author: WELSH, District Judge.

text:
    HAGEWOOD v. PEOPLE OF STATE OF CALIFORNIA et al.
    Civil Action No. 5251.
    District Court, N. D. California, N. D.
    Aug. 31, 1945.
    George Darris Hagewood, petitioner, in pro. per.
    Robert W. Kenny, Atty. Gen. of California, and James O. Reavis, Deputy Atty. Gen. of California, for respondents.
   WELSH, District Judge.

Petitioner was convicted by a jury in the Superior Court of the State of California in and for the County of Alameda, on two counts, of the crime of robbery in the first degree. He was sentenced to the California State Prison at Folsom for the term prescribed by law, and the Adult Authority set his sentence at two terms of ten years each.

A former Board of Prison Terms and Paroles granted him a Special Service Parole subject to acceptance by the Army, but the United States Army, Ninth Service Command, declined to accept petitioner into the armed forces.

Contentions made in his petition for writ of habeas corpus appear to be that he became entitled to go into the army or to be discharged from the State Prison if the army did not take him.

The same points were raised in a petition for writ of habeas corpus filed in the Supreme Court of the State of California which was denied by said Court on February 19, 1945. An application for rehearing was likewise denied on March 19, 1945.

The Warden of the Folsom Prison has filed herein a return which shows that the commitment of the petitioner was regular and that his incarceration is in accordance with law.

The Attorney General of California has filed a brief wherein the legislation of said state with reference to such matters is ably summarized, analyzed and reviewed. It is therein pointed out that the Legislature of California enacted the so-called Special Service Parole Act in 1943, St.1943, p. 1914, in the preamble whereof it is set forth (Sec. 3100 of the Penal Code) : “ * * * there is hereby created for the duration of said war emergency a system or form of parole to toe known as special service parole for release of such men into the armed forces of the United States through the facilities of National Selective Service.”

Said legislation carried an emergency clause, a portion whereof roads (Chap. 396, Stats.1943, p. 1916, sec. 4) : “There are now many able bodied men serving time in State prisons, county jails and city jails who, if given the opportunity to serve in the armed forces could materially assist the military manpower needs of this Nation.”

Section 3104 of said Code specifies: “Persons given this parole shall go directly from custody into the hands of military authorities and shall in no case be paroled to civilian life.”

Section 3105 specifically states: “Special service paroles shall be conditional in nature and shall continue in force, unless sooner revoked, for a period of time equal to the maximum term of imprisonment theretofore fixed for the parolee.”

These quotations show the legislative intent in enacting the Penal Code sections with reference to Special Service Paroles. The primary purpose was to subserve the best interests of our Nation in the emergency situation arising from World War II. Actual entrance into the armed service was made prerequisite to any benefits which might incidentally accrue to an individual under said Act.

Steps taken in the case of petitioner, George Darris Hagewood, were purely conditional. They conferred on him no vested rights. When the military authorities saw fit to decline his offer to serve, his status continued to be that of a prisoner; he did not attain the actual or potential status of a free man.

Petitioner makes certain claims with reference to the constitutionality of the California Special Service Parole Act which this Court deems devoid of merit.

The Supreme Court of California has heretofore denied petitioner any relief in a similar proceeding. This Court concurs-with said Court.

It is held that this is a case wherein, without issuing the writ, the Court should consider and determine whether the facts alleged by the petition, if proved, would warrant discharge of the prisoner.

Ex parte Quirin, 317 U.S. 1, 63 S.Ct. 2, 87 L.Ed. 3.

It is also held that, in view of the principle that Federal courts should exercise their discretion with relation to habeascorpus in the light of the relation existing between state and federal courts under our dual form of government, we should not disturb the processes of the state courts-which were equally bound to guard the constitutional rights of the petitioner. Johnson v. Wilson, 5 Cir., 131 F.2d 1.

Neither is this regarded as such an exceptional case as to warrant issuance of a writ of habeas corpus when the petitioner is detained under state process. In re Anderson, 9 Cir., 117 F.2d 939.

Sufficient showing has not been made that this is one of those rare cáses where exceptional circumstances of peculiar urgency are shown to exist. Hawk v. Olson, 8 Cir., 130 F.2d 910.

The order to show cause is, therefore, discharged, and the petition for writ of ha-beas corpus denied.


source: Caselaw Access Project

author: GALSTON, District Judge.

license: Public Domain

text:
    THE L. V. 472. THE MARGARET MESECK. THE AUGUSTINE.
    No. 16980.
    District Court, E. D. New York.
    June 9, 1945.

      Pyne & Lynch, of New York City (Warner Pyne, of New York City, of counsel), for Lehigh Valley R. Co., libel-lant.
    Purdy & Lamb, of New York City (Thomas Irving, of New York City, of counsel), for Meseck Towing Lines.
    Crowell & Rouse, of New York City (George L. Varían, of New York City, of •counsel), for Todd Shipyards Corporation.
   GALSTON, District Judge.

The Lehigh Valley Railroad Company, as the chartered owner of the. lighter L. V. 472, filed its libel against the steamtugs Margaret Meseck and Augustine, of the Meseck Towing Lines, Inc., for damage to the lighter.

On the morning of February 7, 1943, the L. V. 472 lay moored at the outer end of Pier No. 3, Erie Basin. On that morning the three tugs of the Meseck Towing Lines, Inc., including the two tugs in question, and the Edward Meseck, towed the steamship Bulkoil from Drydock No. 4 of the Todd-Robbins plant. The drydock was somewhat to the northward of Pier No. 3, Erie Basin. While the Bulkoil was thus in tow it was a dead ship, i. e. it was without steam. As the tugs towed the steamship clear of the drydock, a strong wind from the west came up, striking the steamship on her port side. This caused the steamer to sag or drift to starboard, and the tugs failing fully to control her movements, the steamer came in contact with the lighter.

The tugs are, of course, presumptively at fault for bringing their tow into collision with a moored steamship. The Crown of Galicia, 2 Cir., 232 F. 305; The J. N. Gilbert, 5 Cir., 222 F. 37; Louisville & Cincinnati Packet Co. v. United Coal Co., 6 Cir., 223 F. 300.

The evidence discloses a failure on the part of the claimant-respondent to meet the presumption of fault, and indeed it discloses actual fault on the part of the Meseck Towing Lines, Inc. On February 6, 1943, that company had been engaged, by oral agreement with the Todd Shipyards Corporation, respondent-impleaded. The agreement provided for Meseck Towing Lines, Inc., to supply tugs on the morning of February 7, 1943 for the purpose of shifting the steamship Bulkoil from Dry-dock No. 4 to the north side of Pier No. 3 of the Todd-Robbins plant (this is not the same as Pier No. 3 of Erie Basin). During the shifting operation the captain of the Edward Meseck was on the bridge of the Bulkoil and directed the operations. Neither he nor anyone connected with the Meseck Towing Lines, Inc., had made inquiry concerning weather conditions to be expected that morning. It appears, however, that the United States Weather Bureau, on February 6, 1943, and February 7, 1943, had issued storm warnings for small craft for an area in and around New York Harbor, which included Erie Basin. It also appears that a red pennant was hoisted at the United States Weather Bureau display station from the Whitehall Building on the morning of February 6, 1943, which signal indicated that the force of the wind was to be up to 40 miles an hour. The signal flag remained on display from that time continuously throughout the day of February 7, 1943. Moreover, it appears that despite war time regulations, information concerning weather conditions was given by the New York Weather Bureau to the United States Coast Guard and the United States Navy, railroads and tow boat companies, and to other properly identified companies or persons. The weather data furnished for February 6th and February 7th recited the small craft storm warnings which have been referred to. Failure of the Meseck Towing Lines, Inc., or of the captains of the tugs, to procure such information as has been indicated, contributed to the happening of this collision, for the three tugs were unable to hold the Bulkoil against the wind.

The respondent-impleaded is charged by the claimant-respondent with fault in failing to have a free berth for the Bulkoil at the time that the captain of the Edward Meseck was informed by a representative of the Todd Shipyards Corporation that the Bulkoil was ready to be taken off the dry-dock. The Bulkoil was shifted from the drydock at about 7:55 A. M. and maneuvered over towards the breakwater. There is some contradiction in respect to the length of time during which the tow was thus held near the breakwater, pending the shifting of the steamer Salinas by the Dalzell tugs from Pier 3. It was the testimony of Layden, the dock-master of the Todd Shipyards, that at the time of making the oral charter he had instructed Captain Knudsen, a dispatcher for the Meseck Towing Lines, Inc., that the Bulkoil was to exchange berths with the Dalzell Towing Co., Inc.,' and arrange the time of arrival of tugs so that all tugs would reach Erie Basin between 7:30 and 8 A. M. on February 7th, 1943. There is no testimony to show that the Meseck Company or any one in its employ, and the Dalzell Company or anyone in its emplo}'', had agreed "with each other as to the time when their respective tugs would initiate their shifting operations. The burden imposed upon the captain of the Meseck tugs was to see not only that he took the Bulkoil off the ways, but also to know about when the Salinas wouid clear Pier 3.

In consequence the Meseck tugs and the Towing Company must be charged with sole fault in bringing about the damage to the L. V. 472. Accordingly the libellant may have a decree against the claimant respondent, and the impleading petition against the Todd Shipyards Corporation will be dismissed.

Appropriate findings of fact and conclusions of law will be filed herewith.


author: WILSON, Judge.

text:
    THOMAS et al. v. PEERLESS CARBON CO.
    Civil Action No. 550.
    District Court, N. D. Texas, Amarillo Division.
    Aug. 9, 1945.
    H. H. Cooper, of Amarillo, Tex., for plaintiffs.
    Morgan, Culton, Morgan & Britain, of Amarillo, Tex., for defendant.
   WILSON, Judge.

This is a suit arising under the Fair Labor Standards Act, 29 U.S.C.A. § 201 et seq. Plaintiffs sue defendant on the theory that their hour off at noon for lunch should be paid for as overtime, at one and one half. The suit was filed February 22, 1945. All of the plaintiffs are old employees, having worked for defendant for about four to nine years. They sue for the lunch hours every day they have worked since their respective beginning dates. Defendant pleads the two year statute of limitation as a bar to all such claims arising prior to February 22, 1943. That plea is sustained.

