author: WIDENER, Circuit Judge:

text:
    UNITED STATES of America, Appellee, v. Graham F. JARMAN, Jr., Appellant. UNITED STATES of America, Appellee, v. Carroll B. ROBERTSON, Appellant. UNITED STATES of America, Appellee, v. Leroy W. WHEELER, Appellant.
    Nos. 73-1532-73-1534.
    United States Court of Appeals, Fourth Circuit.
    Argued Oct. 1, 1973.
    Decided Jan. 28, 1974.

      Richard B. Allsbrook, Roanoke Rapids, N. C. (Julian R. Allsbrook and Allsbrook, Benton, Knott, Allsbrook & Cranford, Roanoke Rapids, N. C., on brief), for appellants.
    Christine A. Witcover, Asst. U. S. Atty. (Thomas P. McNamara, U. S. Atty., on brief), for appellee.
    Before BOREMAN, Senior Circuit Judge, and WINTER and WIDENER, Circuit Judges.
   WIDENER, Circuit Judge:

This is a criminal action arising under the Migratory Bird Treaty Act, 16 U.S.C. § 703 et seq., which prohibits the hunting of migratory birds except under certain conditions.

On August 30, 1972, federal agents discovered a heavily baited field on the W. P. Morris farm in eastern North Carolina. On the opening of hunting season for mourning doves three days later, September 2, 1972, the agents returned and found a hunt in progress. The soil had been newly disked, however, and grain was no longer visible. Nevertheless, thirty-three hunters (three of whom now appeal their convictions) were cited for violations of the Migratory Bird Treaty Act and the baiting regulation made pursuant thereto.

On appeal, the defendants raise three issues: (1) The federal hunting regulation under which they were charged, 50 CFR § 10.21 (j), was unconstitutional both on its face and as applied; (2) they should have been granted a trial by jury even though the violation with which they were charged would be considered a petty offense; and (3) the evidence was insufficient to justify a verdict of guilt beyond a reasonable doubt. For reasons that follow, we are of opinion these contentions are without merit, and, accordingly, affirm the decision of the district court.

The essential facts are not disputed. On August 30, 1972, a federal Game Management Agent on patrol with a North Carolina Wildlife Protector discovered a heavily baited field on the W. P. Morris farm in Northhampton County, North Carolina. They took pictures and samples of the grain in the swath bisecting the cleared area. On September 2, 1972, three days later, the defendants were guests at an annual dove hunt that was being held at the Morris farm. The hunters were driven out in the fields and placed in stands or blinds located approximately 50 feet apart. Alerted that a hunt was taking place, federal and state wildlife agents arrived three hours after the hunt began to find large concentrations of doves encircling the entire area. No swath of grain was visible, however, since the soil had been newly disked. The agents, nevertheless, issued each defendant a violation notice for shooting over baited land. All three defendants were subsequently convicted of the offense of unlawful and willful hunting of game birds on and over a baited area.

Regulations drafted pursuant to the Migratory Bird Treaty Act have treated the hunting of certain birds under baited conditions as an offense since 1938. In July, 1972, however, the regulation was amended to establish a ten day period during which an area would be considered baited even after removal of the bait. Because no grain was visible in the hunting area at the time of the arrests, the new provision added by the July, 1972 amendment necessarily formed the basis for the information.

The defendants’ first contention is that the regulation, 50 CFR § 10.-21 (j), is unconstitutionally vague. In particular, they assert that enforcement of the new proviso deprives them of liberty and property without due process of law in violation of the 14th Amendment since it cannot be determined with any degree of certainty what constitutes “complete removal" of the bait.

We are of opinion that this contention is lacking in merit. The basic provision forbidding the hunting of birds over baited areas has been in effect since July 16, 1938. The July, 1972 amendment did not change the basic proviso but only defined precisely in terms of days the extended period during which an area is regarded as baited. As the Sixth Circuit observed in interpreting the previous regulation, although not the words “complete removal," “The words used are ordinary, nontechnical words, readily understandable. . . . The provisions are clear and require no construction.” Clemons v. United States, 245 F.2d 298 (6th Cir. 1957). For similar reasons, we feel that the amended regulation is not so unconstitutionally vague or ambiguous so as to constitute a deprivation of liberty and property without due process of law.

We are thus of opinion that the words “complete removal" are neither vague nor ambiguous, and whether or not bait has been completely removed from a field is a matter of fact to be determined by usual rules of evidence.

Although the 1972 amendment was published in the Federal Register on July 8, 1972 and then reprinted and distributed in pamphlet form in August, 1972 by the U. S. Department of the Interior, the defendants claim they were not familiar with the regulation change. In this regard, the defendants contend that scienter should, judicially, be made part of the offense. Courts have held, repeatedly, however, that Congress may create a crime and omit scienter as an element so that even an unknowing violation will support a conviction. And this is especially true, as here, where the offenses charged have no common law origins. United States v. Dotterweich, 320 U.S. 277, 64 S.Ct. 134, 88 L.Ed. 48 (1943); United States v. Balint, 258 U.S. 250, 42 S.Ct. 301, 66 L.Ed. 604 (1922); United States v. Schultze, 28 F.Supp. 234 (W.D.Ky.1939). Cf. Morissette v. United States, 342 U.S. 246, 72 S.Ct. 240, 96 L.Ed. 288 (1952).

The defendants next contend they should have been granted their request for trial by jury. But, neither Article III, § 2 of the Constitution which provides, “The Trial of all Crimes, except in Cases of Impeachment, shall be by Jury,” nor the sixth amendment which states, “In all criminal prosecutions, the accused shall enjoy the right to a speedy and public trial, by an impartial jury,” applies to petty offenses. Frank v. United States, 395 U.S. 147, 152, 89 S.Ct. 1503, 23 L.Ed.2d 162 (1969); United States v. Merrick, 459 F.2d 644, 645 (4th Cir. 1972). Since violations of the Migratory Bird Treaty Act are punishable by imprisonment for not more than six months, the crime (a misdemeanor) is regarded as a petty offense, Baldwin v. New York, 399 U.S. 66, 90 S.Ct. 1886, 26 L.Ed.2d 437 (1970); consequently, there is no right to trial by jury.

The defendants now raise, however, for the first time, a new basis for their contended right to jury trial. Although not required, to anticipate collateral attack we consider the matter. Cf. McGowan v. Gillenwater, 429 F.2d 586 (4th Cir. 1970). They argue that since five of the thirty-three defendants tried in the court below were under twenty-six, and therefore could possibly receive a sentence under the Federal Youth Corrections Act, that the crime for which they were facing trial was transformed from a petty to a serious crime thus requiring a jury trial. Since the government tried all defendants jointly, the defendants contend they thereby had a right to trial by jury. We reject this argument for two reasons. First, none of the defendants who have appealed are subject to the Federal Youth Corrections Act, since they were 55, 65, and 51 years of age, respectively. Consequently, they lack standing to raise this issue. The defendants can receive at most a six month’s sentence and a $500 fine, either or both. 16 U.S.C. § 707(a). Secondly, no motion on behalf of the defendants for severance was made to attempt to procure a jury trial for those five defendants subject to the Federal Youth Corrections Act. Had they felt themselves prejudiced by the joinder, Rule 14 of the Federal Rules of Criminal Procedure offered them appropriate relief.

The defendants finally contend they were convicted of a crime with which they were not charged. Section 10.21 (j), as defendants construe it, prohibits both (1) hunting by the aid of baiting, and (2) hunting on or over a baited area. The defendants were charged with the latter but claim, for reasons that follow, that they should have been charged with the former. The hunting area was divided into four contiguous fields separated by, at most, a road and a hedgerow. There is no dispute that a heavy swath of grain placed for bait bisected fields #1, #2, and #3. Since ten hunters, whom the government could not later sort out, were arrested while hunting in field #4, the defendants contend that the government has failed to prove that the defendants were hunting “on or over a baited area.” We are of opinion that this contention also fails since the entire area, comprising all four fields, should properly be regarded as a “baited area.” As the Ninth Circuit observed in Cerritos Gun Club v. Hall, 96 F.2d 620, 624 (9th Cir. 1938),

“Wherever the grain is placed on the preserves the wind will create lines of birds’ flight, to and from it, which will aid the slaughter from blinds located for the purpose.”

In the instant case, doves were observed on the day of the hunt encircling the entire area, including what the defendants describe as field #4. Consequently, all four fields constituted a “baited area,” and it makes no difference in which of the four fields defendants were shooting.

Accordingly, the judgment of the district court is

Affirmed.

      . The applicable regulation, 50 C.F.R. § 10.21, provides in relevant part:
      “§ 10.21 Hunting methods.
      Migratory birds on which open seasons are prescribed in this part may be taken by any method except those prohibited in this section. No person shall take migratory game birds:
      ifc $ J¡« sfc
      (j) By the aid of baiting, or on or over any baited area. As used in this paragraph, ‘baiting’ shall mean the placing, exposing, depositing, distributing, or scattering of shelled, shucked or unshucked corn, wheat or other grain, salt, or other feed so as to constitute for such birds a lure, attraction or enticement to, on, or over any areas where hunters are attempting to take them; and ‘baited area’ means any area where shelled, shucked or unshucked corn, wheat or other grain, salt, or other feed whatsoever capable of luring, attracting, or enticing such birds is directly or indirectly placed, exposed, deposited, distributed, or scattered; and such area shall remain a halted area for 10 days following complete removal of all such corn, wheat or other grain, salt, or other feed. However, nothing in this paragraph shall prohibit:
      sjs j}s $ s*c
      (2) The taking of all migratory game birds, except waterfowl, on or over any lands where shelled, shucked or unshucked corn, wheat or other grain, salt, or other feed has been distributed or scattered solely as a result of valid agricultural operations or procedures.” (Emphasis added.)
      The information under which the defendants were charged specifically applied the provision italicized above, and added for the first time in July, 1972, which reads as follows:
      “ . . . and such area shall remain a baited area for 10 days following complete removal of all such corn, wheat, or other grain, salt, or other feed. . . . ”

      . See United States v. Schultze, 28 F.Supp. 234 (W.D.Ky.1939). .

