author: WILSON, Circuit Judge.

text:
    CONRAD & CO., Inc., v. COMMISSIONER OF INTERNAL REVENUE.
    No. 2523.
    Circuit Court of Appeals, First Circuit.
    May 28, 1931.

      Hugh Satterlee, of New York City (I. Herman Sher, of New York City, Albert S, Lisenby, of Washington, D. C., and Weill, Wolff & Satterlee, of New York City, on the brief), for petitioner.
    J. Louis Monarch, Sp. Asst, to Atty. Gen. (G. A. Youngquist, Asst. Atty. Gen., Sewall Key and Helen R. Carloss, Sp. Assts. to Attorney General, and C. M. Charest, Gen. Counsel, and Allin H. Pierce, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for the Commissioner.
    Argued before BINGHAM, ANDERSON, and WILSON, Circuit Judges.
   WILSON, Circuit Judge.

This is a petition for review, of certain orders and decisions of the Board of Tax Appeals holding that the petitioner was subject to certain deficiency taxes for the years 1919, 1920, 1921, and 1922.

The Board of Tax Appeals found as facts that prior to November 1, 1917, Sidney S. Conrad and Bertram B. Conrad conducted a business as partners under the name of Conrad & Co., and on the above date they organized a corporation and transferred to the corporation the tangible assets of the partnership consisting of cash, receivables, merchandise, and supplies which had an aggregate current cash value of, and cost the partnership, $562,265.20. In exchange for the above tangible assets, the corporation issued to the partners its entire capital stock of the par value of $500,000'.

At the same time the partners, in consideration of the corporation assuming the partnership indebtedness amounting to $155,019.-78, assigned to the corporation certain trademarks, the right to use the partnership name, and the good will of the business. The corporation afterward paid the indebtedness of the partnership.

In assessing the corporation’s income and excess profits taxes for the years in question, the Commissioner of Internal Revenue, in fixing the amount of invested capital, deducted from the value of the tangible assets that were exchanged for the capital stock the amount of the partnership indebtedness assumed and paid by the corporation in exchange for the intangibles. From the ruliilgs of the commissioner the taxpayer appealed to the Board of Tax Appeals, which af-. firmed the action of the commissioner and also denied that the taxpayer was entitled to any relief under sections 327 and 328 of the Revenue Acts of 1918 and 1921 (40 Stat. 1093; 42 Stat. 275).

The taxpayer thereupon petitioned this court for a review of the decisions of the Board of Tax Appeals under sections 1001, 1002, and 1003, chap. 27 of the Revenue Act V>£ 1926 (26 USCA § 1224 and note, and 1225,1226).

Invested capital is a statutory concept. Congress has arbitrarily determined what may be included in determining the amount of invested capital. For the years in question it was determined by section 326 of the Revenue Acts of 1918 and 1921 (40 Stat. 1092; 42 Stat. 274), whieh provided:

“The term 'invested capital’ * * * means:
“(1) Actual cash bona fide paid in for stock or shares;
“(2) Actual cash value of tangible property, other than cash, bona fide paid in for stock or shares, * * *
“(3) 'Paid-in or earned surplus and undivided pro-fits; * * *
“(4) Intangible property bona fide paid in for stock or shares prior to March 3, 1917, 0 * «•
“(5) Intangible property bona fide paid in for stock or shares on or after March 3, 1917, * * *
“(b) As used in this title the term ‘invested . capital’ does not include borrowed capital.-’-’

The differences between the taxpayer and the commissioner and the board arose over the interpretation and application of section 331 of the Revenue Acts referred to (40 Stat. 1095; 42 Stat. 2,76).

Under section 331 in case of a reorganization, consolidation, or change of ownership after March 3, 1917, of a trade or business, if an interest in or the control thereof, to the extent of 50 per cent, or more, remained in the same persons, and property, whether tangible or intangible, was acquired of a partnership or an individual, such property, in determining the invested capital of a corporation acquiring the same, can only be taken at its original cost to the prior owner.

Thd taxpayer in this instance contends that the acquiring of the good will was a separate transaction from the transfer o-f the tangible property for the capital stock, and that where property is purchased by a corporation for cash or its equivalent,' section 331 does not apply, and if the property so acquired has a value equal to the amount paid, it does not affeet the invested capital.

The corporation, Conrad & Company, Inc., acquired in exchange for its capital stock tangible property worth $562,265.20, which, if there had been no other transaction, under section 326 clearly fixed the amount of its invested capital; but at the same time it agreed to assume the partnership^ indebtedness in exchange for certain intangibles transferred to it. By assuming the liabilities of the partnership, it either transferred a part of its invested capital into borrowed capital (see section 325 (a), Revenue Act 1918, 40 Stat. 1091), or exchanged for the intangibles, so acquired, cash or its equivalent.

In other words, it became a question, after its cash, which made up a part of its invested capital, was reduced to the extent of the amount of the liabilities, whether the intangible property acquired in the transaction could then be substituted for the cash asset and the invested capital remain the same.

If section 331 does not apply to the facts found by the board, the taxpayer should be sustained.

We think, however, that sections 326 and 331 must be construed together and that section-331 must be held to apply to the acquisition of this property. The change in the ownership of the business to Conrad & Company, Inc.,, in 1917 was either a reorganization or a change in ownership, where the entire control of the business remained in the same persons. The test, therefore, in determining the invested capital of the corporation for the years mentioned, was the cost of the intangibles to the partnership and not its cash value. Congress, in this section, has arbitrarily fixed the cost of property to the original owner acquired in this manner as the basis for determining its effect upon the invested capital.

If it cost the partnership a sum equal to the liabilities assumed, it was merely the exchanging of one species of property making .up invested capital for other property of equal value. It cannot be that the exchange of any of the property enumerated in section 326 as constituting invested capital for other property of equal value, according .to the standard fixed in section 331, thereby reduces the invested capital.

But the commissioner found that it cost the partnership nothing, and therefore it could not be considered in determining invested capital of the new corporation. The Board of Tax Appeals held that if this were a fact, the taxpayer’s petition must be dismissed. The board, however, further held that from the evidence before it the good will of the partnership was worth more than the amount of the liabilities assumed, and that it cost'the partnership “a substantial sum,” but held that the exact cost could not be reasonably determined from the evidence furnished by the taxpayer, and therefore nothing could be allowed on account of the good will as invested capital.

It also held that the cdreumstanees presented a situation for the application of sections 327 and 328 of the Revenue Acts of 1918 and 1921, but that a comparison with other similar corporations did not require ■any change in the deficiency tax.

In a review of a decision of the Board of Tax Appeals by this court, only questions of law are open. Its findings of fact are not reviewable, and unless it finds facts without evidence, no question of law is presented. If, however, it draws inferences not warranted by the facts found, or makes erroneous applications of law, its decisions are open to review and may be reversed, or modified by the court or remanded for the purpose. Section 1226 (b), 26 USCA.

We think the board having found that the good will eost the partnership a substantial amount, it erred in holding, because the exact amount could not be definitely determined, that the board was not required to exercise its best judgment in determining the eost.

It having been made to appear beyond conjecture that the good will was acquired at a substantial eost, the mere fact that it could not be measured exactly is no reason for not applying the best judgment of the members of the board in fixing on some amount, at least as a minimum cost. If the evidence left it to conjecture as to whether there was any eost to the partners, the board could properly have refused to< go any farther, but if the evidence satisfied the board that the good will was acquired at a substantial cost, then it was their duty to express the “substantial cost” in dollars and cents.

While there appears to be some conflict in the authorities as to the definiteness of the proof required by the taxpayer in such matters, and the courts have held that where a material fact on which relief depends is not susceptible of proof, it leaves the party on whom the burden rests with an unenforceable claim, still we do not think justice should be denied him who offers substantial proof of value when that is the material fact, because he cannot prove it with mathematical exactness. Triers of fact are constituted to arrive at some reasonable conclusion when the evidence is substantial. Values are not conjectural because arrived at on judgment based on “substantial evidence.” To refuse to fix any value on property because not clearly shown would be an arbitrary denial of justice and an error of law. L. S. Plaut & Co. v. Commissioner (C. C. A.) 46 F.(2d) 306; Cohan v. Commissioner (C. C. A.) 39 F.(2d) 540; Kendrick Coal & Dock Co. v. Commissioner (C. C. A.) 29 F.(2d) 559.

This court cannot determine facts, especially without evidence.

The decision of the Board of- Tax Appeals is reversed, and the case is remanded to that board to fix a value on the intangibles based on the eost to the partners.


source: Caselaw Access Project

author: ANDERSON, Circuit Judge.

license: Public Domain

text:
    DOMENECH, Treasurer, v. PORTO RICAN LEAF TOBACCO CO.
    No. 2521.
    Circuit Court of Appeals, First Circuit.
    May 28, 1931.
    William C. Rigby, of Washington, D. C. (James R. Beverley, Atty. Gen., and Blanton Winship, of Washington, D. C., on the brief), for appellant.
    Henri Brown, of San Jnan, Porto Rico, for appellee.
    Before BINGHAM, ANDERSON, and WILSON, Circuit Judges.
   ANDERSON, Circuit Judge.

This is a suit to recover inspection fees for the years 1925 to 1928, inclusive, aggregating $38,187.80. In the court below jury was duly waived; the court found generally for the defendant. No rulings were requested, no exceptions were taken to the admission or rejection 'of evidence, and no special findings of fact were requested or made. On such a record, the review by the appellate court is very limited. Fleischmann Construction Co. v. United States, 270 U. S. 349, 46 S. Ct. 284, 70 L. Ed. 624; United States v. Smith (C. C. A.) 39 F.(2d) 851, and eases cited. t

The judgment below might be affirmed on any one of several grounds. The ease involves the validity of the same acts of the Porto Rican Legislature before this court in Gallardo v. Porto Rican American Tobacco Co., 26 F.(2d) 668. This court there held that the so-called inspection fees were in reality taxes, and that therefore a suit brought in equity to enjoin the collection thereof must be dismissed for lack of jurisdiction, under the Act of March 4, 1927, 44 Stat. e. 503, § 7, pp. 1418, 1421 (48 USCA § 872).

