author: MOINET, District Judge.

text:
    In re BARLUM REALTY CO.
    No. 30296.
    District Court, E. D. Michigan, S. D.
    May 23, 1945.

      James E. Littell, of Detroit, Mich., for Trustee National Bank of Detroit.
    C. J. Odenweller, Jr., of Cleveland, Ohio, for Securities and Exchange Commission.
    Thomas G. Long, of Detroit, Mich., for Indenture Trustee and Consolidated Committee.
    Harold M. Shapero, of Detroit, Mich., in pro. per. and for certain bondholders.
    Philip D. Dexter, of Detroit, Mich., for Margaret M. Wardell, attorney for petitioning creditors.
    Karbel & Eiges, by Sidney J. Karbel, all of Detroit, Mich., for Barium Realty Co., debtor, William R. Wilson, sole stockholder and large general creditor, and Mary H. Wilson, a bondholder.
    Schmier & Schmier, by Herman A. Schmier, all of Detroit, Mich., for Barium Realty Co., debtor, William R. Wilson, sole stockholder and large general creditor, and Mary H. Wilson, a bondholder.
    Ralph E. Routier, of Detroit, Mich., for certain bondholders.
   MOINET, District Judge.

This matter comes before the Court for the consideration of the approval of two plans of reorganization, one filed by the Trustee, and the second filed by Harold M. Shapero, a bondholder, in a proceeding for the reorganization of the debtor under Chapter X of the Bankruptcy Act as amended, 11 U.S.C.A. § 501 et seq. On August 17, 1943, an involuntary petition was filed for the reorganization of the debtor, which was approved as properly filed on December 14,1943, and the National Bank of Detroit was on the same day appointed Trustee. Said Trustee qualified as such and, after an investigation into the affairs of the debtor filed its plan of reorganization on February 5, 1945.

At the request of the Court, the Securities and Exchange Commission filed its notice of appearance herein on October 19, 1943, and since that date has actively participated in the proceedings.

The debtor is a Michigan corporation organized July 21, 1914, and its charter.renewed July 14, 1944. Its principal businessr and sole asset is the owning and operating of the Barium Tower, a 40-story office building located on the northwest corner of Cadillac Square and Bates Street in Detroit, Michigan. The building was constructed in 1927 and is subject to the lien of a trust mortgage dated June 15, 1928, securing First Mortgage Bonds of the debtor originally issued in the amount of $3,600,000.

In July of 1932 the Equitable Trust Company in its capacity as successor Indenture Trustee, having previously accelerated the maturity date of the bonds, instituted a foreclosure action in the Circuit Court of the County of Wayne, Michigan. A foreclosure decree was entered on June 30, 1939. This decree permitted the Indenture Trustee to bid the property in at a foreclosure sale and to pay therefor by crediting the bid amount against the' amount then due under the decree. From a sale pursuant to said decree an appeal was taken to the Supreme Court of the State of Michigan and by decision rendered June 19, 1940, Equitable Trust Co. v. Barium, 294 Mich. 167, 292 N.W. 691, 130 A.L.R. 1343, the trial court’s decree of foreclosure relative to bidding in the property was reversed. No further action was taken in the foreclosure proceeding after said decision.

The debtor and the Indenture Trustee, in lieu of the appointment of a receiver or the taking possession by the Trustee pursuant to the terms of the Trust Mortgage, entered into a certain written agreement dated December 30, 1929, which said agreement was supplemented on October 1, 1931, and on March 10, 1932, whereby the debtor waived the provisions of Act 228 of Public Acts of the State of Michigan, 1925 and agreed to collect the rents and to apply them for the benefit of the First Mortgage Bondholders, the Indenture Trustee to exercise supervision over the operation of the building and the accounting in relationship thereto, with the power to countersign all checks and other payments.

At the time of the institution of the present proceeding," First Mortgage Bonds of the debtor were outstanding in the principal sum of $3,592,000, of which the debtor held in its treasury bonds in the principal amount of $10,000. Pursuant to an order entered May 1, 1944, a payment of 10 per cent upon principal was made by the Trustee, thereby reducing the unpaid principal to $3,232,800. In addition, there had accrued as of December 31, 1944, interest at the rate of 6 per cent per annum, with interest on unpaid coupons, aggregating $4,420,645.49. All current taxes have been paid and there are only a few thousand dollars of preferred claims. General claims aggregate $236,000. There are outstanding 1,200 shares of common stock with a par value of $100 per share, all of which are owned by William R. Wilson, president of the debtor and the manager of the building.

It is well recognized that going concern values of assets of companies in reorganization require a prediction of their future earning capacity, which must of necessity be estimated as distinguished from mathematical certitude. The opinion should be based on a well-informed judgment embracing all facts bearing upon the future earning capacity of the debtor, including the physical condition of the property, its rentability, its earning record, and any other material circumstances which would bear upon its future earning capacity. The necessity of determining going concern value was recognized in Re Consolidated Rock Products Co. v. Du Bois, 312 U.S. 510, 61 S.Ct. 675, 85 L.Ed. 982. The court there said (312 U.S. at page 525, 61 S.Ct. at page 685, 85 L.Ed. 982): “Findings as to the earning capacity of an enterprise are essential to a determination of the feasibility as well as the fairness of a plan of reorganization. Whether or not the earnings may reasonably be expected to meet the interest and dividend requirements of the new securities is a sine qua non to a determination of the integrity and practicability of the new capital structure.”

At the hearings on the plans held pursuant to Section 269 of Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 669, considerable testimony was taken as' to the going concern value of the property. Mr. James E. Atkinson was called to testify by the Trustee, and Mr. Sidney M. Schott was called by Mr. Shapero. There was considerable difference in the view of these two appraisers as to the going concern value of the property. Mr. Atkinson was of the opinion that the value of the building was $1,155,000. Mr. Schott, on the other hand, was of the opinion that it was worth $2,932,000. Both men arrived at their conclusions through capitalization of earnings. Mr. Atkinson arrived at his future earning figure by taking an average of the past 15 years, whereas Mr. Schott multiplied the number of square feet available for occupancy by a rate of $1.60 per square foot and then made an allowance of only 15 per cent for vacancies, which resulted in a gross income per square foot of total rentable area higher than the building has ever experienced. Mr. Atkinson capitalized average earnings of $92,000 per year, while Mr. Schott used average earnings of $197,000 per annum, both of which are computed before depreciation and Federal income taxes.

Mr. Atkinson’s approach and method seem to this Court to have been sound and his estimate of the future to be justified, while Mr. Schott’s approach is unwarranted in that he admittedly gave -no consideration to past performances, relied entirely upon the current record, and ■was unduly optimistic of the future. Schott’s forecast of the future painted an occupancy and earning record for this building never approached in its last fifteen years of operation. Further, Schott appears to have been influenced to too great a degree by the abnormal earnings which the building is enjoying during this war period. War earnings are not a reliable criterion for the determination of the going concern value of a debtor, since “the bulge of war earnings per se is unreliable for use as a norm unless history is to be ignored.” Group of Institutional Investors and Mutual Savings Bank Group v. Chicago, Milwaukee, St. Paul & Pacific R. Co., 318 U.S. 523, 63 S.Ct. 727, 739, 87 L.Ed. 959.

Mr. Atkinson capitalized his earnings at 8 per cent, because of the location of the building, and Mr. Schott used a 7 per cent rate. The testimony reflected that the building cost only $2,465,492.78. It is the opinion of the Court that Mr. Atkinson’s appraisal is sounder and more nearly represents the true going concern value of the assets of the debtor. I, therefore, conclude that the debtor is insolvent.

Turning now to the plans of reorganization before the Court, the Trustee’s plan contemplates the creation of a new corporation to which all of the assets of the debtor will be conveyed. The capital structure of the reorganized company to consist of $716,400 of 20-year First Mortgage Sinking Fund Bonds bearing 5% interest per annum, 3% of which shall be fixed, and 2% payable if earned. Monthly deposits to be made with the Indenture Trustee for tax payments, additional interest, and retirement of bonds. The reorganized company to be authorized to issue 179,100 shares of common stock with a par value of $2.50 per share. The old First Mortgage Bondholders under the Trustee’s plan would receive in exchange for each old bond having a face value of $100 (which was reduced to $90 by the 10 per cent payment on principal), a new First Mortgage Bond with a face value of $20, plus 5 shares of the common stock, and cash to the nearest one quarter of one per cent of the face amount of the old securities, after the Trustee has paid all cash items, administrative costs and provided the reorganized company with adequate working capital. Other than the payment of such preferred creditors whose claims may be allowed, all other creditors and stockholders of the debtor are not to participate in the Trustee’s plan.

Mr. Shapero’s plan provides for the supplementing of the present Mortgage Indenture, which would cancel all past due interest and extend the entire principal amount for a period of 30 years, the bonds as extended to bear interest at the rate of 3% per annum, payable if earned, interest to be payable from net earnings which is to be computed by deducting from gross income all taxes, expenses and depreciation. The depreciation funds not used for maintenance to be distributed on principal. The charter of the debtor to be amended to authorize 32,228 shares of no par common stock, which is to be distributed to the bondholders at the rate of one share -for each $100 principal amount old bonds. Similar to the Trustee’s plan only bondholders and preferred creditors are to participate.

The only substantial objection filed to the Trustee’s plan was filed by the debtor and the owner of all of the outstanding stock of the debtor, on the grounds that: First, the petition was not filed in good faith; second, the proceeding was instituted for the purpose of indirectly acquiring the property of the debtor for the bondholders; third, the plan makes no provision for stockholders or general creditors in the moneys sequestrated by the agreement between the debtor and the Indenture Trustee for the collection of the rents and fails to credit them with a value for the debtor’s equity of redemption; and, fourth, the proceeding is for the liquidation of the debtor.

