source: Caselaw Access Project

author: BEEKS, District Judge: SNEED, Circuit Judge

license: Public Domain

text:
    SAFEWAY PORTLAND EMPLOYEES’ FEDERAL CREDIT UNION, a Federal Credit Union, Plaintiff-Appellee, v. C. H. WAGNER & CO., INC., a Massachusetts corporation, et al., Defendants-Appellants.
    No. 72-1429.
    United States Court of Appeals, Ninth Circuit.
    Aug. 5, 1974.

      William E. Hurley (argued), Bernard, Hurley, Hodges & Kneeland, Portland, Or., for defendants-appellants.
    Edward L. Fitzgibbon (argued), Portland, Or., for plaintiff-appellee.
    Walter P. North, Acting Gen. Counsel, Securities and Exchange Commission (argued), Washington, D. C., for amicus curiae.
    Before DUNIWAY and SNEED, Circuit Judges, and BEEKS, District Judge.

       The Honorable William T. Beeks, Senior United States District Judge for the Western District of Washington, sitting by designation.

   OPINION

BEEKS, District Judge:

This appeal challenges the lower court’s determination that defendants violated Title I, Sec. 5(a) of the Securities Act of 1933 (“Act”), 15 U.S.C. § 77e(a), by using the mails to sell plaintiff unregistered securities.

Safeway Portland Employees’ Federal Credit Union (“Credit Union”) is a federal credit union established pursuant to 12 U.S.C. § 1751 et seq., to act for the benefit of Safeway employees in the State of Oregon.

C. H. Wagner & Company (“Wagner-Co”), a Massachusetts corporation, is a securities broker/dealer registered in twenty-five states, including Oregon. One of the types of transactions in which it is engaged is the brokerage of certificates of deposit (“CDs”), which is accomplished in concert with one of its subsidiaries, Wagner Funding, another Massachusetts corporation. Wagner Funding obtains through independent money brokers, borrowers willing to pay a premium to induce third parties to purchase CDs issued by specified banks from which the borrowers seek loans. WagnerCo locates investors to purchase the CDs by offering a bonus in the form of an additional rate of interest to be paid out of the premium received from the borrower.

Pursuant to an arrangement by Wagner Funding with a Houston money broker, WagnerCo sold to various investors approximately $4,000,000 of CDs, bearing interest at the rate of 7/2%, issued by Sharpstown State Bank (“Bank”), a Texas state bank insured by Federal Deposit Insurance Corporation (“FDIC”). Of these, Credit Union purchased two CDs totalling $250,000.00 which matured one year from date of issue, being induced so to do by WagnerCo’s agreement to pay Credit Union additional interest at the rate of %% on the date the CDs matured. Thus, the total return to Credit Union was 8%%.

On January 22, 1971, Bank was ordered closed, FDIC becoming the receiver.

Credit Union brought this action to recover the purchase price. Based upon the above related, undisputed facts, the district court entered partial summary judgment, finding that WagnerCo used the mail to sell unregistered securities. Judgment was entered against all named defendants for the purchase price, interest and costs.

The principal question here involved is whether the “package”, consisting of the CDs and the bonus, is a security within the meaning of the Act, it being undisputed the mails were used in the sale and no registration statement was filed. Plaintiff contends the transaction involves an investment contract, i. e., a security within the meaning of the Act. Defendants deny this, claiming the absence of a common enterprise because Credit Union was not led to expect profits as a result of any action by defendants, and that the obligation undertaken by Bank is severable from Wag-nerCo’s promise to pay the bonus. Defendants further argue that even if the transaction is covered by the Act, the security was issued by a bank and hence exempt.

In resolving the issues, we are mindful that the Act is remedial and is to be liberally construed. We look to the character of the entire transaction, including the economic inducements held out to the investor.

An investment contract is a scheme involving “. . . an investment of money in a common enterprise with profits to come [to the investor] solely from the efforts of others.” “A common enterprise is one in which the fortunes of the investor are interwoven with and dependent upon the efforts and success of those seeking the investment or of third parties.”

The district court was correct in concluding that the “package” is a nonexempt investment contract. Credit Union was to receive 8%% on its entire investment, without any further effort on its part. This return was dependent, at least in part, on the success of Wagner-Co. Contrary to defendants’ contention, Credit Union was led to expect profit as the result of WagnerCo’s efforts in obtaining the issuance of the CDs and in completing the transaction whereby Credit Union would receive the bonus. Furthermore, the future payment of the bonus was dependent on the continued success and solvency of Wagner Co.

We likewise reject defendants’ contention that the transaction consists of two distinct and severable parts and that their liability is only for the part relating to payment of the bonus. Even if it be assumed that the CDs are not securities or that they are exempt securities, as defined in the Act, and that WagnerCo’s indebtedness to Credit Union is a security, it does not follow that only the latter violated the Act. The combination of the two created an integrated investment package which must be viewed in its entirety in determining whether it is within or without the Act. This package differs fundamentally from the CDs issued by Bank in that there is a greater rate of return to Credit Union. WagnerCo’s own ability to pay Credit Union, an investment risk foreign to that associated with the CDs, is also an inherent part of the package.

The nature of the economic inducement is of great significance. Credit Union made one payment for the package, and, more importantly, there is no doubt but that the inducement for the purchase was the total combined rate of interest to be realized.

Furthermore, all elements of an investment contract do not have to be securities in order for the entire package to so qualify. The Tenth Circuit faced a similar problem wherein one defendant sold beavers, notifying the purchasers that the other named defendants would independently raise the beavers for a fee. It was there held that the sale, by itself, did not require registration, but when the sale was only a part of a larger marketing concept wherein the purchaser expected profits, not from the resale of the beavers, but from the contracts pursuant to which the beavers were bred, raised and marketed, it was an “investment contract”. So viewed, the elements of the Wagner package are inseparable.

Furthermore, since the package was not issued or guaranteed by a bank, defendants’ claim of exemption must also fail.

The Securities and Exchange Commission (SEC), The Comptroller of the Currency (Comptroller) and FDIC have filed amicus curiae briefs herein. All were of assistance to the court and the court expresses its appreciation. SEC takes the position that a CD is an exempt security under the Act. Comptroller and FDIC contend that a CD is not subject to the Act, exempt or otherwise. All three agencies agree, however, that the package involved herein, which includes the CDs, is subject to the Act. In view of our conclusion that the package is a non-exempt security, we need not, and do not decide the status of CDs under the Act.

Defendants Ann Louise Wagner, Ann C. Wagner and Doherty further claim that the record does not support individual judgment against them. Ann Louise Wagner is correct. The other two are wrong. As to them, the record fully supports the judgment. Wagner-Co’s three officers, C. H. Wagner, President; Ann C. Wagner, S ecretary-Clerk; and Doherty comprised its entire board of directors. In addition, Ann C. Wagner with her husband, C. H. Wagner, owned 94 percent of its stock.

The Act imposes liability on persons who make use of the mails to sell an unregistered security, and also on those who control them Both Ann C. Wagner and Doherty were controlling persons.

The Act exempts controlling persons who “. . . had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist”. Those claiming" the exemption have the burden of proving it. Neither offered any proof and they were not justified in resting on the mere denials of their pleadings.

Defendants’ remaining contentions assert that certain factual findings are not supported by the evidence. Assuming this to be so, the error is harmless, there being sufficient undisputed evidence to support our determination.

As to defendant Ann Louise Wagner, the judgment is reversed and remanded for further proceedings. As to the remaining defendants, the judgment is affirmed.

SNEED, Circuit Judge

(concurring in the result):

While I concur in the result reached by my brothers, I do think it necessary to draw attention to what appears to me to be a regulatory anomaly resulting from this decision. The primary abuse that flows from brokered funds is the encouragement it provides to banks to make unsafe loans. This is essentially a banking problem and thus a primary responsibility of the Comptroller of the Currency and the Federal Deposit Insurance Corporation. Nonetheless, this decision subjects the practice to a degree to regulation by the Securities and Exchange Commission. My concern with this anomaly is moderated by the fact that all three agencies are prepared to accept the proposition that, at least under come circumstances, brokered deposits may be investment contracts within the meaning of the Securities Act.

