author: CAMPBELL, District Judge.

text:
    M. & B. MFG. CO., Inc., v. MUNK et al.
    No. 6903.
    District Court, E. D. New York.
    March 2, 1934.

      Kommel & Rosenberg, of New York City (Morris Kirschstein, of New York -City, of counsel), for plaintiff.
    John W. Remer, of New York City (C. James Cottrell, of New York City, of counsel), for defendants.
   CAMPBELL, District Judge.

This suit is for the alleged infringement of reissue patent No. 18,100, issued to Frederick J. Mersfelder and Paul Baize, assignors to the plaintiff, on June 16, 1931, on application filed February 4,1931, and coupled with 'cause of action for unfair competition.

The original patent No. 1,702,878 was issued February 19, 1929, on an application filed May 18, 1927.

A reissue patent No. 17,528 was issued December 17, 1929, on an application filed May 7, 1929.

A second reissue patent No. 17,667 was issued May 13, 1930, on an application filed March 3, 1930.

The patent in suit is therefore the third reissue the application for which was filed within two years after the date of the issue of the original patent.

The plaintiff is a New Jersey'corporation, and all of the defendants are citizens of the state of New York; the defendant Paul Munk & Co., Inc., being a New York corporation.

The clean-out plug of the patent in suit has gone largely into commercial use, and from the time of its first introduction to the trade, was given a definite name, to wit, “Fit-All” clean-out plug, by which it has become and ever since has been known in the trade. This name “Fit-All” was placed on the commercial product.

The defendants manufacture and sell clean-out plugs for the same purposes but of somewhat different appearance than'plaintiff’s commercial structure, and have applied the name “Takall” to the alleged infringing plugs.

The defendants have interposed an answer setting up the defenses of invalidity and non-infringement.

The object of the invention is described by the patentees in the specifications as follows:

“This invention relates to improvements in drainage clean out devices and has particular reference to detachable members used in connection with clean outs on drains.
“The ordinary clean out used in connection with drains, consists of a body in the nature of a hollow cylinder of a suitable size, into one end or side of which is fitted, by a screw thread, a brass plug. The body is usually made of iron and is caulked into the hub of the pipe or trap, leaving the brass plug removable for the purpose of cleaning the drain or trap. In many cases the brass plug is lost or broken requiring its replacement.
“Since the threaded portions of the body and plug vary somewhat as to their diameters from other bodies and plugs, it becomes very difficult to obtain the size of the new plug that will properly fit the body. In many eases it becomes neeessary to remove the old body from the hub and to replace it with a new body for which the plug is furnished, but this replacement of the new body and plug involves much labor and expense.
“Among the objects therefore of this present improvement is to provide a member such as a plug which will fit into threaded clean- _ out bodies of various diameters and which consequently will eliminate the necessity for replacing or renewing the body of the clean-out when only a new plug is required. This object is attained by providing, for example, a new plug having a soft metal thread characterized by an excessive taper whereby the plug will fit threaded body openings of substantially varying diameters; and another object is to so form the thread or threaded surface portion of the new plug in an improved manner so that the normal yielding or conforming action of the soft metal may be increased.” Page 1, lines 1 to 41.

Of course, the plug must fit tightly to prevent the escape of sewer gas.

The invention met with success.

The patentees organized the M. & B. Manufacturing Company, Inc., and for a time manufactured and sold the plugs; but the demand for them grew so large that it became neeessary for the M. & B. Manufacturing Company, Inc., to look for a manufacturer, and it entered into an agreement with the Flemm Lead Company, which had previously been licensed to sell the plug, wherein it licensed the Flemm Lead Company both to manufacture and sell, and that licensee has sold over 100,600 of the patented plugs (Exhibits 5, 8, and 9).

Exclusive sales agreements were granted for Chicago, Detroit, and Buffalo.

The plugs sold were all of the soft metal layer or soft thread type.

The Simplex Manufacturing Company took a license, Bensonhurst Plumbing Supply Company, Inc., consented to a decree in open court upon the day of trial, and Clinton Plumbing Supply Company consented to a decree and paid damages.

The individual defendants herein for a time in 1930 sold what were claimed by the plaintiff to be infringing plugs, but ceased when pressed by counsel for the licensee, by letter dated December 20, 1930 (Exhibit 20).

The defendants Paul Munk and Albert Munk were doing business under the firm name and style of Paul Munk & Co., at No. 36-11 Thirty-Third street, Long Island City, borough of Queens, and state of New York, where the infringing acts complained of were, and at the time of the commencement of this action were being, committed.

The defendant corporation was organized by the said Paul Munk and Albert Munk, doing business under the firm name and style of Paul Munk & Co., in January or February, 1933, acquired the assets and assumed the liabilities of said Paul Munk & Co., and took an oral license from a Mr. Wallaeh and commenced the manufacture and sale of the alleged infringing plugs.

The claims in suit are claims 6 and 7, which read as follows:

“6. In combination, a plug having a tapered threaded outer surface and a member having a tapered threaded opening receiving said plug, said surface having approximately the same number of threads as said member, the taper of the threaded surface of said plug being so substantially different than the taper of said opening, that only a fractional section of the plug is adapted to engage in said threaded opening or in similar threaded openings of various sizes, whereby said plug may be used with members having threaded openings of substantially varying sizes.
“7. A clean-out plug having a threaded outer surface adapted to be engaged with a drainage fitting having a tapered threaded opening for receiving said plug, the taper of the threaded surface of said plug being so sufficiently greater than the taper of said opening that only a fractional section of the plug may be engaged with said opening or with similar threaded drainage openings of various sizes.”

These two claims do not require soft metal surface or soft metal thread.

What they do require is (claim 6) a combination having a clean-out plug, and (claim 7) a clean-out plug having a taper so much greater than that of the threaded opening of the fitting that only a fractional portion of the plug is engaged with the opening, and the number of threads on the plug being the same as the number of threads on the fitting.

Defendants do not escape infringement by reason of their failure to use soft metal for the plug thread, as that is not mentioned in these claims. It is a feature of other claims, and believing that feature to be of advantage, the patentees, in disclosing as required by statute their preferred form, properly disclosed the use of the soft metal thread, but it is not necessary for the proper functioning of the plug that the metal of the thread be soft. Defendants’ plug will function for the purpose but not as well as plaintiff’s commercial structure, and it is no defense that defendants do not avail themselves of all of the advantages of the patented structure.

The defendants adopted and used the word “Takall” as a name for their plugs from about the date of the organization of the corporate defendant.

The defendants’ Takall plugs are intended for use with standard drainage fittings, that is ferrules, or trap bodies having the standard pipe taper. In them are found the same number of threads as that on the ferrule or trap body, a taper so excessive or so much larger than that of the standard pipe taper of the ferrule that only a small fraction of the Takall plug engages the ferrule.

These plugs it seems clear to me infringe, if claims 6 and 7 of the said patent are valid.

Defendants attack the validity of the reissue patent in suit, on the ground that “it appears clear that there could not be such inadvertence, accident and mistake as to necessitate three reissue patents.”

This defense was not pleaded and therefore should not be considered. Wayne Mfg. Co. v. Coffield Motor Washer Co. (C. C. A.) 227 F. 987; Asbestos Shingle, Slate & Sheathing Co. v. H. W. Johns-Manville Co. (C. C.) 184 F. 620, 631.

It is inadvertence to make or accept claims not commensurate with the invention entitling the inventor to a reissue. American Automotoneer Co. v. Porter (C. C. A.) 233 F. 456, 460; Autopiano Co. v. American Player Action Co. (C. C. A.) 222; F. 276.

In any event, the action of the Commissioner of Patents in reissuing the patents is presumptively correct. Rousso v. New Ideal Laundry Co. (D. C.) 9 F.(2d) 1012, 1013.

There is no allegation or claim of intervening rights in this -case, nor do I see how-such claim could he made successfully as the first structure sold by the defendants other than the corporate defendant, which the plaintiff claimed infringed, embraced every feature of the patent, including the soft metal for the plug thread, and infringed the claims of the original patent as well as those of the next two reissues.

Furthermore, such defense could not be sustained in equity, as the defendants never made a structure relying upon the claims in the original or first two reissues before the third reissue patent was issued.

The defendants offered in evidence 26 pri- or patents but relied only on the following, patents: Patent No. 507,000 to Higbee, referred to on page 1 of the specification in the second paragraph of the later Higbee patent next to be cited, and was therefore in the record. Patent No. 658,087 to Higbee, cited by the Patent Office during the prosecution of the application which matured into the reissue patent in suit. Patent No. 1,316,969 to Nichols, cited by the Patent Office in the prosecution of the application which matured into reissue patent No. 17,528, which was reissued into the reissue patent in suit. Patent No. 105,200 to Allison, not cited in the Patent Office. Patent No. 1,007,068 to Cornelius, not cited in the Patent Office.

The first patent to Higbee, No. 597,000, issued January 11,1898, is for a screw union or coupling, and the patentee stated in his specification the object of his invention to be as follows: “The object of my invention is to increase the tightness of the joint formed between the male and female members of the coupling, so as to adapt such unions for use in pipes or chambers of any description where gas or liquid is contained under pressure and for which uses screw-joints have heretofore been found unsatisfactory or defective.” Page 1, lines 15 to 22.

