text:
    RURAL HOUSING ALLIANCE v. UNITED STATES DEPARTMENT OF AGRICULTURE et al., Appellants.
    No. 73-1771.
    United States Court of Appeals, District of Columbia Circuit.
    Argued Dec. 5, 1973.
    Decided June 3, 1974.
    Rehearing Denied July 3,1974.
    Rehearing Denied Sept. 24, 1974.
    See 502 F.2d 1179.

      David M. Cohen, Atty., Dept, of Justice, of the bar of the Supreme Court of 111., pro hac vice by special leave of court with whom Irving Jaffe, Acting Asst. Atty. Gen., Harold H. Titus, Jr., U. S. Atty., and Leonard Schaitman, Atty., Dept, of Justice, were on the brief, for appellants. Harold H. Titus, Jr., U. S. Atty., John A. Terry and Derek I. Meier, Asst. U. S. Attys., also entered appearances for appellants.
    Victor H. Kramer, Washington, D. C., with whom Richard B. Wolf, Washington, D. C., was on the brief, for appellee.
    Before BAZELON, Chief Judge, and ROBB and WILKEY, Circuit Judges.
   WILKEY, Circuit Judge:

We have before us once again the question of the proper interpretation of several exemptions from disclosure under the Freedom of Information Act [FOIA]. At issue here is a report of a U. S. Department of Agriculture investigation of governmental housing discrimination in Florida, withheld from disclosure on the basis of exemptions 4, 5, 6, and 7. The District Court granted the plaintiff Rural Housing Alliance [RHA] motion for summary judgment after in camera inspection holding that the report was not within any exemption. We find the District Court applied incorrect legal standards in evaluating the applicability of the exemptions, hence reverse the judgment and remand for consideration consistent with this opinion.

I. THE NATURE OF THE GOVERNMENT REPORT

The USDA report and the investigation which spawned it were stimulated by an RHA pamphlet, “Studies in Bad Housing in America — Abuse of Power.” Utilizing a method of case-history documentation, this RHA tract charged the Farmers Home Administration [FmHA] staff with racial and national origin discrimination in arranging government loans under the Rural Housing Program in two counties in Florida. The Office of Equal Opportunity of the USDA requested an investigation by the Department’s Office of Inspector General [OIG]. After investigation, the OIG concluded in a 150-page report that there was no substantial evidence indicating discrimination.

RHA’s request for a copy of the investigation report was denied. Instead, OIG made public the “Investigation Summary” and “Statistical Data” sections of the report. Citing exemptions 4, 5, 6, and 7 of FOIA as valid justification for keeping the remainder confidential, the Government did not release the remainder of the report because the Government felt that its form — detailed and intimate case histories of specified, named persons — was inappropriate for disclosure. The Government did indicate that the material would be disclosed to RHA if it produced written authorization for release from the particular individual involved in any section. Rather than obtain such releases, RHA brought this FOIA suit.

The District Court, in considering RHA’s motion for summary judgment, found that the report as a whole was not exempt from disclosure. However, the court recognized that there might be a need to delete details which would permit identification of the individuals involved. Consequently, the court ordered deletion of the names of applicants for loans, the names of those who complained to their Congressmen, those who were interviewed, attorneys, etc. Deletion of geographical references, applications for loans, and affidavits of applicants was likewise ordered.

USDA then filed a motion to clarify or amend the court’s order. In support of the motion, USDA submitted an affidavit of the Inspector General, Nathaniel Kossack, explaining the Government’s fear that the court order as framed would permit release of intimate details concerning persons who could be readily identified by those familiar with the situation, notwithstanding the deletions, thus exposing the individuals to embarrassment or possible reprisals. The District Judge, without explanation, denied the government motion for clarification. Pending appeal he granted a stay.

II. EXEMPTION 6: PERSONNEL, MEDICAL, AND SIMILAR FILES

The FOIA was enacted to ensure public access to a wide range of government reports and information. Recognizing that in certain circumstances disclosure realistically would not be in the public interest, Congress attempted to delineate a series of narrow exemptions. The sixth exemption provides that disclosure is unnecessary if the matters are “personnel and medical files and similar files the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.”

The District Court held that exemption 6 “has no application to this investigatory report.” This holding was based on the view that the exemption “was designed to apply to detailed personal resumes and health records from agencies such as the Veterans Administration, welfare departments and the military.” We think this statutory interpretation incorrect. We hold that exemption 6 is applicable to material such as the report here, hence we reverse the District Court and remand for appropriate review.

While the District Judge provided no elaboration of his rationale in the form of findings, he implied that the report here could not be considered “similar files” under exemption 6. Looking to the purpose of exemption 6, on the contrary, we believe that the investigatory report comes well within the ambit of exemption 6. That exemption was designed to protect individuals from public disclosure of intimate details of their lives, whether the disclosure be of personnel files, medical files, or other similar files. The exemption is not limited to Veterans’ Administration or Social Security files, but rather is phrased broadly to protect individuals from a wide range of embarrassing disclosures. As the materials here contain information regarding marital status, legitimacy of children, identity of fathers of children, medical condition, welfare payments, alcoholic consumption, family fights, reputation, and so on, it appears that the report involves sufficiently intimate details to be a “similar” file under exemption 6.

Of course, our interpretation of the statute, concluding that the investigatory report comes within the class of similar files which exemption 6 aimed at protecting, does not resolve the question whether exemption 6 dictates nondisclosure here, for exemption 6 specifically permits protection only of those files whose disclosure would result in “a clearly unwarranted invasion of personal privacy.” On remand, it is for the District Judge to determine whether the files fall within that category.

In an opinion by Judge Wright, this court has previously considered the scope of the “clearly unwarranted invasion” language, in Getman v. NLRB. We held that exemption 6 involves a balancing of the interests of the individuals in their privacy against the interests of the public in being informed. We noted that the statute “instructs the court to tilt the balance in favor of disclosure.” Specifically we suggested that in balancing interests the court should first determine if disclosure would constitute an invasion of privacy, and how severe an invasion. Second, the court should weigh the public interest purpose of those seeking disclosure, and whether other sources of information might suffice. Such balancing is unique for exemption 6; normally no inquiry into the use of information is made, and the information is made available to any person.

These principles should be applied in evaluating the investigatory reports at issue here. The District Court should first determine the nature and extent of the invasion of the individuals’ privacy. It should then consider the public interest purpose of .RHA, and whether it could be achieved without this material. A balancing of these factors must thereafter be made.

One important factor which must be considered on remand is whether the deletions thus far ordered are sufficient to protect the privacy of the individuals. In construing the various exemptions, this court has often suggested deletions of certain protected matters so that the remainder of the document could be disclosed. The affidavit of Inspector General Kossack states, however, that the court order does not order adequate deletions, and that enough highly confidential material is left which would enable people with knowledge of the area to determine the identity of the individuals involved. The District Judge did not respond to this affidavit nor make any change in his order. On remand, the District Judge should reconsider and reevaluate this affidavit, and Kossack’s prior affidavit submitted before the court’s decision.

The District Judge should also consider any alternative sources of information which might be available. For example, the possibility of RHA asking individuals independently for similar information should be explored.

III. EXEMPTION 4: CONFIDENTIAL OR PRIVILEGED FINANCIAL INFORMATION

The USDA argues that exemption 4 also protects the investigatory report from disclosure. This exemption applies to “trade secrets and. commercial or financial information obtained from a person and privileged or confidential.” The trial court held that the exemption “was designed to protect the privacy and competitive position of the individual . and since the contents of this report do not fit the description in this exemption, it is inapplicable to the instant report. Since all names and other identifying features can be deleted, any remaining financial information will be in the nature of a statistical report.”

While it is true that exemption 4 is primarily a trade secrets exemption, it also protects individuals from disclosure of financial information which is privileged or confidential. This court has recently described the scope and meaning of “confidential” in exemption 4 in National Parks & Conservation Association v. Morton. Judge Tamm concluded that,

commercial or financial matter is “confidential” for purposes of the exemption if disclosure of the information is likely to have either of the following effects: (1) to impair the Government’s ability to obtain necessary information in the future; or (2) to cause substantial harm to the competitive position of the person from whom the information was obtained.

As much of the information collected here related to loan applications, certainly some data is financial information which might merit confidential treatment. Of course a bare claim by an interested government agency of confidentiality is not sufficient. However, the listing of information obtained strongly suggests the accuracy of USDA’s conclusion that the information is “implicitly and unquestionably not the kind of information which would customarily be released to the public by the persons from whom it was obtained.” Contrary to the trial court, we regard exemption 4 as applicable.

We therefore remand to the District Court for reconsideration of exemption 4 for reasons similar to those discussed regarding exemption 6. While several of our Circuit’s cases support the idea of deletions to permit disclosure of the remainder of the report, we fear that the deletions made by the District Judge do not adequately deal with the rather detailed reasons of the Inspector General that the deletions are ineffective to protect the privacy and confidentiality of the individuals involved.

IV. EXEMPTION 7: INVESTIGATORY FILES

This provision exempts from disclosure “investigatory files compiled for law enforcement purposes except to the extent available by law to a party other than an agency.” The District Court held that USDA “failed to make the requisite showing of imminent adjudicatory proceedings or the concrete prospect of enforcement proceedings,” and hence the files were not protected by exemption 7.

Since this decision on 9 May 1973 this Circuit has extensively considered exemption 7 in two cases, Weisberg v. U. S. Department of Justice, and Aspin v. Department of Defense. We remand to the District Court for reevaluation of the applicability of exemption 7 in the light of these opinions and our comments hereafter.

The standard used by the District Judge is no longer proper under the Weisberg and Aspin decisions. In Weisberg, where FBI materials concerning ,the investigation of President Kennedy’s death were sought, we held in an en bane decision by Judge Danaher that the files were exempt from disclosure because they were investigatory files compiled for law enforcement purposes. Despite the fact that no prosecution or other such method of law enforcement was undertaken or pending, the files remained exempt from disclosure. The focus was on “how and under what circumstances the files were compiled ”

In Aspin, decided one month after Weisberg, Judge Tamm’s opinion for the court provided a more detailed analysis of exemption 7. The material at issue in Aspin was the report of the Peers Commission, which investigated the My Lai incident and subsequent Army investigation, with emphasis on evidence of possible offenses under the Uniform Code of Military Justice and possible future prosecution. Judge Tamm noted that the duty of the trial court was to “examine the total record to determine ‘whether the files sought ... relate to anything that can fairly be characterized as an enforcement proceeding.’ ” The Peers Commission Report, conducted with a view of court-martial proceedings, did meet this test and hence came within the exemption.

