Baltimore Gas & Electric Co. v.
Section 102(2)(C) of the National Environmental Policy Act (NEPA) requires federal agencies to consider the environmental impact of any major federal action. The dispute in these cases concerns the adoption by the Nuclear Regulatory Commission (NRC) of a series of generic rules to evaluate the environmental effects of a nuclear powerplant's fuel cycle. In these rules, the NRC decided that licensing boards should assume, for purposes of NEPA, that the permanent storage of certain nuclear wastes would have no significant environmental impact (the so-called "zero release" assumption), and thus should not affect the decision whether to license a particular nuclear powerplant. At the heart of each rule is Table S-3, a numerical compilation of the estimated resources used and effluents released by fuel cycle activities supporting a year's operation of a typical light-water reactor. Challenges to the rules ultimately resulted in a decision by the Court of Appeals, on a petition for review of the final version of the rules, that the rules were arbitrary and capricious and inconsistent with NEPA because the NRC had not factored the consideration of uncertainties surrounding the zero release assumption into the licensing process in such a manner that the uncertainties could potentially affect the outcome of any decision to license a plant.
Held: The NRC complied with NEPA, and its decision is not arbitrary or capricious within the meaning of § 10(e) of the Administrative Procedure Act (APA). Pp. 462 U. S. 97-108.
could be found. Table S-3 refers interested persons to staff studies that discuss the uncertainties in greater detail. In these circumstances, the NRC complied with NEPA's requirements of consideration and disclosure of the environmental impacts of its licensing decisions. It is not the task of this Court to determine what decision it would have reached if it had been the NRC. The Court's only task is to determine whether the NRC had considered the relevant factors and articulated a rational connection between the facts found and the choice made. Under this standard, the zero release assumption, within the context of Table S-3 as a whole, was not arbitrary or capricious. Pp. 462 U. S. 97-106.
(b) It is inappropriate to cast doubt on the licensing proceedings simply because of a minor ambiguity in the language of an earlier rule as to whether licensing boards were required to consider health effects, socioeconomic effects, or cumulative impacts, where there is no evidence that this ambiguity prevented any party from making as full a presentation as desired or ever affected the decision to license a plant. Pp. 462 U. S. 106-108.
222 U.S.App.D.C. 9, 685 F.2d 459, reversed.
O'CONNOR, J., delivered the opinion of the Court, in which all other Members joined, except POWELL, J., who took no part in the consideration or decision of the cases.
the Commission's adoption of a series of generic rules to evaluate the environmental effects of a nuclear powerplant's fuel cycle. At the heart of each rule is Table S-3, a numerical compilation of the estimated resources used and effluents released by fuel cycle activities supporting a year's operation of a typical light-water reactor. [Footnote 5] The three versions of Table S-3 contained similar numerical values, although the supporting documentation has been amplified during the course of the proceedings.
environmental effects of storing solidified transuranic and high-level wastes, [Footnote 7] because the Commission staff believed that technology would be developed to isolate the wastes from the environment. The Commission and the parties have later termed this assumption of complete repository integrity as the "zero release" assumption: the reasonableness of this assumption is at the core of the present controversy.
The Natural Resources Defense Council (NRDC), a respondent in the present cases, challenged the original rule and a license issued under the rule to the Vermont Yankee Nuclear Power Corp. The Court of Appeals for the District of Columbia Circuit affirmed Table S-3's treatment of the "front end" of the fuel cycle, but vacated and remanded the portion of the rule relating to the "back end" because of perceived inadequacies in the rulemaking procedures. Natural Resources Defense Council, Inc. v. NRC, 178 U.S.App.D.C. 336, 547 F.2d 633 (1976). Judge Tamm disagreed that the procedures were inadequate, but concurred on the ground that the record on waste storage was inadequate to support the zero release assumption. Id. at 361, 547 F.2d at 658.
stating that the court was free to agree or disagree with Judge Tamm's conclusion that the rule pertaining to the "back end" of the fuel cycle was arbitrary and capricious within the meaning of § 10(e) of the APA, 5 U.S.C. § 706. Id. at 536, n. 14.
While Vermont Yankee was pending in this Court, the Commission proposed a new "interim" rulemaking proceeding to determine whether to adopt a revised Table S-3. The proposal explicitly acknowledged that the risks from long-term repository failure were uncertain, but suggested that research should resolve most of those uncertainties in the near future. 41 Fed.Reg. 45850-45851 (1976). After further proceedings, the Commission promulgated the interim rule in March 1977. Table S-3 now explicitly stated that solidified high-level and transuranic wastes would remain buried in a federal repository, and therefore would have no effect on the environment. 42 Fed.Reg. 13807 (1977). Like its predecessor, the interim rule stated that "[n]o further discussion of such environmental effects shall be required." Id. at 13806. The NRDC petitioned for review of the interim rule, challenging the zero release assumption and faulting the Table S-3 rule for failing to consider the health, cumulative, and socioeconomic effects of the fuel cycle activities. The Court of Appeals stayed proceedings while awaiting this Court's decision in Vermont Yankee. In April, 1978, the Commission amended the interim rule to clarify that health effects were not covered by Table S-3 and could be litigated in individual licensing proceedings. 43 Fed.Reg. 15613 et seq. (1978).
assumption that the solidified waste would not escape and harm the environment once the repository was sealed. It acknowledged that this assumption was uncertain because of the remote possibility that water might enter the repository, dissolve the radioactive materials, and transport them to the biosphere. Nevertheless, the Commission predicted that a bedded-salt repository would maintain its integrity, and found the evidence "tentative but favorable" that an appropriate site would be found. Id. at 45368. The Commission ultimately determined that any undue optimism in the assumption of appropriate selection and perfect performance of the repository is offset by the cautious assumption, reflected in other parts of the Table, that all radioactive gases in the spent fuel would escape during the initial 6- to 20-year period that the repository remained open, ibid., and thus did not significantly reduce the overall conservatism of Table S-3. Id. at 45369.
noted that uncertainties exist, that, for the limited purpose of the fuel cycle rule, it is reasonable to base impacts on the assumption which the Commission believes the probabilities favor, i.e., that bedded-salt repository sites can be found which will provide effective isolation of radioactive waste from the biosphere."
risk, which the court acknowledged may not have been the Commission's intent, it found that the assumption represents a self-evident error in judgment, and is thus arbitrary and capricious. As the evidence in the record reveals and the Commission itself acknowledged, the zero release assumption is surrounded with uncertainty.
Alternatively, reasoned the Court of Appeals, the zero release assumption could be characterized as a decisionmaking device whereby the Commission, rather than individual licensing boards, would have sole responsibility for considering the risk that long-lived wastes will not be disposed of with complete success. The court recognized that the Commission could use generic rulemaking to evaluate environmental costs common to all licensing decisions. Indeed, the Commission could use generic rulemaking to balance generic costs and benefits to produce a generic "net value." These generic evaluations could then be considered together with case-specific costs and benefits in individual proceedings. The key requirement of NEPA, however, is that the agency consider and disclose the actual environmental effects in a manner that will ensure that the overall process, including both the generic rulemaking and the individual proceedings, brings those effects to bear on decisions to take particular actions that significantly affect the environment. The Court of Appeals concluded that the zero release assumption was not in accordance with this NEPA requirement, because the assumption prevented the uncertainties -- which were not found to be insignificant or outweighed by other generic benefits -- from affecting any individual licensing decision. Alternatively, by requiring that the licensing decision ignore factors that are relevant under NEPA, the zero release assumption is a clear error in judgment, and thus arbitrary and capricious.
We granted certiorari. 459 U.S. 1034 (1982). We reverse.
"[a]dministrative decisions should be set aside in this context, as in every other, only for substantial procedural or substantive reasons as mandated by statute . . . , not simply because the court is unhappy with the result reached."
Vermont Yankee, 435 U.S. at 435 U. S. 558.
agency has adequately considered and disclosed the environmental impact of its actions, and that its decision is not arbitrary or capricious. See generally Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U. S. 402, 401 U. S. 415-417 (1971).
and the Commission's statement, it simply cannot be said that the Commission ignored or failed to disclose the uncertainties surrounding its zero release assumption.
Congress did not enact NEPA, of course, so that an agency would contemplate the environmental impact of an action as an abstract exercise. Rather, Congress intended that the "hard look" be incorporated as part of the agency's process of deciding whether to pursue a particular federal action. It was on this ground that the Court of Appeals faulted the Commission's action, for failing to allow the uncertainties potentially to "tip the balance" in a particular licensing decision. As a general proposition, we can agree with the Court of Appeals' determination that an agency must allow all significant environmental risks to be factored into the decision whether to undertake a proposed action. We think, however, that the Court of Appeals erred in concluding that the Commission had not complied with this standard.
the environmental impact of the fuel cycle and inform individual licensing boards, through the Table S-3 rule, of its evaluation. The generic method chosen by the agency is clearly an appropriate method of conducting the "hard look" required by NEPA. See Vermont Yankee, 435 U.S. at 435 U. S. 535, n. 13. The environmental effects of much of the fuel cycle are not plant-specific, for any plant, regardless of its particular attributes, will create additional wastes that must be stored in a common long-term repository. Administrative efficiency and consistency of decision are both furthered by a generic determination of these effects without needless repetition of the litigation in individual proceedings, which are subject to review by the Commission in any event. See generally Ecology Action v. AEC, 492 F.2d 998, 1002, n. 5 (CA2 1974) (Friendly, J.) (quoting Administrative Conference Proposed Recommendation 73-6).
The Court of Appeals recognized that the Commission has discretion to evaluate generically the environmental effects of the fuel cycle and require that these values be "plugged into" individual licensing decisions. The court concluded that the Commission nevertheless violated NEPA by failing to factor the uncertainty surrounding long-term storage into Table S-3 and precluding individual licensing decisionmakers from considering it.
