text:
    Jesse CAPUCHINO, Petitioner-Appellant, v. W. J. ESTELLE, Director, Texas Department of Corrections, Respondent-Appellee.
    No. 74-1689.
    United States Court of Appeals, Fifth Circuit.
    Jan. 13, 1975.
    Rehearing and Rehearing En Banc Denied Feb. 14, 1975.

      William M. Schur, Ft. Worth, Tex. (Court-appointed), for petitioner-appellant.
    John L. Hill, Atty. Gen., Andrew W. Carruthers, Mark Perlmutter, Asst. Attys. Gen., Austin, Tex., for respondentappellee.
    Before BELL, AINSWORTH and RO-NEY, Circuit Judges.
   PER CURIAM:

Jesse Capuchino was convicted in 1964 by a Texas state jury of possession of narcotics paraphernalia. With two prior non-capital felonies used for enhancement, he received a life sentence pursuant to then Article 63 of the Vernon’s Ann. Texas Penal Code (repealed January 1, 1974), now V.T.C.A., Penal Code § 12.42(d). The conviction was affirmed on direct appeal, Capuchino v. State, 389 S.W.2d 296 (Tex.Crim.App.1965), cert. denied, 386 U.S. 928, 87 S.Ct. 869, 17 L.Ed.2d 800 (1967). Here Capuchino appeals from a judgment of the district court denying his petition for habeas corpus relief. He presents essentially four points for review:

(1) that the evidence relevant to his guilt or innocence was obtained during an illegal search and seizure;
(2) that Article 63 of the Texas Penal Code is unconstitutional as written;
(3) that a life sentence is cruel and unusual punishment under the facts of this case; and
(4) that he was denied a fair trial when his jury was informed of prior convictions unrelated to the offense with which he was charged.

None of these points warrants reversal of the district court’s decision.

Illegal Search

In Gil v. Beto, 440 F.2d 666 (5th Cir. 1971), we upheld the precise search challenged by Capuchino. Rudolf Gil was with Capuchino at the time of the search and arrest. A comparison of this record with the record in Gil v. Beto reveals that the facts developed at trial in both cases are substantially the same. The same picture of the search scene was in evidence in both cases. By settled principles of stare decisis we must decide this issue adversely to Capuchino.

Constitutionality of Article 63

Article 63 of the Texas Penal Code has been upheld as constitutional in the face of challenges that it establishes unreasonable or arbitrary classifications in violation of the equal protection clause of the Fourteenth Amendment, Ohler v. Beto, 356 F.2d 879 (5th Cir. 1966), and that it violates the double jeopardy clause of the federal constitution. Woodard v. Beto, 447 F.2d 103 (5th Cir.), cert. denied, 404 U.S. 957, 92 S.Ct. 325, 30 L.Ed.2d 275 (1971). Relying on Robinson v. California, 370 U.S. 660, 82 S.Ct. 1417, 8 L.Ed.2d 758 (1962), Capuchino contends for the first time that the statute is unconstitutional because it imposes an enhanced or differentiated penalty because of his status as a recidivist. The Robinson ease concerned a statute making an alleged involuntary status, narcotic addiction a criminal offense. The theory of that case does not support an argument against a statute which enhances the punishment of a multiple offender against laws which require voluntariness for their breach.

Cruel and Unusual Punishment

Arguing the invalidity of the statute as applied to him, Capuchino asserts that in 1973 the Texas legislature enacted a new “Controlled Substance Act” which substantially modified the punishment scheme of the old Uniform Narcotic Drug Act. Under this new Act, possession of a hypodermic needle does not constitute an offense, either felony or misdemeanor, unless the needle has on it at least a trace of heroin or some other controlled substance. Vernon’s Ann.Civ.St. Art. 4476-15, § 4.07(a). Even if traces of heroin are found on a hypodermic needle under the new statute, the offense committed is a mere class A misdemeanor punishable by a maximum sentence of a $2,000 fine plus a jail term not to exceed one year. Vernon’s Ann.Civ.St. Art. 4476-15, § 4.07(b). Thus, if convicted under the law in effect today, Capuchino could not have been subject to an enhanced sentence. He would have served no more than one year in jail. Under these circumstances he makes an appealing argument that the recidivist life sentence he received is so excessive and disproportionate as to constitute cruel and unusual punishment. The law, however, supports the sentence.

In Rogers v. United States, 304 F.2d 520, 521 (5th Cir. 1962), we stated that the test for cruel and unusual punishment is whether the punishment “is so greatly disproportionate to the offense committed as to be completely arbitrary and shocking to the sense of justice.” Although the Texas legislature has since seen fit to modify its laws relating to narcotics, the punishment meted to Capuchino, a man previously convicted of assault with intent to murder, burglary, and a federal narcotic violation, was not “arbitrary and shocking to the sense of justice” at the time it was given. Appellant has referred us to the case of Hart v. Coiner, 483 F.2d 136 (4th Cir. 1973), cert. denied, 415 U.S. 983, 94 S.Ct. 1577, 39 L.Ed.2d 881 (1974). There a recidivist mandatory life sentence was held to be cruel and unusual punishment where a man convicted of perjuring himself at the murder trial of his son had his sentence enhanced by previous convictions for writing a check on insufficient funds for $50 and for interstate transportation of forged checks worth $140. We find the circumstances of that case readily distinguishable from this one and do not feel that it calls for a different result from the one we reach here.

Evidence of Prior Convictions

Both the Supreme Court and this Court have held in recidivist or habitual offender proceedings that there is no denial of due process when the jury which decides guilt is informed by the indictment and the evidence that defendant has been convicted of prior offenses. Spencer v. Texas, 385 U.S. 554, 87 S.Ct. 648, 17 L.Ed.2d 606 (1966); Breen v. Beto, 341 F.2d 96 (5th Cir. 1965), cert. denied, 386 U.S. 926, 87 S.Ct. 867, 17 L.Ed.2d 798 (1967).

Affirmed.


source: Caselaw Access Project

author: PER CURIAM.

license: Public Domain

text:
    Anna DiMATTINA, formerly known as Anna Zampitella, Petitioner, v. IMMIGRATION AND NATURALIZATION SERVICE, Respondent.
    No. 73-2016.
    United States Court of Appeals, Third Circuit.
    Dec. 17, 1974.
    Certiorari Denied Dec. 23, 1974.
    See 95 S.Ct. 678.
    James J. Orlow, Philadelphia, Pa., for petitioner.
    John L. Murphy, Chief, Government Regulations Section, Crim. Div., Robert P. Trout, DeWitt R. Dent, Attys., Dept, of Justice, Washington, D. C., for respondent.
    Before STALEY, GIBBONS and WEIS, Circuit Judges.
   OPINION OF THE COURT

PER CURIAM.

On June 17, 1974 this court entered a judgment order denying a petition for review of a deportation order of the Board of Immigration Appeals and providing that costs should be taxed against the petitioner. A bill of costs submitted by respondent includes the cost of printing its brief. Petitioner has moved to amend the judgment to vacate the taxation of costs against her on the separate grounds that (1) 28 U.S.C. § 2412 is inapplicable because a petition for review under 8 U.S.C. § 1105a is not a civil proceeding, and (2) that 8 U.S.C. § 1105a(a)(8) requires only typewritten briefs and she should not have to pay respondent’s printing bill.

Deportation has consistently been classified as civil. Fong Yue Ting v. United States, 149 U.S. 698, 729-730, 13 S.Ct. 1016, 37 L.Ed. 905 (1893). See also Harisiades v. Shaughnessy, 342 U.S. 580, 594-595, 72 S.Ct. 512, 96 L.Ed. 586 (1952); Zakonaite v. Wolf, 226 U.S. 272, 275, 33 S.Ct. 31, 57 L.Ed. 218 (1912); Santelises v. Immigration and Naturalization Service, 491 F.2d 1254, 1255 (2d Cir.), cert. denied, 417 U.S. 968, 94 S.Ct. 3171, 41 L.Ed.2d 1139 (1974). Thus the petition for review falls within 28 U.S.C. § 2412 and costs may be awarded in favor of the Immigration and Naturalization Service.

Petitioner’s second contention is based upon 8 U.S.C. § 1105a(a)(8) which provides:

“(8) it shall not be necessary to print the record or any part thereof, or the briefs, and the court shall review the proceedings on a typewritten record and on typewritten briefs

This statute does not say that typewritten briefs are mandatory. The Federal Rules of Appellate Procedure provide for both types of brief with no preference for either. Fed.R.App.P. Rules 28(g) and 39(c). The only limitation with respect to cost of reproduction is that the costs taxed shall be “at rates not higher than those generally charged for such work in the area where the clerk’s office is located.” Fed.R.App.P. Rule 39(c). Our problem is to reconcile somewhat inconsistent statutory provisions. We conclude that the specific reference in 28 U.S.C. § 2412, expressing an intention that deportation review proceedings shall proceed expeditiously and inexpensively, controls over the more general provisions of Fed.R.App.P. Rules 28(g) and 39(c), and that the Clerk may not in a proceeding under 8 U.S.C. § 1105a tax as costs the expense of printing briefs or appendices. Petitioner’s motion will be granted to such extent.


author: PER CURIAM:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Gerald Martin FOSTER, Defendant-Appellant.
    No. 74-2647
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    Jan. 13, 1975.

