source: Caselaw Access Project

author: VAN OOSTERHOUT, Senior Circuit Judge.

license: Public Domain

text:
    UNITED STATES of America, Appellee, v. Daniel E. HEISMAN, Appellant. UNITED STATES of America, Appellee, v. Michael Ray RADFORD, Appellant.
    Nos. 74-1253, 74-1204.
    United States Court of Appeals, Eighth Circuit.
    Submitted Sept. 11, 1974.
    Decided Oct. 10, 1974.

      Irvin L. Ruzicka, St. Louis, Mo., for appellant Radford.
    James F. Malone, St. Louis, Mo., for appellant Heisman.
    Terry I. Adelman, Asst. U. S. Atty., St. Louis, Mo., for appellee.
    Before VAN OOSTERHOUT, Senior Circuit Judge, and HEANEY and STEPHENSON, Circuit Judges.
   VAN OOSTERHOUT, Senior Circuit Judge.

Defendants Daniel E. Heisman and Michael Ray Radford were indicted and tried by the district court on separate counts alleging violations by Heisman of 18 U.S.C. §§ 471, 473 (counterfeiting and transfer of counterfeit Federal Reserve Notes with intent to defraud) and by Radford of 18 U.S.C. §§ 472, 473 (receiving and possessing counterfeit Federal Reserve Notes with intent to defraud.)

Defendants entered pleas of not guilty .and waived trial by a jury. They were jointly tried by the court. It was stipulated that the evidence in a suppression hearing be considered as evidence at the trial. Certain exhibits were received in evidence by stipulation and pertinent facts were stipulated. The court found both defendants guilty as charged and they were sentenced to six-months imprisonment on the first counts respectively, followed by five-years probation on the second counts. Each defendant has taken a timely appeal from his conviction.

The trial court’s reported memorandum opinion (United States v. Heisman, et al., 371 F.Supp. 813 (E.D.Mo.1974)), sets out in considerable detail the trial court’s findings of fact and the basis of the judgment of conviction against each defendant. There is ample evidence in the record to support the convictions. The critical issue on each appeal is whether the trial court committed prejudicial error in its rulings on motions to suppress evidence. We will summarize the evidence relating to such issue.

Defendant Heisman and one Paul Kes-terson were co-tenants in a leased commercial building in St. Louis, Mo. Both men had signed the lease and were liable for the entire rent. The two men were not in business together and occupied separate areas of the building. The single-story building consisted of four separate areas including a common reception area in the front, a common storage and restroom area in the rear, a room in which Mr. Kesterson kept his equipment and supplies, and a room where Heisman kept a desk and his supplies. Heisman is a commercial artist. There was no door in the doorway to Heisman’s room. Prior to July 26, 1973, Kesterson had given Heisman permission to use a printing press which was owned by Kes-terson. On July 26, 1973, Kesterson returned home from a trip and observed green ink and counterfeit ten-dollar Federal Reserve Note impressions on his press. He immediately notified the Secret Service whose agents went to the premises the same day and observed the counterfeit impressions on the press. Special Agent Dickerson seized the mat containing the impressions from the press. Kesterson told the Secret Service agents that Heisman had been given permission to use the press and that he was the only one who had access to the press during the time he (Kesterson) was gone. When the agents returned the next day, July 27, 1973, to photograph the impressions, they discovered that the drum of the press had been cleaned and the printed images erased. After a search of the press room, the agents sought and received permission from Kesterson to search Heisman’s room. A search of Heisman’s room revealed an unsealed box bearing a picture of a large red apple on the outside containing some $140,000 in counterfeit Federal Reserve Notes. Special Agent Gilmore, who conducted the search, removed one sheet of counterfeit money from the box. On the basis of this evidence the agents succeeded in obtaining an arrest warrant for Heisman that same day.

After discovering the counterfeit money, the agents decided to keep the building under surveillance. That afternoon the agents observed defendant Radford placing a box bearing a picture of a large red apple into the trunk of his car at the rear of the printing shop. Heisman was standing in the door of the print shop at the time. Both defendants were then taken into custody immediately by Dickerson. Agent Gilmore was a part of the surveillance team but did not participate in the actual arrest. There was evidence that Agent Dickerson had learned from another agent, presumably Agent Gilmore who had conducted the search of Heisman’s room, that a box bearing a picture of a large red apple contained counterfeit money.

Both defendants made written incriminating statements after the Miranda warnings were read to them. The full text of these confessions is reported in United States v. Heisman, supra, 371 F. Supp. at 816-817. In addition, Radford signed a “Waiver of Constitutional Rights, Permission to Search Premises” form provided by the Secret Service agents. A subsequent search of Rad-ford’s car trunk produced a box (the red apple box) full of counterfeit Federal Reserve Notes.

Prior to trial, the defendants filed joint motions to suppress all evidence pursuant to Rule 41(e), Fed.R.Crim.P. “obtained as a result of leads supplied by such evidence obtained, procured or prepared as a result of an unlawful search without a search warrant of defendant’s office. . . . ” An eviden-tiary hearing was held and the court denied defendants’ motions to suppress.

On appeal defendant Heisman contends: (1) that the trial court should have granted the motion to suppress evidence as to him because co-tenant Kes-terson lacked legal authority to consent to a warrantless search of his (Heisman’s) office area; and (2) that certain oral and written statements made by him should also have been suppressed because they were obtained as a direct result of an illegal search (“fruit of the poisonous tree”). Defendant Radford contends: (1) that his warrantless arrest was illegal because it was made without probable cause; and (2) the warrantless consent search of the trunk of his car was illegal because his written consent was given under duress and coercion. The trial court found as a matter of law that the search of defendant Heisman’s room by Secret Service agents was legal because Kesterson had third-party authority to consent to a search or, in the alternative, even if there was an illegal third-party consent search there was sufficient other probable cause to serve as a basis for the arrests of both defendants, thus making their subsequent confessions derivative of an independent source. The court also found as a matter of fact that Rad-ford’s consent to the search of his car was given knowingly and voluntarily.

We reverse defendant Heisman’s conviction and affirm as to defendant Rad-ford.

HEISMAN.

The central issue in the Heisman case is the legality of the warrantless search of Heisman’s room pursuant to consent given by his co-tenant Kesterson. We conclude that Kesterson lacked third-party authority to consent to a search of his co-tenant’s room.

