text:
    UNITED STATES of America, Plaintiff-Appellee, v. Robert WILKINSON et al., Defendants-Appellants.
    Nos. 74-1550, 74-1554 and 74-1555.
    United States Court of Appeals, Seventh Circuit.
    Argued Dec. 9, 1974.
    Decided March 31, 1975.
    Rehearing Denied April 17, 1975.

      Jerome Feldman, Chicago, 111., for appellant.
    James R. Thompson, U. S. Atty., Gary L. Starkman, Michael G. Berland, Asst. U. S. Attys., Chicago, 111., for appellee.
    Before HASTINGS, Senior Circuit Judge, SWYGERT and STEVENS, Circuit Judges.
   HASTINGS, Senior Circuit Judge.

Defendants-appellants Robert Wilkinson, Harold W. Bean and Robert A. Byron were charged in a one-count indictment with possession of stolen goods in violation of Title 18, U.S.C. § 659. After a trial by jury in the Northern District of Illinois, each of the three named defendants was convicted on the single count as charged. Judge McGarr imposed sentences of five years incarceration for Bean, three years for Byron and two years for Wilkinson. All sentences were made consecutive to unrelated sentences which defendants were then serving. Defendants have appealed their respective judgments of conviction and sentence.

The issues presented for review on this appeal are:

I. Whether the affidavit in support of the search warrant provided the magistrate with sufficient information to justify his finding of probable cause.

II. Whether the defendants were entitled to examine the grand jury minutes concerning their indictment to determine whether the indictment was based solely on hearsay, or, in the alternative, to have the trial court examine said minutes in camera.

III. Whether the trial court erred in admitting a statement of a defendant, made during the course of the offense, to prove motive for participation in the crime.

IV. Whether a joint venture instruction may be given where no conspiracy is charged.

V. Whether the sentences imposed within the statutory limits constituted cruel and unusual punishment where lesser sentences were given to other defendants in unrelated cases.

THE UNDERLYING EVENTS

A concise statement of the relevant facts, though not materially disputed, considered in the light most favorable to the government, seems necessary upon which to predicate a resolution of the issues at hand.

.As disclosed in an affidavit provided to the magistrate as the basis for the issuance of a search warrant, more specifically hereinafter referred to, an REA Express trailer, number REXZ206205, was stolen on March 10, 1973, from REA’s Oshkosh, Wisconsin, terminal. At that time the trailer was loaded with cartons bearing REA labels with the word “Wisconsin” on some of the labels. The cartons contained, among other things, the merchandise listed in the grand jury indictment hereinabove set out. The trailer, with only a few items remaining in it, was recovered in Rose-land, Illinois, on March 11, 1973, one day after the theft. The stolen cartons were observed on the premises at 2847 South Kedzie, Chicago, Illinois, on March 12, 1973.

The evidence set out by the government in its brief, with transcript citations, clearly established beyond a reasonable doubt the following events:

Kenneth Formanek was self-employed with Kedzie Auto Body located at 2847 South Kedzie Avenue in Chicago. About noon on the first Monday in March 1973, defendants Bean and Wilkinson and one Falco entered the garage and all four men went to a tavern next door known as “Cavanaughs.” Bean asked Forma-nek if he would be interested in making any money, and after receiving an affirmative reply told Formanek he would get back to him at a later date.

Bean next met with Formanek on the following Wednesday in the yard adjacent to the garage and asked Formanek if he could use his garage for a drop and how much it would cost. Formanek told Bean he would charge $1,000 and a percentage of the load. On the following Friday Bean and Wilkinson returned to Formanek’s garage in the early evening. Bean told Formanek they might have a load that night and for him to be in the garage. Bean told Formanek he would let him know.

Formanek then told Zenon Szymanski, one of his employees, that a “hot” trailer would be dropped at the garage and that he was to be paid $1,000 and a percentage of the load. Formanek asked Szy-manski if he would be interested in taking part for a split of the money. Later that night Bean called Formanek and said the deal was off for that night and he would get back to him the next day. On the following day, Saturday (March 10, 1973), about 7:00 p. m., Bean again telephoned Formanek and told him the load was on its way and would arrive in about three hours.

At about 5:00-6:00 a. m. Sunday (March 11, 1973), Wilkinson arrived with a truck. Formanek told him to back the truck up to the garage and pulled another truck in front of it to block the view from the street of the truck driven by Wilkinson. Formanek, Wilkinson and Szymanski then began to unload the trailer. They were joined in the unloading by Bean and Byron when they arrived at the garage.

Wilkinson, Byron, Bean, Formanek, Szymanski and another unidentified individual unloaded the trailer over a period of approximately two to three hours. The unloaded closed cartons were labeled, marked and contained merchandise generally as hereinabove described. The men all wore gloves while the trailer was being unloaded. Bean said they should get rid of the unloaded trailer. Wilkinson drove the trailer away followed by the unidentified individual who picked him up after the drop. Bean and Byron proceeded to look through some of the cartons that had been unloaded. Bean told Formanek there was supposed to be a shipment of liquid gold on the trailer.

The next day (Monday, March 12, 1973), about 10:30 a. m., Formanek and Falco went to Bean’s apartment where Formanek asked Bean when he was going to get the stolen merchandise out of the garage and was told that Wilkinson was checking out a buyer. Formanek returned to Bean’s apartment later that evening and met with Bean and Wilkinson. Formanek told Bean he believed the police were watching the garage. They agreed to meet at a restaurant the next day.

Formanek and Szymanski met Bean at the restaurant as agreed. Bean told Formanek he had gone to the garage and that a Chevrolet had pulled up behind him and it looked like the police. Bean asked Formanek what he was going to do. Formanek replied that he •was going to leave town. He did so and went to Las Vegas, Nevada, where he was subsequently arrested.

Agent Terry Keiser of the Federal Bureau of Investigation, acting pursuant to a search warrant, entered the garage at 2847 South Kedzie on March 13, 1973. The garage was almost completely filled with cartons bearing REA shipping labels. Keiser and other agents loaded the cartons found in the garage into a trailer. The merchandise was later inventoried and all except that retained for use as evidence at trial was sent on to the consignees.

We have not attempted to discuss all of the activities of FBI Agents Ward, Hayes and Ahels, or of the employees of the REA Express Company and representatives of the respective merchandise suppliers. As above stated, Formanek and Szymanski were the principal government witnesses. Defendants Bean, Byron and Wilkinson testified and each denied any participation in the theft of the REA truck and further denied having possession of any of the items discovered in Formanek’s garage.

THE SEARCH WARRANT

Defendants filed a “Motion to Quash Search Warrant and to Suppress Evidence Illegally Seized.” They contend the search warrant was issued in violation of their Fourth Amendment rights in that the affidavit in support of the warrant was insufficient to establish probable cause for its issuance. The trial court held that there was probable cause. We agree.

Defendants contend the affidavit fails to come within the standards set out in Aguilar v. Texas, 378 U.S. 108, 84 S.Ct. 1509, 12 L.Ed.2d 723 (1964); Spinelli v. United States, 393 U.S. 410, 89 S.Ct. 584, 21 L.Ed.2d 637 (1969); and United States v. Harris, 403 U.S. 573, 91 S.Ct. 2075, 29 L.Ed.2d 723 (1971).

A careful reading of the search warrant and the supporting, affidavit of FBI Agent Frederick V. Ahels belies the adverse contentions of defendants. Affi-ant was advised by the REA Express Terminal Manager at Oshkosh, Wisconsin, as to information describing the REA trailer and its contents on the day it was stolen, and by an REA special agent of the recovery of the same trailer in Roseland, Illinois, the next day with all but a few small items of its contents missing. These informants had personal knowledge of the information given to affiant and were employees of REA.

Affiant was advised by another FBI Agent, John J. Oitzinger, that on March 12, 1973, Oitzinger received information from a confidential informant who had furnished reliable information in the past resulting in at least ten arrests and convictions and the recovery of over $50,000 worth of merchandise. Further, that this confidential informant saw various items of merchandise stored at the garage in question, with cartons, shipping labels and items of merchandise meeting the description given by others.

Affiant’s own investigation determined the specific location of the auto repair shop in question. Affiant was advised by the REA Terminal Manager that the property stolen was valued at approximately $15,000. Affiant was further advised by FBI Agent Ward of the complete description of the premises located at 2847 South Kedzié, Chicago, based on Ward’s personal knowledge and investigation.

The details in the supporting affidavit resulted in the issuance of the search warrant which appears to be a model of clarity and detailed specificity.

