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F.G. VOGT & SONS v. ROTHENSIES

July 17, 1935

F.G. VOGT & SONS, Inc.,
v.
ROTHENSIES, Collector of Internal Revenue



The opinion of the court was delivered by: KIRKPATRICK

This suit in equity is to restrain the collector of internal revenue from proceeding to collect a tax, and the prayer of the bill is in the alternative for injunctive relief or, in the event that such relief is not granted, then for a judgment declaring the taxing statute unconstitutional. The suit has to do with the tax levied by section 9 of the Agricultural Adjustment Act, as amended, 7 U.S.C. § 609 (7 USCA § 609), as applied to the processing of hogs. The floor stock tax levied by section 16 of that act is not involved.

The Agricultural Adjustment Act is a comprehensive scheme of legislation, the primary purpose of which, as declared, is, in substance, to restore purchasing power of agricultural commodities to its prewar level.The act proposes to attain this result chiefly by the payment to farmers of rental or benefit payments in consideration of their agreements to reduce production (section 3, 7 USCA § 603), a program which has been largely put into effect. The act also provides for "expansion of markets and removal of surplus agricultural products" (section 12 (b), 7 USCA § 612 (b), and, under this authorization, the Secretary of Agriculture has purchased such commodities in the open market and has bought and destroyed surplus farm stock. The money needed by the Secretary to do these things is to be raised by an excise tax upon the processing of certain agricultural commodities selected by him from a list set forth in the act (section 11, as amended, 7 USCA § 611). The act appropriates the proceeds of the tax to be available to the Secretary of Agriculture for carrying out its main objects. There is thus combined in one statute a plan of rehabilitation requiring large expenditures of money, a tax by which the money is raised, and an appropriation of its proceeds to the purposes of the plan. Delegated to the Secretary of Agriculture are certain powers, legislative in character, having to do (1) with the imposition and rate of the tax; (2) with accomplishing the limiting of production of agricultural commodities.

 This plaintiff has no standing to challenge the constitutionality of those portions of the act which provide for the reduction program, or which delegate powers in connection therewith to the Secretary of Agriculture, or which appropriate the proceeds of the tax to that purpose. Massachusetts v. Mellon, 262 U.S. 447, 486, 43 S. Ct. 597, 67 L. Ed. 1078. As a member of a limited class upon which the tax falls, however, it may call in question the constitutionality of the taxing sections of the statute. As having a bearing upon that question, the entire statute, its aims and effect, must be considered.

 The plaintiff attacks the constitutionality of the tax upon four distinct grounds, one of which I think is well taken. I have come to the conclusion that the sections of the act under which the processing tax is levied contain an invalid and unconstitutional delegation of power to the Secretary of Agriculture, thus rendering the tax void.

 I. The limits of permissible delegation of legislative power by the Congress have been set in two recent decisions of the Supreme Court: Panama Refining Co. v. Ryan, 293 U.S. 388, 55 S. Ct. 241, 248, 79 L. Ed. 446, and Schechter Poultry Corporation v. United States, 55 S. Ct. 837, 79 L. Ed. 1570, decided May 27, 1935. Prior decisions recognized that there were limits; but in every case in which the question was considered the particular delegation before the court was held valid. Generally speaking, the power to delegate has been sustained as a necessary aid to the performance of the legislative function. It was accorded in cases where, if delegation of power were to be withheld, the full and free performance of that function would be frustrated.

 Thus, where the law was one which was designed to take effect in the future only upon certain conditions not within the control of either the Congress or the executive, and it was essential to its purpose that it should become effective without delay upon the happening of such contingencies, it was held permissible to delegate to the executive the power to say whether those events had occurred, always, however, upon an informed fact finding, usually with the assistance of a fact-finding body. Such cases were the Brig Aurora v. United States, 7 Cranch 382, 3 L. Ed. 378; Field v. Clark, 143 U.S. 649, 12 S. Ct. 495, 504, 36 L. Ed. 294, and Hampton, Jr., & Co. v. United States, 276 U.S. 394, 48 S. Ct. 348, 352, 72 L. Ed. 624. Again, where the law was for the regulation of commercial or other activities which the Congress could properly control under the commerce clause or any of its other powers, delegation of authority was sustained. These statutes in their application necessarily involved dealing with a vast multitude of varying situations calling for an expert knowledge which obviously was not available until specific instances arose and requiring a volume of technical detail which could not well be written into the act. The principle of these cases was stated by the court in the Panama Refining Co. Case as follows: "Without capacity to give authorizations of that sort we should have the anomaly of a legislative power which in many circumstances calling for its exertion would be but a futility." Cases of this kind were Buttfield v. Stranahan, 192 U.S. 470, 24 S. Ct. 349, 48 L. Ed. 525, where the act had to do with establishing uniform standards of purity, quality, and fitness for all kinds of teas imported into the United States; St. Louis, I.M. & S.R. Co. v. Taylor, 210 U.S. 281, 28 S. Ct. 616, 52 L. Ed. 1061, the regulation of interstate carriers through the Interstate Commerce Commission; United States v. Grimaud, 220 U.S. 506, 31 S. Ct. 480, 55 L. Ed. 563, regulation of sheep-grazing on forest reserve of lands belonging to United States, and others.

 The principle which sustained the delegation of legislative or quasi legislative power in all of the cases in which it was upheld was that the Congress itself had first legislated to the fullest extent reasonably practicable in view of the ends to be obtained. In other words, if delegation of legislative power is to be valid, the law-making body must use the power so far as it can before passing on the residue to its delegate. This is the true basis of the distinction referred to in the Panama Refining Co. Case between the "delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and conferring authority or discretion as to its execution, to be exercised under and in pursuance of the law," and of the vital finding in Field v. Clark, supra, that the act in question did not "in any real sense, invest the president with the power of legislation." All of these considerations apply to the delegation of authority in connection with the taxing power, though there are perhaps, in the case of internal taxes, reasons arising from the close relationship of such taxes to the life and business of the citizen why its exercise should be confined as narrowly as possible to the people's elected representatives.

