source: Caselaw Access Project

author: KNOX, District Judge.

license: Public Domain

text:
    UNITED STATES v. SPOTLESS DOLLAR CLEANERS, Inc.
    District Court, S. D. New York.
    March 31, 1934.
    Martin Conboy, U. S. Atty., of New York City (Francis H. Horan, of Washington, D. C., and John F. Davidson, Edward J. Ennis, and Irvin C. Rutter, all'of New York City, of counsel), for the United States.
    S. Frederick Placer, of New York City (Martin W. Littleton and Isadore Paul, both of New York City, of counsel), for defendant.
   KNOX, District Judge.

The court is here asked to restrain defendant, pendente lite, from performing certain retail dry-eleaning and dyeing services within New York Trade Area No. 12, which includes this city, at prices that are below certain mínimums established for such services under article VI, section 3 (h), of the Code of Fair Competition for the Cleaning and Dyeing Trade, approved by the President on November 8,1933.

Jurisdiction is invoked under the provisions of title 1, of the National Industrial Recovery Act (Public No. 67, 73d Congress [15 USCA § 791 et seq.]), approved June 16, 1933, and particularly under section 3 (e) of the act (15 USCA § 793 (c). This latter section reads: “(e) The several district courts of the United States are hereby invested with jurisdiction to prevent and restrain violations of any code of fair competition approved under this chapter; and it shall be the duty of the several district attorneys of the United States, in their respective districts, under the direction of the Attorney General, to institute proceedings in equity to prevent and restrain such violations.”

Defendant, a New York corporation, is engaged in operating thirty-two stores within the city of New York, at which the service of dry-eleaning and processing incidental thereto are offered for sale to the public. Fabrics and clothing which defendant receives from customers patronizing its stores are delivered for eleansing to Empire Cleaners & Dyers, Inc., a New Jersey corporation, which maintains a wholesale processing plant at Edgewater, N. J., upon the westerly side of the Hudson river. The complaint declares that this corporation and the defendant are “owned and controlled by substantially the same persons either through common stock ownership or through ownership of a controlling interest in the stock of one corporation by the other corporation, and are managed and conducted by substantially the same executive officers as a single business enterprise.”

Under the code the minimum retail price for dry-eleaning a suit of men’s clothing is 79 cents. For a similar service to a woman’s dress, the minimum code price is 75 cents. Defendant performs like services upon such garments for charges of 39 and 45 cents, respectively, and threatens to continue so to do.

The government avers that, due to the relationship existing between defendant and Empire Cleaners & Dyers, Inc., the method of retailing the dry-cleaning services in controversy constitutes interstate commerce. In reality, it is said defendant’s business must be viewed as made up of the sales of services performed in New Jersey to persons in New York, who purchase the same. This alleged feature of the ease is stressed by statements that all garments are transported to and from the retail stores in New York and the cleaning plant located in New Jersey, and that money, credits, etc., from customers in New York are ultimately transferred to the corporation in New Jersey. The complainant further contends that defendant’s low prices for the services sold affect interstate commerce, in that substantial portions of dry-cleaning services of which residents of New York avail themselves are purchased from members of the cleaning and dyeing trade who operate from locations situated in states adjoining New York, and who are therefore in active competition with defendant. Therefore retail prices charged by defendant have an immediate and necessary effect towards reducing both retail and wholesale prieesi of competitors. This leads to (1) an obstruction to the free flow of interstate commerce and a consequent diminution thereof; (2) a deerfease in the ability and requirement of members of the trade to purchase machinery, naphtha, chemicals, and other supplies required to carry on business; (3) a decrease in employment among workers in the industry, and an impairment in their standards of labor, accompanied by a decline in the power of the workers to purchase and consume industrial and agricultural products, customarily moving in interstate commerce; and (4) a frustration of the purposes and policy of the National Industrial Recovery Act.

Complainant’s bill then proceeds to call attention to the existing emergency in commercial and industrial life, and says that it has affected the cleaning and dyeing trade with particular adversity. Until the approval of the code, continues the pleading, the industry was in chaotic condition. There was widespread unemployment with excessively low wages paid to, and unduly long hours imposed upon, those who still held jobs. Failures of service merchants were numerous, and the trade generally reeked with trade wars and other vicious trade practices. These conditions, the allegations continue, are now improving, but, if defendant is to be permitted to continue to maintain its present low prices the improvement will be arrested, and such advantages as have been gained will be lost. A continuance of defendant’s conduct will attract business from members of the trade who adhere to code prices and inevitably will result in destructive price wars, with all their attendant evils.

To prevent these potentialities, the court is asked to employ its injunctive process.

Defendant’s answer to the complaint consists of a general denial, together with the following specific defenses:

“First: That defendant is engaged wholly and solely in intrastate commerce as adjudicated by the Supreme Court of the State in an action entitled, ‘Cleaners’ & Dyers’ Board of Trade, Inc., and Joseph Goldstein, etc., Plaintiff, against Spotless Dollar Cleaners, Inc., Defendant,’ (the defendant here) [150 Misc. 690, 270 N. Y. S. 1531 and also by a judgment of the Court of Special Sessions of the City of New York, County of New York in a proceeding entitled, ‘People of the State of New York against Spotless Dollar Cleaners, Inc., defendant’ (also defendant here).

“Second: That defendant employs 250 employees in its stores, and has invested large sums of money in such establishments and has built up a good will of great value; that it has many competitors similarly situated; that the trade is divided into two branches, rendering two distinct types of service, — one a ‘cash and carry,’ the other,— a. ‘call and delivery’ service. Defendant engages in the former. Thirty percent of the entire retail cleaning and dyeing trade in the United States is of the ‘cash and carry’ variety, and that, as between the two types of service, the Code fails to make a proper price differential and that, if defendant be compelled to comply with the minimum prices of the code, which are said to be arbitrary, unjust and discriminatory, it will be financially ruined, and thus be deprived of fundamental constitutional rights.

“Third: That defendant secures a fair return and profit upon its investment at the prices it charges for dry-cleaning services, and that it pays its employees wages which are at least equal to, and more than the mínimums specified by the code, and that such employees have worked no more than the maximum number of hours therein prescribed.

“Fourth: That defendant is engaged in a strictly private business which is not vested with any public interest. Neither does it endanger the public health, welfare and morals of the people, either of the community in which it does business, or of the United States. It denies any right in, the National Code Authority to fix prices at which, its services shall be sold. In this connection the constitutionality of the National Industrial Recovery Act is bluntly challenged.”

That the cleaning and dyeing business is an important “service industry” which makes a worthwhile contribution to the sum total of the nation’s commercial activities is clear. In dollar volume, the business rose from $53,-000,000 in 1919- to $201,000,000 in 1929. Over the same period, the wages of workers within the industry increased from seventeen and one-half millions of dollars to almost seventy-six millions. In 1932, when the pall of depression had settled leadenly over all the land, these wages declined to forty millions, a sum still fax from negligible. Within metropolitan communities, the dry-cleaning agency in closest touch with customers is the retail store and small tailor shop. When clothing and fabrics are carried to, or collected by, a representative of the store or shop, the greater quantity thereof is sent to a wholesale cleansing plant in which the retail dealer, generally speaking, has no proprietary interest. Seventy per cent, of the trade in this city is so handled. The remainder passes through establishments which have an interest, more or less clearly defined, in the wholesale processing plant. Defendant’s organization falls within the latter category.

Complainant’s affidavits declare that over the past few years competitive conditions in the industry have been severe. In 1930, price wars broke out in various sections of the country. At or about this time the standard prices obtained in Chicago for cleaning men’s suits and women’s dresses were $1.75 and $2, respectively. A cleaner in Springfield, 111., where wage scales were lower and where union labor did not hold sway, started a parcel post cleaning service at half prices. Numerous small city dealers followed his example. A cut price shop was opened in Chicago, and the rates of established dealers were forced to $1 per garment. A labor lockout followed, and was succeeded by a reduction in the wages of employees. Cut rate stores in Chicago successfully insisted that small cleaning plants in Illinois, Missouri, Indiana, and Wisconsin, to which they sent garments, should by reduced charges absorb a portion of the cut prices, and thus enable cleaning service to be sold at 49’ cents per garment. Business disaster came to many dealers, and the return to workers in the industry where unemployment had not been the result fell to sums that necessitated low standards of living. With variable conditions, similar situations developed in North Carolina, Kentucky, Pennsylvania, Texas, and elsewhere-. The nature of the cleaning business is claimed to be such that the conditions which develop in one section of the country, particularly in the larger centers of population, are quickly reflected in nearby cities of other states. The next contention by complainant is that, so long as prices axe left to the free play of competition, the following results in the industry may confidently be expected: (1) Wage cuts and long hours of labor for employees; (2) an inferior quality of service; (3) financial distress to owners of processing plants with consequent decrease in their purchases of machinery and supplies; (4) the practical destruction of credit to persons engaged in the business; (5) a decline in the purchasing power of employees of the industry amounting to $50,000,000 per annum.

So baneful, says the government, has been the sum total of conditions affecting the cleaning and dyeing business, that it has been brought to the brink of ruin, and has subjected the more hardy establishments within the industry to the terrorism of the racketeer and trade ruffian. The situation thus created in particular localities has been aggravated by existing facilities of commerce and communication between the states, especially where large cities are to be found near state boundary lines. When such is the case, the problems and difficulties prevailing in the industry in one large city spread as does a miasmic mist over the territory of the adjacent state and its nearby city. Hence a price war which breaks out in one locality soon rages fiercely elsewhere.

