author: SWYGERT, Chief Judge.

text:
    Samuel GOLDSTEIN et al., Plaintiffs-Appellants, v. CITY OF CHICAGO, a municipal corporation, et al., Defendants-Appellees.
    No. 72-1965.
    United States Court of Appeals, Seventh Circuit.
    Argued Oct. 30, 1973.
    Decided July 12, 1974.

      Richard S. Kuhlman, Chicago, 111., for plaintiff s-appellants.
    Richard L. Curry, Corp. Counsel, Daniel Pascale, Asst. Corp. Counsel, Michael G. Goldstein, Asst. State’s Atty., Chicago, 111., for defendants-appellees.
    Before SWYGERT, Chief Judge, CUMMINGS and STEVENS, Circuit Judges.
   SWYGERT, Chief Judge.

Samuel Goldstein, plaintiff-appellant, and the class that he alleges to represent, appeal from the dismissal of their complaint for failure to state a claim upon which relief can be granted. The class action plaintiffs are owners of condominium living units located in Chicago. The defendants are the City of Chicago, various city officials in charge of garbage and refuse removal, and the Treasurer of Cook County. The Treasurer was named a defendant because he is the legal custodian of the funds collected from property taxes and is responsible for disbursing those funds to the city officials in charge of garbage removal.

The suit was brought under 42 U.S.C. § 1983. The city officials are alleged to have violated the equal protection and due process clauses of the Fourteenth Amendment by refusing to provide condominium dwelling units with the garbage removal mandated by sections 14-3 and 14-11 of the Municipal Code of Chicago. Goldstein argues that the class action plaintiffs that he represents pay property taxes to cover the expense of the garbage removal, but do not receive it; they are forced to hire private scavengers. It is contended that they should receive garbage removal just as individual homeowners do. The officials reply that they are under no duty to provide garbage removal to the condominium owners since section 99-18 of the Municipal Code of Chicago places the duty of garbage collection on the condominium owners themselves. Section 99-18 provides in relevant part:

“Except in the case of a multiple dwelling containing less than five living units, a multiple dwelling producing less than thirty-two gallons of refuse per week, or a multiple dwelling each living unit of which is individually heated by the tenant, it shall be the duty of the owner of every multiple dwelling to cause to be removed at his own cost and expense at least once each week all refuse produced therein.”

The district court decided that Gold-stein had failed to state a claim upon which relief could be granted. The judge, relying on Bradford Township v. Illinois State Toll Highway Authority, 463 F.2d 537 (7th Cir. 1972), stated: “The determination of the issue presented depends entirely upon a question of state law, i.e., the interpretation of the ordinance. If defendants’ interpretation is correct, as it would seem to me to be if I were a state judge presented with the issue, plaintiffs state no cause of action, for they do not, even alternatively, attack the validity of the ordinance. Even if plaintiffs’ interpretation were correct and defendant officers were thus violating implicit affirmative duties with respect to plaintiffs, that violation would not give rise to a federal cause of action. Failure to follow a state statute does not, of itself, constitute a violation of a federally protected right.”

In analyzing the constitutional issue, the district judge found that refuse collection was “one of the numerous social welfare benefits which governmental units have voluntarily undertaken to provide,” but was “certainly not a fundamental right.” He relied on Dandridge v. Williams, 397 U.S. 471, 90 S.Ct. 1153, 25 L.Ed.2d 491 (1970), and found no violation of the equal protection clause.

We accept the interpretation which the city places on its ordinance. The question then is: Does the city deny the plaintiffs the equal protection of the laws? Before we can answer we must first determine by what constitutional standard the ordinance should be tested. Is the applicable test one involving a “fundamental” right protected by the Constitution or must the city show only that there is a rational basis for the different classifications in the ordinance?

Owners of a multiple dwelling with more than five units which has more than thirty-two pounds of garbage are not an inherently “suspect” class. The seminal case dealing with inequality of law enforcement by local officials is Yick Wo v. Hopkins, 118 U.S. 356, 6 S.Ct. 1064, 30 L.Ed. 220 (1885). In that case, unlike here, the inequality was focused upon certain people because of their race and national origin. Suspect classifications identified by the Supreme Court are race, national origin, alienage, indigency, or illegitimacy. San Antonio School District v. Rodriquez, 411 U.S. 1, 61, 93 S.Ct. 1278, 36 L.Ed.2d 16 (1973) (Stewart, J., concurring). Multiple dwelling owners is not such a suspect class.

Nor is the right to public garbage collection a fundamental right, such as the right to travel interstate or the right to vote. In San Antonio School District, the Supreme Court held that education was not a fundamental right. Mr. Justice Powell, speaking for the Court in San Antonio School District, in defining the criteria for determining what is a fundamental right, quoted from Mr. Justice Stewart’s opinion in Shapiro v. Thompson, 394 U.S. 618, 642, 89 S.Ct. 1322, 22 L.Ed.2d 600 (1969):

“The Court today does not ‘pick out particular human activities, characterizes them as “fundamental,” and give them added protection . . . .’ To the contrary, the Court simply recognizes, as it must, an established constitutional right, and gives to that right no less protection than the Constitution itself demands.” San Antonio School District, 411 U.S. at 31, 93 S.Ct. at 1295.

Mr. Justice Powell later expanded on Mr. Justice Stewart's language. Although he was there speaking about education, we think that it is similarly applicable to garbage collection.

“It is not the province of this Court to create substantive constitutional rights in the name of guaranteeing equal protection of the laws. Thus the key to discovering whether education is ‘fundamental’ is not to be found in comparisons of the relative societal significance of education as opposed to subsistence or housing. Nor is it to be found by weighing whether education is as important as the right to travel. Rather, the answer lies in assessing whether there is a right to education explicitly or implicitly guaranteed by the Constitution. Eisenstadt v. Baird, 405 U.S. 438, 92 S.Ct. 1029, 31 L.Ed.2d 349 (1972); Dunn v. Blumstein, 405 U.S. 330, 92 S.Ct. 995, 31 L.Ed.2d 274 (1972); Police Dept. of Chicago v. Mosley, 408 U.S. 92, 92 S.Ct. 2286, 33 L.Ed.2d 212 (1972); Skinner v. Oklahoma, 316 U.S. 535, 62 S.Ct. 1110, 86 L.Ed. 1655 (1942).
“Education, of course, is not among the rights afforded explicit protection under our Federal Constitution. Nor do we find any basis for saying it is implicitly so protected.” 411 U.S. at 33-35, 93 S.Ct. at 1297.

Since multiple dwelling ownership is not an inherently suspect classification and since garbage collection is not a fundamental right, the test to be applied is whether the city has a rational basis for distinguishing between condominium owners in large multiple unit residential buildings and owners of single housing units.

The city contends and we agree that the ordinance does not distinguish between types of ownership but between types of building — single family home versus large multiple unit buildings— and that the reason for this distinction is that the owner(s) of large residential buildings with a great amount of garbage have more effective bargaining power with private scavenger services than the owner of a single unit.

The city’s distinction between types of residential structures in providing efficient sanitation is, in our judgment, reasonable. Accordingly, the ordinance does not violate the equal protection clause of the Fourteenth Amendment.

The dismissal of plaintiffs’ complaint is affirmed.

      . The Treasurer did not file a separate brief but joined in the brief of the Corporation Counsel for the City of Chicago.

      . Section 14-3. The commissioner of streets and sanitation shall have supervision of the improvement and maintenance of the public ways of the city and the lighting thereof except where such improvement is to be paid for wholly or in part by special assessment; the cleaning of public ways and the removal of garbage, refuse and. waste; the removal of any article or thing which may encumber or obstruct any public way; and the installation and inspection of all electrical equipment not specifically provided for by other sections of this ordinance. [Repealed — new section passed. Coun.J. 12-20-40, p. 3668; amend. 1-9-46, p. 4740 ; 2-4-47, p. 7205; 11-10-52, p. 3413; 12-7-56, p. 3595.]

      . If the ordinance is misinterpreted by the city, then the plaintiffs’ remedy is in the state court.

      . See Hawkins v. Town of Shaw, Mississippi, 437 F.2d 1286 (5th Cir. 1971), for a case in which a violation on the equal protection clause was found to have occurred when less municipal services were provided to black residents in one part of town in comparison with those provided white residents in other parts of the town.


source: Caselaw Access Project

author: POOS, Senior District Judge.

license: Public Domain

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Robert E. CROWLEY, Defendant-Appellant.
    No. 73-1437.
    United States Court of Appeals, Seventh Circuit.
    Argued Dec. 5, 1973.
    Decided Sept. 30, 1974.

      Michael J. Guinan, Chicago, 111., for defendant-appellant.
    James R. Thompson, U. S. Atty., Gary L. Starkman and Michael D. Monico, Asst. U. S. Attys., Chicago, 111., for plaintiff-appellee.
    Before SWYGERT, Chief Judge, SPRECHER, Circuit Judge, and POOS, Senior District Judge.

       Honorable Omer Poos, Senior District Judge for the Southern District of Illinois, is sitting by designation.

   POOS, Senior District Judge.

Defendant, Robert E. Crowley, was indicted in a one count indictment for violation of the Hobbs Act, 18 U.S.C. Sec. 1951. Following a trial by jury, defendant was found guilty and sentenced to two years imprisonment. This appeal follows that conviction.

