author: PER CURIAM: JOHN R. BROWN, Chief Judge GEE, Circuit Judge

text:
    Sam H. JOHNSON, Plaintiff-Appellee, v. PENROD DRILLING COMPANY, Defendant-Appellant. James L. STARNES, Plaintiff-Appellee, v. PENROD DRILLING COMPANY, Defendant-Appellant.
    Nos. 71-2243, 71-2245.
    United States Court of Appeals, Fifth Circuit.
    March 21, 1975.
    Rehearing En Banc Denied May 1, 1975.

      John M. Smith, Longview, Tex., Warren M. Faris, Mat M. Gray, III, New Orleans, La., Sam B. Hall, Jr., Marshall, Tex., Joseph W. Milner, Shreveport, La., for defendant-appellant.
    Scott Baldwin, Marshall, Tex., Joseph D. Jamail, S. Gus Kolius, Houston, Tex., for plaintiffs-appellees.
    E. D. Vickery, Houston, Tex., amicus curiae, for West Gulf Maritime Assn.
    Francis H. Hare, Birmingham, Ala., amicus curiae, for Alabama Trial Lawyers Assn.
    Benjamin W. Yancey, Edward S. Bagley, New Orleans, La., amicus curiae, for New Orleans Steamship Assn.
    William R. Edwards, Corpus .Christi, Tex., amicus curiae, for Texas Trial Lawyers Assn.
    W. James Kronzer, pro se, amicus curiae.
    Samuel C. Gainsburgh,, New Orleans, La., amicus curiae, for Kierr, Gainsburgh & Benjamin.
    Royce R. Till, Sim T. Lake, Houston, Tex., amicus curiae, for Fulbright, Crooker & Jaworski.
    James E. Clark, Birmingham, Ala., amicus curiae, for Alabama Defense Lawyers Assn.
    Royal H. Brin, Jr., Dallas, Tex., amicus curiae, for Texas Assn, of Defense Counsel.
    Arthur J. Mandell, Houston, Tex., Marvin I. Barish, Philadelphia, Pa., amicus curiae, for Assoc, of Trial Lawyers of America.
    George A. Frilot, III, New Orleans, La., amicus curiae, for Survivors of U.S. Coast Guardmen who Lost Their Lives Aboard the Buoy Tender White Alder.
    Thomas F. Lambert, Jr., Boston, Mass., Tully R. Florey, III, Mt. Pleasant, Tex., amicus curiae.
    ON REHEARING EN BANC
    Before BROWN, Chief Judge, and WISDOM, GEWIN, BELL, THORN-BERRY, COLEMAN, GOLDBERG, AINSWORTH, GODBOLD, DYER, SIMPSON, MORGAN, CLARK, RONEY and GEE, Circuit Judges.
   PER CURIAM:

I JURY TRIAL

On the jury trial issue, the en banc court adopts the original panel opinion by Judge Simpson in this case, reported at 5 Cir., 469 F.2d 897.

II INFLATION

On November 21, 1972 an opinion by Judge Simpson for the panel was released to the parties and was reprinted in the advance sheets of the Federal Reporter, Second Series. The opinion released on that date contained an extensive discussion of the inflation issue. On petition for rehearing, March 29, 1973, the discussion of inflation in the initial opinion was modified and abbreviated to the language set out at 469 F.2d 904 — 5. The court en banc now adopts that portion of the full initial panel opinion as released on November 21, 1972, entitled “PROCEEDINGS FOLLOWING REMAND”. To facilitate reference thereto, the unpublished portion of that opinion is appended here.

We judicially notice that inflationary conditions in this nation’s economy have worsened in the interim between the November 21, 1972 panel opinion and today and we recognize that this accelerating rate of inflation increases the likelihood that inflation could become a predictable condition for the future. Nevertheless, with this added light, we still cannot so surely discern the shadow of inflation as a coming event as to warrant requiring its inclusion in a present rule for calculating future damages. The worsening of inflation might as readily foretell a recession or a depression as its continuity. Strong governmental counter-measures have been proposed and their efficacy is still unknown. Then too, if future inflation does cause higher wages, experience predictably demonstrates that higher interest rates on investments which have always accompanied inflation will also occur and this factor will mitigate the failure to include an inflationary surcharge in wage rate calculations. In addition to the Second and Sixth Circuit decisions cited in Judge Simpson’s opinion, we note that three other circuits appear to agree with this procedure. Cunningham v. Bay Drilling Company, 421 F.2d 1398 (5th Cir. 1970) is overruled. To the extent that Canal Barge Company, Inc. v. Griffith, 480 F.2d 11 (5th. Cir. 1973) announced a contrary view, that opinion cannot stand.

Ill INCOME TAX

In addition, the court en banc has considered whether on remand the juries in these causes should be permitted to consider evidence and be given an instruction on the impact of income taxes on their calculations of a proper award for loss of future wages. Allowing this subject matter to be considered would require the admission of expert opinion evidence as to what future income tax rates and deductions are expected as well as opinion evidence on what current rates and deductions would be applicable to the subject wage earner during various phases of the jury’s future loss calculations. Of necessity, this evidence would have to be accompanied by an instruction from the court as to the application of these rates to such untaxable compensatory elements (and, in some cases, such taxable punitive damage elements) as may be involved in the verdict. To compound the complexity and the jury’s difficulty in reducing the proof to a monetary award, the tax effect of contingent attorneys’ fees and the taxability of the interest earnings under the annuity principle used to calculate the reduced present value of future wages would have to be analyzed. As a judgmental matter and consistent with our views on inflation, in a case such as those at bar in which the annual wage rate involved (here 8,646.40 and 11,387.10 dollars) is subject to an income tax rate which would not distort projections or result in a windfall recovery, we conclude that justice is better served if these contingencies, variables and predictions are withheld from the jury’s consideration.

IV CONCLUSION

The rule on remand thus becomes closely similar to that announced by the panel in Blue v. Western Railway of Alabama, 469 F.2d 487 (5th Cir. 1972) Evidence to be adduced on the issue of future loss of earnings should be the predicted gross earnings lost due to defendant’s wrong or neglect, without adjustment for taxes, calculated over the projected work-life of the injured party. The evidence of gross earnings should expressly indicate that the proof adduced relates to total earnings rather than to the more familiar “take-home” pay. An instruction by the court may also make this condition clear if it is deemed necessary to avoid the possibility of duplication of the tax element in any award.

Blue required the use of an interest rate to reduce future wages to current value which was projected as appropriate “over the period of the remaining work-life of the plaintiff”. To attain the desired simplicity and efficiency of trial procedures, we recede from this portion of that decision. The calculated gross future earnings must be reduced to present value by the use of an appropriate interest rate prevailing at the time and place of trial.

The judgments of the district court in both No. 71 — 2243 and No. 71 — 2245 are reversed and the causes are remanded for further proceedings consistent with this opinion.

Reversed and remanded.

APPENDIX

PROCEEDINGS FOLLOWING REMAND

Our conclusion that the district court in each case deprived Penrod of its Seventh Amendment right to a trial by jury requires reversal of the judgments entered below with directions that new trials be held before juries unless Penrod consents under Rule 39(a) to non-jury proceedings. We think appropriate regard for husbanding judicial time requires comment upon the manner in which the issue of damages was litigated and decided below, and directions as to procedure after remand.

Dr. Thomas Mayor, an economist, testified for Starnes and Johnson in each trial for the purpose of projecting the plaintiffs’ future earnings and prevailing interest rates. He stated that, in his opinion, the wages of the plaintiffs would probably increase at an annual rate of 4.8% for the remainder of their projected work-lives. In addition, he recommended that the present values of these projected future earnings be computed through the application of a 4% reduction factor. Dr. Mayor selected a 4% factor because an insurance company, if asked to sell to the plaintiffs single payment annuity contracts written to return the average projected earnings of the plaintiffs over their anticipated work-lives, would assume a 4% return on investment.

Dr. Burke A. Parsons, also an economist, testified for Penrod in the Starnes trial for the purpose of rebutting Dr. Mayor’s testimony. Dr. Parsons expressed the view that it was impossible to project with accuracy inflationary trends in the economy and in the petroleum industry over the periods representing the remainders of the plaintiffs’ projected work-lives. He stated that the 4.8% wage increase figure projected by Dr. Mayor was too high. With regard to an appropriate rate to be employed for reducing the future earnings award to present value, Dr. Parsons testified that the then prevailing interest rates of between seven and eight percent per year on blue-chip corporate bonds would provide an acceptable range of reduction factors.

The district court made the following findings of fact as to the estimated future earnings of Starnes:

“30. Plaintiff was 32 years of age on the day of the accident complained of. He was 37 years old at the time of the trial and had a life expectancy of 34.4 years. In all reasonable probability, plaintiff would have continued to work until age 65.
31. The wages of one performing the type of work that plaintiff was performing at the time of the accident in issue is likely to increase at the annual rate of 4.8% per annum. This percentage of annual increases in wages was the rate of increase of such wages from 1946 to 1969; and was the rate of annual increases which had held good from the year 1900.
32. At the time of the trial, it would have cost plaintiff $418,671.00 to purchase a single annuity, without death benefits, to yield him his average annual wage, commencing at age 38, for the duration of his life.
34. The present cash value of plaintiff’s lost future earnings is $352,-424.17.”

In the Johnson case the findings were considerably more abbreviated, but obviously again reflected an adoption of the views expressed by Dr. Mayor:

“21. The present value of plaintiff’s loss of earnings from February 1, 1971, through the year 1997, the year at which the plaintiff would be sixty-five years of age, is $274,716.18.
27. Plaintiff was thirty-three years of age on the date of the accident complained of and had a reasonable-life expectancy of 36.69 years from such date, and a work life expectancy to the age 65.”

With respect to both Starnes and Johnson the district court found that they had been rendered permanently physically unfit to perform their usual duties of employment or other forms of manual labor on a regular or continuous basis and that neither plaintiff was equipped for retraining into work not entailing manual labor.

In 1939 the Restatement of Torts declared that “[A] person whose interests of personality have been tortiously invaded is entitled to recover damages for past or prospective . . -(b) loss of earning capacity or earnings”. Section 924, page 631. Comment d to that Section, dealing with loss of future earnings, observed:

“The extent of future harm to the earning capacity of the injured person is measured by the difference viewed as of the time of trial between the value of the plaintiff’s services as they will be in view of the harm and as they would have been had there been no harm. This difference is the resultant derived from reducing to present value the anticipated losses of earnings during the period of the prospective life the plaintiff would have had but for the defendant’s act. Accordingly, the trier of facts must ascertain, as nearly as can be done in advance, the difference between the yearly earnings which the plaintiff probably would or could have received during his life expectancy but for the harm and the earnings which he will probably be able to receive during the period of his life expectancy as now determined. In this are considered the type of work which the plaintiff has done, the type of work which, in view of his physical condition, education, experience and age, he would have been doing and will be likely to do in the future during the working period of his life, together with all other matters reasonably relevant. A result is erroneous, however, which widely differs from that which might reasonably be reached upon the admissible data.
In ascertaining the present worth of the future loss of earnings, that is, in discounting the recovery because future losses are paid for in advance, the rate of discount is based upon the current return upon long-term investments if the prospective losses are long continued.” Pages 634 — 635.

