author: PICARD, District Judge.

text:
    WALLING, Administrator of Wage and Hour Division, U. S. Dept. of Labor, v. GRIFFIN CARTAGE CO., Inc.
    No. 4350.
    District Court, E. D. Michigan, S. D.
    Aug. 30, 1945.

      Charles A. Reynard, Regional Atty., U. S. Dept, of Labor, of Cleveland, Ohio, for plaintiff.
    Matheson, Dixon & Brady, of Detroit, Mich., for defendant.
   PICARD, District Judge.

This is an action by the administrator of the Wage and Hour Division, United States Department of Labor, filed pursuant to Section 17 of the Fair Labor Standards Act of 1938, 29 U.S.C.A. § 217, seeking injunction against defendant and claiming violation of the overtime provisions of the act.

Facts.

Defendant, a common carrier by motor vehicle, has a general cartage business in Wayne County. Less than one percent is in interstate commerce and while cartage services are available to the general public, 95 percent of defendant’s business is transporting castings, forgings and machine parts for and between two or three Detroit plants. Defendant transports these articles from plants where they have been partly manufactured to others where additional steps in the production of the finished goods are performed and then carries the completed products to Ford Motor Company and Chrysler also in and about Wayne County, to become component parts of trucks, automobiles, other machines and military equipment sold and shipped in interstate commerce.

Ón June 12th, 1944 the National War Labor Board issued a directive giving truck drivers a 48 hour week instead of 54 with time and one-half after 48 hours. But the War Labor Board recognized that the Administrator, plaintiff herein, at that time was claiming that defendant’s truck drivers came under the Fair Labor Standards Act and, subsequent to the issuance of its order in correspondence with Administrator’s counsel, acknowledged that the order was not intended to express the Board’s opinion concerning applicability of overtime provisions of the Act to these drivers. In this correspondence the Board likewise made it clear that it was expressing no opinion whether adherence to its order would constitute compliance with the Act and expressly called attention to the fact that the statute and executive order under which it operates gives it no authority to interpret or apply provisions of the Fair Labor Standards Act.

Plaintiff Administrator admits that defendant’s employees herein concerned are not engaged in interstate commerce but bases his contention entirely on that clause of Section 7, 29 U.S.C.A. § 207, which provides that no employee “who is engaged * * * in the production of goods for commerce” shall be employed for a work week longer than 40 hours, etc. He claims, of course, that these truckers are engaged in the “production of goods for commerce” because Section 3(j) of the Fair Labor Standards Act, 29 U.S.C.A. § 203(j), provides that “an employee shall be deemed to have been engaged in the production of goods if such employee was employed in producing, manufacturing, mining, handling, transporting, or in any other manner working on such goods * * * in any State.”

Defendant denies these men are engaged “in the production of goods for commerce” and asserts further that it is subj ect to • Section 15(a)(1), 29 U.S.C.A. § 215(a)(1), which grants common carriers immunity from liability from the transportation in commerce in the regular course of business, of goods not produced by such common carrier.

Defendant also claims these drivers are exempt from the overtime provisions of the Act by Section 13(b)(1) thereof, 29 U.S.C.A. § 213(b)(1), applicable to employees whose qualifications and maximum hours of service are subject to regulation by the Interstate Commerce Commission under provisions of the Motor Carrier Act 1935, 49 U.S.C.A. § 304.

Defendant further claims these employees come under Section 13(a)(2) of the act which exempts from coverage employees of a retail or service establishment whose selling or servicing is intrastate commerce; that the employees affected have an employment contract with this defendant above the minimum prescribed in the act which should not be disturbed and that the application of the Fair Labor Standards Act to defendant’s operators is unconstitutional.

Conclusions of Law

The main question is whether these employees are engaged in “producing goods for commerce” and while it is seemingly a stretch of the imagination to even consider that carting goods from one place to another in Wayne County can he “producing,” it appears that by the statutory definition of the word “produced” and sound decisions interpreting and applying it, such an employee is engaged in the production of goods for commerce when his labors further the journey and thereby complete the goods into the final product which is sold in interstate commerce. Rockton & Rion Railroad Co. v. Walling, 4 Cir., 146 F.2d 111; Bracey v. Luray, 4 Cir., 138 F.2d 8.

