author: STEVENS, Circuit Judge.

text:
    Elizabeth J. RUSSELL, individually and as representative of all Capital Investment Service customers, Plaintiff-Appellant, v. CONTINENTAL ILLINOIS NATIONAL BANK AND TRUST COMPANY OF CHICAGO, a National Banking Association, Defendant-Appellee.
    No. 72-1185.
    United States Court of Appeals, Seventh Circuit.
    Argued Feb. 23, 1973.
    Decided June 7, 1973.
    Maurice James Moriarty, Chicago, 111., for plaintiff-appellant.
    Miles G. Seeley, Bryson P. Burnham, Chicago, 111., for defendant-appellee.
    Before SWYGERT, Chief Judge, and PELL and STEVENS, Circuit Judges.

      . In Investment Co. Institute v. Camp, 401 U.S. 617, 91 S.Ct. 1091, 28 L.Ed.2d 367, the Supreme Court held that the sale of interests in the type of fund established by First National City Bank was a sale of “securities” condemned by §§16 and 21. We do not decide whether plaintiff’s investment of $20,000 with the defendant Bank was a comparable purchase of a “security,” or whether, as the Bank argues, our decision in Milnarik v. M-S Commodities, Inc., 457 F.2d 274 (7th Cir. 1972), is relevant to this issue.

   STEVENS, Circuit Judge.

Plaintiff’s complaint alleges that, in response to the Bank’s solicitations, she and other members of the public each invested at least $20,000 in an “open-end mutual fund” established by the Bank; that the aggregate amount of approximately $7,500,000 invested by similarly situated participants “placed the defendant in the business of operating a mutual investment fund contrary to and in violation of §§ 16 and 21 of the Glass-Stea-gall Act;” and that a large purchase of the common stock of Penn Central Company, which was both an obligor and depositor of the Bank, resulted in a substantial loss to the fund. Suing on behalf of all participants in the fund, she prays for a judgment of $7,500,000 plus interest and costs. The question presented by her appeal is whether the district court properly dismissed the complaint on the ground that she does not have standing to maintain an action for damages for violation of §§ 16 and 21 of that Act. We affirm.

We first put to one side certain questions which we do not decide. There are references in the record to the fact that plaintiff is a depositor in the Bank as well as a participant in the fund. Quite clearly the attempt by a fund participant to surcharge the Bank in the amount of any decrease in the net assets of the fund presents an issue with respect to which the interests of Bank depositors are in square conflict with those of fund participants. Whether that conflict would disqualify plaintiff as an adequate representative of the class described in the complaint is one question we need not decide because the complaint itself refers only to plaintiff’s status as a participant. For the same reason our ruling on the sufficiency of her pleading does not determine the standing of a bank’s depositors to litigate questions arising out of alleged violations of the Glass-Steagall Act.

Nor do we comment on the validity of the Bank’s arguments that the dismissal should be sustained on the alternate grounds (1) that the required jurisdictional amount has not been alleged, since plaintiff does not claim an individual loss of over $10,000, or (2) that in any event the facts do not disclose a violation of Glass-Steagall. Finally, we note that plaintiff has expressly disavowed any theory of recovery except her claim that §§ 16 and 21 of the Glass-Steagall Act have been violated. The violation, if it occurred, is a consequence of the relationship between the Bank and the participants in the fund. If their interests are “securities” within the meaning of the Act, the violation exists no matter how prudently or profitably the fund assets may have been managed; conversely, if their interests are not themselves securities, the mere fact that the Bank may have acted negligently or even improperly in its use of the plaintiff’s funds to invest in Penn Central stock is completely irrevelant. This is not a mismanagement case. The narrow issue, therefore, is whether participants in an open-end mutual investment fund are entitled to recover their losses if they can prove that operation of the fund violates §§ 16 and 21 of the Glass-Steagall Act.

There is no express statutory authorization for private action to redress a violation of Glass-Steagall. Of course, the absence of an express private remedy does not necessarily resolve the issue. For in certain situations the Supreme Court has found or created an implied remedy in favor of private parties within the class, or classes, of persons intended to be protected by a statute.

Thus, in Texas & Pacific Ry. v. Rigsby, 241 U.S. 33, 36 S.Ct. 482, 60 L.Ed. 874, the Court found an implied damage remedy because the plaintiff employee was a member of the class “for whose especial benefit” the Federal Safety Appliance Act had been passed. It stated:

“A disregard of the command of the statute is a wrongful act, and where it results in damage to one of the class for whose especial benefit the statute was enacted, the right to recover the damages from the party in default is implied, according to a doctrine of the common law expressed in 1 Comyn’s Dig., title ‘Action upon Statute’ (F), in these words: ‘So, in every case, where a statute enacts, or prohibits a thing for the benefit of a person, he shall have a remedy upon the same statute for the thing enacted for his advantage, or for the recompense of a wrong done to him contrary to the said law.’ ” 241 U.S. at 39, 36 S.Ct. at 484.

In J. I. Case v. Borak, the Court held that unless relief were implied for “victims of deceptive proxy statements . . the whole purpose of [§ 14(a) of the Securities Exchange Act of 1934] might be frustrated.” 377 U.S. 426, 434-435, 84 S.Ct. 1555, 1561, 12 L.Ed.2d 423. See also Tunstall v. Brotherhood, 323 U.S. 210, 65 S.Ct. 235, 89 L.Ed. 187; Allen v. State Board of Elections, 393 U.S. 544, 554-557, 89 S.Ct. 817, 22 L.Ed. 2d 1. Cf. Reitmeister v. Reitmeister, 162 F.2d 691, 694 (2d Cir. 1947).

In Investment Co. Institute v. Camp, 401 U.S. 617, 91 S.Ct. 1091, 28 L.Ed.2d 367, following its holding in Data Processing v. Camp, 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d 184, the Court held that companies engaged in the business of operating mutual investment funds had standing to attack portions of a regulation issued by the Comptroller of Currency which permitted national banks to become competitors of the plaintiffs. Although the Bank argues vigorously to the contrary, we may assume also that the interests of depositors or stockholders of the Bank may be sufficient to support a similar action.

In light of the analysis of the legislation and its history in the Camp opinion, however, our understanding of the interests at stake leads to the conclusion that the position of a fund participant seeking to recover damages from the Bank is quite different.

Because of its expertise in the money market, a bank may desire to enter allied lines of activity which involve greater profit potential and greater risk than traditional commercial banking. Federal banking laws, although permitting some such allied activities, severely limit and regulate the kinds of risks a national bank may take.

The basic reason for the legislation does not reflect a concern that the bank will be less capable of performing the activity efficiently than other entrepreneurs; rather, it reflects a desire to minimize the risks of loss or insolvency to the bank itself. In short, the prohibition of an activity such as operation of a common trust fund is not based on any assumption that participants in such funds need protection from bank entry into this market; rather, it rests on the belief that the higher entrepreneurial risks associated with this activity might jeopardize the overriding interests of depositors and the public in maintaining the solvency of banks and confidence in the banking system.

If we assume as a general proposition that banks are at least as competent as other firms to operate mutual investment funds, it is manifest that participants in such funds would not be injured and, indeed, should benefit from a rule that would permit banks to enter that area of economic activity. Participants, therefore are not members of “the class for whose especial benefit the statute was enacted.” Indeed, to allow them to recover damages resulting from nothing more than a decline in value of a prudently managed fund simply because the fund itself was created or operated in violation of §§ 16 and 21 of the Glass-Steagall Act would impair the precise interests that the statute was enacted to protect.

In our opinion, a fair evaluation of “the congressional policy underpinning the substantive provisions of the statute” requires rejection of the implied damage remedy plaintiff seeks to assert in this case. The judgment is

Affirmed.

      . The quotations are from plaintiff’s complaint.

      . The prayer of the complaint reads: “Wherefore, plaintiff, Elizabeth J. Russell, individually and on behalf of all those who have made capital contributions to the Capital Investment Service at the Continental Bank, prays judgment against the defendant in the sum of Seven Million Five Hundred Thousand Dollars ($7,500,000.00) plus interest from the date of investment and costs of this suit.”

