author: DYER, Circuit Judge:

text:
    NATIONAL LABOR RELATIONS BOARD, Petitioner, v. FOODWAY OF EL PASO, a Division of Kimbell Foods, Inc., Respondent.
    No. 73-2949.
    United States Court of Appeals, Fifth Circuit.
    June 19, 1974.
    Elliott Moore, Deputy Assoc. Gen. Counsel, Alan D. Longman, N. L. R. B., Washington, D. C., Milo V. Price, Director, Region 28, N. L. R. B., Albuquerque, N. M., for petitioner.

      Stephen H. Naiman, Washington, D. C., for Retail Clerks Int. Assoc., Local 663.
    Edward L. Kemble, Fort Worth, Tex., for respondent.
    Before DYER and MORGAN, Circuit Judges, and KRAFT, District Judge.
   DYER, Circuit Judge:

This case is before us upon the application of the Board for enforcement of its order issued against Foodway based upon findings that Foodway violated Section 8(a)(3) and (1) of the National Labor Relations Act, 29 U.S.C.A. § 151 et seq., by refusing to hire any of the non-supervisory unit employees formerly employed by its predecessor, Allied Discount Foods, because of the employees’ membership in a union, and the Board’s further finding of a violation of Section 8(a)(5) and (1) of the Act by refusing to recognize and bargain with the Union. We enforce.

Allied operated three retail grocery stores in El Paso, Texas, one on Montana Avenue, the others on Dyer Street and McRae Street. The latter two stores were non-union. Employees at the Montana Avenue store had been represented by the Union since 1967 and were covered by a multi-employer collective bargaining agreement effective for the period April 10, 1969 through April 8, 1973. The agreement contained a separate recognition clause for each employer, and with respect to Allied recognized the Union as the exclusive bargaining representative in a unit embracing the non-supervisory employees at the Montana Avenue store.

On August 19, 1971, Foodway agreed to purchase from Allied the existing leaseholds of the two non-union stores together with the fixtures, equipment, inventory, supplies and business there conducted. Foodway also agreed to hire all of the managerial and rank-and-file employees at both stores.

On August 28, 1971, Allied closed the Montana Avenue store, representing to the employees that this was done because the store was losing money. There were seventeen employees in the bargaining unit at that time, ten of whom were members of the Union. All were fired. Three days later Foodway agreed to purchase from Allied the leasehold of the Montana Avenue store together with the fixtures, equipment, inventory, supplies and business there conducted. Foodway was not required to hire Allied’s employees at this store. All three former managerial employees at the Montana Avenue store, however, went on Foodway’s payroll on September 4 without any lapse of employment. On September 21, 1971 Foodway reopened the Montana Avenue store conducting the same business as Allied, on the same premises, with substantially the same equipment, although with some unremarkable physical changes.

After the closing of the Montana Avenue store on August 28, thirteen of the seventeen rank-and-file employees attempted to obtain employment with Foodway but were unsuccessful. Two other employees did not apply because they learned that it would be futile to do so. Foodway’s Divisional Manager refused to hire any of the Montana Avenue store’s former non-supervisory employees, but instead hired all new employees, many of whom were inexperienced and had to be trained. Foodway paid generally lower wages to the rank- and-file employees than the scale had been under the Union’s contract with Allied.

The Union attempted to persuade Foodway to recognize and abide by the agreement between Allied and the Union. Foodway countered by offering to pay the Union $1,200 at first and finally $2,500 if the Union would bow out. The Union declined and subsequently filed unfair labor practice charges against Foodway.

Foodway first insists that the Montana Avenue store does not constitute an appropriate unit because the collective bargaining agreement between Allied and the Union was a multi-employer contract. We fail to grasp the significance of this argument since the agreement contained separate . recognition clauses and Allied recognized the Union separately as the representative of its employees at the Montana Avenue store. Cf. Emerald Maintenance, Inc. v. N.L.R.B., 5 Cir. 1972, 464 F.2d 698. Moreover, Foodway introduced no evidence to demonstrate that the unit described in the collective bargaining agreement was inappropriate, but instead relied on the legal argument made here. In the circumstances of this case we find no misuse of the Board’s broad discretion in determining that the Montana Avenue store employees (with the exceptions mentioned in note 2, supra), continued to constitute a unit appropriate for collective bargaining purposes. “We must keep in mind that the Board’s unit determination, based on its analysis of the particular set of facts before it, ‘should not be set aside unless the reviewing court finds that the Board has exercised its discretion in an arbitrary or capricious manner.’ ” N.L.R.B. v. Baton Rouge Waterworks Co., 5 Cir. 1969, 417 F.2d 1065, 1067, citing Spartans Industries, Inc. v. N.L.R.B., 5 Cir. 1969, 406 F.2d 1002, 1005.

Foodway next argues that substantial evidence on the record as a whole fails to support the Board’s finding that Foodway violated Section 8(a)(3) and (1) of the Act by refusing to hire Allied’s former Montana Avenue employees because of their union membership. It points out that this store was losing money before the takeover; that none of the former employees were told that they were not going to be hired because they were union members; and that the store was closed and being remodeled and therefore no jobs were available. We are unpersuaded. Food-way was aware of the Allied-Union contract before it formally .purchased the store. In contrast to the complete turnover of rank-and-file employees at the Montana Avenue store, non-union rank- and-file employees at the other two stores were hired in toto. Inexperienced workers were hired to replace experienced workers despite one worker’s offer to take a wage cut. The Montana Avenue store’s employees were denied consideration even for jobs in the other two stores. We give little credence to the reason assigned — the loss of money — for the refusal to hire any of the non-supervisory employees. Reason dictates that the managerial employees, who were retained, not the rank-and-file employees who were fired, should be responsible for failing to take the necessary' measures to eradicate the cause of the Iosst es. The First Circuit was faced with a similar situation in N.L.R.B. v. New England Tank Industries, Inc., 1 Cir. 1962, 302 F.2d 273. There the employer contended that its decision not to hire its predecessor’s employees stemmed from unexplained gasoline losses which had occurred on the pipeline prior to takeover. Finding that such action violated the Act, the court said:

Despite the presence of a pool of experienced workers, respondent went to considerable length to replace the union employees with entirely new workers — most of whom had no previous experience on pipeline operations. [W]e note that all of respondent’s far flung affiliates function as “non-union” operations. Taken in context, we believe that it can be fairly said that if not the only reason, the substantial or motivating reason for the respondent’s refusal to hire the former employees resided in the fact that the employees were members of the union.

Id. at 276-277. See also N.L.R.B. v. Burns International Security Services, Inc., 1972, 406 U.S. 272, 280-281 n. 5, 92 S.Ct. 1571, 32 L.Ed.2d 61; K. B. & J. Young’s Super Markets, Inc. v. N.L.R.B., 9 Cir. 1967, 377 F.2d 463, cert. denied, 389 U.S. 841, 88 S.Ct. 71, 19 L.Ed.2d 105.

We are satisfied from the record before us that the refusal of Foodway to hire the employees of Allied at the Montana Avenue store was because of their membership in the Union and that this was an attempt to avoid the obligations of a successor employer.

Foodway next contends that substantial evidence fails to show that the Union represented a majority of the employees and that it was therefore under no duty to bargain with the Union. It is manifest that but for Foodway’s discriminatory refusal to offer employment to Allied’s unit employees, the Union would have continued to enjoy a majority representative status. We decline to permit an employer to rely upon its own wrongdoing and thus avoid its legal responsibilities. See Bums, supra, at 280, n. 5. Furthermore, we are not impressed with Foodway’s argument that the new employees hired by Foodway were not members of the old bargaining unit. The composition of the unit is not the controlling factor in determining suecessorship, otherwise “a purchaser might well seek to avoid application of the suecessorship principle by refusing to hire the seller’s employees.” International Ass’n of Machinists, Dist. Lodge 94 v. N.L.R.B., 1969, 134 U.S.App.D.C. 239, 414 F.2d 1135, 1138 (footnote omitted).

Foodway insists, however, that it cannot be found to be a successor employer of Allied. In N.L.R.B. v. Zayre Corp., 5 Cir. 1970, 424 F.2d 1159, 1162, we considered the suecessorship doctrine :

The acquiring employer is the successor to the obligations of his predecessor if there is continuity in the business operation. “The crucial question in determining if the certification is binding on the successor employer is whether the employing industry remains essentially the same after the transfer of ownership.” NLRB v. Auto Ventshade, Inc., 5 Cir. 1960, 276 F.2d 303, 304; NLRB v. Valleydale Packers, Inc., 5 Cir. 1968, 402 F.2d 768.

Conceding that “a cursory examination of the record would indicate that the employing industry remained the same,” Foodway has suggested twenty-four factors to support its contention that this is not a suecessorship ease. In our view the factors considered singly and collectively are insufficient to overcome the substantial evidence supporting the conclusion that Foodway refused to hire any of the Allied employees in order to avoid recognizing and bargaining with the Union.

Finally, we reject the argument by Foodway that it is not a successor employer since the Union had not been recently certified. While the Bums Court was concerned with a situation in which the union had been recently certified, there is nothing to suggest that recent certification is a condition precedent to application of the successorship doctrine. In fact, the Court cited with approval cases in which a bargaining obligation was found even though the union had not been recently certified or had not been certified at all. Bums, supra, at 281. See also our holding in Emerald Maintenance, supra, decided after Bums.

