author: BRIGHT, Circuit Judge.

text:
    Milton E. HUSTON, Appellant, v. GENERAL MOTORS CORPORATION, Appellee.
    No. 72-1630.
    United States Court of Appeals, Eighth Circuit.
    Submitted Feb. 16, 1973.
    Decided April 25, 1973.
    Rehearing and Rehearing En Banc Denied May 22, 1973.

      J. D. Riffel, Kansas City, Mo., for appellant.
    Peter A. Janiak, Equal Employment Opportunity Commission, San Francisco Litigation Center, San Francisco, Cal., amicus curiae.
    Paul Scott Kelly, Jr., Kansas City, Mo., for appellee.
    Before LAY and BRIGHT, Circuit Judges, and NICHOL, District Judge.

       Sitting by designation.

   BRIGHT, Circuit Judge.

Milton E. Huston, a member of the World Wide Church of God, observes his religious sabbath from Friday evening to Saturday evening. He claims General Motors discriminated against him and discharged him from employment because of these beliefs. He filed a complaint with the Equal Employment Opportunity Commission (EEOC) for violation of Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e et seq. The Commission sought, without success, to conciliate the employee’s dispute with General Motors. Huston then attempted to bring an action against General Motors in the federal district court. The district court dismissed his action as untimely since Huston failed to file a formal complaint within the 30-day time limitation imposed by 42 U.S.C.A. § 2000e-5(e). We reverse and remand for further proceedings.

The record indicates that Huston filed his complaint with the EEOC on March 26,1970. During the following two years the charges were referred to the Missouri Commission on Human Rights and then back to the EEOC. After efforts to secure relief through conciliation proved unsuccessful, Huston received a right-to-sue letter from the EEOC on March 21, 1972, which, under the Act, is a prerequisite to bringing a civil action.

The EEOC also mailed a memorandum to Huston which, when signed, constituted a request to the federal district court to appoint counsel and to authorize commencement of the action without payment of fees, costs, or security. This letter further requested that it be filed as a complaint to satisfy the 30-day time limitation for filing the suit. In addition, the EEOC sent the following documents : an affidavit form on which Huston might disclose his financial status, an application to proceed without payment of fees, costs, or security and for appointment of counsel, and a memorandum from the General Counsel of the Commission which stated in part:

* * * It is the position of the Equal Employment Opportunity Commission that a suit under Section 706(e) of Title VII is properly instituted if, within 30 days of receiving a Notice of Right to Sue Letter, the charging.party files that letter with the Court and/or presents the letter to the Court and requests that counsel be appointed in the case.

On April 12, 1972, well within the 30-day period following his receipt of instructions from the.EEOC, Huston tendered certain of these documents to the clerk of the United States District Court for the Western District of Missouri. The clerk did not file the documents nor give them a docket number, but he did enter an order appointing four lawyers associated with the Legal Aid and Defender Society of Kansas City to represent Huston. As a result of personnel changes in the Legal Aid Society, there was a delay in processing Huston’s case, and no formal complaint was filed in the district court until May 22, 1972. Thus this formal complaint was filed more than 30 days after Huston’s receipt of the right-to-sue letter and more than 30 days after appointment of counsel.

On motion of appellee, the district court dismissed the action, holding that: (1) the 30-day limitation was crucial and mandatory under the Act; (2) the documents submitted did not constitute the filing of a complaint undér the provisions of the Federal Rules of Civil Procedure; and (3) no extenuating circumstances existed to justify an extension of the time limitation for more than 30 days beyond April 12, when the clerk entered an order appointing counsel for Huston.

We agree that the time limitation imposed by the statute generally bars any civil proceeding which is not initiated within 30 days after the complaining party receives a right-to-sue letter from the EEOC. Stebbins v. Nationwide Mutual Insurance Co., 469 F.2d 268 (4th Cir. 1972); Goodman v. City Products Corp., Ben Franklin Div., 425 F.2d 702 (6th Cir. 1970) (no action permitted 31 days after suit letter). However, the courts are not in agreement as to the effect on the time limitation, when, as here, the plaintiff within 30 days of receipt of the suit letter, tenders such letter to the district court and requests appointment of counsel. In Harris v. National Tea Co., 454 F.2d 307 (7th Cir. 1971), the court held that the initiation of the request tolled the 30-day limitation period until appointment of the attorney, after which the period continued to run. Thus a request for counsel made on the sixth day after receipt of the right-to-sue letter would give appointed counsel 24 days to file his formal action after his appointment. A failure to file within that time period bars the action. Accord, Torockio v. Chamberlain Mfg. Co., 328 F.Supp. 578, 580 (W.D.Pa.1971); Rice v. Chrysler Corp., 327 F.Supp. 80, 84 (E.D.Mich.1971). The Harris, Rice, and Torockio courts cited and relied in part on language in Goodman, supra, 425 F.2d 702, in holding that the complaints were not timely filed. Cf. Archuleta v. Duffy’s, Inc., 471 F.2d 33 (1973) (relying on Goodman in refusing to permit an amendment of the complaint after the 30-day period for the purpose of correctly naming the corporate defendant); Brady v. Bristol-Meyers, Inc., 332 F.Supp. 995 (E.D.Mo.1971), rev’d on other grounds, 459 F.2d 621 (8th Cir. 1972) (requiring filing of formal complaint under Rules 3 and 8(a) of Fed.R.Civ.P. within 30 days unless plaintiff misled as to time requirements by some action of the federal court).

The Sixth Circuit which decided Goodman has indicated that Goodman does not preclude the consideration of equitable principles in determining whether the time limitation has been met. Harris v. Walgreen’s Distribution Center, 456 F.2d 588 (1972). In Harris, plaintiff applied for appointment of counsel within the 30-day period but the district court denied his application. He filed an amended petition after the 30-day period, reciting the elements of his claim and again seeking appointment of counsel. The district court dismissed the petition because it was outside the 30-day period. In reversing, the court of appeals held:

We believe on equitable grounds the motion for counsel should be regarded as tolling the statute until it was disposed of. This decision is in no way in conflict with an earlier decision of this court, Goodman v. City Products Corp., 425 F.2d 702 (6th Cir. 1970). In that case the opinion for the court carefully noted:
“Finally, as regards the appellant’s contention that the 30 day limitation should here be extended on general equitable principles, suffice it to say that there is no allegation or showing in the record of circumstances justifying a tolling of the statute on recognized equitable principles.” Goodman v. City Products Corp., supra at 704.
Further, pursuant to the Congressional purpose when after decision on the motion for counsel the time remaining is unreasonably short for securing a lawyer and filing the complaint, the District Judge’s order granting or denying the motion for appointment of counsel should set a reasonable time. Normally we would expect the statutory period of 30 days to be employed as a guide in this regard. McQueen v. E.M.C. Plastic Co. [302 F.Supp. 881 (E.D.Tex.1969)]; Prescod v. Ludwig Industries [325 F.Supp. 414 (N.D.Ill.1971)]; Austin v. Reynolds Metals Co. [327 F.Supp. 1145 (E.D.Va.1970)].
It is relevant to the ruling above to note that no prejudice is alleged to have resulted to defendant from any delay, nor can we find any prejudice. [Harris at 592.]

In Pace v. Super Valu Stores, Inc., 55 F.R.D. 187 (S.D.Iowa 1972), plaintiff, 26 days after receiving his right-to-sue letter, presented documents to the district court similar to those presented by appellant Huston and requested appointment of counsel and the right to proceed without payment of fees or costs. The court denied the request after the 30-day time limit had elapsed but granted plaintiff 20 days to file his handwritten complaint. The plaintiff complied and the court thereafter appointed counsel, who filed a formal complaint two arid one-half months later. Judge Stuart sustained the complaint, stating:

I hold that the papers filed without aid of counsel on May 10, 1971 were sufficient to constitute the bringing of an action under 42 U.S.C. § 2000e-5(e) and that the requirement of filing within thirty days was met and the action is not subject to dismissal on that ground.
Even if it were held that the papers filed May 10, 1971 were not sufficient to constitute the bringing of an action the Court believes Congressional intent would be more nearly satisfied by following the line of cases which holds that the filing of the notice of right to sue letter within the thirty day period tolls the statute and that the filing of a complaint within a reasonable time thereafter constitutes substantial compliance with the act. Reyes v. Missouri-Kansas-Texas R.R. Co. [53 F.R.D. 293], supra. [Id. at 190.]

In light of the Supreme Court’s stated policy of liberal interpretation of the procedural requirements in regard to layman-initiated proceedings under Title VII, Love v. Pullman Co., 404 U.S. 522, 92 S.Ct. 616, 30 L.Ed.2d 679 (1972), we hold that the presentation of a request for the appointment of an attorney within the 30 days specified in § 703(e) constitutes the bringing of the civil action under Title VII. We think this interpretation of the statutory language comports with the remedial nature of the statute, Sanchez v. Standard Brands, Inc., 431 F.2d 455, 460-461 (5th Cir. 1970); Norman v. Missouri Pacific R.R., 414 F.2d 73 (8th Cir. 1969); Reyes v. Missouri-Kansas-Texas Ry. Co., 53 F.R.D. 293 (D.Kan.1971), and the valid consideration that a layman, completely unskilled in the law cannot be expected to file a formal complaint within the short period of time specified in the statute, and he should not be forced to forfeit his claim when he has done everything within his power within 30 days to bring about legal proceedings to enforce his rights, McQueen, supra,, 302 F.Supp. at 884; Sciaraffa v. Oxford Paper Co., 310 F.Supp. 891, 898 (D.Me.1970).

We believe this construction is consistent with the statutory history underlying the provisions of § 706(e) of the Act. Section 707(b) of the House version of Title VII granted enforcement powers to the Equal Opportunities Commission which could, following its unsuccessful efforts to obtain the employer’s compliance with law “within ninety days, bring a civil action to prevent the respondent [employer] from engaging in such unlawful employment practice * * *." H.R.Rep.No.914, 88 Cong., 1st Sess. (1963), as reported by the U.S. Equal Employment Opportunity Commission in Legislative History of Titles VII and XI of Civil Rights Act of 1964 at 2012. The Senate modified the House proposal by stripping the Commission of its power to initiate a civil action, but the Senate bill gave an aggrieved person the right to bring his own suit in federal court within a 30-day period and further authorized the federal court to appoint counsel and permit a complainant to commence action without payment of fees, costs, or security. However, in making this change, the Senate, as evidenced by Senator Humphrey’s remarks, was not oblivious to the plight of the poor:

Since it is recognized that the maintenance of a suit may impose a great burden on a poor individual complainant, the Federal court may, on application of the complainant, appoint an attorney for him and authorize the commencement of the action, without the payment of fees, costs, or security. [Legislative History * * *, supra, at 3004.]

