author: KNIGHT, District Judge.

text:
    WOJCIECHOWSKI v. UNITED STATES.
    District Court, W. D. New York.
    July 10, 1931.
    Frederick F. Grotz, of Buffalo, N. Y., for plaintiff.
    Richard H. Templeton, U. S. Atty., of Buffalo, N. Y., by Joseph J. Doran, Asst. U. S. Atty., of Rochester, N. Y. (A. S. Thomson, Regional Atty., of Buffalo, N. Y., of counsel), for the United States.
   KNIGHT, District Judge.

This is an action to recover on a war risk insurance policy. Upon stipulation of parties it was tried by the court without a jury. The plaintiff enlisted in the United States Navy March 16, 1917, and served until August 25, 1919, when he was honorably discharged. A war risk policy in the sum of $5,-000 was issued to Mm under date of February 12, 1918. May 22, 1919, plaintiff, by instrument in writing, requested the cancellation of the policy. The last premium was paid May 1,1919’. Under the regulations of the government, which have the force of law, the protection of the insured for the face value of the policy continued until July 1, 1919. The policy provided for disability benefits in the event the assured became totally and permanently disabled. One contention of the government is that there was a valid cancellation of the insured’s contract and that all insurance credits ceased July 1, 1919. In view of the determination at wMeh 1 arrive herein, it is unnecessary for me to decide this question.

In or about September or October, 1918, while the plaintiff was in service on a transport sMp’, an epidemic of influenza broke out, causing death of some twenty sailors. Plaintiff claims that he was sick at the time from the same cause. He continued at Ms work uninterrupted. He did not report Ms sickness. He did not have the care of any physician. He never reported off duty at that time or thereafter. Other than Ms own testimony, there is nothing to show his alleged ilMess or any effect from it during any time of Ms service, wMeh continued for eleven months. Plaintiff served as a coxswain. He had from ten to fifteen men under Mm, and these did “all kinds of work, painting and swabbing the decks and that kind of work.” Some months after his discharge he worked regularly as an upholsterer for the American Body Company for a period of several months. Shortly after that he secured and continued employment as an upholsterer elsewhere, and he worked there regularly and continuously for a year. Later he worked for short periods of time. His wages as upholsterer were $30 a week.

Since 1927 plaintiff has received hospital care at various institutions. There is no question that this plaintiff is now suffering from encephalitis (commonly known as sleeping sickness), and that his present disability from this disease is permanent. While the proof is somewhat meager showing total disability, this court concludes that it is so to the extent that he will never be able to follow continuously any substantially gainful occupation.

At the time of plaintiff’s discharge from service, the government records show “no entry for disease or disability while in the naval service, and no physical defects noted at enlistment or discharge.” Upon the reverse side of plaintiff’s original discharge there is no record of any per cent, of time on the sick list during enlistment. There also appears this clause, “Physically qualified for re-enlistment.”

Plaintiff claims that he was “sleepy” all the time for about two months before he was discharged. The only other direct evidence as to his condition was given by plaintiff’s sister. This was to the effect that a sleepy condition of the plaintiff appeared shortly after his discharge. He claims he consulted a physician shortly after his discharge. The purpose of such visit and the diagnosis by the physician in no way appeared. Three years later he consulted another physician. The result of such consultation does not appear. Neither physician was called as a witness. Dr. Hassenfratz examined the plaintiff on May 6, 1921. He described conditions then as indicating the disease which I have mentioned. This question was asked of the doctor: “Q. Will you tell the Court what in your opinion would cause the condition that existed in his condition as you found him on May 6,1921 ?” The answer of the physician was, “It shows some disturbance of the nervous system, particularly in the brain, and from the history of his ease which he gave me at that time, I deduced that it was an encephalitis following a ease of influenza that he had.” The physician predicates his conclusion, of course, upon the history given by the plaintiff. He testifies that influenza is one of the usual causes of the disease in question, but that there are other causes. The germ of this disease is unknown, and there may be many unknown causes for it. The most that can be said for the doctor’s testimony upon his examination is that influenza resulting from inflammation of the bx*ain may have been the cause of plaintiff’s present condition. Whether we may presume that it was the cause, depends upon the extent and violence of the attack.

It seems to this court that the plaintiff has failed to show by a fair preponderance of the evidence that he suffered from his present disease or that he was “totally and permanently disabled” during the life of the policy. Blair v. U. S. (C. C. A.) 47 F.(2d) 109; U. S. v. Le Duc (C. C. A.) 48 F.(2d) 789. The fact that he had no treatment at the time he claims he suffered from the influenza, that no one witnessed his alleged condition, and that he did his regular work at all times during that period and until the time of his discharge, outweighs his testimony on this subject. Further accepting his own statements as true, it does not seem to me that plaintiff was “totally and permanently” disabled during the life of the policy of insurance, under the definition of these words as Written in the regulations of the Bureau of War Bisk Insurance. If he was not, of course he cannot recover in this action.

Many opinions have been written by the courts upon the application of the term “total and permanent disability.” Counsel for the plaintiff and for the government have cited numerous ones. Certain general underlying principles are laid down. The application of these has always been made to different state of facts. The counsel for the plaintiff presses upon the attention of the court that the War Bisk Insurance Act is to be liberally construed in favor of the soldier. The courts have so declared many times. This to my mind, however, does not mean that the plaintiff shall not establish his cause of action by a fair preponderance of the evidence. It does mean that a liberal interpretation and construction shall be given to plaintiff’s proofs, and that the total so construed shall establish plaintiff’s cause by a fair preponderance of the evidence.

“Total permanent disability must exist in order to make the greater protection [insurance] available. Whether such a condition exists must depend upon facts in the concrete ease presented by the insured. It would be practically impossible to lay down a hard and fast rule; indeed, obviously it might be unjust to attempt to do so. * * * -

“A liberal construction of the statute should be adopted, but, of course, the courts always are bound by the limitations of the statute and by regulations properly made by the director, pursuant to the authority conferred by the law.” United States v. Law (C. C. A.) 299 F. 61, 64.

The cases cited on plaintiff’s brief do not conflict with my determination.

In Ford v. U. S. (C. C. A.) 44 F.(2d) 754, 755, there was undisputed proof of illness while in service and continuing thereafter. Plaintiff engaged only irregularly in employment. He suffered from spinal arthritis and received physiotherapy treatments from the Veterans’ Bureau shortly after his discharge from service.

In U. S. v. Sligh (C. C. A.) 31 F.(2d) 735, plaintiff when discharged from service was suffering from active pulmonary tuberculosis. A physician testified positively that plaintiff’s disability existed at the time of his discharge.

In Freeman v. U. S. (D. C.) 48 F.(2d) 233, say the court:

“The question may arise in a given ease where the disability is rested on a certain disease whether such disease must then be existent, or will it be sufficient that the seed of the disease is then in his body. It would seem that, if, in any ease, it would be sufficient that the seed of the disease so existed, it is essential that necessarily and inevitably the disease must thereafter develop from such disease so that it can then be said that he is potentially so diseased, and hence potentially so disabled.
“The burden is on the plaintiff to establish by a preponderance of the evidence the existence of such disease or seed and consequent disability at the time of the discharge. In order to do this the plaintiff must introduce substantial evidence to this effect, and, even though he may do so, he cannot recover if it is overcome or equalized by substantial evidence introduced by the defendant. The plaintiff’s failure to so establish cannot be supplied by grace. This court is not the government passing on the question whether the plaintiff should have a pension. The question before it is whether plaintiff is entitled to recover on his policy of insurance and to this end he must bring himself within the terms. Hence it is that it is not sufficient for plaintiff to establish the subsequent incurrence or existence of such disease or seed thereof and consequent disability. It must have existed at the time of the discharge.”

It will be seen that Freeman v. U. S., supra, is quite parallel to the one at bar, and it was there held that the plaintiff did not sustain the burden of the proof, and the petition was dismissed. In that case at the time of the discharge the plaintiff signed a certificate as to “no physical disability,” and the report thereon stated that plaintiff was examined for discharge and no defects noted. In this connection the court says:

“This is not to be brushed aside by his testimony that he did not read anything to the effect that he had no physical disability, and that he was just told to sign the paper and did so without knowing what was in it. * * * Then there is no reason to think that the examination made of him was superficial. There is no indication that a great number of sailors were being discharged at that time which might lead to a more or less superficial examination. Then according to plaintiff’s testimony he was treated by three physicians after his return home, apparently in succession, the first of whom is dead. The testimony of the other two was not taken, and no explanation is given why it was not. * * * The result is that I do not feel sure as to just what was plaintiff’s physical condition at the time of his discharge.”

In Clark v. U. S. (D. C.) 48 F.(2d) 291, 292, plaintiff was shocked by explosion of a shell. The shock rendered him unconscious for over an hour — “possibly as much as three or four.” From that time he suffered from a weak back. His testimony regarding his condition was corroborated by two comrades. The physician examining immediately after his discharge testified that he appeared to be suffering from tuberculosis. From that time on his condition continued to grow gradually worse. He was discharged in May, 1919. In November, 1929, he was examined by the Veterans’ Bureau and ease was diagnosed as chronic bronchitis. Shortly thereafter it was diagnosed as “chronic quieseent pulmonary tuberculosis, moderately advanced”; a little later, “chronic pulmonary tuberculosis;” later “chronic pulmonary tuberculosis” and “valvular heart disease, mitral insufficiency;” and later, “chronic pulmonary tuberculosis moderately advanced.” The Veterans’ Bureau awarded compensation on basis of total disability. He then was at a Veteran’s Hospital a considerable time, and a diagnosis there showed “pulmonary tuberculosis far advanced and that his spine was affected.” Shortly after his discharge he did work for some two and one-half months. He quit because his back “gave way.”

