# Opposition Brief — United States Graphite Co. v. Sawyer > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386416_2527%3A3 ## Record - **Collection:** Supreme Court brief - **Document type:** Opposition Brief - **Published:** January 1, 1950 - **Citation:** 339 U.S. 904 ## Text E t INDEX Page RT en ee ene eer er emer ey y 1 te os ya nn es | ne le eee or ee ee 1 FE PTT DOT ET piaaearte ee 2 Statute and regulations involved . Pe Ue eR 3 AN Be ney ele stances Eee Ue Fe nee 3 SE Fa eer Ee ar a hee ee Op 13 RT deals eek dg Sin ru here ee tek Wa AO we 21 ep Skid kim once ox eee ee Led eae ete eid ek es 23 CITATIONS Cases : mene ¥, Nagle, B00 VU. B. GIG. 65s cee ees 14, 16 Alaska Smokeless Coal Co. v. Lane, 250 U. S. 549 Mises 14 American Twist Drill Co., 11 T. C. 200................ 21 Carrick v. Lamar, 116 U. i RS eee Wee ae 14 Decatur v. Paulding, 14 Pet. 497................... 14, 15, 22 Duncan Townsite Co. v. Lane, 245 U.S. 308............ 22 First Securities Corp. v. oe ade 103 F. 2d 1011 22 Gaines v. Thompson, 7 Wall. 347. te re 14 ne Vs POU, GIO Wi. De BOR, . 6c oc re cs eee ias cues 14,15 Heiner v. Diamond Alkali Co., 288 U. S. 502........... 22 Helvering v. Inter-Mountain Life Ins. Co., 294 U. S. rs ee ME ad he eo eae bos VERS Be bo 28 22 Hurley v. Kincaid, 285 U. 8. 95...................... 21 I.C.C. v. New York, N. H. & H. R. Co., 287 U. 8.178... 14 James F. Waters, Inc. v. Commissioner, 160 F. 2d 596... 22 Litchfield v. Register and Receiver, 9 Wall. 575......... 14 Miguel v. McCarl, 291 U. 8. 442....... ih ok Pe ae oe 14 ee SPUN) GED Wy Oe ss se es oe cere eee ne vee 14,15 New Colonial Ice Co. v. Helvering, 292 U. S. 435........ 22 Riverside Oil Co. v. Hitchcock, 190 U.S. 316......... 14, 16 United States v. Milnor Corp., 85 F. Supp. 931. 21 United States ex rel. Chicago Gt. Western R. R. v. ‘< C. C., ES a ae ee 14 United States ex rel. Girard Co. v. Helvering, 301 U. S ASIN a A 14 Warner Valley Stock Co. v. Smith, 165 U. S. 28........ 14 Welch v. Obipso Oil Co., 301 U. S.190................ 22 West v. Hitchcock, 205 U.S. 80....................... 14 Wilbur v. United States, 281 U.S. 206................. 14 Williamsport Co. v. United States, 277 U.S. 551........ 22 SS og SS er rrr rer 14, 15, 16 (1) Il Statutes: Page Administrative Procedure Act, 5 U.S.C. 1011.......... 10 Internal Revenue Code, 54 Stat. 998, as amended, 26 U.S.C. 124: en aah ue tee ok att ae 5, 16 RR on ald evi Wia Vb eh tee kein dees 5, 23 REAR SERES Scat BOHR Ot eee me 6, 18, 23 SS rk oan ky laa Slee 8 swe « Op 1 4 RE 0G Oa ot aan rn eles ics se 34605 25 Joint Resolution of October 30, 1941, 55 Stat. 757...... 5 Second War Powers Act, 50 U.S.C. App. 631........... 12 Miscellaneous: Army-Navy Regulations, 7 F. R. 4233, as amended Octo- ee se vic vk pp od oo ve PR RA 7, 25 Regulations of the War Production Board, December 17, iP hss doy «aie oo eh ed 94 8, 27 Amended Regulations of the War Production Board of po eS ee 8, 28 Executive Orders: Wee Ge © rr OE gc cee dase ves eeee a hes 12 a av enews races eeesas 12 No. 9406, December 17, 1943, 8 F. R. 16955. ....... 3, 8, 26 No. 9429, March 2, 1944, 9 F. R. 2487............. 8, 27 No. 9638, October 4, 1945, 10 F. R. 12591......... 3,12 No. 9809, December 12, 1946, 11 F. R. 14281....... 3 No. 9841, April 23, 1947, 12 F. R. 2645............ 3 Proclamation No. 2669, 10 F. R. 12475................ 10 Treasury Regulation No. 111, Section 29.1246 ........ 17 ee — Gnthe Supreme Court of the Gnited States OcToBER TERM, 1949 No. 532 THE UNITED STATES GRAPHITE COMPANY, PETI- TIONER Vv. CHARLES SAWYER, SECRETARY OF COMMERCE ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE DIS- TRICT OF COLUMBIA CIRCUIT BRIEF FOR THE RESPONDENT IN OPPOSITION OPINIONS BELOW The opinion of the United States District Court for the District of Columbia (R. 87-92) is reported at 71 F. Supp. 944. The per curiam opinion of the United States Court of Appeals for the District of Columbia Circuit, affirming the opinion below (R. 105), is reported at 176 F. 2d 868. JURISDICTION The judgment of the Court of Appeals was entered on February 28, 1949 (R. 111). A peti- (1) enn 2 tion for rehearing in banc, filed on March 11, 1949 (R. 112), was denied on October 13, 1949 (R. 122). The petition for writ of certiorari was filed on January 9, 1950. The jurisdiction of this Court is invoked under 28 U.S.C. 1254. QUESTION PRESENTED On October 8, 1940, Congress enacted Section 124 of the Internal Revenue Code which provides that taxpayers who build emergency facilities cer- tified by the Secretaries of War or the Navy as essential to the expansion of the nation’s rearma- ment program may elect to deduct amortization of the cost of those facilities as a federal tax de- duction over five years. On May 9, 1944, peti- tioner applied to the War Production Board, as successor to the Secretaries of War and the Navy, for a necessity certificate covering machinery al- ready acquired and to be thereafter acquired. On July 17, 1944, the War Production Board, acting in accordance with policies set forth in pertinent Executive Orders and Regulations promulgated under Section 124, declined certification of ma- chinery acquired prior to that date and granted certification of 35 per cent of the cost of machinery thereafter to be acquired. In this proceeding, petitioner seeks mandatory orders to compel re- spondent, as suecessor to the War Production Board,’ to certify 100 per cent of the cost of the 1 Respondent’s predecessors were, in the order named, as follows: Temporary Controls Administrator, Civilian Produc- tion Administrator, Chairman of the War Production Board. —_— machinery denied certification and 100 per cent of the cost of the machinery which was certified as to 35 per cent of its cost. The question pre- sented is whether both courts below erred in re- fusing to compel a different treatment of peti- tioner’s application by the issuance of mandatory orders. STATUTE AND REGULATIONS INVOLVED