author: WEICK, Circuit Judge.

text:
    LIFE TIME DOORS, INCORPORATED, Plaintiff-Appellant, v. WALLED LAKE DOOR COMPANY, Defendant-Appellee.
    No. 73-2201.
    United States Court of Appeals, Sixth Circuit.
    Nov. 15, 1974.

      Allen M. Krass, Birmingham, Mich., for plaintiff-appellant.
    William H. Griffith, Charles R. Rutherford, Whittemore, Huebert & Belknap, Detroit, Mich., for defendant-appellee.
    Before PHILLIPS, Chief Judge, and WEICK and ENGEL, Circuit Judges.
   WEICK, Circuit Judge.

Lifetime Doors, Inc.. (Lifetime), a Delaware corporation, has appealed to this Court from an order of the District Court adjudging that the Gilbert U.S. Patent No. 3,168,763 on a “Solid Core Door” was invalid and not infringed by the door manufactured by Walled Lake Door Company (Walled Lake).

The patent in suit was issued on February 9, 1965 to Lifetime Door Co. of Mich., a corporation of Michigan, on an application filed by the inventor, William B. Gilbert, on February 9, 1962, which patent was assigned by him to the corporation. On January 20, 1969 Lifetime Door Co. of Mich, assigned the patent back to Gilbert, and he became the sole owner of the patent.

Shortly after the issue of the patent Gilbert filed a Reissue Patent Application in the Patent Office, seeking to obtain additional claims. The Examiner in the Patent Office rejected all of the claims in the Reissue Application, including the original claims allowed in the patent, on the ground that the claimed invention was not patentable in view of the prior art.

Gilbert then appealed to the Board of Patent Appeals, which sustained the final rejection by the Examiner on the ground that the additional claims as well as the original claims of the patent were not patentable in view of the prior art patents.

Gilbert did not exercise his rights to appeal therefrom, either to the Court of Customs and Patent Appeals or to the United States District Court for the District of Columbia. He abandoned the reissue patent and decided to stand on the original claims of his patent.

Complaint for infringement was then filed in the District Court for the Eastern District of Michigan, by Lifetime against Walled Lake. An Amended Complaint was filed adding Gilbert, the owner of the patent, as an additional plaintiff, and alleging that Lifetime had been granted an exclusive license. Extensive discovery was pursued. The case was tried before the District Judge; more than one hundred exhibits were offered, which included the prior art patents; expert witnesses testified for the parties.

The District Court considered the case carefully. It adopted 119 findings of fact and 13 conclusions of law, in holding that the patent was invalid and was not infringed. The Court made the following finding as Lifetime in the patent: to the interest of

(2) Plaintiff, Lifetime Doors, Inc., which has an oral license under the patent in suit, is a Delaware corporation wholly owned by William P. Gilbert and sells wooden doors to the trade. The oral license is terminable at any time by Gilbert and does not bear a royalty.

The following notice of appeal was filed in the District Court:

Notice is hereby given that Lifetime Doors, Inc., Plaintiff above named, hereby appeals to the United States Court of Appeals for the Sixth Circuit from the Amended Judgment entered in this action on the first day of August 1973.

The notice of appeal was signed by the attorneys for the plaintiffs.

Walled Lake filed a motion to dismiss the appeal on the ground that Gilbert, the owner of the patent, had not appealed from the judgment of the District Court holding that the patent was invalid and not infringed. Walled Lake contends that a nonexclusive licensee is neither a necessary nor a proper party in an infringement action and therefore has no standing to appeal. We denied the motion to dismiss without prejudice to renewal.

Walled Lake has renewed its motion, and it is a threshold question which we must decide.

It is clear that Gilbert, the owner of the patent, has not appealed. It is too late for him now to appeal. The judgment is therefore res judicata as to Gilbert. The nonexclusive license is now without any force.

It has long been held that a nonexclusive licensee obtains no title to the patent and suit for infringement must be brought only in the name of the owner of the patent. Waterman v. Mackenzie, 138 U.S. 252, 11 S.Ct. 334, 34 L.Ed. 923 (1891).

In Independent Wireless Tel. Co. v. Radio Corp. of America, 269 U.S. 459, 468, 46 S.Ct. 166, 169, 70 L.Ed. 357 (1926), the Court quoted the following language from Littlefield v. Perry, 21 Wall. 205, 22 L.Ed. 577 (1874):

A mere licensee cannot sue strangers who infringe. In such case redress is obtained through or in the name of the patentee or his assignee. To the same effect is Contracting Div.,

A. C. Horn Corp. v. New York Life Ins. Co., 113 F.2d 864, 865 (2d Cir. 1940).

A mere licensee has no right even to be joined in a suit for infringement. Overman Cushion Tire Co. v. Goodyear Tire & Rubber Co., 59 F.2d 998 (2d Cir. 1932), cert. denied, 285 U.S. 545, 52 S.Ct. 395, 76 L.Ed. 937 (1932).

There was not an iota of evidence that Lifetime had an exclusive license, nor any evidence of the license terms and provisions. The only evidence is that it had an oral royalty-free license.

The burden of proof was upon Lifetime to establish that it had an exclusive license, and the terms and provisions of such license. It failed to meet its burden of proof.

Counsel for Lifetime filed an affidavit in response to the motion to dismiss the appeal in which he stated that he had been authorized to file the appeal in behalf of both Lifetime Doors and Gilbert. He further stated:

4. The failure to specifically denominate the Plaintiff Gilbert in the Notice of Appeal was the result of an error and it was the intent of myself, my secretary and my clients to file the Notice on behalf of Gilbert as well as Lifetime Doors, Inc.

It is difficult to understand why Lifetime Doors and not Gilbert was specifically named as giving Notice to Appeal.

Eule 3(c), Federal Eules of Appellate Procedure, specifically provides as to the content of the Notice of Appeal:

The notice of appeal shall specify the party or parties taking the appeal; shall designate the judgment, order or part thereof appealed from; and shall name the court to which the appeal is taken.

The notice of appeal heretofore quoted strictly complied with the rule; the only trouble with it was that it did not specify Gilbert as one of the parties taking the appeal.

Since Gilbert was not named in the notice of appeal he simply did not appeal, and we have no jurisdiction over him.

The controlling case which is on “all fours” with the case at bar is Van Hoose v. Eidson, 450 F.2d 746, 747 (6th Cir. 1971). In that case we held:

We are satisfied that the only appellant in this case is Floyd Van Hoose. Rule 3(c), Rules of Appellate Procedure, requires in part: “The notice of appeal shall specify the party or parties taking the appeal.” The only party specified in the notice of appeal filed in this ease was Floyd Van Hoose. The term “et al” does not inform any other party or any court as to which of the plaintiffs desire to appeal in this ease. This is more than a clerical error. Cook and Sons Equipment, Inc. v. Killen, 277 F.2d 607 (9th Cir. 1960); Penwell v. Newland, 180 F.2d 551 (9th Cir. 1950); 9 Moore’s Federal Practice (2nd Ed. 1970) Section 203.17.

It will be noted that we approved a decision to the same effect in Cook & Sons Equip., Inc. v. Killen, 277 F.2d 607 (9th Cir. 1960).

While we have jurisdiction over Lifetime, since its appeal was timely, it is clear that it has no standing to appeal because only Gilbert can complain of errors alleged to have been committed.

We think it advisable, however, for us to pass upon the merits of the case so that if the Supreme Court takes a different view on the jurisdiction issue it can pass upon the merits of the case without remand to us for that purpose.

I

The solid core door covered by the patent in suit is made up of a plurality of parallel wooden blocks, called cores or slugs, of equal thickness and of varying lengths and widths, and trimmed to a rectangular form. Both surfaces of the slugs are covered with sheets of corrugated cardboard which sheets are adhered to the slugs by adhesives applied to each side of the slugs. The finished slugs are then placed within a rectangular wood door frame. The door frame has a thickness greater than the blocks used in the slug, but less than the thickness of the finished slug including both the blocks and the two sheets of cardboard. The specifications then provide:

Two outer finishing sheets, preferably formed of plywood, are then laminated to the block under pressure so as to abut the surfaces of the frame and compress the slug on both sides. In this manner the plywood sheeting does not contact the blocks of the slug directly but rather only contacts the resilient cardboard. This not only prevents defects in the core from telegraphing through to the outer sheeting but also provides a door having superior sound insulation qualities as a result of the air space within the corrugated board.
The unique construction provides a lower cost door than the conventional technique because of the savings associated with the use of a roughly finished core, as well as insuring a smooth outer finish.

The novelty claimed was the use of the corrugated sheets of cardboard over the wooden blocks. This would place a smooth surface underneath the plywood or outer panels of the door and take care of imperfections in the wooden blocks or in their arrangement, and prevent telegraphing through the door panel. The fact that the corrugated cardboard was compressible would allow for any expansion or contraction of the blocks occasioned by changes in the weather. The claims of the patent are set forth in footnote .

The District Court found that each of the elements used in the Gilbert patent was old in the prior art and that the patent was in a crowded art. Patentability was claimed because of a novel combination of the old elements.

The District Court found fault with the patent specifications for their failure to describe the invention and the manner of making and using it in such clear and concise terms as would enable a person skilled in the art to make and use it, as required by 35 U.S.C. § 112.

Gilbert’s patent contemplated eliminating or reducing telegraphing or the showing through of the wooden blocks forming the core, through the outer panels of the door. This was to be accomplished by placing the compressible sheets of cardboard between the door panels and the core. The specifications, however, limited it to making a pre-compressed core during the manufacture of the door. Once the cardboard has been compressed and glued to the core, the specifications do not indicate how any compressibility would remain. ' It was not necessary to compress the core in order to prevent telegraphing. All that was necessary to prevent telegraphing was the interposition of the cardboard between the door panels and the core.

The patent is completely silent as to whether the cardboard is resilient in the finished door, or indeed how resiliency could be accomplished after the gluing and the compressing.

Moreover, the claims require the panels to compress the core without disclosing how this can be done.

