text:
    Cornelia H. MAYTAG, and the First National Bank of Colorado Springs, Colorado, as Co-Executors of the Estate of James B. Maytag, Deceased, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
    No: 73-1556.
    United States Court of Appeals, Tenth Circuit.
    Argued and Submitted Jan. 10,1974.
    Decided Jan. 30, 1974.
    As Amended April 3, 1974.

      Mac Asbill, Jr., Sutherland, Asbill & Brennan, Washington, D. C. (William A. Sutherland and Carolyn P. Chiechi, Sutherland, Asbill & Brennan, Washington, D. C., and Joseph F. Colantuno, Morrato, Gueck & Colantuno, Denver, Colo., on the brief), for plaintiff s-appellants.
    William S. Estabrook, III, Atty. Tax Div., Dept, of Justice (Scott P. Cramp-ton, Asst. Atty. Gen., Meyer Rothwacks, Bennett N. Hollander and Robert S. Watkins, Attys., Tax Div., Dept, of Justice, and James L. Treece, U. S. Atty., of counsel, on the brief), for defendant-ap-pellee.
    Before HILL, BARRETT and DOYLE, Circuit Judges.
   WILLIAM E. DOYLE, Circuit Judge.

Appellants seek reversal of a United States District Court decision denying to the estate of James B. Maytag (the taxpayer) refund of federal estate taxes in the amount of $612,708.41, which sum was paid by appellant following ruling by the Commissioner of Internal Revenue that the value of the assets- of two inter vivos trusts were part of the taxable assets of the gross estate of James B. Maytag. The basis for the decision was that the decedent possessed a general power of appointment. Section 2041 of the Internal Revenue Code of 1954.

At trial both parties filed motions for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. The District Court denied taxpayers’ motions and granted the government’s motion for summary judgment. The court rendered a Memorandum Opinion and Order on November 6, 1972. Final judgment was entered on March 26, 1973.

The undisputed evidence shows that in 1944, Lewis B. Maytag created two inter vivos trusts for his son, decedent James B. Maytag. These were dated March 8, 1944 and December 20, 1944. Both were irrevocable and contained substantially identical provisions; James B. Maytag was designated the principal beneficiary in each.

The crucial provisions of the March trust called for mandatory distributions to decedent when he attained the ages of 21, 25 and 30, with “the entire remainder of the Estate in Trust” to be distributed to decedent upon his attaining the age of 35. The December trust provided for distribution of the entire corpus to the decedent when James reached the age of 40.

The trusts named the First National Bank of Colorado Springs, Colorado as trustee. In addition, the settlor appointed two individual co-trustees, providing that the decedent would also become a co-trustee upon attaining the age of 21. The co-trustees were granted “the supreme power in respect to the management, administration and control of the Trust Estate,” whereas the trustee was relieved of all responsibility “when acting in conformity with the directions and instructions of the co-trustees.”

Both trust instruments contained the following discretionary termination provision :

If at any time the Co-Trustees and the Trustee conclude and unanimously agree that it is desirable or expedient and in the interest of the beneficiary to terminate the Trust, they may do so: and in such event the then entire Trust Estate remaining in Trust shall forthwith vest in and be distributed to the beneficiary, free from this Trust.
I make this provision because of the manifest uncertainties of the future, particularly as viewed in the light of the present situation of the United States of America and the world generally.
Without intending to limit or restrict the Co-Trustees and the Trustee in their discretionary power in respect of terminating the Trust at any time, I state it to be my desire that the Trust shall not be terminated except as provided in (a) or (b) of Article I, unless, only, that in the considered opinion and judgment of the Co-Trustees and the Trustee, the interest of the beneficiary would seriously be impaired otherwise.

Maytag died in 1963 at the age of 34. At the time of his death, the First National Bank of Colorado Springs, Colorado was serving as trustee and Leonard S. Sharp and the decedent were serving as co-trustees of both trusts. The power to terminate the trusts had not been exercised prior to decedent’s death.

The federal estate tax return filed for decedent’s estate reflected a taxable estate of $1,146,449.83, which amount did not include the value of the 1944 trusts.

The Internal Revenue Service determined that the decedent possessed a general power of appointment at the time of his death and that the trusts were therefore to be included in the decedent’s gross estate under § 2041. This determination was based on the theory that the decedent, as both a beneficiary and a co-trustee of the 1944 trusts, had the power (in conjunction with the trustee and the other co-trustee) to terminate the trusts and thereby to acquire all of the trust assets for himself.

The sole issue on appeal is then whether the discretionary termination provision in the trust instruments vested decedent with a general power of appointment over the trust property.

Assuming the existence of a general power of appointment, as defined by 26 U.S.C. § 2041(b)(1) there can be no question that the property to which that general power applies is included in decedent’s estate for tax purposes. The fact that decedent had not exercised the power prior to his death would not change this. Peoples Trust Co. of Bergen County v. United States, 412 F.2d 1156, 1158 (3rd Cir. 1969). Nor is the fact that decedent shared the power with a corporate trustee or other co-trustee of significance. Jones v. Commissioner, 56 T.C. 35 (1971), aff’d without opinion, 474 F.2d 1338 (3rd Cir.), cert. denied, 414 U.S. 820, 94 S.Ct. 115, 38 L.Ed.2d 53 (1973). Appellants’ sole argument in support of their position is that the trust provisions did not under Colorado law give the decedent the power to participate in a decision as co-trustee so as to allow him to distribute the trust property to himself as beneficiary and therefore he did not actually possess a general power of appointment.

Though this case arises under the federal estate tax laws, the issue in dispute turns on the proper interpretation of the meaning and effect of the trust provisions, a question governed by Colorado rather than federal law. Morgan v. Commissioner, 309 U.S. 78, 60 S.Ct. 424, 84 L.Ed. 585, 1035 (1940); Peoples Trust Co. of Bergen County v. United States, supra, 412 F.2d at 1159. In construing or interpreting these trusts, the established guiding principle under Colorado law is that the intent of the settlor is to prevail unless that intent is in violation of public policy or statutory enactment. Ketcham v. International Trust Co., 117 Colo. 559, 192 P. 2d 426 (1948). Each trust is unique, requiring that it be examined independently in ascertaining the intent of the settlor.

Based upon the above general principles and on an examination of the trust instruments, we are convinced that the District Court reached the correct result and that the judgment must be affirmed. The settlor’s specific appointment of decedent as a co-trustee, the extensive powers granted to him as a co-trustee under the trust instruments, and the settlor’s clear expression of his desire that decedent play an active and authoritative role in management of the trusts once he reached the age of majority, together with the language of the trusts, support the conclusion that set-tlor intended that decedent participate in any decision to terminate the trusts prior to the time they would expire through disbursements to decedent according to the settlor’s preferred schedule.

Further support for this conclusion as to the settlor’s intent is found in the fact that in those instances when the settlor desired the decedent as co-trustee to be treated differently from the other co-trustees, he made specific provisions for such differing treatment. For example, the trusts specifically provide that the beneficiary as co-trustee cannot be removed from office, as can the other co-trustees. (March trust, Art. Ill, R. 52; December trust, Art. Ill, R. 83.) The beneficiary is specifically excluded from receiving compensation for performing functions of a co-trustee, while the other co-trustees are entitled to be compensated. (March trust, Art. IV, R. 52, 53; December trust, Art. IV, R. 83, 84.) And the beneficiary is specifically excluded from participating in a decision to distribute one-fourth of the corpus of the March trust to himself at any time after he became twenty-one (Art. X(16), R. 65).

Appellants assert that a Colorado court considering this case would rule that, absent a very clear and specific expression of intent to the contrary by a settlor, a beneficiary of a trust is prohibited from participating as a trustee in any decision to distribute trust corpus to' himself. Appellants concede there are no Colorado cases so holding. They depend on cases from other jurisdictions, primarily New York, to support their assertion that Colorado would adopt such a rule. These authorities are not persuasive in the present context. The New York cases are based on the fact that New York as a statute prohibiting beneficiaries from participating as trustees in decisions to distribute trust assets to themselves. Also, the cases cited by appellants involve instances of outright prohibitions on trustee activities as beneficiaries. Appellants here urge us to establish a Colorado rule of interpretation, not prohibition, which would still permit a beneficiary to act as trustee in the circumstances in question, only if the settlor’s intent is clearly expressed. The cases cited do not argue for adoption of such a rule of construction. The more cogent cases which are similar factually reach a result opposite to that urged by appellants. See Strite v. McGinnes, 330 F.2d 234 (3rd Cir.), cert. denied, 379 U.S. 836, 85 S.Ct. 69, 13 L.Ed.2d 43 (1964); Miller v. United States, 387 F.2d 866 (3rd Cir. 1968).

The standard to be gleaned from these cases is that a beneficiary who is also a trustee is not prevented from holding a general power of appointment, at least where the settlor grants beneficiary such a power free from obstruction by other adverse parties. No contention is made that such adverse parties are present here. Furthermore, the determination of whether a trustee-beneficiary’s power of appointment over trust property is “general”, subjecting his estate to tax liability, is peculiarly a tax law question governed by specific classifying language of the Internal Revenue Code.

However, it is not necessary for us to decide that Colorado would or would not adopt such a rule of interpretation, for we regard the intent of the settlor on this question to be clearly reflected in the trust instruments.

Appellants further argue that a specific provision in the March trust excluding the beneficiary from participating in an optional decision by the co-trustee to distribute one-fourth of the corpus of that trust to him after his twenty-first birthday is indicative of the settlor’s intent to exclude decedent from all decisions regarding disbursement of trust assets to himself. We view this provision rather as an example of the settlor’s desire that the decedent be treated differently from the other co-trustees with regard to that particular provision. We see no inconsistency in the settlor’s desiring that decedent not participate directly in a decision of the magnitude of distribution of one-fourth of the March trust corpus contemplated to occur soon after decedent’s twenty-first birthday, and yet also desiring to insure that decedent would have a say in any decision to terminate the entire trust structure at some undetermined future date.

The judgment of the District Court is affirmed and the case is remanded to the United States District Court for the District of Colorado for the making of the adjustments agreed upon by the parties.

      . Under § 2041(b)(1) “general power of appointment” is defined as “a power which is exercisable in favor of the decedent, his estate, his creditors, or the creditors of his estate.”

      . Between the ages of 21 and 25, the beneficiary was paid $800.00 per month by the Trustee of the trust. When the beneficiary attained the age of 25, the Trustee was directed to distribute one-third of the corpus to the beneficiary. When the beneficiary attained the age of 30, the Trustee was directed to distribute one-half of the remaining corpus to the beneficiary. The Trustee was empowered to pay over the entire remainder of the trust corpus to the beneficiary when the latter reached the age of 35.

