text:
    Emma R. DORL, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
    No. 132, Docket 74-1716.
    United States Court of Appeals, Second Circuit.
    Argued Oct. 23, 1974.
    Decided Nov. 13, 1974.

      Ronald T. Dorl, for appellant.
    Alfred S. Lombardi, Atty., Tax Div., Dept, of Justice (Scott P. Crampton, Asst. Atty. Gen., Michael L. Paup, Ernest J. Brown, Attys., Tax Div., Dept, of Justice, of counsel), for appellee.
    Before MOORE, OAKES and GUR-FEIN, Circuit Judges.
   PER CURIAM:

Appellant’s 1969 income tax return was submitted with a mathematical error which, with interest and penalty, resulted in a deficiency of $116.32. Appellant was notified of this by letter dated April 8, 1971, and paid this amount on April 13, 1971. Subsequently, the appellant’s 1969 return was selected for audit, and a further deficiency of $182.-84 was discovered.

Appellant, pro se, claims that the letter of April 8, 1971, written by a revenue officer, informing her that if she paid the original deficiency of $116.-32 she would have “paid in full for the Income Tax Return . . . for the period ended 12-31-69,” constituted a closing agreement within § 7121 of the Internal Revenue Code of 1954, 26 U.S.C. § 7121, thus foreclosing the assessment of additional taxes. This contention is adequately answered in T.C. No. 145 (July 2, 1973) (Hall, J.), holding that the letter was not a “final and conclusive” agreement binding both taxpayer and the Internal Revenue Service, in the formal sense requisite in the Revenue Code and indeed could not have been one since Revenue Officer Kleinman, who sent the letter in question had no authority to execute the formal closing agreement which § 7121 envisages. See Delegation Order No. 97 (Rev. 9) (1971-1 Cum.Bull. 656). See also Harrington v. Commissioner, 48 T.C. 939, 953 (1967), aff’d on other grounds, 404 F.2d 237 (5th Cir. 1968).

As Tax Judge Hall pointed out, the United States is not bound by the unauthorized acts of its agents, nor is it estopped to assert lack of authority as a defense. Bornstein v. United States, 345 F.2d 558, 562, 170 Ct.Cl. 576 (1965). Appellant, moreover, failed to establish detrimental reliance, which would be essential to a theory of estoppel. Id. at 563.

Appellant, who commenced this suit by filing a petition with the Tax Court for a redetermination of a deficiency, also seeks to review the decisions of that court denying her requests, first, for a jury trial before the Tax Court and, second, for removal of the case to the United States District Court for the District of New Jersey. Dorl v. Commissioner, 57 T.C. 720 (1972) (Dawson, J.). It is elementary, although unfortunately not well known to the layman, that the filing of a timely petition with the United States Tax Court gives that court exclusive jurisdiction, § 6512, Int.Rev.Code of 1954, 26 U.S.C. § 6512(a), thereafter barring a refund suit in the district court. United States v. Wolf, 238 F.2d 447, 449 (9th Cir. 1956); Elbert v. Johnson, 164 F.2d 421, 424 (2d Cir. 1947). It is equally elementary that there is no right to a jury trial in the Tax Court. Phillips v. Commissioner, 283 U.S. 589, 599 n. 9, 51 S.Ct. 608, 75 L.Ed. 1289 (1931); Wick-wire v. Reinecke, 275 U.S. 101, 105, 48 S.Ct. 43, 72 L.Ed. 184 (1927). It is unfortunate, perhaps that an elderly unguided lay person has been deprived of the peace of mind that goes with the knowledge of having finally settled one’s tax obligations to his government. If Revenue Officer Kleinman’s original letter had been more artfully worded the taxpayer’s distress and the ensuing litigation could have been avoided. Perhaps the Service will from it, however, see fit to devise a form letter that would meet the situation in the future.

Judgment affirmed.


source: Caselaw Access Project

author: PER CURIAM.

license: Public Domain

text:
    John Charles FERRANTO, Appellant, v. UNITED STATES of America, Appellee.
    No. 47, Docket 74-1366.
    United States Court of Appeals, Second Circuit.
    Submitted Sept. 16, 1974.
    Decided Oct. 31, 1974.
    John C. Ferranto, pro se.
    David G. Trager, U. S. Atty., for the Eastern District of New York, Raymond J. Dearie, Steven Kimelman, Asst. U. S. Attys., of counsel, for appellee.
    Before MOORE, MULLIGAN and ADAMS, Circuit Judges.

       Of the Third Circuit Court of Appeals, sitting by designation.

   PER CURIAM.

This is an appeal from an order of the United States District Court for the Eastern District of New York, Jacob Mishler, Chief Judge, denying petitioner’s motion to vacate his sentence for bank robbery pursuant to 28 U.S.C. § 2255. Chief Judge Mishler dismissed the petition without a hearing on the ground that the instant petition presented the same claims that had been raised by petitioner in a previous § 2255 motion. In both motions, petitioner alleged that the presentence report relied upon by Judge Mishler in sentencing him contained inaccuracies and misstatements with respect to his prior record of criminal activity. In denying petitioner’s first motion without a hearing on August 9, 1973, Judge Mishler assumed that petitioner was correct in alleging inaccuracies with respect to three arrests recited in the presentence report, but nonetheless held the petition to be insufficient because the court, in sentencing petitioner, “did not rely to slightest [sic] degree on the charges referred to in the petition.” The court listed three other charges contained in the presentence report as “factors in determining the length of sentence imposed.” One of the three charges upon which the court did rely was an arrest on October 26, 1957 for breaking and entering.

Petitioner’s present motion, like many motions of this kind prepared by persons similarly situated, is not as clear as a mountain lake in springtime. Most of the allegations, as the court below recognized, are a mere repetition of the charges raised in the first motion. Petitioner again seeks relief because of the alleged errors in the presentence report with respect to the three arrests upon which Judge Mishler expressly stated he had not relied in sentencing petitioner. However, in addition to this, petitioner does refer to the arrest for breaking and entering on which the court had relied and alleges that he pled guilty to this charge without the benefit of counsel. He claims that, under United States v. Tucker, 404 U.S. 443, 92 S.Ct. 589, 30 L.Ed.2d 592 (1972), the sentence imposed upon him on the bank robbery charge now in issue was illegally enhanced by the sentencing judge’s reliance upon the prior breaking and entering conviction which had been obtained in violation of his right to counsel.

Petitioner’s claim under Tucker was not presented in his previous motion and has not yet been adjudicated. Since there is no basis for concluding that appellant deliberately avoided presenting it, we conclude that the claim must be addressed. See Sanders v. United States, 373 U.S. 1, 17-18, 83 S.Ct. 1068, 10 L.Ed.2d 148 (1963). If the district court judge can state that the invalidity of this particular guilty plea had no effect on the sentence imposed, then the sentence should stand. If, on the other hand, he indicates that the sentence was enhanced because of this without-counsel plea, the judge can so state and adjust the sentence accordingly. The case is remanded to the district court to proceed in accordance with this opinion.

      . In his motion below, petitioner, after alleging that his plea of guilty was obtained without counsel, charges that “his record of convictions were [sic] both silent as to counsel in some cases, and totally misleading in that they should not have been a part of a knowledgeable, factual pre-sentence investigation.” He then cites a number of cases dealing with the problem of illegal enhancement of sentences. M. g., Brown v. United States, 483 F.2d 116 (4th Cir. 1973) ; United States ex rel. Lasky v. LaVallee, 472 F.2d 960 (2d Cir. 1973). On this appeal, he expressly relies upon Tucker.


text:
    ELECTRONICS CORPORATION OF AMERICA, Plaintiff-Appellee, v. REPUBLIC INDUSTRIES, INC., Defendant-Appellant.
    No. 74-1274.
    United States Court of Appeals, First Circuit.
    Argued Nov. 6, 1974.
    Decided Nov. 27, 1974.
    Certiorari Denied April 28, 1975.
    See 95 S.Ct. 1679.

