Meischke-Smith v. Wardell

• Decision Date: 12 February 1923
• Docket Number: 3818.
• Parties: MEISCHKE-SMITH et al. v. WARDELL, Internal Revenue Collector, et al
• Court: U.S. Court of Appeals — Ninth Circuit

286 F. 785

MEISCHKE-SMITH et al. v. WARDELL, Internal Revenue Collector, et al

No. 3818.

United States Court of Appeals, Ninth Circuit.

February 12, 1923

Rehearing Denied April 2, 1923.

E. J McCutchen, J. M. Mannon, Jr., and F. F. Thomas, Jr., all of San Francisco, Cal. (McCutchen, Olney, Willard, Mannon &amp Greene, of San Francisco, Cal., of counsel), for plaintiffs in error.

J. T Williams, U.S. Atty., and E. M. Leonard, Asst. U.S. Atty., both of San Francisco, Cal. (Carl A. Mapes, Solicitor of Internal Revenue, and Robert M. Foster, Sp. Atty., Bureau of Internal Revenue, both of Washington, D.C., of counsel), for defendants in error.

Before MORROW and HUNT, Circuit Judges, and BEAN, District Judge.

MORROW Circuit Judge.

This case is before the court upon a writ of error to the District Court of the United States for the Northern District of California.

Plaintiffs in error (plaintiffs below) are the trustees in dissolution of the Valley Pipe Line Company, dissolved April 21, 1919, by decree of the superior court of the city and county of San Francisco.

The defendant in error, Justus S. Wardell, was collector of internal revenue for the First district of California prior to November, 1917, and up to December 31, 1920. John L. Flynn and John P. McLaughlin, the other defendants in error, have been the successors in office of the said Wardell, and were made defendants by the court in succession by orders of substitution.

This action was brought by the trustees of the Valley Pipe Line Company against Wardell, as collector of internal revenue, to recover $100,474.67, the aggregate of 14 monthly assessments of taxes levied, assessed, and collected from the Valley Pipe Line Company upon the transportation of oil by that company for the months of November and December, 1917, and January to December, inclusive, 1918, under subdivision (d) of section 500 of the War Revenue Act of October 3, 1917 (40 Stat. 314). The act provides:

'That from and after the first day of November, nineteen hundred and seventeen, there shall be levied, assessed, collected, and paid * * * (d) a tax equivalent to five per centum of the amount paid for the transportation of oil by pipe line. * * * '

A claim for the refund of these taxes was made to the Commissioner of Internal Revenue, and denied. Thereupon this action was commenced in the District Court, resulting in a judgment and nonsuit, from which this writ of error is prosecuted.

Plaintiffs in error contend that the pipe line transportation features of the War Revenue Act of October 3, 1917, do not authorize the imposition of this tax; that the tax is limited by the statute to public utility corporations, basing that claim in part upon the terms of the subtitle carrying the taxing clause referred to. The subtitle is 'Title V,' providing a 'War Tax on Facilities Furnished by Public Utilities.'

The plaintiffs in error contend that as the Valley Pipe Line was a mere subsidiary corporation by which the Shell Company of California operated its own pipe line, it was not a public utility.

On the books of the Valley Pipe Line Company a monthly charge was made against the Shell Company of California for oil transported by its pipe line. The aggregate of these monthly charges for the period from November 1, 1917, to December 31, 1918, amounted to such a sum that a tax equivalent to 5 per centum of the amount so stated is the sum of $100,474.67, the amount assessed and paid by the Valley Pipe Line Company to the collector of internal revenue.

The antecedents of the Valley Pipe Line Company and the Shell Company of California and their relations to each other and to other corporations is set out in detail in the evidence; but we think it will be sufficient if we confine ourselves, for the present, to the consideration of the relations of these two corporations with each other and with the other corporation named during the period involved in this assessment.

The Anglo-Saxon Petroleum Company, Limited, a British corporation, owned the entire capital stock of the California Oil Fields, Limited, and the entire capital stock of the Shell Company of California, organized under the laws of California on January 30, 1915.

The California Oil Fields, Limited, owned and operated the oil fields at Coalinga, Cal. The Shell Company owned a refinery plant at Martinez, Cal. The Valley Pipe Line Company was organized under the laws of California on April 17, 1914.

