source: Caselaw Access Project

author:
WATERMAN, Circuit Judge:
      FREDERICK van PELT BRYAN, District Judge

license: Public Domain

text:
    Maria MERCADO, a/k/a Crespo, et al., Petitioners-Appellants, v. Nelson A. ROCKEFELLER, Governor of the State of New York, et al., Respondents-Appellees.
    No. 449, Docket 73-2120.
    United States Court of Appeals, Second Circuit.
    Argued Jan. 31, 1974.
    Decided Aug. 15, 1974.
    Frederick van Pelt Bryan, District Judge, concurred in result and filed opinion.

      Rena K. Uviller, Melvin L. Wulf, Burt Neuborne, American Civil Liberties Union; Paul G. Chevigny, New York Civil Liberties Union; William E. Hellerstein, New York City, Charles Schinitsky, Legal Aid Society, Brooklyn, N. Y., for appellants.
    Margery Evans Reifler, Deputy Asst. Atty. Gen., Samuel A. Hirshowitz, First Asst. Atty. Gen., Louis J. Lefkowitz, Atty. Gen. of New York, for appellees.
    Before WATERMAN and MULLIGAN, Circuit Judges, and BRYAN, District Judge.

       Of the Southern District of New York, sitting by designation.

   WATERMAN, Circuit Judge:

This is an appeal from an order of the United States District Court for the Southern District of New York dismissing appellants’ complaint for failure to exhaust available state remedies. The opinion of Judge Frankel below is reported at 363 F.Supp. 489 (1973). Appellants seek to have the order below reversed and the case remanded to the district court with instructions to proceed to a consideration of the merits of their claim that § 712(b) of the New York Family Court Act is unconstitutional on the ground that it is void for vagueness. As will appear from our discussion of the issue in this opinion, we consider the merits of this claim to have been settled by the United States Supreme Court in In re Tomasita Negron, cited as In re Negron, 409 U.S. 1052, 93 S.Ct. 572, 34 L.Ed.2d 507 (1972), and although we realize that the district court did not entertain the issue on the merits on the ground that plaintiffs had not exhausted available state remedies, we direct that it be dismissed as presenting a claim upon which relief cannot be granted.

The petitioners-appellants are three minor children who after having been adjudged Persons in Need of Supervision (PINS) pursuant to the New York Family Court Act § 712(b), were confined to state youth detention centers and training schools for varying lengths of time. Claiming unconstitutionally obtained deprivation of freedom, the appellants did not appeal their adjudications as PINS but commenced an action in the United States District Court for the Southern District of New York, described in the complaint as being “a civil action authorized by Title 42 U.S.C. § 1983 and Title 28 U.S.C. § 2241 to redress the deprivation under color of state law of rights, privileges, and immunities guaranteed to plaintiffs by the Fourteenth and Eighth Amendments to the Constitution of the United States.” Initially, plaintiffs in their one complaint combined a civil rights suit brought under 42 U.S.C. § 1983 and an application for a writ of habeas corpus brought under 28 U.S.C. § 2241. Subsequent to the inception of the action, however, the United States Supreme Court decided Preiser v. Rodriguez, 411 U.S. 475, 93 S.Ct. 1827, 36 L.Ed.2d 439 (1973), in which the Court foreclosed the use of 42 U.S.C. § 1983 suits as vehicles for circumventing the requirement that a state prisoner must exhaust all available state remedies before petitioning a federal court for the issuance of a writ of habeas corpus. The Court held:

What is involved here is the extent to which § 1983 is a permissible alternative to the traditional remedy of ha-beas corpus. Upon that question, we hold today that when a state prisoner is challenging the very fact or duration of his physical imprisonment, and the relief he seeks is a determination that he is entitled to immediate or more speedy release from that imprisonment, his sole federal remedy is a writ of habeas corpus. Accordingly, we reverse the judgment before us. Id. at 500, 93 S.Ct. at 1841.

The appellants, whether under actual state-imposed physical confinement or on parole, were unquestionably “in custody” for the purpose of ascertaining whether federal habeas corpus relief was available to them. See id. at 486 n. 7, 93 S.Ct. 1827. Inasmuch as they were seeking release from that custody, and not merely challenging the conditions of that custody, appellants wisely concluded that, under Preiser, their exclusive remedy resided in the second half of their bifurcated complaint which thereupon became solely a petition for the issuance of a writ of habeas corpus, and the case was conducted as such below. See 363 F.Supp. at 490, n. 1.

Turning now to that petition, we find that appellants challenged the constitutionality of § 712(b) on three independent grounds. These grounds were as follows: (1) that the statute is vague and overbroad in violation of the due process clause of the Fourteenth Amendment; (2) that the statute violates the Eighth Amendment because it punishes a status instead of punishing specific anti-social overt acts; and (3) that the statute violates the right to substantive due process guaranteed by the Fourteenth Amendment by imposing an excessive restraint on individual liberty without serving any legitimate state purpose.

The appellees moved to dismiss the complaint for lack of federal court jurisdiction and for failure to state a claim upon which relief could be granted. They argued first that the U.S. Supreme Court’s summary dismissal for want of a substantial federal question of the appeal in In re Negron, supra, which was an appeal taken from the decision of the New York Court of Appeals in Matter of Tomasita N., 30 N.Y.2d 927, 335 N.Y.S.2d 683, 287 N.E.2d 377 (1972), defused all, or substantially all, of the appellants’ contentions. Appellees maintained that, inasmuch as appellants’ identical claims were presented to the Supreme Court by Negron after those claims had been properly raised in the New York State Courts, the Supreme Court’s summary dismissal of the Negron appeal was a decision upon the merits of each of Negron’s claims. In the alternative appellees maintain that, if the holding in In re Negron has not foreclosed appellants’ recovery on the merits of their void for vagueness claim, appellants should, as ordered below, pursue that claim as well as their two other claims first in the New York State Courts and thus be required to exhaust their state remedies before seeking to have the federal courts hold that § 712(b) is an unconstitutional statute.

Judge Frankel found that the appellees had made a “strong case for the view that the Supreme Court rendered a controlling decision” in In re Negron, but he did not dismiss appellants’ complaint on that basis. Rather, stressing that the New York courts should have the first opportunity to interpret the New York statute here involved, he ruled that all three claims advanced by appellants had not been first presented to the New York State Courts, and the appellants by not presenting their claims to the New York State Courts had failed to meet the exhaustion requirements of 28 U.S.C. § 2254.

On appeal the appellants do not challenge the district court’s holding that they failed to exhaust their Eighth Amendment and restraint of liberty claims. They do argue, however, that they need not present their void for vagueness claim in the New York courts inasmuch as this issue was determined adversely by the New York Court of Appeals in Matter of Patricia A., 31 N.Y.2d 83, 335 N.Y.S.2d 33, 286 N.E.2d 432 (1972), and a presentation by them to the New York courts of such a claim would be futile. Thus, the appellants argue that, with respect to the claim that the statute is unconstitutionally vague, they are excused from the exhaustion requirement, and this claim is ripe for presentation to a U.S. District Court. The appellants further argue that the Supreme Court’s dismissal for want of a substantial federal question in In re Negron, supra, did not constitute a disposition on the merits of the void for vagueness claim, since, although that claim had been reviewed by the New York Court of Appeals in the unappealed Patricia A. case, it had not been reviewed by the New York Court of Appeals in the appealed case, Matter of Tomasita N., supra, and therefore the void for vagueness claim was not presented to the Supreme Court in In re Negron. Consequently, appellants maintain that, as the Supreme Court could not have reached the merits of the claim when it dismissed the Negron appeal for want of a substantial federal question, the issue of whether § 712(b) is void for vagueness has not been foreclosed from federal court examination in the lower federal courts.

In order for us to resolve the issue of whether appellants should be excused from the exhaustion of the state remedies requirement on the void for vagueness claim because the state courts have already definitively ruled on it, we must scrutinize 'the prior New York State Court proceedings in two cases factually unrelated to each other, Matter of Patricia A.; and Matter of Tomasita N., to which we have already alluded.

In Patricia A., a sixteen-year-old girl charged with being a PINS challenged the constitutionality of the PINS statute, the statute here attacked. She contended in the New York Family Court that Section 712(b) was void for vagueness, the identical claim made here. She also attacked the statute on equal protection grounds because the statute applied to boys until they were sixteen years old but to girls until they were eighteen years old. The Family Court rejected these contentions and adjudged the girl to be a PINS. In her appeal to the Appellate Division, she raised void for vagueness, equal protection, and due process arguments. The Appellate Division affirmed without opinion. Matter of Patricia A., 39 A.D.2d 648, 332 N.Y. S.2d 375 (2d Dep’t 1972). Patricia A. then appealed to the New York Court of Appeals. Matter of Patricia A., 31 N.Y.2d 83, 335 N.Y.S.2d 33, 286 N.E.2d 432 (1972). In Chief Judge Fuld’s opinion there was an extended and careful analysis of whether Section 712(b) is void for vagueness. Following this discussion he wrote:

Concluding, then, that the statute is sufficiently definite, we turn to the charge that it unconstitutionally discriminates against females. 31 N.Y.2d at 88, 335 N.Y.S.2d at 36, 286 N.E.2d at 434.

The New York Court of Appeals then proceeded to hold that the statute violated equal protection, and that it was therefore unconstitutional as applied to any girl such as Patricia A., who had passed her sixteenth birthday. Two dissenting judges maintained that there was no violation of equal protection, but did not question the majority’s view that the statute was sufficiently definite.

In Matter of Tomasita N., Negron was charged with being a PINS and pleaded guilty in the Family Court. In contrast to the Patricia A. situation, there is some question here as to whether the issue of whether the statute was void for vagueness was raised at the trial level. It is undisputed, however, that the precise claim was raised on appeal to the Appellate' Division where there were also two other issues raised, both of which had undeniably been raised at trial: the validity of the guilty plea and the denial to her of counsel of her choice at the time of the plea. The Appellate Division affirmed without opinion. Matter of Tomasita N., 37 A.D.2d 698, 322 N.Y.S.2d 646 (1st Dep’t 1971). Negron then appealed to the New York Court of Appeals and the arguments in Patricia A. and Tomasita- N. were heard on the same day. In her brief to the.Court of Appeals, as she had in the Appellate Division, Negron presented the void for vagueness- and overbreadth claim. Although the Court of Appeals affirmed the Appellate Division without opinion, Matter of Tomasita N., 30 N.Y.2d 927, 335 N.Y.S.2d 683, 287 N.E.2d 377 (1972), Tomasita N. was the subject of a reference by Chief Judge Fuld in the opinion written in Patricia A., a reference we believe to be of critical importance. In a very few words, the Chief Judge points out why the decision below in Patricia A. was reversed and that below in Tomasita N. affirmed :

[Patricia A.], 16 years old at the time of her PINS adjudication, contends, first — as does 15-year-old To-masita in the companion appeal (Matter of Tomasita N., 30 N.Y.2d 927, 335 N.Y.S.2d 683, 287 N.E.2d 377, also decided today) — that the statute offends against the requirements of due process in that it is unconstitutionally vague. ... 31 N.Y.2d at 85, 335 N.Y.S.2d at 34, 286 N.E.2d at 433 (emphasis supplied).

