author: MOORE, Circuit Judge: OAKES, Circuit Judge

text:
    William THISTLETHWAITE and Sol Lockshon, Appellants, v. The CITY OF NEW YORK et al., Appellees.
    No. 639, Docket 73-2399.
    United States Court of Appeals, Second Circuit.
    Argued March 7, 1974.
    Decided May 13, 1974.

      Richard C. Levin, New York City, (Paul G. Chevigny, Richard G. Lyon, and David M. Olasov, New York City, of counsel), for appellants.
    Nina G. Goldstein, New York City, (Adrian P. Burke, Corp. Counsel of the City of New York, and Milton H. Harris, New York City, of counsel), for appellees.
    Before MOORE, MANSFIELD and OAKES, Circuit Judges.
   MOORE, Circuit Judge:

Appellants, William Thistlethwaite and Sol Lockshon, were convicted in New York County Criminal Court of violating Section 13 of New York City’s Parks, Recreation and Cultural Affairs Administration’s Rules and Regulations by distributing pamphlets of a political nature in Central Park without the permit required by that section. They were each sentenced to pay a fine of $10 or to spend two days in jail. Both paid the fine. They then appealed to the Appellate Term where their convictions were affirmed without opinion. Application for leave to appeal to the New York Court of Appeals was denied, and appellants chose not to petition for review of this order by means of certiorari.

Appellants then brought the present action in the Federal District Court, seeking, on the basis of the Civil Rights Act, 42 U.S.C. § 1983 (1970), a declaratory judgment to the effect that Regulation 13 and the general permit dispensing system were unconstitutional. As part of this action, appellants moved for a preliminary injunction against the defendants, their agents and employees, to prevent them from enforcing the regulations. The judge below held an evidentiary hearing in connection with this motion and decided against the appellants. Thereafter, the judge decided against the appellants on the merits of their case, holding them barred by res judicata.

The judge below, in reaching his decision, concluded that since there is no doubt that state forums can be appropriate for the determination of issues arising under the Federal Constitution, if an issue is argued before a state tribunal, its resolution at that level carries with it all the usual effects of res judicata required by full faith and credit. Thus, while it is clearly a federal policy to allow to every plaintiff with a colorable claim his day in court, it is equally clearly not a court’s duty to encourage career litigants by allowing federal duplication of state trials. Thus, the District Court concluded, where there has been a clear election by the plaintiff of the state forum, that court’s decision may, under the concepts of res judicata, preclude a new consideration of the Constitutional claims by federal courts in a suit under the Civil Rights Act.

Appellants vigorously contest his conclusion. It is argued that this suit which seeks prospective relief cannot be barred by a prior suit based on facts locked soundly in the past. It is further submitted that a § 1983 action is separate and different from any other cause of action arising under the same facts, and the usual dictates of res judicata should therefore bow to the intent of Congress to create an alternative method of vindicating Constitutional rights. Finally it is argued that there can be no election of forum in a criminal action, and that it is improper to require a defendant' to stand mute in the dock to avoid “electing” against his right to a federal forum.

In the current context we find these arguments unpersuasive. It is said, for example, that the present cause of action is different from the prior criminal suit because it attacks the whole system of permit dispensing and seeks prospective relief against its enforcement. However, it is quite clear that the gist of the current suit is that the regulations are unconstitutional; it is also clear that this question was at issue and determined against the appellants in the state action. A perusal of the briefs submitted to the Appellate Term cannot fail to convince that the whole regulatory system was assailed, on its face and as applied to appellants. Memorandum of Appellants in Support of Certification to the Court of Appeals at 3; Brief for Appellants in the Appellate Term, First Department at 9-10. We are thus convinced that the assault was broadly based and broadly considered. Nor does the prospective nature of the relief sought necessarily preclude estoppel. In appellants’ view there has been merely a determination of law based on “expired” facts and the prior decision should be considered here solely on the basis of stare decisis — persuasive perhaps but certainly not conclusive. However, it was in fact determined by a court of competent jurisdiction that it was proper for the Parks Administration to require distributors of political literature who wish to distribute their pamphlets in a park to obtain a permit. If this determination, applying the regulation in question to facts identical to those presently alleged, is seen to bind appellants, they certainly cannot succeed on the present course of litigation.

Having argued that a strict application of the rules of collateral estoppel will not bar this action, appellants in the alternative contend that the policy underlying the Civil Rights Act would best be served by denying the effects of collateral estoppel under these circumstances. As appellants argue:

Therefore to apply these doctrines [res judicata and collateral estoppel] mechanically to all § 1983 actions would be to thwart a Congressional determination that the policies and rights embodied in § 1983 are often of a higher priority than the competing policies of judicial economy and comity.

Appellants’ Br. at 18.

While we recognize the particular nature of the Civil Rights Act and the intent of Congress embodied therein, we are not of the opinion that the trial judge applied the doctrines of res judicata “mechanically” to the facts of this case; further we do not read in the act any intent to foster career litigants. Lackawanna Police Benevolent Association v. Balen, 446 F.2d 52 (2d Cir. 1971); see also Rosenberg v. Martin, 478 F.2d 520, 525 (2d Cir. 1973); Friendly, Federal Jurisdiction: A General View 101 n. 113. Thus, we do not see reason to overturn the judgment of the court below.

Finally, it is argued that there was in fact no election of the state forum. It is contended that a criminal defendant is given no choice as to the time and the place of his prosecution. The picture is presented to us of a prisoner in the dock standing mute for fear of losing his right to a federal adjudication of his constitutional claims. We are not convinced that an election of the state tribunal is required to hold the present action barred by collateral estoppel. In fact we are unclear how a determination of the constitutionality of the Regulation could be avoided at the state level. Since the appellants were unaware of the Regulation, it cannot be said that they chose to bring on their prosecution by deliberately violating it; nor do we see how the trial court or any appellate court could avoid scrutinizing the Regulation for possible constitutional defects even at appellants’ request. However, in connection with this argument there are two matters that should be raised in passing. First, although, as was stated above, the usual criminal case provides little suggestions of election, the present case provides a good deal more. To quote Mr. Lockshon:

All I know is before trial started there was somebody from some agency, and he said, “Let’s drop the whole matter,” and since I had begun it I said, “No, this I think is a Constitutional thing. I have a right to give out leaflets. I want to go through with this thing.”

62a.

Although it is correct, as appellants contend, that Mr. Lockshon cannot “elect” for Mr. Thistlethwaite, it is apparent that they had the same attorney and were pursuing their remedies in conjunction. Thus, it might be argued, that Mr. Lockshon, in declining the offer, acted as spokesman. At the very least, it seems clear that both of them had determined to pursue the New York action to a conclusion on constitutional grounds. Second, it should be noted that habeas corpus is generally available in situations similar to the one at hand. Should the appellants show “possible' adverse collateral effects” of their conviction, they can gain a federal hearing by that route. Benton v. Maryland, 395 U.S. 784, 89 S.Ct. 2056, 23 L.Ed.2d 707 (1968); see also Sibron v. New York 392 U.S. 40, 88 S.Ct. 1889, 20 L.Ed.2d 917 (1968); and Carafas v. LaVallee, 391 U.S. 234, 88 S.Ct. 1556, 20 L.Ed.2d 554 (1968).

For the above reasons, the judgment of the court below is affirmed.

OAKES, Circuit Judge

(dissenting):

I dissent. The decision of the majority, without citation to any relevant authority, for the first time to my knowledge, applies the doctrine of res judicata or collateral estoppel to bar a § 1983 action challenging the constitutionality of a law solely on the basis that the plaintiff has been at one time convicted of a Violation of that law. As such the majority opinion is an entirely unwarranted extension of the decisions of this court on collateral estoppel in civil rights actions; it is contrary to the underlying law of collateral estoppel generally; and it sets a precedent in the area of first amendment challenges that is, to say the least, unfortunate.”

To understand the issues clearly it is necessary to state the facts in more detail than does the majority. Thistlethwaite’s conviction of a violation of § 13 of the Rules and Regulations of the New York City Parks, Recreation and Cultural Affairs Administration (the “Rules and Regulations”) was on January 13, 1972, in the Criminal Court of the City of New York for the distribution in Central Park on June 27, 1970, of a political pamphlet advocating boycott of the movie “Woodstock Nation” as a “capitalistic profanation” by a large American corporation (“Warner Bros.”). Lockshon’s conviction of such a violation was on the same date (in a consolidated proceeding) but for the entirely unrelated distribution of a pamphlet in protest of the Indochina war on April 17, 1971, on the southwest sidewalk at the corner of 81st Street and Central Park West, near the American Museum of Natural History. Throughout the New York courts, the only arguments made by the two, appellants here, were that § 13 was unconstitutional on its face. Here they brought suit seeking declaratory and injunctive relief on the basis that § 13 as implemented by § 11(a) of the Rules and Regulations “both as fully implemented and as applied to plaintiffs” (Par. 20 Complaint) is unconstitutional, particularly on the basis that the “permits . . . purportedly required by Section 13 of the Rules and Regulations, have not been, and are not being, issued by the Administration.”

The issue whether § 13 is void on its face is entirely different from the question whether § 13 as applied is permissible. I say the issue is different, because the facial challenge in the criminal cases to § 13 alone raised only the question whether a city may constitutionally require permits to be obtained under conditions having a rational relationship to the interests of the public in enjoyment of parks and their facilities. Section 13 on its face requires permits to be issued, except when certain specific reasons exist for denial — as where there would be interference with park use by others, use of a site in a specialized area such as a zoo or swimming pool, use of a preempted site and time. Under such circumstances, even when the permit is denied, § 13 requires that “alternative suitable locations and dates should be offered to the applicant.” Thus, under Poulos v. New Hampshire, 345 U.S. 395, 73 S.Ct. 760, 97 L.Ed. 1105 (1953), relied upon by appellees here, it is at least probable that § 13 is valid on its face. Compare Shuttlesworth v. City of Birmingham, 394 U.S. 147, 89 S.Ct. 935, 22 L.Ed.2d 162 (1969).

But here appellants contest the constitutionality of § 13 as implemented by § 11(a) and the provisions of the permit application which, taken together, facially appear to prohibit any distribution of pamphlets or handbills in parks or park streets, note 3 supra. This issue was not litigated in the state court, and I am not aware of any decision holding that collateral estoppel applies to issues not litigated on facts not presented. “Issue preclusion,” as collateral estoppel is now sometimes called, has always applied only to those issues completely litigated and specifically determined. Cromwell v. County of Sac, 94 U.S. 351, 353, 24 L.Ed. 195 (1876); Syms v. McRitchie, 187 F.2d 915, 918 (5th Cir. 1951).

