Source: https://law.justia.com/cases/federal/district-courts/FSupp/590/1453/2247728/
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Matched Legal Cases: ['§ 1961', '§ 302', '§ 302', '§ 302', '§ 302', '§ 302', '§ 302', '§ 1134', '§ 302', '§ 302', '§ 302', '§ 302', '§ 302', '§ 302', '§ 302', '§ 302', '§ 301', '§ 301', '§ 313', '§ 313', '§ 302', '§ 313', '§ 1965', '§ 302', '§ 302']

Soltex Polymer Corp. v. Fortex Industries, Inc., 590 F. Supp. 1453 (E.D.N.Y. 1984) :: Justia
Justia › US Law › Case Law › Federal Courts › District Courts › New York › Eastern District of New York › 1984 › Soltex Polymer Corp. v. Fortex Industries, Inc.
Soltex Polymer Corp. v. Fortex Industries, Inc., 590 F. Supp. 1453 (E.D.N.Y. 1984)
U.S. District Court for the Eastern District of New York - 590 F. Supp. 1453 (E.D.N.Y. 1984)
Defendants Fortex Industries, Inc. ("Fortex") and Fortiflex, Inc. ("Fortiflex") have filed counterclaims against Soltex and six of its officers and directors (Messrs. Sadler, Osterreith, Americo, Degreve, Fitzgerald and Buckingham). In addition, Fortex and Fortiflex have sought to join as counterclaim defendants, Solvay et Cie Societe Anonyme ("Solvay et Cie"), Soltex's Belgian parent corporation, and two principal officers of Solvay et Cie, who also sit *1455 on the Soltex board of directors (Messrs. Solvay and Loutrel). A third corporation, the Hedwin Company, is also named as a counterclaim defendant. The counterclaims allege, inter alia, conspiracy, unfair competition, and violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq. ("RICO"). All counterclaim defendants, except Soltex and the Hedwin Company, have moved to dismiss under Fed.R.Civ.P. 12(b) (2) for lack of personal jurisdiction.
The counterclaim plaintiffs argue that the individuals are subject to this Court's jurisdiction because they participated in a civil conspiracy in which at least one unlawful act was committed in New York. Thus, counterclaim plaintiffs allege that the individual co-conspirators are subject to in personam jurisdiction pursuant to N.Y.Civ. Prac.Law § 302(a) (2) (McKinney 1971), because each conspirator is liable for the acts of his co-conspirators. They also invoke *1456 N.Y.Civ.Prac.Law § 302(a) (3) (McKinney 1971).
In addition to the conspiracy theory, counterclaim plaintiffs charge that the individual defendants engaged in tortious conduct outside the state, causing injury to plaintiffs in New York, thereby establishing jurisdiction under N.Y.Civ.Prac.Law § 302(a) (3) (McKinney 1971). This charge is based on the alleged fraud on the United States Patent and Trademark Office. Counterclaim plaintiffs argue that counterclaim defendants engaged in this fraud by making false and fraudulent misstatements and omissions in connection with renewal of U.S. Registration 651, 021 for the trademark FORTILENE on or about November 15, 1977. Counterclaim plaintiffs contend that this fraud, as well as the alleged common-law conspiracy and the RICO conspiracy, are all tortious acts committed outside New York causing injury to this State. The injury is the $200,000 that the counterclaim plaintiffs incurred to defend the present lawsuit.
With respect to the remaining requirements of N.Y.Civ.Prac.Law § 302(a) (3), counterclaim plaintiffs rely on subsection (ii) which requires that the defendant have expected or reasonably should have expected his acts to have consequences in New York and that the defendant derives substantial revenue from interstate or international commerce. Counterclaim plaintiffs suggest that this requirement is met by the individual counterclaim defendants by reason of their membership in the conspiracy. The contention is that Soltex and Solvay et Cie derive substantial revenue from interstate or foreign commerce, and to the extent the individual counterclaim defendants are paid officers, directors, or employees of those corporations, they should likewise be deemed to derive such revenue.
Magistrate Scheindlin, in her Report and Recommendation, however, concluded that the fiduciary shield doctrine (as enunciated in Marine Midland Bank, N.A. v. Miller, 664 F.2d 899 (2d Cir. 1981)) precludes exercise of personal jurisdiction over the individual counterclaim defendants. The Magistrate, accordingly, found it unnecessary to decide whether the counterclaim defendants had committed acts that would be sufficient to invoke long-arm jurisdiction under N.Y. CPLR § 302.