The second patent to Higbee, No. 658,087, issued September 18, 1900, is for screw coupling, and is stated by the patentee to be for an “Improvement in Screw Couplings.”

The object of the invention is stated by the patentee in his specification to be as follows: “My invention relates to screw-couplings of the general character described and shown in my prior patent, No. 597,000', of January 11, 1898, the object of my invention being to provide a coupling of this character in which the form of the threads will be especially advantageous; and my invention consists in providing a serew-eoupling in which one member has its thread formed upon a conical surface, and the other member its thread formed upon either a cylindrical or conical surface, preferably less inclined than the other, with threads the sides of which are angular and the tops and bottoms of which are squared, the tops being considerably broader than the bottoms and the corners, where the squared tops and bottoms intersect the angular sides, being preferably slightly rounded.” Page 1, lines 11 to 28.

Both of these patents are concerned with pipe joints or sbrew union for pipes or chambers where gas or liquid is contained under pressure, made so strong that they will not burst even under great pressure.

In both patents dependence is placed upon the shape of the threads, which are made in such a way that the metal will flow during the screwing movement to form a very strong joint.

In the earlier Higbee patent the male and female threads are rounded off at the apices. In the later Higbee patent the apices and bottoms of the threaded grooves are rounded off with a substantially similar effect.

The object of the patent in suit is the direct opposite of the purposes of the Higbee devices.

The patent in suit is for a specific article of manufacture, a clean-out plug in which the connection between the plug and ferrule, while being tight, is not permanent, and the plug is not prevented from being unscrewed.

Higbee does not even suggest the combination of the excessive plug taper with the standard pipe thread taper of the fitting, whereby only a fractional portion of the plug engages the fitting. These patents do state that the male threads may be on the surface of a cone of somewhat greater angular divergence than the cone of the female threads, but the purpose of that is to have a particularly tight engagement of some of the threads.

All the threads of the male member engage in the threads of the female member of the devices of Higbee, the divergence being so slight as not to permit any threads to be out of engagement. In the patent in suit, on the contrary, the plug will fit openings of varying sizes, and in each ease only a few threads will engage.

No screw connection could be made in the devices of the Higbee patents if the female threaded surface was larger or varied, and there could be no tight screw-joint as apparently intended, as is necessary for pipes containing fluid or gases under pressure. In Higbee patent No. 597,000 the taper of the male portion A is so slightly greater than the taper of the conical portion B, that if the conical portion B were of somewhat greater diameter, no engagement could be made. The difference in taper in the Higbee is not, as in the patent in suit, to permit the plug to fit openings of varying sizes, but as some of the threads at one end are slightly oversize, and have greater pressure than other threads, the purpose is, as the drawings show, to have all threads in engagement, the threads of the male member pressed out of shape due to the powerful engagement of the threads.

The Nichols patent, No. 1,316,969, issued September 23, 1919, is for a tight-joint cover, and discloses a cover having inner and outer annular flanges 17 and 19, receiving therebetween the upper edge 13 of the trap or member 10. The upper edge 13 is formed with an inner cylindrical threaded surface coacting with the outer threads of the inner flange 19. The threads on the portion 19 are on a slightly beveled surface to permit the cover to be started by hand easily.

The objects of the invention were stated by the patentee in his specification as follows:

“The object of my invention is to provide a tight joint cover for traps or bath tubs, clean-out pipes, waste line pipes and the like, which does not require packing.
“More particularly it is my object to provide a tight joint cover whereby a metal to metal tight joint can be .secured, thereby doing away with the use of rubber or other nonmetallie gaskets.
“A further object is to provide such a tight joint cover comprising a cylindrical wall having in its upper end interior serew-throaded portions, in connection with a coyer having an external flange, and a downwardly extending inwardly spaced internally screw-threaded flange, the upper surface of which is beveled on an angle slightly different from that of the inner surface of the screw-threaded portion of the wall, so that when the cover is screwed into the wall, the upper edge of the wall will be firmly gripped between the two flanges.” Page 1, lines 8 to 30.

And further says: “The outer surface of the flange 19 is slightly beveled from top to bottom so as to permit the cover to be started by hand easily.” Page 1, lines 67 to 70.

As the cover is screwed onto the upper end portion 13, said upper end portion is tightly wedged between the flanges 17 and 19; therefore if the opening of the flange or edge portion 13 were larger, there would be no wedging action.

The Nichols drawing is exaggerated, as the specification says that the bevel of the flange 19 is slight and merely for the purpose of permitting the threads to be started easily by hand. All the threads will engage, and the slight taper will not permit the cover to be used with openings of larger or smaller size. It is the intention of Nichols that each time the cover is screwed on, the upper edge 13 must be forced into the groove formed by the two flanges 17 and 19, so as to be tightly wedged and pressed against the said flanges.

The Nichols patent shows nothing indicating that the patentee had in mind or contemplated the use of his flanged cover with openings of various sizes. The problem he was attempting to solve was not the problem which confronted the patentees of the patent in suit.

The Allison patent, No. 105,290; for improvement in pipe couplings, issued July 12, 1870.

The patentee in his specification states the nature and object of his invention as follows:

“My invention consists of a coupling in which tapering and vanishing screw-threads on the ends of the tubes, pipes, or rods to be coupled together, are combined with a socket, having internal vanishing and tapering screw-threads, corresponding to those on the tubes, rods, &c.
“The object of my invention is to effect a more perfect and secure junction of tubes, &e. than has been heretofore accomplished by screw-couplings.” Page 1, lines 7 to 15.

Pig. 2 of the Allison patent does not embody his invention, but illustrates the ordinary method of coupling pipes together at that time which Allison sought to displace. It does not show the combination of a tapered plug and a tapered opening.

Pig. 3 shows the Allison invention, which consists in cutting the screw threads so that they shall gradually vanish until the thread disappears.

This is not what is called for by claim 6 of the patent in suit, in which a “plug having a tapered threaded outer surface, and a tapered threaded inner surface receiving said plug,” is required.

The problem which confronted Allison was quite different from that which the patentees of the patent in suit solved.

To solve their particular problem the patentees of the patent in suit conceived the idea of providing a plug of which only a fractional part engaged the fittings, while in Allison no threads are entirely out of engagement.

Allison says in his specification: “It has been usual to cut a slightly tapering screw on the ends of the adjoining tubes, while an internal screw-thread, without any taper, was formed in the socket; hence but a portion of this internal thread of the socket was in proper binding contact with the threads of the pipes, as clearly shown in Fig. 2, the greater portion of the threads, both on the tubes and in the socket, being of no avail as mediums for effecting a tight junction of the two tubes. This defect which is too clearly explained by the diagram, Fig. 2 to need further explanation. * * * ”

This clearly shows that while Fig. 2, for the purpose of exaggerating the defect Allison seeks to remedy, shows some threads not in contact, what he intends to show is that these threads do not have “a proper binding contact with the threads of the pipes.”

The remedy is shown in Fig. 3 by Allison’s invention, his “disappearing threads.”

The Cornelius patent, No. 1,007,068, for valve-seating 'tool, issued October 31, 1911. This patent is not for a plug of any kind hut is for a valve-seating tool. No member having an opening is disclosed, and it does not eover the combination of a tapered clean-out plug and a drain fitting having a tapered threaded opening to which the plug is screwed. The members 4 and 5 of Cornelius are screwed to each other as at 4a, on two cylindrical threaded surfaces. The member 4 is formed with a cylindrical opening slid-ably receiving the stem 1 of a tool for reaming or dressing valve seats. The Cornelius patent has nothing to do with clean-out plugs or drainage fittings, and does not show or even indicate that the members 4 or 5 are used or intended to be used with a drainage fitting, having a tapered threaded opening of a taper less than the taper of said members.

The members 4 and 5 are not really screwed into any member, but only make a kind of detachable connection therewith to center the tool, and as soon as the reaming operation is over, a slight turn 'will release members 4 or 5 from the member.

The Durst Catalog: The defendants not being prepared to prove this catalog or its publication, permission was given to the defendants to take a deposition for this purpose.

The deposition of Mr. Redlieh was taken, and he testified that he was the secretary of the Durst Manufacturing Company since 1912, and that he had in his possession the catalog, Defendants’ Exhibit H, at his office before 1920. The witness fixed the date from recollection and there is no corroboration of his testimony. Objection was made by plaintiff to the admission of this catalog in evidence, on the ground that the same is incompetent and not properly proved.

There was no proof that the catalog was ever circulated or distributed to the public, and the mere fact that it is a printed catalog which was in possession of the Durst Company is not sufficient. Britton v. White Manufacturing Co. (C. C.) 61 F. 93, 95; Reeves v. Keystone Bridge Co., 20 Fed. Cas. page 466, No. 11,660; Camp Bros. & Co. v. Portable Wagon Dump & Elevator Co. (C. C. A.) 251 F. 603; Jockmus v. Leviton (C. C. A.) 28 F.(2d) 812, 814; Thacher v. Inhabitants of Town of Falmouth (D. C.) 235 F. 151; Cottier v. Stimson (C. C.) 20 F. 906, 910.

The objection of the plaintiff is sustained, with exception to the defendants.