      . The defendants advance this constitutional argument even though they appear to concede that the field was baited as recently as three days before the hunt.

      . Nor do we feel that the 1972 amendment constitutes as startling an innovation as the defendants would have us believe. Courts had interpreted the original regulation to hold that the attraction of bait remains even after complete removal. See Koop v. United States, 296 F.2d 53 (8th Cir. 1961) (recognized attraction for ducks for at least four days after baiting ceased).

      . 16 U.S.C. § 707.

      . The Federal Youth Corrections Act, 18 U.S.C. § 5005 et seq., authorizes detention for up to six years. The provisions of the Federal Youth Corrections Act are made applicable to young adult offenders (twenty-two to twenty-six years of age) by 18 U.S.C. § 4209.

      . The hunting area, all cleared land, was variously described at trial as comprising 35 to 40 acres according to one witness, and 50 to 75 acres according to another.


source: Caselaw Access Project

author: ROSS, Circuit Judge. STEPHENSON, Circuit Judge

license: Public Domain

text:
    INVESTORS THRIFT CORPORATION, Appellant, v. Sam SEXTON, Jr., et al., Appellees and Cross-Appellants.
    Nos. 73-1117, 73-1141 and 73-1165.
    United States Court of Appeals, Eighth Circuit.
    Submitted Oct. 15, 1973.
    Decided Feb. 4, 1974.
    Rehearings and Rehearings En Banc Denied March 12, 1974.

      William M. Stocks, Fort Smith, Ark., for Investors.
    Philip S. Anderson, Little Rock, Ark., for James Hall.
    Don A. Smith, Fort Smith, Ark., for Gatlin.
    ' Before HEANEY, ROSS and STEPHENSON, Circuit Judges.
   ROSS, Circuit Judge.

Investors Thrift Corporation (ITC) appeals from an adverse jury verdict in a case wherein ITC was the plaintiff and Sam Sexton, Jr., James S. Hall, and Josephine W. Ramey, Administratrix of the estate of Austin Gatlin, were defendants.

After protracted litigation refined the issues, the jury, in this case, was asked to decide whether the defendants, by fraudulent misrepresentations, induced the plaintiff to purchase all of the stock in American Home Builders, Inc. (AHB). AHB controlled a number of other companies including Peoples Loan and Investment Company (PL&I). Essentially, ITC contended that the defendants had falsely misrepresented the value of AHB’s stock and the value of AHB and PL&I. Maurice Markham, ITC’s president, was the moving force behind ITC’s acquisition of AHB and PL&I. ITC acquired an option to purchase these companies in early September of 1965, and the option was exercised in early November of 1965.

ITC asserts, among numerous other grounds allegedly requiring reversal, that it was unfairly prejudiced by the trial court’s Instruction 12 relating to “time of loss” and by the admission of certain evidence relating to “time of loss.” Finding these arguments to be meritorious, we reverse and remand for a new trial.

Instruction 12.

The district court instructed the jury that:

Even though you may find that the plaintiff, [ITC], suffered a financial loss in the operation of [AHB] and [PL&I], if you further find that the loss was proximately caused by any factor other than the false representations, if any, made by the defendants, you cannot find a verdict for the plaintiff but must return a verdict for the defendants.
(Emphasis supplied.)

In Instruction 13, the court instructed that: “Ordinarily the plaintiff would be entitled to recover the difference between the actual value of the stock at the time the option to purchase was exercised, and the price the defendants actually received for the stock. . . .” (Emphasis supplied.)

Objection is made to Instruction 12 on the grounds that it improperly focuses the jury’s attention on the wrong point in time in determining the value of the stock, and, in addition, incorrectly states, in essence, that if ITC aggravated its losses it is not entitled to any damages, regardless of the fact that some portion of the damages may have come about as the proximate cause of the -fraud, and not the aggravation of the initial loss.

It is clear that Arkansas requires, as do most jurisdictions, that value be determined as of the time of the sale of the stock. McDonough v. Williams, 77 Ark. 261, 92 S.W. 783, 786 (1905). See generally, H. McGregor, McGregor on Damages § 1366 at 911-912 (1972). C. McCormick, McCormick on Damages § 122 at 455-458 (1935); 4 J. Sutherland, A Treatise on the Law of Damages § 1172 at 4408-4409 (1916). Therefore, to the extent Instruction 12 focused the jury’s attention on a time subsequent to the sale of the stock, the instruction was erroneous.

We think it clear that Instruction 12, speaking as it did of “loss in the operation,” tended to focus the jury’s attention, for the purpose of determining value, on a time subsequent to the sale of the stock. Although Instruction 13 properly defined the time for determining the value of the stock, the jury could have been confused by the qualifying words of Instruction 12. In effect, Instruction 12 indicates that if the jury does find an operations loss, but the operations loss was not the product of the fraud, then the jury is directed to find for the defendants. Thus, even if the companies were essentially worthless at the time the stock was sold, subsequent aggravation of the financial plight of the corporations by the plaintiff would preclude recovery for loss sustained at the time of the sale. While it may have been proper to tell the jury that the plaintiff was not entitled to recover for operations losses sustained for reasons other than the alleged fraudulent misrepresentation, it was improper to tell the jury that operations losses not caused by the fraud precluded recovery even if the companies were essentially worthless at the time of sale.

Due to the massive amount of evidence which tended to relate to mismanagement subsequent to the sale of the stock, and which tended to demonstrate that mismanagement of the companies caused certain operations losses, Instruction 12 is not harmless. We turn next to that evidence of subsequent mismanagement.

Subsequent Mismanagement.

The defendants, over ITC’s strenuous and continued objection, introduced a great deal of evidence relative to the mismanagement of the companies after they had been acquired by ITC. ITC contends that this evidence, in conjunction with Instruction 12, was designed to mislead the jury. Specifically, it said that the evidence was introduced to direct the jury’s attention to the cause of “operations” losses. ITC argues that the cause of the operations losses was irrelevant, since under Arkansas law the value of the stock was to be determined as of the time of sale. In response, the defendants contend that the evidence established that the businesses were financially sound at the time of sale.

The evidence to which ITC takes objection and which related to times subsequent to the purchase of the stock may be summarized briefly as follows: disbursement of PL&I loan reserves to AHB; an extremely complicated transaction between the Richmond Life Insurance Company, the Community National Life Insurance Company, John Haldi, Maurice Markham and PL&I (the Haldi deal); PL&I’s acquisition of California real estate and the subsequent trade of this property for an interest in Amco Industries of Chicago (Amco deal); PL&I’s bankruptcy and the circumstances surrounding the bankruptcy. The net thrust of all this evidence was that ITC, principally through Markham, had grievously mismanaged AHB and PL&I after ITC had acquired the companies.

The primary question to be answered is whether mismanagement of AHB and PL&I in 1967 tends to prove that these companies were valuable in late 1965. There is no contention that ITC was claiming recovery for losses sustained after the sale of stock. Indeed by objection to the defendants’ opening argument, by continued objection during trial, by objection to the court’s instructions, by proposed instruction, and by closing argument, ITC contended that “everything that happened after the dates of this sale and after all of the money had been paid ... is completely irrelevant . . ..”

We emphasize that this evidence of subsequent mismanagement was apparently not offered by the defendants to prove the value of the companies at the time of sale. For example, when defense counsel alluded to PL&I’s disbursement of loan reserves to AHB, ITC’s counsel objected to the absence of

some showing that these transactions that have followed the sale of these businesses . . . had any effect upon what the net worth of these companies were at the time that the sale was made, that all of these matters are completely irrelevant and immaterial . . . and we understand we have a continuing objection.

Defense counsel replied:

[A] 11 of these matters that transpired after Mr. Markham took over are introduced not only for laches and estoppel but also going to the creditability (sic) of Mr. Markham.

In closing argument, defense counsel further explained why this evidence of subsequent mismanagement was presented:

I told you that I would prove the Englehart Insurance Agency deal. I told you that I would prove the Hot Springs land deal, the Encore deal, the California land deal, the Haldi fiasco. We did so.
Maurice Markham is guilty of criminal fraud on the depositors and shareholders of Peoples Loan and Investment Company. .
[This] is important for two reasons. One, to show you what kind of man Maurice Markham is. It is important for a second reason, and the second reason is that Maurice Markham acted for [ITC] on every transaction in which the plaintiff, [ITC] relies in this lawsuit.

Even assuming that evidence of subsequent mismanagement may, in some circumstances, be used to prove value at the time of sale, it is undisputed that there must be some reason to link the subsequent mismanagement with the value of the stock at the time of sale. Thus in a case where a purchase of bank stock was attacked by the buyer for fraud, one court has said:

The trial court should be careful to admit only competent testimony tending to show the value of the assets at the time of the exchange.

Rardon v. Davis, 52 S.W.2d 193, 195 (Mo.App.1932) (emphasis in original), cited with approval in 12A W. Fletcher, Fletcher Cyclopedia of Corporations § 5601 at 182, 183 n.4 (Wolf ed. 1972). The party offering evidence of subsequent mismanagement would be required to demonstrate a link between the subsequent mismanagement and value of the stock at the time of sale. As graphically demonstrated by defense counsels’ trial statements explaining why this evidence was offered, no such link between subsequent mismanagement and value at the time of sale was established.

No case has been called to our attention which equates subsequent mismanagement with intrinsic worth at the time of the sale. The closest ease we have been able to find is Smith v. Reynolds, 94 Vt. 28, 108 A. 697, 703 (1920). In that case the Vermont Supreme Court held that it was error for the trial court to exclude evidence that the corporation had gone into bankruptcy because of the embezzlement of an employee. The evidence was offered by the defendants. The court said:

As the case was being tried on the question of damages, it was error to exclude this evidence. The plaintiff had gone into the financial affairs of the company at great length in support of his claim that the stock was worthless when he bought it. It thus became material for the defendants to show that the failure of the company was due to mismanagement.

