author: TUTTLE, Circuit Judge:

text:
    R. J. BRYAN, Plaintiff-Appellee, v. BROCK & BLEVINS CO., INC., et al., Defendants-Appellants.
    No. 72-3601.
    United States Court of Appeals, Fifth Circuit.
    Feb. 27, 1974.
    Rehearing and Rehearing En Banc Denied. April 16, 1974.

      Charles J. Gearhiser, Chattanooga, Tenn., George Paul Shaw, Lafayette; Ga., for defendants-appellants.
    Frank M. Gleason, Rossville, Ga., for plaintiff-appellee.
    ' Before TUTTLE, THORNBERRY and RONEY, Circuit Judges.
   TUTTLE, Circuit Judge:

This appeal raises the question whether the Georgia Merger Statute, Section 22-1001 et seq., including the right of the merged corporation to eliminate a dissenting stockholder upon an appraisal and acquisition of his stock, can be used solely for the purpose of “freezing out” a minority dissenting stockholder.

Jurisdiction in the United States District Court was obtained by virtue of the filing of a complaint in which the plaintiff alleged specific violations of the requirements of Section 10(b) of the Securities Exchange Act of 1934, and Rule 10(b)(5) of the Securities & Exchange Commission. The complaint also alleged, however, that the manner in which the defendants attempted to utilize the Georgia Corporation Merger Statute was, in and of itself, a “device, scheme and artifice to defraud” which the plaintiff, as the holder of a 15% stock interest in the merged corporation could enjoin. Pendent jurisdiction attaches to the second claim and permits the court to consider it independently of the provisions of the Securities Exchange Act, even though jurisdiction of the court was not alleged on diversity grounds.

The absence of any claim here by the appellant that there was not sufficient evidence upon which the trial court could make its conclusion that “the sole purpose and intent of the organization of Power Erectors and the proposed merger was the elimination of the plaintiff” and that “the proposed merger itself was a course of business which would operate as a fraud or deceit upon Bryan, in connection with the sale of his stock,” enables us to repeat some of the findings of the trial court which set out the circumstances leading up to the transaction that is here under attack.

FINDINGS OF FACT

Brock & Blevins Co., Inc., (hereinafter Brock & Blevins), was incorporated in 1950 as a Georgia corporation having its principal place of business in Rossville, Walker County, Georgia. Prior to 1950, Brock & Blevins had operated as a partnership. The business of Brock & Blevins was the manufacture of machinery of all kinds; the maintenance, operation and conducting of foundaries and foundry business; the maintenance and operation of machine shops, and assembly plants; the business of assembling and erecting power plants, chemical plant equipment and other heavy machinery of any kind, character or description; engaging in the general steel and iron construction business; and the carrying on of a general industrial service and erection of all kinds of iron construction and industrial service. The original stockholders of Brock & Blevins were J. A. Brock, W. G. McGlothlin and H. E. Shrader.

Robert J. Bryan, [the plaintiff in this action] a chemical engineer wi.th a Bachelor of Science Degree from the University of Wisconsin, was employed by Brock & Blevins in 1955. Bryan’s position with the company at that time was varied in that he was working on special problems, following up sales and contracts, and traveling. He maintained this status with the company for some two and one-half years at which time he was appointed General Manager on June 13, 1957. Bryan began serving on the Board of Directors of Brock & Blevins in 1960 and was elected to the office of Executive Vice-President in that same year. Bryan served on the Board of Directors and as an officer of the company from 1960 until his resignation on October 17, 1970. Bryan’s resignation was predicated upon a severe problem in company management, and he felt that his termination as an active employee in the management of Brock & Blevins was for the best interest of the company’s future. Bryan has retained his status as an inactive stockholder in the company up to the time of the threatened merger in Decémber, 1971, of Brock & Blevins with Power Erectors, Inc.

The present company management maintains that there is a long-standing company policy of Brock & Blevins having only “active employees” as shareholders. They have used this policy to support the instigation of the threatened merger which is the foundation of this controversy. Asserting the existence of this company policy, the defendants have made various attempts to acquire Bryan’s stock by what they describe as a “fair value” offer.

* * * * * *

Bryan was then contacted in May of 1971 by Judge Painter who initiated his interest in purchasing the stock. Bryan responded with a willingness to discuss the matter, but a formal meeting was never arranged. During this t same interval of Judge Painter’s correspondence, Bryan was contacted by Bill Hicks, an individual non-employee, who also expressed an interest in purchasing the stock. This expression of interest also failed to materialize.

Bryan was first approached with a value offer on August 21, 1971, during a luncheon engagement in Chattanooga with Judge Painter. Judge Painter conveyed an offer of $200,000 for the stock on the premise that he was the representative for the other “stockholders.” Bryan’s reaction to the offer was that the price was too low, and Judge Painter responded by saying that he was authorized to offer only $200,000 and that he could not negotiate further.

Bryan was not approached again until November 16, 1971, at which time Frost and Frost, Certified Public Accountants for defendant Brock & Blevins, acting through a partner, Jim Frost, called plaintiff to come to his office to discuss “a problem.” It was related that W. G. McGlothlin, president of Brock & Blevins, had engaged a Chattanooga law firm concerning this matter. A meeting was scheduled for November 18, 1971, at the offices of Frost & Frost. This meeting was attended by Sydney W. Carpenter, Attorney .for the law firm of Stophel, Caldwell & Heggie of Chattanooga, representing Brock & Blevins; James B. Frost, Certified Public Accountant for Brock & Blevins; and Mr. and Mrs. R. J. Bryan. Carpenter informed Bryan that the “stockholders” wanted to buy his stock, but in so doing, they intended a fair treatment of Bryan. At the meeting, Bryan was given an appraisal prepared by Mr. Daniel W. Lattimore, an S.R.A. and M.A.I. appraiser and real estate consultant from Chattanooga, together with a number of analyzed reports, audits and balance sheets as an indication of Brock & Blevins’ past economic history. Included within these documents was an unaudited calculation of the estimated progress of the company through June 30, 1971. Carpenter then submitted to Bryan two alternate offers, one of which would have to be accepted by noon on Monday, November 22, 1971. The offers were:

(1) Two Hundred Ninety Thousand ($290,000) Dollars cash for his stock or,
(2) Two Hundred Thousand ($200,000) Dollars cash for his stock, plus another Two Hundred Thousand ($200,000) Dollars over a ten-year period in return for an agreement not to compete with Brock & Blevins for the same ten-year period.

Carpenter stated that his law firm had advised McGlothlin that fundamental corporate changes would be necessary in order to acquire Bryan’s stock if he refused to accept one of the offers, and the necessary legal proceedings would begin immediately upon such refusal. Bryan was fully apprised of the contemplated merger plan which would find him a dissenter and qualified to receive only appraisal remedies under the 1969 Georgia Corporation Statutes. Carpenter advised Bryan that the proposed merger plan would not be carried out if one of the two offers was accepted within the allowable time period. (Emphasis added).

On November 19, 1971, Bryan called Frost to clarify whether or not the two offers were presented as an ultimatum, and Frost advised Bryan that the offers and deadline were intended as such. On November 22, 1971, Bryan let the deadline pass without a decision. Frost called Bryan and asked if a decision had been reached, and Bryan responded in the negative. Frost relayed the message to Carpenter, and on November 23, 1971, Carpenter called Bryan with an offer for more time in which to contemplate a decision. Bryan stated that such a time period would still be far too short and again contended the offer was far below the true value of the stock; and furthermore, he advised that he did not want to sell his stock. Carpenter then advised Bryan that appropriate legal proceedings would commence immediately.

On November 26, 1971, Judge Painter, a member of the Board of Directors of Brock, approached Bryan, “as his friend,” in order to admonish Bryan of the probable expenses to be realized when seeking the professional advice of an attorney in a situation of this nature.

