Plaintiffs Brief — Scudder v. Comptroller of NY

OHN H. SCUDDER /Administrator of the |

Deceased,

NEW YORK.

ad 3 Re ,

=

LIVINGSTON MIDOLEDITOM CO., 65-67 OUANE 6T., &. ¥. ? =

Supreme Court of the United States,

OCTOBER TERM, 1898. No. 276.

—_—_————

!

Joun H. Soupper, as Administrator of

the Estate of Jonn F. Houpayenr,

deceased, In Error to the

Plaintiff in Error, (

AGAINST

The Conrrotter oF THE CrTyY AND

County or New York.

4

Brief and Argument for Plaintiff in

Error.

Statement.

John F. Houdayer, a resident of the State of New

Jersey, died within said State on or about the 2ist day

of May, 1895. Said decedent (as appears by the affida-

vit herein-—-Transcript of Record, fols. 13-16—which

contains a statement of the facts upon which this case

was submitted to the Appraiser) left no property what-

ever within the State of New York, unless a deposit in

the Farmers’ Loan and Trust Company of the City of

New York, standing at the time of decedent’s death in

his name as Trustee under the last Will and Testament

of Edmund Husson, deceased, and to a portion of

which deposit it is admitted decedent was equitably

entitled individually, can be regarded as such prop-

erty.

Whether or no such deposit or such equitable right

to a portion of such deposit is ‘‘ property within the

rd

State of New York,” and subject to taxation under the

provisions of Chapter 399 of the Laws of 1892, of the

State of New York, entitled “ An Act relating to tax-

able transfers of property ” is the question at issue.

Such question was determined affirmatively by the

Appraiser appointed in the transfer tax proceedings,

and his report was confirmed by the Surrogate. The

decision of the Surrogate was reversed by the Appel-

late Division of the Supreme Court, which decision

was in turn reversed by the Court of Appeals of the

State of New York and the decision of the Surrogate

affirmed. To review such decision so affirmed a writ

of error to this Court has been allowed.

The statute in question so far as it affects this case,

is as follows :

* A tax shall be and is hereby imposed upon the

transfer of any property, real or personal, of the value

of five hundred dollars or over, or of any interest

therein or income therefrom, in trust or otherwise, to

persons or corporations not exempt by law from taxa-

tion on real or personal property in the following

cases ”’ ;

cc § 1. * * * * * *

“$2. When the transfer is by will or intestate law,

of property within the State, and the decedent was a

non-resident of the State at the time of his death.”

* * * * * *

§ 22. ‘* The words ‘estate’ and ‘ property ’ as used

in this article shall be taken to mean the property or

interest therein of the testator, intestate, grantor,

bargainor or vendor, passing or transferred to those

not herein specifically exempted from the provisions

of this article and not as the property or interest

therein passing or transferred to individual legatees,

devisees, heirs, next of kin, grantees, donees or vendees

and shall include all property or interest therein whether

situated within or without this State, over which the

State has any jurisdiction for the purpose of taxation.

The word ‘transfer’ as used in this article shall be taken

to include the passing of property or any interest

a

therein in possession or enjeyment, present or future,

by inheritance, descent, devise, bequest, grant, deed, bar-

gain, sale or gift, in the manner herein prescribed.”

Specification of Errors.

The errors assigned in support of this Writ may be

found at page 23 of the printed Record, and are as

follows:

First.—That the property in question being situated

in the State of New Jersey, of which State also the

decedent was a resident at the time of his decease, the

laws of the State of New York have no application

thereto, nor have the Courts of New York jurisdiction

thereof.

Sxcoxp.—That by the law as interpreted by the de-

cision and judgment herein, the Legislature of the State

of New York attempts to exercise jurisdiction beyond

the State and to affect contracts and rights of a citizen

of another State which are protected by the Constitu-

tion and Laws of the United States andthe judicial

power granted to its Courts, and violates and interferes

with the sovereignty of the State of New Jersey.

Tuirp.—That the act of the Legislature of the State

of New York herein referred to as applied to the facts

and circumstances of this case or the act done under the

authority of the State of New York here complained of

is unconstitutional and void as being repugnant to

Section 10 of Article I. of the Constitution of the

United States, in that it impairs the obligation of the

contract between a non-resident depositor and the Far.

mers’ Loan & Trust Company of New York.

