Mount Tivy Winery v. Lewis

• Decision Date: 10 January 1942
• Docket Number: No. 20473-S.,20473-S.
• Court: U.S. District Court — Northern District of California
• Parties: MOUNT TIVY WINERY, Inc., v. LEWIS, Collector of Internal Revenue, et al.

42 F. Supp. 636

MOUNT TIVY WINERY, Inc., v. LEWIS, Collector of Internal Revenue, et al.

No. 20473-S.

District Court, N. D. California, S. D.

January 10, 1942.

COPYRIGHT MATERIAL OMITTED

Robert H. Fouke, of San Francisco, Cal., for plaintiff.

Frank J. Hennessy, U. S. Atty., and W. F. Mathewson, Asst. U. S. Atty., both of San Francisco, Cal., for defendants.

ST. SURE, District Judge.

Plaintiff sues to recover $15,419.33, with interest, claimed to have been illegally imposed and collected by defendants under the Liquor Taxing Act of 1934, 48 Stat. 313.

The complaint contains two counts. The first states a claim for recovery, if justified by the law and the evidence. The second adopts the allegations of the first, by reference, and adds that section 10(c)¹ of the Liquor Taxing Act of 1934, under the provisions of which the taxes were assessed and collected, violates Article I, section 2, clause 3, and Article I, section 9, clause 4 of the Constitution of the United States of America.

The case was submitted upon a stipulation of facts and briefs of respective parties. There are six other cases in which the stipulated facts are similar, and all seven cases were consolidated for trial. The decision in the instant case is determinative of all. The plaintiffs in the other cases, and the amounts each seeks to recover, with interest, are as follows:

California Wineries and Distilleries, Inc., a California corporation, No. 20464-R, $13,449.80;

Fresno Winery Inc., a California corporation formerly known as Elsinore Winery, Inc., a corporation, and Lucerne Winery, Inc., a corporation, No. 20465-L, $6,602.52;

Santa Lucia Wineries, Inc., a California corporation, No. 20466-R, $13,918.00;

Charles Dubbs and Samuel Caplan, co-partners doing business under the firm name and style of Alta Winery, No. 20467-S, $7,430.57;

California Growers Wineries, a California corporation, No. 20474-W, $29,923.55;

St. George Winery, a California corporation, No. 21113-L, $10,577.23.

The defendants are identical in all of the cases.

Defendants question the jurisdiction of the court as to the suit against United States. There is some discussion in the briefs as to whether the court takes jurisdiction under 28 U.S.C.A. § 41, subd. (20)² (which is part of the Tucker Act), or subd. (5).³ It is obvious that the 1921 amendment to subd. (20) extended the jurisdiction of the District Court so as to embrace suits against United States where the claim exceeds $10,000, if the Collector of Internal Revenue by whom the tax was collected is no longer in office when suit is filed. As that is true in this case, the court takes jurisdiction of the United States, if at all, under subd. (20).

The procedure for suits against the United States under 28 U.S.C.A. § 41(20) is regulated by §§ 5 and 6 of the Tucker Act, 28 U.S.C.A. §§ 762, 763. Title 28 U.S. C.A. § 763 provides that "plaintiff shall cause a copy of his petition * * * to be served upon the" United States District Attorney "in the district wherein suit is brought, and shall mail a copy of the same, by registered letter, to the Attorney General * * *," and shall file with the Clerk of the court an affidavit of such service. "This procedure must be complied with strictly. Reid Wrecking Co. v. United States, D.C., 202 F. 314, and all its requirements must be met before the commencement of the action can be effected." Bachman, Emmerich & Co. v. United States, D. C., 21 F.Supp. 682, 684; see also Reid v. United States, 211 U.S. 529, 538, 29 S.Ct. 171, 53 L.Ed. 313; Munro v. United States, 303 U.S. 36, 40, 58 S.Ct. 42, 82 L.Ed. 633. The requirements for service are jurisdictional.

Here service was made upon the United States Attorney of this District on January 30, 1939. A stipulation filed herein on November 1, 1941 (more than five months after trial) states that the Attorney General was served on February 28, 1939. As the claim which was the basis of this action was rejected on July 29, 1936, both services were made after the expiration of the two-year limitation allowed by 26 U.S.C.A. Int. Rev.Code, § 3772(a) (2).⁴