Certainly our own Lackawanna Police Benevolent Association v. Balen, 446 F.2d 52 (2d Cir. 1971) (per curiam), and Rosenberg v. Martin, 478 F.2d 520, 525 (2d Cir. 1973), the only cases relied on by the majority, do not go so far. Lackawanna involved a direct constitutional challenge in a federal § 1983 action on the same grounds with the same parties and with the same facts as had already been tried in a civil action in the state court. In addition, in Lackawanna the plaintiff had voluntarily chosen the state court as his initial forum. In Rosenberg the plaintiff brought a § 1983 action for damages caused by his being deprived of a fair trial through pretrial publicity. There then Chief Judge Friendly allowed that:

It might be contended against giving the New York judgment preclusive effect that ... a state criminal judgment should have no more effect by way of issue preclusion in a federal civil rights action than it would in federal habeas. . . .

478 F.2d at 525. In Rosenberg that contention was not answered, because the plaintiff’s constitutional claim that he was deprived of a fair trial had already been disproven both in the state courts and in the federal court pursuant to a habeas petition.

The cases cited in H. Friendly, Federal Jurisdiction: A General View, 101-02 n. 113 (1973), are equally inapposite. All involve the attempt to upset the judgment of a state court through collateral attack. Were appellants here attacking the judgment of their convictions in the city court, then the majority would be correct in dismissing their civil rights complaint and suggesting the alternative of habeas, but appellants have made it clear that they are done with the past and their concern is the future. To hear their claims and grant them their relief would allow appellants to hand out leaflets in the park, but it would not affect one iota their convictions for violations of the ordinance. And more importantly, we would not be deciding an issue already litigated and decided in a state court, for it simply is not the same question whether an ordinance requiring permits is unconstitutionally applied by screening applicants by the content of their leaflets or is unconstitutional on its face so as to void the conviction of one who never knew of or applied for a permit to distribute.

Nor are the judicial-conservation policies to be served by the doctrine of issue preclusion at all upheld by advancing that doctrine here. The most that this decision does is to prevent Messrs. Thistlethwaite and Lockshon from asserting the unconstitutionality of § 13, merely delaying the determination on the merits, for anyone else may still and undoubtedly will bring the issue of constitutionality of §§ 13 and 11(a) as applied to the federal courts in a § 1983 proceeding. Indeed it might be said that the application of “issue preclusion” in civil rights litigation can increase the federal courts’ burden which so many bemoan: one case to determine whether there is collateral estoppel; another to raise the issue, regardless of the outcome of the first, for inevitably there are numbers of potential plaintiffs willing to test such laws at least when represented by one of many “public interest” legal organizations.

As the court below recognized there is no case which has held collateral estoppel to result from a criminal conviction so as to defeat a civil rights action seeking a declaratory judgment as to future enforcement of a statute. It is doubly unfortunate, I think, that the first such case is one in which the right asserted to have been violated is a preferred right — that of free expression of political thought. If any right is to be protected this would seem to be it. I suppose one can fault a given plaintiff, in the majority’s terminology, for being “a career litigant” although appellants’ involuntary defense of a criminal action in the state courts and their institution of a single federal civil rights action in respect to a very important matter — the right to distribute handbills or leaflets in New York City Parks or on “park-streets” — hardly seems to me to justify the majority’s derogatory appellation. But regardless how appellants individually may be characterized, their asserted rights to distribute in the future are significant and so significantly different from those adjudicated in the New York criminal case as to preclude application of the doctrine of collateral estoppel here.

I would reverse the judgment dismissing the complaint and remand.

      . Section 13 provides ;
      No person shall hold any meeting, perform any ceremony, make an address, exhibit or distribute any sign, placard, declaration or appeal of any description in any park or park-street, except by permit by Parks, Recreation and Cultural Affairs Administration. Upon application, the Administrator shall issue such permit unless: (1) the use for which the permit is sought would substantially interfere with park use and enjoyment by the public; (2) the location selected is not suitable because of special landscaping and planning; (3) the location is not suitable because it is a specialized area including, but not limited to, a zoo, swimming pool, or skating rink; (4) the date and time requested have previously been allotted by permit. Whenever a permit is denied, alternative suitable locations and dates shall be offered to the applicant.

      . The rule in question, Section 11(a), provides :
      A permit may be granted upon such terms and conditions as the Administrator shall reasonably impose. Every permit shall be of a duration reasonably deemed appropriate by the Administrator for the use of the park and its facilities by the public. The Administrator shall prescribe and make readily available forms of application for permits and copies of the Rules and Regulations in force. In granting a permit, the Administrator shall have the power to require a deposit or collateral or surety as a protection to the City.

      . Res judicata is not really here involved since none of the defendants named as parties herein were parties to the earlier suit. United States v. Harrison County, 399 F.2d 485, 491 (5th Cir. 1968), cert. denied, 397 U.S. 918, 90 S.Ct. 925, 25 L.Ed.2d 99 (1970).

      . Section 13. Meetings.
      No person shall hold any meeting, perform any ceremony, make an address, exhibit or distribute any sign, placard, declaration or appeal of any description in any park or park-street, except by permit from Parks, Recreation and Cultural Affairs Administration. Upon application, the Administrator shall issue such permit unless: (1) the use for which the permit is sought would substantially interfere with park use and enjoyment by the public; (2) the location selected is not suitable because of special landscaping and planting; (3) the location is not suitable because it is a specialized area including, but not limited to, a zoo, swimming pool, or skating rink; (4) the date and time requested have previously been allotted by permit. Whenever a permit is denied, alternative suitable locations and dates shall be offered to the applicant.
      While § 13 contains no explicit reference to “pamphlets” or “handbills”, appellants were convicted of its violation so that something in it has been construed by the New York authorities and courts to include handbills and pamphlets.

      . Their contention in the motion to dismiss before the Criminal Court was that “this or any licensing requirement for an individual’s distribution of political literature in parks of the City of New York is in contravention of the free speech and free press guarantees of the Federal and New York State Constitutions.” (Motion to Dismiss 2-3.) Their contention before the Appellate Term was “that the regulation is unconstitutional on its face.” (Brief to App. Term 5.) So was their argument to the Court of Appeals: “ . . . Section 13 is unconstitutional on its face .... And it is on this basis that petitioners seek review at the Court of Appeals.” (Memorandum in Support of Certification to the Court of Appeals 3.) The majority’s claim that the Rules and Regulations were attacked “as applied” as well is simply not supported by the record.

      . Section 11(a) reads:
      A permit may be granted upon such terms and conditions as the Administrator shall reasonably impose. Every permit shall be of a duration reasonably deemed appropriate by the Administrator for the use of the park and its facilities by the public. The Administrator shall prescribe and make readily available forms of application for permits and copies of the Rules and Regulations in force. In granting a permit, the Administrator shall have the power to require a deposit or collateral or surety as a protection to the City.
      In implementing this section the Administrator has caused permit applications to be made which state: “It is prohibited to distribute . . . any pamphlets, handbills, placards, signs or any other appeals within any park or on any park street” (Par. 4) and “The permit ... is revocable at any time in the absolute discretion of the Commissioner.” (Par. 9.)

      . Poulos, however, has been strongly criticized. See, e. g., Monaghan, First Amendment “Due Process,” 83 Harv.L.Rev. 518, 542-43 (1970).

      . Appellees argue that “the evidence at the hearing below confirmed that permits are issued as a matter of course and, in accordance with [Section 13’s] language, only so as to deal reasonably with the various competing uses of the parks (A 68-74).” (Brief p. 20) While the evidence in question fails to support the assertion that permits are issued “as a matter of course,” it does contain the City’s assertion that paragraph 4 of the permit application, which explicitly prohibits distribution of leaflets, is “interpreted to mean that no distribution of leaflets or other matter is permitted unless it’s specifically permitted by the terms of the permit.” (A-81.) In fact, appellant Lockshon was once in June, 1973, just before the hearing on the preliminary injunction in this case, apparently issued a permit under certain prescribed circumstances. There is no real evidence, however, and there are no findings in any event, as to whether paragraph 4 is often used by the authorities to say, as Lockshon claimed a Mr. Saks of the Parks Department said to him in reference to distributing leaflets in Central Park, “Nothing doing . . . Well, number four says . . . you are not allowed to distribute leaflets in the park.” (A-53). In short, on the record before us, the implication is that the permit system has been used to disallow leaflets the content of which the Commissioner or his lieutenants disapprove. Whether this implication would be borne out by a trial on the merits is a question that will never be determined, however, for, although none of these allegations and defenses were raised, much less litigated, in the state court, the majority finds them barred by collateral estoppel from determination here,

      . The majority acknowledges that “Since the appellants were unaware of the Regulation, it cannot be said that they chose to bring on their prosecution by deliberately violating it


source: Caselaw Access Project

author: WIDENER, Circuit Judge:

license: Public Domain

text:
    In the Matter of ALLEN UNIVERSITY, an educational corporation chartered by the State of South Carolina, Debtor.
    No. 73-1897.
    United States Court of Appeals, Fourth Circuit.
    Argued Jan. 9, 1974.
    Decided May 16, 1974.

      Gerald M. Finkel, Columbia, S. C. (Stanley H. Kohn, Kohn & Finkel, Columbia, S. C., on brief), for appellants.
    David W. Robinson, Columbia, S. C. (Robinson, McFadden, Moore & Pope, Columbia, S. C., on brief), for appellees.
    Before HAYNSWORTH, Chief Judge, and WINTER and WIDENER, Circuit Judges.
   WIDENER, Circuit Judge:

On May 21, 1973, creditors of Allen University filed in the district court a petition under 11 U.S.C. § 526 asking that Allen University be reorganized under the provisions of Chapter X of the Bankruptcy Act, 11 U.S.C. §§ 501-676. The district court dismissed the petition on the basis that, since Allen was not a “moneyed, business, or commercial corporation” within the intendment of 11 U.S.C. § 22(b), an action could not be maintained against it for involuntary reorganization under Chapter X.

In this appeal, petitioners contest both the district court’s holding that an eleemosynary educational corporation may not be the subject of involuntary reorganization under Chapter X of the Bankruptcy Act, and also the court’s finding that Allen University is not a “moneyed, business, or commercial” corporation. We affirm both aspects of the decision of the district court.

Allen University is a nonprofit, eleemosynary educational institution operating a four-year college in Columbia, South Carolina. It is controlled and primarily supported by the African Methodist Episcopal Church of South Carolina. Indeed, a majority of its Board of Trustees is composed of ministers and representatives of this church. The Board is elected by the church conference. The petitioners in this appeal are, for the most part, teachers and employees of Allen University who are owed back wages. They claim that the university is insolvent and has preferentially paid other creditors. They also contend that the normal provisions of Chapter XI of the Bankruptcy Act are not adequate and, consequently, that the university is in need of reorganization under Chapter X in order to continue its educational work and pay its debts.

