author: PER CURIAM.

text:
    LOUIS DREYFUS CORPORATION, formerly doing business as Leval & Company, Inc., a corporation, Plaintiff-Appellant, v. Landon V. BUTLER et al., Defendants-Appellees.
    No. 73-1423.
    United States Court of Appeals, Sixth Circuit.
    Argued Dec. 13, 1973.
    Decided April 26, 1974.

      Charles G. Black, Memphis, Tenn., for plaintiff-appellant; Michael T. Harts-field, Memphis, Tenn., on brief, Alfred Rathheim, New York City, of counsel.
    Jesse E. Johnson, Jr., Memphis, Tenn., for defendants-appellees.
    Before CELEBREZZE, PECK and LIVELY, Circuit Judges.
   PER CURIAM.

This is an appeal by Louis Dreyfus Corporation (hereinafter “Dreyfus”) from a judgment in favor of Mrs. Sydney J. Butler, entered in the United States District Court for the Western District of Tennessee following a memorandum decision by Chief Judge Brown. The complaint, based upon diversity of citizenship, was filed in that Court in 1968 by Drefus against Landon V. Butler, Mrs. Sydney J. Butler and others. The suit was filed to renew a judgment against Butler recovered in 1959 and based on his fraud in 1955. That phase of the matter was concluded by the granting of a motion for summary judgment against Butler in the amount of $1,092,000 on April 17, 1971. The suit was subsequently dismissed as to all other defendants except Mrs. Butler, so that this appeal is limited to the dispute between Dreyfus and Mrs. Butler.

Dreyfus’ complaint also sought to set aside conveyances of real and personal property by Butler to Mrs. Butler in 1953 and 1954, and alternatively alleged that Butler was the beneficiary of a resulting trust in such property. It further sought to subject such beneficial interest to the judgment against Butler. In an amended complaint Dreyfus prayed for a money judgment against Mrs. Butler based on alleged fraudulent conveyances. The case was tried to the Court sitting without a jury. The trial lasted several days and lengthy post trial briefs were received. The Court entered judgment in favor of Mrs. Butler on the claims against her, from which Dreyfus perfected this appeal.

Prior to 1955 Butler was a large and successful speculator in the commodities market. In 1951 Butler purchased an expensive home situated on a large tract of land in Memphis, Tennessee, and in 1953 he transferred this property, along with the house, furniture and furnishings, to Mrs. Butler. He also constructed a guest house and pool on the premises in 1954, the cost of which was over $163,000, and gave it to his wife. In 1954 his wealth was estimated to be well over ten million dollars.

The markets turned sour for Butler in 1955 and he found himself in desperate need for large amounts of cash. To this end he purported to sell Dreyfus a warehouse full of soya beans represented to be stored at the Alabama Grain and Elevator Company, a company which Butler controlled. The soya beans did not exist. In March of 1955 involuntary bankruptcy proceedings were instituted against Butler and the outcome of that litigation was a judgment in favor of Dreyfus for $650,000. Separate proceedings resulted in Butler’s receiving a prison sentence for fraud. In addition, Mrs. Butler had to pay $207,796.05 to an insurance company which had acted as a surety on a warehouse bond for Alabama Grain.

His prison sentence completed, Butler returned home in 1960 and became a “consultant” for a grain company. That company was also declared bankrupt and once again Butler was convicted of fraud and sent to the penitentiary. In connection with this second involvement in fraud, this Court found that Mrs. Butler was a joint tortfeasor, although perhaps unwittingly, and held that she was liable to the receiver in the amount of $108,048.88. Hux v. Butler, 339 F.2d 696 (6th Cir. 1964). Butler was still incarcerated at the time the present suit was filed, but by 1969 he was free and, with the aid of his wife and some friends, was again dealing in the commodities market.

Dreyfus claims that the transfers of property made in 1953 and 1954 by Butler to Mrs. Butler were fraudulent transfers as to Butler’s future creditors. It does not allege that Butler was insolvent prior to 1955, only that under Tennessee law (T.C.A. §§ 64-301, 64-313 and 64-314) the transfers were fraudulent because of the speculative nature of Butler’s business. The District Court found it unnecessary to deal with the merits of this contention because it determined that the claim was barred by either the equitable doctrine of laches or the application of the relevant statute of limitations. We agree with that determination. Dreyfus knew of the transfers in 1955 and inexplicably chose to let them go unchallenged until 1968. This time period is greatly in excess of that allowed for the bringing of an action to set aside a conveyance of property. T. C.A. §§ 28-203, 28-310. Dreyfus attempts to avoid the result of its tardiness by asserting that the property was held by Mrs. Butler under a constructive trust. This attempt must fail, however, because Dreyfus’ right to enforce such a trust is barred by a six year statute of limitations with respect to contracts T. C.A. § 28-309, or by the ten year catchall statute, T.C.A. § 28-310.

• [3] Dreyfus asserts that Butler fraudulently conveyed $327,572.03 to his wife, which figure represents the earnings and profits realized by Butler from his speculations in the market during the period from 1955 to the present. The District Court carefully studied this claim and determined that all but $75,798.82 was attributable to profits realized by Mrs. Butler and others at the risk of their own capital. The remainder was, however, attributable to Butler. These are findings of fact and are not to be disturbed on appeal unless clearly erroneous. Rule 52(a), Fed.R. Civ.P. We find nothing clearly erroneous in the above findings.

The Court also held that Butler owed his wife $315,844.93 as a result of the losses she sustained due to his past frauds, and that she was entitled to offset this amount against the $75,798.82 which she received from her husband. Dreyfus attacks the Court’s reasoning in regard to the debt.

With respect to the payment ($207,796.05) by Mrs. Butler to the insurance company on the Alabama Grain warehouse bond, Dreyfus says that at most she is entitled to one-half contribution as a joint-obligor on the bond. The District Court’s reason for allowing her to treat the full amount as a debt was “that in equity Butler was obligated to make Mrs. Butler whole for her loss as a result of his fraud.” Although the Court did not elucidate, we are satisfied that under equitable principles she was entitled to indemnification. See 41 Am. Jur.2d, Indemnity, § 2, and cases cited therein.

Likewise, the District Court found that Butler owed his wife $108,048.88 because of the judgment she paid in the Hux case. This finding was based on the premise that although she and her husband were joint tortfeasors, she was merely in delicto rather than in pari delicto. And once again the Court concluded that Mrs. Butler was entitled, under equitable principles, to be made whole for the loss she sustained because of her husband’s fraud. The right of a joint tortfeasor determined to be in delicto to seek indemnification from another tortfeasor found in pari delicto is recognized under Tennessee law and in a number of other states. Roberson v. Bitner, 221 F.Supp. 279 (E.D.Tenn. 1963); Kaplan v. Merberg Wrecking Corp., 152 Conn. 405, 207 A.2d 732 (1965); Hendrickson v. Minnesota Power & Light Co., 258 Minn. 368, 104 N.W.2d 843 (1960); Cohen v. Noel, 165 Tenn. 600, 56 S.W.2d 744 (1933); Ohio Life Ins. Co. v. Merchants Ins. Co., 30 Tenn. 1 (1850). See 41 Am.Jur.2d, Indemnity, §§ 20-21. We find no error in the Court's conclusions in this matter.

Failing in the above argum%nts concerning the existence of the debt from Butler to his wife, Dreyfus asserts that the debt is barred by the statute of limitations. The District Court found, however, “that Butler has over the years and down to the present many times promised to repay Mrs. Butler for the losses he has caused her by his fraud.” Under Tennessee law a new promise to pay a debt removes the bar of the statute of limitations. Hall v. Skidmore, 180 Tenn. 23, 171 S.W.2d 274 (1943). Further, Butler had the right to prefer his wife to Dreyfus as a creditor. T.C.A. §§ 64-311, 64-312; DeLaney Furniture Co. v. Magnavox, 222 Tenn. 329, 435 S.W.2d 828 (1968).

Dreyfus makes a number of other contentions, none of which we consider meritorious. We conclude that none of the errors urged by Dreyfus occurred.

For the reasons stated in the above opinion, we affirm the judgment of the District Court.


source: Caselaw Access Project

author: FEINBERG, Circuit Judge:

license: Public Domain

text:
    G-FOURS, INC., Plaintiff-Appellee, v. Charles A. MIELE and Intersurance Systems Corporation, Defendants-Appellants.
    No. 589, Docket 73-2386.
    United States Court of Appeals, Second Circuit.
    Argued Feb. 28, 1974.
    Decided April 24, 1974.