      . At the time of decedent’s death the value of the corpus of each trust was as follows:
      March trust $1,558,301.17
      December trust 882,977.02

      . The numerous powers granted to decedent as co-trustee were extensively delineated in the District Court opinion. They have therefore not been repeated here.

      . It should be mentioned that there are provisions in the trusts where the term “co-trustees” as used by the settlor might be read to mean the co-trustees other than the beneficiary. For example, the trusts prohibit the co-trustees from making direct loans to themselves,” . . . either jointly or separately or under circumstances where they or either of them will personally benefit, directly or indirectly . . . . ” (Emphasis added.) (March trust, Art. Ill, R. 47; December trust, Art. Ill, R. 78.) This provision appears to specifically contemplate the situation occurring immediately after creation of the trusts, where settlor had appointed two specific co-trustees, with his son not to take office as a third co-trustee for several years, upon reaching majority. Similarly, the provision giving the co-trustees power to determine who are the distributees of the trust estate in case of uncertainty appears to contemplate a situation where the beneficiary has already expired, and thus clearly could not act as a co-trustee. (March trust, Art. Ill, R. 49; December trust, Art. Ill, R. 80.) We attribute these sections either to inartful drafting, or to situations where there could be no possible confusion of meaning. They have little effect in contradicting what is otherwise a clear expression on the part of the settlor regarding the intended functions of the beneficiary as co-trustee.

      . Appellants cite, among others, Rogers v. Rogers, 111 N.Y. 228, 18 N.E. 636 (1888) ; In re Peabody’s Will, 277 App.Div. 905, 98 N.Y.S.2d 614 (2d Dept.1950) ; Robertson v. DeBrulatour, 188 N.Y. 301, 80 N.E. 938 (1907) ; Vellacott v. Murphy, 16 F.2d 700 (5th Cir.), cert. denied, 273 U.S. 767, 47 S.Ct. 571, 71 L.Ed. 882 (1927) (dictum) ; Armington v. Meyer, 103 R.I. 211, 236 A.2d 450 (1967).

      . 26 U.S.C. § 2041, which provides that a decedent’s gross estate shall include the value of all property subject to a general power of appointment held by a decedent, excepts the situation in which decedent’s power is exercisable only in conjunction with a person having a substantial interest in the property, subject to the power, which is adverse to exercise of the power in favor of the decedent. § 2041(b) (1) (C) (ii). That provision also provides that a substantial adverse interest is one such as would enable the co-holder of the power to exercise it in his own favor after the death of the decedent. The mere existence of an independent co-trustee with whom decedent must exercise his power will not remove the property subject to the power from decedent’s estate, unless that co-trustee has a substantial interest adverse to decedent’s exercise in his own favor. Even where the co-trustee’s remuneration is dependent on the existence and size of the trust corpus, the co-trustee does not have a substantia! adverse interest. The co-trustee’s interest must be in the trust property itself in order for it to be adverse to that of the decedent who is co-trustee-beneficiary. § 2041(b) (1) (C) (ii) ; Miller v. United States, supra, 387 F.2d at 870. See also Jones v. Commissioner, supra.

      . Further substantiation of this analysis may be found in the same Article of the March trust upon which appellants base their argument. Art. VIII of the trust provides that the decedent shall receive monthly payments of $800.00 from the trust corpus between his twenty-first and twenty-fifth birthday. At twenty-five, he would then receive a distribution of one-third of the trust. However, in Art. X(2), the settlor provided that the co-trustees could vary these monthly payments to some degree. He did not specifically exclude decedent from acting as co-trustee in this decision, as he did in Art. X(16). Arguably the settlor felt that decedent would have the maturity to participate in a decision affecting disbursements to himself of this relatively small amount, but not in a decision affecting a substantial segment of the corpus.


source: Caselaw Access Project

author: BURNS, District Judge.

license: Public Domain

text:
    George CAMPBELL, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
    No. 72-1207.
    United States Court of Appeals, Ninth Circuit.
    Feb. 14, 1974.
    R. M. Holt (argued), Cushman, Thomas & Holt, Issaquah, Wash., for plaintiff-appellant.
    Thomas P. Giere, Asst. U. S. Atty. (argued), Stan Pitkin, U. S. Atty., for the United States.

      Robert P. Piper, Seattle, Wash., for Eagle Construction.
    Before CHAMBERS and KOELSCH, Circuit Judges, and BURNS,  District Judge.

       Honorable James M. Burns, United States District Judge, District of Oregon, sitting by designation.

   BURNS, District Judge.

Plaintiff brought this action under the Federal Tort Claims Act, 28 U.S.C. § 1346, for injuries sustained on a job being performed by his employer under contract with the Army Corps of Engineers. At the trial, the District Judge ruled against plaintiff on the basis that the Government owed him no duty under the circumstances of this case. Plaintiff appeals. We affirm.

The Army Engineers contracted with Eagle Construction Company, Plaintiff’s employer, to construct a drainage tunnel through a hill to carry seepage water away from the Howard Hanson Dam, located in Green River, Washington. A falling rock severely injured Plaintiff while he was drilling on the face of the hillside near the end of the tunnel. He claims that the Government is liable for failing to take proper precautions to protect workers from falling rocks.

The contract between the Army Engineers and Eagle provided for the Government to have a resident inspector on the project to insure compliance with the contract terms. Government personnel took part in safety meetings to make sure that the project was carried out pursuant to applicable safety regulations. (Regulations of both the Army Engineers and the State of Washington.) However, Army Engineer personnel took no part in directing Plaintiff’s job performance and played no role in the drilling activities. The District Court held that under Washington law, the right to inspect and supervise proper contract compliance does not vitiate the independent contractor relationship. Hence, it held the Government, as con-traetee, owed no duty to Plaintiff, as employee of the Government’s independent contractor.

If the Defendant in this action had been a private contractee, Washington law would control issues regarding liability. Therefore, Washington law governs the liability of the United States in this Federal Tort Claims case. United States v. Cline, 410 F.2d 1337 (9th Cir. 1969).

Appellant challenges the District Court’s legal rulings and relies heavily on Thorne v. United States, 479 F.2d 804 (1973). Such reliance is misplaced. Thome was predicated on California law, which permits the employee of an independent contractor to recover from the contractee for the torts of the contractor where the work involved is intrinsically dangerous. However, Washington law is to the contrary. Epperly v. Seattle, 65 Wash.2d 777, 399 P.2d 591 (1965). Thome itself recognized that state law may differ regarding this issue, 479 F. 2d at 809. Our task is not to decide whether Washington’s rule is wiser than that of California, but rather to apply the law of the state where the accident occurred. The District Court correctly recognized that Epperly precludes recovery under the circumstances of this case.

Appellant also contends that two recent Washington cases, Jackson v. Standard Oil, 8 Wash.App. 83, 505 P.2d 139 (1972), and Kness v. Truck Trailer Equipment Co., 81 Wash.2d 251, 501 P.2d 285 (1972), suggest that the Washington courts are in the process of abandoning Epperly. We conclude that nothing in these decisions suggests either the commencement or carrying out of such an abandonment.

The judgment of the District Court is affirmed.


author: CRAVEN, Circuit Judge:

text:
    Minnie Florence BREEDEN, Appellant, v. Caspar W. WEINBERGER, Secretary Health, Education, and Welfare, Appellee.
    No. 73-1899.
    United States Court of Appeals, Fourth Circuit.
    Argued Dec. 5, 1973.
    Decided March 19, 1974.

      C. Waverly Parker, for appellant.
    Raymond A. Carpenter, Asst. U. S. Atty. (Brian P. Gettings, U. S. Atty., on brief), for appellee.
    Before WINTER, CRAVEN and BUTZNER, Circuit Judges.
   CRAVEN, Circuit Judge:

Appellant Minnie Breeden was declared ineligible for Social Security disability benefits because the Social Security Administration credited her for 18 quarters of covered employment in the ten years preceding her disability, instead of the 20 quarters required for coverage under 42 U.S.C. § 423(c)(1)(B) (1970). Mrs. Breeden attempted to prove that she had actually earned wages during quarters for which the Secretary’s records showed none, but she encountered an administrative requirement that she prove her case “clearly and convincingly.” The district court affirmed the denial of coverage. The issues on Mrs. Breeden’s appeal are: (1) whether the Social Security Act requires the claimant to prove her ease by more than a normal preponderance of the evidence; (2) whether the administrative decision is supported by substantial evidence.

Mrs. Breeden filed an application for disability benefits in 1969. Upon discovering that her Social Security wage records showed a deficit in covered quarters, she began trying to prove that she had earned wages between 1957 and 1963 in addition to those that appeared on her record. Several of the employers had since gone out of business; others had discarded records that would prove or disprove Mrs. Breeden’s claims. Consequently, her supporting evidence was limited to affidavits and testimony of people who had known her during the periods in question. Most of her witnesses were relatives, some were friends, others were coworkers and acquaintances, and one was the wife of a former employer. If any substantial part of their testimony were accepted, it would establish coverage for more than the two quarters that Mrs. Breeden lacked. But the administrative law judge rejected all the testimony, including Mrs. Breeden’s own account of her work history. He indicated distrust for the testimony of “friends and kinfolk.” He complained repeatedly that none of the witnesses produced written records and that much of their testimony was inexact. And he insisted that Mrs. Breeden prove her case “clearly and convincingly.” On these grounds he concluded that she had not carried her burden of proof. The appeals counsel adopted his findings and conclusions, and Mrs. Breeden petitioned the district court for review. The district judge remanded the case for more evidence, indicating that the denial of benefits was not supported by substantial evidence. On remand, the appeals council accepted several pieces of documentary evidence that Mrs. Breeden’s attorney offered, but reaffirmed the original decision without convening another hearing. Taking the case a second time on substantially the same record as before, the district judge held that Mrs. Breeden had the burden of proving coverage by “clear and convincing evidence.” On a survey of the record he concluded that her evidence did not meet that standard and that the administrative decision was therefore based on substantial evidence. We reverse.

The Social Security Act creates a scale of evidentiary weight for the Secretary’s wage records. It provides that entries in the records shall serve as evidence of the amounts of wages paid and that the absence of entries shall constitute evidence that no wages were paid. 42 U.S.C. § 405(c)(3) (1970). The records are open to revision for a period of three years, three months, and 15 days. Id. § 405(c)(1)(B), (c)(4). After that period expires, an entry acquires conclusive weight, but the absence of an entry merely stands as “presumptive evidence” that no wages were paid. Id. § 405(c)(4)(A), (B). Records of self-employment income are also given conclusive effect at the end of the time period. Id. § 405(c)(4)(C). Consequently, a claimant cannot dispute the accuracy of a wage entry or a self-employment income record after the time limit expires, but is allowed to prove that a blank wage record is incorrect.

