author: BRIGHT, Circuit Judge.

text:
    AMERICAN BANCORPORATION, INC., et al., Petitioners, v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent, and Northwest Bancorporation, Intervenor-Respondent. SPRINGSTED INCORPORATED et al., Petitioners, v. The BOARD OF GOVERNORS OF the FEDERAL RESERVE SYSTEM, Respondent, and Northwest Bancorporation, Intervenor-Respondent.
    Nos. 73-1637, 73-1643.
    United States Court of Appeals, Eighth Circuit.
    Submitted June 13, 1974.
    Decided Dec. 30, 1974.

      Richard H. Kyle, St. Paul, Minn., for petitioners.
    Donald Etra, Atty., Dept, of Justice, Washington, D. C., for respondents.
    Before GIBSON, BRIGHT and WEBSTER, Circuit Judges.
   BRIGHT, Circuit Judge.

Northwest Bancorporation (Banco), a bank holding company, sought and obtained permission of the Board of Governors of the Federal Reserve System (Board) to purchase all of the voting shares of T. G. Evensen & Associates (Evensen), a close corporation that provides financial advice, primarily in bonding matters, to state and local governments in Minnesota, Iowa, Wisconsin, North and South Dakota, and Nebraska. Banco intends to expand the state and municipal finance consulting business of Evensen as its subsidiary. Competitors of Evensen and banking organizations in direct competition with Banco opposed the Board’s approval of the acquisition, and, as petitioners, they now seek our review and reversal of the order of the Board here in question. Our power of review rests on 12 U.S.C. § 1848 (1970), which specifically authorizes any party aggrieved by an order of the Board to obtain review in the appropriate United States Court of Appeals.

The petitioners make the following claims:

1) During consideration of Banco’s application, the Board, without complying with legal requirements, amended its regulation relating to acquisitions by bank holding companies of companies engaged in nonbanking activities, 12 C.F.R. § 225.4(a), to expressly include the activity of advising state and local governments in financial matters; and the Board relied in part on this amendment to justify the order now in question.
2) The Board unlawfully denied the opponents of Banco’s proposed acquisition, the petitioners herein, a formal trial-type hearing authorized and required pursuant to law and applicable regulations.
3) The Board’s decision on the merits constituted error because it was based upon an incomplete record developed without the benefit of a full evidentiary hearing.

To place these issues in a proper frame of reference, we recount the proceedings leading up to the Board’s approval of the Evensen acquisition.

Banco filed its application with the Board, by way of the Federal Reserve Bank of Minneapolis, on February 22, 1972, seeking permission to acquire all the voting shares of Evensen pursuant to § 4(c)(8) of the Bank Holding Company Act, 12 U.S.C. § 1843(c)(8) (1970). That Act, as material here, prohibits a bank holding company from acquiring any interest in nonbanking organizations other than an interest in a company the activities of which the Board, after due notice and opportunity for hearing, has determined “to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.” After a routine investigation, the Federal Reserve Bank of Minneapolis recommended that the Board approve Banco’s application.

Notice of the filing of Banco’s application was published in the Federal Register on March 21, 1972, the day following recommendation of approval by the Federal Reserve Bank of Minneapolis. The published notice invited interested persons to submit their views, to comment upon the appropriateness of the proposed acquisition, and, if requesting a hearing, to submit reasons justifying any hearing.

Banco filed its application pursuant to the then existing regulation of the Board which defined the following activities, among others, as so closely related to banking or managing or controlling banks as to be a proper incident thereto:

(5) Acting as investment or financial adviser, including (i) serving as the advisory company for a mortgage or a real estate investment trust, and (ii) furnishing economic or financial information; * * *. [12 C.F.R. § 225.-4(a)(5).]

During the pendency of the application, and at least partially in response to the application, the Board amended this regulation, effective June 6, 1972, without prior publication of notice. Petitioners charge that failure to publish advance notice of the proposed amendment to the regulation violated § 4 of the Administrative Procedure Act (APA), 5 U.S.C. § 553 (1970).

As amended, the Board’s regulation as pertinent here now provides:

The following activities have been determined by the Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto:
* * * * * *
(5) Acting as investment or financial adviser to the extent of (i) serving as the advisory company for a mortgage or a real estate investment trust; (ii) serving as investment adviser, as defined in section 2(a)(20) of the Investment Company Act of 1940, to an investment company registered under that Act; (iii) providing portfolio investment advice to any other person; (iv) furnishing general economic information and advice, general economic statistical forecasting services and industry studies, and (v) providing financial advice to State and local governments, such as with respect to the issuance of their securities; * * *. [12 C.F.R. § 225.4(a)(5) (emphasis added, footnotes omitted).]

The Board forwarded a copy of the amended regulation to attorneys for the petitioners, advising them:

This new language is not intended to be in any way an expression of the Board’s views on the application of Northwest Bancorporation (“Northwest”) to acquire T. G. Evensen & Associates, Inc. (“Evensen”). The Board must still consider whether the performance of Evensen’s activities as an affiliate of Northwest “can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices.”
Any additional comments you may wish to make in light of the amendment to section 225.4(a)(5) should be submitted as soon as possible.

The Board denied the petitioners’ demand for a formal, trial-type hearing on Banco’s application to acquire Evensen. Instead, it granted them the right to submit evidence at an oral presentation on the propriety of the acquisition under the standards set forth in § 4(c)(8) of the Bank Holding Company Act.

Following the oral presentation, held on October 17, 1972, in Minneapolis, the Federal Reserve Bank of Minneapolis revised its earlier recommendation of approval of the application and advised the Board that it (Federal Reserve Bank of Minneapolis) “is now of the opinion that the application should be denied.” Thereafter, the Board, with one dissent, issued an order, effective August 16, 1973, approving the acquisition of Even-sen by Banco, subject to certain conditions. With this background in mind, we turn to the procedural issues raised by petitioners.

I. Amendment of the Regulation.

Section 4(b) of the APA provides that rulemaking by an agency requires advance publication of notice in the Federal Register. Notice must include a statement of the time, place, and nature of the rulemaking proceeding, reference to legal authority under which the rule is proposed, and an explanation of the terms or substance of the proposed rule or a description of the subjects and issues involved. 5 U.S.C. § 553(b). The statute exempts from the notice requirement “interpretative rules, general statements of policy, or rules of agency organization, procedure, or' practice,” 5 U.S.C. § 553(b)(A), or rules for which the agency finds that notice and public procedure are impracticable, unnecessary, or contrary to the public interest, 5 U.S.C. § 553(b)(B). These exceptions do not apply when the statute under which the agency is proceeding itself requires notice or hearing for rulemaking.

The petitioners contend that the amendment of June 6, 1972, in the Board’s regulation defining permissible nonbanking activities, 12 C.F.R. § 225.-4(a)(5), constituted, as it affected the proposed acquisition of Evensen, a substantive change, necessitating compliance with the notice requirements of § 4(b) of the APA. The Board, however, contends that the amendment was interpretative only, falling within the provision for exemption from notice of § 4(b)(A) of the APA, 5 U.S.C. § 553(b)(A). To determine whether the amendment was substantive or interpretative, we must focus upon its impact on the banking industry regulated by the Board. See Shell Oil Co. v. FPC, 491 F.2d 82, 87-88 (5th Cir. 1974); National Ass’n of Ins. Agents v. Board of Governors, 489 F.2d 1268, 1270 (D.C. Cir. 1974); Akron, Canton & Youngstown R.R. v. United States, 370 F.Supp. 1231, 1236-1240 (D.Md.1974) (three-judge court); Commonwealth of Pennsylvania v. United States, 361 F.Supp. 208, 220-222 (M.D.Pa.) (three-judge court), aff’d mem., 414 U.S. 1017, 94 S.Ct. 440, 38 L.Ed.2d 310 (1973); National Motor Freight Traffic Ass’n v. United States, 268 F.Supp. 90, 96 (D.D.C. 1967) (three-judge court), aff’d per curiam, 393 U.S. 18, 89 S.Ct. 49, 21 L.Ed.2d 19 (1968); Continental Oil Co. v. Burns, 317 F.Supp. 194, 197-200 (D.Del.1970). Whether the change in the regulation is substantive or interpretative may be ascertained in part by reference to the following criteria:

(1) the complexity and pervasiveness of the rules issued, (2) the drastic changes effected in existing law by the rules, (3) the degree of retroactivity and its impact and (4) the confusion and controversy engendered by practical difficulties of compliance with the new rules. [Continental Oil Co. v. Burns, supra, 317 F.Supp. at 197.]

The Board has explained its amendment of the regulation in a supplement to the record.5 ** The regulation, as originally promulgated on June 15, 1971, encouraged the banking industry, by its use of the open-ended term “including,” to interpret broadly the phrase “acting as investment or financial advisor.” As a consequence, holding companies were applying to the Board for authorization to engage in various outside activities, some of which were only remotely related to banking. Under this language, the Board entertained applications for the acquisition of firms engaged in, among other pursuits, management and syndication of real estate, advising issuers of state and municipal securities (the instant case), buying and selling securities for management investment portfolios, and providing estate planning services to individuals. For some time prior to its change of this language, the Board had considered other means of modifying the regulation to limit its scope and, thus, its interpretation by the industry.