In Aspin the purposes of exemption 7 were identified: the prevention of premature disclosure of an investigation’s results, and the maintenance of confidentiality of both the procedures of investigation and the witnesses’ revelations. These purposes compelled us there to conclude that the termination of enforcement proceedings was not a cause for withdrawal of exemption 7 protection. Additionally, our decision in Weisberg has made clear that exemption 7 protection does not end “when there is no longer any prospect for future enforcement proceedings (necessitated in Weisberg by the death of the only suspect) . . . .”

It is established now that the Government need not show “imminent adjudicatory proceedings or the concrete prospect of enforcement proceedings.” What the Government is required to show is that the investigatory files were compiled for adjudicative or enforcement purposes. Whether the adjudication or enforcement has been completed is not determinative, nor is the degree of likelihood that the adjudication or enforcement may be imminent, as the District Judge here thought before Weisberg and Aspin. Here the investigation was undertaken to determine whether USDA’s FmHA had engaged in racial discrimination. As a result of the investigation, USDA concluded that there had been no discrimination, and naturally there have been no enforcement proceedings. This result does not alter the basic inquiry when exemption 7 is claimed: was it an investigation “for law enforcement purposes”? To put the question another way, with specific applicability to the case here: is an agency’s internal monitoring to insure that its employees are acting in accordance with statutory mandate and the agency’s own regulations an investigation “for law enforcement purposes” within the meaning of exemption 7?

On its face; exemption 7’s language appears broad enough to include all such internal audits. If this broad interpretation is accepted, however, we immediately encounter the problem that most information sought by the Government about its own operations is for the purpose ultimately of determining whether such operations comport with applicable law, and thus is “for law enforcement purposes.” Any internal auditing or monitoring conceivably could result in disciplinary action, in dismissal, or indeed in criminal charges against the employees. But if this broad interpretation is correct, then the exemption swallows up the Act; exemption 7 defeats one central purpose of the Act to provide public access to information concerning the Government’s own activities.

We think “investigatory files compiled for law enforcement purposes” must be given the same meaning, or a meaning to achieve the same result, whether the subject of the files is a government employee or an ordinary private citizen. While Congress did not confront this problem specifically, the examples cited of “investigatory files” and “law enforcement purposes” point to this interpretation. For the purpose of analyzing the application of exemption 7 in the instant and similar cases, it is therefore necessary to distinguish two types of files relating to government employees: (1) government surveillance or oversight of the performance of duties of its employees; (2) investigations which focus directly on specifically alleged illegal acts, illegal acts of particular identified officials, acts which could, if proved, result in civil or criminal sanctions. The applicability of exemption 7 to each individual case is to be ascertained by making a careful distinction between these two categories.

The purpose of the “investigatory files” is thus the critical factor. Was the purpose of the disputed report here to determine if grounds existed for bringing a civil rights action against the loan officer? If the purpose of the investigation was to consider an action equivalent to those which the Government brings against private parties, thus demonstrating that the “law enforcement purpose” was not customary surveillance of the performance of duties by government employees, but an inquiry as to an identifiable possible violation of law, then such inquiry would have been “for law enforcement purposes” whether the individual were a private citizen or a government employee. But was this the purpose of the investigation here? On this record we cannot say, and hence our consideration of the applicability of exemption 7 likewise calls for a remand to the trial court for inquiry as to this and other relevant points.

V. EFFECT OF INDIVIDUAL’S CONSENT TO GOVERNMENT DISCLOSURE

The Government has offered to release information concerning any individual to RHA if the written authorization of the individual is obtained. Specifically, the Government wrote to RHA,

If yod furnish us with appropriate written authorisations from those individuals who, to your present knowledge, furnished information in this investigation, we will consider making available information furnished by any such individual.

RHA did not obtain any individual releases.

The exemptions to the Freedom of Information Act place limits on compulsory, disclosure; presumably the Government has power to waive an exemption. However, in so doing, the Government and a court, when its authority is invoked, must be alert to protect other interests in confidentiality besides those of the Government which are present in each of the nine exemptions, some more obviously than others. Much information is disclosed voluntarily and involuntarily (but with less difficulty than would otherwise be true), because the individuals supplying the information believe that, since the Government has power to protect confidentiality under the exemptions, it will do so.

This suggestion of the Government for obtaining individual releases protects the interest involved in exemption 6 that individuals’ medical, personnel, or similar files not be indiscriminately disclosed. However, the ambiguous terms of the Government’s offer to release should be clarified. It is unclear whether the Government would release personal information about one person which is furnished by a second person on simply the second’s authorization, or only by the first’s, or by both. One interest protected by exemption 7, that of enabling the investigatory process to proceed unimpeded by hesitancy of witnesses or disclosure of investigatory technique, which was not previously evaluated by the trial court, should not be overlooked on remand.

The trial court should weigh carefully several difficulties inherent in the release by individual consent of government compiled information on private individuals. First, if many consent, there may be explicit or implicit group pressure on those few who do not wish to have their lives publicized. Second, there may be pressure by the RHA or other groups to force individuals to comply. We impute no bad motives or actions to RHA; we merely state a possibility true for any interested organization. Third, if many consented-to disclosures are made, it may become significantly easier to identify the remainder of the group because of the smaller size of unknowns.

Finally, putting the same amount of information in the public domain could be achieved by private interviewing of those individuals who wish to participate. They can then reveal whatever information they desire, and this process might, as a practical matter, be no more time-consuming for RHA than obtaining formal consents to disclosure by the government. This approach would be similar to the approach taken for grand jury witnesses. We do not allow a grand jury witness’ testimony to be revealed except under well-defined rules; however, the witness is usually free to come out of the grand jury and tell the public what he knows with regard to the subject of the grand jury inquiry.

VI. CONCLUSION

We remand this case to the District Court for reconsideration of exemptions 4, 6, and 7, in light of this opinion. In so doing, we need not now confront the question of equitable discretion of the court to go beyond FOIA, which was suggested by USDA. We also do not consider the applicability of exemption 5, as the Government has not objected to the District Court’s holding that this exemption is inapplicable.

Reversed and remanded.

      . 5 U.S.C. § 552 (1970).

      . The District Court ordered certain deletions of identifying details to he made; these are discussed at p. 76 infra.

      . The two counties are Martin and Palm Beach Counties.

      . Inspector General Kossack’s affidavit of 29 January 1973 stated that
      The report includes intimate details and information given by and with respect to borrowers and applicants for loans regarding the marital status of such borrowers and applicants, the number and the legitimacy of their children and grandchildren, and the identity of the fathers of their children; information as to their medical condition and history, including statements as to surgery and the possibility of future pregnancies; information as to their occupations and work history and the amounts and sources of their annual income, including the amount of welfare payments received ; information as to their ownership of property; information as to their habits with respect to the consumption of alcoholic beverages; information as to family fights which had occurred; information from their employers as to their reliability as employees; information as to their reputation in the community; information as to the risks involved in extending credit to them; and other information of a clearly personal and confidential nature.
      Appendix at 43-44.

      . Brief for Appellant at 7.

      . District Court Order of 9 May 1973, in Appendix at 69-70.

      . Affidavit of Inspector General Kossack of 15 May 1973, in Appendix at 72-74.

      . District Court Order of 5 June 1973, in Appendix at 76.

      . 5 U.S.C. § 552(a). See generally EPA v. Mink, 410 U.S. 73, 79-80, 93 S.Ct. 827, 35 L.Ed.2d 119 (1973).

      . 5 U.S.C. § 552(b)

      . 5 U.S.C. § 552(b)(6).

      . Appendix at 67.

      . The House Report on S. 1160, the bill which became the Freedom of Information Act, explains the broad purpose of exemption 6:
      Such agencies as the Veterans’ Administration, Department of Health, Education, and Welfare, Selective Service, and Bureau of Prisons have great quantities of files containing intimate details about millions of citizens. Confidentiality of these records has been maintained by agency regulation but without statutory authority. A general exemption for the category of information is much more practical than separate statutes protecting each type of personal record. The limitation of a “clearly unwarranted invasion of personal privacy” provides a proper balance between the protection of an individual’s right of privacy and the preservation of the public’s right to Government information by excluding those kinds of files the disclosure of which might harm the individual. The exemption is also intended to cover detailed Government records on an individual which can be identified as applying to that individual and not the facts concerning the award of a pension or benefit or the compilation of unidentified statistical information from personal records.
      H.R.Rep.No.1497, 89th Cong., 2d Sess. 11 (1966) (citation omitted).

      . Furthermore, the exemption should be read in conjunction with 5 U.S.C. § .552(a) (2), which provides that
      To the extent required to prevent a clearly unwarranted invasion of personal privacy, an agency may delete identifying details. when it makes available or publishes an opinion, statement of policy, interpretation, or staff manual or instruction. However, in each case the justification for the deletion shall be explained fully in writing.

      . This was not controverted in RHA’s brief, which assumed arguendo that the files were “similar files.” Brief for Appellee at 16.

      . 5 U.S.C. § 552 (b)(6).

      . 146 U.S.App.D.C. 209, 450 F.2d 670 (1971).

      . 146 U.S.App.D.C. at 213, 450 F.2d at 674.

      . 146 U.S.App.D.C. at 213 n. 10, 450 F.2d at 674 n. 10.

      . Although Oetman simply involved disclosure of names and addresses of employees, its principles have wide-ranging applicability.

      . The District Court might include a consideration of whether the individuals expected confidential treatment.

      . See, for example, two cases dealing with exemption 4, Grumman v. Renegotiation Board, 138 U.S.App.D.C. 147, 149-150, 425 F.2d 578, 580-581 (1970) ; Bristol-Myers v. FTC, 138 U.S.App.D.C. 22, 26, 424 F.2d 935, 939 (1970).

      . Affidavit of Inspector General Kossack of 15 May 1973, in Appendix at 73.

      . As indicated supra, Mr. Kossack submitted one affidavit to the District Court on 29 January 1973, and one on 15 May 1973. The District Court’s judgment was handed down on 9 May 1973.

