author: CELEBREZZE, Circuit Judge.

text:
    Ferdinand CINELLI and Sarah M. Cinelli, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
    No. 74-1090.
    United States Court of Appeals, Sixth Circuit.
    Argued June 5,1974.
    Decided Sept. 5, 1974.
    William P. Thorpe, Detroit, Mich., for petitioners-appellants; McClintock, Donovan, Carson & Roach, Detroit, Mich., on briefs.

      Harold J. Tulley, Tax Div., Dept. of Justice, Washington, D. C., for respondent-appellee; Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Grant W. Wiprud, Attys., Tax Div. Dept, of Justice, Washington, D. C., on briefs.
    Before PHILLIPS, Chief Judge, and CELEBREZZE and ENGEL, Circuit Judges.
   CELEBREZZE, Circuit Judge.

This case presents a single question of substantial significance to international commerce and United States taxation of its citizens’ foreign income. That question is the proper means of giving foreign currency a United States dollar value when a foreign government’s official rate of monetary exchange differs from the “free market” or “commercial” rate. Specifically, the issue is the proper measure of U.S. dollar value of real property priced in Italian lire on May 1, 1942. At that time Italy’s official exchange rate was 19.1 lire to the dollar, whereas the free market (or black market) rate in Italy was from 600 to 800 lire to the dollar.

On May 1, 1942, Delfino Ferdinando Cinelli died, leaving his estate of Span-nocchia to his wife and children. Span-nocchia is a large ancestral estate near Siena, Italy, of which Taxpayer Ferdinand Cinelli received 1,194.71.44 hectares upon his father’s death. For years one of Spannocchia’s primary products was pigs, which foraged and fattened on chestnuts that fell from extensive groves on the estate. Chestnut-fed pigs brought high prices for their exceptional quality.

From 1963 to 1966, a blight killed nearly all Spannocchia’s chestnut trees, and pig production plummeted as a direct result, with the farm sustaining substantial losses. Taxpayer asserted a loss incurred in his trade or business for 1965 in the amount of $10,000 from the trees’ loss. The Commissioner asserted an equivalent deficiency, claiming that taxpayer had established no deductible loss as having occurred in 1965. Taxpayer challenged the deficiency in the Tax Court.

After a trial in Detroit, a Tax Court Judge determined that Taxpayer had suffered a loss deductible under § 165(a), Int.Rev.Code of 1954, because of the chestnut blight. The Court ruled that of the 90% of the trees killed, 33% died in 1965, so that 30% of the trees’ overall value was lost in that year. Under § 165(a), the allowable loss is the lesser of the adjusted basis of the property lost and the actual diminution in the property’s value caused by the loss. In this case the lesser amount was the adjusted basis.

The Court held that 20% of Taxpayer’s basis in Spannocchia was allocable to the trees, since the groves represented 20% of Spannocchia’s value before the blight. It then turned to the question of Taxpayer’s basis in Spannocchia on May 1, 1942 (when Taxpayer received his share of the estate). Under § 1014, Int.Rev.Code of 1954, the basis of property in the hands of a person inheriting it is the fair market value of the property at the time of the decedent's death. The Court adopted the figure of 4.314.000 lire as the fair market value of Spannocchia on the date, which was the amount Italian authorities set as the estate’s fair market value for inheritance tax purposes. Although Taxpayer asserted at trial that his figure greatly understates the fair market value of the estate on May 1, 1942, Taxpayer has accepted the findings of the Tax Court, and we accept on appeal the figure of 4.314.000 Italian lire as the fair market value of Spannocchia on May 1, 1942.

The next question faced by the Tax Court Judge was the proper method of translating 4,314,000 Italian lire on May 1, 1942, into a U.S. dollar value. The Judge found that the proper exchange rate was the “black market” rate, set at 719 Italian lire to the U.S. dollar, so that the value of Spannocchia was $6000 on May 1, 1942. Since Taxpayer owned half the estate in 1965, his basis in it was $3000. Twenty percent of that basis, or $600, was attributable to the-chestnut groves. Since 30% of the trees were lost in 1965, the basis attributable to the trees lost in 1965 was 30% of $600, or $180. The Tax Court limited Taxpayer’s deduction to this amount. Finally, the Tax Court upheld a $5,550 deficiency.

The sole issue raised on appeal is whether the Italian Government’s official exchange rate or the commercial (black market) rate on May 1, 1942 should have been used to translate 4,314,000 Italian lire into U.S. dollars. If the official exchange rate of 19.1 lire to the dollar is used, Spannocchia was worth $225,864. If the commercial rate of 719 lire to the dollar is used, Span-nocchia was worth $6,000.

Although we have found no direct Supreme Court or Sixth Circuit guidance on this question, the courts have been virtually unanimous in rejecting official exchange rates and in adopting commercial exchange rates as the proper media for translating foreign currency into U.S. dollar values. Estate of Oei Tjong Swan, 24 T.C. 829 (1955); Hughes Tool Co. v. United Artists Corp., 279 App.Div. 417, 110 N.Y.S. 2d 383 (1st Dept. 1952); Estate of Jan Willem Nienhuys, 17 T.C. 1149 (1952); Foundation Co., 14 T.C. 1333 (1950); Ceska Cooper, 15 T.C. 757 (1950), acq., 1951-1 Cum.Bull. 2; Estate of Anthony H. G. Fokker, 10 T.C. 1225 (1948); Morris Marks Landau, 7 T.C. 12 (1946); Edmond Weil, Inc. v. Commissioner of Internal Revenue, 150 F.2d 950 (2d Cir. 1945), aff’g 3 T.C. Mem. 844 (1944); Eder v. Commissioner of Internal Revenue, 138 F.2d 27 (2d Cir. 1943); Credit and Investment Corp., 47 B.T.A. 673 (1942). See Rev.Rul. 64-307, 1964-2 Cum.Bull. 163. We adopt this general rule, but proceed to examine the instant situation to determine whether it was properly applied here.

The United States taxes all income of its citizens, whether earned here or abroad. Treas. Reg. § l.l-l(b) (1956); Cook v. Tait, 265 U.S. 47, 44 S.Ct. 444, 68 L.Ed. 895 (1924). In order to equalize a person’s tax consequences regardless of where income is earned or losses are suffered, U.S. taxation is determined by the value of property as measured in U.S. dollars. This requires a translation of worth of foreign property from a foreign currency to a U.S. dollar value. The problem in this case was to arrive at a fair market value of the estate of Spannocchia in U.S. dollars on May 1, 1942, given a figure which represents the property’s fair market value in Italian lire on that date.

Taxpayer had the burden of affirmatively establishing his case and of rebutting the fair market value of $6,000 which the Commissioner’s exchange rate supported and which the Tax Court accepted. Corn Products Refining Co. v. Commissioner of Internal Revenue, 215 F.2d 513, 517 (2d Cir. 1954), aff’d, 350 U.S. 46, 76 S.Ct. 20, 100 L.Ed. 29 (1955); Edmond Weil, Inc. v. Commissioner of Internal Revenue, 150 F.2d 950, 952 (2d Cir. 1945). See 26 U.S.C. § 7453 (1967), Rule 32; Lenox Clothes Shops v. Commissioner of Internal Revenue, 139 F.2d 56 (6th Cir. 1943); Bank of America Nat. Trust & Savings Ass’n v. Commissioner of Internal Revenue, 126 F.2d 48 (9th Cir. 1942); Mahler v. Commissioner of Internal Revenue, 119 F.2d 869 (2d Cir.), cert. denied, 314 U.S. 660, 62 S.Ct. 114, 86 L.Ed. 529 (1941). Taxpayer had the burden of showing not only that he was entitled to a deduction, “but also the amount to which he was entitled.” Helvering v. Taylor, 293 U.S. 507, 514, 55 S.Ct. 287, 290, 79 L.Ed. 623 (1935).

