author: OAKES, Circuit Judge:

text:
    Milton FORMAN and Ellen Forman et al., Appellants, v. COMMUNITY SERVICES, INC., et al., Appellees.
    No. 747, Docket 73-2613.
    United States Court of Appeals, Second Circuit.
    Argued April 4, 1974.
    Decided June 12, 1974.

      Louis Nizer, New York City (Phillips, Nizer, Benjamin, Krim & Ballon, George Berger, Jay F. Gordon, Richard S. Brooks, Janet P. Kane, New York City, of counsel), for appellants.
    Simon H. Rif kind, New York City (Paul, Weiss, Rif kind, Wharton & Garrison, Alan G. Blumberg, Martin London and George P. Felleman, New York City, of counsel), for appellees.
    Daniel M. Cohen, Asst. Atty. Gen. (Louis J. Lefkowitz, Atty. Gen. of State of N. Y., Samuel A. Hirshowitz, First Asst. Atty. Gen., of counsel), for appel-lees State of New York and New York State Housing Finance Agency.
    Before HAYS and OAKES, Circuit Judges, and CHRISTENSEN, District Judge

       Senior United States District Judge for the District of Utah, sitting by designation.

   OAKES, Circuit Judge:

This appeal by resident tenants of Co-op City presents the question whether a share of stock in a cooperative apartment nonprofit company chartered and subsidized under the State of New York’s Mitehell-Lama Act is a “security” within the meaning of the federal securities laws. All the appellees urge that because there is no promise, expectation or possibility of profit in connection with a member’s resale of a cooperative share and because the cooperative housing company is created pursuant to an emergency state program for low cost housing, state financed and supervised, and sponsored by a nonprofit foundation, that cooperative shares in it are not securities. The appellee New York State Housing Finance Agency (“the agency”) also claims not to be a “person” within the meaning of the Civil Rights Act of 1871, 42 U.S.C. § 1983, and its jurisdictional counterpart, 28 U.S.C. § 1343(3), and the appellee State of New York claims not to be a proper defendant under 42 U.S.C. § 1983, as well as immune under the eleventh amendment of the United States Constitution. The court below, finding that the cooperative shares involved were not “securit[ies],” dismissed the counts of the amended complaint alleging violations of the federal securities laws as to all defendants and, since the federal securities allegations represented the only “well pleaded” underlying basis for jurisdiction under the Civil Rights Act, dismissed the complaint as to the state agency. The remaining counts were dismissed as against the named defendants, since they set forth pendent claims asserted pursuant to state law. United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 16 L.Ed.2d 218 (1966). The complaint was therefore accordingly dismissed in its entirety for lack of subject matter jurisdiction. 366 F.Supp. 1117 (S.D.N.Y.1973). Expressing no opinion whatsoever on the merits, but finding jurisdiction nevertheless, we reverse and remand.

Appellants are 57 residents owning some 30 apartment units in Co-op City, a huge low-middle income cooperative housing project located in the borough of the Bronx, New York City. Co-op City is apparently the largest cooperative housing development in the United States, presently housing some 45,000 people, with more than 30 high-rise buildings and 230 town houses and a total of 15,400 apartment units ranging from three to seven rooms, on a 200-acre site. Appellants allege on behalf of themselves and all other residents violations by the defendants of the antifraud provisions of the Securities Act of 1933, 15 U.S.C. § 77q(a), and the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. The complaint alleges in respect to the defendant New York State Housing Finance Agency that plaintiffs’ civil rights have been violated by virtue of the securities law violations alleged directly against the other defendants.

The corporate defendants, appellees here, include United Housing Foundation (UHF) which initiated and sponsored the project. UHF was formed in 1951 under New York’s nonprofit corporation statute, New York Not-for-Profit Corporation Law, with the purpose of fostering the growth of nonprofit cooperative housing for low and low-middle income families and, in addition to Co-op City, it has participated in the sponsorship of several other New York cooperative housing projects; UHF’s membership includes housing cooperatives, civic groups and labor unions. Community Services, Inc. (CSI), is the general contractor and sales agent for the project. CSI was organized under the New York Business Corporations Law, for profit, even though it is a wholly owned subsidiary of UHF. The third corporate defendant is Riverbay Corporation (Riverbay), which is the cooperative housing corporation in which plaintiffs purchased shares and which owns and operates the project. Riverbay was organized by UHF as a “mutual company” under New York’s ' Mitchell-Lama Act, note 1, supra; it is named as a defendant here principally, if not only, in respect to the derivative causes of action alleged on its behalf under New York state law. The individual defendants are officers or directors or both of some or all of the corporate defendants. Pursuant to the Mitchell-Lama Act, the defendant agency provided the bulk of the financing for the project through long-term low-interest mortgage loans, and the defendant New York State Division of Housing and Community Renewal (the “Division of Housing”) through its commissioner is responsible for the supervision of the development, construction, promotion and operation of the project.

Basically under the Mitchell-Lama Act, cooperatives which are subsidized and supervised are owned by a mutual company formed under the Act the stock of which is held by the actual tenants, as here. Section 12(2-b). No one may live in the project whose probable aggregate income exceeds six times the rental fees, § 81(2) (a), (b), and there is a preference to the aged, the handicapped and veterans, §§ 11, 31(7)(a), (b). Plaintiffs here secured their right to occupancy by completing a subscription agreement and apartment application form wherein they agreed to subscribe to 18 shares of Riverbay common stock at $25 par value per share for each room in the apartment they selected. Under the bylaws of Riverbay, each stockholder is entitled to only one vote on any and all matters regardless of the number of shares of capital stock or any other equity obligations of the housing company which the stockholder owns. Also, the stock may not be owned separate and apart from actual occupancy in Co-op City, nor may it be pledged or otherwise encumbered. The shares descend intact (together with the right to occupancy) only to a surviving spouse, and a tenant who wishes to move out or is forced out, whether by way of violation of the lease or by virtue of his income, must divest himself of the stock by offering it for repurchase, in which case he will be compensated with exactly the amount he paid for the stock. In the event Riverbay does not exercise its right to repurchase (for which it had established a reserve fund of approximately $917,000 as of December 31, 1972), the stockholder is free to sell his shares elsewhere, although under § 31-a of the Mitchell-Lama Act he may not sell them for more than the original purchase price plus a pro rata fraction of the mortgage amortization paid during his tenure at Co-op City.

The obligations of the Co-op City resident flow from his lease., not from his stock. In addition, to what the trial court has termed the usual landlord-tenant covenants with respect to services and care of the premises, the resident is required to pay annual carrying charges pro rated in advance monthly payments, the pro rata portion being based not on the number of shares owned but on the size, type and location of his apartment. This monthly payment is, as in the case of other cooperatives, in reality rent, that is to say, it represents a proportionate allocation of the expenses of Riv-erbay in connection with the ownership, maintenance, operations, taxes, mortgage indebtedness, repairs improvements, wages for employees, etc.

The gravamen of the appellants’ amended complaint relates to the carrying charges for Co-op City apartments, and particularly the initial “Information Bulletin” circulated by CSI as sales agent for Riverbay through the mail, originally setting forth an estimated average monthly carrying charge of $23.02 per room. This meant that a prospect for a four-room apartment could expect to pay $1,800 for stock in Riverbay and a monthly rent thereafter of $92.08. The cost of the project, however, increased while it was being built, and in 1968 the current “Information Bulletin” was revised upward to $25 per room per month, then in 1970-72 to $29.39, then in 1973-74, $35.27. Because it is now estimated that the charge will be $39.68 effective July 1, 1974, what originally was a $92.08 monthly rental bargain for a four-room apartment will now be $148.72 per month. For those who have fixed incomes or whose wages have not gone up with inflation, the change in carrying charges is most serious. The complaint charges in substance that there were misrepresentations and material omissions in the “Information Bulletins.” It is said, for example, that there was stated a lump sum price of $258,678,000 for the construction of the project to be financed with a $250,-000,000 mortgage from the agency, and the Bulletin did go on to state that “the risk of completing the construction within the lump sum price is on the contractor.” However, it is alleged, the agency and other defendants agreed to a final construction bill of $340,500,000, which was financed through a $125,000,000 increase in the mortgage loan, thereby substantially increasing the carrying charges. Some other allegations apparently are that the “Information Bulletins” failed to disclose that the State Housing Commissioner had waived the liquidity requirement for contractors imposed by the Guide for Development of Limited Profit Housing, Preliminary Submissions, State of New York Division of Housing and Community Renewal p. 35, and further failed to disclose that the contractor was a wholly owned subsidiary of UHF.

