text:
    Richard R. RISS, Sr., Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
    No. 72-1342.
    United States Court of Appeals, Eighth Circuit.
    Submitted Feb. 12, 1973.
    Decided April 19, 1973.

      James K. Logan, and Edward M. Boyle, Olathe, Kan., for appellant.
    Michael L. Paup, Atty., Tax Div., Dept, of Justice, Washington, D. C., for appellee.

      Before GIBSON and ROSS, Circuit Judges, and BENSON, District Judge.

       Judge Benson, Chief Judge of the District Court for the District of North Dakota, sitting by designation.

   GIBSON, Circuit Judge.

This appeal is another episode in the tax difficulties that has engulfed the appellant Richard R. Riss, Sr. and several related corporations that he controlled during the time the tax problems arose. This particular appeal concerns (1) the holding of the Tax Court that the appellant-taxpayer received a dividend of $96,000 in 1958 in consummating a bargain purchase from a controlled corporation, and (2) the disallowance of a bad debt deduction taken in 1963 on appellant’s personal income tax and a related issue of a net operating loss carryback from the year 1963 to the year 1960, which turns on the resolution of the bad debt issue.

CONSTRUCTIVE DIVIDEND ISSUE

We first consider the older of the tax problems originating in the taxpayer’s purchase of a 50 per cent stock interest in the Niles and Moser group of corporations and a $215,000 • note of that group from Transport Mfg. & Equipment Company (T.M.E.), a corporation controlled by taxpayer. Riss purchased the stock for $150,000 and the note for its face value of $215,000.

The Niles and Moser group was engaged in merchandising cigars. Without repeating the total background of Riss’s difficulties in the operation of his controlled trucking company, Riss & Co., and its affiliate T.M.E., utilized for the purpose of purchasing capital equipment for Riss & Co.’s operations, suffice it to say that Riss & Co. enjoyed a high degree of prosperity in the hauling of explosives in the early 1950’s, when its operating revenues exceeded $30 million and then entered into a period of precipitous decline so that it sustained operating losses from 1956 through the pertinent period of these tax difficulties. Riss & Co.’s problems were compounded by major law suits from suppliers of equipment, state governments seeking fines or sanctions for violating state operating laws, and jeopardy assessments by the United States government of $4.9 million against Riss & Co. and $2.3 million against T.M.E. During this period of travail Riss & Co. and T.M.E., in order to get the jeopardy assessments lifted, agreed with the then District Director of Internal Revenue that T.M.E. would not make any major transfer or sale of its assets without written notice to the Director.

T.M.E. had held since 1955 a 50 per cent stock interest in six corporations, known as Niles and Moser group and engaged in the merchandising of cigars. The total acquisition cost of the Niles and Moser group asset was about $2,-700,000, which was financed in part by a 50 per cent stock purchase for $150,000 and $215,000 loan from T.M.E. together with a like loan of $215,000 and 50 per cent stock purchase from R. O. Stenzel & Company. The balance of the $2.7 million was obtained from a commercial lending institution. The loans made by T.M.E. and Stenzel were subordinate to the bank loan.

In 1958 T.M.E. needed $400,000 cash to pay a bank loan. T.M.E. decided to sell some of its non-productive assets, and the 50 per cent stock interest in the Niles and Moser group was sold to appellant Riss at the figure these assets had on T.M.E.’s books, namely $150,000 for the stock and $215,000 for the note. Appellant testified he offered this stock to Mr. Stenzel, the other 50 per cent owner, but he was not interested. The record, however, is silent as to what price was placed on the stock or the stock and note in the offer to Stenzel. Stenzel was the active operator of the business, and under the agreement of purchase with the appellant, Stenzel could control the business as he had the right to name three of the five members of the Board of Directors of the company.

The Niles and Moser group experienced, since its acquisition by T.M.E. and Stenzel in 1955, a successful financial operation, increasing its earned surplus from zero in 1955 to over $446,000 in 1958 and $687,000 in February 1959. No dividends had been paid on this stock because of the large bank debt. The average annual after tax income of the group was also substantial.

The sale to the taxpayer Riss was, after proper notice to the District Director of Revenue, made on September 9, 1958. The District Director interposed no objection to the proposed sale. The taxpayer apparently borrowed money on other assets to make this purchase, and the $365,000 received by T.M.E. was applied to a $400,000 obligation then due to a bank. The remaining $35,000 was paid by way of a 90-day note.

The Commissioner determined that the taxpayer’s purchase of the Niles and Moser stock constituted a bargain purchase and treated the difference between $342,000, the amount which the Commissioner determined to be the fair market value of the shares, and the sale price of $150,000, as a dividend distribution to taxpayer. Palmer v. Commissioner, 302 U.S. 63, 69, 58 S.Ct. 67, 82 L.Ed. 50 (1937); Southern Ford Tractor Corp., 29 T.C. 833, 840-841 (1958). The Commissioner arrived at his valuation by multiplying the average annual earnings for the period by the factor of four, in other words, a capitalization of earnings at the rate of 25 per cent. He also arrived at a net worth liquidation valuation in the same amount of $342,000.

In contesting the Commissioner’s fair market value, the taxpayer contends that no outside party would have been interested in buying the stock in a closely held corporate group that was managed by the owner of the other 50 per cent interest and subject to the direction of a board of directors controlled by the other owner. Also, adverse to the shares’ market value were the sizeable jeopardy income tax assessments and the dependency of the business upon the operating knowledge and skill of the other 50 peí-cent holder, R. O. Stenzel. Further, the companies were totally dependent upon suppliers who could cancel for any reason upon 90 days notice, and the suppliers required the taxpayer’s personal guarantee with every purchase made by the corporate group. Balancing and possibly outweighing the adverse factors were the excellent operating results and the increase in net worth. Obviously the shares in question had appreciably increased in value.

The notice of deficiency for 1958 was issued to the taxpayer on June 29, 1962. Taxpayer filed his petition in the Tax Court on September 19, 1962, which the Commissioner answered on November 15, 1962. The Commissioner, however, raised the constructive dividend issue for the first time in an amended answer on October 7, 1964. Ordinarily the burden of proof is on the taxpayer to disprove a valuation set by the Commissioner. However, since the Commissioner was late in raising the issue of a constructive dividend, he has the burden of proving that the transaction was in substance a dividend. Riss & Co. v. Commissioner, 56 T.C. 388, 429 (1971); Rule 32, Rules of the United States Tax Court.

The Tax Court did not accept in full the Commissioner’s valuation but did find that the Commissioner carried his burden of prouf in showing that a constructive dividend had in fact been received in the amount of $96,000. It held that “where corporate property is sold to a stockholder at less than its fair market value, the transaction may be regarded as a bargain purchase with the ‘bargain’ element being taxed to a shareholder as a dividend. Southern Ford Tractor Corporation, 29 T.C. 833 (1958); and Stanley V. Waldheim, 25 T.C. 839 (1956), affd. 244 F.2d 1 (C.A.7, 1957).” 56 T.C. 388, 429. After discussing and weighing the significant factors that would apply in setting a valuation on closed corporation stock and giving proper regard to the fact that Commissioner had the burden of proof on this issue, the Tax Court found the fair market value of the shares purchased by taxpayer to be $246,000.

The Tax Court in effect weighed the negative and positive factors and found that the positive factors of liquidation value and satisfactory after tax income, together with the capitalized value of past earnings based on a factor of four, clearly indicated a fair market valuation in excess of that paid by the taxpayer, setting the amount of $246,000. No doubt the adverse factors mentioned were depressants on fair market value and were properly considered by the Tax Court. The capitalization factor of four was certainly fair and objective under the circumstances, and this valuation in turn was diminished by an assessment of the adverse factors.

Our review of the Tax Court proceeding is confined to a determination of whether there is substantial evidence upon the record as a whole to support that court’s finding or, as sometimes stated, whether or not the determination is against the clear weight of the evidence or is induced by an erroneous view of the law. C.I.R. v. Riss, 374 F.2d 161, 166 (8th Cir. 1967); Arc Realty Company v. C.I.R., 295 F.2d 98, 102 (8th Cir. 1961). As pointed out in Wilmington Co. v. Helvering, 316 U.S. 164, 62 S.Ct. 984, 86 L.Ed. 1352 (1942), our appellate review is confined to an examination of whether there is substantial evidence to support the findings. Therefore, this court may not substitute its view of the facts for that of the Tax Court, and thus its findings when supported by substantial evidence are conclusive. The Tax Court’s finding on the valuation of the stock was clearly within the limits of the fair market value evidence disclosed in this ease.

The Tax Court, however, did not address itself to the total valuation of the stock and the subordinated note. The taxpayer contends, and we think rightly so, that the accommodation purchase of the stock and the subordinated note was part and parcel of the same transaction. Although we do not agree with the taxpayer’s contention that this package could not have been sold to any third party at a valuation in excess of what he had paid for it, we do think the taxpayer should be given the benefit of a fair and objective valuation of the fair market value of the subordinated note on the date of purchase. Obviously this subordinated note, upon which no current payments were 'being made and which was subordinated to a large bank loan and dependent for payment upon the continued satisfactory operation of these cigar companies under the difficulties and hazards above discussed, could not have been sold for $215,000 on the market.

Liquidating this type of investment presents many difficulties, for the note would only appeal to a market investor at a sizeable discount and then only and probably in connection with an acquisition of the equity interest of the stock. Irrefragably the taxpayer advanced funds for this combined purchase in order to aid the faltering fiscal fortunes of T.M.E., and while he should be called to account for any bargain price he might have received on the stock, he should be given credit on the transaction for the fair market value of the subordinated note which he purchased as part and parcel of the acquisition cost of these assets. We think, therefore, that while the valuation found by the Tax Court on the stock is clearly in order and should stand, the cause should be remanded for a determination of the fair market value of the subordinated note at the time of the taxpayer’s purchase, and credit should be given against the $96,000 constructive dividend for any diminution in market value of the note.

