author: KAUFMAN, Chief Judge:

text:
    AMBAC INDUSTRIES, INC. (formerly American Bosch Arma Corporation), Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
    No. 135, Docket 73-1775.
    United States Court of Appeals, Second Circuit.
    Argued Oct. 15, 1973.
    Decided Nov. 1, 1973.
    William H. Brayer, Jr., New York City, for appellant.
    Donald H. Olson, Atty., Tax Div., Dept. of Justice, Washington, D. C. (Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Richard W. Perkins, Attys., Tax Div., Dept. of Justice, Washington, D. C., on the brief), for appellee.

      Before KAUFMAN, Chief Judge, and LUMBARD and TIMBERS, Circuit Judges.
   KAUFMAN, Chief Judge:

Although we agree with the result reached by the Tax Court, unfortunately we cannot abide by the course taken to arrive at that decision. Accordingly, we are constrained to enter the labyrinthine structured tax laws, knowing full well the difficult and tortuous path that may lie ahead. Learned Hand so eloquently observed:

In my own case the words of such an act as the Income Tax, for example, merely dance before my eyes in a meaningless procession: cross-reference to cross-reference, exception upon exception . . . leave in my mind only a confused sense of some vitally important, but successfully concealed purport, which it is my duty to extract, but which is within my power, if at all, only after the most inordinate expenditure of time.

In its consolidated federal income tax return for the taxable year ending December 31, 1965, AMBAC Industries, Inc. reported a loss on its investment in stock and debt of its subsidiary, Space Equipment Corporation, in the amount of $396,464.92. In computing this loss, AMBAC failed to reduce the basis of its aggregate investment in Space by the sum of $293,075.58, the net operating loss sustained by Space in 1965, which amount AMBAC had also used to offset its own income through consolidation. In 1969, the Commissioner of Internal Revenue asserted a deficiency of $140,676.28 against AMBAC in order to prevent this alleged double deduction or “double tax benefit’’ gained through AMBAC’s use of Space’s 1965 net operating loss both to offset AMBAC’s separate income and to increase its worthless investment deduction. AMBAC petitioned the Tax Court for a redetermination of this deficiency and the Court sustained the Commissioner’s determination in full. Since we find nothing in the Code or the governing regulations which authorizes the double deduction sought by AMBAC, and in fact construe those regulations to prohibit such deduction, we affirm.

I

The facts as stipulated below are quite straightforward. AMBAC is a manufacturer of automotive parts and electronic guidance systems and devices. During 1964, AMBAC acquired 96.48% of the outstanding common stock of Space, a company engaged in the manufacture and sale of plastic parts for use in the aerospace industry. The total cost of the stock acquisition was $74.-289.31. Thereafter, AMBAC loaned Space $892,899.50, of which a total of $50,201 was repaid by Space in October and November of 1964.

From March 31, 1964, to December 31, 1964, Space sustained a net operating loss of $153,079.88, which AMBAC offset against its income in computing the consolidated taxable income of the affiliated group for the taxable year ending December 31, 1964. Because of this loss, however, the board of directors of AMBAC and Space, at their January, 1965 meetings, resolved to discontinue the operations of Space and proceed to wind up its business. Pursuant to the plan of liquidation then adopted, Space disposed of its operating assets and ceased business activities. By June, 1965, its assets consisted solely of cash and accounts receivable and by November, 1965, all its creditors other than AMBAC had been paid in full. AMBAC received a total repayment of $367,442.-91 from Space during 1965.

Space was liquidated on December 22, 1965. At that time AMBAC’s cost basis for its Space stock remained $74,289.31, while the outstanding balance on its loans to Space totaled $475,255.59. In reporting this investment loss on its 1965 consolidated federal income tax return, AMBAC reduced its aggregate investment of $549,544.90 by Space’s 1964 net operating loss of $153,079.88 but failed to make a similar adjustment for Space’s 1965 net operating loss of $293,075.58, which sum had already been utilized to reduce consolidated taxable income on the tax return filed jointly by AMBAC and Space for that year. As a result of this omission, the Commissioner assessed the contested deficiency. We now turn to the Tax Court’s analysis of the Commissioner’s determination.

II

Before the Tax Court, all parties agreed that Treas.Reg. § 1.1502— 34A(b) (2) (i) governed the computation of AMBAC’s basis in the stock and debt of Space for purposes of determining the amount of AMBAC’s worthless investment deduction. This regulation provides that AMBAC’s basis in the stock and debt of Space must be reduced by the sum of:

all losses of such issuing corporation (Space) sustained during taxable years for which consolidated income tax returns were made or were required . . . after such corporation became a member of the affiliated group and prior to the sale of the stock (of the affiliate) ....

Moreover, where, as in this case, the taxable event requiring an adjustment in basis under § 1.1502-34A(b) (2) (i) is a worthless investment deduction and not a sale of the affiliate’s stock, the regulation has been construed to read:

all losses of the issuing corporation (Space) sustained during taxable years for which consolidated income tax returns were made or were required . . . after such corporation became a member of the affiliated group and prior to the time when the investment became worthless for the purposes of deduction. (emphasis added)

See Bush Terminal Buildings Co. v. Commissioner, 7 T.C. 793, 816-817 (1946).

In applying this regulation, the Tax Court, following an earlier decision in Henry C. Beck Builders, Inc. v. Commissioner, 41 T.C. 616, 629-633 (1964), held that AMBAC must account for all losses sustained by Space “during taxable years . . . prior to the time when the investment became worthless for the purposes of deduction.” Accordingly, the crucial question before the Tax Court concerned the precise time that AMBAC’s investment in Space became worthless for purposes of deduction. If, as the taxpayer urged, that event occurred during 1965, then the last taxable year prior to that time would have been 1964 and AMBAC could properly ignore Space’s 1965 net operating loss in computing its worthless investment deduction. If, as the Commissioner contended, the investment became worthless for purposes of deduction upon the liquidation of Space on December 22, 1965, then, since that liquidation automatically terminated Space’s taxable year, the net operating loss suffered by Space in 1965 would have been sustained in a taxable year (January 1 — December 22, 1965) prior to the time the investment became worthless for purposes of deduction on December 22, 1965. This analysis would support the deficiency asserted by the Commissioner.

To resolve this conundrum, the Tax Court turned to Treas.Reg. § 1.1502-40A(a) which governs the deductibility of a worthless investment in a member of an affiliated group (Space) by another member of that group (AMBAC). This regulation states:

No deduction shall be allowed during a consolidated return period to any member of the affiliated group on account of worthlessness ... of any obligation of any other corporation which was a member of the group as of the last day of the taxable year or which was liquidated by the group during such year, except as a loss resulting from a bona fide termination of the business and operations of such other corporation, whether in liquidation or otherwise, (emphasis added)

The Tax Court, without reference to the language of the regulation or to any prior decisions elucidating its meaning, interpreted § 1.1502-40A(a) as prohibiting a worthless investment deduction until the affiliation between the debtor and creditor corporations had been severed. The Court accordingly concluded that the specific month in 1965 in which there was a “bona fide termination of the business and operations of [Space]” had little importance for the investment loss was not deductible by AMBAC until the affiliation was terminated by Space’s liquidation on December 22, 1965. We cannot agree with this strained interpretation of § 1.1502-40A(a).

Ill

The emphasized portion of § 1.-1502-40A(a) clearly indicates that so long as the investment loss resulted from “a bona fide termination of the business and operations of (Space),” that loss could be deducted by AMBAC whether Space “was a member of the affiliated group on the last day of the taxable year or was liquidated by the group during such year.” Disaffiliation is simply not the sine qua non for permissible deduction. Accordingly, although in this instance Space was liquidated during the group’s 1965 taxable year, we read § 1.1502-40A(a) as permitting AMBAC to deduct its worthless investment in Space on its 1965 consolidated tax return even if Space had not been formally liquidated until January 1, 1966. Deductibility pursuant to that section does not turn on the existence of an empty corporate shell, but rather on the bona fide termination of the business and operations formerly contained therein.

Although we agree with AMBAC, therefore, that its investment in Space became worthless for purposes of deduction before December 22, 1965, either by June or certainly by November of that year, we are not persuaded to reverse. We arrive at this conclusion because we believe the Tax Court erred by perpetuating an erroneous interpretation of Treas.Reg. § 1.1502-34A(b) (2) (i) in adhering to its opinion in Henry C. Beck Builders, Inc. v. Commissioner, supra.

