author: PER CURIAM.

text:
    Douglas GOMES et al., Plaintiffs, Appellees, v. Anthony P. TRAVISONO, etc., et al., Defendants, Appellants (two cases).
    United States Court of Appeals, First Circuit.
    Submitted Dec. 4, 1974.
    Decided Dec. 20, 1974.

      Richard J. Israel, Atty. Gen., with whom W. Slater Allen, Jr., Asst. Atty. Gen., Providence, R. I., was on brief, for Anthony P. Travisono, etc., and others.
    Max D. Stern, Boston, Mass., with whom Stern & Shapiro, Boston, Mass., Cary J. Coen, Providence, R. I., Jack Greenberg and Stanley A. Bass, New York City, were on brief, for Douglas Gomes, and others.
   ON RECONSIDERATION AFTER REMAND

Before COFFIN, Chief Judge, McENTEE and CAMPBELL, Circuit Judges.

PER CURIAM.

Pursuant to the mandate of the Supreme Court in Gomes v. Travisono, 490 F.2d 1209 (1973), vacated and remanded, 418 U.S. 908, 94 S.Ct. 3200, 41 L.Ed.2d 1155 (1974), we reconsider, with the assistance of memoranda from the parties our decision in Gomes, in light of Wolff v. McDonnell, 418 U.S. 539, 94 S.Ct. 2963, 41 L.Ed.2d 935 (1974).

The issue before us is the extent of the impact of the rulings and rationale of Wolff, dealing with the procedural safeguards constitutionally mandated for prison proceedings which can result in loss of credit for “good time”, on our opinion in Gomes, which dealt with the procedural safeguards which should attend proceedings looking to the transfer of a prisoner to a prison in another state. Two preliminary propositions appear clear without extended analysis. The first is our recognition in Gomes, strengthened if anything by the thrust of Wolff in stressing consideration of the pressures on prison authorities, that emergency situations may require postponement of whatever procedures are prescribed. The second is the principle, reaffirmed in Wolff, that prisoners suffering the prospect of serious deprivations are entitled to some process. Since the calculus of disadvantage to the prisoner, relevant to identifying the process which may be “due”, is not necessarily the same in a case involving loss of good time as that in an interstate transfer case, we proceed to look at the impact of such a transfer.

There were specific findings made by the district court as to the treatment of the transferees seeking relief in this case. The court found that the transferred inmates were segregated in the receiving prisons for two to six weeks, were placed in work assignments inconsistent with their prior experience, were precluded from rehabilitative and educational programs, saw few of their friends and family, and none of them saw their attorneys. Finally, the court found that parole opportunities were affected. 490 F.2d at 1213. We concluded that, beyond these specific findings, transfer inherently involves discontinuity of program, difficulty of communication, administrative isolation pending integration into the new prison community, and the possibility of a “troublemaker” status which might occasion an unfavorable parole decision. It suffices here to say that the presence of privations which are either identical to or comparable to punishments meted out for disciplinary infractions calls for some due process safeguards in interstate transfer cases. See Wolff, supra, 418 U.S. at 571, 94 S.Ct. at 2982 n. 19.

In our prior opinion, we answered the question of how much process is due for transfers acknowledged to be for disciplinary purposes by noting that in Rhode Island a working system of rules governing disciplinary hearings within a prison had been devised under a consent decree issued in Morris v. Travisono, 310 F.Supp. 857, 871-874 (D.R.I.1970), and adopted as law by the state. Gomes, supra, 490 F.2d at 1215. We thought it would be “anomalous, indeed, ‘both from a due process and an equal protection point of view, if the prison authorities could accomplish by transfer a procedure-free punishment which they could not accomplish within their own walls.’ ” Id.

We now are confident in saying that the deprivations inherent in an interstate transfer of a prisoner are sufficient to trigger the minimal due process safeguards identified in Wolff: written notice of charges, opportunity to prepare a defense, hearing, and a written statement of the evidence relied on and reasons for the decision. In disciplinary transfer cases, because the premise of finding an infraction and the consequence of such a finding cannot be distinguished from the penalty and findings in Wolff, the additional Wolff procedural rights to present witnesses and documentary evidence (subject to the judgment of administrators), and to receive some inmate or staff assistance (if the inmate is illiterate or the case complex) must be provided. Our only remaining question is whether any requirements of the Morris rules, not identified in Wolff, should apply to interstate transfers which are alleged to be (or to have been) punitive in nature.

The Morris rules deal with five facets of procedural due process: charge, investigation, hearing, review, and record. The section devoted to the charge, IA, deals with the method for reporting the violation and for dealing with the inmate pending hearing. These are matters of administrative convenience, giving various options to the prison authorities. Section II provides for investigation of the charge, internal reporting within the prison’s chain of command, and specifies the means of giving the inmate written notice of the charge. While Wolff does not require investigation, the necessity for some evidence anticipates a need to gather it, or at least for ascertaining a source of evidence. The means is again a matter of administrative orderliness and convenience. Section III establishes hearing procedures. Beyond mechanisms for the composition of the hearing board (IIIA and B), the rule provides in C that (1) the charge be read and explained; (2) the inmate admit or deny the charge; (3) the board may interrogate the inmate and others as necessary; (4) if the inmate thinks the charge against him is untrue, he may present information available to him and others. Up to this point the rules do not exceed the minimum requirements of Wolff. Subsection 5 does go beyond Wolff in that any inmate who so requests may have the assistance of a classification counselor. After decision is reached, rule 7 requires oral notice of the decision’s rationale and consequences. It is now clear that written notice is required under Wolff.

Section IV provides for review by the warden who can approve the board’s decision, order further proceedings, or reduce the punishment. Aside from recording the result in the inmate’s record, the remainder of the rules indicates only that any decision arrived at must be based on substantial evidence “manifested in the record of the disciplinary proceeding”. But, as defined, this does not pose a substantial burden on the board, requiring only that “if any of the facts establishing a Board determination are derived from an unidentified informant: (1) the record must contain some underlying factual information from which the Board can reasonably conclude that the informant was credible or his information reliable; (2) the record must contain the informant’s statement in language that is factual rather than conclusionary and must establish by its specifity that the informant spoke with personal knowledge of the matters contained in such statement.” This provision establishes that the board has the discretion approved in Wolff to foreclose the availability of witnesses and of cross-examination. And by requiring that a decision be based on the evidence before it, the rules are aimed at preventing arbitrary determinations, which is the major thrust of Wolff, which commands “a written statement by the factfinders as to the evidence relied on and reasons” for the disciplinary action. If the written statement is intended to withstand scrutiny and guard against misunderstanding, it cannot indicate reliance on speculation or on facts not in the record.

Our analysis, then, comes to this: most of the Morris requirements are either matters of administrative convenience or necessity in meeting the requirements of Wolff. Only in two respects do the rules demand more than Wolff did. Wolff does not require a review of board decisions or the provision of counsel substitute whenever a prisoner requests it. In assessing whether these two provisions should be applicable to punitive interstate transfers, we note the repeated advice in Wolff to leave the “continuing development” of procedural devices to the sound discretion of prison officials. (418 U.S. 539, 94 S.Ct. 2963.) In Rhode Island that initial discretion has been exercised in acquiescing in and adopting the Morris rules for prison disciplinary hearings. That having been done, it is hard to conceive of a basis in administrative convenience for exempting decisions to transfer a prisoner to another state from the warden’s review. Indeed, such an action would seem to limit his freedom in an area of decision where it is important that he retain some discretion.

As to the right to inmate or staff assistance on request, rather than only where the inmate is illiterate or the case complex, the authorities have again made a decision covering all disciplinary hearings. It is highly unlikely that a prisoner who alleges that his pending transfer has been engineered for punitive purposes would not present a sufficiently complex case so that inmate or staff assistance would be mandated under Wolff. Even if it might not be required, wise administrative practice would suggest it in marginal cases, if not in all cases simply to establish a clearcut administrative routine.

m Rather than leave a small class of allegedly or concededly punishment cases involving interstate transfers in an uncertain void as to the right to the warden’s ' review and the right to inmate or staff assistance, Rhode Island authorities may well wish to extend these rights to all proceedings involving a disciplinary objective. However, contrary to our pri- or holding, and despite Haymes v. Montanye, 505 F.2d 977, No. 74-1208 (2d Cir. 1974), which in part relied on it, we cannot quite say that the Constitution requires that these aspects of the Morris rules be automatically applied to punitive transfers.

As for transfers proposed for other than punitive purposes — e. g., “security”, the best interests of others, the safety or rehabilitation of the inmate himself, the needs or shortcomings of the institution, 490 F.2d at 1214 — we indicated in our prior opinion that somewhat fewer procedural safeguards would be sufficient. We now read Wolff as determining what procedures are due by evaluating the substantiality of the loss to the inmate and balancing that loss against the burden procedures would put on prison administrators, not by focusing on the purpose or motive of the action proposed. Since the disadvantages to the inmate flowing from an interstate transfer are substantial, whether it be characterized as punitive, administrative, or rehabilitative, the same safeguards should be available in all such cases. Naturally the type of evidence will differ. Data as to overcrowding, for example, normally will be sufficient to justify a transfer planned to alleviate congestion. And there will be many transfers proposed and implemented where objective conditions and administrative good faith leave little room for question. For this reason it should be feasible to devise convenient means for an inmate to waive his right to a hearing.

Finally, in Gomes we dealt with several other issues. Our order of remand to the district court left to it the fashioning of an impartial tribunal. Wolff’s approval of the Nebraska Prison Adjustment Committee indicates that the Rhode Island Disciplinary Board passes constitutional muster. Our endorsement of the district court’s requirement that reasons for transfer be noted on papers forwarded with the inmate as well as those kept in Rhode Island is consistent with the rationale supporting Wolff’s requirement of a written statement of fact findings, noted above. Our agreement with the district court that a periodic review of the status of transferred inmates is required would seem to us to involve no conflict with Wolff.

Our holding in Gomes is affirmed as modified. The case is remanded for further proceedings consistent with the views expressed herein.