The District Court agreed with the Board of Appeals that Claims 1 to 4, inclusive, were not patentable under 35 U.S.C. § 103, in view of Loetscher Patent 1,911,374 and Pick Patent 3,165,792, and that Claim 4 was invalid in view of Sprague Patent 1,943,701.

In Loetscher Patent 1,911,374 the layer covering the wood core was compressible in the completed door, the layer consisting of soft wood which was compressible.

Gilbert was not the first to solve the problem of preventing telegraphing in a finished door. The evidence disclosed that that problem was recognized and solved in various ways by Loetscher Patent 1,911,374, Pick Patent 3,165,792, Swedish Patent 114,548, German Patent 911,071, British Patents 466,892 and 473,773, and Belgian Patent 489,087.

The District Court found from the evidence that every element of Gilbert’s combination functions in the same manner as in the prior art, with no new interaction between the elements and with no new result, and that everything in the entire combination was old and well known prior to Gilbert’s invention.

The Court further found that any differences between the prior art and Gilbert were either equivalents or obvious.

The Court further found that the door manufactured and sold by Lifetime did not conform to the patent in suit.

The Court also found that Walled Lake’s door was constructed in conformity with the prior art and does not infringe Gilbert’s patent.

We are of the opinion that the findings of fact made by the District Court with respect to the comparison of the patent in suit with the prior art, with respect to the testimony of the expert witnesses, and with respect to infringement are all supported by substantial evidence and are not clearly erroneous. The Court’s interpretation of the patent specifications are correct.

The Court reached the correct conclusion in deciding that the patent in suit was invalid and was not infringed.

Affirmed.

      . 1. A panel construction including: a hollow frame;
      a core having outer dimensions complementary to the inner dimentions of the frame disposed within said frame,

        said core being composed of
      a solid planar rectangular inner member having a thickness less than that of the frame, and
      a pair of compressible rectangular sheets fixed to the opposite faces of the inner member,
      said sheets having such uncompressed thickness sufficient to bring -the total thickness of the core to a dimension which exceeds the thickness of the frame,
      and a pair of outer panels having outer dimensions similar to the frame abutting the faces of the frame and the core so as to compress the core.
      2. The structure of claim 1, in which the core inner member is formed of a plurality of elongated rectangular lumber members having substantially uniform thickness and varying lengths disposed with their axes parallel to one another, the edges of said inner member being uniformly terminated so as to provide outer dimensions complementary to the dimensions of said frame.
      3. A panel construction including: a hollow frame;
      a core having outer dimensions complementary to the inner dimensions of the frame disposed within said frame,
      said core being composed of
      a solid planar rectangular inner member formed of a plurality of elongated lumber sections having similar cross sections and varying lengths disposed with their axes parallel to one another and
      a pair of compressible sheets having outer dimensions complementary to the frame fixed to the faces of the inner member with adhesives so as to form a unitary core, said inner member having a thickness less than that of the frame and said compressible sheets having an uncompressed thickness sufficient to bring the total thickness of the core to a dimension which exceeds the thickness of the frame;
      and a pair of outer panels having outer dimensions similar to the frame abutting the faces of the frame and the core so as to compress the core.
      4. A door panel including:
      a rectangular frame formed of a pair of elongated lumber stiles joined at their extreme ends by a pair of shorter lumber rails, the stiles and rails having a uniform thickness ;
      a slug having outer dimensions which are complementary to the inner dimensions of the frame disposed within the frame, said slug being composed of-
      a rectangular inner member formed of a plurality of elongated rectangular blocks having similar cross-sections and varying lengths disposed with their central axes parallel to one another, and having a thickness equal to the thickness of the blocks, such thickness being less than the thickness of the frame members,
      and a pair of corrugated rectangular cardboard sheets of the same outer dimensions as the inner member laminated to the opposed faces thereof, said sheets having such thickness that the total uncompressed slug thickness is greater than the thickness of the frame;
      and a pair of rectangular plywood panels having outer dimensions similar to the frame laminated to the two faces of the frame and slug in abutting relationship to the frame surfaces so as to compress the cardboard,
      whereby the plywood panels do not directly contact the inner member of the slug.


source: Caselaw Access Project

author: PER CURIAM:

license: Public Domain

text:
    CHIM MING, Appellant, v. Sol MARKS, as District Director of the Immigration and Naturalization Service for the District of New York, and William P. Rogers, as Secretary of State of the United States of America, Appellees. LAM YIM YIM et al., Appellants, v. Sol MARKS, as District Director of the Immigration and Naturalization Service for the District of New York, Appellee.
    Nos. 43, 75, Dockets 74-1280, 74-1281.
    United States Court of Appeals, Second Circuit.
    Argued Sept. 23, 1974.
    Decided Nov. 8, 1974.

      Jules E. Coven, New York City, for appellants.
    Joseph P. Marro, Asst. U. S. Atty. (Paul J. Curran, U. S. Atty., for the Southern District of New York, Gerald A. Rosenberg, Asst. U. S. Atty., of counsel) , for appellees.
    Before LUMBARD, FEINBERG and OAKES, Circuit Judges.
   PER CURIAM:

These consolidated appeals raise essentially the same question: whether appellants, assumed arguendo to be refugees within Article 1 of the 1951 Geneva Convention Relating to the Status of Refugees (the Convention), are entitled to protection by virtue of Article 32. Article 32 of the Convention provides that:

Expulsion
1. The Contracting States shall not expel a refugee lawfully in their territory save on grounds of national security or public order.

Appellants are citizens of the People’s Republic of China who had left Mainland China for Hong Kong several years before coming to the United States. Both are seamen, having Hong Kong seaman’s documents, and were permitted to enter this country only as nonimmi-grant crewmen. As such they were authorized to remain in the United States only for a period not to exceed 29 days under § 252 of the Immigration and Nationality Act, 8 U.S.C. § 1282. Both appellants deserted their ships in the United States and overstayed the 29-day period. Both were apprehended by officers of the Immigration and Naturalization Service, given deportation hearings and were found to be deportable to Hong Kong. Neither appealed the finding. Both remain in the United States.

The United States District Court for the Southern District of New York, Robert L. Carter, Judge, held that appellants were not “lawfully” in the United States under the clear meaning of Arti-ele 32 of the Convention, supported by the history of the treaty, its legislative history in the Senate, court rulings and the plain language of the words in question. Thus Article 32 affords no protection to the appellants, even if they are refugees. We agree with Judge Carter, whose careful opinion below, Chim Ming v. Marks, 367 F.Supp. 673 (S.D.N.Y. 1973), we rely upon and adopt. His opinion in turn finds support in and relies upon Kan Kam Lin v. Rinaldi, 361 F.Supp. 177 (D.N.J.1973), aff’d, 493 F.2d 1229 (3d Cir. 1974) (per curiam), petition for cert. filed, 42 U.S.L.W. 3693 (U.S. May 15, 1974) (No. 73-1710).

Denying the applicability of Article 32 in these cases is also supported by Article 31 of the Convention, relating to refugees unlawfully in the country of refuge, which characterizes such refugees as those persons who “enter or are present in their territory without authorization.” Under Article 31 it is possible that the status of a refugee who has entered illegally the territory of a contracting state may subsequently be regularized. Conversely, the stay of a refugee who has entered in a regular manner may subsequently become unlawful as here, where appellants were admitted for a limited period only. Thus, the only rational interpretation that can be placed upon the term “lawfully in their territory” in Article 32 is one consistent with the definition of unlawfulness in Article 31 as involving the status of being in a nation “without authorization.” Since a nation’s immigration laws provide authorization, one unlawfully in the country is in violation of those laws.

We need only add that Judge Carter’s interpretation of Article 32 by no means makes the treaty a nullity and without benefit to refugees. There is protection under Subsection 2 of Article 31 insofar as it provides that “Contracting States shall allow such refugees a reasonable period and all the necessary facilities to obtain admission into another country.” Under Paragraph 1 of Article 33 of the Convention, moreover, there need be no concern that the United States would return a refugee unlawfully here to a country where the refugee would be persecuted. This savings clause, so to speak, is further supported by the express terms of § 243(h) of the Act, 8 U.S.C. § 1253(h). Section 243(h) provides

The Attorney General is authorized to withhold deportation of any alien within the United States to any country in which in his opinion the alien would be subject to persecution on account of race, religion, or political opinion and for such period of time as he deems to be necessary for such reason.

That an alien may be barred from seeking protection under Article 32 by virtue of his being unlawfully in this country does not prevent him from obtaining relief under available provisions of our immigration laws, including not only § 243(h), but also § 203(a)(7) of the Act, 8 Ü.S.C. § 1153(a)(7), referring to conditional entries.

Judgment affirmed.

      . 19 U.S.T. 6259, T.I.A.S. No. 6577. The Convention was made apjdicable to the United States by virtue of the United Nations Protocol Relating to the Status of Refugees (the Protocol), 19 U.S.T. 6223, T.I.A.S. No. 6577, advised by the United States Senate on October 4, 1968, approved by the President of the United States on October 15, 1968, effective November 1, 1968. Under Article 1 of the Protocol, except with respect to certain technical changes, the states parties to the Protocol undertook “to apply articles 2 to 34 inclusive of the Convention . . .”

      . 1. The Contracting States shall not impose penalties, on account of their illegal entry or presence, on refugees who, coming directly from a territory where their life or freedom was threatened in the sense of article 1, enter or are present in their territory without authorization, provided they present themselves without delay to the authorities and show good cause for their illegal entry or presence.
      2. The Contracting States shall not apply to the movements of such refugees restrictions other than those which are necessary and such restrictions shall only be applied until their status in the country is regularized or they obtain admission into another country. The Contracting States shall allow such refugees a reasonable period and all the necessary facilities to obtain admission into another country.

      . 1. No contracting States shall expel or return (“refouler”) a refugee in any manner whatsoever to the frontiers of territories where his life or freedom would be threatened on account of his race, religion, nationality, membership of a particular social group or political opinion.

      . The Service proposes to return appellants to Hong Kong, and neither claims that he will be persecuted there.

