Murphy v. O'BRIEN

• Decision Date: 10 October 1973
• Docket Number: No. 1-2.,1-2.
• Citation: 485 F.2d 671
• Parties: Dennis J. MURPHY, Director of the Rhode Island Department of Natural Resources, Plaintiff-Appellant, v. John J. O'BRIEN, District Director of Internal Revenue, and Robert J. Pettrucci, Acting Stabilization Manager, Defendants-Appellees.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

485 F.2d 671 (1973)

Dennis J. MURPHY, Director of the Rhode Island Department of Natural Resources, Plaintiff-Appellant, v. John J. O'BRIEN, District Director of Internal Revenue, and Robert J. Pettrucci, Acting Stabilization Manager, Defendants-Appellees.

No. 1-2.

Temporary Emergency Court of Appeals.

October 10, 1973.

W. Slater Allen, Jr., Asst. Atty. Gen., for the State of Rhode Island (Richard J. Israel, Atty. Gen., on the brief), for appellant.

Paul T. Michael, Atty. U. S. Dept. of Justice (Irving Jaffe, Acting Asst. Atty. Gen., William E. Nelson and Stanley D. Rose, Attys., Dept. of Justice, on the brief), for appellees.

Before: TAMM, Chief Judge, and VAN OOSTERHOUT and HASTINGS, Judges.

HASTINGS, Judge.

Appellant Murphy, the Director of the Rhode Island Department of Natural Resources, brought this action in the district court to enjoin appellee United States officers from acting to prevent the collection of parking fees at certain state owned beaches in Rhode Island. It is the Government's position that these fees represent price increases Illegally instituted during the 60-day price freeze which initiated Phase IV of the President's economic stabilization program. The principal issues raised on this appeal are (1) whether the Cost of Living Council (CLC) acted within its authority under the Economic Stabilization Act of 1970, as amended,¹ and Executive Order No. 11723 issued pursuant thereto, in issuing regulations which forbid these charges; and (2) whether the Act, as applied, unconstitutionally infringes upon Rhode Island's right to raise revenue for legitimate state ends.

On May 15, 1973, the Governor of Rhode Island approved a bill (hereinafter "S533") providing that parking fees be charged at all Rhode Island state beaches having parking facilities.² The present dispute concerns five beaches at which facilities were already in existence and therefore available to the public fee of charge.³ Bill S533 authorized an annual parking fee, restricted to Rhode Island residents, of between $3 and $5 per vehicle, as well as daily fees of $1 per vehicle on weekdays and $2 per vehicle on weekends. Annual fees received under S533 were to be used "for the maintenance and improvement and acquisition of beach facilities."

The first sales of annual permits under the new law occurred during the week of May 21, 1973. Daily tickets did not go on sale until June 16, which was designated the official opening date for use of the beaches. Prior to June 16 beach parking facilities remained available to the public free of charge, and the record indicates that the beaches themselves were open for some time prior to the official opening date. Sales of annual permits in the period May 21-June 28 totaled 5,030 at a price of $5 each.

On June 13, 1973, the President issued Executive Order No. 11723, 38 Fed.Reg. 15765 (June 15, 1973), imposing a comprehensive price freeze on all commodities and services (except raw agricultural products) for a maximum period of 60 days. Section 1 of that order states:

Effective 9:00 p. m., e. s. t., June 13, 1973, no seller may charge to any class of purchaser and no purchaser may pay a price for any commodity or service which exceeds the freeze price charged for the same or a similar commodity or service in transactions with the same class of purchaser during the freeze base period. * * *

Section 8 defines "freeze base period" as

(a) the period June 1 to June 8, 1973; or

(b) in the case of a seller who had no transactions during that period, the nearest preceding seven-day period in which he had a transaction.

Finally, "transaction" is defined by Section 8 as

* * * an arms length sale between unrelated persons and is considered to occur at the time of shipment in the case of commodities and the time of performance in the case of services.

On June 28, 1973, appellee O'Brien informed Murphy that the collection of beach parking fees under S533 was in violation of Executive Order 11723 and the Cost of Living Council regulations issued thereunder, 38 Fed.Reg. 15768 (June 15, 1973), and ordered him to cease fee collections at the five affected state beaches. On July 5 the present action was initiated in the district court challenging such order. On July 24 the trial court, acting on stipulated facts, entered an order denying appellant's request for preliminary and permanent injunctive relief and requiring appellant to submit a plan for refunding the amounts illegally collected.⁴ On August 6 this court stayed the remedial provision of that order pending this appeal.

Appellant's primary argument is that the parking charges initiated by $533 are properly characterized as "use taxes" rather than as "fees." We find it unnecessary to resolve this issue, since the distinction pressed by appellant is irrelevant to the outcome of this case.