In Beck, the taxpayer, in computing its gain on the redemption of a subsidiary’s preferred stock within a month of the start of the subsidiary’s 1957 taxable year, did not reduce its basis in the stock by the net operating loss sustained by the subsidiary prior to the redemption. The Commissioner asserted a deficiency against Beck for failure to account for the subsidiary’s net operating losses for the taxable years 1954, 1955, 1956 and all of 1957. The Tax Court affirmed this determination as to the net losses incurred in 1954-1956 but held that since redemption of the subsidiary’s preferred stock did not terminate the subsidiary’s taxable year, 1957 was not a “taxable year . . . prior to the [redemption] of the stock.” Thus, the Court concluded that Treas.Reg. § 1.-1502-34A(b) (2) (i) did not require taxpayer to account for any part of the subsidiary’s 1957 net operating loss.

In so holding, however, the Beck Court overlooked what we believe to be a more plausible interpretation of § 1.-1502-34A(b)(2) (i). Although the Tax Court assumed that the phrase “after such corporation became a member of the affiliated group and prior to the sale of the stock” necessarily modified “taxable years for which consolidated income tax returns were made or were required,” that language could properly be construed as modifying “losses of the issuing corporation.” Following this latter construction, the taxpayer in Beck would have been required to reduce its basis in the subsidiary’s preferred stock by the net operating loss sustained by the subsidiary during that portion of 1957 preceding the redemption, as well as in the prior taxable years of 1954-1956. Only in this way would the taxpayer be fully deprived of the use of its subsidiary’s net operating losses to gain a double tax benefit — (1) to offset the taxpayer’s separate income through consolidation; (2) to reduce the taxpayer’s gain or increase its loss upon the sale of the subsidiary’s stock at a price which reflects those losses.

We believe this interpretation of § 1.-1502-34A(b) (2) (i) is a sensible one because “the taxable year for which a consolidated return was made or required” —always the full twelve month period of the parent’s taxable year — will invariably cover a period in which losses sustained by the subsidiary cannot be used to achieve the double tax benefit that the regulation was designed to prevent. In the year affiliation commences, for example, any losses sustained by the subsidiary within that taxable year but prior to actual affiliation will not be available to the parent to offset its separate income through consolidation. Similarly, where, as in Beck, the sale of the subsidiary’s stock occurs during the taxable year, any losses incurred by the subsidiary following the sale could not possibly have been reflected in the sale price. Accordingly, to exclude losses sustained during these periods from which a double tax benefit is unobtainable, the regulation states that only “losses of the issuing corporation sustained . after such corporation became a member of the affiliated group and prior to the sale of the stock (of the affiliate)” must be accounted for in computing basis.

Adjustments must always be made to eliminate double deductions or their equivalent. Thus, in the case of the stock of a subsidiary company, the basis thereof must be properly adjusted for the amount of the subsidiary company’s losses for the years in which consolidated returns were made.

We are further persuaded to resolve any ambiguity in the language of Treas. Reg. § 1.1502-34A(b) (2) (i) in a manner that does not accord with the Beck interpretation because of the recently repeated admonition by the Supreme Court that “the Code should not be interpreted to allow (the taxpayer) ‘the practical equivalent of a double deduction,’ Charles Ilfeld Co. v. Hernandez, 292 U.S. 62, 68 [54 S.Ct. 596, 598, 78 L.Ed. 1127] (1934).” United States v. Skelly Oil Co., 394 U.S. 678, 685, 89 S.Ct. 1379, 1383, 22 L.Ed.2d 642 (1969). We are of the view, accordingly, that the Tax Court’s interpretation of § 1.1502--,34A(b) (2) (i) in Beck was incorrect and should not have been followed in the instant case.

Applying the proper construction of the regulation to the facts of this ease, AMBAC was required to reduce its worthless investment deduction by the net operating loss incurred by Space prior to the time its investment in Space became worthless for purposes of deduction. Incorporating the criteria imposed by Treas.Reg. § 1.1502-40A (a), this reduction must equal the loss sustained by Space prior to the “bona fide termination of (its) business and operations.” Since we understand “bona fide termination” to mean the point at which the corporation ceased to earn income or incur expenses, we find that the total net operating loss incurred by Space in 1965 must necessarily have been sustained prior to the “bona fide termination of (its) business and operations” and the deficiency asserted against AMBAC, therefore, was correct.

Accordingly, the judgment of the Tax Court is affirmed.

      . The Spirit of Liberty: Papers and Addresses of Learned Hand (I. Dilliard ed. 1960) at 213.

      . The Tax Court opinion is reported at 59 T.C. 670 (1973).

      . AMBAC acquired the bulk of the Space shares, 69,167 of the total outstanding of 72,000, on March 31, 1964. An additional 300 shares were purchased subsequently in 1964.

      . T.D. 6894, filed September 7, 1966, promulgated new consolidated return regulations under I.R.C. § 1.1502: Treas.Reg. §§ 1.1502-0 — 1.1502-80. The new regulations are applicable to taxable years beginning after December 31, 1965. The old regulations, applicable to taxable years beginning before January 1, 1966, were re- ■ designated as §§ 1.1502-0A — 1.1502-51A. Treas.Reg. § 1.1502-32 is similar though not identical to § 1.1502-34A.

      . Treas.Reg. § 1.1502-31A(e).

      . Treas.Reg. §§ 1.1502-2A(e),-12A(a).

      . Treas.Reg. § 1.1502-13A(d).

      . See also Treas.Reg. § 1.1016-6, which states:


source: Caselaw Access Project

author: GIBSON, Circuit Judge.

license: Public Domain

text:
    UNITED STATES of America, Appellant, v. Sam Meredith LAWSON, Appellee.
    No. 73-1161.
    United States Court of Appeals, Eighth Circuit.
    Submitted Sept. 14, 1973.
    Decided Nov. 14, 1973.
    David Gienapp, Asst. U. S. Atty., Sioux Falls, S. D., for appellant.
    R. Murray Ogborn, Aberdeen, S. D., for appellee.
    Before GIBSON and BRIGHT, Circuit Judges, and SMITH, Senior District Judge.

       TALBOT SMITH, Senior District Judge, Eastern District of Michigan, sitting by designation.

   GIBSON, Circuit Judge.

The Government appeals, pursuant to 18 U.S.C. § 3731, from an order of the District Court, entered after a hearing, granting the defendant’s motion to suppress all evidence obtained as a result of an inventory search of an automobile. This is a case of first impression in this Circuit, presenting the question of the validity of an inventory search of an impounded vehicle.

The defendant, Sam Lawson, and a traveling companion, Lelia Fawcett, were arrested January 18, 1972, by local police officers in Aberdeen, South Dakota, on separate charges of passing insufficient funds checks. They had traveled to Aberdeen in Mrs. Fawcett’s 1969 Ford, which bore Maryland license plates. At the time of their arrest, the car was parked in the Holiday Inn Motel parking lot in Aberdeen with its doors and trunk locked. It was impounded and taken to the police station. The next day, January 19th, pursuant to a written regulation of the Aberdeen Police Department, the car was completely searched for the purpose of preparing an inventory of the contents and placing any “valuables” in storage. During the course of this inventory, a .22 caliber revolver was found in the locked trunk of the car, which led to the filing of the two count federal indictment in this case. Count I charged the defendant with unlawfully transporting a stolen firearm in interstate commerce in violation of 18 U.S.C. § 922(i), and count II charged that defendant, a convicted felon, had transported a firearm from West Virginia to Aberdeen, South Dakota, in violation of 18 U.S.C. § 922(g).

There is no assertion that the search in this case can be justified upon any ground other than as an inventory search. The Government specifically disavows any contention that the search was incident to a lawful arrest, and it is equally clear from the record that there existed no probable cause to support a search of the locked trunk. Rather, the Government argues that the search and seizure should be upheld because, “[t]he discovery of the firearm was made while the Police Officers were following a legitimate, reasonable and necessary police function.” The Government argues that when the inventory is carried out pursuant to a standard uniform procedure, it is reasonable; thus the evidence seized should be admissible. This position finds support in the language of some of the cases that have considered the problem of an inventory search. However, the contrary position, that an inventory search is unreasonable, has been taken by other courts.

