Thompson v. Deal

• Decision Date: 28 June 1937
• Docket Number: No. 6695.,6695.
• Citation: 67 App. DC 327,92 F.2d 478
• Parties: THOMPSON et al. v. DEAL et al.
• Court: U.S. Court of Appeals — District of Columbia Circuit

67 App. DC 327, 92 F.2d 478 (1937)

THOMPSON et al. v. DEAL et al.

No. 6695.

United States Court of Appeals for the District of Columbia.

Argued April 5, 1937.

Decided June 28, 1937.

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John C. White, of Washington, D. C., and Jerome S. Hafter, of Greenville, Miss., for appellants.

Robert H. Jackson, Asst. Atty. Gen., Leslie C. Garnett, U. S. Atty., and Sewall Key, F. A. LeSourd, and F. J. Neuland, all of Washington, D. C., for appellees.

Before MARTIN, Chief Justice, and ROBB, VAN ORSDEL, GRONER, and STEPHENS, Associate Justices.

GRONER, J.:

This is an appeal taken from a decree dismissing a bill in equity brought by appellants to recover amounts paid by them in purchasing exemption certificates issued under the Bankhead Act from the National Surplus Cotton Tax Exemption Certificate Pool. Some of appellants reside in Mississippi, others in Alabama. The suit was brought as a class suit in the United States District Court against Deal, the manager of the National Cotton Pool, a resident of the District of Columbia; Wallace, the Secretary of Agriculture; Julian, the Treasurer of the United States; and Payne and Davis, Comptroller and Administrator, respectively, of A. A. A.

The Bankhead Cotton Control Act was passed by Congress "to place the cotton industry on a sound commercial basis, to prevent unfair competition and practices in putting cotton into the channels of interstate and foreign commerce, to provide funds for paying additional benefits under the Agricultural Adjustment Act, and for other purposes."¹ The act was limited to the crop year 1934-35 unless extended by the President. It fixed the quota for the first year at 10,000,000 bales, and authorized the Secretary of Agriculture to determine the total to be produced in a subsequent crop year, and imposed a tax on all cotton produced in excess of the fixed allotment. The Secretary was authorized to allocate to each cotton producing state and county a fixed proportion of the permissible total and likewise to divide up the county total among individual producers of cotton. The tax, equal to $25 a bale, applied to all cotton produced in excess of the amount allotted. No allotment was made to any producer of cotton unless he agreed to comply with the limitations on production prescribed by the Secretary, not only as to cotton but as to all other agricultural commodities. If he did comply, he was furnished with exemption certificates evidencing his right to produce and to gin free of tax the amount of cotton allotted to his farm. The certificates, if not thus used, were transferable or assignable in such manner as the Secretary might prescribe. Violations of the act were made punishable by a fine not exceeding a thousand dollars and imprisonment not exceeding six months, and the act authorized the Secretary to make such rules and regulations as in his opinion were necessary to carry the act into effect, and violations of the Secretary's rules were made punishable by a fine not exceeding $200.

Pursuant to the authorization of the act the Secretary issued regulations under date of March 6, 1935, in which he set up elaborate administrative machinery. So far as material here, the regulations provided for the establishment of surplus cotton tax exemption certificate pools. Broadly speaking, the purpose of these pools was to act as a clearing house for surplus exemption certificates; that is to say, the farmer who had failed to produce an amount of cotton equivalent to his certificates might turn the remainder over to the pool to be sold to a producer who wished to market cotton in excess of his allotment. Each producer surrendering certificates to the pool executed in triplicate a trust agreement appointing the manager of the pool as trustee "to hold all right, title, and interest which the producer may have in said certificates, listed below," and authorizing the manager of the pool "to place said certificates in said pool and give this producer credit for the amount of said certificates as shown below"; that is to say, the manager of the pool was authorized to sell the certificates and after the payment of all expenses to distribute the proceeds "pro rata to the producers who have contributed to the pool." The certificates were to be sold for cash or certified check payable to the pool manager at such price and under such conditions as the Secretary should determine. The price fixed was 4 cents a pound ($20 a bale). Under the provisions of the act and the regulations a producer of cotton whose farm yielded a greater number of pounds than his allotment could market his surplus only by paying a tax of 5 cents a pound on the excess or by buying at four cents a pound certificates covering the amount of such excess.