As stated above, the district court de-' termined that the shares in Riverbay were not securities within the meaning of the federal securities laws, and therefore the court was without jurisdiction over the claims. This holding we reverse for reasons which follow, finding the Riverbay shares to be securities within the federal law and thus conferring federal jurisdiction over appellants’ claims. As to the substance of those claims, whether they state claims for which relief can be granted or whether any damages are cognizable, as we have said, we intimate no conclusion.

The definition of “security” in the Securities Exchange Act of 1934, § 3(a) (10), 15 U.S.C. § 78c(a)(10), is set out in full in the margin, but for our purposes may be read as follows: “The term ‘security’ means any . . . stock . . . investment contract or in general, any instrument commonly known as a ‘security’. . . .” The definition in the Securities Act of 1933, 15 U.S.C. § 77b(l), is “virtually identical” and interchangeable with that in the 1934 Act. Tcherepnin v. Knight, 389 U.S. 332, 335-336, 88 S.Ct. 548, 19 L.Ed. 2d 564 (1967); Glen-Arden Commodities, Inc. v. Costantino, 493 F.2d 1027, 1034 (2d Cir. 1974).

It should be mentioned that shares have not yet been issued to the appellants. For all purposes, however, we may treat the case as if the shares had been issued. Appellants have all signed the extensive subscription agreement under which they subscribe to class B capital stock of Riverbay Corporation at par value (the number of shares depending on the number of rooms in the apartment), and they all agreed to pay the full subscription price on the signing of the application. We agree with the court below (and the appellees do not seriously contend otherwise) that despite a contrary statement in the subscription agreement. the tenants of Co-op City have purchased the right to own shares, and that is enough under the federal statutes to bring them within their coverage. 15 U.S.C. § 78c(a)(13). In total the shareholders of Riverbay have paid $32,-803,200 for their stock.

Some incidents of ownership of River-bay common stock are identical to those of other cooperative real estate corporations’ stock. The owner of the certificate has the right to vote in the affairs of the corporation. He has the right to take income tax deductions for a portion of his monthly carrying charges. He has the right to enter into an occupancy agreement and his shares upon his death pass to his spouse together with the right to occupy. Rental income from River-bay’s leases of commercial and office space is available to pay its general expenses, thereby reducing its need for carrying charge income from the appellants. Other aspects of Riverbay stock are common but not universal. For instance, the stock may not be pledged or otherwise encumbered or owned by someone who does not occupy one of the cooperative apartments. Cf. Penthouse Properties, Inc. v. 1158 Fifth Avenue, Inc., 256 App.Div. 685, 11 N.Y.S.2d 417 (1st Dep’t 1939). If a stockholder wishes to sell or must sell, Riverbay has the right of first refusal to purchase. More unusual is the provision that the right of repurchase by Riverbay is at the original purchase price. Even this, however, is not a unique provision. See, e. g., Allen v. Baltimore Tissue Corp., 2 N.Y.2d 534, 161 N.Y.S.2d 418, 141 N.E.2d 812 (1957). Thus it can be seen that basically the stock here is similar to that of other cooperative real estate corporations. Such stock has recently been held to be a security under the Securities Acts. 1050 Tenants Corp. v. Jakobson, 365 F.Supp. 1171 (S.D.N.Y.1973), appeal pending.

One basis for such a finding is the so-called literal approach. See Jennings & Marsh, Securities Regulation 299-300 (3d ed. 1973); Note, Cooperative Housing Corporations and the Federal Securities Laws, 71 Colum.L.Rev. 118 (1971); Sobieski, Securities Regulation in California: Recent Developments, 11 U.C.L.A.L.Rev. 1, 7-8 (1963); Wenig & Schulz, Government Regulation of Condominiums in California, 14 Hastings L.J. 222, 233 (1963). According to this approach the fact that “stock” certificates are used in a “stock” corporation is sufficient in itself to bring transactions in the “stock” within the literal definition of the Acts. As Jennings & Marsh state at 299-300, “When a stock corporation is used, the securities acts literally apply, even though the profit motive is not dominant.” Professor Loss has put it, “When the ownership of an individual apartment is evidenced by stock in the cooperative, as it usually is, the federal and state securities statutes would seem literally to apply.” 1 L. Loss, Securities Regulation 492-93 (2d ed. 1961) (footnotes omitted). Judge Mansfield as a district judge supported the literal application of specific definitions of securities so as to include instruments within the coverage of the acts. Movielab, Inc. v. Berkey Photo, Inc., 321 F.Supp. 806 (S.D.N.Y.1970), aff’d, 452 F.2d 662 (2d Cir. 1971). The Supreme Court said in SEC v. C. M. Joiner Leasing Corp., 320 U.S. 344, 351, 64 S.Ct. 120, 123, 88 L.Ed. 88 (1943), reaffirmed in Tcherepnin v. Knight, 389 U.S. at 339, 88 S.Ct. 548,

In the Securities Act the term “security” was defined to include by name or description many documents in which there is common trading for speculation or investment. Some, such as notes, bonds, and stocks, are pretty much standardized and the name alone carries well-settled meaning. . Instruments may be included within any of these definitions, as matter of law, if on their face they answer to the name or description. However, the reach of the Act does not stop with the obvious and commonplace. .

(Emphasis added.) This language gives support to the proposition that if a given instrument is a share of stock “on its face” it is literally within the ambit of the statute. Expansive or interpretive readings given to other definitions within the Act, principally “investment contracts,” generally have been to bring debatable transactions within the statute’s coverage. It may be argued, moreover, that there is some underlying justification for such a formal approach. That is, where one utilizes the outward and traditional manifestations of a “stock” organization, the buyer may be led to believe that what he is buying is “stock” as normally considered and which would be protected by the federal or state securities laws. Indeed, the buyer of the purported “stock” may rely to some extent on the notion that he will at least be protected by those laws. It would be anomalous, the argument runs, were one who was defrauded as to the nature of the instrument, “stock” on its face, to be deprived of antifraud provisions directed at “stock” transactions.

Appellees, nevertheless, argue that we must examine the context in which the instrument in question arose and whether that context warrants a literal application of the terms of this statute, for the definitional section, § 3(a) of the 1934 Act, 15 U.S.C. § 78c(a), commences:

(a) When used in this chapter, unless the context otherwise requires—
(10 [definition of security]

(Emphasis added.) There is no doubt that the 1933 and 1934 Acts arose in the first instance in connection with the regulation of conduct in commercial marketplaces primarily to require disclosure of financial information for the protection of investors, curbing excessive speculation, market manipulation and the like. See H.R.Rep.No.1383, 73d Cong., 2d Sess. 2 (1934); S.Rep.No.792, 73d Cong., 2d Sess. 3-5 (1934). And as SEC v. C. M. Joiner Leasing Corp., 320 U.S. at 351, 64 S.Ct. at 123, Tsaid, “the term ‘security’ was defined to include by name or description many documents in which there is common trading for speculation or investment.” Thus while form has been disregarded for substance customarily in extending coverage of the Act, Tcherepnin v. Knight, 389 U.S. at 336, 88 S.Ct. 548, there is still substantial authority for the proposition that substance should govern rather than form even to restrict coverage of the Acts. See 1 Loss, supra, at 493 (“just as some things which look like real estate are securities, some things which look like securities are real estate”). Lino v. City Investing Co., 487 F.2d 689 (3d Cir. 1973) (promissory notes given in part payment of purchase price by franchise purchaser held not to be security). See also SEC v. Fifth Avenue Coach Lines, Inc., 289 F.Supp. 3 (S.D.N.Y.1968) (note given for personal loan), aff'd without consideration of the point, 435 F.2d 510 (2d Cir. 1970).