 Recognizing the propriety of fiscal legislation which could be adjusted to changing conditions and the necessity for some measure of delegation of power if the flexible provisions of the law were to have any real value, the court, in Hampton, Jr., & Co. v. United States, supra, said: "The same principle that permits Congress to exercise its rate-making power in interstate commerce by declaring the rule which shall prevail in the legislative fixing of rates, and enables it to remit to a rate-making body created in accordance with its provisions the fixing of such rates, justifies a similar provision for the fixing of customs duties on imported merchandise. If Congress shall lay down by legislative act an intelligible principle to which the person or body authorized to fix such rates is directed to conform, such legislative action is not a forbidden delegation of legislative power." In line with what has just been said, the restriction of the last clause of the quotation is worthy of note -- "is directed to conform." It would seem that in cases of delegation of the taxing power the court had in mind not only a plenary exercise of that power by the Congress, but also a close restriction if not a total denial of administrative "discretion" as to so much of it as could be properly delegated. In the Hampton Case the President was required, not permitted or authorized, to act upon the findings of the Tariff Commission. The language of the act was: "Whenever the President upon investigation * * * shall find * * * that the duties fixed in this Act [chapter] do not equalize the said differences in costs of production * * * he shall * * * ascertain said differences * * * and proclaim the changes in classifications," etc. [ 19 USCA § 154]. In Field v. Clark, the words of the act were: "He shall have the power, and it shall be his duty, to suspend," etc. Both of the acts considered in these cases in reality committed to the executive little more than the duty of ascertaining facts to which the legislation was to apply by its own force.

 The Penama Refining Co. and Schechter Poultry Corp. Cases did not involve a delegation of the taxing power, but the general principles in them stated are fully applicable. In the former, the delegation was held invalid both because of total failure on the part of the Congress to legislate upon the subject-matter delegated (restriction of interstate shipments of oil) and the consequent totally unfettered discretion in that regard which was delegated to the executive. In the latter, it was held invalid because the lack of an adequate definition of the subject-matter delegated (codes of fair competition) practically amounted to a failure to legislate, with the result that the delegated powers in like manner were broadly discretionary without a clear rule or principle to confine them. Under these circumstances, in the Schechter Poultry Corp. Case, any requirement that the executive conform to the policy of the act was a practical nullity.

 Examined in the light of these principles, the delegation of power contained in the processing tax feature of the Agricultural Adjustment Act is clearly invalid. It is apparent that the Secretary of Agriculture and not the Congress exercises the taxing power, and in so doing there is committed to him a discretion as to the rate of the tax as well as to its incidence which is to all practical intents unlimited.

 The act must be carefully read to realize that this is the case, because it is loaded with provisions which appear to be an exercise of the power to legislate and to set up a rule to be followed by the executive. It does contain a declaration of policy and it does contain a rule which purports to restrict the Secretary of Agriculture in carrying out the policy. The statement of policy is quite as explicit as that declared in the Flexible Tariff Act (Tariff Act 1930, § 1, 19 USCA § 1001) sustained in Hampton, Jr., & Co. v. United States, supra, which was to equalize the differences in costs of production of dutiable articles in the United States and in the principal competing country. I should say that it was sufficiently definite to escape the criticism which condemned the declaration of policy of the National Recovery Act in the Schechter Poultry Corp. Case. To raise the prices of agricultural commodities to an ascertainable figure is a simple and definite object.

 But did the Congress really exercise its function and impose this tax? The tax does not go into effect until action by the Secretary of Agriculture. A list of taxable articles ("basic agricultural commodities") is given in section 11. The Secretary of Agriculture may omit any article from the list, or he may not act at all, in which case no tax upon anything will be imposed; a provision which in itself is no more objectionable than that relating to the increase of duties in the Flexible Tariff Act. But in this respect (unlike the flexible tariff) his judgment need not be based upon nor controlled by his ascertainment of any facts or by the existence of any conditions predetermined by Congress as requisite to call the tax into being. The Agricultural Adjustment Act says: "When the Secretary of Agriculture determines that rental or benefit payments are to be made with respect to any basic agricultural commodity, he shall proclaim such determination, and a processing tax shall be in effect with respect to such commodity. * * *" Section 9, 7 USCA § 609. The Secretary thus is to make a determination, it is true, but it is merely his judgment that the appropriate time has come to begin rental or benefit payments, and in forming that judgment his discretion is absolute and uncontrolled. He is not required to begin making such payments at any particular time or upon the happening of any specified conditions. Nor is there any necessary relation between the imposition of the tax and his determination that rental or benefit payments are to begin. He may make the determination, put the tax into effect and use the money for open market or surplus buying, carrying on the benefit feature as a matter of form only. It seems perfectly clear that the generating event which calls this tax into being is a mental operation of the Secretary of Agriculture which is not a fact finding, but a pure exercise of discretion as to whether or not and to what extent or by what means it is advisable to carry out the general policy of the act.

 As indicative of the general intent of the act to delegate not only details but the essential taxing power itself, it may be noted that section 15, as amended, 7 USCA § 615, provides that if at any time the Secretary of Agriculture finds that any article of commerce is competing with any of the basic agricultural commodities so that consumer demand is shifting away from such commodities, he may omit the processing tax upon such commodity or he may impose by proclamation a ...


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