source: Caselaw Access Project

author: PER CURIAM. HEANEY, Circuit Judge

license: Public Domain

text:
    UNITED STATES of America, Appellee, v. Joseph A. WILKERSON, Appellant.
    No. 72-1425.
    United States Court of Appeals, Eighth Circuit.
    Submitted March 13, 1973.
    Decided May 11, 1973.
    Rehearing and Rehearing En Banc Denied July 10, 1973.

      H. Carl Runge, Jr., East St. Louis, 111., for appellant.
    Richard K. Coffin, Dept, of Justice, St. Louis, Mo., for appellee.
    Before VAN OOSTERHOUT, Senior Circuit Judge, and MEHAFFY and HEANEY, Circuit Judges.
   PER CURIAM.

Defendant, Joseph A. Wilkerson, was charged in a one-count information with possession with intent to distribute forty-nine pounds of marijuana in violation of 21 U.S.C. § 841(a)(1). Preliminary to trial, two motions to suppress were filed and overruled by Chief Judge Meredith of the United States District Court for the Eastern District of Missouri. Upon trial to a jury defendant was found guilty and sentenced to a term of five years in the custody of the Attorney General. We affirm the judgment of conviction.

The crucial issues at the trial and on this appeal involve a warrantless search in the San Diego, California International Airport and the subsequent war-rantless arrest, search and seizure at Lambert Field, St. Louis, Missouri.

There is very little dispute concerning the facts which we briefly summarize. On the night of Saturday, April 1, 1972 a young unidentified female purchased a ticket in the San Diego, California International Airport to travel on American Airlines flight #88 which was scheduled to depart momentarily. The woman checked a suitcase and a duffel bag through to her destination, St. Louis, Missouri, and then asked directions to the restroom. After the plane had left the airport loading gate, airline officials learned that the unidentified woman had not boarded the plane. Since American Airlines’ regulations require that a passenger accompany his checked luggage and since the woman partially fit the passenger security profile, American’s San Diego Supervisor of Airport Services recalled the plane before it took off. The suitcase and duffel bag checked by the young woman were removed from- the aircraft and it was allowed to depart.

Pursuant to American Airlines’ security regulations, the removed luggage was taken by airlines employees to the baggage area for inspection. Upon opening the suitcase the airline employees observed some opaque green plastic bags which appeared to contain many brick-shaped objects. On one corner of one of the plastic bags there was a small tear surrounded by traces of vegetable matter. At this point the airlines employees left the suitcase open and called the airport office of the San Diego Harbor Police. ' When the San Diego officer arrived in the luggage area the appearance of the open suitcase convinced him that the luggage contained several bricks or kilos of marijuana. The San Diego officer felt the outline of the plastic bags and of the duffel bag to ascertain the number of kilos contained in the luggage. The officer also called in a state narcotics agent who, by similar observation, confirmed the San Diego officer’s conclusions. The luggage was then impounded by the police to await transshipment the following day. By use of special expediting tags the luggage was forwarded to St. Louis. The luggage arrived in St. Louis in the early mora-ing hours of Monday, April 3. Shortly thereafter the baggage was claimed by defendant who was arrested by waiting police officials as he carried the luggage out of the airport. Upon arresting the defendant, the police officers opened the suitcase and, with defendant’s consent, broke open the padlock on the duffel bag. It is stipulated that the luggage contained some forty-nine pounds of marijuana.

The San Diego Search. Defendant concedes that the recall of the plane and the initial search of the luggage for guns or explosives was justified by the necessity to protect life and property from the apparent threat of violence. Defendant contends, however, that this initial search by airline employees was, in legal effect, a governmental search because of the federal government’s regulatory involvement in commercial airline security. We have recently been confronted with this same argument on two separate occasions and on both occasions we rejected the claim raised here by defendant. United States v. Echols, 477 F.2d 37 (8th Cir. 1973); United States v. Burton, 475 F.2d 469 (8th Cir. 1973). These two cases stand for the proposition that searches of luggage by airline employees are private searches that are invulnerable to fourth amendment attack so long as the searches are conducted by the carrier for its own purpose and without the instigation or participation of government officers. We will not burden this opinion with a repetition of the analysis in those two cases, which is dispositive of the argument made by defendant here.

The St. Louis Search. Defendant’s primary challenge to the St. Louis arrest, search and seizure is that they are fruit of the poisoned tree, the allegedly invalid San Diego search. This argument, of course, is disposed of by our conclusion that the San Diego search was proper. Defendant raises a second argument with respect to the St. Louis arrest, search and seizure. According to this argument the police officials in St. Louis had sufficient time to obtain a warrant to search and seize the luggage. While we doubt that the span of time from sometime Sunday morning to early Monday morning is sufficient to automatically require a warrant, we find it unnecessary to decide this issue. Defendant concedes that the search in San Diego, if valid, gave officials in St. Louis probable cause to arrest the defendant. Further, defendant concedes that the difficulties inherent in obtaining a “John Doe” warrant made the war-rantless nature of the arrest reasonable. Since these factors compel the conclusion that the arrest of defendant was legal, we sustain the legitimacy of the St. Louis search and seizure as a search and seizure incident to a lawful arrest.

Defendant also argues that the district court erred in allowing the government to introduce testimony about the resale value of forty-nine pounds of marijuana. This testimony about monetary value, of course, was relevant to the intent of the defendant. From the proof regarding value the jury could infer whether defendant possessed the marijuana with intent to distribute or merely with the intent to use the contraband himself. As was said in United States v. Mather, 465 F.2d 1035 (5th Cir. 1972):

“The question of the validity of the inference turns on whether the amount of cocaine was such as will support an inference of intent to distribute as distinguished from mere possession for personal use.” Id. at 1037.

Finally, defendant contends that the section of the code under which he was charged is unconstitutionally vague or overly broad under the instructions given by the trial court. We have considered this contention but find no merit in it.

For the reasons stated above, the judgment of conviction is affirmed.

HEANEY, Circuit Judge

(concurring).

I concur on the grounds that although this search was a governmental one subject to the proscriptions of the Fourth Amendment, the persons executing it had probable cause to carry it out.

In my view, airline singular searches conducted by airline personnel are, in fact, governmental searches. Airlines are public carriers, their routes are allocated by the government, their rates are regulated by the government, and they have no alternative but to comply with governmental regulations, including those requiring airline searches. See, Note, Airport Security Searches and the Fourth Amendment, 71 Colum.L.Rev. 1039, 1041-1047 (1971). Thus, had I been on the panels that decided Echols and Burton, I would have taken a view that the searches there were governmental rather than private.

There are additional reasons for holding this search to be a governmental one. Effective February 6, 1972, each airline was required by Federal Aviation Regulations to screen passengers and carry-on baggage so that no explosives or weapons would be carried aboard aircraft. As of March 9, 1972, each airline was required to adopt a security program with respect to checked baggage and cargo to accomplish the same end. These regulations which were in effect when this search was made but not when the Echols and Burton searches were made remove any doubt as to the government’s involvement in this search. Even though the search here was conducted by airline personnel, it was carried out at the instigation and direction of the government and should have been conducted in accordance with the Fourth Amendment to the United States Constitution.

It is one thing to hold that the threat of air piracy is so great at the present time that the reasonableness standards of the Fourth Amendment permits carefully limited searches of airline passengers, baggage and carry-on luggage for explosives and weapons in appropriate circumstances by persons subject to the Fourth Amendment. It is quite another thing to hold that such searches can be routinely conducted by persons uninhibited by the strictures of that Amendment. If we permit the latter, we invite general searches for contraband other than weapons and explosives by those who are uncontrolled by any governmental authority and open up wide avenues for personal harassment and deprivation of constitutional rights.

This case is not the one in which we should lay down a precise standard of reasonableness for airline searches, but it is a case in which it should be made clear that airline searches for firearms and explosives, conducted pursuant to Federal Aviation Regulations since February 6, 1972, are not private searches but are governmental ones for a very limited purpose which must be conducted in accordance with the Fourth Amendment. See and compare, United States v. Moreno, 475 F.2d 44 (5th Cir. 1972); United States v. Gerald Frank Kroll, 351 F.Supp. 148 (W.D.Mo., 1972, amended February 28, 1973); United States of America v. John Kenneth Meulner, 351 F.Supp. 1284 (C.D.Cal. 1972). Any other course of action will permit the person and property of millions of Americans to be searched without regard to constitutional standards. As serious as the air piracy problem is, I am not prepared to close my eyes to Fourth Amendment problems raised by airport searches on the technical grounds that the searches are private because they are conducted by personnel paid by the airlines.

      . The airline employees’ search of the suitcase was facilitated by the use of a skeleton key. The duffel bag, however, was never opened in San Diego because it was secured by a padlock. The primary inspection of the duffel bag for explosives was accomplished by the somewhat bizarre procedure whereby a baggage attendant ran with the duffel bag for about four feet and hurled it onto the concrete floor. As explained by the Baggage attendant, who was fortunately still available at the time of the trial to testify, this procedure was not contemplated by airline regulations but was instead his own personal “shock” treatment.

      . There is no dispute that the search in San Diego was a private search by American Airlines’ employees. After the suitcase was opened, it remained open and it was only then that the police were called.

      . The testimony was that the forty-nine pounds of marijuana when first broken down had a value of $58,000.00, and when broken down to “sticks” or “joints” it would sell for $71,500.00, the “street” value in the area we are concerned with.

      . Prior to February 6, 1972, the airlines employed screening practices to reduce the probability of air piracy and sabotage. Pursuant to Federal Aviation Regulation § 121.538 issued by the Administrator on January 31, 1972, the implementation of a screening system became mandatory on February 6, 1972:
      “§ 121.538 Aircraft security.
      # $ # $ $
      “(b) Each certificate holder shall, before February 6, 1972, adopt and put into use a screening system, acceptable to the Administrator, to prevent or deter the carriage aboard its aircraft of any sabotage device or weapon in carry-on baggage or on or about the persons of passengers, except as provided in § 121585 ”
      37 Fed.Reg. 25.00, 2501 (1972).
      This screening system apparently did not require that the person and carry-on baggage of every passenger be examined, but rather only those who met a profile established by F.A.A. needed to be subjected to a close examination.

