author: Thacheb, J. Desmond, J.

text:
    Nathan D. Leiman et al., Respondents, v. Alexander Guttman et al., Individually and as Officers and Members of the Committee of Preferred Stockholders of Pittsburgh Terminal Coal Corporation et al., Appellants, et al., Defendants.
    Argued November 12, 1947;
    decided March 11, 1948.

      Barney Bosenstein and Leo Praeger for appellants.
    I, The Constitution and statutes of the United States confer exclusive jurisdiction upon the Federal courts in all matters and proceedings in bankruptcy. (U. S. Const., art. I, § 8; U. S. Code, tit. 28, § 371, par. [6]; Matter of South Beardstown Drainage & Levee Dist., 125 F. 2d 13; International Shoe Co. v. Pinkus, 278 U. S. 261; Matter of Denver & R. G. W. R. Co., 23 F. Supp. 298; Pacific Nat. Bank of San Francisco v. Merced Irrigation Dist., 25 F. Supp. 981, 114 F. 2d 654, 311 U. S. 718.) II. The exclusive jurisdiction of Federal courts in matters relating to bankruptcy extends to all allowances and fees including the subject matter of this complaint. (Bankruptcy Act, § 221, par. [4]; U. S. Code, tit. 11, § 621, par [4]; Matter of Brown [Gerdes], 290 N. Y. 468; Matter of Keystone Realty Holding Co., 117 F. 2d 1003; Woods v. City Nat. Bank & Trust Co., 312 U. S. 262; Wright v. City Nat. Bank & Trust Co., 104 F. 2d 285; Brown v. Gerdes, 321 U. S. 178; Matter of Philadelphia & Reading Coal & Iron Co., 61 F. Supp. 120; Matter of General Carpet Corp., 116 F. 2d 426; Matter of Paramount-Publix, 12 F. Supp. 823; Matter of Mt. Forest Fur Farms of America, Inc., 157 F. 2d 640.) III. Respondents ’ claim that the issues have been adjudicated in the United States District Court is without merit.

      George Zolotar, Samuel M. Koenigsberg, Arthur A. Burch, Aaron Levy, Roger S. Foster and Sidney H. Willner for Securities and Exchange Commission, amicus curia, in support of appellants’ position.
    I. The bankruptcy court has jurisdiction to fix the amount of all fees for legal services performed in a reorganization proceeding regardless of the source of payment of such fees. (U. S. Code, tit. 11, § 621, par. [4]; Matter of P-R Holding Corp., 147 F. 2d 895; Matter of Philadelphia & Reading Coal & Iron Co., 61 F. Supp. 120.) II. The jurisdiction of the bankruptcy court over the fee claim, which is the subject of the present litigation, is exclusive. (Matter of Brown [Gerdes], 290 N. Y. 468; Brown v. Gerdes, 321 U. S. 178.)

      Samuel Marion and Morris Berheley for respondents.
    I. The issues raised on this appeal have been adjudicated in the United States District Court. II. In this action, the compensation sought is not from the bankrupt estate but from individual stockholders of the debtor corporation, payable out of their own assets, not the bankrupt’s assets. (Greensfelder v. St. Louis Public Service Co., 114 F. 2d 53; Matter of Standard Gas & Electric Co., 106 F. 2d 215; Zweifel, Tuohy & Crager v. Trans-State Oil Co., 99 F. 2d 650; Matter of Middlewest Utilities Co., 17 F. Supp. 359; Matter of Watco Corp., 95 F. 2d 249.) III. Even if there had been no adjudication by the Federal court on the issue raised on this appeal, it seems to be clearly settled that plaintiffs would be entitled to recover from defendants on the agreement sued upon. IV. The order appealed from should be affirmed, and the question certified should be answered in the affirmative.
   Thacheb, J.

Upon appeal from an order of the Appellate Division which affirmed an order denying defendants’ motion to dismiss the amended complaint for lack of jurisdiction of the subject matter of the action the following question was certified: “ Has the Supreme Court of the State of New York jurisdiction over the subject matter of this action to recover for legal services rendered to the stockholders committee which are not compensable out of the assets of the Debtor’s estate, in a Chapter X reorganization proceeding under the United States Bankruptcy Act? ”

The complaint alleges that plaintiffs were retained by the defendants-appellants, who were officers and members of a committee of preferred stockholders of Pittsburgh Terminal Coal Corporation in corporate reorganization proceedings pending in the United States District Court for the Western District of Pennsylvania, In the Matter of Pittsburgh Terminal Coal Corporation, Debtor, to file amended- proofs of claim against the debtor for money alleged to be due on preferred stock certificates under the sinking fund provisions relating thereto and to render other services in connection with the reorganization proceedings, for which defendants agreed to pay plaintiffs for their fee and disbursements therein, in addition to any sum allowed by the court, 20% of the stockholdings of the defendants. Stock certificates were to be deposited with the chairman of the committee and delivered to plaintiffs upon the completion of the proceedings. It is further alleged that the proceedings in reorganization have been substantially completed, but the defendants-appellants have failed and refused to turn over the shares of preferred stock thus deposited in escrow. Attached to the complaint as Exhibit A is a copy of a letter from the committee advising the plaintiffs of the deposit of the shares with them by four of the preferred stockholders. The document, referring to the shares, states the terms upon which they are held as follows: “ They have been obtained and are held in escrow on the condition that they be delivered to you only at such time as the reorganization proceedings in the matter of Pittsburgh Terminal Coal Corporation are finally terminated and a final settlement of all suits and claims made by this Committee in behalf of the preferred stockholders have been settled. It is further conditioned upon faithful and satisfactory performance of your duties as counsel to this Committee until the termination of all proceedings.”

There is no allegation in the complaint disclosing the actual services rendered. It does, however, appear that the compensation sought is “ in addition to any sum allowed by the court ”, is “ additional compensation for your services in the above matter ” and “conditioned upon faithful and satisfactory performance of your duties as counsel to this Committee until the termination of all proceedings.” There is no allegation of performance, but it is alleged “ that all proceedings in said reorganization have been substantially completed ”. Thus it is clear that the claim asserted is for additional compensation for services as counsel to the stockholders ’ committee. According to the document, counsel are to have the shares as additional compensation, regardless of the value or character of the services rendered.

Jurisdiction of the courts of the United States in all matters and proceedings in bankruptcy is exclusive of the courts of the several States (U. S. Const., art. I, § 8; U. S. Code, tit. 28, § 871, par. Sixth). Sections 221, 241, 242 and 243 of the Federal Bankruptcy Act (U. S. Code, tit. 11, §§ 621, 641, 642, 643) impose upon the Federal courts the duty of allowing reimbursement for proper costs and expenses incurred and reasonable compensation for services rendered in corporate reorganization proceedings, and under these provisions the bankruptcy courts have plenary power to review all fees and expenses in connection with the reorganization from whatever source they may be payable (Woods v. City Nat. Bank & Trust Co., 312 U. S. 262, 267). Section 221, having general application in reorganization, provides:- “ The judge shall confirm a plan if satisfied that — * * * (4) all payments made or promised by the debtor or by a corporation issuing securities or acquiring property under the plan or by any other person, for services and for costs and expenses in, or in connection with, the proceeding or in connection with the plan and incident to the reorganization, have been fully disclosed to the judge and are reasonable or, if to be fixed after confirmation of the plan, will be subject to the approval of the judge”. There has been no such scrutiny by the bankruptcy court in this case. Section 241 deals with costs and expenses incurred by the petitioning creditors and reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred by referees, special masters, the trustee and other officers, and the attorneys for any of them, the attorney for the debtor and the attorney for the petitioning creditors. Section 242 governs this case; it provides: “ The judge may allow reasonable compensation for services rendered and reimbursement for proper costs and expenses incurred in connection with the administration of an estate in a proceeding under this chapter or in connection with a plan approved by the judge, whether or not accepted by creditors and stockholders or finally confirmed by the judge —

“ (1) by indenture trustees, depositories, reorganization managers, and committees or representatives of creditors or stockholders; * * *

“ (3) by the attorneys or agents for any of the foregoing except the Securities and Exchange Commission.”

We think it entirely clear that it was the duty of the bankruptcy court to determine and allow reasonable compensation for the services rendered by plaintiffs as attorneys for the committee of stockholders and to determine, as required by section 221, whether or not the additional compensation promised to be paid to plaintiffs by delivery of shares was reasonable (Brown v. Gerdes, 321 U. S. 178; Woods v. City Nat. Bank & Trust Co., supra). This jurisdiction being exclusive, the State courts have no jurisdiction to entertain any suit for compensation in addition to the compensation allowed by the bankruptcy court.

The judge in the bankruptcy court made an order to the effect that an allowance of $37,500, previously granted by his order to plaintiffs and defendant Berkman, who with the approval of the defendants had been retained as counsel, as compensation for legal services, was ‘£ without prejudice to such rights as said Marion, Berkman and Leiman may have ’ ’ in the escrow agreement. (Matter of Pittsburgh Terminal Coal Corp., 69 F. Supp. 656, 659.) It seems clear that the district judge misapprehended the duty imposed upon him by section 221 of the act, which required his determination that all payments made or promised by any person for services or for costs and expenses in, or in connection with, the proceeding or in connection with the plan and incident to the reorganization have been fully disclosed and are reasonable, or, if to 'be fixed after confirmation of the plan, will be subject to the approval of the judge.

It is our view, therefore, that the Supreme Court of this State is without jurisdiction to entertain this suit for additional compensation for services rendered to the committee.

