applicant to work for a probationary period, and afterward would register applicant and issue a card to him and permit him to work regularly, or if the applicant were rejected because his name was on the list, or for other cause, he could not secure employment with the defendants; (5) fixing, by agreement among themselves, and enforcing a uniform wage for longshoremen; (6) limiting employment by defendants to favored longshoremen and refusing to employ any one discharged by other defendants. It is alleged that, as defendants controlled practically all the business of loading and discharging cargoes in interstate and foreign commerce, except such as is handled by the Portland Stevedoring Company, which does but a small part, men who were refused employment cannot follow their occupation unless such longshoremen could secure employment with the Portland Stevedoring Company. Further allegations are that defendants gave public notice that unless longshoremen presented themselves to the hiring hall and obtained permit and registration card, they would not be allowed to work for defendants; that plaintiff Tilbury, not having so applied, has been unable to obtain employment as a longshoreman at Portland, and thus has been deprived of a livelihood in the work of forwarding commerce and discharging vessels engaged therein; that plaintiff Tilbury applied for, but was refused, work, being informed that he was on a list of longshoremen whom defendants would not hire; that plaintiff Marks was employed for two years through the hiring hall, but was discharged in August, 1924, for reasons which he alleges were unknown to him, and has been unable to procure employment in his vocation in Portland. Plaintiffs alleged irreparable injury, and that suit is brought in behalf of others situated as are plaintiffs. We agree with the District Court, in the view that the facts fail to show that commerce has in any way been impeded, or that the defendants had any purpose other than to regulate fairly the transaction of the business in which they are engaged. Anderson v. United States, 171 U. S. 604, 19 S. Ct. 50, 43 L. Ed. 300. The gravamen of the complaint is not that exchange or transfer or movement of goods has been impeded or interfered with, or that there has been any restriction upon the business of loading freight upon ships bound for ports in other states, but merely that certain persons have not been employed as longshoremen at Portland, and it is far from obvious that the consequences of the acts pleaded are or will be to restrain interstate commerce in the least. In United Leather Workers I. U. v. Herkert et al., 265 U. S. 457, 44 S. Ct. 623, 68 L. Ed. 1104, 33 A. L. R. 566, the court said that it was only when the intent or necessary effect upon interstate commerce in the article "is to enable those preventing the manufacturer to monopolize the supply, control its price, or discriminate between its would-be purchasers that the unlawful interference with its manufacture can be said directly to burden interstate commerce." In the later case of Industrial Association of San Francisco v. United States, 45 S. Ct. 403, 69 L. Ed. (April 13, 1923), the court, considering the activities of a number of associations in San Francisco, which acted in combination to regulate building operations within a limited local area by means of the permit system under which there was a limit of sales of certain building materials, California productions, to builders who supported the plan, so as to prevent domination by the labor unions, held that the facts showed no substantial obstruction to interstate commerce and did not unduly obstruct the free flow of such commerce. The court, through Justice Sutherland, after reviewing many of the earlier cases and carefully distinguishing their application, referred specifically to United Mine Workers of America v. Coronado Coal Co., 259 U. S. 344, 42 S. Ct. 570, 66 L. Ed. 975, 27 A. L. R. 762, where it was held that a conspiracy and intent to obstruct coal mining, although effectual in preventing a part of the product of the mine from passing into interstate commerce, would not be a direct obstruction to interstate commerce in coal if there were no intention to restrain such commerce or no proof of such substantial effect upon it as to make such intention reasonably inferable. As applicable to the case under examination by the court, Justice Sutherland said: "If an executed agreement to strike with. the object and effect of closing down a mine or a factory, by preventing the employment of necessary workmen, the indirect result of which is that the sale and shipment of goods and products in interstate commerce is prevented or diminished, is not an unlawful restraint of such commerce, it cannot consistently be held otherwise in respect of an agreement and combination of employers or others to frustrate a strike and defeat the strikers by keeping essential domestic building materials out of their hands and the hands of their sympathizers, because the 7 F.