Everlasting Development Corp v. Sol Luis Descartes

• Decision Date: 30 November 1951
• Docket Number: No. 4572.,4572.
• Citation: 192 F.2d 1
• Parties: EVERLASTING DEVELOPMENT CORP. et al. v. SOL LUIS DESCARTES et al.
• Court: U.S. Court of Appeals — First Circuit

192 F.2d 1 (1951)

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

No. 4572.

United States Court of Appeals First Circuit.

November 2, 1951.

Rehearing Denied November 30, 1951.

William G. Grant, Atlanta, Ga., and Walter L. Newsom, Jr., San Juan, P. R. (Robert M. Hollings, Charleston, S. C., and Francisco Ponsa-Feliu, San Juan, P. R., on the brief), for appellants.

Abe Fortas, Sp. Asst. Atty. Gen. of Puerto Rico (Victor Gutierrez Franqui, Atty. Gen. of Puerto Rico, and Jose Trias-Monge, Sp. Asst. Atty. Gen. of Puerto Rico, and Arnold, Fortas & Porter, Washington, D. C., on the brief), for appellees.

Before MAGRUDER, Chief Judge, and WOODBURY and HARTIGAN, Circuit Judges.

MAGRUDER, Chief Judge.

This is an appeal from a judgment of the United States District Court for the District of Puerto Rico dismissing a complaint asking for a declaratory judgment that the plaintiffs are entitled to tax exemption under a Puerto Rican statute. The district court dismissed the complaint under the view that the suit was in substance one to restrain the assessment and collection of insular taxes, and that such suit could not be entertained in the federal court in view of the prohibition of the Butler Act, 44 Stat. 1421, 48 U.S.C.A. § 872. For the opinion below see D.C., 95 F.Supp. 954.

The complaint was filed March 3, 1950. Joined as plaintiffs were Everlasting Development Corporation and Long Corporation, both organized and existing under the laws of Puerto Rico, and L. D. Long individually (a citizen of South Carolina and during the times here involved a resident of Puerto Rico) as majority stockholder of the two corporate plaintiffs. The defendants named were seven individuals, the heads of the executive departments of the Government of Puerto Rico, in their capacity as members of the Executive Council of Puerto Rico, 46 Stat. 1168, 48 U.S.C.A. §§ 773, 775-777, 784, 784a.

There being no diversity of citizenship, jurisdiction of the complaint in the federal court purported to rest upon 28 U.S.C. § 1331. We are of opinion that the factual allegations of the complaint do not make out a case arising under the Constitution or laws of the United States, and that consequently the court below did not have jurisdiction of the subject matter. There are other difficulties with appellants' case, some of which we find it unnecessary to discuss at all, and others of which will be alluded to only briefly in passing.

Appellants claim that they have been denied a tax exemption rightfully theirs under Act No. 184 approved May 13, 1948, known as The Industrial Tax Exemption Act of Puerto Rico, Laws P.R. 1948, p. 482. We shall undertake to summarize its main provisions for a better understanding of the case.

The Act, as appears from its statement of motives, was designed to promote the industrial development of Puerto Rico by offering to persons who were willing to establish new industrial units on the island exemption from various insular and municipal taxes and excises for a limited period. The exemptions provided for, § 5, started at 100 per cent and tapered off to 25 per cent for the fiscal year 1961-1962, at the end of which year the exemption period would terminate.

In the statement of motives, the legislature listed 41 industries, denominated "designated industries", described as "industries established in Puerto Rico, which have good prospects for further development" and which therefore deserved to enjoy the benefit of the tax exemption granted by the Act in order to encourage their expansion.

Section 1 of the Act contained certain definitions of terms to which we shall refer subsequently.

Under the heading "eligible industries", § 2 provided that there shall be eligible for tax exemption: "a. Any industrial unit having as its object the production on a commercial scale in Puerto Rico, subsequent to January 2, 1947, of any manufactured product not in production on a commercial scale in Puerto Rico on said date, and for which there were on such date in Puerto Rico no manufacturing facilities capable of the production of said manufactured product on a commercial scale."

b. Any new industrial unit of one of the so-called "designated industries" already established in Puerto Rico, having as its object the beginning of production on a commercial scale subsequent to May 12, 1947, which new industrial unit, in the judgment of the Executive Council, will be established "in good faith and with a permanent character", and which, in the judgment of the Executive Council, has or will have capacity to produce "a substantial share of the articles of commerce, additional to that produced in Puerto Rico annually, on an average, by all existing units of such designated industry".

