author: FAIRCHILD, Circuit Judge.

text:
    UNITED STATES STEEL CORPORATION, a corporation, Plaintiff-Appellee, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, Defendant-Appellant.
    No. 72-1698.
    United States Court of Appeals, Seventh Circuit.
    Argued June 8, 1973.
    Decided Jan. 3, 1975.

      John M. Moelmann, D. Kendall Griffith, Chicago, 111., for defendant-appellant.

      Harlan L. Hackbert and George W. Gessler, Chicago, 111., for plaintiff-appellee.
    Before FAIRCHILD, STEVENS and SPRECHER, Circuit Judges.
   FAIRCHILD, Circuit Judge.

Plaintiff United States Steel Corporation (Steel) brought suit for declaratory judgment claiming insurance coverage under policies issued by the defendant, Hartford Accident and Indemnity Company (Hartford) and seeking damages for Hartford’s breach of its duty to defend Steel in underlying state court actions. Three separate actions were consolidated and the district court granted summary judgment for Steel. Hartford appeals from the district court’s declaration that Hartford’s Comprehensive General-Automobile Liability Policy provided coverage for the claims brought against Steel in the underlying actions; that Hartford had breached its duty to defend in those actions, and that Hartford was obligated to pay the judgment secured; and from the award as damages of the amounts of Steel’s costs and expenses in defending the underlying actions. Jurisdiction is founded on diversity of citizenship and Illinois law controls substantive questions.

I. COVERAGE AND THE DUTY TO DEFEND

During the period relevant to this action, Hartford provided the primary insurance coverage for the owners, architects and all of the contractors and subcontractors for the construction of the John Hancock Building in Chicago, Illinois. Tishman Construction Company (Tishman) was the general contractor for the project and Steel, through its American Bridge Division, one of the subcontractors. The contract between Tishman and Steel contained an agreement that Steel would indemnify and hold harmless Tishman from any claim arising out of the work performed by Steel; and would pay any claims for bodily injury caused by Steel’s performance of the work; including all claims arising under the Illinois Structural Work Act, Ill.Rev.Stats. Ch. 48, §§ 60 — 69. In addition, as a result of the negotiations between the parties, Steel accepted all the coverage provided under Hartford’s “wrap-up” program, with the exception of coverage for liability under the Illinois Workmen’s Compensation Law.

Included in the coverage accepted by Steel was that provided by the Comprehensive General-Automobile Liability Policy. Coverage B obligated Hartford to “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury . . . sustained by any person and caused by accident.” Exclusion (h) provides that the policy does not apply “under Coverage B, except with respect to liability assumed by the insured under a contract as defined herein, to bodily injury to any employee of the insured arising out of and in the course of his employment by the insured.” The definition of “contract” in Condition 3 of the policy would not include Steel’s contract with Tishman, but it is conceded that this is not controlling. Coverage Y under a Contractual Liability Coverage Endorsement obligated Hartford “to pay on behalf of the insured all sums which the insured, by reason of the liability assumed by him under any written contract designated in the schedule herein, shall become legally obligated to pay as damages because of bodily injury . . ., sustained by any person and caused by accident.” The schedule designated “that part of all written contracts (other than as defined in condition 3 of the policy) in which any named insured assumes the liability of others.”

During the course of construction of the John Hancock project, Cecil Gadd, an employee of Steel, was injured, and he sued the owners, architects and Tishman, inter alios, alleging violations of the Structural Work Act and common law negligence. Pursuant to the terms of the Comprehensive General-Automobile Liability Policy, Hartford accepted the defense of that action and retained attorneys to represent the defendants. The defendants in turn filed a three-count third-party action for indemnity against Steel based, respectively, on theories of (1) “active-passive” liability to indemnify, (2) express indemnity, and (3) implied indemnity. Steel tendered the defense of the third-party complaint to Hartford, seeking coverage under the “wrap-up” policies. Hartford refused to defend or to provide coverage under Counts I and III. Defendants in the state court action, represented by attorneys furnished by Hartford, voluntarily dismissed Count II (express indemnity) before any answer by Steel, but after its defense was tendered to Hartford.

There could be no question of Hartford’s duty to defend Steel in the state court action if the third-party complaint had remained in its original three-count form. Where the pleadings disclose potential coverage under a liability insurance policy, the insurer must defend. Domas v. Fidelity & Casualty Co. of New York, 113 Ill.App.2d 22, 26, 251 N.E.2d 284 (1969); Sims v. Illinois National Casualty, 43 Ill.App.2d 184, 193 N.E.2d 123 (1963). See generally, Comment, “Insurer’s Duty to Defend Under a Liability Insurance Policy,” 114 U.Pa. L.Rev. 734 (1966); Annotation, 50 A.L.R.2d 458.

Count II was voluntarily dismissed, and the state court action proceeded to a determination of Steel’s liability without reliance on Steel’s promise to indemnify, though known to all parties, including Hartford at the time it issued its policies. Hartford’s agreement here rests in part on the proposition that because Steel’s liability was so determined, such liability was outside the coverage of the policy.

Putting aside for the moment the effect of Hartford’s involvement in the voluntary dismissal of Count II, which claimed Steel’s liability on the ground of Steel’s express promise, the initial question is whether the district court erred in holding that Steel’s liability to indemnify. Tishman from the Gadd claim was covered because indemnification was expressly promised in the written contract.

No one has pointed out that any facts determined in state court, on which that judgment was grounded, were inconsistent in any way with the existence of Steel’s liability upon its promise to indemnify Tishman. The fact that Steel may have been required to assume Tishman’s liability to one of Steel’s employees under another legal theory does not eliminate the fact that, by contract, Steel expressly agreed to assume the obligation.

And where the facts are such that an insured’s liability exists on one theory as well as another and one of them brings the liability within coverage, we think the insured may avail himself of the insurance protection. To hold otherwise would place upon the insured the burden of demonstrating where liable on two theories, which theory was controlling for purposes of insurance coverage.

We agree with the following reasoning of the district court:

“Applying those clauses to the facts of the case at bar, it is clear that U. S. Steel, by its contractual agreement with Tishman, assumed Tishman’s liability for all ‘claims and judgments arising or alleged to arise under the Illinois Structural Work Law,’ and thus assumed Tishman’s liability for any sums which it became obligated to pay resulting from the Cecil Gadd claim. Accordingly, it follows, from the face of the General Liability policy, that since Hartford insured U. S. Steel with regard to such a contract of indemnity, there can be no doubt that Hartford owed U. S. Steel coverage for that assumed liability.
* * * * * * *
“However, it is Hartford’s position that because the express indemnity count was voluntarily dismissed from Tishman’s third-party action against U. S. Steel, and since the judgment on U. S. Steel’s liability to Tishman was based on the other theories, Hartford was not obligated to provide coverage under the express provisions of the General Liability policy. I cannot agree.
“The term ‘liability’ as utilized in the relevant portion of the policy cannot be limited to simply a judgment based upon a certain theory. Rather, because of the well-established doctrine that insurance contracts should be broadly construed in favor of the insured, I. L. P., Insurance, § 149, and the numerous cases cited therein, the term ‘liability’ must, at least, be namely that if Tishman becomes liable under the provisions of the Illinois Structural Work Act because of an accident involving a U. S. Steel employee, then U. S. Steel must assume that liability, and, therefore, Hartford, pursuant to the terms of its policy, must indemnify U. S. Steel for that liability, regardless of the theory on which it is based.”

II. COLLATERAL ESTOPPEL

Hartford argues that Steel is collaterally estopped from litigating in this action the question whether its liability to indemnify Tishman was a liability assumed by it under a written contract. The argument is based on the fact that at the close of the evidence in the state court trial, and again after verdict, Steel moved to strike Counts I and III on the ground that the express agreement between the parties precluded any theory of implied indemnity. The court denied the motions.

In the view we take of the matter, the adjudication of Steel’s liability to indemnify Tishman on the active-passive theory did not rest on the determination of any fact which was inconsistent with Steel’s contractual liability to indemnify Tishman. Understandably, Steel would have preferred to be held liable, if at all, on the agreement to indemnify, but the state court’s decision that it was liable as an active delinquent did not foreclose the existence of contractual liability as well.

III. HARTFORD’S CONFLICT OF INTEREST

The district court pointed out that when Tishman filed its third-party action against U. S. Steel on the basis of both express and implied liability, “U. S. Steel became potentially liable under its indemnity agreement, and therefore, when U. S. Steel requested that Hartford afford it a defense, it was Hartford’s obligation under the policy to afford it.

“However, rather than to fulfill its obligation, Hartford, which insured both Tishman and U. S. Steel, evidently saw a way in which it could limit the amount that it would be required to pay by shifting the loss over to U. S. Steel. Accordingly, the Hartford attorneys representing Tishman voluntarily caused the dismissal of the express indemnity count under which Tishman clearly would have prevailed and on which U. S. Steel, and, therefore, Hartford, were clearly liable. The suit then proceeded only on the implied liability theories on which Hartford claimed that it owed no coverage to U. S. Steel.

“Such a course of action was quite clearly not in Tishman’s best interest, since it assumed a less positive legal stance in the third-party action, or in the best interest of U. S. Steel, which would then be obligated to pay the first $25,000 of Tishman’s claim out of its own pocket.

“ . . . Hartford attempted to shift the entire burden of the Gadd suit onto U. S. Steel by managing the state court suit so as to allow Tishman to prevail on the only grounds which would eliminate its own liability under the plain coverage of the General Liability policy.

“The withdrawal of Count II of the complaint originally filed against U. S. Steel was a transparent attempt to effect this result.