      . In distinguishing between punishment imposed within a prison and punishment by transfer, we do not imply that the latter is somehow improper. As the Second Circuit has noted in Haymes v. Montanye, 505 F.2d 977, No. 74-1208 (1974), “The American Correctional Association has recognized that ‘[i]n any penal system embracing several institutions, transfer from one to another is often an effective disciplinary procedure as well as an administrative necessity.’ American Correctional Ass’n, Manual of Correctional Standards 416 (1972).”

      . Rule III C7 of the Morris rules, discussed infra, provides for only oral notice of the decision, rationale, and consequences. Wolff’s requirement of a written summary of findings and rationale naturally works an amendment to these rules.

      . Rules III C2 and 3 must be read in the light of our opinion on reconsideration of Palmigiano v. Baxter, 510 F.2d 534, issued this date, requiring the prison authorities to permit the inmate the option of silence.

      . While one member of the panel is of the opinion that, the prison authorities having exercised their administrative judgment to provide warden review and inmate or staff assistance for in-prison punishment proceedings, no rational basis remains for denying these protections to cases where transfer is resorted to for disciplinary purposes, the majority adheres to the position taken in the text.


source: Caselaw Access Project

author: PER CURIAM:

license: Public Domain

text:
    CALIFORNIA AND HAWAIIAN SUGAR COMPANY, Plaintiff-Appellant, v. COLUMBIA STEAMSHIP COMPANY, INC., and the S/S COLUMBIA BREWER, her engines, etc., Defendants-Appellees.
    No. 73-1515.
    United States Court of Appeals, Fifth Circuit.
    March 26, 1975.
    Rehearing Denied May 8, 1975.
    Henry J. Read, New Orleans, La., for plaintiff-appellant.
    Walter Carroll, Jr., New Orleans, La., for defendants-appellees.
    Before BROWN, Chief Judge, and AINSWORTH and MORGAN, Circuit Judges.

      . May v. Hamburg-Amerikanische Packetfahrt Aktiengesellschaft, 1933, 290 U.S. 333, 54 S.Ct. 162, 78 L.Ed. 348, 1933 A.M.C. 1565.

   PER CURIAM:

Providence was not smiling down on Captain Webb the 25th of June 1970, for his ship, S/S COLUMBIA BREWER, fetched up on a shoal southwest of Old Providence Island in the Caribbean early that morning. Although most of the cargo was saved, some had to be jettisoned to refloat the ship, some was damaged, and it was all subjected to salvage liens, etc. The District Court held the carrier not liable for cargo loss but the cargo liable for contribution in General Average. California and Hawaiian Sugar Co. v. Columbia Steamship Co., E.D. La., 1972, 391 F.Supp. 894, 1973 A.M.C. 676 [December 29, 1972, No. 70-1910]. Cargo appeals. We affirm. With an open and shut ease of marked negligence “in the navigation or management of the ship” which exonerates Carrier, COGSA § 4(2)(a), 46 U.S. C.A. § 1304(2)(a). Cargo asserted a breach of Carrier’s COGSA § 3(1), 46 U.S.C.A. § 1303(1) obligation “to exercise due diligence to — (a) Make the ship ship-worthy; [and] (b) Properly man, equip, and supply the ship . . before and at the beginning of the voyage.

Unseaworthiness in four particulars was claimed: (i) several disconnected gyro-compass repeaters and inadequate radar equipment, (ii) a malfunctioning fathometer, (iii) failure to have readily available in the chart room H.O. Pub. No. 20 (sailing directions), and (iv) most important, failure to have on board H.O. Chart 1372, of much larger scale (1:72,-636) than H.O. Chart 945 (1:952,800) then aboard.

After an extended trial the District Judge in a detailed 40 page opinion reached two significant conclusions. First, he found that the vessel was not unseaworthy in any of these respects. Second, and more important, he concluded that “the stranding of the Columbia Brewer . . . was due, not to a failure to supply the vessel with appropriate charts or to the malfunction of any of the vessel’s navigational equipment, but to the failure of the master, Captain Webb, to make proper use. of the information available to him and to make reasonable course corrections when he discovered that his vessel was to the southeast of the island which he intended to pass on the southwest.” 391 F.Supp. at 909, 1973 A.M.C. at 696. In short, unseaworthiness neither caused nor contributed to cause damage to cargo.

To the extent that the findings are findings of fact they are well above the Plimsoll Line of F.R.Civ.P. 52(a). Theodories v. Hercules Navigation Co., 5 Cir., 1971, 448 F.2d 701; cf. Cook & Nichol, Inc. v. Plimsoll Club, 5 Cir., 1971, 451 F.2d 505. To the extent they are conclusions of law or mixed findings of law and fact they are supported by the controlling principles of law over which the parties are in rare harmony.

Inasmuch as Cargo failed to establish to the trial court’s satisfaction that unseaworthiness, if it existed, contributed to cause the cargo loss, Carrier is in effect exonerated both by § 4(2)(a) and § 3(1)(a) since, unlike Harter Act, 46 U.S.C.A. § 190 et seq., days when diligence to supply a seaworthy vessel was the price paid for the error-in-navigation exception, The Isis, the Carrier under COGSA is cast only for unseaworthiness which contributes to cause the loss. Hence there is not as contended by Cargo, a Vallescura problem.

We therefore affirm on the basis of the District Court’s opinion.

Affirmed.

      . Horn v. CIA de Navegacion Fruco, S.A., 5 Cir., 1968, 404 F.2d 422, 432, cert. denied, 1969, 394 U.S. 943, 89 S.Ct. 1272, 22 L.Ed.2d 477; Director General of India Supply Mission v. S. S. Maru, 2 Cir., 1972, 459 F.2d 1370, cert. denied, 1973, 409 U.S. 1115, 93 S.Ct. 898, 34 L.Ed.2d 699; Firestone Synthetic Fibers Co. v. M/S Black Heron, 2 Cir., 1963, 324 F.2d 835; Wilbur-Ellis Co. v. M/V Captayannis S, D.Ore., 1969, 306 F.Supp. 866, aff’d., 9 Cir., 1971, 451 F.2d 973, cert. denied, 1972, 405 U.S. 923, 92 S.Ct. 962, 30 L.Ed.2d 794.

      . Schnell v. The Vallescura, 1934, 293 U.S. 296, 55 S.Ct. 194, 79 L.Ed. 373, 1934 A.M.C. 1573.


text:
    CROWN COLONY DISTRIBUTORS, INC., Plaintiff-Appellant v. UNITED STATES FIRE INSURANCE CO., Defendant-Appellee.
    No. 74-2878
    Summary Calendar.

    United States Court of Appeals, Fifth Circuit.
    March 26, 1975.
    Rehearing Denied April 21, 1975.
    Neil Chonin, Miami, Fla., Maurice Rosen, North Miami Beach, Fla., for plaintiff-appellant.
    Smathers & Thompson, Linwood Anderson, Miami, Fla., for defendant-appellee.
    Before BROWN, Chief Judge, and THORNBERRY and AINSWORTH, 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, Part I.

   PER CURIAM:

In September 1972, Crown Colony was issued a fire insurance policy by United States Fire Insurance Company (USFI). Only four months later, in January 1973, Crown Colony sustained a loss by fire on its premises. Investigation by the police and fire department conclusively established that the fire was deliberately set. When Crown Colony submitted a claim of loss, USFI refused to pay, and this diversity suit on the fire insurance policy followed. USFI refused to honor Crown Colony’s claim for two reasons: (1) it claimed the policy was void because Crown Colony concealed the true identities and criminal backgrounds of its principals, and (2) it contended Crown Colony deliberately and intentionally burned its own premises. The jury found there had been no wrongful concealment, but did determine that the fire had been set by or on behalf of Crown Colony.

USFI contends that the court incorrectly instructed the jury on the concealment issue. Crown Colony will not recover in any case, as we affirm the jury’s finding that Crown Colony caused the fire. Therefore, we pretermit an unnecessary discussion and analysis of Florida law on the issue of concealment and an insurer’s duty to investigate.

The evidence at trial showed that Crown Colony was a failing enterprise; at the time of the arson, Crown Colony was $100,000 in debt and losing money at the rate of $12,000 a month. Shortly before the arson, Crown Colony almost doubled its inventory, obtained an expensive line of jewelry not previously carried, and also nearly doubled its fire insurance coverage. The jewelry was not found after the fire, but the corporate records were discovered — doused with gasoline.

Crown Colony admitted that arson was the cause of the fire, but contended that the fire must have been set by a burglar. Uncontradicted expert testimony, however, established that the arson preparations would have been most efficiently conducted by two to three men, and that preparations would have taken at least three to three and one-half hours. Ignition of the fire occurred at about 6 p. m.; the manager of the corporation left at 4:30 p. m., while the son of the corporation’s president left at 6:22 p. m. This evidence, suggesting that the manager of the corporation was on the premises at the time arson preparations were underway, together with the recent acquisition and increase of insurance coverage, the poor financial status of the corporation, the increase in inventory and absence of the valuable jewelry from the premises after the fire, and the fact that there had been an attempt to deliberately destroy the corporate records, all strongly indicates that the fire was started with the participation or authorization of the corporation. We therefore find that the jury verdict in this regard is supported by substantial evidence.

Crown Colony contends, however, that counsel for USFI employed prejudicial and inflammatory techniques during the course of the trial which constituted reversible error, and thus the trial court erred in refusing Crown Colony’s motion for a new trial. An important obstacle to this contention is that a motion for a new trial is addressed to the sound discretion of the trial judge, whose action will not be upset absent a strong and convincing showing of an abuse of that discretion. See, e. g., Sanden v. Mayo Clinic, 8 Cir., 1974, 495 F.2d 221, 226; Joe D. Hughes, Inc. v. Marcantel, 5 Cir., 1967, 380 F.2d 12, 14. We have examined the record in this case, and agree with appellant that on a number of occasions defense counsel’s conduct was inappropriate and insufficiently restrained. But timely objections were interposed, and the trial court sustained objections to certain remarks and questions. We cannot presume that the corrective measures of the trial court were meaningless. The rule in this circuit is that unless the “conduct of counsel or witnesses is such as to impair gravely the calm and dispassionate consideration of the case by the jury, no error flows from the refusal of the trial court, in the exercise of its discretion, to vitiate the trial.” Spach v. Monarch Ins. Co. of Ohio, 5 Cir., 1962, 309 F.2d 949, 953. In the present case, while the conduct by counsel for USFI was less than admirable, the trial court took action to sustain objections to this conduct and instructed the jury to disregard certain evidence. This, together with the convincing evidence to support the jury verdict, leads us to conclude that there was no error in the refusal to grant a new trial.

