author:
CUMMINGS, Circuit Judge.
      SPRECHER, Circuit Judge,

text:
    Knute SWANSON, on behalf of Peoria Service Company, and on behalf of all shareholders of Peoria Service Company similarly situated, Plaintiff-Appellant, v. AMERICAN CONSUMERS INDUSTRIES, INC., a New Jersey corporation, et al., Defendants-Appellees.
    No. 71-1639.
    United States Court of Appeals, Seventh Circuit.
    Argued Oct 24, 1972.
    Decided March 6, 1973.
    Rehearing Denied April 16, 1973.

      Richard Orlikoff, Arthur T. Susman, Thomas D. Hanson, Chicago, Ill., Thomas Y. Cassidy, Peoria, Ill., for plaintiff-appellant; Orlikoff, Prins, Flamm & Susman, Chicago, Ill., of counsel.
    Frank O. Wetmore, II, Edward J. Wendrow, John W. Stack, Chicago, Ill., Eugene L. White, Peoria, Ill., for defendants-appellees.
    Before CUMMINGS and SPRECHER, Circuit Judges, and KILKENNY, Senior Circuit Judge.

      . Senior Circuit Judge John F. Kilkenny of the Ninth Circuit is sitting by designation.

   CUMMINGS, Circuit Judge.

Plaintiff is a stockholder of defendant Peoria Service Company (Peoria), a dissolved Illinois corporation that formerly operated two cold storage warehouse facilities in Peoria, Illinois. The complaint was brought derivative!y on behalf of Peoria and also on behalf of plaintiff and all other similarly situated stockholders. In addition to the nominal defendant, Peoria, the complaint named as defendants United States Cold Storage Corporation (U.S. Cold), which owns 87 per cent of Peoria stock, and American Consumer Industries, Inc. (ACI), which owns 90 per cent of U.S. Cold stock. Plaintiff sought to rescind a 1965 reorganization agreement between Peoria and ACI which provided for the transfer of substantially all of Peoria’s assets to ACI, an exchange of Peoria stock for ACI stock, and the liquidation of Peoria and to recover damages allegedly sustained by Peoria. The complaint asserted that the reorganization plan and related activities involved manipulative and deceptive devices and that the proxy materials were misleading and omitted to state material facts, in violation of Section 10(b) of the Securities Exchange Act (15 U.S.C. § 78j(b)) and Rule 10b-5 thereunder (17 C.F.R. § 240.-10b-5). Liability was also asserted under Illinois common law.

In August 1968, the trial court entered summary judgment for defendants. 288 F.Supp. 60. We reversed and remanded for trial, Judge Swygert dissenting. 415 F.2d 1326. After trial, the district court again rendered judgment for defendants. 328 F.Supp. 797. After setting forth 52 findings of fact, the court held that plaintiff must prove a causal relationship between the deceptive material and the Peoria sale, or that there was reliance upon the deceptive material and that the corporation or its shareholders were injured as a proximate result of the material. The court concluded that plaintiff had failed “to prove the fact of reliance by anyone, any causal relationship between any defects in the proxy material and the Peoria sale, or that either Peoria or its shareholders sustained any injury.” 328 F.Supp. at 807.

In urging reversal, plaintiff first asserts that proof of a materially defective proxy statement used in connection with a transaction is sufficient to show a causal relationship between the violation and the transaction. Plaintiff also urges that he is entitled to relief under the common law of Illinois. Accordingly, plaintiff insists upon rescission, restitution, or other suitable relief, plus an award of attorneys’ fees. Since the facts are fully stated in our prior opinion and in the two opinions below, they will not be restated herein.

Subsequent to our first opinion in the case, the Supreme Court rendered its opinion in Mills v. Electric Auto-Lite Co., 396 U.S. 375, 90 S.Ct. 616, 24 L.Ed.2d 593, reversing 403 F.2d 429 (7th Cir. 1968). In that case the plaintiffs complained that the wrong accomplished through the use of a materially false or misleading proxy statement was the effectuation of a corporation merger. The Court held that if the proxy solicitation was an essential link in the accomplishment of the transaction, a showing of materiality in the misstatement or omission of that proxy was sufficient to establish a causal relationship between, the proxy statement and the merger. 396 U.S. at 384-385, 90 S.Ct. 616. However, in Mills approval of a substantial number of minority shareholders was essential to the accomplishment of the merger. 396 U.S. at 379, 90 S.Ct. 616. In this case, ACI through U.S. Cold controlled a sufficient number of shares to approve the transaction without any votes from the minority. It was precisely in such a case that the Supreme Court refrained from deciding whether merely by demonstrating materiality, causation would be shown between the false or misleading proxy statement and the accomplishment of the merger. 396 U.S. at 385 n. 7, 90 S.Ct. 616.

Insofar as plaintiff claims the merger itself was the injury, it may be that since ACI controlled a sufficient amount of shares to approve the merger regardless of the minority vote, causation between the deception and the injury has not been established. Laufer v. Stranahan, Jr., CCH Fed.Sec.L.Rep. ¶ 92,617 (S.D.N.Y.1970). Nevertheless, assuming (without deciding) causation is ipso facto established by a showing of materiality even in this situation, unscrambling the merger would be an in-. appropriate remedy in this case.

The Supreme Court expressly reiterated this Court’s statement in our decision in Mills that “nothing in the statutory policy ‘requires the court to unscramble a corporate transaction merely because a violation occurred.’ ” 396 U.S. at 386, 90 S.Ct. at 622, quoting from 403 F.2d at 436. Further, the Supreme Court directed that in fashioning retrospective relief, “the federal courts should consider the same factors that would govern the relief granted for any similar illegality or fraud” and that “[o]ne important factor may be the fairness of the terms of the merger.” 396 U.S. at 386, 90 S.Ct. at 622. Here the lower court found that “the exchange ratio of five shares of Peoria stock for one share of ACI stock, which was established in the plan, was fair and reasonable to Peoria, to ACI, and to the shareholders of both.” 328 F.Supp. at 807. We cannot say that this finding, supported by particularized factual findings largely based on credibility determinations, was “clearly erroneous” within the meaning of Rule 52(a) of the Federal Rules of Civil Procedure. Moreover, the lower court concluded that to require unscrambling “would be a grave injustice to the other shareholders of ACI.” Id. Insofar as plaintiff shareholders seek relief in their derivative status, “while they do have a derivative right to invoke [Peoria’s] status as a party to the agreement, a determination of what relief should be granted in [Peoria’s] name must hinge on whether setting aside the merger would be in the best interests of the shareholders as a whole.” Mills, supra, 396 U.S. at 388, 90 S.Ct. at 623. The district court, exercising “the sound discretion which guides the determinations of courts of equity,” (id. at 386, 90 S.Ct. at 622), made the foregoing finding that setting aside the merger would not be in the best interests of all shareholders, and we are not inclined to find an abuse of that discretion.

With respect to any monetary recovery to the plaintiff shareholders predicated on the terms of the merger, we will again assume that a causal connection is established between the false or misleading proxy statements and accomplishment of the merger. But as in Dasho v. Susquehanna Corp., 461 F.2d 11, 30 (7th Cir.), certiorari denied, 408 U.S. 925, 92 S.Ct. 2496, 33 L.Ed.2d 336 (1972), although this “would seem to require a finding of ‘legal injury’ caused by the violation, in this case that injury may not include any pecuniary loss.”

Applying the analysis of Dasho, approval of the sale of assets and reorganization caused plaintiff shareholders “monetary injury only if (a) [Peoria] would have been better off with no merger at all; or (b) a more favorable exchange ratio would have been available if there had been full disclosure.” Id. at 31. The district court found that “Peoria, during and prior to ACI control, was not a viable entity; that Peoria was unable, financially, to exploit the market available to it and unable to obtain such financing as was necessary for conversion of the corporation into a viable entity.” 328 F.Supp. at 806. This finding is supported by ample evidence, and hence it is clear Peoria would not have been better off with no merger at all. As to the availability of a more favorable exchange ratio upon full disclosure, there was simply a failure of evidence to support a monetary recovery. What suffices to show causation of a legal injury — the merger- — does not automatically show plaintiffs suffered compensable monetary injury. “[D]amages should be recoverable only to the extent that they can be shown.” Mills, supra, 396 U.S. at 389, 90 S.Ct. at 624.

When this case was before us previously, the defendants contended that no injury could be shown because any corporate opportunities or going concern value of which Peoria shareholders might have been deprived are retained by them by virtue of their continuing equity position in ACI. We responded that “if the allegations of the complaint are proved, the Peoria shareholders were entitled to a more favorable exchange ratio than they were granted and may have had their equity position unfairly diluted.” 415 F.2d at 1332. But the allegations of unfairness in the complaint were not proved. The district court found that ACI paid full reasonable value for Peoria’s assets and that the exchange ratio of five shares of Peoria stock for one share of ACI stock was fair and reasonable to Peoria and its shareholders. 328 F.Supp. at 807. This is a case where monetary relief is appropriately “predicated on a determination of the fairness of the terms of the merger at the time it was approved.” Mills, supra, 396 U.S. at 389, 90 S.Ct. at 624. The lower court having concluded that the terms of the merger were fair and reasonable at the time of the transaction, and we having concurred with that conclusion, the plaintiffs are not entitled to a retrospective revision of the merger terms.

Whether or not causation should be taken as established between the deceptive proxy statement and consummation of the merger, causation between the proxy statement and other injury claimed to have been suffered stands on an entirely different footing. As we said in our prior opinion, “The power to effect a given result certainly does not negative all possibility of injury resulting from the fraudulent or manipulative use of that power.” 415 F.2d at 1331-1332. Particularizing the possibility of injury, we stated “[i]t may well be that the misstatements and omissions contained in the proxy statements caused some Peoria shareholders to approve the sale, thus losing their statutory appraisal remedies.” 415 F.2d 1332. See 111. Rev.Stat.1971, Ch. 32, § 157.73. Operating under this Court’s decision in Mills v. Electric Auto-Lite Co., 403 F.2d 429 (7th Cir. 1968), we remanded the ease for a factual determination of whether a causal relationship existed between the deficiency in the proxy statement and the loss of statutory appraisal rights. Under the Supreme Court’s decision in Mills, causation and reliance are no longer factually-to-be-proven predicates to recovery. As most recently stated by a unanimous Supreme Court in Affiliated Ute Citizens v. United States, 406 U.S. 128, 153-154, 92 S.Ct. 1456, 1472, 31 L.Ed.2d 741:

“Under the circumstances of this case, involving primarily a failure to disclose, positive proof of reliance is not a prerequisite to recovery. All that is necessary is that the facts withheld be material in the sense that a reasonable investor might have considered them important in the making of this decision. See Mills v. Electric Auto-Lite Co., 396 U.S. 375, 384 [90 S.Ct. 616, 621, 24 L.Ed.2d 593] (1970); SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 849 (C.A.2 1968), cert. denied sub nom. Coates v. SEC, 394 U.S. 976 [89 S.Ct. 1454, 22 L.Ed.2d 756] (1969); L. Loss, Securities Regulation, 3876-3880 (1969 Supp. to 2d ed. of Vol. 3); A. Bromberg, Securities Law, Fraud—SEC Rule 10b-5, pts. 2.6 and 8.6 (1967). This obligation to disclose and this withholding of a material fact establish the requisite element of causation in fact.”

