author: MEHAFFY, Circuit Judge.

text:
    UNITED STATES of America, Appellee, v. David C. COHEN, Appellant.
    No. 72-1755.
    United States Court of Appeals, Eighth Circuit.
    Submitted May 16, 1973.
    Decided June 29, 1973.

      John L. Boeger, St. Louis, Mo., for appellant.
    John A. Newton, Asst. U. S. Atty., St. Louis, Mo., for appellee.
    Before MATTHES, Chief Judge, and MEHAFFY and STEPHENSON, Circuit Judges.
   MEHAFFY, Circuit Judge.

Defendant David C. Cohen was convicted of attempting to evade income tax for the years 1965 and 1966 by filing fraudulent returns in violation of 26 U. S.C. § 7201 and of knowingly subscribing to a false return for the year 1966 in violation of 26 U.S.C. § 7206(1). The sole issue at the trial was whether defendant willfully omitted income which he admittedly received during the tax years involved.

The defendant contends that The Honorable James H. Meredith, Chief Judge, United States District Court for the Eastern District of Missouri, erred in excluding testimony and evidence offered by defendant which corroborated his testimony that he lacked criminal intent and which contradicted testimony of government witnesses. He also contends that the district court erred in permitting the government to introduce evidence of other crimes not alleged in the indictment and documentary evidence which had not been produced by the government for inspection by the defense prior to trial.

For reasons set forth hereafter we affirm.

In January 1962 defendant obtained employment as an insurance agent with Mutual Benefit Life Insurance Company. He was hired at a 55% commission rate by Theron Lemly, a general agent for the company in Memphis, Tennessee. Defendant was given an additional allowance to cover the expenses of maintaining an independent office. During the tax years involved defendant also received a supervisor’s allowance or fee. All of the allowances were based on a percentage of commission. The misrepresentation of the dollar amounts of the allowances received by defendant formed the basis of the indictment. The government introduced evidence that the allowances amounted to $7,501.35 in 1965 and $23,082.82 in 1966 and that defendant only reported $1,200.00 in each of the two tax years as income from the allowances. Defendant contended at the trial that he did not willfully omit these allowances from his returns.

The evidence reflects that some of the policies defendant sold were sold to young doctors and dentists under a plan which provided for no immediate premium payment by the insured. Under the plan the insured borrowed money at a bank which was used for the first year’s premium. A note was given the bank that was signed by the policyholder, the defendant as endorser, and by Mr. Lemly as guarantor. The bank retained an amount equal to 10% of the premium as a reserve. Defendant contended at the trial that regarding 1965 he reduced his income by the amounts retained by the banks under the doctors’ plan. He did this by merely reducing the allowance by the amounts of the reserve accounts before he computed his gross income. However, the total reserves withheld in 1965 as shown by the government were only $633.65 and thus did not account for the difference between the earned allowances and the reported allowances. Defendant’s contention regarding 1966 is that he severed his employment with Mutual Benefit in May 1967 before he filed his 1966 return. Defendant was conditionally liable as endorser for the amounts owed the banks by the policyholders and decided to treat the amounts owed as bad debts. Therefore he offset the amounts owed the banks against the allowances in computing his gross receipts for 1966. No policy loan was paid off by defendant in 1966. Defendant’s tax forms did not show these computations.

Refusal to permit defendant’s evidence.

Defendant testified that in computing his income for the year 1966 he took into consideration his losses on some of the policies and offset them against the income from allowances in computing his gross income to be entered on the tax returns. He argues however that the trial court erred in refusing to permit defense witnesses to testify that some of the policies lapsed after June 19, 1967, the date on which he filed his 1966 return, and that bank loans for which he was liable as endorser remained unpaid. He contends that the trial court would not permit him to establish that his renewal commissions were actually retained by Lemly and were ultimately used to pay off the bank loans. These offers allegedly went to defendant’s lack of criminal intent. Defendant argues that willfulness is an essential element of the offenses and that evidence showing a lack of his willfulness was admissible.

He relies heavily on Haigler v. United States, 172 F.2d 986 (10th Cir. 1949), and United States v. Brown, 411 F.2d 1134 (10th Cir. 1969), and his production and offer of testimony, but a close reading of those cases will readily show that they are clearly distinguishable. In Haigler, the trial court sustained objections to defense testimony concerning defendant’s understanding of the law applicable to his income tax liability. In reversing the trial court the Tenth Circuit held that the testimony was admissible on the element of intent and it was error to exclude it. The trial court in Brown excluded transcripts offered by defendant of a witness’ sworn oral testimony taken in two government ex parte investigative proceedings. The substance of the excluded testimony supported the defendant’s evidence of his intent. Defendant contended that because of arrangements with his employer he did not think goods, merchandise or services received by him were taxable to him. The excluded testimony corroborated his trial testimony. Thus, both cases dealt with events or statements showing intent in filing the returns. Both Haigler and Brown are in accord with and indeed Brown quotes with approval from Hoyer v. United States, 223 F.2d 134 (8th Cir. 1955), where we stated:

“ . . . evidence on the question of intent, where that is material, may take a wider range than is allowed in support of other issues, otherwise there would often be no means to disclose the purpose of the act charged in which the very gist of the offense may consist.” 223 F.2d at 139.

However, Brown recognized that “the relevancy of all evidence remains a question for the trial court’s discretion.” 411 F.2d at 1137. We find that the present case is controlled by Wolfe v. United States, 261 F.2d 158 (6th Cir. 1968), where the court stated:

“Since the proffered evidence covered events long after the crimes charged had been committed, if the evidence was admissible the court was vested with a sound discretion to exclude it.” 261 F.2d at 161.

In Wolfe two exhibits prepared by an accountant were held to have been properly excluded. The exhibits were based on events and proposed tax treatment which occurred after the tax years involved and in no way reflected the defendant’s intent in filing his returns. Examining the allegations in the present case, defendant’s offer of proof regarding the experience of loans, i. e., whether they were paid or not, subsequent to June 1967 was properly refused since it did not show defendant’s intent when he filed his returns for the 1965 and 1966 tax years. Evidence as to renewal commissions earned in later tax years which may have been retained by Lemly to pay off the loans would not reflect or be evidence of defendant’s intent in the filing of his returns for the years involved; hence, it was properly excluded.

Defendant also contends that the trial court erred in not permitting his expert to testify for the purpose of showing lack of intent that defendant’s treatment of deductions was proper. The expert’s testimony, which apparently was based on the alleged assignment of renewal commissions, was also properly excluded for the reason that it did not show defendant’s intent at the time the 1966 return was filed. See Wolfe v. United States, supra.

Defendant complains of the fact that Lemly, a government witness, was permitted to testify as to events that occurred after June 19, 1967. The government correctly points out that Lemly’s testimony of which defendant complains came out in part on cross-examination and that part which came out on direct examination involved only the tax years in question. Thus, there was no error.

Evidence of other crimes and evidence not produced for inspection.

Defendant contends that the government was allowed to introduce documents which had not been produced for inspection. The documents were commission reports for 1966 which the government claimed were false and had been given an IRS agent by defendant in the fall of 1968 during the course of the investigation of defendant’s 1965 and 1966 returns. Whether or not the documents had been shown to defense counsel prior to trial was disputed in chambers before the trial judge and the matter resolved against defendant. In view of the fact that the government was the prevailing party, “we must, in considering the sufficiency of the evidence to sustain the verdict, view the evidence in a light most favorable to the government.” Hoyer v. United States, supra, 223 F.2d at 139. We find the trial court’s holding, based on crediting the government attorney’s recollection and the attorney’s method of checking off a list of documents produced, to be supported by substantial evidence.

Defendant further complains that while his evidence of intent was refused, the government was permitted to introduce the commission statements given to the IRS agent. Defendant contends that these commission statements were evidence of another crime under 26 U.S.C. § 7207, and thus should not have been admitted for that reason. Those statements were a deliberate attempt to conceal the crime and were only produced when the IRS agent attempted to audit defendant’s tax returns. The rendering of these statements was an obvious attempt to cover the facts. We hold that the documents had a direct bearing on the question of whether the defendant willfully filed a false return and were admissible. United States v. Wilkins, 385 F.2d 465 (4th Cir. 1967), cert. denied, 390 U.S. 951, 88 S.Ct. 1043, 19 L.Ed.2d 1144 (1968); Hoyer v. United States, supra.

We have reviewed defendant’s other allegations of error, such as the eliciting on cross-examination by the government of defendant’s false job application statements to which there was no objection, and find them to be without merit.

The judgment of conviction is affirmed.

      . Defendant David Cohen testified in his own behalf, although advised by his counsel not to take the stand. The court advised Cohen that if he did not testify the court would instruct the jury that no inference of any kind could be drawn from his failure to take the stand and also advised him that if he did testify the court would instruct the jury that they would have the right to consider his prior conviction in connection with his credibility only. Cohen chose to testify even though he knew the jury would learn of his prior conviction.
      In fact, defendant testified that his given name was David Miller Cohn and that he had been convicted of a felony, “interstate transportation of securities and fraud in the sale of securities” and mail fraud. On cross-examination lie stated that in applying for a position as an agent with Mutual Benefit he adopted the name David O. Cohen which was the name of another person. I-Ie also adopted that person’s social security number and employment history.


source: Caselaw Access Project

author: TRASK, Circuit Judge:

license: Public Domain

text:
    Gerald L. PRICE et al., Plaintiffs-Appellants, v. TRANS WORLD AIRLINES, INC. et al., Defendants-Appellees.
    No. 71-1635.
    United States Court of Appeals, Ninth Circuit.
    June 29, 1973.

      Norman G. Axe (argued), Beverly Hills, Cal., for plaintiffs-appellants.
    Henry C. Thumann (argued), Warren Christopher, Thomas J. Ready, James V. Selna, of O’Melveny & Myers, Frank DeMarco, Jr., of Kalmbach, DeMarco, Knapp & Chillingworth, Los Angeles, Cal., for defendants-appellees.
    Before BARNES, DUNIWAY and TRASK, Circuit Judges.
   TRASK, Circuit Judge:

The defendant airlines furnish headsets free of charge to first class passengers to enable them to listen to the audio portion of in-flight movies, but make a charge to coach passengers for the same service. Relying on the Sherman Act, 15 U.S.C. §§ 1 and 2, and the Clayton Act, 15 U.S.C. §§ 15 and 22, as the basis for their .claim of “an unlawful combination and conspiracy,” the plaintiffs for themselves and all others similarly situated seek damages in a sum in excess of $1,000,000, to be trebled, plus attorneys’ fees. In a second class action count under Rule 23, Fed.R.Civ.P., they charge an “unjust discrimination” in violation of section 404(b) of the Federal Aviation Act, 49 U.S.C. § 1374(b), and seek to recover a sum in excess of $100,000,000 plus attorneys’ fees.