We approve the finding of successor-ship and the issuance of a bargaining order.

Enforced.

APPENDIX

Foodway argues that the following factors remove this case from the successorship doctrine:

(1) The agreement to purchase the two non-union K-Mart stores was entirely separate and entered into at a different time from the agreement to purchase the Montana Avenue-Globe store; (2) The Montana Avenue store was under a multi-employer collective bargaining contract, with a multi-employer unit; (3) Respondent took over and began operating the two K-Mart stores the day following the time Allied ceased to operate the two stores and began operating them without a break in service or operation; (4)
The Montana Avenue store was closed by Allied and all non-managerial employees were dismissed by Allied on August 28, 1971; (5) It was not until August 31 that the Respondent was able to reach an agreement with the Globe officials in Chicago as to changing the name and purchasing the Montana Avenue store; Respondent did not become involved in any way with the Montana Avenue store until September 4; (7) The managerial personnel retained by Allied at the Montana Avenue store were hired by Respondent only after they had first made application with Respondent and in fact were unaware of Respondent’s purchase of the store until September 4, at the earliest; (8) The Montana Avenue store was completely closed to the public between August 28 and September 21; (9) During this period Respondent remodeled and repainted portions of the store, changed the store name and sign, made extensive changes in shelving, shifted merchandise to new locations, installed a different loading and unloading system, installed new equipment, and restocked the store with its own merchandise, and increased the hours the store was to be open to the public; (10) There was no agreement in the sales agreement as to the Montana Avenue store requiring Respondent to offer employment to the former Allied employees; (11) There were in fact no employees for Respondent to offer employment to at the time Respondent took over the Allied store on September 4; (12) Respondent had a six day week that the store was open while Allied was open seven days a week; (13) Respondent had different employee classifications from Allied, including no co-manager, no manager trainee, no accounting clerk, no head clerk, no heavy duty clerk, no light duty clerk; (14) Respondent specialized in the sale of private label merchandise, while Allied sold more brand names; (15) Rudy Villalobos, Allied’s manager of the Montana Avenue store, and Respondent’s first manager of the store, terminated his employment with Respondent on January 8, 1972, because he “just couldn’t take the change” between Respondent’s methods and those of Allied; (16) There was a substantial increase in “paperwork” with Respondent over what Allied had required; (17) Respondent’s wage rates were different from those of Allied; (18) Advertising by Respondent was materially different from that of Allied; (19) There was a change in customers following Respondent’s take-over of the store; (20) Because of the amount of time the Montana Avenue store was closed to the public following Respondent’s purchase, there was a resultant loss in business and reduction in customers, some of which could not be recaptured; (21) The extended period during which the store was closed for revamping is not normal in the food store business following a sale of a store; (22) The fact that the Montana Avenue store had been losing money under Allied’s operation prior to August 28 was uncontroverted; (23) Under Respondent’s operation the store immediately began to show a profit, indicative of a material change in operations, industrial organization and system; and (24) There is no business connection between Allied and Respondent as to the retail food business.

      . Retail Clerks International Association, Local 663 AFL-CIO.

      . The recognition clause applicable to Allied recognized the Union as the exclusive bargaining representative in a unit of “all of the Employer’s regular full-time and regular part-time employees, who are employed in the Employer’s retail store at 6373 Montana Ave., in El Paso County, Texas, excluding Co-manager, Manager in Training, Store Accounting Administrator, Meat Department employees, guards, watchmen and supervisors as defined in the Act, as amended.”

      . See Appendix.


source: Caselaw Access Project

author: AINSWORTH, Circuit Judge:

license: Public Domain

text:
    Bob McBRAYER, Plaintiff-Appellee, v. TECKLA, INC., Defendant-Appellant, Water Wagon, Inc., Defendant.
    No. 73-3613.
    United States Court of Appeals, Fifth Circuit.
    June 17, 1974.
    Rehearing and Rehearing En Banc Denied Oct. 3, 1974.

      Jerry F. Lyons, Amarillo, Tex., for defendant-appellant.
    James A. Kirk, James P. Linn, Oklahoma City, Okl., for plaintiff-appellee.
    Before TUTTLE, COLEMAN and AINSWORTH, Circuit Judges.
   AINSWORTH, Circuit Judge:

This is a Texas diversity suit for breach of contract. Pursuant to a jury verdict in the form of answers to special issues, the district court entered judgment for the plaintiff, Bob McBrayer. On appeal, questions are presented pertaining to the sufficiency of the evidence and the appropriateness of the damages awarded. We affirm in part and reverse in part.

I.

In 1967, Bob McBrayer became acquainted with a polystyrene fishing float sold under the trade name “Water Wagon,” and in 1970, he became interested in forming a company to promote and sell water wagons. On December 8, 1970, Water Wagon, Inc. was formed, with McBrayer acquiring approximately one third of the common stock of the company. By the summer of 1971, Mc-Brayer, who was also an officer and director of the company, realized that Water Wagon needed additional capital for proper expansion, and he began discussions with a consultant to Teekla, Inc., concerning the possibility of obtaining such capital. The culmination of these discussions occurred on September 21, 1971, when McBrayer and a partner executed an agreement with Teekla whereby Teekla purchased all of the stock of Water Wagon in return for 15,000 shares of Teekla stock and $25,000. Additionally, Teekla agreed: (1) to back Water Wagon financially in the production, promotion, and sale of water wagons “in a reasonable and businesslike manner”; (2) to pay McBrayer and his partner an incentive payment of one share of Teekla common stock for each water wagon unit sold and collected for during the succeeding six years, from September 21, 1971, up to a limit of 60,000 units; in the event Teekla disposed of the assets or stock ownership of Water Wagon, payment of $2 per unit was to be made to McBrayer and his partner by Teekla for the units sold by the new owner; (3) to guarantee a salary payment by Water Wagon to Mc-Brayer of $1,000 per month for one year.

From Water Wagon’s inception until the signing of the agreement with Teckla, that is, from December 8, 1970 to September 20, 1971, approximately 392 water wagon units were sold, amid substantial national publicity. Water Wagon sales between September 21, 1971 and April 21, 1972 amounted to 669 units. Of these, 350 were sold during the first month that Teckla operated Water Wagon.

On February 21, 1972, Teckla’s board of directors determined to sell the water wagon operation, and a sale was made to Canyon Plastics on March 27, 1972. In connection with the sale, Teckla assumed about $11,000 in accounts payable owed by Water Wagon, and Canyon Plastics agreed to pay a royalty to Water Wagon. Then, by letter dated March 28, 1972, the day after the sale, Teckla’s president informed McBrayer that Teckla was electing to terminate their contract, including any reference to employment or royalty payments as of January 1, 1972, because Teckla felt that certain unspecified provisions of the contract had been breached. McBrayer did not receive his incentive payments for any of the 669 water wagons sold between the execution of the contract and April 21, 1972. Water Wagon paid Mc-Brayer’s contractual salary from September 21, 1971 until December 31, 1971, but neither Water Wagon nor Teckla paid McBrayer any salary after the latter date.

On May 5, 1972, McBrayer filed his complaint in this suit alleging that Teckla breached the contract of September 21, 1971 by failing to finance Water Wagon in a reasonable and businesslike manner, failing to pay McBrayer the incentive payment for each water wagon unit sold and collected for, and failing to pay McBrayer his salary. The cause was tried before a jury, and in answer to the special issues, the jury found that Teckla failed to back Water Wagon financially in the production, promotion, and sale of water wagons in a reasonable and businesslike manner; that, had Teckla not failed to back Water Wagon in a reasonable and businesslike manner, in all reasonable probability 1,000 units would have been sold and collected for between September 21, 1971 and March 27, 1972, and 45,000 units would have been sold and collected for between March 27, 1972 and November 20, 1977; that McBrayer, prior to receiving the letter from Teckla’s president terminating the contract, did not fail to devote substantially his full time in behalf of Water Wagon, did not fail to conduct himself in an orderly and businesslike manner, and was not guilty of any dereliction of his duties under the contract; and that Teckla did not terminate and cancel its employment agreement with McBrayer prior to December 31, 1971.

Overruling Teckla’s post-trial motions, the district court, on the basis of the jury’s answers to the special issues, entered judgment for McBrayer in the sum of $46,000 for incentive payments due McBrayer for water wagons ($1 per unit) that would have been sold and collected for over the course of the contract if Teckla had financed Water Wagon in a reasonable and businesslike manner; and in the sum of $10,667 for the salary due McBrayer from January 1, 1972 to November 20, 1972. Teckla has appealed.

II.

