author: SOLOMON, Judge:

text:
    Irving I. BASS, trustee in Bankruptcy for J. B. Hanauer & Co., a California corporation, Appellant, v. AMERICAN INSURANCE COMPANY, a New Jersey corporation, Appellee. AMERICAN INSURANCE COMPANY, a New Jersey corporation, Cross-Complainant-Appellee, v. Fred LANDAU et al., Cross-Defendants-Appellees.
    No. 71-2838.
    United States Court of Appeals, Ninth Circuit.
    March 12, 1974.

      Timothy M. Thornton, Robert Hiner-feld (argued), of Simon, Sheridan, Murphy, Thornton & Medvene, Los Angeles, Cal., Quittner, Stutman, Treister & Glatt, Los Angeles, Cal., for appellant.
    William J. Conners, of Anderson, McPharlin & Conners, Los Angeles, Cal., E. L. Fraser (argued), of Wadsworth, Fraser, McClung & Dahl, Los Angeles, Cal., for appellee.
    Before ELY and SNEED, Circuit Judges, and SOLOMON, District Judge.

       The Honorable Gus J. Solomon, Senior United States District Judge for the District of Oregon, sitting by designation.

   SOLOMON, Judge:

Appellant, as trustee in bankruptcy for J. B. Hanauer & Co. (the company), filed an action against American Insurance Company (American) to recover on a fidelity bond issued to protect the company against dishonest, fraudulent or criminal acts of its employees.

American filed a third party action against the officers of the company for indemnity if American were found liable under the bond.

The Court granted American’s motion for summary judgment against the trustee, and it also granted the third party defendants’ motion for summary against American.

The trustee appealed from the summary judgment granted American against him.

J. B. Hanauer & Co. was a closely held corporation engaged in the purchase and sale of municipal bonds. The company warehoused municipal bonds with various parties, and when it sold one or more bonds, it repurchased the bonds from the warehousemen for delivery to its customers. Under the warehousing agreement, the company on demand of the warehousemen was obligated to repurchase the bonds at the contract price without regard to the market price or whether the company had a buyer for them.

in 1965, the company operated at a profit. But in 1966, the municipal bond market fell and the company sustained a net operating loss of $145,000. While the bond market was falling, Fred Landau, the largest bond warehouser and the company’s principal shareholder, demanded that the company repurchase the bonds that he was warehousing. The company complied, but this repurchase left the company without operating funds. Thereafter, when customers purchased bonds, the company deposited the payments it received for the bonds in its general operating account. The company used this money to pay salaries and operating costs instead of repurchasing the bonds for delivery to its customers.

The fidelity bond which American issued protected the company against:

“(a) Any loss through any dishonest, fraudulent or criminal act of any of the Employees, committed anywhere and whether committed alone or in collusion with others, including loss of Property through any such act of any of the Employees.”

The bond did not cover:

“(g) Any loss resulting directly or indirectly from trading with or without the knowledge of the insured, in the name of the insured or otherwise, whether or not represented by any indebtedness or balance shown to be due the insured on any customer’s account, actual or fictitious, and notwithstanding any act or omission on the part of any Employee in connection with any account relating to such trading, indebtedness, or balance . . . .”

The trustee in one count charged that vice-president Warburton falsely represented to a customer that the bonds he sold the customer belonged to the company when the bonds belonged to him. At the time of the sale Warburton gave the customer a warehousing repurchase agreement binding the company. When the market value of the bonds fell, the customer demanded that the company repurchase the bonds. The trustee charged that the company lost $9,000 when it repurchased these bonds to protect its image.

In a second count, the trustee charged that vice-president Warburton misrepresented the market value of bonds when he sold them to a customer. The customer sued the company, charging that he relied on Warburton’s statement and purchased the bonds for $57,000 although the bonds had a par value of $50,000 and a fair market value of $47,000.

The trustee in a third count charged that Jack B. Hanauer, the company’s president, and George Dann, a vice-president, fraudulently accepted customers’ money for bonds when they knew the company could not deliver. The trustee charged that the company suffered a loss because this money was used to pay corporate expenses.

In the fourth count, the trustee charged that president Hanauer and the principal shareholder, Fred Landau, caused the company to improperly purchase delinquent bond coupons on Sleepy Hollow Acres, property in which they held personal interests, and that as a result of the purchase the company lost $19,564.

American filed a third party complaint against Hanauer, the company president, and Dann, a company vice-president, in which American sought judgment against them individually if American was held liable on the third and fourth counts. Both American and the third party defendants filed motions for summary judgment. Hanauer and Dann filed affidavits and transcripts of the proceedings in cases filed by the trustee against officers of the corporation and others in the State courts of New York and California. American incorporated these affidavits and transcripts in its motion for summary judgment against the trustee. The trustee did not file a counter-affidavit on these issues.

The first two counts relate to the sale of bonds by Warburton, a company vice-president.

It was uncontroverted that the company regarded filling sales orders, servicing customers, and underwriting municipal bonds as activities within the meaning of the term “trading”.

Even without this company interpretation and practice, these sales came within the definition of the term “trading”. Sutro Bros. & Co. v. Indemnity Insurance Company of North America, 264 F.Supp. 273 (S.D.N.Y.1967), aff’d 386 F.2d 798 (2d Cir. 1967); Roth v. Maryland Casualty, 209 F.2d 371 (3rd Cir. 1954). The trial court properly granted summary judgment on these two counts.

In count three, the trustee charged that Hanauer and Dann solicited and accepted orders for bonds when they knew that the monies received for these bonds would be used for the operation of the company and for other company expenses. The trustee asserted that he is entitled to be indemnified and held harmless for the losses sustained by customers as the result of such conduct.

The trustee did not contend that the officers of the company diverted customers’ funds for their own use.

On this theory of recovery the court granted summary judgment against the trustee because American’s fidelity bond indemnified the company “against its losses only and not against liability it might have to third parties”.

The court found that the customers’ funds for the purchase of securities were deposited in the company’s general corporate account and were used to pay the regular and normal operating expenses of the company and that the use of the funds for such purposes was not covered by the bond. Fidelity & Deposit Co. of Maryland v. Usaform Hail Pool, Inc., 463 F.2d 4 (5th Cir. 1972); Levey v. Jamison, 82 F.2d 958 (4th Cir. 1936).

It is not necessary for this Court to consider whether the two State court actions, one brought in New York and the other in California, are res judicata or whether the doctrine of collateral estop-pel would apply because the other grounds on which the court granted summary judgment on count three are adequate.

We have considered but will not discuss one new theory of recovery urged by the trustee in his reply brief, nor will we discuss the other new theory which he suggested for the first time in oral argument. Even if timely made, neither theory has any merit.

In count four, the trustee charged that the company purchased delinquent bond coupons on Sleepy Hollow Acres, a large tract which Hanauer and Landau were buying. The trustee contended that Hanauer and Landau caused the company to make this purchase to protect their personal investments in the property. The trustee seeks indemnification under the bond for the $19,564 the company lost because of its purchase of the delinquent interest coupons.

In 1961, the company was the underwriter of a $195,000 bond issue on existing streets and sewer lines in a portion of Sleepy Hollow Acres. The company made a profit of $25,000 on the sale of these bonds.

The lots in Sleepy Hollow Acres did not sell well. As a result Hanauer and Landau received no income from the property and failed to pay the bondholders interest as it became due. On February 26, 1965, the company’s board of directors authorized the purchase of $19,564 in delinquent bond coupons. The company made the purchase to protect its own image. At the time the company purchased the coupons, Han-auer and Landau each agreed to invest an additional $35,000 of his personal funds toward the purchase price of the property. In July, 1965, Hanauer and Landau also invested $200,000 in the company’s equity capital through the purchase of subordinated debentures.

On October 4, 1965, all of the shareholders at the annual meeting adopted a resolution approving the acts of the board of directors for the fiscal year ending July 31,1965.

The trustee asserts the shareholders’ resolution was invalid because under sections 800, 814, and 820 of the California Corporation Code when one or more directors have a financial interest in a contract or transaction with the corporation, a unanimous vote of all the directors is required for the corporation to authorize, approve or ratify the contract or transaction. Here, Hanauer’s wife and daughter, two dummy directors neither of whom owned any stock or attended any directors meetings, were not present at this meeting and were not aware of the coupon purchase.

