author: CUSHMAN, District Judge.

text:
    THE WAHKEENA. HUBBLE TOWING CO. v. CHAS. R. McCORMICK LUMBER CO. OF DELAWARE.
    No. 6970.
    District Court, W. D. Washington, S. D.
    June 19, 20, 1931.

      John C. Bowen, of Seattle, Wash., for libelant.
    Lillick, Olson & Graham, of San Francisco, Cal., and W. R. Lee, of Tacoma, Wash., for claimant and respondents.
   CUSHMAN, District Judge.

This is a suit in admiralty for salvage. After the filing of the opinion in libelant’s favor, it filed its memorandum of costs and disbursements in which there is included a claim for money paid certain lawyers for representing libelant in San Francisco at the taking of certain depositions for respondents, the amount being considerably in excess of $2.50 for the deposition of each witness.

Claimant and respondents have excepted to the allowance of this item. The exception will be sustained, and the amount in excess of $2.50 for the deposition of each witness taken and admitted in evidence upon the trial of the cause will be disallowed. 28 USCA § 572. The libelant has contended that the decision of this court in the case of The Fair Oaks, 205 F. 192, is authority for the allowance of the item claimed. The opinion in that ease does not disclose the reason for the allowance. However, that case is not authority for such allowance. After the filing of the opinion in that ease, the claimant petitioned for a rehearing. A rehearing was by the court granted as to the item which it was stated in the original opinion would be allowed as attorney’s fees for taking depositions. Thereafter, no decree was entered nor anything further done until dismissal of the suit for want of prosecution under rule 48.

The following rules require no citation of authority. In general, costs are allowed only where there is statutory authority therefor, including not only fees paid or allowed, but expenditures made in connection with the prosecution of the litigation. Prior to the Act of February 26, 1853 (10 Stat. 161) allowance of costs in the federal court conformed to the practice in the courts of the state in which the district court was held. Since that enactment, the same rule has in a number of decisions in law actions been applied respecting those items of cost not specifically covered by that statute. It is not necessary to determine in this case whether, in view of the specific provision in section 572, supra, fixing the amount of an attorney fee for each deposition taken and admitted in evidence, a state statute or rule of practice allowing expenditures in addition to such an amount would be applicable or not, for the court’s attention has been directed to no such statute or practice. It is also to be noted that the Conformity Act (28 USCA § 724) has no application in admiralty causes.

The clerk will notify the proctors for the parties of this ruling.

At the hearing May first, 1931, upon findings of fact and conclusions of law submitted by libelant, proctors for the parties were allowed to supplement the hearing with a further showing relating to particular testimony already taken, which showing has been made.

A hearing was also had upon exceptions of claimant and respondent to certain items in libelant’s memorandum of costs and disbursements.

The first-mentioned matter relates to the expenses to be deducted from the selling price of the vessel and cargo before apportioning the salvage award. The difference in the contentions of the proctors, in this respect, is disclosed hy the following:

Statement by proctor for Libelant:

Freight........................$4,550.00

Cargo claims allowed and expenses paid at San Pedro............. 1,925.00

Pumping out ship (Cut down from $2,600 hy Court’s ruling)...... 500.00

Expenses at Aberdeen for unloading, sorting, regrading, tallying, reloading and dockage......... 895.00

It will be observed from the foregoing statements that, aside from the disputed item for pumping out the ship, the total difference is less than $200.

Nothing of a persuasive nature has been shown warranting a greater allowance on account of the pumping out of the ship than the $500 heretofore allowed.

Regarding the other' differences, after a four-day trial the testimony was concluded on November 14, 1930. No transcript of the evidence has been filed with the court.

It is assumed that the second of the foregoing items, while not described by the parties in identical language, relates to the same matter, upon which assumption this item is fixed at $1,925.

As to the remaining items, the court is unable to settle the differences upon the showing made. Concerning these items, a further hearing will be had Saturday, June 27, 1931, at 10 o’clock in the forenoon, at which time will also be further considered findings of fact numbered XV, XVI, XVII, XIX, XXI, and XXIII, and conclusions of law numbered III, IV, and V, as submitted by libelant, which settlement depends upon the determination of these disputed items.

The remaining findings of fact and conclusions of law. will be made as submitted by libelant and served April 6, 1931, upon proctors for respondents and claimant. These proposed findings of faet and conclusions of law, while so served and found by the eourt in the clerk’s file, have no identification mark by the clerk of the eourt. It is concluded that this was an inadvertence occasioned by the judge of the court receiving them directly from the proctor for libelant, without observing the absence of the filing mark at the time of the hearing on such findings. The clerk of the court is directed to lodge them with this decision at its filing.

Thera remains for consideration the exceptions of claimant and respondents to certain items of libelant’s memorandum of costs and disbursements.

Statement by proctor for Respondent and Claimant :

Freight........................$4,561.43

Cost of re-conditioning........... 1,922.76

Pumping out ship............... 2,448.00

Discharging .................... 629.03

Crane service and dockage........ 441.37

While the costs have not been taxed by the clerk, no question has been raised as to the propriety of the eourt considering such exceptions. 28 USCA § 830.

The first exception will be (has been) separately considered.

The second and third exceptions to libelant’s cost bill relate to the mileage claimed for witnesses residing at Weiser, Idaho, who came to Tacoma, Wash., the place of trial. These exceptions will be sustained as to the mileage claimed for travel outside the district. It is a matter of common knowledge that it is more than one hundred miles from Tacoma to the boundary of the district by the ordinary route of travel between Weiser, Idaho, and Tacoma, Wash. Kirby et al. v. United States (C. C. A.) 273 F. 391-396; Ladd & Tilton Bank v. United States (C. C. A.) 30 F.(2d) 334-338; Hanchett v. Humphrey (C. C.) 93 F. 895.

The fourth and fifth exceptions relate to expenditures for expert witnesses. Such an allowance was upheld by the Circuit Court of Appeals in the First circuit. Ætna Life Ins. Co. v. Allen, 32 F.(2d) 490. That was a law action, and the holding gives effect to a statute of the state of Maine; that is, the Conformity Act was held to apply. Primrose v. Fenno et al. (C. C.) 113 F. 375. In admiralty causes, the Conformity Act does not apply. 28 USCA § 724. The fourth and fifth exceptions will be sustained.

The sixth, seventh, and eighth exceptions relate to items in the cost bill for witness fees and mileage for certain of those on behalf of whom this suit was prosecuted. The general rule is that a party testifying in his own behalf is not entitled to witness fees. No citation of authority is deemed necessary in support of this rule. It was held in The Petroleum No. 5 (D. C.) 41 F.(2d) 268, a cause in admiralty, that such fees may be allowed where the witness was not the principal party. Such a fee was also allowed in an equity suit, Tuck v. Olds (C. C.) 29 F. 883-885, evidently holding applicable a state statute in view of the Conformity Act. Such a fee was likewise allowed in The Teaser (C. C. A.) 223 F. 13-18, in an admiralty cause, the court concluding that the master and crew to whom the fees were allowed as witnesses were not parties in the larger and more substantial sense. That was a collision case, and it would appear that their only interest concerned the value of their personal effects, about which there was no real dispute, and that their testimony was concerning the collision, for the benefit of another. The exceptions to these items will also be sustained.

The clerk is directed to notify the proe-tors for the parties of this decision.


source: Caselaw Access Project

author: MAYER, District Judge.

license: Public Domain

text:
    KINTNER et al. v. ATLANTIC COMMUNICATION CO et al. (two cases). MARCONI WIRELESS TELEGRAPH CO. OF AMERICA v. ATLANTIC COMMUNICATION CO., Inc.
    District Court, S. D. New York.
    March 4, 1921.
    Sheffield & Betts, of New York City (L. F. H. Betts, John W. Peters, and Abel E. Blackmar, Jr., all of New York City, of counsel), for plaintiff Marconi Co.
    Frederick W. Winter, of Pittsburg, Pa., and Drury W. Cooper, of New York City, for plaintiffs Kintner and Barrett.
    Pennie, Davis, Marvin & Edmonds, of New York City (Dean S. Edmonds, of New York City, of counsel), for defendant Atlantic Communication Co.
   MAYER, District Judge.

The questions involved are highly interesting, and, in some respects, novel. The report is from a special master of experience and distinction whose opinions command great respect; and, both for that reason and because of the nature of the case, the reasons for disagreement will be somewhat fully set forth.

Atlantic, an American corporation, owned and operated a radio station at Sayville, Long Island. From August 1,1914, to April 7, 1917, this station carried on wireless telegraph communication with the station at Ñauen, Germany, owned by a German corporation known as Telefunken. The gross tolls paid for messages moving to and from these two stations with each other during the period supra was $1,597,057.84. In the operation of the Sayville station certain devices were necessarily used for sending messages from Sayville to Ñauen and for receiving messages at Sayville from Ñauen. It is in respect of certain of these devices found to have infringed claims of certain patents that this accounting was decreed.

The two Nesco cases involved (1) the patents relating to the system of heterodyne signal reception referred to in Kintner v. Atlantic Communication Co. (D. C.) 241 F. 956 and (2) the reissue patent involving the' “sending conductor” and continuous wave system referred to in Id. (D. C.) 249 F. 73.

