author: PIOLLAND, District Judge.

text:
    DEAUVILLE CORPORATION v. GARDEN SUBURBS GOLF AND COUNTRY CLUB et al.
    No. 680-M.
    District Court, S. D. Florida, Miami Division.
    Jan. 13, 1943.
    L. 'J. Cushman, of Miami, Fla. for Prince and Princess Eristavi Tchitcherine.
    N. Vernon Hawthorne, of . Miami, Fla., for John L. Doggett.
   PIOLLAND, District Judge.

The complaint herein was filed by Deauville Corporation on May 11, 1942, the defendants being Garden Suburbs Golf and Country Club, Inc., a corporation, and Bernarr MacFadden. On October 20, 1942, the plaintiff petitioned the court for .substitution of attorney. Proceedings herein are outlined in the order of the court of December 16, 1942. In pursuance of the terms of said order the issue of whether Mr. Doggett had been discharged by the Prince and Princess Eristavi Tchitcherine for good cause came on to be heard on January 4, 1943, and at that time was continued to January 6th, 7th and 8th, when evidence was heard. Argument of counsel was heard on January 9th. At the conclusion of the argument, the matter was taken under consideration.

Again, reference is made to the fact that the written contract of employment for legal services was between Prince and Princess Eristavi Tchitcherine of the one part, and John L. Doggett of the second part, and the fact that the Prince and Princess are not parties to this litigation.

The contract of employment was in writing, consisting of a letter of date April 13, 1942, addressed to John L. Doggett, Graham Building, Jacksonville, Florida, and signed by the Prince and Princess at Miami, Florida, and accepted in Miami, Florida, on April 13, 1942, by John L. Doggett. Mr. Doggett was employed as general attorney and consultant for the period of one year, effective immediately, his compensation to be $6,000 per annum, payable in four installments. Litigation was provided for, with provisions made as to added compensation. The property known as “Deauville” was specially considered and provided for in said contract of employment. It appears from the evidence that Deauville was under lease from the Prince and Princess to the MacFadden interests. In connection with litigation concerning Deauville, Mr. Doggett was to be paid a percentage of recovered money, and a flat fee for repossession of the property involved. Mr. Doggett was to receive the full co-operation of the Prince and Princess, and Mr. Doggett was to serve the Prince and Princess and their interests faithfully, loyally, and to the best of his ability. Plenary action between the parties to the contract, since there has been a discharge of Mr. Doggett, will and naturally should, follow to determine the question of his employment generally, his compensation, and inasmuch as the court trying such issue should be free to decide the issues in such case without unnecessary comment thereon in this present summary matter, I feel that the court here should adhere strictly to the business at hand, and only determine the issue in this case without extended remarks.

Mr. Doggett had many contacts with the affairs of his clients, the Prince and Princess, generally, and his activities, advice, and general counsel with regard thereto are incidental to this issue only as they touch upon his advice, general counsel, and representation in court concerning the Deauville lease to the MacFadden interests.

At the time Mr. Doggett was employed there was pending in the Circuit Court in and for Dade County, Florida, in chancery, a similar proceeding instituted by Deauville Corporation against the same defendants, the bill of complaint therein having been filed September 23, 1941. The Prince and Princess complain bitterly that Mr. Doggett did not proceed in the State action, and complain of his having filed on their behalf a similar suit in the Federal court, and further they complain of Mr. Doggett having proceeded with negotiations for settlement rather than calling up undisposed of motions, and the development of testimony from the adversaries by interrogatories, and pursuing other methods provided for by the Federal Rules of Civil Procedure. Mr. Doggett chose to proceed in regard to the Deauville lease by negotiations, and with the attempted securing of data and other information which he claims would be necessary in establishing the case of the plaintiff. Mr. Doggett as general counsel was authorized to direct the progress of the legal procedure, and especially is this the case since he had the co-operation of his clients stamping with approval his general actions up until there was a disagreement. I find that Mr. Doggett proceeded with a faithful and loyal representation of his clients’ interests, and that he is not subject to the attack of not having served his clients faithfully, loyally, and to the best of his ability.

The clients also complain of Mr. Doggett with reference to alcoholic beverages. The record shows that Mr. Doggett was never •under the influence of alcoholic beverages to the detriment of his clients’ interests, and, according to all Florida witnesses in the case who had any business dealing with Mr. Doggett concerning the affairs of his clients, he appeared in no manner as having been indulging in alcoholics. He does not deny a Scotch and soda occasionally in the home of his clients, moderately, and at reasonable times for .such relaxing stimulation. From a medical standpoint, it necessarily follows that the exhilaration that comes from alcohol does create some influence, but never was Mr. Doggett under the influence to an extent that his representation of his clients’ interests was in the least adversely affected. The charges against Mr. Doggett in this regard have totally failed.

Mr. Doggett impliedly is charged, not by the pleadings but by evidence introduced at the hearing, with having improperly collected funds belonging to his clients and not accounting therefor. This arises by reason of the cancellation of an insurance policy, and the return of an unearned premium. Evidence as to the cashing of this check by Mr. Doggett recently came to the attention of the petitioners. The insurance broker resided at Jacksonville, Florida. It seems that there was no question about the desire of all parties to have the insurance can-celled, and there seems to be no question as to the fact that there was an unearned premium for some amount. It was paid to Mr. Doggett by the insurance broker at Jacksonville, a telegram signed by the Prince and Princess having been sent from Miami to the Jacksonville broker, the authenticity of which is denied. I find that Mr. Doggett was specifically authorized to effect this collection. The record shows that there was no wrongdoing in this transaction chargeable to Mr. Doggett. The transaction does emphasize the importance of the careful handling of all money transactions with clients by attorneys. But in this case the full surroundings must be kept in mind. Mr. Doggett resided in Jacksonville some 375 miles from Miami. When he was in Miami on the business of his clients, he was the house guest in the home of his clients. Travel expenses to and from Jacksonville, and to and from Eastern cities occasioned frequent payments of money and reimbursement of expense items, and it is to be significantly observed that this item of an unearned insurance premium apparently went unobserved by the clients from July 1942 until the hearing herein in January 1943. Failure to ask questions with reference to this amount, and to make effort to collect same on the part of the clients for this length of time, adds weight to the correctness of the conclusions reached herein.

Mr. Doggett’s compensation for services in the Federal court action cannot now be determined, cannot be separated practically from the services by the general employment. The contract is entire and indivisible, and the matter of compensation of Mr. Doggett as discharged counsel is properly determined in proceedings on that contract. There should be one amount determined. The present lawsuit is only one of the matters covered by the contract. An impassé has been reached between the clients and the attorney, and with this discord brought about, Mr. Doggett is not in position to continue as representative of his clients in this action. There should be substitution, and with such substitution, the case should proceed with such other counsel.

Recovery in this litigation should be held subject to a lien for such fees as Mr. Doggett may ultimately show that he may be entitled to, in a suit between the estranged parties. The right of Mr. Doggett as an interested party to intervene to assert such a lien is recognized, and it is ordered that no settlement of this litigation in the Federal court, either by amicable settlement or by decree, is to be had without notification to Mr. Doggett of such proposed settlement, thus giving him the right to assert and claim such lien by future proceedings herein.

Consideration has been given to the principle of law involved that with such procedure Mr. Doggett is substituted by other counsel, who with the clients are in control of the policy of the case in its presentation. This suit, however, is peculiar in that the parties to the contract of employment are not parties to this suit. Furthermore, the right of compensation to the attorney is single and not divisible, and the right sometimes recognized in a discharged attorney to demand payment of definitely determined compensation as a condition to the substitution of other counsel must be and is made subservient to the principle of law above announced.

I conclude and find that the charges made against Mr. Doggett are not substantiated, and that his discharge was without cause.


source: Caselaw Access Project

author: GIBSON, District Judge.

license: Public Domain

text:
    KING v. MACWHYTE CO. et al.
    No. 2120.
    District Court, W. D. Pennsylvania.
    April 13, 1943.
    James J. Burns, Jr., of Pittsburgh, Pa. for Dorothy King.
    Steward & Lewis, Mahlon E. Lewis, and Harold R. Schmidt, all of Pittsburgh, Pa., for MacWhyte Co.
    Nash & Mutzabaugh, of Bradford, Pa., and Lester K. Wolf and Alex. C. Tener, both of Pittsburgh, Pa., for Bradford Supply Co.
   GIBSON, District Judge.

The defendant, Macwhyte Company, has moved the court to dismiss the complaint upon its allegation that it does not set forth a cause of action.

The complaint, in substance, asserts that the husband of complainant, Donald King, on May 2, 1941, bought 12 feet of galvanized iron tiller rope from the Bradford Supply Company for use in hanging a scaffold. That rope had been taken from a reel of such rope sold to said Supply Company by the Macwhyte Company and was known as 5/16 x 6/42 Strand Galvanized Iron Tiller Rope. It had been declared by its manufacturer, the Macwhyte Company, in its catalogue theretofore put out, to be capable of supporting .977 tons of 2,000 pounds. Despite this declaration the rope purchased by Donald King, while holding a scaffold with said Donald King and another (the scaffold and men weighing less than 500 pounds) broke and the occupants of the scaffold were thrown to the ground, 40 feet below, as a result of which complainant’s husband died on the same day.