Thus the plaintiff sellers who were defrauded in that case were entitled to damages measured by the difference between the fair value of what they received and the fair value of what they would have received had there been no fraudulent conduct. 406 U.S. at 155, 92 S.Ct. 1456.

Consequently, it is inescapable that plaintiff shareholders have proven all the elements required to impress liability on defendants under Section 10(b) of the Securities and Exchange Act and the Commission’s Rule 10b-5 for loss of their informed ability to exercise their statutory appraisal rights. In such a posture the appropriate remedy is to restore to the plaintiff shareholders the opportunity to receive cash rather than ACI shares. Therefore, ACI must offer to each Peoria shareholder $3.55, the market value attributed to Peoria stock in the reorganization plan, for each share of Peoria stock held by such shareholder on March 31, 1965, together with legal interest from that date to the date judgment is entered by the district court. Any minority shareholders who exchanged Peoria shares must, of course, return an equivalent number of ACI shares exchanged in order to receive the cash. Plaintiff is also entitled to reimbursement of reasonable attorneys’ fees in an amount to be fixed by the district court, of course taking into consideration the modest recovery achieved, but cognizant that pecuniary benefit is not the sole criterion for the award of attorneys’ fees. See Mills v. Electric Auto-Lite Co., supra, 396 U.S. at 389-397, 90 S.Ct. 616; Dillon v. Berg, 351 F.Supp. 584 (D.Del.1972).

With respect to plaintiff shareholders’ claim that they are entitled to recover under the common law of Illinois for defendants’ purported breach of their fiduciary duties, the lower court concluded that the defendants “sustained their burden of proving that the transaction was a good faith and entirely fair effort by defendants and their officers and directors to relieve all the shareholders of Peoria from the consequences of its impending failure and to enable all such shareholders to participate equitably and ratably in the exploitation of the cold storage market available in the area.” 328 F.Supp. at 807. Because we find no adequate reason to set aside the factual findings underpinning the conclusion that defendants have not breached their fiduciary duties under Illinois laws, we affirm that conclusion,.

Since a further trial of this action is not required, Rule 23 of this Court is inoperative, and the case will therefore not be reassigned to another judge.

Finally, it is ordered that (1) costs in this Court are taxable against the defendants; (2) the trial court’s order allowing costs against plaintiff is reversed; and (3) costs in the trial court should be awarded to the plaintiff in an amount to be determined by that court.

Reversed and remanded for further proceedings not inconsistent herewith.

SPRECHER, Circuit Judge,

concurring in the result of reversal but dissenting from the remedy upon remand.

The district court originally dismissed the class action aspects of the case and then rendered summary judgment for the defendants. 288 F.Supp. 60 (S.D.Ill.1968). This court reversed the class dismissal and the summary judgment and remanded for trial. We concluded that “these proxy statements were misleading in material respects and were deceptive as a matter of law.” 415 F.2d 1326, 1331 (1969).'

After a trial, the district court concluded that the plaintiff was required to prove “a causal relationship between the deceptive material and the [Peoria] sale, or that there was reliance upon the deceptive material . . . and . that the corporation and/or its shareholders were injured as a proximate result of the material.” The court then found and concluded that plaintiff had failed “to prove the fact of reliance by anyone, any causal relationship between any defects in the proxy material and the Peoria sale, or that either Peoria or its shareholders sustained any injury.” 328 F.Supp. 797 at 807. Under the circumstances of this case, the court was erroneous as a matter of law in regard to reliance and causal relationship, and was clearly erroneous as a matter of fact in regard to the injury sustained by the corporation and its shareholders. The court set up a series of unnecessary and unjustified roadblocks for the plaintiff.

Congress has provided that the securities laws, as well as the antitrust laws, may be enforced by private litigation. “In the face of such a policy this Court should not add requirements to burden the private litigant beyond what is specifically set forth by Congress in those laws.” Radovich v. National Football League, 352 U.S. 445, 454, 77 S.Ct. 390, 395, 1 L.Ed.2d 456 (1957). In fact, Congress intended fewer burdens for the private litigant in securities law cases than in anti-trust litigation.

First, the district court erred as a matter of law in requiring proof of reliance under the circumstances of this case. This has been made crystal clear in two Supreme Court decisions, one prior and the other subsequent to the district court’s judgment.

In Mills v. Electric Auto-Lite Co., 396 U.S. 375, 384, 90 S.Ct. 616, 621, 24 L.Ed.2d 593 (1970), the Court said:

“Where the misstatement or omission in a proxy statement has been shown to be ‘material,’ as it was found to be here, that determination itself indubitably embodies a conclusion that the defect was of such a character that it might have been considered important by a, reasonable shareholder who was in the process of deciding how to vote.”

In Affiliated Ute Citizens v. United States, 406 U.S. 128 (1972), the Court said at 153-154, 92 S.Ct. at 1472:

“Under the circumstances of this case, involving primarily a failure to disclose, positive proof of reliance is not a prerequisite to recovery. All that is necessary is that the facts withheld be material in the sense that a reasonable investor might have considered them important in the making of this decision.”

Second, the district court erred as a matter of law in requiring proof of causal connection under the circumstances of this case.

In Affiliated Ute Citizens, the Court said at 406 U.S. 154, 92 S.Ct. at 1472:

“This obligation to disclose and this withholding of a material fact establish the requisite element of causation of fact.”

The “circumstances” of Ute establishing an “obligation to disclose” were that the defendants were market makers who “possessed the affirmative duty under the Rule to disclose this fact” to persons who were selling stock to or through them. 406 U.S. at 153, 92 S.Ct. at 1472. The circumstances of the present case were that the dominant and controlling shareholder was a fiduciary with an affirmative duty and obligation under Rule 10b-5 to disclose to the minority shareholders the facts which it omitted to disclose in the proxy materials. Lebold v. Inland Steel Co., 82 F.2d 351 (7th Cir. 1936) and 125 F.2d 369 (7th Cir. 1942).

The fiduciary relation exists whether the dominant and controlling shareholder controls through a 5% stock interest or a 95% interest. In Lebold, the governing West Virginia statute provided that a corporation could be dissolved upon a 60% vote “regardless of motive and expediency” and the defendant parent corporation there owned 80% of the shares of the corporation sought to be dissolved. 82 F.2d at 352, 353. Nevertheless, this Court said at 125 F.2d at 373:

“By its strategic position, by its dominant situation, . . . [the parent corporation] could and did force a sale, bid in the property itself and thereafter continue to operate the business as before .
“ . . . The business was never, interrupted, never curtailed, never modified but continued without interruption.
“ . . . The socalled dissolution was a mere device by means of which defendant appropriated for itself the transportation business of the Steamship Company to the detriment of plaintiffs. That the source of this power is found in a statute, supplies no reason for clothing it with a superior sanctity, or vesting it with the attributes of tryanny.”

Under the “obligation to disclose” standard of Affiliated Ute Citizens, the withholding of a material fact or facts, as here, established the requisite element of causation in fact.

Although it is unnecessary to proceed further, I also am of the opinion that the question left open in footnote 7 of Mills at 396 U.S. 385, 90 S.Ct. 616 should be answered affirmatively — that is, that causation should be conclusively established by the mere solicitation of votes whether or not management controls a sufficient number of shares to approve the transaction without any votes from the minority. To hold otherwise makes a mockery of the securities acts. The prime and obvious purpose of the disclosure provisions of the acts is to protect the investor from nondisclosure. To find that a certain kind of declarant, such as one who owns more than a specified percentage of the corporate shares, is exempt from full disclosure, is utterly self-defeating. Actually if there is any such quantitative test, it would be running in the opposite direction- — that is, the greater the percentage of control by the controlling shareholder, the greater the protection required for the minority shareholders.

Subsequent to the Supreme Court decision in Mills, the Second Circuit concluded that the fortuitous circumstance that the majority shareholder has sufficient control to cause a statutory change cannot determine liability under Rule 10b-5. In Laurenzano v. Einbender, 448 F.2d 1, 5 (2d Cir. 1971), the court, affirming the district judge’s finding that no material misrepresentations had been made, stated:

“The further argument, that Bargain Town shareholder approval was meaningless because National was now the majority shareholder, is irrelevant to the question of whether or not the existence of the option agreement had to be revealed in the proxy statement. And, of course, approval was not meaningless; minority shareholder approval has value whether or not it is strictly essential to the power to act.”

The court in its earlier opinion in this case noted the importance of state or federal regulations requiring that proposals for change in a corporate entity be submitted to a vote of the shareholders, regardless of the number of votes controlled by management. We stated at 415 F.2d 1332:

“Confronted by the objections and potentially expensive appraisal rights of minority shareholders, the directors of Peoria and their alter egos, ACI and U.S. Cold, might well have chosen to alter the plan of reorganization or abandon it entirely. ‘The vote is not legally predetermined simply because it seems practically predictable. * * * it is not legally possible to decide what legal consequences flow from the informational defects in the meeting by asserting that the meeting would have ended in the same resolutions no matter what the views or votes of the minority.’ Laurenzano v. Einbender, 264 F.Supp. 356, 362 (E.D.N.Y.1966).”

Legal commentators agree with this analysis. See Note, “Causation and Liability in Private Actions For Proxy Violations,” 80 Yale L.J. 107 (1970); Comment, “Shareholders’ Derivative Suit to Enforce a Corporate Right of Action Against Directors Under SEC Rule 10b-5,” 114 U.Pa.L.Rev. 578, 582-83 (1966); Kaplan, “Shareholder Attacks on Mergers and Acquisitions Under Federal Securities Laws,” 50 Chicago Bar Rec. 441, 443-44 (1969).

