People of State of Michigan Haggerty v. Michigan Trust Co

• Decision Date: 16 May 1932
• Docket Number: No. 598,598
• Citation: 52 S.Ct. 512,76 L.Ed. 1136,286 U.S. 334
• Parties: PEOPLE OF STATE OF MICHIGAN, by HAGGERTY, Secretary of State, v. MICHIGAN TRUST CO
• Court: U.S. Supreme Court

286 U.S. 334

52 S.Ct. 512

76 L.Ed. 1136

PEOPLE OF STATE OF MICHIGAN, by HAGGERTY, Secretary of State,

v MICHIGAN TRUST CO.

No. 598.

Argued April 19, 1932.

Decided May 16, 1932.

Messrs. Edward A. Bilitzke and Paul W. Voorhies, both of Lansing, Mich., for petitioner.

[Argument of Counsel from page 335 intentionally omitted] Mr. Benjamin P. Merrick, of Grand Rapids, Mich., for respondent.

[Argument of Counsel from pages 336-338 intentionally omitted] Mr. Justice CARDOZO delivered the opinion of the Court.

A petition by the people of the state of Michigan that a receiver appointed by a federal court be directed to pay out of the moneys in his hands corporate franchise taxes due or claimed to be due to the people of the state was granted by the District Court, and denied by the Court of Appeals. 52 F.(2d) 842. The case is here on certiorari. 284 U. S. 616, 52 S. Ct. 265, 76 L. Ed. —.

At the suit of a simple contract creditor, a receiver of the property of the Worden Grocer Company, a Michigan corporation, engaged in business at its domicile, was appointed by a Federal District Court in Michigan on February 9, 1926. The bill of complaint alleged that the defendant was solvent, and that if its business was handled by a receiver free from interference by its creditors, it would be able to pay its debts in full and would have a surplus available for preferred and common stockholders. On the same day the directors of the defendant adopted a resolution consenting to the receivership; and an answer admitting the allegations of the bill of com- plaint and consenting to the relief prayed for was filed forthwith. Thereupon, and still on the same day, the court made an order appointing the Michigan Trust Company receiver of the defendant and of all its assets with authority 'to carry on the business now carried on by the Worden Grocer Company, and to operate and manage its property and business in such manner as will, in the judgment of said Receiver, produce the most satisfactory results.' To that end authority was granted 'to pay the current and unpaid payrolls of said defendant; to incur such obligations and indebtedness, * * * the same to be prior to the present unsecured obligation' of the defendant, 'as to the Receiver may seem necessary for continuance of the business,' and in particular 'to pay all taxes and assessments levied upon the property and assets of said company,' as well as all rentals accrued or to accrue thereafter.

The receiver so appointed carried on the business thus committed to its charge. It continued to do this till December 30, 1929, when the court made an order confirming a sale of all the mercantile assets, as a result of which sale there was paid to the common creditors a dividend of 25 per cent. Cash and unsold real estate are still in the receiver's custody.

In February, 1930, the people of the state filed in the District Court a petition that the receiver be directed to pay the corporate taxes or privilege fees for the years 1925 to 1929 inclusive, amounting in the aggregate to $10,988.36. The liability of the receiver in respect of such fees or taxes is the subject of this controversy. The District Court held that they were charges upon the assets prior to the claims of creditors in that they were expenses necessarily incurred by the receiver in fulfilling the duty to operate the business. The Court of Appeals held that they were liabilities due to the people of the state, but liabilities not to be discharged until the claims of all other creditors as well as the expenses of the receivership had been satisfied in full.

By a statute of Michigan enacted in 1923 (Act No. 233, Public Acts 1923, p. 374, § 4), 'every corporation organized or doing business under the laws of this state, excepting those hereinafter expressly exempted therefrom, shall, at the time of filing its annual report with the secretary of state of this state, as required by section seven hereof, for the privilege of exercising its franchise and of transacting its business within this state, pay to the secretary of state, an annual fee of two and one-half mills upon each dollar of its paid-up capital and surplus, but such privilege fee shall in no case be less than ten dollars nor more than fifty thousand dollars.'