Since the granting of tax exemption to such a new unit of a designated industry would result in a competitive disadvantage to the business units already established in the island and making the same product, it was further provided that in that event any already established industrial unit in one of the designated industries would also be eligible for tax exemption.¹

Section 2 went on to provide that the Executive Council might, "in the exercise of a sound judgment," deny the tax exemption in any of the cases listed "when in its judgment, the article of commerce produced or to be produced by the applicant, because of the use thereof or other factors, will be a substitute for, or a competitor with substantial advantage on account of the exemption, of similar articles of commerce produced by industries established in Puerto Rico". Notwithstanding this, the Executive Council might still grant the exemption "whenever in its judgment, the applicant eligible industry represents a substantial gain for the general economy of Puerto Rico by reason of the employment opportunities it may provide, the prospects for the development thereof in a higher scale in Puerto Rico, and the quality and efficiency in the use, or in the benefit to the community, of the article of commerce which the applicant eligible industry produces or will produce"; but the Executive Council may, in granting exemption to any industry under the aforesaid circumstances, "on petition of the interested party grant said exemption to such other existing industries manufacturing similar articles of commerce as in its judgment will sustain substantial prejudice because of the substitution or competition referred to in this paragraph."

Referring back to the definitions contained in § 1, the term "manufactured products" was defined to mean "not only all products transformed from raw materials into articles of commerce finished by hand or machinery, but also any product the value of which, in the judgment of the Executive Council, is substantially increased by processing, assembling, or extracting." The term "industrial unit" meant "Any plant, factory, machine or machine ensemble having a capacity for performing the major functions involved in the production of a manufactured product on a commercial scale." The term "production on a commercial scale" meant "Production for sale on the market in the normal course of business in quantities and at a price which justifies the operation of an industrial unit as a going business."

Section 3 provided that any person who has established or proposes to establish in Puerto Rico "an eligible industry" may apply to the Executive Council for tax exemption under the Act.

Section 4 provided that after it is proved "to the satisfaction of the Executive Council, that an applicant has established or will establish in Puerto Rico an eligible industry," the Council shall declare the industry tax-exempt and shall grant the applicant exemption from the enumerated taxes.

Section 9 provided that before deciding on any application for tax exemption "the Executive Council shall first consider the reports on each application which shall be submitted to the said Council by the Puerto Rico Industrial Development Company, and such other Insular agencies as in the judgment of the Council should make their report on such application."

Section 11 provided that "A grant of tax exemption approved by the Executive Council shall not be effective until the same has been approved by the Governor of Puerto Rico, but when so approved the grant shall be effective on and after the first day of the month following that in which the application was filed. The Treasurer of Puerto Rico shall return to the applicant whatever sum the said applicant may have paid for taxes appertaining to any period covered by the exemption."

Section 14 contained provisions authorizing the Executive Council, after hearing and with the approval of the Governor, to revoke any tax exemption previously granted where the grantee failed to complete, within the time fixed by the Council, the construction of the necessary installations or where the grantee discontinued production on a commercial scale for more than thirty days without authorization from the Executive Council.

Section 16 provided: "All resolutions and findings of the Executive Council and of the Governor of Puerto Rico under the provisions of this Act, shall be final, and no judicial or administrative proceeding shall lie against the same."

The complaint alleges that the plaintiff corporations, on June 30, 1948, filed with the Executive Council their joint application for tax exemption under Act No. 184, and thereafter complied with all other requirements of law and of the applicable rules and regulations; that, notwithstanding the favorable finding and report of the special master who had taken testimony on the application, and a favorable opinion of the Attorney General rendered in February, 1949, the Executive Council delayed a decision on the matter for several months; that meanwhile the Attorney General submitted a new and adverse opinion upon the application, "which opinion was and is erroneous and which fact was and is well known...