author: JOHN R. BROWN, Chief Judge:

text:
    William L. RALEY and Thelma C. Raley, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.
    No. 73-1674.
    United States Court of Appeals, Fifth Circuit.
    March 15, 1974.

      Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Louis A. Bradbury, Attys., Tax Div., Dept. of Justice, Lee H. Henkel, Jr., Acting Chief Counsel, IRS, Washington, D. C., Oscar Blasingame, Asst. U. S. Atty., Tampa, Fla., John L. Briggs, U. S. Atty., Jacksonville, Fla., for defendant-appellant.
    William R. Frazier, Jacksonville, Fla., for plaintiffs-appellees.
    Before BROWN, Chief Judge, and GEWIN and GOLDBERG, Circuit Judges.
   JOHN R. BROWN, Chief Judge:

The Government in this tax refund suit appeals a decision by the District Court holding that money received by taxpayers in the redemption of four revolving fund retain certificates from agricultural cooperatives was taxable as capital gain rather than as ordinary income. Taxpayers had reported these as capital gains but the Commissioner reclassified the amounts as ordinary income. We conclude that the Judge was both right and wrong and in a sort of Solomonic way, The Noah’s Ark v. Bentley & Felton Corp., 5 Cir., 1961, 292 F.2d 437, 438, 1961 A.M.C. 1641, 1642, we hold that retain certificates received after December 2, 1959 are not entitled to capital gain treatment. The District Court was correct, however, in holding that proceeds from redemption of certificates received prior to December 2, 1959 constituted capital gain. Consequently we reverse and remand in part the decision of the District Court.

We have extracted the essential facts in this case from the stipulated facts, none of which are questioned. Taxpayers, owners and operators of Florida citrus groves, were members of the marketing Coop Dundee Citrus Growers’ Association and participants in the Florida Citrus Canners Cooperative. As standard practice, the Coops distributed retain certificates as a form of dividend to their patrons as a distribution of excess of funds received by the Coop in fulfilling its duties to the patrons.

Because in our analysis, the critical date is 1959, it is sufficient merely to state that of the four Coop certificates two were issued prior to 1959 and two thereafter with redemptions as to all occurring in tax years 1967 and 1968.

As a series of court decisions supplying the artifacts reflect, it is relatively ancient history that retain certificates were not taxable when issued to the patrons because there was no ascertainable market value. Neither party has asserted that either the Coop or taxpayers would have had to include these certificates as a part of gross income in the year in which issued and received.

Not seeking to reopen this chapter the Government argues that the certificates were taxable as ordinary income to the patrons in the year in which they were redeemed. . Taxpayers counter with the argument that the certificates were technically taxable at the time of issuance to the patrons but since the certificates had no marketable value there was nothing to tax but in any event they are to be treated as capital gains.

In two prior cases this Court was faced with having to make a determination regarding the tax status of retain certificates issued by Coops. In the first, Commissioner of Internal Revenue v. Carpenter, 5 Cir., 1955, 219 F.2d 635, a patron of a farmer’s Coop received revolving fund certificates in a face amount equal to his share of the retained proceeds. The Government asserted that the patron had to include the face value of the certificates in his gross income in the year the certificates were received. This Court rejected the Government’s position and held that the certificates did not constitute income upon issuance. Underlying its decision, the Court emphasized that at the time of issuance the certificates had no fair market value. Also, the patron was unable to force redemption of the certificates on his demand or control the amount he would receive since both were subject to the discretion of the Coops’ directors. Since the patron had no right to receive anything but the certificates, which had no market value, the Court held they did not constitute ordinary income and the patron could not be held liable for the face value as taxable income in the year of issuance.

It bears repeating that the Court in Carpenter was presented only with the question of whether the certificates constituted ordinary income at the time of issuance and receipt. All we held was that the certificates had no market value at the date of receipt. No question was raised concerning the tax treatment to be accorded the proceeds from the certificates upon redemption whether as ordinary income or capital gains. Consequently Carpenter is not determinative of the proper tax treatment of proceeds on redemption.

The second case, Tomlinson v. Massey, 5 Cir., 1962, 308 F.2d 168, comes perilously close to a lion in the streets requiring en banc to avoid its authoritative consequences. As here it involved taxability of the proceeds in the year of receipt from the sale of certain retain revolving fund certificates. During the years 1936 to 1949 taxpayer Massey had received the certificates which had a total face value of $330,531.41 from two Coops of which he was a member. In 1949 Massey sold all the certificates for 20% of their face value, or $66,106.27. The issue was whether this amount could be claimed by the taxpayer as capital gain in the year of sale.

This Court approved the classification of the redemption proceeds as capital gains but stated that “[t]his case turns on its own special facts.” The distinctive issue before the Court in Massey was whether the amounts received by the patrons for sales in 1949 would be taxable as capital gains as they would have been under pre-1959 law or whether under the Regulations which became effective December 2, 1959 the taxpayer would have to treat this as ordinary income. In holding that the certificates represented risk capital of the cooperatives and were hence subject to capital gains treatment under the 1939 Code, the Court recognized that the sole issue before it was one of retroactivity rather than tax status.

We hold that appellee’s tax liability for the year 1951 is to be determined in conformity with the law and the regulation then in force and not by the regulation of December 2, 1959. Helvering, Commissioner of Internal Revenue v. R. J. Reynolds Tobacco Co., 306 U.S. 110, 59 S.Ct. 423, 83 L.Ed. 536. The regulation promulgated in 1959, even if attempted to be made retroactively applicable to this case, must yield to the controlling statute. Long Poultry Farms, Inc. v. Commissioner of Internal Revenue, 4 Cir., 249 F.2d 726; Manhattan General Equipment Co. v. Commissioner of Internal Revenue, 297 U.S. 129, 56 S.Ct. 397, 80 L.Ed. 528.

308 F.2d at 173.

The only thing that was necessary to the Court’s decision in Massey was to determine the state of the law in 1949, the date of the redemption of the retain certificates. Whether out of its contemporary enlightened conception of the enterprise nature of retain certificates or, more likely, the Service’s singular lack of success in securing favorable court decisions, it was clearly the position of the Service prior to 1959 to treat redemption proceeds as capital assets. Massey recognized the prior 1959 law which the amendments to the Regulations were to alter.

Since the decision of this Court in the Carpenter ease and prior to the adoption of Treasury Regulation 118, Section 39.22(a)-23, as amended December 2, 1959, the Director of Internal Revenue has in numerous cases ruled that funds realized from the sale of cooperative retain certificates constituted capital assets, disposition of which resulted in capital gain or loss.

308 F.2d at 174.

When we analyze the Court’s decision in Massey we see that the issue presented here, sales of certificates after the effective date of the 1959 amendment, was never posed in Massey. No challenge was made in Massey nor indeed in this case, to the validity of the 1959 amendment with respect to post-1959 sales or redemptions of certificates issued after 1959. The problem in Massey was not the status of proceeds as such. Rather it was the more pedestrian question of retroactivity or principles akin to it in applying marked changes in the applicable law.

The Government now presses for a decision abandoning Massey which we do not feel called upon to make. This panel is bound by the decision in Massey, independent of the internal reasons given in that opinion for the result, to the extent that redemption proceeds from certificates received prior to December 2, 1959 will be treated as capital assets. Certainly at this late date there is nothing which the RIRA crystal ball can tell us to indicate that this narrow issue in point of time is enbancworthy. See McLaurin v. Columbia Municipal Separate School District, 5 Cir., 1973, 486 F.2d 1049.

With respect to redemption proceeds from post-1959 certificates, the Regulations clearly prescribe the consequences to be ordinary income treatment.

The Government is not requesting that we retroactively apply Subchapter T (see note 3, supra) which would make the certificates ordinary income to the patrons on date of receipt. For our present purposes, these statutes did not change the law as of December 31, 1962 to make former capital gains into ordinary income. The statutes did not relate to the tax status of the item but only to the time of taxation. From the adoption of the 1959 amendment to the Regulations, the Government viewed retain certificates as non-capital assets and required the patron to treat the amount received in redemption as ordinary income. After December 31, 1962 the time of receipt of ordinary income was pushed back to the date of receipt, not redemption.

Affirm and reverse in part and remand for purposes of computation.

Affirmed in part; reversed and remanded in part.

      . Taxpayers, William L. and Thelma C. Raley, filed tax returns for their fiscal years ending June 30, 1967 and June 30, 1968. They seek recovery for payment of income tax deficiencies and interest in the following amounts:

        Fiscal Year Deficiency Interest

      June 30, 1967 $1,244.21 $101.97
      June 30, 1968 1,306.90 28.71
      Totals $2,551.11 $130.68

      . Following First National Bank of Birmingham v. United States, 5 Cir., 1966, 358 F.2d 625, 631, the Attorney General in response to a request from the bench advised the Court that the RIRA data computer system revealed that only one other case was pending, Agway, Inc. v. United States, (Court of Claims, No. 30272), but that the problem arises frequently in auditing returns and consequent administrative handling in the Internal Revenue Service.

      . Effective December 31, 1962, the Internal Revenue Code of 1954 was amended by Sub-chapter T (26 U.S.C.A. §§ 1381-1388) which definitely resolved the dispute in favor of the Government. Pub.L. 87-834, § 17(a), Oct. 16, 1962, 76 Stat. 1045. Now both the cooperative and the patron know exactly how they will be taxed. Tax treatment for the patrons provides that the retains must be taken into gross income during the year of receipt.
      § 1385. Amounts includible in patron’s gross income

      (a) General rule.—Except as otherwise provided in subsection (b), each person shall include in gross income—
      (1) the amount of any patronage dividend which is paid in money, a qualified written notice of allocation, or other property (except a nonqualified written notice of allocation), and which is received by him during the taxable year from an organization described in section 1381(a).

      . Pre-1959 Certificates

      (a) 6/30/49 Fla. Citrus Canners Coop. $4,625.41
      (b) 6/31/51 Growers Fertilizer Co. 1,446.76
      (c) Total Pre-1959 $6,072.17

        Post-1959 Certificates

      (d) 6/30/62 Dundee CGA $3,112.58
      (e) 6/30/62 Dundee CGA 449.03
      (f) Total Post-1959 _ 3,561.61
      (g) Total Redemptions 1966-1968 $9,633.78

      . The certificates had no fixed date of maturity since redemption was presumably at the discretion of the Coops’ directors.