At this point I should not like to be understood as embracing the view that in all events a brokered deposit is an investment contract. In this case I am prepared to accept the conclusion that representations and activities of the broker are sufficiently similar to the breeding and marketing of beavers in Continental Marketing, Inc. v. S. E. C., 387 F.2d 466 (10th Cir., 1967), cert. denied, 391 U.S. 905, 88 S.Ct. 1655, 20 L.Ed.2d 419 (1968) to make that ease persuasive authority. The mere statement of this proposition demonstrates that our decision in this case approaches the outer limits of the reach of Continental Marketing. I have grave doubts, for example, that the % % bonus offered by Wagner alone is sufficient to transform the entire package into a nonexempt investment contract. Nor am I prepared at this time to acknowledge that such an increased return is in all cases conclusive evidence of the type of activities which in this case brings the entire package within the doctrine of Continental Marketing.

Finally, it must be remembered that in Continental Marketing the court emphasized that under the facts before it the investor was investing in a common enterprise to establish a domestic beaver industry the returns from which were uncertain. This justified the “investment contract” designation. A certificate of deposit even when accompanied by a bonus under some circumstances-may not constitute such an investment. The passivity of all but the issuing bank and its borrower may reach a level that requires the rejection of the “investment contract” characterization.

With these reservations, I concur in the result.

      . 15 U.S.C. § 77e(a) “Unless a registration statement is in effect as to a security, it shall be unlawful ... to make use of the mails to sell such security. >>

      . The practice has economic importance during periods of “tight money” when banks are unable or unwilling to make loans without requiring compensating balances. In such cases the borrower may seek the services of a money broker.

      . ’in most instances the bonus is paid by WagnerCo at the time of purchase, but Credit Union feared this might violate one of its governing regulations. WagnerCo, therefore, agreed to pay at maturity and acknowledged the obligation in writing.

      . See generally, Lennerth v. Mendenhall, 234 F.Supp. 59, 63 (N.D.Ohio, 1964).

      . 15 U.S.C. § 77b (1) “The term ‘security’ means any . . . investment contract. tf

      . 15 U.S.C. § 77c (a) “ . . . [T]he provisions . . . shall not apply to . . . (2) ... any security issued or guaranteed by any bank. ...”

      . S.E.C. v. Glenn W. Turner Enterprises, Inc., 474 F.2d 476, 480-481 (9th Cir., 1973), cert. denied, 414 U.S. 821, 94 S.Ct. 117, 38 L.Ed.2d 53 (1973) ; El Khadem v. Equity Securities Corp., 494 F.2d 1224, 1227 (9th Cir., 1974).

      . See generally, S.E.C. v. C. M. Joiner Leasing Corp., 320 U.S. 344, 352-353, 64 S.Ct. 120, 88 L.Ed. 88 (1943).

      . S.E.C. v. W. J. Howey Co., 328 U.S. 293, 301, 66 S.Ct. 1100, 90 L.Ed. 1244 (1946).

      . S.E.C. v. Glenn W. Turner Enterprises, Inc., supra note 7, 474 F.2d at 482.

      . 15 U.S.C. § 77b(1) : “The term ‘security’ means any . . . evidence of indebtedness. ...” See generally, Llanos v. United States, 206 F.2d 852 (9th Cir., 1953), cert. denied 346 U.S. 923, 74 S.Ct. 310, 98 L.Ed. 417 (1954).

      . S.E.C. v. C. M. Joiner Leasing Corp., supra note 8, 320 U.S. at 353, 64 S.Ct. 120, 88 L.Ed. 88; S.E.C. v. W. J. Howey Co., supra note 9, 328 U.S. at 299-300, 66 S.Ct. 1100, 90 L.Ed. 1244; Los Angeles Trust Deed & Mortgage Exchange v. S.E.C., 285 F.2d 162, 172 (9th Cir., 1960), cert. denied, 366 U.S. 919, 81 S.Ct. 1095, 6 L.Ed.2d 241 (1961).

      . Continental Marketing Corp. v. S.E.C., 387 F.2d 466 (10th Cir., 1967), cert. denied, 391 U.S. 905, 88 S.Ct. 1655, 20 L.Ed.2d 419 (1968).

      . 15 U.S.C. § 77b (2) : “The term ‘person’ means an individual, a corporation.

      . 15 U.S.C. § 77Z: “Any person who — (1) offers or sells a security in violation of § 77e of this title . . . shall be liable to the person purchasing such security from him.

      . 15 U.S.C. § 77o: “Every person who, by or through stock ownership, agency or otherwise . . . controls any person liable under Sections . . . 771 of this title, shall also be liable. ...”

      . 17 C.F.R. § 230.405(f), as quoted in Pennaluna & Co. v. S.E.C., 410 F.2d 861, 864 (9th Cir., 1969), cert. denied, 396 U.S. 1007, 90 S.Ct. 562, 24 L.Ed.2d 499 (1970) : “The term ‘control’ . . . means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract or otherwise.”

      . 15 U.S.C. § 77o.

      . Pennaluna & Co. v. S.E.C., supra, note 17, at 865.

      . Fed.R.Civ.P. 56(e).


author: ROSS, Circuit Judge.

text:
    NATIONAL AMERICAN INSURANCE COMPANY, a Nebraska corporation, Appellee, v. JAMISON AGENCY, INC., Gerald Bollin-ger, Appellee; Capital Systems Corporation, Appellant. NATIONAL AMERICAN INSURANCE COMPANY, a Nebraska corporation, Third Party Appellee, v. JAMISON AGENCY, INC., and Gerald Bollinger, Third Party Appellees. CAPITAL SYSTEMS CORPORATION, Third Party Appellant, v. A. J. R., INC., formerly Pinkerton Madden Burford, Inc., Third Party Appellee.
    No. 74-1178.
    United States Court of Appeals, Eighth Circuit.
    Submitted June 13, 1974.
    Decided July 30, 1974.

      George J. Danforth, Jr., Sioux Falls, S. D., for Capital Systems Corp.
    William E. Gast, Omaha, Neb., for A. J. R.
    Joseph H. Barnett, Aberdeen, S. D., for Jamison.
    William J. Brennan, Jr., Omaha, Neb., for Natl. American Ins. Co.
    Before LAY, HEANEY and ROSS, Circuit Judges.
   ROSS, Circuit Judge.

On October 13, 1971, certain real property in Woonsocket, South Dakota, owned by Capital Systems Corporation (Capital Systems) was damaged by fire. A dispute developed as to whether or not a fire insurance policy issued by National American Insurance Company (National American) was in force at the time of the loss; and National American, basing jurisdiction on diversity of citizenship, brought a declaratory judgment action in the federal district court seeking a declaration that the policy was not in force. In the alternative, National American sought a declaration against Jamison Agency, Inc., and Gerald Bollinger, that agency’s president, (Jamison/Bollinger) to the effect that they were responsible for any award adjudicated against National American. Capital Systems counterclaimed against the insurance company, cross-claimed against Jamison/Bollinger and brought a third party complaint against A.J.R., Inc., formerly Pinkerton Madden Bur-ford, Inc., an Omaha, Nebraska, insurance agency.

The dispute was submitted to the court on stipulated facts; and the court held that the insurance policy was not in force at the time of the fire. It further held that Capital Systems could not recover on its cross-claim and third party complaint against the insurance agents. Since no award was adjudicated against National American, the court did not deal with National American’s claim against Jamison/Bollinger. Capital Systems appealed to this Court.

We conclude that it was error to hold that the insurance policy was not in force. We reverse the decision of the district court in that regard and remand the ease so that the court can adjudicate the claim made by National American against Jamison/Bollinger.

The facts pertinent to our decision are as follows: On March 13, 1969, National American, a Nebraska corporation, issued the subject fire insurance policy to L. J. Van Dyke and Van Dyke La Arc, Inc., of Woonsocket, South Dakota, a company which made structural components for buildings and other products out of wood. The policy, which covered certain structures belonging to the company, was to be in effect for a three-year period, and the premium was to be paid in three annual installments due on March 13 of each year. Van Dyke paid the first annual installment immediately. The policy contained the standard provision that no assignment of it would be valid without the consent of the insurance company.

Jamison Agency, Inc., of Woonsocket, whose president and controlling shareholder was Gerald Bollinger, was the agency through which Van Dyke purchased the policy. Jamison/Bollinger brokered the policy through the Sioux Agency of Sioux Falls, South Dakota.

