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493 U.S. 1034		C. A. 11th Cir. Certiorari denied.
101 F.3d 1423		Opinion for the court filed by Circuit Judge SENTELLE. Opinion concurring in Part II B filed by Circuit Judge ROGERS. SENTELLE, Circuit Judge: The National Treasury Employees Union ("NTEU" or "Union"), its president, and two of its members appeal from the dismissal of their suit challenging the constitutionality of the Line Item Veto Act, Pub.L. No. 104-130, 100 Stat. 1200 (codified at 2 U.S.C. § 691-692 (1996)), for lack of Article III standing. We affirm, holding that appellants' alleged injury is neither sufficiently concrete nor imminent to create a justiciable controversy. I. Background This case arises out of an attempt by the NTEU, its president Robert Tobias, and two of its individual members to challenge the constitutionality of the Line Item Veto Act. NTEU is a labor organization representing 140,000 federal employees in various agencies and departments within the executive branch. Like private sector unions, NTEU works to represent employees through such traditional labor union activity as collective bargaining and grievance arbitration. However, because of the nature of public sector employment, in which Congress sets by law most of the key conditions of employment in the workforce, NTEU also seeks to protect its members' employment-related interests in the legislative appropriations process. The Line Item Veto Act provides that "the President may, with respect to any bill or joint resolution that has been signed into law pursuant to Article I, section 7, of the Constitution of the United States, cancel in whole (1) any dollar amount of discretionary budget authority; (2) any item of new direct spending; or (3) any limited tax benefit." 2 U.S.C. § 691(a). The President must notify Congress of any exercise of his cancellation power under the Act within five calendar days (excluding Sundays) of the enactment of the law containing the canceled item. Id. § 691(a)(3)(B). Congress may then nullify the President's cancellation by passing a "disapproval bill." Id. § 691b(a). Because the disapproval bill may be vetoed by the President, a President's exercise of his cancellation power will stand, as a practical matter, if supported by one-third plus one of the members of either House of Congress. By its terms, the Line Item Veto Act will not take effect until the earlier of the enactment of a seven-year balanced budget bill or January 1, 1997. Id. § 691 note. Nevertheless, on April 9, 1996, the day the Line Item Veto Act was signed into law, appellants brought suit against the United States in federal district court asking the court to declare the Act unconstitutional and enjoin its enforcement. According to appellants, the Line Item Veto Act violates the separation of powers, U.S. Const. art. I, § 7, 8, the Appropriations Clause, id. § 9, cl. 7, and the grant to each House of Congress of the power to "determine the Rules of its Proceedings," id. § 5. In their complaint, appellants allege several injuries that they contend are sufficient to satisfy the Article III standing requirement of "injury in fact." First, NTEU alleges that "[a]s a result of the Act, NTEU must modify its representational activities to devote addi tional resources — including time, money, and effort — to gain the support of the Executive Branch for measures that will benefit its members." Appellants' Amended Complaint at 8. Second, NTEU alleges that "the Act interferes with NTEU's ability to influence the passage of favorable legislation" by "mak[ing], it more difficult for NTEU to achieve favorable legislative treatment for its constituents without securing the advance support of the Executive Branch" for such legislation. Id. at 9. These allegations are supported by an affidavit filed by Robert M. Tobias, National President of NTEU, stating that enactment of the Line Item Veto Act has dramatically changed the landscape of the legislative process and thus, necessarily, affects the way NTEU does business regarding appropriations measures of interest to our members.... By transferring the power to make spending decisions from Congress to the President, the regime established by the Line Item Veto Act most certainly impairs the Union's ability to accomplish its key purpose of representing effectively its members' interests in the appropriations process. NTEU's work is so impeded because the unlawful Act creates a new scheme under which benefits achieved though the legislative process can be. entirely negated through the President's item veto power.... [T]o counter the new regime established by the Act and to protect against the threat of an item veto, NTEU must now expend additional time and money . to help ensure that the President does not thwart our legislative advocacy through the item veto. Tobias Aff. ¶ 12, 13. In addition to the injury inflicted upon the Union, President Tobias alleges that the Line Item Veto Act injures him "as an individual" by impairing his ability "as the elected National President of NTEU . to advance the interests of the Union." Id. ¶ 16. Similarly, two individual members of the Union allege that they "will be injured" because the Line Item Veto Act reduces NTEU's ability to advocate its members' views and requires NTEU to divert resources away from other union services of interest to members. Appellants' Amended Complaint at 9. Finally, President Tobias and the two individual members of the Union allege that the Line Item Veto Act injures them "in their capacity as voters" in that "their elected representatives' vote has lost value in the lawmaking and rulemaking process." Id. The United States moved to dismiss this action on the alternative grounds that appellants lack standing under Article III of the Constitution and that the matter was "currently nonjusticiable." On July 3, 1996, the district court granted the government's motion to dismiss for lack of Article III standing, reasoning that plaintiffs' alleged injuries are "too speculative and remote" to constitute an "injury sufficient to confer standing on the plaintiffs." National Treasury Employees Union v. United States, 929 F.Supp. 484, 488 (D.D.C.1996) (mem.) (hereinafter NTEU). While recognizing that "the. Act may change the way [NTEU] chooses to represent its members," the court concluded that the Act "does not perceptibly impair [NTEU's] representation efforts." Id. The court distinguished the line of cases recognizing "a concrete and demonstrable injury arising from a purportedly illegal action [that] increases the resources the group must devote to programs independent of its suit challenging the action" on the ground that in each of those cases the purportedly illegal action taken by the defendants "was at loggerheads with" and "squarely countered the plaintiffs' organizational objective." Id. at 488-89. The district court further reasoned that the alleged injury to NTEU was not "real and immediate," but instead was "wholly speculative." Id. at 489. According to the court, "plaintiffs' ultimate concerns will be realized only in the event that the President exercises the cancellation authority with respect to a particular appropriation affecting them" and Congress is unable to pass a disapproval bill to override the item veto. Id. The court rejected NTEU's argument that it was injured by the fact that the item veto authority "places the appropriations process under the Sword of Damocles" to which NTEU must now respond in order to represent its members adequately. Id. Be cause the President presently has a veto authority that may be exercised "to the detriment of NTEU members," id., the district court was not convinced that the addition of an item veto power would "perceptibly impair the plaintiffs' representation efforts," id. at 490. This appeal challenges the district court's dismissal of appellants' complaint for lack of standing. While appellants purport to argue that NTEU as well as the individual plaintiffs have standing to sue, the only argument seriously advanced is that NTEU has standing to sue on its own behalf. Therefore, we consider only that question. See Alabama Power Co. v. Gorsuch, 672 F.2d 1, 7 (D.C.Cir.1982) (per curiam) ("Courts have long declined to render decisions on important questions of far-reaching significance which have not been argued by the party who might benefit therefrom."). II. Analysis Article III of the federal Constitution vests "[t]he judicial Power of the United States . in one supreme Court, and in such inferior Courts as the Congress may . establish." U.S. Const. art. III, § 1. This judicial power extends only to "Cases" and "Controversies." Id. § 2. In an attempt to give meaning to Article III's case-or-eontro-versy requirement,' the courts have developed a series of principles termed "justicia-bility doctrines," among which are standing ripeness, mootness, and the political question doctrine. Allen v. Wright, 468 U.S. 737, 750, 104 S.Ct. 3315, 3324, 82 L.Ed.2d 556 (1984). These doctrines are composed both of prudential elements which "Congress is free to override," see Fair Employment Council of Greater Wash., Inc. v. BMC Mktg. Corp., 28 F.3d 1268, 1278 (D.C.Cir.1994), and "core component^]" which are "essential and unchanging part[s] of the case-or-controversy requirement of Article III," Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 2136, 119 L.Ed.2d 351 (1992). Two of the justiciability doctrines — standing and ripeness — are implicated in the present case. Article III standing requires that a plaintiff have suffered an (1) "injury in fact— an invasion of a legally protected interest which is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical" — (2) which is "fairly traceable" to the challenged act, and (3) "likely" to be "redressed by a favorable decision." Id. at 560-61, 112 S.Ct. at 2136 (internal quotations and citations omitted). These requirements apply whether an organization asserts standing to sue; either on its own behalf, or on behalf of its members. Havens Realty Corp. v. Coleman, 455 U.S. 363, 378, 102 S.Ct. 1114, 1124, 71 L.Ed.2d 214 (1982). With respect to the "injury in fact" requirement, an organization suing on its own behalf must demonstrate that it has suffered "concrete and demonstrable injury to [its] activities." Id. at 379, 102 S.Ct. at 1124. A mere "setback to the organization's abstract social interests" is inadequate to establish standing. Id. Further, the injury alleged cannot be " 'conjectural' or 'hypothetical,' " City of Los Angeles v. Lyons, 461 U.S. 95, 102, 103 S.Ct. 1660, 1665, 75 L.Ed.2d 675 (1983), "remote," Warth v. Seldin, 422 U.S. 490, 507, 95 S.Ct. 2197, 2209-10, 45 L.Ed.2d 343 (1975), "speculative," Simon v. Eastern Ky. Welfare Rights Org., 426 U.S. 26, 42-46, 96 S.Ct. 1917, 1926-28, 48 L.Ed.2d 450 (1976), or "abstract," O'Shea v. Littleton, 414 U.S. 488, 494, 94 S.Ct. 669, 675, 38 L.Ed.2d 674 (1974). Rather, it must be "certainly impending." Whitmore v. Arkansas, 495 U.S. 149, 158, 110 S.Ct. 1717, 1725, 109 L.Ed.2d 135 (1990) (internal quotations omitted). Ripeness, while often spoken of as a justiciability doctrine distinct from standing, in fact shares the constitutional requirement of standing that an injury in fact be certainly impending. See Duke Power Co. v. Carolina Envtl. Study Group, 438 U.S. 59, 81, 98 S.Ct. 2620, 2634-35, 57 L.Ed.2d 595 (1978); DKT Mem'l Fund, Ltd. v. Agency for Int'l Dev., 887 F.2d 275, 297 (D.C.Cir.1989) (holding that "the constitutional requirement for ripeness is injury in fact"). It is only the prudential aspect of ripeness— where a court balances "the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration," Abbott Labs. v. Gardner, 387 U.S. 136, 149, 87 S.Ct. 1507, 1515-16, 18 L.Ed.2d 681 (1967)— that extends beyond standing's constitutional core. See Duke Power, 438 U.S. at 81-82, 98 S.Ct. at 2634-35. In other words, if a threatened injury is sufficiently "imminent" to establish standing, the constitutional requirements of the ripeness doctrine will necessarily be satisfied. At that point, only the prudential justiciability concerns of ripeness can act to bar consideration of the claim. We share with the district court the conclusion that the appellants lack Article III standing, at least on the present record; we are utterly convinced that their claim is not prudentially ripe. A. Article III Standing The starting point for our analysis of NTEU's alleged injury under the standing rubric is the Supreme Court's opinion in Havens Realty Corp. v. Coleman, supra. In Havens, the Court considered whether a nonprofit organization whose purpose was "to make equal opportunity in housing a reality in the Richmond Metropolitan Area" had standing to bring suit on its own behalf against a realty company for alleged violations of the Fair Housing Act. 455 U.S. at 368, 102 S.Ct. at 1118-19 (internal quotations omitted). The organization alleged that the defendant's unlawful housing practices "frustrated" the organization's efforts "to assist equal access to housing." Id. at 379, 102 S.Ct. at 1124 (internal quotations omitted). Further, the organization alleged that it "had to devote significant resources to identify and counteract the defendant's" unlawful housing practices. Id. (internal quotations omitted). Accepting these allegations as true, the Court concluded that the organization's "ability to provide counseling and referral services for low- and moderate-income home-seekers" had been "perceptibly impaired," thus creating an injury sufficient for purposes of standing. Id. According to the Court, "[s]ueh concrete and demonstrable injury to the organization's activities — with the consequent drain on the organization's resources — constitutes far more than simply a setback to the organization's abstract social interests." Id. Recently, the Supreme Court revisited the issue of organizational standing in Metropolitan Wash. Airports Auth. v. Citizens for the Abatement of Aircraft Noise, Inc., 501 U.S. 252, 111 S.Ct. 2298, 115 L.Ed.2d 236 (1991). There, the Court considered whether an organization whose primary purpose was to "implement a transportation policy for the Washington area that would . reduc[e] the operations at National [Airport] and alleviate] noise, safety, and air pollution problems associated with such operations," id. at 262, 111 S.Ct. at 2304-05, had standing to challenge the constitutionality of Congress' delegation to a Board of Review the power to veto airport planning decisions made by the Airports Authority Board of Directors, id. at 255, 111 S.Ct. at 2301. The Court recognized the existence of two harms arising from this scheme sufficient to establish Article III standing. The first injury was the increase "in noise, pollution, and danger of accidents." Id. at 264, 111 S.Ct. at 2305-06. The Court concluded that this injury was "fairly traceable" to the unexereised veto power "because knowledge that the . plan was subject to the veto power undoubtedly influenced [the] Board of Directors when it drew up the plan." Id. at 265, 111 S.Ct. at 2306. Second, the Court recognized that the veto power harmed the organization by "making it more difficult" for the organization to reduce noise and activity at the airport. Id. The Court further concluded that the organization's claim was "ripe" for judicial review despite the fact that the veto power had not been exercised to the organization's detriment. Id. at 265 n. 13, 111 S.Ct. at 2306 n. 13. As the Court explained, "[t]he threat of the veto hangs over the Board of Directors like the sword over Damocles, creating a here-and-now subservience to the Board of Review sufficient to raise constitutional questions." Id. (internal quotations omitted). It is important to note that it was not the mere existence of the unconstitutional veto power in Metropolitan that constituted the "injury in fact," but rather the increased (or at least not decreased) noise, activity, and danger that resulted from the unconstitutional veto power. As the Court explained the next term in Lujan v. Defenders of Wildlife, a "procedural injury" is inadequate to establish standing absent an alleged "discrete injury" flowing from the procedural violation. 504 U.S. at 571-72, 112 S.Ct. at 2142-43. However, in those cases involving procedural injuries, the standing requirements of re-dressability and immediacy are applied to the present violation of the procedural right that may someday injure a "concrete interest ]," rather than the discrete injury which the plaintiff often cannot establish "with any certainty." Id. at 572 n. 7, 112 S.Ct. at 2142 n. 7. We have previously found organizational standing to exist under facts similar to those that existed in Havens. For example, in Spann v. Colonial Village, Inc., 899 F.2d 24 (D.C.Cir.), cert. denied, 498 U.S. 980, 111 S.Ct. 508, 112 L.Ed.2d 521 (1990), two nonprofit organizations "dedicated to . ensuring equality of housing opportunity through education and other efforts" brought suit against an advertising agency and the owner and manager of a residential condominium development, alleging that the defendants ran discriminatory housing advertisements in the Washington Post in violation of the Fair Housing Act. Id. at'26. Plaintiffs further alleged that these discriminatory ads required plaintiffs to "devote scarce resources to identify and counteract defendants' advertising practices" and also "necessitated increased education efforts" to inform the public about laws prohibiting discrimination in housing. Id. at 28. We held that, because educational programs "could plausibly be required" to counteract defendants' conduct and because these programs would act as a "drain on the organizations' resources," plaintiffs' allegations were sufficient to establish standing to sue. Id. at 28-29, 31. Similarly, in Fair Employment Council of Greater Washington, Inc. v. BMC Mktg. Corp., supra, we concluded that the Fair Employment Council ("FEC") had standing to challenge the allegedly discriminatory placement practices of an employment agency, BMC Marketing ("BMC"). 28 F.3d at 1270. FEC alleged that "BMC's discriminatory actions . interfered with [FEC's community outreach, counseling, and research projects] and programs and . required the Council to expend resources to counteract BMC's alleged discrimination." Id. at 1276. We concluded that these allegations indicated that BMC's alleged discrimination made FEC's "overall task more difficult." - Id. As we explained, the alleged discrimination by BMC "might increase the number of people in need of counseling; similarly, to the extent that BMC's actions have made it harder for minorities to find jobs in greater Washington, they may have reduced the effectiveness of any given level of outreach efforts." Id. This, we said, constituted a "perceptible] impair[ment]" of the FEC programs sufficient to establish "injury in fact." Id. (internal quotations omitted). However, we went on to explain that expenses the FEC incurred in detecting the discriminatory practices of BMC were "self-inflicted" harms stemming from the FEC's "own budgetary choices" rather than any conduct of BMC. Id. This latter harm, we held, did not constitute an "injury" for purposes of standing. Id. at 1277. As the district court rightly noted, what Havens, Spann, and FEC—as well as Metropolitan — have in common is that the action challenged in those cases "was at loggerheads with the stated mission of the plaintiff." NTEU, 929 F.Supp. at 489. We, of course, recognize that conflict between a defendant's conduct and an organization's mission is alone insufficient to establish Article III standing. Frustration of an organization's objectives "is the type of abstract concern that does not impart standing." National Taxpayers Union, Inc. v. United States, 68 F.3d 1428, 1433 (D.C.Cir.1995); see also Havens, 455 U.S. at 379, 102 S.Ct. at 1124 (distinguishing injury to an "organization's activities" from "a setback to the organization's abstract social interests"). Individual persons cannot obtain judicial review of otherwise non-justiciable claims simply by incorporating, drafting a mission statement, and then suing on behalf of the newly formed and extremely interested organization. However, in those eases where an organization alleges that a defendant's conduct has made the organization's activities more difficult, the presence of a direct conflict between the defendant's conduct and the organization's mission is necessary—though not alone sufficient—to establish standing. If a defendant's conduct does not conflict directly with an organization's stated goals, it is entirely speculative whether the defendant's conduct is impeding the organization's activities. Moreover, in those cases where governmental action is challenged, if the government's conduct does not directly conflict with the organization's mission, the alleged injury to the organization likely will be one that is shared by a large class of citizens and thus insufficient to establish injury in fact. Warth, 422 U.S. at 499, 95 S.Ct. at 2205. NTEU alleged a direct causal link between the enactment of the Line Item Veto Act and the increased expenditure of funds now needed to achieve NTEU's organizational mission of improving the terms of employment for government workers. NTEU did not allege that an appropriations bill which would have improved the conditions of employment for government workers was subjected to the President's item veto power. Nor did NTEU allege that such an appropriations bill was modified in Congress as a result of a threatened exercise of the item veto power. Indeed, NTEU did not even allege that such an appropriations bill moved through Congress under this "Sword of Damocles." Plaintiffs allege only that they have expended more money lobbying the President in order to avoid these potential injuries. But the plaintiffs mission is not to influence the President's views on the rights of government workers. NTEU's mission is to obtain improved worker conditions—a mission not necessarily inconsistent with the Line Item Veto Act. For a myriad of reasons, a given President may be disinclined to exercise the item veto power as to government employee benefits. We do not and cannot know at this point. Absent a direct conflict between NTEU's mission and the Line Item Veto Act, we are unsure whether NTEU's additional expenditure of funds is truly necessary to improve the working conditions of government workers or rather is unnecessary alarmism constituting a self-inflicted injury. It is true that, "[f]or purposes of ruling on a motion to dismiss for want of standing, both the trial and reviewing courts must accept as true all material allegations of the complaint." Metropolitan, 501 U.S. at 264, 111 S.Ct. at 2306 (internal quotations and citations omitted). But there is a difference between accepting a plaintiffs allegations of fact as true and accepting as correct the conclusions plaintiff would draw from such facts. NTEU would have us accept as true not only the fact that it has expended additional funds in an attempt to lobby the President more effectively, but also the speculative conclusion that such expenditures are a necessary link in achieving the organization's ultimate purpose. This we decline to do. B. Ripeness 1. Article III Even were we to accept NTEU's alleged conclusion that the Line Item Veto Act necessitates increased lobbying efforts directed at the President, we do not believe this alleged injury is sufficiently imminent to create a current justiciable controversy. As Lujan makes clear, Article III requires not only that an alleged injury be "concrete and particularized," but also that it be "imminent." In Havens, Metropolitan, Spann, and Fair Employment Council, the allegedly unlawful and injurious act had already occurred by the time suit was brought. In Havens, the plaintiff organization brought suit challenging "racial steering" practices in which defendants had already engaged. See 455 U.S. at 366, 102 S.Ct. at 1117-18. The same was true in both Spann, 899 F.2d at 26 (challenging discriminatory ads run in the Washington Post from January 1985 through the spring of 1986), and Fair Employment Council, 28 F.3d at 1270 (challenging defendants' failure to provide referrals for black employees in December 1990). We recognize that in eases like this one where a procedural violation is asserted, the courts have applied the imminence requirement to the procedural violation, not the discrete injury that might someday flow from such. Lujan, 504 U.S. at 572 n. 7, 112 S.Ct. at 2142 n. 7. For example, a plaintiff who lives adjacent to the site for proposed construction of a federally licensed dam has standing to challenge the licensing agency's failure to prepare an environmental impact statement, even though he cannot establish with any certainty that the statement will cause the license to be withheld or altered, and even though the dam will not be completed for many years. Id. Similarly, in Metropolitan, where the Court concluded that increased airport noise was traceable to an unexercised veto power, 501 U.S. at 264-65, 111 S.Ct. at 2305-06, the Board of Directors had adopted a master airport plan and the Board of Review had voted not to disapprove that plan by the time suit was brought, id. at 261, 111 S.Ct. at 2304. In this ease, NTEU concedes that "[t]he President . cannot exercise his veto power until January 1, 1997." Appellants' Brief at 11-12. While the Metropolitan Court recognized that the existence of even an unexer-cised veto may "creat[e] a 'here-and-now subservience' . sufficient to raise constitutional questions," 501 U.S. at 265 n. 13, 111 S.Ct. at 2306 n. 13, in this case the veto power is not only unexercised, but is as yet unavailable. Nor is an appropriations bill subject to the item veto pending before Congress. We do not mean to imply that NTEU's alleged injury will be sufficiently imminent on January 1 or on the evening of the State of the Union address when the President submits his budget to Congress. It is enough to say that NTEU's claim is not now ripe, particularly when we subject the claim to analysis under the prudential aspect of the ripeness doctrine. 2. Prudential Prudentially, the ripeness doctrine exists to prevent the .courts from wasting our resources by prematurely entangling ourselves in abstract disagreements, and, where, as here, other branches of government are involved, to protect the other branches from judicial interference until their decisions are formalized and their "effects felt in a concrete way by the challenging parties." Abbott Labs., 387 U.S. at 148-49, 87 S.Ct. at 1515. In testing whether the facts of a particular case meet that standard of ripeness, we have often applied a two-part analysis, evaluating' "[1] the fitness of the issues for judicial decision and [2] the hardship to the parties of' withholding court consideration." Id. at 149, 87 S.Ct. at 1515; accord NRDC v. EPA, 859 F.2d 156, 166 (D.C.Cir.1988). Taking the questions in reverse order, the only alleged hardship to the parties of withholding immediate judicial review is that the appellants, allegedly, will divide their resources differently between their lobbying efforts toward the Congress — still virtually as involved in the budget' making process as ever — on the one hand, and the President — who always had a veto, but now has a stronger one — on the other. Whatever is on the other side of the scale need not be very heavy to outweigh this light hardship. As for the current fitness for judicial review, while the broad legal theory advanced by appellants may be as complete as it ever will, the facts upon which its resolution may depend are not "fully crystallized," nor do the appellants feel their effects in a concrete way. Id. Further supporting our decision that this case is prudentially unripe is the usually unspoken element of the rationale underlying the ripeness doctrine: If we do not decide it now, we may never need to. Not only does this rationale protect the expenditure of judicial resources, but it comports with our theoretical role as the governmental branch of last resort. Allen, 468 U.S. at 752, 104 S.Ct. at 3325. Article III courts should not make decisions unless they have to. Relying on our opinion in Fair Employment Council, the parties seem to agree that prudential justiciability limitations do not bar consideration of a challenge to the Line Item Veto Act. In Fair Employment Council, we held that a federal statute which permitted "any 'person claiming to be aggrieved' by an unlawful employment practice to file suit," 28 F.3d at 1278 (quoting 42 U.S.C. § 2000e-5(f)(1)), "open[ed] the courts to anyone who satisfie[d] the constitutional requirements" of Article III, id. In the Line Item Veto Act; Congress specified that any individual adversely affected by [the Act] may bring an action, in the United States District Court for the District of Columbia, for a declaratory judgment and injunctive relief on the ground that any provision of this part violates the Constitution." 2 U.S.C. § 692(a)(1). Although when taken out of context, that provision seems to parallel the one we considered in Fair Employment Council, further examination reveals otherwise. 2 U.S.C. § 692(b) provides that any order entered pursuant to the judicial review provision of the Act is reviewable by direct appeal to the Supreme Court, not this court. We believe this provision constitutes a congres-sionally created barrier to our review of appellants' claim. Just as Congress may override prudential barriers to judicial review, Fair Employment Council, 28 F.3d at 1278, so too, may it deny a court the authority to review a ease or class of cases otherwise within the Article III judicial power. As the Supreme Court has stated: [T]he judicial power of the United States . is . dependent for its distribution and organization, and for the modes of its exercise, entirely upon the action of congress, who possess the sole power of creating the tribunals (inferior to the supreme court) for the exercise of the judicial power, and of investing them with jurisdiction either limited, concurrent, or exclusive, and of withholding jurisdiction from them in the exact degrees and character which to congress may seem proper for the public good. Cary v. Curtis, 44 U.S. (3 How.) 236, 245, 11 L.Ed. 576 (1845); cf. U.S. Const. art. III, § 2, cl. 2 ("the supreme Court shall have appellate Jurisdiction, both as to Law and Fact, with such Exceptions, and under such Regulations as the Congress shall make."). Thus, supporting our decision that this case is not prudentially ripe is the congressionally mandated route of review applicable to any action brought to test the constitutionality of the Act. Appellants' suit seeks a declaration that the Line Item Veto Act is unconstitutional and an injunction against its enforcement. Had the district court ruled on the merits of appellants' claim and granted injunctive relief instead of dismissing it, the decision would likely have been appealed to this court. We would then have been forced to render a decision that might well amount to a constitutionally suspect advisory opinion of questionable authority since it would speak in an area never intended by Congress to be within our jurisdiction. In other words, not only is this controversy unfit for decision by this court at this time, it may never be ripe for us to decide. Therefore, deciding the controversy would be at best a waste of judicial resources, and at worst a usurpation. Either way, ripeness considerations dictate that we affirm the district court's dismissal of the action. III. Conclusion NTEU may, at some time in the future, suffer an imminent concrete injury that is fairly traceable to the Line Item Veto Act. Because that point has not yet been reached, we hold that NTEU's claim is neither constitutionally nor prudentially justiciable. . Of course, the converse is not true. One may be able to demonstrate that an injury is "imminent'' (i.e., that the claim is constitutionally ripe), but be unable to demonstrate that the injury is "concrete and particularized," "fairly traceable" to the challenged action, or "likely to be redressed by a favorable decision."
421 U.S. 1009		C. A. 6th Cir. [Certiorari granted, ante, p. 909.] Motion of Americans for Effective Law Enforcement, Inc., et al., for leave to file a brief as amici curiae granted. Mr. Justice Douglas took no part in the consideration or decision of this motion.
513 U.S. 1086		Sup. Ct. Pa. Certio-rari denied.
982 F.2d 73		McLAUGHLIN, Circuit Judge: Plaintiffs appeal from a judgment of the United States District Court for the West ern District of New York, Richard J. Arcara, Judge, dismissing their claims for compensatory and punitive damages and injunctive relief under 16 U.S.C. § 803(c) (1988) and state negligence law. Plaintiffs own land on the Niagara River shoreline. They sued the Power Authority of the State of New York ("PASNY") for damages and injunctive relief resulting from PASNY's ice control procedures on the River. The district court dismissed the action in its entirety, (1) finding that plaintiffs failed to state a claim under § 803(c); (2) holding that it lacked subject matter jurisdiction over plaintiffs' request for injunctive relief; and (3) declining to exercise supplemental jurisdiction (what used to be known as pendent jurisdiction) over plaintiffs' state-law negligence claims. We now affirm. BACKGROUND The facts of this case are fully reported at 654 F.Supp. 641, 643-44 (W.D.N.Y.1987) (Elfvin, J.) ["DiLaura I"] and 786 F.Supp. 241, 243-45 (W.D.N.Y.1991) (Arcara, J.) ["DiLaura II"]. We summarize the salient facts relevant to this appeal. The Niagara River connects Lake Erie and Lake Ontario. With various power-related facilities controlling the flow and elevation of the river, PASNY and its Canadian partner Ontario Hydro have transformed the Niagara River into a long "hydraulic canal" to produce electrical power. Two international treaties, related regulations, and a license issued by the Federal Energy Regulatory Commission ("FERC"), govern PASNY's managed diversion of Niagara River waters. The two international agreements between the United States and Canada are the Boundary Waters Treaty, Jan. 11, 1909, U.S.-Gr. Brit., 36 Stat. 2448 ("1909 Treaty"), and the Treaty Concerning Uses for the Waters of the Niagara River, Feb. 27, 1950, U.S.-Can., T.I.A.S. No. 2130, 694 ("1950 Treaty"). The 1909 Treaty established an International Joint Commission ("IJC"), giving it jurisdiction to regulate the diversion, obstruction, and use of boundary waters. See 1909 Treaty, arts. VII-XII, 36 Stat. at 2451-54; see also Miller v. United States, 583 F.2d 857, 860 (6th Cir.1978); Soucheray v. Corps of Eng'rs of the United States Army, 483 F.Supp. 352, 353 (W.D.Wis.1979). The 1909 Treaty also regulated the use of the Niagara River by establishing minimum water flows over Niagara Falls. See 1909 Treaty, art. V, 36 Stat. at 2450-51. The 1950 Treaty increased flow requirements and authorized the construction of various "remedial works" in the River to regulate the water flow over Niagara Falls. See 1950 Treaty, arts. II-IV, T.I.A.S. No. 2130 at 696-97. In 1957, Congress enacted the Niagara Redevelopment Act ("NRA"), 16 U.S.C. § 836-836a (1988), directing FERC to issue a license to PASNY "for the construction and operation of a power project with capacity to utilize all of the United States share of the water of the Niagara River permitted to be used by international agreement." Id. § 836(a). The license for the Niagara Project specifically reserved to FERC the right to regulate PASNY's use of the Niagara River waters for the protection of life, health and property. Id. § 803(c). All decisions regarding River water diversions for power production, operation of the Control Structure — the principal "remedial work" — and ice control operations require close coordination between PASNY and Ontario Hydro. In particular, the two power entities have joint development procedures, described in the Niagara River Ice Control Manual, for minimizing the effect of ice on the River flow and the operation of the Control Structure. There was a severe winter storm on the Upper Niagara River in early 1985. Plaintiffs, who own property in New York along the East Channel of the Niagara River, allege that PASNY over-reacted to this event by diverting too much water into the Niagara Project power intakes, thus caus ing the River to flow in a reverse direction. This, plaintiffs claim, resulted in an ice jam with consequent flooding and ice damage to plaintiffs' property. Asserting claims under 16 U.S.C. § 803(c) and state-law negligence, plaintiffs sued in the Western District in April 1985, for compensatory and punitive damages and injunctive relief. PASNY answered that the unpredictable weather along the Niagara River caused the ice jam, and that the situation would have been much worse if PASNY had not intervened to control the storm damage. Plaintiffs moved for a preliminary injunction to prevent PASNY from causing more flooding. In a Memorandum and Order dated February 26, 1987, the district court (per Judge Elfvin) denied the motion. DiLaura I, 654 F.Supp. 641. Although Judge Elfvin agreed that § 803(c) creates a federal claim and that the district court had jurisdiction to grant injunctive relief, he denied the motion because plaintiffs failed to make the required showing of irreparable harm, a likelihood of success, and a balance of hardships tipping decidedly in their favor. DiLaura I, 654 F.Supp. at 646-47. The case was then transferred to Judge Arcara in April 1989. At the final pre-trial conference in April 1991, Judge Arcara, on his own motion, raised the issue of subject matter jurisdiction. The issue was then briefed and argued. By Memorandum and Order dated December 2, 1991, the court dismissed the complaint. DiLaura II, 786 F.Supp. 241. With respect to plaintiffs' § 803(c) claim, Judge Arcara found that § 803(c) does not create a federal claim and that plaintiffs' complaint therefore failed to state a claim upon which relief could be granted. He also dismissed plaintiffs' request for injunctive relief for lack of subject matter jurisdiction under the "political question" doctrine and the exhaustion requirement. Acknowledging the interests of federalism and comity, the court also declined to exercise supplemental jurisdiction over plaintiffs' state-law negligence claims. DiLaura II, 786 F.Supp. at 255. DISCUSSION A. Law of the Case Before considering the merits of this case, we raise, sua sponte, a threshold issue — whether Judge Arcara's conclusions of law were barred by the "law of the case" doctrine. The law of the case doctrine "posits that when a court decides upon a rule of law, that decision should continue to govern the same issues in subsequent stages in the same case." Liona Corp. v. PCH Assocs. (In Re PCH Assocs.), 949 F.2d 585, 592 (2d Cir.1991) (quoting Christianson v. Colt Indus. Operating Corp., 486 U.S. 800, 816, 108 S.Ct. 2166, 2177, 100 L.Ed.2d 811 (1988)); see also 1B James W. Moore, Jo D. Lucas & Thomas S. Currier, Moore's Federal Practice ¶ 0.404[1], at 117 (1991) ("Under the doctrine of law of the case, a decision on an issue of law made at one stage of a case becomes a binding precedent to be followed in successive stages of the same litigation."). This "doctrine is admittedly discretionary and does not limit a court's power to reconsider its own decisions prior to final judgment." Virgin Atl. Airways v. National Mediation Bd., 956 F.2d 1245, 1255 (2d Cir.), cert. denied, — U.S. —, 113 S.Ct. 67, 121 L.Ed.2d 34 (1992); see also Arizona v. California, 460 U.S. 605, 618, 103 S.Ct. 1382, 1391, 75 L.Ed.2d 318 (1983) ("Law of the case directs a court's discretion, it does not limit the tribunal's power."). As we have noted, "[t]he major grounds justifying reconsideration are 'an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice.'" Virgin Atl. Airways, 956 F.2d at 1255 (quoting 18 Charles A. Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice & Procedure § 4478, at 790 (1981)) [hereinafter Federal Practice & Procedure ]. Deciding to reconsider Judge Elfvin's finding concerning plaintiffs' § 803(e) claim, Judge Arcara emphasized that the finding was made upon a motion for a preliminary injunction; and, he concluded that "the issue of whether § 803(c) creates a federal cause of action for damages was not directly before him and his holding in that regard was merely dictum." 786 F.Supp. at 250. Without deciding whether the finding was holding or dictum, we approve the result, recognizing that "[t]he decision of both the trial and appellate court on whether to grant or deny a temporary injunction does not preclude the parties in any way from litigating the merits of the case." 11 Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure § 2962, at 630-31 (1973). Thus, the preliminary and summary nature of Judge Elfvin's ruling counsels restraint in a strict application of law of the case. In revisiting Judge Elfvin's finding concerning jurisdiction over plaintiffs' request for an injunction, the court expressed the view that "[i]t is obvious from his decision that Judge Elfvin had serious questions concerning the Court's jurisdiction" but "deemed it prudent . to assume jurisdiction____" DiLaura II, 786 F.Supp. at 252. Because subject matter jurisdiction is particularly suited for reconsideration, see, e.g., Federal Practice & Procedure § 4478, at 799, in this case, Judge Arcara properly and prudently revisited the earlier summary ruling on so basic a question. In any event the doctrine of law of the ease "permits a change of position if it appears that the court's original ruling was erroneous." Kinsman Transit Co. v. City of Buffalo, 388 F.2d 821, 825 n. 9 (2d Cir.1968); accord Arizona v. California, 460 U.S. 605, 103 S.Ct. 1382, 75 L.Ed.2d 318. Recognizing that "Judge Elfvin did not have the benefit, at that time, of Judge Ginsberg's [persuasive] decision in South Carolina Public Serv. Auth. v. FERC [850 F.2d 788 (D.C.Cir.1988) ]," 786 F.Supp. at 250, the court articulated a legitimate ground to support its reconsideration. Because Judge Arcara's reasons for revisiting Judge Elfvin's prior rulings were "cogent" and "compelling," Doe v. New York City Dep't of Social Servs., 709 F.2d 782, 789 (2d Cir.), cert. denied, 464 U.S. 864, 104 S.Ct. 195, 78 L.Ed.2d 171 (1983), we find no error in the court's rejection of the law of the case doctrine in this case. B. The § 803(c) Claim Plaintiffs argue that 16 U.S.C. § 803(c) creates a private claim and, therefore, the district court has subject matter jurisdiction over their claim for compensatory and punitive damages, and injunctive relief, under 16 U.S.C. § 825p. In determining whether § 803(c) gives a private litigant a federal claim, the most important inquiry is whether Congress intended to create such a right of action. Suter v. Artist M., — U.S. —, 112 S.Ct. 1360, 1370, 118 L.Ed.2d 1 (1992); Karahalios v. National Fed'n of Fed. Employees, Local 263, 489 U.S. 527, 532-33, 109 S.Ct. 1282, 1286-87, 103 L.Ed.2d 539 (1989); see Health Care Plan, Inc. v. Aetna Life Ins. Co., 966 F.2d 738, 740 (2d Cir.1992). Unless congressional intent is clearly stated or can reasonably be inferred, "the essential predicate for implication of a private remedy simply does not exist." Karahalios, 489 U.S. at 533, 109 S.Ct. at 1286 (quoting Thompson v. Thompson, 484 U.S. 174, 179, 108 S.Ct. 513, 516, 98 L.Ed.2d 512 (1988)). To divine Congress' intent on this issue, we apply the four-pronged test of Cort v. Ash, 422 U.S. 66, 95 S.Ct. 2080, 45 L.Ed.2d 26 (1975). As we have noted, that test has been "refocused" by a series of Supreme Court decisions to emphasize the centrality of the second factor — congressional intent — and to treat the remaining factors "only as proxies for legislative intent." Health Care Plan, 966 F.2d at 740; see, e.g., Karahalios, 489 U.S. at 532-33, 109 S.Ct. at 1285-86; Thompson, 484 U.S. at 179, 108 S.Ct. at 516; Touche Ross & Co. v. Redington, 442 U.S. 560, 575-76, 99 S.Ct. 2479, 2488-89, 61 L.Ed.2d 82 (1979). Where, as here, "the scope of a statutory provision is not made crystal clear by the language of the provision, it is appropriate to turn to the legislative history of the statute" in order to determine congressional intent. Berger v. Heckler, 771 F.2d 1556, 1571 (2d Cir.1985). Judged against these guideposts, we agree with the district court that neither the statutory language nor the legislative history of § 803(c) reveals any congressional intent to create a new private cause of action against FERC licensees. There is nothing in the legislative history to contradict the district court's assertion that "Congress simply wanted to preserve the right of injured property owners to bring actions for damages against licensees in state court under traditional state tort law, and to shield the United States against liability." 786 F.Supp. at 249. A perusal of the original House version of the bill reveals an intent to preserve existing state liability laws: No license hereunder shall have the effect of relieving the licensee from liability for any injury or damages occasioned by the construction, maintenance, or operation of said project works; and the United States shall in no event be liable therefor. H.R.Rep. No. 715, 65th Cong., 2d Sess. § 10(c), at 6 (1918). The floor debate on the FPA also indicates that property damage caused by licensees was to be determined by reference to state law. See 56 Cong. Rec. 9913-14 (daily ed. Sept. 3, 1918). Indeed, after a detailed analysis of the statute, the Supreme Court concluded that "[t]he Act leaves to the states their traditional jurisdiction subject to the admittedly superior right of the Federal Government." First Iowa Hydro-Elec. Coop. v. Federal Power Comm'n, 328 U.S. 152, 171, 66 S.Ct. 906, 915, 90 L.Ed. 1143 (1946). Most courts considering this issue have concluded that § 803(c) does not create an independent federal right of action. See, e.g., South Carolina Pub. Serv. Auth. v. FERC, 850 F.2d 788, 795 (D.C.Cir.1988) (finding that § 803(c) does not create an independent federal cause of action, but simply preserves existing state tort law with its own rules of liability for damages caused by licensees); Pike Rapids Power Co. v. Minneapolis, St. P. & S.S.M. Ry. Co., 99 F.2d 902, 911-12 (8th Cir.), cert. denied, 305 U.S. 660, 59 S.Ct. 362, 83 L.Ed. 428 (1938); Beaunit Corp. v. Alabama Power Co., 370 F.Supp. 1044, 1051 (N.D.Ala.1973); Key Sales Co. v. South Carolina Elect. & Gas Co., 290 F.Supp. 8, 23 (D.S.C.1968), aff'd, 422 F.2d 389 (4th Cir.1970) (per curiam); Alabama Power Co. v. Smith, 229 Ala. 105, 155 So. 601, 604 (1934); Rice Hope Plantation v. South Carolina Pub. Serv. Auth., 216 S.C. 500, 59 S.E.2d 132, 140-42 (1950), overruled on other grounds, McCall v. Batson, 285 S.C. 243, 329 S.E.2d 741 (1985). But see Seaboard Air Line R.R. v. County of Crisp, 280 F.2d 873, 875-76 (5th Cir.1960) ("It seems to us unlikely that the Congress intended by the language it used to do no more than to disclaim liability on the part of the United States for the acts of the licensee."), cert. denied, 364 U.S. 942, 81 S.Ct. 460, 5 L.Ed.2d 373 (1961); DiLaura I, 654 F.Supp. at 644 (holding that § 825p provides a statutory' basis for plaintiffs seeking to impose on PASNY the liability referenced in § 803(c)). Accordingly, we adopt the majority rule and conclude that the district court did not err in finding that plaintiffs' cause of action under § 803(c) failed to state a claim upon which relief could be granted. C. Appellants' Request for Injunctive Relief Plaintiffs argue that, even if there is no private damage remedy under § 803(c), the district court would still have jurisdiction to issue an injunction under § 825p. Although § 825p might be read to support this distinction, we reject the contention and hold, as did the district court, that injunctive relief is not available because of the exhaustion requirement. Failure to exhaust administrative remedies permits a court to dismiss the action because no subject matter jurisdiction exists. See 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1350, at 194-96 (2d ed. 1990 & Supp.1992) and the cases cited therein. This is especially true where Congress has designed an extensive administrative procedure to protect the interests of potential plaintiffs. The FPA endowed FERC with full regulatory authority over projects such as the Niagara Project, entrusting "a broad subject-matter to administration by the [FERC], subject to Congressional oversight, in the light of new and evolving problems and doctrines." Niagara Mohawk Power Corp. v. Federal Power Comm'n, 379 F.2d 153, 158 (D.C.Cir.1967). This authority includes the right to issue licenses for the construction and operation of hydroelectric projects. See 16 U.S.C. § 797(e). In this case, PASNY is licensed by FERC and must obey FERC's rules and regulations prescribed for the protection of life, health, and property. See id. § 803(c). Dissatisfied with PASNY's ice control procedures, appellants have filed a complaint in the district court, seeking an injunction to compel PASNY to follow the procedures outlined in the Niagara River Ice Control Manual. The threshold issue is whether the district court has jurisdiction over this action. In enacting the FPA, Congress established a system for dealing with complaints to FERC, see 16 U.S.C. § 825e-h, and created a special procedure to review FERC's action or inaction. Under this procedure, the complainant must first appeal the FERC action to the full commission, 18 C.F.R. § 385.904 (1992), and then request a rehearing, id. § 385.713. Only then, after exhausting all administrative remedies, may the complainant seek judicial review. 16 U.S.C. § 8251; see City of Tacoma v. Taxpayers of Tacoma, 357 U.S. 320, 336, 78 S.Ct. 1209, 1218, 2 L.Ed.2d 1345 (1958) ("Congress in [§ 825Z] prescribed the specific, complete and exclusive mode for judicial review of [FERC's] orders.") Appellants contend that they are free from these administrative constraints because they are not seeking to review anything but only to compel PASNY to adhere to its own procedures. While this argument has a certain semantic appeal, we reject it as simply too facile. In California Save Our Streams Council, Inc. v. Yeutter, 887 F.2d 908 (9th Cir.1989), the Ninth Circuit rejected a similarly strained theory, concluding that "appellants seek, through careful pleading, to avoid the strict jurisdictional limits imposed by Congress____and we do not believe that the jurisdictional remedy prescribed by Congress hangs on the ingenuity of the complaint." Id. at 911-12. Likewise, appellants in this ease attempt to fashion an independent claim against PASNY, seeking to escape FERC's jurisdiction over its licensees and its administrative proceedings. We agree with the district court that FERC in the first instance "has the power and the expertise to decide if the license was violated or if the current operating procedures should be changed." DiLaura II, 786 F.Supp. at 253. Accordingly, we find no error in the district court's conclusion that it lacked jurisdiction to review appellants' claims because they failed to exhaust FERC's administrative remedies. D. Supplemental Jurisdiction Both parties contend that the district court erred by not exercising supplemental jurisdiction over the appellants' state law negligence claim after it decided to dismiss the federal § 803(c) claim. The parties contend that the court should address this supplemental state law claim in the interests of judicial economy and fairness. We disagree. Once a district court has determined that the original federal claim should be dismissed, its decision to relinquish jurisdiction over a supplemental state claim will be reversed only for abuse of discretion. See Finz v. Schlesinger, 957 F.2d 78, 83 (2d Cir.) (citing Carnegie-Mellon Univ. v. Cohill, 484 U.S. 343, 350 n. 7, 108 S.Ct. 614, 619 n. 7, 98 L.Ed.2d 720 (1988)), cert. denied, — U.S. —, 113 S.Ct. 72, 121 L.Ed.2d 38 (1992); Mayer v. Oil Field Sys. Corp., 803 F.2d 749, 757 (2d Cir.1986). "[I]n the usual case in which all federal-law claims are eliminated before trial, the balance of factors to be considered under the pendent jurisdiction doctrine — judicial economy, convenience, fairness, and comity— will point toward declining to exercise jurisdiction over the remaining state-law claims." Carnegie-Mellon Univ., 484 U.S. at 350 n. 7, 108 S.Ct. at 619 n. 7; see also Castellano v. Board of Trustees of the Police Officers' Variable Supplements Fund, 937 F.2d 752, 758 (2d Cir.) (quoting United Mine Workers v. Gibbs, 383 U.S. 715, 726, 86 S.Ct. 1130, 1139, 16 L.Ed.2d 218 (1966)) (" 'if the federal claims are dismissed before trial, even though not insubstantial in a jurisdictional sense, the state claims should be dismissed as well.' "), cert. denied, — U.S. —, 112 S.Ct. 378, 116 L.Ed.2d 329 (1991). Here, the district court stated that "the interests of federalism and comity strongly support dismissal of the state law negligence claim" because "the legislative history of the FPA clearly establishes that Congress was determined not to infringe the traditional jurisdiction of the States in the areas of property rights and tort liability." 786 F.Supp. at 254. Furthermore, we have held that the parties' judicial economy argument is not dispositive. See Kidder, Peabody & Co. v. Maxus Energy Corp., 925 F.2d 556, 564 (2d Cir.) (citation omitted) ("The judicial economy factor should not be the controlling factor, and it may be appropriate for a court to relinquish jurisdiction over pendent claims even where the court has invested considerable time in their resolution."), cert. denied, — U.S. —, 111 S.Ct. 2829, 115 L.Ed.2d 998 (1991), appeal after remand, In re Ivan F. Boesky Secur. Litigation, 957 F.2d 65 (2d Cir.1992). Accordingly, we find that the district court did not abuse its discretion in relinquishing jurisdiction over the supplemental state law negligence claim. CONCLUSION To sum up: We find that the district court properly dismissed plaintiffs' federal claim for failure to state a claim upon which relief can be granted. Further, the court properly dismissed plaintiffs' request for injunctive relief for lack of subject matter jurisdiction. Finally, we affirm the court's decision not to exercise supplemental jurisdiction over plaintiffs' state law negligence claims. Accordingly, the judgment of the district court is affirmed. . The Federal Power Act ("FPA"), 16 U.S.C. § 791a-828c (1988 & Supp.1990), originally created the Federal Power Commission ("FPC"). See 16 U.S.C. § 792 (1988). FERC succeeded the FPC in 1977. For clarity, we identify all FPC actions as FERC actions. . Section 803(c) of the Federal Power Act provides: Each licensee hereunder shall be liable for all damages occasioned to the property of others by the construction, maintenance, or operation of the project works or of the works appurtenant or accessory thereto, constructed under the license, and in no event shall the United States be liable therefor. 16 U.S.C. § 803(c) (1988). . Section 825p provides in pertinent part: The District Courts of the United States . shall have exclusive jurisdiction . of all suits in equity and actions at law brought to enforce any liability, or duty created by, or to enjoin any violation of, [the FPAj. 16 U.S.C. § 825p (1988). .The four factors of the Cort analysis are: First, is the plaintiff one of the class for whose especial benefit the statute was enacted . — that is, does the statute create a federal right in favor of the plaintiff? Second, is there any indication of legislative intent, explicit or implicit, either to create such a remedy or to deny one? . Third, is it consistent with the underlying purposes of the legislative scheme to imply such a remedy for the plaintiff? . And finally, is the cause of action one traditionally ' relegated to state law, in an area basically the concern of the States, so that it would be inappropriate to infer a cause of action based solely on federal law? Cort, 422 U.S. at 78, 95 S.Ct. at 2088 (1975) (internal quotation marks omitted) (citations omitted). . Because we hold the district court lacked jurisdiction, we decline to consider the implications of the political question doctrine in this case, or whether FERC had primary jurisdiction over the issues raised.