      . On February 29, 1972, Federal Aviation Regulation § 121.538 was revised by Amendment 121-85 to require further security precautions. In part, it required :
      “§ 121.538 Aircraft security.
      * * sN * si*
      “(c) Each certificate holder shall prepare in writing and submit for approval by the Administrator its security program including the screening system prescribed by paragraph (b) of this section, and showing the procedures, facilities, or a combination thereof, that it uses or intends to use to support that program and that are designed to—
      “(1) Prevent or deter unauthorized access to its aircraft;
      “(2) Assure that baggage is cheeked in by a responsible agent or representative of the certificate holder; and
      “ (3) Prevent cargo and checked baggage from being loaded aboard its aircraft unless handled in accordance with the certificate holder’s security procedures.”
      37 Fed.Reg. 4904, 4905 (1972).
      This amendment was not to be effective until at least April 6, 1972; and by its terms, it would seem that the security program need not have been implemented until specifically approved by the Administrator. However, on March 9, 1972, pursuant to his power under Federal Aviation Regulation § 121.538(g), the Administrator, in response to a statement by the President, announced that:
      “ * * * the effective date of Amendment 121-85 is being changed from April 0, 1972, to March 9, 1972, and each certificate holder is being required to immediately adopt and put its security program into use. * * * ”
      37 Fed.Reg. 5254 (1972).
      Paragraph (b) of Federal Aviation Regulation § 121.538 was also amended by adding the following sentence:
      “§ 121.538 Aircraft security.
      “(b) . . . Each certificate holder shall immediately adopt and put into use its security program prescribed in paragraph (e) of this section.”

        Id.

      . On December 5, 1972, the Administrator, again acting under the emei'gency authority given him by Federal Aviation Regulation § 121.538(g), sent a telegram to the F.A.A. Regional Directors directing that commencing January 5, 1973, the carry-on baggage and persons of all passengers must be inspected prior to boarding. On this same date, the Administrator also issued an amendment to Part 107 of the Federal Aviation Regulations which required that no later than February 6, 1973, airport managers had to post armed law enforcement personnel at boarding gates. 37 Fed.Reg. 25934, 25935 (1962).


author: WATERMAN, Circuit Judge: IRVING R. KAUFMAN, Circuit Judge

text:
    Jacob SCHEIN and Marvin H. Schein, Plaintiffs-Appellants, v. Melvin CHASEN et al., Defendants-Appellees. Antone F. GREGORIO, Individually and as representative of all persons similarly situated as a class under Rule 23, F.R.C.P., Plaintiff-Appellant, v. LUM’S, INC., et al., Defendants-Appellees.
    Nos. 81 and 82, Dockets 72-1373, 72-1375.
    United States Court of Appeals, Second Circuit.
    Argued Oct. 17, 1972.
    Decided May 10, 1973.

      Donald N. Ruby, Wolf, Popper, Ross, Wolf & Jones, New York City, for Schein and Gregorio.
    Schlifkin & Berman, Chicago, 111., for Gregorio.
    Laura Banfield, David Hartfield, Jr., White & Case, New York City, for Simon.
    James J. Hagan, Simpson, Thacher & Bartlett, New York City, for Lehman Brothers.
    James M. Bergen, Allan R. Freedman, Donovan, Leisure, Newton & Irvine, New York City, for Investors Diversi-fled Services, Inc., Investors Variable Payment Fund, Inc., and IDS New Dimensions Fund, Inc.
    Before WATERMAN, SMITH and KAUFMAN, Circuit Judges.
   WATERMAN, Circuit Judge:

Plaintiffs-appellants are stockholders in Lum’s, Inc., a Florida corporation primarily engaged in restaurant franchising. Invoking the diversity jurisdiction of the court, they sued derivatively in the Southern District of New York alleging that the defendants were jointly and severally liable to Lum’s for actionable wrongs which the defendants had committed against Lum’s. The individual defendants were Melvin Chasen, a resident of Florida, president of Lum’s, Benjamin Simon, a stockbroker employed in Chicago, Ill. by defendant Lehman Brothers, Eugene S. Sit, portfolio manager of defendant IDS New Dimensions Fund, Inc., a Mutual Fund, and James R. Jundt, manager of defendant Investors Variable Payment Fund, Inc., a Mutual Fund. Each of the four individual defendants moved for dismissal on the ground that they had not been validly served under the New York Long Arm Statute (CPLR §§ 313, 302(a)) and that the court below had no personal jurisdiction of them. Sit’s and Jundt’s motions were granted prior to the filing of the order appealed from, Chasen’s was granted concurrently therewith, and Simon’s has apparently not been acted upon. The defendants Lehman Brothers, a partnership engaged in stock brokerage and investment counseling, the three corporations, engaged in managing investment portfolios and in buying and selling the corporate securities of publicly held corporations, Chasen, and Simon, all moved for dismissal on the ground that the complaints failed to state a cause of action under Florida law. Plaintiffs claimed that New York law should govern the rights and liabilities of the parties, and that even if Florida law were the applicable law they should still prevail. Holding that Florida law was the proper state law to apply, Judge Harold R. Tyler, Jr., by written order, sub nom. Gildenhorn v. Lum’s, Inc., opinion reported at 335 F.Supp. 329 (SDNY 1971), granted the motion to dismiss for failure to state a claim upon which relief could be granted.

On this appeal plaintiffs claim only that Judge Tyler erred in dismissing the complaints for failure to state a cause of action. They do not appeal Judge Tyler’s order dismissing Chasen as a defendant' or his finding that the substantive law of Florida governs the action. Inasmuch as the court is passing only upon the sufficiency of the complaints, we necessarily accept the allegations of the complaints as true. For reasons which follow, we hold that the complaints do state a cause of action and we reverse the judgment below and remand to the district court for further proceedings there in the light of this holding.

The facts alleged in this case fall within the perimeter of the much-discussed problem of unfair trading in corporate securities. In November of 1969 Chasen, who was president and chief operating officer at Lum’s, addressed a seminar of about sixty members of the securities industry with reference to Lum’s earnings prospects for its fiscal year ending July 31, 1970. He informed them that Lum’s earnings would be approximately $1.00 to $1.10 per share. On January 5, 1970 he learned that this estimate was too optimistic and that, in fact, Lum’s earnings would be only approximately $.76 per share. Three days later, prior to announcing the information to the public, Chasen telephoned Simon in Chicago and told Simon that Lum’s would not have as profitable a year as had been expected. He specified to Simon that earnings would be approximately $.76 per share rather than the $1.00 per share which he had earlier announced. Simon knew the information was confidential corporate property which Chasen had not given out publicly. Simon immediately telephoned this information to Sit, an employee of defendant Investors Diversified Services, Inc. (IDS), and Sit immediately telephoned it to Jundt, another employee of IDS. Sit and Jundt managed the stock portfolios of defendant mutual funds Investors Variable Payment Fund, Inc. (Investors) and IDS New Dimensions Fund, Inc. (Dimensions). Upon receiving the information Sit and Jundt directed the Funds to sell their entire stock holdings in Lum’s and, on the morning of January 9, 1970, prior to any public announcement, Investors sold 43,000 shares of Lum’s and Dimensions sold 40,000 shares. The sales were executed on the New York Stock Exchange at about 10:30 A.M. at a price of approximately $17.50 per share. At 1:30 P.M. on the same day, the New York Stock Exchange halted further trading in Lum’s stock pending a company announcement. At 2:45 P.M. Lum’s issued a release which appeared on the Dow Jones News Wire Service and announced that the corporation’s projected earnings would be lower than had been anticipated. When trading in Lum’s was resumed on Monday, January 12, 1970, volume was heavy and the stock closed at a price of $14.00 per share — $3.50 per share lower than the Funds had realized from the sales of their shares on the previous Friday.

The present defendants in this case are Lehman Brothers, Simon, and the two Mutual Funds. ' Chasen, Sit, and Jundt have been dismissed as defendants in that they have not been validly served under the New York State Long Arm Statute. Plaintiffs-appellants’ theory of recovery is that the participants in this chain of wrongdoing are jointly and severally liable to the corporation under Florida law for misusing corporate information to their own advantage in violation of the duty they owed to Lum’s, and that they must account to Lum’s for the profits realized by the Mutual Funds. They do not allege in these complaints that defendants have violated any of the federal securities laws, and they concede that the substantive law of Florida governs the rights and liabilities of the parties. They urge, however, that inasmuch as there are no Florida cases directly in point, the Florida court, if it were deciding the case, would look to other jurisdictions and would take a particular and special interest in the decision of Diamond v. Oreamuno, 29 A.D.2d 285, 287 N.Y.S.2d 300 (1st Dep’t 1968), aff’d 24 N.Y.2d 494, 301 N.Y.S.2d 78, 248 N.E.2d 910 (1969), a case which plaintiffs contend supports the position they urge on this appeal.

The first question which our court must consider is whether we may look to the New York decision of Diamond, supra, as persuasive authority. Ideally, the federal court sitting in a diversity action applies the applicable state law as it has been enunciated by the highest court in the state. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Hausman v. Buckley, 299 F.2d 696 (2 Cir. 1962), cert. denied, 369 U.S. 885, 82 S.Ct. 1157, 8 L.Ed.2d 286 (1962). However, in the absence of a clearly enunciated state rule, the federal court may turn to the law of other jurisdictions for assistance in determining how the state court would most likely decide the case if the state court were presented with the questions being litigated in the federal court. Baxter v. Lancer Industries, Inc., 213 F.Supp. 92 (EDNY 1963), app. denied, 324 F.2d 286 (2 Cir. 1963); Locke Manufacturing Companies v. United States, 237 F.Supp. 80 (D.Conn.1964). Our foray into the state law of Florida satisfies us that the Florida court has never faced the precise issues which are present in this action. Accordingly, it is both proper and practical for this court to turn for guidance to the body of law of other jurisdictions and particularly to that of New York where the resolution of the issues in the Diamond case, decided by the New York Court of Appeals, bears on the issues in the case before us. In doing so, our objective is to interpret Diamond as the Florida court would probably interpret it and to apply Diamond, as so interpreted, to the facts presented here.