The meaning of “presumptive evidence” in section 405(c)(4)(B) is unclear. The agency’s regulations simply repeat the words of the statute without explaining them. 20 C.F.R. § 404.804 (1973). Judicial attempts to outline the effect of the statute have gone no further than declarations to the effect that the presumption can be rebutted by “positive” or “substantial” evidence. E. g., Thacker v. Gardner, 268 F.Supp. 663, 665 (W.D.Va.), aff’d, 387 F.2d 387 (4th Cir. 1967), cert. denied, 390 U.S. 1017, 88 S.Ct. 1272, 20 L.Ed.2d 168 (1968) ; Williams v. Celebrezze, 243 F.Supp. 103, 107 (E.D.Ark.1965). In this case the district court reasoned that because the claimant initially bears the burden of proving coverage, the presumption must enhance the burden of persuasion:

The Court concludes that it requires the plaintiff to prove that she was covered by the Act during the quarters in question by clear and convincing evidence, by stronger evidence than would be needed had the absence of official records been simply not relevant.

We disagree with the district court’s characterization of the claimant’s burden of proof. It is true that the claimant has the burden of producing evidence in support of his claim and that his claim for benefits may properly be denied if his evidence is insufficient to persuade the Secretary. See 20 C.F.R. § 404.701(b) (1973). In another context we have implied that a Social Security claimant need not prove his administrative case beyond a preponderance of the evidence, Cyrus v. Celebrezze, 341 F.2d 192 (4th Cir. 1965); Thomas v. Celebrezze, 331 F.2d 541, 545 (4th Cir. 1964), and we think the statutory presumption involved here does not alter that rule. As a general rule, presumptions do not operate to raise the standard of proof. Their common effect is to shift the burden of producing evidence and, some say, the burden of persuasion. Compare McCormick, Evidence § 345 (Cleary ed. 1972), with 9 Wigmore, Evidence §§ 2490-93 (3d ed. 1940). See Garland v. Cox, 472 F.2d 875, 877-878 (4th Cir. 1973), cert. denied, Slayton v. Garland, 414 U.S. 908, 94 S.Ct. 217, 38 L.Ed.2d 146 (1973). If the presumption operates against a party who already has the burden of proof, it does not necessarily convert a preponderance standard into something stiffer. See McCormick, supra, § 345, at 829. Instead, the policies underlying, a particular presumption govern the measure of persuasion required to escape its effect. Id. at 822-23.

The progression of evidentiary value embodied in the Social Security Act — evidence, presumptive evidence, and conclusive effect — suggests that the provision concerning blank wage records reflects congressional sensitivity to the need to balance two somewhat conflicting purposes. One purpose, akin to the supposed rationale for statutes of limitation, is to guard against false claims after contradictory evidence is unavailable. But Congress did not write a statute of limitations for contradicting blank wage records, as it did for self-employment income reports. The different treatment afforded to blank wage records suggests a second purpose — that Congress intended not to penalize wage earners for the carelessness or dishonesty of their employers. A requirement of proof by clear and convincing evidence would all but destroy this secondary congressional intent. Applying a preponderance standard to the claimant’s evidence affords the government reasonable protection against spurious claims and also makes it possible to establish valid ones. We hold that the claimant need not persuade the administrative law judge by any standard of “high probability”; she need only persuade him that it is more probable than not that she received the wages she claims. This is the meaning of the rubric common in jury trials: “satisfied by the greater weight of the evidence.” See McCormick, supra, § 339, at 794-95.

On review of the administrative law judge’s decision, we do not assess the record to decide whether Mrs. Breeden proved her claim by a preponderance of the evidence. Our function is limited to deciding whether the administrative decision is supported by substantial evidence. We must decide, therefore, what weight to accord the statutory presumption on substantial evidence review when the record contains contradictory evidence.

Under the Thayer “bursting bubble” theory of presumptions, the presumption is a procedural rule that governs the outcome only when the record contains no contradictory evidence. McCormick, supra, § 345; 9 Wigmore, Evidence, § 2491 (3d ed. 1940). The Supreme Court once applied this theory to an administrative presumption in the Longshoremen’s and Harbor Workers’ Compensation Act, 33 U.S.C. § 920 (1970), holding that the presumption had no evidentiary force on review of the administrative decision. Del Vec-chio v. Bowers, 296 U.S. 280, 56 S.Ct. 190, 80 L.Ed. 229 (1935). This court chose the same approach in Garland v. Cox, 472 F.2d 875, 879 (4th Cir. 1973), giving purely procedural effect to a presumption that late appointment of counsel was prejudicial to the defendant in a criminal case. The structure of the Social Security Act, however, precludes similar treatment of the presumption involved here. Unlike the statute in Del Vecchio, which creates certain presumptions “in the absence of substantial evidence to the contrary,” 33 U.S.C. § 920 (1970), the Social Security Act provides that the absence of a record entry shall be “presumptive evidence” that no wages were paid- — whether or not there is other evidence. We think the Congress did not intend the presumption to evaporate when contrary evidence is introduced. Instead, we hold this presumption survives the offering of contradictory evidence and thereafter may itself constitute substantial evidence that no wages were paid.

But that the administrative judge may choose to accord it continuing weight does not end the inquiry. Under the standards of Universal Camera Corp. v. NLRB, 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456 (1951), we must review the entire record, taking into account both the support for the administrative decision and “whatever in the record fairly detracts from its weight.” Id. at 488, 71 S.Ct. at 464. If reliance on the presumption is arbitrary or if it is not “justified by a fair estimate of the worth of the testimony of witnesses” who support the claimant, id. at 490, 71 S.Ct. at 466, we must conclude that the administrative decision is not supported by substantial evidence.

In this case Mrs. Breeden presented evidence relating to seven periods of employment that did not appear on her Social Security record. The Social Security records showed a small amount of wages for one of these periods, and the administrative law judge correctly denied Mrs. Breeden’s attempt to prove that she had earned more than the employer had reported. 42 U.S.C. § 405(c)(4)(A) (1970). The administrative law judge rejected all of the evidence Mrs. Breeden offered on the six periods for which the records were blank, primarily on his assessment of the witnesses’ credibility. For three of these periods we are satisfied that his conclusion is supported by substantial evidence. Mrs. Breeden’s evidence was sketchy and the corroboration she offered was weak. But for the three remaining periods we conclude that he dealt arbitrarily with the testimony and ignored the weight of the evidence. In those instances we hold that his findings on the witnesses’ credibility and his reliance on the statutory presumption were arbitrary and that his decision is unsupported by substantial evidence.

1959 and 1960:

Mrs. Breeden testified that she had worked in an orchard owned by R. S. Graves in Syria, Virginia, in the fall of 1959 and the summer and fall of 1960. She testified that she worked in the packing shed grading apples from the first of October to the middle of November in 1959, when she quit because her baby was ill. She was paid $6 a day for five and one-half days of work per week, for a salary of $33 per week. Her six weeks of work would have entitled her to one quarter of agricultural coverage. In 1960, she testified, she picked peaches for about six weeks in the summer at a salary of $6 per day, five and one-half days a week. On about September 20, 1960, she began picking apples. Apple pickers were paid ten cents per bushel with a bonus of two cents per bushel contingent on a full season’s work. She testified that she made between $50 and $75 a week until the first of November, when she began working in the packing shed for $33 a week. She finished work just before Christmas of 1960, when she received a bonus check for $339, which apparently included her husband’s two-eent bonus as well as her own. According to plaintiff’s calculations, her wages for 1960 amounted to over $1,000, which would entitle her to a full four quarters of coverage for the year.

Eight witnesses corroborated various parts of Mrs. Breeden’s testimony. Her sister, Diane Shiflett, testified that she worked in the packing shed with Mrs. Breeden for three days in 1959 but that she had to quit because she was pregnant. She remembered that her husband had continued to work in the orchard, riding to work with Mrs. Breeden throughout the apple season. Her husband, Floyd Shiflett, also testified that he rode to work with Mrs. Breeden during the 1959 season and that the packing shed salary was about $5 a day. Mrs. Evelyn Shela, who was only 12 or 13 years old in 1959, testified that she had worked with Mrs. Breeden in the packing shed in either 1959 or 1960, and that the salary was $5 a day. Mrs. Anna Meadows, Mrs. Breeden’s sister, testified that she worked in the Graves orchard every apple season from 1959 to 1963. She said that Mrs. Breeden had worked in 1959, and that she had “hauled hands” to the orchard. Mrs. Meadows testified that in 1960 Mrs. Breeden picked peaches and apples and then worked in the packing shed. She corroborated Mrs. Breeden’s testimony about the salary: $6 per day in the packing shed, and ten cents per bushel picking apples, with a two-cent bonus at season’s end. She testified that her average salary picking apples was $50 to $60 per week. Mr. Sanford Geer testified that he picked peaches at the Graves orchard in either 1959 or 1960, that Mrs. Breeden was working there at the same time, and that he rode to work with her. He worked for three or four weeks at a salary of $6 per day. Mr. Jesse Meadows submitted an affidavit stating that he had worked with Mrs. Breeden in the Graves orchard in 1959, and that he rode to work with Floyd Shiflett and Mrs. Breeden. He testified that Mrs. Breeden worked about six weeks, until her baby got sick. He said that in 1960 Mrs-. Breeden worked from July through December, picking peaches, picking apples, and working in the packing shed. Mr. W. H. Conley, Jr., testified by deposition that he had worked with Mrs. Breeden in the orchard in 1959 and 1960. Following remand, Mrs. Breeden submitted the affidavit of Mr. Eddie Geer. Mr. Geer’s affidavit stated that he had worked at the Graves orchard during apple season in 1959 and 1960. He said that Mrs. Breeden worked in the packing shed in 1959 and that she picked apples and worked in the packing shed in 1960.

The administrative law judge rejected all this testimony. In general, he complained that it was imprecise and incredible:

The wisdom of the statutory presumption as to wages which pere paid after a time limitation passes is exemplified in a case such as this where an individual, without any records whatsoever and without any record by her alleged employers stating that she was gainfully employed during specific periods, appears and alleges by means of a large group of kinfolk and friends that she did, in fact, work in periods 7 to 13 years, in the past. Memories are short and the passage of time erodes our impressions. What the claimant has done is to bring together a collection of kinfolk and friends, all of whom with aplomb and with such answers as, “I think”, etc., corroborate the claimant’s story as to events which happened a long time ago. The Hearing Examiner, after viewing these witnesses and the affidavits produced, could not find their statements and testimony contained any degree of credence.

