Kellems v. United States

• Decision Date: 25 April 1951
• Docket Number: Civ. A. 2805.
• Court: U.S. District Court — District of Connecticut
• Parties: KELLEMS et al. v. UNITED STATES et al.

97 F. Supp. 681

KELLEMS et al. v. UNITED STATES et al.

Civ. A. 2805.

United States District Court D. Connecticut.

April 25, 1951.

Francis F. McGuire, of New London, Conn., for plaintiff.

Theron Lamar Caudle, Asst. Atty. Gen., Andrew D. Sharpe and Fred J. Neuland, Special Assts. to the Atty. Gen., and Adrian W. Maher, U. S. Atty., New Haven, Conn., for defendants.

HINCKS, Chief Judge.

Whether the penalty statute, 26 U.S.C.A. § 2707(a) is applicable to a case of non-compliance with the Withholding Act, 26 U.S.C.A. § 1621 et seq., is a question which I decided adversely to the plaintiffs for reasons stated in my preliminary memorandum and order of October 26, 1950, denying the plaintiffs' motion for judgment.

The "government", which for purposes of this memorandum may be taken as a comprehensive designation of both defendants, has taken the position throughout, and still adheres to the position, that an intentional and deliberate non-compliance, which concededly existed here, was enough to bring the penalty statute into play. I overruled this contention for reasons also stated in my said preliminary memorandum and denied the government's motion for summary judgment. I then held, and still hold, that the word wilful in the penalty statute means "without reasonable cause," that is to say, "capricious". These rulings left open for trial one central question of fact common to all four counts of the complaint, viz., was the plaintiffs' conduct of non-compliance without reasonable cause?

On trial, the plaintiffs offered as evidence of reasonable cause for their conduct an expressed belief that the Withholding Act was unconstitutional, and that the public interest required that the constitutionality of the Act should be brought under judicial review in a test case.

To qualify such a belief as "reasonable cause" for their non-compliance, it was necessary for the plaintiffs to prove that it was a belief bona fide and sincerely held: a mere verbal claim of such a belief would not suffice. And, of course, opposition to the Act on political or economic grounds would not constitute proper or reasonable cause for non-compliance with an Act of Congress.

On this essential element of the plaintiffs' case, I confess, I have not been wholly free from doubt. It is, of course, true that the plaintiffs derived no pecuniary gain from their position and that there was nothing corrupt or furtive in their conduct. But they weakened their case by putting into evidence a public address made by the plaintiff Miss Kellems in Los Angeles on February 13, 1948, in which she advocated concerted political action to repeal the income tax law, and announced her personal intention of future non-compliance with the Withholding Act, which she had been obeying for five years, in order to develop a test case on the constitutionality of the Act. If she had indeed been primarily actuated by belief that the Act was unconstitutional, it is difficult for me to understand why she, a Connecticut manufacturer, found it necessary to announce her future non-compliance in a public speech in California. The suggestion that publicity was necessary to persuade government officials to bring a test case can hardly explain a public speech made in advance of the contemplated non-compliance.

Nor are the letters which the plaintiff Miss Kellems wrote to the President and the Secretary of the Treasury, helpful on the issue whether the plaintiffs had a bona fide belief that the Act was unconstitutional. In the tax law, no criminal sanctions attached for a mere non-compliance with the Withholding Act; not until non-compliance resulted in loss of tax revenue to the United States did any criminal statute apply. If this was known to the plaintiffs their clamor for indictment smacks of insincerity when in the same letters they make it plain that because their employees had paid their taxes directly there was not legal cause for indictment. If, on the other hand, the plaintiffs were unaware of the lack of criminal sanctions for mere non-compliance which resulted in no prejudice to the United States, their ignorance emphasizes how shallow their study of the subject-matter had been and tends to show that their course of action had proceeded without the thought that reasonably prudent business men give to such matters.

Moreover, the plaintiffs' course of action seems not to have been consistent throughout. Although they attributed their non-compliance to constitutional convictions, when they brought on for hearing their motion for judgment neither in oral argument or comprehensive brief did they urge the unconstitutionality of the Withholding Act as a ground for judgment. Consequently, my ruling on that motion was equally silent on the question of constitutionality. It was not until the close of evidence on the trial that the plaintiffs, by motion for a directed verdict, asked the court to rule upon the constitutionality of the Act. We have, therefore, this sequence of positions taken: the plaintiffs complied with the Act from 1943 to February, 1948, on the ground that it was then justified by the war emergency; they refused compliance from February, 1948¹, to October, 1950, basing their conduct on a professed belief in its unconstitutionality; in October, 1950, they resumed compliance²; and then after compliance had been resumed, plaintiffs at the trial moved for a directed verdict on the ground that the Act was unconstitutional after all. Such vacillation, especially when not explained, though not of itself conclusive against the plaintiffs was scarcely persuasive on the issue of good faith.

However, even if notwithstanding these weaknesses on this phase of their case, the plaintiffs were primarily actuated by an honest belief in the unconstitutionality of the Act, they have another hurdle to surmount before they can succeed. For, as I instructed the jury, the plaintiffs' conduct must be found to be without reasonable cause unless they had done what a reasonably prudent business man in a similar situation would have done to verify the soundness of their opinion on the constitutional question. Miss Kellems testified that she believed the Act was invalid as in violation of the Fifth and Thirteenth Amendments to the Constitution and that she had discussed this conclusion with her brother, David L. Kellems, and a number of friends. Specifically, she referred to conversations with an economist, a newspaper writer, and an editor of a newspaper. There was, however, nothing in the evidence to qualify any of these persons as experts in the field of federal taxation or constitutional law: her testimony suggests that the opinions expressed were the product of conversations on social occasions. None of them were lawyers and Miss Kellems testified that she had not consulted an attorney before proceeding to violate the Act. Indeed, so far as the record shows, she made not even an inquiry to ascertain whether the constitutionality of the Act had ever been judicially sustained. True, it appeared from her testimony that she is a highly educated person, but in the recital of her education and experience the only mention of any special study of Constitutional Law was a college course in the History of Constitutional Law. Since her college days Miss Kellems had pursued studies in economics at Columbia and has been in business for upwards of twenty-three years. I pause to observe that every thoughtful citizen, amongst whom I should not hesitate to include Miss Kellems, knows that since the time of her college study of Constitutional Law, there have been numerous and vast changes in the content of that field of law.

In applying the test stated above which depends upon the conduct to be expected of a reasonably prudent man of business, one must bear in mind that the subject-matter of federal taxation and of constitutional law lies in a highly technical field which at many points is obscured by uncertainties unmistakenly evidenced by the conflicting views even of our most eminent jurists. In a period of such flux and in a scene of such uncertainty it may indeed be plausibly argued that even that mythical "ordinarily prudent" person, who in the eye of the law furnishes the standard of reasonable conduct, would have considered it a futile act to obtain a lawyer's advice, — or indeed, like the plaintiffs, to do more than to read the text of the Act against the text of the constitutional provisions deemed pertinent and to discuss the opinion emerging from such untutored reading with friends at dinner. Apparently the jury thought along such lines. I cannot say that reasonable men and women could not entertain such a concept of the prudent business man. I have therefore denied the government's motion to set aside the verdict of the jury on the second, third and fourth counts which were directed against the Collector and which under the law were submitted to the jury for decision. But for the decision on the first count, which lies against the United States and is triable before the Court without...