The decided cases are replete with recognition of the “two-pronged test of Aguilar,” supra. Judge Swygert, writing for our court, succinctly stated it in United States v. Hood, 7 Cir., 422 F.2d 737, 739, cert. denied, 400 U.S. 820, 91 S.Ct. 38, 27 L.Ed.2d 48 (1970): “In Aguilar v. Texas, 378 U.S. 108, 84 S.Ct. 1509, 12 L.Ed.2d 723 (1964), the Supreme Court set forth explicit standards by which to test the reliability of informant hearsay used to establish probable cause. The magistrate to whom the application for a search warrant is presented ‘must be informed of some of the underlying circumstances from which the informant concluded’ that contraband was present on the premises and ‘some of the underlying circumstances from which the officer concluded that the informant * * was “credible” or his information “reliable”,’ 378 U.S. 108, 114, 84 S.Ct. 1509, 1514 . . . .”

Our court recently had occasion on a rehearing en banc to deal with the question of the sufficiency of an affidavit in support of an arrest warrant to show probable cause for arrest. In a scholarly review of applicable law and the teaching of the two-pronged test in Aguilar, the court found support for the use of hearsay conveyed by a confidential informant which appears consistent with the holding in the case at bar. United States v. Carmichael, 7 Cir., 489 F.2d 983, 986-987 (1973). See also the en banc review in United States v. Wilson, 7 Cir., 479 F.2d 936 (1973).

In light of the foregoing and a common sense reading of the supporting affidavit as a whole, we have no difficulty in finding that both prongs of the test in Aguilar were satisfied. We hold that the affidavit in support of the search warrant provided the magistrate with sufficient information to justify his finding of probable cause. The trial court did not err in denying the motion to quash the search warrant and to suppress the evidence seized.

THE GRAND JURY MINUTES

Defendants sought access to the grand jury minutes on three occasions in order to determine whether the grand jury might have based its indictment on hearsay or, in the alternative, for an in camera inspection by the trial court for the same purpose. None of the witnesses before the grand jury testified at the trial so that the Jencks Act did not require any disclosure.

Defendants rely on the rule set forth in United States v. Estepa, 2 Cir., 471 F.2d 1132 (1972), as authority for such disclosure. The trial court denied such motions for inspection and this is asserted as error. Estepa held in substance that an indictment based on hearsay should be dismissed (1) where there was a high probability that with eyewitness testimony there would have been no indictment, or (2) if the grand jury was misled to believe it was receiving eyewitness testimony. Id. at 1137.

In United States v. Annerino, 7 Cir., 495 F.2d 1159, 1162 (1974), we considered and distinguised Estepa on the ground that the facts in Annerino did not demonstrate either of the two circumstances which Estepa held would justify dismissal. Similarly, in the case at bar, there are no allegations that either of these two circumstances were present.

In Annerino, we held, inter alia, that indictments based on hearsay of the type used there, and similar in purport to that in the instant case, were not improper. Id. at 1161 — 1162. That this has become embedded into the law of our circuit is evidenced by prior holdings in United States v. Holmes, 7 Cir., 452 F.2d 249, 274 (1971), cert. denied, 405 U.S. 1016, 92 S.Ct. 1291, 31 L.Ed.2d 479 (1972); United States v. Aloisio, 7 Cir., 440 F.2d 705, 707, cert. denied, 404 U.S. 824, 92 S.Ct. 49, 30 L.Ed.2d 51 (1971); United States v. Daddano, 7 Cir., 432 F.2d 1119, 1125 (1970), cert. denied, 402 U.S. 905, 91 S.Ct. 1366, 28 L.Ed.2d 645 (1971); and United States v. Braico, 7 Cir., 422 F.2d 543, 545, cert. denied, 398 U.S. 912, 90 S.Ct. 1712, 26 L.Ed.2d 74 (1970). If more need be said, our cases have pointed out that in Costello v. United States, 350 U.S. 359, 76 S.Ct. 406, 100 L.Ed. 397 (1956), “the Supreme Court categorically refused to invalidate an indictment based upon hearsay evidence under either the Fifth Amendment or its supervisory powers over federal courts.” Aloisio, supra, 440 F.2d at 707.

In light of these authorities, we hold that defendants were neither entitled to examine the grand jury minutes for the purpose stated, nor, in the alternative, to have the trial court examine the minutes in camera. To hold otherwise here would be an unwarranted invasion of the secrecy of grand jury deliberations. No authority has been cited even remotely suggesting any reason for requiring the trial court to engage in such a fishing expedition. There was no error in the trial court’s denial of this procedure.

ADMISSION OF STATEMENT IN EVIDENCE

As above set out, Formanek testified that immediately after the stolen merchandise was unloaded from the REA trailer and in the presence of defendant Byron, Bean said there was supposed to be a shipment of “liquid gold” on the trailer.

On brief, defendants assert that at a pretrial conference the trial judge instructed government counsel not to introduce any evidence that the trailer had originally contained a shipment of liquid gold. We have examined the record and' there is no support for this assertion. What the record does show is that, prior to Formanek’s testimony, the judge was informed of this statement of Bean to Formanek and the circumstances surrounding the statement. The court concluded that “if the witness so testifies, I will allow that testimony over objection.”

In any event, such testimony was relevant to establish defendants’ motive and intent and was not likely to be prejudicial. We find no error in the admission of this statement in evidence. Even if it could be said to be error, it was certainly harmless.

JOINT VENTURE INSTRUCTION

Defendants claim that the government’s tendered Instruction No. 31 on joint venture given by the court to the jury was error “in the absence of so charging them in the indictment.” They rely upon the holding in Stirone v. United States, 361 U.S. 212, 80 S.Ct. 270, 4 L.Ed.2d 252 (1960), to the effect that a defendant may not be tried on charges not made in the indictment against him. We have examined this instruction and find it to be a form instruction, E. Dev-itt & C. Blackmar, Federal Jury Practice and Instructions § 71.14 (2d ed. 1970). It is a correct and quite proper instruction.

Defendants’ contention is misplaced. In a well-considered opinion authored by the late District Judge Mercer, United States v. Bernard, 7 Cir., 287 F.2d 715, 719-721, cert. denied, 366 U.S. 961, 81 S.Ct. 1921, 6 L.Ed.2d 1253 (1961), our court held that a joint venture instruction merely raises a question concerning the admissibility of evidence; a theory of proof rather than an offense. Where two or more persons are engaged in a joint enterprise or preconcerted action in the commission of a crime, the evidence is admissible upon a theory of the vicarious responsibility of all joint venturers for all acts done and declarations made by each in furtherance of the joint undertaking. It is not upon any theory of amendment of the substantive charge in the indictment. The question whether a common plan or design was proved beyond a reasonable doubt was properly submitted to the jury. In Bernard, supra, we found no analogy between the ruling there and the case of Stirone v. United States, supra.

We find no error in the giving of this joint venture instruction.

SENTENCING

The transcript of the evidence of defendants on direct examination shows that prior to the trial of this case defendant Bean had been convicted of robbery, attempted burglary, deceptive practices, interstate transportation of forged securities and extortion, over a period of several years.

Defendant Byron was convicted of theft of interstate shipment and is now serving a term of five years in the Federal Penitentiary at Sandstone, Minnesota.

Defendant Wilkinson was convicted of attempted burglary in 1967 with Bean and is now serving time in an Illinois state penal institution. He also was given two years probation upon his plea of guilty to another charge.

Defendants contend that “in view of the existent and contemplated pardons of a variety of individuals in the so-called Watergate crimes, appellants’ incarcerations and the length of their sentences constitute cruel and unusual punishment and violate their rights under the Fourteenth Amendment to the United States Constitution.”

The relief which defendants request of this court on appeal is strange indeed and reads, “should this Court disagree with Appellants and deny them a reversal, Appellants would respectfully seek from this Court in harmony with prevailing conditions in the federal criminal justice system as described by them in their argument, relief in the nature of either a pardon or similar remedy within the power of this Court to grant, or, at the very least, a reduction of their respective sentences and an Order that such reduced sentences coincide with and be served concurrently with those already imposed in other matters.”

Defendants were represented at trial and on this appeal by the same privately retained counsel. It should be evident that this court does not possess the power of pardon or the power to change the term or manner of service of sentence.

Here we need only state the general rule that “a sentence imposed by a federal district judge, if within statutory limits, is generally not subject to review.” United States v. Tucker, 404 U.S. 443, 447, 92 S.Ct. 589, 591, 30 L.Ed.2d 592 (1972). Further, that a trial court’s sentence within the statutory limit “will not be disturbed on appeal except on a plain showing of gross abuse.” United States v. Willard, 7 Cir., 445 F.2d 814, 816 (1971). A host of other cases to the same effect from this circuit need not be cited.