In early May, 1969, Capital Systems, which was an Illinois corporation, purchased all the stock of Van Dyke La Arc, Inc., from L. J. Van Dyke and his wife. The insurance policy was thereupon amended so that the named insured was simply Van Dyke La Arc, Inc. Mr. Jack Moores, president of Capital Systems, became president of Van Dyke La Arc, Inc., and moved to South Dakota to take over management of the company, which was Capital Systems’ only asset.

Capital Systems, the new sole shareholder of Van Dyke La Arc, Inc., wanted to increase the amount of insurance on the premises in Woonsocket; and, starting in June, 1969, switched Van Dyke La Arc’s insurance business from Jami-son Agency to Pinkerton Madden Bur-ford, Inc., of Omaha, whose successor, A.J.R., Inc., is a third party defendant in this litigation.

In December, 1969, Van Dyke La Arc, Inc., was legally dissolved under the provisions of the South Dakota Business Corporations Act. All the assets of Van Dyke La Arc, Inc., were distributed to its sole shareholder, Capital Systems. Among these assets was the National American insurance policy. Neither the agencies involved nor National American were informed of, and they had no independent knowledge of, this dissolution and assignment of assets. National American never, therefore, consented to the assignment of the policy from Van Dyke La Arc, Inc., to its sole shareholder, Capital Systems.

The March 13, 1970, due date for the annual installment payment on the policy passed without any bill being sent by National American, Sioux Agency or Ja-mison Agency. On July 16, 1970, Jami-son Agency did receive a bill from Sioux Agency, which supposedly represented the installment amount due. Jamison Agency, without notifying anyone at the Van Dyke La Arc plant, replied the next day to this bill, telling Sioux Agency that it had “noticed this for cancellation last October." Sioux Agency then sent a lost policy cancellation release form to Jamison Agency, telling Jamison to secure the signature of Van Dyke La Arc, Inc., for purposes of cancelling the policy.

Without consulting Van Dyke La Arc, Bollinger’s secretary signed “Van Dyke La Arc Co., Inc.” to that portion of the release form calling for the insured’s signature. She signed “Jamison Agency, Inc.” where the agent’s signature was required. The release was then returned to Sioux Agency, which forwarded it to National American. The company thereupon cancelled the policy on its books. It is clear that no one in "the Van Dyke La Arc operation of Capital Systems had authorized Jamison Agency to cancel the National American policy.

On October 13, 1971, fire destroyed much of the insured premises, and a claim in the amount of §35,000 was made under the disputed policy. This litigation followed in due course.

I.

The district court based its decision that the policy was not in force on the fact that National American had never been informed nor consented to the assignment of the policy from Van Dyke La Are, Inc., to its sole shareholder, Capital Systems. We disagree with this conclusion by the district court and do not believe that this policy provision is applicable to the facts of this case.

We recognize that as a general rule:

[A] provision in a fire insurance policy making the policy void if assigned without the consent of the insurer, evidenced in the manner stipulated in the policy, is a reasonable one and binding on the insured.
If the insurer’s consent is essential to the validity of an assignment, an assignee acquires no right in the absence of such consent.

16 Couch on Insurance 2d § 63:159 (1966) . (Footnotes omitted.) See, e. g., Davis v. Oregon Mutual Insurance Co., 71 Wash.2d 579, 429 P.2d 886, 887 (1967) ; McHugh v. Manhattan Fire & Marine Insurance Co., 363 Mich. 324, 109 N.W.2d 842, 844 (1961). Even without a provision in the policy “Molicies of fire insurance are considered personal contracts and are not assignable before loss without the consent of the insurer.” 16 Couch on Insurance 2d § 63:155 (1966). (Footnote omitted.) See, e. g., Central Union Bank v. New York Underwriters’ Insurance Co., 52 F.2d 823, 824 (4th Cir. 1931); Stephenson v. Germania Fire Insurance Co., 100 Neb. 456, 160 N.W. 962, 963 (1916).

However, we are not persuaded that these general rules should be applied indiscriminately in factual settings such as the one at hand, in which they work an unexpected forfeiture of insurance coverage, and when the assignment involves no increase in risk to the insurer.

The object of policy provisions and legal rules which require consent of the insurer to any assignment of a fire insurance policy is “to prevent an increase of risk and hazard of loss by change of ownership without the knowledge of the insurer.” 16 Couch on Insurance 2d § 63:31 (1966). (Footnote omitted.) In this case that rationale is totally inapposite. The assignment of the policy to Capital Systems did not increase the risk and hazard of loss, since Capital Systems did not, in reality, obtain any additional interest in the policy and insured premises above what it already had as sole shareholder in Van Dyke La Arc, Inc. Had there been no dissolution and therefore no assignment, Capital Systems, as sole shareholder of Van Dyke La Arc, would still have controlled the proceeds from the insurance policy paid to Van Dyke La Arc, Inc. As a practical matter, whatever increase in risk there was occurred when the ownership of the stock, together with control of the corporation changed hands, and no allegation is made that this event required the consent of National American. In short, there was no more risk and hazard of loss after the dissolution and assignment than there was before Van Dyke La Arc, Inc., was dissolved.

Once it is seen that there is no reason to apply the rule in the instant case it becomes clear that to do so would place form over substance and would conflict with the oft-expressed doctrine that forfeitures of insurance policies are not favored in the law and are to be avoided whenever possible. See, e. g., Von Uhl v. Trempealeau County Mutual Insurance Co., 33 Wis.2d 32, 146 N.W.2d 516, 520 (1966); Beister v. John Hancock Mutual Life Insurance Co., 356 F. 2d 634, 642 (8th Cir. 1966); Christensen v. Royal Insurance Co., 65 S.D. 246, 272 N.W. 820, 822 (1937). Directly on point, the California Supreme Court has said that “ [forfeitures on technical grounds which bear no substantial relationship to an insurer’s risk are disfavored . . ..” California Compensation and Fire Co. v. Industrial Accident Commission, 62 Cal.2d 532, 42 Cal.Rptr. 845, 847, 399 P.2d 381, 383 (1965).

In several situations analogous to this one courts have recognized exceptions to the general rule calling for consent of the insurer to an assignment and have refused to enforce policy provisions requiring that consent. These exceptions reflect the feeling of the courts that this policy provision should not be used to defeat insurance coverage when the assignment in question works no real change in the ownership of the policy and the insured property and, therefore, has no effect on the risk and hazard of loss.

One such exception to the rule occurs when one partner in a business assigns his interest in an insurance policy on that business to the other partners. Strahorn v. Kansas City Fire & Marine Insurance Co., 241 Iowa 991, 42 N.W.2d 903, 905 (1950); Burleson v. Blankenship, 193 Wash. 547, 76 P.2d 614, 615 (1938); German Mutual Fire Insurance Co. v. Fox, 4 Neb.Unof. 833, 96 N.W. 652, 653-654 (1903); West v. Citizens’ Insurance Co., 27 Ohio St. 1, 22 Am.R. 294, 300 (1875).

The leading case of Strahorn v. Kansas City Fire & Marine Insurance Co., supra, demonstrates the reasoning behind this exception and lends support to the conclusion that the policy provision involved herein should not be enforced against Capital Systems. In Strahorn a collision insurance policy was issued to two partners doing business as an automobile dealership. One partner bought out the other and took an assignment of all of the latter’s interest in the business, including the insurance policy. The Iowa Supreme Court concluded that this assignment between partners did not fall within a prohibition against assignment without consent of the insurer. The court reasoned, quite simply, that such a transfer or sale did not increase the risk. In quoting from West v. Citizens’ Insurance Co., supra, the court noted that “no stranger was introduced; no one but those with whom the contract was made was left in control.” Stra-horn v. Kansas City Fire & Marine Insurance Co., supra, 42 N.W.2d at 905.

This, of course, reflects the situation present in the instant case viewed in a realistic manner. Capital Systems was no stranger suddenly acquiring an interest in the policy or property it had not previously had. As sole shareholder in Van Dyke La Arc, Inc., it had as much interest in the insurance policy and the premises before the dissolution and assignment as after it. And, while the insurance contract was nominally made with Van Dyke La Arc, Inc., Capital Systems was actually in control both before and after the assignment. The reasoning behind the exception for assignments between partners is equally applicable here.

Another exception to the rule is made when the property and policy have been transferred by operation of law. Loom-is v. Vernon Mutual Fire Insurance Co., 14 Wis.2d 470, 111 N.W.2d 443, 445 (1961); Gulf Insurance Co. v. Thieman, 356 P.2d 360, 361-362 (Okl.1960).