A warrantless search of a private place can survive constitutional inhibition only upon a showing that the surrounding facts brought it within one of the exceptions to the rule that a search must rest upon a search warrant. Jones v. United States, 357 U.S. 493, 499, 78 S.Ct. 1253, 2 L.Ed.2d 1514 (1958). Recognized exceptions to the search warrant rule include: (1) consent to the search; (2) search incident to lawful arrest; (3) the emergency or hot pursuit doctrine. United States v. Goldenstein, 456 F.2d 1006, 1009 (8th Cir. 1972). The consent exception, upon which the government relies, extends to the warrantless search of a private place when a third person consents to a war-rantless search of property over which he and another individual have equal access and control. See, e. g., Drummond v. United States, 350 F.2d 983, 989 (8th Cir. 1965). The Eighth Circuit has recognized the validity of third-party consent searches in several circumstances. United States v. Martinez, 450 F.2d 864 (8th Cir. 1971) (owner of garage may consent to search of garage where defendant stored contraband); Wright v. United States, 389 F.2d 996 (8th Cir. 1968) (eo-oceupier of apartment may consent to search of apartment) ; Drum-mond v. United States, supra (owner of home and garage as against occupier and lessee); Roberts v. United States, 332 F.2d 892 (8th Cir. 1964) (husband and wife). Thus in a third-party consent search the waiver of personal fourth amendment rights by one party may act as a binding waiver of the personal fourth amendment rights of the party against whom the search was intended. Anderson v. United States, 399 F.2d 753, 756 (10th Cir. 1968).

The Supreme Court in Frazier v. Cupp, 394 U.S. 731, 740, 89 S.Ct. 1420, 22 L.Ed.2d 684 (1969), has implicitly, and more recently in United States v. Matlock, 415 U.S. 164, 171 n. 7, 94 S.Ct. 988, 993, 39 L.Ed.2d 242 (1964), explicitly recognized the right of a third party to consent to a warrantless search of property to which he has “joint access or control for most purposes.” See Schneckloth v. Bustamonte, 412 U.S. 218, 245-246, 93 S.Ct. 2041, 36 L.Ed.2d 854 (1973); Coolidge v. New Hampshire, 403 U.S. 443, 487-490, 91 S.Ct. 2022, 29 L.Ed. 564 (1971). In Matlock, supra, 415 U.S. at 171, 94 S.Ct. at 993, the Court held:

[W]hen the prosecution seeks to justify a warrantless search by proof of voluntary consent, it is not limited to proof that consent was given by the defendant, but may show that permission to search was obtained from a third party who possessed common authority over or other sufficient relationship to the premises or effect sought to be inspected. (Emphasis added.)

Justice White clarified what the Court meant by “common authority” in a footnote to the cited sentence.

Common authority is, of course, not to be implied from the mere property interest a third party has in the property. The authority which justifies the third-party consent does not rest upon the law of property, but rests rather upon mutual use of the property by persons generally having joint access or control for most purposes, so that it is reasonable to recognize that any of the co-inhabitants has the right to permit the inspection in his own right and that the others have assumed the risk that one of their number might permit the common area to be searched. [415 U. S. at 171 n. 7, 94 S.Ct. at 993].

In the case sub judice Kesterson had a property interest in the searched area because he was a co-lessee. The question we must decide, however, is whether he had the requisite “joint access or control for most purposes” over the property. Id. We conclude that he did not. Although there was no door or lock to Heisman’s room, it was nevertheless an area set aside for his own private use. Kesterson had only been in the room once and then with Heisman’s permission. As a practical matter, Kesterson did not have access or control of Heisman’s room for any purpose. Kesterson and Heisman were co-tenants in a building in which there were both common areas of use and private areas for each to run his separate business. In short, Kesterson had a legal but not a possessory right to the area in which Heisman stored his work product. Thus, Kesterson could not legally consent to a search of that area.

At the hearing on defendants’ motions to suppress evidence obtained as a result of the search, Kesterson testified that at the time of the agents’ request to search he “assumed it was all right” for the agents to search Heisman’s room. This was in response to a question asking whether Kesterson “assumed . . . [he] had access to [Heisman’s room].” We do not find layman Kesterson’s state of mind on this legal question at the time of the request to be controlling. Whether Kesterson had the requisite “joint access or control for most purposes” must be determined objectively from the facts. Other than Kesterson’s subjective thoughts on this matter, there is no evidence that he had control of or access to Heisman’s room for most purposes.

Because the search in question was warrantless and did not fall within one of the recognized exceptions which validate a warrantless search of a private place, it was an unreasonable search and violated defendant Heisman’s fourth amendment rights. Accordingly, the denial of Heisman’s motion to suppress the seized counterfeit notes was error. Moreover, we deem this violation of a federal constitutional right to be reversible error. We cannot “declare a belief that it was harmless beyond a reasonable doubt.” Chapman v. California, 386 U.S. 18, 24, 87 S.Ct. 824, 828, 17 L.Ed.2d 705 (1967); see Holloway v. Wolff, 482 F.2d 110, 116 (8th Cir. 1973).

In view of our holding that the denial of Heisman’s motion was reversible error, we find it unnecessary to consider Heisman’s second assigned error that certain oral and written statements made by him subsequent to his arrest should also have been suppressed as “fruit of the poisonous tree”.

RADFORD.

Defendant Radford argues on appeal that his warrantless arrest was made without probable cause and thus was illegal. He asserts that because the arrest was illegal, his subsequent oral and written confession was inadmissible as “fruit of the poisonous tree.” Wong Sun v. United States, 371 U.S. 471, 484, 83 S.Ct. 407, 9 L.Ed.2d 441 (1963). We find these contentions to be without merit.

The arrest of Radford was warrantless. Therefore it was per se illegal unless “probable cause” for a warrantless arrest existed at the time. Probable cause exists when “the facts and circumstances within the knowledge of the arresting officers and of which they had reasonably trustworthy information are sufficient to warrant a man of reasonable prudence to believe that an offense had been or is being committed by the defendant.” United States v. Wahlquist, 438 F.2d 219, 221 (8th Cir. 1971); see Henry v. United States, 361 U.S. 98, 102, 80 S.Ct. 168, 4 L.Ed.2d 134 (1959); Klingler v. United States, 409 F.2d 299, 303 (8th Cir. 1969); Theriault v. United States, 401 F.2d 79, 81 (8th Cir. 1968); 18 U.S.C. § 3056(a). Probable cause for arrest must be determined upon the objective facts available to the arresting officers at the time of the arrest. Morrison v. United States, 491 F.2d 344, 346 (8th Cir. 1974); United States v. Stratton, 453 F.2d 36, 37 (8th Cir. 1972). The probable cause for arrest in Radford’s case was generated by the arresting officers’ observation of Radford receiving and putting into his car what they had reason to believe was counterfeit money. We agree with Judge Wangelin, as stated during the hearing on defendants’ motions to suppress, that the agents had reasonable cause to make arrests without a warrant on anybody that came out of the print shop with boxes in their possession. The box Radford was receiving had a picture of a large red apple on it. The box in which Agent Gilmore discovered the counterfeit money also had a picture of a large red apple on it. The agents had reasonable cause to believe that a crime was being committed and that defendant Radford was participating in it. We are satisfied that probable cause existed for the arrest of Radford.