Id. (Emphasis supplied.) In Smith the plaintiff was the first to raise the subsequent financial collapse of the corporation in order to prove the stock was not valuable when purchased. It therefore became necessary for the defendants to explain the collapse of the corporation.

From the outset, in this case, it was the defendants who chose to speak first of the subsequent mismanagement and collapse of the companies. During one of defense counsel’s opening statements the issue arose:

THE COURT: I understand what counsel was going to do was to go into and show that the actions of the Investors, I mean the plaintiff corporation, together with Mr. Markham, after they took charge on November 12, resulted in the debacle that they got into.
[Defense Counsel]: That is correct, Your Honor.
THE COURT: You’re objecting to that testimony or any part of it?
[Plaintiff’s Counsel]: Object to those because we think it’s irrelevant, the condition of the company at the time these people exercised their options and executed Option to Purchase, the events leading up to the transaction.
THE COURT: Overruled.
[Plaintiff’s Counsel]: As to the worth of the company at that time, Your Honor.
THE COURT: Overrule your objection.
(Emphasis supplied.)

In another opening argument, another defense counsel raised the specter of bankruptcy:

Now, they put it in bankruptcy because Mr. Markham, we will prove to you, invented a new type of transaction in Arkansas. He invented the loan that has no liability on it.

ITC did call as a witness the Trustee in Bankruptcy. But it appears the reason the Trustee was called as a witness was to demonstrate that, as custodian of the records and files of PL&I, he could not recall seeing an independent audit which was conducted prior to the sale of stock and allegedly not disclosed to the plaintiff at the time of sale. ITC also used the Trustee in an attempt to explain that the business deals entered into by Markham, and raised by the defendants in cross-examination of Markham, were profitable to ITC and did not result in operations losses to ITC. It is clear that the Trustee was not called by ITC for the purpose of putting the bankruptcy in issue.

In Bain v. Deal, 251 Ark. 905, 475 S.W.2d 708 (1972), the Arkansas Supreme Court considered an action by corporate stock buyers seeking to recover damages against stockbrokers for common law fraud. The buyers had allegedly sold the stock after it had been obtained from the brokers. From this fact it was contended that “the representations of [the brokers] were not the cause of any damages . . . .” Id. at 713. After questioning the factual basis for the assertion that the buyer had sold the stock, the Arkansas Supreme Court concluded: “At any rate, the damage was sustained when she bought the 50 shares of stock; the loss of the $1,000 came at that time.” Id. at 713-714. (Emphasis supplied.) Applying the Bain decision here, we believe that value must be determined as of the time of purchase. The defendants’ inquiry into subsequent operations losses was irrelevant for the purpose of determining the value of the stock as of the time of sale and, its admission was prejudicial error.

As a consequence, we conclude that ITC is entitled to a new trial. The judgment is hereby reversed, and the case is remanded for new trial in con-’ formity with the views expressed herein.

STEPHENSON, Circuit Judge

(concurring and dissenting).

I agree that this cause must be reversed and appellant granted a new trial. Instruction No. 12 was erroneous and under the circumstances aptly described by the majority the error was not harmless.

However, I disagree with that portion of the opinion which appears to hold that “The defendants’ inquiry into subsequent operations losses was irrelevant for the purpose of determining the value of the stock as of the time of sale * * I agree that absent appropriate instructions, the jury may have been misled as to the relevance of this evidence. Once the plaintiff offered evidence with respect to the financial condition of the company at the time of purchase, it was proper for defendants to offer evidence of subsequent events to the extent that they had bearing on the value of the company as of the time of the purchase. Plaintiff called the Trustee in Bankruptcy which brought to the attention of the jury that the company was in bankruptcy. As a matter of fact, the evidence discloses that the company was in bankruptcy less than three years after its purchase by plaintiff. Under these circumstances it would be unfair to not allow defendants to offer evidence to show that PL&I’s failure was due to gross mismanagement by plaintiff’s manager, Markham. Defendants were entitled to offer evidence in support of their claim that Markham shortly after the purchase caused the company to suffer huge losses.

This evidence should have been received under proper instruction by the court that it was being received for whatever bearing it might have on the value of the company and its stock at the time of plaintiff’s purchase and for no other reason. The jury should have been cautioned that mismanagement by the plaintiff and its officers subsequent to purchase does not relieve defendants of their obligation and liability for misrepresentation as to the value of the company and the stock at the time of the purchase, if such existed. On the other hand, plaintiff was not entitled to recover losses aggravated by its own action subsequent to the date of the purchase.

      . For related cases see Vanderboom v. Sexton, 460 F.2d 362 (8th Cir. 1972) ; Investors Thrift Corp. v. Sexton, 347 F.Supp. 1207 (W.D.Ark.1972) ; In re Peoples Loan & Inv. Co., 316 F.Supp. 13 (W.D.Ark.1970) ; Vanderboom v. Sexton, 294 F.Supp. 1178 (W.D.Ark.1969), rev’d, 422 F.2d 1233 (8th Cir.), cert. denied, 400 U.S. 852, 91 S.Ct. 47, 27 L.Ed.2d 90 (1970) ; In re Peoples Loan & Inv. Co., 292 F.Supp. 594 (W.D.Ark. 1968), rev’d, 410 F.2d 851 (8th Cir. 1969) ; City Nat’l Bank v. Vanderboom, 290 F.Supp. 592 (W.D.Ark.1968), aff’d, 422 F.2d 221 (8th Cir.), cert. denied, 399 U.S. 905, 90 S.Ct. 2196, 26 L.Ed.2d 560 (1970) ; Miskimins v. City Nat’l Bank, 248 Ark. 1194, 456 S.W.2d 673 (1970).

      . Since a new trial is required because of the “time of loss” question, we need not decide any of the other questions raised by ITC. Although we do not decide the question, we commend to the district court’s attention on remand the following decisions with respect to the applicable burden of proof. Jeffers v. Brown Motor Co., 490 S.W.2d 803, 806 (Ark.1973) ; Ray Dodge Inc. v. Moore, 251 Ark. 1036, 479 S.W.2d 518, 521 (1972) ; Killian v. Hayes Bros. Lbr. Co., Inc., 251 Ark. 121, 470 S.W.2d 939, 940 (1971) ; Clay v. Brand, 236 Ark. 236, 365 S.W.2d 256, 259-260 (1963). The defendants in this case have filed a cross-appeal, claiming essentially that ITC failed to adduce sufficient proof to make a submissible case. We find here, as we did in Vanderboom v. Sexton, supra, 460 F.2d at 366, that there was a jury question presented.

      . Arkansas uses the “out of pocket” damage standard; that is, the value of what the plaintiff has parted with compared with the actual value of the stock at the time of the sale. McDonough v. Williams, supra, 92 S. W. at 786. This damage standard is more restrictive than the “loss of bargain” rule which prevails in other jurisdictions, and which allows recovery for the difference between the actual value of the stock at the time of sale, compared with the value of the stock had it been as represented. See O. McCormick, McCormick on Damages, supra, § 321 at 448. Cases applying these two rules are collected in Anno., Damages-Fraudulent Representations, 13 A.L.R.Sd 875, § 9 at 942-948 (1967) ; Anno., Fraud in Sale of Securities-Damages, 108 A.L.R. 1060 (1937) ; Anno., Fraud in Sale of Securities-Damages, 47 A.L.R. 1142 (1928). Ordinarily, under either rule, “[T]he practice is well settled that the value of what the plaintiff received is to be determined by its value at the time of the sale . . . .” C. McCormick, McCormick on Damages, supra, § 122 at 456-457.

      . The defendants also indicate that evidence of subsequent events was relevant for other purposes; for example, to impeach certain of ITC’s officers. That theory is questionable, but the issue before us is whether the jury was entitled to consider the evidence of subsequent mismanagement for the purpose of determining the value of the stock, especially in light of Instruction 12.

      . During oral argument one of the defendants’ counsel was asked whether XTO referred to the bankruptcy of PL&I in its opening statement. Counsel replied that the're was such a reference. However, counsel, by letter, has frankly indicated that he was mistaken and no such reference was made. Our reading of the transcript of the opening statements, transcribed after oral argument, confirms this fact.

      . The defendants argue that it would be unfair to allow ITC to indirectly inform the jury that PL&I went into bankruptcy by means of calling the Trustee as a witness, unless the defendants could explain the reason for bankruptcy. We do not agree. As we have previously suggested throughout this opinion, ITC was only too willing to have the court tell the jury, and did itself tell the jury, that “everything that happened after the dates of this sale and after all the money had been paid ... is completely irrelevant.”

      . Appellees advise in their brief that the collapse of PL&I and Arkansas Loan & Thrift Company received widespread news coverage in the general area of the trial.


author: ALDRICH, Senior Circuit Judge.

text:
    Patrick J. O’SHEA, Petitioner, Appellant, v. UNITED STATES of America, Respondent, Appellee.
    No. 73-1333.
    United States Court of Appeals, First Circuit.
    Submitted Dec. 4, 1973.
    Decided Feb. 7, 1974.

      Patrick J. O’Shea on brief pro se.
    James N. Gabriel, U. S. Atty., and Edward J. Lee, Asst. U. S. Atty., on .brief for. appellee.
    Before COFFIN, Chief Judge, ALD-RICH and McENTEE, Circuit Judges.
   ALDRICH, Senior Circuit Judge.

