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11 F.(20) 399 [4] If there is novelty in the claims in suit, amended by Act Feb. 24, 1919 (Comp. St. Ann. it is based upon the limitations of transport- Supp. 1919, $ 5896),

and reproduced in Revenue able position of the car and an ordinary rail- 1923, Comp. St. Supp. 1925, $ 5896),

Acts of 1921 and 1924 (Comp. St. Ann. Supp. road incapable of withstanding the strain of firing. Neither of these limitations apply to 4. Internal revenue Ew 45-Penalty in addition

to tax on illicit liquor held at least partly the defendant's structure. While the defend

punitive and imposed in part for punishment ant has set up other defenses, including in- of crime (National Prohibition Act, tit. 2, $ validity of the claims relied upon, invalidity 35 (Comp. St. Ann. Supp. 1923, 8 10138/2v]; of the assignment to the present plaintiff in

Willis-Campbell Act Nov. 23, 1921, § 5

[Comp. St. Ann. Supp. 1923, 8810138%, the substituted bill, lack of notice of infringe- 101384d, 101384e]). ment, lack of patentability, because the con

Penalty imposed by National Prohibition bination claimed is a mere aggregation of ele- Act, tit. 2, $ 35 (Comp. St. Ann. Supp. 1923, ments old in the art, it is unnecessary to dis- $ 1013842v), in addition to tax on illicit liquor, cuss them, for the reason that the defense of lis-Campbell Act Nov. 23, 1921, $ 5 (Comp. St.

notwithstanding any declaratory effect of Wilnoninfringement has been established upon Ann. Supp. 1923, 88 101384c, 10138%d, sufficient grounds to dispose of the case. 10138%e) being imposed only in case of actual A decree will be entered, dismissing the or supposed commission of crime, and then in

fixed amount, without regard to amount of liqbill, at the plaintiff's costs.

uor manufactured or duration of delinquency, is at least partly punitive, and has as a fundamental ingredient in its composition punishment of crime.

revenue

5. Constitutional law m43(1)-After plea of COFFEY V. NOEL, Collector of Internal

guilty to charge of manufacturing liquor, in. Revenue, et al.

validity of statute imposing tax on liquor, as (District Court, W. D. Virginia. March 4,

punishing crime without jury trial, cannot be 1926.)

urged (National Prohibition Act, tit. 2, § 35

[Comp. St. Ann. Supp. 1923, § 10138/2v]). I. Internal revenue 28–Grossly excessive One who, before imposition of penalty in tax on illicit liquor, assessed without notice, addition to tax on illicit liquor manufactured held wholly invalid, and taxpayer is entitled by him, under National Probibition Act, tit. 2, to equitable relief (National Prohibition Act, $ 35 (Comp. St. Ann. Supp. 1923, § 101381,2v), tit. 2, § 35 [Comp. St. Ann. Supp. 1923, 8 has pleaded guilty to charge of unlawful manu10138/2v); Revenue Act 1918, § 600 [a], facture, cannot urge that such section imposes being Comp. St. Ann. Supp. 1919, § 5986e). a punishment for crime without trial by jury.

Grossly excessive tax on illicit intoxicating liquor, assessed under National Prohibition

6. United States Om 40. Act, tit. 2, § 35 (Comp. St. Ann. Supp. 1923, $ Executive officers, having power to make 1013842v), without notice to taxpayer, held regulations, have power to alter and annul wholly invalid, in view of Revenue Act 1918, 8 them. 600 (a), being Comp. St. Ann. Supp. 1919,

em 2-Prohibition Act, { 5986e, and taxpayer is entitled to equitable 7. Internal relief.

though ineffective to impose double tax on il

licit liquor, is effective to repeal prior incon. 2 Internal revenue 28.

sistent statutes (National Prohibition Act, Equity may relieve against grossly exces.

tit. 2, § 35 [Comp. St. Ann. Supp. 1923, 8 sive and wholly invalid tax on illicit liquor, as.

10138/2v]; Revenue Act 1918, § 600 [a]; sessed under National Prohibition Act, tit. 2,

being Comp. St. Ann. Supp. 1919, § 5986e). $ 35 (Comp. St. Ann. Supp. 1923, § 10138722v), While National Prohibition Act, tit. 2, & 35 without notice.