Diamond v. Oreamuno, supra, was a stockholder’s derivative action in which a shareholder of Management Assistance, Inc. (MAI) charged that two of the defendants — Oreamuno, chairman of the board of directors, and Gonzalez, its president and a member of the board, had used inside information acquired by them solely by virtue of their positions with MAI in order to reap large personal profits from the sale of MAI shares, and that these profits rightfully belonged to the corporation. Chief Judge Stanley Fuld, writing for a unanimous court, held that the two directors must account to the corporation for their profits for they had breached their duty to the corporation by using a corporate asset for their own personal advantage.

In this case we are asked to decide whether the Diamond holding should extend to reach third parties, who, though not officers or directors of the injured corporation, are involved with directors in a common enterprise to misuse confidential corporate information for their own enrichment. Although there is no allegation in the complaints that a prior explicit agreement existed between Chasen and the defendants, it is obvious that the sequence of events detailed in the pleadings, if proved, will substantiate the existence of a common enterprise pursuant to which Chasen was to pass material information to Simon, Simon was to pass it to the Mutual Funds, and the Funds were to capitalize on it by selling Lum’s stock prior to the time the material information was announced to and was available to the public. Cf. American Tobacco Co. v. United States, 328 U.S. 781, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946); Interstate Circuit, Inc. v. United States, 306 U.S. 208, 59 S.Ct. 467, 83 L.Ed. 610 (1939); Norfolk Monument Company v. Woodlawn Memorial Gardens, Inc., 394 U.S. 700, 89 S.Ct. 1391, 22 L.Ed.2d 658 (1969). Although defendants do not deny that they have been involved in a joint enterprise with Chasen to misuse corporate property, they argue that the doctrine of Diamond is not applicable here and that they cannot be held liable to Lum’s because they are not Lum’s fiduciaries and have not breached any duty which they owed to Lum’s by cashing in on confidential information for their own advantage. Defendants Simon and Lehman Brothers make the further argument that it would be “unfair” to hold them responsible for the profits made by the Mutual Funds in that they (Simon and Lehman Brothers) did not profit personally inasmuch as neither of them traded in Lum’s stock.

As a court of equity viewing the case as the Florida court would probably view it, we cannot agree that the “stretch” of Diamond does not reach the defendants in this case. We find nothing in the language of Diamond to suggest that co-venturers of the director who breaches his duty should not be subject to the same liabilities as those of the director himself for the misuse of corporate information. Indeed, the general rule has always been that “one who knowingly participates in or joins in an enterprise whereby a violation of a fiduciary obligation is effected is liable jointly and severally with the recreant fiduciary.” Oil & Gas Ventures — First 1958 Fund Ltd. v. Kung, 250 F.Supp. 744 (D.C.1966); see, e. g., Jackson v. Smith, 254 U.S. 586, 589, 41 S.Ct. 200, 65 L.Ed. 418 (1921); Sexton v. Sword S. S. Line Inc., 118 F.2d 708, 711 (2 Cir. 1941) ; Bankers Life and Casualty Co. v. Kirtley, 338 F.2d 1006, 1013 (8 Cir. 1964). If the Diamond court had intended to lay down an exception to this well-known general rule it could have done so in its opinion. Moreover, in the light of the corporate interest which the Diamond rule is designed to protect, it is immaterial to the preservation of that interest whether the director trades on his own account in the corporation’s stock or whether he passes on the information to outsiders who then trade in the corporation’s stock. In either event, so long as the director is involved, the prestige and good will of the corporation may be tarnished by the public revelation that the director has been involved in unethical conduct. Diamond, supra, 24 N.Y.2d at 499, 301 N.Y.S.2d 78, 248 N.E.2d 910; accord, S. E. C. v. Texas Gulf Sulphur Co., 446 F.2d 1301, 1308 (2 Cir. 1971), cert. denied, 404 U.S. 1005, 92 S.Ct. 561, 30 L.Ed.2d 558, reh. denied, 404 U.S. 1064, 92 S.Ct. 734, 30 L.Ed.2d 753 (1972). Accordingly, it would be self-defeating to limit the reach of Diamond to directors and officers of the injured corporation who have so acted while permitting third-party co-venturers of theirs to escape liability to the corporation.

Diamond, the law of the jurisdiction in which the New York Stock Exchange is seated, has the prophylactic effect of providing a disincentive to insider trading. It is clear that this cleansing effect ought to reach third parties who, through a breach of a fiduciary relationship, become traders advantageously possessed of confidential insider knowledge. To immunize such third parties from liability to the damaged corporation would encourage insider “leaks” to outside friends and would defeat Diamond’s purpose and effect. And, quite properly, damages for fiduciary breaches are recoverable by recourse to state law. Indeed, though the congressional policy is similar, in some cases where federal private and governmental Rule 10b-5 actions are impractical, “immunized outsiders” might escape liability altogether' except for the availability of this kind of action bottomed upon the well-recognized liability of a fiduciary to those whose trust in the fiduciary has been tragically misplaced. In view of the strong desirability of tightening the law of insider trading, we would be remiss indeed if we interpreted Diamond as narrowly as defendants would have us interpret it. Moreover, sitting as a court of equity, we have here an obligation to determine where the equities lie among all the litigants, Diamond, supra, 24 N.Y.2d at 498, 301 N.Y.S.2d 78, 248 N.E.2d 910, and, as between the defendants and Lum’s, there can be no doubt that it would be inequitable to permit the defendants to keep the rewards of the fraud.

Our view that all the participants in the common enterprise must assume the same risks of liability to the corporation as the offending director is supported by Florida case law dealing with the duty of a fiduciary to his cestui. The Florida courts have held that the duty of a fiduciary not to misuse the property of his cestui extends not only to the “technical fiduciary” but also to others who are placed in a position of trust. Quinn v. Phipps, 93 Fla. 805, 113 So. 419 (1927). The confidential relationship of a fiduciary as that relationship is spelled out in Florida law extends not only to “technical fiduciaries” but also to others who become “fiduciaries” through the acquisition of confidential information which is “owned” by someone else. See Quinn v. Phipps, supra at 420-421. When the defendants received their “tip” from Chasen, they were automatically clothed with a duty to Lum’s not to use the information for their own selfish advantages. Compare Brophy v. Cities Service Co., 31 Del.Ch. 241, 70 A.2d 5 (1949); Ohio Oil Co. v. Sharp, 135 F.2d 303 (10 Cir. 1943). This is firmly grounded in law and the rule is set forth in the American Law Institute’s Restatement of Agency 2d § 312 (1958): “A person who, without being privileged to do so, intentionally causes or assists an agent to violate a duty to his principal is subject to Hability to the principal.” And see Comment c to § 312:

A person who, with notice that an agent is thereby violating his duty to his principal, receives confidential information from the agent, may be enjoined from disclosing it and required to hold profits received by its use as a constructive trustee. * * *

Therefore, if plaintiffs can prove their allegations, it would seem that liability of the Mutual Funds to Lum’s must necessarily follow. Be that as it may be, however, the defendants Lehman Brothers and Simon contend that it would be inequitable to apply the rule to them because they did not personally profit by trading in Lum’s stock and they hold no profits as constructive trustees of that corporation. Nevertheless, Lehman Brothers and Simon obviously misused inside information as much as Diversified and Investors misused it, and therefore we fail to see how equity would be furthered by imposing liability only on the Funds and not on the other participants who supplied the Funds with the inside information. It is well established that the liabilities of persons engaged in a joint enterprise to commit a wrong are both joint and several liabilities and each participant is liable to account for the profits of the other participants. Marcus v. Otis, 168 F.2d 649 (2 Cir. 1948), modified, 169 F.2d 148 (2 Cir. 1948); Solomon v. United States, 276 F.2d 669 (6 Cir. 1960), cert. denied, 364 U.S. 890, 81 S.Ct. 219, 5 L.Ed.2d 186 (1960), reh. denied, 364 U.S. 939, 81 S.Ct. 376, 5 L.Ed.2d 371 (1961). Accordingly, we hold that it would be proper to hold Lehman Brothers and Simon just as accountable for the profits made by their tippees Diversified and Investors as the tippees themselves.

Defendants also contend that the complaints are presently insufficient because they fail to allege with sufficient particularity the damage Lum’s is claimed to have suffered. This contention is without merit. Although the Gregorio complaint fails to allege any damages to Lum’s, the Sehein complaint contains a general allegation of damages, and we find nothing in Florida law to require anything more than a general ad damnum allegation.

Defendants also urge that inasmuch as there are private Rule 10b-5 class actions for damages, e. g., Sanders v. Lum’s, Inc., et al., 70 Civ. 5331 (SDNY) and an administrative suit brought by the Securities and Exchange Commission, SEC v. Lum’s, et al., 70 Civ. 5280 (SDNY), pending in federal district court, defendants might be subjected to multiple liability if they are forced to remit to Lum’s the profits the Mutual Funds made on their January 9 sales. Since appellees are fully aware of these federal court actions they are well able to protect themselves from multiple liability.

Preventing those who are privy to confidential inside information from using it to their own advantage has found expression in numerous cases in the federal courts dealing with violations of the federal securities laws. See Securities and Exchange Commission v. Texas Gulf Sulphur, 401 F.2d 833 (2 Cir. 1968), cert. denied sub nom. Coates v. SEC, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969); List v. Fashion Park, Inc., 340 F.2d 457 (2 Cir. 1965), cert denied, 382 U.S. 811, 86 S.Ct. 23, 15 L.Ed.2d 60 (1965); Wohl v. Blair & Co., 50 F.R.D. 89 (SDNY 1970); Ross v. Licht, 263 F.Supp. 395 (SDNY 1967); Speed v. Transamerica Corp., 99 F.Supp. 808, 828-829 (D.Del.1951), aff’d, 235 F.2d 369 (3 Cir. 1956).

Accordingly, as to those persons found to be within the jurisdiction of the court, we reverse the order appealed from and remand the case for such further proceedings below as may be consistent with the contents of this opinion.