In Gulf Insurance Co. v. Thieman, supra, the Oklahoma Supreme Court held that transfer of title to property from a bankrupt to a trustee under the Bankruptcy Act did not constitute an “assignment” within the meaning of a policy provision invalidating the policy if there was an assignment without the insurer’s consent. The court pointed out that “[t]he bankruptcy of an insured is a special situation governed by special laws. When it occurs, the principles which would otherwise govern liability on an insurance policy may not always apply . . . Gulf Insurance Co. v. Thieman, supra, 356 P.2d at 362-363. The court had earlier noted that “the assignment which occurs by operation of law under the Bankruptcy Act . affects the title, not only of the insurance policy, but also of the property insured, if it is non-exempt.” Id. at 362. The trial court, whose decision was affirmed in the Gulf Insurance Co. case, had found that the transfer of the property to the trustee in bankruptcy involved “no increase in * * * moral hazard * * Id. at 361.

In Loomis v. Vernon Mutual Fire Insurance Co., supra, the insured obtained a three-year fire policy in 1954. He died intestate later that year, and the •insured property passed to his heirs, although the final probate decree was not filed until 1955. In 1956 the property was destroyed by fire. The court held that the heirs could recover on the insurance policy even though the insurer argued that the transfer of the property under the probate decree was an assignment which was prohibited by the policy unless consented to by it, that the property had passed to the heirs by operation of law upon the death of the insured, and that this was an exception to the standard provision that the insurer must consent if an assignment of a policy is to be valid. Loomis v. Vernon Mutual Fire Insurance Co., supra, 111 N. W.2d at 445.

While it does not apply directly to this case, the existence of this exception for transfers by operation of law points once again to the fact that courts will not slavishly follow the rule against assignments without consent when the reason for that rule does not exist in the particular situation.

For the foregoing reasons we conclude that it was erroneous to hold that the National American insurance policy was not in force because there had been no consent to the assignment of that policy to Capital Systems.

II.

In the trial court National American claimed, in addition to its assertion that the assignment precluded coverage, that the actions of the Jamison Agency’s secretary in signing the lost policy cancellation release for Van Dyke La Arc effectively cancelled the policy. This claim is obviously without merit.

The general rule is that where a broker has authority to procure an insurance policy, once that policy has been obtained his authority ends; and he does not have authority to cancel that policy absent some actual or apparent additional authority being granted by the insured. Holbrook v. Institutional Insurance Co. of America, 369 F.2d 236, 239 (7th Cir. 1966) ; Dupeck v. Union Insurance Co. of America, 329 F.2d 548, 557 (8th Cir. 1964); Smith v. Firemen’s Insurance Co., 104 F.2d 546, 547-548 (7th Cir. 1939); Spann v. Commercial Standard Insurance Co., 82 F.2d 593, 597 (8th Cir. 1936) ; 3 Couch on Insurance 2d § 25:16 (1960).

Additionally,

The authority of an agent authorized by the insured to procure a contract of insurance is special and not general. Persons dealing with the agent are bound to ascertain the scope of the agent’s authority, and if they do not, they deal with him at their peril.

3 Couch on Insurance 2d § 25:13 (1960). (Footnote omitted.)

In the instant case there is no evidence that Van Dyke La Arc or Capital Systems ever expressly authorized Jamison Agency or Bollinger to cancel the policy in question. That agency had no apparent authority to do so either. Certainly the fact that the Jamison Agency secretary, without authority from Van Dyke La Arc, signed for it on the lost policy cancellation release should not be binding on Capital Systems. In short, it is clear that the Jamison Agency was acting beyond the scope of its authority in cancelling the policy. As such, it was not acting as the agent of Capital Systems, and the cancellation is not effective as to it.

We express no opinion regarding National American’s claim against Jami-son/Bollinger.

The judgment of the district court is reversed and the cause is remanded to permit that court to adjudicate National American’s claim against Jamison Agency and Gerald Bollinger.

      . It might be argued that the assignment in this case was “by operation of law.” S.D. Compiled Laws Ann. § 47-7-13 (1967) provides that a corporation which is being dissolved “shall . . . after paying or adequately providing for the payment of all of its obligations, distribute the remainder of its assets, either in cash or in kind, among its shareholders according to their respective rights and interests.”
      However, we do not base our opinion on the fact that a statute directs distribution of assets, since, obviously, in many situations an assignment of an insurance policy could occur under this law which would substantially affect the risk and hazard of loss. It is the nature of the transfer in this particular case which controls this decision, not the mere fact that the transfer may have been accomplished in a manner directed by state law.


author: DAVIS, Judge:

text:
    JULIE RESEARCH LABORATORIES, INC., Plaintiff-Appellee, v. GUILDLINE INSTRUMENTS, INC., Defendant-Appellant, and Hallmark Standards, Inc., Defendant.
    No. 471, Docket 73-2116.
    United States Court of Appeals, Second Circuit.
    Argued March 11, 1974.
    Decided July 22, 1974.
    Lawrence Rosenthal, New York City (Harold I. Kaplan and Blum, Moscovitz, Friedman & Kaplan, New York City, of counsel), for defendant-appellant.
    Eliot Gerber, New York City (Wyatt, Gerber & Shoup, New York City, of counsel), for plaintiff-appellee.
    Before MANSFIELD and TIMBERS, Circuit Judges, and DAVIS, Judge.

       Of the United States Court of Claims, sitting by designation.

   DAVIS, Judge:

After a bench trial in this patent infringement action, the District Court upheld the validity of Patent No. 3,454,877 (issued in July 1969 to Loebe Julie), and ruled that defendant-appellant Guildline Instruments, Inc., had infringed claims 1, 5, 8 and 9. The patent relates to a potentiometer, a device for measuring an unknown voltage by producing a known voltage for comparison with the unknown voltage, and covers “Potentiometer Means for Providing a Standardized Precision Low Voltage.” Plaintiff-appellee Julie Research Laboratories, Inc., owner of the patent by assignment, manufactures and sells precision measurement devices, including a potentiometer embodying the invention set forth in the patent. Guildline Instruments markets potentiometers (and other precision instruments) made in Canada and imported into this country. The challenge on appeal is levied against both the holding of validity and the finding of infringement. We reach only the issue of validity.

The technique of potentiometry goes back for well over a century, and has had a number of applications and uses. In the usual classification, potentiometers fall into two modes. In the first a constant current is applied to a variable resistor; changing the resistance permits production of varying known voltages for comparison with the unknown voltage which it is desired to gauge. The second mode reverses the process by calling for application of a variable current to a constant resistor; changing the current permits production of varying known voltages to compare with the unknown voltage. An accepted method of comparison between the known and the unknown voltages is to use a sensitive meter which will read “zero”, or indicate a “null” condition, when the known voltage equals the unknown. That is because, in that condition, no current flows in the circuit. As the trial judge put it: “In effect, the known voltage produced by the potentiometer and the voltage of the unknown source cancel each other.”

One consistent effort over many years has been to develop ever greater accuracy in these instruments, and in relatively recent times there has been keen competition to achieve accuracy up to very small fractions of a microvolt. Precise measurements of direct current at this very low level are needed in several activities, including the space program, some other aspects of electronics, and parts of the chemical industry. The Julie patent before us concerns such a mi-crovolt potentiometer for measuring direct current. It exemplifies the first mode described above — a constant current source applied to a variable resistor.

Very generally, the four claims in issue use a “feedback” type of constant current source supply presenting an essentially infinite impedance, and a transfer means such as a voltage-divider or possibly a series of resistors, permitting the operator, by using fixed input impedance and variable output impedance, to pass varying (but known) amounts of voltage through a constant resistor; the unknown voltage to be measured is connected to the point where the known voltage is introduced to the constant resistor;' the transfer device’s variable output impedance can be employed to vary the known voltage until it matches the unknown voltage on the “null” dial and thus reveals the latter’s measurement.

It is unnecessary to canvass separately each of the claim components because it is clear, and in effect admitted, that several of them are old, not new. It can also be agreed, at least for purposes of this decision, that the patent device was not wholly anticipated in the prior art. The real struggle is over non-obviousness, and that tussle relates only to two of the elements. Julie Research, representing the patentee, urges non-obviousness on the basis of the combination of (a) use of the feedback source of current, connected with (b) a transfer means using fixed input impedance and variable output impedance. Guildline, the alleged infringer, says that both of these elements are obvious in view of the prior art, that their combination with each other and the other components is also obvious, and therefore that the claims are all invalid under 35 U.S.C. § 103.