      Harvey G. Wolfe, New York City (Wolfe & Wolfe, New York City, on the brief), for defendants-appellants.
    Stephen Hochhauser, New York City (Steinhaus & Hochhauser, New York City, on the brief), for plaintiff-appellee.
    Before KAUFMAN, Chief Judge, FEINBERG and MULLIGAN, Circuit Judges.
   FEINBERG, Circuit Judge:

Defendant Charles A. Miele and his wife Ethel appeal from an order of the United States District Court for the Southern District of New York, Walter R. Mansfield, J., which held Ethel Miele in contempt for refusing to answer certain written interrogatories regarding her husband’s assets. Mrs. Miele had asserted a marital privilege not to reply to various questions, but the judge rejected this claim. Because we believe that the marital privilege was not available, we affirm the contempt order although on a partially different theory from that relied on by the district court.

I

The underlying diversity action was tried before Judge Mansfield without a jury in April 1972. The complaint alleged, and the judge found, that Charles Miele had defrauded plaintiff G-Fours, Inc. in 1968 in connection with the financing of a Colorado construction loan. Accordingly, in June 1972, plaintiff was awarded a judgment of $15,217.54, representing damages of $11,400 plus interest, costs and disbursements.

Since then, plaintiff has fruitlessly been trying to collect this amount from Charles Miele. After the marshal’s execution obtained only $783.40 from a bank account, G-Fours began supplementary proceedings to discover hidden or fraudulently transferred assets. Plaintiff served information subpoenas and interrogatories upon judgment debtor Charles Miele, his wife Ethel, and his wholly-owned corporation, Infinco, Inc., and all three failed either to respond or to move to obtain a protective order. On plaintiff’s unopposed motion, the court then directed Charles Miele, his wife and Infinco to answer the questions put to them and to pay $250 counsel fees. Plaintiff duly served the court’s order upon all, and for the first time Charles Miele claimed his privilege against self-incrimination with respect to several questions because criminal proceedings were pending against him. Infinco made similar responses. Mrs. Miele also refused to answer some questions, which sought information regarding her husband’s bank accounts and ■property and recent transfers to her By her husband of property or money, “on the grounds of the privilege between husband and wife.”

G-Fours moved to hold all three in contempt. The judge, in an unpublished memorandum, sustained Mr. Miele’s assertion of his self-incrimination privilege, but rejected the corporation’s similar claim and held it in contempt. The judge also ruled that Mrs. Miele was in contempt because the “spousal immunity” granted by New York State law did not protect her. Infinco and Mrs. Miele were jointly directed to pay plaintiff its costs in obtaining the contempt order and attorneys’ fees in the sum of $1,500. Thereafter, both Mieles asked the judge to reconsider his ruling. In the consequent flurry of papers, plaintiff brought to the attention of the court what may have been a fraudulent conveyance by Charles Miele to his wife of an expensive automobile and hearsay allegations that Mr. Miele in a bail application, see note 3 supra, had claimed to own two automobiles, a house and various bank accounts. Mr. Miele denied these charges. However, the judge adhered to his decision holding Mrs. Miele in contempt. That ruling is the subject of this appeal.

II

Mrs. Miele bases her claim of marital privilege upon N.Y.C.P.L.R. § 4502(b), which provides:

A husband or wife shall not be required, or, without consent of the other if living, allowed, to disclose a confidential communication made by one to the other during marriage.

In holding the marital privilege unavailable to Mrs. Miele, Judge Mansfield ruled that the information sought was not confidential because it related solely to “ordinary business conversations with her husband,” citing Parkhurst v. Berdell, 110 N.Y. 386, 393-394, 18 N.E. 123 (1888). We believe that the district court’s holding was correct.

In Parkhurst, the plaintiff sued Berdell for misappropriation of securities which plaintiff had loaned him. At trial, Berdell’s wife was required to testify

as to conversations with him when they were alone as to plaintiff’s securities taken by him, his obligations to [plaintiff] for the same, and his promise to secure [plaintiff] therefor.

110 N.Y. at 393, 18 N.E. at 126. The Court of Appeals affirmed, holding that Berdell had waived the privilege by failing to make timely objection to the questions put to his wife. Alternatively, the court held that the conversations between Berdell and his wife were not privileged because they were not confidential :

They were ordinary conversations relating to matters of business which there is no reason to suppose he would have been unwilling to hold in the presence of any person.

Id. at 394, 18 N.E. at 127. Although the Court of Appeals has apparently never elaborated upon this statement, it has cited this aspect of Parkhurst with approval in dictum as the “ordinary business matters” exception to the marital privilege. E. g., People v. Melski, 10 N.Y.2d 78, 80, 217 N.Y.S.2d 65, 176 N. E.2d 81 (1961). And, on the infrequent occasions when they have been called upon to decide the question, the lower state courts have evinced a general disinclination to apply the privilege to business and financial communications. Under the New York decisions, then, the inquiries here into such matters as the existence and location of Mr. Miele’s bank accounts and his ownership and transfer of property would not seem to invade the marital privilege.

The only factor indicating that these decisions are not controlling is the possibility, strongly suggested by the record, that Mr. Miele was attempting to conceal his assets or transfer them to his wife to thwart execution of plaintiff’s judgment. See end of Part I supra. If that were so, and this were a criminal ease, Mr. Miele’s communication of these efforts to his wife, by word or deed, might be confidential and privileged under New York law. People v. Daghita, 299 N.Y. 194, 86 N.E.2d 172 (1949) (error to permit wife to testify against husband that she observed him store stolen merchandise in their home); People v. Monahan, 21 App.Div.2d 76, 249 N.Y.S.2d 562 (1964) (per curiam) (same— stolen payroll checks). Although our research discloses no New York decisions directly on point, we do not believe that the New York courts would apply the rule of these criminal cases, where the natural repugnance to depriving a man of his liberty because of the compelled testimony of his spouse gives the privilege its greatest force, to civil proceedings in aid of execution of judgment. To so extend the privilege might well enable an unscrupulous judgment debtor, perhaps with the active connivance of his wife, effectively to prevent execution. This would work a miscarriage of justice, especially where, as here, the basis for the underlying judgment is the husband’s fraud and the husband himself is protected from examination by his privilege against self-incrimination. “No considerations of domestic peace or of conjugal loyalty, no considerations of the sanctity of the marital relation” would seem to require such a result. Poppe v. Poppe, 3 N.Y.2d 312, 317, 165 N.Y.S.2d 99, 103, 144 N.E. 2d 72, 75 (1957). To the extent that the Mieles have attempted to conceal their assets from plaintiff, therefore, we think New York would follow the lead of other jurisdictions which have held that the marital privilege is not available to refuse disclosure of communications designed to perpetrate frauds on third parties. See, e. g., Kine v. Forman, 205 Pa.Super. 305, 209 A.2d 1 (Pa. Super.Ct.1965); Fraser v. United States, 145 F.2d 139, 143-144 (6th Cir. 1944), cert. denied, 324 U.S. 849, 65 S.Ct. 684, 89 L.Ed. 1409 (1945); Tobias v. Adams, 201 Cal. 327, 258 P. 588, 592 (1927); Eddy v. Bosley, 34 Tex.Civ.App. 116, 78 S.W. 565, 568 (Tex.Ct.Civ. App.1903). But see Stalcup v. Jepsen, 118 Neb. 240, 224 N.W. 16 (Sup.Ct.Neb. 1929). Our conclusion is fortified by the line of New York cases which recognize that fraud is “easily practised and concealed under cover of the marriage relation” and consequently scrutinize business transactions between husband and wife with the utmost care where the rights of creditors are involved. White v. Benjamin, 150 N.Y. 258, 265, 44 N.E. 956 (1896); Herter v. Krzewinski, 233 A.D. 240, 251 N.Y.S. 331 (1931).

We realize that divining what the New York courts would do with the problem before us is a little like reading tea leaves. But as we recently noted, in the absence of a certification statute, we have no choice but to make an educated guess. See Chance v. Board of Educ., 496 F.2d 820 (2d Cir. April 12, 1974). Accordingly, we hold that Judge Mansfield correctly ruled that the marital privilege did not apply under New York law. The questions posed to Mrs. Miele dealt with business matters that either were not confidential or, if deliberate efforts were made to conceal them to prevent execution of judgment, were not privileged even if the parties intended them to be confidential. As for the portion of the order which assessed $1,500 in attorneys’ fees, while we might not have imposed such a large amount ourselves, this was not an abuse of discretion.

Judgment affirmed.

      . Judge Mansfield, a member of this court, was sitting by designation.

      . Pursuant to Fed.R.Civ.P. 69(a), and N.Y. C.P.L.R. §§ 5223, 5224, McKinney’s Consol. Laws, c. 8.

      . Mr. Miele stated that he was a defendant in criminal proceedings involving similar subject matter in the United States District Courts for the Southern District of Florida and the Western District of Missouri; the Florida proceeding had resulted in a conviction which was being appealed to the Fifth Circuit.

      . Mrs. Miele refused to answer the following questions :
      Has your husband transferred to you anything of value, either property or money, in the past three years?
      If so, list each transfer and state the consideration given.