Affirmed.


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

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Elorance JAMES, William Stanfield, and Antonio Vasquez, Defendants-Appellants.
    No. 74-2067.
    United States Court of Appeals, Fifth Circuit.
    March 26, 1975.
    Rehearing and Rehearing En Banc Denied May 9, 1975.

      Sam C. Bashara, Van G. Hilley, San Antonio, Tex., for James.
    J. Joe Harris, San Antonio, Tex. (Court-appointed), for Stanfield.
    Ruben Montemayor, San Antonio, Tex. (Court-appointed), for Vasquez.
    William S. Sessions, U. S. Atty., Joel D. Conant, Jim Bock, Asst. U. S. Attys., San Antonio, Tex., for plaintiff-appellee.
    Before THORNBERRY, MORGAN and CLARK, Circuit Judges.
   LEWIS R. MORGAN, Circuit Judge:

On November 3, 1973, Georgia Bennett, a government undercover agent, arrived at the residence of appellant Elorance James in San Antonio, Texas. She had gone there pursuant to the instructions of Clarence Jackson for the purpose of traveling to another location and consummating a heroin sale. Jackson was waiting for Bennett on the porch, and James was inside the house. All three waited in the living room for approximately ten minutes, at which time appellant William Stanfield arrived. Stanfield and Bennett remained there while James and Jackson went to a bedroom out of their hearing. When the two returned, James gave Jackson and Stanfield pistols. Jackson then said, “Let’s go,” or “Let’s move it,” and he and Bennett left. They drove to Baptist Memorial Hospital in downtown San Antonio where they were met by James and Stanfield, who had preceded them. Bennett asked Jackson why Stanfield and James were there, and he replied that they were acting as lookouts for the police.

Shortly thereafter, federal agents, posing as buyers, arrived and Bennett walked over to their car. Upon returning to her own car, she heard James tell Jackson that, “the contact had been made.”

In response to one of the agent’s requests for a sample, Jackson entered the hospital to obtain it from Frank Garcia, who had arrived in a separate car driven by appellant Antonio Vasquez. Jackson and Bennett delivered the sample, but a slight delay ensued when Garcia insisted that the sale take place inside the hospital while the agent refused to deal except in the parking lot. Garcia went back to his car, and Vasquez began to drive away from the hospital. He was driving very slowly, however, and the agent was able to stop the car in the middle of the street and persuade Garcia to make the sale. Carmen Jaramillo, a passenger, requested Vasquez to pull into the parking lot, which he did. He then got out of the car, went over a small abutment and began looking up and down the street. Garcia and the agent finalized their deal, and as the agent raised the government car’s trunk to “get the money,” James, Stanfield, Vasquez, Jackson, Garcia, and Jaramillo were arrested. After a jury trial, James and Stanfield were found guilty of violating 21 U.S.C. § 846 by conspiracy to possess with intent to distribute approximately ten ounces of heroin, and of aiding and abetting such offense, in violation of 18 U.S.C. § 2. Appellant Vasquez was acquitted of the conspiracy count but convicted of aiding and abetting. We affirm the convictions of all three appellants.

I.

Appellants James and Stanfield argue that the court erred in permitting Bennett to repeat Jackson’s statement to her that they were acting as lookouts for the police. We hold that the statement, although hearsay, was properly admitted as the declaration of a co-conspirator made during the course of the conspiracy and in furtherance of it.

Of course, in order for a statement made out of the presence of the defendant to be admissible under this exception, there must be proof aliunde of the existence of the conspiracy and of the defendant’s connection with it. Glasser v. United States, 315 U.S. 60, 74, 62 S.Ct. 457, 86 L.Ed. 680 (1942), Montford v. United States, 200 F.2d 759, 760 (5th Cir. 1952). That requirement was clearly satisfied in this case. The government introduced uncontradicted evidence that Jackson arranged the presale rendezvous at James’ house, at which time James gave pistols to Jackson and Stanfield after conferring with Jackson; that James and Stanfield arrived at the location for the deal prior to Jackson; that James told Jackson that “the contact” had been made; and that a loaded pistol was found on the floorboard of the car driven by James and Stanfield. Further, several government agents testified that after their arrival on the scene but before the arrest, James and Stanfield spent their time walking around the area, constantly looking around, as if “they had muscle spasms or something in their neck,” according to one witness. They interrupted this activity on several occasions to converse with Bennett or Jackson, both of whom were attempting to finalize the transaction.

The trial judge has substantial discretion in determining whether there is adequate independent evidence of a conspiracy. Such evidence need only be credible and sufficient to support a finding of a joint undertaking; the conspiracy’s existence need not be proved beyond a reasonable doubt. We think it plain that the trial judge here was correct in finding' that adequate independent evidence had been presented to establish the existence of the conspiracy.

But in order to be admissible against one not present when the statement was made, it must have been made “in furtherance of the conspiracy.” Although this phrase has a talismanic ring to it, we must not apply the standard too strictly, lest we defeat the purpose of the exception. It is true, of course, that mere conversation between conspirators is not admissible under this exception. United States v. Birnbaum, 337 F.2d 490, 495 (2nd Cir. 1964). That is not what we have here, however. Jackson, of course, was unaware that Bennett was a government agent; he considered her a full-fledged partner in crime. She had not known of James’ and Stanfield’s involvement, and therefore had legitimate reasons to be suspicious of their presence; Jackson was acting in the interests of the conspiracy by allaying these suspicions. The statement was made in furtherance of the conspiracy.

II.

Appellants argue that the trial judge erred by acting as a prosecutor and failing to maintain the requisite judicial impartiality. Specifically, they object to the judge’s admonitions to counsel for appellant James. We conclude that although the judge may have been unnecessarily severe in his comments to counsel, his actions did not so prejudice the jury as to deprive appellants of a fair trial, and are therefore not reversible error.

Appellants complain of the following judicial interventions: the court instructed counsel to “proceed to the next question” after he had asked the same question, and been answered, three times; the court insisted that a certain street was “a minimum of fifteen feet” wide, while counsel wished to stipulate a width of twelve feet; he admonished counsel, “I don’t want minutes between questions. Let’s move along;” finally, when counsel asked permission to make an offer of proof, the judge replied, “You can do that in the Fifth Circuit properly. Do it in New Orleans, not here. . I’m not going to let you clutter up this record any more. We are trying a very simple case, and you are trying to complicate it.”

As we have noted on many occasions, a federal trial judge is more than a moderator; in fulfilling his duty to see that the law is administered properly, he may question witnesses and comment on the evidence. Gomila v. United States, 146 F.2d 372 (5th Cir. 1944). He must be especially careful, however, given the great influence he exercises over the jurors, to intervene in a timely, nonprejudicial manner. United States v. Jacquillon, 469 F.2d 380, 387 (5th Cir. 1972); United States v. DeLaughter, 453 F.2d 908 (5th Cir. 1972). Above all, he must maintain his impartiality, never giving the jury an impression of his feelings as to the accused’s guilt or innocence.

The judge in this case very nearly violated this cardinal rule in telling James’ attorney that he 'could, “do that in the Fifth Circuit properly. Do it in New Orleans, not here.” To a mind moderately sophisticated in legal matters, this comment could readily be understood as meaning that the judge presumed that James would be convicted and would therefore appeal to this court. Three factors have persuaded us, however, that although the comment should not have been made, it does not constitute reversible error. First, we believe that a jury composed of laymen understood the statement to mean, “If your client is convicted and appeals, you can take up this matter with the Fifth Circuit.” Second, we must remember that this dialogue occupied but a few seconds of a lengthy trial, and concerned a procedural question far removed from the substantive issues to be decided by the jury. In this context, it is appropriate to recall the warning of Justice Frankfurter:

In reviewing criminal cases, it is particularly important for appellate courts to relive the whole trial imaginatively and not to extract from episodes in isolation abstract questions of evidence and procedure. To turn a criminal appeal into a quest for error no more promotes the ends of justice than to acquiesce in low standards of criminal prosecution. Johnson v. United States, 318 U.S. 189, 202, 63 S.Ct. 549, 555, 87 L.Ed. 704 (1943).

Third, even if the jury was influenced by the judge’s comments, we believe his curative instruction in his charge overcame any possible prejudicial effect, including any prejudice resulting from the criticism about cluttering up the record.

Finally, we find no merit in any of appellants’ other complaints of judicial intervention.

III.

Appellants’ next contention is that the trial court erred in refusing to permit counsel for James to recall government agent Robert J. Hale as his witness after the government rested its case. If this is not error, they argue that the judge erred in denying counsel permission to make an offer of proof as to what agent Hale would testify.

A trial judge has broad discretion in controlling the extent of direct and cross-examination. Curtis Publishing Co. v. Butts, 351 F.2d 702, 715 (5th Cir. 1965) aff’d 388 U.S. 130, 87 S.Ct. 1975, 18 L.Ed.2d 1094 (1965); Roberson v. United States, 249 F.2d 737, 742 (5th Cir. 1957). Here, agent Hale had already testified and been cross-examined extensively by James’ counsel. It is true that a subsequent witness gave a slightly different account of the occurrences at the hospital, but there was no direct conflict between the testimony of the two men on any crucial point. Under these circumstances, the trial judge did not abuse his discretion in refusing to permit recall of Hale for further cross-examination; just as clearly, James’ counsel cannot circumvent this ruling by claiming a right to call Hale as his own witness for questioning on this point of limited significance.

