United States v. Pann

• Decision Date: 14 December 1927
• Citation: 23 F.2d 714
• Parties: UNITED STATES v. PANN et al.
• Court: U.S. District Court — Southern District of California

23 F.2d 714 (1927)

UNITED STATES v. PANN et al.

District Court, S. D. California, S. D.

December 14, 1927.

Samuel W. McNabb, U. S. Atty., and Elden McFarland, Asst. U. S. Atty., both of Los Angeles, Cal.

Frank G. Fallon, of Los Angeles, Cal., for defendants.

McCORMICK, District Judge.

In this suit in equity a careful review of the record convinces me that the allegations of the bill of complaint as amended have been sustained.

Angelus Brokerage Company cannot be classified as a personal service corporation. It lacks at least one of the three essentials of a personal service corporation under section 200 of the Revenue Act of 1918 (Comp. St. § 6336 1/8a), in that capital invested and borrowed was a material income factor, and also because the income of the concern is not to be ascribed primarily to the principal owners or stockholders. The business of the enterprise was made possible by loans made to the corporation by banks, and by employment of the capital stock of the corporation, which the evidence shows was utilized by the company in the conduct of its business. The credit which the company obtained from banks it procured upon its statements as to the ownership of real and personal property, which it carried upon its books as assets of the corporation. It was clearly established that Angelus Brokerage Company as a corporation carried on the business of buying and selling citrus fruits, and also acting as broker in the purchase and sale of fruits in its own name. The nature of its business was entirely mercantile or commercial. Its purchases and sales necessarily involved the use of capital, and its status is analogous to the enterprise held to be not a personal service corporation in Hubbard Ragsdale Co. v. Dean, Collector (D. C.) 15 F.(2d) 410. The use of capital by Angelus Brokerage Company was not incidental, but was material and essential.

Defendants' contention that plaintiff has an adequate remedy at law herein cannot be sustained. It was shown that, because of its failure to pay the state license tax, its status as a corporation was suspended under St. Cal. 1915, p. 422. See U. S. v. Fairall (D. C.) 16 F.(2d) 328, where it was held that, when it is proper to treat the distributed assets of a dissolved corporation as a trust fund for creditors, there is no need of obtaining judgment against the corporation as a condition precedent to a suit in equity against the directors or stockholders, to whom there has been distributed the property of the corporation. The record in this cause shows that the defendants now own property formerly belonging to the corporation, which was received upon dissolution or suspension thereof. Under these circumstances, resort to a judgment at law would be idle and useless, and equity will interpose to prevent useless circuity. See Murray v. Sioux-Alaska M. Co. (9 C. C. A.) 239 F. 819; Crossman v. Vivienda...