Petition for Writ of Certiorari — Emporium Capwell Co. v. Anglim

In the Came Gate

OF THE

United States

Ocrosrr TERM, 1943

934

Tue Emporrtum CapweLt Company

} (a corporation),

Petitioner,

vs. F

Currrorp C. ANGLIM,

Respondent.

ZA

PETITION FOR WRIT OF CERTIORARI

to the United States Circuit Court of Appeals

for the Ninth Circuit

AND SUPPORTING BRIEF.

M. C. Stross,

KE. D. Turner, JR.,

One Eleven Sutter, San Francisco, California,

Attorneys for Petitioner.

Stoss & Turner,

One Eleven Sutter, San Francisco, California,

Of Counsel.

PERNAU-WALSH PRINTING Co., SAN FRANCISCO, CALIFORNIA

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Subject Index

Petition for Writ Page

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SED ~ innan kn dew sds as dhdanaraacdunhebsansde ede even 3

I: TI anon 5 cece ve ceinwccnwtscsecannrsss sees 6

Reasons for Allowance of Writ..............-.. es eeeee- 7

Brief in Support of Petition

Point 1—The transfer was exempt from tax under Treasury

Regulations 71, Article GB(r). .. 2... 2. cc cccccsccccwcees 11

Point I—The transfer was also exempt from tax under

Treasury Regulations 71, Article 35(e)................- 15

ois Kahu bs DAG We eeON EN ESO ACR EI ONSA Wes ocd bO% 20

Appendix

i A I, nnn 6 ck Ch cen tne rtwerewenaeeeanees i

a Or I og nuk coundndenn +4000 eens aba gns onto a iii

United States Internal Revenue Code...................-. iv

Treasury Regulations 71, Article 35...................05. v

Table of Authorities Cited

Cases Pages

City Bank Farmers Trust Co. v. Hoey, 125 Fed. (2d) 577..

Emporium Capwell Company, The, v. Anglim, 48 Fed.

SE TI iin s vera nar divs v5.0 059 eo insdge rsh veneesese®

Emporium Capwell Company, The, v. Anglim, 140 Fed.

REEDS ares So eee eee eee ee

Helvering v. Reynolds Tobacco Co., 306 U. S. 110, 115....

Koppers Coal & Transportation Co. v. U. S., 107 Fed. (2d)

ae ee Cun CHET AWRR ORE ORES we NAL RNO

Mastin v. Mastin, 99 Fed. 435............. 6c eee eee ee ees

Niagara Hudson Power Co. v. Hoey, 117 Fed. (2d) 414...

State Street Trust Co. v. Hassett, 134 Fed. (2d) 156......

U. 8. v. Merchants Nat. Trust & Savings Bank, 101 Fed.

(2 Se Ler rrr er cr TT TT eee ert tated

U. S. v. Seattle First Nat. Bank, 136 Fed. (2d) 676... .7, 8, 12, 18

U. S. v. Seattle First Nat. Bank, decided March 27, 1944,

88 U. S. Supr. Ct. Law. Ed. Adv. Op. 593............-. 7

Weil v. U. S., 115 Fed. (2d) 999........... cc cee ee eeeeense 8

Statutes

Civil Code of California, Sec. 361(1).............-2.-0 ee 14

Civil Code of California, Sec. 361(5).............6200 008 14

Delaware Corp. Law, Sec. 59 (Revised Code of Del. 1935,

Chap. 65, §§2001, 2092). .... 2.2... cece cece cece ener eeee 4

National Banking Act, Sec. 3 (12 U.S. C. See. 34a)....... 13

Treasury Regulations 71, Art. 35, subd. (d).............. 18, 19

Treasury Regulations 71, Art. 35, subd. (e)...............

Leet SAE PP Pees Fre ee ee ee ee 2, 9, 15, 16, 17, 18, 19, 20

Treasury Regulations 71, Art. 35, subd. (r).............- 2, 7, 11

Treasury Regulations 71, Sec. 113.34.................405:

i Ee OE ee eee rire eee eee ences.

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In the Supreme Court

OF THE

United States

OcrosBer Term, 1943

No.

