Hill v. Wallace

259 U.S. 44, 42 S. Ct. 453, 66 L. Ed. 822, 1922 U.S. LEXIS 2459, 3 A.F.T.R. (P-H) 3160, 1 U.S. Tax Cas. (CCH) 65

• Court: Supreme Court of the United States
• Decided: May 15, 1922
• Docket: 616
• Status: Published

Opinions

Mr. Chief Justice Taft,

after making the foregoing statement of the case, delivered the opinion of the court.

The first question for our consideration is whether, assuming the act to be invalid, the complainants on the face of'their bill state sufficient equitable grounds,to justify granting the relief they ask. We think it clear that within the cases of Smith v. Kansas City Title & Trust Co., 255 U. S. 180; Brushaber v. Union Pacific R. R. Co., 240 U. S. 1, 10; Pollock v. Farmers’ Loan & Trust Co., 157 U.S. 429, and Dodge v. Woolsey, 18 How. 331, 341, 346, the averments of the bill entitle them to relief against the Board of Trade of Chicago, its president and its directors. The bill shows that the act, if enforced, will seriously injure the value of the Board of Trade to its members, and the pecuniary value of their memberships. If the law be unconstitutional, then it was the duty of the Board of Directors to bring an action to resist its enforcement. It is quite like the case of Dodge v. Woolsey, in which the court said with respect to a similar refusal (p. 345):

“ Now, in our view, the refusal upon the part of the directors, by their own showing, partakes more of disregard of duty, than of an error of judgment. It was a non-performance of a confessed official obligation, amounting to what the law* considers a breach of trust, though it may not involve intentional moral delinquency. It was a mistake, it is true, of what their duty required from them, according to their own sense of it, but, being a duty by their own confession, their refusal was an act outside of the obligation which the charter imposed upon them to protect what they conscientiously believed to be the franchises of the bank. A sense of duty and conduct contrary to it, is not ‘ an error of judgment merely,’ and cannot be so called in any case.”

The averments of the bill are that the Board of Directors refused the request to bring the suit because they feared to antagonize the public officials whose duty it was to construe and enforce the act, and not because they thought the act was constitutional. They must be taken to have admitted this by the motion to dismiss.

In Wathen v. Jackson Oil & Refining Co., 236 U. S. 635, and in Corbus v. Alaska Treadwell Gold Mining Co., 187 U. S. 455, thought to cast doubt upon the sufficiency of the averments made herein to sustain complainants’ right to file the bill, there had been no request made of the corporation or the Board of Directors to bring suit and no refusal, both of which are present in the case at bar.

A further question arises as to whether this is a suit for an injunction against the collection of the tax in violation of § 3224, Rev. Stats., in so far as it seeks relief against the District Attorney and Collector of Internal Revenue. Were this a state act, injunction would certainly issue, against such officers under the decisions in Ex parte Young, 209 U. S. 123; Ohio Tax Cases, 232 U. S. 576, 587; McFarland v. American Sugar Refining Co., 241 U. S. 79, 82. Does § 3224, Rev. Stats., prevent the application of similar principles to a federal taxing act? It has been held by this court, in Dodge v. Brady, 240 U. S. 122, 126, that § 3224 of the Revised Statutes does not prevent an injunction in a case apparently within its terms in which §ome extraordinary and entirely exceptional circumstances make its provisions inapplicable. See also Dodge v. Osborn, 240 U. S. 118, 122. In the case before us, a sale of grain for future deliyery without paying the tax will subject one to heavy criminal penalties. To pay the heavy tax on each of many daily transactions which occur in the ordinary business of a member of the exchange, and then sue to recover it back would necessitate a multiplicity of suits and, indeed, would be impracticable. For the Board of Trade to refuse to apply for designation as a contract market in order to test the validity of the act would stop its 1600 members in a branch of their business most important to themselves and to the country. We think these exceptional and extraordinary circumstances with respect to the operation of this act make § 3224 inapplicable.' The right to sue for an injunction against the taxing officials is not, however, necessary to give us jurisdiction. If they were to be dismissed under § 3224, the bill would still raise the question here mooted against the Board of Trade and its directors. The Solicitor General has appeared on behalf of the Government and argued the case in full on all the issues. Our conclusion as to the validity of the act will, therefore, have' the same effect as did the judgment of the court in respect, to the income tax law in Pollock v. Farmers’ Loan & Trust Co., 157 U. S. 429, to, which the Government was not a party but in which the Attorney General on its behalf was heard as amicus curiae.