The problem of automobile searches and their relationship to the warrant requirements of the Fourth Amendment has been a perplexing one for the courts. Without the assistance of definitive guidelines (indeed guidelines attempting to apply the general requirements of the Fourth Amendment in this area are likely to be of little assistance in the varying factual circumstances presented by concrete cases), the courts have attempted to apply general Fourth Amendment principles, assisted by what applicable language they could discern from the Supreme Court cases, to resolve situations probably never contemplated by the drafters of the Fourth Amendment or the courts. Lower courts have been hampered in this process by a seeming lack of consistency in the Supreme Court cases dealing with automobile searches, the inconsistencies no doubt being due to the manifold considerations that bear with unequal weight on varying aspects of the problem. This was recognized by Justice Rehnquist, writing for the majority in Cady v. Dombrowski, 413 U.S. 433, 439, 93 S.Ct. 2523, 2527, 37 L.Ed.2d 706 (1973):

While these general principles are easily stated, the decisions of this Court, dealing with the constitutionality of warrantless searches, especially when those searches are of vehicles, suggest that this branch of the law is something less than a seamless web.

The Supreme Court has not decided whether an inventory search, without a warrant or justified by a recognized exception to the warrant requirement, would be considered reasonable under the Fourth Amendment. Harris v. United States, 390 U.S. 234, 236, 88 S.Ct. 992, 993, 19 L.Ed.2d 1067 (1968) explicitly stated that the “admissibility of evidence found as a result of a search under the police regulation is not presented by this case.”

The Supreme Court decision most nearly in point is Preston v. United States, 376 U.S. 364, 84 S.Ct. 881, 11 L. Ed.2d 777 (1964), where the Court invalidated a search, made by state officers, after the defendant’s arrest on a charge of vagrancy. The car had been towed to a garage and after booking the defendant, the car was searched and items seized which were sought to be introduced as evidence in a federal trial for conspiracy to rob a federally-insured bank. A unanimous Court held that the search and seizure without a warrant did not meet the test of reasonableness under the Fourth Amendment. Subsequent eases have indicated that Preston should be narrowly read to indicate only that the search involved there could not be justified as incident to a lawful arrest, not that it would be unreasonable in all circumstances. Preston does, however, seem to establish a requirement that the arrest and a subsequent search be reasonably related. As noted by Mr. Justice Black in Cooper v. California, 386 U.S. 58, 61, 87 S.Ct. 788, 791, 17 L.Ed.2d 730 (1967) :

Preston was arrested for vagrancy. An arresting officer took his car to the station rather than just leaving it on the street. It was not suggested that this was done other than for Preston’s convenience or that the police had any right to impound the car and keep it from Preston or whomever he might send for it. The fact that the police had custody of Preston’s car was totally unrelated to the vagrancy charge for which they arrested him. So was their subsequent search of the ear.

See also Williams v. United States, 412 F.2d 729, 732 (5th Cir. 1969).

Our instant case is quite similar to Preston. Here Lawson was arrested on a bad check charge. The officers took his ear to the station, rather than leaving it parked at the Holiday Inn parking lot. There is no suggestion that the police had the right to impound the car. However, in view of the holding that Preston stands only for the proposition that the search there could not be justified as incident to a lawful arrest, Cady v. Dombrowski, supra at 446 of 413, 93 S.Ct. -2523, we must look further and see whether the fact that the search and seizure here was done as a “legitimate police function” establishes its reasonableness under the Fourth Amendment.

The Government argues that Cady supports the use of inventory procedures. Cady approved a search 'for a revolver upon a showing that it was that department’s standard procedure; it is argued that we should approve the inventory in this case because it is the Aberdeen Police Department’s standard procedure to inventory impounded automobiles. This argument ignores the Court’s emphasis on the factual considerations present in Cady and absent here. First, the vehicle in Cady was disabled as the result of an accident and constituted a nuisance along the highway. The driver, being intoxicated and later comatose, could not have made arrangements to have the car towed and stored. Second, the police made a search for the revolver as a standard procedure to protect the public from the possibility that a revolver might fall into untrained or malicious hands. The motorist in Cady was a Chicago policeman. The police of Kewaskum, Wisconsin, believed he was required by regulation to carry his service revolver, at all times. They therefore had reason to believe that the automobile contained the revolver when it was not found on his person. In the instant case, the vehicle was not disabled, nor was it in a position where it could be considered a public nuisance. There is no indication that Lawson, or Mrs. Fawcett, could not have made arrangements for the safekeeping of the vehicle during the time they were in custody. Secondly, there was no reason for the Aberdeen police to believe that the car contained anything that might threaten the safety of the public..

The Government relies also on Harris and Cooper to support their argument. In Harris, evidence in plain view of a police officer, who was taking reasonable steps for the protection of the car, was held admissible. This irrefragably permissible police conduct certainly cannot be equated with breaking into a locked trunk, even though both actions are said to be taken for the protection of the owner’s property. Cooper also is a different case than what we have here. The automobile in Cooper was seized pursuant to statute specifying forfeiture of the car for its unlawful use. There was a close relationship between the reason for the arrest and the search, as well as the reason the vehicle was in custody. See, United States v. Young, 456 F.2d 872, 875 (8th Cir. 1972). None of these considerations are applicable here. Therefore the decision in this case must depend upon an analysis of the “reasonableness” of the search here in question.

We note first that several state courts have concluded that an inventory examination is not a search. People v. Sullivan, 29 N.Y.2d 69, 323 N.Y.S.2d 945, 272 N.E.2d 464 (1971); State v. Wallen, 185 Neb. 44, 173 N.W.2d 372, cert, denied, 399 U.S. 912, 90 S.Ct. 2211, 26 L.Ed.2d 568 (1970). Sullivan places reliance upon a draft of the Model Code of Pre-Arraignment Procedure of the American Law Institute, which defines a “search” as an intrusion under color of authority on an individual’s vehicle for the purpose of seizing things. Under this view law enforcement officials would have a right to intrude so long as they did not intend to seize anything. There was a strong dissent by Chief Judge Fuld in the case. In Wallen, the Nebraska Supreme Court determined there was no search. It concluded this based upon the fact that “there was no reason to search,” and “there was not even a basis • existing for obtaining a. search warrant.” Wallen, 173 N.W.2d at 376. Therefore, the officer’s inventory could not be a search. This seems a highly anomalous position. Officers apparently are to be placed in a better position when they have no reason to search, since then a general exploratory “inventory” will be upheld; while if required to get a warrant they would have to describe with particularity the things to be seized. Both of the above decisions are based upon a highly technical construction of the meaning of “search,” unwarranted in our view of the Fourth Amendment. To consider an inventory procedure not to be a “search” does violence to the concept of the Fourth Amendment as a protection of the privacy of the citizenry against unwarranted invasion by government officials. As noted in Terry v. Ohio, 392 U.S. 1, 18 n. 15, 88 S.Ct. 1868, 1878, 20 L.Ed.2d 889 (1968):

In our view the sounder course is to recognize that the Fourth Amendment governs all intrusions by agents of the public upon personal security, and to make the scope of the particular intrusion, in light of all the exigencies of the case, a central element in the analysis of reasonableness. * * * This seems preferable to an approach which attributes too much significance to an overly technical definition of “search” * * *.

See also, Camara v. Municipal Court, 387 U.S. 523, 530, 87 S.Ct. 1727, 1732, 18 L.Ed.2d 930 (1967):

It is surely anomalous to say that the individual and his private property are fully protected by the Fourth Amendment only when the individual is suspected of criminal behavior.

The Supreme Court has not decided whether an inventory procedure is a search. In Cady v. Dombrowski, supra, a footnote to the majority opinion noted the question and stated it would not decide the issue as petitioner had conceded the intrusion constituted a search. Harris v. United States, supra, indicates that it would be regarded as a search. The police procedure involved in this case, be it denominated an “inventory” or a “search,” involves a substantial invasion of the owner’s privacy. To suggest that the exploration of the owner’s property by the police, merely because it happens to be in the custody of the police is not a search would substantially erode Fourth Amendment protections. “The word ‘automobile’ is not a talisman in whose presence the Fourth Amendment fades away and disappears.” Coolidge v. New Hampshire, 403 U.S. 443, 461-462, 91 S.Ct. 2022, 2035, 29 L. Ed.2d 564 (1971). The operation or possession of an automobile does not destroy a person’s right to keep property contained therein free from unreasonable searches and seizures, even though we realize this interest need not and has not been given the same protection as property contained within a dwelling. We therefore hold that the police inventory procedure herein utilized is a search, subject to the requirement of reasonableness, within the meaning of the Fourth Amendment.

