Stuart v. Chinese Chamber of Commerce of Phoenix

• Decision Date: 15 June 1948
• Docket Number: No. 11771.,11771.
• Parties: STUART, Collector of Internal Revenue, v. CHINESE CHAMBER OF COMMERCE OF PHŒNIX et al.
• Court: U.S. Court of Appeals — Ninth Circuit

168 F.2d 709 (1948)

STUART, Collector of Internal Revenue, v. CHINESE CHAMBER OF COMMERCE OF PHŒNIX et al.

No. 11771.

Circuit Court of Appeals, Ninth Circuit.

June 15, 1948.

Theron Lamar Caudle, Asst. Atty. Gen., Sewall Key, George A. Stinson, Fred J. Neuland, and Maurice P. Wolk, Sp. Assts. to Atty. Gen., and Frank E. Flynn, U.S. Atty., and Charles B. McAlister, Asst. U.S. Atty., both of Phoenix, Ariz., for appellant.

Jerman & Flynn, of Phoenix, Ariz., for appellee.

Before GARRECHT, DENMAN, and HEALY, Circuit Judges.

GARRECHT, Circuit Judge.

Appellees agree that the statement contained in appellant's opening brief in general sets forth the facts of this case in a clear and concise manner. Those facts may be summarized as follows:

On or about the 11th day of October, 1945, one Ung Too Thet, alias Ung Kok Si, hereafter known as "Thet" was arrested by agents of the United States Narcotics Bureau. A search of his premises by these agents resulted in the discovery of a safe containing some $32,000 in cash and checks which were "taken" as evidence by the narcotic agents and "seized" by the Collector of Internal Revenue.

Delinquent assessments had been made against Thet for unpaid 1943 and 1944 income taxes amounting to $25,893.11. A narcotic tax of $8,100 had likewise been made against him by the Collector and satisfied out of the moneys seized. The balance of cash, amounting to $20,915.02 was applied by the Collector against Thet's unpaid income taxes.

Thereafter, during the month of November, 1945, the appellees laid claim to the moneys on the ground that Thet had no interest therein other than the safe-keeping thereof; that he was not the owner and was holding the moneys for and on behalf of each respective appellee as treasurer thereof.

The District Court found these facts to be true and further, that the fund was in the possession of the Collector and that the Collector had refused to deliver the same to the appellees.

On March 21, 1947, the District Court entered judgment against the Collector in the aggregate sum of $17,453.81. On March 31, 1947, the Collector filed a motion for new trial which was heard on May 23; the motion was granted dismissing the fourth cause of action (not here relevant) and denying it as to the remaining causes. Three days later the Collector filed a motion to dismiss the complaint for lack of jurisdiction. The motion was denied and final judgment was entered in favor of appellees and against the Collector for the aggregate sum of $15,953.81 $15,539.81?

Under a certificate of probable cause issued by the District Court the appellant was released from payment of the judgment and the judgment was ordered paid out of the proper appropriation from the United States Treasury.

The appellant concedes that "presumably" the appellees invoked the jurisdiction of the District Court under the provisions of Section 24, Fifth, of the Judicial Code, Title 28 U.S.C.A. § 41, subd. (5),¹ but challenges such jurisdiction on two grounds included in the specification of errors filed on his behalf:

"1. The District Court erred in denying the Collector's motion to dismiss for lack of jurisdiction for the reason that it was without jurisdiction of the subject matter of the complaint filed herein since appellees had not filed claims for refund as required by Section 3772 of the Internal Revenue Code 26 U.S.C.A.Int.Rev.Code, § 3772.

"2. The District Court erred in denying the Collector's motion to dismiss for lack of jurisdiction for the reason that it was without jurisdiction over the Collector or over the fund which was ordered to be paid by him to appellees, since the fund, representing a portion of the amount seized from the taxpayer, was not in the possession of or under the control of the Collector, the fund having been covered and deposited into the Treasury of the United States prior to the institution of this proceeding pursuant to the provisions of Section 3971 of the Internal Revenue Code 26 U.S.C.A.Int.Rev.Code, § 3971."