In Hoile v. Unity Life Ins. Co., 136 F.2d 133, 135 (4th Cir. 1943), we held that the eligibility of a corporation for relief under Chapter X depends in the first instance on its eligibility to be adjudged a bankrupt in ordinary bankruptcy. Thus, voluntary petitions may be filed under Chapter X by corporations which can be adjudicated bankrupt on voluntary petitions; involuntary petitions may be filed against corporations against which involuntary petitions in ordinary bankruptcy can be filed. We see no reason to depart here from our previous holding.

11 U.S.C. § 506, which defines the term “corporation” for the purposes of Chapter X, states that “ ‘corporation’ shall mean a corporation, as defined in this title, which could be adjudicated a bankrupt under this title. . . . ” [Emphasis added.] 11 U.S.C. § 1 provides, for purposes of the Bankruptcy Act, that “[p]ersons shall include corporations except where otherwise specified. . . . ” 11 U.S.C. § 22(a) provides that “[a]ny person, except a municipal, railroad, insurance, or banking corporation or a building and loan association, shall be entitled to the benefits of this title as a voluntary bankrupt.” Thus, under this provision, in a proper case, it would seem an eleemosynary educational institution could be adjudged a bankrupt in a voluntary proceeding.

Because this proceeding is involuntary, however, we must look to subsection (b) of 11 U.S.C. § 22. The statute there provides that “[a]ny natural person, except a wage earner or farmer, and any moneyed, business, or commercial corporation, except a building and loan association, a municipal, railroad, insurance, or banking corporation, owing debts to the amount of $1,000 or over, may be adjudged an involuntary bankrupt upon default or an impartial trial and shall be subject to the provisions and entitled to the benefits of this title.” Consequently, in order to be adjudged an involuntary bankrupt under Chapter XI, or to be involuntarily reorganized under Chapter X, a debtor corporation must fall within the definition of “moneyed, business, or commercial.” Hoile v. Unity Life Ins. Co., 136 F.2d 133 (4th Cir. 1943); accord, In re Michigan Sanitarium & Benevolent Ass’n., 20 F.Supp. 979 (E.D.Mich.1937); contra, In re Maryvale Community Hospital, Inc., 307 F.Supp. 304, 306 n. 4 (D.Ariz.1969), aff’d per curiam, 456 F.2d 410 (9th Cir. 1972).

By judicial interpretation, the phrase “moneyed, business, or commercial corporation” has acquired a meaning which limits it to corporations organized for profit. See Hoile v. Unity Life Ins. Co., 136 F.2d 133, 135 (4th Cir. 1943). Although Allen University has been chartered as a corporation, as the petition alleges, there is neither capital stock in the corporation nor a return of capital to investors outstanding. Indeed the record discloses no investors. Moreover, although it may be true, as the district court found, that the University carries on a number of activities, some of which could, standing alone, be characterized as commercial in nature, including the operation of a day-care center and University apartments, offering of certain printing services to the public, leasing of two houses in Columbia, and the operation of Reed Center in Charleston, these activities are only ancillary to the institution’s main purpose of education. We are of opinion that such ancillary activities do not bring Allen University within the realm of a “moneyed, business, or commercial corporation.”

Accordingly, the district court property sustained the plea to the jurisdiction, and its decision is

Affirmed.

      . Accord, 6 Collier on Bankruptcy ¶ 2.07 [2] (14th Ed.1972); 11 Remington on Bankruptcy §§ 4416, 4424 (1961 rev.).

      . Similarly, the fact that, according tb its charter, Allen University may sue and be sued should not be determinative of its status as a “moneyed, business, or commercial corporation,” since, under general South Carolina law, charitable corporations may sue and are subject to suit. S.C.Code Ann. § 12-758 (Cum.Supp.1971).


author: FIELD, Circuit Judge:

text:
    James T. COX, Appellee, v. UNITED STATES of America, Appellant.
    No. 73-2322.
    United States Court of Appeals, Fourth Circuit.
    Argued March 6, 1974.
    Decided May 22, 1974.

      William S. Estabrook, III, Atty., Tax Div., U. S. Dept, of Justice (Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks and Grant W. Wiprud, Attys., Tax Div., U. S. Dept, of Justice, James F. Companion, U. S. Atty. on brief) for appellant.
    Boyd L. Warner, Clarksburg, W. Va. (Stathers & Cantrall, Clarksburg, W. Va., on brief) for appellee.
    Before WINTER, BUTZNER and FIELD, Circuit Judges.
   FIELD, Circuit Judge:

This appeal presents the question whether the retention of an overriding royalty interest incident to the assignment of certain oil and gas leases constitutes an “economic interest” which subjects the initial lump sum payments to ordinary income treatment rather than capital gains consideration.

In 1959 A. T. Carr leased 1,194 acres of oil and gas lands in Doddridge County, West Virginia, for one dollar per acre. In 1960 the appellee, James T. Cox, entered into an informal agreement with Carr under which he would contribute $2,000 for the development of a well in exchange for a half interest in all of the leases. Spurred by successful drilling operations on adjacent land, the partnership assigned ten leases to various companies for $180,125 in 1963 and $115,000 in 1964. Cox and Carr shared the proceeds equally, and the partnership retained a %sth overriding royalty interest of the %th working interest in each of the ten leasehold assignments. Additionally, the partnership retained a ^th working interest, subject to the reserved overriding royalty interest, in one lease.

Cox treated his share of the profits as a long-term capital gain on his 1963 and 1964 tax returns. The Commissioner of Internal Revenue viewed the profits as ordinary income subject to a depletion allowance and assessed deficiencies of $12,156.17 plus $1,776.72 interest for 1963 and $5,556.63 plus $478.70 interest for 1964. Cox paid the deficiencies and sought a refund which was denied. He then instituted this action pursuant to 28 U.S.C. § 1346(a)(1) for recovery of the alleged overpayment. The district court granted judgment in favor of Cox and the government appeals.

The test for determining what is an economic interest first appeared in Palmer v. Bender, 287 U.S. 551, 53 S.Ct. 225, 77 L.Ed. 489 (1933), and is now found in Treas.Reg. § 1.611-1(b)(1)(1960):

“An economic interest is possessed in every case in which the taxpayer has acquired by investment any interest in mineral in place * * * and secures, by any form of legal relationship, income derived from the extrac-

tion of the mineral * * * to which he must look for a return of his capital.”

The district court held the lump sum payments were subject to capital gains treatment because they were not dependent upon the extraction or production of oil and therefore did not fall within the scope of the treasury regulation. The record, however, does not support this bifurcated view of the transaction. Each of the ten leases assigned by the partnership is inextricably bound by a reserve clause which grants the partnership a Y&th overriding royalty interest, and in one of the ten leases, a %th working interest, subject to the reserved overriding royalty interest of the %th working interest. Accordingly, income from the royalty interests is tied directly to oil and gas production.

Assuming, however, that the two lump sum payments here in question were independent of the retained royalty interests, substantial authority denies them the benefit of capital gain treatment. In Burnet v. Harmel, 287 U.S. 103, 53 S.Ct. 74, 77 L.Ed. 199 (1932), the issue was whether a lump sum bonus paid the lessor under an oil and gas lease, which reserved the usual royalty, was to be treated as capital gain or ordinary income. The Court put all portions of the transaction into one category, viewing the bonus as anticipatory royalty which should be treated as ordinary income. In Herring v. Commissioner, 293 U.S. 322, 55 S.Ct. 179, 79 L.Ed. 389 (1934), the Court held that the depletion allowance was applicable to advance royalties and bonuses received by a lessor upon the execution of an oil and gas lease even though there were no wells on the property and no production during the taxable year. Finally, in Commissioner v. P. G. Lake, Inc., 356 U.S. 260, 78 S.Ct. 691, 2 L.Ed.2d 743 (1958), the Court decided that the consideration received for the assignment of an “oil payment right” carved out of a larger mineral interest (whether a royalty interest or a working interest) was taxable as ordinary income, subject to a depletion deduction, and not as a capital gain. The Court reasoned that “[t]he lump sum consideration seems essentially a substitute for what would otherwise be received at a future time as ordinary income.” 356 U.S., supra, at 265.

In reaching the conclusion that Cox did not retain an economic interest the court below made no reference to the foregoing decisions, but relied primarily on Helvering v. Elbe Oil Land Co., 303 U.S. 372, 58 S.Ct. 621, 82 L.Ed. 904 (1938), and Commissioner v. Remer, 260 F.2d 337 (8 Cir. 1958). We find, however, that Elbe has been considerably diluted by subsequent decisions and is of little precedential persuasiveness. In Elbe, the taxpayer sold all of its interest in certain oil and gas properties in consideration of a large initial lump sum payment, four substantial deferred payments which were payable without regard to production, and a residual interest in the net profits from production and operation of the properties. The Court denied the taxpayer a depletion deduction computed on the cash payments, holding that the transaction was an absolute sale of the taxpayer’s interest in the property. With reference to the taxpayer’s participation in the net profits, the Court stated that it was “unable to conclude that the provision for this additional payment qualified in any way the effect of the transaction as an absolute sale or was other than a personal covenant of the [purchaser].” 303 U.S., supra, at 375.

Eight years after Elbe, in Burton-Sutton Oil Co., Inc. v. Commissioner of Internal Revenue, 328 U.S. 25, 66 S.Ct. 861, 90 L.Ed. 1062 (1946), the Court concluded that where the assignor of certain oil rights retained an interest in the net operating profits, the transaction was not a sale but rather an assignment “with a reservation in the assignor of an economic interest in the oil.” Id., at 37. The Court attempted to distinguish rather than overrule its decision in Elbe, concluding that “the holding of Elbe should not be extended to the facts of this agreement.” Id., at 36. In Commissioner of Internal Revenue v. Southwest Exploration Co., 350 U.S. 308, 76 S.Ct. 395, 100 L.Ed. 347 (1956), the Court again declined to follow Elbe, holding that the retention of a share of net profits was an economic interest in the oil in place which entitled the taxpayer to the depletion allowance. The moribund state of Elbe was recognized by the Tenth Circuit in Commissioner of Internal Revenue v. Pickard, 401 F.2d 615 (1968), with the observation that “[t]he Supreme Court in Burton-Sutton appears to have limited Elbe to its particular facts, as did Comm’r. v. Southwest Exploration Co. * * Id., at 616.