Legislation which evinces such concern over the burden imposed upon a working man or woman seeking to enforce Title VII rights requires a practical and reasonable construction of its enforcement provisions. Since Congress granted a complainant only 30 days to bring a Title VII action, such action must be deemed brought within the 30-day period when the layman initiates a proceeding in the district court, including, as here, applying to the district court for the appointment of an attorney and for the right to proceed without payment of fees, costs or security. In ruling on such application, the district court should specify a reasonable period of time for the filing of a formal complaint against the employer. A more restrictive construction of the statute, as shown by a substantial number of cases in which a Title VII complainant did not file a formal complaint within 30 days, serves only to deprive many deserving working men and women of their Title VII remedy.

We reverse the district court and direct that the complaint be reinstated.

      . The relevant portion of the statute read:
      (e) If within thirty days after a charge is filed with the Commission or within thirty days after expiration of any period of reference under subsection (c) of this section (except that in either case such period may be extended to not more than sixty days upon a determination by the Commission that further efforts to secure voluntary compliance are warranted), the Commission has been unable to obtain voluntary compliance with this subchapter, the Commission shall so notify the person aggrieved and a civil action may, within thirty days thereafter, be brought against the respondent named in the charge (1) by the person claiming to be aggrieved * * *. Upon application by the complainant and in such circumstances as the court may deem just, the court may appoint an attorney for such complainant and may authorize the commencement of the action without the payment of fees, costs, or security. Í42 U.S.C.A. § 2000e-5(e) (1970).!
      As amended March 24, 1972, the statute now provides that the aggrieved party shall have 90 days after notice to bring a civil action. 42 U.S.C.A. § 2000e-5(f) (Supp.1972).

      . The text of this letter read :
      Dear Mr. Huston :
      This is to advise you that conciliation efforts in the above matter have failed to achieve voluntary compliance with Title VII of the Civil Rights Act of 1964. Pursuant to Section 706(e) of the Act, you are hereby notified that you may, within thirty (30) days of the receipt of letter, institute a civil action in tiie appropriate Federal District Court. If you are unable to retain an attorney, the Federal Court is authorized in its discretion, to appoint an attorney to represent you and to authorize the commencement of the suit without payment of fees, costs or security. If you decide to institute suit and find you need assistance, you may take this letter, along with the Commission determination of reasonable cause to believe Title VII has been violated, to the Clerk of the Federal District Court nearest to the place where the alleged discrimination occurred, and request that a Federal District Judge appoint counsel to represent you.
      Please feel free to contact the Commission if you have any questions about this matter.

      . This enclosure read :
      Clerk
      United States District Court
      Dear Sir:
      Enclosed is the Notice of Right to Sue within 30 days which I have received from the Equal Employment Opportunity Commission.
      I wish to file this letter as a complaint, in order to stop the running of the 30-day period afforded me for filing a suit pursuant to Section 706(e) of Title VII of the Civil Rights Act of 1984, 42 U.S.C. 2000e-5(e). The enclosed memorandum from the General Counsel of the Equal Employment Opportunity Commission, indicates that this is the proper procedure for me to follow.
      Pursuant to Section 706(e), I hereby request that the Court appoint counsel for me in this case, since I am unable to obtain counsel. I also request that the Court authorize the commencement of this action without payment of fees, costs, or security. Please treat this letter as my application for appointment of counsel and'for commencement of the action without prepayment.
      /s/ Milton E. Huston (signature)

      . The documents tendered included (1) the right-to-sue letter; (2) the letter from the EEOC as indicated in note 3; (3) the application to proceed in forma pauperis and for appointment of counsel; and (4) the affidavit of financial status. Apparently the memorandum from the General Counsel of the EEOC was not offered.


source: Caselaw Access Project

author: O’SULLIVAN, Senior Circuit Judge. WILLIAM E. MILLER, Circuit Judge

license: Public Domain

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Harold Dean AVERITT, Defendant-Appellant.
    No. 72-1513.
    United States Court of Appeals, Sixth Circuit.
    Argued Nov. 27, 1972.
    Decided May 2, 1973.
    Dale Quillen, Nashville, Tenn., for defendant-appellant.
    Charles H. Anderson, U. S. Atty., Nashville, Tenn., for plaintiff-appellee.
    Before PECK and MILLER, Circuit Judges, and O’SULLIVAN, Senior Circuit Judge.
   O’SULLIVAN, Senior Circuit Judge.

This is an appeal from conviction of appellant of possession and transportation of unstamped distilled spirits, in violation of 26 U.S.C. § 5604(a)(1) and 18 U.S.C. § 2. The District Court had overruled defendant’s motion to suppress evidence allegedly seized in violation of the Fourth Amendment of the United States Constitution, and subsequently the defendant, Harold D. Averitt, was found guilty by a jury.

The defendant raises two issues on this appeal. First, that the treasury agents who stopped and searched his pickup truck lacked probable cause to support the search; and second, that the means employed by the officers to effectuate the search and seizure were unreasonable under the particular circumstances of this case.

1. Probable cause.

On May 26, 1971, two agents of the Alcohol, Tobacco and Firearms Division of the United States Treasury Department and one agent of the Tennessee Alcoholic Beverage Commission commenced a surveillance operation on rural property of Henry B. Manners, Jr., situated in Stewart County, Tennessee. Located upon this property was a smokehouse approximately 45 feet from the house, and a barn. At 4:30 P.M. Treasury Agent Rollins positioned himself on a hillside 200 yards from the smokehouse and through the use of a 20-power spotting scope kept the Manners property under observation. The other officers concealed their automobile in a wooded area a quarter of a mile from the scene and kept in contact with Agent Rollins by radio.

At 5:30 P.M. Agent Rollins observed the owner of the property, Henry B. Manners, Jr., arrive at the farm in his pickup truck hauling a mule. After unloading the animal in the barn, Manners returned to the house and then at approximately 6:20 P.M. he came out of the house and backed his automobile up to the smokehouse. He removed from the trunk of the car 37 one gallon glass jugs marked with red Coca Cola labels and containing a clear liquid. He placed them in the smokehouse. Agent Rollins testified that one gallon glass jugs of this type are commonly used in the illicit whiskey trade.

Several hours later two men in a 1968 Chevrolet pickup truck, bearing 1971 Tennessee license plates numbered YB-7209, arrived at the Manners property, stopped at the house, and then backed the truck up to the smokehouse. Henry Manners emerged from the house with a quantity of empty paper bags, entered the smokehouse, and the three men then loaded filled paper sacks from the smokehouse into the truck. Agent Rollins testified that from his observation post he could hear the sound of jugs hitting together in the paper sacks. Throughout the period of surveillance Agent Rollins described all this activity to the other two officers over the radio and when the pickup truck departed he requested the two officers in the car to intercept the truck, which was carefully described as to make, color and license plates. Included in his radio advice to these officers was his statement, * * i them, I said, he is unloading whiskey in this Ford.” At trial, an objection to the foregoing was disposed of by the District Judge as follows :

“The Court: All right, let’s have what you saw. You saw they were full apparently and had liquid in them.”

Whether the officer’s statement that “he is unloading whiskey” was a conclusion, it was part of the advice upon which the officer conducting the surveillance and the arresting officers reasonably concluded that defendant and his companions were engaged in the illegal enterprise of transporting moonshine. It is not denied that the gallon jugs which were transferred from the smokehouse into the pursued vehicle were in fact moonshine whiskey. We do not consider that this Court’s decision in United States v. Wells, 467 F.2d 65, can be distinguished from the case before us.

The intercepting agents followed the truck toward Erin, Tennessee, on a narrow road. They were not in uniform and the car was devoid of any official markings or lights, but the vehicle did have a siren. When they arrived at a point wide enough to permit them to do so, the officers pulled abreast of the truck, sounding the siren and focusing a flashlight in the truck driver’s eyes. The vehicles collided, forcing the truck off the road into a field where it finally came to rest against a mound of earth some 75 yards into the field. The officers found 50 broken jugs and 25 intact ones containing unstamped distilled spirits in the truck. The driver of the truck,. the appellant, was apprehended and placed under arrest.

We are not here considering the sufficiency of the evidence to sustain a conviction; we consider only whether officers conducting the search and seizure and the surveilling officer had “probable cause” as required by the Fourth Amendment. The Supreme Court’s decision in Carroll v. United States, 267 U.S. 132, 45 S.Ct. 280, 69 L. Ed. 543, continues to be respected as a proper statement of what constitutes probable cause, justifying a warrantless search of a vehicle carrying contraband —as in this case, moonshine.

“On reason and authority the true rule is that if the search and seizure without a warrant are made upon probable cause, that is, upon a belief, reasonably arising out of circumstances known to the seizing officer, that an automobile or other vehicle contains that which by law is subject to seizure and destruction, the search and seizure are valid.” 267 U.S. at 149, 45 S.Ct. at 283.

While there were facts in that case as well as in the case of United States v. Wells, 467 F.2d 65 (6th Cir. 1972), which are not present here, we do not consider that such factual differences forbid our using Carroll and Wells as analogous to our decision. We believe they are controlling, and think it unnecessary to enter upon an extensive discussion of the facts in Carroll, Wells, and the case before us. We hold that there was probable cause for the warrantless search of the involved vehicle.

2. Misconduct of officers.

We find without merit appellant’s contention that the conduct of the pursuing officers in stopping appellant’s vehicle was such as to render the search unreasonable. Appellant and his companion were aware that they were being pursued because they were engaged in illegal conduct. We consider that the government’s address to us contains a substantially correct statement of the background facts.