Defendants’ assertions to the contrary, it is frivolous to suggest that gross abuse of discretion by the trial court can be shown by comparing the sentences here to the treatment of those associated with Watergate.

Consistent with this over-extended opinion, the judgments of conviction and sentences of defendants Wilkinson, Bean and Byron are affirmed.

Affirmed.

      . The indictment charged in substance that on or about March 11, 12, and 13, 1973, at Chicago, Illinois, defendants “unlawfully, wilfully and knowingly did have in their possession certain goods and chattels with a value in excess of one hundred dollars ($100.00) that is, certain toilet seats, plastic wrap, toys, electronic parts, tools, stereo equipment, and air compressors . ” It was further charged in substance that the goods had been unlawfully removed from a stolen REA Express trailer number REXZ206205; that the goods were moving as a part of an interstate shipment from various named shippers to various named consignees in 14 named states; and that defendants had the goods in their possession and knew them to be stolen.

      . Honorable Frank J. McGarr, District Judge, presiding. • ;

      . The principal government witnesses, Kenneth Formanek and Zenon Szymanski, were charged in a separate indictment for their participation in the events underlying the instant case. Upon their pleas of guilty, Formanek was sentenced to three years incarceration and Szymanski received probation.

      . United States v. Harris, 403 U.S. 573, 91 S.Ct. 2075, 29 L.Ed.2d 723 (1971), appears to lessen the strictures of Spinelli v. United States, 393 U.S. 410, 89 S.Ct. 584, 21 L.Ed.2d 637 (1969). See United States v. Unger, 7 Cir., 469 F.2d 1283, 1286 (1972), cert. denied, 411 U.S. 920, 93 S.Ct. 1546, 36 L.Ed.2d 313 (1973).

      . Access to grand jury minutes was not an issue in Estepa.

      . Cf. Trigg v. United States, 7 Cir., 430 F.2d 372, 376, cert. denied, 400 U.S. 966, 91 S.Ct. 379, 27 L.Ed.2d 387 (1970); United States v. Lawler, 7 Cir., 413 F.2d 622, 627-628 (1969), cert. denied, 396 U.S. 1046, 90 S.Ct. 698, 24 L.Ed.2d 691 (1970).


source: Caselaw Access Project

author: WATERMAN, Circuit Judge:

license: Public Domain

text:
    TITAN GROUP, INC., Plaintiff-Appellant, v. Harold FAGGEN, Defendant-Appellee.
    No. 239, Docket 74-1694.
    United States Court of Appeals, Second Circuit.
    Argued Oct. 25, 1974.
    Decided April 1, 1975.

      Lawrence M. Powers, Steven E. Gross, Martin M. Green, Powers and Gross, New York City, for plaintiff-appellant.
    Burton S. Cooper, Edward Labaton, Joel C. Feffer, Sheib, Shatzkin & Cooper, New York City, for defendant-ap-pellee.
    Before WATERMAN, OAKES and GURFEIN, Circuit Judges.
   WATERMAN, Circuit Judge:

Titan Group, Inc. (Titan) commenced its action in the United States District Court for the Southern District of New York against Harold Faggen seeking the rescission of four contracts Titan had entered into with Faggen. Titan alleges that the defendant had violated Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1970) and Rule 10b-5 promulgated under the 1934 Act, 17 C.F.R. § 240.10b-5 (1973), by making false and misleading statements and by failing to disclose material facts in connection with negotiations leading to Titan’s acquisition of four actuarial companies owned by Faggen. Faggen counterclaimed for the principal and interest on promissory notes which he had received in payment for his companies. After a bench trial, Judge Tyler dismissed Titan’s claim for contract rescission and awarded Faggen $5,500,000 plus interest on his counterclaim. Titan appeals from the dismissal of its complaint and from the award to Faggen on Faggen’s counterclaim.

We affirm the results reached below.

At the heart of this appeal lies the question of the appropriate legal significance to be accorded two memoranda Faggen prepared which were presented to Titan in the discussions prior to the drafting and execution of the contracts. Therefore it is necessary to recount in some detail the facts before the trial judge.

In 1968, Faggen began to consider selling his actuarial companies and he engaged in tentative discussions with several potential purchasers of them. Titan was a conglomerate with a concentration in real estate and construction. At this time Titan, under new management control, was seeking to diversify, and, additionally, it wanted to enhance its cash position. A New York lawyer, Benjamin Robinson, who had close professional ties with Faggen, was Chairman of Titan’s Board of Directors. Aware of' perhaps complementary interests, Robinson introduced Faggen to Anthony Frank, the president-director of Titan. When serious negotiations began another attorney, Edmund Kaufman, an attorney with considerable experience in corporate acquisitions, was brought in as Titan’s special counsel.

Kaufman and Faggen met for the first time on September 6, 1968. Fag-gen presented Kaufman a copy of the tax returns of his largest company for the last fiscal year and, also, a memorandum of adjustments to earnings. These adjustments added to the income reported on these tax returns the income of Faggen’s three smaller companies, and noted certain possible economies relative to pension funding, liability for city and state taxes and payments for salaries, and also noted the existence of certain non-recurring expenses, and of individually earned accounting fees. The calculations of the memo, which also deducted some $45,000 for investment income, increased Faggen’s income for that year from $288,494, the sum reported, to $571,476.

A second and final meeting between Faggen and Kaufman took place on October 2, 1968. Faggen brought to this meeting the tax returns for all his four companies for the past five years, and the companies’ client ledgers and employment records. After examination of the tax records and discussion of possible adjustments, the meeting concluded with a tentative agreement on the acquisition, subject to approval by Titan’s Board of Directors and a further working out of the details of the contract. The agreed-upon price of the Faggen companies was $5,500,000, to be paid in 10-year 4% convertible notes of Titan. The principal sum was ten times the estimated adjusted annual earnings of the Faggen companies.

Prior to a meeting of Titan’s Board of Directors on October 9, 1968, Faggen, at the request of Kaufman, prepared another memorandum which was to be presented to the board. The memorandum briefly described the companies and placed some emphasis on the computer system under development there. Accompanying the memorandum were two exhibits: one showed pre-tax adjusted net income for the preceding four fiscal years, and the other was an analysis of new clients. Copies of this memorandum were not distributed at the board meeting, but Titan’s president, Frank, orally presented the earnings figures and the securities holdings of the Faggen companies.

The board approved the Faggen acquisition at this meeting but reserved a final approval pending an analysis of it by the executive committee. Subsequent to the board meeting Kaufman and an associate in Robinson’s law firm prepared the contract. McIntyre, Titan’s treasurer-director, and another Titan employee reviewed the financial basis of the transaction and found the Faggen adjustments to reported income to be reasonable. On December 2, 1968 the contracts were executed.

Difficulties arose after the merger. A disappointed employee of Faggen left immediately afterward, taking with him some clients. The data processing system encountered high startup and hardware expenses and never became profitable. Nonetheless, the actuarial side of the Faggen companies continued to show good profits. Titan between 1968 and 1972 withdrew $2.1 million in cash and securities from them. In 1972, Titan, under new management control, notified Faggen that Titan was no longer going to pay interest on his notes and commenced this action to rescind the contracts. Faggen treated the non-payment of interest as a default, and counterclaimed for the principal sum of the promissory notes and for accrued unpaid interest thereon.

The appellant’s principal contention is that there were material misrepresentations and omissions by Faggen in the memorandum presented by him at the first meeting between Kaufman and him and in the memorandum prepared for presentation to the Titan Board of Directors. These alleged failings involve primarily the adjustments to earnings, the analysis of clientele, and the capacity of the computer program under development. The adjustments to income reflected anticipated earning increases that a publicly held company attempting to maximize income would realize after succeeding to the management of a privately held company which had minimized income for tax purposes. Titan complains that in three areas — pension funding, salaries, and travel and entertainment expenses — no reduction in expenses occurred, and that in his original memorandum Faggen had misrepresented potential savings. In the memorandum prepared for the board meeting, Faggen had stressed the computer program under development and had listed new clients of his companies. Titan claims that this memorandum had misrepresented the present capacity of the computer program and had failed to list lost clients.