The title of the Act, No. 191 of 1923 Sp. Sess., amended by Act No. 100 of August 29, 1925, and Act No. 24 of April 23,1927, is as follows:

“To protect Porto Rican tobacco and cigars against fraud and adulteration by means of a guaranty and advertising agency in the City of New York, United States; the issue of guaranty stamps determining the origin of the tobacco, and by adequate expert inspection; establishing an inspection fee to defray such expenses as the application of this act may occasion; to impose certain penalties for the violation of the provisions of this act; to repeal Act No. 14, approved May 13, 1921, and for other purposes.”

We must hold the act invalid under section 34 of the Organic Act of Porto Rico, 39 Stat. 951, c. 145 (48 USCA § 832), which reads:

“No bill, except general appropriation bills, shall be passed containing more than one subject, which shall be clearly expressed in its title.”

Compare Benedicto v. Porto Rican American Tobacco Co. (C. C. A.) 256 F. 422.

Giving the title a reasonable and not a narrow and technical construction (Benedicto v. Porto Rican American Tobacco Co. [C. C. A.] 256 F. 422, 425, 426, and cases cited), it is clear that it gave no notice of the contemplated purpose of the Legislature to impose taxes rather than inspection fees. Inspection laws are a well-recognized type of legislation. Foote & Co. v. Maryland, 232 U. S. 494, 34 S. Ct. 377, 58 L. Ed. 698; Minnesota v. Barber, 136 U. S. 313, 10 S. Ct. 862, 34 L. Ed. 455, and eases cited and reviewed by Mr. Justice Harlan.

We add that neither the act nor its administration, as shown by the opinion of the court below, provides for any real inspection of Porto Rican tobacco and cigars. Section 5, as amended by the Act of 1927, provides, in part, as follows:

“Section 5. Guaranty stamps shall bt* furnished gratis and an inspection fee shall be charged only in the manner following: Ev;, ery manufacturer, dealer in or stripper of tobacco in Porto Rico, who uses, sells or ships tobacco, whatever its origin may he, shall pay an inspection fee of twenty (20) cents for each one hundred pounds of tobacco or fraction of one hundred pounds used, sold or shipped by him during the month. (Italics supplied).
“Tobacco growers shall be exempt from the provisions of this Act, provided that the tobacco -be harvested by them and sold in its original form in Porto Rico. Original form shall be understood tó mean tobacco baled after being taken from stowage, but if the tobacco has been classified and packed or stripped, then it shall be subject to the strict compliance with the provisions of this Act.”

As the Supreme Court said in Henderson v. New York, 92 U. S. 259, 268, 23 L. Ed. 543:

“In whatever language a statute may be framed, its purpose must be determined by its natural and reasonable effect.”

Merely to furnish stamps gratis and to require dealers in tobacco “whatever its origin may he” to pay “an inspection fee of twenty cents for each one hundred pounds of tobacco or fraction of one hundred pounds used, sold, or shipped by him during the month” is obviously no adequate provision for an inspection and identification of Porto Rico grown tohaoeo.

The provision in section 3 concerning the attachment of the stamps is far from clear. In practical operation as an inspection law the act fails entirely, as the court below said:

“According to the evidence in this ease there was not the slightest pretense of any inspection of defendant’s tobacco, either at its warehouse, on the docks or any other place. It is also clear that under this law inspection is not a prerequisite to the shipment or sale of tobacco, manufactured or un-manufactured, and that the only prerequisite is that the stamps be purchased and affixed as the law prescribes.”

It is unnecessary to consider other grounds for affirming the decision below.

The judgment of the District Court is affirmed, with costs. .


author: NETEEEE, District Judge.

text:
    PIONEER SOUTHWESTERN STAGES, Inc., v. WICKER.
    No. 6353.
    Circuit Court of Appeals, Ninth Circuit.
    June 8, 1931.
    B. P. Gibbs, of Los Angeles, Cal., and Barry J. Colding, Theodore Hale, and Carroll B. Crawford, all of San Francisco, Cal., for appellant.
    Thomas F. MeCue, of San Francisco; Cal., for appellee.
    Before WILBUR and SAWTELLE, Circuit Judges, and NETEEEE, District Judge.
   NETEEEE, District Judge.

From a judgment in favor of plaintiff-appellee for personal injuries sustained through the negligence of defendant-appellant while transporting plaintiff from Lds Angeles, California, en route to Oklahoma, defendant appeals.

Federal jurisdiction is predicated upon diversity of citizenship. Appellee claimed citizenship in the southern district of California-, and the action was brought in the northern district. Appellant admittedly was not a citizen of California. Appellant answered and pleaded to the merits, thereby waiving the venue of the court. Western Loan Co. v. Butte Mining Co., 210 U. S. 368, 28 S. Ct. 720, 52 L. Ed. 1101. At the close of all the testimony, appellant moved for an instructed verdict, for the reason, among others not material here, that “the evidence being that the plaintiff was a resident of the state of Oklahoma, and there is no diversity of citizenship.” Was appellee a citizen of California on May 13, 1930, is the sole question.

April 11, 1930, appellee received the injuries at Isleta, N. M.; was taken to a hospital at Albuquerque, and remained there about three weeks; returned to Los Angeles for four or five weeks, and then went to Oklahoma to enter upon the employ in pursuit of which he was when injured. He said four or five weeks after the injury; his wife said five or six weeks, “some time in June.” He had lived in Los Ángeles with his wife and minor daughter for three years, and had purchased a home there on the installment plan. They did not intend to abandon the home until it was determined whether his wife’s health could endure the Oklahoma climate. The wife and daughter remained in the home in Los Angeles and kept all his personal effects there until July, when they departed for Oklahoma. Defaulting in his payments, he lost his home in Los Angeles the latter part of July. Appellant examined appellee’s attorney who testified that: “I understood and knew from correspondence and other facts that he was in Los Angeles at the time that this complaint was verified. I did not send the complaint down to the plaintiff at Los An-geles to have him verify it, but it was not because I did not know where he was.”

The action was commenced May 13, 1930. Appellant claims appellee left California a few days before the complaint was filed, and that he lost his citizenship there upon departure. The established domicile of appellee for three years was in California. He had a right to seek employment in a new place without changing domicile and without losing citizenship in California, and his domicile would remain there until a new one was acquired. Citizenship means membership in the political civil community of a state, and entitles one to its privileges. U. S. v. Cruikshank, 92 U. S. 542, 23 L. Ed. 588. The citizenship in California remained until a domicile' in Oklahoma was established and he became a member of the civil state of Oklahoma, and such relation obviously did not obtain on May 13, 1930: Mitchell v. United States, 88 U. S. (31 Wall.) 350, 23 L. Ed. 584; Gilbert v. David, 235 U. S. 561, 35 S. Ct. 164, 59 L. Ed. 360. Residence in Oklahoma, as claimed in the motion, was not equivalent to challenge of citizenship in California. Grand Trunk Ry. Co. v. Twitchell (C. C. A.) 59 F. 727. But this is immaterial, since the court must determine for itself its jurisdiction. Charroin v. Romort Mfg. Co. (D. C.) 236 F. 1011. Residence and citizenship are wholly different things. Steigleder v. McQuesten, 198 U. S. 141, 25 S. Ct. 616, 49 L. Ed. 986. Diversity of citizenship was an issuable fact and could have been raised before answer to the merits or by motion (Steigleder v. McQuesten, supra), or by general denial, unless opposed to the state practice. Roberts v. Lewis, 144 U. S. 653, 14 S. Ct. 945, 38 L. Ed. 747. And the court in its discretion may determine the issue or submit it to the jury. Wetmore v. Rymer, 169 U. S. 115, 18 S. Ct. 293, 43 L. Ed. 683; Gilbert v. David, supra. In the instant case, the issue being raised by denial iú the answer, the court was privileged to submit the issue to the jury, with the other issues of fact. There was ample evidence for submission, and no point is made that it was no)t correctly submitted, and the jury having found against the appellant, it may not complain.

Affirmed.


author: SAWTELLE, Circuit Judge.

text:
    Ex parte VILARINO. VILARINO v. GARRITY, Immigration Inspector.
    No. 6418.
    Circuit Court of Appeals, Ninth Circuit.
    June 8, 1931.

      John Beardsley, of Los Angeles, Cal., for appellant.
    Samuel W. McNabb, U. S. Atty., Harry Graham Balter, and Lewis M. Andrews, Asst. U. S. Attys., all of Los Angeles, Cal. (Harry B. Blee, U. S. Immigration Service, of Los Angeles, Cal., on the brief), for appellee.
    Before WILBUR and SAWTELLE, Circuit Judges, and ST. SURE, District Judge.
   SAWTELLE, Circuit Judge.

This is an appeal from a judgment of the United States District Court of the Southern District of California, Central Division, dismissing a writ of habeas corpus and remanding the petitioner for deportation to Spain as an alien illegally in the United States. 47 F.(2d) 912,

The appellant was bom in the Province of La Coruna, Spain, January 1, 1885. He first came to the United States in 1903, and has lived in this country during most of the time since that date, having worked in 1908 and 1909 on a steamship plying between New York and Argentina. He is married, and has a large family, all of whom reside in Los Angeles.

On February 26, 1930, Vilarino was arrested by police officers of the city of Los Angeles, Cal., at the headquarters of the Communist Party, in Los Angeles, immediately after a Communist riot in the Plaza, at which disturbance, according to the testimony Vilarino was present. The charge was suspicion of criminal syndicalism, a felony under the law of California. Three days later, the United States Immigration Service instituted deportation proceedings against the alien.

The deportation of Vilarino was sought on two separate grounds: first, that he was a member of an organization, association, society, or group that believes in, advises, advocates, and teaches the overthrow by foree or violence of the government of the United States; second, that he was a member of an organization, etc., that writes, circulates, distributes, prints, publishes, and displays written or printed matter advising, advocating, and teaching the overthrow by foree or violence of the government of the United States. See 8 USCA 137 (e) and (e).

Three hearings were held before the immigration inspector. In his assignment of errors, appellant sets forth that the order of the District Court was erroneous in dismissing the writ of habeas corpus, on the following grounds:

(1) Because petitioner was not given a fair hearing before the Immigration Service and the Department of Justice; (2) because evidence was used against petitioner which had been .taken from his possession illegally; (3) because the evidence was not sufficient to sustain the charges made and the issuance of the warrant of deportation.