Fourta.—That the said Act of the Legislature as

interpreted by the decision herein is repugnant to the

fifth amendment of the Constitution of the United

States, which provides that private property shall not

be taken for a public use without just compensation.

£

Firru.—That the said Act of the Legislature as in-

terpreted by the decision herein is repugnant to Sec. }

of the 14th Amendment of the Constitution of the

United States, by which States are forbidden to deprive

citizens of life, liberty or property without due process

of law.

5

POINTS.

First.

As to Jurisdiction.

The case is properly before this Court for

review under Section 25 of the Judiciary

Act of 1789. Uv. Ss. R. S., §709.

An analysis of the aforesaid Section of the Judiciary

Act will show that there are three classes of cases

which may be brought here thereunder. The case

under examination is included in the Second Class, as

the authority of the State of New York to impose a

tax is questioned.

It is, however, only to cases included in the third

class that the decisions in Oxley Stave Co. v. Butler

County, 166 U. S., 650, and other similar cases, to the

effect that the immunity claimed must appear upon

the record to have been specially set up, are appli-

cable.

As to the cases included in the second class, it is

now fully established that it is not essential that the

Federal question involved should be stated in totidem

verbis in the Record. As to such cases, it is sufficient

if the validity of a State Statute or an authority exer-

cised under a State is drawn in question and the de-

cision is in favor of its validity ; and if the Federal

question were necessarily involved in the case, and the

case could not have been determined without deciding

such question, the fact that it was not specially set up

and claimed is not conclusive against a review of said

question here.

Columbia Water Power Co. v. Co. Elec. S.

R. L. & P.Co., U.S. Sup. Ct., Jan. 9, 1899.

It is respectfully submitted that the sole question

herein is a Federal question—that nothing else was to

be determined 2nd that that must have been deter-

mined.

In the affidavit upon which the matter was orig.

inally submitted to the Appraiser, it is stated that the

property in question was not “subject to taxation ”

(Transcript of Record, fol, 15). In the notice of

appeal to the Surrogate from the decision of the

Appraiser (Transcript of Record, fol. 20), it is stated

that the ground for the appeal is that the « deposit. in

question was a chose in action belonging to a non-

resident decedent, and not property within this State

subject to taxation. * * * That the situs of the

claim of decedent to such deposit was at the domicile

of the decedent and not at the domicile of such de-

positary, and such property being the property of a

non-resident decedent, and situated out of this State,

the same does not fall within the purview of said

Act.”’

Further, in the opinion of the Appellate Division re-

versing said Order of the Surrogate, it is stated

(Transcript of Record, fol. 29) “Thus the Act is in

harmony with the authorities which hold that the

power of taxation of the State is limited to persons,

property, and business within her jurisdiction (Foreign

Bond Case, 15 Wall., 300). This jurisdiction however

ts not what the State may choose to assert, but what, as

a matter of fuct it possesses ;” and after discussing the

question of jurisdiction, the Court concludes (Transcript

of Record, fols. 29-30) “Thus clearly this State has no

jurisdiction for the purposes of taxation over the right

of action here possessed by the decedent. It asserted

no such jurisdiction in the Act in question, nor could

tt have donesu * * * * The State cannot create a

liability in its own favor against the non-resident cred-

itor by the mere exercise of Jurisdiction over the resident

debtor.”

The opinion of the Court of Appeals refers to the

opinion of the Appellate Division of the Supreme Court

(Transcript of Record, fols. 50-51) in such a manner as

to show conclusively that the same question was con-

sidered by the latter Court.

The record herein therefore clearly shows that the

only substantial question raised and the only point

Tt

passed upon by the various Courts and finally decided

adversely to the contention of the plaintiff in error was

whether, under the given state of facts the Courts or

the Legislature of the State of New York had any

jurisdiction whatever. If the State of New York had

jurisdiction it is conceded by the plaintiff in error that

no writ will lie to this Court ; but it is maintained that

in order to arrive at a proper conclusion as to the juris-

diction of this Court, the question must first be deter-

mined upon its merits as the jurisdiction of the State

of New York is involved.

