Burk-Waggoner Oil Ass'n v. Hopkins
| Decision Date | 03 March 1924 |
| Docket Number | 3301. |
| Citation | 296 F. 492 |
| Parties | BURK-WAGGONER OIL ASS'N v. HOPKINS, Collector of Internal Revenue. |
| Court | U.S. District Court — Northern District of Texas |
Weeks Morrow & Francis, of Wichita Falls, Tex., Kixmiller & Bar, of Chicago, Ill., Harry C. Weeks, of Wichita Falls, Tex., and J M. Sternhagen, of Chicago, Ill., for plaintiff.
Henry Zweifel, U.S. Atty., and N. A. Dodge, Asst. U.S. Atty., both of Fort Worth, Tex., and Nelson T. Harston, Sol. of Internal Revenue, and Arthur H. Deibert, Sp. Atty., Department of Internal Revenue, both of Washington, D.C., for defendant.
The plaintiff alleges that it is an unincorporated association or partnership; that its members contributed $60,000 as a capital to be used in the business of producing oil in the oil fields of Wichita county, Tex.; that in the year 1919 it received a profit on such investment of $1,838,053.90; that the bureau of internal revenue of the United States had adopted certain rules and regulations which required the plaintiff to pay $561,279,20, income tax on said net profit that such payment was made in four installments, the first three being paid to the predecessors of the defendant against whom suit likewise pends, and the latter, of $145,827.67 having been paid to the defendant; that all of such payments were made under protest and to avoid penalties and seizure.
Plaintiff contends that the enterprise was a partnership and that its members are subject to tax under the Revenue Act of 1918 (40 Stat. 1057), if at all, under the terms and provisions relating to partnerships, and individuals, and not under the terms and provisions relating to corporations, and that no sum whatever was due by said enterprise as taxes, but that any and all profits received from such operations were the income of the various members of said enterprise in an amount proportionate to their interest, and that no income tax should have been assessed against, or collected from, the plaintiff.
That the collection of such tax from the plaintiff was unconstitutional and contrary to the provisions of article 1, Secs. 1, 2, 8, and 9 of the Constitution of the United States, and also to the provisions of the Sixteenth Amendment thereto, in that the same is not based upon income and is not in proportion to population; that in so far as it purports to be based upon official regulations it is unconstitutional, in that such regulations are beyond the power of the Secretary of the Treasury to promulgate, and beyond the power of the Congress to authorize; that the individual members of the plaintiff have been subjected to unlawful and unconstitutional taxation because such tax is not authorized by the Revenue Act of 1918; that if it be held that such taxation is authorized by said act, then said act is unconstitutional and contrary to the Fifth and Sixth Amendments to the Constitution; that the taxes referred to have been imposed upon the individual members of the plaintiff irrespective of their claims and irrespective of the rates of tax set forth in the act of 1918.
The defendant replied by general demurrer and general denial.
A jury was waived, and from an agreed statement of facts it was shown:
(a) That a written agreement, set out in full in the stipulation, was executed on the 15th day of November, 1918, by R. M. Waggoner, Clois L. Green, Lee Crenshaw, D. H. Melton, W. H. Anchor, and A. H. Murchison, which was filed for record in the deed records of Wichita county, Tex., on the 27th day of the next month.