BAD DEBT ISSUE

Operating in the red and suffering several sizeable judgments against it, Riss & Co. continued downhill during the early 1960’s. During this period the Commercial National Bank of Kansas City, Kansas, made loans to Riss & Co., which were, for the most part, collaterally secured and guaranteed by the taxpayer. In May 1963 the bank loaned $125,000 to Riss & Co. collateralized with assignments of accounts receivable and the personal guarantee of the taxpayer. In August 1963, the bank became concerned about the collateral on its loan and called upon Riss & Co. and the taxpayer to pay the outstanding indebtedness of $125,000. Riss & Co. could not pay, and the taxpayer satisfied his guarantee to the bank by paying off the loan. He treated this as a business bad debt for the year 1963. After this loan was paid, the bank made an additional $10,000 loan to Riss & Co.

Taxpayer introduced evidence of opinions from knowledgeable attorneys that the debt due him from Riss & Co. was uncollectible in 1963 and became worthless in that year. The Tax Court however found that the debt had not become worthless in 1963 and denied the claimed bad debt deduction.

The same standard of review would apply on this Tax Court finding as discussed above, and we cannot overturn the denial of the bad debt deduction unless it lacks substantial evidence on the whole record. The burden of proof in this instance rests on the taxpayer in proving the debt worthless in the year claimed. Boehm v. Commissioner, 326 U.S. 287, 294, 66 S.Ct. 120, 90 L.Ed. 78 (1945); Welch v. Helvering, 290 U.S. 111, 115, 54 S.Ct. 8, 78 L.Ed. 212 (1933); C.I.R. v. Riss, 374 F.2d at 166; 5 Mertens Law of Federal Income Taxation § 30.28. As indications that the debt was not worthless in 1963, the Tax Court pointed to the fact that the Commercial National Bank lent Riss & Co. additional funds in December and that the taxpayer guaranteed other loans made to Riss & Co. by Colorado banks in 1964. It also apparently placed reliance upon taxpayer’s testimony that if he had the money available he would have been willing to lend additional amounts to Riss & Co., even after suffering the trauma of honoring his guarantee.

The taxpayer suffered a heart attack in March 1964 and sold control of Riss & Co. in July 1964 to his son, Robert Riss, for $1,000. The company at that time had a substantial deficit in capital and surplus accounts, was subject to many outstanding liabilities, aggregating in excess of one million dollars, and was also faced with a 4.9 million dollar tax assessment. The corporate records were chaotic. The company after being taken over by Robert Riss, enjoyed a rejuvenation and apparently worked out of its financial difficulties.

The proper test to be used in determining the worthlessness of a debt is the exercise of sound business judgment, and there is no black rubric standard. 5 Mertens, Law of Federal Income Taxation § 30.28. If collection seems hopeless to a reasonable man knowledgeable in the filed of business, a deduction is justified. See Loewi & Co. v. Commissioner, 232 F.2d 621, 625 (7th Cir. 1956). Nothing in the Code or Regulations requires a taxpayer to refrain from charging off a debt that he honestly and reasonably believes to be uncollectible, merely because the debtor might at some time and in some manner find himself able to pay. Elmira City Realty Corp., 16 C.C.H. Tax Court Mem. 235, 237 (1957). Otherwise stated, no creditor is required to be “an incorrigible optimist.” United States v. White Dental Co., 274 U.S. 398, 403, 47 S.Ct. 598, 71 L.Ed. 1120 (1927). But he also must not be a “stygian pessimist.” Ruppert v. United States, 22 F.Supp. 428, 431 (Ct.C1.1938).

In assessing the worthlessness or value of a debt, all of the pertinent evidence including the value of the eolleteral, if any, securing the debt and the financial condition of the debtor are to be considered. Treas.Reg. § 1.166-2(a). Riss & Co. had some valuable operating rights, which to a considerable extent were dormant but still subject to revival by use. These did not show upon its balance sheet (because of ICC regulations) and would be a plus factor to consider in assessing the intrinsic value of the company. Notwithstanding that favorable factor, there were many adverse factors relating to the fiscal solvency and operating ability of Riss & Co. The fact of survival as an operating entity is not conclusive, as Robert Riss had to inject new capital into the company and both taxpayer and T.M.E. wrote off over 1.7 million dollai'S of debt owed by Riss & Co. The company thus was clearly insolvent, and it would appear at that time that the chances of collecting the debt were at best minimal. We, however, do not write on a clean slate and are not privileged to inject our view into the proper inferences made by the Tax Court on this issue. While we think the issue is an extremely close one, we cannot say that the Tax Court’s finding that the bad debt had not been proved worthless in 1963 is clearly erroneous or even that it lacks substantial evidence on the record as a whole.

The difficulty lies in the overall situation where an interested taxpayer is dealing with related corporations controlled by him and often makes advances in forms of loans which under the circumstances appear to be contributions to capital. The fact that the taxpayer continued to guarantee and make loans to Riss & Co. after honoring his guarantee is at least inconsistent with his claim that the debt was worthless. Also the taxpayer in paying the debt under his guarantee would be entitled to the collateral of accounts receivable placed with the bank. Certainly there would be some recoupment from these accounts receivable, which in turn would be strong evidence that the debt was not totally worthless in 1963. Thus, the taxpayer’s granting of further loans to Riss & Co. after claiming this debt worthless and failing to achieve any recoupment from the collateral posted with the bank loan give a strong indication that he intended to make a contribution to capital and that this debt was not totally worthless. Of course, the granting or extending of additional credit after failing to receive proper payment from a prior debt would also indicate that the debt was not worthless. A third party dealing at arms length would not extend credit after failing to receive payment on a sizeable antecedent debt, unless of course he either expected repayment or had additional motives to inject equity capital in a floundering enterprise. Under this factual situation we are unable to say that the Tax Court’s finding that the debt was not proved worthless in 1963 lacks substantial support in the record.

The judgment of the Tax Court is affirmed on all of the above issues except the valuation of the subordinate promissory note at face value. Cause is remanded to the Tax Court for determination of the fair market value of that note.

      . Jurisdiction is pursuant to 26 U.S.C. § 7482(a).

      . The Tax Court decision authored by the Honorable Leo H. Irwin, is reported in 56 T.C. 388 (1971).

      . The earned surplus account as reflected on the books was as follows:
      Corporation 5-21-55 2-29-56 2-28-57 2-28-58 2-28-59
      Niles - $ 62,694 $139,864 $210,744 $322,736
      Niles Colorado - 26,334 62,679 108,616 164,220
      Southwest 16,721 32,939 56,956 87,114
      Stickney 9,959 3,446 8,641 22,621
      Bannock 8,575 17,980 33,166 49,683
      Irving 7,417 17,145 27,934 40,916
      Total $131,700 $274,053 $446,057 $687,290

      . The total after tax income of the group is reported as follows:
      5-21-55 to 2-29-56 $131,700
      Year Ended 2-28-57 $142,353
      Year Ended 2-28-58 $172,004
      Year Ended 2-28-59 $243,233
      5-21-55 to 2-28-58 $160,580
      5-21-55 to 2-28-59 $181,910

      . The opinion reads :
      “Among the factors which have been considered, are: (a) The loss of indispensable corporate management, Estate of .T. D. McDermott, a Memorandum Opinion of this Court dated Apr. 30, 1953, affd. 222 F.2d 665 (C.A.7, 1955) ; (b) trends in the earnings record of the corporatoin, Snyder’s Estate v. United States, 285 F.2d 857, 862 (C.A. 4, 1961) ; (c) the value of the underlying assets held by the corporation, Trianon Hotel Co., 30 T.C. 156 (1958) ; (d) the capacity of the corporation to pay dividends, O’Bryan Bros. v. Commissioner, 127 F.2d 645 (C.A.6, 1942), affirming 42 B.T.A. 18 (1940) ; (e) the fact that the stock being valued constitutes less than a controlling interest, Central Trust Co. v. United States, 305 F.2d 393, 432 (Ct.C1.1962) ; and (f) the capitalized value of the corporation’s past earnings, Tecla M. Straub, 29 B.T.A. 216, 221 (1933), affd. 76 F.2d 388 (C.A.3, 1935).” 56 T.C. 388, 430 (1971).

      . 26 U.S.C. § 166(a) provides for “wholly worthless debts” that “[tjhere shall be allowed as a deduction any debt which becomes worthless within the taxable year.”

      . 56 T.C. 388, 419 (1971).


source: Caselaw Access Project

author: PECKHAM, District Judge:

license: Public Domain

text:
    NORTHERN PACIFIC RAILWAY, a corporation (now Burlington Northern, Inc.), Plaintiff-Appellant, v. Theodore E. HERMAN, d/b/a Pete Herman Auction Market, Defendant-Appellee.
    No. 71-1145.
    United States Court of Appeals, Ninth Circuit.
    May 7, 1973.

      Stephen H. Foster (argued), Jack S. Ramirez, Crowley, Kilbourne, Haughey, Hanson & Gallagher, Billings, Mont., for plaintiff-appellant.
    W. H. Bellingham (argued), Moulton, Bellingham, Longo & Mather, Billings, Mont., for defendant-appellee.
    Before BARNES and DUNIWAY, Circuit Judges, and PECKHAM, District Judge.

       Honorable Robert F. Peckham, United States District Judge, Northern District of California, sitting by designation.

   PECKHAM, District Judge:

This case, which arises under Montana law, is an action seeking indemnity for money paid by the plaintiff railroad in satisfaction of a claim against it by one of the railroad’s employees injured on the job. The single issue that this court need decide is whether the jury instruction formulated by the court below constituted reversible error. The parties do not dispute the applicability of Montana law, nor apparently do they dispute the applicable law of that state. The only dispute concerns whether the trial court accurately conveyed that law to the jury in its instruction. From a general verdict in favor of the defendant, plaintiff appeals.

Jurisdiction is based on diversity of citizenship. 28 U.S.C. § 1332. The amount in controversy is $62,797.86. Plaintiff Northern Pacific Railway (Railroad) is a corporation with its principal place of business in Minnesota and is incorporated under the laws of the State of Delaware. Defendant Theodore E. Herman (Herman) is a citizen of Montana.

In 1957 the Railroad leased some property to Billings Eagle Implement Co. which in turn subleased the property to Herman in 1965. The sublease provided that sublessee agrees to assume all the rights and obligations as if he had been originally named as lessee in the lease. So we deal here with a situation which is for all intents and purposes a lease between Railroad and Herman.