In modifying the regulation, the Board replaced the word “including” with the phrase “to the extent of” and enumerated five permissible activities within the range of acting as an investment or financial adviser:

(5) Acting as investment or financial adviser to the extent of (i) serving as the advisory company for a mortgage or a real estate investment trust; (ii) serving as investment adviser, as defined in section 2(a)(20) of the Investment Company Act of 1940, to an investment company registered under that Act; (iii) providing portfolio investment advice to any other person; (iv) furnishing general economic information and advice, general economic statistical forecasting services and industry studies, and (v) providing financial advice to State and local governments, such as with respect to the issuance of their securities; * * *. [12 C.F.R. § 225.4(a)(5) (emphasis added, footnotes omitted).]

In contending that the change is substantive rather than interpretative, the petitioners direct our attention to the hearing and submissions preceding the adoption of the original regulation. They point out the complete absence of any direct discussion of offering financial advice to state and local governments with respect to issuance of their securities in the hearing conducted by the Board and submissions received in connection with adoption of the regulation. The record discloses, however, that adequate, if not abundant, comments and recommendations were submitted by interested parties urging that bank holding companies should be authorized to offer investment advice and information to anyone or to any entity without limitation.

Moreover, the Board has represented to this court that its intent in amending the regulation was to restrict the broad scope of activities apparently authorized under the language of the original regulation. We have carefully examined the record, including confidential documents and staff memoranda to the Board, and are satisfied that this representation is accurate. While the precise activity under consideration, that of providing local and state governments with advice about their investment policies, represented a new endeavor and thus a new direction in the activities of bank holding companies, the activity falls squarely within the broad scope of “acting as investment or financial advis- or,” which the Board determined by the original regulation to be so closely related to banking as to be a proper incident thereto within the meaning of § 4(c)(8) of the Bank Holding Company Act. Because the amended regulation expresses the agency’s narrowed view of the language of the original regulation and makes explicit what was implicit under that regulation, we hold that the agency’s amendment is interpretative and therefore not subject to the notice and hearing requirements of § 4(b) of the APA. See DeRieux v. Five Smiths, Inc., 499 F.2d 1321, 1333-1334 (Em.App.), cert. denied, 419 U.S. 896, 95 S.Ct. 176, 42 L.Ed.2d 141 (1974); Shell Oil Co. v. FPC, supra, 491 F.2d at 87-88; National Ass’n of Ins. Agents v. Board of Governors, supra, 489 F.2d at 1270; Memphis Light, Gas & Water Division v. FPC, 149 U.S.App.D.C. 238, 462 F.2d 853, 858-860, cert. denied, 409 U.S. 941, 93 S.Ct. 234, 34 L.Ed.2d 192 (1972), & rev’d on other grounds, 411 U.S. 458, 93 S.Ct. 1723, 36 L.Ed.2d 426 (1973); Garelick Mfg. Co. v. Dillon, 114 U.S.App.D.C. 218, 313 F.2d 899, 900 (1963); Gibson Wine Co. v. Snyder, 90 U.S.App.D.C. 135, 194 F.2d 329, 331-332 (1952); Commonwealth of Pennsylvania v. United States, supra, 361 F.Supp. at 220-222; Continental Oil Co. v. Burns, supra, 317 F.Supp. at 197.

We note further that we can see no real prejudice to the petitioners caused by this amendment. Petitioners were afforded the opportunity, in common with the rest of the public, to express their respective views on the propriety of the regulation as originally formulated. They declined the opportunity. Notwithstanding their failure to participate at that time, the Board later afforded them, during the pendency of Banco’s application, an opportunity to submit their views on the propriety of Banco acquiring Evensen. They then accepted the opportunity and the Board has now heard their views on the wisdom of permitting a bank holding company to acquire a firm engaged in state and local government financial consulting. Accordingly, we reject petitioners’ contention on the foregoing issue.

II. Whether Petitioners Were Entitled to a Trial-Type Hearing.

The Bank Holding Company Act, at § 4(a), 12 U.S.C. § 1843 (a), prohibits a bank holding company from acquiring ownership or control of any voting shares of any company which is not a bank, subject to an exception for certain companies, the activities of which the Board

after due notice and opportunity for hearing has determined (by order or regulation) to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. [§ 4(c)(8), 12 U.S.C. § 1843(c)(8) (emphasis added).]

The hearing provision of § 4(c)(8), as presently worded, represents a substantial change over an earlier version, amended in 1970. Prior to 1970, § 4(a) and (c)(8) of the Bank Holding Company Act prohibited acquisitions of ownership or voting shares in a company other than a bank except for a company all of the activities of which are or will be of a financial, fiduciary, or insurance nature and

which the Board after due notice and hearing, and on the basis of the record made at such hearing, by order has determined to be so closely related to the business of banking or of managing or controlling banks as to be a proper incident thereto * * *. [Act of July 1, 1966, Pub.L.No.89-485, § 8(b), 80 Stat. 236, 239 (emphasis added).]

Whereas under the pre-1970 language of § 4(c)(8) the Board could act only “after due notice and hearing, and on the basis of the record made at such hearing,” under the present language the Board may act after “due notice and opportunity for hearing” and may proceed either by rule or adjudication. Thus, the 1970 amendment eliminated the requirement of a hearing in all cases in which a bank holding company seeks to acquire an interest in a nonbanking concern. Instead of conducting a hearing in every such case, the Board may now proceed by regulation in some or most cases, just as it did with respect to defining permissible nonbanking functions, as discussed in part I of this opinion. See BankAmerica Corp. v. Board of Governors, 491 F.2d 985, 987 (9th Cir. 1974).

The Board has adopted a rule of procedure governing applications to acquire an established nonbanking concern. The rule recites that the Board

will give interested persons an opportunity to express their views (including, where appropriate, by means of a hearing) on the question whether performance of the activity proposed by the holding company can reasonably be expected to produce benefits to the public. * * * [12 C.F.R. § 225.-4(b)(2).]

Petitioners interpret “opportunity for hearing,” as provided by § 4(c)(8) of the Act, as requiring the Board to afford them, at their request, a formal hearing with the right of cross-examination of witnesses. They base this interpretation upon the legislative history of the 1970 amendment. See S.Rep.No.91-1084, 91st Cong., 2d Sess. (1970), 1970 U.S.Code Cong. & Admin.News 5519, 5534; H.Rep.No.91-387, 91st Cong., 2d Sess. 16 (1969); Conf.Rep.No.91-1747, 91st Cong., 2d Sess. (1970), 1970 U.S. Code Cong. & Admin.News 5566. See generally O’Brien, Federal Reserve: Administrative Procedure and the Right to, be Heard under the Bank Holding Company Act, 91 Banking L.J. 856, 867-70 (1974). The Board disagrees with petitioners’ interpretation of the statute and contends that the oral presentation enabled the petitioners fully to present their views as contemplated by the Act.

The Board takes the position that it need not conduct a hearing if no material issue of fact exists. E. g., FPC v. Texaco, 377 U.S. 33, 39-44, 84 S.Ct. 1105, 12 L.Ed.2d 112 (1964). The confidential record discloses that the staff recommended against any hearing for this reason alone. They reasoned that legislative and not adjudicative facts were at issue. The Board adopted this reasoning and denied a hearing because issues presented by the petitioners, the protestants before the Board, related to practices in the municipal bond industry as a whole rather than to Evensen and Banco in particular. The Board correctly concluded that a formal hearing on Banco’s application would not materially assist it in resolving questions of industry-wide applicability.

The distinction between legislative facts and adjudicative facts has been ably expressed by Professor Davis in his treatise on administrative law:

Adjudicative facts are the facts about the parties and their activities, businesses, and properties. Adjudicative facts usually answer the questions of who did what, where, when, how, why, with what motive or intent; adjudicative facts are roughly the kind of facts that go to a jury in a jury case. Legislative facts do not usually concern the immediate parties but are general facts which help the tribunal decide questions of law and policy and discretion. [1 K. Davis, Administrative Law Treatise § 7.02 at 413 (1958).]

Professor Davis emphasizes the need to conduct hearings when adjudicative facts are in issue:

Facts pertaining to the parties and their businesses and activities, that is, adjudicative facts, are intrinsically the kind of facts that ordinarily ought not to be determined without giving the parties a chance to know and to meet any evidence that may be unfavorable to them, that is, without providing the parties an opportunity for trial. The reason is that the parties know more about the facts concerning themselves and their activities than anyone else is likely to know, and the parties are therefore in an especially good position to rebut or explain evidence that bears upon adjudicative facts. [M]

In the Board’s view, the protestants (petitioners here) had raised only issues of legislative fact prior to the oral presentation. These issues were:

(1) whether the banks which serve as paying agents for State and local government bond proceeds are generally designated by the bond purchasers or by the governmental issuers;
(2) Whether the underwriters of State and local government bond issues are generally chosen on the basis of sealed bids;
(3) whether the recommendations of State and local government bond consultants generally are publicly available, e. g., in the form of official minutes of a city council; and
(4) whether the confidentiality of information in the possession of a corporation can be maintained where that information may be of value to affiliates of that corporation.