In his brief, appellant states his three grounds as follows: “The principal ground of appellant’s attack is that the hearings accorded him on order to show cause why he should not be deported, were unfair in these particulars:

“1. That incompetent evidence was received against him over objection of counsel, seasonably made.
“2. That petitioner was not accorded the right of counsel at all stages of the proceedings.
“3. That petitioner was not accorded the right of cross-examination of witnesses against him at all stages of the proceedings.”

In view of these contentions, the dates, the sequence, and the substance of the proceedings before the inspector have bearing upon the law of the ease. We will therefore summarize the hearings seriatim, in so far as they are pertinent to the issues, as disclosed by the Immigration Service file submitted to this court, since the briefs and the transcript of record are not specific as to certain necessary details.

The first proceeding was an “investigation of status,” held at the Immigration Office in Los Angeles March 1,1930. Vilarino was not represented by counsel, and declined to answer questions unless his lawyer was present. Nevertheless, the inspector proceeded with his examination, having made the following preliminary statement to the alien: “You are advised that I am a United States Immigration Officer and as such it is my duty to inquire into your right to be and remain in the United States. I want to give you an opportunity at this time to make a statement in that regard. You are advised that any sueh statement as you may make, should the facts warrant, will likely be used in further proceedings, and, further, that the law places the burden of proving your right to be and remain in the United States upon you.”

In answer to a question, the alien refused to deny or affirm that he was a member of the Communist Party.

One of the officers that had arrested the alien was called to testify at the first hearing. The officer stated that Vilarino was present at the riot in the Plaza staged before his arrest, and that the alien had said “Yes and no” in answer to a question as to whether or not Vilarino was a member of the Communist Party. At the close of this first hearing, the inspector, asked Vilarino whether he had anything to say regarding the testimony of the police officer. The alien refused to answer at .first, but did make a brief statement regarding his previous answer when arrested, as to his membership in the Communist Party.

On the same day, March 1, the appellee sent a radiogram to the Immigration Bureau at Washington and a confirmatory request by mail, asking that a warrant of arrest of Vilarino be issued- by the Secretary of Labor, on the two grounds set forth above. The mailed request inclosed a copy of the proceedings held before the inspector on that same day. On March 4, 1930, by telegraph and by mail, the Department of Labor at Washington sent a warrant for Vilarino’s arrest, setting forth the same two grounds.

On March 5, 1930, in the county jail at Los Angeles, a brief “hearing to show cause” was held before the same inspector who presided over the first hearing. The telegraphic warrant of arrest was shown to the alien, and the code words explained to him. He was told of his right to be represented by counsel, and, on his indication that he wished to avail himself of that right, the hearing was postponed to March 15, 1930.

On March 15, in the Immigration Office at Los” Angeles, there was held the continued “hearing to show cause.” Vilarino was represented by counsel. The warrant of arrest was again read, and all the evidence upon which such warrant was based was presented’ for the alien’s inspection. This evidence was read to the alien, at the latter’s suggestion. His counsel noted an objection. After some preliminary discussion, the following questions were asked by the inspector and the following answers were made by the alien, still in the presence of his counsel:

“Q. Were any threats of violence used in securing the statement from you [on March 1] ? A. No; you treated me nice.
“Q. Do you still deny that yoii are a member of the Communist Party? A. I am a member of the Communist Party, yes.
“Q. How long have you been a member? A. About three years, I believe.”

Then followed a number of questions as to Vilarino’s membership in the Communist Party, some of which he did, and some of which he did not, answer. He said that the statements made by him on March 1 were voluntary.

In answer to the questions propounded to him by his counsel, the alien asserted that he did not know that the Communist Party of the United States advocated or distributed literature advising the violent overthrow of the government of the United States.

The alien was shown a number of cards and other papers purporting to be connected with the Workers’ Communist Party, most of which documents he identified as belonging to him.

The next witness was a detective lieutenant in the Los Angeles police department, who testified that he had been a member of the Communist Party for 11 months in 1922, and that, from his past membership therein, from his study of the movement in the United States, and from official documents published by the party which he had in his possession, he would say that the Communist Party of America advocated the forcible overthrow of the government of the United States. The same officer also testified that he had ordered the alien’s home to be searched without a warrant.

Thereupon the alien’s attorney made formal demand for the return to his client of all papers thus taken from his place of residence. The inspector denied the request.

One of the officers that arrested Vilarino was then called to the stand, for cross-examination by counsel for the alien. The attorney made the following preliminary statement - to the witness: “The Inspector has kindly given me the opportunity to cross-examine you on testimony given by you at an earlier hearing in this matter, at which time the alien was not represented by an attorney at the hearing, and in which your testimony was received in spite of that fact — ”

The witness stated that he also had taken part in the seizure of the papers at the alien’s home after the latter’s arrest. The officer testified that Vilarino’s wife had invited the police to come into the house, and, referring to the Communist papers, had exclaimed: “For God’s safe, come in and take them away!”

A third peace officer who testified fixed the date of the raid on Vilarino’s home as March 1, 1930.

At the close of the hearing of March 15, 1930, the alien’s attorney announced that he intended to file a brief within ten days after receiving the transcript. According to the “Transmission of Record of Warrant Proceedings” sent to Washington on May 7, 1930, by the inspector in charge, the appellee herein, a copy of the record of that hearing had been transmitted to the attorney on March 28, 1930, and he had been advised that he would be given ten days in which to file a brief. The brief had not been received, the “Transmission” further set forth.

Accordingly, the Assistant to the Secretary of Labor on August 23,1930, having affirmed the findings of the Board of Review, issued a warrant for the deportation of Vil-arino on the two grounds heretofore stated.

We turn now to the three allegations of “unfairness” in the deportation proceedings, put forth by counsel for the appellant.

It is contended that “incompetent evidence” was received against the appellant, in that the Communist literature seized without a search warrant was admitted at the hearing of March 15, over the objection of counsel seasonably made.

The allegedly illegal search and seizure were made by police officers, acting, according to the uncontradicted testimony of two of them, in the enforcement of a state statute. Evidence obtained under such circumstances, in the absence of co-operation of federal and state authorities in the given case, is admissible in a subsequent federal proceeding.

This principle is clearly set forth in Weeks v. United States, 232; U. S. 383, 398, 34 S. Ct. 341, 346, 58 L. Ed. 652, in the following language: “As to the papers and property seized by the policemen, it does not appear that they acted under any claim of Federal authority such as would make the (Fourth) amendment applicable to such unauthorized seizures. The record shows that what they did by way of arrest and search and seizure was done before the finding of the indictment in the Federal court; under what supposed right or authority does not appear. What remedies the defendant may have against them we need not inquire, as the 4th Amendment is not directed to individual misconduct of such officials. Its limitations reach the Federal government and its agencies. Boyd Case, 116 U. S. 616, 6 S. Ct. 524, 29 L. Ed. 746, supra, and see Twining v. New Jersey, 211 U. S. 78, 29 S. Ct. 14, 53 L. Ed. 97.” See, also, Burdeau v. McDowell, 256 U. S. 465, 41 S. Ct. 574, 65 L. Ed. 1048, 13 A. L. R. 1159; Byars v. United States, 273 U. S. 28, 32, 33, 47 S. Ct. 248, 71 L. Ed. 520.

The facts in the Weeks Case, indeed, were not so strong in favor of admissibility of such evidence as those in the instant case. In the former, there was co-operation between the United States marshal and the police in one of the searches and seizures. As to the articles obtained in that particular search, the holding of the Supreme Court was that they should have been restored to the accused. But the co-operation of marshal and police as to one particular seizure did not vitiate the character of the evidence seized by police officers alone, in another and separate search.

In the instant case, there was no search .or seizure by federal officers at any time. There has not been adduced a scintilla of evidence as to prior co-operation of federal and state authorities. The mere facts that no state prosecution was actually instituted against Vilarino and that the documents seized were indeed turned over to the United States immigration authorities do not of themselves create an inference of prior cooperation. Many factors may have supervened between the seizure and the immigration hearing to. prevent the institution of .a state prosecution; and in the Weeks Case the articles seized by the police only, and later declared to be competent evidence, were in fact turned over to the marshal. Furthermore, in the Weeks Case, there was likewise an absence of showing that a state prosecution had been instituted. Nevertheless, the evidence obtained by state officers was not vitiated.

The appellant, however, relies heavily upon the case of Gambino v. United States, 275 U. S. 310, 48 S. Ct. 137, 139, 52 A. L. R. 1381, 72 L. Ed. 293, in which it was held that¿ where the wrongful search and seizure were made solely on behalf of the United States, even by state officers, and the evidence so secured was the foundation for the prosecution; and supplied the only evidence of guilt, admission in evidence of the liquor wrongfully seized violated rights of the defendants guaranteed by the Fourth and Fifth Amendments to the Constitution of the United States. The Supreme Court, however, carefully distinguished the facts there presented from those of the Weeks Case: “In Weeks v. United States * * * the papers not ordered returned had been obtained by a policeman who searched the defendant’s home after his arrest by another state officer. * * * It was not shown there that either the arrest or the search was made solely for the purpose of aiding in the prosecution of the federal offense. A law of the state made criminal the acts with which the defendant was charged, and the seizure may have been made in enforcing the state law.”

In neither ease did the court stop to inquire whether or not a prosecution under the state law had in fact been instituted. A “charge” was sufficient; and a “charge” is disclosed in the instant case.

In the Gambino Case, the controlling question was whether or not there was in fact a state statute under which the defendants might have been prosecuted. The court held that, in view of the repeal of the Mullan-Cage Law, the state prohibition aet of New York, there was no such state statute.

The Communist literature seized in the instant case by the police officers, during a visit to the appellant’s home, without prior co-operation of federal authorities, was therefore admissible against the appellant at the hearing of March 15,1930.

According to that literature, ownership of which was admitted by Vilarino, it is clear that the Communists do advocate the overthrow of the government of the United States by force or violence. One or two excerpts from those documents will be sufficient to establish that fact:

“The Communists disdain to conceal their views and aims. They openly declare that their ends can be attained only by the forcible overthrow of all existing social conditions. Let the ruling classes tremble at a Communistic revolution. The proletarians have nothing to lose buf their chains. They have a world to win.
“Working men of all countries, unite!” From the Communist Manifesto, by Karl Marx and Frederick Engels, p. 58.

