author: MOORE, Circuit Judge: MULLIGAN, Circuit Judge TIMBERS, Circuit Judge

text:
    Frank KOHNER, Appellant and Cross-Appellee, v. Abraham WECHSLER, Appellee and Cross-Appellant, and Manufacturers Hanover Trust Company, Defendant.
    Nos. 236, 366, Dockets 72-1721, 72-2062.
    United States Court of Appeals, Second Circuit.
    Argued Dec. 18, 1972.
    Decided April 6, 1973.
    Sidney B. Silverman, New York City (Silverman & Harnes, New York City, and Lawson F. Bernstein, New York City, of counsel), for appellant and cross-appellee.
    Nathan Lewin, Washington, D. C. (Miller, Cassidy, Larroea & Lewin, Washington, D. C., of counsel), for appellee and cross-appellant.
    Before MOORE, MULLIGAN and TIMBERS, Circuit Judges.
   MOORE, Circuit Judge:

Plaintiff, Frank Kohner, brought an action under sections 12(2) and 17(a) of the Securities Act of 1933 and section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 against Abraham Wechsler and Manufacturers Hanover Trust Company, wherein he sought to rescind a purchase agreement pursuant to which he agreed to purchase all of the outstanding shares of the Wecolite Company owned by • Wechsler.- Defendant, Manufacturers Hanover Trust Company, the escrow agent named in an escrow agreement which was a part of the transaction, is not a party to this appeal.

Shortly after the action was commenced, plaintiff sought a preliminary injunction to prevent Wechsler from leaving the country and for consolidation of the trial on the merits with the hearing on the injunction. The motion for consolidation was initially denied by Judge Frankel. After a four-day evidentiary hearing on the preliminary injunction, before Judge Cannella, the court, sua sponte, consolidated the hearing and the trial on the merits. From an order denying the preliminary injunction, dismissing the summons and complaint, and terminating the escrow agreement, plaintiff appeals.

The gravamen of plaintiff’s complaint centers around the assertion of fraudulent representations allegedly made by the Seller, Wechsler, to Kohner to the effect that Wecolite, the Company purchased, operated in conformity with the law, whereas, in fact, it had violated provisions of the Robinson-Patman Act, had underpaid customs duties, and was engaged in-sharp and unethical business practices (withholding commissions and royalties due).

The only issue before the trial court was whether the proof justified rescission. The court found that plaintiff’s charges as to violations of the Robinson-Patman Act had not been sustained, that if there were unpaid customs duties, they would very probably amount to the de minimis sum of $4,000, and that there was no substance to the charge that Wecolite engaged in unethical business practices.

On appeal, as in the trial court, Kohner conjures up the specter of Wecolite being forced to defend a Federal Trade Commission action for violations of the Robinson-Patman Act as well as a multiplicity of private suits by Wecolite’s customers based on these same violations. The trial court found no such violations. Even now there are still no threats of Robinson-Patman actions or suits by the government for unpaid customs duties. If plaintiff, as the new owner of Weeolite, believes that certain of the business practices of his acquired Company are in violation of the law, he is free to remedy these practices, albeit the trial court found no such violations of law. If he does not approve of the Company’s business policies, he is equally free to change them. If unpaid customs duties require payment, the indemnity agreement which is part of the purchase agreement is protective. Noting that “[T]he plaintiff, an experienced businessman and a sophisticated investor had many financial advisors to assist him in carefully analyzing defendant Wechsler’s business before the sale was finalized,” the trial court concluded that plaintiff’s motion for a preliminary injunction should be denied and the summons and complaint dismissed. Wechsler cross-appeals the dismissal of his counter-claim for damages for interference with his employment and consulting contracts which were executed in connection with the sale of Wecolite. No proof was adduced at trial as to this claim and Judge Cannella properly dismissed it. We affirm.

Apparently, on its own motion, the trial court added: “The escrow agreement with defendant Manufacturers Hanover Trust Company is hereby terminated and the Court directs that the notes being held in escrow be turned over to defendant Wechsler, and that the legitimate fees incurred by the Bank in the amount of $1,350 be paid by the plaintiff.”

The order appealed from must be modified because the escrow agreement and the indemnity agreement were vital parts of the purchase transaction. The purchase price was $650,000. Remaining unpaid is $274,000, consisting of a negotiable note for $124,000 due January 2, 1973, and two non-negotiable notes for $76,500 due January 2, 1973, and $73,500 due October 15,1974.

Since the trial court did not grant rescission, the purchase agreement remains in full force and effect including the indemnity and escrow provisions. Hence the escrow agreement should not have been terminated. The notes held pursuant thereto should continue to be held in accordance with its terms. Any fees thereunder should be paid in accordance with the terms thereof.

Order as modified affirmed.

MULLIGAN, Circuit Judge

(concurring) :

I concur in the opinion of Judge Moore.

Appellant Kohner has assumed here and below that once having established that Wecolite was selling the same commodity at different prices to two or more competing buyers, the burden of proof shifted to the appellee Wechsler under the Robinson-Patman Act (15 U. S.C. § 13 (1970)). Thus, under the much maligned decision in Moss, appellant has urged that the appellee must bear the burden of proving no possible competitive injury. Moreover, under § 2(b), he has assumed that the appellee has the burden of establishing that Wecolite was meeting and not beating the price of a competitor. I do not think the appellee here had to sustain either burden of proof. The appellant is not the Federal Trade Commission or an injured secondary line competitor bringing a § 2(a) action. The appellant is neither a purchaser of Wecolite products or even a competitor. He is the disappointed buyer not of a commodity but of the business itself. Although the Act is admittedly murky, there is no language in it which gives him a cause of action. The burden of proof provision in § 2(b) is explicitly limited to hearings on complaints brought under the statute. Since this is not such an action the appellant is not entitled to the benefit of the statutory presumption. The appellant buyer of the business has urged that the appellee seller has violated the Act — he therefore has the burden, in my view, of establishing that Wecolite not only discriminated to the possible detriment of its buyers but that it had no § 2(b) defense.

Even if this is not sound and the appellant is to be treated as the plaintiff under the statute, I agree with Judge Timbers that there is no showing of any Robinson-Patman violation. The expert opinion relied upon is bereft of any meaningful survey indicating competitive realities in relevant areas. Absent this we simply have a recitation of cases which can be found in any anti-trust primer culminating in the rather startling prediction that both Wecolite and Kohner face the strong likelihood of both civil and criminal liability in an action brought by the Anti-Trust Division. As Judge Moore has pointed out, no proceeding of any kind ever took place in the past and, as for the future, the appellant is now free to make whatever price structure changes his experts suggest and thus avoid the damages, fines or imprisonment which have been foretold.

TIMBERS, Circuit Judge

(concurring) :

I concur in the judgment of the Court and in the brief opinion of Judge Moore to the extent that it affirms denial of a preliminary injunction and dismissal of the complaint and counterclaim, but modifies that provision of the order below which terminated the escrow agreement.

In my view, however, certain aspects of the issues on this appeal warrant somewhat fuller discussion, so that the parties, counsel and possibly another Court may have a bit more illumination as to the basis for our judgment affirming the order of the district court as modified.

In short, in my opinion, it is not enough for us simply to say, for example, that the district court’s findings of fact support its conclusion that rescission of the purchase agreement was not warranted. Rather, we must determine essentially whether the evidence supports the district court’s finding that plaintiff Kohner failed to sustain his burden of proving various statutory violations on the part of defendant Wechsler. Since I believe there was adequate evidence to support the district court’s finding and its conclusion that the purchase agreement should not be rescinded was not clearly erroneous, I concur in the judgment of the Court affirming the order of the district court as modified.

I.

In order more sharply to focus upon the issues, a somewhat more detailed statement of the events which culminated in the controversy may be helpful.

Wechsler was the owner of Wecolite Company, a small manufacturer of low-priced plastic kitchen gadgets. In 1971, he decided to resettle in Israel. He prepared to sell his Wecolite shares at a public offering. Among the steps taken was the filing of a preliminary prospectus with the SEC.