We accept the Board’s characterization of these issues as legislative rather than adjudicative. However, the record reveals that the protestants also raised other issues. These issues were:

(1) whether the high premium that Banco is willing to pay for Evensen’s shares represents its expectation of monopoly profits from their investment;
(2) how personnel will be interchanged between Banco and Evensen and how long Banco’s personnel would remain with Evensen before returning to Ban-co;
(3) whether the present management of Evensen will continue with Even-sen;
(4) whether Evensen would geographically expand and whether there is adequate competition already in those areas;
(5) to what uses any capital infusion by Banco into Evensen would be put; and
(6) . to what extent Evensen will engage in activities beyond the scope of 12 C.F.R. § 225.4(a)(5) and within the area of management consulting.

These are not legislative issues. They are adjudicative.

Section 4(c)(8) of the Act requires the Board to evaluate Banco’s application by reference to the following standards:

[T]he Board shall consider whether its performance by an affiliate of a holding company can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices. In orders and regulations under this subsection, the Board may differentiate between activities commenced de novo and activities commenced by the acquisition, in whole or in part, of a going concern; * * *. [12 U.S.C. § 1843(c)(8).]

The Board’s regulation tracks the Act with the following language:

The Board will publish in the FEDERAL REGISTER notice of any such application and will give interested persons an opportunity to express their views (including, where appropriate, by means of a hearing) on the question whether performance of the activity proposed by the holding company can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices. [12 C.F.R. § 225.4(b)(2).]

Moreover, the legislative history of § 4(c)(8) confirms that Congress intended the Board to scrutinize with great care applications such as that of Banco, lest the expansion of bank holding companies result in anticompetitive and other abuses rather than benefit to the public. See Conf.Rep.No.91-1747, 91st Cong., 2d Sess. (1970), 1970 U.S.Code Cong. & Admin.News 5567-5569.

The six issues raised by petitioners during the proceedings before the Board bear directly upon the proposed operations of Evensen as a subsidiary of Ban-co. They remain unanswered. The record reflects that the petitioners conceded Banco and Evensen to be ethical businesses, but this concession scarcely serves as any substitute for concrete evidence, obtained by testimony under oath, and cross-examination, of the manner in which Banco intended to operate, control, and benefit from its prospective subsidiary.

By its order approving Banco’s acquisition of Evensen the Board recognized the conflict of interest inherent in Banco’s acquisition of Evensen. On the one hand stands Banco’s desire as a bank to maximize investment in it by states and municipalities while on the other hand stands its duty, as an adviser of the same states and municipalities in bonding matters, to facilitate selection of the optimum paying agent and depository from among several bidders, usually other banks, seeking their bond business. The issues raised by the petitioners relating to conflict of interest in Banco’s proposed operation of Evensen pose serious adjudicative facts. They query “how, why [and] with what motive or intent” Banco intends to manage Evensen. They “are intrinsically the kind of [issues of] facts that ordinarily ought not to be determined without giving the parties a chance to know and to meet any evidence that may be unfavorable to them, that is, without providing the parties an opportunity for trial.”

Petitioners requested an opportunity to inquire into the special facts underlying Banco’s acquisition of Evensen and Evensen’s activities as a prospective subsidiary of Banco. We believe that the petitioners were entitled to pursue this line of inquiry at a formal hearing. The Board concluded that a formal hearing was not warranted because, inter alia, these factual issues were “immaterial to the Board’s decision, [were] not susceptible to cross-examination, or [were] rendered moot in light of the Board’s conditional approval” of the application. [Order Conditionally Approving Acquisition of T. G. Evensen & Associates, Inc. at 10 (Board of Governors, August 16, 1973).] Such a conclusion may be reached only after evaluation of the evidence, not before. Consequently, we hold that the Board must provide the petitioners an opportunity for a formal hearing at which these issues may be resolved. See, e. g., Hess & Clark, Division of Rhodia, Inc. v. Food & Drug Administration, 495 F.2d 975, 993-995 (D.C. Cir. 1974). Cf. Citizens Committee to Save WEFM v. FCC, 506 F.2d 246, 259-62, 265-66 (D.C. Cir. 1974) (en banc); Henderson Trumbull Supply Corp. v. NLRB, 501 F.2d 1224, 1228-1230 (2d Cir. 1974). Compare Weinberger v. Hynson, Westcott & Dunning, Inc., 412 U.S. 609, 620-622, 93 S.Ct. 2469, 37 L.Ed.2d 207 (1973); Cooper Laboratories, Inc. v. Commissioner, 501 F.2d 772, 785-786 (D.C. Cir. 1974); Dyestuffs & Chemicals, Inc. v. Flemming, 271 F.2d 281, 286-287 (8th Cir. 1959), cert. denied, 362 U.S. 911, 80 S.Ct. 681, 4 L.Ed.2d 619 (1960).

The Board entered its order conditionally approving the acquisition here in question and denying to petitioners a full hearing in the face of a reversal of a previous recommendation of approval by the Federal Reserve Bank of Minneapolis. Such action by the Federal Reserve Bank of Minneapolis should have alerted the Board to the need for a full hearing before coming to a final decision on the difficult problems posed by the acquisition. Instead, the Board seems to have disregarded in a cavalier fashion the Bank’s recommendation by declining even to schedule a full evidentiary hearing, as requested by the petitioners.

Under these circumstances, the Board’s order should be vacated and the Board instructed to conduct a trial-type hearing, under its Rules of Practice for Formal Hearings, on the following issues:

(1) whether the high premium that Banco is willing to pay for Evensen’s shares represents its expectation of monopoly profits from their investment;
(2) how personnel will be interchanged between Banco and Evensen and how long Banco’s personnel would remain with Evensen before returning to Ban-co;
(3) whether the present management of Evensen will continue with Even-sen;
(4) where Evensen would geographically expand and whether there is adequate competition already in those areas;
(5) to what uses any capital infusion by Banco into Evensen would be put; and
(6) to what extent Evensen will engage in activities beyond the scope of 12 C.F.R. § 225.4(a)(5) and within the area of management consulting.

These six issues bear directly upon the propriety, under § 4(c)(8) of the Bank Holding Company Act, of the Board’s approval of the acquisition. In particular, their resolution is crucial to a determination of whether the public benefits reasonably to be expected from the acquisition override any possible adverse effects of the conflict of interest inherent in the acquisition.

We do not suggest by this opinion that any list of unanswered factual issues will unlock the door to a trial-type hearing. Congress by the 1970 amendment to the Bank Holding Company Act intended to reduce the volume of formal hearings in a burgeoning field in an effort not to overtax the supervisory capabilities of the Board. Informal supervision has characterized regulation in the banking industry, 1 K. Davis, Administrative Law Treatise § 4.04 at 247, and should be encouraged. In this case, however, the acquisition of Evensen by Banco would move bank holding companies into an uncharted field, and the public interest will best be served by exposing all of its implications and potential conflicts to an adversary examination. Compare Bell Telephone Co. v. FCC, 503 F.2d 1250, 1263-1268 (3d Cir. 1974).

We remand this cause to the Board for further proceedings consistent with this opinion..

      . The petitioners include Springsted, Inc., Ehlers Associates, Inc., and Peterson & Popovich, direct competitors of Evensen in the state and local government financial consulting business, and American Bancorporation, American National Bank and Trust Company, and Commercial State Bank, direct competitors of Banco in the banking business.

      . In their entirety, § 1843(a) and (c)(8) provide as follows:
      (a) Except as otherwise provided in this chapter no bank holding company shall— (1) after May 9, 1956, acquire direct or indirect ownership or control of any voting shares of any company which is not a bank,
      (c) The prohibitions in this section shall not apply to any bank holding company which is (i) a labor, agricultural, or horticultural organization and which is exempt from taxation under section 501 of Title 26, or (ii) a company covered in 1970 more than 85 per centum of the voting stock of which was collectively owned on June 30, 1968, and continuously thereafter, directly or indirectly, by or for members of the same family, or their spouses, who are lineal descendants of common ancestors; and such prohibitions shall not, with respect to any other bank holding company, apply to—
      (8) shares of any company the activities of which the Board after due notice and opportunity for hearing has determined (by order or regulation) to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. In determining whether a particular activity is a proper incident to banking or managing or controlling banks the Board shall consider whether its performance by an affiliate of a holding company can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices. In orders and regulations under this subsection, the Board may differentiate between activities commenced de novo and activities commenced by the acquisition, in whole or in part, of a going concem[.) [12 U.S.C. § 1843(a), (c)(8) (1970).]

      . 37 Fed.Reg. 5775 (March 21, 1972).

      . For the text of § 4(c)(8), 12 U.S.C. § 1843(c)(8), see note 2, supra. In its order of September 1, 1972, advising protestants, petitioners here, of the opportunity for the oral presentation, the Board described the presentation in these terms:
      The proceeding will consist of presentations of statements in oral or written form, together with any supporting or supplementary written submissions allowed by the Hearing Officer, all of which are to be addressed to the factors set forth in section 4(c)(8) of the Bank Holding Company Act as applied to this application. (Footnote omitted).

      . Governor Brimmer dissented and would deny the application on the ground that the applicant has the financial and managerial resources to commence the proposed activity de novo rather than by acquisition.