Jack David and Jerome Morris, hereinafter referred to as David and Morris, were the proprietors of the Bryn Mawr Bowling Lanes located in Chicago’s south side. In recent years their business, which was located in a racially changing area, had experienced numerous thefts and violent disturbances. The proprietors soon discovered that without sufficient police protection they were unable to properly and profitably continue their business enterprise. It is within this factual milieu that defendant, a police officer for the Chicago Police Department, enters.

In the fall of 1971, David and Morris were separately introduced to defendant Crowley by another unidentified policeman who had been receiving pay-offs from the two men. Crowley was introduced to each of the alleged victims as the man who would continue to collect the monthly pay-offs. Subsequently, the proprietors paid one hundred dollars ($100) per month from November, 1971 to April, 1972, on approximately the fourteenth (14th) of each month. The manner of payment involved either of the two men writing a check for the designated amount, cashing it, and then giving the sum of money to defendant when he entered the premises.

Defendant admitted to having received the money but contended that it was voluntary remuneration for services rendered to the alleged victims, i. e., providing security for the premises while on and off duty. The record further discloses, however, that defendant never performed, nor was asked to perform any services for David or Morris. Officer Crowley never personally arrested or caused anyone to be arrested on the bowling establishment premises. Oft times the alleged victims complained that they were not receiving adequate police assistance when needed. Crowley reassured David and Morris and indicated that their complaint would be remedied. The proprietors testified, however, that the only time they ever observed defendant during the period in question was when he collected the payments.

Finally, on April 14, 1972, the aforementioned relationship between the proprietors and defendant ended. On that morning Agent Noble of the Federal Bureau of Investigation handed David five twenty dollar bills, which he had previously photostated. Subsequent thereto, defendant entered the bowling alley and encountered David. David complained that despite the payments adequate police protection was not being afforded; defendant assured David that the service would improve. It was during this conversation that David gave the five twenty dollar bills to defendant, who placed them on his person. As defendant Crowley exited the premises he was apprehended by Agent Noble, who in comparing the bills in Crowley’s possession found them to correspond to those previously given David. Defendant’s trial and conviction stemmed from this arrest.

Defendant’s first contention on appeal is that the government’s evidence of extortion was insufficient to sustain a conviction under the Hobbs Act, 18 U.S.C., Sec. 1951.1 In support thereof, defendant argues that while the evidence may support a charge of bribery, it wholly fails to prove a crime of extortion in that there was no indication that Crowley’s actions engendered a reasonable fear of harm in the minds of the alleged victims. In essence, defendant alleges that it was necessary for the government to prove not only that defendant obtained the property of another, with his consent, while acting “under color of official right” but also within the “wrongful use of actual or threatened force, violence, or fear.”

In setting forth such an exposition, defendant clearly misreads 18 U.S.C., Sec. 1951 and the case law pertinent thereto. Even a cursory reading of the statute reveals that it is phrased in the disjunctive. Furthermore, United States v. Kenny, 462 F.2d 1205 (3rd Cir. 1972), supports this interpretation,

(While) private persons may violate the statute only by use of fear and public officials may violate the act by use of fear, persons holding public office may also violate the statute by a wrongful taking under color of official right. . . . The “under color of official right” language plainly is disjunctive. That part of the definition repeats the common law definition of extortion, a crime which could only be committed by a public official and which did not require proof of threat, fear, or duress. 462 F.2d at 1229.

This holding comports with the Supreme Court’s concept of common law extortion. In United States v. Nardello, 393 U.S. 286, 289, 89 S.Ct. 534, 536, 21 L.Ed.2d 487 (1969), the Court discussed the meaning of extortion in the Hobbs Act’s companion statute, 18 U.S.C., Sec. 1952. It stated:

At common law a public official who under color of office obtained the property of another not due either to the office or the official was guilty of extortion. In many States, however, the crime of extortion has been statutorily expanded to include acts of private individuals under which property is obtained by means of force, fear, or threats.

With reference to the foregoing analysis it appears that the jury in the instant case was warranted in finding that defendant committed extortion “under color of official right.” The jury was properly instructed on this facet of the extortion statute. Furthermore, the evidence taken in the light most favorable to the government, established that Crowley obtained money to which he was not entitled while in uniform and in the performance of his official duties. Defendant was introduced to the proprietors as the man who would collect the pay-offs. Crowley performed no services for David and Morris, and they expected non of him. The evidence was therefore sufficient for the jury to conclude that it was defendant’s uniform — his office — that induced David and Morris to make the payments.

Defendant has cited numerous cases which stand for the proposition that fear or duress is a necessary element for the crime of extortion. United States v. Hyde, 448 F.2d 815 (5th Cir. 1971), cert, denied, 404 U.S. 1058, 92 S.Ct. 736. 30 L.Ed.2d 745, is the authority predominantly relied upon for this proposition. Hyde, however, did not explicitly deal with the “under color of official right” aspect of the Hobbs Act and therefore is clearly distinguishable,

There was evidence in this ease to support a finding that the defendants coerced companies into paying fees in order to avoid harmful legal action. In some cases explicit threats were made. 448 F.2d at 833.

It is apparent that the Court in Hyde was not concerned and did not decide the issue relevant to the resolution of the instant case.

As to the remaining authorities cited by defendant, suffice it to say that they concerned private, not public participants in the crime of extortion and therefore are inapposite.

This Court need not solely rest upon the above rationale to support the jury’s finding in the instant case. The evidence contained in the record, both direct and circumstantial, proved that the proprietors of the Bryn Mawr Bowling Lanes paid defendant because they feared if adequate police protection was not provided, their business would be plagued by financial loss. It is readily conceded that the business establishment was the target of frequent incidents of vandalism and violence. David and Morris, like other businessmen in the racially changing neighborhood, were often forced to summon the police, and found, not infrequently, that assistance was slow in arriving. Hence, David and Morris were highly susceptible targets for such extortionate practices as set forth in the indictment.

The testimony reveals that another policeman, who had been collecting from the proprietors, represented that defendant would continue to collect the payments. Defendant represented to the victims that he would arrange for improved police service. David and Morris obviously recognized that if adequate police service was not forthcoming the spectre of financial ruin would become an immediate reality. It is important to note that it is unnecessary for the government to prove that defendant actually created the fear in the minds of his victims. Rather, as the Court in Callanan v. United States, 223 F.2d 171, 174-176 (8th Cir. 1955), cert. denied, 350 U.S. 862, 76 S.Ct. 102, 100 L.Ed. 764, held, the exploitation of the victim’s reasonable fear constitutes extortion regardless of whether or not the defendant was responsible for creating that fear and despite the absence of any direct threats. Accordingly, Crowley was charged with extorting money through the use of economic harm, the issue on which the jury heard evidence, was instructed, and reasonably could have concluded the defendant’s guilt.

Defendant asserts a two-pronged attack on this aspect of the jury’s adverse conclusion. Initially, defendant cites various contradictions that were revealed in the witnesses’ testimony during examination at trial and relies on the issue of credibility to subvert the jury’s finding. Glasser v. United States, 315 U.S. 60, 77-80, 62 S.Ct. 457, 469, 86 L.Ed. 680 (1942), properly repudiates defendant’s proposition:

The short answer to this is that the credibility of a witness is a question for the jury . . . It is not for us to weigh the evidence or to determine the credibility of witnesses. The verdict of a jury must be sustained if there is substantial evidence, taking the view most favorable to the Government, to support it.

There appears no reason on appeal to disturb the jury’s resolution of this issue.

Secondly, defendant attempts to dispel the jury’s verdict of guilt by relying upon David’s and Morris’s testimony that defendant Crowley always comported himself as a gentleman and never confronted them in a threatening manner. Integrally related to this proposition is defendant’s contention that the proof substantiates that the money acquired from David and Morris was paid voluntarily as remuneration for services rendered. United States v. Hyde and Glasser v. United States, supra, are dis-positive of defendant’s dual faceted proposition. In addressing itself to the former, the Court need only recall the language of Hyde,

The fact that relations between the victims and the extorters were often cordial is not inconsistent with extortion. 448 F.2d at 834.

As to the latter, the Court again reiterates its previous discussion on the issue of credibility on appellate review.

As a second ground constituting reversible error, defendant asserts that the lower Court’s proffered instruction as to extortion “under official color of right” was not a proper statement of the applicable law. In reliance thereon, defendant contends that the trial court’s instruction was not sanctioned either by existing case law or authoritative literature.

The Court is cognizant that this argument is merely an embellishment of the premise raised in defendant’s first argument. As previously mentioned there is ample support for the trial court’s instruction as to what constitutes extortion “under color of official right.” An examination of both Nardello and Kenny, supra, compel the conclusion that the instruction was in accord with the plain reading of the statute and the common law definition of the phrase in question. Attention should also be called to the fact that the trial judge did not give the alleged erroneous instruction until he completed comprehensive instructions explaining extortion induced by fear of economic loss and delineating defendant’s theory of defense, i. e., that the payments were voluntary. The theory which defendant presently urges the Court to accept was specifically submitted for the jury’s consideration and decided adversely to defendant.

It is apparent from the foregoing that the instructions fairly represented the applicable law pertaining to extortion and do not necessitate reversal.

