author: FEINBERG, Circuit Judge:

text:
    Otis CLAY, Plaintiff-Appellant, v. Doctor William R. MARTIN et al. and The United States Surgeon General et al. and The United States Defendants-Appellees.
    No. 149, Docket 74-1507.
    United States Court of Appeals, Second Circuit.
    Argued Dec. 9, 1974.
    Decided Jan. 20, 1975.

      Carl O. Callender, New York City (Community Law Offices, Arthur Helton, law student, on the brief), for plaintiff-appellant.
    William S. Brandt, Asst. U. S. Atty. (Paul J. Curran, U. S. Atty., S. D. N. Y., Gerald A. Rosenberg, Asst. U. S. Atty., on the brief), for defendants-appellees.
    Before FEINBERG and MULLIGAN, Circuit Judges, and BRYAN, District Judge.

       Of the United States District Court for the Southern District of New York, sitting by designation.

   FEINBERG, Circuit Judge:

This seemingly simple case raises at its core grave issues about medical experiments performed on prisoners. In 1971, Otis Clay brought a pro se action in the United States District Court for the Southern District of New York against three doctors employed by the Public Health Service, three high United States Government officials and the United States Government, claiming “inhumane treatment” while Clay was a federal prisoner and demanding $2,000,-000 damages. The pro se complaint, read liberally, alleges the following: In 1970, Clay participated in a program of drug experimentation conducted by defendants at the Addiction Research Center, a laboratory of the National Institute of Mental Health in Lexington, Kentucky; plaintiff was injected with Naltrexone, a drug thought to prevent narcotics from exerting euphoric and dependency effects; this drug was known by the supervising doctor to be dangerous; plaintiff consented because the doctor assured him that the dosage involved would be too small to cause harm; as a result plaintiff suffered a serious heart attack. In August 1971, the United States Attorney for the Southern District of New York answered Clay’s complaint on behalf of all defendants.

Some two years later, plaintiff obtained his present lawyer and served interrogatories upon defendants. In the ensuing months these were answered or objected to, but in November 1973, after plaintiff’s attorney missed a pre-trial conference, the district court dismissed the action for lack of prosecution. When plaintiff’s attorney claimed that he had not been notified of the conference, the court granted his motion to restore the case to the civil docket but imposed two conditions. These were that plaintiff’s counsel file by specified times a notice of appearance and “an amended complaint containing a short, concise statement of plaintiff’s claim.” Although the first amended complaint was filed a few days beyond the time called for, these two conditions were met by January 1974. All named defendants again answered, and pleaded ten affirmative defenses.

Apparently prompted by some of the affirmative defenses in the Government’s answer, plaintiff moved in February 1974 for permission to file a second amended complaint. Defendants refused to agree to further amendment of the complaint. In addition, although an answer had already been filed, defendants moved for dismissal of the first amended complaint on the ground that the court’s order restoring the case to the docket had not been obeyed. In March 1974, Judge Sylvester J. Ryar. granted defendants’ motion to dismiss and denied plaintiff’s motion for leave tc amend. The basis of the order of dismissal was that:

All of plaintiff’s complaints are defective as to venue, subject matter, jurisdiction and improper parties as defendants.

Plaintiff appeals from these rulings.

Plaintiff’s original pro se complaint was, of course, inartistically drafted bu't alleged enough, if true, to cause serious concern. Haines v. Kerner, 404 U.S. 519, 92 S.Ct. 594, 30 L.Ed.2d 652 (1972); Williams v. Vincent, 508 F.2d 541, 544 (2d Cir. Dec. 30, 1974). In considering both the pro se complaint and the first amended complaint, the question must be whether “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 5. Ct. 99, 102, 2 L.Ed.2d 80 (1957); Williams v. Vincent, supra. Both complaints alleged a callous disregard for the safety of human subjects in medical experimentation, a problem which has drawn increasing public and governmental attention. For example, the National Research Act, signed into law in July 1974, created a National Commission for the Protection of Human Subjects of Biomedical and Behavioral Research. The legislative history of the Act indicates that it was passed in reaction to reports of abuses similar to those alleged here. There was testimony about “experimental surgery, prison research, university-centered research abuses, the Tuskegee Syphilis Study, genetic manipulation,” and so forth. U.S.Code Cong. & Admin.News, supra, note 6, at 2168 (Sen.Rep.No.93-381). Of particular concern to the drafters was that a subject’s consent be based on full disclosure, free of any form of coercion. Id. at 2175. In view of these expressions of public policy, a court should not be quick to dismiss on pleading technicalities an action involving experimentation on humans.

Keeping these considerations in mind, we turn to the record before us. The stated reason for dismissing the first amended complaint was that it was “defective as to venue, subject matter, jurisdiction and improper parties.” Dismissal for improper venue was wrong. The proposed second amended complaint was already before the court, and it showed that plaintiff resided in New York City. Even if this document could be ignored — and we believe that doing so would be hypertechnical — proper venue need not appear on the face of the complaint. 2A J. Moore, Federal Practice 111 8.06 [4] at 1631, 8.08 at 1645 (2d ed.. 1948). The judge’s reference to “subject matter, jurisdiction” is unclear. If “jurisdiction” referred to personal jurisdiction over the defendants, dismissal was not justified. At that stage of the proceeding, it should have been assumed that jurisdiction over the individual doctors had been properly obtained, particularly since answers on behalf of all the doctors had been filed as long ago as August 1971. It is possible, as plaintiff points out, that the comma in the phrase “subject matter, jurisdiction” is a typographical error and that dismissal was based on lack of- subject matter jurisdiction. Assuming that to be so, the order was nevertheless improper. The first amended complaint does clearly allege at least an action based upon diversity jurisdiction against one or more of the individual doctors for negligence, malpractice and misrepresentation and alleges an action against the United States for negligence under the Federal Tort Claims Act. Finally, the presence of “improper parties” was also an invalid basis for dismissal of the complaint. Misjoinder, if any, does not justify such an extreme sanction. Fed.R.Civ.P. 21. Accordingly, we believe that dismissal of the first amended complaint was improper.

We turn now to the refusal to allow filing of the second amended complaint. It has long and properly been the rule in the federal courts that leave to amend should be freely given in the absence of any undue delay or prejudice to the opposing party. Fed.R.Civ.P. 15(a); Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962); 3 J. Moore, Federal Practice K 15.08 [4] at 895 — 96 (2d ed. 1948). The amendments contained in plaintiff’s proposed second amended complaint were not unduly delayed and clearly would not cause defendants undue prejudice; indeed, defendants so admitted before the trial court. The amendments changed the allegations of state citizenship of the defendant doctors, furnished the names of the Attorney General, the Acting Surgeon General and the Director of the Bureau of Prisons, stated plaintiff’s residence in New York City as the basis for venue, changed the place of the alleged wrong from a prison to the Addiction Research Center, further specified the details of the administration of the drug and stated that plaintiff had presented a claim in writing to defendants which had been denied in writing. Only the last, which was based upon the requirements of 28 U.S.C. §§ 2401(b), 2675(a), was a truly new substantive allegation. The Government, in its brief on appeal, discusses several hypothetical possibilities in an attempt to prove that the complaint cannot possibly state a cause of action. At best, its argument shows that some defendants are not properly in the action. The second amended complaint, even more clearly than the first, alleges an action against the United States for negligence under the Federal Tort Claims Act, and an action against one or more of the individual doctors for negligence, malpractice and misrepresentation. Perhaps the claim of misrepresentation against the doctors alleges an intentional tort that could not form the basis of a suit against the United States under the Act, 28 U.S.C. § 2680(h), but it is more likely pleaded to vitiate the so-called consent defense relied upon by the defendants. Even if misrepresentation is used to allege an intentional tort by the doctors, there is nothing improper in pleading inconsistent causes of action. Fed.R.Civ.P. 8(e).

We recognize that this case presents a number of knotty issues, some legal and some factual, e. g., whether there was a true “informed consent” by Clay to the experiment; whether 42 U.S.C. § 238(a) protects these Public Health doctors against tort actions for injuries inflicted before its effective date, and whether, if so, the doctors were acting within the scope of their employment. But these are questions that should first be raised in the district court on an adequate record and at an appropriate time. Of course, we do not suggest that the allegations in plaintiff’s complaints are necessarily true. We hold only that on the record before us he should be given the opportunity to proceed with his case.

Judgment reversed with directions to reinstate the complaint and allow the proposed amended complaint to be filed.

      . These were Dr. William R. Martin, Dr. Peter A. Mansky and Dr. Donald R. Jasinski.

      . These were the Surgeon General, the Attorney General and the Director of the Bureau of Prisons.

      . The Government has tried to characterize this as a third amended complaint; in reality it was only the second amended complaint. What the Government would call the first amended complaint was a document titled “Complaint,” which the clerk of the court would not accept until it was retitled “Amended Complaint.” The Government labels these two documents the first and second amended complaint. We consider them as one and call it the first amended complaint.

      . The reference to “Ail of plaintiff’s complaints” apparently meant the pro se complaint, the “Complaint” and the “Amended Complaint.” As explained in note 3 supra, the last two were one (the first amended complaint). The Government’s overly technical insistence upon calling the “Complaint” and the “Amended Complaint” the first and second amended complaints, when in reality they were virtually identical, may have led the district judge to believe that there had been an extra amended complaint filed. In truth there had been only one complaint filed' by an attorney, and one other awaiting leave to be filed, which was denied.