On November 29, 1971, the “active” shareholders of Brock & Blevins entered into an agreement to form a new corporation, Power Erectors, Inc. Pursuant to the agreement, all shareholders in Brock & Blevins, except Bryan, exchanged their stock holdings in Brock & Blevins for a proportionate amount of stock in Power Erectors, Inc. As a result of that exchange, Power Erectors, Inc. became the owner of 85 percent of the stock in Brock & Blevins and Bryan remained as the owner of 15 percent of the stock. The initial Board of Directors of Power Erectors, Inc. was, W. G. McGlothlin, Paul W. Painter, J. E. Wright, N. A. Dunn and J. J. Underwood. W. G. McGlothlin was the in-corporator and majority stockholder in Power Erectors, Inc. There were no preemptive rights in that company. On November 30, 1971, Power Erectors, Inc. was duly incorporated under the Georgia corporation statutes having its principal place of business in Rossville, Walker County, Georgia.

On December 2, 1971, upon waiver of notice, a special meeting of the Board of Directors of Power Erectors, Inc. was held in Rossville, Georgia. As chairman of the meeting, W. G. Mc-Glothlin stated that the purpose of the meeting was to consider recommending to the shareholders of the company a plan of merger whereby Brock & Blevins would be merged into Power Erectors, Inc. Upon motion duly made and seconded, the following resolution was unanimously adopted:

RESOLVED, that the Board of Directors of Power Erectors, Inc. recommend to its shareholders that Brock & Blevins Co., Inc. be merged into Power Erectors, Inc. in accordance with the plan of merger which was presented and reviewed at this meeting; and
FURTHER RESOLVED, that the secretary of his corporation be, and hereby is, instructed to give notice in accordance with law of a special meeting of the shareholders of Power Erectors, Inc. to consider this plan of merger, such meeting to be held at 316 Chickamauga Avenue, Rossville, Georgia, on December 22, 1971, at 10:00 A.M.

Under the plan of merger, the stock owned by Power Erectors, Inc. in Brock & Blevins would be cancelled and Bryan would receive $290,000 for his stock.

On December 2, 1971, a notice of the December 22, 1971, shareholders meeting of Brock & Blevins was mailed to Bryan and was received by him on December 3, 1971. Included in the notification were several reports and audits of Brock & Blevins’ past economic history. It was reported in the notice that the 1971 profit and loss report of Brock & Blevins was included, when in fact the year had not ended. A highly contested factual dispute exists as to whether this indication was an error or an intentional act of fraudulent misrepresentation. The Court finds that it was a false statement, whether intended as such or not.

The plaintiff has alleged that the “plan of merger” is a device, scheme and artifice to defraud him of his status as a shareholder in an existing corporation. It is alleged that this is a violation of the Securities and Exchange Act and the General Rules and Regulations of the Securities and Exchange Commission, and this suit is instituted for the purpose of permanently enjoining the proposed merger of the two corporations.

The applicable part of the Securities Exchange Act of 1934, 15 U.S.C.A. § 78j provides:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange—
(a) . . .
(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

We agree with the trial court that the proposed transaction whereby, under the Georgia Corporation Merger Statute, Bryan could be forced to surrender his stock to the corporation in return for cash at an appraised value amounts to a “sale” under this Act. Dudley v. Southeastern Factor and Finance Corp., 446 F.2d 303 (5th Cir. 1971).

The trial court found as a fact that there were two false statements made by the defendant corporation Brock & Blevins Co., Inc. and its officers. The first of these was the statement contained in the letter delivered to Bryan to the effect that the financial statement for the year 1971 was enclosed. There was no 1971 financial statement, and there could be none, since the letter was delivered in November and the year would not end until December 31st. The other was a failure to inform Bryan of the present posture of certain negotiations Brock & Blevins was carrying on with respect to a potential acquisition of one or two additional companies. The trial court found that these two omissions gave right to a claim under the Securities Act because they were used in connection with the sale of a security. Both the findings of fact that these elements were false and the applicability of section 78j(b) are challenged by the appellants. Because of the disposition we make of the ease it is not necessary for us to resolve these issues.

Rule 10b-5 of the Commission, 17 C. F.R. 240.10b-5 (1964), provides:

It shall be unlawful for any person, directly or indirectly by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, .
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

The trial court concluded that the acts of the defendants in setting up a second corporation solely for the purpose of enabling them to utilize the Georgia Corporations Merger Act as a means to force Bryan, as a dissenting stockholder, to lose his stock interest in the resulting corporation was “a device, scheme, or artifice to defraud Bryan of his stock.” The appellants contend that “under these provisions of the Georgia merger statutes, a minority shareholder may be required to accept cash in full payment for his shares in the merging corporation.” We agree that this is the purport of the Georgia statute, which is based on section 623 of the New York Business Corporation Law, McKinney’s Consol. Laws, c. 4. Appellants contend that the trial court’s determination that “the proposed merger itself was a course of business which would operate as a fraud or deceit upon Bryan, in connection with the sale of his stock” amounted in effect to a holding that “the proposed merger pursuant to Georgia merger statute was a violation of federal securities law per se.” Of course, the trial court did not decide any such thing. It decided that where a corporation is unable, because of well recognized contract law to eliminate a minority stockholder by simply adopting a by-law or voting to purchase his stock, its majority stockholders cannot accomplish the same purpose by setting up a second corporation wholly owned by them whose sole purpose is-to enable it to take advantage of the merger statutes which, when utilized by two existing corporations, may, as a part of the merger procedures result in the elimination of a dissenter.

There is little law on this subject, although similar efforts by corporations to eliminate minority interests by the majority vote to liquidate a corporation followed by acquisition of the going business by the same persons who hold the majority stock ownership have been subject to considerable litigation.

In Lebold v. Inland Steel Co., 125 F.2d 369 (7 Cir. 1941) the court held that the plaintiffs, minority stockholders of the inland Shipping Company, could recover damages incurred by him by reason of acts of the defendant Inland Steel Company, controlled by common directors and officers, in dissolving the steamship company, buying its assets and appropriating its business. The theory of plaintiffs was that the defendant, owning some 80% of the stock of the steamship company had so utilized its prominent position as majority stockholder as to force the latter company out of a prosperous going business, to bring about its dissolution and to take over its property and its business to the detriment of plaintiffs. The trial court dismissed the complaint. In reversing that action the Court of Appeals said:

“What defendant might have accomplished under color of the West Virginia statute was discontinuance of the business. What it did, was to take, through form of a sale, the physical assets and the entire business of the Steamship Company. Whether we stamp the happenings as dissolution or with some other name, equity looks to the essential character and result to determine whether there has been faithlessness and fraud upon the part of the fiduciary. However proper a plan may be legally, a majority stockholder cannot, under its color, appropriate a business belonging to a corporation to the detriment of the minority stockholder. The so-called dissolution was a mere device by means of which defendant appropriated for itself the transportation business of the Steamship Company to the detriment of plaintiffs. That the source of this power is found in a statute, supplies no reason for clothing it with a superior sanctity, or vesting it with the attributes of tyranny. Allied Chemical & Dye Corp. v. Steel & Tube Co. of America, 14 Del. [Ch.] 1, 120 A. 486. The books are full of instances of disapproval of such action. If it be an absorption by the dominant member of all the returns of the corporate investment, or a sale of the property to oneself for an inadequate consideration, or deprivation by a syndicate formed to freeze out a minority stockholder through sale and dissolution or if the buyer and seller are the same, the right of a stockholder to vote becomes a power in trust when he owns the majority and assumes and exercises domination and control over corporate affairs. Such majority stockholders’ vote ‘must not be so antagonistic to the corporation as a whole as to indicate that their interests are wholly outside of the interest of the corporation and destructive of the interests of the minority shareholders.’ ” (citations omitted).

The case of Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 238, 84 L.Ed. 281 (1939) is also instructive. It was largely relied upon by the court in the Lebold ease, supra. Speaking of the dominent stockholder or majority, the Supreme Court said in Pepper:

“He cannot violate rules of fair play by doing indirectly through the corporation what he could not do directly. He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements. For that power is at all times subject to the equitable limitation that it may not be exercised for the aggrandisement, preference, or advantage of the fiduciary to the exclusion or detriment of the cestuis. Where there is a violation of those principles, equity will undo the wrong or intervene to prevent its consummation.”