The Marconi suit involved the so-called . Fleming valve patent. In this case, an interlocutory decree was entered on consent, evidently because of the adjudication referred to in Marconi v. De Forest (D. C.) 236 F. 942, affirmed (C. C. A.) 243 F. 560.

Subsequently, this court held that the use of the “audion” as an amplifier infringed the Fleming patent. After a trial on supplemental bill and answer this court also held (261 F. 393) that the use of the audion as a generator of high frequency oscillations was also an infringement.

It will thus be noted that the Marconi patent and the two Nesco heterodyne patents have to do with receiving signals, and the Nesco continuous wave patent has to do with sending signals.

The special master has prepared two sets of figures, based on two different theories. On one theory, the tolls are evenly divided between Atlantic and Telefunken; on the other, the tolls are apportioned in accordance with what is ealled.in the case the “traffic agreement” between Atlantic and Telefunken. As pointed out by the master:

“When messages are transmitted electrically between distant points, A and B for instance, the line of communication has two ends and each end is as important as the other; both must cooperate or there is no business done. No one would pay money to have his message shot into the air either at A or B, unless he knew that at B or A such message would be caught, recorded, transcribed and put in process of delivery to the addressee. Since each end is thus essential it would seem reasonable, if this were all, that all money received from senders for the transmission of messages going either way should be distributed equally between A and B. * * *
“Upon the oral arguinent no stress' was laid upon the alleged existence of any international custom and we may start with the proposition that, since sending and receiving stations are essential correlatives of each other, it may fairly be assumed that tolls are earned equally by both, when the situation is normal.”

Throughout the case it must always be remembered that we are dealing with the sending of messages which have a commercial value, in that they get through, and that the radiogram of a sender reaches the ad-' dressee. In the absence of an agreement, a fair disposition would be an equal division, quite irrespective of the investment in each station. If Ñauen were worth many times the investment of Sayville or vice versa, either station by itself sending messages in the air with no station to receive them would have no commercial value.

It is the sending and receiving combined which create the business and hence the value. If one station cost $100,000 and the other $500,000, each would be indispensable to the other in equal respect, and, as above stated, in the absence of an agreement to the contrary, and also in the absence of proof of any international custom, there is no theory upon which the gross receipts can be disposed of other than by equal division.

Upon an equal division one-half the sending tolls (as found by the master) from Say-ville to Ñauen was $366,705.16. The expenses and charges were $156,215.35. The net or profit was $210,489.81.

Upon the same theory, one-half the receiving tolls (as found by the master) was $409,235.14. -The expenses and charges were $162,773.61. The net or profit was $246,-461.53.

If, however, the calculations are made in accordance with the traffic agreement, the “sending” account would show a loss of $17,1 668.35; and the “receiving” account would show a net profit of only $31,617.37.

The expenses and charges are the same whether the calculations are made disregarding or applying the traffic agreement. The difference in the figures as to net profit is due to the fact that, under the traffic agreement, Atlantic was entitled to a much less share in the tolls than would be represented by an equal division.

The traffic agreement is described and the conclusions in respect thereof and the reasons therefor are fully set forth by the master in his report.

There were two agreements dated respectively August 2, 1914, and May 31, 1916. Paragraph 7 of the agreement, dated August 2, 1914 provided:

“Telefunken undertakes the guarantee that Atlacom shall have an annual revenue out of the telegraph traffic of $100,000. Besides this guaranteed sum Atlaeom has a claim to 25% of the telegraph tolls due to Sayville according to rates in effect at any and all times, as far as those tolls do not exceed $48,000. Above $48,000, Atlacom’s share is reduced to 12%%.
“The accounting is done in the maimer that Sayville submits monthly to Telefunken a special statement of all telegrams received from Ñauen; Telefunken reports the telegrams received from Sayville at Ñauen. According to the resulting number of words the telegraph tolls due to Sayville will be calculated.”

On August 1, 1914, Germany declared war against Russia and in a few days the World War was on. Up to this time, there had not been transatlantic communication between Sayville and Ñauen. Atlantic had built the Sayville station in 1913, and during 1913 and the first half of 1914 it carried on communication with Cuba and with ships under what was known as the spark system of operation. For the use of this system, Atlantic was licensed by Telefunken, such license being restricted to Cuba and shore-to-ship service. The operation had been at a loss. It is plain, however, that wireless communication was a matter of great importance to Germany.

The cables had been cut, and there were no means of direct communication between Germany and the United States unless through the instrumentality of wireless. In 1914, Dr. Karl G. Frank was the secretary and a director of Atlantic. He was also the representative of Telefunken. The stock which he held did not belong to him, but was held by him as agent of Telefunken. He was in Berlin in July, August, and September, 1914, and discussed with the representatives of Telefunken the business relations between that company and Atlantic.

At that time Telefunken either owned all or nearly all of the stock of Atlantic. Frank, when asked what proportion of the stock of Atlantic was owned or held on behalf of Tele-funken in 1914, was unable to answer the question accurately, although he believed at that time that some stock of Atlantic was held by Ostheimer. Frank also thought that, perhaps, Stollwerck, the chocolate manufacturer, had some stock.

However, it is quite apparent from • the testimony that, if Ostheimer and Stollwerck held any stock, their holdings were considered as negligible, and it is also apparent that Ostheimer and Stollwerck were not regarded by Telefunken as factors of any consequence.

In 1914, Frank, however, was the representative of Telefunken and the active manager of Atlantic. Atlantic was merely an American incorporation of the Telefunken investment and the Telefunken interest.

The reasons for and the motive of the discussions in Berlin between Frank and the Berlin Telefunken representatives are plain. It was a matter of vital concern to the German interests to establish wireless communication between Ñauen and Sayville. Whether that could be done reliably and successfully was, at that time, a question. The Tele-funken interests realized that they could not foresee the course which future events might take. Frank, however, lived here, and, if any difficulties arose, he was the one who would be called uppn to bear the brunt of any unpleasant developments. The result was, to use his own language, that he “wanted, of course, to be safeguarded, to some extent, at least by an assurance from Telefunken that we had at least money enough to pay our bills and recognizing that, Telefunken made this agreement with” Atlantic, i. e., the provision for the payment of $100,000 to Atlantic quoted, supra.

This sum was regarded as sufficient to cover the operating expenses of Atlantic, and “it was even pretty carefully figured out how much the running of the business of the station would cost and so this figure was arrived at.”

This conversation between Frank and Telefunken in the summer of 1914 did not, however, constitute a contract. In order to make such a contract, it was, of course, necessary that Atlantic should take appropriate formal action. Whether because of difficulty of communication by mail, or for some other reason or reasons, it is quite clear that the agreement dated August 2, 1914 (which, by the way, was a Sunday) was not executed by Atlantic on that date. When this agreement was signed either by Telefunken or Atlantic is not clear.

I do not doubt that the agreement was signed at some time. Dr. Frank and many other witnesses in this case have appeared before me on one or more occasions, in this and other litigations, and thus I have the advantage of knowing many of the witnesses.

Dr. Frank, of course, would not testify that an instrument had been executed if that were not the fact; but he is not definite as to the date of execution, and his testimony is that copies of the agreement were prepared in Germany and received here for signature “at the end of 1914, or the beginning of 1915,” and that he signed a duplicate original “either at the end of 1914 or the beginning of 1915; probably the beginning of 1915.”

It is probable that the execution by Atlantic was some time in 1915 prior to March 15, 1915, the date when Ammen, one of the directors of Atlantic, ceased to be such. However, no reference to the agreement is found in the minutes of Atlantic’s board of directors, and there is no reference in the books of account to any traffic agreement until September 39, 1915. That entry made by Brauekmann, the bookkeeper, was evidently in contemplation of the traffic agreement of May 31,1916, as will appear infra.

The failure to enter any resolution in re^ spect of the agreement of August 2, 1914, or to keep the books of account with reference thereto is strongly corroborative of the view that the agreement in question was made as a mere intercompany matter and not at arm’s length and was really only a written assurance to Frank that he could hold enough on this side of the water to pay obligations incurred. -

With the exception of the holdings, if any, of Ostheimer and Stollwerck, concerning which there is no satisfactory proof, Tele-funken, as the practically sole owner of Atlantic, was entitled to all the profits and obviously would be compelled to pay all the losses. It was merely contracting with itself. Such a contract might be held good as against third parties, if there were a minority stock-holding interest of any consequence. It might then be urged that Telefunken did not intend to let a minority interest get the full benefit of its investment; but, as pointed out supra, the minority interest, if any, was inconsequential.

It is not possible to search the minds of the Telefunken officials at Berlin, in order to determine whether, as urged by plaintiffs, the agreement had some sinister or ulterior purpose and object.

Confining interpretation of the relations of the parties to what is disclosed by the testimony the solution is simple. Atlantic, i. e., Frank, was bound in honor to transmit all receipts to Telefunken at Berlin. In the summer of 1914, Berlin and Frank said to each other that the success of transatlantic radio communication was doubtful, that “it was by no means sure” whether “successful and reliable communication with Germany” could be established. Frank here in the United States did not wish to remit gross receipts to Berlin and bear the burden here of the possible embarrassment of unpaid bills.

