author: ORINDA D. EVANS, District Judge.

text:
    UNITED STATES of America v. Earl RICHARDS.
    Crim. No. CR 84-239.
    United States District Court, N.D. Georgia, Atlanta Division.
    Dec. 10, 1984.
    Richard W. Hendrix, Asst. U.S. Atty., Atlanta, Ga., for plaintiff.
    Farish Carter Tate, Atlanta, Ga., for defendant.
   ORDER

ORINDA D. EVANS, District Judge.

The above criminal case is again before the court for further consideration of the proper amount of restitution to be awarded to a criminal victim pursuant to 18 U.S.C. § 3579.

Defendant pled guilty to two counts of a four-count indictment on August 13, 1984. Count One alleges that Defendant, a bank officer, made a false entry in the bank’s records when he forged a renewal promissory note in the name of Linda Dubose in the amount of $37,038.50, in violation of 18 U.S.C. § 1005. Count Four alleges that Defendant misapplied $34,940.22, in violation of 18 U.S.C. § 656. The Count Four transaction is unrelated to the Count One transaction.

A sentencing hearing was held on September 18, 1984. No contention was made that the bank lost money as a result of the Count Four transaction. However, the Count One offense did cause some loss to the bank. The amount of the loss was unclear, however. The court tentatively set the amount of restitution at $10,000, but agreed to reconsider if the bank requested same within thirty days. The bank did so request.

At a hearing held on November 16, 1984, the bank’s counsel appeared. At the request of the Assistant United States Attorney, he presented the bank’s claim that $54,000 is the proper amount of restitution. Defendant, through his attorney, presented his view that no restitution, or some nominal amount of restitution is appropriate.

Having heard from both sides, it is apparent to the court that the salient facts are not in dispute. The dispute centers around the proper measurement of the bank’s loss.

The undisputed facts are these: originally the bank through Defendant made a loan to one Linda Dubose in the approximate sum of $37,000. The loan was secured by a second mortgage on a residence (the “Dubose property”). A first mortgage secured a note to another lender of about $15,000. The property had a value of $21,000.

At the time the loan was originally made, Ms. Dubose was employed by Southern Bell. No evidence has been presented showing that the loan was made other than in the ordinary course of business. It does appear, however, that the Defendant exercised poor judgment. There was only $7,000 equity in the Dubose property to collateralize the bank’s loan. Repayment of the balance, or about $30,000, was strictly subject to Ms. Dubose’s willingness and ability to repay.

At some point after the loan was made, Ms. Dubose stopped making payments. Defendant decided to forge Ms. Dubose’s signature on a renewal note. This placed the loan in a technically current status in the bank’s records. This forgery and related record keeping entries constitute the Count One offense to which Defendant pled guilty.

Ms. Dubose has declared bankruptcy. It is relatively clear (though not totally clear) that whatever funds the bank may now realize will be through liquidation of the collateral. The problem, however, is that the bank’s secured position is being challenged. Evidently, the bank’s second mortgage on the Dubose property was not properly recorded so as to protect it against third party claims.

The bank is entitled to restitution from the Defendant for whatever loss the Count One offense caused the bank. The impact of the forged renewal note, in the court’s opinion, was that the bank did not have an opportunity to act in a prompt and timely manner to cut its losses. Had the bank known that Ms. Dubose was behind in payments on her loan, it could have taken steps to keep the first mortgage current, to perfect its secured position, and to begin its own foreclosure proceeding. The bank could then have proceeded to attempt to resell the property at a favorable price. It seems likely that had the bank had time to seek an orderly resale, it could have realized $7,000. This sum, plus the time value of the funds unnecessarily expended by the bank to pay off the first mortgage, plus associated fees and expenses constitute a proper amount of restitution. Having fully considered the facts presented to it, the court is convinced that $10,000 restitution is fair to both the Defendant and the bank. Accordingly, the court does AFFIRM that portion of its order of September 18, 1984 finding that the Defendant must make restitution in the sum of $10,000.

      . Thereafter, Defendant did other acts to cover up the delinquent status of the loan. He forged another renewal note. When the holder of the first mortgage on the Dubose property began advertising for sale under power, Defendant caused the bank to pay $15,000 to the first mortgagee to purchase or pay off the first mortgage. This $15,000 payoff and accrued interest increased the bank’s aggregate "exposure’’ on the loan to about $54,000, less any value attributable to the security.

      . At a point in time later than the Count One offense, the Defendant unbeknownst to the bank made payments on the loan in the borrower’s name. These payments aggregate approximately $6,000. Because the court does not consider that these payments were directly related to mitigation of the Count One losses, it does not subtract them in computing the proper amount of restitution.


source: Caselaw Access Project

author: STERN, District Judge.

license: Public Domain

text:
    Re: STARLINE OPTICAL CORP. and Designs by El Pablo, Inc. v. Francis E. CALDWELL.
    Civ. A. No. 84-2657.
    United States District Court, D. New Jersey.
    Dec. 10, 1984.
    As Amended Dec. 17, 1984.

      Edward G. Sponzilli, Cummins, Dunn & Pashman, Hackensack, N.J., Howard I. Schuldenfrei, New York City, for plaintiffs.
    Francis E. Caldwell, pro se.
   OPINION

STERN, District Judge.