      . Typical of such certificates issued by Coops, they were subordinate to all other indebtedness of the Coop, paid no dividends, and were redeemable at the discretion of the directors.

      . The claim to capital gain treatment was asserted under § 117 (a) (1) of the 1939 Code which accorded the same treatment as § 1221 of the 1954 Code.

      . Clear changes for the tax status of cooperative retain certificates were adopted in the 1959 amendment to the Regulations for the 1939 Code (Tres.Reg. § 39.22(a)-23) and the 1954 Code (Tres.Reg. § 1.61-5). The following sections delineated the patron’s obligation in treating income from the disposition of retain certificates as ordinary income :
      (b) Extent of taxability. (1) Amounts allocated to a patron on a patronage basis by a cooperative association with respect to products marketed for such patron, or with respect to supplies, equipment, or services, the cost of which was deductible by the patron under section 23(a)(1) or (2), shall be included in the computation of the gross income of such patron, as ordinary income, to the following extent:
      (i) * * *
      (ii) * * *
      (iii) If the allocation is in the form of revolving fund certificates, retain certificates, certificates of indebtedness, letters of advice, or similar documents, the amount of the fair market value of such document at the time of its receipt by the patron. * * *
      However, for purposes of this subdivision, any document which is payable only in the discretion of the cooperative association, or which is otherwise subject to conditions beyond the control of the patron, shall be considered not to have any fair market value at the time of its receipt by the patron, unless it is clearly established to the contrary.
      (iv) * * *
      (2) If any allocation to which subparagraph (1) of this paragraph applies is received in the form of a document of the type described in subparagraph (1) (iii) or (iv) of this paragraph and is redeemed in full or in part or is otherwise disposed of, there shall be included in the computation of the gross income of the patron, as ordinary income, in the year of redemption or other disposition, the excess of the amount realized on the redemption or other disposition over the amount previously included in the computation of gross income under such subparagraph.

      . At trial the parties stipulated that “the retain certificates when issued represented the risk capital of the association and no subsequent corporate event changed the character of the certificates.” 308 F.2d at 174.

      . See note 4, supra, taxpayers win on lines (a), (b) and (c), the Government on (d), (e) and (f).


source: Caselaw Access Project

author: TUTTLE, Circuit Judge:

license: Public Domain

text:
    Dorothy Kane RAWLS, Plaintiff-Appellant, v. DAUGHTERS OF CHARITY OF SAINT VINCENT De PAUL, INC., the Administrators of Saint Vincent de Paul Hospital; Insurance Company of North America; Harold Bolding; the Aetna Casualty & Surety Company; Charles B. Odom, Individually and as Coroner of Jefferson Parish and The Surety of his Bond, St. Paul Fire and Marine Insurance Company; and Genevieve Arneson, Defendants-Appellees.
    No. 71-2519.
    United States Court of Appeals, Fifth Circuit.
    March 15, 1974.
    Rehearing and Rehearing En Banc Denied May 14, 1974.

      Henry L. Klein, New Orleans, La., for plaintiff-appellant.
    H. Martin Hunley, Jr., New Orleans, La., for Daugh. of Charity, Ins. Co. of N. America & De Paul Hospital.
    Henry B. Alsobrook, Jr., New Orleans, La., for Dr. H. Bolding & Aetna.
    Lawrence D. Wiedemann, New Orleans, La., for Dr. Charles Odom.
    John M. Mamoufides, Dist. Atty., Metairie, La., for Odom & Arneson.
    Before TUTTLE, GODBOLD and MORGAN, Circuit Judges.
   TUTTLE, Circuit Judge:

On March 24, 1969, appellant Rawls instigated this suit against (1) De Paul Hospital, (2) Dr. Bolding, a psychiatrist, and their respective insurers, contending that they falsely imprisoned her while a patient at De Paul Hospital from January 9, 1969 to March 4, 1969. Appellant Rawls also sued (3) Dr. Odom, the Coroner, (4) Dr. Arneson, his assistant, and their respective insurers, claiming they not only falsely imprisoned her, but also acting under color of state law deprived her of her civil rights.

The district court denied Rawls’ motion for summary judgment against De Paul Hospital. Appellant Rawls did not make a motion for directed verdict against any of the parties. After a seven day trial, the jury returned a verdict for all defendants and the district court refused to grant appellant Rawls’ motion for a judgment notwithstanding the verdict. The assignment of errors by the appellant are the district court’s: (1) denial of the post-trial motion of judgment notwithstanding the verdict; (2) failure to grant summary judgment against De Paul Hospital; (3) exclusion of testimony of Dr. Szasz; (4) failure to instruct jury charges #3-12 submitted by appellant; and (5) inclusion of jury instruction that the January 22 court order was valid on its face and was a defense interposed by all defendants.

I. LOUISIANA MENTAL HEALTH LAW

The touchstone for initially analyzing this controversy is the Louisiana Mental Health Law, LSA-R.S. §§ 28:1 et seq., in particular the provisions regarding procedures for commitment to a mental institution and rights of patients therein. At the time of the commitment in this case, the Louisiana Mental Health Law provided four methods for the purely civil commitment of the mentally ill: voluntary admission, coroner’s commitment, judicial commitment and emergency commitment. The following three are involved in this ease:

§ 51. Voluntary admission
“Any mentally ill, inebriate, or epileptic person who desires to submit himself for treatment may apply to the superintendent for admission to the appropriate institution named in Part II of this Chapter, or to any private mental hospital or institution, provided he is first fully informed of the provisions of this Chapter, fully understands them, and agrees, to obey the rules of the institution.
“A. The superintendent of any state mental institution may so receive and detain the applicant, provided he believes him mentally competent to make the application and to be in need of care. Should the patient become imcompetent or otherwise unable to demand his discharge, the superintendent shall request commitment by the court in whose district the hospital or institution is located. .” (Emphasis supplied).
§ 52. Coroner’s commitment
“Any near relative, or in the absence of relatives, a near friend, curator, or other responsible person shall apply to the coroner to have a patient committed to an institution.
“The application shall be in writing on the form prescribed by the department and shall give the name, sex, and residence of the patient, the reason why institutional care is needed, and any other information the department deems necessary. It shall be accompanied by a certificate of the coroner and one other qualified physician, stating that they have examined the patient within three days of the application and that he is in need of observation or care in an institution. The certificate shall state the facts and sources of information and personal observations upon which opinion is based. . . . After complying with the above provisions the application for commitment shall be presented to the judge of the judicial district court or the civil district court for the parish from which the patient is to be committed, for his approval or disapproval. The application for commitment can be acted upon by the judge in open court or in chambers, in term time or in vacation, without the necessity of formally docketing and allotting said application.
“The superintendent may admit the patient to the institution within fourteen days of the examination by the coroner and the physician.
“After fourteen days the certificate of examination of the coroner and the physician is invalid. . . .” (Emphasis supplied).
§ 53. Judicial commitment
“A. Upon application by any responsible person, accompanied by a certificate as provided in R.S. 28:52, the judge of the civil district court may commit to an institution any patient within his jurisdiction when, in his opinion, commitment is in the best interest of the patient and the community. The court shall fix a date for a hearing to be held not less than five days from receipt of examiner’s report. . . .” (Emphasis supplied).

Two additional provisions of the Louisiana Mental Health Law bear upon the plaintiff’s rights in this case:

§ 98.1. Right to release on application of voluntary patients
“A voluntary patient who requests his release or whose release is requested, in writing, by his legal tutor, parent, spouse, or adult next of kin shall be released forthwith . . .”
§ 171. Enumeration of rights guaranteed
“Every mental patient is guaranteed the following rights: (1) To communicate in private with counsel or with the director or an agent of the department. . . . ”

Familiarity with these prerequisites for, and rights appurtenant to, commitment to a mental institution in Louisiana enables us to understand the significance of certain events in the course of the plaintiff’s confinement.

II. FACTS

The following is a chronological outline of events giving rise to this lawsuit.

January 9, 1969

Mr. Rawls, plaintiff’s husband and Mr. Kane, plaintiff’s brother, initiated an application for the commitment of Dorothy K. Rawls in the Coroner’s Office. Mr. Bergeron of the Goroner’s Office began filling in a form entitled “In Re Application for Commitment.” He explained that as a prerequisite to commitment under Louisiana law, i. e. Coroner’s Commitment Section 28:52, either (1) Mrs. Rawls must be examined by a doctor who then recommends the commitment, or, (2) the only other procedure was to issue a warrant which would authorize the police to arrest Mrs. Rawls for examination. Mr. Rawls stated his wife would not go to a doctor; Mr. Rawls and Mr. Kane objected to the warrant procedure. Mr. Bergeron testified he wrote “Warrant issued for her to be picked up and held for examination” on the commitment application at this point, because Mr. Rawls said he was going to apply for a warrant in the future. Mr. Bergeron’s testimony was that he only wrote this statement there for his information, considered the application withdrawn and placed it in his desk drawer. A warrant was never issued for Mrs. Rawls, but the language, “Warrant issued for her to be picked up and held for examination,” remained on the partially completed commitment application.

Later that morning, Mr. Kane telephoned Dr. Bolding, a private psychiatrist, authorized to admit patients to De Paul Hospital. Dr. Bolding arranged to have plaintiff admitted and notified the hospital to expect Mrs. Rawls.

Mr. Rawls called an ambulance from a private concern which came to Mrs. Rawls’ home around 2:45 p. m. A second ambulance from the Coroner’s Office arrived at the scene because it was aiding the private ambulance in locating the address. When the private ambulance arrived, neighbors stated the lady inside will probably give you trouble. So the private ambulance attendants called the police for assistance and a patrol car with two officers came immediately. Mr. and Mrs. Rawls were arguing at her home. Ambulance attendant Brewer testified that Mrs. Rawls requested an attorney and that at first she did not want to go. Her husband tried to persuade her, but she still refused. Police officer Danos discovered that the ambulance attendants did not have any commitment papers or a warrant, and he told Mrs. Rawls that she was not obliged to leave with the ambulance attendants. The plaintiff stated, according to Danos, that she would accompany the ambulance attendants to De Paul to prove to her husband that she was not mentally ill. She eventually went without resisting physically. Attendant Macera testified that Mrs. Rawls spoke of obtaining an attorney all the way to the hospital.