      William E. Lucas, Chicago, 111., with whom Howard H. Rogers, Jr., Gradolph & Rogers, Davis, MeCaleb & Lucas, Chicago, 111., Michael J. Liston and Newman, Meserve, King & Romero, Boston, Mass., were on brief for defendant-appellant.
    W. R. Hulbert, Boston, Mass., with whom Frank P. Porcelli and Fish & Richardson, Boston, Mass., were on brief for plaintiff-appellee.
    Before COFFIN, Chief Judge, ALD-RICH and McENTEE, Circuit Judges.
   PER CURIAM.

This appeal by a defendant found to have infringed a trademark raises no significant questions, and only a short opinion is called for. Plaintiff for some decades has owned a duly registered mark, FIREYE, embellished with a couple of zigs. Defendant, refused registration of FIRE-EYE, with zags, nevertheless adopted it. Plaintiff manufactures, with national and foreign distribution, sensing devices that detect, warn against, and control malfunctioning fires in furnaces (“friendly fires”), and devices that detect and warn against undesired smoke, notably in air conditioning systems. It has manufactured in the past, and is about to resume manufacturing, devices for unfriendly fires. Defendant manufactures door-closing devices to protect against unfriendly fires. Defendant’s structures incorporate sensing devices for fire and smoke. Defendant asserts that it acted in good faith, a self-assumed accolade, and that plaintiff’s trademark is weak, whatever that may mean in the present context. The court made no such finding. Plaintiff’s mark is not comparable with the truly weak marks that defendant cites. FIREYE is not an actual word. Neither is it merely descriptive; there is no true eye. Plaintiff has made a strong showing of public recognition, both of its mark, and of its reputation.

The court found,

“Because of the similarity of the names, and the close relationship of the respective products, however, I find that the continued use by the defendant of the designation ‘FIRE-EYE’ for its fire and smoke activated automatic door closers is likely to cause confusion between its product and the plaintiff’s product and to deceive purchasers as to the source and origin of the defendant’s product.”

Defendant’s appeal is basically an attempt to discredit this finding.

It is true that plaintiff failed to establish confusion in fact. However, it showed that the industries were closely allied; that defendant used sensors, and that many ultimate users purchased the products of both. Confusion as to source could well occur. The court was warranted in finding that this was not negatived by the fact that defendant also used its tradename DOR-O-MATIC in some connection with FIRE-EYE; the more particularly since the conjunction and emphasis was subject to considerable fluctuation.

Defendant’s principal contention is that its product is normally chosen for the ultimate user by independent specialists — architect or engineering firms— who are too sophisticated to be confused as to the source. That issue was extensively explored below. The sophistry is on defendant’s part. Plaintiff. showed that defendant directed much advertising to ultimate users. As the court aptly, and conclusively, remarked, “Sales follow advertising, or advertising would cease.” We need not analyze why defendant thought good will of the ultimate consumer was valuable. The fact is, it did.

Defendant told the court below that “Plaintiff doesn’t really believe what they are telling your Honor.” Regardless of what may be defendant’s own belief on this appeal, we consider the appeal to be so lacking in merit that appellee should recover costs in this court to include reasonable counsel fees.

Affirmed.

      . Without intending any pun, defendant clearly went into this with its eyes open.

      . Defendant asked the court to rule that it could continue to use both words together, provided that there was a sufficiently apparent connection. We hardly think Procter & Gamble would look with equanimity on Colgate’s selling IVORY SOAP, even if Colgate’s name appeared thereon. See, also, A.T. Cross Co. v. Jonathan Bradley Pens, Inc., 2 Cir., 1972, 470 F.2d 689, 692.


author: SNEED, Circuit Judge:

text:
    NATIONAL LABOR RELATIONS BOARD, Petitioner, v. INTER-ISLAND RESORTS, LTD., d/b/a Kona Surf Hotel, and ILWU Local 142, Respondents.
    No. 73-2464.
    United States Court of Appeals, Ninth Circuit.
    Nov. 26, 1974.
    Elliott Moore, Asst. Gen. Counsel, N. L. R. B., Washington, D. C., for petitioner.
    Ernest C. Moore, Jr. of Moore, Tor-kildson & Schulze, Honolulu, Hawaii, for Inter-Island.
    Edward H. Nakamura of Bouslog & Symonds, Honolulu, Hawaii, for Local 142.
    Rogers M. Ikenaga, Honolulu, Hawaii, for charging party.
   OPINION

Before CHOY and SNEED, Circuit Judges, and NEILL, District Judge.

SNEED, Circuit Judge:

This case involves a petition by the National Labor Relations Board under § 10(e) of the National Labor Relations Act, 29 U.S.C. § 160(e), for enforcement of its order directed against respondents, Inter-Island Resorts, Ltd., and the International Longshoreman’s and Warehouseman’s Union, Local 142, pursuant to the Board’s finding that they violated respectively, § 8(a)(1), (2) and (3) and (b)(1)(A) and (2).

There are no relevant facts in dispute since the Board’s decision was based on a written stipulation of the facts entered by the parties. Inter-Island Resorts, Ltd., is a Hawaii corporation which operates several hotels in that state. In 1970 Inter-Island began construction of the Kona Surf Hotel on the island of Hawaii. The hotel was scheduled to open in the early fall of 1971. In early September, 1971, respondent company formally hired and placed 95 employees on the Kona Surf payroll. The respondent union, which represented employees at six other hotels operated by Inter-Island, requested recognition as the exclusive bargaining representative of the employees, based on a cross-check of union authorization cards. The same day, another union, the Hotel Employees Union, filed a petition for a representation election with the Board, accompanied by 36 authorization cards, of which only 24 were valid.

Despite the Hotel Employees’ petition, Inter-Island and ILWU met the next day at which time the latter submitted 87 authorization cards. Mack Hamada, Chairman of the Hawaii Public Relations Board, cross-checked the cards and approved 84 of them as valid. Inter-Island then recognized ILWU as the exclusive bargaining representative of the employees, and the parties entered into a collective bargaining agreement identical to a master agreement in effect at the six other hotels operated by Inter-Island. Pursuant to a decision by the Regional Director for the Board’s 20th Region, an election was scheduled notwithstanding the Inter-Island contract with ILWU. When the election to decide the issue of employee representation was held, 62 votes were cast for the ILWU, 27 votes were cast for the Hotel Employees Union and 1 vote was cast against both unions.

The crucial issue confronting this court on appeal is whether a real question of representation existed when Inter-Island recognized ILWU as the exclusive bargaining representative of the Kona Surf employees. This court and other United States Courts of Appeals which have dealt with the issue have consistently refused to find a violation of the National Labor Relations Act where an employer has recognized one of two unions competing for exclusive recognition on the basis of a clear demonstration of majority support. NLRB v. Peter Paul, Inc., 467 F.2d 700, 702 (9th Cir., 1972); see Playskool, Inc. v. NLRB, 477 F.2d 66, 70 (7th Cir., 1973); Modine Manufacturing Co., Inc. v. NLRB, 453 F.2d 292, 295 (8th Cir., 1971); NLRB v. Air Master Corp., 339 F.2d 553, 557 (3rd Cir., 1964); Suburban Transit Corp. and H.A.M.L. v. NLRB, 499 F.2d 78, 80 (3rd Cir., 1974); American Bread Co. v. NLRB, 411 F.2d 147, 155-156 (6th Cir., 1969); see also, International Ladies Garment Workers v. NLRB, 366 U.S. 731, 739-740, 81 S.Ct. 1603, 6 L.Ed.2d 762 (1961). The exception to the above rule is where the clear majority enjoyed by one of the competing unions is achieved by coercion or some other unfair labor practice. Here, however, the parties stipulated to the fact that the respondent union did not employ coercive or other unlawful means in acquiring its authorization cards.