      . Comment, Medical and Psychological Experimentation on California Prisoners, 7 Univ. of Cal.Davis L.Rev. 351 (1974); Capron, Medical Research in Prisons, 3 Hastings Center Report 4 (June 1973); Bowers, Prisoners’ Rights in Prison Medical Experimentation Programs, 6 Clearing. Rev. 319 (1972); Ratnoff & Smith, Human Laboratory Animals: Martyrs for Medicine, 36 Ford.L.Rev. 673 (1968); Fletcher, Human Experimentation: Ethics in the Consent Situation, 32 Law & Contemp.Prob. 620 (1967); Freund, Is the Law Ready for Human Experimentation?, 2 Trial 46 (Oct./Nov. 1966).
      A recent case that contained allegations and issues somewhat similar to this one is Mackey v. Procunier, 477 F.2d 877 (9th Cir. 1973). See also Hyman v. Jewish Chronic Disease Hosp., 42 Misc.2d 427, 248 N.Y.S.2d 245 (Sup. Ct.), rev’d, 21 A.D.2d 495, 251 N.Y.S.2d 818 (2d Dep’t 1964), rev’d, 15 N.Y.2d 317, 258 N.Y.S.2d 397, 206 N.E.2d 338 (1965). The doctors involved in the Hyman case, who had injected live cancer cells into patients without their consent, were later disciplined by the New York Board of Regents. Ratnoff & Smith, supra, at 687.

      . Section 202(a)(1)(A) of the Act (Pub.L.No. 93-348; 88 Stat. 342) instructs the Commission to:
      (i) conduct a comprehensive investigation and study to identify the basic ethical principles which should underlie the conduct of biomedical and behavioral research involving human subjects, (ii) develop guidelines which should be followed in such research to assure that it is conducted in accordance with such principles, and (iii) make recommendations to the Secretary [of Health, Education, and Welfare] (I) for such administrative action as may be appropriate to apply such guidelines to biomedical and behavioral research conducted or supported under programs administered by the SecreT tary, and (II) concerning any other matter pertaining to the protection of human subjects of biomedical and behavioral research.
      U.S.Code Cong. & Admin.News, 93d Cong., 2d Sess., Pamph. No. 7, p. 1781. Section 202(a)(2) of the Act directs the Commission to “identify the requirements for informed consent to participation” in medical research experiments by “children, prisoners and institutionalized mentally infirm.” Id. at 1782.
      The Commission has been given two years • to complete its duties. Section 211 of the Act provides, however, that at about the time the Commission is disbanded a National Advisory Council for the Protection of Subjects of Biomedical and Behavioral Research will be created. The Council will have responsibilities of an ongoing nature similar to those of the Commission. Id. at 1785. Thus, it appears that Congress has provided for a permanent watchdog over medical experiments conducted on human beings. See Culliton, National Research Training Act: Restores Training, Bans Fetal Research, 4 Hastings Center Report 12 (Sept. 1974).

      . Appellant’s brief at 5.

      . This “consent” is pleaded as the second affirmative defense in defendants’ answer to the first amended complaint.

      . This section provides:
      The remedy against the United States provided by sections 1346(b) and 2672 of Title 28, or by alternative benefits provided by the United States where the availability of such benefits precludes a remedy under section 1346(b) of Title 28, for damage for personal injury, including death, resulting from the performance of medical, surgical, dental, or related functions, including the conduct of clinical studies or investigation, by any commissioned officer or employee of the Public Health Service while acting within the scope of his office or employment, shall be exclusive of any other civil action or proceeding by reason of the same subject-matter against the officer or employee (or his estate) whose act or omission gave rise to the claim.


source: Caselaw Access Project

author: MANSFIELD, Circuit Judge:

license: Public Domain

text:
    H. PERINE, Plaintiff-Appellant, v. WILLIAM NORTON & COMPANY, INC., et al., Defendants, William Norton & Company, Inc., Defendant-Respondent.
    No. 128, Docket 74-1573.
    United States Court of Appeals, Second Circuit.
    Argued Oct. 4, 1974.
    Decided Dec. 20, 1974.

      Stanley L. Kaufman, New York City (Allan K. Peckel, Kaufman, Taylor, Kimmel & Miller, New York City, of counsel), for plaintiff-appellant.
    Donald A. Derfner, New York City (Robert Bartels, Richard M. Kraver, Feldshuh & Frank, New York City, of counsel), for defendant-respondent.
    Lawrence E. Nerheim, Gen. Counsel, S.E.C., Washington, D. C. (Walter P. North, Senior Asst. Gen. Counsel, Jacob H. Stillman, Asst. Gen. Counsel, Theodore L. Freedman, Atty., S.E.C., Washington, D. C., of counsel), for amicus curiae Securities and Exchange Commission.
    Before HAYS, ANDERSON and MANSFIELD, Circuit Judges.
   MANSFIELD, Circuit Judge:

Invoking § 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78p(b) commonly known as the “short swing profits” provision, H. Perine, a stockholder of Designcraft Jewel Industries, Inc. (“Designcraft”), brought this stockholder’s derivative action against William Norton & Company, Inc. (“Norton”), a broker-dealer in securities, to recover the profits earned by it in its underwriting of the distribution within six months of 250,000 shares of Designcraft’s common' stock, which represented more than 10% of the latter’s issued and outstanding common shares. Prior to the underwriting Norton was not an insider of Design-craft (i. e., an officer, director, or beneficial owner of more than 10% of Design-craft’s stock). The district court, in an opinion by Judge Ward reported at 372 F.Supp. 341 (S.D.N.Y.1974), held that while § 16(b) is applicable to the underwriting transaction, Rule 16b-2, 17 C.F.R. § 240.16b-2, provides an exemption from the application of the statute in these circumstances. We affirm in part and remand.

On May 23, 1972, Designcraft made a public offering of 300,000 shares of its common stock. The total outstanding common stock of Designcraft, including the 300,000 newly issued shares, was then 817,500 shares. Norton was co-underwriter of the public offering, distributing 250,000 shares itself. The underwriting was made on a firm-commitment basis requiring Norton to buy the shares from Designcraft and resell them to the public, a process completed within a few days. At all material times Designcraft was registered pursuant to § 12(g) of the Securities Exchange Act of 1934. 15 U.S.C. § 787(g), with the Securities and Exchange Commission as a company the shares of which are traded over-the-counter so that § 16(b) was applicable to Designcraft’s common stock. There was no relevant connection between Norton and Designcraft before the underwriting transaction took place.

Perine contends that by buying and then selling within a few days more than 10% of Designcraft’s outstanding common shares in the course of the underwriting, Norton became an insider of Designcraft and subject to suit for recovery of profits under § 16(b). That section allows recovery by the issuer of profits realized by insiders (officers, directors, or beneficial owners of more than 10% of the issuer’s equity securities at the time of both purchase and sale) from the purchase and sale of any equity security of the issuer within any period of less than six months. As Norton was not an insider before undertaking the distribution, Perine relies principally on Stella v. Graham-Paige Motors, 232 F.2d 299 (2d Cir.), cert. denied, 352 U.S. 831, 77 S.Ct. 46, 1 L.Ed.2d 52 (1956), which held that, upon making a purchase of securities which brings his holdings above the 10% level, the purchaser becomes an insider subject to liability under § 16(b).

Perine further argues that Norton is not exempted from § 16(b) liability by Rule 16b-2, which exempts purchases and sales made in connection with the distribution of a substantial block of securities, provided three specified conditions are met. It is claimed that the third condition (clause (a)(3)) of the rule was not met here.

Norton denies that § 16(b) is applicable to this underwriting transaction. It also contends that in these circumstances it is not in any event required to satisfy the third condition of Rule 16b-2 and that since it has satisfied both of the other conditions the distribution pursuant to the underwriting is exempted by that rule.

DISCUSSION

Section 16(b) is a remedial statute designed to prevent a corporate insider from profiting through speculation in the stock of a publicly traded corporation with which he is connected by unfairly using information available to him as an insider. See Reliance Electric Co. v. Emerson Electric Co., 404 U.S. 418, 92 S.Ct. 596, 30 L.Ed.2d 575 (1972); Blau v. Max Factor & Co., 342 F.2d 304 (9th Cir. 1965); Adler v. Klawans, 267 F.2d 840 (2d Cir. 1959). Making administration of the statutory scheme simple, Congress adopted a prophylactic measure which permits recovery by the corporation of the profits from a class of insider transactions in which “the possibility of abuse was believed [by Congress] to be intolerably great”, i. e., purchases and sales by an insider within six months, Reliance Electric Co. v. Emerson Electric Co., supra, 404 U.S. at 422, 92 S.Ct. at 599, “without proof of actual abuse of insider information, and without proof of intent to profit on the basis of such information”, Kern County Land Co. v. Occidental Petroleum Corp., 411 U.S. 582, 595, 93 S.Ct. 1736, 1745, 36 L.Ed.2d 503 (1973).

As its first line of defense Norton contends that, in the conceded absence of a prior insider relationship between it and the issuer, § 16(b) does not apply to the underwriting in the present case, which was a traditional firm-commitment distribution of a substantial block of securities in which it acted as a mere conduit. Without the possibility of its having had prior access to inside information, it argues, the distribution did not present the potential for abuse that is inherent in short-term transactions by insiders. See Kern County Land Co. v. Occidental Petroleum Corp., supra, 411 U.S. at 594-595.

Were it not for the plain language of § 16(b) and the established policy in favor of mechanical application of that language, see Reliance Electric Co. v. Emerson Electric Co., supra, Norton’s argument might be persuasive. But § 16(b) provides in sweeping and unequivocal terms that “any profit realized by [such beneficial owner] from any purchase and sale ... of any equity security of such issuer . . . within any period of less than six months . shall ... be recoverable by the issuer, irrespective of any intention on the part of such beneficial owner . in entering into such transaction . ..” (emphasis supplied). In Stella v. Graham-Paige Motors, supra, for example, the purchaser’s acquisition of more than 10% of the issuer’s outstanding shares rendered it a “beneficial owner” within the meaning of § 16(a), subjecting it to liability under § 16(b) for profits upon a sale within six months.