He might have done this by showing a 1942 offer to buy Spannocchia with U.S. dollars in an amount greater than $6,000. This would have been an ideal means of establishing how many U.S. dollars the estate was actually worth. Because of wartime conditions and the restrictions which the Italian Government had clamped on exchanges of foreign currency, probably no holder of U.S. dollars would have used them to purchase Spannocchia at that time. No such offer was shown to have been made. A purchase with U.S. dollars would have forced an exchange of $1.00 for 19.1 lire, at a time when up to 800 lire could be obtained for $1.00 on the black market. A holder of U.S. dollars would have been reluctant to exchange his dollars for lire at the official rate, since it severely depressed the actual purchasing power of his U.S. currency. In fact, Taxpayer himself refused to accept and cash several checks sent from the United States to his residence in Italy, because the official exchange rate would have dissipated most of the checks’ actual value.

This explains the inappropriateness of Italy’s 1942 official exchange rate as a true measure of the wartime worth of U.S. dollars. Holders of U.S. currency would not have exchanged them at that rate, except under very unusual circumstances. And holders of Italian lire could not have made the beneficial exchange at Italy’s official rate. As the Tax Court found, “It would have been very difficult, if not impossible, to convert lire into dollars at the official rate.” 32 CCH T.C. Mem. at 675. The official Italian exchange rate had no relationship to actual value.

Indeed, the very institution of official exchange rates which differ from commercial rates is based on governments’ collateral motives — to expand or contract exports and imports, to encourage or discourage foreign investment, and to control the flow of foreign currency into and out of a country, among other objectives. These purposes are divorced from considerations of actual purchasing power of a currency, which is the basic criterion for determining the U.S. dollar worth of property priced in a foreign currency. Official exchange rates are seldom proper measures of the actual U.S. dollar value of foreign currency or property.

To arrive at the fair market value of Spannocchia in U.S. dollars on May 1, 1942, a measure other than Italy’s official exchange rate was needed. The normal method is to apply the free market or “commercial” rate established in New York’s financial centers on the date in question. See Raffel, supra n. 4, 407-08. This rate is a proper measure of how many U.S. dollars a particular unit of foreign currency actually purchases in arms’ length transactions. It measures actual market value, real purchasing power, of one currency in terms of another. This rate is, furthermore, legislatively prescribed as the measure of the value of imported merchandise, under 31 U.S.C. § 372(c). It would be remarkable for this Court to approve the use of an official exchange rate in contrast to the commercial rate which Congress has mandated as the measure to be applied in customs determinations. The customs formula is the product of a long history of congressional development, and “the formula finally selected is dependent on the actual value of the foreign currency in our money.” Barr v. United States, 324 U.S. 83, 89, 65 S.Ct. 522, 525, 89 L.Ed. 765 (1945).

In this case no New York commercial rate was made available to the Tax Court, so it looked to the Italian black market rate, which the Commissioner had shown to have fluctuated between 600 and 800 lire to the U.S. dollar in 1942. This rate, which was based on actual dollar-lire transactions in Italy during 1942, indicates the fair market value of U.S. dollars in Italian lire. It does so by recording how individuals bargained at arms’ length over the worth of lire and dollars. It is a rough but adequate measure of the fair market value of U.S. dollars in Italian lire. It makes sense as a measure of actual value because a person in Italy in 1942 would have paid $1.00 for the same commodity for which he would have paid 600-to 800 lire. Thus, if 4,314,000 Italian lire was Spannocchia’s fair market value in 1942, then the property’s value in U.S. dollars was from 1/600 to 1/800 of this figure. The Tax Court used an exchange rate of 719 lire to the dollar, presumably in order to arrive at the round figure of $6,000 as Spannocchia’s fair market value (4,314,000 divided by 719 equals 6,000). This figure is within the range of 600 to 800 lire to the dollar which the evidence supports. The lack of a precise rate redounds to Taxpayer’s detriment, since it is his burden to show a more accurate rate than that adopted by the Commissioner and by the Tax Court. Corn Products Refining Co. v. Commissioner of Internal Revenue, supra; Edmond Weil, Inc. v. Commissioner of Internal Revenue, supra. The Tax Court was correct in arriving at some reasonable figure as the exchange rate, so as to give Taxpayer credit for a deduction the right to which he had established, even though he could not prove a particular amount to which he was entitled. Cohan v. Commissioner of Internal Revenue, 39 F.2d 540 (2d Cir. 1930).

The decision of the Tax Court is affirmed, with each party to bear its own costs.

      . The Tax Court Memorandum Decision sets forth extensive factual findings and is found at T.C.Mem. 1973-140, 32 COH Tax Ct. Mem. 674 (1973).

      . The Cinellis filed a joint return, so that Mrs. Cinelli is joined as Petitioner-Appellant. The opinion refers to Mr. Cinelli alone as “Taxpayer”.

      . Other adjustments to 1965 reported income are not involved in this appeal.

      . See generally Ruffel, “Some Tax Aspects of Foreign Currencies,” 14 Tax L.Rev. 389, 407-09 (1959); Ravenscroft, "Taxation of Income Arising from Changes in Value of Foreign Currency,” 82 Harv.L.Rev. 772, 790 (1969).
      The Seventh Circuit recently reversed and remanded a decision of the Tax Court, in which a conflict had developed between a “basic buying rate” and the “commercial rate” for Argentine pesos in 1950. Durovic v. Commissioner of Internal Revenue, 487 F.2d 36 (7th Cir. 1973), rev’g 54 T.C. 1364 (1970). Durovie is far different from our case, since neither the government nor taxpayer urged reliance upon the official exchange rate and since petitioners argued that the commercial rate was inappropriate because they had actually exchanged currency at a rate negotiated at arms’ length.

      . This fact is sufficient to dispose of Taxpayer’s “alternative” argument that if the official rate is not used, then “the official valuation for Italian tax purposes should be reassessed upwards by the difference of official rate of exchange used by the Court (719 lire to the dollar), or a multiple of 37.64.” This would be valid only if Taxpayer’s lire could actually have been exchanged at the official rate. As the Tax Court found, no such exchange could have been made.

      . See Ravensoroft, supra n. 4; Raffel, supra n. 4.

      . In a rare ease the official rate might be the proper measure. See e. g., S. E. Boyer, 9 T.C. 1168 (1947) (where the taxpayer had been forced to exchange currency at the official rate) ; Waterman’s Estate v. Commissioner of Internal Revenue, 195 F.2d 244 (2d Cir. 1952) (where the taxpayer did not contest application of the official rate, though it was applied to his detriment).