It is to be noted that the words in the act specifically cover “handling, transporting,” etc., and the great weight of authority does hold that if an employee handles or transports such goods he is engaged in the production of goods for commerce. Western Union Telegraph Co. v. Lenroot, 323 U.S. 490, 65 S.Ct. 335; Fox v. Standard Oil Co., 294 U.S. 87, 55 S.Ct. 333, 79 L.Ed. 780.

There seems however to be a variance between interpretations of the above citations, particularly the Western Union opinion but as you analyze these cases and the entire trend of these decisions the United States Supreme Court has seemingly laid down these fundamentals: to-wit, that where an employee transports goods within the State of Michigan he is not engaged in commerce, but where he transports goods from one state to another he is in commerce. So far there is little dispute. The decisions proceed to point out however that Congress can — and this is important — in order to prevent unfair goods from entering commerce, regulate the wages and hours of employees as well as all steps in the manufacturing of goods to be shipped in interstate commerce and it is apparent that Congress has defined the production of goods for commerce as it has so that it can catch up into “the category of production every step in putting the subject of commerce into a state to enter commerce.” Western Union case, supra [323 U.S. 490, 65 S.Ct. 342],

One notes the high court’s distinction in the following extracts from the Western Union opinion:

“The Government contends that in defining ‘produced’ the statute intends ‘handled’ or ‘worked on’ to mean not only handling or working on in relation to producing or making an article ready to enter interstate transit, but also includes the handling or working on which accomplishes the interstate transit or movement in commerce itself. If this construction is adopted, every transporter, transmitter, or mover in interstate commerce is a ‘producer’ of any goods he carries.”

Also:

“Its artificial definition, if construed to mean that ‘handling’ and ‘worked on’ catches up into the category of production every step in putting the subject of commerce into a state to enter commerce, is a sensible and useful one, and not at odds with any other section of the Act.”

And:

“They serve a useful purpose when read to relate to all steps, whether manufacture or not, which lead to readiness for putting goods into the stream of commerce.”
“We are clear that ‘handled’ or ‘worked on’ includes every kind of incidental operation preparatory to putting goods into the stream of commerce.”

' [4] In short whenever as a practical matter the local transportation of goods is a step in putting a product of that state into interstate commerce, then as a legal matter, that step, however slight it may be, becomes a part of the “production of goods”, whether as stated by plaintiff the step by which this is accomplished is by a hand truck, a traveling crane, a locomotive moving cars wholly within a plant, or a truck traveling over public thoroughfares.

This is seemingly in accord with the other decisions.

In Rockton & Rion Railroad Co. v. Walling, 4 Cir., 146 F.2d 111 the employees of a small railroad engaged in transporting rough stone from a quarry to processing plants in the same state from which finished stone was subsequently shipped interstate, were held to be “engaged * * * in the production of goods for commerce.”

In Mid-continent Pipe Line Co. v. Har-grave, 10 Cir., 129 F.2d 655, the court held that employees transporting crude oil from wells to a refinery within the same state, whence refined products moved in interstate commerce, were engaged in the production of goods for commerce.

In Walling v. Comet Carriers, D.C., 57 F.Supp. 1018 defendant’s truck drivers were engaged in transporting materials and cut goods for ladies’ coats and suits from the jobbers and manufacturers to the contractors who manufactured the materials into garments. The semi-finished articles were carried back to the jobbers and manufacturers who, after further processing, shipped them out of state. The court held that the truck drivers were engaged in the production of goods for interstate commerce.

In Walling v. Villaume Box & Lumber Co., D.C., 58 F.Supp. 150, the employees were engaged in transporting wooden boxes from the plant of their employer, a box manufacturer, to the plants of local customers who used them as containers to package their own products for shipment in interstate, and were held to be covered'by the act.

In Dallum v. Farmers Co-operative, D. C., 46 F.Supp. 785, the drivers were engaged in the transporting butter from various creameries to defendant’s distribution plant located in the same state where the butter was cut, graded, and packaged preparatory to shipment in interstate commerce. It was held that these employees were subject to Section 7 of the act.

In view of the compelling logic of the cases cited above, holding that the transportation of goods under the circumstances presented in this case constitutes the production of the goods themselves, defendant cannot avail itself of the exemption contained in Section 15(a)(1) since that exemption by its own terms applies only to the transportation of “goods not produced by such common carrier.”