The point which was actually determined by the

Court of Appeals was that the situs of the chose in ac-

tion in question was in the State of New York. This

decision was equivalent to deciding that the State

Court and the Legislature of the State had jurisdiction

of the property taxed.

This question of jurisdiction was the one point

involved in the whole proceeding; and the fact

that a State Court in a proceeding of this char-

acter decides that it has jurisdiction of the person,

property or business of a resident of another State, if,

as a matter of fact, it has not jurisdiction, necessarily

injuriously affects the rights of a citizen of such other

State which are protected by the Constitution of the

United States. This follows because taxation under

such an authority is without ‘due process of law,”’

and a violation of the 14th Amendment of the Consti-

tution-of the United States, since there can be no due

process of law unless jurisdiction has been acquired.

As was said by Mr. Justice Field in the case of Glou-

cester Ferry Co. v. Penn., 114 U.S., at p. 208, quot-

ing approvingly from the decision in the case of St.

Louis v. The Ferry Co., 11 Wall., 423:

‘* When there is jurisdiction neither as to person nor

property the imposition of a tax would be wltra vires

and void. If the Legislature of a State should enact

that the citizens of another State or country should be

taxed in the same manner as the persons and property

within its own limits and subject to its authority, or in

any other manner whatsoever, such a law would be as

much a nullity as if in conflict with the most explicit

Constitutional inhibition. Jurisdiction is as necessary

to valid legislative as to valid judicial action.”

See also Story Conflict of Laws, Sec. 20 and 39

Hares’ Amer. Con. Law, p. 317.

McCullough v. Maryland, 4 Wheat., at p- 429.

But, it may be contended, granting that which has

been said and assuming that a Federal question is in-

volved, nevertheless the record does not show that that

question was raised in the State Courts. The answer

to that is that the question of jurisdiction over a citizen

of another State or over property located in another

State, for the purpose of taxation, was clearly raised.

This necessarily involved a Federal question, becausé

the imposition of a tax upon a citizen of another State

in the absence of jurisdiction over his person, property

or business, was clearly an interference with the

sovereignty of such State and an impairment

of the rights of a citizen thereof which are

protected by the Constitution of the United

States. That the State Courts so understood it is

manifest by the opinions of said Courts which are a

part of the record herein. From this point of view,

the jurisdiction of this Court depends upon the inter-

pretation of the language in the record hereinbefore

quoted, and the case of Dobbins v. The Commisicners

of Erie County, 41 U. S., 436, is directly in point and

conclusive as to the propriety of this Court taking

jurisdiction herein. The opinion of the Court de-

livered by Mr. Justice Wayne and embodying the

facts of that case is as follows:

“This cause has been brought to this Court bya

writ of error to the Supreme Court of Pennsylvania.

That Court reversed the judgment of the Court of

Common Pleas of Erie County which it had given in

favor of the plaintiff (now in error) upon an agreed

statement of facts in the nature of a special verdict.”

It was agreed and admitted that the plaintiff has his

residence and domicile at Erie. Erie County, Pa., and

9

votes in suid place ; that he has been for the last eight.

years an officer of the United States, a Captain of the

United States Revenue Cutter Service, and ever since

his appointment has been in active service in command

of the Revenue Cutter Erie, on the Erie station. That

he has been rated and assessed with county taxes for

the last three years, 1835, 1836 and 1837, as such

officer of the United States, for his office, as such,

valued at five hundred dollars; which taxes paid by

the plaintiff amount to the sum of $10.75. The ques-

tion submitted to the Court is whether the plaintiff is

liable to be rated and assessed for his cffice under the

United States for county taxes and levies? If he is,

then judgment shall be entered for the defendants ; if

not, then judgment shall be entered for the plaintiff

for the sum of $10.75.”

‘This is the only question submitted upon the

record. We think it sufficiently appears to give the

Court jurisdiction that the Supreme Court in reversing

the judgment of the Court of Common Pleas and in

giving judgment against the plaintiff, decided in favor

of the validity of a law of Pennsylvania, subjecting the

plaintiff to be rated and assessed for his office under

the United States for county rates and levies; the

validity of which law was in question on the ground of

its being repugnant to the Constitution and Laws of

the United States.”