Petitioner O’Shea was convicted of armed bank robbery, 18 U.S.C. § 2113(d), after a jury trial. Before sentencing, the district court reviewed a presentence report which disclosed that this was petitioner’s second such offense. It also showed eight state misdemeanor convictions ranging from assault and battery and unlicensed carrying of a revolver, to contributing to the delinquency of a minor. Stating, inter alia, that it regarded his record as “serious,” the court imposed a 20-year sentence, the permissible maximum being 25. Thereafter petitioner brought this 28 U.S.C. § 2255 proceeding asserting that all of the convictions except the prior bank robbery had been uncounselled, and that under United States v. Tucker, 1972, 404 U.S. 443, 92 S.Ct. 589, 30 L.Ed.2d 592, he was entitled to be resentenced. The district judge (not the sentencing judge), referred the-petition to a magistrate, who filed a memorandum stating simply that in Tucker the prior convictions had previously been set aside in a court of competent jurisdiction ; that this was not so in the case at bar, and hence Tucker did not control. Without discussing any law on this subject, the magistrate recommended that the petition be dismissed without prejudice. The court thereupon, without affording petitioner an opportunity to be heard, dismissed the petition without opinion.

Thereafter petitioner requested a rehearing. He accompanied this request with documents supporting his allegations that he had not been represented by counsel in the prior criminal proceedings, and furnished a substantial compilation of cases from other circuits holding, or suggesting, that the sentencing court must make its own determination of the constitutionality of prior convictions, that it relied on to enhance a sentence rather than require them to be formally set aside. This petition was referred back to the magistrate, who filed a memorandum stating, on the basis of a single example, that “quite often” the records of other courts did not give the full picture, and that in spite of the documentation submitted by petitioner the convictions may have in fact been proper. He concluded that since the “official court records are not sufficient in every case . . . the decision should be made elsewhere.” Again, no legal authority was cited in support of this conclusion, and no mention was made of the cases to the contrary elsewhere. The district judge, again without opportunity for petitioner to be heard, wrote at the foot of this memorandum, “Affirmed.”

If the only question before us was the legal correctness of the magistrate’s— and the district court’s—views, we would dispose of this case by a simple reversal on the authority of our later case of United States v. Sawaya, 1 Cir., 1973, 486 F.2d 890. However, there is much more than this. The magistrate’s report, in reciting factors which persuaded him and ignoring everything to the contrary, indicated a misconception of his duties.

Under the Federal Magistrates Act, 82 Stat. 1108 (1968), 28 U.S.C. §§ 631-639, a magistrate’s primary function is not to supplant, but is to assist judges. Except to the extent that weight attaches to his findings when acting as a special master, we have made it clear that at least in matters of importance the magistrate decides nothing, but merely recommends, Reed v. Board of Election Comm’rs, 1 Cir., 1972, 459 F.2d 121; Rainha v. Cassidy, 1 Cir., 1972, 454 F.2d 207; cf. United States v. Edson, 1 Cir., 1973, 487 F.2d 370; the burden of decision remains exclusively on the judge. See TPO, Inc. v. McMillen, 7 Cir., 1972, 460 F.2d 348; Dye v. Cowan, 6 Cir., 1972, 472 F.2d 1206, 1206 n.1. This is in accordance with the act, which provides, 28 U.S.C. § 636(b), that the majority of the judges of a district court may assign, inter alia, the following duties to a magistrate.

“(1) service as a special master in an appropriate civil action
“(2) assistance to a district judge in the conduct of pretrial or discovery proceedings in civil or criminal actions ; and
“(3) preliminary review of applications for post-trial relief made by individuals convicted of criminal offenses, and submission of a report and recommendations to facilitate the decision of the district judge having jurisdiction over the case as to whether there should be a hearing.”

What would seem to us the plain meaning of the language of presently pertinent subsection (3) is borne out by the legislative history. The Committee on the Administration of the Criminal Law of the Judicial Conference of the United States, in a report on S. 945 recommended the addition of the final clause of that section to “make it clear that it is the judge’s responsibility to make the ultimate decisions and to hold hearings on such applications, rather than that of the magistrate.” See Hearings before the Subcommittee on Improvements in Judicial Machinery of the Senate. Committee on the Judiciary on S. 3475, 89th Cong.2d Sess., and S. 945, 90th Cong., 1st Sess., at 245 (May 25, 1967).

However appropriate it may be for a judge to render an opinion that dismisses, sub silentio, all contrary authorities, a report by a magistrate in that vein scarcely “facilitate[s] the decision of the district judge” whose obligation it is to consider both sides of the case. To the extent that by its silence the report suggests that no other relevant material is known, it not only is not helpful, it is likely to be affirmatively misleading and detrimental. Whether the magistrate is dealing with a factual or a legal situation, his basic obligation is to furnish a full account of all argumentatively relevant matters to enable the court to make the appraisal.

We do not mean by this that the magistrate, after setting forth all the factors, should not recite his own conclusions ; the statute expressly provides for his recommendation. The views of an experienced magistrate as to how the case should be decided can be of great assistance. Indeed, because of the limited, and hence repetitive nature of his jurisdiction, a magistrate may come to have more familiarity with a question than does some individual judge. The report, however, is the primary obligation ; his recommendation, secondary.

This leads us to a comment upon the court’s duty, or more exactly, the weight to be given a report. The procedural error committed here of “affirming” the magistrate’s memorandum, as distinguished from entering a full order, suggests a possible misconception of substance. When acting under subsection (3) a magistrate’s conclusions are not to be given any weight, or presumption that they are to be adopted unless plainly wrong. The report, not to be thought of or denominated as an opinion, is not a decision of any sort. The original, and only order is the court’s, which is entirely free to do as it chooses. See n.4, ante.

Correspondingly, unless the particular claim is frivolous, or the matter requires immediate disposition, it would normally seem desirable to allow parties to comment before a magistrate’s recommendation is acted on. Cf. Rainha v. Cassidy, ante, 454 F.2d at 208. Our somewhat elliptical language in that opinion, while perhaps thought by some to be directed only to procedure, has been read as a disapproval of evidentiaryhearings by magistrates in habeas cases. See n.4 in Bridwell v. Ciccone, 8 Cir., 1973, 490 F.2d 310. Although the matter has never been presented to us in an adversary manner, and is not now, the issue has arisen elsewhere and it is perhaps time that in exercise of our supervisory power we express our views in definitive form.

The fact that subsection (1) makes a general provision for the appointing of a magistrate as a special master, and subsection (3) gives a much more specific recitation for post conviction relief proceedings in itself suggests that the latter is the sole procedure to be adopted in such instance. If there could be doubt about this, we believe it to be answered by the Report of the Committee on the Administration of the Criminal Law of the Judicial Conference, quoted ante. When a criminal proceeding has reached the stage of final sentence having been imposed, any further decision should be by the district judge, and not by a magistrate even to the limited extent of making findings of fact with the weight that normally attaches to the findings of a master. This should particularly be so, as a matter of comity, in the field of federal state relations when dealing with habeas corpus.

The Sixth Circuit has concluded that in the case of post conviction relief a magistrate should not hold evidentiary hearings at all. Wedding v. Wingo, 6 Cir., 1973, 483 F.2d 1131, cert. granted 1974, 414 U.S. 1157, 94 S.Ct. 914, 39 L.Ed.2d 109. The Eighth has taken a middle course. Bridwell v. Ciccone, ante; Noorlander v. Ciccone, 8 Cir., 1973, 489 F.2d 642. We accept what we understand to be the Eighth Circuit view (although we find the district court rules the court approved possibly ambiguous). In sum, a magistrate, acting under subsection (3), may hold a hearing; he may receive the state court record, and any undisputed documents the parties care to submit; Belbin v. Picard, 1 Cir., 1972, 454 F.2d 202; United States v. King, 1 Cir., 1973, 474 F.2d 402; he may receive stipulations. Maw-son v. United States, 1 Cir., 1972, 463 F.2d 29. In addition, he may take evidence, but with the sole object of leading to findings of fact that all parties accept. No finding to which any party duly objects should be given any weight by the district court, and no oral evidence presented to the magistrate should be considered by the district court in written form as, in effect, a deposition, if any party objects. In other words, hopefully the magistrate may accomplish an agreed record, but to the extent that he does not, any party is entitled to a full trial de novo.

Returning to the merits of this case, the government takes the position that the record “conclusively shows,” 28 U.S.C. § 2255, that petitioner is entitled to no relief because the misdemeanor convictions were inconsequential. It may be, on judicial reflection, that in the sum total of things they were of no material consequence, but we could not conceivably say so as matter of law in the light of the sentencing judge’s specific reference to the seriousness of petitioner’s record. We note that our uncertainty in United States v. Sawaya, ante, whether Argersinger v. Hamlin, 1972, 407 U.S. 25, 92 S.Ct. 2006, 32 L.Ed.2d 530, was retrospective has since been resolved in favor of retrospectivity. Berry v. Cincinnati, 1973, 414 U.S. 29, 94 S.Ct. 193, 38 L.Ed.2d 187. Petitioner is entitled to a hearing, and to be resenteneed if his contentions are correct.

A question remains, whether the remand should be to the original sentencing judge or to another. As we recognized in Halliday v. United States, 1 Cir., 1967, 380 F.2d 270, aff’d 394 U.S. 831, 89 S.Ct. 1498, 23 L.Ed.2d 16, and as recently as in United States v. Sawaya, ante, there should be no absolutes in this area. However, given a freedom of choice, there may often be preferences. The variations of this problem are many, and the facts in this case suggest a general review.