The District Judge granted summary judgment. He concluded the loss suffered in the coupon purchase was a “trading loss” and is therefore excluded from coverage under the bond. He found that the company was not made insolvent by the coupon purchase, and the creditors which the trustee represents were not creditors of the company when it bought the coupons. He also concluded that if there was any irregularity in the transaction, it was cured when Hanauer and Landau contributed $200,000 to the equity capital of the company by the purchase of debenture bonds.

Moreover, this Court finds the trustee’s interpretation of sections 800, 814 and 820 of the California Corporations Code is unduly restrictive. Here, all the active members of the board of directors, with knowledge of all the facts, approved the coupon purchase and all the shareholders unanimously adopted the resolution affirming the actions of the board of directors. The summary judgment on this count was proper.

Affirmed.


source: Caselaw Access Project

author: MANSFIELD, Circuit Judge:

license: Public Domain

text:
    UNITED STATES of America, Appellee, v. Gamey BOWMAN, Appellant.
    No. 585, Docket 73-2335.
    United States Court of Appeals, Second Circuit.
    Argued Dec. 19, 1973.
    Decided Feb. 25, 1974.
    John D. Gordan, III, Asst. U. S. Atty. (Paul J. Curran, U. S. Atty., S. D. N. Y., S. Andrew Schaffer, Asst. U. S. Atty., New York City, of counsel), for appellee.
    William Epstein, The Legal Aid Society, New York City (William Gallagher, Federal Defender Services Unit, New York City, of counsel), for appellant.
    Before FRIENDLY, MANSFIELD and OAKES, Circuit Judges.
   MANSFIELD, Circuit Judge:

Once again we are asked to reverse a criminal conviction because of the government’s failure to comply with a local rule for the prompt disposition of criminal cases. See, e. g., United States v. Masullo, 489 F.2d 217 (2d Cir. 1973); United States v. Pollak, 474 F.2d 828 (2d Cir. 1973); United States v. Valot, 473 F.2d 667 (2d Cir. 1973); United States v. Counts, 471 F.2d 422 (2d Cir. 1973). Appellant, Gamey Bowman, was on August 8, 1973 convicted, after a two-day trial before Judge Arnold Bau-man and a jury in the Southern District of New York, of conspiracy to distribute narcotics in violation of 21 U.S.C. §§ 812, 841(a)(1) and 841(b)(1)(A) (1972). Bowman was sentenced as a youth offender to a probationary term of three years pursuant to 18 U.S.C. § 5010(a). Because in this instance the government’s failure to comply with Buie 4 of the Southern District’s Plan for Achieving Prompt Disposition of Criminal Cases (“the Plan”) was due to “excusable neglect” within the meaning of that Rule, we affirm.

Rule 4, which became effective on April 1, 1973, establishes a “six-months rule” whereby the government is required to be ready for a trial within six months from the date of the defendant’s “arrest, service of summons, detention, or the filing of a complaint whichever is earliest.” If the government fails to be ready for trial within the six-month period, the defendant may have the indictment against him dismissed unless the indictment charges him with a capital offense, or unless “the court finds that the (government’s) neglect is excusable. . . . ” Under Rule 5(h) of the Plan the six-month period. specified in Rule 4 does not include periods of delay “occasioned by exceptional circumstances.”

Bowman was arrested on drug charges on November 16, 1972. On May 8, 1973, an indictment was returned against him by a grand jury in the Southern District. On May 9, 1973, the government filed with the Clerk of the Southern District a notice of its readiness for trial. Pursuant to Rule 7(A) of the local calendaring rules, however, Bowman was not arraigned and did not enter his plea to the indictment until May 21, 1973, which was the second Monday following the filing of the indictment and which was also five days after expiration of the six-month period following Bowman’s arrest. Since the six-month period specified by Rule 4 of the Plan had elapsed before his plea was entered, Bowman, relying on our decision in United States v. Valot, 473 F.2d 667 (2d Cir. 1973), moved on June 4, 1973 for dismissal of the indictment,

In Valot, which was decided under the Second Circuit’s Prompt Disposition Rules in effect before the Southern District’s Plan was adopted and which contained a similar six-month rule, the timing of the chain of events leading up to entry of the defendant’s plea was substantially the same as that presented here. There, as here, the government obtained the indictment and filed its notice of readiness shortly prior to expiration of the six-month period from the arrest and the plea was entered five days after that period had elapsed. Because the district court, in denying Val-ot’s motion to dismiss the indictment for failure of the government to comply with the Prompt Disposition Rules, had failed to make findings, we remanded the conviction to it for the purpose of making findings on the subject of whether dismissal was required by those Rules. On this subject we stated: “Here, as in Scafo, 470 F.2d 748 (2 Cir.), no findings of fact were made as to what actually occurred, including the reasons for the delay or delays and whether they were ‘occasioned by exceptional circumstances’. Rule 5(h) of the Second Circuit Rules.” 473 F.2d at 668. In support of his motion in the present case Bowman contended that Valot must be construed as holding that a notice of readiness filed prior to entry of a plea be disregarded and that absent a showing of “exceptional circumstances” under Rule 5(h) of the Plan an indictment which is not filed sufficiently in advance of the expiration of the six-month period to enable a defendant to plead within that period, after scheduling in accordance with Rule 7 of the local calendar rules, must be dismissed.

Before ruling on the question of whether dismissal was mandated by Val-ot, Judge Bauman on June 22, 1973, held a hearing to determine whether there were any periods of delay caused by “exceptional circumstances” which, under Rule 5(h) of the Plan, would be excluded in his computation of the six-month period from the date of defendant’s arrest, or whether the government’s alleged failure to comply with the six-month rule was due to “excusable neglect.” The evidence revealed that during much of the time between appellant’s arrest and indictment the United States Attorney’s Office was in a state of transition between the administrations of Whitney North Seymour, Jr. and Paul J. Curran. Its criminal division and its narcotics unit were seriously understaffed. Assistant United States Attorney John Sabetta was not assigned to the case until February 7, 1973, after one other assistant in charge of it had been transferred out of the unit and another assistant subsequently assigned to the case had resigned from the office. When Sabetta was assigned to the case, other matters, including a complicated and lengthy conspiracy trial, demanded his complete attention until early April when, because of physical exhaustion, he took a week’s vacation. Upon his return he prepared the case against appellant and presented it to the grand jury sitting in the Southern District on May 8, 1973. Sabetta conceded that he would have presented the case to the grand jury in time to allow appellant to plead to the indictment (pursuant to the Southern District’s scheduling rules) within six months from the date of appellant’s arrest had he been aware of this court’s decision in the Valot case. However, he was not aware of this decision at the time. This oversight was compounded by a temporary breakdown in the practice normally followed by the United States Attorney’s case control unit of sending out time advance warnings of the six-month expiration date in each case. The breakdown occurred because of confusion and “certain personnel changes” taking place within the unit.

At the close of the hearing Judge Bauman ruled that, in light of our decision in Valot, proper compliance with Rule 4 of the Plan required the filing of an indictment in time to allow the defendant to plead to it and the government then to file its notice of readiness within six months from the date of the defendant’s arrest. Judge Bauman declined to characterize the prosecutor’s delay in this case as "neglect.” However, he found that the circumstances existing within the United States Attorney’s office prior to the filing of the indictment were "exceptional” within the meaning of Rule 5(h) of the Plan and thus periods of resulting delay should be excluded in computing the six-month period. Based on this finding Judge Bau-man denied appellant’s motion to dismiss.

Discussion

Although our short per curiam in Valot did not make completely clear the full import of the remand in that case, we agree that it was correctly interpreted by Judge Bauman. Our purpose was to insure that the government would file its notice of readiness only after pleading and that, absent exceptional circumstances permitting an extension of time pursuant to Rule 5(h), this must be done within the six-month period following arrest, after excluding any other periods as authorized by Rule 5. Even though the government might be ready to go to trial at an earlier date, its readiness could not become effective as a practical matter until issue had been joined, whereupon the case could be assigned to a judge for all purposes, including the disposition of pretrial motions and the conduct of trial itself.

