author: ADAMS, Circuit Judge. ROSENN, Circuit Judge

text:
    Stanley KNAPP, Jr., Appellant, v. NORTH AMERICAN ROCKWELL CORPORATION v. MRS. SMITH’S PIE COMPANY, Third-Party-Defendant.
    No. 74-1110.
    United States Court of Appeals, Third Circuit.
    Argued Sept. 10, 1974.
    Decided Dec. 27, 1974.

      Howard J. Creskoff, Freedman, Boro wsky & Lorry, Philadelphia, Pa., for appellant.
    William F. Sullivan, Jr., Robert M. Britton, Barton L. Post, Post & Schell, P. A., Philadelphia, Pa., for appellee.
    Before ALDISERT, ADAMS and RO-SENN, Circuit Judges.
   OPINION OF THE COURT

ADAMS, Circuit Judge.

The principal question here is whether it was error to grant summary judgment on the ground that one injured by a defective machine may not recover from the corporation that purchased substantially all the assets of the manufacturer of the machine because the transaction was a sale of assets rather than a merger or consolidation.

I.

Stanley Knapp, Jr., an employee of Mrs. Smith’s Pie Co., was injured on October 6, 1969, when, in the course of his employment, his hand was caught in a machine known as a “Packomatic.” The machine had been designed and manufactured by Textile Machine Works (TMW) and had been sold to Mrs. Smith’s Pie Co. in 1966 or 1967.

On April 5, 1968, TMW entered into an agreement with North American Rockwell whereby TMW exchanged substantially all its assets for stock in Rockwell. TMW retained only its corporate seal, its articles of incorporation, its minute books and other corporate records, and $500,000. in cash intended to cover TMW’s expenses in connection with the transfer. TMW also had the right, pri- or to closing the transaction with Rockwell, to dispose of land held by TMW or its subsidiary. Among the assets acquired by Rockwell was the right to use the name “Textile Machine Works.” TMW was to change its name on the closing date, then to distribute the Rockwell stock to its shareholders and to dissolve TMW “[a]s soon as practicable after the last of such distributions.”

The accord reached by Rockwell and TMW also stipulated that Rockwell would assume specified obligations and liabilities of TMW, but among the liabilities not assumed were: “(a) liabilities against which TMW is insured or otherwise indemnified to the extent of such insurance or indemnification unless the insurer or indemnitor agrees in writing to insure and indemnify [Rockwell] to the same extent as it was so insuring and indemnifying TMW.”

Closing took place pursuant to the agreement on August 29, 1968. Plaintiff sustained his injuries on October 6, 1969. TMW was dissolved on February 20, 1970, almost 18 months after the bulk of its assets had been exchanged for Rockwell stock.

Plaintiff filed this suit against Rockwell in the district court on March 22, 1971. He alleged that his injuries resulted from the negligence of TMW in designing and manufacturing the machine and that Rockwell, as TMW’s successor, is liable for such injuries. Rockwell joined plaintiff’s employer, Mrs. Smith’s Pie Co., as a third-party defendant.

Rockwell moved for summary judgment in the district court on June 19, 1973. On September 6, 1973, the district court granted the motion, ruling that Rockwell had neither merged nor consolidated with TMW, that Rockwell was not a continuation of TMW, and that Rockwell had not assumed TMW’s liability to Knapp. Therefore, the court concluded, Rockwell was not responsible for the obligations of TMW. On October 11, 1973, Knapp filed a motion for rehearing and reconsideration by the district court, which was denied on November 26, 1973. Knapp appealed to this Court on December 11, 1973.

II.

Both parties agree that this case is controlled by the following principle of law:

The general rule is that “a mere sale of corporate property by one company to another does not make the purchaser liable for the liabilities of the seller not assumed by it.” . . . There are, however, certain exceptions to this rule. Liability for obligations of a selling corporation may be imposed on the purchasing corporation when (1) the purchaser expressly or impliedly agrees to assume such obligations; (2) the transaction amounts to a consolidation or merger of the selling corporation with or into the purchasing corporation; (3) the purchasing corporation is merely a continuation of the selling corporation; or (4) the transaction is entered into fraudulently to escape liability for such obligations.

Shane v. Hobam, Inc., 332 F.Supp. 526, 527—528 (E.D.Pa.1971) (citations omitted) (decided under New York law).

In light of this language, Knapp contends that the transaction in question “amounts to a consolidation or merger of [TMW] with or into the purchasing corporation [Rockwell]” or, alternatively, that Rockwell is a “continuation” of TMW. Although the TMW corporation technically continued to exist until its dissolution approximately 18 months after the consummation of the transaction with Rockwell, TMW was, Knapp argues, a mere shell during that period. It had none of its former assets, no active operations, and was required by the contract with Rockwell to dissolve itself “as soon as practicable.” Knapp urges in effect that the transaction between TMW and Rockwell should be considered a de facto merger.

Rockwell asserts, in defense of the district court’s grant of summary judgment, that a merger, a consolidation and a continuation all require that the corporation being merged, consolidated or continued cease to exist. TMW, Rockwell claims, did not go out of existence at the time of the exchange with Rockwell, but continued its corporate life for 18 months thereafter. Further, Rockwell argues, TMW until its dissolution possessed assets of substantial value, in the form of Rockwell stock.

III.

In a diversity case, the federal court must apply the rule of law which would govern if suit were brought in a court of the forum state. We must, therefore, determine how this case would be decided by a Pennsylvania court.

All jurisdictions which have considered the question appear to have accepted not only the general rule that a corporation which purchases the assets of a second corporation is not thereby liable for the obligations of the selling corporation, unless there exists one of the exceptions set out in Shane, supra p. 364.

Under Shane, the first of the four exceptions rendering the purchasing corporation liable for duties of the seller is a transaction amounting to a merger or consolidation. In a merger a corporation absorbs one or more other corporations, which thereby lose their corporate identity. “A merger of two corporations contemplates that one will be absorbed by the other and go out of existence, but the absorbing corporation will remain.” In a consolidation, on the other hand, “all the combining corporations are deemed to be dissolved and to lose their identity in a new corporate entity which takes over all the properties, powers and privileges, as well as the liabilities, of the constituent companies.” Another of the Shane exceptions to the general rule of nonliability arises when there is a continuation. In a continuation, a new corporation is formed to acquire the assets of an extant corporation, which then ceases to exist. “[T]here is in effect but one corporation which merely changes its form and ordinarily ceases to exist upon the creation of the new corporation which is its successor.”

No prior cases decided under Pennsylvania law have addressed the problem presently before this Court. However, when courts from other jurisdictions have considered similar questions, they have ascertained the existence vel non of a merger, a consolidation or a continuation on the basis of whether, immediately after the transaction, the selling corporation continued to exist as a corporate entity and whether, after the transaction, the selling corporation possessed substantial assets with which to satisfy the demands of its creditors.

Thus, in Bazan v. Kux Machine Co., the plaintiff was injured in 1966 by a machine purchased by his employer from Kux Machine Co. in 1961. In 1963, after the sale of the machine to plaintiff’s employer but prior to the accident, Kux sold to the Wickes Corporation the bulk of Kux’s assets, retaining only its accounts receivable, its prepaid insurance and its real estate. Wickes acquired Kux’ tangible personal property, licenses, trademarks, patents, good will, and the exclusive right to use the name “Kux Machine.” Kux, after changing its name, remained in existence for ten months before dissolving as required by the contract with Wickes. The court held that the transaction was not a merger, consolidation or continuation. It reasoned that Kux continued to exist for a substantial period after the exchange, that the transaction was a cash sale rather than an exchange of stock, and that none of the owners or management of the seller acquired any interest in the buyer.

Similarly, in McKee v. Harris-Seybold Co. the court held that there had been no merger or consolidation between the alleged tortfeasor and the purchaser of its assets. The plaintiff was injured in 1968 by a paper-cutting machine manufactured in 1916 by the Seybold Machine Co. In 1926, Seybold agreed to sell its assets to Harris Automatic Press Co. In exchange, Harris agreed to give Seybold cash plus common stock in Harris, and to assume certain of Seybold’s liabilities. Harris acquired all the assets of Seybold including its good will and the exclusive use of the name “Seybold Machine Co.” Seybold agreed to change its name and not to engage in any manufacturing activities. Seybold continued to exist under a different name for one year after the exchange. Prior to the consummation of the transaction Harris assigned its interest in the contract to a new corporation formed for the purpose. The new corporation was later renamed the Harris-Seybold Co. The court held that Harris-Seybold was not liable for the plaintiff’s injuries because there had been no merger or consolidation between the Harris and Seybold corporations. Nor, the court ruled, was Harris or Harris-Seybold a continuation of Seybold. After observing that this was not an exchange for securities alone, the court stressed that “[t]he identity of the [Seybold] corporation and of its stockholders as an integral part of the corporate identity was not eradicated by the transfer.” 264 A.2d at 104. The court set forth its rationale in the following passage:

The corporation could no longer function as a manufacturer, yet it could and did operate and function as a corporation for some time after the sale. The vendor corporation, as a corporate entity, was not absorbed into the purchasing corporation. What was absorbed was the nature of the manufacturing operations previously engaged in by Seybold, not the corporate entity itself. Id.