      . The relevant portions of those sections of the Glass-Steagall Act provide:
      “Seventh. The business of dealing in securities and stock [by a national bank] shall be limited to purchasing and selling such securities and stock without recourse, solely upon the order, and for the account of, customers, and in no case for its own account .
      ;■!: * * * :¡:
      “ . . . Except ns hereinafter provided or otherwise permitted by law, nothing herein contained shall authorize the purchase by [a national bank] for its own account of any shares of stock of any corporation.” 12 TJ.S.C. § 24.
      “[I]t shall be unlawful [f]or any person, firm, corporation, association, business trust, or other similar organization, engaged in the business of issuing, underwriting, selling, or distributing, at wholesale or retail, or through syndicate participation, stocks, bonds, debentures, notes, or other securities, to engage at the same time to any extent whatever, in the business of [deposit banking].” 12 U.S.C. § 378.

      . Before the district court dismissed the complaint, the parties engaged in discovery. Although facts developed by that discovery are in the record before us, we do not consider them in connection with our ruling on the sufficiency of the complaint.

      . Brief for plaintiff-appellant, page 11. In her memorandum opposing the motion to dismiss, plaintiff conceded that “the Complaint was not intended to assert any claim except one based on violation of Sections 16 and 21 of the Glass-Steagall Act.”

      . “No provision of the banking law suggests that it is improper for a national bank to pool trust assets, or to act as a managing agent for individual customers, or to purchase stock for the account of its customers. But the union of these powers gives birth to an investment fund whose activities are of a different character.’’ Investment Co. Institute v. Camp, 401 U.S. 617, 624-625, 91 S.Ct. 1091, 1096, 28 L.Ed.2d 367.

      . “The Glass-Steagall Act reflected a determination that policies of competition, convenience, or expertise which might otherwise support the entry of commercial banks into the investment banking business were outweighed by the ‘hazards’ and ‘financial dangers’ that arise when commercial banks engage in the activities proscribed by the Act.” Id. at 630, 91 S.Ct. at 1098.

      . “It is not the slightest reflection on the integrity of the mutual fund industry to say that the traditions of that industry are not necessarily the conservative traditions of commercial banking. The needs and interests of a mutual fund enterprise more nearly approximate those of securities underwriting, the activity in which bank security affiliates were primarily engaged. When a bank puts itself in competition with mutual funds, the bank must make an accommodation to the kind of ground rules that Congress firmly concluded could not be prudently mixed with the business of commercial banking.”

        Id. at 637, 91 S.Ct. at 1102.
      Earlier in its opinion the Court noted: “Senator Glass made it plain that it was ‘the fixed purpose of Congress’ not to see the facilities of commercial banking diverted into speculative operations by the aggressive and promotional character of the investment banking business.” Id. at 632, 91 S.Ct. at 1099.

      . The Glass-Steagall Act was enacted “[t]o provide for the safer and more effective use of the assets of banks, [and] to prevent the undue diversion of funds into speculative operations;....” 48 Stat. 162. “There is no dispute that one of the objectives of the Glass-Steagall Act was to prohibit commercial banks, banks that receive deposits subject to repayment, lend money, discount and negotiate promissory notes and the like, from going into the investment banking business.” 401 U.S. at 629, 91 S.Ct. at 1098.

      . “From the perspective of competition, convenience, and expertise, there are arguments to be made in support of allowing commercial banks to enter the investment banking business. But Congress determined that the hazards outlined above made it necessary to prohibit this activity to commercial banks. Those same hazards are clearly present when a bank undertakes to operate an investment fund.” Id. at 636, 91 S.Ct. at 1101.

      . The Supreme Court’s holding in Thompson v. St. Nicholas National Bank, 146 U.S. 240, 248, 13 S.Ct. 66, 68, 36 L.Ed, 956, apparently rested in part on its agreement with the New York Court of Appeals ’.“that it would defeat the very policy of an act intended to promote the security and strength of the national banking system, if its provisions should be so construed as to inflict a loss upon the banks, and a consequent impairment of their financial responsibility.”

      . See Bivens v. Six Unknown Federal Narcotics Agents, 403 U.S. 388, 402, 91 S.Ct. 1999, 2008, 29 L.Ed.2d 619 (Mr. Justice Harlan concurring).


source: Caselaw Access Project

author: LEWIS R. MORGAN, Circuit Judge:

license: Public Domain

text:
    BENTON-VOLVO-METAIRIE, INC., and Benton Auto Works International, Inc., d/b/a Benton-Volvo-New Orleans, Plaintiffs-Appellants, v. VOLVO SOUTHWEST, INC., et al., Defendants-Appellees.
    No. 72-2508.
    United States Court of Appeals, Fifth Circuit.
    June 7, 1973.
    Maumus F. Claverie, Jr., New Orleans, La., for plaintiffs-appellants.
    Gene W. Lafitte, New Orleans, La., for defendants-appellees.
    Before COLEMAN, MORGAN and RONEY, Circuit Judges.
   LEWIS R. MORGAN, Circuit Judge:

This is an appeal from an order of the district court granting the motion of the appellee, Volvo Southwest, Inc., for a summary judgment. The appellant Benton-Volvo-Metairie, Inc., brought an action against Volvo Southwest to recover damages for an alleged breach of a dealership franchise agreement. After the complaint and answer were filed, the ap-pellee (defendant below) moved for summary judgment alleging no genuine issue as to any material fact. The motion was granted by the district court without opinion. We remand for further proceedings.

On March 11, 1968, plaintiff Benton-Volvo and defendant Volvo Southwest entered into a contract granting Benton-Volvo a dealer franchise for Metair-ie, Louisiana. Plaintiff appeared to have given up a Volvo dealership in New Orleans in order that it might obtain this dealership. In addition, plaintiff purchased land, building, machinery, materials, facilities, equipment, a leasehold interest, and borrowed money in reliance upon the acquisition and continued possession by the plaintiff of this franchise.

On July 24, 1969, Lars Samuelson, a vice president of defendant Volvo Southwest, sent a letter to Benton-Volvo-Me-tairie informing it that Volvo Southwest had elected to terminate its franchise agreement with Benton-Volvo-Metairie pursuant to the written contract. The letter of July 24th gave no reason for this termination and none was required by the franchise agreement. Benton-Volvo-Metairie replied by letter on September 19, 1969, informing Volvo Southwest that under Louisiana law such termination was illegal and that Benton-Volvo-Metairie considered this termination notice null and void. In the same letter Benton-Volvo-Metairie did offer to discuss sale to Volvo Southwest of the good will and physical plant of the dealership, such physical plant having been erected on behalf of and upon demand of Volvo Southwest. Benton-Volvo-Metair-ie went on to state that if Volvo Southwest proceeded as if the termination were valid, Benton-Volvo-Metairie would have no choice but to file a court action in order to protect its interest.

Proceedings Below

Volvo Southwest did proceed as if the termination were valid and on September 21, 1970, Benton-Volvo-Metairie filed a complaint in the United States District Court for the Eastern District of Louisiana.

The complaint below alleged that Volvo Southwest cancelled its dealership agreement without due regard to the equities of Benton-Volvo-Metairie and without just provocation. The complaint further asserted that such termination was illegal under the laws of the State of Louisiana and contrary to public policy. As a result of this termination the plaintiff maintains it was no longer able to sell and perform warranty or non-warranty repair work on Volvo automobiles or stock and sell parts for Volvos. Consequently, plaintiff insists that its investment in this dealership was rendered valueless and damages should be awarded in the amount of $851,493.34.

Defendant Volvo Southwest answered defending its action by asserting that the Louisiana statute in question was in violation of the equal protection and due process clauses of the Fourteenth Amendment and therefore could not be applied to defendant Volvo Southwest. Defendant also insists that it had just cause and provocation to terminate and listed in its answer eight reasons for doing so. However, none of these reasons were substantiated or even mentioned in the affidavits submitted during the proceedings below.

Defendant then moved for summary judgment in accordance with Rule 56 of the Federal Rules of Civil Procedure, alleging that no cause of action was stated by the plaintiff upon which relief could be granted. Defendant submitted affidavits in compliance with Rule 4(e) of the Federal Rules of Civil Procedure. These affidavits, however, in no way substantiated any of defendant’s claims as to the appropriateness or justification for their termination of Benton-Volvo-Metairie’s dealership.

