author: MeNARY, District Judge.

text:
    LUCKENBACH S. S. CO., Inc., v. MARSHALL, Deputy Commissioner, et al.
    No. 9156.
    District Court, D. Oregon.
    March 16, 1931.
    I. H. Van Winkle, Atty. Gen., and Wood, Montague & Matthiessen, Erskine Wood, Gunther F. Krause, and Thomas G. Ryan, all of Portland, Or., for complainant.
    George Neuner, U. S. Atty., and J. W. Mc-Culloch, Asst. U. S. Atty., both of Portland, Or., for defendant Marshall.

      W. A. Illidge, of Portland, Or., for defendant Bromberg.
   MeNARY, District Judge.

This is an action in equity to review an award of the deputy commissioner for the Fourteenth district, under the Act of Congress of March 4, 1937, known as the Longshoremen’s and Harbor Workers’ Compensation Act (33 USCA §§ 901-950), and is here upon a motion to dismiss.

On the 4th day of May, 1929, the claimant was an employee of the complainant on board a barge in the harbor at the city of Portland, Or., and while so employed sustained an injury resulting in his disability.

During the year immediately preceding the injury the claimant had been engaged 153 days or parts of days as a longshoreman. After notice and a hearing, the deputy commissioner found that during the year preceding his injury the claimant had earned the sum of $1,121.38 as a longshoreman, and that he had reported to the place of his employment as frequently as required, ready, able, and willing to perform his usual work; that H. Hermson is a workman engaged in the occupation of longshoreman in the same port in which claimant sustained. his injuries, and is an employee of the same class; that, during the year immediately preceding the said injury, Hermson had worked as a longshoreman on 271 days, and earned $2,-276.69, an average of $8.40 per day; that the average annual earnings as determined by subdivision (b) of said act are three hundred times the average daily wage; that the average annual earnings of the claimant as determined by subdivision (b) of section 10 of the act (33 USCA § 910 (b) are $2,520; that, as a result of the injury sustained, the claimant was wholly disabled from May 4,1929, to ,-and including November 14,1930, and that he is entitled to 80 weeks’ compensation at $25 per week for such disability.

The deputy commissioner awarded the ■claimant compensation in accordance with the ■findings.

That part of the act pertinent here is as follows:

“Except as otherwise provided in this chapter, the average weekly wage of the injured employee at the time,of the injury shall be taken as the basis upon which to compute compensation and shall be determined as follows:

“(a) If the injured employee shall have worked in the employment in which he was working at the time of the injury, whether for the same or another employer, during substantially the whole of the year immediately preceding his injury, his average annual earnings shall consist of three hundred times the average daily wage or salary which he shall have earned in such employment during the days when so employed.
“(b) If the injured employee shall not have worked in such employment during substantially the whole of such year, his average annual earnings shall consist of three hundred times the average daily wage or salary which an employee of the same class working substantially the-whole of such immediately preceding year in the same or in similar employment in the same or a neighboring place shall have earned in such employment during the days when so employed.
“(e) If either of the foregoing methods of arriving at the annual average earnings of an injured employee can not reasonably and fairly be applied, such annual earnings shall be such sum as, having regard to the previous earnings of the injured employee and of other employees of the same or most similar class, working in the same or most similar employment in the same or neighboring locality, shall reasonably represent the annual earning capacity of the injured employee in the employment in which he was working at the time of the injury.” 33 USCA § 910 (a to e).

The Longshoremen’s and Harbor Workers’ Act was, in substance, an adoption of the Workmen’s Compensation Law of New York (Consol. Laws N. Y. c. 67).

The rule is settled that, when a statute has been adopted by Congress from a state, the judicial construction placed upon such statute by the highest court of the jurisdiction from which it has been taken accompanies it, and is treated as incorporated therein.

The sections in question have been frequently construed by the courts of the state of New York. In Littler v. Fuller Co., 223 N. Y. 369, 119 N. E. 554, 555, it was held that compensation to a bricklayer, who had worked at his trade about 180 days, should have been awarded under a subdivision corresponding to subdivision (e) of section 10 of the Longshoremen’s Act. There the court said: “Three hundred days’ work in the year is the standard of steady employment. ‘The average weekly wages of an employee shall be one fifty-second part of his average annual earnings.’ Section 14, subd. 4. The award should not exceed two-thirds of the earning capacity. Average annual earnings are computed under subdivisions 1, 2, or 3 of section 14, as the case requires. If the nature of the employment does not permit steady work during substantially the whole of the year the annual earning, capacity of the injured employee in the employment is the proper basis of compensation. Section 14, subd. 3. The true test is this: What were the average weekly earnings, regard being had to the known and recognized incidents of the employment, including the element of discontinuousness?”

In Prentice v. New York State Rys., 181 App. Div. 144, 168 N. Y. S. 55, the court said: “Subdivisions 1 and 2 of the section provide that in eases included within such subdivisions the average annual earnings shall consist of 300 times the average daily wage or salary. The number 300, used in those subdivisions, is not an arbitrary selection, but was evidently selected because it bears an approximately close relation to* the number of working days in a year, Sundays and holidays excluded. Manifestly, where an employee works seven days a .week for substantially an entire year, the method of determining his average annual earnings, indicated in either subdivision 1 or 2, would be' an injustice to him, just as much as it would be an injustice to the employer to apply those subdivisions to a case where the injured employee has worked less than six days a week for a substantial period of time. The claim here falls more appropriately within subdivision 3.”

These cases are supported by a number of other eases in the New York courts.

The state of Michigan has a law almost identical with section 10 of the Longshoremen’s Act, which was construed by the Supreme Court of the state in Andrejwski v. Wolverine Coal Co., 182 Mich. 298, 148 N. W. 684, 686, Ann. Cas. 1916D, 724, as follows:

“The question in the instant case for the court, upon the facts presented by this record, is to determine under the provisions of which of the four classifications of this statute the average annual earnings of this employee must be ascertained. It is clear that the first, second, and third classes of eases relate to employments which continue during substantially the entire calendar year. About the first there is no question. The same initial language used in the second and third classifications indicates that the Legislature still had in mind employments, at which employees worked substantially the whole of the year immediately preceding an injury. The employment in which the injured employee in the instant ease was engaged at the time of his injury was not an employment of that character. It was not an employment in an industry which continued operations during substantially the entire year. The record shows that this is the ease, not only in the Saginaw Valley district, but everywhere in the coal mining industry. * * *
“In our opinion the ‘methods of arriving at the average annual earnings of the injured employee’ set forth in these classes ‘cannot reasonably and fairly be applied.’ We must therefore conclude that it comes within the fourth classification. * * *
“In making these classifications which we have been considering, the known and recognized incidents of industrial employments were taken into consideration. The first three relate to employments wherein operations are carried on for substantially the entire year, and may be said to include the large majority of industrial employments in the state. That there were well-known industrial employments within this jurisdiction which were not so operated must also have been within the knowledge of the legislative body. That such employments were recognized and provided for is apparent from the terms and provisions of the fourth classification.”

The Supreme Court of the state of California, in Mahaffey et al. v. Industrial Accident Commission, 176 Cal. 711, 171 P. 298, 299, construing a similar statute, said: “Both subdivisions 1 and 2 contemplate a kind of employment which is permanent and steady, and which, for that reason, affords to an employee the possibility, at least, of earning annually an amount measured by the number of working days in a year, estimated and fixed by the act at 300. Where this kind of employment is not shown to exist, the case falls within subdivision 3, under which the annual earnings are to be taken as the sum which will ‘reasonably represent the average annual earning capacity’ of the employee ‘in the kind of employment in which he was then working, or in any employment comparable therewith, but not of a higher class.’ Under this subdivision, the amount of annual earnings is not reached by multiplying the employee’s daily earnings by any arbitrary figure, but by ascertaining from the evidence what his earning capacity in fact was. The evidence before the commission did not show that Rees could have earned in the employment in question, or in any employment comparable to it, anything more than the amount which he had actually earned in the past, which was but a fraction of the amount fixed by the commission as his average annual earnings.”

The question here involved is whether the claimant’s average weekly earnings should have been determined under subdivision (b) or should fall within subdivision (e).

The method set forth in subdivision (b) clearly implies that it should be followed only in cases where the employee had been engaged in steady and regular employment, or had followed an occupation in which he might reasonably be expected to work 300 days in a year.

This interpretation has been given to the New York statute by the highest court of that state, and it was adopted and made a part of the Longshoremen’s and Harbor Workers’ Act; and, having in view the obvious purpose of the act, as appears from its contents, there is no other logical interpretation.

If the standard fixed by subdivision (b) were to be used in measuring the compensation of employees who had been engaged in seasonal, casual, or intermittent occupation, it would in some eases work an injustice to an employee, and more often would work an injustice to an employer.

By applying the rule of 300, the average annual earnings of the claimant were found by the deputy commissioner to be $2,520, while his actual earnings for the year prior to his injury' were $1,121.38.

The construction of a statute should be in harmony with the ends of justice, if the language thereof will permit.

It clearly appears from the record that the work of the claimant, as carried on at the port of Portland, was irregular and discontinuous. Frequently reporting to the place of his employment, and readiness and willingness to work, did not give claimant’s employment the characteristics of steadiness. Willingness to work, without the opportunity, does not increase one’s earning capacity.

Subdivision (e) furnishes the only means whereby claimant’s annual earning capacity can be reasonably and fairly determined. In many eases actual earnings alone are not sufficient upon which to base an award. By this subdivision the commissioner is given wide latitude, and is authorized to take into consideration the earnings of others of the same class as important factors.

The ease of Gunther v. United States Employees’ Compensation Commission (C. C. A.) 41 F.(2d) 151, is cited as supporting the award of the deputy commissioner. There the award was based upon the earnings of the claimant as disclosed by the records of the employment agency, excluding other known earnings. There was testimony showing that the claimant had earned during the year prior to his injury $40 per week, the amount suggested by the court as the proper basis of an award. The court evidently took the view that the remuneration showed continuous and steady employment.