In his final assignment of error defendant contends that the warrantless search made of the trunk of his car subsequent to his arrest was illegal and violative of the fourth amendment because his consent was given under duress and coercion. The trial court found, after an evidentiary hearing, that the consent was given knowingly and voluntarily. Such finding is supported by substantial evidence offered by the government. There is no evidence to the contrary. Moreover, at the time of Radford’s arrest there was both probable cause for a warrantless arrest and probable cause for a warrantless search of Radford’s car trunk. The search of the trunk of a car is within the permissible scope of a warrantless search incident to a lawful arrest. United States v. Harflinger, 436 F.2d 928, 935 (8th Cir. 1970). See Chambers v. Maroney, 399 U.S. 42, 47-52, 90 S.Ct. 1975, 26 L.Ed.2d 419 (1970). As we have determined, supra, the arrest of Radford was lawful. The trunk of Radford’s car was in his immediate proximity. Therefore, even without consent, a warrantless search of Radford’s car was permissible as a search incident to a lawful arrest. The district court properly denied Radford’s motion to suppress evidence.

The conviction of defendant Heisman is reversed. The conviction of defendant Radford is affirmed.

      . Agent Dickerson on cross examination testified that he had obtained information from another agent that there may have been counterfeit money in the storeroom. On redirect examination lie testified:
      Q Agent Dickerson, had you been informed that there might be counterfeit money in the box with the red apple on it?
      A Yes.
      Q That was before you saw the defendant Radford put the box with the red apple in his ear, is that right?
      A Yes, it was.

      . Other testimony by Kesterson at the sup-jmession hearing indicates that Kesterson did not believe he had access to Heisman’s room. For example:
      A * * * [T] hey asked me about the areas, what this room was, and I said that’s where Mr. Heisman keeps his personal supplies and they asked me if I had any objection to them going in there and I said no. Whether I had the authority, I don’t know, but I said no.
      Q But you told them it was Mr. Tleis-man’s office?
      A Yes, I did. Asked me if I kept any of my supplies in there. I said no.
      *|í V •l' ^ ^
      Q Do you have equal access yourself with defendant Heisman’s area?
      A Xot specifically. However, we have used each other’s areas from time to time —not normally. The only time I was ever in — personally in his office in the supply area was to look for some reproduction paper that he told me I could have, but I didn’t find it.
      Q You didn’t go in there to use his supplies without first asking him, is that right?
      A That’s right, I didn’t have any business in there.

      . In an unpublished memorandum and order denying defendants’ motions to suppress Judge Wangelin held that even if the consent search were illegal, there was sufficient probable cause to arrest Heisman, thus making his subsequent confession derivative of an “independent source”, Silverthorne Lumber Co. v. United States, 251 U.S. 385, 392, 40 S.Ct. 182, 64 L.Ed. 319 (1920), thus not “fruit of the poisonous tree.” Wong Sun v. United States, 371 U.S. 471, 484, 83 S.Ct. 407, 9 L.Ed .2d 441 (1963). Such issue should be left open for determination by the trial court on the basis of the record that may be made in the event of a retrial. See Standard Oil Co. v. Iowa, 408 F.2d 1171, 1175-1177 (8th Cir. 1969).

      . Radford in the trial court contended that the evidence discovered in the search of Heisman’s room was inadmissible as to him but he makes no such contention on appeal. In any event fourth amendment rights are personal rights. No constitutional right of Radford was violated by the search of Iieisman’s room and hence Radford lacks standing to attack the legality of the search. Standard Oil v. Iowa, 408 F.2d 1171, 1174-1175 (8th Cir. 1969); Alderman v. United States, 394 U.S. 165, 171-172, 89 S.Ct. 961, 22 L.Ed.2d 178 (1969).

      . Agent Dickerson, who did not participate in the search of Iieisman’s room, arrested defendant Radford. Defendant’s contention that Agent Dickerson could not have had knowledge of the contents of the box because he had not been present when Iieisman’s room had been searched is without merit. The knowledge of one officer participating in an investigation is the knowledge of all participating officers. United States v. Stratton, 453 F.2d 36, 37 (8th Cir. 1972). See also note 1, supra.


author: BREITENSTEIN, Circuit Judge.

text:
    A. H. KELSON and Nyla C. Kelson, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.
    No. 73-1914.
    United States Court of Appeals, Tenth Circuit.
    Sept. 23, 1974.
    J. Jay Bullock, Salt Lake City, Utah, for plaintiffs-appellees.
    Jonathan S. Cohen, Atty., Tax Div., Dept, of Justice (Richard M. Roberts, Acting Asst. Atty. Gen., Meyer Roth-wacks and Jane M. Edmisten, Attys., Tax Div., Dept, of Justice, and C. Nelson Day, U. S. Atty., of counsel, on the brief), for defendant-appellant.
    Before BREITENSTEIN, MC-WILLIAMS and BARRETT, Circuit Judges.
   BREITENSTEIN, Circuit Judge.

This is an income tax case for the refund of taxes paid in 1964, and concerns the carryback of losses incurred in 1966 on the worthlessness of corporate stock and in 1967 on the worthlessness of corporate notes. The issues are the applicability of the statute of limitations to the corporate stock loss claim and the determination of the deductibility of the note loss as an ordinary business loss rather than a capital loss. The district court gave the plaintiff taxpayer judgment for $135,476.65 against the United States. We reverse.

Plaintiff-appellee A. H. Kelson, whose wife Nyla is a party only because of a joint return, incurred capital gains through the liquidation of corporate stock in 1964 and paid a federal income tax for that year of $135,476.65. In 1963 taxpayer formed Bonneville Capital Corporation and was its president and a director in 1964-1967. During the same period he was, and still is, chairman of the board of the Bank of Salt Lake and a director of Continental Thrift and Loan Company, both of which were subsidiaries of Bonneville. By 1965 taxpayer had acquired about % of the Bonneville stock and had an adjusted base therefor of $366,119.65. Between 1964 and 1966 taxpayer loaned to Bonneville $199,440 and held its notes in that amount.

In 1966 the Bonneville stock became worthless and in his return for that year taxpayer claimed as an ordinary business loss $366,119.65, his adjusted base for the stock. During the 1967 liquidation of Bonneville taxpayer received, in exchange for his notes, stock of the two mentioned Bonneville subsidiaries. The court found that he had a $166,288.42 loss on the notes. The government does not question this amount. In his 1967 return he claimed the loss on the notes as an ordinary business loss.