The trial court granted the defendant’s motion for summary judgment. The plaintiff below then appealed to this court asserting that the Louisiana statute concerning termination of automobile franchise dealerships, supra, is constitutional. The defendant disputes this contention.

The lower court’s order granting the motion for summary judgment was not accompanied by findings of fact or conclusions of law, and nothing appears in the record to indicate the grounds upon which the district court based its ruling.

Issues

It appears to this court that there are several possible arguments for a summary judgment ruling. The lower court could have decided that the Louisiana statute in question was unconstitutional and, therefore could not be applied in this case, or the district court could have found that public policy in Louisiana does not permit a contract of this type. Furthermore, the trial court possibly found that considering all the evidence in the light most favorable for the plaintiff there was no factual basis for relief. This court is cognizant of the rule that a question of constitutionality should be avoided when there are other possible grounds upon which a decision can be based. Because all these possible avenues of approach were open to the court below, this court is in doubt as to which avenue that court took to reach its decision for summary judgment.

I.

Under our present system of notice pleadings, both the complaint and the answer below allege grounds upon which the granting or denying of summary judgment could be based. The constitutionality of the Louisiana statute was not the sole issue with which the trial court was faced.

The immediate problem that confronts us then is whether the district court founded its granting of summary judgment upon the theory of the unconstitutionality of the Louisiana statute or whether the district court based its decision upon other available grounds. Furthermore, it seems to this court that both parties are also uncertain as to why the district court granted summary judgment.

It appears to be the invariable practice of our courts not to consider the constitutionality of state legislation unless it is imperatively required. Bush v. Texas, 372 U.S. 586, 83 S.Ct. 922, 9 L.Ed.2d 958 (1968); Rosenberg v. Fleuti, 374 U.S. 449, 83 S.Ct. 1804, 10 L.Ed. 2d 1000 (1963). Furthermore, as a general principle, courts will not pass on the constitutionality of an act of the legislature if the merits of the case in hand may be fairly determined otherwise. If the case may be decided on either of two grounds and one of these does not involve the constitutionality of a statute, the court will decide it on that ground. Flint v. Stone Tracy Co., 220 U.S. 107, 31 S.Ct. 342, 55 L.Ed. 389 (1911).

Therefore, this court is restrained from inferring constitutional rationale as regards the lower court decision in this case. There is very little before this court then to be properly examined which can be used for the purpose of review. Because these non-constitutional grounds cannot be adequately examined at this time, this court must abstain from ruling as to the constitutionality of the Louisiana statute in question.

II.

This court is called on to decide whether the granting of summary judgment was correct based on the evidence presented. This is a very complex and difficult task, especially when there are no findings of fact and conclusions of law to guide this court in dealing with the various factors involved in a case concerning the termination of a franchise agreement.

On appeal from summary judgment the record must be viewed in the light most favorable to the party opposing the motion. The moving party bears the burden of showing both that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.

Summary judgment procedure “is not a catch penny contrivance to take unwary litigants into its toils and deprive them of a trial, it is a liberal measure, liberally designed for arriving at the truth. Its purpose is not to cut litigants off from their right of trial by jury if they really have evidence which they will offer on a trial, it is to carefully test this out, in advance of trial by inquiring and determining whether such evidence exists”. Whitaker v. Coleman, 5 Cir. 1940, 115 F.2d 305 at 307; 3 Barron & Holtzoff (Wright Ed.), § 1231.

The party opposing the motion should be given the benefit of all reasonable doubts in determining whether a genuine issue exists. Heyward v. Public Housing Administration, 5 Cir. 1956, 238 F.2d 689 at 696.

Rule 56 does not permit trial by affidavits although affidavits may be used on a motion for summary judgment, but the court may not resolve disputed fact issues by reference to these affidavits. 3 Barron & Holtzoff (Wright Ed.) § 1234, n. 56.

This court takes note of the fact that it is always true, whether or not the non-moving party has submitted affidavits or similar material, that the burden is on the moving party to establish the absence of a genuine issue as to any material fact, and that he is entitled to judgment as a matter of law. 3 Barron & Holtzoff (Wright Ed.) § 1235, nn. 89.-2, 90. From the record before us wé do not find the defendant to have sufficiently demonstrated that it was entitled to summary judgment.

III.

It is possible that there was a procedural misunderstanding concerning Rule 56(e) of the Federal Rules of Civil Procedure. That rule states:

“When a motion for summary judgment is made and supported as provided in this rule, an adverse party may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. If he does not so respond, summary judgment, if appropriate, shall be entered against him.” (Emphasis added).

Therefore, another problem presented in this appeal appears to be whether a respondent to a motion for summary judgment may not file affidavits and still be entitled to a denial of the motion. Benton-Volvo-Metairie did not file affidavits or respond to the motion for summary-judgment by Volvo Southwest. However, this court feels that in certain cases the filing of counter affidavits would be only a perfunctory task. Dawkins v. Green, 412 F.2d 644 (5 Cir. 1969) at 646. It is well established that on a motion for summary judgment, the moving party carries the burden of proof, and he must show that no genuine issue of material fact exists even though at trial his opponent had the burden of proving the facts alleged. Dawkins v. Green, supra; Doff v. Brunswick Corporation, 372 F.2d 801 (9 Cir. 1967). In the case before us now defendants moved for summary judgment and submitted affidavits to support such a motion; plaintiff filed no affidavits. If this was then an appropriate case for summary judgment the action could have been properly ended at that point. However, the affidavits filed by the defendant are simply a restatement of the denials and counter charges contained in their answer and they contained no new information. Moreover, they set forth only ultimate facts or conclusions in that their contents are statements made by Lars Samuelson and copies of correspondence between the parties which in no way proved or disproved any of the allegations set out in the complaint and answer. It does not appear that any facts are present so that the trial court could actually arrive at its own conclusions. It should be remembered that in summary judgment proceedings affidavits containing mere conclusions have no probative value.

Conclusion

After careful review of the record below, this court finds that there were other possible grounds aside from the question of constitutionality of the Louisiana statute that the lower court could have used as rationale for granting or refusing to grant summary judgment. This court, not having before it adequate evidence upon which to rule, therefore remands this case for further proceedings not inconsistent with this opinion.

Vacated and remanded.

      . Section 32:1254(4) (c) of the Louisiana Code reads as follows :
      To unfairly, without due regard to the equities of said dealer and without just provocation, cancel the franchise of any motor vehicle dealer. The nonrenewal of a franchise or selling agreement without just provocation or cause shall be deemed an evasion of this paragraph and shall constitute an unfair cancellation, regardless of the terms or provisions of such franchise or selling agreement.
      See also Section 32:1254(4) (a).

      . When counsel were asked at oral argument how they arrived at their conclusion that the constitutionality of the statute was critical to the decision below, their only reply was that the district judge’s law clerk had indicated to them that this was what the law clerk thought the judge had considered in granting summary judgment.

      . Often courts will even refuse to decide constitutional questions when the record discloses other grounds for decision, whether or not such other grounds have been properly raised before the court by the parties. Neese v. Southern R. Co., 350 U.S. 77, 76 S.Ct. 131, 100 L.Ed. 60 (1955). Furthermore, the Supreme Court, upon determining that a Federal Court of Appeals had before it not only a constitutional question which was decided, but also a non-constitutional question which might properly alone have served as adequate ground upon which to dispose of the case but which was not considered or decided, will vacate the judgment of the Court of Appeals and remand the case to it for decision on the non-constitutional issue, and it will not consider the constitutional issue. Alma Motor Company v. Timken-Detroit Axle Company, 329 U.S. 129, 67 S.Ct. 231, 91 L. Ed. 128 (1946).

      . Poller v. Columbia Broadcasting System, 368 U.S. 464, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962), at 473; Pogue v. Great A & P Tea Company, 242 F.2d 575 at 576 (5 Cir. 1957) ; 3 Barron & Holtzoff (Wright Rules Edition), Section 1242, page 198, note 46.