Applying the plain language of the rule as thus interpreted, Norton became an insider when it purchased more than 10% of Designcraft’s stock. It then sold the shares within the statutory six-month period. Thus there is a clearly sufficient basis for invoking § 16(b). See Newmark v. RKO General, Inc., 425 F.2d 348, 354-356 (2d Cir.), cert. denied, 400 U.S. 854, 91 S.Ct. 64, 27 L.Ed.2d 91 (1970). Nothing by way of legislative history or other authority has been cited to support the view that the statute was not designed to apply to underwriting transactions at all. On the contrary, Congress appears to have assumed that the statute would have broad coverage by expressly authorizing the S.E.C., in anticipation that such a strict and categorical prohibition might work harsh results in certain situations, to adopt rules and regulations exempting from its operation any transactions which the S.E.C. might consider to be “not comprehended within the purpose of this subsection.” Pursuant to this authority the S.E.C. has adopted Rule 16b-2 to exempt certain transactions. If Norton’s distribution of Designcraft common stock as underwriter is to be excluded from the application of § 16(b), therefore, it must be by exemption under this rule rather than by a restrictive interpretation of the language of § 16(b) itself.

Rule 16b-2 exempts any transaction “which is effected in connection with the distribution of a substantial block of securities,” provided three conditions are met: (1) that the underwriter be in the business of distributing securities and engaged in good faith in the distribution in question; (2) that the securities be acquired by the underwriter from or through the issuer with a view to distribution thereof; and (3) that

“Other persons not within the purview of section 16(b) of the Act are participating in the distribution of such block of securities on terms at least as favorable as those on which [the person seeking the exemption] is participating and to an extent at least equal to the aggregate participation of all persons exempted from the provisions of section 16(b) of the Act by this [rule].”

Until the S.E.C., at the court’s request, filed an amicus brief upon this appeal, raising a question as to Norton’s compliance with the first of the above conditions (which we discuss below), Perine, not disputing Norton’s satisfaction of the first two conditions, based its appeal solely upon Norton’s failure to comply with the third (clause (a)(3)). Accordingly we turn first to the issue raised with respect to the third condition, which we have quoted above, since resolution of that issue in Perine’s favor would be dis-positive of the case.

There can be little question about the fact that, if clause (a)(3) of Rule 16b-2 applied to Norton’s underwriting of Designcraft’s securities issue, Norton would not qualify for an exemption from § 16(b) liability for its underwriting profits. Assuming that pursuant to our holding in Stella Norton became an insider when it purchased more than 10% of Designcraft’s common stock, Norton would be required, in order to obtain the exemption, to arrange for a group of noninsider underwriters collectively to distribute an equal percentage of Designcraft’s securities on the same terms that it enjoyed (so that no one underwriter would handle more than 10% of Designcraft’s outstanding common shares). Norton contends, however, that, while a literal reading of clause (a)(3) would appear to preclude its qualifying for an exemption, the clause was intended to apply only to an underwriter who was an insider of the issuer before the underwriting transaction. Under such an interpretation Norton would satisfy clause (a)(3), since there is no contention that it was in any way connected with Designcraft before the distribution.

The question, therefore, is whether we should confine ourselves to the literal language of Rule 16b-2(aX3) or be guided by Learned Hand’s observation that “it is commonplace that a literal interpretation of the words of a statute is not always a safe guide to its meaning,” Peter Pan Fabrics, Inc. v. Martin Weiner Corp., 274 F.2d 487, 489 (2d Cir. 1960). We prefer to look behind the language of the rule to the drafter’s purpose. “There is no surer guide in the interpretation of a statute than its purpose when that is sufficiently disclosed; nor any surer mark of over solicitude for the letter than to wince at carrying out that purpose because the words used do not formally quite match with it.” Federal Deposit Ins. Corp. v. Tremaine, 133 F.2d 827, 830 (2d Cir. 1943) (L. Hand, C. J.).

In order to understand the full meaning of the third clause of the rule, it is necessary to examine its antecedents. The rule was originally promulgated by the S.E.C. in 1935 as Rule NB2. At that time the third condition of the rule provided:

“If the person effecting such transaction is either (1) an officer or director of the issuer, (2) a firm of which such officer or director is a partner, or (3) a corporation or other person in respect of which such officer or director is an officer, director or beneficial owner, directly or indirectly, of more than 10 per cent of any class of equity security,- then other persons who are not specified in clauses (1), (2) or (3), of this paragraph (c) must have participated in the purchase of such security (or other securities of the same issue) with a view to the distribution thereof, on terms identical with those on which such specified persons have participated and to an extent at least equal to the aggregate participation of all such specified persons.”

Since the phrasing of the paragraph was conditional, only persons specified in (1), (2) or (3) were required to meet the .equal-participation requirement, i. e., those who were preexisting insiders at the time of the underwriting. A person whose insider status arose solely from the underwriting itself, i. e., from his distribution of more than 10% of the issuer’s securities, was not required to fulfill the sharing provisions of the rule and thus received the exemption if he satisfied only the first two conditions thereof. This formulation was retained in all amendments of the rule made until 1952. Thus until the 1952 amendments an underwriter that distributed more than 10% (or any amount) of the outstanding securities of the issuer was not required to satisfy the third condition unless he was an officer or director of the issuer or a partnership or corporation affiliated or connected with an officer or director of the issuer.

In 1952 the rule was amended again in several respects, the only change relevant here being in clause (a)(3). At that time the conditional language of the third section was eliminated and replaced by the simpler language found in that section as it now stands (quoted above on page 8), which, literally read, appears to impose a blanket requirement upon all underwriters regardless of their pre-underwriting status. Unfortunately none of the press releases connected with the 1952 amendments mention or explain the change in the wording of the third condition. Naturally enough, Periné argues that the 1952 amendment was designed to work a substantive change in the rule, whereas Norton urges with equal fervor that it was merely intended to simplify the language without changing the content. Both point to different portions of earlier versions of the rule and to statements by the S.E.C. from time to time, as indications that the history and evolution of the rule lend support to their respective positions.

Were we left without further light on the subject we might, because of ambiguities and past apparently contradictory statements by the S.E.C. regarding the rule, conclude that the background is too unclear to assist us to decide whether a substantive change was intended, forcing us to rely solely upon the plain meaning of the amended language. However, we fortunately have the benefit of the views of the S.E.C., the author of the 1952 change, as to its purpose. In an amicus brief filed at the court’s request the Commission states:

“[W]e believe that the 1952 amendment to clause (a)(3) was not intended to have the substantive effect of changing the scope of that clause. Rather, it apparently was intended to simplify the rather cumbersome language of the previous formulation of clause (a)(3). For if the Commission had intended to affect the meaning of clause (a)(3), that intention would presumably have been reflected in the accompanying releases.”

The interpretation of a regulation or statute by a regulatory agency that is charged with administering it is given considerable deference by federal courts, see Griggs v. Duke Power Co., 401 U.S. 424, 91 S.Ct. 849, 28 L.Ed.2d 158 (1971); Udall v. Tallman, 380 U.S. 1, 85 S.Ct. 792, 13 L.Ed.2d 616 (1965); Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 65 S.Ct. 1215, 89 L.Ed. 1700 (1945), so long as it is not clearly unnatural or unreasonable. Such deference is usually justified on the basis of the agency’s superior expertise in the area of its authority. See, e. g., Allen M. Campbell Co. General Contractors, Inc. v. Lloyd Wood Construction Co., 446 F.2d 261, 265 (5th Cir. 1971). In this case we are persuaded that the Commission’s interpretation of its regulation and of the 1952 amendments thereto, although informal, should be given considerable weight. The S.E.C. is charged with supervising the enforcement and application of the nation’s federal securities laws, e. g., 15 U.S.C. §§ 77s, 78u and 78w, and is thus uniquely suited to determine what interpretation of its rule best effectuates the purposes of § 16(b) and of the other securities statutes.

As the S.E.C. notes, there are sound policy reasons for holding that the 1952 amendment did not make a substantive change in clause (a)(3). That clause is designed to prevent insider underwriters from obtaining an unfair advantage over others or a preferential position in a distribution by virtue of their inside position. Unlike the pre-existing insider, an unrelated underwriter is not in a position to use his inside position in trading activities before the distribution or to obtain a preferential position in the underwriting. Other provisions of the securities laws provide adequate protection against the underwriter’s misuse of information obtained as a result of the underwriting relationship itself. See In the Matter of Investors Management Co., Inc., Securities Exchange Act Release No. 9267 (1971).

For these reasons we conclude that an underwriter who purchases and sells more than 10% of an issuer’s shares in the course of a firm-commitment underwriting, and who is not otherwise an insider of the issuer under § 16(b), is not required to satisfy the condition of clause (a)(3) of Rule 16b-2 in order to qualify for an exemption from § 16(b) liability under that rule.

Were the record limited to that before the district court we would affirm its order without qualification. However, our attention has been called by Perine and the S.E.C. to the latter’s institution on April 2, 1974, of an administrative proceeding, presently pending, in which the S.E.C. has alleged that Norton used the Designcraft underwriting as a vehicle for manipulating Designcraft stock. See In the Matter of William Norton & Company, Inc., Adm. Proceeding File No. 3-4466. In view of Perine’s allegation, made for the first time on this appeal, that that proceeding will establish that Norton did not participate in the Design-craft underwriting in good faith as required by clause (a)(1) of Rule 16b-2, and the S.E.C.’s statement that the administrative proceeding is based on charges that Norton did not participate in good faith, we remand the case to the district court for the purpose of resolving the question of whether the distribution in question was precluded from exemption by reason of Norton’s noncompliance with clause (a)(1) of Rule 16b — 2. Our remand, of course, does not imply any views on our part regarding the merits of the allegations of noncompliance.

