author: TIMBERS, Circuit Judge:

text:
    Abraham COHEN and Esther Friedlander, Co-Executors of the Last Will of Raphael Cohen, Deceased, Plaintiffs-Appellants, v. FRANCHARD CORPORATION et al., Defendants-Appellees, and Joseph E. Low et al., Defendants.
    No. 359, Docket 72-1724.
    United States Court of Appeals, Second Circuit.
    Argued Jan. 17, 1973.
    Decided April 11, 1973.

      Irving Bizar, New York City (Ira Jay Sands, Barbara P. Sugarman and De-mov, Morris, Levin & Shein, New York City, on the brief), for plaintiffs-appellants.
    Roy L. Reardon, New York City (Peter J. Schlesinger and Simpson, Thacher & Bartlett, New York City, on the brief), for defendant-appellee Franehard Corp.
    Irving Parker, New York City (I. Michael Bayda and Jacobs, Persinger & Parker, New York City, on the brief), for defendants-appellees Louis A. Siegel and Seymour Young.
    Before FRIENDLY, Chief Judge, and OAKES and TIMBERS, Circuit Judges.
   TIMBERS, Circuit Judge:

This is a striking example of a case that never should have been claimed for jury trial, as plaintiffs’ counsel did. That, coupled with what appears to have been a lack of preparation in addition to visibly inept trial conduct on the part of plaintiffs’ counsel, is about all that distinguishes this from what otherwise would be an uncomplicated appeal.

We cannot emphasize too strongly our disapproval of the dubious judgment of counsel in claiming for jury trial a case involving such issues as “scienter” and “reliance” under the antifraud provisions of the federal securities laws. It is one thing to try such cases before our district judges who have become knowledgeable and experienced in dealing with such difficult problems. But it is quite another thing to expect a jury to comprehend such issues, even assuming an utterly perfect charge.

Plaintiffs, representing a class of purchasers of shares in a limited partnership, appeal from a judgment entered on a jury verdict in the Southern District of New York, Lloyd F. MacMahon, District Judge, in favor of defendants Franchard Corporation, Louis A. Siegel and Seymour Young on the issue of liability in a class action brought to recover damages for alleged violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1970), of Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (1972), and of Section 352 of the N.Y. General Business Law (McKinney 1968).

The chief issue raised on appeal is the propriety of the trial judge's charge to the jury. Subordinate issues are raised with respect to the judge’s conduct of the trial.

We affirm.

I.

EVENTS LEADING TO INSTANT LITIGATION

Louis Gliekman is a well known real estate syndicator. He was responsible for the creation of the many Gliekman enterprises and was founder and first president of the Association of Real Estate Syndicators, Inc. Although not named as a defendant in the instant action, he was involved in the syndicate which is at the center of this action.

Franchard Corporation (Franchard) is a New York corporation. It was organized in 1960 for the purpose of taking over the ownership and operation of many properties previously owned and operated by entities in the Gliekman organization, as well as real estate syndicates formed by the Gliekman organization. It was known as the Gliekman Corporation until 1963. The takeover by Franchard was accomplished by the various Gliekman enterprises exchanging their holdings and assets for stock in Franchard. Additional Franchard stock was sold to the public. Gliekman himself became a principal stockholder, president, and director of Franchard.

Wedgwood House Associates (Associates) is a limited partnership syndicate organized under New York law to acquire ownership of two New York City properties — Wedgwood House, a residential apartment building on Fifth Avenue, and land on 34th Street upon which was to be built Warren House, another apartment building. Associates also was to build Warren House.

Gliekman Corporation of Nevada (Venada) is a Nevada corporation wholly owned by Gliekman. It became the net lessee of both Wedgwood and Warren Houses.

Louis A. Siegel and Seymour Young, together with Gliekman, were the general partners in Associates. Siegel and Young also were senior vice president and vice president, respectively, directors and shareholders of Franchard. They also were officers and directors of Vena-da.

In October 1960, Gliekman conceived the idea of syndicating the purchase of Wedgwood House and Warren House. At that time Wedgwood House had almost been completed. The construction of Warren House had not yet begun, the land on which it was to be built not even having been cleared of existing structures. Venada entered into a contract for the purchase of Wedgwood House and the land on which Warren House was to be built. A limited partnership, Associates, was then formed. See N.Y. Partnership Law, Art. 8, § 90 et seq. (McKinney 1948). It consisted of three general partners — Glickman, Siegel, and Young — and an original limited partner, Joseph E. Low. Glickman subscribed to 17 general partnership units, Siegel and Young each subscribed to 1% general partnership units, and Low subscribed to one limited partnership unit. Each unit represented a capital contribution of $5,000. Thus, the total capital contribution of Glickman, Siegel, Young and Low was $105,000.

In order to raise the additional $6,645,000 necessary to assume the Ven-ada purchase contract, to construct the buildings, and to pay all expenses connected with the acquisition and formation of Associates itself, Associates offered to the public units and half-units of limited partnership interests at $5,000 and $2,500 per unit, respectively. The general partners, together with various experts such as architects, engineers, and attorneys, prepared literature to promote the sale of the limited partnership interests in Associates. A flyer and a brochure served as the selling documents from October 1960 to December 31, 1960.

On January 1, 1961, Section 352-e of the New York General Business Law became effective. Section 352-e required that, before an offering concerning the syndication of real estate could be made to the public, a “prospectus” or “offering statement” must be filed with the state Attorney General containing specified information. N.Y.Gen.Bus. Law § 352-e(l)(a), (b) (McKinney 1968). It also required that all advertising in connection with the offering be consistent with the information set forth in the prospectus and that all advertising literature be filed with the Attorney General pi’ior to dissemination. Section 352-e(l)(c), (5). To comply with this provision, Associates prepared and filed a new prospectus. This new prospectus and a new flyer served as the selling documents from January 1, 1961 until February 1961, by which time all the units had been sold.

The selling documents represented, among other matters, that it was “anticipated” that distributions to partners would amount to an 11% per annum return on their investment; that the two apartment houses were to be operated by Venada as net lessee and not by Associates; that Venada’s net lease required it to pay to Associates an amount sufficient to cover the mortgages and taxes on the two properties, plus sufficient funds to make distributions to the partners at the anticipated rate; that Fran-chard had been engaged to maintain Associates’ books and records and to employ independent certified accountants; and that Glickman, Siegel, and Young were officers and directors of Fran-chard and Venada. The selling documents also set forth the income to be received by Venada from rental of the Associates’ buildings, the proposed expenses of operation, and the expected profit. The projections were made “on the basis of the rentals provided in leases already signed by tenants of Wedgwood House, the prevailing rental rates and expenses in substantially comparable buildings, the knowledge and experience of the management and engineering staff of Glickman Corporation of Nevada and other appropriate investigation and analysis.” Brochure dated September 12, 1960 at 9; - Prospectus dated January 1, 1961 at 11.

Beginning January 10, 1961, distributions were paid to the partners of Associates at the rate of 11% per annum on the original capital contributed. Distributions on this basis were made monthly throughout 1961 and 1962. In January 1963, however, Venada defaulted in its obligations under the net lease. In March 1963 it was evicted.

Venada’s default under the lease can be traced to events beginning in October 1960. At that time, Glickman began se-cretely ‘borrowing” Franchard’s funds to cover on a short term basis his personal obligations as well as those of Venada. From October 31, 1960 to December 1960, Venada defaulted in rent payments due to three other Glickman syndications in amount of $296,329. These funds were “borrowed” from Franchard. Franchard then was repaid and a new cycle of borrowing began. Venada also would have defaulted on its first rent payment to Associates, but was able to borrow the necessary funds from Franchard.

This “borrowing” continued undiscovered until May 1962. At that time Glickman became unable to cover up the loans because, among other reasons, his holdings in various enterprises declined substantially in value. On May 3 and 4, a meeting of Franchard’s board of directors was called to discuss Glickman’s questionable use of Franchard’s funds. Stringent limitations were imposed on Glickman to insure that he would not engage in any further “borrowing” of Franchard’s funds. When it was discovered in December 1962, however, that Glickman had violated his commitments to the board, he was forced to resign as an officer and director of Franchard. He thereafter also resigned as a general partner in Associates.