In the case under examination the record as clearly

shows that an authority exercised under a State is

questioned upon similar grounds.

The case of Murray v. Charleston, 96 U. S., 482, is

also directly in point and sustains the position of the

plaintiff in error.

If jurisdiction is wanting it follows as a self-evident

proposition (Foreign Held Bond Case, 15 Wall,. p. 320)

that the taxing power cannot be legitimately exercised.

If it is exercised upon a citizen of another State it must

manifestly be in violation of the sovereignty of such

other State and of rights of the citizen thereof which

are guaranteed by the Constitution of the United

10

‘States, and must, in the case under examination, im.

pair the obligation of the contract between the bank

and its non-resident creditor (Cooley-Cons. Lim., 6th

Ed., p. 597; Hares’ Amer. Cons. Law, p. 319).

It follows that the record shows that there was

drawn in question an authority exercised under a State

on the ground of its being repugnant to the Constitu-

tion and laws of the United States.

SECOND.

On the Merits.

I,

Assuming that the case is properly be-

fore this Court, the single question to be

determined is whether the interest of de-

cedent in the deposit in question consti-

tuted property located within the State of

New York.

That the interest of decedent in the deposit in ques-

tion did not constitute property located within the

State of New York, would seem to follow as a neces-

sary corollary of the following propositions, which are

well established :

(4.) The relation of a bank to its depositor is that of

debtor and creditor.

Marine Bank ». Fulton Bank, 2 Wall.,

252.

Bank of Republic ». Millard, 10 Wall., 159.

Phoenix Bank », Risley, 111 U, S., 197.

United States », Wardwell, 172 U. S., 55.

(6.) The situs of a debt for the purpose of taxation is

il

the domicile of the creditor and not that of the

debtor.

No. Central R. R. Co. v. Jackson, 7 Wall.,

262.

Cleveland P. & A. R. R. Co, v. Pa., 15

Wall., 300.

Murray v. Charleston, 96 U. S., 482.

Savings Society v. Multnomah Co., 169 U. S.,

431.

The foregoing propositions are established by a long

line of decisions of this Court, and it is not easy to see

how the chose in action in question may be taxed by

the State of New York without overturning the law

of the United States, as it has been settled for many

years.

The majority opinion of the Court of Appeals

criticises the unanimous opinion of the Appellate Divi-

sion of the Supreme Court because “‘ it enables a large

sum of money invested and left inthe State of New

York and enjoying the protection of its laws, to es-

cape taxation therein,” and as a reason for such taxa-

tion relies upon the fact that the act of the Legislature

prescribed that all property or interest in property

within the State susceptible of ownership should be sub-

ject to a transfer tax upon the death of its owner,

whether he was a resident or non-resident.

Transcript of Record (fol. 51).

Any argument based upon the foregoing statement

begs the question, as the contention is that the prop-

erty was not situated in the State of New York. More-

over, the Court apparently ignores the fact that the de-

posit became the property of the bank ; that the pro-

tection extended was for the benefit of the bank, and

not of the depositor, and that the bank was presumably

taxed for the benefit of such protection. If the

amount of the deposit had been lost or stolen the bank

and not the depositor would have been the sufferer.

The prevailing opinion admits that the relation of

12

-creditor and debtor existed (fol. 52) but states that the

creditor could come and get his money when he wanted

it, and that the deposit was subject to the attachment

of creditors. It further states that in order

to enforce his rights as creditor it was ne

‘cessary for him to come into the ° State of

New York (fol. 52). The Court seems to have mis-

apprehended the situation in this respect, as the de.

positor obviously, upon the refusal of the Bank to pay

the entire balance remaining on deposit without deduc-

tion of the amount of the tax, could have returned to

the State of New Jersey and have there sued and re-

covered judgment for the amount of his claim and

could have there collected the same, prc vided he could

have there found property belonging to the debtor

subject to attachment and execution. Moreover, he

might have brought suit in the courts of the United

States, where his rights would have been amply pro-

tected, and in no sense was he rest: icted to the courts

of the State of New York for an enforcement of his

rights.