The trial court here simply held that the dominant stockholder interests in this case utilized the Georgia Corporation Merger Statute to accomplish something that they could not accomplish directly. The finding was to the effect that a new corporation was set up, having no business purpose of its own and no pre-existing viability of any kind, solely for the purpose of effecting a “freeze-out,” which Professor Voren-burg, Exclusiveness of the Dissenting Stockholder’s Appraisal Right, 77 Harv. L.Rev., 1189 (1964), describes by saying:

“For our purposes, the nub of the problem is that an absolute freeze-out right would mean that those in control rather than the stockholder himself would decide when he shall sell his stock.”

It was with this concept in mind, that the trial court found the absence of a “business purpose” for the proposed merger of Brock and Blevins into Power Erectors. In the absence of such business purpose Power Erectors was purely a sham party created to circumvent the rule of law that prohibits a majority of stockholders of a corporation, absent any charter provision as to the contrary, to force the minority interests to surrender their stock holdings. Implicit in this holding was a construction of the Georgia statute that comports with equity in good conscience. Such construction would read out of the statute a situation where there was no pre-existing corporation to be merged, but instead where such corporation was created solely for the purpose of accomplishing an illegal result. Such construction is clearly warranted by the language quoted above from Pepper:

“He cannot use his power for his personal advantage and to the detriment of the stockholders and creditors no matter how absolute in terms that power may be and no matter how meticulous he is to satisfy technical requirements.”

The trial court used this determination to permit it to conclude that there had been a violation of the Securities Exchange Act and the regulations promulgated by the Securities & Exchange Commission. The court held that such a procedure “was a course of business which would operate as a fraud or deceit upon Bryan, in connection with the sale of his stock.”

Appellants contend that whatever the plan of procedure was, it did not fall within the prohibitions of the law because it had nothing to do with enabling the dissenting stockholder to consider or decide or make any commitment with respect to the sale of stock. In our opinion, this is a close question which we do not have to decide.

In the complaint, Bryan alleged specifically that this procedure is a “device, scheme and artifice to defraud,” and further, “such plan was adopted by the directors in rubber stamp approval of Mr. McGlothlin’s plan and solely as a device to confiscate plaintiff’s investment at less than its true value, after he refused to sell at the price offered to him by McGlothlin.” Further the complaint alleged, “Every plan of merger authorized by Georgia law (Code Annotated 22-1001) contains an implied condition that the parties to it will act in good faith and deal fairly with each other in adopting such plan,” and then further:

Because the Board of Directors of Brock and Blevins Co., Inc. adopted such resolution to merge said corporations for the sole purpose of confiscating plaintiff’s property, the plan itself is a fraud and because such sham merger constitutes a manipulative and deceptive device and contrivance in violation of the rules and regulations of the Securities & Exchange Commission, the adoption of the plan of merger by the shareholders should be enjoined by this court.

Regardless of whether the device, found by the court to be fraudulent as against the plaintiff, was a violation of the Securities Exchange Act, it was clearly a violation of the plaintiff’s rights under state law. While neither party cites a single Georgia case, we have no doubt that the pronouncements contained in the Court of Appeals decision from the Seventh Circuit, and the Supreme Court decision referred to above, clearly state the local law to be applied by a federal district court in equity.

As stated at the outset, jurisdiction was acquired by the allegations relating to the violations of the Securities Exchange Act. These allegations presented a serious and material question for the court to decide. Any equitable cause of action that would lie under the same proof and the same findings of the trial court can properly be adjudicated under the district court’s pendent jurisdiction over a state cause of action. We think that the case so clearly establishes the right of the plaintiff to the relief granted by the trial court under general principles of corporation law, which we have discussed above, that we pretermit a determination as to whether the trial court correctly related the misuse of the Georgia statute to the Securities Exchange law, and approve the decision on the basis of general equity and state law grounds. See, on the question of resort to compulsory appraisal for the purpose of “freezing out” a minority stockholder, 77 Harv.L.Rev., 1189 (1964) supra.

This disposition of the case also makes it unnecessary for us to determine whether there were adequate grounds for the trial court’s determination that there were two other violations of the Securities Exchange Act. The evidence was conflicting as to both, but a question remains as to whether the actions of Bryan, who was “under the gun” to dispose of his stock by virtue of an entirely different set of circumstances (the merger gambit) could in any way have been affected or influenced by such conduct by the defendants. We do not reach this issue but it may be that the plan to create' a sham corporation to effect a merger really undercut whatever had happened before. The relief which we conclude the plaintiff is entitled to because of this situation is full and complete, and we think it therefore unnecessary to deal with the other question as to violations of Section 10(b) or the supplementary regulations.

The judgment of the trial court is affirmed.

      . There was not complete diversity as to the individual parties. Nor was the jurisdictional amount alleged.

      . The appellants challenge the correctness of the conclusions, but they do not attack specifically any of the historical facts recited below. ship, except as provided in subsection (d) of this section, and except where the corporation by fraud has induced the shareholder to enforce his dissenter’s rights.” Ga.Code Ann. § 22-1202(j).

      . “The manner and basis of converting the shares of each merging corporation into shares or other securities or obligations of the surviving corporation and, if any shares of any of the merging corporations are not to be converted solely into shares or other securities of the surviving corporation, ihe amount of cash or securities of any other corporation, or combination of cash and such securities, which is to be paid or delivered to the holders of such shares in exchange for or upon the surrender of such shares, which cash or securities of any other corporation, or combination of cash and such securities, may he in addition to or in lieu of the shares or other securities of the surviving corporation. (Emphasis supplied).” Ga.Code Ann. § 22-1001 (b) (3).
      “Upon filing a notice of election to dissent, the shareholder shall cease to have any of the rights of a shareholder except the right to be paid the fair value of his shares. . . .” Ga.Code Ann. § 22-1202 (d).
      “The enforcement by a shareholder of his right to receive payment for his shares in the manner provided in this section shall exclude the enforcement by such shareholder of any other right to which he might otherwise be entitled by virtue of share owner-


source: Caselaw Access Project

author: PER CURIAM.

license: Public Domain

text:
    NATIONAL RAILROAD PASSENGER CORPORATION, a/k/a Amtrak, Plaintiff-Appellee, v. Curtis P. HARRIS, District Attorney, District No. 7, Oklahoma County, Oklahoma, et al., Defendants-Appellants. Charles J. DAVIS and Catherine L. Nuck-olls, Intervening Plaintiffs-Appellees, v. Weldon E. DAVIS, Director, Oklahoma Alcoholic Beverage Control Board, et al., Defendants-Appellants. SOONERSPHERE CLUB ASSOCIATION, an unincorporated association, and Ruby Boyd, Plaintiffs-Appellees, v. Curtis P. HARRIS, District Attorney, Dis-rict No. 7, Oklahoma County, Oklahoma, et al., Defendants-Appellants, with Sooner Alcohol-Narcotics Education, Inc., a corporation, and Ross J. McLennan, Amicus-Curiae.
    Nos. 73-1149, 73-1122, 73-1266.
    United States Court of Appeals, Tenth Circuit.
    Argued Sept. 12, 1973.
    Decided Jan. 9, 1974.

      Loyd Benefield and Lana Jeanne Tyree, Oklahoma City, Okl., and George A. Sears, San Francisco, Cal., for plaintiff-appellee, in 73-1149.
    Larry Derryberry, Atty. Gen., of Oklahoma, and Steven E. Moore, Asst. Atty. Gen., of Oklahoma, for defendants-appellants.
    John R. Wallace, Ben T. Owens, Melvin H. Landers, and Coy Dean Morrow, Miami, Okl., for intervening plaintiffs-appellees.
    Melvin J. Spencer, Oklahoma City, Okl., for amicus curiae.
    Before CLARK, Associate Justice, LEWIS, Chief Judge, and O’CONNOR, District Judge .