IRVING R. KAUFMAN, Circuit Judge

(dissenting):

In my view, it is no longer debatable that trading on inside information merits universal condemnation. The undesirable nature of “insider trading” is reflected in the prophylactic provisions of Section 16(b) of the Securities Exchange Act of 1934 and the more general antifraud principles of Section 10(b) of that Act. I fully agree with Judges Waterman and Smith that one with access to material inside information concerning a corporation’s affairs who knowingly purchases or sells that corporation’s shares before this information has become publicly available takes unfair advantage of unknowledgeable parties to the transaction. Indeed, the factual claims contained in the complaints before us have led to two federal actions —an SEC injunctive action and a private class action under rule 10b-5 — now pending in the District Court for the Southern District of New York. But the adage that hard facts make bad law is about to come true here, despite Judge, later Justice, Cardozo’s warning that judges are not free agents roaming at will to create law to fit the facts. See The Nature of the Judicial Process 141 (1921). In the absence of any viable precedent upon which to base the totally new concept of law espoused by my brothers, it is clear that they announce an extraordinary, expansive, and incorrect reading of New York law solely because of their urge to “provid [e] a disincentive to insider trading.” I agree with their objective but I question the means employed.

The court holds today that a person with no relationship whatsoever — fiduciary or otherwise — to a corporation, who trades its shares on the basis of material inside information becomes, ipso facto, a fiduciary of the corporation whose shares he traded and, accordingly, may be required in a shareholders’ derivative action — not a Section 10(b) or 16(b) action — to pay his profits to the corporation. With all due respect to my brothers, the tortured reasoning to which they are compelled to resort in reaching this conclusion represents a distortion of the law of agency and the law of fiduciary responsibility in which I am unable to join. Accordingly, I dissent.

Stripped of excess verbiage, the complaints in the two consolidated stockholders’ derivative actions before us make the following allegations. In January, 1970, Melvin Chasen, president of Lum’s, learned that an earnings estimate of between $1.00 and $1.10 per share previously released to the financial community was grossly inaccurate. A more realistic figure was $.76 per share. Chasen revealed this information on January 8, during a telephone conversation, to Benjamin Simon, an employee in Lehman Brothers Chicago office. Simon, in turn, disclosed the adverse news to Eugene Sit, portfolio manager of Investors Variable Payment Fund, Inc., who himself conveyed the information to James Jundt, portfolio manager of IDS New Dimensions Fund, Inc. Both Sit and Jundt are employees of Investors Diversified Services, Inc. (IDS), investment adviser to the two mutual funds. During the morning of Friday, January 9, prior to any public disclosure of the reduced earnings figure, the two mutual funds sold a total of 83,000 shares of Lum’s stock on the New York Stock Exchange at a price of approximately $17.-50 per share. Later that day, after the Exchange halted trading in Lum’s shares, Lum’s publicly announced the reduced earnings forecast. Trading did not resume until the following Monday, when the closing price fell to $14.00 per share.

It is important to note at the outset that the plaintiffs in these actions^ shareholders of Lum’s, do not claim to have suffered any damages themselves. Rather, these derivative suits are brought “on behalf of and for the benefit of Lum’s.” They seek to recover for Lum’s treasury the windfall profit garnered by the IDS mutual funds, and assert that all defendants are jointly and severally liable for this amount. Thus, the proper method of analysis is not to focus on the unfairness of the mutual funds’ profit at the expense of their purchasers — who have their own recourse for any wrongdoing — but on the strands of duty running to the corporation from the various individuals involved. The crux of the majority’s holding is that the institutional defendants —Lehman Brothers, IDS, and the two mutual funds — and their employees — Simon, Sit, and Jundt — are within the sweep of fiduciary principles announced in Diamond v. Oreamuno, 24 N.Y.2d 494, 301 N.Y.S.2d 78, 248 N.E.2d 910 (1969). But a careful examination of that case and the principles underlying it demonstrate that Diamond is wholly inapposite to this case.

In Diamond, the New York Court of Appeals dealt with a derivative action brought by a shareholder of Management Assistance, Inc. (MAI) against Or-eamuno, chairman of the board of directors of the corporation, and Gonzalez, its president. The complaint charged that by virtue of their corporate positions, these officers knew that a supplier’s price increase had caused MAI’s earnings to decrease by more than 75% during a one month period. According to the allegations, the two officers sold over 50,000 MAI shares at a price of $28 per share prior to public disclosure of the adverse earnings figures, after which the price per share plummeted to $11. In reviewing the Appellate Division’s refusal to order dismissal of the complaint against Oreamuno and Gonzalez, Chief Judge Fuld stated at the outset that “the question presented — one of first impression in this court — is whether officers and directors may be held accountable to their corporation for gains realized by them from transactions in the company’s stock as a result of their use of material inside information,” 24 N.Y.2d at 496, 301 N.Y.S.2d at 79, 248 N.E.2d at 911 (emphasis added). A careful reading of the Diamond opinion reveals that Oreamuno’s and Gonzalez’s liability in a stockholders’ derivative action was grounded solely in their having breached a fiduciary duty owed by them to MAI as corporate officials.

The inapplicability of these principles to any of the appellees is readily apparent. The complaints here are barren of any allegation that the appellees — or Sit or Jundt — occupied any position, such as officer, director, employee, or agent, which would create fiduciary obligations to Lum’s. Compare Brophy v. Cities Service Co., 31 Del.Ch. 241, 70 A.2d 5 (1949); Quinn v. Phipps, 93 Fla. 805, 113 So. 419 (1927). Liability in Diamond was predicated entirely on such a relationship, and in its absence, the Diamond rationale for liability ceases to exist.

In an effort to bridge this fatal gap, the majority, without any basis in law or fact, reasons that the appellees were involved in a “joint” or “common enterprise” with Chasen, president of Lum’s “to misuse confidential corporate information for their own enrichment.” By use of this interesting, but nevertheless fictional, theory, they seek to foist upon the appellees liability to Lum’s for Chasen’s improper behavior. But the facts alleged in the complaints are a far cry from the “conscious parallelism” cases, drawn from the antitrust field, cited as authority in the majority opinion; the facts simply do not comport with the concept of a joint enterprise, a term which implies the existence of a prior plan to carry out a mutually beneficial project. The complaints, read in the most favorable light to the plaintiffs, disclose nothing more than a seemingly unsolicited and haphazard revelation of certain information which was useful in making investment decisions. There are ample remedies under the federal securities laws to punish this conduct. But, I am unable to understand on what basis the majority transforms the appellees’ spontaneous conduct into a nefarious, prearranged, and ongoing scheme so that “joint” or “common enterprise” principles can make them liable as fiduciaries of a corporation with which they have no relationship.

A primary authority upon which the majority relies, § 312 of the American Law Institute’s Restatement of Agency 2d, exposes the inappropriateness of holding the appellees liable to Lum’s for their conduct. Section 312 provides that “A person who, without being privileged to do so, intentionally causes or assists an agent to violate a duty to his principal is subject to liability to the principal.” Although Comment c to this section speaks generally of receipt of confidential information by a third person from a principal’s agent, the central element of liability is the third party’s active and intentional aiding in the agent’s violation of a duty owed to his principal. In this case, Chasen’s duty to Lum’s was to not disclose confidential corporate information. Yet there is not a word in the complaint charging that the appel-lees actively solicited the disclosure or that they had concocted a prearranged scheme with Chasen. We are dealing here with an isolated transaction.

In the absence of any coherent legal theory, I cannot join my brothers in approving the use of the shareholders’ derivative action device merely because, as my brothers candidly admit, to do so possibly may have a deterrent effect on “insider trading.” Although developments in federal securities law indicate an expanding scope of liability for tip-pee traders, see In re Investors Management Co., Securities and Exchange Commission Release No. 34-9267 (Jul. 29, 1971) (SEC sanctioning of institutional investors who sold a corporation’s shares after the corporation’s underwriter revealed adverse earnings results to them); cf. SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301, 1308 (2d Cir. 1971), cert. denied, 404 U.S. 1005, 92 S.Ct. 561, 30 L.Ed.2d 558 (1972) (affirming district court order, in SEC injunctive suit, requiring a “tippor” to divest an amount equal to his tippees’ profits), the impetus for developing this expanded federal law liability — whose exact nature and scope remain in a formative stage — is the need to maintain free and honest securities markets. This need appropriately is given great weight when we consider claims under the federal securities law. But it is inapposite in determining whether, under state common law, tippee trading is a breach of a fiduciary duty owed to the corporation whose shares are traded, and if so, whether such a breach is remediable through use of a shareholders’ derivative action.

In these actions, where jurisdiction is grounded solely in diversity of citizenship, the parties and the majority agree that our duty is to apply the law of Florida. Yet because there are no pertinent Florida decisions, the majority focuses on a New York decision, Diamond v. Oreamuno, supra. Thus, liability is founded on the conclusion of two federal judges that the Florida Supreme Court, if the instant case was before it, would look to a New York decision and, in addition, would give an unprecedented expansive reading to that case.

Despite the manner in which the majority opinion con volutes the law and the facts in this case, a view that a tippee is cloaked with state law fiduciary obligations to the corporation whose shares he trades is an unknown and untenable legal concept. Neither Diamond — itself a significant alteration of the common law principles applicable to an officer’s or director’s trading in his corporation’s shares — nor the law of agency support such a holding. Nothing in the majority opinion tells us why or on what grounds a New York court would hold a tippee trader liable to the corporation for his profits under common law fiduciary principles, and the court exceeds its authority by substituting its own view of what state law ought to be, for what the state law actually is.

Moreover, since the outcome of this case turns, ultimately, upon Florida law, I fail to comprehend why my brothers refuse to utilize Florida’s certified question statute, Fla.Stat.Ann. § 25.031. This enlightened law provides for certification to the Florida Supreme Court by a federal appellate court of an unresolved question of Florida law which is determinative of a case before it and on which there are no clear, controlling Florida Supreme Court precedents. The statute states that the court, by written opinion, then may answer the certified question. See Aldrich v. Aldrich, 375 U.S. 249, 84 S.Ct. 305, 11 L.Ed.2d 304 (1963); Green v. American Tobacco Co., 304 F.2d 70 (5th Cir. 1962). The uncertainty inherent in the majority’s speculation over what the Florida courts would decide if faced with this novel question of tippee liability under state common law fiduciary principles in a stockholders’ derivative action would be dispelled authoritatively and finally.

Accordingly, I respectfully dissent.