In Nichols v. U. S., 48 F.(2d) 293, the opinion was written by the same District Judge who wrote the opinion in the Clark Case, supra. In the Niehols Case, a very considerable amount of evidence both by lay witnesses and by physicians shows the origin of plaintiff’s disease and its continuation both through his period of war service and continually thereafter. The court concluded that the defendant was suffering from tuberculosis at the time of his discharge and was then totally and permanently disabled.

In numerous eases, reference is made to the declaration of the petitioner at the time of his discharge. Some courts are inclined to give considerable weight to this declaration; some give it little. In the instant ease, attention is called to it in connection with the other testimony going to show petitioner’s condition, ,and not with the purpose to indicate that, standing alone, it is sufficient to outweigh the proof of the plaintiff.

In Barksdale v. U. S. (C. C. A.) 46 F.(2d) 762, plaintiff was discharged on account of physical disability. The court held it was a question of fact for the jury whether the plaintiff was totally and permanently disabled. The physicians testified to serious physical ailments, from which they claimed he had practically recovered, and there was lay testimony in contradiction. It would appear the plaintiff did some work, but just how much the opinion does not disclose. It did appear that he was continuously under treatment at the time of his discharge till the action was brought. It is true, as stated in Barksdale v. U. S., supra, and U. S. v. Godfrey (C. C. A.) 47 F.(2d) 126, 127, that the fact that the plaintiff did perform some labor, even for some considerable time, is not conclusive on the question of “total and permanent disability.” It is true, as noted in U. S. v. Phillips (C. C. A.) 44 F.(2d) 689, 691, “total and permanent disability” does not mean that the party must be unable to do anything whatever. As was said in Knight v. U. S. (D. C.) 45 F.(2d) 202, 203, “A man may work when it is not proper for him to do so;” and again it is said in U. S. v. Rasar (C. G. A.) 45 F.(2d) 545, 547, “total disability is not an abstract concept. * * * It is a relative term, and whether it is present in a particular case depends upon the peculiar facts and circumstances of that ease.”

In Knight v. U. S., supra, it appeared without contradiction that the plaintiff suffered severe illness during service, diagnosed as “uremic seizures, consequent upon the condition of aceute nephritis”; that he was in the hospital several times prior to his discharge; that he re-enlisted on the expiration of his enlistment with the purpose to receive benefit by medical treatment, and he was recorded on the medical records as' totally disabled and as of June 28, 1926. He died in 1925. He had a medical history continuing from August, 1919. He did some work at the time when it was claimed that he was totally and permanently disabled, but this was for a short period of time. Say the court: “From this point of view, having the whole story before us, it seems reasonably clear that, after May, 1919, he was never physically able to go out into the world on his own account and follow continuously any substantially gainful employment.”

In U. S. v. Harrison (C. C. A.) 49 F.(2d) 227, 228, insured was discharged December 30, 1918. He died of tuberculosis February 6, 1926. There was general testimony to show a healthy condition of insured after his discharge. The court said: “There is no evidence that he had this disease or any other disease resulting in total and permanent disability during the greater part of the seven years which intervened between the lapse of his policy and his death. On the other hand, his certificate of discharge from the navy recommended him for re-enlistment; and a physical examination made * * * in the year 1919 showed that he had no ‘indication of disease or of derangement of functions of respiration.’ ”

He was employed continuously over a period of three years. The court there held that he could not recover. Say the court further: “It is not satisfactorily established that insured had tuberculosis on February 1, 1919; ■but even if it be assumed that he had the disease at that time, it does not follow that he was totally and permanently disabled as a result thereof. Whether tuberculosis results in total and permanent disability depends upon the facts of each particular ease; and there is no sufficient evidence here of such disability.”

In Carter v. U. S. (C. C. A.) 49 F.(2d) 221, plaintiff was injured in battle. Later he was gassed. He suffered from serious disability for a period long prior to the time of his discharge. There was little question that he had tuberculosis when discharged. The court on the appeal held that the evidence was sufficient to take the ease to the jury. In this case many of the authorities on the question of what constitutes “total and permanent disability” are. cited. The opinion here was written by the same Circuit Judge who wrote the opinion in U. S. v. Harrison, supra.

In U. S. v. Le Duc (C. C. A.) 48 F.(2d) 789, 793, insured was discharged May, 1919. He worked intermittently at different employments for upwards of three years. He was sent to the reformatory and served for three years. While imprisoned he worked at manual labor in stone quarry and other work. He was hospitalized in 1926 and died September 23, 1926. Against his record of service and employment members of his family testified that after his return from the service he showed various signs of illness. There was no direct proof that the insured had tuberculosis while in the service. An X-ray expert testified that the condition of tuberculosis might have continued for two or for ten years. In that ease the court says that, upon the assumption that tuberculosis existed during war service, the further assumption that the soldier was totally and permanently disabled during the service does not follow. Say the court further: “Ordinarily, a presumption cannot be weighed in the balance against facts, and there is no medical testimony showing that any physician ever found the insured suffering from tuberculosis until December, 1925. Granting that the presumption was properly invoked, it would not, as already pointed out, sustain the contention that the insured became totally and permanently disabled while the insurance contract was in force.”

Say the court further: “After all, the right of recovery in these war risk insurance cases is dependent on contract, and it is not within the province of the jury to award from the public funds gratuities to relatives of deceased ex-soldiers; nor can we, under the guise of liberal construction, close our eyes to the undisputed facts disclosed by the record in this ease.” Vide Blair v. U. S. (C. C. A.) 47 F.(2d) 109.

In U. S. v. Vance (C. C. A.) 48 F.(2d) 472, plaintiff was discharged February 1, 1919. A physician treated him from the time of his discharge until 1920 and diagnosed his-affliction as tuberculosis. The soldier had been rated as suffering from a compensable disability from the date of his discharge. The question of total and permanent disability was not seriously contested on appeal. The main point urged was the question of the right to apply uncollected disability compensation on insurance policy premiums under section 305, World War Veterans’ Act 1924, as amended by Act May 29,1928, § 17 (section 516, title 38, United States Code [38 USCA § 516]). Vide, also, U. S. v. Crowell (C. C. A.) 48 F.(2d) 475.

Giving a most liberal interpretation to the evidence offered in support of plaintiff’s contention, I do not see how I can find that during the life of the policy the plaintiff had such an impairment of mind or body rendering it impossible for him to follow continuously any substantial gainful occupation and that he suffered any condition then which rendered it reasonably certain that any disability would continue throughout his life. One must sympathize with another who is afflicted as is this plaintiff, but justification cannot be found in it for the failure of the court to pronounce its decision upon the facts as it sees them.

Judgment is directed for the defendant.


source: Caselaw Access Project

author: FITZHENRY, District Judge.

license: Public Domain

text:
    UNITED STATES v. MURDOCK.
    No. 1680.
    District Court, S. D. Illinois, S. D.
    Oct. 28, 1930.

      Marks Alexander, Asst. U. S. Atty., of Springfield, Ill., for the United States.
    Harold J. Bandy, of Granite City, Ill., for defendant.
   FITZHENRY, District Judge.

The indictment charges the defendant with having violated section 146 of the Revenue Act of May 29, 1928 (USCA title 26, § 2146), and also section 1104 of the Revenue Act of 1926 (USCA title 26, § 1247), in that defendant willfully refused to supply information to a revenue agent concerning certain substantial payments which he made to other persons, in violation of the provisions of the statutes just referred to. The indictment contains two counts, each of which is predicated upon an' alleged violation of each of the two sections of the revenue law just mentioned. To this indictment, upon arraignment, defendant pleaded not guilty, and later filed three special pleas.

The first special plea alleges that defendant was called before a retenue agent for examination concerning certain deductions taken by him in his income tax returns for the years 1927 and 1928. After a series of preliminary questions were asked, he was interrogated as to the names of the persons to whom certain payments of money had been made, and for which he had claimed deductions. He refused to answer the questions, and, when asked why, answered, because it would incriminate himself under the laws of the United States. Then a stenographic report of the entire examination was set out and he invoked the protection of the Fifth Amendment to the Constitution. The second special plea is of the same general tenor as the first, except that it alleges it would incriminate him and make him liable to a prosecution for a violation of the laws of the state of Illinois, incorporating, by reference, the testimony set out in the first special plea. The third special plea alleges that he was called and examined under the provisions of the two revenue acts above cited; that it gave him no opportunity to claim his immunity in court, but he was required to submit to examination before a revenue agent, a ministerial officer not qualified nor authorized to pass upon the incriminating phases of the questions submitted; that there was a statute of the .United States whereby such an examination might have been had before the District Court of the United States having jurisdiction; that, by reason of the government proceeding under the two sections of the statute above cited, the proceeding was a nullity and, therefore, ho was not liable to any criminal prosecution by reason of his failure to answer the.questions propounded.

The government demurred to each of the special pleas.

The third special plea presents no defense to the indictment. It was entirely optional with the representatives of the Commissioner of Internal Revenue as to which statute they would follow in attempting to get the information which they were seeking from the defendant. It was their privilege to adopt any method provided by law for that purpose.. In this ease, the revenue agent who made the investigation elected to follow the statute which authorized the proceedings which were had and out of which it is contended the criminal liability grows. The defendant had no control over the matter, nor did he have any right to have the revenue agent pursue any particular remedy.

The demurrer to the third special plea must be sustained.

As to the second special plea. It has been held that because the testimony which a witness may be required to give in obedience to the laws of the United States might have a tendency to incriminate him under the laws of a state, a separate and different sovereignty, it would not bring the witness within the protection of the Fifth Amendment to the Constitution, if he were not also incriminated under the laws of the United States. Brown v. Walker, 161 U. S. 597, 16 S. Ct. 644, 40 L. Ed. 819; Jack v. Kansas, 199 U. S. 372, 26 S. Ct. 73, 50 L. Ed. 234, 4 Ann. Cas. 689; Hale v. Henkel, 201 U. S. 43, 26 S. Ct. 370, 50 L. Ed. 652; Elwell v. United States, 275 F. 775 (C. C. A. 7th Cir.).