The act whose constitutionality is attacked is entitled “An Act Taxing contracts for the sale of grain for future delivery, and. options for such contracts, and providing for the regulation of boards of trade, and for other purposes.” (Italics ours.)

Section 4 imposes a tax, in addition to any imposed by law, of 20 cents a bushel involved in every contract of sale of grain for future delivery, with two exceptions. The first excep.tion is where the seller holds and owns the grain at the time of sale, or is the owner or renter of land on which the grain is to be grown, or is an association made of such owners or renters. The second exception is where such contracts are made by or through a member of the Board of Trade designated by the Secretary of Agriculture as a contract market, and are evidenced by a memorandum containing certain particulars to be kept for a period of. three years or as much longer as the Secretary of Agriculture shall direct and to be open to official inspection.- This tax on sale contracts for future delivery is in addition to a tax now imposed by the Revenue Act of February 24, 1919, c. 18, 40 Stat. 1057, 1136, Title XI, Schedule A, of 2 cents on every hundred dollars in value of such sales.

Section 5 authorizes the Secretary of Agriculture to designate boards of trade as contract markets when and only when such boards comply with certain conditions and requirements, as follows:

a. When located at a terminal market where cash grain is sold in sufficient amount and under such conditions as to reflect the value of the grain in its different grades, and where there is recognized official weighing and inspection service;

b. When the governing body of the Board adopts rules and enforces them, requiring its members to make and keep the memorandum of all transactions in grain whether cash or for future delivery as directed by the Secretary;

c. When the governing body prevents the dissemination by the Board or any member thereof of false, misleading, or inaccurate reports, concerning crop or market information or conditions that affect or tend' to affect the price of commodities.

d. When the governing board provides for the prevention of manipulation of prices, or the cornering of any grain, by the dealers or operators upon such board.

e. When the governing body admits to membership on the Board and all its privileges any authorized representative of any lawfully formed and conducted cooperative associations of producers having adequate financial responsibility; “Provided, That no rule of a contract market against rebating commissions shall apply to the distribution of earnings among bona fide members of any such cooperative association.”

/. When the governing body of the Board shall make effective the orders and decisions of the commission appointed under § 6.

Section 6 provides that any board of trade desiring to be designated as a contract market shall apply to the Secretary of Agriculture, with a showing that it complies with the conditions already stipulated in § 5, and a sufficient assurance of future compliance. The section appoints a commission of the Secretary of Agriculture, the Secretary of Commerce, and the Attorney General, who may, after due notice to the officers of the Board, suspend for six months or revoke the designation of any board as a contract market, upon a showing of failure to comply with the requirements of § 5.

Provisions are made for.an appeal from this order to the Circuit Court of Appeals, and appeal is granted to the commission from the refusal of the Secretary of Agriculture, upon application, to designate any board as a contract market.

Section 6 also provides that if the Secretary of Agriculture has reason to believe that any person is violating any provisions of the act or is attempting to manipulate the market price of grain in violation of the provisions of § 5, or any of the rules or regulations made pursuant to its requirements, he may have served upon such persons a complaint for a hearing before a referee, to take evidence, to be transmitted to the Secretary as chairman of the commission, and the commission may, after a finding of guilt, issue an order requiring all contract markets to refuse such person trade or privileges. This order may be revised in the Circuit Coqrt of Appeals.

Section 7 provides that the tax imposed shall be paid .by the seller and shall be collected either by affixing stamps or by such other method as may be prescribed by the published regulations of the Secretary of the Treasury.

Section 10 provides a penalty for any person who shall fail to evidence the contract of sale he makes by memorandum or to keep the record of it, or to pay the tax as provided in §§ 4 and 5, with a penalty of 50 per cent, of the tax and a punishment as a misdemeanor and a fine of $10,000, with imprisonment for one year or both and the costs of the prosecution.