There is no merit to the first contention of the objector that this proceeding was not instituted in good faith. The purpose for which this proceeding was instituted was to readjust the rights of creditors and the plans filed with this Court carry out such a purpose. The order of December 14, 1943, found that the petition had been filed in good faith, from which no appeal was ever taken. Good faith cannot at this late date be collaterally attacked because, when the order approving the petition has become final it is a conclusive determination of the jurisdiction of the Court. Bankruptcy Act, Section 149, 11 U.S. C.A. § 549. See Country Life Apartments, Inc., v. Buckley, 2 Cir., 145 F.2d 935, 938.

The second contention is equally unmeritorious. Neither of the plans filed contemplate the sale and liquidation of the assets of the debtor. Both contemplate merely the readjustment of the rights of the creditors and stockholders in accordance with applicable law. It was for the purpose of avoiding the archaic procedure of foreclosure of mortgages which led Congress to extend the powers of the bankruptcy court over corporate reorganizations. The fact that the Indenture Trustee could not complete its reorganization proceedings in the Wayne County Court is no grounds for contending here that the Court has no power to do in effect what the Indenture Trustee was unable to do in the other proceeding.

Moreover, Chapter X contemplates that a debtor may be reorganized through a plan of reorganization which provides for the “sale of all or any part of its property, either subject to or free from any lien, at not less than a fair upset price and the distribution of all or any assets, or the proceeds derived from the sale thereof, among those having an interest therein.” Sec. 216(10) of the Bankruptcy Act, 11 U.S.C.A. § 616(10). This procedure “is amply supported by * * * decisions [of the] courts.” Country Life Apartments, Inc., v. Buckley, supra. If outright liquidation is permitted then, a fortiorari, a plan which contemplates merely a recapitalization and redistribution of securities is within the contemplation of Chapter X of the Bankruptcy Act.

The third objection attacks the Trustee’s plan of reorganization as being unfair in its treatment of general creditors and stockholders. The Trust Mortgage which secures the bonds conveyed the land and the building thereon and assigned and transferred to the Indenture Trustee the rents, issues and profits therefrom. This indenture was recorded not only as a real estate mortgage but also as a chattel mortgage, which latter mortgage has been rerecorded regularly pursuant to the laws of the State of Michigan. Thus, all of the assets of the debtor were pledged to secure the outstanding bonds.

General creditors and stockholders may share in the pledged assets in a plan of reorganization only after the bondholders have been given full compensatory treatment. This doctrine was recognized in the case of Consolidated Rock Products Co. v. Du Bois, supra. There the Court stated (312 U.S. at page 529, 61 S.Ct. at page 686, 85 L.Ed. 982) : “If they receive less than that full compensatory treatment,, some of their property rights will be appropriated for the benefit of the stockholders without compensation. That is not permissible. The plan then comes within judicial denunciation because it does not recognize the creditors’ ‘equitable right to be preferred to stockholders against the full value of all property belonging to the debtor corporation.’ Kansas City Terminal R. Co. v. Central Union Trust Co., supra 271 U.S. [445], at page 454, 46 S.Ct. [549], 70 L.Ed. 1028.”

The words “fair and equitable” are words of art and have acquired a fixed meaning through judicial interpretations in the field of corporate reorganization. A plan of reorganization to be “fair and equitable” must accord to the creditors— first of secured, then of unsecured — prior rights in the property of the debtor before stockholders are entitled to any participation. Any attempt by which subordinated rights or interests are secured at the expense of prior rights comes within judicial denunciation. Louisville Trust Company v. Louisville, New Albany & Chicago R. Co., 174 U.S. 674, 19 S.Ct. 827, 43 L.Ed. 1130; Case v. Los Angeles Lumber Products Co., Ltd., 308 U.S. 106, 60 S.Ct. 1, 84 L.Ed. 110; Consolidated Rock Products Co. v. Du Bois, supra.

The Trust Mortgage assigned all of the rents, issues and profits flowing from the mortgaged property. After default, by written agreements aforementioned, the debtor collected the income subject to said agreements, which in effect sequestrated the rents for the bondholders. The debtor, in addition, waived the requirements of Act 228 of Public Acts of the State of Michigan 1925. The sequestration of the rents for the bondholders in this manner was not defective through a failure of the Mortgage Trustee to record a notice pursuant to said Act. See Detroit Trust Co. v. Detroit City Service Co., 262 Mich. 14, 247 N.W. 76, and Giblin v. Detroit Trust Co., 270 Mich. 293, 258 N.W. 635. The distribution was proper since the bondliolders were the cestuis que trusts of the fund. The funds which were turned over to the Court’s Trustee were subsequently -ordered disbursed to the bondholders upon the principal of their bonds. It being their money, it must follow that there was therefore no appropriation of a “free asset” in which general creditors had an .interest.

Chapter X of the Bankruptcy Act as amended gives the bankruptcy court exclusive jurisdiction over the debtor and its assets. Section III of Bankruptcy Act. It is contended by the objector that this ■Court should have determined the value of the equity of redemption of the debtor .and provided in the plan for creditor and stockholder participation to the extent of the amount so determined. The ■objector is confusing a procedure in straight bankruptcy (Chapters I to VII of the Bankruptcy Act, 11 U.S.C.A. § 1 et seq.) ■with the procedures outlined in Chapter X of the Bankruptcy Act. The bankruptcy •court, under Chapter X, has jurisdiction to readjust the rights not only of the •unsecured creditors but also the secured ■creditors of the debtor, and “may deal with all or any part of the property of -the debtor.” Sec. 216(2) of bankruptcy Act. No rights of the debtor or of the .general unsecured creditors are thereby violated if the secured creditors are permitted to take over the assets of the debtor pledged for their obligation, free and clear of any equity of redemption.

The Trustee’s plan and Mr. Shapero’s plan in providing that the general unsecured creditors and stockholders are to receive no participation in the plans of reorganization are both “fair and equitable” since the claims of the debtor’s bondholders exceed the going concern value of the enterprise tested by either appraiser’s opinion. Case v. Los Angeles Lumber Products Co., Ltd., supra.

The Court must, in addition to finding the plan “fair and equitable,” also find the plan of reorganization to be “feasible.” Feasibility means that the reorganized company will emerge in a solvent condition with reasonable prospects of financial stability and success. Some of the factors to be considered in this determination involve the soundness of the proposed capital structure and the ability of the reorganized company to meet its financial obligations at their maturity dates. It is, therefore, necessary that the proposed capital structure of the reorganized company bear some reasonable relationship to its going concern value and its requirements to its expected source of income. A determination that the proposed capital structure is sound when tested by its earning capacity “can give the new company some safeguards against the scourge of overcapitalization.” Group of Institutional Investors and Mutual Savings Bank Group v. Chicago, Milwaukee, St. Paul & Pacific R. Co., supra. See also Consolidated Rock Products Co. v. Du Bois, supra.

It is unsound for a reorganized company to be launched forth with a capital structure in which the aggregate amount of debt exceeds the going concern value of the assets. “The same standards of sound finance are applicable to real estate companies as to other business enterprises. Failure to restrict debt to proper limits with reference to earning power has been a principal cause of widespread defaults on real estate mortgages.” Advisory Report of Securities and Exchange Commission, In the Matter of Broadway-Exchange Corporation, Debtor.

The Trustee’s plan proposes a new bond issue of $716,400, which is 62% of Mr. Atkinson’s going concern value of $1,155,000. The Shapero plan contemplates a bonded indebtedness of $3,232,800, which would be 280% of said going concern value. Even under the most favorable appraisal figures given by Mr. Schott, the ratio of debt to going concern value in the Shapero plan would be 110%. In my opinion, the securities proposed by Mr. Shapero are unsound and somewhat deceptive, since it is obvious that they could not be worth what they purport to be on their face.

The fact that an office building has a limited economic life emphasizes the need of debt retirement even more than in the case of an industrial enterprise. Industrial enterprises provide depreciation reserves for the replacement of capital assets upon obsolescence or upon wearing out. These reserves are available for new plants and equipment, they permit the enterprise to maintain pace with industrial development in its field and in meeting competition with the result that its life may be prolonged indefinitely. In the operation of an office building, such opportunities are few. Old and wornout equipment can, of course, be replaced, but obsolescence is difficult to remedy. A building that no longer attracts tenants because there has been a shift to other neighborhoods, or because it is old or outdated, can secure only small assistance in arresting the inevitable loss of income. It, therefore, seems that it is an absolute necessity for sufficient earnings to be set aside so that the reorganized company’s debt can be very substantially reduced, if not entirely paid off, as the end of the economic life of the building approaches.

In the opinion of this Court, the Trustee’s plan does just that. I believe the evidence indicates that the proposed bond issue will be paid off within twenty years; that it is not reasonably to be expected that another default will occur repeating the fiasco of this issue and precipitating this company back into the lap of this or some other court, an occurrence which all too often has happened in corporate reorganization proceedings. However, the proposed debt which is contemplated in the Shapero plan, namely, $3,232,800, would not be retired or reduced to a refundable amount within the thirty year extended period through the application of the reasonably foreseeable earnings. There still would be approximately $1,300,000 in principal amount of bonds outstanding at the end of that thirty-year period. This means that as the building approached the end of its economic life, it would still owe more in the way of a bonded debt than this Court has found its going concern value to be today, when it is only seventeen years old and in times which admittedly are abnormal.

Also during this period, it is questionable whether the extended bonds would receive interest at a rate much in excess of 1% notwithstanding an innuendo that they are 3% bonds. This is due to depreciation being deducted in the computation of “earnings” from which interest is to be paid.