Gentlemen:

This action is before this Court pursuant to 28 U.S.C. § 1338, patent jurisdiction; plaintiffs requested a declaratory judgment under 28 U.S.C. § 2201. Defendant has moved for dismissal of the complaint alleging lack of jurisdiction over his person, F.R.Civ.P. 12(b)(2). In reaching its decision, this Court has reviewed all submissions by the parties pursuant to F.R.Civ.P. 78 and, for the reasons discussed below, finds it lacks in personam jurisdiction over defendant and therefore orders the matter transferred pursuant to 28 U.S.C. § 1631.

FACTS

Co-plaintiff, Starline Optical Corp. of Fairfield, New Jersey, a New Jersey corporation, received a letter from Hubbard, Thurman, Turner & Tucker, attorneys-at-law of Dallas, Texas, dated May 15, 1984, enclosing a copy of United States Design Patent 262,759 issued to defendant Francis E. Caldwell, et al., on January 26, 1982. The letter asserted that eyeglass frame display racks used by plaintiff “are within the scope of the subject patent. As you are undoubtedly aware, any party who, without authority, makes, uses or sells a patented invention, infringes the patent. ... This letter is to notify you of our client’s demand that you immediately cease and desist from any further infringement of the patent.” The letter made no reference to bringing suit in New Jersey or elsewhere. After one subsequent telephone conversation between counsel, one letter from plaintiff, and defendant’s reply dated June 7, 1984, plaintiff, joined by the manufacturer, Designs by El Pablo, Inc., of Dallas, a Texas corporation, filed the present complaint on July 3, 1984, seeking declaratory judgment of patent invalidity or noninfringement. No tort claim was asserted by plaintiffs. On August 29, 1984, defendant moved to dismiss for lack of in personam jurisdiction, stating that he is a citizen of Texas with his residence in Plano, Texas. He denies doing business currently in New Jersey, and disclaims any contacts with New Jersey other than the communications cited above. He argues that such contacts are insufficient to provide a basis for exercising in personam jurisdiction over him. He claims that plaintiffs have failed to allege any acts of his which would confer jurisdiction over him, under New Jersey Rule 4:4-4 (The State “long-arm” statute), and argues that exercise of jurisdiction over him would be a denial of fair play and substantial justice. He denies consenting to jurisdiction.

DISCUSSION

Rule 4(e) of the Federal Rules of Civil Procedure permits service upon non-residents of the state in which the district court is located in the manner prescribed by the “statute or rule of the court” of the forum state. Thus we turn to the New Jersey “long-arm” statute, N.J.Ct.R. 4:4-4(c), for guidance. The courts of New Jersey have construed this rule to permit jurisdiction “to the outer limits permitted by the due process clause of the United States Constitution.” Beckwith v. Bethlehem Steel Corp., 182 N.J.Super. 376, 440 A.2d 1372, 1376 (Law Div.1981), cert. granted on unrelated motion, 89 N.J. 425, 446 A.2d 152, order on unrelated motion reversed, sub nom. Beshada v. Johns-Manville, 90 N.J. 191, 447 A.2d 539 (1982), citing Avdel Corp. v. Mecure, 58 N.J. 264, 277 A.2d 207 (1971).

If the defendant is not present within the territory of the forum state when served, he must have certain minimum contacts with it, such that maintenance of the suit in the jurisdiction does not offend “traditional notions of fair play and justice,” International Shoe Co. v. Washington, 326 U.S. 310, 66 S.Ct. 154, 90 L.Ed. 95 (1945). A defendant who is “doing business” in the state satisfies this test and may be subject to full or “general” in personam jurisdiction. However a more lenient standard defines minimum contacts for “specific” in personam jurisdiction based on contacts related to the particular cause of action, see, McGee v. International Life Ins. Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957). “Thus, it would appear that defendants’ contacts with the forum state must relate not only to their quantity and quality but also to the cause of action for which they are being ‘haled into court.’ ” Beckwith, 440 A.2d at 1377, quoting World-Wide Volkswagen Corp. v. Woodson, 444 U.S. 286, 297, 100 S.Ct. 559, 567, 62 L.Ed.2d 490 (1980).

The most lenient standard is applied to a tort cause of action. “Jurisdiction in tort cases may be premised upon a single contact with the forum if the contact results in injury to one of its residents. New Jersey has a strong interest in providing access to its courts for citizens who have sustained injury due to the actions of an out of state defendant.” Beckwith, 440 A.2d at 1376. However, there are limits to the amenability of defendant to jurisdiction based upon a single contact, even in tort claims. See World-Wide Volkswagen, 444 U.S. at 297, 100 S.Ct. at 567 (asking whether “the defendant’s conduct and connection with the forum state are such that he should reasonably anticipate being haled into court there”); see also DeJames v. Magnificence Carriers, Inc., 654 F.2d 280, 286 (3d Cir.), cert. denied, 454 U.S. 1085, 102 S.Ct. 642, 70 L.Ed.2d 620 (1981).

A moderately lenient test is applied to jurisdiction in claims founded upon contracts between plaintiffs in the forum state and defendants outside the forum. A New Jersey court noted that the policy considerations favoring tort jurisdiction are absent and looked for “more substantial contacts” in contract cases, such as “physical or economic entry into our State.” Beckwith, 440 A.2d at 1376.