It also emphasized that the purpose of the rule was not to evaluate or select the most effective long-term waste disposal technology or develop site selection criteria. A separate an comprehensive series of programs has been undertaken to serve these broader purposes. [Footnote 14] In the proceedings before us, the Commission's staff did not attempt to evaluate the environmental effects of all possible methods of disposing of waste. Rather, it chose to analyze intensively the most probable long-term waste disposal method -- burial in a bedded-salt repository several hundred meters below ground -- and then "estimate its impacts conservatively, based on the best available information and analysis." 44 Fed.Reg. 45363 (1979). [Footnote 15] The zero release assumption cannot be evaluated in isolation. Rather, it must be assessed in relation to the limited purpose for which the Commission made the assumption.
Commission expressly designed as a risk-averse estimate of the environmental impact of the fuel cycle. It noted that Table S-3 assumed that the fuel storage canisters and the fuel rod cladding would be corroded before a repository is closed, and that all volatile materials in the fuel would escape to the environment. [Footnote 16] Given that assumption, and the improbability that materials would escape after sealing, the Commission determined that the overall Table represented a conservative (i.e., inflated) statement of environmental impacts. It is not unreasonable for the Commission to counteract the uncertainties in post-sealing releases by balancing them with an overestimate of pre-sealing releases. [Footnote 17] A reviewing court should not magnify a single line item beyond its significance as only part of a larger Table.
Third, a reviewing court must remember that the Commission is making predictions, within its area of special expertise, at the frontiers of science. When examining this kind of scientific determination, as opposed to simple findings of fact, a reviewing court must generally be at its most deferential. See, e.g., Industrial Union Dept. v. American Petroleum Institute, 448 U. S. 607, 448 U. S. 656 (1980) (plurality opinion); id. at 448 U. S. 705-706 (MARSHALL, J., dissenting).
"[t]he radiotoxic hazard index analyses and the modeling studies that have been done indicate that consequences of all but the most improbable events will be small.
Risks (probabilities times consequences) inherent in the long-term for geological disposal will therefore also be small."
We also find significant the separate views of Commissioners Bradford and Gilinsky. These Commissioners expressed dissatisfaction with the zero release assumption, and yet emphasized the limited purpose of the assumption and the overall conservatism of Table S-3. Commissioner Bradford characterized the bedded-salt repository as a responsible working assumption for NEPA purposes, and concurred in the zero release figure because it does not appear to affect Table S-3's overall conservatism. 44 Fed.Reg. 45372 (1979). Commissioner Gilinsky was more critical of the entire Table, stating that the Commission should confront directly whether it should license any nuclear reactors in light of the problems of waste disposal, rather than hide an affirmative conclusion to this issue behind a table of numbers. He emphasized that the "waste confidence proceeding," see n 14, supra, should provide the Commission an appropriate vehicle for a thorough evaluation of the problems involved in the Government's commitment to a waste disposal solution. For the limited purpose of individual licensing proceedings, however, Commissioner Gilinsky found it "virtually inconceivable" that the Table should affect the decision whether to license, and characterized as "naive" the notion that the fuel cycle effluents could tip the balance in some cases and not in others. 44 Fed.Reg. 45374 (1979).
In sum, we think that the zero release assumption -- a policy judgment concerning one line in a conservative Table designed for the limited purpose of individual licensing decisions -- is within the bounds of reasoned decisionmaking. It is not our task to determine what decision we, as Commissioners, would have reached. Our only task is to determine whether the Commission has considered the relevant factors and articulated a rational connection between the facts found and the choice made. Bowman Transportation, Inc. v.
Arkansas-Best Freight System, Inc., 419 U. S. 281, 419 U. S. 285-286 (1974); Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U. S. 402 (1971). Under this standard, we think the Commission's zero release assumption, within the context of Table S-3 as a whole, was not arbitrary and capricious.
"the contribution of the environmental effects of . . . fuel cycle activities . . . shall be as set forth in the following Table S-3 [and] [n]o further discussion of such environmental effects shall be required."
impact of a proposed action. See Metropolitan Edison Co. v. People Against Nuclear Energy, 460 U. S. 766 (1983); Kleppe v. Sierra Club, 427 U.S. at 427 U. S. 410; 40 CFR §§ 1508.7, 1508.8 (1982). We find no basis, however, for the Court of Appeals' conclusion that the Commission ever precluded a licensing board from considering these effects.
It is true, as the Commission pointed out in explaining why it modified the language in the earlier rules, that the original Table S-3 rule "at least initially was apparently interpreted as cutting off" discussion of the effects of effluent releases. 44 Fed.Reg. 45364 (1979). But even the notice accompanying the earlier versions stated that the Table was "to be used as a basis for evaluating the environmental effects in a cost-benefit analysis for a reactor," 39 Fed.Reg. 14190 (1974) (emphasis added), suggesting that individual licensing boards were to assess the consequences of effluent releases. And when, operating under the initial rule, the Atomic Safety and Licensing Appeal Board suggested the desirability of discussing health effects for comparing nuclear with coal plants, In re Tennessee Valley Authority (Hartsville Nuclear Plant Units), 5 N.R.C. 92, 103, n. 52 (1977), the Commission staff was allowed to introduce evidence of public health consequences. Cf. In re Public Service Company of Indiana (Marble Hill Nuclear Generating Station), 7 N.R.C. 179, 187 (1978).
"[W]hile it is true that NEPA places upon an agency the obligation to consider every significant aspect of the environmental impact of a proposed action, it is still incumbent upon intervenors who wish to participate to structure their participation so that it is meaningful, so that it alerts the agency to the intervenors' position and contentions."
435 U.S. at 435 U. S. 553.
In short, we find it totally inappropriate to cast doubt on licensing proceedings simply because of a minor ambiguity in the language of the earlier rule under which the environmental impact statement was made, when there is no evidence that this ambiguity prevented any party from making as full a presentation as desired, or ever affected the decision to license the plant.
* Together with No. 82-545, United States Nuclear Regulatory Commission et al. v. Natural Resources Defense Council, Inc., et al.; and No. 82-551, Commonwealth Edison Co. et al. v. Natural Resources Defense Council, Inc., et al., also on certiorari to the same court.
"The Congress authorizes and directs that, to the fullest extent possible . . . (2) all agencies of the Federal Government shall -- "
"(ii) any adverse environmental effects which cannot be avoided should the proposal be implemented, [and]"
The original Table S-3 rule was promulgated by the Atomic Energy Commission (AEC). Congress abolished the AEC in the Energy Reorganization Act of 1974, 42 U.S.C. § 5801 et seq., and transferred its licensing and regulatory functions to the Nuclear Regulatory Commission (NRC). The interim and final rules were promulgated by the NRC. This opinion will use the term "Commission" to refer to both the NRC and the predecessor AEC.
"(A) arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law."
A light-water nuclear powerplant is one that uses ordinary water (H^20), as opposed to heavy water (D^20), to remove the heat generated in the nuclear core. See Van Nostrand's Scientific Encyclopedia 1998, 2008 (D. Considine & G. Considine eds., 6th ed.1983). The bulk of the reactors in the United States are light-water nuclear reactors. NRC Ann. Rep. Appendix 6 (1980).
For example, the tabulated impacts include the acres of land committed to fuel cycle activities, the amount of water discharged by such activities, fossil fuel consumption, and chemical and radiological effluents (measured in curies), all normalized to the annual fuel requirement for a model 1,000 megawatt light-water reactor. See Table S-3, reprinted in the Appendix, infra [omitted].
Under the Atomic Energy Act of 1954, 68 Stat. 919, as amended, 42 U.S.C. § 2011 et seq., a utility seeking to construct and operate a nuclear powerplant must obtain a separate permit or license at both the construction and the operation stage of the project. After the Commission's staff has examined the application for a construction license, which includes a review of possible environmental effects as required by NEPA, a three-member Atomic Safety and Licensing Board conducts a public adjudicatory hearing and reaches a decision which can be appealed to the Atomic Safety and Licensing Appeal Board and, in the Commission's discretion, to the Commission itself. The final agency decision may be appealed to the courts of appeals. A similar procedure occurs when the utility applies for an operating license, except that a hearing need be held only in contested cases. See Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U. S. 519, 435 U. S. 526-527 (1978).
High-level wastes, which are highly radioactive, are produced in liquid form when spent fuel is reprocessed. Transuranic wastes, which are also highly toxic, are nuclides heavier than uranium that are produced in the reactor fuel. See Natural Resources Defense Council, Inc. v. NRC, 222 U.S.App.D.C. 9, 16, n. 11, 685 F.2d 459, 466, n. 11 (1982).
In Vermont Yankee, we indicated that the Court of Appeals could consider any additions made to the record by the Commission, and could consolidate review of the initial review with review of later rules. 435 U.S. at 435 U. S. 537, n. 14. Consistent with this direction, the parties stipulated that all three versions of the rule could be reviewed on the basis of the whole record. See 222 U.S.App.D.C. at 21, n. 39, 685 F.2d at 471, n. 39.
Judge Bazelon wrote the opinion for the court. Judge Wilkey joined the section of the opinion that rejected New York's argument that the waste disposal technology assumed for calculation of certain effluent release values was economically infeasible. That issue is not before us. Judge Wilkey filed a dissenting opinion on the issues that are under review here. Judge Edwards of the Court of Appeals for the Sixth Circuit, sitting by designation, joined these sections of Judge Bazelon's opinion, and also filed a separate opinion concurring in part and dissenting on the economic infeasibility issue.
As the Court of Appeals recognized, 222 U.S.App.D.C. at 31, n. 118, 685 F.2d at 481, n. 118, the Commission became increasingly candid in acknowledging the uncertainties underlying permanent waste disposal. Because all three versions of Table S-3 use the same zero release assumption, and the parties stipulated that the entire record be used in reviewing all three versions, see n 8, supra, we need review only the propriety of the final Table S-3 rule. We leave for another day any general concern with an agency whose initial Environmental Impact Statement (EIS) is insufficient but who later adequately supplements its consideration and disclosure of the environmental impact of its action.