This court cannot now determine the award claimant should ‘receive, though it plainly appears that the award of the deputy commissioner was unauthorized and erroneously made.

The motion to dismiss will be overruled.


source: Caselaw Access Project

author: CARPENTER, District Judge.

license: Public Domain

text:
    SHAW v. UNITED STATES. B. F. SHAW PRINTING CO. v. SAME.
    Nos. 36982, 36983.
    District Court, N. D. Illinois, E. D.
    Oct. 7, 1930.

      Haight, Adcock, Banning & Fathchild, of Chicago, 111. (Irvin H. Fathchild, of Chicago, 111., of counsel), for plaintiff.
    George E. Q. Johnson, U. S. Atty., and John P. Barnes, Sp. Asst. U. S. Atty., both of Chicago, 111., and R. E. Updike, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C., for the United States.
   CARPENTER, District Judge.

Here are two suits brought for the recovery of federal income and profits taxes averred to have been erroneously assessed and collected. Pursuant to stipulation, the eases were consolidated for hearing. The taxes involved are for the calendar years 1919 and 1922, both inclusive.

From the evidence I make the following findings of fact:

B. F. Shaw Printing Company was incorporated under the laws of the state of Illinois in 1891. The period of corporate existence specified in the charter was twenty years. The corporate existence accordingly expired in 1911. At that time Mabel S. Shaw, the plaintiff in cause No. 36982, was the owner of all of the stock of that company. She was unaware, however, of the expiration of the corporate charter and continued to conduct the business under the old name of B. F. Shaw Printing Company. Finally, in January, 1921, the expiration of the corporate charter was discovered, and thereupon the business was again incorporated under the laws of the state of Illinois, and under the same corporate name. The new corporation carried on the business from and after that time.

For the years 1919 and 1920 Mabel S. Shaw filed corporation income and profits tax returns for the business, and computed the taxes on the net income disclosed, at corporation rates. The corporation returns showed a corporate tax determination of $726.75 for the year 1919, and $1,100.88 for the year 1920. The amounts so determined were subsequently assessed and paid; the 1920 amount being paid in equal installments of $275.22 each, on the 15th days of March, June, September, and December, 1921, respectively.

For the years 1919 and 1920 Mabel S. Shaw filed also individual income tax returns, and duly paid the taxes shown thereon, namely, $98.54 for 1919, and $786.80 for 1920.

For the calendar years 1921 and 1922 the new corporation, B. F. Shaw Printing Company, duly filed corporation income and profits tax returns, showing tax liabilities of $1,286.78 for the year 1921, and $1,314.82 for the year 1922, respectively. Amounts so shown on the returns for the respective years were assessed, and duly paid, as follows:

For the calendar year 1921: March 15, 1922.................................. $ 250 00 June 15, 1922......................’............. 394 47 September 15, 1922.....................'........ 321 15 December 15, 1922.............................. 321 16 Total ....................................... §1286 78 For the calendar year 1922: March 15, 1923................................... $ 328 71 June 15, 1923.................................... 328 71 September 15, 1923 ............................. 657 40 Total ....................................... $1,314 82

Subsequently, in 1924, the Treasury Department issued a letter addressed to the B. F. Shaw Printing Company, asserting a deficiency of corporation income taxes for the calendar year 1919. The asserted deficiency was based largely upon a bookkeeping error on certain exhibits attached to the 1919 return, and not upon an actual understatement of income. Upon receipt of such letter, Mabel S. Shaw consulted with a relative, who was also an accountant, and upon his advice amended corporation income tax returns were prepared and filed for the corporate business for each of the years 1919 to 1922, both inclusive. The amended returns purported to compute the taxable income of the business for the years included upon the accrual basis. The amended returns showed additional taxes computed at corporate rates for $2,103.73 for the year 3,919, and $2,971 for the year 1920, and over-payments for the years 1921 and 1922, aggregating $926.98. The deficiencies of tax shown by the amended returns for 1919 and 1920, totaling $5,074.73, were subsequently assessed, and upon demand by the collector were paid February 3, 1925. The overpayment of $926.98, shown by the amended returns for 1921 and 1922, was never credited or refunded.

The books of account of business conducted ’under, the name and style of B. F. Shaw Printing Company, for the years 1921 to 1922, both inclusive, were regularly kept on the basis of cash receipts and disbursements. Upon the basis of cash receipts and disbursements, the taxable net income of said business, the invested capital, the resultant tax liability computed at corporation rates, and the overpayment of taxes upon the corp orate basis, for the calendar years 1919 to 1922, both inclusive, are as follows:

1919 1920 1921 1922 Taxable net in-income .......$8,154.60 $11,482.85 $6,286.81 $8,333.62 Invested capital 35,979.81 41,758.98 39,286.13 Total tax computed at corporation rates 1,197.74 2,437.46 454.58 791.70 Corporate tax paid .......... 2,830.48 4,071.88 1,286.78 1,314.82 Overpayment on corporate basis 1,632.74 1,634.42 832.20 523.12

This discloses a total overpayment on corporate basis of $4,622.48.

The consolidated net taxable income of the business, regarded as an individual proprietorship during the years 1919 and 1920, with the other individual income of Mabel S. Shaw, the proprietor, and the resultant tax determination and overpayment for said calendar years 1919 and 1920, is as follows:

1919 1920 Net taxable income from aforesaid business ...................$ 8,154 66 $11,482 85 Salary ............................ 5,006 06 7,500 00 Income from real estate.......... 690 37 Interest ........................... 250 06 100 06 Liberty bond interest............. 23 75 $13,404 66 $19,796 97 Deductions (per individual return) ............................ 795 66 586 10 Consolidated net taxable income $12,608 94 $19,210 87 Exemption normal tax (per individual return) .................. 2,000 00 2,223 75 $10,068 94 $16,987 12 Normal tax ........................$ 688 72 $ 1,197 97 Surtax ............................. 226 40 646 68 Total tax...........................$ 909 12 $ 1,844 65 ArtTjallv paid: On individual return...........$ 98 54 $ 786 80 On assumed corporate basis... 2,830 48 4,071 88 Total paid ..........................$2,929 02 $ 4,858 68 Tax as above...................... 909 12 1,844 65 Overpaid • .........................$ 2,019 90 $ 3,014 03

This shows a total overpayment for the years 1919 and 1920, on individual basis $5,-033.93.

Separate refund claims on the forms prescribed by the United States Treasury Department were filed during July or August, 1925, for each of the years 1919 to 1922, both inclusive. On each of said claims the taxpayer was designated as B. F. Shaw Print-, ing Company, and each claim was signed as follows: “Mabel S. Shaw, President of said Company.”

The refund claims asserted that the taxes assessed and collected against the business were erroneous, in that they were computed ypon net income determined upon the accrual basis, whereas the books of account were kept on the basis of cash receipts and disbursements. An audit report and schedules, affixed to and made a part of said refund claims, set forth the facts upon which said claims for refund were based. The audit report set forth, among other things, that the original corporate charter expired in 1911, as above found, and that the business was not reineorporated until 1921.

The Commissioner of Internal Revenue rejected all refund claims'on March 4,1926.

Conclusions.

In these eases the principal contest was whether, for federal income tax purposes, the net income was to he determined upon the basis of cash receipts and disbursements, or upon the accrual basis. On that issue I find for the plaintiffs. The evidence was clear that the books of account were regularly kept on the basis of cash receipts and disbursements, and there was no evidence to justify a conclusion that they were kept on the accrual basis. Since the hooks of account were regularly kept upon the basis of cash receipts and disbursements, and since such method of accounting is common, usual, and well recognized, the Revenue Acts require that such method shall be used in computing the taxable income. Section 212 (h) of the Revenue Acts of 1918 and 1921 (40 Stat. 1064, 42 Stat. 237).

It was urged for the defendant, that, since the plaintiff in ease No. 36982, under mistake, assumed that the business was still incorporated, and filed corporation returns for the years 1919 and 1920, she is now es-topped to show the error. Clearly a taxpayer is not precluded from recovering taxes erroneously assessed and collected, merely because the error was in whole or in part his own. The statute authorizes refund of all overpayments of income taxes, upon claims being filed, no matter how the error in tax determination arose. Section 284, Revenue Act of 1926 (26 USCA § 1065). I am of the opinion, therefore, that the plaintiff in cause No. 36982 may show that under mistake it was assumed that the business was still incorporated during 1919 and 1920, but that it was in fact an individual proprietorship.

The defendant has questioned also the adequacy of the refund claims. That refund claims were filed for each of the years involved cannot he, and is not, questioned. The-inaccuracy in designation of the taxpayer in the claims for the years 1919 and 1920 is not vital. Tucker v. Alexander, Collector, 275. U. S. 228, 48 S. Ct. 45, 72 L. Ed. 253. Also the statement of facts in the refund claims clearly disclosed the expiration of the corporate charter in 1911, and the conduct of the business without reineorporation until 1921. I am of the opinion that the refund claims were a sufficient compliance with the law.

The plaintiff in case No. 36982 is accordingly entitled to judgment for overpayment of $2,019.90 for the year 1919, and $3,014.03 for the year 1920, with interest on said amounts from the date or dates of payment, as required by law. And the plaintiff in case No. 36983 is accordingly entitled to judgment for overpayment of $832.20 for the year 1921, and $523.12 for the year 1922, with interest on said amounts from the date or dates of payment, as required by law.

An order may be prepared in accordance herewith.


author: PETERS, District Judge.

text:
    INGALLS v. MAINE CENT. R. CO. et al.
    No. 850.
    District Court, D. Maine, S. D.
    Jan. 23, 1931.
    Supplemental Opinion, May 29, 1931.
    Supplemental opinion.
    For former opinion, see 24 F.(2d) 113.
    John W. Hill, of Portland, Me., for plaintiff.
    Col. Geo. E. Fogg, of Portland, Me., for defendants.
   PETERS, District Judge.

