author: ST. SURE, District Judge.

text:
    Ex parte KRUK.
    No. 25036-S.
    District Court, N. D. California, S. D.
    Oct. 31, 1945.
    Benjamin Dreyfus and Louis Licht, both of San Francisco, Cal., for petitioner.
    Frank J. Hennessy, U. S. Atty., and Joseph Karesh, Asst. U. S. Atty., both of San Francisco, Cal., for respondents United States Navy and Captain Elmer F. Helm-kamp.
   ST. SURE, District Judge.

Petitioner seeks release by habeas corpus from the Receiving Ship at San Francisco, where he is detained awaiting trial by a naval court martial upon a charge of desertion.

Pursuant to the provisions of the Selective Training and Service Act of 1940, 50 U.S.C.A.Appendix, § 301 et seq., petitioner reported for induction into the armed forces of the United States, on August 6, 1943, at Maplewood, New Jersey. Under the process of induction petitioner was examined, accepted, informed that he had been inducted into the navy, and was ordered to report for duty one week later at the recruiting station at Newark, N. J. He failed to report and left for parts unknown. On July 16, 1945, he was apprehended at San Jose, California, by the Federal Bureau of Investigation and delivered to the detention barracks.

The question for decision is whether under the facts and the law, petitioner was on August 6, 1943, actually inducted into the navy.

At the hearing on the return to the writ, petitioner testified that on August 6, 1943, he reported voluntarily at the Armory in Newark for induction, pursuant to instructions of his local selective service board; that while there he told two officers that he wanted army service, and when asked why he preferred the army, said, “Well, a better chance of staying around the family”; that the word “navy” was stamped on his slip and he was taken in a station wagon with about five other men to the Newark Post Office; that there he signed several documents, none of which he read, nor was he informed of their contents, although one of them included induction articles in the navy to which was attached an oath of allegiance to the United States of America; that he was fingerprinted, and marched into another room with other selectees; that an officer read the oath and told the selectees to raise their right hands; that he did not raise his hand or take the oath; that his action was observed and an entry made on his service record. He further testified that on the same day he was interviewed by a naval officer concerning his refusal to take the oath; that he asked if he could not be transferred to the army, and was informed that nothing could be done at that time, that he was in the navy. When asked what was his reply to the order to report for duty one week later, petitioner was uncertain, but thought he said he would not be back. This statement is the only evidence of an express refusal to serve in the navy. He did not thereafter report for duty, but decamped on the day he was to report and, as we have seen, was arrested, about two years later in California as a deserter and delivered to the naval authorities.

Army Regulations 615-500, paragraph 13, relating to induction after acceptance and induction ceremony, were offered in evidence without objection as the regulations governing induction into the navy at the time petitioner reported for induction. The pertinent sections are § e(l), describing the ceremony to be performed, and § e (4), which provides: “They will then be informed that they are now members of the Army of the United States and given an explanation of their obligations and privileges. In the event of refusal to take the oath (or affirmation) of allegiance by a * * * citizen he will not be required to receive it, but will be informed that this action does not alter in any respect his obligation to the United States.”

It was admitted at the hearing here that after the inception of the process of induction a selectee may not choose the branch of the service he would enter.

The leading case on the question for decision is Billings v. Truesdell, 321 U.S. 542, 64 S.Ct. 737, 88 L.Ed. 917. In that case Billings, after repeated assertions during the induction process of his intention not to serve in the armed forces, was placed under guard to prevent him from leaving the reservation. He was permitted to telephone an attorney to represent him in a habeas corpus proceeding. The oath of allegiance was then read to him by an army officer, and he refused to .take .the oath. He was advised that his refusal made no difference; that he was in the army. He then refused to obey an order to submit to fingerprinting, and military charges were preferred against him for wilful disobedience of that order. His petition for writ of habeas corpus, alleging that he was not subject to military jurisdiction, was discharged by the District Court. 46 F.Supp. 663. The Circuit Court of Appeals, 135 F.2d 505, 507, affirmed the District Court, holding that “Induction was completed when the oath was read to petitioner and he was told that he was inducted into the Army.” On writ of certiorari the Supreme Court stated [321 U.S. 542, 64 S.Ct. 746], “A selectee becomes ‘actually inducted’ within the meaning of § 11 of the Act when in obedience to the order of his board and after the Army has found him acceptable for service he undergoes whatever ceremony or requirements of admission the War Department has prescribed.” The Supreme Court found that the induction ceremony constituted the “actual induction,” and that since Billings did not voluntarily undergo induction and could not be inducted forcibly, the military authorities .did not have jurisdiction over him.

In Mayborn v. Heflebower, 5 Cir., 145 F. 2d 864, 866, certiorari denied 65 S.Ct. 1087, the court held that a selectee who reported for induction, stood with his fellows during the induction ceremony, did not say to anyone that he would refuse to submit to induction or perform his duties as a soldier, but declined to take the oath of allegiance, was inducted into the army and rendered subject to military jurisdiction. The court quoted from Army Regulations 615-500, paragraph 13, above referred to, and stated: “Each step in the induction process he took willingly and voluntarily, except that he declined to take the oath of allegiance. Under the express terms of the italicized portions of the regulations relating to the induction ceremony, the taking of the oath was not a prerequisite to induction. His compliance in all other respects with the procedure prescribed concluded the selective process and rendered him subject to military jurisdiction. Billings v. Truesdell, supra.” The decision is based upon the further ground of the subsequent conduct of the selectee in voluntarily accepting the benefits and assuming the obligations incident to membership in the armed forces for a period of more than two months. In the companion case of Hibbs v. Catovolo, 145 F.2d 866, decided by the same court, petitioner refused to take the oath but voluntarily performed all duties required of him as a soldier, and accepted pay, purchased war risk insurance, made allotments, etc., from September, 1943, until June, 1944. The court held that petitioner was actually inducted when he complied in all respects, other than taking the oath, with the procedure prescribed at the induction station; and that if not, by his subsequent conduct he became a member of the armed forces. The decision is based on the authority of and reasoning in Mayborn v. Heflebower, supra. I do not think that these decisions of the Circuit Court of Appeals for the 5th Circuit are in conflict with Billings v. Truesdell. In the latter case, Billings’ presence at the induction ceremony was forced, and he therefore never was “actually inducted.” In the Mayborn and Hibbs cases, it does not appear that the respective petitioners were forced to attend .the ceremony, and their applications are based upon their refusal to take the oath. As shown above, section e(4) of Army Regulations, 615-500, paragraph 13, expressly provides for the situation where the selectee refuses to take the oath: “He will not be required to receive it, but will be informed that this action does not alter in any respect his obligation to the United States.” The selectee is inducted if he voluntarily attends the induction ceremony, because, in the language of Billings v. Truesdell, supra, “a selectee becomes ‘actually inducted’ within the meaning of § 11 of the Act when in obedience to the order of his board and after the Army has found him acceptable for service he undergoes whatever ceremony or requirements of admission the War Department has prescribed,” and the taking of the oath is not made a requirement of admission.

The facts in the present case differ from those in the Mayborn and Hibbs cases, supra, in that petitioner here did not, after the induction ceremony, accept the benefits or assume the obligations of a member of the armed forces. However, in each case the court found that the selectee was properly inducted in accordance with Army Regulations, and his subsequent conduct was cited as additional ground for the decision.

In Billings v. Truesdell, supra, the petitioner was “forced” to submit to induction, while in the case at bar no force whatsoever was used, and the only compulsion attending petitioner’s voluntary acts was such as is inherent in the Selective Service Act applicable alike to all persons coming within its provisions.

After his induction petitioner did not make any attempt to legally test his status. He made no effort to be transferred from the navy to the army, but he ran away. He left the state of New Jersey without notifying his draft board, and remained away for almost two years, when he was apprehended by the F. B. I.

I am of the opinion that petitioner was actually inducted into the United States Navy and is subject to the jurisdiction thereof. The motion to dismiss will be granted and the writ discharged.


source: Caselaw Access Project

author: SWEENEY, District Judge.

license: Public Domain

text:
    KAMBORIAN et al. v. UNITED SHOE MACHINERY CORPORATION.
    Civil Action No. 2751.
    District Court, D. Massachusetts.
    Oct. 29, 1945.

      Robert Cushman and Roberts, Cushman & Grover, all of Boston, Mass., for plaintiffs.
    Fish, Richardson & Neave and Charles E. Hammett, Jr., all of Boston, Mass., (Alex D. Salinger, of Boston, Mass., and Stephen H. Philbin, of New York City, of counsel), for defendant.
   SWEENEY, District Judge.

In this action the plaintiffs, who are, respectively, the owner and the sole licensee of the patents here involved, charge the defendant with infringing Letters Patent No. 2,251,284, a machine patent, and No. 2,254,224, a method patent. The plaintiffs seek an injunction against further infringement and an accounting of profits. The defenses urged at the trial were that the patents were invalid for want of invention, or because misdescriptive or inoperative, and a denial of infringement.

All of the parties are active in the construction and leasing of shoe building machinery. The present action concerns shoe lasting machinery. The claims in issue are claims 13 and 19 of the method patent, and claims 26 and 28 of the machine patent. Claim 13 of the method patent, which is typical of all of the claims, reads as follows:

“That method of lasting shoes which comprises as steps seizing a narrow area of the margin of the upper and applying positive lasting pull thereto in a direction substantially perpendicular to the last bottom, progressively and uninterruptedly shifting the point of application of such pull along the periphery of the shoe bottom, and wiping narrow areas of said margin inwardly over the insole successively from point to point longitudinally of the shoe.”

Shoe lasting is the art of affixing the upper portion of a shoe to the insole in such a fashion as to cause it to be shaped as nearly as possible to a human foot. Prior to the use of lasting machines, the operation was performed by hand; that is, an operator would tack an insole to the bottom of the wooden last, then slip the last into the leather or cloth upper, and align the parts so that a proper union might be made. After alignment, the operator would seize the margin of the upper with a pair of pincers, tensioning the material to conform to the contour of the last, and then affix the margin of the upper to the bottom of the insole, usually by tacking it. The operator would then proceed from point to point along the insole until the upper was firmly and completely affixed thereto.

The first improvement over hand lasting was the so-called “Niggerhead” machine, which was introduced about 1890. This method was an improvement over hand lasting, but the union between the sole and the upper was still made at intermittent stages and required many stages of operation before completion.

