Brunenkant v. Celebrezze, 13715.

• Decision Date: 02 January 1963
• Docket Number: No. 13715.,13715.
• Parties: Edward J. BRUNENKANT, Plaintiff-Appellant, v. Anthony J. CELEBREZZE, Secretary of Health, Education and Welfare, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

310 F.2d 355 (1962)

Edward J. BRUNENKANT, Plaintiff-Appellant, v. Anthony J. CELEBREZZE, Secretary of Health, Education and Welfare, Defendant-Appellee.

No. 13715.

United States Court of Appeals Seventh Circuit.

October 31, 1962.

Rehearing Denied January 2, 1963.

Edward J. Brunenkant, Sun City, Ariz., for appellant.

Morton Hollander, Chief, Appellate Section, Stephen B. Swartz, Atty., Dept. of Justice, Washington, D. C., James P. O'Brien, U. S. Atty., Chicago, Ill., Joseph D. Guilfoyle, Acting Asst. Atty. Gen., for appellee.

Before KNOCH, CASTLE and SWYGERT, Circuit Judges.

CASTLE, Circuit Judge.

Edward J. Brunenkant, plaintiff-appellant, brought this action in the District Court, pursuant to 42 U.S.C.A. § 405 (g), to review a final decision¹ of the Secretary of Health, Education and Welfare denying the claims of plaintiff and his wife for old-age insurance benefits under the Social Security Act.² The District Court granted summary judgment for the defendant-appellee and the plaintiff appealed.

Plaintiff and his wife applied for old-age insurance benefits on January 15, 1958. Denial of the applications led to the subsequent administrative proceeding and judicial review action which culminated in this appeal. Plaintiff had reached retirement age on December 21, 1957. Under the then applicable provisions of the Act, in order to qualify as fully insured for old-age insurance benefits, he was required to have either 13 quarters of coverage among the 27 quarters elapsing between January 1, 1951 and September 30, 1957 or at least 7 of the 11 quarters elapsing between January 1, 1955 and September 30, 1957. It is conceded that the limitation period of the Act (42 U.S.C.A. § 405(c)) makes uncontestable plaintiff's claim to 4 quarters of coverage during 1953 based upon income he reported for that period as creditable self-employment income. Plaintiff claims that the record establishes that he received income creditable as self-employment income or as wages during the years 1955, 1956 and 1957 which for old-age insurance coverage purposes supplies the necessary additional quarters, or in itself constitutes the requisite quarters of coverage, for his qualification as fully insured.

We recently had occasion to point out (Sherrick v. Ribicoff, 7 Cir., 300 F.2d 494, 495) that under the provisions of § 205(g) of the Act (42 U.S. C.A. § 405(g)) the factual findings of the Secretary, if supported by substantial evidence, are conclusive and that this finality attaches not only to the findings themselves but also to the inferences and conclusions drawn from the facts if a substantial basis for them appears in the record.

Thus the contested issue presented for our determination by plaintiff's appeal is whether the Secretary's findings and conclusions that the plaintiff did not in the years 1955, 1956 and 1957 receive income creditable for old-age insurance coverage purposes are supported by substantial evidence and based upon the application of correct legal criteria.

Plaintiff contends that his 1955-1957 income or earnings from futures trading on his own account as an "odd-lot specialist" in wheat futures on the Chicago Board of Trade are creditable as self-employment income. He further contends that he received other 1955-1957 earnings from a corporation of which he was president which are creditable as wages or, in the alternative, that the 1956-1957 portion of such earnings is self-employment income received for legal services rendered the corporation.

The basic facts are not in dispute. The record establishes that the plaintiff is a licensed attorney. For a number of years, including the 1955-1957 period, he was a member of the Chicago Board of Trade, a commodity exchange, and engaged in the buying and selling of wheat futures as an odd-lot specialist. In addition he traded as a speculator in futures of other commodities. An odd-lot specialist is one who, in contrast to the usual futures trading in "round" lots of 5,000 bushels restricts himself to the buying and selling of smaller quantities of a particular commodity. A distinctive feature of an odd-lot specialist's transactions in futures is the 1/8 of a cent margin involved. Odd-lot futures are bought for 1/8 cent per bushel below, and sold for 1/8 cent per bushel above, the current market price.

Plaintiff's contention that his profits from his odd-lot specialist trading constitute creditable self-employment income was rejected by the final administrative decision of the Secretary affirmed by the District Court. We perceive no error in that ruling. Profits from futures trading are considered for income tax purposes as gains from the sale or exchange of capital assets. Faroll v. Jarecki, 7 Cir., 231 F.2d 281, cert. den., 352 U.S. 830, 77 S.Ct. 45, 1 L.Ed.2d 51. Therefore, such profits are clearly within the express exclusion of § 211(a) (3) (A) of the Act (42 U.S.C.A. § 411(a) (3) (A)), and are to be disregarded for the purposes of computing self-employment income under the Act. In Faroll we distinguished Corn Products Refining Co. v. Commissioner, 350 U.S. 46, 76 S.Ct. 20, 100 L.Ed. 29, as a case where such profits were held to constitute ordinary income and not capital gains because of the hedging aspect there involved and the fact that the future transactions were an integral part of the taxpayer's manufacturing business. In that case a manufacturer of corn products purchased corn futures in order to protect its manufacturing operations against a price increase in its principal raw material and to assure a ready supply for future manufacturing requirements without providing storage facilities. It took delivery of some of the corn according to its needs and sold the remainder at a profit. The futures transactions there involved afforded partial insurance against the principal risk of its manufacturing enterprise — a price rise in the raw material. The taxpayer's sales policy, selling its products for future delivery at a set price or at market price on the date of delivery, whichever was the lower, left it exceedingly vulnerable to rises in the price of corn.

Plaintiff's reliance upon Corn Products is misplaced. Plaintiff was not a manufacturer, processor or handler of the actual commodity but merely a trader in futures of the commodity who did not contemplate taking possession of the "actuals". Moreover, although plaintiff attempted to maintain a balance in his futures commitments, as nearly as market conditions would permit, the record does not disclose that his purchases and sales were ever perfectly matched. And to the extent that his futures commitments remained unmatched he took the full risks of price swings. In addition the illustrative daily trade records submitted by the plaintiff reflect the realities of the market. There was no matching of each purchase or sale at identical prices and his profit (or loss) consisted of both the...