Headley v. Knox, Civ. No. 2735.

• Decision Date: 04 August 1955
• Docket Number: Civ. No. 2735.
• Citation: 133 F. Supp. 36
• Parties: Richard K. HEADLEY, Myles H. Johns and William F. Johns, Jr., Plaintiffs, v. A. R. KNOX, as Director of Internal Revenue, Defendant.
• Court: U.S. District Court — District of Minnesota

133 F. Supp. 36

Richard K. HEADLEY, Myles H. Johns and William F. Johns, Jr., Plaintiffs, v. A. R. KNOX, as Director of Internal Revenue, Defendant.

Civ. No. 2735.

United States District Court D. Minnesota, Third Division.

August 4, 1955.

Cummins, Cummins, Hammond & Ames, by Linus J. Hammond, St. Paul, Minn., for plaintiff.

George E. MacKinnon, U. S. Atty., Keith D. Kennedy, Asst. U. S. Atty., St. Paul, Minn., for defendant.

DONOVAN, District Judge.

This matter comes before the Court on an Order to Show Cause why a preliminary injunction should not issue, enjoining and restraining the defendant from collecting or attempting to collect monies and property of the plaintiffs under and by virtue of warrants of distraint.

A short statement of the pertinent facts is as follows: Plaintiffs were the officers of a corporation known as the St. Paul Basketball, Inc. The corporation sought to conduct professional basketball activities in the City of St. Paul, but, suffering financial reverses, was adjudicated a bankrupt in 1951. The defendant subsequently levied penalty assessments against the plaintiffs, claiming that they were liable therefor because, as officers of the corporation, they failed to account for and pay over taxes collected and withheld by the corporation.¹

Both parties concede the penalty assessments provided for in 26 U.S.C.A. § 1718(c) and (d), and § 2707(a), contemplate the failure to pay over must be "wilful."

Plaintiffs, in seeking an injunction, assert that the tax assessed is a criminal penalty; that they are denied their constitutional right by such arbitrary assessment, and that they are without an adequate remedy at law.

Defendant contends that the penalties provided for in Title 26 U.S.C.A. §§ 2707 (a) and 1718(c) are civil, not criminal, and that therefore § 7421(a), I.R.C.1954, 26 U.S.C.A. (formerly 26 U.S.C.A. § 3653(a), bars the maintenance of an action to enjoin the collection of the tax; that plaintiffs do have an adequate remedy at law, namely, the payment of the tax and claim for refund; and lastly, that the moving papers do not constitute a sufficient showing to justify the intervention of equity.

The Court, having reviewed the file and considered the briefs of counsel, is of the opinion that the contention of the defendant is judicially sound. As will be hereinafter noted, it would appear that, under the present decisions, the type of penalty herein asserted is of a civil nature, and within the scope of the word "tax", as used in the applicable statutory provision.²

Where reasonable redress is available, as in the instant case, actions to enjoin the collection of civil penalties are not favored by the courts. The voice of controlling authority has recognized and differentiated the principles applicable to civil and criminal penalties.³

Counsel earnestly argues that the plaintiffs are not the "taxpayers", and therefore cannot make claim and recover what they paid for the reason that, if they are civil penalties, they merge into and become the tax.⁴

Although the rule may appear at times to be a harsh one, where the taxpayer is in financial straits, nonetheless in the matter at bar there is merit in the defendant's contention that the affidavit in support of the motion is not a sufficient showing to that effect. Also, the point urged by plaintiffs that they have no adequate remedy at law⁵ is not too persuasive, in the light of the argument of defendant that the assessment herein was not for the taxes, but for the penalties assessed against plaintiffs, and not for penalties assessed against others than plaintiffs.

For the foregoing reasons therefore, it is concluded that the necessary circumstances justifying injunctive relief are lacking⁶, and hence the motion of the plaintiffs for a temporary injunction must be, and is hereby denied.

It is so ordered.

Plaintiffs are allowed an exception.

1 In the bankruptcy proceedings, the sum of $776.20, more or less, was paid to the United States to apply on the tax indebtedness. Based on returns made, the United States asserts that the plaintiffs...