Belle City Packing Co. v. Reconstruction Finance Corp.

• Citation: 169 F.2d 413
• Decision Date: 02 August 1948
• Docket Number: No. 445.,445.
• Parties: BELLE CITY PACKING CO. v. RECONSTRUCTION FINANCE CORPORATION.
• Court: U.S. Temporary Emergency Court of Appeals

169 F.2d 413 (1948)

BELLE CITY PACKING CO. v. RECONSTRUCTION FINANCE CORPORATION.

No. 445.

United States Emergency Court of Appeals.

Heard April 24, 1948.

Decided August 2, 1948.

Warren Woods, of Washington, D. C. (Roberts & McInnis, of Washington, D. C., on the brief), for complainant.

George Arthur Fruit, Atty., Department of Justice, of Washington, D. C. (Joseph M. Friedman, Sp. Asst. to Atty. Gen., and Jack W. Loeb, Atty., and John C. Erickson, Counsel, both of the Reconstruction Finance Corporation, both of Washington, D. C., on the brief), for respondent.

Before MARIS, Chief Judge, and MAGRUDER and LINDLEY, Judges.

Heard at Washington April 24, 1948.

MAGRUDER, Judge.

Complainant, Belle City Packing Company, here challenges the validity of a ruling or determination by the Reconstruction Finance Corporation that complainant was ineligible, during certain monthly accounting periods, to receive the special subsidy payable to nonprocessing slaughterers of cattle under the provisions of Amendment No. 2 (9 F.R. 1820) to Regulation No. 3 (8 F.R. 10826) issued by Defense Supplies Corporation.¹

Since the subsidy regulation had been issued pursuant to § 2(e) of the Emergency Price Control Act of 1942, 56 Stat. 26, 50 U.S.C.A.Appendix, § 902(e), the foregoing ruling or determination by the RFC thereunder was in effect a "regulation or order under section 2," subject to protest under § 203(a) of the Act, 50 U.S.C.A.Appendix, § 923(a), and to review in the Emergency Court of Appeals under § 204(a), 50 U.S. C.A.Appendix, § 924(a). Illinois Packing Co. v. Bowles, Em.App.1945, 147 F.2d 554; Illinois Packing Co. v. Snyder, Em.App. 1945, 151 F.2d 337; Greenhouse Bros. & Finkelstein, Inc. v. RFC, Em.App.1947, 159 F.2d 712, certiorari denied 1947, 331 U.S. 812, 67 S.Ct. 1200, 91 L.Ed. 1832; Armour & Co. v. RFC, Em.App.1947, 162 F.2d 918, 923. Though the Price Control Act terminated on June 30, 1947, 60 Stat. 664, the jurisdiction of this court in the case at bar is preserved by § 1(b) of the Act, 50 U.S.C.A.Appendix, § 901 (b), since the protest and complaint are founded upon an asserted "right" in complainant, with a corresponding "liability" of respondent, incurred under the subsidy regulation prior to such termination date. Our jurisdiction has not been challenged.

Amendment No. 2 to the subsidy regulation aforesaid established a special subsidy to non-processing slaughterers pursuant to a directive of the Economic Stabilization Director issued October 25, 1943 (8 F.R. 14641), and attached certain conditions to the payment of such subsidy. To be eligible for the special subsidy, a non-processing slaughterer, as defined, had to be an "unaffiliated slaughterer," that is, it could not "own or control" or be "owned or controlled by," a "processor or purveyor of meat." The phrase "own or control" was defined as meaning: "to own or control directly or indirectly a partnership equity or in excess of ten percent of any class of outstanding stock or to have made loans or advances in excess of five percent of the other person's monthly sales. * * *"

The validity of these affiliation provisions of the subsidy regulation has already been upheld by us in Earl C. Gibbs, Inc., v. DSC, Em.App.1946, 155 F.2d 525, certiorari denied 1946, 329 U.S. 737, 67 S.Ct. 51, 91 L.Ed. 637; Atlantic Meat Co., Inc. v. RFC, Em.App.1946, 155 F.2d 533, certiorari denied 1946, 329 U.S. 737, 67 S.Ct. 52, 91 L.Ed. 637; Illinois Packing Co. v. Henderson, Em.App. 1946, 156 F.2d 1000, certiorari denied 1946, 329 U.S. 783, 67 S.Ct. 202, 91 L.Ed. 671. We refer to our opinions in those cases for discussion of the legal basis of the subsidy program, the purpose of the differential subsidy to non-processing slaughterers, and the rationale of the aforesaid affiliation provisions. Complainant does not now press any argument as to the validity of any provisions of the subsidy regulation, but insists that the adverse ruling of respondent as to complainant's eligibility is contrary to law as being based upon an erroneous interpretation of the regulation as written.