On April 14, 1967, taxpayer filed a claim for refund of the 1964 tax. The reason given for the claim was “Carry-back of 1966 operating loss.” The loss for that year arose out of the worthlessness of the Bonneville stock. On March 21, 1968, taxpayer filed a second claim for refund of the 1964 tax. The reason given for this claim was “Claim amended to include carryback of 1967 operating loss. Original claim filed to carry-back 1966 net operating loss.” The 1967 loss arose out of the Bonneville notes. The first refund claim was disallowed on May 7, 1968, and the second was disallowed on December 31, 1969. The instant suit was filed on December 15, 1971.

So far as applicable, 26 U.S.C. § 6532(a)(1) provides:

“No suit or proceeding under section 7422(a) for the recovery of any internal revenue tax * * * shall be begun * * * after the expiration of 2 years from the date of mailing by certified mail or registered mail by the Secretary or his delegate to the taxpayer of a notice of the dis-allowance of the part of the claim to which the suit or proceeding relates.” The instant suit is brought under §

7422(a) for recovery of a tax refund. Notice of disallowance of the first claim based on the stock loss was properly mailed on May 7, 1968, more than two years before the filing of suit on December 15, 1971. The government contends that the statute bars consideration of the stock loss claim.

Taxpayer’s reliance on § 6511 is misplaced. That section relates to the filing of refund claims. The government concedes that each claim was filed within time. The question is whether the two-year limitation bars suit on the stock loss claim. It does unless the second claim extends the period within which suit may be brought.

The argument that the second refund claim amends the first and hence protects it from the bar of the statute is not persuasive. The second claim asserts an additional ground for relief based on the note loss. It states no facts or legal theories amplifying the first claim. In Charlson Realty Company v. United States, 181 Ct.Cl. 262, 384 F.2d 434, the. second claim was not a repetition of the first but was based on new grounds. 384 F.2d at 440. In the instant case we have a repetition of the first claim and the assertion of another claim based on a different series of transactions. The taxpayer’s cause of action based on the stock loss accrued when the notice of disallowance was mailed and may not be extended or interrupted by the filing of a second claim reasserting the first. Einson-Freeman Co., Inc. v. Corwin, 2 Cir., 112 F.2d 683, 684, cert. denied 311 U.S. 693, 61 S.Ct. 75, 85 L.Ed. 449, and 18th Street Leader Stores, Inc. v. United States, 7 Cir., 142 F.2d 113, 115, cert. denied 323 U.S. 725, 65 S.Ct. 61, 89 L.Ed. 583. Thus the “taxpayer may not keep his claim ‘fresh indefinitely’ by merely reasserting it.” Mertens, Law of Federal Income Taxation § 58.23, Chap. 58, p. 74 (1970). In the instant case we have nothing more than repetition of the stock loss claim. Section 6532(a)(1) makes the statutory bar applicable to the disallowance of “part” of a claim and by its terms bars suit on the stock loss.

The fact that IRS acted on the second claim is of no moment. It had to so far as the claim was based on the note loss. The record shows no reconsideration of the first claim but, even if there was, reconsideration does not extend the period. 26 U.S.C. § 6532(a)(4). The decision of the district court would permit the indefinite extension of the statute by the filing of repetitive claims and defeat the purpose of the statute. The claim based on the 1966 stock loss is barred by § 6532(a)(1) and recovery on that claim cannot be had in the instant suit. See Real Estate-Land Title & Trust Co. v. United States, 309 U.S. 13, 18, 60 S.Ct. 371, 84 L.Ed.2d 542.

The suit is timely in so far as the note loss is concerned. Section 166 of the Code allows a deduction for any business debt which becomes worthless during the taxable year. Such debts are subject to the net operating loss carry-back provisions of § 172. Losses from nonbusiness debts are considered as capital losses, § 166(d)(1), and subject to §§ 1211 and 1212. A nonbusiness debt is a debt other than one created “in connection with” taxpayer’s trade or business. § 166(d)(2). The regulations define a nonbusiness debt as a debt other than one created “in the course of” taxpayer’s trade or business, or a debt, the loss from which is not proximately related to the conduct of taxpayer’s trade or business. 26 C.F.R. § 1.166-5(b).

The loans were made to Bonneville in 1964-1966 and the loss occurred in 1967. In 1964, 1965, and 1966 taxpayer received compensation from Bonneville in the amounts of $1,750, $6,000, and $6,000 respectively, and in the same years from the Bank of Salt Lake in the amounts of $3,355, $9,223, and $12,320 respectively. He devoted (4 of his time to Bonneville and the remainder to the Bank of Salt Lake, a Bonneville subsidiary. The total of the loans to Bonneville was $199,440.

In United States v. Generes, 405 U.S. 93, 92 S.Ct. 827, 31 L.Ed.2d 62, the Court noted that taxpayer testified that his sole motive in making loans to his closely held corporation was to protect his employment and salary. 405 U.S. at 99, 92 S.Ct. 827. The Court characterized the testimony as self-serving, 405 U.S. at 106, 92 S.Ct. 827, and said that the proper test to determine whether a bad debt had a “proximate” relation to taxpayer’s trade or business is that of dominant motivation. 405 U.S. at 103, 92 S.Ct. 827. The objective facts surrounding loans, rather than the subjective intent, control. 405 U.S. at 104, 92 S.Ct. 827. The courts should compare the accompanying risks of the loans with the potential reward. 405 U.S. at 104, 92 S.Ct. 827. Evidence of a large disparity between the loans and the taxpayer’s salary is of some weight. 405 U.S. at 106-107, 92 S.Ct. 827. Mere activity by a stockholder in his corporation’s affairs is not enough. 405 U.S. at 104, 92 S.Ct. 827.

The business of the corporation to which a loan is made must be distinguished from the business of the lender. In Whipple v. Commissioner of Internal Revenue, 373 U.S. 193, 83 S.Ct. 1168, 10 L.Ed.2d 288, the Court said that the mere devotion of time and energy to the affairs of a corporation does not establish a trade or business. 373 U.S. at 202, 83 S.Ct. 1168. Although such activities may create income or gain, they are more closely related to the successful operation of the corporation’s business than to that of the lender. Ibid. The Court rejected the contention that “one who actively engages in serving his own corporations for the purpose of creating future income through those enterprises is in a trade or business.” 373 U.S. at 203, 83 S.Ct. at 1174. In the instant case, Bonneville was taxpayer’s corporation. Without “substantial additional evidence” management of and assistance to the corporation for a reward are akin to the activities of an investor. Ibid.

Trent v. Commissioner of Internal Revenue, 2 Cir., 291 F.2d 669, and Lundgren v. Commissioner of Internal Revenue, 9 Cir., 376 F.2d 623, are not in point. In the first, the taxpayer made the loan because he was expected to as an employee and would be fired if he did not. 291 F.2d at 670; see also Rev.Rul. 71-561. In the second, the taxpayer was in the same business as his corporation. 376 F.2d at 628.