In the meantime, Kohner, the former owner of a successful toy manufacturing company, had expressed a tentative interest in a private purchase of Wecolite. Negotiations between the two ultimately resulted in an agreed purchase price of $650,000, subject to verification of the Wecolite prospectus and the assorted representations that Wechsler had made concerning the operation of Wecolite. Following Kohner’s acceptance of the representations, the parties entered into a 50-page purchase agreement. Included therein were numerous warranties, including warranties of lawfulness, and a provision whereby Wechsler was to be retained by Wecolite for one year as an employee and for three years thereafter as a consultant. Thus, even after the assumption of control by Kohner, the day-to-day management of Wecolite was intended to, and did, remain in Wechsler’s hands in the early period following the sale.

Several months after Kohner took over the control of Wecolite, he claims to have become aware that certain of Wecolite’s pricing practices were in violation of the Robinson-Patman Act, 15 U.S.C. § 13 (1970). As a result, he hired two persons — a Washington, D.C. attorney and a professor of economics at Columbia University — to determine the existence and extent of Wecolite’s statutory violations. Their investigation culminated in an opinion letter in which the view was expressed that Wecolite’s marketing policies would subject both Wecolite and Kohner personally to possible civil and/or criminal litigation brought by the FTC, the Department of Justice, or private parties. This conclusion apparently was based upon a study of the variety of prices that Wecolite charged its customers, without regard to the prices quoted by Wecolite’s competitors or to any other potential defense to a Robinson-Patman violation provided for in 15 U.S.C. § 13(a) or (b).

Kohner also claims to have discovered that Wecolite was in violation of the United States customs laws, due to its use of a “double-invoicing” scheme. On a number of occasions, as Wechsler admitted, the billing for Wecolite’s purchases from Modern Plastics Company, Wecolite’s Canadian supplier of plastic jelly molds, was done by means of split invoices. Wechsler also admitted that Wecolite may in fact have paid customs duties on the initially-invoiced portion only. Wechsler’s explanation was that the molds were packaged in nests of four and that prior to 1969 they had been billed in terms of nests. In that year, however, Modern Plastics closed its Vermont plant (which had been the outlet dealing with Wecolite). In changing the source of supply, the billing simultaneously was changed to an individual mold, rather than a nest of four, basis. This, according to Wechsler, “caused substantial confusion in [Modern Plastics’] billing, to which the alleged ‘double-invoicing’ was attributable.”

Kohner testified that, if he had known of these alleged statutory violations and liabilities prior to his purchase of Wecolite, he would not have consummated the purchase.

Consequently, on May 8, 1972, Kohner commenced the instant action in the district court for rescission of the agreement to purchase Wecolite. Wechsler counterclaimed for $163,000 on the employment and consulting provision, allegedly lost due to Kohner’s interference with that provision of the agreement. Following a hearing on Kohner’s motion for a preliminary injunction, the district court consolidated the hearing on that motion with the trial on the merits, in accordance with Kohner’s motion pursuant to Fed.R.Civ.P. 65(a)(2). On June 16, 1972, the court denied the motion for a preliminary injunction and dismissed the complaint. At the same time, it ordered that the escrow agreement be terminated and that the notes subject thereto be transferred to Wechsler. On July 20, a separate order was entered dismissing Wechsler’s counterclaim for failure of proof.

The essential issue on this appeal is whether the district court was clearly erroneous in its conclusion that Kohner was not entitled to rescission of the purchase agreement because of the alleged undisclosed statutory violations by Wechsler and Wecolite. The rescission relief was sought pursuant to Sections 12(2) and 17(a) of the Securities Act of 1933, 15 U.S.C. §§ 77l(2) and 77q(a) (1970), and Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) (1970), and Rule 10b-5 promulgated thereunder. In order to understand our ruling on that issue, reference must be made to the substance of the alleged violations of both the RobinsonPatman Act and the customs laws.

II.

The primary prohibition of Section 2 of the Robinson-Patman Act, 15 U.S.C. § 13 (1970), makes it “unlawful for any person engaged in commerce to discriminate in price between different purchasers of commodities , of like grade and quality . . . where the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce . . . .”15 U.S.C. § 13(a). That prohibition is then made subject to various defenses set forth in the statute. Here, while there is no doubt that Wecolite discriminated in price between its various customers, there are serious questions as to (1) whether the effect of such discrimination “may be substantially to lessen competition”, and (2) whether Wechsler has demonstrated the applicability of any of the statutory defenses.

The rule in this Circuit, unique as it may be, is that, once a plaintiff has shown discrimination in pricing, the burden of proving a lack of the requisite anticompetitive effect shifts to the defendant. Samuel H. Moss, Inc. v. FTC, 148 F.2d 378, 379 (2 Cir.), cert. denied, 326 U.S. 734 (1945). In the present case, there is no question that the alleged practice of granting jobber discounts, ranging in magnitude from 55% to 65%, was proved. Nevertheless, the district court held that “the plaintiff has failed to sustain his burden of proving a violation of Section 2(a) of the Robinson-Patman Act”, a conclusion which, under the standards that have evolved in this complex area of the law, we hold is adequately supported by the evidence.

In FTC v. Morton Salt Co., 334 U.S. 37 (1948), the Supreme Court stated the classic “injury to competition” test: that the discriminations need not “in fact have harmed competition, but only that there [be] a reasonable possibility that they ‘may’ have such an effect.” 334 U.S. at 46, quoting from Corn Products Refining Co. v. FTC, 324 U.S. 726, 742 (1945). In so doing, the Court also rejected as a standard the minimal threshold of injury: “the use of the word ‘may’ was not to prohibit discriminations having ‘the mere possibility’ of those consequences, but to reach those which would probably have the defined effect on competition.” 334 U.S. at 46 n. 14.

In the instant case, Kohner has demonstrated no more than that “mere possibility”. Wecolite is a small company, itself having a relatively insignificant effect on competition. In that sense at least, Morton Salt and the other principal cases are distinguishable as presenting situations involving an industry leader whose every action might be presumed to have a “reasonable possibility” of affecting competition, whether harmful or otherwise. In addition, there has been no showing of any harm, actual or reasonably possible, to any customer. For aught that appears from the evidence, Wecolite’s pricing policies may indeed have fostered competition by adapting the discount rate to the particular situation of each customer. There is nothing in the record, for example, to suggest such suspect practices as the volume discounts in Morton Salt which enabled Morton’s largest customers to gain ever-greater advantages. On the contrary, the evidence in the present case shows no consistent pattern of discount variations, no specially-favored customers, and not even remote proof of injury to any person. The Moss burden of proof notwithstanding, therefore, no injury to competition has been shown. Consequently no violation of Section 2(a) of the Robinson-Patman Act has been established.

Even if Kohner had sustained his burden of proving a prima facie violation of the Act, however, Wechsler, as the district court correctly held, successfully brought himself within the protection of an express defense provided in Section 2(b), 15 U.S.C. § 13(b) (1970):

“That nothing herein contained shall prevent a seller rebutting the primafacie case thus made by showing that his lower price . . . was made in good faith to meet an equally low price of a competitor. . . .”

The burden of proving the meeting-competition defense of course was on Wechsler. Cf. Utah Pie Co. v. Continental Baking Co., 386 U.S. 685, 694 (1967). In sustaining that burden, Wechsler appears to have established a complete absence of a pattern of discriminatory discounts; on the contrary, he has shown that the price differentials were granted on a nonsystematic ad hoc basis, reasonably attributed to the fluctuations in prices quoted by Wecolite’s competitors, as well as to other legitimate factors. To establish that defense, Wechsler produced such evidence as the testimony of a Wecolite sales representative, who served under both Wechsler and Kohner, to the. effect that additional discounts off the jobber price lists were granted by Wecolite only after Wechsler was satisfied, by invoices or other means, that the lower prices were necessary to meet the prices offered by Weeolite’s competitors. This witness also testified that he could not remember any instance in which Wechsler attempted to under-price the competition rather than simply to equal it; and that, Wechsler being in the witness’ terms a “frugal” man, it clearly was not Wechsler’s practice at any time to charge anything less than competition required.