The impact of inflationary trends in the American economy upon the calculation of future lost earnings was perceptively discussed by Professors Harper and James in their treatise “The Law of Torts”:

“Greater confusion surrounds present damages for future loss. Future trends in the value of money are necessarily unknown and so always render such damages speculative in a way we cannot escape. If the estimates represent a straight-line projection of present living costs, they will be frustrated by fluctuations either way. If prophecy of change is heeded, frustration will follow if no change, or the opposite change, occurs. When courts have consciously grappled with the problem they have either found all prophecy too speculative and so, perforce, have taken the equally speculative course of betting on a continuance of the status quo; or they have made intuitive and not always very wise judgments that present conditions represent a departure from some imaginary norm to which they think we shall rapidly return. It is not at all clear that courts would be willing to hear experts on the matter or that they would get much real help if they did. For the most part the problem — which is inevitably present in every case of future loss — is not analyzed and the present value of money is assumed to be the proper basis.
The problem is necessarily insoluble under the principle of the single lump sum recovery. It could be approached with intelligent flexibility under a system of periodic payments continuing for the duration of future needs, though such a system would post other problems including a greater administrative burden on courts and defendants.” Volume II, “The Law of Torts”, § 25.11, pages 1325-1326.

The United States Supreme Court addressed itself to the problem of reducing to present value lost future earnings under the Federal Employers Liability Act, which is incorporated by reference into the Jones Act, in Chesapeake & Ohio Railway v. Kelly, 1916, 241 U.S. 485, 36 S.Ct. 630, 60 L.Ed. 1117. That case was an action brought in the Kentucky state courts under the provisions of the FELA. The trial court entered judgment for the plaintiff based upon jury verdict and the Court of Appeals of Kentucky affirmed. In so affirming the appellate court approved the trial judge’s refusal to instruct the jury to discount the lost future earnings figure (the refusal being based upon the theory that such a computation was too difficult for .the jury). The United States Supreme Court reversed, holding that the present cash value of future earnings is the proper measure of recovery in actions brought under the Act. With regard to the selection of the proper reduction factor, the Supreme Court noted:

“Local conditions are not to be disregarded, and besides, there may be cases where the anticipated pecuniary advantage of which the beneficiary has been deprived covers an expectancy so short and is in the aggregate so small that a reasonable man could not be expected to make an investment or purchase an annuity with the proceeds of the judgment. But, as a rule, and in all cases where it is reasonable to suppose that interest may safely be earned upon the amount that is awarded, the ascertained future benefits ought to be discounted in the making up of the award.
“We do not mean to say that the discount should be at what is commonly called the ‘legal rate’ of interest; that is, the rate limited by law, beyond which interest is prohibited. It may be that such rates are not obtainable upon investments on safe securities, at least, without the exercise of financial experience and skill in the administration of the fund; and it is evident that the compensation should be awarded upon a basis that does not call upon the beneficiaries to exercise such skill, for where this is necessarily employed, the interest return is in part earned by the investor rather than by the investment. This, however, is a matter that ordinarily may be adjusted by scaling the rate of interest to be adopted in computing the present value of the future benefits; it being a matter of common knowledge that, as a rule, the best and safest investments, and those which require the least care, yield only a moderate return.” 241 U.S. at 490—491, 36 S.Ct. at 632, 60 L.Ed. at 1122.

McWeeney v. New York, New Haven, and Hartford Railroad Company, 2 Cir. 1960, 282 F.2d 34, cert. denied 1960, 364 U.S. 870, 81 S.Ct. 115, 5 L.Ed.2d 93, was an action under the Federal Employers Liability Act. The Seco.pd Circuit, sitting en banc, held that the district court had not erred in refusing a jury instruction proffered by the defendant railroad to the effect that the jury, in calculating future loss of earnings, should consider only the plaintiff’s net income after the deduction of income taxes. The Court commented upon the impact of inflation in the following manner:

“Though some courts have sanctioned instructions permitting the jury to take into account inflation between the injury and the trial, there is little or no authority in favor of charging the jury to take future inflation into account, see 2 Harper and James, The Law of Torts, § 25.11 (1956). Yet there are few who do not regard some degree of continuing inflation as here to stay and would be willing to translate their own earning power into a fixed annuity, and it is scarcely to be expected that the average personal injury plaintiff will have the acumen to find investments that are proof against both inflation and depression — a task formidable for the most expert investor. The effect of inflation of 1% a year over McWeeney’s 29 — year expectancy at trial would go a long way toward offsetting any excess in the verdict due to failure to deduct income tax.” 282 F.2d at 38.

The Sixth Circuit, in Sleeman v. Chesapeake & Ohio Railway Company, 6 Cir. 1969, 414 F.2d 305, encountered a situation where the district court, sitting without a jury in an action brought under the Federal Employers Liability Act, computed the plaintiff’s future lost earnings but refused to reduce them to present value because he believed that inflationary trends would offset any reduction to present net worth. Citing the Supreme Court’s decision in Kelly, supra, the court of appeals reversed the trial court’s award of damages. The appeals court observed:

“Nor do we encourage the trial courts of our circuit to explore such speculative influence on future damages as inflation and deflation.
Of course, the nation’s economic history since the 1930’s would appear to make the use of present wages as the standard for loss of future earnings somewhat unfair to plaintiffs. But as to the future, the inflation versus deflation debate rages inconclusively at the highest policy levels of our government, in national electoral campaigns, in learned economic journals and is exemplified in the daily gyrations of the stock markets. The debate seems unlikely to be resolved satisfactorily in one personal injury trial. And if testimonial resolution of this factor bearing on the future is attempted, the door is opened to similarly speculative and debatable offsets tending in other directions. See McWeeney v. New York, N. H. & H. R.R., 282 F.2d 34 (2d Cir. 1960).” 414 F.2d at 308.

We take judicial notice of the prophetic quality of the Sixth Circuit’s disapproval of judicial inquiries into projected inflationary trends in our economy by noting the President’s issuance of Executive Order No. 11615, August 17, 1971, 36 F.R. 15727, exercising his powers under the Economic Stabilization Act of 1970, P.L. 91—379, 84 Stat. 799, to impose controls over prices, rents, wages and salaries.

Although we today reverse the judgments entered below on the jury trial question discussed supra, we expressly disapprove the district court’s attempt to take into account, in computing the plaintiffs’ future lost earnings, inflationary trends in this nation’s economy for the next several decades. As the Sixth Circuit concluded in its Sleeman decision, we hold that the influence on future damages of possible inflation or deflation is too speculative a matter for judicial determination. Should either or both of these cases be retried before a jury, the triers of the facts should not be instructed to take into account future inflationary or deflationary trends in computing future lost earnings, nor should the jury be advised to consider such alternative descriptions of inflationary and deflationary trends as the purchasing power of the dollar or the consumer price index.

In the event of a retrial or retrials before juries, jury instructions concerning the discount rates to be applied should conform with the Supreme Court’s comments in Kelly, supra, and today’s decision by us in Blue v. Western Railway of Alabama, 5 Cir. 1972, 469 F.2d 487.

JOHN R. BROWN, Chief Judge

(dissenting):

I respectfully dissent to the Court’s decision on issues I (jury trial), II (inflation), and III (income tax) and reserve the right to file a dissenting opinion on one or more or all of those issues.

GEE, Circuit Judge

(dissenting):

I respectfully dissent from the ruling of the court en banc insofar only as it may indicate (1) that the juries which will try these cases on remand should not be advised that the lump-sum awards which they will be called on to calculate as replacements and compensation for lost future earnings will be exempt from income tax and (2) that they are to use gross earnings as their net earnings figures. I do so because, in my view, these holdings mandate largesse and not justice.

That such awards are not taxable is a relatively occult piece of information which jurors are unlikely to know, whereas the certainty of death and taxes weighs upon the serious economic reflections (if no others) of every thinking citizen and will go with the jurors into the jury room when they retire. Their assumption in their deliberations can therefore only be that upon the amount which they award, as upon whatever else might be substituted for a taxiable item, the hand of the collector will fall. Also under our decision, unless I have misunderstood it, the jurors are to consider pre-tax earnings figures to arrive at this nontaxable award. Thus we open to them the gates of fairyland and direct them to arrive at a take-home earnings figure — and a lump sum to replace it— which never was and never would have been. This, I submit with deference, is not logic and should not be law.

Without belaboring the matter, it is well known that taxes on earned income may and do reach the fifty percent ceiling. One need only instance the case of, say, an able trial lawyer, an entertainer or a neurosurgeon earning $250,000 per year, having a twenty- or thirty-year work-life expectancy, killed under culpable circumstances, to grasp immediately that we here approve a blueprint for awards which may be clearly unjust by hundreds of thousands, perhaps even millions, of dollars. And so juries, retiring under the full force of natural sympathy and of counsel’s closing pleas to do full justice by the bereft on their only day in court, will produce verdicts incorporating generous windfall factors. It is to the countenancing of these, and not to an adequate — even a generous — compensation for real losses, that I voice my dissent. One of the pointed lessons of recent times has been that the supply of golden eggs is not unlimited: just so surely as we require that one person receive more than just compensation— what he would have gotten but for the defendant’s fault — somewhere another will receive less.

      . 1st Cir. Williams v. United States, 435 F.2d 804 (1st Cir. 1970).
      3rd Cir. Frankel v. Heym, 321 F.Supp. 1331 (E.D.Pa.1970), aff’d, 466 F.2d 1226 (3rd Cir. 1972). At p. 1346 the District Court stated:
      The projected inflationary trend is speculation. Plaintiff has used the decade of the 1960’s, one of the more inflationary times in the history of our country, as the basis for a projection of over fifty years. It is common knowledge that our Government is and has been attempting to control inflation, even to the point of considering wage and price controls. Economists differ on their predictions. Moreover, plaintiff will have money that can be invested and if inflation continues, the return on the money will be greater, and this would have an offsetting effect.
      9th Cir. Furumizo v. United States, 245 F.Supp. 981 (D.Hawaii, 1965), aff’d, 381 F.2d 965 (9th Cir. 1967). In upholding the trial court’s refusal to consider inflation, the circuit court stated: “Moreover, the period here in question is 34.6 years . . . and this court knows that less than that long ago there was a period of severe deflation.” Id. at 971. But see the per curiam in Mills v. Tucker, 499 F.2d 866 (9th Cir. 1974), which states in dictum that the trial court may have been in error in failing to fully account for inflation. See also Yodice v. Koninklijke Nederlandsche Stoom. Maat., 443 F.2d 76 (2nd Cir. 1971), cert. denied, 411 U.S. 933, 93 S.Ct. 1902, 36 L.Ed.2d 393 (1973); and Petition of United States Steel Corp., 436 F.2d 1256 (6th Cir. 1970), cert. denied, 402 U.S. 987, 91 S.Ct. 1649, 29 L.Ed.2d 153 (1971), cert. denied, 402 U.S. 987, 91 S.Ct. 1660, 29 L.Ed.2d 153 (1971), cert. denied, 402 U.S. 987, 91 S.Ct. 1665, 29 L.Ed.2d 153 (1971), reh. denied, 403 U.S. 924, 91 S.Ct. 2227, 29 L.Ed.2d 703, reh. denied, 403 U.S. 940, 91 S.Ct. 2247, 29 L.Ed.2d 720 (1971).