“Defendant Hartford should not be permitted to avoid its policy obligations by manipulating the pleadings in a lawsuit, which it controlled, for its own benefit.”

If, contrary to our conclusions already expressed, the theory upon which the state court adjudicated the liability of Steel to Tishman (duty to indemnify based on the active-passive criterion, rather than duty under express promise to indemnify) governed the question of insurance coverage, with the result there was none, we agree that Hartford did not have the right to take advantage of its control of the case as Tishman’s insurer to choose the theory of the state court litigation and thus excuse itself from defending and protecting Steel. Hartford owed each of its insureds a duty of fair dealing. Whether the relationship be labeled fiduciary or not, the insurer is bound not to put its own interest ahead of the protection it has promised its insureds. See Bailey v. Prudence Mutual Casualty Company, 429 F.2d 1388, 1390 (7th Cir. 1970). Cf. Allstate Insurance Company v. Keller, 17 Ill. App.2d 44, 149 N.E.2d 482, 486 (1958).

The judgment appealed from is affirmed.

      . The parties here have stipulated that the facts and substantive issues of the Gadd action control the disposition of the other two cases consolidated in the judgment appealed from.

      . See Simmons v. Fidelity and Casualty Co., 511 F.2d 87 decided today. Steel does not take the position taken by Simmons in that case. If Simmons had prevailed in its argument that under Illinois law, liability of a contractor to indemnify an owner based on the active-passive fault criterion, was liability assumed by the contractor under the contract, the same argument would clinch Steel’s recovery here.


source: Caselaw Access Project

author: DYER, Circuit Judge:

license: Public Domain

text:
    David Nelson STANDEFER, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
    No. 73-1001.
    United States Court of Appeals, Fifth Circuit.
    April 14, 1975.
    Rehearing Denied May 29, 1975.

      Anthony J. P. Farris, U. S. Atty., William L. Bowers, Jr., Asst. U. S. Atty., Houston, Tex., for defendant-appellant.
    Joseph D. Jamail, John Gano, Gus Kolius, Houston, Tex., for plaintiff-appellee.

      Before TUTTLE, DYER and MORGAN, Circuit Judges.
   DYER, Circuit Judge:

The United States appeals from an adverse judgment rendered under the Federal Tort Claims Act, 28 U.S.C.A. § 2671 et seq., based upon a Veterans Administration Hospital’s negligent treatment of a patient, David Standefer, who was rendered quadriplegic. The Government raises a number of issues concerning both the imposition of liability and the award of damages. Although we determine that the judgment was proper as to liability, the inclusion of an inflationary factor in the computation of damages for future medical expenses and loss of earnings necessitates a partial reversal and a remand for recomputation of that portion of the award.

During the early morning of January 27, 1969, Standefer was injured in an automobile accident near Brenham, Texas, and was admitted to St. Jude’s Hospital in Brenham. The attending physicians concluded that Standefer had a neurological problem beyond their expertise, and about noon the next day arranged to have the patient transferred to the VA Hospital in Houston. The senior neurological resident on duty at the VA facility, Dr. Patrick, was advised that Standefer was expected to arrive sometime during the afternoon, so the physician left orders with the admissions office that Standefer was to be brought to neurosurgery upon his arrival. Stan-defer arrived at the Houston hospital at approximately 4:30 p. m., but he was not sent to Dr. Patrick for examination until sometime between 7:00 and 7:30 p. m.

The physical examination conducted by Dr. Patrick indicated a neurological deficit, evidenced by a flaccid condition of the left leg, substantial weakness in the left arm, and some weakness on the right side of the body. There is some dispute whether Standefer was undergoing progressive paralysis from the time of the accident, but it appears that even during his wait in the admissions area of the VA hospital he was able to light and smoke cigarettes without assistance, drink water and carry on normal body functions. After the examination, Dr. Patrick was optimistic and indicated, according to one member of Standefer’s family, that the patient would be up and around in a few weeks.

Although the attending physicians at St. Jude’s in Brenham had suspected a subdural hematoma, a type of head injury, Dr. Patrick’s examination led him to conclude that the injury was in the cervical spine. Upon being informed that x-rays had been taken at St. Jude’s and that the films were in the family’s possession, Dr. Patrick asked that the films be brought to him. The trip to obtain the films took considerably longer than Dr. Patrick anticipated, and he was further disappointed to discover that the x-rays contained no views of the cervical spine.

At approximately 10:30 p. m., Standefer was taken to the x-ray department. Because Standefer is a large man, standing over six feet tall and weighing over 200 pounds, the x-ray technician, Reeves, asked Standefer’s son-in-law, Glasgow, to assist in the x-ray procedures. The first four films were taken with no difficulty, except that the x-rays were inadequate to reveal the exact location of the injury. It is undisputed that while the first four x-rays were being taken, Stan-defer was kept lying on his back, and that his head and neck remained virtually immobile. During the last two films, one arm was positioned above his body to obtain a view known as a “swimmer’s lateral.” According to Reeves and Dr. Patrick, Standefer was again so positioned for the fifth film, but both Stan-defer and Glasgow maintained that for the last film, Reeves pulled Standefer’s right arm across his body, possibly in an attempt, according to expert testimony, to obtain an “oblique” view. Standefer felt a jerking motion “as though he was going to flip me over,” and cried out that he was unable to move. Regardless of which version of the events actually occurred, the outcome was the same: Standefer left the x-ray room a permanent quadriplegic.

In November 1970, Standefer filed an administrative claim with the Veterans Administration. The incident giving rise to the claim was described by Standefer as follows: “Claimant sent to have x-rays taken. Veterans Administration Hospital employee twisted his neck and/or body causing onset of quadriplegia.” After six months had passed with no final disposition of the claim, Standefer filed this action alleging essentially the same basis for the lawsuit. In August 1972, approximately three weeks before trial, the complaint was amended to further charge negligence in admitting the patient to the VA hospital, in delaying the beginning of treatment, and for inadequately staffing the x-ray department. The district court, sitting without a jury, accepted these contentions and determined that “[a]ll such acts of negligence, independently and in combination, on the part of the defendant, its agents and employees, proximately caused the paralysis suffered by the plaintiff.” Based upon mortality tables showing that at the time of trial Standefer had a life expectancy of 20.0 years, the court awarded damages for: (1) loss of earnings, including an inflationary factor of 5.5%, in the amount of $130,439.09; (2) future medical expenses, based on a figure of $120 per day and including an inflationary factor of 4.5%, $929,238.20; (3) past medical expenses, $47,597.90; and (4) pain and suffering, $400,000.

The Government argues that no issue with respect to liability was properly before the court other than mistreatment vel non in the x-ray room, since Standefer’s administrative claim before the Veterans Administration referred only to the occurrences in the x-ray department. Even if we were to accept this position, the judgment of the lower court could still be affirmed on the basis that liability was explicitly imposed on the VA for negligent acts “independently and in combination.” In fact, by isolating the original basis of the claim, we need not address other issues such as negligent delay in admission and treatment, for we must affirm the decision of the court below if there is any theory on which liability can properly be predicated. As the Ninth Circuit held when presented with a similar situation: “In view of the fact that the judgment is based on two grounds . . . the judgment must be affirmed if supportable on either ground.” Hayden v. Chalfant Press, Inc., 9 Cir. 1960, 281 F.2d 543, 547. By limiting our examination of the judgment to the original charge of negligence — which is essentially unchallenged in the appeal by the United States — it is unnecessary for us to consider the alternative theories of liability which the Government attacks. Thus we now focus our inquiry on whether liability can be premised solely on the allegedly negligent treatment in the x-ray room.

In examining the legal basis of the judgment below we must determine whether a private individual would be liable under state law, in this case the law of Texas. The requisites for establishing medical negligence were enunciated by the Supreme Court of Texas as follows:

It is definitely settled with us that a patient has no cause of action against his doctor for malpractice, either in diagnosis or recognized treatment, unless he proves by a doctor of the same school of practice as the defendant: (1) that the diagnosis or treatment complained of was such as to constitute negligence and (2) that it was a proximate cause of the patient’s injuries.

Bowles v. Bourdon, 1949, 148 Tex. 1, 219 S.W.2d 779, 782. While this action is not against Dr. Patrick personally, the underlying theory of the lawsuit is that once the neurosurgeon was aware of the probability of injury to the cervical spine, he was under a duty either to warn the x-ray technician of the need for special precautions or to be present during the x-ray procedures to make certain that the patient’s head and neck were carefully handled. After reviewing the expert evidence adduced by Standefer, we are satisfied that Dr. Patrick was on notice of the need to safeguard Stan-defer from any twisting or turning which might aggravate the injury. The plaintiff’s expert witness further established that an attempt to pull Standefer’s arm across his body to obtain an oblique view could have resulted in the jerking motion that Standefer recalled. If the x-ray technician did so position the patient, and if neither he nor the neurosurgeon had taken the required steps to immobilize the patient’s neck before the maneuver was attempted, the result could have been a “new insult” which proximately caused the sudden onset of quadriplegia. We conclude that Standefer carried the legal burden established by Texas law. Although the Government, too, presented expert evidence in support of its theory that Stan-defer was undergoing a progressive paralysis which suddenly culminated in quadriplegia during a properly conducted x-ray procedure, our task is not to choose between conflicting theories, but to make certain that the theory accepted by the district court has sufficient evidentiary support.

As we view this ease, the outcome depends entirely on the district court’s factual resolution of what occurred in the x-ray room. Because the version of the events related by Standefer and Glasgow was totally opposed to the version given by the x-ray technician and the physician, the applicable standard is whether the district court was clearly erroneous in accepting the plaintiff’s factual assertions. McAllister v. United States, 1954, 348 U.S. 19, 75 S.Ct. 6, 99 L.Ed. 20.