      Oscar J. Pena, Laredo, Tex. (Court-appointed), for defendant-appellant.
    Anthony J. P. Farris, U. S. Atty., Edward B. McDonough, Jr., James R. Gough, Asst. U. S. Attys., Houston, Tex., for plaintiff-appellee.
    Before WISDOM, GOLDBERG and GEE, Circuit Judges.

      Rule 18, 5 Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty Co. of New York et al., 5 Cir. 1970, 431 F.2d 409, Part I.

   PER CURIAM:

Appellant Foster was convicted of conspiring to possess marijuana with the intent to distribute that substance, in violation of 21 U.S.C. §§ 841(a)(1) and 846. Foster contends that the search of a van belonging to and driven by a co-conspirator, one Brunson, was illegal and that his own conviction must be reversed on that basis. Unfortunately for appellant, he was not present at the search, he was not charged with an offense which includes, as an essential element of the offense charged, possession of the seized evidence at the time of the search and seizure, and he did not have a cognizable proprietary interest in either the premises searched or the evidence seized. In a word, Foster has no standing to contest the search of Brunson’s vehicle. Brown v. United States, 1973, 411 U.S. 223, 93 S.Ct. 1565, 36 L.Ed.2d 208; United States v. Hunt, 5 Cir. 1974, 505 F.2d 931; United States v. Johnson, 5 Cir. 1972, 456 F.2d 295. Foster also argues that there was insufficient evidence to support the jury verdict, that he should have been tried in his home state of Indiana instead of in Texas, that the Government wrongfully introduced prior crime evidence at trial, and that the Government and the trial judge conducted themselves in such a manner as to deny appellant a fair trial. There is no merit in any of these claims. The conviction is

Affirmed.


author: BELL, Circuit Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Willis P. DOBBS, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Bryan T. DOBBS, Defendant-Appellant.
    Nos. 74-1024, 74-1025.
    United States Court of Appeals, Fifth Circuit.
    Jan. 9, 1975.

      Foy R. Devine, Robert G. Fierer, Atlanta, Ga., for defendants-appellants.
    John W. Stokes, Jr., U. S. Atty., William P. Gaffney, Asst. U. S. Atty., Atlanta, Ga., for plaintiff-appellee.
    Before BELL, AINSWORTH and RO-NEY, Circuit Judges.
   BELL, Circuit Judge:

Appellants, father and son, engaged in preparing income tax returns for others, were convicted of willfully and knowingly aiding and assisting in the fraudulent preparation of tax returns by overstating deductions. The violations were charged in 24 separate counts against Willis Dobbs and 11 against Bryan Dobbs. Willis Dobbs was convicted on two counts; Bryan Dobbs was convicted on one count. This appeal followed.

Appellants first contend that the trial court erred in allowing the government to dismiss charges against them after the commencement of a preliminary hearing. (They were indicted by a grand jury 12 days later.) The gravamen of their contention in this respect is that subsequent to arrest, a federal right to a preliminary hearing attaches unless an indictment intervenes before the date set for a hearing. They hoped to show through 26 witnesses called to testify at the preliminary hearing that probable cause was lacking as to each count. We hold that no substantive rights were lost as a result of the procedure employed here. A dismissal for lack of probable cause at the preliminary hearing would not have prevented the subsequent indictment. Cf. United States v. Coley, 5 Cir., 1971, 441 F.2d 1299, 1301.

Appellants attempted to introduce into evidence a survey covertly conducted by a secretary to appellants’ counsel. The survey consisted of questions propounded to three IRS employees who assisted the public in preparing tax returns. The inquiry was as to deductions similar to some of those upon which the convictions of appellants were based. The contention was that the survey would establish that the IRS personnel gave the same advice as appellants regarding tax return preparation. The court did not err in excluding the result of the survey. The circumstances of the survey did not coincide with the underlying basis of the conduct charged to appellants; and the hypothetical questions posed, as well as the answers thereto, were attenuated at best. The trial judge has wide discretion in determining questions as to the relevance and materiality of evidence. United States v. Garr, 5 Cir., 1972, 461 F.2d 487, 489-490. The gist of the charges against appellants were adding to the deductions submitted to them by taxpayers and not in types of deductions or the formulae therefor.

The trial court’s exclusion of defendants’ proffer of evidence exhibiting routine, noncriminal conduct as to some tax returns was correct. They were not charged with a scheme but with separate instances of criminal conduct and evidence of noncriminal conduct to negate the inference of criminal conduct is generally irrelevant. United States v. Null, 4 Cir., 1969, 415 F.2d 1178, 1181; United States v. Stoehr, 3 Cir., 1952, 196 F.2d 276, 282; Herzog v. United States, 9 Cir., 1955, 226 F.2d 561, 565.

Appellants also urge that they were unduly restricted in the cross-examination of government witnesses— clients of appellants — concerning the IRS civil audits of their tax returns. Appellants were, of course, entitled to thorough and sifting cross-examination of government witnesses. See Grant v. United States, 5 Cir., 1966, 368 F.2d 658. They were given wide latitude in exploring the credibility of the witnesses with respect to fear engendered by the civil investigations and thus motive and bias. Again, we do not find error.

Lastly, there is no merit in the contention of Willis Dobbs that Count 17, based on Jewell T. Smith’s testimony, was not supported by sufficient evidence. Appellants’ counsel severely undermined the direct testimony of this witness on cross-examination but the question was still for the jury.-

Affirmed.

      . The facts do not warrant consideration of the questions, implicit in appellants’ argument, whether appellants were denied procedural due process or the effective assistance of counsel through the prosecutorial device of charging defendants in a large number of counts, most of which lacked substantial merit. Here 15 of the 24 counts against Willis Dobbs were of such substance as to warrant submission to the jury; six of 11 as against Bryan Dobbs.


text:
    Robert Finley HILL, Jr., Plaintiff-Appellant, v. UNITED STATES of America, Respondent-Appellee.
    No. 74-2876
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    Jan. 13, 1975.
    Charles J. Pisano, New Orleans, La. (Court-appointed), for plaintiff-appellant.
    Gerald J. Gallinghouse, U. S. Atty., Harry R. Hull, Asst. U. S. Atty., New Orleans, La., for respondent-appellee.
    Before WISDOM, GOLDBERG and GEE, Circuit Judges.

       Rule 18, 5th Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty Co. of New York et al., 5th Cir., 1970, 431 F.2d 409, Part I.

   PER CURIAM:

In this § 2255 matter petitioner contends that three invalid prior convictions were considered by the court in assessing a maximum prison term. At an evidentiary hearing held by a magistrate on May 30, 1974, only one of these convictions was found to be invalid; and a recommendation was made that, if the court considered that conviction in imposing sentence, petitioner be resentenced. The court adopted this recommendation, vacated the original sentence, and imposed an identical one without further reference in its judgment to the prior convictions.

It was beyond the magistrate’s powers to conduct the evidentiary hearing in connection with the determination that only one of the prior convictions was invalid. Nor can we view it as insignificant; the court followed his recommendations. On remand, the court should follow the procedure outlined in Lipscomb v. Clark, 468 F.2d 1321, 1323 syl. 3 (5th Cir. 1974).

Vacated and remanded.

      . Wingo v. Wedding, 418 U.S. 461, 94 S.Ct. 2842, 41 L.Ed.2d 879 (1974).


author: IRVING R. KAUFMAN, Chief Judge: J. JOSEPH SMITH, Circuit Judge

text:
    Nathan and Joanne T. CUMMINGS, Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Appellant.
    No. 54, Docket 74-1406.
    United States Court of Appeals, Second Circuit.
    Argued Oct. 11, 1974.
    Decided Oct. 31, 1974.
    Certiorari Denied April 14, 1975.
    See 95 S.Ct. 1571.
    Louis A. Bradbury, Atty., Tax Div., Dept, of Justice, Washington, D.C. (Scott P. Crampton and Meyer Rothwacks, Washington, D.C., on the brief), for appellant.
    Glen H. Kanwit, Chicago, 111. (Hopkins, Sutter, Owen, Mulroy & Davis, Chicago, 111.), for appellees.
    Before KAUFMAN, Chief Judge, and SMITH and TIMBERS, Circuit Judges.
   IRVING R. KAUFMAN, Chief Judge:

The interplay of two distinct statutory schemes often gives rise to some engrossing legal questions. In this ease, we are called upon to consider the relationship of the Internal Revenue Code and the securities laws — in particular, the proper tax treatment of a payment made in satisfaction of an apparent liability under § 16(b) of the Securities Exchange Act. We find that the policies of both statutes support the determination of the Commissioner of Internal Revenue that § 16(b) repayments should be treated as long term capital losses, and reverse the decision of the Tax Court allowing a deduction as an ordinary and necessary business expense.

I.

Unlike those in many tax cases, the facts here are relatively straightforward. Nathan Cummings, chairman of the board and chief executive officer of Consolidated Food Corporation, was offered a large bloc of stock in Metro-Goldwyn-Mayer, Inc. [MGM] during 1959. He was told that the company was experiencing management problems, and that if he would become a director, three members of the board who were involved in controversy would resign. Cummings then purchased 51,500 shares of MGM stock for something more than $1,030,000, and was elected to the board after the three directors resigned.