      . On rehearing, the panel in Canal Barge stayed its mandate and deferred consideration of this issue pending our en banc action. 480 F.2d at 34.

      . For example, who could have predicted that in the present inflationary times both the executive and legislative branches of our national government would be advocating a tax rebate (with proportionately higher benefits to lower income taxpayers), as a means of counteracting a contemporaneous business recession.

      . Our holding in Blue should be viewed as in part circumscribed by the nature of that appeal and the issues arising from it. There the appellant urged as error the exclusion by the trial judge of his tendered evidence as to his gross earnings history. The trial judge had instructed the jury to take into account in determining probable lost future earnings only the evidence before it of net wages earned. The appellant in Blue did not seek from us a ruling that evidence as to his past net earnings was improper, but rather sought to establish only his right in addition to put before the jury evidence of his gross earnings in the past. We ruled that he should be allowed to do so. The issue as presented by the appeal did not question the admissibility as such of evidence as to past net earnings.

      . With whom Gewin and Thomberry, Circuit Judges, join.

      . With whom Goldberg and Godbold, Circuit Judges, join.

      . With whom Ainsworth and Gee, Circuit Judges, join.

      . Together withithe jurors’ knowledge, common to mankind and as to which they require no special instruction, that we are in a period of long-term inflation and that lawyers must be paid.

      . Based on gross earnings.

      . It is true the majority opinion attempts to avoid the high-tax-rate decedent problem illustrated by hinting that different rules might apply to his case. This notion, however, raises more problems than it dispels. The suggestion seems to recognize that what we do here will necessarily produce awards in some measure unjust to the defendant, who is made to pay decedent’s beneficiaries an incremental amount which the government — rather than he — would have received had he lived. Doubtless a small- or middle-sized injustice is more tolerable than a large one, but I am disturbed to see us deliberately require the production of either sort. Put another way, since the suggestion all but admits that we here mandate gratuities, by what warrant do we extend our largesse to one set of beneficiaries and not to another? And at what point are our trial courts to draw the line?

      . As noted, this is especially so since the jury is misled as to tax effects not once, but twice: first in being offered gross earnings to use in computing take-home pay, and second in receiving no hint that their award is nontaxable. Use of net earnings would be the more desirable reform since these, like other factors involved in projecting a work-life’s value into the future, are at least accurate past facts. But the nontaxable character of the award should also be made known, lest the jury feel tempted or obliged to superadd a factor for taxes which the survivors will never in fact have to pay.


source: Caselaw Access Project

author: BROWN, Chief Judge:

license: Public Domain

text:
    Mrs. Joan Francis LAW, personal representative of the Estate of Wesley J. Law, Sr., etc., et al., Plaintiffs-Appellees, v. SEA DRILLING CORPORATION and Continental Oil Corporation, Defendants-Appellants. Thomas J. LeBEOUF, Plaintiff-Appellee, v. SEA DRILLING CORPORATION, Defendant-Appellant.
    No. 30657.
    United States Court of Appeals, Fifth Circuit.
    March 21, 1975.

      A. R. Christovich, Jr., New Orleans, La., for Sea Drilling Corp.
    Donald V. Organ, Joy S. Miller, New Orleans, La., for Continental Oil Corp. (Conoco).
    Kenneth W. Manuel, John R. Martzell, New Orleans, La., for Joan F. Law.
    Philip E. Henderson, Robert L. Morris, Houma, La., for Thomas J. LeBeouf.
    Before BROWN, Chief Judge, GEWIN and MORGAN, Circuit Judges.

      . Death on the High Seas Act, 46 U.S.C.A. § 761 et seq.

      . Moragne v. States Marine Lines, 1970, 398 U.S. 375, 90 S.Ct. 1772, 26 L.Ed.2d 339, 1970 A.M.C. 250.

   BROWN, Chief Judge:

Wesley Law and Thomas LeBeouf, employees of a service contractor, stood on the ramp running from a seagoing tender vessel to the fixed platform on the Outer Continental Shelf. The ramp —ominously, gruesomely but accurately for this case described as a “widow maker” — broke, precipitating both into the sea with severe injuries to Law which brought about his death within the hour. Precipitated as well were many intricate questions of law, not the least of which was what law controls? Surrogate law of Louisiana, the adjacent state? Federal statutory law in the form of Death on the, High Seas Act (DOHSA)? Or general maritime law under enlightened principles which freed the Supreme Court of the death hand — indeed more accurately the no death hand — of the Nineteenth Century? Time, tide and the incessant grist from the judicial mill and, most important, from the highest mill have washed out most of these problems since the distinction between the competing bodies of law pertain finally only to items of damages on which all sources now coalesce.

Continental Oil Corporation (Conoco) and Sea Drilling Corporation (Seadrill) appeal from the judgment of the District Court holding them jointly liable for the death of Wesley Law and the injury to Thomas LeBeouf that arose from that accident. The trial judge determined there was sufficient evidence to demonstrate that each was “actively” negligent and assessed damages, some jointly, and some allocable separately under the respective applicable laws — Conoco under the Louisiana surrogate Rodrique law and Seadrill under DOHSA. Each attacks the decision that they were each actively negligent and then, with a magnanimity characteristic of the typical Tinker-to-Evers to-Chance donneybrook each seeks to lay the whole off onto the other on all of the theories — contractual, land-based, maritime or ambiguous amphibious — of indemnity and contribution. We affirm the disallowance of reciprocal cross-claims for indemnity and with modification as to the allocation between the tortfeasors of the award to the plaintiffs except we reverse one issue — the appropriateness of permitting the recovery for future cost of living increases.

The Widow Maker

Wesley Law was killed and Thomas LeBeouf was injured when the ramp on which they were working collapsed, crushing Law and hurling them both into the Gulf swells below.

On the date of the accident this particular fixed platform, designated CATC— EC — 63 — B (63 — B), was one of many owned and maintained by Conoco on the Outer Continental Shelf area of the Gulf of Mexico. Pursuant to its contract, Seadrill agreed for a year to drill wells from several of these platforms and to provide for this purpose its own drilling rig and an LST-type tender vessel, SEADRILL XI, with its equipment, including a steel ramp. This ramp had to be adapted to the existing ramp support structure of Conoeo’s platform. This structure had been designed in 1956 by Brown & Root in cooperation with Conoco to specifically accommodate the ramp systems of tender vessels owned by Conoco itself. These earlier Conoco ramps were far lighter in weight and were so designed that the vessel-end of the ramp was suspended from the platform by cables, thus eliminating any contact with the vessel and potential single, double or triple dimension stresses from vessel movement.

By contrast, the Seadrill ramp assembly system did contact the vessel directly. In addition, it was designed to rest the entire weight of the platform-end of the ramp on the platform ramp support by the use of a linkage known as a fifth wheel. This fifth wheel, approximately 6 feet by 6 feet and 4 feet high, functions somewhat like a trailer hitch. The combined linkage at the ramp platform-end and the fifth wheel permits only lateral motion but not other motions from the roll and pitch of the vessel.

To accommodate the fifth wheel, the 63 — B platform support beams had to be extended beyond the vertical column support system. According to the testimony of Seadrill employees, the need for this extension was called to the attention of the Conoco employee in charge of supervising the loading operation. Together employees of both companies agreed that a 17 inch extension should be welded to the ramp support. Then, without the benefits of engineering advice or any apparent consideration of the effects of this extension on an already overloaded ramp support, Seadrill employees welded the extension and, lastly, the fifth wheel in place. The following day a tool pusher for Seadrill noticed lateral play in the ramp support and ordered that additional lateral supports be installed.

On" the next day, Law and LeBeouf, employees of Superior Casing Crews, the company that had contracted to drive the surface casing in the well being drilled, were working on the platform. A 6 ton diesel hammer required to drive the surface casing had been offloaded onto SEADRILL XI from an equipment barge earlier that day. The procedure was to lift the hammer from the deck of SEADRILL XI, lower it onto the ramp, remove the shackles from the vessel crane, connect the shackles from the platform crane, lift it and then swing it over and onto the platform. While Law — the supervisor of the crew, LeBeouf, and a third Superior worker-were on the ramp in the process of removing the shackles from SEADRILL XI’s crane and detaching the lead from the platform crane to the diesel hammer, thé ramp support on which the fifth wheel rested collapsed.

The Suit and Judgment

Law received crushing blows to his pelvic area and died 30 minutes to an hour later on board the SEADRILL XI after a prolonged and difficult rescue. Thomas LeBeouf, in shock and in pain from his left shoulder throughout his arm, suffered a respiratory infection from the salt water but was able to return to work about two weeks later.

Joan Law, as personal representative of the estate of Wesley Law, brought this action on her own behalf and that of her three minor children alleging negligence and unseaworthiness against Sea-drill, negligence against Conoco invoking the wrongful death provisions of the Louisiana code, DOHSA and general maritime principles. On an extensive evidentiary record, the District Judge found that each was negligent, the SEADRILL XI was unseaworthy and held them both liable jointly and in solido. The Court awarded $191,388.55 against both with separate additional recoveries of $70,000.00 against Conoco and $24,000.00 against Seadrill. (See note 19, infra).

Negligence Of Conoco And Seadrill

The defendants cross swords on appeal first and foremost over the issue of whether their actions were individually negligent. Failing vis-a-vis the victims, each would then seek to shift the taint of negligence and its monetary burden to the other under any one or more or all of three theories: (i) TriState active-passive-major-minor tort indemnity principles, (ii) breach of the Ryan WWLP warranty, and (iii) contractual indemnity in the drilling contract. However, after a full review of the transcript, we are convinced that the finding of active negligence by both defendants is adequately supported by the evidence.

A brief description of the drilling procedure followed by both pursuant to their contract demonstrates their individual culpability and hence joint liability for this tragedy. The fault of Conoco lay in its failure to fulfill its supervisory responsibilities over the equipment transfer procedure of which the ramp installation was a major part. On two prior occasions Conoco had employed the same tender vessel and equipment to drill wells from its platforms. Both times its engineering department ascertained the requirements of the rig and modified the platform to fit Seadrill’s equipment. Although both platforms lacked any ramp support and therefore required obvious alterations, unlike platform 63 — B here, the Judge could find that Conoco was aware of the design and weight limitations of platform 63 — B and the peculiar needs of the fifth wheel design of the SEADRILL XI ramp but failed to coordinate this knowledge among its various departments.