The judge erred in refusing to allow James’ counsel to make an offer of proof. Although there is no rule of criminal procedure analogous to Rule 43(e) of the Federal Rules of Civil Procedure, counsel should nevertheless be permitted to demonstrate what he intends to prove in order that the appellate court may pass most intelligently on the challenged ruling of the trial court. The trial judge was simply wrong when he told counsel he could make his offer of proof on appeal; clearly, the trial court is the proper place for such an offer. Pennsylvania Lumbermens Mutual Fire Insurance Co. v. Nicholas, 253 F.2d 504, 507 (5th Cir. 1958).

Nevertheless, we are convinced that the error in the present case was harmless. The discrepancy which James’ counsel wished to explore was simply that while agent Overstreet testified that James had left the immediate area some time after his arrival, agent Hale, who had not been asked about James’ movements, had said nothing about them. Whether he left or not, there is no dispute that he returned some time prior to the arrest. In light of the evidence connecting James with the transaction, we cannot agree that the court’s refusal to let counsel explore this small point constitutes reversible error.

IV.

Finally, appellants urge that the trial court should have granted their motions for acquittal because of the insufficiency of the evidence.

The standard to be applied by a jury in a criminal case is the same regardless of the nature of the evidence: the defendant must be proved guilty beyond a reasonable doubt. Holland v. United States, 348 U.S. 121, 75 S.Ct. 127, 99 L.Ed. 150 (1955). The standard to be applied by the court on a motion for acquittal is similar. Whether the evidence is direct or circumstantial, the question of the defendant’s guilt is for the jury to decide unless the judge, viewing the evidence in the light most favorable to the government, concludes that the jury would necessarily have to have a reasonable doubt; if he so concludes, he must grant the motion for acquittal. United States v. Warner, 441 F.2d 821 (5th Cir. 1971). See 2 C. Wright, Federal Practice and Procedure, § 467 at 259. Conversely, if a jury might have a reasonable doubt or might not have one, the judge must deny the motion and allow the jury to make the decision. Curley v. United States, 81 U.S.App.D.C. 389, 160 F.2d 229 (1947).

To be found guilty either as an aider and abettor or as a conspirator, defendants must be found to have participated in the sale of the heroin as something they wished to bring about, and must have actively sought to make their goal succeed. Merely being a knowing spectator is insufficient. United States v. Martinez, 479 F.2d 824, 829 (1st Cir. 1973). See United States v. Garguilo, 310 F.2d 249, 254 (2nd Cir. 1962). And of course, in order to meet its burden of presenting evidence from which a jury might properly find these acts to have been proved beyond a reasonable doubt, the government must present more than a mere scintilla of evidence; it must produce evidence which, if believed, affords a substantial basis in fact from which the defendant’s guilt can be inferred. United States v. Roberts, 465 F.2d 1373 (6th Cir. 1972); United States v. Martin, 375 F.2d 956 (6th Cir. 1967).

Applying these tests to the present case, we hold that the trial judge was correct in overruling James’ and Stanfield’s motions for acquittal. There was ample evidence which, if believed, proved that, far from being mere knowing spectators, the two had deliberately gone to the hospital to act as armed lookouts. Whether that evidence was to be believed was for the jury to decide; the judge acted properly in refusing to take that decision away from it.

The majority feels that denial of Vasquez’s motion was proper also. I, however, reach a different conclusion as to him. The government’s relevant evidence against him, if believed, proved only that he parked the car in which Garcia and Jaramillo were riding, exited when he observed the drugs, stepped over an abutment and looked up and down the street. The arrests were made almost immediately after Vasquez went over the abutment; he was carrying a pistol and ammunition at the time of his arrest.

This evidence proves no more than that Vasquez was, at most, a knowing spectator. There is simply no substantial factual basis from which the jury could properly infer that Vasquez actively sought to make the sale succeed. The evidence is quite similar to that held insufficient in Orozco-Vasquez v. United States, 344 F.2d 827 (9th Cir. 1965). There, the defendant was shown to have driven his girlfriend from her house to the scene of the sale, waited in the car, and driven her back home. See also United States v. Pratt, 429 F.2d 690 (3rd Cir. 1970) where the court held insufficient to support a conviction of aiding and abetting the sale of heroin, evidence that the defendant spoke with the seller, peered in through the windshield of a car at the federal agent posing as the buyer, spoke to the seller again, got in the car and was present when the sale was made, at which time the seller told the agent that the defendant had “put” four dollars toward the purchase of the heroin.

For the above reasons, the convictions of appellants are

Affirmed.

CLARK, Circuit Judge:

Judge Thornberry and I are convinced that the evidence adduced as to Vasquez’s activities was sufficient to support the jury’s verdict. Because our difference is so largely factual, we have extracted from the record the following summary of Vasquez’s participation in this transaction, viewed in a light most favorable to that verdict.

Prior to these 1973 events, Vasquez had known Garcia for 8 or 9 years. On the afternoon of November 3rd, Garcia sought out Vasquez at a pool game in a bar and asked to borrow his gun. Vasquez testified that Garcia wanted the gun when he went to the hospital room of an injured black man, as Garcia thought he was wrongfully suspected by the wounded man’s friends of responsibility for his wounds and needed the gun for protection until he could make his explanation. Vasquez stated he refused the loan but offered to arm himself and accompany Garcia. When Vasquez got to Garcia’s car outside the bar he saw that Carmen Jaramillo, a female he had met before, was waiting in the car. The three then went to .Vasquez’s home and Vasquez armed himself. Garcia, Jaramillo and Vasquez next went to a small parking lot at the side of the hospital. (Vasquez claimed Garcia drove the car to this point.) Upon their arrival, Vasquez, Garcia and Jaramillo went into the hospital together. Inside the hospital Garcia left Vasquez and Jaramillo for a short time and met with Jackson and Bennett. (Vasquez stated that although his mission was to protect Garcia, he and Jaramillo sat in the waiting room and Garcia went on alone to his “dangerous” meeting.) While Vasquez was still inside the hospital, Jackson and Bennett exited the hospital, conferred with the government undercover agent, Castro, and another participant in the heroin exchange, reentered the hospital and again conferred with Garcia. Jackson, Bennett and Garcia then left the hospital together for a second meeting with Castro. Garcia entered the hospital a second time and a few minutes later walked out of the hospital right behind Jaramillo and Vasquez. James, Stanfield and Jackson now were also outside the hospital a short distance away and they were engaged in a conversation. Garcia left Jaramillo and Vasquez, met with Jackson briefly, and then rejoined Jaramillo and Vasquez. (Vasquez testified that he was very impatient to leave because he and his wife were going to a wedding that evening. He further stated that while inside the hospital Garcia had given him the keys to the car and told him to drive it back to the bar so he could pick up his own auto and get on to the wedding.)

After these comings and goings Vasquez, Garcia and Jaramillo got back into Garcia’s car, with Vasquez at the wheel, and proceeded slowly from the doctor’s parking lot, where the car first had been improperly parked, to a brief stop in the inner traffic lane of the street just outside the hospital’s public parking lot. (Vasquez testified that he really was on his way back to pick up his car at the bar, but agreed to a detour “for just one beer,” and that he had stopped the car in the middle of the street because Castro had hailed them down at that point.) When Vasquez made this stop, a government vehicle operated by agent Castro was just inside the parking lot, and while the two vehicles were thus stopped, Castro came to the passenger side of Garcia’s car and, in the presence of Vasquez, asked Jaramillo and Garcia if they had the “dope”. A discussion followed as to whether the money or the heroin would be first shown. Vasquez admitted he heard and understood this conversation. Vasquez then drove Garcia’s car into the hospital parking lot and parked it two spaces away from where Castro had parked the government vehicle. (He claimed he drove on to this point solely to get Garcia’s car out of traffic.) Vasquez remained behind the steering wheel of Garcia’s car while Garcia went to Castro’s vehicle and brought Castro back to the Garcia car to see the heroin. When Castro and Garcia returned to Garcia’s car, Jaramillo removed a brown bag containing the heroin from her purse and gave it to Garcia, who showed its contents to agent Castro. Vasquez was the only other occupant of Garcia’s vehicle when this transpired. When the bag was handed to Castro, Vasquez got out of the car, walked to the front of the vehicle, squatted down and looked to both sides. He then walked to an abutment at the edge of the parking lot, looked both ways along the street and back into the parking lot. At this time, agents closed in and arrested those present. When Vasquez was apprehended he had his gun, loaded with 6 live rounds of ammunition, tucked in his waist band and another 9 rounds of ammunition in his pocket.

While Vasquez’s conduct may have been a far-fetched but, as he contended, unknowing effort to assist his friend Garcia in a hazardous confrontation, a reasonably-minded jury could also have concluded that his activities were consistent with those of a bodyguard-lookout, constantly in the thick of things, who intended to aid and abet the commission of a crime by protecting Garcia’s interests in an illicit narcotics transaction. The court correctly submitted this issue to the jury and their resolution of it is due to be affirmed. See United States v. Jimenez, 496 F.2d 288 (5th Cir. 1974).

      . There is a conflict in the evidence as to whether the car stopped before or after the agent moved toward it.

      . United States v. Johnson, 467 F.2d 804, 807 (1st Cir. 1972).

      . United States v. Elliott, 437 F.2d 1253, 1255 (5th Cir. 1971); United States v. Martinez, 481 F.2d 214, 220-221 (5th Cir. 1973).

      . See Salazar v. United States, 405 F.2d 74 (9th Cir. 1968) (statement by co-conspirator to agent, waiting to purchase narcotics, that other co-conspirator was inside making preparations held admissible); United States v. Hutchinson, 488 F.2d 484 (8th Cir. 1973) (statement by co-conspirator to agent that his source of cocaine was other co-conspirator held admissible).

      . The judge charged: “It is the duty of counsel for both sides to present by way of objections, motions and similar procedural [sic] matters of law affecting the case for the court’s consideration and determination. Also, all such matters of law and their presentation' by counsel must be entirely disregarded by you. They are matters of procedure which you have no concern with, neither presentation of such matters by counsel for either side nor any arguments made in support or in opposition to any of them, or remarks or rulings of the court thereon have any bearing upon your deliberations and you must put all such matters out of your mind, They should not influence you in any way, shape or form in arriving at a verdict.”