      . Section 16(b) provides:
      “(b) For the purpose of preventing the unfair use of information which may have been obtained by such beneficial owner, director, or officer by reason of his relationship to the issuer, any profit realized by him from any purchase and sale, or any sale and purchase, of any equity security of such issuer (other than an exempted security) within any period of less than six months, unless such security was acquired in good faith in connection with a debt previously contracted, shall inure to and be recoverable by the issuer, irrespective of any intention on the part of such beneficial owner, director, or officer in entering into such transaction of holding the security purchased or of not repurchasing the security sold for a period exceeding six months. Suit to recover such profit may be instituted at law or in equity in any court of competent jurisdiction by the issuer, or by the owner of any security of the issuer in the name and in behalf of the issuer if the issuer shall fail or refuse to bring such suit within sixty days after request or shall fail diligently to prosecute the same thereafter; but no such suit shall be brought more than two years after the date such profit was realized. This subsection shall not be construed to cover any transaction where such beneficial owner was not such both at the time of the purchase and sale, or the sale and purchase, of the security involved, or any transaction or transactions which the Commission by rules and regulations may exempt as not comprehended within the purpose of this subsection.”

      . Rule 16b-2, 17 C.F.R. § 240.16b-2(a), provides;
      “(a) Any transaction of purchase and sale, or sale and purchase, of a security which is effected in connection with the distribution of a substantial block of securities shall be exempt from the provisions of section 16(b) of the Act, to the extent specified in this [rule], as not comprehended within the purpose of said section, upon the following conditions:
      “(1) The person effecting the transaction is engaged in the business of distributing securities and is participating in good faith, in the ordinary course of such business, in the distribution of such block of securities;
      “(2) The security involved in the transaction is (i) a part of such block of securities and is acquired by the person effecting the transaction, with a view to the distribution thereof, from the issuer or other person on whose behalf such securities are being distributed or from a person who is participating in good faith in the distribution of such block of securities, or (ii) a security purchased in good faith by or for the account of the person effecting the transaction for the purpose of stabilizing the market price of securities of the class being distributed or to cover an over-allotment or other short position created in connection with such distribution; and
      “(3) Other persons not within the purview of section 16(b) of the Act are participating in the distribution of such block of securities on terms at least as favorable as those on which such person is particpating and to an extent at least equal to the aggregate participation of all persons exempted from the provisions of section 16(b) of the Act by this [rule]. However, the performance of the functions of manager of a distributing group and the receipt of a bona fide payment for performing such functions shall not preclude an exemption which would otherwise be available under this [rule].”

      . 17 C.F.R. § 240.16b-2(a)(3) (1974).

      . Securities Exchange Act Release No. 535 (Class A) (1936).

      . See id.; Securities Exchange Act Release No. 1080 (1937); Securities Exchange Act Release No. 3907 (1947).

      . See Securities Exchange Act Release No. 4754 (1952).

      . See id.; Securities Exchange Act Release No. 4719 (1952) (proposed amendment).

      . See Securities Exchange Act Release No. 3907 (1947).


author: PER CURIAM:.

text:
    Frank T. JOHNSON, Petitioner-Appellant, v. C. Murray HENDERSON, Warden, Louisiana State Penitentiary, Respondent-Appellee.
    No. 74-3198
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    March 7, 1975.
    Rehearing Denied March 27, 1975.

      Frank T. Johnson, pro se.
    William J. Guste, Jr., Atty. Gen., Baton Rouge, La., Barbara B. Rutledge, Asst. Atty. Gen., John Baker, Joseph B. Tosterud, Jr., Asst. Dist. Attys., New Orleans, La., for respondent-appellee.
    Before BELL, SIMPSON and MORGAN, Circuit Judges.

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

   PER CURIAM:.

Appellant, a male Louisiana state prisoner, sought federal habeas relief on-the contention that the Louisiana statute governing service by females on its juries was unconstitutional. His contention has now been sustained, Taylor v. Louisiana, 419 U.S. 522, 95 S.Ct. 692, 42 L.Ed.2d 690, (1975), but to no avail to: him since the ruling has been given pro-, spective application only. Daniel v. Louisiana, 420 U.S. 31, 95 S.Ct. 704, 42 L.Ed.2d 790, (1975). In addition, there is no - merit in the further contention of ineffective counsel. i

We cannot pass on the additional assignment of error that there was no evidence to sustain the verdict of guilty. Cf. Thompson v. Louisville, 1960, 362 U.S. 199, 80 S.Ct. 624, 4 L.Ed.2d 654; Garner v. Louisiana, 1961, 368 U.S. 157, 82 S.Ct. 248, 7 L.Ed.2d 207. The trial' transcript is not a part of the record before us. Whether it was ever before the district court is problematical. This argument must be considered in the district court on the state trial record or on a record made in an evidentiary hearing in the district court.

Affirmed in part; vacated and remanded in part with direction.


author: SNEED, Circuit Judge:

text:
    UNITED STATES of America, Appellee, v. Morris LEAL, Appellant.
    No. 74-1655.
    United States Court of Appeals, Ninth Circuit.
    Jan. 6, 1975.

      Fred E. Bordallo (argued), of Bordallo & Lujan, Agana, Guam, for appellant.
    Duane K. Craske, U. S. Atty. (argued), Agana, Guam, for appellee.

      Before KOELSCH and SNEED, Circuit Judges, and FIRTH , District Judge.

       Honorable Robert Firth, United States District Judge, Central District of California, sitting by designation.

   OPINION

SNEED, Circuit Judge:

Appellant was convicted of the crime of importing heroin into the United States, 21 U.S.C. § 952(a) and of attempting to possess heroin with intent to distribute, 21 U.S.C. § 841(a). He was acquitted of a charge of conspiracy to import heroin, and Joseph Gumataotao, a co-defendant, was acquitted on all counts. On appeal appellant argues that the government failed to prove him guilty beyond a reasonable doubt and that the trial court erred in admitting into evidence two exhibits offered by the government. We affirm the conviction.

I.

Facts

On October 1, 1973, during a routine inspection of packages coming from abroad, an inspector at the Agana, Guam, post office noticed a package with the return address of Mark Swegler, Park Hotel, Hong Kong. The package was addressed to Doris Bautista, Dedeo Village, General Delivery, Agana, Guam 96910. While inspecting baggage at the Guam International Air Terminal the previous night, the inspector had found a Mark Swegler bringing heroin into the country. Therefore, she opened the package and discovered inside, inter alia, white powder subsequently determined to be heroin. Among the rest of the packages in the post office was another with the same return address which was addressed to Joseph Gumataotao, P.O. Box 1121, Agana, Guam, U.S.A. 96910.

The second package also contained white powder subsequently determined to be heroin. The heroin, which was concealed in a can of baby powder, was replaced with flour and the package was sprinkled with fluorescent powder before it was delivered to Gumataotao, who claimed it at the post office on October 5, 1973. After picking up the package, Gumataotao placed it inside a white Datsun in which appellant had been waiting and the two drove away. Later that day they were arrested and the car was seized. Upon examination, fluorescent powder was discovered on the hands of appellant and Gumataotao and inside their vehicle.

At trial, over defense objection, the government introduced the two disputed exhibits, 21 and 22. The former consists of a letter from A. V. Shaw, the assistant director of the Hong Kong Immigration Service, certifying the movements of appellant and his wife in Hong Kong on September 20 and 21, 1973, together with photostatic copies of their arrival and departure cards. Exhibit 22 consists of the affidavit of Henry H. L. Chan, the assistant manager of the Park Hotel, Hong Kong, to which are attached the original hotel registration card and telephone booking orders of appellant and his wife, and the affidavit of Robert J. Furey, Special Agent of the Drug Enforcement Administration of the Department of Justice.

II.

Sufficiency of the Evidence

Appellant moved twice for a judgment of acquittal under Rule 29, F.R.Cr.P., on the ground that the evidence was insufficient to sustain a conviction. The motions were denied.

Since knowledge is an element of both counts upon which appellant was convicted, it is his contention that the government did not prove such knowledge beyond a reasonable doubt. The case against appellant is based on circumstantial evidence produced at trial, and it has been held that circumstantial evidence is sufficient to establish knowledge. United States v. Childs, 457 F.2d 173 (9th Cir. 1972). In the present case, the evidence shows the following:

(1) that appellant and his wife were in Hong Kong on the date the package addressed to Gumataotao containing the heroin was mailed and they stayed only overnight;

(2) that appellant and his wife stayed at the hotel shown on the package as the address of the sender the night preceding the day the package was mailed;

(3) that appellant telephoned eo-defendant Gumataotao in Guam the night before the package was mailed;

(4) that the sender’s name on the package was appellant’s half brother who had never been in Hong Kong;

(5) that the addressee of the package (co-defendant Gumataotao) was the same person telephoned by appellant from Hong Kong and the same person who picked up the package in Agana, Guam and who drove the car after placing the package on the seat by appellant;

(6) that the white Datsun was registered to appellant’s mother;

(7) that the outer wrapping of the package which contained the heroin was found alongside a road in an area where appellant was reported to have been;

(8) that the vehicle appellant used contained white powder similar to the flour placed in the package which had contained the heroin;

(9) that the vehicle appellant used contained fluorescent powder which had been placed on the package containing the heroin;

(10) that appellant’s hands showed traces of fluorescent powder which was of the type which had been placed on the package containing the heroin; and

(11) that the vehicle was located in front of appellant’s residence on the day that the package was delivered.

Hernandez v. United States, 300 F.2d 114 (9th Cir. 1962), upon which appellant relies, is inapposite here. In that case the trial court found that there was no proof that the defendant personally had knowledge that the heroin was illegally imported and no proof that he personally had possession of the narcotics from which such knowledge could be presumed. The Hernandez court excluded from the reach of its holding “those whose knowledge of the illegal importation of the narcotic drugs can be shown by direct or circumstantial evidence, without reliance upon the presumption based upon possession.” Id. at 124. Thus in the case at bar, where the requisite knowledge can be established by circumstantial evidence, appellant is outside the scope of the Hernandez ruling.

The test to be applied by the trial court in deciding a motion for acquittal in a criminal case and the test to be applied by an appellate court in reviewing that decision are, as a practical matter, identical. The evidence must be taken in the light most favorable to the verdict. United States v. Nelson, 419 F.2d 1237 (9th Cir. 1969). The court must be “satisfied that the jurors reasonably could decide that they would not hesitate to act in their own serious affairs upon factual assumptions as probable as the conclusion that” a criminal defendant is guilty as charged. United States v. Felix, 474 F.2d 610, 612 (9th Cir. 1973); United States v. Nelson, supra, 419 F.2d at 1245. Applying this standard of review to the case before us, we affirm the denial of the motions for acquittal since the evidence presented is sufficient to sustain the conviction.