The court’s analysis was that “[i]f the vendor corporation receives the consideration for the transfer, as opposed to those situations where the stockholders directly receive the same, and that corporation is thereby kept alive, there seems to be nothing in the nature of a merger or consolidation.” Id.'

The Nevada Supreme Court reached the same conclusion in Lamb v. Leroy Corp. There, a contract creditor of Nevada Land and Mortgage Co. sought to enforce his claim against the Leroy Corp. Shares in Leroy were exchanged in 1965 for all the assets of Nevada Land exclusive of two items of real estate Leroy did not want and some incidental cash. A certificate representing the stock was delivered to Nevada Land. “Soon after the consummation of [the] transaction,” Nevada Land distributed the Leroy shares to its shareholders and dissolved, without satisfying Lamb’s claim. The court concluded that the transaction was not a merger or a consolidation, on the basis that the consideration was adequate, that Leroy delivered the shares to Nevada Land rather than to its shareholders, and that the subsequent dissolution was a separate transaction.

This cluster of cases illustrates the significance which the decisions from other jurisdictions accord to corporate theory and the continued existence of the corporate entity. The adequacy of the consideration received by the selling corporation has also been given great weight in deciding the existence of a sale as contrasted with a merger or continuation. In Lamb, supra, the court pointed out that the consideration was adequate, since the selling corporation received a valuable asset — the purchaser’s stock — which for the remainder of the life of the corporation was exposed to the claims of the seller’s creditors. Similarly, the court emphasized in McKee, supra, that the selling corporation had received substantial value for its assets, and that there was no hint the selling corporation was being denuded of assets with which it might satisfy the claims of its creditors. The district court for the District of Colorado, in Kloberdanz v. Joy Mfg. Co., stated that “the emphasis should be on whether the sale was a bona fide one involving the payment of money or property to the selling corporation whereby it can respond [in damages] in actions like the present one.”

In Jackson v. Diamond T. Trucking Co., the court found the purchasing corporation to be a continuation of the selling corporation because the “purchaser” took all the assets of the “seller” in return for nominal consideration only. Similarly, in Ruedy v. Toledo Factories Co. and Hoche Productions v. Jayark Films Corp., the courts concluded that the transactions were mergers after the “selling” corporations were left without appreciable assets to satisfy the claims of their creditors.

IV.

The cases discussed above, all decided under the law of jurisdictions other than Pennsylvania, may suggest that the arrangement between Rockwell and TMW should be considered a sale rather than a merger or a continuation, since TMW did not officially terminate its corporate existence for 18 months after the exchange, and throughout that period possessed valuable assets with which to respond to tort claims similar to the one now advanced. However, a number of considerations indicate the insubstantiality of the continued existence of TMW, including the brevity of the corporation’s continued life, the contractual requirement that TMW be dissolved as soon as possible, the prohibition on engaging in normal business transactions, and the character of the assets TMW controlled. Although each of these factors was present in one or more of the above cases, the present appeal is unique in combining all these elements. In addition, the better-reasoned result would be to conclude that, for the purpose of determining liability to tortiously injured parties, the Rockwell-TMW transaction should be treated as a merger, thereby subjecting Rockwell to liability for injuries caused by defective products distributed by TMW prior to the transaction.

We must, of course, apply the rule we believe a Pennsylvania appellate tribunal would adopt if the case arose in the state courts. In resolving issues relating to the recognition of a cause of action in favor of an injured party, the Pennsylvania courts have emphasized the public policy considerations served by imposing liability on the defendant rather than formal or technical requirements.

The Pennsylvania Supreme Court has held, in the context of the rights of dissenting shareholders, that if an agreement between two corporations bears the essential character of a merger, the failure of the contracting parties to follow the statutory merger procedures should not deprive third parties of relief otherwise available to them. By Pennsylvania statute, when two corporations are merged, the surviving corporation becomes liable for the obligations of the corporation which ceases to exist. Also, any shareholder of a merging corporation who is dissatisfied with the merger plan may obtain a valuation of his shares.

In Farris v. Glen Alden Corp., a shareholder of Glen Alden sought to enjoin a meeting of Glen Alden shareholders called to approve a “reorganization agreement” with List Industries. Plaintiff asked that the meeting be enjoined because management had failed to inform the shareholders that the purpose of the meeting was the approval of a merger and that the shareholders had a right to dissent from the merger and obtain a valuation of their stock. Management responded that the shareholders had no valuation rights because the transaction did not conform to the statutory merger procedures and therefore was not a merger, but a sale of assets to which valuation rights did not apply. Pursuant to the plan of reorganization, Glen Alden was to acquire all the assets of List except a small amount of cash reserved for payment of expenses in connection with the transaction. In exchange, Glen Alden was to assume all List’s liabilities and to issue stock to List that List would distribute to its stockholders. List was then to dissolve and Glen Alden to change its name to List Alden.

The Court expressed the view in Farris that because of the complexities of modern corporate reorganizations,

it is no longer helpful to consider an individual transaction in the abstract and solely by reference to the various elements therein determine whether it is a “merger” or a “sale”. Instead, to determine properly the nature of a corporate transaction, we must refer not only to all the provisions of the agreement, but also to the consequences of the transaction and to the purposes of the provisions of the corporation law said to be applicable.

The rationale of dissenting shareholders’ rights, the Court stated, is to allow shareholders to treat their membership in the original corporation as terminated when the corporation, in combining with another, “lose[s] its original nature.” The List-Glen Alden agreement, the Court held, fundamentally altered the relationship between Glen Alden and its shareholders, and therefore the provisions relating to dissenting shareholders’ rights should apply.

The present case, like Farris, involves a transaction which resembles a merger but does not possess all the formal characteristics of one. It seems appropriate to infer from Farris that in deciding whether to treat such an arrangement as a merger the Pennsylvania courts would consider the purposes which would be served by imposing liability on Rockwell for the tortious conduct of TMW.

In the present case, Knapp is confronted with the melancholy prospect of being barred from his day in court unless Rockwell is held subject to suit. And quite significantly, if Knapp had been injured more than two years after the dissolution of TMW, Knapp would never have had any opportunity to recover at law, since under Pennsylvania law a dissolved corporation is subject to suit for only two years after the date of dissolution.

Denying Knapp the right to sue Rockwell because of the barren continuation of TMW after the exchange with Rockwell would allow a formality to defeat Knapp’s recovery. Although TMW technically existed as an independent corporation, it had no substance. The parties clearly contemplated that TMW would terminate its existence as a part of the transaction. TMW had, in exchange for Rockwell stock, disposed of all the assets it originally held, exclusive of the cash necessary to consummate the transaction. It could not undertake any active operations. Nor was TMW permitted under the agreement to divest itself of the Rockwell stock, so that it might become an effective investment vehicle for its shareholders. Most significantly, TMW was required by the contract with Rockwell to dissolve “as soon as practicable.”

On the other hand, Rockwell acquired all the assets of TMW, exclusive of certain real estate that Rockwell did not want, and assumed practically all of TMW’s liabilities. Further, Rockwell required that TMW use its “best efforts,” prior to the consummation of the transaction, to preserve TMW’s business organization intact for Rockwell, to make available to Rockwell TMW’s existing officers and employees, and to maintain TMW’s relationship with its customers and suppliers. After the exchange, Rockwell continued TMW’s former business operations.

If we are to follow the philosophy of the Pennsylvania courts that questions of an injured party’s right to seek recovery are to be resolved by an analysis of public policy considerations rather than by a mere procrustean application of formalities, we must, in considering whether the TMW-Rockwell exchange was a merger, evaluate the public policy implications of that determination.

In resolving, where the burden of a loss should be imposed, the Pennsylvania Supreme Court has considered which of the two parties is better able to spread the loss. In Ayala v. Philadelphia Board of Education, a student who had been injured by a shredding machine during an upholstery class sued the Board of Education. The Court, in abolishing the doctrine of immunity in suits against local government, observed that the Board was in a better position than the student to have avoided the injury, and that “The city is a far better loss-distributing agency than the innocent and injured victim.” The Court, quoting the Supreme Court of Illinois, decried the injustice of imposing upon an injured party the entire burden of his injuries, rather than distributing the responsibility throughout the community “where it could be borne without hardship upon any individual.”

