Republic Acceptance Corporation v. De Land

Decision Date01 October 1921
Docket Number420.
CourtU.S. District Court — Eastern District of Michigan

[Copyrighted Material Omitted]

Beaumont Smith & Harris, of Detroit, Mich., for plaintiff.

Merlin Wiley, Atty. Gen., and Samuel Pepper and Clare Retan, Asst Attys. Gen., for defendants.

TUTTLE District Judge.

This cause is before the court on a motion to dismiss the bill of complaint. The grounds on which such motion is based are stated therein as follows:

'(1) That plaintiff has an adequate remedy at law. (2) That this court is without jurisdiction to entertain the same: (a) Because said bill of complaint does not state a cause of action arising under the Constitution and laws of the United States; (b) because this court is without jurisdiction to restrain the officers of the state of Michigan from enforcing the penal laws of the state; (c) because this court, under section 266 of the Judicial Code of the United States, is without jurisdiction to enjoin the enforcement of Acts Nos. 84 and 85 of the Public Acts of 1921 of the state of Michigan, on the ground that such acts, or any parts thereof, are in conflict with the Constitution of the United States and of the state of Michigan; (d) because plaintiff is not entitled to the relief prayed therein.'

1. The bill, by appropriate allegations, clearly presents a situation showing that plaintiff will suffer irreparable injury unless the equitable relief therein prayed be granted, and as these allegations must, of course, be accepted as true for the purposes of this motion, it certainly cannot be said that it appears from the bill that plaintiff has an adequate remedy at law.

2. (a) As the bill alleges, on grounds hereinafter mentioned, that the statutes in question are in violation of the United States Constitution, it is clear that such bill states a cause of action arising under the Constitution and laws of the United States.

(b) That a federal court has jurisdiction to restrain individuals who are officers of a state from enforcing, as such officers, an unconstitutional statute of such state, is too well settled to require discussion. Greene v. Louisville & Interurban R.R. Co., 244 U.S. 499, 37 Sup.Ct. 673, 61 L.Ed. 1280, Ann. Cas. 1917E, 88; Looney v. Crane Co., 245 U.S. 178, 38 Sup.Ct. 85, 62 L.Ed. 230.

(c) While it is true that this court is prohibited by section 266 of the Judicial Code (Comp. St. Sec. 1243) from granting an interlocutory injunction to restrain the enforcement of the statutes involved, on the ground that they are unconstitutional, without calling to its aid two other federal judges pursuant to, and in accordance with, the provisions of such section, yet it is equally true that this court has jurisdiction to grant a permanent injunction restraining the enforcement of such statutes on the grounds alleged in the bill, as it has the power to dispose of the motion to dismiss such bill.

(d) The contention that the bill of complaint should be dismissed, for the reason that it appears on its face that this court is without jurisdiction to entertain the same, 'because plaintiff is not entitled to the relief prayed, ' requires a consideration of the various grounds upon which the prayer for such relief is based.

It is alleged, with much particularity of detail, that the statutes referred to, Act No. 84 and Act No. 85 of the Michigan Public Acts of 1921, violate both the United States Constitution and the Constitution of the state of Michigan. It is, of course, well established that when, as here, the jurisdiction of this court has been invoked by the presence of a substantial federal question, such jurisdiction extends to the determination of every question presented in the case, whether the decision of such question depends upon federal or upon state law. Louisville & Nashville R.R. Co. v. Greene, 244 U.S. 522, 37 Sup.Ct. 683, 61 L.Ed. 1291, Ann. Cas. 1917E, 97.

The objections urged in the bill against the constitutionality of the Michigan statutes involved may be summarized as follows:

(1) That said statutes impair, contrary to section 10 of article 1 of the federal Constitution, the obligations of the contract entered into between the state of Michigan and the plaintiff when and whereby the latter was admitted to do business in Michigan.

(2) That Act 85 violates the Fourteenth Amendment to the federal Constitution, in that such act levies an arbitrary, unjust, and capricious charge against the plaintiff, which operates, not only to deprive it of its property without due process of law, but also to deprive it of the equal protection of the laws.