Thereupon, Berlin said, in effect, “Very well, we have pretty carefully figured the cost of running the business and to safeguard you, we will guarantee you $199,999 out of revenues_ and besides you will have a claim to certain percentages, if the business warrants, and this will no doubt protect you in the payment of your bills in accordance with the developments of the business.”

This understanding, in no way, changed the rights of Telefunken as long as it owned the Atlantic stock. After bills were paid, Telefunken, as either the sole stockholder or nearly so, would be entitled to every dollar (or nearly so, as the case might be,) of profit, if any, which Atlantic made, and, as between it and Telefunken, the agreement from a practical standpoint meant nothing, except that Atlantic was not called upon to remit to Berlin the gross receipts, but could hold part of them as a safety fund against obligations incurred.

This view is further enforced by the fact that the agreement did not apportion nor speak of profits, but only related to tolls, i. e., gross receipts.

In this view of the matter, the eases discussed by counsel and by the learned special master do not seem to help either side.

The point here is that Telefunken contracted with itself solely to assure the managers of its American company that they could retain some of their gross receipts to pay bills, the equity, residue, or profit affrays belonging to Telefunken, as matter of law, by virtue of its stock ownership. It would, indeed, be a troublesome doctrine if such an agreement would prove a barrier to the enforcement by a creditor of his right to reach profits.

Foreign or domestic interests could organize subsidiaries of which they owned the entire stock, then use patented inventions as they pleased, and gather in the profits, while infringement creditors would be without remedy for the use of the very inventions which created the profits. Bather than permit such a result, equity will be keen to remove any obstacle which stands in the way of a just remedy.

It is, therefore, held that the agreement of August 2, 1914, must be disregarded as affecting the rights of plaintiffs.

The agreement, dated May 31,1916, is, as matter of law, in the same position. It may be assumed that the agreement was executed by Atlantic on or about the day it bears date. It was evidently contemplated as early as September, 1915, as appears from the letter to Dr. Sehnitzler dated September 13, 1915, and by the entry in the books by Brauckmann dated September 30, 1915.

That agreement required Telefunken to pay to Atlantic an annual sum of $100,000 in, quarterly payments of $25,000 each, and made some other changes of no consequence in this controversy. Dr. Sehnitzler, a director of the Atlantic, but not a stockholder on his own account, objected to the provision as to the “guaranty” of $100,000 out of reve>-nue. He wanted an absolute “guaranty” of $100,000 “beeause'the traffic receipts were absolutely insufficient to allow any such payment. I think they amounted in the first year to about fifty percent only of $100,000.”

Thereupon, he submitted the agreement dated May 31,1916, to the board of directors, and this agreement was executed by Herman A. Metz, president, and Dr. Frank, secretary.

Stock had been offered to Metz to qualify him, but he refused to accept stock as, a gift and paid $10,000 for 100 shares. The capital stock was: Authorized 2,000 preferred and 3,000 common; issued 1,250 preferred and 2,700 common.

Thus, it will be seen that the Metz stock-holding was but a small fraction of the total, and the agreement of May 31, 1916, had no relation to apportioning receipts or profits because of this stockholding. The reason for the agreement of May 31, 1916, as stated by Metz, was the same as that given by Schnitz-ler. He testified: “The thing had just begun operating; we did not even know whether there were going to be any (profits) * * * It (the agreement of August 2, 1914) settled them on a percentage basis of profits, but if we had not any, we would have been in the hole here; that is the reason I understood at the time. They were guaranteeing us an income at least to cover us here.”

Thus, it is seen that the fundamental purpose of the agreement of May 31, 1916, was to safeguard the payment of debts here. Sehnitzler, a lawyer, Metz, a business man of standing, and the others manifestly did not wish to be placed in the position of being officers and directors of a company which might not pay its debts, and all that the agreement dated May 31, 1916, amounted to Was to make doubly sure of the assurance intended by the agreement dated August 2, 1914. Indeed, the testimony in respect of the later agreement fully supports the interpretation placed, supra, on the former agreement. For the same reasons, therefore, this agreement must be disregarded.

In the operation of the station at Say-ville defendant used devices in addition to the devices of the patents which were held valid and infringed in these suits.

In respect of the Fessenden l’eissue patent No. 12168, the master did not make any award or apportionment, because, upon his theory, there were no “sending” profits.

In respect of the Fessenden heterodyne reception patents and the Fleming patent, the master awarded to Nesco 75 per cent, and to Mai’eoni 25 per cent.

It now becomes necessary to determine what apportionment, if any, is necessary both in respect of sending and receiving profits. Because of the theory on which the accounting was tried, the testimony is not complete and the case obviously should not go off on a question of evidence. Taking the master’s illustration of a scale of 100, the court should have the opinion of experts as to the number of units to be accorded to such of the respective devices as may be found entitled to a number or percentage in the scale. The court is, of course, not bound by the opinions of the expexfs (Herman v. Youngstown Car Mfg. Co. [C. C. A.] 216 F. 604, 608), but such opinions may be helpful.

The master held that various patents for which license fees were paid had received their share of the profits, and therefore that no further investigation was necessary. In the ease of “sending” profits, this view applied to the patents owned by Telefunken enumerated at pages 42 and 43 of the master’s report.

In the ease of “receiving” profits, the same view applied to the Telefunken patents (enumerated at pages 33 and 34 of the master’s report) and to the De Forest and Armstrong patents.

The frequency booster patents, however, (Exhibits 1, 2, and 5) should have a place with the Fessenden reissue patent in the scale of 100.

So, also, in respect of profits for receiving, a place should be accorded in the scale of 100 to the De Forest and Armstrong patents; so, also, the audion as a generator of high frequency oscillations.

The credits in the eases at bar were allowed by the master in that regard in accordance with the principle of Elizabeth v. Pavement Co., 97 U. S. 126, 24 L. Ed. 1000; but in that and other eases the contention in favor of such a method of calculation was always put forward by the infringing defendant. The theory was that the defendant in good faith had paid a license fee or royalty, and that this was a legitimate expense with which he should be credited and which should be deducted from the gross receipts in order to ascertain profit. No case has been called to my attention which presents the contention of the defendant in the ease at bar. Pointing to the Westinghouse Case, 225 U. S. 604, 32 S. Ct. 691, 56 L. Ed. 1222, 41 L. R. A. (N. S.) 653, and the Dowagiac Case, 235 U. S. 641, 35 S. Ct. 221, 59 L. Ed. 398, defendant insists that each device, patented or otherwise, whether licensed or not, which has contributed to the operative and commercial success of the Sayville station, should receive its just percentage in apportionment, or, in other words, its proper unit in the scale. With this I agree. The mere fact that a defendant makes a good bargain with an outsider should not avail a plaintiff any more than should a bad bargain deprive a plaintiff of a just award against an infringer.

To illustrate, suppose that three inventions equally contribute to the useful value of a particular device, and that for one reason or another a nominal consideration was paid for one of these three inventions, and the owners of the other two obtained decrees requiring an accounting. It would be manifestly unfair to the defendant that, in such circumstances, those who contributed but two-thirds of the result should divide between them all of the profits.

The defendant in the case at bar is entitled to the benefit of sueh apportionment as should justly be accorded to the relevant devices other than those of the respective plaintiffs and the working out of the scale of 100 should comprehend that a percentage should be attributed to each and every device which may be held to contribute to the practical and successful operation involved.

In order to indicate what questions are still left open for consideration in accordance with the views here expressed, it is necessary to point out what devices are entitled to consideration.

1. Sending Profits. As indicated, supra, the only Telefunken patents regarded as entitled to consideration are the frequency booster patents, Exhibits 1, 2 and 5.

Lodge patent, No. 609,154, need not be considered for two reasons: First, it is very doubtful whether an accounting would be decreed in the suit now pending in the Eastern District^ secondly, the Lodge patent expired August 16,1915, and, even if regarded as'essential to the sending operation, it was in use only from July 9, 1915, or only for about one month. ■ To include this in the scale would merely invite a troublesome calculation over a negligible amount.

Marconi patent, No. 763,772, is in litigation between Marconi and Atlantic. The patent is owned by Marconi. Marconi is making no claim here in respect of this patent, and defendant has denied the use of both the Lodge and Marconi patents in the suit pending in the Eastern District. Without deciding the point, so as to anticipate the decision of another court, it is enough to state that the use or necessity of use of this Marconi patent in connection with continuous wave transmission as distinguished from spark operation is too doubtful' to justify assigning to this patent any unit in the scale.

It will, thus, be seen that with very little additional testimony it ought not to be difficult to determine the units in the scale to be accorded, on the one hand, to the Fessenden reissue patent, and, on the other hand, to the three Telefunken frequency booster patents, and those four patents will be the only ones considered in the apportionment of the sending profits.

2. Beoeiving Profits. It may be stated again that the essential object sought to be attained, which in fact was attained, was the practical success of transmitting messages from Ñauen to Sayville and vice -versa. To this success, the De Forest audion and Armstrong feed-back circuit ebntributed as did the Fleming patent and the Fessenden heter-odyne reception patents. I am of opinion that all of these patents must be considered in the scale. So far as the Lodge, Marconi, Lee, and Hogan and Vreeland patents are concerned I agree with the conclusions of the master. So far as all of .the Telefunken patents in relation to receiving are concerned (except Exhibit 26), I am of opinion that they were not essential to the receiving operation here employed and they will be eliminated from the scale.