Other contentions raised by defendant are also without merit, plaintiff having overcome the main objection. Section 13(a)(2) of the act exempts employees in service establishments. We believe that it is generally accepted that Section 13(a)(2) applies to such types of service establishments as barber shops, beauty shops, shoe shine parlors, tailors, laundries, garages and the like. Sun Publishing Co. v. Walling, 6 Cir., 140 F.2d 445; Fleming v. Arsenal Building Corp., 2 Cir., 125 F.2d 278; Fleming v. A. B. Kirschbaum Co., 3 Cir., 124 F.2d 567; Bracey v. Luray, 4 Cir., 138 F.2d 8; Guess v. Montague, 4 Cir., 140 F.2d 500; Collins v. Kidd Dairy & Ice Co., 5 Cir., 132 F.2d 79; Schmidt v. Peoples Telephone Union of Marysville, 8 Cir., 138 F.2d 13; Reynolds v. Salt River Valley Users Ass’n, 9 Cir., 143 F.2d 863; New Mexico Power & Light Co. v. Engel, 10 Cir., 145 F.2d 636; A. H. Phillips, Inc. v. Walling, 324 U.S. 490, 65 S.Ct. 807; Walling v. Roland Electrical Co., 4 Cir., 146 F.2d 745.

Nor does Section 13(b)(1) exempt these drivers from the act since but one percent of their operations are in interstate commerce. Anuchick v. Transamerican Freight Lines, D.C., 46 F.Supp. 861; Walling v. Mutual Wholesale Food & Supply Co., 8 Cir., 141 F.2d 331.

Another point that would give the court pause were it not for recent decisions lies in the fact that the truck drivers have a contract calling for a 48 hour week and overtime after that. This court in the case of Williams v. General Mills, D.C., 39 F. Supp. 849 where the company shortly before the effective date of the Fair Labor Standards Act made a contract with some night watchmen reducing their pay per hour so that the employees were earning the same money after the effective date of the act as they did before, held that this was a subterfuge and a circumvention; a paper transaction. We were reversed by the Circuit Court of Appeals in General Mills, Inc. v. Williams, 6 Cir., 132 F.2d 367, 144 A.L.R. 1371—that court holding that there was no evidence that this was a “paper transaction” and the contract called for more than the minimum pay set by the act. But the Supreme Court of the United States in a number of recent decisions has similarly brushed aside contractual arrangements between employers and employees when it found that compliance with those agreements did not meet the standards imposed by this Act. See Walling v. Helmerich & Payne, 323 U.S. 37, 65 S.Ct. 11; Jewell Ridge Coal Corp. v. Local No. 6167, United Mine Workers of America, 65 S.Ct. 1063; Walling v. YoungermanReynolds Hardwood Co., 65 S.Ct. 1242, 1243; Walling v. Harnischfeger Corp., 65 S.Ct. 1246. In the Jewell Ridge case, supra, the court held that where coal miners had entered into a contract with the company excluding portal to portal pay and which contract called for compensation that was also above the minimum requirements of the act, such a contract was contrary to public policy and the miners could recover for portal to portal pay under the act.

In view of that decision and the War Labor Board having specifically stated that they would not attempt to infringe upon the territory or jurisdiction of the plaintiff administrator, we can find no valid reason why we should not hold that this contract must give way to the public policy as expressed in the Fair Labor Standards Act as fortified by Jewell Ridge decision and hold that such contract and directive is of no force and effect when they conflict with the law.

Finally, defendant argues that “in view of the exemption of truck drivers employees engaged in transportation operations across state lines” the act is unconstitutional since “it would impose upon defendant higher labor standards than those imposed upon competitors whose operations crossed state lines”. Even aside from the fact that the Fifth Amendment contains no equal protection clause as in the case of the Fourteenth Amendment, it appears that the classification of drivers affected by Congress in this statute is reasonable and not discriminatory. The two classes are quite distinct and different considerations enter into the regulations of employees essentially engaged in production than govern fixing the hours of work of long haul drivers. See Sun Publishing Co. v. Walling, 6 Cir., 140 F.2d 445.