The most important matter is the nature of the new proceeding and its relationship to the old one. If, for example, the case is remanded for a new factual determination by the district judge, the fact that he has already made a resolution, particularly if this involved error on his part, may make it difficult for him to reapproach the question with a free and open mind. On the one hand, he may find it difficult to rid himself of his prior conclusions. More likely, he will tend to lean over backwards. Even if he overcomes both difficulties, it may not be without great personal effort. At the same time, both parties may be apprehensive of the obstacles in the way of its accomplishment. In these cáses we have indicated a strong preference for a new fact finder. Murray v. United States, 1 Cir., 1962, 300 F.2d 804 (non-jury trial); Commissioner of Internal Revenue v. Young Motor Co., 1 Cir., 1963, 316 F.2d 267 (Tax Court judge); Haverhill Gazette v. Union Leader Corp., 1 Cir., 1964, 333 F.2d 808, cert. denied 379 U.S. 931, 85 S.Ct. 329, 13 L.Ed.2d 343 (master); Halliday v. United States, ante, (voluntariness of plea). The problems are much less acute when the new trial is to be before a jury. Even there, however, particularly in a criminal case a defendant may fear vindictiveness on the part of a judge whom he has shown to be in error. Cf. North Carolina v. Pearce, 1969, 395 U.S. 711, 724-725, 89 S.Ct. 2072, 23 L.Ed.2d 656. If, on the other hand, the new trial followed a mistrial, or was ordered by the trial judge himself, no detriment would seem to flow from continuing with the same judge.

On the other side of the ledger, reconsideration by the original judge may be affirmatively desirable when familiarity with the case is important, and for a new judge to achieve familiarity would require wasteful delay or duplicated effort, or when the original judge has unique knowledge of relevant facts which he might legitimately use to augment the record. See, e. g., United States v. Cleveland, 7 Cir., 1973, 477 F.2d 310, 316 n.11; James v. United States, 8 Cir., 1973, 476 F.2d 936; semble: United States v. Carmichael, 1972, 152 U.S.App.D.C. 197, 469 F.2d 937; Cross v. United States, 1968, 128 U.S.App.D.C. 416, 389 F.2d 957.

Such circumstances, to the extent that they are present, call for a balancing. Thus, in a resentencing on a plea, even though the original judge committed no error, but a new judge could readily learn all there was to know at the hearing and through reading the presentence report, we have remanded to a new judge. Mawson v. United States, 1 Cir., 1972, 463 F.2d 29. However, in the case at bar we believe, on further consideration of our statement in United States v. Sawaya, ante, 486 F.2d at 893, the balance to be the other way. Having presided at a full trial, the original judge has a unique knowledge of the case. So, too, he has unique knowledge of how much weight, in determining sentence, he gave to the prior, now to be considered erased, convictions. A new judge would lose the benefit of both of these matters and might easily give too much weight, or not enough weight, to the diminution of those now contested records. If the issue is what would the defendant’s original sentence have been if, assuming defendant’s present allegations to be true, the presentence report had been appropriately limited, which, optimally is what the issue should be, no one but the original judge could normally answer that question. If the issue were simply what would be an appropriate sentence on the revised record, a different judge could address the question, but then the defendant might gain nothing even if the original judge did in fact rely on the allegedly defective prior convictions.

As against this, there would seem to be no persuasive factor contraindicating a return to the original judge. No criticism of him was involved in the post-sentencing discovery that he may have been given an impermissible presentence report, and there would seem no reason to assume that he would be unable to change his mind as to the appropriate sentence, if the changes so warranted. Rather than conceivable annoyance, the original judge would have every reason to welcome the opportunity to correct any inadvertent aggravation of injustices that may have been done the defendant in another court. See United States v. Tucker, ante, 404 U.S. at 448-449, 92 S.Ct. 589. We believe him the most competent one to do it. James v. United States, ante, semble. We accordingly reverse and remand to the original sentencing judge to consider, first, whether he would have imposed a different sentence had he known of the invalidity of the state convictions, and second, if so, to inquire as to those convictions and resentence, if called for.

In conclusion, we do not suggest that in this case, or in any case other than where the original judge was reversed for committing error in the course of making a finding of fact, a judge should not be free to decline to accept a remand, or, contrarily, to call for a remand to himself if, in his discretion, he believes it appropriate. Unless otherwise stated, our views in this area are hortatory, not imperatives. Happily we have no reason in this circuit to fear actual vindictiveness in the exercise of such discretion. The importance of the other considerations may vary from case to case, and although we may set general preferences, the final balance can often be best determined, in light of the general principles that we have outlined, by the district judge himself. Cf. Halliday v. United States, ante, 380 F.2d at 274.

      . In addition to representative cases from the 5th and 8th circuits cited in Sawaya, see United States v. Martinez, 7 Cir., 1969, 413 F.2d 61. And see Tucker itself, 404 U.S. at 448 n. 6, 92 S.Ct. 589.

      . These provisions were adopted by the Rules for United States Magistrates of the Massachusetts District, Rule 2(b).

      . How far a magistrate should make a legal study is a matter to be determined in the particular instance. In the case at bar a legal study in some depth had been submitted to him which, although he might have thought wrong, he could not have thought irrelevant.

      . “A qualified, experienced magistrate will, it is hoped, acquire an expertise in examining these [post conviction review] applications and summarizing their important contents for the district judge, thereby facilitating his decisions. Law clerks are presently charged with this responsibility by many judges, but judges have noted that the normal 1-year clerkship does not afford law clerks the time or experience necessary to attain real efficiency in handling such applications.” Senate Committee on the Judiciary, 90th Cong., 1st Sess., “The Federal Magistrates Act”, report on S.945, Rep.No.371, at 26 (June 28, 1967).

      . Petitioner argues that since the court used the word “record” in the plural, it must have had in mind his misdemeanor convictions as well as the single, admittedly valid, armed robbery conviction. This is an unwarranted assumption. The court was addressing two defendants simultaneously, and would naturally have used the word in the plural even if each defendant had had only one relevant prior conviction. It may be that the court gave substantial weight to the misdemeanor convictions, or it may be that it did not. We express no opinion, except to say that the use of the word record in the plural supplies no answer.

      . Another factor that enters into the scale is the relative unavailability of a new judge in a single-judge district. See Halliday v. United States, ante, 380 F.2d at 274.

      . Indeed, if he found, as only he could, that the contested convictions were not a significant factor in considering the original sen-fence no further inquiry would be necessary. McAnulty v. United States, 8 Cir., 1972, 469 F.2d 254, cert. denied 411 U.S. 949, 93 S.Ct. 1933, 36 L.Ed.2d 411. But see United States v. Tucker, ante, 404 U.S. at 449 n. 8, 92 S.Ct. 589, with which compare Hyland v. Department of Correction, 1 Cir., 1971, 445 F.2d 867.


author: GIBSON, Circuit Judge.

text:
    UNITED STATES of America, Appellant, v. FIRST WESTERN STATE BANK OF MINOT, NORTH DAKOTA, et al., Appellees.
    No. 73-1567.
    United States Court of Appeals, Eighth Circuit.
    Submitted Dec. 11, 1973.
    Decided Jan. 25, 1974.
    Rehearing and Rehearing En Banc Denied March 1, 1974.

      Harold O. Bullis, U. S. Atty., Fargo, N. D., for appellant.
    Kermit Edward Bye, Fargo, N. D., for appellees.

      Before GIBSON and ROSS, Circuit Judges, and SMITH, Senior District Judge.

       The Honorable Talbot Smith, Senior District Judge, Eastern District of Michigan, sitting by designation.

   GIBSON, Circuit Judge.

The United States appeals pursuant to 18 U.S.C. § 3731 from an order of the District Court suppressing any testimonies given by defendants Hayden Thompson, Herbert Meschke, Larry Erickson, Richard Baekes, Gary Williamson, and Mark Purdy before the Ward County Grand Jury, North Dakota, and “any evidence relating thereto” in this federal charge under 18 U.S.C. § 610. The District Court ordered suppression of defendants’ testimonies, any evidence relating to the testimonies, and any use of the testimonies by the Government in relation to defendants’ trial in federal court.

This appeal presents only one basic issue: Did the Government establish that the evidence to be introduced in this federal prosecution against defendants had been developed from sources independent from defendants’ testimonies before the state grand jury? A related issue arises on the scope of the immunity. Just because the defendants testified to certain facts before a state grand jury does not preclude the United States from presenting evidence of these same facts, if that evidence was secured or derived from sources independent from the immunized state testimony and if the immunized state testimony was not utilized to obtain leads to other incriminating evidence.

The defendants here claim that Kastigar v. United States, 406 U.S. 441, 92 S.Ct. 1653, 32 L.Ed.2d 212 (1972), and Murphy v. Waterfront Commission, 378 U.S. 52, 84 S.Ct. 1594, 12 L.Ed.2d 678 (1964), impose an almost impossible or insurmountable burden on the Government in prosecuting this case. The Government agrees with that contention, if Kastigar is interpreted in the District Court’s manner. Since this case has profound implications in the enforcement of the criminal law, we think it advisable to set forth our views of the principles of Kastigar and Murphy as applied to the factual situation presented here.

The United States as a sovereign is not precluded from enforcing its laws by the grant of immunity of another sovereign, in this case the state. However, as a matter of fairness to the defendants and as a constitutional guarantee against self-incrimination, the state immunized testimony cannot be used, directly or indirectly, to prosecute a federal charge. Murphy v. Waterfront Commission, 378 U.S. at 79, 84 S.Ct. 1594. Because of the far-reaching effects of an order that suppresses vital testimony essential to the prosecution of a criminal charge and thus in effect grants amnesty to these defendants from a federal prosecution, a searching analysis of the purpose and reach of immunity statutes along with an analysis of the factual aspects of this prosecution is in order.

At common law the public had the right to anyone’s testimony, but the Constitution protects against self-incrimination. Immunity statutes, long-embodied in our jurisprudential fabric, accommodate both of these values. Immunity is generally offered as a device to secure information on criminal activity committed by those in privy with or those acting in concert with the immunized witness. Often lesser witnesses are induced to testify against more culpable offenders, who often are operating in the higher echelons of criminal activity. It is essentially a device to facilitate investigation of charges of corruption. Often immunity is utilized where no other legal means appears to be available or practical to ferret out facts best known to the culpable witnesses. The grant of use immunity does not clothe the witness with any aura of innocence or shield him from prosecution of the crimes inquired about, but only prohibits the use, directly or indirectly, of his testimony against him. This necessarily includes any leads that are derived from such testimony. Thus, where the same sovereign is granting the immunity and also prosecuting, that sovereign does have a heavy burden of showing that all of the essential evidence necessary for conviction was derived from independent sources. Admittedly, in that situation it may be almost impossible to separate immunized testimony and leads resulting therefrom from evidence secured from independent sources. But where the prosecuting sovereign is not the immunizing sovereign, a considerably different situation is presented.

