Hayes Wheel Co. v. American Distributing Co.

• Decision Date: 12 May 1919
• Docket Number: 3252.
• Citation: 257 F. 881
• Parties: HAYES WHEEL CO. v. AMERICAN DISTRIBUTING CO.
• Court: U.S. Court of Appeals — Sixth Circuit

257 F. 881

HAYES WHEEL CO. v. AMERICAN DISTRIBUTING CO.

No. 3252.

United States Court of Appeals, Sixth Circuit.

May 12, 1919

Justin R. Whiting, of Detroit, Mich., and Richard Price, of Jackson Mich., for plaintiff in error.

Thomas E. Barkworth, of Jackson, Mich., for defendant in error.

Before WARRINGTON, KNAPPEN, and DENISON, Circuit Judges.

KNAPPEN Circuit Judge.

On July 1, 1910, the American Distributing Company, an Ohio corporation, having its office and principal place of business at Jackson, Mich., contracted in writing at that place, for the sale on commission 'for the entire United States,' for a term of five years, of automobile wheels manufactured by the Hayes Wheel Company, a Michigan corporation, engaged at Jackson Mich., in the manufacture of such wheels. The Distributing Company's business was that of selling agents for manufacturers of automobile parts. At the time this contract was made the Michigan statute (P.A. Mich. 1907, Act No. 310) declared it unlawful for any foreign corporation to carry on business in Michigan until it should procure from the secretary of state a certificate of authority for that purpose, to obtain which it was required to make a sworn statement showing, among other things, the location of its principal office and principal place or places of business generally, as well as specifically, in Michigan, the total value of the property owned and used by it in its business and the value of the property owned and used in Michigan, the total amount of business transacted during the preceding year, and the amount, if any, transacted in Michigan, and 'such other facts bearing on the matter as the secretary of state may require. ' The corporation was required to pay to the secretary of state a franchise fee (subject to a minimum of $25) of one-twentieth of 1 per cent. of 'its authorized capital stock represented by the property owned and used and business transacted in Michigan,' as determined by the secretary of state. Until compliance with the act, foreign corporations subject to it were declared incapable of making valid contracts in Michigan. Section 8 expressly provided that the act should not be construed 'to prohibit any sale of goods or merchandise which would be protected by the rights of interstate commerce. ' The Distributing Company had made no attempt to comply with this statute, although it had been doing the same kind of business at Jackson, Mich., for about 18 months before the contract in question was made; nor did it make any attempt to so comply until more than 3 years after the contract was made.

On May 25, 1914, the Wheel Company canceled the contract, and thereupon the Distributing Company brought this suit to recover certain unpaid commissions already earned under the contract, as well as anticipatory damages on account of its cancellation. By another statute then in force (Comp. Laws Mich. 1897, Sec. 10467) a foreign corporation, subject to the act and not complying with it, was in effect denied right of action upon contracts resulting therefrom. Flint v. Le Heup, 199 Mich. 41, 47, 48, 165 N.W. 626, and cases cited. There was trial by jury. Against defendant's objection that plaintiff could not recover, because of failure to comply with this statute, the latter recovered verdict and judgment; the trial court holding as matter of law that the contract related essentially to interstate commerce and so was not affected by the Michigan statute. See opinion on motion for new trial, 250 F. 109. The correctness or incorrectness of this conclusion is the only question presented.

The general limitations upon state control of commerce are well defined. It is fundamental that interstate commerce is within the protection of the federal Constitution, and that a state has no power by taxation to impose a burden upon it. Lyng v. Michigan, 135 U.S. 161, 10 Sup.Ct. 725, 34 L.Ed. 150; Rosenberger v. Pacific Express Co., 241 U.S. 48, 36 Sup.Ct. 510, 60 L.Ed. 880. And if, as plaintiff contends, the effect of the Michigan statute is to impose a tax upon every foreign corporation which does business in the state, even though engaged wholly in interstate commerce, it is bad. McCall v. California, 136 U.S. 104, 109, 10 Sup.Ct. 881, 34 L.Ed. 392; N. & W. Ry. Co. v Pennsylvania, 136 U.S. 114, 10 Sup.Ct. 958, 34 L.Ed. 394. And so, in other words, if the state has required plaintiff, as a condition of doing business in Michigan, to surrender its constitutional right to transact commerce between the states. So. Pacific Co. v. Denton, 146 U.S. 202, 207, 13 Sup.Ct. 44, 36 L.Ed. 942. Applying these principles concretely, the statute is bad if it attempts to impose a tax upon all plaintiff's capital, whether employed in state or interstate commerce (Pullman Co. v. Kansas, 216 U.S. 56, 30 Sup.Ct. 232, 54 L.Ed. 378; Western Union Co. v. Kansas, 216 U.S. 1, 30 Sup.Ct. 190, 54 L.Ed. 355; Butler Bros. Co. v. U.S. Rubber Co. (C.C.A. 8) 156 F. 1, 17, 84 C.C.A. 167); or if it attempts directly or indirectly to tax property permanently without the state (Louisville, etc., Co. v. Kentucky, 188 U.S. 385, 396, 23 Sup.Ct. 463, 47 L.Ed. 513); or if it assumes to impose a license or franchise fee upon business done in the state without distinction between state and interstate business (Crutcher v. Kentucky, 141 U.S. 47, 11 Sup.Ct. 851, 35 L.Ed. 649).

