author: SWYGERT, District Judge.

text:
    MIDWEST BEVERAGE CO., Inc., v. GATES, Governor, et al.
    No. 569.
    District Court, N. D. Indiana, South Bend Division.
    July 18, 1945.

      Thomas V. Happer, of Elkhart, Ind., Earl R. Cox, Thomas E. Garvin, C. Gale Graber, and Philip Lutz, all of Indianapolis, Ind., and Ben Scifres, of Lebanon, Ind., for plaintiff.
    W. O. Hughes, of Fort Wayne, Ind., and White, Wright & Boleman and McHale, Arthur, Myers & Patrick, all of Indianapolis, Ind., and James A. Emmert, Atty. Gen., for defendants.
    Before EVANS and MAJOR, Circuit Judges, and SWYGERT, District Judge.
   SWYGERT, District Judge.

This is an action which seeks an interlocutory and permanent injunction to enjoin the defendants from enforcing certain provisions of an Act of the 1945 General Assembly of the State of Indiana. The particular sections about which the plaintiff complains are found in the footnote.

The plaintiff is the holder of a beer wholesaler permit issued pursuant to the-provisions of a 1941 statute enacted by the-Indiana Legislature concerning the sale of alcoholic beverages. Indiana Acts 1941,. Chapter 237, Section 3. This section provides in substance that any person desiring-to sell alcoholic beverages at wholesale shall apply to the Alcoholic Beverage Commission-of Indiana (this agency was abolished by the 1945 law and a new one, the Indiana-Alcoholic Beverage Commission, created) ; that no wholesaler’s permit shall be granted unless the applicant shall have been a continuous resident of the state for at least five years; that he shall have available for investment in his wholesale business-at least $3,500; that he shall not have beem convicted of a felony within two years preceding the application; that he shall have no interest in any manufacturer’s or retailer’s or any other wholesaler’s permit, and that if the applicant is a partnership, an unincorporated association or a corporation, that the members or stockholders thereof shall have the same qualifications as an individual applicant, excepting that at least one of the stockholders shall be a resident of the county where the warehouse is located at least one year immediately preceding the application.

The section further provides that the permits shall be renewed annually upon the payment of an annual fee and the giving of bond for as long as the permittee shall be qualified, and that the commission shall not deny or renew a permit on arbitrary, capricious or political grounds; further, that an applicant has the right to appeal from a refusal to renew a permit to the Superior Court of Marion County in the same manner as provided for appeals covering the suspension or revocation of permits.

The plaintiff’s permit was issued for one year and would expire November 16, 1945, except for the statute under attack. The plaintiff alleges in its complaint that by virtue of its permit it has made a large financial investment, employed labor, purchased trucks and other equipment, and has on hand a large stock of beer.

At the time plaintiff’s permit was issued, there were certain provisions in the Indiana law covering the revocation of beer wholesaler permits. The pertinent parts of these provisions read as follows, to-wit:

“If the commission shall determine not to grant or renew a permit of any applicant for a manufacturer’s or wholesaler’s permit, or shall determine to take action to revoke any such permit after it has been issued, notice of its proposed action shall be given to the applicant or permittee, as provided in Sec. 6, Chapter 226, Acts of the Indiana General Assembly, 1935, as amended by Sec. 2, Chapter 197, of the Acts of the Indiana General Assembly, 1937, and such applicant or permittee shall be granted a public hearing at the time and place fixed in the notice, and shall be permitted to be heard and to offer evidence. * * *
“Within ten (10) days after such hearing, the commission shall take final action and enter such order as it shall determine in" said proceedings and shall notify the applicant or permittee. * * * Such applicant or permittee, may, within.ten (10) days of the receipt of such notice, appeal to the circuit or superior court of Marion county, from an order of the commission denying or revoking such permit * * Acts 1939 c. 30, § 7.

Although the plaintiff in its complaint charges that both Sections 11 and 11% of Chapter 237 of the Acts of the General Assembly of 1945 are unconstitutional, it limits this charge in its brief to Section 11% and contends that it is unconstitutional for the reason that it is “an act of the legislature which is arbitrary, capricious and has no discernible relation to the police powers vested in the legislature by the constitution of the State of Indiana.” The underlying basis for this contention is that this statute deprives the plaintiff of its property rights without due process of law in violation of the Fourteenth Amendment to the Constitution of the United States.

Upon application to the District Court at the time the complaint was filed, a temporary restraining order was granted enjoining the defendant, Indiana Alcoholic Beverage Commission, from enforcing this provision of the law as applied to the plaintiff. Thereafter and pursuant to Section 380 of Title 28 United States Code Annotated, a three-judge court was constituted to hear the application for an interlocutory and permanent injunction. At that time the temporary restraining order was continued until the matter could be disposed of by the court.

At the hearing for the interlocutory and permanent injunction, the officials of the State of Indiana who are named defendants filed a motion to dismiss, which attacks the jurisdiction of the court to hear this cause on the grounds that (1) no property rights of the plaintiff are involved and therefore the court has no equitable jurisdiction to grant an injunction and (2) the plaintiff’s cause of action, if any, is against the State of Indiana, rather than its officials, hence forbidden by the Eleventh Amendment to the Federal Constitution.

It long has been settled and is now firmly established that the state has the absolute right to regulate or prohibit traffic in intoxicating liquor and that this right stems from the power of the state to regulate the health, morals and safety of its inhabitants. Mugler v. Kansas, 123 U.S. 623, 8 S.Ct. 273, 31 L.Ed. 205; Crane v. Campbell, 245 U.S. 304, 38 S.Ct. 98, 62 L.Ed. 304; Fry et al. v. Rosen, 207 Ind. 409, 189 N.E. 375. One who sells alcoholic beverages under a permit or license issued by the state or a subdivision thereof does so by virtue of an exercise of the state’s power in that field. Moore v. Indianapolis, 120 Ind. 483, 22 N.E. 424.

While a permit or license as such may not be property, the use and enjoyment of it may give to its possessor something that is valuable and which has all the qualities of property. State v. Corron, 73 N.H. 434, 62 A. 1044, 6 Ann.Cas. 486. While it is true that the law under which the plaintiff’s license was issued provides (section 2), “that no person shall be deemed to have a property right in any permit issued hereunder, nor shall said permit itself or the enjoinment (sic) thereof be considered a property right” — the Indiana law also provides that an administrator or executor of an estate of a deceased permit holder may continue the business conducted by the deceased under the permit, that likewise any receiver or trustee in bankruptcy of a permit holder may continue the business conducted by the permittee, and that transfers of permits from one holder to another may be made under terms and regulations prescribed by the commission. The source of the permit is the police power. It is a part of the police system of the state and there can be no vested right in the permit because no binding limitation can be placed on the exercise of the police power through legislative action. Moore v. Indianapolis, supra. On the other hand the use of the permit, once granted, has the elements of property irrespective of what the Legislature may declare about the permit itself, and except for the omnipresent and unlimited power of the state to revoke or modify the terms of the permit in the interest of the public welfare, the use of such permit, if not the permit itself, is property within the meaning of the due process clause of the Federal Constitution.

It is now a settled principle of law that a license to sell alcoholic beverages can be revoked by the state Legislature at any time through the valid exercise of its police power. Mugler v. Kansas, supra; Premier-Pabst Sales Co. v. Grosscup, 298 U.S. 226, 56 S.Ct. 754, 80 L.Ed. 1155; Mahoney v. Triner Corp., 304 U.S. 401, 58 S.Ct. 952, 82 L.Ed. 1424; Moore v. Indianapolis, supra; Gordon v. Corning, 174 Ind. 337, 92 N.E. 59. The plaintiff does not contend otherwise.

Its contention as we understand it is this: The plaintiff had a permit to sell beer at wholesale which would expire November 15, 1945; the law under which it was issued permitted annual renewals; in order to secure its permit it had to meet certain requirements; under the law existing when its permit was issued the permit could not be revoked except for cause by the Alcoholic Beverage Commission after notice and hearing and any such revocation could be reviewed by the court; that the 1945 law revoking the plaintiff’s permit did not change the basic policy of selling and distributing alcoholic beverages in Indiana nor did it impose any new or different standards for beer wholesalers than was required by the law under which the permit was issued; finally, that the change in the law bears no relationship to the public welfare of the state but is a method provided by the Legislature whereby a change in the personnel of the holders of beer wholesaler permits may be effected. In other words, the plaintiff contends that under the guise of exercising the police power of the state, the Indiana Legislature has arbitrarily revoked its permit and thereby has deprived it of property without due process of law.