Belle City Packing Company was incorporated under the laws of the State of Wisconsin on April 20, 1944, with an authorized capital stock of 250 shares of no par value, of which 148 shares were held by David Fagel, 100 shares by James Gottlieb, and one share each by the wife of David Fagel and by Paul Phillips. David Fagel was president, treasurer and a director. The other two directors were Mrs. Fagel and Phillips. Shortly after its incorporation, the company opened up business in Racine, Wisconsin, as a non-processing slaughterer of livestock.

Prior to April 15, 1944, David Fagel had been a partner with his brother Max Fagel in Fagel Brothers Wholesale Meat Company, of Chicago, Illinois, a partnership business engaged in the purveying of meat to hotels, restaurants and retail outlets in Chicago, and admittedly a "processor or purveyor of meat" within the meaning of the subsidy regulation. Upon advice of counsel, David Fagel, on April 15, 1944, disposed of his interest in the partnership by selling the same to his brother for the agreed price of $15,000. Max Fagel paid for the purchase by $1,000 in cash and by the execution and delivery of a promissory note to David Fagel in the amount of $14,000. The bill of sale was duly recorded on April 19, 1944, in Cook County, Illinois, and the bona fides of this transfer is unquestioned. Thereafter, David Fagel was completely dissociated from the management and business of Fagel Brothers Wholesale Meat Company conducted by his brother as sole proprietor; and Belle City Packing Company never made any sales of meat products to, nor had any other business relations with, said Fagel Brothers Wholesale Meat Company.

If David Fagel had not disposed of his interest in the partnership, it is clear that the newly created corporation, Belle City Packing Company, could not have qualified for the special subsidy as an "unaffiliated slaughterer," for David Fagel, as a partner in Fagel Brothers Wholesale Meat Company, would have been, in that event, a "processor or purveyor of meat" owning or controlling in excess of 10 per cent of the outstanding capital stock of Belle City Packing Company. Somerville Dressed Meat Co. v. RFC, Em.App.1947, 159 F.2d 716.

Complainant filed its claims for the special subsidy for the accounting periods May 18-June 3, 1944, June 5-July 1, 1944, and July 3-29, 1944. In August, 1944, David Fagel volunteered to a representative of DSC in Chicago the information that he held the promissory note of his brother for $14,000 as above mentioned. Upon the strength of this information, David Fagel was told that the claim of Belle City Packing Company for the special subsidy for slaughter in May, June and July would have to be rejected, and that the company would remain ineligible for the special subsidy for so long as this indebtedness was outstanding. David Fagel thereupon promptly extinguished the indebtedness by permitting his brother to take up the note for the sum of $6,500 in final settlement.

Respondent persists in its view that, while this note for $14,000 was outstanding, there was a disqualifying affiliation between Belle City Packing Company and a "processor or purveyor of meat." We do not agree.

The debt was owed by Max Fagel to David Fagel in the latter's individual capacity, and arose out of a personal transaction between the brothers before Belle City Packing Company was even in existence. The note never became an asset of Belle City Packing Company. Under the circumstances of this case, it would be a wholly unwarranted straining of the language of the subsidy regulation to hold that Belle City Packing Company "controlled" Fagel Brothers Wholesale Meat Company, within the meaning of the affiliation provisions, because Belle City Packing Company had made a "loan or advance" to Max Fagel, the sole proprietor of Fagel Brothers Wholesale Meat Company. As already stated, David Fagel was not the sole stockholder of Belle City Packing Company — there was an outstanding 40 per cent stock interest held by James Gottlieb. The corporate entity cannot be disregarded and Belle City Packing Company treated as the "alter ego" of David Fagel.

None of our previous decisions sustains respondent's position. We noted in Fox Packing Co. v. Fleming, Em.App.1947, 161 F.2d 209, 214, what we think is of some importance, that the subsidy regulation in its definition of "own or control" uses the phrase "directly or indirectly" with reference to owning or controlling a stock interest in a corporation in excess of 10 per cent, but does not use the phrase "directly or indirectly" in that portion of the definition relating to loans or advances. In Greenhouse Bros. & Finkelstein, Inc. v. RFC, supra, over 50 per cent of the outstanding stock of the claimant slaughterer was held by the officers and sole stockholders of Renee Packing Company, Inc., a processor or purveyor of meat. We pointed out that there was thus a disqualifying affiliation between the slaughterer and the processor or purveyor of meat because Renee Packing Company, Inc., through its officers and sole stockholders, might be deemed to control "indirectly" more than the disqualifying amount of stock of the slaughterer. In Atlantic Meat Co., Inc. v. RFC, supra, Atlantic Meat Co., Inc., which was a wholly owned and controlled subsidiary of General Foods Corporation, was held to be ineligible for the special subsidy because General Foods Corporation was also a "processor or purveyor of meat" through Batchelder & Snyder, another wholly owned subsidiary. Earl C. Gibbs, Inc. v. DSC, supra, is distinguishable because there the corporate applicant for the special subsidy was itself indebted to a processor or purveyor of meat on account of a loan in a sum in excess of 5 per cent of the debtor's monthly sales, the debt being secured by a mortgage upon the debtor's plant.

Complainant made its claims for...