Penn v. Glenn, 896.

• Decision Date: 13 April 1935
• Docket Number: No. 896.,896.
• Citation: 10 F. Supp. 483
• Parties: PENN et al. v. GLENN, Collector of Internal Revenue, et al.
• Court: U.S. District Court — Western District of Kentucky

10 F. Supp. 483

PENN et al. v. GLENN, Collector of Internal Revenue, et al.

No. 896.

District Court, W. D. Kentucky.

April 13, 1935.

Stoll, Muir, Townsend & Park, of Lexington, Ky., for plaintiffs.

T. J. Sparks, U. S. Atty., of Louisville, Ky., Frank J. Wideman, Asst. Atty. Gen., Alexander Holtzoff and Robert N. Anderson, Sp. Assts. to Atty. Gen., and Seth Thomas, Solicitor, Department of Agriculture, Arthur C. Bachrach, John J. Abt, Donald B. McGuineas, and Jack I. Levy, all of Washington, D. C., Agricultural Adjustment Administration Division, for defendants.

DAWSON, District Judge.

This is a proceeding under the Federal Declaratory Judgment Act of June 14, 1934 (adding section 274d to Judicial Code, section 400, title 28 USCA) to secure a judicial declaration that the Act of June 28, 1934, commonly known as the Kerr-Smith Tobacco Control Act (7 USCA §§ 751-766), is unconstitutional; to enjoin the defendant Glenn, as collector of internal revenue, from collecting or undertaking to collect from the plaintiffs $7,059.33, claimed by the defendant Glenn to be taxes due by the plaintiffs under the terms of the act on account of the tobacco raised and sold by them in 1934 in the state of Kentucky; and to enjoin the defendant Swinford, as District Attorney for the Eastern District of Kentucky, in which the plaintiffs reside, from prosecuting them for failure to pay such tax.

The defendants sharply challenge the authority of this court to give any of the relief prayed for:

(1) Because the Federal Declaratory Judgment Act was not intended by Congress to be available in cases arising under the revenue laws of the United States.

(2) Because section 3224, Revised Statutes (section 154, title 26 USCA), prohibits suits for the purpose of restraining the assessment or collection of any tax.

(3) Because the proceeding is, in effect, one against the United States, which cannot be maintained in the absence of the consent of the United States to be sued.

While the bill in this case proceeds upon the theory that the tax imposed by the Tobacco Control Act is in fact and in truth not a tax, as that word is used in section 3224, Revised Statutes (26 USCA § 154), but a penalty, exacted for the purpose of controlling the production of tobacco, nevertheless this court is powerless to grant an injunction against the collection of the tax or penalty, unless the bill charges and the evidence shows such extraordinary and exceptional circumstances as to render that section inapplicable. Bailey v. George, 259 U. S. 16, 42 S. Ct. 419, 66 L. Ed. 816; Dodge v. Brady, 240 U. S. 122, 36 S. Ct. 277, 60 L. Ed. 560. No compelling reason is alleged or shown why the plaintiffs could not have paid the tax or penalty and then brought suit against the collector in the manner authorized by section 3226 of Revised Statutes, as amended (section 156, title 26 USCA), and as is specifically authorized by section 11 (b) of the act here involved (7 USCA § 761 (b). As the statutory remedy appears fully adequate in this case, there is no occasion for the granting of an injunction.