493 U.S. 1078		C. A. 11th Cir. Certiorari denied.
511 U.S. 1088		Ct. App. Cal, 2d App. Dist. Certiorari denied.
513 U.S. 834		Sup. Ct. Ariz. Certiorari denied.
135 F.3d 848		JACOBS, Circuit Judge: The Stamm family, residents of New York, were in a collision while on a car trip to Michigan in 1985. Mr. Stamm was driving; Mrs. Stamm was critically injured. The accident was caused by another driver, who was driving a car leased from We Try Harder, Inc. ("WTH"). In 1986, the parents sued WTH in New York State Supreme Court, and reached a settlement of their claims. Ten years afterward, the two Stamm children (who are still minors) commenced the present litigation, through Peter Sheldon as conservator of their estate (hereinafter "plaintiffs"), asserting claims for loss of parental consortium and for physical and emotional injuries sustained in the accident. They named as defendant PHH Corporation, which they believed (erroneously) was the successor to WTH. When plaintiffs discovered that they had sued the wrong party, they moved to amend the complaint to substitute as a defendant the actual successor to WTH-PHH Vehicle Management Services Corporation ("PHH Vehicle"). PHH Corporation moved to dismiss and opposed the motion to amend. In dismissing the complaint against PHH Corporation and denying plaintiffs' motion to amend the complaint to substitute PHH Vehicle, the United States District Court for the Southern District of New York (Kaplan, J.) held that: (i) substituting PHH Vehicle as defendant on the loss of parental consortium claim would be futile because New York law does not recognize such a claim; and (ii) although plaintiffs' physical injury and emotional distress claims are viable, amendment would prejudice PHH Vehicle. See Sheldon v. PHH Corp., No. 96 Civ. 1666,1997 WL 91280 (S.D.N.Y. Mar. 4,1997). On appeal, plaintiffs argue (i) that the loss of parental consortium claim is governed by Michigan law, which recognizes such a cause of action, rather than New York law, which does not; and (ii) that substitution of defendants would not have been futile. PHH Corporation cross-appeals, arguing that the district court erred in concluding that plaintiffs' physical injury and emotional distress claims were viable. For the reasons that follow, we affirm the judgment of the district court and dismiss the cross-appeal. BACKGROUND On June 30, 1985, Thoburn Milar Stamm, Jr. was driving his family through Osceola County, Michigan. His three passengers were his wife, Marilyn Stamm, and their two children, plaintiffs Thoburn Milar Stamm III and Cannon Nicholls Stamm, who at the time were four years old and one-and-a-half, respectively. All were New York residents and the car was registered in New York. Their car was struck by an automobile driven by Dorothy Millbrook, a Michigan resident. Mrs. Stamm sustained serious and permanent brain injuries. The children have alleged that they suffered physical and emotional injuries. Millbrook's car was registered in Michigan and was leased from WTH (a Delaware corporation with its principal place of business in Garden City, New York), which was a wholly owned subsidiary of Avis Leasing Corporation. WTH had leased the car through its New York office to Capital Distributing Company, Millbrook's husband's employer, for use in Michigan. In 1986, Mr. and Mrs. Stamm sued WTH and the manufacturer of Millbrook's vehicle in New York State Supreme Court, Bronx County, seeking damages for Mrs. Stamm's injuries and for Mr. Stamm's loss of consortium. In 1991, the parties agreed to a structured settlement of $6.5 million. In the meantime, WTH went through two corporate changes. In 1986, Avis Leasing Corporation sold all outstanding shares of WTH stock to PHH Holdings Corporation, a subsidiary of PHH Corporation; at the same time, WTH changed its name to Avis Leasing Corporation, and the former Avis Leasing Corporation changed its name to Avis Enterprises, Inc. Then in 1991, the new Avis Leasing Corporation (formerly WTH) merged into PHH Vehicle, so that the ultimate successor to WTH is PHH Vehicle. Both PHH Corporation and PHH Vehicle are incorporated in Maryland, and have their principal places of business there. In April 1995, the Stamm children (through their father) filed suit against PHH Corporation in the United States District Court for the Eastern District of Michigan, seeking damages for loss of parental consortium and emotional pain and suffering pursuant to Michigan's owner liability statute. Apparently, this complaint was never served. On June 9, 1995, the children filed an action (through Sheldon as the conservator of then-estate) against PHH Corporation and their father in Wayne County Circuit Court, in Detroit, seeking the same relief as they had in the unserved federal complaint (with the addition of a claim for physical injuries the children suffered in the accident). In August 1995, the state court granted the defendant's motion to transfer that action from Detroit to Osceola County, Michigan, the place of the accident. Plaintiffs then filed and served an amendment to their federal complaint, substituting Sheldon (in lieu of their father) as representative, and suing PHH Corporation only; the amended complaint sought damages for loss of parental consortium and for physical injuries and emotional pain and suffering resulting from the accident. In January 1996, plaintiffs moved to change the venue of their lawsuit to the Southern District of New York pursuant to 28 U.S.C. § 1404(a); transfer was granted on February 28, 1996. At that point, the Michigan state action was discontinued without prejudice on consent of all parties. In the course of discovery, plaintiffs learned that PHH Vehicle — not PHH Corporation — was WTH's successor, and therefore the only proper defendant. They moved on July 30, 1996, to amend the complaint to change the name of the defendant from "PHH Corporation" to "PHH Vehicle Management Service Corporation." Plaintiffs conceded that they had no claim against PHH Corporation, but asserted that no one would be prejudiced by an amendment naming the proper defendant. In response, PHH Corporation moved to dismiss the complaint against it, and argued that amendment would be futile because New York law (i) governs and (ii) does not recognize a cause of action for loss of parental consortium. The district court dismissed the complaint against PHH Corporation and denied the motion for leave to amend. First, the district court concluded that New York substantive law would govern even under Michigan choice of law rules, and that substitution of PHH Vehicle for PHH Corporation therefore would be futile, at least as to the loss of parental consortium claim. Sheldon, 1997 WL 91280, at 7. Next, the district court found that because the accident occurred outside New York, New York's no-fault statute did not bar the action for physical injuries. Id. The district court also found that plaintiffs stated a claim for infliction of emotional distress, id. at 8, but as to these two claims, denied plaintiffs' motion to substitute PHH Vehicle as the defendant because PHH Vehicle would have been prejudiced by its inability to contest the transfer from Michigan to New York and because plaintiffs offered no valid explanation for initially suing the wrong party. Id. at 8-9. DISCUSSION Typically, "[w]e review the denial of a motion to amend for abuse of discretion." Wake v. United States, 89 F.3d 53, 57 (2d Cir.1996). However, insofar as the district court based its denial of the motion to amend on a conclusion of law — i.e., that New York law, and not Michigan law, governs plaintiffs' loss of parental consortium claim — that conclusion of law is subject to review de novo. I. The Appeal Plaintiffs sued PHH Corporation for loss of parental consortium, and sought leave to amend in order to assert the same claim against PHH Vehicle. Michigan recognizes a cause of action on behalf of a child for the loss of a parent's consortium. See Berger v. Weber, 411 Mich. 1, 303 N.W.2d 424, 427 (1981). New York does not. See De Angelis v. Lutheran Med. Ctr., 58 N.Y.2d 1053, 1055, 462 N.Y.S.2d 626, 627, 449 N.E.2d 406, 407 (1983). Thus, to decide whether plaintiffs' assertion of such a claim against PHH Vehicle would be futile, as the district court concluded, we must determine which law governs. The threshold question is which state's choice of law rules apply. In a diversity case, a district court ordinarily determines the applicable state law by reference to the choice of law rules of the forum state. See Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021-22, 85 L.Ed. 1477 (1941). However, when a case has been transferred pursuant to 28 U.S.C. § 1404(a), even on plaintiff's own motion, a court will apply the law of the transferor forum, including that forum's choice of law rules. See Ferens v. John Deere Co., 494 U.S. 516, 519, 110 S.Ct. 1274, 1277-78, 108 L.Ed.2d 443 (1990). Although the transfer of this case from Michigan would seem to mean that Michigan law and choice of law rules apply, defendant argues that because plaintiffs are essentially seeking to drop the only defendant and add a new one, this action should be treated as a completely new case — i.e., as a case commenced in the Southern District of New York rather than one transferred from Michigan— and that New York choice of law rules therefore should apply. We need not decide this issue because the application of New York substantive law is required even if we use Michigan choice of law rules. A. Michigan determines the governing law in tort claims as follows: [A Michigan court] will apply Michigan law unless a "rational reason" to do otherwise exists. In determining whether a rational reason to displace Michigan law exists, we undertake a two-step analysis. First, we must determine if any foreign state has an interest in having its law applied. If no state has such an interest, the presumption that Michigan law will apply cannot be overcome. If a foreign state does have an interest in having its law applied, we must then determine if Michigan's interests mandate that Michigan law be applied, despite the foreign interests. Sutherland v. Kennington Truck Serv., Ltd., 454 Mich. 274, 562 N.W.2d 466, 471 (1997) (citations omitted). In determining whether another state has an interest, the court must initially ask whether the foreign state, under its own choice of law rules, would apply its own law. Id. 562 N.W.2d at 473. So, for instance, in Sutherland, the Michigan court determined that an Ontario court would have applied the law of the place of the accident (Michigan) and concluded that Ontario lacked an interest in seeing its law applied. Id. If the court determines that the foreign state has an interest in applying its own law, the court must consider what those interests are and balance them against Michigan's own interests, taking into account other factors such as the need for certainty and predictability and the prevention of forum shopping. See Aetna Cas. & Surety Co. v. Dow Chem. Co., 883 F.Supp. 1101, 1110 (E.D.Mich.1995); Isley v. Capuchin Province, 878 F.Supp. 1021, 1023 (E.D.Mich.1995). Michigan will allow its law to yield to another law when there is a "rational reason" to do so, including if the foreign state's interests substantially outweigh Michigan's interest in the litigation. See Isley, 878 F.Supp. at 1023. B. Following the analysis of Sutherland, we begin by looking to New York choice of law rules to determine whether New York would apply its own law here. "In the context of tort law, New York utilizes interest analysis to determine which of two competing jurisdictions has the greater interest in having its law applied in the litigation." Padula v. Lilarn Properties Corp., 84 N.Y.2d 519, 521, 620 N.Y.S.2d 310, 311, 644 N.E.2d 1001, 1002 (1994). When the conflict involves rules that regulate conduct, the law of the place of the tort governs. Id. at 522, 620 N.Y.S.2d at 311, 644 N.E.2d at 1002. The claim here, however, is one for loss of parental consortium — a loss-allocating, not conduct-regulating, rule. See id. at 522, 620 N.Y.S.2d at 312, 644 N.E.2d at 1003 ("Loss allocating rules . are those which prohibit, assign, or limit liability after the tort occurs_"). When the conflict concerns a loss-allocating rule, the choice of law analysis is governed by the three principles articulated in Neumeier v. Kuehner, 31 N.Y.2d 121, 128, 335 N.Y.S.2d 64, 70, 286 N.E.2d 454 (1972). See Padula, 84 N.Y.2d at 522, 620 N.Y.S.2d at 312, 644 N.E.2d at 1003; see also Cooney v. Osgood Mach., Inc., 81 N.Y.2d 66, 72-73, 595 N.Y.S.2d 919, 923, 612 N.E.2d at 281 (1993); Schultz v. Boy Scouts of America, Inc., 65 N.Y.2d 189, 201, 491 N.Y.S.2d 90, 98, 480 N.E.2d at 686-87 (1985). Neumeier rules 1 and 3 are the only ones potentially applicable here. Rule 1 is that "[w]hen the [plaintiff] and the [defendant] are domiciled in the same state, and the car is there registered, the law of that state should control and determine the standard of care which the [defendant] owes to [the plaintiff]." 31 N.Y.2d at 128, 335 N.Y.S.2d at 70, 286 N.E.2d at 457. Neumeier rule 3 is that: [W]hen the [plaintiff] and the [defendant] are domiciled in different states, the rule is necessarily less categorical. Normally, the applicable rule of decision will be that of the state where the accident occurred but not if it can be shown that displacing that normally applicable rule will advance the relevant substantive law purposes without impairing the smooth working of the multi-state system or producing great uncertainty for litigants. Id. Defendant argues that Neumeier rule 1 — and consequently New York law— applies here because the parties share a common domicile: plaintiffs are New York residents and WTH had its principal place of business in New York. Plaintiffs argue that the domicile of a corporation is determined by reference to the state of incorporation, not its principal place of business, and that WTH therefore is domiciled in Delaware, not New York. Further, plaintiffs claim that because Millbrook was domiciled in Michigan, and Millbrook's vehicle was registered in Michigan, the ease is not governed by Neumeier rule 1. This dispute only matters, however, if Neumeier rule 3 would result in application of Michigan law. We need not decide the question because even if Neumeier rule 3 governs, New York courts would still use New York law. Although Neumeier rule 3 presumes application of Michigan law here, that presumption is overcome when applying New York law "will advance the relevant substantive law purposes without impairing the smooth working of the multi-state system or producing great uncertainty for litigants." Id. We conclude that applying New York law would have those salutary effects. When the extent of victim compensation is at issue, the plaintiffs domicile has an interest in applying its law because that forum is where the loss is felt and where the burden of the victim's uncompensated needs may fall. See, e.g., Pescatore v. Pan American World Airways, Inc., 97 F.3d 1, 14 (2d Cir.1996); Burgio v. McDonnell Douglas, Inc., 747 F.Supp. 865, 872 (E.D.N.Y.1990). Similarly, the location of defendant's headquarters has an interest in avoiding burdensome liability for entities that do business within its borders. In fact, New York has decided not to afford a recovery for loss of parental consortium in part to avoid the imposition of "tort liability almost without limit." De Angelis, 58 N.Y.2d at 1055, 462 N.Y.S.2d at 627, 449 N.E.2d at 407; see also Pescatore, 97 F.3d at 14. Here, both of these factors point to New York; plaintiffs are New York residents, and WTH was headquartered in New York. Compared to these interests of its own, New York courts would view any interest Michigan may have as insignificant. Michigan affords a cause of action for loss of parental consortium in order to compensate children who have lost enjoyment of their parent's "love, companionship, affection, society, comfort, services and solace." See Berger v. Weber, 411 Mich. 1, 303 N.W.2d 424, 426 (1981). But Michigan can have no appreciable interest in securing that recovery for little New Yorkers. Cf. Chila v. Owens, 348 F.Supp. 1207, 1210 (S.D.N.Y.1972) (Weinfeld, J.). Michigan's sole relevant connection to this case is that the accident occurred there. However, "[u]nder New York's choice of law rales, when conflicting rales concern the allocation of loss rather than the regulation of conduct, the locus jurisdiction has at best a minimal interest in determining the right of recovery or the extent of the remedy." Pes-catore, 97 F.3d at 13 (citations and internal quotation marks omitted); see also AroChem Int'l, Inc. v. Buirkle, 968 F.2d 266, 270 (2d Cir.1992). A New York court would likely conclude that application of New York law would advance the relevant substantive law purposes because New York is the only state with an important interest in applying its law. We must also ask whether applying New York law will impair the smooth working of the multi-state system. We think that New York's interests are so weighty that most jurisdictions likely would apply New York law. Doing so will also contribute to the smooth working of the multi-state system by discouraging forum shopping. Plaintiffs conceded in their opposition to defendant's motion for a stay pending disposition of the state suit that they filed suit in Michigan (an inconvenient forum as demonstrated by their own motion to transfer) solely to take advantage of its more favorable law: "The case had to be filed in Michigan, where the accident occurred, because it is a claim for damages for loss of parental consortium, which is recognized by Michigan law." C. Because New York courts would apply New York law to plaintiffs' loss of parental consortium claims, Michigan's choice of law rales require that we compare New York's interests with those of Michigan in order to see whether there is a "rational reason" not to apply Michigan law. See Best v. Dante Gentilini Trucking, Inc., 778 F.Supp. 360, 364 (E.D.Mich.1991) ("If the foreign state does have an interest, a court's second duty is to determine whether reason requires that the law of the foreign state displace that of the forum state.") (citations and internal quotation marks omitted). We conclude that a Michigan court would find that New York's interest in applying its law to plaintiffs' loss of consortium claims vastly outweighs any interest of Michigan, that application of New York law in these circumstances would advance other goals such as prevention of forum shopping, and that a "rational reason" exists to set aside the presumption that Michigan law governs. A Michigan court would likely conclude that Michigan lacks any substantial interest in permitting these plaintiffs to recover for loss of parental consortium. As one court has noted in interpreting Michigan choice of law rules, "[W]here [a] statute is designed to protect local interests, there is no reason to extend its benefits to a nonresident whose state has no similar statute." Mahne v. Ford Motor Co., 900 F.2d 83, 87 (6th Cir.1990). Michigan's loss of parental consortium cause of action is intended to benefit Michigan residents by allowing them additional recovery; but neither party here is a Michigan resident. Nor would a Michigan court attach overarching importance to the fact that the accident occurred in Michigan. In Olmstead v. Anderson, 428 Mich. 1, 400 N.W.2d 292 (1987), the plaintiff, a resident of Minnesota, sued the defendant, a Michigan domiciliary, for claims arising out of a ear accident in Wisconsin. The Supreme Court of Michigan concluded that Wisconsin, the location of the accident, had no interest in applying its law limiting damages in wrongful death actions: "The operative fact is that neither party is a citizen of the state in which the wrong occurred. Since neither party in this case is a citizen of Wisconsin, that state has no interest in seeing its limitation of damage provision applied." Id. 400 N.W.2d at 804. The court added that although the state in which the accident happened may be interested in having its conduct-regulating statutes brought to bear on non-residents, "[t]he state of the place of the wrong has little or no interest in . compensation when none of the parties reside there." Id. (citation omitted); see also Mahne, 900 F.2d at 87; Best, 778 F.Supp. at 365; Burney v. P V Holding Corp., 218 Mich.App. 167, 553 N.W.2d 657, 659 (1996), appeal denied, No. 108376, 572 N.W.2d 9 (Mich. Dec. 9,1997). Michigan courts would consider New York's interests strong because plaintiffs are residents of New York and WTH -had its principal place of business in New York. As one Michigan court has noted, "Michigan has no interest in affording greater rights of tort recovery to a [foreign] resident than those afforded by [the foreign state]." Farrell v. Ford Motor Co., 199 Mich.App. 81, 501 N.W.2d 567, 572 (1993). Furthermore, Michigan courts have recognized that the defendant's domicile has a substantial interest in limiting exorbitant damage awards. See id. (noting that place where defendant maintained headquarters "has an obvious and substantial interest in shielding [defendant] from open-ended . claims"). Finally, this case raises the forum shopping concerns addressed in Olmstead: The concern surrounding forum shopping stems from the fear that a plaintiff will be able to determine the outcome of a case simply by choosing the forum in which to bring the suit.... raising the fear that applying the law sought by a forum-shopping plaintiff will defeat the expectations of the defendant or will upset the policies of the state in which the defendant acted (or from which the defendant hails). Olmstead, 400 N.W.2d at 303 (citations and internal quotation marks omitted). Olm-stead warns that suspicion of forum shopping should be aroused "when the plaintiff fore-goes the economies afforded by bringing suit at home," and when jurisdictional issues do not explain this litigation decision. Id. (citations and internal quotation marks omitted). As noted, plaintiffs chose to sue in Michigan, an inconvenient forum to which they have no real connection. Where as here, Michigan's only relevant connection to the claim is the place of collision, and the plaintiff ventured far from home to sue there, only to seek transfer on the ground that Michigan is an inconvenient forum, a Michigan court would likely find that New York's strong interests and the need to discourage forum shopping constitute "rational reasons" to apply New York law. Accordingly, New York law governs plaintiffs' claims for loss of parental consortium, and the district court did not err in finding that plaintiffs could not state a claim for loss of parental consortium against PHH Vehicle. II. The Cross-Appeal In considering plaintiffs' motion for leave to amend, the district court gave consideration to the viability of the claims sought to be pleaded. The cross-appeal of defendant PHH Corporation challenges two of those rulings: (i) that because the accident occurred outside New York, "the New York no-fault law and its 'serious injury' threshold for personal injury claims do not apply in this case," Sheldon, 1997 WL 91280, at 7 (citations omitted), and the claim is therefore governed by New York common law; and (ii) that the emotional harm claim was legally sufficient because the plaintiffs were in the zone of danger when their mother was injured. The district court nevertheless denied plaintiffs' motion for leave to substitute PHH Vehicle on the grounds that: (i) PHH Vehicle would be prejudiced by this late addition as it was "afforded no opportunity to contest the motion for transfer in Michigan [and] the district court in Michigan [did not] assess the propriety of a transfer in regard to [PHH Vehicle]"; and (ii) plaintiffs offered no valid explanation for their error in suing the wrong party. Id. at *8-9. We have no jurisdiction to consider this cross-appeal. The only named defendant is PHH Corporation, which has no standing to appeal the district court's decision. "[A] prevailing party cannot appeal from a district court judgment in its favor." Ashley v. Boehringer Ingelheim Pharmaceuticals (In re DES Litigation), 7 F.3d 20, 23 (2d Cir.1993) (hereinafter "In re DES Litigation')-, see also Concerned Citizens of Cohocton Valley, Inc. v. New York State Dep't of Environmental Conservation, 127 F.3d 201, 204 (2d Cir.1997). The court granted PHH Corporation's motion to dismiss the complaint because it is not the real party-in-interest and plaintiffs have no claim against it. The district court's conclusions relating to the physical injury and emotional distress claims cannot affect PHH Corporation. PHH Vehicle does face potential legal liability on the physical injury and emotional distress claims, but that entity is not a party to this case: it was not named in the complaint (in fact, that was the whole point of the motion to amend) and it did not intervene. "The rule that only parties to a lawsuit, or those that properly become parties, may appeal an adverse judgment, is well settled." Marino v. Ortiz, 484 U.S. 301, 304, 108 S.Ct. 586, 587, 98 L.Ed.2d 629 (1988) (per curiam). Defendant's cross-appeal therefore must be dismissed. CONCLUSION The judgment of the district court is affirmed and defendant's cross-appeal is dismissed. . Because plaintiffs were minors at the time of the accident and have yet to reach the age of majority, the delay in filing this action presents no statute of limitations problem. . The parties do not seem to dispute that the relevant corporation for the purposes of determining PHH Vehicle's residence and interests is WTH, its predecessor, which was a Delaware corporation with its principal place of business in New York. In addition, to the extent that we might consider PHH Vehicle's current domicile in this analysis, Maryland, its state of incorporation and the location of its principal place of business, does not recognize a cause of action for loss of parental consortium. See Monias v. En-dal, 330 Md. 274, 623 A.2d 656, 661-62 (1993). . Although plaintiffs reference other contacts with Michigan, such as the fact that Millbrook resided and had her car registered there, they do not explain why those contacts give Michigan an interest in applying its law to plaintiffs' loss of parental consortium action against defendant. See Schultz v. Boy Scouts of America, Inc., 65 N.Y.2d 189, 197, 491 N.Y.S.2d 90, 95, 480 N.E.2d at 685 (1985) ("[T]he [only] facts or contacts which obtain significance in defining State interests are those which relate to the purpose of the particular law in conflict.") (citations and internal quotation marks omitted) (alterations in original). . Although the following analysis touches on some of the same factors mentioned above in the New York choice of law analysis, here we look at those factors through the eyes of a Michigan court applying Michigan choice of law rules. . Defendant's notice of appeal purports to be on behalf of PHH Vehicle as well: NOTICE IS HEREBY GIVEN that the defendant, PHH Corp., named in the caption as PHH Corp., successor to AVIS LEASING CORP., »a WE TRY HARDER, INC. [and, if warranted, PHH Vehicle Management Services Corp.] hereby cross-appeals.... (emphasis added) (alterations in original). But the notice of appeal cannot by itself confer standing on PHH Vehicle. We note also that even if PHH Vehicle was a party to this appeal, it still would not have standing to appeal the district court's ruling; PHH Vehicle succeeded in precluding plaintiffs from amending the complaint and the district court's conclusions relating to the physical and emotional injury claims have no preclusive effect because they were unnecessary to the judgment. See, e.g., In re DES Litigation, 1 F.3d at 23. . Plaintiffs have not appealed the district court's finding that prejudice to PHH Vehicle precluded amendment of the complaint to substitute PHH Vehicle as a defendant on the physical injury and emotional distress claims.
315 U.S. 794		See ante, p. 649.
414 U.S. 1004		C. A. 10th Cir. Certiorari denied.
374 U.S. 817		Supreme Court of Missouri. Certiorari denied.
39 Cust. Ct. 539		Oliver, Chief Judge: The appeals for reappraisement listed in schedule "A," hereto attached and made a part hereof, relate to various classes of merchandise exported from France and entered at the port of San Francisco. The cases have been submitted for decision on a written stipulation wherein the parties agree that the issues involved herein are the same in all material respects as those which were the subject of the decision in Bert Friedberg & Company v. United States, 36 Cust. Ct. 596, Reap. Dec. 8590, the record in which was incorporated herein by consent. In that case, the court held foreign value, as defined in section 402 (c) of the Tariff Act of 1930, as amended, to be the proper basis for appraisement of the merchandise there under consideration, and that such statutory value did not include the so-called "French sole or unique tax." An agreed set of facts, included in the stipulation of submission, establishes that the proper basis for appraisement of the merchandise involved herein is statutory foreign value, and that such value for each of the items in question is the appraised value "less the additions made by the importer on entry because of advances by the appraiser in similar cases," and I so hold. . , Judgment will be rendered accordingly.
6 Cust. Ct. 605		Opinion by Walker, J. It was stipulated that the dogskins in question are undressed and similar to those the subject of Bracher v. United States (5 Cust. Ct. 153, C. D. 389). The claim for free entry under paragraph 1681 was therefore sustained.
73 Cust. Ct. 190		Maletz, Judge: The problem in this consolidated action concerns the proper tariff classification of merchandise invoiced as "Baseball Game" that was exported from Hong Kong and entered at the port of New York in August ánd October 1969. The merchandise was classified by the government under item 737.90 of the tariff schedules, as other toys, not specially provided for, and assessed duty at the modified rate of 28 percent ad valorem. The government claims alternatively that the merchandise is classifiable under item 737.80, as toys, not specially provided for, having a spring mechanism, and thus dutiable at the modified rate of 33 percent ad valorem. Plaintiff claims alternatively that the imported merchandise is properly classifiable (1) under item 735.20, as game or sport equipment, dutiable at the modified rate of 16 percent ad valorem; or (2) under item 734.20, as game machines, dutiable at the modified rate of 8 percent ad valorem; or (3) under item 734.56, as other baseball equipment, dutiable at the modified rate of 12 percent. The pertinent provisions of the tariff schedules read as follows: Classified under: Subpart E [Part 5, Schedule 7] headnotes: 1. The articles described in the provisions of this subpart (except parts) shall be classified in such provisions, whether or not such articles are more specifically provided for elsewhere in the tariff schedules, but the provisions of this subpart do not apply to— (iii) games and other articles in items 734.15 and 734.20, toy balls (items' 735.09-12), and puzzles and games in item 735.20 (see pail; 5D of this schedule). 2. For the purposes of the tariff schedules, a "toy" is any article chiefly used for the amusement of children or adults. Toys, and parts of toys, not specially provided for: 737.90 Other_ 28% ad val. Alternative classification claimed by government: Toys, and parts of toys, not specially provided for: 737.80 - Toys having a spring mechanism_ 33% ad val. Classification claimed by plaintiff [Subpart D, Part 5, Schedule 7] : 735.20 Puzzles; game, sport, gymnastic, athletic, or playground equipment; all the foregoing, and parts thereof, not specially provided for_ 16% ad val. Alternative classification claimed by plaintiff; 734.20 Game machines, including coin or disc operated game machines and including games having mechanical controls for manipulating the action, and parts thereof_'_ 8% ad val. Alternative classification claimed by plaintiff: Baseball equipment and parts thereof: 734.56 Other_ 12% ad val. I The imported merchandise consists of (1) a device which projects balls by means of a mechanism having a battery operated, coil-spring controlled pitching arm; (2) a set of eight small plastic, hollow balls, each approximately one and one half inches in diameter; and (3) a plastic, hollow telescoping bat, which, when extended to its full length, is 25 inches long. The projecting device has a rack for holding the balls which is designed to deliver the balls one-at-a-time to the pitching arm. In turn, the pitching arm is designed to propel the balls one-at-a-time to a batter standing (with the bat) a few yards from the mechanism. The pitching arm may be adjusted by placing a key attached to the coil spring into one of a number of slots thereby changing the tension on the arm and controlling the height and speed at which the ball is propelled. The device contains an on-off electric switch connected to the battery. When the switch is turned on, the battery supplies power to a motor which activates a lever that revolves and activates the spring controlled pitching arm, which then propels -each ball at constant time intervals to a distance of some 20 feet. About eight seconds elapse between the time the switch is turned on and the first ball projected, which is sufficient time to enable the user to turn on the device and then move to the batter position. As imported, tbe merchandise was packed in a carton on which was printed the following: Professional Home Run Adjustable Pitching Machine Be a Real Slugger - Practice at Home * Automatic Delivery * Adjustable Pitching Height For All Ages * Safe Non-Toxic Plastic Bat and Balls FuN For EveryoNe Also, as imported, the carton contained an instruction sheet which set forth instructions on assembly and use of the merchandise and also described how one or more persons "can play baseball" therewith. This instruction sheet read as follows: The "Home Run Baseball Game" by Mego is designed to operate in the same manner as the famous "Iron Mine" Pitching Machine used by the Major League Baseball Clubs. To operate simply insert D battery in the direction as indicated and close door. Take the ball chute and insert the pin into the machine and take the chute holder and insert into the holes as indicated in -figure A and rest chute in brackets. Insert key on lower end of the spring into the slots provided on the bottom of machine. By moving the key into the different slots you can adjust the height and speed of the pitch. Put balls into the chute and turn the switch on. If the machine does not start immediately, push on gently toward the back of the machine, machine will now operate correctly. To open bat, grasp both ends and pull outwards with twisting motion. You are now ready to play baseball. Games One of the ideal features of the "Home Run Baseball'Game" is that one person can play baseball. Set-up the machine at an appropriate distance and mark off on the wall at 2 foot intervals, single, double, triple and home-run. Turn on the machine, the balls that hit before the wall are out. Any balls above the first line is a single, above the second a double and so on. This way you can enjoy batting practice. For 2 people, one bats and one fields alternatively, this makes it much more difficult to score runs. For 3 or more players, use the machine as the pitcher and position the players as you would any normal baseball game. Children of different ages can play together since the machine can be adjusted to the appropriateheight and speed. Now Lets Play Ball ! The imported merchandise was designed for boys in the seven to twelve age bracket; was sold at retail for about $7.00; and was adver tised m plaintiffs catalogue as "Action Toys." It was patterned after the "Iron Mike" which i's a baseball pitching machine that will throw a baseball 60 feet at different speeds and is used by baseball teams, and at batting ranges, for batting practice. The nature of the merchandise is such that it can be operated and used by a single person. In this connection, a single person will load the ball rack with balls and turn the projecting device on. The time lag 'between the projections of the balls allows the person to take a batting stance at the appropriate distance and position from the device and attempt to hit the projected balls with the bat. Once all the balls have been projected, the person shuts off the device and the process can be repeated. However, the merchandise can be used by more than one person, such as in a game of "single, double, triple." II At the trial, two witnesses testified for plaintiff, while defendant failed to call any witnesses. Plaintiff's first witness, Neal Nubian, director of creative projects for plaintiff, testified that the imported article acts as a substitute pitcher and was designed to teach a young boy how to hit a ball. He added that he knew of no other use for the article other than pitching a ball. The witness further testified that the vast majority of his observations as to the use of the article were made in retail sales demonstrations in stores in various parts of the United States where children would be afforded the opportunity to hit a few balls. Also, Nubian stated that at one time he was co-manager of a Little League team and used the article in the basement of a school to teach the children on the team how to hit. In addition, he testified that the article was used in plaintiff's offices by plaintiff's employees to play "single, double, triple," and that the most experience he personally had with the article was using it in conjunction with friends or children to play this game. Plaintiff's second witness, Martin Abrams, the president of plaintiff, testified that the article was developed from the "Iron Mike," and that he had seen it used thi'oughout the United States about fifty to a hundred times over a four-year period. More particularly, he stated that he had seen it used in demonstrations in retail stores; on location at a baseball field in Florida where plaintiff had some six children participate in the filming of a TV commercial of the article, and in friends' homes about five to six times in 1969 and about the same number of times in 1970. He further indicated that he had played •with, it in the office in the manner indicated by the previous witness. On the basis of his observations, he stated that the article was used extensively by persons for competitive purposes to refine their skill and do better than the next person and was also used "occasionally" for noncompetitive purposes. The witness concluded that the article was not chiefly used to teach batting, but rather was chiefly used as a game in a competitive atmosphere. Pie further stated that even were it to be assumed that the chief use of the article is for teaching, it would still be a game. Thus he testified (K.99) : Even assuming that it was to teach them, it would still constitute a game. Because within the frame of reference, it's teaching them how to play a game. It's teaching them a skill to perfect which falls within a "game" premise. III We turn now to plaintiff's claims that the merchandise is properly classifiable under item 735.20 as "game equipment" or under item 734.20 as "game machines." As to these claims, it is to be noted that headnote l(iii) of schedule 7, part 5, subpart E (previously quoted) provides that an article which is both a toy and a game or game equipment is classifiable under the provisions for games or: game equipment rather than under the provisions for toys. Thus the key question with respect to these claims by plaintiff is whether the merchandise in issue is a "game" regardless of whether it is also a toy. See e.g., Mego Corp. v. United States, 62 CCPA —, —, C.A.D. 1137, slip op. at 7 (Nov. 21, 1974) ; Montgomery Ward & Co. v. United States, 66 Cust. Ct. 233, 234 (1971). "The common meaning of the term 'game' for tariff purposes refers to a competition or contest which involves skill, chance or endurance or any combination of these three elements, and which is played according to rules with the objective of winning." Mego Corp. v. United States, 67 Cust. Ct. 19, 24, C.D. 4246 (1971). See also e.g., Mego Corp. v. United States, supra, C.A.D. 1137, slip op. at 7. Further, as this court stated in Montgomery Ward, supra, 66 Cust. Ct. at 238: Of course, a game is necessarily a contest, but one which may be between two or more persons, or between one person and the game itself. For example, a slot machine can only be played by one person at a time . A pinball machine can only be played by one person at a time and is a contest between man and machine which involves an element of skill, while the slot machine is essentially a game of chance. Darts can be played or practiced by one person alone simply as a test of skill of the player, with no necessity for an opposing player. All the above are "games" or "game machines" within the provisions for "games and sporting goods" in schedule 7, part 5, subpart D of the tariff schedules, and do not necessarily involve more than one person in their playing. The point is that these activities are games since they result in a "score" measuring one's skill or luck or combination thereof against a given set of rules. Beyond this, it is important to observe that our appellate court recently held that items 734.20 and 735.20 — which cover, among other things, game machines and game equipment — are not "chief use" provisions. Mego Corp. v. United States, supra, C.A.D. 1137, slip op. at 10-11. Instructive in this regard are the following comments in the Tariff Classification Study (Schedule 7, 1960), pp. 287-288: The classification problems connected with sports equipment and games and game equipment which may'be chiefly used for the amusement of children are particularly troublesome. The earlier provisions of this subpart discussed above for equipment for various games such as ¡baseball, croquet, and golf,' are derived principally from tariff paragraph 1502, and it is intended that the equipment which would be classified thereunder would be of such character and quality as is ordinarily used in the serious pursuit of the game or sport named. Such equipment may be diminutive in size for use by children, such as a boy's baseball glove, but it would nevertheless be classified under these provisions so long as it was of a character suitable for use in organized play of these games. [Emphasis added.] Measured by these standards, it must be concluded that the imported article is not a game. For one thing, examination of the article, without more, establishes that by its design and construction it is not directed to a contest or competition. Cf. Mego Corp. v. United States, supra, C.A.D. 1137, slip op. at 9. The record shows that the .function of the article is to pitch a ball and to enable the batter to hit the 'ball so pitched. Thus, there is nothing inherent in the article which restricts its ordinary use to that of a game. Moreover, there are no specific rules for play; rather, the user can make up whatever rules he wants. See e.g., R. 80-81. It is true that an instruction sheet comes with the merchandise. But this instruction sheet merely suggests how one or more persons "can play baseball" therewith. Nor is the merchandise limited in its design and construction to use in a competition or contest. For it can be, and was in fact, used by individual persons for batting of balls and for batting practice, and tbe balls can be used separately for most any play activity limited only by the imagination of a child. Plaintiff, however, argues that an article used in perfecting one's ability to play a game, i.e., batting practice, is game equipment for tariff purposes. I cannot agree. A game machine, or game equipment, must 'be of such character and quality as is ordinarily used in the pursuit of the game or sport as opposed to preparing or practicing therefor. Hence, if an article is not ordinarily used in a contest, or in competition, it is not a game, notwithstanding that the elements of skill and/or endurance and/or chance might be involved. The short of the matter is that the mere batting of balls, or batting practice, simply does not involve the element of competition. What is more, the fact that a child may compete with himself, in training for a given game, by seeing how many times, or how far, or how high, he can hit a ball does not convert the imported merchandise into a game any more than a top would be converted into a game by virtue of a child competing with himself in seeing how long he can cause the top to spin. On a related aspect, it is true that the imported article can be used for playing a game. But this consideration is scarcely decisive. For innumerable articles can be and are used by children (and adults) for playing games, notwithstanding that by no stretch of the imagination are they considered games. To take an extreme example, pennies are often used by children (and adults) in a game called "pitching pennies" where the winner is the one who pitches his penny closest to the' wall. Despite the fact that pennies are used for this purpose, it would strain all credulity to consider them-as games. For the foregoing reasons, it is held that the articles in question are not "games" for tariff purposes and, accordingly, plaintiff's claims for classification under item 735.20 as "game equipment" or under item 734.20 as "game machines" are overruled. IV We come now to plaintiff's claims that the'imported mechandise is properly classifiable, under item 735.20 as sport equipment or under item 734.56 as other baseball equipment. In considering these.claims, it is to be noted that headnote 1 (iii) of schedule 7, part 5, subpart E does not exempt sport equipment or baseball equipment from the per vasive character of tlie toy provisions covered by that' subpart. See Mego Corp. v. United States, supra, 67 Cust Ct. at 29. Therefore, in order to be successful in its claims that the importation is sport or baseball equipment, plaintiff must not only overcome the presumption of correctness attendant upon the government's classification of the importation as a toy, it must also establish that the importation falls within the category of sport or baseball equipment. Ib'id. Plaintiff has failed in both regards. For one thing, it is clear on the basis of the present record that plaintiff has failed to overcome the presumption that the importation is a toy (i.e., an article chiefly used for amusement purposes). In fact, the record supports the presumption. First, an examination of the merchandise shows that it is a plaything used for amusement purposes and that the fun that children would derive from using the merchandise is essentially the same kind of enjoyment they would derive from any other objects which are commonly thought of as toys. See United States v. Topps Chewing Gum, Inc., 58 CCPA 157, 159, C.A.D. 1022, 440 F.2d 1384, 1385 (1971). Second, in their testimony both of plaintiff's witnesses characterized the importation as a "toy." See E. 37,119, 120,151. Indeed, plaintiff's witness Abrams, the president of the plaintiff-corporation, readily conceded that the merchandise was an article of "amusement." See R. 123-125. Third, plaintiff advertised and offered the merchandise in its catalogue as an "Action Toy." Bearing mention on this phase is New York Merchandise Co., Inc. v. United States, 62 Cust. Ct. 38, C.D. 3671, 294 F. Supp. 971 (1969). There it was held that a "junior edition" of a baseball glove was properly classifiable as baseball equipment because it was of such character and quality as to be suitable for use by children in a regular or organized game of baseball. As the court stated (62 Cust. Ct. at 44) : "Those children who cannot afford the more costly baseball gloves can still successfully engage in a game of baseball using the gloves in issue." In short, the only real difference between the "junior edition" involved therein, and the type of baseball gloves used by adults, was the size and the quality of the materials from which it was made. By contrast, in the present case, the imported merchandise is incapable of use in a game of baseball. Thus, as plaintiff's witness Nubian testified, neither the bat nor the balls can be used in a regular game of baseball, and because of weight and size of the ball, a pitcher would be unable to pitch it to the home plate on a regular sized diamond. See E. 74-76, 83. Moreover, the "Iron Mike," which the imported merchandise is patterned after, is not used in the game of baseball, the human pitcher of a nine member team having yet to be replaced by a machine. However, assuming arguendo that an "Iron Mike" is baseball equipment for tariff purposes, the legislative history discussed at length in New York Merchandise, supra, 62 Cust. Ct. at 43-44, reveals the intent of the Congress to have imitations of sports equipment, made for small children, classified as toys and not as sport or baseball equipment. The imported merchandise falls precisely within this category for it is nothing more than a toy imitation of an "Iron Mike." It may be that the imported merchandise can be used to improve one's skill in the actual game of baseball. But not every object or device that might improve one's skill in a given sport is, ipso facto, sport equipment. For example, a broom stick could be used to bat small rubber balls, yet, quite obviously, it is not baseball or sport equipment. By the same token, an ordinary length of rope could be used by a boxer to improve his skills, yet it could hardly be argued that a length of rope is sport equipment. From what has been said, it is concluded that plaintiff's claims for classification of the imported merchandise as sport equipment under item 735.20 or as baseball equipment under item 734.56 must be overruled. V In summary, the court overrules plaintiff's alternative claims for classification of the imported articles (1) as game or sport equipment under item 735.20; (2) as game machines under item 734.20; and (3) as baseball equipment under item 734.56. Judgment will be entered accordingly. The modified rates specified here and hereafter were effected by Pres. Proc. 3822, T.D. 68-9. In paragraph 10 of its complaint, plaintiff also claimed alternatively that the imported merchandise consisted of gymnastic, athletic, or playground equipment -within the meaning of item 735.20. However, plaintiff, in its brief, has not set forth any argument In support of these claims and they are therefore deemed abandoned. In this game, one or more persons field, one or more persons bat, and the article acts as the pitcher. If the batter hits the ball past the pitcher, it is a single, double, triple or home run depending upon the height. However, if a fielder catches the ball on the fly, it's an out. Ais tlie court pointed out in Montgomery Ward, supra at 236 : '[ü]nder the tariff schedules, all games and game equipment are now provided for in schedule 7, part 5, subpart D — the congressional intent being to remove all games, including 'toy games,' from the toy provisions." Baseball is defined by Webster's Third New International Dictionary, Unabridged <1963), as: A game played with a ball, bat, and gloves between 2 teams of 9 players each on a large field centering upon 4 bases tbat form the corners of a square 90 feet on each side, each team having a turn at bat and in the* field during each of the 9 innings that constitute a normal game, the winner being the team that scores the most runs. It -will be recalled that tbe government classified the Imported merchandise under item 737.90, as other toys, not specially provided for, and assessed duty at the rate of 28 percent ad valorem. It will also be recalled that the government claims alternatively that the merchandise is classifiable under item 737.80, as toys, not specially provided for, having a spring mechanism, and thus dutiable at the rate of 88 percent ad valorem. In considering this alternative claim, it must be borne in mind that in a case such as the present where the importer brings suit, this court may not render an affirmative judgment for a rate of duty higher than that assessed. See e.g., J. E. Barnard & Co., Inc. v United States, 64 Cust. Ct. 525, 527, C.D. 4029 (1970), appeal dismissed, 58 CCPA 165 (1970). Accordingly, the court deems it appropriate In the circumstances of this case to pretermit the question as to whether or not the imported articles are properly dutiable under item 737.80, as toys having a spring mechanism.
