City Bank Farmers Trust Co v. Schnader

• Citation: 78 L.Ed. 628,291 U.S. 24,54 S.Ct. 259
• Decision Date: 08 January 1934
• Docket Number: No. 84,84
• Parties: CITY BANK FARMERS' TRUST CO. v. SCHNADER, Attorney General of Pennsylvania et al
• Court: United States Supreme Court

291 U.S. 24

54 S.Ct. 259

78 L.Ed. 628

CITY BANK FARMERS' TRUST CO.

v SCHNADER, Attorney General of Pennsylvania et al.

No. 84.

Argued Nov. 9, 1933.

Decided Jan. 8, 1934.

Appeal from the District Court of the United States for the Eastern District of Pennsylvania.

Mr. Henry S. Drinker, Jr., of Philadelphia, Pa., for appellant.

Mr. Wm. A. Schnader, of Philadelphia, Pa., for appellees.

Mr. Justice ROBERTS delivered the opinion of the Court.

The appellant, by a bill filed in the District Court for Eastern Pennsylvania, sought to enjoin the appellees, who are officials of the commonwealth of Pennsylvania, from attempting to impose and collect an inheritance tax. Diversity of citizenship and an amount in controversy exceeding, exclusive of interest, $3,000, were averred. The bill sets forth that Thomas B. Clarke, a citizen and resident of the state of New York, died there in 1931 leaving a will under which appellant qualified as executor; that at and before the time of Clarke's death there was on exhibition in Pennsylvania a collection of paintings owned by him, of the estimated market value at the date of his death of $714,750; that these paintings had been loaned to the Pennsylvania Museum and School of Industrial Art, a nonprofit corporation, so that they might be exhibited in the museum of that institution; that the loan was negotiated orally and was for an indeterminate period, but the pictures were to be returned to Clarke at any time upon his request. The bill then quotes he act of Assembly of Pennsylvania¹ whereby a transfer inheritance tax of a specified percentage of value is laid upon transfers, by will or the intestate laws, or property located within the commonwealth, from a decedent not a resident of the commonwealth at the time of his death; describes the procedure for the collection of the tax, namely, that the department of revenue, whenever occasion may require, shall appoint an appraiser to appraise the value of the property, if subject to tax; appraisement shall be made after notice to the interested parties; the appraiser shall report his valuation in writing to the department of revenue; whereupon that department is required to give notice to all interested parties, and any person not satisfied with the appraisement may appeal to the court of common pleas of Dauphin county, which may determine all questions of valuation and the liability of the appraised estate for the tax. The bill recites the appointment of an appraiser who duly notified the appellant of the proposed date of his appraisement; the making of a return, under protest, pursuant to instructions of the appellee Schnader, enumerating as property within the commonwealth at the decedent's death the seventy-nine portraits in question, and denying taxable situs or taxability of the property in Pennsylvania; a hearing by the appraiser, who referred the question of taxability to the department of justice, of which the appellee Schnader is the head, and, pending a decision by him, postponed the appraisement indefinitely; and re- peated requests for an immediate determination of tax liability in response to which the appellee Schnader orally advised the appellant its claim of nontaxability in Pennsylvania would be denied. The bill charges that, if the statute be construed to impose an inheritance tax upon the paintings merely because they were temporarily within the commonwealth at the time of the decedent's death, it is unconstitutional as depriving the appellant of property without due process and denying equal protection of the laws, in contravention of the Fourteenth Amendment; and, if the statute be construed as not applying to the property, the threatened appraisal, assessment, and collection by the defendants will unconstitutionally deprive the appellant of property without due process and deny it equal protection. It further charges that the threat of appraisement, assessment, and collection, and the unlawful failure and refusal of the appellee Metzger to issue a waiver of taxes on behalf of the commonwealth, have caused and are causing irreparable injury by interfering with the administration of the estate in the Surrogate's Court of New York, preventing distribution, compelling the executor to maintain large cash reserves at a low rate of interest to cover a possible Pennsylvania tax and costs of litigation, and also that the threatened tax constitutes a possible lien and a cloud upon the title of the plaintiff, interfering with the sale of the paintings as directed by the will. The bill avers the absence of any adequate remedy at law.

A temporary injunction was issued, an answer was filed admitting the facts stated, and a statutory court of three judges was convened and heard the case on the pleadings and an agreed statement which is immaterial to the questions presented.

The answer asserted, and the court found, that the appellant had an adequate remedy at law, as it could appeal from the appraisement, when made, to the Dauphin county court, which has jurisdiction to pass on both the amount of the tax and the legality of its imposition. The bill was therefore dismissed for want of equity.