The defendants filed a motion to stay or, in the alternative, to dismiss the action until the plaintiffs had first initiated and exhausted the Civil Aeronautics Board’s primary jurisdiction over the subject matter of the complaint. The trial court on March 16, 1971, dismissed the action oh the grounds (1) that the subject matter was within the primary jurisdiction of the Civil Aeronautics Board; (2) that the complaint failed to state a claim upon which relief could be granted; (3) that it was frivolous; (4) and that it did not constitute a proper class action. The order provided that the dismissal was without prejudice to the plaintiffs’ right to file a new complaint at such time as the claims might have been presented and determined by the C.A.B. Believing that the first reason given by the court is dispositive here, we turn to a discussion of it.

Early in the development of the aviation industry Congress came to the conclusion that a system of unbridled competition restricted and controlled by the application of antitrust sanctions was not in the best public interest. It thereupon enacted the Civil Aeronautics Act of 1938 which was superseded by the Federal Aviation Act of 1958. Transportation by air thus became a regulated monopoly in the public interest, the interests of the Postal Service, and of the national defense. 49 U.S.C. § 1302. Congress continued the Civil Aeronautics Board, created as the Civil Aeronautics Authority in 1938 (49 U.S.C. § 1341), and gave it the power and authority to investigate “unfair or deceptive practices or unfair methods of competition in air transportation” (49 U.S. C. § 1381), and to control the same. See Pan American World Airways, Inc. v. United States, 371 U.S. 296, 83 S.Ct. 476, 9 L.Ed.2d 325 (1963). Congress required every agreement between air carriers relating to rates, fares or charges, or for controlling competition to be filed and approved by the Board. 49 U.S.C. § 1382. It then provided:

“Any person affected by any order made under sections 1378, 1379 or 1382 of this title shall be, and is hereby, relieved from the operation of the ‘antitrust laws’, as designated in section 12 of Title 15, and of all other restraints or prohibitions made by, or imposed under, authority of law, insofar as may be necessary to enable such person to do anything authorized, approved, or required by such order.” 49 U.S.C. § 1384.

The pattern for this requirement of resort to the administrative agency before resort to the courts had already been established for transportation on the ground, Keogh v. Chicago & Northwestern Ry., 260 U.S. 156, 43 S.Ct. 47, 67 L.Ed. 183 (1922), and for transportation by sea. Far East Conference v. United States, 342 U.S. 570, 72 S.Ct. 492, 96 L.Ed. 576 (1952); United States Navigation Co. v. Cunard Steamship Co., 284 U.S. 474, 52 S.Ct. 247, 76 L.Ed. 408 (1932).

It was not surprising that the Supreme Court should be quick to recognize in the broad statutory pattern of the Federal Aviation Act the same basic requirement that primary jurisdiction to determine disputes involving air carriers under the sections set forth in the Act should rest first with the C.A.B. Such was the decision in Pan American World Airways, Inc. v. United States, supra, which involved an agreement between carriers as to routes.

With the foregoing general discussion as a background for the application to this case of the doctrine of primary jurisdiction, we turn to the position taken by appellants. First, they contend that the C.A.B. “as a matter of policy” would not entertain a case involving antitrust issues without first consulting with the Justice Department. Therefore, they continue, this is proof of the fact that the C.A.B. does not propose to exercise “the expertise and primary jurisdiction of the C.A.B. in this area.” This argument is apparently based upon a reply by the general counsel of the C.A.B. to a letter addressed to him by appellants’ counsel in a proceeding apparently identical to this in the Los Angeles Superior Court. Appellants’ counsel had requested the C.A. B. to make a statement on the issues in that case which counsel could present to the trial court on a motion for reconsideration. (We do not find appellants’ letter in the record.) Not surprisingly, the general counsel declined, asserting a time factor as one reason and commenting in that connection “that the case involves issues of unfair competition and antitrust immunity and hence consultation with the Department of Justice would be essential.” He also pointed out that participation in private litigation by C.A.B. is normally as an amicus curiae upon authorization of the Solicitor General of the United States. In other words it was a polite but firm refusal to a rather astonishing request. We find nothing in it to suggest that the C.A.B. intended to relinquish its statutory and official responsibilities in this or any other area.

The next response to the doctrine of primary responsibility was appellants’ contention that the administrative record disclosed that the C.A.B. had already acted, thus leaving the way clear for the district court to proceed. We do not read the record so. In September 1965, Eastern Airlines, Inc. petitioned the Board for authority for trunk line air carriers, including defendants, to meet and discuss in-flight entertainment. Twelve air carriers met pursuant to the authority granted and a proposed agreement resulted which provided for a $2 charge for in-flight entertainment. It was filed with the Board as directed.

The Board considered the proposed agreement and certain objections thereto and came to the conclusion that the problem would be better handled under the Board’s rulemaking and rate making powers than by approval of an agreement. Its Opinion and Order Deferring Action (C.A.B. Order No. E-24839 adopted March 9, 1967, C.T. at 115) recited the carriers’ proposed agreement, the objections thereto, oral arguments heard thereon, and concluded that pending final determination of its rulemaking proceeding, it would defer action on the proposed agreement.

“The Board has carefully considered all matters presented, and has concluded that an appropriate passenger charge should be assessed for the provision of visual in-flight entertainment. In addition, based on the cost presented in this proceeding, we would consider that a charge of less than $2.00 for a full length feature motion picture, would not be reasonable. However, we have also tentatively concluded that, under the circumstances here present, the implementation of such a charge in interstate and overseas air transportation would more appropriately be accomplished by exercise of our rate making powers under the Act. Accordingly, we are simultaneously herewith issuing a notice of proposed rule making proposing amendments to the rules as hereinafter described, to achieve this objective. Pending final determination of the rule making proceeding we will defer action on the proposed agreement.” (Emphasis supplied) C.A.B. Order No. E-24839, C.T. at 117-18.

The Board continued its discussion of how best a charge for such in-flight entertainment should be borne and stated:

“Nevertheless, it may well be preferable for in-flight entertainment to be the subject of individual carrier initiation, subject to our rate control powers, rather than being established by collective carrier action.” Id. C. T. at 120.

Subsequently by Regulation No. ER-529 the Board adopted a rule regarding in-flight entertainment tariff charges. With respect to an objection that the proposal would discriminate against passengers who avail themselves of visual in-flight entertainment because it would eventually raise their fares, the Board said:

“There is no such discrimination. The charge is equitably levied on those who use a special service not generally used by passengers and they will be required to bear a greater share of the costs — although not all the costs of the service — than those who cannot or do not use it. If there is any case to be made with respect to discrimination, it lies in the present system wherein passengers in general bear the cost of a service used by only a relatively few passengers. The costs of providing this service are by no means inconsequential and, in the long run, will be recovered from the general farepayer unless the direct user pays for them. These costs, if not covered by an appropriate charge to the user, add to the need for fare increases or delay fare reductions.” Regulation No. ER-529, C.T. at 134.

The Board then terminated the proceeding concerning the carriers’ proposed agreement without approving or disapproving it. On April 19, 1968, the C.A.B. stayed the effectiveness of the rule it had promulgated, pending further consideration of the entire subject. (Reg. ER-535). The administrative record thus makes clear to us (1) that the C.A.B. has not abdicated its responsibilities for primary consideration, and (2) that it considers the problem one of rate making, and (3) that it considers the carriers’ proposals to impose some kind of charge for in-flight entertainment with approval.

Appellants argue that because they seek only treble damages with no other relief, they may prevail despite the requirement of primary consideration by the agency. They rely on Carnation Co. v. Pacific Westbound Conference, 383 U.S. 213, 86 S.Ct. 781, 15 L.Ed.2d 709 (1966). We do not read it so. On the contrary the Court there insisted that the action of the complaining party not be dismissed, but only be stayed pending Shipping Act proceedings. Carnation Co. v. Pacific Westbound Conference, supra, 383 U.S. at 224, 86 S.Ct. 781. See Laveson v. Trans World Airlines, Inc., 471 F.2d 76 (3rd Cir. 1972). The appellants thus may still seek relief under section 1002(a) of the Federal Aviation Act of 1958, 49 U.S.C. § 1482(a).

We agree with the trial court that the first cause of action was within the primary jurisdiction of the C.A.B. and must be stayed pending exercise of that jurisdiction.

The second cause of action asserted by appellants was based upon unjust discrimination violating section 404(b) of the Act, 49 U.S.C. § 1374(b).

In addition to the asserted discrimination between first class passengers and coach passengers with respect to charges for headsets to listen to the audio portion of in-flight movies, appellant argues discrimination in the difference in terms for furnishing headsets for other audio entertainment. We view the various factual situations as presenting the same legal problem.

If all of the passengers about whom the claim of discrimination is made are on the same flight, i. e., with the same equipment, at the same time with the same seating, paying the same fare or tariff so that the asserted discrimination is the only variable, then the alleged discriminatory practices are easily isolated. In such a case if the Board has taken no action it is possible that a court could make a determination. Here, however, there are other variables, the principal one being that one group is charged a higher fare or tariff than those who claim they have been discriminated against.

In such a ease the expertise of the Board as to tariff structure becomes all important. Perhaps it is true that the coach passengers should not have to pay the extra charge. On the other hand, comparing the cabin services and accommodations with the fares, perhaps the coach passengers are not paying enough. We doubt that this is a determination which Congress intended to place upon the courts. As stated in Lichten v. Eastern Airlines, Inc., 189 F.2d 939, 941 (2nd Cir. 1951):

“A primary purpose of the Civil Aeronautics Act is to assure uniformity of rates and services to all persons using the facilities of air carriers. Civil Aeronautics Act §§ 404(a), 902(a), 49 U.S.C.A. §§ 484(a), 622(a). To achieve this, it is essential in the judgment of Congress, that a single agency, rather than numerous courts under diverse laws, have primary responsibility for supervising rates and services.”