The starting point for any analysis of the reasonableness of the search involved here must be the Fourth Amendment, which provides:

The'right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.

Warrantless searches are per se unreasonable except for a few well-delineated exceptions. Katz v. United States, 389 U.S. 347, 357, 88 S.Ct. 507, 19 L. Ed.2d 576 (1967). The automobile has, however, been treated somewhat differently than other types of property; “for purposes of the Fourth Amendment there is a constitutional difference between houses and cars.” Chambers v. Maroney, 399 U.S. 42, 52, 90 S.Ct. 1975, 1982, 26 L.Ed.2d 419 (1970). The distinctions stem from both the highly mobile character of the automobile and the fact that, “the extensive, and often noncriminal contact with automobiles * * * wjQi brjng ioca] officials in ‘plain view’ of evidence, fruits, or instrumentalities of a crime, or contraband.” Cady v. Dombrowski, supra at 442 of 413 U.S., at 2528 of 93 S.Ct.

The standard for testing the validity of a search of a motor vehicle is whether the search was reasonable under all circumstances. Preston v. United States, supra at 367 of 376 U.S., 84 S.Ct. 881. When dealing with automobile searches, two exceptions to the warrant requirement have received general recognition: (1) a search incident to a valid arrest, Preston v. United States, supra; Coolidge v. New Hampshire, supra and (2) a right to search when there is probable cause to believe that the vehicle is carrying contraband or fruits or instrumentalities of a crime. Brinegar v. United States, 338 U.S. 160, 69 S.Ct. 1302, 93 L.Ed. 1879 (1949); Carroll v. United States, 267 U.S. 132, 45 S.Ct. 280, 69 L.Ed. 543 (1925). When determining the legality of an automobile search, a court must determine its reasonableness under all the circumstances presented; a search which is determined to be reasonable will not be held invalid for the failure to obtain a warrant, even if it would have been practical to do so. Cooper v. California, supra at 62 of 386 U.S., 87 S.Ct. 788.

Mindful of the foregoing general principles, we turn to the determination of the reasonableness of the inventory search in this case. The Fifth Circuit has considered the question of inventory searches of automobiles in a line of cases beginning with Williams v. United States, 412 F.2d 729 (5th Cir. 1969). In Williams, the defendant had been arrested for vagrancy. A search of the trunk of a car, in which the defendant asserted a possessory interest, led to the discovery of blank money orders, two check writing machines, and a revolver which were admitted at his federal trial on Dyer Act charges. The court held that the evidence must be suppressed. Faced with the argument that there was a general police policy to search all impounded cars, the court said:

In fact, the reason given for the search — that the police searched all impounded cars — was so vague that it could not be specifically related to anything and could not justify any warrantless search. * * * This policy of making a general search was not specifically related to the reason the car was impounded and, as we interpret the cases, will not pass muster.

412 F.2d at 735.

In the next Fifth Circuit ease, United States v. Boyd, 436 F.2d 1203 (5th Cir. 1971), the defendant was arrested after a chase and collision which wrecked his vehicle. During the course of a search a large quantity of stolen money orders was found. The court refused to order suppression, finding probable cause to search the vehicle, and holding: “[ejvidence discovered as a result of this necessary inventory was therefore admissible at the defendant’s trial.” 436 F.2d at 1205. Three months later, in United States v. Pennington, 441 F.2d 249 (5th Cir. 1971), the court declined to order suppression of a pistol discovered in the glove compartment of an automobile during an inventory search. The defendant had been arrested on reckless driving charges. It reasoned:

Personal effects lawfully contained within lawfully impounded automobiles must be protected for the benefit of the owners. Officers cannot send property off in the custody of others without knowing what is due to be returned. The only reasonable method for the prevention of such an occurrence after a valid arrest necessitating the detention of the automobile is to inventory contents and take receipts from the person who is thereafter to be responsible. That was clearly the real purpose of the inventory here undertaken, which uncovered the pistol.

441 F.2d at 252.

The latest Fifth Circuit case is United States v. Kelehar, 470 F.2d 176 (5th Cir. 1972). The defendant was arrested on outstanding misdemeanor traffic warrants, although he was being questioned regarding suspected counterfeit money. An inventory search of his car turned up evidence used against him in a subsequent counterfeiting prosecution. The court validated the inventory search, concluding:

The subsequent search of defendant’s car was in compliance with standard inventory procedure, fulfilling the two-fold purpose of protecting the defendant’s property and safeguarding the police from groundless claims for “lost” possessions.

470 F.2d at 178.

Neither Boyd, Pennington, nor Kelehar mentioned the prior decision in United States v. Williams, supra Nor do they appear to have given consideration to the scope of the intrusion involved in the particular cases as measured by the exigencies of the situation. Rather, they appear to weigh heavily the asserted need to inventory to the exclusion of Fourth Amendment considerations. The Fourth Amendment requires courts to “focus upon the governmental interest which allegedly justifies official intrusion upon the constitutionally protected interests of private citizens.” Camara v. Municipal Court, supra at 534-535 of 387 U.S., at 1734 of 87 S.Ct.

This approach, of necessity, requires a balancing of the need to search in a particular case against the scope of the particular intrusion.

The Ninth Circuit is the only other circuit to have considered the question. In United States v. Mitchell, 458 F.2d 960 (9th Cir. 1972), the defendant was arrested for speeding. A patrolman was instructed to take his car to the impounding lot. While driving the car to the lot, the officer observed a partially opened sample ease on the floor, and apparently valuable watches on the seat and floor around the case. After arriving at the lot, and in the course of placing the loose watches in the case, he noticed a weapon in the case. The admission of this weapon at trial for possession of a weapon by a convicted felon was upheld. The court said:

Here, there was arguably no search; and, if there was, it was a reasonable effort to safeguard the property of the owner of the vehicle and the interest of the city in protecting itself against false claims.

458 F.2d at 963.

However, the court made it clear that it was not considering the question of whether evidence taken during a search of a closed briefcase or locked trunk would be admissible. Mitchell, supra at 962. It seems clear that the seizure in Mitchell can be justified by Harris v. United States, supra. When reasonable measures are taken for the protection of the ear itself, and evidence falls into plain view during the course of these measures, a seizure of that evidence will not be unreasonable under the Fourth Amendment. There was a strong dissent directed to the inventory search issue in which it was reasoned:

To the extent that such inventories are allowed, the privacy of drivers is sacrificed. Rights are accorded to the police while, at the same time, more fundamental rights are withdrawn from others. Government interests, vis-a-vis those of our citizens, are not necessarily supreme.

458 F.2d at 965.

The reasoning of the cases upholding inventory searches has been, except where not calling the procedure a search, that the police procedure is a reasonable one to protect the valuable property of an accused while in custody and to protect the police departments from groundless claims for “lost” property. The soundness of this conclusion has been questioned.

Moreover, such a conclusion does not seem adequate to justify the substantial invasion of Fourth Amendment protections involved here. The essential test of the validity of a search is reasonableness, yet the standard of reasonableness must be evolved in light of the Fourth Amendment, not in light of what our view of reasonable police procedures might be. In addressing itself to a contention that it was reasonable to search an entire house without a warrant when a suspect is arrested in the house, the Supreme Court said in Chimel v. California, 395 U.S. 752, 764-765, 89 S.Ct. 2034, 2041, 23 L.Ed.2d 685 (1969) :

But that-argument is founded on little more than a subjective view regarding the acceptability of certain sorts of police conduct, and not on considerations relevant to Fourth Amendment interests. Under such an uneonfined analysis, Fourth Amendment protection in this area would reach the evaporation point.

We think this is a persuasive refutation of the Government’s argument that because it is a “reasonable” police procedure it should be upheld under the Fourth Amendment. Obviously the police have an interest in safeguarding themselves against groundless claims. Just as obviously, and more importantly in terms of the Fourth Amendment, owners and operators of motor vehicles have an interest in safeguarding their possessions from unreasonable police intrusions. A rule that upon a showing of a legitimate governmental interest, the constitutional protections of citizens must give way, would eliminate those protections in the very situations for which they were intended. For the police practice considered here to be found reasonable under the Fourth Amendment, absent a warrant or falling within a recognized exception to the warrant requirement, there must be a minimal interference with the individual’s protected rights. A police duty to safeguard the owner’s property does not automatically give the police the right to search.