We therefore hold for plaintiff on all issues.


source: Caselaw Access Project

author: MADDEN, Judge.

license: Public Domain

text:
    HAVEY v. UNITED STATES.
    No. 45993.
    Court of Claims.
    Oct. 1, 1945.
    This case having been heard by the Court of Claims, the court upon the evidence and the report of a commissioner, makes the following special findings of fact:
    1. Plaintiff, Thomas Edward Havey, first enlisted in the United States Navy on March 3, 1902, and was discharged April 24, 1906; he reenlisted on September 10, 1908, and was discharged on September 9, 1912; he reenlisted on September 10, 1912, and was discharged on September 9, 1916; he reenlisted on September 11. 1916, and was discharged on June 10, 1920; he reenlisted on July 11, 1920, and served until November 15, 1924, when he was transferred to the Fleet Reserve, Class F 3 D, in the grade of Chief Yeoman (P. A.), and on December 3, 1924, he was released from active duty. At the time of his transfer to the Fleet Reserve he was credited with 20 years, 6 months and 26 days service. On October 10, 1929, he was transferred to the retired list on account of physical disability. He completed 30 years’ service, including active Naval Service, time on the Fleet Reserve and time on the retired list on April 19, 1934.
    2. Immediately prior to June 1, 1942, plaintiff received $110.05 per month as retired pay and allowances, computed as follows :
    Retired pay (one-half of $126 per month, active duty pay of Chief Yeoman, U. S. Navy, as provided by Act of September 16, 1940, 54 Stat. 895) .................. $63.00
    Maximum longevity pay, based upon more than 16 years’ service, as provided by Act of September 16, 1940, supra, (25% of $126)...... 31.50
    “Retired allowances” in lieu of rations, clothing, quarters, fuel and light, as provided by Act of March 2, 1907, 34 Stat. 1217............ 15.75
    Total retired pay and allowances ........................ 110.25
    From the total retired pay and allowances due plaintiff there was deducted the sum of $.20 per month for hospital fund, leaving $110.05 as the net amount received by plaintiff as retired pay and allowances.
    3. Subsequent to June 1, 1942, plaintiff received the same amount, namely $110.05, as retired pay and allowances, until March 31, 1943.
    Since April 1, 1943, he has received the sum of $110.20 per month as retired pay, computed as follows:
    Retired pay (one-half of $138, active duty pay of chief yeoman, first grade, as provided by the act of June 16, 1942, 56 Stat. 359)... $69.00
    Longevity pay based on more than 18 and less than 21 years’ active service (5% for each 3 completed years or 30% of $138).......... 41.40
    Total retired pay............. 110.40
    From the total retired pay due plaintiff there has been deducted the sum of $.20 per month, leaving $110.20 as the net amount of the retired pay received by him each month since April 1, 1943.
    4. If plaintiff were entitled to “retired allowances” since June 1, 1942, there would be due him the sum of $204.75, representing such allowances for the period from June 1, 1942, to June 30, 1943, as computed by the General Accounting Office, and additional amounts, not yet computed for the period since June 30, 1943.
    Fred W. Shields, of Washington, D. C. (King & King, of Washington, D. C., on the brief), for plaintiff.
    Robert Burstein, of Washington, D. C., and Francis M. Shea, Asst. Atty. Gen., for defendant.
    Ralph H. Case, of Washington, D. C., amicus curiae.
    Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.
   MADDEN, Judge.

The plaintiff is an enlisted man of the United States Navy who was retired prior to June 1, 1942, the date as of which the provisions of the Pay Readjustment Act of 1942, Act of June 16, 1942, 56 Stat. 359, 37 U.S.C.A. § 101 et seq., became applicable. That act was a comprehensive overhauling of the entire pay system of all of the armed forces. It increased the pay of many classes of persons, especially enlisted men. It provided in Section 15 that retired enlisted men should have their retired pay computed on the basis of the pay provided in the act, thus automatically giving retired men the same percentages of the increased active duty pay provided in the act, that they had formerly had of the lesser pay formerly provided.