      . The New York commercial rate is not a perfect measure of the value in U.S. dollars of particular property with a foreign currency price. As pointed out in Raveuscroft, supra n. 4, free market forces in international currency exchange do not always perform as theory would dictate. Nonetheless, commercial rates are an available and roughly accurate measure of purchase power equivalence, and in the absence of a better indication of the actual U.S. dollar value of foreign property, they are usually the best available yardstick,

      . Under 31 U.S.C. § 372, the New York corn-mercial rate is the rate applied for customs purposes, unless a proclaimed official rate of the U.S. Secretary of the Treasury differs less than 5% from the commercial rate,


source: Caselaw Access Project

author: HASTINGS, Senior Circuit Judge. WILLIAM J. CAMPBELL, Senior District Judge

license: Public Domain

text:
    UNITED STATES of America, Plaintiff-Appellee, v. H. B. GREGORY CO., a corporation, and James H. Gregory, an individual, Defendants-Appellants.
    No. 73-1744.
    United States Court of Appeals Seventh Circuit.
    Argued Dee. 6, 1973.
    Decided March 14, 1974.
    Rehearing Denied June 27, 1974.
    William J. Campbell, Senior District Judge, concurred in part and dissented in part, with opinion.

      Henry C. Friend, Milwaukee, Wis., for defendants-appellants.
    David B. Bukey, U. S. Atty., Milwaukee, Wis., Joanne S. Sisk, Chief, Office of Gen. Counsel, Dept, of Health, Education & Welfare, Rockville, Md., Gregory B. Hovendon, Daniel M. Clements, AntiTrust, Div., Dept, of Justice, Washington, D. C., for plaintiff-appellee.
    Before HASTINGS and KILEY, Senior Circuit Judges, and CAMPBELL, Senior District Judge.

       Senior District Judge William J. Campbell of the Northern District of Illinois is sitting by designation.

      . § 342. Adulterated food A food shall be deemed to be adulterated— (a) ...... * (3) if it consists in whole or in part of any filthy, putrid, or decomposed substance, or if it is otherwise unfit for food; * * *.

   HASTINGS, Senior Circuit Judge.

This appeal is concerned with alleged violations of the Federal Food, Drug, and Cosmetic Act, Title 21, U.S.C. § 301 et seq. (the Act), and, specifically, of 21 U.S.C. § 331(k).

A four-count information was filed December 22, 1972, naming as defendants, H. B. Gregory Co., a Wisconsin corporation, and James H. Gregory, its president and treasurer, individually. The Gregory Company operated a bakery supply warehouse and supplied therefrom ingredients to bakeries throughout the Milwaukee metropolitan area. Mr. Gregory had personal responsibility for all operations of the warehouse.

The information charged defendants with violating § 331 (k) for having caused four lots of food, i. e., corn meal (Count I), poppy seed (Count II), caraway seed (Count III), and corn grits (Count IV), to become adulterated while these foods were held for sale at the Gregory warehouse after shipment in interstate commerce.

Two separate specifications of adulteration were alleged: (1) that the food in all four counts was adulterated within the meaning of 21 U.S.C. § 342(a)(4), in that it was held under insanitary conditions whereby it may have become contaminated with filth; and (2) that the corn meal in Count I was adulterated within the meaning of 21 U.S.C. § 342(a)(3), in that it consisted in part of a filthy substance by reason of the presence in the corn meal of rodent excreta pellets.

The case was tried to the court, without the intervention of a jury, the Honorable Myron L. Gordon, District Judge presiding. There was little dispute about the basic evidentiary facts. The trial court found each defendant guilty on all four counts and entered judgment accordingly. Subsequently, the court sentenced the Gregory Company to pay a fine of $1,000 on each of the four counts, a total of $4,000, and sentenced Mr. Gregory to pay a fine of $500 on each of the four counts, a total of $2,000. There was no sentence of imprisonment as to Mr. Gregory. Thereafter, the court denied defendants’ petitions for a reduction and modification of these sentences. This appeal followed.

A concise statement of the issues raised on this appeal follows: (1) whether the Government proved its case against each defendant beyond a reasonable doubt; (2) whether the trial court erred in imposing fines on each defendant on each of the four counts; and (3) whether the trial court abused its discretion in denying defendants’ petitions for reduction or modification of the sentences.

We have read the entire transcript of the evidence introduced in this trial, as well as the record of the proceedings before Judge Gordon. It should be noted at the outset that the trial court rejected an offer of the corporate defendant, Gregory Company, to change its plea from not guilty to guilty for the reason that its codefendant elected not to permit any corporate officer to waive his Fifth Amendment privilege for the purpose of testifying that there was corporate authority to do so. The court properly honored this privilege and as a result was compelled to reject the corporate offer. The Government put on its case with employees of the United States Food and Drug Administration (FDA) in one day and rested. The defendants, having cross-examined such witnesses, rested without introducing any evidence. It is on this state of the record that this appeal is submitted for our consideration.

INTERSTATE SHIPMENT OF FOOD

It is beyond dispute that as to Count I the defendant Gregory Company received a number of bags of corn meal on or about March 14, 1972, which had been manufactured by Evans Milling Co., Inc., and shipped by it in interstate commerce from Indianapolis, Indiana. The bags were each labeled as containing 100 pounds net EMCO degerminated yellow snack meal. They were held for sale in the Gregory Company warehouse until at least on or about March 22,1972.

Similarly, as to Count II the defendant Company received a number of bags of poppy seed, and as to Count III, a number of bags of caraway seed, on or about March 8, 1972. These two shipments were products of The Netherlands and were shipped in interstate commerce from New York, New York, by Transit Trading Company. The bags were each labeled as containing 109 pounds net of the respective products, -and were held for sale in the Gregory warehouse until at least on or about March 21,1972.

Finally, as to Count IV the defendant Company received a number of bags of corn grits on or about February 21, 1972, which had been manufactured by Evans Milling Co., Inc., and shipped by it in interstate commerce from Indianapolis, Indiana. The bags were each labeled as containing 100 pounds net EMCO degerminated special grits, and were held for sale in the Gregory Company warehouse until at least on or about March 22,1972.

EVIDENCE RELATING TO ADULTERATION

FDA Inspector Robert G. Brett, Jr., was assigned to inspect the Gregory warehouse. After testifying in support of the interstate shipment of the four lots of food in question, he testified in detail about his inspection of the warehouse covering a five-day period of March 20-24, 1972. Without relating here this detailed step by step inspection and its results, it is sufficient to state that, as to the lot of corn meal specified in Count I, in addition to rodent excreta pellets and a rodent urine stain on the bag material, the inspector found a rodent gnawed hole in one of the bags, two rodent excreta pellets in the corn meal itself inside the bag, and at least 60 rodent excreta pellets in corn meal which had spilled from the hole onto the warehouse floor. Inspector Brett further stated that, as to the lots of poppy seed, caraway seed and corn grits specified in Counts II, III and IV, he found on the bag material surfaces numerous rodent excreta pellets and multiple rodent urine stains, as well as numerous rodent excreta pellets on the floor beneath the bags. He also testified that he observed other general insanitary conditions throughout the warehouse during his inspection. He found that 75 percent of the small rodent traps in the warehouse were un-baited. He observed various potential rodent entryways in the areas of the receiving and shipping dock and the boiler room. Brett reported a indent entry in the shelving behind the lot of adulterated corn meal above referred to, rodent tracks in the spilled corn meal from this lot, and a rodent burrow in the enclosure of the warehouse syrup tank.

