Lipke v. Lederer

Decision Date05 June 1922
Docket NumberNo. 596,596
Citation42 S.Ct. 549,66 L.Ed. 1061,259 U.S. 557
PartiesLIPKE v. LEDERER, Collector of lnternal Revenue
CourtU.S. Supreme Court

Mr. Lincoln L. Eyre, of Philadelphia, Pa., for appellant.

Mrs. Assistant Attorney General Willebrandt, for appellee.

Mr. Justice McREYNOLDS delivered the opinion of the Court.

Relying upon Ketterer v. Lederer (D. C.) 269 Fed. 153, the court below dismissed the bill, upon motion, for want of equity (274 Fed. 493), and the cause is here by direct appeal.

The bill alleges:

That complainant, Lipke, paid all internal revenue taxes required by the laws of the United States for the year ending June 30, 1920, and he holds a retail liquor license issued by the court of quarter sessions, county of Philadelphia, for the year ending May 31, 1921. On December 29, 1920, he was arrested for selling liquor contrary to the National Prohibition Act (41 Stat. 305), and gave bail to appear and answer in the United States District Court. This prosecution is still pending.

That on March 18, 1921, complainant received a written communication from the defendant which stated:

'Notice is hereby given that there has been assessed against you the amount of tax stated on this notice. Demand is hereby made for the immediate payment of said tax. If payment is not made within 10 days after date of this notice, a penalty of 5 per cent. of the amount of tax due will be added, plus interest at the rate of 1 per cent. per month until paid.'

The total assessment amounted to $557.29, made up of three items indicated thus:

'R. L. D. Sec. 35 D. T. 45.83; 11 Mos. 21 3244 P. 11.46; S. F. P. A. 1-26-21 S. P. 500.00.'

That on March 31st he received a second written demand for $557.29, which penalty of 5 per cent. for failure to pay within prescribed time. And he was advised:

'If payment of tax and penalty is not received within 10 days, collection of the same, with any accrued interests thereon and costs, shall be made by seizure and sale of property.'


'In addition to the notice printed on said so-called tax bills, that the property of your orator will be seized and sold for nonpayment, your orator has been informed by officials of the defendant department that, after the expiration of 10 days from the rendition of said second notices, his property will be seized and sold by warrant of distress. * * * He is now subject, at any moment, to have the defendant, as collector of internal revenue, seize his property, real or personal, for the nonpayment of said fines and penalties and that he is wholly without adequate remedy at law to prevent such seizure of his property.'

That section 3244, U. S. Revised Statutes1 has no application; section 35 of the Prohibition Act confers no such power as the collector seeks to exercise; and he is undertaking to punish complainant by fine and penalty for an alleged criminal offense without hearing, information, indictment, or trial by jury, contrary to the federal Constitution. If the latter section has the meaning ascribed to it by defendant, it is unconstitutional.

The prayer is for an injunction restraining the defendant from proceeding to collect the sum demanded by warrant of seizure, distress, or sale, or otherwise, and requiring a cancellation of the so-called 'tax bills.'

Appellant maintains that the demand upon him was not for taxes, but for a penalty for an alleged criminal act; that the method adopted for enforcing his penalty is contrary to the federal Constitution; and that, if construed as appellee insists it should be, section 35 is unconstitutional.

Appellee maintains that the cause involves only questions of construction, and therefore the appeal should be dismissed; that section 3224, Revised Statutes (Comp. St. § 5947),2 prohibits the relief prayed; that the bill states no ground for equitable relief; and that full, adequate, and complete remedy may be had at law.

The cause is properly here by direct appeal from the District Court. Appellant claimed that, as construed and sought to be enforced by the collector, section 35 of the Prohibition Act conflicts with the federal Constitution. The point is substantial, and sufficient to support our jurisdiction. Towne v. Eisner, 245 U. S. 418, 425, 38 Sup. Ct. 158, 62 L. Ed. 372, L. R. A. 1918D, 254; Dahnke-Walker Milling Co. v. Bondurant, 257 U. S. 282, 42 Sup. Ct. 106, 66 L. Ed. 239 (December 12, 1921); South Covington, etc., Ry. Co. v. Newport, 259 U. S. 97, 42 Sup. Ct. 418, 66 L. Ed. ——(May 15, 1922).