Since securities issued pursuant to a plan or reorganization under Chapter X are exempt from the registration requirements of the Securities Act of 1933, IS U.S.C.A. § 77a et seq. (Section 264a(2) of the Bankruptcy Act, 11 U.S.C.A. § 664a (2), there is a certain burden thrust on the Court to carefully scrutinize the proposed new securities and to reject any plan of reorganization which proposes to issue securities of an unsound type. This requirement was recognized in the case of In re American Department Stores Corporation, D.C., 16 F.Supp. 977. That Judge stated (16 F.Supp. at pages 979, 980): “It is the duty of the court to pass upon the feasibility of the plan of reorganization. Although the plan were unopposed, the court should not approve any feature fundamentally unsound. * * * Congress in subdivision (h) of section 77B, 11 U. S.C.A. § 207(h) provided that: ‘All securities issued pursuant to any plan of reorganization confirmed by the court in accordance with the provisions of this section, * * * shall be exempt from all the provisions of the Securities Act.’ This imposes upon the courts the task of scrutinizing with care securities to be issued under a plan of reorganization.” This responsibility is solely that of the Court, notwithstanding the fact that a representative of the Securities and Exchange Commission may be participating in the proceeding pursuant to Section 208 of the Bankruptcy Act, 11 U.S.C.A. § 608, since such, participation is limited to that of “a -party in interest, with a right to be heard on all matters arising in such proceeding.”

Likewise, the fact that a large majority of the bondholders have indicated a preference for a particular' plan is not the test of whether the plan is fair and equitable and feasible. To hold otherwise would malee a judicial determination on these issues a mere formality and would effectively destroy the function and duty imposed by Congress on the district courts under Chapter X of the Bankruptcy Act. Every important determination calls for an informed independent judgment. Case v. Los Angeles Lumber Products Co., Ltd., supra.

It has been strenuously urged by Mr. Shapero in support of his plan that tremendous tax savings inure to the bondholders by reason thereof. It is impossible to determine whether the present high income tax rates will be continued by Congress against corporations. Mr. Shapero predicated his contention upon the continuation of the present high rates, which may or may not be a correct supposition, and to the extent that it is incorrect the actual savings would be reduced to that extent.

In addition to the fact that it is probably not appropriate to speculate as to the nature and extent of the tax statutes over the life of the reorganized debtor, even if the fact that tax saving could be shown, it should not outweigh the necessity for a sound capital structure within the limits of feasibility. Judge Goddard, District Judge for the United States District Court in the Southern District of New York, in his unreported decision of July 10, 1941, in a case of In re Ulen & Co., CCH Bankruptcy Law Service, par. 53,523, a corporate reorganization under Chapter X, recognized the necessity for sound securities and that tax considerations should not outweigh these fundamental necessities. He stated in his memorandum decision: “Judicial approval of such an issue, it should be noted, would tend to lead members of the public to the erroneous belief that the Court concluded that the securities were sound and that the reorganized company would be able to pay the principal and accumulated interest at maturity. Such is not my conclusion. Nor is this view expressed in the advisory report of the Securities and Exchange Commission, with whose recommendations I agree. The possibility of some savings in taxes is outweighed by these considerations.” This view is continually enunciated in the advisory reports of the Securities and Exchange Commission. See Advisory Report of Securities and Exchange Commission, In the Matter of Broadway-Exchange Corporation, Debtor; In the Matter of Cenwest Corp.? Debtor; In the Matter of Indiana Limestone Corporation, Debtor.

It is, therefore, my conclusion that while both the plan of the Trustee and the plan of Mr. Shapero are “fair and equitable,” only the plan of the Trustee is “feasible,” and therefore the plan of the Trustee alone is “worthy of consideration.” Section 172 of the Bankruptcy Act, 11 U.S.C.A. § 572. The Securities and Exchange Commission having notified me that it does not oppose approval of the Trustee’s Plan and will not file an advisory report in this proceeding, I am therefore approving the plan of the Trustee, which in my opinion complies with the provisions of Section 216 of the Bankruptcy Act and is fair and equitable and feasible. Mr. Shapero’s plan is not found worthy of consideration and is therefore disapproved.

Present order in accordance with above decision.


source: Caselaw Access Project

author: McCOLLOCH, District Judge.

license: Public Domain

text:
    LANE v. FITZSIMMONS STORES, Limited, et al., and six other cases.
    Civil Actions Nos. 3030, 3056, 3073, 3682, 3689, 3690, 3705.
    District Court, S. D. California, C. D.
    March 2, 1945.
    Arthur E. Briggs, J. Allan Frankel, David Silverton, and Albert Lane (in pro. per.) all of Los Angeles, Cal., for plaintiff.

      Baldwin Robertson, Don S. Irwin, Clive W. Johnson (of Mitchell, Johnson & Lud-wick), and John H. Blake (of Hanna & Morton), all of Los Angeles, Cal., for defendants.
   McCOLLOCH, District Judge.

In an age when punitive damages and informer recoveries are being re-examined, a construction of a statute that permits an overcharge of less than five dollars to be converted into a claim for more than ten thousand dollars calls for serious consideration. It may be said that Congress made the law, and the Court’s duty is to enforce it, but the question remains: Did Congress intend such a result? A great scholar when called from the courts of New York to the Supreme Court of the United States, declared that his new duties consisted largely of interpreting acts of Congress.

It is not my intention to stigmatize the plaintiff. He claims to have had some official encouragement in his activities, and there is room for difference of opinion as to the possibilities for private and individual actions under the statute, else these-cases would not have been in the courts for longer than a year, occupying all of the time of a resident judge for more than a month, and engaging a good deal of my time during the past two months; nor do I find it necessary to decide the cases on the questions tried before Judge Jenney, although I think, in view of the amendment of the statute, that many of the questions tried before him could now properly be treated as at large.

When members of Congress suggested to Administrator Bowles that the statute should be amended to explicitly forbid suits based on purchases made by private parties for the express purpose of making claims against the sellers, the Administrator replied that such was not possible under the original Act. Whether or not the Administrator’s reply caused Congress to forego an amendment that it might otherwise have made, is not of moment. It is of moment, though, that we have here an administrative construction of the Act, of value in seeking the elusive thing called Congressional intent.

I think, as I said orally, that the statute was intended to give rights of action to consumers when overcharged in the making of their normal purchases. Mr. Lane, granting him the fullest good faith, considered himself to be a private policeman, aiding the Los Angeles O.P.A. in what he felt was too big a problem for them. Incidentally, he intended to claim fifty dollars for himself for each overcharge, though it were no more than a penny. He visited about two thousand grocery stores and about seven hundred fruit and vegetable stands, and made two hundred sixty-one over-ceiling purchases, at a total expenditure of $48.91. He was overcharged $4.48, for which he asks, more than ten thousand dollars. He and his family have eaten the food purchased, and that makes him, he feels, a consumer under the Act.

I find that he did not buy primarily for comsumption, but primarily to m'ake a claim for a large sum. There is such a thing as the Courts needing to keep themselves respectable. That is Justice Holmes’ meaning in the wire-tapping case ; that is Justice Brandéis’ meaning in the entrapment cases. Congress quickly amended the ancient qui tarn statute when the Court applied it literally. (Note 1, supra.) O. P. A. has its own separate legal staff — an innovation. It has its own investigators. And I say, we should be slow to find support in the statute for the broad claim that plaintiff and his able counsel make here, that private citizens may constitute themselves a police force to enforce the statute at great personal profit. It is well at times to look backward as well as forward. In the last war, the serious mistake was made of calling on private citizens to aid in the enforcement of the espionage statutes. That mistake was not repeated in this war. The head of the Federal Bureau of Investigation is entitled to much credit for calling to the attention of Congress the unfortunate consequences of this mistaken policy of the last war, and for recommending that the policing of the home front should be left in this war in official hands. And just lately, one of the finest things that I have heard said about a public officer was the statement that the present Attorney General’s record was distinctly free of the blot of the last war, of indiscriminate prosecutions for alleged unpatriotic activities by the citizenry. The war has been well fought on the home front, without that being necessary. These things have their bearing on the question before us.

I said that I did not intend to stigmatize the plaintiff, nor am I intending to excuse the defendants, if they have offended against the regulations. If they have offended, O. P. A. can proceed against them. Two thousand pages of printed record in this Court, giving the facts respecting the alleged violations and the claimed defenses thereto, are available for O. P. A.’s inspection.

The motions for summary judgment are allowed.

       31 U.S.C.A. §§ 231-234: United States ex rel. Marcus v. Hess, 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443; United States ex rel. Rodriguez v. Weekly Publications, Inc., et al., 2 Cir., 144 F.2d 186; United States ex rel. Sherr v. Anaconda Wire & Cable Co. et al., D.C.S.D.N.Y., 57 F.Supp. 106.

         Cf. Sorrells v. United States, 287 U.S. 435, 446, 53 S.Ct. 210, 77 L.Ed. 413, 86 A.L.R. 249.

       The statute was amended June 30, 1944, 50 U.S.C.A.Appendix § 925.

       “ * * * As regards the fear which has been expressed to the effect that these suits may be used as a ‘racket’ to trap and plague innocent sellers, the answer is that under the present language of the statute any seller can defend himself if he can show that the buyer was not purchasing ‘for use or consumption’, i. e., that the buyer bought the article for the express purpose of promoting a lawsuit rather than for actual use as a consumer. * * * ” Letter of Administrator Bowles, dated May 17, 1944, recorded in Hearings Before the Committee on Banking and Currency, House of Representatives, Yol. 2, page 2183.

       Olmstead v. United States, 277 U.S. 438, 470, 48 S.Ct. 564, 575, 72 L.Ed. 944, 66 A.L.R. 376: “ * * * the existing code * * * does not permit the judge to allow * * * iniquities to succeed.”