As already noted, the Chief Judge then went on to reject the void for vagueness argument in Patricia A., despite the fact that such a rejection was, in view of the court’s acceptance of the equal protection argument presented to it, unnecessary to the disposition of the Patricia A. appeal. Yet what was technically a Court of Appeals dictum in Patricia A. was a holding of the Court of Appeals in Tomasita N., for the affirmance of To-masita N.’s adjudication as a PINS means that each of her properly raised claims was rejected by the Court of Appeals.

If Tomasita N.’s void for vagueness claim, to which the court makes express and pointed reference in Patricia A., was properly before the court in Toma-sita N., the New York Court of Appeals held that the § 712(b) statute is not im-permissibly vague. Of course in the first instance we must be satisfied that the claim was reviewed by the court. Chief Judge Fuld’s language seemingly satisfies that it was reviewed. Nevertheless, with respect to Tomasita N., the appellants contend that, despite the court’s language demonstrating review of that claim, it was not reviewable by the Court of Appeals. They argue, first, that Tomasita N.’s guilty plea in the Family Court constituted a waiver of her right to raise the issue in the state appellate courts, and, second, assuming for the moment that the vagueness issue was not raised in the proceedings in the New York court of first instance, the Family Court, that Tomasita N. was precluded from presenting such a claim to the state appellate courts.

Although there may be some question as to whether the issue of the statute’s vagueness was raised at the trial level, it is undisputed that the claim was presented in the briefs before both the Appellate Division and the New York Court of Appeals, but because the issue was briefed does not, of course, establish that these courts reviewed the claim or were required to review it. Assuming, arguendo, that the issue was not presented at the trial court level, we must ’ determine whether under New York law the constitutional claim could be raised for the first time on appeal.

Except when there is a deprivation of a fundamental constitutional right, New York law requires that an objection be made at the trial level in order to preserve an issue for appeal. In United States ex rel. Schaedel v. Follette, 447 F.2d 1297 (2 Cir. 1971), we said:

Under New York law a contemporaneous objection is required to preserve the issue on appeal, but no objection is required to preserve for appellate review a deprivation of a fundamental constitutional right, and the failure to object does not waive the defendant’s state remedies for the preservation of those rights. . . . Federal ha-beas relief, therefore, is not foreclosed where the failure to object did not waive state remedies. 447 F.2d at 1300.

New York cases finding a deprivation of fundamental constitutional rights have focused on violations of rights under the Fifth and Sixth Amendments to the United States Constitution. People v. Arthur, 22 N.Y.2d 325, 292 N.Y.S.2d 663, 239 N.E.2d 537 (1968); People v. McLucas, 15 N.Y.2d 167, 256 N.Y.S.2d 799, 204 N.E.2d 846 (1965).

In Street v. New York, 394 U.S. 576, 89 S.Ct. 1354, 22 L.Ed.2d 572 (1969), the petitioner challenged his conviction under § 1425, subd. 16, par. d, of the New York Penal Law, McKinney’s Consol.Laws, c. 40, which made it a misdemeanor “publicly [to] defy or cast contempt upon [an American flag] by words.” The appellant argued that this section of the statute was over-broad on its face and as applied to him. The Supreme Court had to determine whether this issue had been before the New York Court of Appeals as that court had not mentioned the constitutionality of this part of the statute in its opinion. The Court found that the rights asserted by the appellant were “fundamental” and were therefore within the New York rule of People v. McLucas, supra 15 N.Y.2d at 172, 256 N.Y. S.2d at 802, 204 N.E.2d at 848, which had held that “no exception is necessary to preserve for [review by New York appellate courts] a deprivation of a fundamental constitutional right.” The deprivation of due process alleged by the appellants in the present case would appear to involve fundamental rights so that the issue could be raised in the New York courts for the first time on appeal. Moreover, the claim is one where the alleged unconstitutionality of the statute would be evident from the face of the record, thus making it possible for an appellate court to intervene despite the absence of an objection below. United States ex rel. Terry v. Henderson, 462 F.2d 1125, 1130 (2 Cir. 1972). We thus conclude that the claim here that § 712(b) is unconstitutionally vague could be presented on appeal to the New York appellate courts even if not first presented and preserved at the trial level.

In addition to their argument that constitutional questions cannot be raised for the first time on appeal, the appellees also contend that a guilty plea at trial forecloses a party from subsequently raising constitutional issues on appeal, and that therefore the issue of whether § 712(b) is unconstitutionally vague could not have been before the Court of Appeals in Matter' of Tomasita N., because Tomasita N. had pleaded guilty in the Family Court. However, it is clear that “[a] guilty plea waives only nonjurisdictional defects” and does not waive the “right to contest the constitutionality of the statute that is the basis for a conviction.” Gesicki v. Oswald, 336 F.Supp. 371, 374 n. 3 (SDNY 1971) (three-judge court) (Kaufman, J.), aff’d, 406 U.S. 913, 92 S.Ct. 1773, 32 L.Ed.2d 113 (1972).

Recapitulating, then, neither her guilty plea nor a failure to raise the claim at the trial level precluded Toma-sita N. from presenting her “void for vagueness” claim to the New York Court of Appeals. This she did, and the affirmance of her conviction means that the New York Court of Appeals held that § 712(b) is not impermissibly vague. Our conclusion that the issue was before the Court of Appeals in To-masita N., and decided there, is further supported by Chief Judge Fuld’s rather pointed reference, which we have previously discussed, to Tomasita N. in his opinion in Patricia A. His language comparing the ages of the two girls strongly suggests and supports the conclusion we have reached. Furthermore, subsequent to the decisions in Patricia A. . and Tomasita N., the New York Court of Appeals in a unanimous opinion written by Chief Judge Fuld has expressly confirmed that in Tomasita N. the Court of Appeals “decided that the PINS statute was not subject to successful constitutional attack on due process grounds.” Matter of Ellery C., 32 N.Y.2d 588, 347 N.Y.S.2d 51, 300 N.E.2d 424 (1973).

Our conclusion that ‘the New York Court of Appeals confronted and rejected the vagueness claim in Tomasita N. thus disposes of whether the appellants, if they should choose to return to the state courts to exhaust their state remedies, should be excused from presenting that claim to the state courts along with the two concededly unexhausted claims. Inasmuch as the rejection of the vagueness claim by the New York Court of Appeals was necessary to the affirmance of Tomasita N.’s adjudication as a PINS, that rejection was clearly not obi-ter dictum, as it was in Patricia A., but was a holding of the highest court of the State of New York on a decisive point.

We hold that appellants, in order to present to federal courts their claim that § 712(b) is void for vagueness, are not required to present this claim to the New York courts first, for it is evident that under the prevailing law of that state such a presentation would only be an exercise in futility.

We now turn to an examination of whether the Supreme Court reached and settled the merits of the “void for vagueness” claim when it summarily dismissed the appeal in In re Negron for want of a substantial federal question. The parties explored this issue in their briefs in our court, and perhaps did so with the thought that, as this issue is solely one of law, it could be finally resolved here, and, if so, a remand for hearing on the merits might be avoided and litigation expense and delay saved thereby.

In her jurisdictional statement to the Supreme Court Negron set forth several points for review, including her claim that § 712(b) was void for vagueness. As we have stated, this claim was ruled upon in Tomasita N. by the New York Court of Appeals and therefore, being included in the jurisdictional statement, presented to the U.S. Supreme Court, was properly presented to that Court for review. See Beck v. Washington, 369 U.S. 541, 82 S.Ct. 955, 8 L.Ed.2d 98 (1962); Godchaux Co. v. Estopinal, 251 U.S. 179, 40 S.Ct. 116, 64 L.Ed. 213 (1919). The Supreme Court, as stated supra, summarily dismissed the appeal.

It is clear in this circuit that a summary affirmance or summary dismissal of an appeal by the U.S. Supreme Court of cases within its obligatory appellate jurisdiction is a disposition on the merits of the issues on appeal. Doe v. Hodgson, 478 F.2d 537 (2 Cir.), cert. denied sub nom. Doe v. Brennan, 414 U.S. 1096, 94 S.Ct. 732, 38 L.Ed.2d 555 (1973); United States ex rel. Epton v. Nenna, 446 F.2d 363, 365-366 (2 Cir.), cert. denied, 404 U.S. 948, 92 S.Ct. 282, 30 L.Ed.2d 265 (1971); United States ex rel. Fein v. Deegan, 410 F. 2d 13 (2 Cir.), cert. denied, 395 U.S. 935, 89 S.Ct. 1997, 23 L.Ed.2d 450 (1969).

In Doe v. Hodgson, supra, Judge Fein-berg wrote:

For now, however, we continue to believe that we are bound by the Supreme Court’s summary affirmances “until such time as the Court informs us that we are not.” 478 F.2d at 539.

However, in Edelman v. Jordan, 415 U.S. 651, 94 S.Ct. 1347, 39 L.Ed.2d 662 (1974), Justice Rehnquist, writing for five members of the Court, indicated that summary affirmances “are of pre-cedental value” but that “they are not of the same precedental value as would be an opinion of this Court treating the question on the merits.” 94 S.Ct. 1359. After Edelman the plaintiffs in Doe v. Hodgson, supra, petitioned to have that judgment set aside and we adhered to the position we had taken prior to Edel-man, see Doe v. Hodgson, 500 F.2d 1206 (2 Cir. 1974) for it does not appear to us that Justice Rehnquist’s statement should be read as indicating that this Circuit is being informed that we are no longer to be bound by summary affirm-ances or summary dismissals by the Supreme Court.

We continue to recognize, however, that summary affirmances or summary dismissals by the Supreme Court are “somewhat opaque,” Gibson v. Berryhill, 411 U.S. 564, 576, 93 S.Ct. 1689, 36 L.Ed.2d 488 (1973), and must in each case be analyzed carefully in order to discover what issues were actually before the Court, but here, in this case, we are satisfied that the summary dismissal of the appeal was dispositive of appellant Negron’s claim, the claim which has been rejected by the New York Court of Appeals, that the statute was too vague to be constitutional. As we are bound by that holding, and as appellants have exhausted their available state remedies in the New York courts, we would hold that the identical vagueness claim Negron presented, now presented here to us by appellants, is without merit.

