Haskins Bros. & Co. v. Morgenthau

• Decision Date: 30 June 1936
• Docket Number: No. 6710.,6710.
• Citation: 85 F.2d 677,66 App. DC 178
• Parties: HASKINS BROS. & CO. v. MORGENTHAU, Secretary of the Treasury, et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

66 App. DC 178, 85 F.2d 677 (1936)

HASKINS BROS. & CO. v. MORGENTHAU, Secretary of the Treasury, et al.^*

No. 6710.

United States Court of Appeals for the District of Columbia.

Argued May 29, 1936.

Decided June 30, 1936.

COPYRIGHT MATERIAL OMITTED

William Stanley and J. E. Burroughs, Jr., both of Washington, D. C., for appellant.

Robert H. Jackson, Asst. Atty. Gen., and Sewall Key, Sp. Asst. to Atty. Gen., for appellees.

Before MARTIN, Chief justice, and ROBB, VAN ORSDEL, GRONER, and STEPHENS, Associate Justices.

GRONER, Associate Justice.

Appellant, an Iowa corporation, is engaged in the manufacture of soap. Its business is intrastate. In the manufacture of its product it uses large quantities of Philippine coconut oil, and this use constitutes a "first domestic processing" under the terms of section 602½ of the Revenue Act of 1934.¹ The act imposes a tax of 3 cents per pound on the first domestic processing of certain vegetable oils, including coconut oil, and an additional tax of 2 cents per pound on the first domestic processing of coconut oil not produced in the Philippines. Appellant brought its bill in the District Court in behalf of itself and others similarly situated against appellees, the Secretary of the Treasury, the Treasurer, and the Comptroller General of the United States. The trial court on motion dismissed the bill. This appeal followed.

The bill alleges that between May 10, 1934, and December 31, 1935, there were imposed on appellant taxes in the amount of $160,879.74, and that this sum was paid under the coercion of threats of penalties, interest, and liens. The bill further alleges that during the same period the United States have collected from other manufacturers similarly situated the sum of over $26,000,000 "which said fund is now held in the Treasury of the United States as a separate fund and is ear-marked as such for the benefit of, and to be paid over to, the Philippine Islands, under and by virtue of said section of said Act."

Section 602½ provides:

"(a) There is hereby imposed upon the first domestic processing of coconut oil * * * a tax of 3 cents per pound, to be paid by the processor. There is hereby imposed (in addition to the tax imposed by the preceding sentence) a tax of 2 cents per pound, to be paid by the processor, upon the first domestic processing of coconut oil * * * except that the tax imposed by this sentence shall not apply when it is established * * * that such coconut oil * * * is wholly the production of the Philippine Islands * * *. All taxes collected under this section with respect to coconut oil wholly of Philippine production or produced from materials wholly of Philippine growth or production, shall be held as a separate fund and paid to the Treasury of the Philippine Islands, but if at any time the Philippine Government provides by any law for any subsidy to be paid to the producers of copra, coconut oil, or allied products, no further payments to the Philippine Treasury shall be made under this subsection. * * *

"(g) All collections except as provided in subsection (a) under this section shall, notwithstanding any other provisions of law, be covered into the general fund of the Treasury of the United States."

The bill alleges that the sale of soap is highly competitive and that coconut oil is necessary in the manufacture; and that during the period May 10, 1934, to December 31, 1935, appellant was unable to recover — i. e., to pass on to the consumer — any of the tax payments imposed by the act by increasing prices or reducing operating and other expenses. It thereby sustained serious losses. The bill charges that the $26,000,000 fund has been deposited in the Treasury of the United States "as a trust fund" and is "held by the defendant, William A. Julian, in his official capacity, and as such, also as trustee of said fund"; that by Act of January 17, 1933, Congress provided for the grant of independence to the Philippine Islands; that the act provides for a new political entity to be created by the adoption of a constitution and the election of officers of the government of the commonwealth of the Philippines and for termination, by proclamation of the President, of the Philippine government as theretofore existing under authority of the United States. That a Constitution for the Philippine Islands has been duly adopted and an election of officers held and the results proclaimed by the President, and that the government theretofore existing under authority of the United States has been terminated (15th day of November, 1935), and the commonwealth of the Philippine Islands has entered upon and is now in full enjoyment of its rights, privileges, powers, etc. And that there is a claim pending against the United States on behalf of the Philippine government in excess of the sum of $26,000,000, representing the collections by the Bureau of Internal Revenue of the processing tax on coconut oil, and that demand has been made upon the United States for payment of the fund on hand, including the amount paid by the appellant; and that appellees claim to have power and authority to certify and allow the claim and there is ground to believe they will pay it unless restrained by an order of court.