      . The government contends that he was acting as a lookout, while he testified that he wanted to leave the hospital area, having realized that a narcotics sale was about to take place, and was looking for a bus. The government’s evidence as to his activity was contradictory: agent Wood testified that he “was not concerned with what was transpiring behind him,” while agent Hale testified that, “[h]e looked back into the parking lot numerous times, and on one occasion he stared directly at Agent Wood and myself for a couple of minutes.”


author: WISDOM, Circuit Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Manuel Federico MADRID, Defendant-Appellant.
    Nos. 74-1851, 74-2296.
    United States Court of Appeals, Fifth Circuit.
    March 28, 1975.

      Robert E. Kennedy, El Paso, Tex., (Court appointed), for defendant-appellant.
    William S. Sessions, U. S. Atty., San Antonio, Tex., Ron Ederer, William B. Hardie, Jr., Asst. U. S. Attys., El Paso, Tex., for plaintiff-appellee.
    Before BROWN, Chief Judge, and MURRAH  and WISDOM, Circuit Judges.

       Senior Circuit Judge of the Tenth Circuit sitting by designation.

   WISDOM, Circuit Judge:

This case began on January 19, 1974 when Manuel Federico Madrid drove up to the permanent checkpoint maintained by the border patrol near White Sands, New Mexico. Traveling with him were two girls and a young child. Border patrol agents stopped his car for routine questioning about citizenship, and Madrid identified himself as a United States citizen. Asked about his passengers, he shrugged. They, when questioned by agents, admitted to being Mexicans, illegally in the United States. When asked how they happened to be in the car, they explained that Madrid had picked them up hitchhiking. They also added that Madrid was related to them by marriage. Madrid told essentially the same story, but denied being related in any way to his passengers. The agents released Madrid but detained the women for questioning.

Later, on further questioning, the girls changed their story. They explained that by prearrangement they had met a woman in Juarez, that she had accompanied them across a foot bridge over the Rio Grande, and, that after a bus ride to a suburban area, they had arrived at a house where they were met by Madrid. He was to drive them to Santa Fe, but their ultimate destination, they testified, was Chicago. Madrid, at trial, continued to assert that he had picked up the girls as they walked along the highway and that he did not know that they were aliens illegally in the United States. A jury nonetheless found him guilty of two counts of knowing transportation of illegal aliens, in violation of 8 U.S.C. § 1324(a)(2). The trial court then revoked his probation and reinstated his sentence on a previous conviction of aiding and abetting aliens to elude examination by immigration officials.

On appeal, Madrid challenges his conviction and the revocation of his probation. First, he asserts that because venue was not properly laid in the Western District of Texas, the trial court erred in refusing to transfer the case to the Southern District of New Mexico. Venue, however, need only be proved by a preponderance of the evidence, and it is enough if venue may be inferred from all of the evidence presented. See United States v. Trenary, 9 Cir. 1973, 473 F.2d 680; Bellard v. United States, 5 Cir. 1966, 356 F.2d 437, cert. denied 385 U.S. 856, 87 S.Ct. 103, 17 L.Ed.2d 83. There was sufficient evidence here to support the conclusion that Madrid’s passengers entered the United States at El Paso, Texas and that Madrid met them there.

He also contends that the trial court erred in admitting into evidence his prior confession, given in October 1973, to the transportation of illegal aliens. In that confession Madrid admitted that he had known that the twenty-six aliens in the trailer he was driving at the time of that arrest were illegal aliens. He explained, in the confession, that his part in that transaction was to transport the aliens from El Paso to Albuquerque. From there another driver was to take them to Chicago. He admitted that on numerous prior occasions he had participated in transporting illegal aliens. His confession thus indicated that as recently as three months before the transaction forming the basis of the present prosecution, Madrid had been engaged in transporting illegal aliens from El Paso, Texas to north-central New Mexico. The prior offense, of which Madrid was convicted, was both recent and similar to the offense charged here. Admission of such evidence is a matter within the broad discretion of the trial court and is proper, where, as here, it is introduced not to show a propensity to commit crime but to show knowledge. United States v. Fonseca, 5 Cir. 1974, 490 F.2d 464; United States v. Bryant, 5 Cir. 1974, 490 F.2d 1372. See United States v. Broadway, 5 Cir. 1973, 477 F.2d 991. Knowledge is a necessary element of the crime defined by 8 U.S.C. § 1324(a)(2). Madrid’s defense at trial was that he did not know that the girls he was transporting were illegal aliens. Furthermore, there is no merit to the argument that the trial judge, in his charge to the jury, failed to give adequately limiting instructions.

Madrid abandoned, on oral argument, his contention that the prior offense was so dissimilar to the offense charged below as to be inadmissible. He now contends that it was error for the court to admit into evidence the defendant’s confession to that prior offense. This contention is without merit. Madrid made the statement in question after he had been given his Miranda warnings. Nothing suggests that it was not made voluntarily. There was nothing inherently improper in allowing it into evidence. See Reid v. United States, 9 Cir. 1964, 334 F.2d 915; Stewart v. United States, 9 Cir. 1962, 311 F.2d 109. Nor was there anything in the statement that was both prejudicial and irrelevant to the purpose for which it was introduced. Indeed, the statement added the “plain, clear, and convincing proof” of the prior similar offense and its circumstances that our case law requires. See United States v. San Martin, 5 Cir. 1974, 505 F.2d 918, 921-22. The need for such evidence did, we conclude, outweigh its possibly prejudicial effect.

Madrid also challenges the lawfulness of the stop and the admission of evidence obtained as a result of it. This was, however, a routine investigatory stop, and the checkpoint, although some forty miles north of the United States-Mexico border, was reasonably situated to intercept traffic, on Highway 70 — 82, bound northeast from border areas. Three highways running north from the border or its immediate vicinity parallel the Rio Grande River. At Las Cruces, one road, Highway 70-82, heads northeast. The stop was made, the appellant conceded, at a “permanent checkpoint”, as delineated in United States v. Hart, 5 Cir. 1975, 506 F.2d 887. There this Court observed that the law of the Circuit holds that “permanent checkpoint searches of motor vehicles conducted as ‘border searches’ for aliens meet the reasonableness standards of the Fourth Amendment.” 506 F.2d at 892. On this authority we uphold the lawfulness of the challenged stop. The disposition we make of the foregoing points of error relieves us of considering the appellant’s contention that the trial court erred in relying on inadmissible evidence to revoke Madrid’s probation.

The judgment of the trial court is affirmed.

      . One of the border patrol testified:
      It’s a permanent checkpoint that was built by the White Sands Missile Range for the purpose of stopping all the vehicles traveling the Highway 70-82 in order to fire their missiles over the highway . . . It’s approximately 250-300 yards long, approximately 50 yards wide. It’s a pull-off area alongside the highway. It has warning signs which allow traffic — warn traffic there is a road block ahead. There are three of these signs approximately five feet by six feet in dimension. There’s a large stop sign there approximately five feet high, and the checkpoint also is equipped with lighting systems and cones in order to have traffic pull over to the side of the road by the stop sign. . . . [T]his particular highway, 70-82, is frequently used for transportation of illegal aliens into the interior of the United States.

      . In United States v. Hart this Court discussed border searches in detail and compiled a complete list, by categories, of all the border searches the Court has decided in the last two years.


author: AINSWORTH, Circuit Judge:

text:
    Maria del Carmen Llanso de REAL et al., Plaintiffs-Appellants, v. William E. SIMON, as Secretary of the Treasury of the United States of America, et al., Defendants-Appellees.
    No. 74-1747.
    United States Court of Appeals, Fifth Circuit.
    March 27, 1975.
    Rehearing and Rehearing En Bane Denied 510 F.2d 738.
    See 514 F.2d 738.

      Joseph A. McGowan, Miami, Fla., for plaintiffs-appellants.
    Robert W. Rust, U. S. Atty., Clemens Hagglund, Asst. U. S. Atty., Miami, Fla., William B. Saxbe, Atty. Gen., William Olson, Asst. Atty. Gen., Robert L. Keuch, Benjamin C. Flannagan, Thaddeus B. Hodgdon, Jonathan B. Smith, Attys., U. S. Dept, of Justice, Washington, D. C., John J. O’Neill, Law Dept., New York City, for defendants-appellees.
    Before BELL, AINSWORTH and RONEY, Circuit Judges.
   AINSWORTH, Circuit Judge:

This case requires us to undertake the difficult task of resolving a conflict regarding the rights to assets located in the United States blocked by the Secretary of the Treasury but claimed by former Cuban nationals now residing in the United States. Appellants seek to have us reverse the decision of the district court, asserting the property rights of Cuban nationals who have sought refuge in this country from an oppressive, dictatorial regime. The Government of the United States, however, would have us affirm the trial court’s judgment on the basis of the important national interest inherent in the conduct of this country’s foreign affairs.

Appellants are the surviving heirs of Urbano Real, a Cuban national who died intestate on December 2, 1965, while still a citizen and resident of Cuba. Maria del Carmen Llanso de Real, the widow of Urbano Real, came to this country in June of 1966 after the death of her husband, and presently is an alien residing in Miami, Florida. Mercedes Real de Carillo is the daughter of Urbano Real. She is a naturalized citizen of the United States, and also resides in Miami. Maria Pantin Vitier and Suzanne Pantin Freyre are both granddaughters of Urbano Real, and are daughters of a deceased daughter of Real. Both granddaughters are naturalized citizens of the United States and reside in Miami.

Prior to July 8, 1963, Real and his wife were the joint holders of a securities account with Merrill Lynch, Pierce, Fenner and Smith, a brokerage firm with offices in Miami, Florida. On July 8, 1963, this account, along with all other assets in the United States owned by the Cuban government or Cuban nationals, was frozen or “blocked” by promulgation of the Cuban Assets Control Regulations of the Treasury Department, 31 C.F.R. Part 515. These regulations prohibit the transfer, sale or any other transaction regarding such assets without a license issued by the Treasury Department. See 31 C.F.R. § 515.201 (1974). This action by the United States Government blocked, as of July 8, 1963, $148.8 million of Cuban assets in the United States. It has been the policy of the United States to allow Cuban refugees arriving in this country or taking up residence elsewhere to obtain their blocked assets. Though Urbano Real’s family came to this country, Real himself did not or could not leave Cuba. After Real died in Cuba in 1965, his wife left that country for the United States, where she joined her family- .

