Mid-Valley Distilling Corporation v. De Carlo

• Decision Date: 29 April 1947
• Docket Number: No. 9232.,9232.
• Citation: 161 F.2d 485
• Parties: MID-VALLEY DISTILLING CORPORATION v. DE CARLO.
• Court: U.S. Court of Appeals — Third Circuit

161 F.2d 485 (1947)

MID-VALLEY DISTILLING CORPORATION v. DE CARLO.

No. 9232.

Circuit Court of Appeals, Third Circuit.

Argued March 3, 1947.

Decided April 29, 1947.

David Berger, of Philadelphia, Pa., for petitioner.

Herbert Borkland, Sp. Asst. to Atty. Gen., for respondent.

Before BIGGS, GOODRICH, and McLAUGHLIN, Circuit Judges.

BIGGS, Circuit Judge.

On and prior to May 29, 1945 the petitioner, Mid-Valley Distilling Corporation, a Pennsylvania corporation, held certain basic permits authorizing it to engage in the distilling, warehousing, rectifying, wholesaling and importing of liquors. On that day all of Mid-Valley's outstanding capital stock was acquired by Distillers Factors Corporation. Notice of this transfer was given by Mid-Valley to the Supervisor, Alcohol Tax Unit, District No. 3, and within 30 days applications for new basic permits were filed by Mid-Valley with the Alcohol Tax Unit which acknowledged their receipt. On August 30, 1946 all of Mid-Valley's stock was transferred to Rescom Import Company, Inc. Notice of this transfer was given by Mid-Valley to the Alcohol Tax Unit. Receipt of this communication was acknowledged by the District Supervisor by a letter dated September 4, 1946.¹ In this letter the Supervisor called Mid-Valley's attention to Section 5, Article II, Regulations 1, 27 C.F.R. § 1.24 (c), quoted hereinafter.

Thereafter, on September 16, 1946, the Acting Supervisor,² the respondent, wrote a letter to Mid-Valley in which he stated in part, "Since operations may not be conducted under a basic permit issued under the Federal Alcohol Administration Act and regulations which has been transferred from a permittee to a transferee and subsequently from a transferee to a subsequent transferee, * * * your permits terminated automatically as of the date of the occurrence of the change in ownership."³ Other portions of the letter required Mid-Valley to cease operations at times specified. Mid-Valley's operations were actually terminated because of the Supervisor's action a few days later. On September 19, 1946 Mid-Valley petitioned this court to set aside the Supervisor's "order of revocation", allegedly constituted by his letter of September 16, 1946. On September 23, 1946, within the 30 day period, Mid-Valley again filed applications for new basic permits. On September 24, 1946 the Supervisor granted interim relief to Mid-Valley which resumed its operations.

Section 4(g) of the Federal Alcohol Administration Act as amended, 27 U.S.C.A. § 204(g), provides, "A basic permit shall continue in effect until suspended, revoked, or annulled as provided herein or voluntarily surrendered; except that (1) if leased, sold, or otherwise voluntarily transferred, the permit shall be automatically terminated thereupon, and (2) if transferred by operation of law or if actual or legal control of the permittee is acquired, directly or indirectly, whether by stock-ownership or in any other manner, by any person, then such permit shall be automatically terminated at the expiration of thirty days thereafter: Provided, That if within such thirty-day period application for a new basic permit is made by the transferee or permittee, respectively, then the outstanding basic permit shall continue in effect until such application is finally acted on by the Secretary of the Treasury."

Regulations No. 1, Article II, Section 5, paragraph (c), 27 C.F.R. 1.24(c), relating to the duration of basic permits under the Federal Alcohol Administration Act is as follows: "If any basic permit is transferred by operation of law or if actual or legal control of the permittee is acquired, directly or indirectly, whether by stock ownership or in any other manner, by any person, then such permit shall be automatically terminated at the expiration of 30 days thereafter: Provided, That if within such 30-day period application for a new basic permit is made by the transferee or permittee, respectively, then the outstanding basic permit shall continue in effect until such time as the application is finally acted upon by the Administrator."