I have excepted Exhibit 26 not necessarily in order to give the Arco and Meissner patent a place m the scale, but merely to indicate that, when the apportionment is being worked out, consideration must be given to the characteristic of the audion to act as a generator of high frequency oscillations. Which patent or patents may be advantaged by this characteristic and to what extent are questions for later determination. I mention the point to bring it to the mind of counsel as one for consideration in connection with the proper place in the scale to be accorded to the Fleming, Fessenden, De Forest, and Armstrong devices used by defendant in reception of signals at Sayville.

From the foregoing it will be seen that, in any event, the accounting figures must be recast and that further testimony should be adduced along the lines indicated. This testimony may be taken before the court in the first instance.

Note. — I am inclined to think that not much further testimony will be required, and, if counsel will confer with me, I will be glad to indicate in what respects I desire to be further informed.

       TJiere is an item of $3,768.91 allowed for depreciation to which Marconi objects. If disallowed, the total profits would be $250,230.44.


author: CAFFEY, District Judge.

text:
    J. CHR. G. HUPFEL CO., Inc., v. ANDERSON, Internal Revenue Collector.
    District Court, S. D. New York.
    May 16, 1931.
    Augustus S. Mapes, of New York City, for plaintiff.
    George Z. Medalie, U. S. Atty., and Leon E. Spencer, Asst. U. S. Atty., both of New York City, for defendant.
   CAFFEY, District Judge.

This case relates to taxes for the fiscal year ending September 30, 1919, under the Revenue Act of 1918 (40 Stat. 1057, e. 18).

There was a deficiency assessment, which was paid under protest. If plaintiff had been allowed a deduction which was claimed, the amount of additional tax would have been less. Recovery of the difference is sought.

The facts are few. Statement of them is confined to paragraph XIII of the complaint. It is there alleged, in substance, as follows:

(1) Prior to the fiscal year plaintiff acquired the good will of another in the manufacture and sale of beer.

(2) For the good will, $86,244.32 in cash was paid.

(3) “The same” (apparently meaning the cash investment) became a total loss during the fiscal year.

(4) This result was due to the ratification of the Eighteenth Amendment to the Constitution of the United States.

The controversy turns on whether the sum expended for good will is deductible.

On January 30, 1931, I issued a memorandum sustaining a motion to dismiss the complaint. At that time I was governed by Clarke v. Haberle Brewing Co., 280 U. S. 384, 50 S. Ct. 155, 74 L. Ed. 498, as construed in Gambrinus Brewery Co. v. Anderson (C. C. A.) 42 F.(2d) 216. Since then (on February 24, 1931) Gambrinus Brewery Co. v. Anderson, 282 U. S. 638, 51 S. Ct. 260, 75 L. Ed.-; Burnet v. Industrial Alcohol Co., 282 U. S. 646, 51 S. Ct. 265, 75 L. Ed. 592, and Burnet v. Niagara Brewing Co., 282 U. S. 648, 51 S. Ct. 262, 75 L. Ed.-, have been handed down. Plaintiff asks for a rehearing.

On the authority of the last three mentioned decisions, the broad interpretation of the Haberle Case by the Circuit Court of Appeals must he abandoned.

It seems to me that it was not unnatural to attribute to the general expressions of the Haberle opinion the meaning ascribed to them. While good will only was involved, I think it was not unreasonable to regard if as the purpose of the Supreme Court sweepingly to deny deduction on account of anything which resulted from prohibition. It has now been made plain, however, that this was not the intention; that it was not designed to put under ban all diminution of property value in consequence of change in the government’s liquor policy, which rendered further conduct of a business illegal.

When the ease at bar was previously argued, my course was clear. I was bound by the interpretation put on the Haberle Case by the Court of Appeals. I was therefore compelled to hold that no cause of action was stated. The significance then given to the Haberle Case having subsequently been narrowed, the present problem is whether that case as it now stands for this eourt, or whether some other case, requires the complaint to be deemed insufficient.

On the one hand, it is urged (1) that the recent cases concerned only physical property, and hence have no bearing on good will; (2) that, under the Haberle Case, there can be no deduction on account of demolition of good will, irrespective of how it originated or grew or was procured. On the other hand, it is insisted (1) that the Haberle Gase dealt only with what is described as the taxpayer’s “own” or “built-up” good will, whereas here money was paid for good will, and accordingly it became part of capital assets; (2) that if the destruction of good will be not obsolescence, within subdivision (7) of section 234 (a) of the statute, it is a loss within subdivision (4) of the section (40 Stat. 1077).

It is manifest from inspection that the cases cited from 282 U. S. were limited to physical property. Moreover, I fail to discover in them any indication of a distinction or any basis for distinguishing between the methods by which good will was derived, whether by purchase or by good conduct or otherwise; nor, so far as good will is affected, do they afford ground for discrimination between the forms of suffering by a taxpayer, whether it bo called loss or obsolescence. The Haberle Case was not overruled nor, as to good will, was it even disturbed. In a sense it was explained, and it was pointed out that it did not include or apply to ■tangibles; but it was explicitly reaffirmed, and it was unambiguously stated that the principle it laid down (repeated in Renzie-hausen v. Lucas, 280 U. S. 387, 50 S. Ct. 156, 74 L. Ed. 501) was left unimpaired. As I. read the Haberle and Renziehausen Cases, they say unequivocally that for destruction of good will by the Eighteenth Amendment there can be no deduction.

In addition, incidentally it may be noted that the complaint does not show that plaintiff ever contended, and Matter of J. Chr. G. Hupfel Co., Inc., v. Commissioner, 9 B. T. A. 944, indicates that it was not contended, before the tax officials that the good will item was a “loss” (see, also, Red Wing Malting Co. v. Willcuts [C. C. A.] 15 F.(2d) 626, 49 A. L. R. 459, certiorari denied 273 U. S. 763, 47 S. Ct. 476, 71 L. Ed. 879).

I refrain from comment on the portion of plaintiff’s briefs containing discussion addressed to the issue as if it were original and Were not already settled. If my conclusion be erroneous, the fault is my misunderstanding of the language employed by the Supreme Court. It is-not within the proper province of a trial eourt to depart from what the highest court has ruled.

In effect, plaintiff requests modification of a ruling of the Supreme Court. Such a change, if warranted on the merits, is the exclusive^ function of that eourt itself.

Motion to dismiss the complaint granted, with leave to plaintiff within twenty days to serve an amended complaint. Settle order on three days’ notice.


author: KIRKPATRICK, District Judge.

text:
    THE BIRKENHEAD.
    No. 39.
    District Court, E. D. Pennsylvania.
    April 2, 1930.

      Mortimer W. H. Cox, of Philadelphia, Pa., for plaintiff.
    Leslie C. Krusen, of Biddle, Paul, Dawson, & Yocum, of Philadelphia, Pa., for defendant.
   KIRKPATRICK, District Judge.

This is an action in rem in admiralty brought by James S. McMahon against the steamship Birkenhead to recover for personal injuries sustained January 1, 1927, upon the ship in the course of his employment as fireman. At the time he was injured the li-belant was tightening an ordinary square-headed bolt or nut upon a set screw whieh formed part of a contrivance known as a discharge strainer, whieh, in turn, was part .of the fuel oil line of the steamer. He was using an ordinary monkey wrench. While tightening the nut, the wrench slipped, throwing the libelant off balance. He staggered back, tripped over a portion of the permanent frame of the vessel, and fell upon his left arm, sustaining an injury.

The cause of action created by section 33 of the Jones Act (41 Stat. 1007 [46 USCA § 688]), cannot be asserted in a suit in rem. Plamals v. S. S. Pinar Del Rio, 277 U. S. 151, 48 S. Ct. 457, 458, 72 L. Ed. 827. This suit is therefore governed by the principles of the general maritime law.

Maritime law imposes liability upon the vessel and her owner to the extent of maintenance, cure, and wages in the case of a seaman injured in the service of the ship. This liability is contractual in its origin, and does not depend upon negligence or unseaworthiness. It is conceded that the vessel in this ease is liable for maintenance, cure, and wages; the amount only is in dispute. With regárd to indemnity for injuries sustained, liability is imposed where the injuries were received in consequence of the unseaworthiness of the ship or her appliances. There can be no recovery against the ship for injuries caused solely by neglect of the master or of any of the crew. The Osceola, 189 U. S. 158, 175, 23 S. Ct. 483, 47 L. Ed. 760; Pacific Steamship Co. v. Peterson, 278 U. S. 130, 49 S. Ct. 75, 73 L. Ed. 220.

In order that the principles above stated may be applied to the case now before the court, the following additional findings of fact are made: (a) The wrench which the li-belant was using was a defective wrench, and the accident was caused by its defective condition; (b) it was picked up by the libelant himself from a workbench in the fireroom; (e) there were numerous other wrenches of all kinds on board in good condition. These included monkey wrenches, box wrenches, socket wrenches, and fixed wrenches. The li-belant could have obtained any of these wrenches from the storeroom whieh was alongside the engine room; (d) a monkey wrench is a proper and reasonably safe appliance with whieh to perform the work which the libelant was doing at the time he ' was injured.