In the industry there was a long felt need for a machine which would do continuous lasting so that, in one simple operation, the upper could be affixed to the insole. In 1920 the McFeeley Patents Nos. 1,356,539 and 1,356,540, and in 1925 the Varney Patent No. 1,541,875, were issued to the defendant. These patents were designed to provide continuous lasting, but the machines made under them proved to be unsuccessful. Incidentally, it might be mentioned at this point that the defendant company maintains a research department of approximately 200 employees, 20 of whom devote their time to patent work. The patentee’s idea, which was the basis for his patent application, came from his observation of a tack pulling machine, which was used to pull tacks from wooden lasts. This tack puller consisted of two rollers suspended beneath an arm parallel to each other. 'Each roll had a helical, knurled rib with the spiral opposite a similar spiral on the other roll. At the base of each roll the spirals ended in a rather fine and sharp point. When the points were inserted under the tack head, the tack rode up the spiral rolls and out of the wood. The patentee conceived the idea of utilizing similar rolls to lift and tension the upper of a shoe so that it could be turned over and affixed to the insole. In patent application No. 2,251,284, the patentee refers to his rolls as “gripper rolls” having “helical ribs of opposite pitch respectively, the ribs of the two gripper rolls normally meshing. Preferably the outer edges of these helical ribs are knurled so as to grip the material firmly between the rolls.” (P. 2, col. 1, 1. 52.) The Kamborian rolls exert a positive grip, and by that it is understood to mean a grip which grasps the material firmly against opposing pressure.

Kamborian, the patentee, is a man of considerable mechanical ability but his knowledge of mechanical principles and theories has not been demonstrated. At the time that he filed his patent application he was of the opinion — and probably is today — that the introduction of material between such rolls as he describes in his invention would have a tendency to uplift or pull it in the same way that the tack puller rode the head of the tack up its helical ribs. In the case of the tack puller, the head of the tack extended over the edge of the helical rib and, when the rolls were turned, it was compelled to ride upwardly. I do not believe that it necessarily follows that cloth or leather, contacting only the outer surface of the helical rib, would rise in the same way. Undoubtedly, while there is direct engagement of the cloth between the ribs there may be some such upward pull, but the pull, if any, on the material is not sufficient to completely tension the material to conform to the contour of the wooden last. Such additional tension as may be needed is provided by the operator who exerts pressure by pushing the last inwardly towards the body of the machine, or by presenting the work at an angle to the rotating gripping rolls. The resulting tension is sufficient to do a workmanlike job in conformance with the patent claims. Whether or not Kamborian understood all that his machine would, do at the time that he described it in his patent application is immaterial. He is entitled to the benefits of all that he has created. With few minor improvements, the machines that Kamborian has built read directly on the patents.

If a patentee clearly describes the new structure, it is unnecessary that he also describe the new mode of operation. I. T. S. Rubber Co. v. Panther Rubber Co., 1 Cir., 260 F. 934, 937; Warren Steam Pump Co. v. Blake & Knowles Steam Pump Works, 1 Cir., 163 F. 263, 277. The patentee is not required to state the principle of operation of his invention, or even understand it, as long as the mechanism is so described that it can be reproduced. Eames v. Andrews, 122 U.S. 40, 55, 7 S. Ct. 1073, 30 L.Ed. 1064; Marconi Wireless Tel. Co. v. DeForest Radio, 2 Cir., 243 F. 560, 563.

Both the original model, Exhibit 14, and the commercial machine, perform the shoe lasting operation. The invention is described in terms sufficiently clear and exact as to enable any person skilled in the art to duplicate it. It is immaterial that the principle of operation is not as described in the patent, since it is the process, and not the theory, which is patented.

Having provided a method for gripping and tensioning the upper, Kamborian next provided for turning the previously gripped portion of the upper onto the insole by supplying a member which he termed a “wiper.” This is a rapidly reciprocating arm which wipes in the material over the insole and lays it down into adhesive engagement with the insole. Kamborian also provides for such union through the use of staples instead of adhesion.

The Kamborian machine provided a continuous, instead of a step-by-step, lasting operation. This was the first successful machine of this type on the market. An average workman on the Kamborian machine can do 1,500 pairs of shoes per day, as against a former output of 500 to 600 pairs under the old commercial practice. Today there are 213 Kamborian machines in operation in 114 different plants in the United States, Canada, England, and India. By a combination of two old and well known devices, Kamborian has achieved that success for which the industry had been searching for a long time. It cannot be argued that this is a mere aggregation of old devices producing no new result. It is evidence of invention when a new combination of known elements produces a new and beneficial result, never attained before. Loom Co. v. Higgins, 105 U.S. 580, 26 L.Ed. 1177. The Kamborian machine produced the first successful technique for continuous lasting, a result which had been desired before, as evidenced by Varney and McFceley.

The history or condition of the trade or art to which the patent is applied may be considered in determining the existence of invention. Levin v. Coe, 76 U.S. App.D.C. 347, 132 F.2d 589; Hookless Fastener Co. v. G. E. Prentice Mfg. Co., 2 Cir., 68 F.2d 940. Important in this regard-is the fact that the patentee has succeeded where others have failed. Loom Co. v. Higgins, supra; Wirebounds Patents Co. v. H. R. Gibbons Box Co., 7 Cir., 25 F.2d 363, 364. The knowledge necessary to fill the long felt need for a continuous lasting machine was not such knowledge as might be possessed by a skilled mechanic. Hotchkiss v. Greenwood, 1 How. 248, 267, 13 L.Ed. 683; Cuno Engineering Corporation v. Automatic Devices Corporation, 314 U.S. 84, 91, 62 S.Ct. 37, 86 L.Ed. 58. It was actual and valuable patentable invention, and I find that this patent was not anticipated by any of the patents cited by the defendant.

In McFeeley Patents Nos. 1,356,539 and 1,356,540, and Varney Patent No. 1,541,-875, both the tensioning and the wiping action is provided by friction. The Leveque Patent No. 1,864,510 in no way resembles the machine described by the patents in suit, as Leveque provided for stitching the upper of a shoe after it had been turned outwardly so as to secure it to the upper surface of the sole of the shoe itself. Lawson Patent No. 2,140,532 and Fowler Patent No. 1,474,353, do not even refer to lasting machines. They provide for trimming away the surplus material after the shoe has been lasted. Avery Patent No. 472,599 operates on an intermittent, or step-by-step, rather than a continuous principle.

In the year 1942 the plaintiffs had about 48 machines out on lease and in use; in 1943 the defendant’s machine first appeared. This is its "Model A” and is the alleged infringing machine. This machine is strikingly similar to the patented machine in its operation, but it seems to be the studied result of an effort to avoid duplication or infringement. It is sufficiently similar so that it cannot escape a charge of infringement. Instead of utilizing the helical ribs oppositely rotating, each on a separate cylinder in a perpendicular position, the defendant utilizes one knurled roller which presses the material against a polished, rigid plate or sleeve. This roller is disposed at an angle of 16° to the perpendicular. The effect of this angular disposal is to provide uplift or tension on the material. As a wiping means to effect the adhesive engagement of the margin of the upper with the insole, the defendant’s machine utilizes an endless chain whose lower run sweeps inwardly across the shoe bottom, folding and pressing the material into adhesive contact with the insole. The defendant seeks to avoid the charge of infringement by alleging that its roller does not provide a positive grip, but rather a frictional or slipping grip, so that the material will not continuously rise at the disposed angle. I am satisfied that the grip of the defendant’s machine is positive in the sense that it is substantially impossible to disengage the material from the grip of the roll and sleeve. The slipping which the defendant refers to occurs also in the plaintiffs’ machine. Whether it is defined as “slipping” or “let go” or “release from the stretching or pulling tension”, it all amounts to the same thing.

The test of infringement is whether the machines of the patentee and the defendant perform substantially the same operation, by substantially the same means, to produce the same result. Union Paper Bag Machine Co. v. Murphy, 97 U.S. 120, 125, 24 L.Ed. 935; United States Envelope Co. v. Sherman Envelope Co., 1 Cir., 122 F. 464, 466.

Both machines provide for the automatic feed of the work. Both , machines provide gripping means which, during the progress of the work, constantly seizes fresh portions of the material of the shoe upper, while, at the same time, releasing the portion just previously seized and stressed, the latter immediately being engaged by wiping means. Both machines have work engaging elements: Plaintiffs’, two oppositely rotating rolls; defendant’s, one rotating roll acting against a polished plate. These work engaging elements exercise on both machines a positive grip, with varying amounts of slippage. In both machines the gripping means operate not only to feed the work forwardly, but also to tension the material of the upper. This is sufficient for substantial identity. Both machines provide for a wiper to engage the margin of the upper material immediately after it leaves the gripping means, and lay it down into adhesive contact with the insole.

Conclusions of Law.

(1) The claims in suit of Kamborian Patent Nos. 2,251,284 and 2,254,224 are valid, having met the requirements of patentable invention.

(2) Claims 26 and 28 of Kamborian Patent No. 2,251,284 and claims 13 and 19 of Kamborian Patent No. 2,254,224 are not invalid for anticipation by prior patents.

(3) The claims in suit are not invalid because misdescriptive or inoperative.

(4) Defendant’s Model A machine infringes claims 26 and 28 of Kamborian Patent No, 2,251,284 and claims 13 and 19 of Patent No. 2,254,224.

The plaintiffs are entitled to a decree sustaining the patent and the claimed infringement thereof.


author: McVICAR, District Judge.

text:
    ROCKWELL v. GRANGER.
    Civ. A. No. 3205.
    District Court, W. D. Pennsylvania.
    Oct. 30, 1945.
    John A. McCann and George R. Craig, both of Pittsburgh, Pa., for plaintiff.
    Charles F. Uhl, U. S. Atty., of Pittsburgh, Pa., and John W. Fisher, Sp. Asst, to Atty. Gen., for defendant.
   McVICAR, District Judge.

After hearing, the Court makes the following findings of fact and conclusions of law:

Findings of Fact.

1. This is an action for the recovery of federal income taxes and interest thereon and arises under the Internal Revenue Laws of the United States.

2. At all times mentioned in the complaint plaintiff was, and now is, a citizen of the United States and a resident within the State and Western District of Pennsylvania.