Teckla initially contends that the evidence presented at trial was insufficient to support either the jury’s finding that Teckla failed to back Water Wagon financially in a reasonable and businesslike manner or its finding that Mc-Brayer fulfilled his employment obligations. The standard properly applied by this Court on review of the jury verdict is whether there is competent evidence in the record to support it. E. g., Torrence v. Union Barge Line Corporation, 5 Cir., 1969, 408 F.2d 873, 875; Ford Motor Company v. Mathis, 5 Cir., 1963, 322 F.2d 267, 271-272. “[I]t is not the function of an appellate court to weigh conflicting evidence, judge the credibility of witnesses, and arrive at a conclusion opposite from the one reached by the jury where there is a reasonable basis in the record for the jury’s verdict.” United States v. Mills, 5 Cir., 1968, 399 F.2d 944, 948. Once we find an evidentiary basis for the jury’s conclusions, our function is exhausted. E. g., Myers v. Reading Co., 331 U.S. 477, 485-486, 67 S.Ct. 1334, 1339, 91 L.Ed. 1615 (1947). On careful review of the record, we conclude that such a basis is apparent. Here, we briefly outline the evidence on which the jury could rationally have based its conclusions.

Pursuant to its obligation to financially back Water Wagon, Teckla invested $10,000 in the company on October 4, 1971, in a stock purchase transaction; and, on January 27, 1972, Teckla loaned Water Wagon $4,870 by paying that amount to Canyon Plastics in settlement of Water Wagon’s indebtedness to that company. Teckla points out that Water Wagon also received backing consisting of the benefit of a management consultant, office space, office furniture and equipment, part-time office help, and aid in the design of brochures and literature. At the trial, Water Wagon’s accountant testified that his computations led him to believe that at the minimum $41,000 would be needed to get Water Wagon rolling and that he had so informed Teckla officials prior to execution of the contract. McBrayer testified that prior to the contract date he had informed Teckla’s management consultant that $50,000 would be necessary to finance Water Wagon. There was further testimony that an attempt to obtain financial support through a public offering failed because Water Wagon could not meet the requirement set forth by the investment banker that it have a net worth of $50,000. When McBrayer refused to raise the $50,000 himself on the ground that he felt it was Teckla’s contractual obligation to raise the money, further attempts to provide the financing were abandoned. In addition, a bookkeeper for Teckla and Water Wagon testified to delayed payments of its bills by Water Wagon due to lack of money. Although Teckla offers evidence and arguments that is financing of Water Wagon was appropriate and that Mc-Brayer failed to inform Teckla of Water Wagon’s financial needs and that Teckla’s financing of Water Wagon was appropriate, there clearly was a reasonable basis in the record for the jury’s conclusion that Teckla’s backing was not reasonable and businesslike.

With respect to McBrayér’s employment obligations, the September 21, 1971 contract provided:

Teckla reserves the right to cancel the above employment agreement only if the parties thereto do not conduct themselves in an orderly and businesslike manner or are guilty of dereliction of duties to [Water Wagon], Inc. and/or Teckla.

At the trial, there was testimony by McBrayer as to the activities he performed on behalf of Water Wagon during his employment. McBrayer also testified that he worked normal office hours, that he stayed late several nights, and that he did not recall missing any days for sickness or any other reason. Teckla, on the other hand, presented testimony that McBrayer was in his office very irregularly, and Teckla argues here that “no evidence whatsoever [was] introduced as to any specific work that McBrayer performed after February 1, 1972.” In light of both parties’ proof on the question, however, we cannot say that the jury lacked reasonable evidentiary basis for- its conclusion that McBrayer fulfilled his employment obligations under the contract until he received the letter of discharge from Teckla’s president on March 28, 1972.

Teckla sets forth two other contentions concerning its obligations under the contract. First, Teckla contends that the district court erred in refusing to instruct the jury that Teckla was entitled to consider its own financial condition in determining the meaning of a reasonable and businesslike financial backing of Water Wagon. Teekla’s argument is that the jury should have been charged that Teckla was not obligated to invest in Water Wagon whatever amount McBrayer or Water Wagon’s accountant thought it should, but that Teckla was entitled to consider its own financial situation and needs. There was testimony that although Teckla had substantial cash on hand during the period in which it owned Water Wagon, the cash was committed to Teckla’s primary business activity, selling recreational land in Colorado.

Teckla’s argument, then, pertains to the meaning of the words “in a reasonable and businesslike manner.” The meaning of these words, however, is a matter of interpretation of the written instrument, a factual consideration within the province of the jury. See 3 A. Corbin, Contracts §§ 534, 554 (1960, Supp.1971); 4 S. Williston, Contracts §§ 602, 616 (Jaeger ed. 1961); Williams v. Humble Oil Refining Company, 5 Cir., 1970, 432 F.2d 165, 179, cert. denied, 402 U.S. 934, 91 S.Ct. 1526, 28 L.Ed.2d 868 (1971). Accordingly, there was no error in the district court’s failure to instruct the jury further in the meaning of the term “in a reasonable and businesslike manner.” See 1 A. Corbin, Contracts § 99, at 445 (1963). The court did not commit error in refusing to instruct the jury that Teckla was entitled to consider its own financial situation and needs in assessing its contractual obligations. See Nat Harrison Associates, Inc. v. Gulf States Utilities Co., 5 Cir., 1974, 491 F.2d 578, 584. See also 1 S. Williston, Contracts § 42 (Jaeger ed. 1957); 13 Tex.Jur.2d § 103 (1960); Sanders v. Barnaby, 166 App.Div. 274, 151 N.Y.S. 580 (1915).

Teckla’s last assertion with respect to the contract itself is that the contract provided that Teckla’s obligation to make incentive payments as well as its obligation to employ McBrayer were conditioned upon the execution of separate agreements between Water Wagon and Teckla, which were never executed. A fair reading of these provisions in the context of the contract, however, reveals that the separate agreements are not conditions precedent, which must occur before remedies for breach of contract become available. See 3A A. Corbin, Contracts § 628 (1960, Supp.1971); 13 Tex.Jur.2d § 151 (1960, Supp.1973), and cases cited therein.

III.

A. Incentive Payments

Teckla contends that the district court erred in awarding McBrayer $46,000 on the basis of the jury’s estimation that 46,000 water wagons would have been sold between September 21, 1971 and November 20, 1974, if Teckla had backed Water Wagon in a reasonable and businesslike manner.

McBrayer’s claim for lost incentive payments is basically one for recovery of profits lost under the contract due to Teckla’s breach. See Southwest Battery Corporation v. Owen, 131 Tex. 423, 115 S.W.2d 1097 (1938). To recover profits lost due to breach of contract, reasonable certainty is required both as to the fact of .damages and the amount. E. g., id. at 1098; 17 Tex.Jur. 2d § 143 (1960, Supp.1973). While a perfect calculation of damages need not be stated or proven, e. g., Berne v. Keith, 361 S.W.2d 592 (Tex.Ct.Civ.App. 1962); Humble Oil & Refining Co. v. Luckel, 171 S.W.2d 902, 907 (Tex.Ct. Civ.App.1943), competent evidence must show that the profits claimed are neither too speculative nor too uncertain to support recovery in an amount arrived at with a reasonable degree of precision, e. g., Southwest Battery Corporation v. Owen, supra, at 1099; Drumm Seed & Floral Co. v. J. Horace McFarland Co., 30 S.W. 93 (Tex.Ct.Civ.App.1895). A distinction is drawn, moreover, between damages to an established business and damages’ to a new, unestablished venture. E. g., Southwest Battery Corporation v. Owen, supra, 115 S.W .2d at 1099. Lost profits can be recovered for damages to an established business, for the profits the business has been making at a point not too remote prior to the breach are competent evidence of profits to be anticipated at a point not too remote after the breach. E. g., id., 115 S.W.2d at 1098-1099; Wissman v. Boucher, 150 Tex. 326, 240 S.W.2d 278, 281 (1951); Universal Commodities, Inc. v. Weed, 449 S.W.2d 106, 113 (Tex.Ct.Civ. App.1969); Richker v. Georgandis, 323 S.W.2d 90, 98 (Tex.Ct.Civ.App.1959). On the other hand, it is the general rule that anticipated profits that might have been made from an unestablished business are not susceptible of being measured to that degree of certainty that the law demands. E. g., Southwest Battery Corporation v. Owen, supra, 115 S.W.2d at 1098-1099; Universal Commodities, Inc. v. Weed, supra; Wade v. Southwestern Bell Telephone Co., 352 S.W.2d 460, 462 (Tex.Ct.Civ.App.1961); Barbier v. Barry, 345 S.W.2d 557, 563 (Tex.Ct.Civ.App.1961).

In support of the award made by the district court, McBrayer points to the following: extensive national publicity received by Water Wagon; 6,000 inquiries from the United States and several foreign countries concerning the water wagon; the marketing of the water wagon for approximately five years prior to the date of the contract, September 21, 1971; the sale of 382 water wagons between December 8, 1970, and the date of the contract; the sale of 669 units between the contract date and March 27, 1972, the date of Teckla’s sale of Water Wagon to Canyon Plastics; the shipment of 350 units to dealers in this country and other countries during the first month of Teckla’s operation of Water Wagon; a financial statement of September 21, 1971, prepared by Water Wagon’s accountant, which showed a profit of $2,114.38 for the company’s first nine and one-half months of operation, December 8, 1970 to September 20, 1971; and testimony that the limitation of incentive payments to the sale of 60,000 units over the six-year period was placed in the contract because Teckla thought that more than 60,000 units would be sold during the term of the contract.