Venada’s financial condition worsened so that in February 1963 it filed a petition for an arrangement under Chapter 11 of the Bankruptcy Act. Shortly thereafter it was evicted as net lessee of Wedgwood and Warren Houses.

After Venada was evicted, Siegel and Young found a new net lessee that agreed to pay a net rental sufficient in amount to allow, after payment of total expenses, distributions at the rate of 4% per annum on the capital contributed. Finally, in 1968, the properties were sold and $4,562,800 of the sale proceeds was distributed to the partners.

Going back to November 1967, appellants. Cohen and Friedlander, owners of limited partnership shares in Associates, commenced this class action on behalf of all the limited partners in Associates seeking damages against Franchard, Siegel and Young, among others. The complaint set forth three separate counts. The first count alleged violations of Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a) (1970), of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1970), and of Rule 10b-5, 17 C.F.R. § 240.10b-5 (1972). The second count alleged violations of Section 352 of the New York General Business Law (McKinney 1968). The third count, “brought derivatively in the right of and for the benefit of Associates . . . . ”, alleged common law fraud.

Before the case was submitted to the jury, as a result of a conference between court and counsel at the conclusion of the evidence and prior to the charge, there emerged an agreement pursuant to which various allegations of misrepresentations and omissions were abandoned, thus leaving, so far as the issues on this appeal are concerned, only the allegations of paragraphs 8, 9 and 11 of the first count of the complaint (the Section 10(b) and Rule 10b-5 count). Paragraph 8 alleged certain affirmative statements made by Associates in the .sales materials. Paragraph 9 alleged that these affirmative statements were false and misleading because of Associates’ failure to disclose certain facts described in paragraph 9. Paragraph 11 alleged that the named plaintiffs and members of the class relied upon these false and misleading representations in purchasing partnership shares.

Plaintiffs first moved for an order designating the action a class action, consisting of the 1330 purchasers of limited partnership interests. On September 23, 1970, this motion was granted. 51 F.R.D. 167. Although the terms of Judge Tenney’s order are not clear from the opinion, it appears from the latter, 51 F.R.D. at 174, that “individual issues such as ‘reliance’ and the quantum of damages” were to be litigated as to each purchaser, and only the issue of fraud was to be litigated as a class. As will appear in the course of this opinion, however, Judge MacMahon, whether on express consent of the parties or through their inadvertence, proceeded to put the issue of reliance before the jury in the class action.

The nine day trial began on April 27, 1972 and concluded on May 10. Only the issue of liability was tried. The court had ruled that if the jury should find in favor of plaintiffs on the issue of liability, the issue of damages would be tried immediately thereafter to the same jury. The jury returned a verdict in favor of defendants Franchard, Siegel and Young on the issue of liability.

II.

JURY CHARGE

Appellants’ chief claim on appeal is that the jury charge was substantially incorrect in several respects with regard to what appellants were required to establish in order to recover on their Rule 10b-5 claim. Specifically, appellants contend that the court erred in charging on the legal principles of scienter and reliance, and in failing to instruct the jury that Franchard was charged with the knowledge of its agents.

Appellants did not object to the charge on these issues before the jury retired to consider its verdict as required by Fed.R.Civ.P. 51. Before we may consider the sufficiency of the charge, therefore, we must determine whether what occurred immediately prior to the charge made it unnecessary for appellants to take exceptions or, alternatively, whether we should rule on appellants’ claims under the “plain error” rule.

Court’s Rulings On Requests To Charge

The events regarding the court’s charge to the jury may be briefly summarized. The court ordered that all requests to charge be submitted in advance of trial. This order was substantially complied with by both sides. As the trial neared completion, the court scheduled a robing room conference with counsel on May 8 to consider the requests to charge. The night before the conference, appellants left in the judge’s chambers supplemental requests to charge consisting of 14 additional items. The judge did not have an opportunity to study these requests and informed counsel that he intended to reject them. Appellants’ counsel assured the court that he “could not and would not make any exception to the Court’s charge based on these [supplemental] requests” because they were untimely.

In their timely requests to charge submitted in advance of trial, appellants requested the court to charge on the issue of scienter as follows:

“Plaintiff’s Request to Charge — No. 5
Under Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, the defendants may be held liable to plaintiff if defendants knew or should have known that one or both of the Wedgwood prospectuses were misleading or if defendants knew of the existence of facts which, if, disclosed, would have shown other facts to be misleading, .
Plaintiff’s Request to Charge — No. 6
You may hold the defendants liable to plaintiff and members of his class if you find defendants made false and misleading statements and omitted to state material facts about the Wedgwood House Association syndication, notwithstanding defendants’ claim of ignorance of the falsity of the representations if you find they could have ascertained the true facts by the exercise of the degree of care expected of a reasonably prudent person . . . . ”

After a full discussion with counsel at the robing room conference, the court declined to charge on the issue of scien-ter in accordance with requests 5 and 6, or requests 3 and 4.

On the issue of reliance, appellants asked (in their request 19) for a charge which would have dispensed with the requirement of actual reliance. The court did not consider this request, since it was one of those submitted late. The requested charge on reliance was not even discussed at the robing room conference. The court proposed, however, to charge reliance in the language of the complaint. Counsel accepted this proposal. Accordingly, the court read to the jury as part of its charge paragraph 11 of the complaint as follows:

“Without knowledge of the true facts and in reliance upon the false and misleading representations and statements, plaintiff and members of the class made the purchases [of limited partnership interests in Associates] hereinbefore described.”

Appellants did not request the court to charge that if Bernard Mann, Fran-chard’s treasurer, had knowledge of material misstatements or omissions, such knowledge should be imputed to Fran-chard under agency principles.

Following the charge, the court asked counsel if they had any exceptions. Appellants’ counsel took exception to three matters, none of which has anything to do with the issues raised on appeal.

Reliance and Imputed Knowledge

It is clear that appellants have not preserved for appeal the claims they now seek to raise with respect to reliance and Franchard’s imputed knowledge.

As to reliance, appellants argue before us that in a case of nondisclosure, as opposed to a case of affirmative misrepresentation, a plaintiff need only show that the facts withheld were material. They urge us to reverse the judgment entered on the verdict in favor of defendants on the ground that the court charged that appellants had to show actual reliance.

While appellants’ request 19 did ask for a charge which keyed liability to materiality, without a requirement of actual reliance, the court properly refused to consider this request because it was not timely submitted. The charge appellants agreed to accept, based on paragraph 11 of the complaint, instructed the jury in effect that it must find actual reliance before it could return a plaintiffs’ verdict. Appellants’ prior acquiescence in this portion of the charge, coupled with their failure to object to it as given, precludes them from raising the issue of reliance on appeal. United States v. Heyward-Robinson Co., 430 F.2d 1077, 1083-85 (2 Cir. 1970), cert. denied, 400 U.S. 1021 (1971), and cases cited at 1084; Kane v. American Tankers Corp. of Delaware, 219 F.2d 637, 640 (2 Cir. 1955); Westmoreland Asbestos Co. v. Johns-Manville Corp., 136 F.2d 844 (2 Cir. 1943).

As to Franchard’s knowledge, appellants contend that the court should have charged the jury that, if they found that Bernard Mann, treasurer of both Fran-chard and Venada, had knowledge that certain material facts were not being disclosed to the public, such knowledge must be imputed to Franchard according to general agency principles. Since appellants totally failed to request any such instruction, either before or after the charge was given, the issue has not been preserved for appeal. Pauling v. News Syndicate Co., 335 F.2d 659, 668-70 (2 Cir. 1964).