Administrative Transcript at 10. Because no single witness could testify to all the exact dates and the exact amounts, and because several of the witnesses were Mrs. Breeden’s relatives, he rejected the testimony of each witness. His treatment of Sanford Geer’s testimony is illustrative:

The testimony of Mr. Geer similarly was based on such statements as, “I made about ‘X’ dollars, I worked about ‘X’ weeks”. He did not demonstrate a reasonable knowledge of the exact time Mrs. Breeden worked there, if at all, how much salary she received, her productive capacity while working, etc. This testimony is not substantial and probative of the claimant’s work allegations in 1959 and 1960.

Id. at 13 (emphasis in original).

The Appeals Council took an even more arbitrary position on remand. Commenting on the affidavit submitted by Mr. Eddie Geer, it noted:

The Appeals Council does not doubt the claimant’s reputation for truth and veracity, nor that of Mr. Geer. However, Mr. Geer’s statement is based solely on his memory of events of nearly 13 years ago and is not supported by any records. Memories, even though well intentioned, are not infallible and the passage of time can dim and distort recollections not refreshed by contemporaniously [sic] made notes and records.

Id. at 313. The substantial effect of such an administrative attitude is to rewrite both the statute and the regulations. Neither require that the claimant have written records, nor, a fortiori, that each corroborating witness have kept a record of Mrs. Breeden’s work. The regulation promulgated pursuant to the authority of 42 U.S.C. § 405(a) (1970) provides:

The amounts of earnings credited to an individual and the periods to which such earnings are credited may be proved by the records of the Administration and by other evidence of probative value subject to the limitations prescribed in Subpart I of this part.

20 C.F.R. § 404.702 (1973) (emphasis added).

We recognize that the administrative law judge has the unique advantage of having heard the testimony firsthand, and ordinarily we may not disturb credibility findings that are based on a witness’s demeanor. But administrative findings based on oral testimony are not sacrosanct, and if it appears that credibility determinations are based on improper or irrational criteria they cannot be sustained. Page v. Celebrezze, 311 F.2d 757 (5th Cir. 1963); Victor Products Corp. v. NLRB, 93 U.S.App.D.C. 56, 208 F.2d 834 (1953); 4 K. Davis, Administrative Law Treatise § 29.06 (1958, Supp.1970). In this case the administrative law judge refused to accept any of the testimony of “friends and kinfolk,” not because it was unbelievable but because of the source. But neither the statute, the regulations, nor common sense disqualifies such persons from testifying. The administrative law judge rejected testimony out of hand because it did not establish exact dates and precise wages, but neither the statute nor the regulations require exactitude or precision. We think the fact finder unlawfully fashioned his own exclusionary rule: without some sort of records live testimony will be rejected.

We agree that a witness’s memory of details is relevant to 'his credibility, but it cannot be determinative in a situation where the witness was never in a position to know exactly when another person began work or the exact amount of another person’s paycheck. Nor can a witness’s testimony be rejected solely because it corroborates only one detail of the claimant’s testimony. It is also unreasonable to insist that wages be proved precisely. Mrs. Bree-den’s testimony, corroborated in each particular by one or more witnesses, fairly established that she worked for about six weeks in 1959 at a salary of $33 per week. Even if her salary is calculated on the lowest wage figure cited —$5 per day — -the result is a salary of $27.50 per week, enough to give her credit for one quarter of agricultural wages. For 1960, her corroborated testimony establishes four more quarters of credit. She presented corroboration for three to four weeks of peach picking at $33 per week, six weeks of apple picking at $50 to $75 per week, and about six weeks of apple grading at $33 per week. Using the smallest estimates, these figures add up to almost $600, well over the $400 needed to establish four covered quarters.

In assessing the credibility of five of these witnesses, the administrative law judge noted that the Social Security Administration had no record that they had worked for the Graves orchard. From this, he apparently inferred that the testimony was collusive — an inference contrary to the congressional scheme that clearly permits oral correction of blank records. That none of them appear on the employment records is, of course, relevant to their credibility, but it is also relevant to the accuracy of the Graves orchard’s Social Security reporting. Early in her testimony Mrs. Bree-den stated: “I think if you will check the record R. S. Graves, a lot of these names, you can get it, you can find out why I didn’t get credit up there, and I’ve heard a lot of them say that they didn’t get any credit either.” Administrative Transcript at 83. Moreover, in response to administrative inquiry about wages paid to Minnie Breeden in 1958, 1959, and 1963, R. S. Graves replied: “Have no Record of Minnie F. Breeden working. If worked any did not make enough to pay SS on.” Id. at 243. This representation is specifically refuted by the Social Security records, which show that R. S. Graves reported $67 of wages for Minnie Breeden in 1963. Finally, the wage record of each witness is consistent with the hypothesis that he or she worked for R. S. Graves and simply received no credit; each record contains no entry for the quarter in question. Whether or not this evidence proves a consistent pattern of nonreporting, it certainly precludes firm reliance on this employer’s wage records in determining the witnesses’ credibility.

Spring 1963:

Mrs. Breeden’s Social Security account includes wages paid by the Green Circle Truck Stop in Zions Cross Roads, Virginia, between April 1962 and August 1963 with the exception of a single quarter, April to June 1963. Mrs. Bree-den testified that she worked continuously at that job and that the gap in the Social Security record must have been a mistake. Mrs. Birtie Powell, who had operated the truck stop jointly with her husband, testified that Mrs. Breeden worked “straight through” from the time she began working until she quit, with the possible exception of two or three weeks. In an affidavit she stated that Mrs. Breeden had been paid $45 per week plus board; at the hearing she gave the salary figure as $35 per week. In rejecting Mrs. Powell’s testimony altogether, the trial examiner emphasized this discrepancy and stated that there was no evidence that Mrs. Powell was “involved in the day to day running of this business,” or that she maintained any records. But Mrs. Powell did testify that she and her husband operated the truck stop, and the administrative law judge’s conclusion to the contrary has no basis in fact. Nor does the salary difference discredit Mrs. Powell; Mrs. Breeden had testified earlier that her weekly wages were $35 when she first took the job and $45 at the end. We think Mrs. Powell’s testimony furnished strong corroboration for Mrs. Breeden’s testimony. It was the best evidence available at the time, since Mr. Powell had died and the business’s records could not be traced through several changes of ownership. Though Mrs. Powell was not the sole proprietress, her testimony is equivalent to evidence furnished by an employer to the effect that the Social Security records are in error. The administrative trial judge’s reliance on the presumption in this instance was unreasonable and cannot be deemed supported by substantial evidence.

We conclude that the administrative decision denying coverage was not supported by substantial evidence. Ordinarily we would remand to give the Secretary an opportunity to apply the correct legal standard. This case, however, has been pending in the agency and the courts for almost five years and has been remanded once before for additional evidence. The statute governing review in Social Security cases authorizes us to reverse the Secretary’s decision “with or without remanding the cause for a rehearing.” 42 U.S.C. § 405(g). We have previously exercised this discretion. E. g., Cyrus v. Celebrezze, 341 F.2d 192 (4th Cir. 1965); Thomas v. Celebrezze, 331 F.2d 541 (4th Cir. 1964); Underwood v. Ribicoff, 298 F.2d 850 (4th Cir. 1962). Under this statute, we think it appropriate to reverse without remanding where the record does not contain substantial evidence to support a decision denying coverage under the correct legal standard and when reopening the record for more evidence would serve no purpose. Wayne v. Finch, 313 F.Supp. 898, 902 (M.D.N.C. 1969); cf. Nelms v. Gardner, 386 F.2d 971 (6th Cir. 1967); Egan v. Gardner, 277 F.Supp. 929, 932 (N.D.Cal.1968). Because both circumstances are present in this case, we will not delay the case further by remanding to the Secretary on this issue. Instead we remand to the district judge, who should enter judgment for the claimant and direct the Secretary to pay her such benefits, if any, to which she may be entitled under the law and the regulations.

Reversed and remanded.

      . One, the Haynes Sportswear plant at Ruckersville, Virginia, had become insolvent soon after Mrs. Breeden left her job there. The employees were forced to attach a truckload of underwear to get their wages. When Mrs. Breeden filed her Social Security claim, none of the company’s records could be located.

      . Some records may be revised after tbe period expires, but the grounds for revision are limited. 42 U.S.C. § 405(c)(5) (1970) ; 20 C.F.R. §§ 404.805, 404.806 (1973).

      . This court’s affirmance in Thacker v. Gardner did not necessarily approve the district court’s apparent insistence on “positive evidence.” Our per curiam opinion merely noted that there was substantial evidence to support the administrative decision. The evidence supporting the claimant’s case was apparently far weaker than that in the present case.

      . Under the substantial evidence standard of review, we have few occasions to describe the burden of proof that a claimant bears in administrative proceedings. In Gyrus and Thomas we said that disability claimants are not required to prove their cases beyond a reasonable doubt.

      . As McCormick notes, the proposed federal rules of evidence do not provide for an increased measure of persuasion. McCormick, ■supra, § 345, at 829 n.85. Proposed rule 301 provides:
      In all cases not otherwise provided for by Act of Congress or by these rules a presumption imposes on the party against whom it is directed the burden of proving that the nonexistence of the presumed fact is more probable than its existence.
      This standard echoes McCormick’s definition of “proof by a preponderance.” Id. § 339, at 794. Although this rule does not directly control the impact of presumptions in administrative proceedings, we think it persuasive.

      . This court has previously held that our function in reviewing district court decisions on Social Security cases is not defined by Fed.R.Civ.P. 52. Instead the issue before us, as before the district judge, is the sub-stantiality of the evidence to support the administrative findings. Thomas v. Cele-brezze, 331 F.2d 541 (4th Cir. 1964).

      . For a discussion of this issue in the context of common law presumptions, see Maryland ex rel. Geils v. Baltimore Transit Co., 329 F.2d 738 (4th Cir.), cert. denied, 379 U.S. 842, 85 S.Ct. 80, 13 L.Ed.2d 47 (1964).