The record includes more than 1,100 pages of prepared direct testimony, two rounds of questions by participants and several hundred pages of responses, 1,200 pages of oral hearings, participants' rebuttal testimony, concluding statements, the 137-page report of the hearing board, further written statements from participants, and oral argument before the Commission. The Commission staff has prepared three studies of the environmental effects of the fuel cycle: Environmental Survey of the Uranium Fuel Cycle, WASH-1248 (Apr.1974); Environmental Survey of the Reprocessing and Waste Management Portions of the LWR Fuel Cycle, NUREG-0116 (Supp. I to WASH-1248) (Oct.1976) (hereinafter cited as NUREG-0116); and Public Comments and Task Force Responses Regarding the Environmental Survey of the Reprocessing and Waste Management Portions of the LWR Fuel Cycle, NUREG-0216 (Supp. 2 to WASH-1248) (Mar.1977).
"care should be taken to ensure that the statement remains an essentially self-contained instrument, capable of being understood by the reader without the need for undue cross reference."
38 Fed.Reg. 20554 (1973), 40 CFR § 1500.8(b) (1974). The present regulations state that incorporation by reference is permissible if it will not "imped[e] agency and public review of the action. The incorporated material shall be cited in the statement and its content briefly described." 40 CFR § 1502.21 (1982). The Court of Appeals noted that NEPA "requires an agency to do more than to scatter its evaluation of environmental damage among various public documents," 222 U.S.App.D.C. at 34, 685 F.2d at 484, but declined to find that the incorporation of other documents by reference would invalidate an EIS that used Table S-3 to describe the environmental impact of the fuel cycle. The parties here do not treat this insufficient disclosure argument as a separate argument and, like the Court of Appeals, we decline to strike down the rule on this ground. We do not deny the value of an EIS that can be understood without extensive cross-reference. The staff documents referred to in Table S-3 are public documents, however, and we note that the Commission has proposed an explanatory narrative to accompany Table S-3, which would be included in an individual EIS, that may alleviate some of the concerns of incorporation. See n 13, infra.
In March 1981, the Commission submitted a version of the explanatory narrative for public comment as a proposed amendment to the final fuel cycle rule. 46 Fed.Reg. 15154 (1981). The Commission has not yet adopted a final narrative.
In response to Minnesota v. NRC, 195 U.S.App.D.C. 234, 602 F.2d 412 (1979), the Commission has initiated a "waste confidence" proceeding to consider the most recent evidence regarding the likelihood that nuclear waste can be safely disposed of and when that, or some other off-site storage solution, can be accomplished. 44 Fed.Reg. 61372 et seq. (1979). See id. at 45363. The recently enacted Nuclear Waste Policy Act of 1982, Pub.L. 97-425, 96 Stat. 2201, 42 U.S.C. § 10101 et seq. (1982 ed.), has set up a schedule for identifying site locations and a funding mechanism for development of permanent waste repositories. The Environmental Protection Agency has also proposed standards for future waste repositories, 47 Fed.Reg. 58196 et seq. (1982).
For example, Table S-3 assumes that plutonium will not be recycled. The Commission noted that, in response to a Presidential directive, it had terminated separate proceedings concerning the possibility of recycling plutonium in mixed oxide fuel. 44 Fed.Reg. 45369, n. 28 (1979). See In re Mixed Oxide Fuel, 6 N.R.C. 861 (1977); In re Mixed Oxide Fuel, 7 N.R.C. 711 (1978).
The Commission also increased the overall conservatism of the Table by overestimating the amount of fuel consumed by a reactor, underestimating the amount of electricity produced, and then underestimating the efficiency of filters and other protective devices. See Conclusions and Recommendations of the Hearing Board Regarding the Environmental Effects of the Uranium Fuel Cycle, Docket No. Rm 50-3, App. to Pet. for Cert. in No. 82-524, pp. 282a-293a. Additionally, Table S-3, which analyzes both a uranium-recycle and no-recycle system, conservatively lists, for each effluent, the highest of the two releases that would be expected under each cycle. 41 Fed.Reg. 45849, 45850 (1976).
The Court of Appeals recognized that the Commission could weigh certain generic costs and benefits of reactors against each other to produce a generic "net value" to be used in individual licensing proceedings. 222 U.S.App.D.C. at 32, 685 F.2d at 482. We see no reason why the Commission does not have equal discretion to evaluate certain environmental costs together to produce a generic net cost.
For example, using this approach, the staff estimated that a meteor the size necessary to damage a repository would hit a given square kilometer of the earth's surface only once every 50 trillion years, and that geologic faulting through the Delaware Basin in southeast New Mexico (assuming that were the site of the repository) would occur once in 25 billion years. NUREG-0116 at 4-87. The staff determined that a surface burst of a 50 megaton nuclear weapon, far larger than any currently deployed, would not breach the repository. Ibid. The staff also recognized the possibility that heat generated by the waste would damage the repository, but suggested this problem could be alleviated by decreasing the density of the stored waste. In recognition that this suggestion would increase the size of the repository, the Commission amended Table S-3 to reflect the greater acreage required under these assumptions. See 44 Fed.Reg. 45369 (1979).
Of course, just as the Commission has discretion to evaluate generically aspects of the environmental impact of the fuel cycle, it has discretion to have other aspects of the issue decided in individual licensing decisions.


When Prince passed away on April 21, 2016, he left no will, and now his heirs appear ready for a long fight over his estate. Apparently, their first meeting about the estate ended in shouting. Heirs can battle over any substantial estate, and there are particular complications when it involves an artist. Some of what Prince’s heirs are fighting over is the ownership of his works — his published and unpublished music compositions and recordings. Copyright law will have a significant impact on who has what rights, and for how long. Three particular areas affecting their rights are the termination of transfer (17 U.S.C. § 203), the term of copyright for published and unpublished works (17 U.S.C. § 302), and the contracts already in place. The drafting of a will for an artist, or the administration of a late artist’s estate, should include a consult from an attorney for copyright due diligence.
There is an inherent feeling of unfairness for an artist when they sign away the rights to their works, which against all odds go on to become popular and make a fortune for the rightsholder — and not the artist. To address this, the Copyright Act built in a “termination of transfer” provision that gives an author an opportunity to claw back their works after 35 years, essentially giving the artist “another bite at the apple.” 17 U.S.C. § 203. There are court cases about termination of transfer for “Santa Claus is Coming to Town,” Winnie the Pooh, Archie Comics, Ray Charles, the Village People and a few others, but there aren’t very many published opinions offering guidance about interpreting the law. The battles over the Prince estate may explore these issues for decades.
Most of Prince’s Works are Owned by the Estate and Licensed to Warner Bros.
Prince’s first album For You was released in 1978, but still earns money for its publisher Warner Bros. Records to this day. Had Prince wanted to, in 2013 he could have rescinded the rights to distribute his 1978 album from Warner Bros. In 2014, he could have terminated the transfer of his 1978 or 1979 albums, and reclaimed control over them. Had he wanted, he could have kept terminating transfers as his most popular albums hit their 35 year mark: Controversy (2016), 1999 (2017), Purple Rain (2019), Around the World in a Day (2020), Parade (2021), Sign o’ the Times (2022), Lovesexy (2023), Batman (2024), Graffiti Bridge (2025), Diamonds and Pearls (2026) and so on. Instead, in 2014 Prince and Warner Bros. Records redid their deal, which apparently resulted in Prince’s reclaiming ownership in his back catalogue, and Warner Bros. retaining certain rights to distribute his music. This effectively resets the clock on the termination right, which can’t be exercised against Warner Bros. for the works covered by this agreement until 2049. Warner Bros. and other record labels appear to be quite flexible in redoing deals with their artists with still-popular back catalogues that are approaching their 35-year termination of transfer dates. Musicians are finding that the evolution of digital recording and distribution give them much more of an ability to exploit their works without the help of a record label, which gives them even more leverage to get even more favorable deals if they renegotiate. The termination of transfer right and technological advances are giving artists just the second bite at the apple envisioned by the termination of transfer clause’s authors — as long as the artists and their heirs have the legal counsel to help them take advantage of it. Warner Bros. chose to do what it could to lock up Prince’s most lucrative works in the face of a termination of transfer.
However, there may be other licenses and transfers of rights in Prince’s works that were not affected by the Warner Bros. agreement. The oldest of these licenses and transfers are eligible for termination, and more will be in the coming years. The mechanics of the termination are a bit complicated, but are based on the passage of 35 years since the initial transfer of copyright. For the purposes of illustration, imagine that shortly after Prince released “Purple Rain” in 1984, he licensed the song to Hallmark for exclusive use in musical greeting cards. Even if the contract said that Hallmark had the right to make “Purple Rain” greeting cards for the entire duration of copyright, Section 203 allows Prince to terminate that license after 35 years. The termination can take place as early as 2019, or within five years after that in 2024. It’s a five-year window to terminate — after that, Prince would have lost his chance. To terminate a transfer related to “Purple Rain” as early as possible in 2019, Prince would need to notify Hallmark between 2009 and 2017, since the law calls for written notice no more than 10 and no less than two years before the termination would take effect. During that time between the notice and the termination, the original parties can renegotiate their deal, in this case Prince and Hallmark. If they couldn’t come to an agreement, the termination takes effect, and the greeting card rights to “Purple Rain” would revert to Prince. Only after the termination took effect could Prince make a new deal with another party for “Purple Rain” greeting cards. There are many other contours to the law, and there is very little caselaw on how it works, so it is ripe for controversy and error without the guidance of an attorney who understands the process. And because Prince has passed, there is the further question of who (if anyone) can terminate a transfer in the first place.