The only remaining consideration with respect to this defense is whether Wechsler adequately substantiated the particulars of the competitors’ prices that Wecolite allegedly was formed to meet. In Corn Products Refining Co. v. FTC, supra, 324 U.S. at 741, for example, the Court found insufficient support for the meeting-competition defense, the evidence being described as limited to “each witness’ assumption or conclusion that price discriminations were justified by competition”. In the instant case, however, testimony to that effect was given by witnesses having personal and intimate knowledge of the particular transactions. Moreover, the accepted rule, and certainly the sensible one, is that a seller is not necessarily required to establish the defense by showing that his price discriminations in fact met the prices offered by his competitors. The burden on the seller is rather to demonstrate

“that the price was made in good faith to meet a competitor’s .... [T]he statute at least requires the seller, who has knowingly discriminated in price, to show the existence of facts which would lead a reasonable and prudent person to believe that the granting of a lower price would in fact meet the equally low price of a competitor.” FTC v. A. E. Staley Mfg. Co., 324 U.S. 746, 759-60 (1945) (emphasis added).

See also, e. g., Forster Mfg. Co. v. FTC, 335 F.2d 47, 55-56 (1 Cir. 1964), cert. denied, 380 U.S. 906 (1965) (remanding “for application to the evidence of the standard of the ‘reasonable and prudent person’ ” a case involving an FTC order which held the meeting-competition defense not to have been established due to a failure to prove the precise amounts of competitive offers and the names of the competitors who made them).

Applying that standard, there is no doubt that the evidence here supports the district court’s conclusion that Wechsler sustained his burden of proving the defense. The meeting-competition proviso offers an “absolute defense to a charge of violating § 2(a), notwithstanding the existence of the statutorily prohibited anticompetitive effect.” FTC v. Sun Oil Co., 371 U.S. 505, 514 (1963). Wechsler consequently cannot be said to have misrepresented the legality of Wecolite’s operation. We hold that the district court’s denial of rescission on this ground clearly was warranted.

III.

The alleged customs laws violation presents an issue of a different species. While it is true that Wechsler offered an explanation for the apparent double-invoicing of purchases from Modern Plastics, it also is true that this explanation does not fit nicely within a statutory defense, as was the case with the Robinson-Patman claim. Indeed, a reading of the district court’s opinion discloses an implicit finding that Kohner’s contention that Wecolite might be subject to various customs liabilities and penalties was not satisfactorily rebutted by Wechsler. What the court concluded, however, was that the likelihood of mitigation of the total potential liability made the probable liability de minimis, in terms of its effect on Kohner’s entering into the purchase contract.

The federal securities laws under which this action was brought have developed a matrix of tests and standards as prerequisities to a suit for rescission or damages. One such prerequisite is that “the facts [allegedly] withheld be material in the sense that a reasonable investor might have considered them important in the making of this decision.” Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153-54 (1972). Cf. List v. Fashion Park, Inc., 340 F.2d 457, 462 (2 Cir.), cert. denied, 382 U.S. 811 (1965). In the instant case, the testimony of Kohner’s expert witness, an attorney experienced in customs matters, indicated that after successful mitigation of the total potential liability, Wecolite probably would have been subject to an assessment of less than $4,000. In a sale involving a purchase price of $650,000 plus extensive additional consideration, the conclusion that $4,000 would not constitute a factor that a reasonable investor would have deemed important in the purchase decision would seem to be reasonable.

Contrary to Kohner’s contention on this appeal, the existence of potential criminal liabilities does not necessarily make a company an “illegal” operation, thereby furnishing an unsuspecting purchaser a basis for rescission relief. Rather, Kohner has demonstrated no more than the fact of underpayment of a minimal portion of Wecolite’s customs obligation, resulting in a possible assessment in duties and penalties of an insubstantial amount. It is not even clear that Wecolite would in fact be subject to any assessment, depending on the success of its explanation as a defense under § 1592.

In any event, assuming that Weehsler knowingly misrepresented Wecolite’s liabilities in the warranties of lawfulness and freedom from criminal liabilities, in my view the established standards of materiality preclude rescission of the purchase agreement.

IV.

Two other issues raised on this appeal deserve brief mention.

First, while the termination of the escrow agreement was erroneous and the district court’s order should be modified accordingly, the court correctly refused to upset the employment and consultation provision of the agreement. Although it may be presumed that as a consequence of this lawsuit the parties are on less than ideal terms, the fact remains that both parties satisfied the one-year employment agreement and currently are in the three-year consultation period. It appears that the parties contemplated in this regard that, following the first year after the sale, Wechsler would be residing in Israel and the consultation provision would be no more than a formality tied to additional consideration for the sale. Since we hold that Weehsler has not breached the agreement, there would appear to be no reason for depriving him of any portion of the agreed consideration.

Second, there is no reason or need for a reversal of the district court’s dismissal of Weehsler’s counterclaim. In its original order, the court failed to dispose of the counterclaim. Three weeks later, on July 7, 1972, Weehsler moved for summary judgment on the counterclaim, or in the alternative for the issuance to Kohner of a certificate under Fed.R.Civ.P. 54(b) to permit an immediate appeal of the June 16 order pending decision on the counterclaim. On July 20, the court dismissed the counterclaim for failure of proof.

Weehsler concedes that, at least with respect to the employment agreement, the counterclaim is moot and presents no issüe for trial. What he asks is that the dismissal of the counterclaim be vacated with instructions to enter a judgment of dismissal with prejudice. In view of our decision to require enforcement of the consultation agreement, the counterclaim itself appears to be unfounded. Moreover, should it later appear that Kohner is in violation of the consultation agreement, it seems to me that a new cause of action would arise and that the order of July 20 would not preclude Wechsler from seeking appropriate relief.

For the reasons stated above, I concur in the judgment of the Court and in the opinion of Judge Moore to the extent that they affirm the order of the district court as modified.

      . Kohner v. Wechsler, 72 Civ. 1898. (S.D.N.Y., filed June 16, 1972).

      . Id.

      . Samuel H. Moss, Inc. v. FTC, 148 F.2d 378 (2d Cir.), cert. denied, 320 U.S. 734, 66 S.Ct. 44, 90 L.Ed. 438 (1945).

      . Such a burden on the plaintiff in this case is less than that imposed upon the Federal Trade Commission in a legitimate Robinson-Patman Act § 2(f) case directed against a buyer. See Automatic Canteen Co. v. FTC, 346 U.S. 61, 73 S.Ct. 1017, 97 L.Ed. 1454 (1953).

      . Included in the purchase price were two non-negotiable promissory notes totalling $150,000 which were to be held in escrow by the Manufacturers Hanover Trust Company as part of a fund for the payment of any successful claims by Kohner against Wechsler arising out of the sale. The district court ordered termination of the escrow agreement and the transfer of the notes to Wechsler. I agree with Judge Moore that that part of the district court’s order was erroneous, and I concur in the modification of the order accordingly •

      . Kohner emphasizes that on several occasions during the negotiations express requests were made for guarantees as to the lawfulness of Wecolite’s business procedures. Regarding the Robinson-Patman Act claim, the evidence indicates that at the first meeting between Wechsler and Kohner the latter inquired as to Wecolite’s pricing policies. Wechsler testified that he answered, “We sell at 50 and 10, the same as stated on the price list. However, in many cases we have to grant additional discounts, bakers’ dozens, in some eases 10 per cent, in some cases even a little better than that.” Wechsler further testified that that exchange constituted the extent of the parties’ discussion of Wecolite’s pricing policies.

      . A major source of disagreement is the extent to which Kohner investigated and verified Wechsler’s prospectus and representations. Kohner asserts that his accountants ascertained that Wechsler’s reports were in accord with proper accounting procedures, and that he refused to enter into the purchase agreement until Wechsler agreed to include such warranties as the one stating that Wecolite “is not prohibited by agreement or law from carrying on its business substantially on the basis now conducted”, Purchase and Sale Agreement f 3.2(c), and that it “is not indebted in any amount to any . . . governmental agency for customs duties or taxes on imports under any applicable law. ...” Purchase and Sale Agreement ¶ 3.4 (n). Wechsler, however, points to Kohner’s frequent consultations with a housewares expert, the complete access of Kohner’s accountants to Wecolite’s books (including its invoices), and Kohner’s testimony that he read the prospectus thirty times and that he was very conscious of the language and effect of the RobinsonPatman Act.