Defendant’s final argument on appeal asserts that there was insufficient proof that the charged acts affected interstate commerce under the Hobbs Act. It was stipulated by counsel at trial that if the Products Manager of the Brunswick Corporation were called to testify, he would state that the Bryn Mawr Bowling Alley bought supplies and equipment, from the Brunswick Corporation, which were manufactured outside the state of Illinois. The main thrust of defendant’s argument is that the aforementioned stipulation fails to establish that defendant’s conduct affected interstate commerce as per the Hobbs Act and pertinent case law.

Defendant relies upon Walling v. Goldblatt Bros., 128 F.2d 778 (7th Cir. 1942) to support his proposition. It suffices to say that the Court finds Goldblatt inapposite, for it did not concern a violation of 18 U.S.C., Sec. 1951 but of the Fair Labor Standards Act of 1938, 52 Stat. 1060; 29 U.S.C.A., Sec. 201 et seq. That statutory provision did not attempt to regulate activities “affecting commerce” but only those activities “in commerce.” Nor are the remaining cases listed seriatim by defendant any more persuasive; none of them concerns the Hobbs Act or an equivalent penal statute.

The notion that interstate commerce cannot be “affected” once items have “come to rest” was decisively rejected by the Supreme Court in Burke v. Ford, 389 U.S. 320, 88 S.Ct. 443, 19 L.Ed.2d 554 (1967). That case arose under the Sherman Act, which also proscribed activities having an effect on interstate commerce; the Supreme Court stated,

The District Court and the Court of Appeals found that the liquor “came to rest” in the wholesalers’ warehouses and that interstate commerce ceased at that point. Hence, they concluded that the wholesalers’ division of the Oklahoma market did not take place “in interstate commerce.” But whatever the validity of that conclusion, it does not end the matter. For it is well established that an activity which does not itself occur in interstate commerce comes within the scope of the Sherman Act if it substantially affects interstate commerce. 389 U.S. 321, 88 S.Ct. 443, 444, 19 L.Ed.2d 554 (1967).

It is important to note that unlike the Sherman Act, the Hobbs Act does not require that the effect on interstate commerce be substantial. Extortionate conduct having an arguably de minimis effect on commerce may nevertheless be punished. See for e. g., United States v. De Met, 486 F.2d 816 (7th Cir. 1973); United States v. Tropiano, 418 F.2d 1069 (2nd Cir. 1969), cert. denied, 397 U.S. 1021, 90 S.Ct. 1262, 25 L.Ed.2d 530; Battaglia v. United States, 383 F.2d 303 (9th Cir. 1967), cert. denied, 390 U.S. 907, 88 S.Ct. 817, 19 L.Ed.2d 874; United States v. Augello, 451 F.2d 1167 (2nd Cir. 1971), cert. denied, 405 U.S. 1070, 92 S.Ct. 1518, 31 L.Ed.2d 802; United States v. Glasser, 443 F.2d 994 (2nd Cir. 1971), cert. denied, 404 U.S. 854, 92 S.Ct. 96, 30 L.Ed.2d 95; United States v. Mitchell, 463 F.2d 187 (8th Cir. 1972). This analysis is in accord with the Supreme Court’s decision delineating the purview of the Hobbs Act. In United States v. Stirone, 361 U.S. 212, 215, 80 S.Ct. 270, 272, 4 L.Ed.2d 252 (1960), the Court stated in part,

. . . [it] speaks in broad language, manifesting a purpose to use all the constitutional power Congress has to punish interference with interstate commerce by extortion, robbery or physical violence.

In the instant case it was established by stipulation that the supplies and equipment of the Bryn Mawr Bowling Lanes were purchased from manufacturers outside the state of Illinois. There was an implied threat that if payment was not made to Officer Crowley, the victims would not receive adequate police service, with the resultant effect of impairment of the business enterprise. It was further established that the assets of the bowling lanes were depleted by the payment of one hundred dollars ($100) per month for six months. This Court observed in United States v. De Met, supra,

Where the victim of extortion, as here, customarily obtains inventory which has come from outside the state, obstructions and delay of, and effect upon commerce may, for the purpose of the Hobbs Act, be found in curtailment of the victim’s potential as a buyer of such goods. This may be traced either through the depletion of his assets by his fulfillment of the extortionate demands or the harm which would follow if the threats were carried out.

See also, United States v. Pacente, 503 F.2d 543 (7th Cir. 1974). It conclusively appears that defendant’s extortionate conduct in the instant case sufficiently affected interstate commerce to satisfy the jurisdictional requirements of the Hobbs Act.

In light of the foregoing analysis the Court finds defendant Crowley’s contentions on appeal to be without merit. Accordingly, the conviction of defendant, Robert E. Crowley, is hereby affirmed.

      . The act reads, in pertinent part,
      whoever in any way or degree obstructs, delays, or affects commerce or the movement of any article or commodity in commerce, by robbery or extortion or attempts or conspires so to do, or commits or threatens physical violence to any person or property in furtherance of a plan or purpose to do anything in violation of this sec' tion shall be fined not more than $10,000 or imprisoned not more than twenty years, or both .
      The term “extortion” means the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear or under color of official right.

      . Hobbs Act, 18 U.S.O., Sec. 1951.

      . In part the statute reads,
      The term “extortion” means the obtaining of property from another ... or under color of official right. Emphasis added.

      . For further exposition on common law extortion, see, 2 Wharton’s Criminal Law, Sec. 1904 (12th Ed. 1932) ; 4 Blackstone 141; Stern, Prosecutions of Local Political Corruption under the Hobbs Act: The Unnecessary Distinction Between Bribery and Extortion, 3 Seton Hall L.Rev. 1, 17 (1971).

      . Extortion under color of official right by a law enforcement officer need not involve force or threat. If a victim reasonably feels compelled to pay money to a law enforcement officer, because of that officer’s wrongful use of his official position for the purpose of obtaining money, the requirements of the crime of extortion under color of official right are satisfied.

      . Glasser v. United States, 315 U.S. 60, 80, 62 S.Ct. 457, 86 L.Ed. 680 (1942).

      . United States v. Nardello, supra, 393 U.S. at 289, 89 S.Ct. 534.

      . Bianchi v. United States, 219 F.2d 182 (8th Cir. 1955), cert. denied, 349 U.S. 915, 75 S.Ct. 604, 99 L.Ed. 1249; United States v. Sopher, 362 F.2d 523, 527 (7th Cir. 1966), cert. denied, 385 U.S. 928, 87 S.Ct. 286, 17 L.Ed. 2d 210; United States v. De Met, 486 F.2d 816 (7th Cir. 1973).

      . See also: United States v. Karigiannis, 430 F.2d 148 (7th Cir. 1970), cert. denied, sub nom., Panagiotopoulos v. United States, 400 U.S. 904, 91 S.Ct. 143, 27 L.Ed.2d 141.

      . Trial Court’s instruction, supra.

      . Trial Court’s Instruction No. 13:
      The mere voluntary payment of the money, unaccompanied by any feeling of compulsion or duress, does not constitute extortion. Unless the payments here involved were made under some form of compulsion or duress, there has been no extortion.

      . 18 U.S.C., Sec. 1951, the Hobbs Act, provides in pertinent part: whoever in any way or degree obstructs, delays, or affects commerce or the movement of any article or commodity in commerce, by robbery or extortion

      . The threat to do something which would affect commerce satisfies the commerce aspect of the statute. See, United States v. Pranno, 385 F.2d 387 (7th Cir., 1967), cert. denied, 390 U.S. 944, 88 S.Ct. 1028, 19 L.Ed.2d 1132 (1968).


author: CLARK, Associate Justice.

text:
    BROWN & WILLIAMSON TOBACCO CORP., Plaintiff-Appellee, v. FIRST NATIONAL BANK OF BLUE ISLAND, a national banking association, Defendant-Appellant.
    No. 73-1804.
    United States Court of Appeals, Seventh Circuit.
    Heard May 29, 1974.
    Decided Oct. 21, 1974.

      Gerald F. Munitz, Gerald D. Skoning, Chicago, 111., for defendant-appellant.
    Watson B. Tucker, Kenneth M. Stern, Chicago, 111., for plaintiff-appellee.
    Before CLARK, FAIRCHILD, and PELL, Circuit Judges.

       Associate Justice Tom C. Clark, United States Supreme Court (Ret.) is sitting by designation.

   CLARK, Associate Justice.

This appeal, involving Sections 9-205 and 9-306(2) of the Uniform Commercial Code, arises from a judgment entered in favor of appellee, Brown and Williamson Tobacco Corporation (B & W), for $70,724 and against appellant, First National Bank of Blue Island (Blue Island). We outline the facts here.

F. W. Koenecke & Sons, Inc. (Koenecke, Inc.), a tobacco wholesaler, was controlled by Robert Koenecke and his wife, Imogene. It bought tobacco products from various suppliers, including B & W, R. J. Reynolds Tobacco Corporation (RJR) and others. Its purchases from B & W were covered by a security agreement dated October 22, 1968, which, inter alia, assigned and granted to B & W a continuing security interest in all of Koenecke, Inc. current and future inventory of B & W products, accounts receivable arising from the sale of such products and all products and proceeds of the foregoing, all of which was referred to as “collateral”. It further provided . . except for the sale of B & W cigarettes and other tobacco products in the ordinary course of business (Koenecke, Inc.) will not sell, assign or create or permit to exist any lien on or security interest in any collateral to or in favor of anyone other than B & W”.