The acts of a conspirator may be attributed to a co-conspirator to obtain personal jurisdiction over the latter under *1457 N.Y.Civ.Prac.Law § 302. Louis Marx & Co. v. Fuji Seiko Co., Ltd., 453 F. Supp. 385, 391 (S.D.N.Y.1978); Ghazoul v. International Management Services Inc., 398 F. Supp. 307, 312 (S.D.N.Y.1975). Nevertheless, the mere allegation of conspiracy "does not suffice for purposes of the long arm statute." Louis Marx & Co., supra, 453 F. Supp. at 391. At a minimum, the plaintiff must allege specific facts that, if proven, would demonstrate the defendant's membership in the conspiracy. Id. Although counterclaim plaintiffs have had extensive discovery on the jurisdictional issue, they have been unable to adduce sufficient evidence of anything beyond the wildest speculation that the individual counterclaim defendants even knew of the conspiracy much less were members of it.
This doctrine of `fiduciary shield' ... emerged ... as a novel principle by way of dicta in a series of decisions of the New York state and federal courts in the mid-sixties .... Its source is generally identified as dictum in Boas & Associates v. Vernier, 22 A.D.2d 561, 563, 257 N.Y.S.2d 487, 490 (1st Dep't.1965). The first identification of the doctrine in the New York federal courts was in United States v. Montreal Trust Company, 358 F.2d 239 (2d Cir.1966), cert. denied, 384 U.S. 919, 86 S. Ct. 1366, 16 L. Ed. 2d 440.
The question, then, is whether the individual counterclaim defendants' alleged conduct, which might otherwise subject them to personal liability, was engaged in solely in their capacities as fiduciaries of their corporations. Although they have conducted extensive discovery on this issue, the counterclaim plaintiffs who have the burden of proof on the jurisdictional issue have failed to demonstrate that any individual counterclaim defendant performed an act (that could conceivably give *1458 rise to personal liability) in anything other than his corporate capacity.
b. Federal Claim RICO
Because Rule 4(i) "speaks only to the manner of service and not to whether a particular defendant is amenable to suit authority for extra-territorial service must be found in a relevant state or federal statute." 4 Wright & Miller, Federal Practice and Procedure § 1134, at 559 (1969). The Advisory Committee Notes to Rule 4(i) echo the commentators: "the authority for effecting foreign service must be found in a statute of the United States or a statute or rule of the State in which the district court is held providing in terms or upon proper interpretation for service abroad upon persons not inhabitants of or found within the State."
Counterclaim plaintiffs also argue that Solvay is subject to jurisdiction pursuant to N.Y.Civ.Prac.Law § 302(a) (2) and 302(a) (3) (i) and (ii) (McKinney 1971). See, supra p. 3. As discussed above (p. 10), counterclaim plaintiffs allege that their conspiracy claims arise out of tortious acts committed by the counterclaim defendants in New York. The alleged acts include the filing of the present lawsuit without probable cause and intentionally providing Standard and Poors with misleading information concerning the ownership of Hedwin. Jurisdiction over Solvay is premised on its participation in this conspiracy. Counterclaim plaintiffs further allege that the members of the illegal conspiracy, (including Solvay), committed tortious acts outside New York which caused harm to the counterclaim plaintiffs in New York. These acts include the perpetration of a fraud on the United States Patent and Trademark Office through false and fraudulent statements made in connection with the renewal of the trademark FORTILENE. The alleged harm which counterclaim plaintiffs claim to have incurred in New York is the cost of defending the infringement action brought against them by Soltex.
In Bulova Watch Co. Inc. v. K. Hattori & Co. Ltd., supra, 508 F. Supp. at 1333, 1334, Chief Judge Weinstein discussed the issue of whether a parent corporation is present in New York for jurisdictional purposes by virtue of the presence in New York of its subsidiary.