Section 124 of the Internal Revenue Code, 26 U.S.C. 124, and the Executive Orders and Regula- tions issued thereunder are set forth in pertinent part in the Appendix, infra, pp. 23-29. STATEMENT On July 17, 1944, the War Production Board, pursuant to Executive Orders and to its Regula- tions (Appendix, infra, pp. 26-29), promulgated under Section 124 of the Internal Revenue Code, issued to petitioner a percentage necessity cer- tificate authorizing the amortization of 35 per cent of the cost of certain facilities, thereafter to be acquired, as a tax deduction over a period of five years (R. 17). Certification was denied facilities acquired by petitioner prior to July 17, 1944 (R. 35). This action, brought on Septem- ber 9, 1946, attacks the validity of the Executive “Orders and Regulations and prays that respondent be ordered to issue necessity certificates for 100 per cent of the cost of all facilities procured be- (Executive Order 9841, April 23, 1947, 12 F. R. 2645; Execu- tive Order 9809, December 12, 1946, 11 F. R. 14281; Executive Order 9638, October 4, 1945, 10 F. R. 12591; Executive Order 9406, December 17, 1943, 8 F. R. 16955.) eee een a 4 tween December 28, 1943, and December 15, 1944. In opposition to this application for mandamus, respondent filed motions to dismiss and for sum- mary judgment (R. 41, 87), supported by the affidavit of Sidney T. Thomas, Chief of the Tax Amortization Branch, Civilian Production Ad- ministration (R. 41-52).2,- On June 27, 1947, the District Court for the District of Columbia granted respondent’s motion for summary judg- ment on the ground that respondent’s construction of Section 124 was reasonable and could not be set aside in this action for mandamus (R. 91-92). A majority of the Court of Appeals for the District of Columbia Circuit (Edgerton and Clark, JJ.) affirmed per curiam on the opinion below, with Judge Wilbur K. Miller dissenting, on February 28, 1949 (R. 111). A petition for rehearing in banc was denied on October 13, 1949 (R. 122). A brief summary of the purposes and adminis- tration of Section 124 is necessary for an under- standing of the issues raised herein. At the be- ginning of the war emergency in 1940, the officials in charge were faced with the problem of financ- ing the additional production capacity which was critical to the rearmament program. Two alter- natives were available—government ownership of 2 Mr. Thomas was, during the period here involved, Acting Chief of the Tax Amortization Branch, War Production Board. The substance of the affidavit is derived in part from a report, dated February 15, 1945, by the then Under Secretary of War, Robert P. Patterson, to the Secretary of War on the adminis- tration of Section 124 (R. 52-79). — the expanded facilities,’ or private financing. As to the second source of capital ‘‘for part of the needed expansion’’ (R. 53), it was found that in- dustry was reluctant to risk capital in a program of plant expansion and conversion which might not be operative long enough to repay the cost of facilities having limited use if the usual rate of amortization for taxation were employed (R. 42). To overcome this obstacle, Congress, on Octo- ber 8, 1940, enacted Section 124 of the Internal Revenue Code as part of the Second Revenue Act of 1940. 54 Stat. 998. Section 124 estimated the probable duration of the emergency at five years, and allowed taxpayers, who built emergency facili- ties certified as essential by the Secretaries of War or the Navy,‘ the election of deducting amortiza- tion of the adjusted basis of an emergency facility over a period of sixty months. Section 124(a). Certification was to be under regulations pre- scribed by the Secretaries of War and the Navy with the approval of the President. Section 124(f)(1). The amortization period could be 5 *The Government, acting through Reconstruction Finance Corporation and Defense Plants Corporation, constructed and owned many emergency facilities. In other instances, con- tracts were executed which provided that the taxpayer would expend its own funds for the construction of new facilities and would be reimbursed by the Government over a period of sixty months, title being transferred to the Government at the termination of the contract. *As enacted, certification was to be made jointly by the National Defense Advisory Commission and the Secretaries of War or the Navy. The Commission’s certifying authority Mond —_n by Joint Resolution of October 30, 1941, 55 at. 757, So terminated by Presidential proclamation of the end of the emergency, or by certification by the Secretaries of War or the Navy to the Commis- sioner of Internal Revenue that an emergency facility ceased to be necessary in the interest of national defense. Section 124(d) (1). A detailed description of the successful adminis- tration of Section 124 as part of the plant ex- pansion program is set forth in the Thomas affidavit and Patterson report (R. 41-79). Facili- ties valued at approximately five billion dollars were certified under Army and Navy administra- tion (R. 75-76). For the purpose of this proceed- ing, it is only important to note the changes in policy and application made necessary by develop- ments in rearmament needs. By the Spring of 1943, it had become apparent that the chief limit- ing factor in war production no longer was plant capacity but materials and manpower. Maximum war production now required, not an encourage- ment of facility expansion, but a curbing of it. Up to that time, almost as much effort had heen devoted to the construction of necessary facilities as to the actual production of arms and munitions. (R. 72-73). Concluding that ‘‘the need for amortization as an inducement to the private financing of such facilities had come practically to an end’’ (R. 77). the War Department, on June 25, 1943, requested the advice of the Office of War Mobilization. After full consideration, the Director of War ——— 7 Mobilization directed the War and Navy Depart- ments to discontinue certification but suggested that the issuance of certificates for facilities for military or naval supply might still be authorized in exceptional and limited cases where the need had been determined before expansion (R. 74). Accordingly, an amendment to the Regulations was approved by the President on October 5, 194° (8 F. R. 13824).