The orders should be reversed and the motion granted, with costs in all courts. The question certified should be answered in the negative.

Desmond, J.

(dissenting). The complaint in this equity suit contains, after the allegations summarized in Judge T-hacheb’s opinion, a prayer for judgment requiring defendants to deliver up to plaintiff the stock in question, and for a determination of the rights of defendant Berkman in said stock, also a prayer “ that the plaintiffs have such other, further and different relief against the defendants as may be just and proper ’ ’. The motion for dismissal was made on the sole ground that the Supreme Court of the State of New York has no jurisdiction at all to entertain this suit or to hear the parties or to grant or deny any relief. The majority opinion for reversal here grounds itself on the sweeping holding that since the legal services rendered by plaintiffs to defendants were in a chapter X reorganization, the State courts are totally without power or authority to furnish any relief, no matter what the precedent circumstances, even the most unusual circumstances here disclosed.

I do not doubt that the Federal bankruptcy courts have plenary power to review all fees and .expenses in connection with a reorganization, from whatever sources they may be payable, as the Supreme Court said in Woods v. City Nat. Bank & Trust Co. (312 U. S. 262, 267). The plain intent of the statute, for reasons easy to discover (see 1 Collier on Bankruptcy [14th ed.], § 11.09), is that fee arrangements for services in chapter X proceedings, are to have the scrutiny and approval or disapproval of the Federal district courts sitting in bankruptcy. These plaintiffs, doing what they could to comply with the spirit and intent of that statute, made frank and full disclosure to the bankruptcy court of the agreement sued upon here. The district judge examined that contract and, in his opinion of January 22,1947, made these statements which can be treated as findings of fact (Matter of Pittsburgh Terminal Coal Corp., 69 F. Supp. 656, 657-658):

The court has had no difficulty in determining that the claimants rendered services to the preferred stockholders named in the escrow agreement which were not compensable from the fund distributed by order of the court. Among such services were those rendered in connection with the sinking fund claims, Guttman’s criticism of the Trustee’s sales of machinery and his management of the real estate-, his rent collections and the repair of the debtor’s houses and other property.

“ That'such services to the Preferred Stockholders Committee, at the request of its members, are entitled to a reasonable recompense seems unquestionable if the escrow agreement is to be reasonably .interpreted. As to the method of recompense, however, considerable controversy has arisen.”

After having made those findings to the effect that extra compensation in some amount was due, and having, inferentially, found that the payment thereof would not be inconsistent with the approved reorganization plan or otherwise illegal, the district judge — mistakenly, it seems — went on to hold that (pp. 659-660) he was without present jurisdiction to determine the value of the additional services ” or to “ charge the amount thereof to said stockholders.”

Regardless of the Federal judge’s erroneous views as to his own powers, the events above related show, I think, that the full purpose of the' Federal statute was accomplished, at least under these special circumstances. If we hold that the State courts now have no jurisdiction to grant any relief at all to plaintiffs, on the breach by defendants of the fee agreement on which the Federal judge held that something was due, we are depriving these plaintiffs of their day in court. Since such is not a necessary construction of the Bankruptcy Act provisions, I prefer to hold that the State courts are not' totally without jurisdiction.

On a proper trial the State Supreme Court may construe any doubtful terms of the agreement sued on, may pass on any defense of its invalidity on any asserted ground, and any controversy as to the amount due. Assumption by the State court of jurisdiction of the subject matter, to that extent, will not violate the letter or spirit of the Federal law.

The order should be affirmed, with costs and the certified question answered in the affirmative.

Loughran, Ch. J., Lewis and Fuld, JJ., concur with Thaoher, J.; Desmond, J., dissents in opinion in which Conway and Dye, JJ., concur.

Orders reversed, etc.


source: Caselaw Access Project

author: Desmond, J.

license: Public Domain

text:
    In the Matter of H. P. Hood & Sons, Inc., Appellant, against C. Chester Du Mond, as Commissioner of Agriculture and Markets of the State of New York, Respondent.
    Argued January 9, 1948;
    decided March 11, 1948.

      John B. Titus for appellant.
    I. The commissioner’s order is invalid under the commerce clause, section 8 of article I of the United States Constitution, inasmuch as it denies petitioner the right to purchase milk in interstate commerce. (United States v. Rock Royal Co-op., Inc., 307 U. S. 533; Currin v. Wallace, 306 U. S. 1; Flanagan v. Federal Coal Co., 267 U. S. 222; Shafer v. Farmers Grain Co., 268 U. S. 189; Dahnke-Walker Co. v. Bondurant, 257 U. S. 282; Parker v. Brown, 317 U. S. 341.) II. The effect and purpose of the commissioner’s order are to prohibit interstate commerce. (Baldwin v. G. A. F. Seelig, 294 U. S. 511.) III. A State may not directly prohibit the business of buying commodities for interstate shipment. (Freeman v. Hewit, 329 U S. 249; Dahnke-Walker Co. v. Bon

      durant, 257 U. S. 282; Parker v. Brown, 317 U. S. 341; State of California v. Thompson, 313 U. S. 109; Duckworth v. State of Arkansas, 314 U. S. 390; South Carolina State Highway Dept. v. Barnwell Brothers, 303 U. S. 177; Southern Pacific Co. v. State of Arizona, 325 U. S. 761; United States v. Rock Royal Co-op., Inc., 307 U. S. 533; Mulford v. Smith, 307 U. S. 38; State of Oklahoma v. Kansas Natural Gas Co., 221 U. S. 229; State of Pennsylvania v. State of West Virginia, 262 U. S. 553; Foster Packing Co. v. Haydel, 278 U. S. 1; Baldwin v. G. A. F. Seelig, 294 U. S. 511; People v. Perretta, 253 N. Y. 305; Milk Control Bd. v. Eisenberg Farm Products, 306 U. S. 346.) IV. The order of the commissioner is unconstitutional because it conflicts with existing Federal law regulating interstate commerce in milk. (Quaker Oats Co. v. City of New York, 295 N. Y. 527; Hines v. Davidowitz, 312 U. S. 52; Cloverleaf Butter Co. v. Patterson, 315 U. S. 148; Hill v. State of Florida, 325 U. S. 538; Bethlehem Steel Co. v. New York State Labor Relations Bd., 330 U. S. 767; H. P. Hood & Sons v. United States, 307 U. S. 588; United States v. Rock Royal Co-op., Inc., 307 U. S. 533.) V. The order of the commissioner is unreasonable and is supported neither by the findings nor by the evidence. (Matter of Elite Dairy Products v. Ten Eyck, 271 N. Y. 488; Matter of Dusinberre v. Noyes, 284 N. Y. 304.) VI. There is no basis for the commissioner’s conclusion that the operation of a plant at Greenwich might tend to destroy competition. (Matter of Eisenstein v. Du Mond, 268 App. Div. 320.) VII. The commissioner’s order cannot be sustained on the ground that operation of a plant at Greenwich “ would not be in the public interest.” (Matter of Dusinberre v. Noyes, 263 App. Div. 445; New York Central Securities Co. v. United States, 287 U. S. 12; Federal Radio Comm. v. Nelson Brothers Bond & Mortgage Co., 289 U. S. 266; Matter of International Ry. Co. v. Public Service Comm., 264 App. Div. 506.)

      Bobert G. Bldbey and Donald L. Brush for respondent.
    I. The commissioner has not done and does not threaten to do anything* to interfere with or place an unconstitutional burden on petitioner’s interstate milk shipments. II. The record does not contain the ■ groundwork on which a determination as to whether the commissioner’s denial of permission to build a fourth plant in this State constitutes an unconstitutional burden on petitioner’s interstate milk shipments. (Nippert v. Richmond, 327 U. S. 416; Nelson v. Sears, Roebuck & Co., 312 U. S. 359; Jongebloed v. Erie R. R. Co., 296 N. Y. 912, 296 N. Y. 994; Milk Control Bd. v. Eisenberg Farm Products, 206 U. S. 346; Quaker Oats Co. v. City of New York, 295 N. Y. 527; Nebbia v. New York, 291 U. S. 502; Matter of Elite Dairy Products v. Ten Eyck, 271 N. Y. 488; District of Columbia v.. Brooke, 214 U. S. 138; Camfield v. United States, 167 U. S. 518; People v. Perretta, 253 N. Y. 305; Townsend v. Yeomans, 301 U. S. 441; Lemke v. Farmers Grain Co., 258 U. S. 50.) III. The commissioner’s order does not conflict with Federal jurisdiction. The Federal Government has not invaded the milk licensing field. (Kelly v. State of Washington, 302 U. S. 1.) IV. Petitioner’s position is constitutionally untenable. (Borden’s Farm Products Co. v. Baldwin, 293 U. S. 194; Matter of Crowley ’s Milk Co. v. Ten Eyck, 270 N. Y. 328.)
   Desmond, J.