Ture Emvortum CapweLL Company §

(a corporation), |

Petitioner,

vs. >

Currrorp C. ANGLIM,

Respondent.

da

PETITION FOR WRIT OF CERTIORARI

to the United States Circuit Court of Appeals

for the Ninth Circuit

To the Honorable Harlan Fiske Stone, Chief Justice of

the United States, and to the Honorable Associate

Justices of the Supreme Court of the United States:

Your petitioner, The Emporium Capwell Company, a

California corporation, respectfully prays for a writ of

certiorari to the United States Circuit Court of Appeals

for the Ninth Cireuit to review a judgment entered in

the above-entitled cause on January 24, 1944, affirming a

judgment of the United States District Court for the

NEE Oa ee ee eT ee ee tee ee eee ———

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Northern District of California, Southern Division, en-

tered on January 15, 1943.

The action was brought by your petitioner in the Dis-

trict Court to recover the sum of $16,514.12 paid by your

petitioner to Clifford C. Anglim as Collector of Internal

Revenue at San Francisco, California, together with in-

terest. The sum in controversy had been assessed by the

Commissioner of Internal Revenue as a tax against the

plaintiff for an alleged documentary stamp tax on the

transfer in the course of, and as a part of, a statutory

merger, of 412,853 shares of the common stock of your

petitioner to the former shareholders of The Emporium

Capwell Corporation, a Delaware corporation, which had,

prior to the merger, owned and held said common shares

of your petitioner.

Your petitioner contends, as it contended in both courts

below, that the so-called transfer was exempt from taxa-

tion by reason of either or both of two regulations in

force at the time of the transaction in question, i.e., Regu-

lation 71, Article 35(r), as a transfer ‘‘wholly by opera-

tion of law’’, and Regulation 71, Article 35(e), as a

‘‘transfer of stock of a merged corporation in exchange

for stock of a merging corporation at the time, and as

97 2

part, of a statutory merger’.

*In the Appendix we include by quotation or summary the rele-

vant portions of the statutes of California and of Delaware provid-

ing for the merger of corporations, and of the applicable provisions

of — Internal Revenue Code and of the Treasury Regulations in-

volved.

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OPINIONS BELOW.

The opinion of the District Court is reported at 48 Fed.

Supp. 292. It also appears at R. 77.

The opinion of the Cireuit Court of Appeals is reported

at 140 Fed. (2d) 224. It also appears at R. 103.

JURISDICTION.

The decision of the Circuit Court of Appeals was ren-

dered on January 24, 1944 (R. 112). A petition for re-

hearing was seasonably filed on February 17, 1944, and

was denied on March 1, 1944 (R. 113; 137 Fed. (2d) 224).

The jurisdiction of this Court is invoked under Section

240(a) of the Judicial Code, as amended by the Act of

February 13, 1925 (U.S. C. A. Title 28, §347).

STATEMENT.

The facts, as found by the trial court (R. 84), are un-

disputed. Every material allegation of the complaint (R.

2) was either admitted by the answer (R. 69) or was

agreed upon by the written ‘‘Stipulation as to Certain

Facts’’ (R. 70).

Prior to, and at the time of the merger here involved,

plaintiff taxpayer, The Imporium Capwell Company

(hereinafter called ‘‘California corporation’’) was a cor-

poration organized under the laws of California.

The Emporium Capwell Corporation (hereinafter called

‘‘Delaware corporation’’) was a corporation organized

under the laws of Delaware.

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In 1939 the California corporation had outstanding, in

addition to issues of 7% preferred and 414% preference

stock, 412,853 shares of common stock without par value.

All of this common stock of California corporation was

owned and held by Delaware corporation, which had is-

sued and outstanding, in the hands of the public, 412,853

shares of its own capital stock without par value. The

California corporation (taxpayer and petitioner) and the

Delaware corporation, under date of September 20, 1939,

made and entered into an agreement of merger and took

the other steps provided in the laws of the respective

states of incorporation (Civil Code of California, $361;

Revised Code of Delaware 1935, Chapter 65, §§2091, 2092)

to accomplish a merger of the two corporations, to become

effective on the 31st day of January, 1940. The laws of

both states provided that in order to effect a merger an

agreement of merger must be approved by a majority

of the Board of Directors of each corporation and by at

least two-thirds of all of the stockholders of each. Under

each statute the merger becomes effective when the agree-

ment, accompanied by proper acknowledgments and cer-

tificates, is filed with the Secretary of State of each of

the states.