       Associate Justice, United States Supreme Court, Retired, sitting by designation.

       Judge, United States District Court, Kansas City, Kansas, sitting by designation.

   PER CURIAM.

These cases consolidated on appeal test the validity of injunctions issued by the District Court against appellants, Oklahoma law enforcement officers, staying their enforcement of Oklahoma’s liquor laws which prohibit the sale of alcoholic beverages by the drink. Okla. Const. Art. XXVII § 4; 37 O.S. § 538(h). The writs were stayed on appeal and we now find them to be improvidently granted and reverse.

On July 18, 1972, an Amtrak train moving interstate through Oklahoma, was boarded at Oklahoma City by law enforcement officers who found liquor being sold on the train by the drink. George Bell, an Amtrak employee, was charged with operating an open saloon in violation of Oklahoma law. On September 6, 1972 Amtrak filed this suit pursuant to 28 U.S.C. §§ 1331, 1332, 1337 seeking a declaratory judgment holding (1) Oklahoma’s liquor laws could not be enforced against it because Congress had exempted its operations from “any State or other law pertaining to the transportation of passengers by railroad as it relates to rates, routes, or service” 45 U.S.C. § 546(c); and (2) in the prosecution of its employee, George Bell, the appellants had engaged in “conscious willful discrimination” in the application of the Oklahoma liquor laws “resulting in discriminatory enforcement” as prohibited under the Equal Protection Clause of the Fourteenth Amendment. The District Court, after a hearing, granted the declaratory judgment prayed for, found discriminatory enforcement present and issued a permanent injunction “to protect and effectuate” its decrees. 354 F. Supp. 887, 893, 894 (1972). Amtrak’s first issue based on its claimed exemption from Oklahoma law was raised and decided adversely to it in National Railroad Passenger Corporation v. Miller, 358 F.Supp. 1321 (D.C.Kan., 1973), affirmed, 414 U.S. 948, 94 S.Ct. 285, 38 L.Ed.2d 205 (1973). It is therefore without merit.

We likewise find no merit in Amtrak’s second contention. At the outset the Court’s circumvention of the anti-injunction statute, 28 U.S.C. § 2283, as the appellants noted, may well be dis-positive. Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971) admonishes that federal “courts of equity should not act, and particularly should not act to restrain a criminal prosecution, when the moving party has an adequate remedy at law.” 401 U.S. at 43, 91 S.Ct. at 750. In the framework of this case, the Younger rule places quite a heavy burden on one seeking injunctive relief. The finding by the District Court here that its failure to act would result in irreparable injury, was clearly erroneous under prevailing standards. Ex parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714 (1908) ; Fenner v. Boykin, 271 U.S. 240, 244, 46 S.Ct. 492, 70 L.Ed. 927 (1926); Spielman Motor Co. v. Dodge, 295 U.S. 89, 55 S.Ct. 678, 79 L.Ed. 1322 (1935) ; Beal v. Missouri Pacific R. Co., 312 U.S. 45, 61 S.Ct. 418, 85 L.Ed. 577 (1941); Douglas v. City of Jeanette, 319 U.S. 157, 63 S. Ct. 877, 87 L.Ed. 1324 (1943); Dombrowski v. Pfister, 380 U.S. 479, 85 S. Ct. 1116, 14 L.Ed.2d 22 (1965); Younger v. Harris, supra.

Nor does Amtrak have any parade of horribles with reference to its discrimination claim. On the contrary, the record shows that the prosecution was triggered by a telephone call from a newspaper reporter to the Director of the Oklahoma Alcoholic Beverage Control Board, advising that Amtrak was selling liquor by the drink on its trains. The Director wrote an Amtrak official, advising of “possible violations of law,” requesting cooperation, stating that his letter was “not to be construed as an immediate threat of action” and requesting a reply as to Amtrak’s “intended action.” No reply was made and some two weeks later an independent investigation by state agents was instituted which ascertained that Amtrak had no intention of complying with Oklahoma’s liquor laws. This prosecution followed. (1). We are not persuaded that the District Court’s conclusion of law as to discriminatory enforcement of law saves Amtrak. It is not named as a defendant and George Bell, its employee, has an adequate remedy at law through state prosecution. Two Guys v. McGinley, 366 U.S. 582, 588, 589, 81 S.Ct. 1135, 6 L.Ed. 2d 551 (1960). Also see Fenner v. Boy-kin, supra.

(2). Intervenors Charles J. Davis and Catherine L. Nuckolls, owner and employee, respectively, of Shangri-La Lodge, claim Oklahoma laws were unconstitutionally applied to them and invidious discrimination is present. The record indicates that within the large resort complex a private club is operated wherein liquor by the drink is sold. On two occasions arrests have been made of employees, one of them is Intervenor Nuckolls. As it had done in the Amtrak ease, the District Court proceeded straightaway to decide the declaratory judgment claim of unconstitutional application of Oklahoma’s liquor laws, and after finding for Davis and Nuckolls, issued an injunction to “protect and effectuate its decrees” 361 F.Supp. at 393. As Samuels v. Mackell, 401 U.S. 66, 91 S.Ct. 764, 27 L.Ed.2d 688 (1971) dictates, where a state prosecution has begun, “the same equitable principles relevant to the propriety of an injunction must be taken into consideration and that where an injunction would be impermissible ... . declaratory relief should ordinarily be denied as well.” 401 U.S. at 73, 91 S.Ct. at 768. As was said in Perez v. Ledes-ma, 401 U.S. 82, 85, 91 S.Ct. 674, 677, 27 L.Ed.2d 701 (1971), injunctive relief lies “only in cases of proven harassment or prosecutions undertaken by state officials in bad faith without hope of obtaining a valid conviction and perhaps in other extraordinary circumstances where irreparable injury can be shown.” We find neither harassment, bad faith nor irreparable injury present here; hence the conclusions of the District Court are clearly erroneous.

(3). As to Soonersphere Club Association and Ruby Boyd v. Harris, No. 73-1266, the motion to dismiss the appeal was denied by this Court on May 5, 1973. The record now shows that the Association entered a plea of guilty and paid a fine on the criminal charge of operating an open saloon, and the prosecution against Ruby Boyd was dismissed. Neither party has filed a brief on the merits nor appeared at argument on September 12, 1973. We are advised that both parties “have elected not to further test the constitutionality or validity” of Oklahoma’s liquor laws. We therefore conclude that this appeal is moot.

The judgments in each of the consolidated cases, save No. 73-1266, are reversed, the orders are vacated and the cases remanded with instructions to dismiss each of them. In No. 73-1266, Soonersphere and Ruby Boyd, the cause is declared moot, the orders are vacated, and the case is remanded with instructions to dismiss the same.

It is so ordered.

      . The record also discloses that there were, in Oklahoma County alone, approximately thirty-four prosecutions (involving some sixty-five persons and business establishments) instituted during the nine-month period immediately preceding the filing of this suit.


author: SPRECHER, Circuit Judge.

text:
    PUERTO RICAN ORGANIZATION FOR POLITICAL ACTION et al., Plaintiffs-Appellees, v. Stanley T. KUSPER et al., Defendants-Appellants.
    No. 73-1035.
    United States Court of Appeals, Seventh Circuit.
    Argued Oct. 31,1973.
    Decided Dec. 18, 1973.

      Aldus S. Mitchell, Jr., Andrew M. Raucci, Chicago, Ill., for defendants-appellants.
    Donald T. Bertueci, Wallace C. Winter, George C. Pontikes, Chicago, Ill., for plaintiffs-appellees.
    Cesar A. Perales, Herbert Teitelbaum, New York City, for Puerto Rican Legal Defense and Education Fund, Inc., ami-cus curiae, for plaintiffs-appellees.
    Before KILEY, PELL and SPRECHER, Circuit Judges.
   SPRECHER, Circuit Judge.