While there was no specific inspection procedure called for under the contract requiring Conoco’s engineering department to check the ramp system, Conoco bore full responsibility for supervising the rigging operations and it provided a man at the job site for this purpose. There was testimony that the trial judge could credit fully showing that this

Conoco supervisor agreed to the ramp extension which further weakened the already overstrained support structure.

In short, there was ample basis for the Judge’s finding that Conoco was negligent in each of the respects listed.

While the fault of Seadrill differs from that of Conoco, it is clear that its employees on the job site also made crucial decisions that contributed directly to the accident. Seadrill employees were the first to recognize that modifications would be necessary to enable the platform support to accommodate their ramp. Despite their own lack of engineering knowledge, they did not consult Conoco’s engineering department but took it upon themselves to weld the ramp support extensions that they thought necessary. While it was the original platform member itself, rather than these welds or the extension, that snapped, this affords no escape because it was the overweight of ramp and diesel hammer that caused the ramp to fail. There is more than enough to warrant the finding of fault.

Unseaworthiness Of SEADRILL XI

A further finding to inculpate Seadrill is not necessary in view of the positive holding of negligence so we do not have to resolve the issue. However, there was ample evidence to warrant the Court’s findings that SEA-DRILL XI was unseaworthy on the ground (among others equally valid) that the' ramp-gangway system for ingress and egress and transfer of equipment and supplies was not reasonably fit for the use for which it was intended. Proof of this is the simple, but classically significant, fact that it failed under expected conditions.

The fact that the ramp-gangway may have failed because of the break in the ramp support structure on the platform is of no consequence. The ramp was a part of the vessel’s equipment. As a means of ingress-egress and, more important, transfer of heavy articles, the sufficiency of the rig depended on the adequacy of the platform-end of the structure to bear the weight of the ramp and cargo to be landed on it. The vessel could not palm this off onto the platform owner, at best a sort of vicarious wharf owner.

Choice Of Law

On Liability

Thus far we have had to make none of the intricate choice-of-law decisions of the kind with which we dealt at length in Dearborn. For here on any basis— surrogate Louisiana law, DOHSA, or general maritime law (with or without unseaworthiness) — Conoco and Seadrill each are justifiably cast either jointly or separately for those distinctive elements of damages allowable under the body of law applicable to each.

On Damages

Conscious Pain And Suffering

Item (7)

But on damages the matter is not so easy, or more accurately, at least, it was not at the time the judgment was entered. The District Judge obviously recognized the problem. It is evident that for these flagrant faults he intended to make an award for every conceivable element of damages sustained by adequate proof and recoverable against one or the other or both, depending on the source of law chosen and applicable.

This is illustrated by conscious pain and suffering (Item 7, Col. (B)). Without regard to the dollar amount (discussed later) it is perfectly clear that such damage was suffered in fact. But at the time of judgment DOHSA then supplied the principal maritime remedy and no recovery for this under DOHSA was allowable. Consequently, the Court assessed it against the only party having a certain liability therefor — Conoco under surrogate Louisiana law.

The same was true of loss of love and affection (Item 6(a)(b)(c)(d), Col. The converse was applied to loss of nurture, guidance and control (Item 8(a)(b)(c), Col. (Q) for which Seadrill was cast as DOHSA jurisprudence permitted. Whether this is recoverable under Louisiana law was not determined and it may be that having saddled Cono(B)). co with $70,000 (Col. (B)) not then thought to be recoverable against Sea-drill, the Judge moved from the wool-sack to the quarter deck to apply some nautical equity.

But all of that has changed— not in the twinkling of an eye, to be sure, but changed by the steady flow of maritime standards. First came Moragne, which overruling The Harrisburg, recognized as a part of the general maritime law a right to recover for maritime wrongful death independent of a statute. We join the First Circuit in its recent Barbe decision to now hold what we said in Dennis that Moragne applies not only to navigable waters of the States, but to the High Seas as well, including the area defined in DOHSA.

Loss Of Love And Affection

Item (6)

Next came Gaudet in which, as a natural development from Moragne, the Court held that the wrongful death remedy available under maritime law included an assessment for loss of society. Specifically the Court declared:

The term “society” embraces a broad range of mutual benefits each family member receives from the others’ continued existence, including love, affection, care, attention, companionship, comfort and protection.

Sea-Land Services v. Gaudet, 414 U.S. at 585, 94 S.Ct. at 815, 39 L.Ed.2d at 21.

This means that allowance of loss of love and affection (Item 6(a)(b)(c)) need not be confined to Conoco (Col. (B)) but is assessable against Seadrill as well.

Loss Of Nurture And Guidance

Item (8)

This then leaves loss of nurture, guidance and control (Item 8(a)(b)(c)(d), Col. (B)) assessed against Seadrill.

Seadrill challenges this on the ground of duplication arguing that there is no essential difference between this award and the award given the entire Law family for the loss of love and affection against Conoco (Item 6(a)(b)(c), Col. (B)). We disagree for the distinction between the loss of love and affection and the loss of services such as nurturance, training, education and guidance of minor children has been accepted by both the Supreme Court and this Court as well, Indeed, the Supreme Court in Gaudet distinguished in successive paragraphs one from the other to thereby hold that both are recoverable under Moragne maritime law.

Consequently, this was properly allowed against Seadrill (Item 8(a)(b)(c), Col. (C)) and so far as presently appears there is no basis for concluding that the Judge under Louisiana principles thought that he either should or could assess this against Conoco were Seadrill not liable under maritime principles.

Reductions In Future Earnings Attributable To Personal Expenses

The Court in fixing the award for future loss of earnings made a 15% deduction (Item 4) for that portion of Wesley Law’s earnings which he would have expended on his own behalf had he lived. Conoco certainly, and Seadrill perhaps, contend that this deduction was too small. However, we think the findings of the Court were amply justified on the record. Law was the father of three minor children at the time of his death. As supervisor of the Superior Casing Crew employees on the job site, he was furnished a company car for his own use, eliminating what is a major expense for most people. In addition, Conoco introduced no evidence that would indicate to us that the expenses of Law were any greater than the 10% attributed to him in his wife’s estimates or the 15% used by the Court below.

Inflationary Cost Of Living Increase

Item (3)

In fixing the award for loss of future earnings the Court made an additional allowance for cost of living increase in the sum of $41,665.00 (Item 3). We have had to hold up this opinion since this issue was pending before the Court en banc in Penrod, just decided, by holding such inflationary damages are not recoverable.

Cross Indemnity

Both Conoco and Seadrill urge this Court to grant indemnity on several theories. The first is on the provisions of the contract. Seadrill points to the term requiring Conoco to provide an adequate platform on which to rest the ramp of the tender vessel. Conoco maintains that indemnity is justified because Seadrill had a duty (i) to examine and report all defects in equipment, (ii) to assume all responsibility for any loss caused by visible defects not called to the attention of the company, and (iii) to perform with due diligence and in a workmanlike manner.

But reading the contract in the light of this record and the findings of the District Court on fault we think that under both Louisiana law and general principles the contract lacks the requisite specificity to allow either of these two parties found guilty of active negligence to recover indemnity as negligent indemnitees.

The dying gasp at a WWLP under Ryan meets with a similar lack of success since we have repeatedly resisted all efforts to project this implied indemnity concept outside the special circumstances of the shipowner relationships that evoked the doctrine in the first place absent any contractual provisions in the underlying contracts.

Tag-Ends

Lastly, we conclude that it was entirely proper for the District Court to award interest to run from the date of judicial demand against both defendants. National Airlines, Inc. v. Stiles, 5 Cir., 1959, 268 F.2d 400. Similarly, we believe that the award of $5,000 damages for the injury to LeBeouf was proper. Consequently we reverse as to Item (3) and delete this entirely from damages allowed.

Modified and as modified affirmed in part; reversed in part.

      . Rodrigue v. Aetna Casualty & Surety Co., 1969, 395 U.S. 352, 89 S.Ct. 1835, 23 L.Ed.2d 360, 1969 A.M.C. 1082.

      . In addition to Moragne there were Huson v. Chevron Oil Co., 5 Cir., 1970, 430 F.2d 27, 1970 A.M.C. 1978, rev’d., 404 U.S. 97, 92 S.Ct. 349, 30 L.Ed.2d 296, 1972 A.M.C. 20; Executive Jet Aviation v. Cleveland, 1972, 409 U.S. 249, 93 S.Ct. 493, 34 L.Ed.2d 454, 1972 A.M.C. 1915; Victory Carriers, Inc. v. Law, 1971, 404 U.S. 202, 92 S.Ct. 418, 30 L.Ed.2d 383, 1971 A.M.C. 810; Sea-Land Services, Inc. v. Gaudet, 1974, 414 U.S. 573, 94 S.Ct. 806, 39 L.Ed.2d 9, 1974 A.M.C. 1893, each of which in turn precipitated a request for supplemental briefs from the parties.

      . See note 19, infra, itemizing the damages adjudged.

      . Conoco’s own witness, Fred Hauber, an employee of Brown & Root which had collaborated in the design of this platform, testified that the ramp support was designed only for static, not dynamic, loading. The heaviest load that had ever been envisioned for the ramp was 10,000 lbs. The diesel hammer being loaded at the time of the accident alone weighed more than that. Hauber testified that in his opinion the collapse was due to fatigue failure caused by a combination of motion and stress.

      . Louisiana Civil Code, Article 2315.

      . Tri-State Oil Tools Industries v. Delta Marine Drilling Co., 5 Cir., 1969, 410 F.2d 178, 1969 A.M.C. 767.

      . Ryan Stevedoring Co., Inc. v. Pan-Atlantic S. S. Corp., 1955, 350 U.S. 124, 76 S.Ct. 232, 100 L.Ed. 133, 1955 A.M.C. 2137.

      . D/S Ove Skou v. Hebert, 5 Cir., 1966, 365 F.2d 341, 1966 A.M.C. 2223; Boutte v. M/V Malay Maru, 5 Cir., 1967, 370 F.2d 906, 1967 A.M.C. 2149; Grigsby v. Coastal Marine, 1969, 5 Cir., 412 F.2d 1011, 1969 A.M.C. 1513; Burrage v. Flota, 5 Cir., 1970, 431 F.2d 1229, 1970 A.M.C. 2254; Legnos v. M/V Olga Jacob, 5 Cir., 1974, 498 F.2d 666, 1974 A.M.C. 2328.

      . Furthermore, Conoco’s supervisory control over this operation was not eliminated by its delegation to Seadrill of the authority to make on-the-job alterations as necessary to accommodate the drilling equipment. Such authorization was evidenced in Conoco’s answer to plaintiffs interrogatories:
      “No. 11 Was the addition of extension beam to the previously existing beams approved by Continental Oil Company prior to the start of the actual construction? Answer. Sea Drilling Company had implied approval to make any necessary and proper alteration in order to accomplish their purpose; however, no advance specific approval was requested or given regarding the extension under discussion.” “Please refer to Answer No. 30 of previous interrogatories and state the date an extension to the beams was made by Sea Drilling Corporation.
      (e) Whether or not said extension was made with the actual knowledge and permission, actual or implied, of Continental Oil Company or any of its agents or employees Answer. Yes.”