The price of MGM stock rose, and on April 17, 1961, Cummings sold 3400 shares for a total of $227,648.28. His profit was properly reported as a long term capital gain on the 1961 tax return which he and his wife jointly filed. Between September 18 and October 2, 1961, however, Cummings bought back 3000 shares for $146,960.89. This purchase, within six months after the sale, brought him within the likely purview of § 16(b) of the Securities Exchange Act, making the difference between the sale price and the purchase price, $53,870.81, recoverable by MGM. Cummings was apparently unaware of his liability until soon after MGM, in preparation for its 1962 annual meeting, submitted its proxy material to the Securities and Exchange Commission. On January 16, 1962, the Division of Corporate Finance of the SEC informed Joseph A. Macchia, secretary of MGM, that if Cummings had realized profits from his sale and purchase, that fact would have to be noted in the proxy statement. Macchia promptly communicated this to Cummings and although Cummings believed that any violation, if it did occur, was inadvertent, he nevertheless decided to remit the $53,870.81 to MGM. Cummings testified that the purpose of the payment was to prevent any delay in the issuance of MGM’s proxy statement and also to protect his business reputation, which might be injured by a disclosure of his potential liability because of an alleged securities laws violation. The Tax Court gave credence to Cummings’s version. In any event, MGM issued its proxy statement dated January 18, 1962, without reference to any potential liability outstanding from Cummings.

Cummings and his wife treated his repayment as a deduction against ordinary income on their 1962 income tax return, but the Commissioner disallowed this and assessed a deficiency of $45,790.18, maintaining that long term capital loss treatment was appropriate. The Tax Court, 60 T.C. 91 (1973) held that the payment was properly characterized as an ordinary and necessary business expense, incurred to protect Cummings’s business reputation. After the Court of Appeals for the 7th Circuit reversed a similar Tax Court decision, James E. Anderson, 480 F.2d 1304 (7th Cir. 1973), rev’g, 56 T.C. 1370 (1971), the Tax Court reconsidered the case. It affirmed its previous holding, although six judges dissented and one abstained.

II.

We are not required in this case to write on a tabula rasa, for the Courts of Appeals of two circuits have already rejected the Tax Court’s treatment of § 16(b) repayments as ordinary and necessary business expenses. Anderson v. C.I.R., 480 F.2d 1304 (7th Cir. 1973), rev’g, 56 T.C. 1370 (1971); Mitchell v. C.I.R., 428 F.2d 259 (6th Cir. 1970), cert. denied, 401 U.S. 909, 91 S.Ct. 868, 27 L.Ed.2d 807 (1971), rev’g, 52 T.C. 170 (1969). Our starting point, as was theirs, is Arrowsmith v. C.I.R., 344 U.S. 6, 73 S.Ct. 71, 97 L.Ed. 6 (1952), which held that an expenditure made for a business purpose(will not be treated as an ordinary and necessary business expense if it is sufficiently related to an earlier capital gains transaction. Since the Commissioner relies heavily on Arrowsmith, brief recitation of the facts of that case would aid in the resolution of the legal issue here presented. Two individuals liquidated a corporation which they owned, and paid taxes on their profits at the long term capital gains rate. After the lapse of four years, a judgment was entered against the liquidated corporation which the individuals, as transferees of the corporate assets, were then required to pay. The Supreme Court disallowed deduction of the payment as a business expense, because, the Court reasoned, had the liability been satisfied in the year the corporation was liquidated, the payment would have been applied to reduce the taxpayers’ long term capital gain. The payment was thus to be treated as a long term capital loss when it was made four years later.

The Arrowsmith rule was explained and applied in United States v. Skelly Oil Co., 394 U.S. 678, 89 S.Ct. 1379, 22 L.Ed. 642 (1969). There, a corporation repaid money which it had recorded in an earlier taxable year as income reduced by the 27½% oil depletion allowance. The Court held that the corporation could not deduct 100% of the repayment as a business expense since only 72½% of the income had been subject to taxation. Arrowsmith was held to forbid the windfall which would result if income taxed at a special lower rate when received were deductible on repayment at a different and more favorable rate.

The nexus between the § 16(b) repayment and the earlier capital gains is apparent. The repayment “had its genesis” in the earlier sale, see Mitchell, 428 F.2d at 261, which was a prerequisite for § 16(b) liability. As the Anderson court noted, 480 F.2d at 1307, “The amount of liability is calculated by subtracting from the sales proceeds the lowest purchase price within the six-month period” so the repayment may properly be viewed as a return of a portion of the sales proceeds or as an adjustment of the sales price. In addition, the capital gain appears to include the profits from the sale and purchase. Cummings experienced a gain in the economic sense when he repurchased the stock at a lower price than that at which it was sold. But the only gain which he recognized for tax purposes was the capital gain on his original sale. Thus, for tax purposes, his payment of $53,870.81 profit from the sale and purchase may appropriately be regarded as an adjustment to the amount of that capital gain.

It is apparent, also, that Cummings would obtain a windfall like that condemned in Skelly Oil if we were to treat his § 16(b) repayment as an ordinary and necessary business expense. Both before and after the events at issue he owned the 3000 shares of MGM. In the interim, however, he consummated a sale which resulted in the recognition of a gain and a subsequent repurchase within six months — the combination of which violated § 16(b). The § 16(b) repayment was designed, so far as practicable, to restore the status quo prior to the offending sale and purchase. We would be remiss, therefore, if we allowed Cummings a windfall which would flow from permitting his gain to be taxed at a lower capital gains rate and his repayment — designed to erase the improper § 16(b) gains — to be deducted at the more favorable ordinary income rate.

The result we reach is supported not only by a proper interpretation of the tax laws, but by the policy of § 16(b) as well. Our longstanding interpretation of that provision, noted over 30 years ago, is that “ . . . the statute was intended to be thoroughgoing, to squeeze all possible profits out of stock transactions” within its purview, Smolowe v. Delendo Corp., 136 F.2d 231, 239 (2d Cir.), cert. denied, 320 U.S. 751, 64 S.Ct. 56, 88 L.Ed. 446 (1943) in order to remove the incentive for short-term trading by corporate insiders. It would defeat this policy if insiders could reap a tax advantage by enjoying the low capital gains rate on realized gains while obtaining a deduction against ordinary income when they surrendered those gains in satisfaction of a § 16(b) liability. In this case, for example, Cummings would benefit by $45,790.18 if he were permitted to deduct his repayment as a business expense, although (assuming that he elected the 25% alternate capital gains tax) he paid taxes of only $13,467.70 when he reported the comparable gain in 1961. Thus, he seeks to profit by $32,322.48 as a result of his § 16(b) transaction. We agree with the Seventh Circuit that, “Without good reason, we are unwilling to interpret the Internal Revenue Code so as to allow this anomalous result which severely and directly frustrates the purpose of Section 16(b).” Anderson, 480 F.2d at 1308, citing Shelly Oil, supra, and Tank Truck Rentals, Inc. v. C.I.R., 356 U.S. 30, 78 S.Ct. 507, 2 L.Ed.2d 562 (1958).

Cummings maintains, however, that the statutory policy is irrelevant to this proceeding because he was never adjudicated to be in violation of § 16(b). See 61 T.C. at 3. In particular, he notes two possible defenses — that the MGM board had the discretion not to demand repayment of Cummings’s insider profits, and that the “opportunity for speculative abuse,” described as the keystone of § 16(b) liability in Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 93 S.Ct. 1736, 36 L.Ed.2d 503 (1973), was lacking because the decision to repurchase was made by Cummings’s personal financial assistant.

Even a fledgling securities lawyer would recognize that these “defenses” border on the frivolous. There is no evidence that MGM would not have demanded payment. Moreover, the failure of a board of directors to demand repayment of § 16(b) profits scarcely extinguishes an insider’s liability, which may readily be collected in a shareholder derivative action that is inevitable when stock is as widely held as MGM’s. Nor is Cummings’s reliance on Kern County plausible. Suffice to say that that case involved an “unorthodox” transaction, see 411 U.S. at 593, 93 S.Ct. 1736, in which a company making a takeover bid was forced to exchange its stock when its target engineered a successful defensive merger, a situation hardly comparable to the garden variety sale and purchase which was executed by Cummings.

In any event, we need not conclusively determine that Cummings violated or intended to violate § 16(b) in order to deny him an ordinary and necessary business expense deduction. Section 16(b) is a placid inlet in the chaotic sea of securities law — a statute designed for easy application. The elements of the cause of action are simple, and information about possible violations is widely disseminated. Thus, no proof need be forthcoming that the insider intended at the time he sold to repurchase the securities within six months, or that inside information was actually used. 15 U.S.C. § 78p(b) (1970). To simplify enforcement, corporate insiders are required to make periodic reports to the Commission of transactions in their company’s stock. 15 U.S.C. § 78p(a) (1970). These reports, summarized monthly, are distributed by the Government Printing Office to about 11,500 subscribers, 39 S.E.C.Ann.Rep. 38 (1973) and seen by many more. Potential § 16(b) liabilities must be described in the company’s annual proxy statement, 17 C.F.R. § 240.14a-101, Item 7(e), Instruction 4 (1974). One can hardly imagine a scheme better designed to insure the almost automatic enforcement of a statute, and we decline to subvert it by refusing to squeeze all profits from inside transactions unless liability has been established by a court adjudication.