Neither Section 10(b) of the 1934 Act nor Rule 10b-5 by their terms require any showing of a causal connection between misleading statements or omissions and resulting injury. The Supreme Court has cautioned repeatedly, most recently in Affiliated Ute Citizens, that the statute and the rule are to be construed flexibly to achieve their broad remedial purposes “to substitute a philosphy of full disclosure for the philosophy of caveat emptor.” 406 U.S. at 151, 92 S.Ct. at 1471. Over thirty years ago in Lebold this Court pioneered a path out of the thicket of caveat investor and we should not be retrogressing this late in the day. Thus I would hold under both Affiliated Ute Citizens and under the open question in Mills, that if the dominant party, with sufficient voting power to cause a corporate change is guilty of a material misrepresentation or nondisclosure and seeks shareholder approval, it is conclusively presumed that the misrepresentation or nondisclosure caused both the corporate change (merger, consolidation, sale of assets, liquidation or reorganization) and any resulting monetary damages.

In order to place the district court’s judgment in proper perspective, it is necessary to consider some of its other findings and conclusions. It concluded that “Defendants and their officers and directors stood in a fiduciary relationship to Peoria and its shareholders as a matter of law” and that the burden rested on the defendants to prove that they acted in good faith. The court then found and concluded that the “Defendants did act in utmost good faith toward Peoria and its minority shareholders.” I believe that the court was clearly erroneous in finding that the defendants acted in good faith, that the record supports only the conclusion that they did not act in good faith, and that in any event it is immaterial whether they acted in good faith or not if the minority shareholders were in fact deprived of a going business through a fiduciary breach.

In this circuit, if not universally, scienter is not an element of proof in a Rule 10b-5 case. In S.E.C. v. Capital Gains Research Bureau, 375 U.S. 180, 195, 84 S.Ct. 275, 11 L.Ed.2d 237 (1963), the Supreme Court, in a government enforcement case, held that Congress “did not intend to require proof of intent to injure” in the securities laws. It would be anomalous to hold the plaintiff in a private enforcement case to a higher standard of proof.

In Ellis v. Carter, 291 F.2d 270, 274 (9th Cir. 1961), the court refused to restrict Section 10(b) to common law fraud and rejected a scienter requirement in view of the broad Congressional purpose revealed in the words “any manipulative or deceptive contrivance.” In Affiliated Ute Citizens, the Supreme Court emphasized the repeated use of the word “any” in the section and in Rule 10b-5 to apply a broad interpretation of the securities acts.

We have repeatedly evidenced our adherence to the conclusions reached in Ellis. Kohler v. Kohler Co., 319 F.2d 634, 637 (7th Cir. 1963); Jordan Bldg. Corp. v. Doyle, O’Connor & Co., 401 F.2d 47, 50 (7th Cir. 1968). Cf. Parrent v. Midwest Rug Mills, Inc., 455 F.2d 123, 126 (7th Cir. 1972) (statute of limitations under Section 10(b) determined partially on basis that scienter need not be proved). In Kohler, Judge Swygert said at 319 F.2d 637:

“It is clear from such examination that the statute [Section 10(b) of the 1934 Act] was meant to cover more than deliberately and dishonestly misrepresenting or omitting material facts which ordinarily are badges of fraud and deceit.”

Although scienter or lack of good faith is not required to prove a Rule 10b-5 case, the establishment of bad faith by the record in this case certainly affects the remedy to be applied for the injuries sustained.

The findings of the district court repeatedly emphasize that Peoria would have experienced no difficulty whatever in continuing as a going business if ACI or U.S. Cold would have been willing to guarantee the loan needed to construct a new cold storage warehouse (Findings 19, 20, 21, 22, 27; 328 F.Supp. at 801, 802). The court found that ACI had a “general policy” not to guarantee the credit of its subsidiaries other than in “exceptional situations” (801-802) and concluded that “a parent corporation has no legal duty to guarantee the credit of any subsidiary” (807).

Both New Jersey law under which ACI was incorporated and Delaware law under which U.S. Cold was incorporated permitted such guarantee, this was the exceptional case within the ACI general policy, and as a matter of both ACI internal benefit and ACI fiduciary duty to Peoria, ACI should have guaranteed Peoria credit. Since presumably the new cold storage warehouse would have been available to secure the loan, the risk on the guarantee would have been minimal. The ACI directors placed themselves in the dual capacity of owing fiduciary duties to both ACI and Peoria. The fiduciary duty to Peoria required the guarantee and the fiduciary duty to ACI did not require the alternative which was actually followed of ACI wrongfully taking over the going business of Peoria.

The conflicting interests of ACI manifested themselves throughout the transaction. The district court found that ACI's chief executive officer, Robinson, “required, as a condition to the control acquisition agreement [to acquire control of Peoria], that Peoria exercise an option which it then held to purchase the Wilton Mortuary property” for $48,000. When ACI refused to guarantee Peoria's credit, it became expedient (in the judgment of the dual directors and officers) to sell the Wilton property for $33,500, a loss to Peoria of $14,500 because of “Robinson’s requirement.”

No appraisal of Peoria’s assets was obtained prior to the adoption of the plan of reorganization or prior to the special meeting of shareholders on March 31, 1965. Instead, Robinson, the chief executive officer of both ACI and U.S. Cold, and the board of directors of ACI determined that the “fair market value” of all “the assets, property, rights and business” of Peoria was $285,582.50.

It has become an almost routine procedure in mergers, recapitalizations and other corporate transactions, which may present a conflict of interest for insiders, to obtain an independent appraisal of values. To accept the uneorroborated opinions of the very persons with the conflicts of interest, whose best interests were to value the Peoria business as low as possible, is like commissioning the fox to devise a survival plan for the chicken.

When, having taken the Peoria corporate opportunity of building a profitable cold storage building, ACI constructed it for $1,318,581 and sold it to U. S. Cold for $1,586,405, a profit of $267,824, an appraisal was obtained. In other words, the dual officers employed a double standard — when ACI’s assets were at stake, they used appraisals to obtain every cent of value for ACI but when Peoria’s assets were involved, appraisals were eschewed and rough guesses by biased participants were deemed appropriate.

The ACI and U.S. Cold officers and directors did not observe the punctilio of an honor the most sensitive. There insensitivity led to injury by Peoria and its minority shareholders.

The options open to the defendants on March 11, 1965, were three: (1) they could sell Peoria as a going business to disinterested third persons, which they refused to do because it was too valuable a prospective business; (2) they could continue to operate it as a going business, which they refused to do because they felt that the obsolescence of its facilities reduced its ability to compete in the market place; or (3) they could reorganize or merge it on the basis of a going business. What they did and could not legally do was to buy out the business on a liquidation basis and then continue the going business for their own benefit with the minority holders participating as shareholders of ACI but on a diluted basis as the result of the inadequate consideration paid for the assets.

Peoria was a prosperous business. Its net-after-taxes profits after the ACI acquisition of control were (as taken from defendants’ own records):

1961 $ 3,061 (P. Ex. 113)
1962 2,916 (P. Ex. 243)
1963 15,430 (P. Ex. 116)
1964 13,931 (P. Ex. 117)
1965 27,863 (D. Ex. 1)

Peoria had a net worth of $478,169.59 and $87,598.25 in cash on hand on March 31, 1965 (P. Ex. 118). Demands for its services exceeded its capabilities (Tr. 362-63).

ACI paid $285,582.50 for Peoria’s assets (P. Ex. 122). This was less than the defendants’ own computation of liquidation value or value of physical assets only, which was $307,407.97 (328 F.Supp. at 805).

In Lebold v. Inland S.S. Co., 125 F.2d 369, 374 (7th Cir. 1942), we said:

“Furthermore it seems to us that defendant may not be permitted to say that there were no values other than those of physical assets. By taking over the assets and by continuing the prosperous business of its former cestui trust defendant has removed itself from the place where it is permissible for it to contend that there is no prosperous business. That there was value over and above physical assets is perfectly obvious from the fact that a prosperous business existed and is still being conducted; that plaintiffs, if they had not been deprived of their interest, would be still sharing in the returns from that business and that at the present time all the profits of such are being enjoyed by defendant to the total exclusion of plaintiffs.
“It follows that the true rule for determination of the value of plaintiffs’ interest must be based upon the value not of the physical assets alone but upon all the elements mentioned in our former opinion [82 F.2d 351] and in arriving at such value, all those elments, including value as a going concern, must be taken into consideration.”

The elements of value were set forth in Lebold v. Inland Steel Co., 82 F.2d 351, 356 (7th Cir. 1936):

“The determination of value entails necessarily consideration of all elements that enter into value — cost of physical assets, additions, depreciation and appreciation, market price, earnings, the chances of future successful operation, and prospects of continued earnings.”

The parties differed in their evaluation of the physical assets. Whereas the defendants argued that the value was $307,407.97, the plaintiff contended that it was $392,107.00. From the standpoint of a going business, the plaintiff’s figure is correct: it includes $15,000 charged Peoria for liquidation expenses and the defendants’ own computations (P.Ex. 119) of the going business value of equipment ($71,448.43) instead of a forced sale value ($3,000).

The only expert witness, William E. Stiegelmeier, a specialist in the valuation of closely-held companies, testified that the going concern value of Peoria at the date of sale was $473,000 or $5.80 per share. In arriving at this figure, he added the lower of the 20-25% value which he determined proper to ascribe to going concern value. This compares to the net worth or book value of $478,169.-59, the “National Monthly Stock Summary” for March, 1965, indicating bids on the over-the-counter market for Peoria stock ranging from 4to 5%, and the profit situation cited above.

The only contrary evidence on behalf of the defendants was the liquidation figure of $307,407.97, The $285,582.50 payment for the assets amounted to $3.-55 per share of Peoria stock (328 F. Supp. at 803).

On the record before us Peoria’s assets were undervalued by about 65% and each minority shareholder was injured to the extent of receiving ACI stock worth at least 65% less than his Peoria stock. Peoria was a relatively small company but the inadequacy of consideration is relatively great.

In my opinion this case comes very close to that equitable borderline where the relief to be fashioned should be rescission and an unscrambling of the merger. J. I. Case v. Borak, 377 U.S. 426, 433-434, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964).

In S.E.C. v. National Securities, Inc., 393 U.S. 453, 89 S.Ct. 564, 21 L.Ed.2d 668 (1969), the Supreme Court permitted to stand an amended complaint by the Securities and Exchange Commission which sought “unwinding the merger and returning the situation to the status quo ante, requiring [the defendants] to make an accounting of their unlawful gains, and readjusting the equities of the various [defendants] in whatever companies survived the decree” because of misrepresentations of, and omissions to state, material facts in the proxy statement soliciting the merger of two insurance companies, despite the approval of the merger (and presumably of the fairness of its terms) by the State Director of Insurance. The Court emphasized that “the Federal Government is attempting to protect security holders from fraudulent misrepresentations” and “is asking . . . that companies speak the truth when talking to their shareholders.” In this context, “no question of the legality or illegality of the merger, standing alone, was raised”, “the gravamen of the complaint was the misrepresentation, not the merger”, and “the merger became relevant only insofar as it was necessary to attack it in order to undo the harm caused by the' alleged deception.” The Court concluded that “in these circumstances, there is no reason to emasculate the securities laws by forbidding remedies which might prove to be essential” and that “on remand, the trial court may order a return to the status quo ante if it finds that course of action desirable, necessary, and otherwise lawful.”