“[L] awful custody of an automobile does not of itself dispense with constitutional requirements of searches thereafter made of it,” * * * the reason for and the nature of the custody may constitutionally justify the search.

Cooper v. California, supra at 61 of 386 U.S., at 791 of 87 S.Ct.

It is unnecessary for us to determine all the reasons for, and natures of police custody that might justify a search; here the only justification for the search is bare police custody of the vehicle. While police custody may justify reasonable measures to protect the vehicle itself (i. e., rolling up the windows and locking the doors), or property within plain view in the automobile, such reasonable protective measures do not extend to breaking into a locked trunk. We find ourselves in agreement with the position taken by the California Supreme Court in addressing the contention that the inventory procedures are necessary and reasonable:

This contention is rebutted by recognition of the vehicle owner’s countervailing interest in maintaining the privacy of his personal effects and preventing anyone, including the police, from searching suitcases, and other closed containers and areas in his automobile at the time the police lawfully remove it to storage. In weighing the necessity of the inventory search as protection of the owner’s property against the owner’s rights under the Fourth Amendment, we observe that items of value left in an automobile to be stored by the police may be adequately protected merely by rolling up the windows, locking the vehicle doors and returning the keys to the owner. The owner himself, if required to leave his car temporarily, could do no more to protect his property.

Mozzetti v. Superior Court, 94 Cal.Rptr. at 417, 484 P.2d at 89; accord Boulet v. State, 495 P.2d at 509.

It is not as obvious to us, as it appears to be to some courts, why the inventory procedure offers the police any more protection against false claims than would a standard policy of locking the car arid returning the keys to the owner; or of allowing the owner to make arrangements himself for the removal and storage of his vehicle.

We agree with the District Court that the search of the automobile and seizure of the revolver was unreasonable. It was not justified by a warrant or any exception to the warrant requirement, nor do we wish to create an exception • for what might be called “searches incident to police custody and control.” If such an exception is to be created, we feel that it should be done by the Supreme Court. In so holding, we do not formulate a rule that every inventory search is per se unreasonable. However, we do think that the fact such a search is made pursuant to a police regulation should have no bearing in determining whether the search is reasonable under all circumstances.

Several approaches to the inventory search problem have been suggested. Some of the possible approaches, as already noted in this opinion, do not properly focus on the considerations important in this area. One possible approach would be to declare all inventory searches reasonable. This would not comport with our view of the Fourth Amendment protections against unreasonable searches and seizures. Another, as suggested in Mayfield v. United States, 276 A.2d 123 (D.C.App.1971), and noted approvingly by Judge Ely in his dissent in United States v. Mitchell, supra at 966 of 458 F.2d, would be to allow the police to inventory, but require suppression of any evidence obtained as a result of the inventory. Such an approaclf, while perhaps possessing some appeal, conflicts with the underlying rationale of the Fourth Amendment. It is the search and seizure itself which must be determined reasonable, not the subsequent use of evidence obtained to secure conviction of a crime. This approach would abandon the Fourth Amendment as a protection against invasion of privacy by government officials.

Another approach, which we consider but do not adopt, would be to declare all inventory searches unreasonable. Just as we do not view all inventory searches as reasonable, to enunciate a rule holding them all unreasonable would often ignore legitimate reasons that could exist in particular cases to uphold an inventory search.

We think the proper approach in this area is to assess the reasonableness of the police conduct in light of all the circumstances of the case, without giving effect to the presence or absence of a police regulation. This approach does not have the surety of a rule declaring all inventory searches to be reasonable or unreasonable, and must to some extent leave law enforcement officials with some uncertainty as to what will be considered reasonable or unreasonable. This, however, appears to be a fact of life when dealing with Fourth Amendment problems in a variety of contexts. When unsure as to the legality of their contemplated conduct, it is always open to the police to attempt to secure a warrant in order to have a prior judicial determination of the reasonableness of their proposed conduct, though in many instances the exigencies of the situation may preclude such a course. We do not believe it possible for this court to settle this area of the law. We do think, however, that it should only be in the atypical case that police officers would find it necessary to conduct a general inventory search of an impounded vehicle. The owner or operator of a vehicle may be able to take reasonable steps to safeguard his property at the time of arrest, thus obviating the necessity of impoundment in that instance, unless, of course, the automobile has been impounded as evidence, or pursuant to a forfeiture statute. If the impounding is done for the stated reason, the protection of the owner’s property, it is only reasonable that the owner be allowed to choose whether or not he wishes his car impounded. In cases where the owner or operator cannot make his wishes known, whether because of incapacity or absence (i. e., a parking violation), in most instances the property would be adequately safeguarded by rolling up the windows and locking the doors, subject, of course, to reasonable steps to safeguard property in plain view within the automobile. We think such a standard procedure would insure as well as an inventory protection against groundless claims for lost property. In the instant case, it is hard to see, when the car was locked and the windows rolled up at the time it was impounded, how the property is better safeguarded by a breaking ■into the car and locked trunk to inventory. In many cases, the value of the property “safeguarded” by these actions would be less than the damage caused to the automobile by these “protective” measures.

The ease before us is not the atypical case that would support an inventory search. No justification, except police custody of the vehicle, has been advanced or is supportable on the record to validate the warrantless search of the locked trunk of the vehicle. The search was therefore unreasonable. The judgment of the District Court suppressing the revolver found during the search is affirmed.

      . The United States District Court for the District of South Dakota, the Honorable Axel J. Beck presided. The Decision and Order of the District Court is reported at 355 F.Supp. 101 (D.S.D.1973).

      . The regulation in effect at the time of defendant’s arrest reads as follows:
      Since the Aberdeen Polibe Department is directly responsible for all personal property seized, impounded and taken under our control, it is necessary for us to take reasonable care to guarantee its safe return to its proper owner. As the Police Department is liable for loss or theft of this personal property it becomes necessary for us to inventory the property in order to protect the Police Department and the City of Aberdeen against any false claims for loss or theft.
      When the Operator of a vehicle is arrested, his vehicle shall be driven or towed to the Police Department. Those items considered “valuables” shall be removed, inventoried and placed in the property room for safe keeping. This shall include items not attached to the vehicle and are practical in size, weight and quantity to be so removed and stored.

      . See, United States v. Kelehar, 470 F.2d 176 (5th Cir. 1972) ; United States v. Mitchell, 458 F.2d 960 (9th Cir. 1972) ; United States v. Pennington, 441 F.2d 249 (5th Cir.), cert, denied, 404 U.S. 854, 92 S. Ct. 97, 30 L.Ed.2d 94 (1971) ; United States v. Boyd, 436 F.2d 1203 (5th Cir. 1971) ; People v. Sullivan, 29 N.Y.2d 69, 323 N.Y.S. 2d 945, 272 N.E.2d 464 (1971) ; Cabbler v. Commonwealth, 212 Va. 520, 184 S.E.2d 781 (1971), cert, denied, 405 U.S. 1073, 92 S.Ct. 1501, 31 L.Ed.2d 807 (1972) ; State v. Wallen, 185 Neb. 44, 173 N.W.2d 372, cert, denied, 399 U.S. 912, 90 S.Ct. 2211, 26 L.Ed.2d 568 (1970) ; State v. Criscola, 21 Utah 2d 272, 444 P.2d 517 (1968) ; State v. Montague, 73 Wash.2d 381, 438 P.2d 571 (1968) ; Heffley v. State, 83 Nev. 100, 423 P.2d 666 (1967) ; St. Clair v. State, 1 Md.App. 605, 323 A.2d 565 (1967).

      . See, Williams v. United States, 412 F.2d 729 (5tli Cir. 1969) ; Dodge v. Turner, 274 F.Supp. 285 (D.Utah 1967) ; Boulet v. State, 17 Ariz.App. 64, 495 P.2d 504 (1972) ; Mozzetti v. Superior Court, 4 Cal.3d 699, 94 Cal.Rptr. 412, 484 P.2d 84 (1971) (overruling prior California decisions to the contrary) ; Mayfield v. United States, 276 A.2d 123 (D.C.App.1971). For a more extended discussion of the cases in this area see Annot., 48 A.L.R.3d 537 (1973).