° It provided that, with the excep- tion of facilities contracted for before the date of the amendment, no facility could be considered for certification unless the certificate was issued he- fore the facility was acquired. Appendix, infra, p. 25. It also provided that further certifica- tion would be made only in cases of a shortage of facilities or supplies required for military or naval uses, and then only after consideration of the relative advantages of government financing and private financing with amortization (R. 74; Appendix, infra, p. 26). Simultaneously, the technical services of the War Department were advised that, where additional facilities were re- quired and private companies which could pro- vide them were unwilling to finance them without amortization, arrangements should be made for government financing (R. 74). The “* * * clear intention was to obtain substantial termina- tion of the issuance of certificates’’ (R. 46). 5 It should be noted that, contrary to petitioner’s statements (Pet. 6, 27), this change in policy, and the issuance of regula- tions which embodied it, antedated the transfer of the certifica- tion function to the War Production Board. 8 This basic change in the administration of Sec- tion 124 was widely publicized, appeared in the Federal Register, and copies of the amendment to the regulations were sent to all taxpayers who had previously filed applications, including petitioner (R. 46; and see fns. 7, 10, infra, pp. 9, 12). On December 17, 1943, the power to issue neces- sity certificates in all future cases was transferred by Executive Order 9406 (8 F. R. 16955) from the Secretaries of War and the Navy to the Chair- man of the War Production Board. See R. 73-75. On the same date, the President approved regula- tions prescribed by the Chairman of the War Pro- duction Board which, in so far as the issues herein are concerned, were the same as the above-de- scribed Army-Navy regulations issued on Octo- bed 5, 1943 (R. 46-47; Appendix, infra, p. 27; 8 F. R. 16964). Both Executive Order and Regu- lations specified that necessity certificates should not be issued unless the Chairman of the War Production Board determined prior to the be- ginning of construction or date of acquisition (1) that the facilities are clearly necessary for the war effort, and (2) that it is to the advantage of the Government that the facilities be privately financed (R. 46-47).° Thus, the decision on which the issuance of a necessity certificate was based required considera- ® These principles were repeated in Executive Order 9429 (9 F. R. 2487) on March 2, 1944, and in the Amended Regula- tions of the War Production Board of March 2, 1944 (9 F. R. 2492) (Appendix, infra, pp. 27-29). tion of complex factors. More careful recogni- tion of the relative advantage of public ownershi p and private financing under Section 124, now made possible by achieved plant expansion, was required by the ever increasing impact of the amortization privilege on the revenue structure (R. 45). Amortization, an abnormal tax deduc- tion, involved a loss of revenue to the Government which, in the case of companies in the higher tax brackets, might amount to 81% of the cost of the facilities (R. 80, 85). And if the facilities con- cerned could reasonably be considered useful after the war to the applicant in his regular business, or to anyone else, the Government, if it financed the facilities, would be able to recoup a part of its cost by sale or other disposition after the war (R. 48). To implement the Presidential directive that necessity certificates would thereafter be issued only where it was to the advantage of the Govern- ment that the facilities in question be privately financed, a memorandum was prepared by the Tax Amortization Branch, War Production Board on February 9, 1944, to control processing of applica- tions." The memorandum advised that (R. 80): 9 * * * * * In determining whether it is to the ad- vantage of the Government that the facilities 7 As shown above, pp. 7-8, the Executive Orders and regula- tions issued pursuant thereto, here in issue, were duly pub- lished in the Federal Register. Memoranda and circulars 10 be privately financed, consideration must be given to the probable marketability or useful value of the facility after the war. It is recognized that there is no way by which post- war value can be definitely determined at this time. Any facility which will not have a reasonably wide market may be assumed to to have relatively little post-war sales value, and therefore, it would be to the best interest of the Government that it be privately financed. On the other hand, if a facility ap- pears to be of such a type that it would have a reasonably wide market after the war, it may generally be assumed that, provided the DPC or other government agency is willing to purchase it, it would be to the advantage of the Government that it be publicly rather than privately financed with a 100 percent certificate. It may still be advantageous to the Government to have private financing under a certificate if a percentage certificate were issued, such percentage being based, for ex- ample, on excess cost attributable to the war.’ * * * * * issued for the guidance of Government officials in processing applications for the amortization privilege under Section 124 were, of course, matters of internal management and Federal Register publication was not required. It should be noted that the amortization program under Section 124 was termi- nated, on September 29, 1945, prior to the effective date of the Administrative Procedure Act, 5 U.S.C. 1011. See Proclamation No. 2669, 10 F. R. 12475. 