In the light of this rule, the demurrer to the second special plea will have to be sustained.

The first special plea to the indictment goes to the heart of the controversy here. The admitted facts in the plea show that if defendant had answered the questions truthfully he would undoubtedly have furnished the names of his eoconspirators in the common design to defraud the United States, in violation of section 37 of the Criminal Code (18 USCA § 88) as well as evidence which might expose him to prosecution for other offenses against the United States. Of course the contention on behalf of the government is that the revenue agents were endeavoring to procure the names of persons to whom money had been paid in large sums so that they might thereby be enabled to check up the income tax returns, if any, of the persons, and in that way procure the government its ineome tax; at the same time it was procuring, for the government, information which would tend to incriminate Murdock.

If the transcript of the evidence taken at the revenue agent’s hearing had not been included in the plea, there would be little question but that the first special plea presents a clear defense to the offense laid in the indictment, for Murdock could not have “answered with entire impunity.” Arndstein v. McCarthy, 254 U. S. 71, 41 S. Ct. 26, 65 L. Ed. 138. However, by the setting out of the transcript of the proceedings at the revenue agent’s hearing, at which time it is charged in the indictment the defendant violated the criminal laws, we are able to see just what did happen upon that occasion.

The witness admitted he had been interested in the operation of slot machines in Madison county; that he had paid money to certain persons, which he had deducted as an expense of his business in the income tax returns. The inference is quite clear that this money was paid to certain persons to procure protection from criminal prosecution by reason of defendant’s illegal enterprises. The witness was asked to give the names of the persons to whom the money was given, and the purpose for which it was paid. Invariably, under the advice of counsel, he replied that he refused to answer. Upon being asked why, he would say, because to do so would incriminate and degrade him. Whereupon the examiner, an attorney for the government, would put the question: “Under what law is it your contention that you would incriminate yourself, State or Federal?” To this question he would answer: “State.” Then, later in the examination, the question would be put by the attorney: “When you say that you are afraid you would incriminate yourself, do you refer to the laws of the State as distinguished from the Federal laws?” His answer would be “Yes.”

At no time during the examination did he say that he refused to give the names of the persons to whom the money had been paid on the ground that he would be incriminated under the laws of the United States, but his expressed fear of incrimination was by reason of the criminal laws of Illinois.

In these circumstances, it is argued with a great deal of force that Murdock thereby waived any immunity granted by the Fifth Amendment to the Federal Constitution by reason of exposing himself to criminal prosecution under the federal law. The immunity granted to a witness by the Fifth Amendment can be waived. In parte Tracy (D. C.) 177 F. 532; Thompson v. United States (C. C. A. 7th Cir.) 10 F.(2d) 781; Diggs v. United States (C. C. A.) 220 F. 545, affirmed 242 U. S. 470, 37 S. Ct. 192, 61 L. Ed. 442, L. R. A. 1917F, 502, Ann. Cas. 1917B, 1168.

As I said before, the very material question involved in the consideration of the first special plea is whether or not this defendant waived his constitutional right to immunity under the Fifth Amendment? A reading of the evidence taken before the revenue agent tends to sustain the conclusion that Murdock was more concerned with protecting other people with whom he has had relations of a criminal nature than he was concerning his own immunity. A clear purpose to shield others is shown. The answer, frequently made, was brought out upon defendant’s examination by the government attorney who conducted it. In stating his own reasons, defendant placed no limitations upon the fear of incrimination. When asked why he refused to answer, he would say upon the ground that he would incriminate himself; then would follow the technical question which brought the answer which fixed his fear of prosecution to be under the laws of the state.

I am inclined to feel that defendant waived his constitutional right granted to bim by the Fifth amendment, and, yet, I am not free from doubt by reason of the particular manner in which the answer limiting his fear of incrimination was procured. The efficacy of the statutes upon which this prosecution is based has been seriously questioned in administration, for the reason that they contain no immunity provisions broad enough to cover the dangers incident to forcing a taxpayer to a full disclosure.

Considering this fact, I feel warranted in resolving the doubt, which I have as to whether or not the defendant has waived his privilege under the Fifth Amendment, in his favor to the extent of overruling the government’s demurrer to the first special plea, thereby affording the government, if it elects to stand by the demurrer, an opportunity to procure an immediate consideration of the questions involved, by the United States Supreme Court. The order therefore will be: “Demurrer to first special plea overruled; demurrer to the second and third special pleas sustained.”


author: STRUM, District Judge.

text:
    ORLANDO CANDY CO. v. NEW HAMPSHIRE FIRE INS. CO. OF MANCHESTER.
    No. 3222.
    District Court, S. D. Florida.
    July 10, 1931.
    Frank J. Heintz, of Jacksonville, Fla., for the motion.
    Cockrell & Cockrell, of Jacksonville, Fla., opposed.
   STRUM, District Judge.

In an action at law upon a fire insurance policy, instituted in the state court and removed to this court, plaintiff moves to amend its declaration so as to properly claim attorney’s fees pursuant to section 6220, Comp. Gen. Laws Fla. 1927. Defendant objects upon the ground that under the terms of the Florida statute such attorney’s fees are not recoverable when judgment is rendered in a federal court.

The question presented is purely one of statutory construction, it having been held heretofore that the statute violates neither the due process nor the equal protection clause of the Constitution,. Hartford Fire Ins. Co. v. Wilson & T. Fert Co. (C. C. A.) 4 F.(2d) 835; Tillis v. Liverpool, etc., Ins. Co., 46 Fla. 268, 35 So. 171, 110 Am. St. Rep. 89; U. S. Fire Ins. Co. v. Dickerson, 82 Fla. 442, 90 So. 613.

The statute provides in effect that upon the rendition of a judgment or decree “by any of the courts of this State” against any insurer and in favor of the beneficiary under any policy or contract of insurance, there shall be adjudged or decreed against such insurer and in favor of the beneficiary a reasonable sum as fees or compensation for the beneficiary’s attorneys prosecuting the suit in which the recovery is had. Section 6220, Comp. Gen. Laws Fla. 1927.

Defendant’s contention is that the statute by its terms is limited to judgments or decrees rendered “by any of the courts of this state,” that is, the state of Florida; and that the statute, therefore, is inapplicable to judgments rendered by federal courts.

No ease has been cited specifically construing the phrase above quoted in a statute of this character. Substantially the same phrase has been construed by the Supreme Court (David Lupton’s Sons Co. v. Automobile Club, 225 U. S. 489, 32 S. Ct. 711, 56 L. Ed. 1177, Ann. Cas. 1914A, 699) and by the Court of Appeals of the Fifth Circuit (Industrial Finance Corp. v. Community Finance Corp., 294 F. 870), as found in statutes relating to foreign corporations, and providing in effect that no action shall be maintained “in the courts of the state” by any foreign corporation as plaintiff until such corporation shall have, qualified itself to do business in that state pursuant to the statutes of such state. In the eases last cited it was held that such a statute was inapplicable to actions in federal courts. That is neees- • sarily true. Obviously, it is beyond the power of a state Legislature to impose an added condition or limitation upon the exercise by the federal courts of the powers committed to them by federal statutes, nor to impose upon suitors in those courts an added qualification not prescribed by federal statute.

The statute here under consideration, however, is of a vitally different character. The statute imposes a liability for judicially determined delinquency on the part of an insurer in the payment of its obligation. U. S. Fire Ins. Co. v. Diekerson, supra. A corresponding right of recovery necessarily arises in favor of the beneficiary. The right thus created in favor of the beneficiary is'a substantive right, and a remedy for its enforcement in the state courts is clearly provided. The question here is whether or not the statutory liability and the corresponding right in the beneficiary may be enforced in a court of the United States.

By executing the policy, the insurance company assumes the statutory liability and acquiesces in the corresponding right created in the beneficiary. The statute in effect becomes a part of the contract, because the parties contract subject to the terms of the statute. The liability imposed by the statute upon the insurer is in effect an incident of the insurer’s wrongful refusal to pay, not a mere procedural incident to the entry of the judgment.

In imposing the statutory liability, from which flows the substantive right under consideration, the Florida Legislature used the most comprehensive and expansive language it could, with propriety, employ. It would have added nothing to the effect of the statute had the Legislature added after the phrase in question “or by any court of the United States.” Such a provision would have been' incongruous.

The parties having contracted with reference to the statute, the substantive right clearly exists in a prevailing plaintiff to recover reasonable attorney’s fees, and the remedy for the enforcement of that right in the state courts is beyond question. Whether or not a remedy exists in the courts of the United States for the enforcement of such right ought not to depend upon any undue refinement of language, nor upon tenuous distinctions which may be drawn between a right created and the remedy given. It is clearly the policy of the state of Florida, legislatively declared, that a prevailing plaintiff shall recover reasonable attorney’s fees in these eases. That policy has been made effective by making the inclusion of such fee mandatory in judgments rendered in the state courts in these cases. As was said by the Supreme Court in Sioux County, Neb., v. National Surety Co., 276 U. S. 238, 48 S. Ct. 239, 241, 72 L. Ed. 547, speaking upon a situation closely analogous to the one here under consideration : “It would be at least anomalous if this policy could be thwarted and the right so plainly given destroyed by removal of the cause to the federal courts.”

There may be instances in which, when an action is removed from state to federal courts, certain remedies may be lost because of inhibitory statutes existing in the federal jurisdiction. But that is not the situation here. Here we have a statutory liability resulting in a substantive right, and a remedy for its enforcement in the state courts clearly provided. The state Legislature could do no more. Why should not that liability and corresponding right follow the parties into this court, in the absence of an inhibitory statute, or rule of practice in this jurisdiction, of which there are none. To hold that such recovery could not be had in this jurisdiction would be to exalt the form of the statute over its substance, thus defeating the clear legislative intent. There is no indication that the phrase in question was used in a restrictive or limiting sense. Per contra, it appears to have been the legislative intent to make the provision as broad as possible.