No one could gather from the reading of plaintiffs’ p.etition, or defendant’s answer, that the nature of this suit is, as stated above. The substance of the petition is that plaintiffs worked a stated number of hours in a certain year or during a given period, for which they were never paid. Other than limitation, defendant’s answer consists of admissions and denials that plaintiffs worked the hours claimed. The unique and interesting character of the case, embracing the theory on which the additional hours were claimed, came out iñ the trial. The true theory not until we were considerably advanced in the trial.

Defendant is in the business of manufacturing carbon black, its plant being located at LeFors, Gray County, Texas. Carbon black is manufactured by a gas flame applied to cylindrical, slowly rotating, metal plates. The carbon forms on such plates in a very similar way to soot forming on a lamp chimney, where the wick is too high or is trimmed unevenly. Such soot is in fact a form of carbon black. In its original state, carbon black is about as light as air. As the cylindrical plate rotates, a mechanical scraper clears it of the black, which then goes to the packer bins for further processing, preparatory to use commercially. Many of these cylinders are operated in one building, under one roof, powered by one engine, in this case, electrically driven. There are about twenty of these rooms or houses, all powered by the one engine, which, when turned on by pressing a button, operates the entire plant, all machinery then operating automatically. Only one engineer, called an operator, is needed to operate all machinery, except a comparatively few men to attend to the packer bins. As to the packer bins, the evidence shows, without controversy, they will take black for a half day without any attention or resulting injury to the black or machinery. Therefore, they are eliminated as necessitating any one to look after them during any lunch hour, or any period of break-down of machinery. There is, however, an element of more or less danger to parts of the machinery by sudden breakdowns of power. If the engine goes off because of lightning or other cause, all of which are rare, the machinery stops throughout the plant. This leaves multiple gas jets burning against stationary, rather than rotating, cylindrical plates, on which the carbon black is formed. If that is allowed to continue, it appears the principal destruction is of the metal shafts on which such cylinders ride. So every unexpected shut-down presents an immediate emergency to get all gas cut off, otherwise the Company is threatened with the danger of a big shaft repair, or replacement, job throughout the plant. Therefore, it is of vital necessity that every man who comes to work in the plant be specially instructed as to this ever present potential danger, and how to cope with it. The plant runs twenty-four hours a day. All employees, as starters, are warned of this danger, and how to take care of it, regardless of shifts, day or night.

Based on plant experience, general instructions to these plaintiffs and all employees were: when the power cut off, within five minutes from that time, to commence cutting off the gas throughout the plant. This was not because burning the gas on the plates, then stationary, for longer than five minutes would hurt them or the shafts. But, because if there was greater delay, taking into account the length of time it would take to cut off the gas in the twenty separate rooms, such injury might result. The parties are agreed that very serious damage would ultimately result if the-fire was not cut off.

Plaintiffs base their whole theory of recovery for the lunch hours as work, and as overtime, on those instructions as to turning off gas. It is a process of reasoning with them, if they had to commence turning off gas within five minutes after an engine went out, they would have to remain in or about the premises during their lunch hours to see if and when the power did cut off. That might be correct if they had been required in their employment contracts to eat their lunches and remain on the premises, for such a purpose, during lunch hours. They do not testify, nor do they contend, that such was expressly required of them by their contract with defendant. There are four of plaintiffs. Only one of them did not testify. One who testified worked for defendant four years. The other two, eight to nine years. Nearly all the years they worked it had never occurred to them that, the way they spent their lunch hours was work. They stated that a representative of the Wage and Hour Division visited them in July, 1943, and put this idea in their minds, that their lunch hours, under such instructions, constituted work under the Act. Defendant first heard of such claims in July, 1944. Plaintiff Thomas was then the only one of plaintiffs still working for the Company. He made his first demand of the Company about July, 1944, through his employed attorney.

There were quite a number of witnesses. I will not discuss the details of their testimony, since it would unduly prolong this opinion. There are a few general phases of the evidence I will briefly refer to later. There is not so much difficulty about the law of the case, I think. The decision turns almost entirely on whether, as a matter of fact, the time plaintiffs spent on the defendant’s premises during the noon lunch period was understood to, or did, under the statute, constitute work. Under such facts, presenting as they do very little direct conflict, and under the words and provisions of the Act, can it be fairly deducted, that Congress had the intent that such time should be classed as work? I hold it cannot.

Plaintiffs have failed to discharge the burden of proof imposed upon them by the law. Defendant, to the contrary, has produced satisfactory proof that the lunch hours of these plaintiffs were free to them and clear of any contractual duty, expressly or by implication, to do anything for defendant during such lunch periods. I am convinced from the evidence that plaintiffs were fully aware of their right to be wherever they chose during such lunch hours. It is admitted they lived six to seven miles from the plant. As a practical matter, they were forced to take their lunches and eat them on, or around, the plant premises. This is doubtless true of millions of factory employees throughout the country. I am satisfied in every such factory, the employers would appreciate, or even expect, such employees so eating their lunches on the premises, if any fire broke out in the factory, to quit their lunches and try their best to help put it out. In this case, since plaintiffs voluntarily remained on the plant premises, the defendant doubtless would have appreciated or expected them to go to the protection of the plant property if any sudden emergency arose that threatened injury or destruction to it, whatever the source, including this eventuality of the power going off. The defendant’s employees were paid overtime when they worked overtime. There is no dispute about that. Nor that they were often urged to keep up with, and put in, their overtime. Nothing could have been better understood by plaintiffs than this, that they would be paid overtime rates for all work they did over eight hours, whatever the cause.

The plant experience here, as a business proposition, would not have justified keeping their regular men, or the employment of special men, to remain on the premises during the lunch hours to possibly cut off gas. The records show, that the danger is entirely too remote. Defendant runs another plant in Louisiana. There it is convenient for the crews to eat their lunches off the factory premises, and they do so, leaving no operators, such as plaintiffs, on the premises during the lunch hours. Mr. Johnson, Superintendent, and Mr. Foster, an executive of the Company, testified such had always been, and was now, the privilege of the employees at the LeFors plánt. Not all the time in question, but a good part of it, the defendant kept a notice posted on the Bulletin in this plant, that the. lunch hour was free to employees. Mr. Foster testified he had been in the business twenty-five years and based on that experience, it was found it would not injure the cylindrical plates, while stationary, for the gas to burn on them for a period of one hour. In fact, these plates when rotating, do not lack much of being stationary, since one revolution requires forty-five minutes. It is rather significant that plaintiffs were all on the shift that embraced the noon hour; that none of the other two eight-hour shifts, who also ate their lunches on the premises, have ever presented such a claim. In fact, it is shown that some of the employees leave the premises, and pursue their own pleasures, during such lunch hours, and that their right to do it has never been questioned.

The employment of men to stand watch during such hours would not be justified from another standpoint. Any one can readily appreciate the improbability of a break-down occurring at 12 o’clock and ending at 1 P. M., or any time during that hour. Generally the chances would be twenty-three to one against it, if it happened every day. The defendant introduced the records as to how many such break-downs of power had occurred for two years and four months prior to February 22, 1945, the date of filing this suit.

1943: February, March, April, and May —None.

June — two hours.

July, August, September, October and November — None.

December 10 — 2 hours, 9 a.m. to 11 a.m.

December 13 — 1 hour, 3 p.m. to 4 p.m.

1944: January 1 hour, 9 p.m. to 10 p.m.

February and March, none.

April 13 — 1 hour, 1:30 p.m. to 2:30 p.m.

May 1 — 1 hour, 9 p.m. to 10 p.m.

May 30 — 2 hours, 6 a.m. to 8 a.m.

June and July — None.

August — 1 hour, 7 a.m. to 8 a.m.

September — none.

October 6 — 6 hours, 10 p.m. to 4 a.m.

November — 1 hour, 7 p.m. to 8 p.m.

December — 1 hour, 3:30 p.m. to 4:30 p.m.

1945: January, February, March and

April — None.

It shows no break-down during the noon hour for the entire period. In fact, it shows an almost infinitesimal amount of time was consumed by shut downs during the period. Plaintiffs did not show that there was ever a break-down in their lunch hours, even back to 1938, when some of them commenced work. Yet plaintiffs ask this Court to give them a total of $7,202.88 for work during their lunch hours, which, as a matter of fact, they spent eating and lounging at a park-like placed fixed on the premises by defendant for their convenience and pleasure. I hold the claims are untenable under the law and the facts; that they are cruelly unfair demands, even if the law did support them under such facts; that Congress had no such intent as plaintiffs would have us believe.

Plaintiffs cite the following authorities-in support of their position: Tennessee Coal, Iron & Railroad Co. v. Muscada Local No. 123 et al., 321 U.S. 590, 64 S.Ct, 698, 88 L.Ed. 949, 152 A.L.R. 1014; Jewell Ridge Coal Corporation v. Local No. 6167, United Mine Workers, 65 S.Ct. 1063, 89 L.Ed.-; Armour & Co. v. Wantock, 323 U.S. 818, 65 S.Ct. 165; Skidmore et al. v. Swift & Co., 323 U.S. 134, 65 S.Ct. 161; Fleming v. Rex Oil & Gas Co., D.C.,. 43 F.Supp. 950. I will not discuss the cases. I think all of them are readily distinguishable from this one.

Defendant submits the following authorities: Sunshine Mining Company v. Carver, U. S. Dist. Atty., et al., D.C., 41 F. Supp. 60; Interpretative Bulletin No. 13, discussing Sections 6 and 7 of the Act, issued by the Wage and Hour Division; Fox et al. v. Summit King Mines, Ltd., 9 Cir., 143 F.2d 926, 932. The latter case is very similar in its facts to this one. It was a lunch hour claim. The trial court denied it, and the 9th Circuit affirmed its action. In doing so, they said this:

“Appellants’ argument seems almost to go to the extent of maintaining that the mere fact that employees were permitted to remain in or about the mill during the lunch period, or perchance that during such time they may have voluntarily performed some emergency service, that such circumstances would be sufficient to bring appellants within the provisions of the Act, notwithstanding the rule of the company as to free time or the further fact that the management assumed that any such occasional emergency service was charged as overtime by the worker on his time card and paid for as such. * * *
“The answer to appellants’ argument that appellee suffered or permitted them to work is that in our opinion the words ‘suffer’ and ‘permit’ as used in the statute means ‘with the knowledge of the employer.’ ”

Plaintiffs’ claims are denied. The attorneys may draw up an order for my signature.


author: BURKE, District Judge.

text:
    MAHAR v. GARTLAND S. S. CO.
    Civil Action No. 2123.
    District Court, W. D. New York.
    July 7, 1945.
    Desmond & Drury, of Buffalo, N. Y. (John E. Drury, Jr., of Buffalo, N. Y. of counsel), for plaintiff.
    Richards & Coffey, of Buffalo, N. Y. (Laurence E. Coffey, of Buffalo, N. Y., of counsel), for defendant.
   BURKE, District Judge.