      . We deal with the Government’s suggestion that authorizations for release be obtained by RHA from individuals involved in Part V infra. That is different from the suggestion we make here of discussions with individuals independent from the USDA investigation and report.

      . 5 U.S.C. § 552(b) (4).

      . The District Court here cited Bristol-Myers v. FTC, 424 F.2d at 938, which stated that the aim of the exemption was “protecting the privacy and the competitive position of the citizen who offers information to assist government policy makers.”

      . Appendix at 67.

      . No. 73-1033 (1974), 162 U.S.App.D.C. •-, -, 498 F.2d 765, 770 (citation omitted).

      . The Senate Report on the bill which became FOIA suggests that loan applications would be within the scope of exemption 4. S.Rep.No.813, 89th Cong., 1st Sess. 9 (1965).

      . Bristol-Myers v. FTC, 138 U.S.App.D.C. at 25, 424 F.2d at 938.

      . Affidavit of Inspector General Kossack of 29 January 1973, in Appendix at 44.

      . See note 22 supra. See also National Parks & Conservation Association v. Morton, No. 73-1033, 162 U.S.App.D.C. -, -, 498 F.2d 765, 770 (1974).

      . See p. 77 supra.

      . 5 U.S.C. § 552(b)(7).

      . District Court Order in Appendix at 67, citing Bristol-Myers.

      . 160 U.S.App.D.C. 71, 489 F.2d 1195 (1973) (en banc), cert. denied, 42 U.S.L.W. 3627, 416 U.S. 993, 94 S.Ct. 2405, 40 L.Ed.2d 772 (1974).

      . 160 U.S.App.D.C. 231, 491 F.2d 24 (1973). Still more recently we have considered exemption 7 in Center for National Policy Review v. Weinberger, No. 73-1090, 163 U.S.App.D.C. -, 502 F.2d 370 (1974).

      . The court relied heavily on the Attorney General’s determination, and the District Court review of that determination. No in camera inspection was undertaken by either court.

      . 160 U.S.App.D.C. at 78, 489 F.2d at 1202.

      . 160 U.S.App.D.C. at 234, 491 F.2d at 27 (citation omitted).

      . 491 F.2d at 29, citing Frankel v. SEC, 460 F.2d 813 (2d Cir.), cert. denied, 409 U.S. 889, 93 S.Ct. 125, 34 L.Ed.2d 146 (1972). We referred to Chief Judge Bazelon’s suggestion in Bristol-Myers that the District Court should “determine whether the prospect of enforcement proceedings is concrete enough to bring into operation the exemption . . . . ” 424 F.2d at 939-940. (This phraseology was adopted by the District Court in the case at bar.) We distinguished the My Lai investigation, where courts-martial had been held, from the Bristol-Myers situation, where
      the Federal Trade Commission had made a conscious decision not to maintain any enforcement proceeding at least two years prior to suit to compel disclosure of the documents. The question in that case was, therefore, whether the bare assertion by an agency that files were compiled for law enforcement purposes when no enforcement proceedings were in fact ever prosecuted, would be enough to preclude disclosure. The court held that such an assertion was not sufficient, and remanded for further consideration in the trial court.
      491 F.2d at 29 (citations omitted; emphasis original). We thus concluded in Aspin that the District Court’s reliance on Bristol-Myers was misplaced.

      . “[I]f investigatory files were made public subsequent to the termination of enforcement proceedings, the ability of any investigatory body to conduct future investigations would be seriously impaired. Few persons would respond candidly to investigators if they feared that their remarks would become public record after the proceedings. Further, the investigative techniques of the investigating body would be disclosed to the general public.” 491 F.2d at 30.

      . Aspin, 491 F.2d at 30.

      . Tlie Senate Report states that “investigatory files compiled for law enforcement purposes” are “files prepared by Government agencies to prosecute law violators.” S. Rep.Xo.813, 89th Cong., 1st Sess. 9 (1965). Xo distinction is drawn between violators who are government emjdoyees and violators who are private citizens. See also H.R. Rep.No.1497, 89th Cong., 2d Sess. 11 (1966).

      . The character of the statute violated would rarely make a material distinction, because the law enforcement purposes protected by exemption 7 include both civil and criminal purposes, e. g., civil rights, as here. See H.R.Rep.Xo.1497, 89th Cong., 2d Sess. 11 (1966) :
      This exemption covers investigatory files related to enforcement of all kinds of laws, labor and securities laws as well as criminal laws. This would include files prepared in connection with related Government litigation and adjudicative proceedings. S.1160 is not intended to give a private party indirectly any earlier or greater access to investigatory files than he would have directly in such litigation or proceedings.

        Cf. Evans v. Department of Transportation, 446 F.2d 821 (5th Cir.), cert. denied, 405 U.S. 918, 92 S.Ct. 944, 30 L.Ed.2d 788 (1972).

      . This distinction was also drawn in Center for National Policy Review v. Weinberger, No. 73-1090, 163 U.S.App.D.C. -, 502 F.2d 370 (1974), where Judge Leventhal wrote for the court,
      There is no clear distinction between investigative reports and material that, despite occasionally alerting the administrator to Violations of the law, is acquired essentially as a matter of routine. What is clear, however, is that where the inquiry departs from the routine and focuses with special intensity upon a particular party, an investigation is under way.

        Id. at -, 502 F.2d at 373. Judge Leventhal separately analyzed the meaning of the phrases “investigatory files” and “law enforcement purposes.” We have not found such separation necessary here, but have dealt with the elements as they “fuse and interact.” Id. at -, 502 F.2d at 374.

      . In so determining, a court must of course be wary of self-serving declarations of any agency; it must be clear to the court that more than ephemeral possibilities of enforcement were anticipated by the agency in undertaking the investigation. If an investigatory file is compiled for the purpose of determining whether a law enforcement proceeding should be brought (in the same manner as against a private citizen) and against whom, then, whether the agency concludes that proceedings are necessary or not, the agency may utilize exemption 7 to protect its investigatory process and sources.

      . Appendix at 44.

      . We have recently had occasion to consider exemption 5 in Montrose Chemical Corporation v. Train, 160 U.S.App.D.C. 270, 491 F.2d 63 (1974).


source: Caselaw Access Project

author: PER CURIAM:

license: Public Domain

text:
    UNITED STATES of America, Appellant, v. Willis W. CARTER.
    No. 73-2179.
    United States Court of Appeals, District of Columbia Circuit.
    Argued April 24, 1974.
    Decided June 7, 1974.

      Harry R. Benner, Asst. U. S. Atty., with whom Earl J. Silbert, U. S. Atty., John A. Terry and Warren L. Miller, Asst. U. S. Attys., were on the brief, for appellant. Harold H. Titus, Jr., U. S. Atty. at the time the record was filed and James W. Djgihm, Asst. U. S. Atty., also entered appearances for appellant.
    William J. Garber, Washington, D. C. (appointed by this Court) for appellee.
    Before McGOWAN and TAMM, Circuit Judges, and EDWARDS, United States Circuit Judge for the Sixth Circuit.

       Sitting by designation jrarsuant to 28 TJ.S.C. § 291(a).

   PER CURIAM:

This is an appeal by the United States from an order of the district court granting appellee’s motion to suppress certain evidence seized from him at the time of his arrest. The question for review is whether probable cause existed for the arrest and incident search of appellee.

Both arresting officers testified at the suppression hearing and related the circumstances of appellee’s arrest as follows. ■ On the day of the arrest Officer Jenkins received a telephone call from an informer who stated that a man known to him as “Mousey” was selling narcotics near the corner of Eighth and 0 Streets — known to the police as a place where “any type of narcotics” could be purchased. According to Officer Jenkins, the caller described the man as a heavy-set Negro male about six feet tall and wearing red shorts, a white T- • shirt and a multi-colored cap. The caller also stated that the suspect had a white towel around his neck and was carrying the narcotics in a paper cup. Within three or four minutes of the call Officer Jenkins and Officer Vavrick arrived in the vicinity of Eighth and 0 Streets and were met by the informer. According to the testimony of the two officers, the informer then told them that the suspect had moved to the next block on 0 Street. The officers proceeded to the eight-hundred block of 0 Street- where they saw a man meeting the description given by the informer. The man was sitting on the trunk of a parked car. Beside him was a towel draped over an object which had the shape of a paper cup. The two officers approached the subject from opposite directions. Vavrick seized the cup from behind and Jenkins placed the suspect •under arrest. At the hearing both witnesses identified the appellee as the person they had arrested on 0 Street. The paper cup is alleged to have contained cocaine.

Testimony also discloses that the informant had recently been arrested by Officer Jenkins and had agreed to provide the names of persons who were selling drugs in the District of Columbia. Although the informant had not provided such information prior to the incident under discussion, he had demonstrated to Officer Jenkins a knowledge of the identities of narcotics dealers in various areas of the city which corresponded with police suspicions.

“Probable cause” is a constitutional standard which prohibits arrests unless the arresting officer has knowledge or “trustworthy information” of facts and circumstances which would “warrant a man of reasonable caution” in the belief that the arrestee has committed a crime. Carroll v. United States, 267 U.S. 132, 162, 45 S.Ct. 280, 288, 69 L.Ed. 543 (1925). In the present case the arrest was based not on the policeman’s own knowledge of the facts but on an informant’s representation that appellee was engaged in the illegal sale of narcotics on a Washington street. The facts related by the informant, if true, would clearly warrant a reasonable belief that appellee had committed a crime.

The only question, then, is whether this information was trustworthy. An evaluation of the trustworthiness of an informant’s tip requires two inquiries — one focusing upon the credibility of the informant himself and one focusing upon the validity of his conclusion that the arrestee has committed a crime. Aguilar v. Texas, 378 U.S. 108, 114, 84 S.Ct. 1509, 12 L.Ed.2d 723 (1964). The latter inquiry reveals that the tip was more than just a conclusory accusation. The informant reported that he had seen appellee selling narcotics on the street within view of the telephone booth from which he spoke to Officer Jenkins. There is no danger that the informant had obtained his information “from an offhand remark heard at a neighborhood bar.” Cf. Spinelli v. United States, 393 U.S. 410, 417, 89 S.Ct. 584, 589, 21 L.Ed.2d 637 (1969). By its terms, the tip purports to be based on the first hand knowledge of the informer, a person who had previously demonstrated familiarity with the illicit narcotics trade in the District of Columbia. The first branch of the Aguilar analysis is therefore satisfied.