The industry is further represented as being possessed of peculiar frailties. One reason assigned for this is that profits in the industry are dependent primarily upon a “volume” business, and that “volume” flows to the merchants who unfairly cut prices to the point of profit banishment. In this way, merchants who are either unwilling or unable to meet the nonprofit prices of competition are forced to retire from the field in which they once prospered. When fatalities of this nature have become sufficiently great, the man who has wrought disaster to his vanquished opponents views his accomplishment with satisfaction, and makes haste to raise his prices. Meanwhile, the price of labor in the industry has been forced from living standards to those of bare existence; bankruptcies ha.ve occurred; the quality of service rendered the public has been impaired; and, finally, unemployed workers of the industry walk the streets. In addition, other results have come about. Among them is a falling off in commercial transactions between states wherein the manufacture of cleaning machinery, chemicals, and other supplies take place and the states in which they are utilized in the processing of garments.

The affidavits filed by the government reveal numerous instances throughout the country where each of the aforementioned impediments to the free and prosperous flow of business are claimed to have served to lower standards of living and to have dwarfed business activity.

One avowed design of the code adopted for the industry is to remedy the aforesaid conditions, and the maintenance of minimum prices specified therein, it is thought, will be highly conducive to that end.

Defendant, on the other hand, is in accord with but few of the foregoing statements and theories of the government, and it •declines to conform to the minimum prices specified by the code.

According to its version of the facts, a determined effort is here under way to make it the slaughtered victim of a strongly organized trade association, composed of some 6,-000 “call and delivery” cleaners, and representing 70 per cent, of the industry, and which has unfairly influenced the code authority with respect to prices that should be charged for cleaning services. These organized merchants, it is charged, are here seeking opportunity through the elimination of defendant to reap the business which defendant has built up through reasonable prices, and which, prior to the advent of cash and carry stores, were nonexistent. In other words, the claim is that the development of the cleaning business from the status of a luxury industry into one of wide popularity is due principally to the fact that defendant, together with other dealers of like class, has placed the facilities of the business within the poeketbook capacity of a large portion of the population.

Attention is also directed to the circumstance that the great bulk of the affidavits submitted by the government has been gathered from distant parts of the country, and that they relate to conditions that are not to be found, and which have not existed, in this locality. As bearing upon this contention, it is said that complainant’s affiants, carefully and purposely selected, are operators whose plants are located near state border lines, and which, naturally enough, draw business from adjoining states. For this reason, the statements made by the affiants, even if truthful, do not represent conditions that are typical of the industry. Defendant points out, in this connection, that it offers no dry-cleaning services to; the public residing in New Jersey, but confines its retail business to sueh persons in the city of New York as wish to take advantage of the same.

Instead, of accepting blame for any racketeering and ruffianism that has afflicted the industry, defendant vigorously claims credit for the fearlessness it has displayed in resisting demands of the racketeers. Beyond this, it is asserted that the excessive minimum prices fixed by code invite departures therefrom by “call and delivery” cleaners as well as by “cash and carry” merchants, and cannot help but affect the industry with more tribulation. In great detail the court is supplied with figures and comparisons intended to show that a substantial price differential should exist between the type of service furnished by defendant and that supplied by the “call and delivery” cleaners. Stress is laid upon the inability of defendant without such differential to compete with established institutions which have, for generations, furnished a quality service to patrons of long standing, and which, along therewith, call and deliver goods and extend credit.

As bearing upon the argument that defendant’s method of doing business and the prices it charges have served to diminish interstate commerce in materials, machinery, ' and other cleaning supplies, the court is told that moré garments are presently subjected to dry-cleaning than were so processed at the very peak of industrial activity.

Proceeding then to the matter of financial disasters that have marked the industry, as asserted by complainant, the defendant declares that, proportionately, bankruptcies have been no more frequent and have involved no greater liabilities than those which characterized other industries of like size and importance.

All of these things, and many more, lend some, but not complete refutation to the conclusions which the government asks me to adopt. As between some of the conflicting economic and social theories advanced, it is unnecessary to make a choice.

But, even so, the decision to be made necessitates a brief consideration of the background against which the National Recovery Act was enacted, and of the boundaries within which the code authority may, if at all, fix minimum prices for services to be rendered by persons engaged in tbe cleaning and dyeing industry.

At tbe outset, it may be said that no sane man can deny that a national economic emergency of great severity was in existence at the time of the enactment of the statute. It had spread over the land, and had so devastated industry that highly drastie efforts by Congress, in order to overcome its influence, were mandatory. And, in the presence of impending disaster, it is not to be wondered that the national Legislature had resort to unusual means in order (1) to remove obstructions to the free flow of interstate and foreign commerce which tend to dimmish the amount thereof; (2) to provide for the general welfare by promoting the 0rgan.i2a.ti0n of industry for the purpose of co-operative action among trade groups; (3) to induce and maintain united action of labor and management under adequate governmental sanction and supervision; (4) to eliminate unfair competitive practices; (5) to. promote the fullest possible utilization of the present productive capacity of industries; (6) to avoid undue restriction of production (except as may be temporarily required); (7) to increase the consumption of industrial and agricultural products by increasing purchasing power; (8) to reduce and relieve unemployment; (9) to improve standards of labor; (10) to rehabilitate industry; (11) to conserve natural resources. See “The National Industrial Recovery Act,” by Milton Handler, American Bar Association Journal of August, 1933.

To the end that these purposes might be accomplished, the President was vested with broad and comprehensive powers. With the right of Congress to make such delegation, there can be, in my opinion, no reasonable dispute. Field v. Clark, 143 U. S. 649, 12 S. Ct. 495, 36 L. Ed. 294; Buttfield v. Stranahan, 192 U. S. 470, 24 S. Ct. 349, 48 L. Ed. 525; J. W. Hampton, Jr., v. U. S., 276 U. S. 394, 48 S. Ct. 348, 72 L. Ed. 624; New York Central Securities Corporation v. U. S., 287 U. S. 12, 53 S. Ct. 45, 77 L. Ed. 138.

The power so delegated has been liberally exercised, and with ameliorating effect, but the danger of further ravage by our economic depression is still present. If noneomplianee with industrial codes contemplated by the act tends to perpetuate the dangers and to frustrate the objects of Congress, then this court, within the limitations of the statute, may rightfully interfere to compel compliance. And, in doing so, there should be no hesitancy.

In approaching a consideration of the nature of the transactions of the defendant and their relationship to interstate commerce, it should be understood that I hold the code authority for the dyeing and cleaning trade to have been warranted in failing to establish a price differential between so-called “cash and carry” cleaning services, and those of a “call and deliver” service. The evidence taken at the hearings, held pursuant to the terms of the code, sustained the finding that the cost of one service is the substantial equivalent of the other. Further, the proof here shows that defendant does not confine itself to “cash and carry” operations, exclusively. In some instances and for no additional charge, it delivers garments of customers to their homes. On other occasions, it exacts a price of 10 cents, in addition to cleaning charges, for picking up and delivering the goods of its patrons.

In my justification of the absence of a price differential, I place myself in opposition to the ruling of Judge McGeehan of the Supreme Court of the state of New York, in the case of Cleaners’ & Dyers’ Board of Trade, Inc., v. Spotless Dollar Cleaners, Inc., 150 Misc. 699, 270 N. Y. S. 153, to which I shall hereafter advert in greater detail. This difference of opinion is voiced with deference and respect to a very able judge.

Now, whatever may be the degree of firmness of all the materials that entered the foundation of the National Industrial Recovery Act (48 Stat. 195), and irrespective of whether the foundations will support all trade regulatory structures that may be erected thereon, it has a completely solid cornerstone in the power of Congress to regulate interstate and foreign commerce. Congress, it would seem, relied upon that power alone when it authorized the federal District Courts to lend assistance in enforcing compliance with codes. A reference to section 3 of the statute (15 USCA § 703), wherein provision is made for resort to the powers and processes of the federal District Courts for aid in enforcing the law, makes this reasonably clear. Subdivision (b) and (f) of the section (15 USCA § 703 (b, f) intensify the view. In part, they read as follows :

“(b) After the President shall have approved any such code, the provisions of such code shall be the standards of fair competition for such trade. * * Any violation of such standards in any transaction in or affecting interstate or foreign commerce shall be deemed an unfair method of competition in commerce within the meaning of the Federal Trade Commission Act as amended [chapter 2 of this title]. * * *

“(f) When a code of fair competition has been approved or prescribed by the President * * * any violation of any provision thereof in any transaction in or affecting interstate or foreign commerce shall be a misdemeanor. “ * * * ”

Such, too, is the theory of the present complaint. Its elaborate allegations relative to the interstate character of defendant's business must be recognized as the deliberate thought of the government that only the involvement of interstate or foreign commerce in the challenged price cutting can presently give jurisdiction to this court. . Upon this predication also the proof has been adduced, and complainant’s argument made.

Therefore the chief line of inquiry is as to whether defendant’s business is possessed of an intrastate or interstate character. If defendant engages in interstate commerce directly, or if its intrastate business adversely afteets the free flow of the interstate trade of others, its acts are subject to the restraint here sought. See Houston, E. & W. T. Ry. Co. v. United States, 234 U. S. 342, 34 S. Ct. 833, 58 L. Ed. 1341; American Express Co. v. State of South Dakota ex rel. Caldwell, 244 U. S. 617, 37 S. Ct. 656, 61 L. Ed. 1352; and United States v. Ferger, 256 U. S. 199, 39 S. Ct. 445, 63 L. Ed. 936; Nebbia v. People of State of N. Y. (March 5, 1934) 54 S. Ct. 565, 78 L. Ed. -, 89 A. L. R. 1469.

In the light of the law as these cases reveal it, I think the government is entitled to a decree.

At the same time, two adjudications are cited by defendant as lending themselves to a contrary result. These are the two cases in which acts of defendant, in most respects similar to those here disclosed, have engaged the attention of the state courts of the state of New York.

