Lorenzen v. United States

• Decision Date: 10 April 1930
• Docket Number: No. 6864.,6864.
• Citation: 41 F.2d 369
• Parties: LORENZEN v. UNITED STATES.
• Court: U.S. District Court — Western District of Missouri

41 F.2d 369 (1930)

LORENZEN v. UNITED STATES.

No. 6864.

District Court, W. D. Missouri, W. D.

April 10, 1930.

Allen McReynolds, of Carthage, Mo. (R. A. Mooneyham, of Carthage, Mo., on the brief), for plaintiff.

Harry L. Thomas, Asst. U. S. Atty., of Kansas City, Mo. (Wm. L. Vandeventer, U. S. Atty., of Kansas City, Mo., on the brief), for the United States.

OTIS, District Judge.

Plaintiff brings this action to recover from the United States the sum of $54,117.12, alleged by him to have been unlawfully collected September 21, 1920, as a tax upon 8,455.8 gallons of whisky which had been stored at a government warehouse at Liberal, Mo., and had previously been manufactured by the Pure Grain Distilling Company, a Missouri corporation. The tax was assessed upon the theory that the whisky in question had been removed from the government warehouse for beverage purposes, and that section 600(a) of chapter 18 of the Act of February 24, 1919 (40 Stat. 1105 26 USCA § 245 note) authorized the tax. That section reads as follows:

"That there shall be levied and collected on all distilled spirits now in bond or that have been or that may be hereafter produced in or imported into the United States, except such distilled spirits as are subject to the tax provided in section 604, in lieu of the internal-revenue taxes now imposed thereon by law, a tax of $2.20 (or, if withdrawn for beverage purposes or for use in the manufacture or production of any article used or intended for use as a beverage, a tax of $6.40) on each proof gallon, or wine gallon when below proof, and a proportionate tax at a like rate on all fractional parts of such proof or wine gallon, to be paid by the distiller or importer when withdrawn, and collected under the provisions of existing law."

1. A number of questions are involved in the case. Among others, and the first which I shall consider in this memorandum, is whether, as the plaintiff here contends, the National Prohibition Act (27 USCA) by necessary implication repealed section 600(a), chapter 18 of the Act of February 24, 1919. In connection with that question it is necessary carefully to consider what was held by the Supreme Court in Regal Drug Corp. v. Wardell, 260 U. S. 386, 43 S. Ct. 152, 153, 67 L. Ed. 318.

The Regal Drug Corp. Case cannot be entirely understood without a consideration of the same case, as it was decided in the Court of Appeals for the Ninth Circuit, 273 F. 182, 186. It appears from the opinion of the Court of Appeals that the facts were, in part, as follows: The Regal Drug Corporation had withdrawn from a government warehouse distilled spirits in the amount of $17,900. The spirits were withdrawn presumably for nonbeverage purposes. All taxes required by law where spirits are withdrawn for such nonbeverage purposes were paid. After withdrawal the spirits were sold by the Regal Drug Corporation and a tax in the amount of $6.40 per gallon was then levied on that corporation on the theory that the spirits in question had really been withdrawn for beverage purposes. That tax was levied under the provisions of section 600(a). The collector of internal revenue took possession of plaintiff's property by distraint and was threatening to sell that property to satisfy the claim of the government when the plaintiff filed an injunction to enjoin such sale. The injunction was denied on the ground that the plaintiff had an adequate remedy at law. The Court of Appeals did not pass on the contention that the tax was wrongfully assessed, but thus stated the contention as it was made by the plaintiff:

"The appellant contends that, as the Eighteenth Amendment and the statute passed for its enforcement prohibits absolutely the manufacture and sale of intoxicating liquors and wines for beverage purposes, the provisions of the prior law inconsistent with the constitutional enactment and the enforcing statute have been repealed, and there can be no tax assessed or imposed on such liquors and wines; in other words, there can be no legal tax, so it is contended, upon that which cannot be legally manufactured or sold, and that if manufactured or sold illegally, the liability of the offender is for a penalty, and not for a tax, and if it is for a penalty its collection must be enforced by proceedings in court and not by the summary proceedings of an assessment."