The National Prohibition Act (41 Stat. 305, c. 85) is entitled:

'An act to prohibit intoxicating beverages, and to regulate the manufacture, production, use, and sale of high proof spirits for other than beverage purposes, and to insure an ample supply of alcohol and promote its use in scientific research and in the development of fuel, dye, and other lawful industries.'

'It is a comprehensive statute intended to prevent the manufacture and sale of intoxicating liquors for beverage purposes.' United States v. Yuginovich, 256 U. S. 450, 41 Sup. Ct. 551, 65 L. Ed. 1043 (June 1, 1921).

'Title II—Prohibition of Intoxicating Beverages,' contains 39 sections:

'Sec. 3. No person shall on or after the date when the Dighteenth Amendment to the Constitution of the United States goes into effect, manufacture, sell, barter, transport, import, export, deliver, furnish or possess any intoxicating liquor except as authorized in this act, and all the provisions of this act shall be liberally construed to the end that the use of intoxicating liquor as a beverage may be prevented.

* * * 'Sec. 29. Any person who manufactures or sells liquor in violation of this title shall for a first offense be fined not more than $1,000, or imprisoned not exceeding six months, and for a second or subsequent offense shall be fined not less than $200 nor more than $2,000 and be imprisoned not less than one month nor more than five years.

* * *

'Sec. 35. All provisions of law that are inconsistent with this act are repealed only to the extent of such inconsistency and the regulations herein provided for the manufacture or traffic in intoxicating liquor shall be construed as in addition to existing laws. This act shall not relieve anyone from paying any taxes or other charges imposed upon the manufacture or traffic in such liquor. No liquor revenue stamps or tax receipts for any illegal manufacture or sale shall be issued in advance, but upon evidence of such illegal manufacture or sale a tax shall be assessed against, and collected from, the person responsible for such illegal manufacture or sale in double the amount now provided by law, with an additional penalty of $500 on retail dealers and $1,000 on manufacturers. The payment of such tax or penalty shall give no right to engage in the manufacture or sale of such liquor, or relieve anyone from criminal liability, nor shall this act relieve any person from any liability, civil or criminal, heretofore or hereafter incurred under existing laws.

'The Commissioner, with the approval of the Secretary of the Treasury, may compromise any civil cause arising under this title before bringing action in court; and with the approval of the Attorney General he may compromise any such cause after action thereon has been commenced.'

The mere use of the word 'tax' in an act primarily designed to define and suppress crime is not enough to show that within the true intendment of the term a tax was laid. Bailey v. Drexel Furniture Co., 259 U. S. 20, 42 Sup. Ct. 449, 66 L. Ed. ——(May 15, 1922). When by its very nature the imposition is a penalty, it must be so regarded. Helwig v. United States, 188 U. S. 605, 613, 23 Sup. Ct. 427, 47 L. Ed. 614. Evidence of crime (section 29) is essential to assessment under section 35. It lacks all the ordinary characteristics of a tax, whose primary function 'is to provide for the support of the government' and clearly involves the idea of punishment for infraction of the law—the definite function of a penalty. O'Sullivan v. Felix, 233 U. S. 318, 324, 34 Sup. Ct. 596, 58 L. Ed. 980.

The collector demanded payment of a penalty, and section 3224, which prohibits suits to restrain assessment or collection of any tax, is without application. And the same is true as to statutes granting the right to sue for taxes paid under protest. A revenue officer without notice has undertaken to assess a penalty for an alleged criminal act and threatens to enforce payment by seizure and sale of property without opportunity for a hearing of any kind.

Section 35 prescribes no definite mode for enforcing the imposition which it directs, and, if it be interpreted as above stated, we do not understand counsel for the United States claim that relief should be denied to the appellant. Before collection of taxes levied by statutes enacted in plain pursuance of the taxing power can be enforced, the taxpayer must be given fair opportunity for hearing; this is essential to due process of law. Central of Ga. Ry. v. Wright, 207 U. S. 127, 136, 138, 142, 28 Sup. Ct. 47, 52 L. Ed. 134, 12 Ann. Cas. 463. And certainly we cannot conclude, in the absence of language admitting of no other construction, that Congress intended that penalties for crime should be enforced through the secret findings and summary action of executive officers. The guaranties of due process of law and trial by jury are not be forgotten or disregarded. See Fontenot v. Accardo (C. C. A.) 278 Fed. 871. A preliminary injunction should have been granted.

The decree of the court below must be reversed, and the cause remanded for further proceedings in conformity with this opinion.

Mr. Justice BRANDEIS, dissenting,...

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