3. At the time of the collections complained of, and continuously since January 1, 1943, the defendant, Stanley Granger, has been and now is, the duly appointed, qualified and acting Collector of Internal Revenue for the Twenty-third Collection District of Pennsylvania.

4. That for the calendar years 1938, 1939 and 1940, the plaintiff filed his federal income tax returns, reflecting income taxes due thereon for the said years as follows: for 1938, $8,752.92; for 1939, $23,592.44; and for 1940, $51,531.85. Plaintiff paid said taxes to the United States and they are not in controversy in this action.

5. On audit and review of plaintiff’s said income tax returns for 1938, 1939 and 1940, the Commissioner of Internal Revenue assessed additional income taxes against the plaintiff as follows: for 1938, $1,261.35; for 1939, $4,799.47; and for 1940, $18,682.09. The details of said additional assessments appear on Exhibit “A” attached to and forming a part of Exhibit “A-l” which is attached to and forms a part of the complaint.

6. After notice and demand from the defendant as Collector of -Internal Revenue, the plaintiff on January 9, 1943, paid to the said defendant Collector the said alleged deficiencies in income tax for said years, plus interest thereon, as follows: for 1938, tax $1,261.35 and interest $282.-89, or a total of $1,544.24; for 1939, tax $4,799.47 and interest $788.42, or a total of $5,587.89; and for 1940, tax $18,682.09 and interest $1,948.05, or a total of $20,-630.14.

7. Thereafter, on August 5, 1943, plaintiff filed a claim for the refund to him of said collected sums with interest thereon according to law. A copy of the claim for 1940 is attached to the complaint. The claims for 1938 and 1939 were the same as for 1940, with appropriate changes for year and amount.

8. In June, 1943, the Commissioner of Internal Revenue allowed a portion of plaintiff’s claim for refund for 1940 in the amount of $554.93 (relating to the allowance of expenses of the trustee of the trust hereinafter mentioned, and its commission), which amount, together with interest thereon in the amount of $57.86 was repaid to the plaintiff. No part of the said refund related to the question of the taxability of the said trust income in general to any particular person.

9. The Copimissioner disallowed the balance of the claim for 1940 on February 28, 1944, and disallowed the claims for 1938 and 1939 (both in full) on May 9, 194fl. Said disallowances were each, by written .notice, sent to the plaintiff by registered mail. . ;

10. . No part of the additional taxes and interest above mentioned has been rebated, refunded or credited to plaintiff except as stated in paragraph 8, above. The balance •of the said collections result from the'inclusion by the Commissioner of Internal •Revenue in the income of the plaintiff, of the income of ,a revocable trust made by plaintiff’s wife, Mrs. Clara T. Rockwell, of which the Union Trust Company of Pittsburgh is trustee, except amounts due to minor miscellaneous adjustments appearing on the “notice of deficiency” in Exhibit '“A” of the Complaint.

11. Prior to August 6, 1929, plaintiff made a gift to his wife, Clara T. Rockwell, of Ten- — $1,000 Central States Electric Corp. 5% Convertible Debenture bonds and One Hundred — $1,000 Pittsburgh Coal Company Sinking Fund Debenture bonds; and also gave and assigned, to her all his right, title and interest in certain life insurance policies on plaintiff’s life, which policies total $500,000. This gift was made unconditionally and without any restriction or limitation of any kind, and was made for the purpose of vesting absolute title in plaintiff’s wife of the bonds and life insurance given.

12. On August 6, 1929, the plaintiff’s wife, Clara T. Rockwell, entered into a written trust agreement, by the terms of Which the Union Trust Company of Pittsburgh became the trustee and the said Clara T. Rockwell transferred said Central States Electric Corporation and Pittsburgh Coal Company bonds to said trustee, and also assigned to it all her right, title and interest in said insurance policies and changed the beneficiary of said policies from herself to the trustee. She delivered •said bonds to the trustee and assigned to it the insurance policies aforesaid. Under the trust agreement the trustee was to receive the income, was first to pay the premiums on said policies of insurance and the expenses of the trust, and the balance was to be paid to Clara T. Rockwell during her lifetime and to lineal descendants after her death. The principal could also be used to pay premiums on the policies..

13. On April 28, .1934, the said Clara T. Rockwell and the trustee executed an amendment to said trust agreement; on July 24, 1940, they executed a further amendment to said trust agreement; and on August 17, 1940, they executed another amendment to said trust agreement. Under the amendment of April 28, 1934, the trustee was authorized to purchase any securities suggested or approved by plaintiff. Under the amendment of July 24, 1940, the trustee' was required to consult with the brother-in-law of Clara T. Rockwell and her son-on .the matter of investments. The amendment of August 17, 1940 was made for the purpose of correcting a typographical error.

14. Clara T. Rockwell had other income from property owned by her which was not a pa.rt of the corpus of said trust estate from August 6, 1929 up to the date of the trial. ’ Her income was sometimes greater and sometimes less than that of her husband, the plaintiff.

15. ’Clara T: Rockwell and the: plaintiff have five children, whose ages in the year 1929 were about ten to twenty-one and their ages at the time of the trial ranged from twenty-five to thirty-six.

16. The trust agreement of August 6, 1929, as variously amended, gave no powers/ privileges, benefits, right, title or interest to the plaintiff in either the corpus of the trust or the income derived therefrom or the management thereof.

17. The gift by the plaintiff to his wife of the aforesaid bonds and insurance" policies was discussed a number of times before the gift was made. This was also true of the trust created by the wife after the gift, but no agreement was made between the- plaintiff and his wife as to the gift and trust.

18. The taxpayer has agreed .that the amount of any recovery to which he may be held "entitled may be reduced by the amount of "the ’ refunds made to Clara T. Rockwell.

Conclusions of Law.

I. The income assessed- by the Commissioner of Internal Revenue, which is the basis for this action, was not income of the plaintiff. .

II. The gift by"the plaintiff to his wife of "the- $110,000 in bonds, mentioned in the findings of fact, and the $500,000 in life insurance assigned to her was done prior to August 6, 1929. This gift and assignment was unconditional; it was complete; it was bona fide; it vested the title to the same in Clara T. Rockwell. The plaintiff, after said gift and assignment, had no further title in said bonds and life insurance, and from the date of said gift and assignment, the plaintiff has had no right or control of said property or the income therefrom.

III. The plaintiff did not, and does not, have any interest, control or direction in the trust property or trust created by his wife.

IV. The plaintiff is entitled to judgment against the defendant and an order for the entry thereof may be submitted by counsel.

Opinion.

’ This is an action for the recovery of additional income taxes and interest thereon paid by the plaintiff to the defendant for the taxable years 1938, 1939 and 1940. The question for decisipn is: Was the income assessed as the income of the plaintiff his income, or was it the income of his wife or from a trust created by her.

Defendant contends that under the Revenue Act of 1938 and the Internal Revenue Code, as amended, that the income assessed as income of the’plaintiff was properly assessed to him and is taxable. This Act reads, in part, as follows:

“Sec. 22. Gross income.
“(a) General definition.
“ ‘Gross income’ includes gains, profits, and income derived * * * from any source whatever.” 26 U.S.C.A. Int.Rev. Code, § 22 (a).
“Sec. 167. Income for benefit of grantor.
“(a) Where any part of the income of a trust—
* * * * • * *
“(3) is, or in the discretion of the grantor or of any person not having a substantial adverse interest in the disposition of such part of the income may be, applied to the payment of premiums upon policies of insurance on the life of the grantor (except policies of insurance irrevocably payable for the purposes and in the manner specified in section 23 (o), relating to the so-called ‘charitable contribution’ deduction); then such part of the income of the trust shall be included in computing the net income of the grantor.” 26 U.S.C.A. Int. Rev.Code, § 167 (a) (3).

Treasury Regulations 101, provide:

“Art. 167-1. Trusts in the income of which the grantor retains an interest.— (a) Scope — Section 167 prescribes that the income, or any part of the income, of certain trusts shall be taxed to the grantor, not because the grantor has retained a certain interest in the corpus of the trust (as in section 166), but because of his retention of a certain interest in the income of the trust. This article deals with the taxation of such income. The term ‘income’, as used in this article, means any part or the whole of the income of the trust.
“(b) Test of taxability to the grantor. —The test prescribed by the Act as to the sufficiency of the grantor’s retained interest in the trust income, resulting in the taxation of such income to the grantor, is whether he has failed to divest himself, permanently and definitively, of every right which might, by any possibility, enable him to have such income, at some time, distributed to him, either actually or constructively. Such a distribution t-o the grantor occurs within the meaning of section 167 if the income is paid to him or to another in obedience to his direction or if the income is applied in payment of premiums upon policies of insurance on the grantor’s life.”

The family of the plaintiff consisted of the husband and wife and five children. The plaintiff suffered some financial reverses in the year 1919. At the time of making the gift to his wife, his financial condition was such that he desired to make a gift to her for the protection of his wife and his family, so as to protect them in event that he suffered thereafter any financial reverses. Plaintiff’s wife, at the time of making the gift, owned property of her own. She had an income which sometimes was more and sometimes less than his. The plaintiff, at the time of making the gift owned, inter alia, the $100,000 in bonds and $500,000 in life insurance (in which his wife was the beneficiary). This insurance and bonds the plaintiff gave to his wife absolutely without any condition, limitation or qualification whatever. Subsequent to the making of the gift the wife, of her own volition, conveyed said bonds and insurance to a trustee, which trust provided for a payment of the premiums on the life insurance, the expenses of the trust and the balance to plaintiff’s wife during her lifetime, and to lineal descendants after her death. The principal of the trust could also be used to pay premiums on the insurance policies. The plaintiff had no interest in the income of the trust. Previous to the creation of said trust, he had permanently and definitively divested himself of the trust property and of any interest therein or control or direction thereof.

The gift from plaintiff to his wife being absolute, without restriction or reservation of any interest in the property given, or any control or direction thereof thereafter, vested the complete title to said property in the wife. The subsequent trust created by her was created without any agreement or control or direction of the plaintiff; consequently, the income received from the bonds which were given and which were the subject of the trust was not income of the plaintiff but was income of the trust estate and said income was not taxable as income of the plaintiff.