The Legislature’s determination that its acts are a proper exercise of its police power is always subject to the scrutiny of the courts and legislation will not be sustained if its sole excuse is the exercise of the police power when such power is abused or where there is no relation between the purported basis for the legislation and the enactment. Stated differently, the Legislature cannot use the police power as a subterfuge to do something that it otherwise could not do in the infringement of private interests or the restraint of private rights. On the other hand, if the legislative act is within the permitted area and has some relation to the health, morals, safety or welfare of the public, it is not for the courts to question the policy or wisdom of the statute.

Unquestionably the state Legislature has the right to pass regulations covering the sale and distribution of alcoholic beverages. It has the power to prohibit entirely; anything less by restrictive regulation is within that power. Despite the provisions of the 1945 law which does not change the basic system of the sale of alcoholic beverages in Indiana, which add only two additional and somewhat duplicative qualifications for beer wholesale distributors, and which in effect permits all liquor and alcoholic beverages permits to continue until terminated under the provisions of the law of their issuance except beer wholesaler permits, these provisions have to do with the regulation of the sale of intoxicating liquors and alcoholic beverages within the state. Their reasonableness is not a subject of our inquiry. Moreover, we cannot look into the reason for their enactment. These are matters of policy to be determined solely by the Indiana Legislature. Fry v. Rosen, supra. To sustain the plaintiff’s contention that the 1945 law is arbitrary and has no discernible relation with the police power would require us to hold that the legislative enactment by nature of its own provisions clearly and unquestionably indicates that the police power of the state is only a guise for the accomplishment of purposes outside that field. We do not so hold because if the Legislature acts within the permitted area the policy and wisdom of or reason for the enactment cannot be our concern.

The fact that one group of permit holders have had their permits revoked before the permits would have expired by the provisions of the law under which they were issued, and also the fact that permits are authorized to be issued under the new law to applicants who are required to have only slightly different qualifications than those required theretofore, are matters solely of policy.

It may be, as alleged, that Section 11% evidences a legislative means to accomplish an arbitrary discrimination solely for partisan political purposes. Yet we cannot so assume, nor pass judgment upon legislative motives and thus strike down this section. If such motives as are claimed be the genesis of a legislative act it is always possible for those charged with administrative duties to rise above such motives and reflect credit on themselves and their state. For that reason we cannot restrict the power of the Legislature to enact so called regulatory measures having to do with the sale of intoxicating liquors even though the purpose to give effect to such motives under the guise of the police power was even clearer than is claimed in the instant case.

Restraint of legislation purporting to be an exercise of the police power is limited to legislative acts which have no reasonable relation to the health, morals or welfare of the citizens as a whole. As already stated, regulatory measures covering the sale of intoxicating liquors are well within the perimeter of the state’s police power. Reasons or motives other than for the public welfare cannot be presumed or made the subject of inquiry by a court which passes upon the question of whether the Legislature has gone beyond the limits of its power. Its only concern is the authority to act, not why it acts. The wisdom of the law or its expediency are matters for the Legislature itself to determine. Ultimately, of course, they are matters for the citizens of the state themselves.

We are of the opinion that the case comes within the ambit of Ex Parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714, 13 L.R.A.,N.S., 932, 14 Ann.Cas. 764, in connection with whether the Eleventh Amendment bars the action.

Accordingly and for the reasons stated, the application for an interlocutory and permanent injunction is denied and the temporary restraining order is dissolved.

       “See. 11. No person shall be deemed to have any property right in any beer wholesaler’s permit, beer retailer’s permit, beer dealer’s permit, liquor wholesaler’s permit, liquor retailer’s permit, liquor dealer’s permit, wine wholesaler’s permit, wine retailer’s permit, or wine dealer’s permit, nor shall said permit itself or the enjoyment thereof be considered a property right, and the same shall be issued, suspended or revoked in the absolute discretion and judgment of the commission, and no court shall have jurisdiction of any action, either at law or in equity, to compel the issuance of any such permit, or to revoke, annul, suspend or enjoin any action, ruling, finding or order of the commission suspending or revoking any such permit, and the consent of the sovereign State of Indiana is hereby expressly withdrawn and denied in any such action, either at law or in equity. All such permits heretofore issued before the effective date of this Act shall terminate, become null and void one (1) year, including the date on which the same may be issued, after the time of issuance, whether the same be issued pursuant to law, rule or regulation, or otherwise. All such permits issued by the commission shall be in force for one (1) calendar year only, including the day upon which the same is granted, and at the expiration of said year, such permits shall be fully expired, null and void.
      “Sec. 11%. Notwithstanding any provisions of Section 11 of this act, all beer wholesalers permits issued prior to April 1, 1945, are hereby cancelled, declared null and void and of no force and effect on and after May 1, 1945, and no court shall have jurisdiction of any action, either at law or in equity, to enjoin or-make any order or judgment suspending or abating said cancellation or awarding damages or a money judgment, except for the pro rata refund herein provided, and the consent of the sovereign-state of Indiana is hereby expressly-withdrawn and denied in any such action, either in law or equity.
      “The commission shall allow any such, permittee a pro rata refund for the days after April 80, 1945, until the end off the year for which said permit was issued, said refund to be paid from the-general fund of the state after presentation of a verified claim by the permittee- and approved by the chairman of the-commission. Provided, however, the commission may in its absolute discretion issue temporary beer wholesalers’ permits (and successive permits) for thirty (30) days each, upon payment of one-twelfth (l/12th) of the fee of am annual wholesalers’ permit.”


source: Caselaw Access Project

author: KENNERLY, District Judge.

license: Public Domain

text:
    BUTLER v. UNITED STATES.
    Civil Action No. 725.
    District Court, S. D. Texas, Houston Division.
    Oct. 8, 1942.

      Sewall Myer and Frank Campbell Fourmy, both of Houston, Tex., for plaintiff.
    Douglas W. McGregor, U. S. Atty., and Brian S. Odem and W. F. Leigh, Asst. U. S. Attys., all of Houston, Tex., for defendant.
   KENNERLY, District Judge.

This is a suit by R. O. Butler, doing business as Butler’s Barber and Beauty Shop, of Houston, Texas (for brevity called Plaintiff), against the United States of America (for brevity called Defendant), to recover $621.68 paid by Plaintiff to Defendant under the Social Security Act and ■particularly under the provisions imposing an excise tax on employers having as many ■as eight persons in their employ (Sections 1101 and 1107, Title 42 U.S.C.A.). He .also sues for interest. The case is this: If Love, a negro bootblack, who worked in Plaintiff’s barber shop during the years 1937, 1938, and 1939, was an employee of Plaintiff within the meaning of the Act, Plaintiff had eight employees and was liable for the tax. But if he was not such employee, then Plaintiff was not liable for the tax.

It is undisputed that Plaintiff’s claim for ■refund has been denied, and that the Court has jurisdiction.

The facts are as follows:

(a) Plaintiff was the only witness who testified at the trial, and there is nothing that tends to affect his credibility.

(b) During 1937, 1938, and 1939, Plaintiff, as now, was the proprietor of and operating a barber shop and beauty parlor in the City of Houston, Texas, where Plaintiff and his employees rendered to the public, and received pay therefor, the service usually rendered by a barber shop and beauty parlor. During such period, Plaintiff had seven employees, not counting a negro bootblack, Robert Love, now deceased. If Love was an employee, Plaintiff had eight employees during said period.

(c) Love took the coats, hats, etc., of Plaintiff’s customers when they entered the shop, and hung them up. He shined their shoes when requested, brushed off their •clothing, and handed them-back their coats and hats, etc. as they left the shop. He was paid wholly and entirely by tips from such customers. Plaintiff paid him nothing. Love did not perform this service for all .Plaintiff’s customers. He only shined their shoes when requested by them to do so, and if a customer was not liberal with tips, he sometimes performed no service at all for him.