III.

In viewing Cummings’s § 16(b) repayment as a long term capital loss rather than a business expense, we do not ignore a third alternative. As Judge Drennan suggested in his dissenting opinion in the Tax Court, the repayment may be viewed as linked to the repurchase, and treated for tax purposes as an addition to the basis of the purchased stock. The effective net result is that the repayment would be treated as a long term capital loss in the year that the repurchased stock is finally sold. It may be that such treatment would in an appropriate case better effectuate the policy of § 16(b) than that which we adopt today. But, by deferring the tax benefit of a payment currently made, the addition to basis would exact a penalty beyond that specified by Congress from an insider whose violation might be only inadvertent. Since neither party urges adoption of Judge Drennan’s formula, however, we decline to resolve the issue.

Reversed.

J. JOSEPH SMITH, Circuit Judge

(concurring in the result):

I concur in the reversal of the judgment, but respectfully differ from the rationale adopted.

I do not agree that this case is controlled by Arrowsmith v. C.I.R., 344 U.S. 6, 73 S.Ct. 71, 97 L.Ed. 6 (1952) and United States v. Skelly Oil Co., 394 U.S. 678, 89 S.Ct. 1379, 22 L.Ed. 642 (1969). Both of those cases held that, when income is taxed at a reduced rate when received, it cannot be deducted at a more favorable rate if for some reason it has to be repaid. At the heart of those cases is the repayment of an amount which had previously been included in income. Indeed, in Skelly Oil, the Court was doing nothing more than applying a statute, 26 U.S.C. § 1341, which by its terms is limited to the repayment of an “item included in gross income in the year of receipt.” 394 U.S. at 683, 89 S.Ct. at 1382.

This case, involving a probable sale and repurchase violation of § 16(b), simply does not present that kind of situation. The mere fact that there could be no liability under § 16(b) were there not a sale which (in this case) resulted in taxable income is irrelevant, because the money paid out by Cummings to MGM cannot be treated as an item previously included in income. The amount of income on the sale (determined by the difference between the original purchase price and the sale price) has no bearing on the calculation of the insider’s profit (determined, roughly, by the difference between the sale price and the repurchase price). In fact, it is perfectly clear that there can be an insider’s profit even if the sale resulted in a loss, because the sale assumes relevance for tax purposes only when linked with the original purchase and the repurchase will not have tax significance until a subsequent sale occurs. The sale and repurchase, which result in § 16(b) liability, do not constitute a transaction with any tax significance whatever, and the insider’s profit is not income for tax purposes, regardless of whether it may be considered, as my brother Kaufman considers it, as “gain in the economic sense.” Ante at 451.

I also disagree with the characterization of the payment to MGM as an adjustment to the sale price of the stock. I cannot subscribe to the view that “the capital gain appears to include the profits from the sale and purchase,” ante at 451, because the transaction resulting in capital gain terminated with the sale, and the purchase was the initiation of a new transaction that should be considered entirely separate and independent for tax purposes. In any event, transactions are to be treated as they actually occurred, not in accord with what might have occurred. C.I.R. v. National Alfalfa Dehydrating and Milling Co., 417 U.S. 134, 94 S.Ct. 2129, 40 L.Ed.2d 717 (1974).

This reasoning applies, of course, only to sale and repurchase violations of § 16(b). The tax significance of a purchase and sale violation would be entirely different. In that case, the insider’s profit obviously should be treated as the repayment of an amount included in income. But the fact that one kind of violation of § 16(b) leads to Arrowsmith/Skelly Oil treatment does not require that all kinds of violations of § 16(b) be so treated. The income tax provisions of the Internal Revenue Code are not to be construed in pari materia with the estate and gift tax provisions, Farid-es-Sultaneh v. Commissioner, 160 F.2d 812, 814-815 (2d Cir. 1947); there is no more reason why they must be construed in pari materia with the 1934 Securities and Exchange Act.

Nor do I think Tank Truck Rentals, Inc. v. C. I. R., 356 U.S. 30, 78 S.Ct. 507, 2 L.Ed.2d 562 (1958) relevant to the litigation before us. That decision — which is to be applied only in a “sharply limited and carefully defined category” of cases, Commissioner v. Tellier, 383 U.S. 687, 694, 86 S.Ct. 1118, 16 L.Ed.2d 185 (1966) — involved the payment of punitive fines assessed after an adjudication of liability. Since the payment here— made in contemplation of potential liability — was remedial and not punitive, Feder v. Martin Marietta Corp.; 406 F.2d 260, 266 (2d Cir. 1969); Adler v. Klawans, 267 F.2d 840, 844 (2d Cir. 1959), this is not an appropriate case for applying a policy designed to avoid the dilution of punishment. See Tellier, supra, 383 U.S., at 694, 86 S.Ct. 1118.

For these reasons, I would not hold that the ordinary loss deduction should be disallowed and treated instead as a capital loss deduction. These transactions should more properly be treated in accordance with the opinion of Judge Drennen below: For tax purposes, the proper treatment would be to add to the repurchase price as the basis for the new shares the amount paid over, and to recognize neither capital gain or loss nor ordinary business expense until the tax year in which the shares are sold.

      . In pertinent part, Section 16(b) provides:
      For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer (other than an exempted security) within any period of less than six months, unless such security was acquired in good faitli in connection with a debt previously contracted, shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such beneficial owner, director, or officer in entering into such transaction of holding the security purchased or of not repurchasing the security sold for a period exceeding six months. * * *. 15 U.S.C. § 78p (b) (1970).

      . See 17 C.F.R. § 240-14a-101, Item 7(e), Instruction 4 (1974).

      . On February 1, 1962, Cummings learned of a coloration which had not required repayment of § 16(b) profits by a director who had inadvertently violated the statute. Accordingly, on February 6, he wrote Macchia to request refund of his $53,870.81 payment. On advice of its independent counsel, MGM never made the refund.

      . Long term capital losses must first be charged against long term capital gains, Int. Rev.Code of 1954 [Code] §§ 1201(b), 1222(5), and then charged against short term capital gains. They are deductible from ordinary income only to the extent of $1000 a year, Code § 1211(b), and may be carried over the five subsequent years. Code § 1212.

      . The Tax Court found an additional business purpose in Cummings’s desire to prevent delay in tire issuance of MGM’s proxy statement.

      . The appeal in Charles I. Brown, T.C.Mem. 1973-275, 32 CCH T.C.Mem. ¶ 32,258 (1973), a case similar to this one, is pending before the 10th Circuit. Laurence M. Marks, 27 T.C. 464 (1956), the first of the line of Tax Court decisions, was never appealed.

      . We are cognizant, of course, of Judge Campbell’s dissenting opinion in Anderson, 480 F.2d at 1309. We believe that our discussion thus far responds to his view that only by improper resort to general equitable considerations, or a desire to bring about statutory symmetry, or the anxiety to impleinent the enforcement of § 16(b), can one read the tax laws as not permitting § 16(b) repayments to be deductible as business expenses. In our view, the rationale of Arrowsitvith condemns windfalls no less than does the appropriate interpretation of § 16(b).

      . Since Cummings already had large capital loss carryovers, the amount of the deficiency is equal to his full tax benefit.

      . Nor are we persuaded by Cummings’s contention that the statutory purpose is not undercut because favorable business expense treatment would be permitted only if an insider is able to establish a business purpose in making the payment. Virtually every insider who repays his § 16(b) profits will convincingly claim that he did so to protect his business reputation.

      . A similar result was urged in Lokken, Tax Significance of Payments in Satisfaction of Liabilities Arising Under Section 16(b) of the Securities Exchange Act of 1934, 4 Ga.L.Rev. 298 (1970).

      . If the stock is sold at a loss, the increase in basis would increase the amount of that capital loss. If the stock is sold at a gain, the increase in basis would reduce that gain —the effective equivalent of a capital loss.

      . Indeed, similar considerations were the apparent rationale for Laurence M. Marks, 27 T.C. 464 (1956), which departed from the earlier Tax Court rule that § 16(b) repayments would be denied any deduction. Robert Lehman, 25 T.C. 629 (1955); William F. Davis, Jr., 17 T.C. 549 (1951).

      . Nor need we decide whether Code § 1341 is available to provide relief to the taxpayei whose § 16(b) repayment and resulting long term capital loss occur in a year subsequent to that in which he recognized the capital gain. See Lokken, supra note 10, at 315-320.


text:
    UNITED STATES of America, Appellee, v. Raul ORTEGA-ALVAREZ et al., Appellants.
    Nos. 139, 142-144, 164, 165, 188, Dockets 74-1388, 74-1647, 74-1523, 74-1588, 74-1844, 74-1849 and 74-1964.
    United States Court of Appeals, Second Circuit.
    Argued Oct. 3, 1974.
    Decided Nov. 8, 1974.
    Certiorari Denied April 14, 1975.
    See 95 S.Ct. 1559, 1560,1561.