In Hogue v. Commissioner of Internal Revenue, 10 Cir., 459 F.2d 932, 937-938, we recognized the Generes and Whipple decisions and sustained the Tax Court which had held that the requisite relationship did not exist between the loans and the taxpayer’s accounting business. In that case the fact finder found against the taxpayer.

In the instant case the court found that the dominant purpose of taxpayer “was to obtain and secure for himself an executive position with the Corporation and its subsidiaries so as to enable him to obtain compensation for his personal services.” Taxpayer did not testify as to his intent in making the loans. He said that the dominant purpose in acquiring Bonneville stock was “to create a position, a job, and give me a chance to build sort of empire.” We are concerned with the loans, not with the stock acquisition. The only bit of the record which pertains to the loans is taxpayer’s answer to a written interrogatory in which he said that his trade or business was that of an employee and that the loans to Bonneville were made to obtain and secure “a position of employment with the borrower and/or its affil-liated (sic) corporations.”

We have no question of credibility. The question is whether the self-serving answer to a written interrogatory suffices to establish the dominant purpose which under Generes entitles the taxpayer to prevail. Generes says that objective facts rather than subjective intent control. 405 U.S. at 104, 92 S.Ct. 827. Taxpayer’s salary from Bonneville ranged from $1,750 to $6,000. The total loans were over $199,000. He controlled Bonneville, and the record shows no effort to oust him. Bonneville was a holding company, and taxpayer acquired its stock “to building sort of an empire/’

In his 1964 tax return, taxpayer gave his occupation as “banker,” and in 1967 as “executive.” Nothing shows that he was in the business of making loans. He spent only 14 of his time with Bonneville. The relationship between his stated occupations and the business of Bonneville is, at the most, speculative.

The disparity between salary and loans is some evidence that the loans were made to protect taxpayer’s investment, and only incidently to protect his salary. See Gross v. Commissioner of Internal Revenue, 9 Cir., 401 F.2d 600, 602, and Millsap v. Commissioner of Internal Revenue, 8 Cir., 387 F.2d 420, 422-423.

At the conclusion of the hearing the trial court said that judgment would be for the taxpayer and against the United States, and that counsel should “prepare the papers.” Two days later the court signed findings of fact and conclusions of law which show on their face that they were prepared by the attorney for the taxpayer. This practice of the same trial judge was condemned over ten years ago by the Supreme Court in United States v. El Paso Natural Gas Co., 376 U.S. 651, 656-657, 84 S.Ct. 1044, 12 L.Ed.2d 12. The me-chanieal adoption of a litigant’s findings is an abandonment of the duty imposed on trial judges by Rule 52, F.R.Civ.P., because findings so made fail to “reveal the discerning line for decision * * *Ibid, and particularly n.4. Under Rule 52 the question for an appellate court is whether “on the entire evidence [it] is left with the definite and firm conviction that a mistake has been committed.” United States v. United States Gypsum Company, 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746; see also Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 123, 89 S.Ct. 1562, 23 L.Ed.2d 129. In the case at bar we have that definite and firm conviction. The objective facts establish that the loans were made to protect taxpayer’s investment rather than in connection with his trade or business. Accordingly, taxpayer sustained a capital loss not proximately related to his trade or business and that loss may not be carried back to 1964.

Reversed and remanded with directions to enter judgment for the United States.


author: SWYGERT, Chief Judge.

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Silvio J. IRALI, Defendant-Appellant.
    No. 73-1640.
    United States Court of Appeals, Seventh Circuit.
    Argued Dec. 5, 1973.
    Decided Sept. 12, 1974.

      George J. Cotsirilos and S. Jack Mich-eletto, Chicago, 111., for defendant-appellant.
    James R. Thompson, U. S. Atty., Gary L. Starkman and Ann P. Sheldon, Asst. U. S. Attys., Chicago, 111., for plaintiff-appellee.
    Before SWYGERT, Chief Judge, SPRECHER, Circuit Judge, and POOS, Senior District Judge.

      . The Honorable Omer Poos, Senior Judge of the United States District Court for the Southern District of Illinois, is sitting by designation.

      . The court and counsel were discussing the following instruction which was tendered by the defendant:
      “For the acts alleged in the indictment to constitute extortion, you must find that the fear alleged in the mind of the alleged victim to be a reasonable one and there must be some basis for such fear in the evidence. Unjustified or unreasonable fear in the mind of an alleged victim cannot be the basis for you to conclude that he or she was the victim of an extortion.”
      The pertinent discussion follows :
      The Court: I think it is all right if it is somehow limited to one element of extortion, which is the obtaining money by threat and inducing of fear. That is why I would change the last line to read — I wouldn’t have it read, “ . . . she was the victim of extortion . . because this is only one element.
      Mr. King [Assistant United States Attorney] : What are we talking about, 15?
      The Court: I would have it read “ . . . she was induced by fear to pay money }>

      Mr. Michletto [Defense Counsel] : What would your Honor suggest would be— “ . . . victim of fear to pay money .,”?
      The Court: “She was induced by fear to pay money.”
      Mr. King: What are we substituting?
      Mr. Michletto: The last sentence would read, then, your Honor “ . . . unjustified or unreasonable fear in the mind of an alleged victim cannot be the basis for you to conclude that he or she ...”
      The Court: Well, “she was induced by fear to pay money.”
      Mr. King: Wait a minute, your Honor. The Government objects to that instruction. Not only is it not artfully drawn, but it is— again it is not an accurate statement of the law. We are taking one element of the law, one potential element of Hobbs Act extortion, and magnifying it so that it minimizes the other possible alternatives; and that is considered together with the instructions why I suggest that this instruction should be with respect to official right. The Government objects to this instruction.
      The Court: I think it is something the jury should be instructed on. I grant you that it is not very well drafted. I think perhaps the way to have it read would be, “ . . . any fear in the mind of the alleged victim must be a reasonable one, and there must be some basis for such fear in the evidence. Unjustified or unreasonable fear in the mind of an alleged victim cannot be the basis for you to conclude that she was induced by fear to pay money.”
      Mr. King: Would you read the first sentence again, please.
      The Court: “ . . . any fear . . . . ” those two words will rejilace the first two lines. The rest of the sentence—
      Mr. King: Wait a minute. “Any fear
      The Court: Strike out the rest of the first two lines.
      Mr. King: “ . . . any fear in the mind of the alleged victim ...”
      The Court: “ . . . must be a reasonable one, and there must be some basis for such fear in the evidence.”
      Mr. King: In that case we must object to the second sentence. Because it becomes redundant, it re-emphasizes the question of reasonable or unreasonable, justifiable and unjustifiable fear. We are proceeding with an official rights theory of extortion.
      The Court: All right, I will give it as modified.