In any event, if this transaction is not unscrambled, I would agree with Judge Cummings’ conclusion of reversal, but I would assess damages on the basis that each Peoria shareholder is entitled to $5.80 per share together with legal interest from March 11, 1965 to the date that judgment is entered by the district court, or the equivalent in ACI stock, plus suitable attorneys’ fees and costs.

      . Compare the dictum in Laurenzano v. Einbender, 448 F.2d 1, 5 (2d Cir. 1971) and see the Supreme Court’s discussion in Mills, 396 U.S. at 385 n. 7, 90 S.Ct. 616. Our prior opinion cannot be taken as intimating any view on this question. We were careful to distinguish between the situation where the merger itself was the alleged injury and the situation where other injury to the shareholders or the corporation is claimed to have resulted from the use of deceptive devices proscribed by Rule 10b-5. 415 F.2d at 1331.
      One rationale for finding causation in a control situation would appear to be that if the majority finds it necessary for legal or practical reasons to solicit proxies from minority shareholders, it is possible that a full and accurate proxy statement disclosure could have enabled minority shareholders to take some action prompting the controlling shareholders to abandon the merger plan or alter its terms. Whether this possibility should per se be enough to support a finding of causation as a matter of law is questionable. In some cases this possibility will have little or no foundation in reality. While a determination that a misstatement or omission in a proxy statement is material “indubitably embodies a conclusion that the defect was of such a character that it might have been considered important by a reasonable shareholder who was in the process of deciding how to vote” (Mills, supra at 384, 90 S.Ct. at 621), it hardly embodies a conclusion that the non-controlling minority might have somehow, apart from their voting power, prevented the merger from taking place on the terms proposed. Even if it is salutary to presume they could, it is further questionable whether such a presumption would be justified in the face of proof by the defendants that the merger was fair and meritorious. While it may be “a dubious behavioral assumption * * * that the shareholders of every corporation are willing to accept any and every fair merger offer put before them” (id. at 382 n. 3, 90 S.Ct. at 620), it may be more dubious to assume that minority shareholders whose votes are unnecessary to the effectuation of a merger would have some extra-proxy power to prevent or alter the terms of a merger which the majority has proven was fair and had merit.
      Another rationale would be to posit that statutory purpose requires that the orthodox standard of causation in tort law should be cast aside entirely. While this position may have merit, it requires a court to go so far as to ignore the corporate power structure and the fairness and merit of a transaction effectuated by those in control whenever a defective proxy statement is used, and it is not so clear that these factors are undeserving of consideration on the causation issue.

      . We also stated that the presence of a controlling shareholder does not “negative as a matter of law the possibility of injury to the corporation, which may be remedied by means of a derivative action”, and we noted plaintiff’s allegations that Peoria was being raided and its assets squandered while its principal shareholder usurped Peoria’s corporate opportunities. 415 F.2d at 1332. But the district court justifiably concluded these allegations were not sustained. The trial judge found Peoria incapable of embracing the corporate opportunities alleged to have been usurped and specifically found no evidence was adduced to substantiate the allegations of raiding and squandering Peoria’s assets. Indeed, he found quite the contrary of the allegations to be fact.

      . Mr. Justice Douglas joined in this part of the opinion, although he dissented from the holding that there was no liability on the part of the United States.

      . J. I. Case Company v. Borak, 377 U.S. 426, 431-432, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964).

      . Bruce’s Juices, Inc. v. American Can Co., 330 U.S. 743, 751-752, 67 S.Ct. 1015, 91 L.Ed. 1219 (1947) (Robinson-Patman Act); Radovich v. National Football League, 352 U.S. 445, 453-454, 77 S.Ct. 390, 1 L.Ed.2d 456 (1957) (Sherman Act); Minnesota Mining & Manufacturing Co. v. New Jersey. Wood Finishing C.o., 381 U.S. 311, 318-319, 85 S.Ct. 1473, 14 L.Ed.2d 405 (1965) (Clayton Act).

      . Section 16 of the Clayton Act (15 U. S.C. § 26) provides that “any person . shall be entitled to sue for and have injunctive relief, ...” and Section 15 (15 U.S.C. § 25) which covers equitable actions by the United States provides that “proceedings may be by way of petition . . . prayjng that such violation shall be enjoined or otherwise prohibited.” Judge Learned Hand held in Graves v. Cambria Steel Co., 298 F. 761 (S.D.N.Y.1924) that the difference in language permitted dissolution or divestiture in a government action but not in a private action.
      On the other hand, Section 27 of the Securities Exchange Act of 1934, under which the present cause of action is brought (15 U.S.C. § 78aa) provides in part that “the district courts shall have exclusive jurisdiction of all suits in equity and actions at law brought to enforce any liability or duty created by this title. . . . ” A broader grant of jurisdiction cannot be conceived.

      . Prior to the district court judgment in the present case, we had held that in government prosecutions under Section 17(a) of the Securities Act of 1933 “it is unnecessary to prove that a victim parted with money or property in reliance upon misrepresentations.” United States v. Amick, 439 F.2d 351, 366 (7th Cir.), cert. denied, Irving v. United States, 403 U.S. 918, 91 S.Ct. 2227, 29 L.Ed.2d 694 (1971), Vollmer v. United States, 403 U.S. 932, 91 S.Ct. 2255, 29 L.Ed.2d 710 (1971), 404 U.S. 823, 92 S.Ct. 48, 30 L.Ed.2d 51 (1971). Earlier, in Kohler v. Kohler Co., 319 F.2d 634 (7th Cir. 1963), we affirmed 208 F.Supp. 808, at 824 (E.D.Wis.1962), where the court said in a Rule 10b-5 ease under the Securities Exchange Act of 1934, that “it is not necessary that plaintiff have relied exclusively upon the defendants. ...”

      . “Even when it has control, management may, for legal or practical reasons, solicit proxies. A solicitation requirement may be imposed by stock exchange rule or by federal statute. Furthermore, many corporations, acting under state corporation laws, may set up additional solicitation requirements in their certificates of incorporation or by-laws. Once management does solicit proxies, further rules apply. Moreover, as a strategic matter, management may wish to solicit proxies to give shareholders a sense of participation and thereby forestall litigation over projected corporate action. It may also wish to prevent the exercise of appraisal rights (which might drain the corporation’s liquid assets) by securing shareholder approval in order to retain sufficient cash to make the merger desirable to the other corporation.” Note, “Causation and Liability in Private Actions For Proxy Violations,” 80 Vale L.X 107, 114 (1970).

      . We held in another government enforcement case that “under Sec. 17 (a) (2) and (3) proof of scienter or fraudulent intent is not essential in a suit for injunctive relief.” S. E. C. v. Van Horn, 371 F.2d 181, 186 (7th Cir. 1966).

      . Jesselsohn v. Boorstein, 111 N.J.Eq. 310, 162 A. 254 (1932); Hall v. Pauser, 128 N.J.L. 211, 24 A.2d 575 (1942); N.J.Stat.Ann., § 14A:3-1 (f) and (g).

      . Del.Code Ann., Title 8, § 123. See also, 6 Fletcher Cyc. Corp. (1968 Rev.Ed.) § 2593, p. 670: “It would seem that where one corporation owns and controls another corporation, the former may guarantee the debts of the latter when the purpose is to protect its own interest.”

      . The guarantee would only be required, of course, if the ACI directors opted to continue the going business with a new warehouse and, as here, the only way to obtain it was through a guarantee; the alternatives were to sell Peoria as a going business in an arms-length transaction to third persons or to continue the going business without the new warehouse.

      . Findings 13, 37; 328 F.Supp. at 800, 804. Due to depreciation, there was a bookkeeping and tax gain on the sale of the Wilton property, but this was also detrimental to Peoria since while the depreciation reduced current taxes slightly, it also operated to reduce Peoria’s profits, which were one measure of its value as a going business.

      . Mills v. Electric Auto-Lite Co., 403 F.2d 429, 435-436 (7th Cir. 1968) (“research consultants made an independent study” of relative values); Richland v. Crandall, 262 F.Supp. 538, 554-555 (S.D.N.Y.1967) (retention of First Boston Corporation to make study of fair price of assets as a going concern as well as appraisals); Miller v. Steinbach, 268 F.Supp. 255, 261 (S.D.N.Y.1967) (opinion of Goldman, Sachs & Co. as to fairness of merger terms) ; 2 Bromberg, Securities Law, § 12.10(4), p. 288.2.

      . “We would be more favorably impressed by the protestations of good faith of appellee’s officers had they in their capacity of representatives of the dominant company shown a willingness to submit to arbitration the value of appellants’ minority stock. The majority stockholder may believe that it is entirely fair, but its position renders impartiality difficult, for it is compelled to say, ‘Let not thy right hand know what thy left hand doth.’ ” Lebold v. Inland Steel Co., 82 F.2d 351, 355 (7th Cir. 1936).

      . In order to avoid the $473,000 going-concern-value figure, the district court found that “Peoria was a losing venture,” which was belied by defendants’ own books and records. The qualified expert’s testimony was discredited whereas Mc-Oausland, ACI’s man, who was originally responsible for most of the Peoria decisions in an inherent conflict-of-interest situation, was credited when he testified in support of his own decisions. In fact the record could support only the going business valuation and MeCausland, regardless of his credibility, did not purport to give such a valuation.


source: Caselaw Access Project

author: MARIS, Circuit Judge.

license: Public Domain

text:
    GOVERNMENT OF the VIRGIN ISLANDS, Appellant, v. William HAMILTON, Appellee.
    No. 72-1123.
    United States Court of Appeals, Third Circuit.
    Argued Jan. 29, 1973.
    Decided March 8, 1973.
    Ronald H. Tonkin, Atty. Gen., St. Thomas, V.I., for appellant.
    Edward J. Ocean, Christiansted, St. Croix, V.I., for appellee.
   OPINION OF THE COURT

Before MARIS, VAN DUSEN and ROSENN, Circuit Judges.

MARIS, Circuit Judge.

