author: KALODNER, District Judge.

text:
    OTIS & CO. v. PENNSYLVANIA R. CO. et al.
    No. 3618.
    District Court, E. D. Pennsylvania.
    July 20, 1945.

      Robert J. Bulkley, of Washington, D. C., and James F. Masterson and Simon Pearl, both of Philadelphia, Pa., for plaintiff.
    Albert Ward, R. Sturgis Ingersoll, and John Dickinson, all of Philadelphia, Pa., for defendants.
   KALODNER, District Judge.

This secondary, or derivative action was brought by Otis & Co., a stockholder in the Pennsylvania Railroad Co., against that Company, its officers and directors, and the Pennsylvania, Ohio and Detroit Railroad Co., and certain of its officers and directors. The latter is a wholly-owned subsidiary of the Pennsylvania Railroad. The matter is presently before the Court on a motion for summary judgment for consideration on the merits. Previously this Court determined an adjective issue in the instant case, and in the opinion, filed November 1, 1944, 57 F.Supp. 680, briefly described the interests and status of the parties. The statement therein is sufficient to suggest that the broad question involved is whether the individual defendants are liable for alleged losses suffered by the Pennsylvania R. R. Co. arising out of the issuance and sale of over $28,000,000 in bonds by the Pennsylvania, Ohio and Detroit R. R. Co., which guaranteed the bonds.

The motion raises a preliminary question as to whether there now exists any genuine issue concerning a material fact, excepting, of course, amount of damages. Federal Rules of Civil Procedure, rule- 56(c), 28 U.S.C.A. following section 723c. In addition to the pleadings, there are on record, admissions, affidavits, counter-affidavits, and certain exhibits, one of which is a transcript of proceedings before the Interstate Commer .e Commission when the bond issue here in controversy was submitted for approval. Careful examination discloses no material issue of fact remaining with the exception of damages; the plaintiff conceded this at the oral argument (Transcript, page 101).

The Court has before it all the facts which a formal trial would produce and since this cause came on to be heard without a jury, and there is no substantial conflict concerning the evidentiary facts, but only as to the inferences to be drawn therefrom, this is a proper case for summary judgment. Fox v. Johnson & Wimsatt, Inc., 1942, 75 U.S.App.D.C. 211, 127 F.2d 729, 736, 737; see Toebelman v. Missouri-Kansas Pipe Line Co., 3 Cir., 1942, 130 F.2d 1016.

Approaching the main interests of this case, it is appropriate at this point, because of certain unusual characteristics, to set out the essential facts.

The Pennsylvania R. R. Co. (hereinafter-referred- to as P. R. R.) directly or indirectly owns all of the capital stock of the Pennsylvania, Ohio & Detroit R. R. Co. (hereinafter referred to as P. O. & D.) In the Spring of 1943, the latter company had outstanding a total of $28,483,000 “Series A” bonds, maturing April 1, 1977, bearing interest at the rate of 4%'%, payable semi-annually, and redeemable on any interest payment date subsequent to April 1, 1932, at 102.5 upon 60 days’ notice. This bond issue was guaranteed, both as to principal and interest, by P. R. R.

The possibility of refinancing this series of bonds had been under consideration by Mr. Clement, president of P. R. R., and Mr. Pabst, vice president in charge of finance of P. R. R. and president of P. O. & D., for approximately a year prior to June, 1943. During the latter part of April, 1943, the bond market became so favorable to refinancing that Clement directed Pabst to contact Kuhn, Loeb & Co. to determine whether it was possible to sell at a price not less than par, a new issue of P. O. & D. bonds, guaranteed by P. R. R., in the same amount as the Series A bonds but bearing interest not exceeding 3%%. The negotiations with Kuhn, Loeb & Co. continued through May and part of June, the parties reaching an understanding, not legally binding, on the afternoon of June 22, 1943. On the following day the directors of P. O. & D. approved a resolution authorizing the sale of the new Series D 3%% bonds, at the “best obtainable price,” and the directors of P. R. R. approved a resolution authorizing a guarantee agreement. On the same day, June 23, 1943, the bonds were sold to Kuhn, Loeb and Co. at par and accrued interest from July 1, 1943, to date of settlement, subject to approval by the Interstate Commerce Commission.

It is not necessary here to set out in full the terms and conditions of the planned Series D issue; a complete discussion appears in the Interstate Commerce Commission’s report, 1943, 254 I.C.C. 473. However, it may be said that the bonds were to mature ■ July 1, 1968, and were to be redeemable as a whole only, except for the purposes of the sinking fund, upon 60 days’ notice on any interest bearing date to January 1, 1959, at 105 and accrued interest, and thereafter at a premium. A sinking fund provision, not contained in the original Series A bond issue, specified that Series D bonds could be called at 103 and accrued interest, to and including July 1, 1956, and thereafter at a premium. The bonds were offered to the public at 101.75, a spread of 1.75. The last day for settlement under the contract was July 31, 1943, since the purchase price must have been received prior to the first publication of notice of redemption of the Series A bonds, on August 2, 1943, the redemption being effective upon such publication. According to the undisputed calculations and the Interstate Commerce Report, the refinancing would result in a net saving of $7,583,-664.70, plus an estimated tax saving of $1,500,000.

On June 22, 1943, before the action by the directors and before the contract of sale to Kuhn, Loeb & Co. was executed, a Mr. Claflin, representing Halsey, Stuart & Co., Inc., visited Pabst in an effort- to learn whether there might be a refinancing of the P. O. & D. bonds, but Pabst declined to give any information and, in response to another question, stated that he did not think it was likely Halsey Stuart & Co. would have an opportunity to bid if there were a refunding. On June 23, 1943, Halsey, Stuart & Co. and Otis & Co. by telegrams to Clement and other directors of P. R. R. requested an opportunity to submit a competitive bid for the P. O. & D. bonds. The defendants assert that the telegram was not received until June 24th and on that day Clement telegraphed a reply to Otis & Co., acknowledging the joint telegram and advising that the “railroad has transacted the business referred to in a very satisfactory way, and in what is considered the best interests of the railroad.” Subsequently, on June 28, 1943, Halsey, Stuart & Co. and Otis & Co., in a telegram addressed to Pabst and Clement, criticised a 25-year bond issue and offered to guarantee a price of 101, at a competitive bidding sale, for 3%% 35-year bonds. Copies of the telegram were sent to the Interstate Commerce Commission. No reply was made by Pabst or Clement. Finally, on July 9, 1943, Halsey, Stuart & Co. and Otis & Co. sent a letter to Pabst offering to guarantee a minimum bid of 102 at a competitive bidding sale for the Series D bonds, subject to adjustment of call prices, or a minimum bid of 101 at a competitive sale for 34 or 35 year bonds; it invited a conference on desirable changes in terms and conditions and stated that the offer would be kept open until July 19. The letter further advised that copies were being sent to P. R. R., to its directors, and to the Interstate Commerce Commission.

Application to the Interstate Commerce Commission for approval of the Series D bonds was made by P. R. R. and P. O. & D. on June 25, 1943. Otis & Co., a stockholder of P. R. R., was granted leave to intervene, but such leave was denied Halsey, Stuart & Co. The issues presented to the Commission are briefly summarized in the Commission’s report, 254 I.C.C. 473 at page 477:

“The intervener contends that this application is one where the conditions are such as to make competitive bidding imperative and asks that we so decide, while the applicants insist that a refunding issue is peculiarly inappropriate for competitive bidding, because the publicity incident to that method of sale would disrupt the market for the bonds to be called and refunded before definite arrangements for the refunding could be consummated. The applicants argue that the question is whether the proposals contained in the pending application are such as show that sufficient savings will result therefrom, while the in-tervener contends that the application should be denied because savings would be greater if a higher price had been received for the bonds, and that the failure of the Pennsylvania to consult with more than one banker was a disservice to the stockholders.”

A majority of the Commissioners were not convinced that the applicants received the best possible price and felt that because of negotiations with only one investment house the applicants failed to explore the possibility of effecting greater savings, such as through the issue of serial bonds. However, they determined that competitive bidding was not appropriate, but could find no reason why more than one investment house should not have been consulted. They also found that the transaction with Kuhn, Loeb & Co. was “the result of arms-length dealing,” and that the offers submitted by “a rival investment company” were made on the spur of the moment and without adequate consideration; therefore, because of the debt reduction provisions and because the sale would result in a saving of approximately 9 million dollars which might not be realized if approval were withheld, it was determined to approve the sale at a price not less than 100%, considering the spread of 1% to be too great. This price was considered just and reasonable. One Commissioner dissented. 1943, 254 I.C.C. 473.

The gist of the complaint is that the individual defendants failed and refused to exercise ordinary care and judgment in the sale of the Series D bonds. The individual defendants, it is alleged, kept secret the bond issue and refused to deal with any investment house other than Kuhn, Loeb & Co. Furthermore, it is charged that as a result of failing to “shop around,” a half million dollars was lost, and another half million dollars was lost in failing to put the issue to competitive bidding. In addition, it is also asserted that certain of the directors were influenced because of their position as directors of several institutions which had made agreements with Kuhn, Loeb & Co. to purchase and/or sell part of the bond issue.

In reply, the defendants contend that the transaction was an honest exercise of judgment, that the procedure followed was similar to that generally pursued by railroads, and that it was particularly desirable here. Adverse interests on the part of certain directors is denied.

The defendants, however, go further and invoke what amounts to the doctrine of res adjudicata; as they stated it: “The jurisdiction of this Court is excluded in the present case by the fact that the same issues were presented to and decided by the Interstate Commerce Commission, under its statutory authority, with the same objecting stockholder before it, and the Commission’s order of approval, not having been subjected to judicial review in the manner provided therefore by statute, has become judicially unassailable and not subject to collateral attack in this proceeding.” It should be pointed out that the plaintiff does not attack the validity of the Commission’s determination, nor does it seek to have the order set aside. In fact the plaintiff cites the Commission’s opinions, both majority and minority, as supporting its contentions.