   SWYGERT, Chief Judge.

Defendant-appellant Silvio J. Irali was indicted on two counts, extortion in violation of 18 U.S.C. § 1951 (Hobbs Act) and making a false declaration before the grand jury in violation of 18 U.S.C. § 1623. He was convicted on both counts after a jury trial and received consecutive one-year sentences.

In October 1969 Mrs. Geraldine Sved-man (whose name was Geraldine Zac-zynski at the time) purchased a tavern at 4932 West Armitage in Chicago which she named Gerri’s Lounge. After borrowing $2500 from her mother, she made an initial downpayment of $1500 and agreed to pay the balance of the $2500 price in monthly payments of $135.

Concurrently with her purchase, Mrs. Svedman went to the Shakespeare Avenue Police Station and filled out a liquor license application. Police Officer Greenwich assisted her. She then went to the city hall, filed the application, and paid her fee. Officer Greenwich was assigned to investigate Mrs. Svedman’s application, and she had to return to him with additional information between ten and fifteen times before the license was finally approved.

On November 8, 1969 Mrs. Svedman was in another tavern with her future husband when they struck up a conversation with defendant Irali. They told him of the delay in obtaining a liquor license. He said that he was a clerk in City Hall and that he might be able to help her. (At the time, Irali was a principal clerk in the liquor license department of the City Collector’s office.)

Irali asked for the name of the license officer. Mrs. Svedman said that it was Greenwich. He said he knew Greenwich and could find out what was causing the delay. He gave her his office telephone number and asked that she call him in a few days. When she called two days later, Irali said that he had not contacted Greenwich and asked her to call back. Two days later she called again with Dennis Svedman, her husband, listening on an extension and asked if Irali had spoken to Officer Greenwich. Irali said that, “Greenwich wanted $500 for his troubles.” Mrs. Svedman said that it was “ridiculous” and that she did not “have that kind of money.” Mrs. Sved-man testified that Irali said “that because he was a friend of [hers], he would talk to Officer Greenwich again, •but that all the license officers down there, that’s the way they do things.” She further testified that he stated “that Greenwich was a hardnose and he wouldn’t waive any money” and that he would try talking to Greenwich again.

On November 17, 1969 Mrs. Svedman called the defendant and asked if her license had been approved. He said that Greenwich wanted $250. She said that she did not have that kind of money. Irali replied that he would see if there was anything he could do. After the telephone conversation, she told her husband, who had again been listening to the conversation on the telephone, that she thought she would have to pay the money or she would never be able to open her tavern. On November 19, 1969 she called the defendant and asked if he had spoken with Greenwich. Irali asked her if she could come up with $100 or $150. She told him that she would talk to her mother. After her mother agreed to lend her $150, she called Irali. He said that he would check with Greenwich and call her back. Later that day Irali called her and said that Greenwich would take the $150. The next day she went to the bank with her mother who withdrew $150 and gave the money to Mrs. Sved-man. They then went to the city hall accompanied by Dennis Svedman where Mrs. Svedman gave Irali the $150. Irali told them, “For sure, you will get your license now.” She received her license five days later and immediately opened her tavern for business.

The evidence established that Mrs. Svedman purchased liquor for her tavern from three Illinois distributors who had purchased their supplies from out of state.

To prove the false declaration count, the Government introduced the grand jury transcript of Irali’s testimony in which he denied having ever received $150 from Geraldine Zaczynski Svedman in connection with the issuance of her liquor license.

I

The defendant contends there was no proof that the commerce was of an interstate character, that commerce was affected by the extortion demand, and that the Hobbs Act was not meant to reach “low level local matters” such as a $150 payoff.

The first contention is based on an argument that the liquor sold to Gerri’s Lounge had come to rest in Illinois before its sale and distribution and thus was no longer part of interstate commerce. We have rejected that argument in three recent decisions. United States v. Pacente, 503 F.2d 543 at 549-550 en banc (7th Cir. 1974); United States v. DeMet, 486 F.2d 816, 821-822 (7th Cir. 1973); United States v. Gill, 490 F.2d 233, 236-237 (7th Cir. 1973).

The second contention is that there was no direct proof that the victim of the extortion, Geraldine Svedman, suffered any loss in her ability to transact business by the payment of such a nominal amount and that it would be unreasonable to infer such fact from the evidence. The costs of doing business affect all profit-oriented business. Here, since (1) the victim had to borrow money to open the business, (2) the original extortion demand was twenty percent of the purchase price of the tavern, and (3) the amount actually paid was more than her monthly payment for the business, it was not unreasonable to infer that such an illegal cost affected her ability to do business. In any event, the Hobbs Act prohibits affecting commerce “in any way or degree” whether it forces the victim to close or only impedes his ability to conduct business.

The jury could also have inferred from the evidence that the victim would not have been able to open her doors for business if she had not paid the money since Irali and especially Officer Greenwich were in positions to delay and possibly bring about the rejection of her liquor license. Any purposeful delay would have affected interstate commerce through unconsummated purchases and sales since Gerri’s Lounge could not do business without the license.

The defendant also contends that the Hobbs Act was not meant to encompass the amount involved $150. In Gill it was $300 and in DeMet the sum was about $150 in cash and $300 worth of liquor. The court rejected the same de minimis argument in the latter two cases. (The author of this opinion pointed out in his concurrence in DeMet, 486 F.2d at 822-823, that there appears to be no minimum limit to the reach of section 1951 and that he had registered his objection in United States v. Amabile, 395 F.2d 47, 54 (7th Cir. 1968), cert. denied, 401 U.S. 924, 91 S.Ct. 869, 27 L.Ed.2d 828 (1971).)

II

The defendant contends that the verdict was not supported by the evidence in that the jury in returning a “verdict impliedly [gave] credence to the testimony of witnesses who [were] admitted liars, whose testimony [was] bloated with inaccuracies and internal inconsistencies and whose past histories cast great doubt on their honesty” whereas the “defendant was a completely candid and truthful witness.” Thus this court is invited to review the jury’s resolution of the credibility of the defendant and the prosecution witnesses. We must decline the invitation since the inconsistencies in the testimony were minor in nature and were brought to the attention of the jury. The jury was also aware of the false statement about the victim’s employment on her application for a license. None of these matters require that we discredit the prosecution testimony as a matter of law.

The defendant relies on United States v. Litberg, 175 F.2d 20 (7th Cir. 1949), in contending that the inferences necessary for conviction which might be drawn from the evidence were unreasonable, although he concedes that credibility determination is within the province of the jury. We have reviewed the evidence and conclude that it would not be unreasonable for the jury to find the defendant guilty as charged beyond a reasonable doubt.

