author: CHESNUT, District Judge.

text:
    UNITED STATES v. CERTAIN PARCELS OF LAND IN CITY OF BALTIMORE, MD., et al.
    No. 2113.
    District Court, D. Maryland.
    June 16, 1945.

      See, also, 55 F.Supp. 257.
    Wilmer H. Driver, Sp. Asst. to Atty. Gen., for the United States.
    Mason P. Morfit, Charles G. Page, and Edwin Harlan, all of Baltimore, Md., for Pullman-Standard Car Mfg. Co.
    Simon E. Sobeloff, City Sol., and A. A. Davis, Asst. City Sol., both of Baltimore, Md., for Mayor and City Council of Baltimore.
   CHESNUT, District Judge.

This is a federal condemnation case involving the land, buildings and personal property in Baltimore City of the Pullman-Standard Car Manufacturing Company, a corporation, which had been leased to the Bethlehem-Fairfield Shipyards, Inc. The only question in the case remaining for disposition is the disputed right of the Mayor and City Council of Baltimore to be paid its claim for State and City real estate taxes on the property for the year 1945 in the amount of $30,596.36, from the balance of the fund now in court deposited on May 25, 1945 by the United States Government in payment of the full and absolute title to the property free of liens. The City asserts that this amount of City and State taxes became a lien on the property on January 1, 1945. The former owner of the property, Pullman-Standard Car Manufacturing Company (hereinafter sometimes referred to as Pullman) disputes this contention. The answer to the question must be based on a correct understanding of the tax laws of the State and City and the precise nature and effect of the condemnation procedure in this particular case.

First, as to the procedure. On December 2, 1943, the United States filed its petition for condemnation of the property which was then under lease from the owner, the Pullman Company, to the Bethlehem-Fair-field Shipyards, Inc. (hereinafter sometimes referred to as Bethlehem). The latter was operating the plant for shipbuilding purposes under a “government owned . facilities contract”. The lease between Pullman and Bethlehem was dated March 18, 1941, to end on March 31, 1943, with the option to the lessee to renew from year to year for a stated period thereafter. When the condemnation suit was first filed the lease had been renewed to expire March 31, 1944. The yearly rental was $260,000, and in addition the lessee was required to pay the taxes and water charges.

In its petition to condemn the government limited the interest or estate to be taken to a leasehold estate and not the fee. The interest sought to be taken was described as “the exclusive use and occupation of the hereinafter described lands, together with all buildings and structures located thereon, etc., * * * for a period ending one year from the date of institution of this condemnation proceeding, and at the election of the United States Maritime Commission, for additional yearly periods thereafter during the present state of war and one year thereafter. * * Contemporaneously with the filing of the petition for condemnation, the Maritime Commission, acting for the United States, instructed the then lessee, Bethlehem, that it should continue to operate the property not as lessee from Pullman but as agent for the government. The authority for this action was based on the Second War Powers Act, 50 U.S.C.A.Appendix § 632.

It is quite important in this case to note that the petition for condemnation was filed under authority of 40 U.S.C.A. §§ 257, 258, which made applicable the Maryland statutory procedure in condemnation cases. Md.Code, 1939, Art. 33A. It is also very important to note that the government made no deposit with the court under the provisions of 40 U.S.C.A. § 258a. The new federal civil procedure rules are not applicable to federal condemnation cases except on appeal. Rule 81(a) (7), 28 U.S.C.A. following section 723c. Under the Maryland condemnation procedure title to the property sought to be condemned does not pass to the condemn- or until just compensation is paid or secured. Md.Code 1939, Art. 33A, § 13; Dunne v. State, 162 Md. 274, 284, 159 A. 751, certiorari denied 287 U.S. 564, 53 S. Ct. 23, 77 L.Ed. 497; Record B. & L. A. v. Safe Deposit & Trust Co. Trustee, 166 Md. 348, 351, 171 A. 43; 29 C.J.S., Eminent Domain, § 192, p. 1092. In the absence of a controlling statute to the contrary, the federal rule is the same. Danforth v. United States, 308 U.S. 271, 284, 60 S.Ct. 231, 84 L.Ed. 240.

In its plea or answer to the petition for condemnation the Pullman Company denied the right of the government to take the property for the indeterminate period described in the petition. In replying the government in effect demurred to the property owner’s answer. As a result of extended argument of counsel on the pleadings the court reached the conclusion that as tested by the rules of Maryland pleading which are here applicable, the government’s petition was insufficient in definiteness and certainty for the particular reason indicated in the opinion which made an extended review of the case up to that point. 55 F.Supp. 257. The then order of the court was to sustain the owner’s objections to the petition as a sufficient pleading but leave to amend within thirty days was given. An amended petition was filed on June 8, 1944, and Pullman’s demurrer thereto was overruled. On September 30, 1944, the government filed a second amendment to the petition for condemnation in which it then for the first time asked for a condemnation of the absolute interest in the property. Leave to file this second amendment was opposed by Pullman and on December 29, 1944, after a hearing the court refused permission to make the amendment because it attempted to have retroactive effect with respect to the desired taking of the absolute fee interest back to December 2, 1943, when the original petition had been filed. However, permission to further amend the government’s petition of September 30, 1944 was given, and on January 8, 1945, amendment was made which abandoned the retrospective effect of the proposed amendment and made it prospective only. On March 8, 1945 a memorandum opinion was filed stating the reasons for the allowance of the amended petition of September 30, 1944 as further modified. The Pullman Company continued to resist and oppose the government’s condemnation petition. It demurred to the amended petition and when this was overruled it answered on March 29, 1945.

Finally, on May 15, 1945, Pullman and the United States, and Bethlehem as lessee, made an agreement of settlement and filed a stipulation that the government pay into court $1,500,000 for the full and absolute title to the property, in consequence of which on the same date an order of court, approved by counsel for the government, for Pullman and for Bethlehem, was entered which read in part:

“And it is further ordered, adjudged and decreed that upon deposit in the registry of this court by the United States of America of the said sum of $1,500,000, the indefeasible fee simple title absolute to said real property and the absolute title to said personal property and the right to the use and occupancy of the hereinabove described property, free and clear of all liens, encumbrances and charges of whatsoever nature, and free and clear of all servitudes and easements excepting the easements and restrictions mentioned in the description of said land in the petition for condemnation filed herein, shall vest in the United States of America.” (Italics supplied.)

The deposit of $1,500,000 was made on May 25,1945. Baltimore City had throughout been made a party to the case and had given notice of its tax claim. On May 25, 1945, a further stipulation was filed signed by counsel for all the parties, which provided—

“that the proper sum to be retained in the registry of the District Court of the United States for the District of Maryland pending the final determination of the disputed claim of the Mayor and City Council of Baltimore for State and City taxes for the year 1945 and for water charges on property condemned in the above entitled proceeding is the surh of thirty-three thousand nine hundred and seventy-one dollars and seventy-nine cents ($33,971.79).”

Thereupon on petition of counsel for Pullman the sum of $1,500,000 less the reserved amount of $33,971.79, was paid to Pullman by the clerk of the court under order of court. During the pendency of the litigation the State and City taxes for 1944 had been paid by Pullman and very recently the water charges in the amount of $3,375.43 have been paid by Bethlehem. This latter amount is now presumably payable to Pullman; but the item in dispute is the State and City taxes for 1945 in the amount of $30,596.36.

Briefly summarized, the procedure in the case was this. From December 2, 1943 until May 25, 1945 the case was an ordinary condemnation case in which the government first sought to condemn only a leasehold interest; and then on September 30, 1944 proposed to convert the extent of the desired taking into an absolute fee. Throughout this period the right of the government to condemn the property was uniformly and consistently opposed by the property owner. The possession of the property by the government throughout this period was under the authority of the Second War Powers Act. No deposit was made by the government until May 25, 1945 and then only as a result of the agreement for settlement fixing the amount of damages to be paid for the property free of liens. The petition of the government for amendment of the extent of the taking, from a leasehold interest to an absolute fee, first filed on September 30, 1944, was not allowed actually until March 8, 1945, and after its further amendment on January 8, 1945.