As to the defendants’ res adjudicata defense, it may be noted at once that that theory was rejected by the United States Supreme Court in the case of Pittsburgh & W. Va. Ry. Co. v. United States, 1930, 281 U.S. 479, 50 S.Ct. 378, 74 L.Ed. 980. There, a minority stockholder intervened in a Commission proceeding involving the establishing of a union passenger station at Cleveland, and alleged, inter alia, that the contracts by the Wheeling & Lake Erie Ry. Co. were made in violation of the law of Ohio, the Wheeling directors did not give Wheeling the benefit f unbiased judgment, Wheeling the benefit of unbiased judgment, adequate and not the best obtainable. 281 and the price for Wheeling’s site was in-transaction and the stockholder sought an injunction under the Urgent Deficiencies Act, 1913, 38 Stat. 220, 28 U.S.C.A. § 47. On direct review, the Supreme Court said, 281 U.S. at page 488, 50 S.Ct. at page 381, 74 L.Ed. 980:

“Second. The prayer that the contemplated action of the Wheeling should be enjoined because its directors hold office illegally, are faithless to their trust, are acting in violation of the rights of stockholders under the Ohio law, and, hence, that the Wheeling could not legally exercise the authority granted to it by the Commission, was not properly joined in this suit and is not subject to review in this Court on a direct appeal. An application for such relief may not be included in a bill under the Urgent Deficiencies Act to set aside an order of the Interstate Commerce Commission. (Citing cases). It is neither ancillary to nor dependent upon the judgment as to the order. Relief of that character may be had only in a suit invoking the plenary equity jurisdiction of the District Court. Such a suit would be heard in ordinary course by a single judge; and it would be appealable only to the Circuit Court of Appeals.” (Emphasis supplied.)

The Supreme Court thereupon dismissed that part of the bill without prejudice. See also, New York Central Securities Corporation v. United States, 1932, 287 U.S. 12, 28, 29, 53 S.Ct. 45, 77 L.Ed. 138, the final decision in a series of actions beginning with Cleveland, C., C. & St. L. Ry. Co. v. Jackson, 6 Cir., 1927, 22 F.2d 509, on which the defendants rest heavily. Since an intervening minority stockholder is not, in an injunction proceeding, entitled to judicial review under the Urgent Deficiencies Act on questions such as breach of fiduciary duty, and since such questions are not “ancillary to nor dependent upon the judgment as to the order,” it follows that the plaintiff here has properly sought to enforce its rights in this action, and that the proceedings before the Interstate Commerce Commission are not res adjudicata. See, Casey v. Woodruff, Sup., 1944, 49 N.Y.S.2d 625, 640-642.

The Commission, under the statutory authority here involved, Act Feb. 28, 1920, 41 Stat. 494, 49 U.S.C.A. § 20a, does not determine private rights. In Casey v. Wood-ruff, supra, a case strikingly similar to the present controversy, Justice Shientag, in a well considered and authoritative opinion, stated, 49 N.Y.S.2d at page 642:

“In formulating plans for the issuance and sale of the securities of a railroad, the board of directors necessarily must consider the public interest because the railroad is engaged in public service. Obviously, it would be futile to propose a security issue which the Commission would be bound to disapprove as not ‘compatible with public interest’ or with the proper performance by it of service to the public. § 20a. To summarize what has been said on this point, it is clear that in determining that the proposed issue of Series D bonds was improvident and unwise the Commission, whether its action was based wholly or in part on the public interests, did substitute its own judgment for that of the directors. It did not, however, purport to pass upon the personal liability of the directors for alleged breach of fiduciary duty, nor did it have the slightest basis of jurisdiction for that purpose.”

So much then as to the defendants’ theory of res adjudicata. It is further urged on behalf of the defendants that under the circumstances the instant action is tantamount to a complaint that it was an abuse of discretion for the defendants to have followed the judgment and order of the Commission. However, the “order” here referred to was not mandatory, but permissive, in that the Commission merely authorized the sale. While it may be true that the public and private interests overlapped and that the latter were considered in some degree by the Commission, it is readily apparent from a reading of its report that it recognized different standards were applicable depending upon whether the interest of the public or of the private shareholder was involved. There may, indeed, be a real difference between what is required in the public interest and what is necessary to satisfy stockholders, and although the Commission authorized the sale, that does not foreclose possible liability of the officers and directors for negligent breach of their fiduciary duty.

Coming now to the final question, that is, whether the officers and directors are guilty of negligent mismanagement, it should be noted that of the fifteen individual defendants, twelve are officers and/or directors of P. R. R. and three are directors of P. O. & D.; of the fifteen, four are officers and/or directors of P. R. R. and P. O. & D. This fact is noteworthy because P. R. R. is a Pennsylvania corporation while P. O. & D. is incorporated in the States of Ohio and Michigan. Since the allegations of the complaint deal solely with the internal affairs of the two corporations, the liability of the respective officers and directors must be determined under the corporation laws of the states wherein the associations were organized.

In Pennsylvania, the relation of officers and directors to the corporation is stated in the Business Corporations Law 1933, P.L. 364, art. IV, § 408, 15 P.S. § 2852 — 408, as follows:

“Officers and directors shall be deemed to stand in a fiduciary relation to the corporation, and shall discharge the duties of their respective positions in good faith and with that diligence, care and skill which ordinarily prudent men would exercise under similar circumstances in their personal business affairs.”

The state of the prior law, and the extent to which this statute changes it is uncertain, but the test of liability can hardly be different from that applied in Hunt v. Auf-derheide, 1938, 330 Pa. 362, 366, 199 A. 345, 347, where, in applying the law prior to the statute, it was stated that:

“ ‘The directors of a corporation are required to exercise reasonable and ordinary care, skill, and diligence in conducting its business, and the failure to observe this standard of care imposes liability on a defaulting director,’ Fell v. Pitts, 263 Pa. 314, 319, 106 Pa. 574, 575; that is, the care, skill and diligence which the ordinary prudent man would exercise in similar circumstances.” (Emphasis supplied.)

And see, South Penn Collieries Co. v. Sproul, 3 Cir., 1931, 52 F.2d 557, 561.

The statutory rule is not unlike that long in use in New York. See 3 Fletcher, Cyclopedia of the Law of Corporations (1931) Sec. 1037; Hun v. Cary, 82 N.Y. 65, 37 Am.Rep. 546; Casey v. Woodruff, supra. In the latter case, the plaintiff sought to recover, on the ground of negligence, expenditures made by officers and directors preparatory to floating a bond issue, for which permission was denied by the Interstate Commerce Commission. In disposing of the case under the New York Law, the concept familiarly known as the “business judgment rule” was applied by the court, 49 N.Y.S.2d at page 643:

“The question is frequently asked, how does the operation of the so-called ‘business judgment rule’ tie in with the concept of negligence? There is no conflict between the two. When the courts say that they will not interfere in matters of business judgment, it is presupposed that judgment —reasonable diligence — has in fact been exercised. A director cannot close his eyes to what is going on about him in the conduct of the business of the corporation and have it said that he is exercising business judgment. Courts have properly decided to give directors a wide latitude in the management of the affairs of a corporation provided always that judgment, and that means an honest, unbiased judgment, is reasonably exercised by them.”

In view of the Pennsylvania statute it seems that the application of this theory is warranted in the instant case.

In any event, it is well settled that what constitutes negligence depends upon the circumstances of the case, South Penn Collieries v. Sproul, supra; that the court will not interfere with the internal management of corporations, and therefore will not substitute its judgment for that of the officers and directors, Bowman v. Gum, Inc., 1937, 327 Pa. 403, 193 A. 271; and, what is a rule of reason, that negligence must be determined as of the time of the transaction. It is also clearly established that mistakes or errors in the exercise of honest business judgment do not subject the officers and directors to liability for negligence in the discharge of their appointed duties. The rule was succinctly stated by Justice Shientag in Casey v. Woodruff, supra, 49 N.Y.S.2d at page 642:

“The directors are entrusted with the management of the affairs of the railroad. If in the course of management they arrive at a decision for which there is a reasonable basis, and they acted in good faith, as the result of their independent judgment, and uninfluenced by any consideration other than what they honestly believe to be for the best interests of the railroad, it is not the function of the court to say that it would have acted differently and to charge the directors for any loss or expenditures incurred.”

On the matter of good faith, it seems to me there can be no doubt that the officers and directors of both P. R. R. and P. O. & D. acted honestly, in good faith, and sought to exercise their judgment fot the best interests of the respective railroads. There is no contention here that fraud was present; indeed, the allegations in the complaint contain only a faint suggestion of bad faith, calling to the attention of the court that the officers and directors were influenced because of their position as directors or officers of several companies which had made purchase and sale agreements with Kuhn, Loeb: & Co. However, it clearly appears in the record of the I.C.C. proceedings that Kuhn, Loeb & Co. had not made known to Pabst who were to be the underwriters and sales agents for the particular bond issue. Moreover, in their affidavits these men disaffirm that they had anything to do with such agreements either directly or indirectly, or that they discussed railroad matters with their other interests. With respect to Colonel Mellon and the Mellon Securities Corporation, plaintiff has brought to the court’s attention certain penal statutes, but this court cannot concern itself with those statutes except insofar as they declare the public policy. Nevertheless, there is no doubt, and the plaintiff admits, that Col. Mellon, although a director of P. R. R. was absent in the armed services and had nothing whatever to do with this transaction; he did not take part in any phase of it, nor was he present at the board meetings, when the matter was considered, nor did he vote. Aside from his mandatory absence, it is evident nothing more could be done to relieve Col. Mellon of all implications of bad faith. The Interstate Commerce Commission reached a like conclusion on this matter.

Applying the principles stated, I find no negligence on the part of the officers and directors.

Parenthetically it may be stated that with respect to those defendants who are directors of P. O. & D., the standard of care, skill and diligence in Ohio and Michigan is no greater than that by which I have tested the liability of the officers and directors of P. R. R. See Goff v. Emde, 1928, 32 Ohio App. 216, 167 N.E. 699, citing 3 Thompson, Corporations (3rd ed.) Sec. 1520; 3 Fletcher, Cyclopedia (1931) Sec. 1037 n. 64.