We granted leave to appeal here, to review a unanimous confirmation by the Appellate Division of a determination of the State Commissioner of Agriculture and Markets. The commissioner had denied the application of petitioner for an extension of its milk dealer’s license issued pursuant to section 257 of the Agriculture and Markets Law. The extension would have permitted petitioner to operate a milk receiving plant at Greenwich, New York, in addition to petitioner’s other similar plants already licensed and operating at Eagle Bridge, Salem and Norfolk, in this State. Eagle Bridge is in Rensselaer County and Salem and Greenwich are in Washington County, Rensselaer County being adjacent to Washington County on the south, and both these counties being on the easterly edge of New York State, bordering on Massachusetts and Vermont. Petitioner’s Norfolk establishment is in St. Lawrence County in another part of New York State, and serves a different area and a different group of milk producers. The present Eagle Bridge and Salem depots, however, are quite close together and the proposed Greenwich plant, for which a license has been refused, is ten miles from Salem and twelve miles from Eagle Bridge. Petitioner’s main contentions on the appeal are: first, that the commissioner’s order is violative of the Commerce Clause of the United States Constitution (art. I, § 8, cl. 3); and second, that the order is not supported by the commissioner’s findings made after the hearings conducted by him, or by the evidence. The two concurring opinions in the Appellate Division both said that the commissioner had acted on adequate proof and appropriate findings. Neither opinion discussed the constitutional point and it was not raised in the petition for review under article 78 of the Civil Practice Act. However, it was argued in petitioner’s brief in the Appellate Division, and so is available to appellant in this court (see Jongebloed v. Erie R. R. Co., 296 N. Y. 912).

Petitioner’s business is wholly interstate in character. It purchases, at its several locations, milk delivered there by farmer-producers, weighs, tests and cools it (if not already cooled), then ships it, the same day, without any processing, to the Boston, Massachusetts, marketing area. Petitioner’s procedures at the proposed Greenwich plant would be exactly the same. It appeared — and the commissioner found — that the new Greenwich plant would to some extent serve the convenience of petitioner and its suppliers. The Eagle Bridge and Salem depots have experienced some difficulty in the past in handling, before the 9:00 a.m. daily deadline for shipment out, the large quantities of milk brought there during the flush season. If the Greenwich facilities were added, petitioner would divert thither, and away from Salem and Eagle Bridge, some 300 cans of milk now arriving daily at Salem and Eagle Bridge, and would allow, but not require, any individual dairy farmer to use the depot nearest his farm. In addition, petitioner hoped, when and if it should go into operation at Greenwich, to take on some twenty to thirty new producers at the new place. Several other milk dealers have plants near Greenwich and some of them have facilities for handling more milk than they are now getting. The commissioner found all these things as facts, and found also that some Troy, New York, retail milk distributors now obtain milk in the area where applicant purchases and that “ the supply of milk for the Troy market during the last short season of October through January was inadequate.” It was the commissioner’s “ conclusion ” that the opening of another milk plant by petitioner and the taking on by it of producers now delivering to other dealers, would tend to reduce the volume at those other dealers’ plants, thus tending to increase milk handling costs there, that there would be a tendency to deprive Troy and other local markets of their milk supply in flush seasons, that all producers now had outlets for their milk, that the licensing of the new Greenwich establishment would tend to destructive competition in an already adequately served market, and would not be in the public interest.

Petitioner’s whole business, present and proposed, is interstate commerce (United States v. Rock Royal Co-op,, Inc., 307 U. S. 533; Milk Control Board v. Eisenberg Farm Products, 306 U. S. 346). A State cannot embargo the importation or exportation of legitimate articles of trade (see City of Buffalo v. Reavey, 37 App. Div. 228) since, if such power existed, to quote the classic language of Oklahoma v. Kansas Natural Gas Co. (221 U. S. 229, 255): Pennsylvania might keep its coal, the Northwest its timber, the mining States their minerals.” The order here attacked is of course not a direct prohibition of such exports, nor a prohibition in form, but petitioner insists that it is a prohibited interference with interstate commerce, since, according to petitioner, it ‘ ‘ by its necessary operation prevents, obstructs or burdens such transmission ” (Pennsylvania v. West Virginia, 262 U. S. 553, 596-597; see People v. Cunard White Star, Ltd., 280 N. Y. 413). Similar attacks were made in Milk Control Board v. Eisenberg Farm Products (supra) on the enforcement, against milk bought for interstate shipment, of a Pennsylvania statute requiring that milk dealers like this petitioner, obtain State licenses, file surety bonds and pay to producers at least the minimum price fixed by the Pennsylvania Milk Control Board. The Supreme Court, by Justice Roberts, said (p. 352) that the real question was whether the prescription of prices fixed in an effort to control local conditions in the milk business, constitutes a prohibited burden on interstate commerce, or an incidental burden which is permissible until superseded by Congressional enactment.” Describing the Eisenberg Company’s purchase of milk at its receiving stations in Pennsylvania as a “ local business ” and “ essentially local in Pennsylvania ”, the Supreme Court .pointed out that the receiver’s transaction with the farmer was completed when the price was paid and that the receiver thereafter engaged “ in conserving and transporting its own property.” Distinguishing a number of earlier cases, the Eisenberg decision held that in licensing these dealers and fixing their prices, Pennsylvania did not “ essay to regulate or to restrain the shipment of the respondent’s milk into Hew York or to regulate its sale or the price at which respondent may sell it in Hew York.” We say the same as to the action of the Hew York commissioner (respondent here) in dealing with an essentially local situation. Petitioner, under its present, unenlarged license, may still buy, at its Eagle Bridge, Salem and Horfolk locations, as much milk as it can get, and may send it where it will. Petitioner proved that an additional location would serve the convenience of some of the dairymen and of itself. The commissioner, however, found that the producers were adequately served by existing facilities, and that petitioner’s proposed new branch would have a tendency to draw customers and milk away from local markets, and set up undesirable competition between petitioner and other dealers. That was the kind of local milk situation with which the State is authorized to deal (Nebbia v. New York, 291 U. S. 502) and any interference with the free flow of interstate commerce was incidental only. It may be remarked that there is here no showing as to how much Hew York milk is exported across the State line. Absent such a showing, we cannot tell what proportion such interstate shipments bear to the whole of the production as to which the State licensing statute operates. In the Eisenberg case, where it was shown that only a small fraction of the milk produced in Pennsylvania went out of the State, the court found that to be another reason why “ the effect of the law on interstate commerce is incidental and not forbidden by the Constitution, in the absence of regulation by Congress ” (306 U. S. at p. 353). Hew York’s activity, it seems to us, is within the residuum of power in the state to make laws governing matters of local concern which nevertheless in some measure affect interstate commerce or even, to some extent, regulate it ” (see Southern Pacific Co. v. Arizona, 325 U. S. 761, 767). Petitioner’s answer to all this is that the determination here does not regulate, but in fact prohibits. As wé see it, there is neither form nor substance of prohibition, only permissible regulation of local business.

Petitioner argues, further, that the commissioner’s order here under attack,’ conflicts with Federal milk order No. 4 issued pursuant to the Agricultural Marketing Agreement Act of 1937 (U. S. Code, tit. 7, § 671 et seq.) which order regulates the handling, price, etc., of milk sold in interstate commerce in the Boston area and which Federal order is valid as to this petitioner and its business (see Hood & Sons v. United States, 307 U. S. 588). We see no conflict between the Federal control set up by order No. 4 and the local' licensing of dealers, here under scrutiny. If the New York licensing laws conflict with Federal order No. 4, then the Pennsylvania licensing held valid in the Eisenberg case (sufra), was equally inconsistent with the Secretary of Agriculture’s so-called “ New York Price Order ”, or order No. 27, effective September 1, 1938, similar to the Boston order No. 4 and called to the Supreme Court’s attention in the briefs in the Eisenberg case which was decided in February, 1939.

Petitioner’s final attack on the commissioner’s determination assails it as unreasonable and unsupported by any evidence. The Agriculture and Markets Law (§ 258-e) forbids the issuance of such a license ‘1 unless the commissioner is satisfied * * *

that the issuance of the license will not tend to a destructive competition in a market already adequately served, and that the issuance of the license is in the public interest.” The commissioner, as hereinabove noted, found, in petitioner’s proposal, a tendency to destructive competition in an adequately served market, and that the public interest would not be served thereby. There was a basis for those findings, and we could not oppose any contrary views of ours, if we had any, to that of the State officer commissioned to make such decisions.

The order should be affirmed, with costs.

Lotjghrau, Ch. J., Lewis, Couway, Thacher, Dye and Fuld, JJ., concur.

Order affirmed.


author: Fuld, J.

text:
    Frank P. Filardo, Appellant, v. Foley Bros., Inc., et al., Respondents.
    Argued November 17, 1947;
    decided March 11, 1948.

      Chester A. Lessler for appellant.
    1. Plaintiff has a right of action against defendants for overtime pay and may sue for the same. (United States v. Martin, 94 U. S. 400; United States v. Post, 148 U. S. 125; Coleman v. United, States, 81 F. 824; Timmonds v. United States, 84 F. 933; United States v. Moses, 126 F. 58; Lawrence v. Fox, 20 N. Y. 268; Seaver v. Ransom, 224 N. Y. 233; Strong v. American Fence Constr. Co., 245 N. Y. 48; Pond v. New Rochelle Water Co., 183 N. Y. 330; Wilson v. Costich Co., 231 App. Div. 346; Gulla v. Barton, 164 App. Div. 293.) II. The statute applies extraterritorially on public contracts outside the territorial limits of the United States and its possessions. (1905 Atty. Gen. 441.)

      John F. X. McGohey, United States Attorney for Southern District of New York (Harold J. Raby of counsel), for respondents.
    I. No cause of action is stated under title 40, sections 321 through 326, of the United States Code. (United States v. Martin, 94 U. S. 400; Timmonds v. United States, 84 F. 933; Coleman v. United States, 81 F. 824; United States v. Moses, 126 F. 58; Swisher v. United States, 57 Ct. of Claims 123; Greenstein v. Pan American Airways, 185 Misc. 429.) II. Plaintiff cannot recover as a beneficiary of the prime contract under the rule of Lawrence v. Fox. (Greenstein v. Pan American Airways, 185 Misc. 429.) III. The Eight-Hour Law has no extraterritorial application.
   Fuld, J.