The complaint alleges: “That solely as a result of the negligent representations of the defendants (the Macwhyte Company and the Bradford Supply Company), or either of them, in failing to ascertain that said rope was not sufficient for the purposes for which it was sold, or in representing it to be sufficient without endeavoring to ascertain the true facts; and as a direct result of the breach of the warranty made by either or both of the defendants to Donald King, he was injured and killed as aforesaid * * The complaint further asserted that "said rope was not as warranted, was defective, was improperly manufactured, and was not properly inspected, but was sold to deceased in a defective condition, all of which the defendants knew or should have known, and of which they failed to advise the deceased * *

The defendants’ motion to dismiss declares that the complaint sets forth no cause of action upon which relief can be granted.

Whether or not a cause of action is set forth by the complaint must be determined by the law of Pennsylvania. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487.

The existence of the complaint as a pleading depends upon the sufficiency of its charge of negligence. It cannot rest upon false representations to deceased, both because none were made to him by the defendant and because no assertion of knowing or reckless falsehood on the part of the defendant is found in it. Nor can it be upheld on the ground of implied warranty by defendant because no contractual relation existed between defendant and deceased. Such warranties in this State have been sustained as to the manufacturer where purchase has been made from a middleman only in respect to foods and like products which have been preserved in the form delivered by the, manufacturer; and in such cases the implied warranty is pursuant to statute. And in those cases the recovery is really based upon the proof of negligence, even where the implied warranty is approved.

The charge of negligence in the complaint is not so direct or specific as it well might be. However it does aver that the rope was defective and had been sold in a defective condition, and had not been properly inspected. Without quoting authorities we may assert that one who sells an article inherently dangerous to another which has been negligently manufactured, or concerning whose qualities the purchaser has not been warned, is liable to that other for injury which might reasonably have been anticipated, even though contractual relations did not exist between them. And the Supreme Court of Pennsylvania in Ebbert v. Philadelphia Electric Company, 330 Pa. 257, 198 A. 323, has held that no sound distinction can be drawn between a so-called dangerous chattel and one which, although normally harmless, becomes dangerous when defective.

The court will deny the motion to dismiss the complaint. As tending to sustain its motion the defendant has called attention to Sierocinski v. E. I. Du Pont de Nemours & Co. 3 Cir., 118 F.2d 531, opinion by Jones, C.J. That opinion may require the consideration of this court upon trial, but was not rendered upon a pleading, but upon sufficiency of proof. The manufacturer had sold to complainant’s employer certain caps, containing an explosive, which were to be attached to fuses which were connected with blasting charges. The complainant, in preparing the caps, was injured by an explosion of them, or one of them, and the suit was against the, manufacturer. The complainant offered no proof of failure on the part of the manufacturer to use due care, but relied upon the explosion and accident. The opinion held that, no contractual relation existing between the complainant and the defendant, the former could not rely upon the rule of res ipsa loquitur (that is, that the cause and control of the cause of the accident being within the knowledge and control of the defendant, and 'that the accident could not have happened without its negligence, proof beyond the accident under such circumstances was not required). It further held that plaintiff could not rely upon the Pennsylvania rule that the plaintiff might rely upon an inference of negligence where the accident resulted from defendant’s exclusive control of the instrumentality of the accident (a twin of res ipsa loquitur almost its counterpart) because the proof in the case before the court disclosed the fact that the instrumentality of the injury was not in the control of the defendant at the time of the injury.

The principles enumerated in Sierocinski v. E. I. Du Pont, supra, will control this court upon trial of the present action, but do not relate to the sufficiency of the complaint.


author: SCHOONMAKER, District Judge.

text:
    MANNSZ v. MACWHYTE CO. ELLIS v. SAME.
    Nos. 2120, 2592.
    District Court, W. D. Pennsylvania.
    April 3, 1945.

      James J. Burns, of Pittsburgh, Pa., for plaintiffs.
    Mahlon E. Lewis, Harold R. Schmidt, and Stewart & Lewis, all of Pittsburgh, Pa., for defendant.
   SCHOONMAKER, District Judge.

These two cases were tried together, as they involve the same accident.

Donald King (husband of plaintiff Dorothy King Mannsz in action at No. 2120 Civil Action) and Myron R. Ellis, plaintiff in action at No. 2592 Civil Action, were working, in the course of the construction of a building at Irvine, Pennsylvania, on a scaffold which was attached by a wire rope to a channel iron at the top of the building. The rope broke, letting these two men fall to the ground. King died of the injuries then received, and Ellis suffered the injuries for which he is seeking to recover damages.

The rope which broke was 5/16 x 6/42 Strand Tiller Rope, manufactured by Macwhyte Company and sold by that Company to the Bradford Supply Company, which in turn sold sixteen feet of it to Donald King. This rope King cut into two pieces, made two loops around a channel iron at the top of the building, on which these two men were working, and through these loops placed the grapple hooks from which the scaffold was suspended.

Judge Gibson of this court had the case of King v. Macwhyte Co., 60 F.Supp. 75, on defendant’s motion to dismiss the complaint. He denied that motion, stating: “The charge of negligence in the complaint is not so direct or specific as it well might be. However it does aver that the rope was defective and had been sold in a defective condition, and had not been properly inspected. Without quoting authorities we may assert that one who sells an article inherently dangerous to another which has been negligently manufactured, or concerning whose qualities the purchaser has not been warned, is liable to that other for injury which might reasonably have been anticipated, even though contractual relations did not exist between them. And the Supreme Court of Pennsylvania in Ebbert v. Philadelphia Electric Company, 330 Pa. 257, 198 A. 323, has held that no sound distinction can be drawn between a so-called dangerous chattel and one which, although normally harmless, becomes dangerous when defective.”

Judge Gibson further in his opinion called attention to the case of Sierocinski v. E. I. Du Pont De Nemours & Co., 3 Cir., 118 F.2d 531, stating: “The principles enumerated in Sierocinski v. E. I. Du Pont De Nemours & Co., supra, will control this court upon trial of the present action, but do not relate to the sufficiency of the Complaint.”

In Sierocinski v. E. I. Du Pont De Nemours & Co., supra, the Circuit Court of Appeals of this Circuit held that in Pennsylvania the duty rests on the plaintiff to prove negligence or circumstances from which the inference of negligence may reasonably be drawn, and that such negligence cannot ordinarily be inferred from the mere happening of an accident, except in cases where the doctrine of res ipsa loquitur applies, or where an inference of negligence is permissible from defendant’s exclusive control of the instrumentality which inflicts the injury.

The proofs in the instant cases do not bring them within either of these exceptions. To recover in these cases the burden rested on the plaintiffs to show that the Macwhyte Company in some way failed in its obligation to the ultimate user or consumer of the wire rope which it manufactured. That obligation is to exercise reasonable care in the manufacture of any chattel, which, unless carefully made, would involve an unreasonable risk of bodily harm to a person who lawfully used it for the purpose for which it was manufactured. See Section 394 of the Restatement of the Law of Torts.

The plaintiffs offered no evidence in these two cases to show that the defendant failed in any way to exercise due care in the manufacture of this rope. The plaintiffs only offered testimony to prove that the Bradford Supply Company sold sixteen feet of 5/16 x 6/42 Strand Galvanized Tiller Iron Rope to a man identified as Donald King. There was offered in evidence as plaintiffs’ Exhibit No. ■ 1, a Macwhyte catalog of wire rope, showing that iron tiller or hand rope, 5/16 x 6/42, had a breaking strength in tons of 2000 pounds of .977, and that this rope was “used as a hand rope in connection with the operating device of passenger and freight elevators, as steering cable on small boats and steamers, and for industrial and mining signal devices”. There was no indication that galvanized-iron rope, such as was sold to King, came within these specifications, or that King ever saw this catalog. Nor was there any suggestion that this type of rope was properly usable to fasten a scaffolding apparatus to the roof of a building. There was no evidence to show that defendant was guilty of negligence in any manner, either in the manufacture of this cable, or in failure to inspect it before selling it to the Bradford Supply Company. All we have is the evidence that this galvanized-iron rope broke and let the scaffold fall to the ground. That is not sufficient ground on which to base a charge of negligence.

The motions for a new trial in these two cases will be denied. Counsel for defendant may submit orders accordingly on notice to counsel for plaintiffs.


author: MILLER, District Judge.

text:
    BOWLES, Price Administrator, v. WHAYNE et al.
    No. 680.
    District Court, W. D. Kentucky, Louisville Division.
    Feb. 8, 1945.
    Raymond C. Stephenson, of Louisville, Ky., Fritz Krueger, of Mount Vernon, Ky., and Homer B. Parrent, of Louisville, Ky., for plaintiff.
    Louis Seelbach and Nelson Helm, both of Louisville, Ky., for defendants.
   MILLER, District Judge.

This action was brought by Chester Bowles, Price Administrator, to recover of the defendants, Roy C. Whayne and Harry T. Whayne, doing business as Roy C. Whayne Supply Company, the sum of $20,475 being treble the amount by which the sales price of a used Drag-Line machine sold by the defendants on October 4, 1943, exceeded the maximum price therefor as established by Maximum Price Regulation No. 136. The facts involved in the transaction have been stipulated and the matter is submitted upon defendants’ motion for summary judgment.