Finally, the Chief Judge set out two tests for determining the closeness of the economic connection between the parent and the subsidiary. Both tests look to the realities of the particular parent-subsidiary relationship rather than the form. The first test determines whether the relationship between the foreign parent and the local subsidiary gives rise to a valid inference of an agency relationship. The second test determines whether control by the parent of the subsidiary is so complete that the subsidiary is in fact a mere department of the parent. Bulova, supra, 508 F. Supp. at 1334, citing, Freemen v. Gordon and Breach, Science Publishers, Inc., 398 F. Supp. 519, 522 (S.D.N.Y.1975), quoting, Sunrise Toyota, Ltd. v. Toyota Motor Co., 55 F.R.D. 519, 528 (S.D.N.Y.1972). Chief Judge Weinstein emphasized that the two tests may be used in conjunction with each other. Indeed he stated that, "it should be clear from the mass of cases dealing with this problem that a line cannot be simply drawn between the two tests." Bulova, supra, 508 F. Supp. at 1334.
2. Jurisdiction Pursuant to N.Y.Civ. Prac.Law §§ 302(a) (2) and (a) (3)
In order to establish jurisdiction under either N.Y.Civ.Prac.Law § 302(a) (2) or § 302(a) (3) (McKinney 1971) the counterclaim plaintiffs must first show that a tort was committed by the counterclaim defendant itself, or that the counterclaim defendant caused its agent to commit the alleged tortious act. Furthermore, with respect to N.Y.Civ.Prac.Law § 302(a) (3) (McKinney 1971) counterclaim plaintiffs must show that the corporate counterclaim defendant satisfies the requirements of subsections (i) *1463 and (ii). (See pp. 2-3, n. 3, supra.) If the counterclaim defendant, Solvay, is alleged to have committed the tortious acts through the actions of a co-conspirator, counterclaim plaintiffs must offer concreate evidence regarding the existence of a conspiracy and Solvay's part in it.[16]
The mere assertion of a conspiracy by the counterclaim plaintiffs is insufficient. Lehigh Valley Industries Inc. v. Birenbaum, 527 F.2d 87, 93-4 (2d Cir.1975); Bulova, supra, 508 F. Supp. at 1347. Plaintiffs are required to establish prima facie proof of the existence of a conspiracy through "definite facts." Merkel Associates Inc. v. Bellofram Corp., 437 F. Supp. 612, 617 (W.D.N.Y.1977); Socialist Workers Party v. Attorney General of the United States, 375 F. Supp. 318, 322 (S.D. N.Y.1974). Specific facts showing that a particular defendant knowingly participated in the conspiracy must also be alleged. Socialist Workers Party v. Attorney General of the United States, supra; Lehigh Valley Industries Inc. v. Birenbaum, supra. Finally, facts must be presented which connect the counterclaim defendant with the transactions occuring in New York. Socialist Workers Party, supra, 375 F.Supp. at 321-22; Lehigh Valley Industries Inc., supra, 389 F. Supp. at 806-7.[17]
C. Solvay's Relationship to the Alleged ConspiracyN.Y.Civ.Prac.Law § 302(a) (2) and (a) (3).
Counterclaim plaintiffs have failed to meet the requirements of N.Y.Civ. Prac.Law §§ 302(a) (2) and (a) (3) (McKinney 1971) with respect to the assertion of jurisdiction over Solvay. There has been no prima facie showing that a conspiracy existed or that Solvay was a member of any such conspiracy. Absolutely no evidence has been offered to show that any co-conspirators acted at Solvay's direction or under its control. Counterclaim plaintiffs rely on the very general notion that since Solvay owns a majority of the outstanding stock of Soltex, control of Soltex emanates from Solvay's corporate headquarters in Belgium. (See, Counterclaim Plaintiffs Brief, pp. 23-24). Although counterclaim plaintiffs attempt to establish a nexus between Solvay and Soltex with regard to the general decision making process and operation of Soltex, (Bain Affidavit pp. 19-20), the counterclaim plaintiffs do not succeed in showing any communication or contact between Solvay and Soltex regarding the institution of the present lawsuit. See Ghazoul, supra. Evidence that Solvay played a part in the general management of Soltex does not amount to a prima facie *1464 showing that Solvay participated in the illegal conspiracy described by counterclaim plaintiffs.