The cases cited by the defendant are all distinguishable. Probably the case principally relied upon is Whiteley v. Commissioner, 3 Cir., 120 F.2d 782. The facts are much different from the case now before us, and said case was decided upon the facts as they were found to be therein. I am, therefore, of the opinion that judgment sould be entered for the plaintiff, with costs.

Let an order for judgment be prepared in accordance with the foregoing findings of fact, conclusions of law and this opinion.


author: KENNEDY, District Judge.

text:
    UNITED STATES v. 26.3765 ACRES OF LAND, MORE OR LESS, SITUATE IN TOWN OF HEMPSTEAD, NASSAU COUNTY, N. Y., et al.
    No. 63.
    District Court, E. D. New York.
    Oct. 24, 1945.

      Harry T. Dolan, Sp. Asst, to the Atty. Gen., for plaintiff.
    James M. O’Connell, of Mineola, L. I. N. Y., for defendants.
   KENNEDY, District Judge.

This is a condemnation proceeding instituted by the United States of America on March 27, 1944, for the purpose of acquiring by eminent domain 26.3765 acres of land, more or less, in the Town of Hempstead, County of Nassau and State of New York. The condemnation petition was filed with the Clerk of the Court on March 27, 1944, and on the same day an order was made and entered granting to the plaintiff, the United States of America, the right to the immediate use and occupancy of the premises. On July 24, 1944, a declaration of taking was filed with the Clerk of this court pursuant to the provisions of the statute. 40 U.S. C.A. § 258a. At that time there was deposited in the registry of the court the sum of $25,000 as the estimated value of the land taken therein. The land sought to be condemned consists of two parcels, one containing 8.6047 acres, the other, 17.-771 acres. (This totals 26.375 acres.) Judgment on the declaration of taking was made and entered on July 26, 1944.- This judgment vested title in fee simple to the premises in the United States of America as of the date of filing of the declaration of taking, namely, July 24, 1944. The petition was amended to conform to the description contained in the declaration filed in the court on July 24, 1944.

Parcel No. 1, which consists of 8.6047 acres, lies to the east of Oak Street. It is irregular in shape and character. Parcel No. 2, comprising 17.771 acres, is rectangular in shape and lies west of Oak Street.

I need not discuss the improvements which were on the land. These were old estate buildings, and both sides agree that any award for them should be limited to salvage value.

Immediately adjacent to Parcel No. 1 is Mitchel Field. I took a view of the premises on March 14, 1945, and at that time I saw that airplanes were flying so low over the parcel that they were (as was testified to be customary at the trial) “at tree-top height.”

Both sides agree that the best and highest use to which the property could be adapted was that of subdivision and development, and both sides agree that the proximity of the Army air field would have a detrimental influence on its value for this purpose. They could hardly differ on this point. It is difficult for me to imagine a housing development which would not be diminished in value by the flight of these airplanes at such a low level.

There is a threshold question in this case which must be determined. I have said that the petition for condemnation was filed in this court on March 27, 1944. At that time the right to immediate use and occupancy was sought. The declaration of taking was not filed until July 24, 1944. Which date' must I use in the determination of fair market value? I believe that I am bound to use the earlier date, namely, March 27, 1944. The claimant does not urge very seriously that such a determination would be erroneous. I should think that I must adopt the earlier date because the filing of a declaration of taking is optional with the Government and purely incidental to the main suit. United States v. Catlin, 7 Cir., 1944, 142 F.2d 781. Hence, if no declaration of taking were filed at all, the only date that could be used would be the date upon which the Government acquired possession. Where the Government takes possession prior to the filing of the declaration of taking it has been the practice to value the property as of the, date possession was taken, and to allow interest for the period prior to the deposit of money with the declaration. Seaboard Air Line Ry. v. United States, 1923, 261 U.S. 299, 306, 43 S.Ct. 354, 67 L.Ed. 664. In other words, the primary purpose of the declaration of taking is to diminish interest liability. United States v. Miller, 1943, 317 U.S. 369, 381, 63 S.Ct. 276, 87 L.Ed. 336, 147 A.L.R. 55. Accordingly, I have used the date March 27, 1944, as the critical date in the case for purpose of valuation. Parenthetically, I may say that there was no substantial change in values between March, 1944, and July, 1944, which undoubtedly accounts for the fact that the claimant made no great point of the matter I have just mentioned.

It is the function of the trial court in cases of this kind to award just compensation. Bauman v. Ross, 1897, 167 U.S. 548, 574, 17 S.Ct. 966, 42 L.Ed. 270; Searl v. School District No. 2, 1890, 133 U.S. 553, 562, 10 S.Ct. 374, 33 L.Ed. 740. The burden of establishing value is on the claimant. Westchester County Park Commission v. United States, 2 Cir., 1944, 143 F.2d 688. Special or unique value to the owner is not to be considered. United States v. Miller, supra.

I turn to the proof which was adduced on the subject of fair market value. Claimant asks that he be awarded the sum of $80,129.50 which is made up of two items, land at $79,129.50 and salvage value of improvements at $1,000. On claimant’s analysis the land is valued at $3,000 per acre. The Government contends that the fair market value of the land and buildings condemned is $35,500 which is made up of an item for land ($35,000) and the salvage value of improvements ($500). The Government’s valuation per acre is $1,325.

At the trial claimant called two experts. Both testified to substantially the same fair market value (there was a difference between them of some $2,000). Neither gave very satisfactory evidence indicating what the basis of his valuation was. It is not difficult to understand this.

On August 31, 1943, the claimant acquired from the Society for the Relief of the Destitute Blind of the City of New York and Vicinity a tract of land which included parcels Nos. 1 and 2 here in suit. In addition, the tract included the bed of what is now Oak Street. The price paid for the entire tract was $32,000, or roughly $1,000 an acre. On March 14, 1944 (13 days before the filing of the petition in this suit) the claimant executed an option agreement running to Droesch Homes, Inc. The agreement covered 38 acres of land described as the “Bird-Gautier” property. It is quite obvious that the property which was the subject of that option was parcel No. 2 in suit, and, in addition, a tract of land consisting of 20 acres, immediately to the west of and adjoining parcel No. 2. Apparently, on the date the option was executed the tract last mentioned was not in the ownership of the claimant. The price fixed in the option agreement which I have just talked about was $1,300 per acre.

In August, 1944, the 20-acre tract to the west was sold by Bird and another to one Gilbert King. As I have said, it consisted of 20 acres. The price paid was $1,000 per acre.

Faced with the fact that eight months before the filing of the petition there was a transaction, participated in by the claimant himself, at a price of $1,000 an acre for the property, and that five months after the filing of the petition there was another transaction involving adjacent property also at a price of $1,000 per acre, the experts for the claimant fell back upon three other transactions to justify the fixation of a value of $3,000 per acre. As might be supposed, each one of these transactions has unusual features.

I have said that included in the parcel acquired by the claimant in August, 1943, of which parcels Nos. 1 and 2 are part, there was also the bed of what is now Oak Street. Sometime in 1943, evidently in the Fall of that year, the State of New York began a proceeding to condemn the land which is now Oak (Arthur) Street. A compromise was effected with the State under which the claimant received $9,475 as an award for damages to parcel No. 1 in suit. This item was included in a payment of $22,500, the difference representing the value of the property taken for the bed of the street. The claimant’s experts now say that this fixes a value of $2,500 per acre for the property. Indeed, the claimant goes even further. He' says that under the law, since the property was taken by the State of New York as part of a scheme to create national highways, the Government was bound to reimburse the State for what it expended. From this the claimant reasons that the Government is estopped to deny that the fair market value of that property was at least $2,500. I do not pass upon the question whether or not the Government is in fact bound to reimburse the State of New York in connection with this transaction. Whether it it or not, I cannot accept as a principle in the establishment of fair market value that much weight ought to be given to compromise agreements of this character. There is no showing whatever that the Government participated in that compromise agreement, and if there were I would still reject it as a guide to value, because it is impossible to tell what led to the making of the compromise. Certainly a value of $2,500 per acre is far out of line with the transactions (participated in by the claimant) which preceded that compromise and which followed it.

The claimant also relies heavily upon a sale of some 15% acres of land in Hemp-stead which I shall call the “Powell Farm transaction.” The tract involved lies between Jerusalem Avenue and Nassau Road. It is a considerable distance away from the premises in suit. When I took a view of the property I paid particular attention to this tract. The price secured in the July, 1944, transaction was at- the rate of $3,000 per acre. The tract is in no way comparable to the premises in suit. It is situated at the intersection of Jerusalem Avenue and Greenwich Avenue, both of which are important highways. It is surrounded by houses of a very modern and pleasant appearance, and it is close to all of the facilities, such as high schools and stores. Its frontage on the two main highways to which I have referred is considerable in extent. It is perfectly possible to see why a builder and developer would pay $3,000 an acre for such a tract. It is impossible to see why he would pay that price or anything like that price for the tract involved in this suit.

The third transaction upon which claimant relies is a sale to Hofstra College of a parcel called “Marvin Gardens.” This transaction took place- on February 1, 1937. It involved approximately 10 acres, and the price per acre was $4,700. The tract which was the subject of purchase has a frontage on California Avenue, and one of its boundaries is also the southerly boundary line of the Hofstra College site. Again, this tract is a considerable distance from the premises in suit.

One of claimant’s experts, who emphasizes this transaction, was nevertheless impelled to say in discussing the sale that the Hofstra College tract “compares favorably with subject property.” The fact is that the tract is so situated that if it were to expand the College simply had to buy it. Indeed, in a proceeding to condemn in this Court (United States v. Certain Lands, 43 F.Supp. 418) that very expert testified in substance, that the Hof-stra College purchase was made under compulsion, his conclusion being that the College had to pay more than the seller paid for it. He seems to quote with approval a statement of the attorney for the college that in order to expand they had no other way to go than to the south, and that the college authorities thought they had paid an excessive price for the property.

This transaction seems to me to illustrate why a special or unique value to the owner of the property has been rejected as a criterion of fair market value. United States v. Miller, supra.