      . The Board of Governors approved the acquisition subject to the following conditions:
      (1) Evensen shall not make available to Applicant or its other subsidiaries any information with respect to its clients not available at the same time to others; (2) the affiliation of Evensen and Applicant shall be clearly disclosed on all advertising and letterheads; (3) Evensen shall continue to offer its services on an explicit fee basis; (4) where Evensen-advised issues are not to be sold pursuant to competitive bids, Applicant and its other subsidiaries may not participate in their sale; and (5) Evensen shall continue its practices of (i) recommending that the purchaser of the bonds be authorized to name the paying agent; (ii) refraining from participation in the selection of a depository for the bond proceeds; and (iii) recommending that the issuer obtain bids before selecting an interim investment outlet for bond proceeds. [Order Conditionally Approving Acquisition of T. G. Evensen & Associates, Inc., at 12 (Board of Governors, Aug. 16, 1973).]

      . The text of § 4(b) provides in its entirety as follows:
      (b) General notice of proposed rule making shall be published in the Federal Register, unless persons subject thereto are named and either personally served or otherwise have actual notice thereof in accordance with law. The notice shall include—
      (1) a statement of the time, place, and nature of public rule making proceedings;
      (2) reference to the legal authority under which the rule is proposed; and
      (3) either the terms or substance of the proposed rule or a description of the subjects and issues involved.
      Except when notice or hearing i:s required by statute, this subsection does not apply—
      (A) to interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice; or
      (B) when the agency for good cause finds (and incorporates the finding and a brief statement of reasons therefor in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest. [5 U.S.C. § 553(b).]

      . Although the Board offered no explanation for amendment of the regulation at the time of amendment, it later did so, at the request of this court, during the pendency of the instant review action. It made this explanation in lieu of disclosing certain of its records to petitioners.

      . See relevant text, note 2, supra.

      . The full text of this regulation reads:
      (2) Acquisition of going concern. A bank holding company may apply to the Board to acquire or retain the assets of or shares in a company engaged solely in activities described in paragraph (a) of this section by filing an application with its Reserve Bank (Form F.R. Y-4). Every such application shall be accompanied by a copy of a notice of the proposal (in substantially the same form as F.R. Y-4B) published within the preceding 30 days in a newspaper of general circulation in the communities to be served. The Board will publish in the FEDERAL REGISTER notice of any such application and will give interested persons an opportunity to express their views (including, where appropriate, by means of a hearing) on the question whether performance of the activity proposed by the holding company can reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices. [12 C.F.R. § 225.4(b)(2).]

      . The Board concedes that the oral presentation of October 17, 1972, was not the equivalent of a formal hearing as prescribed by the Board’s rules. A formal hearing under the Board’s rules, 12 C.F.R. §§ 263.1 to .21, “shall be conducted in accordance with the provisions of chapter 5 of title 5 of the United States Code.” 12 C.F.R. § 263.6(b). That is to -say, the hearing must conform to § 7 of the APA, 5 U.S.C. § 556, providing for, inter alia, testimony under oath, cross-examination of witnesses, and, where authorized by law, compulsory process. The Board takes the position that the Bank Holding Company Act does not authorize it to exercise subpoena power.

      . This disposition makes unnecessary any discussion of the merits of the Board’s approval of Banco’s application, petitioners’ third claim of error.


source: Caselaw Access Project

author: KOELSCH, Circuit Judge:

license: Public Domain

text:
    John S. EDMUNDS, Petitioner-Appellee, v. Robert WON BAE CHANG, Individually and in his capacity as Judge, First Circuit Court, State of Hawaii, Respondent-Appellant.
    No. 74-1463.
    United States Court of Appeals, Ninth Circuit.
    Jan. 2, 1975.

      George Pai, Atty. Gen. of Hawaii, Honolulu, Hawaii, for respondent-appellant.
    Paul N. Halvonik, of Friedman, Sloan & Halvonik, San Francisco, Cal., Burn-ham H. Greeley, Honolulu, Hawaii, for petitioner-appellee.
    Before LUMBARD, KOELSCH and DUNIWAY, Circuit Judges.

       The Honorable J. Edward Lumbard, Senior United States Circuit Judge for the Second Circuit, sitting by designation.

   KOELSCH, Circuit Judge:

The primary question on this appeal is whether a person against whom a fine has been imposed by a state court is “in custody” within the meaning of the federal habeas corpus statute, 28 U.S.C. §§ 2241, 2254. The district court, concluding that he is, proceeded to the merits of petitioner Edmunds’ claim and granted a writ, 365 F.Supp. 941 (D.Hawaii 1973). We disagree on the jurisdictional question and, accordingly, reverse.

We are fully aware that the Supreme Court in recent years has extended the scope of the Great Writ to persons whose circumstances fall outside conventional notions of physical custody. See, e. g., Hensley v. Municipal Court, 411 U.S. 345, 93 S.Ct. 1571, 36 L.Ed.2d 294 (1973); Braden v. 30th Judicial Circuit Court of Kentucky, 410 U.S. 484, 93 S.Ct. 1123, 35 L.Ed.2d 443 (1973); Strait v. Laird, 406 U.S. 341, 92 S.Ct. 1693, 32 L.Ed.2d 141 (1972); Carafas v. LaVallee, 391 U.S. 234, 88 S.Ct. 1556, 20 L.Ed.2d 554 (1968); Peyton v. Rowe, 391 U.S. 54, 88 S.Ct. 1549, 20 L.Ed.2d 426 (1968); Jones v. Cunningham, 371 U.S. 236, 83 S.Ct. 373, 9 L.Ed.2d 285 (1963).

In Hensley, the Court recognized the trend of its recent decisions, emphatically denouncing such interpretations of the habeas corpus statute as “would suffocate the writ in stifling formalisms or hobble its effectiveness with the manacles of arcane and scholastic procedural requirements.” 411 U.S. at 350, 93 S.Ct. at 1574. It also put the custody requirement of the statute in perspective:

“The custody requirement of the habeas corpus statute is designed to preserve the writ of habeas corpus as a remedy for severe restraints on individual liberty. Since habeas corpus is an extraordinary remedy whose operation is to a large extent uninhibited by traditional rules of finality and federalism, its use has been limited to cases of special urgency, leaving more conventional remedies for cases in which the restraints on liberty are neither severe nor immediate.” 411 U.S. at 351, 93 S.Ct. at 1574.

Applying these principles to the case before us, we conclude that there is insufficient “custody” present for the invocation of habeas corpus relief; the claimed restraints on Edmunds’ liberty are neither severe nor immediate enough to justify the remedy.

The sole punishment confronting Edmunds is a $25 fine; there is no provision in the sentence for his confinement in the case of non-payment. True enough, a threat of incarceration is implicit in any court-imposed fine, for jail is one of the sanctions by which courts enforce their judgments and orders. Hence a fine may in some circumstances ultimately prove to be the price of freedom. But until confinement is imminent — as it was in Hensley where only a stay held off execution of the petitioner’s one-year jail sentence — the “special urgency” justifying use of the habeas remedy is notably absent.

In this regard, we reject the district court’s conclusion that the threat of confinement raised by a pending contempt proceeding based on Edmunds’ failure to pay the fine supplies the requisite “custody”; should the stay presently in force be lifted, the resultant hearing could have any number of possible outcomes, only one of which is incarceration. At this juncture, confinement is no more than a speculative possibility — “the unfolding of events may render the entire controversy academic.” Hensley, supra, at 352, 93 S.Ct. at 1575.

Neither do we agree that the possibility of disciplinary action against Edmunds provides the requisite “restraint on liberty.” No showing has been made that such a proceeding is pending or even contemplated. Moreover, in view of the nature of the record upon which the conviction of contempt is based, the imposition of professional discipline appears most unlikely.

Nor do we agree that the existence of the contempt judgment amounts to a severe restraint on Edmunds’ liberty because it injures his reputation as a lawyer or adversely affects the “delicate balance of [his] harmony with the courts.” 365 F.Supp. at 944. He has made no showing of either of these supposed effects of the judgment, and such incidental professional disability as we may presume exists under the circumstances is insufficient to provide the requisite restraint.

What we have here is the imposition of a fine, pure and simple. We trust that whatever Congress meant by the word “custody” when it enacted the habeas corpus statute, it did not intend to authorize federal intervention into state judicial proceedings to review a “fine only” sentence. The Court has made clear in Hensley that the custody requirement exists to distinguish between “severe restraints on individual liberty” and those which are not severe. If the latter category does indeed exist, we are clear that a “fine only” sentence falls within it.

Reversed and remanded with instructions to dismiss the petition.

      . The facts of this case are fully set forth in the district court’s opinion.

      . That the instant case is not governed by the holding of Hensley is clear from the Supreme Court’s statement of the issue there:
      “The question presented for our decision is a narrow one: namely, whether the conditions imposed on petitioner as the price of his release constitute ‘custody’ as that term is used in the habeas corpus statute.” 411 U.S. at 348, 93 S.Ct. at 1573 (emphasis added).

        Cf. Huante v. Craven, 500 F.2d 1004 (9th Cir. 1974).

      . Here we cannot say that the conclusion that petitioner is not in custody “would do no more than postpone this habeas corpus action until petitioner [has] begun service of his sentence.” Hensley, supra, at 352, 93 S.Ct. at 1575. No sentence of confinement presently exists, and none may be forthcoming.