      . Subsequent cases reviewing decisions under this statute raise some doubt about the continuing validity of the unqualified language in Del Vecehio. In Cardillo v. Liberty Mutual Ins. Co., 330 U.S. 469, 474, 67 S.Ct. 801, 91 L.Ed. 1028 (1947), and O’Keeffe v. Smith, Hinchman & Grylls Associates, Inc., 380 U.S. 359, 361, 85 S.Ct. 1012, 13 L.Ed.2d 895 (1965), the Court ascribed some significance to the presumption on review of the administrative decision. The three cases may nonetheless be consistent if Gardillo and O’Keeffe represent use of the presumption as an expression of the Act’s purposes rather than as evidence of the disputed facts.

      . The evidence relating to these periods was as follows:

        Spring 1957: Mrs. Breeden testified that she had worked for a restaurant in Hy-attsville, Maryland, for six weeks in the spring of 1957. Although she described the exact location, she could not remember the name of the cafe or its owner. She offered a supporting affidavit from a Mr. Therwan-ger but the administrative law judge refused to accept it, declaring that it was inexact and that it did not state the source of the affiant’s knowledge. We think this ruling was error because the affidavit declared that Mr. Therwanger had gotten the job for Mrs. Breeden and it gave reasonably precise information about the salary and the length of time she worked. Nonetheless, accepting the affidavit and Mrs. Breeden’s testimony at face value, we cannot say that the evidence was strong enough to make reliance on the presumption arbitrary.

        Fall 1957: Mrs. Breeden testified that she picked apples in the Red Apple Orchard in Martinsburg, West Virginia, from September to December 1957. She produced two witnesses, her sister and brotlier-in-law, who testified that they had lived with her while she worked in the orchard at that time. On inquiry from the administrative law judge, the orchard responded that it had no record of Mrs. Breeden but that her ' husband had worked there in 1957. This employment appeared on Mr. Breeden’s Social Security record. Although Mrs. Bree-den testified that she and her husband were paid separately and that his wage records did not account for the money she made, neither of her witnesses could testify that the orchard had paid her separately. Consequently, we cannot say that the adverse ruling on this point was not supported by substantial evidence.

        Summer 1961: Mrs. Breeden’s Social Security record showed that she worked for Haynes Sportswear in Ruckersville, Virginia, in the quarter ending December 1961. She tried to prove that she had begun working there in July 1961 and should thus be credited with the quarter ending September 1961. Again, her testimony was quite positive, but none of her witnesses could specifically corroborate her testimony that she worked there before September 1961. Accordingly, we cannot say that the administrative law judge’s reliance on the statutory presumption was unreasonable.

      . Agricultural wages are not credited strictly by dates but by amounts. A worker is entitled to one quarter of credit for $100 of agricultural wages, up to the limit of four quarters credit in a calendar year. 42 U.S.C. § 413(a) (2) (iv) (1970) ; 20 C.F.R. § 404.103(c) (1973).

      . The only relevant limitation in Subpart I is an almost verbatim repetition of the statutory provision. 20 C.F.R. § 404.804 (1973).

      . If believed, Mrs. Breeden’s testimony about the amounts the orchard deducted from her wages would suggest other irregularities in its Social Security record-keeping. Mrs. Breeden testified that the employer deducted $10 for Social Security at the end of her work in 1959, though her wages amounted to less than $200. She testified that in 1960 the orchard deducted $10 from her wages in the peach season (about $100), $10 from her wages in the apple season (at least $480), and $12 from the bonus cheek ($339). In 1963 she testified that she earned about $600 working for R. S. Graves and that they deducted $12 from her wages, telling her that Social Security had gone up. That was the year that R. S. Graves reported paying Mrs. Breeden wages of $67.

      . Because the statute authorizes reversal, review of Social Security cases is unusual, if not unique, in the field of administrative law. The Federal Communications Act also authorizes reversal, 47 U.S.C. § 402(h), but the administrative decisions under review are substantially different from those made under the Social Security Act. Section 16(e) of the Administrative Procedure Act, which governs judicial review in the absence of a specific statute like section 405(g), does not authorize reversal. 5 U.S.C. § 706. The standard legislative text in special statutory review authorizes the court to affirm, modify, or set aside an administrative decision, but not to reverse outright. E. g., 15 U.S.C. § 45(c) (FTC) ; 15 U.S.C. §§ 77i, 78y (SEC) ; 15 U.S.C. § 717r (EPC); cf. 29 U.S.C. § 160(f) (NLRB; enforce, modify or set aside). Under some forms of statutory review courts cannot modify administrative orders. 21 U.S.C. §§ 348(g)(2), 371(f)(3) (FDA; affirm or set aside) ; 33 U.S.C. § 921 (Longshoremen’s and Harbor Worker’s Compensation Act; enforce, suspend, or set aside).


author: COFFIN, Chief Judge.

text:
    Jerry V. DeMOSS and J & B Corporation, Plaintiffs, Appellees, v. KELLY SERVICES, INC., Defendant, Appellant.
    Nos. 73-1182, 73-1253.
    United States Court of Appeals, First Circuit.
    Argued Feb. 8, 1974.
    Decided March 18, 1974.

      Noel Gonzalez-Miranda, Hato Rey, P. R., with whom Sweeting, Gonzalez & Rodriguez, Hato Rey, P. R., was on brief, for Jerry V. DeMoss and J & B Corp.
    Herman W. Colberg, San Juan, P. R., with whom Reichard & Colberg, San Juan, P. R., and Cedric A. Richner, Jr., Detroit, Mich., were on brief, for Kelly Services, Inc.
    Before COFFIN, Chief Judge, Mc-ENTEE and CAMPBELL, Circuit Judges.
   COFFIN, Chief Judge.

These are cross appeals challenging the action of the district court in giving each party only part of the interlocutory relief prayed for pending final resolution of a dispute between a mainland United States dealer (in services) and his Puerto Rican distributor. The question of more widespread importance in Puerto Rico is a legal one, whether, in light of the “hands off” posture which federal courts are compelled to maintain toward interpretation of Law 75 under Fornaris v. Ridge Tool Co., 400 U.S. 41, 91 S.Ct. 156, 27 L.Ed.2d 174 (1970), such courts must desist from all adjudication, although of a non-constitutional nature, until the Supreme Court of Puerto Rico has spoken to the precise issue. The second question, of principal interest to the parties, is whether the court abused its discretion in giving less than complete relief requested.

Since 1964 DeMoss has operated a temporary help business in San Juan, Puerto Rico, under a dealership contract with Kelly Services, Inc., a nationwide company. The letter of agreement between the parties provided in part that the manager “shall not operate any other business without Kelly’s prior written permission”. Sometime after the agreement was executed, DeMoss, without seeking Kelly’s approval, acquired ownership and began to operate an employment agency called Careers, Inc., which shared part of the Kelly facilities. As soon as Kelly learned of this activity it informed DeMoss that conducting Careers, Inc. was violative of their dealership contract. When DeMoss, after some backing and filling, refused to discontinue the employment agency, Kelly terminated the dealership agreement.

The first move made by Kelly was to seek return of property and injunctive relief in federal district court. DeMoss immediately followed suit in the Superi- or Court of Puerto Rico seeking damages and injunctive relief against Kelly for termination of a dealership contract in alleged violation of Law 75, which provides that no such contract may be unilaterally terminated by the principal except for “just cause”. The Superior Court granted ex parte temporary relief by enjoining the termination of the dealership contract under Article 3A of Law 75. Kelly then removed the case to the federal district court pursuant to 28 U. S.C. § 1441 and § 1332, moved to set aside the restraining order issued by the Puerto Rico Superior Court and, consistent with its earlier request for injunc-tive relief against DeMoss, moved separately under Article 3A for an order prohibiting DeMoss from continuing to operate his employment agency. The court, resting solely on the authority of Article 3A, refused to set aside the Superior Court order enjoining termination of the dealership contract, granted Kelly’s request that Careers, Inc. be terminated, concluding that “pending a final definition of ‘just cause’ by the Commonwealth Supreme Court . leaving things as they stand presently would best serve the interests of the parties and the public policy that law 75 was designed to effectuate.” Both parties appeal.

While the court, as its quoted words indicate, deemed itself restrained by Fornaris from deciding the merits, it did not feel similarly barred from granting provisional relief under Article 3A. DeMoss argues that, under Fornaris, even a provisional remedy cannot be afforded the principal against his agent. Kelly urges that Fornaris bars neither provisional nor ultimate relief. Strictly, only the availability and the appropriateness of the provisional relief granted is presented by these appeals. Nonetheless, in light of the clear intention of the court to abstain from deciding the merits until a decision by the Supreme Court of Puerto Rico applying “just cause” to the facts at hand, it is necessary that we resolve the question of what Fornaris requires of the federal court, rather than leave the parties and the court in limbo.

The salient portion of Fornaris is:

“Whether the Supreme Court of Puerto Rico, would give the same broad sweep to ‘just cause’ as did the Court of Appeals is something we do not know. It is conceivable that ‘just cause’ might be judicially confined to a more narrow ambit which would avoid all constitutional questions. We therefore reverse and direct the Court of Appeals to remand the cases to the District Court with instructions to hold its hand until the Puerto Rican Supreme Court has authoritatively ruled on the local law question in light of the federal claims. See England v. Medical Examiners, 375 U.S. 411, 420, 84 S.Ct. 461, 11 L.Ed.2d 440400 U.S. at 44, 91 S.Ct. at 158. [Footnote omitted.]

In the case now before us, no constitutional issue is presented by the merits or by the requests for temporary relief. The merits present only a question of statutory construction, the sole issue being whether DeMoss’ violation of the letter of agreement constituted “just cause” within the meaning of Law 75. There are no “federal claims” at issue here. While thus far the Puerto Rican Supreme Court has only described lack of “just cause” under Law 75 as termination of a distributor contract “for causes not imputable to the distributor”, Warner Lambert Co. (American Chicle Co. Division) v. Superior Court of Puerto Rico, San Juan Part, - P.R.R. - (May 9, 1973), the Supreme Court did not intend that the concept be fully fleshed out by Commonwealth decisions before it could be applied in a diversity case. Fornaris ruled that a federal court must decline to construe a Puerto Rican statute so as to render it unconstitutional and hold its hand until the Supreme Court of Puerto Rico has provided an authoritative interpretation of the particular point in issue. There is no argument as yet presented that any construction of “just cause” as applied to the facts in this ease will render the statute unconstitutional. Since generic concepts are seldom so illumined by specific cases that decision becomes automatic, a reading of Fornaris that would bar dealing with the application of, rather than a constitutional assault upon, Law 75 would be no less than the removal of diversity jurisdiction in dealership contract cases from federal courts.