Upon the first occasion, the defendant was criminally prosecuted under the Sehackno Act (Laws 1933, e. 745), which incorporated the code into the law of this state, in the Court of Special Sessions of the City of New York. The offense alleged was that it had charged prices below the code mínimums. After hearing, defendant was adjudged guilty of the offense and was fined.

In order to exercise jurisdiction, defendant argues, the court necessarily must have found that defendant was engaged in intrastate commerce. Thereafter the Cleaning and Dyeing Board of Trade, 'Inc., which is said to have instigated the foregoing prosecution, and which is charged, also, to have been responsible, in part, for the present action, became a party plaintiff in a suit that was _ brought in the Supreme Court, New York county, to enjoin defendant from continuing to charge the prices in controversy. Belief was denied. Judge MeGeehan, before whom the litigation was had, ruled that the Supreme Court of the state was vested with jurisdiction in the premises, and that the statute was not prima facie unconstitutional. He held, however, that a “call and deliver credit” service is .quite different from one of the “cash and carry” variety. In this connection, he said:

“After a detailed investigation, the officials of the N. I. B. A. (National Industrial Beeovery Act) were impressed with the argument that a service of "calling for goods, delivering them, granting credit, and collecting these petty bills does not cost anything. I decline to be so credulous. Stripped of its camouflage, the effort of plaintiffs is to drive defendants out of business, for the facts and argument of plaintiffs conclusively prove that patrons will not accept the meager service of defendants if they can get the much better service offered by plaintiffs at the same price. These services are distinctly different. I deliberately overrule the finding that they are the same. * * * If this law means that N. I. B. A. has the power to compel a man whose service is worth 46 cents to charge 75 cents for it, so that his customers will leave him and deal with his competitor whose service is worth 75 cents, then it is unconstitutional. It is not unconstitutional because that is not what it means. If it gives to this court the right to review without power to reverse, it is unconstitutional. It is not unconstitutional because as a part of the review it gives this court the right to reverse on the facts and the law. * * * I decline to enjoin these defendants. I also refuse to fix a rate for the cash and carry service. That cluty belongs with the N. I. B. A. When they fix a proper rate, I shall enforce it if the motion comes before me.”

If it should be, as argued, that the decisions of the state court may be construed as adjudications that defendant is not engaged in interstate commerce, the proof before me should, perhaps, receive further elaboration, and it will now be attempted.

When the suit in the Supreme Court of the state, and which has been mentioned, was in progress, Louis Dernberg, vice president of defendant corporation, made an affidavit therein upon behalf of his company. It contained this averment:

“ • * * That the defendant corporation is * * * organized under the laws of the State of New York, and is engaged in the conduct of a retail dry cleaning business, through its wholly owned outlets of which there axe thirty-two in number.

“All of these outlets are operated in the City of New York. The Spotless Dollar Cleaners, Inc. also operates a plant where all the dry-cleaning work is done, in the town of Edgewater, New Jersey.”

In addition, the chairman of the local administrative board for the code authority within this area deposes, upon investigation which he conducted, that both the defendant and the New Jersey concern are owned and operated by identical interests. The garments are conveyed from New York to New Jersey and back by truck displaying defendant’s name painted on the side panels and bearing a New Jersey license.

Nowhere, save in the answer to the complaint, wherein an allegation of identity of such operation of and control is made, is a categorical denial of these assertions to be found. Argumentatively, defendant’s affidavits would have me infer that there is diversity between the two corporations, but they are far from convincing.

In touching upon this matter, I may again refer to the Supreme Court action and mention the following circumstances. In the memorandum there filed by counsel for the defendant, he stated: “The defendant is engaged in an interstate business and the conduct of such interstate business can be regulated only by the National Government, and cannot be influenced or regulated by any State enactment.”

While an expression of counsel’s belief upon another occasion, of conclusions properly to be drawn from other proof, should not bind his client upon a question of fact which here may differently be presented, it may not be amiss, upon the whole, to give the statement a modicum of weight in making analysis of the arguments here made that defendant’s business is limited to intrastate transactions.

Superficially the business in which defendant engages with a customer is locally initiated and concluded. Customers are unaware that their clothing is processed within the state of New Jersey, and, so far as they are advised, they are in contact only with defendant. Nevertheless, the actuality is that Empire Cleaners & Dyers, Inc., in order that defendant may fulfill its cleaning service contracts with patrons of its New York stores, must process each and every garment that is delivered to the stores. For this to be accomplished, each garment must make two separate and distinct interstate movements. If it be, as apparently is true, that defendant and Empire Cleaners & Dyers, notwithstanding their different corporate names, are under a common management, ownership, and control, the sale of cleaning services is as much interstate as intrastate commerce. It therefore falls within the authority of Kansas City v. Seaman, 99 Kan. 143, 169 P. 1139, L. R. A. 1917B, 341. The facts there were that a steam laundry, located in Missouri, sent an employee in a wagon into the state of Kansas to gather the linen of patrons residing in the latter state. He then took it to the plant in Missouri, where it was washed and ironed. It was then returned by wagon to the customer in Kansas, the driver collecting the charges. The driver having been arrested and convicted for violating an ordinance of Kansas City, Kan., which imposed a license tax upon each laundry there doing business, the Supreme Court set aside the conviction. In so doing it assigned two grounds for its action, first, that the wagon driver was not conducting a laundry in Kansas City, as was contemplated by the ordinance; and, second, that the collection of the goods in Kansas, carrying them into Missouri, and returning them to their owners, constituted interstate commerce. Commonwealth v. Pearl Laundry Co., 105 Ky. 259, 49 S. W. 26, is to the same effect. See, also, Simpson-Crawford Co. v. Borough of Atlantic Highlands (C. C. N. J. 1908) 158 F. 372.

If it be that my finding of the existence of an identity in the operation, management, and control of defendant and Empire Dyers & Cleaners, Inc., be correct, there is no difficulty in treating the persons in charge of defendant’s retail stores as agents also of the New Jersey organization. In reality, their sales of cleaning services are transactions of Empire Cleaners & Dyers, Inc., quite as much as they axe those of defendant.

In order to relieve itself of liability in this suit, defendant places strong reliance upon the case of Smith v. Jackson, 103 Tenn. 673, 54 S. W. 981, 47 L. R. A. 416. There the Supreme Court of Tennessee held that a tax on agents of laundries located in other states, but who did business in Tennessee, was valid for the reason that gathering and shipping laundry back and forth across state fines did not constitute commerce.

The court founded its decision, in my judgment erroneously, upon the ruling contained in Paul v. Virginia, 8 Wall. 168, 19 L. Ed. 357, which had to do with an insurance contract. I cannot but believe that service contracts made by defendant with relation to physical subject-matter which necessarily must move regularly, usually, and in large volume across the boundary line of adjoining states, is commerce, both in theory and in fact. . Certainly it is intercourse, and traffic is one of its outstanding ingredients. Brown v. Maryland, 12 Wheat. 419, 6 L. Ed. 678. In spite of all this it might, under some circumstances, be argued that minimum prices upon transactions in interstate commerce may not be utilized for the equalization of economic conditions. Hammer v. Dagenhart, 247 H. S. 251, 38 S. Ct. 529, 62 L. Ed. 1101, 3 A. L. R. 649; Ann. Cas. 1918E, 724. In this behalf, the following considerations might be urged: There are upwards of 20,000 tailor shops and dry-cleaning outlets in the city of New York. In large measure, they are of humble status and serve limited neighborhoods. Their proprietors are content with a small trade, and their customers are satisfied with the services received. Many of these proprietors do their own work and in their individualistic ways. Their costs are as variable as the buildings they occupy. The transactions taking place in these shops are purely intrastate. If they affect interstate commerce in any way, they do it so remotely and indirectly as to be of little consequence. See United States v. Suburban Motor Service Corporation et al. (U. S. D. C. N. D. of Illinois, Eastern Division, 1934) 5 F. Supp. 798, Prentice Hall Federal Trade and Industry Service No. 8032. But, after all of the businesses so conducted are taken into account, there remains a substantial number of dry-cleaning establishments which operate in an entirely different manner, and which were accustomed to make frequent and constant use of the facilities of interstate commerce. In servicing their customers, they followed the procedure of defendants, and sent their goods to wholesale cleaning plants, some fifteen in number, located on the westerly side of the Hudson river in New Jersey.

Since the time that defendant refused to adhere to the minimum code prices, the business formerly conducted by these plants with retail outlets in New York City has ceased. While the total number of local outlets formerly served is not shown by the papers, it does appear that the plant of Nu-Life Cleaners & Dyers, Inc., situated at Leonia, N. J., and not far removed from Edgewater, has lost the trade of twenty-five' retail stores located within the city of Yonkers, N. Y. The processing plant of Fort Lee (N. J.), French Cleaners & Dyers, Inc., has likewise been affected adversely. Some of its retail customers now bring their work to New York where it may more cheaply be done.

For the purpose of my decision, I shall disregard the strike of workers in the industry which is said to be attributable to the price cutting" of defendant. Aside from this, enough has been shown to enable me to conclude that such price cutting as has occurred has seriously impeded and changed the customary and usual flow of interstate commerce in the dry-cleaning industry between the states of New York and New Jersey. If defendant be permitted to continue its unfair prices, further changes in such currents and flow are inevitable, and these will contribute to the frustration of the purposes of the National Industrial Recovery Act. In this industry, profits are dependent largely upon volume business. With due allowance for equivalency in quality of work and general type of service, the volume of the business depends upon price and it will go to the establishment where prices are the lowest. Such has been the result of price cutting in other parts of the country, and there is no reason to suppose that there will be a difference here. In order to overcome tendencies which divert and stem movements in interstate commerce, Congress may act as it has, and is competent to authorize this court to take such steps as will allow interstate trade to be conducted in smoother channels and in accordance with the execution of policies that are believed to bo wise and expedient. It is not enough for defendant, in opposition to the will of Congress, to say that the policy of minimum price fixing for industrial service is not a means of which the government may properly take advantage. I agree with the proposition announced by the Supreme Court, and here called to defendant’s aid, that an emergency is incapable of conferring power, previously nonexistent, upon its victim. At the same time, it must be said that the victim, in an effort to extricate himself from his predicament, and to survive, can use his latent strength to the full. The struggle that is put forth may be ill-timed and awkward; it may not conform to precedent; and it may eventuate in utter futility, so far as the object to be achieved is concerned, but the strategy of a battle within the limits of strength belongs to the authority in command. And who can rightly say, with assurance, that governmental price fixing, when confined to transactions in interstate commerce, is not a means reasonably adapted to the legitimate ends which Congress seeks to serve ? As I view the law, the court cannot certainly say that it is not, and the government may have a decree.