Prior to October 4, 1943, Mulzer Construction Company was the owner of some coal mining properties near Chrisney, Indiana, and desired to operate said properties. The contemplated operations were what is commonly known as “strip mining,” in which an over-burden of dirt is removed to expose the underlying coal. The use of a Drag-Line Machine was an efficient method of removing the overburden and of actually taking out the coal itself. The Mulzer Construction Company had never owned such a machine, but made inquiry of the defendants at Louisville, Kentucky. The defendants did not have such a machine in stock, but shortly thereafter in early October, 1943, they learned that two such machines which had been used by W. Horace Williams Company, contractors of New Orleans, Louisiana, were for sale at Mobile, Alabama. A representative of both the Mulzer Construction Company, and • of the defendants inspected the machine, following which the defendants purchased it for $17,000 and resold it to the Mulzer Construction Company for $19,750. The W. Horace Williams Company shipped the machine direct to the Mulzer Construction Company at Lamar, Indiana. It is the only machine of this type or kind which the Mulzer Construction Company has ever bought. The Mulzer Construction Company did not buy the machine for resale but on the contrary bought it to use in its business of mining coal. The machine has been operated for over a year and is the only machine or device which the Mulzer Construction Company has used for the purpose of removing the over-burden to expose the seam of coal at the mine of the Mulzer Construction Company near Chrisney, Indiana. The Mulzer Construction Company never has been in the business of buying machinery for resale.

The defendants contend that under these facts the cause of action under the Emergency Price Control Act of 1942, if there was any violation of the Maximum Price Regulation involved, existed in the purchaser, Mulzer Construction Company, and that the Price Administrator accordingly has no standing to institute and prosecute this action.

The question is controlled by the provisions of Section 205(e) of the Emergency Price Control Act of 1942, prior to its Amendment of June 30, 1944, Section 925 (e) 50 U.S.C.A.Appendix. The applicable provision reads as follows:

“If any person selling a commodity violates a regulation, order, or price schedule prescribing a maximum price or maximum prices, the person who buys such commodity for use or consumption other than in the course of trade or business may bring an action either for $50 or for treble the amount by which the consideration exceeded the applicable maximum price, whichever is the greater, plus reasonable attorney’s fees and costs as determined by the court * * * If any person selling a commodity violates a regulation, order, or price schedule prescribing a maximum price or maximum prices, and the buyer is not entitled to bring suit or action under this subsection, the Administrator may bring such action under this subsection on behalf of the United States. * * * ” 56 Stat. 33.

The defendants contend that the phrase “other than in the course of trade or business” qualifies the words “the person who buys such commodity,” and that, accordingly, if the purchase of the commodity is other than in the course of trade or business of the purchaser, he, the purchaser, has the exclusive right of action; that in this case the purchase of the Drag-Line machine was not in the course of trade or business but was for the use of the purchaser. The Administrator contends that the phrase “other than in the course of trade or business” qualifies the previous phrase “for use or consumption,” and that it is only in those cases where the use of the purchased article is not in the trade or business of the purchaser that the purchaser has the right of action; that in this case the use of the Drag-Line machine was in the business of the purchaser and the cause of action was accordingly in the Administrator.

This question has been before the courts on several occasions with different results. The defendants’ contention has been upheld in the following cases: Bowles v. Chew, D.C.N.D.Cal., 53 F.Supp. 787; Bowles v. Seminole Rock & Sand Co., D.C.S.D.Fla., 59 F.Supp. 751; Bowles v. Googins, Utah D.C.; Lightbody v. Russell, 45 N.Y.S.2d 15.

The Administrator’s contention has been upheld in the following cases: Bowles v. Rock, D.C.Neb., 55 F.Supp. 865; Bowles v. Silverman, D.C.S.D., 57 F.Supp. 990; Bowles v. Heinel Motors, Inc., D.C.E.D.Pa., 59 F.Supp. 759.

Reasons in support of each view are well set out in the two cases of Bowles v. Chew, supra, and Bowles v. Rock, supra. It is accordingly unnecessary to repeat them here.

Although the same identical question was not in issue, the view of this Court has heretofore been expressed in the case of Bowles v. Joseph Denunzio Fruit Co., D.C.W.D.Ky., 55 F.Supp. 9, 13. In that case this Court construed the statutory provisions involved as follows: “Where a retailer sells to a purchaser for use or consumption the purchaser can sue for the damages authorized by the Act; but where a wholesaler sells to a retailer who buys for resale in the course of trade or business and not for use or consumption, such retailer has no authority to institute the suit, but the right of'action in such cases is vested in the Administrator.” The Court adheres to that construction as being the logical and reasonable interpretation of the intent of Congress. Such construction seems to have the support of the Senate Conference Report on the Emergency Price Control Act of 1942, which is No. 931 of the 77th Congress, Second Session. It is also in conformity with the provisions of Section 4(a) of the Emergency Price Control Act of 1942, dealing with the criminal aspects of the Act, section 904(a), 50 U.S.C.A.Appendix. Section 4 is worded slightly differently from Section 205(e) and makes it plain that the phrase “in the course of trade or business” qualifies the purchase of the commodity involved. The construction contended for by the Administrator would lead to some very unreasonable results. As was pointed out by the Court in Bowles v. Googins, supra, “One example will suffice: A farmer buys himself a pair of overshoes for general use, and he wears them to irrigate his crops. If he paid over the ceiling price for them, is there any conceivable reason why the OPA should have the cause of action for the overcharge?” As is also pointed out by counsel for defendants: A carpenter buying a saw and hammer to use in his business would not have the right to sue for the price violation, but if he bought them to use for repairs at his residence, or if they were bought by a doctor, both the carpenter and the doctor would have the right to bring the action.

Defendants’ motion for summary judgment is sustained.

       Not designated for publication.


author: MOSCOWITZ, District Judge,

text:
    In re MEADER, Lt. Commander, U. S. N. R.
    Misc. No. 981.
    District Court, E. D. New York.
    April 26, 1945.
    McCarthy & McGrath, of New York City (I-Ierman J. McCarthy, of New York City, of counsel), for petitioner.
    T. Vincent Quinn, U. S. Atty., of Brooklyn, N. Y. (Mario Pittoni and Albert V. De Meo, Asst. U. S. Attys., both of Brooklyn, N. Y., of counsel; Robert H. Alcorn, Commander, U.S.N.R., Legal Officer, 3rd Naval Dist., of New Haven, Conn., and Harold E. Magnuson, Lieutenant, U.S. N.R., Assistant to Legal Officer, of Boston, Mass., on the brief), for respondent.
   MOSCOWITZ, District Judge,

This is an application for an order restraining the Commandant, of the Third Naval District and any of his staff or assistants, the Collector of Customs of the Port of New York, the United States Attorney for this district and his associates, at any trial, hearing or proceeding against petitioner, from using or introducing or referring to any evidence directly or indirectly obtained as a result of what is alleged to have been an unlawful search of the petitioner’s home at 338 Burns Street, Forest Hills, Long Island, and to suppress all matter alleged to have been illegally seized upon such unlawful search.

■ The petitioner is a Lieutenant Commander in the United States Naval Reserve, presently a prisoner at large under technical arrest awaiting disciplinary action by the Commandant of the Third Naval District. It appears from the papers submitted upon the application that petitioner is suspected of misconduct involving theft, embezzlement or misappropriation of vast quantities of property belonging to the United States, British and French governments, of attempts to evade United States Customs regulations, of violation of United States Navy directives relating to the retention and shipment of captured enemy ■equipment, of improper taking and shipping of live ammunition and explosives endangering naval vessels and the lives of naval personnel, and of other offenses of a serious nature.

In an affidavit in opposition to the order to show cause by which this application was initiated, the United States Attorney states that “there is no proceeding or any matter of any kind pending or contemplated before this, the United States District Court, Eastern District of New York, and the property is not in the possession of any officer of this Court.”

To pose the question here involved seems to furnish the answer. No proceeding of any kind is pending in this court and apparently none is even contemplated. A member of the United States Navy is being investigated in respect to his United States naval duties and obligations, which may involve proceedings before bodies known as a Board of Investigation, a Court of Inquiry or a United States Naval Court-Martial. These are agencies of the executive branch of the government and cannot, by the widest stretch of the imagination, be considered parts of the judicial system. They have been provided for by Congressional enactment under Article I, Section 8 of the Constitution which authorizes the Congress to “make Rules for the Govern-ment and Regulation of the land and naval forces.” Where the accused is properly under Navy supervision, the civil courts have no power or jurisdiction to restrain or to interfere with the normal processes of the administration of naval justice and discipline. Dynes v. Hoover, 1858, 20 How. 65, 61 U.S. 65, 15 L.Ed. 838; Reaves v. Ainsworth, 1911, 219 U.S. 296, 31 S.Ct. 230, 55 L.Ed. 225; United States ex rel. Wessels v. McDonald, D.C.N.Y., 1920, 265 F. 754; Winthrop, Military Law and Precedents, 2nd Ed. (1920), p. 49.

Since the application is apparently designed to restrain the Navy Court-Martial and the preliminary inquiries and investigation, the application is denied.