Upon arrival at the hospital, Mr. Rawls signed the “Admission Agreement,” the “Statement of Financial Responsibility,” and the “Application for Commitment.” Since the Coroner’s application was not completed at this juncture and since a judicial commitment had not been instigated yet, this initial admission must be sustained as a voluntary admission under section 28:51 in order to be lawful. Mrs. Rawls did not sign any documents upon entering the hospital and was not apprised of her rights, as required in section 28:51. Dr. Head, the medical director, admitted his inability to locate any admission papers signed by Mrs. Rawls. There was no contrary evidence on these two points. Nevertheless, the hospital accepted the husband’s application and admitted Mrs. Rawls.

Prior to plaintiff’s admission, Dr. Bolding had issued written orders on the hospital chart to the nursing personnel that she was not to be allowed to make telephone calls. However, Mrs. Rawls was not prohibited from corresponding by mail throughout her confinement at De Paul Hospital. After arriving at the hospital Mrs. Rawls repeatedly requested permission to call her lawyer, which was denied. Her protests were noted on the hospital chart, as follows:

“No phone calls.” (Jan. 9)
“Patient has been VERY angry all p. m. over ‘fact of being committed’— continuously asking to use phone to get in contact with lawyers, etc., to get a lawsuit against her husband ‘before he leaves the country with my sons,’ states she thought the State appointed the doctor—did not ask for Dr. Bolding, etc.” (1/9/69)
“Evening supervisor spoke with pt. re: not using the phone as ordered by Dr. Bolding (who was notified of the situation and stated absolutely NO PHONE CALLS)” (Jan. 9)
“Pt. has appeared hostile throughout the day toward hospitalization—her doctor—husband. Said she was snatched up in the middle of the day from her home . . .” (January 10)
“. . . Harps on injustice of her being locked up like this for no reason.” (1/10/69).
“Was of the feeling that she needed not to be here.” (1/13/69).
“Still insists she does not belong here . . .” (1/14/69).
“Still very angry about being locked up here.” (1/15/69).
“Remarks to the patients that she was ‘supposed to be crazy’—seems to think that locking anyone up in De Paul makes them sick—even if they are not when they arrive.” (1/20/69). “Expressed to the group her feeling that she was railroaded into this place.” (1/21/69).
“The nurse’s line supervisor received a phone call from a former female patient who left here Saturday, saying patient was being held here against her will.” (1/27/69).
“Request to call her lawyer. Dr. Bolding telephoned. Dr. Bolding returned call. Patient told of Doctor’s call. Appeared angered, saying she’d get a lawyer somehow.” (1/27/69). “Dr. Head telephoned about hospital policy toward committing pts. and their legal rights.” (1/30/69).
“Pt. allowed to call her lawyer, as hospital policy is that pt. can at any time they want.” (1/30).

Mrs Rawls testified that she specifically requested to use the telephone on numerous occasions, and that she was told if she did not refrain from asking, she would be placed in tighter security and strapped down. On the other hand, the nurses indicated that they understood Mrs. Rawls was requesting to call a lawyer not for the protection of her own rights, but only to sue her husband. The nurses’ testimony was that Mrs. Rawls never stated that she was being held against her will and never specifically demanded release from the hospital.

January 20, 1969

The Coroner’s Office received a call from a male, either Mr. Rawls or Mr. Kane, and Mr. Bergeron reactivated the prior partially completed application for commitment of Mrs. Rawls. First, Mr. Bergeron called De Paul to affirm that Mrs. Rawls was still a patient, and then sent Dr. Arneson to examine Mrs. Rawls on January 21, 1969. Drs. Bolding and Arneson signed the commitment application certifying that Mrs. Rawls was suffering from “Acute Paranoid Reaction,” as two doctors’ signatures were necessary for commitment. Next to their signature, they wrote the date “1/21/69.” The Coroner’s Office sent this commitment application on the 20th of January, but the date January 9, 1969, remained on it. One line of the application stated: “Date of application 1/9/69, Date Examined 1-21-69.” Furthermore, a few lines above this provision the commitment application was prefaced, as follows:

“NOTE: L.S.A.R.S. 28:52 of the Legislature of Louisiana specifies that this patient must be examined within (3) three days of date of application and must be admitted to the hospital not longer than (14) fourteen days from the date of examination of the patient by the coroner and physician.”

Therefore, the commitment application date was January 9, 1969, and the medical examination by Dr. Arneson was on January 21, 1969, which was not within the three day mandate from date of application, as required by section 28:52.

January 22, 1969

A Louisiana judge issued an ex parte commitment order based on the aforesaid commitment application. This judicial commitment proceeding was held without the minihium five day notice between date of examination and final hearing and the hearing itself as commanded in section 28:53.

January 30, 1969

Mrs. Rawls continued her demands for access to a telephone and an attorney. Dr. Bolding explained that until January 30, 1969, he interpreted Mrs. Rawls’ requests to call an attorney as being only for the purpose of suing her husband and not to gain her own release. He denied the telephone privilege because he did not think it was therapeutic. Finally, a nurse called Dr. Head, the medical director of the hospital, who gave orders that Mrs. Rawls be permitted to call an attorney immediately, since it was a hospital policy that patients be allowed to call an attorney. Mrs. Rawls telephoned a legal aid attorney, Mr. Gibson, made an appointment, and was given permission to leave, accompanied by a hospital attendant, to see him. Mr. Gibson told Mrs. Rawls that she was not obliged to return to the hospital, but could leave his office and go where she wished. Mrs. Rawls felt that nevertheless De Paul would find and detain her again, so she returned to the hospital.

March U, 1969

Later Mrs. Rawls engaged her present attorney who filed a habeas corpus proceeding on March 4, 1969. At the habeas corpus hearing De Paul Hospital made no opposition, but simply brought the patient into court and produced the order of commitment rendered on January 22, 1969. The court ruled that the January 22 court order was illegal, on its face. The judge stated:

“The fundamental reason for discharging this patient is however, the legal reason, namely, failure to give the five day minimum notice between the date of examination and final hearing.”

dc

The court ordered Mrs. Rawls released from De Paul Hospital.

Summary

In short, the De Paul Hospital contends it held Mrs. Rawls (1) from January 9, 1969 to January 22, 1969, as a voluntary patient as defined in section 28:51, and (2) from January 22, 1969 to March 4, 1969, as an involuntary patient under the authority of an ostensibly valid court order of commitment procured under either the Coroner’s or Judicial Commitment provisions, sections 28:52 and 28:53. Contrariwise, Mrs. Rawls asserts that she only submitted to the apparent authority of the ambulance drivers, and police officers, entered the hospital involuntarily and remained at the hospital against her will thereafter.

III. MOTION FOR J.N.O.V.

A. False Imprisonment Claims

We first consider the plaintiff’s cause of action for false imprisonment against all the defendants. The Louisiana decisions clearly dealing with false imprisonment claims have held that for false imprisonment to take place there must be a total and unlawful restraint of a person’s freedom of locomotion. Crossett v. Campbell, 122 La. 659, 48 So. 141 (1909); Sweeten v. Friedman, 9 La.App. 44, 118 So. 787 (1928). Thus, the two essentials of a false imprisonment cause of action are (1) the detention or total restraint of the person, and (2) the unlawfulness of such detention. In order to determine if there was a detention or total restraint, consideration is necessary whether the confinement in the case was voluntary or involuntary.

Possibly, the undisputed evidence may have overwhelmingly supported the unlawfulness and involuntariness of her original confinement so that she might have been entitled to a motion for judgment notwithstanding the verdict on these elements. However, the impediment to granting this relief is that the record contains no indication that the plaintiff filed a motion for a directed verdict at the close of the evidence. Moreover, none of the plaintiff’s requests for instructions to the jury fairly can be read as amounting to a request for a directed verdict. Therefore, this Court cannot consider plaintiff’s contention that the district court erred in refusing to enter a judgment notwithstanding the verdict because a motion for a directed verdict is a prerequisite for relief on a motion for a j. n. o. v. under Fed.R.Civ.P. 50(b). Holmes v. Wack, 464 F.2d 86, 89-90 (10th Cir. 1972); Hernandez v. Employer’s Mutual Liability Insur. Co., 346 F.2d 154, 155 (5th Cir. 1965); Indamer Corp. V. Crandon, 217 F.2d 391, 393 (5th Cir. 1954).

Consequently, no issue regarding the sufficiency of the evidence to support the jury verdict is properly before us, since federal appellate courts do not directly review jury verdicts. The obvious reason for this principle is that a reviewing court will not consider for the first time a party’s contention that the verdict is not supported by the evidence. The issue must be first submitted to the trial court. See Holmes v. Wack, supra 464 F.2d at 90. The failure to move for a direct verdict thus precludes our consideration whether the district court properly denied the judgment notwithstanding the verdict on the false imprisonment claim against all defendants.

B. Deprivation of Constitutional Rights

The plaintiff also alleged that Dr. Odom, the Coroner, and Dr. Arneson, his assistant, acting under color of state law violated her constitutional rights, thus affording her a cause of action under section 1983. The factual inquiries concerning whether these two public officials complied with the state commitment law and whether plaintiff was deprived of her liberty, that is whether she was being held voluntarily or involuntarily, were submitted to the jury. Again, although the evidence may have overwhelmingly supported the involuntariness of certain stages of her confinement and the noncompliance with the state law by the public officials, the insurmountable obstacle is again that the plaintiff made no motion for directed verdict on these issues. Since a motion for a directed verdict is a prerequisite for relief on a motion for j. n. o. v. under Fed.R.Civ.P. 50(b), this Court cannot review the sufficiency of the evidence to support the jury verdict on this claim.

IV. SUMMARY JUDGMENT MOTION AGAINST DE PAUL HOSPITAL

On October 8, 1969, pursuant to Fed. R.Civ.P. 56(c), the plaintiff made a motion for a summary judgment against one defendant, De Paul Hospital, which presents the possibility of partial review of the evidence on the false imprisonment claim. In order to grant a summary judgment, a court must be satisfied not onty that there is no issue as to any material fact, but also that the moving party is entitled to a judgment as a matter of law. The court’s function is to determine whether a genuine issue of material fact exists and not to resolve any existing factual issues. Applied to this defendant, the issue on the motion for summary judgment was whether as a matter of law the plaintiff was falsely imprisoned from January 9, 1969 to March 4, 1969 by De Paul Hospital.