       Casey v. United States, 276 U.S. 413, 425, 48 S.Ct. 373, 376, 72 L.Ed. 632: “To preserve the purity of its courts.” Sorrells v. United States, 287 U.S. 435, 455, 457, 53 S.Ct. 210, 77 L.Ed. 413, 86 A.L. R. 249 (separate opinion of Justice Roberts, concurred in by Justices Brandéis and Stone); “ * * * true foundation of the doctrine in the public policy which protects the purity of government and its processes” (287 U.S. 455, 53 S.Ct. 217, 77 L.Ed. 413, 86 A.L.R. 249). “ * * * the preservation of the purity of its own temple belongs * * * to the court” (287 U.S. 457, 53 S.Ct. 218, 77 L.Ed. 413, 86 A.L.R. 249).

       I have added the citations in notes 1 to 6 since filing the opinion. District Judges, who do not have law clerks, often find this necessary, the need for quick decision compelling the judges to rely on their accumulated experience.
      A well known figure, writing from the appellate point of view, has lately said, it was surprising there were not more reversals. Whether the writer was intending to compliment the District Judges on the quality of their decisions, or to compliment the appellate judges on their restraint, was not stated.
      While there are no reliable statistics on the point, the fact appears to be, that appeals are taken in about one out of ten matters, that go to final judgment. And every District Judge knows that by far the majority of the difficult questions submitted to him never reach an appellate court.
      Government agencies are the heaviest litigators in the United States courts, and the Interstate Commerce Commission, “the Daddy of all Commissions,” early determined to appeal every decision adverse to it to the -Supreme Court. O.P.A. appears to be following the same practice. Should this mild rash of administrative self-importance become epidemic, the result may be “to swamp the courts,” as Holmes, J., put it (United States v. Sing Tuck, 194 U.S. 161, 170, 24 S.Ct. 621, 624, 48 L. Ed. 917). But this will be a matter for concern “at the appellate level.”


author: KENNEDY, District Judge.

text:
    UNITED STATES v. HRABCAK.
    No. 5131 Criminal.
    District Court, D. Wyoming.
    July 23, 1945.

      Carl L. Sackett, U. S. Atty., and John C. Pickett, Asst. U. S. Atty., both of Cheyenne, Wyo., for plaintiff.
    Samuel D. Menin, of Denver, Colo., and Clyde M. Watts, of Cheyenne, Wyo., for defendant.
   KENNEDY, District Judge.

The above entitled cause is before the Court upon a plea of former jeopardy entered in behalf of the defendant. The facts are not in dispute and are as follows:

The defendant, after registration under the Selective Training and Service Act of 1940, 50 U.S.C.A.Appendix § 311, upon his affirmative showing was classified as IV-E and ordered by the Board to report on August 10, 1942, for assignment to a Civilian Public Service Camp to do work of national importance. Upon his failure to so report the matter was submitted to the United States Attorney and upon presentment to a Grand Jury at the November Term of 1942 he was indicted, thereafter tried and convicted of violating said order of the Board and sentenced to serve a term of two years in a Federal Penitentiary. Such'service of sentence was completed by the defendant, after which he was again classified by his Local Board as a conscientious objector and on or about December 13, 1944, ordered to report for assignment to a Civilian Camp to do work of national importance. The defendant again failed and neglected to report and to conform to the order of the Board. The matter was referred to the United States Attorney and on the 26th day of June, 1945, he was again indicted for failure to obey the order of the Board. To this indictment he has entered his plea of former jeopardy. Trial briefs have been submitted by counsel and the case is now before the Court for consideration.

The principal basis of the plea of former jeopardy is that it must be a prosecution for the same identical offense. Burton v. United States, 202 U.S. 344-380, 26 S.Ct. 688, 50 L.Ed. 1057, 6 Ann.Cas. 362. In this respect the case at bar clearly does not come within the rule announced for the reason that in the present case it is a separate and distinct order of the Board issued at a different time than the first order which he refused to obey and upon the conviction of which offense he was subsequently sentenced.

It remains to be considered whether or not irrespective of this legal analysis, under the Selective Training and Service Act he was subject to a second order of a similar nature after he had served his sentence for failure to obey the first order. The answer to the query is to 'be found in ascertaining whether or not the defendant is subject to a continuing obligation when logally called upon to serve his country in time of war. I think this answer must be in the affirmative. There is nothing in the Act under consideration which would justify a conclusion that a citizen subject to the orders of a Board might be absolved from further compliance with the demands of the Administrative Branch of the Government to which the functions are committed, becomes immune by reason of the fact that’ he has suffered one penalty and served a sentence for failure to submit to the orders of the Board upon a prior occasion. In other words, he has a continuing duty to serve his country in time of war and when he is legally called upon to do so he must respond if he is not protected at the time in serving such former sentence. This duty has been suggested by some of the Courts in similar cases as similar to the obligation of a father to support his children, in which it has been held that a conviction of a father for refusing to support his children is not a bar to a later prosecution for a future neglect. It seems to me that the obligation of a citizen to support his government in time of war is entitled to the highest rank of personal obligation.

It is suggested that a number of Courts have reached the foregoing conclusion but only a few of the cases are reported. Those which have been called to the attention of the Court as reaching similar conclusions are: Goodrich v. United States, 5 Cir., 146 F.2d 265, and Self v. United States, 4 Cir., 150 F.2d 745.

For the reasons stated an order may be entered overruling the plea of former jeopardy and reserving proper exceptions to the defendant.


author: OTIS, District Judge.

text:
    KITHCART v. METROPOLITAN LIFE INS. CO.
    No. 1774.
    District Court, W. D. Missouri, W. D.
    June 9, 1944.
    M. J. O’Donnell, of Kansas City, Mo., for plaintiff.
    Henry I. Eager and Michaels, Black-mar, Newkirk, Eager & Swanson, all of Kansas City, Mo., for defendant.
   OTIS, District Judge.

This venerable controversy haunts us like a ghost which cannot be laid. Once our colleague put an end to it. 55 F.Supp. 200. Twice we buried it. Twice the Court of Appeals not only refused to resurrect it (8 Cir., 88 F.2d 407; 8 Cir., 119 F.2d 497), but almost spat on the grave. Here it comes again!

1. The controversy (should we say, the spectre?) comes to us now, having been removed from a state court, in the form of an amended petition. Defendant has moved to dismiss. Three grounds are set out in the motion. The first is that no facts are stated in the complaint supporting the relief prayed.

The complaint fills twenty-nine typewritten pages, exclusive of exhibits. (It would be difficult to depart further from the ideal described in Rule 8, Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c). It contains so many unnecessary words that search for its essence is made difficult. That search is aided, however, by the key the learned draughtsman has given us in the title set at the head of the complaint: “Petition for Reformation of Insurance Contract.’’ We would expect to find allegations of fact indicating that one contract actually had been agreed upon but that the contract sought to be reformed, a different contract, through accident or mistake or fraud, had been formally entered into.

Both the contract alleged to have been agreed upon and that sought to be reformed are contracts of accident insurance. Plaintiff claims he sustained an accident compensable under the contract. He alleges, however, that an essential provision of the contract actually agreed upon was that plaintiff was sound in mind and body when the contract was entered into. That provision of the contract, it is alleged, was embodied in certain documents attached to the application. The contract sought to be reformed, it is alleged, does not contain the provisión referred to. Upon the true contract and the facts, it is alleged, plaintiff should recover damages from defendant.

We have read the amended petition over and over again. It has been a baffling task. How so good a lawyer as plaintiff’s counsel is known to be — he is a leading and distinguished member of the bar — could bring himself to conceal so small a needle in so large a haystack is hard to explain. We feel that we cannot say, however, that no cause of action for reformation can be pieced out of the interminable verbiage of this amended petition.

2. We shall sustain the motion to dismiss on the second ground set out in the motion, that the amended petition shows on its face, when supplemented by facts of which judicial knowledge is taken, that the controversy presented is res adjudicata.

The amended petition shows that the plaintiff has sued defendant repeatedly on essentially the same cause of action. The records and files of the court show it. A suit at law on the contract of insurance resulted in a verdict and judgment for the defendant from which there was no appeal. In that suit plaintiff set up or should have set up whatever contract he had with defendant. The judgment in that suit determined every issue which was made by the pleadings or might have been made. Besides the suit at law there have been two suits in equity which have gone to judgment and have been affirmed. 8 Cir., 88 F.2d 407; 8 Cir., 119 F.2d 497. Several other suits have been instituted and dismissed. It is difficult to avoid thinking that the plaintiff individually (not his learned and highly esteemed counsel) has set out to harass both the defendant and the courts. We have, however, put that thought from our mind.

Motion to dismiss sustained. So ordered.


author: RIFKIND, District Judge.

text:
    OLAVARRIA & CO., Inc., v. INTERNATIONAL TRANSP. CORPORATION et al.
    District Court, S. D. New York.

    June 5, 1945.

    Bingham, Englar, Jones & Houston, of New York City, for libellant.
    Crowell & Rouse, of New York City, for respondent International.
    Haight, Griffin, Denning & Gardner, of New York City, for respondent West India.
   RIFKIND, District Judge.

West India Fruit and Steamship Company excepts to the libel on the ground that it fails to state a cause of action. The argument in support of the exception proceeded on the assumption that the libel alleged the loss of cargo as the result of unseaworthiness of the carrying vessel. Upon that assumption West India argued that the bill of lading annexed to the libel showed the contract between the shipper and the carrier to be one of private, and not common, carriage and that the carrier was, by the terms of the bill of lading, relieved of responsibility for loss attributable to lack of seaworthiness. But the libel does not allege the cause of the loss. It merely alleges the delivery of the cargo by the shipper to West India on consignment to the libellant and failure on the part of the carrier to deliver the cargo to the consignee or the shipper. That states a cause of action against a private carrier. The Joseph J. Hock, 2 Cir., 1934, 70 F.2d 259; see In re Steamship Co. Norden, D.Md.1925, 6 F.2d 883, 887. The pleading to be sufficient need not anticipate and negate all the circumstances which may exculpate the respondent. The exception is, therefore, overruled.