57 Cust. Ct. 819		Ford, J. In accordance with stipulation of counsel that the merchandise covered by the foregoing protests consists of palm leaf hats similar in all material respects to those the subject of Bailey-Mora Co., Inc., a/c Vera Lou, Inc., et al. v. United States (54 Cust. Ct. 55, C.D. 2508), the claim of the plaintiff was sustained.
520 U.S. 1222		C. A. 6th Cir. Certiorari denied.
302 U.S. 725		Petition for writ of certiorari to the Circuit Court of Appeals for the Second Circuit denied.
166 U.S. 468		Mr. Justice Peckham, after stating the facts, delivered the opinion of the court. Three assignments of errors, alleged to have been made by the court below, have been filed on the part of the Government, as follows: " 1. In holding that the use appellees had an equitable claim against the appellant which could be enforced by a suit in the name of the nominal appellee. '•'2. In holding that section 3426 of the Revised Statutes, as amended in 1879, required the Commissioner of Internal Revenue to refund the tax represented by the face value of destroyed tobacco-tax stamps, or to furnish others in their place, in cases where the full amount represented by such face value had been recovered by the tobacco manufacturer from insurance companies, so that he had been subjected to no loss. " 3. In entering judgment in favor of the appellee for the Sum of $4100.10." It is argued upon the part of the Government that as the insurance companies have paid the tobacco company in full for the value of the stamps destroyed by fire, they have thereby become the actual plaintiffs in this suit, and that the connection of the tobacco company is merely nominal; the case must, therefore, be decided as one between the United States and the insurance companies. Dealing with the companies in that light, it is further urged that their right to sue is based upon the ground that they are subrogated to the rights of the tobacco company, and consequently if there be no right of subrogation, there is no right of recovery; there is no right of subrogation, because there was no insurable interest in the stamps on the part of the tobacco company; and there was no insurable interest because the tobacco company could obtain from the Government either other stamps in lieu of the stamps destroyed, or the amount or value thereof, upon giving satisfactory evidence of the necessary facts to the Commissioner of Internal Revenue, and therefore the tobacco company was not liable to suffer any loss, and as a consequence had no insurable interest in the stamps. The argument, as we think, is not well founded. The case is not to be treated or decided as one between the United States and the insurance companies. On the contrary, the rights .of the companies, as between them and the Government, are not the subject-matter of the suit. The insurance companies, as such, have no right of action against the Government. -It is the right of the claimant, the tobacco company, which is to be passed upon, and unless that company h^s a legal cause of complaint no recovery can be had in this suit. The companies must recover in the name of the tobacco company and by reason of its lights. Hall & Long v. Railroad Companies, 13 Wall. 367, 372, and cases cited. The suit is properly brought in the name of the insured for the use of the insurers, but the cause of action rests on the rights of the owner. Ibid.; Phœnix Ins. Co. v. Erie & Western Transportation Co., 117 U. S. 312, 321, and cases cited. Payment to the owner by the insurer does not bar. the right against another party originally liable for the loss, but the •owner, by recovering payment of the underwriters, becomes trustee for them, and by necessary implication makes an equitable assignment to them of his right to recover in his 'name. Rockingham Mutual Fire Ins. Co. v. Bosher, 39 Maine, 253, 255. The question then arises as to what right, if any, the tobacco company has under the statute above cited, when it appears that the company has received payment from the insurance companies for the value of the stamps destroyed. Is that fact a bar to its right to claim payment under that section in a case where the recovery is. sought for the purpose of reimbursing the insurance companies for the payments made by them to the extent of the value of the stamps ? We think upon the facts found by the Court of Claims the action can be maintained, and the payments by the insurance companies constitutes no bar. No question is made in regard to the sufficiency of the proof in regard to the destruction of the stamps by fire or of the bona fides of the tobacco company. The claim was examined and certified as true and.correct by the United States Collector of Internal Revenue for the district in which the factory was situated, but he failed to recommend payment of the claim, for the reason, as stated by him, ".that the claimant had been paid by the insurance companies for the value of the stamps "; and the department itself, when the claim was made, rendered its decision upon the application, declining to allow the same, for the reason " that satisfactory evidence has been furnished to this office that the claimant has received reimbursement of the value of the stamps by the recovery of insurance thereon." It is true that the claimant was unable to comply with the regulations of the department in one particular regarding the oath to be made by such claimant. It could not truthfully be said that the claimant had not theretofore received directly or indirectly the value or reimbursement of the value of the stamps. This oath was required by what is called "Form 38," which was a certain printed form of oath to be taken by all claimants for reimbursement- for stamps claimed to- have been destroyed within the meaning of the section of the Revised Statutes heretofore quoted. The claimant, however, through its proper officer, did make oath that it " had not heretofore presented any claim to the Government for the refunding of the above-mentioned amount, or any part thereof," and " that the value or reimbursement of the value of said stamps, or any portion- thereof, has not heretofore been received by claimant directly or indirectly pro»?. the Government." While the regulation prescribed by the Commissioner of Internal Revenue would be regarded as proper and appropriate for the purpose of satisfying him of the fact of the destruction of the stamps, yet we think there was a substantial compliance with that regulation on the part of the tobacco company in this .case, when it made oath through its proper officer to the fact of such destruction, and that it had not. presented any claim for the refunding of the amount or any part thereof to the Government, nor had the value of said stamps, or any portion thereof, been theretofore received by the claimant, either directly or .indirectly, from the Government. The real object of the regulation, it must be assumed, was to prevent fraud upon or improper claims against the Government and to protect it from itself twice paying for the loss. If the object of the regulation Avere to discover whether the stamps had been insured and Avhether payment therefor had been made by the insurance company, and if so, to base a refusal to reimburse upon that fact, Ave think that portion of the regulation Avas unreasonable, and compliance Avith the form as provided Ayas unnecessary. The purpose of the statute was to have the Government reimburse the person Avho had bought and paid for internal revenue stamps which had been destroyed under the circumstances mentioned in the statute, before they had been used. To make such reimbursement Avould.be no loss to the Government, while to retain the amount paid AVould be highly inequitable. The Government recognized this fact by the passage of the statute in question. The company did not purchase the stamps in payment of any tax then due from it to the Government ; they were purchased as a matter of convenience and to be thereafter affixed -to packages of tobacco which were to be sold in the future. The Tax Avas laid upon sales of tobacco and the stamps Avere resorted to as a convenient means of collecting the tax on such sales. Of course, if no sales-of packages of tobacco took place upon Avhich the stamps might be-affixed, no tax had become due to the Government, and therefore if after the purchase of the stamps they Avere destroyed by fire, the purpose of their purchase was frustrated and the ' Government was not entitled, upon any equitable ground, to retain the money paid for the stamps. In Jones v. Van Benthuysen, 103 U. S. 87, 88, Mr. Justice Miller said, speaking for the court: "Undoubtedly this statute, 15 Stat. 125, 152; only intended, to impose a tax upon the sales of tobacco, .and if the dealer was also the owner of stamps to be used in paying the duties on tobacco, he could sell them separately in any quantity, without being liable to a tax for such sales. When unattached to the tobacco they do not enter into its value, and they can be bought and sold at their face value as an independent commodity, to be used when and wherever the purchasers choose to do so. For such sales no tax is imposed upon the seller or the buyer. " On the other hand, we are of opinion that when they are once attached to the tobacco and cancelled, and can neter be lawfully used again, they cease to have any separate and independent value, and that which they had previously has be-. come merged into that of the tobacco. All subsequent sales are made upon the basis of the increased value the tobacco has acquired by the payment of the stamp duty, and can never be estimated apart from this. " It would seem to follow from this that if the stamps for which the plaintiff was charged by the collector were not affixed to the tobacco at the time he made the sale, no tax should be charged to him for that value. On the other hand, if the stamps were affixed at the time of the sale, they then entered into the value of the tobacco purchased, and the broker who made the sale should be taxed on the price of the tobacco as it was sold." Where the stamps have been destroyed under the circumstances detailed in this case, and those who paid for them apply to fhe Government to be reimbursed for their value, what materiality is there in the fact that the applicant has been paid the value of such stamps by an insurance company under and by virtue of a separate contract made with that company on the part of the claimant upon good consideration ? That circumstance does not alter the fact that the Government has been paid for the stamps which were to be used for a certain purpose — the payment of taxes thereafter to become due the Government — and that by reason of the destruction of the stamps by fire they cannot be used for the purpose for which they were intended.' Whatever sales of tobacco might be thereafter effected by the tobacco company would have to be evidenced by the attaching of other stamps upon the packages sold. Unless, therefore, the Government repaid the value of these stamps so destroyed, or provided other stamps in lieu thereof without any further payment, the Government would be in the position of one who retained money to which it had no equitable right. It would be no answer to that fact to show that some other person had reimbursed the claimant the amount it had .paid for the stamps. That would not alter the position of the Government. We cannot think that the payment to the claimant by the insurance companies absolved the Government in the slightest degree from the duty, under that statute, of paying back the money which it had received and for which it had delivered stamps that had been destroyed by fire before the contemplated use of them had been made. Whether or not the insurance companies could have made a successful defence (to the extent of the value of the stamps in question) to an action on their policies by the assured, because of an alleged lack of insurable interest in the stamps by the assured, is beside the question. They were not bound to make such defence. Having received the premiums they had the right to fulfil their contract, and the tobacco company after such payment might still ask the Government to pay to it the value of the stamps in order that it might thereafter repay the insurance companies. The Government loses nothing by payment in such case. It simply repays money which it has no equitable right to retain. The technical question of insurable interest does not arise in this case, which involves simply the construction of the statute cited and the. right of the claimant to recover. As was said in Mason v. Sainsbury, 3 Dough 61, 64, by Mansfield, Lord Chief Justice, in reference to a defence of payment by the insurance companies: " The case is clear: the act puts the Hundred, for civil purposes, in the place of the trespassers; and upon principles of policy, as in the case of other remedies against the Hundred, I am satisfied that it is to be considered as if the insurers had not paid a farthing." This was a case against the Hundred, .upon a statute making it liable for damages to property caused by a mob. Although the insurance company had paid the damages, the action in the name of the owner of the property was sustained exactly the same as if there had been no payment by the insurers. The liability of the Hundred, under the statute, was not thereby in the least affected. This case under the statute cited is still stronger because the Government suffers no actual loss by the repayment, while it would secure an unjust and inequitable profit by its refusal to pay. We are also of opinion that the' tobacco company had an insurable interest in the stamps. It owned them absolutely, having purchased and paid for them. The right of reimbursement under the conditions named in the statute did not affect that insurable interest, nor prevent the possibility of loss or prejudice arising from the destruction of the stamps. Because an owner of property may be able to reimburse himself ja case of its destruction, from other sources, is no reason for denying to such owner an insurable interest in the property. An owner has an insurable interest in his property to the extent of the value of the building on it, notwithstanding the existence of a mortgage on the property sufficient to absorb it. Per Bradley, J., in Insurance Co. v. Stinson, 103 U. S. 25, 29; May on Insurance, § 81, 82. The amount of interest or its character is not material in determining the question whether a party who attempts to recover under a policy has an insurable interest. (Ibid.) Upon all the facts, we think the objections above alluded to are untenable. Another objection raised by the Government is that, under the section of the statute cited, the Commissioner of Internal [Revenue had the choice, in making an allowance or redemption, either to give other stamps in lieu of the stamps so allowed for or redeemed, or to refund in money the amount or value to the owner of the stamps, and that as he had such election when he was applied to by the owner, an action thereafter commenced to recover the face value of the stamps in money deprived him of that election, and hence could not be maintained. The statute does give to the Commissioner of Internal Revenue the choice as to how reimbursement for the loss of stamps should be made; whether by delivering other stamps or by payment of the face value thereof in money. When the claim in this case was filed with the Treasury Department, the Commissioner had then the choice, upon being satisfied of the necessary facts, to reimburse the claimant in either way he thought proper, either in stamps or in money. That was the time when his election could properly have been made. Instead thereof he refused absolutely to do either, and gave as his reason that the claimant had already been paid for the stamps by the recovery of the insurance thereon. If that were-a sufficient reason in law, the Commissioner was justified in his refusal. As it was not a sufficient reason, the Commissioner was not justified, however sincerely he believed that he was. The claimant was, therefore,- by reason of this refusal, compelled to resort to the courts in order to obtain its legal rights under the statute. Having filed its claim in the Court of Claims and asked for judgment for the money value of the stamps, and a trial upon the merits as to the liability of the Government to respond at all having been had in the court below, and so far- as appears from the record no question of this kind having been therein made, it is too late, upon argument in this court, for the Government for the first time to question the form of the remedy, whether it should be a demand for money only or one which left the election still with the Commissioner to reimburse claimant by giving stamps instead of payment in cash. The objection does not go to the merits of the claim, but is one of procedure only; hence, even if it would have been valid if taken in time, it may be and was waived by the failure of the Government, so far as the record shows, to take the objection until the argument of the case in this court. We find no error in the record authorizing a reversal of the judgment of the Court of Claims, and it is, therefore, Affirmed.
482 U.S. 578		Justice Brennan delivered the opinion of the Court. The question for decision is whether Louisiana's "Balanced Treatment for Creation-Science and Evolution-Science in Public School Instruction" Act (Creationism Act), La. Rev. Stat. Ann. §17:286.1-17:286.7 (West 1982), is facially in valid as violative of the Establishment Clause of the First Amendment. I The Creationism Act forbids the teaching of the theory of evolution in public schools unless accompanied by instruction in "creation science." § 17:286.4A. No school is required to teach evolution or creation science. If either is taught, however, the other must also be taught. Ibid. The theories of evolution and creation science are statutorily defined as "the scientific evidences for [creation or evolution] and inferences from those scientific evidences." § 17.286.3(2) and (3). Appellees, who include parents of children attending Louisiana public schools, Louisiana teachers, and religious leaders, challenged the constitutionality of the Act in District Court, seeking an injunction and declaratory relief. Appellants, Louisiana officials charged with implementing the Act, defended on the ground that the purpose of the Act is to protect a legitimate secular interest, namely, academic freedom. Appellees attacked the Act as facially invalid because it violated the Establishment Clause and made a motion for summary judgment. The District Court granted the motion. Aguillard v. Treen, 634 F. Supp. 426 (ED La. 1985). The court held that there can be no valid secular reason for prohibiting the teaching of evolution, a theory historically opposed by some religious denominations. The court further concluded that "the teaching of 'creation-science' and 'creationism,' as contemplated by the statute, involves teaching 'tailored to the principles' of a particular religious sect or group of sects." Id., at 427 (citing Epperson v. Arkansas, 393 U. S. 97, 106 (1968)). The District Court therefore held that the Creationism Act violated the Establishment Clause either because it prohibited the teaching of evolution or because it required the teaching of creation science with the purpose of advancing a particular religious doctrine. The Court of Appeals affirmed. 765 F. 2d 1251 (CA5 1985). The court observed that the statute's avowed purpose of protecting academic freedom was inconsistent with requiring, upon risk of sanction, the teaching of creation science whenever evolution is taught. Id., at 1257. The court found that the Louisiana Legislature's actual intent was "to discredit evolution by counterbalancing its teaching at every turn with the teaching of creationism, a religious belief." Ibid. Because the Creationism Act was thus a law furthering a particular religious belief, the Court of Appeals held that the Act violated the Establishment Clause. A suggestion for rehearing en banc was denied over a dissent. 778 F. 2d 225 (CA5 1985). We noted probable jurisdiction, 476 U. S. 1103 (1986), and now affirm. II The Establishment Clause forbids the enactment of any law "respecting an establishment of religion." The Court has applied a three-pronged test to determine whether legislation comports with the Establishment Clause. First, the legislature must have adopted the law with a secular purpose. Second, the statute's principal or primary effect must be one that neither advances nor inhibits religion. Third, the statute must not result in an excessive entanglement of government with religion. Lemon v. Kurtzman, 403 U. S. 602, 612-613 (1971). State action violates the Establishment Clause if it fails to satisfy any of these prongs. In this case, the Court must determine whether the Establishment Clause was violated in the special context of the public elementary and secondary school system. States and local school boards are generally afforded considerable discretion in operating public schools. See Bethel School Dist. No. 403 v. Fraser, 478 U. S. 675, 683 (1986); id., at 687 (Brennan, J., concurring in judgment); Tinker v. Des Moines Independent Community School Dist., 393 U. S. 503, 507 (1969). "At the same time . we have necessarily recognized that the discretion of the States and local school boards in matters of education must be exercised in a manner that comports with the transcendent imperatives of the First Amendment." Board of Education, Island Trees Union Free School Dist. No. 26 v. Pico, 457 U. S. 853, 864 (1982). The Court has been particularly vigilant in monitoring compliance with the Establishment Clause in elementary and secondary schools. Families entrust public schools with the education of their children, but condition their trust on the understanding that the classroom will not purposely be used to advance religious views that may conflict with the private beliefs of the student and his or her family. Students in such institutions are impressionable and their attendance is involuntary. See, e. g., Grand Rapids School Dist. v. Ball, 473 U. S. 373, 383 (1985); Wallace v. Jaffree, 472 U. S. 38, 60, n. 51 (1985); Meek v. Pittenger, 421 U. S. 349, 369 (1975); Abington School Dist. v. Schempp, 374 U. S. 203, 252-253 (1963) (Brennan, J., concurring). The State exerts great authority and coercive power through mandatory attendance requirements, and because of the students' emulation of teachers as role models and the children's susceptibility to peer pressure. See Bethel School Dist. No. 403 v. Fraser, supra, at 683; Wallace v. Jaffree, supra, at 81 (O'Connor, J., concurring in judgment). Furthermore, "[t]he public school is at once the symbol of our democracy and the most pervasive means for promoting our common destiny. In no activity of the State is it more vital to keep out divisive forces than in its schools . . . ." Illinois ex rel. McCollum v. Board of Education, 333 U. S. 203, 231 (1948) (opinion of Frankfurter, J.). Consequently, the Court has been required often to invalidate statutes which advance religion in public elementary and secondary schools. See, e. g., Grand Rapids School Dist. v. Ball, supra (school district's use of religious school teachers in public schools); Wallace v. Jaffree, supra (Alabama statute authorizing moment of silence for school prayer); Stone v. Graham, 449 U. S. 39 (1980) (posting copy of Ten Commandments on public classroom wall); Epperson v. Arkansas, 393 U. S. 97 (1968) (statute forbidding teaching of evolution); Abington School Dist. v. Schempp, supra (daily reading of Bible); Engel v. Vitale, 370 U. S. 421, 430 (1962) (recitation of "denominationally neutral" prayer). Therefore, in employing the three-pronged Lemon test, we must do so mindful of the particular concerns that arise in the context of public elementary and secondary schools. We now turn to the evaluation of the Act under the Lemon test. r*H I — I l-H Lemon s first prong focuses on the purpose that animated adoption of the Act. "The purpose prong of the Lemon test asks whether government's actual purpose is to endorse or disapprove of religion." Lynch v. Donnelly, 465 U. S. 668, 690 (1984) (O'Connor, J., concurring). A governmental intention to promote religion is clear when the State enacts a law to serve a religious purpose. This intention may be evidenced by promotion of religion in general, see Wallace v. Jaffree, supra, at 52-53 (Establishment Clause protects individual freedom of conscience "to select any religious faith or none at all"), or by advancement of a particular religious belief, e. g., Stone v. Graham, supra, at 41 (invalidating requirement to post Ten Commandments, which are "undeniably a sacred text in the Jewish and Christian faiths") (footnote omitted); Epperson v. Arkansas, supra, at 106 (holding that banning the teaching of evolution in public schools violates the First Amendment since "teaching and learning" must not "be tailored to the principles or prohibitions of any religious sect or dogma"). If the law was enacted for the purpose of endorsing religion, "no consideration of the second or third criteria [of Lemon] is necessary." Wallace v. Jaffree, supra, at 56. In this case, appellants have identified no clear secular purpose for the Louisiana Act. True, the Act's stated purpose is to protect academic freedom. La. Rev. Stat. Ann. §17:286.2 (West 1982). This phrase might, in common parlance, be understood as referring to enhancing the freedom of teachers to teach what they will. The Court of Appeals, however, correctly concluded that the Act was not designed to further that goal. We find no merit in the State's argument that the "legislature may not [have] use[d] the terms 'academic freedom' in the correct legal sense. They might have [had] in mind, instead, a basic concept of fairness; teaching all of the evidence." Tr. of Oral Arg. 60. Even if "academic freedom" is read to mean "teaching all of the evidence" with respect to the origin of human beings, the Act does not further this purpose. The goal of providing a more comprehensive science curriculum is not furthered either by outlawing the teaching of evolution or by requiring the teaching of creation science. A While the Court is normally deferential to a State's articulation of a secular purpose, it is required that the statement of such purpose be sincere and not a sham. See Wallace v. Jaffree, 472 U. S., at 64 (Powell, J., concurring); id., at 75 (O'Connor, J., concurring in judgment); Stone v. Graham, supra, at 41; Abington School Dist. v. Schempp, 374 U. S., at 223-224. As Justice O'Connor stated in Wallace: "It is not a trivial matter, however, to require that the legislature manifest a secular purpose and omit all sectarian endorsements from its laws. That requirement is precisely tailored to the Establishment Clause's purpose of assuring that Government not intentionally endorse religion or a religious practice." 472 U. S., at 75 (concurring in judgment). It is clear from the legislative history that the purpose of the legislative sponsor, Senator Bill Keith, was to narrow the science curriculum. During the legislative hearings, Senator Keith stated: "My preference would be that neither [creationism nor evolution] be taught." 2 App. E-621. Such a ban on teaching does not promote — indeed, it undermines — the provision of a comprehensive scientific education. It is equally clear that requiring schools to teach creation science with evolution does not advance academic freedom. The Act does not grant teachers a flexibility that they did not already possess to supplant the present science curriculum with the presentation of theories, besides evolution, about the origin of life. Indeed, the Court of Appeals found that no law prohibited Louisiana public school teachers from teaching any scientific theory. 765 F. 2d, at 1257. As the president of the Louisiana Science Teachers Association testified, "[a]ny scientific concept that's based on established fact can be included in our curriculum already, and no legislation allowing this is necessary." 2 App. E-616. The Act provides Louisiana schoolteachers with no new authority. Thus the stated purpose is not furthered by it. The Alabama statute held unconstitutional in Wallace v. Jaffree, supra, is analogous. In Wallace, the State characterized its new law as one designed to provide a 1-minute period for meditation. We rejected that stated purpose as in sufficient, because a previously adopted Alabama law already provided for such a 1-minute period. Thus, in this case, as in Wallace, "[a]ppellants have not identified any secular purpose that was not fully served by [existing state law] before the enactment of [the statute in question]." 472 U. S., at 59. Furthermore, the goal of basic "fairness" is hardly furthered by the Act's discriminatory preference for the teaching of creation science and against the teaching of evolution. While requiring that curriculum guides be developed for creation science, the Act says nothing of comparable guides for evolution. La. Rev. Stat. Ann. §17:286.7A (West 1982). Similarly, resource services are supplied for creation science but not for evolution. §17:286.7B. Only "creation scientists" can serve on the panel that supplies the resource services. Ibid. The Act forbids school boards to discriminate against anyone who "chooses to be a creation-scientist" or to teach "creationism," but fails to protect those who choose to teach evolution or any other noncreation science theory, or who refuse to teach creation science. § 17:286.4C. If the Louisiana Legislature's purpose was solely to maximize the comprehensiveness and effectiveness of science instruction, it would have encouraged the teaching of all scientific theories about the origins of humankind. But under the Act's requirements, teachers who were once free to teach any and all facets of this subject are now unable to do so. Moreover, the Act fails even to ensure that creation science will be taught, but instead requires the teaching of this theory only when the theory of evolution is taught. Thus we agree with the Court of Appeals' conclusion that the Act does not serve to protect academic freedom, but has the distinctly different purpose of discrediting "evolution by counterbalancing its teaching at every turn with the teaching of creationism . . . ." 765 F. 2d, at 1257. B Stone v. Graham invalidated the State's requirement that the Ten Commandments be posted in public classrooms. "The Ten Commandments are undeniably a sacred text in the Jewish and Christian faiths, and no legislative recitation of a supposed secular purpose can blind us to that fact." 449 U. S., at 41 (footnote omitted). As a result, the contention that the law was designed to provide instruction on a "fundamental legal code" was "not sufficient to avoid conflict with the First Amendment." Ibid. Similarly Abmgton School Dist. v. Schempp held unconstitutional a statute "requiring the selection and reading at the opening of the school day of verses from the Holy Bible and the recitation of the Lord's Prayer by the students in unison," despite the proffer of such secular purposes as the "promotion of moral values, the con tradiction to the materialistic trends of our times, the perpetuation of our institutions and the teaching of literature." 374 U. S., at 223. As in Stone and Abington, we need not be blind in this case to the legislature's preeminent religious purpose in enacting this statute. There is a historic and contemporaneous link between the teachings of certain religious denominations and the teaching of evolution. It was this link that concerned the Court in Epperson v. Arkansas, 393 U. S. 97 (1968), which also involved a facial challenge to a statute regulating the teaching of evolution. In that case, the Court reviewed an Arkansas statute that made it unlawful for an instructor to teach evolution or to use a textbook that referred to this scientific theory. Although the Arkansas antievolution law did not explicitly state its predominate religious purpose, the Court could not ignore that "[t]he statute was a product of the upsurge of 'fundamentalist' religious fervor" that has long viewed this particular scientific theory as contradicting the literal interpretation of the Bible. Id., at 98, 106-107. After reviewing the history of antievolution statutes, the Court determined that "there can be no doubt that the motivation for the [Arkansas] law was the same [as other anti-evolution statutes]: to suppress the teaching of a theory which, it was thought, 'denied' the divine creation of man." Id., at 109. The Court found that there can be no legitimate state interest in protecting particular religions from scientific views "distasteful to them," id., at 107 (citation omitted), and concluded "that the First Amendment does not permit the State to require that teaching and learning must be tailored to the principles or prohibitions of any religious sect or dogma," id., at 106. These same historic and contemporaneous antagonisms between the teachings of certain religious denominations and the teaching of evolution are present in this case. The preeminent purpose of the Louisiana Legislature was clearly to advance the religious viewpoint that a supernatural being created humankind. The term "creation science" was defined as embracing this particular religious doctrine by those responsible for the passage of the Creationism Act. Senator Keith's leading expert on creation science, Edward Bou-dreaux, testified at the legislative hearings that the theory of creation science included belief in the existence of a supernatural creator. See 1 App. E-421 — E-422 (noting that "creation scientists" point to high probability that life was "created by an intelligent mind"). Senator Keith also cited testimony from other experts to support the creation-science view that "a creator [was] responsible for the universe and everything in it." 2 App. E-497. The legislative history therefore reveals that the term "creation science," as contemplated by the legislature that adopted this Act, embodies the religious belief that a supernatural creator was responsible for the creation of humankind. Furthermore, it is not happenstance that the legislature required the teaching of a theory that coincided with this religious view. The legislative history documents that the Act's primary purpose was to change the science curriculum of public schools in order to provide persuasive advantage to a particular religious doctrine that rejects the factual basis of evolution in its entirety. The sponsor of the Creationism Act, Senator Keith, explained during the legislative hearings that his disdain for the theory of evolution resulted from the support that evolution supplied to views contrary to his own religious beliefs. According to Senator Keith, the theory of evolution was consonant with the "cardinal principle^] of religious humanism, secular humanism, theological liberalism, aetheistism [sic]." 1 App. E-312 — E-313; see also 2 App. E-499 — E-500. The state senator repeatedly stated that scientific evidence supporting his religious views should be included in the public school curriculum to redress the fact that the theory of evolution incidentally coincided with what he characterized as religious beliefs antithetical to his own. The legislation therefore sought to alter the science curriculum to reflect endorsement of a religious view that is antagonistic to the theory of evolution. In this case, the purpose of the Creationism Act was to restructure the science curriculum to conform with a particular religious viewpoint. Out of many possible science subjects taught in the public schools, the legislature chose to affect the teaching of the one scientific theory that historically has been opposed by certain religious sects. As in Epperson, the legislature passed the Act to give preference to those religious groups which have as one of their tenets the creation of humankind by a divine creator. The "overriding fact" that confronted the Court in Epperson was "that Arkansas' law selects from the body of knowledge a particular segment which it proscribes for the sole reason that it is deemed to conflict with . a particular interpretation of the Book of Genesis by a particular religious group." 393 U. S., at 103. Similarly, the Creationism Act is designed either to promote the theory of creation science which embodies a particular religious tenet by requiring that creation science be taught whenever evolution is taught or to prohibit the teaching of a scientific theory disfavored by certain religious sects by forbidding the teaching of evolution when creation science is not also taught. The Establishment Clause, however, "forbids alike the preference of a religious doctrine or the prohibition of theory which is deemed antagonistic to a particular dogma." Id., at 106-107 (emphasis added). Because the primary purpose of the Creationism Act is to advance a particular religious belief, the Act endorses religion in violation of the First Amendment. We do not imply that a legislature could never require that scientific critiques of prevailing scientific theories be taught. Indeed, the Court acknowledged in Stone that its decision forbidding the posting of the Ten Commandments did not mean that no use could ever be made of the Ten Commandments, or that the Ten Commandments played an exclusively religious role in the history of Western Civilization. 449 U. S., at 42. In a similar way, teaching a variety of scientific theories about the origins of humankind to schoolchildren might be validly done with the clear secular intent of enhancing the effectiveness of science instruction. But because the primary purpose of the Creationism Act is to endorse a particular religious doctrine, the Act furthers religion in violation of the Establishment Clause. > 1 — I Appellants contend that genuine issues of material fact remain in dispute, and therefore the District Court erred in granting summary judgment. Federal Rule of Civil Procedure 56(c) provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." A court's finding of improper purpose behind a statute is appropriately determined by the statute on its face, its legislative history, or its interpretation by a responsible administrative agency. See, e. g., Wallace v. Jaffree, 472 U. S., at 56-61; Stone v. Graham, 449 U. S., at 41-42; Epperson v. Arkansas, 393 U. S., at 103-109. The plain meaning of the statute's words, enlightened by their context and the contemporaneous legislative history, can control the determination of legislative purpose. See Wallace v. Jaffree, supra, at 74 (O'Connor, J., concurring in judgment); Richards v. United States, 369 U. S. 1, 9 (1962); Jay v. Boyd, 351 U. S. 345, 357 (1956). Moreover, in determining the legislative purpose of a statute, the Court has also considered the historical context of the statute, e. g., Epper-son v. Arkansas, supra, and the specific sequence of events leading to passage of the statute, e. g., Arlington Heights v. Metropolitan Housing Dev. Corp., 429 U. S. 252 (1977). In this case, appellees' motion for summary judgment rested on the plain language of the Creationism Act, the legislative history and historical context of the Act, the specific sequence of events leading to the passage of the Act, the State Board's report on a survey of school superintendents, and the correspondence between the Act's legislative sponsor and its key witnesses. Appellants contend that affidavits made by two scientists, two theologians, and an education administrator raise a genuine issue of material fact and that summary judgment was therefore barred. The affidavits define creation science as "origin through abrupt appearance in complex form" and allege that such a viewpoint constitutes a true scientific theory. See App. to Brief for Appellants A-7 to A-40. We agree with the lower courts that these affidavits do not raise a genuine issue of material fact. The existence of "un-controverted affidavits" does not bar summary judgment. Moreover, the postenactment testimony of outside experts is of little use in determining the Louisiana Legislature's purpose in enacting this statute. The Louisiana Legislature did hear and rely on scientific experts in passing the bill, but none of the persons making the affidavits produced by the ap pellants participated in or contributed to the enactment of the law or its implementation. The District Court, in its discretion, properly concluded that a Monday-morning "battle of the experts" over possible technical meanings of terms in the statute would not illuminate the contemporaneous purpose of the Louisiana Legislature when it made the law. We therefore conclude that the District Court did not err in finding that appellants failed to raise a genuine issue of material fact, and in granting summary judgment. V The Louisiana Creationism Act advances a religious doctrine by requiring either the banishment of the theory of evolution from public school classrooms or the presentation of a religious viewpoint that rejects evolution in its entirety. The Act violates the Establishment Clause of the First Amendment because it seeks to employ the symbolic and financial support of government to achieve a religious purpose. The judgment of the Court of Appeals therefore is Affirmed. Justice O'Connor joins all but Part II of this opinion. Appellants, the Louisiana Governor, the Attorney General, the State Superintendent, the State Department of Education and the St. Tammany Parish School Board, agreed not to implement the Creationism Act pending the final outcome of this litigation. The Louisiana Board of Elementary and Secondary Education, and the Orleans Parish School Board were among the original defendants in the suit but both later realigned as plaintiffs. The District Court initially stayed the action pending the resolution of a separate lawsuit brought by the Act's legislative sponsor and others for declaratory and injunctive relief. After the separate suit was dismissed on jurisdictional grounds, Keith v. Louisiana Department of Education, 553 F. Supp. 295 (MD La. 1982), the District Court lifted its stay in this case and held that the Creationism Act violated the Louisiana Constitution. The court ruled that the State Constitution grants authority over the public school system to the Board of Elementary and Secondary Education rather than the state legislature. On appeal, the Court of Appeals certified the question to the Louisiana Supreme Court, which found the Creationism Act did not violate the State Constitution, Aguillard v. Treen, 440 So. 2d 704 (1983). The Court of Appeals then remanded the case to the District Court to determine whether the Creationism Act violates the Federal Constitution. Aguillard v. Treen, 720 F. 2d 676 (CA5 1983). The First Amendment states: "Congress shall make no law respecting an establishment of religion . . . ." Under the Fourteenth Amendment, this "fundamental concept of liberty" applies to the States. Cantwell v. Connecticut, 310 U. S. 296, 303 (1940). The Lemon test has been applied in all eases since its adoption in 1971, except in Marsh v. Chambers, 463 U. S. 783 (1983), where the Court held that the Nebraska Legislature's practice of opening a session with a prayer by a chaplain paid by the State did not violate the Establishment Clause. The Court based its conclusion in that ease on the historical acceptance of the practice. Such a historical approach is not useful in determining the proper roles of church and state in public schools, since free public education was virtually nonexistent at the time the Constitution was adopted. See Wallace v. Jaffree, 472 U. S. 38, 80 (1985) (O'CONNOR, J., concurring in judgment) (citing Abington School Dist. v. Schempp, 374 U. S. 203, 238, and n. 7 (1963) (Brennan, J., concurring)). The potential for undue influence is far less significant with regard to college students who voluntarily enroll in courses. "This distinction warrants a difference in constitutional results." Abington School Dist. v. Schempp, supra, at 253 (BRENNAN, J., concurring). Thus, for instance, the Court has not questioned the authority of state colleges and universities to offer courses on religion or theology. See Widmar v. Vincent, 454 U. S. 263, 271 (1981) (Powell, J.); id., at 281 (Stevens, J., concurring in judgment). The Court of Appeals stated that "[a]cademie freedom embodies the principle that individual instructors are at liberty to teach that which they deem to be appropriate in the exercise of their professional judgment." 765 F. 2d, at 1257. But, in the State of Louisiana, courses in public schools are prescribed by the State Board of Education and teachers are not free, absent permission, to teach courses different from what is required. Tr. of Oral Arg. 44-46. "Academic freedom," at least as it is commonly understood, is not a relevant concept in this context. Moreover, as the Court of Appeals explained, the Act "requires, presumably upon risk of sanction or dismissal for failure to comply, the teaching of creation-science whenever evolution is taught. Although states may prescribe public school curriculum concerning science instruction under ordinary circumstances, the compulsion inherent in the Balanced Treatment Act is, on its face, inconsistent with the idea of academic freedom as it is universally understood." 765 F. 2d, at 1257 (emphasis in original). The Act actually serves to diminish academic freedom by removing the flexibility to teach evolution without also teaching creation science, even if teachers determine that such curriculum results in less effective and comprehensive science instruction. The Creationism Act's provisions appear among other provisions prescribing the courses of study in Louisiana's public schools. These other provisions, similar to those in other States, prescribe courses of study in such topics as driver training, civics, the Constitution, and free enterprise. None of these other provisions, apart from those associated with the Creationism Act, nominally mandates "equal time" for opposing opinions within a specific area of learning. See, e. g., La. Rev. Stat. Ann. § 17:261-17:281 (West 1982 and Supp. 1987). The dissent concludes that the Act's purpose was to protect the academic freedom of students, and not that of teachers. Post, at 628. Such a view is not at odds with our conclusion that if the Act's purpose was to provide comprehensive scientific education (a concern shared by students and teachers, as well as parents), that purpose was not advanced by the statute's provisions. Supra, at 587. Moreover, it is astonishing that the dissent, to prove its assertion, relies on a section of the legislation that was eventually deleted by the legislature. Compare § 3702 in 1 App. E-292 (text of section prior to amendment) with La. Rev. Stat. Ann. § 17:286.2 (West 1982). The dissent contends that this deleted section — which was explicitly rejected by the Louisiana Legislature-reveals the legislature's "obviously intended meaning of the statutory terms 'academic freedom.'" Post, at 628. Quite to the contrary, Boudreaux, the main expert relied on by the sponsor of the Act, cautioned the legislature that the words "academic freedom" meant "freedom to teach science." 1 App. E-429. His testimony was given at the time the legislature was deciding whether to delete this section of the Act. See McLean v. Arkansas Bd. of Ed., 529 F. Supp. 1255, 1258-1264 (ED Ark. 1982) (reviewing historical and contemporary antagonisms between the theory of evolution and religious movements). The Court evaluated the statute in light of a series of antievolution statutes adopted by state legislatures dating back to the Tennessee statute that was the focus of the celebrated Scopes trial in 1925. Epperson v. Arkansas, 393 U. S., at 98, 101, n. 8, and 109. The Court found the Arkansas statute comparable to this Tennessee "monkey law," since both gave preference to " 'religious establishments which have as one of their tenets or dogmas the instantaneous creation of man.' " Id., at 103, n. 11 (quoting Scopes v. State, 154 Tenn. 105, 126, 289 S. W. 363, 369 (1927) (Chambliss, J., concurring)). While the belief in the instantaneous creation of humankind by a supernatural creator may require the rejection of every aspect of the theory of evolution, an individual instead may choose to accept some or all of this scientific theory as compatible with his or her spiritual outlook. See Tr. of Oral Arg. 23-29. Boudreaux repeatedly defined creation science in terms of a theory that supports the existence of a supernatural creator. See, e. g., 2 App. E-501 — E-502 (equating creation science with a theory pointing "to conditions of a creator"); 1 App. E-153 — E-154 ("Creation . . . requires the direct involvement of a supernatural intelligence"). The lead witness at the hearings introducing the original bill, Luther Sunderland, described creation science as postulating "that everything was created by some intelligence or power external to the universe." Id., at E-9 — E-10. Senator Keith believed that creation science embodied this view: "One concept is that a creator however you define a creator was responsible for everything that is in this world. The other concept is that it just evolved. " Id., at E-280. Besides Senator Keith, several of the most vocal legislators also revealed their religious motives for supporting the bill in the official legislative history. See, e. g., id., at E-441, E-443 (Sen. Saunders noting that bill was amended so that teachers could refer to the Bible and other religious texts to support the creation-science theory); 2 App. E-561— E-562, E-610 (Rep. Jenkins contending that the existence of God was a scientific fact). See, e. g., 1 App. E-74 — E-75 (noting that evolution is contrary to his family's religious beliefs); id., at E-313 (contending that evolution advances religions contrary to his own); id., at E-357 (stating that evolution is "almost a religion" to science teachers); id., at E-418 (arguing that evolution is cornerstone of some religions contrary to his own); 2 App. E-763— E-764 (author of model bill, from which Act is derived, sent copy of the model bill to Senator Keith and advised that "I view this whole battle as one between God and anti-God forces . [I]f evolution is permitted to continue . it will continue to be made to appear that a Supreme Being is unnecessary . . ."). Neither the District Court nor the Court of Appeals found a clear secular purpose, while both agreed that the Creationism Act's primary purpose was to advance religion. "When both courts below are unable to discern an arguably valid secular purpose, this Court normally should hesitate to find one." Wallace v. Jaffree, 472 U. S., at 66 (Powell, J., concurring). There is "no express or implied requirement in Rule 56 that the moving party support its motion with affidavits or other similar materials negating the opponent's claim." Celotex Corp. v. Catrett, 477 U. S. 317, 323 (1986) (emphasis in original). The experts, who were relied upon by the sponsor of the bill and the legislation's other supporters, testified that creation science embodies the religious view that there is a supernatural creator of the universe. See, supra, at 591-592. Appellants contend that the affidavits are relevant because the term "creation science" is a technical term similar to that found in statutes that regulate certain scientific or technological developments. Even assuming, arguendo, that "creation science" is a term of art as represented by appellants, the definition provided by the relevant agency provides a better insight than the affidavits submitted by appellants in this case. In a 1981 survey conducted by the Louisiana Department of Education, the school superintendents in charge of implementing the provisions of the Creationism Act were asked to interpret the meaning of "creation science" as used in the statute. About 75 percent of Louisiana's superintendents stated that they understood "creation science" to be a religious doctrine. 2 App. E-798 — E-799. Of this group, the largest proportion of superintendents interpreted creation science, as defined by the Act, to mean the literal interpretation of the Book of Genesis. The remaining superintendents believed that the Act required teaching the view that "the universe was made by a creator." Id., at E-799. The Court has previously found the postenactment elucidation of the meaning of a statute to be of little relevance in determining the intent of the legislature contemporaneous to the passage of the statute. See Wallace v. Jaffree, 472 U. S., at 57, n. 45; id., at 75 (O'Connor, J., concurring in judgment). Numerous other Establishment Clause eases that found state statutes to be unconstitutional have been disposed of without trial. E. g., Larkin v. Grendel's Den, Inc., 459 U. S. 116 (1982); Lemon v. Kurtzman, 403 U. S. 602 (1971); Engel v. Vitale, 370 U. S. 421 (1962).
11 Cust. Ct. 231		C. D. 697 affirmed (31 C. C. P. A. 14, C. A. D. 243).
393 U.S. 1098		C. A. 5th Cir. Certiorari denied.
479 U.S. 1065		C. A. 9th Cir. Certiorari denied.
389 U.S. 967		Appeal from D. C. Mass. Probable jurisdiction noted. Mr. Justice Marshall took no part in the consideration or decision of this case.
506 U.S. 844		C. A. D. C. Cir. Certiorari denied.
49 Cust. Ct. 233		Opinion by Ford, J. In accordance with stipulation of counsel that the merchandise consists of insignia similar in all material respects to those involved in Abstract 66583, the claim of the plaintiff was sustained.