We cannot agree, however, that the circumstances existing within the United States Attorney’s Office at the times here pertinent were “exceptional” within the meaning of Rule 5(h). Judge Bauman himself observed, having the benefit of his own prior experience as a prosecutor in the same office, that understaffing has not been unusual within the criminal division of the United States Attorney’s Office for the Southern District. Were we to hold that periodic understaffing could constitute an exceptional circumstance within the meaning of Rule 5(h), we would seriously undermine the effectiveness of Rule 4, the purpose of which is to insure that prosecutorial delay will not thwart the prompt trial of criminal cases. See Hilbert v. Dooling, 476 F.2d 355, 357-358 (2d Cir. 1973) (en banc), cert. denied, 414 U.S. 878, 94 S.Ct. 56, 38 L.Ed. 2d 123 (1973).

The issue of what “neglect is excusable” presents a different question — one with which we have not previously been concerned, since the Second Circuit Rules contained no such provision. Judge Bauman made no explicit ruling on this issue, being reluctant to characterize as “neglect” Assistant United States Attorney Sabetta’s performance under the concededly difficult circumstances existing in the United States Attorney’s Office. Without implying that the failure to obtain and file the indictment within a period which would permit appellant to plead and the government to serve its notice of readiness within six months of arrest was attributable to specific fault on the part of the Assistant, as distinguished from that of the Office, we have no reluctance in labelling it neglect. Any other finding would necessarily be inconsistent with what we have already said. At the same time we have no hesitancy in concluding that in view of the undisputed circumstances the neglect was excusable. Even if the Assistant had been aware of Valot — and it seems probable that some members of the United States Attorney’s office were acquainted with it — the implication that the Rules would be construed to require the indictment and plea within the six-month period may not have been entirely clear. The scheme of the Plan, like the Second Circuit Rules which preceded it, was not to “mandate trial within a specified time” but to focus “primarily on prosecutorial delay as a means of implementing the public interest in disposition of criminal charges with reasonable dispatch.” Hilbert v. Dooling, supra, 476 F.2d at 357. Absent more specific express requirements a prosecutor could reasonably have believed that he would be fulfilling his obligation if he were to file an objective manifestation of his readiness to proceed to trial within six months of arrest, regardless of whether or not the defendant had entered his formal plea, since the prosecutor would thus actually have been ready to proceed to trial within six months. Indeed, when after entry of a plea a notice of readiness is filed within six months, additional time is almost inevitably allowed to the defendant for the making of pretrial motions, regardless of the government’s readiness.

Since the filing of a notice of readiness within six months, regardless of the entry of a plea, might have appeared reasonably to comply with both the spirit and technical requirements of Rule 4, it would not have been unreasonable for the Office of the United States Attorney to interpret our remand of Valot, in which we stated that “no findings of fact were made as to what actually occurred, including the reasons for the delay,” as meaning that the district court must determine whether the government had in fact been ready to go to trial within six months, which would constitute compliance with Rule 4, and, if he had not actually been ready, to decide whether there were exceptional circumstances warranting extension of the six-month period pursuant to Rule 5(h).

To put the prosecutor’s neglect in perspective we have no doubt that if the full import of Valot had been fully expressed in our opinion the United States Attorney would probably have taken greater note of it and proceeded to acquaint each Assistant with its significance. In that event the prosecutor would probably have taken steps to have the indictment filed at an earlier date, which would permit pleading to be scheduled in accordance with local Rule 7(A), or he might have sought permission from the court to place the ease on the calendar for pleading prior to the expiration of the six-month period. Taking into consideration all of the circumstances, including the fact that the plea was entered only five days after the expiration of the six-month period, we are persuaded that the neglect here was “excusable” within the meaning of Rule 4. Indeed, if that term is to have any effect at all it is difficult to conceive of a more appropriate case for its application than the present one.

Our decision does not mean that a similar practice on the part of the prosecutor will be countenanced in the future. Having now had fair warning of our clarification of the Valot remand, he must at the risk of dismissal of an indictment conform to the six-month requirement as herein clarified.

The judgment of the district court is affirmed.

      . “ (4) All Cases: Trial Readiness and Effect of Non-Compliance. In all eases the government must be ready for trial within six months from the date of the arrest, service of summons, detention, or the filing of a complaint or of a formal charge upon which the defendant is to be tried (other than a sealed indictment), whichever is earliest. If the government is not ready for trial within such time, and if the defendant is charged only with non-capital offenses, the defendant may move in writing, on at least ten days’ notice to the government, for dismissal of the indictment. Any such motion shall be decided with utmost promptness. If it should appear that sufficient grounds existed for tolling any portion of the six-months period under one or more of the exceptions in Rule 5, the motion shall be denied, whether or not the government has previously requested a continuance. Otherwise the court shall, enter an order dismissing the indictment with prejudice unless the court finds that the government’s neglect is excusable, in which event the dismissal shall not be effective if the government is ready to proceed to trial within ten days.”

      . “Rule 7. Pleading and Assignment of Criminal Actions. (A) Calendaring of Pleas All criminal actions instituted by an indictment shall be placed upon the criminal calendar of Part I for pleading on the second Monday following the filing of the indictment. If the matter is instituted by waiver of indictment and the filing of an information, the action shall be placed on the Monday calendar for waiver and pleading.”

      . The Second Circuit’s Rules were in effect until they were superseded by Plans for each of the six districts within the Circuit. Since the Southern District’s Plan adopted many of the Second Circuit’s Rules — including Rules 4 and 5(h) — almost verbatim, court decisions dealing with the Rules are for the most part applicable here. See United States v. Lasker, 481 F.2d 229, 232 n. 2 (2d Cir. 1973).

      . The narcotics unit was approximately two men short and the criminal division was approximately eight men short.

      . The purpose of Rule 7(A) is to insure that before an indictment is calendared for pleading the defendant will actually receive notice that he appear on a specified date, which is usually sent through the mail. If, instead of mailing the notice on Tuesday, May 8, the date when the indictment was filed, the prosecutor had requested permission from the court to effectuate personal service within a few days of a notice calling upon Bowman to plead on Monday, May 14, it appears likely that the application would have been granted. In that event the government could have complied with the six-month rule.


author: TUTTLE, Circuit Judge:

text:
    J. C. FAIRLEY et al., etc., Plaintiffs-Appellants-Cross Appellees, v. Joe T. PATTERSON, Attorney General of the State of Mississippi, et al., etc., Defendants-Appellees, Olyer Blackwell, etc., Intervenor-Appellant, W. U. (Bill) Sigler et al., etc., Defendants-Appellees-Cross Appellants.
    No. 73-1566.
    United States Court of Appeals, Fifth Circuit.
    May 1, 1974.

      Constance Iona Slaughter, Forest, Miss., Frank R. Parker, George Peach Taylor, Herman Wilson, Jackson, Miss., Edward J. Currie, Jr., Hattiesburg, Miss., for plaintiffs-appellants.
    John G. Kester, Washington, D. C., for intervenor-appellant.
    A. F. Summer, Atty. Gen. of Miss., William A. Allain, Asst. Atty. Gen., Jackson, Miss., for State of Miss.
    Stone D. Barefield, R. W. Heidelberg, D. Gary Sutherland, James F. McKenzie, Hattiesburg, Miss., for Bd. of Supervisors.
    Before TUTTLE, DYER and MORGAN, Circuit Judges.
   TUTTLE, Circuit Judge:

This appeal is the consolidation of two suits from the district court, the first involving reapportionment and the second a request for attorneys’ fees and expenses in the first. The reapportionment suit is brought under the fourteenth and twenty-sixth amendments to the United States Constitution challenging the district court’s approval of the exclusion by county officials of a “class” of college students from the reapportionment of Forrest County, Mississippi. In the second, error is charged the district court by the appellees in the granting of attorneys’ fees and by the appellants in the limiting of the award of attorneys’ fees and the denial of costs.

FACTS

This suit was filed on July 12, 1967, as a complaint under the Voting Rights Act of 1965, 42 U.S.C.A, § 1973 et seq., and the fourteenth and fifteenth amendments to the United States Constitution. The plaintiffs, representing the class of all qualified voters of Forrest County, Mississippi, sued the defendant state officials to enjoin the implementation and enforcement of an amendment to section 2870 of the Mississippi Code permitting the five members of the Forrest County Board of Supervisors to be elected at-large rather than from single voting districts.