      . Plaintiffs-appellants have not appealed the order dismissing the actions against Chasen, Sit and Jundt. Simon filed a similar dismissal motion but the trial" court did not decide it. Simon was dismissed as a defendant by the court’s order dismissing the complaints against all defendants for failure to state a cause of action under 12(b) (6) of the Fed.R.Civ.P. Simon contends on this appeal that irrespective of our action on the lower court’s dismissal of the complaints under 12(b)(6), we should dismiss the action against him because he has not been validly served. However, inasmuch as the trial court has not reached this question, we decline to address it on this appeal, and leave its resolution to the trial court upon remand.

      . In one of the original actions consolidated below, Gildenhorn v. Lum’s, Ine., 335 F.Supp. 329 (SDNY 1971) a notice of appeal was filed by plaintiff but the parties have not progressed the appeal.

      . The parties now agree that the substantive law of the State of Florida governs the action for reasons which are stated in Judge Tyler’s opinion reported at 335 F.Supp. 329 (SDNY 1971).

      . Defendant IDS is a Minnesota corporation licensed to do business in the State of New York. IDS is the distributor and investment advisor for a number of large mutual funds including defendants Investors and Dimensions. Sit and Jundt are employed by IDS to manage the stock portfolios of Investors and Dimensions.

      . Lum’s could apparently not prevail as a plaintiff in a Rule 10b-5 action in that it has not traded in its securities on its own account. See Birnbaum v. Newport Steel Corporation, 193 F.2d 461 (2 Cir. 1952), cert. denied, 343 U.S. 956, 72 S.Ct. 1051, 96 L.Ed. 1356 (1952). Although there are federal securities law cases pending against defendants in district court, this fact is irrelevant upon this appeal.

      . We believe Judge Tyler erred in attaching dispositive significance to the fact that in Diamond, supra, the complaint was dismissed against certain directors who had only “acquiesced” in the wrong. The defendants-appellees here differ from the dismissed Diamond defendants in that the defendants-appellees were actively engaged in furthering the transaction that resulted in the “dumping” of the Lum’s stock, rather than just “acquiescing” in it. Furthermore, and even more importantly, Diamond - was not a “joint venture” case, and there is no discussion in the Diamond opinion as to why the complaint was dismissed against the “acquiescing” directors.

      . This principle has been applied in analogous cases involving violations of the federal securities laws. In more than one instance, the corporation whose stock has been illegally traded has been permitted to recover conditionally in a Rule 10b-5 action because it is more equitable for it to recoup the rewards of the fraud than for the insider who profits by misusing corporate information to keep them. See Securities and Exchange Commission v. Texas Gulf Sulphur, 446 F.2d at 1308 ; S.E.C. v. Golconda Mining Company, 327 F.Supp. 257 (SDNY 1971).

      . In passing we note decisions dealing with violations of the federal securities laws which involve the imposition of liability on defendants who have occupied statuses similar to the statuses occupied by defendants in this case. Thus, in Securities and Exchange Commission v. Texas Gulf Sulphur, 446 F.2d at 1308, the same argument raised by Simon and by Lehman Brothers was raised by defendant Darke. This court held that Darke was liable as a tippor for the profits realized by his tippees. Furthermore, “tippee liability,” which is analogous to the liability being imposed upon Diversified and Investors, has been established in federal cases involving violations of the securities laws. See Ross v. Licht, 263 F.Supp. 395 (SDNT 1967) ; In the Matter of Cady, Roberts & Co., 40 S.E.C. 907 (1961).

      , We find it unnecessary to decide whether the defendants could prevail if neither complaint alleged damages to Lum’s. We point out, however, that Florida law is not clear on the question and Diamond holds specifically that an allegation of damages is not a prerequisite to a recovery. Diamond v. Oreamuno, supra, 24 N.Y.2d at 499, 301 N.Y.S.2d 78. The case cited by defendants for the proposition that damages must be alleged (Palma v. Zerbey, 189 So.2d 510 (Fla.App.1966), cert. denied, 200 So.2d 814 (Fla.1967)) is a one paragraph per curiam opinion of a lower Florida court, the Florida District Court of Appeals which, inasmuch as it fails to provide a discussion of the issues, we find to be totally unpersuasive.

      . See; for example, the method employed in Securities and Exchange Commission v. Texas Gulf Sulphur Co., 312 F.Supp. 77, 93 (SDNY 1970), aff’d in part, rev’d in part, 446 F.2d 1301 (2 Cir. 1971), cert. denied, 404 U.S. 1005, 92 S.Ct. 561, 30 L.Ed.2d 558 (1971), reh. denied, 404 U.S. 1064, 92 S.Ct. 734, 30 L.Ed.2d 753 (1971).

      . But for a contrary view, see H. Manne, Insider Trading and the Stock Market (1966).

      . As noted in the majority opinion, the only defendants remaining on appeal are Lehman Brothers, IDS, the two mutual funds, and Simon. The district court dismissed the actions against Chasen for lack of personal jurisdiction, a holding not challenged on appeal. Accordingly, this court need not comment on the nature and extent of Chasen’s liability to Lum’s because of his conduct.

      . It is of no small significance that in the Diamond litigation, the Appellate Division affirmed dismissal of the complaint against other MAI directors — fiduciaries to the corporation — who allegedly “approved, acquiesced in or ratified” Oreamuno’s and Gonzalez’s transactions. 29 A.D.2d 285, 287 N.Y.S.2d 300 (1968). Despite the majority’s effort in a footnote to “distinguish” this disposition, I believe the Appellate Division’s action is clearly dispositive of the point before us. If the New York courts would not impose liability upon a director — a fiduciary of the corporation — who took no affirmative steps to cause or assist in a breach of a fiduciary duty by the corporation’s president, I fail to see by what logic it can be urged that New York courts would hold liable a non-fiduciary who did not cause or assist in the breach.

      . See Note, 1970 Wis.L.Rev. 576, 577. Although not dispositive, this fact augurs against assuming the state courts could make the broad holding so readily attributed to them by the majority.-

      . The supreme court of this state may, by rule of court, provide that, when it shall appear to the supreme court of the United States, to any circuit court of appeals of the United States, or to the court of appeals of the District of Columbia, that there are involved in any proceeding before it questions or propositions of the laws of this state, which are determinative of the said cause, and there are no clear controlling precedents in the decisions of the supreme court of this state, such federal appellate court may certify such questions or propositions of the laws of this state to the supreme court of this state for instructions concerning such questions or propositions of state law, which certificate the supreme court of this state, by written opinion, may answer.
      This statutory authority has been implemented by Appellate Rule 4.61, 32 F.S.A.


author: MEHAFFY, Circuit Judge.

text:
    UNITED STATES of America, Appellee, v. Chuck Patrick NEWMANN, Appellant.
    No. 72-1684.
    United States Court of Appeals, Eighth Circuit.
    Submitted April 12, 1973.
    Decided May 31, 1973.
    Larry B. Leventhal, Minneapolis, Minn.,' for appellant.
    Thorwald Anderson, Asst. U. S. Atty., Minneapolis, Minn., for appellee.
    Before MEHAFFY, BRIGHT and ROSS, Circuit Judges.
   MEHAFFY, Circuit Judge.

We anticipate with the war’s end that possibly there will be more cases similar to this, some with merit and others without, so each case seems to deserve its own careful consideration to assure its proper disposition predicated on the individual facts.

This case is a direct criminal appeal from a conviction for failure to report for induction in violation of the Military Selective Service Act of 1967, 50 U.S.C. App. § 462. In the district court defendant waived his right to a jury trial and conceded his failure to report. The sole basis of the defense was that the order to report for induction was illegal.

The district court held that it could not consider this defense because the defendant had failed to exhaust his administrative remedies. United States v. Newmann, No. 4-71 CR. 255 (D.Minn. July 18, 1972). We have concluded that the district court erred in barring the defense and that the judgment of conviction must be reversed.

The relevant facts in this case are simple and undisputed. Shortly after his eighteenth birthday defendant registered with Selective Service System Local Board No. 51 in Hennepin County, Minnesota. For approximately two years defendant attended college under a II-S classification student deferment. On March 17, 1970 defendant was granted a I-S(c) classification, which was a limited student deferment designed to allow defendant to complete the semester of study in which he was then engaged. Defendant’s I-S(c) classification was scheduled to expire in September 1970. On September 2, 1970 defendant filed a timely request for conscientious objector status and he was sent SSS Form 150 to pursue this application. On October 6, 1970 defendant returned the completed SSS Form 150. Two weeks later, on October 20, 1970, Local Board No. 51 classified defendant I-A. Although the action of the Local Board in classifying defendant I-A presumably included a consideration and rejection of defendant’s recently filed claim for conscientious objector status, the Board never made a statement of reasons explaining why the conscientious objector request had been denied. On October 23, 1970 defendant was sent the standard SSS Form 110 and Form 217, which notified defendant that the Board had classified him I-A and that he had a right to appeal within thirty days. Neither form made any reference to the basis of the Board’s decision or to the fact that defendant’s conscientious objector application had been considered. Defendant made no effort to appeal his I-A classification within the thirty-day limit. On November 25, 1970 defendant was ordered to report for induction. Shortly thereafter defendant initiated a determined, but unsuccessful, effort to have the denial of his conscientious objector claim reviewed administratively. On December 17, 1970, the date he was ordered for induction, defendant failed to report.

Defendant seeks to excuse his failure to appeal within the thirty-day limit on the ground that he did not realize the Board’s decision to reclassify him I-A on October 20, 1970 was a rejection of his conscientious objector application. Defendant testified that he felt this reclassification was merely an automatic action that resulted from the expiration of his student deferment and that his conscientious objector application would be considered at some later date. Defendant stated that he was aware of his right to appeal the October 20th I-A classification but at the time he received the notice of classification he felt the only grounds for appeal would be that he was entitled to an extension of his student deferment. Since defendant was no longer in school he clearly was not entitled to an extension of the student deferment.

The evidence introduced by the government in no way contradicts defendant’s testimony. The government’s own witness on direct examination testified that the Local Board’s October meetings always include a large number of automatic I-A reclassifications that resulted from expiring student deferments. The government’s witnesses and exhibits corroborate defendant’s testimony that he received no direct indication that his conscientious objector application had been denied until after his right to appeal had expired. Finally the government’s witnesses and exhibits agree that defendant made every reasonable effort to obtain a discretionary administrative review of his file after his right to appeal had expired.

