United States v. Western Union Telegraph Co.
| Decision Date | 24 December 1926 |
| Citation | 19 F.2d 157 |
| Parties | UNITED STATES v. WESTERN UNION TELEGRAPH CO. et al. |
| Court | U.S. District Court — Southern District of New York |
Emory R. Buckner and Sherwood E. Hall, both of New York City, for the United States.
Francis R. Stark and Overton Harris, both of New York City, for Western Union Telegraph Co.
Moore & Bell, of New York City, and Shipman & Goodwin and Brosmith, Dickinson & Brosmith, all of Hartford, Conn., for Northwestern Telegraph Co.
This suit was brought to enforce payment by the Western Union Telegraph Company of taxes on the income of the Northwestern Telegraph Company for the years 1917 to 1922, inclusive, under the following circumstances:
On May 7, 1881, the Northwestern Telegraph Company leased all its telegraph lines and other property for a term of 99 years to the Western Union Telegraph Company, and the Western Union Telegraph Company promised the Northwestern Telegraph Company to pay for the use and occupation of such property certain specified sums of money annually, in semiannual payments, direct to the individual stockholders of the Northwestern Telegraph Company, at a specified rate on each share of stock of the Northwestern Telegraph Company. The Western Union Telegraph Company also agreed, whenever requested by the holder of any stock, to indorse upon the certificate of stock an agreement to pay such proportion of such annual sum as belongs to the amount of stock contained in such certificate, all such payments to be so far a discharge of the obligations assumed by the agreement.
On the face of the stock certificates are the statements that the Northwestern Telegraph Company's dividends are guaranteed by the Western Union Telegraph Company, and that the stock is entitled to dividends under the provisions of the agreement, running 99 years, payable semiannually at the office of the Western Union Telegraph Company, and that all such payments are guaranteed by the Western Union Telegraph Company as by indorsement. The Western Union Telegraph Company also indorsed on the outstanding certificates the statement that in accordance with the agreement the Western Union Telegraph Company will pay to the owner and holder of the certificates the dividends therein described, at the time and place therein stated, during the period the contract shall continue in force.
On December 15, and again on December 31, 1921, the collector of internal revenue for the Second district of New York served on the Western Union Telegraph Company notice of the filing of a lien for the unpaid corporation income taxes due from the Northwestern Telegraph Company, in the office of the clerk of the District Court for the Southern District of New York, and warrants for distraint covering said taxes, penalties, and interest owing by the Northwestern Telegraph Company to the United States, and he levied on all moneys and debts due to the Northwestern Telegraph Company from the Western Union Telegraph Company.
It is too well established to be questioned that all the payments made and to be made by the Western Union Telegraph Company to the stockholders of the Northwestern Telegraph Company under the foregoing agreements must be held to constitute taxable income of the Northwestern Telegraph Company. Rensselaer & S. R. Co. v. Irwin (C. C. A.) 249 F. 726, certiorari denied 246 U. S. 671, 38 S. Ct. 424, 62 L. Ed. 931; Northern R. Co. of New Jersey v. Lowe (C. C. A.) 250 F. 856. See also, Houston Belt & Terminal Ry. Co. v. United States (C. C. A.) 250 F. 1; Hamilton v. Kentucky & I. Terminal Ry. Co. (C. C. A.) 289 F. 20; American Telegraph & Cable Co. v. United States, 61 Ct. Cl. 326, certiorari denied April, 1926, 271 U. S. 660, 46 S. Ct. 473, 70 L. Ed. 1137; West End Street Ry. Co. v. Malley (C. C. A.) 246 F. 625, certiorari denied 246 U. S. 671, 38 S. Ct. 423, 62 L. Ed. 931.
The government, relying on sections 3184, 3186, 3187, 3209, and 3467 of the Revised Statutes (Comp. St. §§ 5906, 5908, 5909, 5931, 6373), contends that, the prescribed notice having been filed and served on the Western Union Telegraph Company, the United States acquired a lien on all moneys then held and at all times thereafter to be held by the Western Union Telegraph Company for the account of the Northwestern Company under the agreements, and that the government, therefore, is entitled to have a lien declared upon the same as against both defendant companies and the stockholders of the Northwestern Telegraph Company, and to have an injunction issue against the payment of any moneys to any stockholders of the Northwestern Telegraph Company until the claims asserted by the government in these proceedings shall have been fully discharged.
The Western Union Telegraph Company promised not only the Northwestern Telegraph Company, but also the stockholders of the Northwestern Telegraph Company, to make payment for the use and occupation of the property to...
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