The Supreme Court reversed the judgment of a three-judge district court, which had dismissed the complaint, holding that section 5 of the Voting Rights Act, 42 U.S.C.A. § 1973c, applied. Allen v. State Board of Elections, 393 U.S. 544, 89 S.Ct. 817, 22 L.Ed.2d 1 (1969), rev’g., Fairley v. Patterson, 282 F.Supp. 164 (S.D.Miss.1967). On remand, the district court entered a temporary restraining order prohibiting section 2870 of the Mississippi Code from being implemented until the state officials had complied with section 5 of the Voting Rights Act.

The election for the Board of Supervisors of Forrest County was thereafter conducted, using the former single district balloting. The five single districts, however, had populations varying from approximately 1,074 to 26,992. The Board of Supervisors recognized in 1969 the need to redistrict the county to conform with constitutional requirements and hired an organization known as Comprehensive Planners, Inc. (CPI) to draw up a redistricting plan. Although CPI submitted several plans, no action was taken.

On December 29, 1971, Olyer Blackwell moved to intervene as a plaintiff and member of the original plaintiffs’ class and filed a complaint challenging under the fourteenth amendment the apportionment of the county’s voting districts pursuant to section 2870 of the Mississippi Code. The district court subsequently granted Blackwell leave to intervene, held that the apportionment of Forrest County violated the one man, one vote requirement of the fourteenth amendment, and ordered the Board of Supervisors to submit a constitutional reapportionment plan and conduct registration of voters within the new voting districts of the county.

After the initial hearing on the inter-venor’s complaint, the record reflects that the intervenor took a passive role in the further proceedings. When the defendants-supervisors were tardy in coming forward with a reapportionment design, the district court invited the original plaintiffs to submit a plan.

Subsequently, the Board of Supervisors also presented a plan which was acceptable to the intervenor and the district court. However, the proposal prepared by CPI and submitted to the court by the Board of Supervisors, was not acceptable to the original plaintiffs. 23 In order to achieve population equality between voting districts, CPI utilized final population figures from the 1970 Decennial Census, obtained from the Bureau of the Census, United States Department of Commerce. CPI, however, also consulted the records of the University of Southern Mississippi and William Carey College, both college level institutions in Forrest County. Based solely on these records, CPI subtracted from the census population figures all students at the two colleges who (1) were unmarried, (2) lived on the campus in dormitories or fraternity houses, and (3) were shown on the spring 1970 college records to have an address outside Forrest County. This class of students totalled 3,077 persons, and they were totally omitted from the reapportionment calculations.

FORREST COUNTY VOTING _DISTRICTS_

Population Population Excluding District By Census Students

1 10,995

2 10,880

3 10,885

4 11,449 10,961

5 13,740 11,051

The population- variance between the smallest and the largest districts is 25.-5% if this class of students is included; without this class of students, the variance is 1.6%.

When the original plaintiffs objected to the exclusion of this class of students, the district court stated :

“The home addresses of these students were obtained by the college officials from the registration cards filed by the students themselves with the college officials for the spring quarter of 1970 and constituted an expression from each of said students as to his permanent residence at that time. All of the students so excluded were nonresidents of Forrest County and were only transient, short-term or temporary inhabitants of the county. The inclusion of these nonresidents on-campus dormitory and fraternity house students, most of whom were concentrated in district no. 5, would distort the equalization of population required by the ‘one man, one vote’ rule and would have the effect of granting to the permanent residents of those districts greater voting power than other citizens of Forrest County.
“All students residing in dormitory and fraternity houses whose college record indicated permanent home addresses within Forrest County were included in the total population count and allocated to the respective districts where their home addresses were located.
“Inclusion of other students residing off campus and throughout the City of Hattiesburg and Forrest County would not distort the ‘one man, one vote’ rule. These students are scattered over a much wider geographical area so that inclusion or exclusion would have little or no bearing on equalization of population among the various districts.”

The appellants, who only include the original plaintiffs because the interve-nor did not object to the county’s plan, find fault with these findings on three grounds. First, appellants argue that the exclusion of this class of students creates a variance in excess of that allowed under the fourteenth amendment one man, one vote standards. Without sufficient verification that this class of students’ residence lies outside the county, appellants insist that the pure census figures must be used in calculating the population equality between districts. Second, under a traditional equal protection syllogism, appellants assert that this class of students was unreasonably classified as non-residents in violation of the fourteenth amendment. Under this theory, if the students choose to exercise their franchise in Forrest County, their vote will be diluted by the unequal size of voting districts. Lastly, appellants postulate that the exclusion discriminates against a class predominantly eighteen to twenty year olds and therefore violates the twenty-sixth amendment.

STANDING

As an initial argument on appeal which was not raised in the district court, appellees charged the appellants and their class with lack of standing. If true, this Court would have no jurisdiction, U.S.Const. art. III, § 2, and would be cause for dismissal, Fed.R.Civ.P. 12(h)(3).

Plaintiffs set out the class they represent in their amended complaint:

“3. Plaintiffs are all adult negro citizens of Mississippi and of the United States, and are citizens, residents and qualified electors of Forrest County, Mississippi.
“4. Plaintiffs bring this action on behalf of themselves and all other persons similarly situated as qualified electors of Forrest County and as potential candidates for Board of Supervisors of Forrest County, pursuant to Rule 23 of the Federal Rules of Civil Procedure . . . .”

The intervenor in his “Motion to Intervene as Plaintiff” characterized himself as “a member of the class set forth in Paragraph No. k [set out above] of the original complaint on file herein and is a qualified elector of Forrest County, Mississippi, and of Supervisor District No. 2 of said County. . . .” (Emphasis added).

The Supreme Court in defining the parameters of standing in United States v. S. C. R. A. P., 412 U.S. 669, 689-690, 93 S.Ct. 2405, 37 L.Ed.2d 254 (1973), pointed to two indicia of standing: (1) As “injury in fact” and (2) That the injury not be so attenuated as to be imaginary. Id. at 688-689, n. 14. The issue then becomes whether the original plaintiffs and their class of qualified electors have sustained sufficient injury to satisfy this standing criterion.

Under appellants’ first claim, a traditional one man, one vote argument, the Supreme Court has conclusively established in Baker v. Carr, 369 U.S. 186, 204-208, 82 S.Ct. 691, 7 L.Ed.2d 663 (1962), and Reynolds v. Sims, 377 U.S. 533, 554-561, 84 S.Ct. 1362, 12 L.Ed.2d 506 (1964), that sufficient damage through underrepresentation to obtain standing will be inflicted if population equality among voting units is not present. However, injury results only to those persons domiciled in the underrepresented voting districts. Skolnick v. Board of Commissioners of Cook County, 435 F.2d 361 (7th Cir. 1970).

Under the prior malapportioned scheme of Forrest County, the electors of Supervisory Districts Nos. 1, 2, and 3 were underrepresented. The intervenor, therefore, as a resident of district no. 2 had standing to bring the initial reapportionment challenge. Cf. Skolnick v. Board of Commissioners of Cook County, supra, 435 F.2d 361. The original plaintiffs, however, did not allege the voting district in which they reside or that they were underrepresented. Admittedly, part of the class of qualified electors resided in underrepresented districts, but the original plaintiffs cannot properly represent a sub-class of electors of which they may not be members. Mintz v. Mathers Fund, Inc., 463 F.2d 495, 498-499 (7th Cir. 1972); Norman v. Connecticut State Board of Parole, 458 F.2d 497 (2d Cir. 1972); Hamer v. Campbell, 358 F.2d 215, 219 (5th Cir.), cert. denied, 385 U.S. 851, 87 S.Ct. 76, 17 L.Ed.2d 79 (1966); Wilson v. Kelley, 294 F.Supp. 1005, 1010-1011 (N.D.Ga.1968) (three-judge court), aff’d., 393 U.S. 266, 89 S.Ct. 477, 21 L. Ed.2d 425 (1968); 3B Moore’s Federal Practice ¶ 23.04. Cf. Bailey v. Patterson, 369 U.S. 31, 32-33, 82 S.Ct. 549, 7 L.Ed.2d 512 (1962). Since the original plaintiffs did not allege residence in district one, two, or three and since they are not proper class representatives of the electors in these districts, there is lack of standing.

In sum, the intervenor had standing to attack the original malapportioned districts. This attack, then joined in by the plaintiffs’ counsel through the hearing and order of the trial court, was properly within that court’s jurisdiction. However, when the intervenor acquiesced in that judgment, this left only the original plaintiffs. For the reasons already stated, the original plaintiffs were not aggrieved parties, and thus they have no standing to prosecute the appeal.