(Comp. St. Ann. Supp. 1923, & 1013812v), in

so far as it imposes double tax on illicit liquor, 3. Constitutional law 318_Internal revenue is unconstitutional and void, it is neverthe

2-Penalty in addition to tax on illicit less effective to repeal prior statutes imposing liquor held unlawful, no notice of assessment tax on illicit liquor dealers and manufacturers, being provided for in statute (National Pro- including Revenue Act 1918, 8600(a) being hibition Act, tit. 2, § 35_[Comp. St. Ann. Comp. St. Ann. Supp. 1919, § 5986e. Supp. 1923, & 101381/2v]; Rev. St. $ 3173, as amended by Act Feb. 24, 1919 [Comp. St. 8. Internal revenue aun 28 - So-called double Ann. Supp. 1919, § 5896], and reproduced in tax under Prohibition Act held not withio Revenue Acts of 1921 and 1924 [Comp. St. statute, forbidding equitable relief against Ann. Supp. 1923, Comp. St. Supp. 1925, 8 tax under unconstitutional statute, nor is 5896]).

taxpayer's legal remedy adequate (National Since no notice to taxpayer of proposed as

Prohibition Act, tit. 2, § 35 [Comp. St. Ann. sessment of penalty under National Probibi- Supp. 1923, $ 101381/2V]; Rev. St. 3224 tion Act, tit. 2, § 35 (Comp. St. Ann. Supp.

[Comp. St. § 5947]). 1923, & 1013842v), in addition to tax on illicit So-called tax imposed under double tax proliquor, is provided for, a penalty imposed vision of National Prohibition Act, tit. 2, § 35 thereunder is unlawful, nor is notice given (Comp. St. Ann. Supp. 1923, § 1013842v), on as a matter of grace, pursuant to regulations illicit liquors, being based only on actual or legally sufficient, in view of Rev. St. $ 3173, as supposed commission of crime and partaking

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largely of nature of pecuniary punishment for office of the clerk of the circuit court of Nelcrime, is not a "tax," within Rev. St. § 3224 (Comp. St. § 5947), forbidding equitable re

son county in January, 1925. lief against tax under unconstitutional stat

The plaintiff has filed a bill in equity, ute, nor is legal remedy of one so assessed, and and two amended and supplemental bills, in against whose property notice of lien bas been which he asks that both assessments be derecorded, adequate.

clared invalid, that the clouds caused by the

recording of the notices of lien be removed, In Equity. Suit by 0. V. Coffey against and that the collector be restrained from atone Noel, Collector of Internal Revenue, and tempting to collect either of the assessments. others. Decree for plaintiff.

The Commissioner and the collector are made L. Grafton Tucker, of Lovingston, Va., parties defendant in the last bill, and both

have answered. for plaintiff. C. E. Gentry, Asst. U. S. Atty., of Char- ment of 1921 was made because of the same

It is an undisputed fact that the assesslottesville, Va., for defendants.

act for which the plaintiff was indicted, and

that the assessment of 1925 was intended to MCDOWELL, District Judge. On March be in lieu of the first assessment. The fol24, 1921, the plaintiff, who is the owner of lowing dates are of interest, and will help to some real estate in Nelson county, in this dis- elucidate the discussion which follows: trict, was discovered by federal prohibition The Revenue Act of 1918 (40 Stat. 1057, agents engaged in the illegal manufacture of 1105) was passed on February 24, 1919. intoxicating liquor. On May 13, 1921, the The National Prohibition Act (41 Stat. 305) Commissioner of Internal Revenue made an was passed on October 28, 1919, and went inassessment against the plaintiff of a tax of to full effect on January 16, 1920. Dillon v. $5,417.34, and of penalties and interest Gloss, 41 S. Ct. 510, 256 U. S. 368, 376, 65 amounting to $595.91. The notice of lien ex- L. Ed. 994. The plaintiff's offense was comecuted by the collector of internal revenue of mitted on March 24, 1921. The first assessthis district was admitted to record in the ment was made on May 13, 1921, and notice office of the clerk of the circuit court of Nel- of the lien of this assessment was admitted son county on November 11, 1921. No no- to record in Nelson county on November 11, tice was ever given the plaintiff in respect to 1921. The defendant was indicted and pleadthe foregoing assessment.

