Everlasting Development Corp. v. Sol Luis Descartes

• Decision Date: 06 March 1951
• Docket Number: No. 5645.,5645.
• Citation: 95 F. Supp. 954
• Parties: EVERLASTING DEVELOPMENT CORP. et al. v. SOL LUIS DESCARTES et al.
• Court: U.S. District Court — District of Puerto Rico

95 F. Supp. 954

EVERLASTING DEVELOPMENT CORP. et al. v. SOL LUIS DESCARTES et al.

No. 5645.

United States District Court, D. Puerto Rico, San Juan Division.

March 6, 1951.

Juan Rodriguez De Jesus, Francisco Ponsa Feliu, Raul Trujillo Santiago and Mariano Canales Delgado, all of San Juan, Puerto Rico, Meyer, Goldberg & Hollings, Charleston, S. C., for plaintiffs.

Atty. Gen. of Puerto Rico, Abe Fortas, Washington, D. C., José Trias-Monge, San Juan, Puerto Rico, for defendants.

ROBERTS, District Judge.

This is an action for declaratory judgment of the right of plaintiffs to tax exemption under The Industrial Tax Exemption Act of Puerto Rico, Law No. 184, of the Legislature of Puerto Rico, May 13, 1948, hereafter referred to as Tax Exemption Act. Plaintiffs, on June 30, 1948, filed a joint petition for industrial tax exemption with the Executive Council of Puerto Rico, requesting tax exemption under Sections 2a and 2b of the Tax Exemption Act. Their petition was denied by the Executive Council on November 23, 1949, and plaintiffs thereafter brought this action under the federal declaratory judgment law, 28 U.S.C.A. §§ 2201-2202.¹

Plaintiffs allege that the denial by defendants of their request for tax exemption violates the Fifth Amendment to the Constitution of the United States and the Organic Act of Puerto Rico, 39 Stat. 951, as amended, 48 U.S.C.A. § 737, in that "the action of the defendants denies to the plaintiffs the equal protection of the laws and deprives them of their property without due process of law; and further subjects them to an unequal and discriminatory taxation" and that the plaintiffs "have been, are, and will be subjected to gross oppression by reason of the aforesaid conduct of the defendants; and that these plaintiffs do not have any further administrative remedy, nor any remedy whatsoever in the Insular Courts of Puerto Rico."

The relief prayed is for declaration that plaintiffs are eligible for and entitled to tax exemption; that plaintiffs having complied fully with all the prerequisites of the statute and regulations, tax exemption should be granted; that the denial of tax exemption to plaintiffs constitutes a denial of the equal protection of the laws and deprives plaintiffs of their property without due process of law and subjects plaintiffs to unequal and discriminatory taxation.

The defendants have moved that the complaint be dismissed, asserting that this court lacks jurisdiction of the subject matter and that the complaint fails to state a claim upon which relief may be granted. The cause is now before the court on the defendants' motion to dismiss.

It is to be recognized that where a suit is brought for the purpose of challenging either the assessment or collection of a state tax, the character of the remedial procedures invoked therein, do not have the effect of changing the essential nature of such an action as one intended to result ultimately in the avoidance of the assessment or collection of such tax, Nashville, C. & St.L. Ry. v. Wallace, 288 U.S. 249, 261-262, 53 S.Ct. 345, 77 L.Ed. 730; Lawrence Print Works, Inc. v. Lynch, 1 Cir., 146 F.2d 996; and that, in the instant suit, while plaintiffs pray a declaration that they are entitled to tax exemption and that a denial thereof violates their constitutional rights, the object of the suit is to avoid payment of taxes that either have been or will be imposed upon the plaintiffs as a consequence of their petition for tax exemption having been denied by defendants.