(2d) 3 means employed, whether lawful or unlawful, produce a like indirect result. The alleged conspiracy and the acts here complained of, spent their intended and direct force upon a local situation, for building is as essentially local as mining, manufacturing or growing crops, and if, by a resulting diminution of the commercial demand, interstate trade was curtailed either generally or in specific instances, that was a fortuitous consequence so remote and indirect as plainly to cause it to fall outside the reach of the Sherman Act." United States v. Whiting (D. C.) 212 F. 466; Trenton Potteries Co. v. United States (C. C. A.) 300 F. 550; Finley v. United Mine Workers (C. C. A.) 300 F. 972. In National League Basebell Club v. Federal Baseball Club, 269 F. 601, 50 App. D. C. 165, it was said that through the definitions under the acts of Congress relevant thereto runs the idea that trade and commerce "require the transfer of something, whether it be persons, commodities or intelligence, from one place or person to another. The concomitant of this concept is the principle approved by the Supreme Court of the United States, that 'importation into one state from another is the indispensable element,' the test of interstate commerce." We conclude that it is in accord with reason as well as the doctrine of the adjudged cases, to hold that an agreement among employers whereby the hiring of men to work as longshoremen is governed by rules such as obtained in the association complained of with respect to their qualifications and wages, is in no respect violative of the acts of Congress. The decree is affirmed. BECKER BROS. v. UNITED STATES. I. Internal revenue 9-Government's right Questions as to government's right to recover corporation excise taxes must be decided according to provisions of acts of Congress in force when taxes involved were levied. 2. Internal revenue 9-Refusal to deduct excessive salary allowed corporate manager in determining net income as basis of excise tax held not error. In government's action under Corporation Excise Tax Act Cong. Aug. 5, 1909, § 38, and Revenue Act of 1913, to recover delinquent 3. Internal revenue 28-Whether sum paid In action for delinquent excise taxes, on question whether sums paid by corporation ostensibly as salary include part of profits is question of fact, affecting which there is presumption that amount paid is salary, and action of board of directors in voting its payment valid, which presumption can be overcome only by evidence justifying contrary inference. 4. Internal revenue 28-Evidence held to raise question for jury whether corporate directors acted in good faith in voting manager 85 per cent. of profits as salary. In action for delinquent excise taxes, evidence that president and general manager of corporation, owning 240 shares of 250 shares of authorized stock, at his own suggestion was voted a salary equivalent to 85 per cent. of the profits, which arrangement was continued for more than 20 years, during which he, at no time, drew all his salaries, though no dividends were declared, and evidence as to reasonable value of services of persons in his position held sufficient to go to jury on question whether board of directors, in voting such salary, acted in good faith, or intended thereby to distribute part of profits in addition to compensation for services. 5. Internal revenue 28-Jury's finding as to good faith of directors in voting manager salary, and as to reasonable value of services, conclusive on appeal. On appeal, in government's action to recover corporation excise taxes, findings of jury as to good faith of board of directors in voting manager 85 per cent. of profits of corporation as compensation for services, and as to reasonable value of services rendered, supported by evidence, are conclusive on both parties. 6. Internal revenue 9-Corporation held entitled to deduct amount of judgment recovered against it for patent infringement in com-` puting net income. Corporation paying or depositing in trust money for payment of judgment against it for infringement of patent is entitled to deduct amount so paid in determining net profit as basis of corporation excise tax, nor can such a loss be deemed one arising out of an illegal transaction, so as to be nondeductible. 7. Damages 228- Jury 31 (72) — New trial 162(I)-Court cannot, without consent of prevailing party, reduce verdict; new trial or remittitur may be granted; condi. tional new trial not denial of right to jury trial. Court cannot reduce verdict, and render judgment for less amount, unless prevailing In Error to the District Court of the United States for the Southern District of New York. Action by the United States against Becker Bros., a corporation. Judgment for the United States, and defendant brings error. Affirmed, on condition remittitur be filed; otherwise, reversed, and new trial granted. The plaintiff below is the defendant in error, and the defendant below is the plaintiff in error. The parties will be hereinafter referred to as they appeared in the court below. The defendant is a corporation organized under the laws of the state of New York, having its office and principal place of business in the city and county of New York, and within the Southern district of New York. The action was brought under the Act of Congress of August 5, 1909, section 38 thereof (36 Stat. 112), and that of October 3, 1913 (38 Stat. 114). The plaintiff, in its first cause of action, alleged that defendant was liable to pay to it an excise tax for the year 1909, amounting to the sum of $65.64. It also alleged that the tax became due and payable on June 30, 1910, and that no part of it had been paid. It further claimed that a penalty of 5 per centum of the tax was also due and payable, with interest at the rate of 1 per centum per month from June 30, 1914. In its second cause of action it was alleged that defendant was liable to pay to plaintiff, under the same act of Congress, a special excise tax for the year 1910, in the sum of $212.08; that the said tax became due June 30, 1911, and that no part of it had been paid; that interest was due at the rate specified in the first cause of action. In its third cause of action it was alleged that defendant was also liable, under the aforesaid act of Congress, to pay to the United States a special excise tax for the year 1911 in the sum of $141.19; that this amount became due June 30, 1912, and no part of it had been paid; that interest at the rate specified in the first cause of action was due and payable from June 30, 1912. Then followed a fourth, fifth, and sixth cause of action for