The Supreme Court in Texas & Pacific Ry. v. Abilene Cotton Oil Co., 204 U.S. 426, 440-441, 27 S.Ct. 350, 355, 51 L.Ed. 553 (1907), emphasized the problem with these words:

“For if, without previous action by the Commission, power might be exerted by courts and juries generally to determine the reasonableness of an established rate, it would follow that unless all courts reached an identical conclusion a uniform standard of rates in the future would be impossible, as the standard would fluctuate and vary, dependant upon the divergent conclusions reached as to reasonableness by the various courts called upon to consider the subject as an original question. Indeed the recognition of such a right is wholly inconsistent with the administrative power conferred upon the Commission and with the duty, which the statute easts upon that body, of seeing to it that the statutory requirement as to uniformity and equality of rates is observed.”

Under section 1002(a), supra, n. 2, appellants here have a remedy which they have not yet sought; that is, to obtain an administrative determination.

The cases upon which appellants rely to support this cause of action we find distinguishable in that they do not involve tariff problems. Thus, Fitzgerald v. Pan American World Airways, Inc., 229 F.2d 499 (2nd Cir. 1956), was a case where the carrier refused to permit black passengers who had been issued valid through tickets to Australia to re-board after an enroute stop in Honolulu. The trial court dismissed the complaint for failure to properly allege diversity jurisdiction under the discrimination section as then written. 49 U.S.C. § 484(b) (1952). Although not controlling, the court also noted that the doctrine of “exclusive primary jurisdiction” did not apply. 229 F.2d at 502. There was no question presented that the passengers had not been charged and had not paid the proper tariff. The complaint alleged racial discrimination.

Two other cases principally relied upon by appellants are “bumping” cases. Mortimer v. Delta Air Lines, 302 F. Supp. 276 (N.D.Ill.1969), and Wills v. Trans World Airlines, Inc., 200 F.Supp. 360 (S.D.Cal.1961). In each of them the complaining passenger had made his reservation and had paid the appropriate tariff. In Wills, he was denied a seat because the space on the plane was oversold and his space was given to a first class passenger; in Mortimer, he was denied boarding because seats were oversold. Thus in each of the three there was no charge of preferential treatment during flight, as between first class passengers and coach passengers, because of the difference in tariff. Cf. Archibald v. Pan American World Airways, Inc., 460 F.2d 14 (9th Cir. 1972).

Appellants’ authorities are based upon a charge of complete exclusion from the flight because of overselling the space. The amount of the tariff and the services to which the passenger was entitled vis-a-vis others on the flight was not in question. Moreover, the Board itself determined that the matter of in-flight entertainment could best be handled by the affirmative exercise of the Board’s rate making powers.

We conclude that the determination of the trial court was correct and that the case must be remanded with directions to stay all proceedings in accordance with the views expressed herein.

      . Section 1378 regulates consolidation, merger and acquisition of control; section 1379 describes and prohibits interlocking relationships and profit from transfer of securities between certain persons engaged in aeronautics. The Clayton Act, insofar as applicable to air carriers, is enforceable by the Board.

      . Section 1002(a) provides in pertinent part:
      “(a) Any person may file with the . Board, ... a complaint in writing with respect to anything done or omitted to be done by any person in contravention of any provisions of this chapter, or of any requirement established pursuant thereto. If the person complained against shall not satisfy the complaint and there shall appear to be any reasonable ground for investigating the complaint, it shall be the duty of the Administrator or the Board to investigate the matters complained of.” 49 U.S.C. § 1482(a).

      . See Laveson v. Trans World Airlines, Inc., 471 F.2d 76 (3rd Cir. 1972), a case of remarkable similarity, with which we are in entire agreement.

      . Section 404 (b) provides :
      “(b) No air carrier or foreign air carrier shall make, give, or cause any undue or unreasonable preference or advantage (o any particular person, in any respect whatsoever or subject any particular person, to any unjust discrimination or any undue or unreasonable prejudice or disadvantage in any respect whatsoever.” 49 U.S.C. § 1374(b).

      . Similar cases which have been adjudicated by the Board are: Delta Off-Peak Coach Fares, 39 CAB 377 (1963) (late night tariffs with coach rates for first class service) ; American Airlines, Militar.v Fares, 38 CAB 1038 (1963) (respecting lower military standby fares),

      . Order Terminating Proceeding, No. E-26478, adopted March 6, 1968. Although the Board’s action is not conclusive on this court, its views of what is encompassed within its rate powers is of no little persuasion.

        See also Danna v. Air France, 463 F.2d 407 (2nd Cir. 1972).


author: COLEMAN, Circuit Judge:

text:
    Albert H. GATES, Plaintiff-Appellant, v. UNITED STATES of America and Prudential Insurance Company of America, Defendants-Appellees.
    No. 73-1162.
    United States Court of Appeals, Fifth Circuit.
    July 11, 1973.

      Phillip D. Hardberger, Donald J. Walheim, San Antonio, Tex., for plaintiff-appellant.
    James D. Baskin, Jr., San Antonio, Tex., for Prudential Ins. Co. of America.
    C. J. Calnan, San Antonio, Tex., for the United States.
    Before JOHN R. BROWN, Chief Judge, and COLEMAN and DYER, Circuit Judges.
   COLEMAN, Circuit Judge:

Albert H. Gates, the father of a deceased serviceman, sued the United States and the Prudential Insurance Company of America to recover his statutory share of the proceeds of Serviceman’s Group Life Insurance (SGLI), 38 U.S.C. § 765 et seq. The trial court denied recovery, Gates v. United States, 351 F.Supp. 273 (W.D., Tex., 1972). The District Judge was of the view that the father had failed to make a valid and effective claim within the required one year period. For the reasons hereinafter set out we affirm the judgment of the District Court.

About July 18, 1970, Airman Billy Lee Gates was killed in an automobile accident in San Antonio, Texas. Airman Gates was on annual active duty as a member of the 149th Tactical Fighter Group, Texas Air National Guard, stationed at Kelly Air Force Base. He was insured under Serviceman’s Group Life Insurance for $15,000. The insurer was Prudential Life Insurance Company but the policy holder was the Administrator of Veterans Affairs.

Since the insured had not designated a beneficiary under the policy and since he left no wife or children, his parents, Albert H. Gates and Donna M. Gates, were the beneficiaries under the policy, 38 U.S.C., § 770. From the insured’s emergency data form the Air Force obtained the following addresses of his divorced parents:

Albert H. Gates
Spring Lake Mobile Home Estates
Kingston, New York 12401
Donna M. Gates
2713 S.W.S. White Road
San Antonio, Texas 78222

The decedent’s military unit at Kelly Air Force Base had been assigned the responsibility of casualty assistance by the Air Force Military Personnel Center, Air Force Casualty Division, Randolph Air Force Base, Texas. Captain Earl C. Heath, of the 149th Tactical Fighter Group, was the designated casualty assistance officer on the case.

The designated unit was able to locate and render casualty assistance to the mother at the address given. The attempt to notify the appellant-father at his New York address by a telegram dated July 19, 1970, was unsuccessful because immediately prior to his son’s death appellant had left for San Antonio, via Oseóla, Pennsylvania. However, a letter from the grandparents advising him of the death of his son reached Gates in Oseóla, where he was staying with a relative.

By August, 1970, appellant had returned to San Antonio and soon moved in with his parents about a block and a half from the residence of his former wife, Donna Gates. During the succeeding months, appellant and his former wife saw each other intermittently. Appellant’s father died in April, 1971, and Donna Gates saw her former husband at the funeral. About June, 1971, appellant had coffee at a cafe with his former wife. Also, the Gates had a younger son, Ricky, who had been in New York with his father. Upon arriving in San Antonio, Ricky took up residence with his mother but would see his father frequently.

Soon after returning to San Antonio, appellant took a job working at a service station. Also working at that service station was the son of Captain Louis W. Bell, officer in charge of the decedent’s military unit. Through this son, appellant met Captain Bell and in about September, 1970 they discussed the death of Gates’ son and the insurance policy in question. Captain Bell told Gates that a board of inquiry would have to complete its investigation before it was known whether he would be eligible to receive the benefits. Shortly thereafter, Captain Bell told Captain Heath of this conversation. In other words, the casualty officer in charge of the case knew that Gates was alive and in San Antonio.

On September 22, 1970, Prudential sent insurance benefit claim forms to both appellant and Mrs. Gates at the addresses provided by the Air Force. The letter to appellant was returned with the notation “Moved, Address Unknown”.

On September 29, 1970, Mrs. Gates made a claim for the death benefits. On October 13, 1970, Prudential paid 50% of the death benefits ($7,500) under the Serviceman’s Group Life Insurance Policy to Mrs. Gates. On the same day, Prudential sent another letter to appellant at the New York State address which was also returned with the notation “Moved, Address Unknown”.

Prudential wrote separate letters to Donna M. Gates requesting a correct address of appellant on December 15, 1970 and again on January 22, March 8, May 3, and June 18, of the year 1971. Mrs. Gates did not reply to any of the above correspondence except to return to Prudential the original of the letter dated June 18 along with a letter from the Department of the Air Force which advised her that if the father of the decedent did not make a claim within one year of the decedent’s death, the law would presume the father predeceased the son.

To drop back in the chronology, on November 9, 1970, Captain Heath, knowing that Gates was alive and in San Antonio, wrote a letter to Mrs. Gates explaining that she would be able to collect the remaining one half of the insurance proceeds if appellant failed to make a claim within one year of the son’s death. He then advised her, “I would suggest that you should write the SGLI and explain that the father has left the State of Texas and his address is unknown and an attempt by all concerned at the time of the death of Billy, to locate him, was in vain.* I would reference the attached (extra) copy of the U. S. Code so they will know you are aware of the entitlement”.

We are thus presented with an indisputable picture of an officer in charge of the case who not only failed to notify Prudential that the father was alive and in San Antonio but who actively advised the divorced ex-wife to perpetrate a fraud against the rights of her ex-husband — a fraud, incidentally, from which she would take $7,500 which lawfully belonged to Gates.

At least as early as May, 1971, appellant engaged an attorney in San Antonio to ascertain whether he had any death benefits arising from his son’s death. This attorney called Captain Heath to inquire about any claim the appellant might have. Captain Heath was very helpful, indeed. He told the attorney that a criminal warrant was out for the appellant. The alleged basis for this warrant was that appellant had cosigned a note on an automobile loan for the decedent. The note was several payments behind and appellant had possession of the car. At the trial, no such warrant was introduced in evidence and appellant denied the existence of it.

When Captain Heath asked for appellant’s address so it could be turned over to the credit union, the attorney declined to give the address since he only represented appellant on a civil, not a criminal, matter. Although he was in charge of the case, Captain Heath advised the attorney to contact Captain Reese L. Harrison, Jr., Judge Advocate of the 149th Tactical Fighting Group.