The ship owner, International Transportation Corporation, likewise excepts to the libel. Since the libel is in personam, it must, in order to be sufficient, show the breach of a duty owing from the owner to the libellant. The libel does allege such a breach of duty when it declares delivery of the cargo by the shipper to the owner. But the bill of lading annexed to the libel shows clearly that no such delivery was made but that delivery was made to the charterer alone. The bill of lading is signed:

“In witness whereof, the West India Fruit and Steamship Company, Inc., by its agent, have signed three (3) bills of lading, one of which being accomplished the others to stand void.
“Dated at Habana.
“West India Fruit and Steamship Co., Inc.
“By Frank Cameron Master.”

Cases relied on by libellant as holding the owner liable when the bill is signed by the master do not sustain its position. They deal either with the liability of the ship or with the liability of the owner where the master signed as its agent. Gans S. S. Line v. Wilhelmsen, 2 Cir., 1921, 275 F. 254; The Capitaine Faure, 2 Cir., 1926, 10 F.2d 950; The Esrom, 2 Cir., 1920, 262 F. 953; The Esrom, C.C.A. 2, 1921, 272 F. 266, see concurring opinion of Hough, C. J.; Milburn v. Nord Deutscher Lloyd, D. C.S.D.N.Y.1893, 58 F. 603.

Exception sustained, with leave to amend.

Other questions presented on the argument have not been overlooked. In view of the disposition made herein of the two motions, it is unnecessary to answer them.


author: GOODMAN, District Judge.

text:
    PINEIRO v. UNITED STATES.
    No. 24195-G.
    District Court, N. D. California, S. D.
    June 4, 1945.
    L. C. Gay, of San Francisco, Cal., for li-belant.
    Graham & Morse, of San Francisco, Cal., for respondent.
   GOODMAN, District Judge.

By exceptions to the libel herein and (by-supporting “exceptive allegations,” respondent United States asserts that as time charterer of a Panamanian vessel, it is not liable under the Suits in Admiralty Act, 41 Stat. 525, 46 U.S.C.A. § 741, for libelant seaman’s damage alleged to have been caused by unseaworthiness of the chartered vessel.

The libel alleges that while a crew member of the Panamanian merchant vessel “Gloria,” libelant was compelled to labor ¡beyond the call of duty when the vessel was unable to maintain its position in a convoy of which it was a part, due to defective condensers, pumps and boilers. As a result, libelant alleges, he became seriously ill and thereby suffered injuries permanently incapacitating him.

It is claimed in the libel that the “Gloria” was at all times “under the full, complete and exclusive control and direction” of the United States.

The “exceptive allegations” disclose the terms of a “time charter” between the owner and the United States. The United States hired, at a stipulated rate, the entire cargo space of the vessel. The owner agreed to man, equip and victual the vessel and to use due diligence to maintain it in seaworthy condition.

Libelant maintains that the libel states a cause of action 'because it appears therefrom that the “Gloria” was “operated by or for the United States” (Suits in Admiralty Act, 46 U.S.C.A. §§ 741, 742) ; that respondent, the United States, could not be proceeded against “in rem” under Section 1 of the Act and may, therefore, be proceeded against under Section 2 thereof “in personam.”

The United States, to the contrary, asserts the “time charter,” as set out in the “exceptive allegations,” conclusively establishes its non-liability, inasmuch as a time charterer is not responsible for the consequences of a vessel’s unseaworthiness.

The time charter, however, may not be conclusive on the issue of liability. Evidence, dehors the charter, might well disclose that the United States, as alleged in the libel, actually controlled and operated the vessel. In that event, the provisions of the time charter would not per se suffice to relieve the United States of liability. Baltimore Dry Docks & Ship Bldg. Co. v. New York & P. R. S. S. Co. (The Isabella), 4 Cir., 262 F. 485.

On the other hand, if it is disclosed by the further development of the cause, that the vessel was actually operated as called for in the charter, then it will become necessary to determine the issue raised by the exceptions, namely, whether the Suits in Admiralty Act imposes liability in person-am upon the United States because of the vessel’s alleged unseaworthiness. The determination of this question involves an analysis of the historical background and considerations leading to the enactment of the Suits in Admiralty Act, considerations upon which a just evaluation of the extent of the “in personam” liability of the United States must rest.

At this stage of the proceeding, however, it seems to me to be unnecessary to decide this contention. To do so, would amount to obiter dictum. In my opinion, the interests of justice do not compel final determination of the sufficiency of the cause upon the exceptions alone.

The exceptions are therefore overruled.

       See opinion, of Judge Kirkpatrick on reargument filed May 17, 1945 in the case of Burkholder, Libelant, v. United States of America and War Shipping Administration, D.C.E.D.Pa., 60 F.Supp. 700. The District Court there held that the United States as time charterer of a privately owned vessel is subject to liability in per-sonam under the Suits in Admiralty Act for maintenance and cure of an injured crew member.


author: BOWEN, District Judge.

text:
    MURPHY et al. v. AMERICAN MAIL LINE et al.
    No. 14691.
    District Court, W. D. Washington, N. D.
    Sept. 11, 1945.
    Sam L. Levinson, of Seattle, Wash., for libelants.
    Bogle, Bogle & Gates, and Thomas L. Morrow, all of Seattle, Wash., for respondents.
   BOWEN, District Judge.

Action by members of the crew of the S. S. Richard Henry Dana to recover repatriation money for their return passage from New York to a Pacific Coast port. Libelants base their right to such recovery on the Shipping Articles calling for libel-ants’ service on that vessel “now bound from the Port of San Francisco, California, to a point in the Pacific Ocean to the westward of San Francisco and thence to such ports and places in any part of the world as the master may direct * * * and back to a final Pacific Coast port of discharge in the United States, for a term of time not exceeding 12 calendar months.”

In an earlier action brought on the same Articles by only two of the crew members to recover similar repatriation money and involving some issues common to this case, this Court decided in effect that the voyage in question which was commenced at San Francisco on September 16, 1942, under those Articles was terminated at New York on January 6, 1943, and that those two li-belants were entitled to recover from respondent United States of America their repatriation money from New York to the Pacific Coast. Such decision in the former case was justified by the circumstances, among others, that the ship was at New York completely discharged and drydocked for overhaul and repair, and during her next two voyages, the last of which ended about March, 1944, the ship never did return to a Pacific Coast port for final discharge, but finally discharged at New York on each such subsequent voyage.

Further support of such decision in the former case is found in respondent’s Exhibit A-12 in this case, which shows that the vessel, after completing discharge at 5:30 A.M., shifted to the Bethlehem yard in Brooklyn at 10:50 A.M. on January 5, 1943, for drydocking, thorough examination of rudder and post, wire brushing and painting of bottom, and for repairs or alterations in armament and in crew’s quarters. In this connection it should be remembered that the crew signed off on January 6, 1943, but it can hardly be inferred that the prospect of such signing off inspired the thought of such drydocking for overhaul and repair the next day. Rather, from the shifting of the vessel to drydock for such purposes so quickly after discharge of her cargo, it is more convincingly to be inferred that the vessel’s operator had been considering the termination of the voyage before the crew decided to sign off, and that the breaking up of the voyage was intended and in reality caused by the drydocking, overhaul and repair of the vessel, not by the signing off of the crew.

From the evidence and disclosed circumstances, I find that at the time of planning the drydocking and repair, which was before the crew signed off, the vessel then intended not to return on that voyage to the Pacific Coast of the United States for final discharge; that the vessel then intended to embark upon a series of new Atlantic and other voyages from and to the Atlantic Coast of the United States; and that the holding up to the crew of the possibility of yet returning to a Pacific Coast port for final discharge within the 12-month period of the work contract was a pretense on the part of the vessel intended to mislead the crew as to the true intention of the vessel on that subject. The clearest signs present at the time strongly indicated that, and subsequent events as to the nature and extent of the overhaul and repair and as to the trading routes of the vessel convincingly prove it. The members of the crew were therefore justified in signing off the ship on January 6th, the day following the drydocking of the vessel, and in view of all these circumstances they did not give up their right to repatriation to a Pacific Coast port.

The evidence abundantly supports the contention of libelant crew members that, in addition to wages, they demanded repatriation money for their return passage to the Pacific Coast but were refused it and were refused their wages unless they signed a mutual consent release. Libelants further contend in effect that, although they finally signed that release, they did so under verbal protest pursuant to repond-ent’s coercion because, after their demand for repatriation was refused, the only way they could collect their wages was to sign the mutual consent release exacted by respondent. This contention is likewise supported by the evidence.

Finally, the Court finds and concludes that the libelants were coerced into signing the release; that, because the release did not expressly acquit the obligation to pay repatriation money and because of such pretense and coercion, they did not in fact or in law release respondent from its obligation to pay them repatriation money following failure in its duty assumed in the ship’s articles to return libelants “back to a final Pacific Coast port of discharge” (see generally Brown v. United States, D.C., 283 F. 425, 427; Billings v. Bausback, 9 Cir., 200 F. 523) ; and that respondent is liable to pay to each of the libelants, except those shown by the evidence not to have incurred any such expense, as to which the burden is upon the respondent (48 Am.Jur. 114, Sec. 166; 15 Am.Jur. 770, Sec. 331), the reasonable cost of transportation of a person from New York to the Pacific Coast, which reasonable cost is hereby found to be the sum of $125.

This case is distinguishable from the case of Landro v. Pacific Atlantic S. S. Co., D. C., 30 F.Supp. 538, relied upon by respondent, because in the Landro case the libelant seamen were properly denied repatriation money claimed as a result of the termination of the voyage by a strike participated in by libelants.

Findings of fact, conclusions of law and decree will be settled upon notice or stipulation.


author: LEAHY, District Judge.

text:
    UNITED STATES v. 40.558 ACRES OF LAND IN NEW CASTLE COUNTY, DEL., et al.
    Civil Action No. 272.
    District Court, D. Delaware.
    Sept. 5, 1945.