In a recent contract case, the Third Circuit pointed out that the United States Supreme Court marked out the limits of leniency in cases founded upon a single business contact in McGee v. International Life Ins. Co., 355 U.S. 220, 78 S.Ct. 199, 2 L.Ed.2d 223 (1957). “In McGee the Court applied its most relaxed standard of contacts — one which it has steadfastly declined to extend.” Dollar Savings Bank v. First Security Bank of Utah, 746 F.2d 208, 212 (3d Cir.1984). A Californian in McGee had purchased life insurance in response to a mail solicitation from an out-of-state company. A strong state interest was evidenced by a “state statute which subjects foreign corporations to suit in California on insurance contracts.” McGee, 335 U.S. at 221, 78 S.Ct. at 200.

Generally, for a finding of “specific” in personam jurisdiction — where the cause of action is based on the transaction(s) providing the predicate for jurisdiction — the court must examine the “relationship among the defendant, the forum, and the litigation.” Shaffer v. Heitner, 433 U.S. 186, 204, 97 S.Ct. 2569, 2579, 53 L.Ed.2d 683 (1977); Helicopteros Nacionales de Colombia, S.A. v. Hall, — U.S. —, 104 S.Ct. 1868, 1872 n. 8, 80 L.Ed.2d 404 and text accompanying (1984). Thus, in a contract action brought in New Jersey against an Oklahoma corporation, this Court looked at not only the contacts between the defendant and the forum state, but at “contacts between the transaction at issue and the forum state.” Western Union Telegraph Co. v. T.S.I., Ltd., 545 F.Supp. 329, 334 n. 7 and text accompanying (D.N.J.1982) (defendant had made two visits for substantial negotiations leading to contracts and made numerous telephone and mail contacts with plaintiff in New Jersey respecting those contracts, hence jurisdiction was reasonable and fair). This examination was necessary because the minimum contacts standard must not only protect the defendant against inconvenient litigation, but must also ensure that states “do not reach out beyond the limits imposed on them by their status as coequal sovereigns in the federal system.” World-Wide Volkswagen at 292. Baxter v. Mouzavires, 434 A.2d 988, 997 (D.C.Ct.App.), cert. denied, 455 U.S. 1006, 102 S.Ct. 1643, 71 L.Ed.2d 875 (1982). Defendant must have “purposefully avail[ed] itself of the privilege of conducting activities within the forum state, thus invoking the benefits and protection of its laws.” Hanson v. Denckla, 357 U.S. 235, 252, 78 S.Ct. 1228, 1239, 2 L.Ed.2d 1283 (1958); see also, World-Wide Volkswagen, 444 U.S. at 297-98, 100 S.Ct. at 567.

Thus the rule in a case where, as here, the gravamen is neither a tort, an insurance policy, nor any contract at all, must necessarily be stricter than as for those special circumstances; it must look to the whole transaction. The “transaction” at issue here is essentially the granting, in Washington, D.C., in 1982, to a Texan, the defendant, of a patent which plaintiff now alleges is invalid. The “contacts between the transaction at issue and the forum state,” Western Union at 334 n. 7, are nearly non-existent, the more so if, as plaintiff alleges, the racks used in New Jersey are not infringing the patent. See Hanson 357 U.S. at 252, 78 S.Ct. at 1239.

The interest of the State of New Jersey in providing a resident corporation a home-state forum is correspondingly weaker when neither tort, insurance, nor contract is at issue. Plaintiff does allege adverse economic effects. However, even where a contract relationship does exist, and may have “significant effects,” see, e.g., Avdel v. Mecure, 58 N.J. 264, 272, 277 A.2d 207, 211 (1971), the state interest in protecting an in-state merchant, bank, or manufacturer and hence, presumably, the state economy, has failed to provide a rationale for finding jurisdiction over an out-of-state defendant. Recently, for example, the Third Circuit held that a creditor plaintiff’s “assertion [of] economic impact in the state is of little weight____ [I]f incidental economic detriment as such furnishes a contact for jurisdictional purposes, then every monetary claim would per se furnish the predicate for personal jurisdiction over a nonresident debtor.” Dollar Savings at 213. This holding is not unprecedented. See Empire Abrasive Equipment Corp. v. H.H. Watson, Inc., 567 F.2d 554 (3d Cir. 1977) (district court in Pennsylvania lacked jurisdiction over Rhode Island bank despite Pennsylvania’s interest in manufacture and sale of goods, where bank’s contacts were insufficient). The Third Circuit stated, “It should be noted that in this commercial transaction, we are not concerned with the ‘effects* doctrine’ as applied to a tort claim,” citing Keeton v. Hustler Magazine, — U.S. —, 104 S.Ct. 1473, 79 L.Ed.2d 790 (1984); and Colder v. Jones, — U.S. —, 104 S.Ct. 1482, 79 L.Ed.2d 804 (1984). Dollar Savings at 213. Thus, any allegation of general economic effect is insufficient in this case to sustain personal jurisdiction.