III.

Admission of the Disputed Exhibits

The official documents exception to .the hearsay rule, which was recognized at common law, permits the introduction, for the proof of the facts stated therein, of all documents prepared by public officials pursuant to a duty imposed by law or required by the nature of their office. Olender v. United States, 210 F.2d 795, 801 (9th Cir. 1954). The provisions for proving official records, “when admissible for any purpose,” are found in Rule 44, F.R.Civ.P., which is made applicable in criminal trials by Rule 27, F.R.Cr.P. Rule 44(a)(2), set out in the margin, addresses itself to the authentication of foreign official documents.

A. Exhibit 21.

Appellant contends that Exhibit 21 was improperly admitted on the ground that it was not authenticated in accordance with the procedures set out in Rule 44. Rule 44(a)(2) clearly applies to attested copies, as well as to original records. The rule requires, however, that such a copy be accompanied by a final certification as to the genuineness of the signature and official position of the attesting person. The final certification must be made by a diplomatic official of the United States or diplomatic or consular official of the foreign country assigned or accredited to the United States. This certification is absent with respect to the immigration records, as Mr. Shaw refused to go to the American Embassy, and chose instead to follow the procedure of his own government for authenticating documents, viz., to write a letter on his stationery attesting that the copies were taken from the original documents, and merely signing the letter.

According to appellant, the lack of certification is fatal to the government’s attempt to authenticate the immigration records. The final sentence of Rule 44(a)(2) however, provides:

If reasonable opportunity has been given to all parties to investigate the authenticity and accuracy of the attested documents, the court may, for good cause shown, (i) admit an attested copy without final certification

This provision was added in the recognition that “in some situations it may be difficult or even impossible to satisfy the basic requirements of the rule. . [T]he foreign officials may not cooperate. . . . ” Advisory Committee’s Note to Rule 44, 39 F.R.D. at 116.

The government has, in this case, made a sufficient showing of good cause. In an attempt to comply with the final certification procedure, they urged the immigration officer to appear at the United States Embassy, but there was no way that they could compel him to do so. When he refused to follow any procedures for authentication except those of his own government, copies of the desired records were obtained in accordance with those procedures.

We conclude that the government did all that could be done under the circumstances, that the probative value of the documents obtained was not undermined by the failure to obtain a final certification, and that a showing of good cause has been made out. This court has upheld the discretion of a trial judge to admit a foreign official record lacking final certification even absent a showing of good cause. United States v. Pacheco-Lovio, 463 F.2d 232 (9th Cir. 1972). Furthermore, appellant cannot claim that he was prevented from investigating the authenticity and accuracy of the immigration records; at least no such claim was raised below. Thus, we hold that Exhibit 21 was properly admitted under Rule 44(a)(2).

B. Exhibit 22.

Appellant also claims that it was error for the trial court to admit Exhibit 22. The admission of documents under the business records exception to the hearsay rule, as codified in 28 U.S. C.A. § 1732, the Federal Business Records Act, is permissible in a criminal trial and this court has held that 28 U.S. C.A. § 1732 does not violate the right of a criminal defendant under the Sixth Amendment to confront the witnesses against him. United States v. Haili, 443 F.2d 1295 (9th Cir. 1971). Under the federal Business Records Act the person who actually makes the records need not testify, but the requisite foundation for their admission must be laid through the testimony of someone who is sufficiently familiar with the practices of the business involved to testify that the records were made in the regular course of business and thus, to verify their authenticity. United States v. Rosenstein, 474 F.2d 705, 710 (2d Cir. 1973); United States v. Dawson, 400 F.2d 194, 198 — 99 (2d Cir. 1968), cert. denied, 393 U.S. 1023, 89 S.Ct. 632, 21 L.Ed.2d 567 (1969).

Appellant argues that Exhibit 22 should not have been admitted on the ground that no proper foundation was laid in as much as the government called no one connected with the Park Hotel to testify to its record-keeping practices. Although the Park Hotel employees in whose custody the records were kept were willing to release the originals to the government, no one who could qualify as a custodian would travel to Guam to testify and the government had no power to compel the hotel employees to go.

Instead, the government followed what in essence is the Rule 44(a)(2) procedure for proving foreign official records to attempt to authenticate the business records of the Park Hotel. Henry Chan, the assistant manager of the hotel, gave a sworn statement before the United States Vice Consul in Hong Kong explaining that he chose not to go to Guam to testify; describing the contents of the attached original hotel records; attesting that he was the official custodian thereof and that the documents had been prepared or witnessed by himself or by persons under his authority and had constantly been in the Park Hotel under his supervisory control; and stating that they constituted records prepared in the normal course of business of the hotel.

In view of the fact that none of the hotel employees could be subpoenaed to testify, we hold that the government action in obtaining the sworn affidavit before the United States Vice Consul was justified under the circumstances. The official records analogy is far from inappropriate because many of the same guaranties of trustworthiness underlie both the official documents and the business records exceptions to the hearsay rule. Moreover, in this case the hotel registration forms are themselves a species of official records, since they are required under Hong Kong law. Thus we hold that Exhibit 22 was properly admitted.

We find no error in the denial of the motions for judgment of acquittal.

Affirmed.

      . Rule 44(a) provides:
      (2) Foreign. A foreign official record, or an entry therein, when admissible for any purpose, may be evidenced by an official publication thereof; or a copy thereof, attested by a person authorized to make the attestation, and accompanied by a final certification as to the genuineness of the signature and official position (i) of the attesting person, or (ii) of any foreign official whose certificate of genuineness of signature and official position relates to the attestation or is in a chain of certificates of genuineness of signature and official position relating to the attestation. A final certification may be made by a secretary of embassy or legation, consul general, consul, vice consul, or consular agent of the United States, or a diplomatic or consular official of the foreign country assigned or accredited to the United States. If reasonable opportunity has been given to all parties to investigate the authenticity and accuracy of the documents, the court may, for good cause shown, (i) admit an attested copy without final certification or (ii) permit the foreign official record to be evidenced by an attested summary with or without a final certification..

      . Laws of Hong Kong, Chapter 115 (Ordinance No. 55 of 1971) provides, in relevant part:
      17. (1) A person over the age of fifteen years who intends to stay at any premises to which this section applies shall on arriving at the premises inform the keeper of the premises of his full name and nationality.
      (2) Any such person who is an alien shall also—
      (a) on arriving at the premises, inform the keeper of the premises of the date of his arrival in Hong Kong, the name of the ship or airline (if any) by which he arrived and his occupation; and
      (b) on or before his departure from the premises, inform the keeper of the premises of the place to which he is going, and, if he is departing from Hong Kong, of the ship or airline (if any) by which he will depart.
      (3) The keeper of any premises to which this section applies shall—
      (a) require all persons who stay at the premises to comply with their obligation under this section; and
      (b) keep for at least twelve months a record in writing of the information given to him by any such person pursuant to this section.

        (4) An immigration officer or police officer may inspect at any time the record kept by the keeper of any premises pursuant to subsection (3).
      (5) Any information required by this section to be given by or to any person may be given by or to any other person acting on his behalf.
      (6) This section applies to any premises, whether furnished or unfurnished, when lodging or sleeping accommodation is provided for reward.
      (7) In this section—
      “keeper” includes any person who receives another person to stay in premises, whether on his own behalf or on behalf of any other person;
      “stay” means lodge or sleep, for one night or more, in accommodation provided for reward.


author: McENTEE, Circuit Judge.

text:
    AMERICAN EMPLOYERS’ INSURANCE COMPANY and Bowerman Brothers, Inc., Plaintiffs-Appellants, v. MARYLAND CASUALTY COMPANY, Defendant-Appellee.
    No. 74-1300.
    United States Court of Appeals, First Circuit.
    Argued Dec. 3, 1974.
    Decided Jan. 15, 1975.
    Kenneth R. Neal, Providence, R. I., with whom Peter L. Kennedy, Providence, R. I., was on brief, for appellants.

      Raymond A. LaFazia, Providence, R. I., with whom Delphis R. Jones, Providence, R. L, was on brief, for appellee.
    Before COFFIN, Chief Judge, McENTEE and CAMPBELL, Circuit Judges.
   McENTEE, Circuit Judge.

Plaintiffs American Employers’ Insurance Company and Bowerman Brothers, Inc. sought a declaratory judgment against Maryland Casualty Company with respect to the coverage of a liability insurance policy issued to Bowerman by Maryland. The trial court decided that the policy did not cover Bowerman for a claim asserted by the City of Cranston, R. I., in an action brought against Bowerman and others in the state court.

The facts underlying the city’s claim are as follows: In March of 1965 the city engaged Vincent Dimitri, a duly licensed architect, to design and prepare plans and specifications for the construction of a new police headquarters building. When Dimitri had completed the plans and specifications, the construction job was let out for bids. All of the bids for this job exceeded the funds appropriated by the city, and Bowerman, a construction firm, was requested to review certain material including the architect’s plans and specifications to determine if there were any areas where the cost of construction could be reduced. Roland Mather, an estimator in Bowerman’s employ, reviewed the material and suggested certain changes to effect cost savings. Two of his recommendations were to reduce the thickness of the basement floor slab and to substitute mesh for the steel rods that were to be embedded in the concrete slab. The city approved these suggestions and later asked Bowerman to perform a drafting function incorporating into Dimitri’s plans some of the changes suggested by Bowerman as well as other unrelated changes. Bids were again solicited, and in November of 1965 the city awarded the contract to A. DiOrio & Co. and construction began. Bowerman played no part whatsoever in the actual construction of the building and was paid only for the services it rendered in drafting the modified plans.

