author: WARING, District Judge.

text:
    THOMPSON v. GIBBES et al.
    Civ. No. 1273.
    District Court, E. D. South Carolina, Columbia Division.
    May 26, 1945.

      S. Morgan, of Orangeburg, S. C., Thur-good Marshall and Edward R. Dudley, both of New York City, and Arthur D. Shores, of Birmingham, Ala., for plaintiff.
    Frank A. Graham and Fred D. Townsend, both of Columbia, S. C., for defendants.
   WARING, District Judge.

This action is brought for the individual benefit of the plaintiff as well as class action on behalf of the negro teachers and principals in School District No. 1, in Richland County, South Carolina. The named defendants are members of the School Board of that district, except A C. Flora, who is the Superintendent of Schools. The jurisdiction of this court is invoked under Section 24(14) of the Judicial Code, 28 U.S.C.A. § 41(14), and the civil rights are claimed under 8 U.S.C.A. §§ 41, 43, based upon the constitutional rights of the plaintiff, and the class represented by him, as guaranteed by the Fourteenth Amendment of the Constitution of the United States. The prayer is for a declaratory-judgment and injunction as authorized by the Judicial Code, 28 U.S.C.A. § 400.

I.

These jurisdictional questions are put in issue by the answer of the defendants. I do not think there need be any elaborate discussion of them. It is quite clear that the court has complete jurisdiction, and the matter to be decided is whether the proof as adduced supports the allegations of the complaint. The same issue has been raised in similar cases in various jurisdictions, but I deem it unnecessary to cite any long list of authorities, save only, to refer to the controlling decision in this circuit, namely, the case of Alston v. School Board of City of Norfolk, 4 Cir., 112 F.2d 992. Reference should also be had to a similar case arising in this jurisdiction wherein the court took jurisdiction and upon the evidence produced issued a decree, which was consented' to by the parties. I refer to- the case of Duvall v. School Board, decided by me orally from the bench, and in which later a consent decree was presented and filed granting the prayer of the complaint, but postponing the time for it to- go into effect; and allowing defendants an opportunity to revise their schedule and make arrangements for equalization of pay. See Civil Number 1082, United States District Court for the Eastern District of South Carolina,, Charleston Division (unreported).

II.

In the case at bar the answer, before going to the merits, sets up certain legal defenses, (1) res adjudicata, by reason of the fact that the County Board of Education of Richland County has already passed upon the question, and (2) that there is nojusticiable controversy, and the matter is-moot because of the recent action of the General Assembly of South Carolina providing for a certification plan for teachers. Before discussing the merits, these defenses should be briefly disposed of.

It appears that the General Assembly of South Carolina, in 1944, in a Supplemental Appropriation Act, made provision by which any school teacher, feeling discriminated against as to the fixing of his salary, was provided with a method for filing a complaint and having the matter passed upon by the County Board of Education, with the right of appeal to the State Board of Education, and thereafter an additional appeal to the Court of Common Pleas (the findings of fact by the State Board, however, being final and conclusive), and an additional appeal from the Common Pleas Court to the Supreme Court. This procedure will be found in Act Number 519 (erroneously referred to as Act No. 689 in the answer of defendants), which act was approved March 18, 1944, and the pertinent parts of same as relating to this case appear on pages 1561 to 1565, inclusive, of the 43rd volume of the Statutes at Large of South Carolina. It appears that the plaintiff in this case did, in June 1944, file a petition with the County Board of Education for Richland County, which Board heard the matters complained of and filed a decision adverse to the plaintiff’s contention. This decision is attached as an exhibit to the answer. The defendants now take the position that such decision was res adjudicata as to the plaintiff and the group represented by him, and furthermore that such petition to the County Board, with appellate review by the State Board and courts, is his exclusive remedy and that this court is, therefore, precluded from passing upon the merits. I do not agree with this contention.

The plaintiff here bases his complaint upon his rights under the Constitution of the United States and upon the civil rights granted thereunder and implemented by the statutes hereinbefore referred to. He presents a question that can be adjudicated in this court. It is a federal question, and although the State of South Carolina may have provided a manner and method of testing the question of his salary, nevertheless, that does not, and can not, deprive this court of its jurisdiction, or the plaintiff of his right to appear here. It was claimed in argument that the state statute prescribes an exclusive method, and also that when the plaintiff started to make use of that method and he received an adverse decision that he was bound to continue through the various appeals provided. If that be done he may have to go through four separate hearings and the final decision be postponed unduly and in argument that was suggested as too great a hardship. That, however, is an argument based on convenience and does not go to the right to be here adjudicated. The real matter to be considered is whether the State of South Carolina has the right or authority to set up a system of hearings and appeals which will prevent the federal court from considering such a complaint.

This court has no criticism with the methods provided by the General Assembly and if parties wish to pursue the remedies therein offered they have a right so to do. However, this court holds equally that the General Assembly of South Carolina, or any other state, can not deprive the federal courts of the jurisdiction granted them under the Constitution and laws of the United States. If this were allowed them any state could enact laws depriving parties of the right to apply to federal courts in the protection of their civil rights.

But the defendants further claim, not only was the plaintiff required to pursue the methods of remedial relief offered by the State, but that having once made application to the County Board, it was requisite that he continue on the long road to the State Board; to the Common Pleas Court (wherein he would be bound as to facts by the findings of the State Board); and thence eventually to the Supreme Court of South Carolina. I do not agree with this contention. The plaintiff has not waived the civil rights and jurisdiction granted him by federal law by reason of an adverse decision of a County Board. There is such ample authority to support this declaration that I deem it unnecessary to quote a long line of decisions. The matter is tersely and succinctly handled in an opinion by Mr. Justice Holmes in Railroad & Warehouse Commission v. Duluth St. R. Co., 273 U.S. 625, 47 S.Ct. 489, 71 L.Ed. 807. See also Mississippi Mills v. Cohn, 150 U.S. 202, 14 S.Ct. 75, 37 L.Ed. 1052; Pusey & Jones Co. v. Hanssen, 261 U.S. 491, 43 S.Ct. 454, 67 L.Ed. 763; and The Maccabees v. City of North Chicago, 7 Cir., 125 F.2d 330. The authorities cited by the defendants do not appear to me to be applicable and the defendants have failed to discern the basic difference between the right of a state to set up an exclusive method of procedure in its own boards and courts and the right of a state to set up forms of remedies to the exclusion of federal civil rights.

The next question raised by the answer is that there is no justiciable controversy because of the fact that the General Assembly of South Carolina has now adopted a plan for certification of teachers, which is mandatory. This mandatory certification applies only to funds furnished by the state and also applies only to the appropriation for this year (1945). The provisions referred to are a part of the general appropriation bill for the fiscal year beginning July 1, 1945 (not yet published, but a certified copy of Sec. 76 of same is on file in this cause). This section reads as follows: “For the fiscal year 1945-1946, and without committal for future years, State Aid for the payment of teachers’ salaries shall be distributed monthly to the various counties and school districts for payment only to teachers who hold certificates issued by the State Board of Education under its new plan for certification of old and new teachers adopted by the State Board of Education on August 4 and September 19, 1944, and as may hereafter be amended by the State Board of Education, and such State Aid shall be disbursed to teachers in accordance with the following monthly salary schedule, to wit:”

There is then inserted a table for use in arriving at the salaries allocated to the respective groups, and the act thereafter goes more fully into the manner of computing the salaries. Section 77 provides for complaint and appeal similar to the method provided in the 1944 act, supra.

Attention should first be called to the first sentence in Section 76 hereinabove quoted, which starts with the words “For the fiscal year 1945-1946, and without committal for future years”. This shows that the act is a temporary one, and that the General Assembly is frankly attempting to arrive at some solution of this difficult problem and does not hesitate to say that this is experimental. We are, therefore, warned at the outset that this is merely a one-year plan and there is not only no guarantee, but an express warning that the state does not guarantee for future years to continue this plan. Therefore, we are on notice that this is not a permanent settlement of the teacher disparity trouble.

But a more potent reply to the defense is that this appropriation by the state (which is coupled with the allocation according to the plan laid out) is a part only of the teachers’ salaries. In Richland County this is probably approximately half of what the teachers receive, the balance of salaries being made up from county funds. These county funds are to be disbursed within the discretion of the County Board, which can divide and allocate them in any way that it chooses. Therefore, the act does not in any way foreclose the rights raised here and the question is clearly justiciable and one to be heard by the court.

III.