      . Of the six judges who have reviewed the facts claimed to constitute the contempt (the district judge and five justices of the Hawaii Supreme Court), three held the conduct contemptuous and three held it was not. Were we to reach the merits here, we might have considerable difficulty labelling the determination of the district court (that the conduct was not contemptuous) clearly erroneous.

      . By the same logic, a taxi-driver might argue that he is “in custody” by reason of a fine for a traffic violation. Cf. Westberry v. Keith, 434 F.2d 623 (5th Cir. 1970).

      . We read neither Settler v. Yakima Tribal Court, 419 F.2d 486, 489-490 (9th Cir. 1969), cert. denied, 398 U.S. 903, 90 S.Ct. 1690, 26 L.Ed.2d 61 (1970), nor Weiss v. Burr, 484 F.2d 973 (9th Cir. 1973), as controlling.
      In Yakima, this court held “that before the effective date of the Indian Civil Rights Bill, habeas corpus was available as a device to obtain review of decisions of the Yakima Tribal Court even where the one convicted was fined rather than given a prison sentence.” Settler v. Lameer, 419 F.2d 1311, 1312 (9th Cir. 1969), cert. denied, 398 U.S. 903, 90 S.Ct. 1690, 26 L.Ed.2d 61 (1970). We observed in Yakima that the petitioner had “no other procedural recourse for effective judicial review of the constitutional issues he raises.” 419 F.2d at 490 (emphasis added). Moreover, the provision of Settler’s sentence providing for his suspension from fishing activities in the event he failed to pay the fine provided a significant restraint on his liberty under all the circumstances of that case.
      In Weiss, where the sentence on one of five counts of contempt was a fine only, we reviewed the propriety of all five convictions; but the issue of “custody” was neither argued nor discussed in the opinion.


author: WEBSTER, Circuit Judge.

text:
    E. G. BECKER, d/b/a Rent-It-Center, et al., Appellees, v. BLACK & VEATCH CONSULTING ENGINEERS, Appellant. E. G. BECKER, d/b/a Rent-It-Center, et al., Appellees, v. HOOD CORPORATION, Appellant.
    Nos. 73-1912, 73-1918.
    United States Court of Appeals, Eighth Circuit.
    Submitted June 10, 1974.
    Decided Dec. 31, 1974.

      A. D. Sommervold, Sioux Falls, S. D., made argument for Black & Veatch Consulting Engineers.
    Donald J. Porter, Pierre, S. D., made argument for Hood Corporation.
    John L. Morgan, Mitchell, S. D., made argument for Central Telephone & Utilities Corp.
    Before BRIGHT, STEPHENSON, and WEBSTER, Circuit Judges.
   WEBSTER, Circuit Judge.

In these consolidated appeals we consider the indemnity claims of two defendants found liable with a third defendant for injuries sustained in a gas pipeline explosion.

In the jury trial below, plaintiffs named as defendants the public utility, Central Telephone & Utilities Corporation (Cengas); the contractor which had installed the pipeline, Hood Corporation; and the consulting engineer for the installation, Black & Veatch Consulting Engineers. The defendants filed cross-claims against each other for indemnity. The jury returned a verdict against all defendants in the amount of $90,000 and pursuant to special interrogatories apportioned liability among the defendants as follows: Cengas-45%; Hood-35%; Black & Veatch-20%. Since the trial court reserved resolution of the indemnity claims to itself pursuant to stipulation, such claims were not submitted to the jury.

Following the verdict, the District Court (1) denied Black & Veatch’s claim of common law indemnity against Cengas, (2) rejected Cengas’ claim of common law indemnity against Hood, but (3) awarded Cengas full indemnity against Hood under the construction contract. Hood and Black & Veatch appeal from the adverse rulings. District Judge Fred J. Nichol’s opinion is reported at 365 F.Supp. 984 (D.S.D.1973).

Cengas, a public utility with its principal place of business in Lincoln, Nebraska, operates a natural gas distribution system in Sioux Falls, South Dakota. In November, 1968, Cengas engaged Hood Corporation, a California based pipeline construction company, to install a four mile section of pipeline in Sioux Falls. Cengas also retained Jim Moore, an employee of Black & Veatch Consulting Engineers, to inspect Hood’s work for compliance with the contract. Black & Veatch had been the engineer and Hood the contractor on another Cengas Sioux Falls project that was completed immediately prior to the project here in question.

The new 12-inch pipe was laid across and over an existing 4-inch cast iron gas line at the intersection of Tenth Street and Blaine Avenue. While this procedure is not unusual, there was evidence that neither the space between the pipelines nor the clearance below street level met contract requirements. The project was completed and accepted with the approval of Moore and H. A. Hovik, Cengas’ Sioux Falls plant manager, on November 23, 1968.

On the morning of December 16, 1971, persons in the area of Tenth and Blaine noticed a strong gas odor. Two persons notified Cengas by telephone at approximately 9:30 a.m. and Elwin Leffers, an investigator for the company, arrived on the scene at about 10:10 a.m. Leffers noted the strong gas odor and decided that the situation required immediate attention because of the probability that a gas main under the street was leaking or had broken. He made a radio call to the company’s crew trucks, and when none of them responded he directed the dispatcher to send a crew to the area as soon as possible. Leffers then went to a Cengas Service Center to check the maps to determine the location of gas lines in the area. He was on the scene for approximately five to eight minutes. At 10:35 a.m., prior to the arrival of any other Cengas’ personnel, a gas explosion occurred in plaintiff’s building at the corner of Tenth and Blaine when an employee turned on an electric drill. The cause of the explosion was subsequently determined to be ignition of combustible gas leaking from the 4-inch pipe, which had broken under the weight of the 12-inch line. Except for a small piece of rubber tire, the 12-inch pipe was found resting directly on top of the 4-inch pipe.

On these facts the court submitted the case to the jury for its determination of the negligence of the respective defendants on the following theories: (1) that Hood failed to properly install the crossover; (2) that Black & Veatch failed to inspect and therefore discover the defective installation; (3) that Cengas failed to inspect and discover the defective installation; (4) that Cengas failed to inspect and maintain the pipeline system during the three-year period between completion of the project and the explosion; and (5) that Cengas failed to respond properly to the emergency on the day of the explosion. The jury found all the defendants causally negligent and, as previously noted, apportioned their liability as follows: Cengas-45%; Hood-35%; Black & Veatch-20%.

These appeals are addressed to certain of the District Court’s orders on the indemnity issues following the jury verdict. Black & Veatch appeals from that portion of the decision denying it indemnification on the ground that its failure to inspect was merely passive negligence (No. 73-1912). Hood appeals from the holding that Cengas was entitled to full indemnity under the contract notwithstanding its own negligence which contributed to the cause of plaintiff’s injury (No. 73-1918).

I.

Indemnity Claim of Black & Veatch

In No. 73-1912, we find no merit in Black & Veatch’s argument that its failure to inspect the crossover was merely passive negligence. When it addressed this issue, the District Court noted that while in some circumstances a failure to inspect may constitute mere passive negligence, here Black & Veatch had been employed for the express purpose of inspecting Hood’s work. It ruled that this employment created a high duty on the part of Black & Veatch, the breach of which constituted active negligence as a matter of law. 365 F.Supp. at 985-986. We agree.

Because Black & Veateh’s negligence was active, it was not entitled to common law indemnity under South Dakota law. See Highway Construction Co. v. Moses, 483 F.2d 812 (8th Cir. 1973); Rogers v. Black Hills Speedway, Inc., S.D., 217 N.W.2d 14 (1974); Degen v. Bayman, 86 S.D. 598, 200 N.W.2d 134 (1972). The judgment under No. 73-1912 is affirmed on the basis of Judge Nichol’s well-reasoned opinion.

II.

Cengas’ Indemnity Claim

In No. 73 — 1918, Hood challenges a number of the trial court’s rulings and asserts that (1) there can be no contractual indemnity between a utility and a contractor when both of them were causally negligent during the term of the contract, (2) the indemnity provisions of the contract are not applicable to the circumstances giving rise to this case, and (3) the contract is contrary to public policy and void because it serves to relieve a public utility of all responsibility for its own negligent conduct.

We note at the outset that this case presents issues of contractual indemnity rather than common law indemnity. As we said in Northern Natural Gas Co. v. Roth Packing Co., 323 F.2d 922, 929 (8th Cir. 1963):

[W]e are not confronted with the problem of whether the negligence of the respective parties was active or passive, or primary or secondary. In contractual indemnity, liability is controlled by the provisions of the contract.

In Associated Engineers, Inc. v. Job, 370 F.2d 633 (8th Cir. 1966), cert. denied, 389 U.S. 823, 88 S.Ct. 59, 19 L.Ed.2d 77 (1967), we addressed many of the same issues presented by this case and held that under the terms of a construction contract an indemnitee was entitled to contractual indemnification from a negligent indemnitor, its own negligence notwithstanding, so long as the parties’ intention to that effect was expressed in clear and unequivocal terms in the contract.

Herein, the indemnity clause of the contract between Cengas and Hood provides:

20. Claims and Damages

* s{s * * *
Contractor shall, at his own cost, settle and discharge all claims made by reason of the acts or omissions of the Contractor, his agents, employees, or sub-contractors and indemnify and save harmless the Owner from loss and damage and from claims made on account of work done under this contract.