That coconut oil is not produced in the United States, but competes with oils and fats which are produced domestically by the farmers and dairy interests of the United States; and that section 602½ (a) of the Revenue Act of 1934 (26 U.S.C.A. § 999 (a) is unconstitutional and void in levying the tax of 3 cents a pound upon Philippine coconut oil, for the reasons:

First, that the imposition does not come within the taxing power of Congress under article 1, section 8, clause 1, of the Constitution of the United States, in that it was not imposed to pay the debts or provide for the common defense or general welfare of the United States but was imposed for the benefit of the Philippine Islands which are not a part of the United States;

Second, the imposition violates the due process clause of the Fifth Amendment because levied on one group for the benefit of another;

Third, that the imposition was imposed as a means to the end of regulating production in the several states, a power not granted to the federal government;

Fourth, that the imposition cannot be justified under the commerce power because processing of coconut oil is intrastate commerce;

Fifth, that the imposition is arbitrary and unreasonable in that it seeks to regulate the intrastate manufacturing business of the taxpayer; and is in fact an attempt by Congress to regulate and control the business of the taxpayer and to force the taxpayer and other users of such coconut oil to discontinue in whole or in part the use of such oil and to use as substitutes therefor oils and fats produced domestically by the farmers and dairy interests of the United States and to further the general scheme of control of agricultural production contained in the Agricultural Adjustment Act of 1933, and in that respect is in contravention of the Tenth Amendment of the Constitution of the United States;

Sixth, that the imposition violates article 1, section 9, clause 7, of the Constitution because it assumes to dispose of the proceeds without appropriation or without compliance with the Act of August 26, 1842, c. 207, 5 Stat. 536, § 2, and the Act of June 30, 1906, c. 3914, 34 Stat. 764, § 9 (31 U.S.C.A. § 627).

Appellant has filed a claim with the Commissioner of Internal Revenue for refund, and says that the commissioner has denied the claim, and that the total amount of the tax collection will probably be paid over to the Philippine government, resulting in irreparable injury and loss to appellant and others similarly situated. Appellant further says that the $26,000,000 fund is not the property of the United States and that appellees hold it as a trust fund for appellant and others similarly situated whose unlawful tax payments created it and who should now be permitted to recover it in proportion to their several contributions.

The bill prays that the court declare section 602½ unconstitutional and grant an injunction forbidding payment to the government of the Philippines and that the $26,000,000 be declared a trust fund and be ordered by the court to be paid to appellant and others similarly situated.

The case for the appellant has been argued with great skill and ability, and we have given it careful consideration. But we think the conclusion is inescapable that the decree of the lower court dismissing the bill must be affirmed on either of two grounds.

First. We think the suit is in effect one against the United States. It is brought against the Secretary of the Treasury, the Treasurer, and the Comptroller General in their official capacities. It seeks to compel the payment of money now deposited in the United States Treasury. In this view the United States are necessary parties and, since they have not consented to be sued, the suit against the officers of the United States cannot be maintained. We know of no power in this or any other court to compel the Secretary of the Treasury or the Treasurer of the United States, in a suit brought against them in their official capacities, to pay out money in the treasury in a manner contrary to that directed by Congress. We hold these general principles to be axiomatic:

First, that an act of Congress is necessary for the withdrawal of money from the public treasury;

Second, that no suit can be brought to enforce the making of an appropriation;

Third, that the Secretary of the Treasury and the Treasurer are officers of the United States holding offices established by law; that their duties are to receive and preserve the public money and not to disburse it except conformably to law; that as officers of the United States they have no right or estate in the public money or any other money in the treasury, whether earmarked as a special fund or as part of the...