Section 1 of the act of March 2, 1907, 34 Stat. 1217, 10 U.S.C.A. §§ 947, 980 had provided that an enlisted man could, after thirty years of service, retire, if he applied for retirement, and receive as retired pay a stated percentage of the pay he had been receiving, and $15.75 per month as allowances in lieu of rations, quarters, fuel light and heat. The Pay Readjustment Act of 1942, which, as we have said, increased the retired pay of retired enlisted men said, inter alia, in Section 19, 56 Stat. 369, 37 U.S.C.A. § 119:

“ * * * and those portions of the Act of March 2, 1907 (34 Stat. 1217), and of the Act of June 30, 1941 (Public Law 140, Seventy-seventh Congress), which authorize allowances for enlisted men on the retired list * * * are hereby repealed: % * * )3

It is evident, and the plaintiff agrees, that the general effect of the 1942 Act was to discontinue the payment of allowances, as such, to retired enlisted men. It was thought, apparently, that the increases in pay for active service provided in the 1942 Act, would, when the retired pay percentages were applied to them and the more liberal provision for longevity additions to pay were added, produce an adequate total compensation for retired enlisted men. A man who retired after the Act of 1942 took effect, would, therefore receive no separate allowance of $15.75 in addition to the increased retired pay provided in that Act. But the plaintiff contends that he, as an enlisted man who had gone on the retired list in 1929, was and is entitled, not only to the increased retired pay which he has received under the 1942 Act but to the $15.75 per month of retired allowances which he was receiving before the 1942 Act took effect. He bases this contention upon that part of the following quoted first paragraph of Section 19 of the Act of 1942 which precedes the word “Provided”:

“Sec. 19. No person, active or retired, of any of the services mentioned in the title of this Act, including the Reserve components thereof and the National Guard, shall suffer, by reason of this Act, any reduction in any pay, allowances, or compensation, to which he was entitled upon the effective date of this Act: Provided, however, That nothing in this Act shall be construed to deprive any enlisted man transferred to the Fleet Reserve on or prior to the date of enactment of this Act, or transferred from the Fleet Reserve to the retired list of the regular Navy for physical disability, of any benefits, including pay, allowances, or compensation, which he would be entitled to receive upon the completion of thirty years under laws in force on the date of enactment of this Act.”

The part of the quoted language preceding the proviso makes it plain that the act was not to be allowed to have the effect of decreasing the compensation of any person covered by the act below what he was receiving when the act took effect. Whether it was intended to prevent, distributively, decreases in pay, decreases in allowances, and decreases in any other compensation, even though there was no decrease in the aggregate, is the question upon which the plaintiff’s case depends. As the findings show, the plaintiff’s increased retired pay and longevity pay under the 1942 Act were slightly more than he had received under the former act as retired pay, longevity pay, and allowances of $15.75 per month, combined.

The plaintiff says that the statute is plain, and should simply be applied as written. We agree that, upon a first reading, it seems to mean what the plaintiff contends. But after a study of the language in its setting, we come to the opposite conclusion. If the plaintiff’s reading is followed, there will be discrimination of $15.-75, or about 14% in current compensation in favor of all enlisted men who retired before June 1, 1942, as against those who have retired since that date or who will retire in the future. No justification for such discrimination is suggested. It could not be based upon any moral obligation to pay the plaintiff and those similarly situated what the law provided for them while they were in active service, and when they applied for retirement. That moral obligation is fulfilled by the increased pay provided in the 1942 Act which amounts to more than the aggregate, including the $15.75 of allowances, which the plaintiff expected to get when he served and when he retired. It is guaranteed by the quoted provision of Section 19, which, as we interpret it, says that if, in any instance, the new pay does not add up to as much as the old pay and allowances, the larger amount shall nevertheless be paid.

There is no legislative history which is of substantial help in our problem of interpretation. But the plight of the country in 1942, and the perils which were confronting the men in active service, make it inconceivable to us that Congress would have, at that time, intended to enact what would have amounted to a gross discrimination against the men who were to face those perils, and in favor of those who were already in retirement. The plaintiff urges that the colloquy between a Mr. Lof-gren, who appeared on behalf of the members of the Fleet Reserve Association, and the members of the Committee on Military Affairs of the House of Representatives, supports his interpretation. See Hearings of that Committee, 77th Congress, 2nd Session, on S. 2025, pp. 79-81, 83-84. As a result of Mr. Lofgren’s testimony, the language of the first paragraph of Section 19, quoted above, which begins with the word “Provided”, was inserted in the Act. But Mr. Lofgren, as the testimony and the inserted language shows, was interested in a special class of persons, those who had already transferred to the Fleet Reserve on the faith of the then existing statutory provision that they might transfer to the Fleet Reserve and later, because of physical disability, or on completion of thirty years’ service, be retired. It seems that, as to them, or some of them, the pay under the new schedules for retired enlisted men would not be as much as the aggregate of pay and allowances which they would have received, upon retirement, if the old schedules had been left in force. Since they were not yet retired, the saving provision at the beginning of Section 19 would not assure them that they would ever get the compensation they had counted on upon retirement. Mr. Lofgren’s representations to the Committee placed no emphasis on any separate retirement allowance. He merely showed the Committee how those whom he represented would receive less, upon retirement, under the new law, than the aggregate sums which they had expected to receive, under the old law, when they became eligible for retirement. The Committee adopted his suggestion and inserted the second saving clause of the first paragraph of Section 19, using the same words, “pay, allowances, or compensation” which were already a part of the language of the first saving clause upon which the plaintiff relies.

