Dorsheimer v. United States

• Decision Date: 01 December 1868
• Parties: DORSHEIMER v. UNITED STATES
• Court: U.S. Supreme Court

74 U.S. 166

19 L.Ed. 187

7 Wall. 166

DORSHEIMER v. UNITED STATES.

December Term, 1868

APPEAL from the Court of Claims.

Dorsheimer, collector of internal revenue at Buffalo, New York, and two others, informers in the case, filed a petition in the Court of Claims to recover from the United States one-half of $220,102, which the government received on a compromise with Sturges & Sons, of a prosecution against property of one Rhomberg, a distiller.

The case was this:

The act of June 3, 1864, 'to provide internal revenue,' enacts, that any distiller who shall fail to make true entry and report of his stills, liquors, &c., shall forfeit all the liquors made, and all the vessels, stills, &c., and personal property on the premises, &c. and that these may be seized by any collector, and held by him until a decision thereon according to law.¹ And by its 179th section gives authority to collectors to prosecute for the recovery of fines, penalties, and forfeitures, in the name of the United States; and confers the right to one moiety of them upon 'the collector or deputy collector' who shall first 'inform of the cause, matter, or thing, whereby such penalty may have been incurred.'²

The amendment to this section in the act of March 3, 1865,³ gives this to any person who shall first inform, and adds, that when 'the penalty is paid without suit, or before judgment, and a moiety is claimed by any person as informer, the Secretary of the Treasury shall determine whether any claimant is entitled to such moiety, and to whom it shall be piad.'

An early act—one of March 3, 1797⁴—confers authority on the Secretary of the Treasury to mitigate or remit any fine, forfeiture, or penalty, incurred by any vessel, goods, or wares, by force of the laws for laying, levying, or collecting any duties or taxes, which, in his opinion, shall have been incurred without wilful negligence, or any intention of fraud in the person or persons incurring the same.

With these acts in force, Rhomberg, a distiller at Dubuque, Iowa, violated the laws by making false returns, and fraudulently withholding taxes to the amount of $195,000. Upon information furnished by Dorsheimer and the two other persons, his liquors, distilling apparatus, grain, and the cattle at the distillery, were seized, and proceedings for their forfeiture instituted in the several districts of New York, Illinois, and Iowa, where the seizures were made.

After the seizure, Sturges & Sons, of Chicago, intervened, asserting that, without the least knowledge of Rhomberg's fraud, they had made very large advances on the property seized. And they paid to the United States $33,946, on confession, by Rhomberg, that that amount of taxes had been withheld by him.

The government, however, still holding on to the property seized, and the suits being in existence, Sturges & Sons entered into negotiations with the Commissioner of the Internal Revenue, who accordingly released the spirits seized, and dismissed the proceedings, excepting in Iowa, taking, in place of them, the bond of Sturges & Sons for $275,000, conditioned,

That, if it should be determined by the commissioner that the said spirits are not subject to the lien of the government for revenue duties, as against the advances made by the said firm, or if the obligors shall pay such sum of money as the commissioner should determine to be due the government for said property seized, then the obligation to be void; it being understood that the obligors are not liable, under the bond, for any penalty which the government may assess against Rhomberg,

but only shall be liable for the actual amount of duties found to be unpaid, together with proper costs and charges attending the investigation of the case and seizure of the property.

In the meanwhile the United States continued its prosecution against the distillery, and to prevent the loss which would occur by stopping it, the officers in charge proceeded to use up the raw materials on hand which had been seized, and, in so doing, produced liquors valued at $150,000; the money (about $54,814) required to pay the expenses of so running the distillery, being furnished by Sturges & Sons.

After various negotiations—Rhomberg's fraud standing confessed on the records of the Treasury—the Secretary of the Treasury compromised with Sturges & Sons, thus:

He relinquished to them the distillery and the appurtenances, and also the product of the distillery, namely, the $150,000 worth of liquor, free of tax, and also the moneys received at Dubuque, $54,814; also, the proceeds of the cattle which had been sold, and the liquors seized, with the claim of the United States for forfeiture. The government also surrendered the bond for $275,000, given by Sturges & Sons, and assigned to them a bond given by Rhomberg to the United States. The government, on its part, received $220,102, 'which amount the Secretary of the Treasury stated to be composed as follows:'

Deficiency of taxes,............. $195,102

In lieu of penalties and forfeitures,. 25,000

---------

$220,102

This compromise was made in face of a protest of Dorsheimer and his co-informers, against any settlement which should make a distinction between the share to be paid to the government and the share to be paid to them. The secretary professed to make it under the 44th section of the act of 30th June, 1864, which gives him power to 'compromise' all suits 'relating to the internal revenue.'

The compromise being made, Dorsheimer and his co-informers claimed from the secretary one-half of the $220,102 received. The secretary refused to pay them the half of that sum, but was willing to pay them half of the $25,000, this last sum being, as he considered, all that was received in lieu of penalties and forfeiture. Dorsheimer and his co-informers accordingly filed their petition in the Court of Claims, setting forth the facts of the case as above, and claiming the half of the $220,102. The United States demurred, and the demurrer—after argument, in which The United States v. Morris, reported in 10th Wheaton, 246, was relied on to support it,—being sustained, and the petition dismissed, the case was brought here by the informers on appeal.

Messrs. Dorsheimer and Dick (with whom was Mr. M. Blair), for the appellants:

Invited by statutes relating to the internal revenue, the petitioners below undertook the services mentioned in this case. They thus became employed by the government, and rights accrued to them for their services. When suit was instituted, it was instituted upon a forfeiture given by law; a forfeiture as from the date of the offence committed; and this forfeiture was a 'statutory transfer of right.'⁵ The right was to the joint use of the government and the informers, and so continued until the final settlement was made.⁶ The interest of an informer is a matter of contract, and a right of property, though, until decree, but an inchoate right, vests; a right which the government cannot affect.⁷ No doubt the secretary may remit, in virtue of pre-existing statutes; but this power, says this court in The Gray Jacket,⁸ 'is defined and limited by law.' The jurisdiction is a special one, and, if transcended, the secretary's act is void.

The compromise could not be sustained at all on the act of 1797, which gives authority to remit or mitigate only on the ground of innocence. Here the guilt was confessed. And the secretary here made no voluntary or gratuitous surrender of any of the joint rights and claims. On the contrary, he made the most out of them that could be made.

Neither can the secretary, under the power given in the act of 1864 to 'compromise,' so compromise as to destroy the rights of the informers, in the way which he would here seek to do. The secretary stood in the place of the parties interested in the suit, parties who had a joint interest. He had no power, under any proceeding, however named, to divide the interest of the government from that of the officers; nor to settle the controversy upon terms which would make the result of what he...