Teckla argues that the business of selling water wagons was new, unestablished, and unprofitable, and that, therefore, the jury’s estimation was founded on speculation and conjecture. Teckla has suggested several factors in support of its contention. At the trial, Teckla presented a financial statement it had prepared which showed, in contrast to Water Wagon’s own statement, that Water Wagon had suffered a loss of $5,110.07 for the period from December 7, 1970 to July 31, 1971. The primary difference between the two statements was the capitalization of certain expenses in Water Wagon’s statement. Water Wagon’s accountant testified that he thought Teckla’s version was “a little more accurate.” Teckla also contends that it had a loss of about $7,000 on the Water Wagon operation in December 1971, and that, when Teckla sold the Water Wagon operation to Canyon Plastics on March 27, 1972, an audit reflected a $56,000 loss on its investment, including an operational loss of about $38,000. Concerning the 60,000 unit limitation on incentive payments, Teckla argues that there is no evidence that the figure was more than simply a dream of the parties.

We are persuaded that, with the facts and circumstances presented here, the jury lacked a valid basis on which to conclude that 46,000 units would have been sold during the six-year term of the contract. See Center Chemical Company v. Avril, Inc., 5 Cir., 1968, 392 F.2d 289, 291. The evidence shows that the contract was executed in the hope of developing Water Wagon into a successful concern. See Archer-Daniels-Midland Company v. Paull, 8 Cir., 1961, 293 F.2d 389. The agreement between Teckla and McBrayer was made to finance a new, unestablished business, and not an established commercial enterprise, see First Nat. Bank v. Donohoe, 293 S.W. 217, 219 (Tex.Ct.Civ.App. 1927); and it has not been adequately shown that the water wagon business was a going concern at any point during the period under consideration. It was too speculative an exercise for this jury to attempt, on the basis of the meager sales and earnings figures for the early months of Water Wagon, to estimate the projected sales of the company during a six-year period. In this connection, we note also that it was not shown either that Teckla’s successor, Canyon Plastics, was obligated to sell water wagons or that Canyon Plastics in fact undertook to continue the Water Wagon operation. See Manney v. Burgess, 346 S.W.2d 937 (Tex.Ct.Civ.App.1961). In sum, the evidence presented by McBrayer does not provide a reasonably certain foundation for either the jury’s conclusion that 1,000 units would have been sold during the first six months of the contract or its finding that 45,000 units would have been sold over the next five and one-half years, if Water Wagon had been financed as agreed. We conclude as a matter of law, therefore, that McBrayer was not entitled to recover lost incentive payments for the term of the contract.

B. Employment Obligation

Teckla’s final contention is that McBrayer is not entitled to recovery under the employment agreement because there was no assessment by the jury of the amount of damages suffered by him as a result of Teekla’s breach. Teckla argues that in assessing damages the jury should have considered possible mitigation of damages by McBrayer. The law of Texas is clear, however, that the burden of proving that damages could have been mitigated is on Teckla, the breaching party. E. g., Hardison v. Beard, 430 S.W.2d 53 (Tex.Ct.Civ.App. 1968); 17 Tex.Jur.2d § 36 (1960, Supp. 1973). Teckla has failed to carry this burden. We reject Teckla’s final contention.

The judgment of the district court is affirmed insofar as the award to Mc-Brayer of $10,667 for Teckla’s breach of the employment obligation and is reversed insofar as the award to Mc-Brayer of $46,000 for Teekla’s breach of the agreement to finance.

Affirmed in part, reversed in part.

      . “The aforesaid incentive compensation agreement will be set forth in a separate instrument and executed hy [Water Wagon], Inc., and Teckla at closing of this transaction. “. . . The aforesaid employment contract will be set forth in a separate instrument to be executed hy [Water Wagon], Inc., and Teckla at closing of this transaction.”

      . See Atomic Fuel Extraction Corporation v. Slick, 386 S.W.2d 180, 189 (Tex.Ct.Civ.App. 1964) :
      “An established business should be one that is in actual operation long enough to give it permanency and recognition. It •should be one that has earned a profit which can reasonably be ascertained and approximated. . . . Proof of an operation of a business at a loss fails to meet the test.”


author: THORNBERRY, Circuit Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Jesus MENDEZ, Defendant-Appellant.
    No. 73-3186.
    United States Court of Appeals, Fifth Circuit.
    June 20, 1974.

      Harry F. Maddin, Corpus Christi, Tex. (Court-appointed), for defendant-appellant.
    Anthony J. P. Farris, U. S. Atty., James R. Gough, Asst. U. S. Atty., Anna E. Stool, Staff Atty., Houston, Tex., for plaintiff-appellee.
    Before GEWIN, THORNBERRY and SIMPSON, Circuit Judges.
   THORNBERRY, Circuit Judge:

Appellant Jesus Mendez was convicted of conspiring, to possess with intent to distribute a quantity of marijuana in violation of 21 U.S.C. § 846 and 18 U.S.C. § 2. We reverse and remand for a new trial because of improper admission of particularly damaging testimony.

The essential elements of a conspiracy are an agreement by two or more persons to commit an offense against the United States followed by an overt act committed by one of the conspirators in furtherance of the conspiracy. United States v. Sutherland, 5 Cir. 1972, 463 F.2d 641, cert. denied, 1972, 409 U.S. 1078, 93 S.Ct. 698, 34 L.Ed.2d 668; United States v. Lowry, 5 Cir. 1972, 456 F.2d 341. A conspiracy cannot be committed by a single individual acting alone; he must act in concert with at least one other person. Herman v. United States, 5 Cir. 1961, 289 F.2d 362, cert. denied, 1961, 368 U.S. 897, 82 S.Ct. 174, 7 L.Ed.2d 93. Participation in a criminal conspiracy may be shown by circumstantial as well as direct evidence. Wilson v. United States, 5 Cir. 1963, 320 F.2d 493. No formal agreement between the parties is essential to the formation of a conspiracy, for the agreement may be shown by concerted action, all the parties working together understandingly with a single design for the accomplishment of a common purpose. Beland v. United States, 5 Cir. 1938, 100 F.2d 289, cert. denied, 1939, 306 U.S. 636, 59 S.Ct. 485, 83 L.Ed. 1037. However, mere knowledge, acquiescence or approval without cooperation or agreement to cooperate is not enough to constitute one a party to a conspiracy. McDaniel v. United States, 5 Cir. 1928, 24 F.2d 303. In order to fasten guilt on one accused of being a co-conspirator it is necessary to prove that he actively participated in the conspiracy charged. Young v. United States, 5 Cir. 1931, 48 F.2d 26. Mere association with conspirators is not enough to establish participation in the conspiracy. Roberts v. United States, 5 Cir. 1969, 416 F.2d 1216.

At trial the government was permitted to introduce evidence of a telephone conversation between Special Agent Horacio Ayala of the Drug Enforcement Administration and a woman who identified herself as the defendant’s wife. This evidence was highly damaging to Mendez, since Ayala testified that Mrs. Mendez told him that Mendez was not at home because he was then importing marijuana from Mexico across the Rio Grande River into Texas. The evidence regarding Mrs. Mendez’s statements was hearsay but was admitted under the co-conspirator exception to the hearsay rule. See United States v. Apollo, 5 Cir. 1973, 476 F.2d 156; Rogers v. United States, 5 Cir. 1964, 334 F.2d 83. The only evidence linking Mrs. Mendez to any conspiracy, however, was the conversation itself and the fact that she was present during some of Mendez’s drug transactions in Nebraska. There is nothing to show that she was cooperating with him or had agreed to do so. There was no showing of active participation on her part, nor did the evidence tend to show concerted action for the accomplishment of a common purpose. The evidence at most shows her association with Mendez and knowledge of his activities. It is therefore insufficient to establish that she was a co-conspirator That being true, the co-conspirator exception to the hearsay rule was improperly invoked. The hearsay evidence of her telephone conversation with Ayala should have been excluded. Montford v. United States, 5 Cir. 1952, 200 F.2d 759. See generally, Note, Evidence — Hearsay—Co-conspirator’s Exception — How Much Evidence Is Needed to Establish the Foundation for the Use of the Co-conspirators’ Exception to the Hearsay Rule?, 2 Texas Tech.L.Rev. 121 (1970).

That hearsay evidence, however, was one of the strongest parts of the government’s case against Mendez. Other evidence tending to show that he conspired with anyone else is weak. There is a distinct danger that the jury was influenced to conclude that there was a conspiracy by the district court’s preliminary fact finding to that effect implicit in his invocation of the co-conspirator exception. Nevertheless, there was some other evidence in the testimony of Agent Carroll Franssen that might support an inference that Mendez was in a conspiracy with a man named Gene, who was present and possibly participating with Mendez in one sale of marijuana to the agent. Under these circumstances, we feel the only just disposition is to remand the case for a new trial. Kotteakos v. United States, 1946, 328 U.S. 750, 66 S.Ct. 1239, 90 L.Ed. 1557; United States v. Apollo, supra. See 3 C. Wright, Federal Practice and Procedure : Criminal § 854.

Reversed and remanded.

      . Mendez contends that the conversation was inadmissible because it is uncertain whether the speaker was actually his wife or not. Since we hold the conversation inadmissible, even if the speaker was in fact his wife, we need not reach this contention.