There is no contention made by appellant that the moneys here involved were legally collected or assessed against the appellees. There is a tacit confirmation of the findings of the District Court that the moneys belong to the appellees, were "seized" by the appellant, and were unlawfully withheld from the appellees.

It is the appellant's position that if the funds had been in his possession and he had not deposited them in the Treasury of the United States, it might have been possible for the court below to have directed their return. But that, since the money had been turned over to the Treasury, its recovery could be accomplished only by the filing of a claim under section 3772 of the Internal Revenue Code or in a suit against the United States under the Tucker Act, c. 359, 24 Stat. 505, 28 U.S.C.A. § 41 (20), based upon an implied contract.

First of all, in the complaint filed in this action the plaintiffs appellees alleged on information and belief that the fund in question, and the whole thereof, "is in the possession of the defendant above named. That the plaintiff * * * has demanded return of said fund from the above named defendant, and he has refused to deliver the same, or any part thereof * * *." Defendant's answer admits the court has jurisdiction over the subject matter and the parties, but denies that he had in his possession any sum belonging to the plaintiffs, and, "on the contrary alleges that all of said monies were seized by the Narcotics agents, were the property of Ung Too Thet at the time of said seizure, being in his possession and subject to his personal control and use, and that the parties plaintiffs herein have no legal interest whatsoever in said fund."

In its Findings of Fact and Conclusions of Law the Court specifically found that Thet had no interest in the fund and was holding the same for the plaintiffs and: "That the said fund, and the whole thereof, is in the possession of the defendant, and the said defendant has refused to deliver said fund, or any part thereof, to the plaintiff * * *."

Possession and right to possession of the fund therefore were clearly put in issue. No evidence was offered during the trial by appellant to substantiate his later claim that the moneys were not in his possession but had been turned over to the Treasury. This information was peculiarly within his knowledge and was available to him at all times and he could easily have raised the point during the course of the trial. On this state of the record we therefore are not disposed to reject or upset the findings of the court and, for the purpose of this case, sustain the finding that the Collector was in possession of the fund here involved.

While the legality of the "seizure" in question was not challenged by the appellees in the lower court, a consideration of the record would lead us to believe that the Collector and his agents have gone to unnecessary lengths to retain the moneys which admittedly do not belong to the taxpayer, Thet, and have been adjudicated to be the property of the appellees. That the government does not sanction zeal of this kind on its behalf by its agents was long ago expressed by the Supreme Court in Bull v. United States, 295 U.S. 247, 261, 55 S.Ct. 695, 700, 79 L.Ed. 1421, through Mr. Justice Roberts:

"* * * The United States, we have held, cannot, as against the claim of an innocent party, hold his money which has gone into its treasury by means of the fraud of its agent. case cited While here the money was taken through mistake without any element of fraud, the unjust retention is immoral and amounts in law to a fraud on the taxpayer's rights. What was said in the State Bank Case applies with equal force to this situation. `An action will lie whenever the defendant has received money which is the property of the plaintiff, and which the defendant is obliged by natural justice and equity to refund. The form of the indebtedness or the mode in which it was incurred is immaterial. * * *'"

Secondly, the cases cited by the appellant do not support the contentions made by him. They involve the payment of a tax, as such, by a taxpayer usually under protest and the endeavors of the taxpayer thereafter to reclaim the amounts asserted to have been wrongfully assessed or collected.

Under the circumstances here recited it is obvious the appellees are not taxpayers in the strict sense of the word, and therefore they do not come within the orbit of the income tax laws here invoked. On this point the court in Long v. Rasmussen, D. C., 281 F. 236, 238, on enjoining the sale of property wrongfully seized to make the taxes owed by another than owner of the property, said:

"The revenue laws are a code or system in regulation of tax assessment and collection. They relate to taxpayers, and not to nontaxpayers. The latter are without their scope. No procedure is prescribed for nontaxpayers, and no attempt is made to annul any of their rights and...