Now, as to the local tax system. This has been outlined in at least two prior decisions of this court. In re Wells, D.C., 4 F.Supp. 329; Supplee v. Magruder, Collector, D.C., 36 F.Supp. 722, affirmed 4 Cir. 123 F.2d 399, but reversed on other grounds 316 U.S. 394, 62 S.Ct. 1162, 86 L.Ed. 1555. The tax claim here includes both City and State taxes and there are minor differences in the local legislation with respect to the two; but they are not controlling or even important in this case and no point has been made of this difference by counsel for Pullman; The City portion of the bill represents about 95% of the whole. It is not disputed that if the tax claim attached at all it became a lien on the property January 1, 1945, and its status so continued until the deposit in court made on May 25, 1945, pursuant to stipulation of all parties. Md.Code, 1939, Art. 81, § 72, and Act of 1944 Extra Session, Chap. 7, § 1; Md. Code, Art. 81, § 71A. With respect to the City taxes the local system was briefly summarized in the opinion In re Wells, 4 F.Supp. 330:

“In substance the local tax system with respect to this class of taxes is that October first of each year is fixed as the ‘date of finality’ for valuation and assessment of property to control for the ensuing calendar year. The taxable basis being thus fixed as nearly as possible, an ‘ordinance of estimates’ is then passed, and, as soon as practicable thereafter in the month of November, there is another ordinance fixing the rate of taxation for the ensuing year. The City taxes become ‘due and payable’ on January 1st of each year and become in arrears on July 1st thereafter. While October 1st preceding the calendar tax year is made the ‘date of finality’ so far as possible for the valuation of property and the liability of the assessed individual to pay taxes thereon for the following year, it has been clearly decided by the Court of Appeals of Maryland that the taxes are not ‘due and payable’ until January 1st of the following year.”

The impact of these local tax laws on the condemnation procedure in this case is such that, in my opinion, the taxes became a lien on the property on January 1, 1945, and are payable out of the fund deposited in court which, by stipulation of the parties, constituted the full valuation of the property free of liens as just compensation to the property owner under the Constitution. I think the question must be so determined without difficulty despite the elaborate argument of Pullman to the contrary.

The principal contention of the property owner is that in substance there was a taking by the government of the property in fee effective as of September 30, 1944, although, as the contention runs, the bare technical legal title did not pass until the deposit in court on May 25, 1945. This contention runs counter to the nature and effect of the condemnation procedure' in this case.

The general rule with respect to the allowance of taxes out of a fund in court in condemnation cases which represents the value of the whole property free of liens is that taxes must be paid from the fund if they constitute liens upon the property at the time the title passes. This has been held in at least two recent decisions of this Fourth Circuit. Coggeshall v. United States, 95 F.2d 986, 987, 990; South Carolina Public Service Authority v. 11,754.8 Acres of Land, 123 F.2d 738, 741. To the same effect are United States v. 150.29 Acres of Land, 7 Cir., 135 F.2d 878; United States v. 12,918.28 Acres, D.C.La., 51 F.Supp. 755; United States v. 125.71 Acres, D.C. Pa., 54 F.Supp. 193, 195. Although the government was in actual possession of the property under the Second War Powers Act, it is entirely clear, and indeed is not disputed, that the title to the property in this case did not pass to the government until May 25, 1945. And this mere possession by the government of the property did not preclude the attachment of the tax liens. United States v. 150.29 Acres of Land, 7 Cir., 135 F.2d 878; United States v. 12,918.28 Acres of Land, D.C., 51 F.Supp. 755, and United States v. 125.71 Acres of land, D.C., 54 F.Supp. 193.

Counsel for Pullman argued that the tax lien did not attach because in substance the property was owned by the government on September 30, 1944; but this view is quite untenable. It is true, of course, that government owned property is not subject to local taxation and in some cases mere technicalities with respect to the legal title may for this purpose be disregarded. United States v. County of Allegheny (Mesta Machine Co.), 322 U.S. 174, 64 S.Ct. 908, 88 L.Ed. 1209. But this principle is not applicable here. The government obtained no substantial ownership in this property prior to the payment of the fund into court on May 25, 1945. Theretofore it had only bare possession under the Second War Powers Act and indeed its right to condemn the property had been constantly opposed by the property owner. It is no impairment of the principle that government property is not subject to state taxation to give effect to local tax laws of the kind here involved when the lien of the tax becomes fixed before the government takes title or ownership. United States v. Alabama, 313 U.S. 274, 61 S.Ct. 1011, 85 L.Ed. 1327.

There is a marked difference with respect to acquisition of title or ownership by the government between an ordinary condemnation case in accordance with the Maryland procedure where the government only seeks to condemn without making a deposit under 40 U.S.C.A. § ‘ 258a, and where, on the other hand, co-incident with the institution of the condemnation proceeding, or during its pendency, the government does make the deposit under section 258a. In the ordinary condemnation procedure, without deposit, the government obtains neither possession nor title until there is a final judgment in the case in favor of the government establishing the right to condemn and the compensation to be paid to the property owner, and the amount is paid. Then only is there a “taking”. And this was the procedure in the present case up to the time the deposit was made. The mere taking of actual possession by the government under the Second War Powers Act did not change the nature of the procedure so far as the condemnation case in court was concerned. And in the instant case there was not even an order for possession passed by the court. I do not understand that it is even contended that a mere physical possession taken by the government under the Second War Powers Act could vest in the United States any title or ownership of the property, but results merely in actual possession and use by the government under the War Powers. While this condition lasts the owner still remains liable for accruing local taxes on the property.

Quite different is the effect of the procedure taken under 40 U.S.C.A. § 258a. That procedure may be exercised both in war and in peace. The section derives from the Act of Feb. 26, 1931, Chap. 307, § 1, 46 Stat. 1421. By it at any time before judgment in a condemnation case the government may file a declaration of taking particularly describing the estate or interest taken, accompanied by a deposit in court of the sum of money estimated to be just compensation. When such a statement and deposit are made and filed, it is provided by the statute that the “title to the said lands in fee simple absolute, or such less estate or interest therein as is specified in said declaration, shall vest in -the United States of America”; and the court may pass an order fixing the time within which and the terms upon which the parties in possession of the land shall be required to surrender possession to the United States. The amount of the deposit representing the merely estimated just compensation is, of course, not conclusive. The just compensation remains to be finally determined by the court or jury, and if the verdict is in excess of the amount of the deposit judgment for the deficiency is given against the United States, including interest on the deficiency to the date of payment. But even when that procedure is followed the United States does not immediately obtain an indefeasible title until final judgment as due process clearly requires a reasonable opportunity to the property owner to contest the validity of the taking. Catlin v. United States, 65 S.Ct. 631. As no substantial ownership, either legal or equitable, was obtained by the government in this property prior to May 25, 1945, there is no basis for the contention that the tax lien did not attach on January 1, 1945.

Counsel for Pullman also make substantially the same argument in a different form. The argument is that the property was substantially taken on September 30, 1944, one day before the date of finality for the City taxes as above explained; and that under the well established federal law determining the measure of just compensation the value of the property on that date, before it was subject to 1945 taxes, together with interest on that valuation until time of payment, was the measure of just compensation. United States v. Miller, 317 U.S. 369, 374, 63 S.Ct. 276, 87 L.Ed. 336, 147 A.L.R. 55; Olson v. United States, 292 U.S. 246, 255, 54 S.Ct. 704, 78 L.Ed. 1236; United States v. Rogers, 255 U.S. 163, 41 S.Ct. 281, 65 L.Ed. 566. And in this connection it is further argued that as the value of the property must be fixed as of September 30, 1944, when no taxes were due, it must be assumed that the amount finally paid into court under the agreement did not include any sum for subsequently accruing taxes. In other words, it is said that because the valuation must be considered to have been fixed as of September 30, 1944, that value could not properly have included taxes for' 1945. But the argument in this form again misconceives the effect of the procedure in this case. There was no effective taking of this property by the government before May 25, 1945. Theretofore the government merely had physical possession under the Second War Powers Act. This case is, therefore, quite unlike that of United States v. Lynah, 188 U.S. 445, 23 S.Ct. 349, 47 L.Ed. 539, cited by counsel for Pullman, which was not a condemnation case at all but a suit under the Tucker Act to recover compensation for lands appropriated by the United States by flooding consequent upon the construction of a dam. Furthermore, the valuation as finally arrived at by stipulation on May 15, 1945, clearly envisaged the possibility if not the probability that taxes would have to be paid from the fund deposited as agreed upon because it was expressly provided in the order of court that the sum deposited represented the value of the property free of all liens; and there was a further stipulation to the effect that if the taxes were found due they should be paid from the fund deposited. There is therefore no merit in the contention that the valuation was made exclusive of the tax liens. If the issue as to valuation had been tried before a jury on May 15, 1945, instead of settled by agreement, the property owner could have asked for a special instruction with respect to the valuation as affected by the tax claim. See South Carolina Pub. Serv. Authority v. 11,754.8 Acres, 4 Cir., 123 F.2d 741.

