author: HELVERING, District Judge.

text:
    BERGOLD v. COMMERCIAL NAT. UNDERWRITERS, Inc., et al.
    Civ. No. 4860.
    District Court, D. Kansas, First Division.
    March 29, 1945.
    Arthur J. Stanley, Arthur J. Stanley, Jr., J. E. Schroeder, Lee E. Weeks, and Leonard O. Thomas, all of Kansas City, Kan., for plaintiff.
    C. O. French, of Kansas City, Mo., and Melvin E. Buck, of Kansas City, Kan., for defendants Commercial National Underwriters, Inc. and Commercial Bankers Mutual Casualty Co.
   HELVERING, District Judge.

This is an action by Mary Bergold, a resident of Kansas, against the Commercial Bankers Mutual Casualty Company, Commercial National Underwriters, Inc., and the Rosedale Bath and Hotel Company, all Missouri corporations, for damages for the wrongful death of plaintiff’s husband who died on December 13, 1942, from burns caused by steam used in giving deceased a turkish bath on the premises of the last-named corporation in Kansas City, Kansas.

On the 27th day of October, 1943, none of the defendants having appeared, answered or otherwise plead, default was entered and judgment taken against all three. A motion to quash service of process was filed on behalf of the Commercial National Underwriters, Inc. and the Commercial Bankers Mutual Casualty Company on January 31, 1944, and subsequently overruled; but, on motion of plaintiff, the default judgment was vacated and set aside as to these two. defendants. They then answered, again attacking the service in the action. The question now before the Court is whether or not these two parties were properly and effectively served with process so as to render them subject to. the jurisdiction of this Court. Depositions were submitted and hearings were held on the 19th, 22d, and 24th days of May, 1944, in Kansas City, Kansas, at which further testimony and documentary evidence were introduced.

The service of summons which is now ■under attack was had upon one J. W. Pierce in Kansas City, Kansas, on September 18, 1943, as manager for each of the defendants. It seems not to be seriously disputed that Pierce was employed, in whatever capacity and for whomsoever he actually served, by a Sam Hudson, whom it is agreed was ostensibly at the time the President of the defendant Rosedale Bath and Hotel Company, although he could not legally have been such under the Missouri law since he owned no stock in the corporation. The problem resolves itself into the question whether Sam Hudson was actually functioning for either or both of the other two defendants and whether, as a consequence, either or both of them were doing business in the State of Kansas so as to render themselves amenable to process here. The capacity of Pierce as a proper agent for receipt of service is also challenged.

From a careful analysis of the evidence, it is obvious that either Sam Hudson acted solely for the Rosedale Bath and Hotel Company and no other or the organization of that company and the Commercial National Underwriters, Inc. by those interested in the Commercial Bankers Mutual Casualty Company, and the subsequent manipulation of these interests, was one of the most cunningly devised and executed schemes to create paper assets for an insurance company and to operate, ultra vires, the business of a third corporation in a foreign state without domestication and with immunity from legal responsibility which this Court has had opportunity to examine.

Whatever kinship may exist between these three corporations springs from the motherhood of the Commercial Bankers Mutual Casualty Company, hereinafter designated C B C. Commercial National Underwriters, Inc., hereinafter referred to as C N U, was admittedly organized as an agency company of C B C, although its authority to act other than in connection with the sale of C B C policies is denied. C B C’s control of C N U is not questioned, although C B C was not a stock company and the identity of its owners and the shareholders of C N U is not patent. Both were known as the “Garrett companies”, the reference being to a Mr. T. W. Garrett. The maternity, if such existed, of C B C to the Rosedale Bath and Hotel Company, hereinafter called Rosedale, is predicated upon the manner of Rosedale’s organization, the issuance and disposition of its bonds and the subsequent efforts of the individuals interested in C B C and C N U to protect that bond issue.

Jacob Baum, on the organization of Rosedale, contributed the property at 301 South Mill Street, Kansas City, Kansas, for which he received $22,500 of the Rosedale bonds 'and $5,000 in cash which was paid by C B C for an equivalent amount of bonds with earliest maturity dates. The total of this consideration, $27,500, had apparently been Baum’s asking price on the property, but an appraisal of over $134,000 was obtained and a total .of $65,000 in bonds issued. Of this bond issue, C B C received certificates representing $42,500 indebtedness for which it gave $6,000 and a surplus note in the amount of $36,500. One thousand dollars of the cash was paid to Dr. Herman S. Majors, to whom that amount of bonds were purportedly issued and by whom, it is claimed, they were sold to C B C, although Dr. Majors testified that he had never held any of the bonds.

Majors was a Missouri physician who thought he saw financial opportunity in the property and sought assistance in developing it. He considered himself at least one of the organizers of the Rosedale corporation and was named its first president. The $36,500 surplus note, it is claimed, was issued to Majors, although it seems agreed that he could only have held it for the benefit of the Rosedale corporation. Nevertheless, it is also claimed that he assigned it, without authorization of Rose-dale’s directors or stockholders, either to C B C to secure his own personal agreement to repurchase the bonds it had bought from him or to C N U to secure it in an alleged guarantee of the bonds held by Baum. Since Majors could not even recall the existence of this note or the issuance of any bonds to him, it is probable that all of these transactions took place at the same -time as component elements of a single arrangement, and that Majors, whethér aware of it or not, was used by someone as a figurehead. It is likewise rather obvious that the bonds obtained by C B C, with the exception of the $5,000 worth which were the first-maturing bonds of the issue, were actually of little value since the other $22,500 worth of bonds which were held by Baum had earlier maturity dates' and could have been first foreclosed against a property of a probable value of little more than that amount; but, tout ensemble, -they did give the appearance on the books of C B C of $42,500 of assets, and this at the very modest expense to C B C of only $6,000.

It is just as apparent that the bonds and not the shares of corporate stock represented -the real ownership and control of the Rosedale oompany. The company was capitalized for one hundred thousand dollars. Shares in the amount of $60,000 were issued at a par value of $10 each. Six hundred and twenty-eight shares were issued to the Major Clinic, approximately $3,500 of whose money Dr. Majors had used in repairing the property on South Mill Street; no other consideration was paid for these shares. Four qualifying shares each were issued to two parties who were named directors and the rest of the stock, approximately five thousand three hundred and sixty-two shares, was issued to Dr. Majors. These transactions took place in the early part of 1942.

In about September of the same year, when Dr. Majors discovered that he could not profitably operate the bath house enterprise and was ready to “turn the whole thing back and take a loss”, he handed over all .of his stock intending to turn it “back to the people who had loaned the money, back to the insurance company” and obtained a written release from all liability from “one of Mr. Garrett’s companies”. This transfer also was made without consideration. Dr. Majors apparently paid nothing for his stock and considered it practically worthless. The other directors paid nothing for their qualifying shares and there is no suggestion that they ever -took their ownership seriously enough to attempt to exercise any of the prerogatives of stockholders and no convincing proof -that a directors’ meeting was ever held. In any event, at the time of the death of plaintiff’s husband and at the date of service of process upon Pierce there were no outstanding shares of stock other than the qualifying shares in the hands of two directors and three hundred and twenty-eight shares of that issued to the Major Clinic. Dr. Majors testified that all of the stock held by the clinic was turned back at the time he gave up his own stock but the company records and stock book were apparently not allowed to fully reflect this transfer. No consideration had ever passed for any of the stock except that issued to the clinic and Dr. Majors did not bother to -take possession of either his stock or bond certificates. When bonds in double the amount of the probable value of all assets were outstanding and stock shares in the face amount of $60,000 represented a real investment o-f only about $3,500, the inclination of all interested to ignore the stock as indicia of ownership is easily comprehended.

In the spring or summer of 1943, before the disputed service upon Pierce was made, C. O. French, then president of C B C, proposed a rearrangement of the Rosedale bond and stock issues under which Baum was to cancel $15,500 of his bonds, transfer $5,000 of his remaining bonds to C B C to take the place of an equivalent amount of bonds to be cancelled by C B C, leaving him bonds in the amount of $2,000. For these cancellations and transfers Baum was to receive as consideration all of the capital stock of the Rosedale corporation except that held by the Major Clinic and such shares as might be used to settle open accounts at the rate of $10 per share. This would have left Baum holding practically all of the stock but only $2,000 of the bonds while C B C would have retained its original amount of bonds. No consideration could have accrued to Rosedale other than the very doubtful advantage of having its bond issue reduced from $65,000 to $44,500 which would have been only $17,000 above the probable value of its assets. It was to receive no payment for the transfer of practically all of its stock from its own treasury unless the transfer of approximately $56,720 par value of stock was proper consideration for a reduction of $20,-500 of its bond issue when outstanding bonds would have still greatly exceeded the probable value of the assets. All real advantage would have redounded to the benefit of C B C which then could have mar-shalled all of the assets for the payment of its bonds — which represented an investment of only $6,000 since it then had possession of the surplus note either directly or through the agency company. It is not difficult to understand why this proposed rearrangement was never consummated. The significance of this proposal is that French, as president of C B C, was able to give assurances of its acceptance by Rosedale and that Sam Hudson consented to the proposal. Sam Hudson could only have been acting for the insurance company since Rosedale would not have benefited from the transaction.

There can be little question but that at the time of French’s proposal for the rearrangement of the Rosedale bonds and stock, the bondholders were actually in control of the bath house corporation. This relationship is more clearly demonstrated when one considers the part which an attorney, John Hudson, brother of Sam Hudson, the second president of Rosedale, played in the organization and financial engineering of the three defendant companies.