However, if I am in error in sustaining plaintiff’s objection, and it be assumed hut not found that the catalog Defendants’ Exhibit H is a prior printed publication, the same does not anticipate plaintiff’s patent.

On page 19 of the catalog there is shown a hath cock having a conical tapered screw thread, with no description of the device except the following: “Fits any size bath cock.” There is no explanation as to how the device is to be used, nor to what type of screw threaded opening the bath cock is to be screwed, and to be effective prior publications must substantially furnish such details as are necessary for the practical working of the alleged invention. Young Radiator Co. v. Modine Mfg. Co. (C. C. A.) 55 F.(2d) 545; Union Tool Co. v. Wilson & Willard Mfg. Co. (D. C.) 237 F. 837; Linde Air Products Co. v. Morse Dry Dock & Repair Co. (C. C. A.) 246 F. 834.

I find nothing in the catalog which anticipates the patent in suit, which is for a combination of a drainage plug and a drainage fitting, the taper of the plug being defined as being substantially greater than the taper of the opening of the drainage fitting.

At page 10* of the same catalog there is disclosed a reamer, but it does not disclose anything which is not shown in the Cornelius patent, and does not add anything thereto.

An examination of the prior art leads me to the conclusion that nothing in the prior art shows a device intended or conceived for the same purpose as that of the patented plugs, nor does it appear in any of the prior art that the prior inventors even considered or had in mind the problem solved by the patentees.

None of the prior patents nor the Durst Catalog can be considered as anticipations. National Battery Co. v. Richardson Co. (C. C. A.) 63 F.(2d) 289.

Defendants further contend that by reason of the cancellation of the claims after rejection by the Patent Office, plaintiff is es-topped to make claims 6 and 7.

This contention is not sustained.

Claim 3 as originally presented and canceled by the patentees after rejection by the Patent Office was more specific than claim 3 of the first reissue patent No. 17,528, and of entirely different scope.

Claim 3 of the reissue patent No. 17,528 defines the plug as being rust-proof, whereas in claim 3 as originally presented in the patentees’ original application there is no such limitation.

Furthermore, claim 3 of the reissue patent defines the plug as having approximately the same number of teeth as the opening. There is no such limitation in claim 3 as originally presented. Claim 3 of the said reissue patent is for a combination, rust-proof clean-out plug and threaded drainage fittings of various sizes, while claim 3 as originally presented is for a combination of a body having an opening and a member fitting into the opening.

Claim 6 as originally presented and canceled by the patentees after rejection by the Patent Office is of different scope than claims 6 and 7 of the reissue patent in suit. These claims set forth, in the reissue patent in suit, that the taper of the plug is so sufficiently greater or different from the taper of the threaded opening, that only a fractional section of the plug will engage with the opening, and the plug will fit similar threaded drainage openings of various sizes. There are no such limitations in the canceled claim 6 as originally presented in the patentees’ original application. Nowhere in the original claim 6 is it stated that the taper of the plug is so sufficiently greater that only a section of the plug will engage the threads of the openings, and that the plug will fit openings of various sizes.

Defendants also attack the claims in suit as being indefinite; but I see no merit therein, as I find the claims accurately define the invention in clear language that any one versed in the art can understand, and that is shown by the structure of the defendants. Claims in which terms such as “high,” “substantial,” “substantial elevation,” “high elevation,” “rapidly,” and “substantially smaller” were included have been sustained. Eibel Process Co. v. Paper Co., 261 U. S. 45, 65, 43 S. Ct. 322, 67 L. Ed. 523; Eibel Process Co. v. Remington-Martin Co. (C. C. A.) 234 F. 624; and Hewes & Potter, Inc., v. Meyerson (D. C.) 51 F.(2d) 405.

The elements of novelty and utility are present in the patent in suit.

The patentees solved their problem by invention and not simply by their acts as skilled mechanics, and this is apparent as the art had been faced by this problem for nearly fifty years, and yet no one had solved it by following the teaching of the prior art. Inland Mfg. Co. v. American Wood Rim Co. (C. C. A.) 14 F.(2d) 657, 659.

Viewed in the light of knowledge after the event, the invention may be considered simple, but that does not detract from its patentability. Yawman & Erbe Mfg. Co. v. Vetter Desk Works (C. C. A.) 159 F. 443, 445; Dececo Co. v. George E. Gilchrist Co. (C. C. A.) 125 F. 293, 298; A. Kimball Co. v. Noesting Pin Ticket Co. (C. C. A.) 262 F. 148,150; Webster Loom Co. v. Higgins, 105 U. S. 580, 591, 26 L. Ed. 1177; Bray v. United States Net & Twine Co. (C. C.) 70 F. 1006, 1007; Lane v. Craftsmen Film Laboratories, Inc. (C. C. A.) 7 F.(2d) 288; Bossert Electric Const. Co. v. Pratt Chuck Co. (C. C. A.) 179 F. 385; Hewes & Potter, Inc., v. Meyerson, supra; O. K. Jelks & Son v. Tom Huston Peanut Co. (C. C. A.) 52 F.(2d) 4; Sheridan v. Silver-Brown Co. (D. C.) 4 F. Supp. 759.

Claims 6 and 7 of the patent in suit are valid and infringed.

As to Unfair Competition.

This cause of action was pleaded separately and in aggravation of damages.

The plugs put out by the defendants, while they infringe, differ in appearance from plaintiff’s commercial structure.

The names Fit-All and Takall do not impress me as being so similar that they would deceive, and no evidence was offered to show that there had been any, confusion in the trade, or that the defendants had attempted to palm off their plugs bearing the mark Takall for that of the plaintiff.

Registration of plaintiff’s trade-mark under the Trade-Mark Act of 1905 (15 USCA § 81 et seq.) did not give it in this country any effect as a source of title or as evidence thereof.

Unfair competition was not sustained either as a separate cause of action or in aggravation of damages, and that cause of action is dismissed, without costs.

A decree may be entered in favor of the plaintiff against the defendants, in accordance with this opinion, with injunction, costs, and the usual order of reference, and in favor of the defendants dismissing the cause of action for unfair competition, and also the charge thereof in aggravation of damages, without costs.

Settle decree on notice.

Submit proposed findings of fact.


source: Caselaw Access Project

author: REEVES, District Judge.

license: Public Domain

text:
    KATZ DRUG CO. v. W. A. SHEAFFER PEN CO.
    No. 1749.
    District Court, W. D. Missouri, W. D.

      Sept. 23, 1932.

    See, also, 6 F. Supp. 212.
    Ryland, Stinson, Mag & Thomson, of Kansas City, Mo., for plaintiff.
    Lathrop, Crane, Reynolds, Sawyer & Mersereau, of Kansas City, Mo., and E. H. Pollard, of Port Madison, Iowa, for defendant.
   REEVES, District Judge.

Heretofore plaintiff filed its bill in equity to enjoin the defendant from fixing a retail or resale price of certain articles mentioned by it and particularly an article described as “Sheaffer Lifetime Fountain Pen,” and also to enjoin the defendant from prosecuting an action styled “W. A. Sheaffer Pen Company, Plaintiff, v. Katz Drug Company, Defendant, Equity No. 45070; In the District Court of the State of Iowa, in and for Polk County.”

It appears from plaintiff’s bill that it is engaged in the operation of drug stores in Kansas City, Mo., Kansas City, Kan., St. Joseph, Mo., and Des Moines, Iowa, and that in addition to the usual business of druggists it sells fountain pens, pencils, desk sets, et cetera.

Plaintiff advertises and has advertised the sale of such articles at “cut prices.” It further alleges that it has acquired quantities of the article designated as “Sheaffer Lifetime Fountain Pen,” and that it has endeavored to sell such articles at what it terms “cut prices.” It avers that the defendant is engaged in the manufacture of such article at Port Madison, Iowa, and is and was extensively engaged in selling such article to its various customers and dealers throughout the United States and that such sales were “outright sales.”

Plaintiff complains that by sundry means the defendant maintains a control over the resale price of its article and thus and thereby creates “a virtual monopoly therein,” and by such means, as it is alleged, unduly and unlawfully restrains “the free exercise of the right to trade in such products, and unlawfully and unduly restrain (s) competition, all in violation of the Clayton Act and of the Sherman Anti-Trust Law of the United States.” This, it is alleged, is done notwithstanding the fact that the defendant transfers full title to its customers on the sale of its article.

It is further alleged that said article, by reason of extensive advertising, has become and is widely and well known as a valuable and useful article, and that said article not only has a good reputation, but there is an extensive demand and market for said article in the retail trade. It is complained by plaintiff that the defendant by unlawful practice has “sought to embarrass and hinder the plaintiff and such other dealers in the lawful prosecution of their businesses” with respect to the sale of said article.

Although the defendant has refused to sell its article to plaintiff, yet it is alleged that plaintiff has acquired from others quantities of such articles and has offered such articles for sale. It is particularly averred that in December, 1930, plaintiff had acquired and was seeking to sell at cut prices said article, whereupon on December 20, 1930, a suit was filed against plaintiff, as above stated, whereby it was sought to restrain plaintiff from selling said article at its place of business in Des Moines, Iowa, on the ground that such article, namely, “Sheaffer Lifetime Fountain Pen,” had been “altered, mutilated or damaged.”