      . Section 203(a)(7), 8 U.S.C. § 1153(a)(7) provides:
      (a) Aliens who are subject to the numerical limitations specified in section 201(a) shall be allotted visas or their conditional entry authorized,' as the case may be, as follows:
      * * * * *
      (7) Conditional entries shall next be made available by the Attorney General, pursuant to such regulations as he may prescribe and in a number not to exceed 6 per centum of the number specified in Section 201(a) (ii), to aliens who satisfy an Immigration and Naturalization Service officer at an examination in any non-Communist or non-Communist-dominated country, (A) that (i) because of persecution or fear of persecution on account of race, religion, or political opinion they have fled (I) from any Communist or Communist-dominated country or area, or (II) from any country within the general area of the Middle East, and (ii) are unable or unwilling to return to such country or area, on account of race, religion, or political opinion, and (iii) are not nationals of the countries or areas in which their application for conditional entry is made;


author: VAN DUSEN, Circuit Judge. JAMES HUNTER, III, Circuit Judge

text:
    Norman BURRIS v. GLOBAL BULK CARRIERS, INC., Appellant, v. LAVINO SHIPPING COMPANY, Third-Party-Defendant.
    No. 74-1120.
    United States Court of Appeals, Third Circuit.
    Argued Sept. 18, 1974.
    Decided Oct. 30, 1974.

      John T. Biezup, and Carl D. Bucholz, 3d, Rawle & Henderson, Philadelphia, Pa., for appellant.
    John P. Penders, Marshall, Dennehey, & Warner, P.A., Philadelphia, Pa., for Lavino Shipping Co., appellee.
    Before VAN DUSEN, HUNTER and WEIS, Circuit Judges.
   OPINION OF THE COURT

VAN DUSEN, Circuit Judge.

This is an appeal by the third-party plaintiff, Global Bulk Carriers, Inc., from a November 19, 1973, judgment in the United States District Court for the Eastern District of Pennsylvania in favor of the third-party defendant, Lavino Shipping Company. On August 4, 1972, a longshoreman, Norman Burris, filed suit against Global for injuries sustained in an accident aboard a ship owned by Global. Global joined Lavino, the stevedoring concern which was the employer of Burris at the time of his accident, as a third-party defendant, claiming, inter alia, counsel fees and litigation expenses. Prior to trial Lavino and Burris settled; pursuant to their agreement, Burris’ suit against Global was dismissed with prejudice. There remained Global’s indemnification claim against Lavino for counsel fees and other litigation expenses incurred by Global. This action went to trial on November 19, 1973, before Judge Luongo, sitting without a jury. Judge Luongo found that Lavino had breached its warranty of workmanlike service when it brought on board the vessel faulty forklift trucks which emitted oil, but he also found that the unevenness in the stow over which the trucks operated in unloading the ship had contributed to the accident. N.T. 31-32. Because Global had failed to establish by a preponderance of the evidence that Lavino’s breach of contract was the sole cause of Burris’ injury, the court entered judgment for the third-party defendant Lavi-no, relying on Gilchrist v. Mitsui Sem-paku K. K., 405 F.2d 763 (3d Cir. 1968). From this judgment Global now appeals.

This appeal presents the narrow question of the circumstances under which a stevedore is liable to a shipowner for the latter’s litigation expenses in defending a suit brought by an employee of the stevedore for injuries sustained while working onboard the shipowner’s vessel. In Ryan Stevedoring Co. v. Pan-Atlantic S. S. Corp., 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133 (1956), the Supreme Court held that a shipowner can recover indemnification from a stevedore even where, as in the case before us, the shipowner’s failure to correct hazards in the stow may have been partly responsible for the longshoreman’s injury. 350 U. S. at 134-135, 76 S.Ct. 232. Accord, Italia Soc. per Azioni di Navigazione v. Oregon Stevedoring Co., 376 U.S. 315, 321, 84 S.Ct. 748, 11 L.Ed.2d 732 (1964); Humble Oil & Refining Co. v. Philadelphia Ship Maintenance Co., 444 F.2d 727, 731 (3d Cir. 1971); Gilchrist v. Mitsui Sempaku K. K., 405 F.2d 763, 767 (3d Cir. 1968). The Ryan decision was an effort to alleviate the shipowner’s absolute liability under the unseaworthiness doctrine, see Seas Shipping Co. v. Sieracki, 328 U.S. 85, 66 S.Ct. 872, 90 L.Ed. 1099 (1946), in situations where the shipowner has relinquished control of some operations on the vessel to the stevedore. See Italia Societa v. Oregon Stevedoring Co., supra, 376 U.S. at 323 n. 10, 84 S.Ct. 748; Hobart v. Sohio Petroleum Co., 445 F.2d 435, 438 (5th Cir.), cert. denied, 404 U.S. 942, 92 S.Ct. 288, 30 L.Ed.2d 256 (1971). While the unseaworthiness doctrine tends to ensure seamen and longshoremen recovery for their injuries, see Seas Shipping, supra, 328 U.S. at 93-95, 66 S.Ct. 872, it also places the loss on the party least able to police the risk of injury during the time that the longshoremen are on board. By allowing the shipowner to recover indemnification from the stevedore, the Ryan doctrine reallocates some of the loss to the stevedore, who, as the longshoreman’s employer and the person in immediate control of loading and unloading operations, is in a better position to minimize the risk. See Italia Societa, supra; Hobart, supra.

The Supreme Court has never been called upon to decide whether litigation expenses incurred by a shipowner in defending a suit brought by a longshoreman are included in the damages recoverable under Ryan. However', the Ryan Court did cite Restatement of Contracts, § 334, in its analysis of the contract between shipowner and stevedore. See Ryan, supra, 350 U.S. at 129 n. 3, 76 S.Ct. 232. Section 334 provides as follows:

“If a breach of contract is the cause of litigation between the plaintiff and third parties that the defendant had reason to foresee when the contract was made, the plaintiff’s reasonable expenditures in such litigation are included in estimating his damages.”

It thus appears that in creating the shipowner’s right to sue for indemnification, the Court contemplated that the shipowner's litigation expenses would be part of the damages. This view is consistent with the ordinary law of indemnification, see A. C. Israel Commodity Co. v. American West African Line, Inc., 397 F.2d 170, 172 (3d Cir.), cert. denied, 393 U.S. 978, 89 S.Ct. 446, 21 L.Ed.2d 439 (1968), and has been adopted repeatedly in decisions of this court and other circuits subsequent to Ryan. See Guarracino v. Luckenbach Steamship Co., 333 F.2d 646, 648 (2d Cir.), cert. denied, 379 U.S. 946, 85 S.Ct. 439, 13 L.Ed.2d 543 (1964); Brown v. San Alberto CIA Armadora S.A., 305 F.2d 602, 603 (3d Cir. 1962); Rogers v. United States Lines Co., 303 F.2d 295, 298-299 (3d Cir.), cert. denied, 371 U.S. 876, 83 S.Ct. 148, 9 L.Ed.2d 114 (1962); Paliaga v. Luckenbach Steamship Co., 301 F.2d 403, 407-411 (2d Cir. 1962). See also H. Baer, Admiralty Law of the Supreme Court, § 8-4 (1969).

Contrary to the approach of the foregoing cases, the appellee relies on language in Gilchrist v. Mitsui Sempaku K. K., supra, where this court stated that the shipowner’s counsel fees should be indemnified only if the stevedore’s breach of contract is the sole responsible cause of the longshoreman’s injury. See Gilchrist, supra, 405 F.2d at 769. For this proposition, the Gilchrist court relied on dicta in Ellerman Lines, Ltd. v. Atlantic & Gulf Stevedores, Inc., 339 F.2d 673 (3d Cir. 1964), cert. denied, 382 U.S. 812, 86 S.Ct. 23, 15 L.Ed.2d 60 (1965). In Ellerman, the shipowner had alleged that the stevedore’s breach of warranty was the sole responsible cause of the longshoreman’s injury and the court observed in passing that, if this allegation were true, the shipowner would be able to recover its litigation expenses as part of the damages in its indemnification action against the stevedore. Id. at 674. This was not a holding that the shipowner could not recover its litigation expenses if the stevedore’s breach were not the sole cause of the injury, and the Ellerman court cited with approval the Guarraeino and Brown cas es, supra, in which the courts had held that litigation expenses are a part of the damages in a shipowner’s indemnification action' without requiring the stevedore’s breach to be the sole responsible cause of the longshoreman’s injury.

The Gilchrist court was undoubtedly motivated by the extraordinary circumstances of that case. In Gilchrist, the shipowner had failed to introduce at trial evidence regarding the amount of its counsel fees. In a post-trial memorandum, the shipowner requested that “the judgment be formed to include the shipowner’s counsel fees and expenses in defending the principal action.” Gilchrist, supra, 405 F.2d at 768. Although this request was not granted, the district court reserved the question of the shipowner’s right to counsel fees and, over a year after the entry of judgment, informed counsel that if they could not agree on the amount of counsel fees, the issue would be brought to trial before a jury. Id., 405 F.2d at 768-769. The case thus raised difficult questions concerning res judicata and the power of the district court to grant a separate trial on its own motion more than ten days after the entry of judgment. See F.R.Civ.P. 59. The Gilchrist court admitted that, by adopting the language in Ellerman, it would be able to avoid these difficult issues. Id., 405 F.2d at 769.