The plaintiff was emploj'-ed as a member of the crew of the vessel “Sullivan Brothers,” engaged in trade on the Great Lakes. He alleges that between August 16 and August 21, 1944, he performed services as a seaman for the agreed wage of $44.40, payment of which was refused by the defendant. His claim is that he is entitled to two days pay for each and every day for which such payment has been delayed. The claim is evidently made under Sec. 596, Title 46 U.S.C.A. Defendant moves for summary judgment in its favor with respect to all of plaintiff’s claim in excess of $44.40 and interest thereon.

Section 596 was one of the provisions contained in the Shipping Commissioners Act of June 7, 1872, c. 322, 17 Stat. 262. Section 544 of Title 46 U.S.C.A. provides that none of the provisions of certain enumerated sections of Title 46, including Secs. 591-596, shall apply to sail or steam vessels engaged in the lake-going trade. The sections enumerated in Sec. 544 are those contained in the Shipping Commissioner’s Act and this section is to be taken as meaning that none of the provisions of the Shipping Commissioner’s Act apply to vessels in the lake-going trade. Johnson v. Standard Oil Company of New Jersey, D.C. 33 F.Supp. 982. Since the plaintiff is not entitled to double wages for the period of delay in payment under Sec. 596, double wages are not recoverable under Sec. 597. The limit of recovery to which plaintiff is entitled under the claim is $44.40 with interest. Motion granted.


author: LA BUY, District Judge.

text:
    RESSINGER v. SEARS ROEBUCK & CO.
    Na. 44C1058.
    District Court, N. D. Illinois, E. D.
    June 11, 1945.

      Norman S. Parker, of Chicago, Ill., for plaintiff.
    Lederer, Livingston, Kahn & Adsit, of Chicago, Ill., for defendant.
   LA BUY, District Judge.

Motion to dismiss complaint or to strike portions of the complaint.

Complaint alleges plaintiff developed a design in January 1943 for children’s vehicles made of non-critical material, such as wood. On completion of the design he made arrangements for manufacture with Adler Manufacturing Company in Kentucky. On May 14, 1943, plaintiff made an application for United States Letters Patent No. 486,994, which application is still pending. Each children’s vehicles made according to plaintiff’s patent was labeled “Patents Pending” so that defendant had notice of plaintiff’s exclusive right in the articles made. Deliveries of the articles were made in the summer of 1943. On September 9, 1943, defendant ordered 500 of these articles. No subsequent order was made and such vehicles were illustrated in defendant’s Midwinter catalogue of December 1943. Plaintiff alleges defendant has wilfully and completely appropriated plaintiff’s design and has manufactured and sold large numbers of these articles. The relief asked for is an injunction against-further manufacture and sale by defendants and an accounting.

In Brill v. St. Louis Car Co., C.C. Mo. 1897, 80 F. 909, 910, the court had before it the question concerning the rights of an inventor pending application. The court said:

“An inventor has no exclusive right to his invention at common law, but derives all such exclusive right from the grant of the government, subject to the provisions of the statutes conferring such rights. * * * Manifestly, therefore, there can be no invasion of the patentee’s rights by any manufacture or use of the device, the subject-matter of the expected patent, prior to the date of the patent. On this subject, Chief Justice Taney, in the case of Gayler v. Wilder, 10 How. 477, [13 L.Ed. 504], observes as follows:
“ ‘The inventor of a new and useful improvement certainly has no exclusive right to it until he obtains a patent. The right is created by the patent, and no suit can be maintained by the inventor against any one for using it before the patent is issued.’
“The inchoate right existing in an inventor, after making an application for a patent and while the same is undergoing an examination in the patent office, does not entitle him to injunctive relief against an infringer of such right. Rein v. Clayton, C.C. Mich., 37 F. 354 [3 L.R.A. 78]; Lyon v. Donaldson, C.C. Ill., 34 F. 789.
“ * * * If, however, such use or threats to make use of such inventions are of such character as to fairly justify the inference that defendants intended to continue the use thereof after patents should be issued to the complainant, then complainant is entitled to a decree enjoining the defendants from carrying out their threats. * * * ”

In paragraph 6, plaintiff declares that defendant’s manufacture and sale of children’s vehicles made in accordance with plaintiff’s design “is calculated to and does cause confusion and mistake among the trade and public. Said defendant’s aforesaid acts and each of them, constitute unfair competition with the plaintiff.” There being no patented right existent in this action, consideration of the unfair competition allegation must be based upon another right. In Sinko v. Snow-Craggs Corporation, 7 Cir., 1939, 105 F.2d 450, 452, it was stated:

“The doctrine underlying unfair competition cases is to restrain deceitful and fraudulent- competition in whatever garb of misrepresented identity it assumes. * * * An analysis of unfair competition cases establish the proposition that Sinko’s right to monopolize, and consequently Cragg’s ‘right to imitate’ * * *, therefore depends on whether the particular trade dress in question has acquired a secondary meaning.
“Nowhere has the doctrine of secondary meaning and its indispensability in unfair competition cases received more admirable treatment than in Crescent Tool Co. v. Kilborn & Bishop Co., 2 Cir., 247 F. 299, 300, when Judge Learned Hand said:
“ ‘The cases of so-called “non-functional” unfair competition * * * are only instances of the doctrine of “secondary” meaning. All of them presuppose that the appearance of the article * * * has become associated in the public mind with the first comer as manufacturer or source, and, if a second comer imitates the article exactly, that the public will believe his goods have come from the first, and will buy, in part, at least, because of that deception. Therefore it is apparent that it is an absolute condition to any relief whatever that the plaintiff in such cases show that the appearance of his wares has in fact come to mean that some particular person— the plaintiff may not be individually known — makes them, and that the public cares who does make them, and not merely for their appearance and structure,111 (Italics supplied)

It appears therefore that unless a secondary meaning has attached to plaintiff’s articles, he can maintain no action since he has no patent right. From paragraph 6 alleging unfair competition, it is not disclosed whether any secondary meaning has attached to his article to sustain the unfair competition complaint.

The motion of defendant to dismiss the complaint is allowed.


author: BARD, District Judge.

text:
    MAIER v. PUBLICKER COMMERCIAL ALCOHOL CO.
    No. 81 of 1944.
    District Court, E. D. Pennsylvania.
    Aug. 31, 1945.
    As Amended Oct. 18, 1945.

      Otto Kraus, Jr., and Howard M. Long, both of Philadelphia, Pa., for libelant.
    John B. Shaw, of Krusen, Evans & Shaw, all of Philadelphia, Pa., for respondent.
   BARD, District Judge.

This is a libel in personam to recover the cost of removing from libellant’s vessel, partially submerged in the navigable waters of the Delaware River and from the channel at the foot of Packer Avenue, a large amount of industrial waste discharged by respondent’s alcohol plant into these navigable waters.

Jurisdiction is conferred upon this Court by Section 24(3) of the Judicial Code.

I make the following special

Findings of Fact:

1. Libellant, B. J. Maier, a Pennsylvania citizen trading as Great Eastern Metal Company, has engaged in the business of salvaging and scrapping ships for twenty-five years.

2. Respondent, Publicker Commercial Alcohol Company, is a corporation engaged, at all times pertinent hereto, in the manufacture of alcohol and allied commercial products. Respondent’s plant is located on the shore of the Delaware River at Delaware Avenue and Bigler Street, Philadelphia, Pennsylvania.

3. On May 27, 1940, libellant purchased a vessel formerly known as the “Oglethorpe,” together with another vessel, from the Philadelphia Derrick and Salvage Corporation.

4. On that date, and subsequently thereto, these vessels were lying in a sunken and partly submerged condition in the navigable waters of the Delaware River, in a slip at the foot of Packer Avenue, Philadelphia, beside a wharf belonging to the City of Philadelphia.

5. The partially submerged vessel, formerly known as the “Oglethorpe,” which is the subject matter of this libel, was 277 feet in length, about 50 feet wide and aibout 30 feet deep. At the time libellant became her owner the vessel had a hole approximately 100 feet in length and from 1 to 6 feet in width in her starboard side, and a hole 15 feet in length and about 7 feet in width in her port side.

6. On September 1, 1942, libellant entered into a contract with Metals Reserve Company, a government agency, to raise and scrap the vessels and to sell the metal obtained therefrom to the Metals Reserve Company. The contract was to be performed within eight months, but the time of performance was later extended to October 15, 1944.

7. During the Fall of 1942, shortly after executing the agreement with the Metals Reserve Company, libellant raised one of the vessels during a two week period at a cost of $1200.

8. During September or October 1942 libellant did the preliminary work of patching the starboard hole on the other vessel but abandoned further efforts to raise the vessel due to the approaching Winter season.

9. In January 1942, pursuant to a directive of the Office of Production Management, respondent substituted grain for molasses as the basic material for alcohol production. Respondent was unable to obtain screening and drying equipment to process the grain residue and therefore proceeded to discharge this residue into the Delaware River.

10. Between January 1, 1943, and July 31, 1943 respondent discharged 9,190 tons of non-soluble residue and 21,859 tons of soluble residue in solution or suspension into an open sewer of the City of Philadelphia emptying into the Delaware River about 250 feet above the partially submerged vessel.

11. Respondent did not receive authorization or consent to discharge the residue from the United States of America, the Commonwealth of Pennsylvania, or the City of Philadelphia.

12. The grain residue filled the holds of the submerged vessel. Between June 18, 1943, and October 8, 1943, libellant expended time, labor, equipment and materials to remove the grain residue so that the vessel could be raised.

13. The grain residue also filled the channel on the river side of the vessel extending two feet above water level at low tide. Libellant was. required to hire tug boats to chum up the channel so that the vessel could be removed from the slip when floated.

14. The cost of removing the mash, raising the vessel, and removing her from the slip was $15,400.

15. Respondent acted in good faith and discharged the grain residue into the Delaware River only because it was unable to obtain adequate screening and drying equipment to process the mash.