Scienter

Appellants’ claims with respect to scienter are on a different footing. In their requests to charge submitted both in advance of trial and at the robing room conference, appellants’ counsel indicated substantially the same position they now assert before us, namely, that the jury should have been instructed that defendants might be held liable if the jury found that they had negligently omitted to disclose material facts.

We hold, under the circumstances of this case, that appellants’ failure to object after the court omitted from its charge an instruction on liability based on defendants’ alleged negligent omissions does not preclude appellants from raising the issue on appeal. The purpose of a timely exception at the conclusion of the charge is to inform the trial judge of possible errors so that he may have an opportunity to reconsider his charge and, if necessary, to correct it. The provision of Rule 51 which requires timely exceptions is designed to prevent unnecessary new trials because of errors the judge might have corrected if they had been brought to his attention at the proper time. There is no need for an exception after the charge has been given where, as here, the court had been fully informed in advance of the charge as to appellants’ contention and it was clear that further efforts to persuade the court would have been unavailing. Steinhauser v. Hertz Corp., 421 F.2d 1169, 1173 (2 Cir. 1970); Sweeney v. United Feature Syndicate, 129 F.2d 904, 905-06 (2 Cir. 1942); Sessoms v. Union Savings & Trust Co., 338 F.2d 752 (6 Cir. 1964), cert. denied, 382 U.S. 821 (1965). Accordingly, we hold that appellants’ claims with respect to scien-ter have been preserved for appeal. We now turn to this issue on its merits.

Appellants’ essential claim is that the court should have charged that each of the defendants might be held liable if there were material misstatements or omissions in the sales materials, even though defendants did not have knowledge of these misstatements or omissions. Appellants contend that, since Siegel and Young were promoters of the syndication, they had the opportunity and were under a duty to investigate Venada, Glickman, and any other matters which affected the investment value of Associates. Appellants also argue that Franchard, allegedly “the vortex of the syndication activity”, should not be permitted to escape liability on the ground that it did not know that a fraud was being committed. In short, appellants claim that defendants should be held liable for mere negligence in allowing the dissemination of allegedly false and misleading offering materials.

The court rejected appellants’ request to charge with regard to scienter on this theory. It charged in substance that, in order for appellants to recover against defendants, they had to prove actual knowledge of falsity or reckless disregard for the truth:

“Guilty knowledge is the key to your decision in this case. The plaintiffs must establish that the defendant whom you are considering had knowledge and intended to defraud these plaintiffs, or that he acted in reckless disregard for the truth, or that he knowingly used a device, scheme, or artifice to defraud.”

We uniformly have held that a party cannot be held liable in a private suit for damages under Rule 10b-5 for mere negligent conduct. See, e. g., Chris-Craft Industries, Inc. v. Piper Aircraft Corp., 480 F.2d 341, 363 (2 Cir. 1973), slip op. 4897, 4931 (March 16, 1973) (elements of Rule 10b-5 and § 14(e) causes of action are the same); SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1096 n. 15 (2 Cir. 1972); Shemtob v. Shearson, Hammill & Co., 448 F.2d 442, 445 (2 Cir. 1971). Although it is unnecessary to prove the specific fraudulent intent essential to a claim of common law fraud, it must be established that the defendant was to some extent cognizant of the misstatement or omission. Globus v. Law Research Service, Inc., 418 F.2d 1276, 1290-91 (2 Cir. 1969), cert. denied, 397 U.S. 913 (1970); Heit v. Weitzen, 402 F.2d 909, 913-14 (2 Cir. 1968), cert. denied, 395 U.S. 903 (1969). The standard for determining liability under Rule 10b-5 essentially is whether plaintiff has established that defendant either knew the material facts that were misstated or omitted and should have realized their significance, or failed or refused to ascertain and disclose such facts when they were readily available to him and he had reasonable grounds to believe that they existed. See ChrisCraft Industries, Inc. v. Piper Aircraft Corp., supra, 480 F.2d at 363, slip op. at 4932-33. It is not enough for plaintiff to show that defendant failed to detect certain material facts when he had no reason to suspect their existence.

Appellants urge that we adopt a standard that failure to discover material facts when such facts could have been ascei-tained without inordinate effort is enough to establish a private action under Rule 10b-5, “particularly where fiduciary relationships require attention”. We decline the invitation.

Accordingly, since the court in substance charged actual knowledge of falsity or reckless disregard for the truth —in language that conveyed the essence of the standard stated above — we hold that its charge on scienter was essentially correct.

Plain Error

But this does not end our inquiry. Our Court and other courts of appeals have recognized an exception to the rule that, absent objection in the district court, an appellate court necessarily is precluded from considering alleged errors in the jury charge. An appellate court on its own initiative may reverse on the ground of plain error in a jury charge that was not objected to when such reversal is necessary to correct a fundamental error or to prevent a miscarriage of justice. Curko v. William Spencer & Son Corp., 294 F.2d 410, 413-14 (2 Cir. 1961); Delancey v. Motichek Towing Service, Inc., 427 F.2d 897, 901 (5 Cir. 1970); Ramsey v. Travelers Ins. Co., 317 F.2d 300, 302 (4 Cir. 1963). Upon our own initiative, therefore, we turn to the question whether the judgment entered on the jury verdict below should be reversed on the ground that the court’s charge on reliance and its failure to charge on Franehard’s imputed knowledge were plain error.

With regard to the issue of reliance, the court charged that appellants could recover only if they could prove that “the omitted fact must have been a substantial, factor in plaintiff making a choice as to whether or not to buy.” While this “actual reliance” standard finds support in our opinion in List v. Fashion Park, Inc., 340 F.2d 457, 462 (2 Cir.), cert. denied, 382 U.S. 811 (1965), we are aware that in two recent Supreme Court decisions involving fraudulent nondisclosure it was held that proof of actual reliance was not essential to a claim for damages. It therefore is arguable that the court erred with respect to this portion of its charge, and that it should have charged that the knowledge which Mann, the treasurer of Franchard and Venada, had of Venada’s distressed financial situation should have been imputed to Franchard. Dawn Donut Co. v. Hart’s Food Stores, 267 F.2d 358, 363 (2 Cir. 1959).

After careful review of the entire record, however, we are convinced that these alleged errors do not warrant our invoking the plain error rule. In our view, appellants’ claims do not demonstrate that a substantial miscarriage of justice has occurred. Granted that the alleged errors relate to important elements in appellants’ case, we do not believe that the plain error rule demands that every alleged error, even on a significant aspect of a case, requires reversal despite failure to comply with Rule 51. Troupe v. Chicago, Duluth & Georgian Bay Transit Co., 234 F.2d 253, 260 n. 10 (2 Cir. 1956). See Nimrod v. Sylvester, 369 F.2d 870, 873 (1 Cir. 1966). Intervention by us to correct such questionable errors under the plain error doctrine would undercut the salutary rule that claims must be raised in and ruled upon by the trial court before they are ripe for appellate review. As Professors Wright and Miller have stated, “[i]f there is to be a plain error exception to Rule 51 at all, it should be confined to the exceptional case where the error has seriously affected the fairness, integrity, or public reputation of judicial proceedings.” 9 Wright & Miller, Federal Practice and Procedure § 2558, at 675 (1971).

Appellants also assert that “[t]he Court ignored the fact that this was a class action and there were other buyers involved as well.” As indicated above, it is possible that the terms of the order designating the class eliminated, pursuant to Fed.R.Civ.P. 23(e)(4), the issue of reliance for determination as to the entire class. However, the judge clearly proceeded on the assumption that the issue of reliance was to be decided with the issue of liability, and the record is utterly devoid of any objection or contrary suggestion by trial counsel for appellants.

We hold upon the entire record that this is not an appropriate case for exercising our discretionary power to review errors not preserved by proper objection in the trial court.

III.

CONDUCT OF TRIAL

Appellants’ claims regarding the trial judge’s conduct of the trial merit only brief mention.

Essentially appellants have engaged in a broadside attack upon the judge’s rulings on evidence, oral and documentary; his comments to the jury; the “unevenness” of his rulings in favor of defendants; and his creation of prejudice in favor of defendants.