On the night of February 25, 1966 adjacent to the above mentioned property one of Railroad’s freight cars derailed and injured one of Railroad’s employees. The derailment was allegedly caused by mud being pushed onto the tracks by the wheels of motor vehicles. The injured Railroad employee filed suit against the Railroad. After a demand for indemnity from Herman was refused, the Railroad settled the employee’s suit. Railroad now seeks indemnity in the amount of $62,-797.86, interest, costs, and expenses of litigation.

The Railroad tried the issue of its right to indemnity on two theories. The first theory was based on section two of the lease set forth fully in the margin claiming the lease by its terms prohibited the operation of motor vehicles over the tracks, and further claiming that Herman breached the lease and that this breach was the proximate cause of the employee’s injury. The second and independent theory for recovery is based on section eight of the lease. This is a specific indemnity provision whereby Herman agrees to indemnify the Railroad for injuries caused by him. If Herman and the Railroad are concurrently negligent they agree to share the liability equally.

With regard to Railroad’s cause of action based on section two of the lease prohibiting driving motor vehicles across the tracks, Herman contended plaintiff by its actions or inactions was estopped from asserting this provision. See, e. g., Smith v. Krutar, 153 Mont. 325, 457 P.2d 459 (1969); Cedar Creek Oil & Gas Co. v. Fidelity Gas Co., 249 F.2d 277 (9th Cir. 1957) (Montana law). Herman sought to defend against the second and independent cause of action based on section eight of the lease, the specific indemnity clause, on the ground that his actions were not the proximate cause of the employee’s injuries.

Neither party has argued that the trial court misinstructed the jury concerning the specific indemnity clause. The error asserted here is that the instruction, taken as a whole, failed to make clear that plaintiff has two independent theories of recovery in Count II of its complaint, and that estoppel was a defense only to that cause of action based on section two of the lease. Estoppel has never been set up as a defense to the specific indemnity provision (section eight).

The part of the instruction in question is divided into four paragraphs. The first paragraph sets out the three possible verdicts:

You are instructed that there are really three verdicts which you could reach, namely: a verdict for the plaintiff, a verdict for the defendant, or a verdict for the plaintiff for one-half of the amount claimed.

Next the instruction goes on to explain how to reach a verdict in full for plaintiff based on section two of the lease:

To explain these possibilities further, the first one may be stated like this: If you find that the defendant breached the portion of the lease relating to the operation of a motor vehicle on or across the railroad tracks, and that the breach was a proximate cause of the derailment, and that the plaintiff is not estopped from asserting its claim, then you must return a verdict in favor of the plaintiff.

The following paragraph explains how to reach a verdict for defendant. This paragraph is correct only in so far as plaintiff’s theory of recovery is based on section two of the lease:

The second possibility is this: If you find that plaintiff by an act or omission is estopped from enforcing that provision of the lease relating to the operation of a motor vehicle on or across the railroad tracks, or you find that defendant breached the lease and that the breach was not a proximate cause of the derailment, you must return a verdict in favor of the defendant.

It was at this point that error was committed because the trial court failed to make it clear to the jury that if they found for defendant in so far as plaintiff’s attempt to recover was based on section two of the lease, they must then go on and consider plaintiff’s independent theory of recovery based on section eight of the lease, the specific indemnity clause.

The trial court’s instruction correctly stated the legal principles governing plaintiff’s attempt to recover based on the specific indemnity clause, when it said:

The third possible verdict may result by reaching any of three possible conclusions. They are as follows:
1. If you find from all the evidence that both parties were guilty of active concurrent negligence, then you must return a verdict in favor of the plaintiff for one-half of the amount claimed, namely: $31,396.93.
2. If you find from all the evidence that both parties were guilty of active concurrent negligence and that the negligence of the plaintiff consisted of acquiescence in the conduct of the plaintiff (sic), then you must return a verdict for one-half of the amount claimed.
3. If you find that both parties were concurrently negligent and you further find that the negligence of the plaintiff was passive and that the negligence of the defendant was active, you must return a verdict in favor of the plaintiff for the full amount claimed. (Tr., pp. 373-375.)

Error was however committed when the trial court failed to explain to the jury that the second and third quoted paragraphs of the instruction, pertaining to plaintiff’s attempt to recover based on breach of the lease, and instructing the jury on the question of estoppel, had nothing to do with the separate theory of recovery based on the specific indemnity clause; that estoppel was not a defense to the specific indemnity clause; and that the jury could find an estoppel and still return a full or partial verdict for plaintiff.

This confusion is compounded by the court’s statement earlier in the instruction stating the contentions of the parties. The court stated that the defendant was asserting estoppel as a defense to Count two of the complaint. (Tr. 369). Count two contains both the cause of action based on the lease and the specific indemnity clause. Estoppel was not asserted as a defense to the specific indemnity clause. Further confusion is added by the trial court’s use of the word “plaintiff” in subparagraph 2 of the fourth quoted paragraph when it meant to say “defendant”. ■

After reading the entire instruction it appears to this court that the instruction was confusing and left the jury with the mistaken impression that estoppel was a complete defense to both of plaintiff’s causes of action, and it was not. The instruction is prejudicial because it is confusing and inconsistent on a material issue and could possibly mislead the jury.

Error in a specific instruction is not cured by general statements which set out the respective contentions. See United States v. Natt McDougall Co., 381 F.2d 686 (9th Cir. 1967). But even in the general instructions the trial court did not make it clear that either of plaintiff’s theories would support recovery.

Erroneous instructions in a jury trial are presumptively injurious and are grounds for reversal unless it affirmatively appears on the record that the error was harmless. Fillippon v. Albion Vein Slate Co., 250 U.S. 76, 39 S.Ct. 435, 63 L.Ed. 853 (1919). As this Court said in Pacific Greyhound Lines v. Zane, 160 F.2d 731 (9th Cir. 1947):

Nothing in the record enables us to ascertain upon which theory of fraud the jury may have rested its general verdict. The presence of these conflicting instructions provides no assurance that the error did not materially affect the jury’s verdict. Id. at 737.

Since there is nothing in this record which affirmatively shows upon what theory the jury based its general verdict for defendant, the case must be reversed and remanded.

We add the caution that upon retrial the court should require that a foundation be laid in order to show that statements by agents admitted against the principal concern matters within the scope of the agent’s employment made during the existence of the relationship. See Rule 801(d)(2)(D) of the Proposed Rules of Evidence, 56 F.R.D. 183 (1972).

In light of the foregoing, we need not reach the appellant’s other assertions of error.

Reversed and remanded.

      . This was so stipulated at oral argument. The pre-trial order only recites that Herman is a resident of Montana.

      . Section two of the lease reads:
      2. . . .in order to avoid track damage and possible derailments, Lessee further agrees not to foster, sanction or permit operation of any motor driven equipment on or across any railroad track located on or adjacent to the demised premises, except at established crossings for the purpose of serving the Lessee.

      . Section eight of the lease reads:
      8. . The Lessee also agrees to indemnify and hold harmless the Railroad Company against all liability, claims, or loss because of damage to or destruction of property of, or injury to or death of, all persons whomsoever including the parties hereto and their employees, while on or in the vicinity of said premises, when caused by any act or omission of the Lessee, its employees, or agents, and if any claim or liabilty other than from fire shall arise from the joint or concurring negligence of both parties hereto, it shall be born by them equally.

      . In Booth-Kelly Lumber Co. v. Southern Pacific Co., 183 F.2d 902 (9th Cir. 1950) this court had the opportunity to consider the meaning of a similar indemnity clause. While Booth-Kelly was decided under Oregon law, we assume that the common law regarding indemnity is the same in Montana as in Oregon. See also Union Pacific Railroad Co. v. Bridal Veil Lumber, 219 F.2d 825 (9th Cir. 1955).
      In Booth-Kelly this court held that it was the contract, the specific indemnity clause, which controlled the relationship of the parties and not common law negligence. The importance of this ruling is that common law defenses such as contributory negligence are unavailable to the parties, except as defined in the contract. The common law is however relevant in order to discern the meaning of the contract.
      By the language in section eight of the lease the parties have chosen to make joint liability only a partial defense to indemnity. The instruction correctly sets out the alternatives.
      Acquiescence under the indemnity clause would be a defense to one-half of the full indemnity. Missouri Pacific R.R. Co. v. Arkansas Oak Flooring Co., 434 F.2d 575 (8th Cir. 1970) (Arkansas law). Defendant’s “success in establishing a defense of acquiescence also establishes its own and the railroad’s joint or concurring negligence in maintaining a condition upon the leased premises [or adjacent thereto] dangerous to railroad employees.” Id. at 581 (emphasis added.)


author: LEWIS R. MORGAN, Circuit Judge: RONEY, Circuit Judge

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Kent “Frenchy” BROUILLETTE and Joan Lee Clemens, a/k/a Joan Shipp, Defendants-Appellants.
    No. 72-2456.
    United States Court of Appeals, Fifth Circuit.
    May 15, 1973.

      Hilary J. Gaudin, George M. Leppert, New Orleans, La., for defendants-appellants.
    Gerald J. Gallinghouse, U. S. Atty., Mary Cazalas, Robert L. Livingston, Asst. U. S. Attys., New Orleans, La., for plaintiff-appellee.
    Before COLEMAN, MORGAN and RONEY, Circuit Judges.
   LEWIS R. MORGAN, Circuit Judge:

Appellants “Frenchy” Brouillette and Joan Clemens were convicted of violating 18 U.S.C. § 1952. This section prohibits the use of interstate commerce in promoting, establishing or managing an unlawful activity. In this appeal, Brouillette and Clemens challenge the validity of a search warrant under which certain items, later admitted into evidence against them, were seized. After careful consideration of their claim, we are compelled to agree and must remand this case to the district Court for a new trial.

The Factual Setting

Mr. Brouillette and Ms. Clemens are allegedly the “managing partners” of a prostitution ring headquartered in Me-tairie, Louisiana. While it seems virtually admitted that they indeed operate in the “world’s oldest profession”, the question in this federal prosecution centers on the commission of a federal, rather than a state, offense. To bring the appellants within the grasp of federal authorities, the government alleges that they have caused, or perhaps more accurately aided and abetted, one of their “girls” to “attend” a convention in New York City and there to ply her trade.