Appellants allege that during the crop year 1935-36 (the President having extended the provisions of the act) they received their allotments of cotton which might be produced tax exempt, but that they all produced more than the allotted amount. Four courses were then open to them: (a) They could pay the tax of $25 a bale; (b) they could obtain reissued certificates at $20 a bale; (c) they could store their cotton subject to a government lien but not to be thereafter removed without payment of the tax or the purchase of the exemption certificates; or (d) they could ignore the act and be subject to the criminal penalties prescribed therein.

They alleged that they chose the least of the evils and purchased from appellee Deal, manager of the pool, sufficient tax exemption certificates to cover their excess cotton and that they were led to do this because the Secretary had fixed the price of the certificates at one cent less a pound than the tax. They alleged they paid into the pool some $8,500 and that there were in the United States not less than one hundred thousand producers in like situation whose payments into the pool total in excess of three and a half million dollars. They say they made the payments under duress and that the money received by Deal from the sale of certificates, less the deduction of the expenses of the pool, is about to be distributed under the directions of the Secretary of Agriculture to the several persons who surrendered their certificates to the pool.² They base their suit upon the invalidity of the Bankhead Act and of the rules and regulations of the Secretary and conclude with the allegation that, if the money is released and paid over to the individual producers, as it is about to be, tracing it would be impossible, and that a suit for recovery under R.S. § 3226, as amended (26 U.S.C.A. §§ 1672-1673), will not lie because the money was not paid to a collector of internal revenue. They ask for the appointment of a receiver to hold the fund and for a preliminary injunction to restrain disposition of it, and pray that upon a final hearing they and those for whom the suit is prosecuted be declared to be the owners of the fund and entitled to receive the amounts which they have severally paid into it.

There was a motion to dismiss which was sustained by the District Court on the ground that the producers who had surrendered to the pool the certificates that appellants bought are the real parties in interest as beneficiaries of the trust fund; that these producers exercised no duress upon appellants; and that the case is controlled by Otis v. Cullum, 92 U.S. 447, 23 L.Ed. 496. We think there is more to the case.

If the Bankhead Act and regulations are invalid, the depositors of the certificates into the pool have no rights which entitle them to the proceeds or to be made parties to the suit. Whatever rights these depositors had arose as a result of the act and of regulations to make it effective. It is only through the power of the act that the surrendered certificates had a value of four cents a pound or any value. If the act and the regulations made by the Secretary are invalid, the farmer who surrendered a certificate had nothing to sell and is entitled to nothing in the distribution of the fund if the fund itself was created by duress. The Bankhead Act was repealed February 10, 1936 (49 Stat. 1106), following the decision in United States v. Butler, 297 U.S. 1, 56 S. C. 312, 80 L.Ed. 477, 102 A.L.R. 914, and we take it as settled for the purposes of this discussion — and indeed it was not otherwise contended in the argument and in the briefs by government counsel — that the decision of the Butler Case invalidating the Agricultural Adjustment Act (48 Stat. 31, 7 U.S.C.A. § 601 et seq.) is controlling and that the act now under consideration and the regulations made pursuant to it are, therefore, invalid. So that the questions, as we think, for decision are: First, is this a suit against the United States? Second, have the appellants a standing in equity? Third, do the allegations of the bill show that this is properly a class suit? Fourth, were the payments made under duress? and Fifth, was duress attributable to the depositors of certificates?

First. Contrary to our previous experience in suits against the Treasurer and other fiscal officers of the United States in which it is almost invariably insisted that the suit is one against the United States, we are met in this case with the flat-footed statement by the officers sued that this is not a suit against the United States. Thus in paragraph 28 of the return to the rule to show cause filed on behalf of Deal, Wallace, Julian, Payne, and Davis, they say: "Further answering, defendants admit that the amounts paid into said pool through defendant Deal as trustee of said fund were not paid to any Collector of Internal Revenue and were not paid to the United States. Defendants admit that plaintiffs have no remedy for, or right to, the return to the plaintiffs by the United States or by any Collector of Internal Revenue of any part of said payments, and allege that said payments have no connection with and form no basis for any claim against...