On the first aspect — the feedback current source — the record shows conclusively that a feedback-type source of constant current was predicted, known, and actually used in potentiometry well before Julie’s patent application in July 1965. Feedback-type constant source generators have been available for at least twenty years, but only in the early 1960’s were they developed sufficiently for use in microvolt potentiometers. In 1961-62, Dr. Dauphinee, a recognized potentiometry expert, expressed the need for better constant sources and specifically referred to the probable use of feedback systems “for stabilizing potentiometer currents.” In 1963 Julie Research and Guildline both offered feedback sources (with essentially infinite impedance) for use in potentiometry. The record also suggests that in the same year Minneapolis-Honeywell marketed such a source for one of its potentiometers. In an article prepared in 1964 and published early in March 1965, Dr. Dauphinee wrote that the problem of current stability needed reevaluation “now that current controllers capable of six-figure regulation for substantial periods and seven-figures over limited periods of time are starting to come on the market.” It seems to us obvious that in 1964 and 1965 it would have been obvious to one skilled in the art of potentiometry to use such feedback-type generators, instead of batteries (with adjusters) or other constant current sources, in an instrument designed as a microvolt potentiometer. The District Court’s findings do not expressly touch on the obviousness of the use of a feedback source, but if they are read to find implicitly that such use was non-obvious in 1964 or 1965 they are clearly erroneous on this record.

The rub of the case comes with the second alleged novel-unobvious feature of the claims — a transfer means using fixed input impedance and variable output impedance. To show that this too was obvious in the light of the prior art, Guildline has proffered a reference not considered by the Patent Office, the potentiometer element or ring proposed by Diesselhorst in Germany in 1906. This ring, like the Julie patent, teaches a constant current source, output terminals of a device acting as a voltage divider, a constant or fixed resistor, arid input terminals of the voltage divider.

The court below accepted the views of the patentee’s witnesses that Diessel-horst discloses a transfer means having a variable input impedance and fixed output impedance, rather than Guild-line’s witnesses’ contrary position. The court considered the issue purely one of “credibility”, citing only factors of demeanor and comparative qualifications; the findings contain no discussion of the substantive or scientific merits of the issue. We do not take that stance. The question should not turn simply on the external indicia of “credibility” — as if some ordinary fact like the date of a telephone conversation were involved— but on analysis of the drawings and documents in the light of the help of the expert testimony.

On that basis, Guildline seems to us clearly right. Everyone agrees as to the physical structure of the Diesselhorst ring — including an inner ring of resistors, nine divider resistors of the outer ring, and a tenth load resistor of the outer ring. The experts’ difference lies solely in their characterization of the various resistors in the process of determining whether the input impedance of the transfer means is fixed or variable. Julie Research’s witnesses counted as part of the transfer means the inner ring of resistors, along with the nine divider resistors and the additional load resistor, in coming to the conclusion that the input impedance was variable. Guildline’s experts excluded the inner ring resistors and the load resistor, basing their calculations on the nine resistors of the outer ring as constituting the transfer means.

This latter position is correct because it is plain that the inner ring of resistors is not part of the transfer means and has an entirely different function having to do with maintenance of a constant source of current. Since Diessel-horst contemplated batteries as the source and a battery’s current production varies with load conditions, it was necessary to provide a compensating device; the inner ring resistors fulfilled this purpose, adjusting the current supplied by the battery to the transfer means of the potentiometer so that the current would be maintained at a constant level. The Julie patent, having its own constant feedback source, does not need such compensators; Prof. Abramowitz, the leading expert for Julie Research, admits this at one point in his testimony.

Thus, the inner ring resistors of Dies-selhorst have a role analogous to the feedback mechanism in the Julie patent, and do not have a function comparable to the latter’s transfer means. Conversely, the nine resistors of the Diessel-horst outer ring are the analogue of Julie’s transfer means and perform the same function. And Prof. Abramowitz himself testified that, if the nine resistors of the outer ring defined the Dies-selhorst transfer means, the input impedance would be constant. He insisted, however, on including the inner ring in reaching his conclusion that in the Dies-selhorst transfer means the input impedance would be variable, without (so far as we can tell) giving any reason and without acknowledging (though he does not deny, and in one exchange admits) the role of the inner ring resistors with respect to maintaining the battery flow as a constant source.

We must conclude, therefore, that the Diesselhorst teaching is a direct predecessor of this aspect of the Julie patent. That teaching remained alive, and was known and used in potentiometry, up to the time of Julie’s application. In view of this accepted prior art, it was obvious to a skilled worker, in 1964 and 1965, to use a comparable type of transfer means, though perhaps with a different arrangement of equivalent parts. Julie Research says that it would make no sense to start with and modify a Dies-selhorst ring so as to make a Julie patent potentiometer. Guildline rightly answers (reply brief, p. 7): “One skilled in the art need not use an actual Dies-selhorst ring to construct a transfer means based on the teachings of Diessel-horst and covered by the claims in issue.” For the nonobviousness criterion of 35 U.S.C. § 103, the Diesselhorst teachings can and do extend beyond the specific embodiment disclosed by that inventor. It is enough that, after Dies-selhorst and his followers, it would be clear to one with ordinary skill that such a transfer means would work. Similarly, as we have already indicated, it would be obvious to hook up that kind of transfer means with a feedback-type generator. Each of the two assertedly novel features — the feedback source, and a transfer means with fixed input impedance and variable output impedance — is obvious by itself, as well as in combination with each other and the other components of the challenged claims.

Plaintiff-appellee stresses the very great precision of its instrument and the need for an exceedingly exact microvolt potentiometer. Neither is a ground for finding nonobviousness here. The notion of microvolt potentiometers was not new; they existed before the Julie conception and the Julie instrument (though not nearly as accurate as the latter). Nonobviousness “cannot be predicated on superiority alone. Obviousness depends on what those skilled in the art would expect” (Application of Mageli, 470 F.2d 1380, 1384-1385 (Cust. & Pat.App.1973) (emphasis in original)), and the record suggests that increasing precision was anticipated.

In any event, the more significant point is that the claims in issue do not call for the highest degree of microvolt accuracy, merely a potentiometer “useable for precision microvolt range measurements and calibrations” (claims 5, 8, and 9) or “useable for precision micro-volt range measurement and providing standardized-precision low voltages effectively free of spurious random noise and thermal emf’s” (claim 1). The invention itself is simply described in the patent as a “Potentiometer Means for Providing a Standardized Precision Low Voltage.” The patentee cannot support the patent by the fact that its actual device, as made and sold, may be superior in ways not related to, or not shown on this record to follow from, the patent claims.

For the same reason, the fact that the actual Julie potentiometer, as fabricated, may have filled a need for an extremely accurate instrument is not in itself persuasive of nonobviousness. The Julie mechanism clearly embodies more than the Julie patent, and it has not been shown that the factors which make the Julie device popular flow from the patent claims rather than from these other aspects. Moreover, “once it has been established by the prior art references that the difference between the patent in suit and this prior art is as unsubstantial as it is in this suit, such secondary evidence [“that the particular ‘invention’ before the court filled a long felt need in the particular industry and had become a commercial success”] cannot be held to demonstrate lack of obviousness.” Formal Fashions, Inc. v. Braiman Bows, Inc., 369 F.2d 536, 539 (2d Cir. 1966).