Although this suit was filed on July 28, 1938, (the last day on which it could have been filed under the two-year limitation), plaintiff argues that service as prescribed by 28 U.S.C.A. § 763 is merely procedural and not substantive, and therefore, since the adoption of the Federal Rules of Civil Procedure, 28 U.S.C.A. following section 723c, effective September 16, 1938, such service is not necessary to commence an action against the United States, citing Rule 3,⁵ Rule 4(d) (4),⁶ and United States v. American Surety, D.C., 25 F.Supp. 700, 702. On the question of whether the new Rules apply to the Tucker Act, a careful examination of the law on this subject⁷ shows that some courts have held that the Rules prevail over the Tucker Act. However, I am of the opinion that as the Tucker Act is a special statute with special procedure outlined by Congress, the New Rules are inapplicable. Lynn v. United States, 5 Cir., 110 F.2d 586; United States v. Sherwood, 312 U.S. 584, 586, 587, 61 S. Ct. 767, 85 L.Ed. 1058. From the discussion of Rules 3 and 4 before the Judiciary Committee of the House of Representatives, 75th Congress, Third Session, Hearings on the Rules of Civil Procedure and H.R. 8892, March 1-4, 1938, Serial 17, pages 73 ff., it appears that the Committee considered a statute of limitations substantive law and intended that the Rules should govern only where there was no Federal or state statute on the subject. A suit against United States, filed under 28 U.S.C.A. § 763, is not "commenced" until the service mentioned is made. As service in this case was made after the expiration of the two-year period allowed by 26 U.S.C.A. Int.Rev.Code, § 3772(a) (2), the right of action against United States ceased, and the subsequent adoption of the new Rules did not revive it.

It is true that in United States v. Sherwood, supra, the Supreme Court approved dismissal for want of jurisdiction where an individual had been joined in the suit against the United States. However, dismissal of the entire action would not be proper here, because this court has jurisdiction of the Collector of Internal Revenue under 28 U.S.C.A. § 41(5), which requires no special service on the United States Attorney of this District and on the United States Attorney General.

I therefore conclude that as necessary service to effect commencement of the action as required by 28 U.S.C.A. § 763 was not made within the two-year period specified in 26 U.S.C.A. Int.Rev.Code, § 3772(a) (2), this court has no jurisdiction over defendant United States, but has jurisdiction over the Collector under 28 U.S.C.A. § 41 (5).

In three of the companion cases mentioned above, namely, No. 20464-R, No. 20474-W, and No. 21113-L, service as required by the Tucker Act, 28 U.S.C.A. § 763, was made within the two year period specified in 26 U.S.C.A. Int.Rev.Code, § 3772(a) (2), so that in those cases this court would have jurisdiction of the United States as well as of the Collector of Internal Revenue; but in view of my holding against plaintiff in all cases, the point becomes immaterial.

Plaintiff contends that § 10(c) of the Liquor Taxing Act of 1934 violates Art. I, Sec. 2, Cl. 3, and Art. I, Sec. 9, Cl. 4 of the United States Constitution, in that it levies a direct tax without proper apportionment. There is no merit in this contention. In Commonwealth of Pennsylvania v. Fix, D.C., 9 F.Supp. 272, 275, 276, affirmed in Commonwealth of Pennsylvania v. Kyle, 3 Cir., 79 F.2d 520, certiorari denied 297 U.S. 704, 56 S.Ct. 442, 80 L.Ed. 992, the court held that the tax levied by § 10(c) is an excise tax, and as such, constitutional.

In one of its briefs plaintiff attempts to make another constitutional point, stating: "Imposition of the tax upon merely one part of a class of persons deprives such persons of the `equal protection of the laws' under the due process clause of the United States Constitution, hence the tax is unconstitutional for this, as well as other reasons noted. Fifth Amendment to the Constitution of the United States (Article V)." This loose language, without explanation or authority, is plaintiff's only reference to the Fifth Amendment. The constitutionality of a statute cannot be raised for the first time in argument. It must be properly pleaded and thereafter adequately argued. Kewanee Oil & Gas Co. v. Mosshamer, 10 Cir., 58 F.2d 711, 712; White Cleaners & Dyers v. Hughes, D.C., 7 F. Supp. 1017, 1023; Taylor v. Dunbar, D.C., 298 F. 936, 939. A court should proceed with reluctance to set aside legislation as unconstitutional on grounds not properly presented. McGoldrick v. Compagnie Generale, 309 U.S. 430, 434, 60 S.Ct. 670, 84 L. Ed. 849. Moreover, "There is strong presumption in favor of the constitutionality and validity of an act of Congress." Jacobs v. Peavy-Wilson Lumber Co., D.C., 33 F.Supp. 206, 212, and cases cited. The mere fact of enactment of a statute raises a presumption of constitutionality, and the burden of proving otherwise is on the party so asserting. Kewanee Oil & Gas Co. v. Mosshamer, 10 Cir., 58 F.2d 711, 712. Plaintiff has failed to sustain that burden. The additional point was probably thrown in, hit or miss, but has no application whatever to the pertinent issue of the levy and collection of an excise tax on liquor, the validity of which is settled by the decision in Commonwealth of Pennsylvania v. Fix, supra. For a full discussion of the subject see Patton v. Brady, 184 U.S. 608, 22 S.Ct. 493, 46 L.Ed. 713.

Upon the merits, plaintiff contends that it is not liable for the tax because on the effective date of the taxing act, January 12, 1934, the liquor was "held" by the Bank and not by plaintiff.

Plaintiff is a large winery, engaged in the manufacture and production of wines "intended for sale or for use in the manufacture or production of any article intended for sale", as set forth in...