        To the best of your knowledge does your husband maintain any banking, savings or checking accounts, either in the United States or abroad?
      If so, where is each located, and state whether you have signatory powers over each.
      If you maintain any separate accounts, where are they located ?
      To the best of your knowledge, list all of your husband’s property of any nature whatsoever.
      Mrs. Miele did reveal, however, that neither she nor her husband maintained safe deposit boxes and that she believed that her husband had a G.I. insurance policy.

      . The order also remained unchanged as to Infinco, but that is not attacked on this appeal.

      . All parties agree that the question whether the marital privilege applies here is governed by New York law. See Massachusetts Mutual Life Ins. Co. v. Brei, 311 F.2d 463, 465-466 (2d Cir. 1962).

      . Merlin v. Aetna Life Ins. Co., 180 F.Supp. 90, 91-92 (S.D.N.Y.1960) (dictum), describes the Parkhurst exception as applicable to “business communications between husband and wife where they are jointly engaged in business.” However, our reading of ParhJiurst and the New York cases interpreting it, see note 8 infra, persuades us that the exception applies more broadly.

      . See Johnson v. Johnson, 25 A.D.2d 672, 268 N.Y.S.2d 403, 406 (1966) (per curiam) (testimony of husband concerning wife’s visits to physician and execution of insurance claim forms by physician not privileged) ; Norris v. Lee, 136 A.D. 685, 121 N.Y.S. 512 (App.Div.2d Dep’t 1910) (statement by husband in letter to wife that he would pay off note to mother-in-law as soon as he obtained the necessary funds not privileged) ; Grossman v. Lindemann, 67 Misc. 437, 123 N.Y.S. 108 (Sup.Ct.App.Term 1910) (testimony of wife concerning husband’s gift to her of interest on promissory note not privileged). Similarly, we have held in a federal criminal case, interpreting the common law “in the light of reason and experience,” Fed.lt. Crim.P. 26, that facts “of a financial nature, referring to the income and assets of the marriage” are not privileged. United States v. Mackiewicz, 401 F.2d 219, 225 (2d Cir.), cert. denied, 393 U.S. 923 (1968).

      . The federal Bankruptcy Act permits the spouse of a bankrupt to be examined concerning his “acts, conduct, or property . . . any law of the United States or of any State to the contrary notwithstanding.” 11 U.S.C. § 44(a). Collier on Bankruptcy f 21.09 at 293 praises this right of examination as
      a valuable one, for in many eases the spouse of the bankrupt is the only witness, the bankrupt being protected by privilege against incriminating testimony, who can shed any light on transactions or the whereabouts of secreted assets.

      . IVe believe the New York courts would find the recent decision in Kine particularly persuasive. Kine involved a proceeding to compel a judgment debtor-husband to answer questions posed to him by a judgment creditor on a deposition in aid of execution of judgment. The creditor alleged a systematic arrangement of the husband’s affairs to place his property in the hands of his wife and beyond the reach of execution; the deposition questions were designed to reveal this chicanery. The husband raised the marital communications privilege to justify his refusal to answer but the court rejected this defense and directed him to testify. The court ruled that the public policy which protects as confidential the private communications between husband and wife does not extend to those communications which are in furtherance of a fraud, at least in a civil action. 209 A.2d at 3.

      . Indeed, New York’s strict scrutiny of such transactions undoubtedly often has the practical effect of forcing husband and wife to testify in actions to set conveyances aside as fraudulent, thereby waiving whatever privilege might be available, lest they lose on the merits. Cf. In re Levitan’s Estate, 36 N.Y.S.2d 503 (Surr.Ct.Westchester Co.1942); B. G. Cooperative Corp. v. Collison, 24 N.Y.S.2d 651 (Sup.Ct.Erie Co.1941).

      . We award costs to plaintiff as the successful party on this appeal in accordance with our usual practice but deny its motion for attorneys’ fees.


author: STEPHENSON, Circuit Judge. Van OOSTERHOUT, Senior Circuit Judge

text:
    FEDERAL PRESCRIPTION SERVICE, INC., and Drivex Co., Petitioners, v. NATIONAL LABOR RELATIONS BOARD, Respondent, and Amalgamated Meat Cutters and Butcher Workmen of North America, AFLCIO, et al., Intervenors. AMALGAMATED MEAT CUTTERS AND BUTCHER WORKMEN OF NORTH AMERICA, AFL-CIO, et al., Petitioners, v. NATIONAL LABOR RELATIONS BOARD, Respondent.
    Nos. 73-1362, 73-1420.
    United States Court of Appeals, Eighth Circuit
    Submitted Jan. 14, 1974.
    Decided May 1, 1974.
    As Modified on Denial of Rehearing and Rehearing En Banc June 6, 1974.

      George S. Leonard, Washington, D. C., for petitioners.
    Judith Wilkenfeld, Atty., National Labor Relations Board, Washington, D. C., for respondent.
    Russell Woody, Chicago, 111., for intervenors.
    Before Van OOSTERHOUT, Senior Circuit Judge, and LAY and STEPHENSON, Circuit Judges.
   STEPHENSON, Circuit Judge.

These consolidated appeals are before the court upon the several petitions of Federal Prescription Service, Inc., and Drivex Company (Employer) and Amalgamated Meat Cutters and Butcher Workmen of North America (Union) pursuant to 29 U.S.C. § 160, seeking review of an order issued against Employer on May 31, 1973, 203 N. L. R. B. No. 145, and upon the National Labor Relations Board’s cross-application to enforce the order.

The Board found in agreement with its trial examiner that Employer violated § 8(a)(1) of the National Labor Relations Act by coercively interrogating its employees, interfering with employee meetings, threatening its employees with discharge, discriminatorily changing work rules, and promising benefits as an inducement to abandon support of the Union; that Employer violated § 8(a)(3) and (1) of the Act by discharging ten employees in order to discourage pro-Union activities; and that it violated § 8(a)(5) and (1) of the Act by refusing to bargain with the Union. The Board concluded that Employer’s violations “not only precluded a fair election, but were of such a pervasive and aggravated character that an order directing the Company to bargain with the Union [was] necessary to repair the unlawful effects.” N. L. R. B. v. Gissel Packing Co., 395 U.S. 575, 89 S.Ct. 1918, 23 L.Ed.2d 547 (1969).

The Board’s order directed the Employer to cease and desist from the unfair labor practices found, and from in any other manner interfering with, restraining, or coercing its employees in the exercise of their protected rights guaranteed under § 7 of the Act. Additionally it directed Employer to offer the discriminatees full and immediate reinstatement and to make them whole for any loss of pay suffered by reason of the discrimination, and to post customary notices.

Federal Prescription Service, Inc., is a national mail order drug prescription business. Drivex Company is also a mail order drug firm and a mailing service operation. Federal Vitamin Service is a national mail order vitamin business directed principally to individuals. The work for each company is conducted by the same group of employees, the companies operate out of a single plant facility located in Madrid, Iowa, and the companies share common ownership. Craig Sandahl is the principal stockholder and president of each company. T. R. Rasmusen is a minor stockholder and officer of both Federal Prescription and Federal Vitamin Service, and Richard Johann is a minor stockholder and officer of all three companies. The Employer’s work force is made up primarily of housewives and schoolgirls. Regular employees are paid $1.60 per hour and are given no paid holidays or sick leave.

In early March, 1971, a Union organizational campaign commenced at Employer’s plant. Upon learning of the attempted organizational effort, Employer attempted to attend unionization meetings, changed working hours and conditions of several Union adherents, declined to recognize the Union without an election when requested by letter to do so, and ultimately discharged several employees prior to the election. This in turn triggered a strike and mass picketing of Employer’s operation, and caused a temporary restraining order against mass picketing to be issued by a state court. Thereafter an election was held, the results of which were not certified because of Union objections. These objections were consolidated for hearing with unfair labor practice charges.

For the reasons hereinafter stated we grant enforcement of the Board’s order in part.

I. § 8(a)(1) VIOLATIONS

With respect to the § 8(a)(1) violations, we find that there is substantial evidence upon this record as a whole to support the Board’s determination. See Universal Camera Corp. v. N. L. R. B., 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456 (1951).

On March 3, 1971, an employee petition was circulated and signed by nearly the entire work force demanding higher wages and better working conditions. Upon learning of the petition, Employer’s president, Sandahl, called employee Betty Peterson into his office and interrogated her in the presence of other supervisory personnel as to the petition’s purpose and the identity of the participants. The record discloses that the nature of the inquiry led to evasive answers on the part of employee Peterson. We have previously held such interrogations to be unlawful. See e. g., N. L. R. B. v. Midwest Hanger Co. & Liberty Eng. Corp., 474 F.2d 1155, 1161 (8th Cir. 1973).

Following this incident, Sandahl called an employees meeting to discuss their complaints. Dissatisfied with Sandahl’s responses, approximately 35 to 40 employees gathered afterhours on March 5 to discuss contacting a union representative. Sandahl likewise attempted to attend this meeting and suggested that the employees return to the plant and further discuss their complaints.