John Hudson apparently acted as attorney for the organization of C B C, C N U, and Rosedale. He seems to have acted throughout for Garrett and the Garrett companies. It seems to have been at the instance of Mr. Garrett or his companies that he handled the issuance of the Rose-dale bonds. At no place in the evidence is there any clear indication that John Hudson had any interest in any of these transactions other than as attorney for Garrett or the two insurance companies. That he was organizing Rosedale for the benefit of and at the instigation of these interests is evidenced by the' fact that Majors, who had initiated the' organization of the bath house corporation and was its first president, did not even comprehend the nature of the organization or understand why the bonds were issued in the amount they were, what became of the bonds, nor could he remember accepting or transferring the $36,500 surplus note. At the time of Rosedale’s organization John Hudson was so completely in command of the arrangements for all of the defendants herein that he handled not only the issuance and transfer of the bonds but issued Rosedale stock at will. At the time he accepted return of Majors’ Rosedale stock Hudson gave him a release by the insurance company from all personal obligations in connection with the enterprise. Hudson was not paid for his services by Majors, individually or as president of Rosedale, and was apparently not paid at all by Rosedale unless he issued himself Rosedale stock. It is clear that Majors was used as a straw figure as was the Rosedale corporation itself.

Mr. Garrett and a Mr. Dubach, at the time president of C N U, were present at the organization of Rosedale when Dubach told Majors that John Hudson was “their attorney”. The ' evidence shows that on •the resignation of Majors as president of Rosedale John Hudson told Sam Hudson that he’d have to “take over” the Rosedale company and that “they” would make him president, which was done apparently without vote of the directorate. If Majors thought he was the real organizer of Rose-dale, he was deceived; this company was organized by and for the Garrett companies through John Hudson. As has been indicated before, it is not disputed that Pierce, who was served in this action as a representative of the complaining defendants, was employed by Sam Hudson; neither is it disputed that both Sam Hudson and Pierce were managing the operation of Rosedale, although the complaining defendants contend that Sam Hudson’s activity had ceased and that Pierce was acting for Baum at the time of service.

Sam Hudson, not being a stockholder of Rosedale and receiving no compensation from that company, was obviously acting for some one or some company other than himself or Rosedale. Majors having removed himself from the picture and the remaining two stockholders (holding only-qualifying shares) having never availed themselves of stockholders’ rights, there actually existed no interests which Sam Hudson could have represented other than the Garrett interests.

Rosedale was doing business in Kansas but since the only remaining stockholders were Missouri residents, held only token shares, and did not consider themselves owners of the company or exercise the powers of ownership, it could only have been the bondholder, C B C, and its agent C N U which were actually doing business in Kansas. Though the agency chain was protracted, it was nevertheless effective. It was, in all probability, purposely designed to create a legally remote relationship, excellently camouflaged, but efficient enough to achieve the end desired — the creation of paper assets for C B C and the later protection of the property securing the bond issue without revealing the insurance company’s real interest in its illegitimate child.

Should the sanction of this Court be given to such a transaction and the parent company and its legitimate offspring which were engaged in ultra vires acts be held not amenable to process in this jurisdiction, then the pattern would be formed whereby foreign corporations could do business in a state through fictitious corporations created by their own handiwork and evade legal liability in the state of their spurious operations. It is within the power of the Court to penetrate the screen of corporate. fiction and to determine the real identity of the ac-tor behind it. .

It is not sufficient to say that this action might have been instituted in Missouri for when a foreign corporation actually does business in a state it submits itself to the jurisdiction of that state to that extent and, for the convenience of the citizens of that state, should be required to answer there for acts related to that business and committed within the jurisdiction in which it has chosen to operate. This is not the usual case of a subsidiary corporation with a separate legal entity. Had there been, in the case of Rosedale, a separate entity evidenced by actual and authentic stock ownership, the Court might be inclined to view the matter differently. Even in such instance this Court would be confronted with the fact that the insurance companies were actually present in Kansas by their agents and managing the bath house properties.

The courts uniformly hold that a foreign corporation, in order to be amenable to process in a jurisdiction other than that of its domicile, must be doing business in such jurisdiction and that service must be effected upon an agent authorized by appointment or law to receive service. The first requisite, then, of valid service upon a foreign corporation, in the absence of consent, is that it be doing business of such nature and character within the state or district where service is attempted as to warrant the inference that it is present and may be “found” there and has, therefore, subjected itself to the local jurisdiction. The federal courts have carefully avoided the enunciation of any hard and fast rule as definitive of what constitutes “doing business”. Each case must be determined upon its own facts. People’s Tobacco Co. v. American Tobacco Co., 246 U.S. 79, 38 S.Ct. 233, 62 L.Ed. 587, Ann.Cas. 1918C, 537.

While various statements are to be found in the digests and text books to the general effect that the business carried on by the corporation within the jurisdiction of service must be a part of the business “for which it was organized” or a part of the “usual”, “ordinary” or “regular” business of the corporation, “a substantial part of its main business” or “the corporate business”, it is not the conception of this Court that the decisions limit the type of local business which will suffice to subject a foreign corporation to local jurisdiction to that business which is within the purview of and authorized by its corporate charter or the laws of its domicile or solely to the type of business for which the corporation was organized. It would seem sufficient if it performs a substantial part of its regular business within the district of service and it is certaintly not theoretically or physically impossible for a corporation to make its “regular” business of a nature differing radically from that authorized by its charter or from that for which it was organized. Though some of the state courts hold otherwise, those decisions do not establish jurisdictional requirements in the federal courts. Indeed, the validity of state laws which create process procedures and the decisions of the state courts which uphold them are finally tested by the interpretation of the fourteenth amendment to the federal constitution as applied by the United States Supreme Court.

It is the opinion of this Court that the federal cases often cited as requiring the business done by a foreign corporation within a state other than that of its incorporation which will subject it to service of process in such state to be business performed within its corporate powers do not so hold. This conclusion has been reached through an exhaustive study and analysis of all cases cited in the digests and text-books and by the complaining defendants. It is true that in some of them what appears to be such limiting terminology has been used, but no case has been found in which it was necessary to determine this particular question, and it is believed that terms of limitation were used in most instances to distinguish the type of business necessary to subject the defendants therein to service from business performed prior to withdrawal of the corporation from its activity within the jurisdiction or from some other type of business activity which clearly would not subject the corporation to local jurisdiction. In more than a few of the cases such terms have been used as a result of somewhat careless reference to the wording of previous decisions, cited as authority, in which the courts did not attempt to determine the question now before the Court.

The term “ordinary business” as related to the question of sufficiency of service of process has been given a broad meaning by the courts and the volume of business which must be done within a jurisdiction by a foreign corporation in order to subject it to service of process there has been measured by a narrow standard. Westor Theatres v. Warner Bros. Pictures, D.C., 41 F.Supp. 757. While it realizes that many of the state courts hold otherwise, this Court is impressed with the interpretation adopted by the Iowa court in Kal-bach v. Service Station Equipment Co., 207 Iowa 1077, 224 N.W. 73, 76: “The ‘business’ of a corporation is not confined strictly to the powers declared in the charter which created it an entity. The ‘business’ also involves the caring for the property which may belong to the corporation or in which it has an interest. This may be viewed' as incidental to the purposes as declared in its articles of incorporation, but nevertheless it is business connected with the corporation * *

The complaining defendants in this case became involved in the organization of the Rosedale corporation. They held the major portion of its bonds and found it expedient to come into Kansas and operate its properties in order to protect their interests. When they came into this state and actually operated those properties they were doing business here just as effectively as they would have had they owned the properties themselves. These acts constituted no isolated transactions; they became an important phase of the business these corporations were actually carrying on and consisted of the entire business for which a separate corporation had purportedly been created.

It has been repeatedly held that the ownership by a foreign corporation of stock of a domestic corporation will not of itself, unaccompanied by other circumstances showing that the foreign corporation was itself doing business in the state of service, subject the foreign corporation to service of process in the jurisdiction where the domestic corporation operates. People’s Tobacco Co., Ltd. v. American Tobacco Co., 246 U.S. 79, 38 S.Ct. 233, 62 L.Ed. 587, Ann.Cas.l918C, 537; Peterson v. Chicago, Rock Island & Pacific R. Co., 205 U.S. 364, 27 S.Ct. 513, 51 L.Ed. 841; Conley v. Mathieson Alkali Works, 190 U.S. 406, 23 S.Ct. 728, 47 L.Ed. 1113; United States v. American Bell Telephone Co., C.C., 29 F. 17. The rule would apply with equal force 'to the mere ownership of bonds of the local corporation but its force is spent where the bondowner chooses to go. beyond ordinary acts of self-protection and assumes actual operation of the business of another corporation which is clearly within the jurisdiction where process is served. The rule as to subsidiary corporations is likewise inoperative where it is shown that separate corporate entity is not maintained or that the parent corporation itself operates the business.

The Court finds as a matter of fact that the complaining defendants were doing business in the state of Kansas and concludes that such business was of a type sufficient to subject them to service of process in this district.

The question of the type of agent which may be served with process in order to subject a foreign corporation to the jurisdiction of the court is a separate and distinct question from that of what constitutes the doing of business by the foreign corporation. It is generally required that he be a managing or general agent. In interpreting a statute setting up such a requirement, the court in Denver & Rio Grande R. Co. v. Roller et al, 9 Cir., 100 F. 738, 741, 49 L.R.A. 77, said, “it is obvious that this does not mean that it must be the general or managing agent of the corporation. The object of the service is attained when the agent served is of sufficient rank and character as to make it reasonably certain that the corporation will be notified of the service, and the statute is complied with if he be a managing or business agent of any specified line of business transacted by the corporation in the state where the service is made.” It is not questioned that the complaining defendants herein were notified of the service of process upon Pierce. Sam Hudson had left Pierce in complete charge of the operation of the bath house; he was clearly the managing agent for that particular phase of defendants’ business. The test of a particular agency in determining whether it is such as to render service of process on the agent valid as to the foreign corporation is often based upon the discretion or responsibility vested in the agent. In this case Pierce was apparently given the widest discretion since he was allowed to operate the business solely as his own judgment directed. The defendants rely on this fact and the fact that he was not required to account to them for the profits or expenditures as evidence that he was not their agent; but this is not conclusive as to the existence of the agency although it does indicate the degree of responsibility with which he was invested.