Plaintiffs further urge that by mailing a letter from Texas notifying the New Jersey user-distributor of its alleged infringement, defendant “knowingly chose New Jersey as the forum of the controversy.” However, no such conclusion can or should be made. Plaintiffs’ contention is speculative because defendant had neither filed suit nor even threatened litigation against the New Jersey corporation — in New Jersey or elsewhere. Defendant had not retained New Jersey counsel. Defendant may have equally well been ^presumed to be contemplating filing suit in Texas against co-plaintiff in the present action, a fellow Texas resident, the manufacturer, after obtaining additional information from the New Jersey user-distributor. Therefore, plaintiff has not demonstrated that defendant “purposefully avails [himjself of the privilege of conducting activities within the forum state, thus invoking the benefits and protection of its laws,” Hanson, 357 U.S. at 252, 78 S.Ct. at 1239, or reasonably anticipates being “haled” into court there. World-Wide, 444 U.S. at 297, 100 S.Ct. at 567; Shaffer, 433 U.S. at 216, 97 S.Ct. at 2586. Moreover, were the dispatch of notice-of-infringement letters to operate as a waiver of objection to in personam jurisdiction, the result would be a chilling effect on assertion of legal rights by holders of copyrights, patents, and trademarks. While plaintiffs here assert that defendant’s letters threaten suit, one may also regard such letters as attempting to produce out-of-court solutions. The interests of the parties and public policy favoring resolution of difficulties underlay this Court’s refusal in a recent case to consider certain contacts as “relevant” for determining jurisdiction. Western Union at 335 n. 8 (“The Court declines to consider the two visits by [defendant]^ officers ... to resolve the problems arising from the contracts as relevant to determining [defendant’s contacts with New Jersey with respect to the contracts at issue here.”).

A solitary case is cited by plaintiffs to directly support their proposition that defendant patentee’s letters, sent from Texas to a New Jersey user, and expecting reply, function, without other contacts, to trigger in personam jurisdiction in New Jersey. Chromium Industries, Inc. v. Mirror Polishing & Plating Co., Inc., 193 U.S.P.Q. 158 (N.D.Ill.1976), involved a ten-month period from the initial letter, after which a letter sent by the Connecticut patentee’s Illinois counsel to the sole plaintiff, an Illinois corporation, stated that plaintiff’s failure to cease infringement was “deemed a sufficient ground to proceed with appropriate coercive litigation without further notice.” Id., at 159. Even assuming, arguendo, that the situations are not distinguishable, this Court declines to adopt the Illinois district court’s conclusion.

In sum, on the facts of the present case, defendant has made none of the contacts usually required as the minimum sufficient to support “general” jurisdiction over the person, and examining contacts alleged to relate to the transaction, we find insufficient contacts “among the defendant, the forum, and the litigation” to exercise “specific” in personam jurisdiction. Helicopteros 104 S.Ct. at 1872-74; see also Reliance Steel Products v. Watson, Ess, Marshall and Enggas, 675 F.2d 587 (3d Cir.1982) (one telephone consultation and one letter did not constitute cognizable activity within forum state).

CONCLUSION

Having carefully considered all submissions in this matter, we find in personam jurisdiction over the defendant lacking in this district. The Court hereby orders this matter transferred to the United States District Court for the Northern District, Dallas Division, of Texas, pursuant to 28 U.S.C. § 1631.


author: CACHERIS, District Judge.

text:
    INTERNATIONAL ARMAMENT CORPORATION, Plaintiff, v. UNITED STATES of America, Defendant.
    Civ. A. No. 84-0291-A.
    United States District Court, E.D. Virginia, Alexandria Division.
    Dec. 10, 1984.
    Michael K. Madden, Shaw, Pittman, Potts & Trowbridge, Washington, D.C., James R. Treese, Alexandria, Va., for plaintiff.
    Stuart M. Fischbein, Trial Atty., Tax Div., U.S. Dept, of Justice, Washington, D.C., Paula M. Potoczak, Asst. U.S. Atty., Alexandria, Va., for defendant.
   MEMORANDUM OPINION

CACHERIS, District Judge.

This case presents the issue of whether International Armament Corporation (“Interarms”) is a “manufacturer” for purposes of the ten percent federal excise tax imposed on the sale by the “manufacturer, producer, or importer of ... [pjistols [or] [revolvers” pursuant to section 4181 of the Internal Revenue Code (I.R.C. § 4181 (1980)). Interarms brings this tax refund action to recover $3,429.10 in excise taxes paid for the quarter ending June 30, 1980. The Government has filed a counterclaim for the unpaid balance of the assessed interest on the excise tax for the second quarter of 1980 and the unpaid excise taxes and interest assessed for the quarters ending September 30, 1980, through September 30, 1982, totalling $518,860.28. For reasons set forth below, judgment is entered in favor of the plaintiff Interarms in the amount of $3,429.10 and accordingly, the Government’s counterclaim is hereby dismissed.

I

Findings of Fact

Plaintiff Interarms is a Delaware corporation having its principal place of business in Alexandria, Virginia. Interarms is an importer and distributor of police and sporting firearms. Most of their weapons for distribution are imported from Europe.

Interarms has imported and distributed in the United States a number of products of the West German company Carl Walther Waffenfabrik Gmbh & Co. (“Walther”). Walther has granted Interarms the exclusive right to sell Walther products in the United States. In addition, Walther has assigned to Interarms the trademarks registered in the United States Patent Office covering the “Walther” name and logo. Specifically, Interarms has imported and distributed in the United States the Walther PPK/S model pistol.