However, appellees would be no better off were we to agree with them that we must look through form to substance even where the result is to limit coverage of the Act. Interestingly, although the SEC has not said whether it is treating cooperative shares formally as stock or substantially as “investment contracts,” by Rule 235 of the General Rules and Regulations under the Securities Act of 1933, 17 C.F.R. § 230.235, the SEC has exempted from registration the stock of certain cooperative housing corporations and thereby implicitly recognized that other cooperative housing securities might be subject to other provisions of the securities laws. Cf. Tcherepnin v. Knight, 389 U.S. at 341-342, 88 S.Ct. 548. See also SEC v. Associated Gas & Electric Co., 99 F.2d 795, 798 (2d Cir. 1938).

To look to the substance of the term “stock” is in essence to determine if an “investment contract” of some sort exists. The basic test to ascertain the presence of an “investment contract” was formulated by the Supreme Court in SEC v. W. J. Howey Co., 328 U.S. 293, 298-299, 66 S.Ct. 1100, 1103, 90 L.Ed. 1244 (1946):

In other words, an investment contract for purposes of the Securities Act means a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party. .. .

Appellees argue, as the trial court found, that there is no promise, expectation or possibility of profit in connection with a member’s resale of Riverbay’s cooperative shares, and that this “nonprofit nature” together with the “noncommercial nature” of the development and the “rigid statutory controls” over the enterprise compel the conclusion that the shares are not “investment contracts” and hence securities under the federal laws. While these arguments are not without legal support, we are not persuaded by them. Before considering the question of profit, there is no doubt that in the words of Howey there was here a “transaction or scheme whereby a person invests his money in a common enterprise” and that if there is any expectation of profits at all that these would come “solely from the efforts of the promoter or a third party.”

The harder question is, of course, whether there is any expectation of profit by appellants. Initially it must be conceded that there is no possible profit on a resale of the stock. If Riverbay does not buy the stock back at its original price the shareholder can only sell it for the original price plus a fraction of his pro rata amortization of the mortgage. Private Housing Finance Law § 31-a. Profit, however, need not be realized only in capital appreciation; equally important is the possibility of income from the investment. Here the shareholders have an expectation of “income” in at least three ways. First, and most directly, the tenant shareholders are able to share in the income from the leasing of retail establishments, office space, parking, and other commercial enterprises on the premises. The retail stores allegedly pay some $1,106,000 in rent to Riverbay. Income from renting office space and from coin-operated washing machines is stated to be $667,000 annually. Finally, some $2.5 million per year in parking fees is apparently collected from both tenants and others. In short, the shareholders may share — through the corporation — in substantial income. Admittedly, this income is not likely to come in the form of a dividend check (although according to the law dividends may be paid after all costs and expenses have been paid, see Private Housing Finance Law §28) but rather in the form of reduced carrying charges to shareholder/tenants. The form that this income takes, however, is not determinative; in either case the shareholders are receiving a direct monetary benefit and as such, “profit” within the Howey concept. See 1050 Tenants Corp. v. Jakobson, 365 F.Supp. at 1176. See also Davenport v. United States, 260 F.2d 591 (9th Cir. 1958), cert. denied, 359 U.S. 909, 79 S.Ct. 585, 3 L.Ed.2d 573 (1959) (purchasers of cooperative memberships promised job security in plant to be constructed); SEC v. American Foundation for Advanced Education, 222 F.Supp. 828 (W.D.La. 1963); Silver Hills Country Club v. Sobieski, 55 Cal.2d 811, 13 Cal.Rptr. 186, 361 P.2d 906 (1961) (Traynor, J.); 1 L. Loss, supra, at 493-94; Zammit, Securities Law Aspects of Cooperative Housing, 169 N.Y.L.J. No. 5, at 1, col. 3 (Jan. 8, 1973); Note, supra, 71 Colum. L.Rev. at 129-31.

Another way of realizing income through the ownership of shares in Riv-erbay is the ability to partake of certain tax benefits — notably a deduction for a pro rata share of the mortgage interest payments. Investment schemes whose purpose is to provide tax losses and thereby generate deductions are usually reserved for the well-heeled, but here the opportunity to make tax savings, even for those in a low bracket, is a substantial inducement to buy shares, where the alternative is the payment of rent with no tax benefits. See 1050 Tenants Corp. v. Jakobson, 365 F.Supp. at 1176.

A third way in which it might be viewed that profits may be realized is in the saving of an expense which would otherwise necessarily be incurred. In other words, where the going rate for rents in a given area is one amount, an investment opportunity offering housing at an amount substantially below that going rate is an offer of a “profit,” for housing is a necessity and any saving on that necessity is money in one’s pocket. While the state cases are, of course, not binding upon us, we incline to agree with State ex rel. Troy v. Lumbermen’s Clinic, 186 Wash. 384, 394-395, 58 P.2d 812, 816 (1936):

A saving of expense which would otherwise necessarily be incurred is also a profit to the person benefited. If respondent renders to its incorporators or members, or to businesses in which they are interested and in whose profits they share, a service at a cost lower than that which would otherwise be paid for such service, the respondent’s operations result in a profit to its members.

See also Pine Grove Manor, Inc. v. Director, 68 N.J.Super. 135, 171 A.2d 676 (Super.Ct.App.Div.1961); Commonwealth v. 2101 Cooperative, Inc. (No. 1), 27 Pa.D. & C.2d 405 (C.P.1961), aff’d per curiam, 408 Pa. 24, 183 A.2d 325 (1962); State ex rel. Russell v. Sweeney, 153 Ohio St. 66, 41 Ohio Op. 143, 91 N.E.2d 13 (1950). Viewing the savings, which were promised here by appellees, over rents for comparable accommodations as “profits” as well, we find a contract for an investment, which carried with it a risk of loss of that investment, to be an investment contract under the Securities Acts.

The fact that the shares are issued and sold by a nonprofit corporation is in and of itself immaterial; certainly if the corporation went bankrupt, the shareholders would have sustained a loss in the amount of their investment, and there is nothing to say that a nonprofit corporation necessarily must not go bankrupt. Nor is there anything in the nonprofit nature of a corporation which provides assurances that it will not deceive and defraud buyers or owners of shares.

The fact, too, that the cooperative was created and remains under considerable general supervision of the State of New York through its Housing Agency and Commissioner of the Division of Housing surely does not remove the stock from the federal Securities Acts’ ambit. In the first place, many of their regulatory duties are aimed at preserving the quality of the assets supporting the mortgage loan. Their principal purpose thus is not necessarily to protect the shareholders. Indeed, there are any number of industries such as public utilities that are at least as closely regulated by the State as are the sponsor, contractor and cooperative company here and whose stock is clearly subject to federal regulation. Nor does the fact that there are eleemosynary elements underlying the statute, perhaps indeed underlying the services rendered by the nonprofit sponsor, UHF, take the case from without the protection of the securities laws. Indeed, the for-profit subsidiary of UHF, CSI, the contractor here, could very well stand to benefit substantially by the price paid to it for its contracting services, the very point at issue under the appellants’ pleadings. The fact that there may be no profit motive on the part of the promoter, UHF, does not by any means affect the profit motives on the part of the subscribers above referred to, nor would it necessarily affect the profit motive on the part of the contractor, the directors and officers of whom might conceivably — were they evil men — be receiving considerable compensation. Nor would the lack of a profit motive eliminate the incentive for fraudulent or deceptive practices in the sale of cooperative stock. Whether it were to recoup advances already made or to retain a particular reputation even a nonprofit entity may encounter pressures which might have the tendency to change an otherwise objective and fair sales pitch to something likely to entice and mislead.