During the period involved in this assessment, the Shell Company owned all the capital stock of the Valley Pipe Line Company except the qualifying shares held by the directors of the latter company. The Valley Pipe Line Company owned and operated the pipe line connecting the oil fields at Coalinga with the refinery plant of the Shell Company at Martinez, Cal. The distance between the Coalinga oil fields and the refinery at Martinez is 170 miles. The pipe line crosses the state highway at certain points, but nowhere parallels it.

During the period involved in this assessment, the operations of the pipe line and the relations between the Valley Pipe Line Company and the Shell Company of California were as follows:

The books of the Valley Pipe Line Company were kept in the offices of the Shell Company by employees of the latter company, and the Shell Company made a book charge for this service to the Valley Pipe Line Company of $2,500 a month. The Valley Pipe Line Company, however, had its own field organization and its own employees for its field operations, and for the actual field management and operation of the pipe line. For taking care of its expenses in this regard it had its own account in the Anglo & London-Paris National Bank. Its field employees were paid by checks upon this bank. The vouchers from the field came into the office of the Shell Company in San Francisco and were audited by Shell Company employees, and primarily by one G. E. Gordon, the chief accountant of the Shell Company in its San Francisco office, and after having been O.K.'d by him, were passed on to officers of the Shell Company (who were also officers of the Valley Pipe Line Company) and were vised by the latter. The latter then signed checks upon the account of the valley Pipe Line Company on the Anglo & London-Paris National Bank, in payment of these accounts. The items thus paid are shown in the journal and ledger of the Valley Pipe Line Company.

From time to time, as the funds of the Valley Pipe Line Company in the account at the Anglo & London-Paris National Bank (and this account contained all of the funds which said Valley Pipe Line Company had anywhere with the exception of petty cash held in the field which originated from this account) would become depleted, the fact would be called to the attention of the officers of the Valley Pipe Line Company who were also officers of the Shell Company, and a sufficient amount to meet the requirements of the Valley Pipe Line Company would thereupon be deposited by the Shell Company in the account of the Valley Pipe Line Company at the Anglo & London-Paris National Bank. These amounts would be carried into the books of the Valley Pipe Line Company as a credit to the Shell Company.

The books of the Valley Pipe Line Company therefore showed as charges against the Shell Company the amounts charged each month for transporting oil, and as credits, the amounts advanced by the Shell Company to the Valley Pipe Line Company to carry on its operations; also numerous little miscellaneous items on one side or the other.

Were these transactions between the Shell Company and the Valley Pipe Line Company of such a character that they constituted in law (and specifically the War and Revenue Act of October 3, 1917) the transactions of a single corporation, dealing with its own property in its own way; or were they the transactions of two independent corporations dealing co-operatively with each other with respect to the transportation of oil, and article of commerce?

In Pullman Palace Car Co. v. Missouri Pacific Co., 115 U.S. 587, 6 Sup.Ct. 194, 29 L.Ed. 4998 suit was brought by the Pullman Car Company in the United States Circuit Court for the Eastern District of Missouri to enjoin the Missouri Pacific Company from discontinuing the use of the drawing-room and sleeping cars of the Pullman Company on the line of the St. Louis, Iron Mountain & Southern Company in the transportation of passengers; from refusing to haul such cars on passenger trains running on such line; and from contracting with any other person for supplying like cars for that use.

The Circuit Court dismissed the bill on demurrer, and the Pullman Car Company appealed.

The Pullman Car Company had a written contract with the Missouri Pacific to furnish the latter with drawing-room and sleeping cars sufficient to meet all the requirements of travel, and the Missouri Pacific Company agreed to haul the same on the passenger trains on its own line of road and on all roads which it then controlled, or might thereafter control, by ownership, lease, or otherwise. The railway company also agreed that the Pullman Company should have the exclusive right for a term of years not then expired to furnish for the use of the railway company drawing-room or parlor and sleeping cars on all the passenger trains of the railway company, and over its entire line of railway, and on all roads which it controlled, or might thereafter control, by ownership, lease, or otherwise, and that it would not contract with any other party to run said class of cars and over said lines of road during the period of the lease.

After the making of this contract, the Missouri Pacific had consolidated with itself certain other companies under the laws of Missouri, retaining its former name....