Our second inquiry with respect to an informant’s report scrutinizes the reliability of the informant himself. The burden of the Government is to show facts and circumstances from which the officers could reasonably conclude that the informant was credible. Aguilar v. Texas, supra, 378 U.S. at 114. We think that the Government has met its burden. Having been arrested for petty larceny the day before, the informant had a motive to cooperate with the police. As Officer Jenkins put it, “[the informant] sort of took it that I was going to help him out” in exchange for his cooperation in apprehending narcotics dealers. More significantly, the informant met the officers near the scene of the arrest and gave them additional information regarding appellee’s movements. This confirmed that the informant was in fact in the vicinity at the time of the tip. Finally, the officers were able to corroborate by their own observation all aspects of the suspect’s description, including the presence of a paper cup, before the arrest. Taken together, these three factors would lead a reasonable man to credit the informant’s report.

Since the informant was credible and his information regarding criminal activity had been obtained in a reliable way, the report received by Officer Jenkins was sufficiently trustworthy to create probable cause for appellee’s arrest. The legality of the arrest, of course, validates the accompanying search which produced the evidence at issue. The order of the district court suppressing that evidence is therefore reversed.

So ordered.

      . Testimony of Officer Vavrick, Tr. at 26.

      . Officer Jenkins testified as follows :
      Q Well now, you indicated to the Prosecutor that he he had not given you information before that was either reliable or unreliable.
      A I can’t say reliable. I had met him earlier that afternoon when I came on duty and he was giving me verbal information which I could corroborate.
      Q What do you mean by that, sir?
      A I would ask him questions about certain areas, who was selling narcotics, who I knew was selling narcotics. lie would say So-and-So was.
      THE COURT: That would check with your information, as best you had it?
      THE WITNESS : Yes, sir.
      Tr. at 12.

      . Tr. at 14.


author: PER CURIAM.

text:
      Gunie Boyd TRIMMINGS, Petitioner-Appellant, v. J. D. HENDERSON, Warden, U. S. Penitentiary, Respondent-Appellee.
    No. 73-3978
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    July 31, 1974.
    Gunie Boyd Trimmings pro se.
    John W. Stokes, Jr., U. S. Atty., Anthony M. Arnold, Asst. U. S. Atty., Atlanta, Ga., for respondent-appellee.

      Before BROWN, Chief Judge, and THORNBERRY and AINSWORTH, Circuit Judges.

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

   PER CURIAM.

Appellant Trimmings challenges by a writ of habeas corpus the computation of his present and prior sentences. He maintains that (1) the length of time he is being compelled to serve on his second sentence was improperly computed by the parole board; (2) the added confinement under the second sentence is defective because of the long lapse of time between the issuance of the violator’s warrant on his first conviction and the parole revocation hearing seven years later; and (3) the sentence should have included a credit of pre-sentence jail time when he was denied bail due to the existence of a violator’s warrant on his first conviction.

The District Court with great patience several times considered these complaints on their own and, in the light of an earlier case raising related issues, called on the Government by a show cause order to respond to specific issues, ultimately finding them without merit. We agree and affirm.

Appellant’s history of arrests, sentences, and parole revocations form a checkerboard pattern extending back over the last 16 years

The answer is clear with respect to his claim that the remaining 542 days on conviction No. 1 (New Jersey) was improperly applied on the grounds that the execution of the 1962 violator’s warrant (1(a) ) should not have been delayed until 1970 (1(a) ), and, therefore, the revocation lacked due process. First, we have repeatedly held that where a warrant has been properly issued within the maximum term of the sentence, the execution of that warrant may be held in abeyance for the service of an intervening sentence. Following many earlier cases we recently reiterated this in Cook v. United States Attorney General, 5 Cir., 1974, 488 F.2d 667. See also, Cox v. Feldkamp, 5 Cir., 1971, 438 F.2d 1; Smith v. Blackwell, 5 Cir., 1966, 367 F.2d 539.

Secondly, subsequent to the execution of the warrant (1(a) ) there was a revocation hearing (1(b) ) and there was no showing of any fundamental unfairness either from the delay or the procedures followed in the Morrissey sense. Cf. Cook v. United States Attorney General, 5 Cir., 1974, 488 F.2d 667.

This means that on the mandatory release date (12/13/70) under conviction No. 2 (New York) he was properly required to serve the 542 days remaining on conviction No. 1 (New Jersey). A part of this remained unserved when, on 12/10/71, a new mandatory release date arrived. (1(a))

Thereafter a new violator’s warrant was issued on 7/6/72 and executed 1/30/73. (2(a) ) This was followed by a local parole revocation hearing as to which there can be no procedural due process complaint. The Board fixed the time remaining at 1,382 days.

This result was proper and is not defective either because the parole board aggregated the sentences or necessarily extended the date on which the substantive sentences would normally have expired.

Since revocation of mandatory release parole results in a loss of credit for time on parole, Henning v. United States Bureau of Prisons, 5 Cir., 1973, 472 F.2d 1221, the original sentence does not fix the calendar date of expiration of the sentence so that confinement beyond the original expiration date is permissible. Sturgis v. United States, 5 Cir., 1969, 419 F.2d 390.

The short answer to the claimed error in denying credit for jail term is that appellant having received less than the statutory maximum for conviction No. 2 (New York), Bryans v. Blackwell, 5 Cir., 1967, 387 F.2d 764 compels the presumption that the sentencing Judge took into account all jail time, both before and after, any use of the violator warrant (1(a) ) as a detainer.

Affirmed.

      . Appellant’s Narcotics Conviction Record

      Conviction No. 1 (New Jersey)
      1. 5 year sentence served:
      3/28/58 - 10/1/61
      Remaining: 542 days
      (a) violator’s
      warrant
      issued: 8/24/62
      executed: 12/70
      time served: To 12/71
      (b) parole board revocation hearing held 4/19/71
      Conviction No. 2 (New York)
      2. 10 year sentence
      Arrested: 10/22/63
      Served: 6/23/64-12/13/70
      Remaining: 1,382 days
      (a) violator’s
      warrant
      issued: 7/6/72
      executed: 1/30/73
      (b) parole board revocation hearing held 2/12/73

      . See (1(a) ), supra, note 1.

      . Morrissey v. Brewer, 1972, 408 U.S. 471, 92 S.Ct. 2593, 33 L.Ed.2d 484.

      . This gave full credit for all time actually served on convictions No. 1 and No. 2.

      . The policy and consequences seem accurately described in the Government’s brief:
      As a matter of policy, prison officials aggregate multiple sentences. See Policy Statement 7600.54A (it. 57-61). The purpose of aggregating sentence is to allow inmates the benefit of accumulating statutory good time at the highest possible rate, as provided by 18 U.S.C. [§] 4161. In Trimmings’ case, his violator sentences were consecutive to Ms substantive violations. This also explains the aggregate sentence of eleven (11) years, five (5) months, and 24 days, which is the equivalent of the ten (10) year sentence plus 542 day sentence (R. 47, 55-56). To compute the sentences separately would cause Trimmings to serve additional time in prison since he would accumulate less good time.


author: GOLDBERG, Circuit Judge:

text:
    William J. RUSHTON, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee. ESTATE of Elizabeth P. RUSHTON, Deceased, William J. Rushton, III, and James Rushton, Executors, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
    No. 73-3438.
    United States Court of Appeals, Fifth Circuit.
    July 26, 1974.
    Rehearing and Rehearing En Banc Denied Oct. 9, 1974.

      Lee C. Bradley, Jr., Charlott L. Railey, Birmingham, Ala., for petitioners-appellants.
    Scott P. Crampton, Asst. Atty. Gen., Meade Whitaker, Robert S. Lamont, Attys., Tax Div., Dept, of Justice, Lawrence B. Gibbs, Acting Chief Counsel, I. R.S., Meyer Rothwacks, Chief, Appellate Sec., Dept, of Justice, Jonathan S. Cohen, Arthur L. Bailey, Attys., Tax Div., Dept, of Justice, Washington, D. C., for respondent-appellee.
    Before BELL, GOLDBERG and CLARK, Circuit Judges.
   GOLDBERG, Circuit Judge:

The Commissioner and the taxpayers come to this Court embroiled in a controversy over the interpretation and application of a concept in securities valuation commonly known as “blockage.” When any property is assessed for the purpose of imposing a federal tax— whether income, gift, or estate — the dollar amount assigned to it rests, at least theoretically, on the notion of fair market value. See Champion v. Commissioner of Internal Revenue, 5 Cir. 1962, 303 F.2d 887. The Treasury Regulations on the Gift Tax are typical in defining that ideal as “the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of relevant facts.” The blockage rule provides that, when securities are being valued, the size of the holding, and not simply the quoted price per share is a relevant consideration. This principle requires recognition of the market fact that a block of shares may be so large in relation to the usual trading volume or to the number of shares outstanding that it would necessarily go at a discount.

On four days in 1966 and 1967, William J. Rushton made 16 gifts of the common stock of Protective Life Insurance Company to members of his family or to trusts established for their benefit. In their gift tax returns for those years, Rushton and his wife, who had consented to having one-half of the gifts to third parties treated as gifts made by her, valued the stock at the amount that would have been realized, in the opinion of experts, from the sale of four blocks of the security. The blocks consisted of an aggregation of the gifts made on each day — 1,422, 5,000, 6,400, and 2,000 shares, respectively. The Commissioner disallowed the blockage discount based on the combination of gifts into daily totals; and, since taxpayers had furnished no information on the blockage effect of the individual gifts, he issued a notice of deficiency based on a valuation of the stock at the mean between the bid and asked price per share on the date of each gift. Taxpayers filed separate petitions in the Tax Court challenging the assessment of additional gift duties; and they have prosecuted these consolidated appeals under 26 U.S.C. § 7482 from a decision of that court upholding the Commissioner’s determinations. We affirm.