Suffice it to say that our careful examination of the entire trial transcript of this nine day trial leaves us with the firm conviction that appellants’ claims of misconduct on the part of the judge are wholly without merit.

In the first place, the conduct complained of was far from unprovoked. The alleged improper acts strike us as appropriate responses by a conscientious judge in handling difficult situations created largely by the lack of preparation for trial and evasive attitude toward the judge by appellants’ counsel.

Secondly, our scrutiny of the record discloses that in every instance complained of the judge was doing his very best to clarify the issues and assist the jury in understanding the evidence in a case which, but for the judge’s intervention, could have baffled even the most conscientious jury.

Finally, we do not find a single instance of conduct on the part of the judge which in any way prejudiced appellants or displayed the slightest bias toward them.

In short, we hold that there is no merit whatsoever in appellants’ claims of misconduct on the part of the trial judge, for we can say with fair assurance, “after pondering all that happened without stripping the erroneous action from the whole, that the judgment was not substantially swayed by the error . . . . ” Kotteakos v. United States, 328 U.S. 750, 765 (1946); United States v. McCarthy, 473 F.2d 300, 308 (2 Cir. 1972); United States v. Ellis, 461 F.2d 962, 970 (2 Cir.), cert. denied, 409 U.S. 866 (1972).

Affirmed.

      . Low originally was named as a defendant in this action. At the close of plaintiffs’ case, however, plaintiffs consented to a dismissal of the complaint against Low.

      . The issuer of the limited partnership interests, Glickman Servicing, Inc., was a corporation owned by Glickman. It was not named as a defendant in the instant action.

      . It was disclosed that partnership distributions were to be pro-rated in proportion to original capital contributions. However, 80% of the distributions of the partnership’s net cash receipts, as defined in the partnership agreement, in excess of $742,500 in any year was to be prorated among all partners in the same proportion, with the balance going to the general partners.

      . Franchard also reported the matter to the Securities and Exchange Commission and retained Simon H. Rifkind, Esq. to study the situation and to determine whether Franchard had suffered any loss.

      . The total distribution to partners in 1961 was $707,104; in 1962, $742,500; in 1963, $225,000; in 1964, $266,600; in 1965, $266,600; in 1966, $267,500; in 1967, $268,400; and in 1968, not including proceeds from sale of the properties, $111,832.

      . Plaintiffs abandoned the claimed violations of the 1933 Act prior to submission of the case to the jury.

      . The third count was dropped by plaintiffs prior to trial. In their brief on appeal, plaintiffs do not claim error with respect to the matters alleged in the second count.

      . In light of the issues raised on appeal and our rulings thereon, we find it unnecessary to discuss any of the allegations of omissions and misrepresentations set forth in the complaint.

      . In their requests 3 and 4 (also submitted in advance of trial), appellants referred to the issue of scienter, but in a more opaque manner:
      “Plaintiff’s Request to Charge — Xo. 3 Plaintiff may recover against defendants participating in the acts complained of if you find that said defendants did not adhere to the special duty imposed upon them, based upon their claimed expert knowledge in syndica-tions, not to take advantage of plaintiff’s ignorance of the risks involved in the Wedgwood syndication. Plaintiff’s Request to Charge — Xo. 4 If you find that defendants in the sale of Wedgwood securities made false and misleading statements to plaintiff and members of his class and omitted to state material facts, you may hold the defendants liable, even if you find that defendants had an honest belief in the ultimate success of the Wedgwood venture. . . . ”

      . The three matters to which appellants’ counsel excepted were: (1) a date used by the court in its recitation of the facts which counsel claimed was incorrect; (2) the court’s reference to named plaintiff Cohen’s purchase in 1964 of an additional unit of limited partnership interest in Associates ; and (3) whether the charge sufficiently stated that individual purchasers had signed documents claiming that they had relied on the brochure.

      . See ALI, Federal Securities Code, § 251A, Tentative Draft No. 2 (March 1973), which reads as follows:
      “Sec. 251A. [Knowledge.] “When reference is made to this section, a misrepresentation is known by a person to be a misrepresentation if he (a) knows or believes that the matter is otherwise than represented, (b) does not have the confidence in its existence or non-existence that he expresses or implies, or (c) knows that he does not have the basis that he states or implies he has for his belief.”

      . In Mills v. Electric Auto-Lite Co., 396 U.S. 375, 385 (1970) (Section 14(a)), and Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-54 (1972) (Rule 10b-5), the Supreme Court held that, under the circumstances of those two cases, it was unnecessary to prove actual reliance. It was enough that there were material misrepresentations in solicitation documents which were “an essential link in the accomplishment of the transaction.” 396 U.S. at 385. The full implications of those decisions have not yet been determined. See Chris-Craft Industries, Inc. v. Piper Aircraft Co., supra, 480 F.2d at 373, slip op. at 4951-59; Crane Co. v. Westinghouse Air Brake Co., 419 F.2d 787, 796 (2 Cir. 1969), cert. denied, 400 U.S. 822 (1970) ; Kohn v. American Metal Climax, Inc., 458 F.2d 255, 288-91 (3 Cir.), cert. denied, 409 U.S. 874 (1972). We decline to hold on tlie present state of the law that it was plain error for the district court in the instant case not to have instructed the jury according to the Mills and Ote formulations.
      We also note that several commentators have questioned the application of the hist standard in nondisclosure cases. See 6 Loss, Securities Regulation 3879 (2d ed. 1969) ; 1 Bromberg, Securities Law: Fraud — SEC Rule 10b-5, at 212 (1969) ; Note, Civil Liability Under Section 10(b) and Rule 10b-5: A Suggestion for Replacing the Doctrine of Privity, 75 Yale L.J. 658, 688 (1965).


source: Caselaw Access Project

author: PER CURIAM.

license: Public Domain

text:
    UTAH INTERNATIONAL, INC., Petitioner, v. ENVIRONMENTAL PROTECTION AGENCY, Respondent, and Jicarilla Apache Tribe of Indians, Intervenor Respondent.
    No. 72-1575.
    United States Court of Appeals, Tenth Circuit.
    Argued and Submitted Jan. 11, 1973.
    Decided April 27, 1973.
    Harry L. Bigbee, Santa Fe, N. M., and Richard N. Carpenter, New York City, for petitioner.
    Bradford E. Whitman, Atty., Dept, of Justice, Kent Frizzell, Asst. Atty. Gen., Edmund B. Clark, Chief, App. Section, Land and Natural Resources Div., and Eva R. Datz, Atty., Dept, of Justice, for respondent.
    Daniel H. Israel, and Joseph J. Brechen, Boulder, Colo., for intervenor respondent.
    Before HILL, SETH and' Mc-WILLIAMS, Circuit Judges.
   PER CURIAM.

Utah International, Inc., seeks direct review by us of an order of the Environmental Protection Agency entered on July 27, 1972, concerning the State of New Mexico’s Implementation Plan as such relates to the attainment and maintenance of national ambient air quality standards for sulphur oxides in the New Mexico portion of the Four Corners Interstate Air Quality Control Region. The order complained of now appears at 37 Fed.Reg., page 15080, et seq. (1972). Background information need only be developed on a limited basis, as we are convinced we are without jurisdiction.

Pursuant to applicable statute the State of New Mexico on January 19, 1972, submitted to the Environmental Protection Agency, hereinafter referred to as the E.P.A., an implementation plan for meeting national primary and secondary air quality standards for six air pollutants, said standards having been theretofore promulgated by the E.P.A. This state plan was approved in part and disapproved in part by the E.P.A. on May 31, 1972. See 37 Fed.Reg. at pages 10842, 10881, et seq. (1972).

On July 27, 1972, the EPA on the basis of further review and evaluation of the plan disapproved certain other provisions of the plan which had been previously approved. At this same time, the E.P.A. also published a notice of proposed rule-making concerning suggested implementation plans to be substituted for the state implementation plans to the extent that the state plans had been thus disapproved.