Similarly, the Eighth Circuit’s decision in Commissioner v. Remer, supra, which involved the sale of “stockpiled iron ore mining leases” and was decided largely on the basis of Elbe, has been limited to its particular facts. See Wood v. United States, 377 F.2d 300 (5 Cir.), cert. denied 389 U.S. 977, 88 S.Ct. 465, 19 L.Ed.2d 472 (1967); Rabiner v. Bacon, 373 F.2d 537 (8 Cir. 1967).

To accept the taxpayer’s contention that the reserve clause should be divorced from the alleged fractional sale of a capital asset would place us in the situation which confronted the Tenth Circuit in United States v. White, 311 F.2d 399 (1962), overruled 401 F.2d 610 (10 Cir. 1968). In White the taxpayers received a payment of $175,000 plus a ten per cent royalty of the gross value of all uranium mined from the property. In its initial opinion the court held that the lump sum payment was part of the consideration paid for the sale of the minerals and was properly treated as a capital gain since the taxpayers had retained no economic interest in the minerals in place. Six years later the same taxpayers sought to have the royalty payments taxed at capital gain rates rather than ordinary income. Sitting in banc, the court found that the absence of a total price plus the continued participation by the taxpayers in the mineral production made the transaction a lease and not a sale thereby subjecting the royalty payments to ordinary income treatment. In overruling its prior decision the court stated:

“As will be hereinafter developed the transaction must be examined as a whole and, under the decisions of the Supreme Court, put into one category. It is tempting to divide the transaction into several steps with different tax consequences, but this cannot be done. The tax category into which the entire transaction must be placed is that of a lease.” 401 F.2d, supra, at 611.

We conclude that in the transactions before us Cox retained an economic interest in the oil and gas which requires that the lump sum payments be taxed as ordinary income subject to the depletion allowance and not as capital gains. Accordingly, the judgment of the district court is reversed and the case remanded with instructions to enter judgment in favor of the government.

Reversed and remanded.

      . A royalty interest is a right to receive a specified percentage of all oil and gas produced during the lease. 3B Mertens, Law of Federal Income Taxation, § 22.37 at 329 (1973). If the owner of an oil and gas lease transfers it to another operator, retaining a share of the production, usually Yl^th, free of expense other than severance tax, this retained interest is called an overriding royalty. It differs from a landowner’s royalty in that it stems from the lease and terminates with the lease. Acquisition of Oil and Gas Properties, 21 Oil & Gas Tax Q. 1, 10 (L. Fiske ed. 1972).

      . An oil and gas lease ordinarily conveys the entire mineral interest less' any royalty interest retained by the lessor. The owner of the lease is said to own the “working interest” because he has the right to develop and produce the minerals. Commissioner v. P. G. Lake, Inc., 356 U.S. 260, 261 n. 1, 78 S.Ct. 691, 692, 2 L.Ed.2d 743 (1958).

      . A net profits interest is a share of gross production measured by net profits from operation of the property. Like the overriding royalty it is created from the working interest, and the net profits interest differs from other production-measured payments in that it represents a fractional share of the profit of the operating company, rather than a fractional share of the minerals themselves as produced. Comment, Sale or Lease: Capital Gain or Ordinary Income Subject to Depletion in Mineral Transactions, 32 La.L.Rev. 417, 424 n. 30 (1972).

      . In a separate opinion, Mr. Justice Frankfurter criticized the “gossamer” distinctions drawn by the majority between Elbe and Burton-Sutton, “which hardly can be held in the mind longer than it takes to state them * * *.” 328 U.S. at 38.


author: HAYS, Circuit Judge:

text:
    George FELDMAN, as Trustee in Bankruptcy of Leasing Consultants Incorporated, Bankrupt, Plaintiff-Appellant, v. TRANS-EAST AIR, INC., et al., Defendants-Appellees.
    No. 652, Docket 73-2464.
    United States Court of Appeals, Second Circuit.
    Argued March 13, 1974.
    Decided May 7, 1974.

      George A. Hahn, New York City (Daniel A. Zimmerman and Hahn, Hes-sen, Margolis & Ryan, New York City, on the brief), for plaintiff-appellant.
    Anthony L. Tersigni, New York City (Robert E. Helpem and Aranow, Brodsky, Bohlinger, Benetar & Einhorn, New York City, on the brief), for defendantappellee Castle Capital Corp.
    Matthew Gluck, New York City (Dennis C. Krieger and Fried, Frank, Harris, Shriver & Jacobson, New York City, on the brief), for defendant-appellee Hudleasco, Inc.
    Before HAYS and TIMBERS, Circuit Judges, and DAVIS, Judge.

       The Honorable Oscar H. Davis, of the Court of Claims, sitting by designation.

   HAYS, Circuit Judge:

Appellant George Feldman, as trustee in bankruptcy of Leasing Consultants Incorporated (LCI), commenced this action to vacate an order of the referee in bankruptcy under which leases on three airplanes were disaffirmed. The trustee sought to recover possession of and title to the airplanes, and to recover all rentals obtained on the airplanes by appellees during their possession. The referee refused to vacate his order and dismissed the remainder of appellant’s application for want of summary jurisdiction.

Appellant then brought a petition for review before the United States District Court for the Eastern District of New, York and joined with it a plenary suit seeking essentially the same relief. The district court affirmed the order of the referee and dismissed the plenary action. 366 F.Supp. 66 (E.D.N.Y.1973). We affirm.

I.

In August 1968 appellee Hudleasco conveyed two airplanes it owned and appellee Castle Capital conveyed one airplane it owned to appellee Trans-East Air, Inc., under a lease with an option to purchase. Both Hudleasco and Castle Capital registered title to their aircraft under the Federal Aviation Act, 49 U.S.C. §§ 1301-1542 (1970). On March 15, 1969, Trans-East conveyed the three planes to LCI under a lease with an option to purchase. Trans-East did not record the conveyances to LCI.

On August 18, 1970, LCI filed a petition for arrangement under Chapter XI of the Bankruptcy Act. On August 24 LCI petitioned the referee in bankruptcy for rejection of the airplane conveyances pursuant to section 313(1) of the Bankruptcy Act, 11 U.S.C. § 713(1) (1970). At the time of the petition LCI had ceased using the aircraft and the monthly rental of $18,150 had become a burden.

On September 2, 1970, Referee Rudin conducted a hearing and, finding no opposition, granted the petition by an order dated September 8,1970.

On October 14, 1970, LCI was adjudicated a bankrupt and appellant was appointed trustee.

In January 1972 the trustee moved the referee to vacate his order of September 8, 1970. The bankruptcy court denied the motion on the ground that the order had created vested rights which its vacation would disturb. The trustee then filed a petition for review and commenced a plenary action in the district court.

The district court declined to reach the jurisdictional issue raised by the appellees in the plenary action. On the merits the court found the trustee’s action barred by estoppel and laches. The court therefore dismissed the complaint in the plenary action and affirmed the order of the referee in bankruptcy.

II.

The trustee advances two theories for recovering the aircraft. First, he argues that the referee’s order of rejection never authorized abandonment of the planes. Thus appellees converted the planes by taking possession of them and the trustee may now recover possession in an action for conversion. The trustee’s second theory is that, if the referee’s order is construed to have authorized surrender of the aircraft, the trustee has shown good cause to vacate the order.

Both theories lack merit.

A. Surrender of the Aircraft.

The trustee notes, that the September 8 order of the referee did not explicitly direct LCI to abandon the planes. However, it is clear that all parties contemplated surrender. After entry of the order appellees took possession without any objection by the debt- or. Referee Rudin, who signed the September 8 order, made clear in his memorandum rejecting the trustee’s motion to vacate that he had intended the September 8 order to authorize surrender.

The order of disaffirmance makes no sense if it does not authorize surrender of the planes. As LCI was not using the planes at the time, only by re-leasing them could the debtor be freed of the heavy rentals. As the petition for disaffirmance implied, LCI lacked the ability and inclination to re-lease the planes profitably. Under the circumstances, surrender of the planes was the only reasonable solution.

Moreover, even if the order did not authorize abandonment, the failure of the debtor and the trustee to object to the taking of the planes for sixteen months equitably estops the trustee from challenging the abandonment now. See section B.I., infra.

B. Petition to Vacate the Order of September 8, 1970.

The referee in bankruptcy has discretionary power to vacate a prior order for good cause shown, provided that the order has not created vested rights which its vacation would disturb. Wayne United Gas Co. v. Owens-Illinois Glass Co., 300 U.S. 131, 137, 57 S.Ct. 382, 81 L.Ed. 557 (1937); Sandusky v. National Bank, 90 U.S. (23 Wall.) 289, 293, 23 L.Ed. 155 (1875); In re Pottasch Brothers Co., 79 F.2d 613, 616-617 (2d Cir. 1935).

The trustee argues for vacation on the ground that the referee mistakenly viewed the conveyances as simple leases. He claims that in fact the conveyances were conditional sales as defined by the Federal Aviation Act § 101(16), 49 U.S.C. § 1301(16) (1970). Thus, the trustee argues, LCI was the “owner” of the airplanes under 14 C.F.R. § 47.5(c) (1973) and, since Trans-East failed to record the sublease to LCI pursuant to section 503(a)(1) of the Federal Aviation Act, 49 U.S.C. § 1403(a)(1) (1970), the conveyances were not valid against the trustee, Federal Aviation Act § 503(c), 49 U.S.C. § 1403(c) (1970), and Trans-East had only an unsecured lien on the planes. Under the trustee’s theory Hudleasco and Castle Capital could not have a better claim against LCI than Trans-East, and therefore they are only general unsecured creditors whose rights, as general creditors, under section 70c of the Bankruptcy Act, 11 U.S.C. § 110c, are inferior to the rights of the trustee.

We need not grapple with the many difficult questions which this theory raises since we hold that the action is barred both by equitable and by collateral estoppel.

(1) Equitable Estoppel.

The district court found that appellees had changed their position in reasonable reliance on the order of September 8, 1970, issued pursuant to the debtor’s petition for disaffirmance. We agree.

The trustee claims that he cannot be estopped because he was not a party to the disaffirmance proceeding. But disaffirmance of a contract by the debtor in possession binds the trustee even though the debtor is ultimately adjudicated a bankrupt. 8 Collier, Bankruptcy ¶ 3.15 [9] (14th ed. 1971); cf. In re Wil-Low Cafeterias, Inc., 111 F.2d 83, 84-86 (2d Cir. 1940); In re Imperial “400” National, Inc., 391 F.2d 163, 171-172 (3d Cir. 1968). Thus for purposes of estoppel LCI’s petition for disaffirmance is imputed to the trustee.