It was the duty of the officers, in the course of business, to be on the alert for an opportunity for refunding an outstanding bond obligation in a manner which would result in a saving to their business, and there is no question that the management of the defendant corporations did seize an opportune time for the refunding operation. Clement, the president, and Pabst, the vice president in charge of finance and corporate relations, were obviously well acquainted with the finances of the railroad. They had in mind the refunding plan for approximately a year prior to its consummation; they acquainted themselves with market conditions, and surveyed the situation with respect to P. R. R. and other bonds which bore some resemblance to that which they proposed to issue. On the basis of their knowledge and investigation Clement concluded they could market the $28,000,000 issue of 3%'% bonds at par, and he directed Pabst to negotiate with Kuhn, Loeb & Co. As a result of arms-length dealing, Clement obtained what was considered the “best obtainable price.” At the P. R. R. and P. O. & D. board meetings of June 23, 1943, full disclosure of the facts was made, and the directors, experienced men in the field of finance and business, acting on the basis of their own knowledge and on the recommendations of the officers, authorized the sale and guarantee. Although the P. R. R. board authorized the guarantee of a bond issue, the terms and conditions of which were to be settled by the P. O. & D. board, and the P. O. & D. board authorized a sale at the “best obtainable price,” it is evident that they were aware of the tentative agreement which Pabst and Clement had made with Kuhn, Loeb and Co.

The plaintiff contends that this is not a case of error in business judgment, but rather it is a case where there was no satisfactory collection of data or information on which judgment could have been exercised. Furthermore, plaintiff asserts, the only proper way to determine the actual “best obtainable price” was to obtain offers from more than one investment house; this could be done by “shopping around,” or better, by submitting the issue to competitive bids. In support of this contention, plaintiff cites the admission of the defendants that the bond issue involved was actually a “test” of the bond market, since no large bond issue had been marketed for some time previously.

That recourse was not had to competitive bidding does not, of itself, afford a basis of liability. Casey v. Woodruff, supra. It is highly significant that the Interstate Commerce Commission refused to require competitive bidding, although plaintiff earnestly urged it to do so. I have already set out at length, in my opinion of November 1, 1944, 57 F.Supp. 680, at page 682, the view of the Commission and its justification of the refusal of the defendants to require competitive bidding; it is only necessary to repeat my summation, “The manner in which the defendant corporations floated the bond issue has been in use * * * almost since 'Iron Horse Days’ — it is apparently a matter of corporate policy pursued by railroads generally.” That the Commission later passed a regulation requiring competitive bidding does not aid the plaintiff, for the Commission also found that competitive bidding was not appropriate because of the possible effect on the market of the bonds to be called and refunded. 254 I.C.C. 473, 479. On this, I may accept the opinion of the Commission as an expert department of the government.

The defendants unquestionably had the right to negotiate privately with Kuhn, Loeb & Co. Although there is no charge of bad faith, or conspiracy, it seems clear that in choosing that firm, the def end-ants were following another custom in railroad history. See In re Competitive Bidding, 1944, 257 I.C.C. 129, 153, 156. Kuhn, Loeb & Co. have long been “the” banking house to P. R. R. In dealing with Kuhn, Loeb & Co. the defendants were dealing with a firm in which they had the confidence of years of satisfactory banking relations and which was well acquainted with their financial situation, structure and requirements. Although the Commission felt no special advice was necessary, the record of the Commission’s proceedings reveals that from time to time Kuhn, Loeb & Co. did advise the railroad company as to their estimate of the market, what it might absorb, the trend, and the terms of bonds and similar matters. Again, the finding of the Commission on this matter may be considered determinative, 254 I.C.C. at page 481:

“2. There is no suggestion in the record that the Pennsylvania, with an investment of over 3 billion dollars, is under any obligation to any banker; rather, the proposed transaction is the result of arms-length dealing between competent parties in which negotiations covering a considerable period culminated in a mutually satisfactory purchase and sale at a price confirmed by applicants’ boards of directors composed of able businessmen.”

It may also be noted that in dealing with Kuhn, Loeb & Co., defendants were not contracting with another firm in which they were interested, nor did the directorates or managerial positions interlock. There is no contention that fraud existed and fraudulent acts will not be presumed. Casey v. Woodruff, supra, 49 N.Y.S.2d at page 645.

As to the plaintiff’s contention that the Commission was not convinced that the best obtainable price was received by the railroads, it is indeed difficult to determine in what way the Commission construed the words “best obtainable price”. However, it is at once evident that the Commission substituted its judgment for that of the directors’ in increasing the price, and while this may be done by that body, see Casey v. Woodruff, supra, 49 N.Y.S.2d at page 641, it is well settled that the courts will not similarly engage themselves. On the matter of the spread, at the hearings before the Commission there was submitted a tabulation showing an average spread of 1.2841 in four transactions where the bond issue was submitted to competitive bidding. Nevertheless, it appears that in one of the four instances the spread was as high as 1.9423. It can hardly be concluded that a spread of 1.75 even suggests negligence, especially where, as here, leeway must have been allowed for the risk in undertaking a large issue which “broke the ice” in the bond market. Insofar as the fact that the bonds were favorably received is concerned, it is clearly true that the monetary situation and the condition of the market are not exactly foretell-able. Failure to foresee what at best is uncertain does not constitute negligence or mismanagement: what the market would absorb and the terms and conditions that would meet with greatest success were, at the time the issue involved here was planned, at most a matter of judgment; now they are fact. If the defendants used their honest business judgment, as I am convinced they did, they cannot be liable for failing to accurately foretell the welcome the market would give their efforts. I am of the opinion no more war required of the individual defendants.

In summary then I find that the bond issue was adequately deliberated and planned, properly negotiated and executed; there was no lack of good faith, no motivation of personal gain or profit; and there was no lack of diligence, skill or care in selling the issue at the price approved by the Commission, and which resulted in a saving of approximately $9,000,000 to the corporations. The various directors were aware of the proposed transaction and its course of conduct; copies of telegrams and letters from Halsey, Stuart & Co., and Otis & Co. were sent to them; in any event they had a right to rely on the information supplied by, and the good faith judgment of, those in whose hands the conduct of the everyday affairs of the corporation was placed.

For the reasons stated, the defendants’ motion for summary judgment is granted.

       Subdivision (2) of this section provides that the Commission shall make an order authorizing, inter alia, assumption of obligations, only if it finds that such assumption, “(a) is for some lawful object within its corporate purposes, and compatible with the public interest, wbicb is necessary * * * for or consistent with the proper performance by the carrier of service to the public as a common carrier, and which will not impair its ability to perform that service, and (b) is reasonably necessary and appropriate for such purpose.” In New York Central Securities Corporation v. United States, supra, the Supreme Court determined, 287 U.S. at page 27, 53 S.Ct. at page 49, 77 L.Ed. 138, that “lawful object within its corporate purposes” does not refer to state limitations upon corporate purposes, but rather to the general field of corporate purposes.

       Berg v. Cincinnati, N. & C. Ry. Co., D.C.E.D.Ky., 1944, 56 F.Supp. 842, 848, is not inconsistent.

       See Atchison, T. & S. F. Ry. Co. v. Scarlett, 1937, 300 U.S. 471, 57 S.Ct. 541, 81 L.Ed. 748. Defendant was not liable under the Safety Appliance Act, 45 U.S. C.A. §§ 11, 12, where it had complied with the pertinent Interstate Commerce Commission regulation, but the fact that there was compliance did not necessarily constitute a defense to an action for negligence.

       See 2 Segal, Pennsylvania Banking and Building and Loan Law (1941) Sec. 518. See also Swentzel v. Penn Bank, 1892, 147 Pa. 140, 23 A. 405, 415, 15 L.R.A. 305, 30 Am.St.Rep. 718; Allen v. Roydhouse, D.C.E.D.Pa., 1916, 232 F. 1010. At least by including in the statute the phrase “in their personal business affairs” it would seem the distinction drawn in the latter case between the ordinary individual and the ordinary director was eliminated.

       See Carson, Current Phases of Derivative Actions, (1942) 40 Mieli.L.Rev. 1125: Carson, Further Phases of Derivative Actions, (1944) 29 Corn.L.Q. 431.

       9 F.R. 7205 Appendix, June 29, 1944.

       See Hearings before the Committee on Interstate Commerce, pursuant to S.E. 71 (74th Cong.), Part 18, page 7687 (1937-38).


source: Caselaw Access Project

author: KENNEDY, District Judge.

license: Public Domain

text:
    THE DON. THE ASHBOURNE.
    No. A-17010.
    District Court, E. D. New York.
    June 11, 1945.
    This action having come on for trial in its regular order on the pleadings and proofs of the respective parties, and due deliberation having been had thereon, the Court makes the following:
    Findings of Fact
    1. The Don is 104 feet long. Her beam is 30 feet 6 inches. Amidships her depth is 15 feet 6 inches and at the ends 17 feet.
    2. The Ashbourne is 88.2 feet long. Her beam is 19 feet and her depth 10.2 feet. Her gross tonnage is 115 and her net tonnage 78 and she develops 325 horsepower.
    3. On December 2, 1943 at eight o’clock in the morning, the Ashbourne prepared to shift the Don from the Creosote Pier to the dumper dock.
    4. The dumper dock extends easterly into Arthur Kill. The Creosote Pier is a short distance to the north and east of the dumper dock, and extends into the Kill in a southerly direction.
    5. The Don was moored starboard side to the Creosote Pier with its bow toward the bulkhead. The Ashbourne put out a headline from her own bow to the stern starboard cleat of the Don and then proceeded to back out into the stream.
    6. When the Don was clear of the dock the Ashbourne stopped her engines. The momentum of the Don, even though she was light at the time, then caused the Ash-bourne to swing around on her headline so that her starboard side gradually approached the starboard side of the Don.
    7. At some point during this operation the Ashbourne put out a strap from its towing bitt through a hawse pipe which was made fast to a cleat on the starboard quarter of the Don. The Ashbourne then went ahead and landed the Don alongside the dumper dock port side to.
    8. Before the Don was secured to the dumper dock her bargee, Steen, complained to Kelly, the tug captain, that the Ash-bourne had been in violent collision with the Don.
    9. The Don was immediately inspected. She had not been damaged, but there was a black smudge on her starboard side well above the water line, and about 20 feet from the stern.
    10. Thereafter, and between December 2, 1943 and January 18, 1944, the Don carried six cargoes of coal from Port Reading to New York.
    11. On January 18, 1944 the Don was surveyed. Her bottom planks and four of her seams had been started, the seams being both on the starboard and the port sides.
    12. This damage was not caused by collision between the Don and the Ashbourne on December 2, 1943.
    Conclusions of Law.
    1. The damage to the Don disclosed by the survey of January 18, 1944 was not due to any fault on the part of the Ashbourne.
    2. Claimant is entitled to a decree dismissing the libel with costs.
    James T. O’Donnell, of New York City, for libelant.
    Macklin, Brown, Lenahan & Speer, of New York City (Paul Speer, of New York City, of counsel), for claimant
   KENNEDY, District Judge.

