text:
    Mordecai AGUE, Plaintiff-Appellant, v. The Honorable Malcolm WILSON (as Successor in Office to the Honorable Nelson A. Rockefeller), Governor of the State of New York, et al., Defendants-Appellees.
    No. 869, Docket 73-1529.
    United States Court of Appeals, Second Circuit.
    Argued March 19, 1974.
    Decided May 24, 1974.

      Cyril C. Means, Jr., New York City, for plaintiff-appellant.
    Burton Herman, Asst. Atty. Gen. (Louis J. Lefkowitz, Atty. Gen. of N. Y., Samuel A. Hirshowitz, First Atty. Gen., of counsel), for defendants-appellees.
    Before LUMBARD, FEINBERG and MULLIGAN, Circuit Judges.
   MULLIGAN, Circuit Judge:

Plaintiff-appellant Mordecai Agur commenced this action by filing a complaint on his own behalf on December 1, 1971, seeking declaratory and injunctive relief with respect to certain sections of the N.Y. Judiciary Law which the appellant alleged to be unconstitutional. He also sought the convening of a three-judge court. The United States District Court for the Southern District of New York, Lawrence W. Pierce, Judge, dismissed the complaint on March 1, 1973, for failure to raise a substantial federal question. On appeal from this decision, this court granted appellant’s request for the appointment of counsel. Affirmed.

The appellant married Margaret Neumann in 1960 and a son was born in 1962. In 1967, Mrs. Agur obtained a Mexican divorce decree which incorporated in its terms a 1966 separation agreement. That agreement provided that Mrs. Agur would have custody of their child until his sixth birthday and that she waived alimony for herself and support for her son. Just prior to the sixth birthday of her son, Mrs. Agur commenced an action in the New York Supreme Court seeking custody of the child as well as $75 per week for his support. She alleged that Agur’s emotional state required that she retain custody, asserting that he had threatened both mother and child and that three protective orders had been issued by the Family Court as a result.

Mr. Justice Beckinella, without a hearing, granted Agur a stay of the action and ordered the question to be arbitrated pursuant to the separation agreement, which provided for arbitration according to Jewish religious law in the event of a dispute. The Appellate Division, Second Department, by decision dated April 7, 1969, modified the order, directing that a hearing be held in the Supreme Court on the issues of custody, child support and counsel fees at which evidence of Jewish religious law could be presented. The court further granted Mrs. Agur the right to apply for child support pending the hearing. 32 App.Div.2d 16, 298 N.Y.S.2d 772 (2d Dep’t. 1969).

On June 19, 1969, Mr. Justice Morrissey of the Supreme Court entered an order for temporary support which appellant failed to obey. On July 9, Mr. Justice Wegman ordered Agur to comply with this order. Appellant persisted in refusing to pay. By order to show cause returnable . on September 8, his former wife, who had by then remarried, moved to hold Agur in contempt of the prior orders. On September 5, Agur, now represented by a new attorney, paid support arrears of $415. The affidavit of his attorney dated September 8 opposed the contempt order on the grounds that Agur had paid all the outstanding sums and that he “assures me that he will continue to do so in the future.” The contempt motion was adjourned to September 15th, at which time Agur appeared in person, stating that his new counsel wished to resign. At his request the matter was adjourned to September 18th, the date set for. the hearing ordered by the Appellate Division, at which time Agur appeared before Mr. Justice Damiani with his third attorney. Agur’s new counsel requested a stay pending appeal of the Appellate Division decision to the Court of Appeals. When this request was denied, counsel, who had presumably been retained only for this purpose, withdrew and Agur then requested that the court adjourn to allow him time to obtain counsel. Upon the denial of this application, Agur refused to participate in the proceedings. Counsel for Agur’s former wife proceeded to present evidence of Agur’s financial situation and called him as a witness to testify. Agur persisted in refusing to participate and even declined to admit that he was the father of his child. Justice Damiani then denied the application to hold Agur in contempt for failure to make temporary support payments on the ground that Agur had paid the outstanding sums on September 5th.

On September 23, Agur issued a “Notice of Intent to Arbitrate” the dispute. On September 29, Justice Damiani issued an order granting custody of the child to Agur’s former wife and giving appellant certain rights of visitation.. In addition, appellant was ordered to pay $40 per week for support of the child and $500 for counsel fees. On October 9, appellant issued another “Notice of Intent to Arbitrate.” Since appellant failed to make the required support payments, his former wife moved by order to show cause to hold appellant in contempt. Pursuant to her motion, Justice Damiani vacated Agur’s notice of intent to arbitrate of September 23 and denied his request to modify the judgment of September 29. By affidavit of November 6, Agur opposed his former wife’s motion for contempt and requested that, due to “new circumstances,” the matter of support be sent to arbitration or the amount of support ordered be reduced to $15 per week. On November 10, Agur’s notice of intent to arbitrate of October 9 was vacated pursuant to motion.

On November 10, Justice Mollen, without a hearing, rejected Agur’s objection to the court’s jurisdiction and termed his claim of inability to pay the support ordered to be “without merit.” He stated that application for reduction of support should in any event be made by independent motion. He then granted Agur’s former wife’s motion to hold him in contempt and fined him $450 ($200 for support and $250 for counsel fees). A judgment to this effect was issued on November 19. On June 15, 1970, the Court of Appeals dismissed the appeal from the decision of the Appellate Division which sent the matter of custody and support to a hearing. 27 N.Y.2d 643, 313 N.Y.S.2d 866, 261 N.E.2d 903. On the same day, the Appellate Division affirmed without opinion the order of Justice Mollen holding appellant Agur in contempt. 34 App.Div.2d 1107, 313 N.Y.S.2d 967 (2d Dep’t). The Court of Appeals dismissed the appeal from this affirmance. 27 N.Y.2d 792, 315 N.Y.S.2d 854, 264 N.E.2d 347 (1970). On August 14, 1970, Justice Mollen ordered that Agur be committed to civil jail.

The basis of appellant Agur’s complaint here is that he was denied a hearing on the question of his liability to pay child support prior to the issuance of the contempt order, and was held in contempt despite the fact that he is impecunious. He contends that certain state statutes permit this result (N.Y. Judiciary Law §§ 753(a)(3), 770, 772 & 774(1)), and therefore violate the equal protection and due process clauses of the fourteenth amendment. He further asserts that the denial of his request for the appointment of counsel to represent him in the contempt proceedings violated the due process clause of the fourteenth amendment. Appellant requested a declaratory judgment that the above cited statutes are unconstitutional and an injunction against their enforcement. He also asked that a three-judge court be convened. Appellant stated that he was proceeding pursuant to 28 U.S.C. § 2201 and 42 U.S.C. § 1983, with jurisdiction based upon 28 U.S.C. §§ 1331 and 1343(3) & (4).

The statutes attacked do not expressly require that a hearing be held in all cases. Judiciary Law § 772 provides that on “return of an order to show cause, the questions which arise must be determined, as upon any other motion . . ” Section 770 provides that where the husband “appear [s] and satisfy [s] the court or a judge before whom the application may be pending that he has no means or property or income to comply with the terms of the order at the time, the court or judge may in its or his discretion deny the application to punish the husband . . . .” Under these statutes, appellant argues, he was improperly held in contempt without a hearing as to his ability to pay. Since the court need not hold a hearing and has discretion to punish the husband even though he cannot pay, the statutes, he contends, are unconstitutional “as they are written and administered.”

At the outset we must determine whether or not a three-judge court is required in this case. Appellant does seek injunctive relief against the enforcement by the defendants, some of whom at least are state officers, of a statute alleged to be in violation of the constitution. He has thus apparently met the requirements for the convening of a three-judge court set out in 28 U.S.C. § 2281. However, we agree with Judge Pierce that a three-judge court is not required here since no substantial question of federal law is involved. Although Agur claims that the statutes are invalid because they do not require a hearing, New York has construed and generally applied- them in a contrary fashion. Under New York law, state judges will be reversed if they fail to hold a hearing when affidavits reveal a genuine question of fact as to the ability of a spouse to pay. E. g., Shkolnik v. Shkolnik, 41 App.Div.2d 523, 340 N.Y.S.2d 70 (1st Dep’t 1973); Abbey v. Abbey, 7 App.Div.2d 910, 182 N.Y.S.2d 845 (2d Dep’t 1959); Larotondo v. Larotondo, 285 App.Div. 899, 137 N.Y.S.2d 866 (2d Dep’t 1955); Kruger v. Kruger, 279 App.Div. 808, 109 N.Y.S.2d 779 (2d Dep’t 1952); Kirsh v. Kirsh, 279 App.Div. 589, 107 N.Y.S.2d 205 (2d Dep’t 1951). Under the circumstances, we believe that appellant’s claim that the statute is unconstitutional as written and generally applied is insubstantial and that a three-judge court is therefore not required. United Low Income, Inc. v. Fisher, 470 F.2d 1074 (1st Cir. 1972) (per curiam); New York State Democratic Party v. Lomenzo, 460 F.2d 250 (2d Cir. 1972).