And so we pass on to a consideration of the merits. In the presentation of this case some of the evidence and much of the argument went beyond the narrow limits of the exact point in issue. Naturally, and perhaps necessarily, this will occur whenever a case of this nature is under consideration. Questions of political, economic and social rights, as they may be affected by race or color, almost invariably cover a wide field and many points are discussed and argument entered into which do not directly aid or throw any light upon the problems under discussion. The question of equality in rights and opportunities as between people of the white and negro races has been one of the great problems of the American people brought about; first by the enslavement and introduction into this country of people of alien and different race and color; and secondly by their sudden emancipation as a war measure, and theoretical immediate transition from complete slavery into complete equality. The old cliche that Rome was not built in a day, is applicable to this situation. The idea that emancipation of a race long enslaved and without political rights, without political or any other kind of education, and without training to assume citizenship, would bring about a satisfactory situation over night could be held by only a few partisan, biased, persons motivated either by idealistic abstraction or by a spirit of political revenge and self-seeking aggrandizement. The emancipation proclamation of President Lincoln did not free the slaves in a day; and the enactment of constitutional amendments shortly thereafter and adopted for the purpose of giving equal rights to all the people of this country did not bring about that ideal condition merely because they were ratified. These things have to be lived through and arrived at after generations of experience, before men will accept them, understand them, agree with them and work for their effect and efficiency. Many years have elapsed without these constitutional amendments and the statutes passed under their authority, having their full force and effect. In fact, many doubt whether they are yet in full force and effect and point to the disparity in wages and salaries in South Carolina; the exclusion of negroes from railroad brotherhoods; and racial riots in New York’s Harlem, as some of the proofs of this. This very case turns upon whether the school Board in Rich-land County is carrying out the purpose and intent of the Fourteenth Amendment of the Constitution of the United States.

The chairman of the School Board impressed me as having given serious and careful consideration to these backgrounds. He truthfully said that he realized that there had been certain injustices and that he had been and still was attempting to correct them. He pointed out a self-evident truth that an edict declaring that all teachers should be paid the same salaries would not be right or proper, for those who are not as well equipped (either because of their differences in native ability or in their training) should not be put in the same classification with those of superior qualities and attainments. The difficulty is, to get the proper yardstick by which to measure the stature of a teacher and to pay him accordingly. In the discussion in this case many criticisms were leveled by plaintiff’s attorneys at the newly-enacted state system for examination and certification. It was stated that the system was too elaborate and would require an expert to understand it or make it workable. That argument seems to me of little value since the law by careful consideration can be clearly understood; and working out the application of it is merely a matter of study and precision and some slight mathematical knowledge; and the State will have a statistician to handle it. In the matter of certification the State Board will have before it the tables already prepared, and will receive the results of the examinations from a National Board, which we may assume is free from bias or prejudice, since such Board will have no interest in, or be informed whether the papers presented by the respective teachers are made out by white or negro persons. The State Board will then be charged merely with the matter of correctly applying the formulae to the respective persons and arriving at the rate of salaries to be paid.

Criticism has also been made of this act because it is claimed that many of the teachers may fail, or get extremely low marks, on the examinations because of the fact that they are not well prepared. This criticism is entirely beside the point. The act is supposed to be for the benefit of the pupils and not for the support of indigent, ignorant, helpless or inadequately prepared teachers. If a teacher, be he white or black, has the requisite education and has experience in teaching and is able to pass the examination and receive a high score, he will be adequately paid because he will be ranked in the higher brackets. I do not know, nor should this court be concerned with, the effect that the adoption of this new system will have upon any individual school teacher. It may be that many of them who have been several years in the public schools will fail in these tests and be relegated to the lower schedules. It may be that this method will hurt the negroes more than the whites, or vice versa. But these contingencies are not matters to be considered by this court. The question that we have to discuss is not as to whether this is a good method for the whites or a good method for the negroes and whether it is better for the teachers to stand these tests and go through the new classification, or whether it is better for them to put up with the old system. The question before this court is whether there is now, or is going to be, a form of classification of teachers and payment to them of salaries arrived at, on some basis which absolutely removes the question of race or color. As to whether the new state system will prove satisfactory is not the concern of this court today, however much all South Carolinians may be interested in, and hope for, it as the correct solution. The concern of this court is whether it is free from the tinge of race prejudice, and I find it so to be.

With all of the foregoing in mind let us now give consideration to the particular issues of this case.

IV.

The plaintiff, by his complaint, maintains that School District No. 1, of Richland County, has, for a number of years, and still continues to fix salaries on a basis whereby the negro teachers receive a lower rate of pay than whites, and that the only reason for this difference is racial discrimination. On the other hand, the defendants maintain that the matter of race does not enter into the situation at all, but that teachers are rated according to their experience, scholastic training and ability. The further contention is made that by reason of studies conducted independently by the Board, and by reason of legislation enacted by the General Assembly of South Carolina, there has been a partial reclassification of teachers’ salaries, and the Board is about to make a complete reclassification so that there will not be any disparity or discrimination whatsoever.

The cause came on to be heard by me. The plaintiff himself testified, but the case was mainly made out by examination of members of the Board and the Superintendent who were called as witnesses by the plaintiff; by the introduction of documentary evidence consisting of excerpts from the minutes of Board meetings; and tabulations of pay for the teachers and principals of the schools, and tables showing minimum salaries for beginners. Some of these were introduced by the plaintiff and some by the defendants. The latter also put in evidence the statutes enacted by the General Assembly in 1944, and the more recent statute enacted in 1945 (both hereinbefore referred to), and they called as a witness J. B. White, an official of the Department of Education of the State of South Carolina, who is the director of the certification of teachers. Most of the important information in this case was furnished by Dr. J. Heyward Gibbes, Chairman of the Board, and by A. C. Flora, the Superintendent of Schools for Richland County, and the testimony of the witness, J. B. White, was useful in explaining the legislative acts and State Board regulations relating to certification and how they would be applied.

Without attempting to go into details it is quite clear from the testimony of the witnesses, particularly the Chairman of the Board and the Superintendent of Schools, that prior to 1941 there was a very considerable and recognized disparity in the pay of negro and white teachers in the Richland County schools. Dr. Gibbes and Mr. Flora both testified that about that time they and the other members of the Board began to give more consideration to the problem, especially in view of the decision of the Circuit Court of Appeals for the Fourth Circuit in the case of Alston v. School Board of City of Norfolk, supra, and the matter was not only discussed in the School Board meetings, but they had some discussion with and made suggestions to the State Educational Department. As a result, the schedules of salaries were revamped and many changes made and that has been progressive to date. Among other things, a minimum salary for a beginner, whether white or black, was fixed at $900 per annum, whereas formerly and prior to 1944, there was a much lower minimum standard. For instance, in the school year 1941-42 some of the negro teachers were started at a salary as low as $675; although the lowest starting salary for any white teacher for that term was $900. The schedules for starting salaries for teachers for the past four scholastic years were put in evidence (see Exhibits A, B, C and D). These show a constantly increasing rate for minimum salaries in the colored classifications. They also show an increasing classification in the white section, although the School Board points out that the percentage of raise in the white section is not as great as that in the colored section. The effect of this is to show that improvement has been made in the disparity between the teachers of the two races, and I think a fair statement, of the situation is that the School Board has been trying to eliminate gradually the disparity; and has to some extent accomplished that result. However, the exhibits above referred to (and they were put in evidence by the attorneys for the Board) show a startling disparity in the white and black sections. An attempt was made to explain these differences by the statement that the white teachers generally had much longer terms of experience than the negroes. But I noticed that wherever the same amount of experience was indicated the white teacher received several hundred dollars more as a starter. In reply to my inquiries these instances were attempted to be explained by stating that the other qualifications were in favor of the white teachers and that while the tables were based generally on experience, these other qualifications' were the cause of these exceptions in the tables. The explanations did not particularly appeal to me as I think the showing that each white teacher whose name appears on the starting schedules for the past four years received a higher rate of pay than each negro teacher with the same experience, is too unusual and startling to be explained as a mere coincidence. The exhibits put in by the Board and herein discussed go strongly to prove the allegations of the complaint.

I was greatly impressed by the intelligence, ability, interest and desire, to be just and fair to all parties, evinced by the Chairman of the Board, Dr. Gibbes, and by the Superintendent, Mr. Flora. Both of these witnesses were frank. While both denied any conscious discrimination in favor of white teachers as against negro teachers, nevertheless, I gathered from both of them that they had inherited a system that undoubtedly prior to 1941 had in it a large disparity in salaries and it was evident that this resulted from racial differences. It was shown that an earnest study and consideration of the matter has been going on for a number of years. While the Superintendent expressly denied that the Board had been engaged in what might be called “shopping” for teachers, that is to say, getting them as cheaply as possible, nevertheless, a number of members of the Board suggested that they were motivated by some such idea, although not expressing it in such bald language. There was some testimony to the effect that due to economic conditions there were more negro teachers available and applying for positions than white teachers, and, therefore, there was a greater number of negro teachers available and they were willing to work for less, and in many instances the Board had to pay higher salaries to white teachers because of the smaller supply and greater demand. Yet the schedules put in by the defendants (Exhibits A, B, C and D) show an overwhelming number among the whites of longer experience in teaching than among the negroes. It would, therefore, seem that there was a dearth of experienced negro teachers and a greater supply among the white. And so the argument of supply and demand seems rather futile.