In a telephone conversation with the attorney Captain Harrison told him how to make the claim and warned him to file the claim before the anniversary date of the death. Captain Harrison also called Captain Heath and advised him to send information to the attorney as to the procedure in applying for the insurance. In response to Captain Harrison’s request, Captain Heath wrote the attorney on May 18, 1971 that claims should be filed with the Office of Serviceman’s Group Life Insurance and included the address in Newark, New Jersey. This attorney took no further action.

In reply to July 28, 1971 correspondence from Prudential, Mrs. Gates wrote on the bottom of the original of the letter that “No, I definitely do not know anything about my son’s father. He was unable to be found at the time of his death. I haven’t heard from him and have no idea where he is. I do understand that if he didn’t claim his insurance within one year from death I was to receive the remaining half”.

On August 10, 1971, Prudential received a copy of a Veterans Administration telegram stating that the only address the Veterans Administration had for appellant was the New York address.

Appellant later engaged the services of another attorney, Phillip Hardberger. On August 26, 1971, this new attorney wrote to the Judge Advocate at Kelly Air Force Base stating that he was making a claim for the insurance benefit proceeds. Apparently, this letter was lost in the Air Force and was never received in the Office of Serviceman’s Group Life Insurance.

On August 30, 1971, the SGLI made an administrative determination that appellant had predeceased the insured. Accordingly, on September 1, 1971, Prudential forwarded to Donna M. Gates a check for $7,500, representing the remaining 50% of the insurance proceeds.

Thus the appellant was defeated of $7,500 to which he was entitled and his ex-wife received $7,500 to which she knew that she was not entitled.

The facts of this case prompt us to look upon it with a badly jaundiced eye. As this Court said in Shannon v. United States, 5 Cir., 1969, 417 F.2d 256, the government is deeply involved in this insurance program, it controls it, and it had a duty to make known to the Prudential Insurance Company of America any facts which would have enabled that company to have processed a claim from Albert H. Gates, including sending him the proper forms upon which to make application for that to which he was indisputably entitled. Instead of performing this duty the military officer specifically assigned to that duty not only suppressed facts known to him but also advised the former wife to tell a known falsehood, which both he and she knew would frustrate the insurance company in its efforts to locate Gates and would also put her in possession of money she had no real right to receive. This not only merits stern condemnation but under ordinary circumstances would raise serious questions of liability, not only on the part of the government but also upon Prudential, which chose to rely on the government to process the information upon which it was to discharge its policy (contractual) obligations.

This, however, is not the end of the matter. In this litigation we have before us solely the question of liability to Gates under the terms of the statute and of the policy issued thereunder. We consider the holding of the court below that the “United States of America did not know plaintiff’s whereabouts at any time prior to the payment of all insurance proceeds to Donna M. Gates” to have been clearly erroneous. Captain Heath knew that Gates was in San Antonio and within the four corners of this case that knowledge should be imputed to the United States.

Nevertheless, 38 U.S.C. § 770(b), expressly provides as follows:

“If any person otherwise entitled to payment under this section does not make claim therefor within one year after the death of the member or former member, or if payment to such person within that period is prohibited by Federal statute or regulation, payment may be made in the order or precedence as if such person had predeceased the member or former member, and any such payment shall be a bar to recovery by any other person.”

The plain terms of the statute, which were carried forward in the regulations and in the policy itself, dictated that once Gates knew of the death of his son and of the possibility of insurance benefits he could not then rely on the misfeasance of others. Even if he met with obstacles, he had the affirmative duty of making application, and that within twelve months. The appropriate offices of the United States were open and functioning. If Heath was the primary functionary, and he no doubt was, it must also be noted that Gates personally never contacted Heath. Instead of filing application, Gates dawdled and stood afar off. Like other citizens in their dealings with the government he was charged with a knowledge of the law. His failure to comply had to be, in the ultimate, his own fault. This is not a case in which Heath, or anyone else authorized to speak, had informed him that he had no insurance benefits or that it would be useless for him to apply. This is not a case in which the death of his son was concealed from him until after the expiration of the statutory period for making application. Nor is it a case in which for lack of notification Gates was allowed to remain in ignorance of his probable rights.

The situation is directly analogous to the designation of beneficiaries of Serviceman’s Group Life Insurance. There must be compliance with the statutes and the regulations, or there is no designation. In that regard a letter written by a serviceman offers no legal basis for doing what the serviceman failed to do, i. e., designate a beneficiary or beneficiaries by a writing received in the uniformed services prior to his death, as required by statute, Prudential Insurance Company of America v. Warner, 328 F.Supp. 1128 (W.D., Va., 1971). Even where a serviceman signed a regular beneficiary change form and had supplied his mother with a verbatim copy the attempted change was ineffective where not received by his uniformed services prior to his death, as required by 38 U.S.C. § 770, Stribling v. United States, 8 Cir., 1969, 419 F.2d 1350.

Thus, the conduct of Captain Heath and of the ex-wife as revealed by this record, inexcusable as it may have been, could not cure the inaction of the plaintiff-appellant.

The judgment of the District Court is

Affirmed.

      . Under the Serviceman’s Group Life Insurance program, the Veterans Administrator is authorized to purchase from life insurance companies a policy or policies of life insurance. The companies issuing such policies shall establish an administrative office at a place designated by the Administrator. The policies may not exceed $15,000 and are to insure the lives of servicemen on active duty. For each month a serviceman is insured, the costs of the monthly premium are deducted from his pay and remitted to the Veterans Administration. The Administrator contributes costs traceable to the hazards of active duty. 38 U.S.O., §§ 766-769. •

      . The Casualty Division of the Military Personnel Center at Randolph Air Force Base, also at San Antonio, has the responsibility to oversee the Casualty Assistence Program for the entire Air Force worldwide. Casualty Assistance is designed to furnish families of Air Force casualties with counseling and aid in obtaining monetary benefits and privileges which may be due them. Because of the large responsibilities in the undertaking of casualty assistance, specific responsibilities are assigned to lower commands to provide better personalized assistance.

      . The attorney testified that after receiving the May 18, 1971, letter from Captain Heath he called appellant and asked him to come in and sign a formal contract to represent him on this matter. Appellant never came to sign the contract so the attorney did not file a written claim with SGLI. Appellant contends that he never heard from the attorney after their initial conversation, so he engaged another attorney.


author: LAY, Circuit Judge.

text:
    The UNITED STATES, Appellee, v. Leroy McCASKILL, Appellant.
    No. 73-1148.
    United States Court of Appeals, Eighth Circuit.
    Submitted June 13, 1973.
    Decided July 31, 1973.
    C. Marshall Friedman, St. Louis, Mo., for appellant.
    Frederick J. Dana, Special Atty., U. S. Dept, of Justice, St. Louis, Mo., for appellee.
    Before GIBSON, LAY and ROSS, Circuit Judges.
   LAY, Circuit Judge.

Leroy McCaskill appeals from a judgment of conviction on two counts of distributing a controlled substance (heroin) in violation of 21 U.S.C. § 841(a)(1). The sales allegedly occurred on the parking lot of the White Castle Restaurant in the City of St. Louis on July 19 and 21, 1972.

There are two basic issues involved on appeal. The first concerns the court’s instructions and the prosecutor’s comment in regard to the failure of the defendant to call his former employer, Henry Patterson. McCaskill had testified that at the time of the alleged transactions he was working as a barber at Pat’s Barber Shop in East St. Louis, Illinois. The second ground for error is the alleged prejudicial argument of the prosecutor in final summation. For the reasons we now discuss we reverse and remand for new trial.

The government informant, Richard Armstrong, arranged the transaction and surveillance on the times in question. Armstrong did not testify at the trial. According to the government agents who testified at trial, Armstrong was observed arriving at the White Castle parking lot in a Volkswagen convertible driven and owned by the defendant. Armstrong got out of the car and met with the government agent who searched him and provided him with funds to make the purchase. Armstrong then proceeded to the driver’s side of the Volkswagen and obtained the substance later identified as heroin. The agents described the driver of the car as wearing wire-rim glasses and a white mod hat with a wide brim and having a full beard and mustache. The weight of the driver was estimated to be 160 to 170 pounds. They identified the driver as the defendant McCaskill.

The defendant took the stand and denied participation in the alleged transactions. He testified that he never weighed more than 135 pounds, did not own a white hat with a wide brim, never wore wire-rim glasses nor did he ever wear a full beard or long sideburns. He stated that he was acquainted with the government informant, Richard Armstrong; however, he denied that he had ever given Armstrong permission to use his car. He also denied he ever drove Armstrong to the White Castle on the two occasions. McCaskill has never before been convicted of or charged with a crime.

At the conclusion of the government’s case the defense counsel advised the court in chambers that he was unable to locate Henry Patterson to testify at the trial. According to defense counsel, Patterson had previously advised him that he was available and willing to testify. In an attempt to contact Patterson at the time of trial, counsel was notified that Patterson’s telephone had been disconnected and that his barber shop had been closed and vacated. His attempts to find Patterson at his home were likewise unavailing. Immediately after the conference in chambers the defendant took the stand and upon cross-examination the government for the first time brought out the fact that Mr. Patterson had not been presented by the defendant. Defense counsel objected, and the court at that time inquired of defense counsel if Patterson had been subpoenaed, which he had not, thus the court proceeded to instruct as follows:

“THE COURT: Well, just a minute. Ladies and gentlemen of the jury, the Court will tell you what the law is and I’ll do that at this time. And I’m instructing you at this time, if a party fails to call a person who possesses knowledge about the facts in issue and who is reasonably available to him and who is not equally available to the other party, then you may infer that the testimony of that witness is unfavorable to the party who could have called him and did not.
“I’ll read it again. If a party fails to call a person who possesses knowledge about the facts in issue and who is reasonably available to him and who is not equally available to the other party then you may infer that the testimony of that witness is unfavorable to the party who could have called him and did not.
“That’s a double-edged sword, it cuts both ways.”

Thereafter defense counsel requested leave of the court to issue a subpoena to Patterson, but this was refused. Counsel additionally asked the court to permit his secretary and the defendant’s sister to testify with regard to their unsuccessful efforts to locate Patterson. The court refused to allow this explanatory testimony. Thereafter defense counsel requested an overnight recess — it was then 4:00 p.m. — in order to permit him an opportunity to attempt again to locate Mr. Patterson. The court also refused this continuance.