      . Cooper v. California, 386 U.S. 58, 59-60, 87 S.Ct. 788, 17 L.Ed.2d 730 (1967) ; Cady v. Dombrowski, supra at 433 of 413 U.S., 93 S.Ct. 2523.

      . “The adraissability of evidence found as a result of a search under the police regulation is not presented by this case.” 390 U. S. at 236, 88 S.Ct. at 993. (emphasis supplied) .

      . In United States v. Colbert, 474 F.2d 174 (5th Cir., en banc 1973), Williams was stated to no longer be viable authority in the Fifth Circuit on the issue of standing to challenge a search and seizure. On the issue of inventory searches it has probably been sub silentio overruled by the later cases noted in this opinion.

      . See e. g., United States v. Kelehar, supra at 178 of 470 F.2d; State v. Montague, 438 P.2d at 574; State v. Wallen, 173 N.W.2d at 374.

      . Boulet v. State, 495 P.2d at 508-509; Mozzetti v. Superior Court, 94 Cal.Rptr. at 417-418, 484 P.2d at 89-90. See also Szwaj-kowski, The Aftermath of Cooper v. California, 1968 U.Ill.L.F. 401, 407-408 (1968) ; Nelson, Chimel v. California, A Potential Roadblock to Vehicle Searches; 17 U.C.L.A. L.Rev. 626, 642 (1970).

      . “Just as a search authorized by state law may be an unreasonable one under that amendment, so may a search not. expressly authorized by state law be justified as a constitutionally reasonable one.” Cooper v. California, supra at 61 of 386 U.S., at 790 of 87 S.Ct.
      We think the same reasoning is equally applicable to a search made pursuant to a police department regulation.

      . See, Miles and Wefing, The Automobile Search and the Fourth Amendment: A Troubled Relationship, 4 Seton Hall L.Rev. 105 (1972) ; Nelson, supra n. 9; Szwajkowski, supra n. 9; Comment, Police Inventories of the Contents of Vehicles and the Exclusionary Rule, 29 Wash. & Lee L.Rev. 197 (1972) ; Comment, The Inventory Search of an Impounded Vehicle, 48 Chi-Kent L.Rev. 48 (1971) ; Note, The Inventory Search of An Automobile, 7 U.Rich.L.Rev. 151 (1972).


author: ALFRED T. GOODWIN, Circuit Judge:

text:
    D. Arthur LOWE et al., Appellants, v. UNION OIL COMPANY OF CALIFORNIA, a corporation, et al., Appellees.
    No. 72-1538.
    United States Court of Appeals, Ninth Circuit.
    Nov. 15, 1973.

      Robert E. Krause (argued), Long Beach, Cal., for appellants.
    Edward F. Bradley, Jr., (argued) U. S. Dept. of the Interior.
    ■ Allyn 0. Kreps, Warren Christopher, Girard E. Boudreau, Jr., Los Angeles, Cal., for appellees; O’Melveny & Myers, William E. Westerbeke (argued), Los Angeles, Cal., of counsel.
    Before WRIGHT and GOODWIN, Circuit Judges, and EAST, District Judge.

       The Honorable William G. East, Senior United States District Judge for the District of Oregon, sitting by designation.

   ALFRED T. GOODWIN, Circuit Judge:

This appeal challenges the government’s ownership of the fossil fuel deposits underlying the Outer Continental Shelf off the California coast.

Appellants sued the United States (Department of the Interior) and the four corporate appellees to quiet title, and demanded damages for trespass and conversion, for waste of private oil and gas resources, and for devaluation of mining locations.

Appellants base their claims upon their filing, in early 1968, of forty-one placer mining locations situated in Tract 402, Block 51, North, 65 West, as shown on the Official Outer Continental Shelf Leasing Map 68, of the Channel Islands Area. The district court dismissed the action, ruling that the complaint did not, either in its original or in its amended form, allege a valid claim to any interest in the subsoil or seabed of the Outer Continental Shelf of the United States.

The district court held that:

1. The General Mining Laws never applied to submerged lands.
2. The Mineral Leasing Act of 1920 (41 Stat. 437, 30 U.S.C. § 193) superseded the General Mining Laws with respect to oil and gas.
3. Since 1953, the Outer Continental Shelf Lands Act (43 U.S.C. §§ 1331 et seq.) has provided the sole method by which oil and gas resources are to be disposed of on the Outer Continental Shelf.
4. The United States of America (sued herein as the United States, Department of the Interior) is an indispensable party to the action, and has not consented to be sued herein.
5. The United States, Department of the Interior, is not a suable entity.

Because we dispose of this case on the district court’s third ground, we do not reach the other issues.

Jurisdiction is founded on 28 U.S.C. § 1291 and 28 U.S.C. § 1346(f). Governmental consent to suit is based upon 28 U.S.C. § 2409a(a) For the purposes of this case we will accept the appellants’ theory that the twelve-year statute of limitation did not start running until they filed their so-called locations in 1968. Therefore, we need not decide whether the appellants’ attempt to dismiss the United States from the suit was successful, or alternatively whether the United States would be an indispensable party.

Appellants allege that their placer mining locations were filed pursuant to the General Mining Laws. The General Mining Laws, enacted in 1872 and substantially unchanged to the present, provide, in part:

“Except as otherwise provided, all valuable mineral deposits in lands belonging to the United States, both surveyed and unsurveyed, shall be free and open to exploration and purchase * * * ” 30 U.S.C. § 22.

The Supreme Court has held that the “except as otherwise provided” clause is satisfied when there is another, more specific, statute which provides for the disposition of certain lands and the mineral deposits thereon. In Oklahoma v. Texas, 258 U.S. 574, 42 S.Ct. 406, 66 L. Ed. 771 (1921), the Court held:

“ * * Only where the United States has indicated that the lands are held for disposal under the land laws does the section apply; and it never applies where the United States directs that the disposal be only under other laws.” 258 U.S. at 600, 42 S.Ct. at 416.

It is obvious that the United States has “otherwise provided” in connection with the Outer Continental Shelf. In 1953, Congress enacted the Outer Continental Shelf Lands Act, 43 U.S.C. § 1331 et seq. That act, inter alia, asserted United States’ ownership of and jurisdiction over minerals in and under the Outer Continental Shelf, extended the Constitution and laws of the United States to the shelf lands, and established an exclusive system of mineral leasing on the Outer Continental Shelf. The purpose of the Lands Act was to define a body of law applicable to the seabed of, subsoil of, and fixed structures on the Outer Continental Shelf. Rodrigue v. Aetna Casualty & Surety Co., 395 U.S. 352, 89 S.Ct. 1835, 23 L.Ed.2d 360 (1969).

The Lands Act specifically provided that “mineral leases on the outer Continental Shelf shall be maintained or issued only under the provisions of this subchapter.” 43 U.S.C. § 1333(a)(1). Section 1331(c) defines the term “mineral lease” as “any form of authorization for the exploration for, or development or removal of deposits of, oil, gas, or other minerals * * Furthermore, § 1337 established a detailed bidding procedure pursuant to which the Secretary of the interior may grant leases. In light of these clear expressions of a congressional intent to provide an exclusive procedure for acquiring mineral interests in the Outer Continental Shelf, we hold that appellants’ claims based upon their purported placer mining locations filed under the General Mining Laws are invalid.

Accordingly, the district court’s dismissal of the complaint is affirmed.

      . “The district courts shall have exclusive original jurisdiction of civil actions under section 2409a to quiet title to an estate or interest in real property in which an interest is claimed by the United States.” 28 U. S.O. § 1346(f) (Supp.1972).

      . “The United States may be named as a ■party defendant in a civil action under this section to adjudicate a disputed title to real property in which the United States claims an interest, other than a security interest or water rights * * *,” 28 U.S.C. § 2409a (a) (Supp.1972).

      . “Any civil action under this section shall be barred unless it is commenced within twelve years of the date upon which it accrued. Such action shall be deemed to have accrued on the date the plaintiff or his predecessor in interest knew or should have known of the claim of the United States.” 28 U.S.C. § 2409a(f) (Supp.1972).

