United States v. Fidelity & Casualty Co.

• Decision Date: 04 November 1940
• Docket Number: No. 7378.,7378.
• Citation: 115 F.2d 475
• Court: U.S. Court of Appeals — Third Circuit
• Parties: UNITED STATES v. FIDELITY & CASUALTY CO. OF NEW YORK.

115 F.2d 475 (1940)

UNITED STATES v. FIDELITY & CASUALTY CO. OF NEW YORK.

No. 7378.

Circuit Court of Appeals, Third Circuit.

November 4, 1940.

J. Cullen Ganey, U. S. Atty., and J. Lawrence Grim, Asst. U. S. Atty., both of Philadelphia, Pa. (Julian R. Eagle and Aaron D. Hockstein, both of Philadelphia, Pa., Attys., Alcohol Tax Unit, of counsel), for appellant.

Robert G. Kelly, George E. Beechwood, and Conlen, LaBrum & Beechwood, all of Philadelphia, Pa. (George F. Blewett, of Philadelphia, Pa., of counsel), for appellee.

Before MARIS, JONES, and GOODRICH, Circuit Judges.

JONES, Circuit Judge.

The question which this appeal presents is whether the federal tax on fermented liquors may be assessed upon the basis of the materials received and used in the manufacture thereof where there is evidence that the manufacturer intentionally failed to report the whole of such materials and that the tax paid did not reflect the beer which the unreported materials produced or were capable of producing.

The suit is by the United States against the surety on the brewer's bond, which was given and conditioned as required by law. R.S. § 3336, now contained in 26 U.S.C.A. Int.Rev.Code, § 3155(b). Admittedly the additional tax assessed on the basis of the materials received and used has not been paid. No question is here involved as to the surety's liability for the unpaid tax if the assessment thereof against the brewing company is valid.

The case was tried to the court below without a jury. The plaintiff offered in evidence two assessments of tax which together made up the amount of the plaintiff's claim. The defendant objected to the assessments on the ground that they were illegal as disclosed of record by an answer of the plaintiff to interrogatories filed by the defendant prior to trial pursuant to Rule 33 of the Federal Rules of Civil Procedure, 28 U.S.C.A. following § 723(c). The particular answer set forth that the assessments were based upon the brewery's "clandestine receipt and usage" of certain specified quantities of brewing materials "and the average production experience, of this brewery, of a barrel of beer to a bushel of malt".

The Act of May 13, 1876, c. 19, 19 Stat. 53, now contained in 26 U.S.C.A. Int.Rev. Code, § 3150(c), provides that, — "Nothing contained in section 3155(c) shall be so construed as to authorize an assessment upon the quantity of materials used in producing or purchased for the purpose of producing, fermented or malt liquors, nor shall the quantity of materials so used or purchased be evidence, for the purpose of taxation, of the quantity of liquor produced; but the tax on all beer, lager beer, ale, porter, or other similar fermented liquor, brewed or manufactured, and sold or removed for consumption or sale, shall be paid as provided in paragraph (1) of subsection (b), and not otherwise: Provided, That this subsection shall not apply to cases of fraud: And provided further, That nothing in this subsection shall have the effect to change the rules of law respecting evidence in any prosecution or suit."

Section 3155(c) of 26 U.S.C.A. Int.Rev. Code (R.S. § 3337), referred to in the above-quoted provision, requires that a manufacturer of beer or other similar fermented liquors shall cause to be entered in a book, from day to day, the kind of such malt liquors, the estimated quantity produced in barrels and the actual quantity sold or removed for consumption or sale in barrels or fractions thereof. The section also requires that a manufacturer shall cause to be entered, from day to day, in a separate book "an account of all materials by him purchased for the purpose of producing such fermented liquors, including grain and malt". The manufacturer is further required to report monthly to the Collector of Internal Revenue the accounts shown by these books which shall be open at all times for the inspection of the Collector or his agent, who may take memoranda or transcripts therefrom.

The trial court construed the phrase "cases of fraud" in the proviso of Section 3150(c) (Act of May 13, 1876, supra) to mean suits or causes where fraud is "the gist of the action" as distinguished from cases where fraud is but an incident to the enforcement of a right. Accordingly, the trial court concluded that the Act of May 13, 1876, was applicable to an assessment of the tax on fermented liquors regardless of the taxpayer's fraud in seeking to avoid it, and that the assessments upon which the plaintiff relied were, therefore, invalid. With the assessments gone, the plaintiff's claim fell and, on the defendant's motion, the court dismissed the action.

It is our opinion that "cases of fraud", as used in the statute (Act of May 13, 1876, c. 95, 19 Stat. 53), was intended to mean instances of fraud such as circumstances or occurrences in connection with the brewer's account and report of materials received and used by him or in his payment of a tax on the reported product which indicate fraudulent purpose and action. There is no occasion to limit the word "cases" to its narrow or technical legal meaning. The statute makes no such requirement. The word is, therefore, to be given its common significance. Pickhardt v. Merritt, 132 U.S. 252, 10 S.Ct. 80, 33 L.Ed. 353; Harder v. Irwin, D.C., 285 F. 402. The "general rule for the interpretation of public laws" requires that the words of a statute be given their "popular or received import". Maillard v. Lawrence, 16 How. 251, 261, 14 L.Ed. 925; Deputy, Administrator, et al. v. DuPont, 308 U.S. 488, 493, 60 S.Ct. 363, 84 L.Ed. 416. Thus...