From the state of the record outlined above it is clear that defendant failed to pursue any of the administrative appeal procedures that were available to him as a matter of right. Normally a failure to exhaust administrative remedies will foreclose any subsequent judicial review of the validity of a registrant’s classification. E. g., United States v. McBride, 468 F.2d 567 (8th Cir. 1972). It has long been established, however, that the exhaustion doctrine is not an automatic and absolute bar to any attack on the validity of a registrant’s classification. As early as Glover v. United States, 286 F.2d 84 (8th Cir. 1961), we recognized that “exceptional circumstances” might justify a relaxation of the normal exhaustion requirement. The necessity of relaxing the exhaustion requirement under “exceptional circumstances” has also been recognized in other circuits. E. g., United States v. Rabe, 466 F.2d 783 (7th Cir. 1972); United States v. Davis, 413 F.2d 148 (4th Cir. 1969); Donato v. United States, 302 F.2d 468 (9th Cir. 1962). The difficulty with the “exceptional circumstances” rationale has been that, until recently, there has been no clear guidance from the Supreme Court identifying the factors that should be considered in deciding whether or not to relax the exhaustion requirement in a particular case. This guidance has now been supplied by the Court’s decisions in McKart v. United States, 395 U.S. 185, 89 S.Ct. 1657, 23 L.Ed.2d 194 (1969) and McGee v. United States, 402 U.S. 479, 91 S.Ct. 1565, 29 L.Ed.2d 47 (1971).

In both McKart and McGee the majority opinions refrained entirely from using the “exceptional circumstances” language that had become common in the lower federal courts. Instead, the Court utilized a balancing test which weighed the interests of the registrant against three specified governmental interests in requiring exhaustion. The three governmental interests in requiring exhaustion identified by the Court are: (a) the agency’s interest in having an opportunity to make a factual record and exercise its discretion and expertise without the threat of litigious interruption; (b) the agency’s interest in discouraging frequent and deliberate flouting of the administrative process; and (c) the agency’s interest in correcting its own mistakes and thereby obviating unnecessary judicial proceedings. The procedure used by the Court in McKart and McGee in this balancing process was to analyze the governmental interests to determine whether they were “compelling enough to outweigh the severe burden placed on [the registrant]” when he is denied judicial review of allegedly illegal agency actions. McKart v. United States, 395 U.S. at 197, 89 S.Ct. at 1665; McGee v. United States, 402 U.S. at 485, 91 S.Ct. 1565. In McKart the central issue was one of statutory interpretation and the Court concluded that the governmental interests were not compelling enough to require forfeiture of Mc-Kart’s defense. In McGee the agency’s interests in fact finding and exercising its expertise were threatened by the registrant’s deliberate refusal to participate in the administrative process, and the Court concluded that the necessity to protect the integrity of the Selective Service System compelled a foreclosure of judicial review.

Applying the principles of McKart and McGee to this case, it is clear that the government has completely failed to show any interest compelling enough to justify a forfeiture of judicial inquiry into the validity of defendant’s classification. Local Board No. 51 refused all of the defendant’s offers to enlarge the factual record. There was no litigious interruption of the Board’s opportunities to exercise its discretion and expertise. Indeed, the inadequacy of the Board’s own actions in exercising its expertise and discretion is the basis of the registrant’s defense. There is no agency interest in time-saving self-correction suggested in this case because the Local Board and the State Director consistently refused defendant’s repeated requests to have his file reopened for just such a correction process. Finally, there is nothing in this case that would encourage frequent and deliberate flouting of the administrative process by others. The record is uncontradicted that defendant’s failure to appeal within thirty days was due solely to his lack of information about the Board’s decision and the consequences of his failure to appeal. The government concedes that as soon as defendant learned that his conscientious objector application had been denied he made every effort to have that decision reviewed administratively.

We hold, therefore, that the government has failed to demonstrate any interests compelling enough to justify foreclosure of judicial review. Furthermore, we find that there is no dispute over the fact that defendant has presented a valid defense under our recent holding in United States v. Hanson, 460 F.2d 337 (8th Cir. 1972).

We therefore reverse the judgment of the district court and remand the case for entry of a judgment of acquittal.


author: HASTINGS, Senior Circuit Judge.

text:
    Alan D. ZELINSKY, Administrator of the Estate of Karl Heinz Marschall, Deceased, Plaintiff-Appellee, v. ASSOCIATED AVIATION UNDERWRITERS and Glens Falls Insurance Company, Defendants-Appellants.
    No. 72-1493.
    United States Court of Appeals, Seventh Circuit.
    Argued April 13, 1973.
    Decided May 24, 1973.
    Irving G. Swenson, John W. McCullough, Chicago, 111., for defendants-appellants.

      Solomon Gutstein, Ronald S. Cope, Chicago, 111., for plaintiff-appellee.
    Before HASTINGS and BARNES , Senior Circuit Judges, and SPRECHER, Circuit Judge.

       The Honorable Stanley N. Barnes, Senior Circuit Judge for the Ninth Circuit, is sitting by designation.

   HASTINGS, Senior Circuit Judge.

Thé administrator of the estate of Karl H. Marschall, deceased, sought recovery of an amount allegedly due under a group travel insurance policy written by the defendant insurance companies providing coverage, inter alia, for accidental death. At issue was whether de-cendent was an insured employee under the terms of the policy.

Following discovery, the parties filed cross-motions for summary judgment contesting the scope of policy coverage. The material facts were not in dispute. After a full hearing, the district court held that decedent was a party insured within the applicable policy provisions. It granted plaintiff’s motion for summary judgment in the amount of $50,-000 (the amount due if coverage existed), plus statutory interest from the date of the claim, but without costs and attorney’s fees. Defendants appealed. We affirm.

The policy was issued November 1, 1966, to the employer, Miehle-Goss-Dex-ter, Inc., its divisions and wholly owned subsidiaries, 3100 South Central Avenue, Chicago, Illinois. The employer was a United States corporation engaged in manufacturing printing presses, with both domestic and foreign divisions and wholly owned subsidiaries. One of its domestic divisions was the Goss Company of Chicago. The policy covered accidental death of employees occurring "worldwide” during “travel and sojourn on the business of the Employer” with certain restrictions and exclusions not relevant here. On November 17,1966, the policy was amended to add as additional “employers” Miehle-Goss-Dexter Americas Companies and M.G.D. Canada Ltd. Also, Part I of the policy, “Insured Defined,” was amended to read as follows:

CLASS I PRINCIPAL SUM

All United States and Canadian Officers and Directors of the Employer. $100,000.00

CLASS II PRINCIPAL SUM

All other United States and Canadian Employees of the Employer not included in Class I excluding T ruck Drivers and their Helpers. $ 50,000.00

On January 28, 1969, while employed as a press erector by the Goss Company of Chicago on assignment in Santiago, Chile, the decedent was killed in an automobile accident while traveling on company business. A fellow employee of Goss Company, Hernando Secard, a Colombian citizen residing in Downers Grove, Illinois, was killed in the same accident. A claim for Secard’s death under the policy at issue was promptly paid because it was conceded that he was a United States employee. Defendants rejected the claim arising out of decedent’s death on the ground that he did not so qualify.

Marschall was a German national. While residing in Berlin, he became a technician trained to work with printing presses. He married Ursula there on February 23, 1946. They were the parents of a son, Peter. Decedent left Germany in 1954 and lived and worked in .Central America. He was subsequently joined by his wife and son. On December 15, 1957, decedent and Ursula immigrated to the United States. Both registered as aliens. They used a New Jersey mailing address. They lived for various periods of time in South America, where he worked. They returned to the United States every two years, living each time in New York. Marschall continued to work in various locations in South America. Ursula became a permanent resident of the United States about 1965 when the couple separated but were not divorced. Their son Peter became a staff sergeant in the United States Air Force.

Decedent was first hired in Chicago by Miehle-Goss-Dexter, Inc., as a press erector, beginning work in South America July 15, 1963. Later, in 1964, he was employed by Miehle-Goss-Dexter Americas Companies in Sao Paulo, Brazil. In 1966, he was employed by and placed on the payroll of the Goss Company of Chicago, a division of Miehle-Goss-Dexter, Inc., as a press erector and continued to be assigned to work as such in various South American countries. It was while so employed that decedent and Hernando Secard were traveling from La Nación, Chile, to Santiago, Chile, when they were killed in the automobile accident.

Decedent had maintained substantial ties with the United States and the Goss Company, his United States employer. He was carried on the Goss Company payroll as Clock No. 5731. He was paid for his services in United States dollars, and his paychecks were sent to the First National City Bank of New York and deposited in a personal account he maintained there. He was regularly reimbursed in United States dollars for expenses incurred in his foreign travel on behalf of Goss. All of his work for Goss was performed in South America.

Defendants contend that the trial court erred in holding the relevant policy language defining “insured,” set out fully above, to be ambiguous and in turning to extrinsic aids to explain its meaning. They read the words “United States and Canadian Employees of the Employer” to be clear and unambiguous and maintain that “the term employees must be limited to employees in the United States and Canada and will cover such employees while traveling overseas.” (Emphasis added.) It is clear to us that such language used by defendants does not appear in the policy.

On the other hand, plaintiff contends that the term “United States Employees” means employees of the United States corporation Miehle-Goss-Dexter, Inc., and its wholly owned domestic subsidiaries and divisions, “as contrasted with the employees of the corporation’s foreign subsidiaries and divisions.” Assuming arguendo that this meaning may be established by the record, it is clear that such language does not appear in the policy itself.

We agree with the trial court that the phrase “United States Employees” on its face is ambiguous and does not have one clear and unambiguous meaning and that neither interpretation advanced by the parties is compelled. Under such circumstances it is well settled, not only in Illinois but in other jurisdictions, that where a contract in issue is not unambiguous on its face, it is necessary for the district court to consider all the circumstances that gave rise to its existence before attempting to interpret it. Buschmann v. Professional Men’s Association, 7 Cir., 405 F.2d 659, 663 (1969). It has been held that where any doubt does arise as to the sense or meaning of a contract, resort may properly be had to the circumstances surrounding its execution. Green v. Aerosol Research Co., 7 Cir., 374 F.2d 791, 794 (1967); see Buchanan v. Swift, 7 Cir., 130 F.2d 483, 485 (1942).