It is not necessary that express authority be granted to the agent to receive process. Connecticut Mutual Life Insurance Co. v. Spratley, 172 U.S. 602, 19 S.Ct. 308, 313, 43 L.Ed. 569. The court in that case stated, “It is a question simply whether a power to receive service of process can reasonably and fairly be implied from the kind and character of agent employed.” The case also indicates that it is not necessary that the agent have the power to bind the company on contracts. While it is generally held that an agency which will bind the foreign corporation as principal through service of process upon the agent cannot be one created by construction or implication (see United States v. American Bell Telephone Co., supra) it is also generally accepted that the agency may be found to exist as a matter of fact from all of the circumstances and transactions surrounding the relationship. The circumstances under which Pierce was employed and acted are of important probative value when considered in the light of the interest which the complaining defendants had in the bath house property.

This Court is not unmindful of the rule that agency cannot be established solely by extra-judicial declarations of the agent made to third parties in the absence of the alleged principal; however, a court is permitted to examine all other admissible circumstantial evidence in determining whether an agency actually exists. After a thorough examination of the evidence of this type which has been submitted the Court finds that Pierce was the agent of the complaining defendants at the time of the service upon him on September 18, 1943. It is not impressed with the contention that what transpired at the bath house on December 12, 1942, terminated the agency relationship between the insurance companies and Pierce. No contract between Baum and any of the parties was entered into at that time and Baum did not assume responsibility for the care of the property or the operation of the business. Nothing occurred then or thereafter to justify the Court in finding that Pierce’s status as agent for the complaining defendants changed before service of process in this case was completed.

It is, therefore, the opinion of this Court that the Commercial Bankers Mutual Casualty Company and Commercial National Underwriters, Inc., were doing business in this district on September 18, 1943, that proper service of process in this action was had upon them by service upon their agent in this district at that time, and that they are subject to the jurisdiction of this Court for the purposes of this suit. Findings of fact and conclusions of law have been filed.


source: Caselaw Access Project

author: MIZE, District Judge.

license: Public Domain

text:
    HYCHE v. REESE, United States Marshal.
    No. 324.
    District Court, S. D. Mississippi, Hattiesburg Division.
    July 20, 1945.
    T. J. Wills, of Hattiesburg, Miss., for petitioner.
    Robert Hauberg, Asst. U. S. Atty., of Jackson, Miss., for U. S. Marshal.
   MIZE, District Judge.

Petitioner was convicted and sentenced to the penitentiary. After having served part of his time he was paroled. It is stipulated that the term of his sentence or parole was due to expire March 24, 1945. Several months prior thereto he was charged with having violated the Internal Revenue laws and the parole board was duly notified of this charge, together with a detailed statement from the alcohol tax unit officials. On December 19, 1944 the parole board signed a warrant for his arrest, but did not deliver it to any officer for execution until April 19, 1945. The parole officer in charge of petitioner advised the parole board of the charges prior to December and the parole board in Washington notified the parole officer in the Northern district of Mississippi to strike petitioner from his roll of active supervision, but petitioner was never at any time notified of this action and continued to make his monthly reports to the parole officer, and when notified by the parole officer to come by to see him and explain his side of these charges, the petitioner did so.

Petitioner was indicted for this alleged violation and in April, 1945 was convicted and received a sentence. The parole board then immediately delivered the warrant to the United States marshal for execution. The marshal arrested the petitioner and he brought this action of habeas corpus.

Section 716, Title 18 U.S.C.A., authorizes the parole board to parole persons under conditions authorized; Section 717 provides that when any member of the parole board has reliable information that the prisoner has violated his parole, then the warden “at anytime within the term or terms of the prisoner’s sentence, may issue his warrant to any officer hereinafter authorized to execute the same, for the retaking of such prisoner”; Section 718 provides that the officer to whom the warrant is delivered is authorized and required to execute the warrant by taking the prisoner and delivering him to the prison within the time specified in the warrant; Section 719 provides that the board of parole, after he has been returned to the prison, shall give him a hearing, and if they find that he has violated his parole, then may revoke his parole.

I am of the opinion that when the warrant was held up by the parole board and not delivered to an officer for execution within the time of the t'erm of his sentence, that the parole board lost its jurisdiction to re-take him. His parole cannot be revoked after the expiration of his term. Anderson v. Williams, 8 Cir., 279 F. 822, certiorari granted, 259 U.S. 579, 42 S.Ct. 590, 66 L.Ed. 1073, opinion, 263 U.S. 193, 44 S.Ct. 43, 68 L.Ed. 247.

Escape interrupts the service, but in the present case there was no escape or evasion, as petitioner reported regularly to his parole officer. The fact that the warrant was signed during the term is not controlling. Clark v. Surprenant, 9 Cir., 94 F.2d 969. The words in Section 717, “may issue his warrant to any officer” mean that he shall draw his warrant for the prisoner’s arrest, sign it and deliver it to an officer for execution. As a matter of law a writ is “issued” when it is delivered to an officer with the intent to have it served. It means to send forth, to put in circulation. Black’s Law Dictionary, 3d Ed., p. 1012; Vol. 22, Words and Phrases, Perm. Ed., “Issue” ; Webster’s Unabridged Dictionary defining word “issue”.

I, therefore, am of the opinion that the writ is well taken and that petitioner should be discharged. Order may be drawn accordingly.


author: SMITH, District Judge.

text:
    BOWLES v. MANCHESTER DEVELOPMENT CORPORATION.
    Civ. A. No. 1342.
    District Court, D. Connecticut.
    May 1, 1945.
    J. Stephen Knight, District Enforcement Attorney, and Arnold M. Sweig, Enforcement Attorney Division of Rents and Services, Office of Price Administration, both of Hartford, Conn., for plaintiff.
    Jay E. Rubinow, of Manchester, Conn., for defendant.
   SMITH, District Judge.

For the reasons stated in the Memorandum of Decision filed in Bowles v. Westbrook Defense Homes, D.C., 61 F.Supp. 172, the mandatory injunction sought by the plaintiff must be granted here.

The argument pressed by this defendant, that money retained in trust is not retained within the meaning of the regulation, is not persuasive. A trust relationship to the deposit must have been expected by the administrator in a substantial percentage of security deposit cases, from the very nature and purpose of the transaction, and any intention to omit those cases from the general language of the regulation would surely have been expressed.

Form of judgment for the plaintiff for a mandatory injunction, requiring refund of security deposits now retained, may be submitted on notice.


author: SWEENEY, District Judge.

text:
    MARINE CO. et al. v. MONAHAN, Deputy Com’r, et al.
    No. 1098.
    District Court, D. Massachusetts.
    May 25, 1945.

      Hannon & Tracy, of Boston, Mass., for libellant.
    Frank D. McCarthy, Edmund J. Brandon, U. S. Atty., and Gerald J. McCarthy, Asst. U. S. Atty., all of Boston, Mass., for respondents.
   SWEENEY, District Judge.

This libel seeks to set aside, as illegal and void, a compensation order made by the Deputy Commissioner for the First Compensation District for the benefit of the survivors of one Gerald P. Doyle who, the Deputy Commissioner found, was accidentally drowned in the course of his employment. The record before me includes everything that was before the Deputy Commissioner, with a transcript of all of the testimony. The Government has filed a motion to dismiss the libel and, having heard full argument from counsel for both sides, I will allow the respondent’s motion to dismiss.

There was evidence before the Deputy Commissioner that the deceased worked for his employer on the afternoon of May 13, 1944. The Deputy Commissioner found that the deceased on that day “fell from said steamship into the water and was drowned.” His body was not discovered until some two weeks later.

It has long been established that the Longshoremen’s and Harbor Workers’ Compensation Act, 33 U.S.C.A. § 901 et seq., should be liberally construed in favor of the injured employee or his dependent family. Baltimore & Philadelphia Steamboat Co. et al. v. Norton, Deputy Commissioner et al., 284 U.S. 408, 52 S.Ct. 187, 76 L.Ed. 366.

It is equally well established that the findings of fact by the Deputy Commissioner, which are supported by evidence, should be regarded as final and conclusive and not subject to judicial review. Crowell, Deputy Commissioner, v. Benson, 285 U.S. 22, 52 S.Ct. 285, 76 L.Ed. 598.

There were no eyewitnesses to the drowning of this deceased and it is probably because of this that the insurer seeks this review. I am satisfied that the finding made by the Deputy Commissioner, to the effect that this man’s death arose out of and in the course of his employment, was supported by sufficient evidence to make it a final finding of fact. I do not intend to state that I would have necessarily reached the same conclusion that the Deputy Commissioner reached on the same evidence; nevertheless, I cannot say that the Deputy Commissioner’s finding was not adequately supported by the evidence before him or that there was insufficient evidence from which he could have made his finding.

Accordingly, his finding stands as final and the Government’s motion to dismiss is allowed.'


author: DAWKINS, District Judge.

text:
    SARTOR et al. v. SOUTHERN CARBON CO.
    Civil Action No. 359.
    District Court, W. D. Louisiana, Monroe Division.
    Aug. 11, 1945.
    G. P. Bullis, of Ferriday, La., for plaintiffs.
    Oliver & Digby, of Monroe, La., for defendant.
   DAWKINS, District Judge.

This is another of the many market price suits brought in this court for the recovery of additional alleged value of natural gas and gasoline extracted therefrom by lessors in the Richland Parish field. Plaintiffs are two of five brothers owning lands in said field, who are parties to the lease that provided for “market price” instead of a fixed rate for the gas. The other three brothers had sued in 1933 for a % interest, which action was later compromised and dismissed. The present plaintiffs had declined to join in that suit. However, on September 9, 1940, the present demand was filed, in which recovery is sought at the rate of 5<i per thousand cubic feet, or 2$ additional for natural gas, and fio(é per thousand cubic feet as the alleged value of the gasoline at 5^ per gallon extracted therefrom.