As to the claims other than the claim that the statute is void for vagueness we do not affect the dismissal order below, but as to the void for vagueness claim we reverse the order below and remand the case to the district court with direction that that claim be dismissed for failure to state a claim upon which relief can be granted.

FREDERICK van PELT BRYAN, District Judge

(concurring in the result) :

I concur in the result the majority has reached.

However, I concur dubitante, for the Supreme Court’s summary action in the Negron appeal was a summary dismissal for lack of a substantial federal question, and in Edelman v. Jordan the discussion was limited to the precedential effects of summary affirmances. It may well be that there should be different precedential effects between a summary affirmance and a summary dismissal for lack of a substantial federal question.

      . In rejecting the appellants’ contention that it would be futile to present the claim that the statute is void for vagueness to a state court, Judge Frankel appears to have relied in part on “the existence of [the two concededly unexhausted] claims” based on claimed violations of the Eighth Amendment and of the Fourteenth Amendment’s guarantee of substantive due process. 363 F.Supp. at 492. This reliance is inconsistent witli the rule that the jurisdiction of a federal court to hear an exhausted claim in a ha-beas petition is not defeated by the existence of unexhausted claims unless those unex-hausted claims are both related to the exhausted claim and are nonfrivolous. United States ex rel. Levy v. McMann, 394 F.2d 402 (2 Cir. 1968).

      . Nor do appellants claim that these two unexhausted claims should be appended here to the exhausted claim that the statute is unconstitutionally vague so as to give the federal court jurisdiction over all three claims. Where a federal habeas petition presents claims for which state remedies liave been exhausted and claims for which they have not, the unexhausted claims cannot be adjudicated by the federal court adjudicating the exhausted claim. United States ex rel. Levy v. McMann, supra.

      . The appellants contend that the issue of statutory vagueness was not raised at the trial level in Matter of Tomasita N., and the appellees in their brief did not contest this argument. However, at oral argument before us the appellees referred to minutes of a Family Court hearing only recently made available to counsel which suggested that the vagueness issue had actually been raised during the proceedings there.
      Furnished to us after argument these minutes of the Family Court hearing are ambigúous because of the difficulty that the court reporter apparently had in understanding counsel. The following is the relevant portion of the hearing:
      Counsel (for Tomasita N.) : I would also like to make some other point. It’s my contention, anything beyond a PINS Petition is unconstitutional on the ground first, this petition, on the specificity of the charges as required by charge — that the charges vagueness is void and viilates (sic) due process. It’s illogical procedure, excessive obedience without control exercised by the parent which would be another reason to reopen the inquiry on the ground that the proceeding itself is — •
      Court Reporter: (Notes difficulty in understanding counsel’s speech.)
      The Court: Motion is denied. Anything-else (sic) you want to put on the record.
      Counsel: My interest in the record is the child’s well being.
      The Court: I assume you’re going to test all these constitutional questions and if I understand the Supreme Court of the United States, you have to make a record.
      Counsel: That’s all your Honor, except I want to make sure this child is taken care of properly.
      In light of our holding that, irrespective of whether the claim was raised at trial, the constitutional claim of statutory vagueness could be raised for the first time on appeal to higher New York state courts, we do not have to decide whether these ambiguous minutes are sufficient to support a claim that the issue of vagueness was raised at the trial level.

      . As we stated in our decision denying permission to set aside our former judgment in Doe v. Hodgson, “ . . . we continue to believe that the privilege of disregarding even summary Supreme Court holdings rests with that court alone.”


author: ROBERT P. ANDERSON, Circuit Judge:

text:
    AMERICAN RENAISSANCE LINES, INC., Plaintiff-Appellant, v. SAXIS STEAMSHIP CO., Defendant-Appellee, and Multifacs International Traders, Inc., Defendant-Appellant.
    Nos. 789 and 790, Dockets 73-2484 and 73-2636.
    United States Court of Appeals, Second Circuit.
    Argued May 6, 1974.
    Decided Aug. 5, 1974.

      James M. Leonard, New York City (McHugh, Heckman, Smith & Leonard, New York City, on the brief), for plaintiff-appellant.
    Harry T. Constas, New York City, for defendant-appellant.
    Edwin K. Reid, New York City (Zock, Petrie, Reid, Curtin & Byrnes and Anthony N. Zock, New York City, on the brief), for defendant-appellee.
    Before ANDERSON, FEINBERG and MANSFIELD, Circuit Judges.
   ROBERT P. ANDERSON, Circuit Judge:

This is the second appeal which has come before this court involving the same parties and arising out of the same charter party between the defendant-ap-pellee and shipowner, Saxis Steamship Co., (Saxis) and Multifacs International Traders, Inc. (Multifacs), defendant-appellant, and the interests acquired in the use of the vessel by American Renaissance Lines, Inc. (Renaissance), the plaintiff-appellant. The facts are fully set forth in this court’s opinion on the first appeal and are only briefly summarized here.

Multifacs chartered the vessel, SS Warm Springs, on September 20, 1965, from her owner, Saxis, under the terms of a New York Produce Exchange Time Charter which provided for arbitration “should any dispute arise between the owners and charterers.” On September 23, 1965, Mary Owens, the president of Multifacs, sent Renaissance a letter that purported to assign to Renaissance Mul-tifacs’ interest in the charter party.

On its second voyage from Taiwan to Vietnam, the SS Warm Springs could not complete the unloading of all of its cargo in Danang because some of the consignees failed to provide lighterage. Renaissance ordered the captain of the vessel to return to Taiwan, but, under instructions from Saxis, he refused, and the ship remained in the harbor from December 7, 1965 until it was finally unloaded on February 7, 1966.

Because of the. immobilization of the ship, the payment of the charter hire was withheld after January 27, 1966. Following the termination of the charter on March 27, Saxis sued Multifacs for $300,795.64 unpaid hire, insurance and wages, and Multifacs counter-claimed for $268,966.42 damages.

In an award issued June 8, 1966, the arbitrators found that Saxis violated the agreement but that its breach did not justify nonpayment of hire, and therefore, both Saxis and Multifacs were liable to each other. The arbitrators held, however, that Saxis could not, under the circumstances, then be required to recompense Multifacs by way of damages or set-off because: the damage had been suffered by Renaissance; “Multifacs and American Renaissance Line [were] two separate corporations”; the charter had been sublet to Renaissance by Multi-facs; Multifacs had neither paid damages to Renaissance nor had it become liable for them and “an award of damages by the Panel in this instance would [have amounted] to a windfall to Multi-facs.”

The district court confirmed the award and, further, barred Renaissance from intervening in the arbitration because, contrary to the arbitrators’ finding that Multifacs and Renaissance were separate and distinct corporations, the court found that they were so closely related that Renaissance had, in effect, participated in the arbitration and was bound by its results.

On appeal, this court affirmed the confirmation of the award but reversed “the portion [of the district court’s opinion] which bar [red] further action by Renaissance against Saxis.” 375 F. 2d at 583. Despite the common ownership and management of Multifacs and Renaissance noted at 583 n.9, this court held:

“ . . . [I]t was improper for the district judge to resolve that issue against Renaissance in reliance upon proceedings to which Renaissance was not a party and concerning matters on which Renaissance had never had an opportunity to be heard . Renaissance should not have been barred by the district court from bringing an action against Saxis in an effort to recover damages from it. In such an action Saxis would undoubtedly raise the issues of res adjudicata or collateral estoppel on which evidence could be offered by the parties. ff

After this court’s opinion was filed, Renaissance brought a new action in the Supreme Court of the State of New York, County of New York, and Saxis removed it to the Federal District Court in the Eastern District of New York, where it was assigned to the same district judge who had previously confirmed the arbitrators’ award.

Renaissance alleged two alternative causes of action; first, as a subcharterer, it sued Multifacs for the captain’s failure to leave Danang, and, in response to this claim, Multifacs admitted its liability to Renaissance and brought a cross-complaint against Saxis. Second, as an assignee, Renaissance sued Saxis for breach of contract. Multifacs counter-claimed against Renaissance to assert a right to set-off whatever damages Renaissance received against those already paid by Multifacs to Saxis.

After Saxis, through interrogatories and depositions, offered proof of the inter-relationship between the two corporations, it moved for summary judgment, claiming that the arbitrators’ failure to award damages in favor of Multi-faes and against Saxis, was res adjudi-cata against Multifaes and collaterally estopped Renaissance from suing Saxis.

Multifaes and Renaissance likewise moved for summary judgment on the ground that the arbitrators’ finding of liability on the part of Saxis to Multi-faes was res adjudicata.

The district court once again ruled that Renaissance and Multifaes were one and the same, and, therefore, Renaissance “was a substantial participant in the conduct of the arbitration proceedings.” It held that in addition to a common ownership and management, Multi-faes and Renaissance operated from the same suburban office, reported negligible earnings, and merely served as instruments by which their vice-president, James Georgelis, obtained personal commissions.

The district court concluded: that the doctrine of res adjudicata barred Multi-faes from again suing Saxis; that Renaissance was estopped from suing Saxis directly under a claim of assignment, because the arbitration had established that the contract between Renaissance and Multifaes was a subcharter; and that Renaissance was equitably estopped from suing Multifaes because Renaissance and Multifaes were identical, and Multifaes could not again sue Saxis.

In so holding, the district court misinterpreted the arbitrators’ decision and, consequently, misconstrued its res adjudicata effect on this action. The arbitrators, in effect, returned special verdicts on the separate issues of liability and damages, Merritt v. Thompson, 27 N.Y. 225, 10 N.Y.S. 276 (Crt of App. 1863). They found that Saxis was a wrongdoer and had breached the charter party, but they did not reach the issues of damages because they found that Multifaes’ proof of damages was contingent on the claim of a separate and distinct corporation, Renaissance, which was not a party to the proceeding. Arbitrators do not have the power to bind a corporation which is not a party to the arbitration contract or a voluntary participant in the arbitration proceeding, Orion Shipping and Trading Co., Inc. v. Eastern States Petroleum Corporation of Panama, S.A., 312 F.2d 299 (2 Cir.), cert. den. 373 U.S. 949, 83 S.Ct. 1679, 10 L.Ed.2d 705 (1963), and the amount of damages to which Renaissance or Multi-faes was entitled was, therefore, left undecided.