The Pennsylvania courts have also noted the importance of insurance in performing the loss-spreading function. In Falco v. Pados, the Court concluded that public interest mandated the abolition of parental immunity from liability for a parent’s negligent injury to his child because, in the presence of wide-spread liability insurance coverage, the doctrine of parental immunity unjustly confined the burden of the loss to the injured party alone. “In a time of almost universal liability insurance, such unexpected hardship or ruin is needlessly inflicted by the immunity doctrine.”

Interpreting all the allegations in the light most favorable to Knapp, as we must on a motion for summary judgment, neither Knapp nor Rockwell was ever in a position to prevent the occurrence of the injury, inasmuch as neither manufactured the defective device. As between these two parties, however, Rockwell is better able to spread the burden of the loss. Prior to the exchange with Rockwell, TMW had procured insurance that would have indemnified TMW had it been held liable to Knapp for his injuries. Rockwell could have protected itself from sustaining the brunt of the loss by securing from TMW an assignment of TMW’s insurance. There is no indication in the record that such an assignment would have placed a burden on either Rockwell or TMW since TMW had already purchased the insurance protection, and the insurance was of no continuing benefit to TMW after its liability to suit was terminated by Pennsylvania statute. Rockwell has adduced no explanation, either in its brief or at oral argument, why it agreed in the contract not to take an assignment of TMW’s prepaid insurance. Rockwell therefore should not be permitted to impose the weight of the loss upon a user of an allegedly defective product by delaying the formal dissolution of TMW. In the absence of contrary controlling decisions by the Pennsylvania courts, we conclude that the state judiciary would adopt the rule of law that appears to be better reasoned and more consistent with the social policy set forth in recent Pennsylvania cases.

The judgment of the district court will therefore be reversed and the case remanded for further proceedings consistent with this opinion.

ROSENN, Circuit Judge

(concurring).

The majority holds that, under certain circumstances, a corporation which acquires substantially all the assets of another corporation may be held liable for injuries caused by defective products manufactured by the other corporation before the date of acquisition. In the present case, they conclude that, even though the transaction was structured as a sale of assets, it should be “treated as a merger” for the purpose of imposing tort liability. Although I concur in the result reached by the majority, I wish to clarify the basis upon which I would impose such liability.

Our examination should begin with the Pennsylvania Business Corporation Law which provides for merger of two or more corporations. 15 P.S. § 801 et seq. One of the purposes of the statutory merger provisions is to protect dissenting shareholders by according them the right to have their shares redeemed by the corporation at full market value. See 15 P.S. § 805. Another purpose is to protect persons having claims against a nonsurviving corporation. See 15 P.S. § 803.

Section 803 provides in part that, after merger,

all debts not of record, duties, and liabilities of each of said constituent corporations shall thenceforth attach to the said surviving . . . corporation

Thus, had Rockwell’s acquisition of TMW been accomplished by merger rather than by purchase of assets, section 803 would have subjected Rockwell to liability for tort claims against TMW.

In the present day of complex corporate reorganizations and acquisitions, the intrinsic nature of a transaction cannot be ascertained merely from the form in which it is structured. Courts therefore must examine the substance of the transaction to ascertain its purpose and true intent.

[I]t is no longer helpful to consider an individual transaction in the abstract and solely by reference to the various elements therein determine whether it is a “merger” or a “sale”. Instead, to determine properly the nature of a corporate transaction, we must refer not only to all the provisions of the agreement, but also to the consequences of the transaction and to the purposes of the provisions of the corporation law said to be applicable.

Farris v. Glen Alden Corp., 393 Pa. 427, 432, 143 A.2d 25, 28 (1958).

The Pennsylvania Supreme Court has had occasion to examine the rights of dissenting shareholders when a transfer of the business operations of one corporation to another is effectuated by sale rather than by utilization of the statutory procedures provided for merger. In Farris v. Glen Alden Corp., supra, Glen Alden entered into an agreement to purchase all of the assets of List Industries Corporation (List) in exchange for capital stock of Glen Alden. List was to be dissolved and the operations of both corporations were to be carried on by Glen Alden, whose name was to be changed to List Alden. The directors of both corporations were to become directors of List Alden. In enforcing the appraisal rights of an objecting stockholder of Glen Alden, the court stated that, even though the combination of corporations was effectuated by a sale of assets to which the merger statute does not literally apply, “we will not blind our eyes to the realities of the transaction.” 393 Pa. at 438, 143 A.2d at 31. It concluded that the combination proposed, “although consummated by contract rather than in accordance with the statutory procedure, is a merger within the protective purview of the corporation law.” Id. It reached this conclusion on the following basis:

The rationale ... of the present section of the Business Corporation Law ... is that when a corporation combines with another so as to lose its essential nature and alter the original fundamental relationships of the shareholders among themselves and to the corporation, a shareholder who does not wish to continue his membership therein may treat his membership in the original corporation as terminated and have the value of his shares paid to him.

Farris v. Glen Alden Corp., supra, 393 Pa. at 433, 143 A.2d at 29. Thus, whether or not the formal merger procedures are followed, the appraisal rights embodied in section 805 should be enforced if a transaction alters the “fundamental relationships” among a corporation and its investors. This altering of “fundamental relationships” is the attribute of merger which triggers the applicability of section 805 appraisal rights.

If, in protecting dissenting shareholders', a court should scrutinize a corporate transaction to ascertain the presence of certain attributes of merger relevant to the enforcement of appraisal rights, it should do no less in protecting tort claimants. Both dissenting shareholders under section 805 and tort claimants under section 803 are the intended beneficiaries of protective legislation. Although a transaction should be scrutinized to protect both shareholders and tort claimants, a court should search for somewhat different attributes of merger for purposes of imposing tort liability. This difference in relevant attributes stems from the distinct relationships to the corporation of the persons whom the legislature has sought to protect. While dissenting shareholders need protection against alteration of their investment rights, tort claimants need protection against attempts by ongoing businesses to avoid liability through transfer of their operations to another legal entity.

I believe that, where a corporation purchases substantially all the assets of a second corporation, the legislature intended to impose the second corporation’s tort liabilities on the acquiring corporation at least if the following attributes of merger are present:

(1) an ongoing business, including its name and good will, is transferred to the acquiring corporation; and
(2) the corporation whose assets are acquired is dissolved after distribution to its shareholders of the consideration received from the acquiring corporation.

In the present case, TMW transferred to Rockwell almost all its assets, retaining only its corporate records and a limited amount of cash to effectuate the transaction. The “Agreement and Plan of Reorganization” specifically provided for the transfer of TMW’s business “as a going concern,” including good will, the exclusive right to use the name “Textile Machine Works,” and the “permits or licenses to conduct [TMW’s] business as now carried on.” TMW also agreed to change its name and dissolve. In this regard, the “Agreement and Plan of Reorganization” provided that,

[o]n the Closing Date, TMW shall take all action required to change its name to “T.W. Company” (“TW”) .... As soon as practicable after the last [liquidating distributions to its shareholders of Rockwell stock], TW shall wind up its affairs and dissolve. From and after the Closing Date, TW shall not engage in any business or other activity except as required to carry out the terms of this Agreement and to complete its liquidation and dissolution as provided herein.

In addition, this transaction has another characteristic of a statutory merger. The consideration given for TMW’s assets was Rockwell stock, which in turn was to be distributed to TMW’s shareholders on TMW’s liquidation and dissolution. Thus, TMW shareholders became shareholders in Rockwell just as if they had exchanged their shares directly with Rockwell under the statutory merger procedure. See 15 P.S. § 801.

On the basis of the foregoing, I am persuaded that the Pennsylvania courts would consider this transaction a merger within the intendment of section 803. This I believe they would do even though the transaction was structured as a sale and even though TMW had not fully wound up its affairs and dissolved until 18 months after the combination. TMW actually had ceased to function as a going concern when the sale was consummated. Only a corporate shell remained, engaged solely in the process of winding up and dissolution.

While I recognize the rightful prerogative of a corporation to rearrange its business or go out of business entirely, there is also a practical and reasonable basis for construing this transaction as a merger. Were we in the circumstances of this case to absolve of liability a corporation which acquires a functioning business by purchasing substantially all the assets of another corporation, many injured parties would be unable to maintain products liability actions after the former corporate owner of the business has been dissolved. Although by statute Pennsylvania corporations are amenable to suit for two years after dissolution, a defect in a product manufactured by a dissolved corporation may not come to light until long after the two-year period. See 15 P.S. § 2111. Because the statute of limitations generally does not begin to run until the defect is discovered, such an action probably would not be time-barred.