This appeal challenges the propriety of a preliminary injunction entered October 30, 1972, requiring the Chicago Board of Election Commissioners to provide voting assistance in Spanish to U.S. citizens born in Puerto Rico who are unable to read or understand English.

One plaintiff, the Puerto Rican Organization for Political Action, is a not-for-profit corporation which seeks to further the participation of Spanish-speaking residents of Illinois in the political process. The four individual plaintiffs and the class they represent are citizens of the United States by virtue of their birth in Puerto Rico. They were educated in Puerto Rican public schools, where the language of instruction is Spanish. They are now residents of Illinois and are registered to vote in Chicago. After hearing testimony and examining affidavits of class members, the district court found that plaintiffs and “many thousands” of other class members do not understand enough English to be able to vote effectively unless they have written instructions or verbal assistance in Spanish.

After the complaint was filed in September, the district court held a series of conferences with counsel for plaintiffs and for the defendant election commissioners to determine what kind of assistance in Spanish could be provided for the general election to be held November 7, 1972. Without conceding the merits of the complaint, defendants decided to make certain assistance available, but refused to enter into an agreement embodying their decision. The district judge, following a three-day hearing, entered the preliminary injunction, which apparently orders defendants to take the steps they said they intended to take.

The first two sections of the preliminary injunction apply only to the November 7 election. They required the election commissioners to print Spanish translations of directions for using voting machines to be pasted over English instructions on specimen ballots. These ballots, along with posters in Spanish about assistance available to voters and cards in Spanish describing model voting machines, were to be placed in the polling places of various precincts of eleven wards.

Sections C and D of the preliminary-injunction require defendants to “make all reasonable efforts” to appoint election judges who are bilingual in English and Spanish to fill vacancies in the designated precincts. Section E ordered reasonable efforts to place bilingual special judges in the specified polling places for the November 7 election.

Ll] Before considering the merits of the appeal, we should mention that plaintiffs moved to dismiss the appeal as moot because the November 7 election was over. A single judge of this court denied the motion on April 12, 1973. The basis of the denial was that the provisions of sections C and D of the preliminary injunction are not limited to the November 7 election. The election commissioners have the ongoing duty to fill vacancies as they occur. Ill.Rev. Stat. ch. 46, §§ 14-3.1, 14-3.2, 14-5. A number of special elections have been held in the year since the injunction was entered; the injunction continued to enforce defendants’ responsibility to appoint bilingual judges for those elections. Therefore the appeal is not moot.

I

Defendants’ first objection to the preliminary injunction is that the district court, acting as a single judge, had no jurisdiction to enter it. They argue that the injunction restrains them from enforcing state statutes on grounds of unconstitutionality, and thus could only have been issued by a three-judge court under 28 U.S.C. § 2281.

Defendants say the injunction requires them to violate a provision of the 1870 state constitution, Schedule § 18, S.H.A., which they claim is still in force. They cite cases interpreting section 9 of the transition schedule of the 1970 state constitution; but neither case holds that a substantive provision of the 1870 constitution remains in force if it is not incorporated into the 1970 constitution. Section 18 no longer governs the Board of Election Commissioners.

Next, defendants cite an injunction issued in City of Chicago v. McCoy, 136 Ill. 344, 26 N.E. 363 (1891). They argue the injunction prohibits them from publishing any material in any language but English. By its terms, however, the McCoy injunction only prohibits execution of a contract between the city and a German-language newspaper. The McCoy injunction never did apply to defendants.

Another provision defendants allege is affected by the district court’s injunction is Ill.Rev.Stat. ch. 127, § 177: “The official language of the State of Illinois is English.” This statute (which appears with others naming the state bird and the state song) has never been used to prevent publication of official materials in other languages. In fact, various state and city agencies publish numerous materials and provide many services in Spanish.

Defendants also argue that the preliminary injunction prohibits enforcement of Ill.Rev.Stat. ch. 46, § 14 — 1 et seq., which governs the appointment of judges of election. Their argument is based on the misinterpretation that the injunction imposes a “quota system” on the Board. On the contrary, the injunction only asks for defendants’ “reasonable efforts” to appoint bilingual applicants who meet the other qualifications of the election code.

We conclude that no Illinois law prohibits defendants from giving voting assistance in Spanish. Even if there were such a statute, defendants’ objection to the district court’s jurisdiction would not prevail. Plaintiffs’ complaint about the practice of the Board of Election Commissioners of refusing assistance in Spanish is not that it is unconstitutional, but that it conflicts with the Voting Rights Act of 1965 and the Voting Rights Act Amendments of 1970 (see Part II below). A Supremacy Clause case, where repugnance of a state practice to a federal statute is claimed, does not require a three-judge court under section 2281. Swift & Co., Inc. v. Wickham, 382 U.S. Ill, 86 S.Ct. 258, 15 L.Ed.2d 194 (1965); Santiago v. Corporacion de Renovacion Urbana y Vivienda, 453 F.2d 794 (1st Cir. 1972); Johnson v. Harder, 438 F.2d 7 (2d Cir. 1971). The district court had jurisdiction to enter the preliminary injunction.

II

United States policy toward persons born in Puerto Rico is to make them U.S. citizens, to allow them to conduct their schools in Spanish, and to permit them unrestricted migration to the mainland. As a result, thousands of Puerto Ricans have come to live in New York, Chicago, and other urban areas; they are eligible, as residents and U.S. citizens, to vote in elections conducted in a language many of them do not understand. Puerto Ricans are not required, as are immigrants from foreign countries, to learn English before they have the right to vote as U.S. citizens. Their plight is as much a result of government policy as is the plight of Negroes trying to pass literacy tests in states which had subjected them to segregated, unequal school systems. Cf. Gaston County v. United States, 395 U.S. 285, 89 S.Ct. 1720, 23 L.Ed.2d 309 (1969).

Congress responded to the inequities caused by literacy tests by outlawing them in states with low percentages of registrants or voters. Voting Rights Act of 1965, 42 U.S.C. § 1973 et seq. In the same act, Congress buttressed the right of Puerto Ricans to vote in the following language:

Congress hereby declares that to secure the rights under the fourteenth amendment of persons educated in, American-flag schools in which the predominant classroom language was other than English, it is necessary to prohibit the States from conditioning the right to vote of such persons on ability to read, write, understand, or interpret any matter in the English language.

42 U.S.C. § 1973b(e) (1). The Supreme Court upheld the constitutionality of this provision in Katzenbach v. Morgan, 384 U.S. 641, 86 S.Ct. 1717, 16 L.Ed.2d 828 (1966).

Section 4(e)(2) of the 1965 act allows the states with valid literacy tests to continue using them, but prevents their application to any person who completed sixth grade (or whatever grade is presumptive of literacy under the state law) in a Puerto Rican public school. The 1970 amendment extends the ban on literacy tests to all states until August 6, 1975. 42 U.S.C. § 1973aa. This provision was upheld in Oregon v. Mitchell, 400 U.S. 112, 91 S.Ct. 260, 27 L.Ed.2d 272 (1970). The combined effect of the 1965 act and the 1970 amendment is to prohibit the states from conditioning the right to vote of persons who attended any number of years of school in Puerto Rico on their ability to read or understand the English language.

The meaning qf “the right to vote” is the critical analysis in this case. Defendants believe it is the right to enter a voting booth and cast a ballot. Plaintiffs urge a broader definition of “the right to vote,” based on several three-judge-court cases involving illiterate voters. In Garza v. Smith, 320 F.Supp. 131 (W.D.Tex.1970), vacated and remanded for appeal to 5th Circuit, 401 U.S. 1006, 91 S.Ct. 1257, 28 L.Ed.2d 542, appeal dismissed for lack of jurisdiction, 450 F.2d 790 (5th Cir. 1971), the court rejected a narrow definition of “the right to vote.” It “additionally includes the right to be informed as to which mark on the ballot, or lever on the voting machine, will effectuate the voter’s political choice.” 320 F.Supp. at 136. The court found a denial of equal protection in a statute which allowed assistance to blind or physically infirm voters, but denied it to illiterates. An illiterate voter can only perform an empty ritual if he does not have “the right to be informed of the effect that a given physical act of voting will produce.” 320 F.Supp. at 137.