After Mrs. Real arrived in the United States, she attempted to gain possession of the blocked securities account. Mrs. Real was able to obtain a license from the Treasury Department on January 25, 1967, giving her title and possession of one-half the Merrill Lynch securities account, which was her entitlement under the community property law of Cuba. Partial unblocking of the account was authorized under 31 C.F.R. § 515.525 (1974). The other half of the securities account (of the value in excess of $80,-000), however, remains blocked, and is the subject of this litigation.

As indicated previously, Urbano Real died without leaving a will. On August 18, 1971, the County Judge’s Court of Dade County, Florida, ordered and adjudged that the four plaintiffs in this case were the sole heirs of Urbano Real. The judgment declared that each of the granddaughters was the owner of one-sixth of the estate, and that Real’s wife and daughter were each the owners of one-third.

Subsequently, the appellants sought a license from the Treasury Department which would give them their respective shares of the still-blocked portion of the securities account. On September 20, 1971, the Treasury Department granted restricted licenses to the parties, which allowed transfer of the account to the names of the appellants, but required that “the securities remain in a blocked account with the decedent’s interest shown.” This action continued the blocked status of the fund. Appellants’ request for an unrestricted license was formally denied on October 22, 1971. This litigation then followed, with the purpose of requiring the Treasury Department to issue appellants an unrestricted license for Urbano Real’s securities — in effect, to give each person sole possession and control of her respective share of Urbano Real’s estate.

The district court upheld the Treasury Department’s refusal to unblock the remaining portion of the securities account. The court rejected appellants’ contention that the Treasury’s actions were unauthorized or that they constituted an unconstitutional deprivation of property without due process of law in violation of the Fifth Amendment. We reverse the district court’s judgment and hold that appellants are entitled to an unrestricted license which will enable each party freely to transfer or dispose of her portion of the securities account.

I. The Statutory Authorization for the Cuban Assets Control Regulations.

Appellants’ first contention is that the Cuban Assets Control Regulations are void as applied to them because the regulations lack express congressional authorization. The Government contends that the statutory basis for the regulations is the Trading with the Enemy Act, 50 U.S.C. App. § 1 et seq. The operative provision of the Trading with the Enemy Act is section 5(b), which provides, in part, that:

(b)(1) During the time of war or during any other period of national emergency declared by the President, the President may, through any agency that he may designate, or otherwise, and under such rules and regulations as he may prescribe, by means of instructions, licenses, or otherwise—
(B) investigate, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest, by any person, or with respect to any property, subject to the jurisdiction of the United States

This nation is under a declaration of national emergency insofar as the Trading with the Enemy Act is concerned, and has been continually since President Truman declared a national emergency in 1950 due to events in Korea. See Exec. Order No. 10896, 25 F.R. 12281 (1960); Exec.Order No. 10905, 26 F.R. 321 (1961); Exec.Order No. 11037, 27 F.R. 6967 (1962); Sardino v. Federal Reserve Bank of New York, 2 Cir., 1966, 361 F.2d 106, 109, cert. denied, 385 U.S. 898, 87 S.Ct. 203, 17 L.Ed.2d 130. Thus, as the Second Circuit in Sardino specifically held, the Cuban Assets Control Regulations are authorized under the Trading with the Enemy Act. See Nielsen v. Secretary of Treasury, 1970, 137 U.S. App.D.C. 345, 424 F.2d 833, 837-838; see also Propper v. Clark, 337 U.S. 472, 69 S.Ct. 1333, 93 L.Ed. 1480 (1949).

Appellants contend, however, that an intervening Act of Congress has limited the scope of permissible governmental action regarding Cuba. They argue that the Foreign Assistance Act of 1961, Public Law 87—195, Sept. 4, 1961, 75 Stat. 424 has narrowed the range of economic sanctions Congress intended to impose on Cuba. Section 620(a) of that Act provides:

Sec. 620. Prohibitions Against Furnishing Assistance to Cuba and Certain Other Countries.—
(a) No assistance shall be furnished under this Act to the present government of Cuba. As an additional means of implementing and carrying into effect the policy of the preceding sentence, the President is authorized to establish and maintain a total embargo upon all trade between the United States and Cuba.

75 Stat. 444-445 (emphasis added). Section 621 of the Foreign Assistance Act of 1961 deals with the delegation of administrative responsibilities, and provides:

Sec. 621. Exercise of Functions.—
(a) The President may exercise any functions conferred upon him by this Act through such agency or officer of the United States Government as he shall direct. The head of any such agency or such officer may from time to time promulgate such rules and regulations as may be necessary to carry out such functions

75 Stat. 445. Appellants’ contention is that the 1961 Act, being later in time than the Trading with the Enemy Act, impliedly modifies that Act, and restricts American governmental action against Cuba to a trade embargo. Since the unblocking of these assets would not impinge upon a trade embargo, it is then reasoned, the regulations are contrary to the authorizing statute.

Appellants do not cite, nor have we been able to locate, any portion of the legislative history of the 1961 Act that would indicate either an explicit or implicit intention on the part of Congress to limit Executive attempts to respond to the Cuban crisis. Absent clear and unequivocal evidence of such intent, we are unwilling to announce a limitation on the President’s powers to conduct the foreign affairs of this country. Cf. Silver v. New York Stock Exchange, 373 U.S. 341, 357, 83 S.Ct. 1246, 1257, 10 L.Ed.2d 389 (1963); Posadas v. National City Bank, 296 U.S. 497, 503, 56 S.Ct. 349, 352, 80 L.Ed. 351 (1936). We find no inconsistency in the two acts, and believe that the Foreign Assistance Act of 1961 should be viewed as bolstering, rather than limiting, the powers of the Executive Branch to deal with the Cuban problem. Our conclusion that the regulatory scheme in general has statutory authorization does not, however, decide the issue whether the application of the regulations to the unique facts of this case is consistent with the legislation from which the regulations derive their power.

II. Are the Regulations, As Applied to Appellants, Authorized by the Trading with the Enemy Act?

No case yet decided has considered the factual circumstances presented in this case. Involved are three American citizens and one lawfully admitted resident alien who are the sole survivors of a deceased Cuban national, and who claim ownership of securities held in the United States. There is no contention by the United States that the Cuban government has any right or claim to this property, nor is there any assertion that any person in Cuba has any interest in the property. Section 5(b) of the Trading with the Enemy Act, relied on by the Government as the source of its power to block the account in question, gives the President power to prevent the ■transfer or withdrawal of any property subject to the jurisdiction of the United States “in which any foreign country or a national thereof has any interest ..” Reference to the decisions upholding the application of the regulations in question emphasizes the important differences between previous cases and the present one.

In Sardino, supra, a Cuban national residing in Havana claimed funds in a blocked account in the United States. Since a Cuban national obviously had an interest in the blocked funds, the Second Circuit was clearly right in holding that this was a situation to which the statute applied so as to prohibit the transfer or disposal of Cuban assets. If Urbano Real were alive and residing in Cuba, the transfer of funds in an account in the United States held by him could be prohibited under the authority of Sardino. In Nielsen, supra, three Cuban refugees owned 750 out of 1,000 shares of a Cuban corporation. The corporation had funds in an American account, and the three plaintiffs unsuccessfully sought their proportional share of account. However, 25 per cent of the shares of the corporation were still owned by Cuban nationals, and the court noted that it would have to disregard “the corporate entity and national character of the Cuban corporation owning the assets” in order to conclude that neither Cuba nor a Cuban national still had an interest in the corporate funds. See 424 F.2d at 842. If one of Urbano Real’s heirs presently resided in Cuba, there would be an interest of a foreign national in the blocked account which might, under the Nielsen rationale, prevent transfer of any part of the blocked assets.

A case similar to Nielsen is Cheng Yih-Chun v. Federal Reserve Bank of New York, 2 Cir., 1971, 442 F.2d 460, decided under the analogous Foreign Assets Control Regulations, 31 C.F.R. Part 500. Cheng was a resident of Hong Kong; his mother and four brothers and sisters resided in Shanghai. Cheng’s father died leaving $62,000 in a New York bank account. Cheng’s family attempted to transfer their interest in the account to Cheng by giving him, prior to the date Chinese assets were blocked, a Power of Attorney and relinquishing to him all their claims to the New York account. The district court held, however, that the Power of Attorney did not transfer the Shanghai heirs’ interest to Cheng. Since Communist Chinese nationals still retained an interest in the blocked account, the Second Circuit upheld the Government’s refusal to transfer the funds to Cheng.

In contrast to the preceding cases, however, there is no living person in the “designated foreign country” (Cuba) who retains an interest in the blocked account in question here. If neither the government of Cuba nor any person in Cuba has any interest or claim to the blocked property, the Trading with the Enemy Act would be inapplicable, because the Act states that the power to prohibit or license transfers of property in the United States applies only to “any property in which any foreign country or a national thereof has any interest . .” Trading with the Enemy Act, 50 U.S.C. App. § 5(b)(1)(B).

The Treasury Department apparently recognized this dilemma, because its regulations attempt to circumvent the problem. The regulations define the term “blocked account” as “an account in which any designated national has an interest . . . .” 31 C.F.R. § 515.319 (1974). The most important regulation bearing on this case, however, is 31 C.F.R. § 515.327 (1974), which defines a “blocked estate of a decedent.” This provision says that an estate is blocked if any designated (Cuban) national has an interest therein, and goes on to state: “A person shall be deemed to have an interest in a decedent’s estate if he was the decedent . . . .” Thus, the Government concedes that in order validly to block the account, a Cuban national must have an interest therein. But this prerequisite is satisfied in this case if, and only if, the regulation may validly hold that the decedent, Urbano Real, retains an interest in his estate after his death, since every other person with an interest in the estate resides in the United States.

In considering whether the Government may validly promulgate a regulation which deems a decedent to have an interest in his estate, it is necessary also to consider the purposes behind the Trading with the Enemy Act and the Cuban Assets Control Regulations. The Government at oral argument described the purposes behind the regulations as being three-fold: (1) to deny to Cuba or its nationals hard currency which might be used to promote activities inimical to the interests of the United States; (2) to retain blocked funds for possible use or vesting to the United States should such a decision be made; and (3) to use blocked funds for negotiation purposes in discussions with the Cuban government.