In 1941, defendants entered into a cost-plus contract with the United States Government to construct roads, buildings and bases in the Near East in connection with our military effort. By a clause in that contract, defendants agreed to obey and abide by all applicable laws * * * of the United States.” In effect at that time was the Federal Eight-Hour Law (U. S. Code, tit. 40, §§ 321-326), which, in general, after prohibiting work by laborers on government jobs in excess of eight hours a day (§§ 324, 325), went on to provide that such overtime work was to be “ permitted upon compensation ” for all hours over eight at not less than one and one-half times the employee’s basic rate of pay (§§ 325a, 326).

Some months after the execution of their agreement with the government, defendants, by a contract made in this country, hired plaintiff, a citizen of the United States, as a cook, at a wage of $60 a week, on their jobs in Iran and Iraq. Plaintiff went to those countries and there, for seventy-four weeks, during 1942 and 1943, labored frequently for more than eight hours a day. He requested payment for the overtime hours and, when his demands were rejected, brought this action, asserting that he was entitled to overtime pay at the rate specified in the Eight-Hour Law.

The jury found that plaintiff had worked 1,172 overtime hours and returned a verdict of $2,492.36, with interest. The Appellate Division reversed the judgment and dismissed the complaint upon the ground that the Federal statute did not give an employee the right to recover compensation for work in excess of eight hours a day even though it proscribed a work day longer than eight hours and rendered employers liable to criminal prosecution if that limit were exceeded. With that determination we disagree; in our opinion, plaintiff — whose status as a “ laborer ” within the compass of the statute is not challenged — may recover either upon a cause of action afforded by the Eight-Hour Law or as a third party beneficiary of the primary contract between defendants and the Federal Government.

Since both of plaintiff’s grounds for recovery turn upon the language and purpose of the Eight-Hour Law, it will be useful at the outset to examine its history. It evolved from a statute, first enacted in 1868, which merely declared “ That eight hours shall constitute a day’s work for all laborers, workmen, and mechanics now employed, or who may be hereafter employed, by or on behalf of the government of the United States ” (15 U. S. Stat. 77, eh. 72). As re-enacted in 1892 (27 U. S. Stat. 340, ch. 352), the statute added a criminal sanction, making it a misdemeanor for any agent or officer of the government or any government contractor intentionally to violate the eight-hour limit (present § 322). Amendments in 1912 supplied provisions which today appear as sections 324 and 325 of title 40 of the United States Code. As noted above, in effect they demanded that, with certain specified exceptions, every contract for public works, made by or for the United States, contain a provision that no laborer or mechanic be required or permitted to work more than eight hours a day and that every such contract ” contain a stipulation for a penalty of $5 a day in case the eight-hour limit be violated (§ 324). In emergencies, however, an employer was privileged to have men work beyond that limit without incurring penalties (§ 325). In 1917, our entrance in the first World War impending, Congress voted the President powers to suspend the eight-hour limit on work covered by government contracts in case of national emergency ”, “ Provided ” that premium pay at not less than one and one-half times the regular rate was given employees who worked longer than the basic eight-hour day upon such contracts (39 U. S. Stat. 1192, ch. 180), and those powers are continued in section 326 of the present statute.

Ip June, 1940 — after the outbreak of the second World War — when it once again became necessary to accelerate production and expedite defense activities, Congress suspended the eight-hour limitation in defense work (U. S. Code, tit. 50, Appendix, § 1155, subd. [b]). A few months later, in September, 1940, the suspending legislation was superseded by the enactment of section 325a (U. S. Code, tit. 40, § 325a), and it is upon its construction that decision herein primarily depends. The new provision explicitly recited that “ work in excess of eight hours per day shall be permitted upon compensation for all hours worked in excess of eight hours per day at not less than one and one-half times the basic rate of pay.” With that amendment, the Eight-Hour Law assumed its present content. A government contractor was again subject to prosecution for a misdemeanor (§ 322) and to payment of liquidated penalties of $5 a day (§ 324) if he employed laborers for longer than eight hours a day.

While the statute does not in so many words grant to the employee a cause of action if such compensation is not received, it is settled that such remedial legislation is to be given a liberal construction to effectuate its purpose and aim. (See National Labor Relations Bd. v. Hearst Publications, 322 U. S. 111, 129; South Chicago Coal & Dock Co. v. Bassett, 309 U. S. 251, 259-260; Warner v. Goltra, 293 U. S. 155, 158; Walling v. Patton-Tulley Transp. Co., 134 F. 2d 945.) The statute in terms provides that overtime work was to be permitted “ upon compensation ” at not less than time and one-half for such overtime. (Emphasis supplied.) Manifestly, that language must be read as an affirmative direction that compensation for overtime work shall be paid and may be collected whenever the hours of work exceed the statutory limit. Any doubt on this score is dispelled when one glances at the language of section 326 — not here involved — which applies when the President suspends the operation of the eight-hour limit; it permits such suspension “ Provided, That the wages of persons employed upon such contracts shall be computed on a basic day rate of eight hours work, with overtime rates to be paid for at not less than time and one-half ”. That is plainly a mandate to pay extra compensation for overtime work during the period of the law’s suspension and, since Congress could not have intended to deny overtime pay for work performed during the time the law is in éffect, while granting it when it is suspended, both sections — 325a and 326 — should be read alike. So read, the statute differs little from the Letter Carriers Act (25 U. S. Stat. 157, ch. 308), which has been interpreted to bestow a right to sue upon employees within its coverage. (See United States v. Post, 148 U. S. 124.)

There can be little question that the statute was passed for the benefit and protection of the laborer and, in such a case, a party who has suffered from a disregard and violation of the duty [imposed by statute] has a cause of action for his damages against the one who has disregarded his duty ”, even though the statute does not explicitly provide for such a remedy. (Abounader v. Strohmeyer & Arpe Co., 243 N. Y. 458, 465; see, also, Bruce’s Juices v. American Can Co., 330 U. S. 743, 751; D’Oench, Duhme & Co. v. Federal Deposit Ins. Corp., 315 U. S. 447, 456-458.) With the beneficial purposes of the statute so manifest, if plaintiff may not sue to enforce it, the benefits accorded would indeed be empty and illusory. He would find himself in the position of having been given a benefit he is . unable to enjoy, a right he is helpless to enforce.

'I Analogously, State minimum wage laws have been interpreted to permit suit by an aggrieved employee to recover the wages therein specified, though the statute merely made payment at less than the specified rate criminally punishable and did not expressly grant a right of civil action. (See McNulty v. City of New York, 238 N. Y. 29; City of Phoenix v. Drinkwater, 46 Ariz. 470; cf. Austin v. City of New York, 258 N. Y. 113; Campbell v. City of New York, 128 Misc. 382.) In the Drinkwater case (supra, p. 474), the Arizona court, observing that in determining the meaning of a statute, courts must consider “ both the evil to be remedied and the'result which the legislature desires to reach ”, went on to say (p. 475): “ The statute, it will be seen, has a two-fold purpose. One is to secure to the individual workman a minimum living wage, fixed by law, and the other is to penalize the employer who fails to pay that wage. With both purposes before us, we certainly think that it would be defeating the intent of the legislature, so far as the first is concerned, if we were to hold that the very ones whom the law was intended to protect were helpless to secure that protection, and must satisfy themselves with knowing that somebody had gone to jail or paid a fine for violating the law. Such would, indeed, be a Pyrrhic victory for the workman, consoling perhaps to his feelings, but of very little value in giving to him what the law says he has earned and is due him.” And so here. If we recognize — as we believe we must — that the Eight-Hour Law sought to elevate labor standards in employment on public works by requiring the employer to pay extra compensation for hours in excess of eight (see Walling v. Patton-Tulley Transp. Co., supra, p. 949), it would be both unreasonable and unjust to say that that laborer has no claim for such overtime pay. We conclude that such could not have been the legislative purpose.

Nor do we deem it of controlling significance that this statute is silent, while another, the Fair Labor Standards Act of 1938 (U. S. Code, tit. 29, § 216, subd. [b]), is explicit in declaring that employers who violate that act — in not paying the prescribed minimum wage or overtime compensation — shall be civilly liable to the injured employees. That act entitles the employee not only to damages suffered — the specified minimum wage or overtime pay — but also to an additional sum as liquidated damages. Obviously, in such a case, the employee would be in no position to claim such double damages without explicit statutory authorization.

It is urged that the interpretation which we place on the Eight-Hour Law is precluded by United States v. Martin (94 U. S. 400). Decision in that case, and in the others which followed it, was rendered at a time when the statute simply announced a desirable work standard and made no mention of overtime compensation. The addition — in 1940 — of the provision for further compensation at a prescribed minimum rate for work in excess of eight hours a day makes it abundantly clear that the statute is now designed to do more than merely declare a desirable policy. If, as contended, the specification of extra pay for overtime was intended only to relieve employers from criminal penalties imposed by other sections for demanding or permitting such work, enactment of section 325a, requiring premium pay for overtime, would have been unnecessary and superfluous. A few months ■ earlier Congress had suspended the operation of the Eight-Hour Law as to all persons employed on work for the armed forces (U. S. Code, tit. 50, Appendix, § 1155, subd. [b]) — undoubtedly embracing the vast'majority of government contractors. As to them, the suspension of the law was effective relief from criminal or other penalties for overtime work, and other employers could have been relieved simply by making the provision more inclusive. That being so, the measure actually enacted — restoring the eight-hour day as the basis for computing wages of workmen on government jobs and permitting longer hours “ upon compensation ” for overtime — demonstrates that Congress was intent not only upon relieving employers of penalties, but upon securing extra pay to laborers for longer hours of work.

