Smith v. United States, 17601

• Decision Date: 31 July 1962
• Docket Number: 17278.,No. 17601,17601
• Citation: 305 F.2d 197
• Parties: L. M. SMITH, also known as Laurence M. Smith, and Earl C. Corey, Appellants, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

305 F.2d 197 (1962)

L. M. SMITH, also known as Laurence M. Smith, and Earl C. Corey, Appellants, v. UNITED STATES of America, Appellee.

Nos. 17601, 17278.

United States Court of Appeals Ninth Circuit.

June 27, 1962.

Rehearing Denied July 31, 1962.

COPYRIGHT MATERIAL OMITTED

Bernard, Bernard, Edwards & Hurley, E. F. Bernard, Portland, Or., for appellant Corey.

Mautz, Souther, Spaulding, Kinsey & Williamson, Bruce Spaulding, and A. Allan Franzke, Portland, Or., for appellant Smith.

Sidney I. Lezak, Acting U. S. Atty., and David Robinson, Jr., Asst. U. S. Atty., Portland, Or., for appellee.

Before CHAMBERS, BARNES and HAMLEY, Circuit Judges.

HAMLEY, Circuit Judge.

L. M. Smith and Earl C. Corey were jointly tried and convicted on charges involving 15 U.S.C.A. § 714m(a) and 18 U.S.C. §§ 371 and 434.¹ While their appeals from these convictions, consolidated as No. 17278, were pending here, they separately moved in the district court for a new trial on the ground of newly-discovered evidence. The motions being denied, they have appealed from the order of denial, these appeals being consolidated as No. 17601. Both appeals will be disposed of in this opinion.

In the spring of 1956, Corey was the director of the Portland Commodity Office, Commodity Stabilization Service, United States Department of Agriculture (Commodity). That office was charged with administering the farm price control activities of the Commodity Credit Corporation, including the storage of Government-owned wheat. At that time Corey became aware of the availability of a warehouse located near Portland, Oregon, which was suitable for storage of grain. He discussed with one Willard A. Richards the possibility of making use of this warehouse for the storage of Government grain. Richards was then general manager of North Pacific Grain Growers, a large private grain cooperative.

Following these discussions, Corey and Richards met with Smith, who was experienced in the warehousing of grain. Corey and Richards indicated to Smith at that time that they were interested in operating the warehouse on a partnership basis, provided Smith would handle the actual operation with Corey and Richards as "silent" partners. Smith examined the warehouse, decided that it was suitable for the purpose, and determined that it would require about $90,000 to get the enterprise in operation.

The three men then entered into an oral agreement to engage in the enterprise. Under this agreement, Smith was to lease and operate the warehouses and supply the necessary finances. Corey and Richards were later each to supply one-third of the estimated cost, and were to share equally with Smith in the liabilities and profits of the business. Smith negotiated for and, on April 10, 1956, with his wife, entered into a lease for the warehouse. Later an additional lease covering another warehouse was entered into by Smith and his wife. Smith, on his own account, borrowed all of the money necessary to equip the warehouses and start the business. The business was named "Three-State Warehouse Company".

Smith applied for, and on April 26, 1956, received a grain storage agreement with Commodity for such Government wheat as that corporation might thereafter see fit to entrust to him.

In July, 1956, Richards paid Smith $30,000 as his share of the estimated cost of establishing the business. Thereafter Corey delivered to Smith his promissory note for $30,000, representing his share of the original capital. This note was later paid by deductions from proceeds payable to Corey out of the earnings of the business. In August, 1956, the three men entered into a written partnership agreement.

The warehouses were owned by the partnership until April 30, 1959, at which time the business was incorporated. Smith, his wife, and the corporation attorney were named the directors and officers, the partners receiving equal stock ownership and the management continuing with Smith.

The business was operated at a loss during the first year, and thereafter a profit was realized each year. The profits were divided equally between Smith, Corey and Richards. The business of Three-State Warehouse Company consisted solely of the storage of grain for Commodity.

Shortly after the incorporation of the business Corey terminated all of his interest in the corporation by selling his stock therein to the corporation for $30,000. He later explained this action as having been motivated by a desire not to embarrass the Secretary of Agriculture, although at that time his interest had not been discovered.