8A circular dated March 8, 1944, approved by J. A. Krug, then Vice-Chairman of the War Production Board, set forth, the following criteria for preparation of recommendations for necessity certificates (R. 84): * * * * * .02 In the event that amortization should be allowed, a 11 After surveys of current and pre-war costs of many types of facilities, the basic standard for partial certification was fixed at 35 per cent of eurrent costs. Departure from this figure, when justified by evidence, was authorized and partial certification in fact ranged from 20 per cent to 80 per cent (R. 49, 51).° On May 29, 1944, after the foregoing principles had been established, petitioner applied to the War Production Board for a necessity certificate determination as to whether it should be 100% or partial should be made as follows: 1. One hundred percent certificate will be given only when facilities to be amortized are wholly designed to manufacture end product exclusively for war purposes or for essential civilian use, and it is not reasonable to assume that they may be useful after the war. 2. Partial certificate representing excess construction or acquisition costs over pre-war costs will be given when facilities to be amortized are wholly designed to manu- facture end product exclusively for war purposes or for essential civilian use and it is reasonable to assume that they may be useful after the war. 3. Partial certificate will be given in appropriate per- centages under certain other circumstances of an erdinery €x T° nature. The following are examples: a. When part of the facilities are appropriate for government financing and part for a 100% certificate, a percentage certificate may be issued for the entire project at a percentage which will result in same amount of tax amortization that would have been allowed had the individual items been considered separately. * * * * * * These general principles and policies were applied to 11,435 applications for necessity certificates by the War Production Board. Of these, 2,074 were approved, 4,268 were denied in part, 3,671 were totally denied, and 1,422 were withdrawn. In approximate dollar value, the total amount covered by applica- tions for certificates was $1,498,730,000. Of this amount, Tee was approved and $797,5€7,000 was denied . 51). 12 for facilities for its new plant.’® At various dates from October 21, 1943, to December 16, 1943, priorities had been granted by the War Produc- tion Board for the purchase of such facilitie.,” and acquisition and installation had began on December 28, 1943. Procurement of the facilities was completed on December 15, 1944 (R. 13). On July 17, 1944, the War Production Board sent to petitioner a ‘‘ Letter of Predetermination”’ which stated, in accordance with the Executive Orders and Regulations, that facilities acquired subsequent to the date of the letter were eligible for tax amortization on a 35 per cent basis (R. 35). After petitioner filed an affidavit showing 10 Tn 1943, demand for Graphitar, a graphite product manu- factured by petitioner for use in the fabrication of marine and aircraft engines, began to exceed the capacity of petitioner's plant and plans were made to more than double the plant capacity (R. 7). On June 27, 1943, petitioner filed an applica- tion under Section 124 with the Secretary of War for a neces- sity certificate for the cost of a new plant. On October 28, 1943, the Secretary of War issued a necessity certificate for 100 per cent of the cost of the plant (R. 11). A priority was granted on October 29, 1943, and petitioner began construc- tion (R. 10). The priority issued to petitioner was AA-3, but there were several priorities higher than this on the preference scale. It should be noted in this connection that the granting of priorities called for different considerations and for the applica- tion of different standards than those entering into the is- suance of necessity certificates. The power to grant priorities was derived from an entirely separate law, the Second War Powers Act (50 U.S.C. App. 631), and was administered under different Executive Orders—No. 9040 (7 F. R. 527); No. 9125 (7 F. R. 2719); No. 9638 (10 F. R. 12591). The issuance of a priority was in no sense a determination of necessity within the meaning of Section 124. Countless items were acquired by virtue of priorities for which tax amortization would not have been and was not granted. 11 See fn. 10, supra. —— 13 the cost of facilities acquired on or after July 17, 1944, the War Production Board, on August } 1944, issued petitioner a necessity certificate dated July 17, 1944. The certificate provided (R. 17): It Is Hereby Certified that the facilities described in the attached Appendix A (con- sisting of 9 pages)” are necessary in the inter- est of national defense during the emergency period, up to 35% of the cost attributable to the construction, reconstruction, erection, in- stallation or acquisition thereof, * * *, On September 9, 1946, petitioner filed this suit, alleging that it was wrongfully denied amortiza- tion of $175,813.35. Of this amount, $77,195.99 represents facilities acquired prior to J uly 17, 1944, and $98,617.36 represents 65 per cent of the cost of facilities acquired after J uly 17, 1944 (R. 24). As indicated above, p. 4, both courts below declined to issue the requested orders. ARGUMENT In this proceeding for mandamus, petitioner seeks to compel respondent, in his official capacity (R. 1), to do two things: (1) to issue a certificate for 100 per cent of the cost of facilities as to which certification was denied; and (2) to issue a certifi- cate for 100 per cent of the cost of facilities as to which only 35 per cent of the cost was certified. Appendix A listed the facilities shown in petitioner’s application for a certificate. Facilities designated as having been received before July 17, 1944, were crossed over in the form of an “X” by red pencil (R. 17). 