The Chairman and the Superintendent further showed that not only had the Board been attempting to alliviate the disparity, but that for the next ensuing scholastic year they have entered upon a reclassification program which will definitely eliminate any disparity. I have already referred to the recent enactment of the General Assembly of the State of South Carolina embodied in Sections 76 and 77 of the General Appropriation Act for the year 1945-1946 (a certified copy of which was marked in evidence as Exhibit F). Under this provision, commonly referred to as the Certification Plan, and the Regulations of the State Board, the State has adopted a system by which all teachers receiving state aid are to be graded and classified. By this plan the teachers are to be classified, first according to their education: they being grouped into (1) those having a Master’s Degree; (2) those having partial graduate training; (3) those having full college training; (4) those having two years college training; and (5) those having less. The next test to be applied is their period of experience in the teaching profession, and in addition, each teacher is required to stand an examination which is prepared and scored by the National Educational Board. The State Board then places each teacher in the proper classification and applying his score in the examination reported by the National Board will determine his place in the table prepared under the act and that will fix the salary which he is to- receive.

If the pay of teachers were to be based entirely upon this state plan it would eliminate entirely any danger of disparity or discrimination by reason of race of color. But the difficulty encountered is that the teachers in our schools are not paid solely from state funds. That portion of the salary for Richland County which comes by way of state appropriation will have to be allocated in the method prescribed by the state act and there would be no need for court action or any supervision of this matter if we knew that method would be followed. However, in the County of Rich-land (and I am informed in many other counties), the state money is a portion only of the total salary. The balance of the school teachers’ salaries comes from county funds. These county funds are allocated in the discretion of the County Board.' If the state plan is followed in the county, then the desired result may be obtained. However, if the state plan is followed only to the extent of the use of state funds and the county funds are paid according to the direction of the County Board irrespective of classification, examination, certification and other tests prescribed by the state, then we could have the same disparity that has heretofore existed.

It was testified to in this cause, and the minutes of the Board show, that School District No. 1, of Richland County, has resolved to allocate the county funds in the same method that the state funds are to be used. If this be done, then I do not see where there can or will be a disparity in pay as affected by race or color.

I am greatly impressed by the sincerity of the members of this Board, particularly the Chairman, and equally the superintendent. If the Board intends to carry out its resolution and does carry it out, then it might seem useless to order it so to do. On the other hand, if for any reason the intention expressed and the desires of the Superintendent and Chairman are not backed up and followed by the Board, then an order requiring the Board to so act would be appropriate. Moreover, as heretofore indicated, this state act is applicable for the current year only. In other words, if the Board intends to act in accordance with the recommendations of its Superintendent and Chairman, it will do what an order of this court would require it to do. And, therefore, it will not be harmed or injured in any way by an order, provided sufficient time is given to work out this method and revision.

It was testified that the next examination for teachers will take place in September and that the probability is that the revision and reclassification of teachers will be made by December, 1945, and that the Board intends to make all such retroactive to the beginning of the scholastic year. In view of that I am of the opinion that while an order should issue directing this Board to carry out a reclassification and adjustment of salaries as between those of equal ability and experience according to the tests prescribed for state funds that nevertheless, such order should not become effective until the Board has had ample time to carry out what it says it intends to do. Mindful of the fact that these things often take more time than estimated, I have deemed it best to postpone the effective date so as to give the Board ample time within which to act. It occurs to me that it would be the exercise of proper, equitable discretion on my part to postpone such date to the spring of 1946, and I shall fix the date for the order to become effective as of April 1st in that year.

Formal Findings of Fact and Conclusions of Law and an appropriate Order carrying into effect the foregoing views, will be filed.

       No opinion for publication.


source: Caselaw Access Project

author: WHITAKER, Judge.

license: Public Domain

text:
    SEABOARD ICE CO. v. UNITED STATES.
    No. 45911.
    Court of Claims.
    June 4, 1945.

      Richard F. Canning, of Providence, R. I. (Andrew P. Quinn, of Providence, R. I., on the brief), for plaintiff.
    H. S. Fessenden, of Washington, D. C., and Samuel O. Clark, Jr., Asst. Afcty. Gen. (Robert N. Anderson and Fred K. Dyar, both, of Washington, D.C., on the brief), for defendant.
    Before WHALEY, Chief Justice, and WHITAKER, LITTLETON, and MADDEN, Judges.
   WHITAKER, Judge.

Plaintiff seeks to recover the undistributed profits taxes assessed against it for the fiscal years ending August 31, 1937, and August 31, 1938. It alleges the assessments were erroneous because it was not given the credit allowed by section 26(c) (1) of the Revenue Act of 1936, c. 690, 49 Stat. 1648, 1664. This section allows a credit for earnings that were not distributed because of a prohibition against the payment of dividends contained in a written contract entered into prior to May 1, 1936.

This tax on undistributed profits had for its primary purpose the improvement of business conditions by putting money into circulation. It was intended to compel corporations to distribute their profits. So, if a corporation could not distribute its profits without violating a written contract, it was exempted from the tax to this extent.

The requirement that the prohibitory contract be in writing was for the manifest purpose of avoiding controversy as to whether or not there was such a contract.

Since, to be exempt, the contract must have been in writing, our question is, Was there a written contract that prohibited the payment of dividends in the years in question? The plaintiff says the indenture securing its General Mortgage Bonds was such a contract.

In determining whether or not this indenture does in fact prohibit the payment of dividends, we must give effect, of course, not only to its letter, but also to all inferences that may be fairly drawn therefrom. If the contract deals with the payment of dividends and payment of the particular dividends in question is impliedly prohibited by it, it is as much prohibited by a “written contract” as if prohibited by its letter. Also, in determining the intent of the parties as evidenced by the written contract, we may and should take into account all the facts and circumstances surrounding its execution.

The contract in question was entered into under the following circumstances: The plaintiff, a New Jersey corporation, is the successor of the Seaboard Ice Company of Maine. This latter company, hereinafter referred to as the old company, owned all the capital stock of the Ice Service Corporation. The old company, finding itself unable to meet the interest on its bonds and debentures due December 1, 1933, filed a voluntary petition in bankruptcy and was adjudicated a bankrupt on November 29, 1933. The holders of its securities later proposed and secured the adoption of a plan of reorganization under which plaintiff (1) assumed $165,612 of the Secured Serial Notes of the Ice Service Corporation; (2) issued $95,000 of Serial Mortgage Bonds for $90,000 of Secured Demand Notes of the old company; (3) issued $702,000 of General Mortgage Bonds for $650,000.of the'First Mortgage Bonds of the old company; and (4) gave common stock for the old company’s debentures and income bonds.

The Secured Serial Notes assumed by plaintiff matured on the first day of September, October, November and December in 1934, and on the first day of the same months in 1935 and 1936. The $95,000 of Serial Mortgage Bonds matured: $30,000 on August 31, 1937; $30,000 on August 31, 1938; and $35,000 on August 31, 1939. It is the tax on that part of plaintiff’s earnings that, it is said, were required to be used to pay the Secured Serial notes and the Serial Mortgage Bonds maturing between the date of plaintiff’s incorporation and September 1, 1938, that is in issue.

The indenture upon which plaintiff relies reads in Article II, section 1, as follows :

“The Bonds shall bear interest at a fixed rate of four per cent (4%) per annum (herein called fixed interest) from September 1, 1938, or from the interest payment date (March first or September first) next succeeding the date on which' all of the 6% Secured Serial Notes and all of the 6% Serial Mortgage Bonds of the Company shall have been paid off, whichever is the earlier, and such interest shall be payable, semi-annually on March first and September first, beginning with the interest payment date next succeeding the date on which said interest begins to accrue.

“The Bonds shall also be entitled to receive additional interest (herein called income interest) at the rate of two and one-half per cent (2%%) per annum from the begining of the fiscal year of the Company during which the 4% fixed interest shall begin to accrue if such fixed interest shall begin to accrue on September first, or from the beginning of the next succeeding fiscal year if such fixed interest shall begin to accrue on March first, but said income interest shall accrue and be payable only if and to the extent that the same shall be earned in the fiscal year in which it accrues or in some subsequent fiscal year, as hereinafter in Article V hereof provided.

“Notwithstanding any of the above provisions or any other provisions of the Bonds or this Indenture in regard to the payment of interest, no interest, fixed or income, shall be paid on the Bonds so long as any default shall exist as to the principal of or interest on the 6% Serial Mortgage Bonds of the Company.”

Article V, section 7 thereof, reads: “The Company covenants that no dividends will be declared or paid by the Company on any of its stock unless and until all accumulated unpaid interest, fixed and/or income, on said Bonds to the date of the declaration of such dividend shall have been paid in full or funds for .the payment thereof shall have been deposited with the Corporate Trustee under this Indenture.”

It was evidently in order that plaintiff might use its earnings to pay off its indebtedness evidenced by the serial notes and bonds as they matured that the running of interest on the $702,000 of General Mortgage Bonds was deferred from February 1, 1935, the date of the indenture, until September 1, 1938, by which time all the serial notes would have matured and all but $35,000 of the serial bonds would have matured. Section 1 of Article II of the indenture provided, as seen, that interest on the bonds would not begin to accrue until September 1, 1938, unless the Secured Serial Notes and Serial Mortgage Bonds were paid off before that time, in which event interest would begin to run on the next interest payment date following the date these securities were paid in full. The deferment of the running of interest was evidently in order that earnings might be devoted to the payment of this indebtedness.