We hold, then, that a share in Riverbay is both “stock” and an “investment contract” under the Securities Acts. We pass to the special defenses of the State Housing Finance Agency and of the State of New York.

The State Housing Finance Agency argues that it may not be charged with violation of § 1983. While municipal corporations, that is, municipalities, are not deemed “persons” under the Civil Rights Act, see Monroe v. Pape, 365 U.S. 167, 187-190, 81 S.Ct. 473, 5 L.Ed.2d 492 (1960), “agencies” have always been so deemed. See, e. g., Escalera v. New York City Housing Authority, 425 F.2d 853 (2d Cir. 1970), cert. denied 400 U.S. 853, 91 S.Ct. 54, 27 L.Ed.2d 91 (1971); Holmes v. New York City Housing Authority, 398 F.2d 262 (2d Cir. 1968). The agency here moreover, is not pro-teeted by sovereign immunity. First, Private Housing Finance Law § 32(5) expressly waives sovereign immunity for the agency. Even were such a waiver absent, the agency is not an “alter ego” of the state, see Whitten v. State University Construction Fund, 493 F.2d 177 (1st Cir. 1974) (Moore, J.), and hence not a recipient of sovereign immunity. The State Housing Finance Agency has the express authority to sue and be sued; it acts only as a credit or financing entity; it apparently has no power to take property in its own name or in the name of the State. In Whitten the court found “ultimate State liability” to be the most crucial determination. Here the State is expressly not liable for the debts of the agency. Private Housing Finance Law § 46(8). Thus, upon these considerations it would appear that the agency here is sufficiently independent of the State as not to enjoy sovereign immunity. Compare Matherson v. Long Island State Park Commission, 442 F.2d 566 (2d Cir. 1971) (Jones Beach Parkway Authority not alter ego); Zeidner v. Wulforst, 197 F.Supp. 23, 25 (E.D. N.Y.1961) (New York Thruway Authority not alter ego); In re Dormitory Authority, 18 N.Y.2d 114, 271 N.Y.S.2d 983, 218 N.E.2d 693 (1966) (Dormitory Authority of State of New York has no sovereign immunity); Story House Corp. v. Job Development Authority, 37 A.D.2d 345, 325 N.Y.S.2d 659 (3d Dep’t 1971), aff’d mem., 31 N.Y.2d 942, 340 N.Y.S.2d 929, 293 N.E.2d 97 (1972) (State of New York Job Development Authority has no sovereign immunity), with Whitten v. State University Construction Fund, supra (State University Construction Fund has sovereign immunity; Charles Simkin & Sons, Inc. v. State University Construction Fund, 352 F.Supp. 177 (S. D.N.Y.), aff’d mem., 486 F.2d 1393 (2d Cir. 1973) (State University Construction Fund has sovereign immunity); State University of New York v. Syracuse University, 206 Misc. 1003, 137 N.Y.S.2d 916 (Sup.Ct.), aff’d, 285 App. Div. 59, 135 N.Y.S.2d 539 (3d Dep’t 1954) (State University has sovereign immunity).

The State itself argues that the court below lacks jurisdiction over it. Again, however, the State has expressly waived sovereign immunity in Private Housing Finance Law § 32(5), note 12 supra. Secondly, the State has waived its sovereign immunity with respect to federal securities laws violations by voluntarily entering a field under federal regulation. See Parden v. Terminal Railway of Alabama Docks Department, 377 U.S. 184, 84 S.Ct. 1207, 12 L.Ed.2d 233 (1964). Thus when the State enacted the Mitchell-Lama Act in 1955 and codified it in 1961, it did so with the knowledge that transactions involving subscriptions for stock solicited through the mails were already within the ambit of federal anti-fraud regulations and statutes. To paraphrase the court's opinion in Parden, 377 U.S. at 192, 84 S.Ct. 1207, by enacting the federal securities laws in the exercise of the Commerce Clause — a power given to the federal government by the states in adopting and ratifying the constitution— the Congress conditioned the right to be involved in the sale and distribution of securities upon amenability to suit in federal court as provided by those regulatory laws. Were there any doubt that the securities laws were intended to reach states or their agencies, the legislative history dispels it. See H.R.Rep.No.85, 73d Cong., 1st Sess. 11.

Again, in reversing the district court we make no suggestion regarding the viability of appellants’ claims, except to find that the cooperative shares involved are securities so as to confer jurisdiction on the federal court.

Judgment reversed and remanded.

      . New York Private Housing Finance Law §§ 10-37.

      . The act essentially provides for the creation of “limited profit housing companies,” § 13, which, subject to state or local supervision, may borrow up to 95 per cent of the project cost at low interest from the state or a municipality to construct and operate the project, rent apartments therein, etc. Sections 22, 27-31. Tax exemptions are provided, § 33, as is the right of condemnation on behalf of a municipality for the cooperative company, § 29.

      . At the same time, because the maximum income eligibility is related to carrying charges, there has been a proportionate increase therein, so that, as the district court pointed out, for tenants who are employed it is possible that little or no real hardship has occurred.

      . Of course, on the merits the appellees would point out that the “Information Bulletins” state that the lump sum price is subject to addition or deduction for change orders during the progress of construction and that they also warn that it is possible that increases in costs may increase the average monthly estimate.

      . 15 U.S.C. § 78c (a) (10) :
      The term “security” means any note, stock, treasury stock, bond, debenture, certificate of interest or participation in any profit-sharing agreement or in any oil, gas, or other mineral royalty or lease, any collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit, for a security, or in general, any instrument commonly known as a “security”; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, or warrant or right to subscribe to or purchase, any of the foregoing; but shall not include currency or any note, draft, bill of exchange, or banker’s acceptance which has a maturity at the time of issuance of not exceeding nine months, exclusive of days of grace, or any renewal thereof the maturity of which is likewise limited.

      . The application states that the stock is not to be issued or delivered until the project has been completed and a certificate of acceptability to the housing company has been issued by the commissioner. It also states that “Until so issued and delivered, the Subscriber shall not be deemed to be a stockholder nor the holder of any other equity obligation of the Housing Company.” Paragraph (5).

      . 15 U.S.C. § 78c(a)(13) provides: “The terms ‘buy’ and ‘purchase’ each include any contract to buy, purchase, or otherwise acquire.”

      . While the owners do not, as is usually the case, have a separate vote for each share held, instead having one vote per apartment, this would have little, if any, functional difference where here one has one vote among some 45,-000 and where otherwise the maximum one could have would be 126 votes (18 shares times seven rooms) of over one million. In either case any individual’s vote or votes would not be terribly significant.

      . AAre note that the Supreme Court continues to remind us that Congress intended securities legislation enacted for the purpose of avoiding frauds to be construed “not technically and restrictively, but flexibly to effectuate its remedial purposes.” Affiliated Ute Citizens v. United States, 406 U.S. 128, 151, 92 S.Ct. 1456, 1471, 31 L.Ed.2d 741 (1972) ; Superintendent of Insurance v. Bankers Life & Casualty Co., 404 U.S. 6, 12, 92 S.Ct. 165, 30 L.Ed.2d 128 (1971) ; SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 186, 84 S. Ct. 275, 11 L.Ed.2d 237 (1963). AAre also note that cooperative stock is subject to the Blue Sky laws of many states, including those of New York, as acknowledged by the court below, 366 F.Supp. at 1121 n. 10. See New York General Business Law § 352-e.

      . Appellees would use that term mechanically or literally and not in the sense of “economic inducement” that the Court referred to in SEC v. C. M. Joiner Leasing Corp., 320 U.S. at 352-353, 64 S.Ct. 120. See also SEC v. United Benefit Life Ins. Co., 387 U.S. 202, 211, 87 S.Ct. 1557, 18 L.Ed.2d 673 (1967).