The fact that plaintiff worked abroad presents no obstacle to his recovery. The Eight-Hour Law involves a subject matter in which the United' States is vitally concerned —- work standards on its own public works and projects. Unquestionably, Congress had the power in such cases to prescribe hours of work and rates of pay and to insist that such standards be observed regardless of where the work is to be performed (see 25 U. S. Atty. Gen. [1905], p. 441). By its terms, the statute embraces “ Every contract made to which the United States * * * is a party, and every such contract made for or on behalf of the United States ” (§ 324). (Emphasis supplied.) Words of such inclusive reach cannot properly be read to exclude contracts for government jobs abroad. (See Executive Order No. 8623, Code of Fed. Beg., Cum. Supp., tit. 3, p. 850, wherein the President took a similar view; cf. Connell v. Vermilya-Brown Co., 164 F. 2d 924.) Insofar as the civil aspects of the statute are concerned — and we consider no other — it clearly applies to such work, at least when performed by United States citizens under a contract of employment entered into in this country, and, so applied, we see no constitutional objection to its enforcement. In much the same maimer, obligations imposed by the workmen’s compensation and liability insurance laws of one State are held en^orcible even though the accident occurs in another State. (See, e.g., Matter of Post v. Burger & Gohlke, 216 N. Y. 544, 549; Industrial Comm. v. McCartin, 330 U. S. 622, 626; Alaska Packers Assn. v. Industrial Accident Comm., 294 U. S. 532, 542-543; cf. Levy v. Daniel's U-Drive Auto Renting Co., 108 Conn. 333.)

In any event — and quite apart from the cause of action given by the statute — plaintiff clearly has a right to sue on the basis of the contract between defendants and the Federal Government. By (‘ principles of general contract law” — here controlling since we are concerned with the construction of a contract of the Federal Government (see Priebe & Sons v. United States, 332 U. S. 407, 411; see, also, United States v. Standard Rice Co., 323 U. S. 106, 111) — as well as by the law of New York, suit on a contract may be maintained by a third party beneficiary. (See German Alliance Ins. Co. v. Home Water Co., 226 U. S. 220, 230; Robins Dry Dock & Repair Co. v. Flint, 275 U. S. 303, 307; United States v. Morley Constr. Co., 98 F. 2d 781, 789; see, also, 2 Williston on Contracts [Rev. ed.], § 357, p. 1049; Restatement, Contracts, § 133, subd. [1], par. [a]; § 145, subd. [a] ; Lawrence v. Fox, 20 N. Y. 268; Seaver v. Ransom. 224 N. Y. 233.) In this case, as noted above, defendants, by their contract with the government, expressly agreed to “ obey and abide by all applicable laws * * * of the United States ”, and that, of course, included the Eight-Hour Law. In our view, that agreement, when related to the statute, was, in effect, a promise to pay extra compensation for overtime work, and entitled an aggrieved laborer or mechanic to enforce that promise as a third party beneficiary. (See United States v. Morley Constr. Co., supra, p. 789; Crabb v. Welden Bros., 65 F. Supp. 369, 377; see, also, Seaver v. Ransom, supra, p. 238; Fata v. Healy Co., 289 N. Y. 401; Strong v. American Fence Constr. Co., 245 N. Y. 48; Novosk v. Reznick, 323 Ill. App. 544.)

The determination of the Appellate Division dismissing the complaint was erroneous and must be reversed. Since, however, the Appellate Division reversed the judgment of the Trial Term on the law alone, the Civil Practice Act compels us (1) to presume that the Appellate Division did not consider any questions of fact in the case (§ 602), and, upon reversing, (2) to remit the case to the Appellate Division for determination upon any questions of fact raised in that court (§ 606). Such a remission is here required because a question of fact, disputed at the trial, as to the number of overtime hours that plaintiff worked, may have been raised on the appeal in the Appellate Division.

The judgment of the Appellate Division should be reversed, and the case remitted to the Appellate Division for determination upon the questions of fact, if any, raised in that court, with costs in this court and in the Appellate Division to abide the event.

Loughran, Ch. J., Lewis, Conway, Desmond, Thacheb and Dye, JJ., concur.

Judgment reversed, etc.


author: Desmond, J. Lewis, J.

text:
    The People of the State of New York, Respondent, v. John Valletutti, Appellant.
    Argued November 20, 1947;
    decided March 11, 1948.

      Harry G. Anderson, Edward H. Levine and Victor L. Anfuso for appellant.
    I. The only reasonable conclusion from all the testimony is that defendant’s alleged confession was obtained by unlawful methods. The trial court should therefore have excluded the confession. (People v. Doran, 246 N. Y. 409; People v. Barbato, 254 N. Y. 170; People v. Weiner, 248 N. Y. 118; People v. Rogers, 13 Abb. Prac. [N. S.] 370; People v. Mummiani, 258 N. Y. 394; People v. Alex, 260 N. Y. 425.) IT. The trial court in its charge committed reversible error in limiting the effect of the proof with respect to the prolonged detention of the defendant prior to the taking of the alleged confession. (People v. Alex, 265 N. Y. 192; People v. Elmore, 277 N. Y. 397.) III. It was reversible error for the trial court to state in the presence of the jury that it would admit the defendant ?s confession in evidence before any testimony had been received refuting the defendant’s testimony that the confession had been obtained by force and violence.

      Miles F. McDonald, District Attorney {Solomon A. Klein of counsel), for respondent.
    I. The confession was not involuntary as a matter of law. A substantial question of fact was presented which was properly submitted for the jury’s determination. (People v. Doran, 246 N. Y. 409; People v. Weiner, 248 N. Y. 118; People v. Barbato, 254 N. Y. 170; People v. Mummiani, 258 N. Y. 394; People v. Malinski, 292 N. Y. 360, 324 U. S. 401; Lisenba v. State of California, 314 U. S. 219; People v. Mummiani, 258 N. Y. 394; People v. Alex, 265 N. Y. 192; People v. Trybus, 219 N. Y. 18; People v. Randazzio, 194 N. Y. 147.) II. The trial court’s charge with respect to the effect of unnecessary and illegal delay in arraignment was not erroneous. (People v. Doran, 246 N. Y. 409; People v. Mummiani, 258 N. Y. 394; People v. Alex, 265 N. Y. 192.)
   Desmond, J.

Early on the morning of October 11, 1945, two men attempted to hold up a Brooklyn tavern. One of the patrons resisted, and was shot and killed.

On December 7,1946, this defendant, then nineteen years old*, was released from confinement at Coxsackie reformatory for another offense, and was taken into custody at the reformatory by two New York City patrolmen. Handcuffed, he was driven to Brooklyn in the officers’ automobile. Questioned during the ride as to his alleged complicity in the barroom killing, he denied guilt or knowledge. In January, 1946, and again in March of that year, while in the reformatory, he had been interviewed at length by an assistant district attorney of Kings County as to this same holdup and homicide, but had asserted his complete innocence.

Defendant and the policeman arrived at a Brooklyn police station on the afternoon of December 7th, and later in the evening defendant was taken to a different police station. At about four o’clock on the morning of December 8th, after he had been questioned, off and on, for eight hours or more by various policemen, and after he had been in police custody for about thirty hours, defendant told the officers that he had been one of the two holdup men. An assistant county prosecutor and a stenographer were then sent for, and a formal confession taken down. That confession was the only evidence of guilt offered against defendant at the trial. On it defendant was found by the jury to be guilty of felony murder, and by the court sentenced to die, although the jury had in its verdict recommended life imprisonment. None of the several people who were in the bar at the time of the killing were called to testify, except the proprietor who could not describe the holdup man. No one identified defendant as one of the culprits, and no one saw him at or near the place that night. It is patent that, unless the confession was shown to have been, beyond reasonable doubt,, a voluntary and reliable one, the conviction must fall.

It is undisputed that during the long hours of questioning by the police, defendant asked for, and was refused, permission to notify his parents or to use the telephone. Defendant on the trial swore that he was brutually and continuously assaulted by the policemen until he could resist no more, and then made the admission of guilt. That admission, swore defendant, was wholly untrue and forced from him by kicks and punches. The ; officers denied that they had mistreated defendant, the assistant : district attorney showed that defendant did not complain to him of any beatings, and it appeared that no such complaint was voiced by defendant at the preliminary hearing before the magistrate, or on his admission to the city prison. However, it plainly appears that defendant did somehow sustain substantial physical injuries while in close custody of public officials. A jail record establishes that on December 10, 1946, defendant was examined by a jail physician whose written report says that he found “ contusions of left, anterior lower chest wall and numerous small bruises of scalp.” Those wounds were such as could have been caused by blows. No effort was made by the prosecution to show (aside from the denials by the policeman of any violence) how or where these injuries were in fact inflicted, nor did the prosecution call as ,a witness the physician who made the entry in the jail- records. This court said in People v. Barbato (254 N. Y. 170,176): “ The District Attorney on this evidence was called on to account for the defendant’s condition.” A similar duty was on the People in this case, and no sufficient accounting is in the present record.