No contention is advanced here that appellants intend to use the blocked account for or on behalf of the Cuban government. If the United States had a reasonable basis to believe this were the case, it would be proper to deny appellants access to the blocked assets. Nor do we believe it logical to contend that the Government could use this fund as a tool to gain leverage in negotiations with the Cuban government. Cuba has no stake or interest in appellants’ securities account and is not concerned with its disposition. Thus, the only national interest or purpose which can properly be advanced to support the Government’s action is the second numbered reason described above. The Government argues that it might choose to use these blocked funds to provide compensation to Americans whose property was confiscated by the Cuban government, and that this court should not rule in a manner which would obviate the possibility of such a decision.

The fact that a number of previous decisions found this argument persuasive, see note 8, supra, is not conclusive, for no previous case has involved a situation where all claimants to the blocked fund were American residents. This distinction is critical, because we have clear direction from Congress that it is not the intent of this country to use the property of one group of Americans to provide compensation to another group.' In 1965, Congress was urged to pass legislation requiring the unblocking of Cuban assets which were in fact totally or substantially owned by Americans. The pressure for such legislation came in large part from Americans with interests in Cuban corporations who were unable to secure corporate assets held by these corporations in the United States. In addressing this appeal, which is essentially the same as appellants’ claim, the Senate Foreign Relations Committee stated as follows:

[T]he Committee on Foreign Relations recommends that upon application the Department of the Treasury examine with particular care each case involving Cuban assets beneficially owned by American citizens to determine whether those assets should continue to be blocked. In the committee’s view, if the assets are wholly or substantially owned by citizens and residents of United States they should be unblocked, since it is possible that such assets may be placed in a fund at some future date and used to pay the claims of American citizens against the Cuban Government. This would be tantamount to using the property of one U. S. citizen to pay the claim of another U. S. citizen. (Emphasis added.)

S.Rep.No.701, 89th Cong., 1st Sess. (1965), U.S.Code Cong, and Admin.News, pp. 3581, 3585. See also the House Report on the subject of unblocking the Cuban assets of American residents.

While the committee does not recommend wholesale unblocking of all U. S. owned assets, it does recommend that a thorough examination be made by the Department of the Treasury on a case-by-case basis to determine from the evidence and equities involved in each case the proper disposition of U. S. national owned blocked assets and that, where proper, it unblock U. S. privately owned assets.

H.R.Rep.No.706, 89th Cong., 1st Sess. 7 (1965). Thus, it appears there is no intent on the part of Congress to require the Treasury to continue blocking funds lawfully claimed by American citizens where there is no Cuban interest in the assets.

With this perspective on the policies behind the blocking of Cuban assets, we return to the issue whether there is a sufficient interest on the part of the Cuban government or a Cuban national which would justify or authorize the application of the Trading with the Enemy Act and. the Cuban Assets Control Regulations to the facts of this case. The Government claims there is such an interest, because the deceased, Urbano Real, retains an interest in his estate. But the real issue is whether the Government can validly, within the scope of the Trading with the Enemy Act, determine that a deceased person retains an interest in his estate. We hold that such a determination by the United States is arbitrary and without basis in either the language or the purpose of the Trading with the Enemy Act.

There can be no doubt that the authority of an administrative agency to promulgate regulations is limited by the statute authorizing the regulations. Thus, an administrative agency “has no power to create a rule or regulation that is out of harmony with the statutory grant of its authority.” Ruiz v. Morton, 9 Cir., 1972, 462 F.2d 818, 822, aff’d, 415 U.S. 199, 94 S.Ct. 1055, 39 L.Ed.2d 270 (1974). As the Supreme Court has held, “When Congress passes an Act empowering administrative agencies to carry on governmental activities, the power of those agencies is circumscribed by the authority granted.” Stark v. Wickard, 321 U.S. 288, 309-310, 64 S.Ct. 559, 571, 88 L.Ed. 733 (1944). “Administrative determinations must have a basis in law and must be within the granted authority.” Social Security Board v. Nierotko, 327 U.S. 358, 66 S.Ct. 637, 643, 90 L.Ed. 718 (1946); see Morton v. Ruiz, 415 U.S. 199, 94 S.Ct. 1055, 1072-1073, 1075 (1974); Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 381, 89 S.Ct. 1794, 1801, 23 L.Ed.2d 371 (1969). The Government recognizes that a Cuban interest must pertain to the assets in order to justify blocking, and so by administrative fiat has decreed that deceased persons have an interest in their assets, thus justifying the blocking of their estates. The concept that a dead person is a “foreign national” in possession of property within the meaning of the Trading with the Enemy Act does not have the support of logic. Under the facts presented by this case, such a determination does not have the support of the congressional policies behind the Act. We conclude, therefore, that, under the facts and circumstances, the Government’s determination that the deceased, Urbano Real, retains an interest in his estate which justifies withholding the assets from American citizens and residents has no basis in law and must be set aside and annulled.

The Government’s action in determining that the dead can reach beyond the grave to possess their worldly goods is akin to other agency actions that have been found to have no basis in law. In Morton v. Ruiz, 415 U.S. 199, 94 S.Ct. 1055 (1974), the practice of the Bureau of Indian Affairs of limiting assistance to Indians living on reservations was ruled invalid where the statute authorizing such assistance provided for aid to Indians “throughout the United States.” In United States v. Minker, 350 U.S. 179, 76 S.Ct. 281, 100 L.Ed. 185 (1956), the Supreme Court examined the practice whereby the Immigration and Naturalization Service used their power to subpoena “witnesses” in denaturalization proceedings to subpoena the subject of the proceedings. • The Court in Minker held that naturalized citizens who were the subjects of denaturalization proceedings were not “witnesses” within the meaning of a statute conferring power on immigration officers to require “witnesses” to testify before the Service. In Social Security Board v. Nierotko, supra, the Supreme Court held a determination of the Social Security Board that “back pay” was excluded from the meaning of “wages” under the Social Security Act to be beyond the permissible limits of administrative determination. In line with these cases, we conclude that the Secretary of the Treasury has exceeded his statutory authority in the interpretation and application of the Trading with the Enemy Act in such a manner as to deny these appellants their unrestricted interest in the estate of Urbano Real.

Reversed.

      . In a letter contained in the original record, Real’s granddaughter states that Real was unable to leave Cuba due to a heart ailment and medical advice against undergoing the travails involved in departing the country. However, the letter also states that Real and his wife were making preparations to leave the country at the time of his death.

      . The fact that Mrs. Real is a lawfully admitted resident alien of this country rather than a citizen is of no importance to her rights in this case, since it has been determined that "aliens lawfully within this country have a right to enter and abide in any State in the Union ‘on an equality of legal privileges with all citizens under nondiscriminatory laws.’ ” Graham v. Richardson, 403 U.S. 365, 378, 91 S.ct. 1848, 1855, 29 L.Ed.2d 534 (1971) (citation omitted).

      . None of the plaintiffs in Nielsen were citizens of the United States. One plaintiff was a resident of Costa Rica, and another was a resident of Nassau. The third plaintiff was the executor of the estate of a stockholder who had died while a resident of Puerto Rico.

      . The term “national” is defined in 31 C.F.R. § 515.302 (1974). All the definitions thereunder imply that a “national” is either a natural person or a business entity — there is no indication that a deceased person is within the definition.
      31 C.F.R. § 515.302 (1974) provides as follows:
      § 515.302 National.
      (a) The term “national” shall include:
      (1) A subject or citizen of, or any person who has been within, a foreign country, whether domiciled or resident therein or otherwise, at any time on or since the “effective date.”
      (2) Any partnership, association, corporation, or other organization, organized under the laws of, or which on or since the “effective date” had or has had its principal place of business in a foreign country, or which on or since such effective date was or has been controlled by, or a substantial part of the stock, shares, bonds, debentures, notes, drafts, or other securities or obligations of which, was or has been owned or controlled by, directly or indirectly, a foreign country and/or one or more nationals thereof as defined in this section.
      (3) Any person to the extent that such person is or has been, since the “effective date” acting or purporting to act directly or indirectly for the benefit or on behalf of any national of a foreign country.
      (4) Any other person who there is reasonable cause to believe is a “national” as defined in this section.
      (b) The Secretary of the Treasury retains full power to determine that any person is or shall be deemed to be a “national” within the meaning of this section, and to specify the foreign country of which such person is or shall be deemed to be a national.
      Appellants are licensed as “unblocked nationals” in that they are “resident in and within the United States,” and are not classified as “specially designated national[s].” 31 C.F.R. § 515.505 (1974).

      . 31 C.F.R. § 515.327 (1974) provides as follows:
      The term “blocked estate of a decedent” shall mean any decedent’s estate in which a designated national has an interest. A person shall be deemed to have an interest in a decedent’s estate if he (a) was the decedent; (b) is a personal representative; or (c) is a creditor, heir, legatee, devisee, distributee, or beneficiary.

      . Another statement of this purpose is contained in Department of State Press Release 360, July 8, 1963, 49 Dep’t of State Bull. 160 (1963): “Thus Cuba will be denied the use of American financial facilities for transfers of funds to Latin America for subversive purposes.”

      . The purposes of the Cuban Assets Control Regulations were described by the chief counsel for foreign assets control as follows:
      (1) isolating Cuba,
      (2) protecting Cubans from having their assets in the United States confiscated by Cuban authorities,
      (3) preserving Cuban assets for future disposition,
      (4) implementing of our economic defense program by (a) denying Cuba access to dollar earnings and (b) denying Cuba access to dollar financial facilities.
      Goodman, United States Government Foreign Property Controls, 52 Geo.L.J. 767, 793 (1964); see also Cheng Yih-Chun v. Federal Reserve Bank of New York, supra, 442 F.2d at 465.