In the process of preparing its case, the government sought and obtained a search warrant for Apartment 224 at the Imperial House Motor Hotel in Me-tairie, Louisiana. This location was the alleged nerve center of the prostitution ring’s operations. A search warrant for the above address was signed on April 8, 1971. The federal agents duly executed this warrant on April 12, 1971, and seized a number of items allegedly used in furtherance of the prostitution activities. These items included various address books and files, bankbooks, pictures, and documents. Many of these items were introduced against appellants at trial.

The Legal Issue

The crux of this appeal comes down to a single, concise legal issue: In obtaining a search warrant, must federal officers present evidence ample to establish probable cause that a federal crime has been committed. In the instant ease, the agent of the Federal Bureau of Investigation who obtained the warrant and gave the supporting affidavit never presented any evidence whatsoever to support the bald assertion that these appellants had violated the federal law. The complete text of the affidavit is set out in the margin.

Thus, in this case, we have a federal warrant which includes a statement from the agent that a federal offense is violated. The supporting assertions of “reliable information” never mention any reason for believing that this prostitution operation had come within the scope of federal prohibition. At the most, the affidavit established probable cause to support a finding that appellants were operating a prostitution ring in violation of Louisiana state law. The “reliable information” was addressed solely to the fact that this address was connected with prostitution activities and that various items would probably be found therein. The government concedes that there is no specific statement in the affidavit which establishes that interstate transportation or facilities were used in the furtherance of the criminal prostitution activity. That is, of course, a necessary element of the federal criminal offense.

One of the prerequisites for issuing a search warrant is the requirement that “probable cause” be established by factual information given a neutral and detached magistrate. The precise question involved in this case is whether the facts supporting probable cause to find the commission of a crime must, when a warrant is being sought by federal agents and alleging a federal crime, give facts sufficient for the magistrate to find that in all probability a federal violation was involved.

Appellants rely heavily on this court’s decision in Thomas v. United States, 5 Cir. 1969, 376 F.2d 564. While that case is very strong for their position in some respects, it is distinguishable in at least one discernible way.

The basis for the issuance of any federal search warrant is Rule 41 of the Federal Rules of Criminal Procedure. The relevant provisions of Rule 41 set out the basic criteria:

(b) Grounds for Issuance. A warrant may be issued under this rule to search for and seize any property
(2) Designed or intended for use or which is or has been used as the means of committing a criminal offense ; . . .
(c) Issuance and Contents. A warrant shall issue only on affidavits sworn to before the judge or commissioner and establishing the grounds for issuing the warrant .

As the court noted in the Thomas case, the government has conceded that Rule 41(b)(2) “is directed to federal criminal offenses, i. e., that it authorizes search warrants for property believed to have been used or which is to be used as a means of committing a federal crime.” 376 F.2d at 566.

The Thomas case grew out of the prosecution of defendant Thomas for possession of an illegal firearm in violation of federal law. In obtaining a search warrant for Thomas’ home, the F.B.I. agents did not ever allege the commission of a federal offense. They did allege that Thomas had been involved in the murder of one Viola Luizzo and that the weapons used in the crime were felt to be concealed in the place to be searched.

In holding that the evidence given to the magistrate in the Thomas case was not sufficient to establish “probable cause”, this court pointed out that that affidavit did not begin to describe a federal crime. All that was described by the affidavit was the shooting of an individual by another named individual. While such a murder would clearly be a state crime, it is not a federal crime standing alone. The federal crime involved was, of course, as pointed out by the court, the deprivation of Mrs. Luiz-zo’s civil rights. However, this federal crime was never stated by the agents. “It was necessary that the affidavit allege with at least some reasonableness that an offense against the laws of the United States had been committed.” Id at 567.

As previously mentioned, while we feel that this case is somewhat similar to Thomas, there is a ready distinction. In the instant case the federal agents did state the precise federal section which they believed was being violated by these appellants. The affidavit clearly shows that the agents stated that they were investigating a violation of 18 U.S.C. § 1952, involving the use of interstate facilities in furtherance of criminal activities. The deficiency in the warrant is the failure in any respect to show underlying facts which tend to establish a connection with the use of interstate facilities. This is, of course, a jurisdictional prerequisite for the federal offense; merely showing prostitution activities is insufficient. In Thomas there was never any mention of what federal section was being violated, although the court, taking note of the widespread publicity in the Luizzo case, had no difficulty in ascertaining what federal crime the agents could have charged.

We do not feel that this distinction is significant in light of the underlying rationale of the Thomas case. Basically, the notion underlying Thomas and, in fact, underlying any federal search warrant case, is that federal agents are charged with the investigation of federal, as distinct from state, crimes. In granting a search warrant to a federal agent, we feel there must be some showing that a federal crime has been or is being committed. To establish the probability of a crime under 18 U.S.C. § 1952, it seems necessary to present facts concerning both the state law being violated and the manner in which interstate commerce is involved in the violation.

It can clearly not be enough merely to state the section which allegedly has been violated. The standard rule is that in determining whether probable cause exists for issuance of a search warrant it is not necessary to determine whether or not the offense has actually been committed but it is necessary to determine whether the affiant has reasonable grounds, at the time of making the affidavit and the issuance of the warrant, for believing that “the offense charged” was being or had been committed. Dumbra v. United States, 268 U.S. 435, 441, 45 S.Ct. 546, 69 L.Ed. 1032 (1925); Lowrey v. United States, 8 Cir. 1947, 161 F.2d 30, 35. The “offense charged” in this case is the use of the facilities of interstate commerce in furtherance of a violation of the law of a state. The warrant in question and the affidavit supporting it give no factual support sufficient to justify any belief that interstate commerce has been used for such a violation. In short, the magistrate in this case had absolutely no basis on which to place a finding that the instrumentalities of interstate commerce were being used contrary to federal law. Yet that is what must be established in order to justify a warrant under these circumstances. Otherwise, federal agents would be able, by merely mentioning a statute involving interstate commerce, to search what would otherwise be establishments violating only local state law, possibly in the hopes of finding evidence which would support a federal violation. We do not feel that this is a proper course of conduct. Federal agents are not to go around looking for state violations and then try to turn them into federal violations.

It is not onerous to require federal officers to state their reasons for believing that a federal crime has been committed in obtaining a warrant. After all, under the system of federalism, there is room for dual state-federal activity. Federal officials often refer information they have received to state officials for possible prosecution. If there is a federal crime involved, stating the facts giving rise to the suspicions is not an undue hardship.

In United States v. Birrell, 242 F.Supp. 191 (S.D.N.Y.1965), federal agents sought and obtained a search warrant for certain property on the basis of an affidavit quite similar to the one here in question. The affidavit merely recited that the agent had reason to believe that certain records were being concealed at the premises to be searched, which records “have been used in committing a violation of Title 18, United States Code, Section 1341.” The section involved is the basic mail fraud section. The court held the warrant plainly insufficient on its face because there was not a single fact stated in the affidavit tending to show that defendant Birrell used the mails in a scheme to defraud. Use of the mails was, of course, a necessary element in determining that there existed probable cause that fraud by mail had been committed.

As the Supreme Court stated in United States v. Ventresca, 380 U.S. 102, 109, 85 S.Ct. 741, 746, 13 L.Ed.2d 684 (1965):

Recital of some of the underlying circumstances in the affidavit is essential if the magistrate is to perform his detached function and not serve merely as a rubber-stamp for the police.

The magistrate in this case could have found no probable cause to believe that a federal offense had been committed on the basis of the facts supplied in the affidavit of the F.B.I. agent here.

It is well recognized that the probable cause necessary to justify a search warrant is coextensive with the probable cause required to justify an arrest warrant. Giordenello v. United States, 357 U.S. 480, 485-486, 78 S.Ct. 1245, 2 L.Ed.2d 1503 (1958); 3 Wright, Federal Practice and Procedure § 662 (1969). It is certainly clear that on the basis of the affidavit given by this agent no federal arrest warrant for commission of a crime in violation of 18 U. S.C. § 1952 could have been obtained. There are simply no facts here which tend to show the use of interstate commerce in the manner sought to be proscribed by section 1952. Federal arrest warrants do not issue without evidence tending to show a federal offense.

The government apparently recognizes the validity of the above position for it does not press strongly for a rule that federal agents can search where the only probable cause shown goes to the commission of a purely state offense. Instead, the government suggests that ample connection with interstate commerce can be derived from within the four corners of the warrant. In attempting to justify this position, the government relies heavily on the fact that, first, the agent mentions that the area to be searched is a motel and, secondly, that among the items to be sought by the warrant are ‘^convention books”.

The government takes the position, apparently, that Heart of Atlanta Motel, Inc. v. United States, 379 U.S. 241, 85 S.Ct. 348, 13 L.Ed.2d 258 (1964), can be applied to the facts of this case so as to find the mere mention of the involvement of a motel in the prostitution activities is sufficient to supply the “interstate” aspect required by section 1952. We reject this argument. First, we do not feel that the same test used for interstate commerce under the Civil Rights Act must necessarily be applied to a federal criminal statute involving the use of interstate commerce. Furthermore, we are convinced that Congress, by passing 18 U.S.C. § 1952, did not intend to make every conceivable crime that occurs at a motel or hotel into a federal offense punishable in the federal courts. Such a construction of the statute would be extremely unreasonable. It would open up whole new realms for federal prosecution. It could lead to searches where the agents of the federal government know only that a state crime is being committed but have the hope that a search would turn up sufficient evidence to find that a federal crime is also being committed, thus, leading to grounds for federal prosecution. This is, of course, an absurd and unnecessary result.

As to the claim that the mere presence of. the words “convention books” in the warrant supply the requisite “interstate” aspect, we feel this, too, is insufficient for much the same reason. After all, New Orleans is itself a great convention city and perhaps these girls were only looking at the “convention books” of up-coming conventions in New Orleans. The mere presence of convention books is not sufficient to establish the interstate activity envisioned by section 1952.

For these reasons, we find that the search warrant in this case was deficient for the affidavit upon which probable cause had to be based did not sufficiently allege facts to establish the probable cause that a federal crime was being committed. Since the fruits of this search were introduced into evidence against these defendants, we find that this case must be, and is

Reversed and remanded.

RONEY, Circuit Judge

(dissenting):

I would sustain the search warrant issued in this case on the ground that the statement in the Amdavit for Search Warrant that the property sought had been used “to promote and conduct prostitution activities through interstate travel” was sufficient, when considered with the other facts set forth in the Affidavit, to establish probable cause that a federal crime had been committed and that the address books, convention books, and financial records contained evidence of interstate criminal transactions.