The initial meeting with an international representative of the Union was held on March 9. Again Sandahl made an uninvited appearance, this time with Richard Johann, an officer of Employer Corporation. Sandahl attempted to explain his presence by indicating that he understood he was attending an open meeting, and that the employees’ questions would most likely not be answered unless he were present. Sandahl and Johann left at the insistence of the Union representative. After their departure 34 or 35 employees signed cards designating the Union as their collective bargaining representative.

In the midst of this organizational activity, several work changes were made with respect to Union adherents. Employee Terry Edwards had her desk moved closer to her supervisor so that her work habits could be more easily observed. Additionally, employees Betty Peterson, Helen McCormick and Peggy Hoover had their working hours changed in order to preclude pro-Union discussion during unsupervised non-regular company hours. Richard Johann testified that he had imposed a so-called “no-nonsense” rule which forbade employees from leaving their working stations to talk to one another. It appears from the record, however, that an employee anti-Union committee was permitted to function freely during regular working hours.

On March 15, employee Steven Hansen, Johann’s son-in-law, called a meeting of six employees at which he suggested that Sandahl be given another opportunity to resolve their problems. Sandahl in turn indicated that since they had gone to the Union his hands were tied, but that he felt he could provide the same benefits as fast as an outsider could. These activities were followed by instances where Richard Johann’s wife elicited information from employee Diana Hamil with respect to the latter’s opinion about and activities concerning the Union, and where Mrs. Johann by implication threatened to fire employees Hoover and Peterson for giving legitimately acquired sales information to another Union company.

We find no basis upon which to reject the Board’s findings in connection with these § 8(a)(1) violations. Its determination in this respect is therefore sustained.

II. § 8(a)(3) VIOLATIONS

On April 2, 1971, ten employees were terminated. The following day a strike commenced in protest of the discharges. A petition for a temporary restraining order against Mass picketing was subsequently filed by Employer in state court, and an order granting the same was issued on April 8. Thereafter, on one occasion, mass picketing occurred, principally by husbands of employees and by employees of other plants represented by the Union. On two other occasions later in April, a number of car-following incidents occurred. This ultimately led to two groups of employees being found in contempt of court.

On April 20, the parties signed a stipulation for Certification Upon Consent Election. An election was conducted on May 13, at which 23 persons who presented themselves at the polls were challenged. Thereafter, the Union filed timely objections which were consolidated for hearing with the unfair labor practice charges.

On May 25, the Union offered by mail to end the strike and requested the immediate unconditional reinstatement of the striking employees. On June 10, Employer recalled some, but not all, of the strikers. None of the strikers responded. On June 16, Employer sent letters to employees Peterson, McCormick and Edwards and informed them that because of their “serious misconduct in connection with the strike and picketing,” Employer “cannot consider continuing your employment.”

The ten discharges on April 2, 1971, occurred less than two weeks after the Union filed its election petition (filed March 22) but prior to the date on which an election could be held. The discharged employees were given no prior notice that Employer was contemplating a reduction in its work force. At the time the Union requested recognition, it had a majority of employees in the bargaining unit, but nine out of ten of the dischargees had signed Union authorization cards. Then subsequent to the election, pursuant to the Union’s written request, Employer did not hesitate to recall several of the discharged employees.

These discharges must be considered in light of Employer’s contention that it followed “departmental” rather than “plant-wide” seniority in selecting the dischargees. Employer’s own hiring list [Exhibit No. 91] refutes this allegation. It shows that three discharged employees from the promotion department were senior in that department to Charlotte Simons, a known anti-Union employee who assisted management in its campaign. Similarly, two promotion dischargees were senior in that department to Steven Hansen, Johann’s son-in-law. Both Simons and Hansen were retained. The Board found, however, that even if departmental seniority were followed by Employer, the discharges were nonetheless discriminatory. That is, the facts and circumstances surrounding these events render the application of departmental seniority highly suspect. For example, seniority at Federal Prescription was based upon time served in the whole company and took no account of time served in the respective departments. Furthermore, Employer did not utilize seniority in traditional ways. There was no' established wage or promotional program, nor were there paid holidays or sick leave based upon length of service. Parenthetically, we note that if plant-wide seniority had been utilized, only three Union adherents would have been discharged. Employer suggests that it had no knowledge of the dischargees’ relationship with the Union. We are satisfied that the early attempts made by Sandahl to ascertain the names of those who signed the March 3 petition and management’s attendance at Union meetings, coupled with the reporting activities of employee Simons and the supervisory activities of Mrs. Johann were, in the aggregate, sufficient to impute knowledge to Employer.

Upon this record the discharge of the ten employees can reasonably be characterized as “ ‘inherently destructive’ of important employee rights.” Such determination under N. L. R. B. v. Great Dane Trailers, Inc., 388 U.S. 26, 34, 87 S.Ct. 1792, 1798, 18 L.Ed.2d 1027 (1967), would thus allow the Board to find unfair labor practices despite evidence introduced by Employer that his conduct was motivated by business considerations. Accord, N. L. R. B. v. Midwest Hanger Co. & Liberty Eng. Corp., supra, 474 F.2d 1155, 1158 (1973). Even assuming that these discharges may have been partially the result of legitimate business considerations, this record is replete with evidence supporting the Board’s determination that the April 2 reduction was motivated by Employer’s anti-Union animus. See, Mc-Graw-Edison Company v. N. L. R. B., 419 F.2d 67, 76 (8th Cir. 1969).

The question remains, however, whether Employer’s refusal to reinstate employees Peterson, McCormick and Edwards was justified. These three employees during the course of the strike violated the Iowa state court injunction prohibiting certain activities, were found guilty of contempt and were fined. During the strike, all three were involved in car-following incidents, in contravention of the state court’s order, during which non-strikers were followed to their homes and verbally intimidated. These followings occurred in light of an atmosphere of other acts of terrorism on the part of Union adherents. With respect to employee Peterson, the administrative law judge found that Employer could properly refuse reinstatement because of a verbal threat she made about the continued safety of a son of a non-striker. The Board disagreed and held that the remark when viewed in the context in which it was made* did not justify Employer’s refusal of reinstatement. We cannot agree. Not every violation of a court order by striking employees justifies an employer’s refusal to reinstate those employees found guilty of contempt. See, N. L. R. B. v. Cambria Clay Prod. Co., 215 F.2d 48, 54 (6th Cir. 1954). Nevertheless, the effect of intimidation, verbal assaults and threats on the part of the three employees all in contravention of the clearly defined court order, manifestly provided a justifiable basis upon which to deny reinstatement. Cf. N. L. R. B. v. Blades Mfgr. Corp., 344 F.2d 998, 1004-1006 (8th Cir. 1965). We therefore hold that the failure to reinstate employees Peterson, McCormick and Edwards was not in violation of § 8(a)(3) of the Act.

III. THE § 8(a)(5) BARGAINING ORDER

In N. L. R. B. v. Gissel, supra, 395 U.S. 575, 89 S.Ct. 1918, 23 L.Ed.2d 547 (1969), the Supreme Court stated that the Board may issue a bargaining order even where the union has never demonstrated majority support where the unfair labor practices are so “outrageous” and “persuasive” that “their coercive effects cannot be eliminated by the application of traditional remedies, with the result that a fair and reliable election cannot be had.” The Court noted further that where the union at one point had a majority, the Board may appropriately enter an order upon a showing of “less pervasive practices which nonetheless still have the tendency to undermine majority strength and impede the election process.” 395 U.S. 575, 613-614, 89 S.Ct. 1918, 1940, 23 L.Ed.2d 547.

On March 15, the date on which Employer received the Union’s request for recognition, the Union held valid authorization cards signed by 36 employees of the 65 employees in the bargaining unit. The Board not only found that the Union held a clear majority, but determined that Employer’s activities were of such a “pervasive and aggravated character” that a fair election was precluded and a bargaining order was necessary. This record supports that determination. The repeated interference with the employees’ protected rights in violation of § 8(a)(1), and in particular the discharge of the ten employees in the face of the election justifies the Board’s finding that a bargaining order should issue in this instance. See, N. L. R. B. v. Sitton Tank Company, 467 F.2d 1371, 1372 (1972).

IV. ATTORNEYS’ FEES AND COSTS

Finally, the Union urges that it should have been awarded legal expenses and costs arising from this litigation. Such remedial matters are within the broad discretion of the Board, see N. L. R. B. v. Gissel, supra, 395 U.S. 575, 612 n. 32, 89 S.Ct. 1918, 1939 (1969). Contrary to the Union’s position, see, Tiidee Products, Inc., et al. v. N.L.R.B., 194 N. L. R. B. No. 198 (1972), we cannot say based upon this record that Employer’s litigation of issues was so frivolous that the Board abused its discretion by failing to make such an award. See also, International Union of E.R. & M.W., AFL-CIO v. N. L. R. B., 138 U.S.App. D.C. 249, 426 F.2d 1243, 1248, 1253, n. 15 (1970). We therefore sustain the Board’s determination in this respect.