      John J. Morris, Jr., U. S. Atty., and W. Thomas Knowles, Asst. U. S. Atty., both of Wilmington, Del., and Charles M. Ire-lan, Atty., Department of Justice, of Washington, D. C., for petitioner.

      Thomas Cooch and James R. Morford (of Marvel & Morford), and Walter J. Willis, all of Wilmington, Del., for defendants.
   LEAHY, District Judge.

The United States instituted this action to acquire certain lands for military purposes for a term commencing on February 15, 1942, and expiring on June 30, 1945. A portion of these lands was owned by the Delaware Light & Power Company. The claimant here is H. T. Roberson, who is a lessee holding under an oral lease. No term was expressly limited. However, under apposite Delaware law Roberson was the tenant in possession with the right to possession until March 1, 1943. In his answer he claims compensation for the following items:

(a) Loss upon sale of livestock $2,000.00
(b) Deprivation of profits and emoluments 8,000.00
(c) Improvements to stables and dairies 2,000.
Loss upon sale of farming tools, machinery, and
equipment ............. 2,000.
and requirement to rent a house at $50.00 and spend $100.00 in - moving
5,000.00
(d) Loss of business or occupation 5,000.00

The government moved to strike claimant’s entire answer for the reason that “all the claims alleged in the several paragraphs of said answer are not compensa-ble.”

1. The story behind the taking of claimant’s property is one which would call forth the sympathy of any court. His small farm was located near an ATC air base outside Wilmington. It was a matter of removing his house and other farm structures at once as they endangered the landings and take-offs of the army’s planes. The quick necessity for claimant to get out within a matter of hours and dispose of his stock, machinery and other farm equipment resulted in a real loss to him. But, claimant’s compensation must be determined by settled rules for fixing compensation in this type of case.

His main reliance is on United States v. General Motors Corporation, 323 U.S. 373, 65 S.Ct. 357, 156 A.L.R. 390. True, in that case removal expenses were allowed, but not as a separate item of compensation; they were allowed to be considered as an element of just compensation in order to arrive at the fair market value of the property taken. The point of distinction in the General Motors case is that the government acquired merely a portion of General Motors’ long-term lease and in order to fulfill its obligations under the lease General Motors was required to remove from the premises for the period of government occupancy and then at the termination of such occupancy again to move back into the property and complete its term. In the case at bar claimant’s entire estate was taken by condemnation for his lease terminated by operation of law on March 1, 1943. The government's taking extended to June 30, 1945. Claimant’s right to be compensated falls into the settled category of what are proper elements of damage that may be considered in evaluating the taking of the whole of a leasehold estate. It is here that claimant faces rules which are opposed to his position as to consequential damages to a business (if farming is to be considered as such) removal and relocation expenses.

The measure of just compensation under the Fifth Amendment to the Constitution in federal condemnation is not governed by state law. It has been defined by the federal courts as the cash market value of the estate taken. Just compensation includes, of course, all elements of value, but it can not exceed a market value fairly determined. While an owner of property is entitled to be put in as good a position pecuniarily as if his property had not been condemned, this does not mean that all losses are compensable. The destruction or the frustration of a farming enterprise is a matter of consequential damages and is not an element to be considered in arriving at market value.

Congressional discussions (88 Cong. Rec. 1665) on the enactment of the Second War Powers Act (50 U.S.C.A.Appendix § 631 et seq.) clearly show that it was the intent of Congress that consequential damages should not be allowable in the acquisition of property taken under that statute. The institution of the present suit is bottomed on that statute.

! [6-8] Consequential damages resulting from the expense incurred by an owner in moving personal property or a business from the premises condemned have been held to be non-compensable. So, too, it has been held that a lessee may not recover removal expenses. This is also the rule in various state courts. It was said in Kansas City Southern R. Co. v. Commissioner of Internal Revenue, 8 Cir., 52 F.2d 372, 381: “ * * * Compensation is unjust when the government is compelled to pay more for the use of property than the highest amount of rental that could be secured for such use.” Hence, there may be no separate compensation for claimant’s losses upon sale of livestock, farming tools, machinery and equipment, deprivation of “profits and emoluments,” the cost of moving, or the items going to show “loss of business or occupation.” The item of $2,000 with respect to amounts expended in improvements to stables and dairies is, however, a proper element to be considered as this obviously is a calculable item to be included in arriving at the fair market value of the leasehold estate at the time the property was condemned by the government. This item will be permitted

to remain in the answer; but the other items will be stricken.

2. Claimant moves that the court appoint commissioners to assess his damages and thereafter if either party is dissatisfied with the award that a writ of ad quod damnum issue in accordance with the Revised Code of Delaware of 1935, §§ 2167 or 5730 ; and if it should be ordered that the writ issue, then the United States Marshal be directed to impanel a jury to assess the damages. 40 U.S.C.A. § 258 provides : “The practice, pleadings, forms and modes of proceedings in causes arising under the provisions of section 257 of this title shall conform, as near as may be, to the practice, pleadings, forms and proceedings existing at the time in like causes in the court of record of the State within which such district court is held, any rule of the court to the contrary notwithstanding.” Delaware has no general condemnation statute. Claimant urges us to follow either § 2167, which involves condemnation by railroads, or § 5730, which involves condemnation by the State Highway Department of the state of Delaware. Claimant emphasizes the applicability of this latter section because it is a statute for condemnation by a governmental agency, albeit a state governmental agency, and that § 5730 is more closely applicable to the case at bar. Claimant argues that a federal court is not free to adopt its own procedures in condemnation matters. It submits that the appointment of commissioners under § 5730 would lead to conformity “as near as maybe”.

Under § 5730 of the Revised Code of Delaware of 1935 first the commissioners fix the damages. Later if the parties are dissatisfied and then the writ of ad quod damnum issues, the sheriff’s (here the marshal’s) jury while sitting de novo also may be said to act as a -reviewing tribunal. The judge of the court issuing the writ has no supervision whatsoever of the conduct of the trial before either the commissioners or the sheriff’s jury. In so far as -Delaware is concerned, these proceedings are final as to the quantum of damages awarded. See Woolley, Delaware Practice, p. 972. Under the Delaware procedures the court ceases to have control over the proceedings after the appointment of commissioners. In fact, the judge does not instruct the commissioners or, under the writ of ad quod damnum, the jury, as to any legal rule of damages applicable to the proceeding. A party’s legal right to be compensated or the right of the government to maintain its action are, of course, legal questions reserved to the court.

The government resists any adherence to the Delaware procedures on the ground that they are not only inadequate, in the case of a federal condemnation, but adherence in this court would deprive it of all jurisdiction over the proceedings instituted here and would afford no right of appeal. Under this view the phrase “as near as may be,” it is urged, confers a large license on the court. Conformity is not required where it would not be practicable; and conformity will not be had where the effect will be to impede any legislation of Congress But this does not mean that this court can turn its back on the Delaware methods of condemnation and make up its own rules for the game. This would simply mean an utter disregard of 40 U.S. C.A. § 258.

The Advisory Committee on Rules of Civil Procedure in its Preliminary Draft of Proposed Amendments, May 1944, pointed out that as late as 1931 there were 269 different methods of judicial procedure in different classes of condemnation cases. Consequently, the Committee was of the belief that we should have unanimity of procedure in condemnation matters. Originally, Rule 71A was suggested. At the 1944 Judicial Conference for this Circuit there was far from unanimity of opinion on the wisdom of such a rule; and I am informed that pro and anti views were likewise expressed throughout the country by members of the federal judiciary as well as by the bars of the various districts. In any event, it is interesting to note that in the Second Preliminary Draft of Proposed Amendments, May 1945, the Committee has temporarily withdrawn proposed Rule 71A for further consideration. The Committee apparently proposes to make a revised draft of the rule and submit it to the profession for comment. After this, I suppose, the Committee will recommend á final draft to the Supreme Court. The local district committee on Rules of Civil Procedure which I appointed several years ago, consisting of eight members of the Delaware bar, has submitted to me a local rule providing for a procedure in condemnation cases which is quite similar to and just as adequate as the original proposed Rule 71A; but as the Advisory Committee on Rules of Civil Procedure has not, as yet, formally tendered 71A in its final form to the Supreme Court, I entertain grave doubt as to a district court’s power to promulgate a purely local rule covering the same subject matter, even though I am of private opinion that some rule in the form of 71A might be preferable in federal condemnation cases to the ancient writ of ad quod damnum as utilized in Delaware. In short, I conclude I am compelled to adhere to the provisions of 40 U.S.C.A. § 258 until the Supreme Court adopts a rule similar to proposed Rule 71A. While several condemnation cases have been tried in this court some years ago by a jury following the same procedures as occur in a traditional action at law, I do not think such procedure is now authorized. Federal district courts have limited jurisdiction and, to repeat, until the Congress or the Supreme Court directs otherwise, I believe that 40 U.S.C.A. § 258 must apply and that the Delaware district court is required in condemnation cases to follow “as near as may he” the Delaware procedures.

Claimant’s motion for the appointment of commissioners will be granted if an appropriate order is submitted.