      . AFFIDAVIT FOR SEARCH WARRANT
      UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF LOUISIANA
      Commissioner’s Docket No. Jl,
      Case No. 134
      UNITED STATES OF AMERICA versus Apartment 224, Imperial House Motor Hotel, 3400 North. Causeway Boulevard, Metairie, Louisiana
      BEFORE Ingard O. Johannesen, New Orleans, Louisiana
      The undersigned being duly sworn deposes and says:
      That he has reason to believe [footnote omitted] that on the premises known as Apt. 224, Imperial House Motor Hotel, 3400 North Causeway Blvd., Metairie, Louisiana, which is a three-story red brick and green concrete building with large white letters “Imperial House” on the red brick portion of the building, and address 3400 on front glass door. Apt. 224, which is on the second floor, is designated with a Blue plaque with indented white numbers in the E'astern District of Louisiana, 224 [sic]. Apt. 224 is leased under the name Kent Tank who thru photos has been identified as Kent Brouillette, there is now being concealed certain property, namely
      1. Address books with names, addresses and telephone numbers of persons associating with Brouillette in prostitution activities.
      2. Convention books containing pictures and names of persons to whom Brouil-lette has furnished girls at eonven-ventions.
      3. Records reflecting bank accounts and other financial dealings relative to prostitution activities.
      4. Rotary Type Cardex filing system containing names and places of persons used and engaging in prostitution activities.
      which have been used by Brouillette to promote and conduct prostitution activities through interstate travel in violation of Title 18 U.S.C. § 1952.
      And that the facts tending to establish the foregoing grounds for issuance of a Search Warrant are as follows:
      1. Ray J. van Merrienboer, Jefferson Parish Sheriff’s Office, Vice Squad, was advised by a reliable source who, on five separate occasions has furnished reliable information which was verified through independent investigation by van Merrienboer, that source has seen address books and convention books in Brouillette’s apartment. Source has further advised that he has observed Brouillette place these books in a suitcase which Brouillette has then placed somewhere in the the apartment when the heat is on. Source has further observed Brouil-lette put these books in a suitcase and place in the trunk of Brouil-lette’s car when the heat is on.
      2. A reliable source, who on six separate occasions has furnished information which through independent investigation has proven to be reliable and true, advised SA Robert W. Crewd-son that Brouillette displayed a red address book which Brouilette explained contained names, addresses, and telephone numbers of persons who associate with Brouillette in promoting prostitution activities.
      3. A reliable source, who has furnished information in the past which, through independent investigation by SA Robert W. Crewdson has proven to be true, has observed records reflecting bank accounts in Brouillette’s apartment.
      4. Walter Floyd, Jefferson Parish Sheriff’s Office, Vice Squad, has been advised by three separate sources, each of whom has furnished information in the past which has proven to be true and correct, through his independent investigation, that Brouillette has a Rotary Type Cardex System on which he keeps many of his contacts for promotion of prostitution activities.
      5. FBI identification record for Kent Brouillette shows eight arrests for pandering, maintaining a house of prostitution, conspiracy to commit prostitution, keeping a disorderly place and related charges from June 19, 1964, thru April 7, 1970. Identification made thru fingerprint classification. Arrests were made under the name Kent B. Brouillette and aliases, Kent Brouillette, Kent Brabaney Brouillette, and Kent Barnaby Brouil-lette.
      6. SA Crewdson showed five arrest photographs of white males to Santo J. Calamia who identified himself as the Manager for the Imperial House Motor Hotel, 3400 North Causeway Boulevard, Metairie, La. Calamia identified a Jefferson Parish Sheriff’s Office photograph 36328 of Kent Brouillette, alias Frenchy, as being the person who occupies Apartment 224 at the Imperial House under the alias Kent Tank.
      Walter Floyd, Jefferson Parish Sheriff’s Office, answered a complaint at Apartment 224 at the Imperial House. The calling complainant was Joan Clemens. Floyd recognized the occupants of Apartment 224 as being a white male be recognized as Kent “Frenchy” Brouillette, and a white female he recognized as Joan Lee Clemens who has herself been arrested six times since October 20, 1967, for prostitution and related charges. On this occasion, Clemens tore up a piece of paper which she told Floyd was a marriage certificate for her and Frenchy.
      IOJ
      RWO
      4/8/71
      /s/ ROBERT W. CREWDSON, Signature of Affiant.
      Special Agent, FBI Official Title, if any.
      April 8, 1971
      Sworn to before me, and subscribed in my presence,
      /s/ INGARD O. JOHANNESEN, United States Commissioner.

      . In all probability, the federal agents had enough evidence to justify the warrant but failed to present it to the magistrate. The warrant and affidavit, however, must stand or fall on the facts within them,

      . We note that the statute under consideration in Heart of Atlanta, Title II of the Civil Rights Act of 1964, 78 Stat. 241, 243, expressly uses the term “affect commerce” and that the Act contains a precise definition of that term.


author: PER CURIAM: RONEY, Circuit Judge

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Joan CLEMENS, aka Joan Shipp et al., Defendants-Appellees.
    No. 72-2051.
    United States Court of Appeals, Fifth Circuit.
    May 15, 1973.

      Hilary J. Gaudin, New Orleans, La., court appointed, for Wyble.
    Gerald J. Gallinghouse, U. S. Atty., Robert L. Livingston, Mary Williams Cazalas, Asst. U. S. Attys., New Orleans, La., for plaintiff-appellee.
    Before COLEMAN, MORGAN and RONEY, Circuit Judges.
   PER CURIAM:

Appellants were convicted in the District Court for the Eastern District of Louisiana of a violation of 18 U.S.C. § 2422, commonly known as the Mann Act. In this appeal appellants alleged that certain items introduced in evidence against them were seized in a search conducted under an invalid warrant. We are compelled to agree with appellants’ contentions and remand the case for a new trial.

These appellants, Brouillette, Clemens and Wyble, were allegedly responsible, at least in part, for causing a number of prostitutes to travel in interstate commerce from New Orleans, Louisiana, to St. Louis, Missouri. These appellants are allegedly the operators of a prostitution ring headquartered in Metairie, Louisiana. The instant prosecution results from the “supplying” of several of their “girls” to a group holding a convention in St. Louis. An earlier jury trial resulted in an acquittal of the corporation officials responsible for providing the “entertainment”. In this prosecution, the defendant-appellants seem to admit that they had indeed operated in the prostitution business, but they challenge the existence of a federal violation and question the propriety of a search warrant executed against them.

The search warrant in question is fully set out in the companion ease of United States of America v. Brouillette and Clemens, 5 Cir., 478 F.2d 1171 No. 72-2456 (this day rendered). Evidence obtained under the search warrant considered by this court in that case was also introduced against these appellants in this trial. Factually, the two cases involve separate trips by prostitutes allegedly under the control of these appellants. Additionally, Wanda Wyble was not a defendant in that case but is in this one. Finally, this ease is brought under provisions of the Mann Act while the other case was brought under 18 U.S.C. § 1952.

This court held in No. 72-2456 that the search warrant was invalid as the supporting affidavit did not present sufficient facts for a finding of probable cause that a federal crime had been committed. Of course, it is well settled that the fruits of an illegal search are inadmissible at a subsequent trial. We, therefore, hold that the admission of various items seized in the execution of this invalid warrant was error and that this cause must be remanded to the district court for a new trial.

Reversed and remanded.

RONEY, Circuit Judge

(dissenting):

I would sustain the search warrant issued in this case on the ground that the statement in the Affidavit for Search Warrant that the property sought had been used “to promote and conduct prostitution activities through interstate travel” was sufficient, when considered with the other facts set forth in the Affidavit, to establish probable cause that a federal crime had been committed and that the address books, convention books, and financial records contained evidence of interstate criminal transactions.


text:
    UNITED STATES of America, Plaintiff-Appellee, v. John WESSON, Defendant-Appellant.
    No. 72-1767.
    United States Court of Appeals, Seventh Circuit.
    Argued Feb. 15, 1973.
    Decided May 3, 1973.
    Rehearing Denied May 24, 1973.

      F. Laurence Anderson, Jr., and Alton L. Gill, Jr., Gary, Ind., for defendant-appellant.
    William C. Lee, U. S. Atty., Fort Wayne, Ind., for plaintiff-appellee.
    Before PELL and SPRECHER, Circuit Judges, and CAMPBELL, Senior District Judge.

       Senior District Judge William J. Campbell of the Northern District of Illinois is sitting by designation.

   WILLIAM J. CAMPBELL, Senior District Judge.

Following a jury trial in the Northern District of Indiana, the defendant John Wesson was convicted of perjury before a grand jury in violation of 18 U.S.C. § 1621. Defendant appeals, raising four grounds of claimed error. We affirm.

The defendant first maintains that the questions asked of him during his appearance before the grand jury did not constitute “material matter” in the federal grand jury proceedings described in the indictment. Under the perjury statute involved here, the materiality of the defendant’s statements before the grand jury is an indispensable element of the offense of perjury, but the issue is for the court to decide as a matter of law. United States v. Parker, 244 F.2d 943, 951 (7th Cir. 1957).

At the time of the defendant’s appearance before the grand jury, the tribunal was investigating possible violations of 18 U.S.C. § 1955, a statute which prohibits the operation of illegal gambling businesses. Although that statute did not become effective until 1970, the questions propounded the defendant dealt with his conduct during the year 1968. Thus, the defendant argues that the questions were not material to the grand jury’s proceedings.

The test of a question’s materiality is its tendency or capacity to influence a grand jury in its investigation. See United States v. Lococo, 450 F.2d 1196, 1197 (9th Cir. 1971).

Thus, if a false utterance potentially interferes with the grand jury’s line of inquiry, materiality is thereby established even though the perjured testimony does not actually impede the investigations. Vitello v. United States, 425 F.2d 416, 424 (9th Cir. 1970); United States v. Henderson, 185 F.2d 189, 191 (7th Cir. 1951). Moreover, false testimony is material if it relates to any subsidiary issue properly under consideration by the grand jury even though it may not be directly connected to the primary subject of investigation. United States v. Lococo, 450 F.2d 1196, 1199 (9th Cir. 1971) ; United States v. Stone, 429 F.2d 138, 140 (2nd Cir. 1970); Barnes v. United States, 378 F.2d 646, 649 (5th Cir. 1967).