If these three transactions be ignored, and what might be called the ordinary sales and offers of property in the area analyzed, it is quite clear that the Government’s appraisal of $1,325 per acre for the property is more than generous. Claimant in his brief says that the Government’s expert put a value of $900 per acre on parcel No. 1 and $1,800 per acre on parcel No. 2. Claimant then demonstrates that if these values be applied to the acreage in each parcel separately, then the total amount of the award ought to exceed $35,500, which is the total supplied by the Government’s experts. However, the valuation of $1,325 is an average value, and under the circumstances in the case it seems fair to me to average the value because the Government is taking both parcels as part of one proceeding. The fact that Oak (Arthur) Street separates the parcels does not seem important to me. It is quite obvious that the disparity in the valuation per acre of the two parcels was prompted by the fact that parcel No. 1 is immediately adjacent to Mitch el Field and parcel No. 2 is not.

Conclusion.

. . [9] I conclude that on March 27, 1944 (and also on July 24, 1944) the fair market value of the property, which is the subject of this proceeding, was as follows:

Land, at an average price per acre of $1,325 .............. $35,000

Salvage value of improvements 500

Total ....................$35,500.

Submit decree.

       One of the experts for the claimant lists this August, 1944, transaction as a sale to Pietros, the claimant. How he got this information does not appear. Clairn-ant’s attorney stated at the trial that the sale was to one Gilbert King, who is not otherwise identified.


author: DE VANE, District Judge.

text:
    UNITED STATES v. 240 ACRES OF LAND, MORE OR LESS, IN DADE COUNTY, FLA.
    Civil Action Case No. 721-M.
    District Court, S. D. Florida, Miami Division.
    Oct. 26, 1945.
    William D. Jones, Sp. Asst, to Atty. Gen., for plaintiff.
    Paul H. Brinson, of Coral Gables, Fla., for claimant E. B. Carpenter.
    Lilburn R. Railey, of Miami, Fla., for claimant Bellefonte Trust Co., executor of estate of A. R. McNitt.
   DE VANE, District Judge.

The United States condemned a tract of land in Dade County, Florida, which included 115 acres for which $4,150 was awarded. This sum has been deposited by Petitioner in the Registry of the Court and the question before the Court is who is entitled to this money.

At the time of taking, the record title to the land was in Louise Zinkhan, subject to a $15,000 mortgage, given by her to Andrew R. McNitt. Louise Zinkhan filed a disclaimer of any interest in the land or the proceeds, asserting that she merely held title to the land as Trustee for E. B. Carpenter and Andrew R. McNitt. The Belle-fonte Trust Company, as Exqcutors of the Estate of Andrew R. McNitt, filed claim to all the money by virtue of the mortgage held by McNitt on the property. E. B. Carpenter filed a claim to the money as surviving partner of a joint co-partnership venture entered into by him and McNitt, acknowledging in his Petition that McNitt or his Executor or heirs are legally entitled to one-half the proceeds now in the Registry of the Court, less certain expenses he claims to have advanced on account of this joint venture.

When the case was first before the Court on a motion of the executor to strike the claim or answer filed herein by Carpenter, on the ground that it sought to set up the existence of a contemporaneous, collateral verbal agreement, which varied and contradicted the terms of a written instrument, under seal (the mortgage), the Court granted the motion to strike that part of the petition or answer of Carpenter, that set up such contemporaneous, collateral verbal agreement. The issue raised by the Motion involved purely a question of State law. The Supreme Court of Florida had, just a few days before, decided Jackson v. Parker, 153 Fla. 622, 15 So.2d 451, but this decision had not, on said date, been published and was not, therefore, before the Court.

When the decision came down Carpenter filed a motion for rehearing, which the Court granted and on rehearing held that the decision of the Supreme Court in Jackson v. Parker had modified the rule in Florida as to the admissibility of parol testimony to prove the existence of a contemporaneous, collateral verbal agreement to vary the terms of a written instrument, under seal. The Court then set aside its order striking petition or answer of Carpenter, and on final hearing permitted proof to be submitted in conformity with the holding of the Supreme Court of Florida in Jackson v. Parker.

The facts disclose that the transaction between Carpenter and McNitt was an old Florida Land Boom transaction. Carpenter had bought a 120 acre tract of land in 1925, of which the 115 acres here involved was a part, taking title to the same in the name of Louise Zinkhan, who was associated with him at the time and who later became his wife. In 1927, through the efforts of Mrs. Helen Ghorley, a real estate broker of Miami, Carpenter and McNitt reached an agreement for the joint ownership on an equal participation basis of the 120 acre tract and its development and sale. The land was to be developed and sold as poultry farms. McNitt placed in escrow $20,000 cash, to be expended in accordance with instructions given the escrow agent by McNitt.

Plans called for the organization of a Florida corporation, through which the land would be developed and sold. Such a corporation was organized and took title to five acres of the land. The stock of the corporation was divided equally between McNitt and his representative and Carpenter and his representative; McNitt and Carpenter each taking 49 shares; and Louise Zinkhan and O. J. McNitt (brother of Andrew R. McNitt) took one share each.

Judge Price of Miami was the escrow agent to whom the $20,000 was paid and he was directed by McNitt to pay off all in-cumbrances on the 120 acres of land; to organize the corporation; to place title to five acres of the land in the corporation; to take a $15,000 mortgage from Louise Zinkhan on the remaining 115 acres; to pay all fees and expenses in perfecting the arrangements; and to pay any balance to the corporation. It was estimated at the time that the underlying mortgages, plus fees and expenses, would amount to approximately $15,000, leaving approximately $5,000 as working cash capital for the corporation. However, when the plan was finally consummated the mortgages were all discharged for $11,291.40 and part of the balance was used to pay fees and expenses and to reimburse Carpenter and Louise Zinkhan for advances they had made. The net balance of $6,829.01 was deposited to the account of the corporation. Neither Carpenter nor Louise Zinkhan received any part of the $20,000.

After the preliminaries were completed Carpenter married Louise Zinkhan and O. J. McNitt married Helen Ghorley. The Florida Land Boom was over at the time, although no one owning real estate in Florida would admit it, and the venture turned out to be disastrous to all parties concerned. The 1928 hurricane partially destroyed the poultry plant, built on the five acre tract, and soon thereafter a Glades fire completely wiped out what was left. In 1929 McNitt disappeared and has never been seen nor heard from since.

The Beliefonte Trust Company was appointed executor of his estate in Pennsylvania, under a Statute of that State authorizing such appointment on presumption of death after absence for a definite number of years. Carpenter testified that after the disappearance of McNitt and before the appointment of the executor he worked out an arrangement with the heirs of McNitt by which he saved the property from tax sales, and under the agreement with them he was to salvage what he could out of the property and divide the net proceeds equally between himself and McNitt or his heirs or legal representative, in case McNitt never showed up again.

Counsel for the executor objected to much of the testimony introduced in the case which was offered to establish the existence of a co-partnership venture between Carpenter and McNitt, on the ground that McNitt being dead, neither Carpenter nor Louise Zinkhan could testify to the transactions. Counsel for the executor relies upon Section 90.05, Florida Statutes, 1941, F.S.A. and numerous Florida cases decided thereunder. He rests his case chiefly on Jackson v. Parker, supra. In that case the Supreme Court said [153 Fla. 612, 15 So.2d 456]:

“The testimony of the Jacksons above referred to was properly objected to in the beginning by the plaintiffs so the chancellor’s ruling was correct. The testimony of Mr. and Mrs. Jackson as to the understanding between them and the Monroes with reference to the amount of the purchase price and how it was to be paid and the other terms and conditions of the purchase and sale which the Monroes offered and which they agreed to accept, cannot be considered, no matter how true.”

The Supreme Court then went on to say:

“Fortunately for Mr. and Mrs. Jackson, they were able to adequately prove by disinterested and unimpeached witnesses the terms on which they had purchased the property from Mr. and, Mrs. Monroe. We refer to the testimony of Mr. and Mrs. Michels as to the statements made to them by the Monroes right after the Monroes had sold to the Jacksons, as to the terms of such sale, which conversation took place in the presence of the Jacksons, and which showed that they offered to sell another place to the Michels at exactly the same price and on the same terms. We also refer to the testimony of Mrs. Hooper to whom a similar proposition was made while the, Monroes were still visiting' in Ocala, though this witness did not name the purchase price mentioned.”

While this Court overruled objections to the admissibility of the testimony of Carpenter and Louise Zinkhan and their testimony will be found in the record (the Court is still of the opinion their testimony is admissible), the Court decides this case upon the testimony of other witnesses and such of Carpenter’s and Louise Zinkhan’s testimony as is not subject to the objection, as to the existence of the contemporaneous, collateral verbal agreement between Carpenter and McNitt. The testimony of Judge Price and Mrs. Ghorley (now Mrs. O. J. McNitt) is sufficient to establish the existence of the agreement. And upon their testimony and other admissible testimony offered by Carpenter, the Court holds that there was a • contemporaneous, collateral verbal agreement between Carpenter and McNitt for a fifty-fifty partnership venture in the development of the 120 acre tract and that the $15,000 mortgage was without consideration. The sole purpose of the mortgage was to protect McNitt against the other parties disposing of the property without his consent. See Taylor v. Hodges, 65 Fla. 502, 62 So. 588.

In the briefs filed with the Court in this case, counsel for both parties ably discuss many other intricate legal questions bearing upon the rights-of each, but the Court does not consider it necessary in the final disposition of this case to deal 'with any of them except the one set’ out below, in this Memorandum Opinion.' It would make the 'Opinion unnecessarily long and bring about no different results.

Carpenter contends that as surviving partner of the joint venture with Mc-Nitt he is entitled to receive all the proceeds from the condemnation of these lands to reimburse himself for expenditures made and to divide the net proceeds between himself and the executor or heirs of McNitt. This is the general law applicable to co-partnerships on the death of one partner. However, the Court has before it the responsibility of ordering the distribution of the funds in the Registry of the Court and the Court is not willing to turn all the money over to Carpenter ’and let him and the heirs and executor of McNitt fight about how it should be divided. The parties, therefore, are directed to get together and agree upon a ' division of the money in the Registry of the Court, ,or upon failure to agree to set the matter down before the Court for determination by it.


author: SWEENEY, Judge.

text:
    BOWLES v. SNEIDER et al. and six other cases.
    Nos. 3884, 3885, 3888, 3938, 3970, 4173, 4080.
    District Court, D. Massachusetts.
    Oct. 10, 1945.