Discussion

Pursuant to a directive of the Office of Production Management, respondent converted from molasses to grain for the production of commercial alcohol about January 1, 1943. Respondent was unable to obtain adequate screening and drying equipment to process the large quantity of grain residue which was a by-product of the grain alcohol. It was therefore necessary to discharge many tons of this substance into the Delaware River between January 1, 1943, and July 1, 1943. The grain residue filled the channel of a slip at the foot of Packer Avenue, Philadelphia, and filled the holds of libellant’s partially submerged vessel lying in the slip.

Libellant seeks recovery of the additional and extraordinary expenses incurred, because of the grain residue, in raising and removing the submerged vessel.

Respondent’s defense is in three parts: (1) That the discharge of grain residue was a result of the conversion directive of the War Production Board and was in furtherance of the war effort, relieving respondent of liability; (2) that libellant was at fault in leaving a submerged vessel in the slip at Packer Avenue in violation of the Rivers and Harbors Appropriation Act of 1899, and that this fault was the sole or a contributing cause of the damage; (3) that libellant did not sustain his burden in proving damages and that the damages claimed are speculative.

The pleadings and the evidence adduced at trial raise two questions for decision: (1) Whether the discharge of large quantities of grain residue was such negligence or private nuisance which would enable li-bellant to recover damages; and (2) whether libellant has satisfactorily met the burden of proof on damages.

Liability of Respondent

Libellant contends that the discharge of the grain refuse was in violation of Section 13 of the Rivers and Harbors Appropriation Act of 1899 and therefore negligent. Section 13 of the Act prohibits, inter alia, the discharge of solid refuse by a manufacturing establishment or mill into any navigable water of the United States unless authorized and permitted by the Secretary of War under penalty of criminal prosecution. Mere violation of this criminal statute does not, of itself, constitute actionable negligence, American Barge Line Co. v. Stoll Oil Refining Co., D.C.W.D. Ky., 22 F.Supp. 894; Brush et ux. v. Le-high Valley Coal Co., 290 Pa. 322, 138 A. 860. To recover on the theory of negligence it was incumbent upon libellant to show that, in discharging the grain residue into the river, respondent failed to observe that degree of care, precaution and vigilance which the circumstances justly demanded and because of such failure libellant was injured. Baltimore & P. R. Co. v. Jones, 95 U.S. 439, 24 L.Ed. 506; Philadelphia, W. & B. R. Co. v. Stinger, 78 Pa. 219. This libellant failed to establish. On the contrary, the evidence shows that respondent exerted every effort to obtain equipment to process the mash, that it discharged the residue into the river only when alternative efforts failed, and that it ceased to discharge the grain refuse when processing equipment was made available.

Libellant may recover damages, however, on the theory that respondent’s acts constituted an actionable private nuisance. Keiser v. Mahanoy City Gas Co., 143 Pa. 276, 22 A. 759; Keppel v. Lehigh Coal & Navigation Co., 200 Pa. 649, 50 A. 302; Sussex Land & Live Stock Co. v. Midwest Refining Co., 8 Cir., 294 F. 597, 34 A.L.R. 249; Peck v. City of Michigan City, 149 Ind. 670, 49 N.E. 800. A nuisance may be defined as the unreasonable, unwarrantable, or unlawful use by a person of his own property which causes injury, damage, hurt, inconvenience, annoyance or discomfort to one in the legitimate enjoyment of his reasonable rights of person or property. District of Columbia v. Totten, 55 App.D.C. 312, 5 F.2d 374, 40 A.L.R. 1461, certiorari denied 269 U.S. 562, 46 S.Ct. 21, 70 L.Ed. 412; Kramer, Adm’r v. Pittsburgh Coal Co., 341 Pa. 379, 19 A.2d 362. Although one may use his property in lawful pursuits as he pleases, he must observe the rights of his neighbors, Brennan Const. Co. v. Cumberland, 29 App.D.C. 554, 15 L.R.A., N.S. 535, 10 Ann. Cas. 865, and where this duty is violated the guilty party may subject himself to an action for damages or to the restraining arm of the courts. Hauck v. Tidewater Pipe Line Co., Ltd., 153 Pa. 366, 26 A. 644, 20 L.R.A. 642, 34 Am.St. Rep. 710.

Respondent had a lawful right to manufacture alcohol from grain. It had a complementary duty to conduct this process in a manner which would not injure others. That the injury to libellant was foreseeable and preventable is implicit in the fact respondent used equipment, albeit inadequate, to prevent it and in the fact that respondent attempted to obtain additional units of this equipment. Since the injury was foreseeable and preventable, it was, in law, intentional. And an intentional injury caused by the maintenance of a private nuisance is actionable. E. Rauh & Sons Fertilizer Co. v. Shreffier, 6 Cir., 139 F.2d 38.

In choosing to manufacture alcohol from grain, in compliance with the Office of Production Management directive and in furtherance of wartime necessities, without waiting for the acquisition of adequate screening and drying equipment, Publicker chose to dump great quantities of grain residue into the river. This operation imposed a substantial extraordinary expense upon libellant. For this course of conduct Publicker must respond in damages.

Respondent contends it should be relieved of liability ‘because the Office of Production Management issued a directive to respondent to convert to the use of grain. It also contends it had an authorization from the War Department to dump the grain residue into the river. These contentions are without merit. The Court sustained objections to most of the evidence pertaining thereto. Authorization from the War Department to discharge the grain residue into the river, if permission was in fact granted, might be a valid defense to a criminal prosecution brought under Section 13 of the Act of March 3, 1899. Such authorization, however, would not carry with it the right to create a private nuisance. Baltimore & P. R. Co. v. Fifth Baptist Church, 108 U.S. 317, 2 S.Ct. 719, 27 L.Ed. 739; Peck v. City of Michigan City, supra. Likewise, the mere fact that respondent acted pursuant to the Office of Production Management directive does not relieve it of liability. Publicker presumably received adequate consideration for all the grain alcohol it sold and, in turn, it must give adequate compensation for those injuries, it inflicted in the course of manufacturing the alcohol.

As an additional defense respondent argues that libellant violated Section 15 of the Rivers and Harbors Appropriation Act of 1899 and thus contributed in whole or part to the damages incurred. Section 15 of the Act prohibits, inter alia, the obstruction of navigable waters by sunken vessels and requires adequate marking and prompt removal of submerged vessels under penalty of criminal prosecution. Even though it may be conceded that libellant violated the statute, the violation was merely a condition precedent to but not the cause of the injury so that libellant is relieved of any fault. The No. 1, 2 Cir., 180 F. 969; Hutchinson v. Follmer Trucking Co., 333 Pa. 424, 5 A.2d 182.

Proof of Damages

Libellant is entitled to recover the extra expense to which he has been put by respondent’s conduct. The applicable measure of damages is the difference between what it actually cost to raise and move the vessel after the grain refuse was deposited in and around the ship and what it would have cost to raise the vessel if Publicker had not dumped the mash into the river. Elder v. Lykens Valley Coal Co., 157 Pa. 490, 27 A. 545, 37 Am.St.Rep. 742; Keppel v. Lehigh Coal & Navigation Co., supra; Stevenson v. Ebervale Coal Co., 203 Pa. 316, 52 A. 201; Pennsylvania R. Co. v. City of Pittsburgh, 335 Pa. 449, 6 A.2d 907; Hoffman v. Mill Creek Coal Co., 16 Pa. Super. 631.

The major portion of libellant’s evidence was devoted to proof of damages. Much of this evidence is vague, conflicting and contradictory and for this reason respondent urges that libellant claims speculative damages and has failed to meet the burden of proof. Lentz v. Choteau, 42 Pa. 435. For these reasons I find it necessary to discuss the proof of damages in detail.

Libellant offered in evidence four bills for gasoline totalling $251.20, a bill for lumber in the amount of $300.02, and a bill for rent of an air compressor in the amount of $199. Libellant testified that the materials and the compressor were used in raising the submerged vessel. Respondent raised no objection to these items.

Libellant offered in evidence a statement from P. F. Martin, Inc., for the services of tugs, totalling $1175. Libellant testified that this expense was incurred for churning the mash in the Packer Avenue slip so that a channel could be cleared for removal of the ship. However, Maier testified that the “whole period of operation” was June 18, 1943, to October 8, 1943, and respondent argues that the charges for tug hire on October 14, 18 and 21, totalling $750, cannot be considered in this case as being outside the period of operation. Libellant’s foreman testified that men were employed for approximately six weeks removing the mash and silt from the bilges after the vessel was raised and moved from the Packer Avenue slip to Pier 112. Libellant testified that salaries were paid for this work as evidenced by his cancelled checks dated from October 15, 1943, to November 26, 1943. It seems to me that when libellant said “the whole period of operation” he was referring to the operation of raising the vessel, and that, in fact, libellant was removing the mash until late in November at Pier 112. In objecting to the last three charges for tug hire, respondent assumes that there was no further work relating to the grain refuse after October 8th and that the vessel was moved from the slip on that date. But there is no direct testimony in support of these assumptions. Certainly the men were clearing the refuse from the bilges for some six weeks after October 8th and the vessel may not have been moved to Pier 112 until some time after it was raised. I do not find the charges for tug hire on October 4, 18 and 21 inconsistent with the evidence as a whole and I will therefore allow them as part of the expenses incurred by libellant.

Libellant used one three-inch pump, two six-inch pumps and one eight-inch pump and one six-inch airlift which he owned between June 18 and October 8th to pump the refuse and water out of the holds. He also used one ten-inch pump and two or three six-inch pumps which he borrowed without charge from the Philadelphia Derrick and Salvage Corporation and for the use of which he makes no claim. During the same period libellant used his 25-ton floating derrick to move the pumps and to operate a clam shell bucket for removing the refuse. Maier testified the rental value of pumps as established by the Office of Price Administration to be $50 per month for a three-inch pump, $125 per month for a six-inch pump, and $195 per month for an eight-inch pump. Maier stated that the rental value of the 25-ton floating derrick was $90 per day and that he had leased the derrick on other occasions for that price or more. Respondent introduced no evidence to refute these figures and I will accept them as reasonable. Libellant may include the use (rental) value of his machinery utilized to raise the ship as part of the expense of the operation. Sedgwick on Damages, Vol. 1, Sec. 171(b). The pumps were used for approximately three and a half months, and rental value of the four pumps for that period will be included in computing the expense. Libellant introduced no evidence to establish the use value of the airlift pump and, in the absence of such proof, this item cannot be included. Libellant was unable to establish the exact number of days during which the floating derrick was employed. He testified that the derrick was definitely used five days each week during the sixteen week period, and that it was used on some of the Saturdays and Sundays. Libellant failed to prove the 110 days of use which he claims, 'but I will allow rental value of $90 per day for the eighty days of use definitely established.