Although the questions here concern the defendant’s conduct prior to the effective date of the statute which was the subject of the grand jury’s investigation, it can scarcely be doubted that activities violative of the statute might have commenced prior to its effective date and continued thereafter. The questions asked of the defendant specifically concerned his connection with two individuals who were suspected of operating a policy wheel in Gary, Indiana. During June of 1968, two newspaper reporters had observed the defendant, who was then a sergeant in the Gary Police Department, parked in a private vehicle across.the street from an address where a policy wheel was being conducted. At the time the reporters observed two suspected gamblers pass by the defendant’s vehicle in another automobile and sound their horn. According to the reporters’ testimony, the defendant then followed the other vehicle for a period of time until both pulled to the side of the road. The testimony of the reporters before the grand jury further reveals that one of the suspected gamblers then departed from his automobile and walked towards the defendant’s vehicle. Discounting minor variances in their testimony, both reporters stated that one of the suspected gamblers then passed an envelope or other similar object to the defendant. When the defendant was called before the grand jury he was asked whether he had received a package or any other object from the suspected gambler at that time. He specifically denied receiving any package or other object from the suspected gambler.

On this evidence, we conclude that the district judge properly determined that the questions propounded the defendant Wesson were material to the grand jury’s investigation which dealt with the scope of gambling operations in and around northwest Indiana. The defendant’s connection with the two suspected gamblers, and the contents of the package or envelope transferred to the defendant in June of 1968, could well have furthered the grand jury’s legitimate inquiry into possible violations of 18 U.S.C. § 1955.

The defendant also asserts that his testimony before the grand jury was not proven to be false by the government. In this regard, he claims that there was no testimony at the trial that he received any “package” from the two suspected gamblers on the occasion in question. While testifying at the trial, one of the reporters described the object that was passed to the defendant as an “envelope”. An envelope can certainly be considered a type of package. Moreover, the indictment charges that the defendant testified falsely before the grand jury when he denied receiving a “package” or any -other object from the two individuals on the particular occasion. The testimony of the two reporters at trial directly contradicts the testimony of the defendant before the grand jury. Viewing the evidence in a light most favorable to the government, Glasser v. United States, 315 U.S. 60, 62 S.Ct. 457, 86 L.Ed. 680 (1942), there is sufficient evidence in the record from which the jury could properly conclude that the defendant’s testimony before the grand jury was false.

It is also asserted by the defendant that remarks and comments of the trial judge as well as the prosecutor were prejudicial and deprived him of a fair trial. The judge’s comments occurred during the cross examination of witness Robert W. McClure, one of the two newspaper reporters. Although the defendant complains that the remarks restricted his cross examination of the witness, the record belies this contention. The judge merely requested that defendant’s counsel avoid repetition, and that he use the witness’s prior testimony only if it was impeaching. At one point, the judge observed that certain prior testimony was not impeaching and that the defendant’s counsel should “get to” the impeaching material. On the record, we conclude that the judge’s remarks were not prejudicial inasmuch as great latitude was permitted on cross examination and also since the jury was clearly instructed that a witness’s credibility was for it to determine. The allegedly prejudicial comment of the prosecutor was not objected to and thus will not be considered here except to observe that it was entirely consistent with the evidence at trial.

Finally, the defendant maintains that the district judge erred in overruling his objections to certain portions of the government’s cross examination of the defendant’s witnesses. The two witnesses were identified as the “suspected gamblers” from whom the defendant had allegedly received the package or other object on the date in question. The witnesses, on direct examination, had denied delivering any object to the defendant on that date. The cross examination objected to dealt with the witnesses’ occupations and activities on the same date. It was objected to as being beyond the scope of direct examination. Inasmuch as the scope, of cross examination is committed to the discretion of the trial judge, we perceive no error in this regard. United States v. Carzoli, 447 F.2d 774 (7th Cir. 1971); United States v. Ruehrup, 333 F.2d 641 (7th Cir. 1964).

For the reasons given, the judgment of conviction is affirmed.


author: PER CURIAM.

text:
    UNITED STATES of America, Appellee, v. Walid WARWAR, Defendant, Appellant.
    No. 72-1215.
    United States Court of Appeals, First Circuit.
    Submitted Feb. 5, 1973.
    Decided March 20, 1973.

      Santos P. Amadeo, Rio Piederas, P. R., and Jose Enrique Amadeo (Ex Subsec-retary of Justice of Puerto Rico, Rio Piedras, P. R.), on brief, for appellant.
    Julio Morales Sanchez, U. S. Atty., and Jorge Rios Torres, Asst. U. S. Atty., on brief, for appellee.
    Before COFFIN, Chief Judge, Mc-ENTEE and CAMPBELL, Circuit Judges.
   PER CURIAM.

Appellant Walid Warwar entered a plea of guilty to charges of violating certain federal narcotics laws after his pretrial motion challenging the jury selection process in Puerto Rico had been denied. Before this plea was accepted, appellant’s attorney informed the district court that it was being made upon an understanding with the prosecution that appellant would be “permitted to appeal constitutional grounds as to the selection of the jury.” The court briefly expressed its assent to this arrangement and, after conducting an inquiry as to the voluntariness of appellant’s plea, entered a judgment of conviction against him.

Following the imposition of sentence, appellant made a motion for bail pending appeal which was denied, D.C., 57 F.R.D. 645. Since this request for bail alleged that appellant’s plea had not been voluntarily and intelligently entered, the court properly treated it as a motion to vacate a guilty plea based on noncompliance with Rule 11 of the Federal Rules of Criminal Procedure. War-war’s appeal is apparently from the denial of this motion.

We agree that Rule 11 was not complied with in the present case. That Rule provides that a district judge may not accept a plea of guilty “without first addressing the defendant personally and determining that the plea is made voluntarily with understanding of the nature of the charge and the consequences of the plea” (emphasis added). It is, of course, settled that the Rule does not require the district court to inform the defendant of all collateral legal consequences of his plea, see, e. g., United States v. Washington, 341 F.2d 277 (3rd Cir.), cert. denied, 382 U.S. 850, 86 S.Ct. 96, 15 L.Ed.2d 89 (1965), or of the defenses which might be available to him were he to go to trial. See, e. g., Flores v. United States, 337 F.Supp. 45 (D.C.P.R.1971). However, when it affirmatively appears that the defendant may be under a misapprehension as to the effect of a guilty plea upon the preservation of any of his rights, it becomes the duty of the court to take appropriate corrective action. Cf. Smith v. United States, 400 F.2d 860 (6th Cir. 1968).’ In the present case, the court should have informed the appellant that, by pleading guilty, he might be waiving a claim which he apparently intended to preserve, notwithstanding any purported stipulation to the contrary.

Noncompliance with Rule 11 normally requires that the defendant’s guilty plea be set aside and his case remanded for a hearing at which he may plead anew. McCarthy v. United States, 394 U.S. 459, 89 S.Ct. 1166, 22 L.Ed.2d 418 (1968). In the present case, however, we decline to upset appellant’s conviction, since the only prejudice which he could have incurred from the court’s oversight was the waiver of a claim which is patently without merit. Appellant’s “constitutional” challenge to the jury selection process was based on the fact that persons from eighteen to twenty-one years of age were not included in the pool from which the jury panel was drawn. The relevant facts are as follows. Trial in appellant’s case was scheduled to be held on May 16, 1972. Approximately one month earlier, Congress had amended 28 U.S.C. § 1865 to lower the minimum age requirement for service on federal juries from twenty-one to eighteen years. Pub.L.No.92-269 (April 6, 1972). According to § 3(b) of that statute, however, the district of Puerto Rico was required to refill its master jury wheels from sources including the names of persons eighteen years of age or older only as of September 1, 1973. Thus, any absence of eighteen year olds from the jury pool is more than adequately explained by the Jury Commissioners’ adherence to a reasonable age qualification which had been in force until just before appellant’s trial. In view of these facts, which are very similar to those in Glasser v. United States, 315 U.S. 60, 62 S.Ct. 457, 86 L.Ed. 680 (1942), nothing even approaching a constitutional violation was made out. See United States v. Ross, 468 F.2d 1213, 1215 (9th Cir. 1972), petition for cert. filed, 41 U.S.L.W. 3434 (U.S., Feb. 13, 1973) (No. 72-860); see generally United States v. Butera, 420 F.2d 564 (1st Cir. 1970).

Affirmed.

      . We cannot say whether, under the circumstances of this case, appellant’s guilty plea would have precluded him from attacking the jury selection process bn appeal. First, the decisions in this circuit do not clearly reveal whether claims of this nature are waived by a guilty plea. See United States v. Karger, 439 F.2d 1108 (1st Cir.), cert. denied, 403 U.S. 919, 91 S.Ct. 2230, 29 L.Ed.2d 696 (1971) ; United States v. DeCosta, 435 F.2d 630 (1st Cir. 1970). Furthermore, we note that the Second Circuit has approved a procedure whereby a defendant may plead guilty to the charges against him while preserving an issue for appeal by stipulation with the United States Attorney and the court. See United States v. Doyle, 348 F.2d 715, 718-719 (2d Cir.), cert. denied, 382 U.S. 843, 86 S.Ct. 89, 15 L.Ed.2d 84 (1965). In the context of the present case, we express no view as to either of these matters.


author: PER CURIAM:

text:
    Ralph L. McKLEMURRY, Petitioner-Appellant, v. UNITED STATES of America, Respondent-Appellee.
    No. 72-3722
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    May 15, 1973.

      Ralph McKlemurry, pro se.
    Gerald J. Gallinghouse, U. S. Atty., New Orleans, La., for respondent-ap-pellee.
    Before WISDOM, AINSWORTH and CLARK, Circuit Judges.

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

   PER CURIAM:

This is an appeal from the district court’s denial of McKlemurry’s motion to vacate judgment and sentence, filed pursuant to 28 U.S.C. § 2255. We affirm.