After a bench trial, Judge Tyler rejected the claims of Titan, and found that Titan had not relied in any way on Faggen’s representations. The inducement for the contract, the judge found, lay elsewhere: that Chairman Robinson was strongly in favor of the acquisition, that the Faggen companies had a good liquid asset position, that the Faggen companies were profitable, and that the possibility of melding together actuarial and real estate companies was attractive. He found that these broad considerations, rather than interstitial details of client lists or of immediate data processing capacity, sparked Titan’s acquisitive interest. As to the adjusted earnings statements, the trial judge found that Titan was aware of the basis of the adjustments; and was aware, or should have been aware, from the tax returns that the bottom line figures included, rather than excluded, investment income. He found that Titan was interested during the preliminary discussions with Faggen, and subsequently, in the financial analysis of his companies in but rough “ballpark” figures and that the only purpose the memoranda was to serve was that of providing an approximation of what the Faggen companies would earn through the elimination of certain expenses if the companies were publicly, rather than privately, owned.

Tending to buttress the absence of any determinative reliance upon Faggen’s representations the judge pointed out such factors as the relative position of the parties, their arms-length negotiation, and Titan’s long opportunity to examine the financial status of the Faggen companies prior to closing the deal. Furthermore, Titan advances no claim that there are material misrepresentations or omissions in the sections of the contracts detailing the seller’s representations and warranties.

Although Titan vigorously contests the bases for these findings of fact, we conclude that Judge Tyler’s findings are amply supported by the record, and are not clearly erroneous findings.

On this appeal, Titan argues that reliance is no longer a requisite element in Rule 10b-5 actions involving omissions alleged to be material when it is shown that facts alleged to be material were not disclosed. This result derives, it is contended, from the Supreme Court’s decision in Affiliated Ute Citizens v. United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972). That case involved Rule 10b-5 claims predicated on the nondisclosure of material facts to Indian sellers of corporate stock by the transfer agent bank employees who were themselves profiting through the sales of the stock to non-Indians. The Court, imposing liability on the bank and its employees, stated

[ujnder the circumstances of this case, involving primarily a failure to disclose, positive proof of reliance is not a prerequisite to recovery. All that is necessary is that the facts withheld be material in the sense that a reasonable investor might have considered them important in the making of this decision. Id. at 153-154, 92 S.Ct. at 1472.

By this language the Court, rather than abolishing reliance as a prerequisite to recovery, was recognizing the frequent difficulty in proving, as a practical matter, that the alleged misrepresentation, allegedly relied upon, caused the injury. The parallel elements of materiality and reliance both serve to restrict the potentially limitless thrust of Rule 10b-5 to those situations in which there exists a causation in fact between the act and injury. Globus v. Law Research Service, Inc., 418 F.2d 1276 (2 Cir. 1969), cert. denied, 397 U.S. 913, 90 S.Ct. 913, 25 L.Ed.2d 93 (1970), List v. Fashion Park, Inc., 340 F.2d 457 (2 Cir.) cert. denied, sub nom. List v. Lerner, 382 U.S. 811, 86 S.Ct. 23, 15 L.Ed.2d 60 (1965). Causation remains a necessary element in a private action for damages under Rule 10b-5. Shapiro v. Merrill, Lynch, Pierce, Fenner and Smith, Inc., 495 F.2d 228 (2 Cir. 1974). Unlike instances of affirmative misrepresentation where ■ it can be demonstrated that the injured party relied upon affirmative statements, in instances of total non-disclosure, as in Affiliated Ute, it is of course impossible to demonstrate reliance, and resort must perforce be had to materiality, i. e.,- whether a reasonable man would attach importance to the alleged .omissions in determining his course of action.

In cases involving non-disclosure of material facts, even when coupled with access to the information, materiality rather than reliance thus becomes the decisive element of causation. See, e. g., Metro-Goldwyn-Mayer, Inc. v. Ross, 509 F.2d 930 (2d Cir. 1975), Stier v. Smith, 473 F.2d 1205 (5th Cir. 1973). And determination of materiality allows logically an inference of reliance. Chris-Craft Industries Inc. v. Piper Aircraft Corp., 480 F.2d 341 (2 Cir.), cert. denied, 414 U.S. 910, 94 S.Ct. 231, 38 L.Ed.2d 148 (1973). See, generally, Note, 88 Harvard L.Rev. 584 (1975).

This case is not an appropriate one in which to. find materiality in the light of all the circumstances. This is a case both of alleged misrepresentations and of alleged material omissions. We view Judge Tyler’s findings as determining that there was an abundance of evidence of the matters the plaintiff really con-' sidered important in entering this face to face transaction, that while the omissions might, in other circumstances, háve been deemed material, the omissions were not material in these circumstances. These findings were not clearly erroneous, and correctly applied the applicable law.

Titan raises a number of objections to the trial court’s award to Faggen on his counterclaim of the full face amount of the notes, $5,500,000, plus interest to the date of the judgment.

In exchange for his four actuarial businesses, Faggen received 4% Convertible Installment Notes to be paid in five yearly installments between 1974 and 1978. The 4% interest was to be paid semiannually. Conversion rights, potentially valuable, gave Faggen the option to exchange the bulk of his notes into common stock of Titan at the basic rate of one whole share of stock for each $20.00 of unpaid principal. The remainder was convertible at $15.00. Upon fifteen days’ written notice and at the option of Faggen, a default in the payment of any installment of interest or principal accelerated the maturity of the outstanding notes.

Titan, simultaneously with the commencement of this action, defaulted on the payment of interest, and now claims that the acceleration clauses in the Faggen notes violate Section 29 of the Securities Exchange Act of 1934, 15 U.S.C. § 78cc. We do not agree with Titan. Titan need not have defaulted before seeking rescission and the acceleration clause in the Faggen notes does not prevent the federal court from adjudicating upon all the issues involved in this ease.

Titan further objects to the award of the entire face amount of the notes. It claims this to be an excessive penalty which includes hidden unearned interest rates. The main prop of this argument is the statement of Faggen’s expert witness, Shinagel, that at the time of acquisition the notes had a then cash value of $3,200,000. Faggen however did not receive $3,200,000 in 1968; he received promissory notes of the face amount of $5,500,000 with potentially valuable conversion rights. In return for its promised liability on these notes Titan received four profitable businesses, a corporate stock portfolio with liquid assets in excess of $1,000,000, and a five-year period before it was required to make any payments on the principal indebtedness.

As to Titan’s claim on this issue, we are unable to disagree with the position taken by the trial judge who found that here, on these facts, there was no concealed interest rate, and that the acceleration of the notes did not constitute a penalty against Titan.

Finally appellant argues that Judge Tyler when allowing Faggen’s counterclaim against it, improperly refused to allow its claims of set-off against Faggen because clients were diverted from Titan. The record simply does not support this allegation.

Affirmed.

      . Titan now claims that though all parties knew that close personal and professional ties existed between Faggen and Robinson, there was a hidden conflict of interest in that relationship, and that Faggen had a duty to disclose the extent of their business connections. After the initial introductions, Robinson took no part in the subsequent negotiations leading to the execution of the contracts. Any claim of a conflict of interest damaging to Titan is a completely frivolous claim.

      . Titan argues that Faggen’s failure to comply with both generally accepted accounting principles and S.E.C. accounting rules in this exhibit was misleading as a matter of law. The statement of “Net Income — Pre-tax Adjusted to basis which will prevail after acquisition” simply states adjusted earnings figures for the fiscal years 1965-1968. There is no breakdown of these figures into various categories of income. The adjusted earnings of the various companies differ from those stated in the September 6, 1968 memorandum, although the earnings for 1968 are virtually identical. The income statement is clearly only a presentation of rough bottom line figures and not a financial report to which accounting principles and rules apply.


author: WINTER, Circuit Judge:

text:
    Richard L. HUBEL and Horsemen’s Benevolent and Protective Association, Appellants, v. The WEST VIRGINIA RACING COMMISSION, Appellee.
    No. 74-1894.
    United States Court of Appeals, Fourth Circuit.
    Argued Jan. 10, 1975.
    Decided April 3, 1975.
    Phillip J. Campanella, Cleveland, Ohio (Lawrence I. Byrnes, Spieth, Bell, McCurdy & Newell, Cleveland, Ohio, George A. Chadwick, Jr., and Chadwick &■-Titus, Washington, D. C., on brief),-for appellants.
    William D. Highland, Asst. Atty! Gen. of West Virginia (Chauneey H. Browning, Jr., Atty. Gen., and Phillip D.-Gau-jqt, Asst. Atty. Gen. of West Virginia, on brief), for appellee.
    «.Before BRYAN, Senior Circuit Judge, and WINTER and CRAVEN, Circuit Judges.
   WINTER, Circuit Judge:

■We are asked to hold invalid, as .offending due process of law, a rule of the West Virginia Racing Commission which prohibits a stay of any suspension of an owner’s or trainer’s permit to engage,in horseracing, suspended under a rule which permits the stewards at a racing meeting summarily to suspend ow-ners’ and trainers’ permits with respect to, any-horse found to have been “doped,” pending a hearing and formal determination of «the. person or persons responsible’ therefor. The district court held the hule prohibiting a stay valid and dismissed the suit questioning its validity. We agree and affirm the district court.