There may end up being an interesting split between who owns the copyright to Prince’s work, and who has the right to terminate a transfer. Under Minnesota state law, Prince’s estate, including his copyrights, will descend to his sister Tyka Nelson and their five living half-siblings. (More than 700 people have claimed to be Prince’s half-sibling, but none have yet been recognized by the court.) But under the termination of transfer law, siblings of the author do not have the right to terminate. Section 203 says that widows/widowers, children and grandchildren are the family members who have termination rights. Prince left no living widow, children, or grandchildren, so none of that applies to his works. According to the termination law, siblings are not next in line — “In the event that the author’s widow or widower, children, and grandchildren are not living, the author’s executor, administrator, personal representative, or trustee shall own the author’s entire termination interest.” So who will “inherit” Prince’s right to terminate the transfers in his works? Who will actually get the second bite at the apple?
As of this writing, the termination of transfer right is owned by the court-appointed “special administrator” the Bremer Trust, which provided financial services to Prince for many years. “Administrator” is one of the entities recognized by the termination of transfer law. The Bremer Trust was appointed special administrator by request of Prince’s sister Tyka Nelson. The Bremer Trust could exercise Prince’s termination rights for older works now, and may even find it necessary to do so given the strict deadlines of the termination right. However, the special administrator should be replaced within six months by a more permanent representative. Tyka or any of the other siblings could seek to be named Prince’s administrator, and the court could also name the Bremer Trust or another neutral party. An administrator is typically thought of as being a functional role, carrying out the best interests of the estate, distributing property by function of law and not operating for its own benefit. However, the termination of transfer creates a strange situation where the administrator him or herself becomes the owner of the terminated right (or work, if it was transferred in its entirety). It is not clear whether the administrator is required to redistribute any terminated rights to Prince’s heirs, all of whom would be well-advised to raise these issues before the permanent administrator is appointed by the court. There may be a contractual agreement among the administrator and the heirs or a court order concerning the exercise of the termination of transfer right, but the actual termination must be made by the court-appointed administrator, the only party recognized by the Copyright Act. Unless addressed by the court, this means that the heirs who own Prince’s works by the mechanics of estate law could lose their rights to their own administrator slowly over time through termination of transfer. There will certainly be a struggle among the parties over the selection of a favorable administrator, who may not be bound by any restriction with regards to termination of transfer. There could be a contractual agreement between the heirs and the administrator, but the statute may make such an agreement unenforceable. The court’s order in establishing the administrator — and its interpretation of the statute — could be worth a fortune.
The fight will likely go on for a long time. But it will come to an end on a date certain for most of Prince’s works. It is very unusual for works to be commercially valuable through their entire term of copyright. There are millions of works in the Copyright Office registry that have been all but forgotten. But Prince is the kind of iconic, transformational artist whose works could very well still be earning money for generations. Under current law, the term of copyright protection is the life of the author plus 70 years, which in Prince’s case is 2086. This applies to both Prince’s published and unpublished works.
Prince also wrote under several pseudonyms, including Jamie Starr, Joey Coco, Alexander Nevermind and Christopher, and occasionally used those names for the copyright registration. Copyright for pseudonymous works lasts for 95 years from publication, or 120 years from creation, whichever expires first. 17 U.S.C. 302(c). Some of these were registered with the Copyright Office to Prince, even though they were publicly credited to one of his pseudonyms. However, if a simple supplement is filed with the Copyright Office, the term of copyright and the termination of transfer rights remain the same, as if Prince had been credited as the author in the first place. 17 U.S.C. 302(c), § 408(a), (d). This has already been done for many of these pseudonymous works, such as “Manic Monday.” The heirs could choose to leave the registration pseudonymous, but that would likely result in a shorter term of copyright. Prince used pseudonyms primarily in the early part of his career, and works published pseudonymously before 1991 and left unclaimed would expire earlier than the 2086 expiration of works credited to Prince.
In the case of a joint work prepared by two or more authors who did not work for hire, the copyright endures for a term consisting of the life of the last surviving author and 70 years after such last surviving author’s death. 17 USC 302(b). Prince occasionally wrote with co-authors who have also passed, so the copyright in those songs will last (under current law) until 2086. Many of Prince’s co-authors are still alive, such as Madonna for “Love Song,” so the copyright expiration cannot yet be determined, but will last beyond 2086.
Prince’s heirs may challenge any assertion that any of Prince’s works were “works made for hire.” When a company hires an artist to create a certain kind work and follows certain statutory requirements, the company is considered the author of the work as a work for hire. For a work for hire, term of copyright is 95 years from publication or 120 years from creation, whichever expires first. Songs like Prince’s embody two copyrights: the copyright in the composition, and the copyright in the recording. Record contracts typically provide that the recording is a work for hire created by the record label as author, not the artist. As such, the termination of transfer is unavailable for works made for hire. However, that status has been regularly challenged in courts, and it may turn out that despite the language of a particular record contract, Prince’s recordings were authored by Prince and transferred to the record label, rather than considered authored by the record label as works for hire. Although this determination affects the term of copyright, it is more impactful on the termination of transfer right, and likely to be a source of litigation as the termination rights in Prince’s works mature over the next seventy years.
Most Prince songs are credited in the copyright registration solely to Prince, like “Purple Rain” and “1999.” Other songs have multiple authors. The Prince and the New Power Generation song “7” has three authors — Prince and the late blues musicians Lowell Fulsom (d. 1999) and Jimmy McCracklin (d. 2012). Joint authorship affects both the term of copyright and the termination of transfer.
The termination of transfer is granted to any majority block of owners of the right to terminate. If Prince wrote a song with one other living co-author, then termination can only be affected by the co-author plus Prince’s administrator. Where Prince is co-author with more than one person, the transfer could be terminated without Prince’s administrator’s participation. However, even if Prince’s heirs and administrator object to such a termination, they are entitled to an equal share of any further exploitation of such works.
It gets more complicated where Prince’s collaborators are also deceased. Prince co-authored some songs with his jazz musician father, the late John L. Nelson, such as “Computer Blue” from the Purple Rain album. In such a case, the termination of transfer will depend on both Prince’s administrator and his father’s heirs. John L. Nelson has several living children (Prince’s siblings) and grandchildren who could claim an equal part of the right to terminate transfer. Whichever of them (or their descendants) is alive at the time of the maturation of the right to terminate a transfer of one of those co-authored songs will need to cobble together a majority group of Nelson’s children and grandchildren that owns the right to terminate, and also Prince’s administrator. This complexity is multiplied where there are multiple deceased authors, as with the song “7.” It is possible that heirs who were shut out of a will would nonetheless own or share the late author’s right of termination. These rights can be organized by an attorney in the present, even if they can’t be exercised until some future date.
Although not a part of copyright law, the right to exercise certain copyright rights will intersect with Prince’s rights of publicity. Certain states have laws or court decisions that allow people to protect the use of their personas in commerce. As of this writing, Minnesota protects rights of publicity through court rulings (Lake v. Wal-Mart Stores, Inc., 582 N.W.2d 231 (Minn. 1998); Ventura v. Titan Sports, Inc., 65 F.3d 725 (8th Cir. 1995)), but does not have a right of publicity statute, and is silent on whether those rights exist after the celebrity has passed. However, Minnesota’s Senate and House of Representatives recently introduced a new bill that would establish a broad right of publicity that would cover Prince — the Personal Rights in Names Can Endure Act. The PRINCE Act would grant extended publicity control to the artist’s estate and limit commercial use of his name and likeness by others. It would last for the celebrity’s life plus at least 50 years, thereafter for as long as it is still in use, and would apply retroactively to celebrities who died within 50 years before the law’s passage. In Prince’s case, the right would descend to his siblings, and be further sellable or descendible by them, until at least 2066. Any exercise of copyright in Prince’s work would likely be accompanied by a consideration of his post mortem rights of publicity.
Because we’re talking about such a long time, copyright law itself may change. Copyright law has gone through major revisions in the United States that have affected the term of copyright. Each copyright regime has stayed in place for decades since the first Copyright Act of 1790. Major changes came in 1831 (which was essentially preserved in the Confederacy under 1861 and 1863 Confederate acts, and honored after the war) and again in 1909. The current regime is the Copyright Act of 1976, which federalized copyright law, removed formalities, and came into effect on January 1, 1978 — coincidentally the dawn of Prince’s career. Each of these revisions expanded the rights of authors and more forcefully protected intellectual property. This gradual increase in copyright protection is not surprising, as the United States evolved from a country that largely imported the creative works it consumed, into the world’s largest exporter of intellectual property. One recent change in copyright law added the administrator as a possible claimant for termination of transfer — previously, it had only been children or grandchildren. We can expect another change in the law between now and the expiration of copyright in Prince’s works in 2086. We can further expect that such a change will increase protection of his works, either in length of term or some unforeseen manner.
Because of the administrator’s ownership of the right to terminate, there must be an administrator in power at least through 2086, when Prince’s works finally enter the public domain. The administrator will have responsibilities beyond 2086, to exercise the termination rights for works Prince co-authored with collaborators who have not yet passed as of 2016. During his lifetime, Prince was a tireless advocate of his rights as an artist, using copyright law to control and protect his artistic footprint, even when it seemed like it would cost him more than it would gain. For different reasons, it appears that more contentious exploration of copyright law will continue to be part of his legacy. Needless to say, it will be a long time before Prince’s estate is fully settled. Any successful artist would be wise to consult with an attorney about the effect of copyright law on their estate, and not leave behind the uncertainty faced by the Prince heirs.
17 usc 203; 17 USC 302.
Developers (and coders and programmers) dream of creating the next Facebook, the next Uber, the next Spotify. But dreaming doesn’t pay the bills, so these developers probably work for someone else in the meantime. When dreaming turns into coding on nights and weekends, things start to get tricky with regard to employment agreements.
Developers are a very smart class of people, and often rely on their own judgment when looking over their employment paperwork when they start a new job. Unfortunately for both employee and employer, this often leads to adversarial consequences. When the programmer wants to leave the job to work on the dream, and the legal meaning of language in a contract doesn’t line up with the developer’s understanding, both the job and the dream can go up in smoke. This problem doesn’t affect just tech companies — many large companies hire developers in one capacity or another. There are many ways an employment agreement can trip up a dreaming developer and employer, often wrapped up in the No Moonlighting and Work for Hire clauses.