      . Ayala’s account of the conversation was as follows:
      Q What did Mrs. Mendez tell you at that time?
      A Well, she told me he [Mendez] was not at the house presently, that he was at the River and he could not, he could not cross all of the stuff today, and he is crossing the rest of it tonight.


author: BRIGHT, Circuit Judge.

text:
    Roberta R. WELLMAN and Ward W. Wellman, Appellees, v. LIBERTY MUTUAL INSURANCE COMPANY, Appellant.
    No. 73-1778.
    United States Court of Appeals, Eighth Circuit.
    Submitted March 11, 1974.
    Decided May 14, 1974.

      William P. Sanford, Springfield, Mo., for appellant.
    B. H. Clampett, Springfield, Mo., for appellees.
    Before GIBSON, BRIGHT and STEPHENSON, Circuit Judges.

      . “Automobile” is defined as “a land motor vehicle, trailer, or semi-trailer designed for travel on public roads.”

   BRIGHT, Circuit Judge.

Appellant-Liberty Mutual Insurance Company wrote a comprehensive combination insurance policy covering both automobile and general liability on its named insured, Morgan Drive-Away, Inc. (Morgan), of Elkhart, Indiana, a common carrier regulated by the Interstate Commerce Commission. On December 19, 1969, a truck leased to Morgan and driven by its owner, Corrie Mitchell, Jr., collided with an automobile driven by Roberta R. Wellman near Lebanon, Missouri, while Mitchell was returning from delivering a load of cargo for Morgan. On this return trip and at the time of the accident, Mitchell was actually hauling a load of freight under contract with a third party, Illinois Machinery Transport, Inc. (IMT), without the express knowledge or approval of Morgan.

Mrs. Wellman sustained very severe injuries, including the loss of a leg, as a result of the accident. She and her husband brought an action in the Missouri state courts against Morgan, Mitchell, and IMT. Plaintiffs later dropped their suit against Morgan, but recovered a very substantial default judgment in the sum of $301,971.27 against Mitchell and IMT. Liberty Mutual defended Morgan but not Mitchell or IMT in the state court. Thereafter, the Wellmans brought this proceeding in the United States District Court for the Western District of Missouri, seeking to satisfy the default judgment from proceeds of the liability insurance policies issued by Liberty Mutual to Morgan.

The district court held that the Liberty Mutual policies afforded coverage both to Mitchell and to IMT and entered judgment for the full amount in favor of the Wellmans. Liberty Mutual brings this timely appeal. Our jurisdiction rests on diversity of citizenship and the requisite amount in controversy.

We have carefully examined the insurance policies here in question and the authorities submitted by appellant. We cannot agree with the district court’s conclusion that the policy language includes coverage for Mitchell and IMT under such circumstances as these. Accordingly, we reverse the judgment.

We adopt the following findings of fact by the district court from its unpublished memorandum opinion:

Morgan Drive-Away, Inc. (freight division) is a common carrier regulated by the Interstate Commerce Commission and numerous state regulatory agencies, including the Missouri Public Service Commission. It is a licensed special carrier which hauls or tows trailers, mobile homes and component parts of complete houses. Its principal offices and central dispatching office are located in Elkhart, Indiana.
Morgan owns a substantial number of trailers which it uses in its operation. In addition, it leases the tractors and trailers of others. On May 15, 1969, Morgan and Corrie Mitchell, Jr. entered into an “Equipment Lease” under which Morgan assumed the “possession, control and use” of a tractor-trailer owned and operated by Mitchell. Mitchell paid for all of his own expenses on his trips for Morgan, and for the upkeep and maintenance of the equipment, as well as his license plates, tags, stickers, personal property taxes and insurance for when his vehicle was being operated unladen. Mitchell received no salary, but earned 75 per cent of the gross freight revenues generated by the use of his tractor-trailer. No withholding taxes were collected or Social Security payments deducted from the amounts which Mitchell received.
Following the execution of the Equipment Lease, the ICC Certificate or Permit Legend, as well as the Missouri Public Service Certificate or Permit Legend, of Morgan were placed upon and displayed on the tractor of Mitchell, and remained on the tractor until the lease was cancelled in January, 1970.
On December 13, 1969, Mitchell was directed by Morgan to pick up cargo at a point near Houston, Texas for delivery to the consignee at Elgin, Illinois. Delivery was made on December 16, 1969. After notifying Morgan of the delivery, Mitchell sought a return load from Morgan’s central dispatcher; but none was available at that time. Mitchell called the dispatcher several more times on December 16 and 17, but there continued to be no loads available for a return trip. Mitchell also called other dispatchers, but was unable to secure a load. On December 17, Mitchell found a penciled note in the office of a truck stop where he was staying, directing him to pick up a load at Illinois Machinery Transport Company (“Illinois Machinery”) in Calumet City, Illinois for delivery in Texas and Oklahoma. Although Mitchell assumed that the note was from Morgan’s central dispatcher, there is no evidence that it was in fact a direction from Morgan.
The load Which Mitchell picked up at Illinois Machinery consisted of a large exhaust fan, two centerless grinders, and bridge bolts and nuts. None of these items were within Morgan’s ICC hauling and authorization.
As a general rule, Morgan acquiesced in the practice of allowing its drivers to “trip-lease”; that is, to haul cargoes for other companies or carriers on return trips when Morgan had no loads available. Morgan required that the driver receive permission for trip-leasing through its central dispatcher; and that the company to whom its drivers were trip-leased be authorized as carriers by the ICC, have an operating agreement with Morgan, and be on an approved list set up by Morgan. Illinois Machinery was not an ICC authorized carrier, did not have an operating agreement with Morgan, nor was it on Morgan’s approved list. Mitchell had, with Morgan’s approval, trip-leased one previous time.
On December 19, 1969, while Mitchell was on his return trip, he collided with an automobile driven by plaintiff Roberta Wellman near Lebanon, Missouri. Ms. Wellman sustained serious injuries, including the loss of a leg. Mitchell’s tractor-trailer was severely damaged, and the cargo which he was hauling was also damaged. The accident occurred on a route where Morgan was generally authorized to travel by the ICC and Missouri Public Service Commission. At the time of the accident, Morgan’s ICC permit and Missouri Public Service Commission placard were displayed on Mitchell’s tractor.
Mitchell notified Morgan of his accident shortly after it occurred. Morgan notified Liberty of the accident on December 24, 1969. A written report taken by a Morgan employee from Mitchell over the telephone was given to Liberty. Neither Mitchell nor Illinois Machinery notified the defendant of the accident. The cargo loss suffered in the collision was paid for by Home Indemnity Insurance Company, the insurer of Illinois Machinery.
In July, 1971, plaintiffs filed suit in the Circuit Court of Laclede County, Missouri, naming as defendants Corrie Mitchell, Jr., Illinois Machine Transport Co. and Morgan Drive-Away, Inc. The complaint alleged, inter alia, that Mitchell was acting as the agent, servant and employee of both Morgan and Illinois Machine. After being served with a summons and copy of the complaint, Morgan notified Liberty and sent the suit papers to the defendant. Neither Mitchell (who stated that he had thrown his suit papers away) nor Illinois Machine notified, or transmitted the suit papers to Liberty.
Defendant employed an attorney to represent Morgan in the action, and an answer on behalf of Morgan was filed. Liberty made a deliberate choice not to defend the other defendants in the action on the belief that the others were not insureds under either of its polices. Neither Mitchell nor Illinois Machine filed an answer to the action in Circuit Court.
Prior to the institution of the damage suit in Circuit Court, Liberty made little effort to investigate the facts of the accident and the possible extent of its coverage by contacting Mitchell and Illinois Machinery. After suit was filed in July, 1971, Liberty discovered that Illinois Machinery (also called by various other names, including J&R or J&M Transport Company) had discontinued business, and they were unable to locate the former officers of the company. Nor did they contact their named insured, Morgan, to determine what information had been given to Morgan by Mitchell other than the telephoned report.
On October 4, 1971, plaintiffs dismissed their action against Morgan without prejudice. On that same day, a default judgment was entered against Mitchell and Illinois Machine. Damages were assessed in favor of Roberta Wellman in the amount of $230,000, and in favor of Ward Well-man in the amount of $71,971.27.

Appellant-Liberty makes the same contentions imthis court as it did in the district court, and, additionally, contends that the Wellmans failed to show the reasonableness of the amount of the judgments which were obtained in state court. The crucial issue in this case, however, is whether the insurance policy covers owner-operator, Mitchell and broker-IMT.

The primary Liberty Mutual policy contains two parts. Only Part II is pertinent to our present inquiry. Part II, entitled “Comprehensive Automobile Liability Insurance,” specifically relates to the operation of automobiles and affords the following liability coverages:

COVERAGE C — BODILY INJURY LIABILITY
COVERAGE D — PROPERTY DAMAGE LIABILITY
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
Coverage C. bodily injury or Coverage D. property damage to which this insurance applies, caused by an occurrence and arising out of the ownership, maintenance or use, including loading and unloading, of any automobile * * * [.]

