A-87090, DECEMBER 16, 1937, 17 COMP. GEN. 513

A-87090, DECEMBER 16, 1937, 17 COMP. GEN. 513

TAXES - FEDERAL - PROCESSING - CONTRACT PRICE INCLUSION - PRICE REDUCTION BECAUSE OF CONTRACTOR'S NONPAYMENT OF TAX - NONAPPLICABILITY OF COURT DECISION INVOLVING EQUITABLE RIGHTS A HOLDING BY A DISTRICT COURT OF THE UNITED STATES THAT COMMERCIAL PURCHASERS FROM A PROCESSOR OF FLOUR COULD NOT EITHER SINGLY OR COLLECTIVELY INVOKE EQUITY JURISDICTION FOR AN ACCOUNTING, TC., WHEN ACTIONS AT LAW WERE AVAILABLE FOR ENFORCEMENT OF ANY RIGHTS THEY MIGHT HAVE UNDER THEIR PURCHASE CONTRACTS TO AMOUNTS NOT PAID BY THE PROCESSOR AS PROCESSING TAXES BECAUSE OF THE HOLDING THAT THE AGRICULTURAL ADJUSTMENT ACT WAS UNCONSTITUTIONAL, IS NOT DETERMINATIVE EITHER OF WHAT WOULD BE THE RIGHTS OF THE PARTIES IN A PROPER FORUM OR OF THE QUESTION WHETHER A RELATIONSHIP OF CREDITOR AND DEBTOR AROSE BETWEEN THE GOVERNMENT AND CONTRACTORS WHO FAILED AND REFUSED TO PAY TO THE GOVERNMENT TAXES THE AMOUNTS OF WHICH WERE INCLUDED, BY SPECIFIC PROVISIONS, IN THE CONTRACT PRICES PAID BY THE GOVERNMENT UNDER CONTRACTS PROVIDING FOR CORRESPONDING CHANGE IN PRICES IN EVENT OF CHANGE IN THE TAX, AND 17 COMP. GEN. 340, HOLDING SUCH RELATIONSHIP DOES EXIST UNDER SUCH CIRCUMSTANCES, IS AFFIRMED.

ACTING COMPTROLLER GENERAL ELLIOTT TO THE ABILENE FLOUR MILLS CO., DECEMBER 16, 1937:

YOUR LETTER OF NOVEMBER 5, 1937, WITH ENCLOSURE, REQUESTS RECONSIDERATION OF DECISION OF OCTOBER 16, 1937, 17 COMP. GEN. 340, WHICH STATED THAT THERE WAS NO AUTHORITY FOR SETTLEMENT OF THE CLAIM OF THE UNITED STATES AGAINST THE ABILENE FLOUR MILLS CO. FOR ANY LESS AMOUNT THAN THERETOFORE FOUND DUE THE UNITED STATES, TO WIT, $8,161.07, IN CONNECTION WITH CONTRACT PRICES FOR FLOUR INVOLVING PROCESSING TAXES.

YOU REQUEST A FURTHER REVIEW OF THE MATTER "IN VIEW OF A NUMBER OF COURT DECISIONS WHICH HAVE BEEN RENDERED, HAVING DIRECT BEARING UPON THE QUESTION," AND MORE PARTICULARLY AN OPINION OF AUGUST 31, 1937, BY THE DISTRICT COURT OF THE UNITED STATES FOR THE WESTERN DISTRICT OF MISSOURI, WESTERN DIVISION, NO. 2869, IN O-CONNOR-BILLS, INC., ET AL V. WASHBURN CROSBY CO., A CORPORATION, A COPY OF WHICH OPINION WAS ENCLOSED WITH YOUR LETTER AS EXHIBIT A.