Plaintiff was enjoined from selling said article. It alleges that the only damage, mutilation, or alteration had consisted in the removal of serial numbers from said articles and that this had been done, or forced by reason of the unlawful practice of the defendant and for the sole purpose of escaping the penalties exacted and,threatened by the defendant to “those of its dealers who permitted its pens to be resold to other dealers, or to those (such as plaintiff) who would not maintain the defendant’s fixed retail prices.”

While plaintiff alleges that it has set up in its defense in the Iowa court the same matters here alleged in the way of affirmative relief, yet it says that it cannot there obtain the extensive and complete relief afforded in this court of equity. Accordingly, it seeks to enjoin the prosecution of that action pending a determination in this court as to whether it is entitled to an injunction against the defendant from any interference with the resale of the article mentioned by the defendant as above stated.

When the suit was filed plaintiff caused subpoenas in chancery to be issued and one was served at Kansas City, Mo., within the division and district where the suit was filed upon a salesman of the defendant and another subpoena was served upon an officer of the defendant at its place of business in Port Madison, Iowa. This service was under the provisions of section 22, title 15, United States Code (15 USCA § 23), as follows: “Any suit, action, or proceeding under the antitrust laws against a corporation may be brought not only in the judicial district whereof it is an inhabitant, but also in any district wherein it may be found or transacts business; and all process in such eases may be served in the district of which it is an inhabitant, or wherever it may be found.”

The defendant has moved to quash the service in both eases and particularly the service upon its salesman at Kansas City.

1. This is a venue statute which enables a complainant to file his suit in any district wherein the defendant may be found or where it “transacts business.” Upon the theory that it was transacting business within the district, this suit was filed. The evidence tended to show that the defendant had a salesman whose business it was to solicit orders and then forward same to its place of business at Port Madison for acceptance or confirmation. It could hardly be denied that to obtain an order was the transaction of business. It appeared that defendant’s agent devoted all of his time as salesman within the territory comprehended within the judicial district and certain additional territory. Orders were taken by him at Kansas City, St. Joseph, and Sedalia. Undoubtedly this was business of a substantial character and was transacted within the district.

Under such circumstances the venue would be fixed here. Jeffrey-Nichols Motor Co. v. Hupp Motor Car Corporation (C. C. A.) 46 F.(2d) 623; Eastman Kodak Co. v. Southern Photo Materials Co., 273 U. S. 359, 47 S. Ct. 400, 71 L. Ed. 684. It would not be within the province of the court to determine venue upon the basis of a large amount of business in contradistinction to a small amount of business. The statute says that jurisdiction may be had if the corporation transacts business. No degrees are fixed. It is only a question of substantial business.

It would be idle to say that the defendant, upon the evidence in the ease, was not transacting a substantial amount of business in the district.

2. It does not follow that because it was transacting business in the district it could be regarded as present in the district or that “it may be found” there. On the contrary, the evidence disclosed that its place of business was at Fort Madison and that all orders were accepted or confirmed there. While the salesman was transacting business on behalf of the defendant, yet it was carried on in such way as to show that it was not present in the district but that it was present at the place of its business at Fort Madison.

The motion to quash the service as to the salesman should be sustained.

3. Said statute, however, provides that “all process in such cases may be served in the district of which it is an inhabitant, or wherever it may be found.” In this case it was unquestionably found at Fort Madison, Iowa, and a subprana was served there. This was sufficient to bring it into court.

The motion to quash the service upon an officer at Fort Madison will be overruled.

4. While the parties have not as yet had an opportunity to present arguments or briefs on the question of a temporary injunction, yet upon the petition it would seem that a temporary order should be granted in respect of the Iowa suit.

That action should not be prosecuted until it is determined here whether or not plaintiff is entitled to the relief sought. This suggestion does not deny to the defendant the right and privilege of appropriate pleadings, such as a challenge to the sufficiency of plaintiff’s bill or to raise any other question on the pleadings which it may desire to raise. It would work no hardship upon the defendant to have the Iowa proceeding stayed until all questions here raised can be adjudicated.

Appropriate orders based upon this memorandum opinion should be prepared by counsel.


text:
    KATZ DRUG CO. v. W. A. SHEAFFER PEN CO.
    No. 1749.
    District Court, W. D. Missouri, W. D.
    May 1, 1933.

      Ryland, Stinson, Mag & Thomson, of Kansas City, Mo., for plaintiff.
    Lathrop, Crane, Reynolds, Sawyer & Mersereau, of Kansas City, Mo., and E. H. Pollard, of Port Madison, Iowa, for defendant.
   REEVES, District Judge.

Heretofore this matter was before the court on the question of jurisdiction over the defendant. 6 F. Supp. 210. It was then held that under the provisions of section 22, title 15, U. S. Code (15 USCA § 22), relating to commerce and trade, the defendant was subject to service at its place of business in Iowa on the grounds that it was transacting business in this district, although not found therein.

The question now presented is whether a temporary injunction should issue and whether an action by the defendant against the plaintiff in an Iowa court should be enjoined. Section 26, title 15, U. S. Code (15 USCA § 26), provides for injunctive relief in favor of private parties as follows: “Any * * * corporation * * * shall be entitled to sue for and have injunctive relief, in any court of the United States having jurisdiction over the parties, against threatened loss or damage by a violation of the antitrust laws * * * when and under the same conditions and principles as injunctive relief against threatened conduct that will cause loss or damage is granted by courts of equity, under the rules governing such proceedings.”

It is plaintiff’s theory that the defendant is and has been operating in violation of the anti-trust laws. The averments of the bill-indicate that the defendant is a manufacturer of fountain pens and that it has developed a large demand for its product in interstate commerce. It has endeavored to maintain standard and uniform prices upon its articles. This is done by contract with selected dealers. It refuses to sell to such dealers as may decline to maintain a uniform or standard price. Some of its dealers or patrons removed from the articles purchased by them the serial numbers so that, without detection, they might be able to dispose of said articles to other dealers who would not be bound by the contract to maintain the price. All sales were unconditional and the title passed absolutely to the purchasers. The plaintiff became the owner, by purchase, of a quantity of said articles from which the serial numbers had been removed. Plaintiff avers that it is without knowledge as to who removed such numbers save only that it was done by owners of the articles who were under contract with the plaintiff not to reduce the price.

The defendant instituted a suit in an Iowa court to restrain the plaintiff from selling such articles purchased by it upon the ground that same had been mutilated and altered, and therefore were not the genuine articles put out by the plaintiff in the Iowa suit and the defendant in this suit.

The allegations of plaintiff’s bill .and the statements of counsel indicate that plaintiff’s allegations are true to the effect that the defendant was seeking to maintain uniform prices on its articles.

The first question for consideration is to determine whether it was violating the antitrust laws.

1. In a proper ease the manufacturer might have the right to project his control beyond his own sales by contract or agreement. The ease at bar is not subject to such provisions. An agreement to maintain- prices is void as against public policy unless it be found reasonable and that same was fairly necessary in the circumstances for the protection of the covenantee. Again, the latter principle is inapplicable in the instant case. According to the bill and the statement of counsel, the defendant is operating upon agreements designed to maintain prices after it parted with title to the articles and for the purpose of preventing competition among those who traded in them. Such “agreements or combinations between dealers, having for their sole purpose the destruction of competition and the fixing of prices, are injurious to the public interest and void.” Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U. S. 373, loc. cit. 408, 31 S. Ct. 376, 384, 55 L. Ed. 502. According to the foregoing authority the plans of the defendant fall within the principle which condemns contracts of this class.

2. The bill charges that the defendant is violating the anti-trust laws by restraining competition in interstate commerce, and said section 2-6, title 15, affords to any person or corporation á remedy by injunction “against threatened loss or damage by a violation of the antitrust laws.”

It is specifically averred that the suit filed by the defendant in the Iowa court is not only designed to interfere with the plaintiff in its sale of an article of commerce owned by it and free from any contract with the defendant, but that said suit is intended to aid it in unlawfully restraining trade and competition by maintaining price levels. While the Iowa proceedings may appear lawful, yet, according to the bill, they are in furtherance of an illegal act.

The rule was stated in U. S. v. Railway Employees’ Department of American Federation of Labor (D. C.) 283 F. 479, to the effect that if the dominating primary purpose of a combination is to restrain trade, or do things unlawful in themselves, and which by reason of their inherent nature operate to restrain trade, such purpose is unlawful, and may not be carried out, even by means that otherwise would be lawful.

Moreover, in B. V. D. Co. v. Isaac, 257 F. 709, the Court of Appeals, Sixth Circuit, refused to enjoin the sale of an article where seeret and identifying marks had been removed, as in this ease. That ease was almost identical with the one at bar. The courts held that the manufacturer had no right to interfere with the defendant who is engaged in selling a product bought and paid for by him, even though it involved a reduction from the price sought to be maintained by the manufacturer.

According to the allegations of the plaintiff’s bill, the defendant is seeking to interfere with a sale of an article purchased outright by it, and same is being done for the purpose of maintaining prices. Such proceedings, therefore, become a threat of loss or damage to the plaintiff and entitle it to institute this suit for injunctive relief. [3-5] 3. Under the law, the plaintiff cannot interpose its defense in the Iowa suit. The statute specifically limits injunctive relief to courts of the United States in all cases of anti-trust law violations. General Investment Co. v. Lake Shore & M. S. R., 260 U. S. 261, loc. cit. 287, 43 S. Ct. 106, 67 L. Ed. 244. The plaintiff in this case could not obtain the relief to which it claims it is entitled in the Iowa proceeding.