The Government of the Virgin Islands appeals from a judgment entered in the District Court of the Virgin Islands, 334 F.Supp. 1382, reversing the judgments of the Municipal Court of the Virgin Islands on which the defendant, William Hamilton, was convicted of three charges, namely, brandishing and exhibiting a deadly weapon, aggravated assault and battery, and possessing an unlicensed firearm, and sentenced to terms of imprisonment of one year on each of the first two charges and to 90 days on the third charge. The Government contends on this appeal that the district court, sitting as an appellate court on appeal from the municipal court, erred in holding that the evidence was insufficient to support the charges and erred in failing to remand the case to the municipal court for further proceedings to determine whether the defendant was guilty of the lesser offense of simple assault.

In limine, the defendant has moved for dismissal of the appeal for lack of jurisdiction, urging that the Government of the Virgin Islands has no right to appeal from a decision of the district court adverse to it on the defendant’s appeal from a criminal judgment in the municipal court.

The existence of appellate jurisdiction in a specific federal court over a given type of case is dependent upon authority expressly conferred by statute. Carroll v. United States, 1957, 354 U.S. 394, 399, 77 S.Ct. 1332, 1 L.Ed.2d 1442. In the case of this court, its statutory appellate jurisdiction over decisions of the District Court of the Virgin Islands is of “Appeals from reviewable decisions” of that court, 28 U.S.C. § 1294. The Virgin Islands Government argues that it is authorized to take this appeal under the provision of section 1291 of title 28, U.S.C., that the court of appeals shall have jurisdiction of “appeals from all final decisions of the . . . District Court of the Virgin Islands.” The Government asserts that it has been aggrieved by a decision of that court which is unquestionably “final,” and, therefore, is authorized by section 1291 to appeal from that decision to this court.

In considering the question which the Virgin Islands Government thus raises, we must keep in mind the well-settled rule that an appeal by the prosecution in a criminal case is not favored and must be based upon express statutory authority. Will v. United States, 1967, 389 U.S. 90, 96, 88 S.Ct. 269, 19 L.Ed.2d 305; Di Bella v. United States, 1962, 369 U.S. 121, 130, 82 S.Ct. 654, 7 L.Ed.2d 614; United States v. Burroughs, 1933, 289 U.S. 159, 161, 53 S.Ct. 574, 77 L.Ed. 1096; United States v. Sanges, 1892, 144 U.S. 310, 12 S.Ct. 609, 36 L.Ed. 445; United States v. Janitz, 3 Cir. 1947, 161 F.2d 19, 21; United States v. Pack, 3 Cir. 1957, 247 F.2d 168, 172; United States v. Koenig, 5 Cir. 1961, 290 F.2d 166.

Thus in Will v. United States, 1967, 389 U.S. 90, 96, 88 S.Ct. 269, 274, 19 L.Ed.2d 305, the Supreme Court said that

“. . . ‘in the federal jurisprudence, at least, appeals by the Government in criminal cases are something unusual, exceptional, not favored,’ Carroll v. United States, 354 U.S. 394, 400, 77 S.Ct. 1332, 1336, 1 L.Ed.2d 1442, (1957), at least in part because they always threaten to offend the policies behind the double-jeopardy prohibition, cf. Fong Foo v. United States, 369 U.S. 141, 82 S.Ct. 671, 7 L.Ed.2d 629 (1962). Government appeal in the federal courts has thus been limited by Congress to narrow categories of orders terminating the prosecution, see 18 U.S.C. § 3731, and the Criminal Appeals Act is strictly construed against the Government’s right of appeal . . .”

and in Di Bella v. United States, 1962, 369 U.S. 121, 130, 82 S.Ct. 654, 660, 7 L.Ed.2d 614, the Court stated:

. . What disadvantage there be springs from the historic policy, over and above the constitutional protection against double jeopardy, that denies the Government the right of appeal in criminal cases save as expressly authorized by statute . No such expression appears in 28 U.S.C. § 1291, and the Government’s only right to appeal, given by the Criminal Appeals Act of 1907 . . . now 18 U.S.C. § 3731, is confined to narrowly defined situations not relevant to our problem. Allowance of any further right must be sought from Congress and not this Court . . . ”

In Umbriaco v. United States, 9 Cir. 1958, 258 F.2d 625, 626, the contention that an appeal by the prosecution in a criminal case is authorized by 28 U.S.C. § 1291 was expressly rejected. We are in accord with the views of the court of appeals in that case and hold that Section 1291 of title 28, U.S.C., does not give the Virgin Islands Government authority to appeal in criminal cases.

The Government nonetheless argues that in Southerland v. St. Croix Taxicab Association, 3 Cir. 1963, 315 F.2d 364, 367, this court passed on the very question here involved when we stated that 28 U.S.C. § 1291 was not intended to limit our jurisdiction to appeals from those decisions only of the District Court of the Virgin Islands which it had entered in the exercise of its original jurisdiction but rather to “all final decisions of the court in every type of case” including those entered in appeals from the municipal court. We need only point out, however, that the question here is not whether this court may entertain an appeal from a final decision in which the district court had sat as an appellate court but whether the Government is specifically authorized to appeal in such a case if it is a criminal case. The Southerland case, which was a civil case, is not authority for the Government’s proposition here.

It has been expressly held in Illinois that the right of the prosecution to secure the review of a decision of an intermediate appellate court in a criminal case must rest upon statutory authority. People v. Ritchie, 1966, 36 Ill.2d 392, 222 N.E.2d 479. And see 24 C.J.S. Criminal Law § 1665. This ruling by the Illinois Supreme Court confirms our view that the right of the Government of the Virgin Islands to appeal from a final decision of the district court on appeal from the municipal court in a criminal case must likewise have express statutory authority. The Government, however, does not contend that it has any specific authorization to appeal in such a case, its sole reliance being upon 28 U.S.C. § 1291, which, as we have seen, does not provide the statutory authority which the decisions require. Our conclusion in this case is reinforced by the fact that under the local law of the Virgin Islands the defendant alone has the right in a criminal case to appeal to the district court from a judgment of the municipal court. 4 V.I.C. § 33.

This court being without jurisdiction to entertain the present appeal an order dismissing it will be entered.

      . Section 22 of the Revised Organic Act of 1954, 48 U.S.C.A. § 1612, provides that “The district court shall also have appellate jurisdiction to review the judgments and orders of the inferior courts of the Virgin Islands to the extent now or hereafter prescribed by local law.”


author: McWILLIAMS, Circuit Judge.

text:
    Jack ANDO, Plaintiff-Appellant, v. The GREAT WESTERN SUGAR COMPANY, Defendant-Appellee.
    No. 72-1224.
    United States Court of Appeals, Tenth Circuit.
    Argued and Submitted Sept. 21, 1972.
    Decided March 20, 1973.

      J. D. Fitzstephens, Cody, Wyo., for plaintiff-appellant.
    Jay H. Topkis, New York City (Paul B. Godfrey, Cheyenne, Wyo., Paul, Weiss, Rifkind, Wharton & Garrison, Baer & McGoldrick, Max Gitter and Thomas Baer, New York City, of counsel, on the brief), for defendant-appellee.
    Before LEWIS, Chief Judge, and JONES and McWILLIAMS, Circuit Judges.

       Of the Fifth Circuit, sitting by designation.

   McWILLIAMS, Circuit Judge.

Jack Ando, a citizen of the State of Wyoming, brought an action in the United States District Court for the District of Wyoming against the Great Western Sugar Company, a Delaware corporation with its principal place of business in the State of Colorado. The complaint presented three separate claims for relief. The first two were based on diversity jurisdiction and alleged libel and slander, and the third claim was for an alleged violation of federal antitrust laws.

Both parties to the controversy engaged in extensive pre-trial discovery. Based, then, on various answers to interrogatories, admissions and depositional proof, including the depositions of Jack Ando himself, Great Western moved for summary judgment under Fed.R.Civ.P. 56. After extended argument and briefing of the matter, the trial court granted the motion and entered judgment for Great Western. Ando now appeals.

We affirm on the ground that based on the record before it, the trial court was justified in concluding that there was no genuine issue of a material fact and that summary judgment was proper. Background information which is not really in dispute must be fully developed in order to demonstrate the propriety of the trial court’s action.

Ando is a grower of sugar beets and in the past, at least, has sold his beets, under contract, to Great Western, the latter being a processor of sugar beets and in connection therewith maintaining several processing plants in the Rocky Mountain West. In 1968, Ando, in addition to his farming activities, entered into a contract with Zwaanesse Ltd., a Dutch concern, to become its franchised dealer to sell in the western part of the United States its sugar beet seed, known as “Zwaanpoly.”

Ando had earlier contacted Great Western and inquired as to whether Great Western would be interested in assisting him in marketing the Zwaanpoly beet seed. Great Western declined, but informed Ando that he was free to attempt to sell the Dutch seed to growers under contract to Great Western. In this regard it should be mentioned that Great Western had its own sugar beet seed which it sold to its growers, and others, but it nonetheless gave permission to Ando to sell his Dutch seed to Great Western growers. And this Ando did during the 1968 season.

During the latter part of 1968 a dispute, or at least a difference of opinion, arose between Ando and Great Western, and others, concerning the general adaptability of Zwaanpoly seed to the Rocky Mountain West, the discussion centering on the disease resistance qualities of Zwaanpoly, as well as its relative sugar content and processed juice purity as opposed to beets grown from other seeds, including Great Western’s own commercial beet seed strains.

After considerable discussion, it was agreed that for the 1969 season, at least, Great Western would continue to buy beets grown from Zwaanpoly seed, and that for that year, at least, Ando could continue to sell his seeds to Great Western growers who chose to buy it. The question as to whether Zwaanpoly would be used in 1970, and thereafter, was thereupon referred to a so-called “Joint Research Committee,” which was charged with the responsibility of conducting tests of Zwaanpoly seed, as compared with other beet seed, for disease resistance, sugar content, purity, and other significant characteristics. The Joint Research Committee was composed’ of thirteen elected representatives of the growers and three representatives of Great Western.

Beginning in the spring of 1969, the Joint Research Committee, hereinafter referred to as JRC, caused to be conducted extensive testing of the Zwaanpoly seed, as well as other sugar beet seeds, such tests being conducted at different locations by various branches of the United States Department of Agriculture, by a number of universities, as well as through the facilities of Great Western. Additionally, Ando made available to JRC his views on the matter, both orally and in writing, as did Dr. Zwaan himself, Dr. Zwaan being the developer of the Dutch seed, who visited the United States in the fall of 1969. Similarly, Great Western, mainly through one of its employees, a Dr. Oldemeyer, who was himself a member of the JRC, made its views and test results available to JRC.

On December 17, 1969, the JRC met to analyze the results of the various tests and after deliberation voted unanimously that Zwaanpoly seed would not be used in the 1970 season by any grower under contract to Great Western and that in 1970 and all succeeding years no grower would use any seed except seed approved by it.