14 Both courts below have held that respondent’s refusal to grant such certificates is grounded upon a reasonable interpretation of respondent’s dis- cretionary powers under Section 124. The ques- tion raised herein, whether such reasonable exer- cise of discretion may be set aside by mandamus, is not novel and has uniformly been answered by this Court in the negative.” Decatur v. Paulding, 14 Pet. 497, 515; Gaines v. Thompson, 7 Wall. 347; Litchfield v. Register and Receiver, 9 Wall. 575, 577; Carrick v. Lamar, 116 U.S. 423, 426; River- side Oil Co. v. Hitchcock, 190 U.S. 316, 324; West v. Hitchcock, 205 U.S. 80, 85; Ness v. Fisher, 223 U.S. 683, 691-692; Alaska Smokeless Coal Co. v. Lane, 250 U.S. 549, 555; Hall v. Payne, 254 U.S. 343, 347; Work v. Rives, 267 U.S.175, 183; Wilbur v. United States, 281 U.S. 206, 218; 7. C. C. v. New York, N. H. & H. R. Co., 287 U.S. 178, 203 ; United States ex rel. Chicago Gt. Western R. R.v.1I.C.C., 294 U.S. 50, 62; United States ex rel. Girard Co. v. Helvering, 301 U.S. 540, 543; Adams v. Nagle, 303 U.S. 532, 542. The rule is precisely stated in Wilbur v. United States, supra, at pp. 218-219: Mandamus is employed to compel the per- formance, when refused, of a ministerial duty, 13 Whether this be called an action for an order in the nature of a writ of mandamus or for a mandatory injunction, is immaterial. In substance and effect a mandatory injunc- tion is the precise equivalent of a writ of mandamus, and its issuance is governed by identical considerations. Gaines V. Thompson, 7 Wall. 347, 352; Miguel v. McCarl, 291 U.S. 442, 452; cf. Warner Valley Stock Co. v. Smith, 165 U.S. 28, 33. —_—7"~ this being its chief use. It also is employed to compel action, when refused, in matters involving judgment and discretion, but not to direct the exercise of judgment or discre- tion in a particular way nor to direct the re- traction or reversal of action already taken in the exercise of either. * * * Where the duty in a particular situa- tion is so plainly prescribed as to be free from doubt and equivalent to a positive com- mand it is regarded as being so far ministerial that its performance may be compelled by mandamus, unless there be provision or im- plication to the contrary. But where the duty is not thus plainly prescribed but depends upon a statute or statutes the con- struction or application of which is not free from doubt, it is regarded as involving the character of judgment or discretion which cannot be controlled by mandamus. And it applies with as much force to the construc- tion of statutes as to the determination of ques- tions of fact. Decatur v. Paulding, supra; Ness v. Fisher, supra; Hall v. Payne, supra; Work v. Rives, supra. Even if his construction of the stat- ute be erroneous, mandamus will not issue to com- pel the administrative official to act upon one con- struction rather than another. The interpretation need only be reasonable. ‘‘Whether he decided right or wrong, is not the question. Having juris- diction to decide at all, he had necessarily juris- diction, and it was his duty to decide as he thought — cm 16 the law was, and the courts have no power what- ever under those circumstances to review his deter- mination by mandamus or injunction.” River- side Oil Co. v. Hitchcock, supra, at pp. 324-325, And see Work v. Rives, supra, at 183; Adams vy. Nagle, supra, at 542. Accordingly, to obtain the relief which it here asks, petitioner must affirmatively demonstrate that the action taken by respondent’s predecessors was completely arbitrary and devoid of authority under Section 124. The petition falls far short of the required showing. It discloses, at best, an alternative reading of Section 124 and the scope of administrative power thereunder—an inflexible reading which fits the needs of petitioner’s case but which was rejected, as not corresponding either to the complex requirements of national rearma- ment or to the intent of Congress by all the respon- sible executive officials, including the President, who administered the plant expansion program, and by both courts below." In effect, petitioner reads Section 124 as if if 14 Tn saying that all responsible executive officials concurred as to the proper interpretation and administration of Sec- tion 124 in so far as here under attack, 7.e., the changed policy of administration inaugurated by the Secretaries of War and Navy and followed by the War Production Board, we are not unmindful of petitioner’s repeated insistence that a different view was taken by the Commissioner of Internal Revenue (Pet. 2-3, 9, 35-39). The administration of Section 124 and the power to issue war necessity certificates thereunder was not, in any way, delegated to or entrusted with the Commis- sioner of Internal Revenue. It was essentia! that the adminis- tration of Section 124 be in the same hands that controlled the complex and constantly changing needs of the overall war program. The Commissioner’s sole function in the picture was — were a rigid contract between Congress and indus- try.” Petitioner ignores the vital control dele- gated by Congress to the Executive branch over the administration of Section 124, a control appar- ent in the terms of the act itself and underscored if the statute be placed, as it must be, in its proper setting. The entire expansion of needed plant capacity for the reaarmament program might pos- sibly have been accomplished through Government ownership of all facilities. A great part of our expanded plant capacity was publicly financed and constructed. However, in view of the need for haste, as the then Under Secretary of War Robert P. Patterson pointed out in his report to the Sec- retary of War on the administration of Section 124, we had to expand to the full ‘“‘within the framework of the system of private enterprise, not only because that was the system