In imposing liability for the torts of the acquired corporation, I realize that the acquiring corporation was not a party to any tortious act and had no connection with the acquired corporation at the time the allegedly defective product was manufactured. The acquiring corporation, however, is in a position both before and after the acquisition to take necessary measures for its protection against potential products liability claims.

I do not express, nor does the majority, any opinion concerning the merits of the tort claim which we today permit plaintiff to bring against Rockwell.

I would reverse the judgment of the district court and remand for further proceedings.

      . Any of the $500,000. remaining at the time of the dissolution of the Textile Machine Corporation was to be returned to Rockwell.

      . In this opinion, “Textile Machine Works” and “TMW” refer only to the corporation which agreed to sell its assets to Rockwell and then to dissolve.

      . On July 13, 1972, after Rockwell had denied responsibility for any liability TMW may have had to Knapp, Knapp sued TMW in a Pennsylvania state court to recover for his injuries. That suit was barred, however, either by the two year statute of limitations on personal injury actions [12 Pa.Stat.Ann. § 31] or by the statute requiring that suits against a dissolved corporation be commenced within two years of the date of dissolution [15 Pa.Stat.Ann. § 2111 (Supp.1974)].

      . Rockwell moved to dismiss the appeal, alleging that the notice of appeal was not timely filed. Since another panel of this Court denied the motion to dismiss the appeal on February 27, 1974, this panel may not review that decision.

      . In addition, Knapp asserts that the district court erred in granting the defendant’s motion for summary judgment because there remains a material issue of fact relating to whether Rockwell expressly assumed any liability TMW may have to Knapp. The agreement between TMW and Rockwell stated that Rockwell would not assume those liabilities of TMW for which TMW was insured “unless the insurer or indemnitor agrees in writing to insure and indemnify [Rockwell] to the same extent it was so insuring and indemnifying TMW.” On the basis of the record before the district court, there was, according to Knapp, a material issue of fact remaining, since there had been no showing that the relevant insurer had not agreed to so protect Rockwell.

      . As to Knapp’s contention regarding the assumption of TMW’s liabilities, Rockwell claims there was no material issue of fact relating to that issue. The operative document with respect to the assumption of TMW’s obligations, Rockwell contends, is not the agreement of sale dated April 5, 1968, but the instrument executed by Rockwell August 29, 1968, which stipulates that Rockwell “hereby assumes and agrees to pay” all debts of TMW except “(a) liabilities against which TMW is insured or otherwise indemnified to the extent of such insurance or indemnification,” without further qualification. Therefore, in Rockwell’s view, it is clear Rockwell has not assumed the liability to Knapp. Furthermore, counsel for Rockwell has submitted to this Court with his brief an affidavit of the Assistant General Counsel of Rockwell averring that no liability insurance policies were transferred from TMW to Rockwell and no insurance company has agreed to indemnify Rockwell as it had previously insured TMW.

      . Commissioner of Internal Revenue v. Estate of Bosch, 387 U.S. 456, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967).

      . See, e. g., Forest Laboratories v. Pillsbury Co., 452 F.2d 621 (7th Cir. 1971); West Texas Refining & Dev. Co. v. Commissioner of Internal Revenue, 68 F.2d 77 (10th Cir. 1933); Bazan v. Kux Mach. Co., 358 F.Supp. 1250 (E.D.Wis.1973); Shane v. Hobam, Inc., 332 F.Supp. 526 (E.D.Pa.1971) (decided under New York law); Kloberdanz v. Joy Mfg. Co., 288 F.Supp. 817 (D.Colo. 1968); Copease Mfg. Co. v. Cormac Photocopy Corp., 242 F.Supp. 993 (S.D.N.Y.1965); J. F. Anderson Lumber Co. v. Myers, 296 Minn. 33, 206 N.W.2d 365 (1973); McKee v. Harris-Seybold Co., 109 N.J.Super. 555, 264 A.2d 98 (L.Div.1970) aff’d per curiam 118 N.J.Super. 480, 288 A.2d 585 (1972); Comstock v. Great Lakes Distributing Co., 209 Kan. 306, 496 P.2d 1308 (1972); Schwartz v. McGraw-Edison Co., 14 Cal.App.3d 767, 92 Cal.Rptr. 776 (1971); Lamb v. Leroy Corp., 85 Nev. 276, 454 P.2d 24 (1969); Buis v. Peabody Coal Co., 41 Ill.App.2d 317, 190 N.E.2d 507 (1963).

      . Applestein v. United Board & Carton Corp., 60 N.J.Super. 333, 159 A.2d 146, 151 (Ch. 1960) aff’d per curiam 33 N.J. 72, 161 A.2d 474 (1960). Accord Freeman v. Hiznay, 349 Pa. 89, 36 A.2d 509 (1944); 15 W. Fletcher, Cyclopedia of the Law of Private Corporations §§ 7040-41 (1973).

      . Freeman, supra 349 Pa. at 94, 36 A.2d at 511. Accord Applestein, supra; 15 Fletcher, supra §§ 7040-41.

      . Fletcher, supra, § 7205. See Forest Laboratories v. Pillsbury Co., 452 F.2d 621, 626 (7th Cir. 1971); Kloberdanz v. Joy Mfg. Co., 288 F.Supp. 817, 821 (D.Colo.1968).

      . 358 F.Supp. 1250 (E.D.Wis.1973).

      . 109 N.J.Super. 555, 264 A.2d 98 (L.Div. 1970) aff’d per curiam, 118 N.J.Super. 480, 288 A.2d 585 (1972).

      . 85 Nev. 276, 454 P.2d 24 (1969).

      . The opinion gives no more precise statement of the time.

      . See also, Forest Laboratories v. Pillsbury Co., 452 F.2d 621 (7th Cir. 1971); West Texas Refining & Dev. Co. v. Commissioner of Internal Revenue, 68 F.2d 77 (10th Cir. 1933); Kloberdanz v. Joy Mfg. Co., 288 F.Supp. 817 (D.Colo.1968); Copease Mfg. Co. v. Cormac Photocopy Corp., 242 F.Supp. 993 (S.D.N.Y. 1965); J. F. Anderson Lumber Co. v. Myers, 296 Minn. 33, 206 N.W.2d 365 (1973); Schwartz v. McGraw-Edison Co., 14 Cal.App.3d 767, 92 Cal.Rptr. 776 (1971); Buis v. Peabody Coal Co., 41 Ill.App.2d 317, 190 N.E.2d 507 (1963).

      . 288 F.Supp. 817, 820 (D.Colo.1968).

      . 100 N.J.Super. 186, 241 A.2d 471 (L.Div. 1968).

      . 61 Ohio App. 21, 22 N.E.2d 293 (1939).

      . 256 F.Supp. 291 (S.D.N.Y.1966).

      . Some indication of the probable reaction of the Pennsylvania Supreme Court to the issue posed by this case may perhaps be gleaned from that Court’s discussion in Kassab v. Central Soya, 432 Pa. 217, 246 A.2d 848 (1968), and Salvador v. Atlantic Steel Boiler Co., Pa., 319 A.2d 903 (1974). Although the issues presented in Kassab and Salvador turned on the doctrine of privity, which is not present here, the reasoning utilized by the Supreme Court in those cases dealt with the economic reality of the relationship between manufacturers and the users of the allegedly defective products.

      . 15 Pa.Stat.Ann. § 1907 (1967).

      . 15 Pa.Stat.Ann. § 1908 (1967).

      . 393 Pa. 427, 143 A.2d 25 (1958).

      . 143 A.2d at 28.

      . See also, Troupiansky v. Henry Disston & Sons, 151 F.Supp. 609 (E.D.Pa.1957); Marks v. Autocar Co., 153 F.Supp. 768 (E.D.Pa. 1954); Bloch v. Baldwin Locomotive Works, 75 Pa.D. & C. 24 (C.P.Del.Co. 1950).
      In Glen Alden, the Court stated in dictum that even if the exchange were a sale, another statutory provision would give dissenting shareholders valuation rights. 143 A.2d at 31.

      . Although the facts of the present case are admittedly a step beyond those in Farris, in view of the legislative intent deduced by the Pennsylvania courts in the field of dissenting shareholders’ rights, it might be contended that the Pennsylvania Supreme Court would find that the legislature intended to permit tort liability in cases like the one sub judice.

      . Knapp might be able to recover a limited amount by way of a workmen’s compensation claim. However, nothing in the record here sheds any light on such possibility.

      . Pa.Stat.Ann. § 2111 (Supp.1974).

      . The contract with Rockwell provided that “TMW” shall have the right to dispose of, prior to closing, real estate interests held by TMW or its subsidiary. By the terms of the contract, if TMW failed to dispose of these assets prior to closing, they would be transferred to Rockwell.