About a week after this action by JRC, Great Western and the elected officials of the beet growers association caused several press releases to be issued, setting forth the action taken by JRC, and it is these press releases which form the basis for Ando’s libel claim against Great Western. Specifically, Ando complains about the press releases which, in addition to announcing the action taken by JRC, contained the following statements: (1) Beets grown from Zwaanpoly seed are consistently lower in sugar content and purity than beets grown from Great Western’s seed; (2) Zwaanpoly beets are especially susceptible to the diseases of leaf spot, curly top, nematodes and Rhizoetonia; (3) Zwaanpoly beets are more susceptible to freezing; and (4) that “extensive scientific investigations proved conclusively” that the “best interests” of a vast majority of beet growers in Great Western districts would be served by not using Zwaanpoly seed.

As indicated, the press releases form the basis for Ando’s first claim. Ando’s second claim is grounded on the statements made by Dr. Oldemeyer to the JRC, said statements being along the same general lines as the various written statements appearing in the subsequent press releases.

The third claim was an alleged antitrust violation grounded on what was said to be Great Western’s efforts to create a monopoly in the sale of its sugar beet seed in this geographical area. The propriety of the trial court’s action in entering summary judgment on the third claim is not challenged in this court. Rather, counsel confines his argument here to the propriety of the trial court’s action in entering summary judgment on the libel and slander claims. We will accordingly confine our comment to the libel and slander aspects of the case, which is the heart of the controversy.

Initially we note .that it is agreed that it is the substantive law of Wyoming which must be applied with respect to the merits of the libel and slander claims presented here in this diversity action. It is further agreed, however, that it is not Wyoming law which controls the handling of the motion for summary judgment, such being a matter of federal procedural law. In this context, then, the trial court granted Great Western’s motion for summary judgment and in so doing determined that on the basis of the record then before it the allegedly defamatory statements made by Great Western, both written and oral, were in fact true statements and that accordingly there remained no genuine issue as to any material fact. The trial court proceeded on the premise that the truth of a defamatory statement is a “complete” defense to an action for libel, citing in support of this proposition Article I, § 20 of the Wyoming Constitution, about which more will be said, and the Restatement of Torts, § 582 (1938).

Fed.R.Civ.P. 56(c) provides in pertinent part that a motion for summary judgment should be granted “if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” In applying this rule, it has been declared that a trial court is under a duty to grant a motion for summary judgment in an appropriate case, bearing in mind that the relief contemplated is drastic and the rule should be applied with caution to the end that litigants will have a trial on bona fide disputes. Under the rule no margin exists for the disposition of material factual issues, and the rule neither serves as a substitute for trial of the ease nor requires the parties to dispose of litigation by use of affidavits. The pleadings are to be construed liberally in favor of the party against whom the motion is made, but the trial court may pierce the pleadings by determining from the depositional proof, admissions and affidavits in the record whether any material issues of fact exist. If, after such scrutiny, any issue as to a material fact dispositive of right or duty remains, the case is not ripe for disposition by nummary judgment, and the parties are entitled to a trial. However, if no such fact issue remains, a motion for summary judgment should be granted.

In his resolution of the matter, the trial judge relied to a considerable extent upon Article I, § 20 of the Wyoming Constitution. That section provides as follows:

“Freedom of speech and press; libel; truth a defense. — Every person may freely speak, write and publish on all subjects, being responsible for the abuse of that right; and in all trials for libel, both civil and criminal, the truth, when published with a good intent and [for] justifiable ends, shall be a sufficient defense, the jury having the right to determine the facts and the law, under direction of the court.”

Under the aforesaid provisions of the Wyoming Constitution, then, the truth, under certain conditions which will be discussed later, is a “sufficient defense” to a libel action. On the record before it, we conclude that the trial court was justified in holding that the statements complained about were in fact true, leaving no genuine issue of material fact remaining.

In reaching its determination that the statements relied on by Ando were true statements, the trial court took into consideration the results of the various tests conducted on behalf of the JRC. Additionally, the trial court also took into consideration, as evidence that the statements complained about were true, the various admissions made by Ando in his depositions, along with the declarations against interest made by Dr. Zwaan in his several writings which were before the JRC. In this regard Dr. Zwaan, who was, as above indicated, the head of the Dutch firm which granted Ando a franchise to market its seed, expressed “surprise” that tests were being conducted on “Zwaanpoly’s resistance to cercospora [leaf spot], curly top and nematodes” and in connection therewith wrote to Great Western as follows:

“As all other principal varieties on the western European continent . Zwaanpoly has no resistance to these diseases. We have never claimed resistance to these diseases and have recommended to our distributor that our seed be distributed in areas where there is no curly top and to stay away from areas where leaf spot is a problem.”

Concerning the proposed testing of Zwaanpoly seed for sugar content and purity, Dr. Zwaan wrote Ando as follows:

“All this testing by Great Western on yield and juice purity will in our opinion only confirm what we already know. The tests may reveal how great the differences are.

Prior to the publication of the statements here complained about, Ando himself wrote Great Western and conceded that “in most cases” the sugar content and purity of Zwaanpoly seed was lower than Great Western’s beet seed. And in his deposition Ando gave answers to the same general effect.

After the JRC had announced its decision, Ando wrote the Zwaanesse firm as follows:

“. . . When Great Western personnel read the letter you wrote to the Editor of Thru the Leaves stating that Zwaanpoly didn’t have any resistance to Leaf Spot, Curly Top and Nematodes to the growers research committee that finished it as far as Zwaanpoly seed is concerned.”

As indicated, the trial court concluded that there was no genuine issue of material fact since the record showed the truth of the statements complained about by Ando. This the trial court determined was the situation, not only as to statements made by Great Western concerning sugar content, purity, and the disease resistant qualities (or lack of them) of Zwaanpoly, but also as to the statements of Great Western to the effect that Zwaanpoly beets were more susceptible to freezing than other beets. In this regard, Ando in his deposition conceded that Zwaanpoly beets grew “out of ground” more than other beets, and therefor were necessarily more exposed to cold weather. The trial court held that the last matter complained about by Ando, i. e., Great Western’s statement that the “best interests” of beet growers were not served by using Zwaanpoly, was an honest expression of opinion based on Great Western’s other statements which the trial court concluded were in fact the truth.

Counsel for Ando, in his brief, attempts to create what he deems to be disputed issues of fact, pointing out, for example, that Great Western in its testing compared its experimental seed with Zwaanpoly commercial seed. Such, argues counsel, is like comparing a new Volkswagen to a used Chrysler, or oranges to apples. This is not the complete picture. The fact is that Great Western’s testing included various kinds of seed, including its commercial seed, as well as certain experimental seed, along with the beet seed of other companies, including that of Zwaanpoly, of course. In short, we are not impressed with the various matters which counsel suggests pose genuine issues of material facts. See, in this regard, Bolack v. Underwood, 340 F.2d 816 (10th Cir. 1965), where we held that a motion for summary judgment should be granted in situations where the factual issues sought to be raised are either “irrelevant” or “spurious.”

We were at one point at least mildly concerned with that portion of the Wyoming Constitution set forth above which at first blush would appear to say that the truth is a defense only “when published with good intent and [for] justifiable ends,” and further that the jury shall have the right to determine “the facts and the law.” Because of our concern, we ordered counsel to file supplemental briefs as to the meaning and effect of such language.

As concerns the latter statement that the jury shall determine the facts and the law, counsel for Ando with commendable candor concedes in his supplemental brief that in spite of this language there is “no doubt” but that a trial court in a libel action may in a proper ease grant a summary judgment. We, of course, agree that a motion for summary judgment is a matter involving federal procedural law. Counsel’s position, then, is, as it has been, that this is simply not a proper case for summary judgment.

As concerns the constitutional language that the truth is a defense when published with “good intent” and for “justifiable ends,” certainly on the record there can be no serious contention that Great Western in its several statements was acting with anything other than “a good intent” and for a “justifiable end.” See Spriggs v. Cheyenne Newspapers, Inc., 63 Wyo. 416, 182 P.2d 801 (1947). Ando himself agreed in his own deposition that Great Western had a legitimate interest in the beet seed used by its contract growers, and further conceded that Great Western in all of its actions had never acted out of malice toward him.

Accordingly, we take no issue with the interpretation given Article I, § 20 of the Wyoming Constitution by the trial court. It would appear proper and we accept the construction thus given it. Binkley v. Manufacturers Life Ins., 471 F.2d 889 (10th Cir. 1973).

Judgment affirmed.

      . Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Guaranty Trust Co. of New York v. York, 326 U.S. 99, 65 S.Ct. 1464, 89 L.Ed. 2079 (1945).

      . See Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8 (1965).

      . Byrd v. Blue Ridge Rural Electrical Cooperative, Inc., 356 U.S. 525, 78 S.Ct. 893, 2 L.Ed.2d 953 (1958).

      . Frey v. Frankel, 361 F.2d 437 (10th Cir. 1966).

      . Nafco Oil & Gas Inc. v. Appleman, 380 F.2d 323 (10th Cir. 1967).

      . Hanley v. Chrysler Motors Corporation, 433 F.2d 708 (10th Cir. 1970).

      . United States v. Diebold, Inc., 369 U.S. 654, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962).

      . Smoot v. Chicago, Rock Island & Pacific R. R. Co., 378 F.2d 879 (10th Cir. 1967).

      . Fischer Construction Company v. Fireman’s Fund Insurance Company, 420 F.2d 271 (10th Cir. 1969).

      . Alt v. American Income Life Insurance Co., 337 F.2d 472 (10th Cir. 1964).


author: HASTINGS, Senior Circuit Judge.

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Antonio LOPEZ, Defendant-Appellant.
    No. 72-1544.
    United States Court of Appeals, Seventh Circuit.
    Argued Feb. 14, 1973.
    Decided March 26, 1973.
    Rehearing Denied April 11, 1973.

      Ronald Lev, Chicago, Ill., for defendant-appellant.
    James R. Thompson, U. S. Atty., William T. Huyck, Asst. U. S. Atty., Chicago, Ill., for plaintiff-appellee.
    Before SWYGERT, Chief Judge, HASTINGS, Senior Circuit Judge, and KILEY, Circuit Judge.
   HASTINGS, Senior Circuit Judge.

Defendant Antonio Lopez was charged in a two-count indictment with violations of Title 21, U.S.C.A. § 174. A conspiracy was charged in Count One and a substantive violation in Count Two. In essence, the subject of both counts was the offense of fraudulently and knowingly receiving, concealing, buying, selling and facilitating the transportation, concealment and sale of approximately 474 grams of a mixture containing heroin, and conspiring to do so. The conspiracy count named as defendant’s co-conspirators defendants Pablo Troche, Robert Warren and Antonio Gobel. The substantive count named the same three persons as defendants with Lopez.