Indeed, the logic of such a reading would reach far beyond Law 75. It would dictate that diversity jurisdiction would for all practical purposes be eliminated whenever the Puerto Rican legislature enacted a statute newly defining rights and obligations. While we might welcome such a relief for the federal docket, we cannot read into Fornaris such far-ranging implications. So long as a case does not present constitutional issues which conceivably might be avoided by a construction of the Supreme Court of Puerto Rico, the federal court is obliged to proceed to the merits of a Law 75 case.

It follows, a fortiorari, that the court was not foreclosed from utiliing the provisional remedy of Article 3A, enacted, we note, subsequent to the decision in Fornaris. In addition, the court below properly applied the statute. To read this statute, as does DeMoss, as precluding relief to a principal is to selectively blot out some of its specific language. The court was within its discretion in finding that public policy and the interests of the parties would be best served by strict temporary enforcement of the letter of the agreement. The availability of temporary relief under Article 3A is not tied to a showing of irreparable injury or to probability of success in the case on the merits, but rather to the policies of the Act in promoting the continuation of dealership agreements and the strict adherence to the provisions of such agreements. The district court properly treated Article 3A as substantive law under Erie R. R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The temporary relief statute is inextricably tied to the policies of the Act as a whole, affecting the duration of the mutual obligations of the parties when they enter into a dealership agreement.

Both parties have urged that the district court abused its discretion either under Article 3A, or under traditional equitable principles, or both in underestimating their probability of success on the merits and their irreparable loss in the meantime. Suffice it to say that DeMoss, if ultimately successful, would be compensated for the lost opportunity enforced on him by discontinuing his nascent business, while the cause of irreparable injury to Kelly will have been eliminated by the termination of Careers, Inc. We find no abuse of discretion as to either party.

The orders of the district court are affirmed.

      . While J & B Corporation is also a party, we shall refer only to DeMoss.

      . 10 L.P.R.Ann. § 278 et seq., June 24, 1964.

      . Article 3A of Law 75 provides: “[T]he Court may grant during the time the litigation is pending solution any provisional remedy or measure of any interdictory nature to do or to desist from doing, ordering any of the parties or both to continue in all its terms the relation established by the dealer’s contract, and/or to abstain from performing any act or any omission in prejudice thereof. In any case in which the provisional remedy herein provided is requested, the Court shall consider the interests of all parties concerned and the purposes of the public policy contained in this chapter.”

      . This termination was stayed on bond pending this appeal.


author: BUTZNER, Circuit Judge: WIDENER, Circuit Judge,

text:
    Olivia S. HUNTLEY, Appellant, v. The NORTH CAROLINA STATE BOARD OF EDUCATION et al., Appellees.
    No. 73-1665.
    United States Court of Appeals, Fourth Circuit. .
    Argued Nov. 5, 1973.
    Decided March 21, 1974.

      J. Kenneth Lee, Greensboro, N. C. (Lee, High, Taylor, Dansby & Stanbaek, Greensboro, N. C., on brief), for appellant.
    Charles Allen Lloyd, Asst. Atty. Gen. (Robert Morgan, Atty. Gen., of North Carolina; Andrew A. Vanore, Jr., Deputy Atty. Gen., and I. Murchison Biggs, Lumberton, N. C., on brief), for appel-lees.
    Before BUTZNER, FIELD, and WIDENER, Circuit Judges.
   BUTZNER, Circuit Judge:

Olivia S. Huntley, complaining about the revocation of her teacher’s certificate, appeals from an order of the district court which denied her injunctive relief and damages. We reverse and remand for further proceedings because we believe Mrs. Huntley was not afforded due process of law.

I

In May 1967, the North Carolina State Board of Education issued Mrs. Huntley a Permanent Grammar Grade Teacher Certificate. The Lumberton .City Board of Education subsequently employed her for the 1967-68 school year, and she began teaching in September. On October 9 the State Superintendent of Public Instruction furnished Mrs. Huntley a report that established to the satisfaction of a member of the Attorney General’s staff that Mrs. Huntley was not entitled to the teacher’s certificate because she had obtained it by fraud. On the basis of this information, the superintendent declared Mrs. Huntley’s certificate invalid. Mrs. Huntley was never formally discharged, but on November 20 her pay was stopped. There can be no question that this action was tantamount to discharge; an assistant attorney general later conceded as much.

Mrs. Huntley consulted counsel, who, on November 27, wrote the Attorney General’s office requesting information and stating that she was ready and willing to teach. A member of the Attorney General’s staff responded on November 30 outlining the charges and evidence against Mrs. Huntley, but declined to furnish a copy of the State Bureau of Investigation report of the incident without a court order. Simultaneously, Mrs. Huntley and her attorney were given notice that on December 7 the State Board of Education would afford her a hearing. The notice recited that an investigation had “disclosed information from which the Superintendent of Public Instruction in his capacity as Secretary to the North Carolina State Board of Education is satisfied that Olivia S. Huntley was not the same individual who took the March 18th, 1967 National Teacher’s Examination and having so satisfied himself on October 9th, 1967 notified Olivia S. Huntley by United States Mail that the Grammar Grade Certificate issued to her on May 3rd, 1967 as a result of the score reported on the March 18th, 1967 administration of the National Teacher’s Examination, was declared invalid.” The notice provided that Mrs. Huntley could appear with counsel “to show cause, if any she has, why the North Carolina State Board of Education should reinstate the Grammar Grade Certificate issued in her name on May 3, 1967 and subsequently declared invalid on October 9, 1967.”

Mrs. Huntley’s attorney responded by letter on December 4, pointing out that the ex parte invalidation of the certificate on October 9 had deprived Mrs. Huntley of due process of law. He argued that placing the burden of proof on her to show why the certificate should be reinstated would compound this constitutional wrong. Unnecessarily, we believe, he asserted that “If we participated in such a hearing, it would be tantamount to a concession on our part that the revocation was valid and lawful in the first instance, a point which we are not willing to concede.” Accordingly, he added that Mrs. Huntley would not participate in the hearing.

The Attorney General’s office replied on December 5 furnishing additional information concerning charges against Mrs. Huntley and stating that the December 7 hearing would proceed as scheduled. The staff attorney, writing on behalf of the Attorney General, did not suggest that Mrs. Huntley’s lawyer had misinterpreted the notice or that Mrs. Huntley would not be required to assume the burden of proof. The Board of Education then conducted the hearing on December 7 in the absence of Mrs. Huntley and her attorney. After evidence had been introduced pertaining to the charge against Mrs. Huntley, the board revoked her certificate.

II

Mrs. Huntley’s principal complaint is that the procedures utilized to invalidate her certificate denied her due process of law. Quite properly, the district court recognized that the ex parte invalidation of her certificate by the Superintendent of Public Instruction on October 9 did not afford due process to Mrs. Huntley. Though Mrs. Huntley was a non-tenured teacher, she had a property interest in her contractual teaching position for the 1967-68 term. Additionally, the charge of fraudulently procuring the certificate placed her reputation at stake. For both of these reasons, she was entitled to notice and an opportunity to be heard. See Board of Regents v. Roth, 408 U.S. 564, 573, 577, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972) (dictum).

We conclude, therefore, in agreement with the district judge, that the October 9 invalidation of the certificate was constitutionally deficient.

Ill

The school officials assert, and the district court agreed, that the December 7 hearing satisfied the requirements of due process. We may assume for the purposes of this decision that the gravity of the charges against Mrs. Huntley would have justified immediate suspension pending a hearing. Opp Cotton Mills, Inc. v. Administrator, 312 U.S. 126, 152, 61 S.Ct. 524, 85 L.Ed. 624 (1941); Reed v. Franke, 297 F.2d 17, 27 (4th Cir. 1961). We turn, therefore, to an examination of the December 7 proceedings.

Due process requires that the notice of a hearing must be appropriate to the occasion and reasonably calculated to inform the person to whom it is directed of the nature of the proceedings. Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 313, 70 S.Ct. 652, 94 L.Ed. 865 (1950). The notice in this case was cast in the form of a show cause order. As Judge Parker explained in Shirer v. Anderson, 88 F.Supp. 858, 861 (E.D.S.C.1950) (three-judge court) a “show cause order does not prejudge the case but merely notifies the teacher of charges he is required to meet.” Thus, if the show cause notice in this case had outlined the charges against Mrs. Huntley and notified her to show cause why her certificate should not be revoked, as did the show cause order in Shirer, the ease would present no problem. In contrast, the notice was reasonably calculated to indicate to Mrs. Huntley and her attorney that her fraud had already been lawfully established, that the October 9 ex parte invalidation was proper, and that all she was now being offered was an opportunity to prove that the earlier administrative action was unjustified. It was this interpretation of the notice which her lawyer used as the basis of his written objection of December 4: The failure of the reply from the Attorney General’s office to contradict this interpretation served to reinforce it.

Over the years a rule has wisely evolved that one who charges fraud must prove it by clear and satisfactory evidence. On the other hand, one challenging an administrative adjudication usually has the burden of showing that it was arbitrary or without substantial evidentiary support. The proceedings of a board of education need not be conducted with the scrupulous regard for procedural niceties that the law imposes on courts. Nevertheless, the differences between the notice approved in Shirer and the notice in this case are more fundamental than semantic. The notice in this case heralded a proceeding that was mistakenly premised on an unconstitutional invalidation of Mrs. Huntley’s certificate. Building on this untenable foundation, it indicated that Mrs. Huntley would have the burden of proving the October 9 invalidation was unwarranted.

Mrs. Huntley and her lawyer compounded Mrs. Huntley’s difficulties by their decision not to appear at the board meeting. Under different circumstances, their absence, which we do not condone, could be construed as a waiver of procedural irregularities. Cf Harris v. Smith, 418 F.2d 899, 901 (2d Cir. 1969). However, the letter of December 4 written by Mrs. Huntley’s lawyer amounted to a special appearance fully setting forth the reasons why she claimed she was denied due process by the ex parte invalidation of October 9 and why she protested the indicated shift in the burden of proof. The letter was exhibited to the board and made a part of the official record of the meeting.

Notwithstanding the objections expressed by Mrs. Huntley’s attorney, the meeting proceeded on the basis that her certificate had been lawfully invalidated on October 9. In an opening statement, the staff attorney general announced:

“The purpose of this hearing is to present evidence before the State Board of Education so that it may determine whether a grammar grade or Class A certificate issued to Mrs. Olivia S. Huntley by the North Carolina Department of Instruction, Public Instruction, excuse me, on May 3, 1967, and revoked by letter of October 9, 1967, from Dr. Charles F. Carroll, Secretary of the State Board of Education, should be reinstated.”

