United States v. Guggenheim Exploration Co.
| Decision Date | 04 January 1917 |
| Docket Number | 22. |
| Citation | 238 F. 231 |
| Parties | UNITED STATES v. GUGGENHEIM EXPLORATION CO. |
| Court | U.S. District Court — Southern District of New York |
H Snowden Marshal, U.S. Dist. Atty., of New York City (Ben A Matthews, Asst. U.S. Atty., of New York City, of counsel) for the United States.
Louis Marshall, of New York City, for defendant.
The defendant, a New Jersey corporation, for the purpose of acquiring, developing, and operating mines in various parts of the world and acquiring the shares of stock and other securities of corporations engaged in a similar business owned, in 1905, a large number of mining properties and interests in such properties.
The American Smelting & Refining Company, a New Jersey corporation, was likewise interested in mining properties. Both corporations were owned by practically the same stockholders. By arrangement between the two corporations, the American Smelters' Exploration Company was organized and acquired some of the properties of the defendant and of the American Smelting Company. The object of this last corporation was for the purpose of conducting a business similar to that carried on by the defendant. As originally organized, it was to have a total authorized capital stock of $54,500, 000, of which $22,500,000 was to be known as 'Preferred Stock Series A,' $7,500,000 as 'Preferred Stock Series B,' and $24,500,000 was to be common stock. On March 30, 1905, the defendant offered to sell to the American Smelters' Exploration Company various properties and property interests which were specified in the offer and contained in a resolution found in the minute books of the company, and also agreed to acquire and turn over to the American Smelters' Exploration Company 40 per cent. of the capital stock of the Velardena Mining & Smelting Company, which was not then the property of the defendant, the latter paying therefor $1,600,000 of the preferred stock series A, and $1,000,000 of the common stock of the American Smelters' Exploration Company which was to be received by it, and that it would turn over as much of the outstanding stock of the Velardena Mining & Smelting Company as should be practicable. It was further provided that, if it should be unable to acquire any part thereof, it would pay into the treasury of the American Smelters' Exploration Company, in lieu thereof, such portion of the $1,600,000 of preferred stock series A, and of the $1,000,000 common stock of the American Smelters' Exploration Company, as such unacquired part should bear to the whole of the 40 per cent. of such outstanding stock. The defendant also agreed to turn over to the American Smelters' Exploration Company ores, ore supplies, and other property to the extent of $800,000 and cash to the amount of $4,810,000.
The offer was made upon the condition that, immediately upon its acceptance and the conveyance, transfer, and assignment of the property and payment or provision for the payment of the money which was to be acquired by the American Smelters' Exploration Company, the latter was to issue and deliver to the defendant, its nominees or assigns, $17,000,000 of the preferred stock series A, and $24,497,000 of the common stock of the American Smelters' Exploration Company, and $3,000 in cash. The $5,500,000 of preferred stock series A, other than that which the Guggenheim Exploration Company was to receive, was to be issued only at par for cash or its equivalent, for the future uses and purposes of the American Smelters' Exploration Company. It was further provided that the American Smelting & Refining Company was to guarantee the preferred stock series A.
The American Smelters' Exploration Company, by a resolution passed by its directors, accepted this proposition providing for the issuance of the shares of stock above referred to in consideration of the conveyance and transfer and payment to be made by the defendant and upon the conditions above specified. The resolution recited that, after a very careful examination of the properties and property rights to be transferred, 'it is believed that the purchase by this company of the aforesaid mines, real and personal property, and stock, is necessary for the business of this company, and the said property and property interests so deemed to be necessary are in the judgment of this board of directors of the just, fair, and reasonable value of $49,000,000.' The consideration which the American Smelters' Exploration Company was to receive was stated to be $49,000,000. In accordance with these terms of the offer and resolution referred to, the transaction was carried out in 1905; the American Smelters' Exploration Company receiving the properties to be conveyed to it, and the defendant receiving the shares of stock to which it was entitled under the terms of the contract entered into. In accordance with the terms of its offer, the defendant transferred to the owners of the 40 per cent. of the capital stock of the Velardena Mining & Smelting Company $1,600,000 of the preferred stock series A, and $1,000,000 of the common stock. This left in the hands of the defendant $15,400,000 of the preferred stock series A. The $7,500,000 of the preferred stock series B were sold by the defendant, and subsequently it repurchased from the American Smelting & Refining Company, in 1905, $2,000,000 of the preferred stock series A.
In connection with these transactions which the defendant had with the American Smelting & Refining Company, it transferred to the latter $12,251,000 of the common stock of the American Smelters' Exploration Company, retaining 112,490 shares of the common stock of the American Smelters' Exploration Company. This company subsequently changed its name to the American Smelters' Securities Company, which increased the amount of its preferred stock series B to $30,000,000 and its common stock to $30,000,000. The defendant, however, continued to hold the 112,490 shares of common stock of the American Smelters' Securities Company until January 25, 1911, when it was sold for $6,749,400 to the American Smelting & Refining Company. The common stock of the American Smelters' Securities Company was not sold on the market prior to this sale by the defendant. This common stock owned by the defendant was carried on its books at the valuation of $1.
The government now claim that the amount realized on the sale of these 112,490 shares of common stock of the American Smelters' Securities Company represents a profit upon which an excise tax of $67,471.49 should be collected. For the reason that this item of profit was not returned by the defendant in calculating its tax for the year 1911, recovery is sought under the Excise Law of August 5, 1909. Section 38 of that act provides:
'That every corporation * * * organized for profit and having a capital stock represented by shares * * * now or hereafter organized under the laws of the United States or of any state or territory of the United States * * * shall be subject to pay annually a special excise tax with respect to the carrying on or doing business by such corporation * * * equivalent to one per centum upon the entire net income over and above five thousand...
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