The new headquarters building was completed sometime in 1968, and the parties stipulated that the city first noticed a settling of' the basement floor therein on February 19, 1968. Subsequently the city filed suit in the state court on February 28, 1972, seeking damages in the amount of $250,000 against Bowerman and Dimitri as a result of the settling of the basement floor. The complaint alleged that Dimitri was “negligent in designing a slab on ground type of basement floor rather than a structural type of supported floor . . . “negligent in designing the basement floor in that he failed to design a structural floor”; “negligent in agreeing to and acquiescing in aforesaid changes advised by defendant Bowerman . .

It further alleged:

21. Defendant Bowerman was negligent in advising changes in Dimitri’s original specifications for the basement floor which reduced the thickness of the slab on ground and the amount of reinforcement in the slab.
22. Defendant Bowerman was negligent in failing to advise the use of a supported basement floor rather than a slab on ground basement floor which it knew or should have known could not be supported by the subsoil.

At all relevant times Bowerman was insured under a series of standard liability insurance policies issued by Maryland, each policy covering a one-year period. These policies provided for coverage with a $50,000 maximum limit. In addition to the policies with Maryland, Bowerman had an “umbrella” insurance policy with American Employers’ in effect at the time of the occurrence under which American Employers’ would pay any amount over and above the coverage afforded to Bowerman under other applicable insurance or, if there was no other insurance, any amount over and above the sum of $25,000. Thus, the elimination of Maryland’s coverage would expose Bowerman and American Employers’ to an additional $25,000 of liability each.

There is no dispute that damages for the injuries alleged by Cranston fall within the policy’s general coverage for property damage liability. The sole issue before us is the applicability of ex-elusion (k), the standard “business risk” exclusion, which provides:

“This insurance does not apply:
******
“(k) To bodily injury or property damage resulting from the failure of the named insured’s products or work completed by or for the named insured to perform the function or serve the purpose intended by the named insured, if such failure is due to a mistake or deficiency in any design, formula, plan, specification, advertising material or printed instructions prepared or developed by any insured; but this exclusion does not apply to bodily injury or property damage resulting from the active malfunctioning of such products or work;

We are not impressed by plaintiffs’ argument that the exclusion does not apply because Bowerman’s work was intended solely to cut costs, succeeded in doing so and thus did not fail to serve its intended purpose. If this were Cranston’s only goal it could have handled the job itself. As Bowerman well knew its professional expertise was sought to cut costs without destroying the building’s structural integrity, a purpose it allegedly failed to achieve. Nor are we persuaded of the clause’s inapplicability by the testimony of Bowerman’s employees that its work for the city involved no engineering or design skills. Although Mather’s estimation work may not have required such skills, it is clear from the words of the complaint that “in advising changes in Dimitri’s original specifications” to reduce the thickness and reinforcement of the floor and in failing to advise the use of a supported floor, Bowerman helped determine the building’s “design, formula, plan [or] specification,” as the court below rightly x 7 O»/ concluded.

The applicability of the “active malfunctioning” exception to the business risk exclusion presents a more substantial question. Although this concept is not without difficulty, Henderson, Insurance Protection for Products Liability and Completed Operations — What Every Lawyer Should Know, 50 Neb.L.Rev. 415, 439 (1971); Tarpey, The New Comprehensive Policy: Some of the Changes, 33 Ins.Counsel J. 223, 225-26 (1966), its basic intent is clear. Design errors resulting in mere “passive” failure to discharge an intended function are regarded as the insured’s normal business risk and are excluded from coverage, while design errors themselves causing some positive or “active” harm deemed extraordinary in the insured’s business are covered. Thus, to recite some of the hypotheticals appearing in commentaries dealing with the clause, the policy is not intended to cover liability resulting from the faulty design of an insecticide which fails to kill insects, a hair tonic which fails to prevent baldness, or a rust inhibitor which fails to inhibit rust. On the other hand, the active malfunctioning exception would apply to provide coverage for liability resulting from an insecticide which harms crops to which it is applied, a hair tonic which causes a scalp rash, or a rust inhibitor which corrodes a radiator to which it is added. Plaintiffs argue, citing language from two cases, that any physical damage to property other than the insured’s work product constitutes active malfunctioning. However, the hypotheticals show that there is no active malfunctioning when an insecticide fails to prevent harm to crops from insects even though property other than the insured’s work product is physically damaged.

Here the harm alleged in the city’s complaint — damage to the building and its fixtures resulting from subsidence permitted by the floor’s weakness — was precisely the consequence that Bowerman sought to avoid when after “much discussion” it recommended its cheaper floor design. As charged in the city’s complaint, Bowerman’s recommended design change simply failed to achieve its intended purpose of cutting costs consistent with structural integrity. A finding of active malfunctioning might be justified if the floor as redesigned had included a less expensive concrete substitute which released noxious vapors, making the basement unusable, but the floor’s failure to keep the building intact is analogous to the tonic’s failure to keep the hair intact.

Our conclusion that there was no active malfunctioning here is buttressed by a statement in Gowan, supra at 276, apparently available at the time when the coverage here in question was entered into:

“Active malfunctioning
* * * * * *
“Under this exclusion, the insured gets no protection if he is alleged to have caused the collapse of any structure by having purposely designed or selected a steel beam with insufficient strength.”

In determining the intention of the parties to the contract, we think it relevant that such “active malfunction” clauses were commonly used in property damage policies at the time of the formation of this contract; moreover, plaintiffs do not show that Bowerman thought he was obtaining a general malpractice policy, which is more expensive but which covers errors and omissions, including bad advice. Although we are cognizant of the venerable principle of construing insurance contracts and especially exclusionary clauses strictly against the insurer, the policy in question cannot reasonably be construed to cover Bowerman for this type of risk.

Affirmed.

      . Maryland argues that the active malfunctioning concept never comprehends design error, but the materials it cites clearly negate this assertion. See W. Obrist, The New Comprehensive General Liability Insurance Policy 9 (Defense Research Institute, Inc. monograph, Nov. 1966). The exception’s application depends not on the nature of the insured’s operation (design vs. production) but on the nature of the resulting harm, as our discussion infra shows.

      . See Long, The Law of Liability Insurance, App. B, § 13 (1971) (insecticide hypothetical); Gowan, Completed Operations and Products Liability Insurance Coverage of the New Comprehensive General Automobile Policy, 1966 ABA Section of Ins., Negligence & Comp.L. 265, 276 (insecticide hypothetical); Tarpey, supra (hair tonic, rust inhibitor hypothetical); W. Obrist, supra (insecticide, hair tonic hypotheticals).

      . In Haugan v. Home Indemnity Co., 86 S.D. 406, 197 N.W.2d 18 (1972), plaintiff Haugan designed and constructed an airplane hangar and office building which separated from its foundation and became cracked and misshapen. In a declaratory judgment action construing a policy identical to the one issued by Maryland here, the court held that coverage was eliminated by exclusion (m), which provides:
      “This insurance does not apply:
      “(m) to property damage to work performed by or on behalf of the named insured arising out of the work or any portion thereof, or out of materials, parts or equipment furnished in connection therewith.”
      The court went on to suggest by way of dictum:
      “The same reasoning and the same result applies to the exception relating to ‘active malfunctioning’ of products or work appearing in exclusion (k). This exception is likewise limited by the basic exclusion (m). It means there is no liability coverage afforded by the policies for damages caused by and confined to the insured’s own work or product. However, when the insured’s work or product actively malfunctions and causes damage to other property coverage is afforded. . ” (emphasis added) 86 S.D. at 413, 197 N.W.2d at 22.
      In Kyllo v. Northland Chemical Co., 209 N.W.2d 629 (N.D.1973), the court held that exclusion (k) applied to eliminate coverage for damages in the amount of lost profits sought from the insured for the failure of its herbicide to control weeds. The active malfunctioning exception was held inapplicable absent "actual physical damage caused by application of the product.” Id. at 632.
      While these cases support the principle that physical damage to property other than the insured’s work product is necessary for a finding of active malfunctioning (indeed such a result is required by exclusion (m) anyway), they do not show that such damage is sufficient.

      . The purpose of a floor design in such a situation inherently includes avoidance of settling of the floor. Plaintiffs are not helped on this point by arguing that the slab on the floor was defective and that therefore even reinforcing rods and thick concrete (as opposed to the mesh and thinner concrete used according to Bowerman’s suggestions) would not have provided the necessary support. This argument concerns a factual issue that must be determined in the main case to establish the causation element of negligence.

      . The word “purposely” here is intended to distinguish the case where a draftsman erroneously alters satisfactory specifications in transcribing them, which would be covered. It does not refer to an intent to have the structure collapse.


author: PER CURIAM;

text:
    Jimmy Dale HUTTO, Petitioner-Appellant, v. UNITED STATES of America, Respondent-Appellee.
    No. 74-3215
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    March 7, 1975.
    Rehearing Denied April 11, 1975.
    See 511 F.2d 172.
    David H. Berg, Houston, Tex., for petitioner-appellant.
    Anthony J. P. Farris, U. S. Atty., Mary L. Sinderson, Asst. U. S. Atty., Houston, Tex., for respondent-appellee.
    Before WISDOM, BELL and C^ARK, Circuit Judges.

      Rule 18, 5th Cir.; see Isbell Enterprises, Inc. v. Citizens Casualty Co. of N.Y. et al., 5th Cir. 1970, 431 F.2d 409, Part I.

   PER CURIAM;

This case got to the Court of Appeals because the insistence by all concerned upon technicality has compounded a procedural error from a mole hill into a mountain. It began when counsel for petitioner mistakenly inserted the original criminal file number in the caption of a motion under 28 U.S.C. § 2255 seeking to vacate petitioner’s sentence. The government objected to this form. Counsel for petitioner wrote to the clerk acknowledging that his intention was to proceed under Section 2255, and that whether the number should be civil was immaterial to the relief he sought.