Agur also claims, as we read his complaint, that the statute is unconstitutional as applied to him. An attack upon the particular exercise of powers granted by a statute does not require the convening of a three-judge court. Phillips v. United States, 312 U.S. 246, 61 S.Ct. 480, 85 L.Ed. 800 (1941); Ex parte Bransford, 310 U.S. 354, 60 S.Ct. 947, 84 L.Ed. 1249 (1940); Galvan v. Levine, 490 F.2d 1255, 1258-1259 (2d Cir. 1973); C. Wright, Federal Courts § 50, at 190 (2d ed. 1970). We therefore turn to the question whether the state court’s failure to accord Agur a hearing in his case constituted a violation of his constitutional rights.

As we have noted, New York law requires that a court hold a hearing on the issue of inability to pay prior to an adjudication of civil contempt if that issue is genuinely in doubt. Our review of the affidavits submitted prior to the entry of the contempt order indicates that such an issue existed. Appellant contended that he had obligations on a loan from Chemical Bank and to people abroad for whom he had been safeguarding some money, and that he was bound by an order of the Supreme Court to contribute $30 per week to the support of his aged father. Agur stated that these obligations left him with barely enough on which to live. His former wife disputed these assertions. Although a question was thus raised, we nonetheless do not believe that Justice Mollen was required to hold a hearing. Agur had been given an opportunity to produce evidence on these very issues at the hearing on September 18th, but he nonetheless refused to take any part in the hearing. In our view, he waived the right to a hearing and may not now contend that the order of contempt was in violation either of New York law or his constitutional rights.

Agur claims that his refusal to participate in the hearing was ba$ed upon the denial of his right to counsel. Although the minutes of the hearing before Justice Damiani are not available, we have reviewed the voluminous file which this litigation has produced. From subsequent motions made by Agur to modify the September 29th judgment, it appears that his non-participation was in fact based upon his continuing refusal to accept the court’s jurisdiction. Although Agur claimed that his prior counsel had given only one day’s notice of resignation, on September 15th, three days before the hearing, he advised the court that his counsel planned to resign. Agur actually appeared with an attorney on September 18th, but counsel had apparently been retained only to argue for an adjournment. Failing to obtain that relief, appellant offers no plausible explanation for his failure to argue the merits. Agur contended in the state courts that he had money to pay for counsel but was denied the right to select an attorney. There is no support at all for this position in the record.

Agur argues that his religious principles prohibit the submission of disputes between Jews to secular courts and that this was another reason why he stood mute at the hearing of September 18. This is, of course, inconsistent' with his first claim that he did not participate because he had no counsel. Appellant cannot rely, on the one hand, on his inability to participate in legal proceedings because of religious restrictions, and, on the other hand, on the failure of the court to protect appellant’s right to take part in secular legal proceedings with the aid of counsel. Furthermore, a reading of various affidavits submitted by Agur in the state litigation is persuasive that his claim that religious scruple precluded his participation in the September 18th hearing is self-serving and insupportable. For example, he said in one affidavit that religious law prevents him from “appear[ing] in court,” yet he has repeatedly initiated court procedures. When the custody decision was made on September 18th, he stated: “I’m going to have a habeas corpus anyway.” In another affidavit, he stated that a Jew should not testify against a co-religionist in a secular court “if there is any possibility to have the matter litigated before a Jewish Court.” In view of the opinion in the Appellate Division, it would seem clear that no reasonable possibility of such a hearing remained.

On June 27,1972, in denying a number of motions to cancel the contempt order and to order arbitration of the amount of support owed, Justice Beckinella stated as follows:

In reaching the above determinations the court has reviewed the entire file in this matter which can only be described as a quagmire of legal papers.
The file in this matter is testimony of the intransigence of the respondent, Mordecai Agur. He simply refuses to accept the judgment of the Appellate Division that the custody of the child of the parties, the amount of that child’s support, and the amount of counsel fees are to be determined by Special Term rather than by an arbitration tribunal. . . . Respondent’s intransigence has turned a relatively simple matter into a nightmare of motions, motions to reargue, and appeals. At,one time or another at least seven Justices of this court have made decisions in this matter. Although his contentions have all been considered by this court and the Appellate Division, he refuses to acquiesce in this court’s jurisdiction. His affidavit in support of the third motion referred to above contains these words: “2. At the outset I must repeat that I neither have nor do consider this court having jurisdiction in this matter, since there exists a written arbitration agreement. See Agur v. Agur, 32 A.D.2d 16, 298 N.Y.S.2d 772.”
It would appear that this court will obtain no surcease from Mordecai Agur’s persistent maneuvers to get his own way until the child of the parties becomes self-supporting.

The very persistent and pertinacious litigation by Agur in the New York courts is some indication that the plea of religious scruple is not genuine.

We are convinced that Agur was given the opportunity for a hearing on the merits, that his asserted grounds for non-participation were spurious and that he therefore is deemed to have waived the hearing and has no due process or equal protection claim. Boddie v. Connecticut, 401 U.S. 371, 378-379, 91 S.Ct. 780, 28 L.Ed.2d 113 (1971). Cf. Geary v. Geary, 272 N.Y. 390, 401, 6 N.E.2d 67 (1936); People v. Henriques & Co., 267 N.Y. 398, 403, 196 N.E. 304 (1935). We see no reason in the record to justify a second hearing on Justice Mollen’s contempt order of November 19. The only new circumstance urged by Agur to have arisen after the September 18th hearing was the receipt of an order of Justice Morrissey confirming an arbitration award requiring him to pay his fathe$30 per week for support. However, the order confirming an award of August 12, 1969, was signed on September 5th, well before the September 18th hearing. The order recited that Agur had not opposed the application although duly served. The only new circumstance, therefore, was the service of the order upon Agur sometime after the hearing on September 18th. In view of the claim that Agur had himself initiated the paternal support procedure (at least one Supreme Court Justice has questioned its legitimacy),'and the fact that the terms of the order were in any event known to him, the assertion that it represented a new circumstance justifying a hearing is totally unconvincing.

Certain facts do emerge from this record. A relatively simple procedure designed to protect the interests of a child has become a legal morass. Agur admits in his complaint here that “one hundred or so motions” have been presented in the state proceedings. Most of them have been initiated by Agur. His son is now 12 years old, and, for five years, Agur has apparently paid nothing toward his support despite the court order. Although an order of commitment was signed almost four years ago, it appears that Agur has never spent a day in confinement. His present claims of lack of due process are without any foundation at all. We are not disposed to provide another forum which would allow the morass to become a Serbonian bog.

Affirmed.

      . The former Mrs. Agur alleged in the state courts that, in exchange for the separation agreement, appellant also received from her $5000 in cash, $5000 in promissory notes and $5000 which was deposited in an account by her and later withdrawn by appellant. She argued that the receipt of these funds rendered Agur’s later claim of poverty untenable. In addition, she contended that a further reason for her acceptance of the separation agreement was that Agur refused to give her a “gett,” a Jewish religious divorce, unless she agreed to sign it.

      . Thereafter, appellant Agur moved to modify the order of commitment. The motion was denied on October 20, 1971, for failure of appellant Agur to appear in support thereof. Agur then moved to be relieved of the orders of contempt and commitment, and this motion was denied by Justice Beckinella on June 27, 1972. By notice of motion dated June 19, 1973, Agur sought modification of the order of September 29 with respect to visitation rights, and either an order for arbitration of the enlargement of visitation rights or an order enlarging such rights. On December 18, 1973, Agur sent to the Supreme Court of New York notification that he and his former wife had agreed that he would be able to visit the child “in a liberal way, starting this very Chanuka . . . .” He therefore requested a postponement of the motion sine die “until either party asks for such consideration under the present or then prevailing conditions.”
      While continuing to ligitate the matter in the state courts, appellant commenced this action by a complaint dated November 9, 1971.

      . Appellant alleges that the order holding him in civil contempt even though he was unable to pay the amounts ordered violated the eighth amendment. He also contends that the failure of the court to appoint counsel to represent him on the contempt motion violated the due process clause of the fifth amendment and the right to counsel guaranteed by the sixth amendment. Appellant argues that the refusal of the state courts to enforce the arbitration provision of the separation agreement violated the impairment of contracts clause of the Constitution. Finally, appellant contends that incarceration of an impecunious person for failure to pay child support would violate the thirteenth amendment and 18 U.S.C. § 1581 and 42 U.S.C. § 1994. Since we deem these contentions frivolous in the context of this case, we do not discuss them.

      . On appeal, appellant raises for the first time the possibility that this is in fact a habeas corpus action pursuant to 28 U.S.C. § 2254. Since his challenge here is to the length of his prospective confinement rather than the conditions thereof, it is suggested that his claim may be construed as basically one for relief by way of habeas corpus under Preiser v. Rodriguez, 411 U.S. 475, 93 S.Ct. 1827, 36 L.Ed.2d 439 (1973). Appellant offers this line of argument, no doubt, in order to circumvent part of the basis for the lower court’s decision in this case — the doctrine of res judicata. Res judicata does not apply to habeas corpus actions. Preiser v. Rodriguez, supra, 411 U.S. at 497; Tang v. Appellate Division, 487 F.2d 138, 142 n. 7 (2d Cir. 1973) (opinion of Mulligan, J.). This analysis presents the difficult question of whether appellant is “in custody” for the purposes of § 2254. Hensley v. Municipal Court, 411 U.S. 345, 93 S.Ct. 1571, 36 L.Ed.2d 294 (1973). See also Blouin v. Dembitz, 489 F.2d 488, 491 n. 6 & accompanying text (2d Cir. 1973). However, in view of our disposition of this case, it is unnecessary for us to determine whether this action is properly an application for a writ of habeas corpus or a civil rights action under § 1983. Appellant cannot succeed in either event.