      . Rule 56(c), Federal Rules of Civil Procedure; Palmer v. Chamberlin, 191 F.2d 532 at 540 (5 Cir. 1951).

      . In Woods v. Allied Concord Financial , Corporation (Delaware), 5 Cir. 1967, 373 F.2d 733, it is made clear that affidavits containing mere conclusions do not have probative value during summary judgment proceedings. That rule has previously been set down in Bsharah v. Eltra Corporation, 6 Cir. 1968, 394 F.2d 502; Creel v. Lone Star Defense Corporation, 5 Cir. 1949, 171 F.2d 964.

      . On remand, we feel the district court should address the following issues: First, was the original summary judgment based on a finding that the statute is unconstitutionally vague? Irrespective of the validity of the statute itself, has the plaintiff sufficiently presented a claim that this contract clause is against the clearly established public policy of the state so that an action under general contract law can be maintained? Finally, if these grounds were not the basis for the decision below, was other evidence submitted in support of the affidavits and affirmative defenses of the complainant?


author: JOHN R. BROWN, Chief Judge: SIMPSON, Circuit Judge

text:
    NATIONAL ASSOCIATION OF WOMEN’S AND CHILDREN’S APPAREL SALESMEN, INC., a/k/a NAWCAS Guild, etc., et al., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
    No. 71-1880.
    United States Court of Appeals, Fifth Circuit.
    May 21, 1973.

      Simpson, Circuit Judge, filed dissenting opinion.
    Raymond R. Dickey, Robert D. Road-man, Washington, D. C., Sherwyn E. Syna, Atlanta, Ga., for petitioners.
    Joseph Martin, Jr., Gen. Counsel, Harold D. Rhynedance, Jr., Asst. Gen. Counsel, Miles J. Brown, Atty., Federal Trade Commission, Washington, D. C., for respondent.
    Before JOHN R. BROWN, Chief Judge, and BELL and SIMPSON, Circuit Judges.
   JOHN R. BROWN, Chief Judge:

We enter the workroom to review the propriety of an FTC cease and desist order which compels the Petitioners, National Association of Women’s & Children’s Apparel Salesmen (NAWCAS) to refrain from committing certain unfair trade practices within the context of their regional trade shows. Our role is chiefly that of a tailor: we must dart the seam of two interrelated public policies — the antitrust proscription and its labor exemption. The thread which fastens this seam is composed of three independently woven fibers: (i) is NAWCAS a “labor organization” under the cloak of the Norris LaGuardia Act, 29 U.S.C.A. § 104, and Clayton Act §§ 6, 20, 15 U.S.C.A. § 17, 29 U.S.C.A. § 52, special dispensation for labor? (ii) do the challenged activities arise in the context of a bona fide “labor dispute” as that term is used in these statutory provisions? and (iii) has NAWCAS acted only in its labor self-interest — eschewing any combination with non-labor groups? Unless all three questions can be answered affirmatively, NAWCAS is not entitled to don the protective cloak.

The FTC, relying heavily on an NLRB holding in a collateral proceeding, answered the first two questions negatively and issued its order. National Association of Women’s and Children’s Apparel Salesmen, 1971, - F.T.C. - [docket no. 8691]. Because we are in agreement on these points, we enforce the order without addressing ourselves to the third question.

The Wrinkled Cloak

When the National Association of Women’s and Children’s Apparel Salesmen was formed in 1945, its avowed purpose was to provide a forum for the free exchange of trade information and a force to represent the best interests of ready to wear clothing salesmen. At that time, NAWCAS stitched together 21 local affiliate groups of salesmen. One of the primary activities of these affiliates was the sponsoring of regional trade shows to minimize traveling.

There are approximately ten thousand manufacturers of women’s and children’s apparel in the United States, mostly centered in and around the New York City area. Although there are several industry giants, their share of the market is relatively miniscule — 90 per cent of the business going to the smaller manufacturers. Their wares are normally marketed through the efforts of the hired salesmen. Most of these men work on commissions, although the trend among the larger firms is toward compensation by a fixed salary. They also tend to work exclusively for one manufacturer — purportedly to preserve design integrity and prevent “line piracy” — unless their territory is so threadbare that they must represent two or more noncompeting lines to make an adequate living.

The most effective method of marketing apparel has been found to be that of the regional, periodic trade show. Sponsoring these shows is the role of the local affiliate. They are usually held in hotels, auditoriums, or merchandise marts. Long-term advance planning is necessary. The affiliate who sponsors the show rents the necessary facilities, solicits registration from members qualified to exhibit, and provides general logistical support for the registrants. Each show is governed by the rules and regulations of the sponsoring affiliate and violations of the rules may result in a fine or suspension. As noted by the NLRB and FTC, a number of the rules are designed to prevent members from participating in competing shows. Because of the tremendous prestige and economic impact of these shows, participation in them is almost a business necessity.

Many of NAWCAS’s tangible goals were union-like. But for the first 11 years its approach was strictly velveteen. Then, at its 1956 convention, NAWCAS adopted the “California Resolution”. Under this Resolution NAWCAS decided to exert economic leverage by blacklisting “uncooperative manufacturers” from the affiliates’ trade shows. At first the blacklists were confined to those manufacturers who did not put forth a cooperative' effort towards resolving disputes with their association-member salesmen. In 1960, however, the economic tool of excluding uncooperative manufacturers from the trade shows was extended to those manufacturers who failed to hire their salesmen under the terms of NAWCAS’s standard contract.

It is this refusal to deal which the FTC seeks to collar with its order.

The Ironing Board

The FTC skirted the necessity of ruling directly on the extent of protection afforded to NAWCAS’s activities by labor’s cloak of antitrust immunity by relying on the opinion of the NLRB in a collateral proceeding, Bambury Fashions, Inc., 1969,-NLRB- [Appendix at 146-156], to iron out the wrinkles. The Board held that because of the commercial nature of NAWCAS’s trade shows it was disqualified from functioning as a labor organization.

The rationale behind this deference to the determination of the Board, is that labor’s cloak of immunity must be lined with the fact that the putative labor organization is- — or could be —the bargaining representative for the employees in question. This is so because the antitrust laws yield only insofar as the union pursues legitimate subjects of collective bargaining. Meat Cutter’s Union v. Jewel Tea Co., 1965, 381 U.S. 676, 689 and 710, 85 S.Ct. 1596, 1601 and 1614, 14 L.Ed.2d 640, 649 and 661; American Federation of Musicians v. Carroll, 1968, 391 U.S. 99, 88 S. Ct. 1562, 20 L.Ed.2d 460; Hunt v. Crumboch, 1945, 325 U.S. 821, 65 S.Ct. 1545, 89 L.Ed. 1954. If an organization cannot, under any set of circumstances, function as the collective bargaining agent of the employees of a particular employer, that organization may not transgress the employer’s rights to unrestrained competition with impunity under the cloth of a labor label. Allen Bradley Co. v. Local Union No. 3, 1945, 325 U.S. 797, 65 S.Ct. 1533, 89 L.Ed. 1939.

The authority to determine representational matters under the National Labor Relations Act is vested exclusively with the NLRB. See NLRB v. Cabot Carbon Co., 1959, 360 U.S. 203, 79 S.Ct. 1015, 3 L.Ed.2d 1175. Because of the immediacy usually attending such determinations, there is no means of securing direct judicial review of the Board’s determination — -it must be attacked collaterally in the context of aunfair labor practice charge. Boire v. Greyhound Corporation, 1964, 376 U.S. 473, 84 S.Ct. 894, 11 L.Ed.2d 849; Magnesium Casting Co. v. NLRB, 1971, 401 U.S. 137, 91 S.Ct. 599, 27 L.Ed.2d 735; Templeton v. Dixie Color Printing Co., 5 Cir., 1971, 444 F.2d 1064. Given this commitment, under our national labor policy, to the Board’s particular expertise of the task of defining what organizations- are labor organizations, we hold that it was proper for the FTC to accord dispositive weight to the Board’s holding.