In the 1970s, because of the disproportionate valuation of the German mark, Interarms and Walther decided it was more economical to have certain Walther pistols manufactured in the United States. Accordingly, on August 22, 1977, Walther and Interarms entered into a license contract, whereby Interarms was granted the right to manufacture, sell and distribute in North America Walther pistols, models PP, PPK and PPK/S. Under the terms of the contract between Walther and Interarms, Interarms has the authority to contract with another firm to manufacture the pistols.

On November 20, 1978, Interarms entered into a contract with the Etowah Manufacturing Company (“Etowah”), whereby Etowah agreed to manufacture and sell, and Interarms agreed to buy, over a five and one-half year period, 250,000 Walther PPK/S semiautomatic pistols (the “Agreement”). The Agreement provided for the manufacture of the following calibers: .380 ACP, .32 ACP, and .22 LR (long rifle). The only weapon that was actually manufactured was a .380 caliber. Etowah later became known as Mid-South Industries, Inc. (“MSI”), an Alabama corporation formed in 1964.

MSI assigned its obligations under the Agreement to Ranger Manufacturing Company (“Ranger”), a wholly-owned subsidiary of MSI. MSI and its subsidiaries employ approximately 1,200 persons and have manufacturing facilities in Gadsden, Alabama, Manchester, Kentucky and Taipei, Taiwan. In 1983, MSI and its subsidiaries had gross revenues exceeding $49 million. Interarms or its affiliates have no ownership interest in MSI, Ranger or other subsidiaries controlled by MSI. MSI is basically a holding company.

Interarms furnished Ranger with the Walther design specifications for the pistols. On that basis, Ranger had to design and develop a process to manufacture the pistols. Neither Walther nor Interarms furnished them with any advice or information on how to undertake this task.

The testimony of Ranger officials indicated that Ranger incurred a pre-production investment of $6 million for design and development costs, land, buildings, manufacturing, and one-half of the special tooling required. Pursuant to Paragraph 6 of the Agreement, Interarms paid $340,000 and retained title to the special tooling and dies designed by Ranger for the production of the pistols. The testimony and record clearly reflect that the total risk of investment falls on Ranger.

Pursuant to the Agreement, Ranger is required to obtain product liability insurance with Interarms named as a beneficiary under the coverage. Interarms has not reimbursed Ranger for the insurance premiums. Ranger is responsible for the workmanship and defects associated with the pistols.

Paragraph 4(a) of the Agreement provides for a specific pricing schedule. Because Ranger’s production costs were significantly greater than originally anticipated by the parties, the schedule has never been followed. As such, the parties periodically set a negotiated fixed price for the pistols. Ranger furnishes its data to Interarms and then the price at which it sells the pistols to Interarms is negotiated at an arm’s length bargaining transaction. Interarms does not guarantee Ranger a profit. Indeed, because of the risks since 1980, when the manufacturing commenced, Ranger has lost money until 1984 when it showed a marginal profit.

Ranger has paid and is continuing to pay the excise tax based on sales to Interarms. In fact, Ranger applied for a refund and was denied.

Prior to entering into the contract with Interarms, Ranger incurred approximately $150,000 in preliminary engineering and design expenses. Because the Walther design specifications antedated World War II, Ranger had to develop a modern manufacturing process without the assistance of Walther or Interarms.

Ranger selects the raw materials to be used in the manufacturing process and any warranty repairs are the responsibility of Ranger. Similarly, Ranger retains title to the pistols until they are delivered to Interarms.

Once delivered, Interarms receives the shipment of the pistols and occasionally makes a spot check to determine quality. Interarms has no responsibility for the maintaining or repairing of equipment used to produce the pistols. Ranger bears this cost by itself.

Neither the Walther PPK/S model pistol nor any of its parts is covered by a patent. As such, a French concern, Manufacture de Machines du Haut-Rhin (“Manhurin”), has recently started distribution in the United States of the PPK/S model pistol under the Manhurin name and logo. But for the licensing agreement with Interarms, Ranger could have produced a PPK/S model pistol on its own.

In this regard, Interarms has paid under protest the alleged excise tax deficiency for the quarter ending June 30, 1980, which amounted to $3,429.10. Interarms’ claim for a refund was subsequently denied by the IRS by letter dated December 6, 1983. No part of the requested refund has been paid to Interarms.

Accordingly, the Government seeks to recover the sum of $518,860.28 in tax assessments and interest assessed against Interarms for the quarters ending June 30, 1980, through September 30, 1982.

II

Conclusions of Law

A.

Section 4181 of the Internal Revenue Code imposes a ten percent tax “upon the sale by the manufacturer, producer, or importer of ... [pjistols.” I.R.C. § 4181 (1980). Specifically, section 48.0-2(a)(4) of the Treasury Regulations defines “manufacturer” as follows:

(i) The term “manufacturer” includes any person who produces a taxable article from scrap, salvage, or junk material, or from new or raw material, by processing, manipulating, or changing the form of an article or by combining or assembling two or more articles____
(ii) Under certain circumstances, as where a person manufactures or produces a taxable article for another person who furnishes materials under an agreement whereby the person who furnished the materials retains title thereto and to the finished article, the person for whom the taxable article is manufactured or produced, and not the person who actually manufactures or produces it, will be considered the manufacturer.