This clause manifests a clear undertaking by Hood not only to protect Cengas against claims resulting from acts or omissions of the contractor, but also to indemnify it against loss or claims made “on account of work done under this contract.” This unequivocal undertaking is limited by its terms only to work done under the contract, and it is broad enough to include claims founded in part upon Cengas’ negligence in connection with such work.

We must therefore examine the contract to determine (A) whether its indemnity clause extends beyond completion of the contract and (B) whether it indemnifies Cengas for those of its own negligent acts subsequent to completion and acceptance of the project which contributed to cause plaintiff’s injury.

A.

In construing any particular provision of a contract, it is necessary to examine the contract as a whole, Eberle v. McKeown, 83 S.D. 345, 159 N.W.2d 391 (1968); Moriarty v. Tomlinson, 58 S.D. 431, 235 N.W. 363 (1931). An indemnity contract is to be construed according to the clear and unequivocal expression of the parties’ intent embodied in the ordinary meaning of the words used. Associated Engineers, Inc. v. Job, supra; Schull Construction Co. v. Koenig, 80 S.D. 224, 121 N.W.2d 559 (1963). Any doubts are to be resolved in favor of the indemnitor. Id.

Given these general principles, Hood argues that certain other provisions of the contract, relating to payments, bond and insurance, demonstrate that the indemnity clause was applicable only until the contract was fully performed and the project accepted. We disagree.

The contract, when read as a whole, places no express time limitation on Hood’s obligation to indemnify and save harmless Cengas from any loss, damage or claim made on account of the work done under the contract. Nor do we find any indication in the South Dakota Constitution, statutes or case law which would render such a contract void as violative of public policy if the parties intended that Cengas should be indemnified under the circumstances. We therefore hold that the contractual obligation of Hood to indemnify Cengas was not limited to claims arising prior to completion of the contract.

B.

We must next consider whether the indemnity clause was intended to include an occurrence of Cengas’ negligence subsequent to the acceptance of the completed project and independent of the contract.

The contract states that Hood will “indemnify and save harmless [Cengas] from loss and damage and from claims made on account of work done under this contract.” (Emphasis added.) Under this provision, Cengas was to be indemnified to the extent that its own negligence related to work done under the contract (e. g., the failure to inspect and discover the defective crossover). However, Hood undertook no continuing obligation to protect Cengas from its own independent negligent conduct. Therefore, if Cengas acted negligently after being notified of the leak and its actions contributed to the cause of plaintiff’s injury, Cengas is not entitled to indemnity under the terms of the contract since such negligence had nothing to do with “work done” under the contract.

At trial, the jury was instructed to determine (1) whether any defendant was negligent and, if more than one were negligent, (2) to apportion liability among them. Under the issues submitted in the charge, Cengas might have been found liable for several alleged breaches of duty, some of which were covered by the indemnity agreement and some not. Because it is impossible for us to determine from the record the nature of the negligence upon which the jury based its assignment of 45% of the liability to Cengas, we must remand for further proceedings.

The stipulation reserving all questions of indemnity to the trial court is not a part of the record before this court and we cannot ascertain how this factual question must be resolved on remand. The District Court must determine whether Cengas’ liability rested in whole or in part upon its independent acts of negligence subsequent to the completion and acceptance of the project. If it so finds, it will deny indemnity. See Kessler v. Bowie Machine Works, Inc., 501 F.2d 617 at 622 (8th Cir. 1974). Otherwise, it will grant indemnity. Such findings shall be either by reference to the indemnity stipulation or as the court may otherwise deem appropriate in a manner consistent with this opinion.

Remanded.

      . S.D.C.L. 15-8-15 (1967) authorizes contribution between joint tort-feasors.

      . Diversity jurisdiction is founded on 28 U.S.C. § 1332.

      . The two witnesses’ testimony placed the time at around 9:30 a.m. but Cengas’ records showed the first call was received at 10:00 a.m.

      . Hood also contends that Cengas acquiesced in Hood’s negligence. This argument is without merit and further comment would merely be repetitious of Judge Nichol’s well-reasoned analysis of this issue. 365 F.Supp. at 988-989. While Hood argues that Cengas was not entitled to attorney’s fees, this issue is wholly dependent on the favorable disposition of other issues since Cengas is entitled to reasonable attorney’s fees for defending allegations of negligence against it insofar as the alleged negligent acts are covered in the indemnity contract. Peter Kiewit Sons’ Co. v. Summit Construction Co., 422 F.2d 242 (8th Cir. 1969). In light of our disposition of these other issues, further discussion of this question is unnecessary.

      . Hood places primary emphasis on the following provisions:
      20. Claims & Damages
      ******
      In the event the Owner is called upon to pay any claims resulting from work performed under this contract, Contractor will pay Owner in full for any such claims or, at the option of the Owner, such sums so paid by Owner may be deducted from any moneys due or payable to Contractor under the terms hereof.
      ******
      22. Payment
      ******
      If at any time there shall be any evidence of any lien or claims for which, if established, the Owner might become liable and which is chargeable to the Contractor, it is agreed that the Owner shall have the right to retain out of any payment then due or thereafter to become due, an amount sufficient to completely indemnify the Owner against such lien or claim. Should there prove to be any such lien or claims after all payments are made, the Contractor shall refund to the Owner all moneys the latter may be compelled to pay in discharging any such lien or claim.
      23. Bond
      The Contractor will be required to furnish a bond satisfactory to the Owner in the full amount of the contract for the full protection of the Owner against any loss or damage that may be occasioned by mechanic’s liens, or other liens, or by loss or claims on account of labor furnished and for the due and faithful performance and fulfillment by the Contractor of all and every one of the terms, provisions, covenants, agreements and all conditions complied with. THE OWNER WILL REIMBURSE THE CONTRACTOR FOR THE COST OF THE BOND AT THE COMPLETION OF THE WORK.
      24. Insurance
      ******
      The policies of insurance shall be in form and in all other respects satisfactory to the Owner. Evidence that such insurance is in force shall be submitted to the Engineer immediately upon the signing of this contract by presenting the policies to the Engineer for inspection or by furnishing to the Engineer the insurance companies’ usual form of certificates. Said policies or certificates must show, among other things, that the insurance will not be cancelled or lapsed during the progress of work covered by this contract without first giving ten (10) days’ notice in writing to the Owner.

      . Cengas is governed by the same standards governing common carriers, S.D.C.L. 49-2-2 (1967). A common carrier may limit its obligations by special contract, S.D.C.L. 49-2-7 (1967), but may not be indemnified for willful, wanton or fraudulent conduct, S.D.C.L. 49-2-9 (1967). Neither Title 49 of South Dakota Compiled Laws, covering “Public Utilities and Carriers,” nor Chapter 41 on Natural Gas Pipeline Safety in the Title on “Public Health and Safety” indicates an express public policy which would forbid indemnification for the acts here in question. In considering Hood’s public policy argument in this case, we are guided by the general principles expounded in Bartron v. Codington County, 68 S.D. 309, 2 N.W.2d 337 (1942):
      Public policy is that principle of law which holds that no person can lawfully do that which has a tendency to be injurious to the public or against the public good.
      ******
      Until firmly and solemnly convinced that an existent public policy is clearly revealed, a court is not warranted in applying the principle under consideration. It has been well said, ‘that the right of private contract is no small part of the liberty of the citizen, and that the usual and most important function of courts of justice is rather to maintain and enforce contracts than to enable parties thereto to escape from their obligation on the pretext of public policy, unless it clearly appear that they contravene public right or the public welfare.’ Baltimore & Ohio Southwestern Railway Co. v. Voigt, 176 U.S. 498 [20 S.Ct. 385, 387, 44 L.Ed. 560] * * *.

        Id. at 322-323, 2 N.W.2d at 343-344. See also Schurr v. Weaver, 74 S.D. 378, 53 N.W.2d 290 (1952). The only indication that such a contract is not favored appears in S.D.C.L. 56-3-18 (Supp.1973), noted at note 7 infra, which provides:
      56-3-18. Indemnity agreement void as to liability for negligence in construction, repair or maintenance of structure or equipment. — A covenant, promise, agreement or understanding in, or in connection with or collateral to, a contract or agreement relative to the construction, alteration, repair or maintenance of a building, structure, appurtenance and appliance, including moving, demolition and excavating connected therewith, purporting to indemnify the promisee against liability for damages arising out of bodily injury to persons or damage to property caused by or resulting from the sole negligence of the promisee, his agents or employees, or indemnitee, is against the policy of the law and is void and unenforceable.
      It cannot be said that the acts of negligence involved here constitute “sole” negligence as that term is used in the statute.

      . In reaching this conclusion, we emphasize that we are not here concerned with indemnification by an innocent indemnitor for the sole negligence of the indemnitee. As Judge Nichol noted, 365 F.Supp. at 988 n. 1, any contract so construed would be contrary to the public policy of South Dakota and void. S.D.C.L. 56-3-18 (1967).
      In an unreported district court opinion, Auto Owners Mutual Ins. Co. v. Northern Indiana Public Service Co., Civil Nos. 1828, 1832, 1847, 1848 (N.D.Ind., April 17, 1968), aff’d on other grounds, 414 F.2d 192 (7th Cir. 1969), the district court in dicta suggests that the absence of express language extending the indemnity clause beyond the term of the contract bars such an extension. Neither Judge Nichol nor the parties discovered a single case which would require such a restrictive reading and our own research has disclosed none. There is no justification for reading into the second clause of the instant indemnity provision the phrase “during the control by the Bidder," which appeared in the contract in Associated Engineers, Inc. v. Job, 370 F.2d 633 (8th Cir. 1966), cert. denied, 389 U.S. 823, 88 S.Ct. 59, 19 L.Ed.2d 77 (1967).