In this case appellees changed their position in reasonable reliance on the rejection of the contracts. They properly understood the order of September 8 to require them to take the planes and to attempt to mitigate damages by finding a new lessee. However, demand for the aircraft was very low. As the district court found, appellees expended considerable amounts of money, time, and effort to re-lease the planes, and these efforts plus appellees’ expertise were largely responsible for the favorable leases eventually obtained.

Appellees had a right to rely on the order of disaffirmance. The debtor requested it, the court approved it, and no other party opposed it. For sixteen months neither the debtor nor the trustee objected to appellees’ actions. Congress did not intend section 313(1) to be a trap for the unwary. It would be highly inequitable if the lessor, having regained possession of property following an order of disaffirmance and having re-leased the property on favorable terms, lost the benefit of the new lease when the debtor or trustee discovered that the contract surrendered as burdensome had suddenly become valuable. The doctrine of estoppel prevents such an inequitable result.

(2) Collateral Estoppel.

In considering the petition for disaffirmance the only issues for the bankruptcy court to decide are whether the contract is executory and whether disaffirmance would be advantageous to the debtor. 8 Collier, supra, |f 3.15 [8]. The referee here decided both questions in the affirmative. Unless the trustee has raised new issues here or shown special reasons for vacation of the disaffirmance order, the instant action is barred by collateral estoppel. Ashe v. Swenson, 397 U.S. 436, 443, 90 S.Ct. 1189, 25 L.Ed.2d 469 (1970).

The trustee has raised no new issues. He tries to circumvent this fact by claiming that the instant action sounds in tort for conversion, a theory not considered in the original proceeding. But, as. our earlier discussion indicates, the taking of the planes by appellees was not tortious.

Appellant does not claim that the disaffirmance order is rendered invalid by fraud or bad faith by any party. He alleges that the referee committed a mistake of fact by viewing the conveyances to LCI as leases rather than conditional sales. Section 313(1) does not distinguish between leases and conditional sales. It requires only that the contracts be executory. Whether the contracts here were leases or conditional sales, they were executory. See 1 S. Williston, Contracts § 14 (3d ed. 1957).

It would create an intolerable situation if, after entry of an order of disaffirmance, a party to an executory contract still had to fear that a bankruptcy trustee might subsequently re-open the case and insist on performance. The doctrine of collateral estoppel prevents such a result.


author: HILL, Circuit Judge.

text:
    UNITED STATES of America, Plaintiff-Appellant, v. CLEARFIELD STATE BANK, Defendant-Appellee. UNITED STATES of America, Petitioner, v. Honorable Aldon J. ANDERSON, Judge, United States District Court for the District of Utah, Respondent.
    Nos. 73-1703, 73-1774.
    United States Court of Appeals, Tenth Circuit.
    June 7, 1974.

      David English Carmack, Tax Div., Dept, of Justice, Washington, D. C. (Scott P. Crampton, Asst. Atty. Gen. Meyer Rothwaeks and Crombie J. D. Garrett, Washington, D. C., on the brief), for plaintiff-appellant and petitioner.
    Richard W. Campbell, Ogden, Utah, for defendant-appellee and respondent.
    Before CLARK, Justice; HILL and SETH, Circuit Judges.

       Associate Justice, United States Supreme Court, Retired, sitting by designation.

   HILL, Circuit Judge.

The question presented by this consolidated appeal and application for a writ of mandamus is whether a district court’s order granting summary judgment is a final judgment.

In 1963 the M & S Construction & Engineering Company (taxpayer) borrowed funds from appellee Clearfield State Bank to finance a construction project, giving promissory notes for the loans. Taxpayer subsequently became insolvent, was unable to complete its work, and defaulted on its notes. At the same time it was indebted to appellant United States, one of approximately twenty creditors, for failure to pay taxes, and a federal tax lien arose.

Claiming that a wrongful refusal to make additional loans under a long-term loan agreement destroyed its business, taxpayer instituted suit against appellee in Utah state court. Appellee counterclaimed for the amount of the unpaid and past due notes. Thereafter appellant served a notice of levy upon appellee for taxpayer’s unpaid taxes ($33,573.25), claiming that taxpayer’s cause of action against appellee was a property right owned by taxpayer and held by appellee. Appellee did not pay the tax.

Several years later taxpayer and appellee settled the suit. Appellee’s counter-claim was dismissed and it paid $40,000 into the state court for taxpayer’s benefit. Appellant then commenced this suit (No. 73-1703) against appellee, contending its failure to honor the tax levy made it personally liable for taxpayer’s unpaid taxes. The complaint alleged that appellee was indebted to taxpayer in the amount of $103,000, a figure arrived at by adding the value of the counter-claim to the $40,000 settlement.

Appellee answered, denying the debt, and then filed a motion for summary judgment. Appellant opposed the motion and filed its own motion for a partial summary judgment on the counterclaim issues. The trial court granted appellee’s motion and denied appellant’s motion on January 22, 1973. Contending this was not a final judgment appelIant, on July 3, 1973, filed a motion requesting that a final judgment be entered. A hearing was held and the motion was denied on the grounds that the January 22 order was a final judgment.

Appellant then filed a notice of appeal, and, on the theory that the court’s orders were not final and therefore non-appealable, also filed an application for a writ of mandamus (No. 73-1774) to require entry of final judgment. On appeal, appellant contends the trial court’s order granting summary judgment was not final because it did not dispose of all the issues and because it did not comply with the separate document requirement of Rule 58, F.R.Civ.P.

Although it lost on the counter-claim, appellant contends there still remained the issue as to whether appellee retained $40,000 on the date of the levy, belonging to taxpayer. Appellee contends this was not an issue that could be resolved by the trial court because the money was paid into the state court in satisfaction of taxpayer’s judgment and subject to capture by its creditors. Therefore, appellee argues, the right to the money should be litigated between appellant and taxpayer’s other creditors, in another suit. Under such circumstances a determination of the counter-claim issue by the trial court would dispose of all the issues.

Initially, we note that the pleadings raised no issue concerning this money. Nor was it argued in subsequent briefs. The issue was raised for the first time by appellant, at a hearing on a motion for a final judgment, after its appeal time had lapsed. This is an indication that the parties never considered the money to be an issue. We place the greatest importance, however, on the intention of the trial judge. United States v. Evans, 365 F.2d 95 (10th Cir. 1966). Speaking to the appellant about the money, he stated:

f you have claim to it, you can make claim to it, in an appropriate manner. I have just attempted to resolve the issues as between the two parties that were involved on that motion.

This language clearly evidences an intention that the order granting summary judgment constituted a final judgment, dispositive of all the issues before the court. Implicit therein is the trial court’s acceptance of appellee’s argument. Having found the order to be a final judgment, however, we need not consider the correctness of the ruling. That issue is not before us.

Appellant nevertheless argues there still was no final judgment because no separate document so entitled, distinct and apart from the order granting summary judgment, has been entered.

Rule 58 does require every judgment to be set forth on a separate document. Appellant, however, interprets this to mean that two documents are required in all cases. This is unfounded. Rule 58 applies where it is uncertain whether a final judgment has been entered, as where a trial judge writes an opinion or memorandum providing only the basis for the entry of judgment, but containing apparently directive or dis-positive words such as “defendant’s motion for summary judgment is granted.” In such a situation, a judgment must be set out on a document separate from the opinion or memorandum.

That problem does not exist here. The trial court wrote no opinion or memorandum, his order granting summary judgment being itself a separate document.

Appellant also relies on United States v. Indrelunas, 411 U.S. 216, 93 S.Ct. 1562, 36 L.Ed.2d 202 (1973), but we find nothing in that case inconsistent with our decision. There, the Supreme Court simply held that a docket entry did not satisfy the separate document requirement.

We find that a final judgment has been entered. Accordingly, the trial court’s order is affirmed, and appellant’s application for a writ of mandamus is denied.

      . Appellee relied on 26 U.S.C. § 6332(a) in depositing the money with the state court. That section provides:
      Except as otherwise provided in subsection (b), any person in possession of (or obligated with respect to) property or rights to property subject to levy upon which a levy has been made shall, upon demand of the Secretary or his delegate, surrender such property or rights (or discharge such obligation) to the Secretary or his delegate, except such part of the property or rights as is, at the time of such demand, subject to an attachment or execution under any judicial process.

      . The Advisory Committee’s note on the separate document requirement of Rule 58 makes this clear.
      Hitherto some difficulty has arisen, chiefly where the court has written an opinion or memorandum containing some apparently directive or dispositive words, e. g., “the plaintiff’s motion [for summary judgment] is granted.” Clerks on occasion have viewed those opinions or memoranda as being in themselves a sufficient basis for entering judgment in the civil docket as provided by Rule 79(a). However, where the opinion or memorandum has not contained all the elements of a judgment, or where the judge has later signed a formal judgment, it has become a matter of doubt whether the purported entry of judgment was effective, starting the time running for post-verdict motions and for the purpose of appeal.
      The amended rule eliminates these uncertainties by requiring that there be a judgment set out on a separate document — distinct from any opinion or memorandum— which provides the basis for the entry of judgment [citations omitted].
      See also United States v. Indrelunas, 411 U. S. 216, 93 S.Ct. 1562, 36 L.Ed.2d 202 (1973).


author: SPRECHER, Circuit Judge.

text:
    Jose MOODY, Petitioner-Appellant, v. UNITED STATES of America, Respondent-Appellee.
    No. 73-1853.
    United States Court of Appeals, Seventh Circuit.
    Argued April 19, 1974.
    Decided May 22, 1974.

      James M. De Zelar, Chicago, III., for petitioner-appellant.
    Henry A. Schwarz, U. S. Atty., E. St. Louis, 111., Warren E. White, Asst. U. S. Atty., Danville, 111., for respondent-appellee.
    Before SWYGERT, Chief Judge, CASTLE, Senior Circuit Judge, and SPRECHER, Circuit Judge.
   SPRECHER, Circuit Judge.

Although the conviction involved here is affirmed, we are using this appeal to attempt to forestall unnecessary appeals and retrials in the future based upon alleged plea bargaining not shown of record.

I

Defendant Jose Moody was indicted for possession, with intent to distribute, of approximately 295 grams of heroin in violation of 21 U.S.C. §§ 841(a)(1) and 841(b)(1)(A).

On August 28, 1972, he appeared with retained counsel and pleaded not guilty. On September 13, he reappeared with the same retained counsel and withdrew his not guilty plea and pleaded guilty. At that time the court addressed the defendant personally and attempted to determine whether the plea was made voluntarily with understanding of the nature of the charge and the consequences of the plea. Rule 11, Fed.R.Crim.P. Defendant was sentenced on October 10, 1972 to five years’ imprisonment and, in addition, to a special parole term of three years.