A CONSIDERATION OF THAT OPINION AND THE FACTS INVOLVED LEAD TO THE CONCLUSION THAT THE QUESTIONS IT DETERMINED WERE MATERIALLY DIFFERENT FROM WHAT IS HERE INVOLVED AND THAT THE OPINION IS NOT FOR APPLICATION TO THE FACTS IN THE INSTANT MATTER. THE WASHBURN CROSBY CO., DEFENDANT IN THE CITED OPINION, WAS A CORPORATION ENGAGED IN THE MILLING BUSINESS AND AS A DOMESTIC PROCESSOR WAS SUBJECT TO THE PROCESSING TAX OF $1.38 PER BARREL ON FLOUR IMPOSED BY THE PROVISIONS OF THE AGRICULTURAL ADJUSTMENT ACT OF MAY 12, 1933, 48 STAT. 31, ET SEQ. DURING THE YEAR 1935 THAT COMPANY ENTERED INTO CONTRACTS WITH CERTAIN OF ITS CUSTOMERS, WHICH STIPULATED IN SUBSTANCE THAT THE PRICES SPECIFIED INCLUDED PROCESSING TAXES IN FORCE AT THE DATE OF THE CONTRACT, BUT DID NOT INCLUDE ANY INCREASE IN SUCH TAX WHICH MIGHT BECOME EFFECTIVE AFTER THE DATE OF THE CONTRACT, OR ANY TAX THEREAFTER IMPOSED; THAT ANY INCREASE IN THE PROCESSING TAX, OR THE AMOUNT OF ANY SUCH OTHER TAX THAT MIGHT BE SUBSEQUENTLY IMPOSED SHOULD BE PAID BY THE BUYERS IN ADDITION TO THE CONTRACT PRICES. THE CONTRACTS PROVIDED, ALSO, THAT ANY DECREASE IN THE PROCESSING TAX SHOULD INURE TO THE BENEFIT OF THE BUYER AND BE CREDITED AGAINST THE CONTRACT PRICE TO THE EXTENT THAT THE GRAIN USED IN THE MANUFACTURE OF THE PRODUCT COVERED BY THE CONTRACT WAS MILLED AFTER THE DECREASE AND TO THE EXTENT ONLY THAT THE SELLER WAS RELIEVED OF THE PROCESSING TAX. AFTER THESE CONTRACTS WERE EXECUTED, IN PART OR IN FULL, WASHBURN CROSBY CO. RESISTED PAYMENT OF THE PROCESSING TAX ON THE GROUND THAT THE AGRICULTURAL ADJUSTMENT ACT WAS UNCONSTITUTIONAL; AND PENDING FINAL DECISION OF THAT QUESTION, DEPOSITED IN COURT AMOUNTS EQUAL TO ACCRUED TAXES, IN THE NATURE OF A BOND FOR THE BENEFIT OF THE GOVERNMENT IN THE EVENT THE VALIDITY OF THE ACT SHOULD BE SUSTAINED.

THE DECISION OF THE SUPREME COURT IN UNITED STATES V. BUTLER, ET AL. (297 U.S. 1) HELD THE AGRICULTURAL ADJUSTMENT ACT UNCONSTITUTIONALAND THE DEPOSITS THERETOFORE MADE WERE RETURNED TO THE WASHBURN CROSBY CO. ITS CONTRACT CUSTOMERS WERE DENIED THE RIGHT TO INTERVENE FOR THE ASSERTION OF AN INTEREST IN THE FUND AND THEREUPON INSTITUTED A GROUP OR CLASS EQUITY PROCEEDING ASKING FOR AN ACCOUNTING ON THE THEORY THAT THEY PAID THE TAX OR PUT THE DEFENDANT IN FUNDS FOR THE PAYMENT THEREOF; AND PRAYING IN A SECOND COUNT THAT THE AMOUNT OF THE TAX BE RETAINED BY THE DEFENDANT, BUT DECLARED A TRUST FUND FOR THE BENEFIT OF THE PLAINTIFFS AND OTHERS HOLDING SIMILAR RELATIONSHIP TO THE DEFENDANT COMPANY.

THE COURT POINTED OUT THAT THE ONLY METHOD OF PROCEDURE PROVIDED BY THE SEVERAL CONTRACTS WAS THAT ANY DECREASE IN THE PROCESSING TAX WAS TO "BE CREDITED AGAINST THE CONTRACT PRICES NAMED IN THIS CONTRACT; " THAT AT MOST THE DECREASE IN THE TAX WOULD BECOME A CREDIT IN THEIR FAVOR AGAINST THE DEFENDANT WOULD CONSTITUTE NO OTHER RELATION SAVE THAT OF DEBTOR AND CREDITOR; THAT THE DEFENDANT COMPANY HELD NO SPECIFIC FUNDS IN WHICH THE PLAINTIFFS WOULD HAVE AN INTEREST, AND THAT UNDER THEIR PLAIN CONTRACTS WITH THE DEFENDANT THEY WERE NOT ENTITLED TO AN ACCOUNTING IN EQUITY. ALSO THE COURT HELD THAT THE THEORY OF THE PLAINTIFFS THAT THE IDENTICAL FUNDS DEPOSITED BY THE DEFENDANT WITH THE GOVERNMENT BELONGED TO THE PLAINTIFFS AND OTHERS IN LIKE RELATIONSHIP WAS NOT CORRECT, SINCE THE SEVERAL CONTRACTS SPECIFIED THAT THE BENEFIT OF ANY DECREASE IN THE TAX WAS TO BE GRANTED BY BEING CREDITED AGAINST THE CONTRACT PRICES.