Subject to modification in connection with employees Peterson, McCormick and Edwards, we grant enforcement of the Board’s order, including reinstatement and back pay to any April 2, 1971 discharge not given an unconditional offer of reemployment.

Van OOSTERHOUT, Senior Circuit Judge

(dissenting in part).

I concur in Division I of the majority opinion and that part of Division II which holds that the employer’s failure to reinstate employees Peterson, McCormick and Edwards was justified and did not constitute a § 8(a)(3) violation of the Act.

I dissent from that portion of Division II which holds that the termination of ten employees on April 2, 1971, constitutes a violation of § 8(a)(3) and from Division III of the majority opinion. I base my dissent on those issues on Board Chairman Miller’s dissenting opinion. I agree with Chairman Miller’s view that there is no substantial evidence on the record as a whole to support a finding that the employer terminated ten employees for discriminatory reasons rather than for economic reasons.

The principal unfair labor charge under which the Board may base its bargaining order was the termination of the ten employees. Many of the § 8(a)(1) charges were dismissed by the Board. The § 8(a)(1) charges established occurred for the most part before the agreement for the election, and the charges established were not such as would support a finding that the § 8(a)(1) violations would prevent a new and fair election. I would deny enforcement of the bargaining order and the order for reinstatement of the ten employees terminated on April 2, 1971.

      . Affirmed by a 2 to 1 vote (Chairman Miller dissenting).

      . Employer contends that Hansen was not a supervisor, and therefore his comments are not attributable to management. We cannot agree. Hansen was Johann’s son-in-law, he informed the employees that management had prior knowledge of the meeting, he assumed authority during the in-plant meeting to sever the telephone connection so that the meeting would not be interrupted, and he assumed authority to extend the lunch hour of those in attendance. We therefore sustain the Board’s finding that Hansen’s comments were attributable to management. See, General Merchantile & Hardware Co. v. N. L. R. B., 461 F.2d 952, 955 (8th Cir. 1972).

      . On March 15, the date on which the Union’s demand for recognition was perfected, there were 65 employees in the bargaining unit, 36 of whom had signed Union cards.

      . Employer contended that a declining profit margin motivated the terminations. However, the Board found Employer’s reasoning to be pretextual. I. e., that sales had increased by 70% in 1970 and by more than 10% in the first quarter of 1971. Although Employer’s profit margin had declined considerably in the first quarter of 1971, it was noted during oral argument and supported by the record [transcript at 994, App. 844] that part of Employer’s marketing strategy and method of selling during that period was to entice new customers on a “half-price” basis, intentionally taking a loss, then develop profits on a renewed order basis.

      . We note that Chairman Miller in dissenting was persuaded that the Employer terminated ten employees on April 2, 1971, for economic rather than discriminatory reasons.

      . Peterson in effect said to employee Wise-cup while the latter was crossing the picket' line that Wisecup’s son, who worked at a neighboring meat plant represented by the Union, “just may have an accident.” The Board indicated that while it did not condone the remark, it was an isolated one made on the first day of the strike at a time when feelings and emotions were at their peak.

      . See, Arbie Mineral Feed Co. v. N. L. R. B., supra, 438 F.2d 940, 943-944 (1971), in which we noted:
      In this ease, not marked by any outrageous employer conduct, we must determine whether, under the Gissel rules, Arbie’s conduct exerted “minimal impact on the election machinery”, which would obviate the need for a bargaining order, or tended to “undermine majority strength and impede the election processes”, a circumstance entitling us to uphold the Board’s issuance of the bargaining order. To draw the line between these two propositions is extremely difficult particularly upon appellate review conducted in the sterile atmosphere of a printed record. The Gissel decision offers the following guideline:
      “It is for the Board and not the courts, however, to make that determination, based on its expert, estimate as to the effects on the election process of unfair labor practices of varying intensity. In fashioning its remedies under the broad provisions of § 10(c) of the Act (29 U.S.O. § 160(c)), the Board draws on a fund of knowledge and expertise all its own, and its choice of remedy must therefore be given special respect by reviewing courts. [395 U.S. at 612, n. 32, 89 S.Ct. at 1939].”


text:
    Boston M. CHANCE et al., Plaintiffs-Appellees, v. The BOARD OF EDUCATION OF the CITY OF NEW YORK et al., Defendants-Appellants, The Board of Examiners et al., Defendants-Appellees, Charles Wiener (Pro se), Proposed Defendant-Intervenor-Appellant.
    Nos. 612, 875, Dockets 73-2320, 73-2476.
    United States Court of Appeals, Second Circuit.
    Argued March 18, 1974.
    Decided April 12, 1974.
    See also, 2 Cir., 458 F.2d 1167.

      Edmund B. Hennefeld, New York City (Norman Redlich, Corp. Counsel, of the City of New York, Stanley Buchsbaum, New York City, on the brief) for defendant-appellant Bd. of Ed.
    Charles Wiener, pro se, proposed intervenor-defendant-appellant.
    George Cooper, New York City (Jack Greenberg, Jeffrey Mintz, Deborah M. Greenberg, Elizabeth B. DuBois, Legal Action Center of the City of New York, Inc., New York City, on the brief), for plaintiffs-appellees.
    Before LUMBARD, FEINBERG and MULLIGAN, Circuit Judges.
   FEINBERG, Circuit Judge:

The New York City Board of Education appeals from an order of the United States District Court for the Southern District of New York, Walter R. Mansfield, J., that modified an earlier preliminary injunction dealing with examinations and eligibility lists for supervisory positions in the City school system.

That prior order was appealed to this court and affirmed in Chance v. Board of Examiners, 458 F.2d 1167 (1972). The Board of Education on this appeal claims that the modified injunction violates state law and settled principles of equity jurisprudence. Since we do not agree with either contention, we affirm the judgment of the district court. However, we urge the district court to expedite resolution of those matters left open by the judgment under attack.

I

We shall presume familiarity with our prior opinion in Chance, supra, which sets forth at some length the background of this litigation. Briefly, Judge Mansfield held in July 1971 that plaintiffs had sufficiently shown, for the purpose of preliminary relief, that various written examinations for supervisory positions in the City schools, prepared and administered by defendant Board of Examiners, were unconstitutional because they significantly discriminated against black and Puerto Rican applicants and were not sufficiently “job-related.” D.C., 330 F.Supp. 203. The judge subsequently issued a preliminary injunction against use of these tests and eligibility lists based upon them. His order also allowed the Board of Education and the Chancellor of the City School District, a co-defendant, to fill vacancies in supervisory positions on an acting basis. We affirmed that order, holding that on the facts the trial judge had not abused his discretion in exercising his equitable power to grant preliminary relief.

On the prior appeal, the contending adversaries were plaintiffs, who are black and Puerto Rican candidates for permanent supervisory positions, and the Board of Examiners. The Board of Education neither actively opposed the original motion for a preliminary injunction nor appealed from its grant. 458 F.2d at 1169. Thus, although there is a close relationship between the Board of Examiners and the Board of Education, the two entities are distinct and took different positions in the early stages of the litigation. On this appeal, some two years later, these two defendants continue to go their separate ways; each has reversed its legal posture. The Board of Examiners, far from objecting to the modified preliminary injunction, has consented to a final judgment incorporating its terms. The Board of Education, on the other hand, strongly opposes the modified preliminary injunction and urges us to reverse it. These changes in position took place after long settlement negotiations while the case was pending in the district court after remand. These began in the fall of 1972, and culminated in an agreement between plaintiffs and the Board of Examiners, discussed below. The Board of Education diá not participate in these discussions, although it apparently had opportunities to do so. After plaintiffs and the Board of Examiners reached their settlement agreement the Board of Education informed the court that it opposed the settlement. Plaintiffs then moved for a default judgment against the Board of Education based upon its inaction in the proceedings up to that time. In May 1973, in an unpublished opinion, the district court approved the settlement and in July incorporated its terms in a final judgment against the Board of Examiners and the Chancellor. The court denied plaintiffs’ motion for a default judgment against the Board of Education, but modified the preliminary injunction which was then in force against that defendant to require it, “pending final determination of the action,” to adhere to the terms of the settlement with the Board of Examiners.

II

We turn now to the settlement agreement. After the 1971 preliminary injunction, which prohibited continued use of various tests and eligibility lists, there nonetheless was a need to fill various supervisory positions as vacancies occurred. Until an acceptable examination system was developed, the need for the most part was met by a system of appointments of acting supervisors. The settlement agreement, among other things, changed the interim procedure to allow permanent, rather than just acting, appointments when certain criteria were met. This change is the focus of this appeal.