If, instead of paying this indebtedness, the company had paid out its earnings in dividends, we think it would have breached its agreement with its creditors. Indeed, a declaration of a dividend would not only have been a breach of contract, it also would have been unlawful while these debts were due and outstanding. Some of the notes were past due when they were assumed by plaintiff, others matured monthly beginning in September of 1935, and others matured monthly beginning in September 1936. One installment on the Serial Mortgage Bonds matured in the fiscal year ending in 1937, and another in the one ending in 1938. Until a corporation pays or provides for the payment of its debts that are due, it cannot lawfully declare dividends. Fletcher Cyclopedia Corporations, section 5340, and cases cited.

Not only was it the intention to prohibit the payment of dividends before September 1, 1938, unless the Secured Serial Notes and Serial Mortgage Bonds were paid off earlier, but it was also the intention to prevent the payment of dividends until all unpaid and accumulated interest on the General Mortgage Bonds had been paid, as set out in Article V, section 7, of the indenture, supra.

So, reading all the pertinent provisions of the instrument together, it seems that it was the intention of the parties that between the date of plaintiff’s organization and September 1, 1938, the earnings of the company were to be devoted, first, -to the payment of the Secured Serial Notes and to the payment of such installments of the Serial Mortgage Bonds as matured before that time; second, beginning on September 1, 1938, if the Serial Mortgage Bonds had not been paid before this time, to the payment of the remaining installment on the Serial Mortgage Bonds (last paragraph of Article II, section 1, supra) ; third, to the payment of interest on the General Mortgage Bonds; and, lastly, to the payment of dividends. If this was the intention, and we think it was, the declaration of a dividend in either of the fiscal years in question, before the Secured Serial Notes and the Serial Mortgage Bonds were paid, was prohibited by the written instrument upon which plaintiff relies.

Plaintiff is entitled to a credit against the undistributed profits tax for the fiscal years ending in 1937 and 1938 of the amount of its earnings which were required to be used in each of the fiscal years to discharge its indebtedness on the Secured Serial Notes and the Serial Mortgage Bonds maturing in those years.

Judgment will be suspended to await the filing of a stipulation by the parties, or, in the -absence of a stipulation, until the incoming of a report by a commissioner, showing the amount of the refund due, computed in accordance with this opinion.It is so ordered.

WHALEY, Chief Justice, and MADDEN and LITTLETON, Judges, concur.

JONES, J., took no part in the decision of this case.

       This section, reads in part:
      “(e) Contracts Restricting Payment of Dividends.
      “(1) Prohibition on payment of dividends. An amount equal to the excess of the adjusted net income over the aggregate of the amounts which can be distributed ■within the taxable year as dividends without violating a provision of a written contract executed by the corporation prior to May I, 1936, which provision expressly deals with the payment of dividends. * * * ”


author: LITTLETON, Judge.

text:
    CREECH v. UNITED STATES. THOMAS v. SAME. SHORE ACRES PLANTATION, Inc., v. SAME.
    Nos. 44729-44731.
    Court of Claims.
    Oct. 2, 1944.
    Writ of Certiorari Denied June 4, 1945.
    See 65 S.Ct. 1409.

      W. H. Poe, of Orlando, Fla., for plaintiffs.
    John B. Miller, of Washington, D. C., and Francis M. Shea, Asst. Atty. Gen., for defendant.
    Before WHALEY, Chief Justice, and MADDEN, LITTLETON, and WHITAKER, Judges.
   LITTLETON, Judge.

The claims made by plaintiffs in the petitions filed, for loss and damage to their crops in December 1937, are that during each winter season the area in question is usually and normally visited by one or more periods in which the wind blows over Lake Okeechobee from the North or Northwest at the rate of 20 to 35 miles per hour, or more, causing slight wind tides along the Southern border of the lake varying with the height of the lake and the intensity of the wind; that prior to the construction of the levee by the defendant, and at the high stages of the lake, these wind tides were dissipated after a rise of a few inches by spreading out to the old dike, and through the openings in it, and by enormous leakage”, through and under it, but that after the construction of said levee by defendant and the closing of the outlet channels on and after the early part of 1937, these tides, at high stages, were abruptly intercepted by the impervious levee located immediately adjacent to the lake, and rose until sufficient head was generated to produce sufficient under and lateral flow back into the body of the lake to create an equilibrium.

Further, they claim that during and pri- or to the winter crop season of the years 1937 and 1938 plaintiffs had provided adequate protection against a lake elevation of 17 feet, with normal wind tides as they were experienced prior to that time super-added, and had the lake elevation not exceeded 17 feet, and had the wind tides not been proportionately increased by the construction of the levee plaintiffs would not have sustained loss or damages to their crops from high water during said season.

In seeking enactment of the Special Act, quoted in finding 1, plaintiffs stated their claims to ■Congress in a letter of December 30, 1937, to be that “ * * * the levees as established and located have left these islands wholly unprotected. * * * Properly located levees would have furnished adequate protection not only against floods from abnormal lake stages but also floods produced by wind tides at normal stages. But we do not complain of this. What we do complain of is the flood conditions produced by the levees in their present location. * * * Naturally the inquiry arises as to the manner in which these levees have caused this changed condition. * * * Before the advent of the levees wind tides would sweep on past the islands and spend themselves into these bays, pockets and marshes [lakeward of the old levee] without flooding the islands. Now the levees have cut off all of these bays, pockets and other natural outlets for wind tides. The levees stand between the shore line and the islands skirting close to the south line of Torry and Ritta Islands. One very large bay (Pelican Bay) is completely cut off.”

In a further written statement filed with Congress January 14, 1938, in reply to a statement filed 'by the Secretary of War, plaintiffs stated with reference to their claims that “In our letter of December 30, in which the gravamen of our complaint is set forth, not one word of criticism will be found with reference to the lake elevation. Neither is there any complaint that the levees have in any manner whatsoever interfered with or prevented the control of the lake levels. * * * Our claims for damages are predicated on the position that by virtue of its location, and other natural conditions surrounding the vicinity in question, the levee causes wind tides to bank up against it, thereby flooding the islands. In short, before the advent of the levees wind tides swept on past the islands and dissipated themselves in bays, pockets, and other natural outlets and flood conditions were not produced. Now these wind tides are impounded close to the islands, producing floods followed by enormous crop damage.”

Plaintiffs press the same contentions, as set forth above, in these cases as the basis of their right to recover. In favorably reporting on the enactment of the Special Act the Claims Committees of Congress (House Report 2541, 75th Cong., 3d sess., p. 3, and Senate Report 2097, p. 3) stated, in part, that “The record is clear that wind tides and not the water level of the lake cause this [damage], * * *. Certainly they are entitled to a determination of their claims in a competent court. The facts establish more than a prima facie case but whether the Government, as a matter of law or equity, has caused the losses to claimants and ought to respond in damages therefor, is a question which we do not feel within our province to decide, particularly since we have not been called upon to do so.”

From the facts established by the greater weight of the evidence of record, and set forth in the findings, we are of opinion that plaintiffs are not entitled to recover either under the Fifth Amendment or the Special Jurisdictional Act. There was no taking or intention to take plaintiffs’ lands or a permanent easement thereon, i. e., the right to flood the lands during the winter months, which is a part of the season for raising crops thereon. The act of July 3, 1940, authorizing the improvements, provided “That no expense shall be incurred by the United States for the acquirement of any lands necessary for the purpose of this improvement.” In addition the record shows that it was the purpose and intention of the Government to regulate the waters of Lake Okeechobee as far as possible so as to prevent the water from rising above the maximum calm water elevation of 17 feet at any time, which elevation was considerably lower than the calm water elevation which the water had customarily reached in years prior to the improvement (findings 13 and 14). In 1937, the year in question, the Government used its best efforts to regulate the water level on the basis of the formula prepared from past and existing facts and data; in this it succeeded, and the calm water level did not rise above elevation 17.26 in the winter months of 1937. Plaintiffs suffered loss and damage to their crops in prior years from high water and wind tides. To what extent the record does not show. They claim their crops were not entirely destroyed in prior years.

On the question whether there was a taking under such circumstances as to give rise to an implied contract to pay just compensation under the Fifth Amendment, it must be held on the facts that whatever damage plaintiffs sustained as a result of the Government work was consequential and the result of authorized action of the Government in connection with navigation and flood control, for which no remedy is afforded in the courts under the Fifth Amendment. Gibson v. United States, 166 U.S. 269, 17 S.Ct. 578, 41 L.Ed. 996; Sanguinetti v. United States, 264 U.S. 146, 44 S.Ct. 264, 68 L.Ed. 608; Matthews, Trustee for R. W. Owen et al., v. United States, 87 Ct.Cl. 662, 720, 721; Poinsett Lumber & Manufacturing Co. et al. v. United States, 91 Ct.Cl. 264, 266.

Under the Special Act of June 25, 1938 (finding 1), as we interpret it, plaintiffs have not established a right to recover from the Government the damages sustained by them. This act had a purpose, and its history and language indicate that such purpose was to confer jurisdiction and authority upon the court to render judgment for the amount of.damage to or loss of crops if it should be established by proof that such damage or loss in fact and in' law “resulted from the construction of levees * * * and from high waters caused thereby.” In other words, the damages which may be allowed are to be determined according to the usual principles of legal cause and legal liability. The act does not concede liability, and plaintiffs do not so contend.