The apparent reasons that the court refused this testimony and the continuance were (1) the defendant had previously declared he was ready for trial and (2) the defense counsel had stated in the presence of the jury that he had attempted to contact Mr. Patterson and had been unsuccessful because the telephone had been disconnected. Thereafter the following colloquy between the court and counsel ensued:

“THE COURT: Well, you have already got that information in and I’m not going to grant the recess.
“MR. FRIEDMAN: Could I ask just for a clarification of one thing that the judge said to me? When I referred to my secretary you said that matter is already before the jury with regard to any effort to contact Mr. Patterson. Would I be permitted to argue that matter ?
“THE COURT: You have told the jury that you tried to contact him, you have admitted that you didn’t subpoena him. The inference is obvious.
“MR. FRIEDMAN: Okay.”

At the time of final argument when defense counsel attempted to state that Patterson was equally available to both sides and that he had been unable to contact him, the court sustained the government’s objection that there was no evidence of those facts. Thereafter the prosecutor in final argument stated:

“And he lives in East St. Louis, he worked for the man for two years. Now, you tell me whether or not practically he could find Patterson. He knew where he was, that was his employer.”

Even if we can assume the propriety of the instruction and the government’s comment it is obvious from the record that defendant was denied a fair opportunity to respond to the inference instructed upon. In Schumacher v. United States, 216 F.2d 780, 787-788 (8 Cir. 1954), cert. denied, 348 U.S. 951, 75 S.Ct. 439, 99 L.Ed. 743 (1955), this court through Judge Woodrough declared:

“It would present an anomaly in the law if, while one party may comment upon the absence of an opposing party’s witness, .. . . the opposing party were not permitted to introduce evidence to excuse the absence of such witness.”

Professor Wigmore has observed:

“[T]he party affected by the inference may of course explain it away by showing circumstances which otherwise account for his failure to produce the witness. There should be no limitation upon this right to explain, except that the trial judge is to be satisfied that the circumstances thus offered would, in ordinary logic and experience, furnish a plausible reason for non-production.” 2 Wigmore, Evidence § 290, at 178 (3d ed. 1940).

See also Case v. New York Central Railroad Co., 329 F.2d 936, 937-938 (2 Cir. 1964). On this basis we find the trial court’s ruling which limited the defendant’s explanation to be error.

The last issue on appeal relates to the prosecutor’s misconduct in final argument. In view of the necessity of a new trial on the other issue, it is only necessary to observe that we think the role of the prosecutor upon retrial requires greater concern for fair summation, and we assume he will refrain from repeating the prejudicial comments used in the previous trial.

The court is notified that the defendant is presently incarcerated in a federal institution; under these circumstances the court orders that our mandate issue forthwith and that the district court be directed to entertain immediately an appropriate motion by counsel for the release of the defendant on reasonable bond pending a new trial.

Judgment reversed and remanded for new trial.


author: MOORE, Circuit Judge:

text:
    HERZOG MINIATURE LAMP WORKS, INC., Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
    No. 667, Docket 72-2423.
    United States Court of Appeals, Second Circuit.
    Argued May 31, 1973.
    Decided June 29, 1973.

      Jerome Kamerman, New York City, for appellant.
    William A. Friedlander, Atty., Tax Div., Dept, of Justice (Scott P. Cramp-ton, Asst. Atty. Gen., Meyer Rothwacks and Gordon S. Gilman, Attys., Tax Div., Dept, of Justice, on the brief), for appellee.
    Before MOORE, FRIENDLY and FEINBERG, Circuit Judges.
   MOORE, Circuit Judge:

Herzog Miniature Lamp Works, Inc. (“taxpayer”) petitions for a review of a decision of the Tax Court of the United States, 31 TCM 847 (1972), sustaining the Commissioner’s determination of deficiencies in income tax for its fiscal years 1966 and 1967 in the amounts of $8,612.23 and $12,701.27, respectively. These deficiencies resulted from the Commissioner’s imposition of an accumulated earnings tax pursuant to § 531 of the Internal Revenue Code of 1954 for each year in question. The Tax Court found that Herzog had permitted its earnings and profits to accumulate beyond the reasonable needs of its business, in violation of § 533 of the Code, and that it was “availed of” during the years in question for the purpose of allowing its sole shareholder and president, Charles Perrenod, to avoid paying income tax, by permitting earnings to accumulate instead of being divided and distributed. We find no error and affirm the judgment.

The facts are set out in detail in the Tax Court’s opinion. We summarize them here. Taxpayer is a New York corporation engaged in the manufacture of miniature incandescent lamps, namely, miniature light bulbs. Charles Perrenod was its sole shareholder and its president. The process employed by taxpayer in its manufacture of miniature lamps is important to the resolution of the issues presented: the lamps are made by placing two or more fine wires onto a glass bead and winding a filament on the wires. The mounted wires are then inserted into a glass tube or globe, to which the bead is sealed. The air in the tube is then evacuated and the tube is cut off at its end. A metal base may be affixed to some models, thus completing the lamps.

Taxpayer carried out this process solely by hand labor (100 persons were employed). However, automatic machinery was available to do the same work, at greatly reduced cost. The unit cost of a hand-made bulb was 20 cents; that of a machine-made one was about 4.2 cents, providing there was a volume sufficient to justify the adjusting and setting up of the machinery. The bulbs manufactured by the taxpayer were primarily for “specialized” purposes, and the specifications and quantities required made it impractical to set up automated production facilities. The Bader Machinery Co. of England (“Badalex”) was a supplier of the machinery necessary to automate the production of the miniature bulbs. The principal manufacturers of mass-produced miniature lamps included Westinghouse and General Electric, both of whom were also customers, potential customers, and/or competitors of the taxpayer for certain types of “specialty” lamps.

On or about February 23, 1962, taxpayer received an order from Westinghouse for the manufacture of 1,600,000 aircraft instrument lamps of taxpayer’s design. The order provided for the delivery of 100,000 lamps per month for the first six months and 150,000 per month thereafter. Taxpayer delivered 1,309,000 lamps between May 14, 1962, and October 7, 1963, at which time the balance of the Westinghouse order was cancelled.

Perrenod believed that he lost the Westinghouse order because he could not deliver sufficient quantities in the time required by Westinghouse; he thus began to consider the acquisition of automatic machinery, so that taxpayer could produce larger quantities. Perrenod in 1965 therefore went to England to observe the inachines manufactured by Badalex. The equipment consisted of four different machines, each doing a different process. The first stage of mounting wires on the glass bead and winding on the filament was done by a machine called “the bead mount mill.” The remaining three stages were done by other machines. The entire line was capable of producing lamps at the rate of 2,000 per hour. By hand, one worker could make about 25 per hour.

In October of 1965 taxpayer ordered from Badalex the machine called “the bead mount mill,” the machine which performed the first of the four stages described above. The machine was delivered and installed in the fall of 1966, at a total cost of $25,000. After operating the machine intermittently for a few months, it was shut down and has not been used since. Perrenod discovered (what should have been obvious) that rapid production by the first stage machine without the other three machines performing the other three stages to complete the job only created a bottleneck and hence resulted in no real production advantage.

Taxpayer’s gross sales for the years 1965, 1966, and 1967 were $392,692, $399,654, and $450,410, respectively. In those years it retained or accumulated earnings of $114,793, $149,174, and $197,588, respectively. On its income tax returns for 1966 and 1967, taxpayer reported, as salary paid to its president and sole shareholder, Perrenod, the sums of $35,600, and $16,160, respectively. During the year 1967, taxpayer paid Perrenod a dividend of $10,000; no dividend was paid in 1966. The taxpayer also advanced “loans” to Perrenod from time to time, as needed by him for his personal use. These loans, in the years 1965, 1966, and 1967, amounted to $36,999, $4,188, and $24,188, respectively. In addition, taxpayer owned one-half of the stock (its accountant owned the other half) of Fisk Factors Corp., a factoring company which engaged in the making of short-term loans. During the years in question, Fisk’s sole borrower was having financial difficulties and ultimately became bankrupt. Therefore, the sum of $125,000 loaned to or invested in Fisk Factors Corp. could not be realized by taxpayer.

Pursuant to § 534(b) of the Code, on December 10, 1969, the Commissioner notified taxpayer of his intent to propose a deficiency for the tax years 1966 and 1967, with respect to the accumulated earnings surtax imposed by § 531. Petitioner responded to the Commissioner’s notification with a timely statement, pursuant to § 534(c), of its justification for accumulating earnings and profits during the years in question:

Please be advised that with reference to your audit of the Herzog Minature Lamp Works, Inc. for the years 1966 and 1967, we hereby protest the findings of your office for additional tax due. It has been the plan of this corporation to accumulate sufficient funds for a major overhauling and expansion of the premises. The equipment of this corporation is all but fully depreciated and no piecemeal process of replacement will suffice to enable this corporation to compete successfully with its competors [sic]. We therefore have had to make preparations in the form of accumulation of funds of a considerable sum of money to pursue our plans.

A notice of deficiency was subsequently mailed to taxpayer on March 5, 1970. Ruling that the burden of proof was on taxpayer to show that its accumulations were not beyond the reasonable needs of its business, since the statement submitted by it pursuant to § 534(e) was insufficient to shift the burden to the Commissioner, the Tax Court held that “[t]he evidence offered by [taxpayer] not only fails to sustain that burden, but tends to prove the opposite.” 31 TCM at 850. The Court affirmed the Commissioner’s deficiency determination.

The sole issue on appeal is whether the taxpayer is liable for the surtax imposed by § 531 of the Code, because it accumulated earnings and profits beyond reasonable business needs, thereby bringing itself within § 533. The issue is primarily one of fact for the Tax Court’s determination on the whole of the record before it, American Metal Prods. Corp. v. Commissioner, 287 F.2d 860, 864 (8th Cir. 1961); and absent clear error, the Tax Court’s determination will not be disturbed, id.; Hardin v. United States, 461 F.2d 865, 871 (5th Cir. 1972); I. A. Dress Co. Inc. v. Commissioner, 273 F.2d 543, 544 (2d Cir.), cert. denied, 362 U.S. 976, 80 S.Ct. 1060, 4 L.Ed.2d 1011 (1960).