I.

The thoroughbred racehorse Morning Ground, owned by plaintiff, Richard L. Hubei, won the third race at Waterford Park, Wheeling Downs, West Virginia, on May 7, 1973. Allegedly because of violations of Rule Nos. 793 and 795(b) of the West Virginia Racing Commission, the stewards at Waterford Park, by order entered May 23, 1973, suspended Hu-bei’s owner-trainer license for a period of 47 days effective from May 15, 1973, to June 30, 1973, inclusive. The order also denied Hubei access to Waterford Park racetrack and disqualified Morning Ground from the purse.

Hubei appealed from the track officials to the West Virginia Racing Commission. The appeal was entered June 6, 1973 — two weeks after entry of the order of suspension. By virtue of the provisions of Rule 804, the suspension of Hubei’s permit was not stayed pending a determination of his appeal, notwithstanding that he sought, by formal motion, to be granted a stay. Suit was filed in the district court on June 18, 1973. Joined as a co-plaintiff was Horsemen’s Benevolent and Protective Association, an entity alleged to represent “the rights and interests of thoroughbred horsemen collectively.” The complaint sought a declaration that the no-stay provision of Rule 804 was unconstitutional and a mandatory injunction restraining execution of the suspension order pending appeal. When the suspension expired before the case could be heard, plaintiff abandoned his prayer for injunctive relief.

II.

To address the merits of Hubei’s appeal, it is desirable first to set forth what is not in issue. The West Virginia Racing Commission does not dispute that Hubei’s permit as an owner-trainer is a property right and that due process requires that Hubei be given notice, a hearing, and an opportunity to defend his interest if the permit is to be suspended or revoked. Hubei does not dispute that his permit may be suspended or revoked if, after notice and a hearing, it is established that Morning Ground was stimulated or given depressants or anesthetics so as to affect his performance in the race. Where the parties part company is whether a suspension may precede the notice and hearing which due process requires. West Virginia asserts that the temporal aspect of the right to notice and a hearing is a flexible concept dependent upon the facts of each case, and that here there are good and valid reasons why the notice and hearing should succeed, and not precede, the initial suspension which, in turn, should be continued until the hearing and final determination. Hubei contends otherwise; but, significantly, Hubei makes no claim that the West Virginia Racing Commission failed to act with due dispatch, or attempted to delay the hearing guaranteed under the rules once Hubei exercised his right to have the Commission review the action of the stewards.

The temporal relation between notice and a hearing and deprivation of a right or property interest protected by the due process clause was the subject of recent examination in Goss v. Lopez, 419 U.S. 565, 95 S.Ct. 729, 42 L.Ed.2d 725 (1975). That case concerned the suspension of school students for disciplinary purposes. It held that due process requires notice and a modified hearing in the usual case before a student is suspended for infraction of a school rule or standard governing his conduct. The significance of the case here is its recognition that the due process clause “‘negates any concept of inflexible procedures universally applicable to every'imaginable situation,’ ” citing Cafeteria Workers v. McElroy, 367 U.S. 886, 895, 81 S.Ct. 1743, 6 L.Ed.2d 1230 (1961), and that “the timing and content of the notice and the nature of the hearing will áepend on appropriate accommodatipn of the competing interests involved.” 419 U.S. at 579, 95 S.Ct. at 738. 'Even though the case held that in the usual' situation the notice and hearing should precede the suspension of any student, the Court recognized that this was not always the rule: -

4

We agree with the District Court, however, that there are recurring situ‘ations in which prior notice and hearing cannot be insisted upon. Students whose presence poses a continuing danger to persons or property or'an" ongoing threat of disrupting the aca.demic process may be immediately removed from school. In such cases,' the necessary notice and rudimentary hearing .should follow as soon as practicable, as the District Court indicated. 419 U.S. at 582, 95 S.Ct. at 740. '

Our own decision in Christhilf v. Annapolis Emergency Hospital Ass’n, Inc., 496 F.2d 174 (4 Cir. 1974), is another example of when due process does not require prior notice and hearing before-suspension of a property interest. There, we held that a physician was entitled to notice and a hearing before staff privileges previously extended to him at the* defendant hospital were revoked. In directing the district court to grant '‘ih-junctive relief against expulsion if a notice and hearing were not afforded, we. were careful to say that the district court, “need not” grant a preliminary injunction:

Although such an injunction may often be proper, due process does not always require a hearing before a doc-tor’s privileges are suspended. The' gravity of the charges, the findings ,of-the medical board and staff, and the delay and expense caused by Dr. Christhilf’s withdrawal from the hearing afford ample justification for denying him interlocutory relief. 496 F.2d at 180.

III.

Thus, this case resolves itself into a determination of whether Hubei’s normal and usual right to notice and hearing before disciplinary sanctions are applied is outweighed by competing interests so as to permit notice and hearing to follow temporary suspension. We think that it is because an owner-trainer .in Hubei’s position presents the same kind of “continuing danger” which concerned us in Christhilf and the Supreme Court in Goss.

The state has at least two substantial interests to be served. It has a humanitarian interest in protecting the health of the horse, and it has a broader and more weighty interest in protecting the purity of the sport, both from the standpoint of protecting its own substantial revenues derived from taxes on legalized pari-mutuel betting and protecting patrons of the sport from being defrauded. Collectively, these interests, we think, justify the severe penalty of disqualifying a horse that has been drugged, its trainer and perhaps its owner, from further participation in legalized racing until the matter can be heard and determined and an appropriate final sanction formulated. The combination of strict liability, imposed by Rule 793, and immediate suspension without the possibility of stay, deters tampering and promotes care. The combination also removes from racing those who have proved ei.ther unable or unwilling to protect their horses from unauthorized drugs. .

The humanitarian aspect of preventing the administration of drugs to a horse to affect his performance need not be further expounded. The state’s interest in maintaining the integrity of racing may be briefly stated. If a horse is fleeter or slower than his normal speed because of having been drugged, the integrity of the race is irretrievably lost. Of course, if stimulated, his artificial position at the finish may be corrected and he may be deprived of any purse that he apparently won. But the interests of bettors cannot be protected. Winning tickets must be paid promptly at the end of the race before the disqualification of the horse, except for the most obvious reasons, can be accomplished. And if a depressant has been administered to the horse, it may well be that bettors on that horse may be fraudulently deprived of the fruits of their wagers because the horse does not end in the money, as he might have otherwise done. Thus, the drugging of a horse, even if not intentional by his owner, trainer, groom and handlers, alters the pattern of the outcome of the race, rewarding some bettors who would have lost, or rewarding them more than would have otherwise been justified, or defeating some bettors who should have been rewarded.

These considerations have led the West Virginia Racing Commission to adopt Rules 793 and 795(b) which render the owner, trainer, etc., the absolute insurers of the integrity of the horse. Should the offense of “doping” a horse be committed, whether by intentional act of his handlers or negligence in protecting him from the depredations of outsiders, the offense is so serious and the consequences so severe that absolute protection to the horse and to the public is fully warranted until the matter can be formally resolved. The public is entitled to protection from the continuing danger that one who participates in drugging his horse will do so again, and that one who fails to protect his horse from drugging by others will repeat his negligence. We hold that these considerations justify the mandatory denial of a stay of any suspension for violation of the rules pending the notice and hearing that the due process clause requires. Rule 804 does not deny due process of law.

Affirmed.

      . The text of the rules follows:

        -Rule 793. TRAINER AS INSURER-.--OF' CONDITION OF HORSE: PENALTY.
      The trainer shall be the absolute insurer of and responsible for the condition of • the horse entered in a race, regardless of the' acts of third parties. Should the chemical, .or other analysis of saliva, or urine samples, "br other tests prove positive showing the presence of any narcotic, stimulant, depressant, or local anesthetic, the trainer bf the •horse may have any or all-of the following penalties inflicted — be fined, be suspended, his license revoked, or ruled off and in add!-' tion the owner of the horse, the foreman .in. charge of the horse, the groom, and any other person shown to have had the care-, or attendance, of the horse may have any or all Of the following penalties inflicted — be fined,' be suspended, his license revoked, or ruled off.