Plaintiffs, as we understand their position in these cases, do not base any part of their claim on the fact that the maximum calm water lake elevation at the time of the damage was 17 or 17.26 feet; they base their claimed right to recover on the asserted facts that they had provided adequate equipment to protect their crops against damage from wind tides at a water elevation of 17 feet, which they expected; that the flooding which occurred as a result of the 30-mile per hour northwest wind would not have occurred had the Government levee not been constructed, or if it had been constructed on the site of the old levee, and that the location of the Government levee on the lake shoreline near the islands caused this wind tide to be “six or more inches higher than before the levee was built,” and that this was the cause of the loss.

These contentions present questions of fact. The entire record has been carefully studied and considered in the light of plaintiffs’ exceptions and arguments, and from the oral and documentary evidence we have found that these contentions are not sustained, and that, on the contrary, the greater weight of the evidence establishes the facts that the levee, as located and constructed by the Government, had no appreciable effect on the height of the waters of the lake or on the wind tides at either Ritta or Torry Islands over and above the elevations which normally would have been occasioned under the same weather conditions without the levee (finding 22), and that none of the plaintiffs had adequate equipment in 1937 to protect their crops from loss or damage with a lake elevation of 17 feet, plus normal expected wind tides.

Plaintiffs are therefore not entitled to recover, and the petitions are dismissed. It is so ordered.

WHALEY, Chief Justice, and MADDEN and WHITAKER, Judges, concur.

JONES, Judge, took no part in the decision of this case.


author: DELEHANT, District Judge.

text:
    BOWLES, Adm’r, Office of Price Administration, v. BRANNAGAN.
    Civil Action No. 47.
    District Court, D. Nebraska, Hastings Division.
    June 16, 1945.
    Bert L. Overcash, and Dwight W. Dahlman, both of North Platte, Neb., for plaintiff.
    C. M. Pierson, of Lincoln, Neb., for defendant.
   DELEHANT, District Judge.

For the defendant’s alleged sale, on or about June 6, 1944, to Nebraska State Hospital for the Insane, a state institution, at Ingleside, Nebraska, of one hundred eleven bushels, fifty-seven pounds, of number two yellow ear corn for a price $1.67 in excess of the maximum allowable price therefor, under Second Revised Maximum Price Regulation 346, as amended, issued under the Emergency Price Control Act of 1942, as amended, 50 U.S.C.A. Appendix § 901 et seq., the plaintiff sued under 50 U.S.C.A. Appendix § 925(e) to recover a judgment for fifty dollars and costs of suit. Upon the trial, admitting that the alleged violation was “neither wilfull nor the result of failure to take practicable precautions against the occurrence of the violation”, 50 U.S.C.A.Appendix § 925(e), the plaintiff conceded that his maximum potential recovery was twenty-five dollars. The defendant denied his violation of the maximum price provision of the Regulation. The case has been tried to the court without a jury upon its merits.

The court now sets forth the facts proved upon the trial, noting the only instance in which there was any question even of the adequacy of proof.

The defendant was and is a farmer, residing now, and at the time in question, upon a farm owned by him and located eight and three-fourths miles south westerly from Hastings, Nebraska, and about seven miles southerly from the hospital. Early in June 1944, he was continuously in Lincoln, Nebraska, for a considerable period of time, undergoing a series of dental treatments. During his absence from his farm home on that mission, one William W. Maltman, the steward of the hospital, being in need of corn for immediate use at the institution, without any knowledge by, or notice to, the defendant, made an agreement with the defendant’s brother, also a farmer, for the purchase from the latter of some ear corn in a crib on the brother’s farm, in the general neighborhood of, but some distance from, the defendant’s farm residence. Promptly thereupon, Maltman sent some workmen from the institution to get the corn, for whose purchase he had arranged. Confusedly they went not to the farm of the seller but to that of the defendant, and there, over the protest of his daughter, removed from his crib and took to the institution the quantity of corn involved, being all the corn the defendant then had. The daughter’s protest is the only fact in the case which the plaintiff questions, and, in respect of it, he states in his brief that there is no competent evidence of the protest. However, Maltman, while testifying as a witness for the plaintiff stated without objection that she did make such a protest. So, disregarding like testimony which was given by the defendant in his own behalf, it appears that the plaintiff himself introduced evidence of the protest. To be sure, the evidence of the protest on both sides was hearsay. But upon the trial no factual issue arose over the making of the protest and both parties seemed disposed to establish it. In that situation, the court finds that the protest was made though it is no more than an immaterial circumstance of a fairly common pattern with the other facts in the irregular procurement of the com. Once at the institution, the corn was was promptly ground and consumed, for the need of it had been urgent. The defendant, too, stood in sore need of the corn for livestock feed. He had not intended, and was never willing, to sell it, and, in fact, had not sold any of his corn for eight years, but had always fed it on his farm.

His dental treatment completed, the defendant returned to his farm and learned from his daughter that his corn had been taken by workmen for the institution. At his convenience, and in a few days (June is a busy month on southern Nebraska farms), he went to the institution and inquired, about the taking of his corn, of Maltman, who informed him that it had then been ground, and consumed by the hospital’s livestock. Though irritated by the incident, the defendant recognized that it was not deliberate, but quite inadvertent, and stated to Maltman that if he, Maltman, were resolved to take without permission any of the defendant’s grain, it would have been much more convenient if he had taken a quantity of oats that was located on another farm quite near the hospital on which the defendant had shortly theretofore resided; and that the defendant would have to move the oats to his residence though he could replace it by the purchase of oats much nearer his home, whereas the corn had been stored precisely where it was needed and would have been used. To which, Maltman replied that the institution also needed oats and he would be pleased to send workmen to get the defendant’s oats and to pay for them upon the basis of their weight and the market price current when they should be gotten. Neither party to the conversation then knew the precise weight of the oats, and though in the conversation Maltman told the defendant that the corn had been weighed upon its acquisition, he did not tell the defendant, and at the time of the conversation neither party to it knew, the precise weight of the corn.

The conversation resulted in an agreement by the defendant to settle the transaction regarding the corn upon the basis of the regulated ceiling price for the exact weight of corn taken, and to sell the oats to the institution upon the basis of their weight and market price at the time of delivery, which the institution was to accept in the bin. To facilitate and expedite payment and eliminate unnecessary travel, the defendant then signed, at Maltman’s request, a single completely blank voucher form for presentation through the state’s appropriate auditing channels, with the understanding that Maltman would finish it by inserting, upon his acquisition of the required information, the description of the corn with its weight and price at the prevailing ceiling price, which Maltman was to ascertain and neither party then knew with certainty, and of the oats with their weight and price at the prevailing market price.

That was the last the defendant did or heard about the matter until he received through the mail some weeks later a check from the State Treasurer of Nebraska for $243.24 without itemization or analysis of the units represented by it or any other comment. Assuming it to be for the correct amount, and the check being in fact for substantially the correct amount, he accepted it and converted it into cash.

Maltman, meanwhile, had caused the oats to be gotten and weighed and had correctly ascertained the market price thereof. In the utmost good faith, he undertook to ascertain the ceiling price for the corn, but instead of seeking that information at the local War Price and Rationing Board, went to the local federal AAA board offices to obtain it. There he observed on a bulletin board a statement that the ceiling price of such corn per bushel was $1,015, regardless of where the corn was grown. Actually, with adjustments, the ceiling price for shelled corn was $1 per bushel; and this, according to the regulation and a stipulation of the parties upon the trial, was subject to a further reduction in the sum of two cents per bushel by reason of the fact that the corn was taken in the ear. So, the amount received by the defendant was about $3.91 (not $1.67, as pleaded) above the allowable maximum price for such corn. But the defendant was wholly unaware, not only of the error, but even of the precise payment he had received for the taking of his corn, since the payment for the oats was included with it in the single check.

The defendant’s first intimation of the error came to him through a letter from the North Platte, Nebraska, office of the plaintiff dated October 20, 1944, demanding the payment of a statutory penalty for his asserted violation of the Regulation. Quite promptly, he replied, setting out the facts essentially, though not as fully or clearly, as they have been recited here, and asserting his innocence, and complete want of knowledge of the price he had been paid for the taking of his corn, and signifying his willingness to reimburse the state for the claimed overcharge which he then attempted- unsuccessfully to do. Of course, if a violation of the Regulation had occurred, the offer and attempt to restore the overcharge would not have purged the defendant of his guilt and liability. Beasley v. Gottlieb, 132 N.J.L. 603, 42 A.2d 305; Zwang v. A. & P. Food Stores, 181 Misc. 375, 46 N.Y.S.2d 747. The explanation and offer were rejected and this suit followed.