III

The defendant maintains that the Government failed to prove that his conduct constituted extortion as a technicality. The indictment charged Irali with alternative theories of extortion: the obtaining of money either (1) induced by wrongful use of fear of economic harm or (2) under color of official right. The instructions included both theories. The defendant relies on the Government trial counsel’s statement at the instruction conference that “[w]e are proceeding with an official rights theory of extortion” and he argues that the fear of economic harm theory was waived. The defendant interprets the statement out of context. It is clear from the record that Government counsel made the statement while arguing about an instruction dealing with the reasonableness of the fear of economic harm. He did not waive the theory that the extortion was by fear of economic harm; he emphasized only that he was also proceeding under color of official right and that fear was not an element of the crime under that theory.

There was sufficient evidence under either theory for the jury to convict the defendant. First, contrary to Irali’s contention, it was not unreasonable for Mrs. Svedman to believe that she would not get her liquor license until she paid the money. Although the victim may have first approached Irali about help in the processing of her application due to the delay, the evidence established that he was the one who raised the necessity of a payment to Officer Greenwich of “$500 for his troubles.” It is also clear that Irali relayed or concocted further demands when Mrs. Svedman balked and that he finally suggested and accepted $150. The day that Mrs. Sved-man received her license, she opened her tavern. A denial or even a delay in obtaining her license meant lost business. According to the evidence, the average liquor license is obtained within ten days to three weeks of the application. Here the payment was made on the twenty-third day after the application was filed and the license was then received five days later. It would be permissible for the jury to infer that the victim had a reasonable fear of economic harm if she did not pay Irali.

Second the defendant contends that there was no evidence that he obtained this money through his official position in the liquor license department of the City Collector’s office. This department did not have the responsibility for approving liquor licenses, but did have the responsibility for processing them by sending them to the building department to consider whether the zoning was proper, to the police department for its recommendation on the application itself, to the license commissioner for decision, and then to the City Clerk for issuance. The City Collector had the responsibility of forwarding the application between the departments. A delay in this ministerial duty could cost the license applicant in lost revenue due to inability to open a tavern.

Mrs. Svedman knew Irali worked in the city hall on liquor licenses. He admitted to having helped her with her application though he denied accepting the $150. Although Irali, as a principal clerk in the liquor license department of the City Collector’s office could only have delayed or at worst lost the application, the person on whose behalf he said he spoke, Officer- Greenwich, had an official position in which he could recommend that the license not be issued. Accordingly, there was sufficient evidence for the jury to have found that Ir-ali, acting either under his own position or purportedly through Greenwich’s position, affected interstate commerce by extortion.

IV

The defendant contends that the Government failed to prove any affect on commerce during the negotiation stage in November 1969 and that the trial court erred in permitting testimony about liquor sales to Mrs. Svedman after November. The indictment charged that the extortion was committed on or about November 1969. The evidence showed that the victim did not receive her license until she paid the $150 to Irali and that when she received her license, she immediately opened her tavern, making sales and purchases during the month of November. The testimony about latter sales was relevant since it helped establish the affect on interstate commerce through the delay in opening the tavern.

V

The defendant argues that there was a misjoinder of the counts in violation of Rule 8(a), F.R.Crim.P. The panel in United States v. Pacente, 490 F.2d 661 (7th Cir. 1973), held, under facts essentially the same as those here, that joinder of a false declaration count with an extortion count was proper. The court en bane agreed, at 545.

Another issue which Irali obliquely raises is that there should have been a severance of the counts because the joinder was prejudicial. This issue was resolved against the defendant by the court sitting en banc after the hearing in United States v. Pacente, at 545-550. The court held there that the denial of a motion to sever the counts under Rule 14, F.R.Crim.P. was not an abuse of discretion.

VI

Irali contends that the summoning of him before the grand jury was an abuse of the grand jury process. A two fold argument is advanced: (1) the prosecutor was trying to undermine defendant’s credibility in the eyes of the petit jury and (2) the grand jury was “merely extracting testimony with a view to a perjury prosecution.” The first argument is basically that prejudice resulted in joining the counts. This argument, based on Rule 14, F.R. Crim.P. was rejected by the en banc court in Pacente. The second argument was dealt with recently in United States v. Devitt, 499 F.2d 135 (7th Cir., 1974). In that case the defendant was convicted of giving false answers to questions concerning extortionate conduct on his part for which the statute of limitations had run. Senior District Judge Campbell, sitting by designation and speaking for the court, said that it was a legitimate purpose of the grand jury to ask a defendant questions in order to obtain the names of unknown extortion victims which would further its investigation of “possible extortionate conduct by certain Chicago Police Department personnel in violation of the Hobbs Act.” 499 F.2d 139. In the instant case the grand jury was also investigating possible violations of the Hobbs Act by the Chicago police. It is obvious from the evidence in this case that there was a question whether Officer Greenwich was engaged in the extortion. An investigation of such alleged conduct was within the proper bounds for the grand jury, and the calling of a putative defendant before the grand jury for questioning in regard thereto did not violate his constitutional rights. United States v. Cefalu, 338 F.2d 582 (7th Cir. 1964).

Irali finally contends that by calling him before the grand jury, the Government placed him in a prejudicial dilemma. If he admitted taking the payoff, he would incriminate himself; if he invoked the Fifth Amendment, he would be dismissed from his job; and if he denied taking the payoff, he would be indicted for making a material false declaration. In United States v. Devitt, supra, 499 F.2d 142, Senior Judge Campbell, after discussing Garrity v. New Jersey, 385 U.S. 493, 87 S.Ct. 616, 17 L.Ed. 2d 562 (1967); Gardner v. Broderick, 392 U.S. 273, 88 S.Ct. 1913, 20 L.Ed.2d 1082 (1968); and Uniform Sanitation Men v. Commissioner of Sanitation, 392 U.S. 280, 88 S.Ct. 1917, 20 L.Ed.2d 1089 (1968), as well as our recent decision in Confederation of Police v. Conlisk, 489 F.2d 891 (7th Cir. 1973), wrote:

“[W]e find nothing in these decisions or in this court’s holding in Confederation of Police which grants a witness before the grand jury the third alternative which, in substance, is proposed by the defendant in the instant case: the right under such circumstances to knowingly make a false material declaration while testifying under oath before a grand jury.”
The Devitt case controls here.

VII

Finally, the defendant challenges the instructions given on aiding and abetting, affect on commerce, extortion under color of official right, and extortion by fear of economic harm. He argues that it was improper for the court sua sponte to give an instruction on aiding and abetting since there was no support for it in the record. The instruction read:

“Whoever aids, abets, counsels, commands, induces or procures the commission of a crime is punishable as a principal. In order to aid or abet the commission of a crime a person must associate himself with the criminal venture, participate in it and try to make it succeed.”