ed guilty in July, 1921. The Willis-CampOn July 11, 1921, the defendant was in- bell (Supplemental Prohibition) Act (42 dicted in this court for illegally manufactur. Stat. 222) was passed November 23, 1921. ing an unspecified amount of intoxicating liquor. On the next day he pleaded guilty,

The Assessment of 1921. and was fined under section 29 of title 2 of [1, 2] In Graham v. Du Pont, 43 S. Ct. 567, the National Prohibition Act (Comp. St. 569, 262 U. S. 234, 257 (67 L. Ed. 965), it is Ann. Supp. 1923, § 101381/2p). On Janua- said: “The cases complainant's counsel rely ry 5, 1925, notice was given to the plaintiffon do not apply. The cases of Lipke v. Ledby the collector that a new assessment was erer [42 S. Ct. 549] 259 U. S. 557 (66 L. proposed, and that he could appear and be Ed. 1061], and Regal Drug Corporation v. heard in opposition thereto at the collector's Wardell [43 S. Ct. 152] 260 U. S. 386 [67 L. office on January 21, 1925. This notice Ed. 318], were not cases of enjoining taxes showed that the proposed assessment was in- at all. They were illegal penalties in the natended to be in lieu of the assessment of 1921 ture of punishment for a criminal offense.above mentioned, and that the intention was The above-mentioned opinions seem to me to assess the plaintiff on 280 gallons of dis- to require a ruling that the assessment of tilled spirits at $6.40 a gallon, and a penalty 1921 is wholly invalid, and that there is no of $1,000, under section 35 of title 2 of the want of power in the court to grant equitaNational Prohibition Act (section 1013812v). ble relief in respect to it. I cannot escape The plaintiff did not appear, and on January the conclusion that this assessment, with a 21, 1925, an assessment was made based on probable error of calculation, includes in the the illicit manufacture of 280 gallons of dis- first item the double tax (of $12.80 per galtilled spirits at $6.40 per gallon, under sec- lon) and the $1,000 penalty, set out in section 600 (a) of the Revenue Act of 1918 tion 35 of the Prohibition Act. The revenue (Comp. St. Ann. Supp. 1919, § 5986e), law in force when the Prohibition Act went amount $1,792, "additional (penalty) tax as- into effect, section 600 (a) of the Revenue sessed, $1,000.” Notice of the lien of this as. Act of 1918 (40 Stat. 1105) imposed a tax of sessment was also admitted to record in the $6.40 per gallon on manufacturers of distilled 11 F.(20) 399 spirits. The tax in the assessment of 1921 is to a jury trial. See Cooley, Const. Lim. (5th at the rate of $19.347 per gallon on 280 gal. Ed.) p. 197 (163); 6 Ruling Case Law, p. lons of spirits. It is an undisputed fact that 89, § 87; Id. p. 91, 89; 12 Corpus Juris, no notice was given to the plaintiff of this as- pp. 760, 762, 763. sessment. While his subsequent plea of guil- However, section 35 does not provide ty may deprive him of the right to assail sec- that notice of the assessments intended by it tion 35 on the ground that it imposes punish- shall be given to the persons assessed, and I ment for crime without a right to a jury tri- do not know of any statute that does require al, such plea cannot, as I think, destroy his notice of such assessments. I have not overright to relief on the ground that an assess- looked section 3173, Rev. Stats., as amendment of a punishment for crime, a punitive ed in February, 1919 (40 Stat. 1146, 1147 tax, which is grossly excessive, was made [Comp. St. Ann. Supp. 1919, § 5896]). without notice to him. See Regal Drug Co. This statute does not require notice of assessv. Wardell, 43 S. Ct. 152, 260 U. S. 386, 392, ments, but notice before the collector may 67 L. Ed. 318. See, also, Prohibition Mime- make returns in the names of delinquent taxograph, Coll. No. 3062, Pro. No. 307, pp. payers. It also could not have been intend30-33, Defendant's Exhibit C.