      . Indeed, appellant urged precisely this position in his reply brief in the Appellate Division on appeal from his contempt citation. See note 8 infra.

      . A number of other statements made by appellant in his court papers are inconsistent with the position he has presented in this action. In one affidavit, appellant described the hearing as having been held “without my participation due to the fact that jurisdiction was undecided, and that I was deprived of due process, including the right to counsel.” (Emphasis in original). He went on :
      I have detailed the above because, I wanted to show this Court that at no time was there a full hearing as to my financial status, which would have shown clearly my status. I am willing to submit to one now, since

      I have attorneys who will represent me free of charge.

      (Emphasis added).
      Speaking of himself in the third person in a later affidavit, he said :
      When the original order of Mr. Justice Damiani was entered to pay $40 per week, he was unable to participate because he had no attorney and because he sought additional time to obtain a stay from an appellate court so that the underlying issue in this case, viz. whether the arbitration agreement entered into between the parties was enforceable, could be definitively determined.

        . The Appellate Division in its decision ordering a hearing before the court specifically held that appellant had the right to offer evidence as to the requirements of Jewish law as they related to the question of the child’s custody. No such evidence was ever presented.

      . It should be noted that all the arguments upon which appellant relies in this court were presented to and rejected by the Appellate Division upon appeal from the civil contempt citation.

      . We do note that, with the passage of time since the commencement of this action, meaningful changes of circumstances may have occurred which might well provide the appellant with legitimate reason to apply to the state court to amend the terms of the support order. See N.Y. Judiciary Law § 775. On the other hand, appellant’s financial situation may have improved from what he contended it was at the time of the initiation of this action. For example, since the citation of appellant for contempt in 1969, his father, whom he was obligated to support, has died. The bulky file of the proceedings in the state courts was presented to this court only in small part. However, we have examined the complete file and have taken judicial notice of it.


source: Caselaw Access Project

author: LEWIS, Chief Judge.

license: Public Domain

text:
    Arthur T. BRAMBLE, Plaintiff-Appellant, v. Elliott RICHARDSON, Attorney General of the United States of America (formerly Richard Kleindienst), and John E. Ingersoll, Director of the Bureau of Narcotics and Dangerous Drugs, an Agency of the Department of Justice of the United States of America, Defendants-Appellees.
    No. 73-1500.
    United States Court of Appeals, Tenth Circuit.
    Argued Oct. 15, 1973.
    Decided June 17, 1974.

      John H. Bisbee, Bisbee, Geil & Kezer, Boulder, Colo., for appellant.
    Pepe J. Mendez, Asst. U. S. Atty., Denver, Colo. (James L. Treece, U. S. Atty., Denver, Colo., with him on the brief), for appellees.
    Before LEWIS, Chief Judge, and JONES and McWILLIAMS, Circuit Judges.

       Of the Fifth Circuit, sitting by designation.

   LEWIS, Chief Judge.

On April 6, 1972 Arthur T. Bramble was arrested by Colorado law enforcement officials and was charged pursuant to the narcotics laws of the state of Colorado with possessing for sale a quantity of marijuana. On the date of the arrest agents of the Bureau of Narcotics and Dangerous Drugs seized Bramble’s car, a 1969 Volkswagen, on grounds that it had been used in violation of 21 U.S.C. § 881.

The District Attorney for the Twentieth Judicial District for the State of Colorado deferred Bramble’s state prosecution for a period of one year running to August 17, 1973. Bramble has successfully completed the one-year probationary period and the charges against him have been dismissed. No federal charges arising out of the events of April 6,1972 were ever instituted.

21 U.S.C. § 881(d) provides that forfeiture proceedings are to be governed by the provisions for seizure, summary and judicial forfeiture, and condemnation of property which apply for violations of the customs laws. 19 U.S. C. §§ 1608 and 1609 of those customs laws require that a person claiming a seized vehicle which is evaluated at less than $2500 must file a claim to the property and post a penal bond of $250 within 20 days after the government has posted its notice of intention to forfeit. Failure to do so will result in the summary forfeiture of the vehicle to the government.

If the claim is filed and the bond posted within the required time, the claim is then transmitted to the United States attorney for the district in which seizure was made for the institution of judicial forfeiture proceedings. If the value of the vehicle exceeds $2500 no summary forfeiture is permitted and the United States attorney must initiate judicial proceedings. 19 U.S.C. § 1610. At such forfeiture proceedings the burden of proof falls upon the claimant to the vehicle provided the government first establishes probable cause for the institution of the action. 19 U.S.C. § 1615.

Bramble’s Volkswagen, valued at less than $2500, was summarily forfeited when Bramble failed to file the requisite claim or post the $250 bond within the 20-day time period. He did petition the Director of the Bureau of Narcotics and Dangerous Drugs for remission or mitigation of the forfeiture but that petition was denied as was a subsequent petition for reconsideration.

Bramble then filed a complaint in the United States District Court for the District of Colorado seeking a declaratory judgment that the forfeiture statute was unconstitutional on its face and seeking injunctive relief against its enforcement. A three-judge court was convened and subsequently dissolved after it concluded that the forfeiture statute was constitutional and that Bramble’s complaint failed to raise a substantial federal question. It was ordered that the case be presented to a single district judge. Bramble v. Kleindienst, D.C.Colo., 357 F.Supp. 1025.

The case was subsequently submitted to a single district judge as an action for declaratory judgment, temporary injunction, permanent injunction and damages. Numerous jurisdictional bases were alleged, the court below noting jurisdiction under 28 U.S.C. § 1346(a)(2), which permits civil actions against the United States in amounts not exceeding $10,000 when the cause of action is founded' either upon the constitution or an act of Congress. The court first held that the denial of Bramble’s petition for mitigation was an unreviewable action lying exclusively within administrative discretion. It then dismissed Bramble’s complaint after concluding that the challenged forfeiture statute was constitutional and that dismissal was an appropriate sanction for Bramble’s refusal to answer certain questions posed to him during deposition. The court reasoned that Bramble could not, as plaintiff in a civil suit, use his fifth amendment right against self-incrimination as both a “sword and a shield.” Bramble v. Kleindienst, D.C.Colo., 357 F.Supp. 1028. Bramble now appeals, challenging both the dissolution of the three-judge panel and the dismissal of his complaint by the single district judge below.

Whether our consideration here is seen as a review' of the three-judge dissolution or the dismissal of the complaint before the single district judge, it is clear that the success of this appeal must be measured by the constitutionality of the statutory scheme under which Bramble’s car was forfeited. Bramble makes a sweeping attack on this scheme, but the essence of his argument is that the forfeiture proceeding is in reality a criminal action and that to take his car without establishing beyond a reasonable doubt that a criminal violation has occurred violates the due process clause of the fifth amendment. In Re Winship, 397 U.S. 358, 90 S.Ct. 1068, 25 L.Ed.2d 368. He argues that the re cent Supreme Court decision in United States v. United States Coin & Currency, 401 U.S. 715, 91 S.Ct. 1041, 28 L.Ed.2d 434, challenges the long-established rule that forfeiture proceedings are essentially civil, rather than criminal, actions.

The peculiar nature of forfeiture statutes in general has given rise to numerous constitutional attacks. Claimants whose property has been subject to forfeiture have consistently argued that forfeiture actions are essentially criminal and must be governed by all of the rules which adhere to criminal prosecutions. This argument has enjoyed only qualified success.

In Boyd v. United States, 116 U.S. 616, 6 S.Ct. 524, 29 L.Ed. 746, the Supreme Court faced the question of whether the compulsory production of a man’s private papers for evidentiary use against him in a proceeding to forfeit his property for alleged fraud against the revenue laws constituted an unreasonable search and seizure within the meaning of the fourth amendment. The procedure was also attacked on the grounds that it violated the fifth amendment right against self-incrimination. The Court, in ruling for the claimant, stated:

As therefore, suits for penalties and forfeitures, incurred by the commission of offenses against the law, are of this quasi-criminal nature, we think that they are within the reason of criminal proceedings for all the purposes of the Fourth Amendment of the Constitution, and of that portion of the Fifth Amendment which declares that no person shall be compelled in any criminal case to be a witness against himself .... Boyd, supra, at 634.

In Coffey v. United States, 116 U.S. 436, 6 S.Ct. 437, 29 L.Ed. 684, the forfeiture claimant was again successful when the Court held that an acquittal on a criminal information was a good plea in bar to a civil information for the forfeiture of goods arising upon the same acts. The Coffey holding has subsequently been distinguished nearly to extinction. The Supreme Court held in a recent decision that a forfeiture proceeding is not barred by an acquittal in a criminal case in which the government was bound to establish the element of criminal intent if the forfeiture proceeding does not impose a similar burden on the government. “Moreover, the difference in the burden of proof in criminal and civil cases precludes application of the doctrine of collateral estoppel.” One Lot Emerald Cut Stones and One Ring v. United States, 409 U.S. 232, 235, 93 S.Ct. 489, 492, 34 L.Ed.2d 438.