In fact the date of September 30, 1944, made the basis for the chief argument for Pullman in this case, has no 'important significance as to this tax question. The government’s attempted amendment on that date of the petition to condemn was not allowed until March 8, 1945, after further amendment on January 8, 1945. Even if it had been allowed on September 30, 1944, it could not have prevented the subsequent accrual of the taxes for 1945, as it constituted (without a deposit) no more than a petition to condemn, without then present effect either on title or ownership.

Counsel for Pullman also submits a subordinate contention to the effect that proper procedure under the local taxing system was lacking to effect a valid tax lien on the property on January 1, 1945, or thereafter. The first point here made is that under "the Maryland Code, Art. 81, § 27, and the Baltimore City Charter (Pub. Local Laws of Maryland), section 51, the tax rate for 1945 should have been fixed by an ordinance of the Mayor and City Council of Baltimore in November of 1944, but was not determined until approval of the ordinance by the Mayor on December 26, 1944. Without extended discussion, there is no legal merit in this contention. It is true that the local laws contemplate that an ordinance fixing the rate should be passed in November, but I believe it is not unusual for the City ordinance to be actually delayed to some date prior to January 1st of the next year. The provision in the Charter with respect to this being done in November is, I think, merely directory, and in practice is often not complied with.

Again, it is argued that October 1st is the date of finality merely with respect to the valuation of property to enable the fixing of the amount of the tax rate for the succeeding calendar year and does not of itself determine the liability of the then owner of the property for the succeeding year’s taxes. That is to say, October 1st is final for the valuation amount but not for personal liability. It is true that the statutes are not expressly clear on this latter point; but it has been commonly understood in Baltimore City for many years that October 1st is the date of finality not only for the amount of valuation but also for personal liability dependent upon ownership as of that date. See Baltimore City Charter (1938) sections 217-224; In re Wells, D.C., 4 F.Supp. 329, 332, and Magruder v. Supplee, 316 U.S. 394, 397, 62 S.Ct. 1162, 86 L.Ed. 1555. And this would seem to be correct in view of the Maryland decisions in Baltimore City v. Jenkins, 96 Md. 192, 53 A. 930, and Baltimore City v. Perrin, 178 Md. 101, 108, 12 A.2d 261. But even if the contrary construction of the local law were sound it would make no difference in this. particular case. We are not concerned here with any transfer of title to the property occurring between September 30, 1944 and January 1, 1945. And indeed it is not even argued that there was any change in the title or ownership between these two dates. The critical date in the case is January 1, 1945. If the taxes were then a lien they clearly so continued until the fund was paid into court thereafter.

At the hearing it developed that in the latter part of October 1944 notice in the name of Bethlehem Company, the tenant of the property, and also the Pullman Company, had been served upon the Appeal Tax Court of Baltimore City to the effect that there was the pending condemnation litigation affecting the property which might soon result in a transfer to the United States Government of the ownership and title to the property, which, it was suggested, might preclude its taxability for 1945. It appeared further that this qualified or tentative protest had not been acted on by the Appeal Tax Court. It apparently was not filed until October 30, 1944 despite the local rule that such petitions should be filed before October first. Under the applicable administrative procedure affecting local taxation the action of the Appeal Tax Court if unfavorable to the taxpayer,' might have been further appealed to the State Tax Commission and ultimately to the Court of Appeals of Maryland. When this fact developed at the hearing the court indicated its indisposition to decide the present question unless and until the administrative process affecting the taxability of the property had been finally concluded. Counsel for the Pullman Company then agreed that the administrative protest or appeal would be dismissed, and it could be considered by the court that the administrative process had been concluded adversely to the taxpayer; but without prejudice to the right of the Pullman Company to continue to contend in this case that the taxes for 1945 did not constitute a lien upon the property to be paid from the fund in court.

I conclude that the taxes in the amount of $30,596.36 did become a lien upon the property on January 1, 1945, and must be paid from the fund now in court. Counsel may submit the appropriate order for that payment to the Collector of Taxes of the Mayor and City Council of Baltimore, for both State and City taxes.


source: Caselaw Access Project

author: RIFKIND, District Judge.

license: Public Domain

text:
    BARBARINO v. STANHOPE S. S. CO., LIMITED, et al.
    District Court, S. D. New York.
    Oct. 20, 1944.
    Paul C. Matthews, of New York City, for libellant.
    Reid, Cunningham & Healy and Frederick H. Cunningham, all of New York City, for Stanhope S. S. Co.
    E. C. Sherwood, of New York City, and Patrick J. McCann, of Brooklyn, N. Y., for Northern Dock Co.
   RIFKIND, District Judge.

The action is by a longshoreman, an employee of a stevedoring company, against the owner of the S. S. Stangarth for injuries he sustained while employed aboard the vessel.

The facts are as follows: The Stan-garth was a new vessel built in England in 1942. On February 22, 1942, she was berthed at a Brooklyn pier and being readied for her maiden voyage. On that day the owner’s agents asked the longshoreman working upon the vessel to rig preventer guys upon all of the booms, a task usually performed by the ship’s crew. In due course the booms serving hatches 1, 2, 3 and 4 were rigged — eight booms in all. Libellant was one of the gang doing this work. In rigging the port boom of No. 5 hatch, the men were distributed as follows: Elia was hatch boss, stationed near the winch and directing the operation; Buta was winchman; Zappola handled the loop of the preventer guy which he noosed over the nose of the boom and libellant held the slack end of the preventer guy and paid it out as required.

In the actual operation the winchman brought the boom to a point about one foot above the cradle designed to receive the boom when at rest and about two feet to the port side of the cradle. Zappola and libellant were atop the hatch. Zap-pola rigged the guy on the boom and stepped back. Libellant still holding the slack end of the guy likewise stepped back. The hatch boss gave the command to lift the boom. The boom rose about a foot, fell to the hatch cover striking and injuring the libellant.

The boom fell because of the breaking of a bolt which was intended to hold the messenger of the topping lift cable fast to the winch-drum. No direct testimony of the cause of the break is available since ship and crew were lost on the maiden voyage. The bolt was tapered in design, threaded at one end for about one-half its length to receive a nut and fitted with an eye at the other end to receive the end of the messenger. The bolt was intended to be passed through a hole in the lip of the nigger head. The nut was then supposed to be turned on to the bolt to make it secure; and this rigging was designed not to carry the weight of the boom but to hold the messenger to the drum which, when wound with two and a half turns of cable, holds the boom without substantial strain on the bolt.

Such a rigging when in good condition is suitable for its purpose provided the bolt is driven home through the hole in the nigger head and the eye of the bolt is kept close to the lip of the nigger head by turning the nut of the holt as far as it can go; otherwise the bolt will project some distance and the pull of the messenger will exert a lateral breaking force upon it. Such breaking force is likely to be exerted especially when the wmch jerks, as it is apt to do when it is cold and the steam is condensed, or if - it happens to come to rest at dead center. Both occurrences are frequent and to be expected. The rigging described represents a new practice. None of the longshoremen who testified had seen it before.

Either the bolt broke because it was defective or because it had not been inserted through the nigger head all the way to the bolt eye. The second alternative is eliminated by the testimony of Elia, the hatch boss, who testified that he had turned on the nut as far as it would go flush against the nigger head. True, his testimony is somewhat weakened by the fact that after first testifying that Buta turned on the nut he later said that he had done it himself as Buta had testified. Nevertheless I credit his statement. He gave every impression of telling the truth. The modification of his first statement was volunteered although it was against his self-interest to accept responsibility for this step in the operation. Elia’s testimony that he had made the nut tight was un-contradicted; and while one can never be certain that he knows the truth on an issue of this kind, I am less troubled by this residue of doubt because I think that, since the device was new and dangerous unless used in the mode described, it was the duty of the respondent to make sure that the longshoremen were aware of the necessary caution before entrusting the device to their use. This is especially true since customary rigs, such as hooks or clamps, required no such close attention.

There is no evidence at all to support the allegation of respondent that the employees of the stevedoring company, the impleaded respondent, were negligent in the manner they handled the topping lift chain; and I decide against the contention of the respondent that the stevedores should have rigged the preventer guys while the boom was at rest in its cradle or while it was lifted directly above the cradle. While I cannot, on the evidence, say that it was impossible to accomplish the task in one or the other of the two ways suggested, it was manifestly inconvenient to do it that way; nor was it the customary way. True, had the boom been rigged in the manner now suggested by respondent the injury would not have happened but that is not the test of respondent’s liability. It certainly would make work on board ship move with intolerable sluggishness if every laborer proceeded in the expectation that every suspended boom was in danger of falling.