      . It is an indication of the true nature of the transaction that, although Rockwell delivered its stock to TMW, the reorganization agreement required letters of investment intent from TMW’s controlling shareholders, rather than from TMW.

      . 453 Pa. 584, 305 A.2d 877 (1973).

      . 305 A.2d at 882, quoting from 32 Am. Trial L.J. 284, 288 (1968).

      . 305 A.2d at 881, quoting Molitor v. Kaneland Community Unit Dist. No. 302, 18 Ill.2d 11, 163 N.E.2d 89 (1959).

      . 444 Pa. 372, 282 A.2d 351 (1971), at 355.

      . Our disposition of this issue makes it unnecessary for us to decide whether there remained a material issue of fact as to whether Rockwell had expressly assumed TMW’s potential liability to Knapp. In particular, we need not decide whether the affidavit of the Assistant General Counsel of Rockwell, submitted for the first time after the appeal was filed, was properly before this Court.

      . The “Agreement and Plan of Reorganization” provided that,
      TMW shall convey, transfer, assign and deliver to [Rockwell] ... all the property and assets, tangible and intangible, of every kind, nature and description and wherever situated, owned, possessed or held by TMW on the Closing Date (hereinafter referred to in Paragraph 5) including, but not limited to, TMW’s land and leaseholds as described in Exhibit A-l attached hereto, improvements, buildings, machinery, equipment and other fixed assets, real and personal, and rights appurtenant thereto, furniture, fixtures, business machines, vehicles, inventories, supplies, work in process, semi-finished products, patents, trademarks, licenses, trade names, copyrights, securities, investments, leasehold interests, options to purchase real or personal property, rights under contracts, insurance policies, cash on hand and in banks, accounts and notes receivable, claims, rights, choses in action, permits or licenses to conduct its business as now carried on, business as a going concern, shares of stock in other corporations, good will and all rights to use to the exclusion of TMW the name “Textile Machine Works” or a name or names similar thereto, except, however, the following, which shall be retained by TMW:
      (a) TMW’s corporate seal, articles of incorporation, minute books, stock books and other corporate records; and
      (b) $500,000 in cash to cover the costs and expenses of TMW (in such amounts as shall be agreed upon in writing by NR and TMW at or before the Closing) in connection with the transactions constituting the Plan of Reorganization under this Agreement, any payments to TMW preferred shareholders who demand cash for their shares, and all taxes on the transfer of any of the assets or properties to NR hereunder. Any balance of such sum remaining upon the dissolution of TMW shall be paid to NR at such time.

      . In 1970 the President’s Commission on Product Safety [reported that] [s]ome 20 million Americans are injured each year as a result of incidents connected with consumer products. [Final Report of the National Commission on Product Safety (June, 1970), Lib.Cong. No. 76-600753.] Incidents connected with industrial products account for an additional 7 million injuries each year. [The President’s Report on Occupational Safety and Health (May, 1972).] Personal injuries are the primary source of the burgeoning number of product liability cases entering our courts.
      Weinstein, Twerski, Piehler, & Donaher, Product Liability: An Interaction of Law and Technology, 12 Duquesne L.Rev. 425 (1974).


source: Caselaw Access Project

author: THORNBERRY, Circuit Judge:

license: Public Domain

text:
    In the Matter of John Edward JOYCE.
    No. 74-1543.
    United States Court of Appeals, Fifth Circuit.
    Jan. 9, 1975.

      W. A. Thurmond, James T. McNutt, Jr., Joseph A. Calamia, John L. Fashing, El Paso, Tex., for appellant.
    Ralph Harris, Frank B. Walker, Asst. U. S. Attys., El Paso, Tex., for appellee.
    Before THORNBERRY, GOLDBERG and GODBOLD, Circuit Judges.
   THORNBERRY, Circuit Judge:

This is an appeal from a judgment of the district court holding appellant Joyce, an employee of Mountain States Telephone and Telegraph Company (“Mountain Bell”), in criminal contempt of an order issued by a federal Magistrate and approved by the District Judge, directing Mountain Bell to participate with a customs agent in the installation of an electronic surveillance device known as a “pen register” (a/k/a “dialed number recorder”). The judgment entails a thirty day sentence in the custody of the Attorney General, which the district court agreed to stay pending the decision of this appeal. For the reasons developed hereinafter, we reverse.

I. FACTS

For some time prior to February 1974, federal agents had investigated a certain individual in the El Paso, Texas area for illegal drug importation. As the investigation progressed, the officers were able to discover the suspect’s address and telephone number. They concluded that the telephone was being used regularly in furtherance of illicit marijuana transactions.

On February 4, 1974, appellant Joyce, with 26 years of service at Mountain Bell, was appointed chief security officer over the operations served by the El Paso facility. In the performance of his duties Joyce was directly responsible to Mr. Clarence Fleming, Area Security Manager in Albuquerque, New Mexico, and indirectly responsible to Mr. J. F. Doherty, Director — Corporate Security, of the New York parent company, American Telephone and Telegraph.

On Friday, February 8, 1974, the head of the narcotics investigation, special customs agent George R. Brown, met with United States Magistrate Jamie Boyd to discuss obtaining an authorization for a “pen register” to be installed on the suspected importer’s telephone. Agent Brown submitted an affidavit setting forth his belief that probable cause existed for the “pen register,” and his belief that a record of numbers dialed from the suspect’s telephone would yield or lead to evidence of narcotics offenses. Later that day the agent contacted appellant at Mountain Bell and indicated that a court order authorizing the “pen register” would be issued the next morning. Agent Brown testified that he furnished appellant’s office with the suspect’s name, address, and telephone number, and informed appellant that Mountain Bell’s technical assistance would be needed for the installation.

The next morning agent Brown submitted an amended affidavit, Magistrate Boyd signed a “pen register” order prepared by agent Brown, and around noon District Judge Guinn also signed the order. Appellant, who was present at the courthouse, received a copy of the order. Sometime during that Saturday afternoon appellant also received a letter from Judge Guinn, in which the Judge emphasized that time was of the essence, concluding: “I, therefore, request that you [Joyce] do everything possible to expedite this matter in order that the investigation may proceed without.any delay. Your cooperation is greatly appreciated.”

Neither the letter from Judge Guinn nor the order itself expressly directed appellant personally to furnish any service to the agents. Whereas the letter was couched in precatory language, the pertinent portion of the order read as follows:

IT IS FURTHER ORDERED, upon request of the applicant [agent Brown], that the Mountain Bell Telephone Company, a communications common carrier as defined in Section 2510(10) of Title 18 U.S.C., shall furnish the applicant forthwith all information, facilities, and technical assistance necessary to enable the installation and operation of the above-described mechanical devices.

(emphasis supplied). It does not appear from the record that any other document, signed by either Magistrate Boyd or Judge Guinn, was ever delivered to appellant in respect to the “pen register” prior to the district court’s issuance of its show cause order.

As the afternoon of Saturday, February 9, wore on, the government’s plans for prompt installation of a “pen register” began to unravel. Appellant testified that at first he was unclear about the kinds of technical assistance he was expected to furnish, not being a technician. Agent Brown corroborated appellant and testified that he, Brown, then requested two types of assistance: cable and pair information for the color pick cable, and a private leased line from the box containing the terminal for the suspect’s telephone, whereupon the agents would, as was customary, complete the hook-ups. According to agent Brown, appellant seemed willing to cooperate in executing the court’s order, but also indicated a desire to confer with corporate counsel concerning its legal implications for Mountain Bell and participating employees. The agent had also indicated to appellant that some form of physical assistance from Mountain Bell — for instance the installation of boosters on the line — might be expected.

In the early evening a conference telephone call transpired among appellant, his supervisor Mr. Fleming, Bell attorney Joseph O’Neil in Denver, and Magistrate Boyd. O’Neil took the position that Mountain Bell policy, adopted pursuant to an AT&T “recommendation” prepared by Mr. Doherty, forbade telephone company participation in a “pen register” installation effected outside the safeguards of the federal wiretap statutes, 18 U.S.C. § 2510 et seq., and inferentially § 2516. O’Neil testified, however, that he informed Magistrate Boyd that Bell would supply, pursuant to a subpoena, whatever information the agents might require in order to conduct their own installation of the device. According to O’Neil, Boyd answered: “I will sign anything to get this moving.” O’Neil then testified that all parties agreed upon the subpoena alternative, that appellant would pick up agent Brown and drive to Boyd’s home, and that Boyd would prepare the subpoena for immediate compliance. Magistrate Boyd corroborated O’Neil’s testimony concerning the discussion of the subpoena, but stated that he did not understand O’Neil to have offered information in response thereto.