The Membership Book No. 488 of the Communist Party of the United States (section of the Communist International) contains the following inscription on the first page:

“Name: John Vilarino.
“Date Admitted to Communist Party: 1926.
“Entered Revolutionary Movement: 1907.”
It is clear from the foregoing that the Communist teaching is one of force; it is equally clear that Vilarino, being able to read English, was aware of his party’s teaching.

Quite apart, however, from the question of the propriety of admitting the Communist documents in evidence at the hearing before the immigration inspector, there was sufficient other competent and substantial evidence offered to warrant this court to refrain from disturbing the Department’s findings. If there was substantial evidence, and if the hearing was fair, a finding of fact by the executive department is conclusive, unless there was an application of an erroneous rule of law. Ng Fung Ho v. White, 259 U. S. 276, 284, 42 S. Ct. 492, 66 L. Ed. 938; Tisi v. Tod, 264 U. S. 131, 133, 44 S. Ct. 260, 68 L. Ed. 590; Bilokumsky v. Tod, 263 U. S. 149, 153, 44 S. Ct. 54, 68 L. Ed. 221 (rule as to “a finding of an essential fact unsupported by evidence”); Louie Lung Gooey v. Nagle, 49 F.(2d) 1016.

In the instant ease, the alien, in the presence of his counsel, repeatedly admitted his membership in the Communist Party; and the testimony of Lieutenant Hynes, of the Los Angeles police department, who was cross-examined, was clear and undisputed as to the violence advocated by the Communists. The doctrines of this group, indeed, have already been passed upon by this court. Kenmotsu v. Nagle, 44 F.(2d) 953, 955. In that ease, also, there was contained the following statement of the right of review to be exercised by the courts in eases like the one before us now: “Moreover, the right of the courts to review the action of the department having the authority to adjudge the facts extends only so far as to determine that the warrant of deportation was not arbitrarily issued, or issued as the result of an unfair hearing.” See, also, Cahan v. Carr, 47 F.(2d) 604, 605 (C. C. A. 9).

The second ground urged in the appellant’s brief is that the alien was not accorded the right of counsel at all stages of the proceedings.

The presence of alien’s counsel at the first hearing before the inspector on March 1 was not necessary. This view is amply supported by previous decisions of this court. In Ernatsu Kishimoto v. Carr, 32 F.(2d) 991, 992, this court used the following language: “Inasmuch as the petitioner was given repeat^ ed hearings by the respondent and by the Department of Labor while he was represented by counsel and was then permitted to present any evidence he desired and also to cross-examine all the witnesses against him, the claim of unfairness in the proceedings simmers down to the claim that it was an invasion of the appellant’s right to a fair hearing to obtain a statement from the appellant while he was in custody and before he secured the services or advice of counsel. This position cannot be maintained. Chan Wong v. Nagle (C. C. A. 9) 17 F.(2d) 987; Plane v. Carr (C. C. A. 9) 19 F.(2d) 470.” See, also, Chin Shee v. White, 273 F. 801, 805, likewise decided by this court, and United States v. Chan Nom Gee (D. C. Wash.) 47 F.(2d) 758, 759.

Finally, the appellant urges that the defendant was not aeeorded the right of cross-examination at all stages of the proceedings. This point is not well taken. As we have seen in our survey of the testimony, after the sole witness had testified at the first hearing, the alien was asked what he had to say in regard to the witness’ statements. At first the alien refused to answer the question, but immediately afterward gave his version of a conversation reported by the witness.

At the hearing of March 15) 1930, the same witness appeared, and the attorney for "the alien made the following preliminary statement to him: “The inspector has kindly given me opportunity to cross-examine you on the testimony given by you at'an earlier hearing in this matter.” This statement alone establishes the fact that counsel for the alien had ample opportunity to cross-examine the only witness examined at the first hearing.

Counsel cites two cases in support of each of his three grounds of attack upon the fairness of the hearings before the inspector: Ungar v. Seaman (C. C. A. Minn.) 4 F.(2d) 80, and Ex parte Radivoeff (D. C. Mont.) 278 F. 227. Each of these cases, however, presents a state of facts quite different^from that in the instant case. In Ungar v. Seaman, the warrant of arrest charged one offense and the warrant of deportation another. In the Radivoeff Case, the warrant of arrest was without probable cause, supported by oath and affirmation, and free cross-examination was prevented. In eaeh case, “hearsay” or “ex parte and incompetent” evidence was introduced over the objection of counsel.

Two cases presenting similar questions of law have been decided recently in other circuits, according to the principles followed in the present opinion. In United States ex rel. La Buda v. Karnuth et al., 47 F.(2d) 945, involving statements by an alien made before the issuance of a warrant of arrest, the Circuit Court of Appeals of the Second Circuit affirmed an order sustaining the deportation, which happened to be issued by the same District Judge who heard the instant case in the court below.

In the ease of McCandless v. United States ex rel. Murphy, 47 F.(2d) 1072, the Circuit Court of Appeals for the Third Circuit held that the contention of an alien “that she was taken to the immigration station without previous arrest and there questioned in no way affects her status as subject to deportation as one unlawfully entering ,the country.” The court there applied the doctrine of Bilo-kumsky v. Tod, supra, to the effect that “irregularities on the part of the government official prior to, or in connection with, the arrest would not necessarily invalidate later proceedings in all respects conformable to law.” In the ease at bar, the lack of counsel and the alleged lack of opportunity for cross-examination occurred before the immigration warrant of arrest had been even asked for. See United States v. Myers (D. C.) 46 F.(2d) 317.

A study of the transcript of the hearing of March 15, 1930, discloses that it was fair; that the alien was represented by able and zealous counsel; that ample opportunity was had for cross-examination of all witnesses appearing against the alien; and that there was adduced substantial and competent evidence to support an executive department’s findings of facts and warrant of deportation. Scrupulous regard was accorded at the hearing of March 15 to the alien’s rights to counsel and opportunity for cross-examination. The documentary evidence as to the teachings of the Communist Party admitted during the hearing of March 15 was then and there coupled with the alien’s voluntary admission of Communist membership and by the testimony of one of the officers as to what such membership means.

Judgment affirmed.


text:
    COMMISSIONER OF INTERNAL REVENUE v. GARBER.
    No. 6219.
    Circuit Court of Appeals, Ninth Circuit.
    June 8, 1931.
    G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, John H. McEvers, and Helen R. Carloss, Sp. Assts. to Atty. Gen. (C. M. Oharest, General Counsel,- and , Allin H. Pierce, Sp. Atty., Bureau of'Internal Revenue, both of Washington, D. C., of counsel), for petitioner.
    Hubert L. Bolen and D. B. Welty, both óf Oklahoma City, Okl., for respondent.
    Before RUDKIN, WILBUR, and SAW-TELLE, .Circuit Judges.
   SAWTELLE, Circuit Judge.

The petitioner asks for a review of orders entered by the United States Board of Tax Appeals, reported in 11 B. T. A. 979.

In 1916, the respondent and his associates sold oil and gas leases in Oklahoma, aggregating approximately 11,000 acres, to the Garfield Oil Company. In consideration therefor, the vendors received 200 shares of the company’s stock, such shares having a total par value of $20,000. Of the stock thus issued, the respondent acquired 75 shares. The 200 shares represented 50 per cent, of the Garfield Company’s outstanding stock, the other half being owned by the Exchange Oil Company, of Tulsa, Oklahoma.

On December 14,1918, the respondent and his associates entered into two agreements, the legal effect of which constitutes the determining issue of the present suit. One contract, between the respondent and his fellow stockholders, on the one hand, and the Exchange Oil Company, on the other, set forth that the “Stockholders,” as the vendors designated themselves, sold their 200 shares to the Exchange Company for the following consideration:

1. A cash payment of $500,000.

2. Acquisition by the Exchange Company of all the property of the Garfield Company and assumption by the former of all the liabilities of the latter.

3. Delivery to the “Stockholders” by the Exchange Company of 200 gas and oil income certificates, entitling the “Stockholders” to 20 per cent, of the gross income of the Exchange Oil Company, derived from the sale of oil and gas from the Garfield Company’s leases.

4. A stipulation that the Exchange Oil ■ Company should not transfer any of the Garfield Oil Company’s stock to any one save the Sinclair Oil & Gas Company, without the Sinclair Company’s consent; and that in the event of such sale to any other interests, 25 per cent, of the sale price should be paid to the “Stockholders,” but only up to such amount as would be sufficient, when added to the income theretofore paid on such certificates, to bring the total sum received for and 'from the certificates to $2,500,000.

In the foregoing contract, the Exchange Trust Company, of Tulsa, was designated as the trustee to receive payment of the sums accruing to the “Stockholders,” under the oil and gas certificates. The Exchange Oil Company was to receive an assignment of all the assets of the Garfield Company, including the gas and oil mining leases and leasehold estates.

On the same day, -December 14,1918, the “Stockholders” entered into an agreement with the Sinclair Company whereby the former transferred their 200 oil and gas certificates to the Sinclair Company. Although the agreement recites the sale to the Sinclair Company of “the sole and exclusive right and option to purchase,” the contract was, as a matter of fact and of law, an outright agreement to purchase, on deferred payments.

This second contract set forth that the purchase price was to be $2,500,000; that, when the income from the 200 certificates reached that sum, the Sinclair Company would have the right to exercise its “option”; and that, if in any one year, the income from the certificates fell below $500,000, the Sinclair Company would “loan” the deficit to .the “Owners,” as Garber and his associates were designated in this agreement.

This agreement with the Sinclair Company also recited that the “Owners” should have the right to require the company to purchase the certificates upon the terms set forth, on December 14, 1923. Those terms were, in substance, that the Sinclair Company would pay to the “Owners” the difference between $2,500,000 and the amounts theretofore received from the oil certificates by Garber and his associates.

Taken together, and construed in the light of the negotiations that preceded their execution, the contracts clearly establish that the entire purchase price to be paid to Garber and his associates for their Garfield leases was to be $3,000,000. Of this amount, $500,-000 was paid in cash by the Exchange Oil Company, a subsidiary of the Sinclair Company, and the balance was to be paid out of the income from the certificates, with the ultimate guaranty of outright purchase by the Sinclair Company, on December 14, 1923, of the 200 oil and gas certificates.