I conclude that the impleaded respondent is free of fault; that the respondent is wholly responsible for libellant’s injuries whose damages I assess at $12,000.


author: SMITH, District Judge.

text:
    BOWLES, Administrator, O. P. A., v. WESTBROOK DEFENSE HOMES, Inc.
    No. 1314.
    District Court, D. Connecticut.
    May 1, 1945.

      J. Stephen Knight, Dist. Enforcement Atty., and Arnold M. Sweig, Rent Enforcement Atty., both of Hartford, Conn., for plaintiff.
    Harry H. Kleinman, of Hartford, Conn., for defendant.
   SMITH, District Judge.

This is an action under the Emergency Price Control Act of 1942, as amended, 50 U.S.C.A.Appendix, § 901 et seq., for in-junctive relief requiring the return by a landlord to tenants of security deposits held under the terms of leases on priority constructed housing.

It has been the contention of the Administrator that security deposits are rent and controlled by the language of the Rent Regulations for Housing in effect prior to September 1, 1944. Following District Court decisions that the regulations as then worded did not prohibit the practice of requiring security deposits, Brown v. Bayview Manor Homes, Inc., D.C.E.D.Va.1943, 51 F.Supp. 557, Bowles v. Sylbern Homes, Inc., D.C. Conn., 1944, 55 F.Supp. 287, Amendment 33 was adopted by the Administrator, effective September 1, 1944, specifically prohibiting the receipt of security deposits and retention of any such deposits whether received prior to, on or after September 1, 1944.

Defendant seeks to attack the validity of the regulation as applied to deposits received prior to September 1, 1944, and denies that the sums held by it are security deposits within the meaning of the regulation, because of option provisions of the lease depending in part on these deposits.

The validity of the regulation cannot be tested here. See Bowles v. Bayview Manor Homes, 4 Cir., 1944, 146 F.2d 618, Yakus v. United States, 1944, 321 U.S. 414, 64 S.Ct. 660, 88 L.Ed. 834, Bowles v. Wil-lingham, 1944, 321 U.S. 503, 64 S.Ct. 641, 88 L.Ed. 892, Lockerty v. Phillips, 1943, 319 U.S. 182, 63 S.Ct. 1019, 87 L.Ed. 1339. There is nothing in the 1944 Amendments to the Act which indicates any intent to change the law in this regard.

Defendant claims that the silence of Congress, after the Bayview Manor and Syl-bern Homes cases, supra, with relation to the security deposit practice, necessarily means that the Administrator has no power over the practice. Even if that question could properly be passed upon here, however, those cases could not help the defendant’s position, for they went not on the ground that the Administrator had no power to restrict or forbid the practice, but that he had not forbidden or restricted it.

The defendant had available the statutory methods of attack on the regulation, which have been held sufficient to afford him due process of law, yet up to the date of trial of this action he failed to commence proceedings to test the validity of the regulation.

It is true that other functions of the deposit, in relation to the option to buy, are expressed in the lease here as well as the purely security function. They are, however, security deposits in the usual meaning of the term, deposits to protect the lessor against violation of the rental or other provisions of the lease. It is obvious from the evidence and arguments here, moreover, that the chief value and purpose of the deposits, if not the only one, is security. The regulation depriving the defendant of 'that security may be unfair or unwise, particularly when applied retroactively, but power to review those questions is not in this Court under the Act.

Under these circumstances, the Court will not deny or delay injunctive relief to the plaintiff, particularly in view of the expressed intent of the Congress in Section 204 (e) of the Act as amended, that stays in the enforcement of this wartime legislation be granted only after judgment and even then only while recourse is being had to the review provisions of the Act. Nor, in view of that section, can the fact that strangers to this action have undertaken to test the validity of the regulation justify a stay of this proceeding prior to judgment.

Form of judgment for the plaintiff in accordance with this opinion may be submitted on notice.

Finding of Facts

1. The defendant is the owner of approximately 85 single houses, erected in Hartford, Connecticut, in the latter part of 1943 under priority ratings from the War Production Board, and rented, with options to buy, at a monthly rent of $50 per month, payable in advance.

2. The defendant received from each tenant renting prior to October 1, 1944, a sum of money as a security deposit in accordance with the following provisions of the lease:

“The Tenant has this day deposited with the Landlord the sum of $100.00 as security for the full and faithful performance by the Tenant of all the terms, covenants and conditions of this lease upon the Tenant’s part to be performed, which said sum shall be returned to the Tenant after the- time fixed as the expiration of the term herein, provided the Tenant has fully and faithfully carried out all of said terms, covenants and conditions on Tenant’s part to be performed. In the event of a bona fide sale, subject to this lease, the Landlord shall have the right to transfer the security to the vendee for the benefit of the Tenant and the Landlord shall be considered released by the Tenant from all liability for the return of such security; and the Tenant agrees to look to the new Landlord solely for the return of the said security, and it is agreed that this shall apply to every transfer or assignment made of the security to a new Landlord.
“That the security deposited under this lease shall not be mortgaged, assigned or encumbered by the Tenant without the written consent of the Landlord.
“In consideration of the execution of this lease and the depositing of $100.00 security by the Tenant to the Landlord, receipt of which is hereby acknowledged, the Landlord hereby gives the Tenant an option to purchase the said premises at any time for a price of Five Thousand Seven Hundred Ninety Dollars ($5,790.00), payable as follows:
“(a) By the Tenant taking title to said premises subject to, and assuming the obligation of, a mortgage now or hereafter to become a lien on the premises, given or to be given to secure an indebtedness in the original principal sum of $5,200.00, bearing interest at the rate of 4%% per annum and running until paid, and providing for monthly payments of principal and interest not exceeding the sum of $28.91 together with monthly payments of taxes, hazard and fire insurance and Federal Housing Administration mortgage insurance charges;
“(b) By paying in cash or certified check at the time of the option is exercised and a formal contract entered into, 50% of the full cash required amounting to $295.00.
“(c) At the time of title the Tenant shall pay the balance due less the amount of security hereinbefore mentioned. Said balance to be $195.00.”

3. The defendant has not received under these lease provisions any sums of money since learning about October 1, 1944, of the issuance of Amendment 33 of the Rent Regulations for Housing, effective September 1, 1944.

4. The defendant retains the sum of $8,500, consisting of amounts received under the above lease provisions from 85 tenants prior to September 1, 1944.

5. The defendant, subsequent to the institution of this action, has tendered the return of any sums received under the above lease provisions between September 1, 1944, and October 1, 1944.

6. Thirty-eight tenants moved out of the defendant’s houses above referred to, between the time of their construction and March, 1945.

7. These tenants owed at the time of moving out approximately $2,200 in rent, of which approximately $1,900 was recovered by the defendant from the sums held by it as security deposits under the above lease provision.

8. No protest has been filed under the Emergency Price Control Act by the defendant prior to the institution of this action.

9. A protest against Amendment 33 to the Rent Regulation for Housing has been filed by a person a stranger to this action and is now pending before a Board of Review pursuant to the Act.

Conclusions of Law

1. This Court has jurisdiction over the parties and the subj ect matter of this action.

2. Sums received by the defendant under the lease provision referred to in paragraph 2 of the finding of facts are security deposits within the meaning of Rent Regulation for Housing as amended, effective September 1, 1944.

3. This Court has no power to determine in this proceeding the validity of the aforesaid Regulation.

4. The retention by the defendant of the sums referred to above is in violation of the Rent Regulation for Housing as amended, effective September 1, 1944.

5. The defendant is not entitled to a stay of this proceeding at this time.

6. The plaintiff is entitled to an injunction requiring return of the retained deposits to the tenants.


author: SWEENEY, District Judge.

text:
    UNITED STATES v. WOOD et al.
    No. 210.
    District Court, D. Massachusetts.
    June 1, 1945.

      Edmund J. Brandon, U. S. Atty., and Joseph M. Hargedon, Asst. U. S. Atty., both of Boston, Mass., for plaintiff.
    Martin Witte, of Boston, Mass., for defendant.
   SWEENEY, District Judge.

This case involves two motions. The first has been filed by the defendant for leave to amend its answer; the second by the United States for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c. Findings of fact are based on the pleadings and supporting affidavits.

Findings of Fact

This action was originally brought in March, 1939, to compel the defendant, Weiler-Sterling Farms Company (hereinafter referred to as the defendant), and others to comply with the terms of Order No. 4, a milk marketing order for the Greater Boston, Massachusetts, marketing area. Order No. 4 was promulgated under the authority of the Agricultural Marketing Agreement Act of 1937, 50 Stat. 246, 7 U. S.C.A. § 608c, hereinafter referred to as the Act. The complaint, among other things, requested an order directing full' compliance with the reporting and other provisions of Order No. 4 and for the payment of all amounts due or to become due from the defendant to the Market Administrator.