      . This, of course, is a question on the merits, in the event that a claim is actually stated for which relief can be granted, as to which we express no opinion.

      . Section 32(5) :
      With regard to duties and liabilities arising out of this article the state, the commissioner or the supervising agency may be sued in the same manner as a private person. No costs shall be awarded against the commissioner, the state, or the supervising agency, as the case may be, in any such litigation.
      (Emphasis added.)

      . Employees v. Missouri Public Health Dept., 411 U.S. 279, 93 S.Ct. 1614, 36 L.Ed.2d 251 (1973), is distinguishable. There, unlike this case and Parden, the state’s activity came first, the federal regulation second. In this posture, the Court held, the state could not be found to have waived its immunity; rather Congress would be required explicitly to override it. Here and in Parden. however, the regulatory system was in effect before the state entered the field. That entry into the regulated field thus constituted a waiver of the state’s immunity.


source: Caselaw Access Project

author: TALBOT SMITH, Senior District Judge.

license: Public Domain

text:
    UNITED STATES of America, Appellee, v. Eugene BRITTON, a/k/a Eugene Junior Britton, Appellant.
    No. 73-1890.
    United States Court of Appeals, Eighth Circuit.
    Submitted May 16, 1974.
    Decided July 23, 1974.
    Ted M. Henson, Jr., Poplar Bluff, Mo., for appellant.
    Donald J. Stohr, U. S. Atty., and Jean C. Hamilton, Asst. U. S. Atty., St. Louis, Mo., for appellee.

      Before BRIGHT and ROSS, Circuit Judges, and TALBOT SMITH, Senior District Judge.

       TALBOT SMITH, Senior District Judge, Eastern District of Michigan, sitting by designation.

   TALBOT SMITH, Senior District Judge.

The case before us arises out of a planned and staged (a “fake”) automobile accident. As a result thereof the defendant, who had some twenty-three policies of insurance in force, made numerous claims thereunder for recompense for personal injury and property damage. The scheme fell apart when the other driver involved confessed the fraud. Defendant was charged with using the mails to defraud and convicted and sentenced on ten counts of the indictment. His appeal to us challenges the sufficiency of the evidence and the validity of the conviction under the interpretation of the mail fraud statute in United States v. Maze, 414 U.S. 395, 94 S.Ct. 645, 38 L.Ed.2d 603 (1974).

Under the facts reasonably consonant with the jury’s findings of guilt and viewed most favorably to the Government, the defendant’s plan was that Charles Myers would rent a truck, using defendant’s money, and strike defendant’s parked truck. He did so. Defendant then feigned injuries and made claims for benefits under his policies and was paid various sums (by check) as a result of the claims. One such claim was made under a Traveler’s policy which was issued, and made effective,the day of the collision, covering accidents by any means of transportation.

It is clear upon the record, and not denied, that the defendant mailed, or caused to be mailed, applications for insurance, claim forms and other communications in connection with his claims, and that he received in the mail as a result thereof certain checks. It is his argument to us that the statute does not apply because “the mails were not used for the purpose of executing the scheme in question” and “played no direct part in the furtherance of the scheme,” they being used only as a convenience - “because of the element of distance” and that their use was unnecessary to the consummation of the fraud because the instruments could just as well have been hand carried as mailed. Defendant asserts that the teachings of Maze require reversal.

Maze lends no support to such arguments and, in fact, is dispositive thereof. In the Maze case the defendant used a stolen Bank Americard for the purpose of obtaining certain goods and services at several motels. Each of the motels transmitted their sales invoices to the card-issuing bank by mail, this being the customary method by which invoices were transmitted to the bank. The Supreme Court, affirming the Sixth Circuit held the mail fraud statute inapplicable : ;

[T]he mailings here were directed to the end of adjusting accounts between the motel proprietor, the Louisville bank, and Meredith, [the owner of the card] all of whom had to a greater or lesser degree been the victims of respondent’s scheme. Respondent’s scheme reached fruition when he checked out of the motel, and there is no indication that the success of his scheme depended in any way on which of his victims ultimately bore the loss. Indeed, from his point of view, he probably would have preferred to have the invoices misplaced by the various motel personnel and never mailed at all. [Footnote omitted]

94 S.Ct. at 649.

Here, on the contrary, the communications were a necessary part of the transaction which led to the defendant’s receipt of the monies so fraudulently claimed and obtained. United States v. Owen, 492 F.2d 1100 (5th Cir. 1974). The use of the mails, as in United States v. Gaskill, 491 F.2d 981, 984 (8th Cir. 1974) “was an integral element of the scheme to defraud,” here, by supplying the insurance companies with the information necessary to the consummation of the fraud, and to the defendant’s realization of the fruits thereof.

Moreover, it is not a sine qua non of the statutory offense that there be negation of means of communication other than the mails. The defendant argues that the checks, for example, “could just as well have been hand carried to Eugene Britton as mailed,” or, we add, that conceivably railway express could have been used, or a parcel delivery service. But the test, under the statute, is realistic, not fanciful. “It is not necessary,” held the Supreme Court in Pereira v. United States, 347 U.S. 1, 8-9, 74 S.Ct. 358, 98 L.Ed. 435 (1954), “that the scheme contemplate the use of the mails as an essential element,” but merely that it be “incident to an essential part of the scheme,” and that “such use can reasonably be foreseen, even though not actually intended.”

So tested, the violation in the case before us is obvious. Regardless of the possibility of delivery by hand, the fact is that the instruments essential to the consummation of the fraud, the false claims and misrepresentations relied upon by the insurance companies, were mailed, and the defendant could reasonably have foreseen that the mails would be used. Moreover, it is clear that in this case the fraud did not reach fruition until the checks were mailed to the perpetrator. See United States v. Miles, 498 F.2d 394 (8th Cir. 1974). There was no error in the application of the statute to the facts disclosed.

The defendant complains, as well, of the asserted insufficiency of the evidence. He argues that Charles Myers, his accomplice, who testified for the Government, was not of a good character and thus not to be believed. He points out that Myers cherished his story in secret for some four months before disclosing it. He stresses also certain medical testimony arguably favorable to him. The Government’s evidence controverted the foregoing in various respects. Upon an examination of the entire record we find defendant’s argument without merit. There was sufficient evidence to sustain the verdict. Whatever conflicts there may have been in the testimony were resolved by the trier of facts. See Anderson v. United States, supra note 4, 369 F.2d at 14, and cases there cited. No errors are asserted as to the receipt of evidence or instructions to the jury.

The judgment of conviction is affirmed.

      . 18 TJ.S.C. § 1341. The parts applicable hereto provide as follows :
      Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, * * * for the purpose of executing such scheme or artifice or attempting so to do, * * * knowingly causes to be delivered by mail according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any [matter or thing whatever to be sent or delivered by the Postal Service] shall be fined not more than $1,000 or imprisoned not more than five years, or both.

      . Count 1, the mailing by defendant of applications for insurance; Counts 6-8, 14, the mailings by defendant and others to insurance companies of communications and forms in connection with claims made; Counts 9-13, the mailings by insurance companies of checks payable to defendant or for his benefit in payment of claims made.

      . Counsel were requested upon oral argument to submit supplementary briefs respecting their positions under Maze.

      . The general rule must again be recognized that all evidence is to be viewed in a light most favorable to the government as the prevailing party and all reasonable inferences must similarly be resolved in its favor. Koolish v. United States, 8 Cir., 1965, 340 F.2d 513, 519, cert. denied, 381 U.S. 951, 85 S.Ct. 1805, 14 L.Ed.2d 724; Smith v. United States, 8 Cir. 1964, 331 F.2d 265, 278, cert. denied, 379 U.S. 824, 85 S.Ct. 49, 13 L.Ed.2d 34, rehearing denied, 379 U.S. 940, 85 S.Ct. 321, 13 L.Ed. 2d 350.
      Anderson v. United States, 369 F.2d 11, 13 (8th Cir. 1966), cert. denied, 386 U.S. 976, 87 S.Ct. 1171, 18 L.Ed.2d 136 (1967).