“Agent Scharber testified that they followed the truck until they got to a place wide enough so that they could pull it over safely. When they did reach such a place they immediately tried to get in front of the truck, sounded the siren, and shined a flashlight in the driver’s eyes. The need having been established to stop the truck, the agents used only that force necessary to stop- the truck. In the absence of uniforms and a flashing light, there were no other means to stop the truck. Indeed, the agents were in the process of being forced off the road themselves by the truck at the time the truck ran off the road.”

Appellant relies upon a decision of this Circuit, United States v. Costner, 153 F.2d 23, where a search was held to be illegal because the involved search and seizure was consummated by the employment of “unreasonable means.” A fair reading of that decision makes clear that the condemned conduct of the officers resided in the firing of five shells of buckshot from a sawed-off shotgun at the accused vehicle. Judge Hick’s opinion recites:

“In this case, after locating and giving chase to the suspected car and while they were at no time far- behind it, Inspector Rudd fired five shells of buckshot at it from a sawed-off shotgun while it was traveling up to 80 miles an hour on a public highway. It is fortunate that the car was stopped without injury to the occupants. One of them was probably innocent of any wrongdoing, since appellee testified that he had picked up his companion, a boy named Jenkins, who was going to visit his sister near Sevierville, and since the Government dismissed the case as to Jenkins. Further, we think that prudent officers might have reasonably anticipated the presence of innocent travelers on the highway in the line of fire. Further, it may be observed that there was no real necessity for shooting the tires down in an effort to capture the car for there is no evidence that it was about to elude the officers.” 153 F.2d at 26.

We think the foregoing exhibits the inapplicability of that ease to the one before us. In Costner, the District Judge sustained the claim of unreasonableness. The District Judge in this case did not. Judge Hicks made this further observation in Costner.

“There is no formula for testing the reasonableness of the conduct of the searching and seizing officers. ‘Each case is to be decided on its own facts and circumstances.’ ” 153 F.2d at 26.

We are impressed that the very great danger to “innocent travelers on the highway” brought about condemnation of the officers’ conduct in Costner. We decline to hold that the conduct of the officers in this case warrants a holding that it rendered illegal the search that was made.

Judgment affirmed.

WILLIAM E. MILLER, Circuit Judge

(dissenting).

The starting point for analyzing this case is, of course, the Fourth Amendment. The case law interpreting the Amendment establishes that law enforcement officers conducting a search or seizure must obtain a warrant unless the circumstances under which they are acting fall within one of the limited and closely guarded exceptions to this general rule. Coolidge v. New Hampshire, 403 U.S. 443, 91 S.Ct. 2022, 29 L.Ed.2d 564 (1971); Katz v. United States, 389 U.S. 347, 88 S.Ct. 507, 19 L.Ed.2d 576 (1967). One exception commonly referred to as the exigent circumstances rule, concerns the stopping of moving vehicles on the highway. Even when this exception is invoked and no warrant is obtained, a law enforcement officer must be acting upon knowledge amounting to probable cause that the vehicle he stops on the highway has committed or is committing an offense. Brinegar v. United States, 338 U.S. 160, 69 S.Ct. 1302, 93 L.Ed. 1879 (1949); Carroll v. United States, 267 U.S. 132, 45 S.Ct. 280, 69 L.Ed. 543 (1925); United States v. McKenzie, 446 F.2d 949 (6th Cir. 1971). Therefore, it must be determined whether at the time the government agents halted the defendant’s truck they had probable cause to believe that the defendant was transporting illicit whiskey in the vehicle.

Probable cause has been defined by the Supreme Court as “facts and circumstances within their (the officers) knowledge and of which they had reasonably trustworthy information to warrant a man of reasonable caution in the belief that” an offense is being committed or has been committed. Carroll v. United States, 267 U.S. 132, 162, 45 S.Ct. 280, 288, 69 L.Ed. 543 (1925). Although this definition had its genesis in earlier cases this basic statement from Carroll has been quoted, paraphrased or cited approvingly throughout the search and seizure cases up to the present time. See Adams v. Williams, 407 U.S. 143, 147, 92 S.Ct. 1921, 32 L.Ed.2d 612 (1972).

The government asserts (and the majority apparently agrees) that the intercepting officers had a right to rely on the statement of Agent Rollins that a violation of the law was taking place and that immediate action had to be taken. This argument, however, assumes too much and avoids the crux of the issue since only if Agent Rollins had probable cause to believe a violation of the tax laws was in progress could the actions of the intercepting agents, acting upon Agent Rollins’s instructions, be upheld. This same basic argument was proposed and specifically rejected in Whiteley v. Warden, 401 U.S. 560, 568, 91 S.Ct. 1031, 28 L.Ed.2d 306 (1971), which settles the issue here. No effort is made by the majority to distinguish this recent Supreme Court ruling.

The only observation of Agent Rollins which even hints at illegal activity was the viewing of 37 one gallon glass jugs containing a clear liquid being unloaded into the smokehouse by Henry B. Manners, Jr., and the subsequent loading of filled paper sacks into the defendant’s truck. Agent Rollins did not know what actually was in the jugs transferred from the car trunk into the smokehouse or even that the paper sacks subsequently loaded into the truck contained these same glass jugs. At best the government agent had a bare suspicion that the truck was carrying moonshine. Suspicion or even reasonable suspicion will not suffice and are not a substitute for the higher constitutional standard of probable cause. The record is barren of any evidence to indicate why surveillance of the Manners property had been •undertaken. There is no evidence that the defendant or the other men involved were known whisky runners. Nor is there evidence of any illegal distilling operation on the premises or in the area, or that the government agents were acting pursuant to an informer’s tip. Therefore, I conclude that Agent Rollins did not have sufficient knowledge to satisfy the constitutional standard of probable cause and that the agents acting under his instruction were in no better position. The district court in my view erred in overruling the defendant’s motion to suppress and the case should be reversed and remanded to the court below for further proceedings. The majority opinion, I believe, seriously erodes the protections of the Fourth Amendment and disregards controlling precedent. Since the search was illegal, the highly questionable means employed by the officers in effectuating the search need not be reached.

Addendum to above dissenting opinion of WILLIAM E. MILLER, Circuit Judge.

After the above dissenting opinion was written and circulated, the majority opinion was revised in certain minor respects. This necessitates a few additional observations:

1. Agent Rollins’ conclusory statement that “he is unloading whiskey” cannot rise to any higher level than the observations upon which it was allegedly-based — observations which, in my view, fall far short of showing probable cause. Rollins could not possibly have had knowledge of the contents of the jugs or the sacks. At most he could only guess. But even so this conclusory statement was in effect stricken from the record by the trial court when he said, in response to an objection, “All right, let’s have what you saw. You saw they were full apparently and had liquid in them.” This was an admonition to the witness to stick to the facts — what he actually saw — and to avoid conclusions. Hence, I feel that my statement in the dissenting opinion above that the conclusion of Rollins was stricken from the record (see footnote 2) was, and is, correct. No magic or formal words are required to sustain objections to testimony or to strike or exclude it from consideration.

2. As stressed in the dissent, unless Rollins had probable cause from what he observed to believe that defendant was “unloading whiskey” — which I believe he clearly did not — his conclusory statement to that effect to the other officers adds nothing to the existence of probable cause, as Whiteley v. Warden, 401 U.S. 561, 91 S.Ct. 1031, 28 L.Ed.2d 306 (1971), teaches, a decision which the majority continues to ignore.

3. Carroll v. United States, 267 U.S. 132, 45 S.Ct. 280, 69 L.Ed. 543 (1925), relied upon by the majority, was a prohibition case involving the stopping and search of an automobile and is factually a far cry from the case before us, although its definition of probable cause has continuing validity. As I evaluate the facts of this case the government has wholly failed to establish that the officers had a reasonably grounded belief that the law was being violated. What the government has failed to prove has been supplied by the majority opinion by its own ipse dixit.

      . Agent Rollins also said, “Manners, the heavy-set dark-headed man [the latter being appellant Averitt], and man with cowboy hat begin to bring liquor out. * * * Manners and the heavy-set man [Averitt] bring the liquor and hand it up to the man with the cowboy hat up in the truck.”

      . It was stipulated that resolution of defendant’s motion to suppress would await the evidence adduced at the trial. The statement “he is unloading whiskey” was indeed relevant to the subject matter of such motion. The District Judge did not, as suggested by the dissent, footnote 2, strike this conclusion from the record.

      . See Brinegar v. United States, 338 U.S. 160, 176 n. 15, 69 S.Ct. 1302, 93 L.Ed. 1879 (1949).

      . My views would not undermine the authority of the opinion of this Court in United States v. Wells, 467 F.2d 65 (6th Cir., 1972), for I deem the cases to be clearly distinguishable upon their facts. First, in Wells, testimony of one of the investigating officers was admitted without objection that he thought that the containers which he observed “were liquor.” In the present case proffered testimony somewhat to the same effect was ordered by the district judge to be stricken from the record. Second, in Wells, there were additional facts, not present here, tending to support the idea that the automobile was transporting illicit whiskey. For example, Officer Batts. in that case testified that he noticed that the rear of the car was “sitting down” ; that the tires were “somewhat ballooned” ; and that the driver was “having some difficulty holding this ear on curves as he went around curves.” It is well known that testimony of this kind in liquor cases has been frequently sustained by the courts as relevant facts bearing upon the question of probable cause. In brief the prosecution in Wells, as this Court ruled, carried its burden of proof to establish probable cause, whereas the opposite is true in the present case.


author: WEIS, Circuit Judge. GIBBONS, Circuit Judge

text:
    Edgar MARTINEZ and Ruth Martinez his wife, Appellants, v. E. J. KORVETTE, INC.
    No. 72-1101.
    United States Court of Appeals, Third Circuit.
    Argued Feb. 9, 1973.
    Decided May 10, 1973.

      S. Khan Spiegel, Arthur M. Dolin, Larner & Dolin, Philadelphia, Pa., for appellants.
    Robert St. Leger Goggin, Marshall, Dennehey & Warner, Philadelphia, Pa., for appellee.
    Before McLAUGHLIN, GIBBONS, and WEIS, Circuit Judges.

       At the time of argument Judge Weis was a District Judge, sitting by designation.

   OPINION OF THE COURT

WEIS, Circuit Judge.

