Davis v. Boston & MR Co.

• Decision Date: 14 April 1937
• Docket Number: No. 3213.,3213.
• Citation: 89 F.2d 368
• Parties: DAVIS v. BOSTON & M. R. CO.
• Court: U.S. Court of Appeals — First Circuit

89 F.2d 368 (1937)

DAVIS v. BOSTON & M. R. CO.

No. 3213.

Circuit Court of Appeals, First Circuit.

April 14, 1937.

Edward F. McClennen, of Boston, Mass. (Jacob J. Kaplan, of Boston, Mass., on the brief), for appellant.

Robert H. Jackson, Asst. Atty. Gen., and Charles E. Wyzanski, Jr., Sp. Asst. to the Atty. Gen. (Stanley Reed, Sol. Gen., Sewall Key, J. P. Jackson, Arnold Raum, F. and A. LeSourd, Sp. Assts. to the Atty. Gen., Charles A. Horsky, Atty., and Thomas H. Eliot, Gen. Counsel, Social Security Board, both of Washington, D. C., and Francis J. W. Ford, U. S. Atty., and Arthur L. Murray, Sp. Asst. to the U. S. Atty., both of Boston, Mass., on the brief), for appellees Commissioner of Internal Revenue et al.

Before BINGHAM, WILSON, and MORTON, Circuit Judges.

WILSON, Circuit Judge.

This is an appeal from a decree of the District Court of Massachusetts denying an injunction against the defendants and dismissing the plaintiff's bill.

The original bill attacked the constitutionality of both chapter 531, 49 Stat 620, known as the Social Security Act (42 U. S.C.A. § 301 et seq.), and chapter 151A of the Massachusetts General Laws (see chapter 479 of the Acts and Resolves of 1935 section 5); but, after intervention by the Commissioner and Collector of Internal Revenue and the filing of answers and a motion to strike by the intervening defendants, it was stipulated by all the parties that: "the only issue involved in the case, either directly or indirectly, is whether title IX of chapter 531, 49 Stat. 620 section 901 et seq. (42 U.S.C.A. § 1101 et seq.), approved Aug. 14, 1935, is an Act of Congress within its powers under the Constitution of the United States, or in violation of the Fifth Amendment thereof; and the only way in which that issue is raised is with respect to the payments under that title IX."

A stockholder in a corporation directly affected may properly invoke the jurisdiction of the federal courts to determine the constitutionality of the act. Carter v. Carter Coal Co., 298 U.S. 238, 56 S.Ct. 855, 80 L.Ed. 160; United States v. Butler, 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477, 102 A.L.R. 914.

The Social Security Act contains eleven titles, each having separate objects in view, viz.: I. Old Age Assistance (section 1 et seq. 42 U.S.C.A. § 301 et seq.); II. Old Age Benefits (section 201 et seq. 42 U.S.C.A. § 401 et seq.); III. Unemployment Compensation (section 301 et seq. 42 U.S.C.A. § 501 et seq.); IV. Aid to Dependent Children (section 401 et seq. 42 U.S.C.A. § 601 et seq.); V. Maternal and Child Welfare (section 501 et seq. 42 U.S.C.A. § 701 et seq.); VI. Public Health Work (section 601 et seq. 42 U.S.C.A. § 801 et seq.); VII. The Creation of a Social Security Board (section 701 et seq. 42 U.S.C.A. § 901 et seq.); VIII. Taxes with respect to Employment (section 801 et seq. 42 U.S.C.A. § 1001 et seq.); IX. Taxes for Benefit of Unemployment (section 901 et seq. 42 U.S.C.A. § 1101 et seq.); X. Grants to State in Aid of the Blind (section 1001 et seq. 42 U.S.C.A. § 1201 et seq.); XI. General Provisions relating to Definitions, Rules and Separability of the Provisions of the Act (section 1101 et seq. 42 U.S.C.A. § 1301 et seq.). On its face the entire act was passed to provide financial aid for the unfortunate, the dependent, and those incapacitated by age, or who for any reason are, temporarily, at least, unable to obtain gainful employment.

Title IX imposes a tax on employers of eight or more, except an employer of agricultural labor, domestic servants, or where the service is performed as an officer or member of a vessel on the navigable waters of the United States; or performed by an individual in the employ of son, daughter, or spouse; or by a child under 21 years of age in the employ of his father or mother; or performed in the employ of the United States, or of an instrumentality of the United States; or performed in the employ of a state or a political subdivision thereof, or of one or more states; or services performed in behalf of any charitable organization, or any corporation, no part of the net earnings of which inures to the benefit of any private shareholder or individual.

Apart from these exceptions, the salient features of title IX are contained in the following provisions found in the footnote.¹

The appellant assigned as error that the District Court erred in holding that title IX is a valid act of Congress within its powers under the Constitution of the United States.