Appellant MeKlemurry was convicted by a jury of seven Dyer Act offenses, in violation of 18 U.S.C. § 2313. He was sentenced to serve thirty-month sentences on Counts I, II, III, and IV to run consecutively, and to thirty-month sentences on Counts V, VI, and VII to run concurrently with the sentences imposed on Counts I, II, and III, respectively. His direct appeal was affirmed by this Court, United States v. McKlemur-ry, 461 F.2d 651 (5th Cir. 1972).

In his present § 2255 motion, the appellant raised three contentions. First, he alleged that the sentence imposed on him under Count III was invalid because that count of the indictment had been dismissed during the trial proceedings. Secondly, he contended that the evidence introduced in connection with the stolen 1967 Pontiac involved in Count VII of the indictment must have been obtained on the occasion of the illegal entry and search at noon on June 26th since the Pontiac could not have been on his property at the time of the initial surveillance the prior night. Finally, the appellant argued that the information leading to the discovery that the two 1963 Chev-rolets were stolen (Counts I and VI) must have also resulted from the illegal entry since such information could not have come through mere observation of their license plates from the road.

The district court denied relief on all three contentions on ground that each of these issues raised had been presented on McKlemurry’s direct appeal and had been decided adversely to him by this Court. We affirm the denial of the motion, but for reasons different than those assigned by the court below.

MeKlemurry did not raise the contention in regard to the dismissal of Count III on direct appeal and therefore this issue has not been ruled on by this court. However, it is unnecessary to remand for further proceedings since Appellant’s contention lacks merit as a matter of law. During the introduction of evidence relative to Count III, a witness for the prosecution, Charles Evans of the National Auto Theft Bureau, was reluctant to answer a question concerning the place where he found the vehicle’s secondary identification number. Thereupon a conference was conducted outside the presence of the jury, during which the judge ruled that the defendant was entitled to an answer. The prosecution then offered to drop the count rather than have the witness reveal the confidential information. The defense promptly accepted the offer. Before the court took any action on this offer and acceptance, Evans stated that he would answer the inquiry. The government then withdrew its offer to dismiss the count. Fed.R.Crim.P. 48(a), requires the consent of the trial court to effect the dismissal of a count of an indictment. United States v. Cox, 342 F.2d 167, 171 (5th Cir.) (en banc), cert. denied, 381 U.S. 935, 85 S.Ct. 1767, 14 L.Ed.2d 700 (1965). Since such consent had not been given prior to the withdrawal of the motion to dismiss Count III, there was no error in proceeding with the trial on Count III.

Our holding that appellant’s conviction and sentence under Count III is valid, makes it unnecessary for us to reach the merits of appellant’s complaints concerning his conviction under Count VII because the sentence thereunder runs concurrently with that imposed under Count III. Furthermore, the sentences on Counts I and VI run concurrently with sentences under Counts V and II, respectively. There being no allegation regarding the invalidity of convictions under Counts V and II, thus we find it unnecessary to reach the merits of appellant’s contentions in regard to Counts I and VI. United States v. Stone, 472 F.2d 909, 916 (5th Cir. 1973).

On this appeal McKlemurry also contends that consecutive sentencing is a violation of 18 U.S.C. § 3568 and the Federal Constitution and that, even if consecutive sentencing is legal, the imposition of consecutive sentences in this case was unduly harsh. These issues were not raised in the § 2255 motion from which this appeal is taken. However, McKlemurry did challenge the consecutive sentencing in an earlier § 2255 motion to vacate sentence from which no appeal was taken. Sound judicial husbandry dictates that we now consider the merits of McKlemurry’s claims in regard to sentencing. The contention that federal courts have no constitutional or statutory authority to impose consecutive sentences on separate offenses has been uniformly rejected. See, e. g., Dockery v. Hiatt, 197 F.2d 333 (5th Cir. 1952). We agree with the district court’s judgment that appellant’s contention of undue harshness in the sentences imposed is frivolous. We note that the maximum punishment under 18 U.S.C. § 2313 is five years imprisonment and a 5,000 dollar fine. Thus the appellant could have received sentences totaling 35 years plus substantial fines on the seven counts charged in the indictment. The sentences imposed were entirely reasonable in the case of this recidivist offender.

In his pro se brief filed in this court, the appellant has also contended that he was denied effective representation of counsel on his direct appeal. This issue was not presented in either of his § 2255 motions and therefore will not be considered for the first time in this court. Hemming v. United States, 409 F.2d 11 (5th Cir. 1969).

The judgment appealed from is

Affirmed.

      . See Notes of the Advisory Committee on Rules, 18 U.S.C.A., F.R.Crim.P., Rule 48, which explains that the 1946 Amendment represents a specific change from the common law rule previously followed in federal courts. See also 3 Wright, Federal Practice and Procedure § 812 (1969).

      . We also note that the evidence of guilt on Counts II, III, IV, and V was overwhelming. Assuming arguendo that error occurred in the admission of some part of the evidence adduced as to Counts I, VI, and VII, such error was harmless beyond any reasonable doubt in respect to the convictions on the former counts.

      . McKlemurry’s additional claim that the present concurrent sentences imposed in the Southern District of Mississippi (see Note 4 infra) and the Eastern District of Louisiana are in derogation of his constitutional rights because they do not end on the same date is frivolous.

      . In 1966 McKlemurry was convicted of Dyer Act violations in the Northern District of Alabama and served a two-year federal sentence. In 1968 he pled guilty to another Dyer Act violation in the Southern District of Mississippi and was l>laced on probation. As a result of his arrest on the present charges, this probation was revoked and McKlemurry has been resentenced to serve the remaining four years of the Mississippi conviction in a federal penitentiary. Denial of motion to vacate sentence affirmed, McKlemurry v. United States, 462 F.2d 575 (5th Cir. 1972).


author: ELY, Circuit Judge: MERRILL, Circuit Judge

text:
    UNITED STATES of America, Appellant, v. Catherine DeCAMP, Appellee, Truck Insurance Exchange, Intervenor-Appellee.
    No. 26199.
    United States Court of Appeals, Ninth Circuit.
    April 25, 1973.

      Alan S. Rosenthal, Washington, D. C. (argued), Robert L. Meyer, U. S. Atty., Larry L. Dier, Asst. U. S. Atty., Robert V. Zener, Civil Div., Dept, of Justice, Washington, D. C., for appellant.
    Allan L. Steele (argued), Ghitterman, Spielman & Steele, Ventura, Cal., for ap-pellee.
    Timothy J. Sargent (argued), Bodkin, Breslin & Luddy, Los Angeles, Cal., for intervenor-appellee.
    Before MERRILL, ELY and TRASK, Circuit Judges.
   OPINION

ELY, Circuit Judge:

This wrongful death action was brought by the widow of Paul DeCamp against the United States under the Tort Claims Act, 28 U.S.C. §§ 1346(b), 2671-80. The husband was fatally injured on June 28, 1967, during the course of his employment under a contract between his employer, Beecham, and the Army Corps of Engineers. The contract called for the removal and disposal of debris along the Salinas River near San Luis Obispo, California.

The injury occurred when DeCamp’s bulldozer made contact with a live willow tree. The tree snapped over the top of the brush rake, inflicting a fatal blow. The District Court found that the accident would not have occurred ' had the bulldozer been equipped with a canopy guard.

There was testimony that prior to submission of bids on the project, the’ decedent’s employer and other prospective bidders had specifically inquired of the Corps’ resident engineer, one Caniff, whether the Government would require the successful bidder to equip its bulldozers with canopies. Since these devices were not customarily used in the area, compulsory installation would have' entailed additional, and not inconsiderable, expense. The contractors’ apprehension was prompted by a provision of the Corps of Engineers’ safety manual that provides:

“18-20. Suitable protection against the elements, falling or flying objects, swinging loads, and similar hazards shall be provided for operators of all machinery or equipment. All glass used shall be ‘safety glass.’ All bulb dozers, tractors or similar equipment used in clearing operations shall be provided with substantial guards, shields, canopies, or grills to protect the operator from falling or flying objects as appropriate to the nature of the clearing operations undertaken.”

Department of the Army Corps of Engineers, General Safety Requirements § 18-20 (1958). After determining that canopy guards were not appropriate for the particular project, Caniff' advised the bidders that their installation would not be required.

Plaintiff charged that the Government violated a duty to decedent by (1) failing to provide him a safe place to work; (2) not requiring the use of canopies; and (3) permitting the equipment to be used without canopies.

Intervenor Truck Insurance Exchange, the workman’s compensation insurance carrier of decedent’s employer, asserted its claim for a lien on any judgment for plaintiff to the extent that it had paid benefits to the widow. Since California predicates such a lien on the absence of negligence by the insured, Witt v. Jackson, 57 Cal.2d 57, 17 Cal.Rptr. 369, 366 P.2d 641 (1961), the question of whether the decedent’s employer had negligently caused the accident was squarely presented.

The District Court, sitting without a jury, held that decedent’s employer, R. H. Beecham, did not breach any duty owing to decedent. At the same time, the court concluded that the failure of the United States to require Beecham to install bulldozer canopies constituted negligence, proximately causing the fatal injury.

I

Even though the Government admitted subject matter jurisdiction in its answer and has not raised the issue on appeal, we are required first to consider the statutory requirements for maintaining suit against the United States under 28 U.S.C. § 1346(b). Jurisdictional defects cannot, of course, be waived. Canton v. United States, 388 F.2d 985, 986 (8th Cir. 1968); United States v. Rochelle, 363 F.2d 225, 230 (5th Cir. 1966); Armstrong v. United States, 283 F.2d 122,123 (3d Cir. 1960).

The plaintiff invoked federal jurisdiction under 28 U.S.C. § 1346(b), which provides in relevant part:

“[Djistrict courts . . . shall have exclusive jurisdiction of civil actions on claims against the United States, for money damages for injury or loss of property, or personal injury or death caused by the negligent or wrongful act or omission of any employee of the Government while acting within the scope of his office or employment, under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred.”

This statutory grant is, however, subject to the “discretionary function” exception set forth in 28 U.S.C. § 2680(a):

“The provisions of this chapter and section 1346(b) of this title shall not apply to- — •

(a) Any claim based upon an act or omission of an employee of the Government, exercising due care, in the execution of a statute or regulation, whether or not the statute or regulation be valid, or based upon the exercise or performance or the failure to exercise or perform a discretionary function or duty on the part of a federal agency or an employee of the Government, whether or not the discretion involved be abused.”