Where it has been held that a summary proceeding for the return of illegally seized property may be entertained prior to the institution of a criminal prosecution, jurisdiction was based on the property being in the custody of an officer of the court in which the summary proceeding was brought. Weinstein v. Attorney General of the United States, 2 Cir., 1921, 271 F. 673; In re Behrens, 2 Cir., 1930, 39 F.2d 561; Applybe v. United States, 9 Cir., 1929, 32 F.2d 873; American Dealers Service v. Goldman, D.C.N.Y., 1943, 49 F.Supp. 933, affirmed 2 Cir., 135 F.2d 398. This is not a proceeding for the return of the property and the United States Attorney has averred by affidavit that the property is not in his possession.

It appears that the claimed constitutional rights of the petitioner will be adequately protected in any event within the naval procedure itself. No rule on the admissibility before a Court-Martial of evidence procured by an illegal search and seizure has been drawn to the court’s attention as being specifically set forth in Chapter III of Naval Courts and Boards (1937), which regulates the conduct of the proceeding. But Section 146 thereof provides that: “If a question of evidence which cannot be determined by a reference to the above rules (those specifically set forth) confronts a court it should then look to the rules of evidence applied by the federal court and follow them if applicable.” Pursuant to this and equivalent predecessor provisions, General Courts-Martial have followed the federal rule on search and seizure and have held that evidence illegally procured may not be admitted on a court-martial trial and a finding of guilt where such evidence has been admitted will be reversed. See C.M.O. 11— 1929, p. 11 and C.M.O. 3 — 1943, p. 47

Settle order on notice.

       These Court-Martial Orders were furnished to the Court for use upon this application from the Legal Office files of the United States Navy and since they are not generally available, the pertinent parts of the cited decisions are herewith set forth.
      C.M.O. 11 — 1929, p. 11. “Accused was convicted of the charge ‘Scandalous conduct tending to the destruction of good morals.’ (7 specs.). The prosecution on all specifications except 4 and 7 was based upon certain photographs obtained from the locker of accused in the Y.M.C.A., San Diego, by a chief Boatswain’s mate, U. S. Navy, acting as special investigator, who visited the Y.M.C.A. and searched the said locker in the absence of the accused and without his permission. In making this search, he acted without a search warrant. Before being arraigned, accused through his counsel made a demand for the return of his property and during the progress of the trial made seasonable objection to its reception in evidence.
      “While in many State jurisdictions evidence illegally obtained may nevertheless be used by the State in a resulting mm-' inal prosecution (35 Cyc., sec. 1271, and Underhill on Criminal Evidence, 3d ed., sec. 751, and cases cited thereunder), nevertheless the invariable rule in the Federal Courts is that such evidence, if seasonable objection is made thereto, may not " be received in evidence against the accused and also no information obtained by the Government from such illegal evidence may be utilized. The interpretation of the law as contained in the cases cited is based upon the fourth and fifth amendments to the Constitution, the limitations of which are applicable to the Federal Government and its agencies. (Boyd v. United States, 116 U.S. 616, 6 S.Ct. 524, 29 L.Ed. 746; Silverthorne Lumber Co. v. United States, 251 U.S. 385, 40 S.Ct. 182, 64 L.Ed. 319, 24 A.L.R. 1426; Weeks v. United States, 232 U.S. 383, 34 S.Ct. 341, 58 L.Ed. 652, L.R.A.1915B, 834, Ann.Cas.1915C, 1177; Gouled v. United States, 255 U.S. 298, 41 S.Ct. 261, 65 L.Ed. 947; Amos v. United States, 255 U.S. 313, 41 S.Ct. 266, 65 L.Ed. 654; Holmes v. United States, 4 Cir., 275 F. 49; Flagg v. United States, 2 Cir., 233 F. 481; Ganci v. United States, 2 Cir., 287 F. 60; Gambino v. United States, 275 U.S. 310, 48 S.Ct. 137, 72 L.Ed. 293, 52 A.L.R. 1381; Agnello v. United States, 269 U.S. 20, 46 S.Ct. 4, 70 L.Ed. 145, 51 A.L.R. 409; United States v. Bush, D.C., 269 F. 455; Underhill on Criminal Evidence, 3d ed., sec. 749, and case cited in note thereunder.) Inasmuch as the subject prosecution was one instituted by one of the agencies of the Federal Government, it follows that the law as interpreted hy the highest courts of the Federal Government must be followed. To this same effect is section 320, Naval Courts and Boards, which speaks of the rules of evidence to be observed by courts martial. (See also G.C.M. Order No. 36 of the War Department dated Aug. 30, 1924, in accord.)
      “In view of the fact that the law is so clear on this point, as set out above, the Navy Department was compelled to disapprove the proceedings and findings on these specifications (1,"2, 3, 5, 6), although an examination of the illegally seized photographs conclusively established the guilt of the accused.”
      C.M.O. 3 — 1943, p. 47. “The single specification under Charge I alleged that the accused wrote a letter addressed to another member of the armed forces” which “contained contemptuous and disrespectful words against the superior officer in command of the accused and violated the respect due from the accused to the superior officer.
      “Prior to trial the accused requested the return to his possession of the letter which formed the basis of the above specification. At the trial he filed a motion to suppress, a procedure sanctioned and followed in the Federal courts. This motion was overruled. The accused then objected to the specification on the grounds that the offense specified, if any, was supported solely by a letter obtained by an illegal search and seizure. He also objected to the introduction of the letter into evidence on the same grounds. The evidence adduced in support of this specification, standing uneontested, showed that the ship’s censor found certain letters purportedly written by the accused on his desk. He examined one V-mail letter which contained the statement T stayed at the BH-Hotel last night.’ The censor considered this statement to be a violation of the censorship regulations, and took the several letters of the accused to the commanding officer who opened them, including the one which was the subject of the specification of the first charge. The letter was, at the time, in a sealed envelope bearing a U. S. postage stamp and had been passed by the censor without examination.
      “ * * * Under these circumstances, the accused was entitled to have his letter returned to him on demand, and the court therefore erred in overruling his counsel’s motion that the letter be suppressed as evidence and returned to the custody of the accused. Consequently, the accused stood convicted of Charge I on evidence obtained by the Government through illegal search and seizure. Accordingly, the findings on Charge I and the specification thereunder were set aside.”


author: LINDLEY, District Judge.

text:
    BRENTS v. STONE et al., Justices of Supreme Court of Illinois.
    No. 463-D.
    District Court, E. D. Illinois.
    April 27, 1945.

      Venable L. Brents, pro se.
    George F. Barrett, Atty. Gen. of Illinois (William C. Wines, Asst. Atty. Gen., of counsel), for defendants.
   LINDLEY, District Judge.

Plaintiff presents a claim against the Justices of the Supreme Court of Illinois for a declaratory judgment to the effect that the statute and the rules adopted by the court governing admissions to the bar in Illinois deprive plaintiff of the right to practice law, which, he says, is a privilege guaranteed and protected by the Federal Constitution. He does not aver that he has been denied the right to take an examination or that he has availed himself of the opportunity to do so and wrongfully been denied admission after being examined, but merely that he applied to the court on June 26, 1944, for a license and that, though he filed a certificate of good moral character, his application was refused.

He asserts that the bar examiners appointed by the court to conduct examinations have a pecuniary interest in refusing admission to applicants and, since they benefit from the fees required of all applicants in all examinations, that they will arbitrarily refuse to pass applicants in order to secure additional fees in re-examinations. He assumes and avers that under these circumstances it would be futile for him to attempt to pass an examination and grounds his action upon the assertion that under-the Constitution he can not be compelled to subject himself to a test to determine his qualifications.

Despite the many redundant and irrelevant averments of the complaint, I have given it careful consideration and conclude that the motion to dismiss must be allowed.

In the first place, this court is without jurisdiction, for the suit is in effect one against the state in its sovereign capacity. No relief is sought against defendants as private individuals. Rather, the claim is one for remedial action by defendants as Justices of the Supreme Court of the State of Illinois, and is, therefore, in its essence, against the state. Inasmuch, therefore, as a state may not be sued without its consent, and plaintiff shows no such consent, jurisdiction to entertain the suit does not exist. In the Matter of the State of New York, 256 U.S. 490, 41 S.Ct. 588, 65 L.Ed. 1057 and cases there cited; Kentucky v. Dennison, 24 How. 66, 65 U.S. 66, 16 L.Ed. 717; Governor of Georgia v. Sundry African Slaves, Etc., 1 Pet. 110, 26 U.S. 110, 7 L.Ed. 73. This is not an action to restrain alleged unlawful action by state officials such as Ex Parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714, 23 L.R.A.,N.S., 932, 14 Ann.Cas. 764 and Sterling v. Constantin, 287 U.S. 378, 53 S.Ct. 190, 77 L.Ed. 375. It is rather a suit to coerce state action.

Nor can the action be sustained as one to secure protection of civil rights under the Federal Constitution, for a license to practice law is not a privilege within the purview of any constitutional provision. Mitchell v. Greenough, 9 Cir., 100 F.2d 184, rehearing denied 9 Cir., 100 F.2d 1006; certiorari denied 306 U.S. 659, 59 S.Ct. 788, 83 L.Ed. 1056; Bradwell v. Illinois, 16 Wall. 130, 83 U.S. 130, 21 L.Ed. 442; In re Lockwood, 154 U.S. 116, 14 S.Ct. 1082, 38 L.Ed. 929. The police power of Illinois extends to the control of every action and event on the part of its citizens having to do with the public welfare. It is well within the prerogatives of the commonwealth to prescribe regulations founded on nature, reason and experience for the admission of qualified persons to professions and callings demanding special skill. In pursuance of this power the state has seen fit to prescribe certain reasonable requirements for admission to the bar, including an examination as to fitness to practice law. In the absence of averment and proof of unreasonable or arbitrary action, no citizen has ground for complaint. Bradwell v. Illinois, 16 Wall. 130, 83 U.S. 130, 21 L.Ed. 442, affirming In re Bradwell, 55 Ill. 535.