ed to apply to the impositions of section 35 The two principal items of the assessment of the Prohibition Act, which had not in Febof 1925 can best be considered separately. ruary, 1919, been enacted. Moreover, the The $1,000 Penalty.

procedure followed in giving the notice that

was given to the plaintiff does not in any re[3, 4] Unless it be because of facts to be here- spect conform to the procedure required by inafter discussed, I can see no way to avoid section 3173 as amended. In the Revenue the binding force of Lipke v. Lederer, 42 S. Acts of 1921 and 1924 (42 Stat. 312 [Comp. Ct. 549, 259 U. S. 557, 66 L. Ed. 1061, in re- St. Ann. Supp. 1923, $ 5896); 43 Stat. 345 spect to this item of the assessment of 1925. [Comp. St. Supp. 1925, § 5896]), section The plaintiff here has a remedy at law, which 3173, as amended in February, 1919, is reis neither more nor less adequate than the produced without change. Evidently the reremedy at law which the plaintiff there had. produced statute cannot mean anything, exThe case at bar differs from the Lipke Case, cept what it meant in 1919, before the Proin that before the assessment of 1925 here hibition Act was enacted. was made the plaintiff had pleaded guilty to [6] The notice that the plaintiff received the act of illicit distilling in 1921 which was given pursuant to a regulation, and the caused the assessment, and a notice of the in- defendants do not allege that notice was retention to make the assessment and an oppor- quired by statute. A notice which is not retunity to be heard in opposition thereto had quired by law is, I think, a mere act of grace been given the plaintiff. It is also a fact that and wholly without effect. A regulation rethe Willis-Campbell Act had been passed be quiring notice, when no statute requires the fore the assessment of 1925 had been made. notice, is itself a mere act of grace. If the The effect, if any, of these differences, is regulation had been made by the Commisworthy of some discussion.

sioner, acting alone, the notice would have [5] It may be admitted that the plaintiff been an act of grace beyond dispute. Notice here, because of his plea of guilty, is not of given by the Commissioner, of an opportunithe class of those who may object that sec- ty for a hearing before the Commissioner, tion 35 is invalid, in that it imposes a pun- given by force of a regulation made by the ishment for crime without a right to a trial Commissioner, would certainly be a voluntaby jury. The penalty here in question has no ry act of grace on the part of the Commisconnection with the quantity of intoxicating sioner, and I do not see that the fact that the liquor that may have been illegally made. Secretary of the Treasury approved the regThe penalty is exactly $1,000, whether the ulation, alters the character of the notice. quantity be one gallon or a thousand gallons. The executive officers, who have power to Hence the indefiniteness of the indictment as make regulations, also have power to alter or to the quantity of liquor made by the plain- annul regulations. In consequence, a notice tiff, and the resulting uncertainty in this required only by regulation is still a mere act respect of his plea of guilty, are of no impor- of grace on the part of executive officials, for tance. The plaintiff has advisedly and with regulations lie within the discretion of those out mistake pleaded guilty to the illegal man- who make them. In Coe v. Armour Fertilizufacture of some unknown quantity of intox- er Works, 35 S. Ct. 625, 629, 237 U. S. 413, icating liquor, and therefore he cannot be 424 (59 L. Ed. 1027), it is said: heard to say that he has been denied a right

“Nor can

a hearing granted as 11 ).(20)-26

a

a matter of

discretion be deemed tax penalty for delay in paying taxes, the a substantial substitute for the due process of penalty is still punitive either in whole or in law that the Constitution requires.