in which we 17 to prescribe the methods to be employed in preparing returns by taxpayers who had received war necessity certificates. However, if the Commissioner’s views be considered relevant to the present case, it should be noted that his view accords with and recognizes the position taken by those officials who administered the amortization program. Section 29.124-6 of Treasury Regulation No. 111, quoted on page 63 of the peti- tion, specifically recognizes partial certification for amortiza- tion purposes. This recognition of partial certification de- stroys petitioner’s reliance on the Commissioner’s regulation, as to the 35 per cent certificate here under attack. There is, of course, nothing in the Commissioner’s regulations which gives aid or comfort to petitioner’s other contention, namely, that the issuance of a war necessity certificate should be com- pelled where it was totally denied as to facilities acquired be- fore the date of application. 15 Petitioner does not contend that the actions of the re- spondent’s predecessor were not authorized by the regulations then in effect. His contention is rather that the regulations were not authorized by the statute (R. 90-91). sin een a 18 believed, but also because it was the system we had’”’ (R. 77-78). Therefore, for part of the needed expansion of capacity, it was thought desirable, particularly in view of the short-term and spec- ialized nature of many of the projects, to encour- age the investment of private capital by the grant of a tax privilege. Section 124 was enacted in 1940 to provide that encouragement and to supplement Government financing. Section 124 was an emergency measure in a field ‘* * * full of technical and difficult detail * * *”’ (R. 77). In order that its objective might be achieved with protection against waste and abuse, Congress provided for a great deal of flexibility in its administration. The Secretaries of War and Navy, subject to the approval of the President, were given a rule-making power as to certification of facilities. Section 124(f)(1). Power to ter- minate the amortization privilege entirely or in particular cases, when warranted, was granted. Section 124(d) (1). By the end of 1943, the character of the para- mount needs of the rearmament program had changed. The critical factor no longer was addi- tional plant capacity, but the utilization of exist- ing capacity. In fact, there was need to curb and control expansion so as to channel men and re- sources into production. It was then both possible and necessary to give consideration to the ever- increasing impact of amortization upon the public revenue. As stated above, p. 6, approximately 5 19 billion dollars of expanded capacity was financed under the Section 124 privilege during the Army- Navy administration of the statute. Accordingly, the general amortization program was terminated except as to unusual and limited cases. To con- trol and limit amortization effectively, Executive Orders and regulations were prescribed which di- rected that no facilities would be certified unless the certifying authority determined prior to the acquisition of the facilities that they were physi- cally necessary and that it was to the advantage of the Government that they be privately financed under Section 124 rather than by the Government." Applying these principles in the instant case, the War Production Board declined to certify facili- ties which had been acquired prior to any deter- mination of necessity and certified that only 35 per cent of the cost of facilities thereafter to be acquired was necessary (R.50). The Board found, as to the partially certified machinery, that it was likely to have a broad market and general value at the end of the war and be of use for normal peacetime production (R. 50). 16 Tf the facilities concerned could reasonably be considered useful after the war to the applicant in his regular business, or to anyone else, the Government, if it financed the facilities, would be able to recoup a part of its cost by sale or other dis- position after the war. Thus, where the facilities had rela- tively little post-war value, it was in the best interests of the Government to grant a necessity certificate. On the other hand, it was to the Government’s advantage that facilities with post-war value be publicly financed. Alternatively, it might be advantageous to the Government that facilities with post-war value be privately financed under less than 100 per cent of cost amortization. See R. 48 and 80. ~ neg 20 The establishment of the above described policy and its application in this case was a reasonable exercise of discretionary powers necessarily granted to the certifying authorities and well within the scope of their rule-making and termina- tion powers. On broad grounds, therefore, peti- tioner’s challenge must fail. The same result obtains if the petition be viewed more narrowly. Petitioner’s fundamental conten- tions appear to be: (1) that petitioner has a right to file an application for a certificate within 6 months after the facilities have been acquired ; and (2) that, as to facilities certified as necessary, peti- tioner has an automatic right to 100 per cent amor- tization of the cost of its facilities certified as nec- essary. In basing its prayer for mandatory orders on these contentions, petitioner overlooks the actual facts in the case. Assuming that petitioner had a right to file an application within six months after acquisition of the facilities, it could not com- pel favorable action on the application. There can be no doubt that certifying authorities exercised discretion in passing upon applications. Thus, as to its pre-acquired machinery never found to be necessary and as to which certification was declined, the order which petitioner seeks would not be one directing the performance of a ‘‘mere ministerial act.’’ On the contrary, such an order would constitute certification by the court. The same analysis applies to the machinery which was partially certified. Petitioner continu- ally makes the incorrect assumption that such machinery was certified as necessary in its entirety, that the certification was improperly conditioned, and that the only remaining problem is to direct recognition of the 100 per cent amortization privi- lege which automatically flows from certification. The letter of predetermination and the certificate, the basic evidence as to the nature of the deter- mination made, merely state that the machinery was necessary up to 35 per cent of its cost (R. 17, 35). There is nothing to indicate that any certifi- cation would have been made, had the certifying authorities been compelled to choose between 100 per cent or nothing. Again, an order changing the 39 per cent certificate to a 100 per cent certificate would not be a mere correction but would, in fact, be a certification by court order. 21 CONCLUSION For the foregoing reasons, we submit that the petition should be denied.” We think it relevant to note the necessarily disruptive and unsettling result of petitioner’s view, particularly in the budgetary and tax fields.” Of. H urley v. Kincaid, ? United States v. Milnor Corp., 85 F. Supp. 931 (E.D. Pa.) and American Twist Drill Co. 11 T. C. 200 (Pet. 17-19), are not in conflict with the instant case. Neither of these two cases involve the question whether mandamus would issue to review the decision of the certifying authority to require a predetermi- nation of necessity and to grant only a partial certificate. The magnitude of reopening the amortization program cannot be over emphasized. Eleven thousand four hundred and thirty-five applications were received and considered by the War Production Board. Of these, 2,074 were approved, 4,268 were denied in part, 3,671 were totally denied, and 1,422 were withdrawn. In approximate dollar value, the total 22 285 U.S. 95, 104; Duncan Townsite Co. v. Lane, 245 U.S. 308, 311-312; Decatur v. Paulding, 14 Pet. 497, 516. Force is added to this consideration by the fact that petitioner is requesting judicial inter- vention to obtain a tax concession, a matter of legislative grace in which courts have been tradi- tionally reluctant to interfere with administrative determinations. Williamsport Co. v. United States, 277 U.S. 551; Hemer v. Diamond Alkali Co., 288 U.S. 502, 507; New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440; Helvering v. Inter-Mountain Life Ins. Co., 294 U.S. 686, 689; Welch v. Obispo Oil Co., 301 U.S. 190; James F. Waters, Inc. v. Commissioner, 160 F. 2d 596 (C.A. 9); and see First Securities Corp. v. Clements, 103 F. 2d 1011 (C.A. 6). Respectfully submitted, J Pup B. PERLMAN, Solicitor General. H. G. Morison, — Attorney General. SAMUEL D. SLADE, yj? BENJAMIN FORMAN, | Attorneys. Frsruary, 1950. amount covered by applications for certificates was $1,498,- 730,000. Of this amount, $701,163,000 were approved and $797,567,000 denied (R. 51). The reopening now of all these applications may well be an insurmountable undertaking. The Department of Commerce has dismissed all former Civilian Production Administration and War Production Board employees who were employed in the Tax Amortiza- tion Branches thereof and is now merely a custodian of the records. a ————2 ee os 23 APPENDIX Section 124 of the Internal Revenue Code, 54 Stat. 998, as amended by the Act of October 21, 1942, 56 Stat. 798, 849-851, 26 U.S.C. 124, provides in pertinent part as follows: (a) General rule. Every person, at his elec- tion, shall be entitled to a deduction with respect to the amortization of the adjusted basis (for determining gain) of any emer- gency facility (as defined in subsection (e)), based on a period of sixty months. Such amor- tization deduction shall be an amount, with respect to each month of such period within the taxable year, equal to the adjusted basis of the facility at the end of such month divided by the number of months (including the month for which the deduction is computed) remain- ing in the period. Such adjusted basis at the end of the month shall be computed without regard to the amortization deduction for such month. The amortization deduction above provided with respect to any month shall, except to the extent provided in subsection (g) of this section, be in lieu of the deduction with respect to such facility for such month pro- vided by section 23(1), relating to exhaustion, wear and tear, and obsolescence. The sixty- month period shall begin as to any emergency facility, at the election of the taxpayer, with the month following the month in which the facility was completed or acquired, or with the succeeding taxable year. * * * * * (d) Termination of amortization period. 24 (1) If the President has proclaimed the ending of the emergency period (as defined in subsection (e) ), or if the Secretary of War or the Secretary of the Navy has, in accord- ance with regulations prescribed by the Presi- dent, certified to the Commissioner that an emergency facility ceased, on the date specified in the certificate, to be necessary in the inter- est of national defense during the emergency period, and if the date of such proclamation or the date specified in such certificate occurs within sixty months from the beginning of the amortization period with respect to such emer- gency facility, then the taxpayer may elect (in accordance with paragraph (4) of this sub- section) to terminate the amortization period with respect to such emergency facility as of the end of the month in which such proclama- tion was issued or in which occurred the date specified in such certificate, whichever is the earlier. In such case the amortization period with respect to such facility shall end with the end of such month in lieu of the end of the sixty-month period. * * * * * (f) Determination of adjusted basis of emergency facility. In determining, for the purposes of subsection (a) or subsection (h), the adjusted basis of an emergency facility— (1) There shall be included only so much of the amount otherwise constituting such ad- justed basis as is properly attributable to such construction, reconstruction, erection, installa- tion, or acquisition after December 31, 1939, ———— 25 as either the Secretary of War or the Secre- tary of the Navy has certified as necessary in the interest of national defense during the emergency period, which certification shall be under such regulations as may be prescribed from time to time by the Secretary of War and the Secretary of the Navy, with the ap- proval of the President. * * * * * (3) The certificate provided for in para- graph (1) shall have no effect unless an appli- eation therefor is filed before the expiration of six months after the beginning of such con- struction, reconstruction, erection, or installa- tion or the date of such acquisition, or before December 1, 1941, whichever is later, * * * * * * * * The relevant Executive Orders and Regulations approved by the President, which were issued under Section 124, provide in pertinent part as follows: (1). 8 F.R. 13824 (October 5, 1943): The Regulations governing the issuance of Necessity Certificates under Section 124(f) of the Internal Revenue Code, prescribed by the Secretary of War and the Secretary of the Navy, and approved by the President May 22, 1942, as amended (7 F.R. 4233), are amended as follows: Add to paragraph 3a subparagraph, as fol- lows: (d) The construction, reconstruction, erec- tion, installation, or acquisition of a facility 26 shall not be deemed necessary unless (1) the beginning of the construction, reconstruction, erection, installation, or the date of acquisition of such facility, was prior to October 5, 1943; or (2) an application for a Necessity Certifi- cate describing such facility was filed before October 5, 1943; or (3) the Secretary of War or the Secretary of the Navy, in exceptional cases, has determined prior to the beginning of such construction, reconstruction, erection, installation, or the date of such acquisition, that there is a shortage of facilities for a sup- ply required for military or naval uses and that it is to the advantage of the Government that additional facilities for such supply be privately financed. (2). Executive Order 9406, 8 F.R. 16955 (Decem- ber 17, 1943): * * * * * 3.(b) In acting upon applications for Nec- essity Certificates filed on and after October 5, 1943, describing facilities the construction, reconstruction, erection, or installation of which was not begun or which were not ac- quired prior to October 5, 1943, Necessity Cer- tificates shall not be issued unless the Chair- man of the War Production Board has deter- mined prior to the beginning of the construc- tion, reconstruction, erection, installation, or the date of acquisition of the facilities (1) that the facilities to be constructed or acquired are clearly necessary for the war effort, and (2) that it is to the advantage of the Govern- commas 27 ment that such additional facilities be pri- vately financed. * * * * * (3). 8 F.R. 16964 (December 17, 1943): The following regulations are hereby pre- scribed by the Chairman of the War Produc- tion Board, with the approval of the President, pursuant to the authority contained in Execu- tive Order 9406, dated December 17, 1943. * * * * * (3)(e7* * * (vi) Government and privately financed facilities. Necessity Certificates will be issued only where it is to the advantage of the gov- ernment that the facilities in question be pri- vately financed. * * * * * (4) Application must be filed before con- struction ts begun or date of acquisition. The construction, reconstruction, erection, installa- tion or acquisition of a facility will not be deemed necessary within the terms of these regulations unless a determination of neces- sity is made by the certifying authority prior to the beginning of the construction, recon- struction, erection, installation or date of acqui- sition. * * * * * (4). Executive Order 9429, 9 F.R. 2487 (March 2, 1944): * * * * * 3. (b) In acting upon applications for Nec- essity Certificates filed on and after October = 5, 1943 describing facilities the construction, reconstruction, erection, or installation of which was not begun or which were not ac- quired prior to October 5, 1943, or for which the applicant had not made contracts for the construction, reconstruction, erection, installa- tion or acquisition thereof prior to October 5, 1943, Necessity Certificates shall not be issued unless the Chairman of the War Production Board has determined prior to the beginning of the construction, reconstruction, erection, installation, or the date of acquisition of the facilities (1) that the facilities to be con- structed or acquired are clearly necessary for the war effort, and (2) that it is to the advan- tage of the Government that such additional facilities be privately financed. MG RRO EE = * * * * (5). 9 F.R. 2492 (March 2, 1944): The amended regulations (December 17, 1943) governing the issuance of Necessity Certificates under section 124(f) of the In- ternal Revenue Code (8 F.R. 16964) prescribed by the Chairman of the War Production Board with the approval of the President (supra) are amended as follows: * * * * * Section 4 is amended to read as follows: (4) Application must be filed and deter- mination made before construction is begun or date of acquisition. The construction, re- construction, erection, installation or acquisi- ————————————— 29 tion of a facility will not be deemed necessary within the terms of these regulations unless a determination of necessity is made by the certifying authority prior to the beginning of the construction, reconstruction, erection, in- stallation or date of acquisition. * * * * * wv U. S. GOVERNMENT PRINTING OFFICE: t980 672218 ate --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386416_2527%3A3. Public record. Not legal advice.