There were amendments of the statute in 1927 and 1929 (Act No. 140, Public Acts 1927; Act No. 175, Public Acts 1929), but their significance in relation to this controversy is not important enough to make it necessary to quote them.

The tax is laid upon the corporation 'for the privilege of exercising its franchise and of transacting its business within this state.' Whether a corporation does exercise its franchise or transact its business within the meaning of a statute so framed when it does business through a receiver is a subject on which much subtle argument has been expended by state and federal courts. Distinctions have been drawn between receivers appointed to carry on the business of a corporation with a view to the continuance of its corporate life, and receivers appointed in aid of the dissolution of the corporation or the liquidation of its business. See, e. g., Collector of Taxes v. Bay State St. Railway, 234 Mass. 336, 125 N. E. 614; State of Ohio v. Harris (C. C. A.) 229 F. 892, 901. Other distinctions have been drawn between taxes on a franchise to exist as a corporation and a franchise for transacting business, or, as many of the cases put it, between a franchise to 'be' and a franchise to 'do.' See, e. g., Cobbs & Mitchell v. Corp. Tax Appeal Board, 252 Mich. 478, 481, 233 N. W. 386. Even where the tax is on a franchise to 'do,' there is wide diversity of judgment. The wording of some statutes has been read by some courts as importing the doing of business in the usual course by agents and officers appointed in the usual way. United States v. Whitridge, 231 U. S. 144, 149, 34 S. Ct. 24, 58 L. Ed. 159. Wording only slightly different has been thought by other courts to include the operations of a business conducted by receivers. Central Trust Co. v. New York, C., etc., R. Co., 110 N. Y. 250, 18 N. E. 92, 1 L. R. A. 260; New York Terminal Co. v. Gaus, 204 N. Y. 512, 98 N. E. 11; In re U. S. Car Co., 60 N. J. Eq. 514, 43 A. 673; Armstrong v. Emmerson, 300 Ill. 54, 132 N. E. 768, 18 A. L. R. 693; People v. Hopkins (C. C. A.) 18 F.(2d) 731. Other wording not unlike has been held to import the imposition of a burden on the mere privilege to 'do,' though no business was in fact transacted by the directors or by any one (In re G. H. Hammond Co., 246 Mich. 179, 244 N. W. 655; New York v. Jersawit, 263 U. S. 493, 495, 44 S. Ct. 167, 68 L. Ed. 405), a construction whereby the tax on the privilege to do becomes closely assimilated, in respect of domestic corporations, to one on the privilege to be. In re G. H. Hammond Co., supra.

We are not required to choose from these diversities the construction that would appeal to us as the most consonant with reason if choice were wholly free. Choice, as it happens, is not free, for our task is to ascertain the meaning of a Michigan statute, and as to that the courts of the state, if they have spoken, pronounce the final word. The decision of the Supreme Court of Michigan in Re Detroit Properties Corporation, 254 Mich. 523, 236 N. W. 850, 852, is a controlling adjudication as to the meaning and application of the privilege fee exacted of Michigan corporations. The court held that the tax was imposed upon the privilege to 'do'; that this privilege existed though nothing was ever done; that the order appointing a receiver to continue the business did not divest the privilege; that the only effect of such an order was to nominate the person who was to exercise the 'powers belonging to the corporation by legislative grant'; and hence that within the meaning of the statute the corporation retained a 'privilege of exercising its franchise and of transacting its business,' for which a tax was due. Cf. Central Trust Co. v. New York, C., etc., R. Co., supra; State of Ohio v. Harris, supra; Collector of Taxes v. Bay State St. Railway, supra; People v. Hopkins, supra; In re G. H. Hammond Co., supra. The significance of this decision is not avoided by the suggestion that the court in determining the application of the tax was guided by general principles as to the effect of a receivership, and...