      Shirah Neiman, Asst. U. S. Atty. (Paul J. Curran, U. S. Atty. S.D.N.Y., on the brief; Daniel J. Beller, Alan R. Kaufman, John D. Gordan, III, Asst. U. S. Attys., of counsel), for appellee.
    Max B. Kogen, Miami, Fla., for appellant Ortega-Alvarez.
    Arnold E. Wallach, New York City (Hermena Perlmutter, New York City, on the brief), for appellant Busigo-Cifre.
    Joseph I. Stone, New York City (Supplementary brief submitted by appellant Figueroa), for appellant Figueroa.
    Gino P. Negretti, Miami, Fla., for appellant Alvarez.
    Hudson H. Reid, New York City, for appellant Calaña.
    Howard L. Jacobs, New York City, for appellants Infiesta and Del Cristo.
    Before HAYS, ANDERSON and MANSFIELD, Circuit Judges.
   PER CURIAM:

Ortega-Alvarez, Calaña, Infiesta, Cifre, Del Cristo, Alvarez, and Figueroa appeal from judgments of conviction for conspiracy to violate 21 U.S.C. §§ 173-174 and for substantive violations of those sections entered in the United States District Court for the Southern District of New York after a jury trial. We affirm.

This is another in a long line of cases involving major conspiracies to distribute narcotics. By March 1970 appellant Ortega-Alvarez had received 45 kilograms of heroin from a 60 kilogram shipment which had been smuggled into the United States from South America. With the help of Calaña and others, he prepared the heroin for distribution and then sold it to a long list of customers. Each of the other five appellants was charged with buying at least one kilogram of heroin from the 45 kilogram supply. Apparently basing its conclusions largely on the testimony of Rodriguez and Gonzalez, two conspirators who were not defendants in the case, the jury found all seven of the appellants guilty of the conspiracy count against them, and it found all but Cifre guilty of the substantive charges as well.

The appellant buyers claim that their conspiracy convictions should be reversed because the evidence did not show a single, far-flung conspiracy as charged in the indictment, but, if anything, a series of smaller, self-contained conspiracies. In light of our numerous decisions in narcotics conspiracy cases, this argument is totally unpersuasive.

It is firmly settled in this Circuit that when large quantities of heroin are being distributed, each major buyer must be presumed to know that he is part of a wide-ranging venture, the success of which depends on the performances of others whose identities he may not even know. United States v. Mallah, 503 F.2d 971, 983-4 (2d Cir. 1974); United States v. Arroyo, 494 F.2d 1316, 1319 (2d Cir. 1974), petition for cert. filed, 43 U.S.L.W. 3005 (April 22, 1974) (No. 1574); United States v. Bynum, 485 F.2d 490, 496-496 (2d Cir. 1973), vacated on other grounds, 417 U.S. 903, 94 S.Ct. 2598, 41 L.Ed.2d 209 (1974). The jury in this case had sufficient evidence to find that there was a single conspiracy, even though several of the members participated directly in relatively few of the transactions involved.

The jury also had sufficient evidence, despite some inconsistencies in the testimony of the government’s witnesses, to find that each of the appellants was a member of the conspiracy and was guilty of the substantive charges of which he was convicted.

Appellant Cifre was the only defendant convicted on the conspiracy count but acquitted of the substantive charges against him. He argues that the jury verdict as to him was inconsistent and that his conspiracy conviction should therefore be reversed. Appellant’s argument was rejected by this court in United States v. Zane, 495 F.2d 683, 690 (2d Cir. 1974), petition for cert. filed, 43 U.S.L.W. 3015 (June 14, 1974) (No. 1878), and we reject it again.

Appellant Ortega - Alvarez claims that his prosecution was barred by the double jeopardy clause of the Fifth Amendment. His argument is based on his 1971 conviction in the Southern District of Florida for selling narcotics not in their original stamped package in violation of 26 U.S.C. §§ 4704(a) and 7237. While it is true that the 1971 conviction arose out of a sale which was also part of the present conspiracy, there is no basis for a claim of double jeopardy. Multiple violations of the narcotics laws arising out of a single transaction may be tried separately. United States v. Nathan, 476 F.2d 456, 458-459 (2d Cir.), cert. denied, 414 U.S. 823, 94 S.Ct. 171, 38 L.Ed.2d 56 (1973). The only requirement is that the elements of each offense be significantly distinct from those of the other offenses. See United States v. Cioffi, 487 F.2d 492, 496-498 (2d Cir. 1973), cert. denied sub nom. Ciuzio v. United States, 416 U.S. 995, 94 S.Ct. 2410, 40 L.Ed.2d 774 (1974); United States v. Sabella, 272 F.2d 206, 210-211 (2d Cir. 1959). A charge of a wide-ranging narcotics conspiracy consisting of numerous transactions is certainly sufficiently distinct from a charge of a substantive violation based on a single sale. United States v. Cioffi, supra at 497 n. 6, 498. Ortega-Alvarez’ prosecution for conspiracy was therefore in no way barred by his prior conviction for selling narcotics not in their original stamped package.

Ortega-Alvarez also argues that since he was originally indicted in Florida for conspiracy and agreed to plead guilty to a lessor charge with the understanding that the conspiracy charge would be dropped, the government is now prohibited by the due process clause from prosecuting him for that same conspiracy. However, there is nothing in the record which establishes that such an understanding was in fact reached. The rule is that when an indictment is dismissed before trial upon the government’s motion under Rule 48(a) of the Federal Rules of Criminal Procedure, the dismissal is without prejudice to the government’s right to rein-dict for the same offense, unless the contrary is expressly stated. DeMarrias v. United States, 487 F.2d 19, 21 (8th Cir. 1973), cert. denied, 415 U.S. 980, 94 S.Ct. 1570, 39 L.Ed.2d 877 (1974); United States v. Davis, 487 F.2d 112, 118 (5th Cir. 1973), cert. denied, 415 U.S. 981, 94 S.Ct. 1573, 39 L.Ed.2d 878 (1974); United States v. Chase, 372 F.2d 453, 463-464 (4th Cir.), cert. denied, 387 U.S. 907, 87 S.Ct. 1688, 18 L.Ed.2d 626 (1967).

Appellant Infiesta claims that his conviction should be reversed on the ground that he was denied the effective assistance of counsel at trial. He argues that his trial counsel failed to consult with him sufficiently before the trial and failed to cross-examine government witnesses properly at the trial. Under our decisions, a conviction may be reversed for ineffective assistance of counsel only when the representation is so inadequate “as to shock the conscience of the Court and make the proceedings a farce and mockery of justice.” United States v. Wight, 176 F.2d 376, 379 (2d Cir. 1949), cert. denied, 338 U.S. 950, 70 S.Ct. 478, 94 L.Ed. 586 (1950); see United States ex rel. Walker v. Henderson, 492 F.2d 1311, 1312 (2d Cir. 1974); United States v. Currier, 405 F.2d 1039, 1043 (2d Cir.), cert. denied, 395 U.S. 914, 89 S.Ct. 1761, 23 L.Ed.2d 223 (1969). Under that stringent standard, which we have recently reaffirmed, United States v. Yanishefsky, 500 F.2d 1327, 1333, n. 2 (2d Cir. 1974), Infiesta’s claim clearly lacks merit.

Appellant Figueroa claims that his prosecution violated the Fifth Amendment because he was singled out for prosecution while other, more important figures in the conspiracy were not indicted. However, under United States v. Berrios, 501 F.2d 1207, 1211 (2d Cir. 1974), a defendant claiming a discriminatory prosecution must show not only that others similarly situated were not prosecuted but also that the decision to prosecute him was based on impermissible considerations such as race or religion. See United States v. Bland, 153 U.S.App.D.C. 254, 472 F.2d 1329, 1336 (1972), cert. denied, 412 U.S. 909, 93 S.Ct. 2294, 36 L.Ed.2d 975 (1973); cf. Oyler v. Boles, 368 U.S. 448, 456, 82 S.Ct. 501, 7 L.Ed.2d 446 (1962). Figueroa has failed even to allege such invidious discrimination in this case.

Figueroa also asks for reversal on the ground that the district court should have granted his motion for severance. We find no basis for concluding that the defendants suffered “substantial prejudice” as a result of being tried jointly. The district court’s determination should therefore not be disturbed on review. United States v. Fantuzzi, 463 F.2d 683, 687 (2d Cir. 1972).

Appellants have raised several other points which we have considered but which do not merit further discussion.

Affirmed.

      . Sections 173 and 174 were repealed, effective May 1, 1971, by § 1101(a)(2) of the Comprehensive Drug Abuse Prevention and Control Act of 1970, Pub.L. 91-513, 84 Stat. 1291, but under § 1103 of the Act, they continue to control violations which occurred prior to the effective date.

      . These sections were repealed by § 1101(b)(3)(A) and § 1101(b)(4)(A) of the Comprehensive Drug Abuse Prevention and Control Act of 1970, Pub.L. 91-513, 84 Stat. 1292. See note 1 supra.

      . Ortega-Alvarez’ present conviction for substantive violations does not raise a problem of double jeopardy since the transactions on which it was based were not the same as the transaction involved in the Florida conviction.


text:
    Bernard G. McCUSKER, Petitioner-Appellant, v. Hoyt C. CUPP, Superintendent, Oregon State Penitentiary, Respondent-Appellee.
    No. 73-3057.
    United States Court of Appeals, Ninth Circuit.
    Oct. 15, 1974.
    Howard R. Lonergan, Portland, Or., for petitioner-appellant.
    Scott McAlister, Asst. Atty. Gen., Salem, Or., for respondent-appellee.
    Before TRASK and SNEED, Circuit Judges, and GRAY, District Judge.