The action is dismissed at plaintiff’s costs.


author: BONDY, District Judge.

text:
    ZIMMER-THOMSON CORPORATION v. NATIONAL LABOR RELATIONS BOARD et al.
    District Court, S. D. New York.
    March 31, 1945.

      H. R. Korey, of New York City, for plaintiff.
    Alvin J. Rockwell and Malcolm F. Halliday, both of Washington, D. C., Charles F. McErlean, of Chicago, 111., and Martin I. Rose, of New York City, for defendant National Labor Relations Board.
    Harry Weinstock, of New York City, for defendant Furniture Workers Union Local 76-B of the United Furniture Workers of America, C. I. O.
   BONDY, District Judge.

This is an action brought by the employer against the National Labor Relations Board, hereinafter called the Board, and the defendant union to set aside the certification by the Board of the union as the exclusive representative of plaintiff’s employees for collective bargaining, and to restrain the0union from taking further action before the National War Labor Board, based upon the claim that the union has been certified by the National Labor Relations Board.

The case is before the court on a motion for a temporary injunction against the union.

Both defendants move to dismiss the complaint on the ground that it does not set forth a cause of action and that the court is without jurisdiction of the subject matter thereof. The Board also moves to quash the summons on the ground that it is an agency of the government and may not be sued without the consent of the government, that the Board and its members are officially residents of the District of Columbia and not of this district, and that process was not served on the Board in this district.

The following facts are set forth in the complaint:

At a hearing before a trial examiner it was stipulated that the unit for collective bargaining should consist of all production and maintenance employees, including foremen who spent more than 50 per cent, of their time in manual functions relating to production or maintenance but should exclude all other supervisory employees. At an election by secret ballot ordered by the Board, forty-one of the employees of the unit consisting of 101. employees voted for and forty against the union. The votes of three other employees were not counted because they were challenged by the union. There was served upon the plaintiff a copy of objections to the election filed by the union, in which the union prayed that the election be set aside and that another election be held if the challenges were not sustained. There was also served upon the plaintiff a copy of the report of the Regional Director. It stated that as a result of an investigation which he caused to be made, he found that two of the three employees whose votes had been challenged, though now devoting more than 50 per cent, of their time performing duties of a production or maintenance nature, had previous to the election spent only 20 per cent, of their time in such manual activities; that the remaining employee spent more than 50 per cent, of his time performing duties relating to maintenance, but since his work has to do with making small dies, preparing and setting up machines, it could not be regarded as production work of the same nature as performed by the men in the machine shop, and that the Regional Director accordingly concluded that the relation of this employee to the production workers in the plant was supervisory. The report recommended that the Board declare the three challenged ballots invalid and grant permission to the union to withdraw its objections to the election. This report was made without the plaintiff having been given an opportunity to be heard with reference to the challenges. The report itself discloses that one employee whose vote was challenged worked more than 50 per cent, of his time “doing manual work in maintenance work”, that he was within the proper unit and entitled to vote, and that if his vote had been counted and cast against the union it would have forced a tie vote. The plaintiff failed to file objections to the report because it was unaware that the regulations of the Board required the filing of objections within five days. See 29 C.F.R. Cum.Supp. 203.9. Thereafter, and on or about August 24, 1943, the Board adopted the recommendations of the Regional Director and certified the union as exclusive representative of the employees for collective bargaining. Plaintiff’s repeated requests for an opportunity to be heard upon the determination of the validity of the challenged votes and for opening its default in filing formal objections to the report of the Regional Director were arbitrarily denied. On October 22, 1943, the Board made an order in which it stated that the plaintiff having filed requests for reconsideration of its decision and Certification of Representatives, and the Board, having duly considered the matter on its merits without regard to the fact that the requests were not timely as objections, denied such requests. On December 28th the defendant union filed charges with the Board, charging the plaintiff with unfair labor practices in refusing to bargain collectively with the defendant union and the Board issued its formal complaint, to which the plaintiff filed its answer. Thereafter the Board, without consulting plaintiff, adjourned the hearing from time to time and persistently and arbitrarily ignored plaintiff’s requests for a hearing until May 16, 1944, when it notified the plaintiff that it had granted the union’s request to withdraw its charges, and the Board’s complaint was withdrawn pursuant to Article II, Section 8 of its Rules and Regulations. See 29 C.F.R. 1939 Supp. 202.1. In the meantime, the union caused the United States Conciliation Service of the Department of Labor of the United States to certify to the National War Labor Board that there was a dispute between the plaintiff and the defendant union.

The complaint alleges that the union arranged and connived to prevent the plaintiff from having its day in court with respect to the charge of unfair labor practices before the Board, knowing that the National War Labor Board would accept the certification of the defendant Board as conclusive.

Until a cease and desist order is issued by the Board, its certification neither imposes any duty nor interferes with any rights of the plaintiff. If such an order is ever issued, the statute affords it a day in court. Certification by the National Labor Relations Board is only informatory. It is not reviewable by the court until and unless an order directing an employer to cease and desist from an unfair labor practice has been issued by the Board and in such case it is reviewable only in the manner specified in the National Labor Relations Act. On such review the entire record of the Board is before the appropriate Circuit Court of Appeals which can set aside, affirm or modify the Board’s order. National Labor Relations Act, 291 U.S.C.A. § 159(d); American Federation, of Labor v. National Labor Relations Board, 308 U.S. 401, 60 S.Ct. 300, 84 L.Ed. 347.

If the Board for any reason whatsoever should fail to issue a cease and desist order against the plaintiff, then so-far as the Act is involved the plaintiff can not be prejudiced in any manner. Should the Board, however, issue such an order the Act expressly grants the plaintiff a right to a judicial review of all the Board’s rulings. The plaintiff accordingly has, under the statute, an adequate remedy in the review of any action of the Board which affects or prejudices any of its rights. But certification by the Board can only be reviewed in the manner provided by the law. The authorities firmly establish that a District Court has not the power to review certification by the Board. See Switchmen’s Union v. National Mediation Board, 320 U.S. 297, 300, 303, 64 S.Ct. 95, 88 L.Ed. 61; General Committee v. Missouri, Kansas & Texas Ry. Co., 320 U.S. 323, 64 S.Ct. 146, 88 L.Ed. 76; General Committee v. Southern Pacific Co., 320 U.S. 338, 64 S.Ct. 142, 88 L.Ed. 85; Brotherhood of Railway & Steamship Clerks, etc. v. United Employees, 320 U.S. 715, 64 S.Ct. 260, 88 L.Ed. 420, reversing 78 U.S.App.D.C. 125, 137 F.2d 817; Order of Railway Conductors v. National Mediation Board, App.D.C., 141 F.2d 366, certiorari dismissed 323 U.S. 166, 65 S.Ct. 222; Reilly v. Millis, App.D.C., 144 F.2d 259; Millis v. Inland Empire District Council, App.D.C., 144 F.2d 539, certiorari granted 65 S.Ct. 269.

This court accordingly can not set aside the mere certification of the defendant union as collective bargaining agent of' plaintiff’s employees.

The plaintiff, however, contends that it is not only seeking relief against the Board, but that it is also seeking to restrain the union from taking advantage of its. own wrongful acts in withdrawing its objections to the election, thereby depriving the plaintiff of any review and rendering-the Board’s unlawful certification of the-union final in proceedings before the War Labor Board, and that as a result thereof, unless plaintiff recognizes the union, and negotiates a contract with a union which does not represent a majority of its employees, it is threatened with a cancellation of its government contracts and the seizure of its business by the President.

The directive of the War Labor Board, however, is also only advisory. It is not in and of itself enforceable or reviewable. National War Labor Board v. United States Gypsum Co., App.D.C., 145 F.2d 97.

In Employers Group of Motor Freight Carriers v. National War Labor Board, App.D.C., 143 F.2d 145, 151, certiorari denied 323 U.S. 735, 65 S.Ct. 72, the complaint asserted that the War Labor Board’s findings and order were unlawful, arbitrary and capricious and that they were not supported by any material evidence of record and that they will result, unless changed, in irreparable injury to the employers affected thereby. It also set forth that the findings of the Board in other cases have been enforced by governmental seizure of the property and business of non-complying respondents. The court stated that "If it be true, as appellants suggest, that the President may ultimately take possession of their plant and facilities, that possibility is irrelevant not only because it is speculative but also because it is independent of the Board’s order.”

Since the law affords the plaintiff an adequate judicial remedy in case the National Labor Relations Board should ■ever issue an order based on its certification and since all the War Labor Board •can do if it accepts the certification of the Labor Board as to the collective bargaining representative of plaintiff’s employees as final, is to issue a directive which is ■merely advisory and informatory, no right •of the plaintiff has been violated, and no irreparable injury has been threatened by anything that either the Board or union has • done. The plaintiff accordingly has no • cause of action at law or in equity against ■ either of them.