The Commissioner has not easily come to an acceptance of blockage in any form. The gift and estate regulations promulgated under the revenue acts of 1926 and 1932 specifically forbade consideration of the size of a block of securities in determining the fair market value per share. In a few early court skirmishes the Commissioner managed to protect this position from outright rejection, see Roth v. Wardell, 9 Cir. 1935, 77 F.2d 124; Richardson v. Helvering, 1935, 65 App.D.C. 105, 80 F.2d 548; but in the late 1930’s the then Board of Tax Appeals and the district courts began to accept and to rely on expert testimony concerning blockage discounts in reviewing deficiency assessments and determining refunds, notwithstanding the regulatory strictures. In a series of decisions issued during, this period every Court of Appeals’confronted with the question upheld the action of the lower tribunals. See, e. g., Phipps v. Commissioner of Internal Revenue, 10 Cir. 1942, 127 F.2d 214; Helvering v. Maytag, 8 Cir. 1942, 125 F.2d 55; Bull v. Smith, 2 Cir. 1941, 119 F.2d 490; Helvering v. Kimberly, 4 Cir. 1938, 97 F.2d 433; Commissioner of Internal Revenue v. Shattuck, 7 Cir. 1938, 97 F. 2d 790. This Circuit was no exception, and in Page v. Howell, 5 Cir. 1940, 116 F.2d 158, 159, we endorsed the blockage concept, holding that:

“Every element that would tend to increase or diminish the value of the gift as a whole should be considered. The formula incorporated in [the regulations] no doubt is fair and just, if nothing else is shown than the average value, measured by transactions on the stock exchange, but it is not conclusive. The [trier of fact] was entitled to consider the question as to whether the value of such a large block of stock could be accurately determined by the average price obtained from the sale of approximately one-tenth of the number of shares donated.”

Evidently concluding that regulations which courts refuse to honor are the equivalent of no regulations at all, the Commissioner initially retreated into silence by deleting all comment on blocks of securities from the valuation provisions. However, as the judicial attitude hardened from one permitting the trier of fact to consider the blockage effect to a rule requiring that it be considered, see Champion v. C. I. R., supra 303 F.2d at 893, the Internal Revenue Service conceded defeat, and in 1958 promulgated new regulations explicitly recognizing the possibility of a blockage discount:

“In cases in which it is established that the value per bond or share of any security determined on the basis of the selling or bid and asked prices as provided under . . . this section does not represent the fair market value thereof, then some reasonable modification of the value determined on that basis or other relevant facts and elements of value shall be considered in determining fair market value ... In certain exceptional cases, the size of the block of securities made the subject of each separate gift in relation to the number of shares changing hands in sales may be relevant in determining whether selling prices reflect the fair market value of the block of stock to be valued. If the donor can show that the block of stock to be valued, with reference to each separate gift, is so large that it could not be liquidated in a reasonable time without depressing the market, the price at which the block could be sold as such outside the usual market, as through an underwriter, may be a more accurate indication of value than market quotations. Complete data in support of any allowance claimed due to the size of the block of stock being valued should be submitted with the return.”

Taxpayers contend that the quoted provision, when read in the context of the entire valuation scheme set out in the regulations, contemplates a blockage discount calculated on the basis of the aggregate of the gifts made on any single day. A contrary interpretation, they argue, would render the regulations invalid. The Commissioner responds that, fairly read, the regulations forbid the aggregation of gifts for valuation purposes and that any finding of blockage must be based on the effect of offering only the number of shares in each separate gift for sale on the date of transfer. We agree with the Tax Court that the Government has presented the more reasonable version of the regulatory scheme. As so interpreted, the valuation standards decreed by the Service are a legitimate exercise of discretion under the statute.

Bringing an aggregation principle within the language of the regulation is a task requiring considerable ingenuity, and taxpayers have constructed a suitably involved argument: Granted, the regulation looks to what each gift would fetch if sold as a block through an underwriter or by another mechanism of secondary distribution. This single gift provision, however, does not by its terms preclude an expert evaluation of the market based in part on the price depression that would have resulted from the actual sale during the valuation period of the shares comprising the other gifts, or from the knowledge of their presence overhanging the market. Since this procedure is both possible under the regulation and required for a reasonable valuation, it should be en-grafted upon the regulatory scheme by judicial surgery.

This effort at construction, though inventive, suffers from rather serious flaws; for any aggregation, even the roundabout variety urged by taxpayers here, moves very strongly against the thrust of the regulation. We note that by its explicit terms § 25.2512-2 (e) permits the application of a blockage discount for any shares only upon a showing that “the block of stock to be valued, with reference to each separate gift, is so large” that its liquidation would depress the market price. Hence, the blockage concept must be triggered in the first instance by the size of each particular gift, without consideration of companion donations. This is a strange prerequisite indeed for a regulatory scheme which allegedly contemplates the ultimate aggregation for valuation purposes of all gifts of a single stock made in one day. It is equally clear, and equally damaging to taxpayers’ position, that the regulation requires the production of expert evidence on the price which each gift would bring if sold, not in some hypothetical market, but under the conditions actually obtaining at the time of gift. An aggregation principle, however, directly contradicts the regulatory intent of appraisal in a realistic market; for, under such a system, the question becomes not what would each block have returned if sold in the market existing at the time of valuation, but rather what would that same block have brought in a fictitious market, one flooded by the other gifts.

Taxpayers argue that their method of valuation, even if forbidden by regulation, is nevertheless supported by the reasoning of this and other Circuits in opinions recognizing blockage discounts as part of a fair tax assessment. Far from supporting that position, however, the logic of those decisions militates against aggregation. The blockage cases of the 1930’s and ’40’s, including this Court’s opinion in Page v. Howell, supra, refused to apply the IRS regulations because their provisions ignored market fact. Taxpayers now seek to distort that reasoning into a requirement that the assessor consider market fictions. They recognize, as they must, that the Code commands and the regulations validly enforce the separate valuation of gifts. If that independent valuation is to take place in the context of a realistically reconstructed market, as the cases seem to require, no consideration can be given to other donations of shares, precisely because the additional gifts were not placed for sale. Realistic valuation can cut both ways, and taxpayers cannot reasonably complain when the principles giving rise to blockage are applied to limit the concept as well.

In their reply brief taxpayers largely abandon the arguments based on interpretation of the regulation and fairness under the statute. They rely instead on the supposed voice of authority, contending„ that aggregation of the gifts of securities is required by the decision of this Court in Page v. Howell, supra. We have in Page, however, no blueprints, plans, or specifications to control our construction here, and properly viewed, that opinion provides taxpayers with cold comfort. First, it is far from clear that Page either endorsed or required the consideration of combined gifts. Judge Foster, writing for the Court, referred throughout that brief opinion to a single “gift” made in trust for the benefit of the taxpayer’s four children. The text indicates that the panel may well have considered the stock as one donation in fact, and not simply as a single entity for the purpose of gauging market effect. In the present case, however, there can be no question but that we are dealing with sixteen separate gifts.

More importantly, the Page court operated within a regulatory framework which permitted greater room for judicial action. By 1940 the Commissioner had removed all reference to blockage discounts from the regulations. Therefore, once the Court had determined that a just assessment under the statute required consideration of blockage, it was free to prescribe any scheme it deemed appropriate. The Commissioner’s retreat from the field had invited-a judicial advance. However, with the promulgation of the present gift regulation, directly confronting blockage discounts and permitting their application only to separate gifts, a court’s task becomes quite limited.

Alternatives to the Commissioner’s [rules] are of course available. Improvements might be imagined. But we do not sit as a committee of revision to perfect the administration of the tax laws. Congress has delegated to the Commissioner, not to the courts, the task of prescribing “all needful rules and regulations for the enforcement” of the Internal Revenue Code. 26 U.S.C. § 7805(a).' In this area of limitless factual variations, “it is the province of Congress and the Commissioner, not the courts, to make the appropriate adjustments.” Commissioner v. Stidger, 386 U.S. 287, 296, 87 S.Ct. 1065, 1071, 18 L.Ed.2d 53. The role of the judiciary in cases of this sort begins and ends with assuring that the Commissioner’s regulations fall within his authority to implement the congressional mandate in some reasonable manner, [emphasis added]

United States v. Correll, 1967, 389 U.S. 299; 306-307, 88 S.Ct. 445, 449, 19 L.Ed.2d 537. See also Bingler v. Johnson, 1969, 394 U.S. 741, 89 S.Ct. 1439, 22 L.Ed.2d 695.

Taxpayers do not dispute the validity, indeed the necessity under the statute, of valuation per single gift. Given that procedure and the market realities discussed above, we cannot say that the Commissioner’s blockage scheme is unreasonable. Hence, even were we to conclude that the Page court felt aggregation to be the best of all possible systems, that would give us no justification for tampering with a rational, though perhaps imperfect, regulation. What Page might have accomplished in the face of regulatory silence, we are forbidden by Correll from requiring in defiance of the present reasonable rule.

As if in anticipation of our holding in favor of the Commissioner on the point of aggregation, taxpayers prepared a fall back position. Granting that in the application of the blockage rule account should be taken only of the gifts to separate donees, they contend that the Tax Court improperly ignored expert evidence on the market effect of eight individual gifts.

The Commissioner’s notice of deficiency assessed all shares at the mean between the bid and asked price on the date of gift. This is the standard propounded by the regulation for the valuation of little-traded securities in the absence of a showing of exceptional circumstances ; and under the terms of the regulation, the taxpayer must demonstrate both the appropriateness and extent of any discount below that standard price per share claimed on account of blockage. See 26 C.F.R. § 25.-2512-2(e). This location of the burden is no more than an administrative recognition of long established judicial rules. From the earliest cases permitting consideration of the blockage effect, courts have emphasized that this market phenomenon cannot simply be assumed from the size of the block being valued, but rather must appear from expert evidence on all aspects of the market. See Maytag v. Commissioner, 10 Cir. 1951, 187 F.2d 962. Moreover, this Court has explicitly held, in the context of a taxpayer’s challenge to the valuation of donated securities, that,

a taxpayer has the burden not merely of showing that the commissioner’s assessment was erroneous, but that the value the taxpayer took as the basis of his claim . . . ' was right

Krauss v. United States, 5 Cir. 1944, 140 F.2d 510, 511-512. See also Helvering v. Taylor, 1935, 293 U.S. 507, 514, 55 S.Ct. 287, 79 L.Ed. 623.

The Tax Court found that the donors here had not only neglected to produce significant data on the market effect of any single gift, but had even failed to raise a substantial question as to the accuracy of the Commissioner’s assessment once the aggregation concept had been rejected. Since 26 U.S.C. § 7482(a), which empowers this panel to hear appeals from that specialized tribunal, instructs us “to review the decisions of the Tax Court ... in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury,” .we can disturb the fact finding below on the sufficiency of the petitioner’s evidence only if that conclusion be clearly erroneous. See McGee v. Commissioner, 5 Cir. 1971, 444 F.2d 110.