At this juncture, it is appropriate to address another point of alleged error raised by the Government since it is inextricably connected with the soundness of the district court’s findings of fact. The United States asserts that the court below abused its discretion in the conduct of the trial by summoning its own witnesses, launching collateral inquiries and otherwise departing from its judicial role by becoming an advocate for the plaintiff. Since the action was tried without a jury, the district court is accorded great discretion in its role in the trial. Bowles v. Lentin, 7 Cir. 1945, 151 F.2d 615, 620, relied on by the Government to buttress its position, suggests only that it is “conceivable” that the conduct of a judge might be so unfair as to evidence prejudice warranting reversal. Even this less than compelling language is prefaced by the observation that in the absence of a jury, a court has “wide latitude” in commenting upon the occurrences at trial, and by the caveat that appellate courts must guard against magnification of instances which are of little importance in their setting. In this case, the Government complains primarily of the in-court investigation into what appeared to be an attempt to tamper with hospital records pertaining to the VA’s treatment of Standefer. Because there was so little non-testimonial evidence of what actually happened in the x-ray room, we certainly cannot fault the district court for trying to ascertain the reliability of records which might lend credence to one of the versions being urged by the litigants. While the record does show that the court actively participated in the trial, we are unpersuaded that its expressions indicate prejudice requiring reversal.

Finding no basis for the contention that the court exceeded the bounds of judicial propriety in its conduct of the trial, our review is limited to determining whether the court’s factual resolution of the controversy fails to meet the clearly erroneous standard. Where, as here, the outcome depends so greatly on the evaluation of highly conflicting evidence, we must give “due regard ... to the opportunity of the trial court to judge the credibility of the witnesses.” Rule 52, Fed.R.Civ.P. We are satisfied that the district court was not clearly erroneous in the resolution of the disputed facts. United States v. Yellow Cab Co., 1949, 338 U.S. 338, 70 S.Ct. 177, 94 L.Ed. 150. We affirm the district court’s imposition of liability on the United States.

Turning now to the damages awarded Standefer, we address the three specifications of error argued by the Government. The first contention is that the district court erred by using mortality tables with no adjustment to take account of the impact of Standefer’s disability on his life-span. The Government’s expert evidence was to the effect that quadriplegia might decrease Standefer’s life expectancy by ten to fifteen percent. Although no challenge could be made to the admissibility of mortality tables in this case, Kershaw v. Sterling Drug, Inc., 5 Cir. 1969, 415 F.2d 1009, 1012, the Government argues that reliance by the district court on unadjusted mortality tables was contrary to the weight of the evidence. Tabor v. Miller, 3 Cir. 1968, 389 F.2d 645, cert. denied 391 U.S. 915, 88 S.Ct. 1810, 20 L.Ed.2d 654. In Tabor, life expectancy tables were excluded but the court concluded that even without them, the jury had adequate evidence to resolve the “necessarily speculative question” of the plaintiff’s probable life-span. Id. at 647. In the case sub judice, a judge, not a jury, was called upon to answer this “necessarily speculative question,” and while there was evidence that Standefer’s life-span might be diminished by being a quadriplegic, the court also had other factors to consider. For example, the parties seemed to agree that the figure of $120 per day for medical care was a reasonable approximation of costs which would have to be borne over a number of years, subject, however, to the contingency that if Standefer encountered any serious medical complications, the estimate might be too conservative. Balancing such factors is within the province of the district court, and we are unwilling to hold that the court abused its discretion in computing damages based on standard mortality tables considered in conjunction with the other variables existent in this ease.

The Government’s second attack on the damages awarded is directed at the amount found due for past medical expenses incurred at the VA facility pri- or to the time of trial. We find no basis for overturning the decision of the district court that unless the Government agreed to waive its lien pursuant to the Medical Care Recovery Act, 42 U.S.C.A. § 2651 et seq., Standefer was entitled to recover an amount equal to his past medical expenses from the United States in this action.

Finally, we reach the contention of the Government that the district court erred in allowing an inflationary factor to be used in computing damages for future medical expenses and for the loss of future earnings. Our en banc decision in Johnson v. Penrod Drilling Co., 5 Cir. 1974, 510 F.2d 234 [Nos. 71-2243, 71-2245, March 21, 1974, p. 4581] establishes the correctness of the position taken by the United States, and thus necessitates a reversal of the judgment on these items. The district court did not have the benefit of our final holding in Penrod at the time of trial, hence we remand this case to the court below for a recomputation of damages for future medical expenses and loss of earnings.

Finding no other meritorious points in the appeal, we affirm the judgment in all other respects.

Affirmed in part, reversed in part, and remanded.

      . 28 U.S.C.A. § 2675(a).

      . 28 U.S.C.A. § 2402.

      . For our disposition of the Government’s contention that the United States cannot be held liable for the manner in which it staffs a VA hospital see note 5, infra. As for the other acts of alleged negligence on which the district court relied, it is sufficient to say that: “In the review of judicial proceedings the rule is settled that if the decision below is correct, it must be affirmed, although the lower court relied upon a wrong ground or gave a wrong reason.” Helvering v. Gowran, 1937, 302 U.S. 238, 245, 58 S.Ct. 154, 158, 82 L.Ed. 224. In our determination of this appeal, we need not and do not reach the merits of the Government’s arguments that Standefer failed either to make a prima facie case or to introduce sufficient evidence to support the alleged acts of negligence by the VA prior to the incident in the x-ray room. Even if the VA was negligent in failing to render prompt treatment to Standefer, the determination that the x-ray room mishandling proximately caused the onset of quadriplegia renders the earlier negligence irrelevant.

      . 28 U.S.C.A. § 2674. United States v. Muniz, 1963, 374 U.S. 150, 153, 83 S.Ct. 1850, 10 L.Ed.2d 805.

      . The Government’s contention that the district court erred in holding that a proximate cause of Standefer’s injury was inadequate staffing of the x-ray department gives us little pause. The argument that staffing is a discretionary function for which the United States cannot be held responsible under the Federal Tort Claims Act presents a legal issue that is undercut by the facts of this case. The expert witnesses for both sides agreed that because of Standefer’s size, a single x-ray technician would require additional help. However, it was made clear that any “semi-intelligent layman” could, with proper direction, provide the needed assistance. As noted before, Standefer’s son-in-law was asked to aid in positioning the patient, but the record leaves no doubt that Glasgow was called upon only to hold Standefer in the position in which the x-ray technician placed him, hence the question remains whether the x-ray technician and the neurosurgeon took the necessary steps to protect Standefer’s head and neck.


author: TUTTLE, Circuit Judge.

text:
    RESORTS INTERNATIONAL, INC., Petitioner-Appellant-Cross-Appellee, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee-Cross-Appellant.
    No. 74-1955.
    United States Court of Appeals, Fifth Circuit.
    April 14, 1975.

      John K. Antholis, New York City, for petitioner-appellant-cross-appellee.
    Scott P. Crampton, Asst. Atty. Gen., Dept, of Justice, Tax Div., Meade Whitaker, Chief Counsel, I.R.S., Gilbert E. Andrews, Acting Chief, Appellate Sec., Richard Farber, Leonard J. Henzke, Jr., Attys., Tax Div., Dept, of Justice, Washington, D. C., for respondent-appelleecross-appellant.
    Before TUTTLE, COLEMAN and SIMPSON, Circuit Judges:
   TUTTLE, Circuit Judge.

This tax case involves four separate sets of transactions entered into by the taxpayer, Resorts International, during the tax years 1962 through 1965. The Commissioner assessed deficiencies totalling $124,924 for these years, in response to which the taxpayer filed a petition in the Tax Court for a redetermination of the deficiency. The Tax Court upheld three of the four deficiencies assessed by the Commissioner. 60 T.C. 778. The taxpayer filed this appeal, and the Commissioner cross-appealed. In our view, the Commissioner was correct as to all four deficiencies, and accordingly we affirm in part and reverse in part.

I.

FACTS

The taxpayer is a Delaware corporation which, during the years in question, was engaged primarily in the business of manufacturing, distributing, and selling paint through company-owned stores and independent dealers. The transactions which gave rise to the four tax issues involved in this case can be briefly summarized:

1. Acquisition and Liquidation of Victor Paint Company’s Subsidiaries.

Victor Paint Company was a Michigan corporation which manufactured and sold paint through retail stores. At the time of its statutory merger with the taxpayer in April, 1962, it operated 47 wholly-owned subsidiaries. In May and December following the merger the taxpayer liquidated 43 of these subsidiaries. On its corporate income tax return for 1962 the taxpayer claimed a net operating loss deduction for the loss carryforwards of 26 of these former subsidiaries of Victor Paint, in the aggregate amount of $172,636.47. The Commissioner disallowed 50% of the claimed net operating loss deductions. The Tax Court sustained the Commissioner’s action.

2. Acquisition and Liquidation of Seven Biff-Burger Corporations.

In October 1962 the taxpayer entered into agreements of reorganization with the sole stockholders of 7 corporations which were in the business of selling hamburgers from roadside restaurants. Pursuant to these reorganization agreements the taxpayer acquired the stock of these 7 corporations solely in exchange for 50,000 of its common shares. The following year these 7 corporations were liquidated, and on its corporate income tax return for 1963 the taxpayer deducted net operating loss carryforward attributable to certain of these corporations in the aggregate amount of $38,-346. The Commissioner disallowed 95% of the claimed net operating loss deduction, and the Tax Court sustained his determination.