      . The desire to preserve the assets of foreign countries and nationals for possible vesting and use in future settlement of American claims against those governments and their citizens has been an important factor in previous decisions dealing with blocked assets. See Propper v. Clark, supra, 337 U.S. at 483-484, 69 S.Ct. at 1340; Cheng Yih-Chun v. Federal Reserve Bank of New York, supra, 442 F.2d at 460; Nielsen v. Secretary of Treasury, supra, 424 F.2d at 840; Sardino v. Federal Reserve Bank, supra, 361 F.2d at 112-113; see also Sommerfield, supra, note 7, at 862.


author: CLARK, Circuit Judge:

text:
    ENGINEERING SALES, INC., Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant. Roland E. CEDARHOLM and Elizabeth B. Cedarholm, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.
    Nos. 74-1866, 74-1867.
    United States Court of Appeals, Fifth Circuit.
    March 27, 1975.

      Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Chief, Appellate Section, Charles B. Burroughs, Jr. Atty., U. S. Dept, of Justice, Tax Div., Washington, D. C., Gilbert E. Andrews, Acting Chief, Appellate Section, Wayman G. Sherrer, U. S. Atty., Charles D. Stewart, Asst. U. S. Atty., Birmingham, Ala., Jonathan S. Cohen, Arthur L. Bailey, Tax Div., Dept, of Justice, Washington, D. C., for defendant-appellant.
    R. Kent Henslee, Gadsden, Ala., for plaintiffs-appellees.
    Before GEWIN, BELL and CLARK, Circuit Judges.
   CLARK, Circuit Judge:

Engineering Sales, Inc. (Sales) sued in the district court to recover taxes assessed and paid as a result of the Commissioner’s allocations of income to it from a controlled corporation, Engineered Products, Inc. (Products) pursuant to 26 U.S.C. § 482. In a separate, consolidated action Ronald E. and Elizabeth B. Cedarholm sought to recover income taxes paid which were attributable to related dividends from Products to their children which, following the allocation, were assessed to Mr. and Mrs. Cedarholm as constructive dividends. We reverse the district court’s partial award in the allocation suit for failure of proper proof. Reversal of the full recovery allowed in the constructive dividend action must follow.

Sales began business as a partnership, but was incorporated in 1966. Ronald E. and Elizabeth B. Cedarholm own 100% of its stock and are its principal officers. Sales is in the business of installing air-conditioning equipment and manufacturing some components of air-conditioning systems. Products, a related marketing company, began its business life with the same partners as Sales, but was incorporated in 1968. Mr. and Mrs. Cedarholm own 4 shares of its stock, and their 4 children own the remaining 996 shares. Taxpayers concede that Sales and Products are owned or controlled by the same interests within the meaning of Section 482.

In the years in question, Sales manufactured induced and natural draft cooling towers which were sold by Products. Sales charged Products the exact labor and equipment costs it incurred in these operations and, in addition, billed Products for 7.8% of the gross revenue which Products derived from tower sales. This mark-up percentage had been calculated as an approximation of the overhead expenses incurred by Sales in its manufacturing capacity, based upon the internal expenses of both corporations. It was not ever related to the cost at which a manufactured water tower could have been acquired from or sold to an unrelated business.

During the tax years in issue, Products profits from sales to third persons totaled 35,683.63 dollars. Under Section 482, the Commissioner determined that this entire amount of income should be allocated to Sales. The Commissioner further determined that 11,519.34 dollars distributed by Products to the Cedarholm children as a dividend, should be treated as constructively paid to Mr. and Mrs. Cedarholm.

The holding of the district court can be epitomized by the following excerpts:

[The principal problem becomes not whether Engineered Products, Inc. is a sham which the Court finds it is not and has not been, but under Section 482, whether the income reported by Engineered Products should in whole or in part be treated as really the income of Engineering Sales, Inc.
The Court in this type of case under Section 482 has certain equity powers as I view it in terms of seeing that there be a fair reflection of income on the two returns, giving, however, much credit and consideration to the determination made on behalf of the Internal Revenue Service.
The Court concludes that some portion of the total net profits or income of the two operations can properly be attributed to the effort in selling these water towers, ....
I conclude that a fair way for the Court to approach it is to simply conclude that the same percentage of income as measured as against sales should be true for Engineering Sales Corporation as for Engineered Products.

On this basis, the court disallowed 8,600 dollars of the Commissioner’s 35,682.63 dollar allocation from Products to Sales.

With regard to constructive dividends, the Court concluded:

I rule in favor of the taxpayers in this case and conclude that Mr. and Mrs. Cedarholm should not be held as having received or being accountable as constructively receiving it in some way these distributions made to their children.
It may be that with the adjustments made, this presents some problems regarding the proper tax treatment of the distribution made to the children, but the children are not before the Court as to their tax returns and maybe [the earnings and profits of Engineered Products] would not result in the full distribution being taxable to them at least in this particular year.

On this basis the Court awarded full recovery of the taxes paid on the dividends constructed to Mr. and Mrs. Cedarholm.

The government contended, both in administrative proceedings and before the lower court, * that Products was a sham corporation, or that, in the alternative, the entire income of Products should be allocated to Sales to reflect clearly the income of both businesses for tax purposes. It further contended that since the Commissioner had shifted all income of Products back to Sales, the stockholders of Sales, Mr. and Mrs. Cedarholm, must pay the tax on the dividends distributed to their children by Products.

The taxpayers contend: (1) the record contained evidence to support the court’s finding that Products was not a sham but had a tax-valid business existence and contributed valuable sales efforts to the marketing of towers — thus the Commissioner’s 100% allocation of Products’ income to Sales was proven to be arbitrary; (2) the proof further sustained the court’s equitable approach in calculating its own allocation by applying a percentage of profit on gross sales realized by both companies to Products’ sales; (3) no sales took place between the companies — they only had an agreement to share expenses and the 7.8% calculation was used to apportion properly overhead costs under this agreement; (4) since Products was established to have a valid business existence, the reconstruction of the dividends it paid to the children was properly found to be arbitrary.

The district court’s resolution of the Section 482 allocation action is at odds with the established precedent in this circuit. In a refund suit such as this the taxpayer bears a double burden. He must show that the Commissioner’s assessment is arbitrary and he must further establish what the proper assessment should have been. Crosby v. United States, 496 F.2d 1384 (5th Cir. 1974); Bicknell v. United States, 422 F.2d 1055 (5th Cir. 1970); Broadhead v. Commissioner, 391 F.2d 841 (5th Cir. 1968); Duncan v. Commissioner, 173 F.2d 218 (5th Cir.), cert. denied 337 U.S. 959, 69 S.Ct. 1531, 93 L.Ed. 1756 (1949); Trippett v. Commissioner, 118 F.2d 764 (5th Cir.), cert. denied 314 U.S. 644, 62 S.Ct. 85, 86 L.Ed. 517 (1941). Cf. Helvering v. Taylor, 293 U.S. 507, 55 S.Ct. 287, 79 L.Ed. 623 (1935); Bar L. Ranch, Inc. v. Phinney, 426 F.2d 995 (5th Cir. 1970).

In a Section 482 case, neither of the taxpayers’ burdens can be carried by the production of evidence relating solely to the taxpayers’ internal transactions with other controlled entities. He must adduce evidence of prices and terms which would have obtained had the sales or transfers been between unrelated parties. Lufkin Foundry & Machine Co. v. Commissioner, 468 F.2d 805 (5th Cir. 1972). See also 26 C.F.R. §§ 1.482-1(b)(c) and 1.482 — 2(e). This record contains no such “arms-length” proof.

The evidence adduced provided no basis to support the court’s conclusion that some portion of the total net profits from the sales of towers was, in equity, due to be attributed to Products. The court concluded that Products’ marketing service was of value, but this does not mandate a finding that its efforts must result in a share of the profits. These controlled entities were obliged to substantiate their calculations of these internal transactions by adducing some arm’s-length pricing basis to support the claim that the Commissioner’s allocation was arbitrary and to demonstrate the proper amount which should have been charged and received. This is true whether the inter-company actions involved sales of tangible goods or whether Sales was merely furnishing a manu-

facturing service to Products. See, 26 C.F.R. § 1482-2(b)(3) and (7)(ii)(a). If something of value passes between controlled entities in exchange for reimbursement, index proof based on transactions between uncontrolled businesses must be furnished to carry out the intent of the statute, which is to put controlled businesses on a par with uncontrolled businesses for tax purposes.

The district court recognized that its substantial (28/35ths) agreement with the government’s allocation still produced a gross dislocation of Products’ income from which the Cedarholm children had been paid dividends. It nevertheless awarded Mr. and Mrs. Cedarholm a full recovery of the taxes they had paid on the Commissioner’s constructive dividends because the children were “not before the Court as to their tax returns.” The Court speculated that Products might have had nonallocated earnings or profits from which the children’s dividends could have been paid. At oral argument in this court, counsel for taxpayers suggested that the payment could have been a liquidating dividend, even if no earnings or profits had been present. Such indulgence in speculation is erroneous. The taxpayers’ basic burden in this action is identical to that imposed on Sales in the Section 482 action — (1) prove the Commissioner’s assessment arbitrary and (2) prove the correct assessment which should have been made. Crosby v. United States, supra. The very need to resort to speculation demonstrates that these burdens have not been met.

Given the Commissioner’s valid determination that Sales should have reported the full income from tower sales, the claim of that income by Products was improper. As controlling shareholders and officers, the Cedarholms were subject to the assessment of a constructive dividend as to any portion of that improperly claimed amount distributed as a dividend by Products. Sammons v. Commissioner of Internal Revenue, 472 F.2d 449 (5th Cir. 1973). The Commissioner could have determined that the inter-company tranfer was made primarily to create income for the Cedarholm children which was not taxable to their parents. The presence of some business justification for Products entity status and for its transactions with Sales would not make such a determination invalid. Sammons v. Commissioner, supra. The absence of countervailing proof by the taxpayer means that the Commissioner’s assessment cannot be disturbed.

Each and both of the judgments appealed from are

Reversed.

      . Taxpayers also contended that the government has changed its approach from sole reliance upon a sham theory in the administrative proceedings and before the district court to its alternative theory of improper allocation and proof here. This contention is not borne out by the trial court record, and we reject it.