In rendering this decision, I know full well that it may be a distinct step beyond the boundaries which, in peace times, have been said to circumscribe the powers of the Congress. If defendant be immediately restrained from continuing its violation of the minimum prices of the code, and my conclusion should hereafter be held to be erroneous, great damage will be its portion. Therefore I will suspend operation of the injunction for ten days. Within that period, defendant can apply to the Circuit Court of Appeals for a further stay.


author: CHESNUT, District Judge.

text:
    In re NOBLE.
    No. 6513.
    District Court, D. Maryland.
    Feb. 12, 1934.
    Thomas W. Simmons, of Cambridge, Md., for trustee William C. Dean.
    J. Gorman Hill, of Cambridge, Md., for claimants Phillip N. and Richard L. Linthicum.
   CHESNUT, District Judge.

The appeal from Referee Miller in this case presents the question as to whether Phillip N. Linthicum et al., by reason of a distraint proceeding for rent due them as landlords of the bankrupt prior to bankruptcy, secured a valid lien on certain property subsequently coming into the possession of the bankrupt trustee and by him sold. The claim is asserted as a secured claim to the extent of the proceeds of the sale made by the trustee of the chattels distrained on. The amount of rent due and unpaid to the claimant was $275 being for five months’ rent at $55.00 per month. The distraint was levied September 25, 1931. On September 29, 1931, the subsequent bankrupt executed a deed of trust for the benefit of creditors to one Thomas W. Simmons. On November 6, 1931, petition in bankruptcy was filed by Lee W. Noble and adjudication followed immediately.

The Referee determined (see his certification for review filed November 9, 1933) that the distraint was valid and the claimant secured a lien thereby which was good as against the bankrupt trustee and when the latter sold the goods the claimant was entitled to the proceeds of sale. The trustee in bankruptcy has appealed from the order to this effect, passed by the Referee. Further relevant facts are stated in the Referee’s certificate.

It appears that the property scheduled and listed in the inventory in the distraint proceedings had not been appraised up to the time of the bankruptcy but was afterwards appraised in the bankruptcy proceeding. The contention of the trustee before the Referee was that the distraint proceeding is invalid and does not constitute a properly secured claim. The Referee found, and it apparently is not disputed, that the original distraint warrant attached to the claim appears to be in the proper form and the inventory of goods and chattels was attached thereto. Apparently the only point stressed before the Referee in objection to the claim was that the distraint was ineffective on account of the fact that the property levied upon was not appraised in the distraint proceedings. No authority was cited to the Referee in support of this contention. The appeal from the Referee was duly set for hearing in open court but counsel for the respective parties did not personally appear, submitting the matter on brief written memoranda of argument. The brief on behalf of the trustee here stresses the contention that the lien was not valid because it would result in the ereati of a preference within four months prior to bankruptcy and must therefore fall. This, however, quite overlooks the provision of section 64b (5) of the Bankruptcy Act, as amended by Act May 27, 1926, now § 64b (7) (11 USCA § 104 (b) (7), which gives priority to payment of “debts owing to any person who by the laws of the States or the United States is entitled to priority.”

In a number of federal decisions relating to Maryland distraint proceedings, it has been held in this court and in the Circuit Court of Appeals for this Circuit, that a validly created landlord’s distress against the goods of a tenant will be sustained in bankruptcy. The latest ease on the subject reviewing prior cases is Irving Trust Co. v. Burke (C. C. A. 4) 65 F.(2d) 730, 732, 88 A. L. R. 877, confirming on this point the case of In re Rosenstoek (D. C.) 1 F. Supp. 830, 831, where the pertinent authorities are also reviewed. The distraint in that case was, as here, issued within- four months prior to the bankruptcy. That point, therefore, needs no further discussion.

As to the suggested invalidity of the distraint by reason of the fact that the appraisal of the property distrained upon had not been had prior to the bankruptcy, no authority is cited by counsel for the trustee in support of his contention, and I know of none. The purpose of the appraisal which is undoubtedly contemplated and provided for by the Maryland Statutes (see Md. Code, art. 53, § 14) would seem to have relation not to the effect of the lien bnt to the subsequent sale of the goods. A somewhat similar point with regard to the alleged insufficiency of notice to the tenant as affecting- the validity of the lien obtained by the distress levied was considered by the Circuit Court of Appeals in the case of Irving Trust Co. v. Burke, 65 F.(2d) 730, 734, 88 A. L. R. 877, where it is pointed out on the authority of Keller v. Weber, 27 Md. 660, at page 666, that the notice is a preliminary to the sale, not to the distress on the regularity of which the right of possession of the goods depends, and the Circuit Court of Appeals adds:

“Since there is no question of sale pursuant to the distraint in this ease, it follows that appellant had perfected a valid lien under the state law, irrespective of the sufficiency of the inventory, and is therefore entitled to a prior claim against the proceeds of the property on the demised premises.”

This reasoning is likewise applicable to the point made that there was no appraisal prior to the bankruptcy. The appraisal is not a condition precedent to the levy of the distraint hut only to a subsequent sale thereunder. Prior to the statute of 2nd William & Mary, sess. 1, chap. 6 (vol. 2 Alexander’s British Statutes, p. 774) the landlord could not sell goods distrained hut could only hold them as a pledge until the rent was paid. 36 C. J. 578, 580; Tiffany Landlord & Tenant, 2061, 2063. The landlord’s power to sell was given by this statute which also provided for the appraisal of the goods and made it a condition precedent to the sale. The Maryland Code, art. 53, § 14, providing for appraisers is doubtless historically attributable to this statute. But the statute did not itself make a sale obligatory although if it was delayed for an unreasonable time the tenant might have a remedy against the landlord for consequential damages. This statute is in force in Maryland. State v. Timmons, 90 Md. 10, 44 A. 1003, 78 Am. St. Rep. 417; Cahill v. Lee, 55 Md. 319. As between the landlord and the tenant an agreement could be made postponing the sale but continuing the lien although if the sale was unreasonably delayed a bona fide purchaser of the goods distrained could get a valid title from the tenant. Lamotte v. Wisner, 51 Md. 559. Nothing appears in this ease to indicate that the delay in making the appraisal was for an unreasonable length of time or that the tenant, subsequently the bankrupt, made any objection to the delay; and it does not appear that the delay was such under the circumstances as to cause a reasonable inference that the distraint had been abandoned.

For these reasons I confirm the Referee’s order.

       To the Honorable, the Judges of Said Court:
      The Report of Edward T. Miller, Referee, to whom the above entitled ease was referred, respectfully shows:
      1. That among the claims filed against the said bankrupt estate, there was one of Philip N. Linthicum et al., filed on Dec. 22, 1931, as a secured rent daim in the amount of Two Hundred Seventy-Five ($275.00) Dollars, basis of said daim being a distraint proceeding filed prior to the adjudication in bankruptcy, the said claim being hereto attached as “Exhibit #1.”
      2. That subsequently on Oct. 16, 1933, William O. Dean, Trustee in the above entitled case, filed objections to the allowance of said claim as a secured claim, said objections being filed herewith as “Exhibit #2.”
      3. That a hearing having been held in the matter on the 21st day of Oct. 1933, the Referee passed an Order allowing said daim as secured to the extent of the proceeds derived from the property distrained upon, this order being attached hereto as “Exhibit #3.”
      4. That on the 3rd day of Nov. 1933, the said William O. Dean, Trustee, through Thomas W. Simmons, Esq., his Attorney, filed a petition for review of the Findings of the Referee in said matter, which is attached hereto as “Exhibit #4.”
      5. The facts as disclosed by the hearing are as follows: The bankrupt, prior to the adjudication, rented a store property from the claimants, Philip N. Linthicum et al. at a monthly rental of Fifty-Five ($55.00) Dollai’s. On the 21st day of Sept. 1931, distraint proceedings were instituted before George W. James, J. P., for five months rent, totaling Two Hundred and Seventy-Five ($275.00) Dollars. A constable laid the distress on the 25th day of Sept. 1931, and scheduled certain fixtures and furnishings located on the rented premises. On the 29th day of Sept. 1931, Lee W. Noble made a Deed of Trust for the benefit of his creditors, in favor of Thomas W. Simmons, Esq. The property scheduled in the distraint proceedings had 'not been appraised. On Nov. 6th, 1931, as a result of a voluntary petition, the said Lee W. Noble was adjudged a bankrupt and the property in question was appraised in the bankruptcy proceeding and has subsequently been sold by the trustee in bankruptcy. The contention of the trustee is that the distraint proceeding is invalid and does not constitute a proper secured claim. The original distraint warrant attached to the Linthicum claim appears to be in the usual and proper form. The Inventory of Goods and Chattels is attached thereto.
      The Referee can find no authorities or law to justify the contention of the trustee that the distraint would not be effective on account of the fact that the property levied upon was not appraised in the distraint proceeding.
      Section 9 of Article 53 of the Code of Maryland prescribes that to distrain for rent, the Landlord or his agent may make oath before any officer of the County or State where the Landlord or Agent may reside who is qualified by law to administer oaths or affidavits and that the affidavit must specify the amount which said Landlord may claim to be due. The papers in this proceeding indicate that this requirement has been fully met. The only requirement relative to appraisement appears in Article 53, Section 14, which merely provides that not more than two appraisers shall be summoned and fixes the amount of their compensation.
      The Referee, therefore, passed the Order hereto attached and the papers are herewith forwarded for review as prayed.
      Edward T. Miller,
      Referee in Bankruptcy.
      November 8, 1933.


author: BYERS, District Judge.

text:
    UNITED STATES PAPER EXPORTS ASS’N v. BOWERS.
    District Court, S. D. New York.
    April 16, 1934.