Article 1 of such agreement provides for the formation of an 'unincorporated joint-stock association,' to be known as 'Burk-Waggoner Oil Association,' to continue in existence during the lives of the six individuals and for 21 years after the death of the one who last dies, unless sooner dissolved. The general purpose of the company was the purchase or lease of lands containing oil, to extract the same, and to do all other things necessary or proper, incident to the mining, manufacture, sale, or transportation of oil and its products. That the capital stock should be $60,000 divided into 600 shares of $100 each to be evidenced by certificates. That such certificates should be signed by the board of trustees and countersigned by the secretary; such certificates refer to the plaintiff as a joint-stock association, and are transferrable only on the books of the company. That no member of the company, or owner, or holder of the certificates shall have any authority, power, or right to transact any business whatever for, or on behalf of, or binding on the company, or any member thereof, and that no member of the company shall be personally liable for any debts, demands, contracts of any kind, or torts of the company, beyond the payment in full of the price for which the share or shares were sold individually by the company. That shareholders should have no right of partition, nor of dissolution of the trust, but that the shares should be personal property carrying the right of division of profits, and at the termination of the trust to a division of the principal and profits in proportion to the number of shares held. Death, insolvency, or bankruptcy of any member, or a transfer of his interest should not work a dissolution, nor should it entitle any one to an action or proceeding in law or equity against the members, trustees, officers, or property. The affairs of the company were to be managed by a board of six stockholding trustees, whose successors should be elected annually by a majority of the shares present or represented at a meeting; each board to elect its own president and other officers and prescribe their duties. Title to all property was to be held in the name of the trustees, who would hold it as joint tenants and not as tenants in common. Such trustees, in their capacity as such might sue or be sued in any court of law or equity, or the company might sue or be sued in the company name, as provided by the statutes of Texas. Trustees had full power and authority to conduct the affairs of the business. In case of a vacancy on the board, the remaining members might fill the same, subject to the right of the shareholders to do so, should they see proper to exercise the right. The board would select managers and employees as they were necessary, fixing their compensation and defining their duties; the board to declare and pay dividends as they might deem expedient. That such board should have no power to bind the shareholders or members personally. That in every written contract entered into by the trustees they should refer to the declaration of trust, and that any one contracting with them should look only to the funds and property of the company for the payment of any debt or judgment. Neither the trustees nor the shareholders should be personally liable for any debt. The board would adopt such by-laws as it thought proper. Any annual special meeting of the shareholders might amend the articles of association by a vote of three-fourths of the shares present and that by-laws might be adopted, repealed, or amended in any respect, not inconsistent with the articles, by a vote of two-thirds of the shares present or represented. Shareholders should meet annually in June to consider the affairs of the company, transact such business as they might inaugurate and as might be submitted by the trustees. The members of the board of trustees were at all times to be subject to the orders of the shareholders, who might at any time and for any cause, by a vote of a majority of all the shares then issued and outstanding, remove any one or all of them from office, and appoint and devolve upon other members the duties and functions of the office. No trustee should be liable for any fraud, or error, or negligence of a cotrustee, to which he had not been a party, and there was a method provided by which he might relieve himself from liability to the shareholders for any act of the board which he had not approved. $40,000 of the capital stock should be paid by conveying to the six trustees an oil and gas lease; the balance of the $60,000 was to be paid in cash. The stock of the association could be increased at any time by a vote of the majority of the stockholders present. Dissolution could be effected by a vote of three-fourths of the shares, provided there were no outstanding bonds or obligations secured by mortgage of the company's property.
(b) That the tax was collected from the plaintiff in the manner and amount alleged in the petition.
(c) That legal demand had been made for the return thereof as required by the law.
(d) That about 200 persons were interested and were certificate holders in the association, and the certificates of the association were traded in generally by the public.
First. The Revenue Act of 1918, in section 1 of title 1 (Comp. St. Ann. Supp. 1919, Sec. 6371 1/4a), provides that--
'The term 'person' includes partnerships and corporations, as well as individuals; the term 'corporation' includes associations, joint-stock companies, and insurance companies.'
Section 218 of the same act (section 6336 1/8i) provides:
* * * '
The latter paragraph of section 335 of subdivision c of the same act (section 6336 7/16n) reads as follows:
'Any tax paid by a partnership or personal service corporation for any period beginning on or after January 1, 1918, shall be immediately refunded to the partnership or corporation as a tax...
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...should be given much weight. Bankers' Mutual Casualty Co. v. First National Bank, 131 Iowa, 456, 108 N. W. 1046;Burk-Waggoner Oil Ass'n v. Hopkins (D. C.) 296 F. 492, and cases cited. The statute was re-enacted in the Code of 1897, § 1333. It is a fair presumption that the Legislature, by t......
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...D. 430 at page 435 et seq. and cases cited, 176 N. W. 131;State ex rel. Miller v. Leach, 33 N. D. 513, 157 N. W. 492;Burk-Waggoner Oil Ass'n v. Hopkins (D. C.) 296 F. 492. See, also, note to People v. Pitcher, Ann. Cas. 1918D, 1185. [5] From what we have heretofore said, it is plain that th......
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