12 Cust. Ct. 248		Opinion by Walker, J. The question in this case is whether the foreign value or the United States -value should have been used for entering certain leather-bound prayer books. A test case was made and the petitioner filed an appeal to reappraisement, but because of the difficulty of obtaining proof he later abandoned it. On the record the court was satisfied that the undervaluation resulted from "an honest difference of opinion and that the record demonstrates there was at no time 'any intention to defraud the revenue, to conceal or misrepresent the facts, or to deceive the appraiser. The petition was therefore granted
270 U.S. App. D.C. 144		Opinion for the Court filed by Senior Circuit Judge MacKINNON. MacKINNON, Senior Circuit Judge: Two classes of former enrollees in the Blue Cross and Blue Shield Association ("Blue Cross") Government-Wide Service Benefit Plan, who withdrew from the Plan or changed plans prior to May I, 1985, bring this action to compel their inclusion in a $784 million refund by Blue Cross of excess contingency reserve funds, which refund is presently limited to enrollees who were subscribers in a Blue Cross plan as of May 1, 1985. Plaintiffs contend that the decision of the Office of Personnel Management ("OPM") to approve the refund proposal was "arbitrary, capricious and an abuse of discretion or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). The district court upheld the decision by OPM, concluding that limiting the refund to those enrolled in Blue Cross as of May 1, 1985 was rational and supported by the record. Bolden v. Blue Cross and Blue Shield Association, 669 F.Supp. 1096, 1106 (D.D.C.1986). We affirm. I. Background A. Statutory Framework In 1959, Congress created a subsidized health insurance program as a benefit for civilian employees and annuitants of the federal government. Federal Employees Health Benefits Act of 1959, 5 U.S.C. § 8901 et seq. ("the Act"). With almost 300 plans participating the program is competitive. During a four week "open sea son" each year, federal employees and annuitants can compare and change plans. 5 U.S.C. § 8905(e); 5 C.F.R. § 890.301(d). Under the Act, the Office of Personnel Management is given broad authority to administer the Federal Employees Health Benefits Program ("the Program"). OPM contracts with insurance carriers to provide health insurance benefits and each year renegotiates the coverage and rates based upon prior experience and insurance industry practice. 5 U.S.C. § 8902(i). OPM attempts to set the rates of the various plans so they will be sufficient to cover future claims and overhead costs and maintain surplus funds for unexpected costs. 5 U.S. C. § 8902(i), 8909(b). "Reserves" are required to be established to meet anticipated claims. 5 U.S.C. § 8909(b); 5 C.F.R. § 890.503. Many uncertain factors affect program costs, such as the number of enrollees who will move in and out of a plan and the amount and cost of health care services that enrollees will require. GAO Report, App. 705; S.Rep. No. 468, 86th Cong., 1st Sess. 18 (1959). These uncertainties make it improbable that any premium rates negotiated by OPM will exactly equal future costs. The reserves can be drawn upon when health care claims exceed annual program income. Program reserves are held partly by the government in "contingency reserves" which are earmarked for each carrier, and partly by the participating carriers in a "special reserve." After the premium rates are set for the next contract year, OPM determines the amount of the government's contributions. 5 U.S.C. § 8906. The part of the premium not paid by the government is withheld from the pay of each enrolled employee and from the annuity of each enrolled annuitant. 5 U.S.C. § 8906(d). The set premium may not be changed during the contract year. Employees and annuitants receive the contract benefits during the year at the contracted rate whether costs and claims are unexpectedly high, requiring a charge against reserves, or low, resulting in a surplus. 5 U.S.C. § 8902(i). Government and enrollee contributions to the Employees Health Benefits Fund, which is controlled by OPM, 5 U.S.C. § 8909(a), may be used for three purposes. First, a percentage, not to exceed one percent of all contributions, determined by OPM, is used to pay OPM's administrative expenses. 5 U.S.C. § 8909(b)(1). Second, a percentage, not to exceed three percent of all contributions, determined by OPM, may be used to establish a contingency reserve for each plan. 5 U.S.C. § 8909(b)(2). Contingency reserve funds may be used to compensate for underestimates of claims costs and may be transferred to a plan's special reserve if underestimated claims create a deficit in the special reserve. 5 C.F.R. § 890.503(c). Similarly, excess special reserves may be transferred to a plan's contingency reserve. 5 U.S.C. § 8909(b); 5 C.F.R. § 890.503(c)(l)(v). Contingency reserves may be used, at OPM's discretion, for three purposes: (1) to defray increases in future rates; (2) to reduce the contributions of the government and enrollees; or (3) to increase the benefits provided by a plan. 5 U.S.C. § 8909(b). Third, the remaining contributions by enrollees to each plan are paid into that plan's special reserves, which are used to pay enrollees' health insurance claims. Surplus or deficit special reserves are carried over each year and become a factor in determining the appropriate rate for the following year. 41 C.F.R. § 16-4.152-l(b)(2). OPM may lower enrollees' premium rates to draw down a plan's surplus special, or it may increase rates to recover from a deficit reserve balance. In both cases it is the subscribers who are enrolled for the current contract year that benefit or suffer. B. Factual Background Unanticipated large cost increases in the medical field and high use of health care services by enrollees created financial problems for health plans in the early 1980's. Blue Cross had a $150 million deficit in its Federal Employee Health Benefit Plan (the "Plan") special reserve by the end of 1981. In response to the deficits, OPM introduced major cost containment, benefit reduction and cost-sharing initiatives to encourage more responsible use of health care services by Program enrollees, doctors and hospitals. OPM also negotiated premiums to cover higher expected costs and to build up reserves. Nationwide reductions in medical care use and costs resulted in substantial surpluses in the Plans' special reserve accounts. In May, 1985, Blue Cross estimated that its special reserve balance would be approximately $957 million by the end of 1985, of which $754 million was surplus not necessary to cover estimated future costs. On May 20, 1985, while OPM was evaluating various ways to decrease excess reserves, Blue Cross announced a proposal for reducing its reserves. It proposed to send all persons enrolled as of May 1, 1985 a one time payment, a "refund," which would effectively reduce their contributions toward 1985 premiums. Blue Cross also proposed to give the government a refund proportionate to the amount the government contributed toward the premiums. OPM immediately began studying the Blue Cross proposal. On May 30, 1985, OPM conducted a public hearing to solicit comments on the Program's reserve levels, the management of the reserves and the Blue Cross proposal. Five OPM officials conducted the meeting at which fourteen witnesses expressed many divergent views. At least one OPM official and two witnesses questioned whether former enrollees should receive refunds. App. 157, 192-93, 251. OPM also asked the Office of Legal Counsel ("OLC") in the Department of Justice for its opinion as to the legality of a refund to enrollees as of May 1, 1985. App. 451-52. In a July 10, 1985 opinion, OLC concluded that the refund was legal, App. 453, reasoning that under section 8909(b), excess special reserves could be transferred to contingency reserves, and paid out as "reductions in contributions." App. 470. OLC noted, however, that while refunds could be made to employees, the word "employees" in 5 U.S.C. § 8909(b) would have to be changed to "enrollees" before such refunds could legally be made to subscribing annuitants. App. 471. OLC did not discuss whether refunds could be paid to former enrollees. On July 16, 1985, OPM announced that President Reagan accepted "the essential elements" of the Blue Cross proposal. App. 473. OPM instructed the insurance carriers to decrease their special and contingency reserves to an amount equal to two months of premium income by the end of 1986. App. 505-507. All Plans had the option of reducing their reserves either by reducing 1986 contributions using refunds, or by reducing 1986 premium rates, or by a combination of both methods. App. 63, 505-507. Many Plans chose the refund option. App. 705. OPM followed OLC's recommendation and sought legislation that would allow subscribing annuitants to share in the proposed refunds. App. 474-77. In a letter to Speaker of the House Thomas P. O'Neill, Jr., OPM set forth the proposed language for the legislation and stated that OPM planned to use surplus reserves to reduce "current contributions" of those "enrolled" in a plan. App. 474. Congress adopted OPM's proposed language in passing H.R. 3384 in December, 1985. H.R. 3384, § 101, 99th Cong., 1st Sess. (1985). President Reagan vetoed the bill due to unrelated provisions, however, the necessary legislation was subsequently passed by Congress and approved by the President on February 27, 1986. Federal Employees Benefits Improvement Act of 1986, Pub.L. No. 99-251, § 101, H.R. 4061 (1986), 100 Stat. 14. Eleven plans eventually sent refunds to persons who had been enrolled in their plans as of certain dates in 1985. App. 571; 736-62. Aside from $25 million set aside pending the outcome of this lawsuit, the Blue Cross refund is complete. On August 20, 1985, plaintiffs brought this action seeking their inclusion in the refund. Plaintiffs claimed that the decision by OPM to adopt the eligibility date of May 1, 1985 as proposed by Blue Cross was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law." 5 U.S.C. § 706(2)(A). The first class of plaintiffs are federal employees who were enrolled in a Blue Cross plan in 1983 and 1984, but left the plan prior to May 1, 1985, thereby placing themselves in a posi tion where they were ineligible for the Blue Cross refund. The second class of plaintiffs are federal employees who were in a Blue Cross high option or family plan during 1983 and 1984, but withdrew therefrom and were enrolled in a Blue Cross low option or single enrollment plan as of May 1, 1985. The second class of plaintiffs received a refund as low option or single enrollees, but seek a larger refund based on their enrollment in a high option or family plan during 1983 and 1984. To permit the refunds to go forward while this case was pending, the parties entered into a stipulation on February 7, 1986 pursuant to which $25 million of the refund amount was set aside in an escrow account, that would be sufficient to protect the two classes if plaintiffs were successful. The defendants agreed to the certification of the two classes and the plaintiffs agreed not to attempt to enjoin the distribution of the remaining $759 million. The district court granted defendants' motion for summary judgment, holding that OPM's decision "is supported by the record, and is not arbitrary, capricious or an abuse of discretion." Bolden v. Blue Cross and Blue Shield Association, 669 F.Supp. 1086, 1107 (D.D.C.1986). The plaintiffs contended that the court's standard of review should not be deferential to OPM because OPM did not rely on its own judgment and that OPM relied on a misreading of a statute. The court disagreed, concluding that it should presume the agency's action is valid and uphold the agency's decision if a rational basis existed for its decision. Id. at 1101. The court emphasized that judicial review of an agency's interpretation is particularly narrow where the challenged action involves the agency's construction of the statute it is empowered to administer. Id. The plaintiffs contended that the court should not consider OPM's March 31, 1986 Decisional Memorandum in evaluating the agency's action. Plaintiffs characterized the Memorandum as "mere post hoc rationalizations," but the court admitted it to "illuminate[ ] reasons obscured but implicit in the administrative record." Id. at 1102. Additionally, the court found that Congress had implicitly approved OPM's interpretation of the statute when it amended 5 U.S.C. § 8909(b), id. at 1103, and rejected plaintiffs' argument that they had any equitable interest in the refund money. Id. at 1104. Finally, the court found that OPM's decision to deny a share of the refund to former enrollees was consistent with insurance industry practice. Id. at 1105. II. Analysis We conclude that OPM's decision was not arbitrary or capricious. OPM acted in conformance with congressional intent and insurance industry practice. Plaintiffs have no equitable interest in any portion of the Blue Cross refund money. We therefore affirm the decision of the district court upholding OPM's approval of the May 1, 1985 eligibility date. A. Standard of Review The district court correctly applied a narrow standard of review to OPM's action. Id. at 1101. A court should presume an agency's action to be valid under the highly deferential "arbitrary and capricious" standard of 5 U.S.C. § 706(2)(A) (1976 and Supp. Ill 1979). Environmental Defense Fund, Inc. v. Costle, 657 F.2d 275, 283 (D.C.Cir.1981). A court cannot substitute its judgment for that of an agency, Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 823, 28 L.Ed.2d 136 (1971), and must affirm if a rational basis for the agency's decision exists. Environmental Defense Fund v. Costle, 657 F.2d at 283. OPM's decision to accept the May 1, 1985 eligibility date should be upheld if it falls within the permissible range of interpretations. Office of Consumers' Counsel, Ohio v. F.E.R.C., 783 F.2d 206, 218 (D.C.Cir.1986). As stated previously, judicial review is particularly limited in cases in which plaintiffs challenge an agency's construction of the statute it is empowered to administer. Chemical Manufacturers Association v. N.R.D.C., 470 U.S. 116, 105 S.Ct. 1102, 1108, 84 L.Ed.2d 90 (1985). Plaintiffs contend that OPM's decision is not entitled to deference because OPM did not rely on its own judgment, but rather on the OLC opinion, in deciding to accept the May 1, 1985 eligibility date. Brief of Plaintiffs at 19, 30. Plaintiffs also claim that OPM misinterpreted OLC's construction of § 8909(b) to mean that only refunds to current or future employees were allowed. Id. This court has held that deference "is appropriate only when an agency has exercised its own judgment. When, instead, the agency's decision is based on an erroneous view of the law, its decision cannot stand." Phillips Petroleum Co. v. F.E.R.C., 792 F.2d 1165, 1169 (D.C.Cir.1986). See also Prill v. N.L.R.B., 755 F.2d 941 (D.C.Cir.1985). There is no support for plaintiffs' contention that OPM did not rely on its own judgment. Plaintiffs only rely on OPM's Memorandum of Points and Authorities in support of its motion for summary judgment. Brief of Plaintiffs at 30. While OPM's Memorandum does argue that "provisions in section 8909(b) reinforce OPM's conclusion that a plan's contingency reserves can only be used to benefit a current or future enrollee of that plan," Memorandum at 21, plaintiffs never explain how that statement proves that OPM reached its conclusion based solely on an erroneous view of the OLC opinion. For three reasons, it is more consistent with OPM's decision making process to assume that OPM took OLC's opinion into account and then made its own decision. First, on the "Blue Cross and Blue Shield Refund Proposal," App. 452, which Blue Cross originated (App. 63), OPM solicited comments from a number of sources both within the government, such as the Office of Management and Budget, App. 452, and from the public, not just from OLC. Second OPM did not seek OLC's advice on whether former enrollees could participate in the refund, which is the specific point at issue in this case. OPM only requested the opinion of OLC on whether a refund limited to "enrolled" subscribers was valid under existing statutes and regulations. App. 452. Third, OPM based its decision on many factors, such as the forward looking nature of the statutory scheme, the need for unencumbered reserves and general insurance principles, which the OLC opinion of July 9, 1985 did not discuss. App. 452. It is also significant that it was Blue Cross that first tentatively decided to make the refund to those who were enrolled on May 1, 1985 and then OPM requested comments from interested and knowledgeable sources. To find the Blue Cross proposed plan to be valid under these circumstances does not indicate such subservience to others as to constitute a surrender of its own original basic judgment. Parties are not to be determined to have surrendered their judgment when they seek a legal opinion as to the validity of a proposed plan. Plaintiffs also contend that OPM's decision is not entitled to deference because OPM relied on a misinterpretation of the relevant statute. Brief of Plaintiffs at 30-32. This contention is based on the assertion that because of OPM's alleged misreading of the OLC opinion, OPM erroneously concluded that only current enrollees, not persons in plaintiffs' positions, could be eligible for the refund. Memorandum of Points and Authorities at 19-20. The district court's interpretation of the statute is discussed infra at 11-13. We conclude that OPM's decision was rational, reasonable and in conformance with the statute. B. OPM's Decisional Memorandum The district court correctly considered OPM's March 31, 1986 Decisional Memorandum. The court found that the Memorandum "merely illuminates reasons obscured but implicit in the administrative record____ What the pre-decisional record suggests, the post-decisional Memorandum merely confirms." Bolden, slip op. at 13. The Memorandum provides five reasons for excluding those enrolled in prior contract years from the refund: (1) consistency with the forward-looking nature of the Act, (2) consistency with the language and purpose of the statute, (3) avoidance of any suggestion of an equitable interest in the reserves, (4)administrative convenience, and (5) consistency with general insurance practice. Plaintiffs contend that the Memorandum should not be considered because it constitutes post hoc rationalization. An agency may not assert post hoc reasoning as the basis for its decision. Burlington Truck Lines, Inc. v. United States, 371 U.S. 156, 168-69, 83 S.Ct. 239, 245-46, 9 L.Ed.2d 207 (1962); accord Citizens to Protect Overton Park, Inc. v. Volpe, 401 U.S. 402, 419, 91 S.Ct. 814, 825, 28 L.Ed.2d 136 (1971). This court has recently held that the record to be considered by the reviewing court "consists of the administrative record compiled by the agency in advance of litigation, not any record thereafter constructed in the reviewing court." AT & T Information Systems, Inc. v. General Services Administration, 810 F.2d 1233, 1236 (D.C.Cir.1987). The AT & T court emphasized that its holding applied to informal agency proceedings, "bar[ring] introduction of litigation affidavits to supplement the administrative record." Id. AT & T is distinguishable from this case. In AT & T the court stressed that the declaration sought to be introduced contained only new explanations and that the agency had provided no rationalizations for its actions at the agency level. AT & T, 810 F.2d at 1236. The AT & T court recognized the "exception allowing agencies to supplement the record to provide 'such additional explanations of the reasons for the agency decision as may prove necessary. " Id. quoting Camp v. Pitts, 411 U.S. 138, 142-43, 93 S.Ct. 1241, 1244, 36 L.Ed.2d 106 (1973), The district court concluded here that OPM had previously considered the reasons given in its decisional Memorandum, and therefore the Memorandum should be admitted to amplify the administrative record. Bolden, 1102 (citing the Administrative Record at 99, 131, 402, 405). Plaintiffs filed their suit in August of 1985. Although it is unclear exactly when OPM made its final decision to approve the Blue Cross proposal, the annuitant legislation was not passed until February 27,1986 (100 Stat. 14), and OPM's approval was apparently contingent upon the amendment to section 8909(b). App. 636. (September 6, 1985 OPM letter to Blue Cross stating: "[i]f legislation authorizing the payments to annuitants is not enacted, this entire proposal to reduce the contributions of subscribers and the government will terminate."); see also App. 471, 474; National Treasury Employees Union v. FLRA, 712 F.2d 669, 670-71 (D.C.Cir.1983) (agency decision is not final or effective "while it remains tentative, provisional, or contingent, subject to recall, revision or reconsideration by the issuing agency."). Since plaintiffs filed this action before OPM had made a final decision, OPM was required to submit its decisional Memorandum after the suit had commenced. Plaintiffs next contend that OPM's decision to extend refunds to all who were enrolled in a Blue Cross Plan as of May 1, 1985 is inconsistent with its interpretation of § 8909(b) as limiting refunds to current enrollees. Not so; OPM's reference to current enrollees was meant to contrast principally with prior subscribers who were enrolled during the periods when the surpluses accrued. The date set for determining eligibility properly preceded the date the refund was announced so as to avoid influencing choices of newly-hired employees by an inducement that was not likely to be repeated. App. 63. OPM was acutely aware that announcing a proposal to refund excess funds to subscribers enrolled as of a predetermined future date would cause a sudden and counterproductive flood of enrollments. It thus applied the statute so as to define enrollees as subscribers enrolled on a specific recent date under the enrollment code for the contract year at the time the refund plan was announced. In addition to avoiding the creation of unusual enrollment incentives, the plan was consistent with OPM's view that refunds should not be directly related to the period in which the surplus developed, in order to avoid suggesting the existence of a kind of equitable entitlement when in fact the reserves were completely unencumbered. App. 64. As these policy decisions conform to the intent of Congress as expressed in the statute, we find OPM's approval of the plan to be reasonable. C. The Statute Section 8909(b) provides that "contingency reserves may be used to defray increases in future rates, . to reduce the contributions of enrollees and the Government . or to increase the benefits provided by the plan...." 5 U.S.C. § 8909(b). Plaintiffs claim that the phrase "contributions of enrollees" could include past as well as present contributions. The district court first looked to the common usage of the statutory terms, Consumer Product Safety Commission v. GTE Sylvania, Inc., 447 U.S. 102, 108-09, 100 S.Ct. 2051, 2056, 64 L.Ed.2d 766 (1980), and stated that "enrollee" means "a person who is enrolled," thereby implying that "contributions of enrollees" refers to contributions by presently enrolled subscribers. Bolden, 1103. The court then asserted that the implication that 8909(b) only referred to present contributions was not sufficient to be a Congressional mandate, and that it "would not be a distortion of the language of 8909(b) to read 'contributions of enrollees' as also including . past contributions." Id. at 1103. The court concluded that the statute on its face provides some support for both plaintiffs' and defendants' positions, but ultimately held, as do we, that "OPM's emphasis on 'current' contributions is more consistent with the forward-looking tone of the statutory scheme." Id. at 1103. This interpretative choice is supported by the maxim noscitur a sociis, a word is known by the company it keeps. Jarecki v. G.D. Searle & Co., 367 U.S. 303, 307, 81 S.Ct. 1579, 1582, 6 L.Ed.2d 859 (1961); Neal v. Clark, (5 Otto) 95 U.S. 704, 708-09, 24 L.Ed. 586 (1877). Simmons v. United States, 308 F.2d 938 (5th Cir.1962). Cf. Wong Kam Wo v. Dulles, 236 F.2d 622 (9th Cir.1956). The two other uses authorized by section 8909(b) refer to "future rates," and "benefits" which could only come in the future. The court agreed with the defendant, Blue Cross, that "[ejach one of the proper uses for contingency reserves are future-oriented," and therefore "the legislative context . supports use of the May 1, 1985 eligibility date." Id. at 1103. It would be contrary to the statutory theme expressed in that section to construe the remaining single authorized use to relate back and to create a new benefit out of surplus contributions for those enrolled in prior contract years when they incurred no liability to make up a deficit. It is clear that past enrollees have no obligation to make up a deficit had one occurred, nor any right, statutory or equitable, to participate in the refund. The district court correctly concluded that the approval of the Plan under OPM's interpretation of section 8909(b) should be affirmed. OPM's analysis is more consistent with and is fully supported by the language of the statute. Additionally, as found by the district court, Bolden, at 1103, Congress implicitly approved OPM's interpretation of the statute. It is well established that "once an agency's statutory construction has been 'fully brought to the attention of the public and Congress,' and the latter has not sought to alter that interpretation although it has amended the statute in other respects, then presumably the legislative intent has been correctly discerned." United States v. Rutherford, 442 U.S. 544, 554 n. 10, 99 S.Ct. 2470, 2476 n. 10, 61 L.Ed.2d 68 (1979), quoting Apex Hosiery Co. v. Leader, 310 U.S. 469, 487-89, 60 S.Ct. 982, 988-89, 84 L.Ed. 1311 (1940); accord North Haven Board of Education v. Bell, 456 U.S. 512, 535, 102 S.Ct. 1912, 1925, 72 L.Ed.2d 299 (1982). When Congress amended the Act to enable annuitants to receive refunds, it was well aware of OPM's position that the Blue Cross surplus would be used to reduce only the contributions of May 1 enrollees. OPM had made this eligibility requirement clear in letters to the Speaker of the House, the President of the Senate and the Chairman of the Committee on the Post Office and Civil Service. App. 474 ("any refunds of excess plan reserves should be used to reduce current contributions"), App. 501 ("It is similar to a dividend (payable only to those individuals who are stockholders as of a certain date")). The legislative history of the annuitant legislation also reflects Congress' awareness of the eligibility requirement. The relevant subcommittee report recognized that the refund would only benefit those enrolled "as of a specific date." H.Rep. No. 262, 99th Cong., 1st Sess. 3 (1985). Senator Stevens, the floor manager, recognized that under the proposed distribution plan only "currently enrolled subscribers" as of May 1, 1985 would share in the refund. 132 Cong.Rec.S. 1725 (daily ed. February 27, 1986). D. Consistency With Insurance Industry Practice Although the Act expressly preempts state' and local law, 5 U.S.C. § 8902(m)(l), insurance industry practice, which is primarily regulated by the states, is a useful and instructive analogy in this case. Insurance practice provides strong support for OPM's decision to approve the May 1, 1985 eligibility date. The "ordinary rule" in this and other circuits is that "an insured may not have any part of his premium returned once the risk attaches, even if it eventually turns out that the premium was in part unearned, unless there is an agreement to that effect." North New York Savings Bank v. F.S.L.I.C., 515 F.2d 1355, 1359 (D.C.Cir.1975) (quoting Fleet-wood Acres, Inc. v. F.H.A., 171 F.2d 440, 442 (2d Cir.1948)); accord Euclid National Bank v. Federal Home Loan Bank Board, 286 F.Supp. 125 (N.D.Ohio 1966). The insurer is entitled to the premium and any profit as "just compensation for the danger or perils assumed." North New York, 515 F.2d at 1359, quoting Couch on Insurance 2d § 34:9. Since the risk attached when enrollees signed up with Blue Cross plans, it is consistent with the established insurance principle that enrollees were not later entitled to have any portion of their premium contributions returned. Plaintiffs argue that these insurance principles would lead to the exclusion of current enrollees as well as former enrollees. Brief of Plaintiffs at 38; Reply Brief at 7. Plaintiffs assert that there is an "inherent inconsistency" in the position that "insurance law principles foreclose the relief sought by petitioners [plaintiffs], but not to 'current subscribers.' " Reply Brief at 7. Plaintiffs fail to realize that neither former nor current enrollees had a right to any refund. The focus of this action is whether OPM's decision to include only enrollees who were subscribers on May 1, 1985 was based on rational considerations. As the district court found, OPM's decision that those subscribers enrolled in the cur rent enrollment code could participate in the refund did not create any equitable rights in former enrollees. Bolden, at 1104-1105. Former enrollees are particularly unable to claim any equitable interest in the refund because they are no longer policyholders in the Blue Cross plans in whose refunds they seek to share. In Huber v. Martin, 127 Wis. 412, 105 N.W. 1031 (1906), the Wisconsin Supreme Court held that upon dissolution of a mutual insurance company, its surplus reserves belong only to those who were its members at the time of dissolution, and not to former members. The court held that "the members of a corporation, and the members only, own the corporation and . it is not permitted to any court upon its own notions of equity to take any part of the corporate property and distribute it to those not members____ Every policy-holder knows, or ought to know . that in case of his interest so lapsing it will inure to the benefit of those associated with him who choose to retain their memberships and those who come after him____" Huber, 105 N.W. at 1039. While Blue Cross is not a mutual company, this principle is well recognized in the life insurance practice of paying annual dividends based on favorable risk experience (return of premium) only to those insured at the time the so-called dividend is declared. When plaintiffs elected to withdraw from Blue Cross or to change options within a plan, they ceased to be eligible policyholders of the respective plans and therefore are not entitled to any part of the plans' surplus reserves. E. Plaintiffs' Equitable Claims Plaintiffs do not argue that enrollees have a general equitable entitlement to the money held in their plan's reserve. Any such entitlement would contravene the statutory scheme. Section 8909(b) gives OPM the discretion to use contingency reserves to lower rates, reduce contributions or increase benefits. To rule that enrollees have a general equitable interest in the reserves would divest OPM of its discretion. Additionally, it would go against agency practice of carrying over reserve balances from year to year to defray future rate increases, 41 C.F.R. § 16-4.152-l(b)(2). Plaintiffs claim entitlement only to the discrete sum of money already earmarked by defendants as surplus and refundable. They contend: "According to plaintiffs, by choosing to refund the money directly, rather than suspend withholding, for example, OPM created plaintiffs' equitable interest." Bolden, at 1104. As the district court correctly held, "[plaintiffs' argument that OPM's discretionary choice of lowering FEHB [Plan] reserves automatically raises an equitable interest would create rights out of a void and has no merit." Id. at 1104. We agree. OPM had the discretion to choose among several options under § 8909(b). For example, OPM could have reduced contributions in the amounts withheld from the paychecks of enrollees, or OPM could have negotiated lower rates for the following year. It would be "absurd to recognize any equitable interest solely on the basis of a discretionary, administrative decision— the fortuity that OPM chose a refund among the other available options." Id. We accordingly decide that plaintiffs have no equitable entitlement or interest in any part of the refund. The decision of the district court is affirmed. Judgment accordingly. . OPM Memorandum of Points and Authorities at 19-20 (OPM asserts that giving refunds to plaintiffs "is flatly contrary to 5 U.S.C. § 8909(b), which . permits such reserves to be used only for the benefit of current or future enrollees."); OPM Memorandum of Points and Authorities at 21 ("provisions in section 8909(b) reinforce OPM's conclusion that a plan's contingency reserves can only be used to benefit a current or future enrollee of that plan.''); Plaintiffs assert that Blue Cross, in addition to OPM, adopted the erroneous view that "the law does not permit us to refund this money to any person who is not currently enrolled or refund an amount based on a previous enrollment code." Brief of Plaintiffs at 19; App. 919 (July 23, 1985 letter from James N. Gillman, Blue Cross Vice President, to Robert A. Crummel at the United States Department of Education), . The district court did not decide when OPM made a final decision to approve the proposal. Bolden, 1101, n. 3. The court concluded that "[e]ven assuming that OPM had taken final agency action by July 16, 1986, as plaintiffs contend, we find the Memorandum is a legitimate basis for review." Id. . 5 U.S.C. § 8909(b), in part, was amended to read as follows: The contingency reserves may be used to defray increases in future rates, or may be applied to reduce the contributions of enrollees and the Government to, or to increase the benefits provided by, the plan from which the reserves are derived, as the Office from time to time shall determine. (Emphasis added). The sole change was to substitute "enrollees" for "employees." . Although this report accompanied the original bill which was vetoed by the President, not the bill that was subsequently passed, no committee report from either House was issued for the second bill. Since the "operative language" of the earlier bill was "substantially carried forward" into the subsequent statute, the legislative history of the initial bill is "wholly relevant to an understanding" of the statute. United States v. Enmons, 410 U.S. 396, 404-05 n. 14, 93 S.Ct. 1007, 1012 n. 14, 35 L.Ed.2d 379 (1973). . 41 C.F.R. § 16 — 4.152—1(b)(2) provides: (2) If upon redetermination there is a surplus of the subscription charges collected by the carrier over the cost of providing the benefits, the surplus is carried forward to the next contract term as a positive balance in an account called the "special reserve." Conversely, if the cost of providing the benefits exceeds the subscription charges collected, the deficit is carried forward to the next contract term as a negative special reserve balance. The special reserve balance becomes a factor in determining subscription charges for the next contract term.
26 Cust. Ct. 378		Opinion by Ford, J. The protests were dismissed.
525 U.S. 1019		C. A. 6th Cir. Certiorari denied.
354 U.S. 932		Per Curiam: The judgments are reversed. United States v. Korpan, 354 U. S. 271.
11 Vet. App. 433		NEBEKER, Chief Judge: The appellant, Barry C. Samuels, appeals from a March 1, 1996, Board of Veterans' Appeals (BVA or Board) decision denying service connection for post-traumatic stress disorder (PTSD). The issue is whether the appellant has submitted a well-grounded claim for PTSD. For the following reasons, the Court holds that he has not submitted such a claim and will affirm the BVA's denial of service connection for PTSD. I. FACTS The appellant entered into active service with the U.S. Army on October 30, 1970. Supplemental Record (Supp. R.) at 1. At that time, the entrance examination report recorded a normal psychiatric condition. Record (R.) at 17. Seventeen days after entering service, a medical consultation sheet entry noted that the appellant had complained of being scared around weapons because, prior to entering service, he had accidentally shot his girlfriend. R. at 27. In a November 1970 letter, Dr. Maurice B. Weiner stated that the appellant had been terrified of guns since the accidental shooting of his girlfriend. R. at 28. An Army physician then permanently restricted the appellant from "the personal use of weapons in training or duty," and an Army medical board confirmed that restriction. R. at 29-30. After only three months and twenty-three days of service, the Army discharged the appellant because he did not meet the "medical fitness standards at time of [induction]." Supp. R. at 1. More than four years later, the appellant filed a claim for service connection of an unspecified "nervous disorder." R. at 36-52. The appellant stated that he had enlisted in "good mental and physical condition," but that once he actually began basic training he started to have problems. R. at 40. Essentially, the appellant asserted that Army drill instructors forced him to undergo weapons training despite his declared fear of using a weapon. See R. at 41-42, 94-99. In January 1976, the appellant further elaborated on his current psychological condition, requesting service connection for "schizophrenia-nerves." R. at 62. Michael Kelly, who went through basic training with the appellant, confirmed the appellant's assertion that he had been harshly treated by his drill instructors during basic training because of his fear of using a weapon. R. at 110-11,126-27. In October 1977, the Board denied service connection for a "nervous disorder," finding that there was no evidence of a confirmed psychiatric disorder until 1976, more than four years after he left service. R. at 194-98. Over the years, the appellant has received many diagnoses of various psychiatric disorders, not including PTSD. See R. at 204, 225, 230, 234, 303, 305, 322, 364, 382. None of these examiners linked the appellant's psychological condition to his service. In March 1991, the appellant filed a claim for PTSD and submitted a December 1989 psychological report that recorded a PTSD diagnosis. R. at 480, 476-78. The history the appellant provided in that report included a reference to his having had "PTSD from Vietnam," and a statement that a recent PTSD episode had been triggered when he saw an "old friend from the war whom he had thought had died." R. at 476. In a December 1991 VA psychiatric examination, the appellant "remembered" more Vietnam combat experiences, alleging that he had seen many people killed. R. at 492-94. The examiner diagnosed "atypical psychosis" and listed the "stress of military service" as an environmental factor. R. at 494. A July 1994 BVA decision remanded the appellant's PTSD claim because, "regardless of the diagnostic labels used then or now to describe his illness, the question of whether psychological consequences of the preservice event were worsened by service has already been adjudicated." R. at 540. Consequently, the Board ordered the RO to determine the exact nature of the appellant's mental condition and the alleged PTSD stressors along with whether the appellant had submit ted new and material evidence to reopen his non-PTSD psychiatric disorder claim. R. at 541-42. After the BVA remand, the RO received multiple medical reports showing that the appellant had PTSD as a result of his alleged Vietnam experiences. See R. at 585-86, 587, 588, 724-25. In the February 1995 examination ordered by the BVA, Dr. A. Husain questioned the appellant as to whether he had seen any combat and whether he had ever been in Vietnam. The appellant admitted that he had not been in combat, but he did assert that he had been in Vietnam where he saw a "lot of killing." R. at 988. Dr. Husain diagnosed the appellant with paranoid schizophrenia and dependent personality traits, listing the "stress of [m]ilitary experience" as an environmental factor. Significantly, Dr. Husain did not diagnose the appellant with PTSD, although he did remark that "there is much evidence to diagnose PTSD in my opinion." R. at 985. In July 1995, the RO continued the denial of service connection for PTSD because there was no diagnosis of PTSD at the February 1995 and November 1991 examinations. While acknowledging the previous PTSD determinations, the RO found there was no evidence showing that "PTSD was incurred in or aggravated by military service." R. at 991. Notably, the RO did not comply with the 1994 BVA remand order requiring a new and material evidence determination as to the appellant's previously claimed nervous disorder. The March 1996 BVA decision here on appeal similarly neglected to discuss whether the appellant had submitted new and material evidence concerning his nervous condition claim, listing the issue as "service connection for [PTSD]." R. at 7. In its decision, the BVA determined that the appellant had submitted a well-grounded claim, but that the preponderance of the evidence was against the appellant's PTSD claim. R. at 8. Although doubting whether the appellant had a clear diagnosis of PTSD, the Board did not resolve this question because, using The Diagnostic and Statistical Manual of Mental Disorders, third edition, (DSM-III), it found that there was no evidence of a stressor that would support a PTSD diagnosis. R. at 13-14. Further, the Board noted that none of the VA physicians "who used the term PTSD" had linked the appellant's claimed psychiatric symptoms to an actual in-service stressor. R. at 14. II. ANALYSIS A. WeH-Grounded PTSD Claim A Board determination whether a claim is well grounded is a conclusion of law subject to de novo review by the Court under 38 U.S.C. § 7261(a)(1). Grottveit v. Brown, 5 Vet.App. 91, 93 (1993). "[A] person who submits a claim for benefits under a law administered by the Secretary shall have the burden of submitting evidence sufficient to justify a belief by a fair and impartial individual that the claim is well grounded." 38 U.S.C. § 5107(a). The Court has defined a well-grounded claim as follows: "[A] plausible claim, one which is meritorious on its own or capable of substantiation. Such a claim need not be conclusive but only possible to satisfy the initial burden of [section 5107(a) ]." Murphy v. Derwinski, 1 Vet.App. 78, 81 (1990). A well-grounded PTSD claim is one where the appellant has "submitted medical evidence of a current disability; lay evidence (presumed to be credible for these purposes) of an in-service stressor, which in a PTSD case is the equivalent of in-service incurrence or aggravation; and medical evidence of a nexus between service and the current PTSD disability." Cohen v. Brown, 10 Vet.App. 128, 137 (1997) (citations omitted). The appellant's evidentiary assertions must be accepted as true for the purpose of determining whether the claim is well grounded. "Exceptions to this rale occur when the evidentiary assertion is inherently incredible or when the fact asserted is beyond the competence of the person making the assertion." King v. Brown, 5 Vet.App. 19, 21 (1993) (citing Espiritu v. Derwinski, 2 Vet.App. 492 (1992) and Tirpak v. Derwinski, 2 Vet.App. 609 (1992)). Here, all of the appellant's PTSD diagnoses are based upon his fictitious recitation of combat experience in Vietnam. None of these PTSD diagnoses refers to any non fictional in-service incident, such as a fear of weapons, as a potential in-service stressor. Thus, for the purpose of determining whether the appellant has submitted a well-grounded PTSD claim, the alleged stressor is the appellant's combat experience in Vietnam. However, the record is absolutely clear that the appellant had no service in Vietnam, much less saw combat in that country. Although lay evidence of a PTSD stressor is generally presumed to be truthful, the appellant's testimony as to his Vietnam combat experience is inherently incredible, and neither the Board nor the Court is required to accept his assertions as true. Cf. King, 5 Vet.App. at 21. Because the appellant has not submitted credible evidence of an in-service stressor, and thus no evidence of service incurrence, his PTSD claim is not well grounded. See Cohen, 10 Vet.App. at 137; see also Rucker v. Brown, 10 Vet.App. 67, 72 (1997) (where no evidence of in-service exposure to ionizing radiation, claim not well grounded); Epps v. Brown, 9 Vet.App. 341, 343-44 (1996), aff'd, 126 F.3d 1464, 1468 (Fed.Cir.1997) (well-grounded claim requires evidence of incurrence of disease or injury in service). B. Procedural Issues Because this Court finds the appellant's PTSD claim not well grounded, the Board erred in proceeding to the merits of his claim in both the decision here on appeal and in its July 1994 remand. Nevertheless, this error was not prejudicial to the appellant, and the Court will affirm the Board's denial of the appellant's PTSD claim. Epps, 9 Vet.App. at 344 (citing Edenfield v. Brown, 8 Vet.App. 384, 390-91 (1995) (en banc)). Additionally, this Court cannot tell, from the record on appeal, whether there has been an adjudication in response to the part of the Board's July 1994 remand order concerning the appellant's request to reopen his nervous disorder claim. Recently, another decision of this Court held that a remand by the BVA confers on a veteran or other claimant the right to VA compliance with the remand order and imposes on the Secretary a concomitant duty to ensure compliance with the terms of such an order. Stegall v. West, 11 Vet.App. 268, 271 (1998). The Court emphasizes that this decision regarding the appellant's PTSD claim has no prejudicial effect on the appellant's request to reopen his nervous disorder claim. See Ephraim v. Brown, 82 F.3d 399, 401 (Fed.Cir.1996) (newly diagnosed PTSD, whether or not related to a previously diagnosed mental disorder, cannot be the same claim), III. CONCLUSION The November 27, 1996, Board denial of benefits is AFFIRMED, but for the foregoing reasons, not those given by the Board.
507 U.S. 1011		C. A. 5th Cir. Cer-tiorari denied.
528 U.S. 1143		C. A. 6th Cir. Certiorari denied.
4 Ct. Int'l Trade 273		Newman, Judge: This action contests Customs' denial of plaintiffs application for a cartage license. It will bear repetition to point up the introductory statement in my opinion and order of October 15, 1982: Stripped of all esotérica this entire matter demands expeditious disposition. Bar Bea Truck Leasing Co., v. United States, 4 CIT 159 (1982): In the order of October 15, 1982, this Court granted defendants' motion for a protective order; vacated plaintiffs notice of depositions; and remanded the case to the Area Director at Newark, New Jersey for reconsideration of his denial of plaintiffs license application. Further, the order allowed plaintiff to submit affidavits or other evidence to the Area Director in support of the license application within twenty days of the entry of the order (viz., by November 4, 1982); Customs at Newark was directed to render a new decision on plaintiffs license application based upon the entire administrative record, including any submissions by plaintiff; and Customs was directed to advise plaintiff and this Court of the new determination within forty days of the entry of the order (viz. by November 24, 1982). See Slip Op. 82-87, supra. Presently before the Court is plaintiffs motion to extend the time for submitting documentation to the Area Director at Newark nunc pro tunc, and to again remand the case to Customs for further administrative action. Defendants have responded to plaintiffs motion by opposing the application, but nevertheless deferring to the discretion of the Court as to whether plaintiffs motion should be granted or denied. I have concluded that plaintiffs motion, while predicated on tenuous grounds, should be granted in the interest of a complete administrative record and in the interest of justice. It appears that plaintiff contacted the Area Director on November 8, 1982, four days after the expiration of the time for submitting evidence specified in the order of October 15, 1982, requesting an extension of the twenty-day period allowed by this Court. Obvi ously, the Area Director lacked authority to extend plaintiffs time for submitting documentation or to otherwise modify the Court's order. The Area Director acted properly in rendering a new determination on November 22, 1982, predicated on the existing record within the forty day time limit. In its new determination, Customs adhered to its previous decision rejecting plaintiffs application. From plaintiffs moving papers, it is evident that on remand plaintiff failed to adhere to the time schedule set by this Court in its order of October 15, 1982, and additionally plaintiff failed to make any appropriate application for an extension of time on November 8, 1982. However, it is also clear that the interests of justice require that plaintiff should have a reasonable opportunity for input into the administrative record. Accordingly, so that the Area Director and this Court may act on the basis of a complete administrative record, plaintiffs motion for an extension of time is granted. It may be observed that both plaintiff and defendants have also been granted several extensions of time in this case, including two extensions of time for the Area Director to file the administrative record. For the foregoing reasons, it is hereby ordered: 1. Plaintiffs motion for an extension of time within which to submit documentation to the Area Director at Newark, New Jersey, in connection with its application for a cartage license is granted. 2. The action is remanded to the Area Director at Newark, New Jersey, for an expeditious reconsideration of plaintiffs application for a cartman's license, based upon the entire administrative record, including all documentation submitted by plaintiff within fifteen days of the entry of this order. 3. The Area Director may conduct any further proceedings consistent with this opinion, and shall, based upon the entire administrative record, including any timely submissions by plaintiff, render a new decision on plaintiffs application. 4. The Area Director shall, through counsel for defendants, advise plaintiff and this Court of the new determination and the reasons therefor within thirty days of the entry of this order. 5. In the event that plaintiffs application is again denied by the Area Director, the latter shall transmit to this Court with its new determination any portion of the administrative record, including any submissions by plaintiff, not heretofore transmitted. 6. In the event that plaintiffs application is again denied by the Area Director, plaintiff may within fifteen days of the receipt of the Area Director's new decision file any appropriate motion. Defendants may respond within fifteen days of receipt of any motion by plaintiff; and plaintiff shall have five days from receipt of defendants' response within which to reply.
206 Ct. Cl. 823		Military fay; claim for bach fay and restoration to fosition; resignation; refusal to fermit withdrawal; retroactivity of statute; National Guard technician. — On January 10, 1975 the court issued the following order: Before cowen, Chief Judge, eashiwa and bennett, Judges. "The petition in this case was filed by plaintiff, formerly a Technician in the Virginia Army National Guard, seeking to recover back pay and restoration to his former position in the Virginia Army National Guard. The case is before the court on the parties' cross motions for summary judgment, and upon consideration thereof and after hearing oral argument, the court finds: "(A) On January 28, 1972, plaintiff, who since 1968 had been employed as a Technician in the Virginia Army Na tional Guard and held the military rank of Lieutenant Colonel in the Guard, submitted his written resignation from his civilian position for the stated reason of seeking employment closer to Bichmond, Virginia. Plaintiff had been asked to resign by the Director of Maintenance of the Virginia National Guard. "(B) Before any formal administrative action was taken on plaintiff's resignation, he sent a letter to the Director of Maintenance, dated February 21, 1972, asking that he be allowed to withdraw his resignation on the ground that it was rushed, secured by duress and coercion, and obtained contrary to the provisions of National Guard Begulation 690-2, paragraph 7-15, which provided as follows: Designation. As a voluntary action, a resignation should not be demanded as an alternative to some other action to be taken or withheld. A technician may, however, elect to resign rather than submit to removal procedures. Under no circumstances will it be coerced. It is binding on the technician once submitted; however, at the discretion of the adjuta/nt generad, he may be permitted to withdrawi his resignation at cmy time prior to its effective date. (Emphasis added.) "In response to plaintiff's request for withdrawal of the resignation, the Adjutant General of the Virginia National Guard had an investigation conducted, as a result of which it was fornid that plaintiff's resignation had not been coerced. On April 24, 1972, the Adjutant General advised plaintiff by letter that his resignation had been accepted. "(C) On May 9,1972, plaintiff sent the Adjutant General a letter under the heading 'Submission of Grievance' in which he claimed that his resignation was a product of duress and coercion and that he should be allowed to withdraw it. In his reply dated June 5, 1972, the Adjutant General informed plaintiff that careful attention had been given to plaintiff's letter of May 9, but that the investigation had shown that the resignation was voluntary and had been submitted without coercion. The letter concluded that the Adjutant General declined to reconsider the case and stated that plaintiff's resignation was therewith accepted effective 17 June 1972. " (D) On May 25, 1972, the Department of the Army and the Air Force National Guard issued Technician Personnel Pamphlet 904, entitled 'Supervisor's Handbook,' (hereinafter referred to as T.P.P. 904). Section X of T.P.P. 904 is entitled 'Adverse Personnel Action Procedures,' and paragraph 7-36 of section X provides as follows: For the purpose of this section, resignation or optional retirement constitutes a removal where there is allegation that such actions were brought about by duress, intimidation or coercion. In addition, paragraph 7-37, section X recited procedural steps which were required to be followed in adverse actions resulting in the removal of an employee, and paragraph 7-43 (b) established the right to a hearing. The Virginia Army National Guard did not receive a copy of T.P.P. 904 until July 7, 1972, and, therefore, neither plaintiff nor the officials of the Guard had actual knowledge of its contents until after June 17,1972. "(E) On January 11,1973, plaintiff submitted to the Adjutant General a written request for reconsideration of the previous decision, which refused to accept the withdrawal of plaintiff's resignation. The request for reconsideration was based on the provisions of T.P.P. 904. The Adjutant General replied by letter of February 14, 1973, stating that he would not reconsider the decision. "(F) On June 14, 1973, plaintiff applied for and was given a release from his military position in the Virginia National Guard. Subsequently, plaintiff applied for and accepted a position as a Technician, GS-11, Step 9, with the District of Columbia National Guard, and was also given the military rank of Lieutenant Colonel in the District of Columbia National Guard. "On the basis of the foregoing findings, the court makes the following conclusions of law: "(1) Final administrative action on plaintiff's request for withdrawal of his resignation was not taken until after T.P.P'. 904 was promulgated on May 25, 1972. While it is recognized that statutes are normally given prospective application only, it is the general rule that statutes relating to procedural rights apply to pending, as well as future litiga tion, whether the action is pending before the courts, Rosen v. Savant Instruments, Inc., 264 F. Supp. 232, 237 (E.D.N.Y. 1967); Chovan v. E. I. Du Pont De Nemours & Co., 217 F. Supp. 808, 810 (E.D. Mich. 1963); cf. Dargel v. Henderson, 200 F. 2d 564, 566 (Emer. Ct. App. 1952), or still in the administrative process, United States v. Haughton, 413 F. 2d 736, 738 (9th Cir. 1969); Turner v. United States, 410 F. 2d 837, 842 (5th Cir. 1969). This rule is applicable to T.P.P. 904, because that regulation was promulgated before the effective date of plaintiff's resignation and before completion of administrative action on his request for its withdrawal. "(2) Although the Adjutant General did not have actual knowledge of the new regulations until after plaintiff's resignation became effective, he had constructive knowledge of the regulations just as private parties are held to have constructive knowledge of regulations published in the Federal [Register. See Coat Corporation of America v. United States, 123 Ct. Cl. 176, 196, 105 F. Supp. 832, 834 (1952). Moreover, since the Adjutant General was given an opportunity to apply T.P.P. 904 when plaintiff brought it to his attention on January 11, 1973, and refused to do so, his ignorance of T.P.P. 904 at the time of its issuance is not a defense to this action. "(3) The failure and refusal of the Adjutant General to process plaintiff's request for the withdrawal of his resignation in accordance with the requirements of T.P.P. 904, constituted a denial of plaintiff's procedural rights, voids the administrative action, and entitles plaintiff to recover the pay otherwise due him. Hanifan v. United States, 173 Ct. Cl. 1053, 1062-63, 354 F. 2d 358, 364 (1965) and cases cited therein. "(4) In order to be employed as a technician of the Virginia Army National Guard, plaintiff is required by 32 U.S.C. V09(b) to hold a military position in the Virginia National Guard. The appointment of officers in the Virginia National Guard is reserved to the Governor of Virginia by Article 1, Section 8, Clause 16 of the United States Constitution and Section 44-27 of the Code of Virginia. Public Law 92-415, 86 Stat. 652, which authorizes this court to issue orders to Government officials directing restoration of discharged employees to their former positions, does not empower the court to order the Governor of Virginia to reappoint plaintiff to a military position in the Virginia National Guard. "it is therefore ordered that this case is hereby remanded to the trial division for determination of the amount of the recovery due plaintiff less any credits and offsets to which defendant is entitled, and "it is further ordered that that part of plaintiff's petition which seeks an order restoring him to his former position in the Virginia National Guard be and the same is denied." On February 28, 1975 the court denied plaintiff's motion for rehearing and suggestion for rehearing en banc. In accordance with the foregoing Order of the court and a memorandum report of the trial judge, on June 20, 1975 the court entered judgment in favor of plaintiff for $5,117.53, with $1,151.98 to be credited to plaintiff's Civil Service Retirement and Disability Fund Account, $138.95 to be credited to plaintiff's FEGLI Insurance Account, $186.95 to be credited to plaintiff's NGAUS Insurance Account, and the balance of $3,639.65 to be paid to plaintiff.