The accumulated earnings tax is designed to deter use, usually by shareholders of a closely held corporation, of the corporate entity to avoid income tax liability. The purpose of the tax “is to compel the company to distribute any profits not needed for the conduct of its business so that, when so distributed, individual stockholders will become liable” for taxes on the dividends received, United States v. Donruss Co., 393 U.S. 297, 303, 89 S.Ct. 501, 505, 21 L.Ed.2d 495 (1969), quoting Helvering v. Chicago Stock Yards Co., 318 U.S. 693, 699, 63 S.Ct. 843, 87 L.Ed. 1086 (1943); Electric Regulator Corp. v. Commissioner, 336 F.2d 339, 346 (2d Cir. 1964). See generally, Comment, The Accumulated Earnings Tax: Displacement of the Avoidance Test and a Suggested Business Purpose Test, 10 B.C.Ind. & Com.L. Rev. 919 (1969). The burden of proof rests with taxpayer, under § 533, which provides that the accumulation of earnings and profits “beyond the reasonable needs of the business shall be determinative of the purpose to avoid the income tax with regard to shareholders, unless the corporation by the preponderance of the evidence shall prove to the contrary.” However, under § 534, if the taxpayer submits to the Commissioner a statement of the grounds and facts on which it relies to establish that there has been no unreasonable accumulation, taxpayer can shift the burden of proof to the Commissioner with respect to the grounds set out in its statement. See Factories Investment Corp. v. Commissioner, 328 F.2d 781, 783 (2d Cir. 1964). The burden will not shift to the Commissioner, however, if “the ground or grounds on which the taxpayer relies are not relevant to the allegation or, if relevant, the statement does not contain facts sufficient to show the basis thereof.” Treasury Reg. § 1.534-2(b) (2) (26 C.F.R. § 1.534-2(b)(2)). We find no error in the Tax Court’s ruling that taxpayer’s statement, quoted supra, was too broad and general in scope so as to shift the burden to the Commission.

After reviewing the evidence before it, the Tax Court concluded that taxpayer’s evidence was insufficient to sustain taxpayer’s burden of proof. The Court noted that taxpayer, in the years in question, had a cash surplus equal to ten times its inventory and no liabilities. Even though Perrenod had purchased one machine from Badalex in 1965 for the purpose of automating the manufacture of lamps, by 1972 the corporation had still not done anything positive about automating, and had not used the one machine it had purchased. The Court concluded: “Although we do not doubt that Charles Perrenod may have entertained the ambition from time to time to go into the mass production of these lamps, the record fails to show that he ever went so far as to adopt or even seriously to consider such a plan.” 31 TCM at 851.

On appeal taxpayer argues that the Tax Court clearly erred in its findings, and in disbelieving the testimony of Perrenod and taxpayer’s accountant as to the true purpose in accumulating its earnings. Taxpayer argues that it needed to accumulate about $600,000 before it could fully automate its plant; that the decision to withhold dividend distributions was motivated solely by Perrenod’s desire to mechanize the plant, and not by an intent to avoid the income tax; that Perrenod did not believe in borrowing money in order to automate sooner than was possible by accumulating earnings, since Perrenod was styled as “an extremely conservative” businessman; and that taxpayer’s decision to automate was clearly supported by the 1965 purchase of the “bead mount mill” machine from Badalex.

We agree with the Tax Court that Perrenod’s intention to use the taxpayer’s accumulation of earnings for the proscribed purpose may be seen from a review of the record as a whole. First is the fact that taxpayer offered no convincing evidence that a concrete decision to automate its plant had ever been made. Taxpayer relied almost entirely on the testimony of Perrenod, its president, and Sidney Fried, its accountant, to prove the existence of a fixed and definite plan, adopted in 1963, for fully automating its lamp-making plant as soon as it accumulated sufficient earnings to acquire and install the machinery ($175,000) and to provide sufficient working capital ($325,000 to $450,000) for the expected greater volume of business resulting from automation. The Tax Court was not required to credit fully the testimony of such interested parties, however; Braunstein v. Commissioner, 305 F.2d 949, 952 (2d Cir. 1962), affirmed, 374 U.S. 65, 83 S.Ct. 1663, 10 L.Ed.2d 757 (1963); Factories Investment Corp. v. Commissioner, supra, 328 F.2d at 784. Rather, the Court could, and did, scrutinize taxpayer’s actions between 1963 and 1972, for the purpose of determining whether taxpayer’s proposed intention was “manifested by some contemporaneous course of conduct directed toward the claimed purpose,” American Metal Prods., supra 287 F.2d at 864; Dixie, Inc. v. Commissioner, 277 F.2d 526, 528 (2d Cir.), cert. denied, 364 U.S. 827, 81 S.Ct. 62, 5 L. Ed.2d 54 (1960) (“Definiteness of plan coupled with action taken toward its consummation are essentials”). The record is not replete with actions supportive of taxpayer’s position. Even as late as 1972, nine years after Perrenod testified he had decided to automate and 5-6 years after the 1966-67 accumulation here at issue, no concrete steps were taken to implement the plan; the one machine purchased in 1966 lay dormant for six years after its purchase. Under these circumstances, the Tax Court could properly conclude that the intention claimed by taxpayer had not been manifested by a convincing course of conduct on taxpayer’s part.

Other facts supported the Tax Court’s rejection of the conclusions urged by taxpayer. Taxpayer, having the burden of proof, failed to provide any statements as to the amount of earnings accumulated in years after 1967 in order to explain why, as late as 1972, it still had not commenced the program of complete automation. Accumulation of earnings had apparently been a policy of taxpayer for some time prior to the two years here in issue. It seems also to have been the policy to make only limited payments of compensation to Perrenod and to provide him with interest-free loans, thus leaving the maximum possible amounts in the corporation and enabling Perrenod to avoid higher income taxes. As we held in United Business Corp. v. Commissioner, 62 F.2d 754, 755 (2d Cir.), cert. denied, 290 U.S. 635, 54 S.Ct. 53, 78 L.Ed. 552 (1933), another accumulation of earnings case, such loans to a sole stockholder are to be viewed with circumspection, since they “entirely accord with a desire to get the equivalent of [the stockholder’s] dividends under another guise.” See also, Oyster Shell Prods. Corp. v. Commissioner, 313 F.2d 449, 454 (2d Cir. 1963). Moreover, the record disclosed that taxpayer had lost $125,000 by investing in an unrelated business (Fisk Factors Corp.), an investment which more normally would have been made by Perrenod himself; when “retained earnings are idle or are invested for purposes unrelated to the business, the accumulation becomes suspect.” Oyster Shell Prods. Corp. v. Commissioner, supra, 313 F.2d at 454.

Taxpayer relies on a number of Tax Court decisions against the Commissioner in § 531 accumulated earnings cases to support its argument that the Court’s decision here was erroneous. Taxpayer particularly relies upon Carolina Rubber Hose Co. v. Commissioner, 24 TCM 1159 (1965) ; Knoxville Iron Co. v. Commissioner, 18 TCM 251 (1959); Penn Needle Art Co. v. Commissioner, 17 TCM 504 (1958); and Magic Mart Inc. v. Commissioner, 51 TC 775 (1969).

As the Tax Court said in Knoxville, supra, “[E]ach ease rests upon its own peculiar facts and circumstances”, 18 TCM at 261, citing Olin Corp. v. Commissioner, 128 F.2d 185, 187 (7th Cir. 1942). However, a common thread runs through these decisions sustaining the taxpayer, namely, some tangible indicia of intent to carry out a concrete plan. Minutes of stockholders’ and directors’ meetings revealing intent, the setting aside of funds in short-term liquid securities, the absence of personal loans to stockholders (here loans to the sole stockholder), the absence of investments in unrelated businesses (here investments in Fisk Factors Corp.), the payment of adequate dividends, and actual steps taken to accomplish the express intent are among the factors which moved the courts to uphold accumulations in the above-cited cases.

Whatever thoughts (subjective of necessity) taxpayer, through Perrenod, may have had in 1966 and 1967, the Tax Court was entitled to test them objectively against the actual facts as revealed up to and including 1972. So tested, the Tax Court was clearly correct, and certainly not “clearly erroneous”, in concluding that taxpayer had failed to meet its burden of proving that it had in 1966 and 1967 a “specific, definite and feasible” plan sufficient to justify the accumulations made allegedly for such purpose. See Dixie, Inc. v. Commissioner, supra, 277 F.2d at 528.

The decision of the Tax Court is affirmed.

      . § 531. Imposition of accumulated earnings tax
      In addition to other taxes imposed by this chapter, there is hereby imposed for each taxable year on the accumulated taxable income (as defined in section 535) of every corporation described in section 532, an accumulated earnings tax equal to the sum of—
      (1) 27% percent of the accumulated taxable income not in excess of $100,000, plus
      (2) 38% percent of the accumulated taxable income in excess of $100,000.

      . Section 537 provides that, for purposes of the accumulated earnings tax, the term “reasonable needs of the business” includes reasonably anticipated needs of the business.

      . § 533. Evidence of purpose to avoid income tax
      (a) Unreasonable accumulation determinative of purpose. — For purposes of section. 532, the fact that the earnings and profits of a corporation are permitted to accumulate beyond the reasonable needs of the business shall be determinative of the purpose to avoid the income tax with respect to shareholders, unless the corporation by the preponderance of the evidence shall prove to the contrary.

      . § 532. Corporations subject to accumulated earnings tax
      (a) G-eneral rule. — The accumulated earnings tax imposed by section 531 shall apply to every corporation (other than those described in subsection (b)) formed or availed of for the purpose of avoiding the income tax with respect to. its shareholders or the shareholders of any other corporation, by permitting earnings and profits to accumulate instead of being divided or distributed.

      . Taxpayer also purchased a machine called a “filament drum feed,” to be used for winding filaments in certain specialty lamps. 31 TOM at 848.

      . As stipulated by the parties, taxpayer’s balance sheets for the taxable years as of December 31,1965 to 1967, inclusive, were as follows:

      The fixed assets carried on the balance sheet of December 31, 1965, at a cost of $34,342 included the Badalex bead mount machine which had been acquired at a cost of approximately $25,000. The building in which operations were carried on was owned by Perrenod and leased to taxpayer at an annual rental of $20,000.

      . Treasury Regulation § 1.537-1 (b) (26 C.F.R. § 1.537-1 (b)) provides:
      (b) Reasonable anticipated needs. (1) In order for a corporation to justify an accumulation of earnings and profits for reasonably anticipated future needs, there must be an indication that the future needs of the business require such accumulation, and the corporation must have specific, definite, and feasible plans for the use of such accumulation. Such an accumulation need not be used immediately, nor must the plans for its use be consummated within a short period after the close of the taxable year, provided that such accumulation will be used within a reasonable time depending upon all the facts and circumstances relating to the future needs of the business. Where the future needs of the business are uncertain or vague, where the plans for the future use of an accumulation are not specific, definite, and feasible, or where the execution of such a plan is postponed indefinitely, an accumulation cannot be justified on the grounds of reasonably anticipated needs of the business.