In the district court the Board of Education opposed the settlement on two grounds. The first was that the new interim procedure had no fixed termination date and might continue indefinitely, thus frustrating what should be the proper final disposition of the litigation: adoption of a constitutionally acceptable permanent examination procedure. The second basis of opposition was that the settlement violated a state requirement that appointments be based upon “merit and fitness.” N.Y. State Const., Art. V, § 6; N.Y.Edue.Law § 2590-j, subd. 8(a)(1).

Judge Mansfield approved the settlement but paid careful attention to these arguments. As to the first, he agreed that “[t]he ideal solution would be the immediate establishment of a new permanent appointment system,” but observed that

such a system, which requires a careful study and analysis of numerous complex factors bearing on job relatedness, fairness and evaluation of performance, cannot be built in a period of days or even of weeks.

In the meantime, the judge pointed out, the system of acting appointments had caused financial and morale problems

since acting personnel, a disproportionately high percentage of whom are Black and Puerto Rican, perform the same functions as regularly appointed supervisors but neither receive the same financial benefits nor enjoy the prestige and authority that go with performance.

He concluded that the settlement “would produce greater stability and confidence” in supervisors by allowing permanent appointments during the interim period until a new examination system was devised. Nevertheless, the judge conditioned his approval of the settlement upon the requirement that within six months

the parties shall either agree upon a plan for a permanent system for the selection of supervisors within the New York City School System, or any party shall be free to apply to the Court for modification of the judgment.

The judge also rejected the argument that the settlement violated New York State law. He noted that:

[T]he proposed new procedure appears to be based on the principle of merit and fitness, with emphasis on eligibility standards, parent involvement in the selection process, interviews, evaluation of on-the-job performance, and developments of and adherence to other selection criteria. New York’s Constitution does not rigidly mandate competitive examinations as the exclusive method of selection. It provides that merit and fitness shall be ascertained by such methods “as far as practicable.” Indeed, except for Buffalo and New York City the State’s constitutional requirement is satisfied elsewhere by a system of certification based on the candidate’s academic training and professional experience without resort to competitive examinations.

On appeal, the Board of Education makes essentially the same arguments as in the trial court, asserting that Judge Mansfield’s order violates statutory and constitutional law of New York State, and that the order goes beyond the limits of preliminary injunctive relief. Appellees respond that the Board has been guilty of laches, that the injunction does not conflict with state law, that state law would not control in any event, and that the order falls within the scope of proper preliminary relief.

We are thus again primarily faced with the question, as we were two years ago, whether Judge Mansfield abused his discretion in the order under attack. This time, the issues before us are narrower since they go only to the propriety of the interim relief granted. As to the legality of the preliminary injunction under state law, the order does not authorize the permanent licensing of school supervisors without any examination. If it did, it would probably run afoul of the decision of the New York Court of Appeals in Board of Educ. v. Nyquist, 31 N.Y.2d 468, 341 N.Y.S.2d 441, 293 N.E.2d 819 (1973), construing N.Y.State Const., Art. V, § 6, and relied upon heavily by the Board of Education. We would then be faced with plaintiffs’ argument that state law can and should be overridden, if necessary, to redress past discrimination unconstitutional under federal law. But, as we see it, we need not reach that issue. In Nyquist, a decision of which Judge Mansfield was aware, there was a grant of a permanent license to an acting supervisor without any examination. Here, the settlement agreement contemplates an interim system of appointment which includes a full examination. Appointments may be made from three categories of persons, the first two of which have already presumably taken and passed examinations. The Board’s objections are limited to the third category, which consists of those “(a) who have been or will be appointed to a supervisory position . . on an acting basis . and (b) who have completed or will complete at least 5 months’ service in that position on an acting basis. . ” As to this group, the settlement agreement goes on to provide:

Such persons shall be licensed only after their on-the-job performance in that position has been evaluated and examined by the Board of Examiners, in conjunction with the appointing authority and pursuant to criteria developed with the appointing authority.

We agree with the district judge that, at least on this record, this appointment scheme appears to comply with New York State law. In the absence of a certification statute we, like Judge Mansfield, can do no more than make an educated guess in a difficult area. But the New York cases indicated that the appointment procedure, at least as now contemplated, is not illegal. Charles Wiener, whose attempt to intervene is discussed below, asserts that the new procedure will be a sham and is designed to give an inside track to those already serving in an “acting” capacity. He alleges that race, political patronage, nepotism and favoritism will replace merit and fitness as the operative criteria for selecting supervisors. If that were true, we have no doubt that it would be improper under state law. But the district judge envisioned no such egregious result and we will assume that until a permanent examination procedure is adopted, the district court will carefully supervise the manner in which the settlement agreement is implemented to see that the reality accords with the promise.

The Board of Education also claims that authorizing appointment of supervisory personnel not simply pendente lite but on a permanent basis violates principles of equity jurisprudence. The argument is that, at least as to this appellant, the order is only a preliminary injunction. This being so, says the Board, the district court could do no more than protect the subject matter of the litigation until the entry of a final judgment after joinder of issue and a full trial on the merits. Thus, until a permanent examination system is established either by judicial determination or by consent, no supervisor as a matter of equity law can receive a permanent appointment. We do not see why this should be so. Three and a half years have elapsed since the commencement of this lawsuit. A judgment has been rendered — final as to the Board of Examiners and the Chancellor of the City School District and acceptable to the Board of Education — that the tests used in the past for supervisory school positions were discriminatory and unconstitutional. Until recently, however, the Board of Education has shown little interest in expediting the preparation of new and acceptable examinations. Meanwhile, hundreds of supervisors have been given acting appointments, but not.the pay or the prestige that go with the permanent position. It was within the discretion of the district court to take all these matters into account in modifying its earlier injunction, and we so hold.

Finally, we must note that were the litigation to remain indefinitely in its unfinished state, the propriety of continuing to allow permanent appointments would be another matter. The interim tail' would then be wagging the dog and the incentive for plaintiffs’ class to obtain a permanent non-discriminatory testing system would diminish considerably and perhaps disappear. Indeed, we think too much time has already elapsed and we regret that the district court . d not require the parties to adhere to the six-month time period it suggested in approving the settlement. Allowing another lengthy period of time to go by, thus creating further eligibles for permanent appointment as an “interim” measure, would approach an abuse of discretion. Accordingly, while we affirm the judgment of the district court, we suggest that the litigation be promptly brought to a close, either by judicial resolution of contested issues or by settlement.

Ill

There remains for consideration the appeal of Charles Wiener from the denial of his motion to intervene as a defendant-appellant. See note 4 supra. Wiener is a teacher who has apparently passed several of the written examinations covered by the preliminary injunction. He seeks to intervene both to challenge the finding of the probable unconstitutionality of those examinations and to attack the propriety of the order allowing permanent appointment of acting supervisors. We have already referred, at the end of Part II, supra, to the basis of the latter attack. Judge Mansfield denied Wiener’s motion to intervene on the ground that he was adequately represented by the existing parties. We cannot characterize this ruling as an abuse of discretion, and we affirm. Wiener himself seems to concede, and we find, that his views on the merits were vigorously represented by the Board of Examiners through the first appeal. He contends, however, that after remand the Board of Examiners abandoned its defense of the old system of examination and settled with the plaintiffs, leaving him unrepresented. We take a different view. In light of the district court’s finding, which we upheld, that the prior tests were probably unconstitutional, the Board of Examiners benefited Wiener in negotiating a settlement under which he can obtain a principal’s license on the basis of having passed the old written examinations. See note 7 supra and accompanying text. Moreover, as we have indicated, the Board of Education has changed its position on remand and has adequately represented Wiener’s views on the propriety of the relief granted by the modified preliminary injunction. Finally, Wiener, although not a party, has been given and has taken advantage of several opportunities to present his arguments to Judge Mansfield and, on both appeals, to this court. These arguments have been carefully considered.

Accordingly, we affirm both the order modifying the preliminary injunction and the order denying Wiener’s motion to intervene.

      . After becoming a member of this court, Judge Mansfield continued to preside over district court proceedings in this case until recently, when the case was assigned to Judge Tyler.

      . The injunction in September 1971 was accompanied by an unpublished memorandum,

      . The Board of Education is the body entrusted with the general management and control of educational affairs in the New York City School District. N.Y.Educ.Law § 2552. The Board of Examiners is the professional examining arm of the Board of Education and is required to conduct examinations of candidates for the various licenses established by the Board of Education and for placement on various eligible lists. N.Y.Educ.Law § 2569; Barnett v. Fields, 196 Misc. 339, 92 N.Y.S.2d 117, 122 (Sup.Ct.N.Y.Co.1949), aff’d mem., 276 App.Div. 903, 94 N.Y.S.2d 904 (1st Dep’t), aff’d mem., 301 N.Y. 543, 93 N.E.2d 346 (1950).