381 U.S. 945		C. A. 2d Cir. Certiorari denied.
397 U.S. 972		C. A. 9th Cir. Certiorari denied.
1 Cust. Ct. 325		Opinion by Kincheloe, J. It was stipulated that the merchandise consists of cotton pile fabric articles similar to those which were the subject of Ramallah v. United States (T. D. 47681). The claim at 40 percent under paragraph 923 was therefore sustained.
9 C.M.A. 665		Opinion of the Court HomeR FERGUSON, Judge: Accused, after not guilty pleas, was convicted of the theft of a quantity of copper wire, the value of which was more than $50.00, in violation of Article 121, Uniform Code of Military Justice, 10 USC § 921, and of being absent without leave, in violation of Article 86 of the Code, 10 USC § 886. He was sentenced to dishonorable discharge, forfeiture of $65.00 per month for twenty-four months, and confinement at hard labor for twenty-four months. The convening authority disapproved the finding of guilty as to the charge of absence without leave. The convening authority reduced the period of confinement at hard labor to eighteen months and the forfeiture to $44.00 per month for eighteen months. At trial the accused was identified by eyewitnesses as the person cutting and removing a quantity of missing copper wire and as the vendor of a part thereof by a purchaser. Prosecution witnesses were subject to vigorous cross-examination. The accused took the stand only in refutation of the charge of being absent without leave. Also during the course of the trial a local justice of the peace was called as a witness for the prosecution. Over defense objection, which was overruled, he testified that at a time subsequent to that of the larceny for which accused was on trial, he had found him guilty of a theft of scrap iron. No evidence whatsoever was adduced as to the date of the theft of scrap iron. During the questioning of the justice of the peace the prosecutor was granted an out-of-court hearing to clear up the general rule as to the admissibility of other acts of misconduct on the part of an accused. The proceedings of that hearing do not appear in the record. We granted upon several issues, the principal one of which questions whether the evidence of a civil conviction of larceny was properly admitted into evidence. We must resolve this question in the fields of findings and of sentence. Civilian courts have sharply curtailed admission of prior convictions into evidence. It has been restricted to the question of a defendant's credibility (Peyton v District of Columbia, 100 A2d 36 (DC Mun App) (1953)); and its introduction has been allowed only by the testimony of the accused himself or by the use of properly authenticated court records (Smothers v State, 98 So 2d 66 (Ala) (1957); Wright v State, 38 Ala App 64, 79 So2d 66 (1954)). Paragraph 75b (2) of the Manual for Courts-Martial, United States, 1951, dealing with presentencing procedure, provides that evidence of "previous convictions may be proved by the order publishing the result of trial. Ordinarily, however, they are proved by the service record of the accused or an admissible copy or extract copy thereof." Paragraph 153 & (2) (b) of the Manual, supra, dealing with impeachment of witnesses, provides, "Proof of such conviction may be made by the original or an admissible copy of the record thereof, or by an admissible copy of the order promulgating the result of trial." In the instant ease the only evidence of accused's civilian conviction was furnished by the testimony of the justice of the peace. No authenticated copy of his civilian trial or conviction was offered into evidence. Upon this ground alone, the evidence was improperly received. Error in the admission of this evidence is not limited to that ground alone. This Court has stressed that, with exceptions, reference to other offenses involving an accused are generally improper. United States v Richard, 7 USCMA 46, 21 CMR 172. And, as was said in United States v Kelley, 7 USCMA 584, 23 CMR 48: "It is clear that before a similar offense can be used there must be a reasonably close connection in point of time as well as a 'definite relationship to one of the elements of the offense charged.' " [Emphasis supplied.] It is obviously impossible to fix such a connection in point of time in the present case since, as we have noted, the time of the theft of scrap iron was never ascertained during the course of the trial. It therefore appears un-escapable that the admission of the questioned evidence prejudiced the accused with respect to the findings. The admission of this evidence is objectionable upon three grounds: (1) Since the accused did not take the stand with reference to the larceny charged against him, the testimony of the justice of the peace was inadmissible to attack his credibility; (2) since the evidence was not presented by properly authenticated record, it was inadmissible; and (3) since there was no temporal relationship whatsoever between the military crime with which the accused was charged and the crime for which he suffered a civilian conviction, the evidence was inadmissible to show motive, intent, or design on his part. See Lovely v United States, 169 F2d 386 (CA 4th Cir) (1948), cert den 338 US 834, 70 S Ct 38, 94 L ed 508. In passing, we note the opinion of Chief Judge Quinn, concurring in part and dissenting in part, in the case of United States v Pavoni, 5 USCMA 591, 18 CMR 215: "Inadmissible evidence may prejudice an accused in regard to the sentence, even though there is no fair risk that it improperly influenced the findings of guilty. United States v Fleming, 3 USCMA 461, 13 CMR 17. I agree with the majority that the accused was not harmed in connection with the findings [i.e., because of compelling evidence of guilt], but I disagree with the majority's failure to consider the effect of the inadmissible evidence on the sentence. . . The convening authority reduced the sentence, but his action was based upon other considerations." Insofar as the impact of the evidence of accused's civilian conviction on the sentence is concerned, we note that reference thereto was made by the prosecutor in his argument on the sentence. We further note in connection with the convening authority's reassessment of the sentence that the disallowance of the absence without leave conviction must have played a part. Insofar as the convening authority's reference to this impact of the civilian conviction is concerned, it is sufficient to note that, as to both findings and sentence, it is impossible for an appellate body to weigh evidence so far as this caliber of prejudice is concerned. Consequently, we hold that the improper admission into evidence of the testimony of the justice of the peace requires reversal. Inasmuch as a rehearing may be ordered and it is problematical whether or not the questions raised by the remaining issues of error assigned will reoccur, there is no necessity for us now to pass upon them. The decision of the board of review is reversed and a rehearing as to the specification of Charge I may be ordered. Chief Judge Quinn concurs.
399 U.S. 913		Ct. App. Cal., 2d App. Dist. Certiorari denied.
441 U.S. 471		Mr. Justice Brennan delivered the opinion of the Court. The question presented in this case is whether the disinterested directors of an investment company may terminate a stockholders' derivative suit brought against other directors under the Investment Company and Investment Advisers Acts of 1940, 15 U. S. C. § 80a-1 et seq.; 15 U. S. C. § 80b-1 et seq. To decide that question, we must determine the appropriate roles of federal and state law in such a controversy. Respondents, shareholders of Fundamental Investors, Inc., an investment company registered under the Investment Company Act, brought this derivative suit in February 1973 in the District Court for the Southern District of New York. The action was brought against several members of the company's board of directors and its registered investment adviser, Anchor Corp. The complaint alleged that the defendants had violated their duties under the Investment Company Act (ICA), the Investment Advisers Act (IAA), and the common law in connection with the 1969 purchase by the corporation of $20 million in Penn Central Transportation Co. commercial paper. In response to the suit, Fundamental's board of directors determined that the five of its members who were neither affiliated with the investment adviser nor defendants in the action would decide what position the company should take in the case. On the basis of outside counsel's recommendation and their own investigation, the five, acting as a quorum pursuant to the company's bylaws, concluded that continuation of the litigation was contrary to the best interests of the company and its shareholders and moved the District Court to dismiss the action. The District Court held that under the so-called "business judgment rule," a quorum of truly disinterested and independent directors has authority to terminate a derivative suit which they in good faith conclude is contrary to the com pany's best interests. 404 F. Supp. 1172 (1975). After permitting discovery on the question of the directors' independence, the District Court entered summary judgment against respondents, finding no evidence that the directors who voted to terminate the suit had acted other than independently and in good faith. 426 F. Supp. 844 (1977). The Court of Appeals for the Second Circuit reversed, 567 F. 2d 1208, 1212 (1978), holding that as a consequence of the ICA, "disinterested directors of an investment company do not have the power to foreclose the continuation of nonfrivolous litigation brought by shareholders against majority directors for breach of their fiduciary duties." We granted certiorari, 439 U. S. 816 (1978). We reverse. I A fundamental issue in this case is which law — state or federal — governs the power of the corporation's disinterested directors to terminate this derivative suit. The first step in making that determination is to ascertain which law creates the cause of action alleged by the plaintiffs. Neither the ICA nor the IAA — the plaintiff's two federal claims — expressly creates a private cause of action for violation of the sections relevant here. However, on the basis of District and Circuit precedent, the courts below assumed that an implied private right of action existed under each Act. Brown v. Bullock, 194 F. Supp. 207, 222-228 (SDNY), aff'd, 294 F. 2d 415 (CA2 1961) (en banc) (ICA); Abrahamson v. Fleschner, 568 F. 2d 862 (CA2 1977) (IAA); Bolger v. Laventhol, Krekstein, Horwath & Horwath, 381 F. Supp. 260 (SDNY 1974) (IAA). The two courts also sanctioned the bringing of the suit in derivative form, apparently assuming that, as we held in J. I. Case Co. v. Borak, 377 U. S. 426, 432 (1964), "[t]o hold that derivative actions are not within the sweep of the [right] would . be tantamount to a denial of private relief." As petitioners never disputed the existence of private, derivative causes of action under the Acts, and as in this Court all agree that the question has not been put in issue, Brief for Petitioners 28; Brief for Respondents 15, we shall assume without deciding that respondents have implied, derivative causes of action under the ICA and IAA. Since we proceed on the premise of the existence of a federal cause of action, it is clear that "our decision is not controlled by Erie R. Co. v. Tompkins, 304 U. S. 64," and state law does not operate of its own force. Sola Electric Co. v. Jefferson Co., 317 U. S. 173, 176 (1942). See Board of Comm'rs v. United States, 308 U. S. 343, 349-350 (1939); Deitrick v. Greaney, 309 U. S. 190, 200 (1940); C. Wright, Federal Courts 284 (3d ed. 1976); Mishkin, The Variousness of "Federal Law": Competence and Discretion in the Choice of National and State Rules for Decision, 105 U. Pa. L. Rev. 797, 799-800 (1957); Hart, The Relations Between State and Federal Law, 54 Colum. L. Rev. 489, 529 (1954); 2 L. Loss, Securities Regulation 971 (2d ed. 1961). Rather, "[w]hen a federal statute condemns an act as unlawful, the extent and nature of the legal consequences of the condemnation, though left by the statute to judicial determination, are nevertheless federal questions, the answers to which are to be derived from the statute and the federal policy which it has adopted." Sola Electric Co. v. Jefferson Co., supra, at 176. See Tunstall v. Locomotive Firemen & Enginemen, 323 U. S. 210, 213 (1944); Board of Comm'rs v. United States, supra. Cf. United States v. Kimbell Foods, Inc., 440 U. S. 715, 726-727 (1979); Butner v. United States, 440 U. S. 48 (1979). Legal rules which impact significantly upon the effectuation of federal rights must, therefore, be treated as raising federal questions. See Robertson v. Wegmann, 436 U. S. 584, 588 (1978) (statute of limitations) ; Auto Workers v. Hoosier Corp., 383 U. S. 696, 701 (1966) (same); J. I. Case Co. v. Borak, supra, at 435 (security for expenses statute); Sola Electric Co. v. Jefferson Co., supra, at 176 (rules of estoppel); Deitrick v. Greaney, supra, at 200 (affirmative defense to federal-claim). See generally Friendly, In Praise of Erie — and of the New Federal Common Law, 39 N. Y. U. L. Rev. 383, 408 (1964); Hill, State Procedural Law in Federal Nondiversity Litigation, 69 Harv. L. Rev. 66, 92-93 (1955). Thus, "the overriding federal law applicable here would, where the facts required, control the appropriateness of redress despite the provisions of state corporation law . . . J. I. Case Co. v. Borak, supra, at 434 (emphasis added). II The fact that "the scope of [respondents'] federal right is, of course, a federal question" does not, however, make state law irrelevant. De Sylva v. Ballentine, 351 U. S. 570, 580 (1956). Cf. United States v. Kimbell Foods, Inc., supra, at 727-728. It is true that in certain areas we have held that federal statutes authorize the federal courts to fashion a complete body of federal law. See Textile Workers v. Lincoln Mills, 353 U. S. 448, 451, 456-457 (1957). Corporation law, however, is not such an area. A derivative suit is brought by shareholders to enforce a claim on behalf of the corporation. See Note, The Demand and Standing Requirements in Stockholder Derivative Actions, 44 U. Chi. L. Rev. 168 (1976). This case involves the ques tion whether directors are authorized to determine that certain claims not be pursued on the corporation's behalf. As we have said in the past, the first place one must look to determine the powers of corporate directors is in the relevant State's corporation law. See Santa Fe Industries, Inc. v. Green, 430 U. S. 462, 479 (1977); Cort v. Ash, 422 U. S. 66, 84 (1975). "Corporations are creatures of state law," ibid., and it is state law which is the font of corporate directors' powers. By contrast, federal law in' this area is largely regulatory and prohibitory in nature — it often limits the exercise of directorial power, but only rarely creates it. Cf. Price v. Gurney, 324 U. S. 100, 107 (1945). In short, in this field congressional legislation is generally enacted against the background of existing state law; Congress has never indicated that the entire corpus of state corporation law is to be replaced simply because a plaintiff's cause of action is based upon a federal statute. Cort v. Ash, supra; Santa Fe Industries, Inc. v. Green, supra. See United Copper Securities Co. v. Amalgamated Copper Co., 244 U. S. 261, 264 (1917). Cf. United States v. Yazell, 382 U. S. 341, 352-353 (1966) (state family law); De Sylva v. Ballentine, supra, at 580 (same); P. Bator, P. Mishkin, D. Shapiro, & H. Wechsler, The Federal Courts and The Federal System 470-471 (1973 ed.). Federal regulation of investment companies and advisers is not fundamentally different in this respect. Mutual funds, like other corporations, are incorporated pursuant to state, not federal, law. Although the Court of Appeals found it significant that "nothing in . . . the legislation regulating investment companies and their advisers . . . suggests that.. . disinterested directors . . . have the power to terminate litigation brought by mutual fund stockholders . . . ," 567 F. 2d, at 1210, such silence was to be expected. The ICA does not purport to be the source of authority for managerial power; rather, the Act functions primarily to "impos[e] controls and restrictions on the internal management of investment companies." United States v. National Assn. of Securities Dealers, 422 U. S. 694, 705 n. 13 (1975) (emphasis added). The ICA and IAA, therefore, do not require that federal law displace state laws governing the powers of directors unless the state laws permit action prohibited by the Acts, or unless "their application would be inconsistent with the federal policy underlying the cause of action . . . Johnson v. Railway Express Agency, 421 U. S. 454, 465 (1975). Cf. Robertson v. Wegmann, supra, at 590; Auto Workers v. Hoosier Corp., supra, at 706-707; Sola Electric Co. v. Jefferson Co., 317 U. S., at 176. Although "[a] state statute cannot be considered 'inconsistent' with federal law merely because the statute causes the plaintiff to lose the litigation," Robertson v. Wegmann, supra, at 593, federal courts must be ever vigilant to insure that application of state law poses "no significant threat to any identifiable federal policy or interest . . . ." Wallis v. Pan American Petroleum Corp., 384 U. S. 63, 68 (1966). See Auto Workers v. Hoosier Corp., supra, at 702. Cf. Brown v. Western R. Co. of Alabama, 338 U. S. 294, 298 (1949). And, of course, this means that "unreasonable," Wallis v. Pan American Petroleum Corp., supra, at 70, or "specific aberrant or hostile state rules," United States v. Little Lake Misere Land Co., 412 U. S. 580, 596 (1973), will not be applied. See, e. g., Levitt v. Johnson, 334 F. 2d 815, 819-820 (CA1 1964). The "consistency" test guarantees that "[n]othing that the state can do will be allowed to destroy the federal right," Board of Comm'rs v. United States, 308 U. S., at 350, and yet relieves federal courts of the necessity to fashion an entire body of federal corporate law out of whole cloth. Ill The foregoing indicates that the threshold inquiry for a federal court in this case should have been to determine whether state law permitted Fundamental's disinterested directors to terminate respondents' suit. If so, the next inquiry should have been whether such a state rule was consistent with the policy of the ICA and IAA. Neither the District Court nor the Court of Appeals decided the first question, apparently because neither considered state law particularly significant in determining the authority of the independent directors to terminate the action. And in that circumstance, neither court addressed the question of inconsistency between state and federal law. At least implicitly, however, the Court of Appeals did make a related determination. Its holding that nonfrivolous derivative suits may never be terminated makes manifest its view that no other rule — whether state or federal — would be consistent with the ICA. We disagree. The Court of Appeals correctly noted, 567 F. 2d, at 1210-1211, that Congress was concerned about the potential for abuse inherent in the structure of investment companies. A mutual fund is a pool of assets, consisting primarily of portfolio securities, and belonging to the individual investors holding shares in the fund. Tannenbaum v. Zeller, 552 F. 2d 402, 405 (CA2 1977). Congress was concerned because "[m]utual funds, with rare exception, are not operated by their own employees. Most funds are formed, sold, and managed by external organizations, [called 'investment advisers,'] that are separately owned and operated. . . The advisers select the funds' investments and operate their businesses. . . . "Since a typical fund is organized by its investment adviser which provides it with almost all management services . . . , a mutual fund cannot, as a practical matter sever its relationship with the adviser. Therefore, the forces of arm's-length bargaining do not work in the mutual fund industry in the same manner as they do in other sectors of the American economy." S. Rep. No. 91-184, p. 5 (1969). As a consequence, "[t]he relationship between investment advisers and mutual funds is fraught with potential conflicts of interest," Galfand v. Chestnutt Corp., 545 F. 2d 807, 808 (CA2 1976). See generally S. Rep. No. 91-184, supra, at 5; H. R. Rep. No. 2337, 89th Cong., 2d Sess., 9, 45-46, 64 (1966); H. R. Doc. No. 136, 77th Cong., 1st Sess., 2485-2490, 2569, 2579-2580, 2775 (1942); Hearings before a Subcommittee of the House Committee on Interstate and Foreign Commerce on H. R. 10065, 76th Cong., 3d Sess., 58-59 (1940); Securities and Exchange Commission, Report on Investment Trusts and Investment Companies, pt. 3, pp. 1-49 (1940); 15 U. S. C. § 80a-l (b) (findings and declaration of policy). Yet, while these potential conflicts may justify some restraints upon the unfettered discretion of even disinterested mutual fund directors, particularly in their transactions with the investment adviser, they hardly justify a flat rule that directors may never terminate nonfrivolous derivative actions involving co-directors. In fact, the evidence is overwhelming that Congress did not intend to require any such absolute rule. The cornerstone of the ICA's effort to control conflicts of interest within mutual funds is the requirement that at least 40% of a fund's board be composed of independent outside directors. 15 U. S. C. §80a-10(a). As originally enacted, § 10 of the Act required that these 40% not be officers or employees of the company or "affiliated persons" of its adviser. 54 Stat. 806. In 1970, Congress amended the Act to strengthen further the independence of these directors, adding the stricter requirement that the outside directors not be "interested persons." See 15 U. S. C. § 80a-10 (a), 80a-2 (a)(19). To these statútorily disinterested directors, the Act assigns a host of special responsibilities involving supervision of management and financial auditing. They have the duty to review and approve the contracts of the investment adviser and the principal underwriter, 15 U. S. C. § 80a-15 (c); the responsibility to appoint other disinterested directors to fill vacancies resulting from the assignment of the advisory contracts, 15 U. S. C. § 80a-16 (b); and are required to select the accountants who prepare the company's Securities and Exchange Commission financial filings, 15 U. S. C. § 80a-31 (a). Attention must be paid as well to what Congress did not do. Congress consciously chose to address the conflict-of-interest problem through the Act's independent-directors section, rather than through more drastic remedies such as complete disaffiliation of the companies from their advisers or compulsory internalization of the management function. See Report of the SEC on the Public Policy Implications of Investment Company Growth, H. R. Rep. No. 2337, 89th Cong., 2d Sess., 147-148 (1966). Congress also decided not to incorporate into the 1940 Act a provision, proposed by the SEC, that would have forced investment companies to seek court approval before settling claims against "insiders" that could be the target of derivative suits. See S. 3580, 76th Cong., 3d Sess., §33 (a) (1940); Wolf v. Barkes, 348 F. 2d 994, 997 n. 4 (CA2 1965). And when Congress did intend to prevent board action from cutting off derivative suits, it said so expressly. Section 36 (b), 84 Stat. 1428, 15 U. S. C. § 80a-35 (b)(2), added to the Act in 1970, performs precisely this function for derivative suits charging breach of fiduciary duty with respect to adviser's fees. No similar provision exists for derivative suits of the kind involved in this case. Congress' purpose in structuring the Act as it did is clear. It "was designed to place the unaffiliated directors in the role of 'independent watchdogs,' " Tannenbaum v. Zeller, 552 F. 2d, at 406, who would "furnish an independent check upon the management" of investment companies, Hearings on H. R. 10065 before a Subcommittee of the House Committee on Interstate and Foreign Commerce, 76th Cong., 3d Sess., 109 (1940). This "watchdog" control was chosen in preference to the more direct controls on behavior exemplified by the options not adopted. Indeed, when by 1970 it appeared that the "affiliated person" provision of the 1940 Act might not be adequately restraining conflicts of interest, Congress turned not to direct controls, but rather to stiffening the requirement of independence as the way to "remedy the act's deficiencies." S. Rep. No. 91-184, pp. 32-33 (1969). Without question, "[t]he function of these provisions with respect to unaffiliated directors '[was] to supply an independent check on management and to provide a means for the representation of shareholder interests in investment company affairs." Id., at 32. In short, the structure and purpose of the ICA indicate that Congress entrusted to the independent directors of investment companies, exercising the authority granted to them by state law, the primary responsibility for looking after the interests of the funds' shareholders. There may well be situations in which the independent directors could reasonably believe that the best interests of the shareholders call for a decision not to sue — as, for example, where the costs of litigation to the corporation outweigh any potential recovery. See Note, 47 Ford. L. Rev. 568, 580 (1979); Note, 44 U. Chi. L. Rev., at 196. See, e. g., Tannenbaum v. Zeller, supra, at 418; Cramer v. General Tel. & Electronics Corp., 582 F. 2d 259, 275 (CA3 1978). In such cases, it would certainly be consistent with the Act to allow the independent directors to terminate a suit, even though not frivolous. Indeed, it would have been paradoxical for Congress to have been willing to rely largely upon "watchdogs" to protect shareholder interests and yet, where the "watchdogs" have done precisely that, require that they be totally muzzled. IV We hold today that federal courts should apply state law governing the authority of independent directors to discontinue derivative suits to the extent such law is consistent with the policies of the ICA and IAA. Moreover, we hold that Congress did not require that States, or federal courts, absolutely forbid director termination of all nonfrivolous actions. However, since "[w]e did not grant certiorari to decide [a question of state law]," Butner v. United States, 440 U. S. 48, 51 (1979), and since neither the District Court nor the Court of Appeals decided the point, the case is reversed and remanded for further proceedings consistent with this opinion. Butner v. United States; Wallis v. Pan American Petroleum Corp., 384 U. S., at 72. Reversed and remanded. Mr. Justice Rehnquist took no part in the consideration or decision of this case. § 13 (a) (3), 54 Stat. 811, as amended, 15 U. S. C. § 80a-13 (a) (3), and former § 36, 54 Stat. 841, 15 U. S. C. § 80a-35 (1964 ed.). § 206, 54 Stat. 852, as amended, 15 U. S. C. § 80b-6. The complaint alleged, inter alia, that "Anchor breached its statutory, contractual and common law fiduciary duties by relying exclusively upon the representations of Goldman, Sachs & Co. (a seller of commercial paper), rather than independently investigating the quality and safety of the Penn Central 270-day notes purchased by the Fund. It is further alleged that the defendant directors knew or should have known of Anchor's failure to meet its responsibility; that they violated their . . . duties as corporate fiduciaries by acquiescing in Anchor's omissions; that the financial condition of the Penn Central steadily worsened during the period from November 28, 1969 to June 21, 1970, the date that it filed for reorganization; and that during this period of decline all of the defendants failed to investigate and review the financial condition of the Penn Central and the quality and safety of its commercial paper." 426 F. Supp. 844, 847 (1977). The five were "disinterested" within the meaning of the ICA (see 567 F. 2d 1208, 1209 (CA2 1978)) which provides: "No registered investment company shall have a board of directors more than 60 per centum of the members of which are persons who are interested persons of such registered company." 15 U. S. C. § 80a-10 (a). The definition of "interested person" is found at 15 U. S. C. § 80a-2 (a) (19). See n. 12, infra. Of the remaining six directors, five were defendants in the Lasker suit, and one was a director of the investment adviser. 404 F. Supp. 1172, 1175 (1975). The question whether a cause of action exists is not a question of jurisdiction, and therefore may be assumed without being decided. Cf. Mt. Healthy City Board of Ed. v. Doyle, 429 U. S. 274, 279 (1977) ; Bell v. Hood, 327 U. S. 678, 682 (1946). Other Courts of Appeals have agreed with the Second Circuit that the ICA and IAA create private causes of action. As to the ICA, see Moses v. Burgin, 445 E. 2d 369, 373 (CA1 1971); Esplin v. Hirschi, 402 F. 2d 94, 103 (CA10 1968). See also Herpich v. Wallace, 430 F. 2d 792, 815 (CA5 1970); Taussig v. Wellington Fund, Inc., 313 F. 2d 472, 476 (CA3 1963). Compare Greater Iowa Corp. v. McLendon, 378 F. 2d 783, 793 (CA8 1967), with Brouh v. Managed Funds, Inc., 286 F. 2d 901 (CA8 1961), vacated as moot, 369 U. S. 424 (1962). As to the IAA, see Lewis v. Transamerica Corp., 575 F. 2d 237 (CA9), cert. granted sub nom. Transamerica Mortgage Advisors, Inc. v. Lewis, 439 U. S. 952 (1978); Wilson v. First Houston Investment Corp., 566 F. 2d 1235 (CA5 1978). This is not a situation where federal policy requires uniformity and, therefore, where the very application of varying state laws would itself be inconsistent with federal interests. In enacting the ICA and IAA, Congress did declare that "the activities of such companies, extending over many States, . . . make difficult, if not impossible, effective State regulation of such companies . . . 15 U. S. C. § 80a-1 (a) (5). But as long as private causes of action are available in federal courts for violation of the federal statutes, this enforcement problem is obviated. The real concern, therefore, is not that state laws be uniform, but rather that the laws applied in suits brought to enforce federal rights meet the standards necessary to insure that the "prohibition of [the] federal statute . . . not be set at naught," Sola Electric Co. v. Jefferson Co., 317 U. S. 173, 176 (1942). The "consistency" requirement described in text guarantees that state laws failing to meet these standards will be precluded. See 567 F. 2d 1208 (CA2 1978); 404 F. Supp. 1172 (SDNY 1975). The Court of Appeals did not undertake any separate analysis of the policy behind the ICA's companion statute, the IAA. See also Tannenbaum v. Zeller, 552 F. 2d 402, 405 (CA2 1977); Radmer, Duties of the Directors of Investment Companies, 3 J. Corp. L. 61, 63 (1977); Note, 47 Ford. L. Rev. 568 (1979). See, e. g., § 36 of the ICA, 54 Stat. 841, as amended, 15 U. S. C. § 80a-35, and § 206 of the IAA, 54 Stat. 852, as amended, 15 U. S. C. § 80b-6, imposing minimum standards on the behavior of investment company directors and advisers which presumably apply as much to their decisions regarding litigation as to the other decisions they may be called upon to make. See Santa Fe Industries, Inc. v. Green, 430 U. S. 462, 471 n. 11 (1977) ("Congress intended the Investment Advisers Act to establish federal fiduciary standards for investment advisers"); SEC v. Capital Gains Research Bureau, 375 U. S. 180, 191-192 (1963); Cramer v. General Tel. & Electronics Corp., 582 F. 2d 259, 275 (CA3 1978); Tannenbaum v. Zeller, supra, at 418-419. Under certain circumstances, independent directors must constitute a majority rather than 40% of the board. See 15 U. S. C. § 80a-10 (b). Title 15 U. S. C. §80a-2 (a)(19) defines an "'interested person' of another person . . . when used with respect to an investment company," as "(i) any affiliated person of such company, "(ii) any member of the immediate family of any natural person who is an affiliated person of such company, "(iii) any interested person of any investment adviser of or principal underwriter for such company, "(iv) any person or partner or employee of any person who at any time since the beginning of the last two fiscal years of such company has acted as legal counsel for such company, "(v) any broker or dealer registered under the Securities Exchange Act of 1934 or any affiliated person of such a broker or dealer, and "(vi) any natural person whom the Commission by order shall have determined to be an interested person by reason of having had, at any time since the beginning of the last two fiscal years of such company, a material business or professional relationship with such company or with the principal executive officer of such company or with any other investment company having the same investment adviser or principal underwriter or with the principal executive officer of such other investment company." Title 15 U. S. C. § 80a-2 (a) (2) states that " '[a]ffiliated company' means a company which is an affiliated person," and 15 U. S. C. § 80a-2 (a) (3) defines " 'affiliated person' of another person" as "(A) any person directly or indirectly owning, controlling, or holding with power to vote, 5 per centum or more of the outstanding voting securities of such other person; (B) any person 5 per centum or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other person; (C) any person directly or indirectly controlling, controlled by, or under common control with, such other person; (D) any officer, director, partner, copartner, or employee of such other person; (E) if such other person is an investment company, any investment adviser thereof or any member of an advisory board thereof; and (F) if such other person is an unincorporated investment company not having a board of directors, the depositor thereof." See also § 16 (b) of the Securities Exchange Act of 1934, 15 U. S. C. § 78p (b), which authorizes shareholder suits to recover insider "short swing" profits on behalf of the company notwithstanding the decision of the board of directors not to sue. See n. 12, supra. As an adjunct to its main argument which rested upon the structure of the ICA, the Court of Appeals was also of the view that mutual fund directors can never be truly disinterested in suits involving their co-directors. 567 F. 2d, at 1212. While lack of impartiality may or may not be true as a matter of fact in individual cases, it is not a conclusion of law required by the ICA. Congress surely would not have entrusted such critical functions as approval of advisory contracts and selection of accountants to the statutorily disinterested directors had it shared the Court of Appeals' view that such directors could never be "disinterested" where their codirectors or investment advisers were concerned. In fact, although it was speaking only of the statutory definition, Congress declared in the second section of the Act that "no person shall be deemed to be an interested person of an investment company solely by reason of . . . his being a member of its board of directors or advisory board . . . ." 15 U. S. C. § 80a-2 (a) (19). See also 15 U. S. C. § 80a-2 (a)(9) ("A natural person shall be presumed not to be a controlled person within the meaning of this subchapter"). As an alternative ground in support of the judgment below, respondents urge that Fed. Rule Civ. Proc. 23.1 prohibits termination of this derivative action. That Rule states that a derivative action "shall not be dismissed or compromised without the approval of the court . . . ." However, as Judge Friendly noted with respect to former Rule 23 (c), those words apply only to voluntary settlements between derivative plaintiffs and defendants, and were intended to prevent plaintiffs from selling out their fellow shareholders. They do not apply where the plaintiffs' action is involuntarily dismissed by a court, as occurred in this case. Wolf v. Barkes, 348 F. 2d 994, 996-997 (CA2 1965). The same is true of the identically worded Rule 23.1. See C. Wright & A. Miller, Federal Practice and Procedure § 1839, pp. 427, 435, 436 (1972); 3B J. Moore, Federal Practice ¶23.1.24 [2], App. p. 23.1-131 (1978). In this Court, the parties hotly dispute the content of the correct state rule. Compare Brief for Petitioners 36-38 with Brief for Respondents 35-39.
420 U.S. 959		C. A. 9th Cir. [Certiorari granted, 419 U. S. 992.] Motion of respondent for divided argument granted.
330 U.S. 813		The order entered March 31, 1947, 330 U. S. 817, granting certiorari is vacated. On reconsideration the petition for writ of certiorari to the Circuit Court of Appeals for the Seventh Circuit is denied.
42 B.T.A. 521		OPINION. Disney : The respondent allowed depletion upon amounts received from International by petitioner as royalty payments upon the two-thirds royalty interest owned by petitioner, but denied depletion upon $305,000 received as consideration for conveyances to International. The question presented here arises upon the disallowance of percentage depletion upon the $305,000. The gist of the principal problem is whether depletion is allowable on ⅛⅝ theory that the petitioner, having owned both a leasehold and about two-thirds of the lessor's interest, was in effect in conveying to International, the lessor of a lease, retaining an economic interest, under such cases as Herring v. Commissioner, 293 U. S. 322, or should be denied on the theory that it occupies the position of an assignor of a lease, within the principle enunciated in Helvering v. Elbe Oil Land Development Co., 303 U. S. 372, and cases to the same effect. The petitioner executed and delivered (a) an assignment in the usual form of an oil and gas lease as to about 1,327 acres of land, (b) an assignment of an oil payment, (c) an original oil and gas lease; and a "Royalty Owner's Agreement" releasing, as such royalty owner, International from certain obligations as leaseholder. The oil payment, of a value of $650, was payable from the net proceeds of one-fourth of the oil or gas as, if, and when produced and sold by the Mcllroy Oil Co., to whom petitioner assigned the lease. Mcllroy was not liable personally for the payments. After any default in payment, petitioner's signature was necessary upon division orders on the sales of oil or gas. In assigning to Mollroy, the petitioner retained an economic interest in the oil and gas, but sold such interest for cash, and was not entitled to depletion upon $650, that part of the $305,000 consideration attributable to the oil payment. Commissioner v. Fleming, 82 Fed. (2d) 324; R. R. Ratliff, 36 B. T. A. 762; Rawco, Inc., Ltd., 37 B. T. A. 128 (139). Included in the lease assigned to International was a tract of 130 acres in Carson County. This was not included in the warranty deed by which the petitioner acquired the remainder of the estate of the lessors, Lewis and wife. Therefore the petitioner owned no interest in the 130 acres, except as lessee. Depletion was properly denied, to the extent of $2,000, the value of the lease. Helvering v. Elbe Oil Land Development Co., supra; Darby-Lynde Co. v. Alexander, 51 Fed. (2d) 56. Hammonds v. Commissioner, 106 Fed. (2d) 420. This brings us to consideration of the principal issue: As to those lands in which petitioner had acquired not only a lease, but the lessor's interest, except approximately one-third of the rights to royalties under oil and gas leases, is petitioner entitled to depletion upon amounts received, in large part for an assignment of the lease held by it, and as to a smaller amount of land, for delivery of a lease executed by petitioner itself, and for the "Royalty Owner's Agreement" as to offsetting wells, etc.? In effect, the petitioner argues that it occupies the same economic position as the original lessor, having acquired his interests (except one-third of royalty rights conveyed to others) and has an economic interest in the production to be realized from the lease conveyed and is entitled to depletion. Petitioner bases its contention in part upon the idea of merger of lease in the larger estate acquired from the lessor, but urges that, irrespective of merger and ignoring the technical forms of conveyancing, such an interest in future production remained in the petitioner as to require allowance of depletion upon amounts received for the conveyance. We think it plain that petitioner's position must depend upon whether its leasehold interest was merged into and extinguished by the acquisition of the remaining interests of the lessor; for it is not to be doubted, in the light of the decisions above enumerated, that an assignor of a lease, merely assigning the rights thereunder to his assignee, does not, in receiving a cash consideration for the assign ment, derive "gross income from the property" within the terms of section 114 (b) (3) of the Eevenue Act of 1934. The petitioner, a lessee, having received a cash consideration from International, its assignee, must demonstrate that its position is not that of mere assignor. In fact, it executed, in large part, an ordinary assignment. Repeated pronouncements of course forbid undue regard for mere forms of conveyancing and require consideration of the true economic status of the taxpayer. Yet merger, upon which in essence petitioner must rely to escape the position of ordinary assignor, is a question largely of intent, and the fact of execution of an assignment, rather than an original lease, as to most of the lands, clearly casts some light upon intent, particularly in connection with the other facts here presented. As to a small portion of the lands, the petitioner executed an original lease. Why was an assignment executed as to the greater portion? Obviously, the distinction between assignment and lease was recognized, and an assignment intentionally used. This action, by the owner of both the lease and most of the lessor's interests, seems clear indication of intent not to merge the two interests. " the merger will not be held to take place if it be apparent that it was not the intention of the owner, or if, in the absence of any intention, said merger was against his manifest interest." Factors' & Traders' Insurance Co. v. Murphy, 111 U. S. 738. Caprito v. Grisham-Hunter Corporation, 128 S. W. (2d) 149 (Civ. App. Texas). From examination of all of the evidence herein, we are of the opinion that the petitioner did not intend merger, but intended what was actually done, as to the principal lease — to assign the lease. The language was that of an ordinary assignment, and was so captioned. Therein reference is first made to the lease executed by the land owner in 1921 and then repeated reference is made to the "said lease and all rights thereunder" and to the fact of transfer of right, title, and interest "in and to said lease and rights thereunder." No rights are reserved to the petitioner by the instrument, as would be done under an oil and gas lease (and is in fact specifically done in the original oil and gas lease also executed, and hereinafter discussed). The instrument conveys rights — it does not retain or create them for the petitioner as owner of the fee or royalties or in any manner refer to its rights or ownership other than as lessee. On the contrary, the instrument recites a convenant that the rents and royalties due and payable under the lease have been paid, thus assuming the position of the grantor to be that of lessee. Moreover, the intent to distinguish between positions as lessee and royalty owner is made plain by the fact of the execution by the petitioner of a separate instrument, called "Royalty Owner's Agreement", wherein in substance it agreed, "so far as it may lawfully do so as owner of a portion of the royalty interest reserved in the lease", that International need not drill offset wells and might designate the purchaser of the "royalty oil and gas." The contract between petitioner and International covering the whole transaction provided, first, that petitioner sell and assign an oil and gas lease executed not by petitioner, but in 1921 by T. D. Lewis and wife; and in sharp contrast thereto, provided for execution of "an original oil and gas lease from Badger Oil Company as lessor, to International Petroleum Corporation" upon another smaller amount of land. We conclude that merger was not intended, but that the petitioner in dealing with International intended to do so as lessee-assignor. Moreover, as a matter of law there was, in our opinion, no merger. That doctrine involves the extinguishment or "drowning" of a lesser in a larger estate. The petitioner never acquired all of the estate remaining after execution of the oil and gas lease. One-third of the right to receive royalties under the lease and under any future lease was in other hands. A lease can not, we think, be merged in any estate less than that of the full estate of the lessor. In Wisconsin National Bank, 4 B. T. A. 109, 113, we held that there was no merger of a leasehold into a two-thirds interest in the fee estate, acquired by the lessee after execution of the lease. We said: Although the lessee purchased portions of the fee at different times, the leasehold, nevertheless, continued to have a legal existence in its entirety and so could have been sold or otherwise transferred as a whole at any time prior to legal merger of the lesser and greater estate through acquisition of the entire fee by such lessee. In the present matter also approximately one-third of the royalty interest was extant in others and the lease was in fact sold or otherwise transferred as a whole — "prior to legal merger of the lesser and greater estate through acquisition of the entire fee by such lessee." Quoting Bouvier, we also observed: "To have the union operate a merger, the estates must unite in one and thie same person, having a commensurate and coextensive interest in each, with no intervening interest in another. A legal estate in fee in one who has only a partial equitable interest, or vice versa, would not merge. In re Washburn's Estate, 11 Cal. App. 735; 106 Pac. 415." We consider it clear that the outstanding one-third interest in the royalties was an intervening estate, and that the whole lease can not merge in less than the whole interest of the lessor. The outstanding royalty interests had a right to continuance of the lease and to payment of royalties thereunder. A conception of the lease merged as to two-thirds of the royalty interests, but still existent as to one-third, is an anomaly. Less than the entire lessor's interest can not encompass and "drown" a lease under which every part of the lessor's interest has rights. This is no matter of mere legal formality, but one of logic and legal rights of parties. Petitioner, having assigned in due form, its lease, seeks to demonstrate the transaction to be other than mere assignment, with its attendant results as to depletion, and must show reason why the lease has ceased to be such. That reason, we consider not to have been shown, but, on the contrary, we consider that reason and logic point to continuance of the lease. In effect petitioner relies upon the general idea that an economic interest gives right to depletion, but imports the economic interest from its royalty interests (where it is not denied, but given effect by depletion allowed by the respondent) into the leasehold interest. In the royalty interests the petitioner had an investment of $10,000. It is plain that, by depletion allowed on royalties, petitioner is recovering this investment, because in truth the income from royalties is under the statute "gross income from the property", i. e., the property conveyed by warranty deed, including royalty rights. But it is equally plain that the $305,000, or that portion thereof obtained for assigning the leasehold, is not income from the same property, but is the sale prices of the leasehold, in which the petitioner had a base entirely different from the $40,000 invested in the property conveyed by warranty deed. That investment in the leasehold is not properly recoverable from depletion proper upon a different capital investment. Depletion is allowed "to the recipients of the gross income from the oil and gas by reason of their capital investment in the oil and gas in place." Helvering v. Bankline Oil Co., 303 U. S. 362; Helvering v. O'Donnell, 303 U. S. 370. Such investment by the petitioner was the $40,000, not the investment in the lease itself. Moreover, it is to be noted that the $305,000 was not payable in any part out of any oil produced, as in such cases as Palmer v. Bender, 287 U. S. 551; Marrs McLean, 41 B. T. A. 565. Though $165,000 of the full consideration of $365,000 paid (including $60,000 for personal property) was not paid at the date of transfer, but was paid later in 1935, the amount was represented by promissory notes, secured by a deed of trust on the lease assigned, the original lease, and the $18,000 oil payment, the deed of trust providing that upon default the properties should be sold at public outcry in satisfaction of the notes. Obviously, this is not reservation of economic interest. It can not be said, as is said in Anderson v. Helvering, 310 U. S. 404, limiting Thomas v. Perkins, 301 U. S. 655, that "the reserved payments are to be derived solely from the production of oil and gas." We conclude and hold that the petitioner is not entitled to depletion as to the amounts received for assignment of the lease to International. In the state of the record the same must be said as to the original lease executed by the petitioner to International. This comprises a comparatively small portion of the total acreage involved, i. e., 160 acres as compared with about 1,327 acres in the lease assigned. The value of the original lease at execution is not shown. The $305,000 consideration is not divided between original lease and assigned lease. Therefore, even though we should assume that the existence of the Martin lease (if it still existed as to the 160 acres) is without effect on the question as to depletion on any consideration paid for the new lease, and that under Herring v. Commissioner, supra, the petitioner as original lessor might be entitled to depletion upon bonus received, since there is no evidence in the record herein as to what, if anything, was received as consideration or bonus for the 160-acre lease, respondent's determination in that respect is approved. No error being found in respondent's action in disallowing depletion, Decision will be entered, for the respondent.