On the other hand, the authority of the state to restrict the right of plaintiff corporation to engage in business within its limits, or to sue in its courts, so long as interstate commerce is not thereby burdened, is well settled (Baltic Mining Co. v. Massachusetts, 231 U.S. 68, 83, 34 Sup.Ct. 15, 58 L.Ed. 127; Interstate Amusement Co. v. Albert, 239 U.S. 560, 568, 36 Sup.Ct. 168, 60 L.Ed. 439); and the mere fact that plaintiff is engaged in interstate commerce does not exempt its property from state taxation (White Co. v. Massachusetts, 231 U.S. 68, 82, 83, 34 Sup.Ct. 15, 58 L.Ed. 127; Baltic Mining Co. v. Massachusetts, supra); and if the state tax affects merely the proportion of plaintiff's property in the state devoted to state business, or the domestic business done within the state, and the state business is thus capable of separation from the interstate, the latter is thus not directly or indirectly burdened, and the tax is good (Western Union Co. v. Massachusetts, 125 U.S. 530, 552, 8 Sup.Ct. 961, 31 L.Ed. 790; Ratterman v. Western Union Co., 127 U.S. 411, 424, 8 Sup.Ct. 1127, 32 L.Ed. 229; Pullman Co. v. Adams, 189 U.S. 420, 23 Sup.Ct. 494, 47 L.Ed. 877; Allen v. Pullman Co., 191 U.S. 171, 24 Sup.Ct. 39, 48 L.Ed. 134). If not so capable of separation, it would be bad. 'The substance, and not the shadow, determines the validity of the exercise of the power. ' International Paper Co. v. Massachusetts, 246 U.S.at page 144, 38 Sup.Ct.at page 295, 62 L.Ed. 624, Ann. Cas. 1918C, 617.

Does the Michigan statute impose or attempt to impose a tax upon all the capital of a foreign corporation whether employed in state or interstate commerce, or to tax property permanently without the state, or to impose a fee upon its business done in the state, without distinction between state and interstate? It seems to us clear that it neither does nor attempts to do either of these things. The language of the statute indicates, in our opinion, an intention to assess the franchise fee only upon domestic business, which is assumed to be capable of separation from interstate business. The tax is in terms limited to a percentage of 'the proportion of its authorized capital stock represented by the property owned and used and business transacted in Michigan, determined as above provided. ' The secretary of state is to determine this proportion, not arbitrarily, as plaintiff charges, but 'from the papers so filed and the facts so reported (by the corporation) and any other facts coming to his knowledge bearing upon the question. ' Nor is the corporation without remedy against unrestrained or mistaken determination of what such proportion amounts to, neither is it subject to the employment of secret or private information in reaching such determination. It is not only expressly given 'the right, on application, to be heard by the secretary of state touching the matter of the determination of the proportion of its capital stock represented by property used and business done in Michigan,' but, if dissatisfied with the result, it is in terms given the right of appeal to a 'board of appeal consisting of the auditor general, state treasurer and attorney general. ' Due provision is thus, in our opinion, made for separating state from interstate business. The fact that the statute declares final the decision of this board of appeal does not effect a denial of due process. The right of appeal from the decision of an administrative board in assessing taxes and valuing property is not necessary. 'One hearing is sufficient to constitute due process. ' Mich. Central R.R. Co. v. Powers, 201 U.S.at pages 301, 302, 26 Sup.Ct.at page 466, 50 L.Ed. 744. 'A day in court is a matter of right in judicial proceedings, but administrative proceedings rest upon different principles. ' ^[1] Under the Michigan system of taxation generally, while a valuation by a reviewing board is final in the absence of fraud, yet a remedy in some form is always open against fraudulent or arbitrary conduct. We are cited to no authorities, and we have found none, opposed to the conclusion that a tax measurement such as the statute in question provides does not burden interstate commerce. It cannot well be claimed that the minimum fee of $25 is unreasonable, or that it burdens interstate commerce.

The remaining provisions of the act strengthen rather than weaken the inference naturally deducible from the assessment...