Moreover, according to the bill, the prosecution of the Iowa case, although innocent within itself, would aid the defendant in carrying out its plan to maintain prices in violation of the anti-trust laws.

Under such circumstances, the plaintiff would be entitled to enjoin said action for two reasons: First, because the prosecution of said action is alleged to be a part of a plan and purpose to maintain prices illegally; and, second, because full and adequate relief could only be had in the federal court, and the prosecution of said action according to the bill would be an impingement upon the jurisdiction of this court and an interference with complete relief. The rights of the parties can be fully adjudicated here and they cannot be in the Iowa proceeding.

The power of the court to restrain the state court action appears to be inherent. Julian v. Central Trust Co., 193 U. S. 93, 24 S. Ct. 399, 48 L. Ed. 629.

This power inheres notwithstanding the provisions of section 379, title 28, U. S. Code (28 USCA § 379).

In Wells Fargo & Co. v. Taylor, 254 U. S. 175, loc. cit. 183, 41 S. Ct. 93, 96, 65 L. Ed. 205, the Supreme Court said in discussing said section: “It has come to be settled by repeated decisions and in actual practice that, where the elements of federal and equity jurisdiction are present, the provision does not prevent the federal courts from enjoining the institution in the state courts of proceedings to enforce local statutes which are repugnant to the Constitution of the United States * * * or prevent them from maintaining and protecting their own jurisdiction, properly acquired and still subsisting, by enjoining attempts to frustrate, defeat or impair it through proceedings in the state courts * * * or prevent them from depriving a party, by means of an injunction, of the benefit of a judgment obtained in a state court in circumstances where its enforcement will be contrary to recognized principles of equity and the standards of good conscience.”

Equity has jurisdiction of a suit to enjoin the enforcement of a state or local law, on the ground that such enforcement will deprive the complainant of rights secured to him by the Constitution and laws of the United States. Phoenix R. Co. v. Geary, 239 U. S. 277, 36 S. Ct. 45, 60 L. Ed. 287; August Busch & Co. v. Webb (C. C.) 122 F. 655, loc. cit. 662; American Mutual Liability Ins. Co. v. Volpe (C. C. A.) 284 F. 75.

Accordingly, a temporary injunction should issue and the defendant should be restrained from prosecuting the action now pending in the Iowa court.

Counsel for the plaintiff will preñare and submit a proper decree.


author: MANTON, Circuit Judge.

text:
    AMERICAN BRAKE SHOE & FOUNDRY CO. v. INTERBOROUGH RAPID TRANSIT CO.
    No. 7.
    District Court, S. D. New York.
    Aug. 2, 1933,
    Sept. 30, 1933.
    See, also, 1 F. Supp. 820 ; 4 F. Supp. 68.
   MANTON, Circuit Judge.

There are pending before this eourt (a) an application to- confirm the report of the special master recommending that the application to remove William Roberts and substitute Nathan L. Amster as receiver of the Manhattan Railway Company be denied and (b) the petition of the Manhattan Railway Company for the appointment of Nathan L. Amster as eoreeeiver.

While these applications were pending and undecided, an affidavit of personal bias and prejudice of the presiding judge was filed by the Manhattan Railway Company. That affidavit and the circumstances of its presentation will first be considered.

This alleged affidavit of personal bias and prejudice, sworn to July 20, 1933, by Secretary-Treasurer Mullin of the Manhattan Railway Company, was left with me on July 20, 1933, in the afternoon by Mr. Franklin’s representative, who then stated that Mr. Franklin wished me to read it before he formally filed it. After reading it, I requested Mr. Franklin to call at my chambers, which he did on July 21, 1933, in the afternoon. After a conversation, which I do not deem necessary to repeat in this memorandum, and which is grossly misstated in Mr. Franklin’s affidavit of July 27,1933, Mr. Franklin asked leave to withdraw the affidavit, stating that it was filed under a misapprehension. I told him that I could only permit .this to be done if he filed a formal application for its withdrawal. Upon his promise that he would do so, I permitted him to take the affidavit with him when he left my chambers on-that day. He complied with this requirement later that day. The withdrawal notice thus served upon me will be filed with the affidavits and other papers in the clerk’s office.

After 4 o’clock on July 27, 1933, I received a copy of the same affidavit of prejudice sworn to the 20th of July, 1933, and “a supplemental affidavit of prejudice” by Charles Franklin sworn to the 27th of July, 1933. They are herewith filed in the office of the clerk of the District Court for the Southern District of New York.

Section 21 of the Judicial Code (28 US CA § 25) requires an affidavit of personal bias and prejudice to be filed “not less than ten days before the beginning of the term of the court, or good cause shall be shown for the failure to file it within such time.” It has not been filed within the time required, and good cause for failure so to do is not shown.

Amster became the president of the Manhattan Railway Company in November, 1932, and immediately thereafter Mr. Franklin became its attorney. Amster first attempted to become a eoreeeiver of the Manhattan Railway Company when, on September 6, 1932, it filed its petition to intervene in the suit of American Brake Shoe & Foundry Co. v. Interborough Rapid Transit Company. At that time William Roberts, its president, was appointed and later qualified as receiver. It was then thought unnecessary to appoint a second receiver. The court, however, reserved the question of appointing a eoreeeiver until reason therefor should appear. Amster’s application was denied.

Amster caused the institution of the Johnson suit in which he attacked the jurisdiction of this court, for the same purpose. Mr. Franklin, his attorney, stated this at one of the hearings.

When the Circuit Court of Appeals for the Second Circuit rendered its decision in the ease of Johnson v. Manhattan Railway Company, 61 F.(2d) 934, on December 7, 1932, Amster began a new proceeding asking for the removal of Mr. Roberts and his own appointment as receiver. Issues were raised which were necessary to send to a special master, who filed his report recommending the denial of the application to remove Mr. Roberts. After an adverse decision in the Supreme Court in Johnson v. Manhattan Railway Company, 289 U. S. 479, 53 S. Ct. 721, 77 L. Ed. 1331 (May 29, 1933), he made the application to be appointed coreceiver.

Mr. Franklin filed an application in the proceeding asking for an allowance of $75,000 for services in the ease of Johnson v. Manhattan Railway Company in which he attacked the. jurisdiction of this court. He based his application in part upon the claim that he had settled the jurisdictional question in favor of Judge Manton’s jurisdiction. He stated in the affidavit: “The decision of the United States Supreme Court in the Johnson Case has definitely removed all doubt regarding the jurisdictional objection of both the Interborough and Manhattan Receiverships, and has thereby freed from question or embarrassment the receivership estate in which are involved securities and properties valued in excess of Five Hundred Million ($500,000,000.) Dollars. * * * so that by said decision the finality of the Senior Circuit JudgT es right to act in the American Brake Shoe case has now been firmly established.”

And further: “I therefore respectfully submit that I have performed a substantial service in having the power of Judge Mantón vindicated, which has enured to the Benefit of the receivership estate, and to all parties concerned therein.”

Now, after applying for the appointment of Amster as coreceiver, it is stated he was told Amster would be appointed, but still he files this affidavit of personal bias and prejudice in an effort to obtain the appointment of Amster as eoreeeiver. All of this indicates bad faith. As a plain showing of bad faith and the purpose of filing this affidavit of prejudice and personal bias, Franklin’s statements in open court at hearings are interesting.

At a hearing in open court on June 28, 1933, Mr. Franklin said:

“Mr. Franklin: If your Honor please, may I take up a matter which it seems to me would be appropriate? I do not feel that I want to be too persistent. At the same time, the position of being the sole objector to a proceeding of this kind is neither easy nor is it pleasant, particularly as I am representing the directors and stockholders of the Manhattan Railway Company. I would like, therefore, if your Honor will grant leave to renew the application that I made at the inception of this receivership. Your Honor has stated in the past, I think it was on the day that the receivership was extended to the Manhattan Railway Company, I made an application to your Honor, then representing the Manhattan Railway Stockholders’ Protective Committee, representing approximately ten millions of securities of that company, for the appointment of Mr. N. L. Amster as the receiver, or as a co-receiver of the Manhattan Railway Company. Your Honor after considering the matter a moment stated to me and to counsel present that if ever the time came when it seemed necessary or advisable to make such an appointment, that I could renew the motion. * * * I think it is the proper thing to do, and I feel that I would, like, if possible, to contribute to harmonizing or to a reign of harmony in this ease. I do not want to be the sole objector. At the same time, I have no alternative, and I respectfully ask leave to renew my motion at this time.”

And again:

“Since November 11th, I think it was, Mr. Amster has been president of this company, and the directors have unanimously done everything that they could humanly do to make your Honor understand that they expected to be represented.

“I do not want to be, if I can help it, a lone objector, particularly in this situation.