In this diversity action for malicious prosecution, the court below granted the defense motion for a directed verdict at the conclusion of the plaintiff’s testimony. A motion for a new trial was later denied and a Memorandum Order filed. (335 F.Supp. 886, E.D.Pa.1971).

On October 24, 1969 plaintiff, Ruth Martinez, accompanied by her husband and brother-in-law went to one of the Korvette stores in the suburban Philadelphia area, planning to buy a new coat. Her testimony was that before trying on any of the new coats she took off her old trench coat and laid it on top of the display rack. After some time, Mrs. Martinez decided on a purchase but was then unable to find the old trench coat. She strolled to another portion of the store to look at other items of clothing, went to a check out counter in that area, and advised the clerk that, since the trench coat had disappeared, plaintiff intended to wear the new one home. Mrs. Martinez claimed that the new coat was purchased by the use of a credit card, and that she was given a sales slip and a cash register receipt.

After the plaintiff walked out of the store she was accosted by a female security officer who asked her about the coat. The two women then went back inside the building where Mrs. Martinez dis- . played the sales receipt. However, when she and the security officer went to see the cashier who had handled the particular transaction, she could not be found.

The plaintiff then was taken to the security office in the store where she was shown her old trench coat and was told by the security people that it had been found on a hanger on the rack.

After refusing to sign a document which the plaintiff described as one releasing Korvette, the parties proceeded to a police station where a hearing was held before a justice of the peace.

The evidence about what transpired at the magistrate’s office is extremely brief. Mrs. Martinez testified there, as did the female security officer, a finding of guilt was made, and the defendant sentenced to pay a fine.

Later, an appeal was taken to the Court of Common Pleas of Montgomery County. No one from the defendant’s store appeared at the time set for the trial and the case was dismissed.

There was no testimony in the district court as to what evidence was introduced by the parties at the magistrate’s hearing or anything tending to show that the guilty finding was returned as the result of fraud or corruption. The trial judge, therefore, was confronted with positive evidence of a guilty finding against the plaintiff by the justice of the peace as well as testimony by Mrs. Martinez which would, if believed, establish her innocence of the crime in fact.

The Pennsylvania courts have historically taken a grudging view toward recovery in suits for malicious prosecution, and have imposed a heavy burden which must be met before a case may be submitted to a jury. The plaintiff has the burden of proving lack of probable cause and despite the difficulty of establishing a negative, the requirement is rigidly enforced. In Miller v. Pennsylvania Railroad, 371 Pa. 308, 89 A.2d 809, 812 (1952), the court said:

“Plaintiff has produced no affirmative evidence that defendant lacked probable cause. Plaintiff does not make out a prima facie case simply by proving his arrest on a criminal charge and his acquittal.”

In Byers v. Ward, 368 Pa. 416, 84 A.2d 307, 309 (1951), it was said:

“Want of probable cause is an indispensable element. [citation]. And such want is in no sense dependent upon the guilt or innocence of the accused. Probable cause does not depend on the state of the case in point of fact but upon the honest and reasonable belief of the party prosecuting. * * *
“The question of want of probable cause is exclusively for the court. Where there is no conflict in the testimony, the court has no need for a finding of a jury.”

See, also, Psinakis v. Psinakis, 221 F.2d 418 (3rd Cir. 1955).

The Restatement of Torts, § 667, holds that, absent evidence of fraud, perjury or corruption in procurement, the conviction of the accused by a magistrate, even though later reversed by an appellate tribunal, conclusively establishes the existence of probable cause. While there is some question that Pennsylvania would consider such evidence to be conclusive, see MacDonald v. Schroeder, 214 Pa. 411, 63 A. 1024 (1906), it is, at the least, strong prima facie evidence of probable cause.

The remaining relevant parts of the plaintiff’s testimony established that the security officer was dealing with a woman who had worn a new coat out of the store, who claimed that a sales receipt which she displayed proved payment for the coat but who was unable to corroborate her version when given the opportunity to locate and identify the cashier allegedly involved. This, coupled with the fact that the plaintiff’s coat had been found in or on the rack where the new garments were hung, would be evidence tending to show the existence of probable cause rather than lack of it.

While we are required in the present posture of the case to consider the evidence in the light most favorable to the plaintiff, and thus to accept Mrs. Martinez’ statement that she had paid for the coat, no such obligation was imposed upon the security officer at the time the event occurred. The fact that the plaintiff protested her innocence then does not establish knowledge of lack of her guilt on the part of the security personnel.

In the absence of the conviction, obviously the evidence of probable cause is not overwhelming, but the burden was not on the defendant to establish that factor, but rather on the plaintiff to negative it. When the unimpeached fact of conviction is weighed along with all of the plaintiff’s other, testimony, it is clear that she has failed to meet her burden of showing lack of probable cause.

When arguing the motion for dismissal, plaintiff’s counsel took the position that, having established that Mrs. Martinez was not guilty but had been arrested, he had made out a prima facie ease. The Pennsylvania cases cited above make it clear that proof of the fact of innocence does not establish lack of probable cause and that in the absence of other proof the plaintiff’s case must fall.

Pennsylvania does impose more stringent requirements on plaintiffs in cases of malicious prosecution than in other tort areas. This is a matter of policy well within the realm of authority inherent in the state and must be respected by federal courts in a diversity action.

For a more complete review of the applicable law in a case stronger for the plaintiff than the one at bar, see Thomas v. Korvette, 476 F.2d 471 (3rd Cir. 1973).

The action of the trial judge will be affirmed.

GIBBONS, Circuit Judge

(dissenting).

This is an appeal from the entry of a directed verdict in favor of defendant at the end of the plaintiffs’ case. Rule 50, Fed.R.Civ.P. The case is a diversity action for malicious prosecution, to which Pennsylvania law is applicable. It presents, however, an issue of the respective roles of judge and jury in the federal courts, as to which, even in a diversity case, state law is not entirely dispositiye. The question whether there was any evidence from which the jury could have inferred a lack of probable cause is one as to which federal standards control. See Part II of Judge Rosenn’s concurring opinion in Thomas v. E. J. Korvette, Inc., 476 F.2d 471 (3d Cir. 1973). As Judge Rosenn points out, in an action for malicious prosecution, if the facts bearing on probable cause are in dispute, the judge should instruct the jury to find the facts by special interrogatories, and based on these facts, make a ruling as to whether there was probable cause.

At the end of the plaintiffs’ case the record contained evidence that Mrs. Martinez had been convicted before the justice of the peace. This conviction, though reversed when the case was retried in the Court of Common Pleas, is under Pennsylvania law prima facie proof that the charging party had probable cause. But it is no more than prima facie proof; evidence of probable cause.

“It is everywhere held that the actions of each of these judicial bodies [justices of the peace and grand juries] are affirmative evidence of probable cause.” Miller v. Pennsylvania R. R., 371 Pa. 308, 317, 89 A.2d 809, 813 (1952).

The action of a grand jury is in Pennsylvania entitled to the same evidentiary value on the issue of probable cause as is the finding of a justice of the peace. Id. That neither is conclusive is established by Judge Jones’ opinion for this court in Hornin v. Montgomery Ward & Co., 120 F.2d 500 (3d Cir. 1941). In that ease the arrested party was held for the grand jury and indicted. He was acquitted at trial. This court affirmed a jury verdict against the employer of the charging party. It found sufficient evidence of lack of probable cause in the circumstances surrounding the plaintiff’s arrest, despite the grand jury indictment. Judge Jones, no stranger to the law of Pennsylvania, wrote:

“As late as Altman v. Standard Refrigerator Co., Inc., supra, 315 Pa. [465] page 480, 173 A. [411] page 417, the Supreme Court of Pennsylvania quoted with approval its earlier definition of probable cause as stated in McClafferty v. Philp, 151 Pa. 86, 24 A. 1042, where it was said that ‘ “Probable cause” is generally defined to be a reasonable ground of suspicion, supported by circumstances sufficient to warrant an ordinarily prudent man (in the same situation) in believing the party is guilty of the offense.’ It was, therefore, the duty of the court below, as it is this court’s duty on appeal, armed with the above test and cognizant of the facts which the jury could and presumably did find, to determine whether the conclusion of a want of probable cause could be found by the jury.” 120 F.2d at 503.

Judge Jones then reviewed the evidence, not dissimilar to that in this case, and concluded:

“The evidence not only justifies a finding that Stark, by the exercise of ordinary prudence, should have known that he did not have probable cause for proceeding against Hornin, but it further indicates that Stark was actually aware of the want of probable cause.” 120 F.2d at 503.

As Judge Weis’ opinion points out, the circumstances under which Mrs. Martinez left the store were sufficient to arouse in an ordinarily prudent person the suspicion that she had hung her old coat on the rack, put on a new coat, and left the store without paying for it. At this point Mrs. Martinez was taken to the security office. But her testimony is that she produced a register receipt for the coat:

“I showed them the receipt and then he said to me, ‘Well let me have the coat for a minute.’ I took off my coat and he took the receipt.” (Tr. 28).

The security officer took the coat and receipt upstairs apparently to check with the register clerk.

“When he went up with the coat and the receipt — he took it upstairs. That’s when the others came in. He was gone about ten minutes, and when he came back down he had this paper for me to sign.
Q What was that paper as far as you know?
A Well, I didn’t read much of it. It said something about releasing Korvette’s.
He started putting my name down and my address, and then I told him I would not answer any more questions and I wasn’t going to sign.
He said, ‘It’s just something to say we weren’t harassing you.’ It was something like that. I said, T will not sign it.’
Q All right. What happened after that?
A Then he said, ‘Well if you don’t answer the questions here, you will answer them in the police station.’ That’s when he called the police.”

(Tr. 29-30).

Mr. Martinez testified that the coat had been paid for by use of a Unicard credit card and a register receipt was issued. (Tr. 44-45).

Assuming the testimony of Mr. and Mrs. Martinez to be truthful, as in this posture of the case we must, the jury could have found that prior to the decision to charge Mrs. Martinez the security officer was aware that she had a register receipt which she claimed was for the coat, that the receipt was in fact for the coat, that he had taken the receipt and the coat and had verified that in fact the receipt was genuine, that he had thereupon attempted to coerce Mrs. Martinez into executing a paper releasing Korvette's from any charge of harassment, and that only when she refused to sign the release did he decide to charge her despite his knowledge that the receipt was genuine. If the jury so found, I submit, the court would have been required to hold that the plaintiffs had established a lack of probable cause, judged against the standard of the ordinary prudent man similarly situated.