This is an action under the Interstate Commerce Ae.t (49 USCA § 1 et seq.) to recover overcharges in transportation. It comes on to be heard on two motions, oné by defendant Maine Central Railroad Company that the action be dismissed as to it, on the ground that the report of the auditor and the opinion in the case heretofore filed disclose that the only charges illegally collected were on that part of the transportation furnished by the Bridgton & Saco River Railroad Company; and the other a motion by the Bridgton & Saco River Railroad Company, admitting that the charges involved were collected solely by that company and moving that judgment snd execution be rendered against that defendant alone.

Simultaneously with the filing of the above motions, the defendant Maine Central Railroad Company suggested of record, for the information of the court, that the defendant Bridgton & Saco River Railroad Company was in the hands of receivers appointed by the state court.

It appears by the writ that the suit was brought against the two defendants jointly, the allegation being that “the said defendants did at Bridgton on the.31st day of March, 1920, and on the 26th day of May, 1920, and on divers days * * * collect and receive from the plaintiff * * “ various sums of money in excess of the lawful freight rate then due from the plaintiff to the defendants for carload shipments of oats, feed, corn and grain from various points in the United States to said Bridgton. * * * ”

It has been decided that this chapter is a penal statute, and that recoveries such as this are in the nature of recoveries of a penalty. Ratican v. Terminal R. Ass’n (C. C.) 114 F. 666, citing Parsons v. Chicago, etc., Co., 167 U. S. 447,17 S. Ct. 887, 42 L. Ed. 231. That it was so regarded by the parties is evident from the fact that the defendants in their general issue pleaded “not guilty,” as in an action of tort, instead of “Never promised,” as in an action of contract. In hearings before the auditor and before the court, no suggestion was ever made of a distinction between the liability of the two defendants. Three demurrers, a motion to dismiss, and various other motions in the case were made-without any such suggestion, and no plea of misjoinder was ever filed. The trials were conducted upon the theory of a joint liability. In fact, th'e joint liability (if any) has been admitted by both defendants. The report of the auditor has this paragraph: “Pursuant to my suggestion, the parties conferred and it was stipulated and agreed by and between them that Plaintiff’s Exhibit ‘E’ is a correct statement of the sums collected for transportation by the defendants on the shipments in question.” Plaintiff’s Exhibit E, referred to, I find on investigation of the papers before the auditor to be a long sheet evidently furnished hy the defendant Maine Central Railroad Company, entitled: “Maine Central Railroad Company. Accounting Department. Claim No. 21986. Industrial Traffic Bureau. Overcharge Account. Hamblen & Ingalls. Statement.” The subheading over the items referred to in Exhibit E is entitled: “Charges as settled. Bridgton Jet. to Bridgton.”

The same attorney has appeared for both defendants throughout. No suggestion of a difference in status between defendants was made until after judgment was ordered by the court against both, defendants, whereupon these motions setting up the receivership in the ease of one defendant, and asking that judgment and execution be rendered against that defendant solely, were presented.

The case was tried both before the auditor and before the court on the theory of a joint liability or none. Both defendants had a common freight agent who received the money in question. Defendants made a joint admission that they collected the sums held to be overcharges, not that one defendant alone collected them. The liability imposed by the act, especially section 8 (49 USCA § 8), is so broad as to indicate a liability on the part of both roads on the facts disclosed, without their express admission.

I can see no reason for changing the judgment rendered in the previous opinion, and that judgment is ordered against both defendants in the sum of $1,490.63, with interest from the date of the writ.

Supplemental Opinion.

Since the previous opinion of this court was filed January 23, 1931, and during the same term, the defendants filed a motion for reargument. On further hearing it develops that the original ruling of the court, overruling a demurrer filed by the'defendant, was based on the assumed constitutionality of the Act of Congress of June 7, 1924, USCA title 49, § 16 (3), under which the former period of limitation for bringing an action such as this was extended from two years to three years from the time the cause of action accrued. Since then the Supreme Court, in the ease of Peninsular Produce Exchange v. N. Y., Pa. & Norfolk Rd. Co. et al., 276 U. S. 599, 48 S. Ct. 322, 72 L. Ed. 724, has affirmed the ruling of the Court of Appeals of Maryland in the same entitled case, 152 Md. 594, 137 A. page 350, in which it was held that the extension of the period of limitation for actions by the statute referred to was an unconstitutional deprivation of property. Consequently the previous limitation of two-years is applicable to this case, which removes many of the items in dispute. Judgment for the plaintiff will have to be modified accordingly by eliminating all items which accrued prior to two years before the date of the-writ.

The order for a judgment in the previous • decision is consequently revoked, and, in lieu thereof, judgment is now ordered against the-defendants in the sum of $287.72, with inter-est from the date of the writ.


author: CAVANAH, District Judge.

text:
    TWIN FALLS CANAL CO. v. AMERICAN FALLS RESERVOIR DIST. NO. 2.
    No. 1521.
    District Court, D. Idaho, S. D.
    April 7, 1931.

      See, also, 45 F.(2d) 649.
    James R. Bothwell, of Twin Falls, Idaho, for plaintiff.
    Bissell & Bird, of Gooding, Idaho, and B. E. Stoutemyer, of Portland, Or., for defends nt.
   CAVANAH, District Judge.

This suit involves a determination of the question from the evidence as to the right of plaintiff to recover from defendant a proportionate part of the initial construction cost and operation expenses of the Milner dam, upon the theory that the defendant is using the dam in diverting into its canal from Snake river 1,700 second feet of storage water without contributing its part of such costs. Upon the demurrer to the amended complaint, it was thought that, as it was specifically there alleged that the defendant had entered upon and was using the reservoir and dam of the plaintiff without acquiring the right to do so, it should compensate the plaintiff for such use as the entry and use of the plaintiff’s property appeared within the scope of the Fifth Amendment. The inquiry now is, Does the evidence sustain the allegations upon which that conclusion was reached? A review of the testimony presents, not only the question thus referred to, but others which the defendant now urges should defeat a recovery by plaintiff.

The first is that the action is brought against the wrong party, for the reason that the defendant district does not own, nor has it constructed or operated, the canal system in the Gooding reclamation project which it is now constructing, and the diversion of the storage water by it will not take place until some future time, and will remain under the control and direction of the United States until the project is turned over to the defendant after it is completed by the United States. Under the Reclamation Act, the title to, and the management and operation of, the works remain in the government until otherwise provided by Congress. 32 Stat. 389, § 6 (43 USCA §§ 491, 498). In a recent ease decided by the Supreme Court of Texas, where an action was brought against an irrigation district which had entered into a contract with the United States, pursuant to' the provisions of the reclamation laws, it was held that the action could not be maintained against the district, as the United States was still operating the project which had not been turned over to the district. The court said:

“Petition in suit for damages by reason of breaks in irrigation canal banks due to negligence in maintenance and operation against irrigation district organized under Rev. St. 1925, arts. 7622-7807, which by article 7653 was authorized to contract with United States for construction, operation, and maintenance of irrigation works, held to state no cause of action against such district, in view of secfcion 6 of Federal Reclamation Act (43 TJSCA §§ 491, 498), and provisions of contract constituting the district fiscal agent of the United States in connection with the project but reserving to the United States control of maintenance and operation until certain payments required are made — to ‘maintain’ meaning to hold or keep in any particular state or condition; to support; to sustain; to uphold; to keep up; to keep possession of; not to surrender; to bear the expenses of (citing Words and Phrases [First, Second and Third Series], ‘Maintain’). * * *
“Duties and powers given irrigation districts under Rev. St. 1925, art. 7653, authorizing contracts with federal government for construction, operation, and maintenance under Federal Reclamation Act, 32 Stat. 388, are not to be confused with authority given irrigation districts generally by article 7656, 7765, which operate and maintain irrigation works themselves, whereas districts organized under article 7653, neither operating nor maintaining works, cannot be charged with negligence of federal government in such operation or maintenance.” Malone v. El Paso C. W. I. D. (Tex. Civ. App.) 20 S.W. (2d) 815.

But the plaintiff asserts that, should it be held that the United States is the one who is now using the dam in diverting the water from the river, yet article 21 of the contract between the United States and the defendant, wherein the defendant agreed to pay all claims which may arise in favor of the owners of the Milner dam by reason of the construction of the canal in question, and diversion of water through it, grants to the plaintiff the right to maintain the present suit. It will be observed that the contract is one between the government and the defendant alone, and the provision referred to is one for the protection of the government in ease it is called upon to answer for any such claims. The plaintiff is not a privy to either party thereto, and can claim no rights thereunder. The principle applicable is that “a third person cannot maintain an action on a sealed instrument to which he is not a party.” Cavanaugh Bros. Horse Co v. Gaston, 255 Mass. 587, 152 N. E. 623, 625,47 A. L. R. 1; Hendrick v. Lindsay, 93 U. S. 143, 23 L. Ed. 855. Therefore it would seem, under the evidence, that, as the United States is the one, and not the defendant, who has at the present time title to the project and is constructing the canal in question and doing the act complained of, the present action is brought against the wrong party, although it is contemplated that the project will at some future time be turned over to the defendant. Until that time arises and the project is turned over to it in the manner provided by law, and it does some act for which plaintiff is entitled to recover, an action against it at this time would be prematurely brought.