The fact that Multifaes has already established Saxis’ liability should not bar Renaissance from now asserting Multifaes’ or Saxis’ liability, because, as the arbitrators found, and this court confirmed, Multifaes and Renaissance are separate corporations entitled to plead their respective causes of action. See IB Moore’s Federal Practice j[ 0.401. Nevertheless, the district court, relying entirely on the close connection between Multifaes and Renaissance, contradicted the arbitrators’ finding that the two corporations were separate, and through the device of “piercing the corporate veil,” ruled that Renaissance was present in the arbitration proceeding, in the person of Multifaes, its alter ego, and, therefore, could not reassert the issue of liability. See Orion Shipping and Trading Co., Inc. v. Eastern States Petroleum Corporation of Panama, S.A., supra.

Normally, unless there is “corruption, fraud, or undue means,” the actions and affiliations of a party to an arbitration are not grounds for overturning the findings of the arbitrators. 9 U.S.C. § 10(a). Further, absent findings of fraud or bad faith, a corporation, such as Renaissance, is entitled to a presumption of separateness from a sister corporation, such as Multifaes, even if both are owned and controlled by the same individuals. Robertson v. Roy L. Morgan Production Company, 411 F.2d 1041 (10 Cir. 1969); Zubik v. Zubik, 384 F.2d 267 (3 Cir. 1967), cert den. 390 U.S. 988, 88 S.Ct. 1183, 19 L.Ed.2d 1291 (1968); Bankers Life and Casualty Company v. Kirtley, 338 F.2d 1006 (8 Cir. 1964).

If Multifacs had lost the prior action on the issue of liability and Renaissance then brought this action, there might have been grounds for holding that the two corporations were taking advantage of their corporate separateness in order to sue Saxis twice. See Saylor v. Lind-sley, 391 F.2d 965 (2 Cir. 1968). There is, however, no indication in the record that Multifacs and Renaissance intended such a result, and, as this court noted in its prior opinion, 375 F.2d at 583, n. 9, common ownership in and of itself is not a sufficient basis on which to deprive a corporation of a cause of action. Renaissance should, therefore, not have been barred from pleading Saxis’ or Multifacs’ liability. See Brescia Construction Co., Inc. v. Walart Construction Co., Inc., 264 N.Y. 260, 190 N.E. 484 (Crt. of App.1934).

Further, the fact that Multifacs prevailed in its prior suit on the issue of liability should not bar its cross-complaint against Saxis on the issue of damages. Birge-Forbes Company v. Heye, 251 U.S. 317, 40 S.Ct. 160, 64 L.Ed. 286 (1920); Restatement of Judgments § 54; Tentative Draft No. 1, New Restatement of Judgments § 48.1(2).

Saxis can demonstrate no compelling “ . . . rights or interests established in the first action [which] will be destroyed or impaired by the prosecution of the second.” Schuykill Fuel Corporation v. B. & C. Nieberg Realty Corporation, 250 N.Y. 304, 308, 165 N.E. 456, 458 (Crt. of App.1929) (Cardozo, J.). Saxis’ maneuvers in these actions have been directed toward the avoidance of paying any damages to anyone, even though the arbitrators found it was a wrongdoer and liable to Multifacs. Under these circumstances, Multifacs’ inability to prove damages in the prior action should not bar an attempt to have them ascertained, now that this has become possible. See Lawlor v. National Screen Service Corp., 349 U.S. 322, 75 S.Ct. 865, 99 L.Ed. 1122 (1955); Radick v. Underwriters at Lloyd’s London, 137 F.2d 21 (7 Cir. 1943); Fields Holding Co., Inc. v. Chanbrook Realty Co., Inc., 246 App.Div. 241, 285 N.Y.S. 182 (Sprm.Ct.App.Div. 1st Dept. 1936); Clark v. Scoville, 198 N.Y. 279, 91 N.E. 800 (Crt. of App.1910).

Ordinarily, “[a] decision by arbitrators is as binding and conclusive . . . as the judgment of a court . ” James L. Saphier Agency, Inc. v. Green, 190 F.Supp. 713, 719 (S.D.N.Y.1961), aff’d 293 F.2d 769 (2 Cir. 1961), but it is conclusive “only as to those matters included in the submission as to which there has been a hearing, and which are covered by the award.” 5 Am.Jur.2d, Arbitration and Award § 147; see Rosa v. Transport Operators Co., 45 N.J.Super. 438, 133 A.2d 24 (Superior Crt. of N.J.App.Div.1957). No award of damages was made in the first proceeding and that issue, therefore, remains open. See De Martini v. Bertram Garden Apartments, Inc., 137 N.Y.S.2d 192 (Sprm.Crt., Special Term Queens Cty. Pt. 1, 1954); De Vries v. Parsons & Whittemore, Inc., 75 N.Y.S.2d 597 (Sprm.Crt., Special Term N.Y.Cty. Pt. 1, 1947).

This court in its prior opinion sought to provide Renaissance with an opportunity to recover from Saxis. The court noted in that opinion at 582-583, of 375 F.2d that, before Renaissance could recover, it must establish whether the contract between it and Multifacs was a subcharter or an assignment. The district court again committed error in holding that the arbitrators’ finding, that the contract was a subcharter, es-topped Renaissance from asserting that the contract was an assignment. “Not having been a party to the earlier action, [Renaissance] is not bound by an adjudication made therein.” Flanzbaum v. M & M Transportation Co., 286 F.2d 500 (2 Cir. 1961).

Nevertheless, this court is now of the opinion that there is no need to remand this case to the district court for a determination of whether the contract between Multifacs and Renaissance was an assignment or a subcharter. Saxis has consistently agreed with the arbitrators’ finding that the contract was a sub-charter; Multifacs has done the same. Although Renaissance pleaded both sub-charter and assignment, it moved for summary judgment below and has renewed its motion here on the ground that Saxis is barred from contesting liability by the arbitrators’ prior decision; therefore, for purposes of this motion, Renaissance has necessarily conceded the correctness of the arbitrators’ finding.

This court may grant summary judgment if there is no dispute as to any material fact, see Local 33, International Hod Carriers Building & Common Laborers’ Union of America v. Mason Tenders District Council of Greater New York, 291 F.2d 496 (2 Cir. 1961), and if the moving party is entitled to judgment as a matter of law. Rule 56(e) Fed.R. Civ.Proc.

Between Multifacs and Renaissance there is no question of fact, because, for purposes of summary judgment, all parties have agreed that the contract between Multifacs and Renaissance was a subcharter. Renaissance is, therefore, entitled to judgment against Multifacs as a matter of law because Multifacs has made judicial admission of its liability to Renaissance.

Aside from damages, the sole remaining question in this suit, then is whether Saxis is liable to Multifacs for breach of. the charter. This is, of course, the exact question which the arbitrators decided in favor of Multifacs in the previous suit. Saxis did not challenge the arbitrators’ finding of liability in the prior proceeding, and the district court and this court confirmed that award, including the arbitrators’ determination of Saxis’ liability. “If a suit is brought concerning rights and liabilities that have been decided by a valid arbitration award, the award may be introduced in evidence and is conclusive as to matters contained therein.” 5 Am.Jur.2d Arbitration and Awards § 147; see Brazill v. Isham, 12 N.Y. 9 (Crt. of App.1854). The litigation on the issue of liability has, therefore, “reached such a stage that [this] court t sees no really good reason for permitting it to be litigated again.” Lummus Company v. Commonwealth Oil Refining Company, Inc., 297 F.2d 80, 89 (2 Cir. 1961), cert. den. 368 U.S. 986, 82 S.Ct. 601, 7 L.Ed.2d 524 (1962). See Smith v. United States, 369 F.2d 49 (8 Cir. 1966), cert. den. 386 U.S. 1010, 87 S.Ct. 1355, 18 L.Ed.2d 439 (1967). As between Multifacs and Saxis, the arbitrators’ decision on Saxis’ liability is res adjudicata, and Multifacs is entitled to judgment as a matter of law. Newcomb v. Wood, 97 U.S. 581, 24 L.Ed. 1085 (1878); James L. Saphier Agency, Inc. v. Green, supra.

The arbitrators did not calculate precisely the amount of damages owed by Saxis to Multifacs but summary judgment may be entered on the issue of liability alone, even though “there is a genuine issue as to the amount of damages.” Rule 56(c). “Because one phase of the litigation was left unsettled does not preclude the holding that the judgment is res adjudicata as to that phase which has been finally concluded.” Tuolumne Gold Dredging Corporation v. Walter W. Johnson Co., 71 F.Supp. 111, 113 (N.D.Cal.1947); see Driscoll v. Humble Oil & Refining Company, 60 F.R.D. 230, 234 (S.D.N.Y.1973).

By way of summation in general terms, we conclude that the arbitrators’ decision that Multifacs was required to pay over the total charter hire payments to Saxis was res adjudicata as to the duty to make the payment of the charter hire at that time, and Multifacs paid it in full; that the same decision also adjudicated liability on the part of Saxis to Multifacs or a person claiming through, by or under Multifacs for Sax-is’ wrongdoing in depriving Multifacs or its subcharterers or assigns of the use of the vessel and the consequent loss of profits during a substantial part of the life of the charter party, and that this was res adjudicata against Saxis. The arbitrators made independent decisions on two independent issues. The judgment in favor of Saxis for the charter hire was not designed to bar recovery against Saxis for its wrongdoing and consequent liability any more than the finding of wrongdoing and judgment of liability on the part of Saxis was intended to operate to bar Saxis from recovery of the charter hire. The arbitrators made it clear that though damages had been suffered, the case and the parties were in such a posture that, though there was liability on the part of Saxis, the issue of damages could not then be fully ascertained. This is in no sense a modification or vacation of the award by the arbitrators nor does the case come within any of the grounds set out in 9 U.S.C. § 10; rather this decision recognizes that, for an adequate and proper reason, the arbitrators were unable to complete the task assigned to them and were obliged to leave the issue of the amount of the damages unresolved and that it must now be heard and decided.

Multifacs’ claim against Saxis for damages is subject to the arbitration provision of the charter agreement, Shanferoke Coal & Supply Corporation of Delaware v. Westchester Service Corporation, 70 F.2d 297 (2 Cir. 1934), aff’d 293 U.S. 449, 55 S.Ct. 313, 79 L.Ed. 583 (1935), and, as Saxis’ motion for arbitration on the amount of any damages due is pending below, the district court is directed to grant it and refer this question to arbitration either by the original arbitrators or to another panel chosen in accordance with the applicable provision in the charter party. 9 U.S.C. §§ 2, 4.

