City of Detroit v. Proctor

• Decision Date: 23 August 1948
• Docket Number: 24
• Citation: 44 Del. 193,61 A.2d 412
• Court: Delaware Superior Court
• Parties: CITY OF DETROIT, a Municipal Corporation of the State of Michigan, and ALBERT E. COBO, Treasurer of the City of Detroit, a Municipal Corporation of the State of Michigan, v. ERNEST W. PROCTOR

61 A.2d 412

44 Del. 193

CITY OF DETROIT, a Municipal Corporation of the State of Michigan, and ALBERT E. COBO, Treasurer of the City of Detroit, a Municipal Corporation of the State of Michigan, v. ERNEST W. PROCTOR

No. 24

Superior Court of Delaware, Sussex

August 23, 1948

Isaac D. Short, II, for plaintiffs.

Daniel J. Layton, Jr., and William Poole and Henry van der Goes (of the firm of Southerland, Berl and Potter) for defendant.

CAREY J., sitting.

OPINION

CAREY, J.

The important question to be decided is whether an action may be brought in Delaware to enforce the revenue laws of another State or political subdivision thereof. It is not alleged that a judgment was ever obtained in Michigan against the defendant for these taxes and this case is, therefore, not governed by the decision in Milwaukee County v. M. E. White Co., 296 U. S. 268, 56 S.Ct. 229, 80 L.Ed. 220, in which it was held that a judgment is not to be denied full faith and credit in State and Federal Courts merely because it is for taxes. In that case the Supreme Court expressly refused to pass upon the precise point involved in the present action, saying that the question whether one state must enforce the revenue laws of another remains undecided by that Court.

As a further preliminary statement, it is well to point out that I am assuming, without deciding, the propriety of bringing this suit in the name of the City of Detroit and its Treasurer. I am also assuming, although the narr does not expressly so state, that the Michigan statutes authorize the suit to be brought in a foreign jurisdiction. These points, discussed by the Supreme Court in Moore v. Mitchell, 281 U. S 18, 50 S.Ct. 175, 74 L.Ed. 673, have not been argued before me and I express no opinion as to their materiality.

It has been said to be a principle universally recognized that the revenue laws of one country have no force in another. Maryland v. Turner, 75 Misc. 9, 132 N.Y.S. 173. See also Restatement of Conflict of Laws Sec. 610c. The rule apparently was never questioned until the United States Supreme Court in Milwaukee County v. M. E. White Co., supra, threw some doubt upon it. It is true that North Carolina allowed a recovery of taxes due under the statutes of another state in Holshouser Co. v. Gold Hill Copper Co., 138 N.C. 248, 50 S.E. 650, 70 L.R.A. 183, but in doing so, the Court did not even mention, much less decide, the point herein raised, the only question it did decide being a matter of priority of these taxes over other creditors of an insolvent foreign corporation. Indeed, the only Court which has definitely refused to accept the above mentioned "universally recognized" principle is the St. Louis Court of Appeals of Missouri in State ex rel. Oklahoma Tax Commission v. Rodgers, 238 Mo.App. 1115, 193 S.W. 2d 919, 165 A.L.R. 785. That case is deserving of some attention because of its severe criticism of the rule which other Courts had applied without dissent. Before passing to a consideration of it, I shall briefly review the origin and development of the rule.

It is said that Lord Hardwicke, in Boucher v. Lawson, (1734) 95 Eng. Reprint 53, was the first Judge to apply the rule "that one state will not enforce revenue laws of another". The suit was not to recover taxes but was an action against the owner of a vessel for the value of a cargo. The defendant relied upon a law of Portugal from which the cargo of gold had been shipped making it a crime to export gold from Portugal. The Court refused to recognize this difference, holding that the law was a revenue measure which would not be enforced by the English Court. The principal reason for the holding was that it would cut off the benefit of trade from England which would be of grave consequences to that country.

In two somewhat similar instances Lord Mansfield applied the same rule. Holman v. Johnson, (1775) 98 Eng. Reprint 1120; Planche v. Fletcher, (1779) 99 Eng. Reprint 164. Those authorities were again followed in James v. Catherwood, (1823) 3 Dow & Ry. 190; and Sharp v. Taylor, (1848) 41 Eng. Reprint 1153. In all those cases, the question presented was whether an otherwise valid contract was enforcible in England when it violated the revenue laws of another country.

The earliest case in the United States is Ludlow v. Van Rensselaer, (1806) 1 Johns (N. Y.) 94, where the facts and holding were similar to those of the English cases above cited. In 1843, in Henry v. Sargeant, 13 N.H. 321, 40 Am. Dec. 146, the New Hampshire Courts, purely by way of obiter, said that it would not honor a suit to collect a tax assessed in Vermont.