      James J. Brennan, Chief of Massachusetts Enforcement Operations, Samuel Winetsky and Benjamin Kaplan, Enforcement Attorneys, O.P.A., all of Boston, Mass., for plaintiff.
    David Lasker, of Boston, Mass., for defendants Sneider and others.
    Widett & Kruger and Philip D. Keller, both of Boston, Mass., for defendant Brockelman Bros.
    George L. O’Hara, of Boston, Mass., for ■defendants Arns and others.
    Widett & Kruger and Harold Widett, both of Boston, Mass., for defendant Cohen.
    David Lasker, of Boston, Mass., for defendant Shapiro.
    Widett & Kruger and Samuel Goldman, .all of Boston, Mass., for defendants Growers Outlet, Inc., and Stadium Packing Co.
   SWEENEY, Judge.

In each of these seven cases — five of which were tried together and the other two submitted on stipulations — -the Office of Price Administration is seeking an injunction to compel the defendant to comply with Maximum Price Regulation No. 574 as amended, and to prevent the defendant from paying for live cattle any amount higher than the amount permitted by the said Regulation. The cases are sufficiently similar so they will all be disposed of in this one opinion. Although they were originally heard by the Court on the question of a temporary injunction, by stipulation of the parties in open court the evidence submitted on the question of a preliminary injunction will be treated as the basis for the issuance or denial of a permanent injunction.

Findings of Fact

Each defendant is a slaughterer of cattle operating in the Boston area. His principal source of supply of the live cattle is Chicago and other stockyards farther west. It has been the practice of the defendants to order livestock through a commission man, who is located either at Chicago or at some other stockyard. Some of the defendants, however, have purchased their cattle locally at the Brighton Stockyard and, in a few instances, from individual farmers. Whether or not the purchases were made locally or in the West, the defendants at all times, through their commission men, tried to buy cattle as cheaply as possible and at a price which would permit them to stay within the maximum prices allowed by the Regulation. After the cattle had been purchased in Chicago or at any other stockyard, they were then shipped to the defendants’ abattoirs where the animals were killed and dressed. While en route the cattle were fed a limited diet of hay and water and, as a result of this and other factors, their weight shrank and the grade of beef attained may have suffered therefrom. After a carcass had been chilled, a Government inspector then graded the meat.

Without going into the details of the regulations involved, it is sufficient to say that the end sought to be achieved by the Regulation was to get a minimum graded percentage yield out of each carcass dressed by the defendants. It was on the basis of the percentage yield of a particular grade of beef that the permissible price which could be paid for the live animal was established. If, for instance, a slaughterer was able to get the percentage yield of Grade A beef, which was 58%, then the price which he had paid for the live animal complied with the Regulation; if, however, his yield in that same grade was less than 58%, then it automatically followed that the price he had paid' for his cattle, even though it was below the ceiling price in the West, was higher than the permissible price established by the Regulation.

Each month each slaughterer filed a form, DS-T-55, showing actual cost of his cattle, percentage of yield for the various grades, and the permissible price as worked out under the formula set up in the form itself. The following table will show, as to each defendant, the permissible prices, the actual payments, and the approximate percentage of overpayments as drawn from the Forms DS-T-55:

Highest permissible price Actual price paid Percentage of overpayment ARNS February $ 10,459.29 $ 10,821.20 3%% March 13,133.47 14,623.19 11% April 8,471.45 9,284.36 9% SNEIDER April 39,319.45 43,592.05 11% COHEN May 55,547.72 55,936.19 .07% April 62,073.47 63,403.80 2% BROCKELMAN May 35,842.36 36,843.79 2.8% SHAPIRO April 101,181.26 107,781.00 6.5% January 123,305.25 130,870.00 6.1% GROWERS OUTLET, INC. April 3,827.45 4,099.12 .07% May 7,116.29 7,335.82 .03% STADIUM PACKING CO. March 39,352.75 40,293.31 2%% April 38,128.78 38,451.04 .08% May 33,167.69 34,398.97 4% July 27,226.93 27,933.90 2.5%

Since the only evidence offered against these defendants covered the months above enumerated, I am assuming, for the purpose of disposing of the plaintiff’s prayers, that in all of the other months, at least up to the time the cases were heard, these defendants had been in compliance with the regulations. The figures shown above are drawn from the defendants’ own records and there is no contention that the figures are not accurate. In fact, the defendants admitted in open court that the overpayments shown above had been made. The defendants likewise do not attempt to question the validity of the regulations.

The defendants contend that the over-payments were not willful attempts to evade the regulations. They point out that the overpayments were relatively small and that they were a direct result of an unnatural wartime- condition. For example, they say that in normal times the shrinkage of cattle can reasonably be estimated where the scheduled running time of the railroad carrying the cattle is adhered to -closely; but that, due to the war burdens imposed upon the railroads, it was impossible to es-tímate the amount of delay beyond the regular schedule in any given case. They further urge that, not only did extra shrinkage result from the delay in transit, but that the cattle were bruised to a greater extent than in normal times, and that excess bruising brought about excess loss of weight because the bruise had to be cut out before the meat was salable. They also contend that the months in question, which generally cover the spring period, were not fair tests of the methods by which they did business because it was in this season that the cows were heavy with calves.

However, the Government insists that it is possible for these defendants to ascertain weekly, or at least bi-weekly, whether or not there is danger of their being out of ■compliance during that monthly period, and that if these defendants had taken the trouble to ascertain at least a week ahead ■of the termination of the period for which they were reporting that they were close to the line, they might then have arranged their purchases for the rest of the period so as to bring them in compliance for the entire period.

It has been brought to my attention by the defendants that several courts have refused to grant the type of injunction that is sought here on the basis that it had not been shown that the defendants were not making an earnest effort to comply. Those cases seem to turn upon the question of the good faith of the slaughterers. See Bowles, Adm’r, v. Glauser, D.C.E.D.Mo., 61 F. Supp. 428; and Bowles v. Bonne Terre Farming & Cattle Co., D.C.E.D.Mo. and Bowles, Adm’r, v. Rice et al.,1 from the Eastern District of Kentucky.

With due respect to the writers of the opinions in the above cases, I cannot agree that the sole test of whether the injunction should issue is the question of good faith on the part of these defendants. The statute which authorized the promulgation of the regulations in question was a wartime emergency statute, designed not only to assist in the direct prosecution of the war, but also prescribing a course of conduct for slaughterers which was best calculated to provide for the even distribution of the necessities of life to the civilian population. The course of conduct prescribed was one to be followed not only by the individual slaughterer, but by his competitors as well. To excuse deviations from this prescribed method of doing business can only operate to produce a chaotic condition in the purchase, sale, and distribution of meats. The injunction sought is not leveled at the collection of damages or the collection of any penalty, directly or indirectly; the injunction sought merely would compel a careless slaughterer to adhere to the prescribed method of conducting his business. The percentages of overpayment in these cases range from less than 1% to more than 11%. I am of the opinion that these defendants could have so conducted their businesses as to maintain strict compliance with the regulations. While such compliance might have to be attained by a more rigorous attention to their purchases, and might even be a source of expense to these defendants, nevertheless the over all picture of the end sought to be attained by the statute and the regulations, and the absolute necessity for strict compliance with the regulations, call for the issuance of injunctions in these cases.

'Conclusions of Law

I find and rule that these defendants have not been in compliance with Maximum Price Regulation No. 574 as amended, and that they have been paying for live cattle an amount higher than the amount fixed by said Regulation for such cattle during the accounting periods. The plaintiff is entitled to a permanent injunction against these defendants to insure full compliance with Maximum Price Regulation No. 574 as amended.

The decrees may be submitted in accordance with the above.

       No opinion for publication.


text:
    THE C. W. CRANE. C. W. CRANE CO., Inc., v. EVANS TRANSP. CORPORATION et al. UNITED STATES COMMERCIAL CO. v. C. W. CRANE CO., Inc., et al.
    Nos. 16954, 17213.
    District Court, E. D. New York.
    Oct. 3, 1945.

      Foley & Martin, of New York City, for Seaboard Great Lakes Corporation, for the motion.
    Purdy & Lamb, of New York City, for M. J. Rudolph Co., lire., opposed.
   KENNEDY, District Judge.

Respondent Seaboard Great Lakes Corporation moves for leave to file an amended petition against the impleaded respondent M. J. Rudolph Co., Inc. The case it- • self has been tried, and a decision and findings of fact have been filed. However, no decree has been entered, or at least the decree that was entered has been vacated on consent.

The decision in .the case turned on liability for damage received by C. W. Crane while she was lying alongside S. S. Har-palycus at Pier 33, Brooklyn. She had been placed there by American Eagle, a tugboat operated by the moving respondent.

I found that C. W. Crane was seaworthy when she was placed alongside Harpalycus, that the cause of the disaster was the fact that on .the evening of September 28, 1943, she began to grind against the side of Har-palycus, and that during the following day, although the immediate sub-charterer (Seaboard Great Lakes Corporation) was notified of this condition, it made no effort to do anything about it until it was too late, and when it did start to get C. W. Crane away from her berth American Eagle went about the task in an unseamanlike way.

The theory of this motion is that the im-pleaded respondent Rudolph bears some responsibility for the damage to C. W. Crane, since .that respondent had during the morning of September 29, 1943, shifted the scow at her berth. Obviously, the moving respondent has adopted the theory that if the berth was unsafe and this fact was-known to Rudolph, then that respondent may be held accountable for its failure to do anything.

However, I did not hold actually that the berth at Pier 33 at Brooklyn was unsafe. I said quite plainly that the grinding of C. W. Crane against Harpalycus was, caused not so much by wind and weather conditions as by traffic in Buttermilk Channel. And it seems to me that Rudolph, the stevedore, could not be held accountable in the absence of a showing of negligence. In other words, the primary duty of taking care of the scow was upon the sub-charterer Seaboard Great Lakes-Corporation. It was unnecessary for the libelants to demonstrate negligence on the part of Seaboard Great Lakes Corporation to entitle them to a decree. So far as Rudolph is concerned I think the situation is different. I do not think that in a case of this kind they could be held at fault because of mere inaction. I should think a stevedore would have the right to suppose that the charterer who has the vessel in its possession will do all that is necessary to carry out its duty. For this reason, even if the petition impleading Rudolph had specifically alleged fault on the part of that corporation because of its failure to take C. W. Crane away from its berth at Pier 33, I should have reached the same result that I did.