Maier claims $100 per week for fifteen weeks as the reasonable value of his services for supervising the salvage work. He has twenty-fivei years experience in raising sunken vessels. He supervised the difficult operation in its entirety and was on the job from eight to twelve hours each day including some Saturdays and Sundays. This claim appears to reflect the reasonable worth of his services and will be allowed.

Libellant claims $500 for diver’s wages. Maier stated that the diver received $25 per day and his tender received $12.50 per day; that he was uncertain as to the exact number of days the diver was employed but that it was a little more than a week. It is impossible to determine from Maier’s testimony how many days the diver worked. Any approximation would be nothing more than a guess. This claim, therefore, cannot be allowed.

As the last item of expense libellant claims $2310 for wages paid to his employees between June 18th and October 8th, during which period the vessel was raised, and $940 as wages for employees who removed the silt and grain residue from the bilges between October 8th and November 26th. Maier stated the amount of the weekly expenditure for labor from a present recollection after refreshing .his memory from checks marked “salary and petty cash” dated at weekly intervals. Although counsel for respondent demanded production of the social security records which Maier admittedly kept, libellant was unable to produce these records or any other business records of wages paid.

Respondent contends that, under the “best evidence” rule, Maier’s testimony should have been excluded upon objection and that the Court should not now consider this evidence in assessing damages. Counsel labors under a misconception of the rule. The “best evidence” rule is one of preferential evidence requiring that where a party seeks to prove a writing for the purpose of establishing its terms, production must be made of the writing itself unless the non-feasibility of production is satisfactorily established. Since libellant does not seek to establish the contents of the social security or other business records, the rule has no application here. Maier is competent to testify as to the wages paid so long as the facts are within his own knowledge. It may be true that libellant’s business entries might be entitled to greater probative force than his oral testimony, but the business records are not preferred over oral testimony nor is libellant required to produce them.

The weekly wages paid between June 18th and November 26th will be included as part of the expenses with one exception. The wages paid on June 18th amounting to $155 were for labor performed before the salvaging operations began and must therefore be excluded.

Libellant has thus established by competent testimony that the cost of' raising and moving the submerged vessel from the Packer Avenue slip, with the holds of the vessel and the slip channel full of grain residue discharged from respondent’s plant, was approximately $15,400. Maier stated that it cost $1200 “to move” a submerged vessel of approximately the same size, in a similar condition, and located nearby. That vessel was raised about eight months before this salvage operation began and before respondent 'began to discharge the grain residue. Libellant urges that he is entitled to a judgment for the difference between the cost of raising that vessel and the amount expended in this salvage operation.

Respondent argues that no judgment can be entered since the facts do not afford reasonable basis for assessing even approximate damages, and that an award of damages must, of necessity, be speculative.

It must be conceded that some of libellant’s evidence on damages was contradictory and confusing. However, inability to compute the amount of damages with precise mathematical accuracy will not preclude the entry of judgment. Palmer v. Connecticut Railway & Lighting Co., 311 U.S. 544, 61 S.Ct. 379, 85 L.Ed. 336, rehearing denied, 312 U.S. 713, 61 S.Ct. 609, 85 L.Ed. 1143; Christensen Mach. Co. v. United States, 50 F.2d 282, 73 Ct.Cl. 149; Pierce v. Lehigh Valley Coal Co. (No. 1), 232 Pa. 165, 81 A. 141; Eckman v. Lehigh and Wilkes-Barre Coal Co., 50 Pa.Super. 427. If the fact that libellant’s damage resulted from respondent’s course of conduct is certain, it is sufficient that a basis of computing a reasonable approximation of damages exists. Story Parchment Co. v. Paterson Parchment Paper Company, 282 U.S. 555, 51 S.Ct. 248, 75 L.Ed. 544; Eastman Kodak Co. of New York v. Southern Photo Material Co., 273 U.S. 359, 47 S.Ct. 400, 71 L.Ed. 684; Hartman v. Pittsburgh Incline Plane Company, 159 Pa. 442, 28 A. 145; Hoober v. New Holland Water Co., 43 Pa. Super. 262. To hold otherwise would be perverting justice by a blind quest for perfection.

I will accept libellant’s proof of the comparative cost of raising and moving the submerged vessel before and after the grain residue was discharged into the river. However, certain deductions will have to be made. , The cost of raising the first vessel was comparatively low. Maier was in business for himself, drawing no salary. As individual owner of the business, he bought equipment and paid for help and materials, drawing as his compensation whatever was left in the business. The inference is that, in estimating costs, he habitually failed to value his services and the use of his equipment. I do not believe that Maier included such factors as the value of his services and the value of the use of his equipment in computing the $1200 figure. Adjustment should therefore be made in that regard. In computing the cost of raising and moving the second vessel, I included the wages paid for removing the refuse and silt from the bilges after the vessel was removed to Pier 112. Maier advanced the $1200 figure as the cost of movmg the first vessel. The inference to be drawn is that he did not include the cost of removing the silt from the bilges which, if the salvaging operations were comparable, was probably removed after that vessel was towed to Pier 112. Finally, it was impossible fpr any witness to estimate what portion of the solid matter in the ship was river silt and what portion was grain residue, although it is clear that the major part of the matter removed from the vessel was the grain. Respondent cannot (be charged with the cost of removing silt. The foreman testified that a considerable amount of silt was found in the first vessel, and it is reasonable to assume that a proportionate amount of silt settled in the second vessel in the period between the raising of the ships. Therefore, the expense of removing the solids from the bilges at Pier 112 and that part of the expenses incurred proportionate to the approximate ratio of silt in the matter removed must be deducted.

After making approximate deductions for these factors, I fix libellant’s damages at $11,000.

Conclusions of Law

1'. This Court has jurisdiction of this action under Section 24(3) of the Judicial Code, 28 U.S.C.A. § 41(3).

2. This Court has jurisdiction over respondent Publicker Commercial Alcohol Company.

3. The discharge of grain refuse into the Delaware River from respondent’s alcohol plant constituted an actionable nuisance.

4. Respondent is liable in damages for the injury caused libellant by the discharge of grain refuse into the Delaware River.

5. Libellant was not at fault in any degree for the damages caused.

6. Judgment may be entered for libellant in the amount of $11,000.

       Rev.Stat. § 563(8) (9), § 629(6), as last amended by Act of June 10, 1922, c. 216, § 1, 42 Stát. 634, 28 U.S.O.A. § 41(3).

       Act of March 3, 1899, c. 425, § 15, 30 Stat. 1152, 33 U.S.O.A. § 409.

       Act of March 3, 1899, c. 425, § 13, 30 Stat. 1152, 33 U.S.O.A. § 407.

       Wigmore on Evidence, 3d Ed., § 1179 et seq.; see also United States v. Haugen, D.C.E.D.Wash., 58 F.Supp. 436.

       Wigmore on Evidence, 3d Ed., § 1339.


author: DUFFY, District Judge.

text:
    HORLICK v. KUHL, Collector of Internal Revenue.
    Civil Action No. 1232.
    District Court, E. D. Wisconsin.
    Sept. 5, 1945.

      Ralph M. Hoyt, of Milwaukee, Wis., for plaintiff.
    Timothy Cronin, U. S. Atty., and E. J. Koelzer, Asst. U. S. Atty., both of Milwaukee, Wis., Samuel O. Clark, Jr., Asst. Atty. Gen., and Andrew D. Sharpe and Lester L. Gibson, Sp. Assts. to Atty. Gen., for defendant.
   DUFFY, District Judge.

This is an action to recover federal estate taxes paid by the estate of William Horlick, Jr. The plaintiff, as administrator de bonis non, is the successor to the executors named in the will.

William Horlick, Jr., died a resident of Racine, Wisconsin, on April 1, 1940. The executors of his will filed a federal estate tax return on June 26, 1941. On the same day they paid to defendant, as collector, the tax shown due by the return in the sum of $939,270.37. They also elected under the statute to value the estate as of April 1, 1941.

On January 7, 1943, the internal revenue agent in charge notified the executors of a proposed deficiency of $164,844.73, which sum was paid on January 16, 1943, together with $15,242.52 interest. On March 4, 1943, a claim for refund in the amount of $380,617.61 was filed by the executors. Six grounds for refund were set forth in the claim. The Commissioner of Internal Revenue took no action within six months thereafter, and the plaintiff then commenced this action based upon the same six grounds which were alleged in the claim for refund.

Claims 1, 5 and 6 arise from the action of the commissioner which resulted in the deficiency assessment. Claims 2 and 3 arise from a reconsideration by the executors of their own original computation. Claim 4 concerns the value of the corporate stock of Horlick Malted Milk Company. The executors claim that the valuation they placed upon said stock in the return was too high while the commissioner claims it was too low.

Claim 1

Claim I is based upon the' refusal of the commissioner to recognize as property previously taxed within the meaning of Sec. 812(c), Internal Revenue Code, 26 U.S.C. A. Int.Rev.Code, § 812(c), certain assets which plaintiff claims were included in the gross estate of William Horlick, Sr.

William Horlick, Sr., the father of William Horlick, Jr., died a resident of Racine, Wisconsin, on September 5, 1936. His executors filed an estate tax return reporting a gross estate of $17,000,000, on which they paid an estate tax of approximately $7,000,000. In the return the executors disclosed certain gifts made by the decedent to his wife and three children but they disclaimed any tax liability on account of such gifts.

William Horlick, Sr., made the gifts to his wife and three children between May 9, 1931, and June 2, 1932. A gift of $150,-000 to his wife was in cash. All of the other gifts were of securities. All were outright gifts except those of June 2, 1932, whereby $1,383,058.18 was given to each child in trust.

The internal revenue agent in charge, valuing the gifts at $8,054,205.89, made tentative findings and proposed a deficiency assessment of $4,190,738.22. A protest to same was filed on January 31, 1940. A conference with representatives of the estate was held on March 25, 1940, to consider this protest. Following the conference a letter was mailed to the executors of the estate of William Horlick, Sr., showing the conclusions reached after consideration of the objections to the tentative findings. Suggestion was made in the letter that if it were desired to have the matter referred to the Technical Staff of the Bureau prior to the issuance of final notice of deficiency, such reference would be made. Plaintiff requested a conference with the Chicago Division of the Technical Staff and conferences were held in the Milwaukee office of that staff on May 2, June 13, June 20 and June 21, 1940, and a compromise agreement was effected. The Technical Staff was represented by Milton E. Carter, Head of the Chicago Division of the Technical Staff, and E. J. Nelson, Technical Adviser. Mr. Carter had full power upon behalf of the Commissioner of Internal Revenue to settle the disputed tax on a compromise basis.