part. A penalty which never varies in The soundness of this doctrine has repeated- amount, which has no relation to the amount ly been recognized by this court. Thus, in of the taxes that are delinquent, or to the Security Trust Co. v. Lexington [27 S. Ct. length of time the delinquency has existed, 87], 203 U. S. 323, 333 (51 L. Ed. 204], the and which is to be assessed only in case of court, by Mr. Justice Peckham, said, with re- the actual or supposed commission of a spect to an assessment for back taxes: 'If crime, cannot be in its nature otherwise than the statute did not provide for a notice in at least partly punitive; and I am unable to any form, it is not material that as a matter perceive that it is within the power of Conof grace or favor notice may have been given gress to change the intrinsic nature of a of the proposed assessment. It is not what statutory imposition theretofore made, by a notice, uncalled for by the statute, the tax- mere declaration that the nature of the impayer may have received in a particular case position is different from what in fact it is at that is material, but the question is whether least in part. any notice is provided for by the statute' A penalty of the character of that in (citing the New York case (Stuart v. Palm- question has as a fundamental and indeer, 74 N. Y. 183, 30 Am. Rep. 289]). So, structible ingredient of its composition the in Central of Georgia Ry. v. Wright [28 S. punishment of crime. Payments of money Ct. 47], 207 U. S. 127, 138 [52 L. Ed. 134, required only by those who have, or who are 12 Ann. Cas. 463], the court said: “This no- believed to have, committed a crime, cannot tice must be provided as an essential part of be either a pure tax or a pure tax penalty, the statutory provision, and not awarded as The punitive nature of such exactions cannot a mere matter of favor or grace.' In Roller be expunged by subsequent declarations. In v. Holly [20 S. Ct. 410], 176 U. S. 398, 409 part the invalidity of lines 8 to 12 of section [44 L. Ed. 520], the court declared: 'The 35 is due to the fact that notice and an opright of a citizen to due process of law must portunity to be heard before assessment is rest upon a basis more substantial than fa- not required by law. Section 5 of the Willisvor or discretion.' And in Louis. & Nash. R. Campbell Act no more requires notice than R. v. Stock Yards Co. [29 S. Ct. 246), 212 does section 35. Because the notice given to U. S. 132, 144 (53 L. Ed. 441], it was said: the plaintiff of the proposed assessment in "The law itself must save the parties' rights, 1925 of the penalty of $1,000 was not reand not leave them to the discretion of the quired by law, I must hold that the notice courts as such.'»

had no legal effect. And it follows that in In Regal Drug Co. v. Wardell, 43'S. Ct. respect to this penalty item this case is ruled 152, 153, 260 U. S. 386, 392' (67 L. Ed. 318) by the Lipke Case. it is said of section 35 of the Prohibition Act: “And even if the imposition may be consid

The Item of $1,792. ered a tax, if it have punitive purpose, it [7,8] The double tax provision in section 35 must be preceded by opportunity to contest of the Prohibition Act is unconstitutional its validity. Central of Georgia Ry. Co. v. and void. This provision is also in direct Wright [28 S. Ct. 47], 207 U. S. 127 [52 L. conflict with the provisions of any and every Ed. 134, 12 Ann. Cas. 463]."

revenue statute in force when the ProhibiIt seems to be argued in behalf of the de- tion Act went into effect which imposed a tax fendants that the fact that the second assess- on illicit manufacturers of and deale in disment in the case at bar was made after the tilled spirits. A new statute, expressing an passage of the Willis-Campbell Act of No- unmistakable intent to impose a double tax, vember 23, 1921 (42 Stat. 222, c. 134), dis- cannot be reconciled with an intent to keep criminates this case from the Lipke and Re- in force an older statute, imposing a single gal Drug Co. Cases. The argument seems to tax. In the Regal Drug Co. Case, 43 S. Ct. me unsound. In U. S. v. Stafoff, 43 S. Ct. 154, 260 U. S. at page 392, 67 L. Ed. 318, in 197, 199, 260 U. S. 477, 480 (67 L. Ed. 358), which a tax of $6.40 a gallon under section it is said of section 5 of the Willis-Campbell 600 (a) of the Revenue Act of 1918 (40 Act (Comp. St. Supp. 1923, 88 101384c, Stat. 1105) was assessed, it is said: "The 1013845d, 101384e): “This section is not government

contends that, of tax declaratory even in form." But if the sec- laws which antedated the National Prohibi. tion in question could be read as a declara- tion Act, only inconsistent laws are repealed, tion that the penalty of $1,000 imposed by and that taxes in this case were levied under section 35 of the Prohibition Act is a true a law not inconsistent. For this section 35 is

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11 F.(20) 399 adduced. Lipke v. Lederer manifestly pre- Court long before the assessment was made. cludes the contention."