A preliminary injunction was issued' herein which directed this defendant and other defendants to file reports and make all payments then due or to become due under Order No. 4. Thereafter the reports were filed and the amounts due through. December 26, 1939, were paid.

On or about January 2, 1940, the defendant filed a petition with the Secretary of Agriculture under section 8c (15) (A) of the Act in which it requested a review and determination of its status under Order No. 4. On or about April 1, 1940, this petition was dismissed without prejudice on, motion of the defendant.

In October, 1940, an action was brought in the District of Maine for the purpose of enforcing the provisions of Order No. 4 against Norway Dairy, Inc., a Maine corporation, which was engaged in the business of handling milk in that state from January 16, 1938, to August 31, 1939. In this action the defendant, Norway Dairy, Inc., appeared and answered and admitted that it was a handler as alleged, and further admitted its obligation to the Market Administrator to make payment of all amounts due under the order. On November 19, 1940, a stipulation was entered between the United States and Norway Dairy, Inc., which secured the compliance by the latter of all the terms and conditions of the order. Thereafter reports were filed by Norway as to milk handled by it during the above period. Still later the Market Administrator issued bills to Norway Dairy, Inc., with respect to milk that was set forth in their reports. These bills included charges allocated to producer settlement funds, administration expenses, and marketing services, aggregating $29,-979.90.

On October 5, 1942, the Market Administrator notified the defendant that it appeared that during 1938 and 1939 the defendant had actually handled the milk reported by Norway Dairy, Inc., and that the defendant was liable for such handling. Relevant portions of this notification were as follows:

“On the basis of information received I have made a determination that Weiler-Sterling Farms Co. was actually the handler of all milk reported in the name of Norway Dairy, Inc. At the present time my auditors are engaged in making the necessary adjustments to bring these additional quantities of milk into your account with my office.
“For the period August 1-31, 1942, Wei-ler-Sterling Farms Co.’s operations resulted in a credit of $69.14 to its producer settlement account. This credit is being applied to the indebtedness which originally stood in the name of Norway Dairy, Inc. Future credits will be applied in this way until the account has been settled. * *

On October 21, 1942, a petition under section 8c (15), (A) of the Act, requesting a review of such action of the Market Administrator, was filed with- the Secretary of Agriculture.

On November 14, 1942, the Market Administrator, having completed the computation referred to in his notice of October 5, notified the defendant that he had transferred the debit accounts of Norway Dairy, Inc., to the debit account of Weiler-Sterl-ing, and that he had applied toward that account all credits then due Weiler-Sterl-ing and would, likewise, apply all credits which might thereafter become due .to it. The debit accounts thus transferred totaled $29,979.90.

After crediting the amount deducted on October 5, 1942, the unpaid balance was $29,896.58. Weiler-Sterling avers that the aggregate of the credits which the Market Administrator applied as of November 14, 1942, and thereafter to December 4, 1944, was $932.36.

As a result of a pre-trial conference held before Judge Wyzanski, a memorandum was prepared by him, dated December 22, 1942, which reads in part as follows: “In the proceedings involving Weiler-Sterling Farms Company, the situation is in some respects expected to be like the Henshaw case. Application has been filed by the Company with the Secretary of Agriculture. It is expected that the application will be - amended. The secretary has not yet in any way passed upon the application. After the Secretary has passed upon the application and a review by the courts, if any, has been completed, the disposition in this case of the Weiler-Sterling Farms Company matter shall conform to the disposition finally achieved in the matter where the Weiler-Sterling Farms Company has already applied to the Secretary of Agriculture for review. In the event that the Company does not seek judicial review of the Secretary of Agriculture’s rulings, the rulings of the Secretary of Agriculture shall be regarded as the guide for the judgment to be entered in this procedure.”

In January, 1943, the defendant moved to amend the petition before the Secretary in order to include the controverted November 14, 1942, billing. The motion to amend the petition was granted by the Secretary.

On October 2, 1943, Norway Dairy, Inc., forwarded its check for $5,000 payable to the Market Administrator on account of the obligations • imposed by him upon said Norway Dairy, Inc. This check was accepted and in due course it was paid.

In October 1943 a formal hearing on the defendant’s .petition before the Secretary was held at Boston, Massachusetts. The record of the hearing consists of some 365 pages of testimony and 28 exhibits. The defendant thereafter filed briefs, and oral argument was held before the presiding officer on November 2, 1943, at Washington, D. C. The record of the oral argument occupies 38 additional pages of transcript. On May 8, 1944, an order was made in the proceeding before the Secretary upholding the contested billing by the Market Administrator. In effect the Secretary decided that the Weiler-Sterling-Norway Dairy, Inc., arrangement was substantially similar to that between the Stuart Milk Company and the Green Valley Creamery, Inc. In the latter situation the corporate facade was ignored in fixing the obligation of the handler. Green Valley Creamery, Inc. v. United States, 1 Cir., 108 F.2d 342; Parker v. United States, 1 Cir., 126 F.2d 370, 1 Cir., 129 F.2d 374, 1 Cir., 135 F.2d 54.

On June 22, 1944, formal demand was made upon the defendant for the amounts due under the decision of the Secretary. On July 6, 1944, the defendant made a payment of $12,500 on account thereof, and indicated that it expected the preparation of a motion for judgment. The United States accordingly filed a motion for summary judgment. On January 23, 1945, the defendant moved for leave to amend its answer so as to include defenses unsuccessfully litigated before the Secretary. It also seeks to assert on the same basis a counterclaim for the return of the $12,500 payment on account which it made on July 6, 1944, as well as the $932.36 in accumulated credits which had been applied against this account.

The net amounts due from the defendant after crediting all payments and credits are set forth in the motion for summary judgment as follows:

“(a) The sum of $13,960.58 for producer-settlement.
“(b) The sum of $91.30 for expenses of administration.
“(c) The sum of $85.31 for marketing services.
“(d) The sum of $208.68 representing unpaid payments to producers from January 16, 1938 to January 15, 1939; the said amounts representing the net balance due the plaintiff as of December 2, 1944, all making a total of $14,345.87 to be paid by said defendant.”

The defendant contends .that the amount of $14,345.87 is some $3,000 in excess of its obligations even after deducting therefrom the $5,000 paid by Norway Dairy, Inc., and the $12,500 paid by Weiler-Sterling. The discrepancy is caused by the questioned applicability of Section 904.-10 of Order No. 4 to the amounts here involved.

In essence the defendant’s position is that the Market Administrator was not vested with the jurisdiction or authority to adjudge the defendant to be .the handler of the milk in question; that he had no jurisdiction or authority to bill the defendant for such milk or to determine the amount of such bill; and that, in consequence, the Market Administrator’s action is a mere nullity which can be attacked in a District Court of the United States without reference to any statutory period of limitation for the institution of such proceedings. The defendant further maintains that the Market Administrator did not afford him an opportunity .to be heard prior to such billing in violation of the due process clause of the Fifth Amendment of the Constitution of the United States.

Section 8c (15) of the Agricultural Marketing Agreement Act of 1937 provides in part as follows:

Petition by Handler and Review. “(15) (A) Any handler subject to an order may file a written petition with the Secretary of Agriculture, stating that any such order or any provision of any such order or any obligation imposed in connection therewith is not in accordance with law and praying for a modification thereof or to be exempted therefrom. He shall thereupon be given an opportunity for a hearing upon such petition, in accordance with regulations made by the Secretary of Agriculture, with the approval of the President. After such hearing, the Secretary shall make a ruling upon the .prayer of such petition which shall be final, if in accordance with law.

“(B) The District Courts of the United States (including the district court of the United States for the District of Columbia) in any district in which such handler is an inhabitant, or has his principal place of business, are hereby vested with jurisdiction in equity to review such ruling, provided a bill in equity for that purpose is filed within twenty days from the date of the entry of such ruling. * * * If the court determines that such ruling is not in accordance with law, it shall remand such proceedings to the Secretary with directions either (1) to make such ruling as the court shall determine to be in accordance with law, or (2) to take such further proceedings as, in its opinion, the law requires. * * *”

It is a well settled principle that where a statute provides for a remedy within the administrative framework this remedy must be exhausted before access may be had to a court of equity. Anniston Manufacturing Co. v. Davis, 301 U.S. 337, 57 S.Ct. 816, 81 L.Ed. 1143; Sunshine Anthracite Coal Co. v. Adkins, 301 U.S. 381, 60 S.Ct. 907, 84 L.Ed. 1263. Equally well established is the doctrine that where a right of review is conferred by statute the aggrieved party is bound to pursue that method of appeal in the orderly processes of the administration of the law. White v. Johnson, 282 U.S. 367, 51 S.Ct. 115, 75 L.Ed. 388; American Bond & Mortgage Co. v. United States, 282 U.S. 374, 51 S.Ct. 118, 75 L.Ed. 395.