A Louisiana district court found a state statute denying voting assistance to illiterates in conflict with the ban on literacy tests in the Voting Rights Act of 1965. United States v. Louisiana, 265 F.Supp. 703 (E.D.La.1966), aff’d without opinion, 386 U.S. 270, 87 S.Ct. 1023, 18 L.Ed.2d 39 (1967). The court said, “We cannot impute to Congress the self-defeating notion that an illiterate has the right [to] pull the lever of a voting machine, but not the right to know for whom he pulls the lever.” 265 F.Supp. at 708.

In United States v. Mississippi, 256 F.Supp. 344 (S.D.Miss.1966), the court read into the 1965 Voting Rights Act a requirement that the state provide assistance to illiterate voters. In both the Mississippi and Louisiana cases, the courts entered injunctions requiring election officials to assist illiterates as a protected class under the Voting Rights Act.

A case which goes even further in ordering state officials affirmatively to guarantee to a protected class of voters their right to an effective vote is United States v. Post, 297 F.Supp. 46 (W.D.La. 1969). Election officials published information that pulling a party lever would cast votes for all the party’s nominees, in the special as well as the general election. The party nominee in the special election, a Negro, campaigned in the Black community by asking his supporters to pull the party lever. Later the officials discovered that the machines could not be set up to include the special-election nominee under the party lever. Though acting in good faith, they did not effectively convey the new instructions to the election judges, to the voters, or to the Negro nominee in the special election. As a result, a number of voters, who thought they were voting for the Negro nominee by pulling the party lever, failed to cast a vote for him.

The court found that under the Voting Rights Act the defendants had a duty “to refrain from applying any voting procedure which will have the effect of denying to Negro voters the right to cast effective votes for the candidate of their choice.” 297 F.Supp. at 51. The special election was voided and a new election ordered.

We agree with the interpretation of the cases above that “the right to vote” encompasses the right to an effective vote. If a person who cannot read English is entitled to oral assistance, if a Negro is entitled to correction of erroneous instructions, so a Spanish-speaking Puerto Rican is entitled to assistance in the language he can read or understand. Since the voting rights of plaintiffs and their class are protected by the 1965 act (with the 1970 amendment), their complaint states a cause of action for which a federal court can give relief. The preliminary injunction properly protected their rights in the 1972 general election by requiring the election commissioners to provide voting assistance in Spanish.

The judgment is affirmed and the case is remanded to the district court for further proceedings.

      . “All laws of the state of Illinois, and all official writings, and the executive, legislative and judicial proceedings, shall be conducted, preserved and published in no other than the English language.”

      . Johnson v. State Electoral Board, 53 Ill.2d 256, 290 N.E.2d 886 (1972) ; Mullaney, Wells & Co. v. Savage, 5 Ill.App.3d 1, 282 N.E.2d 536 (1972).

      . “. . . All laws, ordinances, regulations and rules of court not contrary to, or inconsistent with, the provisions of this Constitution shall remain in force, until they shall expire by their own limitation or shall be altered or repealed pursuant to this Constitution. . . .”

      . See Ill.Rev.Stat. ch. 5, § 169; ch. 16¾, §§ 14.40 and 18a; ch. 122, § 34-18.2. Appendix A to plaintiffs’ brief in tjiis court is a three-page list of materials printed in Spanish by various agencies of the City of Chicago.

      . Defendants argue that a quota system for bilingual election judges would violate the doctrine of Whitcomb v. Chavis, 403 U.S. 124, 91 S.Ct. 1858, 29 L.Ed.2d 363 (1971). If the district court’s permanent injunction were to order one or two bilingual judges for the designated precincts, we doubt that it would conflict with Whitcomb v. Chavis. Election judges are not elected and do not represent any constituency. Their ministerial duties include assisting voters to use the election machinery. Therefore their ability to communicate with the voters in their precincts is highly relevant to their qualifications.

      . 8 U.S.C. § 1402.

      . Spanish has been the language of instruction in Puerto Rican schools in all grades since 1947; English is taught as a second language. The free migration policy has been in force since 1917. United States v. County Board of Elections, 248 F.Supp. 316, 319 (W.D.N.Y.1965), appeal dismissed for lack of jurisdiction, 383 U.S. 575, 86 S.Ct. 1077, 16 L.Ed.2d 107 (1966).

      . A study by a city agency reports that the Spanish-speaking population of Chicago was 247,343 in 1970. Of those, about half were Puerto Rican; the rest were Mexican-Americans. Chicago Sun-Times, Dec. 9, 1973, at 56, col. 1.

      . 8 U.S.C. § 1423.

      . Apparently this section applies only to persons educated in Puerto Rico. Katzen-bach v. Morgan, 384 U.S. 641, 645 n. 3, 86 S.Ct. 1717,16 L.Ed.2d 828 (1966).

      . We note that a district court in New York issued similar injunctions on March 21 and April 20, 1973, in Lopez v. Dinkins, No. 73 Civ. 695 (S.D.N.Y.). The California Supreme Court, however, refused to order a “bilingual electoral apparatus” in Castro v. California, 2 Cal.3d 223, 85 Cal.Rptr. 20, 466 P.2d 244 (1970). Castro can be distinguished because it was not brought under federal voting-rights legislation, and because plaintiffs were not members of the class protected by 42 U.S.C. § 1973b (e) (1).


author: BATTIN, District Judge: DUNIWAY, Circuit Judge

text:
    Ellenmae CROW et al., Plaintiffs-Appellees, American Federation of Labor and Congress of Industrial Organizations and United Steelworkers of America, AFL-CIO, Intervenor Plaintiffs-Appellees, v. CALIFORNIA DEPARTMENT OF HUMAN RESOURCES DEVELOPMENT et al., Defendants-Appellants, United States of America, Intervenor Defendant-Appellant.
    Nos. 26749, 71-1045.
    United States Court of Appeals, Ninth Circuit.
    Dec. 14, 1973.

      Charles Liebert Crum, Atty. Dept, of Labor, Washington, D. C., Asher Rubin, Deputy Atty. Gen. (argued), William P. Spohn, Asst. U. S. Atty., San Francisco, Cal., Morton Hollander and Patricia S. Baptiste, Attys. Dept, of Justice, Robert E. Kopp, Atty. (argued), Dept, of Justice, Washington, D. C., for defendants-appellants.
    Steven P. Berzon, Stefan M. Rosenzweig, Legal Aid Society of Alameda County, Oakland, Cal., K. Randlett Wal-ster, Santa Cruz, Cal., Ono, Manley, Schwartz & Kubota, San Jose, Cal., Contra Costa Legal Services Foundation, Richmond, Cal., Fred H. Altshuler and Lucy K. McCabe (argued), San Francisco, Cal., J. Albert Woll, Washington, D. C., Bernard Kleiman, Chicago, 111., for plaintiffs-appellees.
    Before DUNIWAY and TRASK, Circuit Judges, and BATTIN,  District Judge.

       Honorable James F. Battin, United States District Judge, District of Montana, sitting by designation.

   BATTIN, District Judge:

Ellenmae Crow commenced this class action against the State of California Department of Human Resources Development [hereinafter “Department”], seeking reinstatement of her entitlement to unemployment insurance benefits and an order requiring their continued payment until she was afforded a “Goldberg” type due process hearing.

Ms. Crow, who had previously qualified for and was receiving unemployment benefits, was notified by the Department of an employment opportunity. At an interview for this employment opportunity, it came to light that Ms. Crow, if hired, would leave the job if elsewhere offered higher wages. As a consequence, Ms. Crow was not offered employment.

