UNITED STATES BREWERS ASS'N v. Cesar Perez, Civ. No. 78-1370.
Citation | 455 F. Supp. 1159 |
Decision Date | 29 August 1978 |
Docket Number | Civ. No. 78-1370. |
Parties | UNITED STATES BREWERS ASSOCIATION, INC., et al., Plaintiffs, v. Julio CESAR PEREZ et al., Defendants. |
Court | United States District Courts. 1st Circuit. District of Puerto Rico |
Federico A. Cordero, Carolina, P. R., Feldstein, Gelpí, Hernández & Castillo, San Juan, P. R., for plaintiffs.
Vivian Reyes de Rodríguez, José A. Tulla, Department of Justice, San Juan, P. R., for defendants.
This is an action for injunctive and declaratory relief filed by five corporations engaged in the business of manufacturing beer for distribution and sale in interstate and foreign commerce, and by a trade association which allegedly represents the manufacturers of ninety five percent of the beer sold in the United States. The Defendants are the Secretary and the Director of the Bureau of Alcoholic Beverages of the Treasury Department of the Commonwealth of Puerto Rico.
Plaintiffs challenge the validity of Act 37 of July 13, 1978, enacted by the Legislative Assembly of the Commonwealth of Puerto Rico. Succinctly stated, this statute increases the internal revenue tax on beer produced by breweries whose annual production exceeds 31 million gallons, from $1.05 up to $1.60 per wine gallon or fraction of wine gallon; and establishes a procedure to exempt from that tax increase the beer ". . . produced or manufactured by persons whose total production . . . during its most recent tax year has not exceeded thirty one million (31,000,000) wine gallons . . ."
Plaintiffs allege that the evident intent and necessary effect of Act 37 is to discriminate in favor of the two local breweries by establishing a classification that subjects the Plaintiffs to the higher tax, while the only breweries which would qualify for the exemption are the local ones. It is Plaintiffs' contention that the statute in question is violative of Art. I, Section 8; Art. IV, Section 3, Clause 2; Art. VI, Clause 2 and the Fifth and Fourteenth Amendments to the United States Constitution. It is further alleged that the statute transgresses the Federal Relations Act, particularly 48 U.S.C. §§ 737 and 741a, in that it discriminates between articles imported from the United States or foreign countries and similar articles manufactured in Puerto Rico.
The controlling threshold question in this case is jurisdictional. The Butler Act, 48 U.S.C. § 872 reads as follows:
"No suit for the purpose of restraining the assessment or collection of any tax imposed by the laws of Puerto Rico shall be maintained in the district Court of the United States for Puerto Rico.
There are no recent court decisions interpreting the scope of this Act.1 Read without qualification, it deprives this Court of power to entertain any action wherein it is sought, either directly or indirectly, to restrain the collection of a tax imposed under the Law of Puerto Rico, including suits for declaratory judgments. Sancho v. National City Bank of N. Y., 112 F.2d 998 (C.A. 1, 1940); Paul Smith v. Buscaglia, 140 F.2d 900 (C.A. 1, 1944).
However, we do not read the Butler Act as an unqualified and blanket prohibition against equitable relief operative even in the presence of extraordinary and exigent circumstances.
The Court of Appeals for the First Circuit has clearly refused to foreclose the possibility that the Act may be subject to exceptions in certain cases. In Sancho v. National City Bank of N. Y., supra, the Appellate Court stated that "the Butler Act . . . means what it says." Id., at p. 1003. However, the Court went on to intimate that there may be exceptions to the prohibition where "the taxpayer is put to the direct necessity, and can make out a case of gross and indisputable oppression, without adequate remedy at law." Ibid. After examining the remedies available to the taxpayer in the Puerto Rico forums, the Court of Appeals concluded that no such "special and extraordinary circumstances" were present as would justify the issuance of an injunction. Id. at p. 1004.