The only cases which have followed Gilchrist have similarly involved exceptional circumstances which required the courts to create an “equitable modification of the normal rule of indemnification.” Farrell Lines, Inc. v. Carolina Shipping Co., Nos. 73-2079/80, slip opinion at 9 (4th Cir., June 7, 1974). Farrell involved a “unique” factual situation in which the shipowner sued the stevedore who loaded the ship for the liability and litigation expense the shipowner had incurred as the result of injuries suffered by the employee of the stevedore who unloaded the ship. In this situation, the court of appeals found that it had not been error for the district court to deny the shipowner recovery from the loading stevedore of the litigation expenses it incurred in an earlier action involving the shipowner, the longshoreman, and the unloading stevedore. Similarly, in Humble Oil & Refining Co. v. Philadelphia Ship Maintenance Co., 444 F.2d 727 (3d Cir. 1971), where this court directed the district court’s attention to the Gilchrist holding for purposes of remand (id., 405 F.2d at 737, n. 19), the principal suit by the longshoreman against the shipowner was not consolidated with the indemnification action of the shipowner against the stevedore. To reach its conclusion that the jury verdict in the principal action did not bind the stevedore in the subsequent indemnification action, the court found that the stevedore’s refusal of the shipowner’s tender of defense in the principal action did not collaterally estop the stevedore from reliti-gating, in the subsequent indemnification action, the original jury’s findings. Id. at 735. In view of' this holding, there was no reason to require the stevedore to pay the shipowner’s costs in defending the principal action.

Since the district court did not include in its findings any similarly extenuating circumstances in the instant case, we find that the normal rule of indemnification, stated by this court in Rogers and Brown, supra, should be applied to the facts on which the district court reached its judgment. In reaching this decision, we are not unmindful of Lavino’s argument that Gilchrist represents a general relaxation of the strictness of the Ryan doctrine. It must be noted, however, that in Humble Oil, supra, 444 F.2d at p. 731, Judge Aldisert carefully described the limitations inherent in the Ryan doctrine:

“In Weyerhaeuser S.S. Co. v. Nacirema Operating Co., 355 U.S. 563, 78 S.Ct. 438, 2 L.Ed.2d 491 (1958), the Supreme Court, again faced with facts indicating that the stevedore was substantially responsible for a longshoreman’s injuries, reaffirmed the shipowner’s right to indemnification created in Ryan, but not without reservation: ‘If [the stevedore] rendered a substandard performance which led to foreseeable liability of [the shipowner] , the latter was entitled to indemnity absent conduct on its part sufficient to preclude recovery.’ Id. at 567, 78 S.Ct. at 441 (emphasis supplied).”

The court in Humble Oil remanded to determine “whether the shipowner’s breach of his absolute duty to furnish a safe and seaworthy vessel so prevented or hindered the stevedore from completing its performance that the subsequent breach of warranty by the stevedore may be deemed excused.” Id., 444 F.2d at 733. We believe that this language of Judge Aldisert states the proper test for liability in the instant case as well. Considered in this light, the appellee is not justified in characterizing the Ryan doctrine and its progeny as being unduly harsh.

The appellee finally contends that the court should stay its hand because the issue raised by this case will soon be mooted by the recent amendments to the Longshoremen’s and Harbor Workers’ Compensation Act, Act of October 27, 1972, Pub.L. 92-576, § 18(a), 86 Stat. 1263, codified at 33 U.S.C. § 905(b), which went into effect November 26, 1972. While there can be no doubt that those amendments rationalize the relative liabilities of shipowners and stevedores by replacing maritime concepts of liability with “a new cause of action for negligence in which a shipowner is not to be held liable as a third party unless the former’s negligence was such as would render a land-based third party in non-maritime pursuits liable under similar circumstances,” Vickery, Some Impacts of the 1972 Amendments to the Longshoremen’s & Harbor Workers’ Compensation Act, Insurance Counsel Journal, January 1974, at 63, 64, these amendments do not apply to the instant case, and cannot be used to justify an inconsistent interpretation of the settled law of indemnification under Ryan, which does apply to the instant case. Since we do not believe that the facts before us justify application of the Gilchrist “sole responsibility” test, the district court judgment will be reversed.

The November 19, 1973, judgment will be reversed and the cause remanded for proceedings consistent with this opinion. Costs to be taxed against the appellee.

JAMES HUNTER, III, Circuit Judge

(concurring):

I agree with the majority opinion insofar as it reverses the judgment of the district court and remands for consideration of whether, under Ryan and Weyerhaeuser, Global’s conduct might have been such as to preclude recovery in this action. However, rather than try to limit Gilchrist to its facts, I would prefer to have this Circuit call an en banc hearing to reconsider its validity. I believe that the “sole responsible cause” test adopted by Gilchrist is contrary to general principles of indemnity, which permit indemnification for the full loss suffered by the indemnitee. Where the indemnitor’s breach has caused the indemnitee to incur reasonable costs and legal expenses in connection with the defense of the principal action, those costs and expenses are recoverable as part of the loss suffered by the indemnitee. This general principle is explicitly adopted in section 334 of the Restatement of Contracts, cited by the Supreme Court in Ryan, and had been recognized in several other decisions of this Circuit. See A. C. Israel, supra; Brown, supra; Rogers, supra.

Nowhere do any of these authorities carve out a special rule for legal fees and expenses where the fault between the indemnitor and indemnitee is mutually shared, and such a rule is hard to accept logically. So long as the relative faults are such that the shipowner-in-demnitee can still recover the full amount of any judgment paid over to the injured longshoreman, there is no reason why he should not be entitled to recover counsel fees and expenses incurred in defending against the principal action, since the incurring of such costs and expenses is a foreseeable result of the stevedore’s breach. This rule does not seem unduly harsh, because the shipowner must still prove that the stevedore breached its warranty of workmanlike performance and that the breach was the proximate cause of the longshoreman’s injury. Gilchrist is thus contrary to general principles of indemnity and to cases from other circuits which awarded counsel fees and expenses despite specific findings of negligence on the part of the shipowner. See, e. g., Guidry v. Texaco, Inc., 430 F.2d 781 (5th Cir. 1970); Nicroli v. den Norske Afrika Og Australielinie, 332 F.2d 651 (2d Cir. 1964); De Gioia v. United States Lines Co., 304 F.2d 421 (2d Cir. 1962). Furthermore, the precedential value of Gilchrist is somewhat weakened by the fact that, as the majority notes, it adopted the “sole responsible cause” test by relying on dicta in the Ellerman case in which the latter court was merely repeating an allegation made in the pleadings.

I agree with the majority that there may be unusual circumstances which would justify the denial of attorney’s fees and expenses despite the right to recover indemnity proper. However, for such circumstances to create “an equitable modification of the normal rule of indemnification,” it would appear necessary that those circumstances be such as to require modification so as to prevent undue hardship to one of the parties. I agree that Farrell, supra, might well be such a case, since it involved two stevedores, both of whom, along with the shipowner, had been found partially negligent. I do not see how the facts in Gilchrist required such a modification, as there was no logical nexus between the unusual circumstances present in that case and any harshness that might result from application of the general rule of indemnification. As the majority notes, the court in Gilchrist applied the “sole responsible cause” test in part to avoid resolving the difficult issues of res judicata and the trial court’s grant of a separate trial. While these unusual circumstances may have motivated the Gilchrist court in reaching its decision, I do not see how they would justify a departure from or a modification of the established law of indemnity. In short, I am concerned that today’s decision does not offer a clear framework as to what kinds of circumstances would justify “an equitable modification of the normal rule of indemnification.”

I concur in the majority’s disposition of this case, however, since it reverses the district court judgment and since I agree that the district court should consider on remand whether Global’s conduct might constitute such unusual circumstances as to affect its right of indemnification. See note 7 supra. While I disagree with the majority’s distinguishing of Gilchrist, I believe that any uncertainty that the majority’s opinion may create for other litigants is minimal in light of the recent amendments to the Longshoremen’s and Harbor Workers’ Compensation Act. Those amendments seem to have mooted the issues raised by this case for accidents occurring after November 26, 1972, by prohibiting shipowner indemnity actions against stevedore/employers.

      . The primary significance of the Ryan case was its holding that the shipowner’s indemnification action lies in contract, so that it is not barred by § 5 of the Longshoremen’s and Harbor Workers’ Compensation Act, 44 Stat. 1426, as amended, 33 U.S.C. § 905(a). See Ryan, supra, 350 U.S. at 128-132, 76 S.Ct. 232.

      . See note 3 below.

      . The pertinent language in Gilchrist, supra, 405 F.2d at 769, is :
      “In the case of Ellerman Lines, Ltd. v. Atlantic & Gulf Stevedores, Inc., 339 F.2d 673, Judge Hastie, now Chief Judge of this Court, said at p. 674: ‘If conduct of [the stevedoring company! in violation of its warranty to [the shipowner] was the sole responsible cause of [the longshoreman’s] injury, as the libel alleges, the expense to which [the shipowner] is subjected in defending [the longshoreman’s] suit against it to recover for that injury is an element of damages caused by the [steve-doring company’s] breach of warranty, even if [the shijjowner] succeeds in defeating [the longshoreman’s] claim.’ (Cited cases omitted and emphasis added.) There has been no showing in the actions here involved that the conduct of the stevedor-ing company was the sole responsible cause of the plaintiff-longshoreman’s injury. Therefore, the shipowner was not entitled to recover t'..e expenses to which it was subjected in defending the plaintiff-longshoreman’s action against it from the stevedoring company. Hence we need not determine whether the verdict was res adjudicata on the defending expense issue and whether the district court had the power to sever that issue and grant a separate jury trial on its own motion, and even though it did have such power in this action, whether it had to be exercised within ten days from the entry of judgment on the verdict.”
      This holding was never appealed to the Supreme Court. The stevedore filed a petition for writ of certiorari, but since it had prevailed on the counsel fee issue it did not include that issue in its petition. The questions presented by the petition for writ of certiorari appear in the joint appendix filed in this action at 48a. The Supreme Court denied the petition. Jarka Corp. v. Mitsui Sempaku K. K., 394 U.S. 920, 89 S.Ct. 1195, 22 L.Ed.2d 453 (1969). It is noted that Judge Hastie wrote the opinion in Miller v. A/B Svenska Amerika Linien, 454 F.2d 1094 (3d Cir. 1971), where the court pointed out at note 2, p. 1096:
      “We do not reach the question of indemnifying stevedore’s liability for the shipowner’s litigation expenses where stevedore and shipowner shared responsibility for longshoreman’s injury, a situation considered in Gilchrist . . .

      . See Farrell, supra at p. 9 of slip opinion.