I am confronted with a rather difficult problem. Ordinarily, I would grant the motion to amend without any hesitation on the theory that in admiralty the privilege of amendment ought to be favored. However, if I grant the motion, and take no further proof in the matter (as-the moving respondent suggests), then Rudolph (which never had any notice that. any fault on its part in the respect suggested would be urged against it) might, in the event of a modification of the decree in the Circuit Court of Appeals, find itself held at fault without any chance really to meet the issue.

For this reason I deny the motion. I am, however, suggesting as plainly as I can ■that even had the impleading petition set forth the specific claim now urged I would have reached the same result.

Settle order on notice.

       Hereinafter referred to as ‘'Rudolph.’


author: JOYCE, District Judge.

text:
    INTERSTATE COMMERCE COMMISSION v. MOLAND BROS. TRUCKING CO.
    Civil Action No. 395.
    District, D. Minnesota, Fifth Division.
    June 22, 1945.
    Wm. P. Murphy, Asst. U. S. Atty., of St. Paul, Minn., George H. English and Gregory U. Harmon, both of Washington, D. C., and Herman L. Bode, of Minneapolis, Minn., for plaintiff.
    Amasa Wheeler and Herbert M. Burns, both of Duluth, Minn., and Claude J. Jasper, of Madison, Wis., for defendant.
   JOYCE, District Judge.

An injunction is sought here by the Interstate Commerce Commission to prevent Moland Bros. Trucking Company, hereinafter referred to as “Moland,” from rendering motor carrier service between the Twin Cities and certain points in Wisconsin on U. S. Highways 8 and 63 unless and until a certificate of public convenience and necessity is issued authorizing such operations. Moland contends it already has authority for these operations. The facts are stipulated and the determination depends solely upon the construction of certain orders of the Commission.

Prior to December 8, 1941, the Flambeau Freight Lines, a partnership, hereinafter referred to as “Flambeau,” held a certificate of public convenience and necessity for motor carrier operations between the Twin Cities and Duluth, Minnesota, via Chippewa Falls, Abbotsford and Ashland, Wisconsin, with a connecting service to Bayfield and Ladysmith, Wisconsin. Upon the map these routes appear roughly as three sides of a rectangle. On December 31, 1942, Flambeau in a proper proceeding was issued a certificate of public convenience and necessity authorizing “closed door” operations between Ashland, Wisconsin, and the Twin Cities over U. S. Highways 63, 8 and 61; and between Lady-smith, Wisconsin, and Turtle Lake, Wisconsin, over U. S. Highway 8. The order of the Commission specified that the above operations were “for operating convenience only” and “service is not authorized to or from intermediate points.” The report of the Commission (James W. Saunders and James R. Welty — Alternate Routes, No. MC-46415 (Sub No. 2) decided December 5, 1942, clearly indicates the reasons for granting these alternate routes to Flambeau:

“It will be noted, therefore, that savings in mileage of from 85 to 108 miles may be realized, if the instant application is granted, in connection with the movement of traffic between the Twin Cities, on the one hand, and Ashland, Bayfield, and Lady-smith, on the other. Service will be maintained as usual on the presently authorized routes, but the proposed short-cut routes would be used in connection with the movement of truckload shipments from and to the Twin Cities.
“It is readily apparent that substantial savings in time and operating costs would be realized by the use of the short-cut routes discussed. Applicant now enjoys a substantial amount of business between the Twin Cities and such points as Ashland, Bayfield, and Ladysmith, and much of this traffic could well be routed over the proposed alternate routes (1) and (2). No new points are proposed to be served, and the sole purpose of the instant application is to effect operating economies and, incidentally, to render a more expeditious service. Applicants’ operating revenues have materially decreased due to the curtailment of production of many articles formerly handled in the territory, and a corresponding reduction of operating costs is said to be imperative in order to keep the business going.
* * * * *
“The granting of the instant application, insofar as routes (1) and (2) are concerned, will not affect the interests of any protesting carrier. It will merely permit applicants to realize certain operating economies by reason of the resultant saving in gasoline, rubber, and wear and tear on equipment. Under the circumstances, we are of the opinion that the application should be granted in that respect, especially in view of the present necessity for conserving existing motor carrier equipment.”

In 1941 Moland operated an authorized motor carrier service between Duluth, Minnesota and Chippewa Falls, Wisconsin, and other points not material here. It did not serve the Twin Cities. In 1942 it commenced proceedings to purchase the Flam-beau lines, which was approved by the Commission September 7, 1943 (Clarence Moland, et al — Purchase—No. MC-F-1813), Moland thereby acquiring all the rights which Flambeau had and concerning which the Commission’s report stated:

“Which rights are herein authorized to be unified with rights otherwise conferred in vendee, with duplications eliminated;”

It is the different interpretations of this language that has given rise to this lawsuit.

The Flambeau alternate routes between Ashland and the Twin Cities and between Ladysmith and Turtle Lake traversed parts of U. S. Highways 63 and 8 which Moland previously had the right to use and serve. It is Moland’s contention that its acquisition of Flambeau’s rights “with duplications eliminated” gives it the right to disregard the closed door restriction imposed upon Flambeau over those portions where the routes were “duplicated.” The effect of this construction is that Moland is now accepting freight at the Twin Cities and transporting it to Cumberland, Barron, Minong and Rice Lake, Wisconsin, directly over U. S. Highways 8 and 63. It is conceded that such shipments could be accepted and moved over U. S. Highways 12 and 53 via Eau Claire and Chippewa Falls, but the question is whether Moland can use Highways 8 and 63 for this purpose without further authority from the Commission.

The language of the Commission’s report granting these alternate routes to Flambeau and which is quoted above is very clear. It was for operating convenience only and no new service was contemplated or authorized but on the other hand was expressly forbidden. It would obviously be a great saving on through shipments to the Twin Cities from Ash-land or Ladysmith to use the direct routes over 63 and 8 rather than the circuitous routes through Abbotsford, and Chippewa Falls. Before the consolidation Flambeau trucks traveling these routes could not interchange with Moland trucks which served some of the intermediate points. I cannot see how the purchase of Flambeau by Moland could enlarge any rights that either might have or create any new rights which were not previously authorized. It is a well recognized principle of law that a vendee can acquire no more rights than his vendor possessed. The answer to Mo-land’s contention is simply illustrated by considering that direct service from the Twin Cities to the points in question over Highways 8 and 63 was impossible before the consolidation under the authority granted to Flambeau and Moland combined. It therefore does not exist now after the consolidation.

Moland’s error lies in considering that where Flambeau’s alternate routes and the same highways that Moland previously had the right to use and serve coincided, there was a “duplication.” That is inaccurate. One carrier had the right to serve the territory along the highway — the other only the right to use it as a part of a through haul. Such rights are not “duplications” and so were not “eliminated” by the Commission’s order.

It is true that the Commission itself seemed confused in what authority it had granted to Flambeau. In its report on the purchase (Clarence Moland — Purchase — J. W. Saunders and J. R. Welty, No. MC-F-1813) in stating the facts, it was said:

“Vendees’ present operations duplicate those of vendor’s except between Prentice and Cameron; St. Paul and Turtle Creek (sic) ; a point just north of Trego and intersection of U. S. Highways 63 and 2, over U. S. Highway 63; and between Eau Claire and the Twin Cities and nearby points.”

The inference is left that other points not mentioned are duplications, which would support Moland’s contention. But I do not believe that the above language constitutes an overruling or an enlargement of the specific order granting the alternate route to Flambeau (MC-46415 (Sub No. 2). I doubt that this question was even considered in the purchase proceeding. In the first place there is no “Turtle Creek,” Wisconsin, and if Turtle Lake were meant the statement is irreconcilable because neither carrier had authority to serve that point. The principal bone of contention in the purchase proceeding was the fact that the unification would give Moland a direct route from the Twin Cities to .Milwaukee and Chicago which it did not previously have, in competition with other carriers who protested. Other than the language quoted, there is nothing to support the contention that, the Commission considered Moland’s routes and Flam-beau’s alternate routes as duplications. It is merely a part of the statement of facts, even as such is inaccurate, and to my mind is of no controlling importance.

Moland finds some comfort in the case of Wilson Stor. & Transfer Co. — Purchase— Flamming Motor Express, 35 M. C. C. 231, where it was held that the vendee by purchase acquired the right to interchange at Mankato, Minnesota, through which it previously had only closed door rights, where the vendor had the right to serve Mankato as the terminus of another route. This principle was overruled or at least rejected in the later case of Day’s Transfer, Inc.— Purchase — Hauer, 39 M.C.C. 339, where the Commission said:

“The basis for the principle in the more recent cases is that the point of physical connection of the routes of vendee and vendor, in this case Ypsilanti, must be a point authorized to be served by both carriers before through service such as that found permissible in the Wilson case would be lawful. Such service would be entirely different from that which vendee and vendor may now lawfully afford in combination.”

I think this view to be correct and controlling here.

One more point requires clarification, that is, the status of Turtle Lake, which is the junction point of U. S. Highways 8 and 63. Moland has no right to serve this point; that is, it cannot initiate, deliver or interchange with other carriers there. However, the rights given to Flambeau specify Turtle Lake as the terminus of the alternate route from Lady-smith and I see no restriction or reason why Moland should be prevented from interchanging with its own trucks at Turtle Lake freight destined to or coming from the Twin Cities. That is, freight destined to the Twin Cities from Ladysmith could be carried to Turtle Lake on one truck and transferred there to another Moland truck bound from Ashland to the Twin Cities via Highways 63 and 8 without further authority from the Commission. The decree will be conditioned accordingly.

An injunction in accordance with the views herein expressed will be entered. Findings of Fact, Conclusions of Law and Order for Judgment will be filed in accordance with the foregoing, which counsel for plaintiff may submit. Defendant is accorded an exception.


text:
    WALLING, Adm’r Wage and Hour Division, U. S. Dept. of Labor, v. PUBLIC QUICK FREEZING & COLD STORAGE CO.
    Civil Action No. 708-J.
    District Court, S. D. Florida, Jacksonville Division.
    Oct. 24, 1945.
    William S. Tyson, Acting Sol., Office of Solicitor, Department of Labor, of Washington, D. C., Jeter S. Ray, Asst. Sol., of Nashville, Tenn., George A. Downing, Regional Atty., of Atlanta, Ga., and James H. Shelton, Sr. Atty., Department of Labor, of Washington, D. C., for plaintiff,
    Austin Miller and Charles Cook Howell, both of Jacksonville, Fla., for defendant.
   DE VANE, District Judge.