        Buie 795(b).

      Should the analysis of any saliva, urine,-, or, other sample taken from any horse show the presence of any substance, other than thé. prohibitive drugs set forth in Rule 793 which is the result of any oral, topical or injefcte'd medication which has not been prescribed,--administered or dispensed by a licensed Veterinarian, the trainer and any other person .. shown to have had the care of or attendance^, of' the horse may be fined or his license suspended or both.

      . The stewards acted under Rule 802, which provides:
      A majority of the Stewards at any horse race meeting may suspend a license and such suspension or revocation shall be effec-’ tive immediately. The Stewards shall, as soon as thereafter practicable, make and enter an order to that effect and serve a copy thereon on the license holder, either personally or by certified mail, return receipt requested. Such order shall state the grounds for the action taken.

      . ” Hubei was exercising the right given him by W.Va.Code Ann. § 19-23-16(c) (Michie 1971), ‘ which states:
      Any person adversely affected by any such order shall be entitled to a hearing thereon if, within twenty days after service of a copy thereof if served in any manner in which a summons may be served as aforesaid or within twenty days after receipt of a copy thereof if served by certified mail as aforesaid, such person files with the racing commission a written demand for such hearing. A demand for hearing shall operate automatically to stay or suspend the execution of any order suspending or revoking a license, but a demand for hearing shall not operate 'to stay or suspend the execution of any order suspending or revoking a permit. The racing commission may require the person demanding such hearing to give reasonable security for the costs thereof and if such person does not substantially prevail at such hearing such costs shall be assessed against such person and may be collected by an action at law or other proper remedy.
      These provisions of the statute are embodied in Rule 803 which provides a right to a hearing and Rule 804 which specifies that a demand for a hearing shall not operate as a stay of the suspension of a permit. It should be noted, however, that the statute refers to a trainer’s authorization as a “permit” while the rules refer to it as a “license.”

      . We were told in argument that when Hubei’s permit was suspended in West Virginia, it was also suspended in other states where he was licensed as a matter of reciprocity.

      . Thus, plaintiffs sought, in effect, only declaratory relief and a three-judge court was not required. See Mitchell v. Donovan, 398 U.S. 427, 90 S.Ct. 1763, 26 L.Ed.2d 378 (1970); Rosario v. Rockefeller, 458 F.2d 649, 651-52 and n.2 (2 Cir. 1971), aff’d 410 U.S. 752, 93 S.Ct. 1245, 36 L.Ed.2d 1, reh. den., 411 U.S. 959, 93 S.Ct. 1920, 36 L.Ed.2d 419 (1973).

      . Rule 805 imposes a duty on the Commission to act with due dispatch once an owner or trainer seeks review of the action of the stewards. It provides:
      Upon receipt of the written demand for such hearing, in accordance with Rule 803, a time and place not less than ten (10) nor more than thirty (30) days thereafter will be set by the Commission. Any scheduled hearing may be continued by the Racing Commission upon its own motion or for good cause shown by the person demanding the hearing.

      . The Supreme Court of Appeals of West Virginia has expressed its approval of the validity of the rules. State ex rel. Morris v. West Virginia Racing Commission, 133 W.Va. 179, 194-95, 55 S.E.2d 263, 271 (1949). The validity of these rules is not questioned on state or federal grounds in this appeal.


author: COLEMAN, Circuit Judge.

text:
    UNITED STATES of America, Plaintiff-Appellee, v. COFFEEVILLE CONSOLIDATED SCHOOL DISTRICT et al., Defendants-Appellants. Stephen BROWN et al., Plaintiffs-Appellees, v. COFFEEVILLE CONSOLIDATED SCHOOL DISTRICT et al., Defendants-Appellants.
    No. 74-1160.
    United States Court of Appeals, Fifth Circuit.
    May 8, 1975.
    Rehearing and Rehearing En Banc Denied Oct. 10, 1975.

      Hardy Lott, Greenwood, Miss., for defendants-appellants.
    James O. Ford, Tupelo, Miss., David Rubin, Washington, D. C., H. M. Ray, U. S. Atty., Will R. Ford, Asst. U. S. Atty., Oxford, Miss., Stuart F. Pierson, Ben Krage, Attys., Dept, of Justice, Washington, D. C., Stephen J. Poliak, Richard M. Sharp, William F. Sheehan, III, Washington, D. C., for U. S. A.
    Before WISDOM, COLEMAN and SIMPSON, Circuit Judges.
   COLEMAN, Circuit Judge.

The issue in this case is whether the Coffeeville Consolidated School District improperly failed to re-employ four black teachers, Alma Faye Chapman, Evelyn R. Miller, Robert Bennett, and James A. Lewis. The District Court entered judgment for the teachers and the School District has appealed.

The panel unanimously agrees that James A. Lewis should be reinstated and that the case as to Evelyn R. Miller should be remanded for further proceedings. A majority of the panel holds that teachers Chapman and Miller should also be reinstated.

I

Background

In 1969, by its Attorney General, the United States sought to enjoin the Cof-feeville School authorities from continuing to operate a dual school system. On March 12, 1970, the District Court, over objections by the government, approved a School Board plan of student desegregation, in which separate schools for boys and girls would be operated in the Coffeeville and Oakland attendance zones. At that time the standard Singleton order was entered. Inter alia, it directed that if there were to be a reduction in the number of teachers or other educational employees the selection of those to be demoted or dismissed would have to be made on the basis of objective and reasonable nondiscriminatory standards from among all the staff of the School District. As usual, it was further provided that upon such dismissal or demotion, no vacancy might be filled through recruitment of a person; of a race, color, or national origin different from that of the individual dismissed or demoted until each qualified displaced staff member had an opportunity to fill the vacancy, and had failed to accept an offer to dp so.

It was further ordered that prior to any reduction in force the Board should, develop or require the development of nonracial objective criteria to be used "in selecting those to be dismissed or derfiot-ed, with further appropriate provisions for the enforcement of that requirement.

For reasons not appearing of record, the Coffeeville Consolidated School District did not develop or promulgate .the prescribed objective criteria.

On October 9, 1970, the District Court by modification of its prior order eliminated student assignment based upon separation by sex, effective at the end- of the first semester of the 1970-71 school year.-. It directed the School Board to submit a new plan of student assignment' based upon pairing and zoning. This plan was approved December 3, 1970, to, take effect at the beginning of the next semester.

During the 1970 — 71 school year many-black students boycotted the school. Members of the black community organized marches and boycotted Coffeeville ‘ merchánts. There was an unhappy amount of turmoil and confusion. Subsequently, three black teachers were demoted. After a full hearing in Febru-. ary, 1971, these teachers were ordered.... restored to their prior positions.

For reasons, the details of which are far too lengthy to recite here, it was thought in early 1971 that the District faced the- loss of twenty-four teacher units for the lack of students in numbers prescribed by state Average Daily Attendance standards. However, this anticipated loss was avoided. Twenty, white teachers and three black teachers ■ voluntarily left the system. One white - teacher and seven black teachers Were-not re-employed “for cause”. The appellants here are four of the seven blacks who were thus involuntarily terminated.

The District hired twelve new white teachers and six new black teachers, which resulted in total employment of thirty-four black teachers and thirty-four white teachers. This was the same ratio of black to white prevailing the •previous year and was in compliance with the original District Court order which had required that black and white -.teachers be employed in equal numbers.

II

Position of the Parties

The black teacher appellants claim ’.that they were entitled to the benefit of Singleton standards because they were dismissed in anticipation of a reduction in teachers, necessitated by the desegregation process. The School District denies this because, as it turned out, there was no reduction in the number of teachers employed. It is further argued that the School had, in fact, become a unitary one and the Singleton rule did not apply in any event.

We must agree with the conclusions of the District Court that at the time these teachers were not re-employed the desegregation process in this school system had not been completed, the school had not become unitary, United States v. State of Texas et al. (San Felipe Del Rio Consolidated School District), 5 Cir., 1975, 509 F.2d 192. The dismissed teachers were entitled to the Singleton protection.

Obviously, they did not receive this benefit, and could not have received it, because the School Board simply failed to obey the original order of the Court that objective criteria be developed for dismissals entered on account of or in anticipation of reductions which appeared to be inevitable. Moreover, when the , School District found that there were to be no reductions it did not retrace its steps and undo the action caused by mistaken expectations.