      . The various mailings, and the receipts of various checks, are set forth in separate counts of the indictment. These we deem it unnecessary to detail, since no attack is made as to their mailings, purpose or content.

      . 468 F.2d 529 (6tli Cir. 1972).

      . The Pereira case is cited in both the opinion of the Court, and the dissenting opinion in Maze, supra.


author: McWILLIAMS, Circuit Judge.

text:
    Joseph ANTONELLO, Jr., Plaintiff-Appellant, v. Paul WUNSCH et al., Defendants-Appellees.
    No. 73-1835.
    United States Court of Appeals, Tenth Circuit.
    July 17, 1974.

      Lawrence H. Pelofsky, Kansas City, Mo. (Joseph N. Miniace, Joel Pelofsky, and A. J. Gorelick, Kansas City, Mo., on the brief), for plaintiff-appellant.
    Wesley A. Weathers, Topeka, Kan. (Crane, Martin, Claussen, Hamilton & Barry, Topeka, Kan., Larry L. Mc-Mullen, and Blackwell, Sanders, Math-eny, Weary & Lombardi, Kansas City, Mo., on the brief), for defendants-appel-lees.
    Before LEWIS, Chief Judge, and McWILLIAMS and BARRETT, Circuit Judges.
   McWILLIAMS, Circuit Judge.

This case concerns the constitutional validity of efforts of the Kansas Supreme Court to prospectively abrogate governmental immunity for negligence as that doctrine applies to proprietary activities by the state or its agencies. Before considering the facts of the instant case, reference will first be made to Carroll v. Kittle, 203 Kan. 841, 457 P.2d 21 (1969), which abolished governmental immunity in Kansas where the state or its agencies engage in proprietary endeavors.

In Carroll, the plaintiff brought an action against the Board of Regents of the State of Kansas who were charged with the operation of the University of Kansas Medical Center. The action sounded in negligence and was for injuries sustained by the plaintiff while he was a patient in the Medical Center. The state trial court dismissed the action on the ground that under the doctrine of governmental immunity the plaintiff had failed to state a claim on which relief could be granted. On appeal a majority of the Kansas Supreme Court on July 17, 1969, abolished the doctrine of governmental immunity in the proprietary field. In so doing the Kansas Supreme Court reversed the judgment of dismissal entered by the state trial court and decreed that the new rule abolishing governmental immunity in proprietary enterprises should apply to the ease there at hand and to all torts thus committed by the state on or after August 30, 1969, but should not apply to torts occurring prior to August 30, 1969. In this connection the Kansas Supreme Court made the following pertinent comment:

“There remains the consideration of the time when the abrogation of the immunity as herein stated shall take effect. We are of the opinion that reasonable time should be given the various public bodies to meet the new liabilities implicit in this decision. We find ample authority for the proposition that in departing from the rule of stare decisis, the court may restrict application of a newly established rule to thé instant case, and cases arising in the future, where it is clear that the retrospective application of the new rule will result in a hardship to those who have relied upon prior decisions of the court. (See Molitor v. Kaneland Com. Unit Dist., 18 Ill.2d 11, 163 N.E.2d 89, 86 A.L.R.2d 469; Holytz v. City of Milwaukee, 17 Wis. 2d 26, 115 N.W.2d 618, and cases cited therein.)”

The Kansas Supreme Court in Carroll then went on to explain its decision to employ the technique of prospective overruling by quoting with approval from Molitor v. Kaneland Com. Unit Dist., 18 Ill.2d 11, 163 N.E.2d 89 (1959), as follows:

“* * * At least two compelling reasons exist for applying the new rule to the instant case while otherwise limiting its application to cases arising in the future. First, if we were to merely announce the new rule without applying it here, such announcement would amount to mere. dictum. Second, and more important, to refuse to apply the new rule here would deprive appellant of any benefit from his effort and expense in challenging the old rule which we now declare erroneous. Thus there would be no incentive to appeal the upholding of precedent since appellant could not in any event benefit from a reversal invalidating it.
“It is within our inherent power as the highest court of this State to give a decision prospective or retrospective application without offending constitutional principles. Great Northern Railway Co. v. Sunburst Oil & Refining Co., 287 U.S. 358, 53 S.Ct. 145, 77 L.Ed. 360. (18 Ill.2d p. 28, 163 N.E. 2d p. 97.)”

In the case before us, which is remarkably similar to Carroll, Joseph An-tonello, Jr., brought an action in the United States District Court for the ■ District of Kansas against the Board of Regents of the State of Kansas. Jurisdiction was based on diversity of citizenship and the action was for personal injuries allegedly sustained as the result of negligent medical care when Antonel-lo was a patient in the University of Kansas Medical Center. In the complaint Antonello alleges that his injuries were sustained during the period from August 18, 1969, through September ■ 7, 1969.

The Board of Regents in the instant case filed a motion for summary judgment based on the doctrine of governmental immunity. For the purpose of the hearing on the motion for summary judgment, Antonello stipulated that the “acts giving rise to his cause of action first caused substantial injury prior to August 30, 1969 [and] that the fact of injury giving cause of action became reasonably ascertainable to the plaintiff prior to August 30, 1969.” In other words, upon comparing the stipulation with the allegations of the complaint, we must assume that Antonello’s cause of action arose after July 17, 1969, the date when the Kansas Supreme Court abolished the doctrine of governmental immunity in proprietary enterprises in Carroll v. Kittle, supra, but before August 30, 1969, the effective date for the abrogation of the doctrine as determined by that court.

Pursuant to 28 U.S.C. § 144, Antonello filed a motion to disqualify the federal district court judge to whom his case had been assigned on the grounds that the judge had previously been a member of the Kansas Supreme Court at the time of that court’s decision in Carroll v. Kittle, supra, and that by voting with the majority the judge had participated in the formula which was under attack in the instant proceeding. The federal district judge denied the motion to disqualify, and then granted the Board of Regents’ motion for summary judgment on the ground that under Carroll v. Kit-tle, supra, the Board of Regents was immune from suit for a tort committed at the University of Kansas Medical Center prior to August 30, 1969. Antonello now appeals.

We find no error in the trial judge’s refusal to disqualify himself. When an affidavit is filed which states facts showing personal bias and prejudice on the part of the judge, it becomes the latter’s duty to retire from the ease. 28 U.S.C. § 144. Conversely, if the affidavit is insufficient and does not meet the requirements of the statute, it is the judge’s duty not to disqualify himself. And the fact that a judge has previously expressed himself on a particular point of law is not sufficient to show personal bias or prejudice. Berger v. United States, 255 U.S. 22, 41 S.Ct. 230, 65 L.Ed. 481 (1921); United States v. Anderson, 433 F.2d 856 (8th Cir. 1970); and Knoll v. Socony Mobil Oil Co., 369 F.2d 425 (10th Cir. 1966), cert. denied, 386 U.S. 977, 87 S.Ct. 1173, 18 L.Ed.2d 138 (1967). The only fact relied on for disqualification in the instant case is that the trial judge had been a member of the Kansas Supreme Court at the time the decision in Carroll v. Kittle, supra, was handed down, and had voted with the majority. Under the authorities above cited such affidavit was legally insufficient and the trial judge did not err in denying the motion to disqualify.

As indicated in the quotation from Carroll set forth above, the reason for delaying the abrogation of proprietary governmental immunity until August 30, 1969, some forty-three days after the announcement of the Carroll decision, was the belief of the Kansas Supreme Court that “reasonable time should be given the various public bodies to meet the new liabilities implicit in this decision.” Such form of prospective application, i. e., not from the date of a decision which abolished governmental immunity, but from a future date certain, has been followed by other state courts. See Evans v. Board of County Commissioners, 174 Colo. 97, 482 P.2d 968 (1971); Smith v. Idaho, 93 Idaho 795, 473 P.2d 937 (1970); Spanel v. Mounds View School Dist. # 621, 264 Minn. 279, 118 N.W.2d 795 (1962); and Holytz v. Milwaukee, 17 Wis.2d 26, 115 N.W.2d 618 (1962). Cf. Widell v. Holy Trinity Catholic School, 19 Wis.2d 648, 121 N. W.2d 249 (1963) (charitable immunity).