The Board’s decision and order itself explicitly recognizes the conflict between its decision and the great weight of authority in the Courts of Appeals but mentions that it chooses to adhere to its view until such time as the United States Supreme Court has passed on the matter. See footnote 12 of the Board’s order 201 N.L.R.B. No. 1. The Board’s position reflects its belief that the purposes and policies of the National Labor Relations Act require that the issue of representation be decided by the employees in a manner attended by the safeguards of the Board’s election machinery. However, based upon the record before us indicating that the Inter-Island’s recognition of the ILWU was based upon a clear demonstration of majority support, we conclude that the Board’s need to preserve the integrity of its election machinery must yield to the rights of the Kona Surf employees to select and bargain through their own representatives. See Playskool, Inc. v. N. L.R.B., supra, 70.

Accordingly, the Board’s petition for enforcement of its order is denied.

       Honorable Marshall A. Neill, Chief Judge, United States District Court, Eastern District of Washington, sitting by designation.


author: PER CURIAM. McCREE, Circuit Judge

text:
    Willard Rex TOOLEY, Petitioner-Appellant, v. Jimmy H. ROSE, Warden, Tennessee State Prison, Respondent-Appellee.
    No. 74-1400.
    United States Court of Appeals, Sixth Circuit.
    Dec. 4, 1974.
    Willard Rex Tooley, pro se.
    Robert G. Gilder, Gilder & Jones, Southaven, Miss. (Court-appointed), for petitioner-appellant.
    David M. Pack, Atty. Gen. of Tennessee, W. Henry Haile, II, Nashville, Tenn., for respondent-appellee.
    Before EDWARDS, CELEBREZZE and McCREE, Circuit Judges.
   PER CURIAM.

Appellant was convicted of murder in the criminal court of Shelby County, Tennessee. The Tennessee Court of Criminal Appeals affirmed.

Having exhausted his state remedies, Appellant filed a habeas writ below and an evidentiary hearing resulted in a decision for Appellee. Appellant now brings this appeal.

Appellant contends that he was denied his constitutional rights because of ineffective assistance of trial counsel in the state court. Appellant asserts that his trial counsel’s failure to secure expert testimony as to Appellant’s state of mind at the time of the murder effectively precluded the only viable defense available, that of insanity.

Trial counsel contacted Navy officials in an effort to arrange a psychiatric examination of Appellant, a Marine Staff Sergeant, at the Naval Air Station at Millington, Tennessee. The attorneys were informed that the Naval Air Station did not have the authority to confine prisoners under indictment by civil authorities. Following this, Appellant’s trial counsel apparently made no attempt to have Appellant examined by Naval psychiatrists at the jail.

The only expert evidence presented by the defense was testimony by Dr. Frank Luton, Clinical Director of Central Psychiatric Hospital in Nashville, who testified that he and Dr. Kennedy Yearwood conducted psychiatric examinations on the petitioner. Appellant was examined to determine whether he was mentally competent to stand trial, but a determination of Appellant’s sanity at the time of the commission of the crime was neither made nor requested. Appellant’s trial counsel testified at the federal habeas hearing below that they were unaware of the limited scope of Dr. Luton’s determination until he testified at trial.

Although Appellant’s family raised money to pay for a private psychiatrist, Dr. Adler, an examination was not made because there was insufficient time before trial. A continuance was not requested because the Appellant wanted to go ahead with the trial. To quote Magistrate Aaron Brown, Jr.’s Report on Reference, at page 18:

“It seems odd that the man whose mental capacity was being questioned, would have been the one to make the ultimate decision whether to seek a continuance to allow Dr. Adler to testify or to go ahead with the trial.”

In light of Beasley v. United States of America, 491 F.2d 687 (6th Cir. 1974), decided after the District Court made its findings in this ease, this matter is remanded to District Court for the purpose of making a determination as to whether counsel’s failure to raise the insanity issue was of such a magnitude as to violate the standards set in Beasley.

“. . .In view of the persuasive arguments against reaffirming the ‘farce and mockery’ standard as a meaningful test of the Sixth Amendment right to the effective assistance of counsel, we reject it, except as it may be considered a conclusory description of the objective standard we adopt . . . [w]e hold that the assistance of counsel required under the Sixth Amendment is counsel reasonably likely to render and rendering reasonably effective assistance. It is a violation of this standard for defense counsel to deprive a criminal defendant of a substantial defense by his own ineffectiveness or incompetence.” 491 F.2d 687 at 696

This case is remanded to the District Court for proceedings consistent with this opinion.

McCREE, Circuit Judge

(dissenting).

Although the district court did not apply the test for effective representation that we adopted in Beasley when we rejected the “farce and mockery” standard, I do not believe a remand is required. The application of the farce and' mockery standard does not automatically require reversal if a claim of ineffective assistance of counsel is rejected. If the district court has conducted a full evidentiary hearing and has made findings of fact as it did here, this court can apply the proper test.

In the context of this case, the proper inquiry is whether defense counsel deprived appellant of a substantial defense by ineffectiveness or incompetence. Despite the perplexity of the magistrate, expressed rhetorically in his Report on Reference quoted in the majority opinion, the district court, after conducting an evidentiary hearing, found that when petitioner was advised that if he should be found guilty by reason of insanity he would be confined to an institution for the criminally insane, he insisted on going to trial without an examination by a private psychiatrist. The district court stated, “His counsel believed he was competent to make this decision as indeed he appears to have been.” This finding is not clearly erroneous, and it follows that the decision to go to trial without psychiatric testimony was not the consequence of ineffectiveness or incompetence.

The district court’s memorandum correctly decides the other issues presented and I would affirm.


author: PER CURIAM:

text:
    NATIONAL LABOR RELATIONS BOARD, Petitioner, v. GLACIER PACKING CO., INC., Respondent.
    No. 73-3187.
    United States Court of Appeals, Ninth Circuit.
    Nov. 21, 1974.
    David Miller (argued), Associate Gen. Counsel, N. L. R. B., Washington, D. C., for petitioner.
    Wesley J. Fastiff, of Littler, Mendel-son & Fastiff, Allen W. Teagle (argued), San Francisco, Cal., for respondent.
    Before ELY and WALLACE, Circuit Judges, and JAMESON, District Judge.

       Honorable William J. Jameson, Senior United States District Judge, Billings, Montana, sitting by designation.

   OPINION

PER CURIAM:

The petitioning Board’s Decision and Order is reported at 204 NLRB No. 103 (June 27, 1973).

The respondent was found to have violated Section 8(a)(1) of the Act, 29 U.S.C. § 151 et seq. It was charged with having questioned employees concerning their concerted activities, promising employees new benefits in the event the employees voted against a certain Union, and with threatening employees with the possible loss of their jobs in the event the Union won a prospective election. The charges and amended charges were filed on September 7th and 8th and November 10th and 28th, 1972. On November 30, 1972, the Regional Director, by agreement between counsel for the General Counsel and the respondent’s counsel, fixed January 30, 1973 as the date of the hearing. On January 15, 1973, the respondent requested a postponement of the hearing. The Regional Director granted the request and rescheduled the hearing for February 27, 1973. Agreement to this date was reached following discussions between counsel for the General Counsel and the respondent’s counsel. Notwithstanding, the respondent’s counsel, on February 21, 1973, sent a telegram to the Regional Director requesting yet another thirty-day postponement of the hearing. The Director denied this request, and a similar request made by one of the respondent’s attorneys on the following day was also denied.

The hearing commenced on February 27th, the scheduled date, and another attorney from the law firm representing the respondent made a “special appearance” to request another continuance. This attorney represented that his colleague in charge of the case for the respondent was then engaged in another Board case in Indiana. In the discussion, this attorney stated that his law firm consisted of a total of thirteen attorneys, and he admitted that “approximately seven or eight [of the thirteen attorneys] would be qualified to handle this type of a case.” In opposing this latest motion for another continuance, the counsel for the General Counsel advised that he, at that time, had secured the presence of thirty-five witnesses by subpoena.

The Administrative Law Judge denied the requested continuance, although he stated that he would recess the hearing for a period of four hours in order to enable the respondent’s law firm to produce other counsel. The respondent’s attorney stated that such would be impossible and withdrew. The respondent vigorously challenges the action of the Administrative Law Judge in denying its last motion for continuance.

