that any of their contentions have any merit, so the opinion of the district court in this case is hereby

Affirmed.


author: TUTTLE, Circuit Judge:

text:
    Constantin TIVON, Appellant, v. John M. ENGLAND, Appellee.
    No. 72-1340.
    United States Court of Appeals, Ninth Circuit.
    Sept. 4, 1973.

      C. Martin Gibson (argued), C. Ingrid Larson, Ellis Filene, San Francisco, Cal., for appellant.
    David R. Kluge (argued), James M. Conners, Vernon D. Stokes, San Francisco, Cal., for appellee.
    Before KOELSCH, TUTTLE and KILKENNY, Circuit Judges.

       Of the Fifth Circuit, sitting by designation pursuant to 28 U.S.C. § 294(d) (1970).

   TUTTLE, Circuit Judge:

I. This is a petition for review of the district court’s reversal of a decision by the referee in bankruptcy denying the trustee’s petition for an accounting and turnover order. The basic question for review is whether certain disbursements by appellant, after the filing of an involuntary petition in bankruptcy but before adjudication, were invalid under Section 70d of the Bankruptcy Act; and if so, whether appellant is liable to the trustee for such disbursements.

On January 9, 1969, various creditors of the bankrupt filed a petition against Carlos Angelí, d/b/a The Franciscan, seeking an involuntary adjudication in bankruptcy. On June 10, 1969, an order of adjudication was entered and on July 11, 1969, notice of the first meeting was mailed to all interested parties.

On August 27, 1968, however, (six months before bankruptcy) the bankrupt had given appellant exclusive authorization to sell The Franciscan. On January 29, 1969, the appellant received a letter which gave him actual notice of the pending bankruptcy proceedings. An offer to purchase the business, however, was apparently made on January 2, and the bankrupt accepted the offer on January 10, 1969, at which time he signed escrow instructions pursuant to the California Business and Professions Code § 24074 and executed a bill of sale. The terms of the sale were $7,500 in cash and $7,500 represented by a promissory note. The cash and note were delivered on January 10, 1969, to appellant, who was named as the escrow agent, and a notice of bulk transfer was recorded and published on January 17, 1969. The date to close the escrow was set for February 17, 1969.

At the time of this transaction the bankrupt still owed $10,000 to Albert P. Casali from whom he had purchased the business. This obligation was secured by a security agreement covering all the assets of the business except the liquor license. Mr. Casali agreed to take the $7,500 promissory note of the purchasers from the bankrupt in satisfaction of this obligation and appellant delivered the note to him.

In addition appellant made several payments to various state and federal agencies from the escrow funds, and paid himself a $1,500 commission, all on or before April 30, 1969. On June 17, 1969, he distributed $1,314.34 to the Board of Trade of San Francisco, representing a 50% dividend to the creditors represented by that organization, and distributed another $903.54 to certain other creditors, which payments amounted .to 30% distribution on such claims.

II. In denying trustee’s petition for an accounting and turnover, the referee pointed to what he characterized as two insurmountable legal difficulties. First, appellant received $7,500 in cash and a promissory note for $7,500. Since appellant did not have possession of that note when the trustee filed for a turnover proceeding, the referee found that he could not order appellant to turn over either the note or Its cash equivalent. Second, without making the creditors, who had filed claims with appellant and to whom the appellant had transferred escrow funds, parties to the bankruptcy proceeding, the referee could not order appellant, as a mere stakeholder, to deliver the money to the trustee. Relying on In the Matter of The Palmer House, No. 109407 (N.D.Calif. Jan. 30, 1969), the referee denied the turnover order.

The district court reversed the decision of the referee on both points. The district court relied on an exception to the general rule that an individual proceeded against in a turnover proceeding must have possession of the property sought. Such an individual, if he is a fiduciary such as an escrow agent, may be held accountable in a turnover proceeding for funds disbursed contrary to the bankruptcy law. May v. Henderson, 268 U.S. 111, 45 S.Ct. 456, 69 L.Ed. 870 (1925); Rabinovitz v. Oughton, 92 F.2d 297 (3rd Cir., 1937); Reifsynder v. Levy & Son, 89 F.2d 287 (3rd Cir. 1937); 2 Collier On Bankruptcy ¶ 23.10, at 566-67 n. 24 (14th ed. 1971). On the second point, the district court held that since disbursement to the claimants of the escrow fund had already been made at the time of the turnover petition, they were no longer “real parties in interest” in the bankruptcy proceedings. Therefore, their absence was not fatal to the trustee’s right to litigate the question of the appellant’s allegedly wrongful disbursements to them. We affirm.

III. Some amplification on the district court’s order, however, is deemed necessary. The appropriate inquiry by the referee on remand should be whether the payments from the escrow fund fall within Section 70d(2) of the Bankruptcy Act.

“(2) A person indebted to the bankrupt or holding property of the bankrupt may, if acting in good faith, pay such indebtedness or deliver such property, or any part thereof, to the bankrupt or upon his order, with the same effect as if the bankruptcy were not pending.”

On remand, Section 70d(5) makes it clear that the appellant has the burden of proof to demonstrate the validity of the transfers under Section 70d(2). The record clearly indicates that all of the disbursements from the escrow fund, except the promissory note, occurred after January 29, 1972, the date the appellant had actual notice of the pending bankruptcy. The date of the transfer of the promissory note has not been determined. Concerning all transfers which occurred after January 29, the appellant is barred from asserting a defense under Section 70d(3) of “reasonable cause to believe the petition in bankruptcy is not well founded.” That issue has been specifically raised below on an appeal, and the district court correctly found that no such reasonable cause existed.

