Cooper v. United States

• Decision Date: 25 November 1925
• Docket Number: No. 6607.,6607.
• Citation: 9 F.2d 216
• Parties: COOPER et al. v. UNITED STATES.
• Court: U.S. Court of Appeals — Eighth Circuit

9 F.2d 216 (1925)

COOPER et al. v. UNITED STATES.

No. 6607.

Circuit Court of Appeals, Eighth Circuit.

November 25, 1925.

COPYRIGHT MATERIAL OMITTED

Denis M. Kelleher, of Ft. Dodge, Iowa (Richard F. Mitchell, of Ft. Dodge, Iowa, and Glenn Brown, Frank R. Lacy, and Robert W. Clewell, all of Dubuque, Iowa, on the brief), for plaintiffs in error.

G. P. Linville, U. S. Atty., of Cedar Rapids, Iowa.

Before STONE and VAN VALKENBURGH, Circuit Judges, and PHILLIPS, District Judge.

VAN VALKENBURGH, Circuit Judge.

April 5, 1922, there was returned, in the District Court of the United States for the Northern District of Iowa, an indictment against plaintiffs in error, William F. Cooper and Austin A. Cooper, respectively president and secretary-treasurer of A. A. Cooper Wagon & Buggy Company, a corporation, charging them with having unlawfully conspired and agreed together and with each other to defraud the United States of its revenues. The conspiracy in the first count concerned the income and excess profits returns of said corporation for the calendar year 1918, and the conspiracy was alleged to have existed from January 1, 1919, continuously down to and including the 29th day of April, 1919. The third count concerned the income and excess profits returns of said corporation for the calendar year 1919, and the conspiracy was alleged to have existed from January 1, 1920, continuously down to and including the 14th day of April, 1920. The fifth count concerned the income and excess profits tax for said corporation for the calendar year 1920, and the conspiracy was alleged to have existed from January 1, 1921, continuously down to and including the 14th day of April, 1921.

In setting forth the nature of the conspiracy it was alleged that the said defendants would prepare and cause to be prepared incorrect, false and fraudulent income and excess profits tax returns for the calendar years above named for and on behalf of the said A. A. Cooper Wagon & Buggy Company, which said income and excess profits tax returns would show that the amount of the gross income, less the deductions and credits allowed by law of the said corporation for such calendar years, resulted in a loss to said corporation in a large amount stated, and would show that there were no income or excess profits due to the United States for such taxable years; whereas, in truth and in fact, as said defendants and each of them well knew, the amount of the gross income of said corporation, less the deductions and credits allowed by law, upon which said corporation was liable for income and excess profits to the United States, was in a large stated amount, and that the amount of the income and excess profits taxes due upon such amount of annual net income for said calendar years was a large stated amount; that it was further a part of said conspiracy, that said incorrect, false and fraudulent returns, so to be prepared, should be sworn to as required by the act of Congress and the regulations promulgated thereunder; that the said defendants and each of them should swear to said incorrect, false and fraudulent returns and that the same should be filed with the collector of internal revenue for the proper revenue collection district of Iowa; and that no taxes should be paid to the said collector as due and owing thereon, thereby defrauding the United States out of a large amount of money. As overt acts it was alleged, first, that the said defendants did subscribe and swear to said returns; and, second, that they filed and caused them to be filed as aforesaid. These allegations, both as to the nature of the conspiracy and as to the overt acts, were the same in all three counts. The trial resulted in conviction, and fines were assessed thereunder.

The A. A. Cooper Wagon & Buggy Company was a corporation organized under the laws of the state of Iowa, with its principal office in the city of Dubuque in that state. It had a factory there, and was engaged in the manufacture and sale principally of wagons, buggies, sleighs, and the like. Its business was conducted as know to the trade, under a number of trade-names, to wit, the corporate name, "The A. A. Cooper Wagon, Sleigh & Awning Company," "A. A. Cooper Wagon, Awning & Sleigh Company," and "Cooper Wagon Company." In the office of the corporation were kept letter heads, invoice heads, and printed and typewritten matter used in that office, having each of those names thereon. It was testified that "no separate or other office force was employed, in connection with these matters, than the regular office force, and no separation or distinction was made, so far as the office force was concerned, of the conduct of the business carried on under these several trade-names." It was also shown that there was installed in the state of Texas a business under the name of "Cooper Manufacturing Company," which was stated to be a partnership — presumably, as can be gleaned from the record, composed of the two plaintiffs in error. The nature of this business enterprise — that is to say, its connection or disconnection with the A. A. Cooper Wagon & Buggy Company — is the storm center of this prosecution.

