Before MARIS GOODRICH and O'CONNELL, Circuit Judges.
O'CONNELL, Circuit Judge.
This is an appeal from the judgment of the District Court for New Jersey sentencing Russell W. Michener, after conviction by a jury, on twelve counts charging acts in violation of Section 35(A) of the U.S. Criminal Code.*fn1
Michener, one Gregory Ferend, and the Marine Maintenance Corporation were indicted on conspiracy charges based upon alleged violations of the same statute and each defendant was individually indicted on twelve counts, charging, in substance, that each defendant knowingly and wilfully made and presented false, fraudulent, and fictitious claims against the United States Maritime Commission in the nature of billings, vouchers, and invoices for conversion and repair work done by the defendant Corporation on each of twelve ships pursuant to an arrangement with the Maritime Commission.
Ferend was president and the sole stockholder of Marine Maintenance Corporation of which Michener was a salaried treasurer. On January 5, 1942, the Maritime Commission sent the first of the twelve ships to the yard of the Corporation for repair and conversion to an armed merchant vessel. Between January 5, 1942 and October 23, 1942, the yard completed the work on the twelve ships. Nothing in the indictment charges that the work was done improperly or that inferior materials were used, or that the completion of the work was untimely. The arrangement under which this work (called "defensing" the ships) was done, in effect, was such that the defendants were told to get the ships out and argue over charges later. In any event, defensing of the first of the twelve ships began before agreement was reached upon the terms under which the work on the vessels was to be done. Later, a contract was drafted which provided for payment to the corporation at the following rate: (a) $1.74 per each hour of labor; (b) hire of tools at cost plus 10 per cent; and (c) material at cost plus 10 per cent.
The ships themselves were of two types. Some were operated by the War Shipping Administration. Others were operated by our Allies under the provisions of the Lend Lease Act, 22 U.S.C.A. § 411 et seq. The work done on each ship also fell into two categories. Certain repairs were regarded as "overhead" and were to be charged to the owners of the vessels rather than to the Maritime Commission. The arming costs were to be charged to the Commission.
Apart from the speed with which the work was required to be done because of the fortunes of war, the administration of the yard appears to have been haphazard and improvised. This was caused by the mushrooming of facilities and marked expansion and turnover in personnel.*fn2 Furthermore, there was no time to set up an office force adequate to administer the multitude of complex problems. The job of instituting the system of timekeeping, material requisitioning, and various recordings essential to work of this kind fell to defendant Michener. His mission was to keep all the records straight in order that the Corporation might be paid the proper sums by the Commission and the owners for the work done on the ships in accordance with the basic arrangement.
It would appear that despite all of Michener's efforts to set up a workable system, the conditions which actually prevailed were hectic at best and chaotic at worst. Although the work in the yard began in January, no auditors from the Maritime Commission reported there for duty until August. In the interim many questions arose, such as whether certain items should be charged to the owners of the vessels or to the Commission. Having no Commission auditor to consult, Michener communicated with the New York office of the Commission in order to obtain the answers to these questions. He was advised to insert the doubtful items in the bill and that when the Commission auditor arrived at the yard there would be an adjustment. What happened to the defendant Michener from that point on followed with the swift inevitability of a Greek tragedy. Charged with the responsibility of doing what was virtually an impossibility under the circumstances, the preparation of proper claims against the Maritime Commission and the owners, he set out to obtain figures which would at least bear a semblance to reality. Interviews with foremen and timekeepers resulted in his making certain changes in the haphazard records. Items were recharged in certain instances to the Commission, in others to the owners. These alterations were obvious. No attempt was made to conceal them. Two auditors from the Commission ultimately took over and immediately objected to a large number of items charged to the Commission. Unable to reach agreement with Michener, they reported to their superior officer who proceeded to hold conferences with a public accountant retained by another corporation owned by defendant Ferend. They concluded that it was impossible to straighten out the accounts so long as Michener was treasurer of the Corporation. As a result, Michener was persuaded to resign in November, 1942. The Commission auditors and the new representative of the Marine Maintenance Corporation had no better success in reaching agreement on the disputed charges to the Commission. In January, 1943, the indictment in this case was handed down.