Taxpayers allege that the testimony of their expert witness, Rucker Agee , illuminates just such an obvious mistake on the part of the trier of fact. We disagree. On direct examination Agee expressed no opinion as to the price per share which any single gift would have brought in a market free of the other donations. The only figures suggested came in the course of cross-examination, where he was unable to provide any definite quotations and relied instead on estimates within a range of values, price ceilings, and references to figures “slightly” above or below specific prices. Agee conceded that he had given little thought to the market effect of individual gifts and consequently could not provide exact values.

I arrived at this opinion [on the blockage effect of the aggregate] in conference with my partners, and we did not consider what a single block would liquidate at. We were not confronted with that question at that time.
****»-»
Five years later, without availability of my four partners to confer with and consider the condition of the market at that time, I cannot answer the question [on single gift blockage] more definitely. [Tr. 106-7]

Though the Tax Court cannot arbitrarily reject detailed and carefully formulated expert testimony in favor of a blind faith in the Commissioner’s assessment, Carlton v. Commissioner, 5 Cir. 1951, 190 F.2d 183, the denial of a blockage discount on any individual gifts cannot be faulted here given the admittedly im accurate and hastily developed opinion of taxpayers’ only authority. Valuation outside the actual market place is inherently inexact, but we will not compound its uncertainty by giving controlling effect to such hazy recollections.

Taxpayers have not coordinated their legal and evidentiary attacks sufficiently to merit victory either before the Tax Court or on this appeal. Where the evidence was strong — on the market effect of the combined gifts — the law did not permit its consideration. Where the law was clearly in their favor — on the possibility of blockage discounts for the separate gifts — the evidence introduced by taxpayers did not support its application.

Affirmed.

      . 26 C.F.R. § 25.2512-1.

      . The relation of the holding to the supply available in the market is relevant in the valuation of any commodity. See Mertens, Law of Federal Income Taxation § 59.15. A particular rule has been articulated in the area of securities, however, due to the frequency of stock transfers, the prevalence of stock ownershii), and the discrepancies so often arising between the reduced block price and the usual price per share.

      . Of course, the number of shares being valued may be so great a percentage of the number outstanding that their transfer would convey effective control of the enterprise. In such a case the logic of blockage requires not a discount, but rather the inclusion of a control premium in the tax assessment. See 26 C.F.R. § 25.2512-2 (e). Cf. Blanchard v. United States, S.D.Iowa 1968, 291 F.Supp. 348.

      . Taxpayers and the Commissioner agree on the date and size of each gift:
      Date of Gift and Donee No. of Shares
      January 3, 1966
      Elizabeth P. Rushton 237
      William J. Rushton, III 237
      James Rushton 237
      William J. Rushton, IV Trust 237
      Deakins F. Rushton Trust 237
      Tunstall P. Rushton Trust 237
      June 15, 1966
      William J. Rushton, III 2,500
      James Rushton 2,500
      January 3, 1967
      Elizabeth P. Rushton 400
      William J. Rushton, III 1,800
      James Rushton 3,000
      William J. Rushton, IV Trust 400
      Deakins F. Rushton Trust 400
      Tunstall P. Rushton Trust 400
      April 7, 1967
      William-J. Rushton, III 1,250
      James Rushton 750

      . The information came from Sterne, Agee & Leach, a brokerage firm located in Birmingham, Alabama, Protective Life’s principal X)lace of business. Sterne, Agee is the primary market maker in Protective Life Stock, an unlisted security.

      . The Commissioner asserted deficiencies in the gift taxes of William ,T. Rushton for the taxable years 1966 and 1967 in the amounts of $984.37 and $893.25, respectively, and deficiencies in the gift taxes of Elizabeth P. Rushton for those years in the amounts of $984.38 and $866.25.

      . Elizabeth P. Ruxhton died during the course of this litigation, and the executors of her estate have been substituted as parties.

      . Treasury Regulation 79, Article 19 (1934 ed.) [gift tax] ; T.R. 80, Article 13(3) (1934 ed.) [estate tax].

      . 26 C.F.R. § 25.2512-2 (e). The analogous estate tax provision appears at 26 C.F.R. § 20.2031-2(d).

      . The references in the regulation to “liquidation in a reasonable time” and selling “outside the usual market, as through an underwriter” represent the Commissioner’s acceptance of the sophisticated judicial gloss on the original blockage rule, which developed during the 1940’s. In the midst of their original infatuation with blockage discounts, the courts came to recognize that a “skillful broker” could by distribution over a short period of time dispose of a block of securities at a price near or equal to the market level. Where this was possible, the market price, or something very close to it, would be an accurate reflection of the value on the date of gift. See Richardson v. Commissioner, 2 Cir. 1945, 151 F.2d 102, cert. denied 326 U.S. 796, 66 S.Ct. 490, 90 L.Ed. 485; Bull v. Smith, 2 Cir. 1941, 119 F.2d 490.
      The “skillful broker” concept was followed by the market wise proposition that the amount obtained by an underwriter or broker for a secondary distribution of a security, minus the commission, might even more faithfully reflect the real value of a large block of stock. See Mertens, Law of Federal Gift and Estate Taxation § 8.06, n. 26.

      . Taxpayers, obviously stymied by the statutory requirement that, “if the gift is made in property, the value thereof at the date of the gift shall be considered the amount of the gift,” have attempted no aggregation beyond the daily totals. Hee 26 U.S.C. § 2512(a).

      . These were gifts of 2500 shares each to William J. and James Rusliton on June 15, 1966; and six gifts totalling 6400 shares made on January 3, 1967.

      . 26 C.F.R. § 25.2512-2(c).

      . Mr. Agee, a partner in the brokerage firm of Sterne, Agee & Leacli, Inc. of Birmingham, Alabama, testified extensively at trial. There has been no challenge to his competence either as a broker or a trader in Protective Life stock.


author: LYNNE, District Judge:

text:
    BEDEL’S INC., Plaintiff-Appellant, v. GENERAL ELECTRIC COMPANY, Defendant-Appellee.
    No. 73-2268.
    United States Court of Appeals, Fifth Circuit.
    July 31, 1974.

      See also, D.C. 54 F.R.D. 443.

      Walter A. Apfelbaum, H. James Catlin, Jr., Miami, Fla., for plaintiff-appellant.
    Charles A. Kimbrell, Thomas E. Scott, Jr., Miami, Fla., for defendant-appellee.
    Before GOLDBERG and AINSWORTH, Circuit Judges, and LYNNE, District Judge.
   LYNNE, District Judge:

I.

STATEMENT OF THE CASE

This is a private antitrust action for treble damages undér the Clayton Act, 15 U.S.C. §§13 and 14, brought by appellant, Redel’s, Inc. (hereinafter referred to as “Redel’s”), a former franchised dealer of appellee, General Electric Company (hereinafter referred to as “G.E.”). The district court granted G.E.’s motion for partial summary judgment, holding that all claims arising prior to February 12, 1971, were barred by a general release set forth in the “Dealer Franchise Agreement.” Redel’s application for leave to appeal from an interlocutory order pursuant to 28 U.S. C. § 1292(b) was denied by this Court on November 16, 1972. Final judgment was entered by the district court on March 30, 1973, following execution of a stipulation voluntarily dismissing without prejudice those claims arising subsequent to February 12, 1971. Redel’s then filed its notice of appeal.

II.

FACTUAL BACKGROUND

Redel’s was for many years a franchised dealer of G.E. merchandise. In maintaining the franchise relationship, G.E. dealers, including Redel’s, renewed their franchise agreements annually. The last franchise agreement between Redel’s and G.E. was executed on March 3, 1969. However, this agreement was significantly different from prior agreements. It was to be in perpetuity with yearly addenda rather than a contract requiring renewal annually. The present controversy results from G.E.’s inclusion in that agreement of a general release provision. The release, found in Section 5(i) of the franchise agreement, reads as follows:

“(i) in consideration of the execution of this agreement by the District, and of such sales of said products as the District may make to the Dealer within the term hereof, the Dealer hereby releases General Electric Company, from all claims, demands, contracts, and liabilities, if any there be, as of the date of the execution of this agreement by the Dealer, except claims founded upon or indebtedness which may be owing under (i) a written contract other than a franchise agreement or (ii) written cooperative advertising and product service plans issued by the District;”

The franchise agreement also contained provisions covering annual addenda. The purposes of the addenda were clearly set forth in Sections 3(a) and 3(b):

“3. The Dealer agrees:
(a) to achieve an annual sales quota of products as is agreed to between the Dealer and the District in the annual addendum to this franchise ;
(b) to maintain at all times on his sales floor a display of products of at least the minimum number as is agreed to between the Dealer and District in the annual addendum to this franchise.”

The addenda contemplated here were to provide the necessary flexibility for routine and periodic modification of the basic agreement. The franchise agreement itself was to be in perpetuity, to remain fully effective until terminated by the parties pursuant to the termination clause found in Section 5(d).

On February 12, 1971, Redel’s executed an annual addendum to the franchise agreement of March 3, 1969, which set forth minimum sales requirements for various appliances during the calendar year 1971. No minimum sales floor display for appliances was specified. The addendum, printed by G.E. as a standard form on one page, contained no other provisions and in no way referred to the general release contained in the franchise agreement. The instrument was simply described as “the Annual Addendum for the Year 1971 to the Dealer Sales franchise.”

Redel’s filed the present antitrust action against G.E. on January 21, 1972, asserting, inter alia, numerous claims of unlawful price discrimination occurring from 1965 through 1971, which allegedly resulted in substantial loss of sales volume and the collapse of Redel’s business in 1971. Redel’s thereupon sold its assets to another G.E. franchised dealer, prompting cancellation of Redel’s franchise by G.E. In its answer to the complaint, G.E. set forth several affirmative defenses, the most significant for our purposes being the general release found in the 1969 franchise agreement. In support of its motion for partial summary judgment, G.E. contended, as it does now, that the release bars recovery by Redel’s as to all liabilities which existed at the time the release was executed in March, 1969, and further, that when the 1971 addendum was executed, it, ex proprio vigore, renewed the March, 1969, agreement, thereby incorporating its general release and depriving the plaintiff of the right to litigate claims existing as of February 12, 1971. Apparently convinced that the addendum constituted a contract renewal, which somehow incorporated every provision of the 1969 franchise agreement, the district court agreed with G.E. and granted its motion.