      . See note 6, supra.

      . The trial judge specifically found:
      A proximate cause of the failure of the ramp support was the negligence of Continental Oil Company in:
      a) The improper design and construction of the original ramp support.
      b) Permitting the ramp support to be used in a manner contrary to its original intended use.
      c) Permitting Sea Drilling Corporation to install its equipment on Continental Oil Company’s platform without determining the capacity of its platform and ramp support and without determining the mechanical effects of Sea Drilling Corporation’s equipment on the platform.
      d) Permitting Sea Drilling Corporation to alter the ramp support without proper supervision and without adequate engineering studies and bracing to provide a safe ramp system.
      e) Permitting Sea Drilling Corporation to overload its ramp support.

      . The Court found:
      A proximate cause of the failure of the ramp support was the negligence of Sea Drilling Corporation in:
      a) Installing its ramp system on the Continental Oil Company platform without adequate knowledge of the weights of its equipment and the mechanical effects of the installation.
      b) Failing to secure competent engineering advice about the installation of its ramp system.
      c) Adding the ramp support extensions without prior investigation of the mechanical effect of the alteration.
      d) Overloading its ramp during unloading procedures.

      . See generally Delaneuville v. Simonsen, 5 Cir., 1971, 437 F.2d 597; Grigsby v. Coastal Marine, 5 Cir., 1969, 412 F.2d 1011; Walker v. Harris, 5 Cir., 1964, 335 F.2d 185, cert. denied, 379 U.S. 930, 85 S.Ct. 326, 13 L.Ed.2d 342.

      . Since the men were offloading the diesel hammer from vessel to platform, we can assume they were SieracJd-ambiguous amphibious seamen although In re Dearborn v. Marine Service, Inc., 5 Cir., 1974, 499 F.2d 263, rehearing en banc denied, 512 F.2d 1061, might raise some doubts on analogizing this oil well exploratory drilling operation to the traditional, but ancient cargo handling by a Richard Dana’s Two Years Before The Mast blue water seamen, which Sieracki transferred to landlubber longshoremen to become thereby vicarious seamen.

      . We have no difficulty finding that a vessel may be unseaworthy due to a defect in one of its extremities, such as the ramp in this case. The ramp here, as part of the ship’s regular equipment, was the essential unloading apparatus used by the crew “in the service of the ship.” See generally Deffes v. Federal Barge Lines, Inc., 5 Cir., 1966, 361 F.2d 422, 1966 A.M.C. 1415.

      . See note 16, supra.

      . See note 19 on page 249.

        19. The Court fixed and allocated damages as follows:

      . Brown v. Anderson-Nichols Co., D.Mass., 1962, 203 F.Supp. 489, The Culberson, 3 Cir., 1932, 61 F.2d 194.

      . Simpson v. Knutsen, O.A.S., 9 Cir., 444 F.2d 523, 525 (loss of consortium); In re United States Steel Corp., 6 Cir., 1970, 436 F.2d 1256, 1278, cert. denied sub nom. Lamp v. United States Steel Corp., 1971, 403 U.S. 940, 91 S.Ct. 2247, 29 L.Ed.2d 720 (loss of consortium, love, companionship and guidance to adult children); First National Bank in Greenwich v. National Airlines, Inc., 2 Cir., 1961, 288 F.2d 621 (loss of companionship and guidance to adult children); Middleton v. Luckenbach S.S. Co., Inc., 2 Cir., 1934, 70 F.2d 326. (companionship).
      But see most recently Skidmore v. Grueninger, 5 Cir., 1974, 506 F.2d 716.
      On the other hand, as the Judge held,
      “Under Louisiana law, a widow and children may recover for loss of love and affection. Dobyns v. Yazoo and M. V. R. Co., 119 La. 72, 43 So. 934 (1907); Cf. Silverman v. Travelers Insurance Co. (5 Cir. 1960) 277 F.2d 257.”

      . The Judge held:
      “Under the Death on the High Seas Act, minor children may recover for loss of nurture, guidance and control. Moore-McCormack Lines, Inc. v. Richardson, 2 Cir., 1961, 295 F.2d 583, 588, cert. den., 1962, 368 U.S. 989, 82 S.Ct. 606, 7 L.Ed.2d 526 and cases cited therein.”
      We have so held: Grigsby v. Coastal Marine Service, 5 Cir., 1969, 412 F.2d 1011, 1042, cert. dismissed, 396 U.S. 1033, 90 S.Ct. 612, 24 L.Ed.2d 531.

      . Cates v. United States, 5 Cir., 1971, 451 F.2d 441; Compania Anonima Venezolana De Navegacion v. A. J. Perez Export Co., 5 Cir., 1962, 303 F.2d 692, 699, 1962 A.M.C. 1710, 1719, cert. denied, 371 U.S. 942, 83 S.Ct. 321, 9 L.Ed.2d 276; Hadjipateras v. Pacifica S.A., 5 Cir., 1961, 290 F.2d 697, 1961 A.M.C. 1417.

      . Moragne v. States Marine Lines, 1970, 398 U.S. 375, 90 S.Ct. 1772, 26 L.Ed.2d 339.

      . The Harrisburg, 1886, 119 U.S. 199, 7 S.Ct. 140, 30 L.Ed. 358.

      . Barbe v. Drummond, 1 Cir., 1974, 507 F.2d 794. Others had earlier so held: Dugas v. National Aircraft Corp., 3 Cir., 1971, 438 F.2d 1386; Greene v. Vantage S. S. Corp., 4 Cir., 1972, 466 F.2d 159.

      . Dennis v. Central Gulf Steamship Corp., 5 Cir., 1972, 453 F.2d 137, cert. denied, 409 U.S. 948, 93 S.Ct. 286, 34 L.Ed.2d 218. See In re Dearborn Marine Service, Inc., 499 F.2d at 288.

      . This takes care of pain and suffering (Item (4)) so that it is now properly allowable against Seadrill as well.
      We reject Conoco’s argument, which presumably Seadrill will now embrace, that the award of $15,000.00 was excessive.
      The degree of Law’s pain is shown by the fact that the injury to the pelvic area was so great that Law could not aid in his own rescue effort and remained in the water far longer than did the other two injured men. Secondly, to administer artificial respiration the crewman of the tender vessel had to straddle Law’s crushed pelvic area thereby increasing the magnitude of whatever pain Law was capable of feeling at that time. The inhalation of water and the shock from his injuries resulted in his death.

      . Sea-Land Services, Inc. v. Gaudet, 1974, 414 U.S. 573, 94 S.Ct. 806, 39 L.Ed.2d 9, 1974 A.M.C. 1893.

      . Grigsby v. Coastal Marine Service, 5 Cir., 1969, 412 F.2d 1011, 1042, cert. dismissed, 396 U.S. 1033, 90 S.Ct. 612, 24 L.Ed.2d 531. See also Moore-McCormick Lines, Inc. v. Richardson, 2 Cir., 1961, 295 F.2d 583, 588.

      . Recovery for loss of support has been universally recognized, and includes all the financial contributions that the decedent would have made to his dependents had he lived. Similarly, the overwhelming majority of state wrongful-death acts and courts interpreting the Death on the High Seas Act have permitted recovery for the monetary value of services the decedent provided and would have continued to provide but for his wrongful death. Such services include, for example, the nurture, training, education, and guidance that a child would have received had not the parent been wrongfully killed. Services the decedent performed at home or for his spouse are also compensable.
      Compensation for loss of society, however, presents a closer question. The term “society” embraces a broad range of mutual benefits each family member receives from the others’ continued existence, including love, affection, care, attention, companionship, comfort, and protection.

       See, e. g., Michigan C. R. Co. v. Vreeland, 227 U.S. 59 at 70 [33 S.Ct. 192, 196, 57 L.Ed. 417 (1913)]; The S. S. Black Gull, 90 F.2d 619 (2 Cir. 1937) (interpreting the Death on the High Seas Act); Dugas v. National Aircraft Corp., 438 F.2d 1386 (3 Cir. 1971) (interpreting the Death on the High Seas Act); F. Tiffany, Death by Wrongful Act §§ 153, 160 (2d ed. 1913); S. Speiser, Recovery for Wrongful Death § 3.4 (1966) [(hereafter Speiser)]; W. Prosser, Law of Torts § 127, p. 906. Damages for loss of support have also been awarded consistently in post-Moragne maritime wrongful death actions. See, e. g., Dennis v. Central Gulf Steamship Corp., 323 F.Supp. 943 [(D.C. La.1971)], aff’d, 453 F.2d 137 (5 Cir. 1972); Petition of United States Steel Corp., 436 F.2d 1256 (6 Cir. 1970); In re Cambria Steamship Co., 353 F.Supp. 691 (D.C. 1973); Mascuilli v. United States, 343 F.Supp. 439 (D.C. 1972); In re Sincere Navigation Corp., 329 F.Supp. 652 (D.C. 1971); Petition of Canal Barge Co., 323 F.Supp. 805 (D.C. 1971).

      . The net result of our holding with respect to Item 6(a)-(d) and Item 7 aggregating $70,-000.00 is to allocate these items equally as between Conoco and Seadrill.

      . With respect to future loss of earnings the Judge made these findings of fact:
      45.
      A reasonable discount rate for future loss of wages is 4%.
      46.
      Future loss of income from the death of Wesley Law calculated at $800.00 per month to life expectancy discounted at 4% is $159,-398.00.
      47.
      Cost of living increases and inflation would cause an increase in loss of income from the death of Wesley Law at a rate of 2% per year to work-life expectancy discounted at 4% for $41,665.00. Wesley Law was reasonably to be expected to increase his income based on the continued rise in his income reflected by his position and income tax returns.

      . Johnson v. Penrod, 5 Cir., 1972, 469 F.2d 897, reh. granted, 5 Cir., 478 F.2d 1208; Canal Barge Co. v. Griffith, 5 Cir., 1973, 480 F.2d 11, 34; In re Sincere Nav. Corp., E.D. La., 1969, 295 F.Supp. 610.