The indictment consists of eleven counts, Counts I through VIII, inclusive, consist of charges that Smith, for the purpose of influencing the action of Commodity, and to obtain money and other things of value under the Commodity Credit Corporation Act, and in violation of 15 U.S.C.A. § 714m(a), knowingly, on various dates from April 25, 1956 to April 30, 1958, caused to be made false statements to the effect that Smith was the sole owner of Three-State Warehouse Company, whereas in truth that company was a partnership owned by Smith, Corey and Richards. These false statements, it was charged, were made in various written documents consisting of applications for approval of warehouse facilities, grain storage agreements, and statements of assets and liabilities.

In Count IX of the indictment it was charged that between April 6, 1956 and May 1, 1959, Smith and Corey conspired with each other and with Richards in violation of 18 U.S.C. § 371, to violate 15 U. S.C.A. § 714m(a) by making to Commodity the false statements referred to in Counts I to VIII, for the purposes charged in those counts. Various overt acts pursuant to this asserted conspiracy, consisting of meetings, discussions, and the execution and filing of documents, were alleged.

In Count X it was charged that between April 26, 1956 and May 1, 1959, Corey, being a partner, member officer, and agent of Three-State Warehouse Company, and directly and indirectly interested in the profits and contracts of that partnership, was employed and acted as an officer and agent of the United States for the transaction of business with that company, in violation of 18 U.S. C. § 434.

In the final Count, XI, it was charged that, commencing on March 1, 1956, and continuing to May 1, 1959, Corey and Smith conspired together and with Richards, to commit an offense against the United States and to defraud the United States in violation of 18 U.S.C. § 371. The offense and fraud which was the subject matter of the conspiracy was the asserted violation of 15 U.S.C. § 434 by Corey, as charged in Count X. Several overt acts, it was alleged, were committed pursuant to this conspiracy.

Richards, who testified as a witness for the Government, was not indicted.

Each appellant was found guilty on all charges made against him, and each was sentenced to two years on each count of which he was convicted. The sentences were made concurrent so that each appellant was sentenced to a total of two years imprisonment.

We turn first to the appeals from the district court orders denying appellants' motions for a new trial on the ground of newly-discovered evidence.

After the trial appellants learned for the first time that Commodity became aware of Corey's interest in the warehouse company by examining his federal income tax returns. This information was disclosed to them by the Government in answers to interrogatories propounded in civil litigation involving Three-State Warehouse Company.

It is appellants' position that, in examining Corey's income tax returns, Department of Agriculture officials violated 26 U.S.C. § 7213(a), forbidding unauthorized disclosure of information set forth in income tax returns.² Based on the assumption that the inspection was illegal, appellants argue that all of the evidence so collected was inadmissible under the rationale of Elkins v. United States, 364 U.S. 206, 80 S.Ct. 1437, 4 L. Ed.2d 1669.

By the terms of the exception stated in § 7213(a), information contained in income tax returns may be disclosed "as provided by law." In its answer to the interrogatories the Government stated that the inspection was made pursuant to 26 C.F.R. 458.33.³ However this regulation was issued under the 1939 Code, and appellants assert that it has no application to a return filed pursuant to the 1954 Code.

Inspection of returns made pursuant to the 1954 Code is provided for in 26 U.S.C. § 6103(a).⁴ In all material respects this section is identical to § 55(a) of the 1939 Code, 26 U.S.C. § 55(a). Rules and regulations implementing § 55 (a) were provided by T.D. 4929, which became 26 C.F.R. 458.33. The authority for these regulations is found in the Executive Order of August 28, 1939 (1939-2 C.B. 97) quoted in the margin.⁵

The "carry-over" section of the 1954 Code, 26 U.S.C. § 7807(a)⁶ provides that any section of the 1954 Code "which depends for its application upon the promulgation of regulations," is implemented by regulations prescribed under the 1939 Code which would be appropriate as regulations for the indicated section of the 1954 Code, until regulations are actually promulgated under the latter statute. No such regulations having been issued pursuant to § 6103(a), a section which depends for its application upon the promulgation of regulations, the regulations promulgated to implement its counterpart in the 1939 Code, § 55(a), were carried over, and therefore apply to a return filed pursuant to the 1954 Code.

Appellants also contend, however, that under the regulation in question (26 C.F. R. § 458.33), the only inspections which are in any event authorized are those made under § 6103(a) (1). It is conceded by the Government that the questioned inspections would not have been authorized under § 6103(a) (1), reliance being placed solely on § 6103(a) (2).

In support of this contention, which was first advanced in Corey's reply brief, our attention is called to the...