You agree that you will not engage in any other business activities or render services of a business or commercial nature on your own behalf or on behalf of any other person, corporation or any other entity, whether for compensation or otherwise, without [Company]’s prior written approval.
A narrow No Moonlighting clause might restrict you from freelance developing on your own time; a broad No Moonlighting clause might restrict you from tending bar on your own time.
As you can see, the devil is in the details, and a particular clause (if you can find it in the employment agreement) may not be that easy to understand without the help of an attorney. A client of mine went to quit his job to work full time on his personal time project, and an amicable employer became suddenly aggressive. His employer claimed that not only did it own his project under the Work for Hire clause, but the (now former) employee was in breach of contract under the No Moonlighting clause. Naturally he panicked. We got him through it, but he would have been much better able to manage his project, or even change his employment agreement, if he had consulted with an attorney before he signed his employment agreement.
I hereby assign to the Company… all my right, title, and interest in and to any and all inventions, original works of authorship… which I may solely or jointly conceive or develop… during the period of time I am in the employ of the Company… except an Invention that (i) I develop outside of the Company’s normal working business hours and (ii) does not relate to the Company’s business as currently conducted, or as conducted in the future. I further acknowledge that all original works of authorship which are made by me (solely or jointly with others) within the scope of and during the period of my employment with the Company and which are protectable by copyright are “works made for hire,” as that term is defined in the United States Copyright Act.
All inventions, innovations, improvements, methods, designs, drawings, characters, props, molds and all similar or related information (whether or not patentable) that relate to the Company’s or its Affiliates’ actual or planned business, research and development or existing or planned products or services and that the Employee conceived, developed, or made while an employee of, or a consultant to, the Company (collectively, the “Work Product”) … consisting of copyrightable subject matter is “work made for hire” as defined in 17 U.S.C. § 101 and such copyrights are therefore owned by the Company.
Miller’s job description did not specifically state that he was to develop computer programs. Miller was not assisted by others in the development of the computer programs. Finally, Miller did not receive any type of additional compensation for the work done on his own time. However, the driving force behind the creation of the computer programs was to benefit CP by making the quality control laboratory more efficient. Furthermore, the development of the computer programs was clearly incidental to the other work performed by Miller. . . . [T]he court concludes that the development of the computer programs by Miller was within the scope of his employment.
Regardless of the outcome, neither side could have been pleased that they were stuck in a lengthy litigation.
Ideas for the business that the developer doesn’t want the employer to steal.
The employer may not even care, but the employee’s (possibly justified) reluctance makes it even harder for the employer to help a new employee understand what they’re getting into. And there are several other standard clauses peppered throughout a developer’s employment agreement (and even the company policy documents) that might affect a developer’s ownership of personal time programming. Some companies keep attorney business cards on hand because they prefer their new developers to seek counsel, even just for an hour or two, to prevent conflict (and legal expense) in the long run. Counseling with an independent attorney can preemptively solve problems like that for both sides while everyone is still feeling good about each other.
Even if a developer didn’t hire an attorney for an employment agreement review, the terms were unfavorable to the employee, and things went badly through the course of employment, it still isn’t too late to seek help. No one wants to go to court, no matter how much bluster one side or the other might display. And it may not even be in either side’s interest to strictly enforce the No Moonlighting/Work for Hire clauses of an employment agreement. Further, overreaching or poorly written No Moonlighting restrictions or Work for Hire grabs may not be enforceable in court. When employment ends, the terms of the employment agreement may dictate strict adherence. But in practice, they often serve as simply the basis for negotiations, especially once the developer leaving the job has representation. One client of mine had created a proof of concept app that was unrelated to his assignments, but would help his employer. When he quit the job to develop it fully, the employer claimed that they owned his app. But because it was only at an early stage of development, it was practically useless without further development from the ex-employee. The sides came to a negotiated agreement involving joint ownership of the new company formed to develop the app that adequately incentivized the developer while giving the employer some benefit of the bargain set forth in the employment agreement.
Mattel, Inc. v. MGA Entm’t, Inc., 616 F.3d 904, 912-13 (9th Cir. 2010), as amended on denial of reh’g (Oct. 21, 2010) (exploring the ambiguity of the phrase “at any time during my employment”).
Advanced Tech. Servs., Inc. v. KM Docs, LLC, 330 Ga. App. 188, 196, 767 S.E.2d 821, 828 (2014), reconsideration denied (Dec. 4, 2014) (finding a developer employment agreement for personal time programming to be ambiguous).
You can sell your used records, books, and other copies of creative works without needing permission from the copyright owner of those works. This is the “first sale” doctrine (17 U.S.C. §109), and has been the law of the land for over a century. In the Internet age, songs and other works are bought and distributed digitally, and may never exist in a traditional physical form like a CD or cassette tape. Does the first sale doctrine still exist for digital works? Capitol Records, LLC v. ReDigi Inc., 934 F. Supp. 2d 640 (S.D.N.Y. 2013) takes a look at the issue, and explores the cutting edge of the first sale doctrine.
Copyright decisions issued by the Supreme Court over the last two decades have followed a trend: Justice Ginsburg tends to write in favor of the authors and intellectual property owners, and Justice Breyer tends to write in favor of the intellectual property repurposes and distributors. What does this mean for the impending ABC v Aereo decision about the redistribution of broadcast television programs?


URAYB WADHAN, and SAID WADHAN, Defendants.
THIS MATTER comes before the Court on the Defendants' Motion for Judgment on the Pleadings (# 33), the Plaintiff's response (# 34), the Defendants' reply (# 35), and the Plaintiff's surreply (# 44).
The Internal Revenue Service (IRS) seeks a judgment for civil penalties assessed against Defendants Urayb Wadhan and Said Wadhan (the Wadhans), who had interests in multiple overseas bank accounts, each with a balance greater than $10, 000. The Wadhans contend that the IRS lacked the authority to impose any penalty in excess of $100, 000. To resolve this dispute, the Court exercises jurisdiction pursuant to 28 U.S.C. § 1331.
According to the Complaint, the Wadhans failed to file or filed inaccurate Forms TD F 90.22-1, Report of Foreign Bank and Financial Accounts (FBAR) for 2008, 2009, and 2010. As a consequence, the IRS assessed numerous penalties for multiple FBAR violations, many of which were flat amounts of $100, 000. But for three violations, the IRS assessed penalties of $1, 108, 645.41 for 2008, $599, 234.54 for 2009, and $599, 234.54 for 2010.
The Defendants move for judgment on the pleadings (# 33) contending that the penalties for years 2008, 2009 and 2010 must be capped at $100, 000.
Typically, an “agency's action is entitled to a presumption of validity, and the burden is upon the petitioner to establish the action is arbitrary or capricious.” Sorenson Commc'ns Inc. v. FCC, 567 F.3d 1215, 1221 (10th Cir. 2009). Once agency action is challenged, a district court reviews the action as if it were an appellate court, applying the Administrative Procedure Act. See Olenhouse v. Commodity Credit Corp., 42 F.3d 1560, 1580 (10th Cir. 1994). The Court can set aside agency action if it is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” 5 U.S.C. § 706(2)(A).
The factual record in conjunction with a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c) is the same as that under Rule 12(b). See Ramirez v. Dep't of Corr., 222 F.3d 1238, 1240 (10th Cir. 2000). The Court accepts all well-pleaded allegations in a complaint as true and views those allegations in the light most favorable to the nonmoving party. Stidham v. Peace Officer Standards & Training, 265 F.3d 1144, 1149 (10th Cir. 2001) (quoting Sutton v. Utah State Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir. 1999)). The Court also limits its consideration to the four corners of a complaint, any exhibits attached thereto, and any external documents referred to in the complaint if such document is central to the claim and the parties don't dispute the authenticity of the document. See Smith v. United States, 561 F.3d 1090, 1098 (10th Cir. 2009). Alvarado v. KOB-TV LLC, 493 F.3d 1210, 1215 (10th Cir. 2007).
Ordinarily, a Rule 12(c) motion is directed to the claims asserted in the Complaint such that “judgment on the case can be achieved by focusing on the content of the pleadings.” SKS Investments Ltd. v. Gilman Metals Co., No. 12-CV-0806, 2013 WL 249099 at *1 (D. Colo. Jan. 23, 2013). In the Complaint, the IRS asserts only two claims - one against each Defendant for penalties pursuant to 31 U.S.C.§5321(a)(5) for willful failure to file accurate forms for numerous off-shore bank accounts (Report of Foreign Bank and Financial Accounts) for 2008, 2009 and 2010. In contrast, the issue presented in the subject motion only concerns penalties imposed on certain accounts, but as to both Defendants.
Because the issue raised in the extant motion is much narrower, and not configured to match the claims asserted, the Court inquired of counsel how a ruling might be fashioned. Based on their representations at a hearing conducted on July 17, 2018, the Court understands that the parties have submitted all evidence that would bear on this issue in conjunction with this motion. The Court therefore converts the motion to one brought pursuant to Rule 56(a), and finds that there is no genuine issue of material fact. Accordingly, the issue raised can be determined as a matter of law. Fed.R.Civ.P. 56(a).


text:
Take it easy, cowboy. w £ m Thomas J.
Vannoy 6 finley Duncan. 1 p. Prev. pub.
I'm hung up on you. w 6 m Jim Foster.
I want you. w 6 m Finley Duncan. 1 p.
Sweet country woman. w £ m Billiam P.
God is alive. w £ m Leonard V. Tobin.
To Cataan 's land. w £ m Leonard V.
A Heart of praise, w fi m Leonard V.
Love fulfills the law. u 6 m Leonard V.
Be merciful unto me. w S m LeoLutd V.
He's passing this way. w £ m Leonard V.
Leonard V. Tobin. 1 p. © Leonard V.
for verse 5 £ musical setting: William A.
Inside; quartet for 1 doublebass player.
m Kenneth Gaburo. 4 p. in folder.