It is so ordered.

The grant of summary judgment to Saxis is reversed. The case is remanded to the district court for the entry of summary judgment on the issue of liability in favor of Renaissance against Multifacs and in favor of Multifacs against Saxis. Further proceedings in the district court are ordered stayed pending the determination by arbitration of the amount of any damages.

      . The opinion and judgment on the first appeal are reported in Saxis Steamship Co. v. Multifacs International Traders, Inc. v. American Renaissance Lines, Inc., 375 F.2d 577 (2 Cir. 1967).


text:
    Robert R. KRILICH, Petitioner-Appellant, v. UNITED STATES of America, Respondent-Appellee.
    No. 73-1948.
    United States Court of Appeals, Seventh Circuit.
    Argued Dec. 7, 1974.
    Decided Aug. 30, 1974.

      Edward J. Calihan, Jr., Joseph A. La-, mendella, Chicago, 111., for petitioner-appellant.
    James R. Thompson, U. S. Atty., Ann P. Sheldon, Asst. U. S. Atty., Chicago, 111., for respondent-appellee.
    Before SWYGERT, Chief Judge, CASTLE, Senior Circuit Judge, and CAMPBELL, Senior District Judge.

       Senior District Judge William J. Campbell of the Northern District of Illinois is sitting bydesignation.

   WILLIAM J. CAMPBELL, Senior District Judge.

On June 6, 1971, petitioner-appellant was convicted of income tax evasion and of willfully filing a false income tax return in violation of 26 U.S.C. § 7201 and 26 U.S.C. § 7206(1), respectively. His conviction was subsequently affirmed by this court. United States v. Krilich, 470 F.2d 341 (7th Cir. 1972). Petitioner thereafter moved to vacate his conviction pursuant to 28 U.S.C. § 2255, asserting that, in the course of his trial, he was denied access to a report prepared by an Internal Revenue Agent who testified on behalf of the government, and that he was thereby denied his constitutional right of confrontation and effective assistance of counsel. This appeal follows the district court’s denial of his motion.

In the course of petitioner’s earlier appeal, he urged that his conviction be reversed because, prior to the cross-examination of Special Agent Popovitz, Krilich was not afforded access to the Special Agent’s Report (SAR) which Popovitz prepared in connection with the government’s investigation of petitioner. In affirming his conviction, this court ruled that the SAR was “not a ‘written or recorded statement * * * made by the defendant’ within the meaning of Rule 16(a)(2) of the Federal Rules of Criminal Procedure under which production was sought”. 470 F. 2d at 351. In addition, in reliance upon the language of United States v. Keig, 334 F.2d 823, 825 (7th Cir. 1964) this court ruled that the SAR was not “a ‘statement’ as defined in 18 U.S.C. § 3500(e), and hence was not producible under the Jencks Act either.”

Subsequently, on April 16, 1973, this court decided United States v. Cleveland, 477 F.2d 310 (7th Cir. 1973) (hereafter, Cleveland I), holding that the SAR is a “statement” within the meaning of the Jencks Act, 18 U.S.C. § 3500(e), and expressly disapproving “the language of that [Keig] opinion insofar as it may be read to imply that a Special Agent’s Report is not a statement within subsection (e)”. 477 F.2d at 316. In a footnote, the court observed that “[t]his comment is, of course, also applicable to the dictum of United States v. Krilich, 470 F.2d 341 (7th Cir. 1972) page 351 n. 18, . . .”.

On appeal from the denial of his motion pursuant to 28 U.S.C. § 2255, petitioner contends that, in light of this court’s decision in Cleveland I, he was denied his constitutional rights of eon-frontation and effective assistance of counsel both at trial and on appeal from his conviction, and that he is therefore entitled to a new trial. For the reasons stated herein, we affirm the decision of the district court.

The government first contends that the issue before us is of an “evidenciary nature” and not of constitutional proportions, and that it therefore cannot be raised collaterally under 28 U.S.C. § 2255. We disagree. The essence of petitioner’s claim is that his constitutional right of confrontation was infringed through the allegedly erroneous denial of material which he contends would have enhanced his ability to cross-examine an important government witness. Clearly, the principal purpose of requiring the government to disclose prior written statements of a witness which relate to that witness’ direct testimony is to facilitate cross-examination. It is principally through cross-examination that a defendant exercises his right to confront witnesses called to testify against him. Conversely, the failure to provide material to which the defense is entitled under the Jencks Act may adversely affect a defendant’s ability to cross-examine government witnesses and thereby infringe upon his constitutional right of confrontation. Non-compliance with a statute which has as one of its purposes the effectuation of a constitutional right presents an issue of sufficient constitutional dimension to warrant consideration under 28 U.S.C. § 2255.

The fact that a motion under § 2255 raises a constitutional claim, however, does not necessarily mandate that the underlying conviction be vacated, even if the petitioner succeeds in establishing the claim asserted. The instant case represents one instance in which, even if the correctness of petitioner’s contention were to be assumed, the claim that his underlying conviction should be vacated must be denied. Cleveland I clearly had the effect of changing what, in practice, had theretofore been a commonly accepted rule within this Circuit. As evidenced by United States v. Krilich, 470 F.2d 341 (7th Cir. 1972) and United States v. Lacob, 416 F.2d 756, 761 (7th Cir. 1969), this court’s decision in United States v. Keig, supra, had been consistently interpreted as excluding the SAR as a statement under 18 U.S.C. § 3500(e).

Since Krilich’s conviction preceded the Cleveland decision, his present effort to set aside that conviction requires us to consider whether Cleveland I should be afforded retroactive application. For the reasons herein stated, we find that Cleveland I should be applied prospectively only and, for this reason alone, affirm the decision of the district court.

Linkletter v. Walker, 381 U.S. 618, 85 S.Ct. 1731, 14 L.Ed.2d 601 (1965) “was the first in a long line of cases giving prospective effect to rules newly propounded in the field of constitutional criminal procedure.” Adams v. Carlson, 488 F.2d 619, 626 (7th Cir. 1973). Decisions concerning retroactivity rendered subsequent to Linkletter, many of which are cited and discussed in the Adams opinion, 488 F.2d at 626, 627, have gradually developed a composite of fairly workable guide lines for determining whether a change in previously accepted decisional law should be applied prospectively only. These decisions demonstrate that under either of two circumstances a new rule of law must be applied retroactively.

The first is where the effect of the new rule “is to prevent a trial from taking place at all, rather than to prescribe procedural rules that govern the conduct of a trial.” Robinson v. Neil, 409 U.S. 505, at 509, 93 S.Ct. 876, at 878, 35 L.Ed.2d 29 (1973). Retroactive application is mandated in such • instances because the defendant was not properly amenable to prosecution in the first place. Thus, the Robinson Court applied Walker v. Florida, 397 U.S. 387, 90 S.Ct. 1184, 25 L.Ed.2d 435 (1970) retroactively because Robinson’s second trial should have been foreclosed by operation of the Double Jeopardy Clause. See also United States v. U. S. Coin & Currency, 401 U.S. 715, 91 S.Ct. 1041, 28 L.Ed.2d 434 (1971).

The second circumstance requiring retroactive application of a new rule was defined in Williams v. United States, 401 U.S. 646 at 653, 91 S.Ct. 1148 at 1152, 28 L.Ed.2d 388 (1969):

“where the major purpose of new constitutional doctrine is to overcome an aspect of the criminal trial that substantially impairs its truth-finding function and so raises serious questions about the accuracy of guilty verdicts in past trials, the new rule has been given complete retroactive effect.” (emphasis added)

Williams held that Chimel v. California, 395 U.S. 752, 89 S.Ct. 2034, 23 L.Ed.2d 685 (1969) should not be given retroactive effect. Similai’ly, Adams v. Illinois, 405 U.S. 278, 92 S.Ct. 916, 31 L.Ed.2d 202 (1972), after acknowledging the rule enunciated in Williams, held that Coleman v. Alabama, 399 U.S. 1, 90 S.Ct. 1999, 26 L.Ed.2d 389 (1970) (right to counsel at the preliminary hearing) should not be applied retroactively. On the other hand, this principle is consistent with the retroactive application afforded Gideon v. Wainwright, 372 U.S. 335, 83 S.Ct. 792, 9 L.Ed.2d 799 (1963) (right to counsel at trial) and Jackson v. Denno, 378 U.S. 368, 84 S.Ct. 1774, 12 L.Ed.2d 908 (1964) (use of a coerced confession at trial). See also, cases cited at 401 U.S. 646, 653, n. 6, 91 S.Ct. 1148.

The new rule announced in Cleveland I does not foreclose the government from proceeding against the defendant — it does not “prevent a trial from taking place at all” — and thus does not present an instance appropriate for application of the Robinson rule. And although production of the SAR as a 3500 statement may be assumed to enhance the quality of the cross-examination and to thereby effectuate petitioner’s constitutional right of confrontation, the rule enunciated in Cleveland I does not meet the Williams’ standard for mandatory retroactive application since it can hardly be characterized as a “new constitutional doctrine”. More importantly, we do not believe that defense counsel’s lack of access to the SAR prior to cross-examination can properly be said to so substantially impair the truth finding function as to raise a “serious question about the accuracy of guilty verdicts in past trials”.

Accordingly, the issue of retroactivity here must be determined by application of the balancing tests reflected in Johnson v. New Jersey, 384 U.S. 719, 86 S.Ct. 1772, 16 L.Ed.2d 882 (1966) and Stovall v. Denno, 388 U.S. 293, 87 S.Ct. 1967, 18 L.Ed.2d 1199 (1967).

Johnson held that the:

“question [of] whether a constitutional rule of criminal procedure does or does not enhance the reliability of the fact-finding process at trial is necessarily a matter of degree. [W]e denied retroactive application to Griffin v. California, supra, despite the fact that comment on the failure to testify may sometimes mislead the jury concerning the reasons why the defendant [had] refused to take the witness stand. We are thus concerned with a question of probabilities and must take account, among other factors, of the extent to which other safeguards are available to protect the integrity of the truth-determining process at trial.” 384 U.S. at 728-729, 86 S.Ct. at 1778.

Stovall directs us to consider three criteria for determining whether a new rule should be applied retroactively: “(a) the purpose to be served by the new standards, (b) the extent of the reliance by law enforcement authorities on the old standards, and (c) the effect on the administration of justice of the retroactive application of the new standards.” 388 U.S. 297, 87 S.Ct. at 1970.