The sovereign not offering immunity has the undeniable right to protect the integrity of its law enforcement prerogatives by prosecuting anyone who allegedly has committed an offense against its peace and dignity. When its own evidence and investigation discloses acts of criminal activity, an undeniable right to prosecute exits. This right cannot be controlled, thwarted, or diminished by another sovereign granting immunity from prosecution of a kindred offense. Fair play and constitutional guarantees demand, however, that the prosecuting sovereign not use, directly or indirectly, the immunized testimony or any fruits from it. Kastigar v. United States, supra; Murphy v. Waterfront Commission, supra. If the prosecuting sovereign has made its independent investigation and can show nonuse of the immunized testimony, either by lack of access to the immunized testimony or direct statements made in good faith that it did not use the immunized testimony, it should have a clear right to proceed with its own prosecution. However, under Kastigar and Murphy the prosecuting sovereign does have the burden of showing an independent source for its evidence.

Under the facts of this case, it would appear that the United States gathered a considerable amount of its evidence starting May 12, 1969, some five months prior to the convening of the state grand jury. During this interval, two federal grand jury sessions were held. Clearly and obviously, any evidence obtained during this period, even in conjunction with any state-federal investigation, antedated the state grant of immunity and should be available for use by the federal government. The Federal Bureau of Investigation reports prior to this date and the minutes of the two prior federal grand jury sessions irrefragably should be considered as independent sources. After the date of the state grant of immunity, closer scrutiny is required to ascertain if the immunized testimony was received or made available to the federal government or was used to obtain other incriminating evidence. Even if some questionable evidence was obtained, that should not preclude the United States from prosecuting if it can do so on the independent and untainted evidence it has secured. Any tainted evidence, of course, would be inadmissible and must be suppressed during the trial. We feel here that the Government should be permitted to make its case, since it claims, in good faith, independent and untainted sources for its evidence and further asserts nonaccess. The FBI reports and federal grand jury minutes should reveal two independent sources of the Government’s evidence. This might be one of the many cases in which only a complete record can ultimately resolve all questions relating to the source of evidence.

With the above principles in mind, we examine the factual background of this appeal. A federal grand jury was convened in North Dakota commencing September 23, 1969, to investigate, inter alia, possible contributions by First Western State Bank of Minot, North Dakota (hereinafter Bank), some of its officers, and others, to elections of presidential or vice-presidential electors and members of Congress. Defendants did not testify before the federal grand jury, who returned a true bill on July 31, 1970, charging the Bank with five violations of 18 U.S.C. § 610 and the six individual defendants with willfully conspiring to cause the Bank to make contributions to certain federal elections.

Subsequent to the federal grand jury, the Ward County Grand Jury, North Dakota, was called into session October 14, 1969, to investigate the same alleged activity by defendants and others in relation to violations of the North Dakota Corrupt Practices Act, N.D.Cent.Code § 16-20-01 et seq. (1960). . The state grand jury met from October 14, 1969, through December 8, 1969, and all invidivual defendants testified. Baekes testified on October 23rd, Meschke on October 24th and 27th, Erickson on October 29th, Williamson on October 30th and December 3rd, Purdy on December 1st, and Thompson from December 1st through December 3rd. On December 8, 1969, the state grand jury charged each individual defendant with violating N. D.Cent.Code § 16-20-08 and § 16-20-09 for aiding, abetting, advising, or consenting in making unlawful political contributions. On March 9, 1970, a North Dakota state district court quashed defendants’ indictment, since N.D.Cent. Code § 16-20-10 granted transactional immunity to defendants on their testimonies before the state grand jury concerning the charged violations. Defendants, ' however, still faced the above-described federal charges.

In the proceedings below on these federal charges, the defendants moved to quash the indictment because of purported immunity relating to defendants’ testimonies before the state grand jury. Although this motion was originally denied on February 3, 1971, by the late Judge Register, defendants again brought the same motion on August 13, 1971. After oral arguments, the District Court on January 24, 1973, ordered a pretrial evidentiary hearing in order to allow the Government “an opportunity to meet the burden of proving that all of the evidence it proposes to use was derived from legitimate independent sources” from the testimonies given by defendants before the state grand jury. The hearing was held from May 8-10, 1973. The District Court in its order concerning this evidentiary hearing summarized the Government’s evidence:

The hearing was held on schedule. The Government witnesses included Richard B. Thomas, Ward County State’s Attorney, and Paul M. Sand, First Assistant Attorney General for the State of North Dakota, officials that conducted the State Grand Jury proceedings; Richard Peterson, Special Agent of the Federal Bureau of Investigation; H. Clifford Miller, Special Agent of the Federal Bureau of Investigation; Harold O. Bullis, United States Attorney, District of North Dakota; Eugene K. Anthony, Assistant United States Attorney, District of North Dakota; John Clark, formerly Trial Attorney, Government Operations Section, Criminal Division, Office of the Attorney General of the United States; and Gary Annear, Assistant United States Attorney, District of North Dakota. By stipulation the deposition of Lynn E. Crooks, Assistant United States Attorney, District of North Dakota, was taken and submitted subsequent to the hearing.
In addition to the testimony of the witnesses the Government submitted, for in camera inspection, transcripts of testimony given by witnesses appearing before the Federal Grand Jury, together with Federal Bureau of Investigation reports. All of the material thus submitted related to the affairs of the First Western State Bank, Minot, North Dakota.

The Government, in part, contended before the District Court, in its brief on appeal, and during oral argument on appeal, that it had no access to the state grand jury transcripts of defendants’ testimonies. Defendants have not disputed this assertion, nor have they offered any contradictory evidence. Defendants have argued that the joint state and federal investigation of defendants’ activities and the constant communication between the state and federal prosecutors warrant the inference that the federal prosecutors and other officials must have had knowledge of defendants’ testimonies before the grand jury that provided at least investigatory leads for evidence on the federal charges. Defendants introduced records of the telephone company showing numerous calls between the state and federal prosecution offices and extensively cross-examined state and federal officials in an attempt to demonstrate that the federal prosecutors had actual knowledge of defendants’ testimonies before the grand jury. All Government witnesses denied that federal prosecutors knew any of the testimony or had access to the transcripts. Government witnesses testified that any conversations between the state and federal officials concerned the exchange of documents and the scheduling of witnesses. Ward County State Attorney Richard B. Thomas testified that he did inform federal attorneys that defendants’ testimonies before the state grand jury provided nothing productive.

The District Court found that the number of telephone calls Ward County State Attorney Thomas “had with the United States Attorney’s office, the Federal Bureau of Investigation and other investigatory or interested federal agencies leads to the inescapable conclusion that information was conveyed to representatives of the United States Government that proscribe its use in a Federal criminal prosecution in United States Court * * The District Court held that the Government failed to meet its burden of proving legitimate, independent sources for its evidence under Murphy v. Waterfront Commission and Kastigar v. United States and suppressed defendants’ testimonies before the state grand jury, any evidence relating to the testimonies, and any use of the testimonies in relation to defendants’ trial on the federal charges.

The scope of the trial court’s order is not exactly clear. Obviously, the defendants’ state testimonies cannot be used against them. But what is meant by “any evidence relating thereto”? Does this mean independent evidence of the offense testified to cannot be used, thus extending transactional immunity to the offenses testified to, or does it merely impose a ban on evidence obtained as a result of the defendants’ immunized testimonies? We assume the latter.

In United States v. McDaniel, 482 F.2d 305 (8th Cir. 1973) (hereinafter McDaniel 11), this court properly interpreted Kastigar in holding that the Fifth Amendment only requires use immunity. Defendants, therefore, can only complain if their testimonies before the state grand jury were used by the federal government, the prosecuting sovereign, in obtaining evidence against them for their trial under federal charges.

The federal government, however, can use the same evidence testified to by defendants before the grand jury if it can demonstrate that the evidence to be used against defendants came from a legitimate source wholly independent of the compelled testimonies. The prosecuting government’s burden of proving a legitimate, wholly independent source for the compelled testimony is explained in McDaniel II by quoting Kastigar:

“ ‘Once a defendant demonstrates that he has testified, under a state grant of immunity, to matters related to the federal prosecution, the federal authorities have the burden of showing that their evidence is not tainted by establishing that they had an independent, legitimate source for the disputed evidence.” [quoting Murphy v. Waterfront Commission, 378 U.S. 52, 79, n. 18, 84 S.Ct. 1594, 12 L.Ed.2d 678 (1964)].
This burden of proof . . .is not limited to a negation of taint; rather, it imposes on the prosecution the affirmative duty to prove that the evidence it proposes to use is derived from a legitimate source wholly independent of the compelled testimony.
******
. One . . . need only show that he testified under a grant of immunity in order to shift to the government the heavy burden of proving that all of the evidence it proposes to use was derived from legitimate, independent sources.”

McDaniel II, supra at 310-311, quoting Kastigar v. United States, supra, at 460, 461-462, 92 S.Ct. 1653.

Defendants at the evidentiary hearing established that they had testified before the state grand jury concerning activity that is directly concerned with the federal charges in this case. Defendants pursuant to N.D.Cent.Code § 16-20-10 were eventually granted transactional immunity (as a matter of state law policy) against any possible state charges relating to their testimonies. The United States Attorney Bullís stipulated at the commencement of the evidentiary hearing that defendants appeared before the state grand jury. Before the evidentiary hearing, defendants filed with the District Court several documents including the state grand jury transcripts of defendants’ testimonies. We think that the state grand jury transcripts clearly demonstrate that defendants’ testimonies were directly concerned with the federal charges of this case, and the federal government properly was required to demonstrate at the evidentiary hearing the independent sources for its evidence to be introduced against defendants.