The libelant’s right to recover in this action depends on the unseaworthiness of the vessel or her appliánces. The question involved may therefore be stated as follows: Is unseaworthiness established by evidence that a defective appliance was supplied at a place where the libelant would naturally select it for his use, there being plenty of sound appliances adapted to the same work on board and readily accessible to the libelant?

In Plamals v. Pinar Del Rio, supra, the libelant’s injury was caused by the breaking of a rope by which he was being hoisted up to paint a smokestack. The rope, whieh was defective, had been selected and supplied to the libelant by the mate of the ship. An abundant supply of good rope was on board. The court said: “The record does not support the suggestion that the Pinar Del Rio was unseaworthy. The mate selected the bad rope when good ones were available.” I think that this decision disposes of the question left open by Judge Hough of the Circuit Court of Appeals for the Second Circuit in The Santa Barbara, 263 F. 369, 370: “Whether unseaworthiness in law may not be produced by nonuse or misuse of good and sufficient adjuncts to or appliances of a good ship, and whether the resulting condition can give rise to action for indemnity under the doctrine of The Osceola * * * are also questions not now before us.‘ * * * ” The conclusion is that the Birkenhead and her appliances were. not unseaworthy. Consequently, there is no liability for indemnity for injuries incurred by the libelant’s use of the defective monkey wrench.

The libelant also claims indemnity be-cause of alleged failure on the part of the ship to give prompt medical or surgical attention to his injuries. Upon this the facts are clearly against him, and I find that the master did all that could reasonably be required.

On the question of maintenance, cure, and wages, I sustain the position of the claimant both upon the facts and the law, and fix the amount for which the vessel is liable at $160.55.

Decree in accordance herewith.


text:
    AUTOMATIC FIRE ALARM CO. OF DELAWARE v. BOWERS.
    District Court, S. D. New York.
    April 2, 1931.
    Olney & Comstock, of New York City, for plaintiff.
    Charles H. Tuttle, U. S. Atty., of New York City, for defendant.
   CAFFEY, District Judge.

A brief description of the plaintiff and its activities between July 1,1924, and June 30, 1926, is as follows:

It is a holding company. It was organized as such in 1920 for the purpose of taking over and managing securities held by an operating company. On receipt of the securities, including shares in National Protection Company, its own stock was distributed ratably to the stockholders of the operating company. As later explained, it has since sold the National Protection stock. In addition to the balance of the securities, it owns all the stock of the operating company, as well as all the stock of a building company, and nothing else. As put by one of the witnesses, quite accurately I believe, it could do its business in its hat.

The operating company conducts a wire system, much of it under ground, extending from the Bronx to the Battery. It had been a tenant in a building at 416 Broadway for many years. Throughout that period it had centered its equipment for carrying on its business at the building. It would have been both costly and wasteful to remove the headquarters elsewhere, as would have been necessary upon termination of the lease.

In the interest of the operating company, as far back as several years preceding 1924, it was deemed advisable to acquire the building (416 Broadway). In order to avoid liav-ing to pay an excessive pnce, negotiations for purchase of the building were conducted through an agent, subsidiary of a title company. These resulted in a purchase contract, entered into in the name of the agent. The purchase price was $325,000. Of this a down payment of $20,000 and a payment of $160,000 on closing title were required.

The operating company did not have the needed funds nor did it have collateral with which to get so large a bank loan. Accordingly, the plaintiff, having in hand the securities which had passed to it in 1920 from the operating company, pledged them and obtained from a bank the loan of $180,000 to finance the purchase. Either for tax reasons or because of some doubt as to the charter power of the operating company to own real estate, it was decided to have a building company take title to the property. Plaintiff caused the building company to be organized, advanced $2,000 for the purpose, and received its entire issue of stock in that amount.

Plaintiff had no need for the building and did not invest in it. It was acquired solely for the operating company, which wanted it as a permanent central station of its wire system. The name of the plaintiff was employed in effecting the purchase merely as a matter of convenience.

The purchase contract was signed and the building company was organized in November, 1924. The agent, in whose name the purchase was made, transferred the contract to plaintiff in December, 1924, and plaintiff assigned the contract to the building company in January, 1925, when the title was closed.

On receipt in May, 1926, of a part of the proceeds of the sale of the National Protection stock, hereafter mentioned, plaintiff devoted $115,000 toward repayment to the bank ■of the $180,000 loan.

The building company is still indebted to plaintiff for the $180,000. Plaintiff got nothing out of or on account of the transaction, except that the building company has paid it precisely the amount of interest which it ■has paid to the bank for the loan. Plaintiff has derived no profit whatever.

Plaintiff held 11,766 shares of National Protection Company stock. These or their predecessors had been acquired by the operating company in 1910. Toward the end of 1925 they were sold by plaintiff for $25 a .share, or a total of $294,150, or at a profit, as adjusted with, the Treasury Department for income tax purposes, of $5 a share.

Plaintiff did not desire to make the sale. It was made solely upon the insistence of the government, which contended that retention of the stock by plaintiff would be in violation of the Sherman Act (15 USCA §§ 1-7, 15). Plaintiff experienced difficulty in finding a buyer, and regarded the price accepted as below the real value.

Of the proceeds of sale collected prior to June 30, 1926, plaintiff used $115,000, as 'previously stated, in reducing the $180,000 bank loan and the balance in paying dividends.

Because of being a borrower from the bank, plaintiff was not allowed interest on deposits in its own name. In consequence, and solely for the purpose of getting interest, during 1924-1926 it placed deposits with the bank in the name of the operating company, which drew bank interest thereon and turned it over to plaintiff.

Occasionally during the same period plaintiff borrowed small sums temporarily from its subsidiaries, for which it paid no interest and which it used in paying dividends. Occasionally also plaintiff made small temporary loans to its subsidiaries. This, however, was for convenience merely; no interest was charged or paid.

Plaintiff paid no salaries to its officers, had no pay roll for employees, and paid no rent. Its directors received $10 per meeting. Apart from what has been recited, the sole activities of plaintiff were to collect its income and distribute it by way of dividends, with such incidental things as were essential to accomplishing those objects. It did nothing with respect to the management or policies of the operating company or the building company.

On these facts can it be said that plaintiff carried on or did or was engaged in business, within the meaning of section 700 of the Revenue Act of 1924 (26 USCA § 223 note) ?

Plaintiff did less and was in position to do less than the corporations held subject to taxation in Flint v. Stone Tracy Co., 220 U. S. 107, 171, 31 S. Ct. 342, 55 L. Ed. 389, Ann. Cas. 1912B, 1312; Von Baumbach v. Sargent Land Co., 242 U. S. 503, 516, 517, 37 S. Ct. 201, 61 L. Ed. 460; Edwards v. Chile Copper Co., 270 U. S. 452, 455, 46 S. Ct. 345, 70 L. Ed. 678; and International Salt Co. v. Phillips, 3 F.(2d) 678, 681 (D. C. Pa.), reversed in International Salt Co. v. Phillips, 9 F.(2d) 389 (C. C. A. 3), and sustained in Phillips v. International Salt Co., 274 U. S. 718, 47 S. Ct. 589, 71 L. Ed. 1323. On the other hand, it did more and perhaps was in, position to do more than any of the corporations held not taxable in Zonne v. Minneapolis Syndicate, 220 U. S. 187, 190, 191, 31 S. Ct. 361, 55 L. Ed. 428; McCoach v. Minehill & S. H. R. Co., 228 U. S. 295, 303-307, 33 S. Ct. 419, 57 L. Ed. 842; and United States v. Emery, Bird, Thayer R. Co., 237 U. S. 28, 32, 33, 35 S. Ct. 499, 59 L. Ed. 825. Yet none of these cases furnishes a substantial parallel or prescribes an exact test.

If each activity of plaintiff were separately considered, then, within the Supreme Court decisions, it is manifest that no one, taken singly, would constitute carrying on or engaging in business.

A corporation is not taxable which confines its activities to those of a holding company and the mere accompaniments of functioning as a holding company [Eaton v. Phoenix Securities Co. (C. C. A.) 22 F.(2d) 497; Del Norte Co. v. Wilkinson (D. C.) 28 F.(2d) 876; Clallam Lumber Co. v. United States (D. C.) 34 F.(2d) 944; Stafford Owners v. United States (Ct. Cl.) 39 F.(2d) 743]; nor if, in addition, it make a few accommodation loans to its subsidiaries or affiliates from which it derives no profit [Rose v. Nunnally Inv. Co. (C. C. A.) 22 F.(2d) 102]; nor if it only sell stock held by it and distribute or reinvest the proceeds [Id.; United States v. Hotchkiss Redwood Co. (C. C. A.) 25 F.(2d) 958]; nor if it merely sell a portion of its stock either under legal compulsion or to escape legal proceedings [United States v. Hotchkiss Redwood Co., supra].

It is difficult to find a precise precedent. It is difficult also to frame an invariably applicable principle in a few words or in a succinct sentence. While the plaintiff seems to me intermediate between the two classes of corporations already explicitly passed on by the Supreme Court, yet the.determination of whether it was carrying on or doing or engaged in business turns on an examination of its “activities and situation * * * as a whole.” Edwards v. Chile Copper Co., 270 U. S. 452, 455, 456, 46 S. Ct. 345, 346, 70 L. Ed. 678.