      Donald Home, of New York City, for plaintiff.
    Martin Conboy, of New York City, U. S. Atty. (Leon E. Spencer, Asst. U. S. Atty., of New York City, of counsel), for defendant.
   BYERS, District Judge.

This: is an action at law in which the plaintiff seeks judgment for the sum of $44,839.20 with interest from June 3, 192ñ>t when payment thereof was made for income and profits taxes for the period of January 1, 1918, to June 29, 1918, levied and assessed against the plaintiff.

The claim has been the subject of judicial consideration, resulting in an order denying the defendant’s motion to dismiss the complaint for failure to state a cause of action. American Paper Exports, Inc., et al. v. Bowers (C. C. A.) 54 F.(2d) 508.

The complaint then under examination was, in all material respects, the same as the amended complaint, and the change in the title of the aetion is due to the withdrawal of one plaintiff, and the substitution of a personal representative for the original defendant, now deceased.

The issues raised by the answer to the amended complaint are:

1. As to the organization of American Paper Exports, Inc., the purpose thereof, and its lawful acquisition of the assets and liabilities of the plaintiff, on June 29,1918.

2. As to the allegation that on and after June 29,1918, the American Paper Exports, Inc., held and owned all the authorized capital stock of plaintiff, and has since that date continued to hold and own the same, and continued to control; operate, manage and carry on the business of the plaintiff.

The government contends that from and after June 29, 1918, there was a merger of the two corporations into the American Paper Exports, Inc., and that the corporate life of the United States Paper Exports Association became extinct; that, during the second six months of 1918, the American corporation was conducting its own concerns purely, and not prolonging — despite entire stock ownership — the corporate functions of the United States company. This distinction, if shown, is said to require a departure from the declaration of the law of the ease, as established by the Circuit Court of Appeals.

The plaintiff has retained sufficient vitality to present itself as a suitor in this court, and to conduct this litigation, which is perhaps a sufficient refutation of corporate demise. Nor is there attempted proof of dissolution in the legal sense, whereby the charter would be deemed to have been surrendered.

The bill of sale, from the United States company to the American corporation purports to convey a going concern, engaged in business, and supports the inference that from and after July 1, 1918, existing contracts of the prior enterprise were carried out by the American corporation, not as its own undertakings, but as those of the United States company; if there had been a breach of any of them, the cause of action would have been against the latter.

The business activities of the United States company endured throughout the year 1918, for the first half under the direction of its own officers and employees; and during the second half, by the American corporation, which took over the going concern and directed its operations as the result of the ownership of all the capital stock. This seems to have been the affiliation as visualized by the Circuit Court of Appeals.

The new company also expanded operations by selling its own stock and acquiring the export business of a third enterprise.

The evidence in support of the foregoing statement is meager, consisting only in the testimony of the former secretary of the plaintiff and present treasurer of the American corporation, and documents pertaining to the organization of the parent company and the transfer of the properties of the United States company. The defendant offered no testimony in opposition, apart from departmental records which seem to contain nothing in contravention of what has been stated.

These issues therefore are deemed to have been resolved in favor of the plaintiff. Prom this, it results that nothing has been shown to render inapplicable the rule of decision concerning the necessity for a consolidated return for 1918, as announced on the reversal of the order dismissing the complaint.

3. That the plaintiff filed a tentative return on March 14,1919, for the one-half year period ended June 30, 1918, and estimate of corporation and profits tax.

Such a return, verified by plaintiff March 14, 1918', is defendant’s Exhibit E, and accompanied a check for $7,500.00, being a one-quarter payment of an estimated tax of $30,-000.00' for the one-half year ended June 30, 1918, and was in the form of an application for extension of time for filing completed return because form 1031 had not been issued by the department.

The point has not been briefed, presumably because it is not thought to be important. Probably the Regulations then effective ascribed no sueh purpose to a tentative return as would constitute a bar to the consolidated return as filed.

The answer to the amended complaint raises no other issues of fact, by way of denial.

There is pleaded, however, as an affirmative defense, that the plaintiff applied for a determination of its tax liability for the six months ended June 30, 1918, under, sections 327 and 328 of the Revenue Act of 1918 (40 Stat. 1093), and that sueh application was granted.

Those sections have to do with a method of computing income and profits taxes where, by reason of abnormal conditions affecting the capital or income of the corporation, an exceptional hardship would be involved if resort were not had to sueh method.

It is not disputed that the tax complained of was assessed under these sections of the law, but the insufficiency of that separate defense has been established by the decision of Judge Patterson, who denied a motion for summary judgment on June 19, 1933. The plaintiff apparently made the motion, upon the pleadings, and the defendant set forth, by affidavit, that a refund had been made to the parent company, the American Paper Exports, Inc., in May, 1925* of some $30,841.-49, being a part of the tax paid pursuant to the consolidated return. In denying that motion, the court said: “It is not clear, therefore, that the plaintiff is entitled to the whole amount sued for.”

As to that incident, the defendant’s present brief states:

“The refund which the Commissioner of Internal Revenue made to the American Paper Exports, Inc., on May 12, 1925 in the sum of $30,841.49' plays no part in the Court’s consideration of this ease except to show that, in the event the plaintiff should recover the amount sued for in the sum of $44,-830.20, the plaintiff’s net income of $73>191.-51 would escape taxation.”

That motion also seemingly involved a motion to dismiss the amended complaint, for the opinion contains the following:

“The motion to dismiss the amended complaint is also denied. The fact that the tax was paid under special assessment does not appear on the fane of the complaint, but only by the defendant’s affidavit. In any event it is not a defense where the plaintiff’s grievance goes to the imposition of the tax as a whole and is not an effort to have the tax readjusted.”

The law of the ease as to the effect upon the plaintiff’s cause of the assessment under sections 327 and 328 of the act has thus been settled so far as this court is concerned.

The defendant would avoid the effect of Judge Patterson’s ruling by arguing that the court is without jurisdiction to redetermine the plaintiff’s tax for the period in question (Heiner v. Diamond Alkali Co., 288 U. S. 502; 53 S. Ct. 413, 77 L. Ed. 921), and with that contention there is no disposition to disagree; that it was incumbent upon the plaintiff to show that it owed no- tax for 1918, in order to recover judgment, and that it had failed to make such proof, hence the above quotation does not dispose of this aspect of the ease, because it was intended to point out only that, if the plaintiff owed nothing in respect of 1918 taxes, the special assessment could not impose a liability where one would not otherwise exist.

If the theory of the plaintiff’s case is understood, it is this: That the plaintiff’s 1918 tax liability was reflected in the consolidated return filed in 1919 by the American Paper Exports, Inc., the so-called parent company, and no liability beyond that so revealed existed or could be properly assessed, because a consolidated return was proper under the Regulations. This, the plaintiff is deemed to have demonstrated by the unrefuted testimony offered to substantiate the contested allegations in the complaint.

Having thus met the burden of proof, it has made out its ease and need not go farther and demonstrate a negative, namely, that it owed nothing beyond what was shown in the consolidated return.

The second quotation from Judge Patterson’s opinion is quite clearly to the effect that the plaintiff’s grievance is based upon the imposition of the tax and not upon its computation.

The remaining question in the case has not been examined hitherto: The defendant asserts that recovery may not be had because the plaintiff’s claim for refund does not “state the same facts as are relied on in this action,”

That argument has reference to section 1113 (a) of the Revenue Act of 1926, which re-enacts section 3326 of the Revised Statutes (26 USCA § 156) which forbids such suits as this until a claim for refund or credit has been duly filed with the Commissioner of Internal Revenue, “according to the provisions of law in that regard, and the regulations of the Secretary of the Treasury established in pursuance thereof.”

The applicable regulation (art. 1304 of Reg. 69) reads as follows:

“Claims by the taxpayer for the refund- ’ ing of taxes, interest, penalties, and additions to tax erroneously or illegally collected shall be made on Form 843. All facts relied upon in support of the claim should be clearly set forth in detail under oath.”

Does the present claim for refund comply with the foregoing? The document is Plaintiff’s Exhibit 8, and cannot be conveniently reproduced here. It was made by the plaintiff on form 843 and was timely.

It states that it is a claim for refund of income and profits tax for the year 1918' in the sum of $44,830:20, and among other things that “claimant was not subject to the income, excess-profits and war-profits taxes paid.”

While there is no specific reference to the consolidated return, there does appear upon the face of the claim, in diagonal lines, as though overwritten in the office of the collector, the words: “See facts in case (?) American Paper Exports Co. for 1918.”