It is impossible to escape the conviction, fro,m a full reading of this law, that it was enacted for the purpose of regulating the conduct of business of boards of trade through supervision of the Secretary of Agriculture and the use of an administrative tribunal consisting of that Secretary, the Secretary of Commerce, and the Attorney General. Indeed the title of the act recites that one of its purposes is the regulation of boards of trade. As the bill shows, the imposition of 20 cents a bushel on the various grains affected by the tax is most burdensome. The-tax upon contracts for sales for future delivery under the Revenue Act is only 2 cents upon $100 of value, whereas this tax varies according to the price and character of the grain from 15 per cent, of its value to 50 per cent. The manifest purpose of the tax is to compel boards of trade to comply with regulations, many of which can have no relevancy to the collection of the tax at all. Even if we conceded, as we do not, that the keeping of a memorandum and of the particulars of each sale as a record for three years or more, not only of contracts for future delivery, but also of cash sales, neither of which are subject to tax in designated boards of trade, would help taxing officers in any way to detect the evasions of this tax outside of such boards, no such construction can bp put upon the provisions which require the board of trade to prevent a dissemination of false or misleading reports or to prevent the manipulation of prices or the cornering of grain or which enforce the admission to membership in the Board of the representatives of cooperative associations of producers or the abrogation of rules against rebate as applied to such representatives. The act is in essence and on its face a complete regulation OÍ boards of trade, with a penalty of 20 cents a bushel on all “ futures ” to coerce boards of trade and their members into compliance. ■ When this purpose is declared in the title to the bill, and is so clear from the effect of the provisions of the bill itself, it leaves no ground upon which the provisions we have been considering can be sustained as a valid exercise of the taxing power. The elaborate machinery for hearings by the Secretary of Agriculture and by the commission of violations of these regulations, with the withdrawal by the commission of the designation of the Board as a contract market, and of complaints against persons who violate the act or such regulations, and the imposition upon them of the penalty of requiring all boards of trade to refuse to permit them the usual privileges, only confirm this view.

Our decision, just announced, in the Child Labor Tax Case, ante, 20, involving the constitutional validity of the Child Labor Tax Law, completely covers this case. We there distinguish between cases like Veazie Bank v. Fenno, 8 Wall. 533, and McCray v. United States, 195 U. S. 27, in which it was held that this court could not limit the' discretion of Congress in the exercise of its con^ stitutional powers to levy excise taxes because the court might deem the incidence of the tax oppressive or even destructive. It was pointed out that in none of those cases did the law objected to show on its face, as did the Child Labor Tax Law, detailed regulation of a concern or business wholly within the police power of the State, with a heavy exaction to promote the efficacy of such regulation. We there say (pp. 37, 38):

“ Out of a proper respect for the acts of a coordinate branch of the Government, this court has gone far to sustain taxing acts as such, even though there has been ground for suspecting from the weight of the tax it was intended to destroy its subject. But, in the act before us, tiie presumption of validity cannot prevail, because the proof of the contrary is found on the very face of its provisions. Grant the validity of this law, and all that Congress would need to do, hereafter, in seeking to take over to its control any one of the great number of subjects of public interest, jurisdiction of which the States have never parted with, and which are reserved to them by the Tenth Amendment, would be to enact a detailed measure of complete regulation of the subject and enforce it by a so-called tax upon departures from it. To give such magic to the word ‘ tax ’ would be to break down all constitutional limitation of the powers of Congress and completely wipe out the sovereignty of the States.”

This has complete application to the act before us, and requires us to hold that-the provisions of the act we have been discussing can not be sustained as an exercise of the taxing power of Congress conferred by § 8, Article I.

We come to the question then, Can these regulations of boards of trade by Congress be sustained under the commerce clause of the Constitution? Such regulations are held to be within the police powers of the State. House v. Mayes, 219 U. S. 270; Brodnax v. Missouri, 219 U. S. 286. There is not a word in the act from which it can be gathered that it is confined in its operation to interstate commerce. The words “ interstate commerce ” are not to be found in- any part of the act from the title to the closing section; The transactions upon which the tax is to be imposed, the bill avers, are sales made between members of the Board of Trade in the City of Chicago for future delivery of grain, which will be settled by the process of offsetting purchases or by a delivery of warehouse receipts of grain stored in Chicago. Looked at in this aspect and without any limitation of the application of the tax to interstate commerce, or to that which the Congress may deem from evidence before it to be an obstruction to interstate commerce, we do not find it possible to sustain the validity of the regulations as they are set forth in this act. A reading of the act makes it quité clear that Congress sought to use the taxing power to give validity to the act. It did not have the exercise of its power under the commerce clause in mind and so did not introducé into the act the limitations which certainly would accompany and mark an' exercise of the power under the latter clause.

In Ware & Leland v. Mobile County, 209 U. S. 405, it was held that contracts for the sale of cotton for future delivery which do not oblige, interstate shipments are not subjects of interstate commerce, and that a state tax oh persons engaged in buying and selling cotton for future delivery was not a regulation of interstate commerce or beyond the power of the State.