At the conclusion of the hearing after the presentation of evidence, the staff attorney general said:

“ [R] evocation of Mrs. Huntley’s certificate on October 9, 1967, was in fact justified, and . . . this Board should reaffirm that particular revocation.”

When a member of the board questioned whether state law authorized the Superintendent to revoke the certificate, the staff attorney replied that the Attorney General’s office would not admit lack of authority. He then added:

“We would urge that in order to— shall we say conclusively revoke Mrs. Huntley’s certificate, that the Board take that action at this time.” (Italics added).

The board then passed a resolution that the certificate issued to Mrs. Huntley on May 3, 1967 was “revoked now, effective as of the date of issuance . . . .” It did not vote on Mrs. Huntley’s reinstatement, as its notice indicated it would.

The defect in the board’s notice and the procedure it followed is illustrated by Armstrong v. Manzo, 380 U.S. 545, 85 S.Ct. 1187, 14 L.Ed.2d 62 (1965), in which the Court held that because of a shift in the burden of proof, the absence of proper notice for an adoption proceeding was not cured by a subsequent hearing to set the adoption aside. Reversing an order that “confirmed” the original decree, the Court pointedly observed :

“The trial court could have fully accorded this right [the opportunity to be heard] to the petitioner only by granting his motion to set aside the decree and consider the case anew. Only that would have wiped the slate clean. Only that would have restored the petitioner to the position he would have occupied had due process of law been accorded to him in the first place.” 380 U.S. at 552, 85 S.Ct. at 1191 (brackets added).

The impact of Armstrong cannot be avoided by the argument that the state assumed the burden of proof because it presented evidence of Mrs. Huntley’s alleged fraud. Part of the evidence placed before the Board was the invalid revocation of October 9, which the Board never ruled was unlawful. In short, the Board didn’t wipe the slate clean. Furthermore, even if the Board properly allocated the burden of proof, it gave no notice of its change in the rules under which it would proceed. At some point after the beginning of the hearing, it abandoned its reinstatement proceedings for which it had given notice. It ended by conducting a revocation hearing — the very thing Mrs. Huntley’s attorney had been insisting she was entitled to — but it changed its procedure in midstream without giving her notice of its intentions. We conclude, therefore, that the defective notice, the change in the purpose of the meeting without further notice, and the failure of the Board to recognize the invalidity of the October 9 revocation, denied Mrs. Huntley due process of law.

The board asserts that Mrs. Huntley is not entitled to equitable relief because she has unclean hands. The difficulty with this argument is that no forum has lawfully heard the charge against her. The district court properly confined its inquiry to procedural issues and did not undertake to determine whether she had practiced the fraud with which she is charged. The school officials have not yet established the truth of the charges by proceedings that afforded Mrs. Huntley due process.

Accordingly the decision of the district court is reversed, and this case is remanded for the entry of an order adjudicating that the invalidation of Mrs. Huntley’s certificate by the superintendent on October 9 and the revocation of her certificate by the board on December 7, 1967 are of no effect. The order should provide that it is without prejudice to the right of the board to determine whether Mrs. Huntley’s certificate should be revoked in proceedings at which she is afforded an opportunity to be heard on the charges against her. If the charges are sustained, Mrs. Huntley would not be entitled to damages, because her fraud invalidated the issuance of her certificate. If she prevails, the district court should reopen the case to consider damages.

Reversed and Remanded.

WIDENER, Circuit Judge,

concurs in the result.

      . The case was originally heard by the Honorable Edwin M. Stanley, who was formerly Chief Judge of the Middle District of North Carolina, but his untimely death occurred before a decision was rendered. With the concurrence of all parties, Chief Judge Gordon decided the case on the record and the transcript of the oral argument made in the trial over which Judge Stanley presided.

      . We note that the North Carolina State Board of Education apparently is not a “person” within the meaning of 42 U.S.C. § 1983, upon which, in conjunction with 28 U. S.C. § 1343(3), the district court’s jurisdiction is founded. On remand, the court may consider dismissing the action against that particular defendant. Mrs. Huntley also named two individuals, but she should be permitted to amend her complaint to name others if she be so advised. City of Kenosha v. Bruno, 412 U.S. 507, 93 S.Ct. 2222, 37 L.Ed.2d 109 (1973) ; Burris v. State Department of Public Welfare of South Carolina, 491 F.2d 762 (4th Cir., 1974).

      . During the course of the hearing before Judge Stanley, an Assistant Attorney General told the court, “the State defendant— whom I represent in this action' — will admit that this school really had no choice once Mrs. Huntley’s certificate was revoked. They could not continue to employ her.”

      . Mrs. Huntley also challenged the validity of the regulation which was cited as authority for the revocation of her certificate, claiming it had not been filed with the Secretary of State as required by N.C.G.S. § 143-195, and she complained that the notification of the hearing was so late that she and her attorney lacked adequate preparation time. We need not address these allegations in view of our disposition of the case. We deem it particularly appropriate for the state law issue to be initially considered by state officials in the administrative hearing to which Mrs. Huntley is entitled.


author: Eugene A. WRIGHT, Circuit Judge: KILKENNY, Circuit Judge

text:
    Richard M. STOCKTON and Phyllis I. Stockton, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant, Conrad H. Goerl, Intervenor-Appellee.
    No. 73-2190.
    United States Court of Appeals, Ninth Circuit.
    March 14, 1974.
    See also, D.C., 335 F.Supp. 984.

      James Joseph Lewis, of Pistone, Schatz, Slavett, Lewis & Smith, Encino, Cal., for plaintiffs-appellants.
    Richard S. Berger, Frank C. Christl, of Gendel, Raskoff, Shapiro & Quittner, Los Angeles, Cal., for intervenor-appel-lee.
   OPINION

Before WRIGHT, KILKENNY and WALLACE, Circuit Judges.

Eugene A. WRIGHT, Circuit Judge:

May an attorney in a tax refund suit intervene undér Fed.R.Civ.P. 24(a)(2) to assert a claim for attorney’s fees? The district court granted leave to intervene, and we reverse. Intervention was improper under the facts of this case and the judgment awarding a fee to the intervenor must be vacated.

Mr. and Mrs. Stockton retained attorney Goerl in 1969 to represent them in an action for a tax refund. A successful suit resulted in a judgment in September 1971 for $105,445.66. Thereafter, Debtor Reorganizers, Inc., as assignee of creditors of the Stocktons, sought to intervene, but leave was denied on October 18 and Debtor Reorganizers appealed. It then moved for a stay of execution of judgment until its appeal was determined.

At a hearing on November 29, the district court expressed concern that a stay might delay Goerl in receipt of his fee, and Mr. Stockton advised the court that a fee of one-third of the judgment was owing to Goerl. The court orally directed the government to pay Goerl that amount and the remainder of the judgment to be paid to the clerk pending the appeal by Debtor Reorganizers. The order was never reduced to writing, and Goerl’s fee was not paid to him.

We dismissed the appeal, and the district court was so notified on June 1, 1972. The Stocktons and Goerl then disagreed over the amount of the fee. In contemplation that the entire judgment would shortly be paid to the Stocktons, Goerl moved the court unsuccessfully to reduce to writing and enforce its earlier order of November 1971.

Goerl and the Stocktons then entered into an agreement concerning the disposition of the judgment pending a resolution of the fee dispute. It provided that two-thirds of the judgment be paid to the Stocktons and one-third be held in trust by Stocktons’ new counsel pending a final determination of the amount of Goerl’s fee. This stipulation was adopted by the court in the form of an order on October 19, 1972.

On November 2, Goerl again moved to have the district court’s oral order of November 29, 1971, reduced to writing and enforced. In the alternative, and for the first time, Goerl moved for leave to intervene as a matter of right under Fed.R.Civ.P. 24(a)(2). The Stocktons resisted the motion to intervene. The district court denied Goerl’s motion to enforce the earlier order but did grant him leave to file a complaint in intervention. After a jury trial, Goerl was awarded $34,148.55 and Stocktons’ appeal followed.

Fed.R.Civ.P. 24(a) provides for intervention of right:

Upon timely application anyone shall be permitted to intervene in an action . . . (2) when the applicant claims an interest relating to the property or transaction which is the subject of the action and he is so situated that the disposition of the action may as a practical matter impair or impede his ability to protect that interest, unless the applicant’s interest is adequately represented by existing parties.

To intervene under this rule, Goerl must meet its four requirements: (1) his motion for intervention must have been timely; (2) he must have an interest in the subject matter of the action; (3) his interest must be impaired by a disposition of the action without his intervention; and (4) existing parties must not adequately represent his interest. See Nuesse v. Camp, 128 U.S.App. D.C. 172, 385 F.2d 694 (1967); Edmondson v. Nebraska ex rel. Meyer, 383 F.2d 123 (8th Cir. 1967); Moore’s Federal Practice, ¶ 24.09-1.

Goerl’s putative interest in the principal litigation is that if the judgment fund is dissipated, he may not be able to recover his fee. Clearly, none of the existing litigants adequately represents his interest. But the Stocktons challenge Goerl’s intervention on the basis that he has not met any of the other three requirements for intervention under Rule 24(a) (2). We need examine only one of those requirements, No. (3), supra, to conclude that Goerl should not have been permitted to intervene as a matter of right.

To intervene as a matter of right, Goerl must be “so situated that the disposition of the action may as a practical matter impair or impede his ability to protect [his] interest.” As a result of the 1966 amendment to Rule 24, Goerl no longer must show that his interest would be prejudiced by the res judicata effect of the judgment in the principal suit. It is enough that his interest is practically impaired. Compare Atlantis Development Corp. v. United States, 379 F.2d 818 (5th Cir. 1967), with Sam Fox Publishing Co. v. United States, 366 U.S. 683, 81 S.Ct. 1309, 6 L.Ed.2d 604 (1961). But even after the 1966 amendment, if the intervenor’s interest would not even be practically impaired by the judgment in the principal case, there is no right of intervention under Rule 24(a)(2). See Edmondson v. Nebraska ex rel. Meyer, 383 F.2d 123 (8th Cir. 1967).

When Goerl moved for leave to intervene, his interest in the judgment fund of the principal litigation [that it not be dissipated prior to his collecting his fee] was adequately protected by the agreement of October 19, 1972. Since the court ordered payment of one-third of the judgment to be held by the Stock-tons’ new attorney pending a resolution of the fee dispute, a final judgment in the principal case would not impair Goerl’s ability to protect his interest.

Goerl points to two provisions of the agreement of October 19 to refute this conclusion.