As to the remaining requirements set forth at p. 1456, supra, no evidence has been offered by the counterclaim plaintiffs to connect Solvay with any of the illegal actions alleged to have occurred in New York. The only argument that the counterclaim plaintiffs have made is that whatever benefits Soltex, benefits Solvay, and that any action taken by Soltex is done at Solvay's direction. This speculative and conclusory argument is insufficient to support the existence of personal jurisdiction. It simply does not rise to the level of "definite evidentiary facts", which are required to make even a threshold showing of amenability to jurisdiction. Merkel Associates Inc., supra, 437 F. Supp. at 617; Socialist Workers, supra, 375 F. Supp. at 322.
Because this Court finds that the counterclaim plaintiffs' allegations of conspiracy are without adequate foundation as to Solvay, jurisdiction can not be sustained under N.Y.Civ.Prac.Law § 302(a) (2) or (a) (3) (McKinney 1971). This conclusion is compelled since no showing has been made that Solvay either committed a tortious act in New York, or outside of New York causing foreseeable harm in New York, or through the actions of a co-conspirator so as to subject Solvay to this Court's jurisdiction.[18]
D. The Relationship of TSAC and Alkor to SolvayN.Y.Civ.Prac.Law § 301
A foreign corporation is amenable, of course, to jurisdiction under N.Y.Civ. Prac.Law § 301 (McKinney 1971) if it is "engaged in such a continuous and systematic course of `doing business' here as to warrant a finding of its `presence' in this jurisdiction." Simonson v. International Bank, 14 N.Y.2d 281, 285, 251 N.Y.S.2d 433, 200 N.E.2d 427 (1964). A corporation, moreover, is amenable to jurisdiction in New York when the "systematic activities of a subsidiary in this state may fairly be attributed to the parent." Bulova, supra, 508 F. Supp. at 1333. In Frummer v. Hilton Hotels Int., 19 N.Y.2d 533, 537, 281 N.Y.S.2d 533, 227 N.E.2d 851 (1967), the Court held that the parent corporation was doing business in New York because its local subsidiary "does all the business which Hilton (U.K.) could do were it here by its own officials." In Frummer the non-profit New York subsidiary generated business for the parent's hotels through public relations and publicity work and the acceptance and confirmation of room reservations. Similarly, in Bush v. Stern Bros. & Co., 524 F. Supp. 12, 14 (S.D.N.Y.1981), the court held that in order to sustain jurisdiction over a foreign defendant, "the business done in New York (by its agent) must be a substantial part of defendant's main business."
Here TSAC is neither a manufacturing nor a sales subsidiary of Solvay. It does not engage in the activities which are Solvay's "corporate raison d'etre." Bulova, supra, 508 F. Supp. at 1341. TSAC's activities do not appear to be particularly significant, in a business sense, to Solvay's overall activities, namely the manufacture and sale of chemical and biochemical products. *1466 See Marantis v. Dolphin Aviation Inc., 453 F. Supp. 803, 807 (S.D.N.Y.1978). TSAC does not generate business for Solvay either by direct sales or the taking or confirming of orders. The fact that TSAC is a wholly-owned subsidiary of Solvay which primarily gathers information for Solvay and the "Solvay group" is jurisdictionally irrelevant since TSAC does not do that business which Solvay would do were it present and doing business in New York.[25] Thus, TSAC is not acting as Solvay's agent for the purpose of conducting business in New York.
A review of the cases reveals that doing business requires systematic conduct of a permanent and continuous nature. This conduct always includes selling a product, generating sales or bringing revenue. See, e.g., Taca International Airlines, S.A. v. Rolls Royce, Ltd., 15 N.Y.2d 97, 256 N.Y.S.2d 129, 204 N.E.2d 329 (1965) (sale of Rolls Royce products); Frummer, supra, (soliciting business, confirming hotel reservations); Gelfand v. Tanner Motor Tours, Ltd., 385 F.2d 116 (2d Cir.1967); ("drumming up business," making and confirming reservations); Bulova, supra (sale of Hattori's watches); Laufer v. Ostrow, 55 N.Y.2d 305, 449 N.Y.S.2d 456, 434 N.E.2d 692 (1982) (solicitation and servicing of New York accounts).[26] By this standard there can be no doubt that Solvay does not do business in New York through TSAC which sells none of Solvay's products, drums up no business, and brings in no revenue for its parent.[27] Thus, counterclaim plaintiffs have failed to make a prima *1467 facie showing that Solvay is present in New York for jurisdictional purposes.