      . In its May 1973 opinion, the court also granted plaintiffs’ motiomfor an order allowing the action to be maintained as a class action on behalf of all black and Puerto Rican candidates and potential candidates for supervisory positions. On June 28, after notice was given to the class, the court held a hearing on the settlement, at which time it heard objections from Charles Wiener, pro se, and others, including the Council of Supervisors and Administrators of the City of New York (CSA), Local 1, SASOC, AFL-CIO. In his July opinion, the judge denied Wiener’s motion to intervene. Wiener’s appeal is the subject of Part III infra. CSA has taken a separate appeal, now scheduled to be heard by this court in May.

      . Board of Education Special Circular No. 30, 1972-1973 (Regulations Governing the Assignment of Acting Supervisors) (Oct. 25, 1972).

      . The judge discussed the case in his July 1973 opinion. See note 4 supra.

      . These categories include persons whose names appear on eligibility lists previously prepared • by the Board of Examiners and persons who have already passed a written examination for supervisory positions under the jurisdiction of the Board of Education, but have not yet been placed on an eligible list.

      . We have several times commented upon the potential usefulness of such statutes. E. g., Peterson v. Allcity Ins. Co., 2 Cir., 472 F.2d 71, 80 n. 14 (1972); Cornellier v. American Casualty Co., 2 Cir., 389 F.2d 641, 644 n. 3 (1968); Schein v. Chasen, 2 Cir., 478 F.2d 817, 828-829 (Kaufman, J., dissenting), cert. granted sub nom. Simon v. Schein, Investors Diversified Services, Inc. v. Schein, 414 U.S. 1062, 94 S.Ct. 568, 38 L.Ed.2d 467 (1973). See generally Lillich & Mundy, Federal Court Certification of Doubtful State Law Questions, 18 U.C.L.A.L.Rev. 888 (1971). Indeed, the Supreme Court, which previously praised the Florida certification statute as an enactment of “rare foresight,” Clay v. Sun Ins. Office Ltd., 363 U.S. 207, 212, 80 S.Ct. 1222, 4 L.Ed.2d 1170 (1960), has granted certiorari on the issue whether we erred in declining to use that procedure in Schein, and heard argument on March 19, 1974.

      . The lower New York State courts apparently also have difficulty in reconciling the requirement for competitive civil service examinations with the need to redress past invidious discrimination. See State Division of Human Rights v. City of Schenectady, 351 N.Y.S.2d 290 (Sup.Ct.Schenectady Co.1973).

      . N.Y.Educ.Law § 2590-j, subd. 3(b) (2) (examinations for supervisory positions shall be qualifying rather than competitive); Altman v. Lang, 44 Misc.2d 751, 255 N.Y.S.2d 284, 287 (Sup.Ct.N.Y.Co.), aff’d mem., 23 A.D.2d 820, 259 N.Y.S.2d 779 (1st Dep’t), aff’d mem., 17 N.Y.2d 464, 266 N.Y.S.2d 975, 214 N.E.2d 157 (1965) (merit and fitness requirement does not compel perpetuation of traditional testing techniques where not feasible); Sloat v. Board of Examiners, 274 N.Y. 367, 9 N.E.2d 12 (1937) (evaluation of on-the-job performance proper element of examination for teacher’s license); Walker v. Board of Examiners, 22 Misc.2d 345, 204 N.Y.S.2d 432 (Sup.Ct.N.Y.Co.1957), aff’d mem., 7 A.D.2d 968, 183 N.Y.S.2d 990 (1st Dep’t 1959) (interview test proper element of examination for license as junior principal in elementary schools). Cf. Council of Supervisory Ass’ns v. Board of Educ., 23 N.Y.2d 458, 467-468, 297 N.Y.S.2d 547, 245 N.E.2d 204 (1969).

      . A joint letter to the court, dated April 1, 1974, from counsel for plaintiffs and counsel for the Board of Education states that the latter does not intend to litigate the substantive issue of the merits of the examination system which was challenged in the instant lawsuit and enjoined by Judge Mansfield.

      . We also hold, however, that the Board of Education is not barred by laches from challenging the modified injunction. Despite plaintiffs’ well-taken criticism of the Board’s inaction until so late a stage in the litigation, we think it unwise to preclude the Board from raising issues of great public importance,

      . Alternatively, the judge denied Wiener’s motion as untimely. We need not reach this question.

      . Upon continuation of the proceedings in the district court, Wiener will presumably once again be given an opportunity to present his views as amicus curiae.

      . Wiener has also moved in this court for a survey of the “racial and ethnic background” of acting supervisory personnel recently appointed, presumably to show that there have been improper hiring practices. Such a motion should be addressed to the district court in the first instance. More importantly, even if Wiener does not have the necessary status in the district court, we have already indicated in text, supra, that the district court must be alert to prevent abuses in implementation of the settlement agreement.


author: BREITENSTEIN, Circuit Judge.

text:
    E. F. CORPORATION, Petitioner-Appellant, v. Arvel C. SMITH, Trustee in Bankruptcy for Rosen Oil Corporation, Bankrupt, Respondent-Appellee. Carl L. WETTIG and James R. Schmitt, Petitioners-Appellants, v. Arvel C. SMITH, Trustee in Bankruptcy for Rosen Oil Corporation, Bankrupt, Respondent-Appellee.
    Nos. 73-1565 and 73-1566.
    United States Court of Appeals, Tenth Circuit.
    Argued Jan. 21, 1974.
    Decided May 6, 1974.

      Carl L. Wettig, Wichita, Kan. (Wettig, Southard & Caro and James R. Schmitt, Wichita, Kan., on the briefs), for petitioners-appellants.
    C. Robert Bell, Jr., Wichita, Kan. (David C. Adams, Wichita, Kan., on the briefs), for respondent-appellee.
    Before BREITENSTEIN, McWIL-LIAMS and DOYLE, Circuit Judges.
   BREITENSTEIN, Circuit Judge.

These two appeals arise out of the bankruptcy of Rosen Oil Corporation. E. F. Corporation, the petitioner-appellant in No. 73-1565, and Carl L. Wettig and James R. Schmitt, the petitioners-appellants in No. 73-1566, each filed proof of claim and a reclamation petition alleging secured status and seeking the pledged collateral and full allowance of their claims. As to E. F. Corporation the referee denied secured status except as to an $8,000 item secured by a mortgage on specific property. The claims of Wettig and Schmitt were denied secured status. On petitions for review the United States District Court for the District of Kansas affirmed the referee. Respondent-appellee Arvel C. Smith is the trustee of the bankrupt estate.

E. F. Corporation is the financing and collecting arm of Elmer Fox & Company, a certified accounting firm which rendered accounting services for the bankrupt. In November, 1971, bankrupt owed Elmer Fox $20,000 for accounting services rendered. Future accounting services were contemplated. Pursuant to a demand for security on the old debt and for the future work, bankrupt gave Elmer Fox a note for $40,149.44 secured by a mortgage and security interests in certain oil properties. The papers were executed by two of bankrupt’s directors without prior authorization. Future services were rendered. On February 28, 1972, Rosen Petroleum Corporation, the parent of the bankrupt, was billed for $16,110 and on May 25, 1972, for $3,900. The petition in bankruptcy was filed on May 26, 1972. Elmer Fox claims that the billing to the parent was an inadvertent oversight. The referee held that Elmer Fox was a secured creditor only for the $8,000 still owing on the original $20,000 debt.

At the same time that Elmer Fox was given the mentioned note and security interests, it bought from Wettig and Schmitt a first order security interest on bankrupt’s office furniture. The referee held that Elmer Fox was not a holder in due course because the obligation of Wettig and Schmitt, upon which the assigned note was based, was past due by $3,850.56.

Wettig and Schmitt were law partners, and did legal work for bankrupt. Wettig was general counsel for, and assistant secretary of, the bankrupt corporation. In January, 1971, two of the bankrupt’s directors, to secure money owed by bankrupt for legal services rendered, executed a $20,000 note in favor of Wettig and Schmitt together with a mortgage and security interests covering certain oil properties. As to this transaction the referee held that the instruments were improperly executed and not ratified. Accordingly, he denied secured status.

All of the claimants argue that the referee and the district court erred in permitting the trustee to challenge the validity of the corporate mortgages. The point was not raised before the referee, was not presented in the petitions for district court review, was not determined by either the referee or the district court, and is argued for the first time on these appeals. Accordingly, the issue merits no consideration here. Eureka-Carlisle Company v. Rottman, 10 Cir., 398 F.2d 1015, 1019, and Stadia Oil & Uranium Company v. Wheelis, 10 Cir., 251 F.2d 269, 276. No exceptional circumstances require its consideration to prevent manifest injustice. Cf. Gomes v. Williams, 10 Cir., 420 F.2d 1364, 1367.