The government contends that it is an entirely separate and distinct entity, whose income, profits, or losses have no bearing upon those of the corporation, but are those of the partnership, composed of William F. Cooper and A. A. Cooper individually. The contention of the plaintiffs in error is that this was but a branch of the parent company; that it was organized and did business in Texas as a partnership, to avoid certain onerous provisions of the laws of Texas relating to corporations; that the so-called Cooper Manufacturing Company was financed by the Wagon & Buggy Company; that checks were drawn on it to pay wages in the factory at Dubuque, and that moneys resulting from sales were transferred to the Wagon & Buggy Company; that the salesmen were in the employ of and paid by the corporation; that in the later years some of the wagons shipped to Texas were traded for horses, mules, and other animals, which were also taken in payment of notes; that this stock was kept at what was called the "C Ranch," in charge of one Merritt; that in 1917 it was decided that it would be profitable to lease some land in Texas, upon which this stock was placed, and, in general, that Cooper Manufacturing Company, the Texas partnership, was merely an instrument through which the product of the Wagon & Buggy Company was sought to be sold and disposed of in interstate trade.

There was testimony in support of these claims and no direct testimony to the contrary — the government basing its contention chiefly upon the distinct legal status heretofore stated, and the fact that the operations of the Texas business were not carried upon the regular books of the Wagon & Buggy Company. It appears that they were entered principally in certain so-called trailing account books; therefore the government refused, in computing the income and profits of the Wagon & Buggy Company, to consider the large losses that were suffered in Texas. It is conceded that, if what is known as the Texas business, conducted in the name of Cooper Manufacturing Company, was a part of the business of the parent corporation, there was no taxable income. If no such relationship existed, if the two enterprises were distinct, there was taxable income. This, as has been said, is one of the critical questions in the case. The evidence upon this point is very gingerly treated in the briefs. Counsel for defendant in error contents himself with saying that the record "teems" with so much testimony to the effect that this was a separate enterprise that he will not burden the court by reciting it or pointing out the record pages.

Plaintiffs in error say that the identity of the Manufacturing Company, as a sale adjunct and agency of the Wagon & Buggy Company, is established by testimony introduced by the government, and is uncontradicted; that the contrary is established, if at all, only by the assumption of expert accountants, based upon an examination of unauthenticated books of the Wagon & Buggy Company, and the testimony of witnesses that goods were shipped to the Cooper Manufacturing Company, or, generally, in the name of the Cooper Wagon Company, one of the trade-names of the parent corporation, and upon the further assumption that these were sales instead of consignments, and that the Wagon & Buggy Company received the assumed purchase price, for which it has failed to account. It is further urged that these books of the Wagon & Buggy Company could not be received by the court as binding upon the defendants, nor at all, without a showing that they were properly kept, because they were the books of a third party, to wit, the corporation, and not of defendants. Also it is urged that these "trailing account books" were not included in the presentation made by the government, and thus that the entire bookkeeping system was not before the jury. They complain, further, that the government's experts were permitted to introduce summaries, which were not mere reflections of the books themselves, but were expressions of opinion of the experts as to the state of the books, and the existence of taxable income, and that these experts made corrections in the books to the extent, in one instance, of disallowing an item in excess of $5,000 charged for depreciation, and arbitrarily disallowed certain expense items, and in this manner placed before the jury, not the showing of the books themselves, but their own views as to that showing, or what that showing should be, thus invading the province of the jury, and eliciting a verdict not founded upon competent evidence.

It must be confessed that both the record, and its presentation in brief and argument, are not entirely satisfactory. Both have been confused, instead of clarified, by extended insistence upon minor matters. In a record of 1,000...