The construction by courts of the word “or”, as used in a statute or legal instrument, to mean “and” is commonplace. See the innumerable instances in 30 Words and Phrases, Perm. Ed. And there is something in the very fact of a saving clause which suggests, somewhat intangibly, that it is dealing with aggregate comparative results, not with separate items.

We conclude, therefore, that the plaintiff has received the compensation which the statute provides for him, and that his petition must be dismissed.

It is so ordered.

WHALEY, Chief Justice, and WHITAKER, and LITTLETON, Judges, concur.

JONES, Judge, took no part in the decision of this case.

       55 Stat. 394, 10 U.S.C.A. §§ 656, 657, 939, 982a; 38 U.S.C.A. -§ 26b. This Act, like the 1907 Act, provided for allow-anees of $15.75 to retired enlisted men.


author: WHITAKER, Judge.

text:
    STANDARD STOKER CO., Inc., v. UNITED STATES.
    No. 46365.
    Court of Claims.
    Oct. 1, 1945.

      Jesse Bay Robinson, of New York City (Robert E. Coulson, James K. Polk, and Whitman, Ransom, Coulson & Goetz, all of New York City, on the brief), for plaintiff.
    John A. Rees, of Washington, D.C., and Samuel O. Clark, Jr., Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D. C., on the brief), for defendant.
    Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.
   WHITAKER, Judge.

This case is before us on demurrer.

Plaintiff alleges that on and prior to January 1, 1936, and until November 30, 1936, it was the owner of all of the capital stock of a corporation of the same name as its own. On November 30, 1936, the former corporation completely liquidated, transferring all of its assets to plaintiff, who assumed its liabilities, and completely can-celling its capital stock. The former corporation will hereafter be referred to as the “liquidated corporation.”

On July 29, 1937, the liquidated corporation filed a capital stock tax return which showed no capital stock tax due. Subsequently the Commissioner of Internal Revenue assessed against plaintiff, as transferee, a capital stock tax of $4,301.00, plus interest in the amount of $365.28. This was duly paid and claim for refund therefor was filed.

Plaintiff’s liability for any part of the tax is the issue presented. Its liability depends upon the proper construction of section 105 of the Revenue Act of 1935, c. 829, 49 Stat. 1014, 1017, 1018, 26 U.S.C.A. Int.Rev. Acts, page 796, which provides in part:

“(a) For each year ending June 30, beginning with the year ending June 30, 1936, there is hereby imposed upon every domestic corporation with respect to carrying on or doing business for any part of such year an excise tax of $1.40 for each $1,000 of the adjusted declared value of its capital stock.
******
“(f) For the first year ending June 30 in respect of which a tax is imposed by this section upon any corporation, the adjusted declared value shall be the value, as declared by the corporation in its first return under this section (which declaration of value cannot be amended), as of the close of its last income-tax taxable year ending at or prior to the close of the year for which the tax is imposed by this section * * *. For any subsequent year ending June 30, the adjusted declared value in the case of a domestic corporation shall be the original declared value plus (1) the cash and fair market value of property paid in for stock or shares, (2) paid in surplus and contributions to capital, (3) its net income, (4) the excess of its income wholly exempt from the taxes imposed by Title I of the Revenue Act of 1934, as amended, over the amount disallowed as a deduction by section 24(a) (5) of such title, and (5) the amount of the dividend deduction allowable for income tax purposes, and minus (A) the value of property distributed in liquidation to shareholders, (B) distributions of earnings or profits, and (C) the excess of the deductions allowable for income tax purposes over its gross income * * *.” [Italics ours.]