It is also well established that the provisions of the insurance policy are to be construed strictly against the insurer, as their drafter, and ambiguities are to be resolved in favor of the insured. Helmich v. Northwestern Mutual Insurance Co., 7 Cir., 376 F.2d 420, 423 (1967).

We hold, therefore, that the district court quite properly resorted to the consideration of extrinsic evidence to resolve the question of contract interpretation and, in so doing, correctly determined that such evidence favored plaintiff’s interpretation.

It was shown that the original policy, issued through defendant Associated Aviation Underwriters, was first drafted in 1960 and afforded coverage for all employees of the employer and its wholly owned subsidiaries. At that time the chairman of the board of Miehle-Goss-Dexter, Inc., sent a letter to all employees, specifically including erectors, who traveled on business for it and its divisions or domestic subsidiaries, advising them of this new group travel accident insurance coverage for all employees “while you are traveling — except commuting — on company business anywhere in the world.” This policy expired in 1963. The new policy similarly defining “insured” was issued by Royal Globe Insurance Company. In 1964, a broker for the employer wrote to Royal Globe that it was not the intent of the employer or its brokers to cover any of the employer’s foreign subsidiaries but to cover only the employees of the United States corporation and its wholly owned domestic subsidiaries. Accordingly, Royal Globe was directed to draw an amendment covering only “those who are employed by domestic corporations” and to cover them while “traveling on company business anywhere in the world.” The policy was amended to cover, inter alia, “employees of United States companies only.”

In October 1966, a representative of one of the present defendants was negotiating with the employer’s broker in connection with the subject policy. He wrote to George A. Melone, a representative of the employer’s insurance broker, setting forth the terms and conditions of the present policy, which contained the same definition referred to in the original 1960 policy, and which covered “All other Employees of the Employer not included in Class No. I, excluding Truck Drivers and their Helpers.” As a part of its proof dealing with the intention of the parties, the plaintiff, in support of his motion for summary judgment, filed an affidavit of Melone specifically stating that in drafting the policy language defining “insured” the parties never had any intention of changing the definition of “insured” as contained in the Royal policy. The district court did not err in crediting the Melone affidavit.

We agree with the trial court that the scope of coverage “depended on the nationality of the employer-company, not the location of the employee.” Our holding that defendants are liable under the policy is further influenced by the fact that the defendant companies promptly paid the claim arising from the death of decedent’s fellow employee, Hernando Secard. Secard was a citizen of Colombia doing the same work as decedent in Chile. The only difference was that Secard resided in Downers Grove, Illinois. Both had the same Chicago-based employer. We fail to see that the employee’s place of residence has any relevance under the construction of the policy found proper in this case.

We have considered other contentions raised by defendants but do not find them persuasive.

The judgment of the district court is affirmed.

Affirmed.


author: JONES, Circuit Judge.

text:
    UNITED STATES of America, Plaintiff-Appellant, v. Jack L. LEWIS, Defendant-Appellee. UNITED STATES of America, Plaintiff-Appellant, v. James L. WILLOZ, Defendant-Appellee.
    Nos. 72-2524 and 72-2740.
    United States Court of Appeals, Fifth Circuit.
    May 29, 1973.

      Gerald J. Gallinghouse, U. S. Atty., Mary Williams Cazalas, John R. Schupp, Asst. U. S. Attys., New Orleans, La., for plaintiff-appellant.
    Virgil Wheeler, Jr., New Orleans, La., for defendants-appellees.
    Before JONES, GODBOLD and IN-GRAHAM, Circuit Judges.
   JONES, Circuit Judge.

The narrow question on this appeal is whether the amounts paid ‘as fines which were imposed after pleas of guilty to criminal charges made pursuant to a statute which was subsequently determined, retroactively, to be unconstitutional, may be recovered in a coram nobis proceeding attacking the validity of the convictions. The facts of the case, the decision of the district court-and the reasons for its decision are set forth in its opinion. United States v. Lewis, E.D.La. (1972), 342 F.Supp. 833.

This cause would require less in the way of adjudication if the party holding funds exacted under an unconstitutional statute was not an entity which could and does assert sovereignty as justification for its refusal to restore such funds to them from whom they were received.

We are in accord with the district court’s decision and with the basis for its decision. It is appropriate, however, that there be some further discussion of the matters which the Government has stressed on appeal.

The Government concedes, although it has little choice to do otherwise, that the judgments of the district court must be affirmed insofar as they set aside the convictions of Lewis and Willoz. The Government asserts that, although the statute under which the fines were imposed were in violation of the Constitution, nevertheless if there is to be any recovery, which the Government does not concede, it must be by a separate action brought under the Tucker Act. 28 U.S. C.A. § 1346(a). This statute is one which confers a jurisdiction upon the district courts. It is not procedural. We can see no reason why a person who has paid a fine pursuant to an unconstitutional statute should be required to resort to a multiplicity of actions in order to obtain reimbursement of money to which he is entitled. Since the district court was empowered to set aside the conviction, it could also correct the unlawful result of the conviction and require the repayment of the money collected as fines. This it could do without requiring the bringing of another action. The Ninth Circuit, in a proceeding brought under 28 U.S.C.A. § 2255, has required the repayment of a fine illegally collected. Smith v. United States, 9th Cir. (1961), 287 F.2d 270, cert. denied, 366 U.S. 946, 81 S.Ct. 1676, 6 L.Ed.2d 856.

The Government says that the appellants cannot recover in any event or by any existing remedial procedure because there is no express statutory authority for such relief. Just as the imposition of a fine is an incident of a criminal conviction, so is the direction for repayment an incident to the vacating and setting aside of the conviction.

The judgments of the district court are, in all things,

Affirmed.


author: PER CURIAM:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Fred Harvey COLLINS and Daniel Mark Scheffer, Defendants-Appellants.
    No. 73-1080
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    May 31, 1973.
    William F. Walsh, Houston, Tex., court appointed for defendants-appellants.
    Anthony J. P. Farris, U. S. Atty., James R. Gough, Asst. U. S. Atty., Houston, Tex., for plaintiff-appellee.
    Before WISDOM, AINSWORTH and CLARK, 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:

This is the second time we review the convictions of Fred Collins and Daniel Scheffer for importing cocaine. In our first review we reversed and remanded for a retrial due to the prejudicial use of evidence obtained by an illegal search. United States v. Scheffer, 5 Cir., 1972, 463 F.2d 567. After reconvietion these defendants raise many of the contentions which were properly rejected in our last opinion. The only new issue of any substance concerns the testimony of the Government’s witness Robert Frank Saenz. We find no error in the District Judge’s ruling set out in his Memorandum Opinion appended hereto.

Affirmed.

December 12, 1972

MEMORANDUM:

During the course of the testimony in the retrial of the above two defendants, the prosecution called as a witness Robert Frank Saenz, a co-defendant in this cause. Saenz had pleaded guilty to one count of the indictment and received a sentence of eight years pursuant to 26 U.S.C. § 4704. Saenz had not only previously testified for the government before a federal grand jury in Laredo, Texas, but had also been the government’s chief witness in the case against Scheffer and Collins at their first trial.

As the result of certain information indicating a refusal to testify imparted to the Court by both the attorneys for the defendants and the government, a hearing was held out of the presence of the jury to determine Saenz’s competency as a witness. After the prosecutor had proffered several questions to Saenz, the Court personally examined the witness and found the following: that although he outwardly maintained a willingness to testify, Saenz was unable to recall clearly virtually all the matters to which he had previously testified in great detail (Saenz stated to the Court that all the testimony he had given in June of 1971 was totally unclear to him at this time); that he was reluctant to review the transcripts of the previous testimony offered to him by the United States Attorney; that the posture assumed by the witness in his portrayal of his failure to remember was for the dual purpose of avoiding a contempt of court charge and of avoiding any conduct which would be harmful to the defense of his close friends and allies Scheffer and Collins; and that the rationale supplied by Saenz as to his faulty memory was a contrivance to avoid restating the testimony that in large measure had previously convicted Scheffer and Collins.

In the face of Saenz’s recalcitrance, the Court determined that Saenz would not be competent as a witness and that his testimony given at the original trial should be read to the jury from the official transcript of that trial. The propriety of this decision is buttressed by the holdings of the United States Court of Appeals for the Fifth Circuit in United States v. Wilcox, 450 F.2d 1131 (5th Cir. 1971) and United States v. Mobley, 421 F.2d 345 (5th Cir. 1970), and the holding in United States v. Insana, 423 F.2d 1165 (2nd Cir. 1970) which case presented a factual situation closely analogous to the matter at hand.

By allowing the prior testimony to be read the Court does not believe that there was any infringement of the defendant’s rights. Nor was there a violation of proper evidentiary procedure. The defendant’s right to confrontation was clearly not violated for the reason that the defendants were represented by the same counsel at the prior trial at which time they fully cross-examined Saenz. Additionally, Saenz was at all times available for personal cross-examination at the instant trial. In fact, the Court stated that if counsel so desired, Saenz would remain in the courtroom during the reading of the prior testimony and then be allowed to take the stand for cross-examination. However, counsel for the defense neither read the prior cross-examination nor personally cross-examined Saenz. That such cross-examination would be fruitless is not convincing in view of Saenz’s desire to be helpful to the defendants.

There is little doubt that prior testimony should be admissible as an exception to the hearsay rule in cases of this type. To conclude that prior testimony inconsistent with a present lack of knowledge is admissible as a contradiction is not a unique posture to assume. Of even more substance is the position that when a prior statement is made under oath in a judicial proceeding and the author is available for cross-examination at the subsequent trial, the prior testimony is not hearsay. Cf. Rules of Evidence for the United States District Courts and Magistrates, Article VIII, Rules 801(d)(1), 804(a)(3), 804(b) (56 F.R.D. 183, 293 et seq., Nov. 21, 1972).

Based on the foregoing this Court reached the conclusion that Saenz was or could have been fully aware of the content of his prior testimony, but wished to escape testifying against Scheffer and Collins and thus make a mockery of the trial. It is the belief of this Court that the statements made in prior sworn testimony are admissible not only to impeach his claim of lack of memory, but also as an implied affirmation of the truth. The trial court’s hands should not be tied where a witness does not deny making the statements nor the truth thereof, but merely falsifies a lack of memory.