We think, however, that the District Court’s finding that “not all of the evidence the United States Government proposes to use was derived from legitimate, independent sources and that some of the evidence is a direct result of communications between Federal and State authorities” as a basis for its suppression ruling is clearly erroneous as a matter of law. There is no indication in the District Court’s memorandum order that the court attempted to ascertain whether the evidence to be presented came from independent sources or only from the defendants’ testimonies before the state grand jury. Although the Government introduced FBI reports concerning investigation of defendants’ alleged political contributions, the District Court’s order does not indicate that it had reviewed those reports to determine whether they could be a sufficient, wholly independent source from the compelled testimonies. The failure to review the Government’s contended independent sources was error and a misinterpretation of the law announced in Kastigar and McDaniel II.

We further think that the Government has discharged its burden of proving independent sources during the pretrial evidentiary hearing by testifying that there was no access by federal authorities to the state grand jury transcripts, by testifying that federal authorities had no knowledge of the compelled testimonies, and by introducing the FBI reports and federal grand jury transcripts as possible independent sources to the District Court for its inspection. This testimony and the introduction of the FBI reports should suffice to carry the Government’s burden of proof for the pretrial evidentiary hearing. We therefore reverse the District Court’s holding that any evidence relating to the subject matter of defendants’ testimonies before the state grand jury must be suppressed.

We support McDaniel II’s statement that the Government’s burden of proving independent sources should “under ordinary circumstances” be shouldered during a pretrial evidentiary hearing. Where substantial evidence is proffered showing a joint investigation, as in this case, a-pretrial hearing would be advisable. Not every case, however, would call for a further fragmentation of the trial process by having a full-scale suppression hearing prior to trial. The ascertaining of independent sources can often be better considered during the trial, since all the evidence is placed on the record or offered for introduction at the trial. To some extent, this is a matter of degree. For example, isolated questions concerning suppression of certain evidence should not call for a full-scale suppression hearing of all the evidence that is to be offered by the Government. In general, where feasible and compatible with fairness to the defendant, the trial process should not be further fragmented if at all possible.

The resolution of the Government’s burden of proof in McDaniel II during a pretrial evidentiary hearing was eased by an admission of the United States Attorney that he had read the state grand jury transcript. McDaniel II therefore concluded the testimony read by the United States Attorney “could not be wholly obliterated from the prosecutor’s mind in his preparation and trial of the case.” McDaniel II, supra at 312. In this light the McDaniel II court held that the Government failed to prove that the United States Attorney “did not use [McDaniel’s testimony] in some significant way short of introducing tainted evidence.” McDaniel II, supra at 311. Since the United States Attorney had read the state grand jury transcript in McDaniel II and since the reading of a transcript makes proof of independent sources much more difficult for the Government, resolution of this burden of proof issue during a pretrial evidentiary hearing was considerably facilitated.

In this case, the federal officials have testified that they had no access to or knowledge of the state grand jury transcripts. That testimony, the lack of contradictory evidence by the defendants showing actual knowledge or access to the state grand jury transcripts by federal authorities, and the introduction of the FBI reports and the state and federal grand jury minutes should have discharged the Government’s burden of proving independent sources during the pretrial hearing.

After reviewing the FBI reports and the state and federal grand jury transcripts, the District Court may indeed find that proffered evidence by the Government during the forthcoming trial has only been derived from defendants’ compelled testimonies. If that occurs, suppression of that evidence is demanded.

The District Court’s order of suppression is reversed and the ease is remanded for further proceedings consistent with this opinion.

      . The latest Supreme Court case of Kastigar v. United States, 406 U.S. 441, 92 S.Ct. 1653, 32 L.Ed.2d 212 (1972), holds that use immunity satisfies constitutional requirements and that use and derivative use of immunized testimony is proscribed. Thus, no issue is raised on the use of this state testimony itself. It cannot be used. The crucial issue, however, is whether the United States secured its loads and derived its necessary probative evidence by utilizing immunized state testimony to gain other evidence.

      . Wigmore says:
      Such statutes, therefore, have for more than two centuries been the expedients resorted to for the investigation of many offenses, chiefly those whose proof and punishment were otherwise impracticable because of the implication in the offense itself of all who could bear useful testimony.
      8 Wigmore, Evidence § 2281 at 492 (McNaughton rev. 1961).
      For a general discussion of the history and purposes of immunity in regards to grants of immunity by the United states, see Comment, The Federal Witness Immunity Acts in Theory and Practice: Treading the Constitutional Tightrope, 72 Yale L.J. 1568 (1963).

      . The federal grand jury met and was in session during the following times: September 23-26, 1969; October 7-9, 1969; December 1-5, 1969; February 3-4, 1970; and July 28-31, 1970.

      . The District Court also had the transcripts of defendants’ testimonies before the state grand jury, since defendants filed these transcripts on August 13, 1971, with the motion to quash the indictment.

      . This opinion concerned a review of an earlier remand by this court in United States v. McDaniel, 449 F.2d 832 (8th Cir. 1971), cert. denied, 405 U.S. 992, 92 S.Ct. 1264, 31 L.Ed.2d 460 (1972).

      . Filed with this case on appeal are the transcripts of the state grand jury testimonies of defendants, the transcript of the evidentiary hearing conducted by the District Court, and certain exhibits admitted during the evidentiary hearing. The FBI reports and the federal grand jury transcripts admitted during the evidentiary hearing wer* not filed on appeal.


author: SNEED, Circuit Judge:

text:
    Marte A. FORMICO and Eula J. Formico, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
    No. 71-2882.
    United States Court of Appeals, Ninth Circuit.
    Jan. 30, 1974.
    Herman P. Scampini, Jr. (Argued), of Janin, Morgan & Brenner, San Francisco, Cal., for appellants.
    K. Martin Worthy, Chief Counsel, I. R. S., Washington, D. C., Scott P. Crampton, Asst. Atty. Gen., Tax Div., Jane M. Edmisten (Argued), U. S. Dept. of Justice, Washington, D. C., for appellee.
    Before MERRILL, KOELSCH, and SNEED, Circuit Judges.
   OPINION

SNEED, Circuit Judge:

This appeal involves, a disputed deficiency in the income taxes paid by Eula and Marte Formico (“Taxpayer”) for the calendar years 1966 and 1967 in the amounts of $3,836.33 and $3,977.75 respectively. At issue here is whether the Tax Court erred in finding that Taxpayer had purchased solely “management rights” in connection with his acquisition of an insurance business, and that such rights were an intangible asset not subject to depreciation under Section 167(a) of the Internal Revenue Code of 1954, 26 U.S.C. § 167(a).

In 1957, Grover M. Swofford was appointed a district manager for Farmers Insurance Exchange, Truck Insurance Exchange, Fire Insurance Exchange, Mid-Century Insurance Company and Farmers New World Life Insurance Company (collectively “Farmers”). By virtue of his appointment agreement, Swofford was given access to, and use of, the business records and policy files relating to his district. In addition to providing that he was entitled to receive and collect commissions on all policies generated in his district and written by Farmers, the agreement also provided that Swofford would receive a commission on the renewal of any policies which had been produced by him. In the event of cancellation or other termination of their relationship, Farmers agreed to give first consideration to Swofford’s nomination of a successor. It was also agreed that Swofford could negotiate with his nominee for “reasonable compensation for the value of such nomination and such goodwill as may attach to the agencies.” Under the agreement, “reasonable compensation” was to be determined in accordance with a formula which established a maximum limit, subject to waiver by Farmers, at a set multiple of commissions which had been paid by Farmers to Swofford over the six month, twelve month, or two quarterly periods preceding the termination of the agreement. However, the Agreement also expressly stipulated that:

all renewals and expirations, as well as any and all rights or privileges for the continuing effectiveness of all policies produced on behalf of [Farmers] including all records pertaining thereto, are and shall at all times remain the property of [Farmers]. .

In April of 1965, Taxpayer purchased all right, title and interest in Swofford’s business as district manager for Farmers. He also contemporaneously executed a District Manager’s Appointment Agreement which, for present purposes, was essentially identical to that which Farmers had obtained from Swofford. Under the terms of the agreement of sale, Taxpayer agreed to purchase Swofford’s “. . . insurance business as insurance agent and as District Manager for [Farmers] . . . including the goodwill of said business but not including renewals and expirations which are and remain the property of the associations and companies.” In an addendum to the agreement, however, the parties expressly contracted that “[a] 11 folios payable after the effective date of this Agreement shall be paid to [Taxpayer].”

As a part of its normal business records, Farmers computes “lapse ratios”, which reflect the percentage of policies in existence at the beginning of a measuring period (usually six months) that are no longer in effect at the end of the period due to nonpayment of premiums. These ratios do not take into consideration any lapses which result from legal cancellations, from policy holders dying or moving to another district, from underwriting cancellations or from the sale of insured property. Nor do the ratios take into consideration new policies added during the period, such policies being reflected in subsequent measuring periods. Farmers does, however, keep other records which indicate the percentage loss over each measuring period due to cancellations or other terminations of existing policies.

In his joint income tax return for the years 1966 and 1967, Taxpayer and his wife claimed an annual amortization deduction of $12,367 with respect to the rights which he had acquired pursuant to the agreement of sale he had executed with Swofford. The Commissioner denied this deduction on the ground that Taxpayer had purchased intangible contract rights, equivalent to goodwill, having an indeterminate useful life. The Tax Court upheld the Commissioner on the ground that the assets acquired by Taxpayer did not meet the requirements for amortization under the Code and applicable regulations. 26 U.S.C. § 167 (a); T.R. 1.167(a)-3. The basis for the Tax Court’s opinion was that Swofford could not have transferred rights to renewal commissions because under his district manager’s appointment agreement these rights had remained at all times the property of Farmers. Rather, Taxpayer was held to have acquired the opportunity to be appointed district manager of an ongoing insurance business when Swofford ceased to hold that position with Farmers. Given that Taxpayer’s appointment was of indefinite duration, and that he fully expected to sell his management contract at such time in the future as he terminated his relationship with Farmers for more than he had paid Swofford, the Tax Court determined that Taxpayer had failed to establish either that the rights he had acquired constituted a wasting asset or that the asset had a determinable life span over which it could be amortized.