      . The Tax Court found that:
      The bead mount machine acquired by the petitioner in 1966 does not indicate any intent on the part of the petitioner to go into the mass market. Certainly, it could have been utilized for that purpose if the petitioner had acquired the remaining equipment which would be needed to set up an automated production line. There is, however, no evielenco that the petitioner ever seriously intended to acquire such equipment. On the contrary, the bead mount machine was acquired with a filament drum feed to be used in producing special filaments, thus enabling the petitioner to utilize the machine as the first step in what was otherwise a handmade lamp.
      31 TCM at 851.


author: GEORGE B. HARRIS, District Judge:

text:
    UNITED STATES of America, Plaintiff-Appellee, v. Allen G. ELLSWORTH, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. Juan DE LA TORRE, Defendant-Appellant.
    Nos. 72-2735, 72-2992.
    United States Court of Appeals, Ninth Circuit.
    June 15, 1973.
    Rehearing Denied in No. 72-2735 July 31, 1973.

      S. Thomas Pollack, Deputy Federal Public Defender (argued), Los Angeles, Cal., for Allen G. Ellsworth.
    Roger S. Hanson (argued), Beverly Hills, Cal., for Jaun De La Torre.
    Mike Kenney, Asst. U. S. Atty. (argued), William D. Keller, U. S. Atty., Leslie E. Osborne, Eric A. Nobles, William R. Hawes, Asst. U. S. Attys., Los Angeles, Cal., for plaintiff-appellee.
    Before KOELSCH and TRASK, Circuit Judges, and HARRIS, District Judge.

       Honorable George B. Harris, Senior United States District Judge, Northern District of California, sitting by designation.

   GEORGE B. HARRIS, District Judge:

On May 17, 1972, appellants and others were named in a six-count indictment charging conspiracy to distribute a controlled substance and substantive offenses of distribution of a controlled substance. Appellants were each charged in Count I only, the conspiracy count. Following trial by jury, appellants were convicted.

The facts pertinent to these appeals are as follows: One Rip Palmer, who was employed by appellant Ellsworth at American-Balboa Glass in Costa Mesa, California, became aware sometime before March of 1972 that two of the other co-defendants, Aragon and Lovato, were engaged in the sale of narcotics. Palmer, who had a prior criminal record, thereupon contacted the Costa Mesa Police Department and offered to serve as an informant.

During March, Palmer, acting as an informant, met with Aragon and Lovato for the purpose of discussing possible sales of heroin and cocaine. Near the end of March, Aragon gave Palmer a sample of heroin to present to his (Palmer’s) “people.” A meeting between Aragon, Palmer, and undercover narcotic agents occurred on March 28 at which time future sales of heroin were discussed. There was a sale of heroin at that time.

A meeting took place on April 6 at the American-Balboa Glass Company between Lovato, Palmer, and two undercover agents for the purpose of arranging a future sale.

Another meeting between Lovato, Palmer, and the undercover agents occurred on April 11 at the Age of Gardner Restaurant. After making arrangements from the restaurant to pick up narcotics from his supplier, Lovato left, later to return with the narcotics, at which time a sale was consummated.

The next sale occurred approximately on April 19 at the El Comedor Restaurant. Palmer testified that during negotiations for this sale Lovato said that he had to call his “connections” and subsequently he dialed telephone number 543-9302 and asked for “Juanito or Doroteo.” Palmer also testified that after the phone call, Lovato left to pick up the narcotics.

A Government witness at trial identified telephone number 543-9302 as being that of the El Valle Restaurant in Garden Grove, California. This restaurant was owned by one Doroteo De La Torre, and appellant Juan De La Torre was employed there at the time.

Another Government witness, Agent Larry Barnes of the Federal Bureau of Narcotics and Dangerous Drugs [BNDD], testified that at the time of the April 19 sale, he observed appellant De La Torre operating the cash register and performing other duties in the restaurant. After the restaurant closed, Barnes observed Lovato meet with appellant De La Torre and hand him a roll of American currency.

Other evidence adduced at trial showed that on April 11, 1972, a date when narcotics transactions involving the conspirators were taking place, Officer Casey of the Costa Mesa Police Department observed Lovato visit appellant De La Torre and the El Valle Restaurant. Agent Levesque of BNDD testified that on March 28, 1972, a date when Aragon was engaged in a narcotics transaction, he surveilled Aragon going to and from the El Valle Restaurant.

On April 27, Aragon met with Agent Creason of BNDD for the purpose of negotiating a sale of heroin. Arrangements for delivery of the heroin were made on May 1 and the sale of 113 grams of heroin was consummated on May 2 between Aragon and Agent Creason. Following this sale, surveillance officers observed Aragon delivering a sum of money to appellant De La Torre at Aragon’s El Comedor Restaurant.

On May 4, Agent Creason met with Aragon at the Holiday Inn in Los Angeles to discuss the quality of heroin Aragon had sold to Creason on May 2 and possible future transactions.

When Aragon arrived at the meeting he was accompanied by appellant Ells-worth, who was introduced to Creason as Aragon’s source of supply for narcotics. Creason indicated that he was dissatisfied with the quality of heroin sold to him on May 2 and that he was not going to pay for it. Ellsworth then said that he had purchased and supplied to Aragon the four ounces of heroin purchased on May 2. Ellsworth also stated that he had purchased the heroin from his source with the understanding that it had not been “stepped on” or diluted.

Upon learning for the first time that Ellsworth was Aragon’s source of supply, but suspecting that this was not true, Creason expressed his disbelief that Ellsworth was in fact Aragon’s source of supply for the heroin sold him on May 2. Confronted with Creason’s disbelief, Ellsworth nonetheless insisted that he was indeed Aragon’s source of supply and that he had supplied him with the heroin which Creason had purchased on May 2. Later, however, when Ellsworth was not present, Aragon told Creason that he was merely passing off Ellsworth as his source for the heroin sold on May 2.

When Ellsworth was again present, Creason complained about the quality of the heroin purchased on May 2. Both Ellsworth and Aragon promised that they would attempt to provide him with higher grade heroin in the future, and boasted of the ability to deliver multikilogram quantities of narcotics. Arrangements were then made for the sale of narcotics on May 8, 1972. Catalina was agreed upon as the place of delivery because defendant, who volunteered that he was a pilot, could fly the narcotics there.

On May 8, Creason talked to Aragon about the proposed transaction discussed at the May 4 meeting. Alternative plans were made. Aragon said that he had a substantial quantity of heroin at his restaurant and that Creason should come there to get it. Creason went to the restaurant where Aragon and acquitted defendant Hernandez were present. The sale was consummated and the defendants thereafter arrested.

ELLSWORTH

Ellsworth raises several issues on appeal, each of which will be discussed.

1. Scope of Examination

At trial, Ellsworth testified on direct examination that he took part in the meeting with Agent Creason on May 4, but contended that he did so only out of curiosity and to back up his friend, Aragon. He also disclaimed knowledge of the conspiracy, stating:

Q. At any time prior to that May 4 meeting, did you meet with anybody, any of the agents who have testified here or any of the other defendants for the purpose of engaging in the sale of narcotics ?
A. No.

On cross-examination by Government counsel, the following similar colloquy occurred:

Q. Did you in response to Mr. Pollack [defense counsel] say that you had never discussed narcotics with any BNDD agent or anyone other than Mr. Creason on May the 4th?
A. To the best of my knowledge, yes.
Q. And you in fact said that to Mr. Pollack?
A. I believe that was his statement.
Q. Do you know Mr. Larry Barnes ?
A. No sir, I do not.
Q. Do you recall Agent Barnes testifying here, yesterday ?
A. Oh, yes. Excuse me.
Q. Have you ever seen Mr. Barnes before ?
A. Not to my knowledge, no.
Q. Do you recall meeting Mr. Barnes on March the 15th ?

At this point defense counsel objected, claiming that the inquiry was beyond the scope of the conspiracy charged. The district court ruled, however, that with a proper foundation as to Ells-worth’s understanding of the term “narcotics,” the question was proper cross-examination.

After such a satisfactory foundation was established, Government counsel proceeded to cross-examine Ellsworth. Ellsworth could not recollect whether he had discussed marijuana on March 15th with Agent Barnes and could not even recollect Barnes. He admitted that he might have engaged in “idle chatter” with Aragon concerning the importation of marijuana, but reaffirmed that he did not know Agent Barnes.

In rebuttal, Agent Larry Barnes of the BNDD stated that he knew Ells-worth because he had met with him on March 15, 1972, to discuss the possible smuggling of marijuana into the United States.

This impeachment of Ellsworth was proper. The court permitted cross-examination of Ellsworth concerning the denial of any previous dealings with narcotics only after it was satisfied that Ellsworth considered marijuana an illegal substance. Once this foundation was established, Government counsel could properly cross-examine Ellsworth concerning conversations prior to May 4, 1972, as to the importation of marijuana because defense counsel had “opened the door” on direct examination of Ells-worth.

In addition, such testimony was admissible for impeachment as an earlier inconsistent statement.

2. Disclosure of Exculpatory Material

Ellsworth contends that subsequent to trial his counsel learned for the first time that Officer Casey of the Cos-ta Mesa Police Department, who was an investigator in the case and a Government witness, was of the opinion that, Ellsworth was not conspiring to sell heroin, had not in fact sold heroin, and had been tied into the charged offense by reason of doing a favor for a friend (Aragon). This information was raised in support of the motion for new trial, both as new evidence and as evidence that the Government failed to comply with the disclosure requirements of Brady v. Maryland, 373 U.S. 83, 83 S. Ct. 1194, 10 L.Ed.2d 215 (1963). The motion was denied by the district court.

In addition, a post-trial letter to the court from the United States Probation Officer, read by the court at the time of the hearing on Ellsworth’s motion for new trial, included a statement of the probation officer that Agent Casey was convinced that Ellsworth was not a dealer in heroin and that his involvement in the offense was limited to doing a favor for a friend.

Ellsworth now argues that Casey’s belief was information known to the Government prior to trial and which should have been produced by it but was not, thereby violating due process and requiring a new trial for Ellsworth.

Prior to trial, the Government’s opposition to Ellsworth’s motion for Bill of Particulars included an affidavit in which it was represented that the Government had no evidence favorable to Ellsworth and material to his guilt or punishment. Prior to trial, the Government also represented to the court that it did not possess any Costa Mesa Police Department reports and did not know that any existed.

Officer Casey had no direct contact with Ellsworth because his part in the investigation did not include participation in the May 4, 1972, meeting at which Ellsworth met with Aragon in negotiations for the sale of narcotics.