What the Board actually held in Bambury Fashions was that NAWCAS, because of its financial stake in the trade shows themselves, was precluded from acting as a labor organization. Thus, according to the Board, the disqualifying factor “is the latent danger that it may bargain, not for the benefit of unit employees, but for the protection and enhancement of its business interests which are in direct competition with those of the employer at the other side of the bargaining table.” Bambury Fashions, supra at -. In essence it washes out to this. An organization purporting to represent the interests of a group of employees may disregard the potential impact of the antitrust laws on their chosen means if the ends to be accomplished are appropriate bargaining subjects for a labor union. But where the organization has a proprietary interest in the means, in and for themselves, it is disqualified from functioning as a labor organization under the protective cloak. “The labor exemption is inapplicable where the union acts not as a union but as an entrepreneur.” Jewel Tea, supra, 381 U.S. at 733, 85 S.Ct. at 1626, 14 L.Ed.2d at 675 (Goldberg, J.); Cf. Los Angeles Meat & Provision Drivers Union, Local 626 v. United States, 1962, 371 U.S. 94, 83 S.Ct. 162, 9 L.Ed.2d 150; Columbia River Packers Association v. Hinton, 1942, 315 U.S. 143, 62 S.Ct. 520, 86 L.Ed. 750; Gulf Coast Shrimpers & Oystermans Association v. United States, 5 Cir., 1956, 236 F.2d 658.

Given this disqualification by the Board, the FTC was correct in buttonholing NAWCAS’s anticompetitive activities.

Enforced.

SIMPSON, Circuit Judge

(dissenting) :

I respectfully dissent.

The majority today holds that the Federal Trade Commission properly relied upon the decision of the National Labor Relations Board in a collateral proceeding, Bambury Fashions, 1969, 179 NLRB 447, which also involved NAWCAS. In Bambury Fashions the Board concluded that NAWCAS was not qualified under the National Labor Relations Act to act as the statutory bargaining representative for certain traveling salesmen who potentially competed with employers by conducting trade shows. The majority concludes that the Commission could rely on this Board decision to hold that because NAWCAS may not act as a bargaining representative, it is not a “labor organization” entitled to the protection of the labor exemption to the federal antitrust laws. The basic holding of the majority is:

“The rationale behind this [the Commission’s] deference to the determination of the Board, is that labor’s cloak of immunity must be lined with the fact that the putative labor organization is — or could be — the bargaining representative for the employees in question. This is so because the antitrust laws yield only insofar as the union pursues legitimate subjects of collective bargaining. [citations omitted] If an organization cannot, under any set of circumstances, function as the collective bargaining agent of the employees of a particular employer, that organization may not transgress the employer’s right to unrestrained competition with impunity under the cloth of a labor label.” [citations omitted]

Majority opinion at 144.

The Commission’s syllogism, which the majority here endorses, is improper because the Board decided only that NAWCAS could not be a bargaining representative. It did not hold that NAWCAS was not a labor organization.

The core of the Board’s opinion in Bambury Fashions was:

“Finally, notwithstanding the fact that NAWCAS, as found by the Regional Director, satisfies the two part test of the statutory definition of a labor organization, we find that it is disqualified from acting as such because its interest in representing employee salesmen in the industry conflicts substantially with its primary interest in coordinating and strengthening the trade show activities of its affiliates. We agree with the Employers that NAWCAS in its trade show activities in behalf of independent contractor traveling salesmen members is engaged in the business of selling apparel in direct competition with apparel manufacturers.” 179 NLRB at 450.

In Bambury Fashions the Board applied its rule in Bausch & Lomb Optical Co., 1954, 108 NLRB 1555, that “ . . . the Union cannot perform its statutory function as bargaining representative if simultaneously it is an immediate business competitor of the particular employer whose employees it purports to represent.” Ibid, at 1562. Clearly then the Board’s holding in Bambury Fashions was no more than that NAWCAS was disqualified from acting as a bargaining representative, not that NAWCAS was not a labor organization.

The Commission’s extension of the Board’s position is unwarranted for another reason. While it is true, as the majority states, that a union is exempt from the antitrust laws only insofar as it unilaterally pursues mandatory subjects of collective bargaining — wages, hours and working conditions, American Federation of Musicians v. Carroll, 1968, 391 U.S. 99, 88 S.Ct. 1562, 20 L.Ed.2d 460 — it does not follow that a union must be the National Labor Relations Act bargaining representative in order to pursue these goals, and hence enjoy the protection of the labor exemption to the antitrust laws. This is true because the umbrella of the antitrust exemption protects labor organizations. A group may be a “labor organization” within the statutory framework of the National Labor Relations Act without being a “bargaining representative” under that Act, as the language of the statute makes clear:

“The term ‘labor organization’ means any organization of any kind, or any agency or employee representation committee or plan, in which employees participate and which exists for the purpose, in whole or in part, of dealing with employers concerning grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work.” National Labor Relations Act, Section 2(5); Title 29, U.S.C., Section 152(5).

NLRB v. Cabot Carbon Co., 1959, 360 U.S. 203, 79 S.Ct. 1015, 3 L.Ed.2d 1175, demonstrates that the National Labor Relations Act concepts of “labor organization” and “bargaining representative” are not coequal. In Cabot Carbon the NLRB had ordered the employer to cease and desist from unlawfully dominating certain employee committees, which coexisted with Board certified bargaining representatives at certain of the employer’s plants. This Court refused to enforce the Board’s order on the grounds that by the 1947 amendments to the Act Congress had not intended to include such committees within the statutory definition of labor organization, and that the term “dealing with employers” in the statutory definition of a labor organization meant in reality “bargaining with employers”, and that the committees were not statutory bargaining representatives. The Supreme Court reversed, stating that the statutory term “dealing with employers” was not to be read as synonymous with the more limited term “bargaining with employers”. 360 U.S. at 211, 79 S.Ct. at 1020, 3 L.Ed.2d at 1180. Further the Court noted that Congress had rejected an amendment which would have substituted the term “bargaining collectively” for “dealing with employers” in the statutory definition of a labor organization. 360 U.S. at 211, 79 S.Ct. at 1021, 3 L.Ed.2d at 1181.

Upon this analysis it seems to me apparent that a group of persons may be a “labor organization” under the terms of the National Labor Relations Act without being a statutory bargaining representative under that Act. Furthermore, the “ . . . grievances, labor disputes, wages, rates of pay, hours of employment, or conditions of work”, National Labor Relations Act, Section 2(5); Title 29, U.S.C., Section 152(5), about which a “labor organization” deals with an employer are essentially equivalent to the “wages, hours, and working conditions” which constitute mandatory bargaining subjects. Unilateral labor organization activity concerning these mandatory bargaining subjects is immune from the federal antitrust laws. I conclude that a group which deals with an employer concerning such subjects is immune from the antitrust laws where such dealings are involved, even though that labor organization is not and cannot be the statutory bargaining representative. In short, an organization may pursue legitimate objectives of collective bargaining even though it is not a bargaining representative. Both the Federal Trade Commission and the majority in this ease have fallen into the trap of equating qualification to act as a bargaining representative under the National Labor Relations Act with status as a labor organization.

Thus, I think the Commission based its decision below upon improper legal reasoning. A fundamental principle of judicial review of administrative action requires that in order for a reviewing court to sustain agency action the legal grounds upon which the agency acted must be correct. FTC v. Sperry & Hutchinson Co., 1972, 405 U.S. 233, 92 S.Ct. 898, 31 L.Ed.2d 170; SEC v. Chenery Corp., 1943, 318 U.S. 80, 63 S.Ct. 454, 87 L.Ed. 686. Because the Commission improperly relied upon the Board’s decision in Bambury Fashions, supra, this case should be remanded to the Commission so that the Commission will have an opportunity to base its decision upon legally correct principles, including the extent to which certain components of NAWCAS might constitute non-labor groups not protected by the labor exemption to the antitrust laws. See generally, United States v. Hutcheson, 1941, 312 U.S. 219, 61 S.Ct. 463, 85 L.Ed. 788; American Federation of Musicians v. Carroll, supra; Cedar Crest Hats, Inc. v. United Hatters, 5 Cir. 1966, 362 F.2d 322. This latter question, which is crucial to the issue before the Commission, the majority here finds it unnecessary to consider. See majority opinion, footnote 2 at page 141.