Despite section 165 of the Code of Criminal Procedure, defendant was not arraigned in court until the morning of December 9th, forty-eight hours after the police officers had taken him from Coxsackie.

It is not claimed that defendant was the robber who actually fired the shots. The killer was William Cronholm who, after a separate trial, had been convicted of the crime in June, 1946. Cronholm appeared as a defense witness on the trial of this defendant and swore that defendant had nothing to do with this crime. Cronholm, arrested several months after the killing, had confessed to the police that he was the killer. Then, pressed by the police to name his associate, he had named this defendant. On the trial Cronholm insisted that he had so inculpated this defendant because he (Cronholm) did not know the full name of the man who was with him in the holdup, and because he was afraid to tell that to the police, lest they, disbelieving him, should continue to beat him. Cronholm told this jury that he had expected defendant would be able to establish an alibi, since, he said, defendant was not implicated in the holdup at all.

Although defendant, when first suspected of this crime, had denied even seeing Cronholm that night, he testified on the trial that he had met Cronholm and a woman friend of the latter at another barroom some hours before the holdup. Defendant, as well as Cronholm and the latter’s woman friend, said that Cronholm and the woman left that other tavern hours before this crime, and that defendant did not leave with them. A bartender and another woman testified that defendant stayed in that other barroom until closing time (four o’clock in the morning) and then walked home with the woman witness.

Admissions, freely and voluntarily made by a person charged with a crime, are not only acceptable, but convincing evidence of his guilt. But an involuntary “ confession ”, is, by its very nature, evidence of nothing. Common sense and simple justice have put into our Code of Criminal Procedure, section 395, which forbids the reception of a confession “ made under the influence of fear produced by threats ”. Application of that statute is frequently difficult. Many a criminal record which comes to us contains a confession, and conflicting testimony as to whether or not the confession was extorted from the defendant. If there is a fair question of fact as to this, the jury’s verdict is not interfered with. But a confession is not proof at all unless it be a free act. This court must see to it that a reasonable doubt on this score is resolved in favor of a defendant, and, in capital cases, we are commanded also to deal with the weight of evidence (People v. Crum, 272 N. Y. 348, 350). In most cases where police brutality in obtaining a confession is charged and denied, there are no separate criteria for settling the dispute. Then, though sometimes with reluctance and suspicion, we are bound to affirm (see Pound, J., in People v. Barbato, supra, 254 N. Y. at p. 173). But in the case before us we have, unexplained by the People, wounds obviously suffered while in custody and reasonably ascribable to the alleged assaults. Add that undisputed fact to these other undisputed facts: that defendant stoutly avowed his innocence when under the protection of reformatory officials, that he was held incommunicado by the police for twenty hours before he said he was guilty, that his arraignment was illegally delayed, that he was nineteen years old, that he was forbidden to eominunieate with parents, friends or counsel, that there is, outside this confession, no scintilla of proof of his guilt, and that the killer took the stand to say that this man was not his confederate. On the whole case, we must come to the same conclusion as did this court in People v. Barboto (supra, 254 N. Y. at p. 177): “ * * * on the weight of evidence the physical facts corroborate defendant’s statement that injuries were inflicted by the police officers to procure a confession.”

Explaining the rule of justice and decency which excludes involuntary confessions, this court said in an early case: “ The principle upon which this rule is based is obvious. It is, that we cannot safely judge of the relation between the motives and the declarations of the accused, when to the natural ágitation consequent upon being charged with crime is superadded the disturbance produced by hopes or fears artificially excited. It is because it is in its nature unreliable, and not on account of any impropriety in the manner of obtaining it, that the evidence is excluded ” (People v. McMahon, 15 N. Y. 384, 386). The rule was .clearly stated in England as long ago as 1783, in WarichshalVs case (1 Leach [4th ed.] 263, 264), as follows: “ It is a mistaken notion, that the evidence of confessions and facts which have been obtained from prisoners by promises or threats, is to be rejected from a regard to public faith; no such rule ever prevailed. * * * Confessions are received in evidence, or rejected as inadmissible, under a consideration whether they are or are not entitled to credit. A free and voluntary confession is deserving of the highest credit, because it is presumed to flow from the strongest sense of guilt, and therefore it is admitted as proof of the crime to which it refers; but a confession forced from the mind by the flattery of hope, or by the torture of fear, comes in so questionable a shape when it is to be considered as the evidence of guilt, that no credit ought to be given to it; and therefore it is rejected.”

If we examine this record in the spirit of the settled rule, if we give any real effect to section 395 of the Code of Criminal Procedure, we cannot allow the use of this confession, on this record. Obviously, we cannot first use it in weighing this man’s guilt, then move on to an examination of its trustworthiness and admissibility (see Bram v. United States, 168 U. S. 532, 541). “ Whether true or false, confessions obtained in violation of section 395 of the Code of Criminal Procedure are not sufficient to sustain a conviction ” (People v. Barbato, supra, 254 N. Y. at p. 174).

Our decision that the reliability of the confession, and consequently, the guilt of defendant, were not proven beyond a reasonable doubt, makes unnecessary any inquiry into the alleged violation of defendant’s rights under the Federal Constitution (see Malinski v. State of New York, 324 U. S. 401, and Haley v. State of Ohio, 332 U. S. 596).

The conclusions stated herein may seem logically to lead to a dismissal of the indictment as well as a reversal of the judgment. However, it is the usual practice of this court to order a new trial in such situations. The judgment of conviction should be reversed and a new trial ordered.

Lewis, J.

(dissenting). In this capital case the decision reached by a majority of the court rests chiefly upon their conclusion that a proper application of section 395 of the Code of Criminal Procedure to the record at hand dictates, as a matter of law, the rejection of the defendant’s confession as evidence of his guilt. I cannot reconcile that conclusion with the principle— firmly established and often applied by this court — that “ if there is no conflict in the evidence with reference to threats, the question of the admission of confessions is for the court, but if there is a conflict the question ultimately is for the jury.” (People v. Randazzio, 194 N. Y. 147, 156.) Another statement of the rule —which has peculiar application to the record before us — was made by Judge Pound writing for the court in People v. Barbato (254 N. Y. 170, 173): “When the evidence of the People meets the evidence of the defendant as oath against oath, with no corroboration on either side, a fair question of credibility is presented for the jury to decide.” (See, also, People v. Doran, 246 N. Y. 409, 416-417; People v. Weiner, 248 N. Y. 118, 122; People v. Nunziato, 233 N. Y. 394; People v. Schermerhorn, 203 N. Y. 57, 71.)

Within, the rule stated above our problem comes to this — Is this a case where there is no conflict in the evidence as to the circumstances which the defendant claims made his confession involuntary? Or does the People’s evidence — descriptive of conditions under which that confession was given — “ meet the evidence of the defendant as oath against oath ” to produce a factual conflict and thus present a question of credibility which can be resolved only by the triers of the facts?

In an effort to support the defendant’s repudiation of his confession — which was then the subject of inquiry as to whether it was made under the influence of fear produced by threats — it was contended in his behalf that he had been subjected to brutal beatings which induced him involuntarily to admit his guilt. To that end the defendant testified that after his arrival at the police precinct station in Brooklyn at about two-thirty in the afternoon of Saturday, December 7, 1946, he was taken to a small room where for a period of about three quarters of an hour he was questioned by Detective Kabelka and a police lieutenant. During all that time he denied his guilt. Then followed a period of questioning when, according to his testimony, Detective Kabelka “.got violent ” and, in the presence of a police lieutenant, struck the defendant in the stomach and the face, grabbed him by the hair, threw him off his chair and hit him on the neck with his clenched fist. It was the defendant’s testimony that he was beaten about one hundred times by Detective Kabelka and the police lieutenant, and was thrown against the wall with such force as to cause him to fall to the floor in a semiconscious condition; that when he attempted to rise he was kicked and rendered completely unconscious. Upon regaining consciousness, he was again slapped in the face and the threat was made that such treatment would continue all night. As a result of these alleged acts of violence the defendant testified that there was a welt ” on the side of his face, his ‘ ‘ head was all bleeding * * * from where they pulled the hair out ” and that there was bunches [of hair] on the floor.” Finally, according to the defendant, at three-thirty on Sunday morning (December 8th) — the date being important — he told Detective Kabelka he could stand no more and that he would sign anything the detective wanted.

With the picture in mind which the defendant gave as descriptive of his blood-soaked scalp, his welted face and his general dishevelment — all of which he claims resulted from violent treatment administered to him to induce his admission of guilt — we turn to the testimony of the assistant district attorney who arrived at that hour, about four o’clock on Sunday morning (December 8th), to take whatever confession the defendant was to make. Incidentally it may well be noted that the honesty of the assistant district attorney who took the confession was the subject of an encomium placed upon the record by counsel for the defendant and concurred in by the Trial Judge, and his conduct during his taking of the confession was commended by the defendant himself.

The assistant district attorney testified that at that early Sunday morning hour — which was within an hour after the long period of violent assaults to which the defendant claims he was subjected — the defendant’s appearance was 11 normal ”, he bore no marks, redness, swellings or bruises on his face, neck, head or hands and there were no signs of blood upon him. Indeed, the assistant district attorney stated under oath that his appearance then was “ no different ” than his appearance at the trial. The defendant made no complaints at that time and when asked by the assistant district attorney whether he had been “ treated fairly by the police! ” — he answered “ Yes, sir ” — when asked Do you have any complaints to make? ” — he answered “ No, sir ”.

