In re Valecia Condensed Milk Co.

• Decision Date: 06 February 1917
• Docket Number: 2387.
• Citation: 240 F. 310
• Parties: In re VALECIA CONDENSED MILK CO. In re FOOTVILLE CONDENSED MILK CO. MYRLAND v. WARNER et al.
• Court: U.S. Court of Appeals — Seventh Circuit

240 F. 310

In re VALECIA CONDENSED MILK CO. In re FOOTVILLE CONDENSED MILK CO. MYRLAND v. WARNER et al.

No. 2387.

United States Court of Appeals, Seventh Circuit.

February 6, 1917

In the bankruptcy proceedings of two bankrupt corporations petitioner, the secretary of the Wisconsin tax commission was served with a subpoena to appear before the referee to testify, and there to produce all reports, correspondence certificates, and documents in possession of the commission relating to the bankrupts, and of another corporation, also a bankrupt. He appeared and testified that the only papers of the kind mentioned in the subpoena in the possession of the commission were the income tax returns of such respective corporations, as were made and returned to the state tax commission in pursuance of the statute of the state, and that the statute prohibited him from permitting such income tax returns to be examined by any person, and he refused to produce them. Thereupon his refusal was reported to the court, and a rule was entered requiring him to show cause why he should not be held in contempt. In his answer to the rule he again set up the inhibition of the Wisconsin statutes against producing such income returns, and asked to be excused from producing same. The court held him guilty of contempt, and ordered him committed until he should produce the returns. The petition to review and revise the order of the District Court raises the question whether the court has power to compel the production of such income returns.

The Wisconsin statute (section 1087m1 et seq.) requires corporations annually to make out and present to the tax commission a return under oath, answering all questions propounded by the commission with reference to the corporate affairs for the year preceding, for the purpose of enabling the commission to assess the annual income tax which the corporation is by statute required to pay. The act ^[1] (set out in the margin), under which the particular question here arises, provides that no commissioner or clerk or agent shall divulge or make known to any person 'in any manner except as provided by law' any information obtained in the discharge of official duties, or permit any income return to be seen or examined 'except as provided by law;' and that any such officer, etc., violating such provision shall be fined from $100 to $500, or imprisoned not exceeding 2 years, and shall forfeit his employment, and for 3 years thereafter be incapable of holding public office.

E.E. Brossard, of Columbus, Wis., for petitioner.

John B. Sanborn, of Madison, Wis., for respondent.

Before BAKER, MACK, and ALSCHULER, Circuit Judges.

ALSCHULER Circuit Judge (after stating the facts as above).

1. It will be well first to consider how such provisions against the production of papers have generally been considered by the courts. We have been referred to no adjudication, and we find none wherein this statute, or any income tax statute, has been considered with reference to the question here involved. But decisions under federal revenue law, other than the income tax law, respecting the production of papers and the revealing of information received in the course of official duty by revenue officers, are closely analogous.

Section 3167, Rev. Stat. (Comp. St. 1913, Sec. 5887), was directed against divulging or making known in any manner not provided by law 'the operation, style or work of apparatus of any manufacturer or producer visited by' an official in discharge of his official duties; and in 1894 this section was amended to include in the inhibition, income returns under the federal income tax act which was passed at that time. But returns and other papers as to special taxes, apart from the income tax, were not included in the terms of the statute.

The revenue act provided that the Secretary of the Treasury was authorized to prescribe regulations not inconsistent with law, for the government of his department, and the custody, use and preservation of its records and papers. Rev. St. Sec. 161 (U.S. Comp. St. 1916, Sec. 235). On the subject of producing such papers in court it does not appear that prior to 1898 any general order or regulation was made by the Secretary of the Treasury, but prior to that year letters had been written by the Commissioner of Internal Revenue to two internal revenue collectors stating that any and all such papers and information in their possession were not to be revealed or produced in any court or elsewhere.

In re Weeks (D.C.) 82 F. 729, was a proceeding by habeas corpus in the district court to obtain the discharge of a collector of internal revenue from commitment for contempt of the state court, for refusing to obey a subpoena requiring him to produce in that court certain records of his office. The refusal to produce was justified by one of the letters above referred to wherein the Commissioner of Internal Revenue had instructed him not to produce papers or give information concerning matters in his office. The court held that such evidence was in control of the federal government, and that the instruction to the collector by his superior officer protected him in his refusal and he was ordered discharged.

In re Huttman (D.C.) 70 F. 699, the circumstances were similar to those in the Weeks Case. The petitioner for habeas corpus there stated that he had been instructed by the head of his department to decline to make the requested revelation of facts which came to him in his official capacity as collector of internal revenue. The fact of such instruction was uncontroverted. The petitioner there, who stood committed by the state court for his refusal to make such revelation, was discharged.

The case mainly relied upon in support of the action of the District Court is In re Hirsch (C.C. 1896) 74 F. 928. There it was undertaken in a proceeding in a state court to compel the production under subpoena duces tecum of an application or return to an internal revenue collector, whose deputy in charge of the papers was committed for refusing production. On habeas corpus the District Court dismissed the writ, holding that the federal court was without jurisdiction, as the refusal to produce was not under a statute of the United States, but under an alleged regulation claimed to have the force of law. The court concluded that the two letters of the commissioner of internal revenue to revenue collectors of other revenue districts, instructing them to refuse production of any such papers, did not amount to a regulation, and that there was in fact no regulation of the department preventing the production of such papers. The Circuit Court of Appeals, Second Circuit, affirmed the judgment, but rendered no opinion beyond a statement per curiam of concurrence in the opinion of the District Court, and that they did not intend to decide that a writ of habeas corpus is the proper remedy to review a judgment of state court committing a witness for disobedience of its subpoena. 87 F. 1005, 31 C.C.A. 350.

It seems that in 1898 a general regulation was promulgated by the Department forbidding the production of any such documents, and giving out any such information; and presumably, had there been such general regulation when In re Hirsch was decided, that case would have been otherwise determined, for it is there said:

'It is probable that a statute could declare that communications of taxpayers to a board of assessors or officers of a similar character should be privileged, and that no returns can be examined by any one, or be reached for examination by legal process.'

Since the regulation was promulgated the right to compel internal revenue officers to produce official...