III.

DISCUSSION

A. Prospective Application of the General Release.

It is beyond peradventure that the lower court committed grave error in holding that the general release found solely in the franchise agreement of March 3, 1969, was effective to bar Redel’s claims through the date of execution of the addendum on February 12, 1971. The addendum was merely an addition to the franchise agreement, expressly anticipated by the parties to that agreement, which set forth the dealer’s minimum retail sales requirement for 1971. Although the addendum would be interpreted in accordance with the provisions of the franchise agreement, it obviously did not, and was not intended to, renew the franchise agreement, which remained in full force and effect until terminated pursuant to its terms. The addendum certainly did not, as the district court erroneously concluded, effect a new release by Redel’s of all claims existing against G.E. as of its date.

The question then becomes ¡whether the general release provision contained in the franchise agreement operates prospectively. There are two answers, both of which conclusively deny prospective effect. The first is found in the language of the release itself: “. . . The Dealer hereby releases General Electric Company from all claims, demands, contracts, and liabilities, if any there be, as of the date of the execution of this agreement by the Dealer. . . .” The interpretation of any release of antitrust liability must be governed by the intent of the parties. This is the uniform federal rule derived from Aro Manufacturing Co. v. Convertible Top Co., 377 U.S. 476, 84 S.Ct. 1526, 12 L.Ed.2d 457 (1964), and Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971). Therefore, it must be concluded from the unambiguous language drafted by G.E. that the parties did not intend the release to apply prospectively beyond the franchise agreement’s execution date of March 3, 1969. Significantly, a contrary conclusion would likewise prevent prospective application since such application would run counter to public policy.

The prospective application of a general release to bar private antitrust actions arising from subsequent violations is clearly against public policy. A right conferred on a private party by federal statute, but granted in the public interest to effectuate legislative policy, may not be released if the legislative policy would be contravened thereby. Releases may not be executed which absolve a party from liability for future violations of our antitrust laws. The Eighth Circuit explained this principle succinctly in Fox Midwest Theatres v. Means, 221 F.2d 173, 180 (8th Cir. 1955): “Any contractual provision which could be argued to absolve one party from liability for future violations of the antitrust statutes against another would to that extent be void as against public policy [Citation omitted]. This is because the effect of such a release could be to permit a restraint of trade to be engaged in, which would have impact, not simply between the parties, but upon the public as well. Such a release, if recognized as having any validity of that nature, could therefore itself operatively serve as a contract ‘in restraint of trade.’ ” The Supreme Court in Zenith, swpra, reiterated the underlying policy in stating that private antitrust suits are considered “one of the surest weapons for effective enforcement of thfe antitrust laws.” Therefore, as a matter of law, the general release in the case sub judice is ineffective to bar claims arising subsequent to March 3, 1969, the date of its execution.

B. Retrospective Application of the General Release.

The foregoing analysis has, we think, correctly assumed that the retrospective proscription inherent in the release provision is itself valid. The language is unfettered by either patent or latent ambiguities. Redel’s efforts to convince the Court otherwise are unpersuasive. It contends that the release is limited by language in the introductory paragraph of the franchise agreement which states: “The provisions of this agreement shall govern all contracts and transactions between the District and the Dealer during said term respecting such products.” Redel’s argument is that the instant complaint relates solely to transactions between G.E. and third parties, the third parties being those who allegedly benefited from unlawful price discrimination. However, the above recited language would never serve to govern the interpretation of the release, since, as previously observed, the release operates with respect to past conduct while the other provisions of the contract operate during a franchise term commencing at the date of execution.

Despite this Court’s familiarity with applicable rules of construction which mandate narrow construction of general releases and resolution of ambiguities against the draftsman, they do not avail to assist Redel’s in the circumstances before us. The language is unmistakably clear. Redel’s, by and through its president, agreed to be bound by language which released G.E. from “all claims . and liabilities, if any there be, as of the date of the execution of this agreement. . . .” The parties, in establishing their franchise relationship for an indefinite term, apparently desired to settle all matters that presented themselves in the context of their earlier series of relationships. Redel’s assertion that the inclusion of the general release by G.E. was a breach of its duties as a fiduciary is plainly frivolous and fully capable of resolution by the district judge, without trial. Redel’s can be allowed no escape for the failure of its highest officer to read language in the agreements he executed on behalf of the company.

In the complete absence of ambiguity, the general release provision here permits no jury consideration of extrinsic evidence as to its scope. Liabilities arising from facts occurring prior to March 3, 1969, are effectively barred by the release. However, it should not'be concluded that this Court condones the use of the general release as a device to immunize parties with superior economic power from the penalties and restraints imposed by the enforcement of our antitrust laws. There are two policies which must be accommodated. The first requires the greatest respect for private enforcement as the hallmark of the federal antitrust regulatory system. The second policy requires us to respect the amicable settlement and release of antitrust claims by the parties themselves. Where these policies are brought into conflict, the first must prevail. The Court is wary of the problem noted by Judge Winter in his dissent to the majority opinion in Virginia Impression Products Co., Inc. v. SCM Corporation, 448 F.2d 262 (4th Cir. 1971), cert. denied, 405 U.S. 936, 92 S.Ct. 945, 30 L.Ed.2d 811 (1972), whereby the draftsman of a general release fails to disclose to the releasing party the factual predicate for an antitrust claim or indeed, the fact that antitrust claims are even embraced by the release, and thus attempts forever to bar the unsuspecting victim of antitrust violations from his statutorily granted recourse to the federal courts. Although absent here, similar controversies may well set forth facts which require jury consideration of claims that the release itself was an integral part of a scheme to violate the antitrust laws. While not an absolute requirement, antitrust policy certainly encourages the parties to a general release to evidence their intention to release antitrust claims.

IV.

CONCLUSION

The general release executed on March 3, 1969, operates retrospectively and does not, through' the use of an addendum, operate prospectively. Therefore, the judgment of the district court is affirmed in part and reversed in part, and the cause is hereby remanded to the district court for further proceedings not inconsistent herewith.

      . Jurisdiction was asserted pursuant to 15 U.S.C. § 15, 15 U.S.C. § 26, and 28 U.S.C. § 1337.

      . In these cases, the Supreme Court rejected the common law rule that the release of one joint tortfeasor operates to release all unless the instrument contains an express reservation of rights against others. The Court held in essence that a release of a federally created statutory claim raises pervasive federal questions which should be determined by a uniform federal rule of construction rather than various state rules. It chose to adopt the modern rule that the consequences of the release are to be determined by the intention of the parties. The Zenith case extended the rationale of the Aro Manufacturing Co. case from the patent infringement area to the antitrust area. See Miami Parts & Spring, Inc. v. Champion Spark Plug Co., 402 F.2d 83 (5th Cir. 1968), and Cates v. United States, 451 F.2d 411 (5th Cir. 1971), predating and postdating Zenith respectively. The former held that federal rather than state law governs the effect of releases in federal antitrust actions, while the latter extended Zenith’s application from federal statutory claims to federal question claims, such as maritime claims, where “policies and traditions are as readily identifiable.” 451 F.2d at 415.

      . Brooklyn Savings Bank v. O’Neil, 324 U.S. 697, 704, 65 S.Ct. 895, 89 L.Ed. 1296 (1945), and Midstate Horticultural Co. v. Pennsylvania R. Co., 320 U.S. 356, 361, 64 S.Ct. 128, 88 L.Ed. 96 (1943).

      . Lawlor v. National Screen Service, 349 U.S. 322, 329, 75 S.Ct. 865, 99 L.Ed. 1122 (1955) ; Gaines v. Carrollton Tobacco Board of Trade, Inc., 386 F.2d 757 (6th Cir. 1967) ; Fox Midwest Theatres v. Means, 221 F.2d 173, 180 (8th Cir. 1955) ; Westmoreland Asbestos Co. v. Johns-Manville Corp., 39 F.Supp. 117, 119 (S.D.N.Y.1941), aff’d, 136 F.2d 844 (2d Cir. 1943) ; and Marketing Assistance Plan, Inc. v. Associated Milk Producers, Inc., 338 F.Supp. 1019, 1022 (S.D.Tex.1972).

      . Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 336, 91 S.Ct. 795, 805, 28 L.Ed.2d 77 (1971). See also, Lawlor v. National Screen Service, supra, 349 U.S. at 329, 75 S.Ct. 865, 99 L.Ed. 1122. In summarizing the legislative purpose in conferring a private right of action for treble damages, Judge Rives, in Kinnear-Weed Corp. v. Humble Oil and Refining Co., 214 F.2d 891, 893 (5th Cir. 1954), stated: “The grant of a claim for treble damages to persons injured was for the purpose of multiplying the agencies which would help enforce the antitrust laws and therefore make them more effective.”

      . This language, without more, permits the intent of the parties as to the scope of the release to be readily ascertained without submission to the trier of fact. Cf. Novak v. General Electric Corporation, 282 F.Supp. 1010, 1023 (E.D.Pa.1967).

      . “The purpose of the [summary judgment] rule is to preserve the court from frivolous defenses. . . .” Fidelity & Deposit Co. of Maryland v. United States, 187 U.S. 315, 320, 23 S.Ct. 120, 122, 47 L.Ed. 194 (1902).

      . See, e. g., S. E. Rondon Co. v. Atlantic Richfield Co., 288 F.Supp. 879 (C.D.Cal. 1968).