Plaintiff’s position is that, since the liquidated corporation distributed all of its assets within the taxable year for which the tax was levied, of necessity the adjusted declared value of its stock is zero.

The capital stock tax and the excess profits tax are related taxes. The capital stock tax is based upon the declared value of plaintiff’s capital stock. This declared value is one of the bases for the assessment of the excess profits tax. Under the Act a taxpayer was permitted to declare any value it pleased for its capital stock, since the lower the value declared, the greater would be the excess profits taxes, which would offset the saving in capital stock tax; on the other hand, the higher the declared value of the capital stock, the greater would be the capital stock tax, but this would be offset by a decrease in the amount of the excess profits tax. A taxpayer had the election to declare any value it pleased, but this value could not be changed. Chicago Telephone Supply Co. v. United States, 35 F.Supp. 470, 92 Ct.Cl. 167.

Thereafter, the value of its stock for subsequent years referred to in the Act as “the adjusted declared value,” was to be ascertained by the addition to the original declared value of certain things which increased that value, and by the deduction of certain things which decreased that value. The things to be added and the things to be deducted were set out in detail. Among the deductions was “the value of property distributed in liquidation to shareholders.”

As has been held by this court and by the Third Circuit Court of Appeals, the “value” of property distributed in liquidation means the actual value of that property, ordinarily to be determined by fair market value. National Steel Corporation v. United States, 3 Cir., 133 F.2d 256; First National Pictures, Inc., v. United States, 32 F.Supp. 138, 91 Ct.Cl. 83.

It is impossible to conclude from a reading of the Act that Congress had ins mind the deduction of a value of the property distributed based upon the original declared value of the capital stock. The Act provides for the addition to the original declared value of “the cash and fair market value of property paid in for stock or shares” (italics ours) ; secondly, it provides for the addition of “paid in surplus and contributions to capital”; thirdly, of “its net income.” Clearly, in determining the value of the paid in surplus and contributions to capital, as well as the value of property paid in for stock or shares, Congress had in mind the fair market value. It could not have had in mind a value determined by reference to the original declared value of the capital stock. This is also» true, necessarily, of the computation of its “net income.” Likewise, Congress must have had in mind when it provided for the deduction of the value of the property “distributed in liquidation to shareholders” the same basis of valuation it had in mind when it spoke of, “the cash and fair market value of property paid in for stock or shares,” and when it spoke of “paid in surplus and contributions to capital,” and of “its net income.”

’ [5] The fallacy in plaintiff’s argument lies in the fact that the original declared value had no necessary relation to the actual value of its capital stock. Had it been necessary for the liquidated corporation to ascertain and declare the actual value of its capital stock, then, in the absence of error, the adjusted declared value should have been zero after the corporation had completely liquidated; but this result does not necessarily follow where the taxpayer is permitted to place on its capital stock in the beginning a value that is purely fictitious.

The valuation of the assets transferred on liquidation on the basis of their declared value, instead of their actual value, would be tantamount to changing the original declared value of the capital stock, and this is prohibited by the Act, as we have seen. At the time of the original declaration the assets behind the capital stock were given an inflated value by the liquidated corporation. Only by a deflation of this value can we arrive at zero by deducting the value of the assets transferred on liquidation.

The capital stock tax is levied with respect to parrying on or doing business. The liquidated corporation did business within the taxable year and, therefore, is liable to a tax. The amount of the tax is to be determined in the way laid down by the statute. The only deduction to which plaintiff is entitled for the amount of the property distributed in liquidation is that deduction provided for in the statute, which is “the value of the property” so distributed; and we are of opinion that the value referred to is the market value.

Plaintiff does not allege that the determination of the Commissioner of Internal Revenue of the fair market value of that property was erroneous. In the absence of such an allegation, it is clear that plaintiff’s petition does not state a cause of action. This holding is in accord with the authorities cited.

It results that the demurrer must be sustained and plaintiff’s petition must be dismissed. It is so ordered.

WHALEY, Chief Justice, and LITTLE-TON, Judge, concur..