I am as aware as the next man of the enormous problems which retailers face in dealing with shoplifters. Possibly such problems would justify the Commonwealth of Pennsylvania in abolishing the cause of action for malicious prosecution. They do not, however, justify us in blurring the historic line between the functions of judge and jury in the federal courts, for that line is predicated upon federal constitutional considerations. So long as we must entertain diversity cases we must try them by appropriate federal standards. I would reverse and remand for a new trial.

      . See also Byers v. Ward, 368 Pa. 416, 34 A.2d 307 (1951).


author: ROSS, Circuit Judge.

text:
    AMERICAN PUBLIC LIFE INS. CO., Appellant, v. Virgil WHEELER, Appellee. Virgil WHEELER, Appellant, v. AMERICAN PUBLIC LIFE INS. CO., Appellee.
    Nos. 72-1531, 72-1509.
    United States Court of Appeals, Eighth Circuit.
    Submitted Feb. 15, 1973.
    Decided April 13, 1973.

      Robert J. Donovan, Marianna, Ark., for Wheeler.
    Ronald A. May, Little Rock, Ark., for American Public Life Ins. Co.
    Before HEANEY and ROSS, Circuit Judges, and BENSON, Chief District Judge.
   ROSS, Circuit Judge.

Virgil Wheeler brought an action for a declaratory judgment against American Public Life Insurance Company (American Public) in an Arkansas state court, to interpret a policy of insurance issued to Wheeler by American Public's predecessor, Washington Standard Life Insurance Co. (Washington Standard). Upon removal to the United States District Court for Arkansas under 28 U.S. C. §§ 1441(a) and 1332(a), the lower court rejected American Public’s defenses to the policy and ordered that it be enforced as written. No attorneys fees were awarded. 344 F.Supp. 950 (E.D.Ark. 1972). Both parties appeal.

The policy in question was initially issued to Wheeler by Washington Standard on December 4, 1958, as Policy No. 2679. It was sold to Wheeler by one Mrs. Roberson, an agent of Washington Standard at that time, who took Wheeler’s application and later delivered the policy to him after the insurance company had approved his application. The policy was subsequently destroyed by fire sometime in 1962, and a duplicate copy was issued to Wheeler on March 8, 1963, by Washington Independent Life Insurance Company (Washington Independent), the company which took over the control of Washington Standard subsequent to the initial issuance of the policy. This policy on the life of Virgil Wheeler, provides for a $7,500.00 death benefit and an endowment benefit at the maturity date (December 4, 1973) of $1,700.00. The policy also includes what is generally referred to as a “Dollar A Day” Plan under which Wheeler had the option to either receive $100.00 annually; to apply that sum against annual premiums; or to authorize the insurance company to invest the sum for him. Wheeler chose the option of having the insurance company invest the $100.00 annual sum as provided by the terms of the policy, and the company has made such investment on his behalf throughout the years following the initial issuance of the policy. That investment was valued at over $1,500.00 at the time of the trial below. The annual premium for all of the Benefits and the Investment Plan was $365.00, hence the name “Dollar A Day” Plan.

The controversy between Wheeler and American Public relates to the amount which Wheeler will be entitled to elect as a settlement option on the maturity date of the policy, December 4, 1973. Wheeler contends that according to a provision in the policy, contained in an inserted page designated “Insert-JEB-1” he is entitled to a guarantee of $37,500.00 on the maturity date. The insert is as follows:

“GUARANTEED OPTIONS OF SETTLEMENT ON MATURITY DATE FOR EACH $1,000 OF ORIGINAL AMOUNT INSURED
If the Insured is living on the Maturity Date and if all premiums have been paid and there is no indebtedness to the Company hereon, the Insured, upon surrender of this policy may, in lieu of receiving the Ultimate Amount as provided on the first page hereof, select one of the following options:
Option 1. . . .
Option 2. . . .
Option 3. Receive in cash the Ultimate Amount of . $5,000 or
Option 4. . . .

. . ."

This provision appears on the LOAN PROVISION page of the policy. Wheeler’s contention is that since the Face Amount of his policy is $7,500.00 he is entitled, under Option 3, to 7.5 multiplied by $5,000.00, or $37,500.00 in cash on the maturity date. In addition, an inserted sheet explaining the “Dollar A Day” Investment Plan is included in the duplicate policy and contains a table for the purpose of illustrating and explaining the “Dollar A Day” Plan, as follows:

“The following table is for illustration purposes only and is based on the assumption that the annual appreciation percentage outlined below will be constant:
Percent of Annual Appreciation Amount Paid Into Fund Amount of Appreciation Value At End of 15 Years
0 $1400.00 $ 0 $ 1,400.00
5 1400.00 657.86 2,057.86
10 1400.00 1,627.25 3,072.25
20 1400.00 5,703.51 7,103.51
30 1400.00 15,228.53 16,628.53
40 1400.00 37,141.93 38,541.93
It is understood that the percentage of annual appreciation may vary throughout the 15 years and the above table is designed and presented solely for the purpose of explanation.”

The primary contention of American Public is that “Insert-JEB-1” was clearly inserted in the “Dollar A Day” Plan by mistake and that the most Wheeler is guaranteed at the end of the 15 years is $1,700.00 as provided by the policy without reference to the “Insert.” The main policy also contained a provision generally referred to as an Incontestability clause which reads as follows:

" . . .
This policy shall be incontestable after it has been in force during the lifetime of the Insured for a period of two years from its Policy Date, except for non-payment of premiums; . . ."

The trial court found that the incontestability clause barred American Public’s assertion of mistake in this action, but went on to state that “assuming, but not deciding that the respondent is entitled to the defenses it claims” there was insufficient evidence offered to show that in fact any mistake had occurred. 344 F.Supp. at 954-955. In so holding, the district court found that the “Insert-JEB-1” provision was originally in the policy as issued to Wheeler and was intended to be a part thereof and concluded that the policy should be enforced in accordance with that option. On this appeal American Public contends that the court erred in holding that the incontestability clause should bar the assertion by it of a mistake, and in its finding that no mistake had in fact occurred. Wheeler appeals from the failure of the district court to award him attorneys fees under Ark.Stats.Ann. 66-3239 (Repl.1966). We affirm the judgment of the trial court and award attorneys fees.

We have carefully examined the record and the briefs and conclude that there was sufficient evidence to justify the trial court’s determination that “Insert-JEB-1” was included in the original policy issued to Wheeler. However, we believe that the finding that “Insert-JEB-1” was “intended to become a part of the policy issued by the company to the petitioner, Virgil Wheeler,” 344 F.Supp. at 955, was clearly erroneous to the extent that it implies that Washington Standard intended to include the insert in the policy.

The evidence is clear and uncontradicted that this form was intended to be used only in “Juvenile Estate Builder” policies sold to parents for their children under the age of 14 years. These policies contemplated premium payments to the insurance company for a period in excess of 40 years instead of the 15 years of premium payments provided in the “Dollar A Day” Plan sold to Wheeler. It is not difficult to understand the higher guaranteed value at maturity of the Juvenile Estate Builder policy when viewed in this light and it defies all logic to assume that the insurance company intended to use this form in a 15 year “Dollar A Day” policy.

On the other hand, the evidence does warrant the finding that Wheeler thought he was buying the exact policy that was issued and that the agent explained the policy to him in a manner which caused him to believe it would have a value of $37,500.00 at maturity.

Assuming, without deciding, that the pleadings of American Public would have permitted the trial court to reform the insurance contract because of mistake, we do not believe that under the law of Arkansas, reformation was permissible under the proof adduced in this case. In York v. McKamey, 175 Ark. 1170, 300 S.W. 371, 372 (1927), the Supreme Court of Arkansas stated the rule as follows:

“It is the rule of this court that in a suit to reform a written instrument, the evidence must be clear, unequivocal, satisfactory, and decisive, and that a mere preponderance of the evidence is not sufficient, and that reformation cannot be had, except for mutual mistake, or mistake of one party accompanied by fraud or other inequitable conduct of the other party.”

See also Robinson v. Home Indemnity Co., 438 F.2d 1273, 1275 (8th Cir. 1971); Weiss v. Turney, 173 F.2d 617, 619 (8th Cir. 1949); Calvert Fire Ins. Co. v. Hardwicke, 232 Ark. 466, 338 S.W.2d 329, 330 (1960); Corey v. Mercantile Ins. Co., 205 Ark. 546, 169 S.W.2d 655, 658-659 (1943); Barton-Mansfield Co. v. Wells, 183 Ark. 174, 35 S.W.2d 337, 339 (1931).

In this case the evidence is clear that there was not a mutual mistake. The insurance company made a unilateral mistake in including the Insert-JEB-1 in the policy. But there was uncontradicted evidence from Wheeler and Mrs. Wheeler that Wheeler only purchased the policy upon being assured by the agent that the guaranteed value of the policy at maturity would be $37,500.-00. That such an amount was reasonable to expect was confirmed by the agent’s testimony. Under these circumstances neither mutual mistake nor mistake of one party coupled with fraud or inequitable conduct of the other party could be found, and American Public was not entitled to reformation. See Weiss v. Turney, supra, 173 F.2d at 618-619; Greenhaw v. Combs, 74 Ark. 336, 85 S.W. 768, 770 (1905).

Because of the result we have reached on the reformation issue, we do not reach the question of the effect of the incontestability clause.

We recognize that the result we have reached is inequitable to American Public and provides a windfall to Wheeler. But this does not alter our obligation to apply the law of the State of Arkansas to the facts of this case.

Wheeler correctly argues that he was entitled to attorneys fees under Ark. Stats. Ann. 66-3239 (Repl.1966), and that even though the trial court failed to award the fees, this Court may make the determination. Maryland Casualty Co. v. Turner, 235 Ark. 718, 361 S.W.2d 646, 650 (1962). We have examined the record and have concluded that Wheeler is entitled to an attorneys fee of $500.00 for services rendered in trial and on this appeal. In setting this figure, we cannot ignore the inequitable result described in the preceding paragraph.

The judgment of the trial court is affirmed but modified to include the award of attorneys fees as hereinbefore set forth.