When the case reached the Supreme Court the case of Lipke v. Lederer, 259 U. S. 557, 42 S. Ct. 549, 66 L. Ed. 1061, had been decided in which it had been held that a penalty, although called a tax, such as imposed in section 35 of title 2 of the National Prohibition Act (27 USCA § 52), could not be collected by the ordinary method of assessment and distraint, but only after notice and an opportunity to be heard. In view of that decision the government conceded that penalties and double taxes could not be collected otherwise than after notice and hearing, where evidence of crime was essential to the collection of the penalty or tax. However, seeking to distinguish the case of Lipke v. Lederer, it was contended by the government (see government's brief, 260 U. S. 386, 43 S. Ct. 152, 67 L. Ed. 318):

"That under tax laws which antedated the National Prohibition Act, and which were expressly retained under that act, the Commissioner of Internal Revenue properly levied taxes (not double taxes) on the distilled spirits and wines used for beverage purposes, and the Collector of Internal Revenue properly sought to collect such taxes by distraint proceedings. * * * There is nothing in Lipke v. Lederer * * * which shows that pre-existing taxes may not be collected in the manner in which such taxes had been collectible."

But the Supreme Court rejected the contention made by the government. Referring to and interpreting its prior decision in Lipke v. Lederer, it said:

"The distinction between a tax and a penalty was emphasized. The function of a tax, it was said, `is to provide for the support of the government'; the function of a penalty clearly involves the `idea of punishment for infringement of the law,' and that a condition of its imposition is notice and hearing. * * * And even if the imposition may be considered a tax, if it have punitive purpose, it must be preceded by opportunity to contest its validity. * * *

"We took pains to say that `evidence of crime * * * is essential to assessment under section 35,' and that we could not `concede, 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 guarantees of due process of law and trial by jury are not to be forgotten or disregarded. * * *'

"The comment and decision are applicable here, and decisive. The government concedes that the case is conclusive against the `penalties and double taxes,' but contends that under tax laws which antedated the National Prohibition Act, only inconsistent laws are repealed, and that taxes in this case were levied under a law not inconsistent. For this section 35 is adduced. Lipke v. Lederer manifestly precludes the contention."

I cannot interpret this language of the Supreme Court but as holding that section 600(a), in so far as it imposed a tax for the removal of distilled spirits, is inconsistent with the National Prohibition Act and, therefore, to that extent repealed by that act.

The government had contended that tax laws which antedated the National Prohibition Act (and, of the laws in question, section 600(a) was one) were not inconsistent with the National Prohibition Act. The court said that Lipke v. Lederer manifestly precluded the contention. If so, section 600(a) is inconsistent with the National Prohibition Act and would be repealed by the very terms of that act. The reasoning of the Supreme Court was that it was not the intention of Congress to preserve a penalty imposed by a former internal revenue law for the same act for which a penalty was imposed by the National Prohibition Act. And it was the view of the Supreme Court that if what in the original act was in reality a tax, as it was then intended, had a punitive purpose as enforced after the National Prohibition Act, then it is a penalty and as such superseded by the penalties provided for in the National Prohibition Act.

The removal of distilled spirits for beverage purposes from a distillery necessarily involves the transportation of such distilled spirits and is certainly a crime under the National Prohibition Act for which, in that act, a penalty is provided. To impose a tax because of such removal, a necessarily unlawful removal, is to impose a penalty. Certainly it has a punitive purpose and effect. That the enforcement of a law having such a result is inconsistent with the National Prohibition Act seems to me to be a conclusion that must be drawn from the decision of the Supreme Court in this case.

2. A second contention made by the plaintiff is that under the facts here the assessment of the tax was made unlawfully for the reason that the distilled spirits claimed to have been withdrawn (and, therefore, subject to the tax) were not "withdrawn" within the meaning of that word as it is used in section 600(a). That contention is based upon the theory that the distilled spirits in question were not withdrawn at all by the taxpayer or their owner but, without connivance or negligence on his part, were surreptitiously withdrawn from the government warehouse in the nighttime by thieves.

At the trial evidence was heard upon this issue. Plaintiff introduced evidence tending to show that he, as the owner of the distilled spirits here involved, did not withdraw them, did not authorize any other to withdraw them, did not connive with others that they be withdrawn, and used due diligence to prevent their withdrawal by unauthorized individuals. The government introduced evidence with the purpose of showing guilty knowledge or...