Whether to grant or to deny a continuance in a case of this kind is committed to the sound discretion of the Administrative Law Judge or the Board, and a decision on such a question cannot be reversed in the absence of a showing that such discretion was abused. Here, the Board had fairly accommodated requests of the respondent’s attorney on two occasions. The conflicting engagements of the principal counsel for the respondent were foreseen by him not later than January 15, 1973, approximately one and one-half months before the scheduled hearing date of February 27, 1973. The respondent had originally been given two months within which to prepare for the hearing and had been given an additional month at the request of its counsel. We have, noted the admission of one of the attorneys from the law firm employed by the respondent that there were “approximately seven or eight” of the firm's lawyers who were qualified to represent the respondent in the type of hearing involved. It is also worthy of reemphasis that, in preparation for the hearing, the Board’s attorney had subpoenaed thirty-five witnesses who had undergone the inconvenience of making their appearance on February 27th.

In NLRB v. American Potash & Chemical Corp., 98 F.2d 488 (9th Cir. 1938), our court remarked, “The Act makes it clear that the proceedings [such as here involved] must proceed with the utmost dispatch.” 98 F.2d at 492. It is unfortunate, of course, that the particular individual attorney who desired to represent the respondent met with conflicting engagements; however, we long ago held in a similar situation that a respondent “should have secured one of their staff of attorneys or some other counsel who was free from other engagements to undertake the case with the instant attention contemplated by the Congress.” NLRB v. American Potash & Chemical Corp., supra at 492.

Having carefully considered all of the relevant circumstances, we conclude that a clear abuse of discretion on the part of the Administrative Law Judge has not been shown.

On the merits, the Board’s Decision is supported by substantial evidence. Accordingly, the Board’s Order will be

Enforced.


author: FAIRCHILD, Circuit Judge.

text:
    SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee, v. FIRST SECURITIES COMPANY OF CHICAGO, a corporation, DefendantAppellee, Leon N. Carnovsky et al., “Escrow Claimants”-Appellants, (In 73-2026), “Escrow Climants”-Appellees, (In 73-2027), Customer Creditors Committee, Committee-Appellees, (In 73-2026), Committee-Appellants, (In 73-2027), Keith B. Mc Ky, Receiver-Appellee.
    Nos. 73-2026 and 73-2027.
    United States Court of Appeals, Seventh Circuit.
    Argued Sept. 16, 1974.
    Decided Nov. 22, 1974.

      Michael L. Weissman and Charles Aaron, Samuel H. Young, Chicago, 111., for Customer Creditors Committee.
    Willard J. Lassers and Alex Elson, Donald L. Vetter, Chicago, 111., for Car-novsky.
    Before FAIRCHILD, CUMMINGS and PELL, Circuit Judges.
   FAIRCHILD, Circuit Judge.

On June 4, 1968 Leston B. Nay, President of First Securities Company of Chicago, committed suicide. In a note he described certain spurious escrow accounts which he had created and he confessed thefts which in his view rendered First Securities bankrupt. Within a week, the Securities and Exchange Commission commenced this receivership action against First Securities. In two prior appeals we resolved questions concerning the allowance of claims against the receivership estate, Securities & Exch. Com’n v. First Securities Co. of Chicago, 463 F.2d 981 (7th Cir. 1972), cert. denied, 409 U.S. 880, 93 S.Ct. 85, 34 L.Ed.2d 134 (the Hochfelder appeal), and Securities & Exch. Com’n v. First Securities Co. of Chicago, 466 F.2d 1035 (7th Cir. 1972), cert. denied, 409 U.S. 1041, 93 S.Ct. 528, 34 L.Ed.2d 491 (the Schueren (Union Bank) appeal). Since these decisions fully recount the details of the frauds, we will only refer to the facts that are pertinent to the issues now before us.

The present appeals are from an order of the district court that classified First Securities’ assets and the claims against them in anticipation of the firm’s liquidation. The matter was first heard before a special master who filed a report with the district court. The report recommended: (1) that, although not directly applicable, section 60(e) of the Bankruptcy Act, 11 U.S.C. § 96(e) (applicable to a bankrupt stockbroker), would provide an equitable means for the classification and distribution of First Securities’ assets; (2) that the court accept with minor changes the receiver’s classification of assets pursuant to section 60(e); (3) that the participants in Nay’s spurious escrow account should not be considered “customers” as that term is defined in section 60(e); and (4) that certain “interest” payments received by the escrow participants from Nay be forfeited as usurious and deducted from their claims against First Securities. The district court approved and adopted the special master’s report with the exception of his recommendation that Nay’s interest payments to the escrow participants be deducted. A group designated the escrow claimants, including six of the escrow investors, appeals in No. 73-2026, taking exception to the district court’s rulings on the application of section 60(e) and their status under the proposed plan of distribution. In No. 73-2027, the Customer Creditors Committee, a group representing a number of First Securities’ customers, appeals from the district court’s determination that the escrow participants’ interest payments should not be forfeited.

I

All the parties except the escrow claimants agree that the principles of section 60(e) of the Bankruptcy Act

should govern the distribution of assets in this receivership. Section 60(e) provides for the creation of a single and separate fund (Separate Fund) to which those creditors who are deemed customers under the statute have prior resort for satisfaction of their claims against the bankrupt. The application of section 60(e) coupled with the district court’s holding that the escrow claimants are not customers within the meaning of the statute relegates the escrow claimants to the status of general creditors and considerably reduces the amount by which their claims will be satisfied.

The escrow claimants argue that equality is equity and that it is unsound to apply a provision of the Bankruptcy Act to liquidation in an equity receivership. Their argument gives no recognition to the fact that a considerable portion of the assets on hand represents cash or the proceeds of securities entrusted to First Securities by customers for purposes incidental to the ordinary course of the business of First Securities, and that the same reasons for the section 60(e) treatment exist in the instant stockbroker liquidation as Congress must have considered in choosing to provide specially for stockbroker bankruptcies.

Section 60(e) was enacted to provide a standard for determining the rights of brokerage house customers in a bankruptcy proceeding. House Report No. 1409 on H.R. 8046, 75th Cong., 1st Sess. (1937) 31. The statute was intended to protect, and secure equality of treatment for, “the public customer who has entrusted securities to a broker for some purpose connected with participation in the securities markets.” SEC v. F. O. Baroff Co., Inc., 497 F.2d 280, 283 (2d Cir. 1974). We are aware of no difference in purpose or principle which would militate against resorting to section 60(e) for a formula for an equitable solution of the similar conflicts in interest in this receivership liquidation.

One objective of the framers of section 60(e) was to eliminate, in bankruptcy proceedings, previous conflict in rules and create rules which would be uniform throughout the nation. Tepper v. Chichester, 285 F.2d 309, 311 (9th Cir. 1960). Congress recently furthered the interest in uniformity of treatment of insolvent brokerage houses in the enactment of the Securities Investor Protection Act of 1970, (SIPA), 15 U.S.C. § 78aaa et seq., which adopts to a large degree the provisions of section 60(e) and makes them applicable to any brokerage house liquidation proceeding under SIPA. House Report No. 91-1613, 91st Cong., 2d Sess. (1970), 3 U.S.Code Congressional and Administrative News, 91st Cong., 2d Sess. (1970) 5262-5264, Although SIPA has no retroactive application, Lohf v. Casey, 466 F.2d 618 (10th Cir. 1972), its enactment supports the reasonableness of the district court’s selection of the section 60(e) formula to govern the instant liquidation.

II

Next, the escrow claimants argue that if section 60(e) is applied, they should be- considered “customers” and eligible to participate in the Separate Fund. They contend that to hold otherwise would be inconsistent with this court’s prior decisions in this litigation.