      . Kohner testified that this knowledge came to him through a letter from a salesman.

      . Moss has been both consistently questioned, e. g., Rowe, Price Discrimination Under the Robinson-Patman Act 108 (1962), and effectively limited. Enterprise Industries, Inc. v. Texas Co., 240 F.2d 457, 460 (2 Cir.), cert. denied, 353 U.S. 985 (1957); Sano Petroleum Corp. v. American Oil Co., 187 F.Supp. 345, 353 (E.D.N.Y.1960) (“ . . . there is no presumption that the proscribed discrimination in price has caused damage to the plaintiff. The burden of proving such damage is always on the plaintiff.”) In light of the conclusions that, even under the Moss presumption the evidence fails to • disclose a reasonable possibility that the price discrimination may substantially lessen competition, Standard Motor Products, Inc. v. FTC, 265 F.2d 674, 676 (2 Cir.), cert. denied, 361 U.S. 826 (1959), and that, even if such a finding were made, Wechsler has established the defense set forth in § 13(b), further consideration of the Moss rule is not required.

      . The evidence indicated that Wecolite had granted six different jobber discounts: 50% + 10% (55%) ; 50% + 10% + 5% (57.75%) ; 50% + 10% + 7.7% (“baker’s dozen”) (59.24%) ; 50% -|- 10% + 10% (60.5%) ; 50% + 10% + 15.4% (“double baker’s dozen”) (63.-47%) ; and straight 65%.

      . See, e. g., Corn Products Refining Co. v. FTC, supra; Kroger Co. v. FTC, 438 F.2d 1372 (6 Cir.), cert. denied, 404 U.S. 871 (1971). Cf. Anheuser-Busch, Inc. v. FTC, 289 F.2d 835 (7 Cir. 1961) (primary-line case).

      . The president of one of Wecolite’s larger customers testified, for example, that the lower price offered to it could be demanded from all its suppliers because of its ability to provide such services as “preticketing” and inventorying which would not be performed by most other customers.

      . See, e. g., supra note 8.

      . The witness at the time of his testimony was employed by Wecolite, among other manufacturers, and appeared at the trial under subpoena.

      . In reaching this result, there is no need to decide what additional effect should be credited to the peculiarities of Kohner’s position in the transaction. The record indicates that Kohner fairly may be characterized as a “sophisticated investor”, Clement A. Evans & Co. v. McAlpine, 434 F.2d 100, 104 (5 Cir. 1970), cert. denied, 402 U.S. 988 (1971), who by his own admission was familiar with the RobinsonPatman Act and was concerned with its applicability to Wecolite. In addition, while the evidence is conflicting as to Kohner’s actual knowledge of Wecolite’s pricing policies prior to the sale, the fact that his agents investigated the company’s books and records may permit an inference of knowledge on the part of Kohner. Cf. Johns Hopkins University v. Hutton, 422 F.2d 1124, 1130-31 (4 Cir. 1970). As a result, Kohner’s claim for rescission under the federal securities laws due to the alleged non-disclosure of Robinson-Patman liability might well be said to fall because of the absence of the essential elements of reliance and materiality. In my opinion, however, it is sufficient to hold that the claim fails because Kohner did not prove any misrepresentation in the first instance.

      . Under 19 U.S.C. § 1592 (1970), any person who is guilty of, inter alia, “any willful act or omission by means whereof the United States is or may be deprived of the lawful duties or any portion thereof accruii g upon the merchandise [described on the import invoice, etc.] . . . shall be subject to forfeiture . . . [of] the whole of the merchandise or the value thereof . . . . ” Section 1592 has been held to require proof of an intent to use fraudulent means in order to subject a person to the prescribed penalties. Jen Dao Chen v. United States, 385 F.2d 939, 942 (9 Cir. 1967). That holding, however, has been questioned. The intent requirement may properly coincide with the language in § 1592 that a false statement, to provide a basis for forfeiture, must be made “without reasonable cause to believe the truth of such statement.” United States v. Wagner, 434 F.2d 627, 628-29 (9 Cir. 1970).

      . The witness testified that in his experience mitigation was successful in over half the cases brought by the government alleging unpaid customs duties.

      . In addition, as the district court observed, “ . . . the plaintiff will not be hurt by his retaining ownership of Wecolite. There is no provision in the agreement which compels the plaintiff to continue defendant Wechsler’s price structure”. Nor is plaintiff required to continue the method of billing regarding Modern Plastics. It should be further noted that the contract expressly provides for indemnification by Weehsler of any corporate liabilities incurred during his ownership not reflected in Wecolite’s financial statement and books, including the costs of litigation. Purchase and Sale ’ Agreement ¶ 9.1(a), (c). The escrow agreement described at supra note 1 was available to Kohner to satisfy the indemnity.

      . See supra note 1.


source: Caselaw Access Project

author: GEWIN, Circuit-Judge:

license: Public Domain

text:
    NATIONAL LABOR RELATIONS BOARD, Petitioner, v. SHEET METAL WORKERS’ INTERNATIONAL ASSOCIATION, LOCAL UNION NO. 361, Respondent.
    No. 72-2029.
    United States Court of Appeals, Fifth Circuit.
    April 26, 1973.

      Marcel Mallet-Prevost, Asst. Gen. Counsel, N.L.R.B., Washington, D. C., Charles M. Paschal, Jr., Director, Region 15, N.L.R.B., New Orleans, La., John H. Ferguson, N.L.R.B., Washington, D. C., for petitioner.
    Charles M. Peters, Shreveport, La., for respondent.
    Before GEWIN, GOLDBERG and DYER, Circuit Judges.
   GEWIN, Circuit-Judge:

Pursuant to § 10(e) of the National Labor Relations Act, ás amended 29 U.S.C. § 151 et seq., the Board seeks enforcement of its order against Sheet Metal Workers’ International Association, Local Union No. 361 (Local 361). This case arose from Local 361’s assessment of a $2,500 fine and permanent expulsion of one of its members, Elmer C. Langston, a sheet metal superintendent for Langston & Co., Inc. (the Company). On February 24, 1971, Langston, as an individual, filed an unfair labor practice charge against Local 361, alleging that the action taken against him violated § 8(b)(1)(A) and (B) and § 8(b)(2) of the Act, 29 U.S.C. §§ 158(b)(1)(A), (B), and (b)(2). A hearing was conducted before a Trial Examiner who recommended that the complaint be dismissed as to all charges. The Board reversed. Local 361 was found guilty of the unfair labor practices, as charged, the Board having concluded that Langston was fined and expelled in violation of § 8(b)(1)(B) for exercising permissible and normal supervisory functions in making certain employee discharges and in violation of §§ 8(b)(2) and 8(b)(1)(A) for hiring members of a rival union at a particular job site instead of members of Local 361. A cease and desist order was issued accordingly together with an order for other appropriate affirmative relief. We fully enforce the Board’s order.

I — Section 8(b)(1)(B) Violation

Section 8(b)(1)(B) makes it an unfair labor practice for a labor organization “to restrain or coerce ... an employer in the selection of his representatives for the purposes of collective bargaining or the adjustment of grievances.” The acts which formed the basis of these charges allegedly occurred during a dispute between the Company and Local 361, when Elmer in his role as supervisor, had on several occasions taken worksite action against fellow members of Local 361. In the disciplinary proceedings, Local 361 charged that Elmer had slandered the Union by dismissing union members for drunkenness, had broken down working conditions by firing union members without just cause, had encouraged the company to hire members of a rival union and had “made the Local Union look sick in the eyes of the public.”

Local 361 does not contest the fact that a prima facie showing of an 8(b)(1)(B) violation appears from the record. It argues, however, that the disciplinary action taken against Elmer was justified by its good faith belief that he was committing unfair labor practices against his own union. We do not agree.