“Nothing has been said about the long opinion that your Honor read. I thought it was very good and very clear and a proper supplement to what the Supreme Court has said, but I feel we should try to remove all discord and create a reign of harmony here, and I do not see how that can be done unless our application is granted; then the directors or rather the owners of this company, wrill feel that they are being properly eared for, and these important matters should not be allowed to go on without representation in the receivership. *' * *

“Mr. Amster personally owns in excess of thirty thousand shares, and his interests represent an additional one hundred thousand shares. At the meeting I think the vote was 239,000 shares out of a total of a little under six hundred thousand shares. * * *

“Under the circumstances I feel that certainly the Manhattan Railway Company and its president, Mr. N. L. Amster, should be given official recognition.”

On July 13, 1933, he said in open court: “ * * * now that these receiverships have been placed on a jurisdictional basis above question, now that your Honor’s position ivas completely vindicated by the decision of the Supreme Court — it seemed to us that a constructive effort should be made to overcome the deep-rooted feeling on the part of the stockholders of the Manhattan Railway Company that these receiverships are being conducted in the interest of the Interborough Rapid Transit Company and to the detriment of the interests of the Manhattan Railway Company. If the Court please, those fears would be dispelled by the appointment of the Manhattan Railway Company’s president as receiver or as co-receiver of these properties. We ask for no other change, of counsel or otherwise. Our second reason was that, since Counsel for all of the interested parties had expressed their wdsli that your Honor should continue in the proceedings, with unstinted praise, I made it plain, as general counsel for the Manhattan Railway Company, and also as the petitioner’s counsel in the so-called Johnson suit, that we wish to assist in bringing about a complete reign of harmony, and therefore I ask the Court to exercise its discretion in favor of our application which, as your Honor and counsel present know, we have sought from the inception of these receivership proceedings, and particularly so since the ousting of the management headed by Mr. Roberts.”

And again he said:

“Now, the other day, when I mentioned this matter, Mr. Roberts said, ‘If your Honor appoints Mr. Amster, I want to tell you I am going to resign’ or words to that effect. Even Mr. Hughes said his firm would decline to serve if Mr. Amster were appointed. Now, if the Court please, there is no reason or rhyme in any statement like that. These people have a right to resign if they want to and I do not think it is fair to try to preface my application by making that statement; besides, those are pure threats and intimidation of the Federal Court, absolutely wrong to say anything like that while my application is pending.

“I know, and know that your Honor, with all your experience knows, that that is wholly improper, both what Mr. Hughes asserts and what Mr. Roberts asserts.”

At these late dates there was no thought of personal bias or prejudice.

This is plainly an affidavit to disqualify the judge before whom proceedings are pending unless he appoints Amster a receiver. Apparently, if he would make the appointment, prejudice and bias do not exist. The affidavit of personal bias and prejudice was filed while the application for AmsteFs appointment was awaiting decision in order to influence that decision. This, obviously, is wholly improper. The merits of the application require its denial. Of course, the court, if it felt justified, would grant the application uninfluenced by this threat.

For the purpose of the record, the facts and circumstances surrounding the presentation of the affidavits are set forth, but as a matter of law, when such an affidavit is filed, the recused judge is restricted to a determination of its timeliness and legal sufficiency. Section 21 of the Judicial Code (28 USCA § 25); Berger v. United States, 255 U. S. 22, 41 S. Ct. 230, 65 L. Ed. 481. The statement of facts alleged, no matter how false, scandalous, or libelous, the affidavit or certificate, must be accepted as true by the recused judge. However, its legal sufficiency is open to the recused judge to determine. The Supreme Court, recognizing the possibility of abuse, has determined it to be not too great a price to pay in order that the wholesome and well-founded public conviction of the impartiality of the federal courts may have the additional safeguards which section 21 affords. Berger v. United States, supra. But the exercise of such power must conform strictly to the requirements of the statute granting it. The affidavit must be timely and must be legally sufficient.

This affidavit was not timely. Mullin, the affiant, also swore, on September 2, 1932, to the petition of Manhattan Railway Company seeking to become a party and requesting receivership. The Manhattan Railway Company, which presents the affidavit, made the several applications seeking to have Amster appointed receiver. Franklin, who has certified the affidavit, appeared at the hearings as stated above representing Manhattan Railway Company, and brought before the court the formal applications for AmsteFs appointment as receiver. It is apparent from these proceedings and statements that the affidavit is now too late to comply with section 21 of the Judicial Code (28 USCA § 25). Ex parte American Steel Bbl. Co., 230 U. S. 35, 33 S. Ct. 1007, 57 L. Ed. 1379; Lipscomb v. United States, 33 F.(2d) 33 (C. C. A. 8); Bishop v. United States, 16 F.(2d) 410 (C. C. A. 8); De Ran v. Killits, 8 F.(2d) 840 (C. C. A. 6); Chafin v. United States, 5 F.(2d) 592 (C. C. A. 4).

Moreover, the affidavit is legally insufficient. The facts alleged fail to support the charge of personal bias and prejudice. They are wholly irrelevant to such a charge or refer to the judicial consideration and determination of questions before the recused judge rather than to an attitude or acts of personal bias or prejudice. A clear statement of the law as to this is found in Johnson v. United States (D. C.) 35 F.(2d) 355, 357, where it is said: “However false, there can be no denial, but the charge of personal bias or prejudice must be accepted as true. To avoid abuses, the law requires that the affidavit be of legal sufficiency. That is, that the charge be of personal bias or prejudice, that the facts and reasons for the charge be set out and give fair support to the accusation, and that upon its face the affidavit presents evidence of good faith. To that end mere rumors, gossip-, general statements that affiant by some person is informed and believes that at some time, some place, some occasion, the judge expressed sentiments manifesting bias or prejudice, are not enough, but informant, and time, place, occasion of, and the judge’s expressions, and that the bias or prejudice is personal, all must be set out in the affidavit. This alone will enable the affidavit to bear on its face that evidence of good faith which is necessary before it can be held to be legally sufficient. See Berger v. U. S., supra. Otherwise, the penalties of perjury and disbarment are no restraint on the litigant and counsel; for otherwise it is not even a possibility of either being invoked, much less carried to successful conclusion, however false be affidavit and certificate.”

The practice to be followed is to permit the filing of the affidavit, which will be done, to consider its timeliness and legal sufficiency, and then to order it stricken from the record if insufficient or. to certify withdrawal to the Senior Circuit Judge if sufficient in law. Berger v. United States, supra; Bommarito v. United States, 61 F.(2d) 355 (C. C. A. 8); Morse v. Lewis, 54 F.(2d) 1027 (C. C. A. 4). The affidavit is legally insufficient. See Morse v. Lewis, supra; Craven v. United States, 22 F.(2d) 605 (C. C. A. 1); Henry v. Speer (C. C. A.) 201 F. 869 (C. C. A. 5); Benedict v. Seiberling (D. C.) 17 F.(2d) 831; United States v. Fricke (D. C.) 261 F. 541.

Both affidavits and the withdrawal notice are herewith filed and the affidavits stricken from the record.

During the receivership there developed considerable conflict between two groups of stockholders, which might be said to be represented by Mr. Amster and Mr. Roberts. At th'e last annual meeting in November, 1932, the Roberts group lost control and the Amster group elected its board of directors. It immediately resulted in a proceeding to remove Roberts made on an application sworn to December 7, 1932, charging Roberts with mismanagement and domination by the Inter-borough Rapid Transit interests, and it specifically asked for the substitution of Amster as receiver.

The master, after a lengthy hearing and due consideration of the testimony, has found that the charges made against Mr. Roberts are insufficient to require his removal. It is clear that they were instituted with the view of securing Amster’s appointment as receiver in place of Roberts, and an examination of the record justifies the result reached by the master, and his report is confirmed and the petition to remove Roberts is denied.

The present application that Amster be appointed coreeeiver of the Manhattan Railway Company property is opposed by the trustees of the first and second mortgages on the railroad property amounting to about $45,000,000, by separate committees representing bondholders under the mortgages, and by all other groups of shareholders except the Amster group of stockholders. In the face of this substantial and determined opposition to Mr. Amster’s appointment, I cannot feel that it would produce the “harmony” so urgently sought by Mr. Franklin in his plea for his appointment. Nor is the circumstance of his recent accession to the position ' of president of the company a complete reason for Ms appointment as receiver. Roberts’ long tenure of office and his experience had material weight on the occasion of his appointment, but such reasons do not apply equally to Mr. Amster who has recently become president. A receiver is a representative of the court, not of the corporation. The intimate knowledge of the affairs of the corporation by one of its officers, otherwise possessing the confidence of the court by reason of his own character and reputation, strongly recommends such officer for the position of receiver, but the court will not change its representative merely because of the change of corporate control. Mr. Amster’s conduct throughout tMs litigation has not inspired such confidence as would warrant his becoming a representative of the court.

In denying his application, the court does not suggest that a coreeeiver should not be appointed. When the Manhattan Railway Company intervened and Mr. Roberts was appointed on September 6, 1932, the question of the appointment of a coreeeiver was reserved until the need therefor should arise. The present circumstances make a coreeeiver desirable. The Manhattan Railway Company is a nonoperating company, wholly dependent on the enforcement of its lease to obtain profit from the operation of its properties. Application No. 5 of Manhattan Railway Company’s receiver presents many problems of business and law arising from the lease arrangement. These problems make desirable the services of a coreceiver. In making the selection of such a coreeeiver, the court will willingly hear other suggestions from the shareholders of the so-called Amster group. If none is presented witMn a reasonable time, a coreeeiver will be appointed.

