Thome v. Lynch

• Decision Date: 17 February 1921
• Docket Number: 118-121.,86-115
• Citation: 269 F. 995
• Parties: THOME v. LYNCH, Collector of Internal Revenue, and thirty-three other cases.
• Court: U.S. District Court — District of Minnesota

269 F. 995

THOME v. LYNCH, Collector of Internal Revenue, and thirty-three other cases.

Nos. 86-115, 118-121.

United States District Court, D. Minnesota, Third Division.

February 17, 1921

[Copyrighted Material Omitted]

Warren Newcombe, of St. Paul, Minn., for plaintiff Thome.

Joel M Dickey and George G. Chapin, both of St. Paul, Minn., for plaintiffs Stone, Goldman, Yugend, Wiggen, Twomey, Pellowski Ueber, Brown, and Carroll.

Herbert P. Keller, of St. Paul, Minn., for plaintiff Nemerovsky.

Herbert P. Keller and George G. Chapin, both of St. Paul, Minn., for plaintiff Boss.

Alfred W. Mueller, of New Ulm, Minn., for plaintiffs Weigel, Schnobrich, Beyer, Schneider, Zischka, and Schleif.

Louis P. Johnson, of Ivanhoe, Minn., for plaintiffs Frey, Gorecki, Korcal, and Kudrna.

Gustavus Loevinger and Maurice W. Stoffer, both of St. Paul, Minn., for plaintiff Minor.

Patrick J. Ryan, of St. Paul, Minn., for plaintiffs Finn, Crockett, and O'Day.

Essling & Trost, of Eveleth, Minn., and George G. Chapin, of St. Paul, Minn., for plaintiff Jance.

T. W. McMeekin and Patrick J. Ryan, both of St. Paul, Minn., for plaintiffs Hellwig et al. and Courtney et al.

Gustavus Loevinger, of St. Paul, Minn., for plaintiff Froehlingsdorf.

Connolly & Langslow, for plaintiff Laubach.

Regan & Grogan, of Mankato, Minn., for plaintiff Tillman.

William J. Horrigan, of St. Paul, Minn., for plaintiffs Miller and Palmer.

Milton P. Firestone, of St. Paul, Minn., for plaintiff Golden.

Joel M. Dickey and George E. Ogilvie, both of St. Paul, Minn., for plaintiffs Beagle and McCauliff.

Alfred Jaques, U.S. Dist. Atty., of Duluth, Minn., for defendant.

BOOTH District Judge.

The above-entitled causes, 34 in number, have been heard together, upon motions made by the respective plaintiffs for preliminary injunctions against the defendant, as collector of internal revenue, to restrain him, pending the suits, from seizing and selling the property of the plaintiffs, respectively, under threatened warrants for distraint. The motions have been heard upon the complaints and affidavits, and in most cases upon answers also.

It would serve no useful purpose to set forth in detail the allegations of the various complaints, but the salient facts which appear in all the cases are briefly as follows: That shortly before the filing of the complaint plaintiff received from the defendant a notice in writing stating that certain amounts of 'taxes and penalties,' etc., had been assessed against the plaintiff, and demanding payment within 10 days; that failure to make payment would be followed by further penalty of 5 per cent. and interest. At the expiration of the period a second notice was received, sent from the defendant, demanding the original amount plus the penalty, 5 per cent., and containing a statement that failure to pay would be followed by seizure and sale of the property.

The complaints further allege that the so-called taxes and penalties are not taxes at all, but in fact penalties solely, sought to be collected from the plaintiffs for assumed or alleged infraction of the National Prohibition Act (41 Stat. 305), or War-Time Prohibition Act (Comp. St. Ann. Supp. 1919, Secs. 3115 11/12f-3115 11/12h); that there has been no adjudication that plaintiffs are liable for the payment of the exactions demanded, and that plaintiffs are not liable therefor; that plaintiffs are unable to pay the amounts demanded; that seizure and sale of plaintiff's property is threatened, unless payment is made, and that such seizure and sale will work irreparable injury; that plaintiffs have no adequate remedy at law; that the proceedings by the Commissioner of Internal Revenue, in assessing said so-called taxes and penalties, and by the collector of internal revenue in attempting to collect the same by warrant for distraint, are illegal and without authority in law, and violative of the Constitution of the United States, especially the Fifth, Sixth, Eighth, and Eighteenth Amendments.