      . Washington Standard Life, the initial issuer of this policy was subsequently taken over by Washington Independent Life Ins. Co., the latter assuming all control and obligations of the former, including the policy in issue. American Public, appellant herein, assumed the control and obligations of Washington Independent through a bulk reinsurance agreement entered into on January 2, 1965, and continues to date as the insurer under the policy.

      . As stated in Weiss v. Turney, 173 F.2d 617, 619 (8th Cir. 1949) (applying Arkansas law) :
      “To warrant reformation on the ground of mutual mistake it must appear that by reason of the mistake both parties have done what neither intended; in other words, the instrument must do violence to the understanding of both parties.” (Emphasis added.)

        See also 17 R. Anderson, Couch Cyclopedia of Insurance Law, § 66:25 at 265-267 (1967).
      On the other hand:
      “If one party is mistaken as to the identity of the subject matter of the bargain, or as to a basic assumption regarding it, other party is usually mistaken as to the first party’s state of mind. But such a double mistake, if innocent, is immaterial. A mistake of this sort is always called unilateral since the error on one side is irrelevant.” 13 S. Williston, A Treatise on the Law of Contracts, § 1570A at 465 (Jaeger ed.) 1970). (Emphasis added.)


author: SETH, Circuit Judge. BARRETT, Circuit Judge

text:
    Donald A. DEATS, Appellant, v. Felix RODRIGUEZ, Warden, New Mexico State Penitentiary, Appellee.
    No. 72-1637.
    United States Court of Appeals, Tenth Circuit.
    Argued March 28, 1973.
    Decided May 3, 1973.
    Charles T. Flett, Arvada, Colo., for appellant.
    Jay R. Rosenthal, Sp. Asst. Atty. Gen. (David L. Norvell, Atty. Gen., with him on the brief), for appellee.
    Before SETH and BARRETT, Circuit Judges, and SMITH, District Judge.

       Of the Eastern District of Michigan, sitting by designation.

   SETH, Circuit Judge.

The petitioner, Donald A. Deats, appeals from an order of the United States District Court for the District of New Mexico dismissing his petition for a writ of habeas corpus.

Appellant was found guilty in a New Mexico state court of aggravated burglary and larceny of property, and sentenced to concurrent terms in the New Mexico State Penitentiary. He exhausted all possible state remedies and applied to the United States District Court for a writ of habeas corpus, urging as error:

1. That because of pretrial publicity and the refusal of the state judge to grant a change of venue, he did not have a fair trial.

2. That the closing argument of the district attorney which contained references to appellant’s refusal to talk to the police officers who arrested him was prejudicial and denied him due process of law.

3. That the presence of a felon on the jury, which fact should have been known to the prosecuting attorney, since the prosecuting attorney allegedly secured the conviction of the jury member, was prejudicial.

Deats’ petition for a writ of habeas corpus was dismissed by the trial court without a hearing.

Because the closing argument of the district attorney was prejudicial and requires reversal, it is not necessary to discuss the first or third allegation of error. We trust that when the state retries appellant, the publicity which occurred prior to 1967 when appellant was tried for the crimes herein will have long been forgotten, and a new jury for a new trial will not raise the issue of the effect of a felon sitting on the jury.

During his closing arguments, the district attorney made the following remarks :

“MR. BRANDENBURG: . . . Why didn’t Mr. Deats tell it when the officer talked to him? He showed a reluctance to testify.
“MR. CALKINS: Object. I will reserve it. I won’t object to that point.
“THE COURT: All right. Proceed.
“MR. BRANDENBURG: Why didn’t Mr. Deats tell the officer? If this is the way it happened, why didn’t he tell them right then? If you were caught in a situation like Mr. Deats was caught in, and you are innocent, what is the first thing you are going to tell the police? Aren’t you going to tell them exactly what you have been doing ? Aren’t you going to tell them about calling Mr. Farnum? Aren’t you going to tell them the whole story so they can check it out? And if it turns out to be true, are you going to languish in jail and say, ‘Forget it, I don’t want to talk to you?’ I think you will consider this also. . . . ”

At the conclusion of the district attorney’s closing argument and out of the presence of the jury, Deats’ counsel moved for a mistrial on the ground that the closing argument was highly prejudicial and inflammatory. The motion was denied.

The New Mexico Court of Appeals, in State v. Montoya, 80 N.M. 64, 451 P.2d 557, refused to consider this point of alleged error because appellant’s counsel had withdrawn his objection to the prejudicial statements during closing argument. The New Mexico Supreme Court also refused to rule on this point. Deats v. State, 80 N.M. 77, 451 P.2d 981.

We find this case to be controlled by United States v. Arnold, 425 F.2d 204 (10th Cir.), and United States v. Nolan, 416 F.2d 588 (10th Cir.), where we held that comments by the prosecuting attorney on an accused’s silence were plain, fundamental error, and that we would overlook the lack of objection in the trial court to consider the error. The issue was again considered in Johnson v. Patterson, 475 F.2d 1066 (10th Cir., 1973), where we held that any comment on an accused’s silence cannot be made at trial under the guise of its being a prior inconsistent statement admissible under the rule of Harris v. New York, 401 U.S. 222, 91 S.Ct. 643, 28 L.Ed.2d 1, when the accused takes the stand. It is difficult to distinguish the problem here raised from that in Griffin v. California, 380 U.S. 609, 85 S.Ct. 1229, 14 L.Ed.2d 106, wherein comment on a failure to take the stand is not permitted. Also in the circumstances where a defendant does not take the stand, but a prior statement is admitted, this silence is not held to be inconsistent with the prior statement.

If the accused chooses to remain silent on arrest, but at trial, for any one of several good reasons unrelated to the truth or falsity of his statement, chooses to take the stand on his own behalf, whatever he may there say is inconsistent with his prior silence under the view contrary to that taken by this court. Anything said is inconsistent with silence. Thus any change of mind by the accused from initial silence to taking the stand necessarily creates an inconsistent position or statement which cannot be avoided, and is under the contrary view subject to comment. Under such a view, the theory is that if the testimony on the stand is true, the substance of it would have been given by the accused on arrest. It is difficult, however, to speculate as to whether the defendant should or would have said something under the circumstances of his arrest, and this the jury should not do in deciding his guilt or innocence.

The rule which has been adopted by this circuit gives effect to the advice given to the accused that he may remain silent without a penalty for later deciding to take the stand. This rule is just as effective in reaching the truth as any other rule. Silence is not an untruth.

Reversed and remanded for further proceedings.

BARRETT, Circuit Judge

(dissenting).

I must respectfully dissent, on basically the same grounds and for the same reasons stated by Judge Breitenstein in his recent dissent in Johnson v. Patterson, 475 F.2d 1066 (10th Cir. 1973).

The search for truth is and must always be the primary object of the criminal justice system. With this in mind, we have held that it is well established that there is a vast difference in the case of an accused who voluntarily takes the stand, and of the accused who refrains from testifying. Sinclair v. Turner, 447 F.2d 1158 (10th Cir. 1971), cert. denied 405 U.S. 1048, 92 S.Ct. 1329, 31 L.Ed.2d 590 (1972). In that decision we quoted from Johnson v. United States, 318 U.S. 189, 63 S.Ct. 549, 87 L.Ed. 704 (1943) as follows:

We cannot permit an accused to elect to pursue one course at the trial and then, when that has proved to be unprofitable, to insist on appeal that the course which he rejected at the trial be reopened to him. However unwise the first choice may have been, the range of waiver is wide. Since the protection which could have been obtained was plainly waived, the accused cannot now be heard to charge the court with depriving him of a fair trial. 318 U.S. at 201, 63 S.Ct. at 555.

The crux of the controversy here does not involve the Fifth Amendment privilege against self-incrimination, but rather the issue of credibility. Judge Breitenstein observed in Johnson, supra, in the dissent:

By emphasizing the Fifth Amendment right and glossing, over the policy which demands truth of a witness and which regards adversary proceedings as a search for the truth, the majority loses sight of the balance which must be maintained. The effect of the majority [opinion] is to suppress a fact which reasonably bears on credibility and, hence, on truth. 475 F.2d 1066 at 1069.

An accused has no right to set forth to the jury all of the facts which tend in his favor without laying himself open to a cross-examination on those facts. Fitzpatrick v. United States, 178 U.S. 304, 20 S.Ct. 944, 44 L.Ed. 1078 (1900); Reagan v. United States, 157 U.S. 301 (1895); Sinclair v. Turner, supra. Deats’ pre-trial silence was properly referred to for impeachment purposes because of the inconsistency between his silence at the time of arrest and his testimony at trial. The record does, in fact, reflect that Deats did speak with police officers following his arrest. At trial, not only did Deats deny his guilt of the burglary and larceny charges predicated on his defense of alibi, but he called other witnesses who testified in corroboration. This, then, was purely and simply a credibility test. Deats effectively waived his Fifth Amendment right against self-incrimination when he voluntarily took the stand and presented his alibi defense testimony.


author: CHAMBERS, Circuit Judge:

text:
    The WESTERN FIRE INSURANCE COMPANY, Plaintiff and Appellant, v. NATIONAL UNION FIRE INSURANCE COMPANY, Defendant and Appellee.
    No. 71-1701.
    United States Court of Appeals, Ninth Circuit.
    April 11, 1973.
    Rehearing Denied May 2,1973.
    J. Gordon Cook (argued), Renaud, Cook, Miller & Cordova, Phoenix, Ariz., for appellant.
    Richard A. Black (argued), Phoenix, Ariz., for appellee.
   OPINION

Before CHAMBERS and HUFSTEDLER, Circuit Judges, and FERGUSON, District Judge.

CHAMBERS, Circuit Judge:

During the night of May 4, 1967, Leonard Monti, Jr., shot his mistress. It happened in their restaurant bedroom. Successively he had two theories. First, he said it must have happened while he was asleep. Later, he remembered that he shot her, believing mistakenly in the dark that he was shooting at a burglar. As a result, the girl is a helpless quadriplegic. Now, at the instance of two insurance companies we must sift through the ashes' of the tragedy.