The right to a deduction for property previously taxed is provided for in Sec. 812(c) of the Internal Revenue Code. That section provides that if there is included in a decedent’s gross estate property received by him from any person within five years prior to his death, or received by gift, bequest, devise or inheritance from any person who died within five years prior to his death, a deduction may be taken by the estate of such decedent subject to certain conditions. Those conditions here pertinent are: (1) The property respecting which the deduction is sought must have been received by the decedent within five years of his death; (2) the property must be identified either as the same property which decedent so received or as property acquired in exchange thereof; (3) the property must have formed a part of the gross estate of the prior decedent; (4) an estate tax must have been paid by such prior estate; and (5) the deduction is limited as to the value of the property or to the aggregate value of such property if more than one item, as finally determined for the purpose of the prior estate tax, or the value of such property, or aggregate value of the items thereof included in the present decedent’s estate, whichever is lower.

Congress sought to avoid the payment of a federal estate tax on property more than once in a five year period. It follows that if property was not included for federal estate tax purposes in the prior estate it is not to be deducted as previously taxed property in the second estate. The mere fact that a prior decedent owned certain property which was received by gift or bequest by the second decedent does not in itself entitle the latter to a deduction. The property must have formed a part of the taxable estate of the prior decedent.

The principal issue, therefore, is whether the compromise agreement provided that all the transfers of property made by William Horlick, Sr., to his children were included in his gross estate at one-half their actual value or whether only an undivided one-half interest in such transfers was included in the taxable estate of William Horlick, Sr., thus eliminating an undivided one-half interest therein. The government asserts that only one-half of the transfers of William Horlick, Sr., to his children formed a part of his gross estate and that an estate tax was paid on only that one-half. The government argues that since the deduction is limited to the value of the property, to have included it at one-half its value would have been contrary to the letter of the statute which provides “for the purpose of the tax the value of the net estate shall be determined” and that, therefore, it would have been illegal to have included such transfers at one-half their value. Defendant further contends that the value of the securities involved was established by their price on the security markets and that there could be and was no question as to what their value was on the critical date.

Plaintiff contends that as a compromise to avoid a lawsuit the government officials representing the Commissioner of Internal Revenue did agree that all of the gifts in question be considered as part of the senior William Horlick’s gross estate but that for the purpose of the tax only a fifty percent value thereof would be considered. He argues that on the dates when the gifts were made William Horlick, Sr., could not have been testamentary minded about half of the gifts made on that day and not so minded as to the other half.

Since the statute which relates to property previously taxed grants a specific credit in the nature of a deduction, the plaintiff must sustain the burden of showing compliance with its terms. Statutes exempting from taxation are strictly construed in favor of the government. Bank of Commerce v. State of Tennessee, 161 U.S. 134, 16 S.Ct. 456, 40 L.Ed. 645. The extent to which deductions shall be allowed depends upon legislative grace and only if there is a clear provision therefor can any particular deduction be allowed. New Colonial Ice Co., Inc. v. Helvering, 292 U.S. 435, 440, 54 S.Ct. 788, 78 L.Ed. 1348.

Early in the conferences looking to the settlement of the dispute, it was determined that the gifts made by William Horlick, Sr., to his wife were not made with testamentary intent. The discussion then continued with reference to the gifts to the three children which totaled $7,654,371.98. The representatives of the estate demonstrated that it would not be feasible for the estate to pay anything substantially in excess of $2,000,000 in additional taxes, and the conferees directed their energies toward ascertaining what changes in the size of the estate would produce a tax deficiency of about $2,000,000. Both Carter and Nelson, who represented the Commissioner of Internal Revenue in the conferences, testified upon the trial, and both were emphatic in their statements, that the matter was compromised and settled by excluding one-half of the gifts as not having been made in contemplation of death and including one-half as having been so made.

It would seem more logical that the conferees would agree to include a fractional part of the property in question at its fair market value rather than include all of the property at less than its fair market value, and I am convinced that the officials representing the government so understood the agreement. Furthermore, on August 6, 1940, the Commissioner of Internal Revenue sent a letter to the executor of the senior William Horlick’s estate. It was his final determination. A statement of settlement was enclosed which detailed the manner in which the gifts of William Hor-lick, Sr., to his children were handled in the settlement. It stated:

“Explanation of Items Changed
“The net estate as shown by the preliminary letter dated April 5, 1940, is adjusted as follows:
“(a) One-half of the gifts made by the decedent during the years of 1931 and 1932 to his adult children, but not including the gifts made to his wife, have been treated as constituting transfers of property made by the decedent in contemplation of death. * * * ” (Italics supplied)

It is thus apparent that a month prior to the transmittal of the final letters to the administrator and to counsel for the estate all were fully advised of the commissioner’s final determination. There is no evidence to show any changes in this settlement. The commissioner’s findings are prima facie correct and the taxpayer has the burden of proving them wrong. Wickwire v. Reinecke. 275 U.S. 101, 48 S. Ct. 43, 72 L.Ed. 184; Welch v. Helvering, 290 U.S. 111, 54 S.Ct. 8, 78 L.Ed. 212.

There was a marked decline in the value of the stock of Horlick’s Malted Milk Corporation between the date of the death of William Horlick, Sr., and that of William Horlick, Jr. Sec. 812(c) of the Internal Revenue Code limits the deduction for property previously taxed within the five year period to the aggregate value of such property as finally determined in the prior estate or to the aggregate of such property included in the second estate, whichever is the lower. If the value of the Horlick Malted Milk Corporation stock had not declined, no serious dispute would confront us at this time. Nothing about all of the circumstances surrounding the meetings which resulted in the compromise would lead to the conclusion there was any basis other than that set forth in the statement of settlement hereinbefore discussed.

I, therefore, find that the settlement, in fact, excluded one-half of the gifts made to the children of William Horlick, Sr. and, therefore, that such gifts were not included in his gross estate.

Claim 2

Plaintiff presents no argument as to Claim 2, admitting that his previous position with reference thereto is now untenable due to the decision of the Supreme Court in Rogers v. Helvering, 320 U.S. 410, 64 S.Ct. 172, 88 L.Ed. 134, decided after the commencement of this action.

Claim 3

Claim 3 arises from the fact that certain securities were given to decedent and at least a portion thereof were included in the father’s gross estate as gifts in contemplation of death. These securities were sold by William Horlick, Jr., for $342,350 and he placed the proceeds in the same bank account in which he kept his other funds and from which bank account he made purchases of new securities, as well as withdrawals for all other purposes. Plaintiff claims to have traced the proceeds of the old securities into the ones held by decedent at the time of his death, and thus to be entitled to include the new securities in the category of “property previously taxed.” Prior to the final determination of the deficiency, the government allowed this claim to the extent of $101,754.08, but disallowed the balance.

The shadow of Claim 1 falls across Claim 3. Certain joint stock land bank bonds which William Horlick, Jr., received from his father were sold by him in March and April, 1934, and in November, 1935. During that period he purchased new securities which he held at the time of his death. The government, consistent with its position with reference to Claim 1, re-' fused to concede that the entire proceeds of the bonds came from previously taxed property, because only one-half thereof was included in the gross estate of William Plorlick, Sr. To this extent, the ruling herein as to Claim 1 must govern. As to the remaining half of the proceeds, the government applied what is known as the Rodenbough rule of apportionment.

William J. Horlick, Jr., received $167,-350 from bonds which he sold between March 9 and April 6, 1934, and he received $175,000 from bonds which were called for redemption on November 1, 1935, or a total of $342,350. The sales during what may be designated as the first period were made on March 9, March 23, and April 6. The program of reinvestment began March 27 and continued to May 26. Just prior to the first sale, the balance in William Horlick, Jr.’s bank account was $2,732. During the period it rose to $197,700. At the close of the period it was $17,712. The relationship between the transactions is shown below.

The evidence shows that on each of the dates of the purchase of new securities, except the last, May 26, there was enough money in the bank account derived from the sale of previously taxed securities to provide all of the funds for the purchase of new securities. On May 26, when City of Fresno bonds were purchased for $27,-500, only $16,396.57 was left in the fund from previously taxed securities, the remaining $11,103.43 coming from other sources.

The only sale in the second period, from November 1, 1935, to February 24, 1936, was when the remaining Chicago Joint Stock Land Bank Bonds were called for redemption on November 1, 1935, at $175,-000. Five days later the program of reinvestment commenced and continued until February 24, 1936. Just prior to the. redemption of the bonds the bank balance was $5,195.72. It was increased to about $180,000 by the deposit of November 1. As new investments were made it gradually declined until at the close of the period it stood at $10,734.20. The relationship on the transactions is shown below.

The evidence discloses that on each of the dates of the purchase of new securities or annuities in the second period, sufficient money was in the bank account from the redemption of the previously taxed bonds to provide all the funds for the purchase of the new securities and annuities. •

The Rodenbough rule of apportionment which is advocated by the government is based upon United States v. Rodenbough, 15 A. F. T. R. 551, and Rodenbough v. United States, 3 Cir., 25 F.2d 13, 57 A.L.R. 1091. See also United States v. Rodenbough, D.C., 21 F.2d 781. In determining the question of whether William Horlick, Jr., purchased the new securities with the proceeds of the old ones only, or whether he used funds partly or wholly from other sources, the Rodenbough rule holds the taxpayer to the lowest possible benefit in such a situation. In effect, it assumes that all purchases of new securities were made from moneys not derived from old securities as long as there is enough of such miscellaneous money in the account. The Rodenbough rule was followed by the District Court for the Southern District of New York in Farmers’ Loan & Trust Co. et al. v. United States, 1932, 60 F.2d 618, but, apparently, has not been adopted in any other decision. However, the Board of Tax Appeals, now the Tax Court, has adopted a different rule. Ankeny v. Commissioner of Internal Revenue, 1928, 9 B.T.A. 1302; Appeal of Northern Trust Co., Ex’r (Estate of Underwood), 1928, 9 B.T.A. 1310; Bingham, Ex’x v. Commissioner of Internal Revenue, 1929, 15 B.T.A. 1001; Brawner, Ex’x v. Commissioner of Internal Revenue, 1929, 15 B.T.A. 1122; Rolfe, Ex’r v. Commissioner of Internal Revenue, 1929, 16 B.T.A. 519; Miller v. Commissioner of Internal Revenue, 1944, 3 T.C. 1180. An examination of these cases shows that the rule followed by the Board of Tax Appeals and the Tax Court has been (1) that where the proceeds of the securities sold were deposited in a general bank account and new securities were promptly purchased, the valúe of the new securities is fully deductible so long as the amount expended for them did not exceed the proceeds of the old ones; (2) that where the amount expended for the new securities does exceed the proceeds of the old ones, the proper deduction from previously taxed property is in the ratio which the proceeds of the old securities bear to the total purchase price of the new ones; and (3) that where the securities sold are partly previously taxed and partly non-previously taxed, the investment in new securities is deductible to the extent of the proportion of previously taxed securities contributing to the fund for investment. The decision of the District Court for the Eastern District of Massachusetts in Wiggin v. Hassett, 1944, 56 F.Supp. 263, although not on all fours with the case at bar, follows the principles laid down in the Board of Tax Appeals and Tax Court cases hereinbefore cited.