The petition itemizes the quantities of gas withdrawn from the lands for each of the years 1930 to 1938, both inclusive. Defendant has filed a plea of prescription of three years under Art. 3538 of the Louisiana Civil Code, which the state‘courts have uniformly held applies to a situation of this kind. Counsel for plaintiffs does not dispute the applicability of this provision of the law (R.C.C. art. 3538), but takes the position that prescription or limitation has been interrupted “by acknowl-edgement of the debt under Civil Code Art. 3520, and the legal interruption under Civil Code 3518.” He also relies upon a provision of Act No. 39 of the State Legislature of 1932.

The lease was a single document, signed by all five brothers, each of whom owned a % undivided interest in the land by inheritance from their parents. Three of them, J. M., D. R. and F. B. Sartor, filed in 1933, their joint action making the same demand, as here, which was later compromised and settled on the basis, it is alleged, of % of % of an additional value of one cent per thousand cubic feet for the gas. The present plaintiffs argue that the filing of this prior suit by their brothers had the effect of interrupting the prescription of Art. 3538 of the Code in their favor as effectively as it did for the three plaintiffs who were parties to that suit. The two articles above cited and that portion of the Act No. 39 of 1932 relied on by plaintiffs are quoted as follows:

Art. 3520, Civil Code. “Prescription ceases likewise to run whenever the debt- or, or possessor, makes acknowledgement of the right of the person whose title they prescribed.”

Art. 3518, Civil Code. “A legal interruption takes place, when the possessor has been cited to appear before a court of justice, on account either of the ownership or of the possession; and the prescription is interrupted by such demand, whether the suit had been brought before a court of competent jurisdiction or not.”

Act No. 39 of 1932. “The filing of a suit in a court of competent jurisdiction shall interrupt all prescriptions affecting the cause of action therein sued upon, against all defendants, including minors and interdicts.”

Plaintiffs’ counsel has not cited any decision by the courts of Louisiana directly in point supporting his contention, but seeks by analogy and argument, upon the language of the law, to apply decisions in other cases to the facts of the present one. There can be no doubt but that, as to the three brothers who filed suit in 1932, the articles of the Code and the Act of 1932, as well as the decisions cited, are appropriate; but it is impossible for this court to see how the benefits of those articles or of that Act can be claimed by the present plaintiffs. They persistently failed to join in the original suit, although one or perhaps both appeared and testified as witnesses therein. The present complaint does not tell us why they failed to join in that suit. They may have, during the seven years that intervened between 1933 and 1940, been satisfied or unwilling to take the risk and incur the expense of a lawsuit. In any event the defendant in this case was certainly not put on notice by that original suit that they, the present plaintiffs, were claiming anything from it. On the contrary, it might well have assumed that they were not so claiming because of their failure to join their brothers in the first action.

Then, there are further considerations (plaintiffs admitting in brief that the pleadings, evidence, decrees, etc., in the former suit are to be considered in disposing of this plea of prescription). Defendant strenuously denied in its answer to the suit filed in 1933 that it owed anything further for gas or'gasoline but averred that it had paid full market prices for the gas. After several years that suit was compromised and settled, each side giving up something claimed rather than take chances on the outcome. See Art. 3071, R.C.C. The acknowledgment, if it may be called such, was certainly not of the demand that the present plaintiffs made, for it was on the basis of only one cent additional for the natural gas while 2^ additional is claimed in the present suit. At most, it would seem that the settlement admitted there was a controversy in which each side gave up the chance of success for greatly reduced considerations. It is true that in both suits the claim was that more was due, according to market price than had been paid, but this had to be proved to the satisfaction of a jury by a fair preponderance of the evidence. This was never done and the sum paid was by way of compromise. Art. 3077 of the Revised Civil Code provides:

“Compromise by one interested party— Effect as to others. — A transaction (compromise) made by one of the interested parties is not binding for the others, and can not be opposed by them.”

It follows that if the compromise in that case was “not binding” on persons not parties to it, they, in turn, can not claim any advantage flowing from it.

The simple answer to the assertion that Art. 3518 applies here, is that until 1940, there was never any citation of defendant in a judicial demand by the present plaintiffs to appear before any court upon the demand now made.

The obligation of the lessee in this case was to pay each of the co-lessors his % of the royalty at market price. Payment to one or more of the whole would not have discharged the debtor’s obligation to those who knew nothing about it, did not participate or receive payment. Hence, Arts. 2088 -and 2089 of the R.C.C. defining creditors in solido and their rights, as well as Art. 2090, providing: “Every act, which interrupts prescription with regard to one of the creditors in solido, avails the other creditor (creditors)” can have no application to this case. It is governed by Art. 2084 dealing with several obligations. Obligations in solido are not presumed, but must be expressly stipulated. R.C.C. Art. 2093.

The argument of counsel for plaintiffs as to Act No. 39 of 1932 has the effect of claiming for his clients its full benefits, notwithstanding, as previously stated, they had not sued anyone at any time until 1940. A reasonable construction of the language that “The filing of a suit in a court of competent jurisdiction shall interrupt all prescriptions affecting the cause of action .therein sued upon, against all defendants, including minors and interdicts,” was intended to protect the plaintiff against prescription of the cause of action that he “therein sued upon,” as to all those made defendants, regardless of minority or interdiction. As stated earlier, no decision by the state courts has been cited or found to support what seems to this court an attempt to stretch the language far beyond the purpose of the legislature.

The plea of prescription will be sustained as to that part of plaintiffs’ demand which accrued more than three years prior to September 9, 1940.

Proper decree should be entered.


author: LEAHY, District Judge.

text:
    KIRKMAN v. WILMINGTON TRUST CO.
    Civil Action No. 404.
    District Court, D. Delaware.
    Aug. 9, 1945.
    William S. Potter and Collins J. Seitz (of Southerland, Berl & Potter), all of Wilmington, Del., for plaintiff.
    Robert H. Richards, Jr., and William E. Taylor, Jr. (of Richards, Layton & Finger), all of Wilmington, Del., for defendant
   LEAHY, District Judge.

This proceeding is instituted under the provisions of the federal Declaratory Judgment Act, 28 U.S.C.A. § 400, by plaintiff who is a receiver appointed by the courts of New Jersey. Plaintiff prays for a declaratory judgment that he is vested with title to all property rights and interests of one Ferdinand R. Patzowsky under the will of his father, Richard Patzowsky, deceased, and further that the court declare that the interest is such that it be payable to plaintiff upon the occurrence of certain contingencies. A motion to dismiss was argued on the grounds (1) there is no controversy between the parties within the meaning of the Declaratory Judgment Act; (2) the complaint here is in the nature of a creditor’s bill and therefore cannot be maintained in this district; and (3) the litigation does not involve the jurisdictional amount.

It appears from the complaint that Richard Patzowsky died in Wilmington in 1916. Under the terms of his will, Wilmington Trust Company duly qualified as trustee under three trusts which provide for the payment of income to daughters of the testator during the terms of their lives with remainder over to the issue of each daughter, and in default of issue, the principal to the testator’s son, Ferdinand. The life tenants under the trusts are living, being age 60, 63 and 65, respectively. None of them is married. Under the will Ferdinand is also the residuary beneficiary of his father’s estate.

On August 16, 1938, the Equitable Life Assurance Society of the United States recovered a judgment at law in the New Jersey Supreme Court against Ferd R, Patzowsky, a resident of the State of New Jersey (the same being the Ferdinand discussed supra), in the sum of approximately $133,000. The plaintiff in the lawsuit, learning that Ferd R. Patzowsky had made a fraudulent conveyance of his interest under his father’s will, filed a bill of complaint in the Court of Chancery against Ferd R. Patzowsky and his sister, Louisa H. Ward, who was the transferee in the alleged fraudulent conveyance. After hearing, the Court of Chancery entered a final decree setting aside the conveyance as fraudulent. On appeal, the Court of Errors and Appeals of New Jersey affirmed the lower court. The modified decree adjudged the purported conveyance to be fraudulent and appointed Elwood F. Kirkman as receiver of the property which was the subject of the fraudulent conveyance, viz., the interest of Ferd R. Patzowsky under the terms of Items 4, 5 and 6 of his father’s will.

On June 29, 1942, the Supreme Court of New Jersey, pursuant to Secs. 2:26-157 to 2 ¡26-159 of the Revised Statutes of New Jersey, N.J.S.A. in a proceeding instituted by the Equitable Life Assurance Society of the United States against Patzowsky, which proceeding was in aid of the execution of plaintiff’s judgment at law, entered an order appointing the plaintiff herein receiver “of the property and things in action belonging or due to or held in trust for said Ferd R. Patzowsky, judgment debtor, and particularly all the property rights and interests in property of the said Ferd R. Pat-zowsky under the Eleventh Paragraph of the Will of his father, Richard Patzowsky.”

Plaintiff duly qualified as receiver. On March 15, 1945, plaintiff, through the local firm of Southerland, Berl & Potter, Esqs., demanded that Wilmington Trust Company, as trustee under the will of Richard Patzowsky “acknowledge and recognize the title of the said Elwood F. Kirkman, receiver as aforesaid, in and to the property rights and interests in property of Ferd R. Patzowsky under the will of his father Richard Patzowsky, deceased.” In reply to that letter defendant refused to acknowledge and recognize the title of plaintiff as receiver.

Plaintiff contends that the refusal of defendant to acknowledge and recognize his title as receiver subjects him to great uncertainty and insecurity with respect to his rights as receiver for the reason that defendant, Wilmington Trust Company, as trustee, upon the death of one of the life tenants, may distribute the corpus of the trust to said Ferd R. Patzowsky and further, the reason that equities of third persons may intervene before the death of the life tenants to the irreparable loss of the receiver and for the further reason, that the trustee, by such refusal, may at some future date attempt to avail itself of the defense of laches as against the plaintiff. Defendant’s main contention, on the other hand, is that the complaint sets forth no controversy between the parties within the meaning of the Declaratory Judgment Act.