III

Just Cause

'-The Coffeeville Consolidated School District seeks, however, to justify the dismissals on the grounds of just cause, independently of Singleton requirements.

It is the law of this Circuit that under certain circumstances, Singleton notwithstanding, discharges for just cause may be warranted without reference to any pre-established objective, reasonable standards, Thompson v. Madison County Board of Education, 5 Cir., 1973, 476 F.2d 676, 678.

“ ‘Just cause’ in a Singleton situation means types of conduct that are repulsive to the minimum standards of decency — such as honesty and integrity — required by virtually all employers of their employees, and especially required of public servants such as school teachers. No pre-established objective criteria are necessary to justify the discharge of a teacher whose conduct does not measure up to these minimum standards of behavior. For example, if a teacher came to school drunk, or was found stealing from the school treasury, or sexually assaulted a student, the school board could substantiate on ‘just cause’ grounds its firing of that teacher, even though the school system was still in the process of desegregation and whether or not the school board had established any Singleton criteria for discharge or demotion.” 476 F.2d 679.

The Court was careful to point out what just cause “is not" in a Singleton context:

“However, ‘just cause’ in a Singleton situation does not refer to a teacher’s lack of professional credentials, his poor performance in the classroom, his failure to abide by school regulations, his lack of cooperation, or other similar explanations. These types of reasons for discharge fall directly within the scope of Singleton, and accordingly such discharges must be justified on the basis of objective and reasonable standards for dismissal previously set by the school board. If this kind of a discharge can be justified in terms of the established objective standards, it is not for ‘just cause’; it is simply a discharge in compliance with Singleton criteria.” 476 F.2d 678.

Even under Singleton, the hands of a school district are not tied. A school district does not have to put up with incompetency, poor performance, failure to abide by school regulations, lack of cooperation, or the like. All the district has to do is to develop objective, not subjective, criteria, in advance. The purpose of this is to insure that dismissals will not occur solely for racial reasons.

Thompson v. Madison County Board of Education laid down another very salutary principle: After a hearing, on notice, the findings and decision of academic administrative bodies are to be upheld by the Courts when reached by correct procedures and supported by substantial evidence, 476 F.2d at 678.

The teachers now before us were given prolonged and extensive hearings. Unfortunately, the Board followed this with no findings of fact which could have been reviewed under the substantial evidence rule.

IV

Action in the District Court

Under these circumstances, the District Judge quite properly proceeded to hold hearings of his own. He made findings of fact and conclusions of law, set forth in United States v. Coffeeville Consolidated School District, D. C., 365 F.Supp. 990.

On the hearing for preliminary injunction, the District Court denied the injunction, holding at that time that “we are not dealing with a reduction of staff case, but we are dealing with a case involving an attempt by school officials to discharge for reason of cause”. This meant, no doubt, that in the absence of the objective criteria, just cause was the only available defense. After the hearing on the merits the Court found that this was a reduction case. Possibly he was referring to the expected reduction which had set in motion the whole train of events hereinabove discussed. In any event, a review of the record as a whole permits of no defense except that of just cause.

The original plaintiffs in the originál desegregation suit filed a motion for supplemental relief, April 28, 1971. In that motion it was asserted that “several black teachers”, without naming them, have been given notice that their .contracts would not be renewed for the 1971 — 72 school year, that the sole .basis of their termination was race, that no-reasons or basis for the dismissal -had been given, that the dismissal of the black teachers was merely a continuation of a pattern and practice on the part of the School Board in denying blacks equal protection of the law and that the dismissal of the teachers is “meant to have a chilling effect on the black community in their effort to secure this fundamental right”. The motion asserted no Singleton violation. The motion, hbwever, concluded with a four line prayer “That' this Court grant supplemental injunctive relief to reinstate the black teachers terminated without hearing or good causéj' and such further continuing relief as may be necessary”. Back pay and attorney fees were not specifically mentioned.

After the preliminary injunction,, was denied, the teachers took no further action. The litigation was fired up the second time, on the merits, by a motion' filed by the same original plaintiffs (not the teachers). The teachers are not ap-" pellants here, the appellants being the" original plaintiffs in the original desegregation suit. Nominally, this includes the United States, although the United States took no part in a hearing on the merits. In any event, the Court had retained jurisdiction over the desegregation process and we have no doubt that the plaintiffs had standing to challenge, any Board action which amounted to a substantial interference with that process.

We now take up the facts as to each teacher individually.

V

James A. Lewis

An examination of the evidence with reference to Lewis indicates that all the charges against him were directed toward his competency in the management of the shop in which he conducted his classes. The evidence raises no Thompson v. Madison County Board of Education just cause issue. Obviously, ■under Singleton requirements Lewis’ discharge was improper and the District Court correctly decided that he was entitled to reinstatement.

VI

Evelyn R. Miller

Most of the allegations with reference to Teacher Evelyn R. Miller had to do with real and supposed deficiencies in the competency of her teaching. As a Singleton matter, this afforded no basis for discharge.

There was another charge, however, (undisputed so far as we can find) that Mrs. Miller on occasion punished her students by keeping “two little boys in her class standing for twelve minutes by the watch while touching their toes”. Another student, a girl, age twelve, called by Mrs. Miller as her own witness, testified that she had been required to bend over touching her toes for about ten minutes, but that “it did not make her sick”. There appears to be no doubt frpm Mrs. Miller’s own testimony that “she customarily disciplined her children by having them stand while touching their toes”. The District Court found, however, that she had never been reprimanded for the disciplinary methods she employed.

Certainly, if the school authorities knew that she used this method of discipline they should have warned her to ■quit it and should have taken the appropriate action if she disregarded the warning. This Court has serious doubt, however, that the absence of a warning may- excuse an act which the teacher knew, or should have known, was fundamentally wrong,, including inexcusable humiliations or punishment which might be dangerous to the health of the child. In the absence of a warning, common decency would tell the teacher not to engage in practices of that kind, particularly when such might very well indicate a form of intolerable sadism. Stated another way, if conduct on the part of a teacher is unnecessarily harsh and harmful to the students, particularly to those of the age who were submitted to Mrs. Miller’s jurisdiction, the best interest of the students should be weighed along with Mrs. Miller’s rights to retain her un-tenured re-employment. We do not care to establish the precedent in this Circuit, as a matter of teacher employment, that mistreating children may be shielded by failure of superiors to intervene, although if they have knowledge of it they should do so.

We feel that the ends of justice would be better served by remanding Mrs. Miller’s case to the District Court for a,hearing. The extent to which this practice was followed and its effect mentally and physically upon those subjected to it may then be determined, including a finding of whether this practice demonstrated a basic unfitness to be placed in charge of children for educational purposes.

VII

Separate Views of Judges Wisdom and Simpson as to Teachers Chapman and Bennett

To this point in the opinion, Judges Wisdom and Simpson are in complete agreement with Judge Coleman. Judges Wisdom and Simpson have concluded, however, contrary to Judge Coleman’s conclusion, that the record does not permit a holding that the District Court was clearly erroneous in holding that Miss Chapman and Robert Bennett were improperly discharged.

(a)

Alma Faye Chapman

Miss Chapman was given a favorable rating but, nonetheless, was not rehired. The School Board offers three reasons: (1) that she discussed the meaning of “queer” with her class of eighth grade boys, allegedly using the most common vulgar term for a homosexual, a ten letter word usually applied to a male; (2) that she gave oral examinations contrary to school regulations; and (3) that the final grades she submitted at the end of the year could not, in many cases, have been arrived at in accordance with explicit school policy.

All members of the panel agree that the Singleton requirements were not satisfied. Miss Chapman’s dismissal can stand, therefore, only if the school board can show “just cause”. Inasmuch as just cause does not include poor performance or failure to abide by school regulations, grounds (2) and (3) above are inapplicable. We are left, then, with the first issue.

The evidence on this point was conflicting. It is undisputed that Miss Chapman, in her eighth grade spelling class, was led into a discussion of homosexuality. It is also largely undisputed that she did not initiate the discussion; she tried to thwart it, but finally yielded to student persistence.