At about 7:30 Saturday evening, and subsequent to the conference call, appellant notified agent Brown by telephone that Mountain Bell had determined not to comply with the court’s order, but that the necessary information could be furnished under subpoena. Appellant drove to the agent’s motel, but agent Brown had left. Another agent suggested that it was too late to disturb Magistrate Boyd at home, anyway, so appellant returned home. The next morning appellant located agent Brown and again suggested that they obtain the subpoena from the magistrate. Agent Brown quickly rejected the idea, declaring, according to appellant’s testimony, that “the court order would hold.” Asked the reason for the sudden turn of events, agent Brown responded that “he had talked to the Judge and the Judge said the Court order would hold and that it would be served with papers Monday morning.” Earlier in the day (Sunday) agent Brown had sworn out an affidavit before Magistrate Boyd, representing that “[i]n the conversation between affiant and Mr. John Edward Joyce at approximately 7:30 p. m., on February 9, 1974, Mr. Joyce stated that he would not follow the Court’s Order.”

The next morning, Monday, February 11, 1974, appellant was served with a show cause order, signed by Judge Guinn, charging criminal contempt of court. Appellant’s motion for a continuance was overruled, his trial took place two days later, and Judge Guinn entered immediate judgment declaring appellant guilty for having “deliberately and willfully” defied the court’s order and “personal instructions” to furnish information and assistance incident to the recorder installation.

II. DISCUSSION OF THE EVIDENCE

At the threshold, we note that the great bulk of the foregoing factual summary concerns matters which, in their substance, went undisputed at trial. Appellant does not contest that the District Judge approved the “pen register” order; that the order directed Mountain Bell to assist in the device’s installation; that the Judge “requested” appellant’s cooperation; or that he, appellant, refused ultimately to cooperate. We are mindful of our responsibility under Glasser v. United States, 315 U.S. 60, 62 S.Ct. 457, 86 L.Ed. 680 (1941), to view the evidence and reasonable inferences in the light most favorable to the government. It matters not whether the trial occurred before a judge or a jury, of. Gorman v. United States, 5th Cir. 1963, 323 F.2d 51, for the test of the sufficiency of evidence is the same: could a fair-minded and reasonable trier of fact accept the evidence as probative of defendant’s guilt beyond a reasonable doubt? See United States v. Warner, 5th Cir. 1971, 441 F.2d 821, cert. denied, 404 U.S. 829, 92 S.Ct. 65, 30 L.Ed.2d 58.

Yet, “[wjhile this standard is unequivocal, Glasser does not require complete judicial abdication to the determination of the trier of fact.” United States v. Ferg, 5th Cir. 1974, 504 F.2d 914. We are closely counselled by this countervailing principle in our review of this case, for three reasons: First, at the trial below the United States Attorney did not present a single witness or ask a single question, even though he was present throughout, and even though the alleged contempt was committed, if at all, outside the “actual presence of the court.” See F.R.Crim.P. 42(a). Instead, the District Judge, who had already made known his interest in the “pen register” on several occasions, conducted the entire prosecution single-handedly. Second, in his brief and at oral argument the appellant vigorously attacked the sufficiency of the evidence to sustain his conviction. The government filed no written response to this point whatsoever, and, when questioned at oral argument, simply suggested that this Court read the transcript and find, without further guidance, our own theory to support the judgment. Third and finally, we have accepted the government’s invitation. After a fine-toothed combing of the record, we find no substantial evidence to support the following findings made by the district court: (a) that appellant “was furnished with a signed copy of the court’s order directing him to furnish the applicant forthwith all information, facilities, and technical assistance necessary to enable the installation and operation of the court-ordered pen register” (emphasis supplied); (b) that appellant “clearly understood the court’s order . . . .”; (c) that appellant, “after receiving a signed copy of the court’s lawful order and personal instructions from the United States District Judge . . . deliberately and willfully denied applicant the necessary information, facilities, and technical assistance . . . . ” (emphasis supplied); (d) that appellant “willfully refused to obey the court’s lawful order” (emphasis supplied); or (e) that “the evidence establishes beyond a reasonable doubt [that appellant’s conduct] constitutes a knowing and willful defiance of the court’s lawful order” (emphasis supplied).

In our view the compelling thrust of the evidence is entirely to the contrary. Appellant testified that he wanted to cooperate in the utmost manner, “both legally on our side and with the gentlemen making the charges. I really wanted to help them.” This testimony was never contradicted. Indeed, it was largely corroborated by the narratives of agent Brown and Magistrate Boyd. Meanwhile, the district court’s finding that appellant “clearly understood” the order is fully undermined by the testimony of these two gentlemen. Agent Brown testified that appellant “was a little bit unaware of what a pen register was.” Magistrate Boyd stated, “I don’t think — he didn’t seem to understand to me, to tell you the truth. I don’t think Mr. Joyce understood and I don’t think he was getting a whole lot of help, to tell you the truth, from- the company.”

Significantly, there is a total failure of proof that appellant, in his position as local security chief, possessed either the authority or the capability to furnish the loosely-defined technical assistance. Magistrate Boyd testified that appellant had specifically indicated a lack of authority. Agent Brown recounted that the basis for appellant’s hesitation was the fear of possible civil or criminal liability, and that appellant had said he would have to clear his participation with the legal department. Two other witnesses, Mr. Doherty and Mr. Fleming, testified without contradiction that appellant lacked authority to furnish the ordered assistance on behalf of Mountain Bell.

The general power of a federal court to punish for criminal contempt is found in 18 U.S.C. § 401, which authorizes a fine, or imprisonment, in the court’s discretion, for “[disobedience or resistance to its lawful writ, process, order, rule, decree, or command.” En-grafted upon this language is the requirement of both a contemptuous act and a willful, contumacious, or reckless state of mind. In re Farquhar, 1973, 160 U.S.App.D.C. 295, 492 F.2d 561, 564; Sykes v. United States, 1971, 144 U.S.App.D.C. 53, 444 F.2d 928, 930. As in United States v. Lansky, 5th Cir. 1974, 496 F.2d 1063, 1071, “[w]e have carefully detailed the facts and circumstances necessary to a proper determination” of whether defendant Joyce “deliberately and willfully denied applicant the necessary information, facilities, and technical assistance necessary to enable the installation and operation of the ordered pen register and have [sic], thereby, willfully refused to obey the court’s lawful order.” Assuming arguendo, without deciding, the correctness of the government’s legal position in this case, we hold that the evidence is insufficient to support a finding of guilt beyond a reasonable doubt. We do so without passing on appellant’s contention that the order is unenforceably vague and drawn in violation of due process.

There exists an alternative basis for our holding. The Sixth Circuit recently had occasion to review a strikingly analogous situation in the case of In re La Marre, 6th Cir. 1974, 494 F.2d 753. During the course of a lawsuit it appeared to the District Judge that the parties might settle, with moderate encouragement. Defendant La Marre, who was employed as claims manager by an insurance company involved in the suit, disliked the figure around which the parties were negotiating. To expedite matters, the court several times directed the attorneys employed by the insurer to contact La Marre and request his presence at conferences. La Marre refused four such invitations, and eventually was adjudged in criminal contempt of the district court. In a memorandum decision the District Judge used the words “required” and “ordered” when speaking of La Marre’s appearance. The Sixth Circuit noted that while these words, like Judge Guinn’s words, doubtless reflected the Judge’s subjective intent, the word actually communicated to the defendant was the less mandatory word “request.” That is exactly the word used in this case by the District Judge in his letter to appellant.

The Sixth Circuit reversed the contempt conviction, stating:

To recapitulate, we believe that it goes without saying that the preceding “requests” of the District Judge which were entered on the court record, no matter how appropriate they may have been, were not orders which served to put La Marre on notice that his freedom was in jeopardy if he failed to comply. This was knowledge that he was entitled to have.

494 F.2d at 758—759. Perhaps the court’s analysis should not be greatly extrapolated beyond the facts then before it, but we deem it significant that the Sixth Circuit quoted with approval the following language from Berry v. Midtown Service Corp., 2d Cir. 1939, 104 F.2d 107, 111:

Despite our respect for the views of Judge Van Fleet, we are unable to agree with his opinion that a stay directed to one party can be expanded by implication into an order upon the other. The authorities he cites do not extend so far. Before a person should be subject to punishment for violating a command of the court, the order should inform him in definite terms as to the duties imposed upon him. Once we adopt the principle that an express order to one party carries implications of duties imposed upon the other, it would be difficult to set limits upon the doctrine. We believe it is a wise policy to punish as contempt only the disobedience of some express command; and such we understand to be the general rule.