The standing challenge also undermines appellants’ two other legal theories, a traditional equal protection rationale and a twenty-sixth amendment claim. The legal rights under these theories may be asserted only by this group of excluded students. Neither the plaintiffs nor the intervenor alleged or demonstrated that the class of qualified electors contains, as a member, any of the omitted students. Therefore, since it must be assumed that none of the injured students are among the plaintiffs or their class and since the original plaintiffs, themselves, lack standing, there is no standing to assert those rights. See Socialist Labor Party v. Gilligan, 406 U.S. 583, 92 S.Ct. 1716, 32 L.Ed.2d 317 (1972); Tileston v. Ullman, 318 U.S. 44, 63 S.Ct. 493, 87 L.Ed. 603 (1943).

ATTORNEYS’ FEES AND EXPENSES

While the Court has no jurisdiction to hear the appeal in the reapportionment suit, the appellees have cross-appealed in the second case, denying that it was proper for the district court to grant attorneys’ fees to the original plaintiffs. Initially, it should be pointed out that to reverse the court’s granting of attorneys’ fees summarily, on the basis of our finding of lack of standing, would be to ignore the reality of this litigation.

In the first place, the original plaintiffs had standing to bring the original suit, which the Supreme Court ultimately decided in their favor. This suit was then the vehicle upon which intervenor travelled in attacking the malapportion-ed districts. Moreover, without any challenge being made as to standing in the district court, plaintiffs’ counsel carried the laboring oar as stated by the trial court, in bringing the litigation to an end. The court relied directly on the original plaintiffs by inviting a reapportionment proposal from them when the Board of Supervisors actions were inadequate. Later, proceedings were conducted in the adversary mode with the original plaintiffs bearing the burden of challenging the county’s reapportionment plan. For this service, the court saw fit to compensate the original plaintiffs. Our finding on the issue of standing cannot undo this service to the court and to the public.

The rule on the allowance of attorneys’ fees is settled that an award may be made in the exercise of the equity powers of the court. E. g., Sprague v. Ticonic National Bank, 307 U.S. 161, 59 S.Ct. 777, 83 L.Ed. 1184 (1939); Ojeda v. Hackney, 452 F.2d 947, 948 (5th Cir. 1972); Lee v. Southern Home Sites Corp., 444 F.2d 143, 144 (5th Cir. 1972); La Raza Unida v. Volpe, 57 F.R.D. 94 (N.D.Calif.1972); 6 Moore’s Federal Practice ft 54.77 [2].

In resolving the motion for attorneys’ fees and expenses by the original plaintiffs, the district court stated:

“It cannot be justly and properly said with any degree of accuracy that Forrest County has been guilty of any conduct which would justify the Court in awarding attorney’s fees or such expenses under the circumstances here. * * * * * * “. . . In view of the agreed award of an attorneys’ fee to the in-tervenor, however, it would appear equitable and proper to allow the mov-ants a like amount for a much greater service rendered the Court in this case. Accordingly, the Court will award the movants $1,500 for their service in this case in spite of the circumstances mentioned, and will deny the expense claim in its entirety.”

The “circumstances” referred to by the district court were explained:

“. . . The movants, represented by George Peach Taylor, are employed and paid for their services by a tax free national foundation which employs attorneys to engage in such civil rights activities of public interest and importance, and furnishes all necessary revenues therefor. George Peach Taylor has been paid his regular salary and is not due anything for this service he rendered, but any award by the Court for this service will inure in its entirety to the tax free foundation engaged in such business at Jackson as a non-profit operation. There is no question but that such services of the movant were very helpful and beneficial to the Court in bringing such plan to fruition.
*«•**«*
“. . . Effectively, this motion under the circumstances must be regarded as that of the Ford Foundation. . . . Any award made pursuant to such motion will be directly chanelled into the coffers of the Ford Foundation which enjoys its own reward at public expense by its tax exemption status.”

The formulations of when a court should exercise its discretion to grant attorneys’ fees have been framed within several rationales, two of which support the district court’s award in this case.

The first ground is satisfaction of the “unreasonably and obdurately obstinate” behavior standard. When a party’s conduct has been vexatious, groundless, or in bad faith, courts have charged attorneys’ fees and costs against the adverse party. Kahan v. Rosenstiel, 424 F.2d 161, 167, nn. 6 & 7 (3rd Cir. 1970), cert. denied, 398 U.S. 950, 90 S.Ct. 1870, 26 L.Ed.2d 290 (1970); Bradley v. School Board of the City of Richmond, Va., supra, 53 F.R.D. at 38-40. A corollary to this standard has emerged recently, primarily from the school desegregation litigation. When a suit alleging violation of clearly established law in a particular area is filed, and the defendants, in the face of evident violation of this law, persist in forcing the plaintiffs to expend efforts in preparing and/or conducting a trial, then attorneys’ fees may appropriately be awarded. Bradley v. School Board of the City of Richmond, Va., supra. This factor has been decisive on the issue of attorneys’ fees in other reapportionment suits. See Sims v. Amos, 340 F.Supp. 691, 694 (M.D.Ala.) (three-judge court), aff’d. per curiam, 409 U.S. 942, 93 S.Ct. 290, 34 L.Ed.2d 215 (1972); Dyer v. Love, 307 F.Supp. 974 (N.D.Miss.1969).

The second supporting rationale, the private attorney general theory, is derived from the Supreme Court opinions in Newman v. Piggie Park Enterprises, Inc., supra; and Mills v. Electric Auto-Lite Co., supra, 396 U.S. at 389-397. The theory is that private plaintiffs have aided in effectuating important congressional and public policies. Attorneys’ fees have not only been granted in'suits brought under the Civil Rights Act, 42 U.S.C.A. §§ 1981, 1982, 1983, e. g., Sims v. Amos, supra (section 1983); Cooper v. Allen, 467 F.2d 836 (5th Cir. 1972) (section 1981); Lee v. Southern Home Sites Corp., supra, 444 F.2d 143 (section 1982); Knight v. Auciello, 453 F.2d 852 (1st Cir. 1972) (section 1982) ; Jinks v. Mays, 350 F. Supp. 1037 (N.D.Ga.1972) (sections 1981-1983); NAACP v. Allen, 340 F.Supp. 703, 708-710 (M.D.Ala.1972) (section 1983), but also under various other federal statutes, e. g., Yablonski v. United Mine Workers, 151 U.S.App.D.C. 253, 466 F.2d 424 (1972), cert. denied, 412 U.S. 918, 93 S.Ct. 2729, 37 L.Ed.2d 144 (1973) (labor-management recording and disclosure act); La Raza Unida v. Volpe, supra, 57 F.R.D. 94 (various federal transportation statutes).

Having affirmed the allowance of attorneys’ fees, a second question, of whether the court abused its discretion in limiting the awarded amount and in denying expenses, arises. The court’s verbalized reason for denying expenses and limiting attorneys’ fees, for the “much greater service” performed by the original plaintiffs than the intervenor, is that the funds would flow into the “coffers of the Ford Foundation.” This is an impermissible rationale to use in determining the amount of attorneys’ fees and expenses. This Court has indicated on several occasions that allowable fees and expenses may not be reduced because appellants’ attorney was employed or funded by a civil rights organization and/or tax exempt foundation or because the attorney does not exact a fee. This Court has, previously, awarded fees to attorneys while employed by the Lawyers Committee without hinting that their employment status was relevant to this issue. Fears v. Burris Manufacturing Co., 436 F.2d 1357, 1359; 4 E.P.D. ¶ 7535, 7536 (5th Cir. 1971).

This Court pointed to the essential indicium in Miller v. Amusement Enterprises, Inc., supra, 426 F.2d at 538-539:

“What is required is not an obligation to pay attorneys’ fees. Rather what — and all — that is required is the existence of a relationship of attorney and client, a status which exists wholly independently of compensation, as witness of the effective service of counsel in the defense of criminal cases, the assertion of post-conviction ha-beas remedies and the now widespread organized services on behalf of the poor.”