It was in this setting that Utah International, Inc., hereinafter referred to as Utah, initiated the present proceeding in this court. Utah seeks review of the E. P.A.’s order of July 27, 1972, insofar as that order disapproves certain portions of the New Mexico Implementation Plan which had previously been approved by the E.P.A. In this regard, Utah complains that the E.P.A. did not afford the interested parties a hearing before entering its order disapproving that which it had previously approved.

Utah also complains about that portion of the order of July 27, 1972, wherein the E.P.A. proposed certain regulations to be substituted for the portions of the state plan which had been disapproved. In this regard Utah disclaims any attack on the contents of the regulations proposed by E.P.A., but purportedly seeks only a review of the order proposing the substitute regulations, which order, it is said, would be of no effect if the order of the E.P.A. disapproving certain additional parts of the state plan be held improper.

E.P.A. and the Jicarilla Apache Tribe of Indians, as intervenors, have filed a motion to dismiss, alleging that this court is without jurisdiction to entertain Utah’s petition for review. This motion to dismiss having been fully briefed, as well as orally argued, we are convinced that it is well taken and that the petition should be dismissed.

The provisions of the Clean Air Act relating to certain administrative proceedings and judicial review thereof are found in 42 U.S.C. § 1857h-5. Specifically, 42 U.S.C. § 1857h-5(b)(1) provides, in pertinent part, that a “petition for review of the Administrator’s action in approving or promulgating any implementation plan * * * may be filed only in the United States Court of Appeals for the appropriate circuit [and] [a]ny such petition shall be filed within 30 .days from the date of such promulgation or approval, or after such date if such petition is based solely on grounds arising after such 30th day.” (Emphasis added).

It is the position of E.P.A. and the Ji-carilla Tribe that as concerns implementation plans the Clean Air Act only provides for judicial review of an E.P.A. order which either approves a state implementation plan or promulgates a plan of its own. In this regard it is asserted that the E.P.A. order of July 27, 1972, neither “approved” a state plan nor “promulgated” one of its own. On the contrary, asserts the E.P.A., the order of July 27, 1972, “disapproved” portions of New Mexico’s Implementation Plan and then notified all interested parties of “proposed” regulations which would, if eventually promulgated, replace the parts of the state plan disapproved by the E.P.A. Accordingly, it is argued, the statute in question does not provide for judicial review by us of the E.P.A.’s order of July 27, 1972, since the order complained of did not approve the state plan nor did it promulgate a plan in lieu of the disapproved portion of the state plan. We generally agree with this reasoning.

The statute providing for judicial review of orders of the E.P.A. relating to implementation plans is obviously designed to provide for judicial review of final administrative action. Hence, an order approving a state plan is subject to review, for by approving a state plan the E.P.A. thereby places the state plan into effect. However, an order disapproving a state plan is not subject to review, because by the mere act of disapproval no plan is placed into effect and the administrative process is simply reactivated.

In other words, the effect of a disapproval order under the Clean Air Act is to reopen the administrative process to the end that if the state in question does not thereafter come up with a revised plan of its own which is acceptable to the E.P.A., then the E.P.A. will promulgate a plan of its own. Accordingly, in the instant case until such time as the E.P.A. promulgates its own plan, after allowing the state an opportunity to come up with a revised plan of its own, there is no final and applicable order under the statute. It is on this basis that we conclude that the present petition to review is not permitted by 42 U.S.C. § 1857h-5 (b)(1) and that we are without jurisdiction.

Utah alternatively suggests that we have jurisdiction under the Administrative Procedure Act. We think not. In Amerada Petroleum Co. v. F.P.C., 231 F.2d 461 (10th Cir. 1956), we held that the Administrative Procedure Act provides for a right of judicial review in a proper court of final agency action where other statutory authority for judicial review of administrative action is absent or inadequate. As applied to the instant case, we certainly cannot say that the judicial review provided by the Clean Air Act itself after approval of a state plan or promulgation of an implementation plan by the E.P.A. is inadequate. Additionally, it is doubtful that the present matter, being interlocutory in nature, is “ripe” for judicial review under the rationale of such cases as Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S.Ct. 1507, 18 L.Ed.2d 681 (1967), and Toilet Goods Ass’n, Inc. v. Gardner, 387 U.S. 158, 87 S.Ct. 1520, 18 L.Ed.2d 697 (1967). We are accordingly of the firm view that the Administrative Procedure Act does not confer jurisdiction on this court to review the order about which Utah here complains.

Petition dismissed.


author: AINSWORTH, Circuit Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Stephen Irving TASHMAN and Andrew Goldberg, Defendants-Appellants.
    No. 72-2273.
    United States Court of Appeals, Fifth Circuit.
    May 18, 1973.
    Daniel S. Pearson, Arthur B. Cunningham, Philip T. Weinstein and Bruce S. Rogow, Miami, Fla., for defendants-appellants.
    Robert W. Rust, U. S. Atty., Barbara E. Vicevich, Asst. U. S. Atty., Miami, Fla., for plaintiff-appellee.
    Before JOHN R. BROWN, Chief Judge, and WISDOM and AINS-WORTH, Circuit Judges.
   AINSWORTH, Circuit Judge:

Andrew Goldberg and Stephen Tash-man, appellants, along with Ronald Os-brach, codefendant, were jointly indicted for violations of 21 U.S.C. §§ 841(a)(1), 846, and 18 U.S.C. § 2. Count I charged conspiracy to possess, with intent to distribute, quantities of marijuana. Count II charged possession of 140 pounds of marijuana with intent to distribute.

The case was called for trial on May 17, 1972. Prior to empanelling the jury, the district judge, on request of counsel for codefendant Osbrach, ordered that the courtroom be cleared except for Os-brach, his counsel and counsel for the Government. Counsel for Goldberg and Tashman requested that the district judge allow him to remain in the courtroom, but his request was denied.

The courtroom was then cleared as ordered and the following proceedings were conducted: Counsel for Osbrach announced that in agreement with the Government for a joint recommendation to the court, Osbrach would plead guilty to Count I of the indictment. The recommendation, which was subsequently honored by the court, was for a sentence to two years’ probation under the Youth Corrections Act, 18 U.S.C. § 5005 et seq., contingent upon Osbrach’s change of plea, his testimony against his codefend-ants Goldberg and Tashman, and the giving by him of “valuable” information to the Government. After having ascertained that Osbrach’s plea of guilty was voluntary, the district judge at the request of counsel for Osbrach ordered the transcript of the proceedings sealed. The case was then again called for trial and the district judge explained to- the jury that they were to disregard the fact that Osbrach was named in the indictment as a defendant. The jury subsequently found appellants guilty on both counts. Goldberg was sentenced to four years on each count and Tashman to thirty months on each count, sentences of both defendants to run consecutively. This appeal followed. We reverse and remand for a new trial because of the “secret” proceedings referred to from which appellants and their counsel were excluded, and which we hold resulted in substantial prejudice to the rights of appellants.

On March 26, 1972, Goldberg, Tash-man and Osbrach were arrested by United States Customs Agents at an airport at Homestead, Florida. Goldberg had arrived at the airport in a Cadillac. Tashman and Osbrach were occupying a Dodge Charger. The federal agents observed the transfer of three large bundles from an aircraft parked on the airstrip to the trunk of the Cadillac. They then saw Osbrach leave the Dodge and approach the Cadillac. All three defendants were then arrested. The bundles, one of which was observed on the front seat of the Cadillac, contained marijuana.