During the course of the trial certain documents prepared by Officer Casey in connection with his investigation were submitted to the district court in camera. The district court ruled that they contained no information that was exculpatory and material to Ellsworth’s guilt or innocence.

Moreover, the letter from the probation officer indicated that it was Casey’s feeling that Ellsworth’s involvement was limited to exactly what he was convicted of. Although the probation officer recommended a split sentence, Ellsworth was instead placed on probation for five years.

Ellsworth has not carried his burden under the cases to show that material was suppressed and that therefore he should be granted a new trial. There has been no showing that any material was suppressed by the Government nor that information bearing on the extent of Ellsworth’s involvement was withheld at the time of sentencing.

In addition, it is not clear that Ells-worth did not know about Casey’s opinions earlier, and, in any event, Casey’s opinions were just that — he did not have first-hand knowledge since he was not present at the May 4, 1972, meeting involving Ellsworth.

3. Joinder

Ellsworth claims that the district court erred in not granting his motion for new trial on the ground of a fatal variance between the one general conspiracy charged in the indictment and the proof at trial of several distinct conspiracies. This defense stems from the decision in Kotteakos v. United States, 328 U.S. 750, 66 S.Ct. 1239, 90 L.Ed. 1557 (1946).

The test here is whether there was one overall agreement among the various parties to perform various functions in order to carry out the objectives of the conspiracy; if so, there is a single conspiracy. Cf. Hernandez Cases, Nos. 71-2082 to 71-2090, 71-2093 to 71-' 2096, 71-2140, 71-2141, 71-2153 (9th Cir. Feb. 16, 1973). Although the proof of Ellsworth’s guilt was not strong, it was more than adequate to sustain a conviction, and such conviction carried with it the implied finding that, contrary to his testimony, Ellsworth knew or had reason to know of the existence of the charged conspiracy and its object. That Ellsworth may not have known the precise identities of the other principals is not relevant. United States v. Projansky, 465 F.2d 123, 135 (2d Cir. 1972), cert. den., 409 U.S. 1006, 93 S.Ct. 432, 34 L.Ed.2d 299 (1972).

To the extent that Ellsworth complains about “guilt by association,” the district court obviated such problem through the giving of certain adequate cautionary instructions to the jury.

4. Severance

Ellsworth’s strongest contention is that the district court erred in not granting his pre-trial motion for severance. Ellsworth based this motion on the statement that eo-defendant Aragon would provide exculpatory testimony for Ellsworth at a second and separate trial for Ellsworth, but not at the joint trial where he remained a co-defendant. Under the circumstances of a joint trial, of course, counsel for Ellsworth could not call Aragon to-the stand.

At a pre-trial hearing Aragon testified that he would, in fact, testify for Ellsworth at a separate trial for the latter. At the hearing on the motion for new trial Aragon again testified, corroborating the testimony given by Ells-worth at trial. Ellsworth claims that the prejudice of Ellsworth’s joinder more than outweighed the inconvenience of separate trials, since, in his estimation, only Agent Creason would have had to testify for the Government at a separate trial for him.

Under the facts of the case, joinder was proper pursuant to Rule 8(b) of the Federal Rules of Criminal Procedure. The issue, then, is whether such joinder was so prejudicial to Ellsworth’s rights as to require the district court to exercise its discretion and grant severance.

The Government relies on United States v. Hutul, 416 F.2d 607, 620 (7th Cir. 1969), cert. den., 396 U.S. 1012, 90 S.Ct. 573, 24 L.Ed.2d 504 (1970) for the propriety of denying a motion for severance in a conspiracy trial where the severance is sought to enable a defendant to call codefendants as witnesses for the defense. In Hutul, however, there was no showing that the co-defendants would in fact so testify and, since the Fifth Amendment would shield them from forced testimony, severance was denied.

Although the Ninth Circuit decisions on the matter seem to indicate that severance is mandated only where there is an adequate showing that the co-defendant is in fact to be called at the movant’s separate trial and would in fact testify for him, the distinction in the present ease is predicated on the fact that the district court was of the opinion that Aragon’s testimony, if any, would merely corroborate Ellsworth’s conviction rather than tend to exculpate him.

Ellsworth relies on United States v. Echeles, 352 F.2d 892 (7th Cir. 1965), but that is a stronger case; the co-defendant whose testimony was claimed to make a separate trial of the moving defendant necessary had already given exonerating testimony in court on three occasions immediately prior to trial and, in addition, certain evidence was admissible against him but not the moving defendant.

The standard to be followed here was recently summarized in United States v. Berlin, 472 F.2d 13, 15 (9th Cir. 1973):

Under Fed.R.Crim.P. 14, denial of a motion for severance will be reversed on appeal only if it constituted an abuse of discretion. [Citing cases.] Such abuse exists when the joint trial was manifestly prejudicial. [Citing eases.]

Here, particularly in view of the district court’s finding that Aragon’s proffered testimony would not be exculpatory, the denial of the motion for severance was not an abuse of discretion. DE LA TORRE

De La Torre also raises several issues on appeal, but these are all without merit.

1. Hearsay Statements

De La Torre claims that the district court violated his rights under Bruton v. United States, 391 U.S. 123, 88 S.Ct. 1620, 20 L.Ed.2d 476 (1968) by permitting the introduction into evidence of co-conspirators’ hearsay statements. De La Torre is incorrect here.

A well-recognized exception to the rule against the admission of hearsay is that for co-conspirators. See United States v. Brooks, 473 F.2d 817, 818 (9th Cir. 1973). Under Carbo v. United States, 314 F.2d 718, 735 n.21 (9th Cir. 1963), cert. den., 377 U.S. 953, 84 S.Ct. 1625, 12 L.Ed.2d 498 (1964), the otherwise inadmissible hearsay declarations of co-conspirators may be received into evidence when the following foundation is developed.

First: that the declaration is in furtherance of the conspiracy; second: that it was made during the pendency of the conspiracy; third: that there is independent proof of the existence of the conspiracy and of the connection of the declarant and the defendant with it. [Citing authorities.]

If the independent evidence adduced in support of the existence of the conspiracy makes a prima facie ease therefor, the Carbo foundation requirement can be satisfied. See United States v. Spanos, 462 F.2d 1012, 1014 (9th Cir. 1972).

As to the co-conspirators’ declarations admitted into evidence and complained of by De La Torre, it is clear that the Government met its burden of laying the foundation required by Carbo. Although De La Torre was linked to the conspiracy by circumstantial evidence, this was sufficient to invoke the eo-conspirator’s exception as to him. De La Torre’s reliance on Bruton as well as on certain California eases is misplaced, and none of these authorities compels a contrary conclusion on this issue. Thus Bruton, for example, dealt with a post-arrest confession by a defendant which was not admissible under any hearsay exception against his codefendant, not, as here, with statements made during the course of a conspiracy and admissible under the co-conspirator exception once a proper foundation is laid. See United States v. Projansky, supra at 137-138 of 465 F.2d. Cf. United States v. Adams, 446 F.2d 681, 683 (9th Cir. 1971), cert. den., 404 U.S. 943, 92 S.Ct. 294, 30 L.Ed.2d 257 (1971) (“concert of action” hearsay exception upheld against 6th Amendment challenge under Bruton).

De La Torre also complains about certain testimony received by the district court and then struck pursuant to defense motion. Our review of the case convinces us that by striking such testimony and giving a proper cautionary instruction to the jury, the district court judge did not commit error.

2. Severance

De La Torre contends that the district court should have granted him motion to sever on two grounds: first, because certain co-defendants made judicial admissions through their counsel in order to invoke the defense of entrapment, thus prejudicing De La Torre, and second, because, as with Ellsworth, Aragon volunteered to testify for De La Torre, but only at a separate trial of the latter.

Joinder of defendants here was proper under Rule 8(b). That two of the five defendants originally on' trial chose to invoke the entrapment defense did not render such joinder improper or entitle De La Torre, without more, to a separate trial.

The admissions made by the defendants pleading entrapment did not name or hint at the involvement of any other defendant. Any conceivable taint was removed when the district court carefully instructed the jury that these admissions could not be considered against any other defendant.

De La Torre makes an argument by analogy to pleas of guilty by co-defendants in an effort, again, to bring himself under the canopy of Bruton, but that case does not provide a defense here. See United States v. Cassino, 467 F.2d 610, 623 (2d Cir. 1972), cert. den. sub nom. 410 U.S. 913, 93 S.Ct. 957, 959, 35 L.Ed.2d 276 (1973). Even were the co-defendants’ admissions to be considered as guilty pleas it would not aid De La Torre, for, as this Court held in United States v. Washabaugh, 442 F.2d 1127, 1129 (9th Cir. 1971):

Informing the jury that such pleas [of guilty] have been entered is not ordinarily erroneous where, as here, the statement is unadorned and accurate, and the jury is carefully instructed not to consider the plea in determining the guilt or innocence of the remaining defendants. [Citing case.]

Nor was severance required simply by reason of Aragon’s offering to testify at a second trial for De La Torre, for the record does not reveal what the content of such testimony would have been (assuming it would have been forthcoming) or that it would have been exculpatory. Under the standard articulated in United States v. Berlin, supra,, the district court judge did not abuse his discretion by denying severance.

3. Sufficiency of the Evidence

Although the evidence against De La Torre was circumstantial, it is settled that such evidence is sufficient to establish a conspiracy, United States v. Jacobo-Gil, 474 F.2d 1213, 1215 (9th Cir. 1973); United States v. Brooks, supra at 818 of 473 F.2d (9th Cir. 1973), and in fact conspiracy convictions often rest on just such proof. See United States v. King, 472 F.2d 1, 8 (9th Cir. 1973); United States v. Nadaline, 471 F.2d 340, 344 (5th Cir. 1973). De La Torre argues that the district court erred in not giving an instruction on circumstantial evidence under which the jury would have been permitted to convict only if the evidence excluded every reasonable hypothesis except guilt. De La Torre’s reliance on California decisions for this proposition, as well as his misbelief as to the state of the law in this Circuit, display an inappropriate d'isingenuousness. Quite the contrary of De La Torre’s implication, this Circuit has addressed itself to the problem on numerous occasions during the past four years and on each occasion has rejected the formulation argued for here. See, e.g., United States v. Trice, 476 F.2d 89 (9th Cir. 1973).

The remaining issues raised by De La Torre are likewise without merit.

Accordingly, the convictions of Ells-worth and De La Torre are hereby affirmed.