This Court echoed this holding in affirming the district court’s award of attorneys’ fees in Clark v. American Marine Corp., supra, 320 F.Supp. 709. In describing, there, how the amount was to be determined, the court stated; “Whether or not he agreed to pay a fee and in what amount is not decisive. . The criterion for the court is not what the parties agreed but what is reasonable.” Id. at 711. Whether the attorney charges a fee or has an agreement that the organization that employs him will receive any awarded attorneys’ fees are not bases on which to deny or limit attorneys’ fees or expenses.

Appropriate factors which the court may take into consideration, on remand, in determining the amount of the award of attorneys’ fees were set out recently by this Court in Johnson v. Georgia Highway Express, 488 F.2d 714 (5th Cir. 1974). Our decision in Johnson, however, addressed only attorneys’ fees, without touching upon expenses. The large costs of a reapportionment plan is an item of expense unique to this type of suit. In light of the district court’s specific invitation for the original plaintiffs to submit a plan, we think it clear that this cost is to be treated as a part of the award, and the court has determined that attorneys’ fees are to be allowed. Cf. Sims v. Amos, supra, 340 F.Supp. at 695, n. 11.

Upon remand the Court should consider what attorneys’ fees and costs are appropriate, by applying the standard here set out.

The judgment is affirmed in part and reversed in part and remanded for further proceedings not inconsistent with this opinion.

      . The amendment was submitted thereafter to the Attorney General of the. United States who objected to it by a letter dated May 21,1969.

      . The court addressed a letter to the parties stating:
      “United States District Court Southern District of Mississippi April 24, 1972 Mr. Rowland W. Heidelberg, Jr. Attorney 301 West Pine Street Hattiesburg, Mississippi Dear Mr. Heidelberg: Re: Redistricting Forrest County I have had no delay whatever in securing census information on telephone request locally. It appears to me that the county is not disposed to redistrict the county even under orders of the Court, and I am inclined to put the necessary pressure there to bring about compliance with the orders of this Court. I know that a further extension has been granted the county and I am just as sure that it will not be redistricted within the allotted time. I am strongly of the per-suation that Mr. Taylor and his group should be allowed to furnish the Court with a redistricting plan within the allotted time which does not result in any gerrymandering. Such a plan is now invited, and I will act thereon accordingly for the reason that I am not disposed to further temporize with this matter. With kindest regards to each of you, I am Very sincerely yours, /s/ Harold Cox WHC :afc cc: Mr. Edward J. Currie, Jr. Mr. Stone Barefield Mr. George Peach Taylor.”

       Excludes 388 students of William Carey College.

       Excludes 2,689 students of the University of Southern Mississippi.

      . The original plaintiffs’ reapportionment scheme was not considered by the court because the plan was filed only in the office of the Clerk of the United States District Court and not with the office of the Chancery Clerk of Eorrest County. The district court held, that no opportunity was afforded the public to examine, object, or be heard on the plaintiffs’ suggested plan and therefore it was not before the court.

      . An additional 125 unmarried students, who lived on campus and whose college records listed home addresses for them in Forrest County, were counted at those addresses.

      . See Sierra Club v. Morton, 405 U.S. 727, 92 S.Ct. 1361, 31 L.Ed.2d 636 (1972) ; Barlow v. Collins, 397 U.S. 159, 90 S.Ct. 832, 25 L.Ed.2d 192 (1970) ; Data Processing Service v. Camp, 397 U.S. 150, 151-156, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970) ; Flast v. Cohen, 392 U.S. 83, 88 S.Ct. 1942, 20 L.Ed.2d 947 (1968).

      . United States v. S.C.R.A.P., supra, 412 U.S. at 689 n. 14.

      . The population of the voting districts, as malapportioned, totalled:
      District 1 26,992
      District 2 9,761
      District 3 17,572
      District 4 1,820
      District 5 1,704

      . The original plaintiffs allege that they represent the class of all qualified electors. This class is clearly not proper under Fed.R.Civ.P. 23 (a) (3) and (4) because included are both electors in districts who are benefited by the reapportionment plan, and those in districts prejudiced by underrepresentation. 3B Moore’s Federal Practice 1f 23.07.

      . See Skolnick v. Board of Commissioners of Cook County, supra, 435 F.2d 361. See the cases cited in note 4, supra.

      . The three principle rationales for allowing attorneys’ fees have been, (1) “unreasonably and obdurately obstinate” behavior, (2) private attorney general theory, and (3) the common fund situation. See La Raza Unida v. Volpe, supra, 57 F.R.D. 94; Bradley v. School Board of the City of Richmond, Va., 53 F.R.D. 28 (E.D.Va.1971) ; Nussbaum, Attorneys’ Fees and Public Interest Litigation, 48 N.Y.U.L.Rev. 301 (1973). Cf. Mills v. Electric Auto-Lite Company, 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970) ; Newman v. Piggie Park Enterprises, Inc., 390 U.S. 400, 88 S.Ct. 964, 19 L.Ed.2d 1263 (1968) ; Lee v. Southern Home Sites Corp., supra, 444 F.2d 143.

      . Court costs not subsumed under federal statutory provisions normally granting such costs against the adverse party, Fed.R.Civ. P. 54(d) ; 6 Moore’s Federal Practice ¶ 54.70, 54.71, are to be included in the concept of attorneys’ fees. Of course, it may be disputed whether such expenses should have to meet the harder discretionary standards or fall within the statutory authorizations. See Sims v. Amos, supra, 340 F.Supp. at 695, n. 11.

      . The attorneys for the original plaintiffs are employed by the Lawyers Committee for Civil Rights Under Law. There is no indication in the record that this organization, the attorneys, or the plaintiffs have any association with the Ford Foundation.

      . Miller v. Amusement Enterprises, Inc., 426 F.2d 534, 538-539, n. 14 (5th Cir. 1970) ; Clark v. American Marine Corp., 320 F.Supp. 709 (E.D.La.1970), aff’d per curiam, 437 F. 2d 959 (5th Cir. 1971). See Sanders v. Russell, 401 F.2d 241 (5th Cir. 1968). For a similar holding by the Court of Appeals for the Fourth Circuit see Lea v. Cone Mills Corp., 438 F.2d 86, 88, 89-90 (4th Cir. 1971).
      While these cases involve statutorily authorized attorneys’ fees, there is little difference in the factors which are relevant in determining the amount of the fees and costs, once the court has exercised its discretion to allow them, between statutorily authorized and equity granted attorneys’ fees.

      . To hold otherwise might raise other issues of constitutional dimension. U. g., U.S.Const. amend. XIV, Equal Protection Clause; Lef-ton v. City of Hattiesburg, 333 F.2d 280, 285 (5th Cir. 1964) (“ . . . may not be allowed to operate in such a way as to abridge the right of any class of litigants to use the federal courts or to deny the Sixth Amendment right of criminal defendants to counsel of their own choice.”) See Sanders v. Russell, supra, 401 F.2d 241; Alexander v. Cox, 348 F.2d 894 (5th Cir. 1965).

      . Although that case involved statutorily authorized attorneys’ fees, as stated in note 12, supra, once the grant has been awarded, the factors relevant to determining the amount are similar in the equity cases.

      . See note 2, supra.

      . Costs are usually fixed and certain. In public interest litigation, especially, where an attorney may donate his legal talents, the expenses of preparing and conducting the litigation require direct out-of-pocket expenditures by a party, which should be completely recoverable.


author: OAKES, Circuit Judge:

text:
    Victor R. WOLDER and Marjorie Wolder, Appellants-Cross-Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Appellee-Cross-Appellant. ESTATE OF Marguerite K. BOYCE et al., Appellees, v. COMMISSIONER OF INTERNAL REVENUE, Appellant.
    Nos. 136, 373 and 374, Dockets 73-1507, 73-1847 and 73-1848.
    United States Court of Appeals, Second Circuit.
    Argued Dec. 19, 1973.
    Decided Feb. 21, 1974.

      Victor R. Wolder, appellant-cross-ap-pellee pro se.
    Jonathan S. Cohen, Tax Div., Dept, of Justice, Washington, D. C. (Scott P. Crampton, Asst. Atty. Gen., of the United States; Meyer Rothwacks and Carle-ton D. Powell, Dept, of Justice, Washington, D. C., on the brief), for appel-lee-cross-appellant and appellant commissioner of Internal Revenue.
    Hewitt A. Conway, New York City, N. Y. (John F. Rossi, New York City, of counsel), for appellees Estate of Marguerite K. Boyce, Victor R. Wolder and Manufacturers Hanover Trust Co.
    Before FRIENDLY, MANSFIELD and OAKES, Circuit Judges.