(d) Love from time to time performed the same or similar services for persons who were not customers of Plaintiff, and was paid by them in the same way.

(e) Love performed no service of any kind or character for Plaintiff. He paid Plaintiff nothing for the privilege of serving Plaintiff’s customers in Plaintiff’s shop. Plaintiff furnished Love, and Love used, without charge, a bootblack stand located in the shop.

(f) It was advantageous to Plaintiff and his business to have Love in his shop to thus serve his customers, and it was about equally advantageous to Love to have such privilege of serving Plaintiff’s customers, i.e., one advantage about offset the other.

(g) Plaintiff had no control over Love with respect to his work, his hours of work, nor what days he should work, nor with respect to the manner Love performed his work. The arrangement between them was “at will” and one that either could terminate at any time.

(h) The arrangement between Plaintiff and Love was in effect prior to the passage of such Act, and there is nothing to indicate an effort to evade the provisions of the Act.

Conclusions of Law.

1. Defendant cites Nicholas v. Richlow Mfg. Co., 10 Cir., 126 F.2d 16, Deecy Products Co. v. Welch, 1 Cir., 124 F.2d 592, 139 A.L.R. 916, and No. 608, Adorable Beauty School et al. v. United States, 61 F.Supp. 694. The facts in those cases are not the same nor even similar to the case here. All involved the question of whether an officer of a corporation was an employee within the' meaning of such Act. In the Adorable Beauty School case, this Court followed the Nicholas case, but stated that if the Deecy case was applicable, the Beauty School, under the facts there, was no better off.

In United States v. Griswold, 1 Cir., 124 F.2d 599, 601, which was decided by the same Court that decided the Deecy case, and on the same day, it is said:

“In the Deecy case we have set forth at some length our views on the construction to be given the pertinent sections of the Social Security Act of 1935. These views are decisive of the issues here involved. We said that Section 1101(a) (6) meant that if one met the tests of the ordinary employment relationship, his status as an employee was not to be destroyed by the fact that he was also a corporate officer. We held that ‘an employee is one who meets the tests of the more or less established concept of “the legal relationship of employer and employee,” Texas Co. v. Higgins, 2 Cir., 1941, 118 F.2d 636, 637, and that one who does not meet those tests is not an employee within the meaning of the act even though he may bear the title of corporate officer.’ ”

I have examined the case mentioned, Texas Co. v. Higgins, 2 Cir., 118 F.2d 636. It seems to me that the facts there are more like this case and the controlling principles of law are more clearly expressed than in any of the cases. It was there held that Thomas, who it was claimed was an employee of Texas Company within the meaning of the Act, was not an employee, but an “independent contractor.” I do not think Love was an employee of Plaintiff within the meaning of the Act, nor do I think he was an independent contractor. So long as he was not an employee of Plaintiff, it is not necessary to here define his status.

From what has been said, it follows that Plaintiff is entitled to judgment for the sum sued for, with interest.

Let a decree be drawn and presented.


text:
    ADORABLE BEAUTY SCHOOL et al. v. UNITED STATES.
    Civil Action No. 608.
    District Court, S. D. Texas, Houston Division.
    Jan. 23, 1942.
    Sam D. W. Low, Jr., of Houston, Tex., for plaintiffs.
    Douglas W. McGregor, U. S. Atty., and Brian S. Odem, Asst. U. S. Atty., both of Houston, Tex., for defendant.
   KENNERLY, District Judge.

On May 7, 1941, plaintiffs paid to the United States Government $610.81 taxes, penalties, and interest, claimed by the Government to be owing by plaintiffs for the years 1936, 1937, 1938, and 1939, under the Social Security Act, Section 1101 et seq., Title 42 U.S.C.A. This is a suit to recover back such sum under the claim that plaintiffs were not then, and are not now, legally liable therefor, and that they made the payment under protest, etc.

The parties have stipulated that plaintiffs, during such years, had seven (7) employees, and the controversy narrows down to whether F. D. Allison, a vice-president of plaintiffs, was an employee, thus making eight (8), within the meaning of the-Act.

The facts are as follows:

(a) Many of the facts have been stipulated, and are set forth in the Pre-Trial Decree, filed January 10, 1942. As so set forth, they are as follows:

“Plaintiffs, Ethel E. Allison and F. D. Allison, are citizens of the United States and of the State of Texas and reside in Harris County, and plaintiff Adorable-Beauty School, Inc., is a private corporation, organized under and by virtue of the laws of the State of Texas, and domiciled in Harris County, Texas.
“This is a suit against the United States-of America, arising under the revenue laws of which the District Courts of the United States have original jurisdiction and venue is properly laid in the Southern District of Texas and the Houston Division thereof.
"The taxes, penalties and interest herein sought to be recovered were assessed under Title IX of the Social Security Act and under Subchapter C of Chapter IX of the Internal Revenue Code against Adorable Beauty Parlors, Inc., by virtue of and in respect to the employment of certain individuals by said corporation in the conduct of a place of business at 1000 Travis Street in Houston, Harris County, Texas, known as ‘Adorable Beauty School.’
“Said taxes, penalties and interest was paid on May 7, 1941 to Frank Scofield who was at all pertinent times the duly appointed, qualified and acting Collector of Internal Revenue for the First District of Texas, which includes Harris County, and as such collector was invested with full power and authority to collect such taxes, penalties and interest, for and on behalf of the United States, and the amounts so paid and collected and the years for which same were assessed were as follows:
1936 $ 71.25
1937 164.24
1938 213.63
1939 161.69
Total $610.81
“During all the years for which said taxes were levied and collected, the business known as Adorable Beauty School, operated at 1000 Travis Street in Houston, Harris County, Texas, was operated by Adorable Beauty School, Inc., a corporation, and during such periods said corporation operated no other business of any kind or character.
“On May 16, 1941, within less than two years after the payment of said taxes, penalties and interest, Ethel E. Allison filed her claim for refund with the Collector of Internal Revenue, based on the grounds set out in the complaint in this cause and on August 22, 1941 Guy T. Helvering, the duly qualified and acting Commissioner of Internal Revenue denied said claim and gave notice of his ruling to Ethel E. Allison, as provided in Section 3722 (a) (2) [3772 (a) (2)] of the Internal Revenue Code [26 U.S.C.A. Int.Rev.Code § 3772 (a) (2)], and, thereafter, this suit was timely filed.”

(b) A Supplemental Stipulation of Facts is as follows:

“In the operation of its said business, known as Adorable Beauty School, the corporation, known as Adorable Beauty Parlors, Inc., had five and only five individuals in its employ other than its officers, and the same five individuals and no others, except its officers, were in its employ during all of such time.
“In addition to its said five employees, who were neither officers nor directors, said corporation had three officers, to-wit:
“Ethel E. Allison, President
“F. D. Allison, Vice-President
“Emmie Mooney, Secretary-Treasurer
“Ethel E. Allison, president, at all pertinent times was in active charge of the business known as Adorable Beauty School, reported for work at its place of business, and received a regular salary for her services as manager thereof, and was not otherwise gainfully employed.
“Emmie Mooney, Secretary-Treasurer of said corporation at all pertinent times was an instructor in said beauty school, reported regularly for work at said place of business, and received a regular salary for her services as instructor, and was not otherwise gainfully employed.
“Annual returns of Adorable Beauty Parlors, Inc. covering Excise Tax on Employers of Eight or More Individuals, under Title IX of the Social Security Act, for the calendar years of 1936, 1937, 1938 and 1939, were each respectively prepared by Henry T. P. Phillips, Deputy Collector of Internal Revenue from information furnished him by the bookkeeper of said corporation, and were signed and sworn to before the said Deputy Collector by F. D. Allison, acting as Vice-President of Adorable Beauty Parlors, Inc., said returns all having been made on or about April 5, 1940.
“That Adorable Beauty Parlors, Inc. 1937 return of Capital Stock Tax was sworn to and subscribed by F. D. Allison, Vice-President of Adorable Beauty Parlors, Inc.
“That Adorable Beauty Parlors, Inc. Corporation Income and Excess Profit Tax return for the calendar year 1936 was sworn to and subscribed by Mrs. F. D. Allison, President, and F. D. Allison, Vice-President of Adorable Beauty Parlors, Inc.
“That Adorable Beauty Parlors, Inc. Corporation Income and Excess Profit Tax Return for the calendar year 1938 was sworn to and subscribed by Mrs. F. D. Allison, President; that, thereafter, the Collector of Internal Revenue at Austin, Texas returned the return to the corporation, advising it that the affidavit was not properly executed, in that a corporation income tax and excess profit tax return must be signed and sworn to by TWO principal officers of the corporation, and requested the execution of a proper affidavit by the corporation; that, thereafter, the following affidavit was executed and returned to the Collector of Internal Revenue:
“ ‘Affidavit
“ ‘We, the undersigned, president (or vice president, or other principal officer) and treasurer (or assistant treasurer, or chief accounting officer) of the corporation for which this return is made, being severally duly sworn, each for himself deposes and says that this return (including any accompanying schedules and statements) has been examined by him and is, to the best of his knowledge and belief, a true, correct, and complete return, made in good faith, for the taxable year stated, pursuant to the Revenue Act of 1938, and the Regulations issued thereunder.
“ ‘/S/ Mrs F D Allison, Pres
(President or other principal officer)
“ ‘/S/ F. D. Allison, Vice Pres.
(Title)
“ ‘/S/ Emmie Mooney, Treas.
(Treasurer, Assistant Treasurer, or Chief Accounting Officer)
(Title)
“ ‘Subscribed and sworn to before me this 3rd day of April, 1939.
“ ‘/S/ Viola Covington
(Signature of officer administering oath)
Notary Public — Harris County Texas’ ”