New York has chosen not to forsake its "doing business" test in favor of the more liberal "minimum contacts" test set forth in International Shoe Co. v. Washington, 326 U.S. 310, 66 S. Ct. 154, 90 L. Ed. 95 (1945). See Bush v. Stern Bros., supra, 524 F. Supp. at 14; Marantis, supra, 453 F. Supp. at 808. ("This Court must conclude that New York has not yet chosen to exercise to the fullest its jurisdictional prerogative under the Constitution." Id.) Thus, although Solvay's activities within New York, through TSAC and its Alkor Division, might be sufficient to establish that Solvay has minimum contacts with New York, as defined by case law; such contacts will not support this Court's assertion of in personam jurisdiction which is governed by New York's stricter "doing business" test.[28]
"A court might well find substantial unfairness were it to drag a foreign parent into court to defend itself against actions completely unrelated to the subsidiary corporation's purposive activities on behalf of its parent." Bulova, supra, 508 F. Supp. at 1344.
[1] Under New York law, "[a] person domiciled in the state or subject to the jurisdiction of the state under section 301 or 302 [the long-arm statute] ... may be served with the summons without the state, in the same manner as service is made within a state ...." N.Y.Civ.Proc.Law § 313 (emphasis added). The highlighted language makes it clear that prior to resorting to New York's rules of service, the plaintiff must demonstrate that jurisdiction exists under one of the predicates specified in § 313. Although the counterclaim plaintiffs have alleged jurisdiction under § 302, the long-arm statute, I have ruled that jurisdiction does not lie under that section. See discussion supra. Thus, in the absence of any predicate specified in § 313, counterclaim plaintiffs may not resort to New York's rules of service. See also Fed.R.Civ.P. 4(e) ("service may ... be made under the circumstances and in the manner prescribed in the [state] statute or rule" (emphasis added)).
[2] The counterclaim plaintiffs are also directed to apprise the Court of the precise manner in which each of the American individual counterclaim defendants was physically served with process. If the actual method of service comports with one of the alternative methods delineated in Rule 4, and if the Court determines that the interests of justice require joinder of the improperly venued RICO counterclaim defendants, the Court, in the interests of judicial economy, will deem service of process upon the American individuals to be effective nunc pro tunc under 18 U.S.C. § 1965(b).
[12] It is uncontested that Solvay itself is not incorporated, licensed, registered or qualified to do business in New York. Solvay owns no real property in New York, nor does it maintain offices here. Solvay does not advertise or engage in the solicitation of business in New York. See Levy Morelle Affidavit, pp. 3-5, submitted by Belgian Counterclaim Defendants in support of their motion to dismiss. Solvay does ship chemical products to customers in New York, but the mere shipment of goods into New York does not constitute "doing business" as defined by Section 301 of the CPLR. See, e.g., J. Baranello & Sons v. Hausmann Industries, Inc., 86 F.R.D. 151 (E.D.N.Y.1980). Selman v. Harvard Medical School, 494 F. Supp. 603 (S.D.N.Y.) aff'd, 636 F.2d 1204 (2d Cir.1980). See Belgian Counterclaim Defendants Memorandum of Law in Support of Motion to Dismiss ("Belgian Memo"), pp. 16-17.
[13] Counterclaim Plaintiffs Brief, pp. 42-45; Bain Affidavit, pp. 22-25.
[14] Reply Memorandum in Support of Belgian Counterclaim Defendants' Motion to Dismiss ("Belgian Reply Memo"), p. 19; Bain Affidavit, pp. 24-25.
[15] Bain Affidavit, p. 25, See p. 33, n. 24, infra.
[16] Counterclaim plaintiffs offer no evidence whatsoever that Solvay itself committed any of the tortious acts discussed at p. 10, supra. In fact, the evidence is to the contrary. Both Solvay and Loutrel state in their affidavits that they were unaware of counterclaim plaintiffs or this lawsuit until 18 months after the suit was filed. (Solvay Affidavit, pp. 7-8; Loutrel Affidavit, pp. 5-6). Soltex's Chief Executive Officer, Whitson Sadler has testified at deposition that the decision to file suit against Fortex was made solely by Soltex. Sadler Deposition, p. 274, 289-299); accord, Osterrieth Deposition, pp. 270-75. Solvay and Loutrel have also shown that they knew nothing of any information transmitted to Standard and Poors or to the United States Patent and Trademark Office. (Solvay Affidavit, p. 8; Loutrel Affidavit p. 6) Since counterclaim plaintiffs have supplied no contrary evidence, their sole claim here is that Solvay was a member of a conspiracy whose other members engaged in the alleged tortious activity.