Goldberg and Tashman both testified at the trial. Osbrach also testified but as a Government witness, according to the agreement reached during the secret proceedings. Goldberg’s defense was based principally on the theory that his participation in the events at the airport was the result of his honest belief that he was assisting the Government as a special employee or undercover agent. He testified that within the three months preceding his arrest he had on various occasions in New York, Maryland, Virginia and Toronto, Canada, been used by the Government in its investigations of drugs and counterfeit checks. Not only was this testimony not disputed, it was substantially corroborated by the testimony of United States Customs Agents Murphy and Woods, called 'by the Government as rebuttal witnesses. Agent Murphy testified that he had spoken by telephone with Goldberg about four or five days prior to the arrest herein, that the subject of the conversation was the interception of marijuana at Miami, that Goldberg asked for the name of an agent in Miami to contact in the event that there was “something doing,” and that as a result of that conversation Murphy telephoned Agent Scrip in Miami. Scrip testified that he called Goldberg on March 22 as a result of Murphy’s call to Scrip’s office concerning Goldberg. Agent Woods testified that Goldberg asked that he accompany him to Miami in connection with a marijuana, transaction. Goldberg testified that records, tapes and photographs were made by the Government of his meetings with “contacts.”

Goldberg also defended on the ground of entrapment. Tashman defended on the theory that he was assisting Goldberg, although reluctantly, in his efforts to cooperate with the Government. Os-brach’s testimony in essence placed both appellants in the role of purported buyers of the imported marijuana with intent to distribute.

Appellants’ counsel contend that prior to the trial defense counsel was not informed that an agreement had been reached between the Government and Osbrach during the secret proceedings and that consummation of the Government’s part of the agreement was contingent upon the value of Osbrach’s testimony against appellants. The Government contends that defendants were not entitled to the information and the nature of the closed proceedings and then inexplicably avers that appellants’ counsel knew, in toto, what transpired at Osbrach’s plea. The action of counsel for Osbrach and the Government, acquiesced in by the trial court, was so prejudicial to appellants as to require a new trial. Being unaware of what had occurred behind the closed doors of the courtroom, appellants had no effective way of combating the damaging testimony elicited by the Government from Osbrach. Faced with an apparent hostile witness, defense counsel elected to forego cross-examination of Osbrach. As the Supreme Court said in Napue v. People of the State of Illinois, 360 U.S. 264, 269, 79 S.Ct. 1173, 1177, 3 L.Ed.2d 1217 (1959), “The jury’s estimate of the truthfulness and reliability of a given witness may well be determinative of guilt or innocence, and it is upon such subtle factors as the possible interest of the witness in testifying falsely that a defendant’s life or liberty may depend.” Under the circumstances, the jury had no way of knowing what interest Os-brach had in testifying.

We need not speculate on what effect knowledge of the secret contingent agreement would have had on the jury. The Supreme Court has made it clear that the failure of the Government to disclose to a jury plea-bargaining negotiations with a key witness deprives a defendant of constitutional due process.. In Giglio v. United States, 405 U.S. 150, 92 S.Ct. 763, 31 L.Ed.2d 104 (1972), the Supreme Court reversed a conviction because of nondisclosure by the Government of its promise to a testifying accomplice that he would not be prosecuted in return for his cooperation. In remanding for a new trial, the Supreme Court said:

“Here the Government’s case depended almost entirely on Taliento’s testimony; without it there could have been no indictment and no evidence to carry the case to the jury. Taliento’s credibility as a witness was therefor an important issue in the case, and evidence of any understanding or agreement as to a future prosecution would be relevant to his credibility and the jury was entitled to know of it.” (Emphasis added.)

405 U.S. at 153, 92 S.Ct. at 766.

The Supreme Court also said in Washington v. State of Texas, 388 U.S. 14, 22-23, 87 S.Ct. 1920, 1926, 18 L.Ed.2d 1019 (1967):

“Common sense would suggest that he [an alleged accomplice] often has a greater interest in lying in favor of the prosecution rather than against it, especially if he is still awaiting his own trial or sentencing. To think that criminals will lie to save their fellows but not to obtain favors from the prosecution for themselves is indeed to clothe the criminal class with more nobility than one might expect to find in the public at large.”

The Government’s case here depended largely on the testimony of Osbrach, who testified to the participation of the two appellants in a plan to purchase marijuana and of being “cut in” on the deal by both of them. With the exception of Osbrach’s testimony and certain hearsay evidence, discussed infra, which was erroneously admitted, the Government’s evidence in chief consisted almost entirely of the activities at the airport shortly prior to and at the time of the arrest. Osbrach’s credibility was, therefore, of critical importance.

■ Because of our decision to remand for a new trial it is unnecessary that we consider specifically other errors urged by appellants, except to set out the following directions for the guidance of the district court on retrial.

The Government should be required to produce, prior to trial, all of the documents, records, photographs or related tangible material evidence in existence which pertain to Goldberg’s employment by the Government. Production of evidence favorable to an accused is required where the evidence is material either to his guilt or punishment, and this is so irrespective of the good or bad faith of the prosecution. Brady v. State of Maryland, 373 U.S. 83, 87, 83 S.Ct. 1194, 1196-1197, 10 L.Ed.2d 215 (1963). Goldberg, having defended primarily on the theory that he was acting in the capacity of an informer with intentions to turn over the marijuana to the Government, is entitled to the production of such evidence for whatever significance it may have in determining his innocence or guilt before a jury. Tashman, whose defense is encompassed within that of Goldberg’s, is likewise entitled to the benefit of such evidence. For similar reasons Goldberg’s request for jury instructions relative to his two theories of defense must be granted. The trial judge’s instruction on entrapment did not also encompass the separate agent-of-the-Government theory. The trial court’s failure to instruct on this theory also effectively denied Tashman the right to have the jury consider his theory of defense, i. e., his belief that he was assisting a Government agent. Where the evidence presents a theory of defense which has been called to the court’s attention, refusal to charge on that defense is reversible error. Strauss v. United States, 5 Cir., 1967, 376 F.2d 416, 419. This is the established rule of this Circuit. In United States v. Megna, 5 Cir., 1971, 450 F.2d 511, we said:

“Nearly fifty years ago the Circuit Court of Appeals for the Fifth Circuit laid down the rule that ‘Where the evidence presents a theory of defense, and the court’s attention is particularly directed to it, it is reversible error for the court to refuse to make any charge on such theory.’ ”

450 F.2d at 513.

As we said in Strauss, supra, “The jury did not have to believe the defenses, but it should.have been given the opportunity.” 376 F.2d at 419.

Finally, the trial judge should not permit a repetition of the hearsay testimony of Agent Wurster to the effect that he instructed Customs Agent Scrip to go to the Kendall Airport because of information from an undisclosed source regarding the arrival and description of the airplane carrying marijuana, and the description of the vehicles and occupants thereof who were to meet the airplane. It cannot be fairly said that the hearsay testimony was harmless. Cf. Favre v. Henderson, 5 Cir., 1972, 464 F.2d 359. To the contrary, it, along with the testimony of Osbrach, constituted the core of the Government’s case. This does not mean that the Government is precluded on retrial from using Osbrach as a witness or from introducing proper testimony relative to the information to which Wurster testified. What it does mean is that the proper constitutional safeguards must be applied to the circumstances of this case.

Reversed and remanded for a new trial for both defendants.

      . It was not until this Court on appeal ordered that the transcript be unsealed that appellants became fully aware of its contents.


author: DAVIS, Judge:

text:
    UNITED STATES of America, Plaintiff-Appellant, v. WESTCHESTER FIRE INSURANCE COMPANY, Defendant-Appellee.
    No. 414, Docket 72-2015.
    United States Court of Appeals, Second Circuit.
    Argued Feb. 15, 1973.
    Decided April 30, 1973.

      William S. Estabrook, III, Atty., Tax Div., Dept, of Justice, Washington, D. C. (Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks and Grant W. Wiprud, Attys., Tax Div., James M. Sullivan, U. S. Atty., N. D. N. Y., Eugene Welch, Asst. U. S. Atty., of counsel), for plaintiff-appellant.
    Vincent A. O’Neil, Syracuse, N. Y. (Costello, Cooney & Fearon, Syracuse, N. Y., of counsel), for defendant-appel-lee.
    Before FRIENDLY, Chief Judge, OAKES, Circuit Judge, and DAVIS, Judge.

       Of the United States Court of Claims, sitting by designation.