The Supervisor contends (1) that his letter of September 16, 1946 merely informed Mid-Valley of the "automatic termination" of its basic permits and is not an order, and (2) that if it is an order it is not appealable to this court.⁴ Upon the main issue the Supervisor takes the position that under subparagraph (g) of the Act and the regulations quoted Mid-Valley's licenses terminated automatically upon the second transfer of its capital stock, viz., that transfer which took place on August 30, 1946 to Rescom Import Company, Inc. Mid-Valley contends to the contrary. We think it is apparent that if the permits automatically terminated by reason of the second transfer of the stock of Mid-Valley, the letter of September 16 is not an order. If, on the other hand, the permits did not terminate automatically under the statute and the applicable regulation by virtue of the second transfer of Mid-Valley's capital stock, the contents of the letter of September 16 and the actions of the Supervisor, resulting in the cessation of Mid-Valley's activities, constituted an order of "suspension, revocation or annulment". If it was such, was it subject to judicial review? If the permits did not terminate automatically, the Supervisor will have to proceed as required by subsection (e) of the Act to revoke, suspend or annul them.

Turning now to the provisions of subsection (g) it is obvious that in the case at bar the permits were not leased, sold or otherwise voluntarily transferred by operation of law or otherwise for, if they be valid and subsisting, it is indubitable that they are still in the possession of Mid-Valley. It is clear that the provisions of clause (2) of the subsection are applicable since, under the circumstances, in the words of the statute, "legal control of the permittee" was "acquired" by the transfer of stock ownership. The Supervisor, therefore, bases his argument upon two points. First he contends that subsection (g) must be construed with reference to the purpose and intent of Congress to exclude undesirable persons from holding permits, citing the legislative history of the Act and decisions of this and other courts. See the Report of the House Commitee on Ways and Means, Report No. 1542, 74th Cong., 1st Sess., p. 9;⁵ and the Report of the Senate Committee on Finance, Report No. 1215, 74th Cong., 1st Sess. See also Feitler v. United States, 3 Cir., 34 F.2d 30, 33; Billik v. Berkshire, 2 Cir., 154 F.2d 493, the dissenting opinion of Clark, J., in the case last cited, and the dissenting opinion of Maris, J., in Trenton Beverage Co. v. Berkshire, 3 Cir., 151 F.2d 227, at page 231. The general intent of Congress must be conceded but the language quoted from congressional reports and from the cases cited is not of substantial assistance to the respondent in the case at bar or to this court.

We may concede also that it is the purpose of subsection (g) to implement Sections 3 and 4(a) and (b) of the Act and to prevent a person whose character, reputation and plans have not been subjected to the scrutiny of the Supervisor from obtaining a permit. It was also the intention of Congress to prevent a person, unable to qualify for a permit under Section 4, to obtain one indirectly from a corporation already possessed of one, and to use it effectively. The congressional intent, however, would not necessarily be frustrated by allowing the permit to remain outstanding while two or more transfers of the capital stock of the permittee were effected; nor would the intent of Congress necessarily be aided by allowing the permit to remain outstanding if only one transfer of capital stock was made. If only one transfer of the capital stock of the permittee is effected, the transferee may just as well be a person unqualified to obtain a permit as if he were the second or third transferee. The first transferee may in fact be not as well qualified or desirable as the second or third transferee. The respondent, however, visualizes the possibility that the undesirable person may retain the benefits of a permit by effecting repeated transfers of the stock of the permittee, each new transfer accompanied by an application for a new basic permit made within the 30-day period, each new transfer of the stock being consummated and each new application being filed before the Supervisor has the opportunity to act on any application. The effect of this, says the Supervisor, would be to permit a basic permit to remain valid for an indefinite length of time in undesirable hands.

We think this fear is illusory, particularly in view of the provisions of subsections (a) (2), (d), (e) and (g) of Section 4 of the Act, for it would appear that a new basic permit could be refused by reason of the provisions of subsection (a) (2) to any person unlikely to maintain his operations "in conformity with Federal law", while the District Supervisor could proceed promptly to deny any pending application for a new basic permit. The execution of a series of transfers of the capital stock of a permittee to avoid the impact of the provisions of subsection (g) would be a sham which district supervisors and courts of the United States would disregard and every such transfer would be void as against the public policy declared by the statute. It should be pointed out also that there is no suggestion in the case at bar, or anything in the record, which would indicate that Rescom Import Company, Inc., is a person to whom a permit should be refused under the provisions of Section 4(a) (2).

Finally, however, the respondent rests his case on the words employed in Section 4(g). He lays particular emphasis on the fact that Congress spoke of application for a new basic permit as one to be made "by the⁶ transferee or permittee, respectively". He insists that a literal construction of this language requires the conclusion that "only two persons" are...