      . Johnson v. Penrod, 5 Cir., 1975, 510 F.2d 234 [Nos. 71-2243, 71-2245, March 21, 1975, slip opinion 234],

      . Cole v. Chevron Chemical Co-Oronite Div., 5 Cir., 1973, 477 F.2d 361; Gorsalitz v. Olin Mathieson Chem. Corp., 5 Cir., 1970, 429 F.2d 1033; Grigsby v. Coastal Marine Service of Texas, Inc., 5 Cir., 1969, 412 F.2d 1011, 1969 A.M.C. 1513.
      Louisiana law is clearly to the effect that the failure of the parties to refer expressly to “negligence” in an indemnity contract is evidence of the parties intention not to provide indemnification for the indemnitee’s negligent acts. Bagwell v. South Louisiana Electric Co-op Assoc., La.App. 1969, 228 So.2d 555; Arnold v. Stupp Corp., La.App. 1967, 205 So.2d 797; see Plantation Pipeline Co. v. Kaiser Aluminum and Chemical Corp., La.App. 1969, 222 So.2d 905; Elephant, Inc. v. Hartford Accident & Indemnity Co., La.App. 1968, 216 So.2d 837; Brady v. American Insurance Co., La.App. 1967, 198 So.2d 907. The parties’ clear and unequivocal intent to indemnify against damages caused solely by the indemnitee’s own negligence must be expressly articulated by specific reference to “negligence.” Otherwise, the presumption is that the indemnification is applicable only to vicarious responsibility of the indemnitee resulting from negligent acts of the indemnitor. Bagwell v. South Louisiana Electric Co-op Assoc., supra; Arnold v. Stupp Corp., supra; Gorsalitz v. Olin Mathieson Chemical Corp., 5 Cir. 1970, 429 F.2d 1033; and Grigsby v. Coastal Marine Service of Texas, Inc., 5 Cir. 1969, 412 F.2d 1011. Compare Jennings v. Ralston Purina Co., La.App. 1967, 201 So.2d 168.
      Cole v. Chevron Chemical Co-Oronite Div., 5 Cir., 1973, 477 F.2d 361, 363.

      . United States v. Seckinger, 5 Cir., 1969, 408 F.2d 146, reversed as to the principles of indemnification to be applied to government contracts, 1970, 397 U.S. 203, 90 S.Ct. 880, 25 L.Ed.2d 224.

      . Ocean Drilling & Exp. Co. v. Berry Bros. Oilfield Serv., Inc., 377 F.2d 511, 513 (CA5), cert. denied, 389 U.S. 849, 88 S.Ct. 102, 19 L.Ed.2d 118 (1967). Accord, Smith Pet. Serv., Inc. v. Monsanto Chem. Co., 420 F.2d 1103, 1109-1111 (CA5 1970); Delta Engineering Corp. v. Scott, 322 F.2d 11 (CA5 1963), cert. denied, 377 U.S. 905, 84 S.Ct. 1164, 12 L.Ed.2d 176 (1964); Halliburton Co. v. Norton Drilling Co., 302 F.2d 431 (CA5 1962), cert. denied, 374 U.S. 829, 83 S.Ct. 1870, 10 L.Ed.2d 1052 (1963); Transcontinental Gas Pipe Line Corp. v. Mobile Drilling Barge, 424 F.2d 684, 693 (CA5), cert. denied sub nom. Ocean Drilling & Exp. Co. v. Signal Oil & Gas Co., 400 U.S. 832, 91 S.Ct. 65, 27 L.Ed.2d 64 (1970). Loffland Bros. Co. v. Roberts, 386 F.2d 540, 549 (CA5 1967), cert. denied, 389 U.S. 1040, 88 S.Ct. 778, 19 L.Ed.2d 830 (1968).
      See most recently In Re Dearborn Marine Service, Inc., 499 F.2d 287, in which we again refused to extend this concept.


author: PER CURIAM:

text:
    SOCIALIST WORKERS PARTY et al., Plaintiffs-Appellees, v. ATTORNEY GENERAL OF the UNITED STATES of America et al., Defendants-Appellants.
    No. 638, Docket 74-2640.
    United States Court of Appeals, Second Circuit.
    Argued Dec. 24, 1974.
    Decided Dec. 24, 1974.
    Steven J. Glassman, Asst. U. S. Atty. (Paul J. Curran, U. S. Atty., Southern District of New York, and John S. Siffert, Asst. U. S. Atty., of counsel), for defendants-appellants.
    Herbert Jordan, New York City (Rabinowitz, Boudin & Standard, New York City, of counsel), for plaintiffs-appellees.
    Before FRIENDLY, TIMBERS and GURFEIN, Circuit Judges.
   PER CURIAM:

In this action, filed in the District Court for the Southern District of New York in July, 1973, the Socialist Workers Party (SWP), its youth-arm, Young Socialist Alliance (YSA), and several members sought wide ranging injunctive and monetary relief against a large number of Government officials with respect to alleged activities directed against the two organizations. Various pretrial steps had been taken, and trial early in 1975 appeared to be in prospect. On October 25, 1974, plaintiffs moved for what was styled a “preliminary” injunction restraining the Director of the Federal Bureau of Investigation (FBI) and his agents “from attending, surveilling, listening to, watching, or in any way monitoring the fourteenth National Convention of plaintiff Young Socialist Alliance to be held at the Jefferson Hotel in St. Louis, Missouri, from December 28, 1974, through January 1, 1975, and further restraining them from threatening any of the said acts and from causing or threatening to cause any of the said acts.” After receiving affidavits and hearing counsel on three occasions, Judge Griesa, on December 13, 1974, rendered an extensive oral opinion and entered an order granting the injunction sought. The defendants promptly appealed and moved for a stay and for a preference or an expedited appeal, claiming inter alia that non-attendance by the informants would compromise their usefulness and even entail risk to their safety. On December 19 we set a briefing schedule which would bring the motions on for argument on December 24. Since decision on the motion for a stay would in effect determine the appeal and the briefs appeared to include all considerations relevant thereto, we later advised counsel that we would hear the appeal itself.

A few facts are undisputed: The convention is open for attendance by any person under the age of 29. This is true even of “delegated” sessions where only elected delegates may speak and vote but all registrants are welcome as observers. Persons attending the meeting wear identification badges. There is to be no electronic surveillance. Although at one time the FBI had developed a program to engage in disruptive activities at SWP and YSA conventions, this was formally discontinued in April 1971, and there is nothing to show it has been renewed. While the district judge and the plaintiffs make some general references to “surveillance”, the Government has represented that at the 1974 convention there will be none in the ordinary sense and that the investigating method will be the use of informants who will attend the meetings as any member of the public, including the press, has been allowed to do. Despite some contrary allegations by the plaintiffs, there is no evidence that the FBI sends the names of persons attending the conventions outside the Federal Government; it does send them to the Civil Service Commission which has made use of them as a basis for questioning those who are Government employees or seek Government employment.

Although not disputing that at one time the SWP aimed at the overthrow of the government of the United States by force and violence, plaintiffs assert and the district court found that this policy had long since been formally abandoned. The Government contends, however, that, despite official disapproval, á minority in the SWP, called the Internationalist Tendency (IT), endorses and supports the current use of violence in line with the views of the International Majority Tendency of the Fourth International, a Trotskyist-communist organization headquartered in Europe with which SWP, although claiming not to be affiliated, concedes it has “a sympathetic, fraternal relationship”. The FBI has also come upon information indicating that the IT regards as its “most important priority” an “interventionist” role in the YSA which will lead that organization to adopt the revolutionary aims of the IT.

At first blush there would hardly seem to be a role less appropriate for or capable of effective performance by the federal judiciary than advance supervision of the investigative methods of the FBI on a case-by-case basis, particularly in the field of national security. Recent instances where national security has been inappropriately invoked should not obscure that, as the Supreme Court has observed, “unless Government safeguards its own capacity to function and to preserve the security of its people, society itself could become so disordered that all rights and liberties would be endangered,” United States v. United States District Court, 407 U.S. 297, 312, 92 S.Ct. 2125, 2134, 32 L.Ed.2d 752 (1972), where the Court also quoted from Chief Justice Hughes’ opinion in Cox v. New Hampshire, 312 U.S. 569, 574, 61 S.Ct. 762, 765, 85 L.Ed. 1049 (1941). The Government distinguishes the Supreme Court decisions mainly relied on by plaintiffs, notably NAACP v. Alabama, 357 U.S. 449, 78 S.Ct. 1163, 2 L.Ed.2d 1488 (1958); Bates v. Little Rock, 361 U.S. 516, 523, 80 S.Ct. 412, 4 L.Ed.2d 480 (1960); Gibson v. Florida Legislative Committee, 372 U.S. 539, 83 S.Ct. 889, 9 L.Ed.2d 929 (1963), and DeGregory v. New Hampshire, 383 U.S. 825, 829, 86 S.Ct. 1148, 16 L.Ed.2d 292 (1966), on the ground that these did not involve the judiciary in exercising prior restraints on an investigative agency in the executive or legislative branch but rather represented a refusal to permit legal processes to be used against individuals or associations in a manner violative of First Amendment rights. Indeed, it claims that the injunction here issued flies in the face of the holding in Laird v. Tatum, 408 U.S. 1, 92 S.Ct. 2318, 33 L.Ed.2d 154 (1972), that a complaint seeking to enjoin the Army’s data-gathering system with respect to lawful civilian political activity did not present a justiciable controversy. It relies particularly on the statement, 408 U.S. at 15, 92 S.Ct. at 2326:

Carried to its logical end, this approach [of the Court of Appeals for the District of Columbia Circuit, 144 U.S.App.D.C. 72, 444 F.2d 947, 958] would have the federal courts as virtually continuing monitors of the wisdom and soundness of Executive action; such a role is appropriate for the Congress acting through its committees and the “power of the purse”; it is not the role of the judiciary, absent actual present or immediately threatened injury resulting from unlawful governmental action.

The district judge and the appellees say that this case comes within the qualification at the end of this wise observation of the Chief Justice. Although a number of reasons are asserted, two appear to be most important. The one principally relied on by the district judge was that plaintiffs in Laird v. Tatum had showed only a “subjective chill” whereas the plaintiffs here had submitted affidavits asserting that attendance at YSA conventions had in fact been discouraged by knowledge of FBI surveillance plans. The other is the lack of as much justification for the FBI’s surveillance as was thought to exist for the Army’s plan to inform itself with respect to dissident student organizations so as to be better able to cope with disorders if required to do this on short notice.

We are not greatly persuaded with respect to the validity of these or other asserted distinctions, on the facts presently before us. Save possibly for the communication of names to the Civil Service Commission, the FBI’s use of the information gathered by it from attendance at the YSA conventions seems par-j allel to that of the Army as described in Mr. Justice Douglas’ dissent in Laird v. Tatum, 403 U.S. at 24-25, 92 S.Ct. 2318. Moreover, the Court of Appeals in that case had characterized the plaintiffs’ claim as being that the Army surveillance “exercises a present inhibiting effect on their full expression and utilization of their First Amendment rights . .”, 444 F.2d at 954 (emphasis in original), and it is hard to see why the attendance of FBI informants at YSA conventions should have more of an inhibiting effect than the Army’s sur1 veillance of student organizations. With respect to the second ground, the bite of the decision in Laird v. Tatum was that, absent a stronger showing of “chill” than was made by the plaintiffs there, the courts were not to go into this. If the issue is open for inquiry, while the possibilities of the dissident wing in Í SWP being able to gain control and efj fectuate its desires to convert YSA into a violent movement may be less than the { risks of serious student disorders in the i late 1960’s, the stakes are greater. The rFBI has a right, indeed a duty, to keep itself informed with respect to the possij ble commission of crimes; it is not j obliged to wear blinders until it may be L. too late for prevention. As Judge Weinfeld observed in Handschu v. Special Services Division, 349 F.Supp. 766, 769 (S.D.N.Y.1972):

The use of informers and infiltrators by itself does not give rise to any claim of violation of constitutional rights. __

Although plaintiffs apparently concede that use of informants need not await the existence of probable cause for arrest, we have not been informed either by them or by the district judge what they think the proper standard to be. Moreover, while plaintiffs’ case here may be better than Tatum’s in some respects, it is weaker in another. A major basis for the attack there, certainly the most significant factor for the dissenters, was that investigation had been conducted by the Army as distinguished from a civilian investigative agency.