A condition of receipt of benefits from the Department is that the claimant be ready, willing and able to work. Thus, Ms. Crow was advised by the Department that she would have to explain the circumstances surrounding the job interview before her benefit check would be released. She filled out the required form but left blank the question, “Was any work offered you?” On the basis of this omission, her check was withheld and she was referred to a Department claims interviewer, who concluded that Ms. Crow had, at the “job interview”, “precluded an offer of suitable work and accordingly was not eligible to receive unemployment compensation benefits for a period of ten weeks.” A subsequent “pre-appeal” interview, with Ms. Crow in attendance, upheld the withholding of benefits.

Subsequent to filing this action, Ms. Crow requested an administrative hearing, and in lieu of a requested temporary restraining order, the district court withheld action pending the hearing.

The Hearing Referee ruled in favor of Ms. Crow, finding that a claimant could express a desire for higher wages without being guilty of precluding employment if such expression did not convey a negative attitude. Thus, the Referee’s decision was based solely on the legal affect of what had transpired at the job interview, although it necessarily characterized Ms. Crow’s conduct as permissible. Notwithstanding this administrative result, the district court reached the merits of Ms. Crow’s complaint and concluded :

“When an individual is deprived of a statutory benefit which he has previously enjoyed due to an adverse finding where factual issues are in dispute, and where the agency concerned has acted upon third party information, the ancient and ‘relatively immutable’ jurisprudence of Greene, Sniadaeh, and Goldberg comes into play. It is in a case such as [this] .,. where the claimant said she was offered no job, and where the [defendant department’s] interviewer disagreed, . . . [based on his understanding of third party information], that confrontation and cross-examination are necessary.”
Crow v. Cal. Dept, of Human Resources, 325 F.Supp. 1314, 1319 (N. D.Cal.1970).

MOOTNESS

The Supreme Court’s remand of Burney implicitly indicates that a district court’s conclusion against mootness permits review of at least that question. We concur with the district court’s finding that this case is not moot, and find it to be of that type which is capable of repetition yet potentially evading review. The intervention as a party plaintiff of the AFL-CIO precludes any other conclusion.

MERITS OF PLAINTIFF’S CLAIM

It is the opinion of this court that the record does not reflect a situation necessitating a wholesale application of the principles enunciated by Goldberg and its progeny. Moreover, should we erroneously construe the record, the procedures employed by the Department in this case and the situations which it encompasses, in our opinion, satisfy the requisites of due process. That procedure, which includes an informal hearing in the presence of the claimant prior to the administrative determination regarding the continued eligibility for unemployment compensation, was employed here and is employed in all similar cases. That procedure is the subject matter of an affidavit filed in this case and which, because of its obvious importance, is set out in the margin.

First, we disagree with the district court’s finding that the termination here was based upon third party information. The situation which Ms. Crow brings to the fore is that in which the claimant is the source of information upon which the continued eligibility claims examiner predicates his decision of ineligibility. Goldberg indicates quite clearly that a pretermination hearing is mandated only where the questioned agency action is challenged as resting upon incorrect or misleading factual premises or upon misapplication of rules or policies under the facts of the particular case. Goldberg v. Kelly, supra, 397 U.S. at 268, 90 S.Ct. 1011. Here, the facts presented the eligibility examiner indicated that the claimant, when asked, admitted that she would leave any job offered for a subsequent, more lucrative position. While it may be true that information from the job opportunity interviewer may have formed a part of the conclusion by the eligibility interviewer, that information, insofar as the record indicates, differed in no material respect from that presented to the Department’s interviewer by Ms. Crow. Thus, we are constrained by the record to conclude that we are here dealing not with agency misconstruction of a factual situation, but rather, and if at all, with that aspect of Goldberg which interposes the Fourteenth Amendment in situations challenged as an agency’s misapplication of rules or policies.

Second, we find no basis for a claim that there has been misapplication of policies or rules in this ease. The rule confronting the Department’s examiner required termination if a claimant had “precluded” employment. This claimant was not offered employment because of her candid admission that she would leave a job if offered more remuneration elsewhere. We find it logically impossible to label the examiner’s action as a misapplication of rules or policies.

And, third, should we take too much liberty with the record by concluding there was here no erroneous fact-finding by the Department, we nonetheless must reverse the court below for we find that due process is accorded by the Department’s procedures governing this situation. Due process is, of course, a flexible concept, the requirements of which are not immutably fixed but frequently vary with the type of proceeding involved. Hannah v. Larche, 363 U.S. 420, 440, 80 S.Ct. 1502, 4 L.Ed.2d 1307 (1960).

“[Consideration of what procedures due process may require under any given circumstances must begin with a determination of the precise nature of the government function involved as well as of the private interest that has been affected by governmental action * * * .”
Cafeteria Workers v. McElroy, 367 U. S. 886, 895, 81 S.Ct. 1743, 1748, 6 L. Ed.2d 1230 (1961).

We conclude that the protection of persons receiving unemployment compensation benefits against capricious and arbitrary governmental action is adequately safeguarded in this case. There is no need to further burden the procedures by requiring a full evidentiary hearing in the situation such as the one at hand where the record reflects the absence of a factual dispute or misapplication of rules and regulations.

Goldberg and its progeny do not dictate a contrary result. Goldberg held, in effect, that prior to termination of welfare benefits a due process hearing was required. Close examination of the decision requires the conclusion that the strict principles it enunciates are inap-posite in the situation here at hand. Goldberg, in fact, makes clear that some governmental benefits can administratively be terminated without affording the recipient a pretermination hearing. Goldberg, supra, 397 U.S. at 263, 90 S. Ct. 1011. The Goldberg rationale is based, at least in part, upon the fact that a welfare recipient will, upon termination, be faced with a grievous loss. No such loss exists in this situation. Here, we deal with unemployed persons who, as a condition to receive unemployment compensation benefits in the first instance, must be able and willing to work and subsequently in reasonably good health and a bona fide member of the work force. While that distinction alone may be sufficient to take this case out of the Goldberg context, several others indicate the probity of the conclusion. For example: The source of funds used to pay unemployment benefits is different than the source of funds used to pay welfare; and the state’s interest in unemployment compensation is different because it is that of a stakeholder, rather than a benefactor. Just as the context differs, so do the requirements of due process.

We find the Constitution to demand here no more than is afforded by the Department’s system, even though it does not require pretermination confrontation and cross-examination. In Richardson v. Perales, 402 U.S. 389, 91 S. Ct. 1420, 28 L.Ed.2d 842 (1971), the Supreme Court of the United States upheld a procedure which lacked the right of confrontation and cross-examination of witnesses where the claimant could present reports and testimony in rebuttal of written reports and testimony submitted against him. Substantially the same procedure is employed by the Department. Though Richardson arose in the context of social security disability benefits, the rationale employed [that due process is satisfied if procedures are essentially fair in view of the circumstances] is equally applicable here. General principles of fundamental fairness under the circumstances govern here and require the conclusion that due process was afforded in the present situation.

Therefore, we reverse this case and remand it to the district court for further proceedings not inconsistent with this opinion.

DUNIWAY, Circuit Judge

(concurring and dissenting).

I concur in the holding that the case is not moot, but I cannot agree that appellant and the class of persons whom she represents are not entitled to a due process type hearing before their right to unemployment insurance benefits may be terminated.

I do not believe that the majority has successfully distinguished Goldberg v. Kelly, 1970, 397 U.S. 254, 90 S.Ct. 1011, 23 L.Ed.2d 287. I think that Goldberg is directly in point here and that it requires affirmance of the judgment of the district court. The majority attempts to distinguish Goldberg on several grounds. I consider them seriatim.

First, the majority says that the decision to terminate Ms. Crow’s benefits was based on information that she furnished, and not on third party information. In so holding, the majority disagrees with a contrary finding by the district judge, which I believe to be fully supported by the record and not clearly erroneous. There was a factual dispute as to what occurred at Ms. Crow’s job interview, and the examiner apparently relied on information furnished by the employer’s interviewer. Ms. Crow had no chance to confront and question him on the crucial questions: did he offer her a job and did she refuse it? Ms. Crow said that she had not been offered a job (R. 125); the interviewer apparently reported that he had offered the job and she had refused it. (R. 127, 128-9, 131) The judge’s finding (325 F.Supp. at 1318, 1319) is supported by the record.