The erosion of the Coffey rule symbolizes the success which forfeiture statutes have generally enjoyed and the liberal construction they have received. Various forfeiture proceedings have been consistently upheld, even under the most seemingly inequitable circumstances. Thus, in United States v. One Ford Coupe Automobile, 272 U.S. 321, 47 S.Ct. 154, 71 L.Ed. 279, an automobile was forfeited because it was being used to defraud the United States of the tax on distilled spirits in violation of Rev.Statutes § 3450. The owner of the car, innocent of any criminal wrongdoing himself, was neverthelsss deprived of his property because “under § 3450 the vehicle is the offender and must be forfeited if there is a guilty intent on the part of him who used it. . . .” 272 U.S. at 332. This decision characterizes the fiction that forfeiture proceedings are in rem actions against offending inanimate objects.

Helvering v. Mitchell, 303 U.S. 391, 58 S.Ct. 630, 82 L.Ed. 917, attempted to establish a definitive guideline for making the civil-criminal distinction in civil penalty and forfeiture proceedings. The issue there was whether the assessment of a tax deficiency under the Revenue Act of 1928 for fraud with intent to evade a tax was barred by the acquittal of the defendant on an indictment under the same act for a willful attempt to evade and defeat the tax. In response to the argument that institution of the forfeiture action subjected the defendant to double jeopardy, the Court stated:

Congress may impose both a criminal and civil sanction in respect to the same act or omission; for the double jeopardy clause prohibits merely punishing twice, or attempting a second time to punish criminally, for the same offense. The question for decision is thus whether § 293(b) imposes a criminal sanction. That question is one of statutory construction. 303 U. S. at 399.

The Helvering Court proceeded to characterize the civil-criminal problem as one of determining whether the sanction imposed is remedial or punitive and concluded that the tax deficiency assessment was essentially remedial. The double jeopardy argument was therefore deemed inapplicable.

Unfortunately, an analysis of the cases both antedating and succeeding Helvering convinces us that the civil-criminal distinction, whether characterized as remedial-penal or otherwise, is indeed an elusive one. We are convinced that the type of forfeiture statute or penalty involved is not the determinative factor and are inclined to agree with the reasoning of Mr. Justice Brandéis, expressed in a footnote in his Helvering opinion:

The distinction here taken between sanctions that are remedial and those that are punitive has not generally been specifically enunciated. In determining whether particular rules of criminal procedure are applicable to civil actions to enforce sanctions, the cases have usually attempted to distinguish between the type of procedural rule involved rather than the sanction being enforced. 303 U.S. at 400, n. 3.

The case law offers solid support for this proposition. In United States v. Regan, 232 U.S. 37, 34 S.Ct. 213, 58 L.Ed. 494, a $1000 penalty imposed for violation of the immigration laws was characterized a civil suit in debt and it was held that the government did not need to prove its case beyond a reasonable doubt. So also in Hepner v. United States, 213 U.S. 103, 29 S.Ct. 474, 53 L.Ed. 720, a monetary penalty imposed for violation of the immigration laws was deemed a civil action in which the rules of civil procedure applied generally and the government was held to be entitled to a directed verdict.

On the other hand, the Court has approached the issue differently when dealing with cases where certain fundamental fourth and fifth amendment rights have been at stake. Boyd v. United States, supra, concerned the right against self-incrimination and the right against unreasonable searches and seizures. The Court took pains to make this distinction clear when it narrowly held that the proceeding was criminal “for all the purposes of the Fourth Amendment of the Constitution, and of that portion of the Fifth Amendment which declares that no person shall be compelled in any criminal case to be a witness against himself . . . . ” 116 U.S. at 634.

In One 1958 Plymouth Sedan v. Pennsylvania, 380 U.S. 693, 85 S.Ct. 1246, 14 L.Ed.2d 170, the issue was whether evidence illegally seized in violation of the •fourth amendment could be used in a state forfeiture proceeding. The Court, in ruling that the evidence was inadmissible, again demonstrated its willingness to stress the criminal aspect of a forfeiture proceeding where a vital fourth amendment right was at stake. “Finally, as Mr. Justice Bradley aptly pointed out in Boyd, a forfeiture proceeding is quasi-criminal in character. Its object, like a criminal proceeding, is to penalize for the commission of an offense against the law.” 380 U.S. at 700.

When viewed in light of Mr. Justice Brandéis’ rationale it is apparent that United States Coin & Currencey marks no real departure from previously-settled law. That case concerned the validity of a forfeiture action conducted pursuant to a federal statute which provided that it was unlawful to possess any property intended for use in violating the internal revenue laws. The relevant revenue law was one which required individuals to register as gamblers and pay related gambling taxes, and the Court had already precluded the criminal conviction of gamblers who properly assert their privilege against self-incrimination as a ground for noncompliance with these aspects of the tax law in Grosso v. United States, 390 U.S. 62, 88 S.Ct. 709, 19 L.Ed.2d 906, and Marchetti v. United States, 390 U.S. 39, 88 S.Ct. 697, 19 L.Ed.2d 889. In holding that the forfeiture proceeding was invalid the Court was essentially stating only that the civil penalty could not be imposed in a manner inconsistent with the fifth amendment right against self-incrimination.

We therefore do not read United, States Coin & Currency as signaling an end to the characterization of forfeiture actions as essentially civil proceedings. We recognize that the statutory scheme in this ease is analogous to that under consideration in United States Coin & Currency, for both permit an innocent owner to recover the seized property upon establishing under 19 U.S.C. § 1618 that “the forfeiture was incurred without willful negligence or without any intention on the part of the petitioner ... to violate the law. .” But Mr. Justice Harlan’s point that such forfeiture statutes when viewed in their entirety are thus “intended to impose a penalty only upon those who are significantly involved in a criminal enterprise,” 401 U.S. at 721-722, is not a new one. In United States v. Regan, supra, the Court, in facing the precise issue presented here by Bramble, clearly acknowledged that the $1000 penalty in question was a sanction imposed purely for the commission of a public offense. Yet the Court concluded that the action was civil and that the reasonable doubt standard did not apply.

What Coffey, Boyd, One Plymouth Sedan, and United States Coin & Currency do indicate is that the civil nature of forfeiture proceedings will not be permitted to provide an avenue through which the fundamental rights of protection against unreasonable searches and seizures and self-incrimination can be frustrated. A close reading of those cases simply does not justify the inference that they were intended to transform forfeiture proceedings into criminal actions for all procedural purposes. The absence of the reasonable doubt standard in the challenged forfeiture process does not result in a denial of due process.

Although not argued to us specifically, we have entertained doubt as to the potential impact that Fuentes v. Shevin, 407 U.S. 67, 92 S.Ct. 1983, 32 L.Ed.2d 556, might have upon the basic constitutionality of the summary seizure and forfeiture procedures which we here consider. This aspect of the case would appear to be dissolved by the decision of the Supreme Court in Calero-Toledo v. Pearson Yacht Leasing Co., - U.S. -, 94 S.Ct. 2080, 40 L.Ed.2d 452, 1974, in which the limitations of Fuentes exclude any compulsion of relief to Bramble.

We have carefully considered Bramble’s remaining constitutional contentions and find them to be without merit.

Affirmed.

      . 21 U.S.C. § 881- — Forfeitures—Property subject
      (a) The following shall be subject to forfeiture to the United States and no property right shall exist in them :
      (1) All controlled substances which have been manufactured, distributed, dispensed or acquired in violation of this subchapter.
      (2) All raw materials, products, and equipment of any kind which are used, or intended for use, in manufacturing, compounding, processing, delivering, importing, or exporting any controlled substance in violation of this subchapter.
      (4) All conveyances, including aircraft, vehicles, or vessels, which are used, or are intended for use, to transport, or in any manner to facilitate the transportation, sale, receipt, possession, or concealment of property described in paragraph (1) or (2) ....
      (b) Any property subject to forfeiture to the United States under this subchapter may be seized by the Attorney General upon process issued . . . except that seizure without such process may be made when—
      (4) the Attorney General has probable cause to believe that the property has been used or is intended to be used in violation of this subchapter.

      . It should be noted at this time that Bramble’s conception of the forfeiture proceedings is not entirely accurate. He states in his brief that he did not file a claim or post a penal bond because to do so would have been a futile gesture in that his car would have been forfeited upon a government showing of probable cause. In fact, the burden merely shifts to the claimant once probable cause lias been established. His rights are not foreclosed as Bramble’s argument suggests. He merely must prove by a preponderance of the evidence that his car was not being used in violation of the drug laws. 19 U.S. C. § 1615. For the purposes of this appeal, Bramble has conceded the existence of probable cause.


author: PER CURIAM.

text:
    Thomas M. BREWER, Plaintiff-Appellant, v. UNIROYAL, INC., et al., Defendants-Appellees and Cross-Appellants.
    Nos. 73-1944, 73-1945.
    United States Court of Appeals, Sixth Circuit.
    Argued April 11, 1974.
    Decided June 28, 1974.

      Phillip L. Brooke, Memphis, Tenn., for defendants-appellants, cross-appellees; John C. Scott, Rowley & Scott, Washington, D. C., on brief.
    Thomas F. Johnston, Memphis, Tenn., for plaintiff-appellee, cross-appellant; Lawrence A. Pivnick, Memphis, Tenn., on brief.
    Before PHILLIPS, Chief Judge, and CELEBREZZE and MILLER, Circuit Judges.
   PER CURIAM.