In support of her motion for summary judgment against De Paul Hospital, the plaintiff submitted the following: (1) affidavits of the plaintiff and Mr. and Mrs. Kane; (2) copies of the habeas corpus writ and of the transcript of the habeas corpus hearing; (3) her entire hospital record; (4) answers to interrogatories by the hospital; (5) a copy of the court proceedings committing the plaintiff, which included the order committing her and the supporting application for commitment proffered by the Coroner’s Office. In opposition, the defendants introduced the following: (1) depositions of the plaintiff, Mrs. Kane and Dr. Arneson; (2) affidavits from nurses at De Paul, Dr. Head, the medical director, and Sister Taylor, the administrator.

The primary argument made by the appellant at the summary judgment stage was that under the principles of res judicata and collateral estoppel the confinement during the entire period was illegal as a matter of law because at the habeas corpus hearing the judge held the confinement illegal. True, the habeas hearing did decide that the January 22, 1969, court order was improvidently granted. However, the commitment order being illegal does not establish as a matter of law that the hospital falsely imprisoned the plaintiff. The appellant’s strenuous assertion at trial and on appeal that the ruling on the habeas corpus petition precludes relitigation of the unlawfulness of the confinement is without merit. Plaintiff proposes a so-called “offensive use” of preclusion-by-judgment principles, which is generally frowned upon by the .courts. Moreover, the criteria set forth in the leading Supreme Court opinion in the area, Blonder-Tongue Laboratories v. Univ. of Illinois Foundation, 402 U.S. 313, 91 S.Ct. 1434, 28 L.Ed.2d 788 (1971), are not satisfied. For example, at the habeas corpus hearing De Paul Hospital had far less incentive to contest the unlawfulness of the plaintiff’s detention than at present.

In the alternative to the res judicata plea, the plaintiff urged that the confinement was illegal as a matter of law due to the noncompliance with the statutory mandates of section 28:52, Coroner’s Commitment, and section 28:-53, Judicial Commitment. The plaintiff’s summary judgment argument was that the coroner had used a stale application, in violation of the three day maximum between date of application and date of examination as required in section 28:52 and that the court had failed to grant the plaintiff a hearing as commanded in section 28:53. In order to establish false imprisonment as a matter of law, the plaintiff had to show that there was no material issue of fact presented not only as to the unlawfulness but also as to the involuntariness of her confinement. It is helpful to break down the analysis of the evidence at the summary judgment stage in terms of two distinct periods of confinement: (1) the initial admission to January 22, 1969; and (2) January 22, 1969, to March 4, 1969.

Initial Admission to January 22, 1969: The initial entry into the hospital could have been justified only under section 28:51 as a voluntary admission, since the procedures for either Coroner’s or Judicial commitment had not been completed at this stage. Although possibly, if not probably, the plaintiff could have shown as a matter of law that her initial admission did not comply with the requirements of section 28:51, since she did not sign the admission papers and was not informed of her rights, nonetheless, the plaintiff failed to argue in the motion for summary judgment that the confinement was illegal because the prerequisites under section 28:51 had not been met. Instead, the plaintiff only asserted that section 28:52 and section 28:53 had not been satisfied. Thus, the unlawfulness of her confinement during this period was not established as a matter of law at this stage in the proceedings.

In addition, the question of law regarding the voluntariness of the plaintiff’s initial entry depended substantially upon an inquiry into the surrounding facts and circumstances. Although numerous affidavits, depositions, court orders and hospital records were submitted at the summary judgment stage, the district court could have refused to grant the motion for summary judgment against De Paul until the facts and circumstances were more sufficiently developed. For example, the testimony of the ambulance drivers and the police officers was necessary to establish the entire picture regarding the voluntariness of Mrs. Rawls’ entry in the hospital. Although after this entire evidence was introduced at trial the court could have found it overwhelmingly established the involuntariness of Mrs. Rawls’ confinement from January 9, 1969 to January 22,, 1969, at the summary judgment stage the court correctly determined that there was a material issue of fact regarding the voluntariness of the initial entry, precluding a grant of summary judgment.

January 22, 1969 to March 4, 1969: The injection of the January 22, 1969 court order raised the material issue of fact whether the hospital validly relied on this court order. Plaintiff asserted that the order was invalid on its face, making the hospital liable as a matter of law. However, the asserted facial defect, the twelve day time lapse between the date of application and the date of examination of the plaintiff, was not in the order itself, but in the papers accompanying. A material issue of fact regarding whether the hospital correctly relied on the order was created, precluding a grant of summary judgment at this stage.

In addition, the injection of the visit to the legal aid attorney on January 30, 1969, further casts doubt upon whether the plaintiff established as a matter of law the involuntariness of her confinement during this later period. The legal aid attorney told her that she need not return to the hospital, but she did anyway feeling that the hospital would locate her and detain her again. This fact, accompanied by the discontinuance of notations in the hospital charts regarding plaintiff’s admonitions to the nurses that she was being “railroaded” supported the voluntariness of her confinement, thus reducing the overwhelmingness of the evidence on involuntariness shown during the earlier part of her confinement, and raising a material issue of fact for the jury.

Therefore, neither the unlawfulness nor the involuntariness elements of her false imprisonment claims regarding the post January 22, 1969, confinement were established as a matter of law at the summary judgment stage.

V. OTHER ALLEGED ERRORS

We have carefully considered the claim of appellant that the district court unduly restricted the expert testimony of Dr. Szasz, and conclude that no prejudicial error occurred in such limitations as were placed on the witness’s otherwise extensive testimony.

So, too, we conclude that, after examining the charges tendered by the plaintiff and the fifty pages of jury instructions given, the charges proffered by the plaintiff but not given were either an incorrect statement of the law, or were already covered by another charge, or, in any event, their omission did not constitute prejudicial error.

There was no error in the court’s instruction respecting the state court’s order of commitment.

The judgment is affirmed.

      . Sections 52 and 53 are stated as they existed at the time of the conduct in controversy. The 1972 amendments to these sections specified with greater detail the procedures to be followed in committing patients and incorporated grants of immunity to certain persons assisting in the commitment procedure.

      . Section 98 was repealed in its entirety in 1972, after the conduct giving rise to this lavvsuit occurred. Section 171 was amended in 1972, but still contained a provision stating : “Every patient shall have the right. . . . (7) To be visited in private by his attorney at all times. . . . ”

      . It was never completely clear whether the court order was committing the plaintiff under section 28:52, Coroner’s Commitment, or section 28.53, Judicial Commitment. Under both sections the commitment application must be submitted for approval to a judge. The plaintiff argued at the habeas corpus hearing that section 28:53 was the relevant provision. The state judge agreed and granted plaintiff’s writ because she had not been accorded a hearing within five days of the committing judge’s receipt of the coroner’s report.


author: McENTEE, Circuit Judge.

text:
    UNITED STATES of America, Appellee, v. John R. MORSE, and Alice Morse, Appellants.
    No. 73-1248.
    United States Court of Appeals, First Circuit.
    Argued Dec. 4, 1973.
    Decided Feb. 5, 1974.

      Robert D. City and Murray H. Falk, Boston, Mass., with whom Moulton, Looney, Mazzone, Falk & Markham, Boston, Mass., was on brief, for appellants.
    Alan R. Hoffman, Asst. U. S. Atty., with whom James N. Gabriel, U. S. Atty., was on brief, for appellee.
    Before COFFIN, Chief Judge, ALD-RICH and McENTEE, Circuit Judges.
   McENTEE, Circuit Judge.

Defendants were convicted of willful evasion of federal income taxes, in violation of 26 U.S.C. § 7201 (1970), and of making materially untrue and incorrect tax returns, in violation of 26 U.S.C. § 7206(1) (1970), and were sentenced accordingly. On this appeal, defendants urge a considerable number of grounds for reversal, but their primary contention concerns certain evidentiary matters relating to the government’s use of the bank deposits method of reconstructing gross income.

Despite the fact that all taxpayers are under an affirmative statutory duty to maintain adequate records for tax purposes, 26 U.S.C. § 6001 (1970), Treas.Reg. § 1.6001-1 (a) (1973), this requirement has not always been complied with. In a situation where adequate records do not exist or access to them is not available, the government, in attempting to establish a violation of the income tax laws, may reconstruct a taxpayer’s taxable base by any reasonable method. United States v. Firtel, 446 F.2d 1005, 1006-1007 (5th Cir. 1971) (per curiam). Among the methods which have received consistent judicial approval is the bank deposits theory of gross income calculation. See United States v. Lacob, 416 F.2d 756 (7th Cir. 1969), cert. denied, 396 U.S. 1059, 90 S.Ct. 755, 24 L.Ed.2d 754 (1970) rehearing denied, 397 U.S. 1003, 90 S.Ct. 1114, 25 L.Ed.2d 415 (1970); Morrison v. United States, 270 F.2d 1 (4th Cir.), cert. denied, 361 U.S. 894, 80 S.Ct. 196, 4 L.Ed.2d 150 (1959). In order to legitimately avail itself of this approach, the government must initially introduce evidence to show (1) that, during the tax years in question, the taxpayer was engaged in an income producing business or calling; (2) that he made regular deposits of funds into bank accounts; and (3) that an adequate and full investigation of those accounts was conducted in order to distinguish between income and non-income deposits. United States v. Frank, 151 F.Supp. 866, 868 (W.D.Pa.1956), aff’d, 245 F.2d 284 (3d Cir.), cert. denied, 355 U.S. 819, 78 S.Ct. 25, 2 L.Ed.2d 35 (1957); Gleckman v. United States, 80 F.2d 394, 399 (8th Cir. 1935), cert. denied, 297 U.S. 709, 56 S.Ct. 501, 80 L.Ed. 996 (1936). Once this preliminary foundation has been laid, the government totals all bank deposits, and, after the non-income deposits are excluded, United States v. Lacob, supra, 416 F.2d at 759, and the amounts on deposit prior to the tax years in question have been deducted, see Price v. United States, 335 F.2d 671, 677 (5th Cir. 1964), the circumstantial inference properly permitted to arise is that all remaining deposits constitute taxable income. United States v. Doyle, 234 F.2d 788, 793 (7th Cir.), cert. denied, 352 U.S. 893, 77 S.Ct. 132, 1 L.Ed.2d 87 (1956). The government then includes any additional income which the taxpayer received during the tax year but did not deposit in any bank account, and the resulting total would be the taxpayer’s reconstructed gross income. From this amount, the appropriate tax deductions, exclusions, exemptions and credits to which the taxpayer is entitled are taken, leaving a net income upon which is computed the amount of tax due. This is then compared with the actual tax paid in the years in question. See Percifield v. United States, 241 F.2d 225, 229-230 n. 7 (9th Cir. 1957); Morrison v. United States, supra, 270 F.2d at 2-3.