Second, the majority says that there was no misapplication of policies or rules in this case. Again, I am compelled by the record to disagree. The theory is that Ms. Crow “precluded” employment by telling the employer’s job interviewer that she would leave the employer’s job if she could get higher pay elsewhere. Ms. Crow had been earning $2.75 per hour. The prospective job paid $2.20. She told the Department interviewer that “the wage sounded pretty low and [she] was told by the interviewer that perhaps if she did interview for the job, she might be able to obtain a higher starting wage.” (R. 88) Under Benefit Decision 6429 of the California Unemployment Insurance Appeals Board, Ms. Crow should have been told that $2.75 was too much to demand from Goodwill. As the Appeals Board referee said, “If her demands are considered unreasonable, the claimant should be advised of that fact so that she will have an opportunity to pattern her demands to the prevailing wage.” (R. 91) Thus, the blame for Ms. Crow’s misfortunes arising from her telling the truth rests on her Department interviewer, who neglected to follow a policy promulgated by the California Unemployment Insurance Appeals Board.

Third, the majority says that “the Goldberg rationale is based, at least in part, upon the fact that a welfare recipient will, upon termination, be faced with a grievous loss. No such loss exists in this situation.” I cannot agree. No doubt it is true that some wage-earners who are covered by unemployment insurance have other resources with which to support themselves while looking for another job. But I believe that we can take judicial notice that the vast majority of wage-earners, especially those in low paid jobs, have no such resources, but are wholly dependent for their and their families’ livelihood upon their wages. Loss of a job, like pre-judgment garnishment, “may as a practical matter drive a wage-earning family to the wall” (Sniadach v. Family Finance Corp., 1969, 395 U.S. 337, 341-342, 89 S.Ct. 1820, 1822, 23 L.Ed.2d 349). For most wage-earners, loss of a job is more than a “grievous loss”; it is a calamity. The trial judge found that Ms. Crow suffered “serious injury” (325 F.Supp. at 1318, and see R. 18-21). The majority does not quarrel with this finding. Assuming that “grievous loss” is required, I am unable to distinguish it from “serious injury” in this context. Ms. Crow suffered the same kind of loss that the plaintiffs in Goldberg suffered, loss of necessary income.

Fourth, the majority says that the source of funds used to pay unemployment benefits is different from the source of funds used to pay welfare; and that the state’s interest in unemployment compensation is different because it is that of a stakeholder, rather than a benefactor.

Again, I am unable to agree. The source of the funds in both cases is taxes. In the case of welfare, the taxes are levied on the public as a whole. In the case of unemployment compensation, the taxes are levied on the wage-earners’ employers. This would seem to me to give to wage-earners an even greater stake in the funds than welfare recipients have in funds appropriated for welfare payments. If relevant at all (and the majority does not tell us how it is relevant), the difference strengthens rather than weakens the claim to due process asserted by Ms. Crow and those whom she represents. Moreover, the state is no mere stakeholder; it owns the money that it collects and the Federal government contributes to the funds. As in Goldberg, the benefits here involved “are a matter of statutory entitlement for persons qualified to receive them.” (397 U.S. at 262, 90 S.Ct. at 1017.)

Furthermore, one purpose of unemployment insurance is to prevent people from going on welfare; it serves “to maintain the recipient at subsistence levels without the necessity of his turning to welfare or private charity.” California Human Resources Dept. v. Java, 1971, 402 U.S. 121, 131-132, 91 S.Ct. 1347, 1354, 28 L.Ed.2d 666. The two programs are intertwined, both provide aid to people unable to work, and there is no reason to distinguish them for purposes of this case. As the Supreme Court has said, in discussing unemployment insurance benefits, “the payments to the employees were not made to discharge any liability or obligation of [the employer], but to carry out a policy of social betterment for the benefit of the entire state.” N.L.R.B. v. Gullett Gin Co., 1951, 340 U.S. 361, 364, 71 S.Ct. 337, 340, 95 L.Ed. 337. And in Goldberg, the Court went out of its way to suggest that “[r]elevant constitutional restraints apply as much to the withdrawal of public assistance benefits as to disqualification for unemployment compensation.” 397 U.S. at 262, 90 S. Ct. at 1017.

I conclude that Goldberg is squarely in point and that it requires a due process type hearing before unemployment compensation is terminated, at which there is an opportunity to confront and question a third party who has furnished information upon which the Department relies. See 397 U.S. at pp. 267-268, 269-270, 90 S.Ct. 1011.

I find nothing to the contrary in Richardson v. Perales, 1971, 402 U.S. 389, 91 S.Ct. 1420, 28 L.Ed.2d 842, cited by the majority. There, the Court carefully distinguishes Goldberg (402 U.S. at 406-407, 91 S.Ct. 1420).

I would affirm.

      . The AFL-CIO has intervened as a party plaintiff; the United States has intervened as a party defendant.

      . Goldberg v. Kelly, 397 U.S. 254, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970).

      . Greene v. McElroy, 360 U.S. 474, 79 S.Ct. 1400, 3 L.Ed.2d 1377 (1959) ; Sniadach v. Family Finance Corp., 395 U.S. 337, 89 S. Ct. 1820, 23 L.Ed.2d 349 (1969) ; Goldberg, supra note 2.

      . Indiana Employment Security Division v. Burney, 409 U.S. 540, 93 S.Ct. 883, 35 D.Ed.2d 62 (1973).

      . The affidavit of the Administrator of the California Unemployment Insurance program recites that: “The interviewer is required to permit the claimant to explain the circumstances surrounding the issue of his eligibility. Notes are reported on a record of the interview as to what the employer has alleged. He is then given an opportunity to offer any statement he wishes in rebuttal. The interviewer asks specific questions to bring out all the facts. If the claimant’s version does not agree with the employer’s allegations, the employer is told what the claimant has said and given an opportunity to submit a rebuttal. In most cases, contact with the employer is by telephone. In some instances, he has written a letter and the decision is held up pending a reply. In most cases, the decision is arrived at during interview.

        “Verification, when required, is obtained from any source such as labor unions, doctors, transportation companies, etc. If the claimant’s statement and the employer’s statement are at variance, both the claimant and the employer are permitted to produce or suggest witnesses who can testify to what he has alleged. When the evidence is equal and the contradictions cannot be resolved, the claimant is given the benefit of the doubt.
      “After all the pertinent facts have been introduced, the interviewer, after determining wliat policy and precedent requires, makes the decision either holding the claimant eligible or disqualified for benefits. If the benefits are denied, the reason for the denial is explained, and written decision is issued within two days after the denial.” [Record of Hearing 140-141.]

      . In 1931, Franklin D. Roosevelt, then Governor of New York, sent his Labor Commissioner, Frances Perkins, to Great Britain to study the British system of unemployment insurance. She discovered the British had confused poor relief with insurance, that they had disregarded actuarial principles, and that coverage was often expanded without regard for contributions. She cautioned against these errors and advised that any unemployment insurance program considered in this country should be based on a principle of limited payments with the retention of benefits to reserves in accordance with insurance principles. See D. Nelson, Unemployment Insurance, the American Experience 1915-1935, 167 (1969).

      . “. . . [T]he sufficiency of procedures employed in any particular situation must be judged in light of the parties, the subject matter and the circumstances involved.” Ferguson v. Thomas, 430 F.2d 852, 856 (5th Cir. 1970) ; see also Grabinger v. Conlisk, 320 F.Supp. 1213 (N.D.Ill.1970).

      . See: Dixon v. Alabama State Board of Education, 294 F.2d 150 (5th Cir. 1961), cert, den., 368 U.S. 930, 82 S.Ct. 368, 7 L.Ed.2d 193 (1961).