For this reason I dissent from the majority opinion.

      . Counsel for NAWCAS conceded before the Commission that if his client’s activities were not protected by the labor exemption to the antitrust laws, that theiconduct was violative of the Federal Trade Commission Act. Thus, there is no basis from which to attack the Commission’s order on its intrinsic merits if the labor exemption will not stand up.

      . Basing our holding upon the determination that NAWCAS may not act as a labor organization, we need not determine the extent to which certain component members of NAWCAS might constitute non-labor groups. See generally, United States v. Hutcheson, 1941, 312 U.S. 219, 61 S.Ct. 463, 85 L.Ed. 788; American Federation of Musicians v. Carroll, 1968, 391 U.S. 99, 88 S.Ct. 1562, 20 L.Ed.2d 460; Cedar Crest Hats, Inc. v. United Hatters, 5 Cir., 1966, 362 F.2d 322.

      . The objective, aims, and purposes of NAWCAS were set forth in Article III, Section 1 of its constitution.
      The objectives, aims and purposes of this association shall be educational and for the promotion of the best interests of its members; to provide a national association of all organizations or groups composed of salesmen engaged in the wholesale selling of women’s or children’s wearing apparel or accessories . to promote, stimulate and protect the interests and welfare of salesmen in the women’s and children’s fields and the industry with which they are concerned ... to cooperate with organizations composed of salesmen in kindred fields whenever practicable and feasible to the end that a strongly organized national voice of salesmen may be achieved ... to institute and maintain an educational program concerning itself with the welfare and future security of salesmen ... to create a clearing house for the interchange and dissemination of pertinent information, ideas, plans and facts helpful to members of affiliated organizations ... to establish and maintain an active employment clearing house ... to give wholehearted support to measures that are fair, reasonable and equitable to the interests and welfare of salesmen ... to provide information and guidance, and promote a policy of helpful services to independent retailers, and generally, foster a cordial relationship between manufacturers, retailers and salesmen and to represent the members as their bargaining agents and where appropriate to negotiate collective agreements in their behalf.

      . One of these affiliates, Style Exhibitors, Inc. of Chicago is also a named party in the FTC’s order and a petitioner herein. The FTC Examiner determined that the advocacy of Style Exhibitors was adequate to represent the other members of its class of affiliates, all of whom had some notice of the pending proceedings before the FTC. There is no challenge to this ruling on appeal.

      . Other methods of marketing include direct mail sales, home office showroom sales, regional sales offices in key cities, sales to jobbers, and direct sales to a common buyer/agent for several retailers.

      . The two chief objectives which they sought to obtain via the unfair trade practices under attack were establishment of a binding system of grievance arbitration and industry-wide use of NAWCAS’s standard contract of employment for salesmen. Both are certainly legitimate goals of a bargaining representative. They have also established some rather successful programs of insurance, retirement and death benefits.

      . The Commission’s order, which is not challenged on its merits in this appeal, requires the Petitioners to cease and desist from the following:
      (1) Refusing or threatening to refuse to promote, display, offer to sell, distribute, or sell at any trade show women’s and children’s apparel or accessories supplied by any manufacturer who is represented by a member of NAAVCAS, a member of any affiliate, or person who is otherwise eligible for trade show participation.
      (2) Entering into, continuing, cooperating in or carrying out any planned common course of action, understanding, or agreement with any other party for the purpose or with the effect of preventing, hindering, or interferring with a manufacturer from having bis merchandise displayed, exhibited, offered for sale or sold in or from any location not actually contracted for and used as space by respondent NAWCAS or by a representative who is a member of NAWCAS, a member of any affiliate, or any person as a part of a NAWCAS trade show participation for the conduct of a trade show sponsored by NAWCAS, its members or affiliates.
      (3) Entering into, continuing, cooperating in, or carrying out any planned common course of action, understanding, or agreement with any other party for the purpose or with the effect of preventing, hindering, or interferring with a manufacturer’s efforts to have his' merchandise displayed, exhibited, sold or offered for sale in any space not actually contracted for and used by a representative who is a member of NAWCAS, trade show participation.
      (4) Restricting, regulating, or limiting any member of NAWCAS, any member of any affiliate or any person who is otherwise eligible for trade show participation, in the selection of any merchandise that he may wish to display, offer for sale or sell at any trade show or exhibition.
      (5) Requiring, whether directly or indirectly any manufacturer of women’s and children’s apparel or accessories to comply with any demand, term or condition made by NAWCAS or any of its affiliated members as a condition of having the manufacturer’s goods exhibited in a NAWCAS affiliated trade show.
      (G) Preparing, printing, publishing or otherwise communicating by any method or means any “uncooperative manufacturers list” or similar-device with the purpose or effect of discouraging or preventing the merchandise of any particular manufacturer from being exhibited at any affiliate trade show.
      .(7) Prohibiting or forbidding any member of NAAVCAS or of any of its affiliates, from soliciting the representation of any line of merchandise produced by any manufacturer.
      (8) Prohibiting or forbidding any member of NAWCAS or of any of its affiliates, from representing any line of merchandise produced by any manufacturer because said member replaced another member as a representative of said manufacturer.
      (9) Prohibiting or forbidding the merchandise of any manufacturer from being promoted or displayed, or offered for sale, distribution or sale by any member of NAWCAS or of any of its affiliates, because said member replaced another member as a representative of said manufacturer.
      (10) Conditioning the showing by any member of NAWCAS of any merchandise of any manufacturer at any trade show organized by any affiliate or other NAWCAS group on the execution by said member of a contract with the manufacturer he represents containing terms or conditions established by and acceptable to respondents.
      (11) Restricting or limiting any affiliate or NAWCAS group from accepting as a member any person who transfers from another affiliate or otherwise is eligible or qualified to sell merchandise of any manufacturer.
      (12) Requiring any affiliate or other NAWCAS group to agree with any other affiliate on dates when or places where merchandise may be displayed or exhibited, offered for sale, or sold, except that nothing shall prevent any affiliate from continuing to utilize the dates at which such affiliate customarily held its shows, or voluntarily agree to show dates.
      (13) Denying or granting courtesy or provisional showing of merchandise to any manufacturer unless said manufacturer is first approved by NAWCAS or a NAWCAS affiliate other than the one to which application is being made.
      (14) Prohibiting or forbidding any merchandise of any manufacturer represented by a member of NAWCAS or any of its affiliates from being promoted, displayed, exhibited, offered for sale, or sold at any place or any time by said manufacturer, representative, or other-representative designated by said manufacturer.
      (15) Prohibiting, restricting, or limiting any person or firm engaged in the offering for sale, distribution or sale of women’s and children’s apparel or accessories from obtaining any room, rooms, or office space at any time in any facility.
      (16) Refusing to accept for membership in NAWCAS any individual who is otherwise eligible for membership and is actively and regularly engaged as a salesman or manufacturer who does not have salesmen and who travels a territory or territories himself, of women’s and children’s wholesale apparel and accessories irrespective of whether such individual was previously denied or excluded from membership.
      (17) Refusing to accept as an exhibitor at any trade show any salesman who may also be a manufacturer, importer, wholesaler, or jobber, or officers or employees thereof, whose line or lines of women’s and children’s apparel are not exhibited at that trade show by a member of NAWCAS or a member of any of its affiliates.
      (18) Continuing to retain any provision in its constitution, by-laws, code of ethics, or rules and regulations which contravenes or conflicts in any way with any of the above prohibitions.

      . Notwithstanding this canon of labor law, NAWCAS attempted to collaterally challenge the Board’s order. Its futile efforts culminated in National Association of Women’s & Children’s Apparel Salesmen, Inc. v. NLRB, D.C.Cir., 1972, 465 F.2d 662.