Needless to say, in the instant case Antonello makes no complaint about the fact that the Kansas Supreme Court abrogated the doctrine of governmental immunity as it applied to the University of Kansas Medical Center. What Anto-nello does complain about is that the Kansas Supreme Court delayed the effective date of its abrogation, except as to the plaintiff there before it, to torts occurring on and after August 30, 1969. This limitation would effectively preclude Antonello’s action against the State Board of Regents, who are responsible for the University of Kansas Medical Center, since his claimed injury arose prior to August 30, 1969. Accordingly, Antonello takes aim on that portion of Carroll v. Kittle, supra, which delays the effective date of the abrogation till August 30, 1969. He claims that this fixing of an in futuro effective date creates an unreasonable classification in violation of the equal protection clauses of both the United States and Kansas constitutions. Furthermore, An-tonello contends that by so doing the Kansas Supreme Court encroached on the powers of the legislature, thereby violating the separation of powers doctrine. In our view none of these various constitutional arguments has merit.

Any discussion of the prospective abrogation of the doctrine of proprietary governmental immunity must start with a consideration of Justice Cardozo’s widely discussed opinion in Great Northern Ry. Co. v. Sunburst Oil & Refining Co., 287 U.S. 358, 53 S.Ct. 145, 77 L.Ed. 360 (1932). In Sunburst a shipper, after complying with certain conditions precedent, brought an action in the Montana state courts to recover from the carrier for overcharges on an intrastate shipment. The shipper prevailed in the trial court. On appeal the Montana Supreme Court overruled one of its own prior decisions which had permitted recovery by the shipper of excessive or unreasonable freight charges, even though such rates had been previously approved by the state regulatory board, but limited the effect of such overruling to cases arising in the future. Thereby the shipper who had brought the action was allowed to recover. Sunburst Oil & Refining Co. v. Great Northern Ry. Co., 91 Mont. 216, 7 P.2d 927 (1932).

The carrier then complained that its rights under the United States Constitution were impaired by the refusal of the Montana Supreme Court to give its decision retroactive application, as opposed to only prospective application. In rejecting this argument, Justice Cardozo, speaking for a unanimous court, wrote as follows:

“* * * This is not a case where a court, in overrruling an earlier decision has given to the new ruling a retroactive bearing, and thereby has made invalid what was valid in the doing. Even that may often be done, though litigants not infrequently have argued to the contrary [citations omitted]. This is a case where a court has refused to make its ruling retroactive, and the novel stand is taken that the constitution of the United States is infringed by the refusal.
“We think the federal constitution has no voice upon the subject. A state in defining the limits of adherence to precedent may make a choice for itself between the principle of forward operation and that of relation backward. It may say that decisions of its highest court, though later overruled, are law nonetheless for intermediate transactions. Indeed there are cases intimating, too broadly [citation omitted] that it must give them that effect; but never has doubt been expressed that it may so treat them if it pleases, whenever injustice or hardship will thereby be averted. * * * ”

We recognize that there are differences between Sunburst and the instant ease. However, in our view the reasoning of Sunburst is clearly at odds with the various constitutional arguments advanced in this case by Antonello. Sunburst indicates that a state court in overruling one of its prior decisions may make its ruling operate only prospectively, if it feels the equities of the situation call for such action, and, if it does so, no federal rights are thereby impaired.

In Sunburst the prospective application ran from the date of the Montana Supreme Court’s decision overruling one of its own judicial precedents. In the instant case the Kansas Supreme Court set the effective date of its abrogation of proprietary governmental immunity to a future date certain, which was some forty-three days subsequent to its decision in Carroll v. Kittle, supra. We do not regard this difference to be of any great significance. The Kansas Supreme Court may, of course, it it chooses, overrule one of its prior decisions. It would seem to follow that in so doing it may impose reasonable limitations, which would include timing, on the effective date of its overruling pronouncement. The greater would include the lesser.

In sum, then, we do not regard Carroll v. Kittle, supra, as being in conflict with either the state or federal constitutions. The line had to be drawn somewhere, and the Kansas Supreme Court in drawing the line as it did violated none of Antonello’s rights under the equal protection clauses of the United States or Kansas constitutions. The state legislature not having acted on the matter, the Kansas Supreme Court had the right to itself overrulé one of its prior decisions and to apply the new rule prospectively, without violating the separation of powers doctrine. We note, parenthetically, that such action did trigger the state legislature, which, at its next session, reestablished the doctrine of proprietary governmental immunity by statute. 3A K.S.A. 46-901 et seq. (1973).

Judgment affirmed.

      . See generally an excellent law review article on Sunburst, “The Control of ‘Sunbursts’: Techniques of Prospective Overruling” by Hon. Walter V. Schaefer, then Chief Justice of the Illinois Supreme Court, in 42 N.Y.U. Law Review 631 (1967).


author: WILLIAM E. DOYLE, Circuit Judge.

text:
    Joseph Dyre MORSE, Plaintiff-Appellant, v. Alex WILSON, Warden, Colorado State Penitentiary, Defendant-Appellee.
    No. 73-1389.
    United States Court of Appeals, Tenth Circuit.
    Argued July 8, 1974.
    Decided July 29, 1974.
    Rehearing Denied Aug. 22, 1974.

      Robert L. Pitler, Denver, Colo., for plaintiff-appellant.
    E. Ronald Beeks, Asst. Atty. Gen. (John P. Moore, Atty. Gen., and John E. Bush, Deputy Atty. Gen., on the brief), for defendant-appellee.
    Before LEWIS, Chief Judge, and MOORE and DOYLE, Circuit Judges.

       Honorable Leonard P. Moore, Senior Judge, United States Court of Appeals, Second Circuit, New York, New York, sitting by designation.

   WILLIAM E. DOYLE, Circuit Judge.

The judgment which the appellant here seeks to reverse is that of a denial of his petition filed pursuant to 28 U.S. C. § 2254, wherein he prayed for the issuance of a writ of habeas corpus releasing him from confinement in the Colorado State Penitentiary. This petition was filed January 29, 1973 and the trial court rendered its opinion denying it on June 1, 1973.

Defendant was convicted in State District Court on a charge that he murdered one Elaura Jeanne Jaquette on July 9, 1966. The Supreme Court of Colorado affirmed the conviction on March 24, 1969. See 168 Colo. 494, 452 P.2d 3. After that, a Rule 35(b) case was filed in State District Court which raised points and contentions which had not been brought to the attention of the Colorado court on the writ of error. The trial court fully considered these additional contentions and denied relief. Again, the Colorado Supreme Court affirmed this decision in Morse v. People, 501 P.2d 1328 (1972). Soon thereafter, the § 2254 petition was filed in the District Court for the District of Colorado, and we now review the judgment rendered in that proceeding.

On the original appeal the Colorado Supreme Court refused to consider the two issues mentioned above because of failure to raise them in the trial court. The inadequate record also precluded the requested review. The contentions were considered in a subsequent review and were determined to be wholly lacking in merit.

The main contentions are, first, that the appellant’s constitutional rights were violated as a result of the admission at the trial of depositions of his daughters which contained evidence which strongly inculpated him. In this connection, a related argument is that his right to confront witnesses as guaranteed by the Sixth Amendment to the Constitution of the United States was violated.

Second, that at the original trial appellant’s right to be represented by counsel was violated in that the counsel assigned to him were ineffective.

Still a further point is that appellant’s rights under the Fifth and Fourteenth Amendments were violated because, according to the argument of the present counsel, he was not given adequate Miranda warnings.