8 Lingua Press; 16Mar76; EP352232.
Worthy is the Lord. w £ m Mark S.
piano, m Seymour Bernstein. 32 p.
I love you more than 5aT\ta Claus.
Lyrics, m, arr. £ art: Alfred H, Hhitmore.
Alfred B. Hhitmore. « p . 6 Alfred H.
Merrell, m Larry Brandeberry. 1 p.
In your eyes, w E m Janes Turner. 3 p.
23Apr76 (in notice: 1975); EP3522I45.
Sweet woman. w E m John Brent. 1 p.
forest. Prev. reg. 2MApr67, E0991826.
Lowry B Morgan Lowry: iaar76; EP352251 .
Open up your heart. w E m Alan push.
Denuis Linde & laomAS Cain. 3 p.
When you vere mine. « b m Wilton F.
Tried it and liked it, h e m James M.
He's mine. w 6 m James M. Ingram. 1 p.
Ingram Kingdom. t & m James M. Ingram.
Music S Faaily Susie; 28Apr76; EP352263.
Troubles behind. » £ a James M. Ingram.
Husic £ Family ausic; 26ipr76; EP35226C.
and Printing Company; lApr76; EP352268.
Fred McLeod £ Jeffrey Prank Wood. 3 p.
Jesus, lay your lovin' on, v Eona]d B.
E. Drake, m Allen H. Henson. 1 p.
All I can do. w £ m Dolly Parton. 2 p.
piano or harpsichord. m Paul B. Hagan.
Almo Publications. 132 p. Prev. reg.
ED56t;35; prev. pub. tDec75, EP3U596lt.
MM: acccrdion arr. 8 Jumbuck Music, Ltd.
fi AlV Music, Ltd.; 8Mar76; EP352230.
tarphen, S.3.A. arr. William Simon, 3 p.
Appl. au: S.S.A. arr. Mighty Three Music.
prev. pub. 21Jaa76, EP3'*8615. N«: arr.
tarphen, S.A.B, arr, William Simon. 9 p.
Ippl. au: S.A.B. arr. Highty Three Music.
Prev. reg. 30Jun75, EU593155; prev. pub.
hire of Eric w. Knight, prev. reg.
Call to remembrance. SAB, a cappella.
Walter Ehret £ Harry R. Wilson, 6 p.
Breton lullaby. For 2-part chorus.
Text £ arr. Carl s. Miller. « p. Add.
ti: Hon bel enfant. NH: text 6 arr.
e Bourne Company; 9Apr76; EP352286.
S. Miller. U p. NM: text £ arr.
e Bourne Company; 9Apr76; EP352287.
Music Company, Inc.; 5Mar76 ; Er352289.
Music Company, Inc.; 5Har76; i;p352290.
Neil Sedaka £ Phil Cody, arr. Frank Metis.
Kirshner Songs, Inc.; 13Jan76; EP35229it.
Gracious God, reveal Thy will unto me.
Stralsuad Gesaagbucb. Arr, James Beckham.
uusician, Nov. 1975, p. 30-33) NM: arr.
C Broadman Press; 80ct75; EP352298.
hire of Bark Podolnick. Prev . reg .
27[lay75, £0532633. Nd: piano vocal arr.
Inc., employer for hire of John Curtin.
vocal arr. with guitar chords.
6 Benchmark dusic; 1UeD76; EP352300.
hire of Mark Podolnick. Prev. reg.
Lov€i is coming home, w e m Earl Long.
Come spring, w 6 m Earl Long. 1 p.
C Ancient Music; 28Apr76; EP352305.
compilation: Lexicon Bustc, Inc, Prev.
reg. NM; compilation £ 9 arrangements.
O Lexicon Music, Inc.; 1D6c75; EP352307.
It must be love. w £ m Tony Joe Wnite.
arr. Robert J. Aliano. 1 p. 6 Robert J.
lyrics fi s. Nicolo J. De Maria. 1 p.
NM: Spanish, French fi German lyrics.
Temper, temper. w £ m Oren L. Russell.
e Lexicon Music, Inc.; 5Bar76; EP352323.
Hawkins. With words. (In Love alive, p.
e Lexicon Music, Inc.; 5l1ar76; EP352326.
Hawkins, with words. (In Love alive, p.
I'm not the same, w 6 m Halter Hawkins.
Music, Inc.; 5Mar76 ; EP352329.
music. © Samuel Flor; 10ct75; EP352330.
Leonard LaCour £ Johnny Dee. 1 p.
Yesterday's memories, w fi m Jerry P.
Lay it OE Jesus. u 6 i w. E. Shively.
Outlaw. V a Jcha «. Johnson. 3 p.
Hod'jes S Geneva L. Hodges. 2 p.
some words, adapted words, £ music.
6 Bourne Company; 31ilar7c; EP352350.
u Anu Leak&s, m !jilci Hughes. 5 p.
Hear the glad tidings. For S.i.I.B.
Basgue tune, m arr. Michael McCabe. 11 p.
Part on p. 11. SB: words £ music arr.
instcuireEts. w £ m Dale uood. 8 p.
piano. tf £ m Robert u. Thygerson. 8 p.
patriotic £ secular patriotic; parts ort p.
Heritage Music Press; 5Apr76; EP352357.
Songs of substance for stouthearted men.
TTBfi. m arr. kobert w. Thygerson. 24 p.
w Jcnn H. Payne, m David N. Johnson. 7 p.
Add. ti: «e give our thanks. NM : music.
chorus £ piano, w fi a: traditional, an.
Heritage Music Press; 5Apr76; EP352360.
fi piano. w fi a Robert H. Thygerson. 8 p.
Broughton, pseud, of Lani Smith. 5 p.

matches: V. V. V. V. V. V. V. V.


D.C. Law Library - § 47–4646. NCBA Housing Development Corporation of the District of Columbia and Samuel J. Simmons NCBA Estates No. 1 Limited Partnership; Lot 78, Square 2855.
↪ § 47–4646. NCBA Housing Development Corporation of the District of Columbia and Samuel J. Simmons NCBA Estates No. 1 Limited Partnership; Lot 78, Square 2855.
(a) The real property, described as Lot 78, Square 2855 (“real property”), which will be transferred from NCBA Housing Development Corporation of the District of Columbia, a District of Columbia nonprofit corporation, to Samuel J. Simmons NCBA Estates No. 1 Limited Partnership, shall be exempt from the tax imposed by Chapter 8 of this title so long as the real property is owned by Samuel J. Simmons NCBA Estates No. 1 Limited Partnership, or its successors and assigns, and is used to provide housing for low-income and moderate-income elderly District residents.
(b) The exemption under subsection (a) of this section shall be subject to the provisions of §§ 47-1005, 47-1007, and 47-1009.
(c) The conveyance of the real property from NCBA Housing Development Corporation of the District of Columbia to Samuel J. Simmons NCBA Estates No. 1 Limited Partnership shall be exempt from the tax imposed by § 42-1103 and § 47-903.
For temporary (90 day) repeal of section 4 of D.C. Law 18-311, see § 7003 of Fiscal Year 2013 Budget Support Emergency Act of 2012 (D.C. Act 19-383, June 19, 2012, 59 DCR 7764).
For temporary (90 day) repeal of section 4 of D.C. Law 18-311, see § 7003 of Fiscal Year 2013 Budget Support Congressional Review Emergency Act of 2012 (D.C. Act 19-413, July 25, 2012, 59 DCR 9290).
“Sec. 3. Sunset. This act shall expire 360 months after its effective date.
D.C. Law 18-311, § 4, was repealed by D.C. Law 19-168, § 7003.


William E. Brown, Stone, Pigman, Walther, Wittmann & Hutchinson, New Orleans, La., Patrick M. Ardis, Carolyn C. Kessinger, Robert M. Johnson, and Wolff Ardis, Memphis, Tenn., for plaintiff-appellant.
Eugene R. Preaus, and T. Rose Young, Preaus, Roddy & Krebs, New Orleans, La., for defendant-appellee.
A lender sued a savings and loan association ("S & L") and its fidelity insurer for losses resulting from the dishonesty of an S & L employee. The insurer moved to dismiss on the basis that no direct action lies against it for the asserted claim. The district court granted the motion to dismiss and directed the entry of final judgment under Federal Rule of Civil Procedure 54(b). Plaintiff appeals and asks that we certify to the Louisiana Supreme Court the question whether it may sue the insurer directly under the Louisiana direct action statute, La.Rev.Stat. § 22:655. For the following reasons, we deny the motion to certify and affirm the judgment of dismissal.
Plaintiff-Appellant First National Bank of LouisvilleBL sued the insured alleging losses from a deal gone sour: FNBL lost money on a project it financed in reliance on misrepresentations of an S & L employee. (In related proceedings, FNBL sued the employee.) FNBL also sued Defendant-Appellee Fidelity and Deposit Company of Maryland (F & D), who provided coverage for employee dishonesty through a Savings and Loan Blanket Bond in favor of the S & L. The district court granted F & D's motion to dismiss for failure to state a claim. After the Louisiana Supreme Court handed down Quinlan v. Liberty Bank & Trust Co.1 discussing the Louisiana direct action statute, FNBL moved for reconsideration of the dismissal. The district court denied reconsideration on the basis that F & D did not provide "liability" insurance as required for application of the direct action statute. We agree and affirm.
The issue before us is whether insurance provided to the insured S & L under a standard-form Savings and Loan Blanket Bond covering fraudulent and dishonest acts of the S & L's employees provides "liability" insurance or "indemnity" insurance as these terms have been defined in Louisiana law.
The Louisiana direct action statute gives a tort victim a right of action directly against the tortfeasor's insurance company. By its own terms the direct action statute applies only to "liability" insurance. Nevertheless, the Louisiana Supreme Court has opined that the statute "is a mandate for a tort victim to bring a direct suit to recover damages for personal injury or corporeal property damage from the tortfeasor's insurer, regardless of whether the insurer has framed the policy as a liability or an indemnity contract." Quinlan, 575 So. 2d at 352.
