Standard Oil Co. v. Fox

Decision Date01 March 1934
Docket NumberNo. 3312.,3312.
CourtU.S. District Court — Southern District of West Virginia

H. D. Rummel, Donald O. Blagg, and A. G. Stone (of Rummel, Blagg & Stone), all of Charleston, W. Va., for plaintiff.

Homer A. Holt, Atty. Gen., R. Dennis Steed, Acting Asst. Atty. Gen., and Wm. Holt Wooddell, Asst. Atty. Gen., for defendant.

Before SOPER, Circuit Judge, and McCLINTIC and CHESNUT, District Judges.

SOPER, Circuit Judge.

This suit was brought to secure an injunction to restrain the state tax commissioner of the state of West Virginia from paying into the treasury of the state the sum of $240,173.50, paid to him under protest by the plaintiff corporation upon his demand that, under the provisions of an act of the state Legislature passed on March 8, 1933 (chapter 36), the money was due for license taxes upon certain gasoline filling stations and bulk distributing plants which it owned or controlled. The bill of complaint prays that a temporary restraining order and interlocutory injunction be issued; that upon final hearing the injunction be made perpetual; that the sum collected be declared a trust fund in the hands of the defendant for the use of the plaintiff; and that the defendant be required to account for and return it to the plaintiff. The grounds of the suit are: (1) That the application of the act to operators of automobile service stations violates the due process and equality clauses of the Fourteenth Amendment to the Federal Constitution; (2) that the act violates the uniformity requirement of the state Constitution; and (3) that, when properly construed, the act is not intended to apply to the places of business conducted by the plaintiff.

Sections 1 and 2 of the act provide that it shall be unlawful for any person to operate any store in the state without first having obtained a license from the state tax commissioner; and require every person desiring to operate more than one store to make a separate application to the state tax commissioner for each such store. Section 5 provides that each person operating "one or more stores or mercantile establishments within this state" shall pay, upon each store, the following annual license fees: Upon one store, $2; upon 2 to 5 stores, $5; upon 6 to 10 stores, $10; upon 11 to 15 stores, $20; upon 16 to 20 stores, $30; upon 21 to 30 stores, $35; upon 31 to 50 stores, $100; upon 51 to 75 stores, $200; and upon more than 75 stores, $250. The term "store" is defined to mean and include "any store or stores or any mercantile establishment or establishments which are owned, operated, maintained and/or controlled" (section 8) by the same person "in which goods, wares or merchandise of any kind, are sold, either at retail or wholesale." Section 9 provides that any person who shall violate any of the provisions of the act shall be guilty of a misdemeanor, and, upon conviction, fined not less than $25, nor more than $100; and that each day that such violation continues shall constitute a separate and distinct offence. Section 11 provides that no injunction shall issue from any court in the state enjoining the collection of any license tax provided by the act, but the party claiming that any license is not due shall pay the same under protest "with the right to collect the same from the state tax commissioner by an appropriate remedy as provided by law." These sections are set out in full in the margin.1

It is alleged in the bill of complaint that the plaintiff is the Standard Oil Company of New Jersey, a corporation incorporated under the laws of the state of Delaware, and is chiefly engaged in the business of refining, transporting, and distributing, at wholesale and retail, in various states of the Union, including West Virginia, gasoline, kerosene, oils, grease, and divers other petroleum products. In 1933 it owned or controlled in West Virginia 949 service or filling stations, or places of business, either through ownership or lease of the premises, or through contractual relations with the owners or persons in control of the premises. This total consisted of 101 stations, owned or leased by the plaintiff and operated by it, called company owned stations; 388 stations, called leased outlets, leased to the plaintiff and operated by the lessor or some other person in control of the premises under commission contracts with the plaintiff; and 460 stations, called vending privilege outlets, at which the plaintiff acquired by lease the right to store and sell its products, and which were operated by the lessor or other person in control under commission contracts. The control of the plaintiff of all of these stations is so complete that the plaintiff does not deny that they are operated by it within the meaning of the act. In addition, it operated 54 bulk or distributing plants, maintained principally as supply depots for the storage and distribution of petroleum products to the said service stations or dealers handling its products and to commercial and industrial customers throughout the state. A relatively small quantity of petroleum products is sold on the premises of the bulk stations.