The Trial Examiner missed the point when he gratuitously suggested that under the facts of this case to hold the union guilty of an 8(b)(1)(B) violation “would in effect amount to rewarding Elmer for committing or attempting to commit an unfair labor practice against his union.” Local 361’s good faith is immaterial to the issue now before this court. This conclusion is reinforced by the existence of legal remedies for any unfair labor practices committed by the employer through its supervisory personnel. As the Board pointed out, “[a] union faced with such concerns is not without remedies. Contractual violations can be remedied through appropriate grievance procedures. Violations of this Act may be pursued by filing charges with this Agency. Self-help, through the exercise of statutorily protected strike and picketing activity, may also be available.” The implied corollary of this reasoning is that Local 361’s disciplinary measures cannot be justified as a supposedly necessary self-help tactic.

The only circumstances in which union discipline of a supervisor member is permissible is when the discipline concerns a purely internal union matter, and such is not the ease here. As Local 361’s charges indicate, the firing and expulsion of Elmer were based upon acts which he carried out in his capacity as superintendent of the sheet metal crew. The Board properly found that this was done to retaliate against him for the performance of duties indigenous to his position as a management representative of the Company, and hence amounted to coercion of the employer in contravention of the provisions of section 8(b)(1)(B). See Meat Cutters Union Local 81 v. NLRB, 147 U.S.App.D.C. 375, 458 F.2d 794 (1972); NLRB v. New Mexico District Council of Carpenters, 454 F.2d 1116 (10th Cir. 1972); Dallas Mailers Union, Local 143 v. NLRB, 144 U.S.App.D.C. 254, 445 F.2d 730 (1971).

II — Section 8(b)(1)(A) and 8(b)(2) Violations

Elmer’s unfair labor practice charges under Section 8(b)(1)(A) and (b)(2) arose from disciplinary action taken against him by Local 361 for hiring members of a rival union as a part of an alleged conspiracy to oust Local 361 as bargaining representative of the Company’s sheet metal workers. Section 8(b)(2) provides in relevant part that it is an unfair labor practice for a labor organization “to cause or attempt to cause an employer to discriminate against an employee in violation of [section 8(a)(3)]”. The latter provision prohibits “discrimination in regard to hire or tenure of employment or any term or condition of employment to encourage or discourage membership in any labor organization.” Section 8(b)(1)(A) makes it unlawful for a union to restrain or coerce employees in the exercise of their section 7 right to join or to refrain from joining a labor organization.

The Trial Examiner found that Local 361 did not violate these provisions as alleged by Elmer. From his review of the testimony, he made the sweeping determination that the entire Langston Family employed by the Company, with the possible exception of Elmer himself, became involved in a surreptitious scheme “whose purpose quite obviously was to supplant Local 361 as the recognized bargaining agent of the employees of L. & Co. at Jena if not at all L. & Co. jobs, to eliminate the existing contractual relationship between L. & Co. and Local 361 at Jena, at least, and to replace Local 361 as such bargaining agent with District 101 (the rival union) if necessary.” These facts, in the Trial Examiner’s view, removed the case from 8(b)(1)(A) entirely and made it abundantly clear that “if anyone was attempting ‘to restrain or coerce employees in the exercise of the rights guaranteed in Section 7,’ it was L. & Co. and not Local 361.”

The Trial Examiner then stated that it was unimportant to his decision whether Elmer was actually privy to the clandestine scheme to oust Local 361. His reason was very simply that Local 361 probably didn’t know about the scheme when it filed the charges against Elmer on July 17, 1970. Nonetheless, on the basis of what was known by the union on that date, apart from any consideration of an allegedly illegal conspiracy by the company, Local 361 was found to have had good cause to believe that:

“ . . . [A]s sheet metal department Superintendent, Elmer had hired and deliberately retained District 101 members, Lloyd and Gauthier, far beyond the time limits set in the existing collective-bargaining agreement between L & Co. and Local 361 and that Elmer was doing this in an effort to displace Local 361 at Jena with the more favored L & Co. union, District 101. In other words Local 361 could reasonably believe that Elmer was attempting to get rid of Local 361 despite its contract with L & Co. and replace it surreptitiously with District 101. In short the evidence here proves that the proverbial reasonable man, based on the facts then known to Local 361, had good cause to believe that Elmer, with or without L & Co.’s participation, was busily engaged in activities favoring Distinct 101 which amounted to unfair labor practices in violation of Section 8(a)(2) and (1) of the Act as well as in violation of the terms of the existing collective-bargaining agreement. If Elmer’s actions were not violative of Section 8(a)(2) of the Act, at least it appeared that he was deliberately engaged, or had engaged, in making a “sweetheart deal” with District 101, the hated rival of Local 361.”

As an additional ground for dismissing the complaint, the Trial Examiner also found that the dual unionism charges filed against Elmer had nothing to do with the enforcement or interpretation of the collective-bargaining agreement then in effect between the Company and Local 361. On the contrary, Local 361’s grievances against Elmer were considered to be “exclusively a matter of internal union concern relating, without exception, to the relationship between the Union and one of its members.”

In reversing the Trial Examiner, the Board reasoned:

“ . . [I]t is our view that the Trial Examiner’s explanation does not square with the Union allegations against Elmer Langston. Those allegations make no complaint of a failure to enforce a union-security clause after the employees were hired. Instead, they complain that ‘The above Employee's [sic] were hired and placed to work at Jena, Louisiana.’ The Union’s complaint, then, was that Elmer had sanctioned the hiring of these men. And why was this hiring offensive to the Union? Because, to paraphrase the rest of the allegations, they were not members of Respondent (Local 361) but, instead, were members of another union. Thus, Elmer’s sin, as the Union saw it, was that he failed to require membership in Respondent as a condition preceding employment. We therefore find that Respondent’s discipline of Langston was, in part, an attempt to cause him as the Employer’s representative, unlawfully to discriminate against applicants for employment in violation of Section 8(a)(3) of the Act. We find that, by engaging in such conduct, Respondent violated Section 8(b)(1)(A) and (2) of the Act.”

The Board’s decision, in our opinion, is fundamentally sound. Union rules requiring that their supervisor members hire only fellow union members have long been associated with illegal efforts to reinstate the closed shop outlawed by the Taft-Hartley Amendments of 1947. See, e.g., NLRB v. Millrights’ Local 2232, 277 F.2d 217 (5th Cir. 1960), cert. denied, 366 U.S. 908, 81 S.Ct. 1083, 6 L.Ed.2d 234 (1961). Likewise, union fines or expulsion of a supervisor member for failing to require membership as a condition of employment is an attempt to discriminate against non-member applicants in violation of Section 8(a)(3) and hence a violation of Sections 8(b)(2) and 8(b)(1)(A). N.L.R.B. v. New Mexico District Council of Carpenters, 454 F.2d 1116, 1119 (10th Cir. 1972).

At this juncture, it is necessary only to add that the Board did not improperly disregard the Trial Examiner’s findings of fact and credibility determinations, as the union now contends. The Trial Examiner in his opinion greatly emphasized Local 361’s reasonable belief that Elmer was part of a clandestine scheme designed to replace it as the bargaining representative of the employees of the Company. Feeling that Elmer should not profit from such wrongdoing, he concluded that this reasonable belief would constitute a complete defense to the unfair labor practice charges at issue. The Board rejected this conclusion as a matter of law, regardless of whether the conspiratorial scheme existed as a matter of fact. For reasons which are adequately stated in the first section of this opinion, we believe that the Board’s rejection of the union’s good faith or reasonable belief defense rests on solid legal footing.

CONCLUSION

The order of the National Labor Relations Board requiring Local 361 to cease and desist from certain described unfair labor practices against the Company and to rescind all disciplinary actions taken against Elmer Langston is hereby Enforced.

      . In this capacity, Elmer did all the hiring and firing and adjusted grievances in behalf of Langston & Co. He is clearly a “supervisor” within the meaning of § 2 (11) , 29 U.S.C. § 152(11), which includes : “any individual having authority, in the interest of the employer, to hire, transfer, suspend, lay off, recall, promote, discharge, assign, reward, or discipline other employees, or responsibly to direct them, or to adjust their grievances, or effectively to recommend such action, if in connection with the foregoing the exercise of such authority is not of a merely routine or clerical nature, but requires the use of independent judgment.”