In holding that the claims are void for obviousness, we necessarily disagree with the District Court’s contrary result. Insofar as that conclusion stemmed from crucial factual findings —particularly as to the Diesselhorst ring — we have exercised our authority, as in other patent-validity cases involving obviousness, to review the record for ourselves and to determine that the findings below were clearly erroneous. Cf. Lemelson v. Topper Corp., 450 F.2d 845 (2d Cir. 1971) cert. denied, 405 U.S. 989, 92 S.Ct. 1253, 31 L.Ed.2d 456 (1972); Shaw v. E. B. & A. C. Whiting Co., 417 F.2d 1097 (2d Cir. 1969), cert. denied, 397 U.S. 1076, 90 S.Ct. 1518, 25 L.Ed.2d 811 (1970); Watsco, Inc. v. Henry Valve Co., 404 F.2d 1104 (2d Cir. 1968), cert. denied, 396 U.S. 821, 90 S.Ct. 61, 24 L.Ed.2d 72 (1969); Taylor Wine Co. v. Celmer, 397 F.2d 784 (2d Cir. 1968), cert. denied, 393 U.S. 1016, 89 S.Ct. 620, 21 L.Ed.2d 561 (1969); Preuss v. General Electric Co., 392 F.2d 29 (2d Cir.), cert. denied, 393 U.S. 834, 89 S.Ct. 105, 21 L.Ed.2d 104 (1968). The ultimate decision of invalidity/validity for obviousness/nonobviousness is one of law (Graham v. John Deere Co., 383 U.S. 1, 17, 86 S.Ct. 684, 15 L.Ed.2d 545 (1966); Shaw v. E. B. & A. C. Whiting Co., supra, 417 F.2d at 1102), and the District Court’s final conclusion on that question is, of course, not binding. Lemelson v. Topper Corp., supra, 450 F.2d at 848.

Our confidence in our conclusion is strengthened by some additional factors. This is a crowded art, with several people working in it and considerable activity in the ’50’s and ’60’s. The currents and cross-currents of thought seem to have been generally available, and there was a great deal of common knowledge. It was the kind of milieu from which developments like the Julie patent and the Guildline instrument were not unlikely to emerge. Cf. Indiana General Corp. v. Krystinel Corp., 421 F.2d 1023, 1030-1031 (2d Cir.), cert. denied, 398 U.S. 928, 90 S.Ct. 1820, 26 L.Ed.2d 91 (1970). Then, too, the patent claims, as we see them, are basically directed to a combination patent and must therefore be scrutinized with special care (General Radio v. Kepco, Inc., 435 F.2d 135, 137 (2d Cir. 1970), cert. denied, 404 U.S. 874, 92 S.Ct. 28, 30 L.Ed.2d 121 (1971)), and the usual presumption of validity is weakened because the significant Diesselhorst ring was not considered by the Patent Office (Reeves Bros. v. U. S. Laminating Corp., 417 F.2d 869, 872 (2d Cir. 1969)).

For these reasons we reverse the judgment below 'with directions to enter judgment for appellant Guildline Instruments, Inc. on the ground that claims 1, 5, 8 and 9 of the Julie patent No. 3,454,877 are invalid for obviousness.

Reversed.

      . This action was stayed against Hallmark Standards, Inc., the other defendant, after it filed a bankruptcy petition.

      . Where, as here, direct current is involved, “impedance” essentially equals “resistance.”

      . The terms “input impedance” and “output impedance” seem to have been used in the record, at various places, in other senses. We use them in the sense the parties employ them in the briefs before us, based on the terminology of the Julie patent.

      . Guildline’s president testified that a majority of its customers bought, as a pair, the Guildline precision potentiometer and also the Guildline feedback current source. He also said that before 1964 some of the customers had used batteries and constant current sources interchangeably with the same potentiometer.

      . Diesselhorst’s own publication appears to recognize this as the function of the inner ring resistors and this also seems to be the general position taken, though not explicitly or clearly, in later writings of others referring to Diesselhorst-type potentiometers, before Mr. .Tulie conceived his asserted invention.

      . Both introduce a constant current into a device for dividing the current, enabling the operator to vary the impedance by use of the divider. In Diesselhorst, the transfer means obtain this variable output impedance through the nine resistors of the outer ring; in the Julie conception, the same result usually comes about by use of a slide wire voltage divider as a variable resistor, thus providing the variable output impedance.

      . The District Court’s findings and conclusions are also vulnerable because copied verbatim, for the most part, from those proposed by plaintiff-appellee, contrary to this circuit’s admonitions (see, e. g., International Controls Corp. v. Vesco, 490 F.2d 1334, 1341 n. 6 (24 Cir. 1974)). Appellant urges, as another error, the allegedly excessive hurrying of the trial so as to deny a full hearing. We do not need to discuss this latter point.

      . We do not consider appellant’s additional contentions that two of the claims are invalid under the late-claiming doctrine, and that the claims are invalid for indefiniteness; and of course we do not reach infringement.


author: PER CURIAM:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Josephine M. POWELL, Defendant-Appellant.
    No. 74-1252.
    United States Court of Appeals, Ninth Circuit.
    Aug. 7, 1974.

      Gerald J. Moberg, Moses Lake, Wash., for defendant-appellant.
    Dean C. Smith, U. S. Atty., James B. Crum, Asst. U. S. Atty., Spokane, Wash., for plaintiff-appellee.
    Before MERRILL and ELY, Circuit Judges, and REAL, District Judge.

       Honorable Manuel L. Real, United States District Judge, Central District of California, sitting by designation.

   OPINION

PER CURIAM:

Appellant was convicted of a violation of 18 U.S.C. § 1715 for depositing in the United States mail a firearm capable of being concealed on the person, to wit: A sawed-off shotgun.

18 U.S.C. § 1715 provides in its pertinent part:

“Pistols, revolvers, and other firearms capable of being concealed on the person are nonmailable. Whoever knowingly deposits for mailing or delivery or knowingly causes to be delivered by mail according to the direction thereon . . . any pistol, revolver, a firearm declared non-mailable by this section shall be fined not more than $1000 or imprisoned not more than two years, or both.”

Appellant attacks her conviction on the basis that 18 U.S.C. § 1715, insofar as it encompasses “ . . . firearms (other than revolvers and pistols) capable of being concealed on the person,” is unconstitutionally vague in violation of the Fifth Amendment due process. We agree.

Although little question can be raised as to the coneealability on the person of a pistol or revolver in common recognition of the normal limits of their size, the statutory prohibition as it might relate to sawed-off shotguns is not so readily recognizable to persons of common experience and intelligence. Lanzetta v. New Jersey, 306 U.S. 451, 59 S.Ct. 618, 83 L.Ed. 888 (1939). The statute refers to “firearms capable of being concealed on the person . . . Did Congress intend that this “person” be the person mailing the firearm, the person receiving the firearm, or, perhaps, an average person, male or female, wearing whatever garb might be reasonably appropriate, wherever the place and whatever the season? We believe that this question, of itself, demonstrates the impermissible vagueness of the statute and its inadequacy to define the intended offense with sufficient specificity.

To require Congress to delimit the seize of the firearms (other than pistols and revolvers) that it intends to declare unmailable is certainly to impose no insurmountable burden upon it; and its failure to do so is an infirmity in draftsmanship of constitutional proportions.

Having decided the unconstitutional vagueness of this statute as it is applied to “other firearms,” we need not reach the other assignments of error made by appellant.

The judgment is reversed.

      . Innumerable State legislatures have met the challenge. See, e. g., California Penal Code § 12001; Oregon Revised Statutes § 166.210; Revised Code of Washington § 9.-41.010.


author: BRIGHT, Circuit Judge.

text:
    Paul BLUNT, Appellant, v. Charles L. WOLFF, Jr., Warden of Nebraska Penal & Correctional Complex, Appellee.
    No. 74-1002.
    United States Court of Appeals, Eighth Circuit.
    Submitted June 14, 1974.
    Decided Aug. 27, 1974.
    Alan E. Peterson, Lincoln, Neb., for appellant.
    Betsey S. Berger, Asst. Atty. Gen., Lincoln, Neb., for appellee.
    Before GIBSON, BRIGHT, and STEPHENSON, Circuit Judges.
   BRIGHT, Circuit Judge.

Paul Blunt, a Nebraska state prisoner who is serving his sentence of 24% to 35 years upon a conviction of robbery of approximately $169, seeks to annul the conviction through his petition for a writ of habeas corpus filed in the federal district court. Blunt filed no post-conviction proceedings in the state court but contends he has exhausted his remedies under state law through the direct appeal. United States District Judge Albert Schatz considered the habeas petition and rejected certain allegations as to their merits. As to others, however, he found that such issues had not been raised in the state supreme court, and hence, under the exhaustion doctrine, would not be considered on their merits. Blunt brought this timely appeal and we appointed counsel to assist him.