In the instant ease, due to the inadequacy of defendants’ records, the government resorted to the bank deposits method in order to prove that defendants’ gross income for the tax years in issue had been substantially and knowingly understated on their returns. After satisfying all the preliminary requirements for adoption of this approach, United States v. Frank, supra, the government introduced bank records, deposit slips, balance statements, and certain customer checks, to establish the total amounts which the defendants had deposited in their six bank accounts. Internal Revenue Service Special Agent Arthur Ansbigian, who conducted the bank deposits investigation, was called to testify concerning these records. His summaries of this and other evidence were exhibited to the jury in the form of several chalks. After testifying with respect to the total bank deposits, Agent Ansbigian indicated in some detail the procedures he adopted to determine all non-income deposits. As these deposits were identified, they were deducted from the total deposit amount. Ansbigian then testified as to undeposited business income, primarily in the form of customer checks which had been cashed or endorsed over to third parties. This testimony was supported by the relevant documentary evidence, and the ascertained amounts were added to the bank deposit total to produce reconstructed gross income.

With respect to these calculations, defendants strenuously object to the nature of the government’s evidence concerning the non-income deposits deduction. They urge that, unlike the evidence respecting total bank deposits and undeposited business income, the non-income deposits evidence was unsupported by independent documentation and corroboration, and essentially constituted inadmissible hearsay.® We agree and reverse for a new trial.

Agent Ansbigian testified that upon completion of a thorough investigation, and after giving the defendants the benefit of every doubt, he was able to discern eight categories of non-income deposits, with amounts as follows:

1965 1966 1967 1968
(1) LOAM PROCEEDS ............ $24,055.66 $17,208.00 $ 32,600.00 $ 8,000.00
(2) INTER-BANK TRANSFERS ..... 860.00 11,000.00 27,480.00 -0-
(3) CURRENCY DEPOSITS ........ 2,580.00 7,045.00 6,437.00 -0-
(4) CUSTOMER CHECKS RETURNED 57.50 712.00 357.96 -0-
(5) PROCEEDS FROM SALE OF LAND .................... -0-50,000.00 94,132.21 -0-
(6) PROCEEDS FROM SALE OF TRUCK ................... -0--0--0-6,000.00
(7) RETURNED CERTIFIED CHECK .. -0--0--0-500.00
(8) UNIDENTIFIED .............. 12.00 2.00 2,722.07 1,462.50
TOTAL NON-INCOME DEPOSITS . . (Excluded from Total Bank Deposits) $27,565.16 $85,967.00 $163,729.24 $15,962.50

However, despite the fact that Ansbigian arrived at these figures, in part, through extra-judicial inquiry and a careful review of related documents, the government made no attempt to support his analysis through the introduction of any corroborating witnesses or available records. Rather, the government apparently took the view that since these items are credits to the taxpayer, even if hearsay and not adequately proved, no prejudice resulted.

Such an approach loses sight of the true nature of the government’s total objective, and its burden. The significance of the agent’s allowing a non-income deduction is not the concession, but the corresponding implication that it should not be larger. We may agree with the government that such a negative implication may not be provable with the particularity that is required for proof of affii’mative receipts, cf. Greenberg v. United States, 295 F.2d 903 (1st Cir. 1961), but the agent does have an overall burden to prove that he has done the best he can to discover, and exclude, all non-income items from the reconstructed income. Where direct evidence is available as to their existence and magnitude, there is no need to rely on the agent’s hearsay assertion that they were no larger than he had accounted for. Accordingly, we cannot accept the government’s position.

The damaging nature of the non-income deposits hearsay evidence in issue here might best be illustrated with an example. With respect to deposited loan proceeds, an obvious non-income deduction, the agent testified that

“I had copies ... of liability ledger cards, listing all the loans, renewals, payments, new loans, I had all of that. Examining the liability ledger cards I determined the loans.
******
“I traced loan proceeds to all bank accounts to see if the bank account was credited or the proceeds were deposited. If they appeared as a deposit, they would be in this top line here. I would add a schedule showing loan proceeds and the dispositon of them. Anything that was deposited comes out, anything. There were several instances in which the loan proceeds were not deposited.”

Nonetheless, with but one exception (pertaining to the 1965 return), the government made no effort to introduce the ledger cards into evidence. Thus, neither court nor jury were provided with any independent corroboration of the purported total amounts of loan proceeds. Moreover, without the ledger cards, they lacked any knowledge of the particular banks from which the loans were received, the dates thereof, and the amount of each individual loan. All they had was hearsay evidence from Ansbigian regarding the final results of his extra-judicial investigation.

Plainly stated, in computing the deduction for deposited loan proceeds, the agent not only examined the bank deposit records, which were admittedly in evidence before the jury, but examined the liability ledger cards as well. Knowing the amount of each loan, its date, and the bank from which it was obtained, put the agent in a better position to evaluate the bank deposit records to ascertain the amounts of deposited loans. However, in the absence of the ledger cards, the jury was at a significant disadvantage should it seek to corroborate the agent’s testimony. Thus, without any meaningful documentary corroboration of important aspect of Ansbigian’s testimony, it had virtually no choice but to rely exclusively on his hearsay conclusion that his allowance was the maximum deduction. Moreover, without admissible independent documentation, neither the trial court, nor this court is in a position to adequately evaluate the accuracy of the amount of deposited loan proceeds determined by Ansbigian as available for non-income deductions. In order to eliminate the hearsay aspect of his testimony the government should have introduced all available evidence upon which the agent based his non-income deposit calculations. See Siravo v. United States, 377 F.2d 469, 474 (1st Cir. 1967); United States v. Doyle, supra. As we view the record, this would not have presented the government with any serious or substantial burden.

In light of the fact that we are reversing for a new trial, it appears appropriate to pass upon such other contentions raised by the taxpayers which seem likely to recur on remand.

The taxpayers allege that potentially damaging statements obtained from them, under oath, at an October 19, 1970, interview with IRS officials should have been suppressed on the grounds that proper cautionary warnings, as required by IRS News Release IR-949 (November 26, 1968), had not been given. In addition, they contend that a certain document obtained from their accountant, Timothy Demakis, should have been suppressed for similar reasons.

It is undisputed that at the October 19 meeting, when the taxpayers were first formally interviewed, they were never fully apprised of the warnings mandated by the 1968 News Release. However, the government contends, and the record reveals, that when the IRS agents initially contacted the taxpayers in August 1969 for the purpose of discussing their tax returns, the agents were referred to their lawyer, James Bagshaw. The record further establishes that, as a consequence, an IRS offieial thereafter met with Bagshaw on September 19, 1969. At that time, the official, after discharging his obligation under the 1968 News Release, described in some detail the nature of the civil and criminal charges against the taxpayers which were then under consideration.

Thus, the question which we must decide, under these facts, is whether the IRS sufficiently complied with the 1968 News Release by giving adequate and full warning to the taxpayers’ attorney prior to their initial October 19 interview. We note that while the warnings required by the 1968 News Release would not be constitutionally compelled under Miranda v. Arizona, 384 U.S. 436, 86 S.Ct. 1602, 16 L.Ed.2d 694 (1966), at least where, as here, the prospective defendants are not in custody, see, e. g., Taglianetti v. United States, 398 F.2d 558 (1st Cir. 1968), aff’d per curiam, 394 U.S. 316, 89 S.Ct. 1099, 22 L.Ed.2d 302 (1969); Spinney v. United States, 385 F.2d 908 (1st Cir. 1967), cert. denied, 390 U.S. 921, 88 S.Ct. 854, 19 L.Ed.2d 981 (1968) ; Schlinsky v. United States, 379 F.2d 735 (1st Cir.), cert. denied, 389 U.S. 920, 88 S.Ct. 236, 19 L.Ed.2d 265 (1967), failure to comply with that Release will nonetheless result in suppression of all evidence so obtained. United States v. Leahey, 434 F.2d 7 (1st Cir. 1970). Where the Internal Revenue Service has adopted specific procedures “designed to protect taxpayers by setting a clear and uniform standard governing” relations between the IRS and those suspected of tax fraud, due process demands adequate adherence to those announced procedures. Id at 11. However, it is the substance and spirit of such procedures, and not their literal form, which must be complied with. United States v. Mathews, 464 F.2d 1268 (5th Cir. 1972) (per curiam); United States v. Bembridge, 458 F.2d 1262 (1st Cir. 1972). While it wtmld, in our view, be the preferable approach to give taxpayers the required warnings personally at their initial interview, we decline to adopt a per se rule of exclusion where this is not done. The 1968 News Release warnings were designed to protect the rights and immunities of potential criminal defendants. Where, as the record reveals in the instant case, the taxpayers have explicitly referred all IRS inquiries to their attorney, where such attorney is given the requisite warnings at his initial meeting with the Special Agents, and where the attorney accompanies the taxpayers to their interview and competently represents them therein, the broad policy designs of the 1968 Release have been satisfied. In such situations, it can be fully expected that the rights of taxpayers would, at the very least, be as amply protected as they would be if the exact letter of the Release had been carried out. Conse-quently, to exclude the evidence resulting from such an interview would be unjust and inequitable with respect to the rights of the government, and would require slavish deference to the technical language of the News Release even where its fundamental policy goals have not been compromised. Cf. United States v. Bembridge, supra, 458 F.2d at 1264.