Treas.Reg. § 48.0-2(a)(4)(i)-(ii) (1978). In this case, the court is called upon to decide, for purposes of the imposition of the ten percent excise tax, whether Interarms is the “manufacturer” of the Walther PPK/S model pistol produced by Ranger and sold to Interarms.

The Government concedes that Treas. Reg. § 48.0-2(a)(4)(i) “[ajdmittedly ... does not apply.” Brief in Support of Government’s Response to Plaintiffs Motion for Summary Judgment, at 2. However, the parties part company on the applicability of subparagraph (ii) of the Regulation. The Government would have this court read subparagraph (ii) as merely “an example” of a situation where the person for whom the taxable article is manufactured — not the actual manufacturer or producer — is considered the manufacturer for excise tax purposes. Interarms counters with the argument that the express language of the Treasury Regulation is clear, as such, and under the standards articulated, it is not the “manufacturer” of the pistols.

To adopt the Government’s position that the situation under subparagraph (ii) is “an example,” however, is to ignore the plain language of the regulation. See United States v. Leslie Salt Co., 350 U.S. 383, 395-397, 76 S.Ct. 416, 423-424, 100 L.Ed. 441 (1956) (Court must deal with regulation as it finds it.); Collums v. United States, 480 F.Supp. 864, 869 (D.Wy.1979) (“An unambiguous [U.S. Treasury] regulation must be given effect according to its plain and obvious meaning.”); United States v. Western Pacific Railroad Co., 385 F.2d 161, 163 (10th Cir.1967); see, e.g., Air Lift Co., Inc. v. United States, 286 F.Supp. 249, 253 (W.D.Mich.1968), aff'd, 418 F.2d 558 (6th Cir.1969) (“While it is impossible for Congress to include all conceivable situations within the language of a statute, it is clear from the language of the statute and from the regulations of the Treasury Department that no special meaning is intended by the term ‘manufacturer.’ ”). This court will not ignore the plain language of the regulation and engage in judicial legislating. Id. at 254.

Moreover, all U.S. Treasury interpretations may be set aside if in the interpretation “the Secretary has exceeded his statutory authority or if the [interpretation] is ‘arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.’ ” Batterton v. Francis, 432 U.S. 416, 426, 97 S.Ct. 2399, 2406, 53 L.Ed.2d 448 (1977) (citation omitted), quoted in Utility Workers Union of America AFL-CIO v. Consumers Power Co., 637 F.2d 1082, 1089 (6th Cir.) (quoted as shown), vacated on other grounds, 451 U.S. 1014, 101 S.Ct. 3000, 69 L.Ed.2d 385 (1981). Indeed, the court must reject an administrative interpretation “when there are compelling indications that it is wrong.” Collums, 480 F.Supp. at 869; Espinoza v. Farah Manufacturing Co., Inc., 414 U.S. 86, 94, 94 S.Ct. 334, 339, 38 L.Ed.2d 287 (1973).

Under Treas.Reg. § 48.0-2(a)(4)(ii) two tests emerge for designation of a “manufacturer,” namely, (1) “a person manufactures or produces a taxable article for another person who furnishes materials under an agreement” and (2) “the person who furnished the materials retains title thereto and to the finished article.” (emphasis added). Contrary to the urgings of the Government, Interarms does not provide “materials,” as that word would reasonably be interpreted under this regulation. As set forth above, Ranger purchases all “materials” used in the production of the pistols. Admittedly, Interarms has provided the Walther drawings and specifications to Ranger. However, all production materials and components are purchased independently by Ranger. Finally, on the issue of title, Interarms merely retains title to the special tools and dies. Beyond this, Interarms does not attain title in the production materials used in the pistols until the finished product is purchased from Ranger at an arm’s length transaction.

Under these facts and the plain meaning of the regulation, there are compelling indications that the Government’s interpretation is in error. Accordingly, this court finds Treas.Reg. § 48.0-2(a)(4)(ii) to be inapplicable to the factual circumstances of this case, as such, Interarms is not a “manufacturer” under the purview of I.R.C. § 4181.

B.

Even if this court was inclined to find that Treas.Reg. § 48.0-2(a)(4)(ii) merely sets forth “an example” of the indicia of a “manufacturer,” the narrow line of decisional authority on the issue supports Interarms' position that it is not the “manufacturer” of the Walther PPK/S model pistol. With respect to Interarms’ position, several cases have recognized that a dealer of a product may be regarded as a “manufacturer” for purposes of the excise tax, even though the actual manufacturing operations involved in the production were performed by another company under a contractual arrangement. Polaroid Corp. v. United States, 235 F.2d 276 (1st Cir.), cert. denied, 352 U.S. 953, 77 S.Ct. 325, 1 L.Ed.2d 244 (1956); Charles Peckat Manufacturing Co. v. Jarecki, 196 F.2d 849 (7th Cir.), cert. denied, 344 U.S. 875, 73 S.Ct. 169, 97 L.Ed. 678 (1952). However, the case at bar is distinguishable from the decisions in Polaroid and Peckat.