Precisely what was the legal character of the transaction? With substantial reason, the defendant argues that it was not a sale. Recourse must be had primarily to the statute under which the action is brought for the definition of material terms. 50 U.S.C.A.Appendix § 942, so far as it is material provides: “As used in this Act — (a) The term ‘sale’ includes sales, dispositions, exchanges, leases, and other transfers, and contracts and offers to do any of the foregoing. The terms ‘sell’, ‘selling’, ‘seller’, ‘buy’, and ‘buyer’, shall be construed accordingly. (b) the term ‘price’ means the consideration demanded or received in connection with the sale of a commodity, (c) The term ‘commodity’ means commodities, articles, products, and materials * *

It may be granted that, in application to the singular and essentially admitted factual situation before the court, these definitions are not obviously and clearly instructive. They do, however, lead to the conclusion that the Act, and its implementing regulation, are aimed at (1) a sale, disposition, exchange or transfer, (2) for a forbidden price (3) of a commodity. Even within the sweeping reach of this statutory definition, the existence of a “thing” susceptible of sale is an indispensable condition to the occurrence of a sale. And invariably to the same effect are the judicial decisions and textual definitions upon the point. Butler v. Thomson, 92 U.S. 412, 414, 415, 23 L.Ed. 684, quoting Blackstone, Kent, Benjamín and Atkinson; Ratigan v. United States, 9 Cir., 88 F.2d 919, 921, certiorari denied 301 U.S. 705, 57 S.Ct. 938, 81 L.Ed. 1359, rehearing denied 302 U.S. 774, 58 S.Ct. 52, 82 L.Ed. 600; City of Iola v. Lederer, 86 Kan. 347, 120 P. 354, 356; Burkhardt v. Decker, 221 Mo.App. 1066, 295 S.W. 838, 840; Logan v. Stephens County, Tex.Civ.App., 81 S.W. 109, 110; Heroy v. Reilly, 84 N.J. 671, 87 A. 112, 114, in which the court distinguishing between a “sale” and a “relinquishment”, says quite significantly: “A sale involves a transfer of something that may still exist after the transfer”; 23 R.C.L. 1243, Title, “Sales”, Section 61; 55 C.J. 62, Title, “Sales”, § 24.

Now, when the defendant first discovered the removal of his corn, and unquestionably, when he approached Maltman about its taking, no salable commodity remained in existence. The defendant did not then own any corn which he could sell to the state of Nebraska or anyone else. Nor was there any corn which he could replevin or otherwise recapture.

He did, indeed, own something in respect of which he might negotiate. However, it was not corn or any other commodity, but rather a chose in action against the institution or the individuals acting for it, or both, for the wrongful, though formally innocent, trespass upon his property and conversion and complete destruction of his corn. In Nebraska it has been determined that a taking and destruction of chattel property, after the fashion of the institution’s action, constitute a conversion of the property, even though the taker acts in good faith. Stough v. Stefani, 19 Neb. 468, 470, 27 N.W. 445; Hill v. Campbell Commission Co., 54 Neb. 59, 62, 74 N.W. 388. The conversion having already become complete and irretraceable, all that remained to the defendant was his claim for damages on its account.

So, when he had finished his discussion and arrived at the measure of his reimbursement, irrespective of the language in which the negotiations may have proceeded, all the defendant had done, or could have done so far as the corn transaction extended, was to accomplish a settlement of his claim against those who had taken it. The court, therefore, holds that there was never a sale of the corn by the defendant.

The court is willing to reach that conclusion the more readily in consequence of the complete absence of subterfuge in the transaction, and of the sincere and honest attempt of the defendant to conform to the letter and spirit of the Act and Regulation, whether he was or was not within its operation. He was willing to accept in settlement of his claim the ceiling price of the corn that had been taken, though the taking had both deprived him of corn that he needed and subjected him to the expense of transporting to his farm grain to replace it, acquired elsewhere. With no small measure of propriety the latter element might very well have entered into the reimbursement for his loss.

The plaintiff offers the argument that the agreement upon a price in this instance ratified the earlier wrongful taking, and thus resulted in a sale. If, when the negotiations occurred, the corn had been in existence, with the consequence that the defendant might at his election have demanded its return or consented, for a price, to its retention, the argument might, and probably would, have been valid. But here no choice remained to the defendant. He had no alternatives between which he might elect. The only question before him was what he should be paid for the wrong he had suffered. Agreement on that question was not operative to constitute a sale of anything, certainly not of a thing that then had no being, either actual or potential, and was not legally the subject of a sale.

Even if the court were persuaded that a sale resulted, in legal contemplation, from the transaction, grave doubt would remain about the plaintiff’s right to recover, in the face of the defendant’s admitted agreement to accept only the ceiling price per bushel in respect of the corn; his direction that so far as concerned the taking of his corn such amount only be inserted in the voucher, a manifest limitation upon Maltman’s authority in its completion; his reasonable supposition that the check of the state treasurer was for the agreed and lawful amount under circumstances that were not at all calculated either to warn him to the contrary or to put him upon inquiry or notice. To be sure, it is not requisite to liability that a seller intend to violate, or know that he is violating, a regulation. But the consequence of violation being highly penal, it would not seem to be unreasonable that the status of a violator should not be affirmed of one who is wholly unconscious of the price he has received, and has no reason whatsoever to suppose that he has been paid more than the lawful price for which he agreed. That problem however, being unnecessary to the decision, is not passed upon.

It would seem that a final, though perhaps gratuitous, comment is in order. The completed voucher and the endorsed check of the state treasurer, divorced from their now admitted factual context, warranted the institution of this cause. It was made clear on the trial that their unusual surroundings were not brought home with certainty to the plaintiff until the case was ready for submission to the court.

Judgment of dismissal is being entered. Exception is allowed the plaintiff.


author: LEDERLE, District Judge.

text:
    FARVAL CORPORATION v. BLAW-KNOX CO.
    No. 22259.
    District Court, N. D. Ohio, E. D.
    June 15, 1945.

      John F. Oberlin, of Cleveland, Ohio, and William R. Day, of Detroit, Mich., for plaintiff.
    Walter J. Blenlco and J. Wallace Hopkins, both of Pittsburgh, Pa., and James T. Hoffmann, of Cleveland, Ohio, for defendant.
   LEDERLE, District Judge.

Findings of Fact.

1. This is a patent infringement suit wherein plaintiff, The Farval Corporation, an Ohio corporation, charges the defendant, Blaw-Knox Company, with infringement in Ohio and elsewhere of certain claims of Patent No. 1,961,051, on a lubricating device, and Patent No. 1,995,342, on a metering control mechanism. Defendant admits the allegations of the complaint that it is a New Jersey Corporation registered to do business in Ohio, with a regular and established place of business in Qeveland, Ohio, within this District, “the statutory agent for such corporation being David M. Donley, Union Commerce Building, Qeveland, Ohio.” Defendant coupled an attack on the jurisdiction and venue of this court with its general denial of infringement and validity of the patents in suit.

2. At a pre-trial conference held in accordance with Rule 16, Rules of Civil Procedure, 28 U.S.C.A. following section 723c, it was agreed, among other things, that plaintiff was the owner of the patents in suit at the time they were issued and that it has continued ever since to own them, and further, that defendant having from the outset contested the jurisdiction and venue of this court, su'ch issue would be tried separately in advance of trial of all other issues in the case, in accordance with Rule 42(b). Formal pre-trial order, incorporating such stipulations, was entered on May 17, 1945, and trial followed immediately on such separate issue. Although it appears that jurisdiction, and venue, are properly laid in this court regardless of infringement by defendant in this District, a full finding of facts is being made for purposes of review.

3. The only device relied upon by plaintiff in support of its charge of infringement within this District is a lubricating system in a plant of Republic Steel Corporation at Warren, Ohio, which, plaintiff charges, conjointly u'ses the principles of the two patents in suit. Within six years prior to institution of this suit, this equipment was sold by the defendant to the Republic Steel Corporation.

4. The defendant’s manufacturing establishment and principal place of business is located at Pittsburgh, Pennsylvania. The Chief Engineer of defendant’s Lubricator Division, located at Pittsburgh, called upon the Republic Steel Corporation at Warren, Ohio, prior to the sale and installation of such lubricating system, to advise as a sales engineer in selection of proper equipment. All orders submitted to defendant are subject to approval at its Pittsburgh establishment. An order for .the Republic Steel equipment was transmitted to, and accepted by, defendant at Pittsburgh. Defendant shipped it at Pittsburgh and billed it to Republic Steel Corporation, “F.O.B. Pittsburgh.” The equipment was assembled and installed by Republic Steel Corporation. Defendant’s said Chief Engineer was present at the request of Republic Steel Corporation and checked the completed system the first time it was put into operation by the Republic Steel Corporation.

5. The accused device was sold in Pittsburgh, Pennsylvania. There was no sale in Ohio.

6. Defendant did not use the accused device in this District.

7. Defendant did not manufacture the accused device in this District.

8. Defendant is not an inhabitant in this District.

Conclusions of Law.

1. This court has jurisdiction of this controversy as a suit arising under the patent laws. 28 U.S.C.A. § 41(7).

2. Venue in patent infringement suits is governed exclusively by Judicial Code, Section 48, which provides that in such suits the District Court shall have jurisdiction in the district of which defendant is an inhabitant or in any district in which the defendant shall have committed acts of infringement and have a regular and established place of business. 28 U.S.C.A. 109; Stonite Products Co. v. Melvin Lloyd Co., 1942, 315 U.S. 561, 62 S.Ct. 780, 86 L.Ed. 1026.