In a case that was decided four years after Sancho, the Court followed the same cautious path. Paul Smith v. Buscaglia, supra, although indicative of a refusal to definitely settle the issue, again admitted the plausibility of exceptions "in special and extraordinary circumstances" and reiterated that the absence of an adequate remedy at law may justify the exercise of the court's remedial power. Id., at pp. 901-902.
This clearly flexible approach to the language of 48 U.S.C. § 872 has been embraced by this Court. In Boyce v. Buscaglia, 77 F.Supp. 753 (D.C.P.R., 1948), the Court discussed the portent of the Butler Act within the context of an action brought by certain trustees of an express trust, praying for instructions as to their duty to their beneficiaries concerning certain income tax withholdings from dividends. Given the sui generis nature of the relief requested, the Court deemed it unnecessary to decide whether or not the Butler Act should be strictly construed. Nevertheless, the Court stated:
77 F.Supp. at 756-757 (Emphasis added).
In the latest decision dealing with the instant subject: Everlasting Development Corp. v. Sol Luis Descartes, supra, the District Court was faced with a request for dismissal of an action seeking a declaratory judgment as to the right of the plaintiffs to tax exemption under a local statute. The court commenced its analysis from the premise that the declaratory suit's object was to avoid payment of taxes which had been or would be imposed as a result of Plaintiff's petition for tax exemption having been denied by Defendants, and that therefore the action was within the ban of the Butler Act.
After analogizing 48 U.S.C. § 872 with the similar provision contained in 28 U.S.C. § 1341, the court expressed:
95 F.Supp. at 958.
Upon making such an important pronouncement, the court engaged in the same quest which had been invariably undertaken in all of the previous cases on the subject, i. e., whether the Plaintiffs had resort to adequate local remedies.2
In our opinion, the foregoing clearly evinces a judicial tendency to treat the Butler Act in a manner consistent with general equitable principles. However, the instant case presents certain additional factors which merit exploration before attempting to frame a definite construction of the statute.
Section 3 of the Organic Act, as amended, 44 Stat. 1418 (1927), 48 U.S.C. § 741a, limits the taxing authority of the Legislature of Puerto Rico by expressly prohibiting discrimination between articles imported from the United States or foreign countries and similar articles produced or manufactured in Puerto Rico. This clear-cut congressional enactment has been given full validity in several decisions. See, e. g., San Juan Trading Co. v. Sancho, 114 F.2d 969 (C.A. 1, 1940), cert. den. 312 U.S. 702; Sancho v. Corona Brewing Corp., 89 F.2d 479 (C.A. 1, 1937), cert. den. 302 U.S. 699, 58 S.Ct. 18, 82 L.Ed. 540. However, courts have never been called upon to resolve the conflict that exists between this prohibition and the Butler Act, because the Butler Act has never been analyzed in situations like the instant one, where the taxing statute complained of prima facie falls under the ban of 48 U.S.C. § 741a.
In Sancho v. Corona Brewing Corp., supra, a tax exemption favoring local products was declared void because it was in clear violation of Section 3 of the Organic Act. However, unlike Everlasting Development Corp. v. Sol Luis Descartes, supra, the declaration of invalidity of the tax exemption in Corona did not have the effect of restraining the assessment or collection of any tax.3 Furthermore, in the "matches case", San Juan Trading Co. v. Sancho, supra., what was involved was an action to recover amounts already paid under protest. Hence, the purpose behind the approval of the Butler Act, which was to apply the same rule in Puerto Rico that applied in the United States, i. e., "to pay the tax first and then take an appeal"4, was not transgressed.5
The importance of the prohibition against tax discrimination set forth in Section 3 of the Organic Act cannot be overlooked.6 In our opinion, this provision ought to be harmonized with the Butler Act. In consonance with the decisions outlined above, we hold that the Butler Act cannot preclude the enjoinment of a Commonwealth's tax where a clear violation of 48 U.S.C. § 741a is established, and where there exists no plain, speedy and efficient remedy in the local forums. To rule otherwise would in effect portend that this Court is without power to construe, apply or give...
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