Monti, Jr., is a member of the Monti family which has operated La Casa Vieja, a noted Mexican restaurant at Tempe, Arizona, for many years. The restaurant’s corporate name was Monti’s La Casa Vieja Restaurant, Inc. Leonard Monti, Sr., obviously was the dominant figure in the operation. It is appropriate to call Monti, Jr., the manager. He “lived-in” at the restaurant and it seems to have been his duty to protect the place against burglars. (He had other duties.)

National Union had issued a policy of public liability insurance covering the company and its officers while acting as such officers. This was a large policy. Western had written a small homeowner’s policy to Monti, Jr., but this excluded liability if he was engaged in a business pursuit at the time of the accident.

The victim wasted little time in suing Monti, Sr., the Casa Vieja Restaurant Company, and Monti, Jr., in an Arizona state court. The theory of the complaint was that Monti, Jr., when he shot, was acting in his executive capacity as an officer of the company.

If he was consciously but negligently protecting the restaurant’s property, the company was liable and Western had no liability on its homeowner’s policy. The exclusion excluded it out.

National Union commenced the defense of all defendants named in the state complaint. The theory of the complaint seemed to require it. (Monti, Jr.’s version to the police on the unfortunate night of the shooting was, “I must have been asleep.” If this were a fact, National Union probably had no liability.)

The victim’s lawyers took the discovery deposition of Monti, Jr. By this time his story had changed to point a finger in the direction of where the greatest insurance coverage was. He now pointed to the shooting as being a conscious tragic mistake while protecting the restaurant company’s interest. If so, National Union was in trouble. The deposition was stopped. National Union recognized a conflict of interest.

Under court supervision, counsel for National Union withdrew from representing Monti, Jr., but remained to represent the restaurant company. At this point, Monti, Jr., went to see the broker who wrote his homeowner’s policy for Western. Soon he was in the hands of Western’s regular defense lawyers and they became Junior’s attorneys of record.

Naturally, in this shift there was some paper work, Monti, Jr., was told by letter from National Union that he should go get lawyers to represent him, but that National Union would pay their fees. Then with the appearance of Western’s attorneys, previously unknown to Junior, he assigned in writing his letter agreement with National Union to Western, not to his new attorneys.

The case went to trial. The jury returned a verdict of $209,000 for the victim against the restaurant company, necessarily on the basis of a conscious act of a company officer protecting the company’s property. This negated the theory that the act was that of a mere homeowner done in his sleep.

So National Union had to pay the sizeable judgment and its own attorney fees. Despite its written undertaking to pay the separate attorney for Junior, it was unhappy and reneged. We suspect it felt (and perhaps rightly so) that Western’s attorneys had done as much to “stick” National as the victim’s attorneys. So Western paid its attorneys who had represented Junior and brought this diversity suit in a United States district court to get from National Union that which National Union had agreed to pay. Upon the basis of affidavits, a motion for summary judgment was granted National Union, denying Western any relief. The district court forthrightly concluded that Western was just taking care of its own interest. But Western insists on its “contract rights”; National Union agreed to pay and it ought to pay.

The position of each excites no sympathy, but we affirm.

It is possible that the district court pulled its trigger too quickly and there was a genuine issue of fact to be resolved, i. e., whose interests were Western’s attorneys, while representing the captive client Monti, really protecting? But Western says it bases its right to recover solely on the assignment of Junior to it of his letter contract with National Union. But that states Western out of court, because if that is it, Western for the moment was indulging in being a broker for lawyers, an illegal thing. Only by admitting that the lawyers of Junior were serving it can it escape the onus of a contract against public policy.

Counsel for both parties here are highly reputable lawyers. But there has been a bumbling that makes them all look worse than they deserve.

We cannot underwrite just how the same object might have been accomplished without a legal shadow coming across it. But one may suggest that Western could have pointed Junior in the direction of its own attorneys. Junior could have employed Western’s attorneys and the attorneys could have relied on National Union’s letter to Junior. Also, there might have been ways that National Union and Western could have contracted between themselves.

But on the basis of the assignment to Western, which hired the attorneys for Junior and paid them, we hold Western cannot recoup what it paid out.

Summary judgment affirmed.

       The Honorable Warren J. Ferguson, United States District Judge for the Central District of California, sitting by designation.

      . Law Offices
      SHIMMEL, HILL, KLEINDIENST & BISHOP
      10th Floor
      111 West Monroe
      Phoenix, Arizona 85003
      Telephone 252-7431
      Area Code 602
      July 11, 1967
      (CERTIFIED MAIL)
      Mr. Leonard F. Monti, Jr.
      Monti’s La Casa Vieja
      3 West First Street
      Tempe, Arizona
      Re: [Plaintiff] v. Monti’s La Casa Vieja Restaurant, Inc., an Arizona corporation ; Leonard F. Monti and Leonard F. Monti, Jr., Maricopa County Superior Court Cause No. 200370.
      Dear Mr. Monti:
      Please be advised that this morning, July 11, 1967, the Court granted the motion of Shimmel, Hill, Kleindienst & Bishop to withdraw as your attorney in defense of the above suit. The court did not, however, grant our motion to stay the matters to be heard on July 13, 1967, at 8:45 A.M. in Division #2, as we have described in our letter of July 5, 1967.
      You are at liberty to employ your own attorney to defend this action on your personal behalf and it is necessary that you do so in order to prevent the possibility of judgment being entered against you in this matter. The National Union Fire Insurance Company will and does by this letter agree to pay you the reasonable cost of defending this suit, including payment of your attorney’s fees.
      National Union Fire Insurance Company will further assist you in selecting an independent attorney, experienced in the defense of civil litigation if you desire them to do so.
      It is to be understood by you, however, that National Union Fire Insurance Company continues to assert its position that it is not and will not be liable for any sum for which you may become obligated to pay under Paragraph One of the Insuring Agreements. It is the position of National Union Fire Insurance Company in this regard that you were not at the time and place [Plaintiff] alleges she was injured, and under the circumstances surrounding the accident, insured under Paragraph Three of the Insuring Agreements of National Union Fire Insurance Company Policy No. CPC 535711.
      May we impress upon you the urgency of obtaining your own counsel before Thursday, July 13, 1967, in order that your own attorney can appear at such scheduled hearings.
      Very truly yours,
      /s/ Richard A. Black
      For Schimmel, Hill, Kleindienst & Bishop
      RAB/blj

      . We conclude that the assignment of Junior’s claim to Western in order that Western could hire attorneys for Junior violated Arizona public policy and thus was void. See A.R.S. § 32-267, subsec. 8; Rules of the Arizona Supreme Court, Rule 29(a) 17 A.R.S. (1955); ABA Canons of Professional Ethics, Canon 35 (in effect at the time of this transaction); ABA formal Opinion No. 198; and the following Opinions of the Committee on Rules of Professional Conduct, State Bar of Arizona: Opinion No. 1 (1954), Opinion No. 17A (1956), Opinion No. 67 (1960), and Opinion No. 294 (1969).

      . The assignment here obviously does not come within the ambit of cases that permit a lawyer to pledge a prospective fee as security for a loan.
      Further, we do not deal with such situations as legal aid or approved group legal services, which on one basis or another are ofttimes legally authorized.


author: HEANEY, Circuit Judge.

text:
    MID-AMERICA INDUSTRIES, INC., a Delaware corporation, et al., Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.
    No. 72-1515.
    United States Court of Appeals, Eighth Circuit.
    Submitted Feb. 15, 1973.
    Decided April 20, 1973.
    Rehearing Denied May 25, 1973.
    Ben L. Paddock, Fort Smith, Ark., for appellee.
    Thomas L. Stapleton, Atty., Tax Div., Dept. of Justice, Washington, D. C., for appellant.
    Before HEANEY and BRIGHT, Circuit Judges, and BENSON, Chief District Judge.

       District of North Dakota, sitting by designation.

   HEANEY, Circuit Judge.

The United States appeals from a decision of the trial court awarding taxpayers a refund of $36,561.04, plus interest, for corporate taxes paid under protest for calendar years 1964-1967. The sole issue on this appeal is whether the taxpayers constituted a “controlled group of corporations” under § 1563 of the Internal Revenue Code of 1954.

The Automotive, Inc. (Automotive), a closely held Delaware corporation, headquartered in Fort Smith, Arkansas, began business as a jobber of automobile parts in 1920. By 1957, it had a number of branch offices located in various cities throughout Arkansas, Oklahoma, and Texas. At that time, Automotive’s management decided to divide this structure into a number of smaller subsidiary corporations, each of which would own and operate stores located within a particular trade area. These subsidiaries were organized as of the beginning of the year 1958. Employees of Automotive, the various subsidiaries and two other firms historically associated with Automotive, were allowed to purchase between twenty-one and twenty-three percent of the shares of the single class of common stock issued by each of the subsidiaries, with Automotive owning the remainder.

Simultaneously with the establishment of the subsidiaries, Automotive caused another corporation, Automotive Employees Securities Corporation (Securities Corporation), to be formed. The sole purpose of Securities Corporation was to maintain a market for the stock in the subsidiaries held by the employees. To facilitate this purpose, the stock of each subsidiary was issued subject to conditions restricting its transfer. The conditions required that notice of all proposed stock transfers be given to the respective subsidiary corporations, and that for thirty days after said notice, Securities Corporation had the sole option to purchase the stock at its most current book value. An option in favor of Securities Corporation also arose whenever any stockholder terminated his employment with Automotive or an affiliated firm. Securities Corporation was informed of each notice of proposed sale and employment termination by the parent or the subsidiaries, and it consistently purchased the subsidiaries’ stock when its option arose and resold the stock to other employees.

In preparing their tax returns for the tax years at issue, Automotive and each of the subsidiaries availed themselves of the exemption from the corporate surtax which is provided to most corporations for their first $25,000 of income. See, 26 U.S.C. § 11(d). The returns were audited by the Internal Revenue Service. The I.R.S. determined that Automotive and its subsidiaries constituted a “controlled group of corporations” as that term is used in §§ 1561-1563 of the Code. Consistent with that determination, the Commissioner allowed this group of corporations (the taxpayers) only one surtax exemption among them, and disallowed the other fifteen surtax exemptions. Following notice of the Commissioner’s action, the taxpayers elected, under § 1562 of the Code, to retain their surtax exemptions, and to pay an additional six percent tax rate on the first $25,000 of income of each corporation. Thereafter, they filed this suit below to recover the additional six percent paid, contending that they were not members of a controlled group as defined by the statute.