Since the complaint fails to make a case under the Declaratory Judgment Act, it shall be assumed, without deciding, that plaintiff is vested with the same rights as Patzowsky had under his father’s will, that this interest is property in New Jersey, and that the order giving him such rights is entitled to full faith and credit.

That the orders of the New Jersey Courts were effective to transfer any interest under the will to the receiver is subject to much doubt. These queries suggest themselves: (1) Was Patzowsky domiciled in New Jersey so as to make the doctrine of mobilia sequuntur personam applicable; (2) if yes, is an expectancy in an estate such a movable as follows a person; (3) what law governs whether an expectancy is a movable; (4) if an expectancy is not a movable, is the order appointing the receiver a nullity; (5) is the order appointing plaintiff “Receiver of the property and things in action belonging or due to or held in trust for said Ferd R. Patzowsky” in any event sufficient to include an expectancy ; and (6) if yes, can it have any effect if the expectancy is not a movable and mobilia sequuntur personam is, therefore, inapplicable ?

Plaintiff is compelled to concede that if Patzowsky’s expectancy is not regarded as property in New Jersey the complaint must fail. But plaintiff contends and it will be assumed without so deciding that Patzow-sky’s “interest” is analogous to the interest of a creditor who has an unmatured debt owing to him.

The nature of the “interest” of Patzow-sky under Items 4, 5 and 6 of his father’s will raises an interesting academic speculation. I am of opinion that the interest was contingent. See Festing v. Allen, 12 N. & W.279; Loddington v. Kime, 1 Salk. 224 (1697); for at common law no interest limited after a limitation in fee can be vested; Loddington v. Kime, supra. Strictly speaking, the issue is whether Patzowsky’s “interest” is contingent or vested and not whether it is a contingent or vested “remainder.” For at common law if a remainder in fee was vested, that was the end of the matter. It was not subject to divestment except in case of attainer. Moreover, many courts hold that future interests, after a life estate in personalty, always take effect as executory interests and not by way of remainder. But this discussion is academic because by Item Eleven of the will Patzowsky is residuary beneficiary, and if the interests to him under the other Items are contingent he would still have the re-versionary interest by virtue of Item Eleven. All reversionary interests, for historical reasons, are vested. Gray, Perpetuities, 3rd Ed. (1915), c. 3.

The complaint does not make a case under the Act. This conclusion is not reached by ignoring the well established rule that the primary object of the Declaratory Judgment Act is to afford a speedy and inexpensive means of adjudicating legal disputes before damages have actually been suffered. The statute has been liberally construed to that end. Treemond Co. v. Schering Corporation, 3 Cir., 122 F.2d 702, 703. Neither does the existence of another remedy preclude relief by way of declaratory judgment. Lehigh Coal & Navigation Co. v. Central R. of New Jersey, D.C., 33 F.Supp. 362. Judicial construction has, in fact, been so liberal that the word “actual” of the stated “actual controversy”, has, in effect, practically been eliminated from the statute. Dewey & Almy Chemical Co. v. American Anode, 3 Cir., 137 F.2d 68. Nevertheless, there must be a controversy between the parties. In Aetna Life Insurance Co. v. Haworth, 300 U.S. 227, 57 S.Ct. 461, 464, 81 L.Ed. 617, 108 A.L.R. 1000, the Supreme Court said: “A ‘controversy’ in this sense must be one that is appropriate for judicial determination. * * * A justiciable controversy is thus distinguished from a difference or dispute of a hypothetical or abstract character; from one that is academic or moot. * * * The controversy must be definite and concrete, touching the legal relations of parties having adverse legal interests.” The case sub judice fails to meet this test. Here, there is no controversy “touching the legal relations of parties having adverse legal interests” because there is no basis in fact for the assumption that defendant’s interests, i. e., to faithfully carry out its fiduciary obligations under the will, are adverse to plaintiff’s interests. It can not be assumed that defendant will violate its fiduciary duties This being so, plaintiff’s and defendant’s interests are not adverse, but identical, because each desires that the trusts created be properly administered. If, by virtue of the appointment of the receiver in New Jersey, plaintiff acquired certain interests in the trusts to which defendant must give full faith and credit, then there is no reason to assume that defendant will not perform its duty in the present and as it carries out the turn-over order which will spell the legal termination of the trust it has assumed to administer during the past twenty-nine years. It has not said that it will not do so, and I shall assume that it will. Plaintiff’s apprehension arises solely from its inability to get an encouraging answer from defendant. This is an insufficient basis for the action as it calls for what would be truly an advisory opinion. One of the last cases decided at the past term of the Supreme Court admonishes us that the requirements for a controversy are no less strict in a declaratory judgment proceeding than in any other type of suit; and that the federal courts are without power to give advisory opinions, for the reason that it has long been considered correct practice not to decide abstract or contingent questions. See Alabama State Federation of Labor v. McAdory, 323 U.S.-, 65 S.Ct. 1384.

Plaintiff relies on Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 61 S.Ct. 510, 85 L.Ed. 826, and Dewey & Almy Chemical Co. v. American Anode, 3 Cir., 137 F.2d 68, certiorari denied, 320 U.S. 761, 64 S.Ct. 70, 88 L.Ed. 454 which, it is argued, impel the conclusion that the complaint in the instant case supports the ground for declaratory judgment relief. These cases are distinguishable. In the Maryland Casualty Co. case, claimant brought an action of tort against the insured for injuries arising out of an accident. Under the state law, claimant, if successful, could enforce his judgment by a supplementary proceeding against the insurer. After the action that preceded the judgment, the insurance company brought a complaint against claimant and insured seeking a declaration of non-coverage. The claimant had not made any claim against the insurance company under the policies but the Supreme Court held that an actual controversy existed between claimant and the insurance company. In that case the ultimate liability rested on the insurance company, if the claim was within the policy, since the original tort action had been reduced to judgment. Moreover, the legal interests of the parties were obviously adverse, and adverseness of interest would arise merely by the filing of the tort action by the claimant. In this case, however, there is no showing that the legal interests of the parties are adverse. Plaintiff simply did not get the reassuring answer to the inquiry directed to defendant-trustee which he hoped to receive. In the Dewey & Almy case, the patentee had not brought suit against plaintiff, although an infringement action had been instituted by the patentee against another alleged infringer. The court [137 F.2d 71], in holding that a case under the Declaratory Judgment Act had been made out, went on to state by way of dictum that: “If Anode had published a printed notice or circular asserting that use of the described coagulant-dip processes constitutes an infringement of its patents this would undoubtedly mark the existence of an actual controversy between the pat-entee and all persons who engaged in practicing the process.” The Dewey & Almy case is clearly distinguishable because the institution of suit, as would a threat, established the existence of adverse legal interests between the parties. These operative facts are obviously not present here. Samuel Goldwyn, Inc. v. United Artists Corporation, 3 Cir., 113 F.2d 703, and Purcell v. Summers, 4 Cir., 126 F.2d 390, also relied upon by plaintiff, are distinguishable for similar reasons. As it is concluded that defendant’s first ground supporting its motion to dismiss is valid, there is no necessity to discuss the other two points urged by it.

The motion to dismiss should be granted.

       The trust created by Item 4 of the will is typical and is as follows:
      “Item 4. — I give and bequeath unto my Executors, hereinafter named, the sum of Seventy-five Thousand Dollars (§75,000.00) in trust, for the following intents and purposes, to-wit:
      “To invest and keep invested the whole of the said trust estate, or trust fund, in some good and productive security or securities and to collect and receive the income therefrom, and, after the payment of the costs and expenses attending the care and management of said trust estate, to pay the said income unto my daughter, Antoinette Fleisch, of the City of New York and State of New York, for and during the term of her natural life, and, at the death of my said daughter, my said Executors shall pay over the principal, or corpus, of said last mentioned trust fund, or trust estate, in equal shares, unto such issue of my said daughter as shall survive her, per stirpes and not per capita, upon the arrival of such issue, respectively, at the age of twenty-one years, and if any such issue, so surviving my said daughter, as aforesaid, should not have attained the age of twenty-one years at the time of my said daughter’s death, my said Executors shall pay unto each of such issue during his or her minority the net income of his or her respective share of said trust estate until his or her arrival at the said age of twenty-one years; in case my said daughter should die without leaving issue, her surviving, or in case such issue should all die before arriving at the age of twenty-one years, my said Executors shall pay over unto my son, Ferdinand R. Patzowsky, the whole of the principal, or corpus of sai'd trust estate, or trust fund, to be his, absolutely.”

       See 122 N.J.L. 482, 6 A.2d 390.

       See 128 N.J.Eq. 579,17 A.2d 794; 131 N.J.Eq. 49, 23 A.2d 561.

       The pertinent sections of the statute are as follows;
      “2:26-158. Receiver; appointment
      “The judge making the order for discovery may, after considering the evidence taken at the examination, either before himself or a supreme court commissioner or master in chancery, make order appointing a receiver of the property and things in action belonging or due to or held in trust for the judgment debtor as aforesaid, at the time of the recovery of the judgment or at any time thereafter.'
      “2:26-159. Powers and duties of receiver
      “A receiver appointed under authority of section 2:26-158 of this title shall have authority to receive, take into possession, and, if need be, sue in his own name as such receiver for the property and things-in action specified in section 2:26-149 of this title; and the receiver shall apply the same in payment of the judgment against the judgment debtor, the costs of the proceedings thereon and his reasonable compensation, to be taxed by the judge, and pay the residue into the court in which the judgment was recovered or docketed, for disposal according to law; and the judge shall order the judgment debtor to convey and deliver to such receiver all the property and rights in action and the evidence thereof.”