      . The Commissioner argues, inter alia, that the taxpayers are estopped from taking advantage of the statute by virtue of a letter, referring to receipt of the stock in 1966, requesting a favorable tax ruling on the main issue here presented.

      . On remand, the Tax Court will have to determine the precise date on which Wolder received the stock in order to establish Wolder’s exact receipt of income from (and, incidentally, correct basis in) the stock, which is its fair market value on the day of delivery of the certificates to him, there being no evidence that Wolder received duly endorsed certificates and/or stock powers prior to delivery to the transfer agent. While this question is governed by New York law, cf. Ginsberg v. Commissioner, 305 F.2d 664, 668 (2d Cir. 1962) ; see also In re Ruszkowski’s Estate, 45 Misc.2d 380, 256 N.Y.S.2d 983 (S.Ct.1965) ; New York Uniform Commercial Code § 8-309, the exact facts do not appear of record herein.

   OAKES, Circuit Judge:

These two cases, involving an appeal and cross-appeal in the individual taxpayers’ case and an appeal by the Commissioner in the estate taxpayer’s case, essentially turn on one question: whether an attorney contracting to and performing lifetime legal services for a client receives income when the client, pursuant to the contract, bequeaths a substantial sum to the attorney in lieu of the payment of fees during the client’s lifetime. In the individual taxpayers’ case, the Tax Court held that the fair market value of the stock and cash received under the client’s will constituted taxable income under § 61, Int.Rev. Code of 1954, and was not exempt from taxation as a bequest under § 102 of the Code. From this ruling the individual taxpayers, Victor R. Wolder, the attorney, and his wife, who signed joint returns, appeal. The Tax Court also held that the stock and cash received were constructively received by the taxpayer in 1965, the year of the death of the client, Marguerite K. Boyce, rather than 1966, the year the individual taxpayers actually received the stock and cash. The stock, consisting of 750 shares of common stock in Schering Corp., increased substantially in value from the date of Mrs. Boyce’s death on July 24, 1965, until January of 1966 when the stock certificates were actually received by the individual taxpayers. The Commissioner appeals this decision of the Tax Court, the statute of limitations having run on the tax year 1965.

The estate case is conceded by all to hinge upon the ruling in the individual taxpayers’ case, at least to the extent that, if the stock and cash which went to Attorney Wolder were taxable income to him, as the Tax Court found in his case, the estate is entitled to deduct the amount of the bequest to him as a debt of the decedent client.

The opinion of the Tax Court, by Judge Tannenwald, in the individual taxpayers’ case is reported at 58 T.C. 974; the opinion of the same Tax Court judge in the estate case is reported at P-H Memo T.C., fl 72,204. Jurisdiction in this court is conferred by § 7482, Int.Rev.Code of 1954.

There is no basic disagreement as to the facts. On or about October 3, 1947, Victor R. Wolder, as attorney, and Marguerite K. Boyce, as client, entered into a written agreement which, after reciting Mr. Wolder’s past services on her behalf in an action against her ex-husband for which he had made no charge, consisted of mutual promises, first on the part of Wolder to render to Mrs. Boyce “such legal services as she shall in her opinion personally require from time to time as long as both . . . shall live and not to bill her for such services,” and second on the part of Mrs. Boyce to make a codicil to her last will and testament giving and bequeathing to Mr. Wolder or to his estate “my 500 shares of Class B common stock of White Laboratories, Inc.” or “such other . securities” as might go to her in the event of a merger or consolidation of White Laboratories. Subsequently, in 1957, White Laboratories did merge into Schering Corp. and Mrs. Boyce received 750 shares of Schering common and 500 shares of Schering convertible preferred. In 1964 the convertible preferred was redeemed for $15,845. In a revised will dated April 23, 1965, Mrs. Boyce, true to the agreement with Mr. Wolder, bequeathed to him or his estate the sum of $15,845 and the 750 shares of common stock of Schering Corp. There is no dispute but that Victor R. Wolder had rendered legal services to Mrs. Boyce over her lifetime (though apparently these consisted largely of revising her will) and had not billed her therefor so that he was entitled to performance by her under the agreement, on which she had had a measure of independent legal advice. At least the New York Surrogate’s Court (DiFaleo, J.) ultimately so found in contested proceedings in which Mrs. Boyce’s residuary legatees contended that the will merely provided for payment of a debt and took the position that Wolder was not entitled to payment until he proved the debt in accordance with § 212, New York Surrogate’s Court Act. The Surrogate Court proceedings on the part of the residuary legatees were not instituted until the latter part of February, 1966, and the surrogate’s decision thereon was not handed down until September, 1966.

Since in the Commissioner’s cross-appeal the timing of receipt is important, it is to be noted that Wolder and Manufacturers Hanover Trust Co. (Manufacturers) were appointed coexecutors of the estate on September 17, 1965, and that at the time of Mrs. Boyce’s death the Schering stock was held in a custodial account with Manufacturers and registered in the name of its nominee. By letter dated October 1, 1965, Wolder advised Manufacturers that he elected to receive the cash and stock bequest and “recommended” the distribution be made forthwith of all specific legacies, including his own. Manufacturers did not comply, and in December, 1965, he again requested them to distribute the Scher-ing stock. The estate was highly liquid and there were ample funds to pay creditors, taxes and estimated expenses. It was not until January 13, 1966, however, that Manufacturers assigned the shares; it was not until January 21 that a transfer was made on the books of Schering Corp., and the stock certificates were physically delivered to Wolder on January 25, 1966, about a month before the residuary legatees raised their objections. It was not until November 22, 1966, after Surrogate DiFalco’s decision favorable to Wolder became final, that he received the $15,845 representing the cash from the sale of the Schering convertible preferred that took place prior to Mrs. Boyce’s death. The fair market value of the Sehering stock at the date of her death was $46,945.31; on January 13, 1966, it was $63,937.50. TKh Commissioner had evaluated the stock at $68,625, representing its value on February 2, 1966; the selection of a February date was apparently in turn based upon a letter by Mr. Wolder requesting a ruling in which he stated that he received the stock in that month, but in which he plainly was mistaken.

Wolder argues that the legacy he received under Mrs. Boyce’s will is specifically excluded from income by virtue of § 102(a), Int.Rev.Code of 1954, which provides that “Gross Income does not include the value of property acquired by gift, bequest, devise or inheritance .” See also Treas.Reg. l.~ 102-1 (a). The individual taxpayer, as did dissenting Judge Quealy below, relies upon United States v. Merriam, 263 U.S. 179, 44 S.Ct. 69, 68 L.Ed. 240 (1923), and its progeny for the proposition that the term “bequest” in § 102(a) has not been restricted so as to exclude bequests made on account of some consideration flowing from the beneficiary to the decedent. In Merriam the testator made cash bequests to certain persons who were named executors of the estate, and these bequests were “ ‘in lieu of all compensation or commissions to which they would otherwise be entitled as executors or trustees.’ ” 263 U.S. at 184, 44 S.Ct. at 70. The Court held nevertheless that the legacies were exempt from taxation, drawing a distinction— which in a day and age when we look to substance and not to form strikes us as of doubtful utility — between cases where “compensation [is] fixed by will for services to be rendered by the executor and [where] a legacy [is paid] to one upon the implied condition that he shall clothe himself with the character of executor.” 263 U.S. at 187, 44 S.Ct. at 71. In the former case, Mr. Justice Sutherland said, the executor “must perform the services to earn the compensation” while in the latter case “he need do no more than in good faith comply with the condition [that he be executor] in order to receive the bequest.” The Court went on to take the view that the provision in the will that the bequest was in lieu of commissions was simply “an expression of the testator’s will that the executor shall not receive statutory allowances for the services he may render.” While the distinction drawn in the Merriam case hardly stands economic analysis, Bank of New York v. Helvering, 132 F.2d 773 (2d Cir. 1943), follows it on the basis that it is controlling law.

But we think that Merriam is inapplicable to the facts of this case, for here there is no dispute but that the parties did contract for services and — while the services were limited in nature — there was also no question but that they were actually rendered. Thus the provisions of Mrs. Boyce’s will, at least for federal tax purposes, went to satisfy her obligation under the contract. The contract in effect was one for the postponed payment of legal services, i. e., by a legacy under the will for services rendered during the decedent’s life.