At the outset, it is of critical importance to the resolution of this case to understand the import of the Courts of Appeals decisions in Polaroid and Peckat. Here, Interarms and the Government urge this court to accept Polaroid and Peckat as persuasive authority for their respective positions.

Initially, the court rejects Interarms’ argument that under these cases the dealer must hold a patent on the product in order to be considered the “manufacturer.” As the First Circuit acknowledged in Polaroid, “ ‘there is bound to be a difficult border line as to when ... one is a manufacturer or only a buyer.’ ” Polaroid Corp. v. United States, 138 F.Supp. 735, 738 (D.Mass.1956), quoted in Polaroid Corp., 235 F.2d at 278. Indeed, the “manufacturer” test involves a “balance” of factors. Id.; Air Lift Co., Inc., 286 F.Supp. at 254 (“[I] cannot read into the statute that patentees, per se, because of the exclusivity of the patent, are manufacturers, or that a licensee of a patentee is, per se, a manufacturer.”). The net result is for this court to balance the factors, namely, the Agreement and the realities of the transaction between Interarms and Ranger.

In Peckat, the Court of Appeals for the Seventh Circuit held that the holder of a patent for an automobile sun visor, who contracted with another firm to fabricate the visor, was the “manufacturer” of the product. The respective positions of Charles Peckat Mfg. Co. and Interarms appear similar in some respects, to wit, (i) both retained ownership of specialized tools and dies; (ii) the product could not be sold to others without patent holder [Peckat] or licensor [Interarms] approval; and (iii) the contracts provide for the adjustment of the fabricator’s unit charge based on production costs. See 196 F.2d at 851-52.

In any event, the facts of the Peckat case are sufficiently distinguishable from the case at bar, and as such, favor Interarms in the balance of factors. The Peckat court relied on the following factors, all clearly absent in this case: (1) the contract did not mention a purchase or sale between the parties; (2) the patent holder bore the risk of production; and (3) the patent holder assumed the responsibility to purchase all raw materials if it should cancel any order. Id. To be sure, a significant fourth distinction was the “exclusive rights under the patent.” Id. at 852.

Taking up the patent issue first, as the record reflects, the Walther PPK/S model pistol is unpatented. In fact, Manhurin has recently begun to distribute in the United States a comparable PPK/S model pistol under its own name and logo. Although a persuasive factor in the Peckat court and this court’s determination, I am reluctant to accept, as one district court has, a “patent holder exception” to the manufacturer’s excise tax. Bivens [Bivins] v. United States, Fed.Ex.Tax Rep. (CCH) ¶ 16,337 at 84,432 (M.D.N.C. Mar. 14, 1980), aff'd, 660 F.2d 488 (4th Cir.1981) (Court summarizes Peckat and its progeny as standing for the proposition of a “patent holder exception” which would impose the tax on the patent holder rather than the fabricator.); cf. Rev. Rul. 84-116, 1984-31 I.R.B. 8 (In an analogous context, a gunsmith’s customer was considered the manufacturer of a rifle because the customer supplied the parts used by the gunsmith in the fabrication of the rifle.)

In this case, the record reveals that the Agreement between Ranger and Interarms specifically provides that “[Ranger] agrees to manufacture and sell, and Interarms agrees to buy” the pistols. The price of the pistols is negotiated periodically by an arm’s length transaction resulting in a bona fide sale between Ranger and Interarms. Equally important, as evidenced by the losses incurred by Ranger since 1980 and its marginal profit in 1984, Interarms does not bear the risk of loss associated with the production of the pistols. Finally, except for the force majeure clause in the Agreement, Interarms is not obligated to purchase any of the raw materials procured by Ranger.

And again, the Court of Appeals for the First Circuit relied upon similar factors in Polaroid. In Polaroid the issue involved whether the Polaroid Corp., a patent holder and dealer of the camera in question, or the Greist Mfg. Co., fabricator of the camera, was the “manufacturer” for purposes of the excise tax. See generally 235 F.2d 276. After acknowledging “[t]he case at bar may be close,” the court held that Polaroid Corp. was the “manufacturer” of the camera. Polaroid Corp., 138 F.Supp. at 738, quoted in Polaroid Corp., 235 F.2d at 278.

In particular, the court relied on the following factors in identifying the “manufacturer,” namely: (1) any profit or loss associated with manufacturing costs inured to the benefit of Polaroid Corp.; (2) Polaroid Corp. could terminate its agreement with Greist Mfg. Co. without cause and Greist could never make another camera; and (3) Polaroid Corp. retained the product patents, without which Greist Mfg. Co. could not operate. Id. 235 F.2d at 277-78.

In regard to the first factor, Ranger has assumed a significant financial risk in the manufacturing process. Only in accordance with Paragraph 5(b) of the Agreement do both parties share equally any cost of production decreases generated under the joint program of cost and product improvement. Indeed, Ranger is seemingly motivated to improve its production costs because of its initial investment of $6 million for design and development. Secondly, the Agreement between Interarms and Ranger can not be terminated without cause. The Agreement specifically provides grounds for default, with the concomitant rights to cure, or termination only through force majeure.