The conclusion thus reached disposes of the ease, and a consideration of the other questions becomes unnecessary, but, as considerable testimony was taken, it would seem proper for the court to consider and dispose of some of the other contentions of the defendants as reasons why the plaintiff should not recover on the present record. '

The first is that, when we come to consider the relative rights and interests in the dam, the evidence discloses clearly that the defendant has acquired from the North Side Canal Company a one-eleventh interest in the dam, in consideration of it conveying through its canal 1,000 second feet of storage water for the North Side Canal Company. The Milner dam now belongs to three parties, the plaintiff, the South Side Canal Company, owning six-elevenths interest, the North Side Canal Company, owning four-elevenths interest, and the defendant district one-eleventh interest. They are tenants in common in the dam, and are entitled to use it in proportion to their interests. The North Side Canal Company had the right to convey to the defendant an undivided one-eleventh interest in the- dam, held in common by it and the South Side Canal Company. The conveyance was not a specified divided interest in the property held in common, but an undivided interest, which constitutes the grantee a tenant in common with the grantor. Idaho C. S. §§ 5328, 5372; Powell v. Powell, 22 Idaho, 531, 126 P. 1058; Gordon v. San Diego, 101 Cal. 522, 36 P. 18, 40 Am. St. Rep. 73; Verdugo Canon Water Co. v. Verdugo, 152 Cal. 655, 93 P. 1021.

Assuming that the defendant should be required to pay its proportionate share of the initial construction and operating costs, when measured by the standard as to their respective diversion capacities from the river, the plaintiff has 3,600 second feet, the North Side Canal Company 3,300 second feet by its own diversion, and 1,000 second feet of continuous flow rights in the new canal of the defendant, plus their storage rights, and the defendant 1,700 second feet, in the new canal. Plaintiff’s right of 3,600 second, feet equals 7,200 acre feet per day. Figuring then plaintiff’s right of 7,200 acre feet times 365 days in the year, it would equal 2,-628.000 acre feet per annum, and, in addition to that, it has 92,000 acre feet of storage water rights in Jackson Lake, and 145,000 acre feet of storage water in American Falls reservoir, making the total diversion rights 2.865.000 acre feet per annum. The North Side Canal Company has 3,300 second feet per day, or 6,600 acre feet, or 2,407,000 acre feet per annum, and, in addition to that, it has storage water in the American Falls reservoir of 150,000 acre feet, making its total diversion right 2,559,000 acre feet per annum. The right of the defendant is 400,000, acre feet each season of the storage water of American Falls reservoir. Thus the total diversion rights at Milner dam of the three parties is 5,824,000 acre feet per annum. Figuring then on that basis, the defendant being a tenant in common, it would be entitled to. divert or to use the dam up to a diversion capacity of one-eleventh of the total capacity of 5,824,000 acre feet per annum, which is 529,454 acre feet, or 129,450 acre feet in excess of its present stored water right of 400,000 acre feet which it proposes to divert at its headgate on the river. Therefore it would seem that, if the rights of these three owners of the dam are measured according to their water rights, which are raised in the river by the dam to the necessary elevation so that they can be diverted through their canals, then the defendant has already paid more than its proportionate part of the initial cost of the construction of the dam by purchasing the one-eleventh interest in it from the North Side Canal Company. The parties assert that they are willing to contribute their proportionate part of the maintenance and operating costs of the dam.

This, then, leads to the consideration of the further, thought, which is really the difficult problem involved in the case under the constitution and laws of the state, when applied to the evidence, as to the right of plaintiff to require subsequent appropriators above the dam on the stream to contribute to the costs of construction and operation of the dam. The dam was constructed for the purpose of raising the water in the river to a certain elevation above the bed of the river, so that the water rights of the plaintiff and the North Side Canal Company could be diverted through their canals. It was not intended to be used as a reservoir, storing water to be drawn upon whenever desired. Its backwater extended to about 25 miles up the river, and the point of diversion of the canal in question is about 400 feet above the dam. There is a sharp conflict in the evidence as to what effect the water to be diverted through the new canal would have upon the operation of the dam or interference with other rights. Engineers of equal reputation and ability who have testified differ as to that. Some say that the additional 1,700 second feet when placed in the river would cause greater pressure upon the dam, and cause confusion and complications in its operation, while others say no. But, however that may be, the extent of the rights of plaintiff is that, of an easement, limited to the right to the use of the dam, so far as may be necessary for the construction, maintenance, and use of its canals and ditches. 26 Stat. 1102, § 21 (43 USCA § 949). The easement was granted by the United States upon its- public lands (Natoma Water & Mining Co. v. Hancock, 101 Cal. 42, 31 P. 112, 35 P. 334, 337; Whitmore v. Pleasant Valley Coal Co., 27 Utah, 284, 75 P. 748), and is limited to the purposes specified in the statute. The mere fact that the plaintiff has constructed a dam, and by doing so has raised the bed of the stream to an elevation which it found necessary in order to divert its water through its canal, would not give to it the right to require subsequent appropriators of water from the stream or users of storage water flowing in the stream to contribute to the initial cost of construction of the dam.

The right to divert and appropriate the unappropriated waters of a natural stream to beneficial uses shall never be denied under the Constitution of the state. Idaho Const, art. 15, § 3. This principle applies to the right to the use of' such stream as a highway to carry storage water from a reservoir. Idaho C. S. § 5624. The regulation of such use is by the statute of the state vested in the Commissioner of Reclamation and the water masters, on the stream. Idaho C. S. §§ 5606, 5607, and 5611. Thus it will be seen that the right to appropriate water or to use a public stream for that purpose is not an unrestricted one, and must- be exercised with regard to the rights of the public. The permission here given to the plaintiff is a mere license to use the method of construction of a dam for raising water to a level so that it can be diverted through its canal for distribution on its lands. To say that it can go further than that and require other appropriators or users on the stream who may be above its dam to contribute to the cost of construction of the dam would result in such a monopoly as to work disastrous consequences to the public. If it can require the defendant to contribute the large amount demanded, then it could go .up the stream for a distance of 25 miles and require all subsequent appropriators or those who may use the stream to carry storage water from American Falls reservoir, to contribute to the construction cost of the dam. Such a right in principle is denied by the Ninth Circuit Court of Appeals in the case of Schodde v. Twin Falls Land & Water Co., 161 F. 43, which was affirmed by the Supreme Court. Schodde v. Twin Falls Land & Water Co., 224 U. S. 107, 32 S. Ct. 470, 56 L. Ed. 686.

The fact that plaintiff has created an artificial condition in the river by the construction of the dam, which has resulted in backing up the water in the stream for 25 miles, and to an elevation which others may utilize, would not give to it the exclusive right to compel defendant to contribute to‘ the initial cost of the dam, for they have the right to use the stream in the condition they may find it as long as they do not injure or interfere with plaintiff in diverting its water. They have* the right in the first instance to use the stream in its natural condition, and probably would have preferred to install a wheel or adopt other methods to lift the water from the river. Otherwise the plaintiff would have the exclusive right to dictate to them to accept its dam as the method, regardless of the difference there may be in the cost to them.

The contention of the plaintiff that the defendant should contribute to the original cost of the dam, which was constructed some years ago, but should have no interest there"in, runs counter to all legal and equitable principles requiring a conveyance of property to the one paying for the same. Here plaintiff adopts the theory that the defendant pay to it a part of the original cost and operation expenses of the dam, and, after doing so, it shall have no interest therein or voice in its operation. This would seem inequitable, although plaintiff says the defendant would only be paying for the use of it, and the measure of relief under such circumstances would not be a proportionate part of the initial cost of the dam. Should plaintiff retain the interest in the dam and the sole right of operation, without transferring the interest represented by the amount defendant is requested to pay for. the original cost, it could not expect to retain the dam and at the' same time ask the defendant to pay for a part of its cost.

The conclusion reached requires a dismissal of the bill,' and that defendant recover its costs.


author: ANDREW M. J. COCHRAN, District Judge.

text:
    In re DRAUGHN & STEELE MOTOR CO.
    District Court, E. D. Kentucky, at Covington.
    Feb. 28, 1931.
    Willis W. Reeves, of Hazard, Ky., and Grover C. Thompson, of Lexington, Ky., for trustee.
    Napier & Eblen, of Hazard, Ky., for Commercial Inv. Trust Corporation.
   ANDREW M. J. COCHRAN, District Judge.

This proceeding is before me on petition for review, filed by the trustee, complaining of an order of the referee adjudging that a certain Dodge roadster, in the possession of the bankrupt at the time of its institution, was the property of the Commercial Investment Corporation, and that it have immediate possession of same. The corporation filed an intervening petition asserting title to the auto under a trust receipt executed by the bankrupt to it to secure its time draft for the sum of $804.96 executed simultaneously with the trust receipt. Possibly its petition should be construed as only asserting a lien on the auto and seeking to have it enforced. I do not find it necessary to go into the question as to the validity of an unrecorded trust receipt given to secure a debt as against general creditors, for I feel sure that in this state it is not valid. It is to be taken that under the law thereof such a document is a mortgage, and that therefore, by virtue of section 496, Kentucky Statutes, it cannot prevail over general creditors. It is well set-tied in this state that a conditional sale is a mortgage. To change a conditional sale into a mortgage calls for no greater wrench than to so change a trust receipt.

In the case of In re James, Inc. (D. C.) 30 F.(2d) 551, in the lower court the trust receipt there involved was held to he a conditional sale. On the appeal in Re James, Inc. (C. C. A.) 30 F.(2d) 555, 557, it was said: “The practice of a conditional sale bears some resemblance to a trust receipt.”

In the ease of In re Bettman-Johnson Co. (C. C. A.) 250 F. 657, 663, in speaking, of the trust receipt, there involved, it was said: “We do not deem it necessary to analyze and distinguish the reported eases, or attempt a precise definition of the banker’s title acquired in such transactions, for the reason that, in view of the contractual relations of the parties, if the transaction under consideration does .not disclose all of the elements of a conditional sale, it is at least so far in the nature of a conditional sale as to fall within the terms of the Ohio statute.”

In this state there is no statute requiring the recordation of conditional sales. The statute only requires the recordation of mortgages. But, as a conditional sale is construed to be a mortgage, the statute applies to them as much so as if they had been expressly mentioned. To hold, therefore, that the trust receipt here involved is a'conditional sale is to bring it within the statute. The ground upon which a conditional sale is held to be a mortgage is that it is an attempt to evade the recording statute.