Orders will be entered accordingly.

Addendum.

By failing to refer to one phase of the matter discussed in the foregoing memorandum, the implication should not arise that it has been lost sight of. It seems reasonably clear that the submission of a belated affidavit of prejudice to a judicial officer before whom litigated matter's are pending undecided involves contempt of court, as an improper effort to influence the decision of the particular judicial officer. It is not a matter in any sense personal with me. I consider it only as a grossly improper gesture directed toward an officer of the court. In this spirit, I shall confer with some of my associates before deciding whether a citation for contempt for all persons implicated in the misconduct described shall issue.

Memorandum.

In order that tMs memorandum may be easily understood, though its length is limited, brief reference should be made to the opinion of the United States Supreme Court in the two cases of Johnson v. Manhattan Railway Co. and Boehm v. Manhattan Railway Co. (both cases having been heard together) 289 U. S. 479, 53 S. Ct. 721, 77 L. Ed. 1331, rendered by Mr. Justice Van Devanter and concurred in by his associates of the court. In these cases, the same litigant to whom reference will be made later questioned the long-established practice of self-designation to hold a District Court by the Senior Circuit Judges of the different circuits of the United States.

The attack made upon my jurisdiction and powers as Senior Circuit Judge had been so energetic and characterized by such newspaper publicity that I decided in favor of a continuance of the exercise of the functions which I believed to be vested in the Senior Circuit Judge by statute and in the performance of my judicial duties, as I understood and conceived them, instead of retiring from, the very onerous proceeding and thankless responsibilities, which added a heavy burden indeed, in addition to my administrative work as senior judge of the circuit and my judicial work in the consideration of causes and the preparation of opinions in matters coming before the Circuit Court of Appeals.

As is now fully established, the Supreme Court sustained my construction of the amended Judiciary Act completely, even to the extent of declaring invalid certain rules of the United States District Court, the effect of which was deemed to conflict with certain of the powers conferred upon the Senior Circuit Judge by statute.

At the conclusion of Justice Van Devanter’s opinion, in which my jurisdiction and construction of the law was completely sustained, certain observations were made in which it was suggested, in substance, that continuance by me to judicially supervise the duties of the receivers of the Interborough and Manhattan Companies would embarrass the receivership and that such embarrassment might be relieved by my retiring from the supervision and direction of the proceedings. There were then pending before me a number of important issues, all of which I felt it was my duty to dispose of before passing along to the shoulders of another the burden which had weighed so heavily upon my own.

This decision I expressed in my memorandum (D. C.) 4 F. Supp. 68, 74, dated June 28, 1933, in which the following language was used:

“Every judge worthy of judicial office ought to be keenly sensitive to and deeply concerned at any intimation of any action on his part approaching impropriety in the discharge of what always ought to be regarded as a sabred duty. In the present ease, I was acting in the performance of my judicial duty according to my conscience and in the belief which I still entertain that I was authorized and called upon by the Act of Congress to do exactly what I did if in my judgment the public interest so required.

“In the light of these profound convictions and with great respect, I cannot for the present bring myself voluntarily to withdraw from this case, whatever may be my ultimate decision. Applications involving vital property rights and interests have been partially argued and are to be further argued which require my study and decision.”

Anticipating, however, the carrying out of my plan to retire from the proceedings, which I had in mind in July last, I conferred with a Circuit Judge, one of my associates, explaining to him my intention to retire and my desire to designate him to continue the supervision and direction of the proceedings in these receiverships. The judge expressed, naturally, extreme reluctance to undertake the additional work involved, but agreed as a matter of public interest and judicial service to take over the burden when the issues then pending before me had been determined. One of these issues was an application for the removal of the Receiver Roberts of the Manhattan Railway Company and the appointment of Nathan L. Amster in his stead. Another motion made later was for the appointment of Mr. Amster as coreeeiver.

While these and other applications were pending before me, the affidavit of personal bias or prejudice was filed by the same parties who had but recently failed in the United States Supreme Court in the question raised concerning my jurisdiction.

Though my personal preference was, and the inclination of any judge whose fairness was challenged naturally would be, to retire from the proceedings, I felt it my duty to remain, however unpleasant and distasteful, and not to retire simply on the filing of an affidavit held by me to be untimely and insufficient.

Thus in the case of Benedict v. Seiberling (D. C.) 17 F.(2d) 831, 841, District Judge Killits, holding that an affidavit was insufficient, said that it would be improper to withdraw voluntarily because “to allow a disinclination to further sit in this ease to work our voluntary retirement would be to permit the authors of this attack * * * to gain unlawfully that which they are not justly entitled to have.”

More recently a motion for leave to file a petition for writs of prohibition and/or mandamus has been filed in the United States Supreme Court by the same litigant. That application is so lacking in merit that I do not deem it necessary to await the determination, of the motion.

At the present time, entirely apart from the proceedings mentioned above which disclosed no reason which would permit withdrawal from the case, reasons appear which I deem sufficient to justify the assignment of another judge. The Circuit Court of Appeals in which I preside convenes the first Monday of October. Added to my duties as presiding ,/udge of that court, it is njy duty alone as Senior Circuit Judge, a duty from which other Circuit Judges are free, to perform the not inconsiderable administrative work of the Second judicial circuit. The task of supervising these receiverships, added to these other duties, is too onerous to continue another year. For this reason I have decided to withdraw.

While it is within my authority to assign another Circuit Judge in my stead, still I prefer that the assignment be made by the Chief Justice of the United States.

Accordingly, I have advised the assignment of a Circuit Judge to hold a District Court and to hear and determine all issues which may be brought before him in this proceeding, and I have consented that such assignment be made. If reason is necessary to explain the selection of a Circuit.Judge rather than a District Judge, it is sufficiently set forth in my opinion of Jung 28, 1933.


author: PATTERSON, District Judge.

text:
    In re A. C. KELLY & CO., Inc.
    No. 51104.
    District Court, S. D. New York.
    Nov. 25, 1933.
    Lucille C. Bunzl, of New York City, for petitioner.
    Hughes, Sehurman & Dwight, of New York City (John R. McCullough, of counsel), for trustee.
   PATTERSON, District Judge.

Haekl in June, 1930, sold cert ain oil rights to the bankrupt and delivered mineral deeds covering such rights. The bankrupt credited Haekl with the sum of $2,000 in payment, but he never received this sum. In May, 1931, an involuntary petition was filed, followed by adjudication. The oil rights being found among the bankrupt’s assets, Haekl brought a reclamation proceeding.

The bankrupt conducted a stock brokerage «business. By the latter part of 1929 it had become insolvent. From then on it “bucketed” its customers’ orders, reported fictitious transactions to them, and used customers’ money for current expenses and for payments to those connected with the business.

Haekl claims the right to rescind the sale because of the bankrupt’s fraud. I am of opinion that his claim has merit. In eases of this type, where no affirmative misrepresentations were made to induce the sale, the seller may rescind by showing that the buyer was insolvent at the time he bought, that he concealed his insolvency from the seller, and that he intended never to pay for the goods. Donaldson v. Farwell, 93 U. S. 631, 23 L. Ed. 993; Hall v. Naylor, 18 N. Y. 588, 75 Am. Dec. 269; In re Aarons & Co. (C. C. A.) 193 F. 646; In re Sherman (C. C. A.) 13 F.(2d) 121; In re Independent Coal Corporation (C. C. A.) 18 F.(2d) 1. The intent not to pay is not a necessary inference from mere insolvency, for an insolvent person may expect to extricate himself and have an honest intent to pay. But it is a proper inference where the circumstances ar'e such that no honest intent to pay could have existed. Hennequin v. Naylor, 24 N. Y: 139.

Here the insolvency of the bankrupt at the time of purchase and the concealment of the insolvency from the seller are thoroughly established. The only point that merits discussion is whether there was an intent to pay for the property. That the bankrupt was conducting a fraudulent business at the time cannot be doubted. It was unable to pay any customer without using for that purpose money belonging to other customers. Under the conditions there was no honest intent on its part to pay Haekl the purchase price of what was acquired from him. See Cunningham v. Brown, 265 U. S. 1, 44 S. Ct. 424, 68 L. Ed. 873.

Haekl has traced his property and is entitled to rescind and reclaim.

The order of the referee will therefore be reversed, and the petition to reclaim will be granted.


author: WHALEY, Judge.

text:
    LUCHS v. UNITED STATES.
    No. K-526.
    Court of Claims.
    March 5, 1934.

      Alexander F. Prescott, Jr., of Washington, D. C. (Lyon & Lyon, of Washington, D. C., on the brief), for plaintiff.
    John A. Rees, of Washington, D. C., and Frank J. Wideman, Asst. Atty. Gen. (Elizabeth B. Davis, of Washington, D. C., on the brief), for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   WHALEY, Judge.

This is a suit to recover certain income taxes and surtaxes paid by plaintiff for the calendar year 1921. The amount in controversy was paid by plaintiff as a result of his having included in his return of income his ratable share of the undistributed profits of the Washington School of Art, a corporation, of which he was. a stockholder, owning all but three shares. He made this return upon the assumption that this corporation was what is recognized in section 218 (e) of the Revenue Act of 1918 as a personal service corporation which for taxation purposes is treated as a partnership. (40 Stat. 1070.)