Applying the standards of Johnson and Stovall, we conclude that Cleveland I should not be applied retroactively. Although, as we have said, the ability to cross-examine the government’s witness is furthered by the rule announced in Cleveland I, the degree to which the fact finding process is actually enhanced is not so substantial as to warrant reopening numerous previously decided criminal tax cases. The impact on the integrity of the truth determining process which results from the government’s failure to tender the SAR as a 3500 statement is somewhat diminished by the availability of other safeguards, including defense counsel’s access to other documents reflecting much of the information contained in the SAR. Thus, while the fact finding process was certainly affected, we cannot conclude that the procedures followed prior to Cleveland I impaired the integrity of the truth determining process to the substantial extent necessary to warrant retroactive application of Cleveland I under the guide lines announced in Johnson.

Turning to the Stovall criteria, since Cleveland I construes the scope of § 3500(e), the purpose to be served by the new rule is that which is served by subsection (e), i.e., to provide access to material in the government’s possession in order to effectuate the defendant’s right of confrontation through more effective cross-examination of government witnesses. Since this purpose can be effectuated through prospective application of Cleveland I, and since we do not believe the integrity of the truth determining process was so adversely affected by pre-Cleveland I practices to warrant retroactive application of the new rule under the guide lines announced in Johnson, we conclude the purpose to be served by the new standard does not require application of that standard retroactively. Secondly, the Stovall Court gave particular emphasis to the extent of reliance upon pre-Stovall standards. In the instant case, the district courts of this circuit, particularly after United States v. Keig, 334 F.2d 823, 825 (7th Cir. 1964), had sufficient reason to rely on the understanding that the SAR was not a “statement” within the meaning of 18 U.S.C. § 3500(e). Cleveland I acknowledged that “there is indeed language in the \_Keig~], opinion which supports this interpretation . . . ” 477 F.2d at 315, and considered the district court’s failure to inspect the SAR in that ease as an “error which may have stemmed from an understandable reliance on Keig . . . ” 477 F.2d at 316, n. 9.

The last of Stovall’s criteria — the effect on the administration of justice — : also argues against applying Cleveland I retroactively, since it may be expected that those convicted in the past of income tax offenses, regardless of the actual strength of the evidence against them, will otherwise return to the district court seeking to vacate their convictions and demanding new trials because the SAR was not included in the § 3500 material tendered prior to cross-examination. Even if the government desired to do so, it is predictable that many of these cases simply could not be retried, either because of the unavailability of witnesses or the destruction of non-evidentiary documents, such as the SAR.

The views which we express today should not be misconstrued as denigrating the importance of the government’s obligation to tender § 3500 material to the defense. Where the government fails to comply with the requirements of the Jencks Act, a conviction should be reversed unless it is perfectly clear that the defense was not prejudiced by the omission. United States v. Cleveland, 477 F.2d 310, 316, n. 9 (7th Cir. 1973); United States v. Aaron, 457 F.2d 865, 869 (2nd Cir. 1972); United States v. Missler, 414 F.2d 1293, 1304 (4th Cir. 1969). Nevertheless, on the basis of the aforementioned guide lines enunciated and applied in numerous Supreme Court decisions, we hold that Cleveland I should not be applied retroactively. Accordingly, we affirm the decision of the district court.

Affirmed.

      . We refer to the Cleveland decision as “Cleveland I” because there is currently pending before this court a second appeal by the defendant in that case challenging the correctness of the district court’s ruling on remand from the first appeal.

      . See United States v. Aaron, 457 F.2d 865, 869 (2nd Cir. 1972); United States v. Missler, 414 F.2d 1293, 1303 (4th Cir. 1969).

      . We note also that the Supreme Court has recently rejected the proposition that only claims of a constitutional nature may be raised under § 2255. In Davis v. United States, (1974), 417 U.S. 333, 94 S.Ct. 2298, 41 L.Ed.2d 109 (1974), the court held that the language of § 2255 permits one in federal custody to seek relief under that statute where he claims that his confinement is “in violation of the Constitution or laws of the United States.” The' court added, however, that where a petitioner asserts that his confinement is in violation of the laws of the United States, “the appropriate inquiry [is] whether the claimed error of law [is] ‘a fundamental defect which inherently results in a complete miscarriage of justice,’ and whether ‘ [i] t . . . presentfs] exceptional circumstances where the need for the remedy afforded by the writ of habeas corpus is apparent.’ ” 417 U.S. at 346, 94 S.Ct. at 2305.

        For the reasons stated herein, we do not believe the alleged error in the instant case would, if established, inherently result in a complete miscarriage of justice. Nevertheless, since we consider the Jencks Act a vehicle for effectuating and enhancing the defendant’s constitutional right of confrontation, we view the petitioner’s claim as one of sufficient constitutional dimension for the purposes of § 2255.

      . The government asserts that Cleveland I does not require that Krilich’s conviction be vacated, apparently contending that the trial judge reviewed the SAR and found “nothing that would be producible in the report” (Government’s brief, p. 4). Since we hold today that Cleveland I is to be applied prospectively only, we do not consider the issue of whether retroactive application of Cleveland I would require that petitioner’s § 2255 motion be granted.

      . The Supreme Court’s recent decision in Davis v. United States, 417 U.S. 333, 94 S.Ct. 2298, 41 L.Ed.2d 109 does not consider whether the Ninth Circuit’s decision in United States v. Fox, 454 F.2d 593, which Davis contended “effected a change in- the law of [that! Circuit after the affirmance of his conviction” 94 S.Ct. at 2299, should be applied retroactively. But the court did note that the substance of Davis’ contention was that Fox “establishes that his induction order was invalid under the Selective Service Act and that he could not be lawfully convicted for failure to comply with that order.” The court then expressed the view that “ [i] f this contention is well-taken, then Davis’ conviction and punishment are for an

        aot that the law does not make criminal.” (emphasis added) 94 S.Ct. at 2305. In short, at least with respect to the facts of the Davis case, Fox warranted retroactive application because the effect of the ruling in Fox was “to prevent a trial from taking place at all, . . .” Robinson v. Neal, supra. Unlike Fox, the rule announced in Cleveland I would not operate to foreclose further prosecution of petitioner.

      . To the extent that the fact finding process lias been affected by the failure to produce the SAR, we do not consider the impact nearly as substantial as that which resulted from the decisions in Griffin v. California, 380 U.S. 609, 85 S.Ct. 1229, 14 L.Ed.2d 106 (1965), held not retroactive in Tehan v. Shott, 382 U.S. 406, 86 S.Ct. 459, 15 L.Ed.2d 453 (1966); Coleman v. Alabama, 399 U.S. 1, 90 S.Ct. 1999, 26 L.Ed.2d 387 (1970), held not retroactive in Adams v. Illinois, 405 U.S. 278, 92 S.Ct. 916, 31 L.Ed.2d 202 (1972); and United States v. Wade, 388 U.S. 218, 87 S.Ct. 1926, 18 L.Ed.2d 1149 (1967) and Gilbert v. California, 388 U.S. 263, 87 S.Ct. 1951, 18 L.Ed.2d 1178 (1967), held not retroactive in Stovall v. Denno, supra.

      . Since Cleveland I relates to trial procedure, we hold that the rule promulgated therein shall be prospectively applicable to any case regarding which the judgment of conviction was entered after April 15, 1973.


author: HAMLEY, Circuit Judge:

text:
    Martha Maytag DANNERBECK, Plaintiff-Appellee, v. Oscar C. PALMER, Sr., et al., Defendants, Al A. Marth, Trustee in Bankruptcy of Pete Horner Excavating, Inc., Defendant-Appellant.
    No. 72-3201.
    United States Court of Appeals, Ninth Circuit.
    July 17, 1974.
    Rehearing Denied Aug. 12, 1974.
    Certiorari Denied Dec. 9, 1974.
    See 95 S.Ct. 626.

      John C. Hughes (argued), Hughes, Hughes & Conlan, Phoenix, Ariz., for defendant-appellant.
    Kenneth J. Sherk (argued), Robbins & Green, Phoenix, Ariz., for Danner-back.
    Keith W. Ragan (argued), Phoenix, Ariz., for Palmer.
    Before HAMLEY, MERRILL and WRIGHT, Circuit Judges.
   OPINION

HAMLEY, Circuit Judge:

Al A. Marth, Trustee in Bankruptcy of Pete Horner Excavating, Inc. (Hor-ner Excavating) appeals from a declaratory judgment in this diversity action in favor of Martha Maytag Dannerbeck and Oscar C. and Corinne E. Palmer, husband and wife. We affirm.

Initially, two actions for declaratory relief were filed, one by United States Fidelity and Guaranty Company (USF&G) and the other by National Union Fire Insurance Company of Pittsburgh, Pennsylvania (National Union). These plaintiffs, as sureties for Horner Excavating, a bankrupt contractor which had defaulted on city street contracts, sought a declaratory judgment that plaintiffs were entitled to receive the proceeds of six city improvement district contracts to the extent they had paid to complete the contracts under performance bonds and had paid claims of laborers and materialmen under payment bonds.

The plaintiff surety companies named, as defendants, Oscar Palmer and Mrs. Palmer, the Arizona municipalities of Phoenix and Prescott, and Marth, the contractor’s Trustee in Bankruptcy. Palmer had advanced monies to the contractor and claimed the contract proceeds by virtue of assignments. The named municipalities had entered into contracts with Horner Excavating to perform the street contracts in question.

The defendant cities asserted no right to the contract proceeds. Pursuant to stipulation, those proceeds, consisting of cash and municipal bonds, were deposited with a bank in Phoenix to be invested and abide the outcome of the litigation. When it was revealed by pretrial discovery that Mrs. Dannerbeck, as idemnitor, had paid both sureties the full amount of her indemnity obligation, she was, pursuant to stipulation and order, substituted as plaintiff in each action. She then sought, as subrogee of the surety companies, to recover the proceeds of the city street improvement contracts to the extent she had paid the surety companies. Subsequently, the two actions were consolidated.

After extensive pretrial proceedings, Mrs. Dannerbeck, Palmer and the trustee each moved for summary judgment. The result was entry of a declaratory judgment to the effect that Mrs. Dan-nerbeck was entitled to first priority in and to the funds, that Palmer was entitled to first priority in and to the balance of the funds, and that the trustee was not entitled to any of the funds. At all times the combined claims of Mrs. Dannerbeck and Palmer exceeded the funds in question. Only the trustee has appealed.