We believe this reasoning from Berry to be well-founded, and we believe that its application in the La Marre case is equally appropriate here. To complete the chain of logic, if anyone was guilty of criminal contempt in this case, it was Mountain Bell — against whom the order ran but no charges were pressed — not appellant Joyce. One might even argue that this is a more compelling case for the defendant than La Marre, given that Joyce, unlike La Marre, appeared to do everything in his power to accommodate the district court.

III. CONCLUSION-POSTSCRIPT

Our decision today carries with it the direction that the contempt charges be dismissed as to the appellant. He has filed no motion for a new trial, and we are unable to conceive that any useful purpose would be served by reprosecution. See United States v. Apollo, 5th Cir. 1973, 476 F.2d 156, 158 n. 1; United States v. Musquiz, 5th Cir. 1971, 445 F.2d 963, 966. In addition, our disposition renders it unnecessary to consider the other issues briefed by the parties: (1) whether a “pen register” order unaccompanied by a wiretap application is within or without Title III; (2) whether compliance with the order in this case might have subjected Mountain Bell and/or appellant to civil or criminal liability; (3) whether a federal court has the authority to order a wire carrier or its employees to participate with law enforcement officials in the installation of a “pen register” pursuant to the court’s power to issue search warrants; and (4) whether the doctrine of United States v. UMW, 330 U.S. 258, 67 S.Ct. 677, 91 L.Ed. 884 (1947), precludes a party in appellant’s position from defending noncompliance with a court order on the ground that the court lacked legal power to issue the order.

Reversed with directions to dismiss.

      . At trial Mr. Doherty explained that while each Bell System subsidiary functions with relative autonomy, a subsidiary’s employees are bound by a parent company policy “recommendation” once the operating company’s management decides to adopt the “recommendation.”

      . The “recommendation” had been issued in the form of a letter to Bell subsidiary security managers and security counsel, dated June 18, 1973, and made part of the record herein as a sealed exhibit. O’Neil testified below that he knew, as company counsel, that Mountain Bell had adopted the policy contained in the letter.

      . These statutes are otherwise known, and occasionally referred to herein, as Title III of the Omnibus Crime Control and Safe Streets Act of 1968, as amended (“Title III”). With respect to the authorization requirements under § 2516 for electronic surveillance methods covered by Title III, see United States v. Giordano, 416 U.S. 505, 94 S.Ct. 1820, 40 L.Ed.2d 341 (1974). It is undisputed that, if applicable, Title III was not complied with in the obtaining of the “pen register” order.

      . A pen register is a mechanical device attached to a given telephone line and usually installed at a central telephone facility. It records on a paper tape all numbers dialed from that line. It does not identify the telephone numbers from which incoming calls originated, nor does it reveal whether any call, either incoming or outgoing, was completed. Its use does not involve any monitoring of telephone conversations.
      United States v. Giordano, 416 U.S. 505, 549, 94 S.Ct. 1820, 1842, 40 L.Ed.2d 341 (1974) (Powell, J., concurring in part and dissenting in part).
      Notwithstanding the apparent sterility of a pen register implied by this definition, the expert testimony below indicated that once a pen register has been installed, a full wiretap “interception” of telephone conversations may be accomplished simply by attaching headphones or a tape recorder to the appropriate terminal on the pen register unit.

      . See United States v. Giordano, 416 U.S. 505, 94 S.Ct. 1820, 1843, 1844-1846, 40 L.Ed.2d 341 (1974) (Powell, J., concurring in part and dissenting in part); Korman v. United States, 7th Cir. 1973, 486 F.2d 926, 932; United States v. Lanza, 341 F.Supp. 405, 422 (M.D. Fla. 1922); United States v. King, 335 F.Supp. 523, 548-549 (S.D.Cal.1971).

      . See 18 U.S.C. §§ 2511, 2520; 47 U.S.C. §§ 501, 605.

      . F.R.Crim.P. 41; cf. Application of United States, 9th Cir. 1970, 427 F.2d 639.

      . See United States v. Dickinson, 5th Cir. 1972, 465 F.2d 496, 509-510.


author: BARRETT, Circuit Judge.

text:
    Carolyn J. GLASS and Mary E. Glass, as mother and next of kin of Kenneth Eldon Glass, minor, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant and Third-Party Plaintiff-Appellant, v. Rebecca Frances GLASS, Third-Party Defendant-Appellee.
    No. 74-1127.
    United States Court of Appeals, Tenth Circuit.
    Argued Oct. 25, 1974.
    Decided Dec. 11, 1974.

      H. I. Aston, Tulsa, Okla. (Ed R. Crockett, Tulsa, Okla., on the brief), for plaintiff s-appellees.
    David V. Seaman, Civ. Div., Dept, of Justice, Washington, D. C. (Carla A. Hills, Asst. Atty. Gen., Washington, D. C., Nathan G. Graham, U. S. Atty., Tulsa, Okla., and Morton Hollander, Civ. Div., Dept, of Justice, Washington, D. C., on the brief), for plaintiff-appellant.
    Edward O. Monnet, Tulsa, Okla., for third-party defendant-appellee.
    Before SETH, McWILLIAMS and BARRETT, Circuit Judges.
   BARRETT, Circuit Judge.

The United States of America, Defendant and Third-Party Plaintiff, appeals from an adverse judgment after trial to the court. A summary of the pertinent facts will facilitate our review.

On April 9, 1967, Elliott M. Glass died as a result of a gunshot wound. At the time of his death, Glass was insured under a $10,000 National Service Life Insurance (NSLI) policy issued under the auspices of the Veterans Administration (V.A.). Under the terms of the policy, Elliott’s second wife, Rebecca Frances Glass, Third-Party Defendant herein, was the primary beneficiary, and the children of his first marriage, Carolyn J. and Kenneth Eldon Glass, Plaintiffs herein, were the contingent beneficiaries.

On May 8, 1967, Rebecca filed a claim, as primary beneficiary, for the policy proceeds. The claim as filed stated that Elliott’s death was the result of homicide. On June 19, 1967, a grand jury returned an indictment against Rebecca for the murder of Elliott. Thereafter, on July 3, 1967, the V.A. was notified by the District Attorney’s office that Rebecca had been charged with murder.

Notwithstanding the notification it had received that Rebecca had been indicted, the V.A., on February 7, 1968, after a thorough examination and investigation, concluded that Rebecca would not be brought to trial. Accordingly, the V.A. entered an administrative decision awarding Rebecca the policy proceeds. This action was taken without affording notice to the Plaintiffs, as contingent beneficiaries. Payment was tendered to Rebecca by the V.A. on February 21, 1968.

On June 17, 1968, Rebecca was found-guilty of murder without malice of Elliott. On August 16, 1968, Carolyn arid Kenneth made an informal claim upon the V.A. for the policy proceeds as contingent beneficiaries. A formal claim was filed pursuant to NSLI regulations on October 11, 1968. This claim was denied on June 12, 1970, and Carolyn and Kenneth filed suit against the United States on April 23, 1971. On September 9, 1971, Rebecca was interpled as a Third-Party Defendant.

After trial to the court, the court found, inter alia:

6. On July 3, 1967, the Veteran’s Administration received a letter from the District Attorney’s Office of Far-rant County, Texas, advising the Veteran’s Administration that the primary beneficiary was charged with the murder of Elliott M. Glass.
7. That after a field examination was made by the Veteran’s Administration — an administrative decision was rendered in favor of the widow. No notice was given to any of the secondary beneficiaries for any hearing.
8. The Veteran’s Administration, in the instant case, either made a determination not to, or failed to file an interpleader action.

The court also held as a matter of law:

6. Ordinarily payment made by the insurance policy (sic) to the person entitled to the proceeds, in good faith, and without knowledge of facts vitiating his claim will protect the insurer and will discharge the insurer of all further liability; but payment made, voluntarily, with full knowledge of that facts (sic), or notice, putting it on inquiry will not allow an insurance company to recover proceeds paid.
7. The Court concludes, as a matter of law . . that the Plaintiffs are entitled to recover the insurance proceeds from the Defendant.
8. The Court further finds, as a matter of law, that the Defendant is not entitled to judgment over against the Third-Party Defendant.

On appeal the United States contends that: (1) the Trial Court erred in awarding NSLI proceeds to the contingent beneficiaries, under the circumstances of the case; and (2) the Government is entitled to a judgment over against the widow (Rebecca) for the insurance money that she received.

I.

Appellant United States contends that the Trial Court erred in awarding the NSLI proceeds to the contingent beneficiaries, Carolyn and Kenneth Glass, under the circumstances of this case. Appellant recognizes the well established rule that no person should be permitted to profit from his own wrong, and that a designated beneficiary should not be allowed to receive policy proceeds after killing the insured. The United States also agrees that Rebecca’s state conviction was “properly admissible in this case, to be duly considered with the entire file.” From these two predicates the United States argues, however, that a state conviction does not bind a federal court, that such a conviction may be disregarded in a subsequent insurance suit if the facts warrant, and that the “unusual facts and circumstances of this case should have led the court to disregard the conviction.”