Since then a number of New York cases and at least one English case have followed this same principle. State of Colorado v. Harbeck, 232 N.Y. 71, 133 N.E. 357; In re Martin's Estate , 136 Misc. 51, 240 N.Y.S. 393; Maryland v. Turner, 75 Misc. 9, 132 N.Y.S. 173; In re Bliss' Estate, 121 Misc. 773, 202 N.Y.S. 185; Sydney v. Bull, 1 K.B. 7. See also Gulledge Bros. Lumber Co. v. Wenatchee Land Co., 122 Minn. 266, 142 N.W. 305, 46 L.R.A. (N.S.) 697; Canada v. Schulze, 9 Scotch L.T. 4; Reg. v. Drukker, (1928) 1 Ch., Eng., 877. It is interesting to note that the case of Sydney v. Bull, supra, was an attempt to collect the amount of an assessment levied by a municipality of New South Wales and the Court said: "The action is in the nature of an action for a penalty or to recover a tax; it is analogous to an action brought in one country to enforce the revenue laws of another. In such cases it has always been held that an action will not lie outside the confines of the last-mentioned state".

Strangely enough, no case prior to State of Colorado v. Harbeck, supra, discusses the reasons for refusing to permit actions for the recovery of foreign taxes. Even in that case, the highest Court of New York did not enter into a very full discussion of those reasons but contented itself with a refutation of certain arguments advanced by counsel for Colorado. Among other things, it was said that (1) taxes are not debts or contracts and no contractual or quasi-contractual obligation to pay arises out of the assessment thereof; (2) the enforcement of revenue laws rests not on consent but on force and authority; (3) the revenue laws of one state have no force in another; and (4) a state is precluded from action as a collector of taxes for a sister state and from enforcing its penal or revenue laws as such.

I now pass to the case of Moore v. Mitchell, (2 Cir.) 30 F.2d 600, 65 A.L.R. 1354, affirmed by the Supreme Court on other grounds, 281 U. S. 18 50 S.Ct. 175, 74 L.Ed. 673. This was an attempt to enforce a revenue law of Indiana in the District Court of the United States for the Southern District of New York, 28 F.2d 997. The District Court dismissed the action and the Circuit Court of Appeals affirmed. The opinion of Judge Manton, in which Judge Augustus Hand concurred, follows very closely the reasoning of State of Colorado v. Harbeck, supra. The concurring opinion of Judge Learned Hand merits quotation,

"Generally it is, of course, true that a liability arising under the law of a foreign state will be recognized by the courts of another, and it is not here relevant whether foreign liability is enforced, or another, precisely similar, raised by the law of the forum. A recognized exception is in the case of criminal and penal liabilities. The Antelope, 23 U.S. 66, 10 Wheat. 66, 123, 6 L.Ed. 268, [282]; [State of] Wisconsin v. Pelican Ins. Co., 127 U. S. 265, 8 S.Ct. 1370, 32 L.Ed. 239; Huntington v. Attrill, 146 U. S. 657, 13 S.Ct. 224, 36 L.Ed. 1123; Huntington v. Attrill [1893] A.C. 150; [State of] Arkansas v. Bowen, 3 App. D.C. 537; Dicey, Conflict of Laws, rule 54. In some few cases, this exception has been extended to include revenue laws as well. [State of] Colorado v. Harbeck, 232 N.Y. 71, 133 N.E. 357; Sydney v. Bull [1909] 1 K.B. 7; Gulledge Bros. Lumber Co. v. Wenatchee Land Co., 122 Minn. 266, 142 N.W. 305, 46 L.R.A.,N.S., 697; Canada v. Schulze, 9 Scotch L.T. 4. But so far as I can find the point has never been passed on by a federal court.

"While the origin of the exception in the case of penal liabilities does not appear in the books, a sound basis for it exists, in my judgment, which includes liabilities for taxes as well. Even in the case of ordinary municipal liabilities, a court will not recognize those arising in a foreign state, if they run counter to the 'settled public policy' of its own. Thus a scrutiny of the liability is necessarily always in reserve, and the possibility that it will be found not to accord with the policy of the domestic state. This is not a troublesome or delicate inquiry when the question arises between private persons, but it takes on quite another face when it concerns the relations between the foreign state and its own citizens or even those who may be temporarily within its borders. To pass upon the provisions for the public order of another state is, or at any rate should be, beyond the powers of a court; it involves the relations between the states themselves, with which courts are incompetent to deal, and which are intrusted to other...