It is a further fact that the assessment here It seems to me that these two cases put was necessarily based solely on the actual or beyond controversy the fact that the double supposed commission of a crime by the pertax provision of section 35 is itself void, and son assessed; and while the assessment of that it nevertheless repealed all earlier stat- the item in question here has a resemblance to utes which imposed taxes on illicit dealers a true tax assessment, I am inclined to think and manufacturers. The Lipke Case is dis- that it is a delusive resemblance. Where the criminated from the case at bar in respect to sole basis of an assessment is the real or asthe item now in question by the fact that sumed commission of a crime, the assessment there the Commissioner assessed (see page may be styled a tax, and the amount assessed 558) the double tax (and the penalty) in- may be arrived at by using a rate fixed in a tended to be imposed by section 35, as well revenue statute; but in its real nature the as an additional penalty of 25 per cent. of assessment is, I think, the imposition of a the double tax. The Regal Drug Co. Case penalty for crime. But, even if this be rediffers from the case at bar in the fact (pag. garded as inaccurate, it is at least indisputaes 388, 392 [43 S. Ct. 152]) that the collec- ble that, if the assessment here partakes of tor there, by demurring to the bill, admitted the nature of an assessment of an (invalid) that all taxes that were or that could have tax, it also partakes of the nature of an asbeen levied had been paid by the plaintiff be- sessment of a (pecuniary) punishment for fore the assessment was made. But it re

crime. And this latter element, I believe, mains true, not only that the revenue law un- prevents section 3224 from being here applider which the item now in question in the cable. When Congress inhibited injunctions case here purports to have been assessed was in tax cases, no such hybrid assessment as repealed by section 35, but that this fact had the one here was contemplated. been plainly declared by the Supreme Court But the mere fact that an injunction is long before the assessment in 1895 was made. not interdicted by statute does not show that With the mere invalidity of the item in ques- the plaintiff may not have an adequate remtion I am not at present concerned. An as- edy at law. In this case a notice of lien of sessment of a tax imposed only by a repealed the assessment has been recorded in Nelson statute is of necessity an invalid assessment. county. If the plaintiff were to pay the item But such fact does not authorize equitable of $1,792, with all interest and other addirelief, and it is with the propriety of grant- tions demanded, and then successfully sue ing equitable relief that I am now concerned. the collector at law, the lien would not be

It has long been settled that section 3224, ipso facto released, and another suit in equi. Rev. Stats. (Comp. St. 5947), forbids restraining the assessment or collection of a

ty might conceivably be necessary to have

this cloud on the plaintiff's title to his land tax attempted to be imposed by an unconstitutional federal statute. See Dodge v. Os removed. Where an attempt has been made born, 36 S. Ct. 275, 240 U. S. 118, 60 L. Ed. to assess a punishment for crime, and the as557, and cases there cited. In Bailey v.

sessment has been recorded, so as to have the George, 42 S. Ct. 419, 259 U. S. 16, 66 L. Ed. appearance of a lien, it seems to me that the 816, equitable relief was refused, although remedy at law is not adequate. (see Child Labor Tax Case, 42 S. Ct. 449,

It seems unnecessary to say more than 259 U. S. 20, 66 L. Ed. 817) the tax had been has been said in respect to the Willis-Campimposed by an unconstitutional statute, and bell Act. I think it has no effect here. Secwas in fact a penalty intended to prevent the tion 35 of the Prohibition Act imposes a douemployment of children in certain occupa- ble tax on illicit distillers. The older revetions. However, in the Bailey Case the stat- nue law imposed a single tax. The two statute had not been declared void by the Su- utes are as "directly in conflict” as is possi. preme Court when the assessment was made. ble, and are no less in conflict now than they In the case at bar, as has been said, the fact were when the assessments in the Lipke and that section 35 of the Prohibition Act had re- the Regal Drug Co. Cases were made. pealed section 600 (a) of the Revenue Act of I think the plaintiff is entitled to the re1918 had been declared by the Supreme lief he asks.

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