3. Transfer of Biff-Burger Restaurants.

During 1964 and 1965 the taxpayer entered into 8 separate agreements, styled by the parties “franchise agreements,” by which the taxpayer transferred the privilege of operating Biff-Burger Restaurants within certain specified locations. The transfer agreements gave the right to operate the restaurant in question for a period of 15 years from the date of completion of the facility to the transferee, but included restrictions on the transferee’s rights to operate the business as it chose. On its corporate income tax return for 1964 the taxpayer reported long-term capital gains of $37,-868 from the sale of 3 of these Biff-Burger company-owned stores, and on its return for 1965 reported long-term capital gain of $52,684 from the sale of the remaining 5. The Commissioner determined that the gain realized in 1964 and 1965 on the transfer of the 8 Biff-Burger Restaurants was taxable as ordinary income rather than as a capital gain. The Commissioner’s assessment was based on the grounds that the transfers were licensing arrangements rather than sales of franchises, or in the alternative that the franchises were held by the taxpayer primarily for sale in its ordinary course of business and thus did not constitute a capital asset. The Tax Court sustained the Commissioner’s determination, holding that the transfers of the restaurants constituted mere licensing arrangements, and further holding that the franchises were held “primarily for sale.”

4. Transfers of the Victor Paint Stores.

During 1963 the taxpayer entered into contracts to transfer to independent dealers the right to operate certain paint stores in Detroit, Michigan which had been acquired in the merger with Victor Paint Company. The terms of the agreements provided that the agreements were for twelve months, renewable automatically from year to year thereafter unless either party gave notice it wished to terminate the agreements. In addition the agreements provided for certain limitations on the ability of the dealer to operate the business as he chose. On its corporate income tax return for 1963 the taxpayer reported long-term capital gain of $128,765 , from the transfer of these 7 paint stores. The Commissioner determined that the gain realized was taxable as ordinary income again on the alternative grounds that the transfers either constituted. mere licensing arrangements rather than sales of franchises, or that the stores were held by the taxpayer primarily for sale in its ordinary course of business. The Tax Court overruled the Commissioner’s determination, holding that the transfers were sales of going businesses. The Court however failed to address the Commissioner’s alternative contention that the stores were held “primarily for sale.”

Thus, while 4 separate transactions are involved in the case, 2 distinct tax issues are raised in the appeal and cross-appeal.

II.

OPERATING LOSS CARRY-FORWARDS

§§ 332 and 381(a) of the Internal Revenue Code of 1954 permit a corporation to liquidate a wholly-owned subsidiary and take into account its operating loss carryovers. The extent to which a corporation may use the loss carryovers of a liquidated subsidiary may be limited by § 382(b) if the liquidation occurs as part of the § 368(a)(1) tax-free plan of reorganization through which the corporation acquired the shares of the liquidated subsidiary. The amount of loss which can be carried forward by the parent is reduced by a formula contained in § 382(b) if the shareholders of the acquired corporation receive less than twenty percent of the total fair market value of the outstanding shares of the acquiring corporation.

If § 382(b) applies to the transactions at issue in this case, the parties agree that the formula contained in § 382(b)(2) would result in a reduction of 50% of the net operating loss carryover available to the taxpayer from the Victor Paint Company subsidiaries, and a reduction of 95% of the net operating loss carryover available from the Biff-Burger corporations.

The technical workings of the Code make this problem appear substantially more difficult than it actually is. The taxpayer acquired the stock of the Victor Paint Company subsidiaries through a statutory merger with Victor Paint; it acquired the stock of the Biff-Burger corporations through stock for stock exchanges. If the subsequent liquidations of these corporations were as a part of a serial set of transactions, intended at the time of the initial tax-free reorganization through which the liquidated corporations’ shares were obtained, then § 382(b) applies. If the tax-free reorganizations are distinct from the subsequent liquidations, then § 332 would permit the taxpayer to carryover the losses without reduction. As the Tax Court framed the issue, the relevant question here is whether there was an intent on the part of the taxpayer to continue the operations of the Victor Paint subsidiaries and the Biff-Burger Corporations after they were acquired.

The Tax Court found in both sets of transactions that the taxpayer did not have such an intention to maintain the operations of the liquidated corporations, but rather made the decision to liquidate the corporations as part of both the statutory merger, and the stock for stock exchanges, and that the liquidations were thus part of a continuing series of transactions. There is no reason to rehearse the various facts which the Tax Court relied upon in making this determination. We are satisfied that the record fully supports the court’s finding that the liquidations were part of a continuing series of transactions, and would not support a determination that the decisions to liquidate the various corporations were made entirely apart from the initial decisions to enter into a statutory merger and the stock for stock exchanges. In our view, the Tax Court was fully justified in finding that § 382(b) applies, and that the net operating loss carryforwards must be accordingly limited.

III.

FRANCHISE TRANSFERS

The Commissioner challenged the taxpayer’s claim that the gains it realized from the sales of the 7 Victor Paint Stores and the 8 Biff-Burger Restaurants should be taxable at capital gains rates which §§ 1221 and 1222 of the Code permit for gains arising from the “sale or exchange” of a capital asset. The Commissioner’s deficiencies were based both on his determination that the transfers of the restaurants and paint stores were not sales, but rather mere licensing arrangements, and in the alternative that if they were to be considered as sales, the franchises which were transferred were held in the taxpayer’s ordinary course of business “primarily for sale to customers.” The Tax Court found that the transfers of the Biff-Burger Restaurants were licensing arrangements, rather than sales of franchises, but found for the taxpayer on the transfers of the Victor Paint Stores. In our view, the Tax Court’s decision that the transfers of the Biff-Burger Restaurants were licensing arrangements, and not sales, applies with equal force to the transfers of the Victor Paint Stores. Thus, in our view, all 15 of the transfers were licensing arrangements, rather than sales of a capital asset, and should be taxable at the ordinary income rates. Because we hold that the transfers were something other than a sale of a capital asset, we do not reach the further question whether the franchises were held in the taxpayer’s ordinary course of business, and thus were not capital assets within the meaning of §§ 1221(1) and (2).

In analyzing agreements between manufacturers and their distributors or dealers to determine whether the agreement constitutes a license or the sale of a franchise, the problem is to determine the extent to which the transferor retains sufficient proprietary rights in the franchise that the rights transferred to the dealer are insufficient to constitute the sale of a franchise. The leading cases on this question all involve transfers of Dairy Queen franchises to dealers. See Dairy Queen of Oklahoma v. Commissioner of Internal Revenue, 250 F.2d 503 (10th Cir. 1957); Moberg v. Commissioner of Internal Revenue, 305 F.2d 800 (5th Cir. 1962); Gowdey’s Estate v. Commissioner of Internal Revenue, 307 F.2d 816 (4th Cir. 1962); Moberg v. Commissioner of Internal Revenue, 310 F.2d 782 (9th Cir. 1962); United States v. Wernentin, 354 F.2d 757 (8th Cir. 1965). This Court has held that certain restrictions on the right to operate a franchise can be permitted, and the sale can still constitute the sale of a franchise, if the restrictions “were designed to maintain quality, sanitary dispensing conditions, uniform standards for the trade named product, protect each sub-franchise purchaser as against other purchasers in respect to territory, protect the seller in respect to the contract ., and to insure the ascertainment and collection of contractual sums due . ” Moberg v. Commissioner of Internal Revenue, 305 F.2d at 806. However, even where a restriction similar to those involved in the franchise agreements in this case have been upheld as sales of franchises rather than licenses, the Courts have emphasized that the agreements involved the “sales of the exclusive and perpetual right” to use the trademark and equipment transferred by the agreement. See Moberg v. Commissioner of Internal Revenue, 305 F.2d 800, 806 (5th Cir. 1962); Dairy Queen of Oklahoma, Inc. v. Commissioner of Internal Revenue, 250 F.2d at 506; Gowdey’s Estate v. Commissioner of Internal Revenue, 307 F.2d at 819. Here it is clear that the franchise agreements transfer neither exclusive nor perpetual rights to use the Biff-Burger or Victor Paint Company trade name. In the case of the Biff-Burger transfers, the agreement specified a term of 15 years, while the Victor Paint agreements provided the transferee had the right to use the Victor trade name for only 1 year, after which time the agreement was automatically renewable unless either party chose to terminate. In both cases the limited rights granted to the transferee could not be transferred without the taxpayer’s consent and, most strikingly, the taxpayer retained the right to fix the franchisee’s prices.

In our view, these restrictions and limitations are clearly so substantial as to be incompatible with the sale of absolute and perpetual rights. The Tax Court found that the Biff-Burger transfers were mere licenses, and the resulting gains represented ordinary income. With this conclusion we agree. The court also found that the Victor Paint transfers “could hardly be considered the sale of a ‘franchise’ as that term is commonly understood by the courts,” yet inexplicably held that the Victor Paint transfers were entitled to capital gains treatment because the transactions concerned sales of “going businesses.” We do not understand how that conclusion could have been reached. The Tax Court found that the only right obtained by the transferee not otherwise freely available was the right to use the trade name “Victor Paint” and that the taxpayer reported the gain over the amount attributable to the sale of fixtures in each of the Victor Paint stores as “good will” — and it was on this basis alone that the Tax Court found that the gain was from a sale of a capital asset. In our view, once the Tax Court had found that the franchise agreements were not in fact sales of franchises within the meaning of that term, then the gain received by the taxpayer on the transfers of the Victor Paint dealerships must be a gain from licensing arrangements, as distinguished from the gain from the sale .of a business. Accordingly, the gains from the transfers of both the Biff-Burger Corporations and the Victor Paint stores are ordinary income, rather than capital gains, and the Commissioner’s deficiency determinations should have been upheld.

Affirmed in part and reversed in part.