Appellant was awarded a jury verdict of $32,080 in the District Court in an action for treble damages under § 4 of the Clayton Act, 15 U.S.C. § 15. He alleged a violation of § 2 of the RobinsonPatman Act, 15 U.S.C. § 13, in that Uniroyal had discriminated in the pricing of tires which it had sold to him. In October 1968, Appellant signed a dealer fran- ■ 'air-' iigreemerd with Uniroyal, and in iMow-mber 1960 he opened an automobile tire business in Memphis, Tennessee.

Subsequently, Uniroyal entered into an arrangement with Harold Friend, under which Friend was to open Uniroyal wholesale-retail outlets in various cities, beginning in Memphis. The Memphis outlet, known as United Tire & Rubber Co. (United), was opened in August 1969, with Friend owning and operating it through his firm, Tire Management Consultants, Inc., of Phoenix, Arizona.

In October 1969, Uniroyal purchased the United outlet. Friend and his former associates continued to operate United, and a Uniroyal employee was brought in to learn the operation. In March 1970, Uniroyal terminated its dealings with Friend and took over direct operation of the United outlet, continuing to operate it under the name United.

All tires sold by both United and Appellant were manufactured by Uniroyal outside Tennessee and shipped into the state. Appellant ordered his tires through the local Uniroyal warehouse or through Atlanta, while United dealt directly with the Uniroyal home office in New York City and received tire shipments directly from various Uniroyal factories. Both Appellant and United were authorized to do business throughout the Memphis area. United was situated approximately six miles from Brewer’s location and made sales throughout the city. Both United and Appellant were authorized to solicit all types of tire business — wholesale, commercial and retail.

Appellant alleged that he learned of the United operation in August 1969, when he discovered that Uniroyal tires were being retailed and wholesaled in Memphis at prices equal to or less than those Brewer had to pay Uniroyal for tires of the same grade and quality. He contended that the prices at which Uniroyal billed United were lower in all categories of tires than the prices billed to him and that he. was unsuccessful in his repeated attempts to secure Uniroyal tires at prices that would enable him to sell competitively with United. He also alleged that when he attempted to buy some tires at United, Uniroyal learned of this attempt, and an agreement was reached between Friend’s personnel and the local Uniroyal sales manager that United would not sell to Brewer. At trial Uniroyal witnesses testified that some of the price differences must have occurred because United was receiving blemished tires or “blems,” even when “blem” designations did not appear on the invoices. Appellant contended that even if all tires received or resold by United as “blems” were indeed blemished tires, Uniroyal discriminated against Appellant even in its pricing of “blems,” because United received all maximum discounts plus another 50% off on “blems” while Appellant received only the maximum discounts plus 25% off. Appellant also alleged discrimination in the amount of reimbursement for advertising material. Another feature of the agreement between Uniroyal and Friend was that a consulting fee would be paid for Friend’s assistance in opening outlets. Payments on this consulting fee totalled $57,000.00, commencing in July 1969, prior to Uniroyal’s purchase of United. When Uniroyal purchased United, it also compensated Friend for his operating expenses from the time he opened the Memphis outlet in August 1969 and for certain travel expenses.

Appellant contended that his business had been progressing steadily into the summer of 1969, but then suffered a marked reverse after the United operation entered the Memphis market in August of that year. Attempting to meet this new competition, Appellant cut his prices drastically, actually increasing his volume for a short time, but suffering a severe decline in profits. Eventually, after sustaining continued losses, Appellant closed his business in June 1970.

Following the jury’s verdict for Appellant, the District Court determined that there could be no recovery by Appellant for the period after October 11, 1969, the date on which Uniroyal purchased United. This determination was based on the jury’s answers to special interrogatories that, from October 11, 1969, Uniroyal owned and effectively controlled United “in the day-to-day operations of its business, including the pricing of tires delivered to and sold by” United. The jury also answered in the affirmative the question:

At any time when and if United Tire & Rubber Company was not under the actual ownership and effective control of defendant Uniroyal, were there substantial or consequential distinctions or differences in prices for same or similar tires charged by defendant Uniroyal between plaintiff Brewer Tire Company and United Tire & Rubber Company?

The District Court determined that no damages could be awarded for discriminatory pricing since there was only a two-month period prior to October 11, 1969 in which Appellant was operating his business and he had sustained an operating loss initially projected for that period. Finding that the only remaining evidence of discrimination during the pre-October 11 period related to consulting fees and travel expenses, and attempting to reconcile the jury’s responses to the interrogatories, the District Court remitted the award of damages to $10,000.

Initially, the parties agree, and we hold, that the District Court must offer the party awarded damages the choice of a new trial or the amount of the Court’s remittitur. Dimick v. Schiedt, 293 U.S. 474, 476, 55 S.Ct. 296, 79 L.Ed. 603 (1935); Kennon v. Gilmer, 131 U.S. 22, 29, 9 S.Ct. 696, 33 L.Ed. 110 (1889); Manning v. Altec, Inc., 488 F.2d 127, 130 (6th Cir. 1973). The District Court cannot, without the consent of the parties, substitute its judgment for that of the jury on the issue of just compensation. United States v. 93.970 Acres of Land, 258 F.2d 17, 31 (7th Cir. 1958), rev’d on other grounds, 360 U.S. 328, 79 S.Ct. 1193, 3 L.Ed.2d 1275 (1959). To permit the Court to do so would erode the parties’ Seventh Amendment guarantee of a jury trial.

While the parties agree on this point, Uniroyal contends that it is not subject to liability under the Robinson-Patman Act because United is not a purchaser within the meaning of § 2(a) of the Act or a customer within the meaning of § 2(d). These questions are identical, as it has been held that the term “customer” in § 2(d) is synonymous with the term “purchaser” in § 2(a). American News Co. v. FTC, 300 F.2d 104 (2d Cir. 1962), cert. denied, 371 U.S. 824, 83 S.Ct. 44, 9 L.Ed.2d 64. In opposing Uniroyal’s argument, Appellant relies on Danko v. Shell Oil Co., 115 F.Supp. 886 (E.D.N.Y.1953), for the theory that a wholly-owned subsidiary can be considered an entity separate from its parent and thus be considered a purchaser or customer for purposes of the Robinson-Patman Act. However, since the jury awarded damages for a period during which Uniroyal did not control the day-to-day operations of United and Appellant merely seeks reinstatement of the jury’s verdict, we need not address ourselves to this question.

The jury found that there were substantial price differences for the same or similar tires during the time when Uniroyal did not control United. And the jury found that Uniroyal paid or granted to United certain compensation, other than consulting fees for actual services rendered, not available to Appellant on similar terms; that the discrimination was for the purpose of lessening competition; and that Appellant suffered damages as the proximate result of Uniroyal’s unlawful discriminatory conduct.

We recently considered the standard for reviewing a District Court’s remittitur of a jury’s award of damages. Manning v. Altec, Inc., 488 F.2d 127 (6th Cir. 1973). We held that a grant of a new trial for excessive damages or the use of a remittitur will be reversed only “where the quantum of damages found by the jury was clearly within ‘the maximum limit of a reasonable range.’ ” Id. at 133, quoting from Taylor v. Washington Terminal Co., 133 U.S.App.D.C. 110, 409 F.2d 145, 149, cert. denied, 396 U.S. 835, 90 S.Ct. 93, 24 L.Ed.2d 85 (1969). (Emphasis in original) .

The statement of the rule is, of course, easier than its application. In looking to the facts of this case, we find that the jury awarded a total of $32,080 in damages — $24,630 for operating losses or loss of net operating profits and $7,450 for loss of investment and capital. Originally, Appellant testified that his damages were: (1) $10,104.35 capital investment, including $2,200 for personal automobile; (2) $6,798 total operation loss for the period he was in business; (3) $10,000 liquidation loss, including loss of goodwill; (4) $27,000 for loss of future profits; (5) $24,000 for cost of breaking his lease; (6) $54,000 paid to Friend as consultant fees; (7) $182,000 for loss of business for period when business closed until Appellant reached retirement age. Appellant later testified that his capital investment was $5,226 and his total operation loss was $4,344. The jury awarded no damages for future net profits. This would seem to include items (4) and (7) above.

The figures given were for Appellant’s entire period of operation. Appellant was in business for a period of approximately twenty months (November 1968 to June 1970). United began its operation in August 1969 and was purchased by Uniroyal in October 1969. Thus, Appellant and United were in business simultaneously for a period of approximately ten months (August 1969 to June 1970). The pre-October 11, period, then, represented twenty to thirty percent (2-3 months) of the total ten month period. Additionally, the payments made to Friend were made retroactive to July 1969.

In its answer to the interrogatories, the jury apportioned its award of $24,630 for loss of net operating profit and operating losses, $14,630 for rent, insurance and taxes, and $10,000 for profit loss.

Upon review, we find that the jury’s award of $32,080 was clearly within the “maximum limit of a reasonable range” of damages for the period of time involved. The amount of fees paid to Friend was substantial and the jury could well have found that this discriminatory payment caused Appellant the amount of damages awarded. Accordingly, we reverse the order of the District Court remitting the jury’s award and remand to the District Court with instructions to reinstate the jury’s original award.