Part II further designates those persons entitled to insurance protection in the following pertinent language:

PERSONS INSURED Each of the following is an insured under this insurance to the extent set forth below:
(a) the named insured;
(b) [inapplicable]
(c) any other person while using an owned automobile or a hired automobile with the permission of the named insured, provided his actual operation or (if he is not operating) his other actual use thereof is within the scope of such permission, but with respect to bodily injury or property damage arising out of the loading or unloading thereof, such other person shall be an insured only if he is:
(1) a lessee or borrower of the automobile, or
(2) an employee of the named insured or of such lessee or borrower;

(d) any other person or organization but only with respect to his or its liability because of acts or omissions of an insured under (a), (b) or (c) above.

None of the following is an insured:

******
(ii) The owner * * * of a
hired automobile or the owner of a non-owned automobile, or any agent or employee of any such owner * * *.

The terms “hired automobile” and “non-owned automobile” carry specific definitions:

“hired automobile” means an automobile not owned by the named insured which is used under contract in behalf of, or loaned to, the named insured, provided such automobile is not owned by or registered in the name of (a) a partner or executive officer of the named insured or (b) an employee or agent of the named insured who is granted an operating allowance of any sort for the use of such automobile;
******
“non-owned automobile” means an automobile which is neither an owned automobile nor a hired automobile.

The trial court correctly observed that Mitchell’s operation of the truck leased by Morgan — although operated on a journey not specifically authorized by Morgan — would be considered subject to Morgan’s control, direction, and authority. So long as the truck carried Morgan’s I.C.C. permit as well as that of the Missouri Public Service Commission, Morgan would be liable to third parties injured through the operation of the truck under a theory of vicarious liability derived from the purpose of the Interstate Commerce Act and the language of I.C.C. regulation 49 C.F.R. § 1057.4. Mellon National Bank & Trust Co. v. Sophie Lines, Inc., 289 F.2d 473, 478 (3d Cir. 1961); Cosmopolitan Mutual Insurance Company v. White, 336 F.Supp. 92, 99 (D.Del.1972); Cox v. Bond Transportation, Inc., 53 N. J. 186, 249 A.2d 579, 589 (1969).

We think that the reasoning of the foregoing cases would justify construing the “Persons Insured” section of Part II of the policy to extend coverage to the vehicle owner-operator, Mitchell. So long as the lessee-motor carrier’s I.C.C. permit numbers were displayed on the vehicle, Mitchell was, as a matter of law, operating the vehicle within the scope of the insured’s permission, and, under these circumstances, the “Persons Insured” provisions would cover him. The exclusion in section (ii) of “the owner * * * of a hired automobile” would not bar coverage to an owner-operator since he would be protected under subdivision (c) as a user whose “actual operation * * * is within the scope of such permission.”

This reasoning, however, is insufficient to establish coverage for the driver-Mitchell and his shipping broker-IMT because of important modifications of coverage contained in the “Truckmen— Form A” endorsement. This endorsement modified the coverage as follows:

It is agreed that the insurance applies with respect to any owned automobile, hired automobile and, while being used in the business of the named insured, non-owned automobile, subject to the following additional pertinent provisions:
* * * , * * *
(b) Except with respect to the named insured or an employee thereof, but subject otherwise to the “Persons Insured” provision, the insurance does not cover as an insured any person or organization, or any agent or employee thereof, engaged in the business of transporting property by automobile for the named insured or for others under any of the following conditions:
(1) If the bodily injury or property damage occurs while such automobile is not being used exclusively in the business of the named insured and over a route the named insured is authorized to serve by federal or public authority, but this limitation shall not apply to an automobile while en route, at the request of the named insured, to engage in such exclusive use and not transporting property for others; ******
provided, however, a driver or other person furnished to the named insured with an automobile hired by the named insured shall be deemed not to be an employee of the named insured. * * *
(d) The insurance does not cover as an insured, the owner or any lessee (of whom the named insured is a sub-lessee) of a hired automobile, or any agent or employee of such owner or lessee, if the bodily injury or property damage occurs:
(1) while the automobile is not being used exclusively in the business of the named insured and over a route the named insured is authorized to serve by federal or public authority; but this limitation shall not apply to an automobile while en route, at the request of the named insured, to engage in such exclusive use and not transporting property for others * * *

Although the concept underlying Cox v. Bond Transportation, Inc., 53 N. J. 186, 249 A.2d 579 (1969), and similar cases may justify extending the liability coverage of an I.C.C. certificate motor carrier to the owner-operator as a “statutory” employee of the motor carrier under a broad “Persons Insured” provision such as in Part II of the Liberty Mutual policy, we cannot carry this reasoning over to extend the policy coverage to the owner-driver in this case because of the limiting language of coverage contained in the “Truckmen- — Form A” endorsement. Paragraph (b) of that endorsement specifically declares that “a driver or other person furnished to the named insured with an automobile hired by the named insured shall be deemed not to be an employee of the named insured.” Thus, an owner-operator, though he may be deemed a “statutory” employee for liability purposes, is not classified as an employee of the insured for insurance purposes.

Here, Mitchell, as a nonemployee under the policy, was operating and using the vehicle at the time of the accident on the business of IMT, a third party, not in the exclusive business of the named insured. As a result, the specific language of paragraphs (b)(1) and (d)(1) of “Truckmen — Form A,” stipulating that the use of the hired automobile be “exclusively in the business of the named insured,” requires that we construe the policy as affording no liability coverage to owner-operator, Mitchell, or to IMT.

It is true that Mitchell may be said to have operated the vehicle on a dual purpose. At the same time that Mitchell was using his vehicle for IMT under their freight manifest, he was using the vehicle for Morgan in a general way because of the existence of the vehicle lease and display of permit numbers. But a dual use is not a basis to extend the policy coverage to third parties or to an owner-operator in light of the express requirement that the motor vehicle be “used exclusively in the business of the named insured.”

The district court and appellees rely on Cosmopolitan Mutual Insurance Company v. White, 336 F.Supp. 92 (D.Del. 1972), as support for upholding the district court’s theory of coverage. There, the policy in question contained exclusionary provisions almost identical to those in the instant case. On a set of facts similar to those in the case at bar, the Cosmopolitan court held that the operator of a leased truck was using the vehicle “exclusively in the business of the named insured” within the meaning of the insurance policy, even though the return hauling job during which the accident occurred was unauthorized by the I.C.C. carrier. The court reasoned as follows:

Under the broad interpretation of the ICC regulations regarding the issue of whether equipment is being utilized in the business of an ICC carrier, [driver] Desmuke’s actions on November 3rd were certainly in [I.C.C. carrier] McCormick’s business, and therefore, McCormick would be liable for any accident resulting from Desmuke’s negligence. It is obvious that McCormick and Jock [McCormick’s dispatcher] were aware of the driver’s practice of “hustling” loads, that it was a “normal practice in the business” (Jock 18) and they apparently did not attempt to prohibit it. (Jock 18) In fact, such exchange of leased personnel and equipment was a prerequisite to the economic success of these independent contractors after the ICC regulations imposed the requirement that each independent contractor lease his vehicle to an ICC authorized carrier under a 30 day or more lease. McCormick assisted and apparently encouraged its drivers to obtain loads with other carriers when no McCormick loads were available. What Desmuke was doing and had done was, if not McCormick’s steel hauling business, an incidental function necessary to accomplish the primary purpose of the ICC franchise, namely, to have available the requisite vehicular equipment to carry on its business as a publically regulated motor carrier. To permit McCormick to distinguish between when a driver is dispatched and when he goes on his own and escape liability in the latter situation when McCormick was aware of and tolerated such actions would obviate the entire purpose behind the regulations enacted to remedy the abuses of independent contractors and trip leasing. [336 F.Supp. at 99 (footnotes omitted).]

The court went on to hold:

Thus, “insured” includes drivers and owners of leased equipment when that equipment is being used exclusively in McCormick’s business. This provision must be read in light of the ICC regulations, since these regulations have the force and effect of law. Cox, supra at 586 of 249 A.2d. As has already been discussed under the ICC regulations, the tractor was being used “in the business”, of McCormick at the time of the accident. Therefore, Desmuke and White are “insured” within the meaning of the Cosmopolitan insurance contract and Cosmopolitan would be liable to pay any final judgment entered against either of them. [336 F.Supp. at 100-101 (footnote omitted).]

We cannot accept this logic as it relates to insurance coverage. The fact that an owner-operator displays the carrier’s permit number while hauling an unauthorized load for a company other than the I.C.C. carrier does not make the trip one “exclusively in the business” of the insured, although the insured motor carrier remains liable to third parties during the entire term of the vehicle lease. The language of the insurance policy must be given its ordinary meaning unless good reason appears for doing otherwise. The relevant I.C.C. regulation on insurance, 49 C.F.R. § 1043, contains no provision which would require a motor carrier specifically to carry insurance affording liability coverage for judgments rendered solely against an owner-operator of a vehicle leased to the motor carrier. In the absence of such a provision, we think it unreasonable to apply 49 C.F.R. § 1057.-4 and the public policies of the Interstate Commerce Act, as a gloss to the exclusionary provisions of the insurance policy in this case. We do not think that such broad coverage could reasonably have been contemplated by the parties when they formed their insurance contract. Nor should we make the unwarranted assumption that the insurer and the insured somehow intended the apparent and obvious meaning of the endorsement to be inoperative and to be controlled instead by an I.C.C. regulation which in no way relates to or binds insurance companies. It is one thing to hold that a motor carrier is absolutely liable — based on the Interstate Commerce Act — for injuries resulting from the negligent operation of vehicles leased to it, but it seems an unjustified and illogical leap to hold that an insurance company — whose sole obligation rests on contract — should be bound to pay a judgment for others who are not mentioned in the I.C.C. insurance regulation (49 C.F.R. § 1048.1), and who are specifically excluded by the language of the policy.