In a suit to recover loss to incorporeal property, however, such as the loss claimed in FNBL's complaint, the way the insurer has framed the policy is determinative. According to Quinlan, a tort victim seeking recovery of an incorporeal loss has a direct action only if the tortfeasor's policy provides "liability" coverage as opposed to "indemnity" coverage. A tort victim suffering only incorporeal loss or damage does not have the benefit of a direct action if "the parties to the insurance contract have agreed unambiguously that the contract shall be an indemnity contract only." Quinlan, 575 So. 2d at 353.
Our inquiry, then, is whether F & D's contract unambiguously provides indemnity coverage only. The "chief distinction" between the two types of policies is that "under a liability policy a cause of action accrues when liability attaches, whereas under an indemnification policy there is no cause of action until the liability has been discharged, as by payment of the judgment by the insured." Id.
The Quinlan court specifically considered the arguments regarding an insurance policy provisions on "Loss," "Loss Payable," and "Action Against Company" to determine whether a cause accrues when liability attaches (a liability policy) or when a liability has been discharged (an indemnity policy). See id. at 354-55. Considering comparable provisions of the bond disputed here, we find that this policy unambiguously provides indemnity rather than liability coverage.
The policy does not indicate that a cause of action against F & D accrues when liability attaches. The policy obligates Fidelity to "indemnify the Insured for ... Loss resulting directly from dishonest or fraudulent acts of an Employee committed alone or in collusion with others." Bond at 2, Insuring Agreement A (appended to Def.'s Mot. Dismiss filed Jan. 19, 1988). The use of the phrase "indemnify for Loss" in this provision manifests the intent that the policy indemnify against loss rather insure against liability. Moreover, the provision continues, "Dishonest or fraudulent acts ... shall mean [such acts] committed ... with the manifest intent to cause the Insured to sustain such loss." Id. (emphasis added). This definition signifies that the losses indemnified are the insured 's losses from employee dishonesty. The requirement that a loss be "sustained" further denotes an indemnity agreement. See Meloy v. Conoco, Inc., 504 So. 2d 833, 839 (La.1987) (noting the characteristic of an indemnity agreement to provide that the indemnitor is not liable "until the indemnitee actually makes payment or sustains loss").
FNBL contends that certain provisions of the policy suggest liability coverage or at least produce an ambiguity in the type of coverage intended. Contrary to arguments of FNBL, we do not find that exclusion (u),2 the "Discovery" section (describing which losses are within the period of coverage),3 or the costs-of-defense provision (providing for indemnification against court costs and attorneys' fees)4 instructive in determining the nature of the fidelity coverage. Nor do these provisions create an ambiguity in the policy suggesting liability coverage. Exclusion (u) and the "Discovery" section mention "loss covered under this bond," "loss covered by the bond," or "loss under this bond"; but these provisions do not define "loss" to include third-party claims. The cost-of-defense provision sheds no light on the meaning of the employee dishonesty provision or the scope of its coverage.
This policy contains no ambiguity as did the policy in Quinlan requiring as a condition precedent to a claim that the insured pay "its full liability." (The court found the condition precedent ambiguous because it could plausibly be interpreted as requiring payment of the full limit of its retention rather than the full payment of the judgment.) We do not find this policy susceptible to more than one reasonable interpretation. Guided by Quinlan, we hold that the policy in question is solely and unambiguously an indemnification policy.
The F & D policy provides that "This bond affords coverage only in favor of the Insured. No suit, action or legal proceedings shall be brought hereunder by any one other than the named Insured." Bond at 5, § 5(f). This no-action clause need not be ignored under Quinlan since the policy is unambiguously an indemnity policy. The Louisiana high court has not extended the direct action statute's prohibition of no-action clauses to indemnity contracts in situations where a plaintiff is claiming only incorporeal injuries. See Quinlan at 353.
Because Quinlan provides us sufficient guidance regarding application of the Louisiana direct action statute, we deny the motion to certify. See La.Sup.Ct.R. 12; La.Rev.Stat. § 13:72.1.
The bond conclusively demonstrates the intent to indemnify losses and not the intent to insure against liability. The direct action statute has no application to such a policy. Accordingly, the district court properly dismissed the Plaintiff's suit against F & D.
Judgment AFFIRMED; motion to certify DENIED.
This bond applies to loss discovered by the Insured during the bond period. Discovery occurs when the Insured becomes aware of facts which would cause a reasonable person to assume that a loss covered by the bond has been or will be incurred, even though the exact amount or details of loss may not then be known.
Notice to the Insured of an actual or potential claim by a third party which alleges that the Insured is liable under circumstances which, if true, would create a loss under this bond constitutes such discovery.
Bond at 5, § 4.
E. The Underwriter shall indemnify the Insured against court costs and reasonable attorneys' fees incurred and paid by the Insured in defending any suit or legal proceeding brought against the Insured to enforce the Insured's liability or alleged liability on account of any loss, claim or damage which, if established against the Insured, would constitute a collectible loss under this bond in excess of any Deductible Amount.
Bond at 3, Gen.Agreement E.


Maclin P. DAVIS et ux.
Rehearing Denied April 27, 1970.
See 397 U.S. 1071, 90 S.Ct. 1495.
William Waller, Nashville, Tenn., for respondents.
In 1945, taxpayer1 and E. B. Bradley organized a corporation. In exchange for property transferred to the new company, Bradley received 500 shares of common stock, and taxpayer and his wife similarly each received 250 such shares. Shortly thereafter, taxpayer made an additional contribution to the corporation, purchasing 1,000 shares of preferred stock at a par value of $25 per share.
The purpose of this latter transaction was to increase the company's working capital and thereby to qualify for a loan previously negotiated through the Reconstruction Finance Corporation. It was understood that the corporation would redeem the preferred stock when the RFC loan had been repaid. Although in the interim taxpayer bought Bradley's 500 shares and divided them between his son and daughter, the total capitalization of the company remained the same until 1963. That year, after the loan was fully repaid and in accordance with the original understanding, the company redeemed taxpayer's preferred stock.
In his 1963 personal income tax return taxpayer did not report the $25,000 received by him upon the redemption of his preferred stock as income. Rather, taxpayer considered the redemption as a sale of his preferred stock to the company—a capital gains transaction under § 302 of the Internal Revenue Code of 1954 resulting in no tax since taxpayer's basis in the stock equaled the amount he received for it. The Commissioner of Internal Revenue, however, did not approve this tax treatment. According to the Commissioner, the redemption of taxpayer's stock was essentially equivalent to a dividend and was thus taxable as ordinary income under §§ 301 and 316 of the Code. Taxpayer paid the resulting deficiency and brought this suit for a refund. The District Court ruled in his favor, 274 F.Supp. 466 (D.C.M.D. Tenn. 1967), and on appeal the Court of Appeals affirmed. 408 F.2d 1139 (C.A.6th Cir. 1969).
The Court of Appeals held that the $25,000 received by taxpayer was 'not essentially equivalent to a dividend' within the meaning of that phrase in § 302(b)(1) of the Code because the redemption was the final step in a course of action that had a legitimate business (as opposed to a tax avoidance) purpose. That holding represents only one of a variety of treatments accorded similar transactions under § 302(b)(1) in the circuit courts of appeals.2 We granted certiorari, 396 U.S. 815, 90 S.Ct. 88, 24 L.Ed.2d 66 (1969), in order to resolve this recurring tax question involving stock redemptions by closely held corporations. We reverse.
* The Internal Revenue Code of 1954 provides generally in §§ 301 and 316 for the tax treatment of distributions by a corporation to its shareholders; under those provisions, a distribution is includable in a taxpayer's gross income as a dividend out of earnings and profits to the extent such earnings exist.3 There are exceptions to the application of these general provisions, however, and among them are those found in § 302 involving certain distributions for redeemed stock. The basic question in this case is whether the $25,000 distribution by the corporation to taxpayer falls under that section—more specifically, whether its legitimate business motivation qualifies the distribution under § 302(b)(1) of the Code. Preliminarily, however, we must consider the relationship between § 302(b)(1) and the rules regarding the attribution of stock ownership found in § 318(a) of the Code.
Against this weight of authority, taxpayer argues that the result under paragraph (1) should be different because there is no explicit reference to stock ownership as there is in paragraphs (2) and (3). Neither that fact, however, nor the purpose and history of § 302(b)(1) support taxpayer's argument. The attribution rules—designed to provide a clear answer to what would otherwise be a difficult tax question—formed part of the tax bill that was subsequently enacted as the 1954 Code. As is discussed further, infra, the bill as passed by the House of Representatives contained no provision comparable to § 302(b)(1). When that provision was added in the Senate, no purpose was evidenced to restrict the applicability of § 318(a). Rather, the attribution rules continued to be made specifically applicable to the entire section, and we believe that Congress intended that they be taken into account wherever ownership of stock was relevant.
Indeed, it was necessary that the attribution rules apply to § 302(b)(1) unless they were to be effectively eliminated from consideration with regard to §§ 302(b)(2) and (3) also. For if a transaction failed to qualify under one of those sections solely because of the attribution rules, it would according to taxpayer's argument nonetheless qualify under § 302(b)(1). We cannot agree that Congress intended so to nullify its explicit directive. We conclude, therefore, that the attribution rules of § 318(a) do apply; and, for the purposes of deciding whether a distribution is 'not essentially equivalent to a dividend' under § 302(b)(1), taxpayer must be deemed the owner of all 1,000 shares of the company's common stock.