3. Where a defendant neither makes, uses nor vends an accused device within a district, there is no infringement within such district. 35 U.S.C.A. § 40; Tyler Co. v. Ludlow-Saylor Wire Co., 1915, 236 U.S. 723, 35 S.Ct. 458, 59 L.Ed. 808.

4. Judicial Code, Section 48 merely accords a defendant a personal privilege of objecting to the venue of patent infringement suits brought against him in districts wherein under the section he may not be compelled to answer; the privilege may be lost by failure to assert it seasonably, by formal submission in a cause or by submission through conduct; such surrender of the privilege may be regarded negatively as a waiver or positively as a consent to be sued. Neirbo Co. v. Bethlehem Shipbuilding Corp., 1939, 308 U.S. 165, 60 S.Ct. 153, 84 L.Ed. 167, 128 A.L.R. 1437.

5. A designation by a foreign corporation, in conformity with a valid statute of Ohio and as a condition of doing business within Ohio, of an agent upon whom service of- process may be made, is an effective consent to be sued in an Ohio federal court for patent infringement which did not occur within the State of Ohio. Sec. 8625-4 and 8625-5, Throckmorton’s Ohio Code (Baldwin 1940 Revision) ; Neirbo Co. v. Bethlehem Shipbuilding Corp., supra.

6. It therefore follows that an order must be entered overruling the defendant’s motion to dismiss made at the close of trial on such separate issue, and this is being done simultaneously herewith.


author: MEANEY, District Judge.

text:
    MUTUAL LIFE INS. CO. OF NEW YORK v. FROEHLICH.
    Civil Action No. 3905.
    District Court, D. New Jersey.
    June 13, 1945.

      Collins & Corbin and Raymond J. Lamb, all of Jersey City, for plaintiff.
    Carpenter, Gilmour & Dwyer and Patrick A. Dwyer, all of Jersey City, for defendant.
   MEANEY, District Judge.

This matter is before the court on defendant’s motion to dismiss, or in the alternative to relegate the matter to a forum in the State of New York. The motion is based on the grounds that (1) the complaint fails to state a claim upon which relief can be granted; and that (2) the rights and remedies of the parties are not equal inasmuch as the defendant is denied the benefit of a New York statute which would enable him to impose a further defense to the action.

The plaintiff is the owner ,by assignment of two certain bonds and mortgages covering premises situate in the City of New York, which were executed and delivered in the City, County and State of New York. In February of 1925, the said bonds and mortgages were combined and consolidated into one first mortgage and joint lien and the terms extended to February 1, 1930. Defendant, in 1925, purchased the real property in question, subject to the two mortgages and, in January 1930, the bonds and mortgages were assigned to the plaintiff. Thereafter, in January 1938, by a written agreement entered into between the plaintiff and defendant the terms of the said bonds and mortgages were extended to February 1, 1943, and the interest rate conditionally reduced. Defendant failed to pay the installment of principal and interest due in September of 1942 and after demand made, plaintiff instituted this suit.

Plaintiff is a corporation organized and existing under and by virtue of the laws of the State of New York, and is a citizen of that State. Defendant is a resident and citizen of the State of New Jersey.

This action is upon a written contract and sets forth a cause of action over which this court has jurisdiction.

Defendant, notwithstanding, seeks to have this court exercise its discretion and dismiss the action, or in the alternative to relegate the matter to an appropriate forum in the State of New York. Defendant’s motion is based upon the grounds that full justice cannot be accorded the defendant in this forum because he will be deprived of the benefit of the so-called Moratorium Laws of New York, passed by the Legislature of New York during the emergency period of 1933. Laws 1933, Ex.Sess., Chapter 794, August 28th. The Act was originally passed for one year, but has been extended annually and is at the time of this motion the law of New York.

Section 1083-b of the Moratorium Act, Laws 1933, Ex.Sess., c. 794, provides, in part, that in any action pending or thereafter commenced during the emergency to recover a judgment for any indebtedness secured by a mortgage on real property against any person liable therefor, any party against whom a judgment is demanded shall be entitled to set off the fair and reasonable market value of the mortgaged property.

It is conceded by the defendant, and it has been so held in Bayside-Flushing Gardens, Inc., v. Beuermann, D.C., 1941, 36 F.Supp. 706, that the New York Moratorium Laws are procedural in character and do not affect the substantive rights of the parties. It is a basic and fundamental proposition that the lex loci contractus governs all matters of substantive law affecting a contract. All matters of procedure are governed by the law of the forum. Bayside-Flushing Gardens, Inc., v. Beuermann, supra. Accordingly, if this action is heard in this court, the defendant will not be perjnitted the set-off of the fair and reasonable value of the mortgaged premises as provided for in the New York Moratorium Act. This fact the defendant insists amounts to a denial of the full and equal justice to which he is entitled, and to deny the motion will be to deprive him of his only prospect of a just determination of the matter.

In asking the court to exercise its discretion and decline jurisdiction, defendant relies upon an application of the doctrine of forum non conveniens, the rule of convenience as applied to discretionary jurisdiction.

It may be observed that the frequently expressed rule that courts may not decline to exercise jurisdiction conferred upon them, has been qualified in certain cases where the Federal Courts may in their discretion properly withhold the exercise of such jurisdiction where there is no want of another suitable foru'm. Canada Malting Co. v. Paterson Steamships, 285 U.S. 413, 52 S.Ct. 413, 76 L.Ed. 837; Massachusetts v. Missouri, 308 U.S. 1, 60 S.Ct. 39, 84 L.Ed. 3. Where it appears evident, that a just determination may be attained, however, the rule may not he easily dispensed with, and the court will not loosely exercise its discretion in declining jurisdiction.

In support of his contention defendant relies principally upon the case of Rogers v. Guaranty Trust Co., 1932, 288 U.S. 123, 53 S.Ct. 295, 298, 77 L.Ed. 652, 89 A.L.R. 720, and cases stemming therefrom.

The Rogers case was a stockholders suit against a corporation and its directors. In that case the court stated:

“Obviously no definite rule of general application can be formulated by which it may be determined u'nder what circumstances a court will assume jurisdiction of stockholders’ suits relating to the conduct of internal affairs of foreign corporations. But it safely may be said that jurisdiction will be declined whenever considerations of convenience, efficiency, and justice point to the courts of the state of the domicile as appropriate tribunals for the determination of the particular case.”

See also Massachusetts v. Missouri, supra.

In Overfield v. Pennroad Corporation, 3 Cir., 113 F.2d 6, 10, also a stockholders’ suit, the Circuit Court of Appeals for the Third Circuit stated in reference to this rule:

“The rule or convenience as applied to discretionary jurisdiction is not in derogation of jurisdiction. It seeks to lead to that jurisdiction, whether it be federal or state, which, under attending circumstances, gives best prospect of affording a convenient, efficient and just determination of the particular case. The rule is intended to promote justice and not to furnish an avenue of escape for those who should answer somewhere for the wrongs charged against them.”

Numerous additional cases have been cited by the defendant in support of his position. In no case cited, however, nor has independent research disclosed any, has the rule been invoked under circumstances similar to those here involved. As heretofore stated, the rule that a court having jurisdiction must exercise it is no longer universally true. Nonetheless, it follows that the court will exercise its discretion only under the most compelling circumstances.

Where it is evident that a just determination upon the merits may be had, jurisdiction will not be declined merely as an accommodation.

In the present case no substantive right of the defendant is denied him. The jurisdiction of this court is properly invoked and a convenient, efficient and just determination upon the merits is here afforded to the parties.

I am unable to find that the circumstances attendant upon this matter are such that the court should exercise its discretion and decline jurisdiction.

Defendant’s motion is accordingly denied.


author: LEAHY, District Judge.

text:
    BOWLES, Adm’r, Office of Price Administration, v. SLAUGHTER.
    Civil Action No. 593.
    District Court, D. Delaware.
    June 5, 1945.
    Howard L. Fussell, of Wilmington, Del., for plaintiff.
    Harry K. Hoch, of Wilmington, Del., for defendant.
   LEAHY, District Judge.

The findings are

1. Defendant, as landlord, took valid steps in applying for a certificate relating to eviction; and Defense Rental Area for Delaware issued to him on March 12, 1945,. a certificate which authorized institution of an action to evict tenant Pearl Foraker from the property located at 32 Lake Street, Middletown, Delaware. Rental Area found as a fact the proposed eviction of tenant was not inconsistent ’with the provisions of the Emergency Price Control Act of 1942, 50 U.S.C.A.Appendix §§ 901-946, or the Rent Regulations issued thereunder. The certificate issued contained no conditions relating to the proposed eviction other than the statement that the certificate was not to be understood as an eviction notice to the tenant and that defendant’s right to eviction depended upon local law. Defendant by registered letter thereupon sent notice to tenant on March 17, 1945, demanding she deliver up on May 1, next, the peaceable possession of the dwelling in question. The return receipt bearing tenant’s signature shows she received this notice. On May 4, 1945, defendant instituted action' before a Delaware Justice of the Peace in accordance with local law. The tenant was served personally and the trial occurred on May 17, 1945. The Justice of the Peace entered judgment for possession against tenant and in favor of defendant. Then, tenant stated if no writ of possession would immediately issue she would vacate the premises on May 24, 1945. On the basis of such representation, defendant refrained from requesting the issuance of an immediate writ of possession and agreed to a stay of execution until May 24, 1945.