Considering its activities and situation, as an entirety, I feel that plaintiff Was.not, in the sense of the statute, operating for profit (Stone Tracy Case, page 171 of 220 U. S., 31 S. Ct. 342) or in pursuit of profit (Von Baumbach Case, page 516 of 242 U. S., 37 S. Ct. 201). On the contrary, not alone did plaintiff not make a profit in fact, but it studiously avoided making one. At most it permitted itself, to a limited extent, to be used by or on behalf of its subsidiaries and exclusively for their benefit or convenience. In so far as it was injected into the affairs of the operating company, in essence it was a conduit only.

The decision which is hardest to apply is the International Salt Case, partly because the Supreme Court rendered no opinion, and we must resort to the reports below [ (D. C.) 3 F.(2d) 678; (C. C. A.) 9 F.(2d) 389] for the facts. Examination of the facts as summarized by the lower courts discloses, as it seems to me, that they were so widely divergent from the facts of the ease at bar that the decision is distinguishable, particularly because the corporation there involved was plainly designed, through conduct of its own affairs, to reap gain for itself. It was the dominant head; it constantly controlled and, directed the carrying on of business, using subsidiaries only as its instrumentalities. At least the facts are open to that interpretation. This is not true here.

Defendant argues that the present ease, comes .within Argonaut Consol. Min. Co. v. Anderson (D. C.) 42 F.(2d) 219, which Judge Patterson said was “on the border”; but that ease impresses me as different. There the corporation, primarily a holding company, had built up a considerable surplus. This was employed in stock market trading and in making call loans, obviously independent activities, which were unrelated to the usual type of holding company and whose sole purpose was gain.

Defendant also says that sale of the National Protection , stock brought a profit to plaintiff. Even if so, the sale was not made for profit or in the course of business. Plaintiff was reluctant to part with the stock, and disposed of it solely because desired, perhaps demanded, by the government. Such conduct cannot be appropriately characterized as business for gain. Thus, in United States v. Hotchkiss Redwood Co. (C. C. A.) 25 F.(2d) 958, under somewhat corresponding conditions, a corporation constructed a road through its lands in order to avoid condemnation proceedings, and this was held not to be doing business.

At the trial I felt, and after reflection I continue to feel, that plaintiff did not, in the statutory sense, carry on or do or engage in business during the fiscal years 1924-1926.

Defendant’s objection to Exhibit 2 for identification is sustained, with exception to plaintiff.

Defendant’s motion for direction of a verdict denied, with exception to defendant.

Verdict directed for plaintiff for $1,683, and interest thereon from July 25,1928, with exception to defendant.


author: AVIS, District Judge.

text:
    UNITED STATES v. SWETELL et al.
    No. 1653.
    District Court, D. New Jersey.
    June 12, 1931.
    John Drewen, Pros, of the Pleas, of Jersey City, N. J. (Irving Eisenberg, of Jersey City, N. J., of counsel), for complainant.
    Maurice Grossman, of Harrison, N. J., for defendants.
   AVIS, District Judge.

The bill of complaint is filed against the defendants alleging a violation of the National Prohibition Act (27 USCA), and prays for personal injunction against the defendants and also for an injunction against the use of the premises for a period of one year.

The allegations of the bill generally are that intoxicating liquor was sold in the premises, and that this fact, together with the surrounding circumstances, constitutes the premises a nuisance under the statute.

The proof shows that whisky was sold on the premises on August 11, 1939, to two detectives from the Hudson county prosecutor’s office. The whisky was served from a bottle taken from behind the bar, and returned after the drinks were served. It is not definitely proven as to who actually made the sale and served the liquor, but it is clearly proven that the defendants were at the time of sale, and now are, the owners of the premises described in the bill of complaint, and the proprietors of the business conducted therein, which is personally supervised by them.

The room in which the sale was made is furnished as a barroom, with bar and fixtures, and the evidence shows that the furniture and fixtures were there as late as February 14, 1931, on which date the witness Seiler visited the premises. He testified that on that date “it was a saloon with a bar and fitted out just the same as any ordinary saloon.”

Counsel for the defendants first claims that the bill of complaint is defective, but this argument comes too late. Equity Rule 29 (28 USCA § 723) in part provides: “Every defense in point of law arising upon the face of the bill, whether for misjoinder, non-joinder, or insufficiency of fact to constitute a valid cause of action in equity, which might heretofore have been made by demurrer or plea, shall be made by motion to dismiss or in the answer; and every such point of law going to the whole or a material part of the cause or causes of action stated in the bill may be called up and disposed of before final hearing at the discretion of the court. * * *

No motion was made with relation to the insufficiency of the bill, nor was this question reserved in the answer.

Regardless of the question of practice, I am satisfied that the bill sufficiently states a case upon which a decree may be entered.

The allegations are not made in the disjunctive as claimed by counsel. The bill, states: “Complainant is informed, verily believes and therefore alleges on information and belief, that said premises are now used and maintained as a plaee where intoxicating liquor, as defined by Section I of Title II of said ‘National Prohibition Act,’ is sold, bartered, manufactured and kept for sale for beverage purposes in violation of the provisions- of said Title by the defendants above named, and complainant alleges more particularly that intoxicating liquor, namely whiskey, was unlawfully kept for sale and sold on said premises on August 11, 1930.” (Italics mine.)

The charges of the bill predicate certain claims “on information and belief,” but also “alleges” that the premises are maintained in violation of the law. This, together with the allegation of fact as to the sale of liquor, constitutes a sufficient statement to put the defendants on their defense.

The facts testified to show convincingly that the defendants owned and operated the business at the place designated; that the sale of intoxicating liquor was made in the premises; that the detectives poured their drinks from a bottle furnished by the bartender, and that no change had been made in the saloon fixtures as late as February, 1931.

A deeree will be signed sustaining the bill as to the injunction against the barroom, but the bill will be dismissed as to the defendants personally.

In padlocking, the defendants should be permitted entrance to the residence portion of the building.


author: DAWKINS, District Judge.

text:
    KENNETH v. UNITED STATES.
    No. 1798.
    District Court, W. D. Louisiana, Alexandria Division.
    Jan. 9, 1931.
    Jas. W. Jones, of Natchitoches, La., for plaintiff.
    Philip H. Mecom, U. S. Atty., and Elmer A. Mottet, Asst. U. S. Atty., both of Shreveport, La.
   DAWKINS, District Judge.

This is a suit upon a claim of war risk insurance. In paragraph 7 of the petition plaintiff alleges that “On-, 19 — ,” he made application to the Veterans’ Bureau for the payment of insurance, which was refused, but he does not recite as to when the disagreement arose. Defendant has asked for oyer of the communications by which the application was made and the claim denied.

These documents are not the foundation of petitioner’s claim within the meaning of the state Code of Practice, and hence oyer is not the proper remedy. However, sufficient is disclosed by the pleadings to justify the court in requiring the plaintiff to set out specifically the date of the application as well as that of the disagreement with the Bureau. This is necessary to show whether or not the claim has been barred by limitations.

It is therefore ordered that the petitioner amend his pleading to show these dates, and, if this be not done within fifteen days from notice of this order, the suit will be dismissed.


author: COSGRAVE, District Judge.

text:
    In re WEEKS POULTRY COMMUNITY, Inc.
    No. 14220-H.
    District Court, S. D. California, Central Division.
    Jan. 10, 1931.

      Kiggens & Hoffman and Leslie S. Bowden, all of Los Angeles, Cal., for petitioning creditors.
    Edson Abel, of San Francisco, Cal., for Los Angeles County Farm Bureau.
    George C. Johnson, of Los Angeles, Cal., for alleged bankrupt.
    Gibson, Dunn & Crutcher, of Los Angeles, Cal., for intervening creditor.
   COSGRAVE, District Judge.

From a study of this case I am of the opinion that the alleged bankrupt is not a moneyed, business, or commercial corporation within the meaning of the United Stated Bankruptcy Act (11 USCA), and that In re Dairy Marketing Ass’n of Ft. Wayne, Inc. (D. C.) 8 F.(2d) 626, clearly decides the question. The other business, if it could be called sueh, transacted, was merely incidental to the main business of the association.

The recommendations of the special master are therefore adopted, and counsel for the alleged bankrupt will prepare a decree accordingly.


author: SIMONS, District Judge.

text:
    In re BRAVER.
    No. 7377.
    District Court, E. D. Michigan, S. D.
    June 30, 1931.

      Shapero & Shapero, of Detroit, Mich., for petitioner.
    Joslyn, Joslyn & Joslyn, of Detroit, Mich., for trustee.
   SIMONS, District Judge.

This cause is now before the court upon a petition filed by Harry Dunitz to review an order of the referees in bankruptcy overruling petitioner’s claim filed in the bankruptcy proceedings.