The district court’s order denying the motion to vacate sentence was based solely on the numbering error. It cites Heflin v. United States, 358 U.S. 415, 79 S.Ct. 451, 3 L.Ed.2d 407 (1959) to support the acknowledged rule that proceedings under Section 2255 constitute independent civil proceedings, rather than further activity in the original criminal file. The government asserts in this court that the petitioner should not have appealed since he could have dropped the criminal number and refiled correctly. Counsel for petitioner asserts his present cause should have been treated as an independent civil action. See Jenkins v. United States, 325 F.2d 942, 944 n. 11 (10th Cir. 1963).

Counsel should not have included the criminal case number on the motion. The clerk’s action in treating the case as a further proceeding in the criminal case was likewise a mistake. The court’s order denying the relief sought finalized these prior errors. That order is reversed. The cause is remanded, with directions to assign the cause a civil number and to treat the petition as the commencement of an independent civil proceeding.

Reversed and remanded.

      . “Some time ago my firm filed a Motion to vacate sentence pursuant to 28 U.S.Code, Section 2255 under the original criminal number. Of course this case is in the nature of a writ of habeas corpus and may require a civil action number as opposed to the original number it was filed under. In any event would your office be so kind as to notify me of any setting in the case.”


author: GEE, Circuit Judge:

text:
    Mary H. KAPRELIAN, Plaintiff-Appellee, v. TEXAS WOMAN’S UNIVERSITY et al., Defendants-Appellants.
    No. 74-1503.
    United States Court of Appeals, Fifth Circuit.
    March 5, 1975.

      Frank C. Cooksey, Asst. Atty. Gen., John L. Hill, Atty. Gen., William C. Bednar, Jr., Asst. Atty. Gen., Larry F. York, First Asst. Atty. Gen., Austin, Tex., for defendants-appellants.
    Michael J. Whitten, Denton, Tex., for plaintiff-appellee.
    Before RIVES, GODBOLD and GEE, Circuit Judges.
   GEE, Circuit Judge:

This is a teacher discharge case in the Roth-Sindermann vein.

Plaintiff Mary Kaprelian was employed by defendant Texas Woman’s University (TWU) for the academic year commencing September 1970, primarily to teach modern dance. Formally, she was to be an assistant professor in the College of Health, Physical Education and Recreation, of which defendant Anne Schley Duggan was Dean. The record hints that Dean Duggan, under whose long guidance the department had become a college with a national reputation and who was nearing retirement, may have seen in Dr. Kaprelian a fitting successor. What ensued, instead, was a year of clashes over policy between two able and strong-minded women. Dean Duggan, expecting Kaprelian’s cooperation and support in existing programs and arrangements, felt she did not receive it. For her part, Dr. Kaprelian, who enjoyed a lively appreciation of her own worth and abilities, felt and demonstrated that she felt TWU’s dance theory and training were behind the times and inferior, even to others available elsewhere in Denton, Texas, the small city of its location. And so passed the academic year.

On July 8, 1971, shortly after its end, TWU’s Vice-President for Academic Affairs requested Kaprelian’s resignation, advising that he held written statements from various members of her department indicating unprofessional conduct on her part and disloyalty to TWU. He refused to particularize these charges and made no offer to show her the statements; and she declined to resign and consulted counsel.

On July 20, 1971, her attorney wrote to Dr. John A. Guinn, President of TWU and our third and last defendant, finding fault with the handling of her case and requesting that an ad hoc committee of the faculty be convened to consider it, pursuant to established procedures.

The next day Guinn forwarded Kaprelian a notice of her terminal reappointment to the faculty for the 1971 — 72 academic year, which she accepted. In a letter transmitting her acceptance to Guinn, however, her attorney reserved her rights, renewed his earlier requests, and added a request for the names and addresses of anyone who had termed Kaprelian unprofessional or disloyal to TWU. Receiving no reply, he wrote again to Guinn, requesting a private conference and delivering himself somewhat freely — the letter refers to “character assassinations,” “dictatorial abuses of power,” “witch hunt(s),” etc. Commencing with such expressions, and warming to the subject, counsel assured Guinn that if the case went to court Kaprelian would prevail; that testimony would be presented which would reflect unfavorably on TWU before the public, the profession and the legislature and would be painfully embarrassing to Dean Duggan (including that relating to asserted personal failings of hers); and suggested that the matter would be best settled within the university and without airing the supposedly unpleasant facts.

On September 2, 1971, President Guinn wrote to Dr. Kaprelian, advising that should she make a written request he would activate the ad hoc committee contemplated by the Faculty Handbook. By now, however, Kaprelian’s attorney felt this would not satisfy. He responded on September 7 with the suggestion that Dr. Guinn, as head of an administration which disagreed with Dr. Kaprelian about her rights, could not appropriately appoint the committee. Instead, Guinn should appoint a member, Kaprelian one, and the two should agree upon a third. Three days later, in a letter to Guinn’s counsel, Kaprelian’s enlarged upon his conditions. Guinn’s offer of an ad hoc committee to hear her matter was now unacceptable, he advised, because:

1. We have been offered no part in the process of selecting the members of such a committee;
2. It has been made clear that Dr. Kaprelian will not be allowed to have counsel represent her at such a hearing;
3. It has been made clear that Dr. Kaprelian will not be allowed to make any record of the hearing by Court Reporter or tape recording;
4. The university still refuses to disclose whatever information it has which would specify the manner in which Dr. Kaprelian is alleged to have been disloyal and unprofessional, nor will the university disclose the names of any persons making such allegations, nor will the university disclose any documentary evidence it might have to support such charges.

This apparently brought the administrative process to a stand, and suit, asserting violation of Kaprelian’s civil rights, was filed on October 15, 1971. A hearing set for December 15, 1971, to consider temporary relief, was apparently not held; and at last, at a pre-trial hearing on February 1, 1973, the parties submitted the case on briefs and depositions. In December of that year the court” entered findings and an order generally favorable to Kaprelian, from which this appeal proceeds.

The court found, as was essentially undisputed, that Kaprelian had no form of tenure and hence no “property” interest. It concluded, however, that she had established a “liberty” interest by filing her complaint: “. . . her allegation that defendants terminated her contract because of unprofessional conduct and disloyalty to the University is sufficient to establish an interest in liberty under the due process clause of the Fourteenth Amendment.” (Emphasis added.) Since she had done so, the court reasoned, and since no hearing had been held, the matter should go back for hearing to a university forum. At that hearing plaintiff was to have the right to counsel and court reporter, both at her own expense. Moreover, to insure that the tribunal would possess the “actual” impartiality and “academic expertise” which the court saw as mandated by our Duke and Ferguson opinions, the court reached into the administrative process itself to determine the tribunal’s composition. The hearing committee would be composed of a number of persons appointed by the defendants, but only from those of “. . . academic expertise in plaintiff’s field of study, whether within or without the University.” A like number of such persons would be appointed by plaintiff; and the committee members, or in the event of their inability to agree the court, would appoint the final member. On motion of defendants, the order was stayed, and this appeal followed.

Applicable Law

The matrix of legal principles which governs plaintiff’s suit may be simply sketched. A state employee, such as plaintiff, having a liberty or property interest in his position must be accorded procedural due process. Likewise, if it is established that the state seeks to discharge an employee for exercise of constitutional rights a hearing may be ordered. A liberty interest arises, for example, when one is publicly subjected to a badge of infamy, such as being “posted” as a drunkard. In plaintiff’s context, it arises when an employee is able to demonstrate that the State has made a charge “that might seriously damage his standing and associations in his community” or that is of such a nature as to impose “a stigma or other disability that foreclosed his freedom to take advantage of other employment opportunities.” Such a showing is the employee’s voucher of admission to the arena of procedural due process; without it such questions do not arise. Moreover to raise a liberty interest such charges must be public ones; we have recently held that even charges of the most damaging nature do not do so by their mere presence in confidential files. And in Ferguson, we recognized a place for the making of private, though damaging, charges against an employee who elects to depart rather than air them. Sims also recognizes, however, that where such public charges are denied and discharge is resisted, they may not be a basis of discharge unless due process has been accorded. What process is “due” in such cases is not an open question in this Circuit. It was settled in Ferguson, to the appropriate portions of which we will later refer.

That the court below erred in two respects is plain. Nor, in main, are the applicable principles of law in serious doubt. As usual the difficulties arise in applying them and the awkward questions in achieving a disposition just to both sides. We commence with the simpler matters and proceed to the more complex, hoping that thus our reasons for resolving these latter as we do will be more easily apparent.

Reconstituting the Panel

Having made no finding, as scarcely it could, that the university hearing committee lacked apparent impartiality, the court nevertheless substituted another, to be selected according to procedures of its own devising, and referred all questions to it. Such a measure wants precedent in authority and is at variance with that respect for the academic administrative process and insistence that it be permitted to run its course which are indicated in our Ferguson and Duke opinions. The court’s directions apply a per se rule of disqualification on suspicion to rend from the structure of authority the very functions which it is created to and must perform if institutional order is to obtain. This was error.

Allegations as Establishing Facts

The court erred as well in its conclusion that the presence of a “liberty” interest was established by plaintiff’s allegations in her sworn complaint. All such allegations were denied by defendants’ pleadings. Courts do not decide disputed matters of fact, or even contested matters of law in which subsidiary factual findings are necessarily embedded, on their merits by consulting traversed pleadings. On remand the court should consult the evidence in the record.

Waiver

Dr. Kaprelian rejected the administrative procedures available and offered to pass on her complaints because their first stage did not accord her due process. Has she waived a right to the administrative process by so aborting it?

As noted in Ferguson, we consider that there is a valid place for essentially private and preliminary hearings of the type contemplated by the ad hoc committee procedure of the Faculty Handbook, set out at note 4 above. These, the analog of show-cause proceedings or examining trials, may provide valuable opportunities to avoid needless embarrassment or to set volatile matters in perspective. We would be most loath to hold that, with or without such a preliminary hearing, no state employee could be finally and constitutionally allowed to go his way without a public and adversary airing of charges, no matter how demeaning or fully admitted. Were this the law’s demand, it well might be that few would accept public employment, and so bind themselves to be broken on the wheel of any future indiscretion or moral lapse which a supervisor might think mandated dismissal.