      . 29 U.S.C. § 158(b)(1)(B).

      . See, e. g., Meat Cutters Union, Local 81 v. N. L. R. B., 147 U.S.App.D.C. 375, 458 F.2d 794, 800-801 (1972); N. L. R. B. v. Sheet Metal Workers’ International Association, 430 F.2d 1348, 1350 (10th Cir. 1970).

      . The charge states in pertinent part: “Bro. Elmer Langston was a party to and knowingly agreed to work with and encourage the Company to hire Employee’s [sic] of Allied Federation of Unions Local 101. Bro. Elmer Langston membership No. 339041 was and still is Foreman, with the right to hire and fire Employee’s. The above Employee’s were hired and placed to work at Jena, Louisiana. Bro. Elmer Langston stated that they were members in good standing of the Union, but after checking they were members of Local No. 101, Allied Federation of Union Local No. 101, Article 17, Sec. 1(f).”

      . The Board also found on the basis of the uncontradicted testimony of Earl Langston, president of Langston & Co., that a manpower shortage occasioned by Local 361 necessitated the concentration of all available workers at the England work-site after February 18, 1970 and eventually led to the hiring of the two workers at Jena who were not Local 361 members. The Trial Examiner had previously rejected this testimony on the ground that it lacked corroboration. Although, outside of Earl’s testimony, the record provides something less than overwhelming support for the Board’s finding in this connection, we are not prepared to say either that Earl’s testimony was uncorroborated or that such other evidence was insubstantial.


author: MOORE, Circuit Judge.

text:
    Vivadean P. WALLACE, Plaintiff-Appellee, v. CONNECTICUT GENERAL LIFE INSURANCE COMPANY, Defendant-Appellant.
    No. 72-2025.
    United States Court of Appeals, Fifth Circuit.
    April 30, 1973.
    James W. Gewin, Birmingham, Ala., for defendant-appellant.
    William L. Irons, Birmingham, Ala., for plaintiff-appellee.
    Before JOHN R. BROWN, Chief Judge, and MOORE and RONEY, Circuit Judges.

       Hon. Leonard P. Moore, Senior Circuit Judge of the Second Circuit, sitting by designation.

   MOORE, Circuit Judge.

Plaintiff, Vivadean P. Wallace, is the widow of her husband, Billy Gene Wallace (Wallace). She is the undisputed beneficiary of a $50,000 accidental death insurance policy issued to her husband when he was for a brief period of time an employee of the Gulf Oil Corporation (Gulf). A certificate evidencing this insurance had been issued to Wallace under a “Voluntary Group Accident Policy” under which the Connecticut General Life Insurance Company (Connecticut General), the defendant-appellant, insured employees of Gulf.

This action was commenced in the United States District Court for the Northern District of Alabama to recover the proceeds of the policy. Jurisdiction was grounded upon diversity of citizenship of the parties. The case was tried before the Court without a jury. Judgment was entered for the plaintiff. Connecticut General, the insurer, appeals.

A brief resume of the facts suffices to frame the issues raised on this appeal.

Plaintiff and her husband had lived together in Alabama for approximately eight years, during which time he had held various jobs. They had six children. In October, 1969, Wallace, leaving his wife and children in Alabama, went to Texas where he rented an apartment and lived with a Joyce Wallace (not his wife). Although Wallace returned to Alabama on three brief occasions prior to June, 1970, his employment was in Texas, first with Gulf, then Foley’s, and again with Gulf, an employment which lasted from January to May, 1970. During this time Wallace became insured under the Gulf group policy, which was paid up through June 30, 1970. Plaintiff was the named beneficiary under the policy which covered death from an “accidental bodily injury”. Wallace continued to live with Joyce near Tuscaloosa, Alabama, until his death on June 26, 1970.

Wallace’s occupation upon his return to Alabama, from which he derived some income, seems to have involved the unlawful cutting, removal, and sale of copper telephone wire from telephone poles in the Tuscaloosa area. Unfortunately, while engaged in this enterprise, wire, which Wallace had in his possession, must have come into contact with high tension (44,000 volts) power wires. Wallace’s body, badly burned, was found near the base of a telephone pole. There was burned wire in contact with the body. The facts more than justify the trial court’s conclusion that Wallace died “as a result of electrocution” and that “beyond any reasonable doubt * * * the insured [Wallace] was engaged in an illegal act * * *."

The trial court addressed itself to the two main issues: (1) Was this an accidental death? and (2) Did the fact that Wallace was engaged in an illegal act constitute a defense under the policy?

Were there a substantial difference in the applicable law of Alabama and Texas to the facts here presented, a dissertation on conflict of laws might be required, but such is not the ease.

The trial court’s conclusion that “the act of cutting the wire does not have such inherent hazards in and of itself” as to make serious injury or death a “natural and probable consequence” is clearly supported by the facts.

Connecticut General argues that, where a person voluntarily engages in an act, the natural and probable consequences of which may be injury or death, death or injury therefrom is not an accident. The types of cases cited from Alabama and Texas deal with radically different situations. Thus, if an insured knowingly places himself in a position where injury or death is likely to result, injury or death is not accidental. Examples: injury caused by being shot while committing a crime; altercation and assault upon a man known to be armed, resulting in insured’s death; resisting arrest, insured killed by the officer in self-defense. The element of reasonable foreseeability of injury or death is stressed in the applicable decisions as a prerequisite to denial of recovery. Where injury or death is not a reasonable probability, recovery is allowed.

Accidental death has been defined as the happening of “something unforeseen, unexpected, and unusual.” Conversely, if death or injury was not a reasonably foreseeable consequence of the insured’s acts, death might well be, dependent upon the facts, accidental. Here, upon the facts, the trial court found that death was not “foreseeable and that the act of cutting the wire does not have such inherent hazards in and of itself as to make him [Wallace] or make one there engaged in that act a voluntary participant in the unexpected contact with some other wire which produce[d] his [Wallace’s] death.”

Even though the proof be convincing that Wallace’s death was accidental, Connecticut General argues that the public policy of Alabama bars a recovery to an insured whose death occurred while he was committing a felony. It is true that the trial court in its opinion in dealing with what constituted accidental death noted a difference between Texas and Alabama law and said that under Alabama law “as a matter of public policy coverage may be denied or at least recovery may be denied as a matter of public policy, if the insured met his death while engaged in an unlawful act.” However, the court came to the conclusion that “the public policy in Alabama which is against the proceeds of the insurance policy being paid to some beneficiary of someone engaged in an illegal act is not so strong a public policy as to require its enforcement by a court of this forum, * * *."

Although the court suggested that an “appellate question” might be presented, it concluded that under the law of Alabama the policy “should be treated as a Texas contract and interpreted under the laws of the State of Texas” and that under Texas law the beneficiary was entitled to recover. Thus, the court

—despite its finding that “were the state laws of the State of Alabama to be applied to this, that the beneficiary would not be entitled to recover” — did not actually have to base its decision on this hypothetical assumption as to Alabama law. Accordingly, we AFFIRM the decision of the district court.

      . Opinion read into trial record at close of trial. Appendix 314, 315.

      . Opinion, App. 316, 317.

      . Wright v. Western & Southern Life Ins. Co., 443 S.W.2d 790 (Tex.Civ.App. 1969).

      . Texas Prudential Ins. Co. v. Turner, 127 S.W.2d 563 (Tex.Civ.App.1939).

      . Massachusetts Bonding & Ins. Co. v. Richardson, 27 S.W.2d 921 (Tex.Civ.App.1930).

      . Texas Prudential Ins. Co. v. Turner, supra, 127 S.W.2d at 565; Hutcherson v. Sovereign Camp, W. O. W., 112 Tex. 551, 556, 251 S.W. 491, 493 (Tex.Civ.App.1923); American Nat’l Ins. Co. v. Garrison, 97 S.W.2d 534, 536 (Tex.Civ.App.1936); Perry v. Aetna Life Ins. Co. of Conn., 380 S.W.2d 868, 877 (Tex.Civ.App.1964).