In addition to the foregoing allegations in substance contained in all of the complaints, there are other allegations peculiar to the individual complaints. For example, in some cases, that the information on which the Commissioner of Internal Revenue proceeded to make the assessments of the alleged taxes and penalties was obtained by persons representing themselves to be agents of the Commissioner; that by force and violence, and without warrant, they entered the residence of plaintiff, and seized and carried away certain personal property of plaintiff, in violation of plaintiff's rights under the Fourth and Fifth Amendments of the Constitution of the United States. In other cases, that plaintiff, prior to said assessment of the alleged taxes and penalties, had been charged with acts in violation of the National Prohibition Act, upon which same acts the assessment of the alleged taxes and penalties was based, and that plaintiff had been examined before the United States commissioner, and bound over to the grand jury; that his case had been considered by the grand jury, and no indictment found; and that the plaintiff had been discharged. In other cases, that prior to the assessment of the alleged taxes and penalties plaintiff had been charged with certain acts in violation of the National Prohibition Act, upon which same acts the said assessment of alleged taxes and penalties was based, and had pleaded guilty to an information or indictment charging said acts, had been fined, and had paid the fine and been discharged. In other cases, that prior to the assessment of the alleged taxes and penalties plaintiff had been charged with committing acts against the War-Time Prohibition Act, being the same acts upon which the assessment of the alleged taxes and penalties was based, had pleaded guilty to an information or indictment charging the commission of the acts, had been fined and paid the fine, and been discharged. In other cases, that prior to the assessment of alleged taxes and penalties plaintiff had been charged with certain acts in violation of the National Prohibition Act, upon which the assessment of the alleged taxes and penalties was based, had pleaded not guilty to the information or indictment charging said acts, and that the case was still pending in court and undetermined.

The answers of the defendant, collector of internal revenue, while admitting the assessment of the alleged taxes and penalties by the Commissioner of Internal Revenue, and the notices and demands and threats of seizure and sale by procedure under warrant for distraint, yet allege that plaintiffs have an adequate remedy at law, by appealing to the Commissioner from the assessment, or by payment of the amounts demanded, and suing for a refund, and, further, that injunction will not lie to restrain the assessment and collection of a federal tax.

Three broad questions arise: First, are these so-called taxes and penalties, which have been assessed by the Commissioner of Internal Revenue and sought to be collected by the collector of internal revenue, in fact taxes, within the meaning of that term as used in section 3224, R.S. (Comp. St. Sec. 5947)? Second, though not a tax within said section, is the proceeding adopted by the Commissioner and collector nevertheless a proper method of collecting the amounts claimed? Third, do the cases at bar call for a preliminary injunction? If the exactions in question are taxes within the meaning of section 3224, R.S., then it is settled that injunction will not lie. Dodge v. Osborn, 240 U.S. 118, 36 Sup.Ct. 275, 60 L.Ed. 557.

Section 3224, R.S., reads as follows:

'No suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court.'

The broad reason underlying section 3224 is that the government shall not be delayed or interfered with in the collection of its revenues. This is clear from the decisions in the cases wherein the statute has been applied. They relate to exactions properly called taxes; that is, exactions for revenue for the uses of the government. Barnes v. Railroad, 17 Wall. 307, 310, 21 L.Ed. 544 (tax on dividends); Snyder v. Marks, 109 U.S. 189, 3 Sup.Ct. 157, 27 L.Ed. 901 (internal revenue tax on tobacco); High v. Coyne, 178 U.S. 111, 20 Sup.Ct. 747, 44 L.Ed. 997 (tax on legacies); Dodge v. Osborn, 240 U.S. 118, 36 Sup.Ct. 275, 60 L.Ed. 557 (tax on income).

The exactions for the collection of which proceedings by distraint are threatened in each of the instant cases are made up of various elements or items. For example, in case No. 107, the items are designated as follows:

(1) $ 25.00, taxes retail liquor dealer, under section 3244, R.S.;

(2) 25.00, double tax, under section 35, N.P.A.;

(3) 12.50, penalty, 25 per cent. on (1) and (2) under section 3176, R.S.;

(4) 1,000.00, special tax, under section 1001, subd. 12, Act Feb. 24, 1919;

(5) 1,000.00, double tax, under section 35 N.P.A.;

(6) 500.00, penalty, 25 per cent. on (4) and (5), under section 3176, R.S.;

(7) 500.00, specific penalty, under section 35, N.P.A.

$3,062.50.

(8) 153.13, 5 per cent. penalty under section 3184, R.S.

$3,215.63.

The authority for assessing these various items is supposed to be found in title 2, Sec. 35, of the National Prohibition Act. That section reads as follows:

'Sec. 35. All provisions of law that are inconsistent with this act are repealed only to the extent of such inconsistency and the regulations herein provided for the manufacture or traffic in intoxicating liquor shall be construed as in addition to existing laws. This act shall not relieve any one from paying any taxes or other charges imposed upon the manufacture or traffic in such liquor. No liquor revenue stamps or tax receipts for

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