In this case the libel alleges that on December 2, 1943, the light barge Don, then lying at the Creosote Dock, Port Reading, N. J., was damaged by the steamtug Ash-bourne during a shifting operation.

The Don is 104 feet long. Her beam is 30 feet 6 inches. Amidships her depth is 15 feet 6 inches and at the ends 17 feet. The Ashbourne is 88.2 feet long. Her beam is 19 feet and her depth 10.2 feet. Her gross tonnage is 115 and her net tonnage 78 and she develops 325 horsepower.

On December 2, 1943, at eight o’clock in the morning, the Ashbourne prepared to shift the Don from the Creosote Pier to the dumper dock. The dumper dock extends easterly into Arthur Kill. The Creosote Pier is a short distance to the north and east of the dumper dock, and extends into the Kill in a southerly direction. The Don was moored starboard side to the Creosote with its bow toward the bulkhead. The Ashbourne put out a headline from her own bow to the stern starboard cleat of the Don and then proceeded to back out into the stream. When the Don was clear of the dock the Ashbourne stopped her engines. The momentum of the Don, even though she was light at the time, then caused the Ashbourne to swing around on her headline so that her starboard side gradually approached the starboard side of the Don. At some point during this operation the Ashbourne put out a strap from its towing bitt through a hawse pipe which was made fast to a cleat on the starboard quarter of the Don. The Ashbourne then went ahead and landed the Don alongside the dumper dock port side to.

There can be no doubt that even before the Don was secured to the dumper dock her bargee, Steen, complained to Kelly, the tug captain, that the Ashbourne had been in violent collision with the Don. Steen said that he heard timbers cracking, and Kelly admits that the complaint was made.

However, when the Don was put alongside the dumper dock she was inspected immediately by carpenters acting on behalf of the claimant. They examined tht inside of the barge and also the outside, using a float. They invited Steen to participate in the examination. All that could be found was a black smudge on the starboard side of the Don, well above the water line. This smudge was about 20 feet from the stern. At the conclusion of this inspection the bargee of the Don told the carpenters “she had not showed much yet”. He then proceeded to take on a load of coal. Thereafter, the Don carried six cargoes of coal from Port Reading to New York, three of which were to Roosevelt Street. These trips were carried out between December 2, 1943, and January 18, 1944, at which time the Don was surveyed. Then it was discovered that some of the Don’s bottom planks and four seams had been started, both on the starboard and port side. Libel-ant attributes this damage to the shifting operation which had been conducted five weeks earlier.

There is but one issue in the case (a fact issue), namely, whether libelant has proved that the damage found at the survey of June 18, 1944, was caused by a violent contact between the Ashbourne and Don on December 2, 1943. To determine this issue it is necessary to choose between the testimony of Kelly on the one hand, or of Steen on the other. Kelly, the tug captain, says that the Ashbourne merely drifted around until it was alongside the Don. Steen claims that when the Ashbourne was almost at right angles with the Don she went ahead full speed on her headline and thus swung violently around into the side of the Don. I accept the testimony of Kelly, despite the fact that Steen promptly complained that his barge had been damaged. I do this because it seems unlikely that Kelly performed any such senseless maneuver as Steen described. If he had, the inspection which was made immediately afterward would have inevitably disclosed some physical evidence of damage. Moreover, considering the burden that is upon the libelant, the lapse of five weeks after the alleged damage, during which the Don carried out six trips is certainly mute evidence that contradicts any theory of a violent collision on December 2, 1943. In addition, that lapse of time introduces conjecture about what really caused the barge’s planks to start.

I cannot say that libelant has sustained its burden. Claimant is entitled to a decree dismissing the libel with costs. Findings of fact and conclusions of law are filed herewith.


author: BRIGHT, District Judge.

text:
    WALLING v. LANDAU et al.
    District Court, S. D. New York.
    June 29, 1945.

      Douglas B. Maggs, Solicitor, and Archibald Cox, Associate Solicitor, both of Washington, D. C., and Irving Rozen, Regional Attorney, James V. Altieri, Senior Attorney, and Samuel Gorin, Associate Attorney, all of New York City, United States Department of Labor, for plaintiff.
    Davies, Auerbach, Cornell & Hardy, of New York City (John K. Carroll and Christopher W. Hoey, both of New York City, of counsel), for defendants.
   BRIGHT, District Judge.

Plaintiff asks a preliminary injunction restraining defendants, (1) from employing or suffering any of their employees to work in the embroideries industry in their home without having obtained the special homework certificates in accordance with the wage order; (2) from paying any of such homeworkers less than 400 per hour, and (3) from failing to keep and preserve records of their homeworkers of the wages, hours and other conditions as prescribed by plaintiff’s regulations, Title 29, Chapter V, Code of Federal Regulations Part 516.

The action is brought for the injunctive relief mentioned. The complaint alleges that on August 21, 1943, pursuant to authority conferred by sections 5 and 8 of the Fair Labor Standards Act of 1938, Act of June 25, 1938, c. 676, 52 Stat. 1060, 29 U.S. C.A. § 201 et seq., the Administrator issued an order fixing a minimum wage rate of 400 an hour for the embroideries industry, prohibiting the doing of work in such industry in or about a home, except by persons as have obtained special homework certificates issued by the Wage and Hour Divisipn, with certain exceptions not material here. The complaint further alleges that the defendants are engaged in the production, sale and distribution of embroideries, employ about sixty employees, including homeworkers, in the City of New York, in the production of embroideries and in processes or occupations necessary to such production, the goods produced by such employees and homeworkers are produced for and shipped in interstate commerce; that notwithstanding the wage order promulgated, the defendants employ homeworkers without having obtained special homework certificates, and pay certain of them less than 400 an hour. It is further alleged that on October 21, 1938, as amended September 15, 1941, the Administrator promulgated regulations prescribing the records of persons employed, including homeworkers, and of wages and hours and other conditions and practices of employment, to be made and preserved, which regulations the defendants have repeatedly violated and arc violating.

The following facts appear to be undisputed. Plaintiff is the duly appointed Administrator of the Wage and Hour Division of the United States Department of Labor, and has authority to issue wage orders fixing minimum wage rates and containing such terms and conditions as he finds necessary to carry out the purpose of such order, to prevent the circumvention or evasion thereof, and to safe-guard minimum wage rates established thereunder, and has also power to prescribe by regulation the records of persons employed, and of the wages, hours and other conditions and practices of employment maintained by the employer. These could not very well be in dispute; it is so provided by section 8(f) of the Act, and is settled by the decision in the case of Gemsco, Inc., v. Walling, 2 Cir., 144 F.2d 608, 155 A.L.R. 761, affirmed 324 U.S. 244, 65 S.Ct. 605.

Defendants are engaged in business in the embroideries industry and embroider materials, which are sold in interstate commerce. They employ homeworkers who are engaged in the embroidery of articles sold in that business, and who are paid on a piecework basis.

Effective September 15, 1941, the Administrator promulgated regulations with reference to the keeping of wage and hour records, which, as applied to homeworkers, required their employer to maintain and preserve pay roll or other records, which should contain, among other things, the name and address of each worker, the date and hour when and amount of work given to each worker, the date and hour when and amount returned, the kind of articles worked on, the piece rates paid an hour worked on each lot and wages paid. In addition to that, a separate handbook shall be kept for each industrial homeworker emnloyed in a home and outside a plant, which handbook must remain in the possession of the homeworker until such time as the Wage and Hour Division may request it. Defendants did not keep such records, or furnish to or keep for such homeworkers such a book.

Effective January 27, 1941, plaintiff issued a wage order, which, in part, fixes a minimum wage rate of not less than 37t/20 an hour to be paid to each employee in the embroideries industry. Effective September 20, 1943, a wage order was made, fixing the minimum wage at 400 an hour, and providing that no work shall be done about a home except by persons as have obtained special homework certificates issued pursuant to applicable regulations of the Wage and Hour Division. It is not disputed that defendants have never complied with the provisions of this order, insofar as homework certificates are concerned. None of their employees have or ever had any.

It further appears without dispute, that upon an inspection commencing June 19, 1941, by an inspector of the Wage and Hour Division, it was found that the defendants kept no record of hours of their homeworkers, nor were homework handbooks issued or kept, and that wages under the minimum were paid to defendants’ employees. Defendants acknowledged these violations, and agreed to pay restitution to 105 .of their employees, in the sum of $2,-621.08, and promised strict future compliance with the Act.

A second inspection of the defendants’ business was commenced on September 30, 1942, by a similar inspector, during which it was found that all of the defendants! employees, ranging from 31 to 75, were homeworkers, that less than minimum wages were being paid, that although defendants had requested 100 handbooks after the first inspection, none had ever been distributed because, as one of the defendants stated, “It was too much trouble”. It was also found that the records kept by defendants did not show the date and hour when the work was given out, or returned, or the hours worked on each lot issued. It was then determined that there was due in back wages $3,239.34 to 277 homeworkers, of which defendants agreed to be responsible for $500 and the corporation to whom they furnished the homework agreed to the balance.