Koenecke, Inc. maintained a general checking account at Blue Island (No. 0-072-8) in which it deposited receipts from sales of tobacco products handled by it. Blue Island made loans both to Koenecke, Inc. and to Robert Koenecke and his wife personally. The first of these personal loans to the Koeneckes was on June 6, 1967, for $20,000 and paid on July 6, 1967, by Koenecke, Inc. On February 5, 1968, the Koeneckes borrowed $100,000 which was paid by Mr. Koenecke on April 9, 1968. On June 20, Koenecke, Inc. borrowed $82,000 which was paid by the company on September 17, 1968. On October 23, 1968, the Koe-neckes borrowed $67,000 which was paid by the company on December 21, 1968. And on January 9, 1969, the Koe-neckes borrowed $108,000, which was paid by the company on January 13, 1969. The proceeds of all of these loans were ultimately deposited in the bank account of Koenecke, Inc., No. 0-072-8.

Throughout the Fall of 1968 and continuing into 1969, Koenecke, Inc. suffered severe adverse publicity — especially through the press in Chicago — the gist of which was that its licensing arrangements were unlawful; its sales of cigarettes bore no Illinois revenue stamps; and some of its licenses were obtained through forgery. This had an adverse effect upon its sales.

On October 29, 1968, a $250,000 loan to Robert Koenecke and his wife was made by Blue Island on their personal, unsecured note. The proceeds of this loan were placed in the Koenecke, Inc. checking account No. 9-072-8, but the company did not sign, guarantee or endorse the same. The note was renewed on December 28, 1968 for 60 days. On February 10, 1969, Blue Island, becoming disturbed over Koenecke, Inc.’s finances, stopped honoring checks of Koe-necke, Inc. that were drawn on uncollected funds deposited in checking account No. 0-072-8. Koenecke, Inc. was not notified of this action and, when it found out, it withheld making any further deposits in the account. At this time, there were several hundred thousand dollars in checks drawn against its general account, No. 0-072-8, which Koenecke, Inc. had issued to its suppliers, among whom were B & W and RJR. On February 17, 1969 representatives of RJR appeared in person at the bank, seeking collection of ■ several previously dishonored checks. On that day there was a balance in the Koenecke, Inc. checking account No. 0-072-8 of $713,586.52, of which $113,911 was attributable to sales by Koenecke, Inc. of B & W products which were covered by the security agreement.

On this same day — February 17th— the President and the Vice President of Blue Island spoke by telephone with Robert Koenecke and requested payment of the $250,000 note, although it was not due until February 26, 1969. Mr. Koe-necke told Blue Island officers to pay the note from the corporate checking account of Koenecke, Inc., No. 0-072-8, and this was done by a debit memo of the bank on the next day. On February 18th he also directed Blue Island to debit Koenecke, Inc.’s account $40,000 and to issue a cashier’s check in that amount to him. He endorsed the cashier’s check to RJR.

On the 18th of February, upon the opening of Blue Island, there was a balance of $498,055.85 in the checking account No. 0-072-8 of Koenecke, Inc. and of this amount $70,724 was attributable to the proceeds of the sales of B & W products. Also on February 18th three representatives of B & W called personally on Blue Island to pay several checks drawn on Koenecke, Inc. account No. 0-072-8, but the bank refused because of a reported insufficiency of funds. During that same morning, representatives of RJR conferred with Blue Island officials and Robert Koenecke at the bank’s offices in an attempt to collect an additional sum of several hundred thousand dollars for recent sales of its products to Koenecke, Inc. During a coffee break within the RJR meeting, Blue Island officers procured the signature of Robert Koenecke to the debit memo authorizing the payment of the Koeneckes’ $250,000 note, but B & W was not advised thereof, although its representatives were in the bank. At the end of that day the checking account of Koenecke, Inc., No. 0-072-8 had a balance of only $3,317.49.

Koenecke, Inc. closed operations on February 24, 1969 and on March 13th a petition was filed to adjudicate Koe-necke, Inc. bankrupt. On April 28, 1969, at a hearing on the bankruptcy matter, Vice President Mansfield of Blue Island, with some evasion, testified that at the direction of Mr. Koenecke, he had taken $252,567.70 from checking account No. 0-072-8 of Koenecke, Inc. and paid off with interest the personal note of Robert Koenecke and his wife due Blue Island on February 26, 1969. B & W elected not to participate in the bankruptcy, having decided to stand on its security. The Trustee in bankruptcy of Koenecke, Inc. sued Blue Island for some $530,000 covering several transfers of cash from Koenecke, Inc. to the bank. That suit was settled on November 23, 1970, for $100,000.

The bank raises four issues: (1) Did B & W lose its security interest by permitting the proceeds from the sale of its products to be commingled with other funds in the corporate account of Koe-necke, Inc.; (2) Did B & W “cover” or trace its proceeds into the hands of the bank either as to depository or the ultimate transferee; (3) Did an action for conversion lie; (4) Was the transfer of the $252,567.70 to Blue Island from the account of Koenecke, Inc. a fraudulent one.

We decide the first two questions against the bank and affirm. The bank admits that “it sought and obtained preferred treatment for the payment of its $250,000 loan” but insists that its action constituted neither a conversion of B & W property nor a fraudulent transfer thereof. We find it unnecessary to pass on these issues since B & W had a perfected security interest in its “collateral” which was deposited in the Koenecke, Inc. checking account No. 0-072-8 and which it traced to the bank.

I. B & W did not lose its security interest :

Blue Island relies primarily upon the argument that B & W gave up its ability to identify its collateral when it permitted Koenecke, Inc. to commingle that collateral with other funds deposited in the latter’s account No. 0-072-8. We find both the Uniform Commercial Code and the decided cases to the contrary. Section 9-205 of the Code specifically provides: “a security interest is not invalid ... by reason of liberty in the debtor to use, commingle, or dispose of all or part of the collateral or ... of proceeds.” And Section 9-306(2) adds: The security “also continues in any identifiable proceeds including collections received by the debtor.”

Thus the Code “is explicit in preserving the priority of the secured party to the proceeds notwithstanding his consent to the sale of the primary collateral and further notwithstanding his consent to the debtor’s unrestricted use and disposition of these proceeds so long as they remain identifiable.” In re Mid State Wood Products Company, 323 F.Supp. 853, 857 (N.D.Ill.1971)..

Blue Island urges us to follow a statement by Professor Grant Gilmore that proceeds cease to be identifiable when deposited in a bank account, so that the security interest is lost when such commingling occurs. See 2 G. Gilmore, Security Interests in Personal Property. § 27.4, at 735-36 (1965). Since Professor Gilmore was the principal draftsman and Reporter for Article 9 of the Code, his interpretation, though subsequently voiced, commands attention. Nevertheless, examining the language of the Code, in the light of its purpose, we conclude that the more reasonable implication is that the proceeds may be identifiable, and the security interest therein survive, even though commingled.

In Grain Merchants of Indiana v. Union Bank and Savings Co., 408 F.2d 209 (7th Cir. 1969) this court observed:

[M]any lenders making loans secured by a revolving pool of collateral have dispensed with the assignment of individual receivables and the use of special cash collateral accounts for receiving and disbursing the proceeds therefrom. This flexible method of financing, with its minimum cost, is authorized by Section 9-205 of the Code, which abrogates the state law ‘debtor dominion’ rule of Benedict v. Ratner [268 U.S. 353, (45 S.Ct. 566, 69 L.Ed. 991) (1925)] and would be jeopardized if financing institutions had to insist on individual assignment of after-arising accounts receivable. [408 F.2d at 216.]

Universal C.I.T. Credit Corp. v. Farmers Bank of Portageville, 358 F.Supp. 317 (E.D.Mo.1973), upheld a security interest in cash from the sale of automobiles which had been deposited in the automobile dealer’s general bank account. The court held that “proceeds are ‘identifiable’ if they can be traced in accordance with the state law. . The mere fact that the proceeds from the sales of the six automobiles were commingled with other funds does not render the proceeds unidentifiable. . . .” 358 F.Supp. at 323-324. See also Associates Discount Corp. v. Fidelity Union Trust Co., 111 N.J.Super. 353, 268 A.2d 330 (1970); Girard Trust Corn Exchange Bank v. Lepley Ford, Inc., 25 Pa.D. & C.2d 395 (Pa.Ct.Comm.P.1958). In Howarth v. Universal C.I.T. Credit Corporation, 203 F.Supp. 279, 282 (W.D.Pa.1962), the court at least assumed that if proceeds of collateral could be traced into a bank account, such proceeds would be deemed identifiable, and subject to the security interest. We are not persuaded by the contrary authority of Morrison Steel Co. v. Gurtman, 113 N.J.Super. 474, 274 A.2d 306 (1971).

Looking to Illinois law, it is clear in the different, but probably analogous, case of a fund impressed with a trust, such fund may be traced into a fund of commingled money, People v. Bates, 351 Ill. 439, 184 N.E. 597, 598 (1933), and it is conclusively presumed in equity that a trustee dissipates or spends his own funds first, before encroaching upon a trust fund. People v. People’s Bank and Trust of Rockford, 353 Ill. 479, 187 N.E. 522, 525 (1933).

II. B & W traced its collateral to Blue Island:

But Blue Island says that B & W did not trace or “cover” collateral into the hands of the bank. However a reading of the agreed stipulation of facts and of paragraph 3 of B & W’s complaint which Blue Island admits to be true, shows the contrary.