Section 8c (15) (A) of the Act provides a method of review whereby any handler subject to an order may file a petition with the Secretary of Agriculture stating that any obligation imposed in connection with an order is not in accordance with law. This section of the Act prescribes an exclusive procedure for the determination of such issues. La Verne Coop. Citrus Ass’n v. United States, 9 Cir., 143 F.2d 415; United States v. Hogansburg Milk Co., Inc., D.C., 57 F.Supp. 297. Paragraph (B) of section 8c (15) specifically limits the jurisdiction of the District Courts to review the Secretary’s action to cases where “a bill in equity * * * is filed within twenty days after the entry of such ruling.” This provision establishes an exclusive method for judicial review, and and a District Court has no jurisdiction to entertain an appeal concerning the actions of the Market Administrator except in pursuance thereof. United States v. Ridgeland Creamery Co., D.C., 47 F.Supp. 145.

In the instant case judicial review was not requested by the defendant within the prescribed .time limit. Not having filed an appeal within the statutory period the defendant is precluded from challenging the action of the Market Administrator in the present enforcement proceeding.

I cannot agree with the defendant’s position that, since the Market Administrator exceeded his authority under Order No. 4, his action in determining that Weiler-Sterling was the handler and in billing it for the milk in question was a mere nullity and reviewable in this proceeding. If the Market Administrator overreached his authority then it was “an obligation imposed not in accordance with law” within the terms of the statute, and the defendant is put to his statutory remedies.

The reliance of the defendant on the dictum in La Verne Co-op. Citrus Ass’n v. United States, supra, is misplaced. That dictum concerned an invalidity, apparent on its face, of a general order analogous to Order No. 4, and not an unauthorized action by the Market Administrator purporting to act under the authority of a valid general order. In the latter instance the statutory remedy is exclusive.

The defendant contends that the failure of the Market Administrator to give him an opportunity to be heard before .the transfer of the Norway obligation to his account constitutes a denial of due process of law. It is clear that, when administrative action is taken in an adversary proceeding without affording adequate notice and opportunity to defend to interested parties, basic constitutional rights are invaded. Morgan v. United States, 304 U.S. 1, 58 S.Ct. 773, 999, 82 L.Ed. 1129; Ohio Bell Telephone Co. v. Public Utilities Commission, 301 U.S. 292, 57 S.Ct. 724, 81 L.Ed. 1093. This does not mean that the hearing must invariably precede the administrative action. Where considerations of administrative expediency weigh heavily, and where opportunity for a full and adequate hearing is available within the administrative process, no fundamental rights are transgressed when the hearing follows, rather than precedes, the action of the administrative agency. Phillips v. Commissioner of Internal Revenue, 283 U.S. 589, 51 S.Ct. 608, 75 L.Ed. 1289; Bowles v. Willingham, 321 U.S. 503, 64 S.Ct. 641, 88 L.Ed. 892. I believe that the instant case falls within the authority of these decisions. The defendant has had a full and fair hearing before the Secretary and should not now be heard to complain that he has had no opportunity to defend himself in the administrative proceedings.

The defendant’s contention that the relief sought in the motion for summary judgment is not within the scope of the pleadings in this action is unsupportable. It is true that the administrative determination of the amounts actually due from the defendant as a handler did not occur until after the institution of this action. However, it should be pointed out that this complaint was filed against some 68 defendants, including Weiler-Sterling, for violations and threatened violations of Order No. 4. When this action was instituted in 1939 it was impossible to determine with any degree of accuracy what amounts were due from each defendant. In its prayer for relief the Government asked for an injunction ordering the several defendants “to file all reports and to pay all amounts now due and owing under the provisions of said order”. The preliminary injunction which subsequently was issued recognized that the defendant’s obligation was not irrevocably fixed at the date of the complaint by requiring the payment of all amounts due “or that hereafter become due”. This indicated the court’s expectation that the limits of the defendant’s obligation would be defined with greater exactitude at some future time.

When the pre-trial conference was held before Judge Wyzanski the parties were clearly apprised of the fact that the charges here in dispute were considered within the scope of this action. The context of Judge Wyzanski’s memorandum supports this conclusion. The pre-trial proceeding is the latest summary of the state of the case before trial, and is controlling on the issue now sought to be raised by this defendant concerning the scope of the pleadings. See Rule 16, Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c. There is no element of surprise in compelling the defendant to proceed on the present state of the record, and his rights are not prejudiced .thereby. Furthermore, the letter written by defendant’s counsel which accompanied the payment of $12,500 on July 6, 1944, indicates that the amounts in controversy are within the scope of this action.

There remains for consideration the question whether the $14,345.47 demanded in .the motion for summary judgment is excessive by almost $3,000, as the defendant maintains. The answer turns on the applicability of section 904.10(i) of Order No. 4 to the charges involved in this motion. This section reads as follows: “Any balance due pursuant to this section to or from .the market administrator on the 10th day of any month, for which remittance has not been received in, or paid from, his office by the close of business on that day, shall be increased one half of 1 percent, effective the 11th day of such month.”

It may be conceded that the amounts due from .this defendant are technically balances due from a handler. This section was intended as a means of securing the prompt payment of amounts due under the provisions of Order No. 4. However, I believe that its application was intended to be limited to those cases arising in the normal functioning of the administration of the order. I do not believe that it was intended to apply to an unusual transaction of the type under consideration in the instant case, where an obligation is transferred in bulk from the purported handler to the real handler. The amounts levied under the terms of this section are not properly assessed against this defendant. His obligation is fixed by the final decision of the Secretary on May 8, 1944, with interest on unpaid balances from that date.

Conclusions of Law

In the light of the foregoing, the motion for summary judgment is granted with the adjustment as to interest indicated above. The motion to amend the defendant’s answer is denied.

      No opinion for publication.

       The War Food Administrator suc-eeeded to and assumed such functions and powers of the Secretary of Agriculture as of April 19, 1943, under E. O. 9334 of the President, 50 U.S.C.A. Appendix, § 601 note, 8 F.R. 5423. Therefore all references to the “Secretary” relating to dates after April 19, 1943, refer to the War Food Administrator acting pursuant to such authority.


author: COXE, District Judge.

text:
    CURACAO TRADING CO., Inc., v. WILLIAM STAKE & CO., Inc.
    District Court, S. D. New York.
    June 5, 1945.
    See, also, 2 F.R.D. 308.
    Gustave Simons, of New York City (Robert K. Story, Jr., of New York City, of counsel), for plaintiff.
    Bigham, Englar, Jones & Houston, of New York City (John M. Aherne, of New York City, of counsel), for defendant.
   COXE, District Judge.

This is a motion by the defendant for summary judgment in its favor. .

The action is against an insurance brokerage corporation for damages of $109,-674.13 for breach of warranties alleged to have been made by the defendant in connection with the placing of certain insurance for the plaintiff with an insurance company. In a prior action against the insurance company on the insurance policy, the plaintiff failed to recover solely because it had no insurable interest in the subject matter of the insurance. Curacao Trading Co. v. Federal Ins. Co., D.C., 50 F.Supp. 441, affirmed, 2 Cir., 137 F.2d 911; certiorari denied 321 U.S. 765, 64 S.Ct. 521, 88 L.Ed. 1061.

The underlying facts are not in dispute. On July 31, 1935, the defendant obtained from Federal Insurance Company, on the plaintiff’s behalf, an open policy of marine cargo insurance, which, by its terms, covered coffee, cocoa, etc., and insured “against physical loss from any external cause, including non-delivery * * * The policy contained a provision requiring the assured to report and declare all risks promptly. There was also a provision reading: “It is a condition of this policy that William Stake & Co. Inc. are the assured’s brokers and agents and that this policy shall be continuous”. By another provision, the policy was extended “to cover cocoa * * *, the property of the assured * * *, while temporarily detained anywhere within the limits of the United States * * * in stores or warehouses * * * submitted to or approved by this company” against the risks of fire, lightning, etc. Imported merchandise in which the insured Ijad an interest was automatically covered in any warehouse to the amount of $75,000, but for coverage in excess of $75,000 the warehouse had to be approved by the insurance company. The policy was delivered to and accepted by the plaintiff upon its issuance, and hundreds of risks were insured under it prior to the one involved in the present action.