Affirmed.

      . The district court expressly made no finding concerning the date of the transfer of the promissory note, the value of the security for the debt, or the consequence of any overpayment under California law.

      . Section 70d(2) of the Bankruptcy Act, 11 U.S.C.A. § 110(d)(2) provides:
      “(d) After bankruptcy and either before adjudication or before a receiver takes possession of the property of the bankrupt, whichever first occurs—

      . Section 70d(5) of the Bankruptcy Act, 11 U.S.C.A. § 110(d) (5), provides:
      “(5) A person asserting the validity of a transfer under this subdivision shall have the burden of proof. Except as otherwise provided in this subdivision and in subdivision g of section 44 of this Act, no transfer by or in behalf of the bankrupt after the date of bankruptcy shall be valid against the trustee: Provided, however, That nothing in this Act shall impair the negotiable instruments.”

      . Section 704(3) of the Bankruptcy Act, 11 U.S.C.A. § 110(d) (3), provides
      “(3) A person having actual knowledge of such pending bankruptcy shall be deemed not to act in good faith unless he has reasonable cause to believe that the petition in bankruptcy is not well founded.”


text:
    Woodrow MASON, Petitioner-Appellant, v. Ruben ASKEW, Governor of the State of Florida, et al, Respondents-Appellees.
    No. 73-1791
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    Aug. 10, 1973.

      Woodrow Mason, pro se.
    Robert Shevin, Atty. Gen., Tallahassee, Fla., Nelson Bailey, Stephen R. Koons, Asst. Attys. Gen., West Palm Beach, Fla., for respondents-appellees.
    Before THORNBERRY, GOLDBERG and RONEY, Circuit Judges.

       Rule 18, 5 Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty Company of New York, 5 Cir. 1970, 431 F.2d 409, Part I.

   PER CURIAM:

This is an appeal from the order of the district court for the Southern District of Florida dismissing appellant’s complaint under 42 U.S.C. § 1983 and denying a writ of habeas corpus. We grant a certificate of probable cause to appeal the denial of habeas corpus; and finding no error in the action of the court below, we affirm.

Appellant, Woodrow Mason, was convicted of murder in Florida in 1955 and sentenced to prison. He was paroled in 1966; but, following his acquittal on another murder charge in 1970, Mason’s parole was revoked. Contending that the parole revocation proceeding was afflicted with substantive and procedural infirmities, appellant sought release from prison in a complaint filed pursuant to 42 U.S.C. § 1983. The district court held that § 1983 is not the appropriate method for testing the constitutional validity of state imprisonment and dismissed the complaint. However, the court liberally construed appellant’s pro se papers as a petition for a writ of habeas corpus, and denied this relief solely on the ground of appellant’s failure to utilize an available and adequate state judicial remedy.

Since appellant challenges not the conditions of his confinement, but the fact of imprisonment itself, the court below correctly held that 42 U.S.C. § 1983 could not provide the requested remedy, and that appellant’s federal relief would have to come in habeas corpus. Preiser v. Rodriguez, 1973, 411 U.S. 475, 93 S.Ct. 1827, 36 L.Ed.2d 439.

The statute authorizing federal courts to issue writs of habeas corpus in behalf of state prisoners, 28 U.S.C. § 2254, provides in part:

“An application for a writ of habeas corpus in behalf of a person in custody pursuant to a judgment of a State court shall not be granted unless it appears that the applicant has exhausted the remedies available in the courts of the State, or that there is either an absence of available State corrective process or the existence of circumstances rendering such process ineffective to protect the rights of the prisoner.”

It appears from the record in this case that appellant has made no application to the state courts for release from custody. Nor does he allege that a resort to state processes would be either impossible or futile. Under these circumstances the district court was correct in denying relief at this time and sending appellant first to exhaust his remedies in the state courts. Picard v. Connor, 1971, 404 U.S. 270, 92 S.Ct. 509, 30 L.Ed. 2d 438; Nelson v. George, 1970, 399 U.S. 224, 90 S.Ct. 1963, 26 L.Ed.2d 578; Irvin v. Dowd, 1959, 359 U.S. 394, 79 S.Ct. 825, 3 L.Ed.2d 900. Appellant may, of course, return to the federal courts for an “inescapably independent judgment on federal issues,” should the state system deny relief. Peters v. Rutledge, 5 Cir., 1968, 397 F.2d 731, 741. See United States ex rel. Davis v. Henderson, 5 Cir., 1973, 474 F.2d 1098. Our decision today does not countenance a federal refusal to hear appellant’s substantial federal questions, but merely a postponement pending possibly dispositive state action.

Affirmed.

      . See 28 U.S.C. § 2253; Rule 22(b), Federal Rules of Appellate Procedure.

      . Appellant argues that a charge of which he was acquitted cannot form the basis of a parole revocation. lie also alleges four procedural deficiencies, noting that the revocation process denied him: (1) the right to counsel; (2) confrontation of witnesses; (3) the privilege against self-incrimination; and (4) compulsory process for obtaining witnesses. See Morrissey v. Brewer, 1972, 408 U.S. 471, 92 S.Ct. 2593, 33 L.Ed.2d 484.

      . It is clear that the exhaustion requirement applies to appellant’s petition even though the particular action complained of, parole revocation, was the work of a state administrative board and not a court. Preiser v. Rodriguez, supra, 411 U.S. at 489, 93 S.Ct. 1827.