The taxpayers’ remaining contentions merit little discussion. They assert that as the result of an apparently inexplicable two month delay between the impaneling of a jury and the commencement of trial, they were denied their sixth amendment rights to a speedy trial. Whether a defendant’s right to a speedy trial has been prejudiced depends .upon evaluation of an “ad hoc balancing test in which the length of delay, the reasons for the delay, the accused’s assertion of his right, and the prejudice to the accused resulting from the delay, along with other relevant circumstances” are carefully considered. United States v. Cabral, 475 F.2d 715, 717 (1st Cir. 1973); Barker v. Wingo, 407 U.S. 514, 92 S.Ct. 2182, 33 L.Ed.2d 101 (1972). In the instant case, the cause of this comparatively brief delay is unclear, although there is no contention that responsibility therefor must be laid to the government. The taxpayers were not incarcerated during this period, and the delay in no way hampered their ability to present their best possible defense. The taxpayers only assert that this delay occasioned them considerable anxiety and concern. Barker v. Wingo, supra, 407 U.S. at 532, 92 S.Ct. 2182, 33 L.Ed.2d 101. However, apart from this bald assertion, they have introduced no evidence to support such a contention, nor have they sought to describe precisely its nature and ramifications. See United States v. Churchill, 483 F.2d 268, 274 (1st Cir. 1973); United States v. Daley, 454 F.2d 505, 509 (1st Cir. 1972). Taking all these factors into consideration, we conclude that the taxpayers’ sixth amendment claim must fail.

The final contention made by the taxpayers is that the counts of the indictment which allege violations of 26 U.S.C. § 7206(1) should have been dismissed for failure to charge an offense. The challenged counts alleged that by knowingly and substantially understating their “gross receipts,” information-as to which is specifically required by Schedule C of the Form 1040 tax return, the taxpayers subscribed to a materially untrue and incorrect matter. They now assert that misrepresentations as to gross receipts would not constitute material misstatements. We disagree. See Siravo v. United States, supra.

Reversed and remanded for a new trial.

      . Defendant John Morse was convicted on a total of six counts relating to income tax returns filed in 1966, 1967, and 1968. He was acquitted of all charges with respect to his 1965 return. Defendant Alice Morse was convicted on two counts relating to the 1968 return.

      . Other frequently used approaches include the “net worth” method, see Holland v. United States, 348 U.S. 121, 75 S.Ct. 127, 99 L.Ed. 150 (1955), the “specific item” method, see Greenberg v. United States, 280 F.2d 472 (1st Cir. 1960), and the “cash expenditure” method, see Taglianetti v. United States, 398 F.2d 558 (1st Cir. 1968), aff’d per curiam, 394 U.S. 316, 89 S.Ct. 1099, 22 L.Ed.2d 302 (1969). For a concise description of the relative differences between the various methods see Price v. United States, 335 F.2d 671, 677 (5th Cir. 1964).

      . It is well settled that under the bank deposits theory, the government is not obliged to prove the exact amount of the understatement, but merely that it has been “substantial.” United States v. Procario, 356 F.2d 614, 618 (2d Cir.), cert. denied, 384 U.S. 1002, 86 S.Ct. 1923, 16 L.Ed.2d 1015 (1966) ; Kirsch v. United States, 174 F.2d 595, 601 (8th Cir. 1949).

      . In all, five chalks were eventually submitted to the jury. Chalk # 1, the summary chart, outlined the step-by-step approach taken by the government in calculating defendants’ understated gross income. The first line of this chalk indicated the total amount of bank deposits for each of the years in question (1965-1968). The second line indicated the amount of non-income deposits which, when subtracted from line 1, left the total amount of deposited income. To this amount was added all income which the government determined had not been deposited, and, after certain adjustments, the resulting total was taken as the taxpayers’ reconstructed gross income. The income actually reported by the taxpayers was then subtracted, leaving the understated amounts of gross income. For the years in question, these amounts totalled $22,575.21 (1965), $25,120.21 (1966), $25,280.73 (1967), and $40,479.82 (1968).
      Chalk # 2 exhibited a breakdown of the total bank deposits from each of defendants’ bank accounts. Chalk # 3 contained an itemized list of the non-income deposits which had been excluded. Chalk # 4 listed defendants’ undeposited business income. Chalk # 5 contained a computation of the amount of tax owed by the defendants on the basis of their understated gross income. For the years in question, these amounts were $182.80 (1965), $1,811.30 (1966), $5,148.52 (1967), $10,047.06 (1968).

      . Despite the government’s contention, we find adequate and timely objection in the record to the admission cf. this evidence.

      . Defendants also contend that this hearsay evidence compromised the validity of the submitted chalks as permissible jury aids, particularly chalks 1, 3 and 5, see note 4 supra, and that their admission was consequently prejudicial. We feel constrained to agree since, in view of the “inherent dangers” of such chalks, see Lloyd v. United States, 226 F.2d 9, 17 (5th Cir. 1955), their use must be fully supported in all respects by corroborating admissible evidence. United States v. Moody, 339 F.2d 161, 162 (6th Cir. 1964) ; cf. McGarry v. United States, 388 F.2d 862, 868 (1st Cir. 1967), cert. denied, 394 U.S. 921, 89 S.Ct. 1178, 22 L.Ed.2d 455 (1969).

      . These figures comprised the government’s Chalk # 3. The “total Non-Income Deposits” were carried forward to the summary chart, Chalk # 1, for the purpose of ascertaining reconstructed gross income. They were also used, implicitly, in Chalk # 5, wherein the government sought to establish the amount of tax allegedly due on defendants’ understated gross income.

      . To be sure, the court must rely on mere assertion when the agent testifies that he could find no evidence of other non-income items, but then, of course, no better evidence would exist.

      . In its brief, the government contends that “as long as the total bank deposits were properly in evidence, it was not required to prove with particularity each elimination or exclusion from total bank deposits, but could rely on the Special Agent’s testimony as to the scope. and character of his investigation to negative the likelihood that deposits remaining after eliminations had been made arose from some non-taxable source.”

      . Similar hearsay evidence affected the agent’s testimony regarding inter-bank transfers, returned checks, and sales proceeds. Neither the corroborating witnesses nor the bank microfilm and memoranda upon which Ansbigian relied in ascertaining the amounts of these permissible non-income deductions were introduced into evidence.

      . The problems connected with introducing evidence in the instant case, if any, can in no way be compared with those confronting the court in Beard v. United States, 222 F.2d 84 (4th Cir.), cert. denied, 350 U.S. 846, 76 S.Ct. 48, 100 L.Ed. 753 (1955), upon which the government places heavy reliance.

      . The News Release provides, in relevant part:
      “At the initial meeting with a taxpayer, a Special Agent is now required to identify himself, describe his function, and advise the taxpayer that anything he says may be used against him. The Special Agent will also tell the taxpayer that he cannot be compelled to incriminate himself by answering any questions or producing any documents, and that he has the right to seek the assistance of an attorney before responding.”

      . Alternatively, the taxpayers assert that these statements should not have been admitted into evidence because the interview was conducted in violation of Treasury Regulation § 601.107(b)(2) (1973) which requires governmental disclosure of certain aspects of the proposed criminal charge. The district court, after conducting a full evidentiary hearing, determined that IRS officials did, in fact, sufficiently inform the taxpayers of the nature and essence of the proposed charge, as required by the regulation. The record provides ample support for this conclusion.

      . The taxpayers further urge that this document should have been suppressed because Demakis allegedly acted without their consent. However, the district court concluded that Demakis liad received the taxpayers’ implied consent to handle their affairs in any appropriate manner, and that, in making the document available to the government, he acted with “apparent authority.” Upon careful review of the record, we are in complete accord. Moreover, we note that even in the absence of the taxpayers’ consent, it is unlikely that any of their constitutional rights would have been violated by Demakis’ decision to transmit the document to the IRS. See Couch v. United States, 409 U.S. 322, 93 S.Ct. 611, 34 L.Ed.2d 548 (1973).

      . The taxpayers assert that Bagshaw possessed only a limited power-of-attorney and was thus not authorized to receive the News Release warnings in issue. This contention, however, is completely without merit. The power-of-attorney executed in Bagshaw’s favor was on a standard form and clearly authorized him to “represent the taxpayer (s) before any office of the Internal Revenue Service.” We agree with the district court that the scope of this “representation” included the receipt of cautionary warnings.

      . Virtually all the income received by the taxpayers during the years in question was derived from the operation of a sole proprietorship. Schedule C requires all such proprietorships to list their “gross receipts.” That amount is an integral and necessary figure in the computation of taxable income and the amount of tax due. See Siravo v. United States, supra, 377 F.2d at 472.


author: COFFIN, Chief Judge.

text:
    INTERNATIONAL SHOE MACHINE CORPORATION, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
    No. 73-1337.
    United States Court of Appeals, First Circuit.
    Argued Jan. 8, 1974.
    Decided Jan. 23, 1974.

      Evan Y. Semerjian, Boston, Mass., with whom James D. St'. Clair and Hale & Dorr, Boston, Mass., were on brief, for appellant.
    Joseph M. McManus, Atty., Tax Div., Dept. of Justice, with whom Scott P. Crampton, Asst. Atty. Gen., James N. Gabriel, U. S. Atty., Meyer Rothwacks, and Ernest J. Brown, Attys., Tax Div., Dept. of Justice, were on brief, for appellee.
    Before COFFIN, Chief Judge, ALDRICH and MeENTEE, Circuit Judges.
   COFFIN, Chief Judge.

Appellant taxpayer contends that the Commissioner of Internal Revenue erroneously treated income realized from the appellant’s sales of certain shoe machines as “property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business”, 26 U.S.C. § 1231(b)(1)(B), thereby taxing it as ordinary income instead of treating it under the capital gains provisions of the Code, and assessing deficiencies against the taxpayer. After having paid the deficiencies, the appellant filed claims for refunds, which were denied, and then instituted the present case. The district court upheld the Commissioner’s disposition.

It is undisputed that during the years in question, 1964 through 1966, appellant’s main source of income derived from the leases of its shoe machinery equipment, rather than from their sales. The revenue from sales of the leased machinery comprised, respectively, only 7 per cent, 2 per cent, and 2 per cent of appellant’s gross revenues. In fact, because the appellant preferred the more profitable route of leasing its machines, it never developed a sales force, never solicited purchases, set prices high to make purchasing unattractive, and even attempted to dissuade customers from purchasing them.