The agreement of merger (R. 8) provided that the two

corporations ‘‘shall merge and be merged into a single

corporation’’ (R. 11); ‘that said single corporation shall

be The Emporium :Capwell Company”’ (the California

corporation) (R. 11); that the merger ‘*shall operate to

extinguish all the issued capital stock of The Emporium

Capwell Corporation’’ (the Delaware corporation) ; that

‘the 412,853 shares of such stock held by holders other

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than The Emporium Capwell Corporation shall, by such

merger, be extinguished, and such merger shall effect the

transfer, from The Emporium Capwell Corporation to

the holders of the said 412,853 shares of its capital stock

proportionately, of all the issued and outstanding common

stock of The Emporium Capwell Company, being 412,853

shares without par value, all presently held by The Em-

porium Capwell Corporation’’ (R. 12). The agreement

goes on to provide (R. 13-14) that the mode of carrying

the terms and provisions of the merger into effect and

the manner and basis of converting the shares, ete. of The

Emporium Capwell Company shall be as follows:

**(a) After the merger herein provided for shall

have become effective, the outstanding shares of the

capital stock of The Emporium Capwell Corporation

will, by the terms of such merger hereinabove set

forth, have been extinguished, and each of the

holders of record of such shares (other than The

Emporium Capwell Corporation itself) will, by the

terms of such merger, have become the owner of a

like number of shares of the common stock of The

Emporium Capwell Company, transferred to such

holder from The Emporium Capwell Corporation.’’

On June 10, 1941 the Commissioner of Internal Revenue

assessed a tax of $16,514.12 against vour petitioner (Cali-

fornia corporation) and the respondent, as Collector,

made demand upon the California corporation for the

payment of said sum as a documentary stamp tax under

the Internal Revenue Code on the transfer of said 412,853

shares of the common stock of the California corporation

to the former shareholders of said Delaware corporation

as a part of the statutory merger (R. 6). In aeecordance

ee eT i hob ty See, APD Nae Sd

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with said demand, and to avoid further penalties for

non-payment, your petitioner, on June 14, 1941, paid said

sum of $16,514.12 to the respondent Collector (R. 6-7).

On July 2, 1941 your petitioner duly filed with the Com-

missioner of Internal Revenue a claim for refund of said

sum of $16,514.12; on the 12th day of November, 1941,

said Commissioner rejected said elaim and mailed to

petitioner a notice of the disallowance of said claim (R.

7). The present action was brought to recover said sum

claimed to have been illegally assessed and collected.

The Dietvict Court entered judgment that the plaintiff

take nothing and that the defendant have judgment for

costs (R. 89).

On appeal by the plaintiff, the Circuit Court of Ap-

peals entered judgment affirming the judgment of the

District Court (R. 112).

QUESTIONS PRESENTED.

Where a Delaware corporation and a California cor-

poration entered into a merger agreement under the stat-

utes of both states providing for such merger, and the

merger agreement, effective January 31, 1940, provided

that the Delaware corporation should, upon the merger,

cease to exist, and that the California corporation (tax-

payer) should survive, and further provided that the

merger should operate to extinguish all the capital stock

of the Delaware corporation (which owned all the com-

mon stock of the California corporation), and that, by

the merger, the prior owners of the capital stock of the

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Delaware corporation would become the owners of a like

number of shares of the common stock of the California

corporation:

1. Were the transfers of shares of common stock

of the California corporation to former holders of

the extinguished capital stock of the Delaware cor-

poration transfers which resulted ‘‘wholly by opera-

tion of law’’ and therefore exempt from transfer tax

under Regulation 71, Article 35, subdivision (r)?

2. Were the transfers of shares of the common

stock of the California corporation to former holders

of the extinguished capital stock of the Delaware

corporation ‘‘transfers cf the stock of the merged

corporation in exchange for stock of the merging

corporation at the time, and as a part, of a statutory

merger’’, and therefore exempt from transfer tax

under Regulation 71, Article 35, subdivision (e), in

effect at the time of the merger?

REASONS FOR ALLOWANCE OF WRIT.