Counsel for the defendant contends that sections 823 and 824, Rev. St. (28 USCA §§ 571, 572), are federal legislation within this field, occupying the entire field to the exclusion of the state statute. The federal statutes last cited, however, relate to docket fees or costs in the conventional sense of those terms, while the attorney’s fees provided by the Florida statute under consideration are not costs in any sense, but constitute a statutory liability against a delinquent insurer. There is no conflict between the statutes mentioned. The Supreme Court has so held in construing a similar Nebraska statute, although it was provided in the Nebraska statute that such attorney’s fees should be “taxed, as part of the costs.” Sioux County, Neb., v. National Surety Co. supra. See also Business Men’s Assurance Co. v. Campbell (C. C. A.) 18 F.(2d) 223; New York Underwriters’ Fire Ins. Co. v. Malham & Co. (C. C. A.) 25 F.(2d) 415, 422.

In Conner v. Connecticut Fire Ins. Co., 292 F. 767, it was held by this court, speaking through Judge Call, that the attorney’s fees claimed by a plaintiff in a suit of this nature could be considered in determining the jurisdictional amount in eontroversey, and that such fees were not merely costs. As against the conelusiveness of that decision upon the question now under consideration, it is urged that while in the Conner Case the amount of the attorney’s fees was an amount claimed in good faith so as to be considered for the purpose of determining the jurisdictional amount there in eontroversey, that nevertheless the validity of such claim was not thereby established, and such claim for fees might later have been disallowed at the trial upon the grounds now urged against the allowance thereof. If, however, as -defendant contends, these attorney’s fees are not recoverable in any event in federal courts, the claim therefor should be — and no doubt in the Conner Case, supra, would have been — rejected, in determining the jurisdictional amount in controversy.

It is held that such fees may be recovered in this court if the facts warrant it.

Motion granted.


author: UNDERWOOD, District Judge.

text:
    In re LEE.
    No. 15094.
    District Court, N. D. Georgia, Atlanta Division.
    July 24, 1931.
    McClelland, Savage & Crawford, of Atlanta, Ga., for the bankrupt.
    Houston White and John J. Poole, both of Atlanta, Ga., for objecting creditor.
   UNDERWOOD, District Judge.

William H. Lee filed a voluntary petition in bankruptcy November 22, 1929, and was adjudicated a bankrupt on the same date. He was a traveling salesman and at home very little. A joint drawing account of himself and wife was kept at a bank. The bank’s records of this account show nothing unusual about it. The bankrupt’s earnings were regularly deposited, and withdrawals were in such amounts and number as would be expected in meeting the ordinary family expenses. The canceled cheeks could not be produced, but there were no facts, especially in the light of the bank’s records, to show destruction with intent tq conceal bankrupt’s financial condition. In re Silverstein (C. C. A.) 35 F.(2d) 497; Ditto v. Wallace State Bank (C. C. A.) 22 F.(2d) 971.

The evidence shows that the wife was given a reasonable amount each month to meet her own and the family expenses, and that any small surplus she managed to save was hers individually. Besides these small savings she made some money by breeding fine dogs, and perhaps had some other small income.

In addition to the joint drawing account of herself and husband, the wife had a savings account which was originally in the name of both. She testified, however, that these funds belonged to her alone, and that her husband had no interest in it, and that it was put in their joint names so that her husband could use it without legal formalities in the event anything happened to her. ,,

The evidence is silent as to when this account was opened originally, but it appears from the bank’s records that when the Fourth National Bank, the bank in which the account stood, was merged into the First National Bank, a new card was started, and the first entry thereon was a balance of $119.44, on January 1, 1929. Only four entries were made after this until the joint account was changed, on September 9, 1929, to the individual name of the bankrupt’s wife; the four entries being as follows: February 4, 1929; $25; February 26, 1929, $100; March 6, 1929, $56; May 4,1929, $80. The only withdrawal was on June 7, 1929, and was for the sum of $70.

Thereafter, while in her sole name, only one deposit was made, $50, on the 1st day of October, 1929. There is no evidence to show that this $50 came from the bankrupt, and probably did not, inasmuch as he was then unemployed, and the joint drawing account had been closed. On the other hand, $200 were drawn from the savings account on October 24, 1929, apparently to meet family expenses; bankrupt, as above stated, being then out of employment.

The objecting creditor claims that the failure of the bankrupt to schedule this savings account as an asset was a fraud on his creditors, and that his discharge should be denied on this account.

There is no evidence in the record to disprove the wife’s positive testimony that the savings account belonged to her individually, nor to show any improper transfer of funds by bankrupt to his wife, or any other unlawful or fraudulent transaction with respect to his drawing account.

A husband has the right to give his wife small parts of his earnings from time to time, provided same are not unreasonable in relation to his earnings, and not made with intent to defraud his creditors. The mere existence of such small allowances for her personal use is not sufficient of itself to show any fraud on his creditors or any wrongful intent, and there was no other evidence on the subject. In re William Tirschler & Co. (D. C.) 18 F.(2d) 365.

The second ground of objection to the discharge was that the bankrupt failed to schedule four chairs bought of Sears Roebuck & Co. The evidence shows that these chairs were bought by the wife on the installment plan on February 15, 1928, that 'the first payment of $25 was made out of a gift to her son from one of his aunts, and that the bankrupt had nothing to do with the transaction. The deferred payments, the last of which was made November 13, 1928, were charged to the bankrupt on Sears Roebuck & Co.’s books, but there was no evidence that he authorized same or knew anything about the transaction. The wife claimed that these payments were made out of the part of the allowance that belonged to her individually, though drawn from the joint drawing account.

By the great weight of authority, the bankruptcy law should be construed liberally in favor of the bankrupt. Royal Indemnity Co. v. Cooper, 26 F.(2d) 585 (C. C. A.); Lockhart v. Edel et al., 23 F.(2d) 912 (C. C. A.)

I find the objections have not been sustained, and the bankrupt’s discharge is hereby ordered.


text:
    KAISERMAN v. UNITED STATES.
    No. 17943.
    District Court, S. D. Illinois, S. D.
    June 27, 1931.

      Clayton J. Barber and Alton G. Hall, both of Springfield, Ill., for plaintiff.
    R. E. Updike, Sp. Atty., Bureau of Intersnal Revenue, of Washington, D. C., and Marks Alexander, Asst. U. S. Atty., of Springfield, Ill. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, of Washington, D. C., and Walter M. Provine, U. S. Atty., of Springfield, Ill., on the brief), for the United States.
   FITZHENRY, District Judge.

This cause coming on to be heard upon the issues raised by the pleadings; and the court, having heard the evidence adduced by the respective parties, and the arguments of counsel, and being fully advised in the premises, makes the following findings of fact:

(1) The plaintiff, Morris Kaisennan, a naturalized citizen not able to read or write, was proprietor of a general or “department” store at 618 East Washington street in Springfield, 111., from 1910 until 1921, having on hand a stock of merchandise worth at least $20,000 at all times from the beginning of 1913 until May 12,1921, when he made a bulk sale of the entire stock of merchandise and fixtures for the sum of $32,000.

(2) Plaintiff’s income tax return for the years 1918 to 1921, inclusive, contained no actual inventories but only conservative estimates of the amount of his stock, based on his returns to the local personal property tax assessor.

(3) As a result of an investigation in 1923, the plaintiff’s income tax liability was estimated on a cash basis and additional taxes assessed by the Commissioner of Internal Revenue, and collection thereof enforced by distraint warrant served July 23, 1923 (payment being made August 4, 1923), for calendar years and in amounts as follows:

Year. Amount..

1918 .......................... $ 323.19

1919 .......................... 668.97

1920 .......................... 2,988.78

1921 .......................... 5,408.62

$9,389.56 Total

(4) In determining plaintiff’s income liability for 1921, the Commissioner treated the entire sale price of $32,000, received for the merchandise and fixtures, as income, while plaintiff contended that it was but a return to him of his invested capital.

(5) Plaintiff filed a claim for refund July 26, 1927, which was denied November 9,1929, and this suit filed April 25, 1928.

(6) The testimony of witness Eayart, who made monthly inspections of the stock for insurance purposes, and witness Ober-man, who was employed as assistant manager by plaintiff from 1913 to 1917, inclusive, that plaintiff had on hand at all times from the beginning of 1913 to the time of said sale a stock of merchandise worth at least $20,000 (Eayart estimates $25,000), is uneontrovert-ed.

(7) The stock of merchandise, to the extent of $20,000, which plaintiff had on hand from the beginning of the year 1913 to May 12,1921, constituted plaintiff’s invested capital, and the sale price thereof, to the extent of $20,000, was erroneously treated by the Commissioner as income, and the additional taxes assessed by reason thereof, in the sum of $3,-865.66, should be refunded, with lawful interest from the time of collection on August 4, 1923.

And the court makes the following holdings on propositions of law:

(1) The amount of plaintiff’s merchandise embarked in his business, at all times from 1913 until the bulk sale in 1921, was invested capital and not income, and therefore not subject to taxation under the income tax law.

(2) The value of the stock of merchandise may be shown, for the purposes of this suit, by the opinions of witnesses having knowledge of the quantity, quality, and value thereof.

(3) Computation of the taxpayer’s net income by the Commissioner of Internal Revenue is only prima facie correct and not controlling, either as to method or result; proof, under usual rules of evidence, of the true facts as to income, is competent to overcome such finding.

(4) If the Commissioner of Internal Revenue has, pursuant to the provisions of title 26, United States Code Annotated, § 953(b), computed the taxpayer’s net income by the method which, in the opinion of the Commissioner, does clearly reflect the income, the computation thus made is not binding upon the court in a taxpayer’s suit to recover income taxes paid based upon such computation. The court may, under the usual rules of evidence, hear any competent evidence bearing upon the net income of the taxpayer, and may from said evidence determine the amount of said net income and the amount of tax due thereon.