The plaintiff’s motion for an injunction accordingly must be denied and the com- ■ plaint dismissed.

This disposition of the motions makes it unnecessary to consider the defendant Board’s motion to quash the service of the . complaint.


author: REEVES, District Judge.

text:
    In re MULLETT et al.
    No. 2076.
    District Court, W. D. Missouri, Central Division.
    April 25, 1945.

      D. F. Calfee and Scott Peters, both of Jefferson City, Mo., for debtors.
    Gardner Smith, of Patterson, Chastain & Smith, all of Kansas City, Mo., for Union Central Life Ins. Co.
   REEVES, District Judge.

This is a proceeding under the provisions of Title 11 U.S.C.A. § 203, sub. s, relating to the general subject of Relief of Debtors. Said Section 203 refers to Agricultural Compositions and Extensions. Conciliation commissioners are provided for by said section and at a certain stage of the proceeding such conciliation commissioners become referees in bankruptcy.

The question for decision in this case is whether a determination of value by the conciliation commissioner, or referee, should be accepted and approved. The debtors heretofore endeavored to secure the compositions and extensions provided under the statute. Apparently they were unable to obtain the acceptance of a majority in number and amount of their creditors and sought further relief undei the special provisions of subdivision s of said Section 203.

In accordance with the provisions of said subsection, the farm of the debtors was appraised. The debtors having evinced a purpose to pay into court the amount of the appraisal, the mortgagee, the Union Central Life Insurance Company, petitioned for a reappraisal as it was authorized to do under paragraph 3 of said subsection s, as follows:

“Provided, That upon request of any secured * * * creditor * * * the court shall cause a reappraisal of the debtor’s property, or in its discretion set a date for hearing, and after such hearing, fix the value of the property, in accordance with the evidence submitted, and the debtor shall then pay the value so arrived at into court, * *

The conciliation commissioner, or referee, upon such petition granted a hearing, received evidence, and undertook to “fix the value of the property in accordance with the evidence submitted.” The amount fixed by him was $7,500. The Union Central Life Insurance Company, as a secured creditor, has filed its petition to review the order of the conciliation commissioner, or referee, on the ground that the conciliation commissioner, or referee, erred in the exclusion of testimony which the petitioner says was competent and material on the issue of value, and that the referee refused to give consideration to other testimony legally and regularly admitted. Moreover, it is the contention of the petitioner that the value fixed by the conciliation commissioner, or referee, was not supported by any testimony in the record.

The entire matter has been reviewed, including the pleadings, as well as the evidence which has been transcribed and submitted, with the record and the briefs of the parties.

The farm is owned by the two farmer-debtors, is located in Cooper County, Missouri, and consists of 280 acres. In September, 1929, the debtors applied to the petitioner for a loan on their farm in the sum of $10,000, and, at that time, submitted their own estim'ate as well as the appraisals of local freeholders as to its value. The value then given in round figures was $28,-000, whereas the freeholders gave it as their opinion that 250 acres were worth $100 per acre and 30 acres $75 per acre. This made an aggregate of $27,250. The loan then applied for was to supplant another in the same amount. The application was addressed to the petitioner and the loan was recommended by a financial correspondent of the petitioner in the said amount of $10,000. The loan was for a period of ten years. It was not paid at maturity and a proceeding under the above section of the statute was instituted by the farmer-debtors. Late in the year 1942 the farm was appraised at $7,000, and such appraisal was approved at a hearing in January, 1943. In January of this year (1945) the farmer-debtors expressed a desire to pay into court for redemption the amount of the appraisal, namely $7,000. Thereupon the petitioner, the mortgagee, requested a hearing and a new determination as to the value. Such determination was to be made by the conciliation commissioner, or the referee. Many witnesses were called, both by the petitioner and by the debtors. The evidence on the part of the petitioning creditor showed the value of the farm to be approximately $9,800 to $11,200. This variation occurred in estimates made by the witnesses on the basis of $35 to $40 per acre. The preponderance of the testimony on behalf of the petitioning creditor was that the fair market value of the farm at the time of this hearing was $40 per acre, or $11,200.

On the other hand, witnesses on behalf of the debtors placed the value from $5,040 to $5,600. The preponderance of the testimony on behalf of the debtors was that the farm was worth $5,600. Neither of the debtors personally gave evidence as to the value of the farm.

Witnesses for the petitioning creditor had wide and profitable experience in land appraisals and were not only familiar with the farm in question but had made observations on the sales of similar property nearby. They considered it an average farm of the type in Cooper County and with a productivity that checked favorably with the productivity of similar farms in that area. They were in practical accord that farm lands in that vicinity had materially increased in value in the last two or three years and that farm products in like manner had considerably increased in value.

The witnesses for the debtors were disposed throughout their testimony to depreciate the value of the farm. They disparaged its productivity, pointed to its erosive qualities and indicated that it had been subject to devastating erosions from the flow of surface water.

James N. Mullett, one of the debtors, was called as a witness by the petitioning creditor. He admitted the execution by him and his brother of the application for the loan dated September 12, 1929. He did not undertake to explain why so great a depreciation had occurred on the farm between September 12, 1929 and January, 1945, a period of more than fifteen years. He and his brother had occupied the farm during that time and had been actively engaged in farming activities on this and other - farms rented by them. In fact the referee was inclined to discourage any inquiry concerning conditions existing 15 years ago.

The petitioning creditor offered statistical data prepared by the government, or government agencies, showing the increase of land values, particularly in Missouri. This was excluded, and, in like manner, the referee excluded market statistics showing the general increase in the value of farm products. The conciliation" commissioner, or referee, in his order, said:

“Under the evidence presented the value of the real estate involved described in the petition and in the schedules filed herein is found by the Commissioner to be $7,500.-00.”

No other findings of fact were made, nor was there a statement of conclusions of law, as this was the only issue before the commissioner, or referee.

Other facts will be stated in the course of this memorandum opinion.

1. As a basis or postulate for considering a case of this kind where a determination of values is involved, it is fundamental that:

“In making that estimate there should be taken into account all considerations that fairly might be brought forward and reasonably be given substantial weight in such bargaining. Brooks-Scanlon Corporation v. United States, 265 U.S. 106, 124, 44 S.Ct. 471, 68 L.Ed. 934. The determination is to be made in the light of all facts affecting the market value that are shown by the evidence taken in connection with those of such general notoriety as not to require proof.” Olson v. United States, 292 U.S. 246, loc.cit. 257, 54 S.Ct. 704, loc.cit. 709, 78 L.Ed. 1236.

It will be noted from the foregoing that a broad basis in law is laid for the presentation of proofs touching the value of property as in a case of this character.

2. The court, in reviewing the case, must keep in mind the provisions of General Order in Bankruptcy No. 47, 11 U.S.C.A. following section 53. Such order is applicable and is controlling in cases such as this. General Order No. 47 refers to Reports of Referees and Special Masters. It is provided:

“Unless otherwise directed in the order of reference the report of a referee or of a special master shall set forth his findings of fact and conclusions of law, and the judge shall accept his findings of fact unless clearly erroneous.”

The first question obtruding itself in these considerations is whether the learned conciliation commissioner, or referee, “clearly” erred in his findings of fact. The witnesses on behalf of the debtors fixed the value of the farm at not more than $5,600. Apparently the referee rejected that testimony, as well he might in view of all other facts, as not reliable and as not constituting a satisfactory basis for determination of the value of the property. It is obvious from the report of the referee that he leaned wholly upon the testimony of the witnesses and their judgment as to the value of the premises. The referee’s finding was that the property, under the evidence, was worth $7,500. Such a finding was not supported by the testimony of the debtors. On the other hand, the learned referee did not accept the valuation placed by the witnesses for the petitioning creditor. Under such circumstances he reached a figure not supported by any of the evidence. In view of this finding, the court is obliged to reject the appraisal made by the referee as not having support in the evidence.

3. The referee rejected as irrelevant evidence the application of the debtors for the loan made by the petitioner. This application was dated September 12, 1929. It was not only descriptive of the property and its improvements but the estimate then made by the debtors as to the value of the property was supported by freeholders of the community. The value then given was, in round figures, $28,000.

James N. Mullett was called as a witness by the petitioning creditor. He identified his application and admitted it was executed at the time indicated. He offered no explanation as to the decrease in value between the date of the application and the date of the hearing before the referee. The value of a farm would not ordinarily decrease from $28,000 to $5,600 unless there was a good reason' for it. It would have been an easy and a simple matter for the debtors to have pointed out in what way the farm had so greatly depreciated in value. It is true he said that several heavy rains had seriously eroded the farm. He indicated that he had not tried to “ruin” the farm but the inference from his testimony is that he had not tried to preserve it. It does not appear that a debtor, who, in obtaining the loan, had given his property so great a value, should be permitted to claim such an enormous depreciation without some explanatory statement satisfactory to the trier of the facts. Since the application was for the loan now held by the petitioner, admittedly it was competent as a basis, at least, for an inquiry as to what had happened to the land that would cause its extreme depreciation. The referee should have received such testimony and given consideration to it. Again, the referee rejected statistical evidence compiled by the goverment with respect to the general increase in farm values. Such evidence should have been admitted. Furthermore, the referee rejected evidence of market reports on farm commodities, which reports were offered to support the contention that farm products had greatly enhanced in value in the last few years. This was competent evidence. The witnesses said these were important factors in determining market values. In fact, it is a matter of common knowledge that farm prices on farm products have advanced, and, like the recent great depression, they are such contemporaneous outstanding facts as to impress themselves upon the court even without proof. Concerning the productivity of the farm in question, there was evidence that the debtors were entirely familiar with the rating given their farm by government authorities and that it was referred to as an “average” with other farms of the same character in Cooper County. These facts would tend to gainsay and contradict the evidence of the witnesses produced by the debtors. In reference to said witnesses, their testimony indicated a studied and planned purpose to depreciate the value of the farm to the disadvantage of the petitioning creditor and to the advantage of the debtors. It does not seem reasonable that neighbors, familiar with the land in question, should be at so great a variance between the fair and reasonable market value of the farm. Such values ran from $5,040 to $11,200, and even more.