532 U.S. 952		C. A. 6th Cir. Certiorari denied.
66 T.C. 101		OPINION Simpson, Judge: This matter arises because the Commissioner has issued two notices of deficiency with respect to the same transaction. In a notice of deficiency dated September 19, 1972 (the first notice), he determined a deficiency of $13,226.41 in the petitioners' income tax for 1969. Such deficiency was based upon a finding that they realized long-term capital gain in that year of $70,387.57 from the sale of stock in the Yellow Cab Co. of Raleigh, Inc., which could not be reported in accordance with section 453 of the Internal Revenue Code of 1954 (relating to the use of the installment method). In addition, the petitioners' medical deduction was decreased solely as a result of the petitioners' increased adjusted gross income from such long-term capital gain. In docket No. 9106-72, the petitioners timely filed a petition with this Court seeking a redetermination of such deficiency. Subsequently, in a notice of deficiency dated July 10,1975 (the second notice), the Commissioner determined a deficiency of $7,990.50 in the petitioners' income tax for 1972. In part, such deficiency was based on a finding that the petitioners, in 1972, realized long-term capital gain of $70,387.57 from the sale of stock in the Yellow Cab Co. of Raleigh, Inc. (the stock). In docket No. 9074-75, the petitioners have timely petitioned this Court for a redetermination of the deficiencies set forth in the second notice. Both dockets have since been consolidated for purposes of trial, briefing, and opinion. The petitioners filed a motion for summary judgment requesting we hold that, as a matter of law, the Commissioner abandoned the deficiency set forth in the first notice when he issued the second notice. A hearing was held on such motion, and the parties have submitted briefs in support of their positions. The Commissioner has clearly stated in his brief, and the petitioners in their reply brief clearly recognize, that the notices before us are intended to assert alternative deficiencies; that is, the Commissioner is seeking to tax the gain from the sale of the stock only once, not twice. In these notices, the Commissioner has determined that the gain was realized either in 1969 or 1972, but he has clearly stated that in the event one of his determinations is upheld, he concedes that the other determination is incorrect. Moreover, if the Court finds that the gain on the sale of the stock is taxable in one of the years, it will not hold the same gain to be taxable in the other year. See Commissioner v. Sunnen, 333 U.S. 591, 599-601 (1948); James T. Shiosaki, 61 T.C. 861, 863 (1974); Estate of William G. Maguire, 50 T.C. 130, 139 (1968). Consequently, there is absolutely no possibility that the same gain will be taxed twice and therefore we do not need to consider the petitioners' arguments concerning the constitutional objections that would be raised if double taxation of the same income were possible. The Rules of this Court recognize that any party may present alternative statements of a claim or defense in his pleadings. Rule 31(c), Tax Court Rules of Practice and Procedure. It is also well established that in tax litigation, the Commissioner may, in notices of deficiency, present alternative claims for deficiencies when there is a basis for doing so. He may assert, in the alternative, that the same income was received by different taxpayers or that the same income was received by the same taxpayer in different taxable years. Wiles v. Commissioner, 499 F. 2d 255, 259 (10th Cir. 1974), affg. 60 T.C. 56 (1973), cert. denied 419 U.S. 996 (1974); Estate of Goodall v. Commissioner, 391 F. 2d 775, 781-784 (8th Cir. 1968), affg. on this issue a Memorandum Opinion of this Court, cert. denied 393 U.S. 829 (1968); Malat v. Commissioner, 302 F. 2d 700, 706 (9th Cir. 1962), affg. 34 T.C. 365 (1960), cert. denied 371 U.S. 934 (1962); Revell, Inc. v. Riddell, 273 F. 2d 649, 658-660 (9th Cir. 1959), cert. denied 364 U.S. 835 (1960); L. C. Bohart Plumbing & Heating Co., 64 T.C. 602, 615-616 (1975); Julius E. Hoeme, 63 T.C. 18, 20-21 (1974); M. Lucile Harrison, 59 T.C. 578, 592 n. 13 (1973); Brantley L. Watkins, 53 T.C. 349, 359 (1969); Estate of H. B. Hundley, 52 T.C. 495, 510 (1969), affd. per curiam 435 F. 2d 1311 (4th Cir. 1971); Leon R. Meyer, 46 T.C. 65, 82-83 (1966), affd. on this issue 383 F. 2d 883 (8th Cir. 1967); Nat Harrison Associates, Inc., 42 T.C. 601, 617 (1964); Stone v. United States, 405 F. Supp. 642, 649 n. 26 (S.D. N.Y. 1975); cf. Goldstein v. United States, 227 F. 2d 1 (8th Cir. 1955). The facts of this case differ from those cases in only one material respect: here, the Commissioner used separate notices of deficiency to assert that the taxpayer realized the same income in different taxable years; whereas, in the other cases involving the same taxpayer, the alternative claims were contained in a single notice of deficiency. However, it is immaterial whether the alternative claims are presented in a single notice or in separate notices. In many cases, the Commissioner has asserted, in the alternative, that the same income was received by several taxpayers, and in those cases, the alternative claims were presented in separate notices; nonetheless, the courts have upheld the Commissioner's right to present such alternative claims. Wiles v. Commissioner, 499 F. 2d at 259; Estate of Goodall v. Commissioner, 391 F. 2d at 781-784; Revell, Inc. v. Riddell, 273 F. 2d at 658-660; L. C. Bohart Plumbing & Heating Co., 64 T.C. at 615-616; Julius E. Hoeme, 63 T.C. at 20-21; Brantley L. Watkins, 53 T.C. at 359; Estate of H. B. Hundley, 52 T.C. at 510; Leon R. Meyer, 46 T.C. at 82-83; Nat Harrison Associates, Inc., 42 T.C. at 617; Stone v. United States, supra; cf. Goldstein v. United States, supra. Whenever it is practicable to do so, it is surely preferable to have the Commissioner present his alternative claims for a deficiency against the taxpayer in a single notice of deficiency, for in that manner, the taxpayer is made aware that the claims are presented in the alternative, and the alternative claims can be dealt with in a single petition to this Court. Furthermore, we urge the Commissioner, whenever he sets forth an alternative claim in a second notice, to indicate clearly to the taxpayer that the claim is being presented in the alternative and that there is no intention to tax the same income twice. However, whenever it appears, as here, that the Commissioner has issued a second notice of deficiency setting forth an alternative claim with respect to the same income, we will not hold that, as a matter of law, he has abandoned the first determination. The petitioners' reliance on Leon Papineau, 28 T.C. 54 (1957), and Thomas Wilson, 25 T.C. 1058 (1956), is misplaced. In each of those cases, after the petition had been filed, the Commissioner amended his answer to set forth a position different than that contained in the notice of deficiency. In each case, the Court found, based on the entire record, that the Commissioner intended to abandon the position initially taken in the notice. However, in the case before us, the Commissioner has indicated unequivocally that he is not abandoning his initial position but that his positions are presented in the alternative. Many of the petitioners' arguments deal with the question of whether, when the Commissioner subsequently adopts a different position, the burden of proof shifts to him with respect to such matter. However, the question as to who bears the burden of proof with respect to the alternative positions asserted by the Commissioner in this case was not raised by the petitioners in their motion, and we need not pass on such matter at this time. In view of our conclusion that, as a matter of law, the Commissioner may present alternative positions for the consideration of the Court, the petitioners' motion for summary judgment will be denied. An appropriate order will be issued. In any event, the question as to who bears the burden of proof is not a proper subject of a motion for summary judgment. Julius E. Hoeme, 63 T.C. 18, 20-21; Rule 121(a), Tax Court Rules of Practice and Procedure.
421 U.S. 990		C. A. 2d Cir. Certiorari denied.
26 Cust. Ct. 385		Opinion by Rao, J. It was stipulated that the merchandise is the same in all material respects as the gloves which were the subject of United States v. Julius Kayser & Co. (33 C. C. P. A. 179, C. A. D. 333). The claim at 50 percent ad valorem under paragraph 915, plus any additional duty applicable under paragraph 924, was therefore sustained.
310 U.S. App. D.C. 364		Opinion for the court filed by Circuit Judge RANDOLPH. RANDOLPH, Circuit Judge: These are cross-appeals from the district court's judgment setting aside one of the regulations designed to protect and preserve the Monterey Bay National Marine Sanctuary off the central California coast. The regulation governs the use of "motorized personal watercraft" — jet skis, wet bikes, miniature speed boats, air boats, hovercraft, and the like — on the Sanctuary's waters. The district court thought it arbitrary to regulate this sort of small craft without regulating other vessels. We reverse this portion of the court's judgment. I The Monterey Bay National Marine Sanctuary encompasses 4000 square nautical miles of coastal and ocean waters, and the submerged lands thereunder. It is the nation's largest ocean sanctuary, spreading seaward as far as forty-six nautical miles, and extending along the California coast from the Gulf of Farallones in the north to San Simeon and Cambria Rock in the south. It encompasses the Monterey Peninsula, the "finest meeting of land and water in existence," so Robert Louis Stevenson believed. The area is home to thirty-one species of marine mammals, including the sea otter and twenty-one other threatened or endangered species protected under the Endangered Species Act, 16 U.S.C. § 1531-1544. There are large concentrations of whales, pinnipeds (e.g., seals) and seabirds. Fish stocks are substantial. Varieties of crustaceans and other invertebrates abound. Among the Sanctuary's diverse flora are forests of giant kelp growing from the seabed, with fronds towering to the surface as much as 175 feet above. Residents and visitors use the Sanctuary for kayaking, fishing, scuba diving, surfing, sailing, swimming, and other recreational activities. Title III of the Marine Protection, Research, and Sanctuaries Act (the Act), as amended, 16 U.S.C. § 1431-1439, authorizes the Secretary of Commerce to designate as national marine sanctuaries discrete areas of the marine environment that are "of special national significance." 16 U.S.C. § 1433(a). In 1988, Congress directed the Secretary to issue a "notice of designation" under 16 U.S.C. § 1434(b)(1) for the waters in the vicinity of Monterey Bay "no later than December 31, 1989." Pub.L. No. 100-627, § 205(a)(3), 102 Stat. 3213, 3217 (1988). The National Oceanic and Atmospheric Administration (NOAA), to whom the Secretary had delegated authority, complied, but not until August 3, 1990, when it published in the Federal Register a notice of proposed designation, proposed implementing regulations, and a draft environmental impact statement discussing options for managing the proposed sanctuary. 55 Fed.Reg. 31,786 (Aug. 3, 1990). The agency requested comments within sixty days (by October 2, 1990). In June 1992, after three public hearings and after receiving more than 1200 comments, NOAA issued its Final Environmental Impact Statement and, on September 18, 1992, its final regulations formalizing the designation of the Monterey Bay National Marine Sanctuary. 57 Fed.Reg. 43,310 (Sept. 18, 1992); 15 C.F.R. pt. 944. One of the final regulations, 15 C.F.R. § 944.5(a)(8), limits the operation of "motorized personal water craft," also known as "thrill craft," in the Monterey Bay Sanctuary to four designated zones and access routes, an area of fourteen square nautical miles. The regulation defines "motorized personal watercraft" as: any motorized vessel that is less than fifteen feet in length as manufactured, is capable of exceeding a speed of fifteen knots, and has the capacity to carry not more than the operator and one other person while in operation. The term includes, but is not limited to, jet skis, wet bikes, surf jets, miniature speed boats, air boats and hovercraft. 15 C.F.R. § 944.3. NOAA's final regulations did not restrict the use of other types of vessels in the Monterey Bay Sanctuary. The agency stated that it was then working with the Coast Guard to determine whether such measures were needed. 57 Fed.Reg. at 43,-311-12. In July 1992, the Personal Watercraft Industry Association, an organization consisting of manufacturers and distributors, submitted comments to NOAA opposing the restrictions placed on personal watercraft. Thereafter the agency denied the Association's petition for rulemaking to rescind the "thrill craft" regulation. 58 Fed.Reg. 15,271 (Mar. 22, 1993). The Association and two individuals then brought this action for judicial review of the regulation in the district court. Their complaint contained four claims for relief. The first three were of a piece: the regulation was not supported by adequate evidence; the agency had no basis for regulating personal watercraft but not regulating other vessels; the record does not contain evidence to show that restricting the use of personal watercraft was "necessary or reasonable." Complaint ¶ 25-34. The fourth claim was that NOAA failed to respond to the Association's comments that the restrictions were unreasonable and unnecessary. Complaint ¶36. On cross-motions for summary judgment, the district court held that the restriction on personal watercraft was arbitrary and capricious because NOAA had treated personal watercraft differently from all other vessels without providing a sufficient explanation. Personal Watercraft Indus. Ass'n v. Department of Commerce, No. 93-1381, at 3 (D.D.C. Aug. 24,1993). The court rejected the Association's claim that NOAA should have replied to its comments. Id. at 2-3 n.1. II A We begin with the Association's argument that NOAA did not adequately respond to its comments. There is little to this. The comment period closed on October 2, 1990. 55 Fed.Reg. at 31,786. The Association submitted its comments in July 1992. Agencies are free to ignore such late filings, as for the most part NOAA did here. Tex Tin Corp. v. BP A, 935 F.2d 1321, 1323 (D.C.Cir.1991). The Association's tardiness cannot be excused. The 1990 notice of proposed rulemaking sufficiently alerted it to the possibility of NOAA's regulating personal watercraft. It is true that in the notice NOAA did not propose to regulate personal watercraft. But the distinct prospect of the agency's doing so was plain for all to see. Under the heading "Activities Subject to Regulation," the 1990 notice listed numerous activities "subject to regulation, including prohibition, to the extent necessary and reasonable" to ensure the successful implementation of the Sanctuary designation. 55 Fed. Reg. at 31,788. One of the activities was operating "thrill craft" in the Sanctuary. Id. To indicate what the agency had in mind, the proposed regulations included a definition of "thrill craft," a definition matching the final regulation's description of "motorized personal watercraft." Id. at 31,794. When NOAA announced the schedule for public hearings, it mentioned that "[t]wo other activities are potentially subject to regulations: commercial vessel traffic (other than fishing) and operation of 'thrill craft.' " 55 Fed.Reg. 31,-798 (Aug. 3, 1990). The 1990 notice of proposed rulemaking also referred to the Draft Environmental Impact Statement; this document discussed "the serious threat" to the Sanctuary posed by personal watercraft. The 1990 notice thus "adequately frame[d] the subjects for discussion .," Connecticut Light & Power Co. v. NRC, 673 F.2d 525, 533 (D.C.Cir.), cert. denied, 459 U.S. 835, 103 S.Ct. 79, 74 L.Ed.2d 76 (1982). Nothing more was necessary. B The Association complains about a "study" NOAA used in determining where personal watercraft would be allowed within the Sanctuary, but it is hard to tell exactly what the complaint is. Only two paragraphs of the Association's fifty-page brief are devoted to this topic; the summary of argument ignores it entirely. The two paragraphs are under the following heading, which does not talk directly about the study: the "personal watercraft restrictions were developed after the comment period closed and never made available for public scrutiny and comment." Appellees' Brief at 47. That of course is true with respect to NOAA's final regulations, and indeed would be true in any rulemaking proceeding in which an agency formulated its final rules in response to comments. If the heading is supposed to capture a colorable argument, we fail to see it. "Rulemaking proceedings would never end' if the agency's response to comments must always be made the subject of additional comments." Community Nutrition Inst. v. Block, 749 F.2d 50, 58 (D.C.Cir.1984). Perhaps a bit of background will clear things up. After the comment period on the proposed regulations closed in October 1990, NOAA retained Dr. James W. Rote, a marine biologist and former Director of the Office of Habitat Protection at NOAA. Dr. Rote was to "gather information about current restrictions and current areas of motorized personal watercraft use in the proposed Monterey Bay National Marine Sanctuary area" and "to develop recommended zones to which motorized personal watercraft use might be restricted." In June and October 1991, Dr. Rote delivered his recommendations. The four zones he suggested were designed to encompass the areas with the highest amount of personal watercraft use. The results of Dr. Rote's study were included in the final rulemaking. 57 Fed.Reg. at 43,328-29. The Association states the obvious when it mentions that it did not have a chance to comment on the study because Dr. Rote did his work after the comment period closed. Given the cases the Association cites — Portland Cement Ass'n v. Ruckelshaus, 486 F.2d 375 (D.C.Cir.1973), cert. denied, 417 U.S. 921, 94 S.Ct. 2628, 41 L.Ed.2d 226 (1974); and United States v. Nova Scotia Food Products Corp., 568 F.2d 240, 252 (2d Cir.1977) — it seems to be saying that NOAA had a duty to put the study out for comment. As best we can make out, that is the extent of the Association's argument and it is one we readily reject. Portland Cement and Nova Scotia can be put to one side. See also Association of Data Processing Serv. Orgs. v. Board of Governors, 745 F.2d 677, 684 (D.C.Cir.1984). While those decisions say that material critical to an agency's decision whether to regulate an activity must be revealed, the study here was not of that sort. NOAA's decision was the product, not of Dr. Rote's study, but of its concern about the threat to the Sanctuary and the concern expressed in hundreds of comments urging the agency to ban personal watercraft altogether. 57 Fed.Reg. at 43,314. Agencies may develop additional information in response to public comments and rely on that information without starting anew "unless prejudice is shown." Community Nutrition Inst., 749 F.2d at 58. The party objecting has the burden of "indicat[ing] with 'reasonable specificity' what portions of the documents it objects to and how it might have responded if given the opportunity." Small Refiner Lead Phase-Down Task Force v. EPA, 705 F.2d 506, 540-41 (D.C.Cir.1983). The Association has not even come close to shouldering that burden. It does not point to anything in Dr. Rote's findings that might be considered erroneous. It does not suggest that his methodology was in any wise defective. And it does not tell us what it might have told NOAA if the study had been conducted and released before the comment period closed. Ill The district court agreed with the Association that the regulation treated "personal watercraft (which are narrowly defined) differently from all other vessels, and that this disparate treatment is arbitrary and unsupported by the factual record." Personal Watercraft Industry Ass'n, No. 93-1381, at 2. It is worth keeping in mind that we are dealing with a marine sanctuary and measures an agency thought were needed to protect and preserve it. The regulations did indeed single out personal watercraft from other kinds of vessels. Maybe the presence of other vessels was a cause for concern; as we shall see, NOAA thought it might be. This scarcely means that NOAA had to regulate them if it was to do anything about thrill craft. An agency does not have to "make progress on every front before it can make progress on any front." United States v. Edge Broadcasting Co., — U.S. -, -, 113 S.Ct. 2696, 2707, 125 L.Ed.2d 345 (1993). Agencies often must contend with matters of degree. Regulations, in other words, are not arbitrary just because they fail to regulate everything that could be thought to pose any sort of problem. Las Vegas v. Lujan, 891 F.2d 927, 935 (D.C.Cir.1989); Louisiana v. Verity, 853 F.2d 322, 332 (5th Cir.1988). This is a common principle, well known not only in administrative law cases but also in constitutional cases raising equal protection challenges to economic regulation. See Williamson v. Lee Optical of Oklahoma Inc., 348 U.S. 483, 489, 75 S.Ct. 461, 465, 99 L.Ed. 563 (1955). To it, the district court here added a wrinkle — when an agency decides "to address several aspects of the problem itself in a single rulemaking, it must provide a reasoned basis for differential treatment of the various causes of the perceived problem." Personal Watercraft Industry Ass'n, No. 93-1381, at 4 n.2. This suggests that if an agency did a little, that would be permissible, but if it did more than a little, it had better have a good reason for not going all the way. We fail to see why it should matter whether the agency takes two steps instead of one, so long as it is heading in a proper direction. The patient has a headache, a sore throat and a hangnail. Are we to suppose that it would be arbitrary to treat only the headache and the sore throat in a single session, yet not be arbitrary to treat only the hangnail? Before discussing this further, we ought to examine what made jet skis and other thrill craft the headache. The record is full of evidence that machines of this sort threatened the Monterey Bay National Marine Sanctuary. NOAA received' written comments and testimony from marine scientists, researchers, federal agencies, state agencies, state and local governments, business organizations, and more than a hundred citizens on the issue of regulating these machines. Everyone agreed — personal watercraft interfered with the public's recreational safety and enjoyment of the Sanctuary and posed a serious threat to the Sanctuary's ñora and fauna. The concept of a "sanctuary" entails elements of serenity, peace, and tranquility. Yet the commenters described instances of personal watercraft operators harassing sea otters and other marine mammals, disturbing harbor seals, damaging the Sanctuary's kelp forests, menacing swimmers, divers, kayakers, and other recreational users, and generally disrupting the esthetic enjoyment of the Sanctuary. All concerned recommended either prohibiting personal watercraft outright or restricting them to specific areas in the Sanctuary. No one urged NOAA to do nothing about the problem. When NOAA acted, did it satisfactorily explain itself? The Administrative Procedure Act required it to give a "concise general statement" of the regulation's "basis and purpose." 5 U.S.C. § 553(e). Here is part of what NOAA said: The small size, maneuverability and high speed of these craft is what causes these craft to pose a threat to resources. Resources such as sea otters and seabirds are either unable to avoid these craft or are frequently alarmed enough to significantly modify their behavior such as cessation of feeding or abandonment of young. Also other, more benign, uses of the Sanctuary such as sailing, kayaking, surfing and diving are interfered with during the operation of [personal watercraft], This regulation is intended to provide enhanced resource protection by prohibiting operation of motorized personal watercraft in areas of high marine mammal and seabird concentrations, kelp forest areas, river mouths, estuaries, lagoons and other similar areas where sensitive marine resources are concentrated and most vulnerable to disturbance and other injury from personal watercraft. 57 Fed.Reg. at 43,314, 43,321. The first paragraph is the "basis," the second the "purpose." The statement is "concise" and it is "general." Despite NOAA's evident compliance with the Administrative Procedure Act, the Association rails against "NOAA's unsupported and unexplained distinction between personal watercraft and other similar and larger vessels," Appellees' Brief at 32. The Association is very much mistaken and its citation of, for example, National Wildlife Federation v. Costle, 629 F.2d 118, 133-35 (D.C.Cir.1980), is therefore off the mark. NOAA did explain and support the distinction. It said that personal watercraft were small, highly maneuverable, and fast, and it indicated that they operated close to shore, in areas of high concentrations of kelp forests, marine mammals and sea birds. That differentiated all larger craft, all slower craft, all less maneuverable craft, and all craft that did not tend to use the same areas in the same manner. As if this were not enough, NOAA also stated why it had decided not to regulate vessels other than personal watereraft at this time. NOAA said that it was working with the United States Coast Guard "to determine the need for additional measures to ensure protection of Sanctuary resources and qualities from vessel traffic," adding that: These consultations aim to determine which resources are most at risk, which vessel traffic practices are most threatening and which regulations or restrictions would be most appropriate to alleviate potential threats, including those, if any, from foreign vessels. 57 Fed.Reg. at 43,311. There for all who read the Federal Register are the reasons for NOAA's regulating per sonal watercraft and for not then regulating other vessels — the first category posed a clear problem, the rest needed further study, which the agency had undertaken. The Act authorized NOAA to set down •rules for the Sanctuary that it determined "may be necessary and reasonable." 16 U.S.C. § 1434(a)(1)(A). The record amply supports NOAA's judgment of September 1992, that restricting thrill craft was then necessary and reasonable. It may turn out that regulating other vessels will be also be necessary and reasonable. NOAA has yet to make that determination. But nothing in Title III of the Marine Protection, Research, and Sanctuaries Act, or in the Administrative Procedure Act, or in any judicial decision, forces an agency to refrain from solving one problem while it ponders what to do about others. In concluding; we should say a few words about the district court's remark that before regulating, NOAA should have considered the sufficiency of existing restrictions. Personal Watercraft Indus. Ass'n, No. 93-1381, at 3. There is no need to worry over the legal principle the court's statement embodies. The record shows that NOAA in fact did what the court thought it should have done. As NOAA pointed out in its Final Environmental Impact Statement, personal watercraft use was a relatively new phenomenon and local governments had only just begun issuing laws to minimize conflicts between this form of water sport, and other uses of marine resources. Many local officials urged NOAA to restrict jet skis; the towns of Capitola and Pacifica, and the County of Santa Cruz had their own restrictions, but these of course applied only within their jurisdictions. NOAA's regulatory jurisdiction — over 4000 square nautical miles — was considerably more comprehensive. As one would expect, the agency therefore determined that regulating personal watercraft throughout the Sanctuary was needed to fill what would otherwise have been a "major gap in the regulatory regime governing activities in the area." NOAA's personal watercraft regulation, 15 C.F.R. § 944.5(a)(8), is not arbitrary and capricious, and the district court's judgment is therefore Reversed. . When NOAA issued its "Final Environmental Impact Statement/Management Plan" on June 12, 1992, its cover letter stated that any "questions or comments" about it should be submitted by July 20, 1992. While this enabled interested parties to have their say about the document, the cover letter did not — nor did it purport to— reopen the period set forth in the Federal Register (as 5 U.S.C. § 553 required) for commenting on proposed regulations, a period that had closed more than a year earlier. . There is part of a footnote in the Association's reply brief that talks about "the regulation's irrational effect of banishing affected recreational vessel users to four discrete, off-shore areas Dr. Rote devised by drawing lines on a map...." Cross-Appellants' Reply Brief at 9 n. 5. We emphatically refuse to construe this statement in the reply brief, which the author merely asks us to "consider," as expressing some new argument about the study, distinct from the Association's apparent complaint about not having a chance to comment on it. See Rollins Envtl. Servs. (NJ) Inc. v. EPA, 937 F.2d 649, 653 n. 2 (D.C.Cir.1991). . Besides, it is far from clear how the court's "rule" applies to this case. The court must have thought NOAA's rulemaking addressed "several aspects of the problem itself." Which problem and which aspects? The court did not say. So far as we can tell the regulation dealt only with one aspect — the mischief associated with vessels of the thrill craft variety, and that is what doomed it in the district court's eyes. . In its cross-appeal, the Association contends that we should not uphold NOAA's regulation because the agency did not file the entire administrative record in the district court. The district court did not think much of this contention and neither do we. NOAA filed all of the material it relied on in promulgating the personal watercraft regulation. This material has been condensed into five thick volumes of an appendix. The Association wanted the agency to add still more material dealing with other vessels such as oil tankers. We neither need nor want that material. The "whole record" (5 U.S.C. § 706) pertaining to the regulation the Association challenges is before us. And we have seen more than enough to know that the agency's decision not to regulate other vessels at this time does not render its decision to regulate personal watercraft arbitrary or capricious. l(
406 U.S. 926		C. A. 8th Cir. Certiorari denied.
176 L. Ed. 2d 1192		Petition for writ of cer-tiorari to the United States Court of Appeals for the Second Circuit denied. Same case below, 356 Fed. Appx. 500.
528 U.S. 1047		C. A. 9th Cir. Certiorari denied.
502 U.S. 894		C. A. 6th Cir. Certiorari denied.
165 U.S. 720		Denied February 1, 1897.
526 U.S. 1087		Sup. Ct. Fla. Cer-tiorari denied.
420 U.S. 928		Ct. App. Ohio, Cuyahoga County. Certiorari denied.
44 Cust. Ct. 299		Opinion by Johnson, J. In accordance with rule 5(b) of the rules of this court, as amended, the protest was dismissed for lack of prosecution.
2 D. Haw. 122		Dole, L A decision was recently given in this case allowing exceptions to the original libel. The libellant has amended his libel and libellee has filed exceptions thereto on substantially the same ground as in the exceptions to the original libel. In the original libel the libellant alleged that he was a mariner and licensed .as a skillful master of ocean steam-vessels and relied upon his wages as a mariner for his support; that he entered into an agreement with the libellee to work on his steam-vessels in the capacity of second mate at fifty dollars a month wages, and his board and lodging, which were worth thirty dollars a month; and the libellee agreed as part of the contract that his employment should be steady with chance of promotion; that he began work under such agreement August 8th, 1901, on the steam-vessel known as the "Keauhou," as second mate thereon; that on September 6th, 1901, he was promoted by the' libellee to the grade of first mate on the said steam-vessel with the pay of ninety dollars a month and his board and lodging as above referred to; that he continued in said employment and in such capacity of first mate until the 15th day of March, 1904, when he was wrongfully discharged without reasonable cause, sustaining damages thereby to the amount of fifty thousand dollars. The exceptions were allowed on the ground that the libel showed the agreement to be an ordinary contract for hiring and contained no stipulation fixing any definite period for the termination of the engagement, the rule being that in such cases the contract may be terminated at any time at the election of either party. The amended libel alleges that previous to the engagement, libellant, in addition to the allegations as to his occupation as a mariner and skillful master of steam-vessels, was in the City o.f San Francisco where the wages of officers of coastwise steam-vessels were seventy-five dollars a month with board and lodging for the position of second mate, and that he had, previous to the said engagement secured an appointment as second mate upon one of the said coastwise steam-vessels at said wages and board and lodging, but had not, at the time of said engagement, entered upon the discharge of his duties under such appointment; that he communicated to the libellee all these matters above set forth in regard to the wages of such officers in San Francisco and that he had secured such appointment as second mate on a coastwise steam-vessel but had not entered upon the discharge of his duties under tire same; that the libellee: requested him, notwithstanding the premises, to surrender and abandon the said appointment as second mate upon said steam-vessel and to leave San Francisco and come to Honolulu and enter the services of the libellee as a second mate according to the engagement as stated in the original libel, alleging distinctly that the libellee promised him that if he would surrender and give up the said appointment and would leave San Francisco and come to Honolulu and enter the service of the libellee as aforesaid, that the libellee would give the libellant the contract of employment above set forth, and that he assented to the same and by reason of the said agreement gave up his said appointment as second mate upon the coastwise steam-vessel and entered the service of the libellee, and thereafter performed services according to the statement above set forth as taken from the original libel. Upon this showing the counsel for the libellee contends that the general rule as to contracts of hiring applies, there being no stipulation as to the length of service agreed upon, and that the contract is not one in which damages can be given on a suit for breach of contract on account of the discharge of the employe. The counsel for the libellant, on the other hand, contends that the allegations above set forth in the amended libel, remove the case from the general rule and entitle the libellant to damages because of the circumstance that the libellant was induced by the promise of the' libellee to give up a valuable position which he held at that time in the port of San Francisco and come to Honolulu to enter the service of the libellee, relying on his promise of steady employment with chance of promotion. In other words, that consideration passed from the employe to the employer at the inception of the contract, in the nature of a sacrifice made by the employe for the benefit of the employer, whereby the case belongs to the class of cases referred to in the trial of the exceptions to- the original libel in which were cited the cases of Pennsylvania Co. v. Dolan, 32 N. E. 802, and Carnig v. Carr, 167 Mass., 544. In these, damages were allowed by the courts because of the discharge of the employe although there was no agreement for a definite period of service, the circumstances of the first mentioned case showing that the con-ti act was one for life, in that it was an agreement to furnish plaintiff, who had been injured in the service of defendant, steady and permanent employment and pay him the same wages that he was earning when he received his injuries in the service of the defendants, on the condition of his releasing the company from all liability for damages on account of the said injuries. The injuries of Dolan were permanent and the court ruled that it was a contract for life. In the case of Carnig v. Carr, thie plaintiff, engaged in the same kind of business as that carried on by defendant, was induced by the latter to give up his busi-' ness and enter into the service of the defendant as a skilled workman, and this being both a valuable consideration to the defendant and a sacrifice by the plaintiff, the court decided that Carnig could not afterwards be discharged by defendant without cause. There is also a case in 173 U. S. Reports, Pierce v. Tenn. Coal, Iron & Railroad Co., which is a case of injury to the employe and an agreement to employ him at regular wages conditioned on his discharging the company from all liability for his injury. The man was dismissed after some time had elapsed and had not recovered his ability to do full work. The court, in deciding that he had an action against the company, referred to a number of cases including the case of Carnig v. Carr, and said: "An intention of the parties that, while the plaintiff abso lutely released the defendant from the claim, the defendant, might at its own will and pleasure cease to- perform all the obligations Avhich Avere the consideration of this release, finds no support in the terms of the contract, and is too unlikely to be-presumed." These references sIioav sufficiently the class of cases which are-not' Avithin the ordinary rule relating to contracts of hiring and the reasons therefor, and we reach the question whether the case before us is Avithin this class. The laAV laid down in the case of Savannah v. Willett; 31 So.,. 246, Avould, if folloAved by this court, definitely decide libellant's, case to be one- of an ordinary contract of hiring and not Avithin the class of cases above referred to, which are in the nature of exceptions to such rule. Willett, a conductor of one railroad,, desired an engagement as conductor on another railroad as a step toAvard bettering his condition, and so informed the latter company upon applying for the position. He was told by this company that he wo-uld be given employment as conductor on. its road if he would report at once for duty, which 'he did, in the meantime resigning his former position. Before he entered upon his new duties he Avas informed by his new employer that, he would not be retained unless he should procure a release or-recommendation from his old company. Although this was. a second thought on the part of the new employer and his application for employment had previously been accepted, and lie-had received instructions as to his course of action under such engagement and had terminated his relations with his old employer, yet the Supreme Court of Florida decided that his action for breach of contract could not be maintained'for Avant of stipulation as to some definite period of service-. -This decision appears to be severe and it may be that there is an element of' reasonable fair dealing due in such a case to the employe which has not as yet been recognized by the courts. Here ivas a man acting in absolute good faith, led on by another party to whom he gave his confidence not unreasonably, to burn his ships,— so to speak, and irrevocably commit himself to a new engagement, which engagement was repudiated by the new employer and the employe discharged even before he had time to begin to earn wages under the new contract of employment. The court finds no remedy for this manifest wrong. It would seem that some remedy should exist for such an injury, perhaps from an action ex delicto rather than from one ex contractu. The case of Savannah v. Willett would be parallel to the case before the court if the libellant in the latter had been discharged upon his arrival at Honolulu before he had entered upon the duties of his new position. If that had taken place, I should feel that in some way he would be entitled to damages, for to induce a sailor holding an engagement in San Francisco worth seventy-five dollars a month with board and lodging, to cancel such engagement and come two thousand miles to Honolulu, on the promise of steady employment with chance of promotion with wages at fifty dollars a month at the start and board and lodging, and then to discharge him on his arrival at Honolulu, would unquestionably be treatment savoring of rank injustice. But as the conxract with the libellant was carried out in .good faith for a period of over two years and a half, and the stipulation in such agreement that he should have steady employment with chance of promotion being faithfully carried out by promotion to the position of first mate with a raise of wages from fifty to ninety dollars a month and board and lodging as before, before he had been in the service of the libellee for one month, I feel, on the theory that he was entitled to employment under his engagement with the libellee for a reasonable length of time in view of the sacrifice that he made at the inception of the contract by conceiting his engagement in San Francisco and coming to Honolulu, which may be said to support a presumption of an agreement on the part of the employer for an engagement for such reasonable time as would be a substantial return for such sacrifice, that he had nothing to complain of and has suffered no damages that the libellee is liable for on account of his discharge. In accordance, therefore, with these conclusions, the exceptions are allowed.
181 L. Ed. 2d 88		Petition for writ of certiorari to the United States Court of Appeals for the Ninth Circuit denied. Same case below, 415 Fed. Appx. 822.
926 F.2d 1197		Opinion for the Court filed by Circuit Judge D.H. GINSBURG. D.H. GINSBURG, Circuit Judge: Appellant SafeCard Services, Inc. sued the Securities and Exchange Commission, under the Freedom of Information Act, 5 U.S.C. § 552, to obtain certain documents relating to that agency's investigation into the manipulation of SafeCard stock. The district court granted the SEC summary judgment with respect to 44 documents for which it claimed the attorney work product or deliberative process privileges of Exemption 5, or invoked the personal privacy provision of Exemption 7(C). 5 U.S.C. § 552(b)(5) & (7)(C). The district court denied SafeCard's motion for discovery into the circumstances surrounding the destruction of 127 other documents and the loss of seven files covered by the company's FOIA request. We affirm the district court rulings regarding discovery and the work product and privacy exemptions. We remand for further proceedings with respect to the documents withheld pursuant to the deliberative process privilege. I. Background In the early 1980s, the SEC initiated a series of investigations into potentially illegal trading in SafeCard's stock. After the SEC had closed most of those investigations, SafeCard requested all documents relating to 33 individuals and organizations that the agency had suspected of manipulating SafeCard's stock. After several years of negotiation, SafeCard sued the SEC; thereafter the parties reached a framework agreement, pursuant to which the SEC released approximately 75,000 pages of material. The parties remain in dispute, however, over three groups of documents. The first group is composed of 127 documents that were among those mistakenly destroyed when the SEC's contract cleaning service discarded the box in which Denise Dishman, an SEC paralegal, was keeping them. Sixteen of these documents were the subject of a motion for summary judgment pending at the time they were destroyed; hence we shall call them the "MSJ documents." The parties have denominated the other 111 the "non-responsive documents," although they, too, were the subject of a later motion for summary judgment. The second group of documents in dispute comprises the contents of seven files that the SEC located but, according to the agency's records, sent to the Federal Records Center during a two year hiatus in this litigation. The FRC has not been able to retrieve these files. The third group is the 44 documents for which the SEC claims an exemption from the FOIA. It asserts that six documents are exempt under the privilege for attorney work product, which is incorporated into Exemption 5; that seven documents (including one of the foregoing six) are exempt under the deliberative process privilege, also incorporated into Exemption 5; and that 32 other documents contain names and addresses that come within Exemption 7(C) because their release would constitute an unwarranted invasion of personal privacy- II. Discovery SafeCard moved for discovery in order to inquire into the circumstances surrounding the SEC's loss of documents and the adequacy of its efforts either to locate or to recreate the lost documents. The district court held that the SEC's affidavits were sufficient to justify summary judgment on the adequacy of its efforts, and therefore denied discovery. This court will overturn the district court's exercise of its broad discretion to manage the scope of discovery only in unusual circumstances. Brune v. IRS, 861 F.2d 1284, 1288 (D.C.Cir.1988). In order to establish the adequacy of a search, agency affidavits must be, as the district court correctly noted, "relatively detailed and non-conclusory, and . submitted in good faith." Ground Saucer Watch, Inc. v. CIA, 692 F.2d 770, 771 (D.C.Cir.1981) (citations and quotation marks omitted). Agency affidavits are accorded a presumption of good faith, which cannot be rebutted by "purely speculative claims about the existence and discoverability of other documents." Id. SafeCard no longer denies that Ms. Dish-man's affidavit concerning efforts to locate copies of the 111 non-responsive documents is sufficiently detailed and non-conclusory to support the district court's judgment. Instead, it argues that Ms. Dishman's other affidavits, regarding the circumstances in which all 127 documents were destroyed, the SEC's search for and efforts to reconstruct the 16 MSJ documents, and its search for the seven lost files, were lacking in detail and conclusory. SafeCard also points to various inconsistencies in the SEC affidavits, which it claims raise enough uncertainty about the adequacy of the agency's search, or about its good faith, to warrant discovery. None of SafeCard's ar guments is sufficiently weighty to justify the substitution of our judgment for that of the district court. First, the SEC adequately investigated and described the circumstances surrounding the destruction of the 127 documents. Ms. Dishman interviewed the relevant employees of the cleaning company and recounted what she learned from those interviews. This, coupled with her unavailing room-to-room search for the box of missing documents, provides adequate assurance that the documents were in fact destroyed. SafeCard objects to the second-hand nature of this affidavit, insofar as it describes what the cleaning crew told the affiant. The point is not well taken in circumstances such as these, however. Ms. Dish-man was in charge of coordinating the SEC's search and recovery efforts, and therefore she is the most appropriate person to provide a comprehensive affidavit. See, e.g., Meeropol v. Meese, 790 F.2d 942, 951 (D.C.Cir.1986) (approving reliance upon affidavit of agency employee responsible for supervising search, although he necessarily relied upon information provided by staff members who actually performed search). In the case cited by SafeCard, Weisberg v. Department of Justice, 627 F.2d 365 (D.C.Cir.1980), an FBI agent stated only that "he believed the [spectro-graphic] plate [relating to the assassination of President Kennedy] was discarded in one of the periodic housecleanings by the laboratory." Id. at 369. His belief was not said to be based upon his or anyone else's actual knowledge that the plate was discarded. In this case, the very person who removed the box confirmed that fact for Ms. Dishman, and the supervisor of the cleaning crew explained to her that the trash would have been compacted and sent to a landfill. Therefore, Ms. Dishman's affidavit, although partly second-hand, is not at all speculative, as was the affidavit in Weisberg. Second, Ms. Dishman's affidavits concerning the search for the 16 MSJ documents, while not as detailed as the affidavit concerning the 111 non-responsive documents, are sufficient to support summary judgment. As recounted in these affidavits, Ms. Dishman determined that 12 of the 16 documents were originals of a type that the SEC does not ordinarily copy or keep; for this reason, she made no further effort to locate any (presumably nonexistent) copies. SafeCard objects that her search was therefore inadequate, but we disagree. When a plaintiff questions the adequacy of the search an agency made in order to satisfy its FOIA request, the factual question it raises is whether the search was reasonably calculated to discover the requested documents, not whether it actually uncovered every document extant. Meeropol, 790 F.2d at 950-51; Weisberg v. Department of Justice, 705 F.2d 1344, 1357 (D.C.Cir.1983). Mere speculation that as yet uncovered documents may exist does not undermine the finding that the agency conducted a reasonable search for them. Weisberg v. Department of Justice, 745 F.2d 1476, 1486-87 (D.C.Cir.1984); Ground Saucer Watch, 692 F.2d at 771. The SEC's failure to make hopeless and wasteful efforts to locate copies that would never have been created in the normal course is not a ground for reversal of the district court. Nor is the SEC required to recreate or to reacquire a document that it no longer has. Yeager v. Drug Enforcement Admin., 678 F.2d 315, 321 (D.C.Cir.1982). The FOIA provides a claimant with a remedy only against an agency that has "improperly withheld" a record. 5 U.S.C. § 552(a)(4)(B); GTE Sylvania, Inc. v. Consumers Union of United States, Inc., 445 U.S. 375, 384, 100 S.Ct. 1194, 1200, 63 L.Ed.2d 467 (1980). If the agency is no longer in possession of the document, for a reason that is not itself suspect, then the agency is not improperly withholding that document and the court will not order the agency to take further action in order to produce it. Third, SafeCard's objection to the absence of detail in Ms. Dishman's affidavits describing the search for the seven lost files is misdirected. Ms. Dishman repeatedly, over the course of several months, asked the FRC to search for the files that SafeCard had requested but that SEC records listed as being in the FRC's custody. The FRC recovered several of those files. Eventually, however, a Mr. Miller at the FRC told Ms. Dishman that a thorough three-month search had failed to turn up seven of the requested files. Having taken all of the steps within its power to retrieve the files from the FRC, the SEC fulfilled its burden of conducting a search reasonably calculated to discover the documents requested. Insofar as Safe-Card's objection goes to the adequacy of the FRC's effort, it is out of bounds; discovery will not lie against the SEC in order to inquire into the workings of the FRC, and SafeCard has made no effort to gain discovery directly from the FRC. Finally, SafeCard's claim that there are "troubling inconsistencies" in the SEC affidavits and briefs refers us only to trivial matters, such as typographical errors and minor ambiguities undeserving of extended treatment here. Much is made, for example, of the appearance that the SEC created two inconsistent Vaughn indices, one for the district court and one for the Appellant, although the SEC adequately explained the matter as a simple confusion between the final and the penultimate versions of the same index. This apparent mix-up and a small collection of other technical failings support neither the allegation that the SEC's search procedures were inadequate, nor an inference that it acted in bad faith. III. Exemptions The district court upheld the SEC's claim that it could withhold 12 documents under FOIA Exemption 5 (attorney work product and deliberative process) and redact information from 32 others under Exemption 7(C) (personal privacy). We deal in turn with each ground of exemption. A. Attorney Work Product SafeCard does not deny that the six documents withheld as attorney work product contain the "mental impressions, conclusions, opinions or legal theories of an attorney." Fed.R.Civ.P. 26(b)(3). It questions only whether these documents were prepared "in anticipation of litigation." To meet that standard, we have held, "the documents must at least have been prepared with a specific claim supported by concrete facts which would likely lead to litigation in mind." Coastal States Gas Corp. v. Department of Energy, 617 F.2d 864, 865 (D.C.Cir.1980). A law enforcement agency may meet this standard by demonstrating that one of its lawyers prepared a document in the course of an investigation that was undertaken with litigation in mind. Such an investigation would have to be, and typically would be, based upon a suspicion of specific wrongdoing and represent an attempt to garner evidence and to build a case against the suspected wrongdoer. The existence of an active investigation, therefore, is strong circumstantial evidence that the agency lawyer prepared the document with future "litigation in mind." Cf. Senate of Puerto Rico v. Department of Justice, 823 F.2d 574, 586 (D.C.Cir.1987) ("absence of an ongoing investigation" one factor indicative that litigation not anticipated). In this case, SEC lawyers prepared all the documents in question in the course of active investigations into potentially unlawful stock trades by specific individuals. According to the Vaughn index, the documents contain the lawyers' analyses of those trades, and of the testimony they took from numerous witnesses with regard to them. SafeCard offers as its strongest counterexample document 31-1, which the Vaughn index describes as follows: Colonial Commercial HO-1187 Handwritten Staff Notes. There are approximately fifty pages of notes memorializing staff legal research. These notes contain comments, summaries and analy-ses of facts, cases and documents as they relate to issues raised in a commission investigation. Release of these materi als would reveal the staff's analysis as to the legal theories it considered pursuing in this case. These materials constitute attorney work product. SafeCard's objection is that "such a broad statement of privilege is inadequate" because, under our decision in Coastal States, "the agency must establish in its affidavits and indexes the fact that a specific claim had arisen [and] was disputed." 617 F.2d at 866. According to SafeCard, "The SEC should have been required to provide concrete facts to show that litigation was intended." This objection focuses upon a single entry in the Vaughn index, divorced from the accompanying affidavits and the related index entries that put this particular document into context. The SEC created this document in the course of an investigation of particular subjects — individuals and companies that it believed may have violated the law. The entry for a related document itemizes the specific sections of the securities laws that the SEC believed they may have violated, and the entry for 31-1 itself makes clear that the agency had reached the stage in its investigation at which it was comparing the accumulated facts to the caselaw and evaluating the "legal theories it considered pursuing." Moreover, as the agency points out in its brief, "the staff had taken testimony from at least 15 witnesses, discussed granting immunity to another, and was preparing an advisory memorandum to the Commission on whether to file an injunctive action." According to an SEC affidavit, such an investigation concludes with a decision whether to file a complaint. If the agency cannot in these circumstances be said to have had litigation of a specific claim in mind, it is impossible to imagine when, prior to the actual filing of a complaint, it can be. Cf. Delaney, Migdail & Young, Chartered v. IRS, 826 F.2d 124, 127 (D.C.Cir.1987) (memoranda advising IRS of anticipated legal challenges to proposed program held attorney work product). While we do not hold that every document prepared during an investigation is necessarily prepared in anticipation of litigation, the evidence in this case is more than sufficient to meet this requirement of the attorney work product privilege. We are mindful of the fact that "the prospect of future litigation touches virtually any object of" a prosecutor's attention, Senate of Puerto Rico, 823 F.2d at 587, and that the work product exemption, read over-broadly, could preclude almost all disclosure from an agency with substantial responsibilities for law enforcement. We do not so read the exemption, however. We hold only that where an attorney prepares a document in the course of an active investigation focusing upon specific events and a specific possible violation by a specific party, it has litigation sufficiently "in mind" for that document to qualify as attorney work product. B. Deliberative Process The seven documents for which the SEC claims the deliberative process exemption are the minutes of various meetings at which the Commissioners considered whether to file certain injunctive actions, and documents relating to the staff's evaluation of a preliminary prospectus that Safe-Card had filed. SafeCard does not challenge the deliberative nature of these documents, but it does question whether the documents are pre-decisional, or whether they were adopted by, or expressly incorporated into, final decisions of the agency. It is the agency's burden to establish the predecisional character of the documents. Coastal States, 617 F.2d at 868. Our starting point for analysis of the deliberative process privilege is NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 153-54, 95 S.Ct. 1504, 1517-18, 44 L.Ed.2d 29 (1975). In that case, the Supreme Court held that the decision of the General Counsel of the NLRB not to file an unfair labor practice complaint constituted final action in the adjudication of a case. That holding had two independent consequences: first it made the memorandum of the General Counsel explaining his decision, and any document adopted by, or expressly incorporated into, that memorandum, subject to the affirmative disclosure requirements of 5 U.S.C. § 552(a); and second, it removed the General Counsel's memorandum and any incorporated document from the scope of the deliberative process privilege. Following Sears, we decided Bristol-Myers Co. v. FTC, 598 F.2d 18, 28 n. 20 (D.C.Cir.1978), which concerned the Federal Trade Commission's claim that the minutes of a Commission meeting were within the deliberative process exemption. We held that, in order to carry its burden, the agency must describe not only the contents of the document but also enough about its context, viz. the agency's decisionmaking process, to establish that it is a pre-deci-sional part thereof. 598 F.2d at 28 n. 20; see also Senate of Puerto Rico, 823 F.2d at 586; King v. IRS, 684 F.2d 517, 519 (7th Cir.1982). Specifically, the court needs to know whether the document explains, directly or by reference, the reason for the agency's decision. Bristol-Myers, 598 F.2d at 24-28. The SEC objects that the incorporation principle of Sears and Bristol-Myers applies only to material incorporated into a "final opinion" in an "adjudication under Section 5 of the Administrative Procedure Act." The SEC's decision not to file an injunctive action against a particular entity would, like the General Counsel's memorandum in Sears, seem to constitute final agency action in the adjudication of a case. If so, then even if the principle of Sears and Bristol-Myers were as limited as the SEC suggests, the agency decisions at issue in this case would nonetheless fall within its bounds. We need not decide whether these documents are final opinions, however, because we do not understand the incorporation principle to be as limited as the SEC suggests. The Supreme Court's reasoning in Sears was based in large part upon the non-pre-decisional character of the documents there withheld. The Court viewed a final opinion in the adjudication of a case as the paradigm of a document that is not pre-decisional. 421 U.S. at 152 n. 19, 95 S.Ct. at 1517 n. 19. In explaining why the rationale of the deliberative process privilege does not apply to an agency's explanation of its final action, the Court noted that "[t]he probability that an agency employee will be inhibited from freely advising a decision maker for fear that his advice, if adopted, will become public is slight." Sears, 421 U.S. at 161, 95 S.Ct. at 1521 (emphasis in original). This point cuts to the heart of Exemption 5, regardless of whether the advice is incorporated into a "final opinion" in a Section 5 "adjudication," or into some other species of final decision. In Sears, the Court treated the possible incorporation of a document into a Section 5 final opinion as illustrative, not exhaustive, of the ways in which the pre-decisional status of a document may be terminated for purposes of the deliberative process privilege. In this case, the SEC has provided very limited information about the nature of the deliberative process of which it says these documents are a part. The description of documents 10-1 and 10-2 in the Vaughn index illustrates the problem: At this 1/24/78 meeting, the Commission discussed whether to file an injunctive action against Marc Howard and Howard Associates. At the conclusion of this discussion, the Commission reached a decision on this question. These minutes reflect the Enforcement attorney's recommendations to the Commission that are protected from disclosure by the deliberative process privilege. Without further information, it is impossible to know whether the agency's claim of exemption exceeds the limits established in Sears and Bristol-Myers. The SEC needs to explain such matters as how decisions like those in issue are reached; the role that staff discussion and memoranda play in such decisions; the manner in which such decisions are memorialized and explained; and whether such decisions are treated, in later agency decisionmaking, as precedents. See, e.g., Renegotiation Bd. v. Grumman Aircraft Engineering Corp., 421 U.S. 168, 185-86, 189, 95 S.Ct. 1491, 1500-01, 1502, 44 L.Ed.2d 57 (1975) (agency explanation that it uses recommendations for purpose of discussion but never explicitly adopts or ratifies reasoning contained in those documents supports deliberative process exemption for those documents). As with the work product claim, the necessary information can be provided by accompanying documents that give context to the Vaughn index entry. In this instance, however, the SEC's other submissions create, rather than allay, doubts about the applicability of the deliberative process exemption; consequently, the present record is insufficient to support summary judgment in favor of the agency. For example, an SEC affidavit reports that "[tjopics discussed and decisions rendered [at Commission meetings] are recorded and documented," and that "[t]his information is communicated to the staff." This statement raises the possibility that the staff uses the minutes of these meetings as informal precedents to guide their decisions in future cases. Surely any portion of the minutes recounting a Commissioner's explanation of why he or she voted in a particular way could not be considered pre-decisional, any more than would that Commissioner's separate written opinion accompanying the agency's final order. Additionally, if, in explaining its collective decision, the Commission expressly adopts or incorporates any element of a Commissioner's or a staff member's prior oral or written discussion of the matter, those incorporated portions of earlier minutes or documents would no longer qualify as pre-decisional. In this ease SafeCard claims that the discussions contained in the Commission minutes may explain, or have been incorporated into, the final decisions to which they relate. Because the SEC has failed to disclose the substance of those final decisions, and has failed to explain the decisionmak-ing process in such a way as to make it clear that there is no need for such disclosure, it has not met its burden of demonstrating that the deliberative process exemption is applicable. C. Exemption 7(C) Privacy The SEC deleted the names and addresses of third parties mentioned in witness interviews, of customers listed in stock transaction records obtained from investment companies, and of persons in correspondence with the SEC. It claims that this information is covered by Exemption 7(C), which applies to information compiled for law enforcement purposes, the release of which "could reasonably be expected to constitute an unwarranted invasion of personal privacy." 5 U.S.C. § 552(b)(7)(C). In order to evaluate the propriety of these deletions, the court must balance the privacy interests involved against the public interest in disclosure. Department of Justice v. Reporters Committee for Freedom of the Press, 489 U.S. 749, 762, 109 S.Ct. 1468, 1475-76, 103 L.Ed.2d 774 (1989). The privacy interest at stake is substantial. "There is little question that disclosing the identity of targets of law-enforcement investigations can subject those identified to embarrassment and potentially more serious reputational harm." Senate of Puerto Rico, 823 F.2d at 588 (accord as to subjects of investigation, potential defendants, and witnesses). Recognizing this danger, Exemption 7(C) "affords broad[] privacy rights to suspects, witnesses, and investigators." Bast v. Department of Justice, 665 F.2d 1251, 1254 (D.C.Cir.1981). The public interest in disclosure is not just less substantial, it is insubstantial. SafeCard argues that "access to the names and addresses of potential witnesses or litigants in SEC stock manipulation investigations would provide SafeCard and the public with insight into the SEC's conduct with respect to SafeCard in particular and short selling practices in general." We have rejected similar claims in the past because the type of information sought is simply not very probative of an agency's behavior or performance. See, e.g., Senate of Puerto Rico, 823 F.2d at 588; Bast, 665 F.2d at 1254-55; see also Reporters Committee, 489 U.S. at 773-74, 109 S.Ct. at 1481-82 (discussing Department of the Air Force v. Rose, 425 U.S. 352, 96 S.Ct. 1592, 48 L.Ed.2d 11 (1976), and noting that deletions of names from disciplinary hearing summaries "were unquestionably appropriate because the names of the particular cadets were irrelevant to the inquiry into the way the Air Force Academy administered its Honor Code"). Indeed, unless there is compelling evidence that the agency deny ing the FOIA request is engaged in illegal activity, and access to the names of private individuals appearing in the agency's law enforcement files is necessary in order to confirm or refute that evidence, there is no reason to believe that the incremental public interest in such information would ever be significant. In Reporters Committee, the Supreme Court held that "categorical decisions may be appropriate and individual circumstances disregarded when a case fits into a genus in which the balance characteristically tips in one direction." 489 U.S. at 776, 109 S.Ct. at 1483. Courts are to generalize from their experience, that is, in order to minimize unnecessary inquiries into factual minutiae, much as they do in applying the per se rule in antitrust to categories of conduct so likely to warrant liability as to make a particularized inquiry a poor use of resources. Prior to Reporters Committee this court had many a time resolved particularized inquiries in favor of withholding the names and addresses of private individuals appearing in law enforcement files. See, e.g., Keys v. Department of Justice, 830 F.2d 337, 346-48 (D.C.Cir.1987); King v. Department of Justice, 830 F.2d 210, 233-34 (D.C.Cir.1987); Senate of Puerto Rico, 823 F.2d at 588; Bast, 665 F.2d at 1254-55; Fund for Constitutional Government v. National Archives & Records Service, 656 F.2d 856, 861-66 (D.C.Cir.1981); Baez v. Department of Justice, 647 F.2d 1328, 1338-39 (D.C.Cir.1980); Lesar v. Department of Justice, 636 F.2d 472, 488 (D.C.Cir.1980). We now hold categorically that, unless access to the names and addresses of private individuals appearing in files within the ambit of Exemption 7(C) is necessary in order to confirm or refute compelling evidence that the agency is engaged in illegal activity, such information is exempt from disclosure. No such evidence of agency misconduct appearing in this case, the agency need not disclose the names and addresses redacted from the documents at issue here. Conolusion The decision of the district court denying discovery was reasonable and well within its broad discretion to manage such matters. We agree with the district court that the SEC was entitled to summary judgment with regard to the exemptions it claims under the work product privilege of Exemption 5 and under the personal privacy provision of Exemption 7(C). We find the record inadequate to support the SEC's deliberative process claim under Exemption 5, however. Accordingly, we remand the matter for the district court to inquire whether any of the deliberative material at issue was adopted as, or incorporated by reference into, a final agency decision, which would preclude its exemption. If the district court determines that the SEC incorporated document 29-3 into a final decision, then the agency must release it even though it would otherwise be covered, as we have held, by the attorney work product privilege. See Bristol-Myers, 598 F.2d at 24 n. 11. So ordered.
