James v. Consolidated Steel Corporation, 9558.

CourtCourt of Appeals of Texas
Citation195 S.W.2d 955
Decision Date19 June 1946
Docket NumberNo. 9558.,9558.
195 S.W.2d 955
JAMES, State Treasurer, et al.
No. 9558.
Court of Civil Appeals of Texas. Austin.
June 19, 1946.
Rehearing Denied July 10, 1946.

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Appeal from District Court, Travis County; J. Harris Gardner, Judge.

Suit by Consolidated Steel Corporation, Limited, against Jesse James, State Treasurer, and others, to recover unemployment compensation contributions paid under protest. From the judgment, the defendants appeal.


Grover Sellers, Atty. Gen., and Robert O. Koch and L. P. Lollar, Asst. Attys. Gen., and Clyde Messer and W. H. Farmer, both of Austin, for appellants.

Strong & Moore, of Beaumont, and Black, Graves & Stayton, and John W. Stayton, all of Austin, for appellee.

BAUGH, Justice.

Suit is by the Consolidated Steel Corporation, Ltd., a California corporation, having a permit to do business in Texas, against the State Treasurer, the Attorney General, the Texas Unemployment Compensation Commission, and the individual members thereof. For convenience and brevity the appellants will be referred to as the Commission; and the plaintiff, appellee here, as the corporation. The suit was brought under the provisions of Art. 7057b, Vernon's Ann.Civ.St., to recover, as excess payments, unemployment compensation or "contributions", paid quarterly to the Commission by the corporation under protest, during the year 1944, aggregating the sum of $823,324.99, together with interest thereon from the respective dates of payment. By trial amendment the corporation tendered into court the amount of such taxes or "contributions" which it asserts it should have paid, but did not, during the year 1940. Trial was to a jury but at the close of the evidence the trial court withdrew the case from the jury on the ground that no issue of fact was presented; rendered judgment in favor of the corporation for the amount sued for; and in favor of the Commission against the corporation for $1,995.22 as the amount of taxes, interest and penalty which the corporation owed for the year 1940. Appeal is by the Commission from that judgment.

The first contention made is that the trial court was without jurisdiction to determine the cause for the reason that the corporation had an administrative remedy before the Commission, provided for in the Act, which it was required to resort to and exhaust before bringing such suit; and that it had not done so. The Act involved is published in Vernon's Ann.Civ.St. as Act 5221b—1 et seq., and subsections thereunder, and for convenience the arrangement of sections by Vernons will be cited, unless otherwise stated, instead of the sections as numbered in the original and amended acts of the legislature. This first contention is predicated upon Vernon's Ann.Civ.St. Art. 5221b—12(j), which reads as follows: "Where any employing unit has made a payment to the Commission of contributions alleged to be due, and it is later determined that such contributions were not due, in whole or in part, the employing unit making such payment may make application to the Commission for an adjustment thereof in connection with contribution payments when due, or for a refund thereof because such adjustment cannot be made, and if the Commission shall determine that such contributions or penalty, or any portion thereof were erroneously collected, the Commission shall allow such employing unit to make an adjustment thereof without interest in connection with contribution payments then due by such employing unit, or, if such adjustment cannot be made, the Commission shall refund said amount without interest from the Fund, provided that no application for adjustment or refund shall ever be considered by the Commission unless the same shall have been filed within four (4) years from the date on which such contributions or penalties would have become due, had such contributions been legally collectible by the Commission from such employing unit. For like cause, and within the same period, adjustment or refund may be so made on the Commission's own initiative."

There is a rule of practically universal application that where the law provides a method whereby an aggrieved party may, in tax matters, have his rights determined in a hearing before an administrative agency, he must exhaust his remedy there before appealing to the courts. And this rule applies to Unemployment Compensation

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laws. 40 Tex.Jur., § 137, p. 192; 51 Am.Jur., § 769, p. 698; Abelleira v. District Court of Appeal, 17 Cal.2d 280, 109 P.2d 942, 132 A.L.R. 715. An exhaustive discussion of this rule, with review of numerous cases is found in the Abelleira case. It is a matter subject to legislative control, and when the legislature has provided a method of review, it may make it mandatory, in which case resort must first be had to the method prescribed before the courts will entertain jurisdiction. 51 Am.Jur. § 768, p. 697. But such rule does not bar a resort to the courts, if such administrative agency or commission refuses to act, acts illegally or arbitrarily, or beyond the scope of its authority.