(c) At the trial, plaintiffs offered the testimony of F. D. Allison, vice-president of plaintiffs. His testimony I find to be true. It is correctly summarized in plaintiffs’ brief, from which I quote:

“F. D. Allison testified: that he has been in the employ of the Texas Company for approximately twenty four years — that he is foreman in that company’s garage and that he has been regularly paid for his services by the Texas Company. He further testified that Plaintiff Ethel E. Allison is his wife — that she ran a beauty parlor before he married her — that she continued to operate it after her marriage — that about 1926 she incorporated the business, he and his sister Mrs. Mooney joining her as incorporators, each receiving one share of stock — -that the charter for her business was obtained by Judge Lawhon, the general counsel for the Texas Company — that after the charter was obtained, he (Allison) never attended a stockholders’ meeting or Directors’ meeting until June 1940, at which meeting he resigned. He testified that his wife ran the beauty parlor until 1936, and that she then began the operation of a beauty school — that he had no voice in the conduct of either the beauty parlor or the beauty school — that he did not report for work at either — that he never did any work connected with the operation of either — that all of his time was-occupied by his employment at the Texas. Company — that he had no contract of hire or employment with Adorable Beauty Parlors, Inc., or with either of the businesses that his wife ran — that he never received any wages, salary, or other compensation from it or them — that he never borrowed any money from the corporation and that he never received any dividends from it. He testified that he signed the several reports and form mentioned in the stipulations and said that all of them were signed at the request of his wife, the bookkeeper of the corporation, or at the 'instance of a deputy collector of Internal Revenue, who prepared some of them. He stated that he paid several visits to the Collector’s office at the request of one of the deputies — also that except for the signing of the several forms mentioned in the stipulations and perhaps some reports for the State in connection with the payment of franchise taxes he never undertook to act for the corporation or represent it in any manner.”

The Government cites Nicholas v. Richlow Manufacturing Co., 10 Cir. 126 F.2d 16. This case is exactly in point, and I think correctly states the Law.

The Government also cites Deecy Products Co. v. Welch, 1 Cir., 124 F.2d 592, 139 A.L.R. 916. If the correct rule is reflected by the Deecy case rather than by the-Nicholas case, plaintiffs are no better off.

Judgment for defendant.


author: BRIGHT, District Judge.

text:
    UNITED STATES v. SAMUEL DUNKEL & CO., Inc., et al. (two cases).
    District Court, S. D. New York.
    July 10, 1945.
    John F. X. McGohey, U. S. Atty., of New York City (Laurence H. Axman, Asst. U. S. Atty., of New York City, and D. Boardman Lee and George Arthur Fruit, Attys., Department of Justice, both of Washington, D. C., of counsel), for plaintiff.
    Maurice L. Albert, of New York City, for defendants.
   BRIGHT, District Judge.

Certain of the defendants move (1) to dismiss the complaint in the first named action upon the ground that it fails to state a claim upon which relief can be granted, (2) because, under rule 41, as to the defendant Dunkel Company, notice of dismissal of another action for the same relief operates as an adjudication on the merits between the parties; and (3), if the motion to dismiss is denied, for a bill of particulars.

In the second action, a similar motion is made upon grounds 1 and 2, and upon the further ground that another action is pending to recover penalties and damages under the same agreement.

Both actions are sought to be maintained under the so-called Informer’s Statute (§§ 3490 to 3492, and 5438, of the Revised Statutes, 31 U.S.C.A. §§ 231-233, 18 U.S. C.A. § 80). In the first action, it is alleged that Samuel Dunkel & Co. Inc., between January 28, 1942, and September 3, 1942, entered into eleven contracts, with the Federal Surplus Commodities Corporation, hereinafter designated as FSCC, “which is an agency of the United States, and all of the officers and employees of which are and were at all times herein set forth persons in the civil service of the United States,” for the sale of dried eggs and spray dried eggs. It is further alleged that between August 1 and November 1, 1942, defendants conspired to defraud plaintiff, or a department or officer thereof, by obtaining the payment or allowance of false and fraudulent claims under said/ contracts to plaintiff’s damage; and between February 1, 1942, and January 1, 1943, presented for payment or approval, to or by a person or officer in the civil service of the United States, fraudulent and false claims “upon or against the Government of the United States, or a department or officer thereof” for spray dried eggs, which claims were paid by plaintiff; that to obtain such payment, defendants used or caused to be attached to claim vouchers false certificates of grading and weight, indicating tests made upon samples submitted to the Agricultural Marketing Service of the United States Department of Agriculture, which certificates had been issued for lots sampled and inspected by said Marketing Service other than those for which claim was made, and also used false affidavits certifying to the manufacture of spray dried eggs within thirty days of the contract delivery date, whereas such eggs were actually manufactured more than thirty days prior to said date. It is further alleged that among the schemes, tricks, devices and subterfuges so employed by defendants were (a) for the purpose of obtaining approved grading certificates so that the defendant Dunkel Corporation could deliver dried eggs which had been rejected by plaintiff, or which had not been sampled and tested, defendants submitted spray dried eggs, which did conform to the specifications, repeatedly as different and new lots, after changes of markings, and upon receipts of grading certificates, defendants delivered other dried eggs which had been rejected and not tested; (b) caused samples of egg powder to be switched, so that samples submitted for inspection and testing were not those taken by plaintiff’s inspectors; (c) caused identifying marks on lots and barrels of rejected eggs to be changed to conform falsely and fraudulently with markings of lots purportedly certified as satisfactory; (d) caused barrels of uninspected dried eggs to be marked with identifying markings of grading certificates falsely obtained to induce their acceptance by plaintiff; (e) as a result dried eggs were delivered to plaintiff contrary to the requirements of the contract; (f) egg yolks were mixed with whole liquid eggs and dried with them so that the .resulting powder was different in quality from that required by the contracts ; and (g) false and fraudulent vouchers were submitted to plaintiff claiming payment for spray dried whole eggs delivered by representing them to be eggs covered by grading certificates and affidavits. It is further alleged that approval of payment by plaintiff was thus obtained, that the spray dried eggs did not meet the specifications, all to plaintiff’s damage.