Enacted in response to this Court's decision that pro rata stock dividends do not constitute taxable income, Eisner v. Macomber, 252 U.S. 189, 40 S.Ct. 189, 64 L.Ed. 521 (1920), the provision had the obvious purpose of preventing a corporation from avoiding dividend tax treatment by distributing earnings to its shareholders in two transactions—a pro rata stock dividend followed by a pro rata redemption—that would have the same economic consequences as a simple dividend. Congress, however, soon recognized that even without a prior stock dividend essentially the same result could be effected whereby any corporation, 'especially one which has only a few stockholders, might be able to make a distribution to its stockholders which would have the same effect as a taxable dividend.' H.R.Rep. No. 1, 69th Cong., 1st Sess., 5. In order to cover this situation, the law was amended to apply '(whether or not such stock was issued as a stock dividend)' whenever a distribution in redemption of stock was made 'at such time and in such manner' that it was essentially equivalent to a taxable dividend. Revenue Act of 1926, § 201(g), 44 Stat. 11.
This provision of the 1926 Act was carried forward in each subsequent revenue act and finally became § 115(g)(1) of the Internal Revenue Code of 1939. Unfortunately, however, the policies encompassed within the general language of § 115(g)(1) and its predecessors were not clear, and there resulted much confusion in the tax law. At first, courts assumed that the provision was aimed at tax avoidance schemes and sought only to determine whether such a scheme existed. See, e.g., Commissioner of Internal Revenue v. Quackenbos, 78 F.2d 156 (C.A.2d Cir., 1935). Although later the emphasis changed and the focus was more on the effect of the distribution, many courts continued to find that distributions otherwise like a dividend were not 'essentially equivalent' if, for example, they were motivated by a sufficiently strong nontax business purpose. See cases cited n. 2, supra. There was general disagreement, however, about what would qualify as such a purpose, and the result was a case-by-case determination with each case decided 'on the basis of the particular facts of the transaction in question.' Bains v. United States, 289 F.2d 644, 646, 153 Ct.Cl. 599, 603 (1961).
By the time of the general revision resulting in the Internal Revenue Code of 1954, the draftsmen were faced with what has aptly been described as 'the morass created by the decisions.' Balenger v. United States, 301 F.2d 192, 196 (C.A.4th Cir. 1962). In an effort to eliminate 'the considerable confusion which exists in this area' and thereby to facilitate tax planning, H.R.Rep. No. 1337, 83d Cong., 2d Sess., 35, U.S. Code Cong. & Admin. News 1954, p. 4025, the authors of the new Code sought to provide objective tests to govern the tax consequences of stock redemptions. Thus, the tax bill passed by the House of Representatives contained no 'essentially equivalent' language. Rather, it provided for 'safe harbors' where capital gains treatment would be accorded to corporate redemptions that met the conditions now found in §§ 302(b)(2) and (3) of the Code.
It was in the Senate Finance Committee's consideration of the tax bill that § 302(b)(1) was added, and Congress thereby provided that capital gains treatment should be available 'if the redemption is not essentially equivalent to a dividend.' Taxpayer argues that the purpose was to continue 'existing law,' and there is support in the legislative history that § 302(b)(1) reverted 'in part' or 'in general' to the 'essentially equivalent' provision of § 115(g)(1) of the 1939 Code. According to the Government, even under the old law it would have been improper for the Court of Appeals to rely on 'a business purpose for the redemption' and 'an absence of the proscribed tax avoidance purpose to bail out dividends at favorable tax rates.' See Northup v. United States, 240 F.2d 304, 307 (C.A.2d Cir. 1957); Smith v. United States, 121 F.2d 692, 695 (C.A.3d Cir. 1941); cf. Commissioner of Internal Revenue, v. Estate of Bedford, 325 U.S. 283, 65 S.Ct. 1157, 89 L.Ed. 1611 (1945). However, we need not decide that question, for we find from the history of the 1954 revisions and the purpose of § 302(b)(1) that Congress intended more than merely to re-enact the prior law.
'The test intended to be incorporated in the interpretation of paragraph (1) is in general that currently employed under section 115(g)(1) of the 1939 Code. Your committee further intends that in applying this test for the future * * * the inquiry will be devoted solely to the question of whether or not the transaction by its nature may properly be characterized as a sale of stock by the redeeming shareholder to the corporation. For this purpose the presence or absence of earnings and profits of the corporation is not material. Example: X, the sole shareholder of a corporation having no earnings or profits causes the corporation to redeem half of its stock. Paragraph (1) does not apply to such redemption notwithstanding the absence of earnings and profits.' S.Rep. No. 1622, supra, at 234, U.S. Code Cong. & Admin. News 1954, p. 4870.
The intended scope of § 302(b)(1) as revealed by this legislative history is certainly not free from doubt. However, we agree with the Government that by making the sole inquiry relevant for the future the narrow one whether the redemption could be characterized as a sale, Congress was apparently rejecting past court decisions that had also considered factors indicating the presence or absence of a tax-avoidance motive.11 At least that is the implication of the example given. Congress clearly mandated that pro rata distributions be treated under the general rules laid down in §§ 301 and 316 rather than under § 302 and nothing suggests that there should be a different result if there were a 'business purpose' for the redemption. Indeed, just the opposite inference must be drawn since there would not likely be a tax-avoidance purpose in a situation where there were no earnings or profits. We conclude that the Court of Appeals was therefore wrong in looking for a business purpose and considering it in deciding whether the redemption was equivalent to a dividend. Rather, we agree with the Court of Appeals for the Second Circuit that 'the business purpose of a transaction is irrelevant in determining dividend equivalence' under § 302(b)(1). Hasbrook v. United States, 343 F.2d 811, 814 (1965).
Taxpayer strongly argues that to treat the redemption involved here as essentially equivalent to a dividend is to elevate form over substance. Thus, taxpayer argues, had he not bought Bradley's shares or had he made a subordinated loan to the company instead of buying preferred stock, he could have gotten back his $25,000 with favorable tax treatment. However, the difference between form and substance in the tax law is largely problematical, and taxpayer's complaints have little to do with whether a business purpose is relevant under § 302(b)(1). It was clearly proper for Congress to treat distributions generally as taxable dividends when made out of earnings and profits and then to prevent avoidance of that result without regard to motivation where the distribution is in exchange for redeemed stock.
We conclude that that is what Congress did when enacting § 302(b)(1). If a corporation distributes property as a simple dividend, the effect is to transfer the property from the company to its shareholders without a change in the relative economic interests or rights of the stockholders. Where a redemption has that same effect, it cannot be said to have satisfied the 'not essentially equivalent to a dividend' requirement of § 302(b)(1). Rather, to qualify for preferred treatment under that section, a redemption must result in a meaningful reduction of the shareholder's proportionate interest in the corporation. Clearly, taxpayer here, who (after application of the attribution rules) was the sole shareholder of the corporation both before and after the redemption, did not qualify under this test. The decision of the Court of Appeals must therefore be reversed and the case remanded to the District Court for dismissal of the complaint.
'Although closely-held corporations call for close scrutiny under the tax law, we will not under the facts and circumstances of this case, allow mechanical attribution rules to transform a legitimate corporate transaction into a tax avoidance scheme.' 408 F.2d, at 1143—1144.
When the Court holds it was a dividend, it effectively cancels § 302(b)(1) from the Code. This result is not a matter of conjecture, for the Court says that in the case of closely held or one-man corporations a redemption of stock is 'always' equivalent to a dividend. I would leave such revision to the Congress.
References in this opinion to 'taxpayer' are to Maclin P. Davis. His wife is a party solely because joint returns were filed for the year in question.
Only the Second Circuit has unequivocally adopted the Commissioner's view and held irrelevant the motivation of the redemption. See Levin v. Commissioner of Internal Revenue, 385 F.2d 521 (1967); Hasbrook v. United States, 343 F.2d 811 (1965). The First Circuit, however, seems almost to have come to that conclusion, too. Compare Wiseman v. United States, 371 F.2d 816 (1967), with Bradbury v. Commissioner of Internal Revenue, 298 F.2d 111 (1962).
The other courts of appeals that have passed on the question are apparently willing to give at least some weight under § 302(b)(1) to the business motivation of a distribution and redemption. See, e.g., Commissioner of Internal Revenue v. Berenbaum, 369 F.2d 337 (C.A.10th Cir. 1966); Kerr v. Commissioner of Internal Revenue, 326 F.2d 225 (C.A.9th Cir. 1964); Ballenger v. United States, 301 F.2d 192 (C.A.4th Cir. 1962); Heman v. Commissioner of Internal Revenue, 283 F.2d 227 (C.A.8th Cir. 1960); United States v. Fewell, 255 F.2d 496 (C.A.5th Cir. 1958). See also Neff v. United States, 305 F.2d 455, 157 Ct.Cl. 322 (1962). Even among those courts that consider business purpose, however, it is generally required that the business purpose be related, not to the issuance of the stock, but to the redemption of it. See Commissioner of Internal Revenue v. Berenbaum, supra; Ballenger v. United States, supra.
See, e.g., Commissioner of Internal Revenue v. Gordon, 391 U.S. 83, 88—89, 88 S.Ct. 1517, 20 L.Ed.2d 448 (1968). Taxpayer makes no contention that the corporation did not have $25,000 in accumulated earnings and profits.
See Levin v. Commissioner of Internal Revenue, 385 F.2d 521, 526—527 (C.A.2d Cir.1967); Commissioner v. Berenbaum, 369 F.2d 337, 342 (C.A.10th Cir. 1966); Ballenger v. United States, 301 F.2d 192, 199 (C.A.4th Cir. 1962); Bradbury v. Commissioner of Internal Revenue, 298 F.2d 111, 116—117 (C.A.1st Cir. 1962).
See B. Bittker & J. Eustice, Federal Income Taxation of Corporations and Shareholders 292 n. 32 (2d ed. 1966).
Of course, this just means that a distribution in redemption to a sole shareholder will be treated under the general provisions of § 301, and it will only be taxed as a dividend under § 316 to the extent that there are earnings and profits.
The Government argues that even if business purpose were relevant under § 302(b)(1), the business purpose present here related only to the original investment and not at all to the necessity for redemption. See cases cited, n. 2, supra. Under either view, taxpayer does not lose his basis in the preferred stock. Under Treas. Reg. 1.302—2(c) that basis is applied to taxpayer's common stock.