Inspector Brett testified that he collected samples of the rodent excreta pellets, urine stains and food in the several lots. FDA Analytical Chemists Trauba, Carlson, Melchior, Palmer and Netz each testified that their respective analyses of the samples Inspector Brett collected confirmed that they consisted of rodent excreta pellets and rodent urine stains.

As above stated, the corn meal found in one bag was actually shown to be unfit for human consumption. No such showing was made as to the other lots of food.

Inspector Brett took numerous photographs of the warehouse area and the various lots of food he inspected depicting the conditions he found during the five-day period. These photographs were introduced and received in evidence.

EVIDENCE RELATING TO MR. GREGORY

Inspector Brett testified that when he first arrived at the warehouse he inquired of the bookkeeper for Mr. Gregory. Upon learning that he was not in, Inspector Brett identified himself and was given permission to enter the warehouse. He first saw Mr. Gregory on the third day of his inspection when Mr. Gregory observed him taking photographs and inquired what he was doing. A brief conversation ensued concerning the bad condition of some shelving being photographed. At the conclusion of the fifth day of the inspection, Inspector Brett made an appointment with Mr. Gregory and gave him a list of the samples he had collected and the insanitary conditions he had found during his inspection.

In the course of this conversation, Inspector Brett stated that Mr. Gregory-said he was president and treasurer of the H. B. Gregory Company; that he was in charge of the sanitation program and specifically the rodent control program in the warehouse; and that he was there on a daily basis. Further, Inspector Brett observed during his inspection that Mr. Gregory was giving the employees directions concerning where to store lots of food materials and was giving directions to load out trucks to his customers. The only other persons he observed employed at the warehouse were the bookeeper and two warehouse employees. One of the two warehouse employees was working in the syrup area and the other was engaged in receiving and shipping food materials.

Inspector Brett testified that during this final conference Mr. Gregory did not question his findings which he submitted in writing. Mr. Gregory did say that he felt the building was too old to be made rodent proof; he discussed two new “wind up” mouse traps he was purchasing; and he asked for any suggestions Inspector Brett might have concerning the rodent problem within the warehouse. The inspector declined to make any such suggestions because of his lack of qualifications but did propose a different manner of storing the food materials. Mr. Gregory responded that the warehouse was too small to make the suggested storage changes.

I.

It is common knowledge, of which the court may take judicial notice, that the four lots of food at issue are foods within the meaning of the Act, .21 U.S.C. § 321(f). Cf. United States v. O. F. Bayer & Co., 2 Cir., 188 F.2d 555, 557 (1951). It is well established that articles, compound or single, not intended for consumption by the producer, are designed for sale, and because they are, it is the concern of the law to have them pure.” Hipolite Egg Co. v. United States, 220 U.S. 45, 54, 31 S.Ct. 364, 366, 55 L.Ed. 364 (1911) (emphasis added). Accord, United States v. Kocmond, 7 Cir., 200 F.2d 370, 372-373 (1952), cert. denied, 345 U.S. 924, 73 S.Ct. 782, 97 L.Ed. 1355 (1953); United States v. Cassaro, Inc., 1 Cir., 443 F.2d 153, 155-156 (1971). It has been held that the purpose of § 331 (k), supra, is “to safeguard the consumer from the time the food is introduced into the channels of interstate commerce to the point that it is delivered to the ultimate consumer * * United States v. Wiesenfeld Warehouse Co., 376 U.S. 86, 92, 84 S.Ct. 559, 563, 11 L.Ed.2d 536 (1964), citing Kocmond, supra, 200 F.2d at 372.

These holdings should lay to rest defendants’ argument that the lots of food were not held for sale because (1) the one lot of corn meal was so filthy it was no more than “garbage” and would not be offered for sale under any conditions, and (2) the contaminated outer surfaces of the bags of the other foods would be discarded and the otherwise wholesome contents would be repacked.

The oft cited case of Berger v. United States, 8 Cir., 200 F.2d 818 (1952), lays down the definitive “reasonable possibility” test now generally accepted in cases involving adulterated food under § 342(a)(4), supra, wherein the court, at 821, states:

It is clear that the congressional intent is to make it a criminal offense for a person to * * * hold food under such insanitary conditions that it may become contaminated. It is not necessary that it actually become contaminated. [Emphasis added.] * * * [T]he statute is designed to prevent adulterations “in their incip-ieney” by condemning insanitary conditions which may result in contamination. [Emphasis by the court.]
* * * The condition condemned by the statute, which must be proved to support a conviction, is one which would with reasonable possibility result in contamination. [Emphasis added.]

In Wiesenfeld, supra, 376 U.S. at 91-92, 84 S.Ct. at 564, the Court explicitly declares that § 331 (k) prohibits any act which results in adulteration of the product, and that food is adulterated if it has been held “under insanitary conditions whereby it may have become contaminated with filth.” (Emphasis added.)

It becomes readily apparent that, under the standards above outlined, there was sufficient evidence to warrant the trial court in finding beyond a reasonable doubt (1) that the insanitary conditions found in the Gregory warehouse were such that there was a reasonable possibility that the four lots of food might become contaminated with rodent filth; and (2) that the corn meal in Count I was actually contaminated with rodent filth.

We hold, therefore, that the Government proved beyond a reasonable doubt that the defendants violated the Act as alleged in the information.

II.

Pursuant to the standards of criminal liability for violations of the Act set out in United States v. Dotterweich, 320 U.S. 277, 64 S.Ct. 134, 88 L.Ed. 48 (1943), the trial court held that Mr. Gregory was a person in a position of sufficient authority and responsibility in the conduct of the business of the Gregory corporation to be held personally and strictly liable for violations of the Act committed in the course of such corporate business.

Judge Gordon expressly rejected Mr. Gregory’s contention that this standard was the improper legal criterion for measuring his personal liability for the violations. Mr. Gregory seeks to undermine the Dotterweich standards and cites certain state court cases and scholarly writings challenging the lack of a scienter requirement in criminal cases, and here in particular because the standard fails to require a causal relation between the individual and the violation of the Act.

Dotterweich has been cited and reviewed many times. It was a divided opinion (5 to 4) by the Supreme Court, Mr. Justice Frankfurter writing for the majority and Mr. Justice Murphy for the minority. The fact that it was a drug case rather than a food case is not a proper distinguishing factor. United States v. Dianovin Pharmaceuticals, Inc., 1 Cir., 475 F.2d 100, 103, cert. denied, 414 U.S. 830, 94 S.Ct. 60, 38 L.Ed.2d 65 (1973). At this point it is sufficient to quote the Dotterweich majority, 320 U.S. at pages 280-281, 64 S.Ct. at page 136:

The prosecution to which Dotterweich was subjected is based on a now familiar type of legislation whereby penalties serve as effective means of regulation. Such legislation dispenses with the conventional requirement for criminal conduct — awareness of some wrongdoing. In the interest of the larger good it puts the burden of acting at hazard upon a person otherwise innocent but standing in responsible relation to a public danger. United States v. Balint, 258 U.S. 250, 42 S.Ct. 301, 66 L.Ed. 604. And so it is clear that shipments like those now in issue are “punished by the statute if the article is misbranded [or adulterated], and that the article may be misbranded [or adulterated] without any conscious fraud at all. It was natural enough to throw this risk on shippers with regard to the identity of their wares . . . ” United States v. Johnson, 221 U.S. 488, 497-498, 31 S.Ct. 627, 55 L.Ed. 823.