Yet the district court found that, beginning in 1964, when the investment tax credit made it more attractive for shoe manufacturers to buy shoe machinery rather than to lease it, the selling of machinery became an accepted and predictable, albeit small, part of appellant’s business. Since appellant’s chief competitor was selling leased shoe machines, it was necessary for appellant to offer its customers the same option. During the years in issue, appellant never declined to quote a price, nor did it ever decline to make a sale if the customer was persistent. Unlike previous years, purchase inquiries were referred to the appellant’s vice president for sales, normally charged with selling new, non-leased machines, whereupon a price was negotiated. A schedule was prepared, indicating the sales price of leased machines, based upon the number of years that the machines had been leased. In total, 271 machines were sold to customers who, at the time of .the sales, had been leasing the machines for at least six months.

The case raises what has become a repeating source of difficulty in applying § 1231(b)(1)(B), which denies highly favored capital gains tax treatment to “property held . . . primarily for sale to customers in the ordinary course of his trade or business”. In particular, does the word “primarily” invoke a contrast between sales and leases, as the appellant contends, or between sales made in the ordinary course of business and non-routine sales made as a liquidation of inventory? And, if the latter, how can sales made in the ordinary course of business be distinguished from a liquidation of inventory?

In support of its contention that “primarily” refers to a contrast between sales and leases, appellant relies upon Malat v. Riddell, 383 U.S. 569, 86 S.Ct. 1030, 16 L.Ed.2d 102 (1966). There, the taxpayer purchased a parcel of land, with the alleged intention of developing an apartment project. When the taxpayer confronted zoning restrictions, he decided to terminate the venture, and sold his interest in the property, claiming a capital gain. The lower courts found, however, that the taxpayer had had a “dual purpose” in acquiring the land, a “substantial” one of which was to sell if that were to prove more profitable than development. Therefore, since the taxpayer had failed to establish that the property was not held primarily for sale to customers in the ordinary course of his business, his gain was treated as ordinary income. The Supreme Court vacated and remanded the case, stating that the lower courts had applied an incorrect legal standard when they defined “primarily” as merely “substantially” rather than using it in its ordinary, everyday sense of “first importance” or “principally”. Although the Court in Malat was dealing with § 1221, rather than § 1231, the same clause appears in both sections. Appellant argues that the present ease is analogous, since the “first” and “principal” reason for holding the shoe machinery was clearly for lease rather than for sale.

We cannot agree that Malat is dispositive. Even if “primarily” is defined as “of first importance” or “principally”, the word may still invoke a contrast between sales made in the “ordinary course of . . . business” and those made as liquidations of inventory, rather than between leases and sales. Malat itself concerned the dual purposes of developing an apartment complex on the land and selling the land. Although these two possible sources of income might be characterized as income from “lease” or “sale”, a more meaningful distinction could be made between on-going income generated in the ordinary course of business and income from the termination and sale of the venture. See Continental Can Co. v. United States, 422 F.2d 405, 411 (Ct.Cl.1970); Recordak Corp. v. United States, 325 F.2d 460, 463 (Ct.Cl.1963).

We recognize that Recordak, invoking a contrast between “selling in the ordinary course of business and selling outside that normal course” was cited by the Supreme Court in Malat within a footnote which also listed the courts of appeals decisions then in conflict over the meaning of “primarily”, supra, 383 U.S. at 571 n. 3, 86 S.Ct. 1030, 16 L.Ed.2d 102. Given, however, that Recordak was not directly included within the list, but merely cited as a case which had also addressed the question, we think that Recordak’s interpretation of the contrast invoked by the word “primarily” remains undisturbed by the Court’s opinion. Beyond semantics, an additional justification for the interpretation becomes obvious when one applies appellant’s logic to a not unrealistic business situation: to rest the word “primarily” on the distinction between lease and sale income would lead to the absurd result that whenever lease income exceeded sale income on the same item, the sale income could be treated as capital gain.

The real question, therefore, concerns whether or not the income from the sales of appellant’s shoe machinery should have been characterized as having been generated in the “ordinary course of business”. Appellant contests the conclusion of the district court that selling was “an accepted and predictable part of the business” by pointing out that sales were made only as a last resort, after attempts to dissuade the customer from purchasing had failed. We think that the district court was correct in its finding. While sales were made only as a last resort, it seems clear that after 1964 such sales were expected to occur, on an occasional basis, and policies and procedures were developed for handling them. Purchase inquiries were referred to the vice president for sales, a price schedule was drawn up, and discounts were offered to good customers. Appellant may not have desired such sales. It is likely that appellant would never have developed a sales policy for its leased machines had it not been forced to do so by the pressure of competition. But it was justifiable to find that such occasional sales were indeed “accepted and predictable”.

Even “accepted and predictable” sales might not, however, occur in the “ordinary course of business”. For example, a final liquidation of inventory, although accepted and predictable, would normally be eligible for capital gains treatment. Appellant’s final contention, therefore, is that the sales in question represented the liquidation of an investment. Appellant points out that the machines were leased for an average of eight and one half years before they were sold, during which time depreciation was taken on them and repairs were made. Thus, appellant seeks to bring itself within the scope of the “rental-obsolescence” decisions, which hold that the sale of rental equipment, no longer useful for renting, is taxable at capital gains rates. Hilliard v. Commissioner of Internal Revenue, 281 F.2d 279 (5th Cir. 1960); Philber Equipment Corporation v. Commissioner of Internal Revenue, 237 F.2d 129 (3d Cir. 1956); Davidson v. Tomlinson, 165 F.Supp. 455 (S.D.Fla.1958).

In the “rental obsolescence” decisions, however, equipment was sold only after its rental income-producing potential had ended and “such sales were . the natural conclusion of a vehicle rental business cycle”. Philber, supra, 237 F.2d at 132. Moreover, the equipment was specifically manufactured to fit the requirements of lessees; it was sold only when lessees no longer found the equipment useful. Id. In the present case, however, the shoe manufacturing equipment was sold, not as a final disposition of property that had ceased to produce rental income for the appellant, but, rather, as property that still retained a rental income producing potential for the appellant. Had appellant chosen not to sell the shoe machinery, the machinery would have continued to generate ordinary income in the form of lease revenue. Thus, the sale of such machinery, for a price which included the present value of that future ordinary income, cannot be considered the liquidation of an investment outside the scope of the “ordinary course of business”.

Affirmed.


author: CUMMINGS, Circuit Judge.

text:
    BARRICK REALTY, INCORPORATED, et al., Plaintiffs-Appellants, v. CITY OF GARY, INDIANA, et al., Defendants-Appellees.
    No. 73-1279.
    United States Court of Appeals, Seventh Circuit.
    Argued Nov. 1, 1973.
    Decided Jan. 24, 1974.

      G. Edward McHie, Charles A. Myers, Hammond, Ind., for appellant.
    Sylvia Drew, New York City, amicus curiae.
    John R. Wilks, U. S. Atty., Fort Wayne, Ind., for United States.
    J. Robert Miertschin, Jr., Gary, Ind., Ivan E. Bodensteiner, Valparaiso University School of Law, Valparaiso, Ind., for defendants-appellees.
    Before CUMMINGS, STEVENS and SPRECHER, Circuit Judges.
   CUMMINGS, Circuit Judge.

This appeal involves the validity of ordinance No. 4685, adopted by the City of Gary, Indiana, on July 25, 1972, forbidding the use of “For Sale” signs in residential zones of that city. The plaintiffs are a Gary realty company, its president, and a homeowner who listed his home for sale by the other plaintiffs. They sought a permanent injunction against the enforcement of the ordinance and a declaratory judgment that it is unconstitutional. In a carefully reasoned opinion, the district court denied relief. Barrick Realty, Inc. v. City of Gary, Indiana, 354 F.Supp. 126 (N. D.Ind.1973). In affirming, we adopt that opinion as our own as to all issues urged in this Court. We also add a few words in further support of the district court’s decision.

The ordinance in question provides in pertinent part as follows:

“Section 2. It shall be unlawful for any person to construct, place, maintain, install, or permit or cause to be constructed, placed, maintained, or installed any sign of any shape, size or form on any premises located in any Residential District Zoned R1 through R7 under Title 6, Chapter 6 of the Municipal Code of the City of Gary, Indiana.
“For purposes of this section the ‘signs’ above mentioned are hereby defined to mean any structure, and all parts composing the same, together with the frame, background, or supports therefore which are used for advertising or display purposes, or any statuary, sculpture, molding, or casting used for advertising or display purposes, or any flags, bunting or material used for display or advertising purposes, including, but not limited to, placards, cards, structures or areas carrying the following or similar words: ‘For Sale’, ‘Sold’, ‘Open House’, ‘New House’, ‘Home Inspection’, ‘Visitors Invited’, ‘Installed By’, or ‘Built By’.
“Section 3. Any person violating any of the provisions of this Ordinance shall upon conviction, be fined not less than Ten ($10.00) Dollars nor more than Five Hundred ($500.00) Dollars to which may be added imprisonment for a period not to exceed 180 days.”

Five months after the promulgation of the district court’s opinion, the Supreme Court decided Pittsburgh Press Company v. Pittsburgh Commission on Human Relations, 413 U.S. 376, 93 S.Ct. 2553, 37 L.Ed.2d 669. There the Court expressed the view that commercial speech receives only limited protection from the First Amendment. Like the Pittsburgh ordinance, the Gary ordinance is directed at signs that merely “Propose a commercial transaction” (413 U.S. at p. 385, 93 S.Ct. at p. 2558), whether erected by real estate brokers or individual house owners. The Supreme Court found a further basis for its Pittsburgh Press decision in the illegality of the transaction proposed:

“Any First Amendment interest which might be served by advertising an ordinary commercial proposal and which might arguably outweigh the governmental interest supporting the regulation is altogether absent when the commercial activity itself is illegal and the restriction on advertising is incidental to a valid limitation on economic activity.” 413 U.S. at 389, 93 S.Ct. at 2561.