This ease, when stripped of all its collateral issues, turns upon a single point. This point is well stated in the letter of the Commissioner of Internal Revenue to the plaintiff under date of November 9, 1913, giving the reasons for rejecting the claim of the plaintiff here sued upon. There it was said:

“It is noted that you do not have books or records of account to substantiate the cost of the merchandise on which a value of $20,000 is placed as of March 1, 1913.
“Treasury Decision 3367 holds that opinion evidence, expert or otherwise, of a value of property as of a prior date will not be accepted.
“It is the opinion of this office that while Treasury Decision 3367 deals specifically with value of property in connection with a claim for paid-up surplus for invested capital purposes, the underlying principle is the same in determining the value of property for any other purpose of the statute. ♦ * #
“Your claim will, therefore, be rejected.” Upon this question we feel that the conclusion based upon the rule with reference to opinion evidence upon the authority of T. D. 3367 was erroneous.

In this particular case the Bureau has heretofore applied the rule and authorized a refund for the fixtures, which was ascertained entirely upon opinion evidence, and the competency of opinion evidence as to value has frequently been held. Somers Lumber Co.’s Appeal, 2 B. T. A. 106; James Couzens v. Comm. Int. Rev., 11 B. T. A. 1040; Parkersburg & Marietta Sand Co. v. Comm. Int. Rev., 11 B. T. A. 87; Firestone’s Appeal, 2 B. T. A. 309; American Express Co.’s Appeal, 2 B. T. A. 498; Heiner v. Crosby (C. C. A. Pa. 1928) 24 F.(2d) 191; Bessemer Inv. Co. v. Comm. Int. Rev (C. C. A. 2d 1929) 31 F.(2d) 248; River & Rail Storage Co.’s Appeal, 1 B. T.A. 1098.

It is true the evidence shows that no inventory was taken on March 1, 1913, nor were the values of the several items ascertained in any way. The taxpayer and the merchant, while intelligent, could not read nor write, kept no books of account^ and failed to preserve the memoranda made by employees just before and at the time in question, but the plaintiff himself testified, and the insurance appraiser, Mr. Fayart, who made monthly inspections of the stock for insurance purposes and who kept himself familiar with the stock, testified that on March 1, 1913, the taxpayer had on hand a stock of the value of $20,000. Mr. Oberman, a young man who worked for the taxpayer at that time, during the year 1913, testified that the minimum of stock on hand at the time in question and thereafter until the sale in bulk was of the value of $20,000.

It is true the evidence is not as persuasive as it might have been had an inventory been taken upon that date and the purchase price of each item ascertained and proper deductions made for depreciation. But we feel, in the light of all of the facts and circumstances in this ease, that the best evidence obtainable has been produced to establish the minimum value of the stock on March 1, 1913 and throughout the period involved in this litigation (1913 to 1921) and until the bulk sale in the latter year.

The findings of the Commissioner are prima facie correct, but not conclusive. They may be rebutted and overcome by competent proof. Robert P. Hyams Coal Co. v. United States (D. C.) 26 F.(2d) 805.

We therefore conclude that the plaintiff is entitled to recover the amount found to be due in the findings of fact herewith filed.


text:
    UNITED STATES v. MAGGIO et al.
    District Court, W. D. New York.
    July 28, 1931.

      Richard H. Templeton, U. S. Dist. Atty., of Buffalo, N. Y. (Frederick T. Devlin, Asst. U. S. Dist. Atty., of Buffalo, N. Y., of counsel), for the United States.
    Latona & Carlo, of Buffalo, N. Y., for defendants.
   KNIGHT, District Judge.

Defendants are charged with the crime of knowingly transporting a quantity of intoxicating liquor, fit for beverage purposes, without obtaining a permit therefor. This is a motion to suppress the evidence gained by virtue of a search and seizure without a warrant, for the return of a quantity of alcohol and the truck in which the same was being transported. It is conceded by the government that the search .and seizure was without probable cause. The evidence aforesaid will be suppressed and the truck returned to the defendants.

The question left for determination is whether the alcohol illegally seized shall be returned to the defendants. The petition upon which this motion is made alleges defendants’ ownership of the truck in question, illegal search of such truck, the arrest of the defendant, and that defendants’ “rights under the Fourth and Fifth Amendments of the Constitution of the- United States have been violated in that this was an unreasonable search and seizure of his automobile.” There is no assertion of any interest in or right to possession of any of the contents. It was conceded upon the argument that the alcohol seized was fit for beverage purposes.

The authorities are by no means in agreement regarding the effect of the instant state of facts. Many of the cases in which it has been held that liquor illegally seized should be returned to the person from whom seized are illegal seizures in private dwellings. Most of the cases cited by the defendants’ counsel on their brief upon this motion are of such a character. Connelly v. U. S. (D. C.) 275 F. 509; U. S. v. Boasberg (D. C.) 283 F. 395; Keefe v. Clark (D. C.) 287 F. 372; U. S. v. Mattingly, 52 App. D. C. 188, 285 F. 922; Amos v. U. S., 255 U. S. 316, 41 S. Ct. 266, 65 L. Ed. 654. Many other eases are distinguishable in their facts from the case before us. Margie v. Potter (D. C.) 291 F. 285; Gallagher v. U. S. (C. C. A.) 6 F.(2d) 758; U. S. v. Burns (D. C.) 4 F.(2d) 131; Brock v. U. S. (C. C. A.) 12 F.(2d) 379. In these cases it will be seen that there at least was some presumption or basis of lawful possession shown.

Section 33 of title 2 of the National Prohibition Act (27 USCA § 59) provides in part: “It shall not be unlawful to possess liquors in one’s private dwelling while the same is occupied and used by him as his dwelling only and such liquor need not be reported, provided such liquors are for use only for the personal consumption of the owner thereof,” etc. It seems to me the reason for these decisions may rest on a motion of this character upon the presumption of lawful possession in a private dwelling. The seizure having been made in such a dwelling, and nothing having been shown that its possession was illegal, an order for its return may properly have been made. It is true that section 33, supra, provides that “the burden of proof shall be upon the possessor in any action eon-eeming the same to prove that such liquor was lawfully acquired, possessed, and used.” But as said in U. S. v. Descy (D. C.) 284 F. 724, 726, the words “in any action concerning the same” are not appropriate to a proceeding of this character, and so do not change the presumption in favor of an owner where there has been any illegal seizure in a dwelling house. It will be noted also that this portion of section 33, supra, applies to the entire section.

In the case at bar, defendants were transporting in a truck 220 five-gallon cartons of alcohol fit for beverage purposes.

Section 25, title 2, National Prohibition Act (27 USCA § 39), provides that it shall be “unlawful to have or possess any liquor * * * intended for use in violating this chapter * * * and no property rights shall exist in any such liquor.”

Section 33, title 2, supra, provides that “the possession of liquors by any person not legally permitted under this chapter to possess liquor shall be prima facie evidence that such liquor is kept for the purpose of being sold * * * or otherwise disposed of in violation of the provisions of this chapter.” There are various provisions in the National Prohibition Act authorizing possession of liquor under permits. No proof whatever has been offered of any right of the defendants to legal possession of the alcohol in question, nor is there any presumptive right of possession.

If the defendants have the right to possession, the opportunity was given to make proof of this. The burden rests upon them. This view is supported by numerous authorities, among which are U. S. v. Rykowski (D. C.) 267 F. 866; U. S. v. Dziadus (D. C.) 289 F. 837; U. S. v. Gaitan (D. C.) 4 F.(2d) 848; U. S. v. O’Dowd (D. C.) 273 F. 600; Strong v. U. S. (C. C. A.) 46 F.(2d) 257, 261; U. S. v. Kaplan (D. C.) 286 F. 963.

Strong v. U. S., supra, is the most recent decision of a Circuit Court of Appeals. This is in the First Circuit and was decided January 2,1931. It was a case of a libel for the forfeiture of certain liquors. The court found that the search and seizure were unlawful. Say the court in part: “There can be no question but that Congress in section 25 fixed the event, upon which a divestiture of the claimant’s title and right to the liquors would take place, to be his possession of liquors intended for use in violation of the act, for that section expressly provides that in that event 'no property rights shall exist in any such liquor.’ The claimant, therefore, was divested of all title or right to the liquors immediately upon his obtaining possession of them; and it is difficult to see what standing' he has in court as claimant of the liquors, for, on the happening of that event, he not only became divested of all title and right to the possession of the liquors, but thereupon the government became 'entitled to the possession’ of them.” The decree of forfeiture was affirmed, and it was there held that it was not necessary to allege that a seizure was lawfully made.

Retention of the liquor by the government is not violative of either the Fourth or Fifth Amendments to the Constitution. Suppression of the evidence of the seizure prevents proof of all acts growing out of such seizure and thus affords full protection given by the Fourth Amendment. Weeks v. U. S., 232 U. S. 383, 34 S. Ct. 341, 58 L. Ed. 652, L. R. A. 1915B, 834, Ann. Cas. 1915C, 1177; Gouled v. U. S., 255 U. S. 298, 41 S. Ct. 261, 65 L. Ed. 647; Amos v. U. S. supra.

Alcohol fit for beverage purposes, possessed, except as permitted by the National Prohibition Act, is contraband, and in such no person can have property rights. Moreover, this proceeding, chosen by the defendants, is “due process” within the meaning of the Fifth Amendment.

The case of U. S. v. Specified Quantities of Liquors, 7 F.(2d) 835, decided in this circuit, is cited as controlling upon this court. It does not seem to me that the facts are parallel. That case is comparable with one in which there has been an illegal seizure in a private dwelling. It was made from a chemist who had a permit authorizing the making of pharmaeal preparations, and by virtue thereof had possession of certain barrels of alcohol.