similar excise taxes which became due and payable in the years 1913, 1914, and 1915, together with interest thereon. The last two causes of action were brought under the act of 1913. The complaint, after setting forth the va rious causes of action, concluded with the following demand: "Wherefore plaintiff demands judgment against the defendant above named in the sum of $1,137.89, together with a penalty of 5 per centum thereon and interest thereon at the rate of 1 per centum per month on $65.64 thereof from the 30th day of June, 1910, on $212.08 thereof from the 30th day of June, 1911, on $141.19 thereof from the 30th day of June, 1912, on $112.73 thereof from the 30th day of June, 1913, on $315.63 thereof from the 30th day of June, 1914, and on $290.62 thereof from the 30th day of June, 1915, together with the costs and disbursements of this action." The answer denied the allegations in the be dismissed. The case was tried before a complaint, and demanded that the complaint jury. At the conclusion of the trial the court directed a verdict for plaintiff for $880.27. Judgment was entered for that amount, together with the costs, which were taxed in the sum of $31.39. John McCormick, of New York City, for plaintiff in error. William Hayward, U. S. Atty., of New York City (Thomas J. Crawford, Asst. U. S. Atty., of New York City, and Chester A. Gwinn, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C., of counsel), for the United States. Before ROGERS, HOUGH, and MANTON, Circuit Judges. ROGERS, Circuit Judge (after stating the facts as above). This action, as disclosed in the preliminary statement, was brought to recover additional taxes claimed to be due to the United States under the provisions of the corporation Excise Tax Act of August 5, 1909, and the Revenue Act of 1913, in amounts totaling $1,267.67. The defendant corporation took over the business of Jacob H. Becker as a manufacturer of pianos. Its capital stock was fixed at $25,000, divided into 250 shares, of the par value of $100 each. Jacob H. Becker held 240 shares, his wife held 5 shares, and John McCormick held the remaining 5 shares, and these three persons constituted the board of 7 F.(2d) 3 directors. At the meeting for organization Jacob H. Becker was elected president and treasurer, and his wife was made vice president, and John McCormick was chosen secretary of the corporation. Later, and in 1911, Rudolph C. Becker, the son of Jacob H. Becker, was elected secretary. At the first meeting by-laws were adopted permitting the board of directors to employ one of their number as general manager, with power to fix his salary and the salary of the secretary. The directors, at the first meeting of the board, adopted the following resolution: "Resolution made and carried at the meeting of the board of directors of Becker Bros., held at the office of Becker Bros., 527 Tenth avenue, New York City, November, 1902. The president was authorized to act as general manager of the corporation in the management of its business; to make any and all contracts necessary in the management thereof; to discount any and all of the negotiable paper of said corporation; and given discretion to fix the price of sale and terms of sale of all pianos, and to make any and all contracts which he deems necessary, and which contracts shall stand as contracts of the corporation, unless expressly rescinded by the board of directors. "On the motion of John McCormick, it was ordered that the salary of Jacob H. Becker, as manager of the business, be fixed at 85 per cent. of the net profits arising from the conduct of the business, as declared on December 31st of each year. "Carried; Jacob H. Becker not voting. "On the motion of Jacob H. Becker it was ordered that the salary of the secretary be fixed at 5 per cent. of the net profits arising from the conduct of the business as declared on December 31st of each year. "Carried; John McCormick not voting." The directors have held few, if any, formal meetings since the one first held; it being understood that no further meetings were necessary. The corporation was organized in 1902. It did not open a new set of books of account, but used those which had been used in the individual business carried on by Jacob H. Becker prior to the incorporation. One of the accounts in the books was headed "Jacob H. Becker Capital Account," and under this heading was entered all the residue between the gross cost and the gross receipts of the business until the year 1911, when a capital account was opened, and also a salary account. Prior to the opening of these latter accounts all sums paid to the general manager or secretary were credited to the "Jacob H. Becker Capital Account." Neither the general manager nor the secretary withdrew all the sums to which they were entitled under the contract, but allowed much of it to remain in the business. In the first year, or 1902, the residuum amounted to about $2,500, of which the general manager was entitled for services to about $2,000; in 1903, the fund was $4,957; in 1904, it was $9,450; in 1905, it was $18,983; in 1906, it was $22,543; in 1907, it was $28,684; in 1908, it was $16,930; in 1909, the fund was $33,258. In other words, the percentage of profits to the corporation increased from 1 per cent. in 1902 to over 18 per cent. in 1907 upon the capital and surplus to 92 per cent. in 1909. Mr. Becker testified as follows concerning the withdrawal of his salary: "Q. Did you withdraw all of that salary at any time? A. No, sir. "Q. You allowed it to remain there, and continued that right along? A. Yes. "Q. Were any dividends ever declared by that corporation? A. No, sir. "Q. They remained in service? A. Yes, sir. "Q. And you have acted continuously as general manager from 1902 up to the present date? A. Yes, sir. "Q. There has been no change