The Texas Act prescribes in detail the steps to be taken by a claimant for compensation, the method of hearing, sets up appeal tribunals, prescribes procedure thereof, and the conditions on which an aggrieved party may secure a judicial review of his claim (Art. 5221b—4). Sub. (h) of that Article expressly forbids judicial review of such claim for compensation unless and until the claimant "has exhausted his remedies before the Commission as provided by this Act." And it may be noted also that most of the compensation cases following the rule relied upon by appellants involved claims for compensation, not taxes, wherein the state laws contained a similar provision. But the above quoted language of Sub. (j) of Art. 5221b—12 is the only provision we find in said Act relating to any claim which an employing unit might have for recovery of contributions. The method therein prescribed is permissive and not mandatory, and prescribes no procedure for hearing, appeal, or resort to the courts by the aggrieved party who may be dissatisfied with the decision of the Commission. The absence of such provisions is, we think, significant. We are also in accord with the contention of the appellee that this provision of the statute relates to errors made either by the contributor or by the Commission in the calculation or collection of such taxes which have been paid voluntarily; and was not intended to apply to cases where, as here, the contributor or taxpayer contends before payment that the tax exacted is illegal and unauthorized. The determination of that question does not involve merely a matter of computation, correction of errors, and adjustment of the amount; but involves distinctly a judicial question.

While it does not appear that the corporation applied to the Commission for a hearing on its protest that the tax collected was illegal; it did in its protest to the Commission when making payments thereof, apprize the Commission of the grounds on which it asserted this illegality. And the failure and refusal of the Commission to recognize such protest was, we think, tantamount to denial thereof, or refusal to act thereon, which would authorize resort to a proper court for adjudication of the matter.

The Commission's next contention is that the funds here involved, because of their nature and the provisions of the Unemployment Compensation Act, do not come within the terms of the protest statute, Vernon's Ann.Civ.St. Art. 7057b, and are not therefore subject to suit for recovery thereunder. It is not necessary to set out here the provisions of the protest statute. The contention is that such funds are not taxes belonging to the State within the meaning of that statute; and that the Unemployment Compensation Act requires that such funds so paid shall be deposited immediately with the Secretary of the Treasury of the United States in the Unemployment Trust Fund under the Federal Social Security Act, 42 U.S.C.A. § 301 et seq., "any provisions of the law in this State relating to the deposit, administration, release, or disbursement of moneys in the possession or custody of this State to the contrary notwithstanding." Appellants rely on the majority opinion of the Texas Supreme Court in Friedman v. American Surety Co. of N. Y., 137 Tex. 149, 151 S.W. 2d 570, 578, wherein it is stated that "the fund is not the property of the State as such, and never goes into the State Treasury." In so far as permanent custody of such fund is concerned, that is true. There are many special funds derived from fees or taxes, set aside by law for special purposes, and can be used for no other purpose

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than that directed by law. However, they are none the less taxes deposited in the State Treasury, and within the meaning and import of the protest statute they "belong to the State," in so far as their collection and payment are concerned. The fact that they are levied for, and set aside for, a particular purpose does not change their character, nor the power of the State to exact, enforce collection, and control such funds.

Though such funds are designated in the Act as "contributions" of employing units; "they are state taxes other than ad valorem taxes"; and the law levying them is a taxing statute. State v. The Praetorians, 143 Tex. 565, 186 S.W.2d 973, 976, 158 A.L.R. 596. See also Lally v. State, Tex.Civ.App., 138 S.W.2d 1111, 1112; State v. Mauritz-Wells Co., 141 Tex. 634, 175 S. W.2d 238; Friedman case, supra. Not only so, but the Commission itself is the creature of state law which prescribes its duties and powers. Art. 5221b—9. These funds are deposited initially upon collection with the State Treasurer. They are withdrawn upon warrants issued by the Comptroller. The Treasurer is expressly...

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