      . § 2(a) of the Robinson-Patman Act, 15 U. S.O. § 13(a), provides:
      It shall be unlawful for any person engaged in commerce, in the course of such commerce, either directly or indirectly, to discriminate in price between different purchasers of commodities of like grade and quality, where either or any of the purchases involved in such discrimination are in commerce, where such commodities are sold for use, consumption, or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, and where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition with any person who either grants or knowingly receives the benefit of such discrimination, or witli customers of either of them: Provided, That nothing herein contained shall prevent differentials which make only due allowance for differences in the cost of manufacture, sale, or delivery resulting from the differing methods or quantities in which such commodities are to such purchasers sold or delivered: Provided, however, That the Federal Trade Commission may, after due investigation and hearing to all interested parties, fix and establish quantity limits, and revise the same as it finds necessary, as to particular commodities or classes of commodities, where it finds that available purchasers in greater quantities are so few as to render differentials on account thereof unjustly discriminatory or promotive of monopoly in any line of commerce; and the foregoing shall then not be construed to permit differentials based on differences in quantities greater than those so fixed and establsihed; And provided further, That nothing herein contained shall prevent persons engaged in selling goods, wares, or merchandise in commerce from selecting their own customers in bona fide transactions and not in restraint of trade: And provided further, That nothing herein contained shall prevent price changes from time to time where in response to changing conditions affecting the market for or the marketability of the goods concerned, such as but not limited to actual or imminent deterioration of perishable goods, obsolescence of seasonal goods, distress sales under court process, or sales in good faith in discontinuance of business in the goods concerned.

        § 2(d), 15 U.S.C. § 13(d) provides :
      It shall be unlawful for any person engaged in commerce to pay or contract for the payment of anything of value to or for the benefit of a customer of such person in the course of such commerce as compensation or in consideration for any services or facilities furnished by or through such customer in connection with the processing, handling, sale, or offering for sale of any products or commodities manufactured, sold, or offered for sale by such person, unless such payment or consideration is available on proportionally equal terms to all other customers competing in the distribution of such products or commodities.

      . This theory has its basis in the holdings of Timken Roller Bearing Co. v. United States, 341 U.S. 593, 598, 71 S.Ct. 971, 95 L.Ed. 1199 (1951), and Kiefer-Stewart Co. v. Joseph E. Seagram & Sons, Inc., 340 U.S. 211, 215, 71 S.Ct. 259, 95 L.Ed. 219 (1951), that substance is to govern over form under the antitrust laws. In Danko, supra, the Court considered the existence of a competitive relationship to be the controlling factor. We agree that a sales subsidiary could be found to be independent of its parent and thus be considered a “purchaser” or “customer” under the Act. Reines Distributors, Inc. v. Admiral Corp., 257 F.Supp. 619, 621 (S.D. N.Y.1965). But it has been held that in determining whether a seller-purchaser relationship exists, the critical factor is the exercise of domain and control over the subsidiary by the parent, not the competitive relationship. Reines Distributors, Inc. v. Admiral Corp., 256 F.Supp. 581 (S.D.N.Y. 1966); Baim & Blank, Inc. v. Philco Corp., 148 F.Supp. 541 (E.D.N.Y.1957). This standard is used in determining whether a parent and its subsidiary are a single entity and can be considered a single seller under the Robinson-Patman Act, Bairn & Black, Inc. v. Philco Corp., 148 F.Supp. 541 (E.D.N.Y.1957), and in determining whether a buyer from a distributor is an “indirect purchaser” from the supplier of the distributor. Purolator Products, Inc. v. F. T. C., 352 F.2d 874 (7th Cir. 1965), cert. denied 389 U.S. 1045, 88 S.Ct. 758, 19 L.Ed.2d 837; see J. von Kalinowski, 3 Antitrust Laws and Trade Regulation §§ 24.03 and 24.04; F. Rowe, Price Discrimination Under the RobinsonPatman Act 53-59 (1962) & Supp. 7-8 (1964). Thus, the courts which have ruled on the question have found it appropriate that the same standard be applied to determine whether a sales subsidiary can be deemed a purchaser from its parent. See J. von Kalinowski, supra, § 24.04 [2]-[3]. There appears to be general agreement that there can be no sale under the Act unless the parties deal at arm’s length, Reines Distributors, Inc. v. Admiral Corp., 256 F.Supp. 581, 585-586 (S.D.N.Y.1966), and authorities cited therein, although the argument has been advanced that the realistic effect on competition, rather than the question of control, should be the standard. Id. In view of our holding, however, we need not decide this question.


author: MANSFIELD, Circuit Judge:

text:
    SECURITIES AND EXCHANGE COMMISSION, Plaintiff, Securities Investor Protection Corporation, Applicant-Respondent, v. PACKER, WILBUR & CO., INC., et al., Defendants.
    No. 550, Docket 73-2294.
    United States Court of Appeals, Second Circuit.
    Argued March 7, 1974.
    Decided May 31, 1974.

      Edward J. Boyle, New York City (W. Foster Wollen, Shearman & Sterling, New York City, of counsel), for claimant-appellant Coggeshall & Hicks, Inc.
    Martin R. Gold, New York City (Eric Bregman, Gold, Farrell & Marks, New York City, of counsel), for appellee, trustee for Packer, Wilbur & Co., Inc.
    Michael E. Don, Washington, D. C. (Theodore H. Focht, Gen. Counsel, Wilfred R. Caron, Associate Gen. Counsel, Securities Investor Protection Corp., Washington, D. C., of counsel), for appellee Securities Investor Protection Corp.
    Before MOORE, MANSFIELD and OAKES, Circuit Judges.
   MANSFIELD, Circuit Judge:

The failure of a business is an unhappy event for debtor and creditor alike. When the bankrupt is one of the pillars of the financial community, a brokerage firm long identified in the popular mind with stability and redoubtable finance the failure can produce a tremor in financial circles throughout the nation. The near collapse in 1969 of Hayden Stone and the rumors of impending failures of other brokerage houses cast a pall over Wall Street that was reminiscent of its never-to-be-forgotten “Black Tuesday.” The industry naturally feared that the breakdown of these houses would be attended by a general decline in public confidence in the securities market. Congress soon became concerned for the state of the market and in particular for the plight of the many small investors who fell victim to the economic demise of their brokers. The upshot was a legislative effort to reinforce the flagging confidence in the securities market by providing an extra margin of protection for the small investor. The measure adopted was the Securities Investor Protection Act of 1970 (“SIPA”), 15 U.S.C. § 78aaa et seq., which assures a minimum recovery to customers of insolvent brokerage houses from a quasi-public fund. The core provision of SIPA specifies that the Securities Investor Protection Corporation (“SIPC”), a nonprofit corporation consisting of all broker-dealers and members of national securities exchanges, shall advance to the trustee of a bankrupt house up to $50,000 for each customer claiming securities and $20,000 for each customer claiming cash from the brokerage house. 15 U.S.C. § 78fff (f)(1). The source of the SIPC fund is the general brokerage community, which pays tithes to SIPC to finance its work. 15 U.S.C. § 78ddd. Operation of this machinery is triggered by SIPC’s determination that a broker is on the verge of insolvency, whereupon SIPC applies to the district court for an adjudication that the broker’s customers are entitled to the protection of SIPA. The present case requires us to define some of the bounds of protection afforded by SIPA and, more particularly, to determine who its beneficiaries may be.

Packer, Wilbur & Co., Inc. (“Packer Wilbur”) fell upon hard times in 1971. In June of that year a trustee was appointed to liquidate the brokerage house pursuant to the provisions of SIPA. Among those filing claims with the trustee were Effrem Arenstein, an individual investor, and Coggeshall & Hicks, Inc. (“Coggeshall”), a brokerage house that represented Arenstein in a transaction with Packer Wilbur. The particular deal was hardly the paradigm of responsible trading in the securities market. The largest share of the blame seems to rest with Arenstein. On February 3, 1971, he instructed Coggeshall to purchase 2,000 shares of Syntex common stock for his account. Arenstein did not remit payment for the securities. Nor did he have sufficient funds in his speeial cash account at Coggeshall to cover the purchase price of $90,933.82. Under the Federal Reserve Board’s “Regulation T,” 12 C.F.R. § 220.4(c), Coggeshall was permitted to execute the transaction only if it acted in reliance upon Arenstein’s agreement that he would make prompt payment for the securities and that he did not contemplate selling the securities prior to making payment.

The Set-up

Events proved that Arenstein was not as good as his word. It appears that Arenstein had from the very outset planned to sell the Syntex stock — at a profit — and use the proceeds of that sale to pay Coggeshall for the original purchase. It is a technique known in the trade as a “free-ride.”

Shortly after Coggeshall had purchased the stock for Arenstein’s account, Arenstein instructed his other broker, Packer Wilbur, to sell 2,000 shares of Syntex stock for his account with it, which Packer Wilbur did at a sale price of $94,203.10. Armed with this knowledge, Arenstein directed Coggeshall to deliver the Syntex shares which Coggeshall had purchased through it to Packer Wilbur against payment. Arenstein expected Packer Wilbur to pay Coggeshall for the shares with the proceeds of its sale of the same Syntex shares for his account with it. The net result of the transaction would be a $3,269.28 profit in Arenstein’s account at Packer Wilbur, wrought without any cash investment by Arenstein.