It is the duty of courts to frown upon such testimony and in every way to express disapproval of a course so obviously designed, notwithstanding the fact that the witnesses were under the sanction of solemn oaths. It was the duty of the debtors in their farming operations not to stand idly by and with purposeful neglect permit their farm to fall into the decay they now so extravagantly claim. They owed an obligation to their creditor to preserve the security and to manage their farm in a husbandly way. Comment should be made here upon the fact that their first and one of their important witnesses who testified on behalf of the debtors, while denying under oath that he was under guardianship, yet undisputable proof has been presented that he was under guardianship for incompetency by reason of the intemperate use of intoxicants, and that such guardianship was continuing at the date he gave his testimony.

4. General Order in Bankruptcy No. 47 further provides:

“The judge after hearing may adopt the report or modify it or may reject it in whole or in part or may receive further evidence or may recommit it with instructions.”

Upon the evidence, the court could not properly adopt the report of the referee. The facts now before the court are ample to warrant a modification of the report. It would be a waste of time and a useless gesture to take further testimony or to recommit with instructions to the referee. The interest on the loan has probably been paid. The note held by the petitioning creditor is in the face amount of $10,000. The evidence would fully justify the court in finding that the value of the farm is $11,200. For the purpose of redemption, the value should be fixed at the face amount of the note, as that apparently is all that the debtors would have to pay in order to redeem it. Accordingly, the value fixed by the referee will be modified and fixed by the court at $10,000, and it will be so ordered.


author: JAMES ALGER FEE, District Judge.

text:
    McBride v. Farrington.
    Civ. No. 2202.
    District Court, D. Oregon.
    March 30, 1945.
    Teiser & Keller, of Portland, Ore., for plaintiff.
    Reilly & Davidson and Stephen E. Parker, all of Portland, Ore., for defendant.
   JAMES ALGER FEE, District Judge.

This is an action by the> trustee in bankruptcy of the Western Bond and Mortgage Company, a petition for the bankruptcy of which was filed November 24, 1931, in involuntary proceedings. The Western Bond and Mortgage Company was adjudicated on this petition September 24, 1934.

Certain transactions which occurred between the bankrupt and defendant Farrington who was an officer thereof are said to have transferred assets of that corporation to him without any consideration. These transactions are said by plaintiff to have occurred on the 20th day of December, 1930, as to the first “cause of action”, and on the 12th day of December, 1929, as to the second “cause of action.” They are alleged in the complaint to have been discovered on the 21st day of September, 1943.

McBride was appointed trustee of the Western Bond & Mortgage Company, bankrupt, on December 12, 1934. This action was commenced October 2, 1943. McBride is an attorney and has been chief of the estate tax department and of the income tax department of the United States Bureau of Internal Revenue. While so connected, he had some familiarity with the income tax liability of bankrupt and Farrington. He personally heard some of the testimony at the trial of Farrington’s case before the Board of Tax Appeals and was present at the taking of depositions of Brown and Besson in the bankruptcy court in 1931, which transactions related to manipulations of the stock and property of the bankrupt.

Soon after his appointment as trustee, McBride was visited by Ralph Moody who was conducting an investigation of the affairs of bankrupt on behalf of the State Attorney General’s office. From this source, McBride was paid a monthly sum for carrying on an investigation and furnished the services of two auditors. Latourette, attorney for McBride during this period, testified that strenuous efforts were made to investigate everyone who had been involved in the transactions resulting in bankruptcy, including Farrington. The newspapers carried accounts of the alleged civil and criminal liability of Farrington, some of which McBride had called to his attention, and there were many suits filed in court which contained positive allegations in relation thereto.

In 1935, McBride knew of a tax claim asserted by the Internal Revenue Department. He had known of the fact that there was an amended income tax return upon which, when he finally obtained a copy in 1943, he found bodied forth completely the foundation of this case. After he knew an income tax report existed, McBride called at the office of the agent of Internal Revenue but found no copy there. Some time after this, he heard that Robert Jacob, an attorney, had a copy of this document. For three or four years after he had this knowledge, he made no effort to see the report. Finally, he called at Jacob’s office. He found that Jacob was out of the office and immediately abandoned all further effort. Thus he procrastinated for all these years in obtaining the copy although from his experience in tax matters, he must have known that this document would have been invaluable in unwinding the tangled skein which he had in his hands. The whole theory of excusing the trustee for failure to bring this suit earlier is that the finding of this report and the amended return was the discovery of fraud.

In 1936, McBride employed Erickson, the present accountant, and about that time, present counsel were employed. Data was at hand pointing clearly to a loss of assets in another transaction. This was pursued with energy and ability by counsel for McBride both in this court. In re Western Bond & Mortgage Co., 44 F.Supp. 89, and in the Circuit Court of Appeals, Bank of California, National Association v. McBride, 9 Cir., 132 F.2d 769, with the result that there was a substantial recovery. The final opinion upon appeal was announced January 14, 1943. Thereafter, the energy theretofore concentrated on that case was transferred to this investigation with the result that the obvious means of obtaining the amended return were exercised and the alleged fraud was discovered.

The State Statute of Limitations in Oregon, on a fraud action, as this is, commences running from the date of the act and creates a bar within two years, but provides that this period shall run only from discovery, either at law or in equity.

In this case, the trastee is not suing to recover the property of the bankrupt in specie. Nor is it believed that this action is for injury or detention of the property of the bankrupt. If a cause of action were given to the trustee by the Bankruptcy Act, the right would be generated by the terms of the enactment and would then fall within the two-year limitation. The reasoning of Herget v. Central National Bank & Trust Co., 65 S.Ct. 505, would furnish an analogy. But if the cause of action is not given by the Act, as the better argument suggests, it must have been an inherited right. The cause of action is for fraudulently depriving the corporate bankrupt of certain property. Such a right can have a genesis in three ways in order for the trustee to inherit. First, a creditor of bankrupt might have rights against the person fraudulently obtaining such property. Second, the bankrupt corporation itself might have a right against a person who fraudulently misappropriated its property. Finally, a stockholder might have a right of action for misappropriation, or breach of trust, by one of the officers of the corporation. The court is of opinion that the present action is one derived from one of the above-mentioned sources. It does not take its initial genesis by virtue of the provisions of the Bankruptcy Act.

Before the passage of the Act of 1938, it had been consistently held in the Ninth Circuit that to such an inherited cause of action the general statute of limitations prescribed by the particular state applied. This was the more logical since it is a principle agreed upon with unanimity that where a right of action given by a particular state was conditioned in the same statute by a limitation, the expiration of the period thus set would bar the remedy, notwithstanding the language of the old clause 11, sub. d. Universally the courts maintained that where the general law of the state had provided the right in a creditor, that if the law of the general limitation set up by the state had barred the remedy in the creditors, the trustee could not revive it. This was founded upon the proposition that the trustee was enforcing a right based upon rights inherited from the bankrupt, or the creditors, and for which remedies were given by state law. It has been intimated that the former provisions of the Bankruptcy Act had no effect upon this situation since former section 11, sub. d, was a withdrawal of juridical and representative capacity. Therefore, that section was not intended as a statute of limitations, but simply a termination of power. There were, it is true, cases holding that old section, 11 sub. d, was a true statute of limitations and if the remedy of a creditor were alive on the date of filing the petition, it lingered on available to the trustee until two years after final closing. But practical considerations as well as authority constrain this court to the opposite view. Repose is the aim of these local statutes and the state policy should control. While then a case can be made for the retention of the remedy until a trustee could orient himself before bringing action, it should not be extended as in this case to thirteen years unless the affirmative policy of the state permit.

The state statute as above noted erected the bar of limitations against the remedies here sought sometime in 1933, unless the fraud was not discovered until later. But the trustee here had knowledge of facts sufficient to lead him to make the allegations presented here, soon after he assumed responsibility for the management of the estate. Farrington bulked large in the rumors of fraudulent dealings with bankrupt in the whole period after the filing of the petition and covering the time of the initial incumbency of the trustee. The associates of the trustee indicate knowledge of it. The press accounts, at least one of which was specifically brought to the attention of the trustee himself, are full of such suspicions. There was litigation of record which pointed to these very transactions. All the records of the bankrupt were placed in the trustee’s hands and he had some assistance and sufficient money to make an investigation of them. The mere fact that the trustee did not have the specific document, an amended income tax report for the year 1930, now considered to furnish conclusive proof, is immaterial. There was data on hand from which he should have taken warning of the essentials. The information was within the knowledge of the trustee before 1936, by construction. Such knowledge must be attributed to the trustee and his attorneys in that year which saw the first vigorous attempts to follow the claim against the Bank of California. But two years had expired after these events before the Chandler Act took effect. Their action was barred then, by the Oregon statute, before the new act became effective.