The clerk will furnish true copies of this Memorandum to the appropriate parties.

Done at Laredo, Texas, this 12th day of December, 1972.

BEN C. CONNALLY United States District Judge

      . This opinion is identical to that which we filed on April 17, 1973, in this matter and which we later ordered withdrawn by an order dated May 10, 1973. Our withdrawal of the former opinion was occasioned by the fact that through some inadvertence in the Clerk’s Office we failed to note that an extension of time had been granted to appellant to file a reply brief. This Brief now filed on May 1, 1973 has been fully considered by the Court and does not change the views which we originally expressed and which we herewith reaffirm by issuance of this opinion.


text:
    Arnold BAILEY, Plaintiff-Appellant-Cross Appellee, v. KAWASAKI-KISEN, K.K., Defendant-Appellee-Cross Appellant, American Mutual Liability Insurance Company, Intervenor.
    No. 73-1350
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    May 25, 1973.
    Arnold C. Jacobs, New Orleans, La., for appellant.
    Paul A. Nalty, New Orleans, La., James W. Hailey, Jr., Metairie, La., for Kawasaki and American Mut. Liability Ins. Co.

      Before GEWÍN, COLEMAN and MORGAN, Circuit Judges.

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

   PER CURIAM:

In this case, Arnold Bailey brought suit against the KAWASAKI-KISEN, K.K., aboard which he had been working as a longshoreman, alleging that he sustained certain injuries as a result of the vessel’s unseaworthiness. Trial was had before a jury and a judgment was returned in favor of the defendant KAWASAKI-KISEN, K.K. On appeal this court reversed and remanded for a new trial because of the improper exclusion of evidence. Bailey v. Kawasaki-Kisen, K.K., 455 F.2d 392 (5th Cir. 1972). The necessary facts are set forth in that opinion. At the retrial of this case the jury was waived. Upon a full consideration of the original record, supplemented by the evidence which had theretofore been excluded, the district court found the vessel to be unseaworthy and further concluded that this unseaworthiness was the proximate cause of Bailey’s injuries. Damages were awarded in the amount of $5,089.55. Bailey appeals from the district court’s assessment of damages and KAWASAKI-KISEN, K.K. cross-appeals from its finding of liability based on unseaworthiness. We affirm the district court’s judgment in all respects.

On this appeal essentially what both parties seek is a review of the sufficiency of the evidence underlying the trial court’s conclusions on the unseaworthiness and damages issues. A careful review of the briefs and record in this case discloses ample evidence to support the district court’s determination that the vessel was unseaworthy due to an excessive amount of grease on both the cable and winch drum and that this condition caused the boom to fall, resulting in Bailey’s injury. We find also that the district court’s award of damages was similarly supported by the evidence. It held that any disability suffered by Bailey had terminated within thirteen weeks of the date of the accident if not in a shorter span of time. The trial court considered and specifically rejected the possibility that there was any connection between the accident and Bailey’s complaints of disability and pain beyond the period for which he was permitted to recover damages. The judgment of the district court is affirmed.

      . Damages were allocated as follows :
      Loss of wages for 13 weeks at $78.18 $1,016.34
      Medical expenses 573.21
      Pain and suffering 3,500.00
      Total $5,089.55


text:
    UNITED STATES of America, Plaintiff-Appellee, v. Joseph Edward FINSTAD, Defendant-Appellant.
    No. 73-1114
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    May 14, 1973.
    Rehearing Denied June 4, 1973.

      Barry L. Garber, Miami, Fla., for defendant-appellant.
    Robert W. Rust, U. S. Atty., Harold F. Keefe, Asst. U. S. Atty., Miami, Fla., for plaintiff-appellee.
    Before GEWIN, COLEMAN and MORGAN, 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:

On a trial to the Court, without the intervention of a jury, Joseph Edward Finstad was convicted of the unlawful possession, with intent to distribute, 2.02 grams of heroin, 21 U.S.C. § 841(a)(1). We affirm.

The conviction is attacked upon the usual grounds: (1) there was no probable cause for the arrest and search of the appellant; (2) the evidence was insufficient to support the conviction.

Finstad fell into the pit in the following manner. Special Agent Nesmith purchased heroin in Atlanta, Georgia, during the months of January and February, 1972, from one Corrochano. At 6 p. m., February 25, 1972, in Miami, Ne-smith called Corrochano, also then in Miami, who stated that he would call back as soon as he had received some heroin.

Thirty minutes later, Special Agent Walde saw Finstad drive up to Corro-chano’s residence. Finstad met with Corrochano at the rear of Corrochano’s automobile, which had the trunk open. Corrochano was then followed to the motel where Special Agent Nesmith was quartered. Enroute, Corrochano called Nesmith to advise that he now had the heroin. At 7:10 Corrochano arrived at the motel, told Nesmith that he had the heroin in the car, left the room, and shortly returned with the prohibited substance. Corrochano was then arrested. He soon stated that he had received the heroin from Finstad in front of his residence. Without obtaining an arrest warrant, the Agents then went to Finstad’s home and arrested him. He was then taken to the Bureau of Narcotics office, where a search produced the heroin which became the subject of this prosecution and which the appellant unsuccessfully moved to suppress.

We are of the opinion that the arrest was valid for the reasons that the Agents had certainly seen enough to support a reasonable belief that Finstad had distributed the heroin to Corrochano, United States v. Wysocki, 5 Cir., 1972, 457 F.2d 1155.

As to the sufficiency of the evidence, Finstad argues that the proof was insufficient to show beyond a reasonable doubt that he did not have the heroin for his own personal use. We reject this argument for the reason that the jury could properly infer from all of the circumstances that Finstad indeed had distributed heroin to Corroehano and the amount on his person when arrested was held for a similar purpose.

The judgment of the District Court is

Affirmed.


text:
    Robert Kenneth SCHOULTZ, Petitioner-Appellant, v. Warden Carl HOCKER, Nevada State Prison, et al., Respondents-Appellees.
    No. 72-1734.
    United States Court of Appeals, Ninth Circuit.
    April 25, 1973.
    Philip R. Weltin (argued), San Francisco, Cal., for petitioner-appellant.
    Harley D. Mayfield, Deputy Atty. Gen. (argued), Evelle J. Younger, Atty. Gen., Edward A. Hinz, Jr., Chief Ass’t Atty. Gen., Crim. Div., Sacramento, Cal., Robert List, Atty. Gen., Carson City, Nev., Doris H. Maier, Asst. Atty. Gen., Writs Section, Mark L. Christiansen, Deputy Atty. Gen., San Diego, Cal., for respondents-appellees.
    Before CHAMBERS and WRIGHT, Circuit Judges, and EAST, District Judge.

       Honorable William G. East, Senior United States District Judge for the District of Oregon, sitting by designation.

   PER CURIAM:

On June 24, 1971, the Petitioner-Appellant, Robert Kenneth Schoultz (Schoultz), filed his pro per petition seeking 28 U.S.C. Sections 2241-2243 state habeas corpus relief (state habeas) in the United States District Court for the District of Nevada (Nevada District) .

Schoultz alleges, inter alia, that:

On October 15, 1964, the Superior Court of the State of California for San Diego County (Superior Court) entered a judgment of conviction, upon his plea of guilty, of the crime of assault with a deadly weapon and sentenced him to the custody of California authorities;

He is currently in the custody of the Respondent-Appellee Warden Carl Hooker, Nevada State Prison, pursuant to a Nevada judgment of conviction and sentence entertd on or about May 8, 1969, and the Warden has accepted and holds a detainer issued by the California authorities following his violation of parole;

His plea of guilty to the California charge was not voluntarily and knowingly made and entered by him in that he was deceived and the plea coerced in various particulars set forth; and

Various proceedings were instituted in the California courts in an attempt to exhaust his state remedies for relief from the California conviction, without avail.

Schoultz does not allege nor contend any prejudice to his Nevada custody under the California detainer and seeks only to void and set aside the California judgment of conviction and sentence on United States Constitutional grounds.

On the date of filing, the Nevada District transferred the cause to the United States District Court for the District of Southern California (California District) under the rationale of Meadows v. New York, 426 F.2d 1176 (2nd Cir. 1970); contra, Ashley v. Washington, 394 F.2d 125 (9th Cir. 1968), George v. Nelson, 410 F.2d 1179 (9th Cir. 1969), affirmed, 399 U.S. 224, 90 S.Ct. 1963, 26 L.Ed.2d 578 (1970).

The California District in cause number 71-221-S ordered “that respondent file on or before August 13, 1971, a response to the” petition. California authorities did make and enter in the cause a response in defense.

On November 17, 1971, the California District concluded that Schoultz had failed to exhaust his available state remedies for the relief sought and denied the petition.

Schoultz appeals. We vacate the order denying the petition and remand the cause.

We add here, that subsequent to the date of the order denying the petition and pending appeal Schoultz sought further to vindicate his claims in the Superior Court without avail. We have examined a supplemental showing of those proceedings, but presently decline to advance any view or conclusion thereon. Thomas v. Teets, 205 F.2d 236 (9th Cir. 1953).

The California District had no opportunity to consider those proceedings and we deem it expedient for that District to have that opportunity in a reconsideration of its conclusion that Schoultz failed to exhaust his state remedies.

The State of California has advised us that it no longer has any interest in Schoultz as a result of the conviction in San Diego which the present action challenges. The detainer filed with Nevada has been dropped.

The established rule of this Circuit was otherwise; nevertheless, the Nevada District’s reliance upon the rationale of Meadows, supra, is now vindicated, and the California District did not lack viable jurisdiction of this state habeas cause. Braden v. 30th Judicial Circuit Court of Kentucky, United States Supreme Court, 410 U.S. 484, 93 S.Ct. 1123, 35 L.Ed.2d 443, 1973.

Following remand, Schoultz should be granted leave to amend and supplement his petition to a further showing, if any there be, of an exhaustion of state remedies and necessary parties respondent.

The order denying the petition entered by the California District on November 17, 1971, in cause number 71-221-S, is vacated and the cause remanded for further consideration and order in light of Schoultz’s actions subsequent to the California District’s order. The California District should also consider the effect of the California discharge and any collateral consequences, if any, of that conviction.

Order vacated, and remanded.