The dispute centers on the content of the discussion. Denley, the superintendent of the school district, and Russell, the assistant superintendent, testified at the hearing before the school board. Each said that numerous parents had complained about the incident but neither was able to identify specific parents. Russell conceded that it was his duty to take down the names of complaining parents and that he had not done so. Russell could testify only that Miss Chapman had admitted to him that the discussion had taken place, that “that had happened to her before when she had been out — that one thing had happened and she was looking for another”, and that “she told her students about her experience when she had gone out with some man”. Denley corroborated this testimony: “She said she told them a queer was a [explicit vulgarism deleted] and she said she went on and told them that she had a date .with one. when she was at Jackson State and .that he carried her out and that’s all he wanted to do to her.” One student testified: “She got to talking about back in' her college days when she was going out with a fellow, and she said he was a [same vulgarism].” Another student testified to the contrary, saying that he' had never heard her use the words “queer” or “homosexual” or “fag” or any other name that might be used, and that she had mentioned no man at Jackson State.

Only one eyewitness testified that she had used the word in question. Denley testified only that she told him she had used that word. His testimony was imprecise. For example, he conceded that he "could not remember “whether we went into exact words, or not, whether we did or not”. But he could' not remember whether she had admitted ■ the accusations against her or simply failed to deny them.

Miss Chapman’s testimony is not impressive. At the school board hearing, she first' testified that she had no recollection of using foul language, but toward the end of the hearing she absolutely denied ever having used such Ian-' guage. There is a conflict as to whether she had discussed her “experiences”. At first, she said she “told them about some of my experiences”. She answered, “possibly”, when asked if she had related some .of the “things concerning her personal life”. Later she testified that she “possibly told them about experiences-that I had run across with people of that nature, but I did not tell them what they did”. She flatly denied ever having told the students about or describing any date with a “queer”. She testified that “I.did not tell them that I had been out, with [a homosexual], and I have not. . . I didn’t even bring myself into the picture”.

Miss Chapman’s testimony may have been slanted in the direction of toning down what she did say in class. She may have discussed, at least to some extent, her personal encounters with queers with her eighth grade class. But ■there is no indication that the discussion was protracted or that it was ever repeated. A single instance of bad judgment, provoked, possibly deliberately, by sexually precocious students? Probably. “Just cause” for dismissal? No.

As to the statement, there was little direct evidence. One student testified at the school board hearing. He did not testify at trial before the District Court, nor did any other student from that class. On this point, only one witness testified against her at trial: Superintendent Denley. He testified that she .told him of telling her students that a queer is a [same vulgarism]. He was not, of course, present at the alleged in-cident.

This incident appears to have been an afterthought, in light of the little evidence that it was taken seriously at the time. Indeed, Ms. Moorman, the principal of the girls’ school to which Miss Chapman was transferred during the school year recommended Miss Chapman for retention, even though she was aware “to a certain extent” of the incident at the boys’ school.

Judge Keady found: “The credible evidence is that the teacher did not use foul words but discussed sex deviants in general terms, without reference to personal experience.” He is the judge of credibility. Judges Wisdom and Simpson cannot say that his finding was clearly erroneous.

(b)

Robert Earl Bennett

The charges against Bennett were:

(1) That he customarily drove to school an auto bearing the bumper sticker reading: “IF AT FIRST YOU DON’T SUCCEED, TRY A-GUN”;

(2) That in two instances he taped shut the mouths of unruly students;

(3) That on a few occasions he paddled students as young as second graders, without having another teacher present and outside of the principal’s office, contrary to school regulations.

The question here is not professional qualifications. The question is whether his conduct is “repulsive to the minimum standards of decency”.

As to his alleged physical abuse of children, Judge Keady concluded that “the only thing that Bennett was really guilty of was failing to comply with the school board regulation to carry out this corporal punishment in the presence of the principal or in the presence of someone authorized by the principal”. This is an accurate characterization of the charge. Although there was some suggestion that he became overzealous in his paddling (at least one child went home with a bruised bottom) there was not evidence of brutality. Bennett did admit that on one occasion, when his second grade class got out of hand, he paddled the entire class, but, he says, not roughly. This seems unjust, but Bennett may have accepted the military theory that culprits will not repeat their offense if they know that their innocent friends and peers will be punished.

The mouth taping seems unnecessary, but there was no evidence that the child involved was particularly offended or hurt, so that this incident has no large proportions.

There were other charges against Bennett. As to two of these, Judge Keady held that Bennett had “logical explanations” and “his testimony was not refuted by substantial evidence”. Judge Keady found: “Manifestly, there was no evidence whatever that Bennett engaged in violence, or that he advocated violence in dealing with others, or that he was guilty of misconduct toward anyone”. He concluded, therefore, “that ‘cause’ in the Singleton concept did not exist for not rehiring this teacher”.

The result is that the judgment of the District Court as to Evelyn R. Miller will be vacated and remanded to the District Court for further proceedings not inconsistent with what has been said as to her case. The judgment as to James D. Lewis, Alma Faye Chapman, and Robert Earl Bennett will be affirmed.

VIII

Judge Coleman’s Dissent as to Chapman and Bennett

Judge Coleman dissents as to Alma Faye Chapman and Robert Earl Bennett. As to these teachers he would reverse.

/ Miss Chapman’s job was to teach spelling and mathematics to students in grades seven through ten. Discussion of sexual deviancy or conducting a class in i sex were entirely beyond the ambit of (her duties and qualifications. During the course of an eighth grade spelling class, a student asked Miss Chapman “what a queer was”. She then engaged in a discussion of it. The school district authorities received numerous protests from the parents of these children. Superintendent Denley testified that when he questioned her about the incident she said she had told the class that a queer is a “c — k s — ker”, that she had told the class about her experience when she had a date with a queer. Assistant Superintendent Russell testified that Miss Chapman told him that she had related to the class her experiences when she had gone out with a man who was a queer. One of the students testified that Miss Chapman told of her college days when she was going with a fellow that was a-----, using the same term which Mr. Denley testified she had used. It seems highly unlikely to me that both the Superintendent and the student would have been either deliberately or unintentionally wrong about this.

In her own testimony, Miss Chapman did not directly deny the use of the utterly indecent word which Mr. Denley said she had admitted using. She said only that she could not “recall saying anything of that sort”. When asked point blank if she used that word, her answer was: “Not to my knowledge, I did not”. She did admit that she told these eighth grade students about experiences she had run across with people of that nature, but at a later point she repudiated that testimony. Miss Chapman testified that she thought parents were not giving the students enough sex education and for that reason she also thought it was a good idea that she instruct the students in sex.

The District Court held 365 F.Supp. page 998 that “the credible evidence is that the teacher did not use foul words but discussed sex deviants in general terms”. It concluded that “while the judgment of a woman teacher discussing the subject at all with young boys might be questioned, her doing so was certainly not ■ an act ‘repulsive to the minimum standards of decency’ required of public school teachers”.

With deference, I think this finding is clearly erroneous; that the equivocal testimony of the teacher when brought to account for her conduct is wholly unconvincing when compared with the testimony of others, including a student-She did not deny using the term, but sucessfully, as it now develops, took refuge behind “do not recall” and “not to my knowledge”.

Robert Bennett

Leaving aside the factor of incompetency which could be considered only under Singleton standards, Robert Bennett’s case is not entitled to any special commendation. In at least two instances he caused the mouths of students to be taped because they were unduly boisterous in class. Bennett admitted doing this but offered the incredible excuse that it was done in part to demonstrate first aid in ease of a “busted” lip.

Moreover, in an activity wholly unrelated to his duties as a teacher he customarily drove his automobile to school bearing a bumper sticker which read “IF AT FIRST YOU DON’T SUCCEED, TRY A-GUN”. He explained this as only a play on words. Be that as it may, it seems to me that any minimally qualified school teacher would be well aware of the obvious connotations of displaying this sticker. He knew that he was exhibiting this suggestively violent sentiment for young students to see on the schoolgrounds. The “thought often becomes the father of the deed”. The bad judgment of displaying such sentiments to the students by one of their mentors is something that a school board and the general public ought not to have to tolerate.

Possibly it may be said that the display of this bumper sticker was only an exercise of First Amendment freedoms and that, as a matter of fact, it caused no violence or disruption. Displaying the sticker on the street as a personal act and driving it to school everyday among young people open to the power of suggestion are two different things. Talking about the use of a gun at school cannot be equated with the harmless armband of Tinker. I do not think that this Court has ever intended to place the badge of immunity on mouth tapings and gun shibboleths. School boards should not be rendered impotent to deal appropriately with that type of conduct when it is injected into the educational system.

In light of the foregoing, I am of the opinion that the conduct of Bennett and Chapman was established by the evidence and that it furnished just cause for not giving them further contracts to teach.

As to the reinstatement of Bennett and Chapman, I respectfully dissent.

As to the reinstatement of James A. Lewis, I concur.

As to the remand for further proceedings concerning Evelyn R. Miller, I also concur.