And quoting further, at pages 284-285, 64 S.Ct. at page 138:

Whether an accused shares responsibility in the business process resulting in unlawful distribution depends on the evidence produced at the trial and its submission — assuming the' evidence warrants it — to the jury under appropriate guidance. The offense is committed, unless the enterprise which they are serving enjoys the immunity of a guaranty, by all who do have such a responsible share in the furtherance of the transaction which the statute outlaws, namely, to put into' the stream of interstate commerce adulterated or misbranded drugs. Hardship there doubtless may be under a statute which thus penalizes the transaction though consciousness of wrongdoing be totally wanting. Balancing relative hardships, Congress has preferred to place it upon those who have at least the opportunity of informing themselves of the existence of conditions imposed for the protection of consumers before sharing in illicit commerce, rather than to throw the hazard on the innocent public who are wholly helpless.

These standards enunciated by Mr. Chief Justice Taft for a unanimous Court in United States v. Balint, 258 U.S. 250, 254, 42 S.Ct. 301, 66 L.Ed. 604 (1922), and followed in Dotterweich, supra, 320 U.S. at 280-281, 64 S.Ct. 134, were expressly reaffirmed by the Court in a unanimous opinion by Mr. Justice Stewart in United States v. Wiesenfeld Warehouse Co., 376 U.S. 86, 91-92, 84 S.Ct. 559, 11 L.Ed.2d 536 (1964). Numerous other federal cases are in accord. See, e. g.: United States v. Cassaro, Inc., supra, 443 F.2d at 157; Lelles v. United States, 9 Cir., 241 F.2d 21, 23-24, cert. denied, 353 U.S. 974, 77 S.Ct. 1059, 1 L.Ed.2d 1136 (1957); United States v. Kaadt, 7 Cir., 171 F.2d 600, 604 (1948); United States v. Parfait Powder Puff Co., 7 Cir., 163 F.2d 1008, 1009-1010 (1947), cert. denied, 332 U.S. 851, 68 S.Ct. 356, 92 L.Ed. 421 (1948).

If the Supreme Court standards of individual criminal liability announced in Balint, Dotterweich and Wiesenfeld Warehouse, supra, are to be set aside, we shall defer to the Court’s collective wisdom in that area. We shall not undertake to overrule the Supreme Court.

Both Dotterweich and Wiesenfeld Warehouse, supra, state that an individual’s claim that his actions do not factually bring him within the corporate liability standards “involves factual proof to be raised defensively at a trial on the merits.” (Wiesenfeld Warehouse, 376 U.S. at 91, 84 S.Ct. at ’563.) In light of Inspector Brett’s testimony and Mr. Gregory’s admissions of his area of responsibility and actions in the operation of the warehouse business, we find and hold that the district court did not err in convicting him of the violations of the Act.

III.

Defendants contend that but one offense is involved in this ease since the four bags of food in question were all found in the same warehouse at the same time during the same inspection.

In a petition for reduction of sentence defendants sought to have the multiple penalties of $4,000 assessed against the corporation reduced to $1,000, and the multiple penalties of $2,000 assessed against Mr. Gregory abated or, if allowed, reduced to $500.

A petition for correction or reduction of sentence may be filed pursuant to Rule 35, Federal Rules of Criminal Procedure, Title 18, U.S.C. It is well established that the grant or denial of such a petition is addressed to the sound discretion of the district court. United States v. Krueger, 9 Cir., 454 F.2d 1154, 1155 (1972); United States v. Jones, 2 Cir., 444 F.2d 89, 90 (1971).

It has been held that a four-count indictment charging defendant with receiving foods and allowing the same to become adulterated under §§ 331 (k), 342(a) (3, 4) was not duplicitous where each count referred to a different food. Akin Distributors of Florida, Inc. v. United States, 5 Cir., 399 F.2d 306, 307 (1968), cert. denied, 394 U.S. 905, 89 S. Ct. 1013, 22 L.Ed.2d 216 (1969). In Robinson v. United States, 10 Cir., 366 F.2d 575, 579 (1966), cert. denied, 385 U.S. 1009, 87 S.Ct. 717, 17 L.Ed.2d 547 (1967), it was held that separate sales of illegal drugs supported separate counts in the indictment brought under § 331 (k), although they occurred at the same place and on the same evening. See also V. E. Irons, Inc. v. United States, 1 Cir., 244 F.2d 34, 45-46, cert. denied, 354 U.S. 923, 77 S.Ct. 1383, 1 L.Ed.2d 1437 (1957). It is to be noted that United States v. Wiesenfeld Warehouse Co., supra, although duplicity was not an issue, reversed the dismissal of an information similar to the one in the case at bar, where the six counts of the information differed only with respect to the particular shipment or product involved. 376 U.S. at 87, fn. 3, 84 S.Ct. 559.

Defendants cite other cases dealing with the question of duplicity in other areas of the criminal law, but none in the food and drug field. Since it was established in the instant case that each of the four counts here involved refers to a different food, three of which were received on different dates, we hold that the district court did not err in denying defendants’ petition to reduce the sentence.

Finally, defendants urge that Judge Gordon abused his discretion in refusing to revise his decision that they were found guilty of “holding food under insanitary conditions,” and to state that “the food examined was not tainted, but was wholesome and fit for human consumption.” Defendants argue that this request should have been granted in the face of allegedly harmful newspaper publicity that defendants were “fined for tainted food.” We regard this contention as not well taken since this relief was entirely within the discretion of the trial court.

In light of the foregoing, we affirm the decision and judgment of the district court in all respects.

Affirmed.

WILLIAM J. CAMPBELL, Senior District Judge

(concurring in part and dissenting in part).

I agree that defendants were properly found to have violated Title 21 U.S.C. § 331 (k) in that they “held” food for sale after shipment in interstate commerce which consisted in whole or in part of a filthy, putrid, or decomposed substance (i. e., the corn meal referred to in Count I), and held food for sale after shipment in interstate commerce under unsanitary conditions whereby it may have become contaminated with filth (i. e., the corn meal, poppy seed, caraway seed and corn grits referred to in Counts I, II, III and IV respectively). However, I respectfully disagree with the finding that defendants were each guilty of four separate violations of the statute.

These defendants were charged in a four-count information with holding adulterated food for sale after the interstate shipment thereof in violation of Title 21 U.S.C. § 331 (k). Count I charged that corn meal was “adulterated” as that term is defined by 21 U.S.C. § 342(a)(3) and as defined by § 342(a)(4), i. e., Count I charged that the corn meal consisted in part of a “filthy, putrid or decomposed substance” [(a)(3)] and that it was “held under unsanitary conditions whereby it may have become contaminated with filth • • [(a)(4)].

Counts II, III and IV charged, respectively, that poppy seed, caraway seed and corn grits were held under unsanitary conditions and were “adulterated” within the meaning of § 342(a)(4). The government neither charged nor proved that these foods actually consisted of a filthy, putrid or decomposed substance [§ 342(a)(3)].

If the government had charged and proved adulteration as defined by § 342(a)(3) as to each of the four kinds of food held for sale by the H. B. Gregory Co., I would agree that defendants may properly be found to have committed four separate violations of Title 21 U.S.C. § 331 (k), and accordingly, I would not consider separate sentences as to each count improper. But where the government charges three separate offenses (Counts II, III and IV) under § 342(a)(4) because three different kinds of food are being held, and proves but one unsanitary condition (i. e., the unsanitary condition of the building in which the foods are stored), I believe the maximum sentence that should be imposed is that which may be imposed for a single violation of the Act, a fine not to exceed one thousand dollars and/or imprisonment for not more than one year. 21 U.S.C. 333(a).