Another preliminary matter relates to the November, 1971, secured note given by bankrupt to Elmer Fox. The then pre-existing debt was $20,000, of which $8,000 was unpaid at the time of bankruptcy. The referee allowed this as a secured claim. The trustee argues that this allowance is erroneous because the bankrupt corporation did not ratify the execution of the note and mortgage. The difficulty is that the trustee did not petition the district court for review of the referee’s order and, hence, the order became final. 11 U.S.C. § 67(c). Cf. Potucek v. Cordeleria Lourdes, 10 Cir., 310 F.2d 527, 529-530, cert. denied, 372 U.S. 930, 83 S.Ct. 875, 9 L.Ed.2d 134. Implicit in the referee’s finding is the validity of the note and mortgage insofar as the pre-existing debt is concerned. The question of future advances will be discussed later in this opinion.

The documents relating to the January, 1971, transaction between bankrupt and Wettig and Schmitt were executed on behalf of the bankrupt by two directors who did not have prior authorization. Bankrupt had three directors. Signed corporation minutes show a purported meeting of bankrupt’s shareholders and another meeting of bankrupt’s directors. These state that at each meeting a resolution was adopted ratifying and approving “each and all of the acts, deeds and doings taken and performed by the corporate officers and directors” since the last ánnual meeting. Actually, neither of the meetings was held. The bylaws of the bankrupt provide that written resolutions signed by all three directors are valid even though no meeting was held. The referee found that the transactions in question were undertaken by directors Rosen and Herrington without consultation with director Smith, and that the minutes were a sham.

For ratification to be efficacious, it must be made with knowledge of the material facts. Western National Bank v. Armstrong, 152 U.S. 346, 352, 14 S.Ct. 572, 38 L.Ed. 470, and Gaynor v. Buckley, 9 Cir., 318 F.2d 432, 435. Cf. Knox v. First Security Bank of Utah, 10 Cir., 206 F.2d 823, 826. Kansas law is in accord. Allison v. Borer, 131 Kan. 699, 293 P. 769, 772, and Whitewater Telephone Co. v. Cory, 117 Kan. 463, 232 P. 609, 610. The record sustains the referee’s finding of lack of knowledge on the part of director Smith and is binding on us. In re O’Bannon, 10 Cir., 484 F.2d 864, 867.

The argument that the bankrupt is estopped to question the transaction by acceptance of benefits has no merit. The interests were created in Wettig and Schmitt to secure an existing indebtedness. No fresh consideration moved to the bankrupt. Acceptance of benefits, in order to have a binding result, must be with knowledge. Western National Bank v. Armstrong, 152 U.S. 346, 352, 14 S.Ct. 572, 38 L.Ed. 470, and Guarantee Title & Trust Co. v. Rein-hart, 130 Kan. 798, 288 P. 549, 551. In our opinion the January, 1971, transaction with Wettig and Schmitt was not authorized, was not ratified, and was properly rejected by the referee and the district court as insufficient to establish preferred status.

On April 18, 1972, within about six weeks of the bankruptcy petition, bankrupt executed a note in favor of Wettig and Schmitt for $3,330, allegedly secured under the future advance clause of the January, 1971, mortgage. The referee and the district court held that the transaction was a voidable preference within the definition of § 60(a) of the Bankruptcy Act, 11 U.S.C. § 96(a). We agree. The transfer was for the benefit of a creditor on account of an antecedent debt. We have noted above the invalidity of the mortgage. Accordingly, the transfer had nothing to relate back to, and was therefore within four months of bankruptcy. The referee’s finding that Wettig had reasonable cause to know of the insolvency has substantial evidentiary support and is binding on us. We reject Schmitt’s contention that Wettig’s knowledge is not imputable to him. The proof of claim and the petition for reclamation are in the name of the partnership. Under Kansas law knowledge of one partner is constructively the knowledge of all members of the partnership. Bigelow v. Henniger, 33 Kan. 362, 6 P. 593, 594, and Barber v. Van Horn, 54 Kan. 33, 36 P. 1070, 1075. We have here all of the elements of an impermissible preference.

The security interest which Elmer Fox obtained in November, 1971, noted that the covered office equipment was subject to a first mortgage to Wettig and Schmitt. To improve its position, Elmer Fox paid Wettig and Schmitt $3,850.56 for assignment of the first mortgage and a predated note of bankrupt in the noted amount. The referee held that the note was past due and that Elmer Fox had knowledge of that fact. The record sustains the referee. Under K.S.A. § 84-3-302(1) (c) Elmer Fox was not a holder in due course and took the security interest subject to the same infirmity that was present when it was held by Wettig and Schmitt. We have held that the security interest was not a binding obligation of .the bankrupt because of the lack of authorization and ratification. Elmer Fox may not recover on this item.

This brings us to the future advance problem arising out of the November, 1971, transaction between bankrupt and Elmer Fox. We have upheld the referee and district court in the award of $8,000 to Elmer Fox as the unpaid portion of the debt which pre-existed the transaction. Elmer Fox contends that the debt created by the performance of accounting services within the period of four months before bankruptcy relates back to the November transaction and, hence, is not an impermissible preference.

Under § 60(a)(2) of the Bankruptcy Act, 11 U.S.C. § 96(a)(2), a transfer is made “at the time when it became so far perfected that no subsequent lien upon such property * * * could become superior to the rights of the transferee.” The time of transfer is determined by federal law, but state law determines the perfection of the right. McKenzie v. Irving Trust Co., 323 U.S. 365, 370, 65 S.Ct. 405, 89 L.Ed. 305. The relevant state statute is Art. IX of the Uniform Commercial Code as adopted in Kansas. K.S.A. § 84-9-101 et seq. The issue is when a security interest becomes so far perfected as to cut off the rights of subsequent lien holders.

So far as is pertinent § 84-9-303(1) provides that a security interest is perfected “at the time when it attaches.” Section 84-9-204(1) determines when a security interest attaches, and says that such interest cannot attach until “value is given.” Section 84-1-201(44) says that a person gives value by “a binding commitment to extend credit” or by “consideration sufficient to support a simple contract." Thus, we are confronted with the issue of whether Elmer Fox made a binding commitment in November, 1971, to render future services, or whether the value was not given until the services were performed in 1972. The date of the transfer is the date when value was given. 4A Collier on Bankruptcy, [j 70.82 at 942-945, and esp. n. 10a (14th ed.).

We are aware of the decisions holding that the filing of a financial statement before the four-month period immunizes a security interest from a claim of preference. See e. g. DuBay v. Williams, 9 Cir., 417 F.2d 1277, 1287-1289 (accounts receivable); Grain Merchants of Indiana, Inc. v. Union Bank and Savings Company, Bellevue, Ohio, 7 Cir., 408 F.2d 209, 212-213 (accounts receivable); and In re Wilco Forest Machinery, Inc., 5 Cir., 491 F.2d 1041, 1046-1047 (after-acquired inventory). In those cases money had been lent and the question was whether the security interest attached to items which came into existence within the four-month period. Our situation is different. We are not concerned with the nature and extent of the security interest but rather with the right of the creditor to a preferred status on the basis of personal services rendered within the four-month period. The mentioned cases seek “to make security transactions conform to the legitimate needs of commerce * * 417 F.2d at 1289. Accordingly, they read § 60(a)(2) as saying that the transfer occurs when the right is “perfected” by the filing of the financial statement.

The difficulty is that state law determines the perfection of the right. 323 U.S. at 370. Under Kansas law a security interest is perfected when it attaches, and it attaches when value is given. Section 84-9-301 provides that an unperfected security interest is subordinate to a lien creditor without knowledge and that a trustee in bankruptcy is a lien creditor. The comment to § 84-9-301 says:

“As in Section 60 of the Federal Bankruptcy Act, the term ‘perfected’ is used to describe a security interest in personal property which cannot be defeated in insolvency proceedings or in general by creditors. A security interest is ‘perfected’ when the secured party has taken whatever steps are necessary to give him such an interest. These steps are explained in the five following sections (9-302 through 9-306).”

One of the mentioned sections, § 84-9-303, says that perfection occurs “when it has attached” and all the applicable steps have been taken. Attachment takes place when value is given. The only claim of value here is that of a binding commitment to render future accounting services.

We agree with the referee and the district court that Elmer Fox was not bound in November, 1971, to perform future accounting services, and that when the services were voluntarily performed within the four-month period Elmer Fox had reasonable cause to know of insolvency. Value was given when the services were performed and not until then. Accordingly, there was no relation back to the November transaction and the claim of secured status falls.

We see no conflict between this result and the holdings in the accounts receivable and after-acquired inventory cases. In those cases the benefit had been received by the bankrupt before the four-month cutoff. In the instant case it had not. To permit relation back of a claim for voluntary personal services within the four-month period would provide a loop hole which, in our opinion, was not intended by either the Bankruptcy Act or the Uniform Commercial Code. Secured status was properly denied for the amount due on account of the personal services in question.

In each appeal the judgment is affirmed.