      . During the tax years in question the taxpayer operated under the corporate name “Mary Carter Paint Co.” The corporate name was changed to “Resorts International, Inc.” in 1968.

      . The right to operate a Biff-Burger Restaurant could not be transferred; the taxpayer agreed to actively assist in the training of the transferee’s employees and provide other managerial assistance; the transferee agreed to operate the restaurant during certain times, as the taxpayer might “recommend,” and to sell certain objects at such prices as the taxpayer might approve. The transferee agreed to pay the taxpayer a percentage of monthly gross sales, and the taxpayer reserved the right to audit the transferee’s books.

      . The dealer could not assign the right to use the taxpayer’s name without its consent. The dealer agreed to lease the premises at which the stores were operated and to accept paint from the taxpayer at the price and on the same term at which the taxpayer sold to all other dealers. The dealer agreed to sell at certain minimum prices, to use the sales materials offered by the taxpayer, and to participate in cooperative advertising and to maintain the premises.

      . See § 368(a)(1)(A).

      . See § 368(a)(1)(B).

      . See, e. g., discussion in Commissioner of Internal Revenue v. Gordon, 391 U.S. 83, 96, 88 S.Ct. 1517, 20 L.Ed.2d 448 (1968); see generally Bittker and Eustice, Federal Income Taxation of Corporations and Shareholders (3d ed.) 14-101 et seq.

      . The Circuits are split as to how restrictive a franchise agreement can be before involving such proprietary rights that the agreement constituted a licensing arrangement rather than a sale. The Fourth and Tenth Circuits permitted restrictive categories similar to those sustained by this Court in Moberg v. Commissioner of Internal Revenue, 305 F.2d 800 (5th Cir. 1962) while the Eighth and Ninth Circuits imposed far more restrictive tests on what constituted a sale of a franchise. See Dairy Queen of Oklahoma v. Commissioner of Internal Revenue, 250 F.2d 503 (10th Cir. 1957); Gowdey’s Estate v. Commissioner of Internal Revenue, 307 F.2d 816 (4th Cir. 1962); Schmitt v. Commissioner of Internal Revenue, 271 F.2d 301 (9th Cir. 1959); Moberg v. Commissioner of Internal Revenue, 310 F.2d 782 (9th Cir. 1962); United States v. Wernentin, 354 F.2d 757 (8th Cir. 1965); and Leisure Dynamics, Inc. v. Commissioner of Internal Revenue, 494 F.2d 1340 (8th Cir. 1974).
      This conflict was resolved for the future in 1969 by the inclusion of § 1253 in the Code. § 1253 denies capital gains treatment to the transfer of a franchise, trademark or trade name if the transferor retains “any significant power, right, or continuing interest with respect to the subject matter of the franchise, trademark, or trade name.” See 1969 U.S. Code Cong. & Admin.News, 2241-2242, S.Rep. No.91-552, 91st Cong., 1st Sess. (1969).


author: PER CURIAM:

text:
    Lawrence E. BOWLING, Plaintiff-Appellant, v. David MATHEWS et al., Defendants-Appellees.
    No. 74-1309.
    United States Court of Appeals, Fifth Circuit.
    April 14, 1975.

      Lawrence E. Bowling, pro se.
    Andrew J. Thomas, Jerome A. Cooper, Birmingham, Ala., Paul E. Skidmore, University, Ala., for defendants-appellees.
    Before BELL, THORNBERRY and GEE, Circuit Judges.
   PER CURIAM:

Appellant Bowling, a tenured professor of English at University of Alabama appearing pro se, has brought various suits grounded on his attempted discharge. On the merits, he claims in general that his termination was for attempted exercise of rights of free speech and, further, was wanting in procedural due process. Our task is complicated by Dr. Bowling’s practice of attempting a separate and immediate appeal from many, if not most, of the adverse rulings of the trial court as they occur.

At present, Bowling is being paid his salary by order of the trial court during the process of remand and rehearing by the University (because of procedural deficiencies thought by the court to have obtained in an earlier hearing) pursuant to the procedures outlined in Ferguson v. Thomas, 430 F.2d 852 (5th Cir. 1970). This appeal seeks to place the merits of his situation before us, as well as a complaint of the Ferguson procedure. The merits are not properly before us, and we decline to consider them at this juncture. Further, observing that the second administrative hearing of which Bowling now complains was accorded by the trial court at his own behest, we do not find the court’s decision to order the university to rehear the case in error. Ferguson, supra. There will be time for the merits when they are drawn before us after this hearing, as doubtless they will be.

Appellant Bowling further complains of the dismissal of certain defendants. Many remain, however, and the court’s action in dismissing some but not all defendants in this multi-party action is not appealable in the absence of an FRCP Rule 54(b) “express determination,” absent here.

His complaints of the injunction, under which he has continued to receive his salary to date, reveal no abuse of discretion by the court below. He likewise appeals from the refusal of the district judge to disqualify himself. An examination of his affidavit of disqualification establishes that its asserted grounds are limited to actions of the judge in the case at bar. These will not suffice. United States v. Roca-Alvarez, 451 F.2d 843, 848 (5th Cir. 1971), rehearing granted, 474 F.2d 1274 (1973). His remaining complaints relate to interlocutory matters not meeting any of the tests of 28 U.S.C. § 1292.

Affirmed.

      . No questions being raised about the specific details of the court’s order as opposed to the fact of it, we have no occasion to consider or decide them.


author: BELL, Circuit Judge:

text:
    Mr. and Mrs. Fred Ray BOGGS, and on behalf of all other persons similarly situated, Plaintiffs-Appellants, v. ALTO TRAILER SALES, INC., Defendant-Appellee.
    No. 74-1605.
    United States Court of Appeals, Fifth Circuit.
    April 14, 1975.

      Patrick D. Breeden, New Orleans, La., Joseph E. Defley, Jr., Port Sulphur, La., Joseph E. Defley, Sr., New Orleans, La., for plaintiffs-appellants.
    Kenneth L. Sanders, Metairie, La., for defendant-appellee.
    Before BELL, AINSWORTH and RONEY, Circuit Judges.
   BELL, Circuit Judge:

The sole issue on this appeal is whether the district court abused its discretion in denying appellants the right to maintain a class action for damages. A class action was allowed for injunctive relief. We vacate and remand with direction to reconsider appellants’ motion.

Appellants brought a class action against Alto Trailer Sales, Inc., alleging violation of the provisions of the Truth in Lending Act [Title I of the Consumer Credit Protection Act] and the Truth in Lending Regulations promulgated pursuant thereto, which require disclosure of specified financing information prior to the consummation of certain credit transactions. They alleged that they had purchased a mobile home from Alto without receiving a disclosure statement. They sought to represent all purchasers from Alto who may have been similarly denied. They prayed for damages, attorneys’ fees, and court costs for themselves and for the other class members in accordance with 15 U.S.C.A. § 1640(a). In addition, appropriate injunctive relief was sought against Alto’s continuing violation of the Act and regulations.

Appellants moved for class action determination under Rule 23(c)(1), F.R. Civ.P. They contended that Alto’s failure to disclose was widespread, flowing from the modus operandi of a sales organization having one headquarters and seven scattered sales lots. It developed that appellants purchased their trailer from a salesman at the Harvey lot. After agreeing on the purchase price and the down payment, appellant Fred Boggs executed an installment contract in blank. This was then sent to the main office where it was completed, including the necessary data on the rear thereof as to the finance charge and rate.

The court denied class action status, holding that the class action remedy was not available in this Truth in Lending Act cause of action. Prior to trial on the merits of appellants’ individual claim, appellants moved to have the court reconsider its denial of their motion in light of information brought out during pretrial discovery as to Alto’s nondisclosure to other trailer purchasers and its continuing failure to provide disclosure statements. The motion to reconsider was carried with the case.

In the opinion accompanying its final judgment, the district court ruled in appellants’ favor on the substantive merits of their claim. Damages in the amount of $848, being double the finance charge of $424, attorneys’ fees of $4,000, and court costs, were awarded. The court also modified its denial of class action status to the extent of granting appellants’ request for injunctive relief against Alto on behalf of all future purchasers of mobile homes from Alto.

Alto having taken no appeal, and appellants having recovered everything allowed by the statute in force at the time of trial, we turn to the narrow issue whether the trial court erred in denying a class action for the purpose of damages.

The discretion of the district court in determining whether a class action may be maintained is to be exercised within the parameters of the criteria of Rule 23 as applied to the appertaining facts once the facts are adduced to the point that the determination may be made. See Huff v. N. D. Cass Company of Alabama, 5 Cir., (en banc), 1973, 485 F.2d 710, 712 — 713, on the procedure to be followed in developing the facts necessary for application of the pertinent criteria. Assuming discretion exercised within these parameters, the determination of the trial court should stand absent an abuse of discretion. See Hill v. American Airlines, Inc., 5 Cir., 1973, 479 F.2d 1057, 1059; Gold Strike Stamp Co. v. Christensen, 10 Cir., 1970, 436 F.2d 791, 792-793; Johnson v. Georgia Highway Express, Inc., 5 Cir., 1969, 417 F.2d 1122, 1123; 7A C. Wright & A. Miller, Federal Practice and Procedure, § 1785, at 134-135 (1972).

Generally in accordance with the abuse of discretion standard as outlined above, three circuits have determined that a district court may grant or deny a Truth in Lending plaintiff’s class action motion. See Haynes v. Logan Furniture Mart, Inc., 7 Cir., 1974, 503 F.2d 1161; Katz v. Carte Blanche Corp., 3 Cir., (en banc), 1974, 496 F.2d 747; Wilcox v. Commerce Bank, 10 Cir., 1973, 474 F.2d 336. The respective courts in these decisions stated that the class action device could be applied to Truth in Lending cases, although the legislative history of the Truth in Lending Act was silent on the subject. Under the 1974 amendment, see note 2 supra, the class action, within stated limitations, is expressly contemplated. Thus, we perceive the rule to be that courts are to apply Rule 23 to Truth in Lending cases just as it is applied generally.