Finally, as the Court of Appeals noted “ ‘[t]he patents seem ... of particular significance.’ ” 138 F.Supp. at 737, quoted in 235 F.2d at 278. The court reasoned that under the Supreme Court’s Indian Motorcycle Co. “first sale” test, Greist Mfg. Co. “transferred to Polaroid only the bare right to possession of the physical materials.” 235 F.2d at 278. According to the court, because Polaroid Corp.’s patent controlled Greist Mfg. Co.’s right to use or resell the camera there was no “sale” to Polaroid Corp. In this action, the Government argues that there are similar restrictions on the use and sale of the pistols.

However, in the present case, the PPK/S pistol is not patented. Ranger could produce, as does Manhurin, a PPK/S model pistol under its own name. Indeed, under the Agreement, Ranger upon Interarm’s default, could sell the Walther PPK/S pistols, with Walther’s approval, to any third party without Interarms’ permission. As such, this court finds a “sale” which conveys more than a “bare right to possession.” Id. at 278. Accordingly, the court finds under the circumstances of this case, the evidence supports the balance in favor of a determination that Interarms is not the “manufacturer” of the Walther PPK/S pistols.

Ill

Conclusion

To be sure, if the Court of Appeals characterized the “manufacturer” determination in Polaroid as “close,” there are sufficient distinguishing factors in this action to warrant a finding that Interarms is not the “manufacturer” of the Walther PPK/S model pistol. 138 F.Supp. at 738, quoted in 235 F.2d at 278.

Indeed, the factors relied upon in Peckat and Polaroid, namely, patent rights, assumption of production risk, and an arm’s length transaction weigh in favor of this conclusion. Finally, as the dissent astutely observed in Polaroid,

[t]o impose the tax on Polaroid is to base the tax not on the manufacturer’s sale price in accordance with the statute but on the wholesaler’s sale price, which naturally is greater since it includes, presumably, in addition to the cost of the goods to the wholesaler (the price for which the manufacturer sold them) the wholesaler’s mark-up for handling costs, selling, overhead and profit.

235 F.2d at 279. Here, in attempting to impose the tax on Interarms’ wholesale price, the Government’s asserted position is not in accordance with the intent of section 4181 of the Internal Revenue Code. See generally Batterton, 432 U.S. at 427, 97 S.Ct. at 2406.

Based on the foregoing analysis, the court makes the following conclusions of law:

(1) this court, has jurisdiction over Interarms’ refund suit and the Government’s counterclaim pursuant to 28 U.S.C. § 1346(a)(1);

(2) Interarms is not the “manufacturer,” under section 4181 of the Internal Revenue Code, of the Walther PPK/S model pistols sold during the quarters ending June 30, 1980, through September 30, 1982;

(3) Interarms is entitled to recover the sum of $3,429.10 for the quarter ending June 30, 1980; and

(4) the Government’s counterclaim is DENIED.

An appropriate order shall issue.

      . The excise tax on firearms is intended to apply to the first sale by the manufacturer. Under the "first sale” rule laid out by the United States Supreme Court in Indian Motocycle Co. v. United States, 283 U.S. 570, 574, 51 S.Ct. 601, 602, 75 L.Ed. 1277 (1931), "[the excise tax] is not laid on all sales, but only on first or initial sales — those by the manufacturer, producer or importer.”

      . See generally Rev.Rul. 60-42, 1960-1 C.B. 474 (e.g., ownership of raw materials is a factor to be considered).

      . When asked to determine whether two companies were making an arm’s length transaction, the court in Campana Corp. v. Harrison, 114 F.2d 400, 408 (7th Cir. 1940), stated that ‘‘[a] sale at arm’s length connotes a sale between parties with adverse economic interests." In light of the documented losses incurred by Ranger since 1980 and its significant capital investment of $6 million, it follows that Ranger and Interarms have adverse economic interests in setting the intercompany sales price for the pistols.

      . Paragraph 12(a) of the Agreement provides for an excuse of performance as a result of an act of God or restrictions by the government, etc.

      . Admittedly, as was the case in Peckat, Polaroid Corp. similarly retained ownership of specialized tools and rights to Greist Mfg. Co.’s output. However, presumably, such would be the case in any patent licensor-licensee agreement. See generally 14 S. Williston & W. Jaeger, Williston on Contracts ¶ 1645A (3rd ed. 1972). Thus, this court does not consider such factors as dispositive of the "manufacturer” determination.

      . Although Interarms holds the rights in the United States to the Walther trademark and logo, the manufacturer's excise tax is not intended to tax the ownership of trademark rights. Williams v. Harrison, 110 F.2d 989, 994 (7th Cir.1940); Bivens [Bivins], Fed.Ex.Tax Rep. (CCH) ¶ 16,337 at 84,433. Contrary to its current position, the Government has previously concluded that the owner of a trademark on an unpatented product, where the trademark owner is not the product’s producer, is not a "manufacturer” under the purview of the excise tax. Rev.Rul. 58-114, 1958-1 C.B. 424.

      . Seemingly overlooked by the Government, section 48.0-2(a)(5) of the Treasury Regulations defines a “sale” as "[a]n agreement whereby the seller transfers the property (that is, the title ...) in goods to the buyer for a consideration ____” Thus, under this standard the transaction between Ranger and Interarms is clearly a “sale.”