Moreover, the Supreme Court itself has taken an entirely different viewpoint from Merriam when it comes to interpreting § 102(a), or its predecessor, § 22(b)(3), Int.Rev.Code of 1939, in reference to what are gifts. In Commissioner v. Duberstein, 363 U.S. 278, 80 S.Ct. 1190, 4 L.Ed.2d 1218 (1960), the Court held that the true test is whether in actuality the gift is a bona fide gift or simply a method for paying compensation. This question is resolved by an examination of the intent of the parties, the reasons for the transfer, and the parties’ performance in accordance with their intentions — “what the basic reason for [the donor’s] conduct was in fact— the dominant reason that explains his •action in making the transfer.” 363 U. S. at 286, 80 S.Ct. at 1197. See also Carrigan v. Commissioner, 197 F.2d 246 (2d Cir. 1952); Fisher v. Commissioner, 59 F.2d 192 (2d Cir. 1932). There are other cases holding testamentary transfers to be taxable compensation for services as opposed to tax-free bequests. Cotnam v. Commissioner, 263 F.2d 119 (5th Cir. 1959); Mariani v. Commissioner, 54 T.C. 135 (1970); Cohen v. United States, 241 F.Supp. 740 (E.D. Mich.1965); Davies v. Commissioner, 23 T. C. 524 (1954). True, in each of these cases the testator did not fulfill his contractual obligation to provide in his will for payment of services rendered by the taxpayer, forcing the taxpayers to litigate the merits of their claims against the estates, whereas in the case at bar the terms of the contract were carried out. This is a distinction without a difference, and while we could decline to follow them in the case at bar, we see no reason to do so.

Indeed, it is to be recollected that § 102 is, after all, an exception to the basic provision in § 61(a) that “Except as otherwise provided in this subtitle, gross income means all income from whatever source derived, including . (1) Compensation for services, including fees, commissions and similar items . ” The congressional purpose is to tax income comprehensively. Commissioner v. Jacobson, 336 U.S. 28, 49, 69 S.Ct. 358, 93 L.Ed. 477 (1949). A transfer in the form of a bequest was the method that the parties chose to compensate Mr. Wolder for his legal services, and that transfer is therefore subject to taxation, whatever its label whether by federal or by local law may be. See also Hort v. Commissioner, 313 U.S. 28, 31, 61 S.Ct. 757, 85 L.Ed. 1168 (1941).

Taxpayer’s argument that he received the stock and cash as a “bequest” under New York law and the decisions of the surrogates is thus beside the point. New York law does, of course, control as to the extent of the taxpayer’s legal rights to the property in question, but it does not control as to the characterization of the property for federal income tax purposes. United States v. Mitchell, 403 U.S. 190, 197, 91 S.Ct. 1763, 29 L. Ed.2d 406 (1971); Commissioner v. Duberstein, 363 U.S. at 285, 44 S.Ct. at 69; Morgan v. Commissioner, 309 U.S. 78, 80-81, 60 S.Ct. 424, 84 L.Ed. 585 (1940); Higt v. United States, 256 F.2d 795, 800 (2d Cir. 1958). New York law cannot be decisive on the question whether any given transfer is income under § 61(a) or is exempt under § 102(a) of the Code. We repeat, we see no difference between the transfer here made in the form of a bequest and the transfer under Commissioner v. Duber-stein, supra, which was made without consideration, with no legal or moral obligation, and which was indeed a “common-law gift,” but which was nevertheless held not to be a gift excludable under § 102(a).

On the Commissioner’s cross-appeal, there is no doubt that an item of gross income is generally included in the taxable year in which it is actually received, absent some method of accounting other than the cash method which Wolder used here. § 451(a), Int.Rev. Code of 1954. To tax income in a year other than in which it is actually received by a cash-basis taxpayer, it must be constructively received. Treas.Reg. § 1.451-1 (a). We agree with the Commissioner that the Tax Court was in error in holding that Wolder “had the right and power to compel delivery” of the stock and cash during 1965. Wolder did in fact ask for the stock on two occasions in 1965, but that request was unsuccessful; he did not receive the stock until early 1966 and the cash until much later. The key inquiry, of course, is whether or not in fact he had the stock readily available to him in 1965, that is, subject to his “unfettered command.” Corliss v. Bowers, 281 U.S. 376, 378, 50 S.Ct. 336, 74 L.Ed. 916 (1930). He certainly was not in a position as one of two coexecutors, lacking possession of the- securities which were in fact held by his coexeeutor in a custodian account, to have them delivered to himself merely by his own say-so. Indeed he could not in fact achieve this result. Certainly it was open to the residuary legatees, as they subsequently did in February, 1966, to object to the distribution of the legacy. There is every reason to believe that his coexecutor may have been acting with some caution in not agreeing to make delivery until it did so in 1966. In any event, while there apparently were sufficient assets to satisfy the claims of creditors, there were reasons justifying the coexecutor’s retention of the stock, without abusing its discretion. Cf. Hyland v. Commissioner, 175 F.2d 422, 423-424 (2d Cir. 1949). Under the regulations, which control the application of the doctrine in all instances, “income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions.” See Treas.Reg. § 1.-451-2(a). Until such time as the consent of the coexecutor was obtained to the transfer, and there is no indication whatsoever that such consent was obtained until January, 1966, the individual taxpayer was subject to “substantial limitations or restrictions.” It is true, of course, that, since Ross v. Commissioner, 169 F.2d 483 (1st Cir. 1948), the doctrine of constructive receipt has been available to taxpayers as well as to the Commissioner. See generally 2 Mertens, Law of Federal Income Taxation § 10.-02. But here the basic test of construc-five receipt was not met: the income was not “unqualifiedly subject to the demand” of the cash basis taxpayer, to use Justice Frankfurter’s phrase in Ross, 169 F„2d at 490. The date of the transfer of the stock to Wolder was, we hold, the date of his actual receipt of the certificates themselves, on or before January 25,1966.

The court having reached this result, Wolder argues that he is entitled to compute his tax liability for 1966 under the income averaging provisions of § 232(g)(2) of the Revenue Act of 1964, 78 Stat. 19, and § 1301 of the Code. This argument must fail because it is clear that Wolder was not employed by Mrs. Boyce to effect a particular result as required under § 1301(b) as it read prior to 1964. The definition published by the Commissioner under Treas.Reg. § 1.1301 — 2fo(l) (iii), and the examples-under 1.1301-2(b) (2), (1) & (2) (1962), make it evident that arrangements to render general legal services do not qualify for treatment under § 1301, Int.Rev. Code of 1954.

On the appeal by the Commissioner from the judgment of the Tax Court permitting the estate to deduct as a debt the sum of $15,845 in cash and $46,945.-31 representing the value at the date of death of the Schering stock, the Commissioner has conceded that the estate must prevail, the deduction being properly taken under § 2053(a), Int.Rev.Code of 1954. See note 2 supra.

Judgment in the appeal of Victor R. Wolder and Marjorie Wolder affirmed; judgment in the cross-appeal of the Commissioner reversed and remanded for proceedings consistent with this opinion; judgment in the case of Estate of Boyce et al. v. Commissioner affirmed.

      . Because we affirm the decision of the Tax Court below that the fair market value of the securities and the cash were taxable income to Wolder, we necessarily affirm the decision of the Tax Court in No. 73-1848 without reaching the question presented bf
        the parties in that appeal. No further reference to the substance of that appeal will be made herein.

      . Subsequently another surrogate held that the estate would not be obligated under the so-called tax clause in Mrs. Boyce’s will to reimburse Mr. Wolder for any income tax payable by Mm by reason of the bequest made to him in accordance with the 1947 contract.

      . One also doubts the present day validity of the underlying philosophical premise of Merriam, that “If the words are doubtful, the doubt must be resolved against the government and in favor of the taxpayer.” 263 U.S. at 188, 44 S.Ct. at 71. In White v. United States, 305 U.S. 281, 292, 59 S.Ct. 179, 184, 83 L.Ed. 172 (1938), after noting for the majority that it was not “impressed” by this very argument, Mr. Justice Stone said, “It is the function and duty of courts to resolve doubts. We know of no reason why that function should be abdicated in a tax case more than in any other where the rights of suitors turn on the construction of a statute and it is our duty to decide what that construction fairly should be.”