      . Plaintiffs’ original complaint was filed on February 2, 1971. By Stipulation dated March 15, 1971, plaintiffs were allowed to amend their complaint. On March 19, 1971, the United States moved to dismiss the cause of action and for summary judgment in response to the plaintiffs’ original complaint. On March ' 24, 1971, the district court ordered plaintiffs’ amended complaint to be filed retroactively as of March 15, 1971. On March 30, 1971, plaintiffs filed notices of dismissal as to the United States, Department of Interior. Subsequently the United States and all other defendants filed motions to dismiss the cause of action with prejudice or for summary judgment in answer to the plaintiffs’ first amended complaint.


author: FIELD, Circuit Judge:

text:
    The DUPLAN CORPORATION, Appellee, v. MOULINAGE et RETORDERIE de CHAVANOZ, Appellant, Deering Milliken, Inc., et al., Defendants.
    No. 73-1618.
    United States Court of Appeals, Fourth Circuit.
    Argued June 5, 1973.
    Decided Oct 23, 1973.
    Jay Greenfield, New York City (Butler, Means, Evins & Browne, Spartanburg, S. C., Paul, Weiss, Rifkin, Wharton & Garrison, Morgan, Finnegan, Durham & Pine, Simon H. Rifkind, New York City, Thomas A. Evins, Spartanburg, S. C., and Robert S. Smith, New York City, on brief), for appellant.
    Fletcher C. Mann and O. G. Calhoun, Jr., Greenville, S. C. (Allan Trumbull on brief), for appellee.

      Before BRYAN, Senior Circuit Judge, and FIELD and WIDENER, Circuit Judges.
   FIELD, Circuit Judge:

We entertained this appeal upon the narrow question whether upon the termination of litigation the work product documents prepared incident thereto lose the qualified immunity extended to them under Rule 26(b)(3), Federal Rules of Civil Procedure, and become freely discoverable in subsequent and unrelated litigation.

In this multidistrict patent-antitrust proceeding, resolution of this question is of vital importance with respect both to depositions and requests for production of documents. The district judge initially concluded “that once the privilege attaches it remains regardless, of the litigation in which discovery is sought.” However, in the course of the extensive discovery proceedings he reconsidered his position and concluded “that (1) when a case in litigation is finally terminated; (2) by either a decision of the court or by settlement among the parties; (3) the work product privilege is also terminated ; and (4) the work product of attorneys in the prior litigation is therefore subject to discovery in subsequent litigation.” Recognizing the importance of his ruling the district judge certified his order for interlocutory consideration pursuant to 28 U.S.C. § 1292(b) and we granted the appeal. We disagree with the conclusion of the district judge and reverse.

From the time the Federal Rules were first adopted one of the most litigated questions relative to the scope of discovery has been the extent to which a party may obtain disclosure and inspection of the documents and information developed during the course of an opponent’s preparation for trial. As a result of the flood of inconsistent decisions in this area, in June of 1946 the Advisory Committee on Rules proposed an amendment to Rule 30(b). The Supreme Court did not adopt the proposed amendment but dealt with the problem in the landmark case of Hickman v. Taylor, 329 U.S. 495, 67 S.Ct. 385, 91 L.Ed. 451 (1947). In Hickman the Court recognized a qualified immunity for what it characterized as the “work product of the lawyer” and held that it was discoverable only upon a substantial showing of “necessity or justification.” Unfortunately, in the succeeding years the. courts failed to apply the principles of Hickman in a definitive or uniform manner, and one court went so far as to state that the decision had opened a veritable “Pandora’s box.”

With the decisions of the district courts going off in different directions, the Advisory Committee once again turned its attention to the troublesome subject of work product. In a preliminary draft in 1967, the Committee suggested á new Rule 26(b)(3) defining work product and allowing discovery thereof “only upon a showing of good cause therefor.” The proposal was roundly criticized especially by those who felt that the test of “good cause” would not provide sufficient protection for work product material, and it was suggested that the “badly tarnished good cause test of Rule 34” would lower the barrier set in Hickman. See Freund, Work Product, 1968, 45 F.R.D. 493, 495. Responsive to this widespread criticism the proposal was altered and finally cast in the form in which it was adopted by the Supreme Court in 1970. It is generally conceded that the new Rule reflects the rationale of Hickman, and Professor Wright characterizes it as “an accurate codification of the doctrine announced in the Hickman case * *

There is, of course, nothing in the Rule itself that suggests a specific answer to the question before us, nor is there any indication in the Advisory Committee Note to Rule 26(b)(3) that the Committee gave any particular thought to this problem. However, since the Rule tracks Hickman the answer must, primarily, be gleaned from that decision.

The theme of Hickman is succinctly stated in Mr. Justice Murphy’s prefatory statement:

“Examination into a person’s files and records, including those resulting from the professional activities of an attorney, must be judged with care. It is not without reason that various safeguards have been established to preclude unwarranted excursions into -the privacy of a man’s work. At the same time, public policy supports reasonable and necessary inquiries. Properly to balance these competing interests is a delicate and difficult task.” 329 U.S. at 497, 67 S.Ct. 385, at 387, 91 L.Ed. 451.

And disapproval of carte blanche incursions is manifest in the now classic statement:

“Were such materials open to opposing counsel on mere demand, much of what is now put down in writing would remain unwritten. An attorney’s thoughts, heretofore inviolate, would not be his own. Inefficiency, unfairness and sharp practices would inevitably develop in the giving of legal advice and in the preparation of cases for trial. . The effect on the legal profession would be demoralizing. And the interests of the clients and the cause of justice would be poorly served.” 329 U.S. at 511, 67 S.Ct. 385, at 393, 91 L.Ed. 451.

Hicktnan clearly stands for the principle that the integrity of the adversary process must be safeguarded in spite of the desirability of the free interchange of information before trial. Its overriding concern is that the lawyer’s morale be protected as he performs his professional functions in planning litigation and preparing his case. This work product immunity is the embodiment of a policy that a lawyer doing a lawyer’s work in preparation of a case for trial should not be hampered by the knowledge that he might be called upon at any time to hand over the result of his work to an opponent. The concern of the Court for the integrity of the practicing bar was made crystal clear in the trenchant concurrence of Mr. Justice Jackson when he stated that “[t]he primary effect of the practice advocated here would be on the legal profession itself,” and “[t]he real purpose and the probable effect of the practice ordered by the district court would be to put trials on a level even lower than a ‘battle of wits’.” Mr. Justice Jackson then proceeded to point out the practical and undesirable professional consequences that'could result from such a broad concept of the discovery process.

While, of course, the Court in Hickman was addressing itself to material obtained by an attorney incident to the litigation then in progress, the rationale is scarcely less applicable to a case which has been closed than to one which is still being contested. The decision was not in any manner based upon the rights or posture of the litigants visa-vis each other. Such a basis was expressly disavowed. Rather, the thrust of the decision was the qualified protection of the professional effort, confidentiality and activity of an attorney which transcends the rights of-the litigants. This concern was reiterated in the final words of the Hickman opinion:

“We fully appreciate the wide-spread controversy among the members of the legal profession over the problem raised by this case, (footnote omitted) It is a problem that rests on what has been one of the most hazy frontiers of the discovery process. But until some rule or statute definitely prescribes otherwise, we are not justified in permitting discovery in a situation of this nature as a matter of unqualified right. When Rule 26 and the other discovery rules were adopted, this Court and the members of the bar in general certainly did not believe or contemplate that all the files and mental processes of lawyers were thereby opened to the free scrutiny of their adversaries. And we refuse to interpret the rules at this time so as to reach so harsh and unwarranted a result.” 329 U. S. at 514, 67 S.Ct. 385, 395, 91 L.Ed. 451.

This is strong judicial language and we find no indication that the Court intended to confine the protection of the work product to the litigation in which it was prepared or to make it freely discoverable in a subsequent law suit. To so interpret Hickman would in our opinion elide the broad rationale of the Court’s decision. Assuredly, the intrusion upon the attorney and the possibility of the demeaning professional consequences envisioned by Mr. Justice Jackson are just as objectionable in one case as the other. We are well aware of the divergent conclusions reached in similar eases but in all deference we think that those courts which permitted unqualified disclosure misread the basic teaching of Hickman.