      . Although the court in Farrell based its decision on the ground that the loading stevedore was not solely responsible for the longshoreman's injuries. Farrell, supra at p. 9 of slip opinion, the result might also be explained on the ground that the loading stevedore was entitled to contribution from the vessel as a joint tortfeasor. Cf. Cooper Stevedoring Co. v. Fritz Kopke, Inc., 417 U.S. 106, 94 S.Ct. 2174, 40 L.Ed.2d 694 (1974).

      . The last sentence of the last footnote in Humble is not controlling, both because it refers to “costs,” rather than litigation expenses, and because further proceedings on remand were necessary to determine the controlling facts. Furthermore, in Miller v. A/B Svenska Amerika Linien, 454 F.2d 1094 (3d Cir. 1971), decided after Humble, this court, having found that the stevedore’s conduct was the sole responsible cause of the accident, id. at 1096, explicitly left undecided the continuing vitality of the Gilchrist language. Id. at 1096 n. 2 (quoted in part at note 3 above).

      . See also Paliaga v. Luckenbach Steamship Co., 301 F.2d 403 (2d Cir. 1962). The trial court’s decision was based solely on its finding that Global failed to establish by a preponderance of the evidence that Lavino’s breach of warranty was not the sole responsible cause of Burris’ injuries. N.T. 31. Whether other aspects of the case, for example, Global’s refusal to allow Lavino to undertake the defense contingent upon Global’s waiver of costs and expenses prior to Lavino’s undertaking the defense, N.T. 22, constitute the sort of unusual circlumstances which should affect Global’s indemnification, we leave to the determination of the trial court on remand. See also note 8, infra. We note in this regard that the trial judge did not prejudge the amount of counsel fees and other expenses to which Global would be entitled should this court reach a different conclusion than the trial judge on the Gilchrist issue. See N.T. 33-34.

      . A further limitation on the Ryan doctrine is the principle that the shipowner is entitled to recover only the litigation expenses incurred in defending the action brought by the longshoreman, but not the expenses incurred in prosecuting his indemnification action against the stevedore. See Rogers v. United States Lines Co., 303 F.2d 295, 299 (3d Cir. 1962); H. Baer, Admiralty Law of the Supreme Court, § 8-4 (1969).

      . The accident which gave rise to this action occurred in May of 1972, N.T. 2; the effective date of the amendments was November 26, 1972. Act of Oct. 27, 1972, Pub.L. 92-576, § 22, 86 Stat. 1265.

      . We note that the district court understandably considered that it was “bound” (N.T. 32) by the language used in Gilchrist, supra, which we now hold must be limited to the facts presented by that case.

      . While the Supreme Court in Weyerhaeuser held that fault on the part of the shipowner does not necessarily preclude recovery of indemnity from the stevedore, it recognized that conduct by the shipowner may nevertheless be such as to preclude recovery. Weyerhaeuser, supra, 355 U.S. at 567, 78 S.Ct. 438.


author: PHILLIPS, Chief Judge.

text:
    Edward Charles DAVIS, III, Plaintiff-Appellant, v. Edgar PAUL, Chief of Police, Louisville Division of Police, and Russell McDaniel, Chief of Police, Jefferson County Police, Defendants-Appellees.
    No. 74-1225.
    United States Court of Appeals, Sixth Circuit.
    Argued June 5, 1974.
    Decided Oct. 22, 1974.
    Daniel T. Taylor, III, Kentucky Civ. Liberties Union, William H. Allison, Jr., Robert Sedler, Lexington, Ky., for plaintiff-appellant.
    Frank A. Logan, Asst. Director of Law, City of Louisville, John R. Wilson, Irvin D. Foley, Louisville, Ky., for defendants-appellees.
    Before PHILLIPS, Chief Judge, and CELEBREZZE and ENGEL, Circuit Judges.
   PHILLIPS, Chief Judge.

Appellant, Edward Charles Davis, III, brought this class action under 42 U.S.C. § 1983 alleging that the distribution by the Chiefs of Police of the Louisville and Jefferson County Police Departments of a flyer captioned “Active Shoplifters” and containing the names and mugshots of persons who have never been convicted of shoplifting violated the Due Process Clause of the Fourteenth Amendment. Appellant seeks declaratory, injunctive and monetary relief. The District Court dismissed the complaint, holding that it did not allege any violation of rights guaranteed by the Constitution. We reverse.

The complaint asserts that on June 14, 1971, Edward Charles Davis, III, was arrested in Louisville, Kentucky, on a charge of shoplifting. It is alleged, and attachments to the complaint show, that he entered a plea of not guilty and that the charge was “filed away” on September 21, 1971, and dismissed on December 11, 1972. It is further alleged that appellant is innocent of the charge and that he was never tried or convicted of the offense.

The complaint alleges that on December 5, 1972, Col. Edgar Paul, Chief of Police of the Louisville Division of Police, and Col. Russell McDaniel, Chief of Police of the Jefferson County Police (hereinafter Police Chiefs), caused to be sent flyers to numerous merchants and business establishments in the Louisville Metropolitan area. It is alleged, and attachments to the complaint show, that the flyers contained the names and mugshots of persons who had been arrested for shoplifting during 1971 and 1972 or who were active in various criminal fields in high density shopping areas, that each flyer was headed by the caption “Active Shoplifters” and that the stated purpose of the flyer was to allow the merchants to inform their security personnel “to watch for these subjects.” Appellant’s name and mugshot were included in the flyer. It is alleged that the acts of the Police Chiefs were under color of the state law and deprived the appellants and others similarly situated of rights guaranteed by the Due Process Clause of the Fourteenth Amendment.

The Police Chiefs moved to dismiss for lack of subject matter jurisdiction. The District Court dismissed the complaint stating: “The facts alleged in this case do not establish that plaintiff has been deprived of any right secured by the Constitution of the United States.”

On considering an appeal from an order granting a motion to dismiss, we must, of course, take the allegations in the complaint as true. California Motor Transport Co. v. Trucking Unlimited, 404 U.S. 508, 515-516, 92 S.Ct. 609, 30 L.Ed.2d 642 (1972).

Before recovery can be allowed under § 1983, two elements must be present.

“First, the plaintiff must prove that the defendant has deprived him of a right secured by the ‘Constitution and laws’ of the United States. Second, the plaintiff must show that the defendant deprived him of this constitutional right ‘under color of any statute, ordinance, regulation, custom, or usage of any State or Territory.’ This second element requires that the plaintiff show that the defendant acted ‘under color of law.’ ” (Footnote omitted) Adickes v. S. H. Kress & Co., 398 U.S. 144, 150, 90 S.Ct. 1598, 1604, 26 L.Ed.2d 142 (1970).

The sole issue on appeal, as it was in the District Court, concerns the first two elements set forth in the preceding paragraph. Specifically, the Police Chiefs contend that the complaint only states a cause of action for defamation and does not establish a constitutional deprivation. Appellant contends that the complaint sets forth facts showing a deprivation of due process as guaranteed by the Fourteenth Amendment. Specifically, appellant contends that the Due Process Clause prohibits the Police Chiefs from disseminating “to large segments of the public, flyers containing the names and photographs of persons who have been arrested for, but not convicted of, the offense of shoplifting and describing these persons as ‘active shoplifters,’ together with persons who have been convicted of the offense.” At oral argument, counsel for appellant stressed that the heart of the deprivation was the use of the label “active shoplifter.”

We are of the view that appellant has set forth a claim cognizable under § 1983 in that he has alleged facts that constitute a denial of due process of law. This holding is mandated in view of Wisconsin v. Constantineau, 400 U.S. 433, 91 S.Ct. 507, 27 L.Ed.2d 515 (1971).

In Constantineau, the question presented to the Supreme Court involved the constitutionality of a Wisconsin statute which provided that designated persons could in writing forbid the sale or gift of intoxicating liquors to excessive drinkers who exhibited specified traits or produced described conditions. The statute did not provide for notice and hearing. The Chief of Police, pursuant to the statute and without notice or hearing, caused to be posted a notice at all retail liquor outlets in the town that sales or gifts of liquor to Constantineau were forbidden for one year. The precise issue presented to the Court was “whether the label or characterization given a person by ‘posting,’ though a mark of serious illness to some, is to others such a stigma or badge of disgrace that procedural due process requires notice and an opportunity to be heard.” 400 U.S. at 436, 91 S.Ct. at 509. In holding that due process was required, the Court stated:

“Yet certainly where the State attaches ‘a badge of infamy’ to the citizen, due process comes into play. Wieman v. Updegraff, 344 U.S. 183, 191 [73 S.Ct. 215, 218-219, 97 L.Ed. 216.] ‘[T]he right to be heard before being condemned to suffer grievous loss of any kind, even though it may not involve the stigma and hardships of a criminal conviction, is a principle basic to our society.’ Anti-Fascist Committee v. McGrath, 341 U.S. 123, 168 [71 S.Ct. 624, 646, 95 L.Ed. 817] (Frankfurter, J., concurring).
“Where a person’s good name, reputation, honor, or integrity is at stake because of what the government is doing to him, notice and an opportunity to be heard are essential. ‘Posting’ under the Wisconsin Act may to some be merely the mark of illness, to others it is a stigma, an official branding of a person. The label is a degrading one. Under the Wisconsin Act, a resident of Hartford is given no process at all. This appellee was not afforded a chance to defend herself. She may have been the victim of an official's caprice. Only when the whole proceedings leading to the pinning of an unsavory label on a person are aired can oppressive results be prevented.” 400 U.S. at 437, 91 S.Ct. at 510.

In the teeth of the plain language of the Court’s holding, the Police Chiefs seek to distinguish Constantineau on the basis of an artificial distinction between “liberty” and “property” rights. It is contended that the thrust of the holding was based on the denial of a property right, i. e., the ability to purchase liquor. We do not read the opinion of the Supreme Court to support any such distinction. The Court has rejected the distinction between interests in “liberty” and “property” in the context of a due process deprivation. Board of Regents v. Roth, 408 U.S. 564, 569-575, 92 S.Ct. 2701, 33 L.Ed.2d 548 (1972); Perry v. Sindermann, 408 U.S. 593, 599, 92 S.Ct. 2694, 33 L.Ed.2d 570 (1972).