With the exception of the first payment of $500,000, on December 14,1918, the entire purchase price of $3,000,000 was paid out of the receipts from the certificates, and no “loans” were piade by the Sinclair Company to the vendors of the certificates, as provided for in the second contract.

While twelve assignments of’ error are set forth in the record, and seven specifications are urged in the brief for the petitioner, the controlling question of law presented in this case is whether or not the “income” derived from the sale of the Garfield oil stock, under the two foregoing agreements of December 14, 1918, was income taxable in its entirety in 1918, or was distributable according to the sums received from the certificates during the intervening years, up to and including 1923.

The petitioner contends that the tax became due as the various payments were received, from year to year. The respondent admits, in his brief, that he and his “associates computed their incomes and filed their returns for the years 1918 to 1923, inclusive, upon the cash receipts basis, and they claimed deductions for depletion.” This basis of tax return the respondent now repudiates.

The Commissioner of Internal Revenue disallowed the depletion deductions, but he did allow the respondent to deduct in 1918 the entire cost of the Garfield Company stock, amounting to the respondent’s share of the $20,000 total.

On August 27, 1925, the respondent herein filed an amended petition before the United States Board of Tax Appeals, claiming, among other things, that “(e) the profits from the sale of the taxpayer’s interest in 75 shares of the capital stock of the Garfield Oil Company was income for the calendar year 1918, and not for 1919,” adding that “the Commissioner erroneously included said income in the year 1919.”

Curiously enough, the respondent “discovered his error” after the time within which the tax might have been assessed for 1918.

In tbe case of Alameda -Investment Company et al. v. McLaughlin, 33 F.(2d) 120, decided by this court, the late Judge Rudkin, having before him the returns made by certain corporations, used the following language: “The separate and consolidated returns differ widely in form with different results to both the taxpayers and the government, and it would seem obvious that, when the taxpayers have once made their election, filed their returns, separate or consolidated, and paid their taxes, the election is binding on all parties concerned.” See, also, Holmes, Federal Income Tax (6th Ed.) pp. 1278, 1279.

In addition, however, to the question of consistency or election, if any existed in this case, there are other considerations that impel us to the conclusion that the original method of making the present taxpayer’s returns— i. e., on the theory of deferred payments — - was the proper one to be followed in the instant case.

Section 213 of the Revenue Act of 1918, chap. 18, 40 Stats. 1057, 1065, provides:

“That for the purposes of this title (except as otherwise provided in section 233) the term ‘gross income’—
“(a) Includes gains, profits, and income derived from * 11 * sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interest, rent, dividends, securities, or the transaction of any business carried on for gain or profit, or gains or profits and income derived from any source whatever. The amount of all such items shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under methods of accounting permitted under subdivision (b) of section 212, any such amounts are to be properly accounted for as of a different period.”

Article 42, Treasury Department Regulations 45, promulgated under that act, provides: “The rule prescribed is that in the sale or contract for sale of personal- property on the installment plan, whether or not title remains in the vendor until the property is fully paid for, the income to be returned by the vendor will be that proportion of each installment payment which the gross profit to be realized when the property is paid for bears to the gross contract price. * * * If the vendor chooses as a matter of consistent practice to treat the. obligations of purchasers as the equivalent of cash, such a course is permissible.”

In the present instance, the taxpayer’s “consistent practice” for six years had been to report his income as provided for in the foregoing statute and regulation thereunder —on a cash basis, from year to year.

Indeed, the taxpayer had urged the soundness of such a method in the original petition filed by him before the Board of Tax Appeals, on April 27,1925 — exactly four months before he .discovered his “honest error.” In that original petition, the present respondent set down as the proper principle of law applicable in this case the following: “(a) Gains, profits and income are to be included in the gross income for the taxable year in which they are received by the taxpayer, unless they are included when they accrue to him in accordance with the approved method of accounting followed by him.”

The present taxpayer did not include in his return the gross income, whatever it might have been, from the trilateral transaction involving the Exchange Oil Company and the Sinclair Company, at the time such income accrued, as he now claims, namely, in 1918. Instead, he waited six years before asserting that it accrued and should have been reported in that year. Ilis “approved method of accounting” dpring those six intervening years was on the cash basis, and rightly so.

Section 212 (d) of the Revenue Act of 1926, made retroactive by section 1208 of the same act (26 USCA §§ 953, 953a), provides: “In the case (1) of a casual sale or other casual disposition of personal property for a price exceeding $1,000 * * * if * * * the initial payments do not exceed one-fourth of the purchase price, the income may, under regulations prescribed by the commissioner with the approval of the Secretary, be returned on the basis and in the manner prescribed in this subdivision.” (See, also-, article 42, Revenue Act of 1926, Reg. 69.)

The manner prescribed in the foregoing subdivision is the following: “A person who regmlarly sells or otherwise disposes of personal property on the installment plan may return as income therefrom in any taxable year that proportion of the installment payments actually received in that year which the total profit realized or to be realized when the payment is completed, bears to the total contract price.”

The same subdivision defines “initial payments” as those “received in cash or property other than evidences of indebtedness of the purchaser during the taxable period in which the sale or other disposition is made.”

In his brief, the respondent urges that the “guarantee and. promise to pay by the Sinclair Oil &.'Gas Company clearly takes the transaction out of the rule above quoted and makes the cash and property received, all of the purchase price instead of less than one-fourth of the purchase price, for the reason that the property, ‘other than evidences of the indebtedness of the purchaser,’ was a pledge and promise of the Sinclair Oil and Gas Company.”

If, as the respondent asserts, the “pledge and promise” of the Sinclair Company was “property,” what was the value of that “property” in 1918? The Board of Tax Appeals, in its opinion, unequivocally acknowledged its inability to set a value on the Sinclair contract, in the following language: “The value-of the right to receive the $2,51)0,000 in accordance with the terms of the contract can not be determined from the record and the respondent [Commissioner] has made no determination with reference thereto.”

In view of this state of facts, we believe that the so-called “property value” of the Sinclair agreement was, in 1918, not of a nature to warrant our holding that such unascertain-ed value, if any, could, together with the $500,000 cash payment, bring the transaction within the purview of the 25 per cent, clause of section 953.

We therefore turn to a consideration of the Sinclair agreement under general ineome--tax principles.

In. Bedell v. Commissioner (C. C. A.) 30 F.(2d) 622, 624, Circuit Judge Learned Hand said: “If a company sells out its plant for a negotiable bond issue payable in the future, the profit may be determined by the present market value of the bonds. But if land or a chattel is sold, and title passes merely upon a promise to pay money at some future date, to speak of the promise as property exchanged for the title appears to us a strained use of language, when calculating profits under the income tax.”

In considering the questidn of whether a stock dividend was income taxable by Congress, Mr. Justice Pitney, in the case of Eisner v. Macomber, 252 U. S. 189, 212, 213, 40 S. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570, pointed out that, though a stockholder may sell the new shares acquired in the stock dividend, until he does so sell them, no income is acquired. See, also, Burnet v. Logan (Burnet v. Bruce) 51 S. Ct. 550, 75 L. Ed.-, decided by the United States Supreme Court, May 18, 1931.

Counsel for the respondent cite a number of eases holding that where property is exchanged for negotiable paper or other property that can be readily liquidated, the profit is realized and taxable. No claim, however, is made that the Sinclair agreement was a negotiable instrument.

Indeed, the Sinclair transaction was hedged about with conditions, not only as to time of performance, but as to certainty of performance. The ultimate purchase of the oil certificates was not to be an automatic act; it required the “call” of the respondent and his associates’: “In the event that the ‘Sinclair Company’ shall fail to consummate the purchase of the said oil certificates on or before the 14th day of December, 1923, and the ?Owners’ shall not have exercised their right to call as hereinafter provided, the ‘Trustee’ shall return the said ‘Oil Certificates’ to the ‘Owners’ as their interests herein appear.”

The facts and the law in the instant ease are identical with those in Commissioner of Internal Revenue v. Moore and related cases, decided by the Tenth United States Circuit Court of Appeals on March 14, 1931, 48 F.(2d) 526, 529. The respondents in that ease were the associates of the respondent in the present suit. In that case, the court, holding, as we do, that the trilateral transaction whereby the taxpayers sold their Garfield oil stock for $500,000 cash and $2,500,000 in deferred payments, gave rise to no income in 1918 save as to the cash payment, said:

“We do not regard the transaction as an exchange of their stock for the income certificates, but rather as a sale on deferred payments. The taxpayers never had any dominion over shell certificates — they did not ‘receive them’- — -for by the very transaction of their issuance they passed to the Sinclair Company by a contract of sale. Reliance is had upon Fesler v. Commissioner (C. C. A. 7) 38 F.(2d) 155, and similar cases, which hold that, where property is exchanged for negotiable bonds or other property which may be readily liquidated, the profit is realized and taxable, under section 202 (a). The facts do not bring this ease within the doctrines there announced, for this is not an exchange of property, but a sale on deferred payments. * * »
“In 1918 the taxpayers had not realized all the profit from this sale. The profit was realized as they received the deferred payments. Aside from the $500,000, they received nothing in 1918 but a share in oil produced in later years and an agreement of the Sinclair Company. While the Sinclair Company was then, and now is, a solvent corporation, the fact still remains that the taxpayers did not realize the profit from the sale in 1918, but realized the profit during the ensuing years; and it is the general contemplation of the statutes that a tax shall be levied on profits which are realized and not deferred. If the contention of the taxpayers is sound, one who sells his farm to a responsible buyer on payments deferred over twenty years must account for the entire profit during the year of the sale. He has not actually received that proíit; he has received no income ’ out of which to pay the tax; the statute and the regulations give’him the right to spread the tax; to deny him the right would, in our opinion, result in a hardship to taxpayers generally.”

With this holding we are in entire accord. Such a view is based upon sound public policy as well as upon written law. It makes income taxable when it is received by the citizen. It precludes the possibility of a sudden change of theory after the 'statute of limitations has run. It does mathematical justice between government and taxpayer.

Judgment reversed.