2. Four days after judgment rendered by the Justice of the Peace in defendant’s favor, he was notified on May 21, 1945, that the certificate of eviction theretofore granted to him on March 12, 1945, by the Rental Area was revoked. At the hearing here on the motion for preliminary injunction, plaintiff justified, in part, the Rental Area’s revocation by argument that the action for eviction was commenced by defendant without giving to the Area Rent Office “written notice thereof required by Section 6(d) (2) of said Regulation,” viz., defendant should have notified OPA that he intended to sue for possession in accordance with OPA’s authorization that he had been given administrative permission to institute such a suit.

3. The affidavit of Buckingham, J. P., avers that on May 10, 1945, a week before the trial on the action of eviction, he received a telephone call from a person representing herself to be Helen J. Jackson of the Area Rent Office and that during the course of such telephone conversation the Jackson lady was advised of the action brought by defendant against tenant Pearl Foraker. No evidence was offered to contradict this averment. There does appear, however, an affidavit of Helen J. Jackson which recites that she personally examined the files of the Delaware Defense Rental Area Office and was unable to find any written notice served upon that office and informing it of the institution of defendant’s action before the Justice of the Peace. Upon this state of the record the court is compelled to find that the Area Rent Office did have notice of the pending eviction action by reason of the telephonic conversation of the Justice of the Peace, Buckingham vis-a-vis Jackson.

Memorandum. But, aside from the findings, defendant was not required to give notice of the institution of that action for eviction .under the Regulations, especially where he had specifically been given a certificate authorizing institution of such action for eviction. If this construction of the Regulations is in error and a person who applies for and receives a certificate authorizing him to proceed to institute an action for eviction is also required to notify OPA when, in fact, he commences such action, then it seems to the court that failure to comply with that portion of the Regulations which requires notice to OPA that an action for eviction has, in fact, been instituted should not result in a forfeiture of the original certificate for eviction, where there has been an original finding by the administrative body that the applicant was entitled to such certificate in the first instance. Moreover, at the hearing on the motion for preliminary injunction inquiries were put time and time again by the court as to what formed the basis of the decision for the revocation of the original certificate other than the alleged violation of Sec. 6(d) (2). These inquiries were never answered. Plaintiff put no writing, memorandum, opinion, or findings of fact showing the nature of the revocation, the reasons which prompted it (other than tha single one noted), who was the person that made the decision on revocation, what was his authority to take such action, whether such administrative person or group had additional facts, etc. The best that the court could get from OPA was that some person attached to the Regional Office in New York City on May 21, 1945, had reversed the “Local Authority” on what it had done in issuing the original certificate on March 12, 1945. Apparently, it was determined that the landlord’s desires in the premises were without legal justification and he should not be permitted possession of his own property, which under local law it has been decided he is entitled to get. Thus we have the situation where a citizen makes a valid attempt to comply with OPA regulations, receives authorization from that body to sue to evict a tenant, sues and obtains a judgment of possession; and after such judgment he is simply informed that the original certificate of authorization has been revoked — all this, in the absence of any allegation or proof that the landlord procured the original certificate of authorization to sue to evict by fraud, misrepresentation or other illegal means. The action of the New York OPA in the case at bar, insofar as has been disclosed, was, at bottom, arbitrary. There has been no articulation on why some administrative expert located in New York City has seen fit to suggest the revocation of the certificate of eviction granted by the local OPA authorities. This kind of administrative process falls into the pattern of the pixies. Upon the state of the record before this court, the conclusion is that the preliminary injunction presently sought by the OPA should not issue.

Accordingly, the court concludes:

1. The restraining order heretofore granted by the court on ex parte application of plaintiff should be dissolved under Rule 65 of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c.

2. The application of plaintiff for a preliminary injunction should be denied.

An order so providing has been filed.


author: PINE, Associate Justice.

text:
    ARKANSAS POWER & LIGHT CO. v. FEDERAL POWER COMMISSION et al.
    Civ. No. 27451.
    District Court of the United States for the District of Columbia.
    June 6, 1945.
    Gordon E. Young, of Pine Bluff, Ark., A. J. C. Priest, of New York City, and J. Ross Gamble and Virginia C. Duncombe, both of Washington, D. C., for plaintiff.
    R. B. McCulloch and Chas. C. Wine, both of Little Rock, Ark., and Ben Smart, of Washington, D. C., for Department of Public Utilities of Arkansas, and Commissioners of Department of Public Utilities of Arkansas.
    Charles V. Shannon, Howard E. Wahrenbrock, Lambert McAllister, and Louis W. McKernan, all of Washington, D. C., for Federal Power Commission.
    Guy E. Williams, Atty. Gen., of Arkansas, Cleveland Plolland, Asst. Atty. Gen., of Arkansas, and H. Cecil Kilpatrick, of Washington, D. G, amici curiae.
   PINE, Associate Justice.

This is an action against the Federal Power Commission (Commission) and its Commissioners, and the Department of Public Utilities of the State of Arkansas (Department) and its Commissioners.

The complaint seeks (1) an injunction to restrain the Federal Power Commission from taking further action in a proceeding, now on its docket, entitled “In the Matter of the Arkansas Power & Light Company,” plaintiff herein, and (2) a declaratory judgment that the exclusive jurisdiction over plaintiff’s primary books of accounts and of the entries made and to be made therein is vested in the Department of Public Utilities of the State of Arkansas, defendant herein, and other related declaratory relief. Plaintiff admits that it is a public utility, subject to the jurisdiction of the Commission. The Department and its Commissioners have answered and filed a cross-claim seeking relief similar to that sought by plaintiff. They have not intervened, nor sought to intervene, in the proceeding above referred to, now on the docket of the Commission. The Federal Power Commission and its commissioners have moved to dismiss the complaint and the cross-claim.

Sec. 313(b) of the Federal Power Act, 16 U.S.C.A. § 825Z(b), provides that any party to a proceeding under this Act, aggrieved by an order issued by the Commission in such proceeding, may obtain a review of such order in an appropriate Circuit Court of Appeals, by filing in such court a written petition praying that the order of the Commission be modified or set aside. This method of judicial review is exclusive. Federal Power Commission v. Pacific Power & Light Co., 307 U.S. 156, 159, 59 S.Ct. 766, 83 L.Ed. 1180; Safe Harbor Water Power Corp. v. Federal Power Commission, 3 Cir., 124 F.2d 800, 804, certiorari denied, 316 U.S. 663, 62 S.Ct. 943, 86 L.Ed. 1740; Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 48-50, 58 S.Ct. 459, 82 L.Ed. 638; Miles Laboratories v. Federal Trade Commission, 78 U.S.App.D.C. 326, 328, 140 F.2d 683, certiorari denied, 322 U.S. 752, 64 S.Ct. 1263, 88 L.Ed. 1582; Black River Valley Broadcasts, Inc. v. McNinch et al., 69 App.D.C. 311, 314, 101 F.2d 235, certiorari denied, 307 U.S. 623, 59 S.Ct. 793, 83 L.Ed. 1501. The Federal Declaratory Judgment Act, 28 U.S.C.A. § 400, does not confer upon the court jurisdiction which it does not otherwise possess. Miles Laboratories v. Federal Trade Commission, supra; Bradley Lumber Co. v. National Labor Relations Board, 5 Cir., 84 F.2d 97, 100, certiorari denied, 299 U.S. 559, 57 S.Ct. 21, 81 L.Ed. 411. This court therefore does not have jurisdiction over the subject matter of the •complaint.

The cross-claim is governed by the same principles. The Department and its Commissioners cannot escape them by failing to seek relief in the proceeding now pending on the Commission’s docket, about which they complain. This they may do by filing a petition for intervention.

If they are allowed to intervene and are aggrieved by an order thereafter issued by the Commission, they may obtain a review of such order as set forth in Sec. 313(b) of the Federal Power Act, supra. If they petition to intervene and their petition is denied, they may obtain a review of such order denying their petition under Sec. 313(b), supra. Moreover, it should be pointed out that the administrative remedies under the Federal Power Act have not been exhausted, and “no one is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative remedy has been exhausted. That rule has been repeatedly acted on in cases where, as here, the contention is made that the administrative body lacked power over the subject matter.” Myers v. Bethlehem Shipbuilding Corp., supra [303 U.S. 41, 58 S.Ct. 459, 463]; Miles Laboratories v. Federal Trade Commission, supra.

Finally, the substantive question raised by the plaintiffs and cross-claimants appears to have been settled adversely to their contention. Northwestern Electric Co. v. Federal Power Commission, 321 U.S. 119, 64 S.Ct. 451, 88 L.Ed. 596.

The motion of the Federal Power Commission and its Commissioners to dismiss the complaint and cross-claim therefore will be granted. Counsel for the Commission and its Commissioners will submit, on notice, appropriate order.