A third inspection of the defendants •workers was commenced on December 27, 1944. An examination of the defendants’ ^records from October 1, 1942 to December 11, 1944, revealed the fact that the records did not show the number of hours worked by any of the defendants’ employees. The inspector was informed by some of the homeworkers interviewed that they received less than the minimum wages, none of them possessed homework books, and none of them had special homework certificates.

A fourth inspection on May 23, 1945, showed that the keeping of records had not changed since the last inspection, and that no records of hours of homeworkers were being kept. A homeworker being interviewed at that time had no homework handbook, and no special homework certificate.

Other inspections made on May 23, 24 and 25, 1945, 'showed that defendants’ homeworkers still had no homework handbooks or special homework certificates.

In fact, there is no claim that defendants either kept or furnished to their homeworkers the handbook, nor did they obtain for any of them special homework certificates.

The only dispute arises from the fact that the proof of what the defendants’ homeworkers were being paid consisted solely in hearsay statements made by the homeworkers to the Wage and Hour inspectors, and a statement of one of defendants that to the best of his knowledge, all of his employees presently engaged in performing any embroidery work in their homes are receiving a minimum of at least 400 an hour for the work which they perform. He admits that he has not submitted applications for special homework certificates, but is preparing to do so, and that he is now putting into effect a method whereby his pay records will reflect the total hours worked by each of his employees for all weeks during which they are engaged on his work. At the present time (June 18, 1945), there are in his employ approximately 35 to 40 employees. Defendants also submit nine affidavits of homeworkers who estimate or believe that their work for the defendants brings them in more than the minimum rate of 400 an hour for the work they do for the defendants.

There is clearly proven, and, in fact, conceded, violation of the wage orders of the plaintiff with respect to the keeping of records, of handbooks, and the failure to obtain special homework certificates. Plaintiff has not proven by competent and proper evidence any violation with reference to the payment of minimum wages.

Defendants contend, therefore, in view of the failure to show a violation of the statute or the wage order as to the payment of less than minimum wages, there is no power in the plaintiff to enforce by injunction any of the other provisions of the wage order. The argument is that under section 17 of the Act, this court has power only “to restrain violations of section 15”; and section 15(a) makes it unlawful for any person, (1) to ship or sell in interstate commerce any goods in the production of which any employee was employed in violation of “section 6, or section 7, or in violation of any regulation or order of the Administrator issued under section 14”; (2) to violate any of the provisions of sections 6 or 7, or any provision of an order issued under section 14; (3) or to violate any of the provisions of section 11(c) or section 12. Since there is no reference in section 15 to section 8, under which the Administrator issued his wage orders in the instant case, and there being no competent proof of failure to pay minimum wages, the terms of section 15 cannot be extended to cover the conceded violations of the wage orders in respect to records, handbooks and special homeworkers certificates.

Congress found (section 2) that the existence, in industries engaged in commerce or in the production of goods for commerce, of labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency and general well being of workers, caused commerce to be used to spread such conditions among the workers in the several states, to burden the free flow of goods in commerce, to lead to labor disputes, burdening and obstructing commerce, and interfering with the orderly and fair marketing of goods in commerce. With a view to carrying out the policy of the Act, the Administrator was authorized, by order, to approve and “carry into effect” the recommendations made by the Industry Committee as to minimum wages, and such orders shall also contain such terms and conditions as the Administrator finds necessary to carry out the purposes of such orders, to prevent the circumvention or evasion thereof, and to safeguard minimum wage rates established thereunder, section 8(a), (d) and (f). The Administrator, by section 11(a), is authorized to enter and inspect places and records, question employees, and investigate such facts, conditions, practices or matters “as he may deem necessary or appropriate to determine whether any person has violated any provision of the Act, or which may aid in the enforcement of the provisions of this Act.” “Except as provided in section 12 (which has no relevancy here), the Administrator shall bring all actions under section 17 to restrain violations of this Act.” Under subdivision (c) of section 11, every employer is required to keep and preserve records of persons employed by him as may be prescribed by the Administrator as “necessary or appropriate for the enforcement of the provisions of this Act or the regulations or orders thereunder.”

I cannot believe that it was the intention of Congress to limit the power of the Administrator to enforce his orders to the respect specifically mentioned in section 15. The Act in other sections is implicit with the idea of enforcement in other respects, and it is not to be presumed, and certainly I shall not do so, that the other acts and orders of the Administrator were to be an idle ceremony, or that Congress had any such intention. A somewhat similar argument was made in the Gemsco case, and although the question was not directly decided, what was said is significant. That case definitely held that the Administrator had the power to make an order prohibiting homework. Mr. Justice Rutledge, referring to the contention made in that case that the Administrator has no enforcement functions under the Act, or, in any event, that the Act provides no means for enforcing the terms and conditions, including restriction or prohibition of homework, which he may include in his order, wrote at pages 266 and 267 of 324 U.S., at page 617 of 65 S.Ct.:

“The Administrator’s function under Section 8(f), though primarily preventive, obviously is related to enforcement. And further, he is expressly granted powers bearing directly to that end. Apart from his investigative authority under Section II * * *, he has power also by express provision of that section to bring suits under Section 17 * * * to restrain violations of wage orders.
“We need not determine whether this includes authority to sue independently to restrain violations of ‘terms and conditions’ properly included in such an order or to ask for this relief as incidental to enjoining violations of the rate specified. Cf. Hecht Co. v. Bowles, 321 U.S. 321, 330, 64 S.Ct. 587, 592 [88 L.Ed. 754]; Ethyl Gasoline Corp. v. United States, 309 U.S. 436, 461, 60 S.Ct. 618, 627, 84 L.Ed. 852; United States v. Morgan, 307 U.S. 183, 194, 59 S.Ct. 795, 801, 83 L.Ed. 1211; Warner & Co. v. Lilly & Co., 265 U.S. 526, 532, 44 S.Ct. 615, 618, 68 L.Ed. 1161. But certainly (he absence of such authority cannot be assumed, closely related as it would be to enforcement of the order’s primary term. Congress did not include authority to prescribe ‘terms and conditions’ merely as a preachment. Cf. California Drive-In Restaurant Ass’n v. Clark, 22 Cal.2d 287, 140 P.2d 657, 147 A.L.R. 1028.”

In view of the obvious undisputed and flagrant violations of the wage orders, the motion will be granted, and injunction will issue restraining the defendants and their officers, agents and employees in the respects specified in subdivisions 1 and 3 of the order to show cause. The order will be settled on notice.


author: MOSCOWITZ, District Judge.

text:
    UNITED STATES v. MILLER.
    District Court, S. D. New York.
    June 28, 1945.
    John F. X. McGohey, U. S. Atty., of New York City (Charles J. Wagner, Asst. U. S. Atty., of New York City, of counsel), for plaintiff.
    Samuel W. Altman, of New York City, for defendant.
   MOSCOWITZ, District Judge.

This is a motion made by the defendant, Frank L. Miller, for an order vacating and setting aside the judgment of conviction entered herein in the office of the clerk of this court on March 8, 1944, setting aside the verdict of the jury herein, and granting to the defendant a new trial on the ground of newly discovered evidence. The basis of the motion is that the judgment of conviction was obtained by means of perjured testimony and that the government suppressed material evidence.

The defendant, Frank L. Miller, and Odie V. Fluker, alias Eddie Leddell, Matthew A. Reinhardt, alias Arthur Rehn, Benjamin Franklin Clifton, Jr., Paul Samuel Martoccia, Harold LeRoy Butler, alias Jack Butler, Daniel Spencer Moran, alias “Spence,” Albert J. Contento, alias A1 Howard, John Jay O’Brien, alias Jack O’Brien, Joseph W. Grober, George A. Turley, alias Mr. Johnson, Russell Saffer-son, and Sigmund Saxe, were indicted by the Grand Jury upon three counts. The first count charged that between May 11, 1942, and the date of the filing of the indictment the defendants transported and caused to be transported in interstate commerce from the City of Daytona Beach, Florida, to the City of New York, New York, securities of the value of over $5,000 which had theretofore been stolen. The second count charged that the defendants did receive, conceal, store, barter, sell and dispose of these securities. The third count charged a conspiracy to transport and cause to be transported the stolen securities. Nine of the defendants pleaded guilty to the indictment.

The trial against the defendants Miller, Grober, Safferson and Saxe commenced on February 1, 1944. On February 24, 1944, the ju'ry returned a verdict of not guilty against Grober, Safferson and Saxe and found the defendant, Miller, guilty on the three counts of the indictment. On March 8, 1944, he was sentenced. Miller appealed to the Circuit Court of Appeals. Before decision, the Circuit Court of Appeals remanded the cause to this Court so that it might entertain and determine this application made by Miller to set aside the conviction. The Assistant United States Attorney stated that he would not object to remanding the cause, without conceding the truth of the charges contained in the moving papers, so that this motion could be heard.

The basis of the motion is that the defendant, Contento, who pleaded guilty and testified as a government witness, committed perjury upon the trial. Undoubtedly Contento was an important witness and it is doubtful whether there could have been a conviction without his testimony. Conten-to’s criminal record prior to the time he pleaded guilty in this case, upon which a sentence of three years imprisonment was imposed, was as follows:

“Criminal Record: FBI No. 273134. New York City Police Department No. B-15046..
Date Place Offense Disposition
1/16/08 New York City Asslt. & Robbery Discharged 1/19/08
1/8/16 U (( (( Narcotics Served 3 yrs. and 3 mos. U. S. Penit., Atlanta, Ga.
11/21/27 » (( U Indicted with others on S. S. ‘Trader’ case Acq. by jury 1/1928
4/5/30 U. S. Dist. Crt. New York City Using mails to defraud S. S. Probation for 2 yrs.
5/31/35 U. S. Dist. Crt. New York City Transp. property which was stolen in interstate commerce Nolled.
3/25/36 New York City Viol. 887 C.C.P. not given
1/28/38 Nacional Bureau of Ident. Habana, Cuba Inquiry not given

Contento freely admitted his criminal record upon .the trial.

