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Cohen v. Swift & Co.

February 18, 1938


Appeal from the District Court of the United States for the Northern District of Illinois, Eastern Division; Phillip L. Sullivan, Judge.

Author: Major

Before EVANS and MAJOR, Circuit Judges, and LINDLEY, District Judge.

MAJOR, Circuit Judge.

This is an appeal from a decree of the District Court dismissing appellant's bill of complaint and denying application for a preliminary injunction. The action is for the return of moneys paid as processing taxes to the appellee by the appellant and others similarly situated.

It is alleged that the appellee added the processing tax which was a substantial part of the purchase price of hog meat and pork products and that appellant, and others similarly situated, paid such tax by reason of the Agricultural Adjustment Act, as amended, 7 U.S.C.A. § 601 et seq.; that a portion of the sum sought to be recovered was paid to the Government, for which sum appellee had pending a petition for refund; and that a certain other portion of the funds sought to be recovered was impounded and returned to appellee after the Agricultural Adjustment Act was declared unconstitutional by the Supreme Court. There is no claim that the processing tax was billed to appellant as a separate item, but it is claimed it was included and made a part of the price paid by appellant for the products purchased, and in order to sustain such claim it is alleged that wholesale prices increased when the processing tax was imposed and decreased when such tax was removed and that the agents and representatives of appellee told appellant and their vendees and customers that the processing tax was included in the purchase price. The bill contains no allegation as to whether such tax included in the price at which it sold the products in question to its vendees; neither is any agreement, express or implied, alleged, whereby appellee agreed to pay to appellant and those like situated the tax so imposed. It is alleged that after such tax was received by the appellee there was enacted title 3, of the Revenue Act of 1936, §§ 501-506, 26 U.S.C.A. §§ 345-345e, generally referred to as the "Windfall Tax," and that such enactment is unconstitutional and void. An injunction was therefore sought to restrain appellee from paying the tax as provided by said act. Appellee does not contest appellant's contention that the "Windfall Tax" is unconstitutional. The Government, however, was given leave to intervenes and by brief and argument has sought to maintain its validity.

While divers issues are raised and discussed in the briefs submitted, we think the answer to the following query is decisive: "When a processor of agricultural commodities is obliged by the Agricultural Adjustment Act to pay to the United States Government a processing tax imposed upon the processing of hogs at a rate of a certain amount per hundredweight of live hog, and which tax is imposed, due and payable at the time the hog is processed and before any purchase or agreement of purchase takes place, as between the processor and the purchaser of pork products, does any legal obligation exist requiring the processor to pay over to the purchaser of pork products an amount equal to the processing tax in the event the same is not paid the Government because the law is held unconstitutional, in the absence of any agreement between the processor and such purchaser so to do?"

In Johnson v. Igleheart Brothers, Incorporated, 7 Cir., 95 F.2d 4, decided February 11, 1938, this court had occasion to consider a question similar in some respects, but the conclusion there reached is not decisive here.

Of the cases cited and discussed, we think that of Heckman & Co., Inc., v. I. S. Dawes & Co., Inc., 56 App.D.C. 213, 12 F.2d 154, is the most strikingly in point. There, as here, plaintiff was seeking a recovery of money alleged to have been paid under a mistake of law. The defendant was a manufacturer of cider upon whom a tax was imposed by the Government. As here, the amount of said tax was added to and included in the price paid by the plaintiff. The law by which the tax was imposed was held to be an illegal exaction. As in the instant case, it was claimed that plaintiff was compelled to pay paid tax or else forego dealing in the product which was a large and profitable portion of its business. The opinion in that case, as we view it, is such a complete answer to the contentions here made that we quote at length, page 155 of 12 F.2d:

"The Revenue Act of 1918, as construed by the Treasury Department, imposed a tax on the manufacturer, not the dealer. The defendant, as such manufacturer, paid this tax. In selling to the plaintiff, it added to the selling price the amount of the tax, which plaintiff voluntarily paid in order to continue 'dealing in cider, which was a large and profitable portion of its business.' Defendant paid no tax for the plaintiff but for itself. The sale to the plaintiff was not induced by misrepresentation as to law or fact, nor was it the result of undue influence on the one side and undue confidence on the other. The payment of this 10 per cent. by the plaintiff, therefore, was the result of nothing more than a mistake of law, and such a situation presents no ground for equitable relief. Jordan v. Stevens, 51 Me. 78, 81 Am.Dec. 556; Grant v. Giuffrida, 50 App.D.C. 28, 267 F. 330.

"It is equally clear from what we have said that the defendant would be in no better position in an action at law, for 'the rule is firmly established that taxes voluntarily paid cannot be recovered back, and payments are voluntary.' Chesebrough v. United States, 192 U.S. 253, 259, 24 S. Ct. 262, 264 (48 L. Ed. 432); Detroit Edison Co. v. Wyatt Co. (C.C.A.) 293 F. 489. See, also, Erkens v. Nicolin, 39 Minn. 461, 40 N.W. 567; Lamborn v. Dickinson County Com'rs, 97 U.S. 181, 24 L. Ed. 926. In Kastner v. Duffy-Mott Co., 125 Misc. 886, 213 N.Y.S. 128, the facts were identical with those here, and the court said:

"'Plaintiffs seek in this action to recover from the defendant the amount of the 10 per cent. tax which was included in the price they paid. The tax, however, under the law, was in no event payable by plaintiffs, but only by the manufacturer; that is, the defendant. there was no tax, or claim of tax, against the plaintiffs. The plaintiffs did not pay the money under duress. There was no governmental claim made against the plaintiffs, and the cases cited by the latter, holding the right to recover for a tax paid under the belief that it was valid when in fact it was void, are not in point. The payment was not made under a mistake of fact. Both parties knew of the enactment of the law. The defendant made the purchase price of the cider greater because of its belief that it had to pay the tax to the government; but, nevertheless, the plaintiffs merely paid the price which the defendant demanded for its goods. Plaintiffs make no claim of any agreement that the defendant was to repay the 10 per cent. in the event that the cider should be held not to be taxable. Under such circumstances, the plaintiffs may not recover.'"

The reasoning of this case finds added support in the fact that it was approvingly referred to by the Supreme Court in Lash's Products Company v U.S., 278 U.S. 175, 49 S. Ct. 100, 73 L. Ed. 251, where a similar situation was presented. Said the court, 278 U.S. 175, on page 176, 49 S. Ct. 100:

"The phrase "passed the tax on' is inaccurate, as obviously the tax is laid and remains on the manufacturer and on him alone. Heckman & Co. v. I. S. Dawes & Son Co., 56 App.D.C. 213, 12 F.2d 154. The purchaser does not pay the tax. He pays or may pay the seller more for the goods because of the seller's obligation, but that is all. * * *

"The price is the total sum paid for the goods. The amount added because of the tax is paid to get the goods and for nothing else. ...

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