WILBUR, Circuit Judge, concurs.


author: DENISON, Circuit Judge.

text:
    R. M. HOLLINGSHEAD CO. v. BASSICK MFG. CO.
    Nos. 5397, 5398.
    Circuit Court of Appeals, Sixth Circuit.
    June 9, 1931.
    Lynn A. Williams, of Chicago, HI. (Thomas H. Sheridan and Williams, Bradbury, McCaleb & Hinkle, all of Chicago, 111., on the brief), for Bassiek Mfg. Co.
    Melville Church, of Washington, D. C. (Leonard Kalish and Frank S. Busser, both of Philadelphia, Pa., on the brief), for Hol-lingshead Co.
    Before DENISON, and MACK, Circuit Judges, and RAYMOND, District Judge.
   DENISON, Circuit Judge.

In Lyman Mfg. Co. v. Bassick Mfg. Co., 18 F.(2d) 29, we held the Gullborg patent, No. 1,307,734, valid as to certain claims and contributorily infringed by Larkin, through the sale of his compressor or grease gun for the purpose of being used in connection with plaintiff’s pin fittings to make up the combination described in these claims. The Circuit Court of Appeals of the Seventh Circuit; in Larkin Automotive Parts Co. v. Bassick Mfg. Co., 19 F.(2d) 944, sustained the Zerk patent, No. 1,475,980, and held that the devices manufactured by Larkin infringed claims of this patent. The Hollingshead Company, through a subsidiary at Memphis, had been purchasing and selling these Larkin devices, thus held to infringe these two patents. On account of such sales, the Bassiek Company brought, in the court below, this suit, complaining of the infringement of these two patents. Upon due application a preliminary injunction issued, which was expressly directed against the further sale of these Larkin devices, although it also used general and somewhat vague language of further prohibition. The defendant, having answered, filed petitions presenting to the court certain specimens of couplers, or fittings, which it had not used or sold but which were in its possession, and thereupon asked the judgment of the court whether the sale of these devices by defendant, if it should sell the same, would constitute infringement of the patents in suit. These petitions were referred to the standing master to hear proof as to whether these devices, or similar devices which might be submitted to him, constituted infringement of either patent in suit, and to report his conclusions of fact and of law. The master held hearings and made a very careful and elaborate report, intended to cover every position or contention which counsel on either side had presented to him, and which was, in his judgment, within the scope of the order of reference. The substance of the report was that these new devices did not, of themselves, or in combination as a system, constitute infringement of the Gull-borg patent; but that the commercial situation indicated to him that defendant intended to sell these parts, not to make up its own system but to be used in connection with the complainant’s patented parts, and thus to constitute contributory infringement. To this report both parties filed exceptions, — - the plaintiff to the master’s conclusions or opinions that there would not be direct infringement, and the defendant to every finding or expression of opinion indicating that there would be contributory infringement. These exceptions came on for hearing before the court, which entered a decree, overruling a certain special defense which we have not mentioned, but upon the main questions saying only “that the report of the standing master, on file herein, be and the same is hereby in all respects confirmed. That the temporary injunction hereinbefore issued be and the same hereby is made perpetual.” There was no finding or decree as to the validity of specified claims of either patent, or as to the fact of infringement, or its nature if it existed.

It seems'quite clear that a decree which merely confirms a master’s report is generally not final and not appealable. Walter Scott & Co. v. Wilson (C. C. A. 7) 115 F. 284; Ragan, Malone & Co. v. Cotton & Preston (C. C. A. 5) 195 F. 69; Kingsbury v. Kingsbury, 20 Mich. 212. We assume that there may be cases where the nature of the question is such and where such other action is taken (as here, the issue of a highly detailed permanent injunction) that such a confirmation ought to be thought substantially equivalent to a final decree; in this case, the clause which makes the temporary injunction perpetual is doubtless final in its character; and if the question which thus seemed to be finally disposed of were the real question in the ease, we would be inclined to pass upon it; but to assume jurisdiction of the appeal upon that ground, would compel us to give the order of confirmation a much more limited effect than was intended. Indeed, the questions involved in granting the preliminary injunction were never referred to the master.

The action of the court below in undertaking to approve (if by the confirmation it did so undertake) a declaratory judgment as to what the rights of the defendant would be if it pursued a new course of conduct which it was contemplating, was doubtless intended to be pursuant to our announcement in Coca-Cola Co. v. Gay-Ola Co., 211 F. 942, 944. Compare Kalamazoo Co. v. Proudfit Co. (C. C. A.) 243 F. 895, and Knabe Co. v. American Co. (C. C. A.) 232 F. 140. Whether this course should be taken is, in a broad way, within the discretion of the trial court; but we think the circumstances of this ease, as they developed before the master, made it inappropriate for the favorable exercise of that discretion. Whether there' would be contributory infringement would depend upon whether defendant did thereafted pursue a certain course of business conduct, and a conclusion of infringement very likely would depend upon a finding that defendant had the intent to make a particular use of its devices, which intent it would deny, and which would depend somewhat upon uncertain inferences. It is plainly inadvisable to attempt a declaratory judgment which will involve such questions and be based upon such inferences; and we are satisfied that in so far as -this decree was intended, if it was, to accomplish such a declaration, it was beyond the reasonable exercise of such discretion as the District Court has in that situation.

It was argued to us that the proper construction of some more or less ambiguous language in our former opinion, and the giving of due effect to some things appearing in this record and not in that, made the proper disposition of the questions raised by the master’s report so clear that we ought to end the matter by so declaring them; and that there was sufficient jurisdiction of the appeal, through the ordering of the permanent injunction, so that we could do this. It also came to our notice that the underlying question of contributory infringement was so involved in a case recently decided by the Second C. C. A. [American Corp. v. Carbice Corp., 38 F.(2d) 62], and taken by the Supreme Court on certiorari 281 U. S. 711, 50 S. Ct. 347, 74 L. Ed. 1133, that its final decision might clearly cover the question here involved, and justify summary disposition. That case has now been decided. 51 S. Ct. 334, 75 L. Ed.-(March 9, 1931). We express no final opinion as to its applicability; but only say that its controlling force is not clear enough to make advisable the decision of this case in reliance only upon a doubtful or limited appellate jurisdiction. It will in the end be more satisfactory to the court and probably to the parties if the questions mainly argued are presented upon a’record where they are rightly raised and where the court may have proof of actual conduct rather than inferences as to probable conduct.

Both appeals will be dismissed, because not taken from a final decree, and because the ease was not suitable for a declaratory judgment.


author: HICKS, Circuit Judge.

text:
    BUKTA v. ZURBRICK.
    No. 5833.
    Circuit Court of Appeals, Sixth Circuit.
    June 11, 1931.

      H. A. Behrendt, of Detroit, Mich., for appellant.
    W. G-. Comb, of Detroit, Mich., for appel-lee.
    Before DENISON, HICKS, and HICK-ENLOOPER, Circuit Judges.
   HICKS, Circuit Judge.

Appeal from an order dismissing a writ of habeas corpus. The purpose of the writ was to test the validity of a warrant which directed the deportation of appellant to Hungary upon the grounds: (1) That he had entered the United States without inspection; (2) that he had entered for an immoral purpose; and (3) that he had admitted the commission of a crime involving moral turpitude, to wit, perjury, prior to his entry. The evidence is sufficient to sustain the first ground and we need not therefore consider the second and third.

Appellant is a native of Hungary. In' 1922 while yet in Hungary he and one Jolan ■Gal began living together as common-law husband and wife. In company with her he left Hungary on November 25,1924, destined for Canada, and they arrived at St. Johns, New Brunswick, about December 12, 1924. While living at Windsor, Canada, appellant aided the United States Immigration Service in an effort to apprehend smugglers and in consideration of such services the Immigration Inspector at Detroit issued to appellant and thewoman, J oían Gal, a temporary visa permitting them to commute daily between Windsor and Detroit for the purpose of employment. It fairly appears that appellant permitted this visa to expire without reporting to the immigration authorities but upon apprehension he was allowed to return to Canada voluntarily.

Erom the confused record it is' difficult to determine clearly just what occurred after appellant’s return to Canada. Appellant claims that he again procured a visa from the American Consul at Windsor and that upon the authority thereof he and Jolan Gal again entered the United States about December 18, 1925. This was his last entry. The matter is not entirely clear, but it is fair to assume that appellant did have some color of permission to enter, possibly a temporary-visa indorsed upon his passport, or whatever document he may have had in the nature of a passport. Appellant again overstayed his temporary visa, if in fact he had it, and was arrested at Detroit upon a warrant of the Department of Labor issued October 19, 1928. This warrant of arrest exhibited the same charges finally carried into the deportation warrant. Even a visa could not of itself authorize appellant to enter. Section 2 (g) of the Immigration Act of 1924 (tit. 8, see. 202 (g) U. S. C. (8 USCA § 202 (g). Although aimed with it he may not enter elsewhere than at a designated port or without inspection or at any time other than that designated by the immigration officials. Sections 16 and 19 of the Immigration Act of 1917 (tit. 8, see. 152,155 U. S. C. (8 USCA §§ 152, 155). These se'etions apply to any and all aliens.,' Visa holders are not excepted. If appellant entered without inspection be was deportable under section 19, supra. See also United States ex rel. Natali v. Day, 45 F.(2d) 112 (C. C. A. 2); United States ex rel. Fanutti v. Flynn (D. C.) 17 F.(2d) 432; Singh v. U. S., 243 F. 557 (C. C. A. 9). It avails appellant nothing that his entry was a re-entry. Lewis v. Frick, 233 U. S. 291, 297, 34 S. Ct. 488, 58 L. Ed. 967; Zurbrick v. Borg, 47 F.(2d) 690, decided by this court, March 6, 1931; U. S. v. Day, supra; Cahan v. Carr, 47 F.(2d) 604, 605 (C. C. A. 9).