454 U.S. 889		C. A. 5th Cir. [Probable jurisdiction noted, 452 U. S. 937.] Motion of appellees for divided argument granted. Motion of appellees for additional time for oral argument denied.
180 L. Ed. 2d 902		Petition for writ of cer-tiorari to the United States Court of Appeals for the Eleventh Circuit denied. Same case below, 415 Fed. Appx. 182.
310 U.S. App. D.C. 134		Opinion for the Court filed PER CURIAM. PER CURIAM: Appellants Transcapital Financial Corporation and American Capital Corporation, holding companies of the now-defunct Transohio Savings Bank, challenge the district court's dismissal with prejudice of appellants' takings claim against the Office of Thrift Supervision ("OTS") and the Federal Deposit Insurance Corporation ("FDIC"). The FDIC cross-appeals the district court's dismissal without prejudice of appellants' contract claims against it. We initially disposed of this appeal in an unpublished memorandum issued November 23, 1994. Appellants then moved for publication, arguing that the decision clarifies this court's previous opinion in the same case, Transohio Savings Bank v. Director, Office of Thrift Supervision, 967 F.2d 598 (D.C.Cir.1992). We will not repeat the extended statement of the facts found in the Transohio opinion. See id. at 600-06. In Transohio we explained that the Ramirez exception (see Ramirez de Arellano v. Weinberger, 745 F.2d 1500, 1527 (D.C.Cir. 1984) (en banc), vacated on other grounds, 471 U.S. 1113, 105 S.Ct. 2353, 86 L.Ed.2d 255 (1985)) permitted a United States District Court to exercise jurisdiction over a takings claim for injunctive relief when the monetary compensation available exclusively in the Federal Court of Claims would be wholly inadequate to compensate the complainant for the alleged taking. 967 F.2d at 613. We found no need for the district court to decide on remand whether Appellants' takings claim against the OTS and the FDIC fell within this jurisdictional exception, however, because we had independently determined that in any event Appellants could not prevail on the merits of their takings claim for injunctive relief. Id. at 613-14. On remand, the district court nevertheless determined that it had jurisdiction over Appellants' takings claim, citing our discussion of the Ramirez exception. But by the time of the district court's jurisdictional determination, the OTS had placed Transohio Savings Bank into receivership, thereby rendering moot Appellants' claims for injunctive relief. Therefore, the Ramirez exception simply could not apply. Appellees do not appear to contest this analysis, as they do not argue that the district court's resolution of the jurisdictional issue was correct. Rather, they argue only that the proper resolution of the jurisdictional issue is "unclear," both because of this Court's Transohio decision and because of the Supreme Court's decision last Term in FDIC v. Meyer, — U.S. -, 114 S.Ct. 996, 127 L.Ed.2d 308 (1994). Appellees therefore urge this court to "bypass" the issue of jurisdiction and affirm the district court's judgment in their favor because in light of the Transohio opinion "a 'decision on the merits is . foreordained' " (quoting Secretary of the Navy v. Avrech, 418 U.S. 676, 678, 94 S.Ct. 3039, 3040, 41 L.Ed.2d 1033 (1974); see Burlington Northern R.R. Co. v. ICC, 985 F.2d 589, 593 (D.C.Cir.1993)). As we explained above, any uncertainty that may have existed at the time of our Transohio decision over whether the Ramirez exception sufficed to establish district court jurisdiction over Appellants' takings claim for injunctive relief has now been completely eliminated. That Appellants' complaint also contained an alternative prayer for rescission, restitution and "other and further relief' is not material to our analysis of whether Ramirez could have provided a basis for district court jurisdiction after the bank's seizure. These alternatives did not pertain to Appellants' takings claim, which sought only prospective relief. For purposes of this appeal, we reject the argument that Meyer renders the jurisdictional issue so complicated that we should proceed to the merits. We also note that precisely because the United States District Courts do not have jurisdiction over takings claims for compensation in excess of $10,000, our prior Transohio decision did not limit, and indeed could not have limited, Appellants' right to seek compensation in the Federal Court of Claims. Rather, the takings analysis in the Transohio opinion, including the statement that "Transohio cannot prevail on its takings claim on the merits," 967 F.2d at 614, was solely concerned with Appellants' ability to obtain injunctive relief, as is evident from the opinion's repeated explanations that Transohio "did not receive from the banking regulators a right that defeats Congress' power to change the law on goodwill accounting." Id. at 613; see id. at 601, 624. That analysis has no bearing one way or the other on the merits of Appellants' claim for compensation in the Federal Court of Claims. Accordingly, we vacate the district court's judgment in favor of Appellees on the merits of Appellants' takings claim, and we remand the case with instructions to dismiss the takings claim without prejudice for lack of subject-matter jurisdiction. We also reject the FDIC's efforts to cross-appeal the district court's dismissal without prejudice of Appellants' contract claim against the FDIC. Such an appeal is not proper in the absence of a notice of cross-appeal, as the FDIC admits, and we will not waive this requirement in these circumstances. Whatever technical deficiencies may have existed in the district court's apparent failure to comply with the separate judgment rule, see Fed. R.Civ.P. 58 and 79(a), this failure did not give rise to the confusion and uncertainty that we relied upon in waiving the cross-appeal notice requirement in Spann v. Colonial Village, Inc., 899 F.2d 24, 33 (D.C.Cir.), cert. denied, 498 U.S. 980, 111 S.Ct. 508, 509, 112 L.Ed.2d 521 (1990). So ordered.
30 B.T.A. 993		OPINION. Mokris : The respondent having determined a deficiency in tax of $3,648.05 for the calendar year 1930, the petitioner brings this proceeding for the redetermination thereof, alleging as error in such determination the respondent's failure to adhere to sections 41 and 42 of the Revenue Act of 1928, and certain articles of Regulations 74 promulgated thereunder, hereinafter set forth. Specifically, the question for consideration is whether or not the income from certain contracts was taxable in the year 1930, as the respondent has held, or in 1931, as the petitioner contends. The petitioner is a corporation, with its principal office in Youngstown, Ohio, where it is engaged in the installation of heating, plumbing, ventilating, and power plant systems. The petitioner entered into a contract on April 16, 1929, to install a complete heating and ventilating system, including boilers, radiators, piping, and plumbing in the Central Bank Building at Youngstown, Ohio, which contained the following clause; Guarantee. This, contractor shall guarantee his work generally for a period of two heating seasons after the acceptance of the work; ordinary wear and tear excepted, but not releasing him from return trap repairs. Should imperfections develop due to faulty workmanship during the above period, this contractor shall repair same in a proper and satisfactory manner to the architect, without cost to the owner. It entered into a contract with the school district of Sharon, Pennsylvania, on June 25, 1929, for the installation of boilers, stokers, ventilating equipment, unit heater for class rooms, and temperature regulation, in the Sharon Junior School Building, which contained the following clause: Guarantee: All labor and materials shall be guaranteed in writing for one year against all defects, except such as are due to wear, neglect and bad management of the plant. The contractor shall guarantee the free circulation of steam throughout the entire system, without noise or hammering, and that the operation of the motors and fans will be reasonably free from noise. He shall furnish all necessary instructions and make all adjustments required to develop the full capacity of the apparatus and to warm the building in accordance with the requirements of the plans and specifications, without undue strain or excessive length of time, provided that the heating and ventilating apparatus is in continuous operation and all doors, windows and other openings are tightly closed; also that the ventilating system will provide at least 50 cubic feet of fresh air per minute for each pupil accommodated, in accordance with the requirements of the Pennsylvania State Code. All defective material, as mentioned above, shall be repaired without extra charge by the contractor.. Any radiators, coils, etc., failing to circulate properly, or piping' or equipment showing leaks, shall be altered, remodeled or changed until same performs properly, without charge by the contractor. The contractor shall keep the entire plant in proper operative adjustment and condition for one year following its completion without charge. Natural wear, accident, or carelessness on the part of others, however, shall not be made good by this contractor. All machinery shall be left in successful operation and adjusted to its work on the most economical basis. It entered into a contract on August 10,1929, to furnish and install a boiler plant, plumbing, heating, and ventilating equipment in the Niles Trust Co. Building, which contained the following clause: When the herein specified apparatus is wholly completed, the heating contractor shall guarantee same for a period of one year after date of completion; that the work is installed in accordance with the plans and specifications; that vapor will circulate freely to all radiators, and that the plant is free from leaks or defective materials. All of the petitioner's contracts contained guarantee clauses similar to those above, some of which are for the period of one year and others for two years, under which it conducts periodical inspections, and where faulty material or workmanship is discovered proper replacements or repairs are made. In some cases the actual expenditures for material and labor in connection with such guarantees have been very small, but in other instances they have amounted to as much as 25 percent of the contract. For instance, in the case of the Sharon School contract it was required to install additional radiation and temperature regulation. The work upon the three contracts aforesaid was begun in April, July, and October, 1929, respectively, and final payments were received thereunder in the respective months of' March, December, and October, 19S0. The petitioner incurred direct expenses and apportioned the following indirect expenses against the several contracts during the guarantee period: No direct expenses were incurred under the Central Bank contract during the guarantee period. The entire $389.99 charged against the Niles Trust contract was incurred in 1930 so that, with the exception of the $664.54 charged against the Sharon School contract, there were no other direct expenses incurred beyond the taxable period in which final payments were actually received, under the contracts. The amounts charged against the several contracts as " Overhead expense during the maintenance and guarantee period " represent an arbitrary percentage of general overhead chargeable against the entire business. To the $665.54, direct charges above, should be added $38.70, premium paid by the petitioner for a bond to insure faithful performance under the guarantee provisions of the Sharon School contract covering one year of the two-year period of guarantee. Prior to 1922 the petitioner set up ' a reserve from year to year to provide for expenses arising under the " guarantee " clause of its contracts. In or about that year it was required by the Bureau of Internal Revenue to change to the method of accounting now employed, i.e., computing and recording profits upon contracts at the termination of the maintenance or " guarantee " period. At the completion of the contracts aforesaid the petitioner had no means of determining what the actual cost of the installation and compliance with the " guarantee " clauses therein or the actual net profits therefrom would be. In its return for the taxable year 1931 the petitioner deducted $27,424.25, composed of $13,485.80, $8,366.86, and $4,729.08, plus $842.51 not here in controversy, representing the profits from the three contracts here considered, together with the amount not in controversy, which apparently, though the record is not positive in this respect, had been included in the gross income for that year. The deduction was accompanied by the following explanation: "Amount of profit realized on contracts closed out in 1931 which was considered as 1930 taxable income by Revenue Agent at time he examined 1930 return." Such amount was not, however, included in the gross income in the petitioner's return for 1930, the year in which the respondent contends it should be included. Nor was it carried upon the petitioner's books as a profit in that year. So much of sections 41 and 42 of the Revenue Act of 1928 and the articles of Regulations Y4 promulgated thereunder as are pertinent hereto and are relied upon by the petitioner are as follows: Siso. 41. The net income shall be computed upon the basis of the taxpayer's annual accounting period (fiscal year or calendar year, as the case may be) in accordance with the method of accounting regularly employed in keeping the books of such taxpayers; Sec. 42. The amount of all items of gross income shall be included in the gross income for the taxable year in which received by the taxpayer, unless, under methods of accounting permitted under section 41, any such amounts are to be properly accounted for as of a different period. Akt. 331. When included in gross income. — Gains, profits, and income are to be included in the gross income for the taxable year in which they are received by the taxpayer, unless they are included as of a different period in accordance with the approved method of accounting followed by him. (See articles 321-323.) Abt. 321. The time as of which any item of gross income or any deduction is to be accounted for must be determined in the light of the fundamental rule that the computation shall be made in such a manner as clearly reflects the taxpayer's income. Akt. 334. Long-term contracts. — Income from long-term contracts is taxable for the period in which the income is determined, such determination depending upon the nature and terms of the particular contract. As used herein the term " long-term contracts " means building, installation, or construction contracts covering a period in excess of one year. Persons whose income is derived in whole or in part from such contracts may, as to such income, prepare their returns upon the following bases: # ' Jj # ;Js $ (b) Gross income may be reported in the taxable year in which the contract is finally completed and accepted if the taxpayer elects as a consistent practice so to treat such income, provided such method clearly reflects the net income. If this method is adopted there should be deducted from gross income all expenditures during the life of the contract which are properly allocated thereto . Abt. 322. Bases of computation. — Approved standard'methods of accounting will ordinarily be regarded as clearly reflecting income. Abt. 323. each taxpayer shall adopt such forms and systems of accounting as are in his judgment best suited to his purpose. The respondent, as we have stated, has determined that the profits from the three foregoing contracts were taxable in 1930, the year in which final payment of the several considerations thereunder were received. We begin, therefore, with the presumption that such is the correct method to be employed. The petitioner contends that (a) the contracts here in question were not completed until the taxable year 1931; (b) that its return for the taxable year 1930 clearly reflected the true net income for that year; and (c) that the respondent had approved its method of accounting for approximately eight years. It should be pointed out at this juncture that this is not a case where the subject matter of the contracts had' not been completed within the taxable year and where it is sought to postpone the reporting of profits, until such completion.. The contention here is that, although final payments, under the' contract were received within the taxable year for the performance of the subject matter thereunder, the contracts themselves were nevertheless not completed until the periods of the guarantee clauses expired. It is to be doubted whether the respondent's regulations governing " long-term contracts " were intended to cover, not only the performance of the subject matter of the contract itself, but also the incidental or collateral functions which may or may not arise thereunder— depending upon future necessity — by reason of an expressed or implied guarantee. At any rate it would seem reasonable to say that his regulations contemplate that a completion of the subject matter of the contract constitutes substantial performance thereof and is a completion of that contract within the meaning of his regulations. So that, in any event, his regulations, do not support the jjosition which the petitioner takes, that although the subject matter was completed and full payment received, in 1930, the reporting of profit must be postponed because of the possibility or probability that further costs may be incurred. Vang v. Lewellyn, 35 Fed. (2d) 283. The petitioner's first contention relies primarily upon the fact, as the testimony shows, and as we have found, that the " actual " cost, hence the " actual " profit, under a given contract can not be determined until the expiration of the guarantee period. This is easily understood, but in the administration of the taxing statutes, while it is highly desirable that accuracy be stressed and, indeed, insisted upon wherever the exigency will permit, those charged with the administration thereof, in the great majority of cases, must be satisfied with substantial accuracy, since the " actual " determination of profit or loss, where every element is given full effect, is seldom possible if the accounting therefor is at all complex. So that it might be said that this is merely another of the manifold accounting problems to be considered in determining whether or not the chosen method clearly reflects net income or whether some other method should be substituted. We fully appreciate, as the petitioner contends, that its consistent practice over a period of years should be strongly considered, especially where the respondent has impliedly approved that method by his failure to reject it; but if we find that the method so adopted was incorrect and does not, within the taxable year, clearly reflect net income, we must correct rather than perpetuate the error. See R. G. Bent Co., 26 B.T.A. 1369. Circumstances closely paralleling those of the instant case are to be found in Vang v. Lewellyn, supra, in which the court held that the method of accounting there employed — wherein the reporting of profits from construction contracts was postponed until the end of the maintenance period — did not correctly reflect income for (ax purposes. The plaintiff in that case was engaged in the road construction business under contracts requiring installment payments as work progressed. Generally, the construction work was finished within the year, but in some instances it extended into the following year. When work was finished and the final installment under the contract paid, the company deducted all expenditures made from the total receipts in the determination of profit or loss and, by reason of the fact that it was required, at its own expense, to maintain the road free of all defects for a period of five years after completion, it further reduced the amount so received by an estimated amount of the probable maintenance cost and reported the difference as taxable net income for the year the work was finished. The respondent rejected this method and disallowed the estimated reserves as deductions. Whereupon the company filed amended returns by which it sought to establish it-s accounts on the basis of completed contracts, representing that a contract was not completed until the end of the maintenance period, and it reported its income from the contract as having been received at that time. The court observed that the method used was entirely lawful, " but for tax purposes it was not lawful unless it clearly reflected income," and it finally said: We hold that, when the construction work was finished and the contract price paid and the road turned over to the city or county, the contract was completed, disclosing definitely gain or loss in the transaction. This was how the company itself first regarded it when it made and set aside estimated reserves to cover costs of maintenance on its many contracts and then claimed them as deductions from income received in the year the transactions came to an end by payment and delivery. The company's engagement to maintain the work in good condition for live years after completion as a pledge of its workmanship was clearly a contingent liability which might or might not cost money' — it occurred in only 3 out of every 12.5 jobs — and, accordingly, might or might not reduce the net income from a contract closed by final payment long before. Costs of maintenance, if any, would of course be a subject for reduction from income in the year in which income was received, but such costs, having no effect upon or relation to the final payment of the contract price at the end of the work, would not keep the contract open and postpone payment of the tax on the income received. Except for the amounts of indirect expenses apportioned to these contracts on an arbitrary basis — which might have been, but which were not, supported by a showing of the amount of indirect labor actually expended upon each project — the expenses incurred during the guarantee period were comparatively insignificant. It would be a gross distortion of net income to say that the taxability of the $26,582.74 received upon these three contracts, subject to its unfettered use, should be postponed until the following year by reason of a purely contingent possibility that the petitioner might be compelled to expend some further amounts in order to satisfy an incidental requirement under the contract. We are of the opinion that the respondent properly rejected the petitioner's method of accounting and that his determination should be approved. Judgment will he entered for the respondent.
303 U.S. 636		Petitions for writs of certiorari to the Circuit Court of Appeals for the Fifth Circuit denied. Reported below: 92 F. 2d 882.
420 U.S. 964		C. A. 3d Cir. Certiorari denied.
260 U.S. 717		Petition for a writ of certiorari to the Circuit Court of Appeals for the Ninth •Circuit granted.
54 Cust. Ct. 325		Opinion by Rao, J. In accordance with stipulation of counsel that the merchandise consists of electric coffee grinders and that the merchandise and issues are analogous to those involved in Bruce Duncan Company, a/c Sims-Worms v. United States (45 Cust. Ct. 85, C.D. 2202), and United States v. Electrolux Corporation (46 CCPA 143, C.A.D. 718), the claim of the plaintiff was sustained.
42 Cust. Ct. 638		Wilson, Judge: This appeal for reappraisement has been submitted for decision upon the following stipulation of counsel for the respective parties hereto: IT IS HEREBY STIPULATED AND AGREED by and between counsel for the respective parties hereto, subject to the approval of the Court, as to the merchandise covered by the above entitled appeal for reappraisement, which is also set out in Schedule A, attached hereto and made a part hereof, that at the time of exportation of the instant merchandise to the United States, the prices at which such or similar merchandise was freely offered for sale to all purchasers in the principal market of the country from which exported, in the usual wholesale quantities and in the ordinary course of trade, for export to the United States, including the cost of all containers and coverings of whatever nature, and all other costs, charges and expenses incident to placing the merchandise in condition, packed ready for shipment to the United States, were the invoiced and entered values, ex factory, and that there were no higher foreign values for such or similar merchandise at the time of exportation. IT IS FURTHER STIPULATED AND AGREED that this appeal for reap-praisement may be deemed submitted for decision on this stipulation. On the agreed facts, I find the export value, as that value is defined in section 402(d) of the Tariff Act of 1930, to be the proper basis for the determination of the value of the merchandise here involved and that such value in each case was the invoiced and entered value. Judgment will be entered accordingly.
8 B.T.A. 977		OPINION. Trammell: The question presented for determination is whether the collection of the alleged deficiency of $21,459.08 is barred by the statute of limitations. The assessment of the alleged deficiency herein was made in April, 1920. Thereafter, the (Revenue Act of 1921 was passed, November 23, 1921, which contains in section 250 (d) the following provisions: The amount of any such taxes due under any return made under prior income, excess-profits or war-profits tax Acts shall be determined and assessed within five years after the return was filed, unless both the Commissioner and the taxpayer consent in writing to a later determination, assessment and collection of the tax; and no suit or proceeding for the collection of any such taxes due under prior income, excess-profits or war-profits tax Acts shall be begun, after the expiration of five years after the date when such return was filed . The above section was construed by the United States Supreme Court in the case of Bowers v. New York & Albany Lighterage Co., 273 U. S. 346. The question in that case was whether the distraint was a proceeding within the purview of that section. The court held that distraint was a proceeding within the meaning of the Act and was barred by the section five years after the date the return was filed, even though the taxes were duly assessed within the five-year period provided by that section. The court in that case said: Tbe purpose of the enactment was to fix a time beyond which steps to enforce collection might not be initiated. The repose intended would not be attained if suits only were barred, leaving the collector free at any time to proceed by distraint. In fact, distraint is much more frequently resorted to than is suit for the collection of taxes. The mischiefs to be remedied by setting a time limit against distraint are the same as those eliminated by bar against suit. * >K $ # $ & ‡ That it was the intention of Congress by the clause here in question to protect taxpayers against any proceeding whatsoever for the collection of tax claims not made and pressed within five years. The only exceptions to the running of the statute of limitations provided in the above quoted section of the statute are (1) when both the Commissioner and the taxpayer consent in writing to a later determination, assessment and collection of the tax, (2) in the case of false or fraudulent returns with intent to evade taxes, (3) failure to file the required return, (4) cases coming within the scope of paragraph (9) of subdivision (a) of section 214 or paragraph (8) of subdivision (a) of section 234, or (5) cases of final settlement of losses contingently allowed by the Commissioner pending a determination of the exact amount deductible. None of the exceptions are applicable to this case. There was no consent in writing to a later determination, assessment or collection, nor is there any question presented as to a false or fraudulent return, nor does the case come within the scope of the other exceptions. The respondent contended that the statute of limitations in this case was suspended or started to run anew by the filing of the claim for abatement, by the giving of the bond and the letter of the petitioner to the chief clerk in the office of the collector of internal revenue. That is, to our minds not sufficient to suspend the operation of the statute of limitations. They do not come within any of the exceptions to the statute. We see nothing in any of the instruments referred to or the procedure followed, which would be a basis for the application of the doctrine of estoppel. The letter of December 22, 1926, clearly set forth the position of the petitioner that he refused to sign the waiver. The bond that was given was in connection with the appeal to the Board of Tax Appeals and by its terms was conditioned upon a decision of the Board that the tax was lawfully due. Otherwise, it was to become null and void. In view of the foregoing, it is our opinion that the collection of the tax involved is barred by the statute of limitations. There is therefore no deficiency in respect of the tax involved. Judgment will be entered for the fetitioner. Considered by Moekis, Muedock, and Siefkin.
396 U.S. 118		Per Curiam. Upon consideration of the suggestion of mootness by reason of the death of respondent Ross the judgment of the Court of Appeals, as to Ross, is vacated and the case as to him is remanded to the United States District Court for the Eastern District of New York with directions to dismiss the petition for writ of habeas corpus as moot.
522 U.S. 995		C. A. 5th Cir. Certiorari denied.
22 Ct. Int'l Trade 958		JUDGMENT Pogue, Judge: The Court having received and reviewed the United States Department of Commerce's, Results of Redetermination pursuant to Court Remand, E.I. DuPont de Nemours & Co. v. United States, Slip Op. 98-46, Court No. 97-01-00055, (April 15,1998)("Remand Results"), and Commerce having complied with the Court's Remand, it is hereby Ordered that the Remand Results are affirmed in their entirety; and it is further Ordered that, as all other issues have been decided, this case is dismissed.