      . See cases cited in note 6, supra.

      . O’Bar v. Southern Life & Health Ins. Co., 232 Ala. 459, 461, 168 So. 580, 582 (1936).

      . 'Opinion, App. 317. In Great Am. Reserve Ins. Co. v. Sumner, 464 S.W.2d 212 (Tex.Civ.App.1971), Sumner was killed when caught in the act of adultery with the assailant’s wife. Texas had apparently decided to relieve the courts of this type of homicide by setting up certain standards by providing (Texas Penal Code, Vernon’s Ann.P.C. Article 1220) that:
      Homicide is justifiable when committed by the husband upon one taken in the act of adultery with the wife, provided the killing take place before the parties to the act have separated * * *.
      Despite this provision of the law, the Civil Court of Appeals of Texas held that a man killed by an enraged liusband under circumstances clearly within the purview of Article 1220 died “accidentally” for the purposes of an accidental death insurance policy. In so concluding the- court said:
      There is nothing in the crime of adultery * * * calculated to produce the death of the adulterer.
      464 S.W.2d at 216
      If death from wife stealing is accidental, a fortiori, so should be death from wire stealing.

      . Opinion, App. 315-16.

      . Id. at 318.

      . Id. at 312.

      . Id. at 318.


author: LEWIS R. MORGAN, Circuit Judge:

text:
    ARNOLD J. RODIN, INC., Plaintiff-Appellant, v. The ATCHISON, TOPEKA AND SANTA FE RAILWAY COMPANY, Defendant-Appellee.
    No. 72-2605.
    United States Court of Appeals, Fifth Circuit.
    April 30, 1973.

      John C. North, Jr., Corpus Christi, Tex., for plaintiff-appellant.
    Joe B. Cunningham, Fort Worth, Tex., for defendant-appellee.
    Before RIVES, GOLDBERG and MORGAN, Circuit Judges.
   LEWIS R. MORGAN, Circuit Judge:

Appellant Rodin, plaintiff below, sued the Atchison, Topeka & Santa Fe Railway Company to recover damages to 82 carloads of potatoes shipped out of Maine during May of 1968. The railroad filed a cross-action and counterclaim for freight charges. The jury found in favor of the defendant railroad on Rodin’s damage claim. The trial judge rendered a verdict for the railroad on its cross-action and counterclaim. We affirm.

Appellant Rodin was a speculator in potatoes on the New York Mercantile Exchange dealing with up to 5,000 carloads of potatoes a year. His usual practice was to purchase contracts for future delivery and sell these contracts prior to their delivery date. In fact, over the 10-year period prior to this action, Rodin had only accepted for delivery a total of 100 cars from the New York Mercantile Exchange. Rodin’s previous experience in actually selling potatoes had been limited to the Detroit, Michigan, area where he lived, but he did appear to have a certain amount of knowledge as to the effect of time and temperature on these commodities.

In early 1968, appellant Rodin purchased contracts for 1,200 carloads of Maine potatoes to be delivered on May 10, 1968. The delivery date arrived before resale of these contracts and Rodin became the owner of 1,200 carloads of potatoes located across the State of Maine. The heretofore neglected potatoes now began to receive Rodin’s careful attention.

In hopes of finding a buyer for these potatoes, Rodin began shipping them all over the Eastern Seaboard. They were shipped to the primary market areas first: Boston, New York, Cleveland, and Detroit. When there was no market there, Rodin began shipping his potatoes to other locations, including Atlanta, Georgia; Miami, Florida; Pennsylvania; New Jersey; Ohio; Illinois; Minnesota; and Texas.

Success in the potato market continually eluded Rodin and as a result 731 carloads, or 62 percent of his potatoes, could not be sold at all. For the carloads he did manage to sell he received less than $500.00 for 131 of them, between $500.00 and $1,000.00 for 132 carloads; between $1,000.00 and $1,500.00 for 180; and for three of his cars he received between $1,500.00 and $1,900.00. During the trial below Rodin asserted that the value of each of the 82 cars in question was $3,000.00. Rodin has filed damage claims in other courts against the various railroads transporting 600 to 800 of his other cars.

The action below involves 82 of 165 to 175 cars that eventually found their way to Chicago. Upon arrival in Chicago the potatoes were inspected by an employee of Rodin, Mooney Gendelman. Gendelman was hired to inspect all cars that came into Chicago belonging to Rodin. He testified at the trial that he inspected all of the 82 cars concerned when they arrived in Chicago and found them to be in poor condition. Rodin was unperturbed and his agent sought out buyers in Chicago — none were found. Finally, Northwest Railroad requested Rodin to divert his cars to another location because of their condition. When these cars finally left Chicago for Texas, 56 of the 82 had been sitting in the railroad yard for over 25 days. This was during the months of May and June.

Rodin testified below that his purpose in reconsigning the potatoes to Texas was to reconstitute them and thereby mitigate damages.

Upon arrival at Amarillo, Texas, the potatoes had no market value and were abandoned to the carrier. Rodin then brought suit for the value of these potatoes, alleging at trial that upon delivery to the originating carrier in Maine the potatoes were in good condition but upon arrival in Chicago they were in poor condition and could not be sold for an amount equal to the freight charges due at that time. Rodin further contended that had the potatoes arrived in Chicago in good condition they could have been sold with no difficulty. He. also maintains that the potatoes were reconsigned to Amarillo, Texas, in order that they be reconstituted and thereby mitigate damages. When they arrived in Texas, however, they were worthless. During the trial below it appears that the jury found that the condition of the potatoes was due to no fault on the part of the railroad, but rather was due to fault on the part of Rodin because of the various delays in shipping attributable to him, improper shipping instructions and lack of knowledge of how to deal with these commodities

This court has considered all allegations of error by appellant Rodin and finds it necessary to address only those set out below.

I.

Appellant contends that the court below erred in trying this ease and submitting it to the jury as though it were a tort action rather than a suit in contract. Appellant apparently bases this contention upon part of the trial judge’s charge to the jury which mentioned negligence as follows:

If the potatoes were in fact delivered in good condition and arrived at their destination in a worsened condition, the carriers must prove that they were not negligent in their handling of the potatoes and that the worsened condition was due solely to a combination of faults or inadequacies in the bills of lading and the transportation service requested by Rodin and to some inherent defect in the potatoes themselves. (Emphasis added).

This court following the Supreme Court in Missouri P. R. Co. v. Elmore & Stahl, 377 U.S. 134, 84 S.Ct. 1142, 12 L. Ed.2d 194 (1964), finds the trial judge’s instruction to have been proper. The Court in Elmore & Stahl stated:

[I]n an action to recover from a carrier for damage to a shipment, the shipper establishes his prima facie case when he shows delivery in good condition, arrival in damaged condition, and the amount of damages. Thereupon, the burden of proof is upon the carrier to show both that it was free from negligence and that the damage to the cargo was due to one of the excepted causes relieving the carrier of liability. (Emphasis added). Missouri P. R. Co, v. Elmore & Stahl, supra.

We find that it was in this manner that the trial judge properly instructed the jury and that no change from trying the case in contract to trying it in tort took place. See Atlantic Coast Line R. Co. v. Georgia Packing Co., 5 Cir. 1947, 164 F.2d 1, and Austin v. Seaboard Air Line R. Co., 5 Cir. 1951, 188 F.2d 239.

II.

Appellant further maintains that the district court’s charge to the jury on Special Issue No. 1 placed the burden of proof of the entire ease on the plaintiff-appellant and was, therefore, error. The judge below instructed the jury on Special Issue No. 1 as follows:

Do you find from a preponderance of the evidence that the potatoes in any of the 82 cars were in such condition on the date of the bills of lading that, based upon the instructions given by Rodin to the carriers for their transportation, and the reasonable performance of those instructions by the carriers, the potatoes would have been reasonably expected to arrive at the final destination in good merchantable condition?