Fred Kaplan, Esq., was the attorney for Contento at the time he pleaded guilty. Attached to the moving papers are a telegram sent to Mr. Kaplan by the wife of Contento on March 17, 1944 (Exhibit A), also three letters, one, dated April 7, 1944, (Exhibit B), signed by Contento, the pertinent portions of which are as follows :

“ * * * Both D. A. Reis and the agents were with me one hundred per cent during every day of the trial and they assured me I will be back in the U.S.M.M.S. right after the trial was over. * * *,r

The second was dated June 20, 1944 (Exhibit C), signed by Contento, the pertinent portions of which are as follows:

“ * * * I was assured the same sentence as the Chief of Police of Daytona Beach, Florida. The same day I pleaded guilty he did the same and was released into the Army. * * *
“* * * the night of the verdict they all expressed their opinion that I could get ready for sea duty real soon. * * * ”

The third was dated July 10, 1944 (Exhibit D), signed by Contento, the pertinent portions of which are as follows :

“ * * * I was prompted a week before trial daily by Asst. U.S.D.A., Mr. Samuel Reis, and agents Keating and his partner, and induced that when I took the stand and if asked if the U. S. District Attorney office or F.B.I. had promised me anything for testifying to say ‘no’ promises-had been made to me; in addition I had to change part of my original statement, to work out with their other evidence, please have the judge check my original statement, and this will bear me out.
“When you told me of your implicit confidence in Asst. U.S.D.A. Mr. Samuel Reis- and to go ahead and trust him because you, knew him so many years and He keep his. promise with the Chief of Police of Day-tona, So why, should he cross me. You knew how I argue with you about taking the stand anyway you telephoned the Agents from you'r Hotel and after a long conversation you told me to go ahead and do whatever the Asst. U.S.D.A. Mr. Samuel Reis told me and his word was his bond.
“He told me I would be on the Street thats his word (Street) soon after the trial. My letter to the Judge is all fact and truth, please get those facts into your* affidavit. s|s * * >f

Contento has made a motion for the reduction of his sentence. Mr. Kaplan no longer represents him. His present counsel strenuously objected on the hearing to the consideration by the Court of the telegram and letters, Exhibits A, B, C and D, upon the ground that they were privileged communications between a client and his attorney, and that Mr. Kaplan was guilty of unprofessional conduct in delivering the telegram and letters to Miller. The fact is that the telegram and letters have been made public, as they are part of the motion papers; the question of whether or not Mr. Kaplan was guilty of a violation of his obligation to his client is not before the Court and this Court therefore expresses no opinion relating thereto.

The Court conducted hearings upon this motion and received testimony on May 18, 1945, and on June 6, 1945. At such hearings Contento emphatically denied that either Mr. Reis, the Assistant United States Attorney who tried the case, or the Special Agents of the Federal Bureau of Investigation, made any promises whatever to him. Testimony was given to this same effect by Mr. Kaplan, Mr. Réis, Mr. Joseph D. Mil-enky, Special Agent of the Federal Bureau of Investigation, and Mr. John J. Keating, the other Special Agent of the Federal Bureau' of Investigation. There was not the slightest evidence in this record indicating that any promises whatever were made by Mr. Reis or Agents Keating and Milenky to Contento. Contento testified that his attorney, Mr. Kaplan, did make certain promises to him. He testified that the statements in the letters concerning promises were untrue, that he wrote these letters “to try to get out of jail.” He testified that his purpose was to induce Mr. Kaplan, who had not answered his communications, to take some action in his behalf. Contento had stated in the letters that he was promised the same sentence as the Chief of Police of Daytona received, which was a suspended sentence. Mr. Kaplan testified that he had no conversation with Contento “in which I told him he would get the same sentence as the Chief of Police in Day-tona.” It appears, therefore, from all the testimony that no promises were made to Contento by Mr. Reis, or by Special Agents Keating or Milenky and that any statements contained in the telegram or letters which tend to reflect on Mr. Reis, Mr. Keating or Mr. Milenky are without the slightest foundation.

There is a more serious aspect to this case. Contento’s testimony weighed heavily against the defendant, Miller; it is unlikely that there would have been a conviction without it. There is no question but that the securities were stolen in Florida and transported to New York. The serious question so far as Miller was concerned was whether he had knowledge that the securities were stolen and Contento’s testimony was offered to bring knowledge home to Miller. Undoubtedly Mr. Reis, Mr. Milenky and Mr. Keating sincerely believed that Contento’s testimony at the trial was truthful. Under those circumstances, can it be said that the Assistant United States Attorney was under an obligation to voluntarily present to the court three statements which he had in his possession made by Contento prior to the trial which contained contradictions, many of which were of a vital character?

Contento made these three statements to the Federal Bureau of Investigation, dated February 3, February 24 and February 25, .1943, respectively. These statements contained vital contradictions of his testimony at the trial. Counsel for Miller did not request the Assistant United States Attorney to produce these statements, although Contento testified that he had made statements. Is an Assistant United States Attorney required to voluntarily present to the court for its inspection statements in his possession which are contradictory to the testimony of the witness when the prosecutor believes that the testimony given by the witness is truthful? See United States v. Krulewitch, 2 Cir., 1944, 145 F.2d 76; United States v. Cohen, 2 Cir., 1944, 145 F.2d 82; United States v. Ebeling, 2 Cir., 1944, 146 F.2d 254; United States v. Simonds, 2 Cir., 1945, 148 F.2d 177; United States v. Cohen, 2 Cir., 1945, 148 F.2d 94. That question need not be answered in view of the fact that upon the argument of this motion the United States Attorney voluntarily produced the three statements made by Contento and they are therefore before the Court.

Falsifying is not new to Contento; he falsifies to suit his convenience. His testimony at the trial brought home knowledge to the defendant Miller that the securities were stolen. The letters to his attorney were to the effect that he was promised consideration by the United States Attorney and representatives of the Federal Bureau' of Investigation, and that he was instructed to say “no” when asked if he had received any such promises. He also stated in these letters that he had changed parts of his original statements “to work out with their other evidence.” On the trial Contento testified that he saw defendant O’Brien who was short of funds, that he advanced some money for O’Brien and obtained a list of the securities and delivered the list to Miller and that Miller “brought me ■ over to Turley” another defendant. O’Brien first informed Contento that the securities had been obtained in a crooked gambling game from a refugee who had smuggled them in. Contento testified that when he gave Miller the list he repeated the story about the bonds, “the story O’Brien had told me.” He then testified that when he first brought the list to Miller he informed Miller that “they were lost in a phony gambling game in Florida, that I could buy them very cheap, 25 per cent.” He further testified:

“Q. Did you tell him whose bonds they were? A. No.
“Q. Did you' tell Miller anything about a refugee smuggling them in? A. Yes, I did.
“Q. You did tell him that? A. Yes. ******
“Q. You told him the story about how the bonds were obtained ? A. Yes.
“Q. Is that your statement? A. Yes.
“Q. What did Miller say to you when you brought him that list? A. We had them looked up to see if they were negotiable, and any reports on them, if they were not. That was the language we used.
“The Court: Who do you mean by ‘we’ ?
“The Witness : Meaning Mr. Miller and myself.”

The three statements made to the Federal Bureau of Investigation are in question and answer form. In Contento’s first statement os February 3, 1943, he stated that when he went to see Miller he informed him that the bonds could be bought for 25 per cent of their value but that Miller said that he could dispose of the bonds. In speaking of the origin of the bonds in the statement of February 3, 1943, he stated at page 11:

“A. I told him that story that I had gotten from O’Brien that a refugee had brought them into the country and they were frozen and he paid off a bet in Florida and that was .the reason I could get them so cheap. So therefore I said if there was any jeopardy, if the story was not correct I didn’t want to be bothered with it and to check it and he in turn brought me to Mr. Turley’s office.
“Q. You fully explained to Miller that the bonds were tainted, is that right? A. That they were tainted in that respect, yes.
“Q. And Miller said he had someone he could get to get rid of them fast? A. Yes.
“Q. Did he at that time tell you who that party was? A. No, just a lawyer.
“Q. Did you ask him who the lawyer was? A. He told me Turley.
“Q. Did you ask him who Turley was? A. Yes.
“Q. What did he say about Turley? A. He said a prominent lawyer with a good reputation who had been in that business for years.”

The following appears in Contento’s statement of February 24, 1943, at page 6:

“Q. Did you ever tell Miller about the man at the hotel ? A. No.
“Q. Are you sure? A. Positive. I never told Miller anything about it. I didn’t want Miller to know where I was getting any of. that stuff.
“Q. Did you tell Miller that the stuff had been stolen from an automobile? A. No, I told Miller the first story about the refugee stuff. It was taken off a refugee in a gambling game, that was the original story going around the Sutton Hotel, and all the bars will tell you, because O’Brien became very conspicuous. He was trying to cash the coupons around the different bars.”