There is no difficulty in tracing $70,724 of proceeds in which B & W had a security interest into the money in the checking account February 18, 1969. Blue Island has stipulated that Koenecke, Inc.’s checking account No. 0-072-8 had $498,055.85 in it on February 18 and that $70,724 thereof represented proceeds of sales of B & W products covered by the security agreement, calculated “through the application of generally accepted auditing and accounting principles.”

Blue Island has stipulated further on that same day it transferred to itself, out of that same account, $252,567.70 in payment of Robert and Imogene Koenecke’s personal note, not yet due. There were other transfers during the day amounting to $247,170.66 and at the close of business the balance was $3,317.49. The bank contends that the $70,724 has not been sufficiently identified as part of the $252,567.70 the bank transferred to itself, and it therefore must not be deemed to have had constructive notice of B & W’s security interest therein.

Whether rationalized in terms of iden-tifiability or of fairness in holding the bank to constructive notice, we think that the matter turns upon whether the transfer to Blue Island was a transfer in the ordinary course of business. Official Comment 2(c) to § 9-306 of the Code says as follows:

Where cash proceeds are covered into the debtor’s checking account and paid out in the operation of the debt- or’s business', recipients of the funds of course take free of any claim which the secured party may have in them as proceeds. What has been said relates to payments and transfers in ordinary course. The law of fraudulent conveyances would not doubt in appropriate cases support recovery of proceeds by a secured party from a transferee out of ordinary course or otherwise in collusion with the debtor to defraud the secured party. [Uniform Commercial Code Comment to Smith-Hurd Ill.Rev.Stat. ch. 26 § 9-306, p. 403 (emphasis added).]

Examination of the circumstances of the transfer persuades us that the transfer was clearly outside the ordinary course of business. At the beginning of the day, representatives of B & W appeared at the bank and sought the honoring of checks drawn to B & W on the Koenecke account, payment having been previously refused. Blue Island represented that the account did not contain adequate funds. Bank officers also met with RJR, also seeking payment for goods sold to Koenecke, Inc. During a coffee break in this meeting, Blue Island obtained a debit memorandum from Mr. Koenecke, authorizing the transfer to it. B & W representatives, still at the bank, were not informed.

There is no stipulation nor proof of the nature of the other transfers out of the account during the day nor the order in which they occurred. It seems likely, from the general situation, and we think fair to assume in the absence of proof, that they represented payment of checks which had been issued in the ordinary-course of the business of Koenecke, Inc.

Therefore, we conclude that the funds subject to the B & W security interest were identifiable and the security interest continued in the money transferred to Blue Island. It seems fair and equitable to charge a party receiving a transfer from a general bank account outside the ordinary course of business with constructive notice of a security interest in funds therein.

A recent per curiam opinion by the Supreme Court, Mahon, Trustee, and CIT Corp. v. Stowers, 416 U.S. 100, 94 S.Ct. 1626, 40 L.Ed.2d 79 (1974), has come to out attention. It construed the Packers and Stockyard Act, certain regulations of the Secretary of Agriculture, and the Texas Business and Commercial Code. The CIT had a duly perfected security interest in all livestock, animal carcasses, packaged and unpackaged meat and other inventory of Samuels, a large meat packing concern. Stowers had sold some steers to Samuels and had a security interest in those animals and the proceeds therefrom. He had failed to perfect his security interest and was unable to establish his right to possession or ownership by identifying the property sought to be reclaimed in either its original or substituted form. The case is therefore inapposite here where the collateral of B & W has been traced to Blue Island. Nor is Fitzpatrick v. Philco Finance Corp., 7 Cir., 491 F.2d 1288 (1974) in point. The case involves the limitations of Ill.Rev.Stat. ch. 26, § 9-306(4) as to payments by the debtor to a secured creditor within ten days prior to bankruptcy. There is no comparable factual situation here.

We affirm the judgment.

It is so ordered.

      . Section 9-205 of the Uniform Commercial Code:
      “A security interest is not invalid or fraudulent against creditors by reason of liberty in the debtor to use, commingle or dispose of all or part of the collateral or to collect or compromise accounts or to use, commingle or dispose of proceeds, or by reason of the failure of the secured party to require the debtor to account for proceeds or replace collateral.”
      Section 9-306(2) :
      “Except where this Article otherwise provides, a security interest continues in collateral notwithstanding sale, exchange or other disposition thereof by the debtor unless his action was authorized by the secured party in the security agreement or otherwise, and also continues in any identifiable proceeds including collections received by the debtor.”

      . Blue Island additionally argues that the judgment order of the trial court is defective because it failed to make findings of fact and conclusions of law as required by Fed. R.Civ.P. 52. The facts were stipulated and are included in the record and the Memorandum Opinion of the trial judge dated October’ 26, 1972 and the Judgment Order of July 18, 1973 set out the conclusions of law. It would have been supererogatory to again set them out under new tags. Further, Blue Island never raised the point until it filed its brief here. If it believed Rule 52 was violated and its appeal disadvantaged thereby, it should have given the trial judge an opportunity to correct the omission.

      . “Each such sale and delivery was made pursuant to, and was secured by a security agreement and financing statement executed by Koenecke on or about October 22, 1968 and duly filed on or about October 28, 1968. Copies of said security agreement and financing statement are attached hereto as Exhibits A and B and are expressly made a part hereof. By virtue of said agreement, as consideration for all current and future sales and deliveries of merchandise by B & W acquired a security interest in (among other things) all proceeds of Koenecke’s B & W inventory and all proceeds of that part of Koeneeke’s accounts receivable attributable to its sale of B & W products (“B & W accounts receivable”). By virtue of the foregoing, Blue Island Bank knew, or was chargeable with knowledge of, B & W’s security interest in the proceeds of Koenecke’s B & W inventory and the proceeds of Koen-ecke’s B & W accounts receivable.”

      . Blue Island in the alternative urges that a pro-rata application of the transfers of February 18, 1969, be made and B & W’s judgment be reduced to $35,864.61. As we have said, B & W had a valid and enforceable security interest in the proceeds of the sales of its products by Koenecke, Inc.; Blue Island prevented it from enjoying them and must pay the price for its action. Otherwise we would be placing the roses around the wrong horse.


author: PER CURIAM.

text:
    John H. ELLIS et al., Plaintiffs-Appellees, v. The FLYING TIGER CORPORATION, Defendant-Appellant.
    No. 71-1704.
    United States Court of Appeals, Seventh Circuit.
    Argued Sept. 22, 1972.
    Decided Oct. 27, 1972.

      Glenn W. McGee, Chicago, 111., David Hartfield, Jr., New York City, for defendant-appellant.
    Howard Arvey, Chicago, 111., for plaintiffs-appellees.
    Before SWYGERT, Chief Judge, and CUMMINGS, Circuit Judge and SPRECHER, Circuit Judge.
   PER CURIAM.

The issue presented is whether the trial court abused its discretion in awarding $600,000 in attorneys’ fees in approving the settlement of a class action.

This action was begun on December 18, 1970, when the plaintiffs, common shareholders of North American Car Corporation, filed a complaint seeking to enjoin a merger between North American and the Flying Tiger Corporation on grounds that a proxy statement contained false and misleading statements. The trial judge granted plaintiffs’ motion for a preliminary injunction on December 21, 1970, but reversed himself the next day. Plaintiffs’ motion for emergency consideration of their appeal of the denial of the preliminary injunction was summarily denied by this court on January 6, 1971, and plaintiffs thereafter moved to dismiss the appeal. The stockholders of North American approved the merger which became effective on January 7, 1971. Notice of the proceedings in the district court was sent to former North American shareholders pursuant to order of the district court.

On March 9, 1971, Flying Tiger declared a 5% dividend on its common stock to shareholders of record on March 26, 1971. Ex-dividend trading on the New York Stock Exchange began on March 22, 1971 On March 23, 1971, plaintiffs filed a motion for a preliminary injunction preventing payment of the 5% common stock dividend. The petition, filed on behalf of all former common shareholders of North American who received preferred shares of Flying Tiger with conversion rights to common stock as a result of the merger, alleged that under the terms of the merger agreement plaintiffs were not protected by anti-dilution provisions from irreparable damage to their proportionate holdings which would follow the 5% stock dividend. The trial judge granted a preliminary injunction the same day. This injunction resulted in the suspension of trading the Flying Tiger stock on the New York Stock Exchange. The defendants filed an emergency motion with this court seeking to vacate the injunction and a hearing was set for April 1, 1971.

Counsel for each of the parties met in New York on March 28, 1971, and agreed to settle the case. The next day Flying Tiger moved to dismiss its appeal and the lower court vacated the preliminary injunction upon agreement of the parties. The settlement was approved on May 27, 1971.

Under the terms of the settlement agreement, Flying Tiger agreed to recommend that its shareholders vote to approve full dilution protection for holders of preferred stock and warrants against dividends on Flying Tiger common stock payable in common stock. The agreement also provided that any member of the plaintiff class who had converted preferred stock into common stock between March 9, 1971, and March 26, 1971, would be entitled to rescind such action. Finally, the agreement provided that Flying Tiger would pay for the costs of notice to the class and would pay “reasonable attorneys’ fees.”

Thereafter, attorneys for both parties filed memoranda and proposed findings regarding reasonable attorneys’ fees. The district court accepted plaintiffs’ proposed findings as written, merely filling in the space left blank for the amount of the award. The amount of attorneys’ fees awarded was $600,000. The trial judge gave no reason for his award in this amount.

I.