In the second action, it is alleged that between March 1, 1942 and September 30, 1942, defendants conspired to defraud the Government, or a department or officer thereof, by obtaining, or aiding to obtain payment or allowance of false or fraudulent claims, in making or in causing to be presented for payment or approval to or by a person or officer in the civil service of the United States, claims “upon or against the Government of the United States, or a department or officer thereof,” and for the purpose of obtaining payment or approval of said false and fraudulent claims, knowingly used false vouchers and affidavits. It further alleges that on or about March 28, 1942, the FSCC entered into a contract with the defendant Samuel Dunkel & Co., Inc., under which the defendant agreed to package between 3,000,-000 and 5,000,000 pounds of dried whole eggs, owned or to be owned by the FSCC; that on August 7, 1942, the FSCC, pursuant to that contract, caused 20 barrels of dried whole egg theretofore manufactured by Bowman Dairy Company, and 109 barrels theretofore manufactured by Wisconsin Dried Egg Company, to be shipped to the defendant Dunkel Corporation, and on July 31, 1942, caused 4 barrels of dried whole egg, theretofore manufactured by Christian & Co., Inc., also to be shipped to the defendant corporation. It is' further alleged that all of the barrels and contents were th.e sole property of the FSCC, that the defendants caused the symbols and identifying markings placed on the barrels to be removed and other symbols and markings to be placed thereon to destroy the identity thereof so that they might be sold to the plaintiff through the FSCC, and on August 25, 1942, defendants delivered to the FSCC the 20 barrels previously referred to, on September 4, 1942, also delivered the 113 barrels previously mentioned, under a contract then subsisting between FSCC and the defendant corporation, all of which barrels were already the property of FSCC, after removing upwards of 3,000 pounds of dried whole egg belonging to the plaintiff, of the value of $3,500 and wilfully converting the same to their own use; that on August 25, 1942, the defendants caused to be presented for payment or approval to or by a person or officer in the civil service of the United States, a false and fraudulent voucher upon or against the FSCC in the sum of $62,-400, of which $4,160 was on account of the 20 barrels previously mentioned, which voucher was thereafter paid by plaintiff, and on September 4, 1942, presented for payment or approval, to or by such person or officer, another false and fraudulent voucher in the sum of $31,517 of which $20,862.62 was on account of the 113 barrels previously mentioned, and obtained payment therefor from plaintiff. It is further alleged that in order to obtain such payment, the defendants attached to the claim vouchers a grading or inspection certificate knowing that such dried whole egg had not been inspected or approved, all to the plaintiff’s damage.

I. Defendants urge in both actions that the complaint must be dismissed because it fails to show that the defendants, or any of them, made to a person or officer in the service of the United States any claim upon or against the Government of the United States or any department or officer thereof.

Section 231 of Title 31 U.S.C.A., R.S. §§ 3490 and 5438, provides, among other things, that any person not in the military or naval forces of the United States, or in the militia (these defendants are not), who shall make or present, or cause to be made or presented, for payment or approval, to or by any person or officer in the civil service of the United States, any claim upon or against the Government of the United States, or any department or officer thereof, knowing such claim to be false, fictitious or fraudulent, or who, for the purpose of obtaining or aiding to obtain the payment or approval of such claim, makes, uses or causes to be made or used any false bill, voucher, certificate or affidavit knowingly, or who enters into any conspiracy to defraud the Government of the United States, or any department or officer thereof, by obtaining or aiding to obtain the payment or allowance of any false or fraudulent claim, shall forfeit and pay to the United States the sum of $2,000, and in addition, double the amount of damages which the United States may have sustained by reason of the doing or committing such action.

Upon a motion to dismiss, the allegations of the complaint are deemed to be true. Thus the admitted allegations are that the FSCC, with whom the contracts were made, was an agency of the United States, and all of its officers and employees were persons in the civil service of the United States, that the false and fraudulent claims were presented pursuant to a conspiracy to defraud the plaintiff, were presented for payment or approval to or by a person in the civil service of the plaintiff, were upon or against the Government of the United States, or a department or officer thereof, were paid by the plaintiff, and plaintiff was damaged thereby. Even were these facts not admitted, this court would take judicial notice that the FSCC and its employees and officers are in the civil service of the Government.

The obvious purpose and intent of this statute was to reach any person who knowingly caused or assisted in causing the Government to pay claims which were grounded in fraud, without regard to whether the person had direct contractual relations with the Government, as well as those who received money from the Government as a result of their fraud. There is not to be so strict a construction as urged by the defendants. United States ex rel. Marcus v. Hess, 317 U.S. 537, 544, 63 S.Ct. 379, 87 L.Ed. 443.

II. This part of the motion affects only the Dunkel Company.

Rule 41(a), Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, permits a voluntary dismissal of an action by the plaintiff, “Subject to the provisions of Rule 23(c) and of any statute of the United States,” without order of the court by filing a notice of dismissal at any time before answer or by filing a stipulation signed by all parties who have appeared. “Unless otherwise stated in the notice of dismissal or stipulation, the dismissal is without prejudice except that a notice of dismissal operates as an adjudication upon the merits when filed by a plaintiff who has once dismissed in any court of the United States or of any state an action based on or including the same claim.”

The rule is expressly made subject to any statute of the United States, and the note to it states that the provisions of § 232 of Title 31 U.S.C.A. are thus preserved. Section 232 expressly provides that a suit under the Informer’s Statute “shall not be withdrawn or discontinued without the consent, in writing, of the judge of the court and the district attorney, first filed in the case, setting forth their reasons for such consent.”

Three prior actions involving somewhat similar relief as here sought were started and discontinued.

In the first of the present actions, the contention is that a kindred action was begun in the United States District Court for the Northern District of New York, by the United States of America against Samuel Dunkel & Co., Inc., et al., file No. Civil 1256. That action was begun on May 4, 1943, and before the commencement of this action, there was filed in the office of the clerk of that court by the United States Attorney for the Northern District, a notice of dismissal pursuant to the provisions of Rule 41.

In the second case, the contention is that on May 11, 1943, an action was commenced by plaintiff against Samuel Dunkel & Co. Inc. and others in the District Court of the United States for the District of New Jersey, under file No. 2887, based on and including the same claim as in the complaint here; and that before the commencement of this action, there was filed in the office of the clerk of the New Jersey District Court, a notice of dismissal pursuant to Rule 41.

On May 18, 1943, an action was begun in this court entitled “The United States of America ex rel Matthew Luce, the junior of that name, plaintiff, against Samuel Dunkel & Co. Inc., defendant,” Civil No. 21 — 206. On or about November 8, 1943, the attorneys for Mr. Luce and the Dun-kel Corporation filed a stipulation of dismissal of that suit, and the clerk of this court entered upon that stipulation an order dismissing the same. No written consent to this dismissal was obtained from the District Attorney or Judge, as required by Title 31 U.S.C.A. § 232. There was, therefore, no dismissal as contemplated by Rule 41.

The United States in the other two suits dismissed them by stipulation of its attorney. But that dismissal does not foreclose this plaintiff under Rule 41, and such prior dismissal does not operate as an adjudication upon the merits. There has been no second dismissal. The bar of the rule only applies to a plaintiff “who has once dismissed in any court of the United States or of any state an action based on or including the same claim.” The dismissal of the informer’s suit brought by Luce was not a dismissal by the United States; in fact, it was not a dismissal, no consent of the District Attorney or Judge having been obtained.

There has been no showing here which would bring into play Rule 41 as any bar to the present litigation.

III. Dismissal is sought of the second named action because of the pend-ency of the first one, and is based on the-fact that in the first action Civil 31 — 76 the same contracts are involved under which penalties and damages are sought in the second action Civ. 31 — 77, and particular reference is made to paragraphs 17 and 18' of the complaint.

There is no similarity in the two complaints. The frauds for which recovery is-sought in the first named action were committed under contracts to manufacture and sell egg powder. The frauds alleged in the second action were committed under the contract by which defendant agreed to package egg powder manufactured by other manufacturers. In the first action, defendants sold and received payment for defective, untested and uninspected powder. In the second cause of action, they are charged with converting to their own use, and thereafter selling and receiving payment for, egg powder not manufactured by them, delivered to them for packaging, and which at all times belonged to the Government. There is no similarity between the two actions. The defendants are not asked to pay the same damages in each, and the mere fact that the deliveries, as their own, of egg powder not belonging to them but to the plaintiff, were made under the contracts or some of them the subject of the first named action, does not make the two actions similar.