In the view which this court takes of the ease at bar, the motion for the return of the alcohol is denied.


author: HUTCHESON, Circuit Judge.

text:
    MacMILLAN et al. v. RAILROAD COMMISSION OF TEXAS et al.
    No. 390.
    District Court, W. D. Texas, Austin Division.
    July 28, 1931.
    Saye, Smead, Wilson & Saye, of Long-view, Tex., for plaintiffs.
    C. L. Black, of Austin, Tex., amicus euriaa.
    James V. Allred, Atty. Gen., and Maurice Cheek and Fred Upchurch, Asst. Attys. Gen., for Railroad Commission.
    Marion S. Church, of Dallas, Tex., and Robert E. Hardwicke, of Port Worth, Tex., for defendant Capers.
    Conard E. Cooper, of Tulsa, Old., amicus curias.
    Before HUTCHESON, Circuit Judge, and WEST and BRYANT, District Judges.
   HUTCHESON, Circuit Judge.

This is a suit brought by citizens of another state against the railroad commission of Texas, seeking to have declared unreasonable, unjust, and void, and to restrain the enforcement of, an order of the commission issued by that body in April, 1931, as a part of a program first entered upon by it in August, 1930, to put into effect, in the oil fields of Texas, the plan of operation referred to in this suit and generally as “Proration.”

Plaintiff Alfred MacMillan, trustee, alleges himself to be the owner and operator of certain oil, gas, and mineral leases in Gregg and Rusk counties, in what is known as the East Texas oil fields. That his wells there are capable of producing 50,000 barrels of oil a day. That he has contracted with his coplaintiff, MacMillan Petroleum Company, the owner of oil refineries, pipe line systems, and other facilities in various fields, tó sell them large quantities of oil, and that company has in turn contracted with others for delivery to them of large quantities of oil, interstate and foreign.

He alleges that he is operating his properties skillfully and in such manner as to prevent waste, and to cause no injury to producing sands of adjoining properties. That he has been ordered by the railroad commission, upon pain of penalties and contempt actions, to desist from operating his wells as he is now operating them, and to reduce the production therefrom to 1,455 barrels daily. That to do so would injure his wells, prevent his complying with the drilling obligations of his leases, thus subjecting him to suit for damages for cancellation, and would prevent his complying with his contracts for sale of the oil, subjecting him to heavy resulting losses.

He asserts that the order is void, because (1) depriving plaintiffs of their properties without due process of law, and denying them the equal protection of the laws; (2) it impairs the obligations of contracts entered into by them; (3) it is an interference with interstate commerce; (4) the order rests not upon legislative authority or direction, and has no relation to the conservation of resources or the prevention of their waste, but is a mere arbitrary order designed to control the output, price, and market of crude oil by reducing the supply of oil to the demand for it.

Plaintiffs further allege that these orders are being enforced against all operators in the East Texas field; that they are disastrously affecting market conditions in the field; and that adequate relief for plaintiffs requires that the orders be enjoined as to all operators in the field. It further alleges that plaintiffs sue for themselves and all others similarly situated who will join therein. The bill concludes with a prayer for temporary injunction pending suit, and for permanent injunction upon final hearing.

Upon the filing of the bill in the Austin division of the Western district of Texas, the statutory court was formed and the matter came on for hearing before that court on the application for temporary injunction. That hearing was continued until June 24, at which time upon the understanding that the court might act upon the application for temporary injunction before it reached its decision on the merits, the matter was on full proofs submitted to the court both on the application for temporary injunction, and on the merits.

By these proofs plaintiff established substantially as alleged, the facts as to his ownership and operation under leases, of the properties in question, the contracts for sale of oil therefrom, interstate and foreign, the fact that the properties were being operated carefully and efficiently, and apart from the proration theory, in accordance with approved operating methods, without injuring the sands of his neighbors. That he was keeping the actual output of his wells greatly below their potential. That the commission’s umpire had given him notice to reduce his production of oil to the amount alleged.

He specifically established the setting on foot by the commission, in conjunction with committees of oil operators, of the proration plan, and the issuance of proration orders for the state of Texas, and for the East Texas oil fields as alleged. He further established in an overwhelming way by the recitations in the orders of the commission of August 14 and November 24, 1930, January 23, April 4, April 22, and April 29 of 1931, by the testimony of Terrell, chairman of the railroad commission, and of members of the oil proration committees, local and central advisory, by the testimony of' each witness who took the stand, and by the letter of R. D. Parker, chief supervisor, oil and gas division of the railroad commission of the state of Texas, that both the occasion and the compelling reasons for the establishment by the railroad commission of proration, originally and as now continued, were the disrupted and disorderly state of the oil business through the menace of overproduction.

The evidence offered by plaintiffs and by defendants made it plain that the real genesis of the plan and of the orders in question is to be found, and that they find their effective working only, in coping with market demand.

That while the proration orders for East Texas were not based openly, as elsewhere, on nominations by oil purchasers as to the amount of oil they would agree to buy, they were in fact, though covertly, based upon the same compelling consideration, the drastic reduction of output so as to bring it into relation with market demand. The commission set about to accomplish this result in that field:

(1) By fixing a low allowable production for each owner, not per well, but per unit of twenty and forty acres, in effect allowing the same production from each unit, whether it had one or ten wells upon it. Thus with one stroke the commission limited the output from existing wells, and prevented further development by, in the language of one of defendants’ counsel, “treating the owner as if he were a fool for having drilled four wells, where one would be enough.”

(2) After the fixing of the arbitrary allowable for the field, as one of the witnesses testified, “so low as definitely to be on the safe side,” the commission set on foot a sup-plicatory campaign among the purchasers and transporters of East Texas oil, earnestly entreating purchasers to buy proration oil in substantial quantities, and the purchasers and transporters to boycott all producers not complying with the commission’s order. Parker’s letter, Note 1, supra.

Plaintiff further established that though there was evidence that the proration plan of ratable and moderate withdrawals would, if properly applied, have some, effect to prolong the life of a field by delaying the intrusion of water and thus to enable more oil ultimately to be obtained, in the light of present knowledge this was largely theory and speculation, and that such plan could only be properly applied in each field after careful test and experimentation there.

Plaintiff established that the allowable for the East Texas fields was fixed at an arbitrary basis, arrived at without test or experimentation,, either on plaintiff’s property or in the field generally, as to the amount that might be safely withdrawn by each owner from his property without causing any physical waste. He made it clear that the allowable had been fixed arbitrarily and that therefore the plan so adopted and promulgated had the same relation to physical waste as an order not pinching in, but shutting the wells down absolutely would have, differing from such an order not in kind, but only in degree. That the plan was therefore bound to result in arbitrarily depriving plaintiffs of the right to produce their oil in accordance with their prudent judgment and desire, without any precedent finding having been made that the amount which plaintiffs desired to produce would actually cause physical waste. Plaintiffs, in short, established that the only kind of waste which the orders are designed to and do deal directly with, is economic waste, the loss of market price because of market glut. That such effect, if any, as they might have to prevent not economic, but physical waste, does not come fairly within the purpose or effect of the order, hut is a purely accidental incident thereto.

It would serve no useful purpose to burden this opinion with a summary of the evidence upon which these conclusions rest, for it in faithful detail but follows that given in hearing after hearing before committees, public bodies, and courts in the oil producing states of this country and daily appearing in countless articles and interviews, inspired and uninspired, upon the condition of the oil industry. Indeed, so importantly has this policy of proration as the cure for market glut been advanced, so currently and so widely debated as a matter of public concern has the necessity for its adoption been, so known to every man, that this court could fairly have taken judicial cognizance of the matters disclosed by the evidence; that with supply both actual and potential outrunning present demand, those interested in the oil business in this state not only financially, but as a matter of public and general concern have been first by private agreement, and latterly by invoking the aid of the commission, endeavoring to put into effect for the purpose of limiting the supply, some plan of operation which in a way most acceptable to the operators generally, will effect curtailment, and that a general consensus of opinion in Texas has latterly centered upon “proration” as the means effective to this end.

It remains to inquire whether, under the facts found, the proration orders in question are invalid, either as an attempt to exercise authority not granted by the Legislature, or, if resting on legislative grant, whether they are unjust, unreasonable, and void because violative of the constitutional guaranties to which plaintiffs appeal, or because constituting an unlawful interfei’enee with interstate commerce.

A word as to the commission, the source and terms of its authority, and as to the nature and character of a suit against it, will serve to clearly point the basis of our decision.

Created originally for the regulation of railway rates and practices, with authority to make rules, regulations, and orders regarding same, its jurisdiction has been latterly extended by act of the Legislature to the production and transportation of oil and gas. Its rules, orders, and regulations while carrying prima facie validity, are yet subject to inquiry at the suit of persons believing themselves aggrieved, the statute, article 6036b, providing: “If any person * * * at interest be dissatisfied with any rule, regulation or order adopted by the Commission in pursuance of the provisions of this Act such dissatisfied party may file a petition setting forth the particular cause of objections thereto in a Court of competent jurisdiction in Travis County against the Commission as defendant. Said action * * * shall be tried and determined as other Civil eases in said Court. * * * In all trials under this Section the burden of proof shall rest upon the plaintiff.”

Plaintiff’s suit, then, is not a class suit, but one under the statute in his own behalf, which he is entitled to maintain in the District Court of the United States for the Western District of Texas for relief against the proration orders in question, if they are, as to plaintiff, -unreasonable and unjust. Reagan v. Farmers’ Loan & Trust Co., 154 U. S. 362, 14 S. Ct. 1047, 38 L. Ed. 1014.

The laws of the state of Texas, enacted to conserve the oil and gas resources of the state, are the source of the commission’s power to make and enforce the orders in question, and to them we must look. Those portions of the statutes pertinent here, defining waste, enjoining the conservation of oil and gas, vesting the commission with authority over persons drilling and operating oil wells in Texas, and authorizing it to make rules and regulations for the conservation of oil and gas, and the prevention of waste thereof, are articles 6014, 6023, and 6029.