Petitioner was the mortgagee named in a second mortgage executed by the bankrupt upon apartment houses which were subject to a first mortgage to the Union Trust Company. Petitioner upon default began foreclosure proceedings upon his second mortgage in the Wayne county circuit court, and obtained the usual decree of foreclosure, providing for sale'at public auction, six months redemption therefrom, and possession six months after confirmation of sale. At the sale conducted by the circuit court commissioner, petitioner was the purchaser. Report of sale was duly filed by the commissioner with the clerk of the court, and an order was entered confirming said report, which order was served upon the attorneys in the cause, but the affidavit of service was not filed until November 27, 1929. On February 11, 1927, the Detroit Trust Company, receiver for the above-named bankrupt, and now the trustee in bankruptcy, filed-a petition for intervention in the foreclosure suit in the state court, setting up that petitioner was threatening to take possession of the property covered by the decree therein, and had demanded possession of the tenants then upon the premises, and that the tenants pay rent to said petitioner as of February 14, 1927. The receive! prayed for an injunction restraining the petitioner from taking possession of the property and collecting the rents, and a temporary restraining order issued in pursuance of the prayer of the petition. The petitioner filed an answer and cross-petition in the state court, in which, among other things, it was prayed that the receiver be required to account for the rents collected by him from and after the date upon which the petitioner became entitled to possession under his foreclosure decree. Subsequently, the receiver moved in the state court proceedings to have its petition and the cross-petition dismissed for want of jurisdiction; and an order was later made by the circuit judge dismissing both petitions upon jurisdictional grounds. Upon appeal to the Supreme Court of the state, the order of the circuit judge dismissing the petitions for want of jurisdiction was affirmed. Dunitz v. Braver, 252 Mich. 111, 233 N. W. 347. In the meanwhile, the Union Trust Company commenced foreclosure proceedings upon its first mortgage, and the decree of foreclosure and sale became absolute upon March 27, 1927. The petitioner later filed his claim in the bankruptcy proceedings, asking the referees to order the trustee to pay to him all rents that the trustee had collected between the time that the petitioner was entitled to possession of the premises under the second mortgage foreclosure, and the time when the decree in the foreclosure of the first mortgage became absolute. The meritorious question here involved is whether the petitioner is entitled to the rents of the mortgaged premises during the above period.

The referees denied'the petition on three grounds:

(1) That the order of the circuit judge dismissing the petition of the trustee and the cross-petition of this petitioner in the foreclosure proceedings in the state court, as affirmed by the Supreme Court, was res adju-dicata on the petitioner’s claim for rent.

(2) That petitioner was guilty of laches.

(3) That petitioner was not entitled to any relief since no demand for possession was made after his foreclosure became absolute.

1. The first ground for denying the petition is clearly without merit. I have examined carefully the record in the state court proceedings, and the opinion of the Supreme Court affirming the order of the circuit judge. It is perfectly clear that the trustee’s petition, and the answer and cross-petition of the petitioner herein, were dismissed upon jurisdictional grounds. There was no hearing upon the merits. It is almost elementary that a former judgment or decree which was not entered upon the merits is not a bar to a future action upon the same claim. McIntosh v. Miller, 223 Mich. 285, 193 N. W. 769; Southern Pacific Co. v. Bogert, 250 U. S. 483, 39 S. Ct. 533, 63 L. Ed. 1099. The latter ease is exactly in point. Baldwin v. Iowa State Ass’n, 51 S. Ct. 517, 75 L. Ed. 1244, decided by the United States Supreme Court May 18, 1931, to which attention has been called, does not cover this ease at all. Reliance is placed by the trustee upon some statement in the order of the circuit judge in the state court, to the effect that the cross-petitioner there was not entitled to the relief prayed for in his cross-bill. It must be too plain for argument that once jurisdiction is lacking there can be no adjudication of any of the issues involved in the litigation, and any comment thereon is declaratory purely, and no more.

2. Nor can I see any merit to the contention that the petitioner herein was guilty of laches. Laches does not result from the mere passage of time. Something more is needed. There is here no showing that the trustee was in any way prejudiced by the failure of the petitioner to take any necessary steps promptly, either in the foreclosure proceedings or in the bankruptcy court, and certainly it does not lie in the mouth of the trustee to complain of laches in respect to such steps as the petitioner was prevented from taking by an injunction or restraining order obtained by the trustee in a proceeding which was later upon the trustee’s own motion dismissed.

3. Perhaps the most important of the three grounds relied upon is the alleged failure to take possession of the property by the petitioner, and his alleged failure to give notice of his intention to take possession. Reliance is placed by the trustee in the ease of Howard v. Bond, 42 Mich. 131, 3 N. W. 289. All that is held in that case is that a writ of assistance will not issue until after request for possession is made by the purchaser at foreclosure sale, after he becomes entitled to possession. There is no holding there as to when the purchaser becomes entitled to the rents to the premises. It is not clear that in Michigan, demand by the purchaser is prerequisite to the collection of rents. First National Bank of Ionia v. Gillam, 123 Mich. 112, 81 N. W. 979, but whatever may be the rule in Michigan, as to the necessity of possession or demand for possession on the part of a purchaser at foreclosure sale, as a condition precedent to his right to collect rent, I am of the opinion that here there was such demand. The sworn petition filed in the state court by the trustee alleges that the petitioner herein served, or caused to be served, on all of the occupants and tenants of the apartment building, a notice that he was taking possession of the property on the 14th of February, 1927, and that the rents and income of said property from and after that date must be paid to him, and that, by reason of said notice, the trustee would be unable to further collect the rents and income of the said property. It is on the basis of this allegation that a restraining order was sought and obtained by the trustee. Can it now say that it had no such notice? I do not believe so. Certainly, a notice to the trustee, sufficient in form and substance to warrant its appealing to a court of equity to be relieved of the threat conveyed by it, ought to be sufficient to comply with the demands of the state practice in respect to it. So far as the petitioner’s failure to subsequently make demand for possession, he was relieved of the necessity of making it by the restraining order obtained by the trustee. The law does not require of anybody to do a vain and useless thing. The trustee by its petition in the state court served notice upon the petitioner that it would not yield possession, and that it would not surrender its right to collect rents. A demand under such circumstances would have been merely an idle gesture. The law does not require it.

In view of what I have said it follows that the prayer of the petition for review should be granted, that the order of the referees should be set aside, and that the cause should be re-referred to the referees, with instructions to enter upon an accounting of the rents collected by the trustee during the period within which the petitioner was entitled to possession and the income of the property, and then to order such rents paid over to the petitioner.


author: BYERS, District Judge.

text:
    UNITED STATES v. STEERS.
    No. 28572.
    District Court, E. D. New York.
    June 15, 1931.
    Howard W. Ameli, U. S. Atty., of Brooklyn, N. Y. (Kenneth E. Yought and Emanuel Bubliek, Asst. U. S. Attys., both of Brooklyn, N. Y., of counsel,), for the United States.

      George Eilperin, of Brooklyn, K Y., for defendant.
   BYERS, District Judge.

Motion to preclude, ete., because of an alleged unlawful search and seizure. The defendant, who was taken into custody while driving a Chevrolet truck, was apprehended by an officer for alleged reekless driving. He produced an operator’s license, on request, but no registration certificate of the motor vehicle.

The arresting officer then took the defendant and the truck to a police station, where, by telephone inquiry, the officer ascertained that the license plates on the truck were issued for a truck of another manufacture. The violation of the Motor Vehiele Law so disclosed was prosecuted, and resulted in a plea of guilty, and a fine in the magistrate’s court.

After ascertaining the fact that the license plates used on the Chevrolet truck were issued for another vehicle, the officer made a search of the truck, and discovered ten beer barrels bearing no label. The contents proved to be of the prohibited content.

The search is believed not to have been an unreasonable one, in view of the violation of law involved in the use of license plates issued for another vehicle. Such a discovery challenged investigation by the arresting officer in the due performance of his duties.

Motion denied.


author: KNIGHT, District Judge.

text:
    In re GOUMAS.
    No. 16732.
    District Court, W. D. New York.
    July 7, 1931.
    Vedo M. Candiello, of Hornell, N. Y., for alleged bankrupt.
    Simpson, Austin & Morton, of Homell, N. Y., for petitioning creditors.
   KNIGHT, District Judge.

This is a motion for an order confirming the report of a special master recommending an adjudication in bankruptcy. The alleged bankrupt opposes on various grounds. These relate to the form of the report and the sufficiency of the proofs to sustain the recommendation.

The form of report of the special master is not to be commended. Immediately following the transcript of the testimony we find these words subscribed by the special master: “I recommend that an Order of Adjudication in bankruptcy be granted.” The order of reference to the special master directed him “to ascertain and report the facts, with his conclusions thereon.” YThile this has not been done, he has returned as part of his report the testimony taken before him. Since the special master sits only in aid of the court in a contested proceeding for adjudication in bankruptcy, I believe tbe eourt.has ample authority to disregard the strict letter of the directions to the referee and determine from the proceedings had and the testimony submitted the question of the adjudication herein.

As I read the record, there is no material difference as regards the facts.

Prior to March 18, 1929, the alleged bankrupt was engaged in the confectionery business and owned certain stock, fixtures,' and equipment therefor. Petitioning creditors had done business with alleged bankrupt for some time preceding that date, and continued business relations with him thereafter as before, and until November 29, 1939.

On the last-mentioned date a bill of sale was filed in the town clerk’s office purporting to transfer stock, fixtures, and equipment of the alleged bankrupt in his confectionery business. The bill of sale purports to bear date March 18,1929. All debts owing the petitioners were contracted between the dates hereinbefore specifically mentioned. The involuntary petition herein was filed January 21, 1931. The alleged act of bankruptcy as set forth in the petition is “the transfer of property with intent to hinder, delay, and defraud his ex-editors,'in giving and filing a Bill of Sale of the stock, fixtures, and equipment '• * to Katherine Goumas, his wife, and that same was done without giving notice to creditors as required by Section 44 of the Personal Property Law of this said State and as your petitioners further believe to have been given without consideration,” and that said bill of sale was given on November 29, 1939, “within four months next preceding the date of this Petition.”