1. It is conceded that neither the statutes of Pennsylvania nor the decisions of its courts permit an action at law for the recovery of a tax paid under protest. If that procedure were permissible in the state courts, the appellant could pursue the same remedy in a federal court; there being the requisite diversity of citizenship and amount in controversy. Matthews v. Rodgers, 284 U.S. 521, 52 S.Ct. 217, 76 L.Ed. 447. Under the state law, the only remedy afforded one who has paid a tax is an application for refund to the board of finance and revenue, an administrative body; but the action upon the claim is final and no court may review or set aside the board's decision.² The District Court, however, was of opinion that the taxpayer's right of appeal from the appraisal to the court of common pleas of Dauphin county constituted such a remedy at law as ousted the jurisdiction of a federal court of equity. The act of Assembly³ requires the appointment of an appraiser whose duty is to report his appraisement in writing to the department of revenue, which must then give immediate notice to all parties interested, and continues: 'Any person not satisfied with the appraisement * * * may appeal within thirty days to the court of common pleas of Dauphin County, on paying or giving security to pay all costs together with whatever tax shall be fixed by the court. Upon such appeal, the court may determine all questions of valuation, and the liability of the appraised estate for such tax, subject to the right of appeal to the Supreme or Superior Court.'

The appeal must be entered in a state court specifically designated by the statute, and is thus not an ordinary action at law, but a statutory proceeding. The commonwealth has conditioned the right to implead it, upon resort to a forum of its choice. The taxpayer cannot, therefore, though a nonresident, appeal from the appraisement to a federal court. Moreover, in such cases, upon the perfecting of an appeal, the commonwealth becomes the adverse party to the litigation in the common pleas court (Comm. v. Taylor, 29A Dauph. Co. Rep. (Pa.) 102; Comm. v. Taylor, 32 Dauph. Co. Rep. (Pa.) 207); and this fact would prevent removal of the case from the Dauphin county court to a federal court (Judicial Code, § 24(1), as amended; 28 U.S.C. § 41(1), 28 USCA § 41(1); Judicial Code, § 28, as amended; 28 U.S.C. § 71, 28 USCA § 71), for the state is not a citizen within the purview of these statutes which define the jurisdiction of the federal courts and permit a removal to them (Stone v. South Carolina, 117 U.S. 430, 6 S.Ct. 799, 29 L.Ed. 962; Postal Telegraph Cable Co. v. Alabama, 155 U.S. 482, 15 S.Ct. 192, 39 L.Ed. 231; Arkansas v. Kansas & Texas Coal Co., 183 U.S. 185, 22 S.Ct. 47, 46 L.Ed. 144), nor is the controversy one arising under the laws of the United States (Tennessee v. Union & Planters' Bank, 152 U.S. 454, 14 S.Ct. 654, 38 L.Ed. 511; Chicago, R.I. & P. Ry. Co. v. Nebraska (C.C.A.) 251 F. 279). As the statutory remedy, if it be treated as an action at law, would lie only in the state court and is not cognizable by the federal courts, either as an original action or by removal, its existence cannot oust federal equity jurisdiction. Smyth v. Ames, 169 U.S. 466, 516, 18 S.Ct. 418, 42 L.Ed. 819; Chicago, B. & Q.R.R. Co. v. Osborne, 265 U.S. 14, 16, 44 S.Ct. 431, 68 L.Ed. 878; Risty v. Chicago, R.I. & Pac. Ry. Co., 270 U.S. 378, 388, 46 S.Ct. 236, 70 L.Ed. 641; Matthews v. Rodgers, supra, page 526 of 284 U.S., 52 S.Ct. 217.

2. Since the Dauphin county court is empowered, upon appeal from the action of the appraiser, to determine all questions, including both valuation and liability for the tax, the contention is made that its function is at least in part administrative, and a suit for injunction may not be entertained by a federal court prior to the decision of the state court. Prentis v. Atlantic Coast Line, 211 U.S. 210, 29 S.Ct. 67, 53 L.Ed. 150; Porter v. Investors Syndicate, 286 U.S. 461, 52 S.Ct. 617, 76 L.Ed. 1226. The statutes under consideration in those cases delegated legislative power of regulation to an administrative body and vested a revisory power in a court. As has repeatedly been held, the action of the court in such a matter is legislative rather than judicial, so that one who has not pursued the legislative process to a conclusion cannot turn to a court of equity for relief from a regulatory order which is not the final word of the constituted state authority. But other decisions make it clear that, while the action of the appraiser in a case like the present is purely administrative, the function of the court upon appeal is judicial in character, if, when the case is brought into the court, the commonwealth becomes plaintiff and the taxpayer defendant, and the action is tried...