In Roth, the Court reaffirmed its holding in Constantineau and emphasized that when interests in liberty are involved, due process is required. Although the Court did not undertake to define liberty in precise terms, it was stated that its meaning must “ [w] ithout doubt, . . . [denote] not merely freedom from bodily restraint,” and “must be broad indeed.” 408 U.S. at 572, 92 S.Ct. at 2706. There is no question that the acts complained of in the case at bar constitute a denial of an interest in liberty. As stated by the Court in Roth:

“The State, in declining to rehire the respondent, did not make any charge against him that might seriously damage his standing and associations in his community. It did not base the nonrenewal of his contract on a charge, for example, that he had been guilty of dishonesty, or immorality. Had it done so, this would be a different case. For ‘[w]here a person’s good name, reputation, honor, or integrity is at stake because of what the government is doing to him, notice and an opportunity to be heard are essential.’ Wisconsin v. Constantineau, 400 U.S. 433, 437, [91 S.Ct. 507, 510, 27 L.Ed.2d 515]; Wieman v. Updegraff, 344 U.S. 1839, 191 [73 S.Ct. 215, 219, 97 L.Ed. 216]; Joint Anti-Fascist Refugee Committee v. McGrath, 341 U.S. 123 [71 S.Ct. 624, 95 L.Ed. 817]; United States v. Lovett, 328 U.S. 303, 316-317, [66 S.Ct. 1073, 1079, 90 L.Ed. 1252]; Peters v. Hobby, 349 U.S. 331, 352, [75 S.Ct. 790, 801, 99 L.Ed. 1129] (Douglas, J., concurring). See Cafeteria Workers v. McElroy, 367 U.S. 886, 898 [81 S.Ct. 1743, 1750, 6 L.Ed.2d 1230], In such a case, due process would accord an opportunity to refute the charge before University officials. In the present case, however, there is no suggestion whatever that the respondent’s ‘good name, reputation, honor, or integrity’ is at stake.
“Similarly, there is no suggestion that the State, in declining to re-employ the respondent, imposed on him a stigma or other disability that foreclosed his freedom to take advantage of other employment opportunities.” (Footnote omitted.) 408 U.S. at 573, 92 S.Ct. at 2707.

In the case at bar, appellant alleges that he and others have been branded as active shoplifters — common criminals — and grouped together with those who have been convicted of crimes. This label carries with it the badge of disgrace of a criminal conviction. Moreover, it is a direct statement by law enforcement officials that the persons included in the flyer are presently pursuing an active course of criminal conduct. All of this was done without the slightest regard for due process. There was no notice nor opportunity to be heard prior to the distribution of the flyer, and appellant and others have never been accorded the opportunity to refute the charges in a criminal proceeding. It goes without saying that the Police Chiefs cannot determine the guilt or innocence of an accused in an administrative proceeding. Such a determination can be made only in a court of law.

The harm is all the more apparent because the branding has been done by law enforcement officials with the full power, prestige and authority of their positions. There can be little doubt that a person’s standing and associations in the community have been damaged seriously when law enforcement officials brand him an active shoplifter, accuse him of a continuing course of criminal conduct, group him with criminals and distribute his name and photograph to the merchants and businessmen of the community. Such acts are a direct and devastating attack on the good name, reputation, honor and integrity of the person involved. The fact of an arrest without more may .impair or cloud a person’s reputation. Michelson v. United States, 335 U.S. 469, 482, 69 S.Ct. 213, 93 L.Ed. 168 (1948). Such acts on the part of law enforcement officials may result in direct economic loss and restricted opportunities for schooling, employment and professional licenses. Menard v. Mitchell, 139 U.S.App.D.C. 113, 430 F.2d 486, 490 (1970).

In the present case, appellant was a photographer for the Louisville-Courier Journal at the time of the flyer’s dissemination. At the hearing on the mo-ti on for a preliminary injunction, his supervisor testified as follows:

“Our photographers must be accepted as a reasonably honorable and truthful man wherever they go. I felt that in view of this flyer’s circulation to merchants of the community I could not, for example, assign Mr. Davis to photographing anything in a mercantile establishment and so that should such an assignment come up I would have been forced to have someone else cover that assignment rather Mr. Davis.”

His supervisor also stated appellant “had best not find himself in a similar situation” again and that he would “view very seriously” a subsequent arrest.

“The mere fact that a man has been arrested has very little, if any, probative value in showing that he has engaged in any misconduct. An arrest shows nothing more than that someone probably suspected the person apprehended of an offense.” (Footnote omitted.) Schware v. Board of Bar Examiners, 353 U.S. 232, 241, 77 S.Ct. 752, 757, 1 L.Ed.2d 796 (1957). In Schware the Court found a denial of due process when a state denied an applicant a license to practice law based on reasons that had no probative value. Id. at 246-247, 77 S.Ct. 752. Part of the Board’s evidence was based on prior arrests for which the applicant had never been tried or convicted. Id. at 241-243, 77 S.Ct. 752.

Similarly, law enforcement officials cannot, consistent with the Due Process Clause, brand a person as an active shoplifter when he has never been tried for the offense. There is no rational basis to presume guilt and active criminality from the mere fact of an arrest. While “[pjrocedure by presumption is always cheaper and easier than individualized determination,” it cannot stand when it results in the deprivation of a protected interest without a meaningful opportunity to rebut the presumption. Stanley v. Illinois, 405 U.S. 645, 656-657, 92 S.Ct. 1208, 1215, 31 L.Ed.2d 551 (1972).

Few things are as fundamental to our legal system as the presumption of innocence until overcome by proof of guilt beyond a reasonable doubt at a fair trial. The dissemination of the flyer in the case at bar is in the face of the presumption of innocence, disregards the Due Process Clause and is based on evidence that is not probative of guilt.

Condemning a man to a suspect class without a trial and on a wholly impermissible standard, as in the case at bar, offends the very essence of the Due Process Clause, i. e., protection of the individual against arbitrary action. Slochower v. Board of Education, 350 U.S. 551, 559, 76 S.Ct. 637, 100 L.Ed. 692 (1956); Peters v. Hobby, 349 U.S. 331, 351-352, 75 S.Ct. 790 (1955) (Douglas, J., concurring.) As said by Mr. Justice Black in his concurring opinion in Joint Anti-Fascist Refugee Committee v. McGrath, 341 U.S. 123, 144-145, 71 S.Ct. 624, 634 (1951):

“Our basic law, however, wisely withheld authority for resort to executive . . . condemnations and blacklists as a substitute for imposition of legal types of penalties by courts following trial and conviction in accordance with procedural safeguards of the Bill of Rights.” (Footnote omitted.)

Reversed and remanded for proceedings not inconsistent with this opinion.

      . At the hearing on the motion for a preliminary injunction, Col. Paul testified that this practice had been going on about fifteen years, that the sole justification for including a person in the flyer is the fact of an arrest and information supplied by the arresting officer, that appellant’s only prior arrest was in 1967 for a speeding violation and that about 800 of the flyers had been distributed.

      . “It is no answer that the State has a law which if enforced would give relief. The federal remedy is supplementary to the state remedy, and the latter need not be first sought and refused before the federal one is invoked” Monroe v. Pape, 365 U.S. 167, 183, 81 S.Ct. 473, 482, 5 L.Ed.2d 492 (1961).


author: BREITENSTEIN, Circuit Judge.

text:
    The COLORADO SPRINGS NATIONAL BANK, a National Banking Association, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
    No. 74-1073.
    United States Court of Appeals, Tenth Circuit.
    Argued Sept. 10, 1974.
    Decided Nov. 11, 1974.

      Rendle Myer, Denver, Colo. (Richard W. Hanes, Gregory R. Piche, Spur-geon, Aman & Hanes, Colorado Springs, Colo., and Neef, Swanson & Myer, Denver, Colo., on the brief), for plaintiff-appellee.
    Gary R. Allen, Atty., Tax Div., Dept, of Justice (Scott P. Crampton, Asst. Atty. Gen., Meyer Rothwacks, Jonathan S. Cohen, and Charles E. Anderson, Attys., Tax Div., Dept, of Justice, and James L. Treece, U. S. Atty., of counsel, on the brief), for defendant-appellant.
    John Fletcher Rolph, III, and Henry C. Ruempler, III, Washington, D. C., filed a brief for amicus curiae The American Bankers Ass’n.
    R. Michael Duncan and Robert R. Rickett, Washington, D. C., filed a brief for amicus curiae Interbank Card Ass’n.
    Before BREITENSTEIN, BARRETT and DOYLE, Circuit Judges.
   BREITENSTEIN, Circuit Judge.

This is an action under 26 U.S.C. § 7422 for the refund of federal income taxes. The question is whether certain costs incurred by taxpayer, appellee Colorado Springs National Bank, in its participation in the Master Charge credit card system are deductible as business expenses under 26 U.S.C. § 162(a). Taxpayer had judgment for $13,915.55 plus interest and the United States appeals. We affirm.

I

Taxpayer is a national bank organized and existing under the provisions of Title 12, U.S.C. It was chartered in 1907 and since then has engaged in banking in the Colorado Springs, Colorado, area. In 1969 it was the third largest bank in the area. It is a full service, commercial bank which during its life has made a great variety of loans.

In 1967 Colorado National Bank of Denver acquired the right to use the BankAmericard credit card system and to affiliate with other Colorado banks in that activity. BankAmericard permits the franchising of only one bank in a particular community. First National Bank of Colorado Springs obtained the right to use BankAmericard in the Colorado Springs area and taxpayer failed in its efforts to join BankAmeri-card. Taxpayer then developed a credit card system of its own known as V.I.P. (Verified Instant Payment). Essentially, V.I.P. was a check guarantee concept coupled with a revolving line of automatic credit extension to cover checking account overdrafts. V.I.P. did not provide a competitive alternative to BankAmericard because of its limited scope and check dependence.