IV. The demand for particulars is under 48 subdivisions, covering 3% pages-of single spaced typewriting. It asks, (1) as to paragraph 11 of the complaint, the powers, duties and rights of the FSCCr and whether it was created orally or in writing, and the substance of any oral or written declaration creating it; (2) date and place of the conspiracy; names of conspirators, and the substance of any oral or written agreement upon the subject; (3) the names of the persons to whom claims were presented for approval or payment, the nature of the claims and against whom, the dates and places of deliveries of dried whole eggs, whose moneys paid for it, and in what manner and for whose account, whether by check, upon what bank and the source of the funds from which paid; (4) the names of the defendants who made false certificates, what statements made were false, and the items of damage sus--tained by relying upon such statements; (5) under what contracts affidavits were submitted, the damage sustained in reliance thereon, and which of the defendants knew the affidavits were false or were reckless with the truth thereof; (6) a statement of the amount, contract and lot number of all rejected dried eggs, date of rejection and the amount rejected on each date, the amount and contract and lot number of dried eggs not tested, the dates and amounts of each delivery thereof, description and number of lots which were repeatedly submitted for sampling, copies of the applications for sampling which represented new lots, copies of all grading certificates issued fraudulently and for fictitious lots; the names of the defendants who switched samples of powder, dates and places where switched, who of the defendants changed the identification marks, amounts changed and marks as they appear before and after, dates and places of delivery, lot numbers, warehouse numbers and amounts of dried eggs not manufactured within 30 days of delivery, date when manufactured, copies of all false affidavits, damage sustained by use of such affidavits, times and places, amounts and lot numbers of dried egg manufactured from liquid egg mixed with egg yolk, damage and basis of computation thereof sustained by such mixing and copies of the vouchers under which defendants claimed payment; (7) respects in which the eggs had not passed the tests and the lot numbers of such eggs; (8) the names of the persons approving the alleged false claims, their title and dates, and by what department employed and the amount of damage and basis of computation alleged; and (9) as to the respect in which the dried eggs were defective, giving lots and amounts, and the basis of the computation of damage alleged to have been sustained because thereof.

I have purposely briefly summarized the extent to which this demand for a bill of particulars has gone. If all of the particulars sought were alleged in a complaint, such a document would in every way offend Rule 8. The obvious purpose of the present demand is not to obtain a more definite statement to enable defendants to prepare a responsive pleading. Its very prolixity proves that and alone justifies a denial of the motion. This, coupled with the fact that the complaint is drawn in such a fashion that defendants can very easily answer, also requires such a denial.

The motion is in all respects denied.


author: SULLIVAN, District Judge.

text:
    DAILY v. PARKER.
    No. 45 C 672.
    District Court, N. D. Illinois, E. D.
    June 29, 1945.

      Urban A. Lavery, of Chicago, Ill., for plaintiff.
    Eckert & Peterson, of Chicago, Ill., for defendant.
   SULLIVAN, District Judge.

On May 10, 1945, plaintiff filed her complaint in this court asking damages in tort in the sum of $300,000. Jurisdiction is invoked on the ground that plaintiff is a citizen and resident of Oil City, Pennsylvania, and defendant is a citizen and resident of Chicago, Illinois, and the amount involved exceeds the sum of $3000, exclusive of interest and costs.

Count I of the complaint is entitled enticement, and sets out that for several years prior to February 9, 1944, defendant, a woman of great wealth, illegally and maliciously induced Wilfred J. Daily, the husband of plaintiff, to consort and associate with her; and on or about February 9, 1944, defendant enticed and induced the said Wilfred J. Daily to desert and abandon his wife and four minor children, and to remain away from their home in Oil City, Pennsylvania, and to constantly and continually live and associate with defendant in sundry other cities and places, particularly in the City of Chicago. That by reason of the illegal and malicious acts and doings of defendant, plaintiff’s family life has been destroyed and all imponderables have been and will continue to be denied her; that the said Wilfred J. Daily has defaulted and failed in his financial duty and responsibility to plaintiff and to their children; except that after criminal non-support proceedings on behalf of plaintiff and her children were instituted against him in Pennsylvania, and a criminal extradition warrant presented to the Governor of Illinois, Wilfred J. Daily paid to plaintiff at various times a total of $500, which payments plaintiff believes will cease when such extradition proceedings are heard and determined. That Wilfred J. Daily refuses to leave defendant and return to live with his wife and children. Count II asks damages for alienation of affection, and Count III charges criminal conversation.

Defendant has filed a motion to strike and dismiss the complaint on the ground that Counts I and II are each in substance a claim for alienation of the affections of plaintiff’s spouse, and Count III charges criminal conversation, all of which actions are barred by the Statutes of Illinois and of Pennsylvania.

■ In 1935 the Illinois Legislature enacted Sec. 246.1 et seq. of Chapter 38 of the Criminal Code, Ill.Rev.Stat.1941, popularly known as the “Heart Balm Law,” entitled “An Act in relation to certain causes of action conducive to extortion and blackmail, and to declare illegal, contracts and acts made and done in pursuance thereof.” Section 1 of the Act made it “unlawful * * * to file” an action “[for] alienation ef affections, criminal conversation, or breach of contract to marry.” Section 2 made void all contracts in settlement of these claims or causes of action. Section 3 prohibited the naming of a correspondent in a divorce action. Sections 4 and 5 were penal provisions making it a crime to file the actions named in Section 1, or to name a correspondent in a divorce action, as prohibited in Section 3. Section 6 provided that actions pending at the time of the passage of the Act were not affected thereby. In the case of People v. Mahumed, 381 Ill. 81, 44 N.E.2d 911, the Supreme Court of Illinois held Sections 3, 4 and 5 of the Act invalid and unconstitutional, for the reason that the subject matter of those sections was not included in the Title of the Act, thus leaving in force only Sections 1 and 2. In 1935, Acts Ind.1935, c. 208, the Indiana Legislature passed a law abolishing the right of action for alienation of affections, criminal conversation and breach of contract to marry, as did also New York and Pennsylvania. The Illinois law, however, together with the laws of some eight or nine other states, only made it unlawful to file the actions. Defendant insists that the Illinois Legislature by this Act intended to, and did in effect abolish suits for alienation of affection, breach of contract to marry and criminal conversation, and that Sections 1 and 2 thereof, which are the only sections now in force, are in reality a declaration of public policy, and amount to a legislative recognition of the blackmailing propensities of persons bringing this type of cases. I cannot believe that the Illinois Legislature intended to enact a law which would result in the protection of persons guilty of alienating the affections of a husband or a wife, declaring the same to be a public policy in the interest of the public welfare, and at the same time make it unlawful for an aggrieved husband or wife to seek any redress for such injury, when the Constitution clearly provides that every person who is wronged or injured has a right to pursue his remedy.

The Indiana Statute abolishing the cause of action was passed prior to the time of the enactment of the Illinois legislation, and the Illinois Legislature, if it had intended to do so, I believe would have followed the Indiana law and abolished the actions, instead of merely prohibiting the filing of them, as it did. Section 1 of the Illinois law makes it unlawful to file such suits, and then in all other respects is almost identical with Section 3 of the Indiana law. In Pennington v. Stewart, 212 Ind. 553, 10 N.E.2d 619, 622, the Supreme Court of Indiana, in passing on the legality of Section 3 of the Indiana Act, said:

“The appellant and his attorneys are in this court testing the constitutionality of the act. They are asking for their day in court, and can it possibly be said that they are not entitled to this right without being branded as felons’ * * *? We do not think so. * * * ‘That is “due process of law,” a heritage from centuries of struggle which this nation and the constituent states have deposited in the corner stone of their written Constitutions. Everyone is entitled, some time, somewhere to his “dav in court.” ’ Consolidated Gas Co. v. Mayer, C.C., 146 F. 150, 152.”

Section 19 of Article II of the Illinois Constitution of 1870, Smith-Hurd Stats., provides that: “Every person ought to find a certain remedy in the laws for all injuries and wrongs which he may receive in his person, property or reputation, * *.”