MADDEN, and JONES, Judges, took no part in the decision of this case.


author: PER CURIAM.

text:
    McCALL CORPORATION v. UNITED STATES.
    No. 46369.
    Court of Claims.
    Oct. 1, 1945.
    Jesse Bay Robinson, of New York City (Robert E. Coulson, James K. Polk, and Whitman, Ransom, Coulson & Goetz, all of New York City, on the brief), for plaintiff.
    John A. Rees, of Washington, D. C., and Samuel O. Clark, Jr., Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D. C., on the brief), for defendant.
    Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.
    On demurrer.
   PER CURIAM.

This case is before us on demurrer.

Plaintiff sues for the capital stock tax assessed with respect to doing business by its subsidiary for the year in which the subsidiary was liquidated and in which it transferred all of its assets to plaintiff.

Defendant’s demurrer is sustained, and plaintiff’s petition is dismissed for the reasons given in the opinion this day filed in Standard Stoker Co., Inc., v. United States, Ct.Cl., 62 F.Supp. 404. It is so ordered.


author: ATWELL, District Judge.

text:
    INTERSTATE-TRINITY WAREHOUSE CO. et al. v. ELLIOTT.
    Civ. No. 1823.
    District Court, N. D. Texas, Dallas Division.
    Oct. 4, 1945.
    Carl B. Callaway, of Dallas, Tex., for complainants.
    Elmer Davis, of Fort Worth, Tex., for respondent.
   ATWELL, District Judge.

There is a limit to the jurisdiction of the nisi prius national court as to labor dispute litigation. In certain fields those courts are not permitted to enter. That field is described in the Norris-La Guardia Act, 29 U.S.C.A. § 101 et seq. In National Labor Relations Board v. Mackay Radio & Telegraph Co., 304 U.S. 333, 58 S.Ct. 904, 82 L.Ed. 1381, “labor dispute” is likewise treated. Somewhat helpful are, Miller Parlor Furniture Co. v. Furniture Workers’ Industrial Union, D. C., 8 F.Supp. 209, and International Union, etc., v. California State Brewers’ Institute, D. C., 25 F.Supp. 870.

There is considerable difference between the facts here and the statute and litigation reported in the books. Clarity in our thinking will assist in agreement. Honesty demands that it be understood that this case does not involve a question of open or closed shop; of organized or unorganized labor; of the right to strike or not to strike. That must not be put forward as a confusing suggestion.

The simplicity of this contest merits such clarity and honest treatment. All of the testimony — not a preponderance — but all of the testimony, discloses that there is and was no “labor dispute” between any of these complainants and any of their employees. It also discloses that the application for the strike vote which was made by a citizen of Dallas, to the Labor Boards in Washington which have charge of this great conciliation machinery, was not connected in any way with any of the complainants nor with any of their employees. It also discloses that he did not even know the names of the employees nor the names of the complainants, and many others to whom similar notices were sent. He merely knew that he had a contest with another employer, in no way connected with these employers, and in no way connected with the employees of these employers, and he desired to notify the complainant employers and their employees that the handling of any goods or movables by them, or either of them, should be discontinued, and to effect that purpose a strike vote had been requested of the Washington authorities mentioned.

In order to make his remedy as effective as he could, he went to the telephone directory and secured the names and addresses of the employers, who are the complainants here, and used that information in making his application to Washington. The Washington authorities granted his application for a strike vote.

The ballot that was to be used by the employees of the complainant employers contained the information that I have set out here briefly.

It also advised that the voter should determine whether the President of the United States should be interfered with in his pressing of the war. See Sec. 8, War Labor Disputes Act, 50 U.S.C.A. Appendix § 1508.

The brief review of the indisputable facts makes any laboring of applicable law unnecessary. It carries upon its face such an unmistakable, inequitable and unlawful wrong and trespass, with irreparable injury inevitable to the complainants’ smoothly, peacefully, undisturbed and satisfactory movement of interstate commerce, warehousing of large consignments of merchandise for immediate delivery, the safe garnering of commodities needed instantly, the furnishing of the war-worker in the large war plants a quick, speedy and responsive service for their movement of household goods, that the chancellor may not hesitate in his conclusion.

There is no labor dispute. There was no labor dispute. There is nothing and was nothing calling for conciliation. Nor any wrong to be remedied. It is and was a pure trespass upon the liberty and business and inherent rights of person and property of the complainants.

Restraint will issue.