(3) That, if the charge prescribed by said Act 85 be a specific tax, it violates section 4 of article 10 of the Michigan Constitution, as such tax is not uniform upon the classes upon which it operates.

(4) That said charge is in reality a property ta, which is not uniform, form, and which, therefore, is contrary to section 3 of article 10 of the Michigan Constitution.

(5) That Act 85 is in violation of the Michigan Constitution, because such act provides for the payment of the taxes therein prescribed into the general fund of the state, instead of into the primary school interest fund, as required by such Constitution.

These objections will be considered in the order named.

1. It is contended by plaintiff that these statutes would, if enforced, deprive plaintiff of rights previously acquired by it under its contract with the state of Michigan, admitting it to do business in such state, and that therefore such statutes impair the obligations of a contract, in violation of the first article of the federal Constitution.

Act 206 of the Michigan Public Acts of 1901 prescribed terms and conditions on which foreign corporations might be admitted to do business in Michigan. By that act it was made unlawful for any such corporation to carry on its business in Michigan until it had procured from the secretary of state a certificate of authority for that purpose, and in order to procure such certificate every such corporation was required to file certain papers as provided in such act and to pay to the secretary of state what was denominated a franchise fee of one-half a mill on each dollar of the proportion of its authorized capital stock represented by the tangible property owned and used in Michigan. Section 4 of that statute, being section 9066 of the Michigan Compiled Laws of 1915, provided, among other things, as follows: 'When such corporation has fully complied with the provisions of this act, the secretary of state may issue to such corporation a certificate of authority to carry on such business in this state during the period of its corporate existence, but not exceeding thirty years: Provided, that no such foreign corporation shall be permitted to transact business in this state, unless it be incorporated in whole or in part for the purpose or object for which a corporation may be formed under the laws of Michigan, and then only for such purpose or object. The secretary of state shall in the certificate which he issues state under what act such corporation is to carry on business in this state, and such corporation shall have all the powers, rights and privileges and be subject to all the restrictions, requirements and duties granted to or imposed upon corporations organized under such act.'

When plaintiff complied with the provisions of said statute, and received the certificate of authority issued to it in accordance with such provisions, as alleged in the bill, the transaction constituted a contract between it and the state of Michigan, entitling it to carry on business in such state on the terms and conditions prescribed by such statute. American Smelting & Refining Co. v. Colorado, 204 U.S. 103, 27 Sup.Ct. 198, 51 L.Ed. 393, 9 Ann.Cas. 978. It will be noted, however, that by the terms of such contract, as expressed in the provisions of the state statute just quoted, plaintiff was made 'subject to all the restrictions, requirements and duties granted to or imposed upon' the domestic corporations therein mentioned.

It is well settled that, so long as a state has not expressly and unequivocally deprived itself, by contract or otherwise, of the power to impose taxes upon corporations subject to its laws, it may, consistently with the provision of the federal Constitution forbidding it to impair the obligations of contracts, levy upon a corporation, domestic or foreign, previously granted permission to carry on business within such state, an excise tax in the nature of a license tax upon the privilege of exercising its corporate franchise and transacting its business there. Memphis Gaslight Co. v. Taxing District, 109 U.S. 398, 3 Sup.Ct. 205, 27 L.Ed. 976; New Orleans City & Lake R.R. Co. v. New Orleans, 143 U.S. 192, 12 Sup.Ct. 406, 36 L.Ed. 121; St. Louis v. United Railways Co., 210 U.S. 266, 28 Sup.Ct. 630, 52 L.Ed. 1054.

Section 4 of Act 85, prescribing the tax complained of, provides as follows:

'Every corporation organized or doing business under the laws of this state, excepting those hereinafter expressly exempted therefrom, shall, at the time of filing its annual report with the secretary of state of this state, as required by section seven hereof, for the privilege of exercising its franchise and of transacting its business within this state, pay to the secretary of state, an annual fee of three and one-half mills upon each dollar of its paid-up capital and surplus, but such privilege fee shall in no case be less than fifty dollars nor more than ten thousand dollars.'

As the tax thus imposed (which, for reasons hereinafter expressed is, in my opinion, an excise tax, within the power of the state to impose) is...

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