According to the district court’s analysis, Blunt raised ten issues in his petition and amended petition for habeas corpus relief, as follows:

1) That the evidence introduced at the trial supported at most a conviction for larceny, not robbery;
2) That petitioner was denied his sixth amendment right to counsel at trial (both through the ineffectiveness of Mr. Cullan and through the failure of Judge Krell [presiding judge at petitioner’s state court criminal trial] to appoint other counsel when the ineffectiveness became apparent);
3) That the petitioner made an involuntary, unintelligent, and unknowing waiver of counsel at trial;
4) That Judge Krell failed to exercise his duty to protect the petitioner acting pro se;
5) That Judge Krell failed to give petitioner an opportunity to prepare his defense in five respects:
a) He failed to grant a continuance in general;
b) He failed to grant a continuance to enable petitioner to get a transcript of the preliminary hearing;
c) He failed to grant a continuance to enable the petitioner’s witnesses to appear;
d) He failed to issue compulsory process for the petitioner’s witnesses;
e) That the state did not give petitioner necessary information concerning its witnesses;
6) That Judge Krell failed to recall two state’s witnesses;
7) That the trial court failed to provide a complete Bill of Exceptions;
8) That the petitioner was denied his sixth amendment right to counsel on appeal (both through the ineffectiveness of Mr. Hornstein and the failure of Judge Krell to appoint other counsel when that ineffectiveness became apparent);
9) That the prosecutor suborned the perjury of one of the state’s witnesses ;
10) That the sentence is excessive to the point of constituting cruel and unusual punishment under' the eighth amendment.

The record in this case discloses that Blunt defended himself on a pro se basis, although a member of the staff of the Douglas County, Nebraska, Public Defender’s Office served in an advisory capacity. Also, Blunt brought his appeal to the Nebraska Supreme Court on a pro se basis. Blunt’s briefs in the Nebraska Supreme Court disclose some form of assistance since the briefs contain the legend “Inmate Legal Assistance Office.”

The facts underlying the conviction are related in State v. Blunt, supra. Blunt entered a cleaning establishment in Omaha, Nebraska, on May 28, 1970, and caused a disturbance in the rear room. He then left the premises, but later returned and attempted to take some money out of a cash drawer. The counter clerk closed the drawer on Blunt’s hand. He pushed her away with sufficient force that she fell and lacerated her knees. Blunt then jerked the cash drawer out, removed the money, and fled. He was apprehended a few minutes later about two blocks from the place of the theft.

The record discloses that Blunt was initially brought to trial on September 14, 1970. After a jury was convened and trial commenced, a mistrial was granted because counsel disclosed defendant’s prior felony convictions in the voir dire of the jury. During the next month, Blunt indicated dissatisfaction with his appointed counsel and stated to the trial court that he would obtain his own attorney.

Blunt did not obtain counsel, but on November 2, his new scheduled trial date, he appeared before the trial court and stated that he would not permit the Public Defender to represent him and that he was not prepared to go to trial by himself. The court called the case for trial that same afternoon and directed that the Public Defender’s Office be in court to assist Blunt in the trial. The trial court denied all requests for a continuance and Blunt went to trial with the Public Defender acting as technical advisor. Mr. Cullan, who appeared for Blunt in the prior aborted trial of September 14, 1970, also served as technical advisor to Blunt at the November trial.

Following the trial and the conviction, the state trial court appointed Mr. Bennett Hornstein, of the Douglas County Public Defender’s Office (an attorney who had not previously represented Blunt) to prepare Blunt’s appeal. Subsequently, however, Mr. Hornstein moved to withdraw as counsel on the grounds that the appeal was “wholly frivolous.” The trial court, citing An-ders v. California, 386 U.S. 738, 87 S.Ct. 1396, 18 L.Ed.2d 493 (1967), granted the motion without prejudice to Blunt’s right to obtain his own counsel or conduct his appeal pro se. Blunt proceeded on his appeal pro se.

The Nebraska Supreme Court in denying Blunt relief on appeal specifically discussed Blunt’s claims of insufficiency of the evidence to justify the robbery conviction and excessiveness of the sentence. Contentions made by Blunt that he was deprived of a chance to prepare his defense or to obtain a record of his preliminary hearing were rejected as “contentions * * * not supported by the record and * * * without merit.” 193 N.W.2d at 435. On appeal to the state supreme court Blunt did not raise any question regarding withdrawal of appointed appellate counsel.

On the habeas petition, the United States District Court determined that the following numbered issues had actually been raised on Blunt’s direct appeal:

1) That the evidence introduced at trial supported at most a conviction for larceny, not robbery;
2) That petitioner was denied his sixth amendment right to counsel at trial (both through the ineffectiveness of Mr. Cullan and through the failure of Judge Krell to appoint other counsel when the ineffectiveness became apparent);
5) That the trial judge failed to give petitioner an opportunity to prepare his defense;
7) That the trial court failed to provide a complete Bill of Exceptions;
10) That the sentence was excessive to the point of constituting cruel and unusual punishment under the eighth amendment.

The United States District Court, on the other hand, determined that the following numbered issues were not raised or adequately presented to the Nebraska Supreme Court:

3) That the petitioner made an involuntary, unintelligent, and unknowing waiver of counsel at trial;
4) That the trial judge failed to exercise his duty to protect the petitioner acting pro se;
6) That the trial judge failed to recall two state’s witnesses;
8) That the petitioner was denied his sixth amendment right to counsel on appeal (both through the ineffectiveness of Mr. Hornstein and the failure of Judge Krell to appoint other counsel when that ineffectiveness became apparent);
9) That the prosecutor suborned the perjury of one of the state’s witnesses.

In resolving the appeal before us, we believe that we need only focus on issue No. 8, dealing with the withdrawal of Blunt’s appellate counsel.

Anders v. California, 386 U.S. 738, 87 S.Ct. 1396, 18 L.Ed.2d 493 (1967), established strict criteria for the withdrawal of court-appointed appellate counsel. Counsel must determine that the appeal is “wholly frivolous” and advise the appellate court of that fact and request permission to withdraw. Additionally, counsel must submit a “brief” discussing the substantive aspects of the appeal. Finally, the appellate court must examine the entire proceedings and make its own independent determination of whether or not the appeal is “wholly frivolous.” If the appellate court so finds, then counsel may be allowed to withdraw. Id. at 744, 87 S.Ct. 1396.

In petitioner’s case, it was the state trial court rather than the state supreme court which reviewed the record and allowed counsel to withdraw. Under these circumstances, Blunt raises a substantial question of whether he was deprived of his sixth amendment right to counsel on appeal. The doctrine of exhaustion, however, requires that this issue be presented to the Nebraska courts before being considered in the federal forum. If Blunt was deprived of his sixth amendment right to counsel by not being furnished an attorney to present his appeal, he was not afforded an effective appeal and the decision thereon must be deemed a nullity.

With respect to remedies available to Blunt under Nebraska procedures, the Attorney General of Nebraska makes the following comment:

Appellant contends that post conviction remedies were not available to him. We simply do not know that to be a fact. While there is authority, as appellant correctly demonstrates, for the proposition that issues which could have been raised on direct appeal cannot be litigated again, the court has been faced in every case with an appellant who was represented by counsel on appeal.

If Blunt demonstrates to the Nebraska Supreme Court that he has been denied his sixth amendment right to counsel on appeal, that court may very well afford him an opportunity for a new appeal with competent counsel. Thus, it may be that Blunt will be able to raise before the Nebraska Supreme Court on a new direct appeal every issue presented to the federal court in his habeas petition.

While this court has recognized that under certain circumstances the federal courts on a habeas petition should consider those contentions which have already been exhausted in state proceedings notwithstanding the fact that some issues in the petition have not yet been considered in the state court, see Tyler v. Swenson, 483 F.2d 611 (8th Cir. 1973), that rule is inapplicable here. The unresolved, already exhausted issues presented to the federal district court are interrelated and intertwined with the unexhausted claim relating to the failure to furnish Blunt counsel on appeal. We think the correct procedure for us to follow in this case is to permit the state court to have the opportunity to pass on this sixth amendment issue and if the state court finds Blunt’s claim is meritorious to afford him full and effective relief unrestrained by any determination made by the federal district court on an issue that can still be presented to the state forum.

Since the federal district court considered certain claims as exhausted as though there had been a valid appeal in state court, that part of the court’s decision should be set aside.

Accordingly, we remand this case with instructions to enter a dismissal of the action without prejudice because the appellant has failed to exhaust his state remedies. Blunt should not be foreclosed by the federal judgment from presenting any of his claims to the Nebraska courts.

      . Blunt’s state conviction was affirmed on appeal by the Nebraska Supreme Court. State v. Blunt, 187 Neb. 631, 193 N.W.2d 434 (1972).