Appendix

The statutory procedure which I think controls the method of determining a condemnation in this court is set out in the Delaware Revised Code of 1935, § 5730, which reads:

“Eminent Domain; Notice to Abutting Property Owners As to Building Limits: • — Whenever the department cannot agree with the owner or owners of any land, building, franchise, easement, sand, earth, stone, gravel or other property necessary to be taken or used in the construction, reconstruction, or maintenance of any State highway or proposed State highway, which the department shall construct, reconstruct, straighten, widen, grade or otherwise improve, or shall propose to construct, reconstruct, straighten, widen, grade or otherwise improve, for the purchase thereof, the said department may apply to the associate Judge of the State of Delaware, resident in the County where any such property necessary to be taken is located for the condemnation of such property, first giving to the other party or owner at least five days’ notice in writing of the intended application if such party or owner is within the State, and if said party or owner is unknown or without the State, or if under legal disability and having no legal representative in the State, then such notice shall be published in some newspaper in the County in which said property proposed to be taken is located at least five days prior to the' intended application, and such publication shall be sufficient notice; upon application made as aforesaid, the said associate Judge shall appoint five judicious and impartial freeholders to view the premises or ascertain the easement or franchise, and assess the damages which the owner or owners will sustain by reason of the said construction, reconstruction, straightening, widening, grading, or other improvements to the highway, or the taking of such property. The freeholders shall be sworn or affirmed before some officer authorized to administer oaths or affirmations, before entering on the premises or before ascertaining the easement or franchise, faithfully and impartially to perform the duties assigned them. They shall give ten days’ notice, in writing, to the owner or owners of the premises or property so proposed to be condemned or to their guardian or guardians, duly appointed, if within the State and to the said Department of the time of their meeting to view the premises or ascertain the easement or franchise; if the owner or owners are unknown or are without the State or if under legal disability and having no legal representative in the State, publication of such last mentioned notice shall be made in some newspaper in the County in which the proceedings were instituted at least ten days prior to the said meeting, and such publication shall be sufficient notice thereof. The said commissioners shall keep a record of their proceedings with their findings and awards and return the same to the Prothonotary of the County in which the said proceedings were instituted, and shall certify their findings and awards to the owner or owners of the property and to the Department; if the Department or any party in interest is dissatisfied with such findings and awards, it or he may, on application to said Pro-thonotary within fifteen days after such findings and awards have been made and filed, sue out a writ of ad quod damnum, requiring the Sheriff of said County, in the usual form, to inquire of twelve impartial men of his bailiwick of the damages which will be sustained as aforesaid, and their report shall be final. The said commissioners or the said jury shall, in assessing the damages aforesaid, take into consideration the benefits and advantages to the owner or owners resulting from the proposed highway improvement and set off the value of such benefits or advantages against the loss, detriment and disadvantages, which such owner will suffer, provided that in no case shall the amount estimated as and for benefits and advantages exceed the amount allowed for loss, detriment or disadvantages to such owner. The amount of damages being ascertained, the Department may pay or tender the amount thereof within two months after the same shall have been so ascertained, to the person or persons so entitled thereto, or, if the person or persons so entitled refuse to accept or reside out of or are absent from the County during all or any part of said period of two_ months, the same may be deposited to his credit in the Farmers’ Bank of the State of Delaware, in the County seat of the County wherein such proceedings are instituted, within said time, and thereupon said property may be taken and occupied for the use and purpose for which it was condemned, provided that the Department, .in its discretion, after it has made application as aforesaid for the condemnation of property, may occupy or use such property without delay, and the proceedings for the ascertainment of the damages shall proceed as in this section provided, but in the event of such immediate use or occupation as last aforesaid, the Department shall pay to the owner or owners thereof if within the State, or if such owner or owners refuse to accept the amount of damages or are without the County, deposit to his or their credit in the said bank as aforesaid, within ten days after the damages have been ascertained, the amount thereof. The expenses of the assessment by the said commissioners of the damages aforesaid, of the fees of the said Sheriff and Prothonotary and of all costs incurred in the execution of the writ of ad quod damnum, shall in all cases be paid by the Department. The said Judge shall have power to fill any vacancy in any commission and thereafter the commission shall proceed as though no vacancy had occurred.”

For the method of procedure and the nature of the writ of ad quod damnum, see Lewis et al. v. DuPont et al., 2 Terry 347, 22 A.2d 832.

       United States v. Miller, 317 U.S. 369, 379, 380, 63 S.Ct. 276, 87 L.Ed. 336, 147 A.L.R. 55.

       United States v. Miller, supra, 317 U. S. at page 374, 63 S.Ct. 276, 87 L.Ed. 336, 147 A.L.R. 55; United States v. Meyer, 7 Cir., 113 F.2d 387, 397, certiorari denied 311 U.S. 706, 61 S.Ot. 174, 85 L.Ed. 459.

       Olson v. United States, 292 U.S. 246, 255, 54 S.Ct. 704, 78 L.Ed. 1236.

       United States ex rel. T. Y. A. v. Powelson, 319 U.S. 266, 284, 285, 63 S.Ct. 1047, 87 L.Ed. 1390.

       Mitchell v. United States, 267 U.S. 341, 345, 45 S.Ct. 293, 69 L.Ed. 644; Omnia Commercial Co. v. United States, 261 U.S. 502, 508-513, 43 S.Ct. 437, 67 L.Ed. 773.

       Joslin Mfg. Co. v. City of Providence, 262 U.S. 668, 676, 43 S.Ct. 684, 67 L.Ed. 1167; Potomac Electric Power Co. v. United States, 66 App.D.C. 77, 85 F.2d 243, 249, certiorari denied 299 U.S. 565, 57 S.Ct. 27, 81 L.Ed. 416; Futrovsky v. United States, 62 App.D.C. 235, 66 F.2d 215, 216, 217; and cf. Mitchell v. United States, 267 U.S. 341, 345, 45 S.Ct. 293, 69 L.Ed. 644; Bothwell v. United States, 254 U.S. 231, 41 S.Ct. 74, 65 L.Ed. 238.

       Gershon Bros. Co. v. United States, 5 Cir., 284 F. 849; United States v. Meyers, D.C., 190 F. 688.

       Mayor & City Council of Baltimore v. Gamse, 132 Md. 290, 296, 297, 104 A. 429; Springfield Southwestern R. Co. v. Schweitzer, 173 Mo.App. 650, 655, 158 S. W. 1058; City of St. Louis v. St. Louis. I. M. & S. R., 266 Mo. 694, 707, 182 S.W. 750, L.R.A.1916D, 713; Ranlet v. Concord R. R. Corporation, 62 N.H. 561, 564; Matter of New York W. S. & B. R. Co., 35 Hun, N.Y., 633; Fiorini v. City of Kenosha, 208 Wis. 496, 499, 243 N.W. 761.

       While Roberson may not recover consequential damages in the present proceeding, he may have resort to the proper-Claims Committee in the Congress for-compensation for his losses.

       § 5730 was amended by 43 Del.Laws, c. 264, p. 1088, but the detail is not pertinent here.

       Shepard v. Adams, 168 U.S. 618, 18 S.Ct. 214, 42 L.Ed. 602; Williams Live Stock Co. v. Delaware L. & W. R. R. Co., D.C., 286 F. 792.

         Hills & Co., Ltd., v. Hoover, 220 U.S. 329, 31 S.Ct. 402, 55 L.Ed. 485, Ann.Cas. 1912C, 252; Luxton v. North River Bridge Co., 147 U.S. 337, 13 S.Ct. 356, 37 L.Ed. 194; Chappell v. United States, 160 U.S. 499, 16 S.Ct. 397, 40 L.Ed. 510.


author: JOHN E. MILLER, District Judge.

text:
    MARTIN v. WHEATLEY.
    Civil Action No. 174.
    District Court, W. D. Arkansas, Hot Springs Division.
    Aug. 31, 1945.

      See, also, Wheatley v. Martin, 62 F. Supp. 109.
    C. Floyd Huff and Scott Wood, both of Hot Springs, Ark., for plaintiff.
    Richard M. Ryan and James R. Campbell, both of Hot Springs, Ark., for defendant.
   JOHN E. MILLER, District Judge.

On July 6, 1945, the plaintiff, Ora C. Martin, a resident and citizen of Florida, filed in this court her complaint, seeking to recover a judgment against defendant, Erb O. Wheatley, a resident and citizen of Arkansas, in the sum of $4300, and alleged that the said sum is the net amount of her losses in games of chance conducted by the defendant at a “common gambling house” owned and operated by the said defendant in the city of Hot Springs, Arkansas. The complaint is based upon Section 6112 of Pope’s Digest of the Statutes of Arkansas.

Summons was issued on date complaint was filed and was served on defendant in the city of Hot Springs on July 12, 1945.

On July 14, 1945, the defendant through his attorneys filed a motion to dismiss the complaint and alleged three grounds therefor, as follows: (1) The pendency of another action between the same parties involving the same controversy, which action was filed in the Circuit Court within and for Garland County, Arkansas on June 27, 1945, by the defendant here, Erb O. Wheat-ley, as plaintiff against the plaintiff here as defendant; (2) that the plaintiff here had filed an answer and counterclaim in said Garland Circuit Court as required by Section 1416 of Pope’s Digest of the Statutes of Arkansas; (3) that the complaint is not based upon any alleged breach of common law duty and the allegations therein are not such as give jurisdiction to this court.

The attorneys for the respective parties have presented most excellent briefs in support of their contentions on the grounds above set forth, and the court has considered them in the order named.

The other action referred to by- defendant in the first ground enumerated in the motion to dismiss is an action begun by him as plaintiff on June 27, 1945, in the Circuit Court of Garland County, Arkansas, wherein he alleged that the defendant therein, Ora C. Martin, the plaintiff here, is indebted to him in the sum of $1500 which he advanced to the defendant on her check on June 9, 1945, and that before the check which was drawn on a bank in Hot Springs, Arkansas, could be presented for payment the defendant wrongfully withdrew her funds from the bank without leaving therein a sufficient amount to pay the check. The plaintiff alleged that defendant is a non-resident of Arkansas and that she had removed her property or a material part thereof from Arkansas with the fraudulent intent to cheat, hinder or delay her creditors in the collection of their claims. The prayer of the complaint is for “judgment against the said defendant in the sum of .$1500.00, with interest thereon at the legal rate and for his costs herein, expended and incurred, and for all other proper and general relief.”

The record in that case reflects that a general attachment and summons were issued and served on defendant, personally on same date suit was filed June 27, 1945.