The Sting

Arenstein’s scheme failed on the verge of fulfillment. Packer Wilbur must have surmised that Arenstein was attempting a free-ride and seized the opportunity to improve its own lot. When Coggeshall delivered the Syntex stock, Packer Wilbur paid with two faulty checks. Meanwhile it hastened to complete its own sale of the stock to a third party, applying the proceeds to its own account. When Coggeshall discovered the fraud, it stood with the dishonored checks in its own hands. Meanwhile the Syntex stock had passed into the hands of a bona fide purchaser. Coggeshall sued Packer Wilbur on the dishonored checks. It preserved its options, however, by filing suit against Arenstein as well.

Shortly thereafter Packer Wilbur went under and a SIPC trustee was appointed for it. Coggeshall and Arenstein lodged separate claims in the ensuing liquidation. Coggeshall sought reimbursement from SIPC in the amount of $90,933.82 on the theory that the checks represented an open contractual commitment of Packer Wilbur that the trustee must complete under § 6(d) of the Act. Arenstein argued that as a customer of Packer Wilbur he was entitled to a $50,000 advance on his underlying claim against Packer Wilbur. The district court denied both claims. See 362 F.Supp. 510 (S.D.N.Y.1973). It ruled first that Arenstein, who had misrepresented his intention to make prompt payment, thereby violated the margin rules as well as Rule 10b-5 and should be denied the benefits of the SIPC fund, which was intended to protect innocent investors. As for Coggeshall, the court concluded that it too must be denied any relief under SIPA because its conduct had contributed to a violation of the margin rules. Arenstein has not appealed the adverse determination of his claim; Coggeshall has. Coggeshall strenuously argues its right to recover from SIPC on the ground that it did not in any of its actions violate Regulation T.

I

The district court rested its decision denying Coggeshall any relief under SIPA on its conclusion that Coggeshall had violated Regulation T, or had breached some duty of due care imposed by that Regulation, when it allowed Arenstein to obtain a free-ride. We disagree.

It is undisputed that Coggeshall had acted properly in effecting the purchase of Syntex stock for Arenstein’s account. The fault, if any, must lie in the second part of the transaction, i.e., when Coggeshall, at the direction of its customer, delivered the stock to Packer Wilbur against payment. The district court noted that Coggeshall was thereby placed on constructive notice that Arenstein was attempting a free-ride. It implied that Coggeshall should have refused to deliver the stock unless it was assured that Arenstein already had sufficient funds in his Packer Wilbur account to cover the purchase price of the stock. We do not share this view. Section 220.4(c)(8) of Regulation T, which controls this problem for special accounts, does not prohibit free-riding; it simply imposes a foreclosure on other credit or delayed-payment transactions if a free-ride or other premature sale has occurred within the preceding 90 days. Once a free-ride has occurred, to allow the customer delayed payment during the ensuing 90 days, whether or not it eventuates in another free-ride, is to violate § 220.4(e)(8). To sell or deliver out unpaid-for stock at a customer’s request when a freeze is not in effect, on the other hand, would not appear to violate the section. Since there was no freeze in effect on Arenstein’s account at Coggeshall, the latter could legitimately comply with Arenstein’s order.

Nor was there a requirement that Coggeshall, before making delivery of the shares, obtain a “Letter of Free Credit” from Packer Wilbur. The practice of obtaining such a letter is an optional one. If followed, it would permit the delivering firm, Coggeshall, to continue Arenstein’s account on an unrestricted basis. See Reg. T, 12 C.F.R. § 220.4(c) (8). But the only effect of failure to obtain such a letter was to bar use of the account for further free-rides during the ensuing 90-day period.

The SEC has apparently espoused this interpretation of Regulation T. In several of its opinions it has suggested that a free-ride does not in and of itself violate the Regulation, but that free-riding does violate the Regulation when it occurs during a freeze period. See, e.g., In the Matter of Coburn and Middle-brook, Inc., 37 S.E.C. 583, 585 n. 6 & 588 n. 14 (1957); In the Matter of Thomson & McKinnon, 35 S.E.C. 451, 458-59 (1953). See also 2 L. Loss, Securities Regulation 1253-54 (1961). Thus there is good reason to believe that Coggeshall did not violate Regulation T when it completed the isolated free-ride transaction for Arenstein. We need not, however, resolve the issue in this case because, even if we concluded that Coggeshall had not violated Regulation T, we would still be compelled to deny its claim against the SIPC fund.

II

Coggeshall is content on appeal to argue that it did not violate Regulation T and then to rest upon the equities of the case. However, arguments based solely on the equities are not, standing alone, persuasive. If equity were the criterion, most customers and creditors of Packer Wilbur, the bankrupt, would be entitled to reimbursement for their losses. Experience, on the other hand, counsels that they will have to settle for much less. SIPA was not designed to provide full protection to all victims of a brokerage collapse. Its purpose was to extend relief to certain classes of customer. Coggeshall cannot simply rely on its not having violated Regulation T or on the existence of some equities in its favor; its task is to demonstrate that its transaction with Packer Wilbur comes within the protection of the Act. This it cannot do.

As the framers of this legislation were at pains to point out, the objective of SIPA was to protect members of the investing public, not brokers. There was no intention to “bail out” the securities industry. Legislative attention was focused on the small investor who suffered significant losses when a brokerage house collapsed, often because the house had in its last days misappropriated the investor’s funds to its own use. SIPA thus looks to requiting investor-customers of the defunct house, see SIPA § 6(f)(1)(D), 15 U.S.C. § 78fff(f) (1) (D); other broker-dealers can claim the protection of the Act only to the extent that they were acting on behalf of their own customers in dealing with the now defunct firm. Accordingly, § 6(d) of SIPA, 15 U.S.C. § 78fff(d), Note 3, supra,, provides that the SIPC fund will be used to complete open contractual commitments between broker-dealers only when there is a customer interest in the transaction and that “the term ‘customer’ means any person other than a broker or dealer.”

Coggeshall, invoking § 6(d), asserts that its delivery of the Syntex stock to Packer Wilbur represents an open contractual commitment under that section. However, Coggeshall has failed to rebut two contentions made by SIPC with respect to the § 6(d) claim, each of which is fatal to that claim. First, § 6(d)(1), under which Coggeshall claims, provides that only those open contractual commitments shall be completed in which a “customer” had an interest. Here Arenstein, whom Coggeshall champions as the customer, has been denied the status of “customer” under the Act because, upon purchasing the Syntex shares, he falsely represented in violation of § 220.4(c)(1) of Regulation T that he would “promptly make full cash payment for the security” and that he did “not contemplate selling the security prior to making such payment.” Thus this is a transaction in which the essential “customer” interest required by the Act is absent. Nor does this amount merely to an exercise in the niceties of statutory construction. Any recovery obtained by Coggeshall from SIPC would be applied against the $90,933 balance owed to Coggeshall by Arenstein. If Arenstein is to be denied the protection of SIPC in his own right because of his misdeeds, it would hardly serve the cause of statutory consistency to allow Coggeshall to recover on his behalf under another section. The policy as well as the letter of the statute are opposed to Coggeshall’s claim.

For present purposes the district court’s findings, which bar classification of Arenstein as a “customer,” may be treated as final. He has not appealed the decision of the district court, which held that only innocent customers can claim the special insurance provided by the Act, nor has Coggeshall challenged that determination. Any such challenge would fail, for the district court was correct in concluding that “[o]ne who engages in a fraudulent transaction cannot reap the benefits of the Act’s intended protection.” We cannot believe that Congress intended that an active and sophisticated securities investor such as Arenstein, who deliberately engaged in a margin violation, should enjoy the benefits of SIPA.

The findings of the district court, furthermore, place Arenstein’s fraudulent conduct squarely within the proscription of § 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. A. T. Brod & Co. v. Perlow, 375 F.2d 393 (2d Cir. 1967). Providing assistance under SIPA to such an individual would be a gratuitous, indeed counterproductive, gesture. It would in effect be giving succor under one section of the Securities Exchange Act to a person who violated another section. Such a result is particularly inappropriate when, as in the present case, the relief takes the form of public insurance. It is one thing to allow, as we did in Pearlstein v. Scudder & German, 429 F.2d 1136 (2d Cir. 1970), cert. denied, 401 U.S. 1013, 91 S.Ct. 1250, 28 L.Ed.2d 550 (1971), an investor who benefits from a margin violation to sue his broker for his part in that same violation. It is quite another thing, however, to allow an investor, who deliberately induces a margin violation, to be reimbursed from a quasi-public fund. We permitted the recovery in Pearlstein because the purpose of § 7 of the Securities Exchange Act would be better served by allowing the investor to enforce the Act against the broker who bore the responsibility for complying with the margin rules. No comparable rationale exists for justifying a recovery by Arenstein from the SIPC. Congress’ intent in providing for reimbursement of investors was to restore confidence in and strengthen the operation of the securities market. These goals are hardly furthered by reimbursing from public funds an individual whose fraudulent activities have tended to weaken the market. See A.T. Brod & Co. v. Perlow, supra, 375 F.2d at 397. Arenstein then should not be permitted the special protection of SIPA. Nor should Coggeshall be permitted that protection in his stead.