      . The federal district court decision is unreported. Blunt v. Wolff, Civil No. 72-L-125 (D.Neb., filed Nov. 27, 1973).

      . Blunt also had the assistance of appointed counsel in presenting his petition before the United States District Court.

      . At this hearing, Blunt was represented by appointed counsel, Mr. Cullan of the Public Defender’s Office.

      . Justice McCown dissented, stating in his opinion that the 24% to 35 year sentence imposed by the sentencing judge amounted to “an abuse of discretion.” 193 N.W.2d at 436.

      . See Approved Draft of American Bar Association Project on Standards for Criminal Justice, Standards Relating to the Prosecution Function and the Defense Function, pp. 295-302.

      . Douglas v. California, 372 U.S. 353, 83 S.Ct. 814, 9 L.Ed.2d 811 (1963). See Anders v. California, supra; Entsminger v. Iowa, 386 U.S. 748, 87 S.Ct. 1402, 18 L.Ed.2d 501 (1967); DeMarrias v. United States, 444 F.2d 162 (8th Cir. 1971); Horsley v. Simpson, 400 F.2d 708 (5th Cir. 1968). See also Government of Canal Zone v. Corrella, 479 F.2d 1253 (5th Cir. 1973).

      . See Anders v. California, supra; Douglas v. California, supra; Harris v. Estelle, 487 F.2d 56 (5th Cir. 1973); DeMarrias v. United States, supra; Horsley v. Simpson, supra.


author: SETH, Circuit Judge.

text:
    UNITED STATES of America, Appellee, v. Joe PEPE, Appellant.
    No. 73-1932.
    United States Court of Appeals, Tenth Circuit.
    Aug. 20, 1974.
    Alan Y. Cole, Washington, D. C. (Isaac N. Groner, Washington, D. C., and Joseph Anderson, Lenexa, Kan., of counsel, with him on the Brief), for appellant.
    Monti Belot, Asst. U. S. Atty. (Robert J. Roth, U. S. Atty., Glen S. Kelly and E. Edward Johnson, Asst. U. S. Attys., on the Brief), for appellee.

      Before HILL, MOORE and SETH, Circuit Judges.

       Of the Second Circuit, Sitting by Designation.

   SETH, Circuit Judge.

The appellant, Joe Pepe, seeks reversal of his conviction by a jury on one count of conspiracy to possess heroin with the intent to distribute it, and one count of possession of heroin with the intent to distribute it in violation of 21 U.S.C. § 841(a)(1). He asserts that the court in its instructions to the jury did not properly develop the meaning and effect of the reasonable doubt standard, and that the jury was thereby misled as to the burden of proof upon the prosecution. Mr. Pepe’s objection focuses principally upon the following instruction, given in the court’s concluding remarks to the jury:

“There is nothing peculiarly different in the way a jury is to consider the evidence in a criminal case from that in which all reasonable persons treat any question depending upon evidence presented to them. You are expected to use your good sense; consider the evidence for only those purposes for which it has been admitted and give it a reasonable and fair construction in the light of your common knowledge of the natural tendencies and inclinations of human beings.”

In his view, this instruction tended to cloud the reasonable doubt standard by comparing the criminal jury’s decision making function to decision making in the ordinary course of life, when in actuality the criminal jury is charged with a constitutionally prescribed standard for evaluating and weighing the evidence.

The confusion generated by the challenged instruction was further compounded in the appellant’s eyes by what he terms the court’s failure to provide a complete definition of reasonable doubt. The following definition of reasonable doubt was given to the jury:

“A reasonable doubt is a fair doubt based upon reason and common sense and arising from the state of the evidence. It is rarely possible to prove anything to an absolute certainty. Proof beyond a reasonable doubt is established if the evidence is such as a reasonably prudent man would be willing to rely and act upon in the most important of his own affairs. A defendant is not to be convicted on mere suspicion or conjecture.”

This definition, which the appellant characterizes as a “willing to act” instruction, is asserted to be insufficient under Holland v. United States, 348 U.S. 121, 75 S.Ct. 127, 99 L.Ed. 150, which affirmed this court’s decision at 209 F.2d 516; and when unaccompanied by curative “moral certainty” language, is asserted to be grounds for reversal under United States v. Smaldone, 485 F.2d 1333 (10th Cir.). However, recognizing that his failure to object below to the latter instruction may foreclose evaluation of it on appeal, the appellant argues that the asserted inadequacies in the reasonable doubt definition aggravated the confusion and error created by the first quoted instruction to which he did object, and that the combined force of the two instructions vitiated the reasonable doubt standard and deprived the appellant of due process. We cannot agree.

At the outset, we ■‘-ecognize that the reasonable doubt standard is a constitutional cornerstone of the criminal justice system. A defendant is entitled to have his jury apprised of this standard and its corollary, the presumption of innocence, and is entitled to have the meaning of reasonable doubt explained to the jury. Findley v. United States, 362 F.2d 921 (10th Cir.); Holland v. United States, 209 F.2d 516 (10th Cir.). Nevertheless, we must also be mindful of the difficulties inherent in any attempt to define the term in great detail or to characterize precisely what sort of doubt might be reasonable. As an abstraction the concept of reasonable doubt is not susceptible to description by terms with sharply defined, concrete meanings. Resort must be to wording or language, the meaning of which will necessarily be colored by the experience of each individual. Thus while the term itself is common and readily associated by most individuals with our criminal justice system, it is unlikely that two persons would supply the same characterization of its meaning. These difficulties have been acknowledged by the Supreme Court, and the Court has expressed its doubts about the benefit of attempting a definition more elaborate than the term “reasonable doubt” itself. Miles v. United States, 103 U.S. 304, 26 L.Ed. 481; Dunbar v. United States, 156 U.S. 185, 15 S.Ct. 325, 39 L.Ed. 390. See again Holland v. United States, 209 F.2d 516 (10th Cir.).

Turning to the specific instructions in question, our analysis is governed not only by the language or correctness of any particular instruction, but also by the content and effect of all of the instructions when viewed as a whole. United States v. Beitscher, 467 F.2d 269 (10th Cir.). When so considered, the instructions were adequate to apprise the jury of both the reasonable doubt standard and the presumption of innocence.

A review of the instructions reveals that the words “reasonable doubt” were used no fewer than twenty-three times, and numerous additional references to the presumption of innocence were made. While the precise meaning of the term “reasonable doubt” may be difficult to define, the term itself is not uncommon and the words are subject to ordinary everyday usage. With that in mind, we may reasonably assume that the typical juror, considering the term in the context of the related instructions, would have a sufficiently clear understanding of the term so that in the absence of instructions contradicting or vitiating its meaning and effect, he would apply it correctly.

Neither of the challenged instructions is perhaps the best available formulation. The so-called “willing to act” instruction, in the form given by the trial court, appears to have corrected the non sequitur criticized by the Supreme Court in the Holland case, 348 U.S. at 140, 75 S.Ct. 127, as well as by this court, 209 F.2d at 522-523. Nevertheless, the Supreme Court in Holland expressed its preference for the “hesitate to act” formulation, and that preference should be heeded. We would add that neither in the Holland case nor the Smaldone case was the “willing to act” terminology found to be reversible. In Smaldone we indicated that additional clarification was afforded by the “moral certainty” language there present, but we meant to imply no magic in that term either.

The “nothing peculiarly different” instruction has also been the target of criticism. See Tarvestad v. United States, 418 F.2d 1043 (8th Cir.), and United States v. Cummings, 468 F.2d 274 (9th Cir.). However, neither the Eighth Circuit nor the Ninth Circuit found prejudicial error in its use. We recently considered the same instruction and, while we also found no reversible error, neither did we recommend it. United States v. Downen, 496 F.2d 314 (10th Cir.), filed April 23, 1974. In view of its apparently frequent usage by some of the trial courts of this Circuit we take this opportunity to express our disapproval of future use of the instruction. Although it purports to deal only with consideration and evaluation of the evidence, and does not appear to offer any serious misdirection, we do not believe the instruction provides any particular assistance to the jury in the performance of its tasks. And at least in the eyes of some analysts, it offers possible confusion as to the standards required for conviction. We therefore think the instruction is best omitted.

Having reviewed the record and considered the instructions as a whole, we are convinced that- the jury was accurately and sufficiently apprised of its functions and duties. Accordingly the convictions are affirmed.