To hold otherwise conditions the extent of a defendant’s criminal liability not only on his failure to provide a sanitary environment for the foods held for sale, but also on whether defendant has held one, ten, twenty or one hundred different kinds of food on the premises, irrespective of the quantity thereof. To illustrate the problem thus presented, imagine the potential liability of a supermarket manager in charge of a mice-infested store. The government’s proof of this single unsanitary condition could, under the majority’s view, sustain separate convictions, potentially allowing consecutive one year prison terms, for each of the hundreds of different kinds of food held for sale on the premises. At the same time, the owner of a warehouse wherein large quantities of only one kind of food are stored could not receive a sentence in excess of one year in prison, plus a fine of one thousand dollars.

To avoid the prospect that such fortuitous circumstances could distinguish the criminal liability of one defendant from that of another, I would hold that if the government chooses to prove adulteration solely on the basis of § 342(a)(4), a defendant’s maintenance of an unsanitary facility within which foods are held for sale should be considered the conduct proscribed, regardless of how many different kinds of foods are stored therein, and that therefore only one sentence may be imposed.

I am not persuaded that Akin Distributors of Florida, Inc. v. United States, 399 F.2d 306 (5th Cir. 1968); Robinson v. United States, 366 F.2d 575 (10th Cir. 1966); V. E. Irons, Inc. v. United States, 244 F.2d 34 (1st Cir. 1957); or United States v. Wiesenfeld Warehouse Co., 376 U.S. 86, 84 S.Ct. 559, 11 L.Ed. 2d 536 (1964), cited by the majority, are authority to the contrary.

In both Robinson and V. E. Irons, Inc., defendants were charged with multiple counts of “misbranding” drugs. Neither case involved “adulteration”; neither case imposed multiple penalties on the basis of a single act or omission; neither case involved 21 U.S.C. § 342(a)(4).

The Fifth Circuit’s decision in Akin involved both § 342(a)(3) and § 342(a)(4). The brief opinion in that case states that “appellant had received foods and allowed same to become adulterated within the meaning of Title 21 U.S.C. § 342(a)(3) and (a)(4) . . . ”. 399 F.2d at 307. The opinion does not disclose whether or not a finding of guilty was sustained as to any count in which evidence showed adulteration only within the meaning of § 342(a)(4), but a reasonable inference may be drawn that the government proved adulteration under § 342(a)(3) as to each of the different kinds of foods claimed to have become contaminated. The basis for so inferring is found in the court’s statement that “the evidence supporting the alleged adulteration of the food named in each count was different for each food.” 399 F.2d at 307.

Finally, the Wiesenfeld decision dealt solely with the question of whether the act of “holding” food for sale under unsanitary conditions whereby it may become contaminated with filth constitutes a violation of § 331 (k). The Court answered that question in the affirmative. Whether a defendant could be sentenced separately on the basis of each of the several kinds of food so held was not an issue in Wiesenfeld and was not considered by that Court.

Accordingly, I would affirm the convictions under Count I and would affirm as to Counts II, III and IV on the basis that they constitute but one offense. Consistent with this view, I would vacate two of the one thousand dollar fines imposed upon the corporate defendant, and would vacate two of the five hundred dollar fines imposed upon Mr. Gregory.

      . § 331. Prohibited acts The following acts and the causing thereof are prohibited: '!■ *1* 'b í¡*
      (k) The alteration, mutilation, destruction, obliteration, or removal of the whole or any part of the labeling of, or the doing of any other act with respect to, a food, drug, device, or cosmetic, if such act is done while such article is held for sale (whether or not the first sale) after shipment in interstate commerce and results in such article being adulterated or misbranded.

      . § 342. Adulterated food A food shall be deemed to be adulterated— (a) * * * (4) if it lias been prepared, packed, or held under insanitary conditions whereby it may have become contaminated with filth, or whereby it may have been rendered injurious to health;

      . § 321. Definitions; generally For the purposes of this chapter— •k *k ¡k *k «k
      (f) The term “food” means (1) articles used for food or drink for man or other animals, (2) chewing gum, and (3) articles used for components of any such article.


author: LIVELY, Circuit Judge.

text:
    CHAMPION OIL SERVICE COMPANY, Plaintiff-Appellee, v. SINCLAIR REFINING COMPANY et al., Defendants-Appellants.
    No. 73-1835.
    United States Court of Appeals, Sixth Circuit.
    Aug. 29, 1974.
    George F. Karch, Jr., Cleveland, Ohio, for appellants; Gerald W. Simmons, Cincinnati, Ohio, John F. McLaren, Philadelphia, Pa., on briefs.
    Irving I. Saul, Dayton, Ohio, for ap-pellee; F. Bruce Abel, Cincinnati, Ohio, on briefs.
    Before WEICK, LIVELY and EN-GEL, Circuit Judges.
   LIVELY, Circuit Judge.

In this private antitrust action the jury assessed damages of $989,457, which amount was trebled pursuant to Section 4 of the Clayton Act, 15 U.S.C. § 15, and judgment was entered in favor of the plaintiff for $2,968,371. On appeal it is claimed that the district court erred in failing to grant a directed verdict in favor of the defendants, in failing to make requested rulings on damage issues, in failing to instruct the j ury on the defense of in pari delicto and, following the verdict, in denying the motion of the defendants for judgment notwithstanding the verdict.

Between 1946 and 1958 Champion Oil Service Company (Champion) had grown from a single service station to a successful independent marketer of petroleum products with an annual volume of over 5,000,000 gallons in Butler County, Ohio. Champion was able to sell petroleum products which were supplied by various oil companies under its own brand name at full prices in competition with nationally advertised brands. By 1958 Champion operated two bulk plants and twelve service stations in addition to servicing farm and commercial accounts and heating fuel oil customers. The principal officer of Champion was Glenn E. Douglass, its founder and the chief witness for Champion. Douglass testified that, although the business was successful, it had always operated in a tight working capital state. By 1958 Douglass perceived that the use of credit cards was becoming more widespread and that the highway building program would require an aggressive marketer of petroleum products to establish service stations at new locations. He testified that he felt he would be able to serve his area better if he were affiliated with one of the national oil companies.

Sinclair Refining Company was the marketing subsidiary of Sinclair Oil Corporation during the time relevant to this controversy. Subsequently there was a merger involving Atlantic Rich-field Company, another defendant in the action. The defendants will be referred to collectively as Sinclair. Although .Sinclair had operated for some 20 years in Butler County, Ohio prior to 1958, it had always been a substandard marketer with poor public acceptance in the area. In 1958 Champion had about 39 per cent of the independent jobbers’ market in gasoline in the Butler County area and 48 per cent of the jobbers’ market in fuel oil. This represented approximately 88 per cent of unbranded gasoline business in the area and 94.5 per cent of unbranded fuel oil business. Because of the strong position of Champion, representatives of a number of oil companies called on Mr. Douglass in 1958 suggesting affiliations between Champion and their employers. Douglass testified as to the decision to go with Sinclair, “We sort of selected them.” He described various considerations which went into his decision to affiliate with Sinclair, but spoke primarily of the appeal of Sinclair’s “estate building type of lease and leaseback.” Under this program a Sinclair distributor could obtain financing to purchase land and build an equipped service station primarily on the basis of a long-term lease to Sinclair at a rental which covered the full cost of the property, improvements and fixtures.