In the second opinion of the Supreme Court of Colorado and that of the United States District Court as well, the issues which are now raised were fully explored and tested. Furthermore, a careful consideration of the record in the District Court fails to show any meritorious basis for the granting of relief.

We shall nevertheless comment briefly on the points advanced.

The argument and contention concerning the alleged prejudice arising from the use of the depositions of defendant’s minor daughters stem from the provision of the Colorado Constitution, Article II § 17, which contains a prohibition against the use of depositions if the presence of witnesses can be obtained. Such an issue is not here appropriate, however, unless it contravenes the Constitution of the United States.

Our inquiry is, of' course, limited to whether appellant’s federally protected rights were violated and with particular reference to appellant’s rights granted by the Fourteenth Amendment, for obviously the state court’s decision construing and applying its Constitution cannot be reviewed for the purpose of determining whether it is erroneous. However, the defendant is not precluded from arguing that there has been a violation of his constitutional rights, even though the basic violation relied on is Article II § 17 of the Colorado Constitution, supra, and there is no problem here of failure to exhaust state remedies nor intentional bypass thereof. Cf. Fay v. Noia, 372 U.S. 391, 83 S.Ct. 822, 9 L.Ed.2d 837 (1963). See also Henry v. Mississippi, 379 U.S. 443, 85 S.Ct. 564, 13 L.Ed.2d 408 (1965).

It is to be noted that the deponents were minors, one being 12 years old and the other 17. At the 35(b) motion hearing the judge found that there was ample opportunity for the defendant through his counsel to object to the introduction of these depositions but he did not do so. The judge also called attention to the fact that the testimony given was highly prejudicial to the defendant. He summarizes it as follows:

That the testimony contained in the depositions, in summary, is that on the day of the murder, the defendant arrived home late in the afternoon; that he was wearing clothes which were ill-fitting; that he had his clothes in a bucket in which some fluid was contained; that he was bare footed; that his shoes were muddy and matted with what appeared to be blood; that he requested his daughter to wash his clothes for him and clean and shine his shoes, which she did; and that he later put the clothes he had worn home into the incinerator and burned them.

The trial court in the Rule 35(b) hearings also took notice of the fact that there was evidence at the trial of concern for the juvenile witnesses on the part of the judge and the attorneys on both sides because of the trauma to both the defendant-father and the daughters which would flow from the reading of these depositions. The court made the obvious observation that there would have been additional trauma had the testimony been presented live. The opinion of Mr. Justice Erickson, in reviewing the 35(b) motion wherein he wrote that the deposition route was taken as a matter of strategy, was fully supported.

In view of these facts, we are unable to perceive federal constitutional basis.

It is argued that the right granted by the Colorado constitutional provision is absolute and not subject to waiver. We disagree. The clause of Article II § 17 dealing with the use of a deposition is an incidental provision. The main thrust of the section is prevention of imprisonment of a witness who cannot give bond or security for his or her appearance and thus the clause limits use of the testimony of an itinerant witness. This very clause allows the defendant to secure the presence of the witness if he wishes. Reading the provision in its entirety and considering its object and purpose, we are convinced that there could be a waiver and that indeed there was.

Nor is there any merit to the contention that the defendant’s right to confront the witnesses was infringed. The object of the confrontation provision of the Sixth Amendment is to insure the right of examination and cross-examination. An early decision mentioned that its object was prevention of “depositions or ex parte affidavits . being used against the prisoner in lieu of a personal examination and cross-examination of the witness, in which the accused has an opportunity, not only of testing the recollection and sifting the conscience of the witness, but of compelling him to stand face to face with the jury in order that they may look at him, and judge by his demeanor upon the stand and the manner in which he gives his testimony whether he is worthy of belief.” Mattox v. United States, 156 U.S. 237, 242-243, 15 S.Ct. 337, 339, 39 L.Ed. 409 (1895). The Supreme Court has also held, however, that the right may be waived, but it must be uncoerced waiver. See Brookhart v. Janis, 384 U.S. 1, 86 S.Ct. 1245, 16 L.Ed.2d 314 (1966).

The case most often cited in support of exclusion of the testimony is Pointer v. Texas, 380 U.S. 400, 406-407, 85 S.Ct. 1065, 13 L.Ed.2d 923 (1965). The complaining witness in that case had testified at a preliminary hearing at which defendant was not represented by counsel and had not cross-examined. By the time of trial, the witness had left the state and no effort had been made to secure his presence. See also Barber v. Page, 390 U.S. 719, 725, 88 S.Ct. 1318, 20 L.Ed.2d 255 (1968) in which the preliminary hearing testimony of a witness who was in a federal prison was offered ; the Supreme Court held that such testimony could not be used because the witness was not unavailable. See also Mancusi v. Stubbs, 408 U.S. 204, 92 S.Ct. 2308, 33 L.Ed.2d 293 (1972). But see Dutton v. Evans, 400 U.S. 74, 91 S.Ct. 210, 27 L.Ed.2d 213 (1970) and California v. Green, 399 U.S. 149, 155-156, 90 S.Ct. 1930, 26 L.Ed.2d 489 (1970), wherein prior hearsay statements of a witness were ruled admissible, notwithstanding that he claimed at the trial that because he was under the influence of LSD at the time of the occurrence he could neither deny nor affirm the truth of the prior statements which were offered and received; the witness was present at trial and was subject to cross-examination.

One of the other statements in California v. Green consisted of testimony at a preliminary hearing given by the same witness. This was held admissible because the defendant had been present with counsel at the preliminary hearing and had been subjected to cross-examination. The first statement had been made to policemen during interrogation. The Court reasoned as to both that the declarant had been present at the trial and could have been cross-examined then.

The Green and Dutton cases thus take a less restrictive view of acceptance of prior testimony or statements. The Court in these eases does not require actual confrontation. The question in these cases is rather whether the trier of fact has a basis for evaluating the truth of the statements and the further inquiry whether cross-examination could undermine the statement.

The depositions in question were taken with the consent of the defendant and his counsel, and the witnesses were subjected to cross-examination. Further, it was open to counsel (for the defendant) to consider it advantageous to take the depositions rather than to have the witnesses in court.

Judged by either the older cases or the more recent decisions in Green and Dutton, we see no semblance of a question of violation of the confrontation clause of the Sixth Amendment (Fourteenth).

A final contention of appellant that his rights were violated in connection with the obtaining of post arrest statements is also without merit. He, of course, contends that he was not given adequate warning. However, the record belies this. As the Supreme Court of Colorado noted in the first review, following the defendant’s arrest the first thing that the officers did was to read and explain the so-called advisement form, which form was signed by the defendant. The Court further noted that the appellant was readvised on several occasions and signed one or two of the so-called advisement forms. Soon after his arrest he was taken before the municipal judge at Boulder and was again advised of his constitutional rights and of his right to counsel. In the light of this, it is impossible to hold that the defendant’s constitutional rights were violated.

There is no merit in any of the petitioner’s contentions. Hence, the judgment of the District Court should be and the same is hereby affirmed.

      . It is unnecessary and not desirable to relate the background facts which were adduced at trial.

      . This section provides as follows :
      No person shall be imprisoned for the purpose of securing his testimony in any case longer than may be necessary in order to take his deposition. If he can give security he shall be discharged; if he cannot give security his deposition shall be taken by some judge of the supreme, district or county court, at the earliest time he can attend, at some convenient place by him appointed for that purpose, of which time and place the accused and the attorney prosecuting for the people shall have reasonable notice. The accused shall have the right to appear in person and by counsel. If he have no counsel, the judge shall assign him one in his behalf only. On the completion of such examination the witness shall be discharged on his own recognizance, entered into before said judge, but such deposition shall not be used if in the opinion of the court the personal attendance of the witness might be procured by the prosecution, or is procured by the accused. No exception shall be taken to such deposition as to matters of form.

      . In our case the cross-examination issue is not present.