Section 23 of the Immigration Act of 1924 (tit. 8, sec. 221 U. S. C. [8 USCA § 221]) placed upon appellant the burden of showing that he had entered lawfully. He failed to carry this burden. His claim that he thought he had permission to stay is beside the point. He introduced-no evidence tending to show that he underwent inspection upon his last entry. Upon the other hand, it substantially appears that he did not. There is no substantial evidence that he paid the head tax required by the Immigration Act of Feb. 5, 1917, see. 2 (tit. 8, sec. 132, U. S. C. [8 USCA § 132]), or that he ever presented himself at the designated port. He testified: “I paid the man who brought me across $100.00.” This is of course inconsistent with any other than a surreptitious entry. Upon his examination he was asked touching his last entry: “Were you at that time properly examined by the immigration officer and legally admitted to the United States?”. His answer was, “No, not in Detroit.”

We have no doubt of the validity of the deportation warrant and the order denying the writ of habeas corpus is therefore affirmed. However, we think the deportation should have been to Canada. Appellant was destined for Canada upon his voyage from Hungary and lived both at Toronto and Windsor. The case will therefore be remanded with diréetions to allow the warrant to be amended so as to order deportation to Canada or in the alternative if that country refuses to receive him or imposes any condition upon his re-entry then to Hungary. Tit. 8, see. 156 U. S. C. (8 USCA § 156); Gorcevich v. Zurbrick (C. C. A. decided April 7, 1931) 48 F.(2d) 1054; United States v. Curran, 16 F.(2d) 958 (C. C. A. 2).


author: NETERER, District Judge.

text:
    ELKO LAMOILLE POWER CO. v. COMMISSIONER OF INTERNAL REVENUE.
    No. 6399.
    Circuit Court of Appeals, Ninth Circuit.
    June 15, 1931.
    Milton B. Badt and James Dysart, both of Elko, Nev., for petitioner.
    G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, J. P. Jackson, and Norman D. Keller, Sp. Asst, to Atty. Gen. (C. M. Char-est, General Counsel, and William E. Davis, Sp. Atty., Bureau of Internal Revenue, both of counsel), of Washington, D. C., for respondent.
    Before WILBUR and SAWTELLE, Circuit Judges, and NETERER, District Judge.
   NETERER, District Judge.

The petitioner is a Nevada corporation engaged in power and light business at Elko, Nev. In 1924 a bond issue of $100,000 was authorized; $90,000 was sold, of which $15,-000 was thereafter retired. It later became necessary to secure further funds, and it was concluded to issue preferred stock instead of selling available bonds. In 1925 $80,000 preferred stock, bearing 7 per cent, dividends, payable semiannually, preferred as to income and assets, callable after three years at 110, was authorized. The stoek certificates contained the following provision: “The dividends on the preferred stoek shall he cumulative and shall be payable before any dividends on the common stoek shall be paid or set apart, so that if in any year dividends amounting to seven per cent, shall not have been paid thereon, the deficiency shall be payable before any dividends shall be paid upon or set apart for the common stock. ® ** * In the event of any liquidation or dissolution or winding up * * * of the corporation, the holders of the preferred stock shall be entitled to be paid in full, both the par value of their shares and the unpaid dividends accrued thereon, before any amount shall be paid to the holders of the common stoek, and after the payment to the holders of the preferred, stock of its par value and the unpaid accrued dividends thereon, the remaining assets and funds shall be divided and paid to the holders of the common stock according to their respective shares. * * *• The preferred stoek shall be without voting power, said right being restricted to the com-; mon stock. Redeemable after 3 years at 110.”

In its tax return the petitioner treated the issue of preferred stock as an indebtedness and deducted the dividends from its return as interest. The only issue before the court is whether the preferred stockholders can be treated as creditors.

Section 234 (a) (2) of the Revenue Act of 1926 (26 USCA § 986 (a) (2) provides that to determine the net income of a corporation there may be deducted 'from the gross income all interest paid on indebtedness. Article 564 of Treasury Regulations 69, promulgated under section 1101 of the Act of 1926 (26 USCA § 1245) provides that “so-called interest on preferred stock, which is in reality a dividend thereon, cannot be deducted in computing net income.”

The distinction between common stockholders and preferred stockholders may be said to be that the common stockholder is an •owner of the enterprise in the proportion that his stock bears to the -entire stock, and entitled to participate in the management, profit, and ultimate assets of the corporation. A stock certificate is evidence of the shares owned. Edwards v. Wabash Ry. Co. (C. C. A.) 264 F. 610.

A preferred stockholder is a mode by which a corporation obtains- funds for its enterprise without borrowing money or contracting a debt, the stockholder being preferred as to principal and interest, but having no voice in the management. State ex rel. Thompson v. C. & C. R. R. Co., 16 S. C. 524. It differs only from other stocks in that it is given preference and has no voting right.- A preferred stockholder is not a creditor of thp company. Scott v. Baltimore & O. R. Co., 93 Md. 475, 49 A. 327; Lockhart v. Van Alstyne, 31 Mich. 79, 18 Am. Rep. 156. The preferred stock was sold by the president and secretary of the petitioner, acting as salesmen, on representations that the holders could return it at any time and receive the amount paid, together with accumulated dividends. Upon refusal of the revenue officers to recognize the preferred stoek as a debt, and the dividends thereon as interest as upon a loan, a resolution was passed in 1928 by the board of directors which recites :

“Whereas, the Department of the Treasury of the United States of America, in reaching a conclusion as to the nature of the certificates, has held the oral representations made to the purchaser as insufficient to estab-‘ lish the liability of this corporation to redeem the same upon presentation and, through such holding, has determined that the said certificates are in fact preferred stoek, and the payments thereon dividends and not interest;
“Now, therefore, be it hereby resolved;
“1. That the corporation hereby ratifies, approves and confirms-the oral representations made by this corporation to the purchasers of the said so-called certificates of preferred stoek, to the effect that they may be redeemed at any time upon presentation and demand at par and accrued interest.
“2. That these resolutions take effect as of the dates of the respective sales of any of such preferred stoek.
“3. That such certificates of preferred stock be deemed and are hereby declared to be certificates of indebtedness of this corporation, payable upon presentation and demand, at par and accrued interest, and that this corporation acknowledges itself obligated accordingly.”

On the books, the preferred “stoek was carried as preferred stockholders' interest ae-count.” Neither the resolution passed long after the sale of the preferred stock nor the method of bookkeeping have any probative value; nor have the representations of the president and secretary as stock salesmen. They had no power to bind the corporation, except as conferred by law or by-law, and there is no law or by-law cited to the court. Tax liability is predicated upon express provisions of the revenue laws. Gulf Oil Corp. v. Lewellyn, 248 U. S. 71, 39 S. Ct. 35, 63 L. Ed. 133; Kadow v. Paul, 274 U. S. 175, 47 S. Ct. 561, 71 L. Ed. 982. The assets of a corporation are a trust fund, and the directors may not arbitrarily change the status of stockholders into that of general creditors. Spencer v. Smith (C. C. A.) 201 F. 647; Armstrong v. Union Trust & Savings Bank (C. C. A.) 248 F. 268. The status of the tax liability between the corporation and the United States was fixed on the issuance of the preferred stock. The agreement of the salesmen officers was a collateral agreement between the officers and the stockholders. The evidence presented establishes that the stock was purchased by the stockholders upon the representation that they could bring it back at any time and get their money and dividends. Several testified that they considered it a loan. This evidence can have no probative value. The sale was effected with a collateral understanding that they would be redeemed on demand. “The rights of the holders of preferred stock in this case must be determined by the language of the stock certificate.” Warren v. King, 198 U. S. 389, 396, 2 S. Ct. 789, 795, 27 L. Ed. 769.

Arthur R. Jones Syndicate v. Commissioner of Internal Revenue (C. C. A.) 23 F.(2d) 833, relied upon by the petitioner, is clearly distinguishable. In that case the corporation hád issued preferred and common stock. It needed funds, and in an attempt to negotiate for additional funds 14 per cent, interest was exacted. The company was advised that the rate was usurious and might be pleaded. The court says: “In order to avoid any head-on conflict with the Illinois usury law * * * Jones revamped his stock set-up and provided for first preferred, second preferred, and common certificates. * *■ The articles of the syndicate provided that the first preferred shares were to be redeemed ‘on July 1,1922, by payment of the par value thereof plus a dividend at the rate of 14 per cent, per annum from the date hereof to the date of such payment.’ ”

There were other stipulations not here applicable. The preferred stock was a direct obligation with a definite date for payment. In the instant case the preferred, stock could, at the option of the corporation, be redeemed within three years at 119. There was, however, no obligation to redeem. In the Jones Syndicate there was an express provision to pay at five years. It was in effect a bond payable in five years.

The Supreme Court in Warren v. King, 198 U. S. 389, 2 S. Ct. 789, 27 L. Ed. 769, in passing upon the rights of stockholders, creditors, and preferred stockholders, held (syllabus): “That the preferred stockholders had no claim on the property superior to that of creditors under debts contracted by the company subsequently to the issue of the preferred stock, and that their only valid claim was one to a priority over the holders of common stock.” And, at page 399 of 108 U. S., 2 S. Ct. 789, 797: “There is nothing in the certificate which clothes them with a single attribute of a creditor, while it specially gives them, as stockholders, an equal interest with the common stockholders in the excess of net earnings in each year, after paying therefrom 7 per cent, on each share of stock, preferred and common.”

See, also, Hamlin v. Toledo, St. L. & K. C. R. Co. (C. C. A.) 78 F. 664, 36 L. R. A. 826; Ellsworth v. Lyons (C. C. A.) 181 F. 59; Spencer v. Smith (C. C. A.) 291 F. 647; Armstrong v. Union Trust & Savings Bank (C. C. A.) 248 F. 268.

Necessities may permit evidence aliunde of the contract to unfold the real character of the transaction. Mere necessities of the borrower who pays a usurious rate of interest makes it necessary for courts to admit his oral testimony to dispute his written word. Houghton v. Burden, 228 U. S. 161, 33 S. Ct. 491, 57 L. Ed. 789. But in the instant ease there is no evidence of any necesssity; surplus bonds unissued; no suggestion of usurious demands, or usury law to be avoided; nothing whatever to indicate anything out of the ordinary and usual relation in the issuance of the preferred stock; nor an issue of preferred stock payable at a definite time.

Affirmed.