This is a suit brought by the Administrator of the Wage and Hour Division of the United States Department of Labor, against the Public Quick Freezing and Cold Storage Company, a corporation, to enjoin the defendant from violating Section 15(a) (1) ; Section 15 (a) (2) and Section 15 (a) (5) of the Fair Labor Standards Act of 1938, 29 U.S.C.A. § 215 (a) (1, 2, 5).

Defendant operates, at Jacksonville, Florida, a cold storage warehouse plant. It owns none of the merchandize that passes through its plant. Its facilities are utilized by others who, themselves, are engaged in the shipping of goods in Interstate Commerce. From the testimony in the case it appears that the facilities of defendant are used exclusively by concerns engaged in buying and selling the merchandize which passes through defendant’s cold storage warehouse.

Defendant’s activities in connection with the merchandize stored is confined to storing, cooling, freezing, and such necessary-handling of the merchandize as is required for bringing it into the warehouse; processing and caring for it while stored; and removing it from storage when orders are given for its transfer from defendant’s warehouse to other points.

The facts in the case, generally, are not in dispute and the only question presented is whether or not defendant’s employees are exempt under Section 13(a) (2) of the Act, 29 U.S.C.A. § 213(a) (2). This Section states that the wage and hour provisions of the Act shall not apply with respect to “any employee engaged in any retail or service establishment the greater part of whose selling or servicing is in intrastate commerce.”

The evidence shows that about 63% of the commodities handled by the defendant was fish and Section 13(a) (5) exempts, from the Wage and Hour provisions of the Act, all employees employed in the processing, freezing and storing of fish. As to the remaining 37% of the commodities handled by the defendant a large part of these move intrastate. Defendant makes no effort to keep records of the interstate and intrastate business passing through its warehouse, nor does it assign its employees to different classes of work. Each employee apparently handles all classes of commodities passing through the cold storage plant. Witnesses for the defendant estimate that approximately 7% of all the work performed by defendant’s employees was devoted to the handling of interstate shipments and this is not disputed by the Administrator.

On the record made in this case the only question presented is whether the defendant operates a “service establishment.” If it does operate a service establishment, Section 13(a) (2) exempts its employees from the Wage and Hour provisions of the Act and the Administrator is not entitled to the injunctive relief sought in the case.

The definition of the word “service” found in any unabridged dictionary is of no assistance whatever in determining its meaning, as used in the Act. It is not a simple word with a simple meaning, leaving no room for construction, but it is a word with a multiplicity of meanings. It is necessary, therefore, to determine what Congress meant by the words, “service establishment,” in the light of the context in which they are used. This first necessitates an examination of the Legislative history of the exemption to ascertain if it throws-any light on the intent and meaning of Congress in the use of these words.

In recent decision of Phillips Co., Inc., v. Walling, 324 U.S. 491, 65 S.Ct. 807, 810, the Supreme Court pointed out the “sparce” Legislative history of Section 13(a) (2) and said:

“Congress was interested in exempting those regularly engaged in local retailing activities and those employed by small local retail establishments, epitomized by the-corner grocery, the drug store and the department store. It felt that retail concerns-of this nature do not sufficiently influence the stream of interstate commerce to warrant imposing the wage and hour requirements on them.”

When the word “service” is substituted for the word “retail” in this quotation it would seem to exclude a “service establishment” of the character involved in this-case. Moreover the Supreme Court, in. this case, held that provisions of the Fair Labor Standards Act granting exemptions-from the operation of the Act are to be narrowly construed.

In Guess v. Montague, 140 F.2d 500, the Circuit Court of Appeals for the Fourth Circuit, in an able opinion written by Circuit Judge Parker, in which other leading cases are cited, considered at length, the meaning of the words, “service establishment”, as used in the Act and held in that case that a machine shop of the sort operated by the defendant was not a service establishment within the meaning of the exemption contained in Section 13(a) (2) of the Act.

It is the opinion of this Court that the reasoning of Circuit Judge Parker in Guess v. Montague, supra, is sound and the Court follows it in this case. The Court is further of the opinion that the decision of the Supreme Court in Phillips Co., Inc, v. Walling, supra, fully supports and warrants the holding that the business of the defendant in this case cannot be brought within the exemption. The Court holds that the Administrator is entitled to the relief sought by his complaint filed in this, case.

Attorneys for plaintiff will prepare and' submit to the Court proposed Findings of Fact and Conclusions of Law in conformity with this Memorandum Opinion, and submit copies thereof to the attorneys for the defendant who may submit objections to any of said proposed Findings of Fact and Conclusions of Law and may also submit any additional Findings of Fact and Conclusions of Law, which they desire the Court to make in this case.


text:
    HACKNEY v. FAHS, Collector of Internal Revenue.
    Civ. No. 768-J.
    District Court, S. D. Florida, Jacksonville Division.
    Oct. 24, 1945.
    Cushman S. Radebaugh, of Orlando, Fla., for plaintiff.
    Samuel O. Clark, Jr., Asst. Atty. Gen., Andrew D. Sharpe and Paul S. McMahon, Sp. Assts. to Atty. Gen., Herbert S. Phillips, U. S. Atty., of Tampa, Fla., and Arthur A. Simpson, Asst. U. S. Atty., of Jacksonville, Fla., for defendant.
   DE VANE, District Judge.

This is an action brought by the executor of the estate of Leonard J. Hackney, to recover estate taxes in the sum of $10,140.01, with interest, paid by the executor to the Collector of Internal Revenue, as a result of an additional assessment of federal estate taxes. After the payment of the taxes a claim for refund was filed and rejected, whereupon this suit was instituted.

Leonard J. Hackney died testate, a resident of Winter Park, Florida, on the 2d day of October, 1938, at the age of 83 years. He was survived by his wife, Ida L. Hackney, and two sons, Roscoe J. Hackney of Memphis, Tennessee, and Robert B. Hackney, of Plant City, Florida.

On or about December 21, 1937, Leonard J. Hackney transferred certain property as gifts to his wife and two sons. The transfers were, therefore, made approximately ten months before decedent’s death.

The executor, filing the federal estate tax return, did not include these gifts as part of the taxable estate of the decedent, but the Commissioner of Internal Revenue, upon subsequent audit of the return, did include the gifts and assessed the tax thereon.

The gifts to the various donees were valued as follows by the Commissioner of Internal Revenue in his audit and additional assessment:

(a) Income-producing stocks and bonds to Ida L. Hackney, wife of the decedent, valued at $38,811.13.

(b) Lot adjoining the decedent’s home, to Roscoe J. Hackney, valued at $7,500.

(c) Trust for Robert B. Hackney, income-producing property in Winter Park, Florida, of the value of $15,000, and a home in Plant City, Florida, occupied by Robert B. Hackney, of the value of $3,500.

On or before March IS, 1938, Leonard J. Hackney filed with the Collector of Internal Revenue, at Jacksonville, Florida, a gift tax return, listing the above gifts, and after claiming the appropriate gift tax exemptions, paid the tax shown due on said return.

The sole issue involved in this case is whether or not the above-recited gifts were transfers made in contemplation of death within the meaning of Section 302(c) of the Revenue Act of 1926, as amended by the Revenue Act of 1932, § 803(a), 26 U. S.C.AJnt.Rev.Acts, page 228.

The controlling statute, Chapter 209, § 803, 47 Stat. 169, provides that any transfer of a material part of a decedent’s property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to the death of said decedent, without consideration, shall, unless shown to. the contrary, be deemed to have been made in contemplation of death, within the meaning of the statute and subject to estate taxes. Therefore, the question before the Court narrows to the issue whether plaintiff has overcome the presumption created by the statute.

The decedent was a lawyer; had at one time been a member of the Supreme Court of Indiana, and later was General Counsel for the Big Four Railroad, with headquarters at Cincinnati, Ohio. At the time the gifts here in controversy were made he was in retirement, living in Winter Park, Florida, where he continued to live until his death.

With this distinguished background it may be assumed that the decedent had some knowledge of estate tax laws and at his age would not attempt to make gifts to members of his family which he knew were in violation of such laws. The only cogent reason assigned for making the gifts in question, other than the one to his son, Roscoe, was to cut down income taxes. This cogent reason has been recognized and approved by the Board of Tax Appeals in several cases; the latest called to the Court’s attention being White, Executor, v. Commissioner, 21 B.T.A. 500. The reason assigned for the gift to Roscoe was to induce him to build a home on the property, and move to Florida, which he did not do.

Frankness prompts this Court to state that it has endeavored to sustain these gifts on these grounds, but the record will not sustain that finding.

Decedent had always provided for his wife and until the gift of stocks was made to her she had no individual income. The ■trust created for the son, Robert, was for his maintenance and support. Moreover, the transfer for the benefit of son, Robert, was a conditional trust and not an outright and unconditional gift. The property conveyed to son, Roscoe, though outright and unconditional, was not income-producing property and did not operate to reduce income taxes.

The question whether or not gifts were made in contemplation of death depends upon the particular facts and circumstances in each case, and the age of the decedent is not in and of itself sufficient to foreclose the parties from overcoming the presumption created by the statute. The saving of income taxes, on the gifts made to the wife and son, Robert, standing alone in this case is not sufficient to overcome the statutory presumption. The reason assigned for the gift to the son, Roscoe, is less cogent. These reasons had existed for several years and the record fails to show any change in 1937 justifying the gifts. It should be noted that all of the transfers were made on the same day, and it had not been the practice of the decedent to make gifts to members of his family-

The Court holds that the proof in this case fails to overcome the statutory presumption and for that reason the suit to recover the additional levy of estate taxes must fail.

Counsel for the Government will prepare proposed Findings of Fact and Conclusions of Law in conformity with this Memorandum Opinion and submit copies thereof to counsel for plaintiff, who may file objections thereto with the Court and they may submit additional proposed Findings of Fact and Conclusions of Law, which they desire the Court to make in this case.