Penny Stores v. Mitchell

• Citation: 59 F.2d 789
• Decision Date: 07 July 1932
• Docket Number: No. 325.,325.
• Parties: PENNY STORES, Inc., v. MITCHELL, Atty. Gen. of Mississippi, et al.
• Court: U.S. District Court — Southern District of Mississippi

59 F.2d 789 (1932)

PENNY STORES, Inc., v. MITCHELL, Atty. Gen. of Mississippi, et al.

No. 325.

District Court, S. D. Mississippi, Jackson Division.

July 7, 1932.

Watkins, Watkins & Eager, of Jackson, Miss., for plaintiff.

J. A. Lauderdale, Asst. Atty. Gen., and W. L. Guice, Sp. Counsel, of Biloxi, Miss., for defendants.

Before a specially constituted court under section 266 of the Judicial Code, as amended, USCA, title 28, § 380, composed of FOSTER, Circuit Judge, and GRUBB and HOLMES, District Judges.

HOLMES, District Judge.

On May 10, 1930, effective on June 1 thereafter, the Mississippi Legislature enacted House Bill No. 567 (Laws Miss. 1930, c. 90), entitled an act to provide for additional public revenues by a "tax upon the privilege to engage in certain businesses; and imposing a tax on the sale of cigars and cigarettes; and a tax upon the price of admission to places of public amusement." A method of collecting the tax was provided, as well as penalties for failure to comply with its terms.

The act levied an annual privilege tax upon various business activities in different amounts to be determined by the application of rates or percentages of gross incomes or gross proceeds of sales. Section (2-c), article 1, is as follows:

"Upon every person engaging or continuing within this State in the business of selling any tangible property whatsoever, real or personal, (not including, however, bonds or other evidence of indebtedness, or stocks), there is likewise hereby levied, and shall be collected, a tax equivalent to one-fourth of one per cent of the gross income of the business; Provided, However, that in the case of a wholesaler or jobber, the tax shall be equal to one-eighth of one per cent of the gross income of the business. Provided, further, that if any person shall operate more than five stores in this State, at or by which any such property is sold, at retail, there is likewise hereby levied on, and shall be collected of, such person, an additional tax equivalent to one-fourth of one per cent of the gross income of the business of all such stores.

"The classification of wholesaler or jobber shall be used only by any person doing a regularly organized wholesale or jobbing business, known to the trade as such, and having regularly in his exclusive employment one or more traveling salesmen."

As a condition precedent to transacting any business in the state, a license to engage in the business was required. By the terms of the statute the tax constitutes a debt due the state, and a lien for its payment is fixed upon all the property of the person owing it.

Upon June 23, 1930, the Penny Stores, Inc., a corporation, filed an original bill on its own behalf, and, under Equity Rule 38 (28 USCA § 723), in the interest of other operators of more than five stores, seeking to restrain the enforcement of the act and alleging that the portion in italics of section (2-c), above quoted, imposing an additional tax of one-fourth of 1 per cent. on operators of more than five stores, which additional amount was not imposed upon operators of less than six, violated section 1 of the Fourteenth Amendment to the Constitution of the United States, which provides that no state shall deprive any person of life, liberty, or property without due process of law, or deny to any person within its jurisdiction the equal protection of the law, and also violated section 112 of the Constitution of the state of Mississippi, which provides that taxation shall be equal and uniform throughout the state. It alleged that the additional tax was arbitrary, discriminatory, and void, and that a cloud was cast upon plaintiff's real estate by the effort of state officers to collect it. Other grounds of equitable relief, not necessary to be stated, were invoked.

A temporary restraining order was issued and a three-judge court organized. The plaintiff made application for an interlocutory injunction, notice of which was served upon the defendants, including the Attorney General and Governor of the state. No answer or motion to dismiss the bill was filed. On the contrary it was conceded by the Attorney General of Mississippi, who appeared for the defendants, at the hearing of the application for an interlocutory injunction, that the case was properly cognizable in equity if the statute assailed was void because in violation of the due process and equal protection clauses of the Federal Constitution.

The interlocutory injunction was granted by the specially constituted court in September, 1930, and the defendants appealed from the order to the Supreme Court of the United States. Pending the appeal, by consent of the parties, no answer was filed by the defendants, it being agreed that the case would be presented to the Supreme Court on its merits. In its reply brief in that court the appellants stated: "Neither is there involved in this case the question of any adequate remedy at law, for the appellant admits that if the law is unconstitutional and invalid that the injunction should have issued. The sole question before the court, therefore, is the question which we shall attempt to argue in this brief in reply to the brief of appellee, that is, an answer to point two of the appellee's brief."