Coggeshall’s claim under § 6(d) of SIPA falters on still another ground. Coggeshall maintains that the dishonored checks represent an “open contractual commitment” within the meaning of § 6(d). The legislative history of that section indicates, however, that the framers of SIPA understood the term “open contractual commitment” to mean a wholly executory contract. When asked why there was no dollar limitation on open contractual commitments in § 6(d), as there is on simple equity claims in § 6(f), a representative of the SEC replied that in open contractual commitments, as contrasted to partially executed transactions, there would usually be only “a relatively small” profit or loss “which need not be taken into account. . . .” The provision obviously envisoned a prospective mutual exchange of consideration with only a net flow of cash from the SIPC. With this cushion the framers saw no need for a dollar limitation.

To read § 6(d) as encompassing partially executed contracts, as Coggeshall argues, would have the undesired effects of subjecting the SIPC trustee to unlimited obligations and of creating a preference in favor of one investor at the expense of the others. Section 6(d) provides that the assets of the debtor’s estate (except those specifically identifiable as those of a particular customer of the debtor) shall be applied to complete the open contractual commitments. When the commitment is wholly executory, the preference is limited to the net flow from the estate. When the commitment is partially executed, however, the drain upon the estate can be absolute and the preference complete. There is nothing to indicate that the framers of the legislation intended to bestow on certain customers of a brokerage house such an extraordinary preference. On the contrary, the legislative history reveals a clear intent to restrict the outflow from the estate. Because we read § 6(d) to require the completion of wholly executory contracts only, we just reject Coggeshall’s claim.

By denying Coggeshall any recovery from SIPC funds, we do not deny it the prospect of any recovery through prosecution of other remedies. Presumably it may (if it has not already done so) as-serf a claim under § 6(c)(2)(B), 15 U. S.C. § 78fff(c) (2) (B), against the “single and separate fund” composed generally of that property held by Packer Wilbur from or for the account of its customers. In addition it may reactivate prosecution of its suit against Arenstein for the purchase price of the Syntex stock which Arenstein has never paid, see A.T. Brod & Co. v. Perlow, supra. Coggeshall has expressed some fear that this route may be foreclosed under Pearlstein by virtue of the district court’s finding that it had violated Regulation T through its negligence. We have indicated our reservations about that finding. In any event, having found Arenstein to be outside the protection of SIPA, the court was obliged to deny Coggeshall any recovery on Arenstein’s behalf. Coggeshall’s claim would have failed regardless of the propriety of its conduct under Regulation T. Since it is thus unnecessary for this court to rule on the district court’s finding that Coggeshall had negligently violated the Regulation, that finding should not estop Coggeshall from litigating the issue of its compliance with Regulation T in any action it may decide to pursue against Arenstein. See IB J. Moore, Federal Practice ft 0.-416 [2] at 2232-2233.

For the reasons stated the judgment of the district court is affirmed.

      . 12 G.F.R. § 220.4(c) (1) (i) provides:
      “(c) Special cash account. (1) In a special cash account, a creditor may effect for or with any customer bona fide cash transactions in securities in which the creditor may:
      “(i) Purchase any security for, or sell any security to, any customer, provided funds sufficient for the purpose are already held in the account or the purchase or sale is in reliance upon an agreement accepted by the creditor in good faith that the customer will promptly make full cash payment for the security and that the customer does not contemplate selling the security prior to making such payment.”
      The agreement need not be explicit. Coggeshall may assume that a sophisticated and experienced investor, as Arenstein certainly was, knows the requirements of Regulation T and impliedly agrees to its terms when he places an order without immediate payment. See Naftalin & Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 469 F.2d 1166, 1175 (8th Cir. 1972). The record in this case does not indicate whether Arenstein’s agreement was explicit or implied.

      . Arenstein has not to this day paid Coggeshall for the stock.

      . Section 6(d) provides in part:

        “Completion of open contractual commitments. — The trustee shall complete those contractual commitments of the debtor relating to transactions in securities which were made in the ordinary course of debt- or’s business and which were outstanding on the filing date—
      (1) in which a customer had an interest, except those commitments the completion of which the Commission shall have determined by rule or regulation not to be in the public interest, or (2) in which a customer did not have an interest, to the extent that the Commission shall by rule or regulation have determined the completion of such commitments to be in the public interest.” 15 U.S.C. § 78fff(d).

      . The claims are to a large extent duplicative. The Coggeshall claim, if successful, would recover $90,933 to be applied to Arenstein’s account. This would all but satisfy Arenstein’s personal claim against Packer Wilbur; only the $3,269 profit from the free-ride would remain as a possible claim.

      . Section 220.4(c) (8) provides:
      “(8) Unless funds sufficient for the purpose are already in the account, no security other than an exempted security shall be purchased for, or sold to, any customer in a special cash account with the creditor if any security other than an exempted security has been purchased by such customer in such an account during the 90 days, and then, for any reason whatever, without having been previously paid for in full by the customer, the security has been sold in the account or delivered out to any broker or dealer: Provided, That an appropriate committee of a national securities exchange or a national securities association, on application of the creditor, may authorize the creditor to disregard for the purposes of this subparagraph any given instance of the type therein described in the committee is satisfied that both creditor and customer are acting in good faith and that circumstances warrant such authorization. For the purposes of this subparagraph, the cancellation of a transaction, otherwise than to correct an error, shall be deemed to constitute a sale. The creditor may disregard for the purposes of this subparagraph a sale without prior payment provided full cash payment is received within the period described by subparagraph (2) of this paragraph and the customer has not withdrawn the proceeds of sale on or before the day on which such payment (and also final payment of any check received in that connection) is received. The creditor may so disregard a delivery of a security to another broker or dealer provided such delivery was for deposit into a special cash account which the latter broker or dealer maintains for the same customer and in which account there are already sufficient funds to pay for the security so purchased ; and for the purpose of determining in that connection the status of a customer’s account at another broker or dealer, a creditor may rely upon a written statement which he accepts in good faith from such other broker or dealer.”

      . Of course a broker might violate § 220.-4(c)(1), even when no freeze was in effect, if when he first purchased the stock he had reason to believe that the customer did not really intend prompt payment. After a customer had effected a series of free-rides or premature sales, a broker would no longer be in a position to rely on the customer’s representation that he intends prompt payment.

      . None of this is to exonerate in any way a customer who deliberately misrepresents his intention of prompt payment. If the bona fide intent of a customer should change after the broker had purchased stock for him, the customer could legitimately direct his broker to sell the stock. The effect, therefore, is a 90-day freeze, not a violation of Regulation T. The case of a customer who initially misrepresents his intention to his broker is different. I-Ie violates Regulation X, 12 C.F.R. § 224.1, and Rule 10b-5 by making this misrepresentation.

      . Of course, if we had the benefit of a current pronouncement by the SEC of its view on § 220.4(c)(8), we could with more confidence resolve the issue.

      . Hearings on 8. 2348, S. 3988 and S. 3989 Before the Subeomm. on Securities of the Senate Comm, on Banking and Currency, 91st Cong., 2d Sess. 257 (1970).
      This is not to suggest that the brokerage community does not ultimately derive some benefit from SIPA. To the extent that SIPA encourages the investor to stay in the market, it contributes to the well-being of the brokerage community. See 116 Cong. Ree. 39350 (1970) (remarks of Rep.Moss).

      . Section 6(d)(2), 15 U.S.C. § 78fff(d)(2), provides that the trustee shall complete those open commitments in which there is no customer interest to the extent that the SEC shall by rule or regulation determine that the completion of such commitments would be in the public interest. The SEC has not issued any rule or regulation determining that completion of such commitments would be in the public interest.

      . There is no indication in the legislative history that Congress ever adverted to the possibility of a securities law violator reaping the rewards of SIPA. Congressional attention appears to have been preempted by a concern for the misdeeds of the brokerage community.

      . Section 2 of SIPA, 15 U.S.C. § 78bbb, provides that it shall be considered an amendment to, and section of, the Securities Exchange Act of 1934.

      . Of course an investor who unintentionally or inadvertently participated in a margin violation probably would stand on a different footing. It is doubtful whether he would possess the scienter essential to establish a violation of Rule 10b-5. Furthermore, he would not be guilty of a violation of Regulation X, the purpose of which is to prevent investors from “wilfully and intentionally evading the provisions of the [margin] regulations,” 12 O.F.R. § 224.1 (1973). Regulation X specifically provides that:
      “(a) Innocent mistake. An innocent mistake made in good faith by a borrower in connection with the obtaining of a credit shall not be deemed to be a violation of this part (Regulation X) if promptly after discovery of the mistake the borrower takes whatever action is practicable to remedy the noncompliance.”

      . Hearings on H.R. 13308, H.R. 17585, H.R. 18081, H.R. 18109, and H.R. 18458 Before the Subcomm. on Commerce and Finance of the House Comm, on Interstate and Foreign Commerce, 91st Cong., 2d Sess. 227 (1970).

      . The SEC was more sanguine about the operation of § 6(d) than experience appears to have justified. Concerned that the completion of open commitments might seriously erode the SIPC funds, the SEC has recently announced a rule that limits the net cash flow in completing open commitments to $20,000. SEC Securities Investor Protection Act of 1970, Release No. 5 (July 25, 1973).

      . A broker-dealer can qualify in his own right as a customer for the limited purpose of claiming against the “single and separate fund.” See § 6(c)(2)(A) and (B), 15 U.S. C. § 78fff (c) (2) (A) and (B).

      . Should a judgment be obtained against Arenstein in such a suit he, upon satisfying it, would presumably be subrogated to Coggeshall’s position as a claimant in the “single and separate fund” of the Packer Wilbur estate.