In the ease of Greer v. Church, 13 Bush (Ky.) 430, a document in the form of a renting contract was held to be a sale. The court said: “The well-defined policy of the law is to have as few secret liens and claims upon property as possible, that the title may be readily and safely transmitted from one to another. This is in the interest of trade as well as opposed to fraud and 'collusion. Registration laws have been provided which furnish ample and cheap facilities for securing liens, and at the same time enable the vigilant to protect themselves, especially in a case like this, from imposition and fraud. There is therefore no hardship in holding that all persons shall comply with those laws, or suffer the consequences of the failure to do so.”

In the case of Barney & Smith v. Hart (Ky.) 1 S. W. 414, 416, in denying priority to a conditional sale it was said: “To so hold would be to disregard the plain provisions of the statute, enacted to prevent fraud, and protect the rights of creditors and purchasers; and, as said by this court in the ease of Greer v. Church, 13 Bush, 430, the title in such eases will be treated as being where the nature of the transaction requires it should be.”

In the ease of Baldwin v. Crow, 86 Ky. 679, 7 S. W. 146, 147, in speaking of a conditional sale, it was said: “It is manifest the object of the contract under consideration was to secure payment of the agreed purchase price, and it should therefore be regarded as an absolute sale and iportgage back.”

Later expressions of the Court of Appeals of Kentucky of its attitude towards unrecorded instruments intended to secure payment of an indebtedness might be eited. But these suffice to show what that attitude is. If, then, the trust receipt here involved is a conditional sale, it is a mortgage. If it is not and should be characterized as something else than a mortgage, the principle which requires a conditional sale to be treated as a mortgage requires it to be so treated.

But really there is no difficulty in the way of holding it to be a mortgage. In the case of In re James, Inc. (C. C. A.) 30 F. (2d) 555, it seems to have been held that the trust receipt there involved was not a mort-, gage, because the holder thereof did not acquire title from the debtor, the creator of the trust. Here the respondent acquired title from the bankrupt and could not have acquired it in any other way. Its petition alleges that the roadster was shipped to the bankrupt. This I take to mean that the bill of lading was in its name. If so, no one could have gotten title to it except through it, and the petitioner must have gotten title-thereto in this way. The petition also alleges that the bankrupt paid 15 per cent, of the purchase price due to the manufacturer. It was entitled to have something to show for this payment, and the only thing which it could so have was title to the roadster subject to a lien in favor of the petitioner for the amount advanced by it. The true nature .of the transaction was this. On the payment of the purchase price to the bank, the title passed from the manufacturer to the bankrupt and from it to the petitioner. Had nothing further transpired, the petitioner would have held the bill of lading and the roadster as security for the amount advanced by it on the purchase price. The title thereto would have come to- the bankrupt. On the delivery of the bill of lading to the bankrupt in return for the trust receipt and the time draft, the latter took the place of the bankrupt’s liability for such advancement, and the trust receipt took the plaee of the lien to secure it.

The cases of Glass v. Cundiff & Longest, 167 Ky. 760, 181 S. W. 638, In re Reynolds (D. C.) 203 F. 162, and Mitchell Wagon Co. v. Poole (C. C. A.) 235 F. 817, relied on by the respondent, are not in point. Bach was a ease of bailment for sale. In neither of them was there any liability on the part of the bailee to the bailor to secure which the bail- or retained title. Here the respondent held title as security for the time draft. It terms its title a “security title.” In the first ease the complaining creditor was an antecedent creditor who had no standing under section 496.

The result is that the roadster in question is a part of the assets of the bankrupt free from any claim on the part of the respondent under its trust receipt.

The order of the referee is reversed, and the cause is remanded for further proceedings- in accordance herewith.


author: KNOX, District Judge.

text:
    SOLOMON v. UNITED STATES.
    District Court, S. D. New York.
    Dec. 22, 1930.
    See, also, 44 F.(2d) 238.
    John P. Hughes, of New York City, for plaintiff.
    Robert E. Manley, of New York City (Ernest Lappano-, Asst. U. S. Atty., of New York City, of counsel), for the United States.
   KNOX, District Judge.

In this action, plaintiff seeks to recover the sum of $27,777.73, with interest thereon, which is asserted to represent an overpayment of his income taxes for the year 1919. The collector of internal revenue to whom the alleged overpayment was made, not being in office at the time suit was commenced, the action is prosecuted against the United ’ States.

Pursuant to the terms of a written agreement made with Hahlo Company, a New York corporation, under date of December 31, 1918, plaintiff entered its employ as a salesman and undertook to serve as such throughout the year 1919. This he did. The agreement provided that the plaintiff should receive an annual salary of $25,000 per annum, and in addition thereto a sum equal to 101 per cent, of -the net profits of the company for the year over which his employment extended. After providing as to the manner in which the net profits should be calculated, the contract specified as follows:

“Said additional compensation shall be further subject to the following restrictions:

“(a) The additional compensation may be adjusted in accordance with later adjustments of the net income for the year ended December 31, 1919’, as finally adjusted by the Treasury Department of the United States.
“(b) The time at which additional compensation shall become due and payable shall be left to the discretion of the Board of Directors of the Company but in no event shall the time exceed the time of the final determination of the net profits, by the Treasury Department of the U. S. Government.”

Hahlo Company kept its books on an accrual basis, and in the course of the year 1919 the plaintiff was credited thereon with salary and commission in the total amount of $103,160.56. During that year, however, the plaintiff received only ^48,841.82 of the sum so credited. The payments aggregating this amount were made up of the salary of $25,000 and commissions of $23,841.82.

On March 15, 1920, plaintiff filed his income tax return for the year 1919 j the same being prepared by the accountant for the Hahlo Company. It showed a gross income made up of salary, commissions, and interest in the amount of $107,615.68. Prom this plaintiff made deductions representing losses on stocks, interest payments, contributurns, and personal exemptions to the extent of $5,830.79, leaving his income subject to tax at $101,784.89. At the rates of taxation then in force, plaintiff’s tax was fixed at $33,460.93, all of which was duly paid within the year 1920.

Plaintiff kept no books of account save a record of his bank balances, and a cheek book on the stubs of which he listed his disbursements. It was from these papers that determination was made of plaintiff’s stock losses, interest payments, and contributions to charity. The remainder of the items going in the return were taken from the books of the Hahlo Company.

The income tax return of that corporation for the year 1919 showed a net income of $736,004.81 and a tax of $306,330.55. By reason of an additional assessment of tax amounting to $350.32, made by the Commissioner of Internal Revenue, the company’s total tax for the year reached $306,680.87, which was duly paid.

On December 25, 1925, Hahlo Company filed a claim for a refund of the taxes paid on account of its income for 1919. On November 26, 1928, this claim, in part at least, proved successful, with the result that the net income for 1919' was fixed at $609,446.79', with a consequential reduction in the tax.

On March 6, 1925, plaintiff filed a waiver with one of the local collectors of internal revenue, whereby the time within which additional assessments of tax for 1919' might be made, or claims for refunds thereon asserted, was extended to March 6,1926. This was followed on December 31,1925, by plaintiff’s .claim for a refund of $14,000 on account of his 1919 tax. The reason assigned for the refund was in these words: “Profits were credited to the claimant on the basis of erroneous jjrofits ascribed to Hahlo Company for" the calendar year 1919. Brief will follow.”

Oil May 26, 1926, the Commissioner of Internal Revenue advised plaintiff that his claim for refund had been “examined,” but that “inasmuch as no brief has been received and no information has been furnished to substantiate your statement (of reasons for refund) your claim will be rejected. The rejection of your claim will officially appear on the next schedule to be approved by the Commissioner.”

The rejection was followed on May 10, 1928, by an application by Solomon for a reopening of his claim for refund in which he stated that “the cause of the taxpayer failing to file a brief supporting a claim for refund was due to the fact that the profits of Hahlo Co. were not and even to this date have not been finally determined and therefore precluded the taxpayer from setting forth a correct computation of his net income. By referring to contract entered into between Hahlo and Arthur Solomon on December 31, 1918, a copy of which is set out herein * * * it will be noted that the true compensation of Arthur Solomon cannot be arrived at until the profits of Hah-lo Co. are finally determined by the Treasury Department. * * * ”

Solomon then proceeded to set out that his true net income could not be determined until that of the Hahlo Company was finally fixed, and to allege, as he had not previously done, that, inasmuch as he kept his books on a cash income and disbursement basis, his tax should accordingly be so computed.

Under date of May 25,1928, the Commissioner again told Solomon the reason for the rejection of his claim, and added that the original return expressly indicated it to have been made on an accrual basis. The Commissioner’s letter contained these concluding paragraphs:

“In this connection, you are advised that as this issue was presented to this office for the first time after the expiration of the date on which a valid claim for refund based thereon could be filed, consideration will not be given thereto and the claim for refund filed within the statutory period will not be reopened for the purpose of injecting therein a new issue presented for the first time subsequent to the expiration of the Statute of Limitations.”
“In view of the foregoing, the request for the reopening of the claim is denied.”

The present suit was begun upon the succeeding day.

The original petition has been twice amended; the second amended petition having been filed on June 4, 1929. That pleading contains two alleged causes of action; in the first of these plaintiff sets up that, in filing his return for 1919', he overstated his income to the extent of $12,655.80, as a result of which he seeks a refund of $7,123.80. These sums are reached by calculations made on the reduction of $126,558.02 in the income of the Hahlo Company for 1919, which was allowed by the Commissioner of Internal Revenue. As Solomon was entitled under his contract to 10 per cent, of the company’s net profits, he alleges that his income, taken upon an accrual basis, should be reduced by $12,655.89.

In the second cause of action, plaintiff says that, inasmuch as his hooks and records for 1919 were kept upon a cash receipt and disbursement basis, the only portion of his 1919' income on which he is properly taxable in that year was the sum of $48,841.82, which he actually received, less his losses of $3,184.50, or $45,657.32. He concludes that the computation of his tax should be limited to the last-mentioned sum, and that any payment made to the collector in excess of such computation constituted an overpayment of taxes, which should be returned to him. The total of such alleged overpayment is fixed at $25,777.75.