      . The FTC phrased its deference in terms of “primary jurisdiction”. Actually it is more than that. Although the Board’s election procedures may occasionally be overturned by a court reviewing an unfair labor practice proceeding, until that time the Board action is unassailable. Of. Coca Cola v. FTC, 5 Cir., 1973, 475 F.2d 299; Alabama Gas Corp. v. FTC, 5 Cir., 1973, 476 F.2d 142 [1973]. There is no concurrent jurisdiction in another tribunal which stands in abeyance pending reference to the Board, as in most eases of primary jurisdiction. Cf. J. M. Huber Corp. v. Denman, 5 Cir., 1966, 367 F.2d 104; Weymouth v. Colorado Interstate Gas Co., 5 Cir., 1966, 367 F.2d 84; Carter v. American Telephone & Telegraph Co., 5 Cir., 1966, 365 F.2d 486.
      We are not unaware of Mr. Justice White’s opinion in Jewel Tea declining to stay the proceeding there until a primary jurisdiction reference to the Board could be made. But lie surely did not mean that a Board determination was inconsequential, for lie also stated on that same day: “Unquestionably the Board’s demarcation of the bounds of the duty to bargain has great relevance to any consideration of the sweep of labor’s antitrust immunity,” United Mine Workers v. Pennington, 1965, 381 U.S. 657, 665, 85 S.Ct. 1585, 1590, 14 L.Ed.2d 626, 633. See also, Jewel Tea, supra, 381 U.S. at 710, 85 S.Ct. at 1614, 14 L.Ed.2d at 661 (Opinion of Goldberg, J.).

      . The Board’s finding here is bolstered by an independent finding of the PTC Examiner to substantially the same effect. Of course we are powerless to disturb this finding if “the evidence in the record reasonably supports the administrative conclusion.” Colonial Stores, Inc. v. FTC, 5 Cir., 1971, 450 F.2d 733, 739.


author: PER CURIAM.

text:
    UNITED STATES of America et al., Petitioners-Appellees, v. Edward H. PETER, Jr., Individually, and as President of Pine Meadows, Inc. and as President of Pecon, Inc., Respondent-Appellant.
    No. 72-2015.
    United States Court of Appeals, Sixth Circuit.
    May 24, 1973.

      Earl S. Wilson, Jr., Lexington, Ky., for respondent-appellant; J. Montjoy Trim-ble, Lexington, Ky., on brief; Kincaid, Wilson, Schaeffer, Trimble & Hembree, Lexington, Ky., of counsel.
    John P. Burke, Tax Division, Dept, of Justice, for petitioners-appellees; Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwaeks, Mary J. McGinn, Tax Division, Dept, of Justice, Washington, D. C., on brief; Eugene E. Siler, U. S. Atty., Robert E. Rawlings, Asst. U. S. Atty., of counsel.

      Before PECK and LIVELY, Circuit Judges, and O’SULLIVAN, Senior Circuit Judge.
   PER CURIAM.

Appellant was found in contempt of Court for his refusal to produce records specified in two summonses issued by the Internal Revenue Service. Appellant was president of two corporations, of which he was also the sole shareholder, and the summonses had been issued to him in this capacity. Sometime in 1966 the separate bank accounts of the two corporations had been closed and thereafter their affairs were transacted through appellant’s personal bank account. In the course of an income tax investigation an agent discovered that substantial amounts of money had been received by appellant which he had not identified and which he was unable to explain.

The two summonses directed appellant to appear and give testimony and to produce for examination “[A] 11 bank statements, cancelled checks, deposit tickets or duplicate original deposit tickets for the calendar years 1965, 1966, 1967 and 1968” of each of the corporations. The summonses were supported by certificates of service and the affidavit of the investigating special agent. Appellant appeared but refused to testify or produce the records referred to in the summonses. Thereupon appellee filed a petition to enforce the summonses and the district court, after a lengthy hearing, entered an order that appellant, as president of the two corporations, appear before the designated agent and produce all the corporate records specified in the two summonses. The appellant did not seek a stay of the order, nor was an appeal taken from it.

Only a few of the records were turned over to the agent and, upon petition, the district court entered an order to show cause why the appellant and his attorney should not be held in contempt of court. The court found that appellant’s refusal to produce the records as previously ordered constituted a contempt, but that his attorney was free of contempt. At the hearing on the show cause order appellant suggested that all the records be delivered to the district judge for inspection by him in camera. Judge Swinford declined to do this, pointing out that he would have no basis upon which to divide the personal records from the corporate ones in view of appellant’s method of handling his affairs. At this point the attorney for the Internal Revenue Service reiterated that the I.R.S. was only interested in those checks on appellant’s personal account which related to the two corporations.

The reason given by appellant .for refusing to honor the I.R.S. summonses was that he was under investigation for possible criminal tax fraud and that forced production of the specified records would violate his Fifth Amendment privilege against self-incrimination. The records to which the summonses were directed were corporate records. A corporation may not claim a privilege against self-incrimination, nor may a corporate officer refuse to produce records of the corporation on Fifth Amendment grounds. United States v. White, 322 U.S. 694, 64 S.Ct. 1248, 88 L.Ed. 1542 (1944); United States v. Held, 435 F.2d 1361 (6th Cir. 1970), cert. denied 401 U.S. 1010, 91 S.Ct. 1255, 28 L.Ed. 2d 545 (1971). Appellant could not clothe the records of his two corporations with immunity by mingling them with his personal records. Appellant attempted to put the burden of unscrambling his affairs on the Internal Revenue Service by refusing to produce the records. The summonses were valid and should have been obeyed. There was no material variance between the summonses and the order directing compliance. The fact that evidence of criminal conduct by appellant could possibly be discovered by examination of the corporate records did not render the summonses defective. United States v. Held, supra. Although the Intelligence Division had entered the case for the purpose of seeking evidence of fraud, there were no pending criminal charges, nor had the investigation been initiated solely for criminal purposes. Under these circumstances an I.R.S. summons cannot be challenged on the ground that its purpose is to establish a criminal tax fraud case. Donaldson v. United States, 400 U.S. 517, 91 S.Ct. 534, 27 L.Ed.2d 580 (1971).

As noted earlier, appellant did not appeal from the order enforcing the summonses, though he challenged them on the same Fifth Amendment grounds in the hearing on the petition for enforcement. This was an adversary hearing and the order of enforcement was appealable. Reisman v. Caplin, 375 U.S. 440, 449, 84 S.Ct. 508, 11 L.Ed.2d 459 (1964). Having failed to appeal the final adjudication of his Fifth Amendment defense, appellant cannot now relitigate the issue in these contempt proceedings. Maggio v. Zeitz, 333 U.S. 56, 68 S.Ct. 401, 92 L.Ed. 476 (1948). When appellant failed to appeal from the order of enforcement, the issues before the court in that proceeding became res judicata. United States v. Secor, 476 F.2d 766 (2d Cir. 1973). When he refused to comply with the unappealed order of enforcement appellant’s act of contempt was complete. Developments subsequent to the act of contempt which indicate a possible intention on the part of the Internal Revenue Service to discontinue the investigation are not relevant to this Court’s determination of the issues presented by this appeal. Therefore, appellant’s motion to vacate or modify is denied.

The judgment of the district court is affirmed. Appellant will pay the costs herein.


text:
    In the Matter of Jack Borgenicht, Debtor. Jack BORGENICHT, Appellant, v. CREDITORS’ COMMITTEE, Appellee.
    No. 820, Docket 73-1027.
    United States Court of Appeals, Second Circuit.
    Argued May 29, 1973.
    Decided May 31, 1973.
    Elliot L. Krause, New York City (Le-inwand, Marón, Hendler & Krause, New York City), for appellant.
    Julius J. Abeson, New York City (Hahn, Hessen, Margolis & Ryan, New York City), for appellee.

      Before MOORE, FRIENDLY and FEINBERG, Circuit Judges.
   PER CURIAM:

This appeal from an order of the District Court for the Southern District of New York denying a petition to review an order of Referee Babitt raises the question whether a debtor who has been party to a confirmed arrangement under Chapter XI of the Bankruptcy Act may apply for leave to file an application for an extension of time to make payments under § 363 although the court did not retain jurisdiction pursuant to § 368. Although expressing sympathy with the debtor, the referee thought that the statute clearly precluded the relief sought. We agree and can add nothing useful to his excellent opinion. For the convenience of the bench and bar, we annex a copy of the relevant portions of this as an appendix.

Affirmed.