Rejection of the claim is embraced in a letter from the deputy commissioner attached to Plaintiff’s Exhibit 8 and dated January 20, 1928, containing the following:

“The contentions upon which your claim is based are as follows:

“1. That the American Paper Exports, Incorporated was affiliated with your company during the six months period ended June 30, 1918,

“ * * * Your contentions were rejected for the following reasons:

“1. (a) That the American Paper Exports, Incorporated, was not in existence pri- or to July 1, 1918 and, therefore, could not have been affiliated under Section 240 of the Revenue Act of 1918. (b) That a separate taxable entity existed during the last six months in 1918 inasmuch as two distinct corporations were involved. * * * ”

- Plaintiff’s Exhibit 9 is a “Statement of Facts and Brief” filed September 8,1927, by American Paper Exports, Inc., with the Bureau of Internal Revenue in behalf of the claim for refund, in which the affiliation is presented clearly, and on page 4 under “Statement of Facts, etc.,” the argument is presented that there was the affiliation as heretofore related, and that the tax should have been computed upon the net income and invested capital of the two corporations as one, for the year 1918.

The defendant under this point relies upon United States v. Felt & Tarrant Co., 283 U. S. 269, 51 S. Ct. 376, 377, 75 L. Ed. 1025, in which it was held that the claim for refund there involved did not comply with the statute or the Regulations, in that it gave “no notice of the amount or nature of the claim for which the suit is brought, and refers to no' facts upon which it may be founded.”

One reason for the requirement, as the opinion states, is “to advise the appropriate officials of the demands or claims intended to be asserted, so as to insure an orderly administration of the revenue. ** * " ”

Standing alone, the claim upon which this plaintiff relies might be thought not to apprise the Commissioner of the precise nature of the right asserted, but when it is observed that rejection was based in part upon the denial of the affiliation for the year 1918, thus revealing a careful consideration of that which is the subject of the present controversy, it becomes apparent that the revenue officials were in fact cognizant of the demands or claims “intended to be asserted.”

If that had not been so, the Bureau would not have held the claim under consideration upon the merits for a space of two years. Cf. United States v. Memphis Cotton Oil Co., 288 U. S. 62, at page 71, 53 S. Ct. 278, 281, 77 L. Ed. 619.

The claim for refund was understood by the Commissioner to embrace the contention which was passed upon in the motion to dismiss, and therefore must be deemed adequate.

The direction of a verdict for the plaintiff must follow, despite the resultant incongruity involved in permitting it to recover the amount of the entire assessment, in spite of the refund made to the parent company to which reference has been made, although that is eoneededly not an issue in this case.

It might have been if a counterclaim had been timely pleaded against the parent company while it was still a plaintiff in the case.

The court is reminded that, in an action at law, there can be no recognition given to the fact that the stockholders of the American corporation are to gain by this decision, as they have already benefited by the refund. If this is to be the result of maladroit administration, correction at least does not lie with this court.

Verdict directed for plaintiff for the judgment demanded in the complaint.

       No opinion, for publication.


author: BREWSTER, District Judge.

text:
    SCHENCK ex rel. PATE v. WARD, Commissioner of Immigration.
    No. 5160.
    District Court, D. Massachusetts.
    April 4, 1934.
    John W. Sehenek, of Boston, Mass., for petitioner.
    Francis J. W. Ford, U. S. Atty., and Hugo Bagnulo, Asst. U. S. Atty., both of Boston, Mass., for respondent.
   BREWSTER, District Judge.

This is a petition for writ of habeas corpus to secure the release from the custody of the Commissioner of Immigration of one Carmine Pate, held on a deportation warrant. The warrant was based on the statute (Act Feb. 5, 1917, c. 29, § 19, 8 U. S. C. § 155 [8 USCA § 155]), which authorizes the deportation of “any alien who manages or is employed by, in, or in connection with any house of prostitution or music or dance hall or other place of amusement or resort habitually frequented by prostitutes, or where prostitutes gather, or who in any way assists any prostitute or protects or promises to protect from arrest any prostitute. * * *»

Before the warrant of arrest issued, investigations had disclosed that the alien had on June 11, 1932, been found guilty in a state court of competent jurisdiction of maintaining a house of ill fame and had been sentenced to 18 months in Bristol county house of correction. Affidavits of police officers instrumental in obtaining the conviction and of one other affiant were then obtained. As a result of this investigation, a warrant of arrest was issued October 19, 1932, commanding the Commissioner of Immigration at Boston to take the alien into custody and grant him a hearing to enable him to show cause why he should not be deported as an alien found in the United States who had been “found managing a housfe of prostitution, or music or dance hall or other place of amusement, or resort habitually frequented by prostitutes, or where prostitutes gather.”

The alien at that time was in the house of correction serving his sentence. From December 21, 1932, to April 12, 1933, hearing was postponed at least four different times at the request of the alien in order that he might communicate with his brother, who would arrange for an attorney. Finally, at the request of his brother, a hearing was set down for April 12, at which time the brother was present, and the alien stated he did not care to employ an attorney, and expressed his willingness to have the hearing proceed. This hearing was fairly conducted. On May 15, 1933 on his own motion, the inspector in charge reopened the hearing for the purpose of receiving affidavits obtained before the warrant of arrest issued and which have been noted above.

According to the record, the alien was advised as follows: “Your ease is to be reopened to supply further evidence on an investigation in your ease conducted by Inspector Clark of the Providence office.” He was then asked if he was willing to hear this further evidence without his brother being present, to which he replied, “Yes, I am willing to go on at this time without my brother being present.” The affidavits were fully read to him, and he understood their purport and was given abundant opportunity to refute or explain the statements in the affidavit. At the conclusion of the hearing, the inspector recommended that the alien be deported, which recommendation appears to have been based solely upon the conviction and sentence in the state court. The board of review took the matter under consideration upon the record, and joined in the recommendation of the inspector. It is quite apparent, however, from the report of the board of review that they attached importance to the contents of the affidavits already referred to.

Following the recommendation, a deportation warrant issued July 17, 1933, on the ground that the alien was found managing a house of prostitution. The execution of the warrant was to be deferred until the expiration of the present sentence. Upon his release from the house of correction, he was taken into custody on the warrant. In the meantime, at the request of the alien and others acting on his behalf, further testimony was taken- at the house of correction.

Whether this testimony was received in the presence of the alien the record does not disclose, although there is a fair inference that it was. A further report was made as to the alien’s family and their situation, and further consideration was given by the board of review, which recommended that proceedings be held in abeyance until an application for pardon had been acted upon by the Governor. This application was refused. There is nothing in the record to indicate that the alien requested an opportunity to present further evidence.

The hearing seems to have been conducted with due regard to the rights of the alien, and must be deemed to be fair, unless it be held that the introduction of the affidavits at the hearing on May 15, 1933, and incorporating these ex parte statements into the record, denied to the alien his lawful rights, and therefore rendered the hearing unfair.

The courts in other jurisdictions have, with almost complete uniformity, held that the introduction of such ex.parte statements with no opportunity to cross-examine is sufficient ground for declaring the hearing unfair. Ungar v. Seaman (C. C. A.) 4 F.(2d) 80; Svarney v. United States (C. C. A.) 7 F.(2d) 515; Maltez v. Nagle (C. C. A.) 27 F.(2d) 835; Gonzales v. Zurbrick (C. C. A.) 45 F.(2d) 934, at page 937.

In Caranica v. Nagle (C. C. A.) 23 F.(2d) 545, the alien was denied an opportunity to cross-examine witnesses, but the board of review did not consider the statements of the witnesses. The hearing was held to be proper. In Imazo Itow v. Nagle (C. C. A.) 24 F.(2d) 526, affidavits were received without objection by the alien, who was represented by counsel who made no request for the privilege of cross-examination. Two of the affiants were present, and the alien was given an opportunity to examine them, but the offer was declined. The only remaining affidavit was that of one of the prostitutes, which was merely cumulative and could hardly be said to have been of substantial weight. This hearing was upheld.

It would appear, therefore, that the great weight of authority is to the effect that a hearing and record which incorporates ex parte affidavits which are considered by the board of review and apparently exert an influence upon the decision of the immigration authorities is not such a fair hearing as the alien is entitled to demand in deportation proceedings; that this would be the result reached in this court is indicated by the decision in Chin Quong Mew ex rel. Chin Bark Keung v. Tillinghast (C. C. A.) 30 F.(2d) 684. This was an exclusion case where the board of special inquiry received and considered evidence without giving any opportunity to the alien to refute or explain it. The court said that such conduct was highly prejudicial and rendered the hearing unfair.

Inasmuch as the alien was not represented by counsel and presumably ignorant of his legal rights in the premises, the fact that he said to the inspector that he could go ahead with the hearing on May 15 is not sufficient to take the ease out of the rule considered above. Gonzales v. Zurbrick, supra.

In conclusion, I find that the alien has not been accorded a fair hearing. Therefore the writ may issue.


author: BITTER, District Judge.

text:
    UNITED STATES ex rel. GUARANTY STATE BANK v. OKEECHOBEE COUNTY et al.
    No. 2024.
    District Court, S. D. Florida.
    Jan. 9, 1934.
    Touehton & Crittenden, of Winter Haven, Fla., and W. H. Poe, of Orlando, Fla., for plaintiff.
    Cary D. Landis, Atty. Gen., of the State of Florida, for defendant.
   BITTER, District Judge.

The plaintiff in this ease secured two judgments in this court for $11,559.35 and $5,-382.82, respectively, on the 31st day of July, 1933, upon past-due bonds issued by the county of Okeechobee, state of Florida, on the 1st day of February, 1931, and 1933. These bonds were issued for construction of the Okeeehobee-Fort Drum road.

The judgments not being paid, the plaintiff brings this action against the county chairman and members of the board of county commissioners, the county clerk, tax assessor, and tax collector, the state treasurer as ex officio treasurer of said county, and against members of the board of administration of the state of Florida, seeking an alternative-writ of mandamus against these officers to: compel payment of moneys on hand to the-plaintiff, which moneys arose from the ad valorem tax levied for the payment of the bonds, and the payment of which moneys has. been refused.