Under the authority of these statutes, the railroad commission has occupied the field assigned to it by making specific rules and regulations governing the drilling for, the production, and transportation of oil and gas with a view to preventing waste, as defined in the statutes, and injury to the lands of adjoining owners, and these rules, practices, and regulations have been quite uniformly sustained. Oxford Oil Co. v. Atlantic Oil Co. (C. C. A.) 22 F.(2d) 597; Humble Oil Co. v. Strauss (Tex. Civ. App.) 243 S. W. 528; Gilmore v. Straughan (Tex. Civ. App.) 10 S.W.(2d) 589; State v. Jarmon (Tex. Civ. App.) 25 S.W.(2d) 936; Railroad Commission of Texas v. Bass (Tex. Civ. App.) 10 S.W.(2d) 586.

Plaintiffs point to the fact that the statutes of Texas have not authorized, but have forbidden, the consideration in conservation orders of economic waste, and that no statute has undertaken to authorize as a legitimate method to prevent physical waste, pro-ration, or any similar plan. They declare that while the commission undoubtedly has authority to make reasonable rules and regulations having a real and direct relation to the conservation of oil and gas, and the prevention of waste, which though limiting the owner in the use of his property are designed for and effective to carry out the legislative will, the proration orders in question are not such orders. That they were not promulgated to carry out the legislative policy as declared in the statutes, and are therefore not commands of a sovereign state, but merely voluntary attempts on the part of the commission, in association with oil producers, purchasers and transporters of oil, to formulate and establish for the state, contrary to its long-established legislative policy forbidding combinations, agreements and arrangements in restraint of trade, and to affect the prices of commodities, the broad policy of so relating the supply of oil to the demand for it as to bring about and maintain the stabilization of the oil industry, through raising the price of oil both to the producer and the ultimate consumer and keeping it raised.

They say that this was to be accomplished by agreement and persuasion, as far as might be, but when these failed, by having the purchasers and transporters of oil boycott the recalcitrants and the commission proceed against them.

Those for the orders declare that the statute authorizing the suit puts upon plaintiffs the burden of proof to establish the unreasonableness of the orders. That until overthrown by such proof they must stand. That the motives, the purposes, the ultimate desires of the commission, of the oil companies, the oil committees and those who, working with them, have devised the scheme in question, have no bearing upon the validity of the regulation if as applied to the facts which it purports to fit, it validly regulates them. That, in short, the commission might have frankly declared that one of the purposes, or the main purpose, in mind was to reduce supply, if the rule as finally passed has the real and genuine effect to in a reasonable, fair, and adequate way prevent physical waste and not the merely accidentally incidental effect, as the result of shutting in production, of effecting some slight reduction in such waste.

Plaintiffs concede broadly that the motives, purposes, and intent of the commission are wholly immaterial if the complained of action is reasonably referable to its grant of powers, the conservation of oil, the prevention of physical waste, and in operation it has substantial relation to the granted power, even though that operation may accidentally or incidentally effect economic waste, a subject legislatively withdrawn from the commission. They deny that the commission, authorized as it was within limits to carry out a conservation policy against waste, as defined in the laws of the state, may, departing from that policy, establish a conservation policy of its own of the broadly economic kind in question here, with all the serious complications in which it is involved, the grave consequences which it entails, and make that policy effective against attack by camouflaging with words its real purpose and effect, or by pointing to some result in keeping with its powers which may incidentally or accidentally flow from it. Siler v. Louisville & N. R. R., 213 U. S. 175, 29 S. Ct. 451, 53 L. Ed. 753; Minnesota v. Barber, 136 U. S. 313, 10 S. Ct. 862, 34 L. Ed. 455; Brimmer v. Rebman, 138 U. S. 78, 11 S. Ct. 213, 34 L. Ed. 862; Real Silk Hosiery Mills v. Portland, 268 U. S. 325, 45 S. Ct. 525, 69 L. Ed. 982.

This is settled law where the validity of legislative acts, state or national, is in question. Presumptively valid though such acts are, courts, bound to give effect not to fictions, but to realities, may not, in construing them, close their eyes to what all men can see. Disregarding pretense, subterfuge, and chicane, courts must, looking through form to substance, ascertain the true purpose of a statute not from its recitals of purpose, but from the operation and effect of it as applied and enforced. Smith v. Ry. Co., 181 U. S. 248, 21 S. Ct. 603, 45 L. Ed. 847; Bailey v. Drexel Furn. Co., 259 U. S. 20, 42 S. Ct. 449, 66 L. Ed. 817, 21 A. L. R. 1432; Lochner v. New York, 198 U. S. 64, 25 S. Ct. 539, 49 L. Ed. 937, 3 Ann. Cas. 1133; Meyer v. Nebraska, 262 U. S. 390, 43 S. Ct. 625, 67 L. Ed. 1042, 29 A. L. R. 1446; Henderson v. New York, 92 U. S. 259, 23 L. Ed. 543; Chy Lung v. Freeman, 92 U. S. 275, 23 L. Ed. 550.

Certainly when a subordinate body like the railroad commission of Texas undertakes as here to deal in a broadly restrictive way with the right of a citizen to produce the oil which under the law of this state he owns, it must be prepared to answer his imperious query, “is it not lawful for me to do what I will with mine own,” by pointing to a clear delegation of legislative power. This must be found, not in the recitative portions of its orders, for the commission may not more than any other agent, lifting itself by its bootstraps, supply, by claiming, the power it does not have, but in the statutes themselves, which- have created, which control, and which are the source of the commission’s power.

Especially must this be so when, as here, under the thinly veiled pretense of going about to prevent physical waste the commission has, in co-operation with persons interested in raising and maintaining prices of oil and its refined products, set on foot a plan which, seated in a desire to bring supply within the compass of demand, derives its impulse and spring from, and finds its scope and its extent in the attempt to control the delicate adjustment of market supply and demand, in order to bring and keep oil prices up.

We have searched for but we cannot read in any legislative pronouncement, support for what the commission has done here. Authorized as we believe it to be to make rules and regulations reasonable and just, having a true and direct relation to the conservation of oil and gas, we can find no authority for its launching upon the policy in question.

This policy of the artificial forcing of prices by governmental action, in co-operation with those in the oil industry interested in raising prices, by either stimulating demand or keeping supply in bounds has never been attempted in this state by the Legislature itself; on the contrary, it has heretofore not only not established such policy, but has forbidden, by positive penal laws, the application of such artificial stimuli through private concert and agreement.

In the light of such long established policy, and of the language of the oil conservation statute itself, excluding from the statutory definition “economic waste,” we think it plain that whether the Legislature could lawfully have exercised this power, either directly or through a delegation of it to the commission, it has not only not confided the exercise of it to the commission, but has flatly withheld such power from it.

In short, we believe that the orders in question are unreasonable and void as to plaintiffs because issued in the attempted exercise, not of delegated, but of usurped powers. As usurpations, under the authority of the statutes of Texas authorizing this suit, we strike them down.

We find it unnecessary then to, indeed we may not in accordance with established law, inquire into the constitutional questions raised. Siler v. Louisville & N. R. R., 213 U. S. 175, 29 S. Ct. 451, 53 L. Ed. 753.

Let a decree in accordance with this opinion be prepared and filed.

       “Railroad Commission of Texas
      “Austin, Texas, May 23, 1931
      “To All Purchasers and Transporters of Crude Oil in the East Texas Fields:
      “To anyone acquainted with the situation in the East Texas District it seems inevitable that present conditions cannot continue long without completely breaking up proration with consequent disastrous results.
      “Several things if done would insure success and we confidently believe can and must come' from the purchasers and transporters of crude oil who handle the bulk of the production of Texas. Believing this, we insistently urge prompt action in the form of fair offers to buy prorated oil in substantial amounts and as near the posted price as possible and on that stabilized basis only, and immediate offers to make the necessary connections to take the oil. The effect of such a course is plain. Some purchasers have been holding back we understand, to see whether proration is going to work, or for some such reason or fear. It is manifest that if a substantial number stand and wait, the movement must certainly fail for want of support.
      “We also earnestly request of purchasing companies that only oil be purchased which has been produced in conformity with the Commission’s order governing proration in East Texas, and we ask that transporting companies refuse to handle any oil not produced strictly in accordance with the provisions of our order.
      “The Railroad Commission, hoping to be of real constructive public service, has given its support to proration as an official duty to perform, and will continue to do so until forced by circumstances to abandon hope of success. We urge you therefore to promptly and effectively move at once or we will be forced to admit failure and abandon the whole plan in Texas.
      “Railroad Commission of Texas
      “By R. D. Parker, Chief Supervisor,
      Oil & G-as Division.”

       Art. 6014. “'Waste. — Neither natural gas nor crude petroleum shall be produced, transported, stored or used in such manner or under such conditions as to constitute waste; provided, however, this shall not be construed to mean economic waste. The term “waste" in addition to its ordinary meaning, shall include permitting (a) escape into the open air of natural gas except as may be necessary in the drilling or operation of a well; (b) drowning with water of any stratum capable of producing oil or gas or both oil and gas in paying quantities; (c) underground waste; (d) any natural gas well to wastefully burn; (e) the wasteful utilization of natural gas; (f) the creation of unnecessary fire hazards."

       Art. 6023. “Jurisdiction. — Power and authority are hereby conferred upon the Railroad Commission of Texas, over all common carrier pipe lines conveying oil or gas in Texas, and over all oil and gas wells in Texas, and over all persons, associations or corporations owning or operating pipe lines in Texas, and over all persons, associations and corporations owning or engaged in drilling or operating oil or.gas wells in Texas; and all such persons, associations and corporations and their pipe lines, oil and gas wells are subject to the jurisdiction conferred by law upon the Commission, and the Commission is authorized and empowered to make all necessary rules and regulations for the government and regulation of such persons.”

