United States v. Fortman (D. C. W. D. Okl.) 268 Fed. 873; United States v. One Haynes Automobile (D. C. S. D. Fla.) 268 Fed. 1003, also Ketchum v. United States (C. C. A. 8) 270 Fed. 416 (not mentioned by demurrant)—are cases deciding that sections of the Revised Statutes (revenue laws) other than those involved in the instant case were repealed by the Enforcement Act, viz. section 3242 (Comp. Stat. § 5965), carrying on liquor business without payment of tax; section 3257 (Comp. Stat. § 5993), distilling without payment of tax; section 3258 (Comp. Stat. § 5994), failure to register stills; sections 3260 (Comp. Stat. § 5997) and 3281 (Comp. Stat. § 6021), failure to bond distillery; section 3061 (Comp. Stat. § 5763) et seq. and 3450 (Comp. Stat. § 6352), forfeiting vessels, etc., used in violating law; section 3279 (Comp. Stat. § 6019), failure to place sign on distilleries; and section 3282 (Comp. Stat. § 6022), unlawfully making mash, etc.

The cases reaching a different conclusion concerning some of the same sections are United States v. Sohm (D. C. Mont.) 265 Fed. 910; United States v. Turner (D. C. W. D. Va.) 266 Fed. 248, supra; United States v. Sacein Rouhana Farhat (D. C. S. D. Ohio, E. D.) 269 Fed. 33, supra; United States v. Phillips, 270 Fed. 281. For other cases on cognate subjects, see Ex parte Ramsey (D. C. S. D. Fla.) 265 Fed. 950; United States v. One Essex Touring Automobile (D. C. N. D. Ga.) 266 Fed. 138; Corneli v. Moore (D. C. E. D. Mo. E. D.) 267 Fed. 456; Ketterer v. Lederer (D. C. E. D. Pa.) 269 Fed. 153, 1010; United States v. Kraus (D. C. S. D. N. Y.) 270 Fed. 578, 582; United States v. Holt (D. C. N. D. W. D.) 270 Fed. 639; Abbate v. United States (C. C. A. 9) 270 Fed. 735; Regal Drug Corporation v. Wardell, Collector, 273 Fed. 182; 31 Opinions of Attorneys General, 442.

In the Windham Case, as well as in Reed v. Thurmond (C. C. A. 4) 269 Fed. 252, supra, the principal reliance of demurrant, R. S. § 3296, was held to have been repealed by the Enforcement Act. In the former case that section was not directly involved, but was referred to as underlying other indictments then on the calendar for prosecution, and was used in the court's opinion as illustrating an earlier statutory denunciation which was superseded by the Enforcement Act.

* *

In the Reed Case the indictment was laid on that section. From the opinion in that case it appears that Reed had in concealment, in a freight room of a railroad station, a quart of "contraband" whisky, on which no tax had been paid, and which a day or so previous to his arrest he "had obtained * 'from a man coming along changing trains' who had it in a suit case." From this recital it is clear that Reed was guilty of offenses fully covered by the Enforcement Act, viz. unlawfully obtaining and possessing whisky. But something more than that would have to be shown to bring his conduct within the grasp of section 3296, R. S.; for possession of liquor thus obtained raised no presumption that Reed removed, or knowingly aided the removal of the liquor from a bonded warehouse without the payment of the tax imposed thereon, or that he was guilty of any of the other denunciations of that section.

(273 F.)

While these last two named cases clearly show that the learned judges who decided them were of the opinion that this section was repealed by the Enforcement Act, for the reasons given, I am constrained to hold otherwise.

The demurrer is overruled.

MARCONI WIRELESS TELEGRAPH CO. OF AMERICA v. DUFFY, Collector of Internal Revenue.

(District Court, D. New Jersey. May 31, 1921.)

Internal revenue 19 (1) -Tax on shares of corporation as transferred held

proper.

Where plaintiff corporation, in furtherance of a consolidation, transferred assets to the R. corporation, in consideration of issuance by the R. Corporation of a certain number of shares of its stock to shareholders in plaintiff corporation, and such stock was issued and properly stamped, a further stamp tax, as in effect on a transfer from the plaintiff to its shareholders, was properly charged against plaintiff under Revenue Act 1918, subd. 4, Schedule A (Comp. St. Ann. Supp. 1919, § 6318p), taxing "right to subscribe for or to receive such shares."

On motion

At Law. Action by the Marconi Wireless Telegraph Company against Charles V. Duffy, Collector of Internal Revenue. to strike the petition. Sustained.

Griggs & Harding, of Paterson, N. J. (John W. Griggs, of Paterson, N. J., of counsel), for plaintiff.