Defendant Lopez was tried with Troche, and a jury found each of them guilty on both counts. Gobel was dismissed from the case. Warren was a fugitive from justice at the time of the trial. Lopez and Troche were each sentenced by the trial court to serve a total term of five years in a federal penitentiary. Defendant Lopez alone has appealed.

A brief statement of the facts, considered in the light most favorable to the Government, will furnish the setting necessary to consider the issues raised on appeal. Agents of the Federal Bureau of Narcotics and Dangerous Drugs conducted an investigation leading to the arrest of defendant; Agent Vinsik supervised.

The agents had heard that Robert Warren was in Chicago to sell narcotics. Warren and Antonio Gobel were both residing in Room 1207 at the Holiday Inn, 644 North Lake Shore Drive, Chicago, Illinois, on June 20, 1969. Agent Vinsik, with other agents, heard voices coming out of 1207. The next day Agent Vinsik rented Room 1209, which was to the north of, adjacent to and shared a common wall with 1207. The agents commenced a 24-hour surveillance of the defendants. Both Warren and Gobel were known to have dealt in narcotics.

The agents testified that while in 1209 they could hear conversations and other recognizable voices in 1207 through the common wall, using only the naked ear. The agents were able to tell whether someone was going in and out of 1207 by the sound of the door and the rush of air from the door. No electronic devices were use by the agents.

On June 22, 1969, at about 2:30 P.M., Agent Vinsik heard the telephone ring in 1207 and Warren’s voice answer, “Hello,” “It will be here either tonight or tomorrow morning,” followed by, “Paul sent the 150; the other guy sent the 100, 150. We have the 100, all we have to do is sit and wait for the stuff now.” Later that evening, someone knocked on the door of 1207 and identified himself as “It’s Buddy,” from Indiana, and asked, “Do you have anything yet?” Warren responded, “No, not yet.”

At 10:30 A.M., June 23, 1969, defendant Lopez was first seen leaving a Flash cab in front of the Holiday Inn, where he was met by Warren. Lopez was staying in Room 1220, down the hall from 1207. Room 1220 was obtained by Warren, registered in the name of A. Vitali and paid for by Lopez. Later that day, Lopez and Warren were seen together in the lobby of the Holiday Inn. About 12:40 P.M. Agent Vinsik heard the telephone ring in 1207 and Warren’s voice say, “American Airlines Flight 249 arriving at 10:00 o’clock Chicago time, A. Vitali,” and, after a pause, “I’ll pick you up.” About 1:00 P.M., there was a knock on the door of 1207, and Warren’s voice asked, “Who is it?” The answer was, “It’s me, the devil.” Warren then said he didn’t have anything yet, but it would cost a thousand dollars an ounce and it would be good stuff. Later, at about 8:30 P.M., Warren was observed going to the American Airlines terminal, O’Hare International Airport. He asked about Flight 249 and was informed it had been cancelled.

During the next day, June 24, 1969, Agent Cruz, who speaks Spanish, overheard Lopez and Gobel discuss how much money they were going to make. Agents heard numerous telephone calls and people going and coming from 1207 during the evening hours. About 6:30 P.M., Troche was seen leaving a cab, carrying a black attache case, getting a room assignment and then going up to 1207. After Troche entered the room Warren asked, “Where is it?” Troche answered. “Here it is.” Warren stated, “The stuff looks good. Let’s weigh it and get out of here. We will hold the customers downstairs and I’ll tell them the price.” Agents heard a set of scales banging up and down. Later, Lopez was heard to say, “Let’s get going. Let’s get out of here.”

Agent Vinsik then stood by the door of 1209 and waited for the door to 1207 to open. When Lopez opened the door of 1207 about ten agents, led by Vinsik, immediately entered the room and without delay arrested Lopez, Warren and Gobel. The arrest occurred about 7:45 P.M. on June 24, 1969. The agents did not use a passkey but, after hearing that Lopez was ready to leave, waited outside in the hallway for someone inside Room 1207 to open the door.

On a desk located adjacent to the common wall in 1207 were several bags of a white powder, a scale, some strainers and a can of dextrose anhydrous Merck. There was testimony that dextrose anhydrous Merck is frequently used to cut and mix a stronger quality of heroin to a lesser quality for use. It was shown that the 474 grams of heroin seized from the desk in 1207 were 100 per cent pure heroin.

Agent Vinsik testified that “[a]s soon as the door was opened, I went right in” and that Lopez “never got outside the room.” The agents had neither an arrest warrant nor a search warrant. Prior to their entry they made no announcement of their identity or purpose. As soon as they entered the room, they arrested and handcuffed Lopez and gave him Miranda warnings, as they also did to Warren and Gobel.

At a pre-trial hearing on February 29, 1972, a motion to suppress the evidence seized in Room 1207 was denied, as was a motion requesting the trial judge to inspect the scene of the arrest. A motion to have the jury view Rooms 1207 and 1209 was made during trial and denied.

I

Citing Title 18, U.S.C.A. § 3109, defendant first argues that the trial court erred in admitting into evidence the 474 grams of pure heroin because the arresting officers failed to announce their authority and purpose before entering Room 1207. No claim is made that the agents needed either a search warrant or an arrest warrant. It is conceded that § 3109 applies where an entry is made to effect an arrest without a warrant. Sabbath v. United States, 391 U.S. 585, 588-589, 88 S.Ct. 1755, 20 L.Ed.2d 828 (1968); Miller v. United States, 357 U.S. 301, 306, 78 S.Ct. 1190, 2 L.Ed.2d 1332 (1958).

Relying upon Sabbath and Miller, defendant argues that § 3109 requires that prior to entering a dwelling, officers must make (1) an announcement of their authority to make the arrest, and (2) an announcement of their purpose to make an arrest, and that failure to do so vitiates an otherwise valid arrest and search and seizure incidental to such an arrest. Defendant reads the evidence at the pre-trial suppression hearing as showing that the agents failed to comply with the requirements of § 3109. We do not agree.

In the first place, we find Sabbath and Miller distinguishable on their facts from the case at bar. In Sabbath, federal officers opened a closed but unlocked door without announcing their authority or purpose. In Miller, the door was locked with a door chain, and the arresting officers put their hands inside the door, ripped the chain off and then entered without demanding admission or stating the purpose of their presence or placing the occupant under arrest until after they had entered his apartment.

Mr. Justice Brennan, speaking for the majority in Miller, analogized the requirements of § 3109 with the requirements of local District of Columbia law and found them substantially identical. 357 U.S. at 306, 78 S.Ct. 1190. The majority finally stated: “Every householder, the good and the bad, the guilty and the innocent, is entitled to the protection designed to secure the common interest against unlawful invasion of the house. The petitioner could not be lawfully arrested in his home by officers breaking in without first giving him notice of their authority and purpose. Because the petitioner did not receive that notice before the officers broke the door to invade his home, the arrest was unlawful, and the evidence seized should have been suppressed.” (Emphasis added.) Id. at 313-314, 78 S.Ct. at 1198.

In Sabbath, Mr. Justice Marshall took note of the various means of entry found violative of § 3109, and said: “And it has been held that § 3109 applies to entries effected by the use of a passkey, which requires no more force than does the turning of a doorknob. An unannounced intrusion into a dwelling — what § 3109 basically proscribes — is no less an unannounced intrusion whether officers break down a door, force open a chain lock on a partially open door, open a locked door by use of a passkey, or as here, open a closed but unlocked door. The protection afforded by, and the values inherent in, § 3109 must be ‘governed by something more than the fortuitous circumstance of an unlocked door.’ ” (Citations and footnotes omitted; emphasis added.) 391 U.S. at 590, 88 S.Ct. at 1758. Further, in reference to whether “exigent circumstances” mentioned in Miller might excuse compliance with § 3109, the Court noted that the agents did not “make any independent investigation of petitioner prior to setting the stage for his arrest with the narcotics in his possession.” Id. at 591, 88 S.Ct. at 1759.

In the case now before us we find that none of the situations outlined in either Miller or Sabbath exist here. The agents had kept a constant surveillance of the premises and the four defendants for several days. There was probable cause to believe that heroin was unlawfully brought into Room 1207, that defendant Lopez was a party to the crime and was about to leave the room. Lopez voluntarily opened the door in the act of leaving the room. As Agent Vinsik testified on cross-examination: “* * * We had planned and heard conversations which told us the narcotics were in the room at that time. We could hear them talking, Mr. Lopez was going to leave the room, and we could then go in and make the arrest at the time he opened the door.” This is exactly what the agents did.

Under the facts of this case, we have found no authority, and none has been cited, which would justify our finding that the agents were required to comply with the provisions of § 3109.

Defendant cites United States v. Likas, 7 Cir., 448 F.2d 607 (1971), where the agents entered defendant’s apartment to execute a search warrant without first announcing their authority and purpose. That case should afford defendant cold comfort here. In Likas, the agents first broke down the apartment door with a sledge hammer and, of course, we upheld the suppression of the seized evidence.

We have considered other eases cited by defendant but are not persuaded that they either justify or dictate a result contrary to the one we have reached on this issue. Cf. United States v. Vargas, 9 Cir., 436 F.2d 1280 (1971).

We hold that the trial court did not err in admitting into evidence the 474 grams of heroin seized incidental to a lawful arrest of defendant.

II

Defendant charges that the trial court abused its discretion in refusing his counsel’s request to view the scene of the arrest at the time of the pre-trial suppression hearing on February 29, 1972, and in denying defendant’s motion to have the jury view the scene during the trial the next week. We find no merit in these contentions.

The commission of the charged offenses occurred on June 24, 1969, or about two years and eight months before the requests were made. At no time did defendant offer any proof to sustain his motion, other than his counsel’s statements. Many variables enter into such a “view,” including the surrounding physical condition of the premises and the many personal factors involving the several persons concerned.

It is well established that the granting or denying of such a motion rests within the discretion of the trial court and is reviewable only for abuse. In United States v. Pinna, 7 Cir., 229 F.2d 216, 219 (1956), we said: “It seems to us that too many uncertain factors were involved to have made such view or inspection of any value.” This was reaffirmed in Hughes v. United States, 9 Cir., 377 F.2d 515, 516 (1967).

We hold that the trial court did not abuse its discretion in denying defendant’s motion to view the scene of the arrest.

III

Finally, defendant suggests that, in any event, this case should be remanded to the district court so that he may be afforded a hearing to determine whether this is an appropriate case for the sentence to be suspended and defendant to be placed on probation.