This court does not find the burden of proof to have shifted. The trial judge had in previous instructions explained to the jury that when a prima facie case was shown by the plaintiff-shipper, then the burden is shifted to the carrier to show that it was free from negligence and that the damage to the cargo was due to one of the excepted causes, relieving the carrier of liability. We do not feel that these instructions as to Special Issue No. 1 had the effect of shifting the burden of proof. It appears that the judge below was complying with the Supreme Court’s decision in Elmore & Stahl. The Court there stated that the general rule in the case of perishables places the affirmative burden on the carrier of bringing the cause of damage within one of the specified exceptions. Missouri Pacific R. Co. v. Elmore & Stahl, supra, 377 U.S. at 138, 84 S.Ct. 1142. The trial judge’s instructions were intended to do just that. See Atlantic Coast Line R. Co. v. Georgia Packing Co., supra.

III.

Appellant asserts that the court below erred in admitting testimony concerning the 1,200 cars originally purchased and shipped by the plaintiff because they are not involved in this action. Rodin, however, at trial, during direct examination originally introduced evidence as to these 1,200 carloads of potatoes. Only after Rodin had mentioned this during his direct testimony did the defendant ask questions concerning these cars on cross-examination. This appears to be well within the rule concerning scope of cross-examination in use in state and federal courts today.

The appellant’s brief complains that testimony as to the value of the goods at point of origin was immaterial to this case. Appellant alleges it should not have been admitted at trial because of possible differences in freight charges and running time which could affect the actual value to the shipper at destination.

First, it does not appear to this court that at trial such information was elicited from Rodin for the purpose of determining cost comparisons as alleged by appellant. Rather, it appears that appellee attempted to demonstrate that these 82 cars were not the only cars Rodin had trouble with as he had implied in earlier testimony. Secondly, the limit of cross-examination, especially as to matters already brought forth during direct examination is well within the discretion of the trial judge. District of Columbia v. Clawans, 300 U.S. 617, 57 S.Ct. 660, 81 L.Ed. 843 (1937). Here we find no abuse of that discretion whatsoever.

IV.

Appellant further insists that the court erred in instructing the jury that the final destination of the cars was Amarillo, Texas. Appellant argues that the court thus completely deprived appellant of presenting the entire basis of its case, that is, that Chicago, Illinois, was the original destination of the 82 cars and upon arrival there in poor condition they were diverted by appellant to Amarillo in order to mitigate damages.

This contention on the part of appellant presents this court with a rather puzzling issue. If the plaintiff’s contention is accepted and the trial court is found to be in error as to its instructions that Amarillo was the final destination, then the appellant, in fact, has no case under the Carmack Amendment, 49 U.S.C. § 20(11), against this defendant railroad.

The appellant asserts that Chicago should have been considered the final destination point of the potatoes. After the potatoes arrived in Chicago the appellant’s agent inspected the potatoes and found them to be in unsatisfactory condition. At that point the appellant unquestionably had full knowledge of the defect in its goods. With that knowledge, the appellant chose to reconsign the potatoes to Amarillo. The Atchison, Topeka & Santa Fe Railway Company did not enter the picture then until after the appellant had full knowledge that his potatoes were in damaged condition. If Chicago is then considered to be the destination under the Carmack Amendment, then the record demonstrates that the railroad received damaged goods and the appellant has no case.

Under the Carmack Amendment the holder of the bill of lading is given a cause of action only against the receiving or delivering carrier. The purpose of the Carmack Amendment was to make the initial and delivering carriers responsible so that the lawful holder of a bill of lading does not have to search out a particular negligent carrier from among the often numerous carriers handling an interstate shipment of goods. The initial or delivering carrier could then recover damages from the connecting carrier on whose line the loss or damage to the property was sustained. Therefore, if the court below had taken the position that Chicago was the point of destination, then there would be no reason for the Atchison, Topeka & Santa Fe Railway Company to be party to this suit at all. The defendant railroad would then neither be the receiving, the connecting nor the delivery carrier under the Carmack Amendment.

Any contra interpretation of Carmack would allow a shipper who has discovered that his goods were damaged to shop around for a solvent carrier on which it could ship its damaged goods and later sue to recover those damages.

This court, after considering all of the allegations of the appellant as to error by the trial court below, finds that the trial court was correct and is therefore

Affirmed.

      . Rodin testified at trial that he knew that he only had 30 to 45 days to sell these potatoes before they would begin normal sprouting leading to severe damage.

      . The court feels it necessary to elaborate on what was wrong with these potatoes when they arrived in Amarillo. Maine potatoes are harvested in September and October, and once they start sprouting they must be kept at a temperature of 40 to 48 degrees or else they will sprout rapidly. The potatoes Rodin purchased were orginally classified as U.S. No. 1 by USDA inspection at their point of origin. Sprouting potatoes remain U.S. No. 1 unless more than ten percent have spouts over three-quarters of an inch long. When these potatoes arrived in Amarillo they were not U.S. No. 1 for two reasons : sprouting and soft rot (soft rot and sprouting are caused usually by the same factors, age and exposure to excessive temperature).

      . It is interesting to note that Rodin started protesting the condition of the potatoes and abandoned these potatoes before all of the carloads of potatoes had arrived in Amarillo.

      . What must be proved by a shipper to recover damages from a carrier is that the goods were delivered in good condition, that they arrived in damaged condition, and the amount of damages. The trial judge’s instruction quoted in Part I of this opinion appears sufficient to have covered the prima facie case facts in that situation.

      .. The questions and answers by Rodin and his counsel were as follows:
      Q: . . .1 will ask you if you did, in May of 1968, purchase on the New York Mercantile Exchange any cars of potatoes?
      A: Yes, sir.
      Q: Approximately how many?
      A: There were a total of a thousand— 1,200 ears.

      . The so-ealled American Rule followed in most states and in the federal courts limits the cross-examination to matters included within the scope of the direct examination. Houghton v. Jones, 1 Wall (U.S.) 702, 17 L.Ed. 503; Philadelphia & T. R. Co. v. Stimpson, 14 Pet. (U.S.) 448, 10 L.Ed. 535.
      The English rule presently used in the state courts of Texas permits a witness called by one party to be cross-examined on any issue involved in the case in chief whether it was brought up on direct examination or not. Continental Casualty Company v. Thomas, 463 S.W.2d 501 (Tex. Civ.App.1971).

      . The pertinent part of § 20(11) reads as follows:
      § 20, par. (11). Liability of initial and delivering carrier for loss; limitation of liability; notice and filing of claim. Any common carrier, railroad, or transportation company subject to the provisions of this chapter receiving property for transportation from a point in one State or Territory or the District of Columbia to a point in another State, Territory, District of Columbia, or from any point in the United States to a point in an adjacent foreign country shall issue a receipt or bill of lading therefor, and shall be liable to the lawful holder thereof for any loss, damage, or injury to such property caused by it or by any common carrier, railroad, or transportation company to which such property may be delivered or over whose line or lines such property may pass within the United States or within an adjacent foreign country when transported on a through bill of lading, and no contract, receipt, rule, regulation, or other limitation of any character whatsoever shall exempt such common carrier, railroad, or transportation company from the liability imposed; and any sueli common carrier, railroad, or transportation company so receiving property for transportation from a point in one State, Territory, or the District of Columbia, to a point in another State or Territory, or from a point in a State or Territory to a point in the District of Columbia, or from any point in the United States to a point in the District of Columbia, or from any point in the United States to a point in an adjacent foreign country, or for transportation wholly within a Territory, or any common carrier, railroad or, transportation company delivering said property so received and transported shall be liable to the lawful holder of said receipt or bill of lading or to any party entitled to recover thereon, whether such receipt or bill of lading has been issued or not, for the full actual loss, damage, or injury to such property caused by it or by such common carrier, railroad, or transportation company to which such property may be delivered, or over whose line or lines such property may pass within the United States or within an adjacent foreign country when transported on a through bill of lading, notwithstanding any limitation of liability or limitation of the amount of recovery or representation or agreement as to value in any sueli receipt or bill of lading, or in any contract, rule, regulation, or in any tariff filed with the Interstate Commerce Commission; and any such limitation, without respect to the manner or form in which it is sought to be made is declared to be unlawful and void. .