To the petition for alternative writ, W. V. Knott, as state treasurer of the state of Florida, as ex officio treasurer of Okeechobee county, and David Sholtz, J. M. Lee, and W. VKnott, as members of the board of administration of the state of Florida, have filed their joint and several motion to quash the alternative writ of mandamus, upon the ground, primarily, that the moneys involved are held by them under and by virtue of chapter 14486, Acts of 1929 (Ex. Sess.), Comp. Gen. Laws Supp. 1939, § 2470 (1) et seq., and that the payment of said moneys is governed by the said act and within the discretion of the members of said board.

The defendant county and county officers have entered into a stipulation with the plaintiff, of record in this court, wherein it is stipulated and agreed:

(1) That judgment may be entered and a peremptory writ of mandamus may be issued, requiring the levy and collection of 20 mills on the dollar, of valuation for the year 1933, and that in the year 1934 a sufficient levy shall be made and collected to pay the amount remaining due on the judgments, described in the alternative writ, and further requiring the board of county commissioners and other county officers to perform the other duties described in the alternative writ.

(2) It is further stipulated that the board of county commissioners will immediately transmit to the board of administration its resolution requesting the payment to relator of the funds in its hands available for the payment of said judgments, and that it will use its good offices to the end that the purpose and intent of this paragraph may be accomplished.

' In accordance with this stipulation, there'fore, a peremptory writ of mandamus may issue as against the said county and officers.

In considering the status of W. Y. Knott, state treasurer, as ex officio treasurer of Okeechobee county, and the state board of administration, under their motion to quash, I am of the opinion that the act of the state Legislature, 1929 (Ex. Sess.), chapter 14486 (Comp. Gen. Laws Supp. 1830, § 2470(1) et seq.), was created primarily to control and distribute funds allotted by the state arising out of tax upon gasoline and personal property tax on motor vehicles in aid of counties for meeting principal and interest on bonds issued for road construction. With reference to that fund, until there is shown some facts of maladministration, the courts have no jurisdiction in mandamus to compel its distribution.

In reference to ad valorem taxes levied and collected by the counties for such bonds, the rights of bondholders are preserved by the act. Section 2470(8), Comp. Gen. Laws 1927, 1930 Supplement.

It is true the money held by the county, so collected, is directed to be lodged with the said state treasurer and paid out by order of the said state board. It was not the purpose of the law, and cannot be its purpose, to in any way impair the contract involved in the bond issues as between the purchaser of the bonds and the county, and cannot relieve the county of any of its duties in reference to the collection and payment of the moneys or deprive the bondholder of any of his remedies existing at the time of acquiring his bonds.

The state board of administration, as held in Amos v. Mathews, 99 Fla. 1, 126 So. 308, is the mere fiscal agent of the several counties for the distribution of this fund. The purpose of requiring the moneys to be paid over 'to the state board, the moneys to be under the control of the state board, and reports to be made to it by the counties, is to provide a public record of the various bond issues and collections thereunder by the counties, so as to inform the board, and furnish the basis for the distribution of the special allotment of the gasoline tax conceded to the counties by the state. Any money, therefore, which the county had, arising from collection of taxes levied for the payment of the particular bonds in question must be paid to the judgment creditors in this ease, whether “held by the county or by any state officer or board. This I concede to be in accord with the law of the act aforesaid. Whether the moneys should be returned to the county treasurer by the ex officio state treasurer by order of the board of administration, or paid direct to the relator, is immaterial so long as the relat- or receives the money on its judgment, if there is any money so to apply.

I do not think this is in conflict with any of the decisions of the Supreme Court of the state of Florida to which my attention has been called. Inasmuch as by stipulation, the peremptory writ will issue against the county and its officers, who will endeavor to adjust the matter with the state board and its officers, I do not think it necessary to at this time order any peremptory writ against W. Y. Knott, state treasurer, and ex officio county treasurer of Okeechobee county, and the state board of administration, as I believe the matter can be readily adjusted and the right recognized as herein set forth.

The motion to quash the alternative writ will be denied and no further action taken in the premises until it is evident that the said state officers and board refuse to comply with the request of the county commissioners of Okeechobee county, as in said stipulation set forth.


author: GÁLSTON, District Judge. '

text:
    THE CARISCO. THE POLING BROS. NO. 6. THAMES RIVER LINE v. CHESTER A. POLING, Inc. CHESTER A. POLING, Inc., v. THAMES RIVER LINE.
    Nos. 13894, 13931.
    District Court, E. D. New York.
    March 9, 1934.
    Purdy & Purdy, of New York City (John E. Purdy, of New York City, of counsel), for Thames River Line.
    Alexander, Ash & Jones, of New York City (Edward Ash, of New York City, of counsel), for Chester A. Poling.
   GÁLSTON, District Judge. '

These are cross-libels and on stipulation were tried together.

On July 1, 1933, at about 8 o’clock p. m., the steamer Cariseo left New York bound for Connecticut. Going towards Hell Gate the steamer took the easterly channel past Blackwell’s Island. As the vessel passed the easterly point of Blackwell’s Island, a heavy wind and rainstorm were encountered. Abreast of the Broadway Eerry, a bend whistle signal was given, and the vessel slowed down. ' Presently another bend whistle was heard which came from a New Haven tug having a pair of floats in tow. Single whistles were exchanged and the vessels passed port to port. The Cariseo, having stopped before, started up, and as the vessel neared Hallet’s Point, the master, seeing a red light ahead on the vessel which later proved to be the Poling No. 6, blew one whistle. This signal was not answered. Another single whistle was given, which also was not answered. Then alarm and backing signals were given and the engines reversed. This maneuver, however, did not avoid the collision. Apparently, the collision was about at right angles, the Poling striking the stem of the Cariseo, bending the stem above the deck from starboard to port. According to Sherman, the master of the Cariseo, up to the time of the collision, he did not see the Poling change her course. Indeed, the master of the Poling admits as much.

At the time the storm was very severe with poor visibility except during the flashes of lightning. Objects could be seen only one hundred feet away. The wind was blowing from northwest to northeast in a severe whirl. There was a strong ebb tide running from five and a half to six knots.

At the time that the Cariseo passed the New Haven tug and float, the Cariseo was one hundred and fifty feet off the Astoria shore; and the distance between the port side of the Cariseo and the port float in tow of the Transfer No. 15 was about two hundred feet.

The Poling, therefore, had the wind on her starboard side coming with the tide. The Cariseo was bucking the tide and was sufficiently far off the Astoria shore to feel its effect. The difference in the heading of the Cariseo at the time that the Poling was first observed and at the time of the collision was brought about through the effort of her master to back away, which gave her a swing to port.

It seems that the Cariseo was steering a proper course as she came up to Hell Gate, for it was customary, going east against the ebb tide below Hallet’s Point, to keep off about one hundred and fifty feet, get some of the slack and also some of the eddy. Vessels in that position should be free from interference with any traffic coming down the river.

The version of the accident as given by those on the Cariseo, in so far as the maneuvers of the Cariseo were concerned, is corroborated to some extent by the captain of the New Haven tug. Coming down the river he blew a bend whistle at Pott’s Cove and also heard one coming from the other side at Hallet’s Point. He also heard fog signals. Sighting the Cariseo off the Astoria shore, he said she was about one hundred and fifty feet therefrom. They exchanged one-whistle signals and passed port to port, about two hundred feet separating them. He heard no whistle from any other vessel in the vicinity. Momentarily, after passing the Cariseo, he heard an alarm whistle given by the Cariseo and three backing whistles.

The Poling contends that when the vessels first sighted each other there was opportunity and room for the vessels to effect a port to port passing, and that it was the intention of their masters so to do. The Poling attributes the collision to the fact that the Cariseo, within a distance of three hundred feet of the Poling, executed a sheer to her own port which brought her at right angles to her prior course.

This so-called sheer, however, is adequately explained. When the Poling’s one-whistle signal was sounded and her wheel ported and the signal repeated and unanswered, she was compelled to give an alarm and backing signal. In thus reversing, her headway was killed and her bow swung to port in the strong tide. Prior to the backing, she had been swinging to starboard. That it was. her duty to stop in the presence of danger and attempt to avoid collision by backing seems reasonably clear. Had she proceeded on her course, she could not have avoided collision, although doubtless there would have been a different angle of contact.

It is urged also that the Poling was the . privileged) vessel. Sherman, the' master of the Cariseo, testified that when he first observed the Poling she was on the Carisco’s starboard bow; that the Poling had the right of way and that it was the duty of the Carisco to pass under the stern of the Poling. Reliance is had on article 19 of the Inland Rules (33 USCA § 204), which provides that when two vessels are crossing, the vessel which has the other on her own starboard side shall keep out of the way. Needt, the master of the Poling, evidently had this in mind, for he testified:

“Q. While you were going from point K up to point Y, which was the point of collision, you saw him come from point L on an absolutely straight course without changing in the slightest, is that right? A. Yes.

“Q. And you held your course and speed? A. Yes.

“Q. You made no change in your helm, and you didn’t back your boat until a half a minute before the collision, is that right? A. That is right.

“Q. That is the way it happened, is it? You considered you had the right of way this morning, didn’t you? A. Yes, sir.

“Q. Because the other boat was on your port hand? A. Yes, sir.

“Q. And you held your course and speed, and you were going to let him look out for himself, weren’t you? A. Yes, sir.

“Q. You knew that if the Cariseo backed the tide would affect her starboard bow, did you not? A. Well, I don’t know what the Cariseo was doing at the time. I didn’t figure on whether he was going to swing around, I thought he was going to carry past my stem.

“Q. You took the position that he was on your port side? A. Yes, sir.

“Q. You had the right-of-way and it was up to him to keep clear of you? A. Yes, sir.”