      . See note 6 supra.

      . The District Court stated, with respect to the nature of the jury’s verdict, that:
      From the Court’s instructions in this case, the jury could have found Cengas liable (a) based on its non-delegable duty as a supplier of an inherently dangerous product, (b) based on its failure to inspect and remedy the unreasonable practices of its contractor, Hood, (c) based on a failure to maintain pipelines in a safe condition, (d) based on a failure to take all reasonable steps to prevent the explosion after notification of the leak, or a combination of these elements.
      365 F.Supp. at 988.


author: ROSS, Circuit Judge.

text:
    Robert GILMORE, Appellant, v. KANSAS CITY TERMINAL RAILWAY COMPANY, Appellee.
    No. 74-1207.
    United States Court of Appeals, Eighth Circuit.
    Submitted Sept. 12, 1974.
    Decided Jan. 7, 1975.
    Rehearing Denied Jan. 24, 1975.

      Sheila Greenbaum Silverman, Kansas City, Mo., for appellant.
    Jack W. R. Headley, Kansas City, Mo., for appellee.
    Before VOGEL, Senior Circuit Judge, and ROSS and WEBSTER, Circuit Judges.
   ROSS, Circuit Judge.

Robert Gilmore brought this action individually and as class representative under Title VII of the Civil Rights Act of 1964, 42 U.S.C. § 2000e-l et seq., against the Kansas City Terminal Railway Co. [Terminal] for its allegedly discriminatery employment practices. The focus of Gilmore’s challenge is Terminal’s promotion policy respecting thirty-five supervisory and management positions not governed by collective bargaining agreements.

At the evidentiary hearing only one witness, Gilmore, was called by the plaintiffs before they rested their case. Primarily they relied on an inference that the statistical data created either a violation of Title VII or a prima facie case of discrimination. Terminal then came forward with testimony that no qualified blacks had applied for the positions. Upon this basis the court found no discrimination had been proven and dismissed the complaint, entering judgment for the defendants and assessing costs against the plaintiffs. For the reasons hereinafter set forth we reverse and remand for further proceedings.

I. Internal Organization.

Terminal is structured into fourteen departments. Fourteen labor unions represent sixteen separate bargaining units for which contracts have been negotiated controlling working conditions, seniority, rates of pay, and promotions. All of the skilled, semiskilled, unskilled, service, office and clerical employees are represented by these several labor organizations. Not covered by union contract are various supervisory and management positions. At the time of entry of judgment in the district court, thirty-five such positions held by forty-five persons were in existence in the various departments at Terminal. Promotion to those positions is the subject of this dispute.

From 1965 until the date of this action, blacks have constituted approximately 20% of the total number of paid hourly employees at Terminal; less than 1% of the total number of clerical employees; and, to the present, only one black person has held a supervisory or management position in the history of Terminal.

Terminal’s promotion policy with respect to the challenged positions is that consideration, in most cases, is first given to those employed in the department in which the vacancy occurs. Terminal makes no effort to inform other company employees of the opening or vacancy. There are neither any established procedures nor any promotional sequence which Terminal employees must follow to obtain or qualify for a supervisory or management position and it administers no objective examinations to measure qualifications for the positions. The sole standard adhered to by Terminal in the selection of candidates for these positions is a subjective evaluation of: aptitude, ability, and work habits acquired or shown from prior work experience. In most cases an additional education requirement is imposed that the candidate be able to read and write. In some cases it is also necessary to pass a physical examination.

The justification advanced by Terminal’s superintendent, Mr. Apple, for the lack of minority representation among these supervisory and management employees was:

[O]ur blacks came early in early years and went to work for the Terminal as laborers, and very few of them went on to further any of their education or go to night schools or try to qualify themselves for better positions. Those, I think that did, have been given considerations.
* * * * * *
From my own personal observation of these people and from what dealings that I have had with them personally and the recommendations of department heads, these people have not possessed the necessary qualifications.

The reason given for intradepartmental preference was that employees in the department in which the vacancy occurred are most likely to possess the work experience and knowledge required.

II. Individual Relief.

Gilmore asserted an individual claim for relief based upon Terminal’s failure to promote him to a specific lower level supervisory position. However, his testimony at the evidentiary hearing disclosed that he did not possess the requisite skills which Terminal claimed were essential to that position.

To establish a prima facie case of employment discrimination upon private claims for relief, an aggrieved party must show:

(i) that he belongs to a racial minority; (ii) that he applied and was qualified for a job for which the employer was seeking applicants; (iii) that, despite his qualifications, he was rejected; and (iv) that, after his rejection, the position remained open and the employer continued to seek applicants from persons of complainant’s qualifications.

McDonnell Douglas Corp. v. Green, 411 U.S. 792, 802, 93 S.Ct. 1817, 1824, 36 L.Ed.2d 668 (1973) (footnote omitted).

At issue in this case, however, unlike McDonnell Douglas Corp. v. Green, is the question of possibly racially discriminatory effects of the qualifications themselves. Id. at 802 n. 14, 93 S.Ct. 1817. Thus Gilmore’s claim of racial discrimination should be reassessed after the class claims have been resolved. To the extent that his lack of “skills and experience” are attributable to present discrimination or the vestiges of past discrimination unsupportable by business necessity, or to the extent that those qualifications do not bear a manifest relationship to job performance, Gilmore may be entitled to relief. Otherwise, the trial court may properly conclude that Gilmore was not the subject of racial discrimination in Terminal’s failure to promote him to mechanical department foreman.

III. Class Relief.

At the outset we note that employment policies affecting supervisory and managerial positions are not insulated from the reaches of Title VII enforcement. Our owri Court, as well as others, has found violations of Title VII in an employer’s policy of promotion to supervisory positions not governed by union contract, but selected totally at the employer’s discretion. United States v. N. L. Industries, 479 F.2d 354, 367-368 and n. 12 (8th Cir. 1973); Marquez v. Omaha District Sales Office, Ford Division, 440 F.2d 1157, 1159-1160 (8th Cir. 1971). See also Pettway v. American Cast Iron Pipe Co., 494 F.2d 211, 241-243 (5th Cir. 1974).

Secondly, our Court has repeatedly held that statistical data may establish a prima facie case of employment discrimination. United States v. N. L. Industries, supra, 479 F.2d at 368; United States v. St. Louis-San Francisco Ry., 464 F.2d 301, 307 (8th Cir. 1972), cert. denied, 409 U.S. 1107, 93 S.Ct. 900, 34 L.Ed.2d 687 (1973); Carter v. Gallagher, 452 F.2d 315, 323 (8th Cir. 1971), modified on rehearing en banc, 452 F.2d 327 (8th Cir.), cert. denied, 406 U.S. 950, 92 S.Ct. 2045, 32 L.Ed.2d 338 (1972); Marquez v. Omaha District Sales Office, Ford Division, supra, 440 F.2d at 1160-1161; Parham v. Southwestern Bell Telephone Co., 433 F.2d 421, 426 (8th Cir. 1970); United States v. Sheet Metal Workers Local 36, 416 F.2d 123, 127 n. 7 (8th Cir. 1969). Moreover, we have found that in class action discrimination cases statistics create a prima facie case of discrimination specifically in the context of supervisory personnel. United States v. N. L. Industries, supra, 479 F.2d at 367-368 and n. 12; Marquez v. Omaha District Sales Office, Ford Division, supra, 440 F.2d at 1160-1161. Such a showing of disparity between an employer’s work force and the population in the relevant market area has been held sufficient to shift the burden to the employer to rebut the inference that racial considerations have dictated employment choices. United States v. N. L. Industries, supra, 479 F.2d at 369; Marquez v. Omaha District Sales Office, Ford Division, supra, 440 F.2d at 1162; Carter v. Gallagher, supra, 452 F.2d at 323. Statistical evidence, however, is not sufficient as a matter of law to establish a violation of Title VII, as in Parham v. Southwestern Bell Telephone Co., supra, 433 F.2d at 426, when the defense of lack of qualified minority applicants is interposed by the employer. In that event, however, “Congress has placed on the employer the burden of showing that any given requirement must have a manifest relationship to the employment in question.” Griggs v. Duke Power Co., 401 U.S. 424, 432, 91 S.Ct. 849, 854, 28 L.Ed.2d 158 (1971).

It is then open to the plaintiffs to demonstrate a violation of Title VII on either of two independent bases: that the employment policies reflect present discriminatory conduct or that current policies, though neutral on their face, carry forward vestiges of past discrimination. This represents the traditional dual focus in civil rights litigation upon purpose, as well as effect. Discrimination resulting from either commands relief. That assessment should be guided by the principles set forth in Rogers v. International Paper Co., No. 74-1086, 510 F.2d 1340 at 1344-1347 (8th Cir., 1975).