   DAVIS, Judge:

This action by the Federal Government against a surety on a New York probate-administration bond concerns the estate of Louis Abronzino, a New York resident who died intestate in May 1962. About a month later, appellee Westchester Fire Insurance Company issued the administration bond for the sum of $30,000 to Frances Abronzino, the intestate’s widow, who was appointed administratrix by the Surrogate’s Court for Broome County, New York. The suretyship agreement stated that Westchester Fire was jointly and severally bound with the administratrix, but the bond was conditioned as follows:

if the above bounden Frances Abron-zino shall faithfully execute the trust reposed in her as Administratrix of all and singular the goods, chattels and credits of Louis Abronzino late of Broome County, deceased, and obey all lawful decrees and orders of the Surrogate’s Court of the County of Broome touching the administration of the estate committed to her then this obligation to be void, else to remain in full force or virtue.

According to the Government’s complaint, in June 1964 the Internal Revenue Service assessed both husband and wife for joint income tax deficiencies totaling $5,638.77, and served notice of these assessments. The complaint goes on to allege that Mrs. Abronzino, knowing of the federal claim against her husband’s estate, proceeded to dissipate fraudulently the assets of the estate to the point of insolvency. She subsequently died in June 1965, while acting as ad-ministratrix. It is admitted that, as yet, neither the Surrogate’s Court nor any other judicial tribunal has determined that Mrs. Abronzino violated her trust as administratrix or failed to obey any decree or order of the Surrogate’s Court.

Without seeking any determination against Mrs. Abronzino (or her estate), or against Mr. Abronzino’s estate, the United States brought this suit (in 1970) in the District Court for the Northern District of New York directly against the appellee surety, on the bond, for the tax deficiencies said to be owing. That court granted summary judgment to Westchester Fire, holding that the Government had failed to meet the requirement of the bond, and of New York law, that the fiduciary’s liability must first be ascertained and determined by the Surrogate’s Court before the surety’s liability can attach under the bond. We concur that the condition precedent of a judicial determination of the principal’s responsibility has not as yet been satisfied, and therefore affirm.

If this were an action against the administratrix, Mrs. Abronzino, or her estate, the United States would undoubtedly have solid footing (if it proved its claim). Rev.Stat. § 3467, now section 192 of Title 31 of the United States Code, makes an administrator liable personally to the Government if he pays another estate debt before one due the United States. The purpose of this provision “is to make those into whose hands control and possession of the debt- or’s assets are placed, responsible for seeing that the Government’s priority is paid.” This element of control determines the class potentially liable under the section. King v. United States, 379 U.S. 329, 337, 85 S.Ct. 427, 431, 13 L.Ed.2d 315 (1964). Actions can be maintained against members of that class irrespective of the outcome of any prior proceedings in probate court. See United States v. Snyder, 207 F.Supp. 189, 191 (E.D.Pa., 1962); United States v. Weisburn, 48 F.Supp. 393, 397 (E.D.Pa., 1943). Nor need the United States initially bring suit against the party primarily liable before proceeding against the executor, administrator, assignee, “or other person” who pays a debt for another. In United States v. Fairall, 16 F.2d 328 (S.D.N.Y., 1926), Judge Learned Hand made it quite clear that, at least in the case of transferees, “[the] rule that you must get judgment and issue execution against a debtor as a condition precedent to following his assets into the hands of transferees is not absolute.” Equity did not insist upon “such an idle formality” in the face of impossibility of judgment or futility of execution. Id. See Commissioner v. Kuckenberg, 309 F.2d 202, 206 (C.A. 9, 1962), cert. denied, 373 U.S. 909, 83 S.Ct. 1296, 10 L.Ed.2d 411 (1963); United States v. Garfunkel, 52 F.2d 727, 729 (S.D.N.Y., 1931); Drew v. United States, 367 F.2d 828, 831, 177 Ct.Cl. 459, 462 (1966). Similarly, the United States, in collecting taxes, is not always “expected ... to follow the procedural intricacies of every one of the fifty states,” Commissioner v. Kuckenberg, supra, 309 F.2d at 207, again at least when concerned with transferees.

These are the controlling rules when litigation is had against the administrator or executor upon whom section 192 imposes a direct statutory liability to the United States. But appellee Westchester Fire is not an administrator, executor, assignee or otherwise within the coverage of the statute. It did not pay a non-federal debt of Louis Abronzino’s estate before satisfying one due the United States — nor was it in a position to do so. Its liability does not flow from this federal statute but from the terms of the particular obligation it undertook. This would be true if the bond had been directly given to secure payment of a federal tax — in that case the surety’s obligation creates “a new cause of action distinct from that on the taxpayer’s obligation”, an obligation which is “contractual * * * , and the suit against [the surety] is for a debt, ex contractu, due and owing in conformity to the terms of the bond.” Royal Indemnity Co. v. United States, 313 U.S. 289, 293-294, 295, 61 S.Ct. 995, 996, 997, 85 L.Ed. 1361 (1941). All the more so where, as here, the surety’s responsibility is on a general administration bond, issued for normal probate purposes, and not directly involving the Federal Government or accepted by it.

The bond which Westchester Fire gave to cover Mrs. Abronzino’s performance as administratrix — a form obviously used regularly by the appellee — was historically and integrally bound up with the particular provisions of New York probate law dealing with the liability of sureties. One of the two stated conditions, expressly required by the Surrogate’s Court Act, was that the principal “obey all lawful decrees and orders of the Surrogate’s Court of the County of Broome touching the administration of the estate committed to her.” When the instrument was issued in 1962, two other provisions of the same Surrogate’s Court Act indicated as clearly as possible that the surety would not be pursued until the principal’s default had been established.®

Behind these specific directives of the Surrogate’s Court Act there lay more than a century of history in the state forbidding an action against the surety of an executor or administrator until the latter’s liability had been determined. The New York statutes required as early as 1837 that “before any action can be maintained against the sureties, there must be a decree against the executor, a refusal or neglect to perform it, or an execution returned unsatisfied, and an order of the surrogate authorizing the prosecution of the bond.” The surrogate formally assigned the bond to the person in whose favor the decree was made, but such an assignment only granted permission to prosecute the bond. “[N]otwithstanding the assignment, the surrogate retains the custody of the bond for the common benefit of all persons having claims against the estate * * Hood v. Hood, 85 N.Y. 561, 573 (1881). Compliance with the statutory regulations was necessary for any action upon the bond. Id. at 573-574. By having an accounting in Surrogate’s Court, the liability of a surety could be limited “to the amount of the assets which have, or should have, come into the hands of the administrator.” In re Kraft’s Estate, 167 Misc. 16, 18, 3N.Y.S.2d 426, 427-428 (Sur.Ct., 1938); see French v. Dauchy, 134 N.Y. 543, 547, 31 N.E. 1041, 1042-1043 (1892).

^There have been some statutory alterations, e. g. the requirement of formal assignment was dropped, but the general rule has remained unchanged. In re Sullard, 114 Misc. 288, 297, 186 N.Y.S. 251, 256-257 (Sur.Ct., 1921) ; see Hood v. Hayward, 124 N.Y. 1, 9, 10, 26 N.E. 331, 332, 333 (1891). Section 115-a, supra note 6, was added to the Surrogate’s Court Act in order to eliminate some of the procedural complexity once there was an initial judgment of liability by the surrogate. Before its passage a claimant against an estate frequently discovered that, after his demand had been adjudicated in Surrogate’s Court, with the surety company as a party to the action, the claimant (creditor or dis-tributee) “was compelled to go before another tribunal to enforce his unquestionable rights against the surety * * *. This was an unnecessary and intolerable burden which the Legislature * * * wisely removed” as part of its general intent to concentrate jurisdiction of decedent’s estates matters in the Surrogate’s Court. In re Gellis’ Estate, 141 Misc. 432, 440, 252 N.Y.S. 725, 735 (Sur.Ct., 1931). The occurrence of the events necessary for maturation of a right against the surety was to be the same under both section 113 and section 115-a. See In re Stern’s Estate, 161 Misc. 272, 275, 291 N.Y.S. 732, 737 (Sur.Ct., 1936); In re Reppucci’s Estate, 145 Misc. 671, 674, 261 N.Y.S. 213, 217 (Sur.Ct., 1932).