In late 1968, the Master Charge credit card system was introduced to Colorado. Three Denver banks organized Mountain States Bankcard Association (MS-BA), a non-profit corporation, to handle the Master Charge program through Interbank Card Association. Interbank is a nationwide clearinghouse for Master Charge cards. On February 11, 1969, taxpayer became a member of MSBA by the payment of a $10,000 fee. This fee was a one-time, non-refundable payment that could not be separately transferred. If the bank were sold, the Master Charge franchise or license would go with the bank.

Master Charge requires three basic contractual relationships. First is a contract between a bank and a participating merchant. This provides that the merchant will honor all cards issued to cardholders by member banks and that the bank will accept from the merchant for immediate deposit or cash, usually at a negotiated discount, the sales slips signed by cardholders when making purchases. The bank takes all of the credit risk.

Second is a contract between the bank and the cardholder by which the cardholder assumes responsibility for credit extended to the holder on the basis of the card and agrees to pay the bank the obligations evidencing such credit, with interest or finance charges if not paid within a specified time after the bank's billing. The cardholder releases the bank from all defenses and claims which the holder may have against the merchant who honored the card.

Third is an interchange agreement among the member banks providing rules and mechanisms for clearing authorizations and for processing and charging card sales slips to the card issuing bank. This arrangement is comparable to the check-clearing mechanisms furnished by clearinghouses.

During April, 1969, banks participating in the MSBA Master Charge program began soliciting merchants to participate in the program. On June 1, 1969, those merchants were allowed to accept Master Charge transactions from tourists who utilized Master Charge cards on a local basis in other parts of the country. Eighty percent of the merchants signed up by taxpayer to participate in 1969 were existing customers of taxpayer. On July 1, 1969, taxpayer issued its own Master Charge cards to selected individuals, seventy-two percent of whom were existing customers of taxpayer.

Between February 11, 1969, when taxpayer acquired its Master Charge authorization, and July 1, when its participation in the system became operational by the issuance of its own Master Charge cards, taxpayer incurred preoperation expenses in addition to the $10,000 MSBA fee. These fell into the following general categories:

1. Computer costs, $1,329.50, incurred to keypunch and insert its customer account data into the MSBA computer.
2. Computer service and assessment fees, $12,788.50, paid to MSBA. These included a new merchant fee for the addition of each merchant to the system, a cardholder fee for the addition of each cardholder to the system, and a maintenance fee for computer operation.
3. Advertising and promotional costs, $3,826.74, paid by taxpayer to familiarize the public with the Master Charge system.
4. Credit Bureau reports, $7,079.-15, secured by taxpayer to ascertain the risks present in credit extension to cardholders.
5. Travel, education, and entertainment expenses, $1,151.96, of employees reimbursed by taxpayer for attendance at MSBA meetings held to motivate the employees and familiarize them with the Master Charge system.
6. Temporary clerical service, $177.38, required by taxpayer to augment its existing staff.

These start-up expenses totalled $26,-353.23. In its federal income tax return for 1969, taxpayer claimed them and the $10,000 fee paid to MSBA as deductible business expenses. Internal Revenue Service disallowed the deductions and assessed additional taxes amounting to $19,194.56. Taxpayer paid the assessment, filed claim for refund which was disallowed, and brought this suit.

At the conclusion of the trial the court made oral findings which will be discussed later. It held that the $10,000 MSBA fee was a capital expenditure and that the start-up costs were deductible business expenses. Taxpayer has not appealed from the adverse ruling on the fee. The United States has appealed from the ruling on the start-up expenses. We are not concerned with the deductibility of the fee or with any problem relating to its amortization. With relation to above Item 2 of the start-up costs, the United States concedes in its brief that a $1,962.25 portion thereof, representing a recurring quarterly charge of MSBA for maintaining files on credit cardholders, is a deductible business expense.

II

Bank credit cards play an important role in consumer transactions. Amicus Interbank says that about 6,000 banks have issued over 30 million Master Charge cards which are accepted at over one million retail outlets, and that at the end of 1970 1,200 banks reported outstandings on credit cards of 3.8 billion dollars. Amicus American Bankers Association, with a membership of over 13,000 commercial banks, says that a determination of the issue presented will affect the tax liabilities of commercial banks in the amount of “several hundred million dollars.”

The Comptroller of the Currency who is charged by Congress with supervision and regulation of national banks has ruled that expenditures by commercial banks for the development and implementation of credit card programs must be charged to expense rather that capital. In an August 21, 1972, letter to the Assistant Secretary for Tax Policy, U. S. Treasury Department, he wrote that: “This policy has as its basis our responsibility of assuring the solvency and liquidity of National Banks and the concurrent protection of depositors and shareholders.” He added that if IRS disallows the current deduction of such expenditures, “* * * banks will be reluctant to expend funds to develop, expand, and make technological advances in banking services. Clearly, such a result would be contrary to the objectives of our expanding national economy.”

Compulsory accounting rules of a regulatory agency do not control tax consequences. See Commissioner of Internal Revenue v. Lincoln Savings & Loan Ass’n, 403 U.S. 345, 355, 91 S.Ct. 1893, 29 L.Ed.2d 519, and Old Colony Railroad Co. v. Commissioner of Internal Revenue, 284 U.S. 552, 562, 52 S.Ct. 217, 76 L.Ed. 484. We recognized this principle in Mountain Fuel Supply Co. v. United States, 10 Cir., 449 F.2d 816, 822, cert. denied, 405 U.S. 989, 92 S.Ct. 1251, 31 L.Ed.2d 455, and said, however, that accounting methods of regulatory agencies “demonstrate a reason why some accommodation should be made when possible.” Although the action of the Comptroller is not determinative, it is a factor for consideration.

Ill

The pertinent provision of 26 U.S.C. § 162(a) allows as a deduction “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” The question is whether the start-up costs of taxpayer’s participation in the Master Charge program are deductible under § 162(a).

Section 162(a) sets up five separate requirements, all of which must be satisfied to support deduction. There must be (1) an ordinary and (2) necessary (3) expense (4) incurred during the taxable year (5) in carrying on a trade or business. See Lincoln Savings, 403 U.S. at 352, 91 S.Ct. 1893. The United States argues that the expenses in question were not ordinary and were not incurred in carrying on the business to which they relate. The reasoning of the government is that the expenses were the preoperation costs for entry into a new business.

At the conclusion of the trial the court made oral findings from the bench. These were not supplemented by written findings of fact and conclusions of law. The parties have stipulated that the bench ruling “shall constitute the Trial Court’s findings of fact and con-elusions of law in compliance with Rule 52(a) of the Federal Rules of Civil Procedure” and have waived any assertion of noncompliance with that rule. The court said:

“I find and I hold that this particular field, that is the credit card field, is a new type of business that this bank had not engaged in prior to its being licensed by Master Charge card Association. It is not just an extension of the lending field, but it is a new concept that was developed and is being used.”

Thereafter, the court found that the MSBA fee paid by taxpayer was “an intangible asset which should either be amortized or capitalized.” The court then discussed many of the items in the start-up costs and said that all of those costs were ordinary and necessary expenses in the taxable year and “were for carrying on of a business.”

The government argues that the new-business finding is supported by substantial evidence, is not clearly erroneous, and is binding on the appellate court. It says further that the allowance of the deduction of the start-up costs was inconsistent with the new-busmess finding and must be rejected. Bank answers by saying that the government lifts the “new type of business” statement out of context and attributes to it “a semantic significance far beyond that intended or contemplated”; and that the entire opinion shows that the statement was limited to the MSBA fee.

Any discussion by us of this phase of the controversy will be unproductive because we have no way of ascertaining the intent of the trial court. Further, nothing will be gained by exploration of the mysterious differences between questions of fact, or law, or mixed fact and law. The basic facts pertaining to the business of the bank, the bank credit card program, and the nature of the expenditures are not in dispute. True, each side had an expert who gave opinions on these matters and those opinions were in conflict. Nothing in the record shows that the trial court based any finding or any conclusion on any opinion of an expert. Our disposition of the case is not dependent on, or influenced by, those opinions. Hence, we have no credibility question. Determination of whether the bank credit card business is “new” and of whether the start-up expenses are “ordinary and necessary” requires conclusions from undisputed facts. We are in as good position as was the trial court to draw those conclusions. Whatever label may be put on them, the ultimate question is the application of § 162(a) to the facts. The clearly erroneous rule does not apply. See 9 Fed.Pract. & Proc. §§ 2488 and 2589, pp. 749-759, and 5A Moore’s Federal Practice Par. 52.05[1] pp. 2693-2697.

IV

The business of the taxpayer is banking. As a national bank it is bound by, and must comply with, applicable federal statutes. Section 24, 12 U.S.C., provides in Subparagraph Seventh that a national bank may exercise “all such incidental powers as shall be necessary to carry on the business of banking,” including “discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt,” “receiving deposits,” and “loaning money on personal security.” Under the rulings of the Comptroller of the Currency, a bank may issue credit cards. See Comptroller’s Manual for National Banks, Pars, 7.7376(b) and 7.7378. The Federal Reserve Board recognizes that bank credit cards are “bank services.” See 12 C.F.R. § 219.104(d). In United States v. Philadelphia National Bank, 374 U.S. 321, 326, 83 S.Ct. 1715, 1721, 10 L.Ed.2d 915, the Court refers to the key role which commercial banks play in the national economy and says that commercial banking “describes a congeries of services and credit devices.” Listed among the principal banking products are “bank credit cards.” Ibid, at n. 5.

The government does not contend that the participation by taxpayer in Master Charge is ultra vires. Instead it separates credit card business from other bank business. The claim is that bank credit cards are a new “area” or “line” of business designed to return a “future benefit.” The intent to make a future profit is obvious. Changes in methods of operation often have a direct bearing on costs and profits.