In addition to the testimony by the assistant district attorney — which, it is important to note is in direct conflict with the defendant’s description of his battered condition at that hour — the People called as witnesses every person who had been accused by the defendant of threatening him or of making-violent assaults upon him. In each instance the witness denied the accusation categorically.

I find it difficult to conceive of a more direct evidentiary conflict than is disclosed by this record between the testimony of the defendant bearing upon alleged maltreatment designed to induce his admission of guilt, and the testimony of the People’s witnesses on the subject of that same confession.

True it is that on December 10th, more than a day and one half after his confession and more than a day after he was arraigned and had been removed from the custody of the police to Raymond Street jail where he was in the custody of the Department of Correction (see New York City Charter, ch. 25, § 623, subd. 2; Administrative Code of City of New York, ch. 25), he then complained of headache and a pain in his side for which the jail physician prescribed aspirin. The jail record contains the notation that at that time he had contusions on the left anterior chest wall and numerous small bruises of the scalp. But it is to be noted that the bruises and contusions last mentioned above were first brought to the attention of those in charge at Bay-. mond Street jail a substantial length of time after he had confessed and had been withdrawn from police custody for lodgment in that jail. In that connection there is evidence that he had made no complaint as to his physical condition on Monday morning, December 9th, when he was arraigned before a magistrate. There is also evidence that the court record made at the time of his arraignment — which record accompanied the defendant to the Baymond Street jail — bore the notation condition good ”. When the time came — immediately after his arraignment — for him to be transferred from police custody to the custody of the Department of Correction functioning at Baymond Street jail, he was asked by the admittance clerk, in accord with regulations, whether he had “ any cuts or bruises or any diseases ” or did he wish to see a doctor for any reason. To that inquiry he responded that he had “ no complaints.”

The majority opinion suggests that upon the trial it was incumbent upon the District Attorney to account for contusions and bruises which the defendant claims were inflicted by the police but which concededly he did not disclose until he had been lodged in Baymond Street jail for a period of more than a day after his confession was taken. That obligation was fulfilled by the District Attorney when, after the defendant had testified, the People called to the witness stand not only every police officer whom the defendant had accused as his assailant — each of whom categorically denied the accusation — but also the assistant district attorney to whom the defendant had expressly exonerated the police of unfair treatment and ,who testified that at the time he took the defendant’s confession the defendant looked no different ” than he did as he sat in the ' court at the time of his trial.

There is a significant difference between the facts in the present cáse and those which led to the decision in People v. Weiner (supra), where the evidence established that the defendant had a mark on his cheek and that his shirt and tie bore blood spots immediately after the police had questioned him. The present case also differs on its facts from People v. Barboto {supra) in which the proof showed that defendant had a, blackened eye when arraigned and — as disclosed by a doctor’s examination on the day following — swellings and black and blue spots on his body, back as well as front. In the case at bar, as already stated, the first information that the defendant had bruises, which were only on his chest and head — parts of the body defendant himself could easily have reached — came after his confession and arraignment and after he had been in jail for almost two days. If — as is not at all unlikely — the injuries were self-inflicted, the prosecution had only one method whereby it could dispute defendant’s claim that he had been beaten by the police, and that was the method which it pursued by calling to the witness stand every official and every other person who had seen or spoken to defendant during the time that he was being questioned and until the moment of his arraignment and confinement in jail, each of whom denied either that he had threatened or beaten defendant or had seen or heard any evidence of threat or violence. I am at a- loss to perceive what more the State could have done in this case where the injuries might well have been inflicted by the defendant himself.

Subscribing, as I do, in full measure to the majority’s jealous insistence upon fair play by police officers in obtaining confessions, I still believe that, when the State — put to its proof to justify a confession as voluntary — has discharged that burden in the only way it could, by the sworn testimony of every person connected with the matter, and when the jury has accepted and credited that testimony, it goes too far, in the circumstances here presented, to say that the testimony should be cast out as unbelievable.

The conclusion I have reached was also influenced by the fact that the defendant’s confession was largely narrative in form — not a succession of “ yes ” and “ no ” answers to questions propounded by inquisitors. The lurid statement of facts to be found in his narration of the crime convinces me — and apparently convinced the jury — that only a man who had lived through that experience could have volunteered the details with such accuracy.

In the light of rulings by this court cited (supra) the record of evidence, as I view it, afforded a sound legal basis not only for submission to the jury of the question whether, within the provisions of section 395 of the Code of Criminal Procedure, the defendant’s confession was voluntary but also whether, within section 165 ici., the time which elapsed — less than two days, including a Sunday — between Saturday afternoon (December 7th), when the defendant reached Kings County in the custody of the police, and Monday morning (December 9th) when he was arraigned, amounted to “ unnecessary delay ” in taking the defendant before a magistrate. Upon each of those subjects I regard the following excerpt from the court’s charge to be a correct and adequate statement of the applicable law —

“ It is for you gentlemen to determine from the facts in this case whether or not the arraignment of the defendant was unnecessarily and illegally delayed. In determining that.question, you must take into consideration all that transpired between the time the defendant was taken into custody and his arraignment on December 9,1946.

“ If, on the basis of all the facts, you believe there was unnecessary and illegal delay, please understand, gentlemen, that you are only to consider this in connection with the question as to whether or not the admissions made by the defendant were to any extent induced by any such illegal delay. If you decide that such confession or admission was made as the result of fear induced by threats, duress, or violence, or induced by unnecessary and illegal delay in arraignment, the confession or admission so obtained cannot be used against the defendant, and is to be disregarded even if you believe it to be true. No confession is admissible unless it is voluntary. Its primary meaning imports a condition of mind that is free and unconstrained by fear, or inspired by false hope, or threats or violence, or by illegal and unnecessary delay in arraignment, but at any rate, it is a question of fact for you, the jury, to determine. You also must determine and decide, if you do accept such confession and decide that it was made voluntarily, whether or not the confession is true. Of course, if you decide that the confession was not voluntary or is not true, you must acquit the defendant.”

Accordingly, I dissent and vote to affirm the judgment of conviction.

Loughran, Ch. J., Thacher and Dye, JJ., concur with Desmond, J.; Lewis, J., dissents in opinion in which Conway and Fuld, JJ., concur.

Judgment of conviction reversed, etc.


author: Dye, J.

text:
    In the Matter of Caroline D. Hewitt, Appellant and Respondent, against Spencer E. Bates et al., Constituting the State Tax Commission, Respondents and Appellants. In the Matter of Caroline D. Hewitt et al., Individually and as Copartners under the Name of Miss Hewitt’s Classes, Appellants, against Spencer E. Bates et al., Constituting the State Tax Commission, Respondents.
    Argued November 11, 1947;
    decided March 18, 1948.

      Frederick M. Schlater and William H. Welsh for petitioners-appellants.
    I. More than 80% of petitioners’ gross income was derived from their personal services. (Matter of Teague v. Graves, 287 N. Y. 549; Matter of Geiffert v. Mealey, 293 N. Y. 583; Helvering v. Reynolds Tobacco Co., 306 U. S. 110; Matter of Gilmore v. Preferred Accident Ins. Co., 283 N. Y. 92; Matter of Kolb v. Holling, 285 N. Y. 104.) II. Capital was not a material income-producing factor. (Matter of Geiffert v. Mealey, 293 N. Y. 583; Matter of Teague v. Graves, 287 N. Y. 549.) III. The assessments of unincorporated business taxes for the years 1936, 1937, 1938 and 1939 were not made within the time prescribed by statute. (Matter of Teague v. Graves, 261 App. Div. 652, 287 N. Y. 549; Germantown Trust Co. v. Commissioner, 309 U. S. 304.)

      Nathaniel L. Goldstein, Attorney-General {John C. Crary, Jr., and Wendell P. Brown of counsel), for respondents and appellants.
    I. The proprietary management of a private school conducted for profit constitutes engaging in a business and not the practice of the profession of teaching. (Matter of Shattuck, 193 N. Y. 446; Matter of Rye Country Day School v. Lynch, 239 App. Div. 614, 266 N. Y. 549; People ex rel. Tower v. State Tax Comm., 282 N. Y. 407.) II. Less than 80% of appellant’s gross income was derived from personal services actually rendered by her. III. Capital was a material income-producing factor. (Atlanta-Southern Dental College v. Commissioner, 50 F. 2d 34.) IV. All of the assessments in the first proceeding were timely. (People ex rel. Wittich v. Browne, 296 N. Y. 720; Lucas v. Pilliod Lumber Co., 281 U. S. 245; Germantown Trust Co. v. Commissioner, 309 U. S. 304.)
   Dye, J.

The petitioners, claiming to be exempt from liability under section 386 of the Tax Law, have brought these proceedings in the nature of certiorari under article 78 of the Civil Practice Act and section 375 of the Tax Law to review separate final determinations of the Tax Commission which confirmed assessments of an unincorporated business tax under article 16-A against the petitioners, and for a refund of the amounts paid under protest. The Appellate Division has affirmed the principle of liability but has annulled the assessments against Caroline D. Hewitt, individually, for the years 1936-1939, because barred by the Statute of Limitations (Tax Law, §§ 373, 386); Cross appeals have been filed and, because the underlying facts and issues are substantially the same in each proceeding, the parties have stipulated that they may be considered together.

The petitioners are qualified teachers engaged in the operation of a private day school for profit under the name of Miss Hewitt’s Classes ” for the precollege instruction of young women.

It is undisputed that pedagogy is within the meaning of professional services as used in the statute, and persons rendering such personal service are exempt from payment of an unincorporated business tax, when “ more than eighty per centum of the gross income is derived from the personal services actually rendered by the individual or the members of the partnership * * * and in which capital is not a material income producing factor.” (Tax Law, § 386.) (Italics supplied.)