1. In holding that the transfer was not exempt under

Reg. 71, Art. 35(r) as a transfer ‘‘wholly by operation

of law’’, the lower court rendered a decision in conflict

with its own earlier decisions! and in conflict with a later

decision of this Court.?

10. S. v. Merchants Nat. Trust & Savings Bank, 101 Fed. (2d) ‘

399; ‘

U. S. v. Seattle First Nat. Bank, 136 Fed. (2d) 676. :

2U. S. v. Seattle First Nat. Bank, decided March 27, 1944, 88 é

U. S. Supr. Ct., Law. Ed. Adv. Op. 593 (not yet officially Fi

reported). fe

Before the lower court decided this case, there had

been a divergence between the decisions in the Ninth Cir-

euit? and decisions in other Circuit Courts of Appeals.‘

Courts of Appeals in other Cireuits had interpreted the

words ‘‘wholly by operation of law’’ in subdivision (r)

as excluding from the exemption any transfer accom-

plished by a statutory merger or consolidation in which

the voluntary action of the two or more corporations in-

volved, or of their directors and stockholders, had played

any part. The court below had taken a contrary view in

the two cases decided by it. In the instant case, the court

below followed the views of the other Circuit Courts of

Appeals, departing from its earlier decisions in the Mer-

chants National etc. Bank and Seattle First National

Bank cases, and undertook to distinguish these cases on

grounds which, it is respectfully submitted, are untenable.

Even more important is the fact that, after the decision

of this case in the lower court, this Court, which had

granted certiorari in the Seattle First National Bank

case, decided that case on March 27, 1944,® and, in so

doing, interpreted subdivision (r) in a manner contrary

to the decisions in Circuits other than the Ninth, in ac-

cord with the earlier decisions of the Ninth Cireuit, and

contrary to the decision in the instant case, in which the

lower court had departed from its earlier holdings.

3See cases cited in note 1 supra.

4Koppers Coal & Transportaiion Co. v. U.S., 107 Fed. (2d) 706;

Weil v. U. S., 115 Fed. (2d) 999;

Niagara Hudson Power Co. v. Hoey, 117 Fed. (2d) 414;

City Bank Farmers Trust Co. v. Hoey, 125 Fed. (2d) 577;

State Street Trust Co. v. Hassett, 134 Fed. (2d) 156.

5Cited in note 2, supra.

The writ should be granted:

(a) Because of confusion in various decisions of

the different Cireuit Courts of Appeals and conflict

between decisions in the Circuit Court of Appeals

for the Ninth Cireuit and decisions of other Circuit

Courts of Appeals.

(b) Because of conflict between different decisions

of the Circuit Court of Appeals for the Ninth Circuit.

(c) Because the lower court has, in this case, de-

cided a question of federal law in a way in conflict

with an applicable decision of this Court.

2. In holding that the transfer was not exempt, under

Reg. 71, Art. SA, (e), a « tramefer of stock in exchange

for other stock af the time amd a» part of a statutory

merger, the lower com? hee deexded am unportant ques-

tion of federal law which hes met been, but should be,

settled by thes (lew :

Since the regulations have the foree of law, it is im-

portant te beth taxpayers amd the government that the

meaning amd effect of saeh regulations be correctly and

authoritatively determined

For reasons which will appear fully in the brief accom-

panying this petition, we submit that the lower court gave

Reg. 71, Art. 35, (e) an interpretation directly contrary

to its true meaning and effect.

Wherefore, your petitioner respectfully prays that a

writ of certiorari be issued out of and under the seal of

this Court directed to the United States Cirenit Court of

Appeals for the Ninth Circuit, commanding that court

to certify and to send to this Court for its review and

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determination, a full and complete transcript of the rec-

ord and of the proceedings of said court had in the case

numbered and entitled on its docket as No. 10,423, The

Emporium Capwell Company, 4 corporation, Appellant

v. Clifford C. Anglim, Appellee, to the end that said

cause may be reviewed and determined by this Court;

that the judgment of said Circuit Court of Appeals en-

tered January 24, 1944 be reversed by this Court, and

that petitioner be granted such other and further relief

as to this Court may seem proper.

Dated, San Francisco, California,

April 19, 1944.

M. C. Stross,

FE. D. Turner, Jr,

Attorneys for Petitioner.

Stoss & TurNER,

Of Counsel.