Before entering the credit card field, taxpayer made loans on accounts receivable and personal loans covering consumer transactions. For years banks, including taxpayer, have issued letters of credit. The credit card program furnishes a facility to handle these operations in a simple manner adaptable to operation through modern computers. A letter of credit is “a letter whereby one person requests some other person to advance money or give credit to a third person, and promises to repay the same to the person making the advancement.” Second Nat. Bank of Toledo v. M. Samuel & Sons, Inc., 2 Cir., 12 F.2d 963, 966, cert. denied, 273 U.S. 720, 47 S.Ct. 110, 71 L.Ed. 857. The same function is performed by the handy, plastic card issued by the bank. The participating merchant honors the card in payment for merchandise, the issuing bank pays the merchant, and the card user is liable to the bank.

Banks, including taxpayer, have for years made loans to merchants on accounts receivable. The credit card system performs the same function more easily. The merchant sends the sales slip to the bank which pays him, or gives him credit, for the amount shown on the slip less a negotiated discount. The only change is in the method. Instead of getting a bank loan on the security of accounts receivable, the merchant receives a discounted payment immediately. Instead of getting loan interest, bank receives the discount.

Loans for consumer purchases are a recognized part of our economy. Over the years taxpayer, along with other commercial banks, has made many such loans in varying forms. The credit card system simplifies the procedure. The cardholder is charged with the amount of the purchase and, unless he pays the bank within a specified time after the billing date, he must pay interest or a finance charge. The consumer gets the credit and the bank receives payment for the extension of credit.

The credit card system takes advantage of modern technology. After a card is used, a key-punched sales slip is placed in a computer which processes and routes the transaction so that the necessary charges and credits will be made. To paraphrase the Comptroller, the use of these modern facilities furthers the objectives of our expanding national economy.

The credit card system enables a bank to carry on an old business in a new way. A new method is distinguishable from a new business. Richmond Television Corporation v. United States, 4 Cir., 345 F.2d 901, vacated on other grounds, 382 U.S. 68, 86 S.Ct. 233, 15 L.Ed.2d 143, is not in point. In that case taxpayer, Richmond Television, was organized to operate a television station. Its controlling stockholder was the owner and operator of a radio station. Before Richmond secured a television license from the Federal Communications Commission, the radio station paid out substantial sums in preparation for the television operation. Richmond paid the radio station for those preoperation costs and then claimed that expense as a business deduction under § 162(a). The deduction was disallowed on the ground that taxpayer was not in business during the period in question. 345 F.2d at 907. In Richmond the taxpayer was not licensed to operate a television station whereas in the instant case the taxpayer was, and for many years had been, chartered as a national bank. In Richmond the expenses for which a deduction was claimed were incurred in prior years. In the instant case, the expenses were incurred during the tax year in question.

A more pertinent decision is Briarcliff Candy Corporation v. Commissioner of Internal Revenue, 2 Cir., 475 F.2d 775. Taxpayer was engaged in the manufacture and sale of candy with 80% of its sales through its own retail stores and the remainder through wholesalers. The retail stores were in thickly populated urban centers. Population shifts to suburbs adversely affected taxpayer’s sales. It set up a franchise division to make agency and franchise agreements with non-owned retail outlets. Before the agency system became operative various promotional expenses were incurred and claimed as a § 162(a) deduction. The court said, 475 F.2d at 782, that “expenditures by an already established and going concern in developing a new sales territory are deductible under § 162,” and allowed the deduction. In the instant case we have an established bank which adopted a new method, use of cards and computers, to conduct an old business, financing of consumer transactions. The business requirement of § 162(a) was satisfied.

V

Under § 162(a) deductible business expenses are those that are ordinary and necessary. The start-up expenses in question may be placed in three general groups: (1) computer costs, (2) credit checks, and (3) promotional activities. The ordinary and necessary test must be applied to each group.

The Supreme Court has considered the ordinary and necessary requirements on a number of occasions. See Lincoln Savings, 403 U.S. at 352-353, 91 S.Ct. 1893. To be necessary an expense must be “appropriate and helpful” to “the development of the [taxpayer’s] business.” Commissioner of Internal Revenue v. Tellier, 383 U.S. 687, 689, 86 S.Ct. 1118, 1120, 16 L.Ed.2d 185, quoting from Welch v. Helvering, 290 U.S. 111, 113, 54 S.Ct. 8, 78 L.Ed. 212.

Each category of start-up costs must be tested against these standards. A computer is a mechanical device for receiving, storing, and retrieving information. It performs the functions which at one time were performed by clerks m receiving and filing information and in keeping books on that information. Computers must be programmed and clerks must be trained. Computer charges are recurring just as are clerical salaries. The functions of each appropriately aid the conduct of taxpayer’s business.

Extension of credit requires evaluation of risk. Credit investigations are not new in the banking business. All that taxpayer has done is to determine the risk involved in the issuance of Master Charge cards to the recipients. Such risk determination is appropriate and useful to development of taxpayer’s banking business.

The next item relates to expenses for promotion, solicitation, training, and advertising during the pertinent tax year. Taxpayer here sought to encourage the sale and use of an old product, financing of consumer transactions, in a new package, credit cards. Eighty percent of the merchants signed by taxpayer for participation in the Master Charge program and 72% of the individuals to whom taxpayer issued Master Charge cards were already customers of taxpayer. The expenses now under consideration were for the promotion of the sale of a bank product, financing of consumer transactions. They were both appropriate and helpful to the development of taxpayer’s business. ■ We conclude that all of the challenged start-up costs meet the necessary requirement.

YI

The government insists that the start-up costs are not ordinary expenses because they generate future economic benefits. Participation in the Master Charge system was intended to enhance income. Some of that income was received in the tax year and some, hopefully, will come in the future.

In Hotel Kingkade v. Commissioner of Internal Revenue, 10 Cir., 180 F.2d 310, 312, we adopted the one-year rule under which an expenditure should be capitalized “if it brings about the acquisition of an asset having a period of useful life in excess of one year or if it secures a like advantage to the taxpayer which has a life of more than one year.” This rule was followed in United States v. Akin, 10 Cir., 248 F.2d 742, 744, cert. denied, 355 U.S. 956, 78 S.Ct. 542, 2 L.Ed. 532. In United States v. Wehrli, 10 Cir., 400 F.2d 686, 689, we said that the rule “was intended to serve as a mere guidepost for the resolution of the ultimate issue, not as an absolute rule requiring the automatic capitalization of every expenditure providing the taxpayer with a benefit enduring for a period in excess of one year.”

In Commissioner of Internal Revenue v. Lincoln Savings & Loan Ass’n, 403 U.S. 345, 354, 91 S.Ct. 1893, 1899, 29 L.Ed.2d 519, a case relating to the de-ductibility of a premium required by law to be paid to the Federal Savings and Loan Insurance Corp., the Court said that “the presence of an ensuing benefit that may have some future aspect is not controlling; many expenses concededly deductible have prospective effect beyond the taxable year.”

United States v. Mississippi Chemical Corp., 405 U.S. 298, 92 S.Ct. 908, 31 L.Ed.2d 217, was concerned with the deductibility of expenditures for stock in one of the Banks for Cooperatives established by the Farm Credit Act of 1933. The Court said, 405 U.S. at 310, 92 S.Ct. at 915: “Since the security is of value in more than one taxable year, it is a capital asset within the meaning of § 1221 of the Internal Revenue Code, and its cost is nondeduetible.”

The four cases just mentioned dealt with acquisitions of, or improvements to, a distinct and recognizable property interest. Participation in the Master Charge system has no extrinsic or marketable value. It creates no property right. We take the 1-year test to be no more than a factor for consideration. We do not know how the useful life of the asset, which the government says was acquired, would be determined. The government insists that the point is immaterial because we are not concerned with amortization. Be that as it may, the controlling question is whether taxpayer can expense, or must capitalize, the challenged items. We find no statutory, regulatory, or decisional test which is dispositive. The issue must be determined on the facts presented in the novel situation before us.

Tellier says, 383 U.S. at 689-690, 86 S.Ct. at 1120:

“The principal function of the term ‘ordinary’ in § 162(a) is to clarify the distinction, often difficult, between those expenses that are currently deductible and those that are in the nature of capital expenditures, which, if deductible at all, must be amortized over the useful life of the asset.”

In Lincoln Savings, 403 U.S. at 354, 91 S.Ct. at 1899, the Court said:

“What is important and controlling, we feel, is that the [challenged] payment serves to create or enhance for Lincoln what is essentially a separate and distinct additional asset and that, as an inevitable consequence, the payment is capital in nature and not an expense, let alone an ordinary expense, deductible under § 162(a) in the absence of other factors not established here.”

The premium payment in Lincoln flowed into the Secondary Reserve of Federal Savings and Loan Insurance Corp. ' The Court pointed out that the taxpayer had “a distinct and recognized property interest in the Secondary Reserve.” 403 U.S. at 355, 91 S.Ct. at 1899. The start-up expenditures here challenged did not create a property interest. They produced nothing corporeal or salable. They are recurring. At the most they introduced a more efficient method of conducting an old business. The government suggests no way in which they could be amortized. The government’s theoretical approach ignores the practicalities of the situation, and permits a distortion of taxpayer’s financial situation. If an expenditure, concededly of temporal value, may be neither expensed nor amortized, the adoption of technological advances is discouraged.

Welch v. Helvering, 290 U.S. 111, 113-114, 54 S.Ct. 8, 9, 78 L.Ed. 212, says that “what is ordinary * * * is * * * a variable affected by time and place and circumstance.” Deputy v. du Pont, 308 U.S. 488, 496, 60 S.Ct. 363, 367, 84 L.Ed. 416, says that: “It is the kind of transaction out of which the obligation arose and its normalcy in the particular business which are crucial and controlling.” We are concerned with times and circumstances in which the use of bank credit cards in consumer transactions is a normal part of the banking business. The challenged expenditures were for the continuation of an existing business and for the preservation and improvement of existing income. Hence, they were ordinary expenses. See Briarcliff, 475 F.2d at 787.

We are convinced that the challenged start-up expenses were ordinary and necessary and were incurred during the tax year in carrying on the banking business of taxpayer. Accordingly, they were deductible under § 162(a).

Affirmed.