The plaintiff paid the taxes in quarterly installments, the last of which was paid December 11, 1922.

The Washington School of Art filed a “Partnership and Personal Service Corporation Return of Income” on July 6, 1921, for the fiscal year ended April 30, 1921, showing a total net income of $29,724.12. Ninety-seven per centum of this amount was reported by plaintiff in his return.

Subsequently the Commissioner of Internal Revenue held that the Washington School of Art was not a personal serviee corporation and accordingly assessed against it taxes for the fiscal year ended April 30,1921, pursuant to the provisions of the law relating to ordinary corporations. An appeal was taken to the Board of Tax Appeals by the Washington School of Art and on January 7, 1929, the decision of the Board sustained the ruling of the Commissioner. The time for an appeal having expired, the Commissioner assessed the taxes together with interest. An offer in compromise was made by the Washington School of Art to settle its tax liabilities for the years 1921 and 1922 and this compromise was duly accepted by tbe Commissioner, and the terms of the statute in relation to compromise settlement were strictly carried out. .

Before the appeal was taken to the Board of Tax Appeals, the plaintiff filed on January 30, 1926, a claim for refund on account of the decision of the Commissioner changing the taxable status of the corporation and himself on the sums received by him during the calendar year 1921 from the School of Art. This claim for refund was listed on “Schedule of Rejected Claims,” which was signed December 8, 1927. However, before this claim was rejected the plaintiff had received a letter from the Bureau in which he was assured that, should the Board not sustain his appeal, he would be at liberty to make application for a reopening of his claim, and the Commissioner assigned as the reason for the rejection of his claim at that time that the tax due by the corporation was still unpaid and that under section 1210 of the Revenue Act of 1926 (26 USCA § 1065a) payment of the tax is required before a refund can be made to a stockholder.

After the compromise settlement of the corporation’s tax had been effected, the plaintiff requested the Commissioner to reopen his refund claim but no action by the Commissioner on the request appears in the record.

The facts in the ease are not disputed. The defendant’s defense to the action is that section 1210 of the 1926 act was not fully complied with in that there was a compromise settlement of the corporation’s taxes and a compromise settlement was not contemplated by the terms of the statute. Section 1210 reads:

“Any individual who has paid a tax (in accordance with section 218 of the Revenue Act of 1918 or section 218 of the Revenue Act of 1921) as a stockholder of a personal service corporation shall be entitled to a credit or refund, in the manner provided in section 2'84 [section 1065 of this title], if (a) such corporation has been finally determined not to'be a personal service corporation, and (b) such corporation has paid the tax imposed by Title II of the Revenue Act of 1918 or Title II of the Revenue Act of 1921, as the ease may be, and (c) claim therefor is filed within one year after the enactment of this act [February 26, 1926], or before the expiration of the period of limitations upon the filing of such claim, whichever is the later.” (44 Stat. 130.) It is admitted a seasonable claim for refund was filed.

As we view this ease the only question to be decided is whether the statute has been fully complied with and that depends on what effect is to be given to the compromise settlement made with the corporation by the Commissioner.

Under section 158 of title 26 of the U. S. Code, 26 USCA § 158 (formerly section 3229 of the Revised Statutes), the Commissioner is given full discretionary power to compromise, with the advice and consent of the Secretary of the Treasury, any case arising under the internal revenue laws.

The defendant contends that because the government has not received the full tax, but only a portion thereof, by way of compromise, the corporation has not complied with that part of the statute which requires the tax of the corporation to be paid before a refund can be made to the individual. The amount acceptable in compromise is solely within the discretion of the Commissioner with the consent of the Secretary of the Treasury and, when the compromise settlement is made, the liability for the tax is discharged. The government can never recover any more, therefore the tax is paid so far as the defendant is concerned. As a' matter of fact, the record discloses that the government received the full tax and part of the interest in the compromise settlement. The compromise settlement paid the tax of the corporation, and therefore all the requirements of section 1210 were fully performed.

The defendant cites the ease of Haight v. United States (C. C. A.) 22 F.(2d) 367, as holding the full tax must be paid. The facts in the Haight Case and the instant case are entirely different on the essential point. In the Haight Case the corporation paid no tax at all. The corporation was in bankruptcy. The government lost the entire tax from the corporation, which probably could have been collected, had not Haight in the first instance claimed that it was a personal service corporation. In the instant case the government has received from the corporation a settlement of its tax liability. A compromise settlement by the Commissioner under the terms of the'statute is not reviewable. Dorsheimer v. United States, 2 Ct. Cl. 103, affirmed 7 Wall. 166, 19 L. Ed. 187; Lone Star Brewing Association, 61 Ct. Cl. 118.

The plaintiff had a right to have his claim reviewed by the Commissioner and his taxes adjusted after collection by compromise with the corporation. The amount to which the plaintiff is entitled is admitted. The plaintiff is entitled to recover $2,617.03-, together with interest as provided by law. Judgment will be entered accordingly.

It is so ordered.


author: WILLIAMS, Judge.

text:
    SCHOELLKOPF et al. v. UNITED STATES.
    No. M-232.
    Court of Claims.
    March 5, 1934.

      Percy W. Phillips, of Washington, D. C., for plaintiffs.
    John A. Rees, of Washington, D. C., and Frank J. Wideman, Asst. Atty. Gen. (Elizabeth B. Davis, of Washington, D. C., on the brief), for the United States.
    Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
   WILLIAMS, Judge.

The plaintiffs, executors and trustees of the estate of J. B. Wilson, deceased, in their income tax return for the calendar year 1925, deducted in computing the net income subject to tax $40,229.74, as a debt ascertained to be worthless and charged off in the taxable year. Upon an audit of the return, the Commissioner of Internal Revenue disallowed the deduction and made an additional assessment of $8,758.69. The tax shown to be due on the original return and the additional tax were paid by the plaintiffs in due course. Subsequently .$2,167.90 of the amounts so paid was refunded.

Plaintiffs filed a timely claim for refund of $6,413.41, and assigned as grounds therefor that the deduction of $40,229.74 made in the original return represented a bad debt ascertained to be worthless and charged off during the taxable year 1925, and that it was a proper deduction from gross income for that year. The Commissioner of Internal Revenue disallowed the claim for refund on the ground that the loss claimed was a proper deduction during the year 1924. This suit is for the recovery of the additional tax paid by plaintiffs because of the disallowance of the deduction, together with interest.

The applicable provisions of law are subdivisions 4, 5, and 7 of section 214 (a) of the Revenue Act of 1924 (26 USCA § 955 (a) (4, 5, 7):

“See. 214. (a) In computing net income there shall be allowed as deductions: * * *
“(4) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in trade or business;
“(5) Losses sustained during the taxable year and not compensated for by insurance or otherwise, if incurred in any transaction entered into for profit, though not connected with the trade or business; * * *
“(7) Debts ascertained to be worthless and charged off within the taxable year (or, in the discretion of the commissioner, a reasonable addition to a reserve for bad debts); and when satisfied that a debt is recoverable only in part, the commissioner may allow such debt to be charged off in part.”

The defendant concedes that the amount in question was charged off plaintiffs’ books in the year 1925. It also concedes that the amount was deductible as a bad debt under subdivision 7, rather than a loss under either subdivision 4 or 5 of section 214 (a). It contends, however, that the debt was valueless prior to 1925, and that the plaintiffs had notice of that fact, hence they ascertained its worthlessness prior to the year in which it was charged off.

There is no dispute as to the law — that in order to obtain a ¿eduction of a bad debt it must be charged off in the year in wdiich its worthlessness is ascertained by the taxpayer. The sole issue presented, therefore, is: Did the plaintiffs ascertain the worthlessness of the debt in question in the taxable year 1925?

The debt represented a deficiency judgment obtained in 1923 by plaintiffs upon the foreclosure and sale of certain lands in Texas, mortgaged by one Lock to the decedent in his lifetime. Lock filed a petition in bankruptcy in May, 1924, listing assets of a value of $177,827.42, and liabilities amounting to $244,322.10. Plaintiffs immediately employed counsel to file a claim in the bankruptcy proceedings for the amount of the deficiency judgment. Plaintiffs also proceeded to make an investigation through the banks of Louisiana of a report which led them to believe that Lock might have substantial assets in that state. No assets were uncovered, and on May 4, 1925, plaintiffs’ attorneys informed them the bankrupt estate of Lock had been closed and that the unsecured creditors would receive nothing on their claims. This was the first information plaintiffs had that the debt represented by the deficiency judgment was worthless. While the plaintiffs may have regarded the debt as doubtful value pri- or to May 4,1925, there is nothing in the record of the case to justify the conclusion that they at any time prior to that date regarded the debt as worthless or had ascertained it to be so. They had, during the year 1924 when the defendant says the deduction should have been taken, been diligently pursuing measures through their attorneys and the banks to collect it. Under these circumstances, we have found that the plaintiffs ascertained the debt to be worthless in the year 1925, when it was charged off the books.

The plaintiffs are entitled to recover, and judgment in their favor is awarded in the sum of $6,384.66, with interest.