Reference to the chart, however, shows that the starboard hand rule should not prevail in this case. Headings should not be confounded with true courses. The sinuosities of the channel should have been well within the knowledge of the master of the Poling, and he should have understood that in view of the direction of the channel curving courses had to be followed, and that consequently the situation was not one of crossing but of meeting vessels. The Transfer No. 6 (C. C. A.) 45 F.(2d) 571; The Hallgrim (C. C. A.) 20 F.(2d) 720, 721; The Victory, 168 U. S. 410, 18 S. Ct. 149, 42 L. Ed. 519. See, also, Commonwealth & Dominion Line v. United States (C. C. A.) 20 F.(2d) 729.

I think it must follow that the collision arose because of the misconception by those on the Poling as to what navigation rules were applicable. The Poling held her course and speed. This she should not have done. The positions clearly indicated, when the vessels sighted each other, one going down the river and the other bound through Hell Gate to the sound, that they were to pass port to port. The proof leaves no doubt that the Carisco sounded her one-whistle signal to effect such passing and also that she directed her course to starboard as the rules required. There is doubt as to whether the Poling sounded any signals, but there is no doubt that she did not direct her course to starboard. On the contrary, she held her course in the mistaken belief that she was a privileged vessel.

From the foregoing it appears that the collision was caused by the improper maneuvering of the Poling. Her heading was moré likely for the south light on Mill Rock than for the north light, and her course brought her too close to the Astoria side of the river.

Decrees may be entered sustaining the libel of the Carisco and dismissing the cross-libel of the Poling.


author: GALSTON, District Judge.

text:
    THE B. M. THOMAS. THE LIGHTER NO. 146. THE SCANPENN.
    Nos. 13829, 13965.
    District Court, E. D. New York.
    March 8, 1934.
    Burlingham, Yeeder, Fearey, Clark & Hupper, of New York City (Chauncey I. Clark and Eugene Underwood, both of New York City, of counsel), for American Scantic Line, Inc., and the Scanpenn.
    Purdy & Purdy, of New York City (Edmund F. Lamb, of New York City, of counsel), for Warner Co. and the B. M. Thomas.
   GALSTON, District Judge.

These are cross-libels, and on stipulation were tried together on the same proofs.

At about 2:30 p. m. on October 22, 1932, the steamer Scanpenn sailed from pier 53 south, Philadelphia, bound for New York, ■and proceeded down the Delaware river. The weather conditions were good, clear, with a gentle breeze, the tide ebb. Starting down the river, the Seanpenn was about three or four hundred feet off the Pennsylvania shore.

The tug B. S. Thomas, approaching from the opposite direction, was observed about three-quarters of a mile away. At that time she was a little on the Seanpenn’s starboard bow, and also was about three or four hundred feet from the Pennsylvania piers.

The vessels were half a mile apart, and on curving courses, when the Seanpenn sounded a one-whistle blast and changed her course a little to starboard. There was no response to this signal, but, on the contrary, the tug with her scow in tow was observed to alter its course toward the .Pennsylvania shore.' Thereupon a second one-whistle blast was given, and the Seanpenn eased to star-hoard. To the second one-blast signal the tug responded with a one-blast signal and veered toward the Jersey shore.

A dredge was stationed in the river, about 150 feet off pier 98 south, ahead of the Seanpenn. To the south of the dredge were dredging stakes, and the steamer in passing came within 10 or 15 feet of those stakes. Though orders were given to the steamer to go full speed astern, that order was not effected, for when collision was seen to be inevitable, a full speed ahead order was given, at which time the tug was heading across stream towards the Jersey shore, while the scow in her tow came head-on towards the Seanpenn. The tug cleared the steamer, but in her swing brought the port forward corner of the scow into collision with the port side of the Seanpenn, about 15 or 20 feet off the stakes and just south of pier 98 and about 300 feet off the pier.

There are some facts which stand out undisputed, the most important of which is the position of the tug Thomas' on the Pennsylvania side of the river when first sighted by the Seanpenn. She sought to justify her position by the direction of the wind, and by virtue of a custom in navigating up the Delaware river. It may be said that there is no proof of such custom. Indeed, the captain of the Thomas testified:

“Q. Well, is that a custom prevailing, as you say, between tows that meet there in the river? Á. No, it isn’t no custom. No, it is just according to whom you meet, whether you want to use your own judgment, and one man will give in and another man will not. One man will give way to you and another man won’t. That is all that is; it is not a custom at all.”

The second undisputed fact is that there was no answering signal given by the Thomas to the first blast whistle of the Seanpenn.

Thirdly, the Thomas, though she sought a starboard to starboard passing, gave no signal to effect such objective.

The main point in disagreement is the course pursued by the Seanpenn. Those on board the Seanpenn agree in positioning her at all times nearer the Pennsylvania shore and on her own starboard side of the channel; on the other hand, the Warner Company insists that the Seanpenn was on the New Jersey side of the river. This presents the real issue in the case, for if the Seanpenn on sighting the Thomas was on the Pennsylvania side, then there was presented a head to head situation. If, on the other hand, the Seanpenn was in the position as stated by the captain of the Thomas, then it is possible that a starboard to starboard passing, even without an exchange of signals, could have been effected.

The Thomas makes much of the plotting on the chart (libelant’s Exhibit 4) by the master of the Seanpenn, of the courses recorded on the Seanpenn’s automatic recorder. Prom this chart it is argued that it was impossible for the Seanpenn to have been in the positions stated by the master, as she proceeded down the Delaware river and at the time that she sighted the Thomas and her tow. But whether the Seanpenn was 553 feet or 800 feet off the Pennsylvania shore, and the Warner Company contends she must have been at the least the former distance off and more likely the latter, the Seanpenn was, nevertheless, on her own side of the river before she changed her course to starboard, for the river at that point is 1,800 feet in width.

Kelly, the captain of the Thomas, is hardly in disagreement, for from his marking of the chart, Exhibit B, the Seanpenn’s positions SI, S2, and S3 were nearer the Pennsylvania side of the river. I must conclude, therefore, that the Seanpenn, from the time that she first moved to starboard to the time of the collision, favored the Pennsylvania shore and traveled on her own side of the channel. I can find nothing in the record which warrants the conclusion that the navigation of the Seanpenn was faulty. She complied with proper navigation by porting her helm after giving a first one-blast signal and directing her course to starboard towards Pennsylvania. So much seems really to have been admitted by Kelly:

“Q. At the time he blew the second whistle, or before he blew the second whistle, or immediately after lie blew the second whistle, did he make any change in course? A. Yes; when he blew the first whistle he started to come around a little bit gradually, and when he gave me the second whistle he come right straight hard over, and then down the river, clearing a dredging machine there. « »»

“Q. So> that when she sounded her first one-blast signal, she began to change to starboard about the time that she sounded her first one-blast signal, is that right? A. Yes, sir, right shortly after that.”

As contrasted with this proper maneuvering of the Seanpcnn, there is the wholly improper course of the Thomas in suddenly shifting her position to port after first holding straight on. Had she continued in that position, in all likelihood the Seanpenn’s maneuver might have resulted in a safe port to port passing without help from the Thomas. With the river at the point of collision some 1,800 feet wide, had the Thomas not been guilty of faulty maneuvering, there could not have been a collision 320 feet off the Pennsylvania piers.

Article 18, rule 1 of the Inland Rules (33 USCA § 203, Rule 1), relates to a situation of this kind. The rule provides:

“When steam vessels are approaching each other head and head, that is, end on, or nearly so, it shall be the duty of each to pass on the port side of the other; and either vessel shall give, as a signal of her intention, one short and distinct blast of her whistle, which the other vessel shall answer promptly by a similar blast of her whistle, and thereupon such vessels shall pass on the port side of each other. But if the courses of such vessels are so far on the starboard of each other as not to be considered as meeting head and head, either vessel shall immediately give two short and distinct blasts of her whistle, which the other vessel shall answer promptly by two similar blasts of her whistle, and they shall pass on the starboard side of each other.”

Kelly’s marking of the chart certainly does not warrant the conclusion that he was justified in expecting a starboard to starboard passing.

Since a head to head approach was indicated, the Thomas by compulsion of the statute was required to give an answering signal. The New York, 175 U. S. 187, 20 S. Ct. 67, 44 L. Ed. 126. Her failure to do so puts her at fault and adds to her original fault in being on the wrong side of the channel. The Bilbster (C. C. A.) 6 F.(2d) 954.

Then, too, the Thomas’ veer to port, to the position indicated by her captain, B. M. T. 2 on respondent’s Exhibit B, following the first port to port signal from the Seanpenn, was a grave fault. The captain of the Thomas must have known that the Scanpenn’s signal was intended for him, since he admitted that there was no other vessel in sight from which the signal could have emanated. Hence his first change of course to port was wholly unjustified.

Again, having reached the position B. M. T. 2, it was flying in the face of article 18, rule 1, to fail to give a starboard to starboard signal; and she was not entitled to such passing without the assent of the other vessel. Article 18, rule 1, of the Inland Rules, and authorities to the same effect. The Sabine Sun (C. C. A.) 33 F.(2d) 42; The Dauntless (C. C. A.) 3 F.(2d) 529. Her final maneuver to her own starboard made-the collision inevitable.

Finally, it may be noted that the failure of the Thomas to keep to her own starboard side of the channel was a violation of article 25 of the Inland Rules (33 USCA § 210), which provides:

“In narrow channels every steam vessel shall, when it is safe and practicable, keep to that side of the fairway or mid-channel-which lies on the starboard side of such vessel.”

In the absence of any custom to the contrary, the Thomas was bound by this rule. Lehigh Coal & Navigation Co. v. Compagnie Générale Transatlantique (C. C. A.) 12 F.(2d) 337; Marshall Field & Co. v. United States (C. C. A.) 48 F.(2d) 763.

The American Seantie Line, Inc., may have a decree; and the cross-libel of the tug B. M. Thomas is dismissed.

Settle decree on notice.