Champion and Sinclair entered into a contract by which Champion became the Sinclair distributor in Butler County, Ohio for a period of one year beginning April 1, 1958 and continuing from year to year thereafter for a term not to exceed ten years, subject to the right of either party to terminate upon 60 days notice prior to any contract anniversary. Thereafter one existing station and six new service stations were leased to Sinclair for terms of 15 years. Each of the new stations was owned by Champion and was financed with a one hundred per cent bank loan covered by a 15-year mortgage that was coterminous with the lease to Sinclair. The rent which Sinclair agreed to pay Champion for each of the stations was the exact amount required to pay off the mortgage loan and the rents under each lease were assigned to the lending institution as additional collateral for the loan. These are referred to as base leases. Each base lease contained the following provision:

If at any time during the term hereof Lessor [Champion], or, if there be more than one, any Lessor, shall be indebted to Lessee [Sinclair] on any account whatsoever, it is agreed that Lessee shall have the right to apply any accruing rental on said unpaid indebtedness, and that any amount so applied shall constitute rental payment hereunder.

Simultaneously with the execution of each base lease, the parties entered into a “station lease” by which Sinclair leased the same property back to Champion for a period of 15 years. The rent to be paid by Champion to Sinclair under the station lease was exactly the same as that due from Sinclair to Champion under the base lease. Champion as the owner of the stations had the obligation to pay taxes and insurance and at least part of the maintenance costs. Douglass testified that it was anticipated that these expenses would be paid out of the profits which Champion would realize in operating the stations under the sublease or station lease. Each station lease provided, however, that in the event of a termination of the distributor agreement between Sinclair and Champion “then Lessor shall have the option of cancelling and terminating this Lease by written notice to such effect to Lessee.” Counsel for Champion examined and approved all of these documents.

Despite its adoption of the Sinclair brands and emblems and the expansion to new outlets, Champion did not increase its gallonage in proportion to its growth in capital commitments and operating overhead. In fact, its small profits turned into losses and its operating costs continued to climb. By 1963 Champion was seeking a means of refinancing its operations, and Glenn Douglass testified that use of the equity which had built up in the financed service stations was necessary to achieve any relief by way of refinancing. Eventually Douglass requested that Sinclair make a loan to Champion of approximately $700,000, with the proceeds being used to pay off all existing bank mortgages on station properties and other obligations of Champion and providing $50,000 of working capital. Douglas testified that after a number of sessions with various representatives of Sinclair he was advised in August 1965 by Harry Young, the regional manager of Sinclair, that the loan would not be made. The witness testified that he told Mr. Young in the same conversation that since the loan would not be made Champion requested that it be released “from all of our documents, our leases and our sales contracts so I could take this package elsewhere and survive.” He states that Harry Young told him that “[H]e would not do that” and that this was the end of the conversation. Later another representative of Sinclair suggested that Champion turn over to Sinclair ten of the stations which it was operating. These were the six original Sinclair stations and four of Champion’s financed stations. This was eventually done and the release of the four owned stations plus the sale of equipment and merchandise in all ten reduced the rental load and provided Champion with cash which it needed to pay off some of its pressing obligations.

In January 1966 Champion served notice of its intention to cancel the distributor supply contract effective at the end of March of that year. Douglass testified that he contacted a number of other oil companies with the idea of obtaining financing from one of these companies and in turn becoming its distributor. He said that he “felt” that some supplying company would be interested in taking over the leases and the bank loans and stepping into Sinclair’s shoes. On the other hand, he testified that if this were not possible, he was interested in selling the seven Champion-owned stations to someone as an investment and tying up with another oil company “like Sun” so that Champion could pay a better rental to the investor-purchaser. Champion continued to operate as a jobber-distributor of Sinclair products on a month-to-month basis after the termination of the distributorship contract. During this time it continued to operate the three remaining financed stations. Sinclair continued to pay the rent on the four Champion-owned stations which it had taken over, and the equity of Champion in the seven stations continued to increase. Although Douglass testified on one occasion that he could not get financing because the money market was tight, it was his thesis throughout his testimony that the refusal of Sinclair to release the base leases on the seven financed service stations prevented Champion from salvaging its business. This assertion was based on the witness’ opinion after a lifetime in the business of distributing petroleum products that no other oil company would finance him so long as Sinclair controlled the desirable locations represented by the seven financed stations. His son testified to the same effect.

On cross-examination it was brought out that, except for financial resources, Champion was stronger than Sinclair in relation to the distributorship arrangement entered into in 1958. Sinclair had never done well in Butler County, Ohio and Champion was a major factor in the independent sector of the petroleum business of the area. This was emphasized by evidence that Champion had insisted on ten conditions being met by Sinclair prior to agreeing to become a Sinclair distributor. Later, when Champion was trying to make a change, both Cities Service Company and Sun Oil Company declined Champion’s requests for financial assistance because of its burdensome debt structure and unprofitable operating experience without reference to the refusal of Sinclair to release the base leases on the seven service stations. It was testified that Champion purchased petroleum products from Tresler Oil Company at Cincinnati during the entire time that it was a distributor of Sinclair products and that some sort of financial help was offered by Tresler. Douglass admitted that he had put second mortgages on all of the financed service stations, but stated that Champion had not realized capital, but had used these mortgages to secure prior indebtedness. At one point near the end of Champion’s relationship with Sinclair, Champion was purchasing 98 per cent of the petroleum products which it sold from suppliers other than Sinclair. Sinclair had put Champion on a C.O.D. basis while other suppliers in the territory were still willing to sell to Champion on credit. Douglass admitted that the Ohio manager of Sinclair told him to find another supplier and that he “assumed” that there would be an agreement freeing the three remaining service stations from the base lease to Sinclair.

Glenn Douglass testified that he did not blame Sinclair for the financial problems of Champion, but his complaint was that Sinclair’s refusal to release the base leases prevented Champion from using its own properties to extricate itself from its financial difficulties. It was stated that increased gallonage was the only way that Champion could salvage its business. The fixed charges and operating costs would not increase with greater gallonage, and the profits would improve dramatically according to witnesses for Champion. Douglass testified that Sun Oil Company was second in Ohio in the marketing of petroleum products and that if Champion had been able to borrow $350,000 it would have been able to enter into a distributorship with Sun which would have been profitable enough to have enabled it to salvage its operations. While Douglass maintained that the needed $350,000 would have been available except for the base leases to Sinclair, the Sun Oil Company employee who had negotiated with Douglass was not asked if these leases stood in the way of Sun’s competing for the Champion business.

The district judge required extensive pretrial proceedings and these effectively narrowed the issues in the case. The court granted partial summary judgment in favor of Sinclair which removed from the case issues based on alleged per se violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, and Section 3 of the Clayton Act, 15 U.S.C. § 14. He also ruled that the requirements contract between Champion and Sinclair, standing alone, could not be treated as a violation of the antitrust laws since there was no claim of any causal connection between the plaintiff’s asserted damages and this contract. As the evidence showed, Sinclair never insisted that Champion purchase all its requirements from Sinclair. In the opinion issued in connection with the summary judgment ruling the district court stated that the only issues for the jury “are whether or not the leaseback, either alone or in combination with the lease and requirements contract, constituted an unreasonable restraint of trade under § 1 of the Sherman Act; and also whether or not the combination between Sinclair and Champion is an unreasonable restraint of trade under § 1 of the Sherman Act.” The plaintiff has not appealed from the partial summary judgment.

