Nichols v. Gaston, 1543.

• Decision Date: 21 March 1922
• Docket Number: 1543.
• Citation: 281 F. 67
• Parties: NICHOLS, Collector of Internal Revenue, v. GASTON et al.
• Court: U.S. Court of Appeals — First Circuit

281 F. 67

NICHOLS, Collector of Internal Revenue, v. GASTON et al.

No. 1543.

United States Court of Appeals, First Circuit.

March 21, 1922

Frederic S. Harvey, Asst. U.S. Atty., of Lowell, Mass., and J. G Korner, Jr., Sp. Atty. of Bureau of Internal Revenue, of Washington, D.C. (Robert O. Harris, U.S. Atty., of Boston Mass., and Carl A. Mapes, Solicitor of Internal Revenue, of Washington, D.C., on the brief), for appellant.

Dunbar F. Carpenter, of Boston, Mass. (John K. Howard and Gaston Snow, Saltonstall & Hunt, all of Boston, Mass., on the brief), for appellees.

Before BINGHAM and JOHNSON, Circuit Judges, and MORRIS, District Judge.

BINGHAM Circuit Judge.

This is an appeal from a final decree of the District Court for Massachusetts in a suit in equity brought by Gaston and Falvey, executors of the estate of James M. Prendergast against Nichols, individually and as collector of internal revenue for the district of Massachusetts, restraining the latter from collecting a tax assessed against the estate.

The complainants and the defendant are citizens of Massachusetts. Prendergast died November 29, 1920. The complainants duly filed their return, setting forth the value of the estate, and the Commissioner of Internal Revenue assessed thereon a tax of $83,900.36, under title IV of the Revenue Act of February 24, 1919 (40 Stat.at Large, 1096 (Comp. St. Ann. Supp. 1919, Secs. 6336 3/4a-6336 3/4k)). The jurisdiction of the District Court, as a federal court, is invoked on the ground that the suit is one arising under the internal revenue laws of the United States.

It is conceded that the tax of $83,900.36 assessed against the estate is legal and proper. The contention of the complainants is that, under section 408 of the act of 1919 (Comp. St. Ann. Supp. 1919, Sec. 6336 3/4i), they are given a year and 180 days after their testator's death in which to pay the tax, even though the Commissioner of Internal Revenue had not extended the time of payment, under section 406 (section 6336 3/4g), for 180 days after its due date, and that the defendant was not authorized to enforce its collection by distraint or otherwise until after the expiration of the 180 days; that, in violation of this right, the defendant, pretending to act in his capacity as collector, on the 4th of January, 1922, and before the 180 days had expired, notified the complainants that, unless the tax was paid within 10 days, he should proceed to collect the same, with costs, by seizure and sale of property; that, under section 408 of the act of 1919, the collector is prevented from collecting the tax by distraint or otherwise within the 180 days; and that the threatened seizure, if carried out, would have been unauthorized, and an act not done by him in his official capacity or with color of law. They further contend and allege in their bill that if, to avoid such threatened distraint, they at this time paid the tax, they would be remediless in law, as they had the privilege, under section 406, of paying the tax at any time down to May 28, 1922, without interest. It was also alleged in the bill that the payment of the tax at the time of the commencement of the suit, rather than on May 28, 1922, would subject the estate to a loss of interest on the money during the interim of about $3,000, and would subject the estate to the difficulty of converting the assets into cash for the immediate payment of a large sum of money. But it appears in the final decree that it was stipulated in open court that the complainants had, at the time of the commencement of the suit and at the time of entering the decree, assets in their hands sufficient to meet the tax, and that the loss which they would have sustained by the payment would have been the interest on the tax, unless they were able to recover it back from the United States.

The basis of the decree was that the payment of the tax was 'not required by law or compellable by distraint until one year and 180 days after the death of ' the decedent; that payment of the tax at the time of the filing of the bill, instead of in May, 1922, 'would have subjected the estate * * * to loss of interest on the money so paid during the interim, amounting to the sum of approximately $3,000'; and that if, to avoid the threatened distraint, the complainants should 'pay such tax prior to May 28, 1922, they would be remediless in the law.' The questions sought to be raised are (1) whether, on the facts herein stated, the complainants are entitled to injunctive relief; and (2) whether, in view of section 3224 of the Revised Statutes (Comp. St. Sec. 5947), which provides that 'no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court,' this proceeding can be maintained.