Wayne Johnson, of Washington, D. C. (John M. Sternhagen, of New York City, of counsel), for defendant.

RELLSTAB, District Judge. The plaintiff sues to recover $5,000 claimed to have been unlawfully exacted from it by the defendant, as stamp tax on certain issues of certificates of stock. The defendant moves to strike out the petition. The question thus raised is whether the transactions disclosed by the petition are subject to tax under the Revenue Act of 1918 (40 Stat. 1057, 1919 Supp. Comp. Stat. p. 1284), and calls for the interpretation of subdivision 4 of Schedule A of that

act.

The transactions set out in the petition, in brief, are: The plaintiff, for the purpose of consolidating its property and business with certain properties and businesses of the General Electric Company, contracted to transfer its assets, with minor exceptions, to the Radio Corporation of America (hereinafter called Radio), in exchange for 2,000,000 shares each of Radio's preferred and common stock; that in the original agreement it was provided that "changes in form and procedure" were left to counsel of plaintiff and Radio, and that if they proposed "a definite method for the union of the two interests their recommendation * be carried out"; that before any of such stock had been issued to plaintiff "in pursuance of the reservation of authority to modify or change the said agreement" as plaintiff's board

* *

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

of directors might propose, and upon their resolution so authorizing, it was agreed between plaintiff and Radio that Radio should issue its stock directly to such stockholders of plaintiff as desired to receive it, Radio to be credited as though the shares had been issued directly to plaintiff; that in accordance with such modified agreement Radio issued to sundry stockholders of plaintiff, who had surrendered their certificates of stock in the plaintiff company, Radio stock aggregating 238,095 shares each of its preferred and common stock, attaching to such shares the revenue stamps required by law; and that subsequently plaintiff was required by defendant to pay an additional tax upon the shares so issued direct to plaintiff's stockholders, amounting to the sum of $5,000, the stamps for which, upon the defendant's directions, were affixed to plaintiff's minute book, and canceled by the defendant despite the plaintiff's protest.

The pertinent part of the Revenue Act under which this disputed tax was imposed is:

"Capital stock, sales or transfers: On all sales, or agreements to sell, or memoranda of sales or deliveries of, or transfers of legal title to shares of certificates of stock or of profits or of interest in property or accumulations in any corporation, or to rights to subscribe for or to receive such shares or certificates, whether made upon or shown by the books of the corporation, or by any assignment in blank, or by any delivery, or by any paper or agreement or memorandum or other evidence of transfer or sale, whether entitling the holder in any manner to the benefit of such stock, interest, or rights, or not, on each $100 of face value or fraction thereof, 2 cents. * That in case of sale where the evidence of transfer is shown only by the books of the corporation the stamp shall be placed upon such books."

In considering the question at issue we must not ignore the substantial difference between a corporation and its stockholders. Gibbons v. Mahon, 136 U. S. 549, 10 Sup. Ct. 1057, 34 L. Ed. 525; Peterson v. Chicago, Rock Island & Pac. Ry. Co., 205 U. S. 364, 27 Sup. Ct. 513, 51 L. Ed. 841; Lynch v. Hornby, 247 U. S. 339–344, 38 Sup. Ct. 543, 62 L. Ed. 1149; Eisner v. Macomber, 252 U. S. 189, 214, 40 Sup. Ct. 189, 64 L. Ed. 521, 9 A. L. R. 1570. The property sold to Radio was the plaintiff's property, and could be sold only by it. To effect the sale the consent of the stockholders was necessary; but it, and not the stockholders, held the legal title, and it alone could vest such title in the purchaser. The stockholders eventually would share in the consideration of the sale, but this could be brought about only by means of dividends or similar methods of distribution. The stock issued by Radio to the plaintiff's stockholders was the consideration for the property sold to it by the plaintiff. Had the plaintiff received the stock, as seemingly was originally contemplated, and disposed of it, whether to its stockholders or to other parties, a tax such as was here imposed would have had to be paid. Undoubtedly it was within the power of plaintiff, upon obtaining the necessary authority, to direct Radio to issue the stock to its (plaintiff's) stockholders. But this authority-resolution of the plaintiff's board of directors-was nothing less than a transfer of plaintiff's rights to such shares of stock, and is covered by one of the quoted methods of transferring shares or cer

(273 F.)

tificates of stock taxable under subdivision 4, viz. a transfer of "rights to subscribe for or to receive such shares."