The parameters for the development of facts and the exercise of discretion by the district court are the multiple, interrelated criteria set out in Rule 23. Briefly, Rule 23(a) contains four prerequisites to the maintenance of a class action: (1) the class must be so numerous as to make joinder impractical; (2) there must exist questions of law or fact common to class members; (3) the class representative’s claims or defenses must be typical of those of the class; and (4) the class representative must be able fairly and adequately to protect class interests.

Once the 23(a) prerequisites are established, a suit may proceed as a class action only within the ambit of a subsection of 23(b). Usually, subsection (b)(3) is the avenue taken by plaintiffs seeking to maintain a class action within the Truth in Lending Act. See, e. g., Haynes v. Logan Furniture Mart, Inc., supra; Katz v. Carte Blanche Corp., supra; Wilcox v. Commerce Bank, supra. A 23(b)(3) class action is grounded upon two requirements: (1) the common question of law or fact found to exist pursuant to the requirement of 23(a)(2) must predominate over the questions affecting only individual class members; and (2) the class action must be superior to other available methods for the efficient adjudication of the controversy.

In the instant case, the district court based its denial of appellants’ class action motion upon the lack of superiority of the class action as a method of proceeding under the facts. To support its

ruling, the court turned to two oft-used bases for showing non-superiority: (1) no lack of incentive if class action procedure were not employed since each claimant is provided with reasonable attorney’s fees and costs under the Act; and (2) the possible horrendous consequences to Alto caused by a damage award of at least $100 to each class member under old § 1640(a). See, e. g., Mathews v. Book-of-the-Month Club, Inc., N.D.Cal., 1974, 62 F.R.D. 479; Rogers v. Coburn Finance Corp., N.D.Ga., 1972, 54 F.R.D. 417; Ratner v. Chemical Bank New York Trust Co., S.D.N.Y., 1972, 54 F.R.D. 412.

The horrendous result aspect has been removed, however, by the amendment of § 1640(a). Section 1640(a)(2)(B) limits total recovery in a class action to the lesser of $100,000 or one percent of the net worth of the creditor. It follows that class actions in most cases will no longer pose dire consequences to creditors who may have engaged in technical violations. of the Truth in Lending Act. See Ratner, supra at 416.

In making its ruling, furthermore, the court below did not develop facts as to the 23(a) class action prerequisites nor as to the predominance of common questions required by subsection (b)(3). It is apparent from the facts as presented in the record that there may be an absence of commonality, which is required by 23(a), or, alternatively, that the existent common questions do not predominate over the noncommon ones. Assuming a trailer purchasing group too large for each member to be joined, it might still be necessary to hold separate hearings as to disclosure vel non to each member of the class, and as to the actual damages sustained by each member, which are now recoverable under § 1640(a)(1). See Stevens v. Rock Springs Nat’l Bank, 10 Cir., 1974, 497 F.2d 307, 311.

Another important criteria, now to be considered in view of the amendment to § 1640(a), is the 23(a) requirement that the class representative be able fairly and adequately to protect class interests. Under § 1640(a) as amended, the recovery by a class member may be in a lesser amount than would be the case in an individual action. By way of a hypothetical, let us assume that Alto, a trailer sales company, has a net worth of $500,000. (This fact is not developed in the record.) Appellants contend that at least 121 trailer purchasers did not receive pre-transaction disclosure statements from Alto. In a successful class action without proof of actual damages, each class member would receive less than $42, dividing one percent of the assumed net worth among class members. Suing individually, on the other hand, each class member could recover double the amount of the finance charge up to $1,000, and, in any event, a minimum of $100.

Because the supervening amendment to the statute has removed the “horrendous result” basis of the district court’s ruling under the class action superiority criteria, we must vacate the court’s ruling which denied appellants’ motion to proceed as a class in their suit for damages. We remand with direction that the court consider the motion in light of facts developed, or to be developed, relating to (1) the commonality of law or fact questions present; (2) assuming commonality, the predominance of those common questions; (3) the fairness and adequacy of appellants’ protection of the interest of potential class members, especially with reference to § 1640(a) as amended; and (4) the superiority of the class action procedure absent the specter of a horrendous result being inflicted upon Alto, and in light of the reduction in damages, if any, to the individual members of the class. We, of course, intimate no view as to what the district court’s decision should be on the merits of this class action motion.

Vacated and remanded with direction.

      . Section 128 of the Truth in Lending Act, 15 U.S.C.A. § 1638, requires a creditor to disclose to a purchaser, as applicable here, the total of the finance charge and the finance charge expressed as an annual percentage rate, prior to the extension of credit. Section 226.8 of the Truth in Lending Regulations [commonly known as Regulation Z] implements this statutory provision in pertinent part:
      (a) General rule. Any creditor when extending credit other than open end credit shall, in accordance with § 226.6 and to the extent applicable, make the disclosures required by this section with respect to any transaction consummated on or after July 1, 1969. Except as provided in paragraphs (g) and (h) of this section, such disclosures shall be made before the transaction is consummated. At the time disclosures are made, the creditor shall furnish the customer with a duplicate of the instrument or a statement by which the required disclosures are made and on which the creditor is identified. All of the disclosures shall be made together on either
      (1) The note or other instrument evidencing the obligation on the same side of the page and above or adjacent to the place for the customer’s signature; or
      (2) One side of a separate statement which identifies the transaction.
      its * * * * *

      . Until a few weeks prior to oral argument in this appeal, 15 U.S.C.A. § 1640 provided as follows:
      (a) Except as otherwise provided in this section, any creditor who fails in connection with any consumer credit transaction to disclose to any person any information required under this part to be disclosed to that person is liable to that person in an amount equal to the sum of
      (1) twice the amount of the finance charge in connection with the transaction, except that the liability under this paragraph shall not be less than $100 nor greater than $1,000; and
      (2) in the case of any successful action to enforce the foregoing liability, the costs of the action together with a reasonable attorney’s fee as determined by the court.
      * * * * * *
      (e) Any action under this section may be brought in any United States district court, or in any other court of competent jurisdiction, within one year from the date of the occurrence of the violation.
      Congress amended subsection (a), however, in Pub.L. 93-495, § 408(a) (Oct. 28, 1974), so that the statute now provides:
      (a) Except as otherwise provided in this section, any creditor who fails to comply with any requirement imposed under this chapter or chapter 4 of this title with respect to any person is liable to such person in an amount equal to the sum of—
      (1) any actual damage sustained by such person as a result of the failure;
      (2) (A) in the case of an individual action twice the amount of any finance charge in connection with the transaction, except that the liability under this subparagraph shall not be less than $100 nor greater than $1,000; or
      (B) in the case of a class action, such amount as the court may allow, except that as to each member of the class no minimum recovery shall be applicable, and the total recovery in such action shall not be more than the lesser of $100,000 or 1 per centum of the net worth of the creditor; and
      (3) in the case of any successful action to enforce the foregoing liability, the costs of the action, together with a reasonable attorney’s fee as determined by the court.
      In determining the amount of award in any class action, the court shall consider, among other relevant factors, the amount of any actual damages awarded, the frequency and persistence of failures of compliance by the creditor, the resources of the creditor, the number of persons adversely affected, and the extent to which the creditor’s failure of compliance was intentional. Pub.L. 93-495, § 408(e) (Oct. 28, 1974) makes § 1640(a) as amended partially retroactive:
      (e) The amendments made by sections 406, 407, and 408 shall apply in determining the liability of any person under chapter 2 or 4 of the Truth in Lending Act, unless prior to the date of enactment of the Act such liability has been determined by final judgment of a court of competent jurisdiction and no further review of such judgment may be had by appeal or otherwise.
      Thus, we will apply § 1640(a) as amended to the facts presented in this appeal.

      . Appellants do not contend on appeal that they could prove actual damages, which are now recoverable under § 1640(a) as amended post-trial — October 28, 1974. See note 2, supra.

      . The matters pertinent to the (b)(3) findings include the interest of class members in individually controlling the litigation, the extent and nature of litigation already commenced, the desirability of concentrating the litigation, and the potential difficulties with managing the class action. These four factors were intended to be “non-exhaustive.” See Proposed Rules of Civil Procedure, Advisory Committee’s Notes, 39 F.R.D. 69, 104 (1966).

      . The House and Senate Conference Committee Report (No. 93-1429) accompanying the amendment to § 1640(a) states:
      The limitation on class action suits was further limited to the lesser of $100,000 or 1 percent of the net worth of the creditor to protect small business firms from catastrophic judgments.
      1974 U.S.Code Cong. & Admin.News, p. 6153.


text:
    UNITED STATES of America, Plaintiff-Appellee, v. William Donald SHEPHERD and Barbara Shepherd, formerly known as Barbara Richard, Defendants-Appellants.
    No. 74-1176.
    United States Court of Appeals, Fifth Circuit.
    April 14, 1975.
    Rehearing and Rehearing En Banc Denied May 23, 1975.