APPENDIX

Roy Babitt, Referee:

This debtor filed his voluntary petition for an arrangement under the statutory scheme of Chapter XI of the Bankruptcy Act, Section 302 et seq., 11 U.S.C. § 702 et seq., and in particular under Section 322, 11 U.S.C. § 722. That petition was filed on May 7, 1969 and was referred to Referee Loewenthal. It has since been re-referred to me.

On October 9, 1969 the debtor filed his proposed arrangement (or as it has come to be called — -his plan) with his creditors.

For purposes of the instant controversy, paragraph 4a of the proposed arrangement provided that the claims of all general unsecured creditors were to be paid in full without interest with 12% in cash to be paid on confirmation and the balance of 88% to be paid over sixteen “quarter annual installments of 5y2% each commencing from the date of confirmation.” Paragraph 5 of the proposed arrangement secured the creditors by execution by the debtor of mortgages on certain parcels of real property he owned. That paragraph also provided that in the event of default by the debtor or in the event of the debtor’s failure to perform any other conditions of the proposal the creditors, in their sole discretion, were to realize upon the security in such manner as they deemed advisable.

That proposed arrangement was ultimately accepted by the debtor’s creditors in accordance with the statutory scheme and after the debtor had satisfied the statutory conditions precedent to confirmation, Referee Loewenthal entered an order on July 27, 1970 confirming the debtor’s arrangement. Between the entry of Referee Loewenthal’s order and now the debtor has paid the 12% in cash and seven of the 5%% installments called for by paragraph 4a of the arrangement. For purposes of the instant dispute it is important to note here that the debtor’s arrangement did not contain the provision contemplated by Section 357(7) of the Act, 11 U.S.C. § 757(7), whereby this court would have retained jurisdiction “until provisions of the arrangement, after its confirmation, have been performed . . .”

While it might well have been desirable from the debtor’s standpoint for this court to have been given the retained jurisdiction of Section 357(7), the fact is that the creditors did not require it of the debtor in his proposal. Indeed in light of the motion which is the subject of this opinion, it is altogether likely that the creditors chose to block efforts by the debtor to include such a provision, for it seems to the court that the creditors are of a mind to pursue whatever remedy they might have without inter-ferenee by this court. In any event, for want of the specific conferral of continued jurisdiction in the arrangement, it is plain that Section 368 of the Act, 11 U.S.C. § 768, is of no moment in this controversy. That section states clearly and unequivocally that the court shall retain jurisdiction “if so provided in the arrangement.”

The debtor brought this motion for an order granting the debtor leave to file a modification of his arrangement to provide for an extension of the time within which he might make the balance of the deferred payments. Simply stated, the debtor asked the opportunity to propose a deferral of the July, 1972 5y2% installment until October, 1972 and the balance of such payments to be paid semi-annually thereafter until the remaining balance of some 30% called for by the original proposal shall have been paid. As a legal basis for the motion, the debtor apparently invokes Section 387 of the Act, 11 U.S.C. § 787, and claims support for such invocation by the retention of jurisdiction which Congress did give to this court but limitedly by Section 369 of the Act, 11 U.S.C. § 769.

The creditors’ committee answered and raised two defenses alleging that this court is bereft of power to grant the motion and that accordingly the motion fails to state a claim upon which any relief can be granted.

It is with the utmost reluctance that I must conclude that the creditors’ committee’s defenses to the motion must be sustained and the motion denied.

Section 387 of the Act, the linchpin of the debtor’s motion, speaks to the point. It does confer post-confirmation power in this court to authorize a debtor to alter or modify the confirmed arrangement by asking his creditors for more time to pay what he has promised them. The difficulty facing the debtor is that when Congress gave the court this power it did not do so unqualifiedly. The power was given only if the court had already had the retained jurisdiction contemplated by Section 368. And Section 368 swiftly and surely states that this court is to retain jurisdiction if it is provided for in the arrangement as authorized by Section 357(7) of the Act.

Sections 368 and 387 must be read together. Their plain unambiguous language defies their being construed in such way as to give the debtor the opportunity he seeks of asking his creditors to accept his new offer deferring the payments of the 30% or so still due them and to stay their hand from foreclosing the mortgages he gave them to secure compliance with his original proposal.

A problem in statutory construction seriously bothers a court only where there is a contest between probabilities of the meaning of the words of a statute. See Reflections on Reading Statutes, Felix Frankfurter, The Benjamin N. Cardozo Lecture before the Association of the Bar of the City of New York (March 18, 1947).

Section 387 is a relatively recent enactment, it was enacted by Public Law 85-732 at the Second Session of the 85th Congress in 1958. While the legislative history, Senate Report 2094, 85th Cong., 2d Sess. (1958), U.S.Code Cong. & Admin.News 1958, p. 3804, does not indicate that Congress was specifically aware of the precise problem raised by this debtor who has faithfully discharged more than % of his original commitment, there is enough in the testimony before the committee to indicate that Congress knowingly pitched the jurisdiction to permit post-confirmation modification only to the instance where the court was specifically given jurisdiction by the original arrangement. After all, Congress might have supposed, the creditors, once having accepted a debtor’s offer, should be free to fashion their own recourse after a debtor has left the court. Be that as it may, the legislative history discloses that the main impulse for the legislation was to provide a judicial alternative to bankruptcy liquidation in the event a debtor has not squarely complied with the terms of his offer. But that alternative is available only where the power was specifically reserved to the court in the plan.

By specifically referring to the retained jurisdiction of Section 368, Congress expressed the limits to which it was willing to sanction further judicial control over the continuing dialogue between a debtor and his creditors. Had Congress wished to confer this post-confirmation power on this court in any event it could easily have done so. Congress could easily have conferred the power whether it was the kind specifically granted by Section 368 or generally granted by Section 369. Congress did not see fit to do so and this court cannot rewrite the statute by extending it beyond the thought conveyed by the unambiguous words. The short of it is that the sharply limiting language of Section 387 does not admit of any reading other than that which the words spontaneously yield.

It cannot be denied that this debtor has faithfully complied with the terms of this arrangement in the period since it was confirmed by Referee Loewenthal. The argument on the motion discloses that a piece of the debtor’s property in New York City has lately yielded less income than the debtor thought two years ago it would have yielded in order for him to make the necessary installment payments to his creditors. It seems to the court that the creditors could eschew foreclosing on the property to realize the 30% of their payments still due. To foreclose now would be to deny to the debtor the future enhancement of that property where it could serve to continue the rehabilitation process begun when the debtor first invoked the provisions of Chapter XI.

But such equitable restraint must come from the debtor’s creditors, for, while we have been reminded again and again that this court applies equitable principles in the exercise of its bankruptcy jurisdiction, Bank of Marin v. England, 385 U.S. 99, 103, 87 S.Ct. 274, 17 L.Ed.2d 197 (1966), Pepper v. Litton, 308 U.S. 295, 305, 60 S.Ct. 238, 84 L.Ed. 281 (1939), there is simply no play in the case at bar for the exercise of such judicial equity power. This serves to emphasize that in this contest I have been called upon, not to determine equities, but to construe a Congressional enactment, processes which unfortunately do not necessarily lead to the same result. Haller v. Esperdy, 397 F.2d 211 (2d Cir. 1968). In short, this court’s equitable jurisdiction is not robust enough to amplify a jurisdiction severely limited by the plain language of recent enactment.

      . Section 322 contemplates an original petition while Section 321, 11 U.S.C. § 721, contemplates a Chapter XI petition (luring an already viable bankruptcy proeeeding.

      . Non-conferral of Section 357 (7) jurisdiction in no way suggests that this court lacks other powers after confirmation of an arrangement. See In re Pathe News, Inc., 270 F.Supp. 670 (S.D.N.Y. 1967) ; 9 Collier on Bankruptcy, (14th Ed.) ¶¶ 9.29, 9.30, 1108. For an early decision before Congress conferred any power to allow a debtor to modify his plan, see Seedman v. Friedman, 132 F.2d 290 (2d Cir. 1942), where the Court of Appeals characterized this court’s role as one of watchful waiting absent conferral of the limited retained jurisdiction the statute then carried.