Petition for Writ of Certiorari — Everlasting Development Corp. v. Descartes

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Office - Supreme Court, U. $.

Supreme Court of the Gniced Seated

Ocroszr Tzam 195D°~

No. 5.58...

Evzriastine DeveLopment Corporation, Lona

Corporation, and L. D. Lone, Petitioners,

Sot Luis Descartes, Jorce J. Jimenez, Vicente Guice,

Potaxco, Marmwo Vuaronas, Ramow Coron Tonnes,

Ferxaxvo Sreena Berpeci and Juan A. Pons, as

members of the Executive Council of Puerto Rico, and

Vicexte Gzice, Potanco, as Attorney General of

Puerto Rico, Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

FIRST CIRCUIT AND BRIEF IN SUPPORT

THEREOF.

Joszeru B. Kernan

Atvix O. West

Keenan & West

820 Woodward Building

Washington 5, D. C.

Rosert M. Hoiiines

Meyer, Goldberg & Hollings

115 Charch Street

Charleston, South Carolina

Watrer L. Newsom, Jr.

Brown, Newsom & Cordova

San Juan, Puerto Rico

Wuuus G. Grant

Grant, Wiggins, Grizzard &

Smith

304-10 Grant Building

Atlanta, Georgia

Attorneys for Petitioners.

a een Oo.

Questions presented . ........... cc eee cece e eee eeees

meee SUID: 5. i. a 05's 0000.00 cwdeweds cen sak COUNEe 3

IN WOOD NRE oe ois ba ic eek iv icadesdeonies 4

Specification of errors to be urged..............-5+. 6

Reasons for granting the writ:

1, The judgment of the Court of Appeals, affirming

the judgment of the District Court, is in direct

conflict with the decision of this Court in Bell v.

Hood, 327 U.S. 678, and decisions prior

Pay y hee eee nn hy aero mre 6

2, The judgment of the District Court presents

jurisdictional questions of great importance

which ought to be settled, none of which was

decided by the Court of Appeals.............. 12

3. The decision of the Court of Appeals is on the

merits and amounts to an unauthorized exercise

of original jurisdiction by an appellate court... 21

ee cs. gan son od code unk terensie ena nernene 25

CITATIONS.

Cases:

Allen v. Regents of University of Georgia, 304 US.

Gi ii. sittin iii Aideicsel ater 18, 19

Bell v. Hood, 327 U.S. 678......... 2, 6, 8, 9, 10, 21, 22, 23

Benedicto v. West India, etc. Tel. Co., 256 Fed. 417. 20

Binderup v. Pathe E. é, 263 U.S. 291.......... 9

Boyce v. Buscaglia, 77 F. Supp. 753 ...........+..- 13

eee eeeeee eee eeeeeeeeeereeeeeeeeeeere

‘ons v. Rothensies, 11 F. Supp. 225....

Geneaa PuseBare Co. v. Karpen, 238 U.S. | Re

Great Lakes Co. v. Huffman, 319 U.S. 293.......... 15

Hillsborough v. Cromwell, 326 U.S. 620 ........... 11, 15

McGrath v. Kristensen, 340 U.S. 162 ............-. 11

Morrison-Knudsen Co. v. State Board of Equaliza-

tion, 35 F. S SRP eee wr peer rene 16

Miller v. Si Nut Margarine Co., 284 US.

Re et ha vera s eu seas t 18, 19

Mississippi Power & Light Co. v. City f Jackson,

116 F. 2d 924, certiorari denied, 312 U.S. 698..... 22

— Co. v. Public Services Co., 341 U.S. pe

Mountain States Co. v. Public Service Commission,

ES Ge OEE Pe TRE 13, 17

Mumoz v. Porto Rico Light é Power Co., 83 F. 2d 262 20

Paul Smith Const. Co. v. Buscaglia, 140 F. 2d 900. .13, 16

Penn v. Glenn, 10 F. Supp. 483 ............550005- 15

Perkins v. Elg, 307 U.S. 325 .........ccceeecccees 12

Purcell v. Swmmers, 126 F. 2d 390, certiorari denied,

NE oe hae ho haa 54 pion bwdibie meee © 22

Snyder v. Buck, 349 U.S. 15 ........ 0. cc cence eeee 24-25

Stainback v. Mo Hok Ke Lok Po, 336 U.S. 368...... 20

— v. Equitable Life Assur. Soc., 92 F. 2d pa

gueford Templeton, 185 U.S. 487 .............. 9

The Fair v. Kohler Die Co., 228 U.S. 22 ........... 4

Tripplehorn v. Cambron, 250 Fed. 605 ............. 22

Umited States v. Williams, 341 U.S. 58 ............ 9, 22

2 ay, i Pace, 188 F’. 2d 646..............0065 25

est Pub. v. McColgam, 138 F. 2d 320 ............. 16

Srarurss:

Act No. 29, Laws P.R., 5th to 12th Spec. Sess. 1950-51 24

Butler Act, 48 U.S.C. 872

Index Continued. iii

. Page

Fourth Amendment oo... 5. cc ciccsctccecsescsvaces 8

Industrial Tax Exemption Act of Puerto Rico, Act

No. 184, Laws P.R. 1948.................. 4, 11, 24, 25

| BELEN ee Ree ol oe 12, 13, 17

Johnson Act, 28 U.S.C. 1341............... 15, 16, 17, 20

B.S. 3224 [now 28 U.S.C. 3653(a)]............ 15, 18, 19

ee HOR: sb SSS oss ca koa we ew oho 8s canes 7

MISCELLANEOUS:

Moore, seaman ty on the United States Judicial

RNR ais View eek ha eN we Cad b ea peRU CORTON Cae wiod eee 22

IN THE

Supreme Court of the Anited States

Ocroser Term 1951.