In the case of Cunningham v. Dorby, pending in the Superior Court of Cook County, where defendant moved to dismiss the complaint for breach of promise to marry on the ground that the bringing of the action was prohibited by Section 1 of Chapter 38, Judge Padden, in denying the motion, said:

“The Constitution of the State of Illinois, Art. 2, Sec. 19, provides among other things:
“‘[That] every person ought to find a certain remedy in the laws for all injuries and wrongs which he may receive in his person, [in his] property, or reputation.’
“The section of the statute under consideration clearly deprives people of the right to sue for breach of contract to marry.
“The question does not present one of procedure or practice but of substantive fundamental law. If the legislature can deprive a person of the right to sue for breach of contract to marry, it can abolish the right to sue for the violation of any contract or other wrong. The marriage contract has always been considered in our law one bf the most important contracts, and to deny any one aggrieved the right to sue for a breach thereof, and to make it unlawful even to assert such right, seems clearly to contravene the Constitution of this State, which secures to all a remedy for every wrong. In fact, until Section 5 of the Act in question was held void by our State Supreme Court for a technical reason, the Act made it a criminal offense to assert the right in court or for an attorney at law to file such a suit.
“To uphold a law of this kind would be not only to ignore the plain provisions of the Constitution, but it would seem to put a premium on violation of the moral law, making those who violate that law a privileged class free to pursue a course of reprehensible conduct without fear of punishment, even to the extent of a suit for damages.
“A legislative enactment should not be lightly set aside, but where the violation of the fundamental law is clear, it should not be allowed to stand.
“No doubt suits for breach of promise are sometimes used as a form of blackmail, but that is a matter to be dealt with in a special way. The fact that the right is abused by some is hardly a justification for the denial of the fundamental right to redress by those who have a just cause of action.”

Within the past few days in the case of Charles Zaremba v. Anthony Skurdialis, for alienation of affections, Judge Charles A. Williams, in the Superior Court of Cook County, in denying a motion to dismiss also held the law prohibiting the filing of such suits unconstitutional.

I agree with the reasoning of Judge Pad-den in the case of Cunningham v. Dorby, supra. Therefore the motion to strike and dismiss in the instant case is denied, and defendant is given thirty days within which to answer.


author: JOYCE, District Judge.

text:
    SWENSON v. BOOS.
    Civil Action No. 1093.
    District Court, D. Minnesota, Fourth Division.
    June 22, 1945.
    Andrew E. Carlsen, of Minneapolis, Minn., for plaintiff.
    Charles V. Hildebrecht and Edward C. Grelle, both of Chicago, Ill. (F. A. Whiteley, of Minneapolis, Minn., of counsel), for defendant.
   JOYCE, District Judge.

This is a patent infringement suit in which an injunction and an accounting is sought. Plaintiff is the owner of letters patent No. 2,095,535 concerning artificial teeth. Defendant operates dental laboratories and manufactures the alleged infringing teeth. Defendant’s operations are closely connected with those of Austenal Laboratories, Inc., of New York and Chicago who, it is conceded, conducted the defense of this suit. Plaintiff is an authority on prosthetic dentistry and was formerly connected with the Austenal Company.

The nature of the patent is a pin-less or “diatoric” artificial tooth which is anchored in the plate or denture by means of cavities or recesses in the sides of the tooth into which the denture material is poured. When this hardens the tooth is firmly held in the denture. This type of anchorage is called interproximal retention. The patent covers only front or anterior teeth and contains two claims. The defenses are invalidity and non-infringement.

Plaintiff contends that the defense of invalidity is not available to defendant because of an estoppel by contract. The contract relied on is between plaintiff and Austenal. In brief, it grants to Austenal a license or option to exercise a license under two of plaintiff’s patents (including the one in suit) upon the payment of certain royalties. Paragraph 21 of the contract reads:

“(21) The parties hereto mutually agree that neither of them shall during the continuance of this agreement, question or bring into question directly or indirectly the validity of any of the patents of the other party which relate to this agreement.”

It is plaintiff’s position that Austenal’s assuming the defense of this suit places it and defendant in privity so that defendant is bound by the prohibition above quoted. I do not think this contention is sound. By undertaking the defense Aus-tenal became a privy, but not a party, to- the suit and is bound by the determination of the issues litigated herein. Van Kannel Revolving Door Co. v. Winton Hotel Co., D.C., 263 F. 988; Freeman-Sweet Co. v. Luminous Unit Co., 7 Cir., 264 F. 107; Gulf-Smokeless Coal Co. v. Sutton, Steele & Steele, 4 Cir., 35 F.2d 433. But it does not follow that Austenal’s becoming a privy to the suit makes defendant privy to the contract between Austenal and plaintiff to which defendant is not a party. There can be no estoppel by contract invoked against one who is neither a party nor privy to the contract.

In National Cash Register Co. v. Remington Arms Co., D.C., 283 F. 196, the determinative question was whether defendant was estopped from denying the validity of a patent. Plaintiff was the assignee of the patent; the assignor at the time of the suit was employed by defendant and was ■claimed to have cooperated with it in inventing and designing the alleged infringing machine. It was held that defendant was not estopped from asserting invalidity unless it was in privity with the assignor and their employer-employee relationship or the fact they might be joint tort feasors did not constitute privity. The court analyzed the case law thoroughly and among other things said:

“If plaintiff relies upon the contracts of Fuller [the assignor] with the plaintiff, Fuller becomes an indispensable party. He is a nonresident of this district, as is the plaintiff. As the doctrine of estoppel, if. invoked, may exclude the truth, it should not, I think, be extended to persons to whom it is not clearly applicable.” 283 F. 203.

Good Humor Corporation v. Bluebird Ice Cream & C. R., D.C., 1 F.Supp. 850 was a patent infringement suit where there was a covenant not to contest validity incorporated in a license between defendant and the Popsicle Corporation. Plaintiff sought to avail itself of this es-toppel although the Popsicle Company was not a party to the suit. In holding adversely to this contention the court said [page 852]:

“If by raising the question of invalidity now the defendant has breached its contract with the Popsicle Corporation, that corporation may very well have a right of action for such breach; but as to the plaintiff there is no such privity as to enable it to pursue any rights against the defendant except those which arise out of the patent grant. * * * As against the plaintiff, I can find no authority in law or in equity which would justify a holding that the defendant should be prevented from asserting any and all defenses against the plaintiff.”

I think these cases are applicable here. To invoke the estoppel against defendant it would be necessary to hold that Austenal was estopped and Austenal is not a party to the suit. If Austenal were not assuming this defense it could hardly be urged that defendant could not contest validity of the patent. In my view, this factor does not add to or detract from any of defendant’s rights. It is therefore unnecessary to consider any of the collateral questions which were raised relating to this contract.

Plaintiff also contends that as defendant introduced no expert testimony of its own the court would be justified in not considering the prior art — citing Waterman v. Shipman, 2 Cir., 55 F. 982; Bell v. MacKinnon, 2 Cir., 149 F. 205; General Electric Co. v. Germania Elec. Lamp Co., C.C., 174 F. 1013; and Malignani v. Hill-Wright Electric Co., C.C., 177 F. 430. In all of these cases patents relied on as anticipations were introduced without any elucidation and the court refused to consider them. That is not the case here. Defendant relies principally upon the “Ash” tooth. Models, catalogues, diagrams and the actual teeth are in evidence. Plaintiff, himself, was cross-examined at length on the applicability of the claims in his patent to the Ash tooth, and in rebuttal fully discussed his contentions in this regard. I do not think any court would be justified in refusing to consider this evidence. In any event, the cases relied on by plaintiff antedate the Equity Rules of 1912, 28 U.S.C.A. § 723 Appendix, which, at least in the opinion of Judge Learned Hand, supersede them. Kohn v. Eimer, 2 Cir., 265 F. 900.

On the question of anticipation I am confining my consideration to the Ash teeth. The evidence is conclusive that such teeth were manufactured in England, were described in printed publications, and were known and used in the United States more than two years prior to plaintiff’s patent application within the meaning of R.S. Sec. 4886, 35 U.S.C.A. § 31, which is applicable here. These teeth were not cited against the application which resulted in the patent in suit.