The underlying action here raises the issue so eloquently described by Mr. Justice Jackson nearly twenty-five years ago:

The Court’s day-to-day task is to re^~' ject as false, claims in the name of civil liberty which, if granted, would paralyze or impair authority to defend j existence of our society, and to reject j as false, claims in the name of security which would undermine our freedoms and open the way to oppression.

American Communications Ass’n v. t Douds, 339 U.S. 382, 445, 70 S.Ct. 674/ 707, 94 L.Ed. 925 (1950) (concurring and dissenting). It does this in the special context of whether the conduct sought to be protected is a legitimate area for investigation. Such an issue deserves treatment on a full record and with ample time for reflection, initially by the district judge, later by this court, and perhaps ultimately by higher authority. There was no urgency requiring the district judge to decide issues of such gravity by granting an injunction against the FBI’s continuing, for one more "YSA convention, the practices it had followed for many years, apparently without serious injury to the plaintiffs, and confronting us with the need of acting within a few days, in the midst of a crowded calendar, on a problem deserving weeks of consideration and opinion writing on a proper record. The plaintiffs made no showing sufficient to justify issuance of an injunction on the basis of conflicting affidavits, see note 3, and reliance on what they term “informed representations of counsel” with respect to the involved relationships of SWA, its members, and other organizations. Plans for attending the convention on December 28 must .largely have been made, or not made, well before the injunction was issued on December 13. The only benefits to plaintiffs in relieving the “chill” allegedly created by the FBI were the possibility that the injunction, if sufficiently publicized, might lead some with souls less courageous than those of the individual plaintiffs, see 408 U.S. at 7 — 8 n. 7, 92 S.Ct. 2318, to decide to attend after all, and to encourage greater freedom by participants in advocating the revolutionary tactics which the plaintiffs claim Sto abhor. Even on this the benefit is simply the incremental difference between fear of revelation by prearranged informants and of voluntary reports by others who are free to attend these pub- / lie meetings; no one has yet suggested I that the FBI be ■ restrained from receiving information freely reported to it. I Against this is the serious prejudice to | the Government from compromising L_some or all the informants for all time, j even though the final determination of L the action may be for the defendants. Whatever may be the ultimate merits of plaintiffs’ case, there was no occasion for a rush to judgment with respect to the Fourteenth YSA convention when the proof was that the FBI was proposing to do only what — indeed apparently less than — it had done without serious adverse effect before. We hold therefore that issuance of the broad injunction on this inadequate record was an abuse of discretion.

One respect in which the balance may tip in favor of the plaintiffs is the FBI’s practice of transmitting to the Civil Service Commission the names of persons attending the convention. Apparently defendants concede that such attendance would not justify dismissal from or denial of employment. See Gor-. don v. Blount, 336 F.Supp. 1271 (D.D.C. 1971). This is the point most stressed by the plaintiffs in seeking to show “objective chill”, and we think the values of preserving freedom of association justify enjoining such transmission pending final determination of the action or earlier order of the district court or this court. We shall hold the Government to its representation that no transmission is made outside the Federal Government.

With this exception, the injunction is vacated. The various motions are thus rendered moot. The mandate will issue forthwith. No costs.

      . The order specifically included confidential informants.

      . Judge Griesa had denied a stay.

      . Some of these details are contained in reply affidavits submitted on the motion for a stay. Plaintiffs have moved to strike these, and particularly to strike an affidavit with respect to the nature of the informants which was submitted in camera in line with an offer of proof made by the defendants to the district judge in an unsuccessful effort to obtain a modification of the injunction which would allow the informants to attend on condition that they not report to the FBI. These affidavits flesh out material already in the record; the need for this has arisen in part from the fact that the district judge proceeded on the basis of .affidavits, rather than heeding our views that, except in cases of urgency, disputed issues of fact relevant to the issuance of temporary injunctions should not be so determined. SEC v. Frank, 388 F.2d 486, 490-493 (2 Cir. 1968). In part the need arose from extra-record references in appellee’s memorandum in opposition to the motion for a stay. For example, when appellees say in opposing a stay, “There is not a shred of evidence that this policy [of disruption] has ever been repudiated or withdrawn as a key factor in FBI decisions or operations concerning plaintiffs”, it was appropriate for the defendants to submit an affidavit that there is also not a “shred of evidence” that the policy has continued. Technically the affidavits are properly before us only on the motion for a stay; although the issues on this and the appeal are almost inextricable, we have considered them only in that context.

      . “Civil liberties, as guaranteed by the Constitution, imply the existence of an organized society maintaining public order without which liberty itself would be lost in the excesses of unrestrained abuses.”


text:
    NATIONAL LABOR RELATIONS BOARD, Petitioner, v. CARAVELLE WOOD PRODUCTS, INC., Respondent.
    No. 73-1260.
    United States Court of Appeals, Seventh Circuit.
    Dec. 23, 1974.

      Before CASTLE, Senior Circuit Judge, and STEVENS, Circuit Judge.
   ON PETITION FOR REHEARING AND SUGGESTION OF REHEARING EN BANC.

On petition for rehearing, .the respondent brings to our attention that although thirteen ballots were challenged, only twelve challenges were sustained. The Board did not resolve the challenge to the remaining ballot because it would not have affected the outcome of the election. However, because the court did not reach the question of whether the Board properly excluded the ballots of Paul Paradiso and Donald Kloss, the unresolved challenge does become significant. If this ballot and those of Paul Paradiso and Donald Kloss are counted, the election result would stand at 35 votes for the Union and 35 votes against the Union. The Union would thus have failed to achieve majority status, and the Board’s order to bargain would be improper. The NLRB, in its answer to the respondent’s petition, contends that the Board correctly excluded the ballots of Paul Paradiso and Donald Kloss.

We noted that the Board failed to decide whether Paul Paradiso and Donald Kloss resided at home or were economically dependent on their fathers. An absence of a finding on this factor is not dispositive, however, if, on balance, the other factors set forth in Caravelle I support a factual determination that these relatives do not share a community of interest with their fellow employees. In this regard, the Board concluded that:

the interests of the Paradiso wives and children were closely allied to those of the Company which was principally owned, controlled, managed, and supervised by members of the Paradiso family. Similarly, we conclude that the interests of Donald W. Kloss were closely linked to those of his father, a supervisor, shareholder, and director who took an active part in management affairs.

These conclusions are supported by the record and satisfy the requirements of Caravelle I. Accordingly, the Board properly excluded the votes of Paul Paradiso and Donald Kloss. We therefore need not remand for Board resolution of the challenge to the final ballot, and we affirm our prior decision to enforce the Board’s order.

No judge in regular active service having requested that a vote be taken on the suggestion for an en banc rehearing, the same is hereby denied.


author: MOORE, Senior Circuit Judge:

text:
    I. J. MARSHALL and Claribel Marshall, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee. Flora H. MILLER, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
    Nos. 73-1953 to 73-1955.
    United States Court of Appeals, Tenth Circuit.
    Argued July 11, 1974.
    Decided Jan. 7, 1975.
    James M. Parker, Schlenker, Parker, Payne & Wellborn, Albuquerque, N. M., for appellants.
    George G. Wolf, Atty., Tax Div., U. S. Dept, of Justice, Washington, D. C., Scott P. Crampton, Asst. Atty. Gen., for appellee; Meyer Rothwacks, Leonard J. Henzke, Attys., Washington, D. C., of counsel.
    Before HILL and SETH, Circuit Judges, and MOORE , Senior Circuit Judge.

       Honorable Leonard P. Moore, Senior Judge, United States Court of Appeals, Second Circuit, New York, N. Y., sitting by designation.

   MOORE, Senior Circuit Judge:

I. J. Marshall and Flora H. Miller are residents of Roswell, New Mexico. Both are major shareholders of the Realty Investment Company of Roswell, Inc. (Realty), a New Mexico corporation authorized, under its articles of incorporation, to conduct and engage in: a small loan business; an insurance agency; and a real estate brokerage business, including the operation, development, handling, management, and sale of real property.

Realty filed its income tax returns as a regular corporation through the taxable year ending on June 30, 1967. It then filed an election to be taxed as a small business corporation under sub-chapter S of the Internal Revenue Code. Its election was to be effective for the taxable year beginning on July 1, 1967.

On its small business corporation income tax return filed for fiscal 1968, Realty reported gross receipts of $79,028.06, broken down as follows:

Small Loan Department

Interest Earned $35,938.67

Default and Deferment Charges 2,509.99

Life Insurance Premiums 3,562.48

Filing & Recording Fees 115.62

$42,166.76

Real Estate Department

Rentals Received $12,297.25

Commissions Earned 5,299.86

Interest Income 14,731.01

Discounts Earned 572.51

Escrow Fees 105.78

$33,006.41

Rental Income — Office Building Rentals Received $ 1,678.00

Miscellaneous 63.30

$ 1,741.30

Farnsworth Building

Rentals Received $ 1,321.03

Oil & Gas Royalties $ 792.56

$79,028.06

During Realty’s 1968 fiscal year, its customers repaid loans to it in the amount of $288,129.79. These repayments of principal were not reported as gross receipts in the corporation’s 1968 income tax return.

In spite of Realty’s wide ranging business interests, it sustained a net operating loss of $90,404.32 for fiscal year 1968, a fact which it reported on its Form 1120 — S income tax return. On Schedule K of Form 1120 — S, Shareholder’s Share of Income, the following apportionment of undistributed net operating loss was made:

I. J. Marshall $44,599.43

Flora H. Miller 44,599.43

P. L. Duncan 1,205.46

On their 1968 joint federal income tax returns, I. J. Marshall and his wife, Claribel, claimed an ordinary loss deduction as a result of their share of Realty’s operating loss. On her 1968 federal income tax return, Flora H. Miller claimed an ordinary loss deduction resulting from her share of Realty’s operating loss, and applied for certain loss carryback adjustments for the years 1965, 1966 and 1967. These adjustments were tentatively allowed.