In the view I take of this matter, it is immaterial whether the bill of sale was actually executed and delivered on March 18, 1929, or whether such execution and delivery was made on November 29, 1939. So far as petitioners who had done business with the alleged bankrupt both prior and subsequent to March 18, 1929, are concerned, a presumption of fraud arises from the fact that the bill of sale was not promptly filed, if executed on March 18, 1929, that there was no change of possession, and that the alleged bankrupt, with the knowledge of the vendee, his wife, held himself out to these creditors to have the same continuous interest in the property in question at all times.

Retention of possession of the property under circumstances which are uncontradieted creates a presumption of fraud here which has not been overcome. Klinger v. Hyman (C. C. A.) 223 F. 257, 265 and eases cited; Preston v. Southwick, 115 N. Y. 139, 148, 21 N. E. 1931; Collier on Bankruptcy, vol. 2, § 79, p. 1772.

The rules applicable to this transaction are to be determined with reference both to the decisions of the federal and the state courts.

Petitioners allege that the transfer was made on November 29, 1939. This was the date the bill of sale was filed, and fixes the time within which the four months’ limitation provision ran. The “transfer” was not legally completed so far as the rights of the petitioning creditors are concerned until that date.

The testimony of the alleged bankrupt is that the bill of sale was executed March 18, 1929. Assuming this to be true, failure to give notice as provided by section 44 of the New York Personal Property Law (Consol. Laws, c. 41) is immaterial, since petitioners were not creditors at that time. Presuming that a sale took place on November 29,1939, such notice was necessary, and failure to give it would constitute a fraud upon the petitioners. The question of whether there was any consideration for the sale to alleged bankrupt’s wife is not determinative of the rights of the parties. Pailure of consideration, however, would be a thing fi-om which an intent to defraud might be inferred. There is nothing in the record which discloses that there was any consideration paid for this property. It does appear that on December 2, 1939, three days after the bill of sale was filed, alleged bankrupt’s wife received notes aggregating $2,999 as a consideration to her for it.

It also appears in the evidence that the alleged bankrupt owes debts aggregating $2,-999, and that a judgment has been procured upon one claim against the plaintiff,-and that the alleged bankrupt has been sued upon one or more other claims.

As the ease stands before me now, the uneontradieted evidence shows acts and circumstances from which a presumption of fraud in the transfer of the property in question may be drawn, which is not overcome, and establishes the allegations of the petition, so far as they relate to the relief sought.

Adjudication in bankruptcy is therefore directed, and an order may be prepared and entered accordingly.


author: KENNEDY, District Judge.

text:
    SHOSHONE IRR. DIST. v. LINCOLN LAND CO.
    No. 1915.
    District Court, D. Wyoming.
    Aug. 8, 1930.
    Ernest J. Goppert, of Cody, Wyo., and W. J. Burke, of Billings, Mont., and Matson & Swainson, of Cheyenne, Wyo., for plaintiff.
    Kinkead & Pearson, of Cheyenne, Wyo., for defendant.
   KENNEDY, District Judge.

This is a suit to quiet title originally filed in the state court and removed here upon the application of the defendant as a non-resident corporation. The defendant has filed an answer setting up various defenses, including the alleged ownership of the property and asserting the invalidity of the plaintiff’s claim in and to it.

Briefly analyzed, the issues revolve around the organization of an irrigation district within the boundaries of which the land in controversy lies, the inclusion of that land (the fee title to which was in the defendant) for irrigation assessment and construction purposes, the failure of the defendant to pay the same, the tax sale of the land for nonpayment of such taxes and assessments, the bidding in of the same by the plaintiff irrigation district, and the subsequent delivery of certificates and deeds, followed by this suit to quiet title in the plaintiff. The irrigation district was organized under the laws of the state of Wyoming, and it is stipulated that such organization was in all respects legal and regular.

The attack of the defendant upon the title of the plaintiff in and to the lands involves two phases. The first and principal point in controversy is as to the assessability of the lands of the defendant under the conditions existing, and the second relates more particularly to the procedure under which the assessments were levied and the sale of the land was had.

As to the first point of the controversy, the legal battle revolves around this situation: The defendant owned in excess of 900 acres of land within the established irrigation district, something in excess of 400 of which was susceptible of irrigation. The irrigation project was built and established under the Federal Reclamation Act (32 Stat. 388), a provision of which limits the right to the use of water to any one owner to an area of 160 acres (section 5 [43 USCA § 431]). The matter of the assessment for benefits in the way of maintenance and construction charges was carried on by the irrigation district under a contract with the Federal Reclamation Bureau. The land was assessed upon the basis of these benefits as to the irrigable portion for maintenance and construction charges. It is stipulated that lands in the vicinity of those in controversy had been rendered more valuable than the arid lands similarly situated on account of the irrigation. from the project for the operation of which the irrigation district was formed. The plaintiff claims that under the circumstances there was a benefit to the lands forming a basis for the inclusion of the lands in the assessment. While the defendant claims that inasmuch as these lands are in a sole ownership for which under the federal law no water could be obtained for use upon them, they were erroneously included for assessment, and that as a consequence such assessment is null and void.

Counsel have filed extensive briefs, but no case has been cited where the direct point appears to have been passed upon by the courts. Cases are cited which hold that the assessment for benefits is not to be made upon the particular use to which the individual owner may put the land so assessed, but that the basis of an assessment is as to whether the lands by virtue of the benefit afforded is actually increased as to its market value. If this principle should be applied to the lands here, I am of the opinion that as the evidence tends to show an addition in value by virtue of irrigation to the lands in the neighborhood, the value of the defendant’s lands was likewise enhanced. The only ease cited by either party, which seems to discuss the federal limitation to the use of water for area not exceeding 160 acres, is Nampa & Meridian Irr. Dist. v. Petrie, 28 Idaho, 227, 153 P. 425, at page 429, where that court uses the following language:

“The regulations of the Secretary of the Interior, heretofore referred to, contain the following provision:
“ ‘Holders of more than 160 acres of irrigable land within the reclamation project must sell or dispose of all in excess of that area before they can receive water.’
“The contract proposed to be entered into between the United States and the Nampa & 'Meridian irrigation district, as before stated, provides that the district will distribute the water to the purchasers of water rights under the acts of Congress and the regulations of the Secretary of the Interior, supra. This provision of the contract is strenuously protested against by appellants for the reason, as they contend, that a landowner within the district who owns land in excess of 160 acres would be forced to dispose of all the lands he possesses in excess of 160 acres, or suffer the consequences of being taxed for all his lands, yet be denied water for the same in excess of 160 acres. The restriction under the above regulation is to the use of the water. The landowner who has land in excess of 160 acres may permit the whole thereof to be assessed with a government water right, rather than insist that only 160 acres be so assessed, as, although he might be able to secure only enough water to irrigate 160 acres for his own use, the balance of his land would be provided with a permanent water right which he might -dispose of within a reasonable time; or, upon the apportionment of benefits, it may be determined that none of his land would be liable to assessment of benefits for a water right, or that no greater portion of his land than 160 acres would be susceptible of irrigation and to the assessment of benefits.”

It may be noted, however, that the court did not pass upon the exact point, for the reason that the attack was upon the contract between the irrigation district and the Reclamation Bureau, and the court found it unnecessary to pass upon the point inasmuch as no actual assessment had yet been made against land where the situation had arisen as in the casé at bar. The opinion squints, however, to a conclusion that the federal limitation would not necessarily be an impassable barrier to an assessment upon the basis of benefits to land so situated.

The lack of time has forbidden an exhaustive study of the question and it is certainly not one free from doubt. I have come to the conclusion that I shall adopt, as a theory for this decision, that lands susceptible of irrigation within the district which are shown by the general trend of the evidence to be benefited by the irrigation project, so that their value becomes enhanced thereby, are properly included within the district and assessable accordingly, as the basis of special improvement taxation is property benefit independent of ownership conditions.

The remainder of the points raised by the defendant relate to matters of procedure in making the assessment, giving notice, conducting the sale, and the like. While these points are likewise problematical in the matter of their proper determination, I shall adopt the view that, inasmuch as the evidence shows that the irrigation district was properly organized, the procedure in the general matter of assessment was regularly undertaken and conducted in a court of competent jurisdiction of whieh proceeding the defendant had due notice, that the matters complained of are mere irregularities rather than of a jurisdictional character, in the assertion of whieh the defendant is now es-topped, and the determination of that court as to the matters passed upon is res adjudicata.

It is undoubtedly desirable that the questions here raised should be settled by the higher courts; but for the reasons here briefly stated, the general finding of the court will be in favor of the plaintiff, and a decree may be submitted accordingly in accordance with the prayer of the bill, with costs to plaintiff, and reserving to defendant its exceptions. Such decree may also provide that defendant have ninety days within whieh to prepare and file a transcript of the record on appeal, the bond for which shall be fixed at $500.