On March 31, 1939, the plaintiff entered into a written agreement with Garcia Sugars Corporation, under which the plaintiff agreed to loan to Garcia Sugars Corporation approximately $90,000 against the security of certain cocoa supposed to be in a warehouse. One of the paragraphs of this agreement provided: “Curacao Trading Company Inc. agrees to do financing in connection with certain cocoa which Garcia Sugars Corporation represents and warrants is now stored in warehouses, licensed by the New York Cocoa Exchange, and that said cocoa is owned by Garcia Sugars Corporation and is free and clear of all encumbrances of any kind whatsoever, and of quality tenderable on the New York Cocoa Exchange”.

Another paragraph of the agreement provided for sampling of the cocoa by a licensed sampler, and for “insurance against fire, theft and non-delivery, and other perils, such insurance to be procured by Curacao Trading Company Inc., * * *

Pursuant to this agreement, the plaintiff caused certain cocoa stored in a warehouse of Harbor Stores Corporation, located at Long Island City, N. Y., to be sampled and graded, and found that it was of the quality required. The report of the cocoa grader is dated April 3, 1939, and on the same day Garcia Sugars Corporation delivered to the plaintiff three warehouse receipts of Harbor Stores Corporation purporting to cover 18,-480 bags of cocoa beans, and received from the plaintiff the sum of $90,500 as required by the agreement.

Before the money was advanced, Van-dervygh, co-manager of the plaintiff, had various talks with Christie, vice-president of the defendant, and showed him in its unsigned form the agreement about to be entered into with Garcia Sugars Corporation. Clearly, after seeing this agreement, Christie was justified in believing that Garcia Sugars Corporation owned the cocoa against which the loan was to be made. And it is unthinkable that Vander-vygh could have had any different belief, otherwise he would hardly have been willing to commit his company to the agreement at all.

Although the open policy provided automatic coverage for the cocoa as soon as the loan was made, it was necessary for Van-dervygh to consult with his insurance broker regarding the transaction for two reasons, namely, (1) because the plaintiff needed an insurance certificate to evidence to Grace National Bank, from which it was. borrowing the money, that the cocoa was. insured, and (2) because it was necessary to obtain the approval of the warehouse-in which the cocoa was stored, since the-policy did not cover in excess of $75,000’ unless the warehouse was approved by the-insurance company.

After receiving the warehouse receipts from Garcia Sugars Corporation, the plaintiff communicated with the defendant by telephone the description of the cocoa and the numbers of the warehouse receipts. From this information the certificate of insurance was prepared, certifying the existence of insurance under the open policy: and subject to its terms. The certificate!: was delivered to the plaintiff on April 3,1 1939, and was accepted without objection. The defendant also obtained an extension. of the coverage of'the policy from $75,000 to $100,000.

No question arose with respect to the insurance until after the Harbor Stores Corporation was adjudicated bankrupt by this court on May 29, 1939, when it was discovered that spurious warehouse receipts had been issued by the warehouse for an amount of cocoa greatly in excess of that actually in storage, and that Garcia Sugars Corporation had been a party to the fraud. The plaintiff thereupon filed a claim for the recovery of the cocoa described in its receipts, and in omnibus reclamation proceedings in the bankruptcy it was found that all of the cocoa in the warehouse was owned by others than the plaintiff, and was awarded to them. In re Harbor Stores Corporation, D.C., 29 F.Supp. 749; Id., D.C., 33 F.Supp. 360. Later, in the action against the insurance company, the plaintiff sought to spell out some kind of an interest in the cocoa covered by the receipts, but it was held that no such interest existed because Garcia Sugars Corporation never had any cocoa in the warehouse. Curacao Trading Co. v. Federal Ins. Co., D.C., 50 F.Supp. 441, affirmed 2 Cir., 137 F.2d 911.

The amended complaint describes in detail the transaction with Garcia Sugars Corporation, including the receipt of the three warehouse receipts and the payment of the $90,500; it alleges that the plaintiff deemed the defendant an expert in the insurance field, and relied upon it as such; and, further, that before the advance was made the plaintiff advised the defendant of its contemplated transaction with Garcia Sugars Corporation, and its desire to secure insurance against every possible risk. The issuance of the certificate of insurance under the open policy is alleged, and copies of both instruments are annexed to and made part of the pleading.

It is then alleged that the defendant “warranted” to the plaintiff (1) that the insurance was “validly issued and that plaintiff had an insurable interest therein”; (2) that the plaintiff was “fully insured * * * against any and all risks” relating to the cocoa; (3) that if the plaintiff did not receive the cocoa described in the warehouse receipts, it would obtain the insurance money; (4) that the plaintiff was insured against nondelivery of the cocoa “for any reason”, “including dishonesty on the part of the warehouseman”; and (5) that “no investigation of the title of Harbor Stores Corporation to the cocoa * * * was necessary”, and “no investigation back of said receipts was required”.

The remainder of the pleading is devoted largely to the events which transpired after April 3, 1939, the date of the issuance of the certificate of insurance, i. e., the bankruptcies of Garcia Sugars Corporation and Harbor Stores Corporation, the disallowance of the plaintiff’s reclamation claim in the Harbor Stores case, the loss alleged to have been sustained by the plaintiff amounting to $109,674.13, and the refusal of the insurance company to pay the plaintiff’s claim. Paragraph 29 reads as follows: “That on or about April 3, 1939, and at all times up to and including the date of loss hereinafter described, plaintiff and aforesaid Grace National Bank each believed that they had a bona fide insurable interest in the subject of the insurance * * * ”.

Paragraph 55 reads: “Upon information and belief, that the aforesaid policy and undertakings of Federal were void and unenforceable because they did not attach to the risk, were not validly issued, were issued pursuant to a mutual mistake of fact and/or plaintiff had no insurable interest and, accordingly, Federal has refused and still refuses to make payment under and by virtue of the terms of said policy and undertakings on its part”.

The answer admits many of the allegations of the amended complaint, but denies that the defendant made any of the warranties alleged by the plaintiff, or that it is in any way liable to the plaintiff. It also sets up a number of affirmative defenses. One of these defenses alleges that in a prior action between the parties in this court involving the same issues, 2 F.R.D. 308, a final adjudication was rendered in favor of the defendant, and that the plaintiff is now estopped from maintaining the action. Another defense alleges that at the time the certificate of insurance was issued “plaintiff and defendant believed that plaintiff had an insurable interest in the cocoa beans described in the said certificate”, and that “the said certificate of insurance * * * was caused to be issued by the plaintiff and the defendant herein under a mutual mistake of fact”.

The defendant makes two contentions in support of the motion for summary judgment, namely, (1) that a judgment in favor of the defendant in a prior action between the parties is res judicata of the issues, and (2) that, irrespective of the prior judgment, the plaintiff still cannot succeed in the action.

First, as to the judgment in the prior action: This prior action, entitled “Curacao Trading Company v. William Stake & Company, Inc.”, D.C., 2 F.R.D. 308, was commenced in this court on September 12, 1941, and a copy of the complaint is attached to the moving papers. The parties, the cause of action, and the allegations in the prior action are the same as in the case at bar. Indeed, the allegations of the complaint in the prior action are almost word for word identical with the corresponding allegations of the present amended complaint. The only differences in the two complaints are either verbal, or plainly insubstantial.

In the prior action, the defendant moved before answer under Rule 12(b) (6), Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, to dismiss the complaint for failure to state a claim. This motion was granted over the opposition of the plaintiff, with leave to amend. Curacao Trading Co. v. William Stake & Co., D.C., 2 F.R.D. 308. An order was thereupon entered on December 30, 1941, dismissing the complaint and allowing the plaintiff thirty days within which to serve and file an amended complaint. No amended complaint was ever served or filed, and on March 10, 1942, a judgment was entered adjudging that “the above entitled action be and the same hereby is dismissed”. Under Rule 41(b), this judgment was an adjudication upon the merits, and no appeal therefrom was ever taken by the plaintiff.