After a trial lasting several weeks, the jury made no finding with respect to the Corporation, whereupon the court directed them to render a verdict of not guilty as to the Corporation. The jury acquitted Ferend on all counts but, at the same time, found Michener guilty on the twelve counts charging violations of the false claims statute. From this conviction and judgment of the District Court sentencing him, Michener appeals.
We are required to set aside the conviction because of substantial error in the trial of the case.
The Government put on the stand the two Maritime Commission auditors, Rice and Day, who arrived at the yard in August of 1942. These auditors undoubtedly made detailed inspections of the books, records and accounts of the Marine Maintenance Corporation and were qualified to testify in summary form of what was contained in those voluminous documents. However, they were permitted to go further and state their conclusions that certain items were improperly charged to the Commission, basing their opinions not on what the records revealed but in many case on matters entirely dehors the documents themselves. In considering numerous items, the auditors based their conclusions that charges were either excessive or that they should never have been made against the Commission upon statements allegedly made to them by persons not on the witness stand and who, in certain instances, were totally unidentified. The admission into the evidence of the auditors' conclusions and opinions as distinguished from mere statements of fact summarizing what was observed by them in the records was erroneous: Cooper v. United States, 8 Cir., 1925, 9 F.2d 216; Continental Casualty Co. v. First Nat. Bank, 5 Cir., 1941, 116 F.2d 885, 135 A.L.R. 1141. Illustrative of the lack of probe worthiness of the testimony of these auditors is the statement by Rice on direct examination that in conducting his audit he would check with a "gentleman at 45 Broadway" to determine if certain material had in fact been delivered. Based upon the information received from him the particular charge would be allowed or excluded. This amounted, in effect, to a decision by some unknown party on the very vital issue of the propriety of the particular charge. Unacceptable are such anonymous, unauthenticated conclusions. Another example of the auditors' method of arriving at the conclusions, admission of which we hold to be objectionable in itself, was the disallowance of all items charged to the Commission where the face of the record or document showed that originally it had been charged to the owner of the vessel. No effort was made to determine, and indeed no interest was ever shown in the real issue: whether the erasure or alteration was made to correct errors so as to set forth the true facts. We conclude to set forth the true facts. We conclude that the trial judge erred in admitting the testimony of the two Maritime Commission auditors in the form in which such evidence was given.
The trial judge erred in another important respect. The Government placed two witnesses on the stand whose testimony undoubtedly was in nature of a surprise to Government counsel. In each case he proceeded to neutralize that testimony by showing or attempting to show a previous inconsistent statement. The trial judge advised Government counsel to withdraw the first of these two witnesses, stating, "You may withdraw this witness and his testimony will be declared completely neutralized and I instruct the jury to pay no attention to anything he has testified." Similarly, in the case of the other Government witness he instructed the jury as follows: "The testimony, ladies and gentlemen of the jury, of this witness will be completely disregarded by you. It has been neutralized and will be by you for nothing held. I ask you to obliterate it as far as possible from your memories and in any event, if this case gets to the point where you consider it and consider all of the evidence you will exclude definitely and completely from your consideration any and all of the testimony of this witness. You will step down and wait in the back of the Court."
This procedure raises an interesting question bearing on the nature of allowable impeachment of one's own witness. Appellant does not contend that the trial court erred in permitting the Government counsel to discredit his own witness by interrogating him on prior contradictory statements. This was within the bounds of the discretionary power of the trial judge. United States v. Maggio, 3 Cir., 1942, 126 F.2d 155, where Judge Maris discusses the development of modification of the strict rule against impeachment of one's own witness.*fn3
After a party is "surprised" by what his own witness says under oath, and is permitted by the trial judge to discredit the testimony in chief, does the opposing party have the right to cross-examine the witness? While there appear to be no decisions on this specific point, it would seem clear that such a right of cross-examination exists.*fn4 Cross-examination is a matter of right: The Ottawa, 1865, 70 U.S. 268; Alford v. United States, 1931, 282 U.S. 687, 51 S. Ct. 218, 75 L. Ed. 624. That this right is not limited to such cross-examination which will necessarily tend to discredit the testimony in chief is apparent from the Alford decision. "To say that prejudice can be established only by showing that the cross-examination, if pursued, would necessarily have brought out facts tending to discredit the testimony in chief, ...