The trustee advances separate arguments against Mrs. Dannerbeck and Palmer, and also contends that the district court was without jurisdiction in this plenary suit based on diversity of citizenship, because exclusive jurisdiction over the claims of Mrs. Dannerbeck and Palmer rested in the bankruptcy court. Ordinarily we give first attention to jurisdictional challenges. However, this particular jurisdictional issue is premised on a factual background which can best be developed by first discussing the other issues.

Martha Dannerbeck’s right of subrogation

With regard to Mrs. Dannerbeck’s right to the contract proceeds, the trustee advances three arguments. The first two of these arguments are related, and will be considered together. They are: (1) the equities of the case do not favor the right of subrogation being given to Mrs. Dannerbeck, and (2) the equitable right of subrogation will arise in a surety only in the event of loss and it is a right that will not carry over to one who indemnifies a surety when such indemnitor is also a principal and in fact made payment in place of the surety.

The total contract proceeds available aggregated $579,137.42. Of this sum Mrs. Dannerbeck claimed $405,969.56, comprised of the following items: $323,375.32 of the improvement district proceeds under equitable subrogation on a job by job basis, $81,686.00 paid by National Union on two gas tax jobs, and $908.24 paid to USF&G on the Contractor’s License Bond by subrogation to the sureties’ positions under the assignments in the Indemnity Agreements.

The trustee concedes that if the two surety companies had themselves made good the defaults of Horner Excavating, without indemnification, they would then have been entitled to recovér their expenditures from the proceeds of the various contracts. The trustee also recognizes the general equitable principle that an indemnitor is entitled to be subrogated to the rights of a surety. However, the trustee asserts that the foregoing principle does not apply under the circumstances of the case now before us.

The circumstances upon which the trustee relies*are as follows: In October of 1963, Martha Dannerbeek’s cousin, Pete Horner, and her husband, Jon L. Dannerbeck, formed a partnership, and in April, 1964, they decided to incorporate. Horner put into the corporation his two pieces of equipment which he valued at from twelve to fourteen thousand dollars, and received twelve to fourteen thousand shares of corporate stock. Jon L. Dannerbeck told his wife his participation would be six thousand dollars and she wrote him a cheek in that amount which was deposited in their joint bank account. He then wrote a check on that account in the amount of six thousand dollars, paid it to the corporation, and received approximately six thousand shares of stock.

Upon incorporation of Horner Excavating, Horner became President-Treasurer and Dannerbeck became Vice President-Secretary of the corporation. Both were made directors of the corporation. There was no further infusion of equity capital into the corporation, although thereafter it entered into contracts having an aggregate value of about one million dollars.

The statutes then in force in Arizona required any general contractor on improvement district contracts to post, as a condition of his contract, two bonds. One of these was to be conditioned upon the faithful performance of the contract in a sum not less than one-fourth of the contract price. The other was to be for the benefit of all persons who may have claims against the contractor or subcontractor for labor, materials or services used in the work, in a sum not less than one-half of the total amount of the contract.

Of the six improvement district contracts in question, two were bonded by USF&G and the remaining four were bonded by National Union. It was for the purpose of- obtaining these surety bonds that Mrs. Dannerbeck, along with her husband, Horner and the corporation, executed the joint and several indemnity agreements in question. Mrs. Dannerbeck testified that her purpose in executing the agreement was to assist the place where her husband was employed and “to assist Jon in getting along in the business he was in.”

The Dannerbecks’ association with the corporation continued up to late 1965. Jon Dannerbeck resigned as a corporate officer and director on December 3, 1965, and sold his stock to Pete Horner. Thereafter, and while the indemnity agreements in question were in full effect, Horner Excavating defaulted on all of the contracts in question by failing to pay laborers and materialmen and by failing to complete work on three of the contracts. Horner Excavating was adjudicated a bankrupt on July 8, 1966. Thereafter, the Dannerbecks, through their attorney, from time to time settled the amounts of the various claims covered by the surety and indemnity agreements, and sent trust checks signed by the attorney to the surety companies which, in turn, issued their checks in the same amount to the claimants. These payments by the Dannerbecks were made from a joint trust account established by the Dannerbecks, but to which Mrs. Dannerbeck made the sole contribution from her separate property.

The circumstances described above, the trustee asserts, demonstrate that: (1) the corporation, in which Mrs. Dan-nerbeck had a community property interest, was grossly undercapitalized; (2) Mrs. Dannerbeck’s indemnity agreement was therefore, in effect, a contribution to capital, for the purpose of furthering Mrs. Dannerbeck’s interest in the corporation; (3) it was thus the power of the Dannerbeck name and property that allowed the massive indebtedness to accumulate against the minimal financing of Horner Excavating; and (4) the described method of paying the claims, whereby the surety companies did not make payouts until they had received checks from the joint trust account corroborates the fact that Mrs. Dannerbeck was acting as a principal and not as an independent indemnitor.

Premised on these circumstances, the trustee calls for application of the principle announced in Wood v. Steele, 73 U.S. (6 Wall.) 80, 82, 18 L.Ed. 725 (1867), that

“ . . . where one of two innocent persons must suffer, he who has put it in the power of another to do the wrong, must bear the loss, ”

The trustee finds a parallel between this case and Braddy v. Randolph, 352 F.2d 80 (4th Cir. 1965). In that case the court rejected the claims of a person who was a principal stockholder, director and president of a bankrupt corporation, based on four secured notes issued to him by the corporation for money “loaned” to the corporation. The claims were rejected on the ground that the “loans” were actually contributions to the capital of the bankrupt which had been undercapitalized from its inception. Said the court:

“Rather than invest more capital the officers and stockholders, by the use of the borrowed funds, substantially shifted and evaded the Ordinary financial risks connected with this type of business enterprise and, at the same time, permitted the corporation to remain in a constant state of or in imminent danger of insolvency.” (352 F.2d at 82.)

The trustee also argues that the equitable right of subrogation is not available to an indemnitor who is also a principal and in fact made payment in place of the surety. In this connection the trustee cites 50 Am.Jur., Subrogation § 20, at 695, for the proposition that

“The excluded classes are composed of those who discharge debts upon which their liability is primary. . . . ”

Pointing out that subrogation is a creature of equity not dependent on contract but upon the equities of the parties, the trustee asserts that to allow subrogation under the facts and circumstances of this case would do violence to equity and rather than promote justice it would work an injustice to the general creditors.

The foregoing, which describes the trustee’s contentions in summary form, omitting some supporting arguments and authorities, presents a rather persuasive argument for denial of the right of subrogation to Mrs. Dannerbeck.

But there are countervailing circumstances and arguments which must also be considered. Unlike the claimant in the Braddy case, supra, Mrs. Dannerbeck was not a director or officer of the corporation, nor was she even a minority stockholder unless her six thousand dollar payment to Jon so that he could purchase corporate stock was a contribution to community property rather than an outright gift to him. Except for the possibility that she had contributed the six thousand dollars to the community property (a fact not established in the record), her only beneficial interest in the corporation was her community property interest in Jon’s corporate salary.

The construction contract funds to which the trustee is laying claim have never been a part of the bankrupt’s estate available to the general creditors. The funds never became due and owing to Horner Excavating because that corporation defaulted in its performance of the contract.

Nor is it established in the record that Horner Excavating’s inability to complete the contracts was due to under-capitalization, although the company did have a working capital problem. There may have been any number of other reasons for the default: inexperienced and incompetent management; bids which were too low; unmanageable labor and material problems; involvement with other companies to the disadvantage of Horner Excavating; and accidents. It should also be noted that the company’s financial standing was not entirely dependent upon the indemnity contract, since it received substantial financing through appellee Oscar C. Palmer as described in another section of this opinion.

Unlike the cases cited by the trustee, Mrs. Dannerbeck did not purport to loan money to the corporation. She took no part in the business affairs of the corporation, other than to guarantee certain loans to the corporation and to execute the indemnity agreements. She executed a normal indemnity contract such as surety companies frequently require. Her indemnity agreement was acceptable to the sureties because of her substantial separate property. While the sureties were paid from a joint trust account, the corpus of that trust consisted exclusively of Mrs. Dannerbeck’s separate property.

Had the surety companies settled and paid the claims themselves, they could have proceeded against the contract funds as subrogees. Or they could have moved against Mrs. Dannerbeck as in-demnitor. The fact that she chose to settle the claims and advance funds to the sureties, in advance of payments by them, does not alter the basic fact that she was discharging an indemnitor’s obligation. To hold otherwise would be to exalt form over substance.

Allowing Martha Dannerbeck the right of subrogation does not inflict any injustice on the general creditors because if the labor and material claims had not been paid by the sureties or Martha Dannerbeck, the funds in question would, in any event, not have been available to the general creditors but would have gone directly to the laborers and materialmen. See Jacobs v. Northeastern Corporation, 416 Pa. 417, 206 A.2d 49 (1965); In re Dutcher Construction Corporation, 378 F.2d 866 (2d Cir. 1967). This might not be an adequate answer to the trustee if it had been definitely shown that Horner Excavating’s undercapitalization caused that corporation’s defaults under the six street-improvement contracts in question. But, as noted above, no such showing was made and, indeed, it was not shown that a substantial contribution to the corporation’s capital by Mrs. Dannerbeck would have satisfied the sureties so that they would not have required the indemnity agreements.

On balance, we conclude that there is no compelling “equity” in favor of the general creditors which calls for disregard of the general rule that an indemnitor who has fulfilled its obligation to a surety pursuant to the indemnity agreement, is subrogated to all rights which the surety has with respect to available funds.

The trustee’s third reason why Mrs. Dannerbeck should not be granted the right of subrogation with respect to the funds in question is based on the fact that she did not seek contribution from the co-indemnitors, and particularly Pete Horner. The trustee calls our attention to testimony to the effect that Pete Hor-ner visited the Dannerbecks in 1968 and told them he wanted to pay them what he owed them. According to Mrs. Dan-nerbeck, Mr. Horner had funds in trust with which this could have been accomplished. Mrs. Dannerbeck, however, did not pursue this avenue of recovery or seek any contribution from her co-in-demnitors.

The trustee cites authority to the effect that while each of the co-indemni-tors was liable to the sureties for the full amount of the undertaking, as between themselves, each is primarily liable for only a portion of the debt, and thus is entitled to contribution from the co-indemnitors. Accepting this to be a correct statement of the law, the question remains whether a co-indemnitor who has fully discharged his liability to the surety is compelled to seek contribution from his co-indemnitors before he may proceed, by way of subrogation, against available funds.