The defendants argue that when the question of injunction is eliminated, the sole question remaining is the constitutionality of the act, and that on this question the defendants have no more interest than has any other official of the United States; that the only interested parties are the plaintiffs and the United States, the plaintiffs being interested in having the act held unconstitutional and thus avoiding payment of the tax, and the United States in having the act held constitutional and thus authorized to collect the tax. This argument, however, while plausible, is not sound. Prior to March 3, 1839, it was the settled law that when the collector exacted taxes from a taxpayer under an unconstitutional or inapplicable statute, and payment was made under protest, the collector was personally liable for the amount thus collected, with interest; and he had the right, when payment was made under protest, to withhold the money thus collected from the Treasury until the question of the taxpayer's liability was determined. Elliott v. Swartwout, 10 Pet. 137, 9 L. Ed. 373; Bend v. Hoyt, 13 Pet. 263, 10 L. Ed. 154. On that date, however, an act was passed by Congress which required the collector to cover all taxes collected by him into the Treasury of the United States, whether paid under protest or not, and providing for a refund of the taxes to the taxpayer out of the Treasury, in event it should be determined they were improperly collected. This statute, in the case of Cary v. Curtis, 3 How. 236, 11 L. Ed. 576, was construed by the Supreme Court as relieving the collector from personal liability on account of taxes illegally or improperly collected and paid into the Treasury. Later, however, by section 12 of an Act of March 3, 1863 (12 Stat. 741), the right was impliedly given to sue collectors in such cases; the collector being protected by a provision that should the court certify that there was probable cause for the action of the collector, or that he acted under the direction of the Secretary of the Treasury or other proper officer, no execution should issue against him, but the amount of the judgment should be paid by the Secretary of the Treasury out of the proper appropriation. This statute was carried into the Revised Statutes as section 989 (section 842, title 28 USCA). A companion piece of legislation was Revised Statutes, § 3226, which provided that no suit could be maintained in any court for the recovery of any internal revenue tax claimed to have been erroneously or illegally assessed or collected, or for the recovery of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until appeal had been duly made to the Commissioner of Internal Revenue and an adverse decision made by him, or his decision had been delayed for more than six months. This statute, in substantially the same form, has been in effect ever since its original enactment, and is now section 156, title 26 USCA. Paragraph 20, section 24, of the Judicial Code (section 41 (20), title 28 USCA), also authorizes suits in certain cases against collectors on account of taxes claimed to have been illegally or improperly collected. Under these statutes, in proper cases, federal courts do not hesitate to render judgment against collectors for taxes illegally or improperly collected by them; and it is well settled that such a suit against the collector is a personal action against him, not against the United States. In the case of Sage v. United States, 250 U. S. 33, 36, 39 S. Ct. 415, 416, 63 L. Ed. 828, the court, speaking through Mr. Justice Holmes, in discussing the nature of an action against the collector on account of taxes illegally or improperly exacted, used this language: "It is true that the statutes modify the common law liability for money wrongfully collected by duress so far as to require a preliminary appeal to the Commissioner of Internal Revenue before bringing a suit. * * * It is true also that it is the duty of the District Attorney to appear for the collector in such suits; * * * that the judgment is to be paid by the United States and the collector is exempted from execution if a certificate is granted by the Court that there was probable cause for his act. * * * But no one could contend that technically a judgment of a District Court in a suit against a collector was a judgment against or in favor of the United States. It is hard to say that the United States is privy to such a judgment or that it would be bound by it if a suit were brought in the Court of Claims. The suit is personal and its incidents, such as the nature of the defenses open and the allowance of interest, are different. It does not concern property in which the United States asserts an interest on its own behalf or as trustee, as in State of Minnesota v. Hitchcock, 185 U. S. 373, 388, 22 S. Ct. 650, 46 L. Ed. 954. At the time the judgment is entered the United States is a stranger. Subsequently the discretionary action of officials may, or it may not, give the United States a practical interest in the amount of the judgment, as determining the amount of a claim against it, but the claim would arise from the subsequent official act, not from the judgment itself."

In the case of Smietanka v. Indiana Steel Co., 257 U. S. 1, 4, 42 S. Ct. 1, 2, 66 L. Ed. 99, Mr. Justice Holmes, again writing for the court, in discussing the nature of actions against collectors for the recovery of taxes illegally or improperly exacted under the present statutes, said: "To show that the action still is personal, as laid down in Sage v. United States, 250 U. S. 33, 37, 39 S. Ct. 415, 63 L. Ed. 828, it would seem to be enough to observe that when the suit is begun it cannot be known with certainty that the judgment will be paid out of the Treasury. That depends upon the certificate of the Court in the case. It is not to be supposed that a stranger to an unwarranted transaction is made answerable for it; yet that might be the result of the suit if it could be brought against a successor to the collectorship. A personal execution is denied only when the certificate is given. It is true that in this instance the certificate has been made, but the intended scope of the action must be judged by its possibilities under the statutes that deal with it. The language of the most material enactment, Rev. St. § 989 28 USCA § 842, gives no countenance to the plaintiff's argument. It enacts that no execution shall issue against the collector but that the amount of the judgment shall `be provided for and paid out of the proper appropriation from the Treasury,' when and only when the Court certifies to either of the facts certified here."

To the same effect is Graham & Foster v. Goodcell, 282 U. S. 409-430, 51 S. Ct. 186, 75 L. Ed. 415.

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