We think that there can be no doubt but that the District Court, as a federal court, had jurisdiction authorizing it to entertain the proceeding, as it involves a controversy arising under the laws of the United States, and that the broad questions are whether, on the admitted and agreed facts, that court, as a court of equity, was warranted in granting the injunction, especially in view of the provisions of section 3224.

It is a well-recognized rule that a court of equity will not grant injunctive relief to complainants who have a remedy at law, in the absence of a showing that the legal remedy is inadequate. If, on the facts in this case, the complainants would have had a remedy at law to redress their alleged injury, it cannot be contended that it would have been inadequate, for the reason that the damages suffered would have been irreparable, as it appears that the only loss they would have sustained, had they paid the tax when demanded, would have been the loss of the use of the money during the balance of the 180 days, or in the vicinity of $3,000.

The question therefore is, so far as equity jurisdiction is concerned, whether the complainants would have been without a legal remedy provided they had paid the tax under protest at the time of its demand.

Under title XIII of the Revenue Law of 1919-- General Adminstrative Provisions, section 1316 (a), being Comp. St. Ann. Supp. 1919, Sec. 5944-- it is provided:

'Sec. 1316 (a). That section 3220 of the Revised Statutes hereby amended to read as follows:

''Sec. 3220. The Commissioner of Internal Revenue, subject to regulations prescribed by the Secretary of the Treasury, is authorized to remit, refund, and pay back all taxes erroneously or illegally assessed or collected, all penalties collected without authority, and all taxes that appear to be unjustly assessed or excessive in amount, or in any manner wrongfully collected; also to repay to any collector or deputy collector the full amount of such sums of money as may be recovered against him in any court, for any internal revenue taxes collected by him, with the cost and expenses of suit; also all damages and costs recovered against any assessor, assistant assessor, collector, deputy collector, agent, or inspector, in any suit brought against him by reason of anything done in the due performance of his official duty, and shall make report to Congress at the beginning of each regular session of Congress of all transactions under this section.''

This provision of law was first enacted July 13, 1866 (14 Stat. at Large, p. 111), and as above set forth is, so far as concerns the question here considered, the same as when first enacted. It thus appears from the language of the act that, had the complainants paid the tax under protest at the time it was demanded, they could have recovered judgment against the collector for all damages they sustained, if the collection was premature and they were thereby damaged. City of Philadelphia v. Diehl (decided Dec., 1866) 5 Wall. 720, 731, 18 L.Ed.

614; Moore v. Miller, 5 App.D.C. 413, 429. And the following decisions disclose that they would have been entitled to interest on the damages sustained down to the entry of final judgment (Cochran v. Schell, 107 U.S. 625, 2 Sup.Ct. 827, 27 L.Ed. 543; Kinney v. Conant, 166 F. 720, 92 C.C.A. 410), and that, upon a certificate of probable cause by the court, under section 989 of the Revised Statutes (Comp. St. Sec. 1635), the liability of the government to pay the judgment would attach (United States v. Sherman, 98 U.S. 565, 25 L.Ed. 235; Erskine v. Van Arsdale, 15 Wall. 75, 21 L.Ed. 63; National Volunteer Home v. Parrish, 229 U.S. 494, 496, 33 Sup.Ct. 944, 57 L.Ed. 1296;Sage v. United States, 250 U.S. 33, 37, 39 Sup.Ct. 415, 63 L.Ed. 828; Smietanka v. Indiana Steel Co. (decided October 24, 1921) 257 U.S. 1, 42 Sup.Ct. 1, 66 L.Ed. . . .).

The fact that interest on the judgment, after it becomes final, as defined in Cochran v. Schell, supra, does not run against the government (it being presumed that the government is always ready and able to pay), has never been regarded as rendering the remedy at law inadequate.

We are therefore of the opinion that the complainants have failed to show that they would have had no remedy at law. On the contrary, it would seem that they would have had a legal remedy by which they might have been reimbursed for all damages sustained, in case it should be found that the defendant was not authorized to demand and enforce the collection of the tax within the 180 days after it became due, and that the court below was without authority to grant the injunction, irrespective of the inhibition contained in section 3224 of the Revised Statutes.

In view of the conclusion reached, we do not feel called upon to decide whether section 3224 imposes upon a court of equity any greater restraint as to enjoining the assessment and collection of a tax than it would properly be called upon to exercise had the statute...