The district court has wide discretion in awarding attorneys’ fees, subject to the requirement that the award be fair and reasonable. See Harris v. Chicago Great Western Ry. Co., 197 F.2d 829 (7th Cir. 1952). The reasons for this allowance of discretion are several. The trial judge is generally in the best position to assess the skill and competency of counsel in developing a factual record and legal theory, to evaluate the difficulties in preparing the case and the reasonableness of the claimed time expended by counsel, and to determine the reasonableness and propriety of settling a case upon the terms agreed to by the parties.

The discretion permitted a district court is, however, predicated on the assumption that the trial judge has carefully considered the factors described above, and that he has heard testimony and examined statements prepared by the attorneys substantiating the value of the benefits received by the plaintiff class and the hours expended by the attorneys on the case. Where, as in this case, there is nothing in the record to indicate what factors the trial judge deemed important in making his award, there can be no basis for adhering to the rule of discretion.

II.

It has been generally held that an appropriate award of attorneys’ fees should be determined on the basis of several elements, including the skill and reputation of counsel, the time expended by attorneys in preparing the case, the novelty and difficulty of the legal issues presented, and the benefits conferred upon the class. Angoff v. Goldfine, 270 F.2d 185, 189 (1st Cir. 1959) ; State of Illinois v. Harper & Row Publishers, Inc., 55 F.R.D. 221, 224 (N.D.Ill.1972); In re Westec Corp., 313 F.Supp. 1296, 1303-1304 (S.D.Tex.1970).

The district court held that the dollar value of the benefits received by the class was $4,061,208. Counsel for plaintiffs argues that the amount of attorneys’ fees awarded is, if the fee is included within the benefit computation, approximately 13% of the total benefit and thus well within the range of recovery permitted by other courts in similar cases. Assuming this to be true, it does not answer the question of whether a percentage award is appropriate under the particular circumstances of this case.

We believe several factors indicate that a relatively large percentage award is not appropriate in this case. In awarding attorneys’ fees, it is ordinarily expected that the benefits conferred upon the class are achieved through the direct effort and skill of the attorneys involved. It is far from clear that this was so in the instant case. Subsequent to the announcement of the 5% stock dividend, the Internal Revenue Service published proposed regulations which might have had the effect of making the 5% stock dividend taxable to the Flying Tiger common shareholders unless a corresponding dilution adjustment was made in the convertibility terms of the preferred stock and warrants. Flying Tiger now states that any benefits accruing to the plaintiff class were the direct result of this change in the tax law and not from any efforts of plaintiff counsel. This argument is supported to some extent by the settlement agreement. The agreement states among the reasons for deciding that settlement was advantageous for all the parties, the following:

“WHEREAS, after the declaration by Flying Tiger on March 9, 1971 of a stock dividend, the Internal Revenue Service released proposed regulations that would subject the dividend to ordinary income tax treatment when received by Flying Tiger stockholders; and the management of Flying Tiger, on advice of counsel, has stated that it will recommend to its shareholders an amendment to the terms of the Preferred Stock and Warrants described in paragraph 1 below primarily in order to avoid the impact of such regulations and also to serve as a basis for settlement of this action, . . .” (emphasis added).

It further appears, both from the settlement agreement and statements of plaintiffs’ counsel at oral argument on the issue of attorneys’ fees, that plaintiffs may have had a strong motive for reaching an agreement to settle the case, regardless of any benefits which might fortuitously be conferred upon the class they represented, at the time the parties agreed to meet in New York. As previously stated, the effect of the trial judge’s granting of plaintiffs’ request for a preliminary injunction against the issuance of the stock dividend was a suspension in all trading of Flying Tiger stock on the New York Stock Exchange. A prolonged suspension of trading would have had a detrimental and perhaps disastrous economic effect on all Flying Tiger shareholders, including the plaintiff class. Counsel for plaintiffs stated during argument below:

“At that time ... we became quite concerned because on the following day, Wednesday, the New York Stock Exchange stopped trading in the securities of Tiger, which was listed on the New York Stock Exchange. We started calling the New York Stock Exchange and representatives of the company in an effort to work out an interim agreement among us, prior to the Court of Appeals ruling, which would permit the shares to be traded.” (App. 305).
“My main purpose in going there [to New York] was to obtain the resumption of trading.” (App. 306).

The settlement agreement also indicates that a primary purpose in deciding to settle was the potential disastrous effect of the suspension of trading on the New York Exchange.

A further consideration in awarding a substantial percentage of the shareholder benefits to counsel has been the amount of effort expended in preparing the case. Successful counsel in many cases have achieved the class benefits only after extensive discovery, successive appeals and development of new legal theories or implementation of older theories to apply to a new set of facts. In this case there does not appear to have been any discovery or even any preparation for trial on the merits of the case. The record does not indicate that any new developments in the law have resulted from this litigation; both appeals, resulting from the granting or denial of preliminary injunctions, were dismissed pursuant to motions by the parties.

In their petition for an award of attorneys’ fees, plaintiff’s counsel stated that the number of hours spent in preparation of the case totaled 570. The district court made no finding that this was a reasonable expenditure of time considering the skill and competency of the average attorney; however, we will assume for purposes of this appeal that the number of hours claimed was reasonable. If the $600,000 award were to stand, the attorneys would therefore be paid approximately $1,000 an hour for their time. Although the amount of time expended in preparation of a case is ordinarily only one factor to be considered by a district court, we think that the circumstances presented here necessitate a decision based somewhat more closely on the number of hours actually spent in preparation than would be the case where substantial benefits had been achieved following protracted or particularly innovative litigation.

In conclusion, based on a study of the course of this litigation, the difficulties and preparation time involved, and the benefits achieved for the class, we think an award of $75,000 is appropriate and entirely adequate. This award amply compensates the attorneys both for their time and their efforts to bring this litigation to a conclusion that would benefit the plaintiff class. The award will be reduced accordingly.

Reversed.

      . The rules of the New York Stock Exchange require that shares of stock trade for five market days before the effective date of the dividend without inclusion of the dividend in any sale,

      . Cf. State of Illinois v. Harper & Row Publishers, Inc., 55 F.R.D. 221 (N.D.Ill.1972).

      . This total was computed on the following basis:
      Anti-dilution protection for the preferred shareholders from the 5% stock dividend declared on March 9, 1971 ................ $2,673,869
      Anti-dilution protection for the warrant holders from the 5% stock dividend declared on March 9, 1971 .................... $1,273,230
      Option to rescind for those i>referred shareholders who had exercised their rights to convert to common stock from March 9, 1971, through March 26, 1971 ................................... $ 114,109

      . The plaintiffs cite Hornstein, “Legal Therapeutics : The ‘Salvage’ Factor in Counsel Fee Awards,” 69 Harv.L.Rev. 659 (1956), and cases discussed there as authority.

      . Proposed Regulation § 1.305-3(d), published in vol. 36, No. 53, Federal Register, March 18, 1971, provides :
      “If a corporation has convertible stock or convertible securities outstanding and distributes a stock dividend with respect to the stock into which the convertible stock or securities are convertible, no increase in proportionate interest in the assets or earnings and profits of the corporation by reason of such stock dividend shall be considered as having occurred provided—
      (1) An adjustment in the conversion ratio to reflect such stock dividend is made . . . ,
      and
      (2) The distributing corporation attaches to its income tax return for the taxable year of the distribution (i) a statement that the corporation elects to make an adjustment in accordance with the provisions of subpara-graph (1) of this paragraph, and (ii) a copy of the corporate authority for such an adjustment procedure.”

      . The agreement states:
      “WHEREAS, plaintiffs through their attorneys obtained an agreement in principle to settle this matter on reasonable terms and were acutely concerned about the suspension of trading privileges of the Flying Tiger securities on the New York Stock Exchange and the American Stock Exchange and the possible adverse effects of this suspension on the value of these securities . . . ”
      (emphasis added).

      . Plaintiffs’ total of 797 hours included 227 hours spent in preparing and litigating the issue of attorneys’ fees in the court below.

      . The parties agreed that the proper amount of costs and disbursements was $2,642.73. This amount is not included in the $75,000 award.


author: HUFSTEDLER, Circuit Judge:

text:
    Sam SCHULZ, Appellant, v. Clark County Sheriff Ralph LAMB et al., Appellees.
    No. 73-2014.
    United States Court of Appeals, Ninth Circuit.
    Oct. 15, 1974.

      Emilie N. Wanderer, Las Vegas, Nev., for appellant.
    Cromer & Barker, Las Vegas, Nev., for appellees.
   OPINION

Before HUFSTEDLER and CHOY, Circuit Judges, and McNICHOLS, District Judge.

HUFSTEDLER, Circuit Judge:

Schulz, invoking diversity jurisdiction, sued two deputy sheriffs, a county sheriff, and a Las Vegas hotel for false arrest and imprisonment. He appeals from the dismissal of his action against the county sheriff and the hotel and from judgment in favor of the deputy sheriffs entered after a nonjury trial on the merits. We affirm the dismissals because no claim for relief could be sustained against the county sheriff or the hotel. We reverse the judgment exculpating the deputy sheriffs Dessel and Levitte because the record does not sustain the district court’s conclusion that they had a legally justified basis for detaining and questioning Schulz.