Appellant argues that it paid Rebecca when she was the only claimant; that she was paid prior to her conviction; that the contingent beneficiaries did not file a claim and did not object when Rebecca was paid; that their delay in submitting their claim “has obviously prejudiced the Government”; that the contingent beneficiaries “stood idly by” and are therefore estopped; and that the administrative decision of the V.A. should be accorded great weight by this court because it did not abuse its discretion in awarding the policy proceeds to Rebecca. We cannot agree.

Appellate courts will afford great weight to administrative decisions properly rendered by agencies vested with the authority to so act, and will not set aside a decision unless it is arbitrary, capricious, and an abuse of discretion, or otherwise not in accordance with law. Citizens To Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971); Administrative Procedure Act, 5 U.S.C.A. § 706. We hold that the action of the V.A. was an abuse of discretion and a violation of general law. Accordingly, we cannot enforce it. The V.A. decision, if permitted to stand, would work great detriment upon Carolyn and Kenneth Glass.

While it is true that the V.A. paid the proceeds to Rebecca when she was the only claimant, and that she was paid prior to her conviction and before the contingent beneficiaries filed a claim, still we cannot accept the V.A.’s argument that the Plaintiffs stood idly by “to the obvious prejudice” of the Government and that as a result, they should be es-topped from asserting a claim.

Prior to Rebecca’s conviction the Plaintiffs had no right to claim the policy proceeds. Their rights to claim were as contingent beneficiaries, and as such, secondary to the primary rights claimed by Rebecca as principal beneficiary. It was only after her conviction that Rebecca, in legal effect, forfeited her right to the policy proceeds. Even so, at that point in time, the fact remains that the V.A. had already paid the proceeds to her. Under these circumstances we cannot countenance a holding that the premature payment by the V.A. vitiated the Plaintiffs’ rights under the policy. This is particularly compelling in light of the fact that the V.A. knew that Elliott had died of a gunshot wound; that Rebecca had been indicted; that the Plaintiffs were designated contingent beneficiaries (and that Kenneth was a minor at the time of his father’s death); and that it could interplead “all persons having or claiming to have any interest” via 38 U.S.C.A. § 784(a) in order to obtain a judicial determination of entitlement to the payment. Having opted not to inter-plead and thus, in effect, protect itself as against any and all claimants under the umbrella of the jurisdiction of the court, the Government cannot now be heard to complain that the contingent beneficiaries had an obligation to voice their objection to its payment made to Rebecca pri- or to her conviction. We believe that any other result defies logic and precludes justice. Were we to adopt the V.A. contention we would, in effect, place the Plaintiffs in the untenable position of arguing, prior to Rebecca’s conviction, that she was not entitled to the proceeds because of the outstanding indictment when the V.A., after a “thorough investigation”, had determined that it was doubtful that Rebecca would be brought to trial.

In holding that the payment to Rebecca was premature, and that the V.A. erroneously declined to utilize 38 U.S.C.A. § 784(a), we are not usurping the discretion afforded the V.A. As we noted in Western Bancshares, Inc. v. Board of Governors of the Federal Reserve System, 480 F.2d 749 (10th Cir. 1973):

Contemporaneous construction of a statute by an agency charged with its enforcement (or utilization, as here) is entitled to great deference by the courts. Griggs v. Duke Power Co., 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971). But we are not bound thereby, and particularly so where neither the Act nor the legislative history contains one word expressly permitting the administrative authority assumed. National Labor Relations Board v. The Boeing Company, 412 U.S. 67, 93 S.Ct. 1952, 36 L.Ed.2d 752 (1973); Scofield v. National Labor Relations Board, 394 U.S. 423, 89 S.Ct. 1154, 22 L.Ed.2d 385 (1969).
480 F.2d at 753-754.

It is clear that the V.A. could have avoided the aspect of double payment. We are unable to conclude from a review of the statutes involved, and a consideration of all of the facts and circumstances of this record, that the V.A. may avoid its obligation to pay the policy proceeds to the appellees — contingent beneficiaries — simply because it negligently and erroneously paid the entire proceeds prematurely to Rebecca. We have already referred to the simple solution readily available to the V.A. in avoidance of its predicament presented here — the filing of the interpleader action which is specifically designed for these cases.

II.

Having contended that the V.A. properly paid Rebecca and that the Trial Court erred in awarding the policy proceeds to the Plaintiffs, the Appellant argues that it is entitled to a judgment over against Rebecca because “the United States can always recover erroneous payments made by its agents.” The “mental gymnastics” of such circuitous reasoning are unpalatable. Furthermore, no cogent authority has been cited for our consideration in support of the V.A. argument.

We hold that the Trial Court did not err in awarding the Plaintiffs the policy proceeds and at the same time disallowing the Government’s third-party claim.

Affirmed.

      . Elliott’s first wife was Mary E. Glass. Her appearance in this suit was solely on behalf of Kenneth, a minor at the commencement of the action.


text:
    UNITED STATES of America, Petitioner, v. UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF TEXAS, Respondent.
    No. 74-2480.
    United States Court of Appeals, Fifth Circuit.
    Dec. 30, 1974.
    William B. Saxbe, Atty. Gen., U. S. Dept, of Justice, J. Stanley Pottinger, Asst. Atty. Gen.,- Civil Rights Div., Thomas M. Keeling, Brian K. Landsberg, Deputy Chief, Education Section, Washington, D. C., for petitioner.

      Owen D. Cox, Judge, for respondent.
    Richard A. Hall, J. W. Gary, Corpus Christi, Tex., for Gregory-Portland, etc.
    Before BROWN, Chief Judge, and RO-NEY and GEE, Circuit Judges.
   ORDER:

The request for .a writ of mandamus or a writ of prohibition is denied.

The alternative petition of the United States of America requests either

(1) a writ of prohibition ordering the District Court for the Southern District of Texas to dissolve a preliminary injunction issued by Judge Owen D. Cox in the case of Gregory-Portland Independent School District et al. v. Texas Education Agency et al., C.A. No. 73—C—175 (S.D.Tex.) and to dismiss that suit, or

(2) a writ of mandamus directing that court to transfer that case under 28 U.S.C.A. § 1404(a) to the District Court for the Eastern District of Texas (Tyler Division).

The Eastern District Court is presently exercising continuing supervision of the desegregation injunction entered in United States v. Texas, 321 F.Supp. 1043 (E.D.Tex.1970), 330 F.Supp. 235 (E.D.Tex.), modified, 447 F.2d 441 (5th Cir.), cert. denied, 404 U.S. 1016, 92 S.Ct. 675, 30 L.Ed.2d 663 (1972).

While the Texas Education Agency is a party defendant in both the Southern District suit and the Eastern District suit, the United States is not a party to this suit which it seeks either to prohibit or to transfer to the Eastern District Court where it is a party defendant.

Traditionally mandamus has been available only to confine an inferior court to a lawful exercise of its prescribed jurisdiction. Roche v. Evaporated Milk Association, 319 U.S. 21, 63 S.Ct. 938, 87 L.Ed. 1185 (1943). It is not to be used as a substitute for appeal. Ex parte Fahey, 332 U.S. 258, 67 S.Ct. 1558, 91 L.Ed. 2041 (1947). This is so even though hardship may result from delay or a perhaps unnecessary trial. The writ is appropriately issued when there is a usurpation of judicial power or a clear abuse of discretion. Bankers Life & Cas. Co. v. Holland, 346 U.S. 379, 74 S.Ct. 145, 98 L.Ed. 106 (1953). The power to issue the writ is discretionary and is sparingly exercised. It is a drastic and extraordinary remedy and is reserved for really extraordinary causes. Parr v. United States, 351 U.S. 513, 76 S.Ct. 912, 100 L.Ed. 1377 (1956).

We deny the extraordinary relief here requested for two reasons. First, we have found no authority, nor has any been cited to us by the United States, which would allow a non-party standing to seek a writ of mandamus or prohibition in circumstances such as presented in this case. Second, even if standing existed, we do not believe that the government has shown a “clear and indisputable” right to the extraordinary writ. See Will v. United States, 389 U.S. 90, 88 S.Ct. 269, 19 L.Ed.2d 305 (1967). The Southern District Court has expressly disavowed any intent to contravene the mandate in United States v. Texas, the suit pending in the Eastern District. The two cases need not inevitably be in conflict, and, thus, we do not see where our supervisory intervention into the district court proceeding is required.