That reasoning is not applicable with full force here, because “For Sale” signs are forbidden even if they do not contain an explicit reference to race analogous to the sex designations in the help-wanted advertisements in Pittsburgh Press. However, the effect of the “For Sale” signs was inconsistent with public policy as expressed in the Gary Civil Rights Ordinance, Section 2 of the Indiana Civil Rights Law, and the federal Fair Housing Act. The history of the ordinance banning “For Sale” signs shows that it was aimed at panic selling and that its purpose was to halt resegregation. It was passed in response to the presence of numerous “For Sale” signs in some white neighborhoods, which caused whites to move en masse and blacks to replace them. There is evidence in the record that some real estate brokers who placed these signs (not including any plaintiffs) actively encouraged resegregation by unlawfully urging whites to sell quickly before they had black neighbors and lower property values. Plaintiffs' signs proposed a commercial transaction that is part of a pattern of transactions, all of which taken together lead to a result that the City of Gary can properly try to prevent. Accordingly, it can be said here, as in Pittsburgh Press, that "the restriction on advertising is incidental to a valid limitation on economic activity."

The fact that the "For Sale" signs convey a commercial message is not in itself sufficient to meet the First Amendment attack. The history of the Gary ordinance indicates that the "For Sale" signs communicate a message to neighbors and visitors, as well as to prospective purchasers. In a sense, the very purpose of the ordinance is censorial. First Amendment as well as commercial interests are therefore affected by this ordinance. It is, nevertheless, clear that the signs are not "pure speech" as that term has been used in cases holding that activities which contain a mixture of speech and conduct are subject to state regulation. See, e. g., Cox v. Louisiana, 379 U.S. 536, 554-555, 85 S.Ct. 453, 13 L.Ed.2d 471; see also Cox v. Louisiana, 379 U.S. 559, 563-564, 85 S.Ct. 476, 13 L.Ed.2d 487. Unquestionably, the municipal interests which justify the restriction of commercial activity in residential neighborhoods support a prohibition against the display of commercial signs. See Euclid v. Ambler Co., 272 U.S. 365, 387-397, 47 S.Ct. 114, 71 L.Ed. 303. The city's interest in attempting to encourage and maintain stable integrated neighborhoods provides important added support. Since the record does not indicate that the ordinance has frustrated the ability of prospective buyers to find the homes in Gary which are for sale, and since alternate means of communication are available to the plaintiffs, the regulation is permissible.

Plaintiffs also attack the ordinance on Due Process and Equal Protection grounds. They have not pressed the -equal protection claim discussed by Judge Eschbach. See 354 F.Supp. at 136-137. The argument labeled equal protection in their briefs in this Court —that there is no reason to apply the ordinance to certain kinds of property —is simply an additional substantive due process argument. Plaintiff’s substantive due process arguments rely on Lochner v. New York, 198 U.S. 45, 25 S.Ct. 539, 49 L.Ed. 937, and Coppage v. Kansas, 236 U.S. 1, 35 S.Ct. 240, 59 L.Ed. 441. If those cases have any remaining vitality, it is clear that this ordinance is not sufficiently arbitrary or capricious to fall under their doctrine. One of plaintiffs’ exhibits reveals that in 1972, prior to the date the ordinance became effective, nearly three-fourths of Barrick Realty’s home sales were to persons first attracted to the property by means other than a “For Sale” sign. Thus the ordinance does not make it unduly difficult to sell a house; it only makes it slightly more expensive to do so. Accordingly, the burden on property rights is small, and any effect on the right to travel is insignificant.

It is urged that the ordinance is racially discriminatory in violation of the Thirteenth Amendment because it makes it more difficult for blacks to move into previously all white neighborhoods. But the right to open housing means more than the right to move from an old ghetto to a new ghetto. Rather, the goal of our national housing policy is to “replace the ghettos” with “ ‘truly integrated and balanced living patterns’ ” for persons of all races. Trafficante v. Metropolitan Life Insurance Co., 409 U.S. 205, 211, 93 S.Ct. 364, 34 L.Ed.2d 415. It is clearly consistent with the Constitution and federal housing policy for Gary to pursue a policy of encouraging stable integrated neighborhoods and discouraging brief integration followed by prompt resegregation, even if an effect of that policy is to reduce the number of blacks moving into certain areas of the city. See Otero v. New York City Housing Authority, 484 F.2d 1122 (2d Cir. 1973); Shannon v. United States Department of Housing and Urban Development, 436 F.2d 809 (3d Cir. 1970). The NAACP Legal Defense and Educational Fund as amicus curiae has argued that “[H]ere a legislative body has acted to balance individual and collective interests to ensure constitutionally mandated open housing” and that “The interest of both the black and white citizens in stable communities outweighs any minor inconvenience of having to utilize alternate methods for advertisement and information gathering” (Br. 16). We agree and add one further comment. An allegation that this ordinance is unconstitutional as applied because it is being used to preserve all white neighborhoods from any significant integration would subject the ordinance and its application to the strictest scrutiny. But the district court expressly found that any such allegation was “wholly without evidentiary support.” 354 F.Supp. at 136.

Plaintiffs appear to rely on Burk v. Municipal Court of Whittier, 229 Cal.App.2d 696, 40 Cal.Rptr. 425 (1964). There the City of Whittier enacted an ordinance barring real estate brokers from erecting “For Sale” signs in order to protect residential property from the encroachment of commercial activities. Plaintiffs note that unlike the Gary ordinance, the Whittier ordinance permitted homeowners to erect their own signs. But the California court did not hold that the ordinance would have been unconstitutional if that exception were not included. In fact, it has recently been held that an ordinance banning “For Sale” signs violates the Due Process and Equal Protection Clauses by not covering homeowners as well as real estate brokers. DeKalb Real Estate Board, Inc. v. Chairman and Board of Commissioners, 372 F.Supp. 748 (N.D.Ga.1973). We need not endorse that position to agree with the United States, in its brief as amicus curiae, that the posting of “For Sale” signs by private homeowners is commercial in character and therefore subject to regulation. See United States v. Hunter, 459 F.2d 205, 213-215 (4th Cir. 1972), certiorari denied, 409 U.S. 934, 93 S.Ct. 235, 34 L.Ed.2d 189. As noted in the NAACP Defense Fund brief, “only an ordinance that prohibits any person from placing ‘for sale’ signs is a comprehensive solution” (Br. 12; emphasis in original).

We decline the invitation to consider aspects of the ordinance not involved here. Our holding is confined to the facts presented.

Judgment affirmed.

      . See Gary Ordinance No. 4458; Ind.Code § 22-9-1-2(a), (d) [Burns Ind.Stat.Ann. § 40-2308(a), (d)] ; 42 U.S.C. § 3604(e). For anecdotal and quantitative data on the related problems of blockbusting and panic peddling and their effect on both races, see Comment, “Blockbusting: Judicial and Legislative Response to Real Estate Dealers’ Excesses,” 22 DePaul L.Rev. 818 (1973) ; “Blockbusting: A Novel Statutory Approach to an Increasingly Serious Problem,” 7 Colum.J.L. & Soc.Prob. 538 (1971) ; Note, “Blockbusting,” 59 Geo.L.J. 170 (1970). For a collection of state court decisions on the validity of anti-blockbusting and panic peddling ordinances, see Comment, “The Constitutionality of a Municipal Ordinance Prohibiting ‘For Sale,’ ‘Sold,’ or ‘Open’ Signs to Prevent Blockbusting,” 14 St.L.U.L.J. 686 (1970).

      . See Judge Esckback’s discussion in 354 F.Supp. at 135 and 137.


author: PER CURIAM.

text:
    Gloria STEWART, etc., Plaintiff-Appellee, v. Earl L. BUTZ, Secretary of Agriculture, et al., Defendants-Appellants, and Gail Huecker, Commissioner of the Kentucky Department of Economic Security, et al., Defendants-Appellees.
    No. 73-1558.
    United States Court of Appeals, Sixth Circuit.
    Argued Nov. 30, 1973.
    Decided Jan. 25, 1974.

      Michael Kimmel, Dept. of Justice, Washington, D. C., for defendants-appellants; Harlington Wood, Jr., Asst. Atty. Gen., George J. Long, U. S. Atty., Kathryn H. Baldwin, Atty., Dept. of Justice, Washington, D. C., on brief.
    Paul M. Cupp, Frankfort, Ky., for appellees-; Graham B. Cooke, Kurt Berggren, Legal Aid Society of Louisville, Louisville, Ky., on brief for Gloria Stewart; Paul E. Tierney, Frankfort, Ky., on brief for Gail Huecker & Commonwealth of Kentucky.
    Before PHILLIPS, Chief Judge, McCREE, Circuit Judge, and Mc-ALLISTER, Senior Circuit Judge.
   PER CURIAM.

Mrs. Gloria Stewart filed this class action, alleging that she was denied her right to purchase food stamps during the month of May 1972, for the stated reason that she had purchased an amount of food stamps in excess of her quota for the preceding month. There is no dispute on the record before this court that Mrs. Stewart was wrongfully denied the right to purchase food stamps during the month in question. The District Court ordered the Secretary of Agriculture to provide Mrs. Stewart with retroactive food stamp credits. The same relief was granted to any member of her class (recipients of food stamps in the Western District of Kentucky), upon establishing a right thereto.

The only question on appeal is whether the Secretary of Agriculture or the Commonwealth of Kentucky must pay for the stamps. The District Court held that the Secretary must provide the stamps and that there is no liability on the part of the Commonwealth of Kentucky. The Secretary appeals.

Two Circuits, in cases cited below, have resolved this issue against the Secretary of Agriculture. At the time of oral arguments in the present case on November 30, 1973, petitions for certiorari in both of these cases were pending before the Supreme Court. The attorney for the Secretary stated to this court that denial of certiorari by the Supreme Court in these two pending cases, would be dispositive of the issue on the present appeal. On December 10, 1973, the Supreme Court denied certiorari in both of said cases.

Accordingly, the judgment of the District Court is affirmed insofar as it adjudged liability against the Secretary of Agriculture. Carter v. Butz, 479 F.2d 1084 (3rd Cir.), cert. denied, 414 U.S. 1103, 94 S.Ct. 737, 38 L.Ed.2d 559 (1973); Butz v. Bermudez, 490 F.2d 718 (D.C.Cir.), cert. denied, 414 U.S. 1104, 94 S.Ct. 737, 38 L.Ed.2d 559 (1973). In Bermudez the class was nationwide. When that decision became final on denial of certiorari, it governs the present ease.

The stay order heretofore entered as to members of the class is dissolved.