At the end of the trial, plaintiff asked leave to amend his pleadings to conform to the proof, and this he was permitted to do. As a result, he now asserts that, inasmuch as the only income which actually accrued to him during 19191 is the sum which physically came into his possession, and that under either cause of action his income would be the same, if this contention he held to be correct, the tax on such income would be $7,682.20, and, as Solomon has paid the collector $33,460.33, the extent of the recovery to which he is entitled is $25,777.13.

Irrespective of the amendment at the trial, plaintiff here argues both causes of action, as set forth in the second amended petition. In answer to the claims as there set forth, the government says that the first cause of action is not sustained by the proof, and that no recovery can he had on the second, for the reason that it is based on a ground wholly different from that stated in the application for refund.

Taking up plaintiff’s argument to the effect that the only income which definitely accrued to him in 1919 was the sum of $48,-841.82, which he actually received, I may say that it is unconvincing.

While Solomon’s contract with Hahlo Company provided that his compensation might be effected by such adjustments of the company’s income as should be made by the Treasury Department, the events and circumstances which fixed the income of the Hahlo Company for the year 1919, and upon which any adjustment would necessarily rest, occurred within that tax year. Under the agreement, the function which it was stipulated should be performed by the Treasury Department was nothing more than that of an auditor. As matters eventuated, the net income of the Hahlo Company was finally ascertained to be $609,446.79. That sum undoubtedly accrued in 1919, and the portion thereof to which Solomon was entitled must be held to have accrued within the same year. The facts now before the court are radically different from those which were the subject of adjudication in S. Naitove & Co., Inc., v. Commissioner, etc., reported in 59 App. D. C. 53, 32 F.(2d) 949, where the profits of the employees in a business enterprise for a particular year were subject to diminution to the extent of the company’s losses for the succeeding five years. Therefore the last-mentioned decision is not pertinent to the present controversy. As was said in United States v. Anderson, 269 U. S. 422, at page 441, 46 S. Ct. 131, 134, 70 L. Ed. 347: “It is also true that in advance of the assessment of a tax, all the events may occur which fix the amount of the tax and determine the liability of the taxpayer to pay it.” And that is precisely what happened here.

It follows that the most plaintiff can claim, under the most favorable construction of his contract, is that his commissions for the year, were returned as amounting to $78,-360.56, instead of the sum of $60,944.68. But, even so, the parties did not themselves carry out the written terms of their contract. Both of them saw fit to regard the commission, which was credited to Solomon in 1919, as a fixed liability upon the part of the corporation, and thereafter, but prior to either of the claims for a refund, treated the commission as such. The Hahlo Company went out of existence in 1923, its assets being taken over by a new corporation controlled by Julius H. Hahlo and the plaintiff, and' known as Hahlo &. Solomon, Inc. At this time, Julius H. Hahlo owned all of the capital stock of the original company. At the time of its dissolution, the company was indebted to Solomon in the total sum of $62,-000, which included such portion of his 1919 commissions as had not been paid to him. At the time of the formation of the corporation, Solomon liquidated the indebtedness of the Hahlo Company by accepting an equivalent amount of preferred stock in the new corporation. It was also agreed that Solomon should share to the extent of 10 per cent, in any refund of taxes for the year 1919 which the Hahlo Company might be able to secure. The record does not disclose if Solomon has, as a matter of fact, participated in the refund which was made to Hahlo Company, hut it is clear that he has received in cash, or in stock of Hahlo & Solomon, every penny of commissions with which he was credited in 1919. In answer to this, it may be said that agreements relating to the 19191 commission, which were made subsequent to 1919, have little, if any, bearing on the question as to whether the commissions, as credited, should be regarded as income which accrued to Solomon in that year. Nevertheless, the occurrence of such events as have been recited, and which took place pri- or to any claim for refund, do give rise to the existence of a tax right on the part of the United States, which, so far as this record is concerned, has not been heretofore recognized by the plaintiff. The existence of such right may now be properly shown by the defendant. New York Life Insurance Co. v. Anderson (C. C. A.) 263 F. 527, 530. Furthermore, the evidence on this branch of the ease, taken in connection with the contents of the claim, establishes that plaintiff did not furnish the Commissioner with all of the facts that were relevant and material to the allowance of the .refund which was asked. As was said by Mr. Justice Stone in Tucker v. Alexander, 275 U. S. 228, 231, 48 S. Ct. 45, 46, 72 L. Ed. 253: “The statute and the regulations must be read in the light of their purpose. They are devised, not as traps for the unwary, but for the convenience of government officials in passing upon claims for refund and in preparing for trial.”

How, it may be asked, could the government pass intelligently upon the validity of plaintiff’s claim, or in what manner could it prepare to plead a counterclaim, if one existed, when, under the circumstances here disclosed, the foundation for the refund was limited to the assertion that “profits were credited to the claimant on the basis of erroneous profits ascribed to Hahlo Company for the calendar year 1919. Brief will follow”? Even if it be assumed that this reference to the Hahlo Company imposed upon the Commissioner the duty of looking at the brief filed in support of the claim of the Hahlo Company, the performance of it would not have apprised him of the relationship existing between that company and the plaintiff; nor would it have disclosed the manner in which Solomon and the Hahlo Company had handled the credit which was given him in 1919, on the books of the Company. The brief of the Hahlo Company disclosed no contract as between itself and Solomon, and without it no conclusion could be reached as to the effect which a revision of the Hahlo Company’s net profits for 1919 would have on the commissions payable to Solomon. There was no reason whatsoever, having in mind the relationship between Solomon and the Hahlo Company, why he should not have set forth a synopsis of the Hahlo claim, and predicated his own claim on the facts there presented. He chose to do otherwise, and in my judgment his claim for a refund was properly rejected. The Commissioner had a right to insist upon a strict compliance with the statute and the regulations relating to claims for refunds, and plaintiff has no excuse for complaint as a result. Tucker v. Alexander, supra, 275 U. S. page 231, 48 S. Ct. 45, 72 L. Ed. 253. It was Solomon’s duty to so ■ state his claim for refund that the Commissioner would be in a position to know all the facts which were pertinent to its allowance, and which would enable him to prepare for trial, if a conclusion not to allow the claim should be reached. Not having done so, Solomon cannot recover on either of the theories which he advances. This disposition of the matter overcomes the necessity of further discussion.

Petition dismissed, with costs.


author: JAMES, District Judge.

text:
    TITLE GUARANTEE & TRUST CO. v. UNITED STATES.
    No. 3269.
    District Court, S. D. California, Central Division.
    April 29, 1931.

      Mare F. Mitchell and George G. Witter, both of Los Angeles, Cal., for plaintiff.
    Samuel W. MeNabb, U. S. Atty., and Harry G. Balter, Asst. Ú. S. Atty., both of Los Angeles, Cal., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and E. H. Horton, Atty., Bureau of Internal Revenue, both of Washington, D. C.
   JAMES, District Judge.

This suit is brought to recover the sum of $30,598.69, with interest, alleged as constituting an overpayment of income taxes for the calendar year 1922. Plaintiff made its return to the revenue collector for the year in question, and paid a tax amount of $74,-112.15. After audit by the Revenue Depart- . ment, an additional tax of $5,696.25 was assessed, which plaintiff paid. A claim for refund was duly presented, in which it was asserted that the plaintiff was an insurance company, and that certain amounts not subject to tax had been included in its return, with the result that, where the net income on the return was shown as $592,897.22, the cor-' rect amount of net income should have been stated as $348,107.68, with a reduced tax amount of $43,513.46. The specific items of income claimed to have been erroneously included in plaintiff’s return were set forth as follows:

It is admitted that, under whatever classification the plaintiff is brought, the item for recording and advances would not constitute income. The amount under that heading, however, is agreed to be the sum of .$34,653.-82 instead of $35,653.82. Defendant admits the right of the plaintiff to recover $4,331.71, which is 12% per cent, of $34,653.72. As to the latter, interest should be added dating from March 15, 1923.

A determination of the controversy depends wholly upon the answer to be made to the question: Was the plaintiff, during the calendar year 1922, doing the business of an insurance company within the meaning of the Revenue Act? If, for the purpose of taxation, it should be classed as a general commercial corporation, then there can be no recovery on the main claim. It would not, in that ease, be entitled to deduct items of income specified as “escrow fees,” “reconveyances,” “trustee fees.” Section 246 of the Revenue Act of 1921 (42 Stat. 262), contains the following provision: “(a) That, in lieu of the taxes imposed by sections 230 and 1000, there shall be levied, collected and paid for the calendar year 1922, and for each taxable year thereafter, upon the. net income of every insurance company (other than a life or mutual insurance company) a tax as follows: (1) in the ease of such a domestic insurance company the same percentage of its net income as is imposed upon other corporations by section 230.” •

In other subdivisions of the section referred to, the gross income of an insurance company is limited and defined to be that income only which is derived from “investment income and from underwriting income * * * computed on the basis of the underwriting and investment exhibit of the annual statement approved by the National Convention of Insurance Commissioners.” Investment income is then defined to be “interest, dividends and rents.” Underwriting income is defined to be “premiums earned on insurance contracts during the taxable year less losses incurred and expenses incurred.” Section 246 (b) (1, 3, 4).

Without going into further detail, it will be sufficient to note that insurance companies .were not required in 1922 to account for items of income other than those particularly specified, and were and are favored by the law as against corporations doing other classes of commercial business. While they paid the same per cent, on the net income as did other corporations, the net income did not include all items of income or profit, and did not include a special excise tax for the carrying on of business levied upon capital stock as is provided by section 1000 of the Revenue Act 1918 (see 40 Stat. 1126).