The trustee cites no authority for the proposition that, in these circumstances, an indemnitor who has paid his ■ obligation must proceed first against his co-indemnitors for contribution before pursuing his subrogation rights. Nor have we found any support in the books for such a proposition. As a general rule, and apart from election of remedies problems not presented by the case now before us, a party may pursue any remedy the law gives. See Abdallah v. Abdallah, 359 F.2d 170, 174 (3rd Cir. 1966). Accordingly, we hold that Mrs. Dannerbeck is not to be denied her right of subrogation by reason of the fact that she did not first seek contribution from the co-indemnitors.

Oscar Palmer’s right to the balance of the contract funds

As before stated, the judgment under re.view, after adjudicating that Mrs. Dannerbeck is entitled to first priority in and to the available funds, adjudicated that Palmer is entitled to first priority in and to the balance of the funds. The exercise of these two priorities would exhaust the funds and leave nothing for the trustee.

Palmer’s claim to the funds is based upon his alleged purchase of the improvement bonds to be issued upon completion of the contracts Horner Excavating had with the cities and improvement districts. Horner Excavating’s purpose in selling these bonds to Palmer was to obtain additional financing for completion of its various projects. In each instance the purchase of the bonds took the form of a letter prepared and signed by Palmer and accepted by Horner Excavating. The forms of assignment of the proceeds of the contracts were executed by Horner Excavating in favor of Palmer and were lodged with and acknowledged by the municipalities. The assignments referred to “indebtedness” and provided that “this assignment shall stand as security for all indebtedness.”

The trustee asserts that these purchase agreements contain conditions precedent to the obligation of the purchaser to accept the finished article, and that therefore title to the bonds could not pass to Palmer until the conditions had been satisfied. The principal conditions precedent upon which the trustee relies are exemplified by these recitals in the letter agreements:

“at the time of delivery these bonds are to be accompanied by the final approving opinion of Messrs. Gust, Ro-senfeld, Divelbess and Robinette of Phoenix, Arizona.”
“If for any reason these bonds are not promptly issued in the regular manner or should the job not be completed in average time required for this size of job, you are to promptly refund the amount we have then advanced to you upon written demand.”

The trustee contends that because the job was not completed in the “average time required,” and because no “final approving opinion” was issued, these asserted conditions precedent failed, and title to the bonds never passed to Palmer. Therefore, the trustee urges, Hor-ner Excavating’s liability to Palmer at the time of bankruptcy was simply to refund the amounts advanced by Palmer. This would place Palmer in the position of an unsecured creditor in the bankruptcy proceedings.

Palmer’s response is that the conditions in the contract are simply conditions on Palmer’s obligation to accept the bonds. In effect, Palmer retained the option of rejecting the bonds if the conditions were not met, thereby transforming Horner Excavating’s obligation into a money debt. It should be noted that such transformation does not occur automatically upon Horner Excavating’s failure to meet the conditions specified; rather, it occurs only if the conditions are not met and Palmer provides a written demand for return of the funds advanced. The option clearly is Palmer’s, and the trustee’s argument that the obligation is automatically transformed into a money debt upon failure of the conditions appears to be untenable.

More importantly, the trustee-discusses only the language of the letter agreements and virtually ignores the existence of the written assignments of the contract proceeds executed by Horner Excavating and accepted by the municipalities. Although the assignments contain numerous errors with regard to identification of parties, they clearly were effective to transfer to Palmer the right to receive the proceeds of the contracts. The fact that in the letter agreements Palmer reserved the right to reject the bonds would not appear to affect the validity of the assignments.

Palmer correctly points out that an assignment of a debt not yet due is effective if there is an existing contract out of which the debt may arise. See, e. g., Valley National Bank of Arizona v. Byrne, 101 Ariz. 363, 419 P.2d 720 (1966). Since the contract proceeds were thus effectively assigned to Palmer, then on the date of bankruptcy Horner Excavating had no property interest in the proceeds which could vest in the trustee pursuant to section 70(a) of the Bankruptcy Act.

We therefore hold that the district court did not err in determining that Palmer had first priority in the balance of the funds in question.

District court jurisdiction

The trustee asserts that as soon as pretrial discovery revealed the fact that the surety companies did not pay the claims, filed against Horner Excavating until they had first received funds therefor from the Dannerbecks’ joint trust account, he filed a motion challenging the plenary jurisdiction of the district court and asking that the matter be remanded to the bankruptcy court. An additional circumstance relied upon by the trustee in making this argument is that both the Dannerbecks and Palmer had filed claims in the bankruptcy court thereby, the trustee asserts, consenting to its jurisdiction.

The trustee argues that his consent to be joined in this action when filed by the sureties did not carry over to Mrs. Dannerbeck and that the jurisdiction of the bankruptcy court is exclusive as related to the Dannerbeck and Palmer claims. The trustee calls attention to Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939), where it was held that in the allowance and disallowance of claims, the collection and distribution of the estates of bankrupts, the determination of controversies in relation thereto, and in the rejection in whole or in part of claims previously allowed, the jurisdiction of the bankruptcy court is exclusive.

The Litton court was speaking of the administration of bankrupt estates. The proceeds of the contracts here in question were never in the actual or constructive possession of the bankruptcy court because those proceeds were never earned by the bankrupt. This action does not involve the priority of claims filed against a bankrupt’s estate, but the title to funds which are not in the possession of the bankruptcy court. Neither Mrs. Dannerbeck nor Palmer consented to having the title to this property tried in the bankruptcy court. As Mrs. Dannerbeck and Palmer point out, the rule to be applied under these circumstances is as stated in Cline v. Kaplan, 323 U.S. 97 at 99, 65 S.Ct. 155, 156, 89 L.Ed. 97 (1944):

“If the property is not in the [bankruptcy] court’s possession and a third person asserts a bona fide claim adverse to the receiver or trustee in bankruptcy, he has the right to have the merits of his claim adjudicated ‘in suits of the ordinary character with the rights and remedies incident thereto.’ ”

The claims which Mrs. Dannerbeck and Palmer filed in the bankruptcy court were merely contingent claims for amounts due that might not be recovered in the plenary action. The filing of contingent claims of this kind does not amount to a consent to have the bankruptcy court determine the title to property not in its actual or constructive possession. See In re G. L. Odell Construction Co., 119 F.Supp. 578, 581 (D. Colo.1954).

In our opinion, the district court had plenary jurisdiction to entertain this action.

Affirmed.

      . See Pearlman v. Reliance Insurance Company, 371 U.S. 132, 83 S.Ct. 232, 9 L.Ed.2d 190 (1962); Henningsen v. United States Fidelity and Guaranty Co., 208 U.S. 404, 28 S.Ct. 389, 52 L.Ed. 547 (1908); Prairie State Bank v. United States, 164 U.S. 227, 17 S.Ct. 142, 41 L.Ed. 412 (1896).

      . See generally Reid v. Pauley, 121 F. 652 (9th Cir. 1903); Massachusetts Bonding and Insurance Company v. Osborne, 233 Cal.App.2d 648, 43 Cal.Rptr. 761 (1965); Westerhold v. Carroll, 419 S.W.2d 73 (Mo. 1967) > Longview School District No. 112 of Cowlitz County v. Stubbs Electric Co., 160 Wash. 465, 295 P. 186 (1931); Stubbs Electric Co. v. Longview School District No. 112 of Cowlitz County, 153 Wash. 33, 279 P. 86 (1929); 11 Appleman, Insurance Law and Practice § 6683 (1944).

      . All testimony referred to in this opinion was given by deposition.

      . See also National Savings Bank v. Cresswell, 100 U.S. 630, 643, 25 L.Ed. 713 (1879); Carpenter v. Longan, 83 U.S. (16 Wall.) 271, 273, 21 L.Ed. 313 (1872); Bolivar Reorganized School District No. 1 v. American Surety Company of New York, 307 S.W.2d 405, 410 (Mo.1957).

      . Pete Horner, who headed the contracting company, was only about nineteen years old when the contracting corporation was organized in April, 1964. He had first worked for some construction people for a couple of summers. He entered into the street improvement business on his own less than a year before incorporating the contracting company which bears his name. Initially a backhoe rental concern, this business consisted of doing jobs for different contractors.
      At the time Horner and Jon Dannerbeck first entered into a partnership, in October, 1963, Jon was about twenty-five years old and liad been going to the University of Wisconsin. He was then unemployed. Hor-ner testified that Jon Dannerbeck wasn’t really interested in the company, “had other things going,” and was “going on trips and stuff.”
      The corporation did not get into the improvement district kind of work until about September, 1964. The partnership’s business aggregated about sixty thousand dollars prior to the incorporation, and consisted primarily of constructing driveways and excavating.

      . Pete Horner testified that a strike, and the company’s failure to take effective counter measures, got the company into trouble.

      . Pete Horner testified that the contracting company had a thirty thousand dollar loss when a company they had borrowed from, Union Title, “went down.” He also testified that he and two others had been stockholders in See Bee Slurry-Matic, which engaged in street maintenance through the use of asphalt. One of the other stockholders agreed to buy Pete Horner’s See Bee stock but he failed to do so and Horner Excavating had to take over that company.

      . Pete Horner testified that just as Horner Excavating was finishing up a job in Prescott, a wall fell over and killed a little girl “and so that threw everything into an uproar and there was some lawsuits flying around and some arguments, and it just took a lot of money and a lot of time and finally that got straightened out and the blame was put on the engineer up there.”

      . See authorities cited in note 2, supra.

      . The trustee believes his contention is strengthened by the fact that the assignments contain this provision:
      “This assignment is made as security for the payment of any and all indebtedness.
      However, we question whether the quoted language tends to place Palmer in the position of an unsecured creditor.

      . Actually, the motion the trustee first filed upon discovering the manner in which the claims had been paid, was an objection to the prosecution of the action by the surety companies, coupled with a motion, in the alternative, to dismiss the complaint on the ground that Mrs. Dannerbeck was the real party in interest, in the event a proper substitution of parties was not made. In that motion the trustee made no contention that exclusive jurisdiction rested in the bankruptcy court. Mrs. Dannerbeck was substituted as the party plaintiff on August 8, 1969, and it was not until September 14, 1971, that the trustee requested, as an alternative to deciding the case on the merits in favor of the trustee, that the matter be remanded to the bankruptcy court for final disposition. Again, there was no contention that the bankruptcy court had exclusive jurisdiction and, in fact, the trustee himself expressed a willingness to have the plenary action proceed, providing that he prevailed.

      . In support of this latter proposition, the trustee cites In re Muntz T.V., Inc., 225 F. 2d 493 (7th Cir. 1955); In re Barnett, 12 F.2d 73 (2d Cir. 1926); Britton v. Western Iowa Co., 9 F.2d 488 (8th Cir. 1925).