Section 167(a) of the Internal Revenue Code, 26 U.S.C. § 167(a), permits as a deduction a reasonable allowance for the exhaustion, wear and tear, or obsolescence of property used by the taxpayer for the production of income in a trade or business. This provision is designed to enable a taxpayer to recover the cost of a wasting asset used in his business by allowing a deduction that reflects the diminution in value of the asset as it is used. See Detroit Edison Co. v. C. I. R., 319 U.S. 98, 101, 63 S.Ct. 902, 87 L.Ed. 1286 (1943). While the Code does not speak directly to allowing a depreciation deduction with respect to intangible assets, the applicable Treasury Regulation permits an intangible asset to be depreciated provided the taxpayer can demonstrate that its useful life can be estimated with reasonable accuracy. Thus in order to prevail, Taxpayer must establish that the rights he acquired when he purchased Swofford’s business constitute a wasting asset having a useful life capable of being estimated with reasonable accuracy. Commissioner of Internal Revenue v. Seaboard Finance Co., 367 F.2d 646 (9th Cir., 1966); Hoffman v. C. I. R., 48 T.C. 176 (1967).

Taxpayer contends that the only right which he acquired was the right to receive renewal commissions on those policies in his district which existed at the time of his appointment; that this right has a definitely ascertainable useful life which,does not exceed ten years; and that therefore a depreciation allowance is proper under section 167(a), 26 U.S.C. § 167(a). However, under both Swofford’s and Taxpayer’s agreement with Farmers, all renewals were and at all times remained the property of Farmers. Taxpayer could not have purchased that which Swofford did not own, and the mere fact that the purchase price under their agreement was determined according to a multiple of the service commissions actually received by Swofford as a result of policies in effect for the six-month period preceding the purchase does not imply anything to the contrary. See Roy W. Johnson, 53 T.C. 414, 425 (1969).

Given that the right to renewal commissions remained at all times in Farmers, such eases as H. B. Hill, 3 B.T.A. 761 (1926); Lewis N. Cotlow, 22 T.C. 1019 (1954), aff’d 228 F.2d 186 (2d Cir., 1955); and Francis E. Latendresse, 26 T.C. 318 (1956), aff’d 243 F.2d 577 (7th Cir., 1957), which have been cited by Taxpayer, are inapposite. They involve an assignment by life insurance agents of their rights to receive, over a definite period of time, a percentage of the renewal premiums paid by existing policyholders—at issue being the manner in which the total purchase price would be amortized over the known period during which such commissions would be received.

In the instant case, Taxpayer’s position appears most nearly analogous to that before the court in Millard H. Hall, 50 T.C. 186 (1968), aff’d 406 F.2d 706 (5th Cir., 1969). In Hall, the taxpayer had purchased a contract to manage a Texas mutual assessment insurance company. In holding that Hall had purchased non-amortizable' “management rights”, as opposed to the mere right to receive renewal commissions, the Fifth Circuit said that:

[T]he management contract purchased by Mr. Hall was something entirely different [than the purchase of renewal premium commissions.] He, of course, would benefit from the keeping on the books of the company all of the policies that were there at the time of the purchase, to the extent of his ability to do so. But this, of course, is not what he bought at all. He would benefit equally by every dollar of premium income he could generate by selling new policies.
* -X- -X- •» * *
This distinction between the asset acquired by Mr. Hall and the acquisition of a mere right to receive commissions already earned lies in the fact that he could run his company, sell as much additional insurance as he could place and be entitled to a large portion of . each year’s annual premiums both on old policies and on newly placed policies received by the company during its life.
* * * * * -X-
We conclude that the Tax Court had no course other than to hold, as it did, that a management contract that gave an indefinite right to the purchaser to operate the company in a manner that would produce income for an indefinite period in the future, and which actually had a value, according to his estimation, eight years after his acquisition, substantially higher than the price he had paid for it was not subject to amortization or depreciation under the provisions of Section 167 IRC, and Section 1.167(a)(3) Income Tax Regulations. 406 F.2d at 709-710.

As found by the court below, Taxpayer purchased the opportunity to be appointed district manager when Swofford terminated his relationship with Farmers. As such, he would have the opportunity to generate future business, thereby both replacing lapsed policies and increasing the overall number of policies from which he could obtain service commissions. Like Hall, he was entitled to receive renewal commissions on existing policies immediately upon his appointment and fully expected that he would be able to resell his management contract at a higher price than he had paid for it. Thus not only has Taxpayer failed to establish that he purchased a wasting asset, which is a prerequisite for any depreciation allowance under section 167(a), Detroit Edison Co. v. C. I. R., supra, but, as noted by the Tax Court,

The time over which income will be generated from his rights as appointee of Farmers, whether those rights diminish or not, is coexistent with the term of Farmers’ appointment agreement. That agreement is terminable at the will of either party and petitioners introduced no evidence to show that there was a set time after which Farmers normally would terminate. In all probability, insofar as Farmers is concerned, the agreement will remain in effect as long as [Taxpayer] performs his duties satisfactorily, a period of time which is unknown. Thus we can ascertain no reasonable life span over which his rights may be amortized as required by Section 1.-167(a)-3, Income Tax Regs. ¶ 71,171 P-H Memo T.C. at 776.

Nor do we feel that the lapse ratios introduced at trial have established with the requisite accuracy an ascertainable useful life for the rights which Taxpayer acquired. The percentages reflected in Taxpayer’s lapse rates are based on the number of policies in existence at the beginning of each six month period. Not only do they fail to show what percentage of policies in effect at any given time fail to be renewed in each period, but they also fail to take into account that the rate of loss of renewals may be keyed to external factors such as competition and quality of service rendered with respect to those policies. Even assuming that Taxpayer had acquired both the right to renewal commissions and the right to manage an ongoing insurance business, an issue which we need not reach here, the lapse ratios are insufficient to allow separate valuation for purposes of amortization. Compare First Pennsylvania Banking & Trust Co., 56 T.C. 677 (1971); Western Mortgage Corp. v. United States, 308 F.Supp. 333, 337 (C.D.Cal.1969); Securities-Intermountain, Inc. v. United States (unreported), (D.Or.; 1970, 25 A.F.T. R.2d 70-795, 70-1 U.S.T.C. ¶9268).

We affirm.

      . Eula J. Formico was made a party to this action solely because she filed joint income tax returns with her husband, Marte A. Formico, for the years at issue here. For purposes of this opinion, only tho latter is referred to as “Taxpayer” herein.

      . Taxpayer paid a total purchase price of $129,440.25, which consisted of $4,700 for Swofford’s furniture and fixtures, and $124,740.25 as “reasonable compensation” for Swofford’s nomination of Taxpayer as district manager. Swofford had received service commissions from Farmers in the amount of $24,948.05 for the six-month period preceding the date of sale; the “reasonable compensation” element of the total purchase price being derived by multiplying this figure by five pursuant to the formula in Swofford’s District Manager’s Appointment Agreement.

      . Prior to purchasing Swofford’s rights, Taxpayer had been employed by the latter for two years on a salary basis. His responsibilities had been to promote business in the district, and he was also involved in recruiting, training and supervising local agents. When Taxpayer became manager, the policy structure of the district consisted of six-month and one year automobile and commercial truck insurance policies. All policies in the district were automatically renewable, unless cancelled, and all renewal and' billing notices were sent out by Farmers. The district manager did not write or service policies in the district, nor did he handle policyholder claims. In addition to representing and promoting Farmers in the district, his function was primarily one of recruiting, appointing and training local agents, who operated as independent contractors in the sale and service of Farmers’ policies.

      . ¶ 71,171 P—H Memo T.C. (1971).

      . Section 167 reads in pertinent part:
      (a) General Rule.—There shall be allowed as a depreciation deduction a reasonable allowance for the exhaustion, wear and tear (including a reasonable allowance for obsolescence) —
      (1) of property used in the trade or business, or
      (2) of property held for the production of income.

      . Treasury Regulation 1.167(a)-3 provides that:
      Intangibles.—If an intangible asset is known from experience or other factors to be of use in the business or in the production of income for only a limited period, the length of which can be estimated with reasonable accuracy, such an intangible asset may be the subject of a depreciation allowance. Examples are patents and copyrights. An intangible asset, the useful life of which is not limited, is not subject to the allowance for depreciation. No allowance will be permitted merely because, in the unsupported opinion of the taxpayer, the intangible asset has a limited useful life. No deduction for depreciation is allowable with respect to goodwill. Treasury Regulations which have been in effect over an extended period of time are deemed to have received congressional approval and have the effect of law. Helvering v. Winmill, 305 U.S. 79, 83, 59 S.Ct. 45, 83 L.Ed. 52 (1938). As this regulation has remained in effect in substantially the same form since 1918, it would appear to fit well within this classification.

      . The situation here also appears analogous to that before the Fifth Circuit in Nachman v. C. I. R., 191 F.2d 934, 936 (5th Cir., 1951) , where the court denied amortization of a liquor license which was renewable annually.
      This renewal privilege being of indefinite duration, dependent upon petitioners’ wishes as well as upon the City’s future course of action, there is no rational basis for prediction as to duration.

        Bee also, Richmond Television Corp. v. United States, 354 F.2d 410 (4th Cir., 1965) ; Commissioner of Internal Revenue v. Indiana Broadcasting Corp., 350 F.2d 580 (7th Cir., 1965), cert. denied 382 U.S. 1027, 86 S.Ct. 645, 15 L.Ed.2d 539 (1966).