       Honorable William P. Gray, United States District Judge, Central District of California, sitting by designation.

   OPINION

PER CURIAM:

Bernard G. McCusker appeals from a denial of his petition for a writ of habeas corpus. The petition raised questions of law and of fact which the parties stipulated required an evidentiary hearing.

The matter was referred to a United States magistrate who proceeded to conduct an evidentiary hearing and thereafter filed a Recommendation that the petition be denied. It was dated June 29, 1973. To it was attached an Order signed by the District Court on July 6, 1973, as follows:

“After reviewing the file and record in this case, I approve the above recommendation.
“It is Ordered that the petition is denied.” C.T. at 12.

Thereafter a motion to vacate the Recommendation and Order was filed which raised the principal question at issue here, i. e., whether this hearing had to be before a United States judge. The motion was denied.

Preliminarily, we consider the argument of the Government that by the failure of the petitioner to object to the hearing before the magistrate prior to the date upon which it took place and by participating therein, he has waived his right to insist upon an evidentiary hearing before a United States judge. We do not accept the Government’s position. If the authority of the magistrate to hold such hearings is invalid because it is inconsistent with the laws of the United States under 28 U.S.C. § 636(b), then there was no jurisdiction to act for that purpose. The parties may not by conduct waive a lack of jurisdiction or consent to jurisdiction which does not in fact exist. Mitchell v. Maurer, 293 U.S. 237, 244, 55 S.Ct. 162, 79 L.Ed. 338 (1934); Louisville & Nashville R. R. v. Mottley, 211 U.S. 149, 152, 29 S.Ct. 42, 53 L.Ed. 126 (1908); see C. Wright, Federal Courts, § 7 (1970).

Since this case was decided below, the Supreme Court has considered the authority of a Federal magistrate to hold evidentiary hearings in habeas corpus cases. Wingo v. Wedding, 418 U.S. 461, 94 S.Ct. 2842, 41 L.Ed.2d 879 (1974). The Court held that the magistrate had no such authority and that evidentiary hearings in habeas corpus cases must be held by a district judge. We therefore reverse and remand for further proceedings in the light of this decision and Wingo v. Wedding.

Reversed and remanded.


author: RUSSELL E. SMITH, District Judge.

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Frank Edward GEGAX, Defendant-Appellant.
    No. 74-1480.
    United States Court of Appeals, Ninth Circuit.
    Nov. 18, 1974.
    James B. Oliver of Cabrera & Oliver, Torrance, Cal., for defendant-appellant.
    V. DeVoe Heaton, U. S. Atty., Las Vegas, Nev., for plaintiff-appellee.
    Before DUNIWAY and CHOY, Circuit Judges, and SMITH, District Judge.

       The Honorable Russell E. Smith, Chief Judge of the United States District Court for the District of Montana, sitting by designation.

   OPINION

RUSSELL E. SMITH, District Judge.

An aircraft crashed on a highway near Tonopah, Nevada, at night. The defendant and about 1300 pounds of marihuana were on it. After unloading some of the marihuana, defendant fled some 20 miles into the desert. He was tracked and apprehended. He was charged with possession in Count I (21 U.S.C. § 841(a)(1)) and importation in Count II (21 U.S.C. §§ 952(a) and 960). He was convicted on Count I, and Count II was dismissed by the court. His defense as to Count I was that he had been forced to do what he did by one' Larson. The defense depended entirely upon defendant’s testimony which, in light of the facts developed, was simply not. credible. Following the verdict defendant’s motion for a new trial was denied.

The claim of misconduct on the part of the prosecutor borders on the frivolous and deserves no discussion.

When arrested defendant was advised that he had a right to remain silent, that anything he said might be used against him, and that he had a right to a lawyer, government-appointed if necessary, before he was questioned. Some 30 minutes later he made statements which were admitted. He was not warned immediately prior to making the statements. The court, after a hearing out of the presence of the jury, found the statements to have been made voluntarily.

A power is vested in the trial court by statute (18 U.S.C. § 3501(b)) to consider all of the circumstances surrounding the giving of a confession (any statement being regarded as a confession) without regarding any as conclusive. Where the only claim is that there was a failure to repeat a warning given 30 minutes earlier it cannot be said that the trial court’s finding of voluntariness is erroneous.

An affidavit executed by one of defendant’s attorneys states that a juror told him that after the case had been submitted and before the verdict she had talked to her husband about a fact in the case. Since affiant had no first-hand knowledge and the existence of the fact depended upon the truth of the juror’s statement, it was hearsay.

There was no showing made as to why affidavits were not obtained from the juror or her husband. No. effort was made to use the subpoena power of the court to bring the juror and her husband in and take their testimony in open court. While affidavits may be used on a motion for new trial, a trial judge may not be held in error for refusing to find in accordance with an affidavit of counsel who has no first-hand knowledge of the matter asserted, at least under the circumstances of this case. See Dirring v. United States, 353 F.2d 519 (1st Cir. 1965); Kleinschmidt v. United States, 146 F.Supp. 253 (D. Mass.1956); Petition of Weltzien, 68 F.Supp. 1000 (S.D.N.Y.1946); Julien v. Barker, 75 Idaho 413, 272 P.2d 718 (1954); State v. James, 70 Wash.2d 624, 424 P.2d 1005 (1967).

The judgment is affirmed.


text:
    UNITED STATES of America, Plaintiff-Appellee, v. WALTER NUGENT ENTERPRISES et al., Defendants-Appellants.
    No. 73-2202.
    United States Court of Appeals, Sixth Circuit.
    Decided Oct. 22, 1974.
    Certiorari Denied March 17, 1975.
    See 95 S.Ct. 1413.

      Walter W. Nugent and Ruth Marie Nugent, pro se.
    Ralph B. Guy, Jr., U. S. Atty., Fred M. Mester, Detroit, Mich., for plaintiffappellee.
    Before PHILLIPS, Chief Judge, and PECK and LIVELY, Circuit Judges.
   PER CURIAM.

This is a pro per appeal by a husband and wife, d/b/a Walter Nugent Enterprises, from a judgment entered upon a jury verdict for $29,316.29 in favor of the United States. The complaint of the United States was filed pursuant to 28 U.S.C. § 1345 and alleged that the defendant-appellants had defaulted on a $25,000 loan from the Small Business Administration. The case has been assigned to this panel pursuant to Rule 3(e), Sixth Circuit Rules.

The appellants’ brief raises numerous issues, some of which are outside the scope of the record. We have carefully considered their brief, their response to the motion of the United States to dismiss and the record as a whole. We conclude that “it is manifest that the questions on which the decision of the cause depends are so unsubstantial as not to need further argument.” Rule 8. Sixth Circuit Rules.

At the trial, the appellants did not deny that they signed the note on which the United States sued or that they received the money in question. Their defense rested on an allegation that a local officer of the Small Business Administration indicated to them that collection on the note would not be attempted, at least until their business became profitable, and this led them to believe that the loan was a grant. Further, the appellants attempted to argue by way of counterclaim at the trial that the United States, through the Small Business Administration and the Food and Drug Administration had conspired with a Detroit bank and others to ruin their business and bankrupt them and thus to prevent them from repaying the note.

Our review of the record convinces us that there is more than sufficient evidence to support the jury’s determination of the appellants’ liability on the note. Further, the District Court correctly ruled that the appellants’ counterclaim was barred. 28 U.S.C. §§ 1346(a)(2), 2680(h), 2671 et seq. The District Court also correctly denied the appellants’ attempt to appeal the dismissal of the counterclaim. Oak Construction Co. v. Huron Cement Co., 475 F.2d 1220 (6th Cir. 1973); Business Communications, Inc. v. Cahners Publishing Co., 420 F.2d 535 (6th Cir. 1969); Libbey-Owens-Ford Glass Co. v. Sylvania Industrial Corp., 154 F.2d 814 (2d Cir.), cert. denied, 328 U.S. 859, 66 S.Ct. 1353, 90 L.Ed. 1630 (1946). The other contentions of the appellants which are relevant to this appeal are equally without merit.

The judgment of the District Court is affirmed.


text:
    In the Matter of Morton SOLOMON et al., Bankrupts-Appellants.
    No. 73-1857.
    United States Court of Appeals, Seventh Circuit.
    Argued Sept. 24, 1974.
    Decided Nov. 20, 1974.
    C. Robert Yellin, Eugene Crane, Allan R. Cohen, Chicago, 111., for bankrupts-appellants.
    Richard S. Weinberg, Arnold J. Karzov, Chicago, 111., for appellee.
    Before SWYGERT, Chief Judge, CUMMINGS, Circuit Judge, and RIVES, Senior Circuit Judge

       Senior Circuit Judge Richard T. Bives of the Fifth Circuit is sitting by designation.

   PER CURIAM.