Schulz and his family took a holiday in Las Vegas, Nevada. As Schulz was preparing to return to Los Angeles, his mother became separated from the other members of the party during their visit to the Las Vegas International Hotel. He searched for her, first taking an elevator to the third floor, where there were public facilities, and then to a higher floor, where there was a lounge. He took an elevator back to the first floor when he did not find her at those two locations.

When Schulz got off the elevator, Dessel and his partner Levitte were standing in the lobby. Dessel testified that there had been a high burglary rate in Las Vegas hotels, and that he and his partner had been assigned to certain hotels with instructions “to roam the rooming areas and stop anyone that looked suspicious, that was loitering about the rooming areas.” Dessel recognized Schulz as a person he had seen leaving the rooming area of another hotel earlier that same day, although he could not recall which hotel it was. According to Dessel, Schulz walked away from the elevator very quickly and appeared to be nervous. Dessel, who had not been suspicious of Schulz when he observed him before, became suspicious upon seeing Schulz apparently emerging from the rooming area of á second hotel.

Dessel caught up with Schulz, showed Schulz his identification, and asked him if he was a guest at the hotel. Schulz said “No.” Dessel then asked Schulz for identification; Schulz told Dessel his name. When Dessel asked Schulz why he had been coming out of the rooming area of another hotel earlier in the day, Schulz replied, “This is ridiculous; I’m not answering any more questions,” and walked away.

Dessel told Schulz to stop, but Schulz kept on walking. Dessel caught up with Schulz and advised him that he was under arrest for prowling. At trial, Dessel testified that he arrested Schulz because he was walking away and did not respond to further questions. Dessel said he attempted to handcuff Schulz who became “combative,” and Levitte had to assist Dessel. The two deputies took Schulz directly to jail. He was released six hours later after his parents supported his innocence.

Nothing in the record indicates that the hotel employed the deputy sheriffs or had any connection with their activities in the hotel. The action against the hotel was properly dismissed.

Liability of the county sheriff was predicated on respondeat superior. The action against the sheriff was also correctly dismissed because Nevada law relieves a sheriff of vicarious liability based on an act or omission of one of his deputies. (Nev.Rev.Stat. § 41.0335 (l)(a)0

If the deputies had probable cause to arrest Schulz when he stepped off the elevator, or if probable cause developed after he had been justifiably stopped for interrogation, the deputies had a good defense against the action under Nevada law. (E. g., Marschall v. City of Carson (1970) 86 Nev. 107, 464 P.2d 494.) When Schulz emerged from the elevator, there was nothing to indicate that any crime had been committed or that Schulz was in any way connected with a crime. Dessel was justified in stopping and interrogating Schulz only if he had a “founded suspicion” that criminal activity was afoot. (E. g., United States v. Ward (9th Cir. en banc 1973) 488 F.2d 162, 169; United States v. Scheiblauer (9th Cir. 1973) 472 F.2d 297, 300; United States v. Jennings (9th Cir. 1972) 468 F.2d 111, 115 ) To sustain founded suspicion, the deputies must be able to point to specific and articulable facts and to rational inferences they drew therefrom which created the suspicion and led to the detention (Terry v. Ohio (1968) 392 U.S. 1, 21, 88 S.Ct. 1868, 20 L.Ed.2d 889).

At trial Dessel tried to isolate the factors that made him suspicious of Schulz: (1) there was a high burglary rate in the hotels at Las Vegas; (2) he had earlier seen Schulz emerging from the rooming area of another hotel; and (3) Schulz appeared to be nervous and was walking rather quickly. We cannot agree that these relatively innocuous factors generated any “founded” suspicion. Individually and together the factors articulated by Dessel are too insignificant to justify an investigative detention.

The existence of a high burglary rate in the hotels at Las Vegas is beside the point. Dessel and Levitte had no reason to believe that a particular crime might be afoot, much less that Schulz might be involved. A high rate of burglary in Las Vegas hotels is not surprising and may call for vigilant surveillance, but it cannot justify a relaxed application of the Fourth Amendment in and around the casinos.

Nor is it significant that Dessel had earlier seen Schulz emerging from the rooming area of another hotel. A great deal of traffic among the various hotels is commonplace and encouraged by the major hotels seeking customers for their gambling casinos and entertainment attractions. No cause for suspicion arises from a man’s being in two or more hotels in the same day, whether he is courting lady luck or visiting a friend.

That Schulz appeared nervous and was walking rapidly is also insignificant. Many totally innocent people have nervous symptoms and walk briskly. We are aware' of no studies correlating these traits with criminal propensity. Neither nervousness nor agility is a cause for suspicion, much less investigative detention, in the atmosphere of Las Vegas, a community that thrives on gambling and other stimulants.

Affirmed in part, reversed in part, and remanded.

       Honorable Bay McNichols, Chief Judge, Boise, Idaho, sitting by assignment.

      . There has been some confusion in this case as to whether Schulz sued under the Civil Bights Act (42 U.S.C. § 1983; 28 U.S.C. § 1343). The first mention of the Civil Bights Act was at trial, when during a discussion the judge stated- “I’m talking about the Civil Bights Act, and that is what you are suing under, you are not suing under a statute in Nevada, you are suing under the Civil Bights Act.” The judge’s comments to the contrary notwithstanding, Schulz’ original complaint, his amended complaint, and the pretrial order all specified diversity of citizenship with the requisite amount in controversy as the basis for federal jurisdiction. Schulz did not attempt to allege a civil rights action. Accordingly, we treat the case as an ordinary diversity action founded on the Nevada law of false arrest and false imprisonment.


author: GODBOLD, Circuit Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Harold WASSERMAN, Car-Mar Enterprises, Inc., and Abraham Linet, d/b/a Ultima Sales Company, Defendants-Appellants.
    No. 73-3374.
    United States Court of Appeals, Fifth Circuit.
    Dec. 9, 1974.

      Edwin M. Rosendahl, Beverly Hills, Cal., R. James George, Jr., Austin, Tex., for defendants-appellants.
    William Sessions, U. S. Atty., Jeremiah Handy, W. Ray Jahn, Asst. U. S. Attys., San Antonio, Tex., for plaintiff-appellee.
    Before BROWN, Chief Judge, and GODBOLD and RONEY, Circuit Judges.
   GODBOLD, Circuit Judge:

After a jury trial, appellants were convicted of violations of the federal statute prohibiting mailing of obscene material, 18 U.S.C. § 1461. The issues presented by this appeal may be summarized :

(1) Under United States v. Thevis, 484 F.2d 1149 (CA5, 1973), cert. denied, 418 U.S. 932, 94 S.Ct. 3222, 41 L.Ed.2d 1170 (1974), and the requirements of the due process clause, did the District Court err in applying the obscenity standards of Miller v. California, 413 U.S. 15, 93 S.Ct. 2607, 37 L.Ed.2d 419 (1973), in a trial for allegedly criminal acts which occurred before the decision in Miller was handed down ?

(2) Did the District Court err in instructing the jury that “community standards” were measured by the geographic area constituting the Western District of Texas where the government, in response to appellants’ motion for bill of particulars, had stated that the “community standards” were to be determined on the basis of the nation as a whole ?

(3) Did the District Court err in failing to admit films and magazines comparable to those at issue in this prosecution and which had previously been found not obscene by previous court decisions?

(4) Did the District Court err in instructing the jury that there was evidence of pandering?

(5) Did the District Court err in refusing to dismiss this prosecution when such prosecution was contrary to a Department of Justice policy memorandum?

1. The retroactivity of Miller

Appellants’ allegedly criminal conduct occurred during the period from November 24, 1970, to January 13, 1972, and appellants were indicted June 15, 1972. During this period from November 24, 1970 to indictment, the constitutional standards for the regulation of obscenity were those established by the Supreme Court in Roth v. United States, 354 U.S. 476, 77 S.Ct. 1304, 1 L.Ed.2d 1498 (1957), and Memoirs v. Massachusetts, 383 U.S. 413, 86 S.Ct. 975, 16 L.Ed.2d 1 (1966) On June 21, 1973, subsequent to appellants’ indictment, the Supreme Court handed down a series of opinions which reformulated the definition of obscenity. At the trial, which commenced July 23, 1973, the District Court employed the new 1973 Miller definition of obscenity rather than the older Roth-Memoirs definition, which action, appellants contend, was contrary to United States v. Thevis, supra, and violated the due process clause.

Although the facts of Thevis are similar to the facts in the present case, there is an important distinction with respect to the timing of the Miller decision in relation to the progress of the respective prosecutions. In Thevis the criminal acts were committed, the defendants were indicted, and the trial took place, all prior to the Miller decision. Accordingly the defendants received a trial employing the Roth-Memoirs standard, the only standard in existence at the time of trial. After trial, however, Miller was handed down, and this court determined that defendants were to receive on appeal all the benefits of the Miller decision. The court stated:

[N]o one is [to be] convicted under earlier extant standards if they are more restrictive of pornography than those in Miller. . . . [W]e shall consider both the Miller and Memoirs definitions of obscenity.

484 F.2d at 1155. Thus Thevis held that where a defendant was tried under Roth-Memoirs standards, on appeal he may obtain any benefits to be derived from the recent Miller decision. In the present case by contrast, Wasserman and his co-defendants were tried under the Miller standard, and they contend that this ex post facto application of a new obscenity standard to pre-Miller acts was improper. Thevis thus has no direct application here.