The summary of the individual resident return as filed, shows that the school is conducted in the nature of a business in education requiring executive and administrative services which could be performed by a corporation, as many such schools are, or by lay individuals without any teaching experience or qualification. The statutory test is found in the incidents of the activity considered (People ex rel. Tower v. State Tax Comm., 282 N. Y. 407). The information in the returns as filed fails to support the petitioner’s claim of exemption as it appears that additional teachers and assistants were employed and were paid salaries from the gross income ranging from 37 % in 1936 to 51% in 1939, which had the immediate effect of reducing the amount of gross income available for taxpayers’ personal services far below the level of 80% fixed by the statute. This is a significant and determining factor. The very nature and character of the teaching service requires contact with the pupil and the expenditure of individual effort in their instruction which cannot very well be attributed to the personal teaching service actually rendered by the individual proprietors and leads to the inescapable conclusion that the exempting portion of the statute has not been met. The returns also show that approximately 10% of the reported gross income was derived from the sale of books, stationery, lunches and other extracurricular activity. The information thus furnished as to gross income renders it unnecessary to pass upon whether the capital investment was a material income producing factor.

The remaining question is whether the assessment of the unincorporated business tax under date of December 10, 1943, against the petitioner Caroline D. Hewitt, in the individual proceeding, based on her resident income tax return for the years 1936 to 1939, inclusive, and filed when currently due, which, in each instance antedated the assessment by more than three years, was barred by the statute requiring the Tax Commission to make its determination within three years after the return was made ” .(§ 373, subd. 1; § 386-j). The Appellate Division, in sustaining the taxpayer’s contention of untimeliness, was of the opinion that the returns contained enough information as to the taxpayer’s business and gross income to permit computation of the tax and accordingly were sufficient to start the statute running. While it may be that the information furnished by this taxpayer on Form 201 is practically identical with that required of the taxpayer when making an unincorporated business tax return on Form 202, it does not follow that the taxpayer may ignore her obligation to file a separate return for the unincorporated business tax. The individual income taxes authorized by article 16, are separate and distinct from the emergency tax on unincorporated businesses authorized by article 16-A (People ex rel. Tower v. State Tax Comm., supra). The return in each instance is the basis for the respective assessment. The requirement of a separate return from the same taxpayer for each tax is a valid exercise of authority under the statute which specifically provides that the unincorporated business return “ shall be made in such form and shall contain such information as the tax commission may prescribe.” (§ 386-h.) This discretionary authority is not circumscribed or limited by that part of the sectio,n permitting the commission to require the 11 return to be made as a part of the return made by the taxpayer under the provisions of article sixteen ” nor does it render the regulation prescribing a separate return unreasonable. It is a valid requirement with which the taxpayer is under a duty to comply. The taxpayer here not only failed to file the return prescribed by the Tax Commission, but the record also clearly establishes that when she filed the income tax returns pursuant to article 16, she .neither intended such returns as a compliance with article 16-A, nor did she otherwise ^attempt to comply therewith. The contention advanced by the taxpayer under authority of Germantown Trust Co. v. Commissioner of Internal Revenue (309 U. S. 304), that the individual income returns covering the tax period were free from fraud and concealment and contained all necessary information needed to compute the unincorporated business tax, cannot be accepted as a basis to start the statutory limitation so as to bar the determination made by the commissioner. There is a difference between a defective or incomplete return filed in good faith in an attempted compliance with the statute and the filing of no return at all. In the one case omission to comply with formality of execution is not fatal if the tax return otherwise complies with the applicable statute and is intended as such, and will start the running of the statute (Zellerbach Paper Co. v. Helvering, 293 U. S. 172; Florsheim Bros. Drygoods Co. v. United States, 280 U. S. 453). On the other hand, omission to file a prescribed return cannot be supplied by reference to a return filed for another purpose. While we have not heretofore passed on this precise question of when a return is no return ”, it is not a new question in the Federal courts. The United States Supreme Court in Commissioner of Internal Revenue v. Lane-Wells Co. (321 U. S. 219,223-224) distinguished the Germantown case (supra) relied on by the petitioner by holding that “ Congress has given discretion to the Commissioner to prescribe by regulation forms of returns and has made it the duty of the taxpayer to comply. It thus implements the system of self-assessment which is so largely the basis of our American scheme of income taxation. The purpose is not alone to get tax information in some form but also to get it with such uniformity, completeness, and arrangement that the physical task of handling and verifying returns may be readily accomplished. For such purposes the regulation requiring two separate returns for these taxes was a reasonable and valid one and the finding of the Board of Tax Appeals that the taxpayer is in default is correct.”

The same reasoning is applicable here and we conclude that the statute barring the commission from making an assessment starts to run only when the prescribed return is filed. Neither is the five-year limitation, mentioned in the statute, available to the petitioner for this applies only when the return underestimates the amount of gross income or capital gain by 25% and here no such omission is claimed.

The orders should be modified by reversing so much thereof as annul the assessments against Caroline D. Hewitt in her individual proceeding for the years 1936, 1937, 1938 and 1939, and the determination of the State Tax Commission confirmed, and otherwise affirmed, without costs, and the order in the proceeding against Caroline D. Hewitt and her associates, as partners, should be affirmed, without costs.

Loughran, Ch. J., Lewis, Conway, Desmond, Thaoher and Fuld, J.T., concur.

Ordered accordingly. [See 298 N. T. 542.]


author: Per Curiam.

text:
    In the Matter of the Elimination of Grade Crossings of the New York Central Railroad in the City of Buffalo. New York Central Railroad Company, Appellant; Public Service Commission et al., Respondents.
    Argued January 16, 1948;
    decided March 18, 1948.

      Jacob Aronson, Paul Folger, William B. Stevens, Clyde Brown, Jr., and Frederick L. Wheeler for appellant.
    The order of the Appellate Division has the finality requisite to review thereof by the Court of Appeals. (Matter of Colonial Liquor Distributors v. O’Connell, 295 N. Y. 129; Matter of Grade Crossings [N. Y. C. R. R. Co.], 255 N. Y. 320; Matter of N. Y. C. R. R. Co. v. Public Service Comm., 252 N. Y. 583.)

      Gay E. Brown for Delaware,.Lackawanna & Western Bailroad Company and others, amici curies, in support of appellant’s position.

      Joseph J. Dorcm, Samuel B. Madison and Philip Ealpern for Public Service Commission, respondent.
    The Public Service Commission and the Appellate Division have finally determined the existence or inclusion of railroad improvements in the plans despite the reservation clause inserted in the commission’s order and the order has the finality requisite to review thereof by the Court of Appeals.

      Fred C. Maloney, Corporation Counsel (Elmer S. Stengel of counsel), for City of Buffalo, respondent.
   Per Curiam.

In view of the reservations contained in the order of the Public Service Commission, we are constrained to dismiss this appeal for lack of jurisdiction upon the ground that the commission’s order, affirmed by the Appellate Division, did not finally determine the proceeding within the meaning of the Constitution of the State. We are further of the opinion that the Appellate Division was without jurisdiction to review the order of the commission because the order did not affect a substantial right of the appellant (Civ. Prac. Act, § 631). It seems entirely clear that under the reservation in the Public Service Commission’s order there can and will be no determination with respect to the cost of improvements to be paid by the railroad company under the provisions of the Grade Crossing Elimination Act of 1939 (L. 1939, ch. 289, § 4) until after a hearing de nova with respect to the extent to which the plans include railroad improvements and the nature and cost thereof, entirely without prejudice to the respective contentions of the State of New York and the New York Central Railroad Company, and without prejudice to the right of any person to offer further and additional proof at that time upon such issues. Inasmuch as the entire cost of construction will be advanced by the State, and the railroad company will not be required to pay or contribute to the cost of construction until after the work is completed and such a determination has been made, and since that determination will be subject to review in the courts, » it cannot be said that the order reserving all of these matters to future determination affects any substantial right of the appellant.

The appeal should be dismissed, without costs, and the matter remitted to the Appellate Division, with directions to dismiss the appeal taken to that court.

Loughran, Ch. J., Lewis, Conway, Desmond, Thacher, Dye and Fuld, JJ., concur.

Appeal dismissed.


text:
    William Rubin, Plaintiff, v. Prudence Bonds Corporation et al., Defendants, and Florindo S. Polo, Respondent. Alexander Rothstein, Appellant.
    Argued March 1, 1948;
    decided March 18, 1948.

      Alexander Rothstein, appellant in person.

      William M. Kilcullen for respondent.
   Per Curiam.

Questions of fact are presented by the record as to whether appellant improperly abandoned the case or was justifiably dismissed. Since the Appellate Division order fails to make the specifications required by section 602 of the Civil Practice Act, we are compelled to presume that questions of fact were not considered and to “ treat" the Appellate Division order as being a determination on the law only.” (See People ex rel. Sheffield Farms Co., Inc., v. Lilly, 295 N. Y. 354, 356; see, also, Tufts v. Stolz, 297 N. Y. 673.) So regarded, the Appellate Division order cannot be sustained. The order is accordingly reversed, without costs, and the matter remitted to the Appellate Division “ for determination upon the questions of fact raised in that court ” (Civ. Prac. Act, § 606).

Loijghran, Ch. J., Lewis, Conway, Desmond, Thacher, Dye and Feed, JJ., concur.

Order reversed, etc.