       The letter reads, in part, as follows: “We feel that the demand made by you that we, as trustee, under the Will of Richard Patzowsky, acknowledge and recognize the title of Elwood F. Kirkman as Receiver is entirely premature. Since Ferd R. Patzowsky has no immediate rights or interest in possession under his father’s Will, we see no reason why we should either acknowledge or refuse to acknowledge the title of said Receiver at the present time.”

       The New Jersey Courts also held that the interest is contingent. See note 3 supra.

       WUat will undoubtedly happen is this. Upon the termination of the life estate— the death of the daughters — and in default of issue, the defendant, here, as testamentary trustee, having been advised of the claim of the plaintiff-receiver, by the institution of these proceedings, will file a bill for instructions in tbe Court of Chancery of the State of Delaware and seek to be advised as to whether the residuary estate should be paid to Patzowsky or his receiver. This is traditional practice in Delaware.


author: GIBSON, District Judge.

text:
    UNITED STATES ex rel. PICI v. BROM-BERG, Acting Divisional Director of Immigration.
    No. 131.
    District Court, W. D. Pennsylvania.
    Aug. 2, 1945.
    Charles P. Pearson, of Pittsburgh, Pa., for relator.
    Charles F. Uhl, U. S. Atty., of Pittsburgh, Pa., and Edward C. Boyle, Asst. U. S. Atty., of Pittsburgh, Pa., for respondent.
   GIBSON, District Judge.

The relator, pursuant to a conviction in this court, for the same offense in substance as described later, was arrested on a warrant issued by the Assistant to the Secretary of Labor which charged him with violation of the Immigration Act of 1917, 8 U.S.C.A. § 101 et seq., in that he had been found receiving, sharing in, or deriving benefit from the earnings of a prostitute, and that he had been found assisting a prostitute. The warrant was issued on March 22, 1940, and duly served and relator given a hearing thereon on July 9, 1940, and November 7, 1941, at each of which hearings he was represented by counsel. He has entered a plea of guilty in this court on May 25, 1939, to the indictment pending therein.

After the hearing the Attorney General, on December 14, 1942, acting through the Board of Immigration Appeals, ordered the deportation. Owing to some necessary delay, the relator was not ordered to report for deportation by the Immigrant Officer until July 13, 1945, after which order he was surrendered to the custody of the respondent and forthwith prayed the instant writ.

Counsel for relator has called attention to an announcement of the Attorney General relative to the procedure of the Department of Justice for the removal and repatriation of alien enemies dangerous to the safety of the United States pursuant to the Presidential Proclamation of July 14, 1945, No. 2655. In his announcement the Attorney General indicated that upon hearing of those accused as alien enemies mitigating circumstances would be considered which might lead to release of the accused. Enumerated among these circumstances were lack of prominence, the possession of an American-citizen spouse, and factors of extreme hardship, such as illness or advanced age.

Apparently acting upon his interpretation of the Attorney General’s declaration of policy, counsel for the relator prayed for a rehearing upon the order of deportation, showing the existence of a recently married wife, a United States citizen, and of two minor children, daughters of a deceased wife, born in this country. The refusal to grant the rehearing was alleged to be erroneous.

The Board of Immigration Appeals, in refusing a rehearing, was acting upon a matter within its discretion, even if the charge against the relator had been in the classes of cases discussed by the Attorney General, and this court would be without proper authority to determine the procedure as erroneous. But the present petitioner is not within the class mentioned by the Attorney General, and is specifically excluded from any right to claim suspension of any order of deportation by 8 U.S. C.A. § 155(d), by reason of his conviction upon the procurement charge.

It was also claimed that the Department was guilty of laches, in that it failed to deport the relator within the year intervening between the order of deportation and the beginning of World War II by Italy. In view of the well-known attitude of the Kingdom of Italy in refusing the issue of visas to undesirable residents for years prior to a date subsequent to its surrender, and lack of testimony to sustain the contention, no weight can be given to the claim.

An order will be made remanding the relator to the custody of the Acting Divisional Director of Immigration, or other officer charged with the duty of deportation.

The writ of habeas corpus issued herein is vacated and discharged and the relator, Joseph Chester Pici, is hereby ordered to surrender himself to Charles Garfinkel, Officer in Charge, Immigration and Naturalization Service, Pittsburgh, Pennsylvania, for deportation.


text:
    UNITED STATES v. VEHICULAR PARKING, LIMITED, et al.
    Civil Action No. 259.
    District Court, D. Delaware.
    Aug. 8, 1945.

      For former opinions, see 54 F.Supp. 828, 56 F.Supp. 297.
    Wendell Berge, Asst. Atty. Gen., Ernest S. Meyers and Elliott H. Moyer, Sp. Assts. to Atty. Gen., E. Houston Harsha, Sp. Atty., of Washington, D. C., and John J. Morris, Jr., U. S. Atty., of Wilmington, Del., for plaintiff.
    Samuel E. Darby, Jr. (of Darby & Darby), of New York City, and William S. Potter (of Southerland, Berl & Potter), of Wilmington, Del., for Vehicular Group of defendants and Carl C. Magee.
    Lyman W. Sherwood and Clarence J. Loftus (of Loftus, Moore, Olson & Trexler), all of Chicago, Ill., and Edmund S. Hellings, of Wilmington, Del., for Duncan Meter Co. and Donald F. Duncan.
    Edwin D. Steel, Jr. (of Morris, Steel & Nichols), of Wilmington, Del., for Dual Parking Meter Co. and George E. Tribble.
    C. Edward Duffy (of Logan and Duffy), of Wilmington, Del., and John E. Shepard, of Covington, Ky., for Mi-Co Meter Co., F. L. Michaels and Alifred A. Miller.
    Ivan Culbertson, of Wilmington, Del., and Stanley D. Fisher, of Hartford, Conn., for M. H. Rhodes, Inc., and M. H. Rhodes.
   LEAHY, District Judge.

Final judgment was entered in this case, after final argument on the form of the decree. Nearly a year later the Vehicular group of defendants now moves to modify the judgment. The substantial features of suggested modification are: (1) Not to have the decree run against the individual defendants; (2) there should be no provision that defendants be required to give royalty-free licenses; (3) defendants should not be enjoined from threatening to institute or instituting infringement suits; and (4) the elimination of the visitorial paragraphs under which the Department of Justice is granted certain discovery privileges for the purpose of securing future compliance with the decree. There were other modifications suggested. Their dis<-posal will appear later.

1. While true in Hartford-Empire Co., v. United States, 323 U.S. 386, 65 S.Ct. 373, a statement appears that under the facts of that case, there was no necessity to have the injunctive features of the decree operate against individual defendants, in the case at bar the reasons for including individual defendants have already been discussed and; decided. See 56 F.Supp. 297. Nothing additional has been brought forward persuasive enough to take the individual defendants from without the force of the decree entered.

2. Before the judgment was filed, the question whether defendants should be required to give to any and all applicants royalty-free licenses was fully argued and considered, but determination of the inclusion of stich a provision in the decree was reserved. The government now urges that such a provision must be affirmatively inserted in the decree. The defendants object. The objection will be sustained because I am unable to agree with the government’s reading of Hartford-Empire Co. v. United States, supra, that the court has power to mandate a royalty-free license where the patent has been used as an instrument in violation of the anti-trust laws. If a court could permit such a provision it-would obviously be tantamount to a cancellation of the patent. There are definitive statutory provisions for cancellation of a. patent. I am thus compelled to read Hartford-Empire Co. v. United States for the-proposition that a patent is not to be can-celled by making it royalty-free because it-was once utilized as a device to violate the-anti-trust laws. Hence, Paragraph 9 of the-decree should be deleted, as, under the-views expressed herein, there is no judicial: or legislative authorization for such a cancellation. There should be, however, in order to remedy the evil of the illegal monopoly which defendants have set up, some-form of compulsory licensing. Hartford-Empire Co. v. United States, supra. Some-such provision as this is suggested: “defendants and each of their officers and directors are hereby enjoined and restrained, from refusing to grant licenses to any person desiring such license Under any present patents owned or controlled by defendants. <md under which they are possessed of the right to grant sub-licenses on the same reasonable and lawful terms and conditions for which it has granted one or more licenses to others; and jurisdiction is specifically reserved to determine what are reasonable royalties or terms on present patents when and if application is ever made to this court for such determination.” The decree should be amended to provide for some such provision or its paraphrase.

3. Next, defendants seek elimination of paragraph 10 of the decree, which enjoins defendants from instituting or threatening to institute suits for past patent infringement or suits to collect royalties which are based on any of the patents appearing in Exhibit “A.”

In this connection, defendants must remember that when the patent owner uses his patent in violation of the anti-trust laws, he cannot restrain infringement of it by others. Morton Salt Co. v. G. S. Suppiger Co., 314 U.S. 488, 788, 62 S.Ct. 402, 86 L.Ed. 363; B. B. Chemical Co. v. Ellis, 314 U.S. 495, 62 S.Ct. 406, 86 L.Ed. 367; Mercoid Corporation v. Mid-Continent Investment Co., 320 U.S. 661, 64 S.Ct. 268, 88 L.Ed. 376; and Mercoid Corporation v. Minneapolis-Honeywell Regulator Co., 320 U.S. 680. 64 S.Ct. 278, 88 L.Ed. 396. The findings which have been made in the case at bar manifestly support the charge of misuse of patent. Under these circumstances, I have already held that (see 56 F.Supp. 297, 298) when defendants are able to show a course of conduct which will be free from past taints of illegality, fresh consideration will be given to the elimination of paragraph 10 of the present decree. A year has passed. There has been no disclosure or report (either to this court or the Department of Justice) of the defendants’ present or future methods of doing business or the manner in which they are utilizing their parking-meter patent rights. It is now concluded that an additional passage of time must occur for it' to appear that defendants have exculpated themselves from their former violations of the anti-trust laws. Such report may come in the future; but until then the specific sanctions imposed by paragraph 10 must stand.