Paragraph 5 provides:

It is understood and agreed that GOERL and/or STOCKTONS may pursue their legal rights in respect to the one-third fund in Federal or State Courts. This stipulation in no way shall prejudice the continued rights, if any, of the parties to assert their rights in this action.

This says merely that the parties agree with each other not to forgo any avenues available to them in an effort to assert their rights. But, since the agreement completely protects Goerl’s interest, he no longer meets the requirements of Rule 24(a)(2), and intervention as of right is simply not an avenue open to him.

Paragraph 8 states:

It is understood by the parties that the Court has presently taken off calendar the motion filed by GOERL in this action and the Court has agreed to reset the motion upon request of counsel for GOERL. Counsel for GOERL shall request a setting for hearing on said motion, or any other proceeding in respect to GOERL’s claim to the tax refund in this action, not later than sixty (60) days from the date of execution of this Stipulation and Order. It is agreed by the parties that the Court may render a decision upon the motion by GOERL in this matter in respect to his claims to one-third (l/j) of the tax refund.

In answer to Goerl’s contention, it is sufficient to note that the motion referred to in paragraph 8 is not a motion for leave to intervene, but rather a motion to effectuate the oral order of November 19, 1971.

Having determined that as a result of the stipulation Goerl’s interest would not, as a practical matter, have been adversely affected by enforcement of the judgment in the principal case, we need not decide whether his motion for leave to intervene was timely. Nor need we decide whether as a general proposition an attorney’s interest in a fee is a sufficient interest to call for intervention of right under Rule 24(a)(2). See generally Gaines v. Dixie Carriers, Inc., 434 F.2d 52 (5th Cir. 1970); United States v. Jacobs, 298 F.2d 469 (4th Cir. 1961); Andrews v. Central Surety Insurance Co., 295 F.Supp. 1223 (D.S.Car.1969).

The judgment of the district court is reversed, and the ease is remanded for further proceedings consistent with this opinion.

KILKENNY, Circuit Judge

(dissenting) :

I am unable to recognize a meaningful distinction between the facts in this case and those before the court in Gaines v. Dixie Carriers, Inc., 434 F.2d 52 (CA5 1970), and would affirm on thé basis of that authority.


author: MOORE, Circuit Judge.

text:
    ENTERPRISE PUBLISHING COMPANY, Petitioner, v. NATIONAL LABOR RELATIONS BOARD, Respondent, and Newspaper Guild of Brockton, AFL-CIO, Intervenor.
    No. 73-1154.
    United States Court of Appeals, First Circuit.
    Argued Oct. 4, 1973.
    Decided March 18, 1974.

      Alvin M. Glazerman, Boston, Mass., with whom Snyder, Tepper & Berlin, Boston, Mass., was on brief, for petitioner.
    Michael S. Winer, Attorney, Washington, D. C. with whom. Peter G. Nash, Gen. Counsel, John S. Irving, Deputy Gen. Counsel, Patrick Hardin, Associate Gen. Counsel, Elliott Moore, Deputy Associate Gen. Counsel, and Jay E. Shank-lin, Atty., Washington, D. C., were on brief, for respondent;
    John McMahon, Boston, Mass., with whom E. David Wanger and Angoff, Goldman, Manning, Pyle & Wanger, Boston, Mass., were on brief, for The Brockton Newspaper Guild, AFL-CIO, intervenor.
    Before COFFIN, Chief Judge, MOORE  and CAMPBELL, Circuit Judges.

       Of the Second Circuit, sitting by designation.

   MOORE, Circuit Judge.

This is an appeal from a decision of the National Labor Relations Board (NLRB) not to decide alleged violations of §§ 8(b)(2) and (1)(A) of the National Labor Relations Act, 29 U.S.C. § 151 et seq. (1970). Jurisdiction is found here under § 10(f) of the Act. Petitioner, Enterprise Publishing Company, a newspaper publisher in Brockton, Massachusetts, has had a collective bargaining agreement with its Union, The Brockton Newspaper Guild, AFL-CIO, the inter-venor, for thirty-five years. This agreement provided that certain disputes would be sent to binding arbitration after a stated period of disagreement. The disputes included covered “any matter (1) involving the interpretation of any provision of this agreement or (2) involving the violation of any provision of this agreement . . . . ” The agreement required that:

an employee who is or becomes a member of the Guild on the date to the signing of this contract or thereafter during its term shall maintain such membership in good standing . during the term of this contract as a condition of continued employment.

In addition, the agreement provided that, prior to the expiration of the contract, negotiations for a new agreement could be initiated, the terms of the old agreement remaining in effect during the negotiations.

The old contract expired on April 23, 1970. Although negotiations for a new contract had started on March 11th, the new contract was not signed until October 23d. This new contract, in all respects significant here, was identical to the previous one.

In March, 1970, two employees, Marie Alden and Edna Cooley, told the Union that they wished to resign their membership. This request was denied. A further request to resign was denied on April 23d. Faced with these denials, the two stopped their payment of Union dues. In July a third employee, Gloria LeVasseur, also sought to resign. She, too, stopped paying her dues. The next month, however, she did apply for strike benefits and participated in a Union meeting.

■The Union took no action until 1971. Then by a letter to the employees, dated January 18th of that year, and to the Company, dated February 23d, it was announced that the three employees in question were not members in good standing and that, unless their situation was remedied, the Union would seek their discharge pursuant to the membership clause in the new contract. The employees did not pay the back dues; the Union requested their discharge; the Company refused, stating the Company’s belief that the Union’s request was a violation of the NLRA. The Company then filed charges against the Union with the Board.

The Board, after a hearing, concluded that the issue before it, namely, whether the Union could properly require the firing of the three employees, boiled down “to a combination of factual determinations and questions of contract law and contractual interpretation, all matters fully cognizable by an arbitrator.” The Board then, following principles set forth in Collyer Insulated Wire, 192 NLRB No. 150 (1971), dismissed the complaint pending submission of the dispute to the grievance procedure provided for in the contract. The Board did, however, retain jurisdiction for further consideration of the complaint if the grievance procedure, including binding arbitration, did not solve the dispute with reasonable speed or if the procedures were not fair and regular. It is this refusal on the part of the Board to decide the matter that is appealed here.

The Collyer case, supra, announced a policy on behalf of the Board to defer to arbitration in the resolution of some disputes cognizable by the Board. Whether a particular dispute would fall within the Collyer policy would be determined by the consideration of a number of factors, including a determination whether the dispute was one “well suited to resolution by arbitration”, viz., “[t]he contract and its meaning in present circumstances lie at the center of [the] dispute.” Further the dispute must arise “within the confines of a long and productive collective bargaining relationship.” There must be “no claim . of enmity.” Also, respondent must assert “its willingness to resort to arbitration,” 192 NLRB at 842. In addition the Board will give consideration to whether the rights of each party to the dispute will be injured by its deference to an arbitration procedure. This Collyer doctrine has already been affirmed in Nabisco v. NLRB, 479 F.2d 770 (2d Cir. 1973). Petitioner here does not contest that the Board may, after-'consideration of the above factors, in its discretion defer to arbitration. (Petitioner’s brief, at 8). However, it is contended that this discretion was misused in this instance.

It is first contended that any arbitration here could not be fair and regular since the employees involved in this dispute are opposed by their own bargaining agent. Although this is somewhat unusual, the Company’s interest in the matter is similar to the employees’ so that they are not, in fact, without representation. While it is argued that the Company’s position may change, leaving the employees without a proper voice, the Board has maintained jurisdiction over the case and, thus, is in a position to insure that there be fair proceedings. Given these facts, we cannot say that the Board’s decision to defer was improper.

Petitioner’s second line of attack is that some issues, allegedly present in this case, involve interpretations of the NLRA and, thus, the case is beyond the authority of an arbitrator to adjudicate. Petitioner sets out three issues, each of which arguably presents a question of statutory interpretation.

The first statutory issue alleged is based upon §§ 8(b)(2) and 8(a)(3) of the Act which state that a Union can lawfully demand an employee’s discharge pursuant to a Union security clause only where the employee fails to pay “periodic dues and * * * initiation fees uniformly required.” In the present case the Union requested the discharge based on the failure of the employees to pay certain “periodic assessments.” Thus, argues the Company, one must inquire whether the Union, in so doing, has violated the Act. This contention, however, ignores the preliminary factual question of whether these “periodic assessments” should be characterized as dues, these being regular payments for the maintenance of the organization, -or assessments, these being a charge in the nature of a tax for a special purpose. NLRB v. Food Fair Stores, Inc., 307 F.2d 3, 11 (3d Cir. 1962).

The second suggested issue involves the question of whether the clause that provided that the terms of the old agreement would remain in effect during negotiations (extender clause) applies to the maintenance of membership clause. The Company contends that if the maintenance of membership clause is affected by the extender clause and since the negotiations could stretch on and on, the Board would have to decide whether an employee may lawfully be required, as a condition of employment, to maintain union membership pursuant to a clause that has no fixed time limitation. However, it is obvious that before the. Board would be faced with this decision, a determination would have to be made as to the proper scope of the extender clause and this determination would be clearly contractual in nature.

The third issue raised by the Company presupposes that the extender clause does not apply to the maintenance of membership clause. Given this, it must be next decided whether the employees (especially LeVasseur) effectively resigned according to the relevant Union rules. Thus, each of these issues, before it rises to a statutory level, presents questions of fact and contractual interpretation. Since the Board will not defer to an arbitrator’s decision which is repugnant to the Act, no prejudice will result from allowing an arbitrator to clear up the factual and contractual underbrush and, perhaps, remove any need to consider the statute.

It is finally put forth that arbitration is the wrong solution to this matter since the Board has already heard the ease on the merits. Certainly, after having held hearings, the Board does seem in a position to come to a speedy conclusion. Petitioner contends, at page 19 of his brief, that “it would do no violence to the Collyer doctrine to require the Board to decide this case on the merits.” In this contention petitioner is wrong. Collyer stemmed from a general policy favoring arbitration which underlies the Act. NLRB v. Acme Industrial Co., 385 U.S. 432, 439, 87 S.Ct. 565, 17 L.Ed.2d 495 (1967). The Board has, in its discretion, determined that it is reasonable and proper to defer in this instance, and, it being clear that this discretion has not been misused, it would do violence to Collyer to require a decision from the Board at this time.

The petition for review is denied.

      . A similar result has recently been reached in Associated Press v. National Labor Relations Board and Yancey v. National Labor Relations Board, 492 F.2d 662 (D.C.Cir. 1974).