The liability of First Securities to the escrow claimants was determined in the Hochfelder appeal. 463 F.2d 981 (7th Cir. 1972), cert. denied, 409 U.S. 880, 93 S.Ct. 85, 34 L.Ed.2d 134. Leston Nay had induced the escrow claimants, who had each been regular brokerage clients at First Securities, to sell their legitimate securities and invest in an escrow account which Nay touted as a lucrative investment opportunity. Relying upon his advice, claimants made payments into the escrow fund. They did this by personal cheeks payable to Nay or a bank for his account. The transactions were clearly “not in the form usual to dealings between customers and First Securities, nor was the escrow reflected in periodic accountings by First Securities to the claimants.” 463 F.2d at 984. When the nonexistence of the escrow became known on Nay’s death, the escrow investors filed claims against the assets of First Securities. Reversing the district court’s denial of their claims, we held that First Securities was liable to the escrow participants on the grounds that Nay had acted with apparent authority for First Securities, that First Securities was a “controlling person” within section 20(a) of the Securities Exchange Act df 1934, 15 U.S.C. § 78t(a), that First Securities aided and abetted Nay in violating section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) and SEC Rule 10b-5, and that First Securities inadequately supervised Nay as required by Rule 27 of the Rules of Fair Practice of the National Association of Securities Dealers, Inc.

In the Schueren appeal we held that First Securities was liable for Nay’s thefts from an investor’s account even though the investor had exercised a power of attorney in favor of Nay. 466 F.2d 1035 (7th Cir. 1972), cert. denied, 409 U.S. 1041, 93 S.Ct. 528, 34 L.Ed.2d 491. The reasons supporting this liability were the same as for the escrow claimants. In the course of our opinion we noted: “Like the escrow participants, Schueren was a bona fide customer of First Securities quite aside from the tainted Nay transactions.” 466 F.2d at 1039 (emphasis in the original).

The escrow claimants argue that it logically follows from both the holdings of the cases and the language of the opinions that they are “customers” of First Securities and entitled to share in the section 60(e) Separate Fund. We disagree. Our prior decisions established liability of First Securities to the escrow claimants on account of Nay’s fraudulent activity. They by no means held or implied that the funds entrusted to Nay for deposit in “escrow” were property entrusted to First Securities for the types of purpose dealt with by section 60(e). Although the district court and we have analytically separated the question of whether to follow section 60(e) in this receivership from the question of whether the escrow claimants are to be treated as “customers,” we may be deciding, in reality, only the single proposition that, given all the facts of the matter, it is equitable to accord a prior claim on the type of assets in the Separate Fund to those who turned their assets over to First Securities in the ordinary course of business.

Section 60(e) provides:

“[CJustomers” of a stockbroker shall include persons who have claims on account of securities received, acquired, or held by the stockbroker from or for the account of such persons (a) for safekeeping, or (b) with a view to sale, or (c) to cover consummated sales, or (d) pursuant to purchases, or (e) as collateral security, or (f) by way of loans of securities by such persons to the stockbroker, and shall include persons who have claims against the stockbroker arising out of sales or conversions of such securities; ....

The escrow claimants do not fall within a literal reading of this definition. The district court found that “[r]elative to the escrow transactions, no securities were held on account by the stockbroker-age firm, nor were any received from the Escrow Claimants.”

Even if the definition of customers be read so as to include persons who have claims on account of funds deposited for investment, the transactions involved were on their face directly with Nay, personally, and were neither in fact nor understood to be a deposit of funds with First Securities.

The escrow claimants argue, however, that it is inequitable to exclude them from participation in the Separate Fund when others whose property was not among the firm’s assets are allowed to satisfy their claims against the fund. Specifically, they note that even though Mrs. Moyer’s securities and the Schuer-ens’ property were missing as a result of Nay’s embezzlement, these victims of Nay’s fraud were found to be customers under section 60(e). Unlike the escrow claimants, however, the Schuerens and Mrs. Moyer received safekeeping receipts under First Securities’ stamp and regular statements under the firm’s letterhead. 466 F.2d at 1036-1039. The escrow claimants, on the other hand, dealt personally with Nay. In short, the Schuerens and Mrs. Moyer, like other customers, relied on First Securities to hold their property while the escrow claimants relied upon Nay. Thus, the former may be classified as customers because in the language of section 60(e) they are “persons who have claims against the stockbroker arising out of sales or conversions of such securities. .” Cf. Securities and Exchange Com’n v. S. J. Salmon & Co., Inc., 375 F.Supp. 867 (S.D.N.Y.1974).

Ill

The escrow claimants also challenge the district court’s approval of the special master’s allocation of assets between the Separate Fund and the General Fund. Section 60(e) provides in relevant part:

(2) All property at any time received, acquired, or held by a stockbroker from or for the account of customers, except cash customers who are able to identify specifically their property in the manner prescribed in paragraph (4) of this subdivision and the proceeds of all customers’ property rightfully transferred or unlawfully converted by the stockbroker, shall constitute a single and separate fund; and all customers except such cash customers shall constitute a single and separate class of creditors, entitled to share ratably in such fund on the basis of their respective net equities as of the date of bankruptcy: Provided, however, ... If such fund shall not be sufficient to pay in full the claims of such class of creditors, such creditors shall be entitled, to the extent only of the respective unpaid balances, to share in the general estate with the general creditors.

First, the escrow claimants contest the procedure the receiver followed in determining that certain cash should be allocated to the Separate Fund. This procedure focused on the outstanding checks of First Securities that were dishonored by the firm’s bank when the receivership was instituted. To the extent these checks represented an amount due a customer, the receiver included them in the Separate Fund. The escrow claimants argue that this procedure is improper because it concentrates on the disposition of funds rather than on their source.

Escrow claimants are correct in identifying the critical question: How much of the cash on hand, commingled in one bank account, was “property . . . held . . . for the account of customers”? The fact that the receiver began by looking at the checks outstanding at the beginning of the receivership does not, however, mean that his method was inappropriate for deciding the critical question or that it resulted in clearly erroneous findings.

By comparing these checks with other records, the receiver determined which checks were given in settlement for sales of customers’ stock previously turned over by customers for sale and which were given in payment for securities ordered by customers and paid for in advance. The records used to arrive at this determination included confirmation slips mailed to customers, transfer orders requesting mutual funds to issue shares, and customer account ledgers.

Funds represented by checks that could not be traced to property received or held for a customer were excluded from the Separate Fund. We are convinced that the procedure chosen by the receiver was reasonable, and with one exception, the findings based thereon were not clearly erroneous.

We conclude that the receiver erred in allocating to the Separate Fund $51,894.77 involved in a transaction with Continental Illinois National Bank and Trust Company of Chicago.

The underlying transactions took place as follows:

On June 4, 1968, Continental Illinois placed an order with First Securities for the sale of 580 General Electric shares. On June 10, Continental Illinois delivered the stock certificates. On June 11, the day after filing of the complaint herein, but before any action by the court, Continental Illinois debited the bank account of First Securities in the amount of $51,894.77, the gross sales price less charges. A restraining order was entered June 12, and the receiver was appointed June 17.

Later, pursuant to order of the district court entered August 2, the receiver returned the certificates to Continental Illinois in exchange for the same sum of money. We think that whether the second exchange of stock for money be deemed rescission of the first as if no transaction occurred, or a second sale, the asset represented by the stock or the proceeds was held by First Securities from June 11 on, for its own account and not for the account of a customer. Accordingly, $51,894.77 was erroneously allocated to the Separate Fund.

The escrow claimants also argue that certain transfers from stockbrokers should not have been included in the Separate Fund. These transfers were profits First Securities fortuitously obtained on purchases and sales of stock that were made as a result of the receivership. When the receivership was instituted, certain securities transactions were in process, but due to the receivership they were held in abeyance. When the transactions were later completed, First Securities registered a net profit as a result of market fluctuations. Since First Securities held no securities on its own account, the securities involved in these transactions must have been owned by its customers. We think, therefore, that the receiver was correct in allocating these profits to the Separate Fund because they represented proceeds of property initially held for the account of customers.

Another item challenged by the escrow claimants is $1,775 in dividends the receiver allocated to the Separate Fund. These dividends had accrued on securities that First Securities was unable to deliver due to intervention of the receivership. Since the dividends were earned on stock entrusted to First Securities by customers, we think this sum was also appropriately included in the Separate Fund.

