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Norman v. Consolidated Edison Co.

April 12, 1937

NORMAN
v.
CONSOLIDATED EDISON CO. OF NEW YORK, INC., ET AL. (HELVERING, UNITED STATES COM'R OF INTERNAL REVENUE, ET AL., INTERVENERS)



Appeal from the District Court of the United States for the Southern District of New York.

Author: Hand

Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

The plaintiff is a stockholder of the defendant Consolidated Edison Company of New York, Inc., and has brought this suit to enjoin his corporation from paying taxes imposed upon it under title 8 of the Social Security Act (section 801 et seq. [42 U.S.C.A. § 1001 et seq.]) and likewise to obtain a decree declaring titles 2 (section 201 et seq. [42 U.S.C.A. § 401 et seq.]) and 8 in so far as they require payment of taxes for old age benefits unconstitutional and void.

The corporation and its trustees were the original defendants in the suit and the Commissioner of Internal Revenue and the Collector of Internal Revenue in the District in which the corporation is situated were brought in as defendants upon their application to intervene, but no relief against them is asked.

The bill alleges that the defendant corporation is about to comply with the provisions of the Social Security Act (42 U.S.C.A. § 301 et seq.), that the plaintiff will suffer irreparable injury thereby because the value of his stock will be diminished by the expenditure of large sums in taxes, and that the act is unconstitutional and void. It also alleges that the plaintiff has demanded that the company refuse to comply with the terms of the act and take steps to litigate the question of its validity, but without result.

The corporation and the defendant Carlisle, who is the chairman of its board of directors, filed an answer in which they put in issue the plaintiff's right to sue and his claim of irreparable damage and averred by way of defense that the bill does not state facts sufficient to constitute a valid cause of action in equity. The answer admits that, in the absence of a final adjudication that the act is contrary to the law of the land, the corporation proposes to comply with it and alleges that prior to the enactment of the Social Security Act it had set up a "Provisional Retirement Plan" for its employees and officers, with a reserve therefor, upon their superannuation, disability, or retirement, and that such plan provided that amounts payable from any governmental or state fund or source should be deductible from any payments receivable under the plan. The answer of the corporation further alleges that upon the enactment of the Social Security Act "the statute and its pertinent provisions were duly considered by the officers and Trustees of the defendant Consolidated Edison Company of New York, Inc., in the light of the provisions and operation of the said Provisional Retirement Plan. * * * In the exercise of their powers and duties of management and direction of the business and affairs of the Company with due regard to the interests of consumers, investors and employees of the Company, the defendant Company determined that it should and would not litigate or contest the validity of the Social Security Act, but would in good faith comply with and conform to the Social Security Act, unless and until such act is adjudged unconstitutional and void. It was and is the judgment of the officers and Trustees of the defendant Company that the interests of the company, its stockholders and its employees, will be best served and advantaged by such a course and that the stockholders of the Company, including the plaintiff, will not suffer damage or loss thereby."

The defendant corporation also alleges in its answer that the court is without power to enjoin it from "continuing to comply with the Social Security Act as a matter of policy and management, unless and until the Act is finally adjudged to be unconstitutional and void."

The answer of the Commissioner and the Collector alleges that the Social Security Act is valid, that the corporation is not damaged by making the payments required thereby for the reason that those to be made under its own retirement plan would be for greater amounts. It also alleges that the bill of complaint ses forth no facts which, if true, would entitled plaintiff to relief in a court of equity.

The plaintiff moved for judgment on the pleadings as well as for an injunction pendente lite, and the defendants moved to dismiss the bill on the ground that it failed to state a cause of action. Judge Caffey denied the motions of the plaintiff and granted the motion of the defendants. A decree thus disposing of the motions of the several parties was entered, from which the plaintiff has taken the present appeal. In our opinion the decision of the court below was right and the decree should be affirmed.

The primary question is whether the constitutionality of the Social Security Act as applied to the Consolidated Edison Company should in the existing circumstances be determined by means of a stockholder's suit. If, as we think, it ought not to be thus tested, there will be no necessity or propriety in dealing with questions affecting constitutionality. We reach the conclusion that we have come to because the bill of complaint furnishes no proof that the plaintiff is likely to suffer irreparable damage or that equitable relief is necessary to safeguard his rights.

The corporation is paying and, as matters now stand, proposes to continue to pay, taxes imposed by the Social Security Act at they become due. But since the passage of section 1014 of the Revenue Act of 1924 (43 Stat. 343) actions may be brought to recover taxes unlawfully exacted whether the payments are voluntary or not, though before that enactment recovery of illegal taxes could only be had where they were paid under protest. The conditions under which they may be recovered under existing statutes (26 U.S.C.A. § 1433 and §§ 1672-1673) appear in the footnote.*fn1

It is evident from the foregoing statutory provisions that the Consolidated Edison Company will have four years after any taxes are paid under the Social Security Act within which to file a claim for refund. After the filing of claims there will also be the further time allowed by 26 U.S.C.A. §§ 1672-1673 (a) (2) within which to begin actions to recover taxes that may have been unlawfully exacted. It is evident that the validity or invalidity of the act will be determined long before the expiration of any of the periods within which the corporation may file refunding claims and begin actions to recover such taxes as may be declared illegal. There is no showing in the bill of complaint that the Consolidated Edison Company will continue to pay taxes and refuse to sue for the recovery of any it has paid, if the act should be declared unconstitutional, unless perhaps they should prove no more burdensome in amount than the benefits payable under its own provisional retirement plan. Under such circumstances it seems plain that adequate remedies at law are available to the corporation and that the effect of allowing relief in the present case by means of a stockholder's bill is indirectly to avoid the prohibition of section 3224 of the U.S. Revised Statutes (26 U.S.C.A. § 1543) prohibiting suits for the purpose of restraining the assessment or collection of taxes.

The only remaining question of importance is whether the Supreme Court decisions relied upon by the plaintiff require us to reach any different conclusion than the one we ...


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