The Commissioner of Internal Revenue later determined that the taxpayers were not entitled to deduct their share of Realty’s 1968 net operating loss because he found that Realty was ineligible to elect Subchapter S treatment. The disallowance resulted in the assessment of deficiencies against the Marshalls in the amount of $819.06 for fiscal 1967 and of $10,113.09 for fiscal 1968. Deficiencies were assessed against Flora H. Miller for taxable years 1965, 1966, 1967 and 1968 in the amounts of $1,152.30, $2,066.79, $665.33 and $497.39, respectively-

On petition for redetermination of tax, the Tax Court, Scott, J., 60 T.C. 242, sustained the Commissioner’s determination. Because we agree with both the Commissioner and the Tax Court that Realty’s Subchapter S election for its 1968 tax year was terminated under Section 1372(e)(5) of the Internal Revenue Code of 1954, we affirm.

Subchapter S of the Internal Revenue Code of 1954 (Sections 1371 — 1377) was enacted “[t]o permit shareholders in small-business corporations, in lieu of payment of the corporate tax, to elect to be taxed directly on the corporation’s earning . . .S.Rep. No.1983, 85th Cong. 2d Sess., U.S.Code, Congressional & Administrative News, pp. 4791, 4876 (1958). By the same token, if the electing corporation should sustain a net operating loss, such loss is generally deductible from the gross incomes of the shareholders. The election of Subchapter S treatment is particularly useful when the electing corporation has suffered a net operating loss and there is no way to take advantage of the loss (for tax purposes) at the corporate level while the shareholders of the corporation have other income which can be offset thereby.

Subsection (e) of Section 1372 establishes certain circumstances under which a corporation’s election of this provision shall terminate. It provides that:

(A) Except as provided in subparagraph (B), an election under subsection (a) made by a small business corporation shall terminate if, for any taxable year of the corporation for which the election is in effect, such corporation has gross receipts more than 20 percent of which is passive investment income. Such termination shall be effective for the taxable year of the corporation in which it has gross receipts of such amount, and for all succeeding taxable years of the corporation.
(B) Subparagraph (A) shall not apply with respect to a taxable year in which a small business corporation has gross receipts more than 20 percent of which is passive investment income, if—
(i) such taxable year is the first taxable year in which the corporation commenced the active conduct of any trade or business or the next succeeding taxable year; and
(ii) the amount of passive investment income for such taxable year is less than $3,000.
(C) For the purposes of this paragraph, the ■ term “passive investment income” means gross receipts derived from royalties, rents, dividends, interest, annuities, and sales or exchanges of stock or securities (gross receipts from such sales or exchanges being taken into account for purposes of this paragraph only to the extent of gains therefrom).

The Service, in this ease, has decided that • Realty’s gross receipts for fiscal 1968 amounted to $79,028.06. Furthermore, it has concluded that $53,752.18 of this amount can be labeled “passive investment income” because it constituted interest charges to Realty’s customers and $15,296.28 is “passive” because it was rent paid by tenants of Realty. The Service thus refused to recognize Realty’s claim of Subchapter S status because it found that well over 20% of Realty’s gross receipts was attributable to “passive investment income.”

In spite of the clear language of Section 1372(e)(5), which specifies “rents” and “interest” to be “passive investment income,” the taxpayers argue that Realty’s election of Subchapter S treatment was never terminated. They base their position on two arguments. First, they claim that Realty received $288,129.78 in repayments of loan principal during the 1968 tax year, and that this amount should be included in any calculation of Realty’s gross receipts for fiscal 1968. Thus, according to the taxpayers, Realty’s “gross receipts” for fiscal 1968 amounted to approximately $370,000. and the approximately $70,000. that the government has labeled “passive invests ment income” does not amount to twenty percent of Realty’s gross receipts. Second, the taxpayers contend that, even if the loan repayments are excluded from Realty’s gross receipts, Realty was, nevertheless, not in violation of the twenty percent passive investment income limitation because the receipts attributable to “interest” were earned by a company that was “actively engaged” in the business of making loans.

The term “gross receipts” used in Section 1372(e)(5)(C) is not defined in the Code. The Commissioner, however, has defined the term in Section 1.1372-4(b)(5)(iv) of the Income Tax Regulations. That regulation provides as follows:

The term “gross receipts” means the total amount received or accrued under the method of accounting used by the corporation in computing its taxable income. Thus, the total amount of receipts is not reduced by returns and allowances, cost, or deductions. For example, gross receipts will include the total amount received or accrued during the corporation’s taxable year from the sales or exchange of any kind of property, from investments, and for services rendered by the corporation. However, gross receipts does not include amounts received as a loan, or a repayment of a loan, as a contribution to capital, or on the issuance by the corporation of its own stock.

The ordinary rule to be followed by the courts in disputes involving the validity of one of the Service’s regulations is that the regulation must be upheld unless it is unreasonable or plainly inconsistent with the statute it is intended to implement. The theme of Reg. 1.1372-4(b)(5)(iv) is a demand for consistency on the part of the taxpayer. This approach is hardly “unreasonable.” In each case it is the corporation, depending upon its method of accounting, which determines “the total amount received or accrued during the corporation’s taxable year . . ..” The corporation is given a substantial amount of leeway in making this calculation as long as it does not attempt to use two different systems of calculation: one for determining the feasibility of Subchapter S status and the other for reporting the taxable gain of the corporation. Furthermore, Section 1.1372 — 4(b)(5)(iv) comports with the ordinary understanding of the term “gross receipts.” As pointed out by the Tax Court below, the repayment of a loan is never considered a receipt under either the cash or accrual method of accounting.

In the case at bar, the taxpayers are not claiming that the regulation in question is unreasonable. Realty did not include the $288,000. of loan repayments when it reported its income for the 1968 fiscal year. Rather, the taxpayers are specifically arguing that the regulation is inconsistent with the statute empowering it and must fall for that reason. Taxpayers rely primarily on Valley Loan Association v. United States, 258 F.Supp. 673 (D.Colo.1966) and House, Jr. et al. v. Commissioner of Internal Revenue, 453 F.2d 982 (5th Cir., 1972). In Valley Loan the district court reasoned that: (i) when originally passed by Congress, Section 1372(e)(5) was intended only to exclude personal holding companies from the option of electing treatment under Sub-chapter S because the subsection was originally entitled “Personal Holding Companies,” (ii) small loan companies, since 1938, have been congressionally excluded from characterization as “Personal holding company income,” Section 541, Internal Revenue Code of 1954, (iii) if loan repayments, pursuant to Reg. 1.372-4(b)(5)(iv), did not constitute “gross receipts,” then small loan companies would, a fortiori, never be able to elect Subchapter S treatment and would be treated as “Personal Holding Companies” in direct violation of congressional intent as expressed in 1938.

The short answer to both the arguments of the taxpayers and the opinion of the District Court in Valley Loan, supra, is that in 1966 Congress changed the title of Section 1372(e)(5) from “Personal holding company income” to “Passive investment income.” After 1966 it could no longer be argued either that Section 1372(e)(5) was not intended to apply to business operations other than personal holding companies or that application of Regulation 1.1372-4(b)(5)(iv) resulted in a mystical transubstantiation that made personal holding companies from small loan companies.

Regulation 1.1372-4(b)(5)(iv) precludes a corporation from manipulating its gross receipts by artificial transactions which have no effect on its real income. Absent this regulation, an electing corporation, approaching the end of its taxable year and realizing that its passive investment income would exceed twenty percent of its gross receipts, could simply issue stock to its shareholders for an amount sufficient to fulfill the requirements of the statute. Or, by the same token, the corporation could make a short term loan, which would not decrease its gross receipts, and take repayment in time to inflate its gross receipts for the taxable year.

The Service’s definition of “passive investment income” may well exclude some types of business operations from Subchapter S treatment but there is nothing in the statute or its legislative history which would suggest that every corporation should, as a matter of right, be able to make an election under Section 1372(a). Indeed, the various requirements under Sections 1371 and 1372 show that not every corporation is entitled to the benefits of Subchapter S.

Alternatively, the taxpayers have argued that the $38,448.66 of interest income earned by Realty’s small loan department and the $15,303.52 of interest income earned by its real estate department are not “passive investment income” as that term is used in Section 1372(e)(5) of the Internal Revenue Code of 1954.

Basically, taxpayers argue that Realty is actively engaged in the small loan and real estate business, and that all income earned in those capacities, no matter in what form, is therefore, “actively” earned. The same argument was urged unsuccessfully in Zychinski et al. v. Commissioner and Estate of Richter et al. v. Commissioner of Internal Revenue, 506 F.2d 637, decided November 25, 1974, 8th Circuit. Taxpayers rely on House v. Commissioner of Internal Revenue, supra, which held that the term “interest” as used in Section 1372(e)(5)(C) did not include interest which would not be part of the “personal holding company income” of a corporation and that a finance company not subject to personal holding company tax could have no “personal holding company income.”

Once again, the answer to the argument of the taxpayers is that the title of Section 1372(e)(5) was changed in 1966 from “Personal holding company income” to “Passive investment income.” Even if they are correct that the original version of the section intended to incorporate by reference the provisions of the Code referring to the personal holding companies, their analysis is irrelevant to this case. The House case, though decided in 1972, concerned tax returns for the 1964 and 1965 tax years. The Fifth Circuit was most strongly persuaded to hold that reference to the Code’s personal holding company rules was necessary because of the fact that in 1966 Congress changed the title of Section 1372(e)(5) to “Passive investment income,” a change that would have been completely pointless unless Congress had originally attached some value to the title “Personal holding company income.” If the reasoning of the Fifth Circuit is correct (and taxpayers have leaned heavily on that reasoning), then the 1966 revision of the title can only be seen as Congress’ calculated effort to erase utterly any implication that a small corporation must be a personal holding company before it can be excluded from Subchapter S treatment by Section 1372(e)(5). The opinion of the Fifth Circuit in House is pregnant with this very implication and thus is no support for the position taken by the taxpayers.

Taxpayers are left with only a single argument, unsupported by authority: that interest “actively” earned cannot be “passive investment income.” This argument is in direct conflict with the clear language of Section 1372(e)(5) which enumerates “interest” as a per se form of “passive investment income.” No qualification to the term “interest” is given in the statute. We, therefore, must assume that Congress used the term in its ordinary sense, viz., “compensation for the use or forebearance of money.” Deputy v. duPont, 308 U.S. 488, 498, 60 S.Ct. 363, 368, 84 L.Ed. 416 (1940). There can be no doubt that the interest income earned by Realty’s small loan and real estate divisions comes within the ambit of this term and thus is defined as passive investment income.

Because of our holding with respect to Realty’s interest income, we find it unnecessary to address the question of how the income received from the tenants of the Farnsworth Building is to be classified.

We find that the Commissioner’s denial of Subchapter S status to Realty was proper and we therefore affirm the decision of the Tax Court.

      . His wife, Claribel Marshall, is also a party because they filed a joint tax return.

      . For the taxable years 1965 and 1966 Flora H. Miller filed joint returns with her husband now deceased which accounts for the two docket numbers in her name.

      . P. L. Duncan is not a party to this litigation. 3.