In the first place, it is clear that the CLC freeze regulations apply the freeze to these parking charges regardless of label. After stating that the freeze does not apply to transactions "which are not prices within the meaning of the act,"⁵ the regulations specify, inter alia, that "state or local income, sales and real estate taxes" are thereby excluded. § 140.1(c), 38 Fed.Reg. 15768 (June 15, 1973). That "prices" charged by governments are not exempt from the freeze is made clear by § 140.2, which defines persons covered by the freeze to include "a government, and any agency or instrumentality of a government." The CLC interpreted its regulations in a series of releases in the form of questions and answers concerning the freeze, published during the freeze period. Release No. 8, 38 Fed.Reg.17490 (July 2, 1973), contains the following:

3. Q. May State or local taxes be increased during the freeze?

A. Yes. State and local taxes are exempt from the freeze since they are not prices within the meaning of the Economic Stabilization Act. These taxes include general purpose taxes such as income, sales and property taxes. (Emphasis supplied.)

. . . . . .

5. Q. Can the fees or charges which a State or local government charge for services provided by the governments be increased during the freeze?

A. No. Fees for water, gas, sewer and similar services are considered prices for particular services and are subject to the freeze. No matter what a State or local government may call a fee or charge for a specific public service, if that government is imposing a user charge, then the charge is covered by the freeze. (Emphasis supplied.)

Both the regulations and the later questions and answers release indicate that the Council treats governmental service charges as "prices" within the meaning of the Act, regardless of whether they are technically "use taxes" or "user fees." All that is required is that the charge be for a "specific public service," which obviously includes parking facilities, and that it be levied against "users." This interpretation of the Act by the CLC is entitled to great deference from a reviewing court, University of Southern California v. Cost of Living Council, 472 F.2d 1065, 1068 (T. E.C.A.1972), cert. denied 410 U.S. 928, 93 S.Ct. 1364, 35 L.Ed.2d 590 (1973), and appellant has failed to demonstrate that the Council's rulings are unreasonable or arbitrary and capricious.⁶ In any event, we have no difficulty in finding that the parking charges here challenged are in fact "prices" and are thus susceptible of regulation by the executive pursuant to the Act.

In light of the foregoing, it appears that appellant's primary purpose in insisting that these charges are "taxes" is to emphasize his claim that this application of the Economic Stabilization Act unconstitutionally restricts Rhode Island in its collection of revenue. "Tax" connotes the power of a sovereign, whereas "fee" evokes more mundane images. Semantics aside, the issue raised by appellant is, simply, whether the Constitution precludes Congress from enacting legislation which has the effect of preventing a state from raising revenue in the otherwise lawful manner here adopted.⁷

Otherwise valid federal legislation, e.g., the Economic Stabilization Act, which incidentally interferes with state affairs has in recent times been uniformly upheld by the Supreme Court. Maryland v. Wirtz, 392 U.S. 183, 88 S.Ct. 2017, 20 L.Ed.2d 1020 (1968); Case v. Bowles, 327 U.S. 92, 66 S.Ct. 438, 90 L.Ed. 552 (1946); New York v. United States, 326 U.S. 572, 66 S.Ct. 310, 90 L.Ed. 326 (1946); United States v. California, 297 U.S. 175, 56 S.Ct. 421, 80 L.Ed. 567 (1936). The most thorough discussion of the question is found in New York v. United States, supra, a case involving federal taxation of the sale of mineral waters by a state. In upholding the federal tax, Mr. Justice Frankfurter suggested that federal interference is constitutionally suspect only where Congress discriminates against states as such:

* * * So long as Congress generally taps a source of revenue by whomsoever earned and not uniquely capable of being earned only by a State, the Constitution of the United States does not forbid it merely because its incidence falls also on a State. Id. 326 U.S. at 582, 66 S.Ct. at 314.

Chief Justice Stone concurred in the decision on the grounds, inter alia, that the challenged exercise of federal power "does not curtail the business of the state government more than it does the like business of the citizen." Id. at 588-589, 66 S.Ct. at 317. The Chief Justice also stated that even a non-discriminatory tax might face constitutional objection if it "unduly interferes with the performance of the State\'s functions of government." Id. at 588, 66 S.Ct. at 317.

More recently, in Maryland v. Wirtz, supra, the Court implied that the concept of state sovereignty no longer imposes any limit on the authority of Congress to legislate pursuant to a valid congressional power.⁸ 392 U.S. at 195, 88 S.Ct. at 2017. Even under the New York case, however, it is clear that the Economic Stabilization Act as here applied...