In a per curiam opinion, reported in 284 U. S. 576, 52 S. Ct. 27, 76 L. Ed. ___, the court stated: "Oct. 26, 1931. Per Curiam. In this suit, brought to enjoin the enforcement of the provisions of sections (2-c), 11, and 13 of article 1 of chapter 90 of the Laws of Mississippi of 1930, an application was made to the District Court of the United States for an interlocutory injunction. The District Court, composed of three judges (U. S. C., title 28, § 380 28 USCA § 380), granted an interlocutory injunction upon the giving by the plaintiffs of a bond payable to the State of Mississippi in the sum of $5,000, conditioned as required by law, restraining the enforcement of the statutory provisions until the cause could be fully heard and determined. No opinion was rendered by the District Court, and the only question presented by the record upon this appeal is whether the District Court abused its discretion in granting an injunction until the case could be heard upon the merits. Alabama v. United States, 279 U. S. 229, 231, 73 L. Ed. 675, 677, 49 S. Ct. 266; United Fuel Gas Co. v. Public Service Commission, 278 U. S. 322, 326, 73 L. Ed. 402, 404, 49 S. Ct. 157; National F. Ins. Co. v. Thompson, 281 U. S. 331, 338, 74 L. Ed. 881, 886, 50 S. Ct. 288. The order was made prior to the decision of this Court in State Board of Tax Com'rs v. Jackson, 283 U. S. 527, 75 L. Ed. 1248, 73 A. L. R. 1464, 51 S. Ct. 540, and, as no abuse of discretion is shown, the order must be affirmed."

Afterwards came the decisions by the Supreme Court in the case of Matthews v. Rodgers, 284 U. S. 521, 52 S. Ct. 217, 76 L. Ed. 447, and Stratton v. St. Louis Southwestern Railway Co., 284 U. S. 530, 52 S. Ct. 222, 76 L. Ed. 465. In the former the court held that the Mississippi law afforded a full, adequate, and complete remedy for the illegal exaction by a sheriff of payment of an ordinary privilege tax.

On February 6, 1932, the defendants filed an answer on the merits, and also moved to dismiss the bill for lack of equity on its face. Much proof was taken. When the case came on for final hearing before this court on April 28, 1932, and was argued on its merits, the defendants for the first time presented to the court their motion to dismiss the bill for lack of equity.

We shall not stop to consider whether this case should be distinguished from the two above mentioned, because of the additional equity claimed that a cloud is cast upon the title of real estate, as we think that, in the circumstances outlined, the motion comes too late. The express agreement of the Attorney General, and his whole conduct of the case on behalf of the defendants, estop them from interposing such a motion at this time to a consideration of the bill on its merits. The motion to dismiss is overruled. New Orleans v. Gaine's Administrator, 138 U. S. 595, 11 S. Ct. 428, 34 L. Ed. 1102; St. Louis, K. C. & C. R. Co. v. Wabash R. Co., 217 U. S. 247, 30 S. Ct. 510, 54 L. Ed. 752.

While the appeal from the interlocutory order in this case was pending, the Indiana and North Carolina chain store cases were decided. State Board of Tax Commissioners v. Jackson, 283 U. S. 527, 51 S. Ct. 540, 75 L. Ed. 1248, 73 A. L. R. 1464, and the Great Atlantic & Pacific Tea Co. v. Maxwell, 284 U. S. 575, 52 S. Ct. 26, 76 L. Ed. ___. Conceding as it must the authoritative effect of these decisions, the plaintiff puts forth four propositions, one of fact and three of law, to distinguish the case at bar. The first is that on the facts of this case, as shown by the proof, the elements of difference between chain and ordinary stores are not present in Mississippi. The argument is that in this case the complainants have introduced experts, who have given positive and undisputed testimony, based upon facts and not theories, and that from this undisputed testimony it appears that the differences pointed out by the Supreme Court of the United States in the Indiana and North Carolina cases are indisputably shown not to exist in the state of Mississippi, and, if existing to any extent whatsoever, that their existence has no relation to the difference between the operation of more than five and less than six stores. The second is that the Mississippi statute is not a privilege or occupation tax, but is a tax on gross sales. The third is that the act is violative of section 112 of the Constitution of the state of Mississippi. The fourth is that the alleged retroactive effect of the...