      Stuart Nelkin, Houston, Tex., for defendants-appellants.
    Anthony J. P. Farris, U. S. Atty., Edward B. McDonough, Jr., Alvin A. Horne, James R. Gough, Asst. U. S. Attys., Houston, Tex., for plaintiff-appellee.
    Before DYER, MORGAN and GEE, Circuit Judges.
   DYER, Circuit Judge:

Donald Shepherd was convicted on fifteen counts of mail fraud in violation of 18 U.S.C.A. § 1341. His wife, Barbara Shepherd, was convicted of aiding and abetting the mail fraud. Both were convicted of an additional count of transporting a fraudulently obtained security in interstate commerce in violation of 18 U.S.C.A. § 2314. Their primary assertions of error are twofold. They urge reversal of the mail fraud convictions on the ground that the use of the mails was not “for the purpose of executing the fraudulent scheme” as required by the mail fraud statute. They also contend that the violation of their Sixth Amendment right to a speedy trial requires reversal of the convictions under both statutes. We disagree and affirm.

The fraudulent scheme involved “check kiting,” by which Shepherd, who was financially overextended, was able to obtain “forced credit.” This was accomplished by having various persons write checks drawn on closed accounts or accounts containing insufficient funds payable in most instances to Houston Aircraft Brokers, Inc. (HAB), a corporation owned and controlled by Shepherd. These checks were deposited in The Southern State Bank of South Houston, Texas, to the account of HAB, which obtained immediate credit for these deposits.

When the worthless checks were dishonored and charged back, Shepherd covered the resulting deficit by deposits of additional worthless checks. The size of the overdrafts and deposits accelerated until The Southern State Bank ultimately realized a net loss of more than $600,000.

JURISDICTION

Shepherd caused the mails to be used by the payor banks to transmit the various worthless checks to the drawee banks in the check collection process. The Shepherds do not dispute this but argue that since the use of the mails was only an incidental result of the fraudulent scheme it was not within the mail fraud statute. The government, on the other hand, urges that the use of the mails was an integral part of the fraudulent scheme, and thus within the jurisdictional ambit of the district court. We agree.

The Shepherds rely on United States v. Maze, 1974, 414 U.S. 395, 94 S.Ct. 645, 38 L.Ed.2d 603; Parr v. United States, 1960, 363 U.S. 370, 80 S.Ct. 1171, 4 L.Ed.2d 1277; and Kann v. United States, 1944, 323 U.S. 88, 65 S.Ct. 148, 89 L.Ed. 88, to support the attack on their convictions. Maze set out a two-pronged test to determine the existence of jurisdiction. A fraudulent scheme will constitute a federal crime if the defendant “causes” the mails to be used, and the mailings are “sufficiently closely related” to the scheme. Id. 414 U.S. at 399, 94 S.Ct. 645, 38 L.Ed.2d 603.

The first prong of this test is clearly satisfied here. As the Court pointed out in Pereira v. United States, 1954, 347 U.S. 1, 9, 74 S.Ct. 358, 98 L.Ed. 435, and recognized in Maze, it is not necessary that the defendant himself place the matter into a mail depository, only that he have a reasonable basis to foresee that the mails will be used. It is apparent that the Shepherds knew that the mails would be used in the check collection process.

Our task, therefore, is to determine whether the mailings in this case are “sufficiently closely related” to the fraudulent scheme. To satisfy this test the mailing must be “for the purpose of executing the scheme,” Kann, supra, 323 U.S. at 94, 65 S.Ct. at 151; but “[i]t is not necessary that the scheme contemplate the use of the mails as an essential element.” Pereira, supra, 347 U.S. at 8, 74 S.Ct. at 362. What is crucial is that the mailing be “incident to an essential part of the scheme.” Id.

Both Maze and Parr involved the fraudulent use of credit cards. The government asserted that the mailing of invoices subsequent to fraudulent purchases was sufficient to invoke jurisdiction under the mail fraud statute. The Supreme Court rejected the government’s position since the fraud had been completed upon the use of the credit cards, when the goods and services had been irrevocably received and the fraudulent scheme had thus reached fruition by the time the mails were used. The mails were not utilized to further the scheme.

Similar to Maze and Parr, but closer factually to the case at hand is Kann which involved the cashing of fraudulent checks rather than the fraudulent use of credit cards. In Kann, corporate officers set up a dummy corporation to divert profits from the corporation for which they acted in order to pay themselves additional compensation without rendering services. The officers had the dummy corporation issue checks in their names and cashed the checks. The use of the mails was in the check collection process. The mailings were held to be insufficient to establish jurisdiction. The Court stressed the fact that the scheme had reached fruition upon the cashing of the checks, since the “persons intended to receive the money had received it irrevocably,” and therefore “the subsequent banking transactions between the banks concerned were merely incidental and collateral to the scheme and not a part of it.” Id., 323 U.S. at 94, 95, 65 S.Ct. at 151.

In this case Shepherd did not intend to irrevocably receive the money he fraudulently obtained. The purpose of the scheme was to obtain, for a significant period of time, “forced credit,” which he ultimately might repay. The scheme had not reached fruition, but was ongoing.

It was deemed significant in Kann that “[i]t was immaterial to [defendants], or to any consummation of the scheme, how the bank which paid or credited the check would collect from the drawee bank.” Id., 323 U.S. at 94, 65 S.Ct. at 151. Shepherd’s scheme, on the other hand, uniquely depended upon the check collection process. It was the delay that enabled Shepherd to receive the forced credit, and it was the use of the mails that caused the delay.

Kann carefully distinguished its particular fact situation from the factual situation sub judice “where the use of the mails is a means of concealment so that further frauds which are part of the scheme may be perpetrated.” Id., 323 U.S. at 94 — 95, 65 S.Ct. at 151. We have recently recognized this distinction in United States v. Constant, 5 Cir. 1974, 501 F.2d 1284. There the defendant maintained checking accounts in New Jersey and Florida banks. He would draw a check on the New Jersey account,, which contained insufficient funds to cover the check, and immediately depart for Florida to deposit the check in his Florida account. He would then draw a check on the Florida account to deposit in the New Jersey account in order to cover the deficit he created in that account. This practice continued with the amounts of the checks accelerating.

The defendant in Constant, relying on Maze, argued that the scheme had reached fruition when the depository bank credited defendant's account upon the deposit of a worthless check. This Court, however, distinguished Maze because the delay which was encountered by the mailing “was a central element” in the scheme. Id. at 1291 of 501 F.2d.

As in Constant, the use of the mails by Shepherd was a central element in the scheme. Shepherd’s receipt of forced credit involved a series of deposits of worthless checks to cover the dishonor of prior worthless cheeks. Consequently, not only did he obtain forced credit during the collection process of the initial checks deposited, but he was able to extend this credit by subsequent deposits of worthless checks. The delay caused by the mails was therefore doubly crucial.

It is thus clear that the use of the mails in this case was “incidental to an essential element of the scheme” and was therefore “for the purpose of executing the fraudulent scheme” as required by the mail fraud statute.

RIGHT TO A SPEEDY TRIAL

The guidelines to determine whether an indictment must be dismissed as a result of the violation of a defendant’s right to a speedy trial were drawn in Barker v. Wingo, 1972, 407 U.S. 514, 92 S.Ct. 2182, 33 L.Ed.2d 101. Four factors are to be weighed in a delicate balancing test to make this determination: (1) length of delay, (2) reasons for the delay, (3) the strength and frequency of a defendant’s assertion of his right, and (4) prejudice to the defendant.

Length of delay is “to some extent a triggering mechanism.” Barker, supra at 530, 92 S.Ct. at 2192. There must be a showing of some delay which is presumptively prejudicial before the necessity to inquire into the other factors arises. The delay from indictment to trial, excluding a two month delay requested by defendants due to Barbara Shepherd’s ill health, was approximately one year and nine months. This time elapse triggers the need to seriously consider the Shepherds’ claim. Arrant v. Wainwright, 5 Cir. 1972, 468 F.2d 677.

Under Barker, neutral factors causing the delay are to be weighed less heavily against the government than án attempt by the government to prejudice the defense by delay. It is undisputed that the delay in this case resulted from the action or inaction of the district court rather than from any action, much less misconduct, of the prosecution. We therefore assign little weight to this factor in assessing the Shepherds’ claim.

Although Barker rejected the “demand rule,” the frequency and strength of a defendant’s assertion of his right to a speedy trial is a crucial factor to be considered in the balancing test. “We emphasize that failure to assert the right will make it difficult for a defendant to prove that he was denied a speedy trial,” since “[t]he more serious the deprivation, the more likely a defendant is to complain.” Id., 407 U.S. at 531-32, 92 S.Ct. at 2192. The Shepherds made no demand for a speedy trial. Their first and only motion for dismissal for denial of a speedy trial came fourteen days before the date set for trial. Defendants attempt to explain the absence of demand by suggesting that since the district court delayed ruling on their discovery motions, they were unable to prepare for trial and consequently were in no position to make a demand. We are unpersuaded. Defendants could have demanded prompt action on their discovery motions and asserted their right to a speedy trial as the basis for their request. Defendants’ complacence with respect to this crucial factor weighs heavily against their claim.

Barker, identified three separate interests which fall within the general category of prejudice: oppressive pretrial incarceration, anxiety and concern of the accused, and impairment of the defense of the accused. Neither Barbara nor Donald Shepherd was burdened with pretrial incarceration.

In Arrant, supra, we said that anxiety is present to some degree in virtually every case. Something more than the normal anxiety that accompanies a trial is necessary to show a degree of prejudice. At the time of his indictment Shepherd’s assets were in the hands of a Trustee in Bankruptcy, and his net worth had plunged from two million dollars to five thousand dollars, which was in the registry of the court. The delay from • indictment to trial contributed nothing to his financial misfortunes and any anxiety that might have resulted therefrom. There likewise is no indication that Barbara Shepherd’s physical problems were occasioned by the delay, rather than by the fact of the trial itself or by Shepherd’s financial downfall.