Are we then to conclude that in refusing even to commence the process for reviewing discharges such as hers except upon her own supererogatory terms, Mrs. Kaprelian waived her right to procedural due process and should not now be heard to assert it? For several reasons, we think not. In the first place, the events of our case happened in 1970-71, before the law in the area had received the definitive form and guidance supplied by the Supreme Court in Roth and Sindermann and when Constantineau was fresh on the books and its range of application uncertain. In such circumstances, and where such precious procedural rights are involved, we would be slow to divine a waiver of them, the intentional foregoing of a known right. In the second, the procedures laid down give no sure access to procedural due process at the administrative level, being described as “final” in the event of an adverse decision by the ad hoc committee — though we doubt, in view of the present state of the law, that such a measure would be enforced, and if it were, the courthouse doors are open now, as they were then. We would not be understood to countenance the casual spurning of reasonable, even if imperfect, administrative procedures laid down in good faith, and were either above factor absent a more serious issue of waiver would be presented. For the reasons stated, however, we decline to find a waiver here and proceed with our inquiry.

Is Due Process Required?

It is now familiar law that non-tenured teachers such as Dr. Kaprelian may be discharged for no reason or for any reason not impermissible in itself or as applied. Exercise of First Amendment rights, unless carried to such a point as clearly to over-balance one’s usefulness as an instructor, is a basis of discharge intrinsically impermissible: it is advanced here however, as it was advanced below, in a manner decidedly conclusory and pro forma. It may well be doubted whether a subordinate’s insistence on imposing his general policy views on his superior, controlling his own teaching assignments, or publicly denigrating his college fall within these protections, but it is certain that refusing to permit him to voice and apply in his teaching academic views relevant to assignments actually given him does.

Nor is it doubtful that such a one who is subjected to defacing public charges in or as a result of the discharge process is entitled to a due-process hearing at which he can make a fair fight to clear his name. It may be that Dr. Kaprelian is entitled to such a hearing on either or both of the above grounds; we cannot tell, since the court below made no findings on the First Amendment claim and an incomplete finding on an improper basis (the allegations) as to the liberty interest. Until proper findings are made it will not be known whether due process at the administrative level was required.

On the remand which we order, the Court should determine the following:

(1) Was Dr. Kaprelian discharged for exercising First Amendment rights?
(2) Were the charges made stigmatizing, in their context, and
(3) if so, has the administration of the institution made these charges public in any official or intentional manner, other than in connection with the defense of this action?

If the court finds in the affirmative as to (1) or as to (2) and (3), it should remand the matter to the institution for an administrative hearing on the merits of the charges, as well as upon the question, should the court have found in the affirmative on (1), whether Kaprelian’s “. . . exercise of [her] constitutional privileges clearly over-balanced [her] usefulness as an instructor.” Ferguson, 430 F.2d at 859. If not, it should enter judgment for defendants.

At the administrative hearing, if required, Dr. Kaprelian should be accorded at least the minimum procedural due process set out for such proceedings in Ferguson. Should the institution wish to add to these constitutional minima it may but will not be required to do so.

Any further legal proceedings resulting from the administrative determinations will be conducted in accordance with the principles laid down in Ferguson.

Reversed and remanded.

      . Board of Regents v. Roth, 408 U.S. 564, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972); Perry v. Sindermann, 408 U.S. 593, 92 S.Ct. 2694, 33 L.Ed.2d 570 (1972).

      . In her testimony, she averred that her students “. . will remember me as one of the outstanding teachers that they have had.” Noting that she was under oath and therefore must be candid, she added: “. . .1 am highly competent. . . . I’m good in research ... I ain’t no dummy.”

      . Speaking of one TWU dance program, she testified: “. . . the dances as I saw them were nothing I wanted to have anything to do with ... I had too much to offer in front of that mess, rubbish.” Dance theory at TWU was, she stated, “not educational” and only “. . recognized here in Texas where they haven’t seen anything else.” Had there been intercollegiate competition with other schools, “. . TWU dancers would come up losers, they are technically very deficient, they don’t have a chance.” To her classes, she made “. . comments as to weaknesses in the program . . ” and “ . . . encouraged them to go over to North Texas [also in Denton] because this would be — it would better their background.”

      . As to untenured teachers such as Kaprelian, the Faculty Handbook provided:
      FACULTY MEMBERS WITHOUT TENURE. When a faculty member does not have tenure but contends that the termination or renewal of his contract constitutes a violation of academic freedom, the burden of proof is upon the faculty member. He may submit to the President a written request that his allegations be given consideration by an ad hoc committee of the faculty. This committee shall recommend whether a hearing is warranted. If the finding of the committee is against the faculty member, the action is final. If the faculty committee finds that a hearing is warranted, the faculty member may then have recourse to the same procedures for hearings as outlined above.
      The “procedures for hearings as outlined above” are those for discharge of tenured faculty:
      FACULTY MEMBERS WITH TENURE. When the employment of a faculty member with tenure is terminated for cause, written notice, stating the reasons for non-reappointment, shall be given the faculty member .by the President. Opportunities will be available for the faculty member to discuss the matter informally if he so desires. If thereafter, the faculty member still feels that he has been unfairly treated, he may submit within fifteen days a written request for a hearing by the elected standing committee on tenure, which shall consist of only faculty members with tenure. The faculty member may appear before the committee, with a colleague of his own selection, if desired, to present appropriate information in his behalf. After the hearing, the standing committee on tenure shall transmit its findings in writing to the President and to the faculty member.
      If the faculty member is dissatisfied with the action of the committee, he may submit to the President a written request for a hearing of his case by the Board of Regents. If the Board authorizes such hearing, arrangements shall be made for those having an interest in the matter to be present so that both sides of the controversy may be fairly presented. The decision of the Board shall be final.
      When a faculty member who is notified that his position is discontinued as a result of financial exigency of the phasing out of an institutional program requiring reduction of faculty can present prima facie evidence of discriminatory treatment or infringement of academic freedom, he may file with the President a written request that this evidence be given consideration by an ad hoc committee of the faculty. At this heanjng, the burden of proof shall be on the faculty member. The faculty committee shall recommend whether a hearing is warranted. If the finding of the committee is against the faculty member, the action is final. If the committee finds that a hearing is warranted, the faculty member may then have recourse to the same procedures for hearings as outlined above.

      . Guinn testified that he referred such letters from lawyers to his counsel, the Attorney General of Texas.

      . As to which, it is fair to note, no competent evidence whatever was presented.

      . 42 U.S.C. §§ 1981, 1983 and 1988.

      . To which she swore.

      . Duke v. North Texas State University, 469 F.2d 829 (5th Circuit 1972), cert. denied, 412 U.S. 932, 93 S.Ct. 2760, 37 L.Ed.2d 160 (1973); Ferguson v. Thomas, 430 F.2d 852 (5th Cir. 1970).

      . Emphasis added. At oral argument plaintiff’s counsel opined that these would have to be teachers, or perhaps practitioners, of modern dance.

      . Roth, Sindermann, supra at note 1.

      . Cf. Ferguson, 430 F.2d at 858.

      . Wisconsin v. Constantineau, 400 U.S. 433, 91 S.Ct. 507, 27 L.Ed.2d 515 (1971).

      . Roth, 408 U.S. at 573, 92 S.Ct. at 2707; Russell v. Hodges, 470 F.2d 212, 216 (2d Cir. 1972). In the balance of our opinion we employ the term “stigmatizing charges” as a shorthand designation for such as raise a liberty interest.

      . Bradford v. Tarrant County Junior College District, 492 F.2d 133 (5th Cir. 1974).

      . Sims v. Fox, 505 F.2d 857 (5th Cir. 1974) (en banc).

      . Ferguson, 430 F.2d at 856.

      . And cf. Goss v. Lopez, 419 U.S. 565, 577, 95 S.Ct. 729, 42 L.Ed.2d 725 (1975).

      . Since the panel has never been constituted and the court’s sole possible suspicion that it might be biased stemmed from the fact that it would be appointed by Guinn. We have refused to presume a want of impartiality on facts far less mild and suppositious than these. E. g., Duke v. North Texas State University, 469 F.2d 829 (5th Cir. 1972), cited by the court below, where those who were to sit on the panel were members of an administration which had already been broadsided by the grievant in terms coarsely abusive. And cf. Jenkins v. Louisiana State Board of Education, 506 F.2d 992 (1975) and Robison v. Wichita Falls and North Texas Community Action Corp., 507 F.2d 245 (1975).

      . Ferguson v. Thomas, 430 F.2d at 856.

      . We note the court’s action in this respect is contrary to our holding in Duke, supra, 469 F.2d at 834:
      We decline to establish a per se rule that would disqualify administrative hearing bodies such as the President’s Cabinet from hearing internal university matters solely for the reason that the members are employees of the Board and because some of them participated in the initial investigation of the incident and initiation of the cause under consideration.

      . In so noting, of course, we assume a case in which they are not used as pretexts for delay or for wearing out the grievant financially.

      . After all, the administrator is entitled to know when the matter is at an end.

      . Ferguson v. Thomas, 430 F.2d at 859.

      . The court below did not feel it necessary to make findings or arrive at conclusions on the contention, and before us little or nothing was advanced by way of argument on the point.

      . It is true we could consult the record upon which the trial court acted and attempt such a determination, but we think this inappropriate, in part because no hearing has ever been held.

      . Given the nature and complexity of the issue in this case, we deem this an issue appropriate for initial determination by the school-constituted review body in the exercise of its academic expertise.

      . Ferguson v. Thomas, 430 F.2d at 856. We see no occasion, at this stage of the matter, for preliminary administrative action of the ad hoc committee.

      . Ferguson v. Thomas, 430 F.2d at 858.