Logically the opinion should stop here, but the arguments have wandered far afield. In order to save question, the court now considers the situations which would have arisen if knowledge had been obtained by the trustee at a later date.

If it be assumed that knowledge had not been obtained by the trustee by the date of the taking effect of the amendment to the bankruptcy law, in 1938, the two years after adjudication had already passed so that the particular clause of the statute gives no aid. But the state statute might give two years more vicariously. The court holds that the knowledge of facts which the trustee had during these two years was sufficient to guide him to an actual knowledge of the matters now alleged. Therefore, two years from the effective date of the Chandler Act barred the right of action completely. The question as to construction, if this action had been filed within two years from the effective date of the amendatory act, might have been puzzling, but that cannot arise now.

The Act of 1938 changed the whole situation with regard to limitations under the bankruptcy act. The conflict between the court regarding the interpretation of old section 11, sub. d, was "primarily responsible for the framing of the new Section 11, sub. e, in 1938, [11 U.S.C.A. § 29, sub. e].” The new section 11, sub. e, was obviously a compromise and extended the limitations laid down by the state statutes under the interpretation of Davis v. Willey, supra, to a fixed period of two years beyond the date of adjudication. It will be noted, however, that if the state statute had barred the action before the filing of the petition in bankruptcy, or if the state statute provided for a term of limitation which did not lapse until two years after adjudication, then no change was effected where the doctrines previously announced by the Ninth Circuit Court of Appeals continue in effect. The purpose of the new act seems unquestionably to be to extend to the trustee a fixed period within which he might file all suits which he has inherited from the debtor unless it were the policy of the particular state to give him even a longer time. Section 6 of the Bankruptcy Act of 1938, 11 U.S.C.A. § 1, note, provides in part: “Except as otherwise provided in this amendatory Act, the provisions of this amendatory Act shall govern proceedings so far as practicable in cases pending when it takes effect; but proceedings in cases then pending to which the provisions of this amendatory Act are not applicable shall be disposed of conformably to the provisions of said Act approved July 1, 1898, and the Acts amendatory thereof and supplementary thereto.”

Inasmuch as the limitation clause is an extension rather than a diminution of the time allowed to the trustee for filing a cause which he has inherited from the bankrupt, it is practicable to apply new section 11, sub. e, in this case. According to the determinations which the court has heretofore made upon the facts, the state statute already had run before the Chandler Act was enacted. Thus we are brought back to the same situation. It was practicable to apply the Chandler Act and to give effect to the state statute of limitations by the court as already found. Based on the facts, the remedy is barred.

Entirely irrespective of the limitations, state or federal, in a court of bankruptcy which is controlled by equitable principles, it would seem that the doctrine of laches was applicable. It has, in fact, been applied in state courts under similar circumstances. Even if we assume all of the allegations of plaintiff’s complaint to be true, it still must be remembered that these actions were consummated in 1929 and 1930, approximately fifteen years ago; that the filing of the petition in bankruptcy was in 1931; that extensive investigations were made at that time; and that the main actors in the transactions with the exception of defendant, are dead, as well as others who have known material facts. This court has allowed recovery upon another one of the major claims and this determination was affirmed by the Circuit Court of Appeals and the property has now been recovered. The right of recovery in that case was not nearly so clear at the outset as it appears now when opinions are on iecord, but after all, it represented even at that time, by far the best chance of upsetting a fraudulent transaction and obtaining money for this estate. The trustee and the present attorneys have devoted years of unflagging zeal to obtaining recoveries in that case, but it is the opinion of the court that they deliberately spent their work and efforts upon that proposition as the main chance and that they did not as vigorously pursue the clues that might have lead to a like recovery in the instant cause. There were sufficient facts of record long ago to have accomplished this purpose. All they had to do was to obtain the income tax return which they now have, and it was available to them at all times. Laches is not established by the lapse of time alone, but here there is detriment to the defendant in that he has been robbed of a means of defense by the death of witnesses and participants, and on the other hand it is apparent to the court that there was a more or less deliberate choice in pursuing the other claim rather than this one. Whether these circumstances be used to create a bar by reason of laches, or to make plain that it is “practicable” to apply the provisions of the limitations in the Act of 1938, the result is impregnably established thereby. A bar to prosecution of these claims is now complete.

Findings and judgment of dismissal may be prepared.

       Chapter 2, Title I, of the Oregon Statutes provides: “§ 1-201. Time of commencing actions: Objection, how taken. Actions at law shall only be commenced within the periods prescribed in this title, after the cause of action shall have accrued; * * *.”
      “§ 1-202. * * * The periods prescribed in the preceding section for the commencement of actions, shall be as follows:— * * *
      “§ 1-206. Within two years. Within two years,— (1) * * * for any injury to the person or rights of another, not arising on contract, and not herein especially enumerated; provided, that in an action at law based upon fraud or deceit, the limitation shall be deemed to-commence only from the discovery of the fraud or deceit.”
      “§ 9-103. A suit shall only be commenced within the time limited to commence an action as provided in chapter 2, of title 1 of this Code * * *. In a suit upon a new promise, fraud, or mistake, the limitation shall only be deemed to commence from the making of the new promise or the discovery of the fraud or mistake * * *

       Sections 70, sub. a and 70, sub. e are not antagonistic as contended by plaintiff. By Subsection a the trustee acquired all the rights which the bankrupt had in property which he had transferred in defraud of creditors. By the former section 47, sub. a (2), 11 U.S. C.A. § 75, sub. a(2), the trustee was given the rights of creditors as to all the property with which he became vested by virtue of the clauses of section 70. Under the act of 1938, all these provisions now become a part of section 70 and the causes of confusion no longer exist. See 11 U.S.O.A. § 110.

       “rights of action arising upon contracts, or usury, or the unlawful taking or detention of or injury to his property.” Bankruptcy Act, § 70, sub. a(6). A two-year statute of limitations under the Oregon state law would apply were the cause of action one for taking or detention of property.

       Kane v. Sesac, D.C., 54 F.Supp. 853.

       See In re Globe Drug Co., 9 Cir., 104 F.2d 114.

       Cf. Section 60, Bankruptcy Act, 11 U.S.O.A. § 96; Herget v. Central National Bank & Trust Co., supra.

       Davis v. Willey, D.C., 263 F. 588; Davis v. Willey, 9 Cir., 273 F. 397.

       Bankruptcy Act of 1898, § 11, sub. d, 11 U.S.C.A. § 29, sub. d.

         See Heffron v. Duggins, 9 Cir., 115 F.2d 519; Durrett v. Harris, 148 Ark. 4, 228 S.W. 386; Harrigan v. Bergdol, 270 U.S. 560, 46 S.Ct. 413, 70 L.Ed. 733.

       See Davis v. Willey, supra; Woodman v. Butterfield, 116 Me. 241, 101 A. 25; Cobb v. First National Bank, D.C., 263 F. 1000; First Presbyterian Church of Santa Barbara, Cal., v. Rabbitt, 9 Cir., 118 F.2d 732.

       See Nairn v. McCarthy, 7 Cir., 120 F.2d 910, 912, where it is said: “It does not follow from the fact that the trustee is prohibited from bringing an action subsequent to that time that he is authorized to maintain an action prior thereto, irrespective of an applicable limitation statute.”

       Isaacs v. Neece, 5 Cir., 75 F.2d 566; Engebretson v. West, 133 Neb. 846, 277 N.W. 433; Callaghan v. Bailey, 293 N.Y. 396, 57 N.E.2d 729.

       Linebaugh v. Portland Mortgage Co., 116 Or. 1, 13, 14, 239 P. 196. Cf. Sedlak v. Sedlak, 14 Or. 540, 13 P. 452.

       Herget v. Central National Bank & Trust Co., supra [65 S.Ct. 507].

       In Hastings v. H. M. Byllesby & Co., 293 N.Y. 413, 57 N.E.2d 737, the court cites and follows Callaghan v. Bailey, supra, and thus comes to the conclusion that a diminution rather than an extension of the period of limitation was effected by new Section 11, sub. e of the bankruptcy act. From this .premise the court arrives at the conclusion that it is not practicable to apply the new section of the Chandler Act. Although the reasoning of this distinguished court is persuasive, it is not binding here. The opinion simply means that in the state courts of New York a longer period of limitation will be applied. A court bound by Davis v. Willey, supra, must necessarily reach a contrary conclusion.

       Cf. Herget v. Central National Bank & Trust Co., supra.

       See Wilkinson v. Livingston, 8 Cir., 45 F.2d 465.

       Wolpert v. Gripton, 213 Cal. 474, 2 P.2d 767; Cf. Bovay v. H. M. Byllesby & Co., Del.Ch.1940, 22 A.2d 138; also Fredericks v. Jacoby, 128 N.J.Eq. 426, 16 A.2d 809.

       Wilkinson v. Livingston, supra; Cf. Bingaman v. Commonwealth Trust Co., D.C., 15 F.2d 119.