Bankrupts appeal from the order of the district court affirming the referee’s denial of discharge under § 14(c)(3) of the Bankruptcy Act, 11 U.S.C. § 32(c)(3). Section 14(c)(3) provides:

(c) The court shall grant the discharge unless satisfied that the bankrupt has . . . (3) obtained money or property on credit, or obtained an extension or renewal of credit, by making or publishing or causing to be made or published ' in any manner whatsoever, a materially false statement in writing respecting his financial condition .

There is no issue as to the falsity of the documents submitted; bankrupts seek to avoid the effect of § 14(c)(3) on the dual grounds that the record does not support a finding of creditor reliance upon the written statements submitted and that in any event the objections to discharge were not timely filed. We affirm.

The transaction in question took place on December 10, 1970. Bankrupts on that date obtained a loan from M.L.C. Corporation, Inc., in the amount of three thousand dollars ($3,000.00). The check from M.L.C. was payable to Morton Solomon and Steven Novil d/b/a Trimaway Salon, one of the three business partnerships operated by the bankrupts. The check was endorsed and cashed on the day it was received, December 10, 1970.

As a prerequisite to its extension of credit, and in accordance with its established policy, M.L.C. asked for and received from bankrupts written information including copies of their individual tax returns for 1968 and 1969, copies of the partnership returns for the same years, statements of indebtedness for both individuals as of December 10, 1970 and an income statement and balance sheet for the Trimaway partnership for the ten month period ending October 31, 1970. All of the information submitted was materially and substantially false. The documents were delivered to M.L.C. on December 10, 1970 and on that day Bankrupts also signed an affidavit stating that the loan was obtained for business purposes.

Bankrupts testified that the written financial statements were not given to M.L.C. until after the loan was disbursed, and that prior to the time the cheek was actually received they had made only oral representations to M.L.C. concerning their financial condition. The loan officer who processed bankrupts’ loan testified that the documents were delivered to M.L.C. prior to disbursement and that the written materials were relied upon by M.L.C. in giving final approval for the loan. The referee chose to believe the testimony of the loan officer and specifically found that the disputed materials were delivered prior to disbursement and that M.L.C. relied upon them. We cannot say that this finding was clearly erroneous. Mazer v. United States, 298 F.2d 579 (7th Cir. 1962). Bankrupts had admitted the falsity of their financial statements in proceedings before the referee. No similar evidence existed to impugn the credibility of the loan officer. Further, the testimony of bankrupts as to the exact time of delivery of the documents was less than consistent. It is not our function to resolve the conflicting inferences which might properly be drawn from such testimony. In re Simon, 216 F.2d 339, 341 (7th Cir. 1954).

Bankrupts further argue that even if the record would support a finding that the terms of § 14(c)(3) had been violated, the referee had no power to entertain the objection to discharge. They say that the § 14(c)(3) objection was not filed until after the date originally set by the referee for filing of such objections and a full five months after the first date set for the first meeting of creditors, all in violation of § 14(b)(1) of the Bankruptcy Act, 11 U.S.C. § 32(b)(1). That section provides:

The court shall make an order fixing a time for the filing of objections to the bankrupt’s discharge and a time for the filing of applications pursuant to section 35(c)(2) of this title to determine the dischargeability of debts, which time or times shall be not less than thirty days nor more than ninety days after the first date set for the first meeting of creditors. Notice of such order shall be given to all parties in interest as provided in section 94(b) of this title. The Court may, upon its own motion or, for cause shown, upon motion of any party in interest, extend the time or times for filing such objections or applications,

Regarding the referee’s original order, the record clearly indicates that on May 13, 1971, at the close of the first session of the first meeting of creditors, the time for filing objections was orally extended from June 14, 1971 to the sine die date for the first meeting of creditors. This extension was made in the presence of bankrupts and their attorney. Subsequently a written motion was made to confirm the extension and an order was entered by the referee on June 15, 1971 confirming the extension. The § 14(c)(3) objection was filed on October 7, 1971, well within the extended filing period.

Finally, there is no legal basis for the contention that the ninety day limitation referred to in § 14(b)(1) is mandatory and that the referee was powerless to extend the time for filing beyond that suggested limit as he did here. The section clearly contemplates such an extension either on the court’s own motion or on motion of a party for cause shown. When the referee made the contested extension it was clear that the original date would have effectively precluded a proper examination of bankrupts. At that point it was not clear how extensive the examination would be, and the extension to the sine die date was therefore appropriate. Bankrupts were not surprised in any way either by the extension itself or by the objection. The creditor, M.L.C., had filed an application for a determination of nondischargeability under § 17(a)(2) of the Bankruptcy Act, 11 U.S.C. § 35(a)(2), on June 25, 1971, relying on the same transaction relied upon in the § 14(c)(3) application here in issue. Hearing of the § 17 motion was set for October 14, 1971 and the § 14 application was filed on October 7, 1971, allowing for consolidation of the two nearly identical applications for hearing on the 14th. Under the circumstances this procedure was not only legally permissible, it was eminently fair as well.

The order of the district court is therefore affirmed.


text:
    ALL STATES PLASTIC MANUFACTURING CO., INC., an Illinois corporation, Plaintiff-Appellant, v. WECKESSER COMPANY, INC., an Illinois corporation, DefendantAppellee.
    No. 73-1903.
    United States Court of Appeals, Seventh Circuit.
    Argued Sept. 24, 1974.
    Decided Nov. 19, 1974.
    Leonard S. Knox, Chicago, 111., for plaintiff-appellant.
    Edward C. Threedy, Chicago, 111., for defendant-appellee.

      Before SWYGERT, Chief Judge, CUMMINGS, Circuit Judge, and RIVES, Senior Circuit Judge.

       Senior Circuit Judge Richard T. Rives of the United States Court of Appeals for the Fifth Circuit is sitting by designation.

   PER CURIAM.

Plaintiff All States Plastic Manufacturing Co., Inc. brought suit for infringement of Eberhardt Patent No. 3,484,905. Plaintiff was and is the assignee of all right, title and interest in this patent. Defendant Weckesser Company, Inc., answered by denying infringement and counterclaimed, seeking a declaration that the Eberhardt patent claims are invalid. The district court found for the defendant as to infringement and as to invalidity. We affirm the finding of invalidity and therefore need not consider the infringement issues.

The suit patent discloses a flexible plastic bundle tie of one-piece construction. The tie consists of an elongated strap having a series of teeth on one side extending traversely to the length of the strap and a head structure at one end of the strap. The head structure is pierced by a rectangular opening within which a pawl is mounted on a ledge which extends from one traverse side of the opening to the other. The pawl functions by providing a sharp edge adapted to catch any of the numerous teeth situated on the strap when the strap is passed through the opening and tightened around the bundle to be tied. The pawl is so constructed as to allow the teeth on the strap to pass the catching edge as it is pulled through the opening in the tightening procedure, but not to allow the teeth to pass in the reverse direction without firmly catching and locking on the edge of the pawl.

The essential inventive element claimed by the Eberhardt patent is the configuration of the pawl, which is described as “essentially rhombohederal” in configuration, and the disposition of the pawl on a ledge within the opening which extends fully from one side of the opening to the other. It is contended that this combination provides needed rigidity to avoid slippage caused by partial pivoting of the pawl at or near its base, a characteristic imputed to the prior art by plaintiffs.

The district court held that the structure disclosed in the Eberhardt patent was obvious in light of relevant prior art, some of which was not considered by the patent examiner in granting the patent. We affirm the finding of invalidity on this ground.

The Supreme Court has suggested the following process of analysis in determining the validity of a patent in the face of an assertion of obviousness:

Under § 103, the scope and content of the prior art are to be determined; differences between the prior art and the claims at issue are to be ascertained; and the level of ordinary skill in the pertinent art resolved. Against this background, the obviousness or nonobviousness of the subject matter is determined.
Graham v. John Deere Co., 383 U.S. 1, 17, 86 S.Ct. 684, 694, 15 L.Ed.2d 545 (1966).

The suit patent does not stand up to this test. The prior art is extensive, disclosing several pawl configurations relying on the opposition of one or more edges on the pawl with transverse teeth on the strap element. The pawls disclosed in the prior art are of varying degrees of flexibility. The essential element in the suit patent configuration which distinguishes it from the prior art is the precise geometric limitation of the pawl; it is essentially rhombohederal. This alone is not a significant or inventive difference. In fact, the pawl disclosed in the Bourne Patent No. 3,486,201 is quite the same as the suit patent configuration with the addition of three extra locking teeth. As the district court pointed out, this contemporary development is itself an indication of the fact that the pawl configuration in the Eberhardt claims was obvious to those skilled in the art at the time of filing. Visual examination of the balance of the prior art presented by defendant Weckesser confirms this fact.

The order of the district court finding Eberhardt Patent No. 3,484,905 invalid for obviousness is therefore affirmed.


author: HUFSTEDLER, Circuit Judge:

text:
    RAINBOW VALLEY CITRUS CORP. et al., Appellants, v. FEDERAL CROP INSURANCE CORP., Appellee.
    No. 73-2112.
    United States Court of Appeals, Ninth Circuit.
    Nov. 7, 1974.

      B. Michael Dann (argued), of Treon, Warnicke & Dann, Phoenix, Ariz., for appellants.
    Thomas G. Wilson (argued), Dept, of Justice, Washington, D.C., for appellee.
    Before CHAMBERS and HUFSTEDLER, Circuit Judges, and POWELL, District Judge.