The general attachment issued in the suit did not have the effect of converting the same into a suit in rem. No specific lien was claimed by the plaintiff on any property of defendant and the attachment was issued in aid of the collection of a judgment in personam against the defendant if the plaintiff should be successful in establishing his right to a general judgment for $1500. See, Section 531, Pope's Digest of the Statutes of Arkansas.

In 7 C.J.S., Attachment, page 189, § 2 (5), it is said:

“Attachment is sometimes spoken of as being in rem; but, strictly speaking, this is incorrect, as a proceeding in rem is taken irrespective of parties and is binding on the whole world, while the attachment affects the particular debtor only and is binding on him alone, and the property is brought before the court merely in aid of the remedy against the individual sued. The fact is that the proceeding by attachment is of a dual nature, partaking of the nature of a proceeding in rem and also of an action in personam. When no jurisdiction is obtained over the debtor’s person, the remedy partakes of the nature of a proceeding in rem in that it proceeds against the property in the custody of the court and the judgment binds such property only; but where jurisdiction of the debtor’s person is obtained, either by personal service or appearance, the action in which the proceeding is had is, ordinarily, in pqrsonam and a personal judgment is rendered without regard to the attachment.”

In Eaton et al. v. Pennywit, 25 Ark. 144, the Supreme Court of Arkansas said, quoting syllabi one:

“In a suit by attachment to subject the property of non-resident debtors to the payment of their debts, the courts have jurisdiction over the property, within the State, sought to be subjected to such debts, though it be a steamboat; the action being in personam, and not in rem, against the boat.”

The case was affirmed by the Supreme Court of the United States, Pennywit v. Eaton, 82 U.S. 380, 15 Wall. 380, 21 L.Ed. 72.

In the argument of this case the attorneys for the defendant here have erroneously assumed the action in the State court to be an action in rem.

In 1 C.J.S., Actions, page 1148, § 52, it is said:

“Actions in personam and actions in rem differ in that the former are directed against specific persons and seek personal judgments, while the latter are directed against the thing or property or status of a person and seek judgment with respect thereto as against the world.”

Since the plaintiff, Erb O. Wheatley, in the cause filed by him in the Garland Circuit Court seeks only a personal judgment against the defendant therein, who is the plaintiff here, the pendency of such suit does not have the effect of precluding the jurisdiction of this court to proceed with the present suit. Barber Asphalt Paving Co. v. Morris, Judge, 8 Cir., 132 F. 945; Kline et al. v. Burke Construction Co., 260 U.S. 226, 43 S.Ct. 79, 67 L.Ed. 226, 24 A.L. R. 1077; Haney v. Wilcheck et al., D.C. W.D.Va., 38 F.Supp. 345, 356.

In 1 Moore’s Federal Practice, page 230, the rule is stated as follows:

“Thus the pendency of a State court action in personam is no ground for abatement or stay of a like action in the Federal court, although the same issues are being tried and the Federal action is subsequent to the State court action.”

The fact that the answer of the defendant filed in the State action contains, from necessity, the same allegations as are contained in the instant suit does not alter or change the applicable rule, even though the court should grant the motion to remand now pending in the removed State court suit.

In McClellan v. Carland, 217 U.S. 268, 30 S.Ct. 501, 505, 54 L.Ed. 762, the rule is stated as follows:

“The rule is well recognized that the pendency of an action in the state court is no bar to proceedings concerning the same matter in the Federal court having jurisdiction, for both the state and Federal courts have certain concurrent jurisdiction over such controversies, and when they arise between citizens of different states the Federal jurisdiction may be invoked, and the cause carried to judgment, notwithstanding a state court may also have taken jurisdiction of the same case.”

(2) The consideration given the first contention of the defendant and the conclusion reached thereon, leaves little to be said on the second alleged ground contained in the motion to dismiss. In footnote 2 the court has referred to the statute of Arkansas which requires a defendant to plead any and all new matter constituting a defense, counterclaim or set off and has referred to the decisions of the Supreme Court of Arkansas holding that the provisions of the statute are mandatory. Since the plaintiff here was compelled to answer in the State court and plead all her defenses, counterclaims or set offs such action should not be held a ground for dismissal of the present suit regardless of the effect such pleading may have in the consideration and determination of the motion to remand the State court action.

(3) The third contention of the defendant here is that the plaintiff’s alleged cause of action is not based upon any breach of common law duty and that the allegations are not such as to give jurisdiction in a suit between citizens of different States.

The common law left persons who chose to engage in games of chance in the position where such activities placed them. It did not undertake to aid any one who voluntarily pursued “lady luck.” However, the State of Arkansas in an effort to discourage gambling within her borders adopted the statute heretofore set forth in footnote 1 and the Supreme Court of the State has held that the loser may maintain a suit to recover his losses.

The attorneys for the defendant have argued that this is not a suit in common law or in equity that can be heard and determined by this court.

Section 24, Judicial Code, 28 U.S.C.A. § 41, confers original jurisdiction upon the District Courts of all suits of a civil nature, at common law or in equity between citizens of different States where the matter in controversy exceeds, exclusive of interest and costs, the sum or value of $3000.

In Dennick v. Railroad Company, 103 U.S. 11, 18, 26 L.Ed. 439, the Supreme Court of the United States said:

“Wherever, by either the common iaw or by the statute law of a State, a right of action has become fixed and a legal liability incurred, that liability may be enforced and the right of action pursued in any court which has jurisdiction of such matters and can obtain jurisdiction of the parties.”

In Milwaukee County v. M. E. White Co., 296 U.S. 268, 270, 56 S.Ct. 229, 231, 80 L.Ed. 220, the court said:

“By section 24(1) of the Judicial Code, 28 U.S.C. § 41(1), 28 U.S.C.A. § 41(1), District Courts are given original jurisdiction ‘of all suits of a civil nature, at common law or in equity,’ where there is the requisite diversity of citizenship and the amount in controversy exceeds $3,000. In this grant of jurisdiction of causes arising under state as well as federal law the phrase ‘suits of a civil nature’ is used in contradistinction to ‘crimes and offenses,’ as to which the jurisdiction of the district courts is restricted by section 24(2), 28 U. S.C.A. § 41(2) to offenses against the United States. Thus, suits of a civil nature within the meaning of the section are those which do not involve criminal prosecutions or punishment, and which are of a character traditionally cognizable by courts of common law or of equity.”

In Erie Railroad Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188, 114 AX.R. 1487, the court said:

“Except in matters governed by the Federal Constitution or by Acts of Congress, the law to be applied in any case is the law of the state. And whether the law of the state shall be declared by its Legislature in a statute or by its highest court in a decision is not a matter of federal concern.”

In the same case, 304 U.S. on page 79, 58 S.Ct. on page 823, 82 L.Ed. 1188, 114 A.L. R. 1487, the court said:

“The fallacy underlying the rule declared in Swift v. Tyson [16 Pet. 1, 10 L.Ed. 865] is made clear by Mr. Justice Holmes. The doctrine rests upon the assumption that there is ‘a transcendental body of law outside of any particular State but obligatory within it unless and until changed by statute,’ that federal courts have the power to use their judgment as to what the rules of common law are; and that in the federal courts ‘the parties are entitled to an independent judgment on matters of general law’:
“ ‘But law in the sense in which courts speak of it today does not exist without some definite authority behind it. The common law so far as it is enforced in a State, whether called common law or not, is not the common law generally but the law of that State existing by the authority of that State without regard to what it may have been in England or anywhere else. * * *
“ 'The authority and only authority is the State, and if that be so, the voice adopted by the State as its own (whether it be of its Legislature or of its Supreme Court) should utter the last word.’ ”

The words “at common law,” as used in the Judicial Code, supra, embrace not merely suits which the common law recognized but suits in which legal rights were to be ascertained and determined as distinguished from suits in equity as well as suits in admiralty.

The case of Cross et al. v. Ryan, 7 Cir., 124 F.2d 883, 886, is illustrative of the question involved .here. In that case the court held that it had jurisdiction to hear and determine a suit for the recovery of damages under the so-called Dram Shop Act of Illinois, Ill.Rev.Stat. 1939, c. 43, § 135. The court stated:

“The test is whether the action brought to recover under the cause of action given by the statute is essentially a suit to vindicate a private right as distinguished from punishment in a criminal action.”

The, present suit is one to recover under the cause of action created by the Statute of Arkansas.

It follows that the motion to dismiss should be overruled and an order overruling the motion to dismiss and saving the exceptions of the defendant is being entered today.

       The statute in its present form, reads: “Any person who shall lose any money or property at any game or gambling device, or any bet or wager whatever, may recover the same by action against the person winning the same; but such suit shall be instituted within ninety days after the paying over of the money or property so lost.”
      The evolution and history of this statute are set forth in Lane v. Alexander, 168 Ark. 700, 271 S.W. 710. See. also, Simpson v. Brooks, Ark., 189 S.W.2d 364.

       The record is before the court by reason of the removal of the case from the Garland Circuit Court upon the petition of the nonresident defendant. The petition for removal is based upon diversity of citizenship of the parties and because of the provisions of Section 1416 of Pope’s Digest of the Statutes of Arkansas, which require a defendant to plead in his answer “any new matter constituting a defense, counterclaim or set-off, in ordinary and concise language, without repetition.” The petition for removal was filed July 16, 1945, subsequent to the filing in this court of the present suit, and alleges that since under the provisions of Section 1416, supra, she is compelled to set forth in her answer all claims against the plaintiff or be barred from presenting them, and that since her claim against plaintiff exceeds $3000.00 that the cause should be removed to this court.
      The Arkansas Supreme Court in Morgan v. Rankin, 197 Ark. 119, 122 S.W. 2d 555, 119 A.L.R. 1466, and Adams and Rusher v. Henderson, 197 Ark. 907, 125 S.W.2d 472, held that the provisions of Section 1416, supra, are mandatory. The plaintiff in the action so removed has filed a motion to remand which is pending.