On January 3, 1973, defendant submitted pro se his sworn petition for reduction of sentence in which he claimed that “petitioner’s attorney used his position to coerce the guilty plea by offering a ninety day jail sentence with five years probation to follow.” The petition was denied on January 11, the court upon review of the record finding that the plea of guilty was entered freely and voluntarily by the defendant.

On February 8, 1973, defendant submitted pro se his signed but not sworn motion to withdraw his guilty plea and to vacate the illegal sentence in which he alleged that his retained counsel had told him “that he has made a deal with the U. S. Attorney through a plea bargaining action” whereby defendant “would receive not over a nine (9) month sentence of imprisonment and the remaining part of his sentence on probation.” He further alleged that his counsel had instructed him as to the answers to be given to the sentencing judge and that “the judge was in on the deal.” The motion was denied on March 26, 1973, the court upon another review of the record finding that defendant “knew and understood the charges against him, and the consequences of a plea of guilty,” and that defendant “was represented by competent counsel of his own choosing, and no dissatisfaction was expressed” by him “until approximately four months after judgment was entered.”

In permitting defendant to proceed in forma pauperis in this court, Judge Stevens on September 7, 1973 raised the question: “Would it be appropriate to require the petitioner, in order to obtain an evidentiary hearing, to support his general allegations by either (a) affidavit of the lawyer who represented him at the arraignment, or (b) an affidavit of his own containing sufficient specific factual detail to indicate that there is probable merit to his claim.”

The defendant appealed on the grounds that (1) the district court failed to address the defendant personally, (2) the record does not show that defendant voluntarily and understandingly entered the plea of guilty, and (3) the defendant was entitled to an evidentiary hearing upon his allegation that his guilty plea was induced by his retained attorney’s promise of a lighter sentence.

II

Prior to accepting defendant’s guilty plea on September 13, 1972, the district court addressed twenty-one questions to the defendant personally, covering the maximum possible penalty, the defendant’s right to plead not guilty and right to a jury trial, whether the defendant desired to plead guilty and to waive a jury trial, whether he was coerced or given promises or threatened or intimidated, whether defendant was physically or mentally ill, addicted to narcotics or alcohol, and whether he knew the charges against him and was guilty of those charges. Defendant’s challenge to the completeness of these Rule 11 inquiries went to the requirement that the judge satisfy himself that “there is a factual basis for the plea.” McCarthy v. United States, 394 U.S. 459, 467, 89 S.Ct. 1166, 1171, 22 L.Ed.2d 418 (1969).

On September 13, the court asked the defendant personally whether he knew the charge against him and whether he was guilty of that offense. Two weeks earlier when he had pleaded not guilty, the charge was stated in detail to him by the court and by the prosecutor. Prior to sentencing on October 10, when he still had an opportunity to withdraw his guilty plea, the court asked the following questions of the defendant relative to the factual basis for the plea:

THE COURT: You did have this heroin in your possession, is that correct?
THE DEFENDANT: Yes, sir.
THE COURT: How much did you have?
THE DEFENDANT: About twelve ounces.
THE COURT: What would twelve ounces of heroin be worth ?
THE DEFENDANT: I don’t know. The man was going to give me a thousand dollars for each one.
THE COURT: A thousand dollars an ounce?
THE DEFENDANT: Yes. That is what he say.
THE COURT: How long had you had this heroin?
THE DEFENDANT: Well, I had it about a month.
THE COURT: About a month.
THE DEFENDANT: He bring it to me and I put it on the farm.
THE COURT: Sir?
THE DEFENDANT: A friend of mine brought it to me so I can sell it and I keep it on the farm. I didn’t want to sell it. I didn’t know anybody so I had a friend of mine come to me and asked if I could find some so I said, “Yes, I know where I can find some.” That is how it happened.
******
THE COURT: Where did you get this heroin?
THE DEFENDANT: A friend of mine brought it to me.
THE COURT: You kept it in your possession ?
THE DEFENDANT: I put it on the farm. I put it in a can and dropped it in a hole there because I don’t want to fool with it.

We conclude that the district court adequately addressed the defendant personally and determined that the plea was made voluntarily with understanding of the nature of the charge and the consequences of the plea, as required by Rule 11 as it read at the time of the trial and as it now reads.

Defendant’s final contention was that he was entitled to an evidentiary hearing regarding his allegation of plea bargaining.

The Supreme Court said in McCarthy that “Rule 11 is designed to eliminate any need to resort to later fact-finding proceeding ‘in this highly subjective area.’ ” 394 U.S. at 469. At present, Rule 11 makes no requirement relating to the disclosure of alleged plea bargains (see Part III hereof).

In Machibroda v. United States, 368 U.S. 487, 82 S.Ct. 510, 7 L.Ed.2d 473 (1962), the prisoner filed a motion under 28 U.S.C. § 2255 to vacate his sentence, stating that in violation of Rule 11 the court had accepted the guilty plea without first determining its voluntariness when in fact plea bargaining had taken place. The opinion does not disclose what, if anything, the trial court had done in regard to a Rule 11 interrogation, but the defendant did file an extensive and highly detailed affidavit recounting the specifics of the promises made. The Court’s opinion contains the complete affidavit and it is characterized as “detailed and specific.” 368 U.S. at 495. The Court vacated the judgment denying a hearing in order that a hearing be held. However, the Court said at 495-496:

What has been said is not to imply that a movant must always be allowed to appear in a district court for a full hearing if the record does not conclusively and expressly belie his claim, no matter how vague, conclusory, or pah pably incredible his allegations may be. The language of the statute does not strip the district courts of all discretion to exercise their common sense.
*• * * -» * *
There will always be marginal eases, and this case is not far from the line. But the specific and detailed factual assertions of the petitioner, while improbable, cannot at this juncture be said to be incredible.

Machibroda’s detailed affidavit was made several years after his conviction. In the present case a few months after his conviction, defendant made the bare-bones allegation that he was promised a ninety-day jail sentence and a month later he made the general allegation that he was promised a nine-month sentence of imprisonment. We do not believe that defendant triggered the need for an evidentiary hearing. See Fontaine v. United States, 411 U.S. 213, 93 S.Ct. 1461, 36 L.Ed.2d 169 (1973), for another example of the detail required to be alleged in order to be entitled to a hearing.

We conclude therefore that the district court did not abuse its discretion in denying without hearing the defendant’s motion to withdraw his guilty plea and to vacate his sentence.

Ill

In exercise of our supervisory power and because of a substantial number of appeals raising the same issue of off-the-record plea bargaining, we are taking this opportunity to attempt to conserve judicial energy in this circuit. See United States v. Silvern, 484 F.2d 879 (7th Cir. 1973).

The negotiated plea of guilty or “plea bargaining” has been a traditional anomaly of the judicial system. Although a substantial number of guilty pleas, which in turn account for about 90 percent of all convictions, have been the product of negotiations between prosecutors and defense counsel, with occasional participation or knowledge on the part of the trial judge, the whole process had been largely invisible and carried on with the pretext that it did not exist.

In 1967, the President’s Commission on Law Enforcement and Administration of Justice recommended :

If a negotiated agreement to plead guilty is reached, care should be taken by prosecutor and defense counsel to state explicitly all its terms.
Upon the plea of guilty in open court the terms of the agreement should be fully stated on the record and, in serious or complicated cases, reduced to writing.

In 1968, the American Bar Association Standards for criminal justice relating to pleas of guilty were approved by the ABA House of Delegates and contained the following standard as part of Section 1.5 :

The court should not accept a plea of guilty or nolo contendere without first determining that the plea is voluntary. By inquiring of the prosecuting attorney and defense counsel, the court should determine whether the tendered plea is the result of prior plea discussions and a plea agreement, and, if it is, what agreement has been reached.

This standard was supplemented by additional standards approved in 1972 relating to the function of the trial judge, which provided in Section 4.-1(b):

The trial judge should not accept a plea of guilty or nolo contendere without first inquiring whether there is a plea agreement and, if there is one, requiring that it be disclosed on the record.

Chief Justice Berger, speaking for a unanimous court on this point, said in Santobello v. New York, 404 U.S. 257, 260-261, 92 S.Ct. 495, 498, 30 L.Ed.2d 427:

. The disposition of criminal charges by agreement between the prosecutor and the accused, sometimes loosely called “plea bargaining,” is an essential component of the administration of justice. Properly administered, it is to be encouraged. If every criminal charge were subjected to a full-scale trial, the States and the Federal Government would need to multiply by many times the number of judges and court facilities.
Disposition of charges after plea discussions is not only an essential part of the process but a highly desirable part for many reasons. It leads to prompt and largely final disposition of most criminal cases; it avoids much of the corrosive impact of enforced idleness during pre-trial confinement for those who are denied release pending trial; it protects the public from those accused persons who are prone to continue criminal conduct even while on pretrial release; and, by shortening the time between charge and disposition, it enhances whatever may be the rehabilitative prospects of the guilty when they are ultimately imprisoned.

On April 23, 1974, the Supreme Court approved and transmitted to Congress, to take effect on August 1, 1974 if approved, amendments to the Federal Rules of Criminal Procedure, including a greatly expanded Rule 11 which details plea agreement procedure.

Amended Rule 11 includes in paragraphs (e) (2), (e) (5) and (g) the following :

(e) (2) Notice of such agreement. —If a plea agreement has been reached by the parties which contemplates entry of a plea of guilty or nolo contendere in the expectation that a specific sentence will be imposed or that other charges before the court will be dismissed, the court shall require the disclosure of the agreement in open court at the time the plea is offered.
******
(e) (5) Time of plea agreement procedure. — Except for good cause shown, notification to the court of the existence of a plea agreement shall be given at the arraignment or at such other time, prior to trial as may be fixed by the court.
******
(g) Record of Proceedings. — A verbatim record of the proceedings at which the defendant enters a plea shall be made and, if there is a plea of guilty or nolo contendere, the record shall include, without limitation, the court’s advice to the defendant, the inquiry into the voluntariness of the plea including any plea agreement, and the inquiry into the accuracy of a guilty plea.

In order to forestall unnecessary appeals district judges in this circuit should immediately expand their Rule 11 inquiry substantially as follows:

I now inquire of the United States Attorney and of the prisoner and his counsel whether or not there have been plea negotiations. Before permitting you to respond, I advise you that the United States Supreme Court has specifically approved plea bargaining and has said it is “an essential component of the administration of justice . . . to be encouraged.” You should advise me truthfully and fully of any plea negotiation without the slightest fear of incurring disapproval of the court.

When and if amended Rule 11 takes effect, the language can be appropriately modified to indicate that the information sought is expressly required by Rule 11.