Counsel for the appellant contends as grounds for holding that title IX is unauthorized under the powers granted to Congress in the Federal Constitution the following: (1) That it is capricious and arbitrary in its exemptions; (2) that it is not uniform in its application; (3) that the tax imposed on employers is not what it is stated to be in the act, namely, an excise tax, and is not imposed to provide for the general welfare of the United States; (4) that in purpose and effect it is an attempt by Congress to enter into a domain hitherto considered as reserved to the states, and to coerce the states into doing something the federal government has no power to do, viz., to provide compensation for those prevented by any circumstances resulting in unemployment from earning a livelihood; and (5) that it seeks further to regulate indirectly the relations between employee and employer.

We pass over the question of capriciousness and lack of uniformity as not being essential for the determination of the case, although a three-judge court in the middle district of Alabama, in Southern Coal & Coke Co. v. Carmichael, Attorney General (D.C.) 17 F.Supp. 225, has recently held the Alabama statute void on this ground. The important issues, we think, are whether the tax imposed in section 901 of title IX (42 U.S.C.A. § 1101) can be termed an excise tax; and whether the federal government by section 903 of title IX (42 U.S.C.A. § 1103) seeks indirectly to control state action in matters resting solely within the powers reserved to the states under Amendment 10 of the Constitution.

It is not a question of what powers Congress ought to have to meet certain conditions, but what powers are vested in Congress under the Constitution. In determining what they are, we must return to first principles. The care of the unfortunate and the dependent, and the relief of those unable to labor, is a burden imposed on the states and until recently has always been so considered. Congress has no power, either directly or indirectly, to invade this province of the states. Carter v. Carter Coal Co., supra, 298 U.S. 238, at page 295, 56 S.Ct. 855, 80 L.Ed. 1160; Schechter Poultry Corp. v. United States, 295 U.S. 495, 549, 55 S.Ct. 837, 79 L.Ed. 1570, 97 A.L.R. 947.

It is sometimes suggested that, since the states are powerless to solve the problem presented by unemployment in an emergency such as was passed through in the last four years, therefore there must be power in the federal government to meet the situation. A similar suggestion was made in the case of State of Kansas v. Colorado, 206 U.S. 46, at page 89, 27 S. Ct. 655, 664, 51 L.Ed. 956:

"All legislative power must be vested in either the state or the national government; no legislative powers belong to a state government other than those which affect solely the internal affairs of that state; consequently all powers which are national in their scope must be found vested in the Congress of the United States.

"But," the court said, "the proposition that there are legislative powers affecting the nation as a whole which belong to, although not expressed in the grant of powers, is in direct conflict with the doctrine that this is a government of enumerated powers. That this is such a government clearly appears from the Constitution, independently of the Amendments, for otherwise there would be an instrument granting certain specified things made operative to grant other and distinct things. This natural construction of the original body of the Constitution is made absolutely certain by the 10th Amendment."

Again the Supreme Court very aptly said in Flint v. Stone Tracy Co., 220 U.S. 107, 151, 31 S.Ct. 342, 349, 55 L.Ed. 389, Ann.Cas.1912B, 1312:

"Although there have been from time to time intimations that there might be some tax which was not a direct tax nor included under the words `duties, imposts, and excises,' such a tax for more than one hundred years of national existence has as yet remained undiscovered, notwithstanding the stress of particular circumstances has invited thorough investigation into sources of revenue." Pollock v. Farmers' Loan & Trust Co., 157 U.S. 429, 557, 15 S.Ct. 673, 39 L.Ed. 759; Thomas v. United States, 192 U.S. 363, 370, 24 S.Ct. 305, 48 L.Ed. 481.

Again in the case of Carter v. Carter Coal Co., supra, 298 U.S. 238, at page 291, 56 S.Ct. 855, 864, 80 L.Ed. 1160, the court said:

"The proposition, often advanced and as often discredited, that the power of the federal government inherently extends to purposes affecting the Nation as a whole with which the states severally cannot deal or cannot adequately deal, and the related notion that Congress, entirely apart from those powers delegated by the Constitution, may enact laws to promote the general welfare, have never been accepted but always definitely rejected by this court."

And again on page 292 of 298 U.S., 56 S.Ct. 855, 864, 80 L.Ed. 1160:

"In the Framers Convention, the proposal to confer a general power akin to that just discussed was included in Mr. Randolph's resolutions, the sixth of which, among other things, declared that the National Legislature ought to enjoy the legislative rights vested in Congress by the Confederation; and `moreover to legislate in all cases to which the separate States are incompetent, or in which the harmony of the United States may be interrupted by the exercise of individual Legislation.' The convention, however, declined to confer upon Congress power in...