4. The question was also reserved in paragraph 11 as to the requirement that defendants file with the Attorney General certain information concerning future licensing. Paragraph 12, in addition, contains visitorial provisions giving the Department of Justice in the future certain powers of discovery over the books and records of the defendants. These provisions are and will be appropriate if it ever becomes necessary to police the future activities of defendants. They must, of course, remain in the decree.

Several other objections were made to the decree by way of suggested modification. All of these have been considered. They are, at best, minor in nature and, at bottom, have no merit. A proposed form of amended decree in conformity with what has been said should be submitted in order to carry the judgment into execution.

       See 56 F.Supp. 297.

       See 54 F.Supp. 828.

       Questions (2) and (4) were specifically reserved in the decree entered.

         Exhibit “A,” attached to and a part of the decree, is incorrect in its listing of patents owned or controlled by defendant Vehicular group. The exhibit should be corrected in accordance with the suggestion made by counsel for Dual and Tribble.


author: KIRKPATRICK, District Judge.

text:
    KOLB v. PENN BOILER & BURNER MFG. CORPORATION et al.
    Civil Action No. 1610.
    District Court, E. D. Pennsylvania.
    Aug. 7, 1945.

      A. Yates Dowell, of Washington, D. C., and Charles W. Eaby, of Lancaster, Pa., for plaintiff.
    Frank H. Borden and Robert M. Barr, both of Philadelphia, Pa. for defendant.
   KIRKPATRICK, District Judge.

This is a suit for the infringement of letters patent No. 2,228,602 issued to the plaintiff. The patent is for improvements in a boiler to be used in a hot water heating system. The device consists of an outer and an inner jacket, the space between the jackets being filled with water. The interior of the inner jacket is so arranged as to form a space for the fire box and a tortuous flue passage. The flue passage lies between a number of transverse, vertical, hollow baffles which alternately extend to within a few inches of the top or bottom of the furnace. These baffles communicate with the space between the inner and outer jackets, so that they are filled with water. The fire box is designed to be removable through a closure plate which contains a removable heat insulating member.

The defendant’s accused device is a similarly constructed hot water boiler, but without the insulating member and designed so that a “retort” for a stoker (or, possibly, an oil burner) may be inserted into the interior of the inner jacket instead of the fire box. There are also other differences in the two structures which are unimportant for the purposes of this decision.

The combination patented, eliminating structural details, really contains three major elements, namely: (1) A tortuous flue, formed by hollow baffle walls, for the passage of combustion gases, (2) an insertable and removable fire box and (3) a removable heat insulating member adapted to seal the space around the fire box.

Claim 5 of the application described the combination in terms almost identical with the single claim ultimately allowed, except that the removable heat insulating member did not appear in it. Claim 5 called for a removable closure for the apertures engaging the fire box and sealing the space between the fire box and the walls of the jacket. The claim granted contained a removable closure adapted to seal the aperture in said outer jacket and then added “said closure including a removable heat insulating member, adapted to seal the space around said fire-box and between the walls of said jackets,” etc.

The file wrapper discloses beyond question that the patent was granted as a result of adding the removable heat insulating member. The patentee in his final paper cancelled claim 5, presented the new claim and pointed out “furthermore it (the Warr disclosure upon which claim 5 had been rejected) provides no removable insulating means for sealing the space between the jackets around the outer end of the fire box.”

It is undisputed that the defendant’s structure contains no removable heat insulating member. The defendant Stauffer testified that the use of a heat insulating member, such as that shown in the plaintiff’s patent, would be detrimental to the various mechanical parts of the stoker used in his boilers, since it is desirable to keep the mechanism below the level of the retort as cool as possible. The plaintiff may not read this element out of his claim as immaterial because by doing so the claim would be identical in scope with those eliminated from the patent. "The patentee may not, by resort to the doctrine of equivalents, give to an allowed claim a scope which it might have had without the amendments, the cancellation of which amounts to a disclaimer.” Schriber Co. v. Cleveland Trust Co., 311 U.S. 211, 221, 312 U.S. 654, 61 S.Ct. 235, 240, 85 L.Ed. 132.

There are other reasons urged why the defendant does not infringe but it is unnecessary to discuss them.

The question of validity is not passed upon. I am assuming (but not deciding) for the purposes of passing upon the question of infringement that the addition of the removable heat insulating member made a patentable combination out of one which this patentee, by cancelling the claims for it, has admitted to be unpatentable. The point now made against the validity of the patent was not developed at the trial and has been argued at length for the first time in the defendant’s brief.

I find as a fact that the defendant’s accused structure does not infringe the claim of the plaintiff’s patent. The statements of fact and law contained in the foregoing opinion may be taken as special findings and conclusions. I conclude as a matter of law that the defendant is entitled to judgment.

Judgment accordingly.


author: NORDBYE, District Judge.

text:
    MODERN WOODMEN OF AMERICA v. BARNES et al.
    Civil Action No. 316.
    District Court, D. Minnesota, Fifth Division.
    July 6, 1945.
    Gillette, Nye, Harries & Montague, of Duluth, Minn., for the plaintiff.
    W. J. Brown, of Duluth, Minn., and Gemrich, Moser, Christy & Brown, of Kalamazoo, Mich., for all defendants except Jennie L. Barnes, Roy Johnstone, and James E. Johnstone.
    George K. Trask, of Chisholm, Minn., and John M. Gannon, of Hibbing, Minn., for defendant Jennie L. Barnes.
    No appearance for defendants Roy John-stone and James E. Johnstone.
   NORDBYE, District Judge.

It appears that one Harry J. Cole, the policy holder of a $3,000 Modern Woodmen insurance policy, died at Chisholm, Minnesota, ■on June 22, 1942, without having designated any other principal or contingent beneficiary in place of his wife, the named beneficiary, who pre-deceased him. There surVived the insured no children, grandchildren, father, or mother. He did, however, leave surviving him one sister of the whole blood, Jennie L. Barnes; one brother of the half blood, Garrett D. Cole; one sister of the half blood, Matie Beck; seven nieces and nephews, the legitimate children of another brother of the half blood, William A. Cole, which brother pre-deceased him; and nine other nephews and nieces, the legitimate children of another sister of the half blood, Norma Cole Johnstone, which sister predeceased the insured.

The stipulated facts recite that William A. Cole, Garrett D. Cole, Norma Cole John-stone, and Matie Cole Beck were the children of one John Cole; that these children were the issue of a lawful marriage but that “the parents of these four children became separated but were never divorced, so far as can be ascertained or is known to the defendants herein.” Further, “that while the mother of these four children was still alive, the father (John Cole) married the woman who became the mother by him of defendant Jennie L. Barnes and the said Harry J. Cole, deceased; that said Jennie L. Barnes is a full sister of said Harry J. Cole, deceased insured.” No further details or circumstances as to this matter appear in the stipulation. It appears, therefore, that the policy holder, Harry J. Cole, was one of these children of the same father (John Cole), but four of them — William A. Cole, Garrett D. Cole, Norma Cole Johnston, and Matie Cole Beck — were the issue of the first marriage, while two of them — Harry J. Cole, the policy holder, and Jennie L. Barnes — were the issue of the second marriage of John Cole.

This is an impleader action, and the plaintiff herein has proceeded by a bill of inter-pleader and has deposited, under order of the Court, the proceeds of the policy with the Clerk of this Court. The question now arises as to the distribution of the proceeds of such policy. Jennie L. Barnes claims the entire proceeds as the sister of the whole blood. The living half brothers and sisters and the children of the deceased half brothers and sisters contend that the half brothers and sisters of the insured should, under the contract of insurance, participate equally with the sister of the whole blood. It is recognized by all of the defendants that the by-laws of the plaintiff fraternal benefit society were made a part of the contract of insurance. Reference, therefore, must be made to Section 29, Paragraph 3, of such by-laws, which pertain to the distribution of insurance benefits if the insured dies and there is no principal or contingent beneficiary designated. Section 29(3) reads:

“If, however, in the event of the member’s death there is no principal or contingent beneficiary designated in the certificate who is eligible to receive payment under the provisions of these by-laws, then the amount to be paid under any such certificate or rider shall be payable to the member’s widow or widower; if no widow or widower to the member’s children (by legitimate blood relationship or by legal adoption) and in case there are any such deceased child or children, the child or children of such (by legitimate blood relationship or by legal adoption) shall take the share of such deceased parent; if no such child, or such child or children of such deceased child or children, to the mother; if no mother, to the father; if no father, to the brothers and sisters, share and share alike, and in case there are deceased brothers or sisters, then to the surviving child or children (by legitimate blood relationship or by legal adoption) of such brother or sister, who shall take the share of such brother or sister, and if such child or children shall be dead, to the grandchild or grandchildren (by legitimate blood relationship or by legal adoption) of such brother or sister, who shall take the share of such deceased parent, if no brother or sister, or such child or children, or such grandchild or grandchildren of any deceased brother or sister, then the amount to be paid under any such certificate, and any rider, shall be paid to the legitimate next of kin of said member not beyond the fourth degree, who are the distributees of the member’s personal estate, according to the statutes of the state where said member resided at the time of his death.”