The evidence lends itself to giving of this instruction because the testimony established that Irali represented that it was Officer Greenwich who wanted the money and because it was he, Irali, who served as the go-between both in reducing the demanded sum as well as in collecting the payoff.

He further challenges the instruction, contending that it failed to set forth specific criminal intent as an element of the crime of aiding and abetting. Unlike United States v. Nix, 501 F.2d 516, at 516-517 (7th Cir., 1974), this objection was not raised at the instruction conference. The instruction is taken from the Supreme Court’s definition of aiding and abetting in Nye and Nissen v. United States, 336 U.S. 613, 619, 69 S.Ct. 766, 93 L.Ed. 919 (1949), and unlike the instruction in United States v. Bryant, 461 F.2d 912 (6th Cir. 1972), the second sentence told the jury that to find Irali guilty, it must find that he participated in and tried to make the commission of the crime succeed.

The defendant also objected to the instruction on the requisite affect on commerce necessary to constitute a violation of the Hobbs Act in that it failed to set forth a necessary minimum level. The instruction was that if commerce was affected “in any way or degree” by extortion, a crime was committed. This instruction is in accord with our decision in United States v. DeMet, supra, where the de minimis argument was rejected.

The defendant also contends that the trial judge erred in giving an instruction on the theory that Irali had extorted money through fear of economic harm after the Government maintained that it was proceeding under a color of official right theory. We reject this contention for the reasons set forth in section III of this opinion.

Finally the defendant argues that the instruction interpreting the col- or of official right was erroneous. The instruction read:

“If a public employee obtains money from another by fear induced by wrongful fear of official right, then that is sufficient to satisfy the requirements of the law that money be obtained by means of extortion.” (Emphasis added.)

Since the instruction, as presented and accepted at the instruction conference had the word “use” rather than “fear,” we assume the substitution was an inadvertent mistake. In any event, we do not consider this a basis for reversal since the mistake was hot to the defendant’s detriment and defendant never interposed an objection.

The conviction on both counts of the indictment is affirmed.

      . The issue was not raised in Pacente where the sum was $200.

      . Irali argues that “no one can commit extortion under color of official right by using the office of another.” It is unnecessary to reach the question since the jury could have found him guilty of having aided and abetted Officer Greenwich in extorting the money under color of official right.

      . In the instant ease, unlike Paeente, no motion to sever was made.

      . He contends that he was indicted for making a material false declaration to the grand jury within an hour after his testimony. Although we have found no basis for this statement in the record and the appellant has failed to point out any such reference, such a short time span would not be a basis for holding that the grand jury process had been abused.

      . Defendant contends that Cefalu is distinguishable because he was not a public official and also because he pleaded the Fifth Amendment. These distinctions are not material. A grand jury is permitted to summon all citizens, regardless of official position. Nor can invocation of the Fifth Amendment be considered justification for different treatment since this only occurs after a witness has appeared before the grand jury.

      . In Confederation of Police v. Conlisk, 489 F.2d 891, 895 (7th Cir. 1973), cert. denied, sub nom Rochford v. Confederation of Police, 42 U.S.L.W. 3594 (April 22, 1974), this court held that Rule 51 of the Chicago Police Department Rules, insofar as it prohibits policemen from exercising their Fifth Amendment rights is unconstitutional. There is no evidence that there was such a rule in the City Collector’s office or that Irali would have been dismissed if he had invoked the Fifth Amendment protection against self-incrimination.


author: PER CURIAM.

text:
    William MORRIS and Barbara Morris, Plaintiffs-Appellants, v. Norman R. CIZEK and Florence Cizek, Defendants-Appellees.
    No. 73-2047.
    United States Court of Appeals, Seventh Circuit.
    Argued Sept. 12, 1974.
    Decided Oct. 9, 1974.

      Robert G. Schwemm, Patricia Banks, Chicago, 111., for plaintiffs-appellants.
    John P. Crowley, Chicago, 111., for defendants-appellees.
    Before SWYGERT, Chief Judge, and CUMMINGS and PELL, Circuit Judges.
   PER CURIAM.

This complaint was filed by a black couple maintaining that they were denied a lease of an apartment in Melrose Park, Illinois, because of their race. The complaint was based on Title VIII of the Civil Rights Act of 1968 (42 U.S. C. § 3604) and on Section 1982 of the 1866 Civil Rights Act (42 U.S.C. § 1982).

The building in question contains two units, one of which is occupied-by the defendant owners. The district court granted the defendants’ motion to dismiss on the ground that this matter fell within the so-called Mrs. Murphy exemption in the 1968 statute reading as follows:

“Nothing in section 3604 of this title (other than subsection (c)) shall apply to — * * * (2) rooms or units in dwellings containing living quarters occupied or intended to be occupied by no more than four families living independently of each other, if the owner actually maintains and occupies one of such living quarters as his residence” (42 U.S.C. § 3603(b)(2)).

The district court held that the exemption in the later statute “containing specific terms must prevail over the general language of the other [1866] statute.” Ignoring all the contrary precedents, the •court reasoned that to apply the earlier statute would render the exemption section of the later statute meaningless.

Plaintiffs no longer rely on the Civil Rights Act of 1968. However, because the district court believed that the above-quoted exemption in the 1968 Act limited the application of 42 U.S.C. § 1982, that court denied plaintiffs’ motion to file an amended complaint eliminating the 42 U.S.C. § 3604 claim and proceeding solely on 42 U.S.C. § 1982.

We first note that the exemption language of the 1968 Act itself specifies only that the provisions of 42 U.S.C. § 3604 shall not apply to the Mrs. Murphy situation. No positive right is conferred upon such owners to discriminate along racial lines in leasing their units. Thus we do not have a situation like that in Reitman v. Mulkey, 387 U.S. 369, 87 S.Ct. 1627, 18 L.Ed.2d 830, where an affirmative conferral of a right to discriminate was held to have impliedly repealed two prior fair housing laws. Rather, the language in the exemption before us specifically limits only 42 U.S.C. § 3604 of the 1968 Civil Rights Act.

For this reason and the reasons given in Judge Decker’s well-reasoned opinion in Johnson v. Zaremba, 381 F.Supp. 165 (N.D.Ill.1973), we disagree with the court below that the exemption in question is meaningless unless it limits 42 U.S.C. § 1982, and we hold that the Section 3603(b)(2) exemption is inapplicable to a claim based on Section 1982 of the Civil Rights Act of 1866. Therefore, thp judgment is reversed and the cause is remanded with directions to grant leave to plaintiffs to file an amended complaint.