IN CONNECTION WITH AN OBJECTION RAISED BY THE DEFENDANT ON THE GROUND OF MISJOINDER OF PARTIES, THE COURT HELD WITH THE DEFENDANT, AND STATED IN PERTINENT PART AS FOLLOWS:

THE OBJECTION ON THE GROUND OF A MISJOINDER OF PARTIES IS CLEARLY WELL TAKEN. EACH OF THE PLAINTIFFS HAD A SEPARATE, THOUGH A SIMILAR CONTRACT WITH THE DEFENDANT. THE RIGHT OF ACTION, IF ANY, IS ON SUCH CONTRACT, AND SINCE THE RELATIONSHIP OF DEBTOR AND CREDITOR AT BEST COULD ONLY EXIST, AND PLAINTIFFS MUST STAND OR FALL UPON THEIR SEVERAL SEPARATE CONTRACTS. IT CANNOT BE ARGUED THAT THESE PLAINTIFFS HAVE A RIGHT TO SUE IN EQUITY IN A CASE WHEREIN IT IS SOUGHT TO AVOID MULTIPLICITY OF SUITS, * * *.

MOREOVER, THE CLASS SUIT THEORY IS UNTENABLE FOR THE REASON THAT EQUITY RULE 38 CONTEMPLATES THAT SEVERAL DIFFERENT PERSONS MAY HAVE LIKE CLAIMS IN EQUITY AGAINST THE SAME ADVERSARY. IN THE CASE NOW BEING CONSIDERED THE SEVERAL PLAINTIFFS MAY HAVE ACTIONS AT LAW, BUT, BECAUSE THEY ARE SOMEWHAT SIMILAR, EQUITY JURISDICTION CANNOT BE INVOKED MERELY BECAUSE THE LAW ACTIONS ARE NUMEROUS AND OF A KINDRED NATURE.

IT THUS IS PLAIN THAT THE ONLY QUESTION DECIDED BY THE COURT WAS THAT UPON THE FACTS PRESENTED THE SEVERAL PLAINTIFFS COULD NOT EITHER SINGLY OR COLLECTIVELY INVOKE EQUITY JURISDICTION IN THEIR BEHALF WHEN ACTIONS AT LAW WERE AVAILABLE FOR THE ENFORCEMENT OF ANY RIGHTS THEY MIGHT SEVERALLY HAVE AGAINST THE DEFENDANT, GROWING OUT OF THEIR RESPECTIVE CONTRACTS. IS EQUALLY PLAIN THAT THE COURT DID NOT UNDERTAKE TO DETERMINE WHAT WOULD BE THE RIGHTS OF THE PARTIES IN A PROPER FORUM.

SUCH QUESTIONS ARE NOT BEFORE THIS OFFICE. THE UNITED STATES IS NEITHER SEEKING AN ACCOUNTING IN EQUITY, NOR SEEKING TO HAVE SPECIFIC FUNDS IN THE HANDS OF CONTRACTORS IMPRESSED WITH A TRUST IN ITS FAVOR. THE QUESTION HERE PRESENTED IS WHETHER UNDER THE TAX PROVISION OF THE CONTRACTS, SUCH AS QUOTED IN YOUR LETTER, AND SIMILAR PROVISIONS TO THE SAME EFFECT, THE RELATION OF CREDITOR AND DEBTOR AROSE AS BETWEEN THE GOVERNMENT AND CONTRACTORS WHO FAILED AND REFUSED TO PAY TO THE GOVERNMENT TAXES THE AMOUNT OF WHICH, UNDER SPECIFIC CONTRACT PROVISIONS, WERE INCLUDED IN THE CONTRACT PRICES WHICH THE GOVERNMENT WAS REQUIRED TO PAY. THE DECISIONS OF THIS OFFICE HAVE HERETOFORE HELD TO THE AFFIRMATIVE ON THE QUESTION THUS PRESENTED, AND NOTHING IS FOUND IN THE CITED OPINION RELIED UPON BY CLAIMANT WHICH IS PERSUASIVE TO A DIFFERENT CONCLUSION. OTHER DECISIONS CITED HAVE BEEN EXAMINED BUT ARE CONSIDERED INAPPLICABLE.

ACCORDINGLY, THE DECISION OF THIS OFFICE, OCTOBER 16, 1937, MUST BE AND IS AFFIRMED.

IN VIEW OF THE STATEMENT IN THE FINAL PARAGRAPH OF YOUR LETTER OF NOVEMBER 5, 1937, SUPRA, THAT YOU DECLINE TO MAKE PAYMENT OF THE AMOUNT OF THE CLAIM AS REQUESTED IN THE LAST PARAGRAPH OF MY LETTER OF OCTOBER 16, 1937, THE CLAIM OF THE UNITED STATES AGAINST THE ABILENE FLOUR MILLS CO. IN THE AMOUNT OF $8,161.07 WILL BE ACTED UPON IN ACCORDANCE WITH THE USUAL PROCEDURE FOR COLLECTION OF CLAIMS OF THE GOVERNMENT.