The case of McClain v. Fleshman, 106 F. 880, 46 C. C. A. 15, decided by the Circuit Court of Appeals of this circuit, is not, as contended by plaintiff, an authority for a different conclusion. In that case agreements to buy and sell stock on margin were considered in relation to the stamp schedule of the War Revenue Act of 1898. The memoranda evidencing the agreements to buy or sell had proper tax stamps attached thereto. These agreements did not call for or contemplate a delivery or resale of the stock. The transactions were purely speculative. The parties were to settle by paying the difference between the price agreed upon and the market price at the time of settlement, and the settlement was to be effected by the surrender of the agreements. The Commissioner of Internal Revenue contended, as appears from the court's opinion (106 Fed. 881, 46 C. C. A. 16), "that these settlements necessarily involved agreements to resell the stock"; that "new memoranda, bearing tax stamps, should have been issued"; and thereupon exacted the additional tax made the basis of that suit. The court held that these settlements did not involve agreements for a resale of the stock, and that no agreement to that effect could be inferred for the purpose of extending the provisions of the Kevenue Act, so as to justify the additional tax.

That case differs radically from the instant one. In that case no transfer at all was contemplated or took place. In the present case the stockholders could not have received the stock without transfers from the plaintiff. Such transfers having been effected, the challenged tax was justified, and the stamps were properly affixed to the plaintiff's minute book, as it evidenced the transfer.

The motion is sustained.

MIDDLETON & CO. v. UNITED STATES.

(District Court, E. D. South Carolina.

May 19, 1921.)

Courts 271, 274-Suit by alien or foreign corporation against United States may be brought in any district. Under Act March 9, 1920, providing for suits in admiralty against vessels of the United States, and that an election to proceed in rem shall not preclude the libelant from obtaining relief in personam in the same suit, the provision of section 2, that "such suits shall be brought in the District Court of the United States for the district in which the parties so suing, or any of them, reside or have their principal place of business in the United States, or in which the vessel or cargo charged with liability is found," does not apply to a suit by an alien or a foreign corporation having no place of business in the United States, in which case the libelant may be considered, for the purposes of the suit, to reside in any district.

In Admiralty. Suit by Middleton & Co., for themselves and as agents for the Teikoku Menkwa Kabushiki Kaisha, a Japanese corpora

For other cases see same topic & KEY-NUMBER in all Key-Numbered Digests & Indexes

200

tion, against the United States. On motion to dismiss libel for want of jurisdiction. Denied.

E. Willoughby Middleton, and Miller, Huger, Wilbur & Miller, all of Charleston, S. Č., for libelants.

J. Frank Staley, Sp. Asst. Atty. Gen., of Washington, D. C., and J. Waties Waring, Asst. Dist. Atty., of Charleston, S. C.

SMITH, District Judge. The libel in this case was filed in this court on the 25th of February, 1921, by Middleton & Co., for themselves and as agents for and on behalf of Teikoku Menkwa Kabushiki Kaisha, a Japanese corporation. The answer has been filed to the libel, and a motion has now been made, on behalf of the United States, upon the face of the libel and answer and the statements in the affidavit of Charles F. Middleton, filed May 18, 1921, styled "Jurisdictional Question Supporting Affidavit," to dismiss the libel for want of jurisdiction.

The libel is filed under the terms of the act of Congress approved March 9, 1920 (41 Stat. 525), styled:

"An act authorizing suits against the United States in admiralty, suits for salvage services, and providing for the release of merchant vessels belonging to the United States from arrest and attachment in foreign jurisdictions and for other purposes."

The motion to dismiss is made upon the ground that it is provided in section 2 of said act that the suits thereby permitted must be brought in the District Court of the United States for the district in which the parties so suing or any of them reside, or have their principal place of business in the United States, or in which the vessel or cargo charged with liability is found.

The motion to dismiss is based upon the ground that the only real party in interest stated as libelant is the Japanese corporation, and as that corporation is not a resident, and has no place of business in any district of the United States, and certainly not in the Eastern district of South Carolina, any suit must be brought in the district in which the vessel or cargo charged with liability is found. It is claimed in addition that, the libelants having expressly declared in the libel that they elected that the suit should proceed in accordance with the principles of libels in rem, the suit in such case can only be brought in a district in which, if the suit had been brought in rem, the vessel could have been seized, and as none of the vessels mentioned in the libel as being responsible for the damages claimed in the libel are within the district of South Carolina, suit could only be brought, if brought in rem, in some district in which the vessel could be seized.

The bill of lading attached to the libel, which is the contract constituting the basis of the rights claimed in this case, is executed by the American Shipping Corporation, signing as agents for the owners, to wit, the United States. Neither the character, location, or place of residence of this corporation is alleged in the libel, nor the existence of its agency to bind the United States, which, under the allegations of the libel, was the owner of the ships mentioned. If duly authorized to bind the United States, then a suit could be brought under the contract by