Finally, the escrow claimants contest the allocation to the Separate Fund of interest that the receiver earned on United States Treasury Bills. The receiver invested the entire estate of First Securities in Treasury Bills and allocated the interest earned on the investment between the Separate Fund and the General Fund according to the proportions the respective funds bear to the entire estate. The escrow claimants argue that since the statute did not provide for the allocation, it cannot be made. We think, however, that the receiver’s allocation comports with the demands of equity.

IV

The amount of the escrow claimants’ claims against First Securities is the subject of the appeal in No. 73-2027. Over the years of the fraud, Nay ostensibly paid the escrow participants interest on their contributions to the escrow. Nay had indicated that loans would be made by a small loan company at up to 2 y2 percent interest per month and that consequently investors in the escrow account would receive a rate of between 9 and 12 percent return on their invest-mant per year. Hochfelder appeal, 463 F.2d at 984. The special master recommended that the interest payments received by the escrow claimants be deducted from their claims against First Securities because the payments were usurious. The district court rejected this recommendation, and the Customer Creditors Committee appealed.

The argument that the interest payments were usurious proceeds as follows: the escrow claimants, rather than investing with Nay, loaned their money to him; they received between 9 and 12 percent interest per year on their loans; the maximum rate of interest legally chargeable during the period of the fraud was 7 percent per year, Ill.Rev. Stat. ch. 74 § 4 (1967); and, therefore, the interest received was usurious.

The view of the facts taken by the district court was as follows:

“. . . Nay induced the Escrow Claimants to invest, representing that their moneys would be used by a small corporation as principal to make loans, making it possible for the investors to realize a high rate of interest. Nay was to act as a conduit for the transfer of funds to the finance company. The interest was to be paid by that company, not Nay, . Nay received the moneys of the Escrow Claimants for the stated purpose of investing so as to receive a high yield return, not to evade the usury laws. This was a purported investment with the necessary risks of investment, that is, loss of the principal sum.”

As indicated by the district court, whether, under Illinois law, an advance of money is a loan so that the amount of interest thereon is subject to the statute on usury, or is an investment in a venture, with the hazard of loss, so that the rate of return is not subject to the statute, depends upon the intention of the parties. Stevenson v. Unkefer, 14 Ill. 103, 104 (1852); Clemens v. Crane, 234 Ill. 215, 238, 84 N.E. 884 (1908). Curtis v. LeMoyne, 248 Ill.App. 99, 103 (1928).

We deem the finding of the district court as to the character of these transactions not clearly erroneous.

The Customer Creditors Committee assert yet another ground for reducing the amount of the escrow claims. They argue that the interest payments represented a return of capital, not interest, and that therefore the escrow participants’ claims against First Securities should be reduced to the extent that Nay returned their principal investment. This argument proceeds from the assumption that Nay was running a “Ponzi” swindle in which each time an “interest payment” became due, Nay would withdraw funds from the escrow account’s principal to make the payment while enticing investors to contribute additional funds to the account to guarantee a source of funds for future interest payments. As far as the record shows, this is only an assumption. Moreover, in their dealings with Nay and in their tax returns the escrow claimants treated the payments as interest, and we see no reason to favor other general creditors in this proceeding by offsetting the payments as pro tanto repayment.

Insofar as the judgment appealed from reflects the allocation of $51,894.77 received from Continental Illinois and the interest earned thereon to the Separate Fund, the judgment is reversed and the cause remanded for adjustments consistent with this opinion. In all other respects the judgment is affirmed. No costs on appeal to any party.

      . For related litigation see, Hochfelder v. Midwest Stock Exchange, 503 F.2d 364 (7th Cir. 1974) and Hochfelder v. Ernst & Ernst, 503 F.2d 1100 (7th Cir. 1974).

      . Securities & Exch. Com’n v. First Securities Co. of Chicago, 366 F.Supp. 367 (N.D. Ill.1973).

      . In their brief the escrow claimants suggest the magnitude of their loss when section 60(e) is applied:
      “Under the distribution plan mandated by the District Court, all other claimants will receive 54% of their claims; while the escrow claimants will receive less than 15%. Under a pro rata distribution, [as proposed by the escrow claimants] all claimants, including the escrow claimants, would receive about 37%.”

      . “The definition [of customer] in the Bankruptcy Act and SIPA sections is in identical language. Under each law, the preferential protection is accorded to a person who can trace and identify the trust property or funds in the hands of the stockbroker; other claimants must look to the general assets of the stockbroker for satisfaction.” Securities and Exchange Com’n v. Kenneth Bove & Co., Inc., 378 F.Supp. 697, 700 (S.D.N.Y 1974).

      . The Customer Creditors Committee concedes that the payments were not usurious; but the argument is renewed on appeal in the receiver’s amicus brief.

      . Cunningham v. Brown, 265 U.S. 1, 7-9, 44 S.Ct. 424, 68 L.Ed. 873 (1924).


author: VAN OOSTERHOUT, Senior Circuit Judge.

text:
    In the Matter of Charles F. Short, Bankrupt. Charles F. SHORT, Appellant, v. Sheldon D. GRAND, Trustee, Appellee.
    No. 74-1311.
    United States Court of Appeals, Eighth Circuit.
    Submitted Oct. 17, 1974.
    Decided Dec. 3, 1974.
    Arthur Kreisman, St. Louis, Mo., for appellant.
    J. Leonard Kline, Clayton, Mo., for appellee.
    Before VAN OOSTERHOUT, Senior Circuit Judge, and BRIGHT and ROSS, Circuit Judges.
   VAN OOSTERHOUT, Senior Circuit Judge.

The sole issue presented by this appeal is whether the amount accrued to the credit of Charles F. Short, Bankrupt, in the Public School Retirement System of the State of Missouri, is “property” which passes to the Trustee in Bankruptcy under § 70(a)(5) of the Bankruptcy Act (11 U.S.C. § 110(a)(5)). The Referee in Bankruptcy answered this question in the affirmative and ordered the Bankrupt to apply for the amount due him from the fund and to turn over the proceeds to the Trustee. Upon appeal, the district court affirmed the Referee’s decision and order. We affirm for the reasons hereinafter stated.

A brief statement of the facts which are undisputed is desirable. Mr. Short filed his voluntary petition in bankruptcy on August 21, 1972. He has since August 1, 1972, been employed by a welfare agency in St. Louis. Prior to July 10, 1972, Short had been employed for a period of about seven years by the Missouri Department of Education and as a result of such employment, pursuant to Chapter 169 R.S.Mo. 1969, V.A.M.S., he had contributed periodically 8% of his salary, aggregating $4578.-68 on which $418.70 interest had accrued. Short permanently retired as a teacher on July 10, 1972 and was not at the time of the bankruptcy or since been employed in such a position covered by Chapter 169.

We now set out pertinent provisions of Chapter 169. Section 169.090 provides :

Neither the funds belonging to the retirement system nor any benefit accrued or accruing to any person under the provisions of sections 169.010 to 169.130 shall be subject to execution, garnishment, attachment or any other process whatsoever, nor shall they be assignable, except as in sections 169.010 to 169.130 specifically provided.

Section 169.070(6) reads:

If a member ceases to be a public school employee as herein defined and certifies to the board of trustees that such cessation is permanent, or if his membership is otherwise terminated, he shall be paid his accumulated contributions with interest if he has contributed for more than five years.

A board of trustees is established by § 169.020(2) and such board is empowered to formulate rules and regulations for the government of its own proceedings and for the administration of the system. § 169.020(14). Pursuant to such statutory authority, the board adopted Rule VII reading:

1. If a member withdraws from the system, he shall be paid the full amount due him within sixty days of the establishment of his withdrawal; provided, however, that a member may not make application for withdrawal of contributions until one hundred twenty days have elapsed after the termination of his employment as a teacher. The Board may waive the waiting period set by this regulation when sufficient evidence is presented to indicate that such waiting period would impose a hardship on the member and that the best interests of the member would be served by the waiver.