       Revenue Act of 1918, c. 18, 40 Stat. 1057, 1077, § .234(a) (2) ; Regulations 45, art. 564; Revenue Act of 1921, c. 136, 42 Stat. 227, 254, § 234(a) (2); Regulations 62, art. 664; Revenue Act of 1924, o. 234, 43 Stat. 253, 283, § 234(a) (2), 26 USCA § 986(a) (2) ; Regulations 65, art. 564; Revenue Act of 1926, c. 27, 44 Stat. 9, 41, § 234(a) (2), 26 USCA § 986(a) (2); Regulations 69, art. 564; Revenue Act of 1928, c. 852, 45 Stat. 791, 799, § 23(b), 26 USCA § 2023(b); Regulations 74, art. 141. Heiner v. Colonial Trust Co., 275 U. S. 232, 48 S. Ct. 65, 72 L. Ed. 256; Brewster v. Gage, 280 U. S. 327, 337, 60 S. Ct 115, 74 L. Ed. 457.


author: SOPER, Circuit Judge.

text:
    SPRY v. NORFOLK & W. RY. CO.
    No. 3136.
    Circuit Court of Appeals, Fourth Circuit.
    June 17, 1931.
    W. H. D. Preece, of Williamson, W. Va., for appellant.
    F. M. Rivinus, of Roanoke, Va., Goody-koontz & Slaven, of Williamson, W. Va., and Holt & Holt, of Huntington, W. Va., for ap-pellee.
    Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.
   SOPER, Circuit Judge.

The administrator of Andrew Spry brought an action at law against the Norfolk & Western Railway Company in the circuit court of Mingo county, W. Va., alleging that the death of the deceased was caused by the wrongful act of the railway company in failing to provide a safe place for him to work while engaged as its employee in its colliery or mine in Mingo county, W. Va. It was. charged that the roof of the mine was so carelessly supported that on February 4, 1928, it fell upon Spry and inflicted injuries from which he died. On motion of the defendant, the case was removed to the District Court of the United States for the Southern District of West Virginia on the ground of diverse citizenship. The plaintiff moved to remand the ease, claiming that it was a suit based upon the Federal Employers’ Liability Act (45 USCA §§ 51-59), and, under the terms of that statute (sections 1 and 6 [45 USCA §§ 51, 56]), could not be removed; but the District Court concluded that the decedent was not engaged in interstate commerce at the time of his accidental injury, and that the Federal Employers’ Liability Act therefore had no application. Thereupon the defendant, in addition to a general issue plea, filed a special plea in which, amongst other things, it was alleged that the coal mined by the plaintiff was intended to be used by the railway company in its business of transportation in intrastate and interstate commerce. The plaintiff replied generally to this special plea, and, a jury trial being waived, the issue raised was submitted to the court upon a stipulation of fact.

Therein it appeared that, at the time of the fatal injury, the railway company was the owner and operator of the Howard Mine or Colliery, and that the tipple of the mine' was connected with the main line of the railway by a spur track; that the railway company, through the employees of its fuel department, mined and loaded coal exclusively for its fuel purposes, and not for sale or transportation as an article of commerce; that the miners engaged in the mine were confined exclusively to mining coal, and had nothing to do with the work of transportation of the railway company; that Spry at the time of his death was an employee of the fuel department, engaged exclusively in loading coal into a mine ear on tracks leading out of the mine to the tipple; and that, while so engaged, he met with the fatal injury described in the complaint.

The stipulation further showed that the railway company, through its fuel department, prior to the accident, had complied with the Workmen’s Compensation Act of We.st Virginia (now codified in chapter 23 of the Official Code of West Virginia 1931 [23-1-T to 23-5-1]) by paying into the Workmen’s Compensation Fund of the state the premiums required by the act, and had also given notice to its employees, in the manner required by law, that it had taken advantage of the act; and that, subsequent to the employee’s death, his administrator had made application to the commissioner of the act, and had received certain payments in compensation for the injury. Upon this state of facts, the court, having found that the deceased was not engaged in interstate commerce at the time of his accident, concluded that the action of the plaintiff was barred by the terms of the Workmen’s Compensation Act which provide (Official Code of West Virginia 1931, 23-2-6) that any employer subject thereto shall not be liable to respond in damages at common law or by statute for the injury or death of any employee. The court therefore found a verdict and judgment for the defendant.

It is apparent from this recital of the facts, as the appellant before us conceded, that the sole question which determines the whole case is whether, at the time of the injury, the deceased was engaged in interstate commerce. If he was so engaged, the ease should have been remanded to the state court for trial; but, if he was not, the District Court was right in retaining jurisdiction and in finding a judgment for the company. In deciding a similar question under the Federal Employers’ Liability Act, the Supreme Court of the United States has said that “the Federal act speaks of interstate commerce in a practical sense suited to the occasion, and ‘the true test of employment in such commerce in the sense intended is, Was the employee at the time of the injury engaged in interstate transportation, or in work so closely related to it as to be practically a part of it?’” Chicago, Burlington & Q. R. R. v. Harrington, 241 U. S. 177, 180, 36 S. Ct. 517, 518, 60 L. Ed. 941. See, also, Erie R. R. v. Collins, 253 U. S. 77, 85, 40 S. Ct. 450, 64 L. Ed. 790; Metzger v. Western Maryland Ry. Co. (C. C. A.) 30 F.(2d) 50. And that court has applied the law to the facts in two cases so similar to the case at bar as .to leave no doubt in our minds that the decision of the District Court was right. In Delaware, Lack. & West. R. R. v. Yurkonis, 238 U. S. 439, 35 S. Ct. 902, 59 L. Ed. 1397, an employee was injured while preparing and setting off a charge of dynamite in a colliery owned and operated by the railroad company in order to blast out coal to use in its conduct of interstate commerce. In Chicago, Burlington & Q. R. R. v. Harrington, supra, the injured employee was a member of a switching crew of the railroad which did not work outside the state and was engaged at the time of the accident in removing coal belonging to the railroad company from storage tracks where it had been standing for some time to a coal shed where it was to be placed in bins and supplied as needed to locomotives, some of which were engaged in interstate and others in intrastate traffic. In both cases the court concluded that there was no such close or direct relation to interstate transportation as to make the work of the employee a part of it, and held that the Federal Employers’ Liability Act did not apply. The mere fact that the coal might be used, or was intended to be used, in the conduct of interstate commerce, did not make the injury one received by the employee while engaged in interstate commerce.

The same observations clearly apply to the character of the employment of the deceased in the case at bar, and the judgment of the District Court is therefore affirmed.


text:
    UNITED STATES v. YAMOTO et al.
    No. 6355.
    Circuit Court of Appeals, Ninth Circuit.
    June 8, 1931.
    Sanford B. D. Wood, U. S. Atty., and W. Z. Fairbanks, Asst. U. S. Atty., both of Honolulu, Hawaii, and George J. Hatfield, U. S. Atty., and Albert E. Bagshaw, Asst U. S. Atty., both of San Francisco, Cal., for the United States.
    Thompson, Beebe & Winn, Frank E. Thompson, Eugene H. Beebe, Montgomery E. Winn, and M. K. Ashford, all of Honolulu, Hawaii, for appellee Graystone Corporation.
    Before WILBUR and SAWTELLE, Circuit Judges, and NETERER, District Judge.
   SAWTELLE, Circuit Judge.

This is an appeal from a judgment of the United States District .Court for the Territory of Hawaii in favor of the- Graystone , Corporation, Limited, an Hawaiian corporation, ordering the return of one Whippet coupe automobile.

The libel of information filed herein alleges transportation by the defendant Toro Yamoto, by means of a certain automobile, of intoxicating liquor in violation of the National Prohibition Act, a seizure by a national prohibition agent of the liquor and of the automobile, and conviction of said Yamoto of said offense in the United States District Court for the Territory of Hawaii; it also contains a prayer for the forfeiture of the automobile. The Graystone Corporation, Limited, intervener, claims ownership of the automobile under a conditional sales contract and the right to repossess the same under certain conditions therein mentioned. The intervener alleges that the balance due and unpaid on the contract amounts to $564.72, and that in the event the said automobile is sold a sufficient sum to pay said balance due under the contract would not be realized, and further that it had no knowledge that the said automobile would be used by any one at any time for the unlawful transportation of intoxicating liquor.

The intervener prays for an order of the court directing delivery to it of the automobile. No answer having been filed by Yamoto, a decree pro confesso was entered against him. Evidence both oral and documentary was introduced by the respective parties and the court, sitting without a jury, rendered a judgment against the United States, holding that the automobile was not subject to forfeiture. The holding of the court, however, was not based upon the allegations of the intervener that it had no knowledge that the automobile was to be used- for the unlawful transportation of intoxicating liquor. The seizure of the automobile having been made upon land, not within admiralty jurisdiction, and the proceedings for the forfeiture of the automobile being an action at law, the case was triable by a jury, unless a jury was waived “in the manner prescribed by law.” Kennedy v. U. S., 44 F.(2d) 57 (C. C. A. 9).

Section 649 of the Revised Statutes, as amended by the Act of May 26,1936,46 Statutes at Large, part 1, page 486 (28 USCA 773), provides that: “See. 649l. Issues of fact in civil cases in any district court may be tried and determined by the court, without the intervention of a jury, whenever the parties, or their attorneys of record, agree to waive a jury by a stipulation in writing filed with the clerk or by an oral stipulation made in open court and entered in the record. The finding of the court upon the facts, which may be either general or special, shall have the same effect as the verdict of a jury.”

There being no waiver either in writing or by stipulation in open court, as provided in the above section, this court’s jurisdiction to review the proceedings of the trial court is limited to the process, pleadings, and judgment. In the ease of Kennedy v. United States, supra, this court said: “It is * * * well settled that, if an action at law is tried by the court without a written waiver of a jury, the jurisdiction of the appellate court to review the judgment is limited to the process, pleadings, and judgment. This latter proposition is too firmly established to require citation of authority. See, however, United States v. McGovern (C. C. A.) 299 F. 302; Graver Corporation v. Hercules Gasoline Co. (C. C. A.) 16 F.(2d) 459; National Surety Co. v. United States [(C. C. A.) 17 F.(2d) 372], supra; Greer-Robbins Co. v. United States (C. C. A.) 19 F.(2d) 841. Here there was no waiver of a jury, by stipulation or otherwise.”

This court being without jurisdiction to review the evidence upon which the judgment of the trial court is based, the judgment must be affirmed.

Judgment affirmed.