Cywan v. Blair

• Decision Date: 08 November 1926
• Docket Number: No. 6151.,6151.
• Citation: 16 F.2d 279
• Parties: CYWAN v. BLAIR, Commissioner of Internal Revenue, et al.
• Court: U.S. District Court — Northern District of Illinois

16 F.2d 279 (1926)

CYWAN v. BLAIR, Commissioner of Internal Revenue, et al.

No. 6151.

District Court, N. D. Illinois, E. D.

November 8, 1926.

Wm. F. Waugh, of Chicago, Ill., for plaintiff.

Edwin A. Olson and Walter E. Wiles, both of Chicago, Ill., for defendants.

WILKERSON, District Judge.

This is an application for a temporary injunction, submitted on verified bill and verified answer. The complainant is a manufacturer of toilet water, hair tonics, and bay rum, of all of which alcohol is a necessary ingredient. The complainant held a permit issued by the government to use for that purpose specially denatured alcohol in certain amounts and for specified periods. In those periods the complainant would obtain the alcohol by withdrawal permits. The permit provided that it should be in effect until surrendered by the holder or canceled by the Commissioner of Internal Revenue for violation of the provisions of title 3 of the National Prohibition Act (Comp. St. §§ 10138¾-10138¾t), or the regulations made pursuant thereto.

On November 14, 1925, the Commissioner of Internal Revenue, with the approval of the Secretary of the Treasury, promulgated a regulation known as Treasury Decision No. 3773, providing: "All basic permits issued under titles II and III of the National Prohibition Act shall expire on December 31, 1925. * * * All regulations inconsistent herewith are hereby rescinded to the extent of such inconsistency."

In December, 1925, complainant was informed by the Prohibition Department that under said Treasury Decision it had become necessary for all permittees to renew their permits each year. Thereupon complainant, on December 17, 1925, applied for renewal of his said permit, but on March 9, 1926, the department informed him that his application for renewal had been disapproved.

The bill alleges, but the sworn answer denies, that no hearing was ever had to revoke said permit, and that the application for renewal was filed without surrendering or intending to surrender the said permit. However, the application for renewal was made without any express reservation of any kind. The sworn answer further avers that the notice of March 9, 1926, from the prohibition administrator, set forth the reasons why the application for renewal was denied.

On March 18, 1926, complainant wrote a letter to the prohibition administrator, protesting the action of the administrator's office on the application for renewal of the permit and requested a hearing. The request was granted on March 29, 1926, and hearing was had. In this connection the sworn answer avers that on or about March 22, 1926, the complainant was accorded an informal hearing in the prohibition administrator's office, at which time and place complainant was informed by the Prohibition Department that he could have a hearing if he desired, and that on that date complainant requested a hearing, and a full and complete hearing was had on March 29, 1926, at which complainant appeared in person and by counsel, participating therein fully, and without exception or reservation either to the jurisdiction of the presiding officer or the regularity of the hearing, and a copy of the transcript of the proceeding is attached to and made part of the answer. On April 5, 1926, the presiding officer at the hearing rendered an opinion sustaining the disapproval of the application for renewal, which opinion was approved by the prohibition administrator, "whereupon" the Prohibition Department canceled the complainant's permit and refused to permit him to withdraw alcohol in accordance with its provisions.

The answer also avers that, after the finding made as a result of the said hearing, the complainant requested a review of the record of the hearing, and a rehearing was accorded to the complainant on April 20, 1926, at which complainant again appeared in person and by counsel and was permitted to present arguments and further testimony. A copy of the transcript of that proceeding is also attached to the sworn answer and made a part thereof.

The bill avers that the permit provided that it should be in effect until surrendered or canceled by the Commissioner for the causes mentioned in the permit, and that complainant has not voluntarily surrendered it, that it has not been revoked for cause pursuant to a "citation" in accordance with sections 5 and 9 of title 2 of the National Prohibition Act (Comp. St. §§ 10138½bb, 10138½dd), and that his business has at all times been conducted lawfully. The bill also avers that on June 15, 1926, he filed another petition to withdraw specially denatured alcohol under said permit, unless a citation issue immediately and the permit revoked for cause, but that the prohibition administrator refused to permit complainant to withdraw the alcohol or to issue the citation; that no citation was ever issued against complainant to show cause why his permit should not be revoked and that the permit was not revoked for cause but was arbitrarily and unlawfully canceled.