Certain technical terms are used in the patent claims which require definition. As so used, “lingual” means the rear or tongue side of the tooth; “labial” means the front or lip side; “incisal” is the cutting edge; “gingival” is the top or gum side; “mesial” refers to the side of the tooth toward the center of the mouth; “distal” refers to the side away from the center of the mouth. Claim 1 reads:

“An anterior artificial tooth having (a) substantially complete lingual and labial surfaces and (b) a substantially complete base portion having a base wall extending from the labial gingival to the lingual surface, (c) the labial portion being formed with a substantially vertical inner wall extending inwardly from the mesial and the distal sides and (d) the lingual portion be^-ing formed with an incisally inclined inner wall extending from the mesial and distal sides and intersecting said inner labial wall, (e) and the mesial and distal side walls of the base portion tapering inwardly toward said incisal portion from said base wall and intersecting said labial and lingual inner walls, thereby forming (fi an inwardly and incisally tapered recess at each side of the tooth, (g) said recesses being suited readily to receive the flow of the base material of the denture during molding, whereby the tooth is firmly interlocked in the denture by a pair of tapered gripping projections composed of the denture base material.” (The letters above are inserted for clarification and separate discussion).

The Ash tooth is similar in appearance to the patented tooth and obviously invokes the same principle of retention in the denture; i. e. it is held in place by the denture material solidifying in the recesses in the sides of the teeth. This principle was not new in the art as is disclosed by a number of the other patents cited. The Ash tooth has substantially complete surfaces and the labial portion of the base is formed with a vertical inner wall and the lingual portion with an incisally inclined inner wall to the same extent as in the patented tooth. The side walls of the base portion also taper inwardly and downwardly to form the recesses in exactly the same manner as in the patented tooth. The only part of the claim which presents a serious issue is that which reads:

(b) “A substantially complete base portion having a base wall extending from the labial gingival to the lingual surface,”

The application of this language to the Ash tooth was a matter of sharp dispute at the trial. Plaintiff testified concerning it at considerable length with the use of a prepared chart and manuscript. The base portion of the Ash tooth has a hump or jog near the lingual portion while plaintiff’s tooth does not. The degree and size of this hump varied between the different Ash teeth in evidence. On those used by plaintiff for his diagram it is more marked than on the actual teeth in evidence on which defendant relies. It is also conceded that when any of the teeth are fitted to the individual a certain amount of grinding may be necessary which would tend to decrease this variance between the two types of teeth. Plaintiff testified that the Ash tooth would require much more grinding than his although he had never worked with Ash teeth. The materiality of this line of testimony is doubtful as it is the claims of the patent which define the invention. Altoona Publix Theatres v. American Tri-Ergon Corp., 294 U.S. 477, 55 S.Ct. 455, 79 L.Ed. 1005; White v. Dunbar, 119 U.S. 47, 7 S.Ct. 72, 30 L.Ed. 303.

After careful consideration of all the evidence, it is my conclusion that while neither tooth has a complete base portion, the term “substantially complete base portion” is applicable to both. Both also have a “base wall extending from the labial gingival to the lingual surface.” In neither tooth is this base wall uninterrupted and the interruption, if I may so term it, is slightly more marked in the Ash tooth. I believe the difference is of degree only and not of kind and that there is no patentable distinction between the two.

Claim 2 of the patent is in similar language to claim 1 with two further limitations which read:

(h) “That portion of the base wall to the rear of the labial portion of the tooth being reduced substantially in width,” and (i) “The lingual portions of the tooth being formed with an incisally inclined inner wall extending from the lingual gingival toward the incisal edge * * *

The base wall in both teeth at the rear of the labial portion is reduced by approximately one-half. The rest of the base wall toward the lingual surface is circular in the patented tooth and rectangular in the Ash tooth. There is no showing that this is a material factor and the language of the claim is broad enough to cover either. The language above quoted under (i) is simply a further clarification describing the walls which form the recesses at the side of the teeth, which as mentioned above, are substantially the same in each.

For the reasons given above I reach the conclusion that the claims of the patent in suit were anticipated by the Ash tooth and did not constitute patentable invention, as a consequence of which the patent is invalid. It is therefore unnecessary to consider the question of infringement. Judgment will be for defendant whose counsel will submit findings of fact and conclusions of law in accordance with the views expressed in this memorandum, of which the memorandum will be a part.

Plaintiff is allowed an exception.


author: ST. SURE, District Judge.

text:
    BLEDSOE v. JOHNSTON, Warden.
    No. 24843-S.
    District Court, N. D. California, S. D.
    July 20, 1945.
    Morris M. Grupp, of San Francisco, Cal., for petitioner.
    Frank J. Hennessy, U. S. Atty., and Joseph Karesh, Asst. U. S. Atty., both of San Francisco, Cal., for respondent.
   ST. SURE, District Judge.

Petitioner seeks his release from Alcatraz Penitentiary upon a writ of habeas corpus, on the ground that he has been unlawfully restrained of his liberty since September 15, 1944, due to the fact that he has fully served and discharged the sentences and judgments imposed upon him by the District Court of the United States, Eastern District of Texas, Paris Division, in Actions Nos. 1335 and 1166. Respondent moves to dismiss the petition.

On November 28, 1944, this court ordered that petitioner be returned to the United States District Court for the Eastern District of Texas, where he was originally sentenced, for further proceedings, on the ground that there was a discrepancy between the minute order entered by the clerk, stating that the sentences should be concurrent, and the judgments and commitments signed by the judge, providing that each sentence should “run consecutive with” the other, and that this ambiguity made it impossible for this court to determine whether the sentences imposed upon petitioner were to run concurrently or consecutively, or if they were intended to run consecutively, which of the sentences was to run first. Bledsoe v. Johnston, D.C., 58 F.Supp. 129.

In conformity with the order of November 28, 1944, further proceedings were had in the Eastern District of Texas, at which petitioner was present. Judge Robert L. Williams, who had imposed the original sentences, testified that he had stated in open court at the’ time petitioner was sentenced, that the sentence in Action No. 1166 would begin after the sentence in Action No. 1335 was served; .that he had marked the sentence in Action No. 1166 “cumulative” on his docket. He said: “And that’s what I understand ‘cumulative’ to mean. It’s in addition to something that goes before it.” His testimony was supported by the docket sheets kept by him, which were introduced in evidence at the proceeding for correction of the record. The words “cumulative sentences” are defined as “separate sentences (each additional to the others) imposed upon a defendant who has been convicted upon an indictment containing several counts, each of such counts charging a distinct offense, or who is under conviction at the same time for several distinct offenses; one of such sentences being made to begin at the expiration of another.” Black’s Law Dictionary, 2nd Ed.

Petitioner announced in open court that he did not desire to offer any evidence.

It is clear that the true sentences pronounced at the time of petitioner’s conviction were for consecutive terms of imprisonment, the term in Action No. 1166 to commence at the expiration of the term in Action No. 1335.

It is the contention of petitioner that the sentences as set forth in the minute order and the judgments and commitments were to run concurrently, and therefore there was nothing for the Texas District Court to correct. I think, and so held in Bledsoe v. Johnston, 58 F.Supp. 129, supra, that the record produced an ambiguity, and that it was proper that it be corrected to show the truth; that is, the actual sentences imposed orally in the presence of petitioner. Buie v. United States, 5 Cir., 127 F.2d 367; Downey v. United States, 67 App.D.C. 192, 91 F.2d 223.

Petitioner contends further that the trial court in Texas in its order correcting the record changed “the judgment which it had originally issued over its own signature by adding thereto a fine of $100.00 in each of the sentences.” Petitioner was convicted for two violations of 18 U.S.C.A. § 315, which provides for a fine of not more than $1000 and imprisonment for not more than five years. The imposition of a fine is therefore mandatory. Judge Williams testified, and his testimony is supported by his docket entry and the court records kept in the office of the United States Attorney, that a fine of $100 was imposed upon petitioner in each action at the time sentence was originally pronounced. However, it is unnecessary for this court to determine whether or not the imposition of the fine constituted an invalid increase of the original sentence. “It is well settled that where a court has jurisdiction of the person and of the offense, the imposition of a sentence in excess of what the law permits does not render the authorized portion of the sentence a nullity, but leaves open to attack on ha-beas corpus only such portion of the sentence as is excessive.” McKee v. Johnston, 9 Cir., 109 F.2d 273, 276; McDonald v. Johnston, 9 Cir., 149 F.2d 768. Further, the order correcting the record expressly provides that the defendant shall not stand committed in default of payment of the fine; therefore the imposition thereof is not the subject of a habeas corpus proceeding.

The motion to dismiss the petition will be granted.