Despite this factual difference, Thevis does, by applying solely the benefits of Miller, refuse to apply retroactively the detriments of Miller. Conceivably this court, on appeal, could have applied the complete Miller test in place of the Roth-Memoirs test. Such a course was rejected and has been rejected by other courts. Thus, although factually distinguishable, Thevis does offer some support for appellants’ position.

Appellants’ position is further supported by United States v. Jacobs (CA9, 1974), the one circuit court opinion deciding the issue of the retroactivity of Miller In Jacobs the court held that “due process fairness bars the retroactive judgment of his conduct using the expanded definition, and the conviction cannot stand.” We think Jacobs is correct.

The constitutional prohibition against ex post facto applications of law, U.S. Constitution, Article I, § 9, has no application to the present case since it is solely concerned with federal legislation which makes criminal conduct previously not classified as criminal. It does not apply to judicial interpretations of legislation. See James v. United States, 366 U.S. 213, 247-248, 81 S.Ct. 1052, 1070-1071, 6 L.Ed.2d at 246, 269-270 (1961) (separate opinion of JJ. Harlan and Frankfurter). Nevertheless, the policy considerations which support a prohibition against the ex post facto application of a criminal statute are also applicable to judicial decisions which affect the interpretation of a criminal statute. In both cases it is clearly undesirable to punish individuals for acts which, at the time they were performed, were not within the reach of a criminal statute.

The similarity of these policy considerations was demonstrated in Bouie v. City of Columbia, 378 U.S. 347, 84 S.Ct. 1697, 12 L.Ed.2d 894 (1964), where the Supreme Court spoke directly to the propriety of retroactive applications of judicial interpretations of legislation. In Bouie, the black defendants entered a white restaurant and refused to leave when asked to do so by the management. The defendants were convicted under a trespass statute which prohibited “entry upon the lands of another . . . after notice from the owner or tenant prohibiting such entry.” The Supreme Court of South Carolina upheld defendants’ conviction by interpreting this statute as prohibiting staying upon, as well as entering upon, after notice from the owner or tenant. The United States Supreme Court reversed the conviction and found a violation of the due process clause:

While such a construction is of course valid for the future, it may not be applied retroactively, any more than a legislative enactment may be, to impose criminal penalties for conduct committed at a time when it was not fairly stated to be criminal.

378 U.S. at 362, 84 S.Ct. at 1707, 12 L.Ed.2d at 905. Thus Bouie recognized the impropriety in punishing a man for acts which were not considered crimes at the time of their commission. See also Douglas v. Buder, 412 U.S. 430, 93 S.Ct. 2199, 37 L.Ed.2d 52 (1973) ; James v. United States, 366 U.S. 213, 81 S.Ct. 1052, 6 L.Ed.2d 246 (1961).

Bouie is somewhat distinguishable in that the judicial interpretation in that case expanded the reach of the statute in an extreme and unpredictable way while the judicial opinion with which we are concerned [Miller] merely redefines “obscenity” in a manner which in no way runs counter to the plain words of the statute. Miller did, however, represent a marked shift in the scope of material deemed to be obscene. Therefore in terms of notice to the defendant and the just application of criminal sanctions, we believe the effect on the defendant is the same. Prior to Miller, a distributor of sexually oriented material could not recognize that material which simply lacked “serious literary, artistic, political or scientific value” could be constitutionally regulated. As far as such a distributor could determine, he was protected as long as the material was not utterly without redeeming social yalue. To convict Was-serman for the distribution of material which was protected under the Roth-Memoirs standard violates the rationale underlying Bouie.

We do not go so far as to hold that the application of the Miller standard to Wasserman violated the due process clause. We do hold, however, that such a retroactive application is inappropriate without substantial justification outweighing the above discussed ex post facto considerations. Lacking such justification, the conviction must be reversed.

2. Local vs. national “community standards”

Appellants contend that the government should be bound to its bill of particulars where it indicated that “community standards” were to be determined on the basis of the nation as a whole. Whether this use of local community standards constituted error we need not decide. Appellants now have adequate notice that the government may desire to have the case governed by local community standards, so that in any subsequent retrial the government is not limited by this statement in the bill of particulars.

3. Admissibility of comparable evidence

There was no error in refusing to admit into evidence films and magazines comparable to those involved in the present prosecution and which had previously been held nonobscene by court decisions. The Supreme Court has determined that such evidence may properly be excluded in an obscenity prosecution. Hamling v. United States, 41-8 U.S. 87, 125-127, 94 S.Ct. 2887, 2906, 41 L.Ed.2d 590, 626 (1974).

4. The evidence of pandering instruction

The trial judge instructed the jury that evidence had been produced “tending to show that the defendant pandered to the prurient interest of his customers” and that such evidence may be considered in determining whether a given film or publication is obscene. Appellants contend that this was error because there was no evidence of pandering and pandering was not charged in the indictment. The advertisements introduced into evidence were sufficient basis for the instruction that evidence had been produced tending to show that defendant pandered.

Pandering need not be charged in the indictment in order to be included in the instructions. Hamling v. United States, 418 U.S. 87, 130, 94 S.Ct. 2887, 2914, 41 L.Ed.2d 590, 628 (1974). See United States v. Ratner, 502 F.2d 1300, 1301-1302 (CA 5, 1974).

5. The Department of Justice policy memorandum

Appellants contend that the present prosecution was instituted in contravention of a Department of Justice policy memorandum which sought to avoid contemporaneous federal obscenity prosecutions against the same defendant. Assuming that this policy was still in effect at the time the present prosecution was initiated, we find no basis for prohibiting prosecutions which violate internal Department of Justice policy memoranda. The cases cited by appellants are inapposite.

Reversed and remanded.

      . The standards required demonstration of these three elements before material could be found obscene: “ (a) the dominant theme of the material taken as a whole appeals to a prurient interest in sex; (b) the material is patently offensive because it affronts contemporary community standards relating to the description or representation of sexual matters; and (c) the material is utterly without redeeming social value.” 383 U.S. at 418, 86 S.Ct. at 977, 16 L.Ed.2d at 6.

      . Miller v. California, 413 U.S. 15, 93 S.Ct. 2607, 37 L.Ed.2d 419 (1973) ; Paris Adult Theatre I v. Slaton, 413 U.S. 49, 93 S.Ct. 2628, 37 L.Ed.2d 446 (1973) ; Kaplan v. California, 413 U.S. 115, 93 S.Ct. 2680, 37 L.Ed.2d 492 (1973) ; United States v. 12 200-Ft. Reels of Film, 413 U.S. 123, 93 S.Ct. 2665, 37 L.Ed.2d 500 (1973) ; United States v. Orito, 413 U.S. 139, 93 S.Ct. 2674, 37 L.Ed.2d 513 (1973).

      . The Roth-Memoirs formulation was modified, inter alia, that the material no longer must bo “utterly” without redeeming social value — lack of “serious literary, artistic, political, or scientific value” is sufficient. In 12 200-ft. Reels, supra, these modified standards were held to be applicable to federal obscenity statutes.

      . In United States v. Hill, 500 F.2d 733 [C.A.5, 1974], this court found it unnecessary to answer the precise issue raised by this case since it was found that the defendants received the benefit of a Roth-Memoirs instruction. In the present casa the jury was clearly instructed under the Miller, not the Roth-Memoirs, standard.

      . Hamling v. United States, 418 U.S. 87, 94 S.Ct. 2887, 41 L.Ed.2d 590 (1974) similarly holds that such a defendant on appeal may obtain any benefits to be derived from the 2Kller decisions. See also United States v. New Orleans Book Mart, Inc., 490 F.2d 73 (CA5, 1974).

      . In a footnote, Thevis indicated the probable answer to the issue now presented: “We do not assume, given ex post facto considerations, that the Supreme Court intended to impose any detriment ensuing from the Miller standards on appellants.” 484 F.2d at 1155.

      . See United States v. Palladino, 490 F.2d 499 (C.A.1, 1974), where the court, on remand from the Supreme Court after the Miller line of cases, found that “[the defendants] cannot fairly be subjected to penalties for violation of rules established after their action.” 490 F.2d at 500.

      . Rhodes v. Florida, 283 So.2d 351 (Fla.1973) and United States v. Lang, 361 F.Supp. 380 (C.D.Cal., 1973) produce results in accord with Jacobs.

      . Note the Court subsequently stated that these ex post facto considerations are particularly strong where the behavior is not improper or immoral. 378 U.S. at 362, 84 S.Ct. at 1707, 12 L.Ed.2d at 905. Without entering into a consideration of the “immorality” of the acts of the defendants in the present case, we think ex post facto principles are equally applicable in this obscenity conviction.

      . The significance of these changing constructions of the federal obscenity statutes is particularly significant in light of the fact that these statutes avoid due process vagueness difficulties due to authoritative judicial construction. Hamling v. United States, 418 U.S. at 98, 94 S.Ct. at 2898, 41 L.Ed.2d at 616-619. Where this judicial construction is altered, it in essence changes the meaning of the statute. See also United States v. Thevis, 484 F.2d at 1155.

      . Although in a 'Thevis-tyye situation the appellate court will apply the benefits of' Miller without requiring a remand, see United States v. Ratner, 502 F.2d 1300 (CA5, 1974), it would be inappropriate for this court to usurp the jury function of applying the Roth-Memoirs test to the materials at issue. Under Thevis, the application of the Miller test by the appellate court is justified since the Miller formulation was unavailable to the trial court. In the present case, however, the trial court erroneously failed to employ the appropriate existing standard as set forth in Roth-Memoirs.