Rieder v. Rogan

Decision Date28 October 1935
Docket NumberNo. 766.,766.
Citation12 F. Supp. 307
CourtU.S. District Court — Southern District of California
PartiesRIEDER et al. v. ROGAN.

COPYRIGHT MATERIAL OMITTED

Claude I. Parker, Ralph W. Smith, Ezra Neff, and J. Everett Blum, all of Los Angeles, Cal., for plaintiffs.

Peirson M. Hall, U. S. Atty., and Clyde Thomas, Asst. U. S. Atty., both of Los Angeles, Cal., for defendant.

YANKWICH, District Judge.

By an amended bill of complaint denominated "Amended Bill of Complaint for Injunction and for Declaratory Judgment," the plaintiffs seek to enjoin and restrain the defendant individually and as collector of internal revenue for the Sixth district of California from collecting, or attempting to collect, processing taxes from the plaintiffs and from distraining or seizing the property of the plaintiffs in attempting to enforce the payment of the taxes, and from possessing himself of their property or any of it. A preliminary injunction, pendente lite, is asked.

At the basis of plaintiffs' bill lies the contention that the Agricultural Adjustment Act of May 12, 1933, as amended on June 16, 1933, April 7, 1934, May 9, 1934, June 19, 1934, June 26, 1934, and, finally, on August 24, 1935 (7 USCA § 601 et seq.), is unconstitutional.

The facts set forth in the amended bill of complaint are: The plaintiffs are engaged in the business of buying, at their plant in Los Angeles, Cal., hogs, cattle, and other live stock, of slaughtering them, and converting them into food products and selling the converted food products and packed products to its trade, which is wholly within the state of California. All their purchases, sales, and all their business is transacted in the state of California, and they are not engaged in any interstate commerce or business, either directly or indirectly. There has been levied and assessed against the plaintiffs as a "first domestic processor" of hogs, under the terms of the act and its amendments and the administrative orders of the Secretary of Agriculture, on all hogs slaughtered by it, and they have paid on account of such processing tax to the collector of internal revenue for the Sixth district of California, the total sum of $423,795.32 on account of hogs processed and slaughtered by them. So long as the act and its amendments are in force, there will be levied and assessed against the plaintiffs processing taxes based upon their average monthly slaughter of hogs at the rate of $2.25 per hundred pounds live weight, in the approximate average monthly amount of $15,000. There has been assessed against the plaintiffs a processing tax in the sum of $24,916.79 for the month of April, 1935, and the sum of $22,414.61 for the month of May, 1935; the sum of $21,475.15 for the month of June, 1935; the sum of $20,172.73 for the month of July, 1935; the sum of $18,130.39 for the month of August, 1935; and further assessments will be made in the future during the existence of the act. Upon such assessments being made, the plaintiffs will become liable for their payment, under the penalties of the act for nonpayment.

Briefly stated, the grounds urged for the unconstitutionality of the act are: It amounts to the taking of plaintiffs' property without due process of law in violation of the Fifth Amendment to the Constitution of the United States. It is violative of the Tenth Amendment as being outside of the powers granted to the Congress of the United States. It is violative of article 1, section 8, of the Constitution, in that it is not a tax or a duty or an imposition or an excise. It is unconstitutional, in that it delegates legislative functions to the Secretary of Agriculture. It attempts to regulate intrastate commerce, and, finally, the administration of the act is violative of its provisions.

The special grounds for the intervention of equity are stated in great detail in the amended bill. They will be taken up in detail further on in this opinion.

In addition to permanent injunctive relief, a declaration is sought that the act is unconstitutional and its administration, by the Secretary of Agriculture, illegal and void.

The defendant has filed objection to the granting of a preliminary injunction upon the ground that the Agriculture Adjustment Act, as amended August 24, 1935, prohibits the maintenance in any court of a suit for the purpose of restraining the assessment or collection of taxes involved, that the bill of complaint sets forth no facts which, if true, will entitle the plaintiffs to an injunction, and that the complainants have a plain, adequate, and complete remedy in the ordinary course of law. The defendant has also filed a motion to dismiss the bill based upon the same, and the following additional, grounds: That the United States of America is the real party in interest and it may not be sued without its consent; that there is no actual controversy between the complainants and defendant or between any parties over which the court has jurisdiction under the Declaratory Judgment Act (Jud. Code, § 274d 28 USCA § 400); that the Declaratory Judgment Act does not authorize the litigation of questions arising under the revenue laws or against the United States; and, particularly, that it does not authorize its use as a means of obtaining injunctive relief; and that the proceeding does not lie either under the Declaratory Judgment Act or the Agricultural Adjustment Act.