Defendant was tried during the first few days of March 1972. He was sentenced on March 7, 1972, to serve five years in a federal penitentiary pursuant to 21 U.S.C.A. § 174. The conspiracy and substantive counts charged violations on or about June 24, 1969. At that time he was subject to a mandatory-minimum sentence of five years, which could not be suspended, nor could probation be granted. These provisions were repealed by the Comprehensive Drug Abuse Prevention and Control Act of 1970, Pub.L. 91-513, 84 Stat. 1236, 21 U.S.C.A. § 801 et seg., effective May 1, 1971.

Defendant relies upon United States v. Robinson, 7 Cir., 466 F.2d 780 (1972), and United States v. McGarr, 7 Cir., 461 F.2d 1 (1972). Insofar as these two cases relate to suspension of sentence and probation, they were in effect overruled by the recent decision of the Supreme Court in Bradley v. United States, 410 U.S. 605, 93 S.Ct. 1151, 35 L.Ed.2d 528 (1973). In Bradley, the Court held: “The District Judge had no power to consider suspending petitioners’ sentences or placing them on probation.” Id., 93 S.Ct. at 1155. In view of Bradley, there is no occasion to remand this matter to the district court for reconsideration.

Consistent with this opinion, the judgment of the district court is in all respects affirmed.

Affirmed.

      . Miranda v. Arizona, 384 U.S. 436, 36 S.Ct. 1602, 16 L.Ed.2d 694 (1966).

      . After leaving 1207 certain agents went to Room 3105, where Troche was the registered occupant. Without warning and by use of the pass hey, they entered the room, arrested Troche and seized a packet of heroin. This evidence was ordered suppressed on March 1, 1972, following the pre-trial hearing the previous day.

      . “The officer may break open any outer or inner door or window of a house, or any part of a house, or anything therein, to execute a search warrant, if, after notice of his authority and purpose, he is refused admittance or when necessary to liberate himself or a person aiding him in the execution of the warrant.”


author: McENTEE, Circuit Judge.

text:
    UNITED STATES of America, Appellee, v. Fernando Luis RODRIGUEZ-SANDOVAL, Defendant, Appellant.
    No. 72-1003.
    United States Court of Appeals, First Circuit.
    Argued Feb. 5, 1973.
    Decided March 23, 1973.

      Gerardo Ortiz Del Rivero, San Juan, P. R., by appointment of the Court, for appellant.
    Jorge Rios Torres, Asst. U. S. Atty., with whom Julio Morales Sanchez, U. S. Atty., was on brief, for appellee.
    Before COFFIN, Chief Judge, MeENTEE and CAMPBELL, Circuit Judges.

      . “Indeed the better practice would be to instruct the jurors that they may draw the inference unless the evidence in the case provides a satisfactory explanation for the rproved fact], omitting any explicit reference to the statute itself in the charge.” United States v. Gainey, supra at 71 n. 7, 85 S.Ct. at 759.

   McENTEE, Circuit Judge.

Fernando Luis Rodriguez Sandoval was tried and convicted for the purchase, sale, concealment and transportation of heroin in violation of 26 U.S.C. §§ 4704 (a), 4705(a), 21 U.S.C. § 174, and was sentenced to concurrent terms of fifteen years imprisonment. He appeals from this conviction as well as from the district court’s denial of his motion for a reduction of sentence. We affirm.

Sandoval’s primary contention on appeal relates to the prosecution’s alleged misuse of the evidentiary presumptions written into 26 U.S.C. § 4704(a) and 21 U.S.C. § 174. The latter section authorizes conviction upon evidence that the defendant had possession of a narcotic drug “unless the defendant explains the possession to the satisfaction of the jury.” Similarly, § 4704(a) provides that “the absence of appropriate taxpaid stamps from narcotic drugs shall be prima facie evidence of a violation of this subsection by the person in whose possession the same may be found.” In making his opening statement, the United States Attorney informed the jury that the government would rely on these presumptions, which he said would “authorize conviction unless the possession [of heroin] is explained to you by the defendant to your satisfaction.” In addition to these comments, the prosecutor made several similar references to the presumptions, both in his opening statement and in his summation. Appellant contends that these statements necessarily and impermissibly drew the jury’s attention to the defendant’s failure to testify, and that his conviction must therefore be reversed under our decision in United States v. Flannery, 451 F.2d 880 (1st Cir. 1971). This argument is without merit. When read in context, it is clear that the prosecutor’s remarks were intended only to explain to the jury what the government’s evidence would be and the theory under which it would press for conviction. Such an explanation could hardly have been made without some reference to the presumptions on which the government intended to rely. While the avoidance of any language having even a slight tendency to highlight the defendant’s failure to testify or produce evidence would have been preferable, cf. United States v. Gainey, 380 U.S. 63, 71 n. 7, 85 S.Ct. 754, 13 L.Ed.2d 658 (1965), we do not believe that the prosecutor’s statements caused appellant to suffer any substantial prejudice. The district court took great pains to instruct the jury that the defendant did not have to testify or call witnesses and that the “explanation” of his possession of narcotics could come from any of the facts and circumstances revealed by the evidence. In view of these instructions, the prosecutor’s accurate explanation of the statutory presumptions involved in this case does not warrant reversal.

Appellant also objects to the court’s instructions to the jury on the ground that they made explicit reference to the statutory presumptions in issue, contrary to the “better practice” suggested by the Supreme Court in United States v. Gainey, supra, at 71, n. 7, 85 S.Ct. 754. While the “better practice” was admittedly not followed, Gainey does not require reversal if the “overall reference [of the charge] was carefully directed to the evidence as a whole, with neither allusion nor innuendo based on defendant’s decision not to take the stand.”. Id. at 71, 85 S.Ct. at 759. As noted above, the court carefully instructed the jury that the statutory presumptions did not have to be rebutted by the defendant’s own testimony or evidence in his behalf, but could be overcome by any evidence in the case. These instructions amply met the standard set forth in Gainey, supra. See United States v. Armone, 363 F.2d 385 (2d Cir.), cert. denied, 385 U.S. 957, 87 S.Ct. 391, 17 L.Ed.2d 303 (1966).

The only other matter which warrants our consideration is the question of whether the court contravened the holdings of North Carolina v. Pearce, 395 U.S. 711, 89 S.Ct. 2072, 23 L.Ed.2d 656 (1969) and Marano v. United States, 374 F.2d 583 (1st Cir. 1967) in sentencing appellant to a term of fifteen years imprisonment when he had received only a ten year sentence following his first conviction of the charges involved in this case. In Maraño, supra, we set forth the general principle that a defendant may not be given a more severe sentence upon retrial than he received following his original conviction. We recognized, however, that a trial judge may properly consider the defendant’s conduct subsequent to the reversal of his first conviction in deciding what sentence to impose after retrial. In the present case, the relevant facts are as follows. Following appellant’s conviction below, a sentencing hearing was held on November 26, 1971, at which time the United States Attorney informed the court that Sandoval had been twice arrested in New York for narcotics violations while on bail pending retrial. The court specifically stated, however, that it would not consider this information in imposing sentence, adding somewhat cryptically that “what I have before me is enough.” The court then proceeded to sentence appellant to six concurrent terms of fifteen years imprisonment. After the appeal in this case had been filed, defendant made a motion in the district court for a reduction of sentence. In response, the trial judge issued a certificate to this court requesting that the case be remanded for resentencing, on the grounds that the sentence of November 26 might have been illegal under North Carolina v. Pearce, supra and Marano v. United States, supra. We remanded the ease for the limited purpose of considering the motion to reduce sentence, without prejudice to the government’s arguing that the court could consider subsequent conduct as defined in Maraño although it had declined to consider it at the time of the original re-sentencing. At a subsequent hearing, the district court clearly indicated that it was now considering a portion of the pre-sentence report which related subsequent circumstances concerning Sandoval’s New York drug arrests and two forfeitures of bail for his failure to appear as ordered, and proceeded to deny the motion on the basis of appellant’s conduct while free on bail pending retrial.

Appellant appears to argue that the court’s initial failure to consider his subsequent conduct irretrievably tainted any increase in his sentence. We do not agree. The record clearly indicates that on remand the court reconsidered the November 26 sentence in light of Maraño and Pearce, read the presentence report it relied on, gave appellant an opportunity to respond, and affirmatively stated its reliance on subsequent conduct in reaffirming the increased sentence. Although this decision was made on a motion to reduce, the nature of the district court’s certificate and our remand make it perfectly clear that the decision was equivalent to a full reconsideration and resentencing. Since the court applied the proper standard on remand, we will not disturb on appeal its decision as to appellant’s sentence.

Affirmed.

      . Repealed, Act of Oct. 27, 1970, Pub.L. No. 91-513, title III, § 1101(b)(3)(A), 84 Stat. 1292, effective date of repeal being May 1, 1971, Pub.L. 91-513, § 1105(a). The subsection provided in relevant part:
      “It shall bo unlawful for any person to purchase, sell, dispense, or distribute narcotic drugs except in the original stamped package or from the original stamped package; . . . . ”

      . Repealed, Act of Oct. 27, 1970, Pub.L. No. 91-513, title III, § 1101(b)(3)(A), 84 Stat. 1292, effective date of repeal being May 1, 1971, Pub.L. 91-513, § 1105 (a). The subsection provided in relevant part:
      “It shall be unlawful for any person to sell, barter, exchange, or give away narcotic drugs except in pursuance of a written order of the person to whom such article is sold, bartered, exchanged, or given, on a form to be issued in blank for that purpose by the Secretary or his delegate.”

      . Repealed, Act of Oct. 27, 1970, Pub.L. No. 91-513, title III, § 1101(a)(2), (4), 84 Stat. 1291, effective date of repeal being May 1, 1971, Pub.L. 91-513, § 1105 (a). The section provided as follows:
      “Whoever fraudulently or knowingly imports or brings any narcotic drug into the United States or any territory under its control or jurisdiction, contrary to law, or receives, conceals, buys, sells, or in any manner facilitates the transportation, concealment, or sale of any such narcotic drug after being imported or brought in, knowing the same to have been imported or brought into the United States contrary to law, or conspires to commit any of such acts in violation of the laws of the United States, shall be imprisoned not less than five or more than twenty years and, in addition, may be fined not more than 820,000.”

      . Even if we were to accept appellant’s analogy between the circumstances of this case and Flannery, that decision would not be relevant in the present context. Flannery is applicable only to cases going to trial after November 12, 1971; trial in the instant case began on September 20, 1971.

      . Appellant’s original conviction was reversed by this court in Rodriguez-Sandoval v. United States, 409 F.2d 529 (1st Cir. 1969).