       Honorable Charles L. Powell, Eastern District of Washington sitting by assignment.

   OPINION

HUFSTEDLER, Circuit Judge:

Plaintiffs, who are three citrus growers in the Rainbow Valley area of Maricopa County, Arizona, filed an action challenging a decision by the Federal Crop Insurance Corporation (FCIC) to discontinue citrus insurance in the Rainbow Valley area. The district court granted summary judgment in favor of the defendant. On appeal plaintiffs contend that in discontinuing insurance in Rainbow Valley without giving plaintiffs prior notice or an opportunity to be heard, the FCIC violated (1) the rule-making requirements of the Administrative Procedure Act (5 U.S.C. § 553), or (2) the due process clause of the Fifth Amendment. For the reasons set forth below, we affirm.

The Federal Crop Insurance Act (7 U.S.C. § 1501 et seq.) authorizes the FCIC to enter into contracts for crop insurance and to “limit or refuse insurance in any county or area ... on the basis of the insurance risk involved” (7 U.S.C. § 1508(a)). Cancellation authority is granted to fulfill the Act’s purpose of “improving the economic stability of agriculture through a sound system of crop insurance” (7 U.S.C. § 1502). A crop insurance contract arises when the FCIC accepts an application for insurance on a crop grown in an area that the FCIC has classified as insurable. The contract continues in effect from year to year, but after the first year it may be canceled by either party upon notice duly given on or before August 31 preceding the crop year for which the cancellation is effective (7 C.F.R. § 409.25(11)). Citrus crop years commence on November 1 and end on October 31 the following year; they are designated by the calendar year in which they originate.

Citrus insurance was first offered in the Rainbow Valley area for the crop year 1968, limited to losses caused by frost. Plaintiffs applied for and received crop insurance. Freezes occurred in Rainbow Valley in both the 1968 and 1969 crop years, requiring the FCIC to pay large indemnities to the insureds in that area. On August 12, 1970, the FCIC sent a letter to plaintiffs advising them that Rainbow Valley was being reclassified as an uninsurable area based on the severe losses experienced during the previous two crop years and on the prediction that similar losses were likely to occur in the future. Plaintiffs were not given prior notice nor an opportunity to be heard with respect to the reclassification.

I.

Section 4 of the Administrative Procedure Act (5 U.S.C. § 553) requires, in general, that notice of proposed rule-making be published in the Federal Register and that interested parties be given an opportunity to be heard. Plaintiffs contend and defendant concedes that the decision to reclassify Rainbow Valley was a “rule” within the méaning of section 4. Assuming arguendo that this is so, we nonetheless conclude that the decision was exempted from any rule-making requirements by subsection 4(a)(2), which provides that section 4 shall not apply to “a matter relating to . public property, loans, grants, benefits, or contracts.”

The FCIC’s decision to reclassify Rainbow Valley relates directly to its crop insurance contracts and thus falls squarely within the public contracts exception. This conclusion is supported not only by the plain language of section 4(a)(2), but by scholarly commentary as well. Moreover, while we have been unable to discover any case directly in point, the reasoning of at least two recent circuit decisions supports the result we reach here (Brown v. Housing Authority of City of Milwaukee (7th Cir. 1972) 471 F.2d 63; Housing Auth. of Omaha, Neb. v. United States Housing Auth. (8th Cir. 1972) 468 F.2d l).

The practical necessity for the public contracts exception is apparent. It would be altogether unreasonable to require the various agencies of government to publish notice in the Federal Register and to hold hearings each and every time they entered into, rescinded, or canceled a. government contract; the burden in time and expense would be extraordinary. Plaintiffs’ reliance on the Administrative Procedure Act is misplaced.

II.

Plaintiffs’ alternative contention is that the FCIC’s failure to give them prior notice or an opportunity to be heard denied them due process of law. At the outset we note that if the FCIC’s decision constitutes rule-making, then the short and simple answer to plaintiffs is that no process was due. Again, however, we need not decide whether the decision constitutes rule-making, for assuming arguendo that it does not, plaintiffs’ due process argument still must fail.

The due process clause, in its procedural as opposed to its substantive aspect, guarantees plaintiffs that their liberty and property interests will not be invaded by the government except insofar as they are given an opportunity to challenge the purported justification (legal, factual, or both) of the invasion. Thus, to make out a prima facie claim that they have been denied due process, plaintiffs must establish two elements: (1) that their liberty or property interests have been invaded by the government without an opportunity to challenge that invasion, and (2) that the purported justification for the invasion is at least plausibly disputable (otherwise an opportunity to challenge that justification would be an empty formality). (See Geneva Towers Tenants Organization v. Federal Mortgage Investors (9th Cir. 1974) 504 F.2d 483 (Hufstedler, J., dissenting).) In this case plaintiffs have established neither element.

In Board of Regents v. Roth (1972) 408 U.S. 564, 92 S.Ct. 2701, 33 L.Ed.2d 548, the Supreme Court described the kind of property interests protected by the due process clause:

“To have a property interest in a benefit, a person clearly must have more than an abstract need or desire for it. He must have more than a unilateral expectation of it. He must, instead, have a legitimate claim of entitlement to it.” (408 U.S. at 577, 92 S.Ct. at 2709.)

Plaintiffs have no “legitimate claim of entitlement.” A property interest in citrus insurance can arise from the insurance contract or from the Federal Crop Insurance Act. The contract provided that after the first year either party could cancel the contract by giving written notice .prior to August 31. Plaintiffs cannot argue that the contract furnishes them with a claim of entitlement, because by the very terms of the contract, the contract ceases to be legally effective in any fashion after either party has duly canceled it. (Cf. Arnett v. Kennedy (1974) 416 U.S. 134, 180, 94 S.Ct. 1633, 40 L.Ed.2d 15.)

The Federal Crop Insurance Act does not create a system of statutory benefits; rather, it authorizes the FCIC to make contracts under certain circumstances. Further, the Act explicitly authorizes the FCIC to “limit or refuse insurance in any county or area . on the basis of the insurance risk involved” (7 U.S.C. § 1508(a)). By way of elucidating the FCIC’s statutory authority to “limit or refuse insurance,” the Committee on Agriculture of the House of Representatives reported:

“Under circumstances where a loss is imminent or it is impossible to determine the risk or where insurance experience has been so unfavorable as to preclude the possibility of a sound insurance program, the Corporation would be authorized to refuse insurance.” H.R.Rep. No. 1592, 78th Cong., 2d Sess. (1944).

No property interest of plaintiffs under the Act was invaded. To the contrary, whatever plausible entitlement plaintiff might have had under the Act was subject to a statutory duty on the part of the FCIC to provide “a sound insurance program” (id.) and to cancel insurance where the unfavorable nature of the risk involved required it. In reclassifying Rainbow Valley, the FCIC was merely obeying its statutory duty.

Finally, plaintiffs have been unable to show us how the factual justification for the FCIC action was plausibly disputable. They could not have successfully quarreled with the weather or with the heavy losses suffered if they had had a hearing. Weather information supported the decision as did FCIC’s loss experience. In the crop year 1970, the first year after cancellation, Rainbow Valley sustained another serious freeze, a fact suggesting that FCIC had done its homework.

Affirmed.

      . "The ‘contracts’ exemption clearly has a very wide scope. In addition to General Services Administration rul-making relating to contracts for the procurement of land, goods, and services, and to construction contracts of all kinds, the exemption applies, as do all of the other (a)(2) exemptions, to reulemaldng of that sort by every federal agency. ... It also extends to regulation making for Department of Agriculture programs such as the . . . Crop Insurance Program ...” Bonfield, "Public Participation in Federal Rulemaking Relating to Public Property, Loans, Grants, Benefits or Contracts,” 118 U.Pa.L.Rev. 540, 568-69 (1970).

      . Brown and Housing Auth. of Omaha involved challenges to IIUD regulations requiring local housing authorities to institute grievance procedures for their tenants; the regulations were promulgated without compliance with the rule-making requirements of section 4. In each action the court concluded that the regulations, as supplements to the Annual Contribution Contract between HUD and the local housing authority, effectuated “'the government’s stewardship over public housing projects which are purchased with public funds” (471 F.2d at 68; 468 F.2d at 9) and so represented a “proprietary” matter within the public contracts exception of section 4. If the government’s “stewardship over public housing projects” — hardly akin to a private, profit-making enterprise —is a proprietary matter within the public contracts exception, then the insurance contract of a gov. rnment corporation which has been directed to operate on a sound business basis clearly comes with the section 4(a)(2) exemption.

      . See, e. g., Joint Anti-Fascist Refugee Comm. v. McGrath (1951) 341 U.S. 123, 167, 71 S.Ct. 624, 95 L.Ed. 817 (Frankfurter, J., concurring); Willapoint Oysters, Inc. v. Ewing (9th Oir. 1949) 174 F.2d 676, 694; Webb v. State Univ. of New York (N.D.N.Y.1954) 125 F.Supp. 910, 912 (A. Hand, C.J.).

      . “Property interests, of course, are not created by the Constitution. Rather,- they are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law — rules or understandings that secure certain benefits and that support claims of entitlement to those benefits.” (Board of Regents v. Roth, supra, 408 U.S. at 577, 92 S.Ct. at 2709.)