         Art. 6029. “Rules and Regulations. — The Comíais» sion shall make and enforce rules and regulations for the conservation of oil and gas:
      “1. To prevent the waste of oil and gas in drilling and producing operations and in the storage, piping and distribution thereof.
      “2. To require dry or abandoned wells to be plugged in such way as to confine oil, gas and water in the strata in which they are found and to prevent them from escaping into other strata.
      “3. For the drilling of wells and preserving a record thereof.
      “4. To require such wells to be drilled in such manner as to prevent injury to the adjoining property.
      “5. To prevent oil and gas and water from escaping from the strata in which they are found into other strata.
      “6. To establish rules and regulations for shooting wells and for separating oil from gas.
      “7. To require records to be kept and reports made by oil and gas drillers, operators and pipe line companies and by its inspectors.
      “8. It shall do all things necessary for the conservation of oil and gas whether here especially enumerated or not, and shall establish such other rules and regulations as will be necessary to carry into effect this law and to conserve the oil and gas resources of the State."


author: COXE, District Judge.

text:
    HEWES & POTTER, Inc., v. MEYERSON et al.
    District Court, S. D. New York.
    July 23, 1931.
    See, also, 36 F.(2d) 1001.
    Charles E. Perkins, of Boston, Mass., and Alexander C. Neave, of New York City, for plaintiff.
    Mock & Blum, of New York City (Asher Blum, of New York City, and George E. Mueller, of Chicago, Ill., of counsel), for defendants.
   COXE, District Judge.

This in an infringement suit involving the Hewes patent, No. 1,419,137, issued June 13, 1922, for improvements in men’s neck-wear, consisting of a ready-made bow necktie with a pliable wire skeleton frame internally supporting the fabric. The patent was originally issued to Hewes & Potter, a co-partnership, as assignee of the inventor, and is now owned by the plaintiff corporation.

The patent was sustained in 1926 by Judge Thomas in the Connecticut District, in Hewes v. Gay (D. C.) 11 F.(2d) 165, but was invalidated on substantially the same showing in 1928 by the Circuit Court of Appeals for the Seventh Circuit in Hewes v. S. Deiches & Co., 24 F.(2d) 503, 504, to which latter decision certiorari was denied by the Supreme Court on October 8, 1928. Hewes v. S. Deiches & Co., 278 U. S. 601, 49 S. Ct. 9, 73 L. Ed. 529. The case is now presented a third time with little change in. the facts, and I am in effect asked to choose between the Connecticut decision and the decision in the Seventh circuit; and, inasmuch as I concur in the result and most of the reasoning of Judge Thomas’ opinion, I do not deem it necessary to do more than state my own general conclusions on the issue of patentability.

1. There is nothing in the prior art showing the use of a frame of pliable metal, or a skeleton frame of pliable wire, in a bow necktie to make the tie readily bendable or moldable to a variety of shapes at the will of the wearer. The Peterson patent, No. 733,871, discloses a “fastener,” composed of “a single piece of wire,” with a loop “to receive the shank of a collar button.” It in no way suggests the idea of a pliable wire or metal insert to make the tie moldable. The same may also be said of the Deshane patent, No. 1,340,755, which discloses a bow tie with a rigid wire frame secured externally to its' back. These two patents were the only ones cited against the patent by the Patent Office, and the patent issued over them.

2. The remaining patents cited by the defendants are not only remote, but have none of the essential characteristics of the patent in suit. The Manheimer and Schultz patents, Nos. 1,024,517 and 1,067,447, relate to ladies’ shoe bows, and disclose stiffeners or formers of light wire or plastic sheet metal. These bows are, however, entirely different in structure from the Hewes bow tie, and there is nothing in either patent to suggest the moldable feature of the patent in suit. I am inclined to think, therefore, that the Circuit Court of Appeals for the Seventh Circuit placed undue emphasis on both patents in its decision holding the patent void for lack of invention. The Sehloerb patent, No. 1,227,677, bears no resemblance to the patent in suit; it shows merely a pliable clasp to hold a four-in-hand tie in a desired position. And the Rosenfield patent, No. 1,-186,838, has no particular significance except to disclose the use of wire tape to support an open loop or plume in the hat-trimming art. The remaining patents have no bearing on the issue presented.

3. The prior publications, cited by the defendants, consisting of pamphlets entitled “Practical Home Millinery,” “The Art of Millinery,” and “A Complete Course in Millinery,” add little to the patented art already discussed. They show various methods of inserting pliable wires as stiffeners in bows or loops in the millinery art; but aside from such general teaching they are of no help in determining whether or not it was invention to produce the Hewes tie. These publications were not part of the record in the Connecticut case, but were relied on in the decision in the Seventh circuit, where it was stated in the opinion that “they told the reader how to use wire skeletons to shape and hold the shape of bows of various makes.” That may well be, but I do not think they helped materially to solve the difficulties confronting Hewes in his efforts to produce a commercially possible, moldable, ready-made bow tie which would not have the faults or the defects of the prior art. “The skilled mechanic might study them till doomsday and he would not think of it”; that is, the Hewes tie. Mack v. Spencer Optical Mfg. Co. (C. C.) 52 F. 819, 821.

4. The specification stated that “the fabric of the wing extends materially beyond the outline of the wire skeleton frame of the bow,” and, although claims 1 and 2 make no specific claim to that particular feature, I am satisfied that this is the obvious meaning of the words “being readily bendable to impart a variety of shapes to the tie,” appearing in the claims. I am clear also that under the authorities claim 3 cannot be held indefinite because of the characterization of the skeleton frame as “substantially smaller” than the outlines of the bow. Eibel Process Co. v. Paper Co., 261 U. S. 45, 65, 43 S. Ct. 322, 67 L. Ed. 523; Franc-Strohmenger & Cowan v. Arthur Siegman (D. C.) 25 F.(2d) 108, affirmed (C. C. A.) 27 F.(2d) 785, 786.

5. The bow tie of the patent in suit has enjoyed a conspicuous commercial success, and has completely supplanted the ready-made ties of the prior art; and, while commercial success is in no way a substitute for invention, still it is “a powerful piece of evidence” in a doubtful ease. Kurtz v. Belle Hat Lining Co. (C. C. A.) 280 F. 277; Minerals Separation v. Hyde, 242 U. S. 261, 37 S. Ct. 82, 61 L. Ed. 286; Franc-Strohmenger & Cowan v. Arthur Siegman (D. C.) 25 E.(2d) 108. Neither is the commercial success in the present ease fairly attributable to the extensive advertising and aggressive sales methods employed by the plaintiff. Undoubtedly these contributed to the result, but they were necessary to protect the patent, and are the natural concomitants of every meritorious invention.

6. The fact that Deiehes himself applied, on November 20,1922, or almost immediately after the issuance of the patent in suit, for patent No. 1,481,539, covering a bow tie in all respects substantially the same as that of the patent in suit, is mute testimony of the high character of the invention.

I, therefore, hold that all three elaims of the patent are valid, and that they are entitled to a range sufficient to include the ties manufactured and sold by the defendant Meyerson, and embodying the insert of the Deiehes patent, No. 1,481,539.

There remain only the defenses of estoppel and failure to disclaim, urged by .both defendants. Originally the present suit was brought against Meyerson, as the sole defendant; and, after Meyerson had answered, S. Deiehes & Co., a corporation, petitioned for, and was granted, leave to intervene as a party defendant. Hewes & Potter v. Meyerson (D. C.) 36 F.(2d) 1001. The ground of the application for intervention was that Meyer-son had purchased his inserts from one Pit-house, who was a licensee of S. Deiehes & Co.; and it was insisted, therefore, that Meyerson was entitled to immunity from prosecution in the present suit. The argument appears to be that, because S. Deiehes & Co. was successful in the Chicago litigation, any one who used the Deiehes insert in the manufacture of a bow tie should be accorded immunity under the authority of Kessler v. Eldred, 206 U. S. 285, 27 S. Ct. 611, 51 L. Ed. 1065. The difficulty with this contention, however, is that the Hewes patent covers a bow tie, of which one element in the combination is the pliable wire or metal frame, and Pithouse, the licensee of S. Deiehes & Co., manufactures and sells only the Deiehes insert, leaving it to Meyer-son to incorporate the insert in the completed bow tie produced by him. Undoubtedly the bow ties manufactured and sold by S. Deiehes & Co. are entitled to immunity under the Kessler decision; but this immunity does not extend to Meyerson, who himself manufactures and sells the patented bows, after purchasing the Deiehes inserts from Pit-house. Rubber Tire Wheel Co. v. Goodyear Tire & Rubber Co., 232 U. S. 413, 34 S. Ct. 403, 58 L. Ed. 663; Woodward Co. v. Hurd, 232 U. S. 428, 34 S. Ct. 409, 58 L. Ed 670. I am inclined to think, therefore, that S. Deiehes & Co. has no proper place as a defendant in the present suit, and that the defense of estoppel, interposed by both defendants, must necessarily fail. Wenborne-Karpen Dryer Co. v. Dort Motor Car Co. (C. C. A.) 14 F.(2d) 378.

The defendants further insist that the present suit should be dismissed because of the failure of the patentee to disclaim after the unfavorable decision in the Chicago litigation, and .cite the recent Supreme Court decision in Ensten v. Simon, Ascher & Co., 282 U. S. 445, 51 S. Ct. 207, 75 L. Ed. 453, in support of their contention. It is not, however, satisfactorily explained how a patentee can disclaim where his entire patent has been declared invalid by a Circuit Court of Appeals in one circuit and sustained in another circuit, and the entire purpose and history of the disclaimer statute indicates that it was never intended that it should apply to such a situation.

The plaintiff may have a decree deciar--ing all three elaims of the patent valid and infringed, with costs against both' defendants.