[17] Courts have held that this requirement may be satisfied by a showing that the co-conspirator acted more or less like an agent of the non-resident defendant; i.e. by acting at the direction or under the control of the non-resident defendant, or by engaging in tortious conduct done for the benefit and with the knowledge of the non-resident co-conspirator. A showing that the non-resident co-conspirator had knowledge of the affects of the tortious conduct along with the other "contacts" is adequate. See, Grove Press Inc. v. Angleton, 649 F.2d 121, 122-23 (2d Cir. 1981) See also, Ghazoul v. International Management Services Inc., 398 F. Supp. 307 (S.D.N.Y. 1975) (jurisdiction upheld because definite evidentiary facts shown to prove defendant's part in a conspiracy through contact with other co-conspirators).
[18] Since Solvay does not regularly do or solicit business in New York pursuant to § 302(a) (3) (i), the Court examined § 302(a) (3) (ii) which requires that the defendant derive substantial revenue from interstate or international commerce, easily satisfied here, and that the harm in New York be foreseeable. Once again, there is no showing that Solvay could have reasonably anticipated any harm to counterclaim plaintiffs in New York as a result of the alleged tortious acts. The affidavits of Solvay's officers, all of which are uncontroverted, state that they were unaware of counterclaim plaintiffs' existence until well after this suit was filed. Thus, a fortiori, they could not have anticipated that Fortex et al., would suffer harm in New York at the time the alleged acts were committed.
[19] Counterclaim Plaintiffs Brief, p. 43; Bain Affidavit, pp. 24-25. The information gathered by TSAC relates to the "sales and marketing of products in the chemical and bio-chemical field, as well as information concerning paints and coatings and information relating to federal and state regulations." (Ritchie Deposition, pp. 24-25, 28-36). The term "Solvay group" is used by Ms. Ritchie to describe the various subsidiaries and affiliates of Solvay in the United States and Europe.
[20] Counterclaim Plaintiffs Brief, pp. 43-45; Bain Affidavit, pp. 24-25.
[21] No proof is offered in support of this allegation. TSAC receives a contractual fee from Solvay. That Solvay or its subsidiaries might profit from TSAC's information gathering is mere speculation.
[22] Counterclaim Plaintiffs Brief, pp. 43-45; Bain Affidavit, pp. 7, 24, quoting Osterreith Deposition.
[23] See generally, Belgian Reply Memo, pp. 19-20.
[24] See Letter of March 10, 1983 from William Norfolk, Counsel to Solvay, discussing Solvay's indirect ownership interest in Alkor Gmbh.
[25] "It now appears to be the rule that where a foreign corporation has a subsidiary or other "agent" perform substantial activities in this state for its benefit acts which are so essential to the foreign corporation that if the subsidiary or "agent" did not perform them, the foreign corporation would have to it is doing business in this state, regardless of whether the New York company is a true agent or is an independent contractor." McLaughlin, Practice Commentaries C301:3, pp. 12-13 (McKinney 1971).
[26] In Bush, supra, 524 F. Supp. at 14, the court stated that,
[27] Counterclaim plaintiffs would have this Court assert jurisdiction over Solvay on the basis of the activities of the Alkor Division of TSAC. (See p. 33 supra) Alkor's activities will not sustain jurisdiction over Solvay. Alkor's parent, as noted above, is only indirectly owned by Solvay. It is clearly an independent company which is neither acting as Solvay's agent nor as a "mere department" of Solvay. Alkor sells only roofing materials, a product not sold or manufactured by Solvay. Thus, Alkor certainly does not do that business which Solvay would do were it in business here. See Frummer and Bulova, supra. Jurisdiction cannot be premised on the activities of the Alkor Division of TSAC.
[28] In diversity cases, amenability to suit must be determined according to the law of the state in which the court sits. Arrowsmith v. United Press Int'l., 320 F.2d 219 (2d Cir.1963).