The statute controlling the issue before us is § 70(a)(5) of the Bankruptcy Act which in pertinent part reads:

(a) The trustee of the estate of a bankrupt and his successor or successors, if any, upon his or their appointment and qualification, shall in turn be vested by operation of law with the title of the bankrupt as of the date of the filing of the petition initiating a proceeding under this title, except insofar as it is to property which is held to be exempt, to all of the following kinds of property wherever located * * * ; (5) property, including rights of action, which prior to the filing of the petition he could by any means have transferred * * *.

The Supreme Court in Kokoszka v. Belford, 417 U.S. 642, 94 S.Ct.. 2431, 41 L.Ed.2d 374 (1974), construes the meaning of the word “property” in § 70(a)(5). In that case the subject matter of the controversy was a refund due the taxpayer for 1971 income tax withheld and paid by the employer from salary in an amount in excess of the tax ultimately determined to be due. The voluntary bankruptcy petition was filed on January 5, 1972. Taxpayer’s return for 1971 was filed in February 1972 and refund of the excess tax in the amount of $250.90 was made somewhat later.

The Supreme Court, citing its prior opinions, held that the term “property” as used in the Bankruptcy Act has never been given a precise or universal definition. The Court holds that it is the twofold purpose of the Bankruptcy Act to convert the bankrupt’s estate into cash and to distribute it among creditors and to give the bankrupt a fresh start with such exemptions and rights the statute left untouched. The Court then approvingly quotes from Segal v. Rochelle, 382 U.S. 375, 379, 86 S.Ct. 511, 15 L.Ed.2d 428 as follows:

The main thrust of § 70a(5) is to secure for creditors everything of value the bankrupt may possess in alienable or leviable form when he files his petition. To this end the term “property” has been construed most generally and an interest is not outside its reach because it is novel or contingent or because enjoyment must be postponed. [Kokoszka v. Belford, supra, 417 U.S. at 646, 94 S.Ct. at 2434.]

The Court then observes that construction must be tempered by the intent of Congress “to leave the bankrupt free after the date of his petition to accumulate new wealth in the future.” The Court goes on to say that the tax refund “does not relate conceptually to future wages and it is not the equivalent of future wages for the purpose of giving the bankrupt a ‘fresh start.’ ” Id. The petitioner’s contention that the refund is necessary for a fresh start because it is solely derived from wages is rejected. The Court quoted with approval from the opinion of the Second Circuit before it on appeal as follows:.

“Just because some property interest had its source in wages . . . does not give it special protection, for to do so would exempt for the bankrupt estate most of the property owned by many bankrupts, such as savings accounts and automobiles which had their origin in wages.” [417 U.S. 648, 94 S.Ct. at 2435.]

The Court concluded that the Court of Appeals correctly determined “that the income tax refund is ‘sufficiently rooted in the bankruptcy past’ to be defined as ‘property’ under § 70a(5).”

The reasoning and holding in Kokoszka affords strong support for an affirmance here. The cases relied upon by the bankrupt, such as Lines v. Frederick, 400 U.S. 18, 91 S.Ct. 113, 27 L.Ed.2d 124 (1970), are considered and distinguished. The $5,000 that the bankrupt in our present case had accumulated in the fund is substantially greater than the $250 involved in Kokoszka. In our present case the salary deductions covered a period of seven years whereas the deductions in Kokoszka involved only one year. Thus our present case presents a stronger record than Kokoszka for determining that the retirement fund accumulations are sufficiently rooted in the bankruptcy past to be included as property under § 70(a) (5).

There is no merit to bankrupt’s contention that his retirement fund accumulations do not constitute property because application could not be made for withdrawal until 120 days after retirement, which period had not elapsed at the time of the filing of the bankruptcy petition. The waiting period provision relied upon is not found in any statute but is set out in Rule VII, supra. Section 169.070(6) clearly establishes the right of the bankrupt to be repaid for contributions to the fund upon permanent retirement from teaching. The administrative rule cannot take away rights created by statute. It would appear that Rule VII is designed for administrative convenience in processing refund claims and it was not intended to take away rights created by the statute.

Moreover, in Kokoszka the refund was neither fixed as to the amount or available until the bankrupt, subsequent to his filing his petition in bankruptcy, filed his 1971 tax return and his tax liability was determined. Kokoszka holds that a property interest is not precluded because enjoyment must be postponed.

Affirmed.


author: SWYGERT, Chief Judge. FAIRCHILD, Circuit Judge

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Marvin M. MARTIN, Defendant-Appellant.
    No. 74-1303.
    United States Court of Appeals, Seventh Circuit.
    Argued Sept. 13, 1974.
    Decided Nov. 27, 1974.

      Harvey M. Silets, Theodore A. Sinars, Chicago, 111., for defendant-appellant.
    James R. Thompson, U. S. Atty., Gary L. Starkman and Royal B. Martin, Jr., Asst. U. S. Attys., Chicago, Ill., for plaintiff-appellee.
    Before SWYGERT, Chief Judge, and FAIRCHILD and SPRECHER, Circuit Judges.
   SWYGERT, Chief Judge.

Defendant-appellant Marvin M. Martin was found guilty by a jury of five counts of failing to file employer quarterly federal income tax returns in violation of 26 U.S.C. § 7203. He is appealing the conviction on the basis of alleged errors in the jury instructions and voir dire examination. We reverse.

From 1963 to 1973 Martin was a partner in and operator of the Martin Cartage Company which does business in the Chicago area. The five quarters charged in the information were the third quarter of 1967 and all four quarters of 1968. There was no dispute that the defendant was required to file these returns. The question was whether this failure to file was knowing and willful.

The Government called four witnesses: an IRS employee; a Revenue Officer; the defendant’s bookkeeper; and a records maintenance manager for the Social Security Administration. Evidence was introduced to show that the defendant also failed to file returns for other quarters both prior and subsequent to those charged. The defense presented no testimony, but attempted by cross-examination and documentary evidence to develop the theory that Martin did not file the returns because he was under the mistaken assumption that returns could not be filed without paying the tax due at the same time. The jury returned a verdict of guilty on all five counts and Martin was subsequently sentenced to a total of two and one-half years imprisonment and received fines totaling $5,000.

I

Defendant’s first contention is that the instructions given the jury were so confusing as to constitute reversible error. In accordance with United States v. Bishop, 412 U.S. 346, 93 S.Ct. 2008, 36 L.Ed.2d 941 (1973), the following instruction on willfulness, which is not being attacked, was given:

The word “wilfully” as used in connection with this offense means with a bad or evil purpose of deliberately intending not to file a return which the defendant knew he should have filed in order to prevent the government from knowing the extent of his tax liability.

However, over defendant’s objection, the district court also gave the following instruction based on United States v. Ma-tosky, 421 F.2d 410 (7th Cir. 1970) :

If you find that the government has proven beyond a reasonable doubt that the defendant’s failure to timely file the tax returns were wilfull, then I instruct you that his reasons for failing to so file are irrelevant and should not be considered by you.

We think the court erred in giving this Matosky instruction. There was no basis in the evidence or arguments to support such an instruction. The Matosky case involved a situation quite different from the one before us. In that ease the defendant was prosecuted for failure to timely file his income tax returns for three years. Evidence was introduced that the defendant had fled from New York to Chicago to avoid a state prosecution and that he did not file the returns in order to avoid detection and apprehension. It was in this context of an extraneous non-tax related defense that the court stated that the reasons for failing to file were irrelevant. Unlike Martin, Matosky’s reasons had no relation to the question of his knowledge that the returns had to be filed. Indeed, the Matosky opinion itself is clear that its reference to the irrelevance of the reasons for a failure to file does not encompass reasons relating to the knowledge or willfulness question:

Rather, the Government has proven its case when it has established beyond a reasonable doubt: that the defendant was required to file a return; that he knew that he was so required; and that he willfully or purposefully, as distinguished from inadvertently, negligently, or mistakenly, failed to file such a return. His reasons for failing to so file are irrelevant under § 7203, so long as the above facts are shown, (footnote omitted and emphasis added).

Since there was no evidence or argument relating to extraneous reasons, this additional instruction should not have been given.