Plaintiff corporation was organized in the year 1895. Its articles declare the purposes for which it was formed to be as follows: “To lease or acquire Abstract Plants, to prepare Abstract Books, to examine public records, to prepare statements of any matter of record, including abstracts and certificates of title, which may guarantee and assure the record title; issue policies of insurance, and other contracts and reports effecting title to real estate; to do a general trust business, act as agent, trustee, administrator, executor, guardian and fiduciary servant; to invest its funds and assets in secured loans, mortgages, bonds or other good properties; to acquire stock of other corporations; to hold and dispose of the same; to receive money and issue notes of indebtedness. All of said business shall be conducted for profit.”

It has regularly complied with the requirements of the statutes of the state of California affecting corporations doing an insurance business. It has also maintained a trust department, and has acted as trustee to hold title to property for various purposes, including trustee relationship under trust deeds made in lieu of mortgages, as executor under wills, etc. In its trust department it has been under the inspection of the banking commissioner of the state of California, and in the handling of that business has complied with the banking laws of the state. Its income from the latter source has been substantial, and that business has apparently been considered by it as inseparable and necessary to the carrying out of the general purposes for which it was organized.

The two items in its claim for refund, as representing nontaxable income, to wit: “Reconveyances $8,277.33” and “Trustee Fees $9,364.82,” were derived wholly from the trust department. “Escrow Fees” shown in the amount of $107,215.60, also charged as deductible, represents compensation for services in the escrow department; that is, where persons are arranging to purchase property, negotiate a mortgage, or consummate any transaction wherein documents are to be delivered or money passed upon title being shown as required, they submit their several instructions, with an order for certificate, and the company acts as depositary while making the title examination to comply with instructions given. The company acts as a searcher of records in its title department. It issues its certificate showing the condition of title, which carries with it the company’s assurance that the search has been made with reasonable care. It issues what it calls its guarantee certificate, wherein a maximum amount of liability is fixed. In the latter, it makes no assurance that the records examined are free from fraud of any sort. It issues a third form of certificate, which it denominated “Policy of Title Insurance.” The contract contained in such certificate form does answer strictly to that of “insurance.” This contract indemnifies the insured in an amount which is fixed against loss caused by “failure of title, or by reason of any defects in, or liens, or incumbrances on * * * ” rea} property, with such exceptions as are specified.

The argument on behalf of the plaintiff is that the main and principal business of the corporation is that of title insurance, and that the trust department and the escrow department are merely incidental and contributing agencies. It is said that the trust department receives transfers of tracts of land to be subdivided, and that it is part of the business of the trustee to furnish a certificate of title on the land and certificates to purchasers, all of which, it is argued, constitutes title insurance business. It is said that the escrow business is a necessary and natural feeder to such insurance business.

It cannot be doubted that Congress, in making an exceptional class of insurance corporations, intended that the corporations which were so favored in the payment of income tax should belong strictly to the class assigned to them. The corporation here had the option of limiting its business operations •and functions to those which are the well-known attributes of insurance writing, but it cannot combine with insurance work a variety of other classes of profitable business and claim the exempt status which will result in its being relieved of a considerable tax which it would have to pay were the business other than insurance conducted separately. It would seem to be just as reasonable to argue that this company might engage in real estate brokerage, and maintain the claim that that business was merely an incidental adjunct operating as a “feeder” to its title insurance business, as to say that its trust department and also its escrow department were merely incidental to the insurance business. To so expand the business permitted of an insurance concern would result in a situation that certainly was not contemplated when the statute was passed. In Louisville Title Co. v. Lucas (D. C.) 27 F. (2d) 413, the District Judge there denied the contention of the plaintiff that it was entitled to be classified, for income tax purposes, as an insurance company. In the ease of Home Title Insurance Co. v. United States, 41 F.(2d) 793 (D. C. E. D. N. Y.), District Judge Galston reached a similar conclusion with respect to the plaintiff there suing. A search does not disclose that either of these eases has been passed upon by a- Court of Appeals, but the logic of the decisions seems sound and in accordance with common sense reasoning.

The request for findings and judgment as made on behalf of the plaintiff is denied, except as to the amount which is agreed was erroneously assessed on the item which did not constitute income of any sort. An exception will be noted in favor of the plaintiff. Findings and judgment otherwise are ordered to be entered for the defendant.


author: WHAM, District Judge.

text:
    SCHUH DRUG CO. v. UNITED STATES.
    No. 2253.
    District Court, E. D. Illinois.
    April 3, 1931.
    David S. Lansden, of Cairo, 111., for plaintiff.
    Harold, G. Baker, U. S. Atty., of East St. Louis, 111., John W. Speakman, Asst. U. S. Atty., bf Danville, 111., and Jeff T. Jones, Sp. Counsel, Bureau of Internal Revenue, of Washington, D. C., for the United States.
   WHAM, District Judge.

This is a suit brought by the Schuh Drug Company, a corporation, against the United States of America under the so-called Tucker Act (28 USCA § 41 (20) to-recover the sum of $7,392.38 of the total sum of $8,-565.61 paid by the plaintiff to the government under protest on August 20, 1923, to meet the demands of the government based on the disallowance by the United States 'Commissioner of Internal Revenue of certain deductions claimed by the plaintiff in its income tax return for the year 1917 as losses on account of bad debts.

The entire controversy revolves around the right ,of plaintiff to a deduction of $24,-050 in its 1917 income tax return as a bad debt under the provisions of section 12 (a) of the Revenue Acts of 1916 and 1917 which reads as follows:

“See. 12. (a) In the ease of a corporation, joint-stock company or association, or insurance company, organized in the United States, such net income shall be ascertained by deducting from the gross amount of its income received within the year from all sources — * * *
“Second. All losses actually sustained and charged off within the year and not compensated by insurance or otherwise. * * *” 39 Stat. 767.

—and under the provisions of article 151 of the Regulations promulgated by the Commissioner of Internal Revenue under the Internal Revenue Acts of 1916 and 1917 which reads as follows:

“Art. 151. Bad debts. — Losses which may be properly deducted from gross income on account of bad debts or doubtful accounts are those which have been definitely ascertained to have occurred and which were charged off during the year for which the return is made. It is not essential that the bad debt or account shall be proved worthless by legal proceedings before the deduction may be allowed but the corporation must not only be satisfied that the debt or account is worthless, but must be able to satisfy the Commissioner or Collector of Internal Revenue that the accounts charged off were definitely determined at the time to be worthless and that they had not been recognized as worthless or without value prior to the beginning of the year for which the return is made.”

It appears from' the evidence that on March 16, 1917, the Schuh-Mason Lumber Company was indebted to the plaintiff in the sum of $29,050, consisting of advances and loans made by the plaintiff to said lumber company over a period from 1911 to 1915, as evidenced by certain notes and open accounts; that Paul G. Schuh, the presidert of the plaintiff corporation and the fathtr of Julius P. Schuh, the president of the Sehuh-Mason Lumber Company, was an indorser on one of the notes of the SehuhMason Lumber Company to the Schuh Drug Company in the sum of $5,000. This was the only part of said indebtedness which was in any way secured. It appears further that the said Paul G. Schuh was the owner of a number of trade-marks and formulas under which certain medicines were made and sold which he had permitted the Sehuh Drug Company to use without charge for a number of years.

On March 16, 1917, a resolution was adopted by the directors of the Sehuh Drug Company and ratified by its stockholders and spread upon its corporate records as follows:

“Be it resolved, that the indebtedness of the Sehuh-Mason Lumber Company, Paul G. Schuh and Julius P. Sehuh, separately and jointly, and pertaining to and occasioned by the Sehuh-Mason Lumber Company, be can-celled and charged off the books of the Schuh Drug Company, and that all notes and evidence of such indebtedness be surrendered. In and as a consideration of and for the above, Paul G. Schuh assigns and transfers to the Sehuh Drug Company the good will, trade marks, trade name, formulae, etc., pertaining to Sehuh’s Rattle Snake Oil Liniment, Paul’s Great Specific, v(PGS) and other preparations heretofore sold by the Sehuh Drug Company with the consent of said Paul G. Sehuh.
“We, the Directors, hereby unanimously adopt and approve this resolution by otír formal signatures and recommend in addition thereto, that this Resolution and action be ratified by the stockholders; they likewise signing this resolution.”

The following journal entry appears on the books of the plaintiff as of June 9,1917:

Dr. Cr.
Merchandise........ 24,247.09
Trade Mark____.... 5,000.00
Bills Receivable..... 27,350.00
Sehuh-Mason Lbr Co. 1,700.00
J. P. Sehuh........ 197.09

In its income tax return for 1917 the plaintiff claimed a deduction for bad debts of $29,247.09, which deduction was disallowed by the Commissioner of Internal Revenue. By his letter to the Schuh Drug Company, dated November 11, 1922, the Commissioner explains the disallowance by quoting the resolution of March 16, 1917, above set forth, and then going on to say: “Prom the above, it is apparent that property has been received by the Schuh Drug Company in full satisfaction and consideration for the cancellation of the indebtedness of the Sehuh-Mason Lumber Company. In a transaction of this nature no loss is involved in view of the fact that such property has not been accepted at a specified amount. The construction placed upon a transaction of this kind is that the assets taken over by the Schuh Drug Company are deemed to be worth the amount of the indebtedness cancelled.” Pursuant to such disallowance, the plaintiff paid to the Commissioner of Internal Revenue, under protest, $8,565.61, which was in addition to the sum of $1,194 paid by the plaintiff at the time it filed its 1917 return, making the total amount paid $9,759.61 for the year 1917. On August 19, 1925, a claim for refund of the sum of $7,392.38, based upon the contention that, of the amount of $29,247.09 claimed as a deduction in plaintiff’s 1917 return and disallowed, $24,050 should not have been disallowed, was made by the plaintiff upon the Commissioner, who, by letter of December 18, 1925, notified the plaintiff that the claim for refund would be rejected.