Here, the resident engineer made an administrative decision that the project was not one appropriate for canopy guards, a decision that assertedly contributed to the death of DeCamp. To come within the jurisdictional ambit of Section 1346(b), it must appear that this decision did not involve the kind of discretion that Section 2680(a) seeks to protect. Conversely, if such discretion was involved, a claim cannot be made out under the Tort Claims Act.

Whether the claim arises out of a discretionary action, bringing it within the exception of Section 2680(a), must be resolved under federal law. Cf. United States v. Neustadt, 366 U.S. 696, 81 S.Ct. 1294, 6 L.Ed.2d 614 (1961); Dalehite v. United States, 346 U.S. 15, 73 S.Ct. 956, 97 L.Ed. 1427 (1953). To resolve whether the decision was “discretionary” or “operational”, we adopt the analysis suggested by Judge Waterman in Hendry v. United States, 418 F.2d 774, 782-784 (2d Cir. 1969).

The initial consideration is whether the complaint is essentially leveled against the content of the regulation or against its application. It is clear in this case that the plaintiff’s allegations attacked only the manner in which the resident engineer applied Regulation 18-20 — not the regulation itself. In this context we also note that the decision of “inappropriateness” was not predicated upon considerations of public policy but upon general standards of safety. Accordingly, state tort law can capably measure the reasonableness of the engineer’s judgment in applying professional standards of safety. It is apparent, finally, that the merits of this case are not laden with political questions or other elements suggesting non-justiciability. In fact, the type of decision assailed is frequently subjected to judicial scrutiny.

Concluding that the District Court had jurisdiction to entertain the action, we now turn to the merits of the claim.

II

Under the Tort Claims Act, the United States is liable for the negligence of its employees “under circumstances where the United States, if a private person, would be liable to the claimant in accordance with the law of the place where the act or omission occurred.” 28 U.S.C. § 1846(b). Accordingly, the law of California governs the liability of the United States for this alleged tort. E. g., United States v. White, 211 F.2d 79 (9th Cir. 1954); see Roberson v. United States, 382 F.2d 714, 717 (9th Cir. 1967) (applying Arizona law); Kirk v. United States, 270 F.2d 110, 116 (9th Cir. 1959) (applying Idaho law).

The Government urges that the District Court erred in finding that decedent’s employer was not negligent. The testimony convinced the district judge that by custom and usage, contractors in the area “did not use canopies or roll bars on the[ir] tractors . when said tractors were-being used for clearance projects.” While this finding does not dispose of whether adherence to such practices constitutes negligence, it does provide an acceptable basis for determining the absence of negligence. Cf. Diamond v. Grow, 243 Cal.App.2d 396, 52 Cal.Rptr. 265 (1966). It is especially persuasive when considered in conjunction with the uncontra-dicted testimony of several contractors that canopies were not indicated safety devices on debris clearance projects in the area. Thus, we are not persuaded that we should overturn the finding that the employer’s failure to equip his bulldozers with canopy guards was not a negligently contributive omission.

The essential remaining question is under what circumstances, in the absence of negligence by the independent contractor, the Government will nevertheless be found to have a duty toward the employees of that contractor working under a government contract. The District Court found that the circumstances here give rise to the imposition of such a duty. With this determination, we cannot agree.

According to the trial court, the negligence of the Government is bottomed upon the statement of the resident engineer to Beecham that canopies would not be needed on the project. The court concluded that (1) this statement served to waive application of a regulation that would have required canopies; and (2) this waiver breached the Government’s duty of care toward the decedent. We believe that this reasoning is premised upon a misinterpretation of the legal effect of the statement made by the resident engineer.

Quite to the contrary of deciding not to enforce Regulation 18-20, the resident engineer applied its safety standards and determined that canopies were not appropriate for the clearing project. The most that can be argued, therefore, is that this determination misapplied the regulation in a negligent manner. There is authority for the proposition that the safety manual, as a matter of federal law, imposes no special duty on the Government. See Lipka v. United States, 369 F.2d 288, 291 (2d Cir. 1966) cert. denied, 387 U.S. 935, 87 S.Ct. 2061, 18 L.Ed.2d 997 (1967); Grogan v. United States, 341 F.2d 39, 43 (6th Cir. 1965); Kirk v. United States, supra, cf. United States v. Page, 350 F.2d 28 (10th Cir. 1965), cert. denied, 382 U.S. 979, 86 S.Ct. 552, 15 L.Ed.2d 470 (1966). We need not reexamine this problem, however, because we are convinced that even if we concede that such a duty was created by the manual, the duty did not encompass the risk of the type of accident that here occurred.

The nature of the duty centers on whether an accurate determination as to the “appropriateness” of canopy guards comprised an element of the standard of conduct applicable to this case. A standard fixing the extent to which an erroneous determination would impose liability on the Government does not relate to the “fact-finding tribunal’s experience with the mainsprings of human conduct . . . .” Commissioner v. Duberstein, 363 U.S. 278, 289, 80 S.Ct. 1190, 1198, 4 L.Ed.2d 1218 (1960). Rather, it is a legal conclusion based on the application of legal standards. See Lundgren v. Freeman, 307 F.2d 104, 115 (9th Cir. 1962); Pacific Tow Boat Co. v. States Marine Corp., 276 F.2d 745, 752 (9th Cir. 1960). See generally Wright & Miller, Federal Practice and Procedure, § 2590. Accordingly, a reviewing court is not limited by the clearly erroneous test of Fed.R.Civ.P. 52(a). It must overturn such a conclusion whenever it believes that there has been an erroneous conception of the applicable law.

In the context of Regulation 18-20, “appropriate” is not a word of art but connotes only its general usage of “specially suitable”. Webster’s New International Dictionary 133 (2d ed. 1940). In light of the prevalent practices of contractors in the area here involved, as well as the undisputed testimony that from a safety standpoint the use of canopies was not indicated for the debris clearance, the only reasonable inference is that canopies were not specially suitable for the project. In California a private person would assume no tort duty by reaching this conclusion and the government engineer cannot be held to a higher standard. See Gowdy v. United States, 412 F.2d 525, 529, 539 (6th Cir.), cert. denied, 396 U.S. 960, 90 S.Ct. 437, 24 L.Ed.2d 425 (1969).

The plaintiff’s reliance upon Van Arsdale v. Hollinger, 68 Cal.2d 245, 66 Cal.Rptr. 20, 437 P.2d 508 (1968) is misplaced. Van Arsdale, which engrafts Section 416 of the Restatement (Second) of Torts onto the statutory liability of public entities in California, merely carves out another exception to the independent contractor rule in order to impute the negligence of an independent contractor to the employer of the contractor. Since Section 416 is predicated initially upon the presence of negligence by the contractor, the section is inappo-site when, as here, the contractor is not negligent. We thus need not consider whether the federal government can be vicariously liable in any event under the Tort Claims Act, although we note in passing that many courts confronting this issue have answered in the negative. See Fisher v. United States, 441 F.2d 1288 (3d Cir. 1971); Market Insurance Co. v. United States, 415 F.2d 459 (5th Cir. 1969); Gowdy v. United States, supra; Wright v. United States, 404 F.2d 244 (7th Cir. 1968); Roberson v. United States, supra; Lipka v. United States, supra; United States v. Page, supra.

We therefore conclude, under the facts of this case, liability for the death of DeCamp should not be imposed upon the Government.

The judgment is reversed, and upon remand, the actions against the United States will be dismissed.

Reversed and remanded, with direc-. tions.

MERRILL, Circuit Judge

(dissenting) :

I dissent from part II of the majority opinion.

I do not see how, under the circumstances, we can overturn the District Court’s finding that failure of the Army Corps of Engineers to require the contractor to install bulldozer canopies constituted negligence. (As the majority opinion notes, footnote 3, California has adopted § 413 of the Restatement of Torts Second.) The nature of the accident-as described in the opinion seems to me to be such that it was obviously foreseeable. If the common practice of contractors in the area was to take the risk that such accidents would occur, that does not to me serve to establish lack of negligence as matter of law. As stated in The T. J. Hooper, 60 F.2d 737, 740 (2d Cir.), cert. denied, sub. nom. Eastern Transp. Co. v. Northern Barge Corp., 287 U.S. 662, 53 S.Ct. 220, 77 L.Ed. 571 (1932), “[T]here are precautions so imperative that even their universal disregard will not excuse their omission.”

I, too, am troubled by the apparent in-' consistency in holding the Corps negligent and the contractor not negligent. However, the District Court clearly felt that canopies should have been employed. This being so, both the Government and the contractor should have been held guilty of negligent conduct. To me the inconsistency is explainable as founded on the erroneous view that the contractor could defer to the judgment of the Corps as to whether adequate safeguards should be employed and thereby relieve himself of all duty in that respect.

I would affirm the judgment against the United States.

      . Under 28 U.S.C. § 2402, a tort action brought under the Tort Claims Act is triable only to the court without a jury. See, e. g., O’Connor v. United States, 269 F.2d 578, 585 (2d Cir. 1959) (wrongful death action).

      . No suggestion was made, for example, that the Government should always require canopy guards on bulldozers for clearance projects and that, therefore, the elastic language of the regulation was itself a product of negligence.

      . This conclusion prompts reference to Section 413 of the Restatement (Second) of Torts, adopted in California in Walker v. Capistrano Saddle Club, 12 Cal.App.3d 894, 90 Cal.Rptr. 912 (1971), which provides that:
      “One who employs an independent contractor to do work which the employer should recognize as likely to create, during its progress, a peculiar unreasonable risk of physical harm to others unless special precautions are taken, is subject to liability for physical harm caused to them by the absence of such precautions if the employer
      (a) fails to provide in the contract that the contractor shall take such precautions, or

        (b) fails to exercise reasonable care to provide in some other manner for the taking of such precautions.”
      Not really an exception, as such, to the independent contractor rule, Section 413 imposes direct liability upon the employer of an independent contractor if the employer himself fails to take appropriate special precautions. This section thus contrasts sharply with Section 416, which imposes vicarious liability on the employer for the negligence of the independent contractor.
      As indicated infra, since the Government did not in fact fail to take any special precautions required in the circumstances of this case, no liability can attach to the Government, under either Section 413 or any related common law principle.