Thus, the New York administration surety’s obligation is more a guaranty of collection (with conditions precedent to liability of the guarantor) than a guaranty of payment. See McMurray v. Noyes, 72 N.Y. 523, 524-525 (1878). Conversely, a corollary of the state’s double mandate that collection be attempted first from the principal and that the principal’s responsibility be established before the surety is pursued, is that the latter may then proceed (if it can) to collect over from the former the amount paid the creditor without the principal’s being in a position to contest his default under the bond. That liability will already have been decided in a proceeding binding on the principal.

The Hood v. Hood opinion, supra, mentioned the possibility of special exceptions to the general rule requiring court proceedings to come first. However, the examples of exceptional circumstances were very unusual, and this possibility of limitations on the general rule was early criticized. See Perkins v. Stimmel, 114 N.Y. 359, 367, 21 N.E. 729, 731 (1889). Certainly, the mere fact that the administratrix is dead is insufficient to waive an initial proceeding against her estate. In Perkins, a suit was dismissed against the sureties of a prior guardian who had died after only two inventories — it did not qualify as an exception. French v. Dauchy, supra, applied the same rule to the bond of a deceased receiver. Salisbury v. Van Hoesen, 3 Hill. 77 (discussed in Hood v. Hood) held that sureties could not be sued until there were an accounting by a guardian or, if dead, by his personal representatives. See Hood v. Hood, supra, 85 N.Y. at 576. Moreover, the terms of the bond in the present case bound the heirs, administrators, and successors of each of the parties, and the United States would therefore not lose its right against the surety by proceeding initially against Mrs. Abronzino’s representative.

In the light of this firm and imbedded practice, fusing the surety’s obligation with the special requirement of New York law, we construe appellee’s bond as implicitly incorporating that requirement as a condition of the obligation, just as if it had been spelled out explicitly in words. This is undoubtedly what the appellee reasonably understood when it gave the bond. It had the full right to expect that its obligation to pay would not ripen until there had been a court determination that Mrs. Abronzino did not “faithfully execute the trust reposed in her” or did not “obey all lawful decrees and orders of the Surrogate’s Court” relating to her husband’s estate.

It is unnecessary to decide now whether the principal’s default must always be confirmed in the Surrogate’s Court, as the New York legislation obviously contemplates, or whether such a prior determination in a suit in federal court against the executor-administrator under Rev.Stat. § 3467, 31 U.S.C. § 192, note 2, supra, could be sufficient. Here there has as yet been no determination by any tribunal that Mrs. Abronzino defaulted, and no such finding to which she or her estate or representative was a party. If the United States were allowed to proceed in this case and then prevailed, the appellee-surety might be forced to contest, all over again, the issue of Mrs. Abronzino’s responsibility in an action against her estate to recover the amount paid over to the Federal Government.

The federal decisions on which appellant primarily relies (United States v. Summerlin, 310 U.S. 414, 60 S.Ct. 1019, 84 L.Ed. 1283 (1940); Commissioner v. Kuckenberg, supra, 309 F.2d 202 (C.A. 9, 1962), cert. denied, 373 U.S. 909, 83 S.Ct. 1296, 10 L.Ed.2d 411 (1963)) involved procedural requirements of state probate or transferee law which, it was held, the United States was not compelled to follow. The difference from the present case is, as we have said, that the New York requirement is not a mere procedural step but an ingrained part of the surety’s substantive obligation. The surety does not breach, and is not liable on, its bond until the administratrix’s wrongdoing has been judicially established in a proceeding — not yet had — to which she (or her representative) is a proper party.

Affirmed.

      . The District Court had jurisdiction under 28 U.S.C. §§ 1340, 1345, and 26 U.S.C. § 7402.

      . Every executor, administrator, or as-signee, or other person, who pays, in whole or in part, any debt due by the person or estate for whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate to the extent of such payments for the debts so due to the United States, or for so much thereof as may remain due and unpaid.

      . It may he that an action invoking section 192 may be jointly brought against both the principal-executor and the surety if the latter’s obligation encompasses the Government’s claim. See United States v. Rose, 227 F.Supp. 259 (E.D.Pa., 1964) (surety’s joinder apparently not questioned), aff’d on other grounds, 346 F.2d 9S5 (C.A.3, 1965), cert, denied sub nom. Aetna Ins. Co. v. United States, 382 U.S. 979, 86 S.Ct. 551, 15 L.Ed.2d 469 (1966).

      . The formal obligee of the bond was the “People of the State of New York."

      . Section 121 of the Surrogate’s Court Act (13-A Gilbert-Bliss, Civil Practice of New York Annotated 208, 227) :
      “Before letters are issued to an administrator he must file his official oath, and execute to the people of the state, and file with the surrogate, the joint and several bond * * *. The bond must be conditioned that the administrator will faithfully discharge the trust reposed in him as such and obey all lawful decrees and orders of the surrogate's court touching the administration of the estate committed to him.”

      . These two sections were as follows:
      § 113 Where an execution, issued upon a surrogate’s decree, against the property of an executor, administrator, testamentary trustee, or guardian, has been returned wholly or partly unsatisfied, an action to recover the sum remaining uncollected may be maintained upon his official bond by and in the name of the person in whose favor the decree was made. * * *
      § 115-a(l) Where a decree has been made in any proceeding directing payment by an executor, administrator, temporary administrator, testamentary trustee or guardian, and execution against the property of such fiduciary has been returned wholly or partly unsatisfied, a petition may be presented by any person interested to the surrogate and citation issued to the surety * * or the representatives of a deceased surety, to show cause why the liability of the surety * f * should not be fixed and determined. ® * Where the executor, administrator * * has died before or after the making of the decree directing payment, the issuance of execution shall not be required. * * «
      13A Gilbert-Bliss, Civil Practice of New York Annotated 208, 211 (3d ed. 1953). Section 113 dealt with suit in a state court other than the Surrogate’s Court. Section 115-a provided a parallel route in Surrogate’s Court. These wore the relevant sections at the time of the execution of the bond.
      In 1966, the Surrogate's Court Act was replaced by the Surrogate’s Court Procedure Act and the material provisions were altered to omit the requirement of attempted execution before suit against the surety. Now, the action can be brought upon permission of the court. See N.Y. Surr.Ct.Proc.Law § 809 (McKinney 1967). The new statute does not apply to ’bonds executed before passage. See N.Y.Surr.Ct.Proc.Law § 810 (McKinney 1967).

      . Under § 115-a (1) of the Surrogate’s Court Act, supra note 6, execution against the administrator-executor was dispensed with if he had died.

      . At least one other federal court has faced a similar problem and reached the same conclusion. In United States v. Giger, 20 F.Supp. 624 (W.D.Ark.1939), the deceased was indebted to the Federal Government for an agricultural loan. After the original administrator resigned, the Government sought to hold the sureties personally liable. The court dismissed the action against the sureties for failure to state a cause for relief:
      I do not think the statute [3 U.S.C. §§ 191 and 192] has anything to do with personal liability of sureties on bonds. If the sureties on the bonds are liable to the Government, it seems to me this action is premature. While it has been held that local laws cannot interfere with the priority given in this statute, yet the decisions of our [Arkansas state] courts are uniform in holding that “an action in such court of law on the (administrator’s) bond is not sustainable until the probate court has adjusted the accounts of the administrator and has ordered him to pay over amounts found to be in his hands.” 26 F.Supp. at 625.

      . Gases such as Downer v. United States Fidelity & Guaranty Co., 46 F.2d 733 (C.A.3 1931), involved other types of surety bonds in which the obligation was not conditioned on a prior court determination of the principal’s default.