The statement of Contento made on February 25, 1943, contains the following:

“Questions by Mr. Reis
“Q. Did you at any time mention Paul’s name or O’Brien’s name to Miller? A. No, I didn’t. I had that out with him before. I probably did not mention either one of their names to Miller.
“Q. Did you' ever tell Miller at any time that the source of your supply was somebody out of the state? A. Yes, I told Miller it was from Florida. I told Miller the first story O’Brien had told me, the refugee story with the refugee losing money in a gambling house and paying off in bonds, the bonds were smuggled into the country, that they were frozen.
“Q. Did you ever tell Miller another story after you were told by Paul that they were stolen out of an automobile? A. Well, it was weeks afterward that I mentioned the stuff was stolen.
“Q. Who to? A. Miller.
“Q. Where, in Miller’s office ? A. Yes. There were the two stories, I said, I don’t know which to believe.
“Q. When you told Miller about the bonds being stolen from an automobile, what did Miller say? A. He didn’t say anything.
“Q. He didn’t say a thing? A. Well, he mentioned, I mean by that, you see we referred to these things as hot. I have to change my whole language.
“Q. I don’t want to change any language, I simply would like to know the facts? A. Well, it stands to reason that if this stuff is legitimate, I would go and trade it in a broker’s office myself.
“Q. You made a statement that it was always referred to as hot. Who mentioned that? A. Turley, Miller and myself.
“Q. Did you ever use the word hot when the three were in discussion together ? A. Yes. Because of the fact that I was giving Turley 30 per cent to turn them over.
“Q. I want to know did you ever tell Miller that you had been told another story by Paul that the bonds had been stolen from an automobile? A. Well, I couldn’t say that. I couldn’t say that.
“Q. You just made a statement a minute ago that there were two stories. They were hot bonds a refugee had lost gambling, then you found out they were stolen. Did you ever tell Miller they were hot? A. No. My story with Miller was that first refugee story.
“Questions by Mr. Milenky
“Q. After you had already gone into the deal, did you ever tell Miller that story about their being taken from an automobile ? A. That part of the thing was dead, because there was no money and—
“Q. Did you tell Miller that story Paul had told you about their being stolen from an automobile? A. That, I couldn’t say. I may have mentioned it to him.
“Q. Did you mention it? A. I must have mentioned it because I mentioned it to Turley.
“Q. You mentioned it to Turley? A. Sure, he was the source of disposing of the stuff. I wasn’t interested in Miller. I mentioned it to Turley.
“Q. When you told Turley they were stolen what did Turley say ? A. That was another thing Paul said. They were stolen out of an automobile, but the owner of the automobile was a refugee who couldn’t make a complaint.
“Q. In other words you told Turley a story that the bonds had been stolen out of an automobile which belonged to a refugee, and the refugee couldn’t complain about the theft of the bonds because he had smuggled them in? A. That’s right. Because they were frozen.
“Q. When you told Turley they were hot, what did Turley say? A. Well, Tur-ley had a week to look them up, and he found nothing wrong. He said I can get rid of them. He said it makes no difference how hot they are.
“Q. Does that refresh your recollection as to whether or not you told Miller the same thing that you told Turley? A. I told Miller the same thing that I told Tur-ley because of the fact * * *. This will bear me out, the fact that Miller was trying to promote somebody to advance 15, 10 or 15 hundred dollars for me to go to Florida to buy him some more. This stuff was supposed to be taken from a refugee. One was the gambling story. One was the story of Paul that they were taken from a trunk of an automobile, that the owner was a refugee. That they couldn’t make a complaint. That they were frozen.
“Q. Do you know what sources Miller was trying to raise 10 or 15 hundred dollars for your trip to Florida to get more bonds through? A. Find out from Moran. He brought in a banker, an ex-partner of his, unbeknown to me. One morning he made an appointment for me to meet an ex-associate of his.
“Q., .Who was that partner? A. Shapiro, Moran’s ex-associate.
“Q. Now, you are sure you told Miller both stories ? A. Yes, he had both stories. You can check this with Shapiro.
“Q. Where is Shapiro now? A. You can find out from Moran.
“Did you and Miller and Shapiro have a conversation about it? A. The four of us, including Moran.
“Q. Where? A. In Miller’s office.
“Q. What was said by you, what was said by Miller, what was said by Moran and what was said by Shapiro? A. You would have to get the four of us together.
“Q. Well, to the best of your recollection? A. Moran promoted, tried to promote his former partner.
“Q. Well, what did he say? A.’ He said he could get me all the funds I need.
“Q. Through Shapiro ? A. From Shapiro.
“Q. In Shapiro’s presence. A. Yes.
“Q. What did Miller say? A. The meeting was arranged there for me. You' see, Moran is Miller’s friend.
“Q. What did Miller say? A. Miller-made this arrangement for me to meet Shapiro through Moran in his office.
“Q. In Miller’s office? A. In Miller’s office.
“Q. What did Miller say that day when the meeting was already on? A. Here’s a man who will finance, finance you in going down and picking up some more of that South American bonds. So Shapiro, who Moran had brought in, wanted to get more particulars, from me direct, and he would let Moran know. See, the following day, he' would let him know just how much money he could raise for such an adventure.
“Q. When did this take place? A. In Miller’s office. What was the last bond sale?
“Q. Around August 4th? A. After Augu'st 4th. Between August 4th and August 30th. Whozit would be more accurate on the date. Moran would be more accurate.
“Q. It was after the last six bonds had been sold? A. After the last transaction.
“Q. That is the last South American transaction? A South American transaction.
“Q. And did you hear from Shapiro the next day? A. I wasn’t supposed to hear from Shapiro. I would meet with Moran in Miller’s office.
“Q. Was Miller there? A. Yes.
“Q. What happened? A. He stated Moran stated that he could not get the amount of money I wanted for a big deal, but that he would get between 1500 and 2,000, you see, and then we could pyramid our proceeds, so I says no dice, I wasn’t interested either I would make one trip and make it worth while or I would wait, you see.
“Q. And nothing came of that? A. This fellow couldn’t get the money. He could only get $2,000.”

There are many other contradictions of a like character pointed out in defendant’s brief. The Court is unable to determine what effect it would have had on the jury had they known of these contradictory statements made by Contento — it may have changed the result. While Contento now testifies that the testimony he gave upon the trial was truthful, nevertheless it is difficult to determine where the truth lies in-view of the contradictory character of his-statements before trial, his testimony upon this motion, the telegram and the letters-which he wrote to his attorney, which he now claims to be false and which he says he intended that his attorney should present to the court on an application to modify his sentence.

What the Court said in Martin v. United States, 5 Cir., 1927, 17 F.2d 973, 976, te some extent applies here:

“In our opinion it is the duty of a trial' court to grant a new trial, where a witness at the original trial subsequently admits on-oath that he committed perjury, or even-that he was mistaken in his testimony, provided such testimony related to a material issue, and was not merely cumulative. * * * There is no way for a court to-determine that the perjured testimony did not have controlling weight with the jury, and, notwithstanding the perjured testimony was contradicted at the trial,, a new light is thrown on it by the admission that it was false; so that, on a new trial, there would be a strong circumstance in favor of the losing party that did not exist, and therefore could not have been shown, at the time of the original trial.”

Also in Di Carlo v. United States, 2 Cir., 1925, 6 F.2d 364, 368:

“The possibility that the jury may accept as the truth the earlier statements in preference to those made upon the stand is indeed real, but we find no difficulty in it. If, from all that the jury see of the witness, they conclude that what he says now is not the truth, but what he said before, they are none the less deciding from what they see and hear of that person and in court. There is no mythical necessity that the case must be decided only in accordance with the truth of words uttered under oath in court.”

Also in United States v. Senft, D.C.N.Y. 1921, 274 F. 629, 630:

“ * * * I am of the opinion that the defendant ‘should be allowed an opportunity to present his case to the jury upon the facts as they exist,’ as was said in People v. Friday, 83 Hun 240, 31 N.Y.S. 399. The jury is supposed to hear the truth and the whole truth. They were not afforded this opportunity when Daly was offered as a witness, for they were justified in accepting his testimony as given by a witness who could not be discredited because of any act that he had previously committed. Obviously they were mistaken, if they accepted his testimony upon such a belief.
“Trials are conducted, tinder the direction of the court, in a search for the truth. A motion for a new trial, which is peculiarly addressed to the discretion of the court, should be granted, where it appears that such an important fact as was here involved was not known to the jury * *

The defendant’s attorney did not request the Assistant United States Attorney to produce Contento’s statements. He evidently relied upon the procedure existing at that time whereby if he requested the production of the statements and they were produced, they could then be offered in evidence. This was however changed in United States v. Krulewitch, supra, which -was decided August 1, 1944, subsequent to the trial of this action. This Court in the case of McCarthy v. Palmer, 1939, 29 F.Supp. 585, seriously criticized the federal rule as it then existed in contrast with the New York rule.

Grave responsibility rests upon a court in setting aside a verdict of a jury, one which should be exercised with great care and caution. Here bringing home knowledge that the securities were stolen rests squarely upon the testimony of Contento who either committed perjury at the trial or made a false statement to his lawyer which was to be used upon his application to the court for reduction of sentence. Furthermore, the statements made by him to the Federal Bureau of Investigation contradict his testimony in vital respects.

It is only fair to say that the evidence indicates that Mr. Reis, Mr. Keating and Mr. Milenky acted honorably and the disposition of this motion does not reflect in the slightest upon them.

Motion to set aside the verdict is granted and a new trial ordered. Settle order on notice.


author: LEAHY, District Judge.

text:
    SHELL DEVELOPMENT CO. v. UNIVERSAL OIL PRODUCTS CO.
    Civ. A. No. 424.
    District Court, D. Delaware.
    Aug. 7, 1945.

      Theodore S. Kenyon, Douglas H. Kenyon, and Malvin R. Mandelbaum (of Kenyon & Kenyon), all of New York City, and Caleb S. Layton and Robert H. Richards, Jr. (of Richards, Layton & Finger), of Wilmington, Del., for plaintiff.
    William F. Hall and Charles M. Thomas, both of Washington, D. C., and William S. Potter (of Southerland, Berl & Potter), of Wilmington, Del., for defendant.
    Hobart N. Durham, Thomas R. MacDonald, and James J. Dwyer (of Morgan, Finnegan & Durham), all of New York City, and William H. Foulk, of Wilmington, Del., for Anglo-Iranian Oil Co., Limited.
   LEAHY, District Judge.

In Interference No. 78,016 Visser v. Mor-rell, the award went to Morrell — Patent No. 2,169,809, now assigned to defendant.

Plaintiff brought this action under R.S. § 4915, 35 U.S.C.A. § 63, to authorize the issuance of a patent on application of Gerardus H. Visser, Serial No. 150,544, assigned to plaintiff. Defendant moved to dismiss the action on the ground of non-joinder of an indispensable party, Anglo-Iranian Oil Company, Ltd., a British corporation. The rights of Anglo-Iranian in the Morrell patent stem from two agreements, Universal Alkylation Agreement and Universal Alkylation Agency Agreement. The parties to these agreements are plaintiff, defendant, Anglo-Iranian, Texaco Development Corporation and the Standard Oil Development Company. Several months after defendant filed its motion to dismiss, Anglo-Iranian purported to enter a voluntary appearance in this action. Defendant argues that while Anglo-Iranian was a necessary and indispensable party the court lacks jurisdiction under R.S. § 4915 for the limitation period required in the statute had long since expired before Anglo-Iranian came forward.