The defendant is the tax commissioner of the state of West Virginia, and is a citizen and resident of that state, and has his office in the city of Charleston. He is charged with the duty of enforcing all the tax laws of the state, including the act which is the subject of this suit. On June 5, 1933, subsequent to the passage of the act, he issued and circulated throughout the state a written order, wherein he notified the operators of all stores and mercantile establishments that within seven days thereafter they must make application for licenses under the act on pain of the penalties therein imposed; and he ruled and declared that the act imposes license fees upon the plaintiff for the privilege of operating its gasoline filling stations and bulk distributing plants in the state, according to the schedule of fees prescribed by section 5 of the act, and advised the plaintiff that, unless it immediately filed applications for the licenses, and paid the fees, it would render itself subject to the penalties and fees provided in section 9 of the act. Pursuant to these rulings and directions, the plaintiff, on June 6, 1933, filed its application for licenses for 1,003 locations in the state, accompanying the application, however, with a letter stating that the act imposed no liability for license fees upon it; and that it paid the same, under protest and duress, for the sole purpose of avoiding the imposition of fines and penalties in the event that the validity and applicability of the act should be sustained. The amount paid was $240,173.50, composed of the fees scheduled in the act, and the sum of 50 cents for each application, as required by the law.

Since the relief prayed in the bill of complaint constituted an interference with the enforcement of a state statute upon the ground that it is invalid under the Federal Constitution, and since the application for interlocutory injunction was pressed on this ground, a court of three judges was properly organized to try the case under section 266 of the Judicial Code (28 USCA § 380). Stratton v. St. Louis S. W. Ry., 282 U. S. 10, 51 S. Ct. 8, 75 L. Ed. 135; Public Service Corporation v. Batesville Telephone Co., 284 U. S. 6, 52 S. Ct. 1, 76 L. Ed. 135; Sterling v. Constantin, 287 U. S. 378, 53 S. Ct. 190, 77 L. Ed. 375.

The defendant filed a motion to dismiss, and also an answer to the bill of complaint. The motion to dismiss is based on the ground that the federal questions raised are frivolous and unsubstantial; and that, in any event, there is no equitable jurisdiction because the complainant has a complete and adequate remedy at law.

When the case came on for hearing, it was contended in support of the motion to dismiss that the right of a state to impose a graduated license tax upon a chain of stores has been firmly established by the decisions of the Supreme Court in 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 Liggett Company v. Lee, 288 U. S. 517, 53 S. Ct. 481, 77 L. Ed. 929, 85 A. L. R. 699, and that therefore, under the rule laid down in Ex parte Joseph Poresky, 290 U. S. 30, 54 S. Ct. 3, 78 L. Ed. 152, the contention that the present act is contrary to the Fourteenth Amendment to the Federal Constitution is so obviously unsound that it raises no substantial federal question. Whether such a question is present in such a way as to give jurisdiction to the court must be determined by the allegations of the bill; and, in view of the subsequent discussion herein of the constitutionality of the West Virginia act, we need only point out here that the plaintiff asserts in the bill of complaint that it does not enjoy the peculiar economic advantages upon which the separate classification of chain stores for taxation was upheld by the Supreme Court in the cases cited; that the tax imposed by the West Virginia act is so high that it substantially equals the net earnings of the plaintiff on all of its outlets in the state during the year 1932, and exceeds the net earnings of 95 per cent. of said outlets; and that, in the practical operation of the act, there is an arbitrary discrimination between the business of the plaintiff and other oil companies, on the one hand, and the business of other general commodity chain organizations, on the other, in that in the former the ratio of the tax to the gross revenue is very high, and in the latter the ratio is very low, with the result that gross inequality in the burden of taxation ensues.

The right of the plaintiff to invoke the equitable jurisdiction of the court depends upon the absence of an adequate remedy at law. A suit to enjoin the collection of a state tax on the ground that it involves an arbitrary and unreasonable discrimination against the taxpayer in violation of the...

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