On balance, we think the legal profession and the interests of the public aré better served by recognizing the qualified immunity of work product materials in a subsequent case as well as that in which they were prepared, and this in our opinion comports with the statement in Hickman:

“But the general policy against invading the privacy of an attorney’s course of preparation is so well recognized and so essential to an orderly working of our system of legal procedure that a burden rests on the one who would invade that privacy to establish adequate reasons to justify production through a subpoena or court order. That burden, we believe is necessarily implicit in the rules as now constituted.” 329 U.S. at 512, 67 S.Ct. 385, at 394, 91 L.Ed. 451.

Our decision will not in any way frustrate the ends of justice. If the party seeking discovery can demonstrate the substantial need and undue hardship specified in the Rule and recognized in Hickman, the district court will order production. We think it appropriate and desirable that the district judge determine whether a party has made a showing sufficient to justify such an intrusion upon the privacy of an attorney’s files.

The order appealed from will be reversed and we remand to the district court for further consideration consistent with this opinion.

Reversed and remanded.

      . Rule 26(b)(3), Fed.R.Civ.P., reads as follows :

        Trial Preparation: Materials. Subject to the provisions of subdivision (b) (4) of this rule, a party may obtain discovery of documents and tangible things otherwise discoverable under subdivision (b) (1) of this rule and prepared in anticipation of litigation or for trial by or for another party or by or for that other party’s representative (including his attorney, consultant, surety, indemnitor, insurer, or agent) only upon a showing that the party seeking discovery has substantial need of the materials in the preparation of his case and that he is unable without undue hardship to obtain the substantial equivalent of the material by other means. In ordering discovery of such materials when the required showing has been made, the court . shall protect against disclosure of the mental impressions, conclusions, opinions, or legal theories of an attorney or other representative of a party concerning the litigation.

      . It appears to be conceded that the documents claimed by Moulinage et Retorderie de Chavanoz [hereinafter referred to as Chav-anoz] to be work product were generated incident to (1) a series of lawsuits in the early 1960s in which Leesona Corporation claimed that United States patents owned by it were infringed by the sale and operation of machines manufactured by a licensee of Chav-anoz, or (2) a series of proceedings in foreign countries relative to the validity and infringement of foreign counterparts to the Chavanoz patents here in issue. It is further conceded that each of these litigations was terminated prior to the commencement of the present case.
      Counsel for appellant submitted to this court copies of three “illustrative documents,” the first of which appears to be notes of a meeting attended by four representatives of Chavanoz, two French patent counselors, a British solicitor and a patent agent. The document states that the purpose of the meeting was to “discuss the possible mounting of an infringement action against Klinger Manufacturing Co. * * and such litigation was later instituted. The second document is a working draft, including handwritten notes, of a memorandum prepared by Leo Soep, patent counselor for Chavanoz, relative to infringement litigation between Chavanoz and Leesona. The third document is a legal opinion from an attorney specializing in antitrust matters directed to an attorney specializing in patent matters relative to litigation against Leesona Corporation then pending in the District Court of Massachusetts.

      . Report of Proposed Amendments, June, 1946. Reprint, 5 F.R.D. 433, 456.

      . 329 U.S. at 510, 67 S.Ct. 385, 91 L.Ed. 451.

      . Viront v. Wheeling & Lake Erie Ry. Co., 10 F.R.D. 45, 47 (N.D.Ohio 1950).

      . Preliminary Draft of Proposed Amendments to Rules of Civil Procedure relating to Depositions and Discovery, November, 1967. Reprint, 43 F.R.D. 225.

      . 8 Wright & Miller, Federal Practice and Procedure, p. 193.

      . See Federal Rules of Civil Procedure, Amended Rules, March 30, 1970. Reprint, 48 F.R.D. 459, 497.

        See Radiant Burners, Inc. v. American Gas Association, 207 F.Supp. 771, 776 (N.D.Ill. 1962).

      . Hickman v. Taylor, supra, 329 U.S. at 514, 67 S.Ct. 385, 395, 91 L.Ed. 451.

      . Id. 329 U.S. 495 at 516, 67 S.Ct. 385, at 396, 91 L.Ed. 451.

      . In Hickman the Court recognized that the materials sought fell outside the scope of the attorney client privilege. That privilege is for the protection and benefit of the client and not of the attorney. On the other hand, the attorney “work product” privilege is traditionally a privilege of the attorney and not of the client, and it has been held that waiver of the attorney-client privilege does not con-stituté a waiver of an objection that the information falls within the qualified immunity from discovery provided by the work product rule. Vilastor-Kent Theatre Corp. v. Brandt, 19 F.R.D. 522 (S.D.N.Y.1956) ; Developments in the Law, Discovery, 1961, 74 Harvard Law Review 940-1044, 45.

      . 329 U.S. at 507, 67 S.Ct. 385, 91 L.Ed. 451.

      . The Court in Hiokman adverted to the English concept of “professional privilege.” 329 U.S., n. 9, p. 510, 67 S.Ct. 385, 91 L.Ed. 451. In England the privilege, which includes all documents prepared by or for counsel in pending or anticipated litigation, is recognized in subsequent litigation as well as the law suit in which it is prepared. Lord Justice Bowen in Lyell v. Kennedy, 27 Ch.Div. 1 (C.A.1884), stated the basis of the English privilege:
      “Then comes the point as to documents, and as to the documents, I agree with everything that has been said by the Lord Justice. We are not dealing now with documents which the XJarty has procured himself; we are dealing with documents which have been procured at the instigation of a solicitor; and, bearing in mind the rule of privilege which the law gives in respect of information obtained by a solicitor, it seems to me we cannot make the order asked for by Mr. MacClymont without doing very serious injustice in this case. A collection of records may be the result of professional knowledge, research and skill, just as a collection of curiosities is the result of the skill and knowledge of the antiquarian or virtuoso, and even if the solicitor has employed others to obtain them, it is his knowledge and judgment which have probably indicated the source from which they could be obtained. It is his mind, if that be so, which has selected the materials, and those materials, when chosen, seem to me to represent the result of his professional care and skill, and you cannot have disclosure of them without asking for the key to the labour which the solicitor has bestowed in obtaining them.”
      In Pearce v. Foster, 15 Q.B. Div. 114 (C.A. 1885) the documents sought had been prepared for use in an action which did not ultimately proceed. The court recognized that the documents fell within the scope of the privilege delineated in Lyell v. Kennedy, supra, and went on to state at page 119:
      “Then the question arises whether, assuming them to be within this privilege, the privilege is any the less applicable because in the present case the inquiries with regard to the documents are being made in an action other than that in regard to which they were originally brought into existence. I do not think, if they were privileged in relation to the first action, that the privilege ceases in relation to another action. The case of Bullock v. Corry (1) seems to me to be an authority for that conclusion, and the judgment of Cockburn, O. J., in that case, lays down a most valuable principle on this subject. There the documents in question were being inquired about in a different action from that in relation to which they originally came into existence, and the Lord Chief Justice said: ‘The privilege which attaches by the invariable practice of our Courts to communications between solicitor and client ought to be carefully preserved. In my opinion the rule is, once privileged always privileged. This will apply a fortiori where the succeeding action is substantially the same as that in which the documents were used.’ ”

      . See Tobacco & Allied Stocks, Inc. v. Transameriea Corp., 16 F.R.D. 537 (D.Del.1954) ; Hanover Shoe, Inc. v. United Shoe Machinery Corp., 207 F.Supp. 407 (M.D.Pa.1962) ; Honeywell, Inc. v. Piper Aircraft Corp., 50 F.R.D. 117 (M.D.Pa.1970). Cf. Insurance Company of North America v. Union Carbide Corp., 35 F.R.D. 520 (D.Colo.1964) ; LaRocca v. State Farm Mutual Automobile Insurance Co., 47 F.R.D. 278 (W.D.Pa.1969). See also Republic Gear Co. v. Borg Warner Corp., 381 F.2d 551 (2 Cir. 1967).
      In some cases the courts have held that documents prepared for one case are protected in a second case only if the two cases are “closely related.” In our opinion to dispose of this delicate and important question by such a technical touchstone is incompatible with the essential basis of the Hiclcman decision.

      . In their brief counsel for appellee contend that they had satisfied the “substantial need” and “undue hardship” requirements of Rule 26(b)(3). This issue is not properly before us on this interlocutory appeal and we express no opinion on this phase of the controversy. This, of course, is a matter which properly should be considered and determined by the district judge upon remand.

      . See 8 Wright & Miller, Federal Practice and Procedure, p. 202.