The conviction of defendant Jose Moody is affirmed.

Affirmed.

      . Since we are not issuing a mandamus (Note, Supervisory and Advisory Mandamus Under the All Writs Act, 86 Harv.L.Rev. 595 (1973)), our action is more closely akin to a “Sunburst.” Great Northern Railway Co. v. Sunburst Oil & Refining Co., 287 U.S. 358, 53 S.Ct. 145, 77 L.Ed. 360 (1932); Schaefer, The Control of “Sunbursts”: Techniques of Prospective Overruling, 42 N.Y.U. L.Rev. 631 (1967).

      . President’s Commission on Law Enforcement and Administration of Justice, Task Force on Administration of Justice, Task Force Report: The Courts 9 (1967) : “The system usually operates in an informal invisible manner. There is ordinarily no formal recognition that the defendant has been offered an inducement to plead guilty. Although the participants and frequently the judge know that negotiation has taken place, the prosecutor and defendant must ordinarily go through a courtroom ritual in which they deny that the guilty plea is the result of any threat or promise.” See also, Justice Erickson, The Finality of a Plea of Guilty, 48 Notre Dame Lawyer 836, 839-41 (1973).

      . The Challenge of Crime in a Free Society 136 (1967).

      . American Bar Association Project on Standards for Criminal Justice, Standards Relating to Pleas of Guilty 29 (1968).
      Section 1.8 at 36-37 provides:
      Consideration of plea in final disposition.
      (a) It is proper for the court to grant charge and sentence concessions to defendants who enter a plea of guilty or nolo contendere when the interest of the public in the effective administration of criminal justice would thereby be served. Among the considerations which are appropriate in determining this question are:
      (i) that the defendant by his plea has aided in ensuring the prompt and certain application of correctional measures to him;
      (ii) that the defendant has acknowledged his guilt and shown a willingness to assume responsibility for his conduct;
      (iii) that the concessions will make possible alternative correctional measures which are better adapted to achieving rehabilitative, protective, deterrent or other purposes of correctional treatment or will prevent undue harm to the defendant from the form of conviction ;
      (iv) that the defendant has made public trial unnecessary when there are good reasons for not having the case dealt with in a public trial;
      (v) that the defendant has given or offered cooperation when such cooperation has resulted or may result in the successful prosecution of other offenders engaged in equally serious or more serious criminal conduct;
      (vi) that the defendant by his plea has aided in avoiding delay (including delay due to crowded dockets) in the disposition of other eases and thereby has increased the probability of prompt and certain application of correctional measures to other offenders.
      (b) The court should not impose upon a defendant any sentence in excess of that which would be justified by any of the rehabilitative, protective, deterrent or other purposes of the criminal law because the defendant has chosen to require the prosecution to prove his guilt at trial rather than to enter a plea of guilty or nolo contendere.
      Section 3.3 at 71-72 provides:
      Responsibilities of the trial judge.
      (a) The trial judge should not participate in plea discussions.
      (b) If a tentative plea agreement has been reached which contemplates entry of a plea of guilty or nolo contendere in the expectation that other charges before that court will be dismissed or that sentence concessions will be granted, upon request of the parties the trial judge may permit the disclosure to him of the tentative agreement and the reasons therefor in advance of the time for tender of the plea. He may then indicate to the prosecuting attorney and defense counsel whether he will concur in the proposed disposition if the information in the presentence report is consistent with the representations made to him. If the trial judge concurs but the final disposition does not include the charge or sentence concessions contemplated in the plea agreement, he shall state for the record what information in the presentence report contributed to his decision not to grant these concessions.
      (c) When a plea of guilty or nolo contendere is tendered or received as a result of a prior plea agreement, the trial judge should give the agreement due consideration, but notwithstanding its existence he should reach an independent decision on whether to grant charge or sentence concessions under the principles set forth in section 1.8.

      . American Bar Association Project on Standards for Criminal Justice, Standards Relating to the Function of the Trial Judge 51-52 (1972). The entire section 4.1 reads as follows:
      Role of the judge in plea discussions and plea agreements.
      (a) The trial judge should not be involved with plea discussions before the parties have reached an agreement other than to facilitate fulfillment of the obligation of the prosecutor and defense counsel to explore with each other the possibility of disposition without trial.
      (b) The trial judge should not accept a plea of guilty or nolo contendere without first inquiring whether there is a plea agreement and, if there is one, requiring that it be disclosed on the record.
      (c) If the plea agreement contemplates the granting of charge or sentence conces-' sions by the trial judge, he should :
      (i) unless he then and there grants such concessions, inform the defendant as to the role of the judge with respect to such agreements, as provided in the following subparagraphs;
      (ii) give the agreement due consideration, but notwithstanding its existence reach an independent decision on whether to grant charge or sentence concessions; and
      (iii) permit withdrawal of the plea (or, if it has not yet been accepted, withdrawal of the tender of the plea) in any case in which the judge determines not to grant the charge or sentence concessions contemplated by the agreement.
      (d) The trial judge may decline to give consideration to a plea agreement until after completion of a presentence investigation or may, in accordance with ABA Standards, Pleas of Guilty § 3.3(b), indicate his conditional concurrence prior thereto.

      . Compare Walters v. Harris, 460 F.2d 988, 993 (4th Cir. 1972), with Paradiso v. United States, 482 F.2d 409, 413 (3d Cir. 1973), and Bryan v. United States, 492 F.2d 775, 781-782 (5th Cir. 1974).

      . Due to the exercise of supervisory power in the opinion, we have circulated it among all judges in regular active service and no judge has requested that the case be reheard en banc. It should also be noted that we recognize that many district judges in this circuit already follow the suggested practice.


author: CHOY, Circuit Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Richard E. HAWK, Defendant-Appellant.
    No. 73-2800.
    United States Court of Appeals, Ninth Circuit.
    May 15, 1974.
    Certiorari Denied Oct. 15, 1974.
    See 95 S.Ct. 67.

      Jerrold M. Ladar (argued), San Francisco, Cal., for defendant-appellant.
    John M. Youngquist, Asst. U.S. Atty. (argued), James L. Browning, Jr., U.S. Atty., San Francisco, Cal., for plaintiffappellee.
    Before MOORE, BROWNING and CHOY, Circuit Judges.

       The Honorable Leonard P. Moore, United States Senior Circuit Judge for the Second Circuit, sitting by designation.

   OPINION

CHOY, Circuit Judge:

Hawk was charged with willfully failing to file federal income tax returns for the years 1966, 1967, 1968, and 1969 in violation of 26 U.S.C. § 7203.

Hawk, an experienced attorney, admitted knowledge of his obligation to file returns and failure to do so. His excuse was that in the first years he was confronted with serious personal problems which left his affairs in disarray; thereafter, he said he “had a mental block about it” and that “he just sort of stuck his head in the sand.” The jury found him guilty on the counts covering 1968 and 1969 and acquitted him as to the two previous years. We affirm.

Instructions on Willfulness

The trial judge instructed the jury that the defendant’s failure to file would be willful if the “failure to act was voluntary and purposeful and with the specific intent to fail to do what he knew the law requires (sic) to be done; that is to say, with the bad purpose to disobey or disregard the law . ” This followed word for word an instruction requested by Hawk except for one omission: in the last clause, Hawk’s requested instruction read, “that is to say, with the bad purpose and/or evil motive either to disobey or disregard the law.” (Emphasis added.) Hawk argues that United States v. Bishop, 412 U.S. 346, 93 S.Ct. 2008, 36 L.Ed.2d 941 (1973), required the trial court to include this “evil motive” language. We do not agree.

In reversing a decision of this court, 455 F.2d 612 (1972), the Bishop Court overturned a line of decisions of this circuit which had established two levels of willfulness applicable separately to felony and misdemeanor offenses under 26 U.S.C. §§ 7201-7207 of the criminal tax statutes. Where the crime charged was a felony, as is, for example, a willful evasion of tax under § 7201, we had required that there be a specific intent to commit the illegal act knowing of the legal obligation. On the other hand, where the crime charged was a misdemeanor, as is, for example, a failure to file under § 7203, a looser instruction was required in which willful was defined as, among other things, “capri-

ciously or with a careless disregard whether one has the right to act.” E. g., Abdul v. United States, 9 Cir., 254 F.2d at 294. Though confining itself to this issue, the Court, in a concluding statement, gave rise to Hawk’s argument here. Justice Blackmun, writing for the Court, stated that “Until Congress speaks otherwise, we shall continue to require, in both tax felonies and tax misdemeanors that must be done ‘willfully,’ the bad purpose or evil motive described” in Murdock v. United States, 290 U.S. 389, 78 L.Ed. 381 (1933). United States v. Bishop, 412 U.S. at 361 (emphasis added).

The Government contends that Bishop does not compel an instruction using the “evil motive” language on the narrow ground that the Court’s decision was limited to the two criminal tax statutes before it — § 7206(1), the felony of willfully subscribing to a false return, and § 7207, the misdemeanor of willfully “delivering” a false statement. But as the quoted statement above indicates, and as the remainder of the opinion makes crystal clear, the Court’s opinion extends to the definition of willfulness in the other criminal tax statutes in which it is an element, §§ 7201-7207, including, of course, the provision under which Hawk stands accused, § 7203. The reason Bishop does not compel inclusion of the term “evil motive” is much simpler: an issue concerning the necessity of employing that language was not presented in Bishop. The Court was confronted only with the permissibility of the two-level definition of willfulness, and beyond that nothing in the case related to the precise form of words necessary to convey the meaning of willfulness.

Still, a nagging question remains as to Justice Blackmun’s reference to “evil motive”; was it the unstated intent of the opinion to require inclusion of those exact words? We think not. The statement in the opinion is that willfulness is to be uniformly defined to require the bad purpose or evil motive described in Murdock v. United States, 290 U.S. 389, 78 L.Ed. 381 (1933). In Murdock the defendant had declined to answer certain questions relating to his tax liability on Fifth Amendment grounds. He was prosecuted for “willfully” failing to supply information to revenue officials. During the course of the prosecution it was determined that he had not been justified in asserting his Fifth Amendment privilege. Murdock defended arguing that his refusal was not willful. The Supreme Court held he was entitled to an instruction that if his refusal was in good faith— that is, with an honest belief in the protection of the Fifth Amendment — it could not be willful. The thrust of the opinion is that willfulness requires proof that the act was done with knowledge it was wrongful. The Court discussed a number of ways of expressing this type of specific intent, and among the terms mentioned were “bad purpose” and “evil motive.” Id. at 394. See also Spies v. United States, 317 U.S. 492, 63 S.Ct. 364, 87 L.Ed. 418 (1943).