Mr. Justice Barrett in the opinion of the Appellate

Division of the Supreme Court clearly distinguishes the

jurisdiction necessary to enforce the remedy of attach-

ment from that necessary for the purposes of taxa-

tion, and any argument based upon a similarity be

tween these powers is clearly erroneous. He says

(Transcript of Record, fol. 30) :

‘‘The debtor is not the debt, and jurisdiction

over the debtor is not, for the purposes of taxa-

tion, jurisdiction over his obligation. There is

jurisdiction to attach, but not to tax, the debt.

The right to attach proceeds upon the jurisdiction

over the resident debtor. There is jurisdiction to

compel such debtor to pay what he owes his cred-

itor to the latter’s creditor. In that case the at-

tachment does not create the obligation. It en-

forces it. The tax, however, creates the liability,

and also enforces it. That can only be done when

the person or the property of the creditor is with-

18

in the jurisdiction. The State cannot create a

liability in its own favor against the non-resident

creditor by the mere exercise of jurisdiction over

the resident debtor. J¢ can enforce an ewisting

liability, but it cannot create one.”

Moreover, the very point here asserted, viz.: That a

general deposit ina Bank constitutes a debt and is..

taxable only at the domcile of the creditor is clearly

established in the case of San Francisco v. Mackey, 22°

Fed. Rep., 603, where the Court says:

‘‘ No particular number of coins can be set down.

as belonging to any depositor. The general de-

positary hasa right to mingle che money with

other moneys; use the surplus moneys deposited

as his own and at his own discretion. The deposit.

is not special, it is simply an open money account.

The depositor is only entitled to so much money in

amount and to no particular money, which may

or may not be paid when his cheque is presented

according to the ability and will of the bank with

which it is deposited. The depositor isin law

only a creditor to the amount of the balance held

by and due from the bank or banker on an open

account. He could not replevy or recover posses-

sion of any particular money. The only way to

enforce payment would be to bring a suit for any

balance due as on any other open account for goods

sold and delivered. [t is but a chose in action.

Under the authorities cited, independent of statu-

tory provisions to the contrary, such credits have

no situs for taxation against the creditor apart

from the person of the depositor.’’

The cases relied upon by the Respondent as author-

ity for the proposition that the property in question is

taxable in the State of New York relate to tangible

property, or at most to intangible property represented

by tangible securities within the State. As to intan-

¥4

gible property such as the chose in action in question,

the authorities are all in harmony that they are taxo-

ble otlly at the domicile of the owner.

II.

The transfer or inheritance tax acts of most of the

various States of the Union which have adopted such

system, are of comparatively recent origin, and the

principles controlling the levy and collection of such

taxes are different and in some cases conflicting. It

should be the policy of the Courts to so construe the

laws as to avoid, if possible, the objectionable result of

double taxation. This result necessarily follows, in

many cases in this country, from the Federal form of

Government, and from the fact that many decedents

leave tangible personal property in States other than

that of their domicile, In such cases no doubt seems

to exist as to the validity of a tax enforceable in both

States. The result of double taxation, however, should

not be unnecessarily extended, as it is obviously a hard-

ship.

Similar tax laws have existed in England for more

than acentury, and theCourts of that country struggled

for many years with the problems at present engaging

the attention of our jurists. It is now established in Eng-

land that the tax is payable if the English law gov-

erns the succession ; otherwise the tax is not payable

even if the property is located in England. It has

been found that this conclusion aids materially the

interests of justice and leads to satisfactory results.

Am. & Eng. En. of Law, Vol. 24, p. 454.

While it may be that the conflicting interests of the

Sovereign States of the Union may prevent the adop-

tion of a similar theory in this country, yet it should

be the policy of this Court to aid substantial justice by

preventing double taxation of citizens of the Union

where it is possible so to do.

15

THIRD.

The order of the Court of Appeals re-

versing the order of the Appellate Divis-

ion, should be reversed and the order of

the Appellate Division reversing the order

of the Surrogate confirming the order of

the Appraiser should be affirmed.

J. CULBERT PALMER,

Of Counsel for Plaintiff in Error.