It follows that sales for future, delivery on the Board of Trade are not in and of themselves interstate commerce. They can not come within the regulatory power of Congress as such, unless they are regarded by Congress, from the evidence before it, as directly interfering with interstate commerce so as to be an obstruction or a burden thereon. United States v. Ferger, 250 U. S. 199. It was upon this principle that in Stafford v. Wallace, 258 U. S. 495, we held it to be within the power of Congress to regulate business in the stockyards of the country, and include therein the regulation of commission men and of traders there, although they had to do only with sales completed and ended within the yards, because Congress had concluded that through exorbitant chargés, dishonest practices and collusion they were likely, unless regulated, to impose a direct burden on the interstate commerce passing through.

So, too; in United States v. Patten, 226 U. S. 525, it was held that though this court, as we have seen, had decided in the Ware & Leland Case that mere contracts for sales of cotton for future delivery which did not oblige interstate shipments were not interstate commerce, an indictment charging the defendants with having cornered the whole cotton market of the United States by excessive purchases of cotton for future delivery and thus conspired to restrain, obstruct and monopolize' interstate commerce in cotton, was sustained under the first and second sections of the Sherman Anti-Trust Law. This case, like Stafford v. Wallace, followed the principles of Swift & Co. v. United States, 196 U. S. 375. But the form and limitations of the act before us form no such basis as those cases presented for federal jurisdiction and the exercise of the power to protect interstate commerce. Our conclusion makes it necessary for us to hold § 4 and those parts of the act which are regulations affected by the so-called tax imposed by § 4, to be unenforceable.

Section 11 of this act directs that “ if any provision of this Act or the application thereof to any person or circumstances is held invalid, the validity of the remainder of the Act and of the application of such provision to other persons and circumstances shall not be affected thereby.”

Section 4 with its penalty to secure compliance with the regulations of Boards of Trade is so interwoven with those regulations that they can not be separated. None of them can stand. Section 11 did not intend the court to dissect an unconstitutional measure and reframe a valid one out of it by inserting limitations it does not contain. This is legislative work beyond the power and function of the court. In United States v. Reese, 92 U. S. 214, presenting a similar question as to a criminal statute, Chief Justice Waite said (p. 221.):

“ We are not able to reject a part which is unconstitutional, and retain the remainder, because it is not possible to separate that which is unconstitutional,. if there be any such, from that which is not. The proposed effect is not to be attained by striking out or disregarding words that are in the section, but by inserting those that are not now there. Each of the sections must stand as a whole, or fall together. The language is plain. There is no room for construction, unless it be as to the effect of the Constitution. The question, then, to be determined, is, whether we can introduce words of limitation into a penal statute so as to make it specific, when, as expressed, it is general only. ... To limit this statute in the manner now asked for would be to make á new law, not to enforce an old one. This is no part of our duty.”

Trade-Mark Cases, 100 U. S. 82; Butts v. Merchants & Miners Transportation Co., 230 U. S. 126.

To be sure in the cases cited there, was no saving provision like § 11, and undoubtedly such a provision furnishes assurance to courts that they may properly sustain separate sections or provisions of a partly invalid act with out hesitation or doubt as to whether they would have been adopted, even if the legislature had been advised of the invalidity of part. But it does not give the court power to amend the act.

There are sections of the act to which under § 11 the reasons for our conclusion as to § 4 and the interwoven regulations do not apply. Such is § 9 authorizing investigations by the Secretary of Agriculture and his publication of results. Section 3, too, would not seem to be affected by our conclusion. It provides:

“ That in addition to the taxes now imposed by law there is hereby levied a tax amounting to 20 cents per bushel on each bushel involved therein, whether the actual commodity is intended to be delivered or only nominally referred to, upon each and every privilege or option for a contract either of purchase or sale of grain,, intending hereby to tax only the transactions known to the trade as ‘ privileges,’ ‘ bids,’ ' offers,’ ‘ puts and calls,’ ‘ indemnities,’ or ‘ ups and.jdowns.’ ”

This is the imposition of an excise tax upon certain transactions of a unilateral character in grain markets which approximate gambling or offer full opportunity for .it and does not seem to be associated with § 4. Such'a tax without more would seem to be within the congressional power. Treat v. White, 181 U. S. 264; Nicol v. Ames, 173 U. S. 509; Thomas v. United States, 192 U. S. 363. But these are questions which are not before us and upon which we wish to express no definite opinion.

The injunction against the Board of Trade and its officers, and the injunction ¿against the Collector of Internal Revenue and the District Attorney, should be granted, so far as § 4 is concerned and the regulations of the act interwoven within it. The court below acquired no personal jurisdiction of the Secretary of Agriculture and the Commissioner of Internal Revenue by proper service and the dismissal as to them was right.

The decree of the District Court is reversed, and the cause is remanded for further proceedings in conformity to this opinion.