The proposition that suits seeking declarations with respect to state taxes are in effect actions brought to avoid payment of such taxes had its genesis in sound reason and is well supported by the authorities. In Collier Advertising Service, Inc. v. City of New York, D. C., 32 F.Supp. 870, the action was for declaratory judgment concerning the obligation of plaintiff to collect certain taxes under a state sales tax act. Question was whether such a declaration came within the prohibition of the Johnson Act, August 21, 1937, 50 Stat. 738,² now 28 U.S.C.A. § 1341,³ which statute restricts the jurisdiction of the federal courts to entertain suits wherein it is sought to enjoin, suspend, or restrain collection of state taxes to those cases wherein the taxpayer is not afforded a plain, speedy and efficient remedy in the state courts. Noting that the declaratory judgment statute is procedural and that, if granted, such declaration would have the effect of suspending the operation of the state tax act, the court held such declarations to be within the prohibition of the Johnson Act. The decision clearly holds that a suit in which such declaration is sought is in its essence a suit to avoid payment of state taxes. The reasoning of the court is convincing. 32 F.Supp. page 872. "The question persists whether or not the ban of the Johnson Act includes suits for a declaration where injunction is an unnecessary relief. We think that the action for declaration is within the ban. The Johnson Act does not concern itself with any distinctions between causes of action or particular forms of relief. It denies jurisdiction to the District Court to suits to enjoin, suspend or restrain assessment and collection of State taxes. It would be disingeneous to deny that a declaration of the plaintiff's claimed rights in this action would secure any other result than to enjoin, suspend and restrain the operation of the Sales Tax Law upon its business. Any other holding would substantially nullify the Johnson Act. The declaration is an adjudication; not an abstraction. It was observed, in Socony-Vacuum Oil Co. v. City of New York, 247 App.Div. 163, 287 N.Y.S. 288, that a natural presumption expects public officials to respect the Court's declaration and to follow its interpretation of the law. Such voluntary submission averts the need of an injunction but accomplishes precisely the same result."

That the relief sought is a declaration of the right to tax exemption appears to be immaterial. In Miller v. City of Greenville, Miss., 8 Cir., 138 F.2d 712, plaintiff city sought a declaration that a portion of a bridge over the Mississippi river within the state of Arkansas, owned by the city of Greenville, was exempt from taxation by that state. The court, following the doctrine of the Huffman case, Great Lakes D. & D. Co. v. Huffman, 319 U.S. 293, 63 S.Ct. 1070, 87 L.Ed. 1407, said, 138 F.2d page 719: "But the facts in this case do not justify maintenance of this action under the federal declaratory judgment statute. * * * The object of the suit is to avoid assessment and collection of state taxes and the same considerations upon which the federal courts of equity have declined, save in exceptional cases, to relieve against state taxes claimed to be unlawful, are controlling in suits under the declaratory judgment statute."

The decision in Gully v. Interstate Natural Gas Co., 5 Cir., 82 F.2d 145, is not in conflict with the decisions cited above. In that case it was held merely that the declaratory judgment statute provided, in addition to the existing coercive remedies, a new remedy in the form of a declaration of rights. The jurisdictional question presented in the instant case was not presented in the Gully case, supra, because it was decided prior to the enactment of the Johnson Act which restricted the jurisdiction of the District Courts in this respect.

In Paul Smith Const. Co. v. Buscaglia, 1 Cir., 140 F.2d 900, the Court of Appeals for the First Circuit held that a suit for declaratory judgment concerning the invalidity of a tax imposed under the laws of Puerto Rico was within the ban of the Butler Act, March 4, 1927, 44 Stat. 1421, 48 U.S. C.A. § 872. This decision clearly implied that suits seeking declarations concerning insular taxes are suits to avoid assessment or collection of such taxes because the sole purpose of the Butler Act is to deprive this court of jurisdiction to entertain suits brought to restrain the assessment or collection of an insular tax.

The instant case then, despite resort to the declaratory judgment procedures and the absence of a prayer for injunctive or other coercive relief, is a suit to avoid the payment of an insular tax and is to be decided in the light of those principles of law that govern decision in case of such nature where injunctive relief expressly is sought. The controlling question is, therefore, jurisdictional, for as above stated, it was the purpose of the Butler Act to restrict if not to totally deprive, this court of jurisdiction to entertain suits wherein it is sought to restrain the assessment or collection of an insular tax. The Butler Act, an anti-injunction statute of a purport similar to that of 28 U.S.C.A. § 1341, formerly the Johnson Act, reads as follows: "No suit for the purpose of restraining the assessment or collection of any tax imposed by the laws of Puerto Rico shall be maintained in the District Court of the United States for Puerto Rico."

Read without qualification, the Butler Act constitutes so comprehensive a prohibition, that no suit wherein it is sought, either directly or indirectly, to restrain the collection of a tax imposed under insular law may be maintained in this court, including suits utilizing the declaratory judgment procedures. Sancho v. National City Bank of New York, 1 Cir., 112 F.2d 998; Paul Smith Const. Co. v. Buscaglia, supra. However, the Court of Appeals said in the Paul Smith case, supra, that it has never been called upon to decide whether the Butler Act is subject to implied exception with respect to cases involving exceptional circumstances. Specifically, the court said, 140 F.2d page 901: "We have never been called upon to decide whether the Butler Act, despite its unqualified language, is to be read as subject to implied exceptions `in special and extraordinary circumstances' * * *. If such exceptions are to be admitted they would only be in cases `when the taxpayer is put to...