      . See Dobbins v. Kawasaki Motors Corp., 362 F.Supp. 54, 58 (D.Or.1973). The following language is illustrative: “I conclude a part and parcel argument may be used by a plaintiff to avoid a release in an antitrust action where it is shown that the release was an object of the combination or conspiracy or where it was an integral part of the scheme in restraint of trade. 1 find that those circumstances do not exist in the present case. There are no material factual issues with respect to the circumstances and events leading up to the release agreement between Dobbins and KMC. It does not appear that the release bore any integral relationship to the antitrust conduct complained of. Plaintiffs present no theoretical set of facts upon which a trier of fact could find a nexus between the release and the broader combination or contract prohibited by the Sherman Act.” See also, Taxin v. Food Fair Stores, Inc., 287 F.2d 448, 451 (3d Cir. 1961) ; S. E. Rondon Co. v. Atlantic Richfield Co., supra, 288 F.Supp. at 882; California Concrete Pipe Co. v. American Pipe & Construction Co., 288 F.Supp. 823 (C.D.Cal.1968) ; and Carter v. Twentieth Century-Fox Film Corp., 127 F.Supp. 675 (W.D.Mo.1955).


author: GEE, Circuit Judge:

text:
    E. Cecil WILEY, Plaintiff-Appellee, v. PUBLIC INVESTORS LIFE INSURANCE COMPANY, Defendant-Appellant.
    No. 73-2971.
    United. States Court of Appeals, Fifth Circuit.
    Aug. 5, 1974.

      Richard E. Lee, Pineville, La., for defendant-appellant.
    Irving Ward-Steinman, Alexandria, La., for plaintiff-appellee.
    Before COLEMAN, CLARK and GEE, Circuit Judges.
   GEE, Circuit Judge:

Defendant, Public Investors Life Insurance Co., asserts on appeal that the district court erroneously construed and applied controlling principles of bankruptcy law in entering judgment for plaintiff, Trustee in Bankruptcy of the Estate of Horace William Keeling, Jr. We agree and reverse.

The facts are not in dispute. Mr. Keeling was employed by Public Investors. Under his contract of employment, executed on January 1, 1966, he retained an interest in all renewal premiums paid on policies of life insurance which he sold while in the employ of Public Investors. As long as the policy holders continued to pay their premiums, Keeling would receive his commissions from those premiums. At the time of his adjudication as a bankrupt Keeling owed Public Investors $7,040.30, which represented an advance draw on his future commissions and which was evidenced by his promissory note. Paragraph 21 of Keeling’s contract of employment with defendant provided as follows:

The Company may offset against any claim for compensation hereunder, or against any monies due the Second Party, whether arising under this agreement or otherwise, any debt or debts owed by the Second Party to the Company or to other persons representing the Company whether arising hereunder or otherwise, Second Party hereby grants to the Company a first and prior lien on any commissions, bonuses, or service fees provided herein, and any monies that from time to time may become due him from it under this agreement, or otherwise, to secure such indebtedness. Should an extension of time for the payment of any obligation of the Second Party be granted by the Company the extension shall not in any way affect any of the provisions of this agreement or impair any liability of the Second Party.

Bankruptcy proceedings were filed on behalf of Keeling on November 2, 1970. Relying on Paragraph 21, Public Investors continued, despite Keeling’s bankruptcy, to offset all renewal commissions due him against the indebtedness due the company. The Trustee sued to recover all sums so withheld, both before and after bankruptcy, as well as the present value of future commissions, on the theory that any withholdings were voidable preferences and that title to these commissions, whether accrued or not, vested in the Trustee on the date of bankruptcy. Public Investors replied that the Trustee could have no greater right to the commissions than Keeling, and that Keeling had no right at all to them until his debt to Public Investors was satisfied.

Section 70a of the Bankruptcy Act, 11 U.S.C. § 110(a), governs the title acquired by the Trustee in the estate of the bankrupt. The district court correctly founded its analysis of the dispute upon the general proposition that, for § 70a purposes, state law defines the property of the bankrupt and regulates any passage of title to a transferee, while the Bankruptcy Act controls passage of title to the Trustee and is paramount in the event of conflict. See 4A Collier on Bankruptcy § 70.06, at 81 (1971 ed.). But when the court turned to state law it took the wrong path.

Below, as on this appeal, Public Investors principally relied on the case of Mutual Trust Life Insurance Co. v. Wemyss, 309 F.Supp. 1221 (S.D.Maine 1970). There, in resolving a conflict essentially identical to the one which faces us, the court held:

It is thus clear that under his contract Wemyss [the bankrupt] had no right ■to receive any renewal commissions until his outstanding indebtedness to the company [Mutual] was satisfied in full. Although under the Bankruptcy Act the Trustee succeeded to any right of action Wemyss had under the contract, it is axiomatic that “[i]n all cases where the trustee seeks to assert or enforce the bankrupt’s right of action against another, he stands in the bankrupt’s shoes regarding defenses to the action.” 4A Collier T[ 70.28 [1] at 385. (footnote omitted) The effect of Section 70, sub. a(5) and (6) of the Bankruptcy Act was to vest in the Trustee as of the date of bankruptcy whatever right Wemyss then had to receive future renewal commissions under his contract. But the Trustee’s right can rise no higher than Wemyss’ right at that time, and the only right of Wemyss under the contract was to be paid any renewal commissions which might remain after his indebtedness to Mutual was satisfied. As Mutual points out, the contract itself defines the asset, and the Trustee can claim no more than the “net proceeds” of the contract, i. e., any excess of commissions remaining after Mutual has been reimbursed in full.

309 F.Supp. at 1231.

Despite the persuasive logic of the Wemyss opinion, the court below felt that the common law therein expressed was not relevant to its task of finding and construing the applicable Louisiana law. After recognizing that state law determines the property rights of the bankrupt, the district court confined its attention to Louisiana Civil Code Articles 2207 through 2216, which deal with “compensation,” and which are at least in potential conflict with the federal doctrine of “set off” expressed in Section 68a of the Bankruptcy Act, 11 U.S. C. § 108(a). The applicable body of Louisiana law is that which governs the right of an individual to encumber his future interest in commissions not yet accrued.

Any property right transferred prior to bankruptcy in accordance with state law is not part of the bankrupt’s estate. As stated in the majority opinion of the Supreme Court in an analogous case, Pearlman v. Reliance Insurance Co., 371 U.S. 132, 83 S.Ct. 232, 9 L.Ed.2d 190 (1962):

Ownership of property rights before bankruptcy is one thing; priority of distribution in bankruptcy of property that has passed unencumbered into a bankrupt’s estate is quite another. Property interests in a fund not owned by a bankrupt at the time of adjudication, whether complete or partial, legal or equitable, mortgages, liens, or simply priority of rights, are of course not a part of the bankrupt’s property and do not vest in the trustee. The Bankruptcy Act simply does not authorize a trustee to distribute other people’s property among a bankrupt’s creditors, (footnote omitted)

371 U.S. at 135-136, 83 S.Ct. at 234.

In the present case, Keeling expressly granted the company a prior lien on any commissions that become due him under his contract of employment. If Louisiana recognizes such an assignment, then that ends the matter. The Trustee’s claim can rise no higher than Keeling’s.

Turning to Louisiana law, we find that the right to carve out and transfer a prior claim to a future interest is, at least in this respect, as well established under the civil as under the common law. In Cox v. First National Bank, 126 La. 88, 52 So. 227 (1910), the Supreme Court of Louisiana considered a dispute very similar to ours. A railroad contractor, in order to obtain operating capital, assigned to a bank all money which would become due from the railroad under his construction contract until his indebtedness to the bank was satisfied. Under the agreement, the railroad paid the money directly to the bank to secure loans then due or thereafter to be advanced by the bank. When the contractor went bankrupt, the trustee sued to recover as an unfair preferential transfer a sum paid by the railroad to the bank within four months of bankruptcy. The court pointed out that the assignment of future earnings was made eight months prior to bankruptcy. It stated:

The fact that the debt to the bank which formed the consideration of the transfer was in no part mature, and was in part not yet in existence, can make no difference. There is nothing to stand in the way of the validity of an agreement by which a debtor transfers to his creditor a credit which is to mature at some future time, in satisfaction of a' debt not yet mature, or even not yet in existence, but which will be mature, or be in existence and payable, by the time the transferred credit itself matures and is payable. In such a case the agreement goes into immediate operation for that part of the debt already existing, and it goes into operation for that part of the debt to be thereafter created as the latter debt springs into existence. A. agrees to advance to B. certain moneys, and B agrees that, as the moneys are advanced, a like amount of a credit which he (B.) has against C. is to be considered as transferred to A., and C. is duly notified of this arrangement, and accedes to it. We can discover no legal obstacle to the perfect validity of such an arrangement; and such was the tenor and effect of the agreement evidenced by the said instrument.

52 So. at 230.

The Louisiana Supreme Court went on to explain that the transfer was not of the future earnings themselves but of the right to them. It treated the agreement as a “conditional sale” — of credit against the railroad for future earnings in exchange for future advances. The court, therefore, held that the trustee was entitled to funds received by the bank from the railroad only to the extent that they exceeded the advances made by the bank to the contractor under the agreement.

Cox representing the Louisiana law, we hold that the Trustee, standing as he does in the bankrupt’s shoes, has no right to the renewal commissions until Keeling’s indebtedness to the company is satisfied.

Reversed.

      . 11 U.S.C. § 110(a) provides in revelant part:
      The trustee of the estate of a bankrupt . . . shall in turn be vested by operation of law with the title of the bankrupt as of the date of the filing of the petition initiating a proceeding under this title, except insofar as it is to i>roperty which is held to be exempt, to all of the following kinds of property wherever located ... (5) property, including rights of action, which prior to the filing of the petition he could by any means have transferred. or which might have been levied upon and sold under judicial process against him, or otherwise seized, impounded, or sequested ... (6) rights of action arising upon contracts.

      . ’The “set off” provisions of Section G8a furnish an alternative basis upon which Pub-lie Investors may retain renewal oommissions accrued prior to bankruptcy. Plow-ever, the “mutuality” requirement of 68a is not met for those commissions collected subsequent to bankruptcy. See Wemyss, 309 F.Supp. at 1232 n. 18, and cases cited tlierein. Therefore, with respect to all oommissions, whenever accruing, our analysis follows the more basic rule that under 70a only that which belongs to the bankrupt passes to the Trustee.

      . Since tlie bankrupt, Keeling, is not a party, we cannot and expressly do not adjudicate any claim which he might have — in light of Kokoszka v. Belford, - U.S. -, 94 S.Ct. 2431, 40 L.Ed.2d - (1974) ; Lines v. Frederick, 400 U.S. 18, 91 S.Ct. 113, 27 L.Ed.2d 124 (1970), and Segal v. Rochelle, 382 U.S. 375, 86 S.Ct. 511, 15 L.Ed.2d 428 (1965) — to commissions accruing after bankruptcy and after his debt to Public Investors is satisfied.