The judgment in the prior action is clearly res judicata of the issues in the present action. The motion to dismiss under Rule 12(b) (6) for failure to state a claim is the equivalent of a demurrer at common law; it admits for the purpose of the motion, all well pleaded facts of the complaint. American Viscose Corporation v. Rothensies, 3 Cir., 121 F.2d 186, 188; Cohen v. United States, 8 Cir., 129 F.2d 733, 735, 736. And it is settled that a sustained demurrer, and a judgment entered thereon, is a bar to a subsequent action, based upon the same facts. Gould v. Evansville & C. R. Co., 91 U.S. 526, 534, 23 L.Ed. 416; Northern Pac. R. Co. v. Slaght, 205 U.S. 122, 130-133, 27 S.Ct. 442, 51 L.Ed. 738; Joannes Brothers Co. v. Lamborn, 237 N.Y. 207, 209, 142 N.E. 587. This is true not only when leave to amend is not granted, Joannes Brothers Co. v. Lamborn, supra; Goldfarb v. Wright, 2 Cir., 135 F.2d 188, 189, but a fortiori when leave to amend is granted and not availed of. See Northern Pac. R. Co. v. Slaght, supra. Here, the facts are identical in both actions, and the prior judgment is a bar to the present action. It is no answer that the plaintiff's action against the insurance company has only recently been determined, for it was not necessary for the plaintiff even to-allege or • show that it had brought suit against the insurance company. Scharles v. N. Hubbard, Jr. & Co., 74 Misc. 72, 131 N.Y.S. 848.

Second, as to the merits: It will be seen from the foregoing summary of the amended complaint that the plaintiff bases its claim entirely on allegations that the defendant “warranted” that the policy provided certain coverage with respect to the cocoa. In the law of sales, warranty usually means an affirmation of fact (Williston on Sales, 2d Ed., Vol. I, §§ 194, 197), and presumably the term is used in that sense in the amended complaint. The alleged “warranties” are not, however, affirmations of fact'; they are mere expressions of opinion as to the legal effect of the language of the policy. And, as expressions of opinion, they were clearly correct if Garcia Sugars Corporation owned the cocoa which it represented that it owned in its loan agreement with the plaintiff. But Garcia Sugars Corporation did not own the cocoa, and it was for that reason that the plaintiff was unable to show that it had any insurable interest to support its action against the insurance company. In effect, therefore, what the plaintiff is now asserting is that the defendant guaranteed the-title of Garcia Sugars Corporation to the cocoa — a fact which is neither alleged nor supported in the slightest degree by the-evidence.

The plaintiff further contends that the defendant “warranted” that the policy covered the validity of the warehouse-receipts. This is not alleged in the amended complaint, but the plaintiff points to isolated parts of the testimony of Vandervygh and' Christie relating to their talks prior to-April 3, 1939, in support of the contention. Thus, Vandervygh in his testimony was asked if he told Christie that he (Vandervygh) “didn’t know whether the warehouse receipts were valid or not”, and Vandervygh answered as follows: “Yes sir. We.told him that we had absolutely no information about the reliability or honesty of the warehouse, and that therefore we wanted specifically to be protected against nondelivery and non-fulfillment of the promise ■of the warehouse to deliver us the cocoa whenever we had to call for it in the future; and we requested him to take this up with the insurance company and get us full protection.” And Christie in his testimony said that Vandervygh told him “that be was going to loan Garcia some $90,000, and that he intended to replenish his bank account by pledging with a bank the collateral security which he would receive' in exchange for his loan * * * Surely, there is nothing in this testimony to lend any support to the contention that the defendant warranted the validity of the warehouse receipts.

The question remains whether the action can be maintained as an action for negligence despite the failure of the plaintiff to allege negligence on the part of the defendant. See Seaboard Terminals Corporation v. Standard Oil of New Jersey, 2 Cir., 104 F.2d 659; Downey v. Palmer, 2 Cir., 114 F.2d 116. This failure to allege negligence was not inadvertent but deliberate, after earlier complaints based entirely ■on warranties had been severely criticized by this court. Curacao Trading Co. v. William Stake & Co., supra, 2 F.R.D. 308; Curacao Trading Co. v. Federal Ins. Co., D.C., 3 F.R.D. 203. And, even now, the plaintiff does not intimate that the action should be treated as one of negligence. But in any event, the facts are insufficient to support a claim of negligence. The policy covered all risks, and failed only because Garcia Sugars Corporation did not own the cocoa, which both the plaintiff and the defendant believed that it owned. It would be a strange rule, therefore, to fasten negligence on the defendant under such circumstances. I do not think, either, that the testimony of Vandervygh, already referred to, in which he said that he told Christie that he (Vandervygh) “didn’t know whether the warehouse receipts were valid or not”, is any evidence of negligence on the part of the defendant, for the policy fully covered the cocoa, regardless of the warehouse receipts, if the cocoa had been owned by Garcia Sugars Corporation. I do not think, therefore, that any further amendment to allege negligence is justified.

The motion of the defendant for summary judgment in its favor is granted.


author: WYMAN, District Judge.

text:
    BOWLES, Price Adm’r, v. LEWIS et al.
    Civil Action No. 143.
    District Court, D. South Dakota, W. D.
    Jan. 10, 1945.
    Louis N. Crill and C. A. Wilson, both of Sioux Falls, S. D., for plaintiff.
    H. F. Fellows and W. A. McCullen, both of Rapid City, S. D., for defendants.
   WYMAN, District Judge.

It appears by the record in the above entitled suit and the showing in briefs submitted in connection with plaintiff’s application for a temporary injunction, that there is no dispute as to the material facts involved. The question for decision, therefore, is purely a question of law.

If the moneys received by the defendant, Tinsley, from the tenants occupying the several apartments in the building owned by the defendant, Lewis, and known as No. 603 Quincy Street, Rapid City, South Dakota, as rent for the furniture and other housing accommodations furnished to said tenants respectively by the defendant, Tinsley, in her individual right, come within the purview of the provisions of the Emergency Price Control Act, 50 U.S.C.A.Appendix, § 901 et seq., and the rent regulations promulgated thereunder, it seems to be conceded that the total monthly rent collected from each of said tenants would exceed the maximum monthly rent permissible for each of the respective apartments under the regulations. The pertinent provisions of the Emergency Price Control Act, as amended, 50 U.S.C. A.Appendix, § 942, read as follows:

“(f) The term ‘housing accommodations’ means any building, structure, or part thereof, or land appurtenant thereto, or any other real or personal property rented or offered for rent for living or dwelling purposes (including houses, apartments, hotels, rooming or boarding house accommodations, and other properties used for living or dwelling purposes) together with all privileges, services, furnishings, furniture, and facilities connected with the use or occupancy of such property.
“(g) The term ‘rent’ means the consideration demanded or received in connection with the use or occupancy or the transfer of a lease of any housing accommodations.”

It seems clear that under the provisions of the above quoted section, the furniture and other accommodations furnished by the defendant, Tinsley, personally, as an individual, constitute housing accommodations, and if they are connected with the use or occupancy of the premises involved in this proceeding, the renting of them is subject to the rent regulations.

It is argued that in view of the fact that the furniture and other accommodations rented by the defendant, Tinsley, as an individual, are owned by her personally and that her co-defendant, Lewis, who owns the apartment building, has no interest in or connection with them whatever, that while she acts as agent for the defendant, Lewis, in the management and renting of the several apartments in his building, she rents the furnishings and other facilities only at the request of the tenants, and that the rent for the furnishings and other facilities is paid to her individually, that Lewis receives no part of it and has no interest in it, and that separate receipts are given for it: that the tenant is free to obtain furnishings and other accommodations elsewhere if he so desires, and that the renting of such furnishings and other housing facilities by her is never required as a condition upon which an apartment is rented; that because of these facts the renting of these furnishings and accommodations are not connected with the use or occupancy of the apartments any more than furnishings or other accommodations rented to the tenant by an independent, secondhand dealer would be.

While the record clearly supports defendants’ claims as to the facts above stated, I cannot agree with the defendants’ conclusions. The affidavit of defendant, Lucille Tinsley, submitted in opposition to the plaintiff’s application for temporary injunction, contains the following statement:

“During the period, January, 1942, to June, 1943, your affiant had acquired knowledge of the demands of the tenants with respect to rental units; that said demands required premises fully furnished as to furniture, linens, dishes, bedding and utilities. To meet such demands your af-fiant purchased, owned and supplied to tenants of the premises, No. 603 Quincy Street, as their demand required, furniture, linens, dishes and bedding.”

It therefore conclusively appears by the defendant’s own sworn statements that the furniture and facilities involved in this suit were procured and are kept by her for the sole purpose of renting them to those who rent unfurnished apartments in the building for which she is agent. Clearly, then, such facilities, furniture and furnishings are connected with the use and occupancy of the housing property and the renting of them is just as clearly subject to the rent regulations.

It follows that in my opinion the plaintiff’s application for temporary injunction should be granted and upon presentation of findings and conclusions and order of injunction the same will be signed and entered of record.