1 Cust. Ct. 431		Opinion by Sullivan, J. On the record presented the protest was overruled.
516 U.S. 1120		Ct. App. Cal., 4th App. Dist. Certiorari denied.
5 Cranch 100		February 24. Cushing, J. {Marshall, Ch. f. not sitting in the cause) delivered the opinion of the court,* as follows : The insurance in this case being general, as well for the parties named ás " for all and every other person or persons to whom the vessel did or might appertain," and containing no warranty of neutrality, belligerent: as well as American property was covered by it., Some of .the párties being described as of Richmond, does not necessarily imply that they all resided there ; but if they did, mere.residence would not make them citizens; and even then, an express warranty was necessary, if it had been designed to run only a neutral risk. This is an-answer to the 7Íh as -well -as to the 4th /plea; because there can-lie no undue- concealment as to the parties interested, where the terms of the policy are so broad as to preclude the' necessity, either qf disclosing their names, or of inserting them in the instrument. Vreserit; Cushing', Washington, Livingston and Johnson, justices. The eighth plea is also bad. The defendants acknowledge, under seal, to have received a consideration of lif 1-2 per cent, for the insurance they made, which it appears was secured by a note, the amount of which was to be deducted from the sum to be paid for a loss, if any happened. On the face of the instrument, then, a valid consideration, if that' be necessary, is stated, and if the note be never paid it cannot vacate the contract, or be relied on as a defence to an action on it. This Court knows not why a court of equity has been applied to . fbr an injunction. Its proceedings, therefore, can have no influence on the present suit, for notwithstanding its interposition in .the way mentioned in this plea, the defendants cannot be deprived of the right they have' reserved of deducting the amount of premium from whatever' sum they - may have to pay for the loss that has occurred. Without deciding whether a material misrepresentation, not fraudulent, can be pleaded in avoidance of a! sealed instrument, the court thinks there is no fact disclosed by either the fifth or sixth plea, which could vacate an insurance were it only a simple contract. In no part of the 5th plea is the misrepresentation alleged to be material. It is only to be. inferred that it had some influence (but to what degree does not appear) in prevailing on the defendants to agree to so high a valuation. It will hardly, however, be insisted, that every over-valuation, however inconsiderable, or however innocently produced, will annul a contract of this nature. It would seem more reasonable, to let mistakes of this kind (if they are to haye any operation at all) regulate the extent of recovery, and not deprive the party of his whole indemnity: for if an extravagant valuation be made, an underwriter cannot reasonably ask to be relieved be'yond the excess complained of. The .allegation that the vessel was worth, when insured, oply 3,000 dollars, is also very unimportant, it being nowhere stated that the plaintiff represented her to be worth more,. but only proposed that her' value in the policy should be agreed at ten thousand dollars. Now although she might not in fact have been worth this sum, it.is itnpossible for the court to say that this difference was producéd entirely by the mistake which was made in her age and tonnage. This would be to say that a. difference of a year or two in the age, and of fifty or sixty tons in the burden of a vessel, must, in all cases, have the same effect on her value; a conclur sion which, on investigation, would be found very incbrrect. Nor, if it appeared on trial, that her actual worth were no more than 3,000 dollars, would it necessarily avoid tl>e. contract, or restrict the damages to that sum; for she may, notwithstanding, have-fairiy cost her owners the whole amount of her valuation; who, in,that case, would have honestly represented her as worth 10,000 dollars. But a more fatal objection to this plea is, that .die misrepresentation relied on is not stated to have been material to the risk of the Voyage; and yet the only cases in which policies have been avoided for innocent misrepresentations' kre those in which the matter [disclosed Or concealed has affected the risk, so ás to render it' different from' the one understood at the time, and On which the premium was ^calculated. Most of the,remarks on the 5th apply also to the 6th plea i for although it be here alleged that, the misrepresentation was material "in regard to the contract o.f insurance," it should have been , stated in what particular, that it might appear whether . the risk run were at all affected, by it. Art objection is made to the declaration, but not much relied on, that no abandonment is averred to have been made; . In covenánt such averment, cannot be necessary^ . If it be proved on the trial, it ' will be sufficient. The judgment of the circuit court on the 4th, 5th, 7th and 8th pleas must be affirmed with costs; •and its judgmehtin favour of the defendants on the 6th plea reversed; and judgment on that plea be-also rendered for the plaintiff. Johnson, J. The difficulties in this case arise partly from the pleadings, and partly from the case presented by the pleadings.' This policy, having been effected by a corpora-, tion under its, corporate seal, has been considered as imposing an obligation' on the insured to bring covenant instead of assumpsit, as is usual on such contracts. Thus the defendants haye been obliged to plead specially; and the cause comes up on demurrer, which, of course,' admits the case as made upon the pleadings. Whether there, is sufficient matter well pleaded . why the plaintiff ought not to recover ? is therefore the question before us. I am of opinion that there, is. I cannot for a moment suffer the sealing of the policy, or the form of the action, to impose any restriction upon the latitude of defence applicable to The contract of insurance. Such a doctrine would be fatal to every incorporated insurance company. I therefore maintain, that, in the action of covenant' on a policy of insurance, every defence may ,be taken advantage of, in pleading, that could be introduced, in-evidence, before a jury. It is an .exceedingly inconvenient .form of action fpr trying the merits of. questions arising out of this'.species of contract, and I feel disposed, if possible, to diminish the inevitable difficulties, arid the intricate and voluminous pleadings, which must grow out of this form of action, andi to admit every facility which the -rules of pleading will possibly sanction-. • Theré are eight pleas filed to the present, action. On the. three first there are issues in fact, and the court below has given judgment o'n- the remaining five. I am disposed to concur in,their decisions on each of. these several .pleas, although, perhaps, on Some of them, for reasons not altogether the same • with those by which they were influenced; but Í shall confine my observations solely to the sixth plea, as that disposes, of the case finally, if decided for the defendants, and has been the principal subject of the . argument before' this court. ,The substance of this plea is-,' that the plaintiff misrepresented the age and tonnage -of the vessel, whereby the defendants were' induced to insure tp a higher amount than they otherwise should; and concludes with averring, that the difference between the true age and tonnage of the vessel,-and the repré- • sented age and tonnage, was material iñ regara to the contract of insurance. The plaintiff replies .that this misrepresentation was immaterial in regard to the seaworthiness .oí the vessel; her abihty to perform the. voyage, and the other risks insured against. • To me it appears that'the plea presents the true turning point of the case, and that tbe replication draws towards questions' very, different from that which ought to control 'our decisions. It is not on the doctrine, of seaworthiness that a misrépresentation is held to vitiate the policy, because the insured ! is always held to guaranty the sufficiency of his vessel to perform the voyage insured* Ñor is it an evident and necessary increase •of the risk; but it is presenting such false lights to the insurer, as induce him ¿to enter into a contract materially different from thaf which he supposes he is entering into. It is a rule of law introduced te protect underwriters from those innumerable frauds which are practised upon them in a contract which must of necessity be regula ted almost wholly by the-information derived from the insured. I do not lav so much stress ' upon the misrepre- ' sentation with regard, to the age of the vessel; for that appertains much to her seaworthiness; but with regárd to her -size the misrepresentation was so enorme b as leaves no doubt upon , my mind that had tht case been .submitted to -a jury, the court would have been bound to charge them in favour of the. defendants. It had in its nature an immediate tendency to entrap the defendants into one of the most common and most successful snares, laid for the unwary underwriter, To make it the interest of the insured rather to sink than .to save.-his vessel. It can' very well be conceived .that ap underwriter, maybe induced, to insure a certain sum upon a certain-vessel for a very moderate premium, when no premium would induce him to insure double . that amount upon the same bottom. I am aware of-a very considerable difficulty arising out of this case, viz. how we.are to estimate the degree of misrepresentation with regard to tonnage which shall vitiate . a policy ? but it. is a difficulty arising out of the mode in which, we are drawn into á decision on the case, rather .than, out of the case itself. If this question had been brought before a jury, the difficulty would have vanished; but. shall the party - lose the benefit of this 'defence because the pleadings have assumed such a shape as to force the court into a decision upon the point without a jury ? I am of opinion that he ought not, if it can be avoided; an extreme case may.be supposed in which the misrepresentation may • be very inconsiderable, as of a single ton for instance; but, on the other hand, we may suppose1 an extreme case of a misrepresentation to the highest possible number of tons burden, • say 1,000 tons; will it be said that,-in the latter case, the misrepresentation wo'uld not avoid the policy i From these considerations if seems to result that the epurt is driven to the necessity, of deciding this -case, upon its intrinsic merits, and reserving its opinion upon successive cases as they shall occur. This necessity is forced upon us by the alternative' either-to decide that no misrepresentation, however gross, of the size of the vessel will avoid a policy, of that any misrepresentation, however' minute, will have that effect. It is to be hoped, in the mean time, that, some statutory provision may be made, which will relieve the court from a similar embarrassment. Judgment reversed. •
395 U.S. App. D.C. 155		Opinion for the Court filed by Circuit Judge GRIFFITH. GRIFFITH, Circuit Judge: Ed Brayton filed suit under the Freedom of Information Act seeking disclosure of a classified international trade agreement. While the case was pending before the district court, the United States Trade Representative declassified and released the agreement to the public. The question before us is whether Brayton is entitled to recover attorney fees for his lawsuit. The district court determined he was not because the government was justified in withholding the document as a matter of law. We agree and affirm. I On December 17, 2007, during negotiations under the auspices of the World Trade Organization, the United States and the European Union signed a joint agreement outlining various trade concessions the U.S. would make to offset the costs imposed by its policy restricting access to Internet gambling. Two days later, Ed Brayton filed a FOIA request with the United States Trade Representative (USTR) seeking disclosure of the agreement. Although the Freedom of Information Act generally provides that government agencies "shall make available to the public" certain information upon request, 5 U.S.C. § 552(a), the Act expressly exempts the disclosure of information that is "properly classified," id. § 552(b)(1). In January 2008, USTR denied Brayton's request on the ground that the agreement he sought was classified pending completion of the ongoing trade negotiations. Two months later, the Freedom of Information Appeals Committee within USTR affirmed the agency's decision to withhold the document. See Letter from Mark Linscott, Chair, Freedom of Info. Appeals Comm., to Ed Brayton (Mar. 25, 2008). The Committee determined that the document had been properly classified pursuant to Executive Order 12,958, 60 Fed. Reg. 19,825 (Apr. 17,1995), as amended by paragraph 1.4(b) of Executive Order 13,-292, which provides that "foreign government information" may be treated as "classified national security information." 68 Fed.Reg. 15,315, 15,316, 15,317 (Mar. 25, 2003). Executive Order 13,292 paragraph 6.1(r) defines "foreign government information" to include "information produced by the United States Government pursuant to or as a result of a joint arrangement with a foreign government or governments, or an international organization of governments, or any element thereof, requiring that the information, the arrangement, or both, are to be held in confidence." Id. at 15,331. The agreement Brayton sought was the product of negotiations conducted under WTO rules requiring agreements to be held in confidence until negotiations conclude. See General Council, Procedures for the Circulation and Derestriction of WTO Documents, WT/L/452 (May 16, 2002). In May 2008, Brayton filed a complaint in federal district court seeking an order disclosing the agreement on the ground that it was not properly classified. After he moved for summary judgment, USTR explained to the court that the case might soon become moot because: [A] representative of the European Community ("EC") contacted USTR staff about the possibility of releasing the document publically in the future. Although USTR believes that a unilateral release would be inconsistent with WTO obligations, the agency is exploring the possibility of de-restricting the document with representatives of the EC. If, based on the mutual request of the EC and the United States, the WTO does de-restrict the document, USTR will promptly de-classify it, make it publically available, and send a courtesy copy to Plaintiff. Defs Consent Mot. to Enlarge Time to File Reply in Supp. Of Mot. for S.J. 2. After the parties filed cross motions for summary judgment but before the district court issued a decision, the Europeans agreed to release the trade agreement, which USTR declassified and sent to Bray-ton. Brayton then moved for attorney fees on the ground that he had "substan tally prevailed," 5 U.S.C. § 552(a)(4)(E)(i), in his FOIA lawsuit. The district court denied Brayton's motion, following the two-step analysis described in Weisberg v. U.S. Dep't of Justice, 745 F.2d 1476 (D.C.Cir.1984). First, in order to be "eligible" for fees, a plaintiff must have "substantially prevailed" on his FOIA claim. Id. at 1495. Second, the plaintiff must show that he is "entitled" to fees based on a combination of factors, including the reasonableness of the government's initial refusal to disclose the requested information. Id. at 1498. Applying this framework, the court held that even if Brayton had substantially prevailed under his FOIA request and was thus "eligible" for fees, he was not "entitled" to them "because the defendant's decision to withhold the Agreement was correct as a matter of law." Brayton v. Office of U.S. Trade Representative, 657 F.Supp.2d 138, 145 (2009). On appeal, Brayton does not dispute the district court's holding that USTR was correct as a matter of law to withhold the agreement he requested, but he claims the court still should have considered awarding him fees because his claim for disclosure was "not insubstantial." The statute provides that a complainant "may" recover attorney fees if his "claim is not insubstantial." 5 U.S.C. § 552(a)(4)(E). But the district court held that a plaintiff may not receive attorney fees if his claim is incorrect as a matter of law. Thus, according to Brayton, "[plaintiffs will never receive fees if their claims are not insubstantial unless the defendants' decision to withhold the documents also was incorrect on the merits." Appellant's Br. 13. Brayton argues that this result conflicts with the statutory text, which requires only that a plaintiffs claim be "not insubstantial." We have jurisdiction over this appeal under 28 U.S.C. § 1291, and we review the district court's refusal to award attorney fees for abuse of discretion. See Davy v. CIA, 550 F.3d 1155, 1158 (D.C.Cir.2008). A "district court abuses its discretion if it did not apply the correct legal standard . or if it misapprehended the underlying substantive law." Kickapoo Tribe v. Babbitt, 43 F.3d 1491, 1497 (D.C.Cir.1995) (internal quotation marks omitted). We examine de novo whether the district court applied the correct legal standard. See FTC v. H.J. Heinz Co., 246 F.3d 708, 713 (D.C.Cir.2001). II A The Freedom of Information Act provides that courts "may assess against the United States reasonable attorney fees and other litigation costs reasonably incurred in any case . in which the complainant has substantially prevailed." 5 U.S.C. § 552(a)(4)(E)(i). This language naturally divides the attorney-fee inquiry into two prongs, which our case law has long described as fee "eligibility" and fee "entitlement." Judicial Watch, Inc. v. U.S. Dep't of Commerce, 470 F.3d 363, 368-69 (D.C.Cir.2006). The eligibility prong asks whether a plaintiff has "substantially prevailed" and thus "may" receive fees. Id. at 368. If so, the court proceeds to the entitlement prong and considers a variety of factors to determine whether the plaintiff should receive fees. Id. at 369. Over the last decade, the law of FOIA fee awards has been in considerable flux. Before 2001, the D.C. Circuit construed fee eligibility broadly under what was known as the "catalyst theory." Under this doctrine, a plaintiff "substantially prevailed" not only when he obtained an official disclosure order from a court, but also when he substantially caused the government to release the requested documents before final judgment. See generally Summers v. Dep't of Justice, 569 F.3d 500, 502 (D.C.Cir.2009) (describing the operation of the old catalyst theory). If a plaintiff substantially prevailed and was thus "eligible" for fees, the court would then consider several factors to determine whether the plaintiff was "entitled" to fees, including whether the government's initial decision to withhold the requested documents was reasonable. See Tax Analysts v. Dep't of Justice, 965 F.2d 1092, 1093-94 (D.C.Cir.1992). If the government's initial decision to withhold was clearly justified, that was the end of the analysis. As one case put it, "a party is not entitled to fees if the Government's legal basis for withholding requested records is correct." Chesapeake Bay Found. v. USDA, 11 F.3d 211, 216 (D.C.Cir.1993). In 2001, the Supreme Court held that plaintiffs generally would only be eligible for attorney fees if they were "awarded some relief by [a] court." Buckhannon Bd. & Care Home, Inc. v. W. Va. Dep't of Health & Human Res., 532 U.S. 598, 603, 121 S.Ct. 1835, 149 L.Ed.2d 855 (2001). In 2002, we confirmed that Buckhannon applied to FOIA cases, holding that "in order for plaintiffs in FOIA actions to become eligible for an award of attorney's fees, they must have 'been awarded some relief by [a] court.' " Oil, Chem. & Atomic Workers Int'l Union, AFL-CIO v. Dep't of Energy, 288 F.3d 452, 456-57 (D.C.Cir.2002) (alteration in original) (quoting Buckhannon, 532 U.S. at 603, 121 S.Ct. 1835). The strict Buckhannon rule drew some criticism for allowing the government to stonewall valid FOIA claims but prevent an award of attorney fees by disclosing the documents at the last moment before judgment. An agency could simply refuse a FOIA request, wait for a lawsuit to be filed, drag its heels through the litigation process, and then release the requested documents at the last moment if the plaintiff appeared likely to win a judgment. Agencies could force FOIA plaintiffs to incur litigation costs while simultaneously ensuring that they could never obtain the merits judgment they needed to become eligible for attorney fees. To address this problem, Congress passed the OPEN Government Act of 2007, Pub.L. No. 110-175, which abrogated the rule of Buckhannon in the FOIA context and revived the possibility of FOIA fee awards in the absence of a court decree. The Act redefined "substantially prevail[ing]" to include "obtaining] relief through . a voluntary or unilateral change in position by the agency, if the complainant's claim is not insubstantial." 5 U.S.C. § 552(a)(4)(E)(ii). The purpose and effect of this law, which remains in effect today, was to change the "eligibility" prong back to its pre-Buckhannon form. The result is that plaintiffs can now qualify as "substantially prevailing]," and thus become eligible for attorney fees, without winning court-ordered relief on the merits of their FOIA claims. See Davis v. U.S. Dep't of Justice, 610 F.3d 750, 752 (D.C.Cir.2010) ("Disapproving of the effect [Buckhannon and its progeny] had on the disclosure policies of administrative agencies, Congress enacted the OPEN Government Act of 2007 to establish that the catalyst theory applied in FOIA cases."). Yet despite this shift in the standard for fee eligibility, the OPEN Government Act did not have any effect on the standard for fee entitlement, which has remained essentially unchanged since the days of the catalyst theory. For purposes of fee entitlement, the rule remains that if the government was "correct as a matter of law" to refuse a FOIA request, "that will be dispositive." Davy, 550 F.3d at 1162 (quoting Chesapeake Bay Found., 11 F.3d at 216). Plaintiffs who sue to force disclosure in such circumstances are not entitled to attorney fees. B Brayton's argument relies chiefly on the statute's provision that courts "may" award fees to plaintiffs whose FOIA claims are "not insubstantial." He observes that the district court's approach prevents plaintiffs with "not insubstantial" claims from receiving fees if the government was correct as a matter of law to withhold the requested documents. He argues that this effectively nullifies the statute's lenient "not insubstantial" standard, replacing it with the stricter requirement that a plaintiffs claim be correct on the merits to qualify for an award. The problem with Brayton's argument is that the fee-entitlement rule that the district court applied does leave room for fee awards in some cases where a plaintiff has a "not insubstantial" claim that falls short on the merits. Under the district court's rule, fees are only barred where the government can demonstrate that its basis for nondisclosure was "correct as a matter of law." Davy, 550 F.3d at 1162. This requires the government to satisfy the summary judgment standard by showing that there are no genuine issues of material fact in dispute and that the government was justified as a matter of law in refusing the plaintiffs FOIA request. If the government cannot carry this burden, a substantially prevailing FOIA plaintiff may receive fee awards as long as his claim was "not insubstantial." FOIA provides only that attorney fees "may" be awarded to a substantially prevailing plaintiff. Rather than exercising its discretion in an ad hoc and potentially inconsistent fashion, the district court adhered to our circuit's long-established rule of never granting a fee award to a plaintiff whose FOIA claim was incorrect as a matter of law. Of course, this rule means that a particular subset of substantially prevailing plaintiffs will never receive fees, but this is an inevitable consequence of following any rule at all. The rule in this case does not undermine the discretion granted by Congress but simply ensures that like cases will be treated alike — a necessary condition for "avoid[ing] an arbitrary discretion in the courts." Missouri v. Jenkins, 515 U.S. 70, 129, 115 S.Ct. 2038, 132 L.Ed.2d 63 (1995) (Thomas, J., concurring) (quoting The Federalist NO. 78, at 529 (J. Cooke ed.1961) (Alexander Hamilton)). Brayton urges that fee awards should not be foreclosed despite the fact that the government was correct as a matter of law to withhold the documents he requested. This interpretation would make the law of FOIA fee entitlement even more favorable to plaintiffs than it was before Buckhannon. Brayton claims that the legislative history of the OPEN Government Act bolsters his case, but if anything the history only suggests that Congress intended to reinstate the preBuckhannon rule for fee eligibility. See S.Rep. No. 110-59, at 4 (2007) ("The bill clarifies that Buckhannon does not apply to FOIA cases."); id. at 6 (amendment to attorney's fee provision is "the so-called Buckhannon fix"); id. ("This section clarifies that Buckhannon's holding does not and should not apply to FOIA litigation."); id. at 14 (Additional Views of Sen. Kyi) ("the bill legislatively overrules the U.S. Supreme Court's decision in Buckhannon . as that decision applies to FOIA"); id. at 20 (Justice Department's Views Letter) ("We understand this provision's intent to be the overruling of the Supreme Court's decision in Buckhannon . and of a number of recent court of appeals decisions that have applied Buckhannon to reject the catalyst theory as a basis for FOIA attorneys' fee awards."); H.R.Rep. No. 110-45, at 4 (2007) (bill "clarif[ies] that Buckhannon does not apply to FOIA cases"); id. at 6 ("This section makes clear that the Buckhannon decision does not apply to FOIA cases and ensures that requesters are eligible for attorney fees and other litigation costs if they obtain relief from the agency during the litigation."); 153 Cong. Rec. S10987 (daily ed. Aug. 3, 2007) (Sen. Leahy) ("The bill clarifies that Buckhannon does not apply to FOIA cases."). Brayton points to a floor statement Senator Kyi made shortly before the passage of the Act, which he co-sponsored. The Senator stated that the Act would abrogate Buckhannon in FOIA cases and allow courts to award attorney fees to a substantially prevailing plaintiff with a "not insubstantial" claim. He acknowledged that this "is a pretty low standard [that] would allow the requester to be deemed a prevailing party for fee-assessment purposes even if the government's litigating position was entirely reasonable — or even if the government's arguments were meritorious and the government would have won had the case been litigated to a judgment." 153 Cong. Rec. S10989 (daily ed. Aug. 3, 2007). Even if the meaning of a law could depend on the unratified words of a single lawmaker, this statement would provide scant support for Brayton's argument. Senator Kyi registered his understanding that the Act would allow some plaintiffs with losing FOIA claims to receive attorney fees, not all such plaintiffs. As discussed above, the district court's ruling is consistent with this outcome, inasmuch as it permits fee awards where the government, while ultimately correct, cannot show that its position is correct "as a matter of law" under thé summary judgment standard. If a court finds that there were genuine issues of material fact in dispute before the case settled, the court may still award fees as long as the plaintiff has substantially prevailed on the basis of a claim that was "not insubstantial." Although the vast majority of FOIA cases can be resolved on summary judgment, which means that in most cases finding the government's position "correct as a matter of law" is the same as finding it "correct," this is not always the case. In fact, there was a FOIA trial in our. jurisdiction as recently as 2009. See In Def. of Animals v. U.S. Dep't of Agric., 656 F.Supp.2d 68 (D.D.C.2009). That case involved a FOIA plaintiff seeking government records of an investigation into a research facility's alleged violations of the Animal Welfare Act. The research facility intervened and opposed disclosure primarily under FOIA's exemption for confidential commercial information. In explaining why the ease could not be disposed of on summary judgment, the court stated the need for a trial to probe disputed factual questions involving "whether disclosure of the categories of information in the context of the documents sought by IDA would permit [the research facility's] competitors to derive or reverse engineer [the research facility's] proprietary information, thereby causing it substantial competitive harm." In Def. of Animals v. U.S. Dep't of Agric., 501 F.Supp.2d 1, 6 (D.D.C.2007). The opinion relied on two of our FOIA cases in which we held summary judgment would be inappropriate because genuine issues of material fact existed as to the applicability of a FOIA exemption. See Niagara Mohawk Power Corp. v. U.S. Dep't of Energy, 169 F.3d 16 (D.C.Cir.1999); Wash. Post Co. v. U.S. Dep't of Health and Human Servs., 865 F.2d 320 (D.C.Cir.1989). Although such cases are rare, our doctrine must nonetheless take them into account. If the government settles a FOIA case that would have turned on disputed issues of material fact, the district court facing a request for attorney fees may not know whether the plaintiffs claims were meritorious. It should not be obligated to hold a full trial to find out. Brayton argues that applying the summary judgment standard to evaluate the government's nondisclosure decisions will open the floodgates by transforming every motion for attorney fees into a mini-trial on the merits of the underlying FOIA claim. But the fee-entitlement rule the district court applied in this case has been in place for quite some time, even before Buckhannon, and the federal judiciary has yet to be deluged. By relying on the summary judgment standard, the rule preserves the discretion of courts in fee determinations to avoid the swamp of merits adjudication whenever material facts are in dispute. It is undeniable that considering the merits of an agency's nondisclosure decision will frequently complicate the adjudication of motions for attorney fees. But on the other side of the ledger is the concern that courts should not dole out fee awards to plaintiffs who bring FOIA lawsuits that cannot survive a motion for summary judgment. We resolved this tension long ago when we stated that "there can be no doubt that a party is not entitled to fees if the Government's legal basis for withholding requested records is correct." Chesapeake Bay Found., 11 F.3d at 216. In closing, we note the irony that awarding fees to plaintiffs in Braytoris situation might prod government agencies to be less rather than more transparent. In this case, USTR was under no obligation to declassify the document and release it to the public as quickly as it did. Instead, it could have delayed the process and withheld the documents much longer, and its decision still would have remained correct as a matter of law. Under the rule applied by the district court, agencies in USTR's position can choose to relent for the sake of transparency and release requested documents without exposing themselves to monetary penalties: the fact that their initial nondisclosure decision rested on a solid legal basis creates a safe harbor against the assessment of attorney fees. Under Brayton's approach, however, agencies with legal authority to withhold requested documents would have no such safe harbor. Thus they might hesitate to release the documents, since doing so would risk creating a "substantially prevailing]" plaintiff who might be entitled to fees. Ill For the foregoing reasons, the district court's judgment is Affirmed. Executive Order 12,958 and all amendments thereto have since been superseded by Executive Order 13,526, 75 Fed.Reg. 707 (Dec. 29, 2009).
329 U.S. App. D.C. 231		ROGERS, Circuit Judge: Appellant Robert N. Taylor appeals the denial of his pre-sentence motion to withdraw his guilty plea to felony criminal contempt and wire fraud. He contends that, despite the fact that his plea was entered following the trial, the district court abused its discretion by not holding an evidentiary hearing on claims that his trial counsel had a conflict of interest that denied him the effective assistance of counsel under Cuyler v. Sullivan, 446 U.S. 335, 100 S.Ct. 1708, 64 L.Ed.2d 333 (1980). Because Taylor's averments related to matters outside of the trial record and were sufficient to demonstrate, if credited, that trial counsel had a conflict of interest that adversely affected the adequacy of his representation, we reverse and remand the case for an evidentiary hearing. I. In the fall of 1995, the Securities and Exchange Commission ("SEC") filed a civil enforcement action against appellant, Robert N. Taylor, alleging that he had operated his company, the Better Life Club of America, Inc., as a fraudulent Ponzi scheme. Thereafter, the district court issued both a temporary restraining order and a preliminary injunction freezing all of Taylor's personal and corporate assets. The instant appeal arises out of Taylor's prosecution for criminal contempt for his alleged violation of these freeze orders. The government pursued two contempt citations against Taylor, one for criminal contempt arising out of a series of bank transactions and a second for civil contempt arising out of Taylor's refinancing of his home. The first effort began on May 1, 1996, when the government filed a show cause application for criminal contempt alleging that Taylor had violated the freeze orders by engaging in more than two hundred different banking transactions and by failing to disclose the existence of several bank accounts. To avoid a jury trial, the government asked the district court, and it agreed, to limit any sentence to no more than six months imprisonment or a fine of no inore than $5,000, effectively charging Taylor with a petty offense misdemeanor of criminal contempt. See 18 U.S.C. § 1(3) (1988); United States v. Nachtigal, 507 U.S. 1, 4, 113 S.Ct. 1072, 1073-74, 122 L.Ed.2d 374 (1993); Frank v. United States, 395 U.S. 147, 148-50, 89 S.Ct. 1503, 1504-06, 23 L.Ed.2d 162 (1969). The show cause hearing began on July 1, and was continued until July 19, when the district court deferred its ruling until July 22, pending ongoing plea negotiations. While the criminal contempt proceeding was pending, the SEC learned that Taylor and his girlfriend, who had been brought into the civil enforcement action as a relief defendant, had refinanced their home and received a "cash out" share of the refinancing. It subsequently initiated a civil contempt proceeding, alleging that Taylor and his girlfriend had violated the freeze orders. A hearing was held on July 17, 1996, before a different judge, who took the matter under advisement. Before either judge ruled in the criminal or civil contempt proceedings, however, Taylor entered into a comprehensive plea agreement with the government. The global agreement encompassed not only the banking transactions underlying the misdemeanor contempt proceedings, but also Taylor's actions in securing the home refinancing. Taylor agreed to plead guilty to wire fraud, see 18 U.S.C. § 2, 1343, for several alleged misrepresentations he had made in his refinancing application, as well as to felony contempt, see 18 U.S.C. § 401(3), for both the refinancing and the bank transactions. Taylor faced a maximum possible sentence of five years' imprisonment and a substantial fine on the wire fraud charges, see 18 U.S.C. § 1343, in addition to three years of supervised release and a requirement that he make full restitution. The felony contempt charge carried an unspecified maximum sentence to be determined at the discretion of the court. See 18 U.S.C. § 401. In exchange, the government agreed to withdraw its original misdemeanor criminal contempt charges, request the SEC to dismiss its civil contempt application, and request concurrent sentences for contempt and wire fraud, with the former sentence no longer than the latter. Additionally, the government agreed to allocute for the maximum reduction of his sentence for acceptance of responsibility under section 3E1.1 of the Sentencing Guidelines, forego the underlying securities fraud claim as relevant conduct, and not to prosecute Taylor's girlfriend. Pursuant to the agreement, Taylor pleaded guilty, following a Rule 11 hearing, to wire fraud and felony criminal contempt on July 22, 1996. See Fed.R.Crim.P. 11. Prior to sentencing, Taylor wrote a letter to the district court indicating that he wanted to withdraw his guilty plea and request the appointment of new counsel. On the same day, August 30, 1996, he filed a motion to withdraw his plea on the ground of ineffective assistance of counsel. With newly appointed counsel, Taylor filed a revised motion and a supporting affidavit. Taylor's ineffectiveness allegations initially consisted of three general claims: erratic conduct, economic coercion, and a conflict of interest. As to the first, the record shows that during the course of the securities fraud and misdemeanor contempt proceedings, the district court repeatedly had expressed concern about the adequacy of Taylor's representation. Trial counsel had failed to appear for two hearings in the SEC proceeding and exhibited other erratic behavior as a result of personal problems relating to substance abuse. Notwithstanding suggestions from the district court that he might wish to retain a different lawyer, Taylor continually ex pressed satisfaction with trial counsel. Nevertheless, in support of his motion to withdraw his guilty plea, Taylor averred that trial counsel had missed several meetings with him regarding the plea negotiations and been otherwise distracted or inattentive. Additionally, Taylor alleged that trial counsel had failed to explain fourteen different provisions of the plea agreement prior to his entry of his plea. Taylor also claimed that trial counsel had "financially coerced" him into pleading guilty because Taylor was unable to meet counsel's "unrelenting" fee demands. Specifically, Taylor alleged that in late June or early July of 1996, trial counsel "asked for an additional $5,000 to proceed to trial, and expressed a clear lack of interest in fighting [the] case when [Taylor] advised him that he could not pay." Thereafter, counsel allegedly pressured Taylor to accept the government's plea offer. Finally, Taylor alleged that trial counsel was unable to render effective assistance due to a conflict of interest. In his revised motion, Taylor focused on trial counsel's substance abuse problems and claimed that trial counsel was "inclined to divest himself' of any additional burdens to his recovery. He also noted that trial counsel faced possible disciplinary action by the bar as well as a contempt sanction from the district court. Thus, Taylor claimed, trial counsel pressured him into accepting the government's plea agreement in order to dispose of the case as quickly as possible. Trial counsel's affidavit, submitted with the government's opposition to the motion to withdraw, painted a very different picture of his relationship with Taylor. Trial counsel denied any economic coercion and portrayed conscientious efforts on behalf of a client who was potentially facing multiple criminal charges. Trial counsel acknowledged his advice that Taylor pursue a global plea agreement with the government, and described his repeated efforts, some successful, to obtain more favorable terms. When Taylor's motion to withdraw came before the district court on December 9, 1996, the court observed that neither the pleadings nor the affidavits suggested that Taylor had any viable defense to the criminal contempt or wire fraud charges. Taylor's new counsel then alerted the court, for the first time, to a factual dispute over trial counsel's advice to Taylor regarding the refinancing of his home. Trial counsel stated in his affidavit that he had "specifically advised [Taylor] against [the refinancing] and told him that to refinance the house would probably constitute the encumbrance of an asset and would likely be in violation of the court ordered asset freeze." Taylor disputed this statement, averring that trial counsel had advised him to proceed with the refinancing. Thus, new counsel argued, Taylor had an advice of counsel defense to the contempt charges of which he had not been informed. Further, new counsel urged that trial counsel would have had a conflict of interest in presenting this defense. Although this issue had not been previously briefed, the district court continued the hearing to allow Taylor to file "whatever he alleges his defense is." In a supplemental affidavit Taylor averred that prior to refinancing his home he had sought advice from trial counsel and had been told, "Go ahead and do it. There is nothing in the [freeze orders] which prevents you from refinancing your home." According to Taylor, trial counsel had only cautioned that the SEC would be upset and discussed the ambiguous nature of the order. Taylor also submitted documents that he had sent to trial counsel indicating that at one point he did not want to enter a guilty plea, but wanted to force the government to prove its case, and that he had defenses regarding several of the charges. After further argument by counsel, the district court denied Taylor's motion without an evidentiary hearing. Based upon Taylor's affidavits, the government's oppositions to withdrawal of the plea, trial counsel's affidavit, Taylor's sworn statements at the Rule 11 hearing, and the court's knowledge of the misdemeanor contempt proceedings, the district court found that Taylor's claims of ineffective assistance were not credible, and, alternatively, that even if Taylor's allegations were true, he could not show that he had been prejudiced. The court was unpersuaded by Taylor's change of heart about trial counsel after repeatedly reaffirming his satisfaction with counsel, and by the economic coercion claim since trial counsel had taken the case to trial and the plea was not entered until after the trial had been completed. The court recalled Taylor's statements under oath at the Rule 11 hearing that his plea was voluntary and that he was satisfied with his trial counsel. Regarding prejudice, the court observed that Taylor "was never able to present a single viable defense to the charges," not even at the plea withdrawal proceedings, after taking months to prepare his collateral attack. Finally, the court noted that Taylor "cannot present any convincing evidence that he might have faced better prospects at a verdict than he did in his plea." The district court sentenced. Taylor to forty-one months imprisonment on each count, to run concurrently, and ordered him to pay a special assessment of $200 and to make restitution in the amount of $80,122.63. II. Withdrawal of a guilty plea prior to sentencing is to be liberally granted, and permitted for "any fair and just reason." Fed.R.Crim.P. 32(e); United States v. Ford, 993 F.2d 249, 251 (D.C.Cir.1993). In reviewing the district court's denial of a motion to withdraw, this court focuses on three factors in order to determine whether there was an abuse of discretion: (1) "whether the defendant has asserted a viable claim of innocence"; (2) "whether the delay between the guilty plea and the motion to withdraw has substantially prejudiced the government's ability to prosecute the case;" and (3) "whether the guilty plea was somehow tainted." Ford, 993 F.2d at 251. The third factor is the "most important," and the standard for allowing withdrawal of a plea is fairly lenient when the defendant can show that the plea was entered unconstitutionally. Id. Here, the government does not claim substantial prejudice under the second factor, and Taylor's conflict of interest claim is directly related to his contention that he has presented a viable claim of innocence, at least for some of the charges against him. Hence, our focus is on the third factor, for Taylor contends that his guilty plea was tainted by the ineffective assistance of his trial counsel and, consequently, he did not knowingly enter his plea. "A plea is not voluntary or intelligent," and therefore unconstitutional, "if the advice given by defense counsel on which the defendant relied in entering the plea falls below the level of reasonable competence such that the defendant does not receive effective assistance of counsel." United States v. Loughery, 908 F.2d 1014, 1018 (D.C.Cir.1990). To withdraw a plea on this basis, a defendant must ordinarily satisfy the two-pronged standard of Strickland v. Washington, 466 U.S. 668, 687, 104 S.Ct. 2052, 2064, 80 L.Ed.2d 674 (1984), for violations of the Sixth Amendment guarantee. See Hill v. Lockhart, 474 U.S. 52, 57-60, 106 S.Ct. 366, 369-71, 88 L.Ed.2d 203 (1985); United States v. Holland, 117 F.3d 589, 594 (D.C.Cir.1997); United States v. Horne, 987 F.2d 833, 835 (D.C.Cir.1993). A defendant must therefore show first, that his counsel's performance "fell below an objective standard of reasonableness" by identifying specific "acts or omissions of counsel that are alleged not to have been the result of reasonable professional judgment." Strickland, 466 U.S. at 687-88, 690, 104 S.Ct. at 2064-66. Second, a defendant must demonstrate that the deficiencies in his representation were prejudicial to his defense. Id. at 692, 104 S.Ct. at 2067. He "must show that there is a reasonable probability that, but for counsel's errors, he would not have pleaded guilty and would have insisted on going to trial." Hill, 474 U.S. at 59, 106 S.Ct. at 370-71. Taylor maintains, however, that his assertions of ineffectiveness fall within a "genre" of ineffective assistance claims based upon a counsel's conflict of interest. United States v. Bruce, 89 F.3d 886, 893 (D.C.Cir.1996). In Cuyler v. Sullivan, 446 U.S. 335, 349-350, 100 S.Ct. 1708, 1718-19, 64 L.Ed.2d 333 (1980), the Supreme Court recognized that a defendant's Sixth Amendment right to effective assistance of counsel may be violated when an actual conflict of interest adversely affects the adequacy of the defendant's representation. See id. at 349-51, 100 S.Ct. at 1718-20. In that event, prejudice will be presumed "if the defendant demonstrates that counsel 'actively represented conflicting interests' " and that the conflict "adversely affected his lawyer's performance." Strickland, 466 U.S. at 692, 104 S.Ct. at 2067 (quoting Cuyler, 446 U.S. at 350, 348, 100 S.Ct. at 1719, 1718); accord Bruce, 89 F.3d at 893. In order to present a valid Cuyler claim, this court requires a defendant to show that his counsel advanced his own, or another client's, interest to the detriment of the defendant. See Bruce, 89 F.3d at 893. Counsel's action, moreover, must be knowing; counsel who remains unaware of adverse interests among clients does not have an "actual conflict." See United States v. Gantt, 140 F.3d 249 (D.C.Cir. 1998) (opinion forthcoming). "If an attorney fails to make a legitimate argument because of the attorney's conflicting interest . then the Cuyler standard has been met." Bruce, 89 F.3d at 896 (emphasis in original). It is true that the court has generally been reluctant to allow defendants to "force their ineffective assistance claims into the 'actual conflict of interest' framework . and thereby supplant the strict Strickland standard with the far more lenient Cuyler test." United States v. Bruce, 89 F.3d 886, 893 (D.C.Cir.1996) (citing United States v. Leggett, 81 F.3d 220, 227 (D.C.Cir.1996), and United States v. Farley, 72 F.3d 158, 166 (D.C.Cir.1995)). In Cuyler, the Supreme Court was confronted with special problems of multiple representation: two attorneys jointly represented three defendants. See Cuyler, 446 U.S. at 337, 100 S.Ct. at 1712. The record indicated that counsel differed in their views about how one defendant's case should be handled, and that there were ways in which proceeding on behalf of one defendant might have harmed another defendant. See id. at 338-340, 100 S.Ct. at 1712-14. Emphasizing that "the possibility of conflict is insufficient to impugn a criminal conviction," the Court held that to demonstrate a violation of the Sixth Amendment "a defendant must establish that an actual conflict of interest adversely affected his lawyer's performance." Id. at 350, 100 S.Ct. at 1719. Under such circumstances, the Court determined prejudice would then be presumed. Id. at 350, 100 S.Ct. at 1719. Subsequently, in Strickland, the Court reemphasized that "[pjrejudice is presumed only if the defendant demonstrated that counsel 'actively represented conflicting interest' and that 'an actual conflict of interest adversely affected his lawyer's performance.' " 466 U.S. at 692, 104 S.Ct. at 2067 (quoting Cuyler, 446 U.S. at 348, 100 S.Ct. at 1718). In the context of joint representation, this standard is more easily satisfied because "when an attorney represents two clients with opposing interests, the attorney cannot serve both clients adequately____ [The attorney] 'must fail one or do nothing and fail both.' " Perillo v. Johnson, 79 F.3d 441, 447 (5th Cir.1996) (quoting Beets v. Scott, 65 F.3d 1258, 1270 (5th Cir.1995)). But when other conflicts are alleged to have impaired counsel's performance, the defendant's burden is to show that counsel actually acted in a manner that adversely affected his representation by doing something, or refraining from doing something, that a non-conflicted counsel would not have done. See United States v. Soldevillla-Lopez, 17 F.3d 480, 486-87 (1st Cir.1994). In order for there to be an "actual conflict," an attorney must be forced to make a choice advancing his own interest at the expense of his client's. See Bruce, 89 F.3d at 893. An ethical lapse is not the same as a conflict of interest, Bruce, 89 F.3d at 893-94, and a Cuyler conflict does not arise from mere "friction between trial counsel and the court," Shark, 51 F.3d at 1076, or from a misunderstanding between a defendant and trial counsel on trial tactics. See United States v. Leggett, 81 F.3d 220, 227 (D.C.Cir.1996). Neither is a hypothetical conflict having no effect on trial counsel's representation enough to come within Cuyler's reach and thus avoid the need to show Strickland prejudice. See Cuyler, 446 U.S. at 350, 100 S.Ct. at 1719; Bucuvalas v. United States, 98 F.3d 652, 657 (1st Cir.1996) (requiring more than some attenuated hypothesis having little consequence to the adequacy of representation); United States v. Gambino, 864 F.2d 1064, 1070 (3d Cir.1988). As a threshold matter, we find unpersuasive the government's contention that Taylor waived any right to contest his trial counsel's deficient representation. Taylor's appeal relies on events of which he was not then aware or that occurred after he had assured the district court that he was satisfied with his trial counsel. Throughout the course of the trial, Taylor was aware of his trial counsel's personal difficulties and professional lapses and was offered the opportunity to change counsel by the court. On several occasions the district court warned Taylor that by allowing counsel to continue, Taylor would "waive any rights that [he] ha[d] to object to his failure to properly represent [him] in the past or at present or in the future because of his condition." Still he decided to retain his trial counsel. Because a defendant can entirely waive his or her right to counsel, see Johnson v. Zerbst, 304 U.S. 458, 464-65, 58 S.Ct. 1019, 1023, 82 L.Ed. 1461 (1938), and courts have recognized that a co-defendant can waive his or her right to conflict-free counsel in agreeing to joint representation, see, e.g., United States v. Rico, 51 F.3d 495, 509-512 (5th Cir.1995), the government contends that Taylor could similarly waive in advance all claims concerning the quality of his representation. Taylor's response to the district court's repeated warnings, it maintains, constitutes such a general waiver. The court, however, must "indulge every reasonable presumption against the waiver of the unimpaired assistance of counsel." Campbell v. United States, 352 F.2d 359, 361 (D.C.Cir.1965) (citing Glasser v. United States, 315 U.S. 60, 70, 62 S.Ct. 457, 464-65, 86 L.Ed. 680 (1942)). Consequently, Taylor's averments of satisfaction are properly viewed more narrowly than the government urges. The court may assume for purposes of the instant appeal that his expressions of satisfaction with his trial counsel's performance bar any claims arising from prior acts or omissions of counsel of which Taylor reasonably could or should have known. Furthermore, in light of the district court's warnings, the court may assume that Taylor also knowingly and voluntarily waived any future claims of ineffective assistance based upon trial counsel's drug abuse, at least to the extent it was known and understood by Taylor. But Taylor did not indiscriminately waive his right to pursue ineffectiveness claims on other grounds, such as those addressed here. Cf. United States v. Lowry, 971 F.2d 55, 63 (7th Cir.1992). Taylor could not have foreseen trial counsel's conduct in plea negotiations with the government and was unaware of trial counsel's alleged conflicts when he affirmed the adequacy of his representation. Cf. United States v. Raynor, 989 F.Supp. 43, 44 (D.D.C. 1997). Even if Taylor's statements were broadly construed to include his present conflict of interest claims, they could not have formed a valid waiver because he did not know of his possible advice of counsel defense when he made them. See Johnson, 304 U.S. at 464, 58 S.Ct. at 1023. Turning to the merits, Taylor contends on appeal that trial counsel had three different conflicts, only one of which requires extended discussion. First, he maintains that trial counsel was inclined to end the case as quickly as possible because trial counsel risked being held in contempt if he did not continue to satisfy the district court that he was complying with his drug treatment program. Standing alone this is insufficient to show a conflict of interest inasmuch as the court has previously observed that such a claim is meritless. See United States v. Shark, 51 F.3d 1072, 1075-76 (D.C.Cir.1995). Because all attorneys potentially face contempt citations, no particular attorney can be considered ineffective due to a concern that he or she might be so cited. See id. at 1076. Second, Taylor maintains that trial counsel's personal financial interest also motivated him to dispose of the ease through a plea without regard for Taylor's interests. Yet, this too, is unpersuasive for the reasons noted by the district court, and because many defendants undoubtedly face similar financial demands from their counsel. Although a "defendant's failure to pay fees may cause some divisiveness between attorney and client," courts generally presume that counsel will subordinate his or her pecuniary interests and honor his or her professional responsibility to a client. United States v. O'Neil, 118 F.3d 65, 71 (2d Cir.1997), cert. denied, — U.S. -, 118 S.Ct. 728, 139 L.Ed.2d 666 (1998); United States v. Jeffers, 520 F.2d 1256, 1265 (7th Cir.1975) (Stevens, J.). But cf. Daniels v. United States, 54 F.3d 290, 294 (7th Cir.1995). The district court rejected Taylor's allegations of financial pressure as incredible in view of the fact that trial counsel had completed the trial before Taylor pleaded guilty. Even if Taylor's trial costs were not necessarily at an end because he potentially faced felony contempt and wire fraud charges, his affidavit focuses solely on the past, alleging that trial counsel asked him for more money on several occasions, the last being July 12. Trial counsel, however, continued to represent Taylor at both the civil contempt hearing on July 17 and the criminal contempt hearing on July 19 without incident. Taylor admits, moreover, that trial counsel never stated or otherwise threatened that he would cease his representation if Taylor failed to pay more money. Viewed in combination with Taylor's sworn statement at the Rule 11 hearing that he had not been coerced, he fails to allege any credible "actual conflict" with trial counsel. Cf. Gantt, 140 F.3d 249 (D.C.Cir.) (opinion forthcoming). Third, and more troubling, Taylor maintains that trial counsel had a conflict of interest in presenting an advice of counsel defense and therefore it was in counsel's personal interest to bring the case to a prompt conclusion through a global plea. Specifically, he maintains that his trial counsel failed to advise him of a viable advice of counsel defense to the charges of felony criminal contempt that, along with the independent wire fraud charges, were a significant motivating factor in his decision to accept the global plea agreement. He asserts this failure was caused, in part, by trial counsel's concern that informing him of his defense would reveal to his client, the district court, and the prosecutors that trial counsel had provided his client with clearly inaccurate legal advice. Hence, Taylor contends, trial counsel's interest in avoiding an advice of counsel defense was in competition with Taylor's interest to be informed of all viable defenses to the charges when making a decision whether to accept a plea offer. Ordinarily, when a defendant seeks to withdraw a guilty plea on the basis of ineffective assistance of trial counsel the district court should hold an evidentiary hearing to determine the merits of the defendant's claims. "An evidentiary hearing is critical to [an] evaluation of most ineffective assistance of counsel claims, because these frequently concern matters outside the trial record, such as whether counsel properly investigated the case, considered relevant legal theories, or adequately prepared a defense." United States v. Cyrus, 890 F.2d 1245, 1247 (D.C.Cir.1989). On the other hand, some claims of ineffective assistance of counsel can be resolved on the basis of the trial transcripts and pleadings alone. See United States v. Fennell, 53 F.3d 1296, 1303-4 (D.C.Cir.1995), modified on reh'g, 77 F.3d 510 (1996); United States v. Pinkney, 543 F.2d 908, 914 (D.C.Cir.1976). For example, the alleged acts of deficient performance by counsel may have occurred in the course of proceedings before the trial court, thereby making a hearing unnecessary. Cf. Pinkney, 543 F.2d at 915. Or the motion may fail to allege sufficient facts or circumstances "upon which the elements of constitutionally deficient performance might properly be found." Id. at 916. Summary disposition may also be appropriate where the defendant has failed to present any affidavits or other evidentiary support for the naked assertions contained in his motion. See id. at 916-17. Furthermore, in challenging a guilty plea on the basis of ineffective assistance, the representations of the defendant at the plea- hearing as to the adequacy of counsel and the knowing and voluntary nature of his plea, see Fed. R.Crim.P. 11(d), may "constitute a formidable barrier" to his later refutations. Blackledge v. Allison, 431 U.S. 63, 74, 97 S.Ct. 1621, 1629, 52 L.Ed.2d 136 (1977). But that barrier, "although imposing, is not invariably insurmountable," and does not necessitate the summary denial of a motion to withdraw a guilty plea. Id. Only if the district court concludes that the defendant has not alleged any cognizable claim for relief, or that the defendant's "conelusory allegations [are] unsupported by specifics," or that the defendant's allegations "in the face of the record are wholly incredible" may it summarily dismiss the motion. Id. Taylor's Cuyler claim is premised on the fact that had he not pleaded guilty, he could only have received a maximum sentence of six months imprisonment for misdemeanor contempt and would then have faced charges for wire fraud and felony contempt, based solely on the refinancing of his home. Had he known of his advice of counsel defense to the refinancing contempt charges, there is a reasonable probability, cf. Hill, 474 U.S. at 59, 106 S.Ct. at 370-71, that he would not have accepted the global plea agreement in which he pled guilty to felony contempt for both the bank transactions and the refinancing. Instead, he might have accepted the district court's ruling on misdemeanor contempt and attempted to defend against the more serious felony contempt charges. It was, after all, as trial counsel's affidavit confirms, the fear of future criminal contempt and wire fraud prosecutions that had driven the final plea negotiations. To demonstrate the need for an evidentiary hearing, Taylor focuses on the factual dispute over trial counsel's advice on the refinancing. Because the home financing was not the subject of the misdemeanor contempt trial, it was impossible for the district court to determine from the trial record what communications Taylor and trial counsel may have had regarding the home financing, much less for the district court.to evaluate trial counsel's explanation without the benefit of cross-examination. Were the district court to determine, after an evidentiary hearing, that Taylor's allegations are true, then trial counsel would have failed to advise him of an advice of counsel defense that trial counsel's own affidavit implies would have been a significant factor in Taylor's decision to accept the global plea agreement. Once Taylor's averment regarding trial counsel's advice is credited, it is not difficult to believe that trial counsel failed to provide Taylor with this important information at least in part because to do so would reveal to Taylor, the district court, and the prosecutor that trial counsel had provided his client with inaccurate legal advice. So viewed, trial counsel's interest in avoiding an advice of counsel defense was in competition with Taylor's interest to be informed of all viable defenses to the charges against him when making a decision whether to accept the global plea offer. But see Farley, 72 F.3d at 166. In a real sense, then, "[trial counsel] 'was required to make a choice advancing his own interests to the detriment of his client's interests.' " Bruce, 89 F.3d at 893 (citations omitted). Having presented an "actual conflict" by affidavit and otherwise sufficient, noneonclu sory allegations about trial counsel's advice and its relationship to his decision to plead guilty, Taylor need only show that the conflict of interest "adversely affected his lawyer's performance." Strickland, 466 U.S. at 692, 104 S.Ct. at 2067 (quoting Cuyler, 446 U.S. at 348, 100 S.Ct. at 1718). The alleged conflict must have "had some negative effect upon his defense (defined as 'an actual lapse in representation')." Shark, 51 F.3d at 1075. In the instant case, trial counsel's lapse was his very failure to apprise Taylor of a potential defense that, if proved, could have provided a complete defense to the felony contempt charges arising out of Taylor's refinancing of his home. Cf. Gambino, 864 F.2d at 1070. Notwithstanding the strong presumption that counsel "made all significant decisions in the exercise of reasonable professional judgment," Strickland, 466 U.S. at 690, 104 S.Ct. at 2065-66, trial counsel's failure to inform his client about this defense clearly constituted deficient representation. Cf. Teague v. Scott, 60 F.3d 1167, 1170 (5th Cir.1995). Taylor was entitled to make an informed decision about whether to plead guilty or risk the district court's judgment in the misdemeanor contempt trial and defend against possible additional criminal charges. Cf. United States v. Shepherd, 102 F.3d 558, 563 (D.C.Cir.1997). Moreover, Taylor is not required to establish ultimate prejudice as defined by Strickland and Hill. Therefore, Taylor's allegation that trial counsel had failed to inform of him of this defense due to his conflict of interest presents a valid Cuyler claim, even if trial counsel succeeded in obtaining for Taylor what appears, on its face, to be a favorable plea agreement. Accordingly, we reverse and remand the case to the district court for an evidentiary hearing to determine whether Taylor's allegation that his trial counsel advised him that refinancing his home would not violate the freeze orders is plausible, and if it is, to permit Taylor to withdraw his plea. . The orders were issued by different judges, but for simplicity, we refer to all freeze orders as being issued "by the district court." . Taylor allegedly stated in his application that he was not subject to any litigation and was earning $9,000 a month as a financial advisor. . Taylor also waived his right to an indictment on the new criminal charges, waived venue on the wire fraud charge, and waived any double jeopardy claim with regard to the contempt charges arising from the bank transactions. He further agreed to disgorge the net proceeds from the home refinancing or provide proof of his inability to do so. .At one point, Taylor sought new counsel for the misdemeanor contempt proceedings while retaining trial counsel in the civil case. He then changed his mind and indicated that he wished to retain trial counsel in the criminal matter but not the civil matter. The district court would not allow the latter arrangement, and Taylor subsequently agreed trial counsel could represent him in both cases. . New counsel explained to the district court that he had not asserted this defense in the pleadings on the motion because he did not think that the government had a right to he privy to the nature of Taylor's defense should the case go to trial. . Taylor also referred to an inadvertent-conduct defense to the wire fraud and claimed to have suggested potential defenses and witnesses for the misdemeanor contempt charge that trial counsel failed to pursue. . Alternatively, as the government contends, Taylor has waived his claim that counsel was con flicted because he performed under the threat of a contempt sanction. Taylor knew about this when he agreed to retain counsel and this claim arises out of counsel's substance abuse problems. . For this reason, at least one circuit has held that the nonpayment of legal fees does not constitute a Cuyler conflict and is more properly analyzed under Strickland. See O'Neil, 118 F.3d at 72; United States v. Wright, 845 F.Supp. 1041, 1073 n. 35 (D.N.J.), aff'd 46 F.3d 1120 (3d Cir.1994). . Farley is distinguishable because the defendant's claim that his counsel misadvised him was directly contradicted by the defendant's description of the advice to the district court. See Farley, 72 F.3d at 165 & n. 6. Also, had he misunderstood the guilty plea for any reason, the plea would have been involuntary and unconstitutional regardless of any advice his counsel may have given to him. So viewed, there could be no , conflict of interest. . The government does not contest the availability of an advice of counsel defense for charges of criminal contempt. The district court assumed that the defense was available in making its findings and we presently have no need to address the issue.
377 U.S. 944		C. A. 9th Cir. Certiorari denied.
500 U.S. 915		C. A. 8th Cir. Certiorari granted.
176 L. Ed. 2d 1181		Motion of petitioner for leave to proceed in forma pauperis denied. Petitioner is allowed until June 7, 2010, within which to pay the docketing fees required by Rule 38(a) and to submit a petition in compliance with Rule 33.1 of the Rules of this Court.
187 U.S. 642		Petition for a writ of certiorari to the United States Circuit Court of Appeals for the Eighth Circuit denied.
507 U.S. 915		C. A. 8th Cir. Certiorari denied.
568 U.S. 801		Affirmed on appeal from D. C. N. D. Ill.
563 U.S. 983		C. A. 6th Cir. Certiorari denied. Justice Kagan took no part in the consideration or decision of this petition.
516 U.S. 923		C. A. 11th Cir. Cer-tiorari denied.
441 U.S. 931		Sup. Ct. Pa. Certiorari denied.
425 U.S. 951		C. A. 4th Cir. Certiorari denied.
565 U.S. 841		C. A. 9th Cir. Certiorari denied.
512 U.S. 1207		C. A. 2d Cir. Certiorari denied.
426 U.S. 932		C. A. 5th Cir. Certiorari granted, judgment vacated, and case remanded for further consideration in light of Hancock v. Train, ante, p. 167.
546 U.S. 1121		C. A. 4th Cir. Cer-tiorari denied.
481 U.S. 1048		Sup. Jud. Ct. Me. Certiorari denied.
429 U.S. 977		C. A. 4th Cir. Certiorari denied.
540 U.S. 854		C. A. 9th Cir. Certiorari denied.
504 U.S. 938		Affirmed on appeal from D. C. Md. Justice Stevens would note probable jurisdiction and set case for oral argument.
469 U.S. 832		Ct. App. Mo., Eastern Dist. Certiorari denied.
531 U.S. 935		C. A. 6th Cir. Certiorari denied.
519 U.S. 1122		Sup. Ct. Va. Certiorari denied.