In the trial of the case the government objected strenuously to the admission of verbal testimony offered by the plaintiff for the purpose of showing the facts and circumstances leading up to and attendant upon the transaction disclosed in the resolution of March 16, 1917, and the journal entry of June 9, 1917, above set forth. The evidence was received subject to the objections of the government, which objections are now overruled. In my opinion, the plaintiff had the right to show all facts that may be helpful to the court in construing the true nature of the transaction shown by said resolution and book entry so long as such evidence did not tend to vary or contradict the plain meaning or substance appearing on the face thereof.

Without attempting to review the evidence I will state the conclusions of fact which I have reached therefrom:

■(1) That the Sehuh Drug Company made loans and advances to the Sehuh-Mason Lumber Company in good faith expecting repayment.
(2) That the Sehuh-Mason Lumber Company was in bad financial condition for several years prior to the year 1917, and that in the early part of that year the directors of the Schuh Drug Company reasonably reached the conclusion that repayment in full of the indebtedness then amounting to $29,050 could not be hoped for, and decided that good business required them to get what they could on the indebtedness as soon as possible.
(3) That, pursuant to such decision, the directors obtained a compromise agreement whereby, in the exercise of reasonable discretion for the best interests of the Sehuh Drug Company, they agreed to accept and did accept in full settlement of said indebtedness the title to all formulae, trade-marks, and good will for the manufacture and sale of certain medical preparations owned by Paul G. Sehuh, who was the principal stockholder in the Schuh-Mason Lumber Company and an indorser on a note for $5,000 constituting part of said indebtedness; that said formulas, trade-marks, and good will were considered to be of considerable value, but of much less value than the amount of the indebtedness; that said settlement was shown on the books of the company by the resolution adopted March 16,1917; that the plaintiff received nothing else in said settlement except said formula, trade-marks, and good will.
(4) That the precise value of said formula, etc., received in settlement of said indebtedness, was not known, nor was any value determined upon at the time of the said settlement and the adoption of said resolution; that such value was calculated and agreed upon at a later date in 1917 as being $5,000, as shown by the book entry on June 9, 1917; that the evidence in this ease shows that the value so fixed was a fair value.
(5) That the said settlement was made in good faith and, as the directors believed, for the best interests and protection of the Sehuh Drug Company under the conditions then existing, and thereby in the year 1917 the Sehuh Drug Company knowingly suffered, accepted, and charged off a loss which was ascertained in the same year to be $24,050.

In arriving at the foregoing conclusions of fact, I have not overlooked the very close relationship shown by the evidence to have existed between the stockholders, officers, and the directorates of the Sehuh Drug Company and the Schuh-Mason Lumber Company; nor the fact that the value of the formulae, etc., received in settlement of the indebtedness, as subsequently fixed and determined, was the precise amount for which Paul G. Sehuh, who was solvent, was individually responsible. In view of these facts, I have scrutinized the evidence with care in order to determine whether the transaction in question was made in good faith or was the result of collusion. After hearing the witnesses and considering the testimony given by them, I am convinced that the transaction was in accordance with the conclusions above stated, and that its good faith and propriety have been established. That the loss of $24,050 was actually suffered by the plaintiff cannot be questioned. From the evidence it appears that the loss was suffered and ascertained at a time and under circumstances that made it properly deductible by the plaintiff as a loss in its 1917 income tax return. Wherefore, it is apparent that to the extent of $24,050 the deduction for losses claimed by the plaintiff in its 1917 tax return should not have been disallowed by the Commissioner of Internal Revenue and, having been disallowed and paid by plaintiff under protest, the claim of the plaintiff for a refund of the taxes based thereon, amounting to $7,392.38, should not have been rejected by the Commissioner, but should have been allowed.

I find, therefore, that the plaintiff has sustained the burden of proof cast upon it, and the issues in the case should be held in favor of the plaintiff; that the plaintiff is entitled to a judgment for $7,392.38, with interest thereon as provided by law from the 20th day of August, 1923, with costs of suit.


author: INCH, District Judge.

text:
    DAUB v. MOSS, Supervisor of Permits, et al.
    No. 5001.
    District Court, E. D. New York.
    April 24, 1931.

      Archer Seherl, of New York City, for complainant.
    Howard W. Ameli, U. S. Atty., of Brooklyn, N. Y. (Herbert H. Kellogg and George H: Bragdon, Asst. U. S. Attys., both of Brooklyn, N. Y., and John E. O’Neill, Legal Adviser, Treasury Department, of New York City, of counsel), for defendants.
   INCH, District Judge.

This suit, brought by an alleged permit-tee, against the Prohibition Administrator et al., presents a simple issue.

This is: Did the attempted so-called “amendment” to a 1924 permit, after same had fully expired, constitute a new unlimited permit?

It plainly appears that the alleged permittee is making a belated but no less determined effort to force a finding by the court that he has such a permit, although the greater part of the record indicates that he believed he did not have any and was aggressively applying for one.

While the law sometimes discovers that a permittee has a permit, although he did not know it, yet the court should be exceedingly cautious, in thus interfering with the lawful and proper supervision of industrial alcohol by the government, and should not so interfere with it unless the legal rights of a permittee plainly are shown to exist and to have been violated.

It is unnecessary to discuss the elaborate briefs submitted by counsel for permit-tee and the points raised therein and disputed by the government.

Suffice it to say that permittee claims, and this suit rests entirely upon such claim, whether good or bad, that he has had an unlimited permit to use and withdraw whisky, in his preparation, since on or about April 28, 1925, and that this permit without expiration date is still in effect.

That permittee was permitted to withdraw whisky, until December 31, 1928, seems to be a fact.

Apparently on August 26, 1924 (plaintiff’s Exhibit 3) he was granted a permit to use 100 wine gallons of whisky per quarter. This permit expired by its express terms on December 31, 1924. See permit and also Lion Laboratories v. Campbell (C. C. A.) 34 F.(2d) 642. On or about April 28, 1925,-a letter from the Prohibition Director (Plaintiff’s Exhibit 5) was sent to permittee returning an application apparently filed by him, dated February 24, 1925, together with the said expired permit of August 26, 1924, with the statement that it had been “amended” to allow 150 wine gallons, instead of the original 100 wine gallons. An examination of the said expired permit indicates that a line had been drawn through the latter quantity there allowed and the statement made “permit amended to allow 150 wine gallons of whisky per quarterly period (4/28/25),” and near the bottom thereof the further statement, “(4/28/25) Amended Auth. Wash, Letter dated 4/17/25.”

That this permit of August, 1924, had expired December 31,1924, and no longer existed after January 1,1925, is plain. It was a limited permit by its express terms.

So far as I can see, no attempt to renew it was made by permittee until the application dated February 24, 1925, so that a period of almost two months had existed after it had fully expired.

However, assuming that I am wrong in regard to the intention or acts, of permittee in this regard, it is plain that no action was taken by the government as to this expired permit or application until almost four months had elapsed since its expiration.

This is not a case where an amendment is allowed during the lifetime of a permit, a distinction which appears in the opinion, in Lion Laboratories v. Campbell, supra, at page 644 of 34 F.(2d).

There was no permit and there was therer fore nothing to amend.

The contention of permittee becomes simply this, that the Prohibition Director, by subsequently suffering the permittee to withdraw 150 wine gallons of whisky quarterly, without a lawful permit, instead of 100 wine gallons of whisky allowed while a lawful permit existed, did therein and thereby ere-ale a lawful, unlimited, permit, which can only be revoked, canceled, or surrendered, in accordance with the statute.

I am of the opinion that, however clumsy and confused this procedure may seem, there is nothing shown here to estop the government from now insisting that the permittee obtain a lawful and regular permit, whether limited or unlimited, nor has there been any misleading of or damage to the permittee by this attempted amendment to a nonexistent permit for the result was to the advantage of the permittee in being thus allowed to withdraw and use whisky without any permit at all.

When this permittee was before the Circuit Court of Appeals, in the Lion Laboratories v. Campbell Case, in 1929, there is nothing to indicate that it was there indicated or contended by him that he was possessed of any unlimited permit by means of this amendment. Nor did he take the position that certain other permittees took in the Campbell v. Galeno Chemical Companv Case, 281 U. S. 599, 50 S. Ct. 412, 74 L. Ed. 1063.

In my opinion the expired permit of 1924 did not become a new and unlimited permit simply because the item as to quantity therein mentioned was changed or attempted to be changed.

Nothing whatever was said as to the expiration date and the whole matter was left to mere inference.

In other words, when the then Prohibition Director returned the application of permittee, and the paper which had formerly been a permit, the latter had expired by its express terms several months before. It was thus attempted to be revived. Nor is there any indication from the subsequent relations of the parties that this was not taken for granted as evidenced by his subsequent repeated applications for a 1929 permit, one in August, 1928, and one in October, 1928.

Nor did the Prohibition Department act contrary to this view, for in the summer of 1928 notice was given to plaintiff that he must apply for a 1929 permit.

As to the right of the Department to require the use of alcohol instead of whisky in a preparation, an examination of the record indicates to me that it was fully within its power and that its action here was proper. Joy Chemical Company v. Campbell (D. C.) 41 F.(2d) 961.

This effort therefore on the part of permittee to avoid proper regulation by the Department of his product, and, in spite of the inconsistent positions -repeatedly taken by him, with full knowledge on his part of all the facts, and his apparent acquiescence in the sufferance of the Department [Holman v. Campbell (D. C.) 39 F.(2d) 193], indicates that plaintiff, having now searched diligently through the entire 'ecord, is hoping by this belated claim to convince the court that he had, all the time, an unlimited permit for the use of whisky which can only be revoked in the manner provided by statute.

It seems to me that the proof offered to sustain this contention is entirely insufficient.

The burden of proof was upon plaintiff to show an unlimited permit. No evidence of any such permit has been offered except that relating to the quantity allowed to be withdrawn.

To argue that this change alone was in itself sufficient to create a new permit, unlimited in time, seems to me to be entirety unsupported by the evidence.

The complaint is dismissed.