On the other hand, the sworn answer, after admitting the provisions of the permit and setting forth the contention that the Commissioner of Internal Revenue is authorized to make regulations governing the issuance, duration, and contents of such permits, and that Treasury Decision 3773 was a regulation amending all permits of that class by superseding and revoking the provisions of the aforesaid permit, goes further and denies that the permit has not been revoked for cause in accordance with the law and regulations, denies that the permit was arbitrarily and unlawfully canceled, denies the allegation that complainant has conducted his business lawfully, and refers to the copy of the transcript of the hearing held on March 29, 1926. The answer admits the filing of the petition of June 15, 1926, demanding the issuance of a citation and the revocation of the permit for cause, and avers that a hearing was given to complainant "pursuant thereto," and that the prohibition administrator denied the petition.

On the sworn bill and sworn answer the following questions arise: (1) Whether the complainant made an election to comply with Treasury Decision 3773 when he applied for a renewal of his permit, and thereby surrendered his permit and waived all rights thereunder. (2) Whether the four hearings before the Prohibition Department had the effect of revocation proceedings as a result of which the permit was expressly revoked. (3) Whether the said Treasury Decision was the exercise by the Commissioner of a reserved power to regulate, of which he could not be divested, and of which he was accordingly not deprived by the provisions in the permit here under consideration. (4) Whether the permit, under the law and the facts as herein set forth, terminated on December 31, 1925.

In disposing of these questions the following general considerations must be borne in mind: The granting or withholding of the injunction rests in the sound discretion of the trial court. Meccano, Ltd., v. Wanamaker, 253 U. S. 136, 141, 40 S. Ct. 463, 64 L. Ed. 822. Generally the object of a preliminary injunction is to preserve the status quo. The granting of an injunction in this case would disturb the status quo. This is not only the general law but also the express language of section 9 of title 2 of the National Prohibition Act, that during the pendency of a court review of an order of the Prohibition Department "such permit shall be temporarily revoked." This is particularly so where the sworn answer overcomes the equities alleged in the bill. Woodside v. Tonopah & G. R. Co. et al. (C. C.) 184 F. 358, 360. Where substantial doubt exists as to the wisdom of the issuance of an injunction, that fact alone suffices to withhold it. Curtis Publishing Co. v. Federal Trade Comm. (C. C. A.) 270 F. 881, 914.

1. As to the first question above suggested, it is the court's opinion that when the complainant, acting in accordance with the Treasury Decision, applied for a renewal of his permit, he waived any rights which he may have had under it. The application for renewal, made without any reservation, and the subsequent proceedings had before the Prohibition Department, constituted an election to proceed in harmony with, and not contrary to, the Treasury Decision, and worked a surrender of the permit. See Plested v. Abbey, 228 U. S. 42, 50, 33 S. Ct. 503, 57 L. Ed. 724.

2. It is also the opinion of the court that the four hearings before the Prohibition Department were in effect revocation proceedings, in which the complainant was fully informed of the complaints against him, and in which he appeared without reservation, in person and by counsel, and introduced evidence and made arguments in answer to the complaints.

3. The answer to the third question is not free from doubt. While the permit refers to title 3 of the National Prohibition Act, and while authority for its issuance may be found in section 13 of title 3 (Comp. St. § 10138¾l), authority for its issuance may also be found in section 4 of title 2 (Comp. St. § 10138½b). In fact, in one of the cases cited on the argument it is said that the two titles overlap in this particular. This may be due to the fact that title 3 was made effective before the Eighteenth Amendment, while title 2 did not become effective until after the amendment became effective. See section 21, tit. 3 (Comp. St. § 10138¾t). Title 3 was therefore not dependent on the amendment, but was passed either as a war measure, as was title 1 (Comp. St. §§ 10138¼a-10138¼g), or under the revenue power. Until the effective date of the Eighteenth Amendment, therefore, title 2 not being in effect, it might be argued that, at least up to that time, none of the sections of title 2 relating to the issuance or revocation of permits had any application to permits issued under title 3, and that therefore the power to appoint and permit included the corresponding power to discharge and revoke, without following the...