The Shepherds argue that the delay between indictment and trial seriously hampered their defense by the inability to locate material witnesses, the faded memories of witnesses, and the loss or disappearance of relevant business records.

Defendants included in their motion to dismiss for denial of a speedy trial a list of eighteen witnesses whose testimony they allege they would have obtained had they received a speedy trial. Defendants transmitted this list to the government, which aided defendants in attempting to locate the witnesses through the FBI and issued subpoenas at no charge to the defense. Despite the fact that defendants were admittedly “a little lax” in not providing the prosecution this list at an earlier time, defendants now point to only four witnesses that were not present at the trial — Habarta, Webster, McBride, and Grayson.

The government located Habarta’s residence and learned that he was on a business trip at the time. Defendants’ inability to produce him was not the result of any delay in the trial. Webster was over eighty years old and, due to a heart condition, was not present at trial to testify. His testimony would have been merely cumulative to that of his son. McBride could not be found by the government. Nor does it appear that defense counsel had ever been in contact with McBride, or that McBride could have been located at an earlier time. Furthermore, McBride’s anticipated testimony would have been collateral to any disputed issue, and for the most part cumulative of other evidence. Grayson was a heart patient and was unable to travel to testify at the time of the trial. No showing was made of Grayson’s expected testimony or that it would have been material. Defense counsel was permitted to submit written interrogatories to Grayson, but there is no explanation for the failure of these interrogatories to surface at trial. We find no merit to the defendants’ claim of inability to locate material witnesses due to delay.

Defendants’ attempt to demonstrate that the memories of a number of witnesses had faded due to the delay is not persuasive. We perceive no more than the general inability to recall a transaction with the desired specificity that occurs in any trial regardless of delay. The faded memories do not appear to relate substantially to any material fact in issue. Finally, such loss of memory as occurred enured to defendants’ benefit, since the witnesses whose memory had been allegedly impaired were government witnesses.

Finally, Shepherd asserts that business records which he needed to adequately prepare for trial had disappeared or been lost due to the delay. They had been turned over to a Trustee in Bankruptcy nearly a year prior to the mail fraud indictment. It is not clear how the mere lapse of time could have caused the loss of these records. In any event, we cannot determine the materiality of the missing records since no explanation was provided by the Shepherds as to what subject matter the records were to cover or even what types of records were lost.

Shepherd’s testimony concerning the missing records was undoubtedly elicited to persuade the jury that he was testifying from memory alone, and that the records would have in some way aided the testimony he was giving. In the absence of a clearer showing of what types of records were lost and how they might have had a material bearing on the defendants’ guilt or innocence, we cannot say their loss was prejudicial.

The failure to show any prejudice that might have been occasioned by a delay in bringing the Shepherds to trial combined with the neutral reasons for the delay and the complacency of the defendants in failing to demand at any time a right to a speedy trial require rejection of the Shepherds’ claim.

We have carefully examined defendants’ other assertions of error and find them to be without merit.

Affirmed.

      . Eleven of the first sixteen counts involved checks payable to HAB and drawn on the accounts of persons other than Shepherd. The check involved in count fourteen was payable to HAB, but was drawn on Shepherd’s account. The checks involved in counts five and eight were payable to Shepherd, and the check in count ten was payable to W. C. Marshall and Co., Shepherd’s accountant. The check involved in count thirteen was payable to The Southern State Bank.

      . Count sixteen arose out of the deposit in the Sugarland State Bank of Jeanerette, Louisiana, of worthless drafts drawn on the Bank of Sark of Great Britain, in exchange for cashiers checks which were then deposited to the account of HAB in The Southern State Bank.

      . The Court cited with approval United States v. Lowe, 7 Cir. 1941, 115 F.2d 596, which involved a check kiting scheme similar to that involved here.

      . Defendants did not know whether they could have obtained the testimony of these witnesses, since admittedly they had been in contact with only “some” of the witnesses at any time during the proceeding,

      . We note in passing that Shepherd’s accountant, whom he was permitted to have as a debtor in possession, at one time had access to the various documents and actually had a number of them in his possession.

      . For the first time on appeal the Shepherds also urge us to reverse their convictions and to dismiss the indictments because of the violation of the Plan of the United States District Court for the Southern District of Texas for Achieving Prompt Disposition of Criminal Cases, promulgated pursuant to Rule 50(b) of the Federal Rules of Criminal Procedure. The Plan was filed on March 9, 1973. On April 20, 1973, the district court ruled upon all pending motions. Trial was set for August 4, 1973, but was continued to October 4, 1973, because of the illness of one of the defendants.
      While there was a delay of two months over the 90 days provided in the Plan, we must take cognizance that the remedial requirements of the Plan were new and that “busy districts [the Southern District of Texas had the heaviest pending workload at that time of any district in this Circuit] may find it difficult to operate under them impeccably.” United States v. Rodriguez, 5 Cir. 1974, 497 F.2d 172, 176. While we do not condone the delay beyond the time limit provided in the Plan, it is not so egregious, considering the complexity of the issues to be tried and that the plan had so recently become effective, that “the public interest in the quick, efficient functioning of the criminal justice process” has been aborted. Id. at 175.


text:
    James T. CAVER, Petitioner-Appellant, v. STATE OF ALABAMA, Respondent-Appellee.
    No. 74-3232.
    United States Court of Appeals, Fifth Circuit.
    April 10, 1975.

      Richard H. Gill, Montgomery, Ala. (Court-appointed), for petitioner-appellant.
    William J. Baxley, Atty. Gen., David W. Clark, Asst. Atty. Gen., Charles N. Parnell, III, Montgomery, Ala., for respondent-appellee.
    Before BROWN, Chief Judge, and GODBOLD and CLARK, Circuit Judges.
   PER CURIAM:

In this habeas corpus proceeding the federal trial court resolved contested issues of fact, which control the disposition of the constitutional questions raised, without a hearing and without having before it a copy of the state court trial record or other reliable and adequate written indicia to permit a proper determination of the merits of such disputed issues. The order denying the application for habeas corpus relief must be vacated and the cause remanded for compliance with the mandate of 28 U.S.C. § 2254(d).

James Caver is now imprisoned pursuant to a conviction of second degree murder from Calhoun County, Alabama on February 17, 1969. He took no direct appeal, but on October 13, 1971 Caver applied to the convicting court for a Writ of Error Coram Nobis. After hearing, that writ was denied on procedural grounds. This denial was affirmed on appeal. Still later, Caver sought federal habeas corpus relief in the instant proceedings by a petition that raised two questions: (1) whether his arrest for vagrancy was pretextural, so as to make evidence subsequently obtained through a stationhouse voice identification procedure illegal and inadmissible; (2) whether he was subjected to a counselless lineup which was unnecessarily suggestive and led to irreparable misidentification. In response to the usual show cause order, the State of Alabama denied the factual basis for Caver’s claims. The matter was referred to the U.S. Magistrate, who directed the state to file an additional response consisting of, “at a minimum”, a copy of the transcript of the coram nobis proceedings, and a copy of the transcript on the direct appeal of a jointly tried co-defendant, Jerry White. The state filed the coram nobis transcript but did not file the trial transcript. Caver thereupon moved to strike the state’s supplemental filing for failure to include the required trial transcript.

Without comment on the lack of compliance or the motion to strike, the U.S. Magistrate filed a five-page “recommendation” which dealt in detail with petitioner’s arrest, identification, trial, and conviction, and recommended the denial of the writ of habeas corpus “on the basis of a full, fair and adequate state court record.” On the same day this recommendation was made and filed, the U.S. District Judge denied the petition for habeas corpus relief without prior notice to Caver and without an evidentiary hearing.

An examination of the coram nobis proceedings indicates that at the conclusion thereof the state circuit judge concluded that Caver’s claim of a prejudicial line-up was not a proper subject for cor-am nobis relief since the contention had been raised by a pre-trial motion and. had been fully discussed in the evidence before the jury at trial. The coram no-bis judge also refused to reach the issue of validity of Caver’s vagrancy arrest on the basis that the issue should be held until Caver sought and obtained a new trial.

The federal district judge erred in denying an evidentiary hearing in this proceeding to permit proper factual development of the contentions raised since they were grounds upon which the petition for habeas corpus was dismissed. Townsend v. Sain, 372 U.S. 293, 83 S.Ct. 745, 9 L.Ed.2d 770 (1963); see also Gerzin v. Beto, 459 F.2d 671 (5 Cir. 1972). Alabama urges that the pretextural arrest question in this case is controlled by our decision in United States v. Seay, 432 F.2d 395 (5 Cir. 1970). It is not. The factual basis for the vagrancy arrest of the suspected counterfeiters in Seay was completely documented and developed at trial. The controlling issue in the present appeal is that no such opportunity for documentation and development has been afforded Caver, as required by statute.

On oral argument of this case in this court, counsel for the State of Alabama represents that the transcript of the joint trial of Caver and White, which was reproduced in White v. Alabama, 48 Ala.App. 334, 264 So.2d 565 (1972), is available and that its non-production at the magistrate’s direction here was due to the expense involved in recopying from a bound volume. At a minimum, this documentation must be obtained for the conduct of the proceedings on remand. Our vacation and remand of this order is without prejudice to the right of the district court to consider whether all or any part of the contentions raised by Caver have been exhausted in the courts of the State of Alabama. By this reservation, as by our remand, we intimate no view whatsoever upon the merits of any part of this cause.

Vacated and remanded.

      . Both the magistrate’s recommendation and the court’s denial order state that they are predicated upon a traverse filed by petitioner, but no such document appears in the list of docket entries or in the record forwarded in the appeal of this case.