The claimant Jennie L. Barnes concedes that, under that section, legitimate half sisters or brothers of the insured would participate equally with a legitimate, full sister of the insured, but she contends that, under the stipulation of facts herein, one must deduce that John Cole never divorced his first wife and hence entered into a bigamous marriage with the mother of herself and the insured. It is her position, therefore, that the relation of brother and sister does not exist as between the insured and the children of John Cole by his first marriage. It is urged that the insured left no legal half brothers or half sisters, and that, therefore, as the sister of the whole blood, she must be accorded the entire insurance proceeds. But the stipulated facts will not justify the presumption indulged in as to the illegitimacy of the children of John Cole’s second marriage. First, it should be pointed out that the Union between John Cole and the mother of the insured and Jennie L. Barnes was a marriage. Whether the marriage was ceremonial or at common law the stipulation does not indicate. Furthermore, it appears that John Cole married the insured’s mother when the mother of the four children of Cole’s first marriage was living. Certainly, no indulgence of a presumption of a bigamous marriage should be made merely because there is no record of a divorce “so far as can be ascertained or is known to the defendants herein.” The first marriage may have been legally terminated, either by John Cole, or at the instance of his first wife, and these children may have been unaware of such termination and have been unable to locate the record of a divorce. The stipulation does not recite the character or the extent of the search or investigation which may have been made as to court records or elsewhere, nor is there any evidence or showing which would even suggest that the reputation or common talk in the community was that he was living in an illicit relation with the mother of these two children. Further, it may be pointed out that, while the stipulation recites that the first wife was living when the second marriage took place, there is no showing that she was living when the insured was born. An illicit union, if such existed, may have been legitimatized before the birth of the insured. Certainly, it would be wholly unwarranted to stigmatize the deceased insured as an illegitimate son under the recital of the facts herein. Courts are loath to declare a child illegitimate, and, in view of the marriage of John Cole and the mother of the insured, there is a strong presumption as to the validity of the marriage and the legitimacy of the children of such marriage. In fact, this is one of the strongest presumptions known to the law. Moreover, the presumption of the continuance of the first marriage of John Cole is not as strong as the presumption of legitimacy of the children of the second marriage. Barker v. Barker, et al., 172 App.Div. 244, 158 N.Y.S. 413. Indeed, there is a long line of decisions which support the principle that “if necessary to support the legality of the second marriage, it will be presumed, in the absence of evidence to the contrary, that the first marriage had been legally dissolved.” In re Meehan’s Estate, 150 App.Div. 681, 135 N.Y.S. 723, 724.

There is another significant circumstance that militates against the contention of Jennie L. Barnes. While this circumstance is not specifically recited in the stipulation, it is recognized and discussed by both counsel in their briefs. In the first application for insurance in 1910, Harry J. Cole was asked to list his relations in addition to the named beneficiary, his wife, and in his application he represented his sisters and brothers to be Jennie L. Barnes, William A. Cole, Garrett D. Cole, Matie Beck, and Norma Johnstone. This reference to the children of his father’s first marriage as his brothers and sisters strongly suggests, that the insured himself assumed and recognized a legitimate relationship to his half brothers and sisters; at least, it tends to indicate that he assumed that his father and mother were legitimately married. It is highly improbable that he would refer to the children of his father’s first marriage as his brothers and sisters if in fact he considered himself an illegitimate child of a bigamous marriage. True, the recitals in the application for insurance for the initial policy in 1910 were requested by the company in order to determine whether the applicant was a proper risk and not for the purpose of designating contingent beneficiaries* and it may be pointed out that the first policy was later surrendered and the new forms-of policies issued thereafter did not require* or at least did not contain, such information in any of the subsequent applications.. But the present policy is, for all practical purposes, the original contract is converted form. Certainly, with the meager recitaL of the history and circumstances of the two marriages of John Cole, the family information given by the insured in the year 1910 is not without significance. It does tend to support the presumption of legitimacy.

Moreover, it will be observed that the section of the by-laws referred to above sets forth no requirement that the brothers and sisters must be legitimate in order to be related to the insured. • The requirement of legitimacy is specifically mentioned, however, as to the insured’s children and grandchildren, and as to the children and grandchildren of deceased brothers and sisters. The qualification thus used as to the legitimacy of the classes mentioned and the failure to so qualify the relationship of brothers and sisters of the insured must have been intentional and not an inadvertence. It tends to emphasize a designed intention on the part of the framers of this by-law to consider a brother or sister of the insured as being entitled to share in the proceeds of the insurance regardless of his or her legitimacy. Generally speaking, it is universally recognized that “brother and sister” embraces a brother and sister of the half blood as well as the whole blood. Bouv.Law Diet., Rawle’s Third Revision, p. 399, defines “brother” as follows: “He who is born from a father and mother with another, or from one of them only.” In 12 C.J.S. p. 373, a brother is defined as “a male person who has the same father and mother with another person, or who has one of them.” Also, 12 C.J.S., Brother, at page 373, “In particular connections, it has been held that the term, when used without any qualifying words, may include a brother of the half blood, * * Among the definitions of “brother” found in Webster’s New International Dictionary is the following: “A male person * * * having the same parents (whole brother), or one parent only in common (half brother).” See, also definition of “Brother” in Vol. 5, Words and Phrases, Perm.Ed.

Finally, the claimant Jennie L. Barnes asserts that an illegitimate child, under the common law, is a child of no one, that he is without parents, kindred, or name (Hardesty v. Mitchell, 302 Ill. 369, 134 N.E. 745, 24 A.L.R. 565), and that, under the stipulated facts, it must be inferred that the insured was an illegitimate child and .therefore had no brothers or sisters. But, clearly, if that principle is sound and applicable herein, it will defeat Jennie L. Barnes’ claims as well. Under that strict common law characterization of a bastard child, she then bore no relationship to the insured. Neither can she inherit this insurance as next of kin Under the by-laws of the plaintiff because she is not a “legitimate next of kin” as the by-laws provide. The provisions of Section 525.173, Minnesota Statutes 1941, which provide that, where an illegitimate child dies intestate, his estate shall descend to his mother, or, in case of her prior decease, to her heirs other than such child, and Section 525.172, Minnesota Statutes 1941, which provides that an illegitimate child shall inherit from his mother the same as if born in lawful wedlock, cannot avail this claimant because, while under the laws of descent in Minnesota she could inherit from the common mother of herself and the insured, one cannot ignore the express language of the plaintiff’s by-laws which provide that the distribution under the statutes of the state where the member resided at' the time of his death must be made to the legitimate next of kin of said insured. It seems clear, therefore, if the insured had no brothers and sisters, that while the laws of Minnesota will govern the distribution to the next of kin not beyond the fourth degree, such next of kin must be legitimate, which, according to the contention of the claimant Jennie L. Barnes, she is not.

Summarizing, therefore, the Court’s views, it seems reasonable to conclude that the presumption of legitimacy to which the insured is entitled has not been overcome by the stipulated facts, and that, therefore, the half brothers and sisters will participate equally with the whole sister of the insured in the insurance proceeds; and second, if the insured was the illegitimate child of John Cole, the father of Made Beck, Garrett D. Cole, William A. Cole, and Norma Cole Johnstone, the latter are the brothers and sisters of the half blood and under the terms of the policy should inherit, share and share alike, with the illegitimate sister of the whole blood of the insured. If there was a bigamous second marriage, no sound reason is suggested why any distinction under the terms of the by-laws governing this policy should be made between the illegitimate sister of the whole blood of the illegitimate insured, and the legitimate half sisters and brothers of such illegitimate child, the insured. It follows, therefore, that the proceeds of this policy should be divided five ways equally so that Jennie L. Barnes, Matie Cole Beck, and Bernard J. Mouer (Administrator of the Estate of Garrett D. Cole, deceased, Garrett D. Cole having died January 10, 1943) shall each receive one-fifth; that the seven children of William A. Cole shall receive one-fifth, share and share alike; and the nine children of Norma Cole Johnstone shall receive one-fifth, share and share alike.

Findings of fact and conclusions of law in harmony herewith may be presented. An exception is reserved to Jennie L. Barnes.


author: HEALEY, District Judge.

text:
    STEARNS v. UNITED STATES.
    No. 3003.
    District Court, D. Massachusetts.
    March 29, 1945.
    H. Brian Holland, of Boston, Mass., for plaintiff.
    Edmund J. Brandon, U. S. Atty., and George F. Garrity, Asst. U. S. Atty., both of Boston, Mass., for the United States.
   HEALEY, District Judge.

Findings of Fact

The stipulation of facts, together with the exhibits annexed thereto, is incorporated in, and made a part of, these findings-of facts. No further evidence was introduced. The following are ultimate findings of fact based on the stipulated facts.

1. The fifty shares of preferred stock acquired by the taxpayer in 1927 did not become worthless prior to 1937.

2. The order of the United States District Court for the Southern District of New York in May of 1937 declaring Day & Meyer to be insolvent, coupled with the evidence at the hearing of May 13, 1937,. clearly indicating the insolvency of Day & Meyer, the approval of the plan of reorganization on July 8, 1937, and the financial history and status of Day & Meyer over a period of years, showed for the first time that the shares were worthless. The evidence adduced at the hearing showed that the total liabilities exceeded the total assets. The financial history and status of Day & Meyer and the provisions of the proposed plan of reorganization, clearly indicated that, even if the proposed plan of reorganization were not disapproved by the United States Circuit Court of Appeals> there was no more than a remote possibility that the taxpayer would receive any dividends on the common stock which, under the plan, he was to receive in place of his preferred shares. Furthermore, on' June 7, 1937, the United States Circuit Court of Appeals for the Second Circuit had decided In re Barclay Park Corporation, 90 F.2d 595. It was clear from that case that the proposed plan of reorganization for Day & Meyer would not be approved on appeal to that Circuit Court of Appeals; and an appeal by a bondholder was granted by that Court on October 11,. 1937.

Conclusions of Law

1. The order of insolvency of May 17,. 1937, together with the other circumstances indicated in finding of fact No. 2, established that the taxpayer’s preferred, shares were worthless.

2. The determination of insolvency was-an identifiable event indicating that the-stock was worthless.

3. The taxpayer need not establish that there is no possibility of eventual recoupment in order to be entitled to a deduction for a “loss”.

4. The plaintiffs shares of preferred stock in Day & Meyer became worthless in 1937 resulting in a loss which was deductible in 1937. See generally United States v. S. S. White Dental Mfg. Company, 274 U.S. 398, 47 S.Ct. 598, 71 L.Ed. 1120; Clark v. Welch, 1 Cir., 140 F.2d 271.

5. Judgment shall be entered for the plaintiff as stipulated in the paragraph numbered 15 of the “Stipulation of Facts”.