It is true that the cases clearly hold that I.C.C. regulations require that the motor carrier operating leased equipment be held liable to the public for negligent operation of leased vehicles. See, e. g., Mellon National Bank & Trust Co. v. Sophie Lines, Inc., 289 F.2d 473 (3d Cir. 1961). In that regard, Morgan properly could have been held liable to the Wellmans in the original state court proceeding if Mitchell were proved negligent. Had the Wellmans obtained a state court judgment against Morgan, •the result in this case would have been different, for the insurance policy would clearly have covered Morgan as the “named insured” even though its liability would be vicarious and statutorily derived.

Appellees, however, after initially including the common carrier, Morgan, in their state court action, elected voluntarily to dismiss the action against Morgan and to continue it only against the defaulting defendants, Mitchell and IMT. Since there was no judgment of liability against Morgan, the regulations which, on the one hand, require insurance coverage for judgments against the carrier and, on the other, impose legal responsibility upon the motor carrier for the operation of leased vehicles, may not be read into the insurance policy to impose liability upon the insurer of the motor carrier in contravention of the precise, express terms of the policy.

We think it highly unfortunate that the I.C.C. has not established a clearer requirement that motor vehicle common carriers’ liability policies, filed pursuant to the Interstate Commerce Act, must extend coverage to the owner-operator of a leased vehicle to the same extent as that afforded the lessee-common carrier. Under such a requirement, insurance coverage would extend to cover the vehicle driver at all times. But we emphasize that this insurance coverage problem would not arise where a plaintiff presses his suit against the I.C.C. carrier whose permit numbers are carried on the truck at the time of the accident.

Reversed.

      . IMT operated as a broker, engaging independent truckers to haul motor freight at less than common carrier rates and without I.C.C. authority.

      . Liberty Mutual actually issued two policies to Morgan: a primary liability policy and an “umbrella” policy. Liberty Mutual concedes that the coverage under the umbrella policy was co-extensive with that of the primary policy as to coverage provisions, adding only additional monetary limits. For the purpose of this case we need only consider the coverage provisions extended by the primary policy.

      . At the trial it appeared that Morgan drivers were also required to contact the central dispatcher at Elkhart, Indiana, when they had completed their delivery to obtain a return load if one were available.

      . Part I is entitled “Comprehensive General Liability Insurance” and contains the following pertinent language pertaining to liability coverage:
      COVERAGE A — BODILY INJURY LIABILITY
      COVERAGE B — PROPERTY DAMAGE LIABILITY
      The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of Coverage A. bodily injury or Coverage B. property damage to which this insurance applies, caused by an occurrence * * *.
      Part I of the policy specifically excludes any coverage for “bodily injury or property damage arising out of the ownership, maintenance, operation, use, loading or unloading of * * * any automobile * * * owned or operated by or rented or loaned to the name insured.” Clearly no coverage is afforded to Wellmans’ claim under this part of the policy.

      . Although the heading of “Truckmen — Form A” refers to Coverage A and B of Part I, it is clear from internal indicia that the endorsement actually applies to Coverage C and D of Part II, the part of the policy relevant here.

      . The definition of “hired automobile” was amended by the endorsement as follows:
      (c) When used in reference to the insurance under this endorsement, the definition of “hired automobile” is amended to read:
      “hired automobile” means an automobile not owned by the named insured which is used under contract in behalf of or loaned to, the named insured, other than a private passenger automobile owned by or registered in the name of an agent or employee of the named insured or a member of the same household as such named insured, agent, or employee.

      . 49 C.F.R. § 1043.1 states in relevant part: [N]o common or contract carrier * * * shall engage in interstate or foreign commerce, and no certificate or permit shall be issued to such a carrier or remain in force unless and until there shall have been filed with and accepted by the Commission a surety bond, certificate of insurance, proof of qualifications as a self-insurer, or other securities or agreements * * * conditioned to pay any final judgment recovered against such motor carrier for bodily injuries to or the death of any person resulting from the negligent operation, maintenance or use of motor vehicles in transportation * * *.

      . 49 C.F.R. § 1057.4 provides in part:
      [Authorized carriers may perform authorized transportation in or with equipment which they do not own only under the following conditions:
      (a) Contract requirements. The contract, lease, or other arrangement for the use of such equipment:
      ***** (4) Exclusive possession and responsibilities.

      Shall provide for the exclusive possession, control, and use of the equipment, and for the complete assumption of responsibility in respect thereto, by the lessee for the duration of said contract, lease or other arrangement * * *.

      . Here, plaintiffs’ counsel may have felt tactically that his best chance for an ultimate monetary recovery on behalf of his clients lay in obtaining a default judgment against the nonanswering defendants, Mitchell and IMT, and thereafter attempting collection of that judgment against the insurer of Morgan. This procedure required a trial only of the insurance coverage issue. To have continued the case against the I.C. C. carrier and to have effected recovery, the Wellmans faced a most difficult task of establishing legal liability against Morgan in the face of a report of an accident prepared by the Missouri State Highway Patrol, which indicated that Mrs. Wellman, driving southbound on a county road, pulled out from a stop sign directly into the path of Mitchell’s westbound truck, operating on a through highway.


author: MERRILL, Circuit Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Flora Marcheta SAPUTSKI, Defendant-Appellant.
    No. 73-2558.
    United States Court of Appeals, Ninth Circuit.
    April 22, 1974.

      Richard P. Wallace, Coeur d’Alene, Idaho, for defendant-appellant.
    Sidney E. Smith, U. S. Atty., Wilbur T. Nelson, Asst. U. S. Atty., Boise, Idaho, for plaintiff-appellee.
    Before MERRILL and GOODWIN, Circuit Judges, and WOLLENBERG District Judge.

       Honorable Albert- C. Wollenberg, United States District Judge for the Northern District of California, sitting by designation.

   OPINION

MERRILL, Circuit Judge:

Appellant was convicted of thirteen counts of violating 18 U.S.C. § 656, embezzlement by a bank employee. The embezzlement occurred over a period of five months, from July to November, 1972, while appellant was employed as a teller by the Hayden Lake branch of the Bank of Idaho. The thirteen transactions involved checks received by appellant from customers and duly credited by her to the proper accounts or loans and processed accordingly. The checks were then processed by her a second time as “cash paid out” items, for which she presumably pocketed the cash. The bank became aware of irregularities when shortages in its cash letters to correspondent banks were reported. It hired an auditor to examine the problem, and the evidence against appellant was discovered. Appellant does not question the sufficiency of the evidence to sustain the conviction. She disputes only the admissibility of certain documentary evidence. .

1. As to some counts the Government offered photographic prints of microfilm records of transactions. These were admitted into evidence after the court had satisfied itself by inquiry that the original microfilm records were themselves available for inspection by appellant, and had required foundation in the form of testimony by the operations manager of the Hayden Lake branch to the effect that all transactions handled by the bank are microfilmed in the regular course of business.

Appellant contends that the foundation. for admission of the photographic prints was insufficient in that the operations manager was unable personally to identify some of the prints as made under his supervision — those which had been made at a larger branch of the bank at Boise. It is further contended that foundation was insufficient in that no one testified that the prints were accurate reproductions of the original microfilms, nor that the prints (as distinguished from the microfilms) were made in the regular course of business.

The prints were admitted into evidence under 28 U.S.C. § 1732, the Business Records as Evidence Act, relevant portions of which are set forth in the margin. The last sentence there quoted states clearly that once it has been established that the “original reproduction” (here the microfilm) was made in the regular course of business and is thus admissible as a business record, “an enlargement or facsimile of such reproduction” (here the prints) “is likewise admissible if the original reproduction is in existence and available for inspection under direction of court.” It is not necessary to establish that the prints (“enlargement or facsimile”) were made in the regular course of business, or that they accurately portray that which they purport to represent. Under the Act the prints speak for themselves; the burden is upon appellant (by availing herself of the right to inspect the original) to ascertain the accuracy of the tendered copy. Williams v. United States, 404 F.2d 1372 (5th Cir. 1968), cert. denied 394 U.S. 992, 89 S.Ct. 1482, 22 L.Ed.2d 768 (1969).

2. As to some counts the Government offered, and the court admitted, rolled tapes identified as “proof tapes.” The foundation for admission of the exhibits consisted of testimony regarding the manner of processing items through the bank’s proof machine, the recording of entries on the proof tapes, and the retention of the proof tapes in the bank and the reliance upon them as records, all in the regular course of business.

As to these exhibits, appellant objected on the ground that the witness had admitted that he did not have personal knowledge as to the dating of the tapes —by whom and by what method dates were placed upon them.