The Alkylation Agreement recites: “The parties hereto have existing patents and patent applications in the field of sulfuric acid alkylation which are believed to be in conflict and desire to settle such conflict.” In substance,, under the agreements Anglo-Iranian (1) receives a release for all past infringement; (2) a non-exclusive right to use the sulfuric acid alkylation process; (3) the right to grant releases for past infringement and to grant non-exclusive licenses to use the process; (4) the right to share in any moneys collected by defendant for any releases or licenses that may be granted; and (5) Anglo-Iranian has the right, defendant claims, when joined by two other parties to the agreement to “bring any suit or action or take any steps to prevent the infringement of any of the Sulfuric Acid Alkylation Patent Rights of the parties hereto, * *

Plaintiff argues that Anglo-Iranian is not an indispensable party because it possesses neither a legal nor a beneficial right in the Morrell patent and that its rights are merely contractual in nature.

The definition of an indispensable party found in Shields v. Barrow, 17 How. 130, 139, 15 L.Ed. 158, as “Persons who not only have an interest in the controversy, but an interest of such a nature that a final decree cannot be made without affecting that interest, or leaving the controversy in such a condition that its final termination may be wholly inconsistent with equity and good conscience” has been recently applied in Parker Rust-Proof Co. v. Western Union Telegraph Co., 2 Cir., 105 F.2d 976, 979, and United States v. Washington Institute of Technology, Inc., 3 Cir., 138 F.2d 25. Under this definition a mere non-exclusive license conveys no title or interest in the patent; United States v. General Electric Co., 272 U.S. 476, 47 S.Ct. 192, 71 L.Ed. 362; General Talking Pictures Corp. v. Western Electric Co., 304 U.S. 175, 546, 8 S.Ct. 849, 82 L.Ed. 1273; neither does the right to receive royalties transmute a pecuniary interest into one of indispensability; Rude v. Wescott, 130 U.S. 152, 9 S.Ct. 463, 32 L.Ed. 888; Tilghman v. Proctor, 125 U.S. 136, 8 S.Ct. 894, 31 L.Ed. 664; United States v. Washington Institute of Technology, Inc., supra.

Defendants argue that in an R.S. § 4915 proceeding the court is required to determine whether the controversy involves a patentable invention; Hill v. Wooster, 132 U.S. 693, 10 S.Ct. 228, 33 L.Ed. 502; Radtke Patents Corp. v. Coe, 71 App.D.C. 375,122 F.2d 937; Triplett v. Line Material Co., 7 Cir., 133 F.2d 533; and Hansen v. Slick, 3 Cir., 230 F. 627; and if there should be a finding that the claims in suit are invalid a dismissal would place “a blight upon the Morrell patent so damaging as to in effect destroy it”. The point is well taken. This circumstance alone would make Anglo-Iranian and all the other parties to the agreements indispensable parties. There can be no mistake but that the validity of the Morrell patent must be scrutinized in this, an R.S. § 4915 proceeding. In a suit by an unsuccessful applicant, priority of invention is not the lone issue. There must first be a valid patent to which priority can attach. Hoover Co. v. Coe, 65 S.Ct. 955.

Anglo-Iranian’s present and real interest in the Morrell patent lies in its control of the monopoly created by that patent. Under the agreements Anglo-Iranian has an irrevocable right to give releases for past infringement and an irrevocable right to grant licenses to members of its group without the consent of defendant or of any other party to the agreements. These rights place Anglo-Iranian in a position of partial control over the monopoly of the patent. It has the right in so far as it decides not to license to exclude others from the grant. But for the agreements defendant would have the exclusive control of the entire monopoly. Anglo-Iranian is free to license and to sue for the enforcement of licenses. While this power to license is not exclusive, it nevertheless permits a form of control in that it includes the right to license others to make, use and vend, a right recently held to be within the original grant. See Special Equipment Co. v. Coe, 65 S.Ct. 741. If plaintiff through Visser is found entitled to a patent, or if there should be a finding of invalidity, the monopoly now enjoyed through Morrell would terminate and obviously Anglo-Iranian et al. would lose interests such as are contemplated under the teaching of Shields v. Barrow, supra.

In addition, under the agreements if defendant or any of the other parties thereto refuse, upon the request of the three other parties, to enforce any claim it may have against any licensee under the Morrell patent, suit may be brought in defendant’s name by the requesting parties to enforce ■such claim.

Plaintiff argues that Anglo-Iranian could never sue for infringement of any of defendant’s patents and points out that the ■only pertinent portion of the agreements must be Art. IV, par. B, section (d), p. 5. Plaintiff contends this language creates no right of any party or group of the parties to the agreements to sue for infringement of the patent of another. Art. Ill, par. D, p. 5 of the Agency Agreement is said to be of help in construing Art. IV, par. B, supra. Under Art. Ill, par. D, it is shown that defendant retains control to release or license .under its own patents and there is no right to veto conferred on Anglo-Iranian. But the argument fails to meet the points taken by defendant. It makes no claim that Anglo-Iranian can bring an infringement •suit on the patent of another. It does claim ■that the plain language of the agreements admits of no mistake as to what the parties intended. In so far as the United States is concerned “any party shall” with the consent of two other parties to the agreement bring suit to prevent infringement “of any” of the Sulfuric Acid Alkylation Patent Rights “of the parties hereto”, the expenses ■of the suit to be borne in the proportion the parties share in moneys collected. This construction of the provision does not overlook Art. II, par. A of the Agency Agreement, which states that defendant will not “ac■quire any title to or interest in” any of the Sulfuric Acid Alkylation Patent Rights of the four other parties to the agreement. This does not mean that by reason of Art. IV, par. B, any party acquired title to or a beneficial interest in the patent rights of the others. This does mean that if defendant refuses to bring an infringement suit and to this extent Anglo-Iranian’s protection in the monopoly is threatened then three of the parties to the agreements may institute suit in defendant’s name if, as a matter of procedure, this proves necessary, without vesting title to the patents in Anglo-Iranian or divesting title from defendant. True, Anglo-Iranian simply as a non-exclusive licensee might not be a necessary party in an infringement suit brought by defendant. But, actions under R.S. § 4915 are different types of actions from those brought under the Declaratory Judgment Statute and from infringement suits. Hence, decisions as to who are necessary parties under the latter types of action do not control here. The conclusion is, then, that Anglo-Iranian is an indispensable party.

R.S. § 4915 provides that suit must be instituted “within six months after” the refusal of the Commissioner of Patents to issue the sought patent and upon “notice to adverse parties”, meaning all indispensable parties. United States v. Washington Institute of Technology, Inc., supra. Here, Anglo-Iranian attempted to appear voluntarily and become a party to these proceedings after the expiration of the statutory six-month period. Plaintiff contends that the instant suit was commenced within the six-month period specified by the statute and if Anglo-Iranian is an indispensable party, as such it can waive the limitation point. Nachod & United States Signal Co. v. Automatic Signal Corporation, 2 Cir., 105 F.2d 981, looks to the contrary. It decided that for a federal district court to acquire jurisdiction in an R.S. § 4915 proceedng it is essential that all induspcnsable parties must be in court before the expiration of the statute of limitation. See, too, Solomon v. Schlicker, D.C., 58 F.Supp. 444. These authorities are inapposite, plaintiff says, because in the instant case Anglo-Iranian has waived the limitation point and is in court. Doubt is expressed that a waiver by a party in a federal district court can cure a jurisdictional defect. For the rule of this case, however, the failure to comply with the requirements of the statute have been satisfied by the voluntary appearance. There is danger to such a rule for it should not be made to depend on the vagaries of indispensable parties, some of whom might elect to stay out. The rights and interests of the remaining parties to the agreements — Texaco Development Company and the Standard Oil Development Company — are reciprocal to those of Anglo-Iranian. No attempt was made to join them as parties and they have not appeared, although suit was commenced on June 16, 1944, over a year ago.

As the question of validity must be determined, obviously every party to the agreements has a real interest in these proceedings. The permission to allow Anglo-Iranian to join fails to correct the fatal defect of not joining the other parties to the agreements; and it is too late now to attempt to join such other parties. If this be hardship on plaintiff, it is one of its own making for not selecting the proper technics in getting all indispensable parties before a Court of competent jurisdiction. Defendant’s motion to dismiss granted; and it is so ordered.

       Anglo-Iranian not being a resident of this district might under 28 U.S.C.A. § 112 raise a venue question. Rut, the matter of right of venue to have suit brought in the proper district may be waived. See Hazeltine Corporation v. White, D.C., 2 F.Supp. 94, affirmed 2 Cir., 68 F.2d 715; Vogel v. Crown Cork & Seal Co., D.C., 36 F.Supp. 74.

       In a § 4915 proceeding both parties want the patent, neither would suggest questions of invalidity. The requirement that the Court must pass on validity removes this particular issue from without the adversary system. The Court, itself, must research through the prior art, be its own expert, become advocate for the government (but not for the Patent Office, which was of opinion validity existed) visa-vis both plaintiff and defendant. Perhaps the appointment of an advisory Master — for which there is no statutory authority — but on the basis of an exercise of the Chancellor’s traditional powers — whose function will be to test validity at sword’s length with both plaintiff and defendant, will meet the usual inability of the district judge to stop his business of judging to become an expert in many arts.

       “B. If, in so far as the United States is concerned, Ht5¡s
      “(d) any party hereto shall, with the ■consent of two of the other parties hereto, bring any suit or action or take any steps to prevent the infringement of any of the ■Sulfuric Acid Alkylation Patent Rights of the parties hereto: the parties hereto agree that the expenses thereby incurred shall be borne and shared between Universal and the Oil Company parties in the same proportion as they share, pursuant to the provisions of Article III hereof, in moneys collected.”

       “Subject to the provisions of paragraph D of Article III of the Alkylation Agreement Universal may grant releases and licenses under its own Sulfuric Acid Alkylation Rights in the United States upon such terms and conditions as it sees fit.” (Emphasis added.)

       United States v. Washington Institute of Technology, Inc., D.C.Del., 47 F.Supp. 384.