Mr. Horlick was an experienced invest- or. It was not necessary for him to seek investment advice. During the period in question he was receiving no salary as an executive of the Horlick Malted Milk Corporation. His bank account prior to depositing the proceeds from the sale of previously taxed securities was quite low. How can there be any doubt that he intended to purchase the new securities from the proceeds of the sale of the old? To apply the Rodenbough rule would not be realistic. It would not be in accord with human experience. 'In fact, it would be entirely unreasonable and unrealistic to assume, as would be required by the application of that rule, that Mr. Horlick intended to buy the new securities from the miscellaneous money he received from other sources and that he intended that the money derived from the sale of the securities be used in paying his living and other miscellaneous expenses.

I think that the correct and just rule to follow is that Mr. Horlick intended to purchase new securities with the proceeds of the old securities, and that in so far as he did so, the value of one-half of the securities is fully deductible so long as the amount expended for them did not exceed the proceeds from the sale of those securities that can properly be designated as having formed a part of the gross estate of William Horlick, Sr. In any event, a new computation as to Claim 3 must be made giving effect to the decision heretofore made herein as to Claim 1, and applying the rule as hereinbefore indicated.

Claim 4

Claim 4 involves the value of certain stock of Horlick Malted Milk Corporation. At the date of his death, William Horlick, Sr., was the owner, through an intermediary corporation, of all the stock of the Malted Milk Corporation, consisting of 20.000 shares of the par value of $100 each. His will placed the stock in trust for the benefit of his three children.

No Horlick Malted Milk Corporation stock was ever sold prior to the death of William Horlick, Jr., in 1940. It had been and was a one-man corporation. William Horlick, Sr., the founder of the corporation, owned all of the company’s stock from the beginning of its existence to the day of his death. The stock was neither listed nor available on any market, and there is no evidence of any offer for its purchase or sale by anyone.

Horlick Malted Milk Corporation was the pioneer manufacturer of malted milk in the United States. For several years after the close of World War I it was producing 68% to 73% of all of the malted milk manufactured in this country. It then met powerful competition from large companies with diversified business, such as Borden, National Dairy, Carnation and Kraft. Horlick’s share of the national production slipped to 51% and continued on down until in the decade of 1930-1940 it fell to as low as 10%. In 1940 it was 12%. In 1920 the company manufactured 13,-130.000 lbs. out of a total of 19,715,000 lbs. produced in that year. In 1941 it manufactured only 2,667,000 lbs. out of a total in excess of 23,000,000 lbs. For several years in the early 1920’s the company had net annual earnings in excess of $1,000,000. The loss from operations in the period of 1932 to 1941, inclusive, was $2,306,493. After giving effect to the earnings of the company’s investment securities, the company’s loss for that period still exceeded 1% millions of dollars. The company’s investment securities at the time of the death of William Horlick, Sr., aggregated $1,809,810. These had dwindled to $498,377 at the valuation date of April 1, 1941. After the United States entered the war, the company showed a profit in 1942 and 1943, but operated in 1944 at a loss.

The company made only a single product. It had no diversification of business. It was forced in 1938-1939 to reduce the price of its product at the factory from 540 to 350 a pound, and in 1941 to 320 a pound. The testimony shows that malted milk produced by some of its competitors could be purchased at retail stores from 260 to 330 a pound.

With this bleak outlook in 1941, what would a willing buyer have paid for the interest of the estate of William Horlick, Jr., in the testamentary trust whose corpus was composed entirely of stock of the Hor-lick Malted Milk Corporation? Any such purchaser would have no right to vote the stock. That right was in A. J. Horlick, Trustee. The purchaser would, of course, be entitled to any dividends declared, but for ten years previous thereto the company had operated each year at a substantial loss. One witness of wide investment experience testified that in his opinion the value of the stock on April 1, 1941, did not exceed $45 a share. Another of equally wide experience valued it at $25 a share.

In view of the lack of earnings by the company over a long period, the two experts availed themselves of a provision of the Estate Tax Law enacted by Congress in 1943, Sec. 811(k) of the Internal Revenue Code, as amended by Sec. 501 of the Revenue Act of 1943, 26 U.S.C.A. Int.Rev. Code § 811(k). Although this section was not in force on April 1, 1941, it was a well recognized test before it was put in statutory form.

The Internal Revenue Agent in Charge, in arriving at his deficiency assessment, fixed the value of the stock at $93.70 per share. The executors in their estate tax return placed the value at $75.32 per share. The executors used the same method that had been used by the County Court appraiser in valuing the stock at date of death, April 1, 1940. They simply projected that value one year later. Their sole basis of arriving at the value was the balance sheet of the corporation with certain adjustments.

The rule for valuation of stock in a corporation of the type of Horlick Malted Milk Corporation appears in Sec. 81.10 of Regulation 105: “If actual sales or bona fide bid and asked prices are not available, then * * * in the case of shares of stock, upon the basis of the company’s net worth, earning power, dividend-paying capacity, and all other relevant factors having a bearing upon the value of the stock.”

The government malees much of the testimony of A. J. Horlick given in the County Court of Racine County where the Hor-lick trust accepted 5,900 shares of the stock of Horlick Malted Milk Corporation from the executor in part payment of a $900,000 loan at an agreed valuation which amounted to $85.78 per share. However, this was a family transaction, between parties having identical interests. It was practically a bookkeeping transaction and not a sale at arm’s length, and even in those days memories of annual earnings in excess of a million dollars undoubtedly still lingered. It is interesting to note that in the following year A. J. Horlick paid $35 per share for stock in this corporation.

I find that on April 1, 1941, the value of the interest owned by the estate of William Horlick, Jr., in the testamentary trust consisting of stock of the Horlick Malted Milk Corporation was not in excess of $50 per share, or a total of $235,-000 for the 4,700 shares.

'Claim 5

Mabel Horlick Sidley, the sister of William Horlick, Jr., died July 6, 1938. In her will she bequeathed $100,000 to William Horlick, Jr. At the time of the latter’s death the legacy had not been paid. In the estate tax return the executors claimed it to be previously taxed property, on the theory that when paid the legacy would come from property included in the gross estate of Mrs. Sidley on which an estate tax was to be or had been paid. The Internal Revenue Agent in Charge disallowed the claimed deduction. Actual payment of the legacy was made on March 29, 1943, in the sum of $105,935.43, being the amount of the legacy and a portion of the interest accrued thereon.

In arranging for payment of the legacy the éxecutors of the Horlick and Sidley estates took care to select two items of assets in the Sidley estate which had not been previously taxed in the father’s estate. Payment was made by a certificate of deposit for $85,835.43 and a check for $20,-000. At the trial the government conceded that $80,000 had been sufficiently identified. To avoid further extending this long opinion, it will suffice to say that I have examined the government’s contention as to the balance which it claimed not to be identified and I cannot sustain such contention. The entire legacy given to William Hor-lick, Jr., by the will of his sister has been sufficiently identified by the plaintiff as property which formed part of the gross estate situated in the United States of a prior decedent whose death preceded that of William Horlick, Jr., by less than five years and on whose estate an estate tax was paid. Plaintiff is entitled to have the legacy of $100,000 included as a component of the aggregate value of all the property previously taxed in said estate, as of April 1, 1941, at the sum of $100,000.

Claim 6

Claim 6 has been withdrawn by the plaintiff.

The attorneys for the defendant will prepare findings of fact and conclusions of law in accordance with this opinion and will settle same on five days’ notice.

       Balance on hand March 8, 1934 Deposits from proceeds of securities sold Deposits from other sources §167,350.00 40,15S.95 § 2,732.34 Total deposits 207,50S.95 Total Withdrawals for purchase of securities Withdrawals for other purposes 178,453.43 14,075.26 §210,241.29 Total withdrawals 192,528.69 Balance on hand May 26, 1934 § 17,712.60

       Balance on hand October 31, 1935 Deposits from proceeds of securities sold Deposits from other sources §175,000.00 12,147.50 § 5,195.72 Total deposits 187,147.50 Total Withdrawals for purchase of securities and annuities Withdrawals for other purposes 163,522.50 18,086.52 §192,343.22 Total withdrawals 181,609.02 Balance on hand February 24, 1936 $ 10,734.20

       “In the case of stock and securities of a corporation the value of which by reason of their not being listed on an exchange and by reason of the absence of sales thereof, cannot be determined with reference to bid and asked prices or with reference to sales prices, the value thereof shall be determined taking into consideration, in addition to all other factors, the value of stock or securities of corporations engaged in the same or a similar line of business which are listed on an exchange.”


text:
    TRACHTMAN v. SAMIT.
    Civil Action No. 4303.
    District Court, E. D. Pennsylvania.
    Aug. 28, 1945.

      Cyrus Levinthal, of Philadelphia, Pa., for plaintiff.
    Herman Eisenberg, of Philadelphia, Pa., for defendant.
   BARD, District Judge.

This is an action brought under Section 205(e) of the Emergency Price Control Act of 1942, as amended, to recover damages for the sale by defendant to plaintiff of a used refrigerator at a price in excess of the price established therefor by Revised Maximum Price Regulation 139, 8 F.R. 3706.

Jurisdiction of this action is conferred upon this court by Section 205(c) of the Act.

I make the following special

1. Plaintiff Jeanne Trachtman is a resident of Philadelphia, Pennsylvania.

2. Defendant Jack Samit operates a refrigerator repair service and a refrigerator sales store under the trade name Atlas Refrigerator Service Company at 1106 W. Girard Avenue, Philadelphia, Pennsylvania.