We hold that the tapes were properly admitted. Once they were identified as bona fide business records made and kept in the regular course of business, nothing further was necessary for admissibility under the Act. United States v. Anderson, 447 F.2d 833, 838-839 (8th Cir. 1971), cert. denied 405 U. S. 918, 92 S.Ct. 943, 30 L.Ed.2d 788 (1972).

3. As to some counts the Government offered the original of the teller’s pay proof for the day, bearing the teller’s stamp (appellant’s was No. 4) and signature (appellant signed “Marcheta”). Appellant contends that the identification of her signature by a layman (the operations manager) was not competent evidence.

We find no merit in this contention. The witness testified to personal acquaintance with appellant’s signature. See generally 3 Wigmore, Evidence §§ 693-94 (Chadbourn rev. 1970). Further, the documents were business records; authentication of the signature was not a prerequisite to their admissibility.

Judgment of conviction on all counts is affirmed.

In order to correct a conceded error in sentencing upon count 10, the sentence upon that count is vacated and upon that count alone the case is remanded for re-sentencing.

      . “(a) In any court of the United States * * * any writing or record, whether in the form of an entry in a book or otherwise, made as a memorandum or record of any act, transaction, occurrence, or event, shall be admissible as evidence of such act, transaction, occurrence, or event, if made in regular course of any business, and if it was the regular course of such business to make such memorandum or record at the time of such act, transaction, occurrence, or event or within a reasonable time thereafter.
      All other circumstances of the making of such writing or record, including lack of personal knowledge by the entrant or maker, may be shown to affect its weight, but such circumstances shall not affect its admissibility.
      * * * * *
      (b) If any business [or] institution, * * * in the regular course of business or activity has kept or recorded any memorandum, writing, entry, print, representation or combination thereof, of any act, transaction, occurrence, or event, and in the regular course of business has caused any or all of the same to be recorded, copied, or reproduced by any photographic, photostatic, microfilm, micro-card, minature photographic, or other process which accurately reproduces or forms a durable medium for so reproducing the original, the original may be destroyed in the regular course of business unless its preservation is required by law. Such reproduction, when satisfactorily identified, is as admissible in evidence as the original itself in any judicial or administrative proceeding whether the original is in existence or not and an enlargement or facsimile of such reproduction is likewise admissible in evidence if the original reproduction is in existence and available for inspection under direction of court.”


author: SPRECHER, Circuit Judge.

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Haesi Heribert BUTLER, Defendant-Appellant.
    No. 74-1036.
    United States Court of Appeals, Seventh Circuit.
    Argued April 22, 1974.
    Decided May 7, 1974.

      Geoffrey G. Gilbert, Chicago, Ill., for defendant-appellant.
    James R. Thompson, U. S. Atty., Robert F. Semmer, Asst. U. S. Atty., Chicago, Ill., for plaintiff-appellee.
    Before SWYGERT, Chief Judge, HASTINGS, Senior Circuit Judge, and SPRECHER, Circuit Judge.
   SPRECHER, Circuit Judge.

Defendant was indicted in four counts: failure to report for induction on August 12, 1970 (I); failure to report for induction on November 8, 1971 (II); making a false statement bearing upon his classification on December 10, 1968 (HI); and making a false statement bearing upon his classification on June 10, 1969 (IV).

Defendant’s motion to dismiss Counts I and II was granted on the basis that defendant was denied due process of law when his local board wrongfully refused to reopen his classification after he had presented the board with information that established a prima facie case for a hardship deferment under 32 C.F.R. § 1622.30.

Evidence was heard before the court without a jury on Counts III and IV, both of which related to statements made by defendant to the effect that he was the sole support of his mother’s sister, Mrs. Etta Dewey. At the conclusion of the hearing, the court entered a judgment of acquittal on Count III after finding that the statements made in a letter dated December 10, 1968 were not proved beyond a reasonable doubt to have been made willfully and knowingly false.

Although the court set forth with considerable detail its findings and conclusions in regard to Counts I, II and III, wherein the defendant prevailed, the court found “defendant' guilty beyond a reasonable doubt as charged in Count IV of the indictment,” without any other findings, conclusions or reasons. While Rule 23(c) Fed.R.Crim.P. provides that “[i]n a case tried without a jury the court shall make a general finding and shall in addition on request find the facts specially,” it would have been most helpful to this court if the facts in regard to Count IV had been found specially, particularly when, as here, one of defendant’s arguments on appeal goes to the sufficiency of the evidence.

However, in view of the fact that we reverse the conviction under Count IV on an alternative ground, it will be unnecessary for us to speculate upon what specific basis the court found defendant guilty under Count IV.

Defendant’s second and alternative argument for reversal is based upon the following issue as framed by defendant:

Whether, in light of the fact that defendant’s June 10, 1969 letter was written after a final decision had been made by the defendant’s local board, and merely constituted a request for an appeal which could not legally be taken from that final decision, any statement made therein could or did have any bearing upon his classification within the meaning of 50 U.S.C. App. § 462.

The trial court found that as of March 18, 1969, the local board was under a duty to reopen defendant’s classification and wrongfully failed to do so. Defendant’s classification was never opened thereafter.

As the result of the board’s letter to defendant dated May 23, 1969, again refusing to open defendant’s classification, he wrote the letter of June 10, 1969, upon which Count IV was based. After setting forth details of his aunt’s alleged dependency upon him, the defendant closed the letter with the following:

Since the local board does not see fit that I have a change in classification, I have no other choice but to go to the appeal board. If you would send me the necessary information for this, I shall take care of this matter as soon as possible.

The language of 50 U.S.C. App. § 462(a), upon a violation of which Count IV depends, reads in part as follows:

... . [A]ny person who shall knowingly make, or be a party to the making of any false statement or certificate regarding or bearing upon a classification or in support of any request for a particular classification, for service under the provisions of this title, or rules, regulations, or directions made pursuant thereto, . . . shall upon conviction ... be punished . . . (Emphasis added.)

The government in its support of the conviction relied upon our decision in the Kamber case and the defendant in turn, relied primarily upon the Second Circuit’s opinion in Rubinstein.

In United States v. Kamber, 458 F.2d 918 (7th Cir. 1972), cert. denied, 407 U. S. 910, 92 S.Ct. 2434, 32 L.Ed.2d 683 (1972), the defendant had mailed to his local draft board a forged letter purporting to have been written by the chairman of the department where defendant was engaged as a college professor. In affirming defendant’s conviction of § 462(a), we dismissed defendant’s contention that, although forged the contents of the letter were true, on the basis that wrongful identification of the author was a sufficiently false statement within the intendment of the statute. We further held at 922 that:

The juxtaposition of “regarding” with “bearing upon” makes very clear that the legislative intent of the Congress was not to require a showing of proximate cause as an element of the crime of being a party to the filing of a false statement with selective service officials. ... If the selective service system were to have to bear the heavy burden of proving beyond a reasonable doubt that a particular statement was determininative of the votes of a majority of a local,board, then the legislative purpose — which makes possible the operation of a largely self-executing system of conscription — could be easily frustrated.

In United States v. Rubinstein, 166 F.2d 249, 257 (2d Cir. 1948), cert. denied, 333 U.S. 868, 68 S.Ct. 791, 92 L. Ed. 1146 (1948), Judge Learned Hand (with Judge Swan concurring and Judge Chase dissenting) interpreted former section 311 of 50 U.S.C. App. as follows:

“It is true that part of the language of the statute is: “knowingly make any false statement . as to the . . . nonliability of himself . . . for service;” but that does not include a statement on which the registrant, at the very moment of filing it, declares that he does not mean to rely; and we think it not an unfair paraphrase of the testimony that Rubinstein said to the board: “Don’t pay any attention to what I have said about the dependency of other people upon me; I am not relying upon that part of my affidavit.”
. [A] ¡though in the case at bar Rubinstein might indeed have been laying a false foundation for a future claim, he was not indicted for doing so, and the foundation could not become a crime unless he later built upon it the necessary superstructure by an attempt to use it.

In United States v. Termini, 267 F.2d 18, 20 (2d Cir. 1959), the Second Circuit said:

Moreover, in United States v. Rubinstein . . . this court came close to holding that a registrant’s right to draft deferment on one ground is wholly irrelevant to criminality of false statements supporting an application for deferment on another.

More recently, in applying 50 U.S.C. App. § 462(a), the Fifth Circuit said in United States v. Lucke, 431 F.2d 359, 361 (5th Cir. 1970):

Accordingly, a registrant who submits a false statement, the reasonable consequence of which would result in his reclassification is guilty of violating the provisions of § 462(a). [Citing Termini.]

In the present case, the lack of proximate cause considered in Kamber (that is, whether a majority of the local board voted in a particular way because of the false statement) is not involved; rather what is involved is the defendant’s disclaimer in the body of the written statement itself (that is, since the board has not acted, “I have no choice but to go to the appeal board”), together with the fact that no appeal was possible and the further fact that defendant’s classification was never thereafter reopened. This combination of facts has brought us to the conclusion that the rationale of Rubinstein should be applied here.

The conviction under Count IV is reversed.

Reversed.