The first question to be answered on appeal is whether Sinclair was entitled to a directed verdict on the ground that Champion failed to prove a prima facie case of unreasonable restraint of trade within the meaning of § 1 of the Sherman Act. In denying Sinclair’s motion for a directed verdict the District Judge remarked:

I don’t want you to get your hopes up just because the case is going to a jury. I will be very frank with you. I don’t see any evidence of intent to injure competition. I don't see any evidence of unreasonable restraint of trade, and I see no evidence on which a jury could properly base a verdict on the issue of causation.

In considering a district court’s denial of a directed verdict and judgment notwithstanding the verdict we must “view the evidence in the light most favorable to [Champion] and . . . give it the benefit of all inferences which the evidence fairly supports, even though contrary inferences might reasonably be drawn.” Continental Ore Company v. Union Carbide & Carbon Corporation, 370 U.S. 690, 696, 82 S.Ct. 1404, 1409, 8 L.Ed.2d 777 (1962); Fortner Enterprices, Inc. v. United States Steel Corporation, 452 F.2d 1095 (6th Cir. 1971), cert. denied, 406 U.S. 919, 92 S.Ct. 1773, 32 L.Ed.2d 119 (1972). Sinclair contends that since there was no per se violation of the Sherman Act the “rule of reason” controls and that under this rule there must be a showing of an adverse impact on the market place for otherwise legal acts to be held to constitute unreasonable restraint of trade. Reliance is placed on Elder-Beerman Stores Corporation v. Federated Department Stores, Inc., 459 F.2d 138 (6th Cir. 1972). In Elder-Beerman, we were dealing with a claim that exclusive supply agreements between a supplier and a seller were used in an attempt to monopolize the department store business in Dayton, Ohio. The majority of the court panel held that the plaintiff failed to establish the single conspiracy upon which it had based its claim for damages. If Champion’s claim in the present case were based solely on the exclusive supply arrangement between it and Sinclair, Elder-Beerman might require reversal. However, Champion claims that the unreasonable restraint of trade did not result from the requirements contract alone and the district court so ruled in granting partial summary judgment. It is the position of Champion that it was the intention of Sinclair to control Champion’s portion of the Butler County petroleum products business by obtaining 15-year leases on Champion’s prime service station sites, which leases had no escape clause, while at the same time leasing the stations back to Champion under an instrument which provided that the leaseback could be cancelled upon termination of the distributorship agreement. This intention was realized, says Champion, when Sinclair refused to release the stations, making it impossible for Champion to deal with a Sinclair competitor.- Thus there are factors in this case which require us to look beyond Elder-Beerman and other cases dealing with exclusive supply agreements.

Sinclair also cites Fortner En-' terprises, Inc. v. United States Steel Corporation, supra,, a case dealing with a “tying arrangement.” The district court correctly held that this is not a true “tying” ease, and this question is not before us since there was no appeal from the partial summary judgment.

Further reliance is placed on this court’s opinion in Ace Beer Distributors, Inc. v. Kohn, Inc., 318 F.2d 283 (6th Cir.), cert. denied, 375 U.S. 922, 84 S.Ct. 267, 11 L.Ed.2d 166 (1963). Champion responds that this case involves much more than a refusal to deal with a party who desires to be a customer of the manufacturer, which was the basic complaint in both Elder-Beerman, supra and Ace Beer, supra. Champion maintains that the inherent perniciousness of the lease/leasebaek/distributorship arrangement is evidenced by the fact that the only terms under which it could sever relations with Sinclair left it stripped of control over the financed service stations, without which it was impossible to deal with a Sinclair competitor.

Sinclair relies upon Apex Hosiery Co. v. Leader, 310 U.S. 469, 60 S.Ct. 982, 84 L.Ed. 1311 (1940), where the Supreme Court held that the Sherman Act never applies unless there is some form of restraint upon commercial competition in the marketing of goods or services. The purpose of the Act was stated by the Court in this language:

The end sought [by the Sherman Act] was the prevention of restraints to free competition in business and commercial transactions which tended to restrict production, raise prices or otherwise control the market to the detriment of purchasers or consumers of goods and services . . . 310 U.S. at 493, 60 S.Ct. at 992.

In addition Sinclair cites Cartrade, Inc. v. Ford Dealers Advertising Association of Southern California, 446 F.2d 289 (9th Cir. 1971), cert. denied, 405 U.S. 997, 92 S.Ct. 1249, 31 L.Ed.2d 465 (1972), for the proposition that where there is no evidence that a decision to terminate a relationship is made for anti-competitive reasons the complaining party has failed to prove a prima facie case of violation of the Sherman Act.

Sinclair contends that Champion’s failure to secure a distributorship with another oil company could not possibly have affected competition because at least 17 oil companies were operating in Southwestern Ohio, the area Sinclair maintains should be considered rather than just Butler County. The total gal-lonage for the area in 1965 was 611,376,907. Champion’s total gallonage for 1965-66 was considerably less than one percent of the total. In Tampa Electric Company v. Nashville Coal Company, 365 U.S. 320, 327-328, 81 S.Ct. 623, 5 L.Ed.2d 580 (1961), the Court held that three determinations are necessary for finding that an exclusive dealing contract or arrangement constitutes an anti-trust violation. It was said that the court must determine the line of commerce involved, the area of effective competition and that the competition foreclosed by the arrangement constitutes a substantial share of the relevant market. Sinclair maintains that there was no showing of any substantial effect on the relevant area of effective competition and for this reason the case should not have been submitted to the jury.

We conclude that the district court should have granted Sinclair’s motion for a directed verdict. There was no direct evidence, or evidence from which it could properly be inferred, that any other oil company refused to refinance Champion and accept it as a distributor because of the existence of the lease/leaseback agreements. To the contrary, the evidence is overwhelming that the refusals were based on the poor financial condition of Champion and its inability to reduce operating expenses— the very considerations which caused Sinclair to put it on a C.O.D. basis. The estate building features of the lease/leaseback arrangement appear to have been the chief reason for Champion’s decision to affiliate with Sinclair. During the entire time of deteriorating relations between the parties Sinclair continued to pay rent on the seven stations which Champion owned and had financed through the arrangement of which it now complains. For a portion of the time four of these stations were being operated by Sinclair rather than Champion, but Champion was building equity in them. Because of this growth in equity Champion was able to secure some financial relief by placing second mortgages on this real estate which had originally been encumbered with mortgages representing its full value.

The district court correctly determined that there was no per se violation of the Sherman Act and that the case did not involve an illegal tying arrangement. We find that there was no proof that the contracts and leases complained of were designed to, or did in fact, suppress interbrand competition, or otherwise result in unreasonable restraint of trade. Such proof is required in non per se cases. Because of our disposition of this issue we do not reach other questions which the parties have argued on appeal.

The judgment of the district court is reversed and the cause is remanded with instructions to enter judgment notwithstanding the verdict dismissing the complaint.