It is not necessary to discuss the constitutionality of the act. It is sufficient, for the purpose of determining the questions before us, to indulge in the presumption of constitutionality. The more so as in a case of this character constitutionality may depend upon a factual showing which the bill of complaint does not contain. See Borden's Farm Products Co. v. Baldwin (1934) 293 U. S. 194, 55 S. Ct. 187, 79 L. Ed. 281.

The only question which calls for decision is whether the amended bill of complaint states facts which entitle the plaintiffs to the relief prayed for, and facts justifying our intervention, by injunctive process, pending the trial of the cause.

Generally, the Agricultural Adjustment Act provides for the levying of "processing" taxes at certain rates, among others, upon persons engaged in "first domestic processing," which is defined differently for different branches of agriculture. The processing tax is assessed, levied, and collected as a tax and the proceeds are payable into the Treasury of the United States. From these proceeds certain amounts are paid to persons engaged in agriculture, under various conditions prescribed by the act. These are frankly subsidies or bounties. In its object, the scheme does not differ from many other schemes recognized as sound American governmental policy from the beginning of our government, the object of which is to secure a tax from one group of persons for the direct or indirect benefit of another group. See Magnano Co. v. Hamilton (1934) 292 U. S. 40, 54 S. Ct. 599, 78 L. Ed. 1109. The protective tariff is an apt illustration.

Taxes have been levied upon many manufactured products such as cigarettes, gasoline, and the like, without any regard to state boundary lines. The promotion of agriculture has always been recognized as a proper object of American governmental policy. The policy goes back to the Act of 1857, 11 Stat. 226, in which Congress provided for the distribution of cuttings and seeds. The Department of Agriculture was established in 1862. In the same year, provision was made for improving instruction in agriculture throughout the country through the Morrill Lands Grant Act (7 USCA § 301 et seq.). In 1884 the Bureau of Animal Husbandry was established to disseminate information as to domestic animals and their diseases. In 1890 the Weather Bureau was put under the direction of the Department of Agriculture, in order to make readily available information of special value to those engaged in agriculture. Frequent appropriations have been made by the Congress to help eliminate pests which afflict crops. To take care of the unsettled conditions of farm tenures following the war, the Congress established the farm loan banks, with federal funds. The validity of these banks was sustained. Smith v. Kansas City Title & Trust Co. (1920) 255 U. S. 180, 41 S. Ct. 243, 65 L. Ed. 577. It is interesting to note that the man who bore the burden of the defense of that act was the Honorable Charles Evans Hughes, the present Chief Justice. In his brief on the reargument of the case Mr. Hughes stated:

"Nothing could better illustrate the accepted principle than the appropriations to aid in agricultural development. Since the year 1839, there has been a constant disbursement of information, distributing seeds, and in aiding agricultural schools."

In the same brief, Mr. Hughes stated the following as a fundamental proposition: "Congress has power to use the public money, and to provide for the borrowing of money, to aid in agricultural development throughout the country in accordance with the systematic and general plan to promote the cultivation of the soil, involving the application of money through loans or otherwise, and that Congress, having this power, could exercise it by the adoption of appropriate means to that end and the creation of instrumentalities for that purpose." See Edward S. Corwin, "The Taxing Power of Congress" (1922) 37 Harvard Law Review, 548; Farnsworth L. Jennings and Robert C. Sullivan, "Legal Planning for Agriculture" (1933) 42 Yale Law Journal, 878.

In the Agricultural Adjustment Act there is no attempt, through the use of taxing power, to regulate the business of the person taxed — attempts of the type which the Supreme Court declared unconstitutional in the Child Labor Act, 40 Stat. 1138 (Bailey v. Drexel Furniture Co. 1922 259 U. S. 20, 42 S. Ct. 449, 66 L. Ed. 817, 21 A. L. R. 1432), or the Future Trading Act, 42 Stat. 187 (Hill v. Wallace 1922 259 U. S. 44, 42 S. Ct. 453, 66 L. Ed. 822). Nor is there the more direct attempt to...

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  • Union Packing Co. v. Rogan
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    ...City (1909) 213 U.S. 276, 29 S.Ct. 426, 53 L.Ed. 796; Port Angelus Western R. R. Co. v. Clallam County, Wash., supra; Rieder v. Rogan (D.C.Cal.1935) 12 F.Supp. 307. Difficulty, nay, even impossibility, of proving the taxpayer's claim in a court of law does not amount to inadequacy of remedy......
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    ... ... and, as there shown, many books on that subject have been ... published from time to time. It is stated in Rieder v ... Rogan, 12 F.Supp. 307, 318, that courts take judicial ... notice of the fact that modern systems of accounting have ... become very ... ...
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    ...But we also know that in these days of income taxes every merchant applies some system of accounting to his business. In Rieder v. Rogan, D.C., 12 F.Supp. 307, 318, the court took judicial notice of the accuracy of modern systems of accounting and said: 'It would seem to us that, with the h......
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