However, neither bad purpose nor evil motive is an independent element of a willful failure to file under § 7203. The term “evil motive” is merely a “convenient shorthand expression to distinguish liability based on conscious wrongdoing from liability based on mere carelessness or mistake.” Boardman v. United States, 419 F.2d 110, 114 (1st Cir. 1969), cert. denied, 397 U.S. 991, 90 S.Ct. 1124, 25 L.Ed.2d 398 (1970). Thus the term expresses, in a brief way, the more cumbersomely stated concept of specific intent in Murdock, a concept the instructions must ultimately convey. See United States v. Platt, 435 F.2d 789, 793-795 (2d Cir. 1970); United States v. Matosky, 421 F.2d 410, 412 (7th Cir.), cert. denied, 398 U.S. 904, 90 S.Ct. 1691, 26 L.Ed.2d 62 (1970) (“the only bad purpose or bad motive necessary for the government to prove is a deliberate intention not to file returns which the defendant knew ought to be filed.”); Hayes v. United States, 407 F.2d 189, 195 (5th Cir.), petition for cert. dismissed, 395 U.S. 972, 89 S.Ct. 2133, 23 L.Ed.2d 777 (1969); cf. United States v. Smith, 487 F.2d 329 (9th Cir. 1973); Haskell v. United States, 241 F.2d 790, 794 (10th Cir.), cert. denied, 354 U.S. 921, 77 S.Ct. 1379, 1 L.Ed.2d 1436 (1957). This, we think, was all that Murdock — and Bishop — meant by the use of that term.

A number of cases, in accord with this reasoning, have rejected claims that willfulness instructions must include the terms bad purpose or evil motive. In United States v. DiVarco, 484 F.2d 670 (7th Cir. 1973), cert. denied, 415 U.S. 916 (94 S.Ct. 1412, 39 L.Ed.2d 470, 1974), for example, the jury instructions, in a prosecution for willfully subscribing to a false return under § 7206(1), omitted reference to either bad purpose or evil motive. The instructions were upheld because they adequately conveyed the notion of mens rea without the need of the shorthand terms. Id. at 673-674. Similarly, in United States v. Malinowski, 472 F.2d 850 (3d Cir.), cert. denied, 411 U.S. 970, 93 S.Ct. 2164, 36 L.Ed.2d 693 (1973), the defendant, who deliberately overstated the number of his dependents on his withholding form as a protest against the Viet Nam war, was prosecuted for a § 7205 willful misstatement of information. He requested a bad purpose instruction so as to provide the jury with an opportunity to acquit based on his anti-war beliefs. A panel of the Third Circuit affirmed the trial court’s rejection of the proffered instruction, reasoning that what was central to willfulness was that the act be done with “the specific intent to do something [the defendant] knew the law forbade.” Id. at 855. “ ‘[B]ad purpose’ and ‘evil purpose’ are not ‘magic words’ which must be included in a jury charge on willfulness.” Id. See United States v. Douglass, 476 F.2d 260, 263-264 (5th Cir. 1973); cf. United States v. Simpson, 460 F.2d 515, 518 (9th Cir. 1972); Boardman v. United States, 419 F.2d at 114; United States v. Moylan, 417 F.2d 1002, 1004 (4th Cir. 1969), cert. denied, 397 U.S. 910, 90 S.Ct. 910, 25 L.Ed.2d 91 (1970); United States v. Clearfield, 358 F.Supp. 564, 574-575 (E.D.Pa.1973).

Here too, the inclusion of the two words “evil motive” in the instructions was unnecessary. While the use of such terms is often helpful, all that is required are instructions which communicate the proper notion of specific intent in understandable terms. The instructions here were adequate to that purpose.

Evidence of Reporting Discrepancies

After being informed that he was under investigation, Hawk had returns prepared and filed by an accountant for the years in which he was delinquent. The accountant was given most, but not all, of Hawk’s records and computed Hawk’s gross income on the basis of deposit slips for Hawk’s commercial checking account plus an additional amount that Hawk estimated he received in cash and did not deposit. Subsequent investigation revealed his gross income to be substantially greater than had been reported, largely for two reasons: (1) because Hawk’s estimate of cash received but not deposited was less than his books showed; and (2) because certain of his income was withdrawn from a different account, a trustee account, and was not reported — probably because the accountant was never given the records for this account. Evidence of these discrepancies was introduced at trial over the objection of Hawk’s attorney. Hawk complains that since he was accused of a failure to file, not tax evasion, the evidence was irrelevant.

The evidence, though not very relevant, was material nonetheless on the issue of willfulness. See United States v. MacLeod, 436 F.2d 947, 950 (8th Cir.), cert. denied, 402 U.S. 907, 91 S.Ct. 1378, 28 L.Ed.2d 647 (1971). First, it showed a pattern of increasing gross income not so clearly reflected in his initially-filed returns. That bore on his motive for failing to file. Second, his continued failure to fully disclose his income was relevant to show that the original failures to file may have been prompted by a desire to escape taxation. This, too, bore on willfulness. Cf. United States v. Magnus, 365 F.2d 1007, 1011 (2d Cir. 1966), cert. denied, 386 U.S. 909, 87 S.Ct. 856, 17 L.Ed.2d 783 (1967); Lumetta v. United States, 362 F.2d 644, 645-646 (8th Cir. 1966). Moreover, cautionary instructions emphasizing the limited relevance of this evidence were repeatedly given by the trial judge, thereby minimizing any prejudicial effect the evidence might have had.

Hawk’s argument that he merely gave the records to an accountant and thus could have had no knowledge of the understatements is unpersuasive. He failed to adequately inform the accountant of or supply the necessary records relating to the understatements, and the jury could have inferred that this was intentional. We conclude the evidence was properly admitted.

Prosecutor’s Comment

At one point during the trial, the prosecutor, in discussing an evidentiary point with the judge, asked the court to reserve its ruling “and strike it if it is not tied up, if the defendant goes on the stand.” The comment was obviously inadvertent, and the judge immediately instructed the jury to disregard it. Even assuming it was a prejudicial comment on the accused’s right to remain silent — which we doubt, see United States v. Altavilla, 419 F.2d 815, 817 (9th Cir. 1969)- — -the judge’s instruction fully cured it. See, e.g., United States v. Dana, 457 F.2d 205, 209-210 (7th Cir. 1972); United States v. Haili, 443 F.2d 1295, 1300 (9th Cir. 1971); Hayes v. United States, 407 F.2d at 195.

Appellant’s other contentions are without merit.

Affirmed.

      . That section provides in pertinent part:
      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 . . ., 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. . . .

      . The charge as relevant to willfulness was: Now, we come to specific intent and willfulness. The specific intent of willfulness is an essential element of the crime of failing to make an income tax return. The term “willfully” used in the statute . . . means voluntary, purposeful, deliberate, and intentional as distinguished from accidental, inadvertent, or negligent. Mere negligence, even gross negligence, is not sufficient to constitute willfulness under this criminal law.
      . . . The failure to make a timely return is willful if the defendant’s failure to act was voluntary and purposeful and with the specific intent to fail to do what the law requires (sic) to be done; that is to say, with the bad purpose to disobey or disregard the law that requires him to disclose to the Government facts and (sic) material to the determination of his income tax liability. .
      There is no necessity that the Government prove that the defendant had the intention to defraud it or to evade the payment of any taxes for the defendant’s failure to file to be willful under this provision of law. That is, the intention to avoid the law or to pay the taxes constitutes the crime charged by each of these counts as long as it is willful and knowing as I have defined the term for you. On the other hand, the defendant’s conduct is not willful if you find that he failed to file a return because of negligence, inadvertence, accident, or due to his good faith misunderstanding of the requirements of the law, if there was such misunderstanding.

      . United States v. Haseltine, 419 F.2d 579, 581 (9th Cir. 1969) (§§ 7201 and 7203); Martin v. United States, 317 F.2d 753 (9th Cir. 1963) (§ 7203); Abdul v. United States, 254 F.2d 292 (9th Cir. 1958), cert. denied, 364 U.S. 832, 81 S.Ct. 44, 5 E.Ed.2d 58 (1960) (§§ 7202 and 7203); cf. United States v. Fahey, 411 F.2d 1213 (9th Cir.), cert. denied, 396 U.S. 957, 90 S.Ct. 430, 24 L.Ed.2d 422 (1969) (§ 7203); Edwards v. United States, 375 F.2d 862 (9th Cir. 1967) (§§ 7201, 7203, and 7206(2)).

      . The opinion broadly disapproves of our decisions applying the two-level definition of willfulness, see 412 U.S. at 347, 348 n. 2, 351 & n. 3, and those decisions, as the opinion noted, have concerned criminal tax provisions other than those before the Bishop Court. See note 3 supra. Indeed, the Court’s discussion centers on a rejection of the reasoning of Abdul v. United States, supra, which concerns §§ 7202 and 7203. See 412 U.S. at 351-356. Moreover, the Court read its earlier decision in Sansone v. United States, 380 U.S. 343, 85 S.Ct. 1004, 13 L.Ed.2d 882 (1965), as “clearly implying” that “the word ‘willfully’ possesses the same meaning in §§ 7201, 7203, and 7207” thereby “foreclosing” the argument that “ ‘willfully’ was to be given one meaning in the tax felony statutes and another meaning in the tax misdemeanor statutes.” 412 U.S. at 356. As the Court stated, “Congress used the word ‘willfully’ to describe a constant rather than a variable in the tax penalty formula.” Id. at 359-360 (emphasis added).

      . A few cases, it is true, have quoted lower court instructions using, or have themselves employed, both the “bad purpose” and “evil motive” language. See e. g., United States v. Klee, 494 F.2d 394 (9th Cir., 1974); United States v. Palermo, 259 F.2d 872, 881 (3d Cir. 1958); Abdul v. United States, 254 F.2d at 293-294. But none of these cases raised the question of whether the term “evil motive” must be used in the instruction. That “evil motive” is a shorthand expression in these cases is illustrated by the many other cases in which the language does not appear. See, e. g., United States v. Gurtner, 474 F.2d 297, 299 (9th Cir. 1973); United States v. Lachmann, 469 F.2d 1043, 1044-1045 (1st Cir. 1972), cert. denied, 411 U.S. 931, 93 S.Ct. 1897, 36 L.Ed.2d 390 (1973); Martin v. United States, 317 F.2d at 754.

      . Gross income is the only figure relevant since it is the measure of who must file. See 26 U.S.C. § 6012.

      . We add a note of caution. Evidence of such limited relevance must be admitted with care. In some instances, the potential for prejudice as well as the dangers of consuming undue time and confusing the jury may be so great as to warrant its exclusion.