Section 1563(a)(1) of the Code defines the term “controlled group of corporations” to include a parent corporation and its subsidiaries in which the parent owns eighty percent or more of •the outstanding stock. However, in computing the parent’s percentage ownership of subsidiaries in which it holds an interest in excess of fifty percent, certain outstanding stock is excluded by § 1563(c)(2)(A) from consideration. Because of this exclusion, a parent may be deemed to own in excess of eighty percent even though it holds legal title to a lesser percentage of the outstanding stock, if the employee-owned stock of the subsidiary is:

“ * * * subject to conditions [1] which run in favor of such parent (or subsidiary) corporation and [2] which substantially restrict or limit the employee’s right * * * to dispose of such stock * * *."

26 U.S.C. § 1563(c)(2)(A)(iii).

The parties agree that the second requirement of the excluding provision is met. They also agree that employees of the respective subsidiaries owned a sufficient portion of the stock of each subsidiary. so that if the conditions were found to “run in favor of” Automotive, then Automotive is properly deemed to have owned in excess of eighty percent of each subsidiary’s stock. Thus, the only question before us is whether or not the conditions ran in favor of Automotive. The trial court held that they did not. We disagree.

The phrase “run in favor of” is receptive of a number of different interpretations. We are convinced that Congress intended that the phrase should be interpreted far more broadly. Moreover, we believe that the restrictions ran in favor of Automotive because, as a practical matter, it had not given up its control over the disposition of the subsidiaries’ stock.

We agree with the trial court’s finding that the conditions on their face ran in favor of Securities Corporation. However, we are convinced that, in reality, they ran in favor of Automotive because Automotive had ultimate control over the disposition of the stock of the subsidiary corporations. Automotive at all times owned between seventy-seven and seventy-nine percent of the stock in each of the subsidiaries. Moreover, because of its large interest in each subsidiary, Automotive maintained dominant control over the subsidiaries and could, at its discretion, alter the conditions restricting the transfer of the subsidiaries’ stock. See, Superior Beverage Co. of Marysville, Inc., 58 T.C. 918, 928-931 (1972). For example, if Automotive at anytime became displeased with the manner in which Securities Corporation was conducting the purchase and sale of the stock of the subsidiary corporations, it could, by exercising its control over the subsidiaries, alter the conditions so that they no longer purported to run in favor of Securities Corporation. Such an action would take away Securities Corporation’s sole function and reduce it to inactivity. Automotive could then cause the conditions to directly “run in favor of” a more amenable third party, or itself. Similarly, in the event that an employee of either Automotive, or one of its subsidiaries, exercised his stock ownership rights contrary to the interest and desires of Automotive, Automotive could cause the termination of his employment and thereby force the sale of his stock. The advantage of Automotive’s power was evident. Through it, Automotive could maintain ultimate control over the disposition of stock in the subsidiaries which is technically owned by outsiders. It was able to indirectly maintain the same control as can a parent corporation in whose favor transfer restrictions run directly. The latter arrangement is clearly denied full benefit of the multiple surtax exemptions and tax reduction by §§ 1561-1563 of the Code, and we are of the view that the former indirect arrangement is as well.

The reports of the House of Representatives Ways and Means Committee and the Senate Finance Committee relating to the Revenue Act of 1964, of which §§ 1561-1563 are a part, emphasize that the purpose of the surtax exemption was to aid small, rather than medium and large, businesses. H.R. Rep. No. 749, 88th Cong., 1st Sess. 116-118 (1963); S.Rep. No. 830, 88th Cong., 2d Sess. 148-150 (1964), U.S.Code Cong. & Admin.News, p. 1313. Moreover, these reports state that Congress intended by these specific sections to provide additional aid to small businesses by reducing the tax on the first $25,000 of income from thirty to twenty-two percent, and that it desired that these benefits should be limited “in the cases where a parent corporation owns or controls one or more other corporations * * *." (Emphasis added.) H.R.Rep. No. 749, supra at 117; S.Rep. No. 830, supra at 149, U.S.Code Cong. & Admin.News, p. 1426.

We believe that in order to effect Congress’s intent, in interpreting the phrase “run in favor of,” courts must go beyond a mere formal ownership test and closely examine the question of control. The following observations of the Tax Court in Barton Naphtha Co., 56 T.C. 107, 116-117 (1971), lend support to this position:

“The exclusion of * * * [restricted employee-owned] stock is no more than a special refinement upon the 80 percent common ownership requirement designed to assure the denial of multiple surtax exemptions where the common shareholder owns less than 80 percent of the stock but enjoys the prohibited degree of control as a result of restrictions applicable to stock held by outsiders.
* * * * * *
“ * * In emphasizing such attributes of ownership as voting and dividend rights or the shareholder’s ability to realize full market value on the sale of stock, petitioners ignore the critical requirement that the restrictions relate to the right of disposition, rather than incidents of ownership, of employees * * *. It is plainly the use of substantial restrictions as a method of retaining the reins of corporate control which is the sole concern of the statute.” (Emphasis added.)

There is no doubt in our minds but that Automotive had maintained the “prohibited degree of control,” and that the conditions indirectly ran in favor of Automotive. Section 1563(c)(2)(A) (iii) does not require that the conditions run directly in favor of the parent or subsidiary, but instead conditions which indirectly favor either the parent or subsidiary should also cause the stock to be excluded. See, Treas.Reg. § 1.1563-2(b)(2)(iii) (1965). A contrary position would, in our view, put form over substance. Nor does it matter that the corporate structure involved predated the enactment of §§ 1561-1563. Congress specifically stated that this statute would have the effect of denying the full benefits of the tax reduction to “medium and large enterprises which use, or might choose to use, the multiple corporate form of organization.” (Emphasis added.) H.R.Rep. No. 749, supra at 117; S.Rep. No. 830, supra at 149, U.S.Code Cong. & Admin.News, p. 1426. Accordingly, we hold that the taxpayers were members of a “controlled group of corporations,” and that they were subject to the additional six percent tax imposed by § 1562 on multiple corporations which elect to retain separate surtax exemptions.

Reversed.

      . All statutory citations herein are to the Internal Revenue Code of 1954, 26 U.S.C.

      . The facts are more fully set out in the published Memorandum Opinion of the trial court. Mid-America Industries, Inc. v. United States, 341 F.Supp. 597 (W.D.Ark.1972).

      . These firms are The Automotive, Inc. of Tulsa and Motive Parts Warehouse, Inc. The ownership of these two other firms during the pertinent tax years was different from that of Automotive, but they were offshoots of Automotive. In 1969, Automotive and Motive Parts Warehouse, Inc., were reunited through a reorganization in which Mid-America Industries, Inc., became the parent.

      . The incorporators of Securities Corporation were: C. R. Warner, Jr., Heartsill Ragon and John Safford. Automotive for many years was a client of the law firm in which Mr. Warner and Mr. Ragon were partners, and of the accounting firm in which Mr. Safford was a partner. These three men remained the sole shareholders, officers and directors of Securities Corporation until the end of 1966, when they sold their stock to a group of fourteen men who were employed by either Automotive or Motive Parts Warehouse, Inc.

      . The conditions to which the stock was subject are as follows:
      “No transfer of common stock of this Corporation shall be valid, whether by sale, gift, devise, inheritance, operation of law, levy or legal process, foreclosure of lien, or otherwise, until thirty (30) days after the Company, through its Secretary, shall have had written notice by certified mail of the proposed transfer, and the number of shares proposed to be transferred. During such thirty-day period the Automotive Employees Securities Corporation, an Arkansas corporation, shall have the sole option to buy said shares at the book value as shown by the books of the corporation at the last preceding annual audit, less dividends paid thereafter. Such option may be exercised by the Automotive Employees ‘Securities Corporation’ by written notice to the last known address of the shareholder of record within the option period. This option in favor of Automotive Employees Securities Corporation shall also arise whenever the owner of any share, or shares, of common stock ceases to be an active employee for whatever cause — resignation, retirement, discharge, transfer or otherwise, of the one of the following companies by which he is employed at the time he acquires said stock:
      [There follows a list naming all the Subsidiaries. ]
      said option to be exercised as set forth above within thirty (30) days of the termination of said active employment. Payment for such shares shall be in cash upon surrender of the certificate or certificates for said shares, properly endorsed.
      “If the aforesaid option shall not be exercised by optionee within the prescribed time, then said share or shares may be retained or transferred to any person whomsoever, provided, however, that failure of optionee to purchase any share or shares of common stock under its option, and the sale or transfer to any other person, or the retention of said shares by an ex-employee, shall not as to the future sale or transfer of said shares or share, or of any share or shares issued in lieu thereof, discharge any such share or shares of common stock from any of the restrictions herein contained; it being the intent that all restrictions hereby imposed upon the sale or transfer of shares of common stock shall apply to all such shares, whensoever, howsoever or by whomsoever acquired in the hands of all holders or owners, whether original shareholders or subsequent purchasers or transferees and whether acquired through the voluntary or involuntary act of a shareholder, or by operation of law, and whether a part of the first authorized issue or of any subsequent or increased issue. In the event that any share, or shares, shall be transferred or retained in violation of this restriction, then payment of all dividends shall be suspended upon said share of stock forthwith.”

      . Act, of February, 26,1964, Pub.L.No. 88-272, § 235, 78 Stat. 19,116-125.

      . The committees also stated:
      “While your committee recognizes the advantages of use of multiple corporations, your committee believes, as it has in the past, that, where corporations owned and controlled by the same interests engage in different businesses in the same area or conduct the same type business in different geographical locales, there are legitimate business reasons for use of separate corporations and, therefore, the separate corporations should generally be recognized as separate taxpayers, retaining the benefit of use of multiple surtax exemptions. However, your committee does not intend to eneonrage the formation of these multiple corporations and therefore proposes to apply higher tax rates [ — the six percent additional income tax rate on the first $25,000 income of each corporation — ] to corporations which are members of an affiliated group of corporations. * * * ” (Emphasis added.)
      H.R.Rep.No.749, supra at 118; S.Rep.No.830, supra at 149-150, U.S.Code Cong. & Admin.News, p. 1426.