In this respect, work experience and intradepartmental preference are two aspects of Terminal’s promotion policy. Without determining whether the work experience qualification meets the requirements of Griggs v. Duke Power Co., supra, we note that Terminal urges that an insufficient number of minority applicants have attained the requisite work experience in some departments and also that in other departments there is little or no minority representation. This suggests that the bargaining representative for those departments may have discriminated in the past and that vestiges of that discrimination endure within those departments. The fact of possible prior union discrimination is thus relevant to the determination of whether Terminal’s promotion policy, which appears neutral on its face, actually carries forward the effects of prior discrimination. If it does, the intradepartmental preference must be modified by making the primary requirement one of experience in a functionally related job which provided the same degree of skill, familiarity and knowledge that work experience within the department would have provided.

Finally, we tender the observation that the record before us contains a strong suggestion of past discrimination on the part of both Terminal and the unions. Thus it is critical upon remand that the relevant unions be joined as party defendants for it appears that they may be at least partially responsible for the absence of minority persons with the requisite training for at least the lower level supervisory positions. Indeed the present practices, especially the seniority provisions, of the respective unions may well perpetuate minority inability to obtain required skills, thereby themselves amounting to violations of Title VII.

Courts in the past have not been reluctant to order equitable relief when faced with trade union discrimination. For example, qualified black applicants have been given full status and immediate admission into membership; subjective admission standards such as membership votes and grandfather clauses, and tests have been enjoined, and objective criteria and job related tests have been ordered for court approval; seniority practices have been ordered revised; and unions have been ordered to place partially skilled minority workers on the job in order to obtain further qualifying experience.

Thus, while Title VII recognized two separate causes of action against unions and employers, 42 U.S.C. §§ 2000e-2(c) and 2000e-2(a)(1), it appears on the face of the record before us that the district court’s most effective remedy will include the unions as well as Terminal. To effectuate the “breadth and flexibility . . inherent” in the “district court’s equitable powers to remedy past wrongs,” Swann v. Charlotte-Mecklenburg Board of Education, 402 U.S. 1, 15, 91 S.Ct. 1267, 1276, 28 L.Ed.2d 554 (1971), then, this remand to the district court is with specific directions to the plaintiffs to join the relevant unions in this discrimination case.

For the reasons hereinbefore set forth, we reverse and remand for further proceedings consistent with the views expressed herein and with the direction that the unions be joined as party defendants.

      . The job classifications which are in issue here are: Maintenance Engineer; Station Maintenance Supervisor; Valuation Engineer; Building Engineer; Chief Engineer; Signal and Communications Supervisor; Assistant Engineer Signal and Communications; Signal and Communications Engineer; Signal Engineer; Project Engineer; Assistant Supervisor Bridge and Building; Roadmaster; Assistant General Foremen (6); General Foremen (3); Assistant to General Mail and Baggage Agent; Assistant Superintendent and Mail and Passenger Agent; Powerhouse Foremen; Roundhouse Foremen (3 between the two previous classifications); General Foreman, Master Mechanic; Car Department Supervisors; Station Master; Purchasing Agent; Real Estate Agent; Freight Agent; Assistant Auditor; Vice-President-Auditor-Secretary; Claim Agent; General Claim Agent and Chief Security Officer and Safety Director; Assistant Treasurer and Paymaster; Assistant Secretary; Manager of Personnel; Trainmasters (2); Superintendent; President and General Manager.

      . See discussion, section III, infra.

      . In the order required by Fed.R.Civ.P. 23(c), the district court certified this proceeding as a class action and specifically found that Gilmore met the requisites of adequacy of representation set forth in Rule 23(a)(3) and (4). The court also held that:
      Upon further evidentiary development, the Court may realign the parties, create subclasses, further define the limits of the class; or if subsequent developments call for it, the Court in its discretion may otherwise modify the proceedings.
      We assume that upon remand the district court will exercise that discretion in effectuating whatever changes in the class or its representation it deems necessary to insure adequate presentation of the evidence for the equitable determination of the case.

      . Asbestos Workers Local 53 v. Vogler, 407 F.2d 1047, 1053 (5th Cir. 1969); United States v. Ironworkers Local 86, 315 F.Supp. 1202, 1239 (W.D.Wash.1970), aff’d, 443 F.2d 544 (9th Cir.), cert. denied, 404 U.S. 984, 92 S.Ct. 447, 30 L.Ed.2d 367 (1971); Dobbins v. Local 212, IBEW, 292 F.Supp. 413, 450 (S.D.Ohio 1968).

      . United States v. Sheet Metal Workers Local 36, 416 F.2d 123, 133 (8th Cir. 1969); Asbestos Workers Local 53 v. Vogler, supra, 407 F.2d at 1055; United States v. Ironworkers Local 86, supra, 315 F.Supp. at 1236, 1238; United States v. Local 73, Plumbers & Pipefitters, 314 F.Supp. 160, 165 (S.D.N.Y.1969); Dobbins v. Local 212, IBEW, supra, 292 F.Supp. at 453.

      . Rogers v. International Paper Co., No. 74-1086, 510 F.2d 1340 at 1354 (8th Cir. 1975) (and cases therein cited).

      . United States v. Sheet Metal Workers Local 36, supra, 416 F.2d at 133; United States v. Ironworkers Local 86, supra, 315 F.Supp. at 1247.


author: PER CURIAM:

text:
    FARRELL LINES, INC., Appellee, v. CAROLINA SHIPPING COMPANY, Appellant. FARRELL LINES, INC., Appellant, v. CAROLINA SHIPPING COMPANY, Appellee.
    Nos. 73-2079, 73-2080.
    United States Court of Appeals, Fourth Circuit.
    Jan. 8, 1975.
   OPINION AND ORDER ON PETITIONS FOR REHEARING AND MOTION TO INTERVENE

PER CURIAM:

The defendant stevedore has petitioned for rehearing. It contends that Cooper Stevedoring Co., Inc. v. Fritz Kopke, Inc. (1974), 417 U.S. 106, 94 S.Ct. 2174, 40 L.Ed.2d 694, decided after our original opinion had been prepared and distributed but a few days before it was formally issued, authorizes contribution herein on the theory that, under the District Court’s opinion, the parties were actually joint tort-feasors among whom contribution is permitted. Kopke, however, is distinguishable from this case. There, the District Court found as a fact that the shipowner’s own conduct was such as to preclude indemnity, a finding which, if sustainable, required denial of absolute indemnity under Ryan. Since that finding was not challenged on appeal, the Court lacked “jurisdiction to consider its [the shipowner’s] contention that it is entitled to recover full indemnity on the basis of Ryan Stevedoring Co. v. Pan-Atlantic Corp., 350 U.S. 124, [76 S.Ct. 232, 100 L.Ed. 133] (1956).” In this case, on the other hand, the District Court made a finding of fact that the fault on the part of the shipowner, though amounting to one-fourth the responsibility for the injuries to the longshoreman, was not sufficient to preclude a right to indemnity in favor of the shipowner under Ryan. This finding of fact, we have heretofore held, was not clearly erroneous. That finding puts this case in a different posture from that presented in Kopke and requires the determination of the issue which the Supreme Court declared it lacked “jurisdiction to consider” in Kopke. Kopke accordingly is not decisive of the issue presented by the stevedore’s petition for rehearing.

It may be, as the stevedore argues most persuasively in its petition for rehearing, that the general thrust of Kopke is in the direction of a sort of tort indemnity in cases of this type, where contribution among the joint tort-feasors would be the rule but the fact remains that Kopke did not purport to overrule Ryan and Weyerhaeuser wherein the principle of indemnity on which the shipowner’s action was predicated was developed. Those cases are plain to the point that, unless the ship’s fault is sufficient to preclude indemnity, the ship is entitled to indemnity from the stevedore under circumstances such as those here. While we recognize the equitable appeal of the claim of apportionment raised by the stevedore, we do not feel it appropriate for us to do what the Supreme Court in Kopke chose not to do; any reversal or change in the scope of Ryan and Weyerhaeuser should come from the Supreme Court and not from an intermediate court. The petition for rehearing on the part of the stevedore is accordingly denied.

We similarly find no merit in the petition for rehearing submitted by the shipowner.

The Baltimore stevedore Chesapeake Operating Company has, also, filed a motion to intervene in order to set up a right to contribution. The propriety of such motion at this stage of the proceeding would be at best doubtful under any circumstances. It would only be appropriate in any event if we should treat this action as one where contribution was permitted rather than, as it is, an action for indemnity controlled by Ryan. That motion is denied too.

      . Cf., Weyerhaeuser S.S. Co. v. Nacirema Co. (1958), 355 U.S. 563, 78 S.Ct. 438, 2 L.Ed.2d 491.

      . Page 109, n. 4, 94 S.Ct. at p. 2176.
      The Ryan principle was changed by an amendment to the Longshoremen’s and Harbor Workers’ Compensation Act (33 U.S.C. § 903 et seq.) in 1972. 86 Stat. 1251 (Oct. 27, 1972). This amendment, of course, did not affect the rights of the parties in this action. On the constitutional validity of the amendment, see Acomb, Maritime Indemnity: A Monograph, 48 Tul.L.Rev. 524 (1974).

      . Cf., Tri-State Oil Tool Indus., Inc. v. Delta Marine Drill. Co. (5th Cir. 1969), 410 F.2d 178.