in your contract? No change in the agreement between you and the corporation as to the percentage? A. No, sir." At the conclusion of the evidence, and upon consent of both sides, two questions were submitted to the jury, who rendered special verdicts with respect thereto. The questions submitted by the court were: (1) "Q. Whether the resolution and subsequent conduct of the corporation were the means of distributing both salaries and profits?” (2) "Q. What was the reasonable value of such service as Becker rendered to the company from 1909 to 1914, inclusive, and by that I mean, what would the company have to pay for a man of his (Becker's) general capacity to do what he did in the running of the business?" The jury answered the first question in the affirmative, holding that the resolution relied upon by defendant was a means of distributing both salary and profits. In answer to the second question the jury found the reasonable value of the services of Becker to the corporation to be as follows: for 1909, $12,000; for 1910, $13,000; for 1911, $14,000; and for 1912, 1913, and 1914, $15,000 for each of said years. A general verdict was thereupon directed by the court in plaintiff's favor for $880.27, based upon the findings of the jury, and upon the stipulation relative to the bad debts, and upon the ruling by the court that the deduction of the $37,000 judgment in defendant's 1914 return had been properly disallowed. [1] There is no substantial dispute as to the facts, but the questions are as to the application of the law to the facts. The questions must be decided according to the provisions of the acts of Congress which were in force when the taxes herein involved were levied. These acts, so far as they are material to the facts of this case, must now be referred to. The Act of August 5, 1909, 36 Stat. 112, known as the Corporation Excise Tax Law, provided in section 38 as follows: "Sec. 38. That every corporation, joint stock company or association, organized for profit and having a capital stock represented by shares shall be subject to pay annually a special excise tax with respect to the carrying on or doing business by such corporation, joint stock company or association, equivalent to one per centum upon the entire net income over and above five thousand dollars received by it from all sources during such year "Second. Such net income shall be ascertained by deducting from the gross amount of the income of such corporation, joint stock company or association, or insurance company, received within the year from all sources, (first) all the ordinary and necessary expenses actually paid within the year out of income in the maintenance and operation of its business and properties ; (second) all losses actually sustained within the year and not compensated by insurance or otherwise, including a reasonable allowance for depreciation of property, if any. And the Income Tax Act of October 3, 1913, 38 Stat. 114, 172, 173, provided as follows: "G. (a) That the normal tax herein before imposed upon individuals likewise shall be levied, assessed, and paid annually upon the entire net income arising or accruing from all sources during the preceding calendar year to every corporation, joint-stock company or association "(b) Such net income shall be ascertained by deducting from the gross amount of the income of such corporation re ceived within the year from all sources (first) all the ordinary and necessary expenses paid within the year in the maintenance and operation of its business and properties (second) all losses actually sustained within the year and not compensated by insurance or otherwise. The statutes show that the tax was to be levied upon net income, and that in ascertaining net income the law required that there should be deducted from the gross income of the corporation (1) all the ordinary and necessary expenses actually paid within the year out of income, and (2) all losses actually sustained within the year and not compensated by insurance or otherwise. If, in assessing the taxes which the United States imposed upon defendant, the above requirements were observed, the judgment rendered below must be affirmed. If they were disregarded or misapplied, the judgment cannot be sustained in its present form. [2] The first question to be considered is whether an error was committed in not deducting from the gross income the so-called salary of "85 per cent. of the net profits" which the corporation agreed to pay annually to Jacob H. Becker as general manager of its business. The United States, in fixing the amount of the tax assessed against defendant, declined to deduct 85 per cent. of the profits as being the salary of Becker for his services, and instead deducted in each year only $10,000, claiming that such amount was a reasonable compensation for the services he rendered. There can be no doubt that the corporation was entitled to deduct from the income it received all the ordinary and necessary expenses incurred in carrying on its business, including a reasonable compensation to its officers and employees. But the salaries which are paid in order to constitute an allowable deduction must be a reasonable and fair compensation for the services rendered. The expenses which can be deducted are the "ordinary and necessary expenses." If a corporation sees fit to pay its employees extraordinary, unusual, and extravagant salaries, distributing the profits of the business in the guise of salaries to its officers, who hold the stock and control its affairs, such salaries manifestly do not constitute the "ordinary and necessary expenses" of the business, which can be deducted under the statute. The government is not bound or concluded either by any resolution which the corporation adopts, or by its method of keeping its books, upon the question |