3. Pursuant to the provisions of Section 2(a) of the Emergency Price Control Act of 1942, 50 U.S.C.A.Appendix, § 902(a) the Price Administrator issued Price Regulation 139, “Used Household Mechanical Refrigerators,” 8 F.R. 3706, on March 24, 1943, effective April 15, 1943, which has been, at all times mentioned herein, in full force and effect.

4. On January 4, 1944, defendant sold and delivered to plaintiff one used Frigidaire refrigerator, Model M-4 — 37 (1937), cabinet No. 1884856, for $159.

5. The refrigerator contained a factory rebuilt unit which cost $38 and was accompanied by defendant’s written guaranty for one year.

6. Plaintiff purchased the refrigerator for her own use as a consumer other than in the course of plaintiff’s trade or business.

7. Shortly after the sale, plaintiff notified defendant that the price exceeded the ceiling price. Defendant thereupon removed the refrigerator from plaintiff’s home and mailed plaintiff a check dated January 11, 1944 in the amount of $159 which was cashed by plaintiff.

Discussion

Defendant admits that he sold the Frigidaire refrigerator to plaintiff for $159. However, he urges that the price ceiling provisions of MPR 169 substantiate his contention that the proper maximum price for a reconditioned refrigerator with a rebuilt unit and a one year guaranty is $161.50, and that the sale was, therefore, at a price below the maximum allowed.

The relevant price provisions are set forth in the margin. The Regulation groups used refrigerators into three classes for the purpose of determining the price ceiling. The prices for two classes are fixed by a list of prices. These classes are “as is” refrigerators and “reconditioned” refrigerators. Reconditioned refrigerators are defined as used refrigerators which meet certain specifications as set forth in the Regulation. Reconditioned refrigerators must be accompanied by a ninety day guaranty, but, if the guaranty is for one year or more and the refrigerator was manufactured before 1940, the vendor is permitted to add $10 to the list price. An “as is” refrigerator is one which does not meet the standards specified for a reconditioned refrigerator. The list prices for a used Frigidaire refrigerator Model M-4-37 are $61.50 (“as is”) and $97.65 (“reconditioned,” plus $10 with a one year guaranty).

The third price class, as defined in Section 3(g) consists of those refrigerators which meet the standards of a reconditioned refrigerator, are sold with a one year guaranty, and contain a new or rebuilt unit. The maximum price for a refrigerator in this class is fixed by adding to the “as is” list price for that model “the manufacturer’s net suggested resale maximum price in effect in March 1942, or subsequently specifically approved by the Office of Price Administration, for the replacement unit contained in the refrigerator, or * * * (if these price standards do not exist) * * * the net cost to the dealer for the replacement unit, plus the dollar markup taken for the sale of the most comparable item in March 1942.”

Defendant offered in evidence the “packing slip” of J. J. Pocock, Inc., for the rebuilt unit installed in the refrigerator which showed a net cost to defendant of $38. Defendant then testified that the ordinary cost of a rebuilt unit is $45, but that the charge for this particular unit was reduced to $38 because defendant had hauled the unit to and from the reconditioning plant. Defendant’s expert witness testified that average dealer markup for a rebuilt unit in March 1942 was about 100%. Defendant maintains that the ceiling price for this Frigidaire refrigerator Model M^l— 37 containing a rebuilt unit should be: (1) the “as is” list price, $61.50; (2) plus the net cost of the replacement unit, $45; (3) plus the 100% markup on the replacement unit, $45; plus the additional charge allowed by Sections 3(c) (d) for a one year guaranty, $10. Thus the ceiling price would be $161.50 and the price which plaintiff paid would be less than the maximum allowed.

I do not agree with this calculation. The $10 additional charge allowed for a one year guaranty is found only in Section 3(c) (d). Section 3(c) says, inter alia: “If the guaranty is to last for one year or more the higher reconditioned price appearing in the table of charges may be charged.” (Italics supplied). In Section 3(d), under the heading “Frigidaire,” the following is found: “If a one-year guaranty is furnished, $5 may be added to the prices in the second column (prices for reconditioned refrigerators) for models of 1939 and 1940; and $10 for earlier models.” Section 3(g), which creates the price class for refrigerators containing rebuilt units, and upon which defendant relies, applies only where “the refrigerator meets the standards of a reconditioned refrigerator and is sold with a one-year guaranty.” It appears to me that the $10 additional allowance for the one year guaranty applies only to refrigerators within the “reconditioned” price class. In this price class a one-year guaranty is not required and therefore, where such a guaranty is extended, the dealer is permitted to make the additional charge. However, a one-year guaranty is a condition precedent to bringing the refrigerator within the “rebuilt unit” price class. I am of the opinion that the Regulation intended to include compensation for this guaranty within the method prescribed for calculation of ceiling' prices for “rebuilt unit” refrigerators. Therefore, where the maximum price is computed under Section 3(g), the Regulation does not permit an additional charge for the one-year guaranty. Defendant’s contention that the calculated ceiling price for this refrigerator having a rebuilt unit should include the $10 item is erroneous.

I give little credence to defendant’s testimony that the net charge of $38 for the rebuilt unit evidenced by the “packing slip” of J. J. Pocock, Inc., was, in fact, reduced from $45, the actual charge, by allowing a discount for defendant’s hauling expense. I therefore find that the net cost to defendant of the rebuilt unit was $38.

Under the provisions of MPR 169 the ceiling price for the refrigerator sold to plaintiff must be computed as follows: (1) The “as is” list price, $61.50; (2) plus the net cost of the replacement unit, $38; (3) plus the 100% markup on the replacement unit, $38. Thus the maximum price for this refrigerator was $137.50 and the sale price exceeded the maximum price established by the Regulation by $21.50.

Defendant urges that his repossession of the refrigerator and the return of the sale price to plaintiff constituted a rescission of the contract of sale and relieved defendant of all liability to plaintiff under Section 205(e) of the Act. Merely because defendant has returned the parties to status quo should not relieve him of liability. The liability is penal in nature and the plaintiff is not precluded from obtaining a judgment under the provisions of Section 205 (e) merely because she may not be able to prove damages. The sale of the refrigerator at a price exceeding the maximum allowed was completely executed on January 4, 1944. On that day defendant incurred an absolute liability to plaintiff under Section 205(e), which he cannot escape by restoring plaintiff to status quo.

Section 205(e) of the Act, 50 U.S. C.A.Appendix, § 925(e), permits a purchaser to recover from a vendor three times the amount of overcharge or $50, whichever is greater, plus reasonable attorney’s fees, for each sale in excess of the established maximum price, provided the defendant fails to prove that the violation was not wilful. Defendant has not met this burden. Plaintiff is entitled therefore to a judgment for $64.50 plus reasonable attorney’s fees and costs.

Conclusions of Law

1. This court has jurisdiction of this action brought by Jeanne Trachtman pursuant to the provisions of Section 205(e) of the Emergency Price Control Act of 1942, as amended, to recover damages from defendant Jack Samit, trading as Atlas Refrigerator Service Company, for the sale of a used Frigidaire refrigerator, Model M-4 — 37, at a price exceeding the maximum price established therefor by Maximum Price Regulation 139, 8 F.R. 3706.

2. This Court has jurisdiction over the defendant.

3. On January 4, 1944, defendant sold and delivered to plaintiff one used Frigidaire refrigerator, Model M-4-37, for $159, which exceeded the maximum price established therefor by Maximum Price Regulation 139 by $21.50.

4. Plaintiff is entitled to recover treble damages in the sum of $64.50.

5. Plaintiff is entitled to recover, in addition thereto, the sum of $75 as reasonable counsel fees and costs.

6. Judgment may be entered for plaintiff for $139.50.

       56 Stat. 23, 765, 57 Stat. 566, 58 Stat. 640, 50 U.S.C.A.Appendix, $ 925(e).

       “See. 3. Maximum prices for sales of used household mechanical refrigerators by all persons — (a) Reconditioned refrigerators. As used in the table below a refrigerator is reconditioned if it meets the following standards: * * *
      “(b) ‘As is’ refrigerators. An ‘As is’ refrigerator is one which does not meet the standards of a reconditioned refrigerator.
      “(c) Guaranties. Every refrigerator which is sold as a reconditioned refrigerator must carry a written guaranty for at least 90 days from the date of its installation which provides that any part which proves defective within the guaranty period will be replaced without charge for labor or materials or other services. If the guaranty is to last for one year or more the higher reconditioned price appearing on the table of prices may be charged.
      “(d) Table of maximum prices for certain used household mechanical refrigerators. The maximum cash price for the following specified models of used household mechanical refrigerators (except those with factory rebuilt units) shall be: * * Frigidaire
      “If a one-year guaranty is furnished, $5 may be added to the prices in the second column, for models of 1939 and 1940; and $10 for earlier models * * *
      Price reconditioned with
      Price 90-day
      Year Model 'as is’ guaranty
      ' 1937' M-4-37 $61.50 $97.65 ...
      “(g) Maximum prices for refrigerators with new or factory rebuilt units. (1) This section shall apply only in cases in which: “(i) The refrigerator meets the standards of a reconditioned refrigerator and is sold with a one-year guaranty.

      “(ii) The refrigerator contains a new unit or one rebuilt by the original manufacturer, or by a reconditioner who offered such a service in February, 1942, or earlier, and furnished with it at least a one-year guaranty.
      “(iii) The new or rebuilt unit has been purchased by the person offering the re-» frigerator for sale.
      “(2) The maximum cash price for a refrigerator with a new or rebuilt unit meét-ing the qualifications of the foregoing section shall be the sum of:
      “(i) The ‘as is’ maximum price for that refrigerator, and
      “(ii) The manufacturer’s net suggested resale maximum price in effect in March, 1942, or subsequently specifically approved by the Office of Price Administration, for the replacement unit contained in the refrigerator, or if no manufacturer’s suggested resale price was in existence in March, 1942, or later subsequently approved by the Office of Price Administration, the net cost to the dealer for the replacement unit, plus the dollar markup taken for the sale of the most comparable item in March, 1942. * * * ” (Italics supplied.)

       There was no evidence that a manufacturer’s net suggested resale maximum price in effect in March 1942 or subsequently approved by the Office of Price Administration exists. Therefore, the net cost to the dealer plus the dollar markup for the sale of a comparable item in March 1942 must be used.