Having determined that the instruction was improper we still must consider whether it was reversible error. The Government argues that this instruction could not have confused the jury if their deliberations followed a perfectly logical progression. The instruction did indicate that the jurors were first to determine the question of willfulness and only when they had concluded that the failure to file was willful were they to disregard the reasons for failure to file. The defense theory was presented in the instructions on willfulness. Thus, the Government contends that the jury would not have even reached the erroneous instruction until it had fully considered the willfulness instructions and rejected the defendant’s reasons for not filing. Following this reasoning, the error would be harmless.

The problem with this argument is that we cannot assume that the jurors followed the analytical process set forth by the Government. The jurors were entitled to assume that they were not given irrelevant instructions. Proceeding on this assumption, they could have concluded that they were being told to ignore reasons for not filing which were at least raised during the trial. But the only reason offered concerned Martin’s belief that he could not file without simultaneously paying the tax. The result might well have been great confusion or possibly a determination that the instructions were inconsistent. Unfortunately, we do not know how this possible confusion or inconsistency was resolved. It may be that the jurors concluded that any reason for not filing was irrelevant to their entire deliberations. Because of this possibility we believe the defendant is entitled to a new trial.

II

Martin also attacks the failure to give certain instructions tendered by the defense. A trial judge has some latitude in deciding how to charge a jury. The instructions must adequately cover the law, but there is no requirement that they be given in the form and language requested. Elbel v. United States, 364 F.2d 127, 134 (10th Cir. 1966).

Defendant’s proposed instruction No. 23 purported to define the term “negligence.” There was no contention, however, that Martin’s failure to file was due to negligence as defined in this proposed instruction. Moreover, the trial judge did give a specific intent instruction in addition to defining the terms “knowingly” and “willfully.” The jury was adequately charged as to this aspect of the law and there was no necessity that this additional instruction be given.

Defendant’s instructions Nos. 25 and 26, which delineated specific factors the jury could weigh in determining whether the failure to file was willful, also were not given. Detailed and adequate instructions on the issue of willfulness were given. The trial judge is not under a duty to unduly emphasize certain matters which the defendant considers favorable. United States v. Terry, 362 F.2d 914, 916 (6th Cir. 1966). It was not an abuse of discretion to refuse these instructions, although it does appear that a better balance might have been reached between those instructions emphasizing matters favorable to the prosecution and those favorable to the defense.

Defendant also contends that his proposed instruction No. 27, which sets forth what was admittedly a correct statement of the distinction between a delinquency penalty and a fraud penalty, should have been used. This distinction was supposed to be relevant to the defendant’s state of mind since his previous conduct had resulted only in delinquency penalties. As the Government indicates, however, there was no evidence that Martin was aware of the difference between a delinquency penalty and a fraud penalty. Therefore, we cannot say that it was error to refuse this instruction.

Ill

Finally, Martin claims that the scope of the voir dire examination was too restrictive. The trial judge conducted most of the voir dire himself. The specific objection being raised on appeal is the court’s rejection of the defendant’s proffered questions 7 through 10. It is difficult to determine when a trial judge had abused his discretion in this area. The present test appears to be that set forth in our opinion in United States v. Lewin, 467 F.2d 1132, 1137 (7th Cir. 1972):

At some happy mesne point, there must be permitted sufficient questioning to produce, in the light of the factual situation involved in the particular trial, some basis for a reasonably knowledgable exercise of the right of challenge.

The particular aspects of the instant trial indicate that the general subject area at which questions 7 through 9 were aimed, namely, the prospective jurors’ relationship with and attitude toward the Government and government agent witnesses, should have been addressed on voir dire. Of the four witnesses called by the United States, three were employees of government agencies. Thus, it was particularly important for the defendant to know of any prejudices the jurors may have had about the Government or about the credibility of government agents. Specifically, we think question 9 concerning the weight that would be given a government agent’s testimony was particularly important. See Chavez v. United States, 258 F.2d 816, 819 (10th Cir. 1958). The Government argues that the trial judge, in effect, asked this question, since he told the entire jury panel at the start of the voir dire examination that they were not to consider whether a witness was a government employee for purposes of determining credibility; later he asked each juror about his ability to be impartial. Mere admonitions, however, are not enough. The sole purpose of voir dire is not to tell potential jurors that they are to be fair and then ask them if they think they can be impartial. The defendant’s proposed questions were meant to elicit specific attitudes and prejudices. We cannot assume that a juror would state that he could not be impartial merely because he had a close relationship with the government or a high regard for the credibility of government agents. Such questions should have been asked directly.

As to question 10, concerning United States or state pensions or benefits, we think it would have been better to have asked this also, since the crime charged was related to the non-payment of social security taxes. Considering that the judge did ask the jurors whether they could give the IRS a fair trial at that time of the year, defendant was entitled to have question 10 asked.

The judgment of conviction is reversed and this cause is remanded for a new trial.

FAIRCHILD, Circuit Judge

(dissenting).

In my judgment the matters deemed errors in Parts I and III did not affect the result and were harmless.

      . 26 U.S.C. § 7203 reads :
      Any person required under this title to pay any estimated tax or tax, or required by this title or by regulations made under authority thereof to make a return (other than a return required under authority of section 6015 or section 6016), keep any records, or supply any information, who willfully fails to pay such estimated tax or tax, make such return, keep such records, or supply such information, at the time or times required by law or regulations, shall, in addition to other penalties provided by law, be guilty of a misdemeanor and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 1 year, or both, together with the costs of prosecution.

      . 421 F.2d at 413.

      . Proposed instruction No. 23:
      Negligence consists of a certain mental attitude toward the consequences of one’s act. He is negligent when one does not desire the consequences, and does not act to produce them, but is nevertheless indifferent or careless whether they happen or not, and, therefore, does not perform the act notwithstanding the risk that the consequences may happen.

      . These proposals read:
      (25) In determining whether the Government has proven beyond a reasonable doubt Mr. Martin’s intent or wilfullness to commit the crimes charged, you may consider Ills prior history of filing or lack of filing returns similar to those charged in the information as well as his filing of other returns required to be filed by him, such as his personal income tax returns and the partnership tax returns of Martin Cartage Company. In considering the question of his intent you may consider such things as whether the Internal Revenue Service was aware of his filing or lack of filing; whether he was ever advised that failure to timely file such returns could be a criminal act; whether the Internal Revenue Service ever charged him with a fraud penalty — as distinguished from a delinquency or negligence penalty —for not having filed any return; and any other relevant fact which may relate to whether the Government has convinced you beyond a reasonable doubt that Mr. Martin’s actions or failure to act were “wilfull” within the meaning of the statute.
      (26) In considering whether the Government has proven beyond a reasonable doubt that Mr. Martin’s failure to file the returns in question — if, -of course, you first are convinced that such returns were not filed — was wilfully or intentionally done, you may consider whether he was warned or put on notice by the Internal Revenue Service in their prior dealings with him that such failure could constitute a crime. If they did so warn him and he persisted in not filing, such fact would tend to establish that lie acted wilfully. On the other hand, if he was not so warned, then his continuing to fail to file timely may be found by you to be the result of his good faith belief that his actions were not improper or illegal and his failure to file, if any, would not be wilful or intentional.

      . Proposed instruction No. 27:
      Under the law, when the Internal Revenue Service imposes a delinquency penalty for failure to file a return, a penalty for fraud in failing to file such return cannot also be imposed. Therefore, when the Internal Revenue Service imposes a delinquency penalty for the failure to file a return, it is the law that such failure has not been considered by the Government to be fraudulent nor criminal in nature.

      . Proposed questions for voir dire examination :
      7. Do you have any relative or friend who is now or has ever been employed by an agency of the Federal Government?
      8. Are you or is any member of your family a member of any organization pertaining to law enforcement?
      9. Do you feel that because a witness is a Government Agent that his testimony is therefore entitled to more weight than one who is not an agent?
      10. Do you receive any pension, retirement annuity, or other benefit from the United States Government or from any state government? If so, do you feel that as a result thereby, you would favor the prosecution?

      . Unlike United States v. Staszcuk, 502 F.2d 875 (7th Cir. 1974), the trial judge did not conduct a thorough, detailed voir dire.