Ever.astina DevELOPpMENT Corporation, Lone

Corporation, and L. D. Lone, Petitioners,

Vv.

Sout Luis Desoartes, Jorce J. Jimenez, Vicente GEIGEL

Potanco, Mariano Virzaronea, Ramon Coton Torres,

Frernanpo Srerra Berpecta and Juan A. Pows, as

members of the Executive Council of Puerto Rico, and

Vicente GericeL Poianco, as Attorney General of

Puerto Rico, Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

FIRST CIRCUIT AND BRIEF IN SUPPOR

THEREOF. ;

To the Honorable Chief Justice of the United States and

‘ the Associate Justices of the Supreme Court of the

United States:

Your petitioners, Everlasting Development Corporation,

Long Corporation, and L. D. Long, respectfully pray that

a writ of certiorari issue to the United States Court of

Appeals for the First Circuit to review here the decision

and judgment of that court rendered on November 2, 1951,

in the case of Everlasting Development Corporation, Long

Corporation, and L. D. Long, appellants, v. Sol Luis Des-

cartes, Jorge J. Jiminez, Vicente Geigel Polanco, Marino

Villaronga, Ramon Colon Torres, Fernando Sierra Ber-

decia, and Juan A. Pons, as members of the Executwe

Council of Puerto Rico, and Vicente Geigel Polanco, as

Attorney General of Puerto Rico, appellees, the same

being numbered 4572 on the docket of said court.

OPINIONS BELOW.

The opinion of the Court of Appeals (Record 33-42) was

rendered on November 2, 1951 and will be found in 192 F.

2d 1 (Fed. Rep. Advance Sheet, December 17, 1951). A

petition for re-hearing was filed on November 29, 1951, and

was denied on November 30, 1951 (Record 43). The opin-

ion and judgment of the District Judge (Record 12) is

found in 95 F. Supp. 954.

JURISDICTION.

.. The jurisdiction of this Court is invoked under Section

1254(1), Title 28, United States Code.

QUESTIONS PRESENTED.

1. Whether the principle established by this Court in

Bell v. Hood, 327 U. S. 678 and prior decisions, requires a

federal court to take jurisdiction in a case where the com-

plaint plainly charges a violation by defendant officials of

a territorial government of rights guaranteed to the plain-

tiff by the Constitution and laws of the United States,

where there is no finding that the claim of a federal right

asserted is immaterial or wholly insubstantial and

frivolous.

2. Whether the Butler Act, 48 U. S. C. 872, which pro-

vides that ‘‘no suit for the purpose of restraining the

assessment or collection of any tax imposed by the laws of

Puerto Rico shall be maintained in the District Court of

the United States for Puerto Rico,”’

_ a

(a) Is applicable to a proceeding for declaratory

judgment wherein no relief is sought for the purpose

of restraining the assessment or collection of a tax;

Or, if applicable to such a declaratory judgment pro-

(b) Whether the Butler Act operates to deprive the

) United States District Court for Puerto Rico of juris-

| diction in a case where the plaintiffs have no remedy

whatsoever under the laws of Puerto Rico.

| 3. Whether, where a district court has, without consid-

eration of the merits, dismissed a complaint for lack of

federal jurisdiction, a federal court of appeals, in a case

where it has no original jurisdiction, has authority to dis-

regard the jurisdictional question and affirm the judgment

on the ground the allegations of the complaint are insuffi-

cient to state a cause of action on which relief can be

granted by a federal court.

STATUTES INVOLVED.

1. Section 16 of the Industrial Tax Exemption Act of

Puerto Rico, Act No. 184, approved May 13, 1948, Laws of

Puerto Rico 1948, which provides:

‘All resolutions and findings of the Executive Council

and of the Governor of Puerto Rico under the provi-

sions of this Act, shall be final, and no judicial or ad-

ministrative proceeding shall lie against the same.’’

2. Section 2 of the Organic Act of Puerto Rice (48

U. S. C. 737), which is as follows:

‘‘The rights, privileges and immunities of citizens

of the United States shall be respected in Puerto Rico

to the same extent as though Puerto Rico were a State

of the Union and subject to the provisions of para-

graph 1 of Section 2 of Article IV of the Constitution

of the United States.’’

nate —

3. The Butler Act (48 U. 8S. C. 872), which provides as

follows:

‘*No suit for the purpose of restraining the assess-

ment or collection of any tax imposed by the laws of

Puerto Rico shall be maintained in the District Court

of the United States for Puerto Rico.’’

STATEMENT OF THE CASE.

The Everlasting Development Corporation and the Long

Corporation, each a Puerto Rican corporation, and L. D.

Long, a citizen of South Carolina and a resident of Puerto

Rico, individually and as a stockholder of the named cor-

porations, filed a proceeding for declaratory judgment in

the United States District Court for Puerto Rico, naming

as defendants Sol Luis Descartes, Jorge J. Jiminez, Vicente

Geigel Polanco, Mariano Villaronga, Ramon Colon Torres,

Fernando Sierra Berdecia, and Juan A. Pons as members

of the Executive Council of Puerto Rico, and Vicente Geigel

Polanco, as Attorney General of Puerto Rico (Record 2-3).

The amended complaint alleges that each of the corpo-

rate plaintiffs is entitled to tax exemption in excess of

$3,000.00 under the provisions of the Industrial Tax Ex-

emption Act of Puerto Rico,’ and that the defendants, as

members of the Executive Council of Puerto Rico, em-

powered under said Act to pass upon applications for tax

exemption, with intent to discriminate against the plain-

tiffs, determined and agreed to deprive, and did in fact

deprive the plaintiffs of the tax exemption to which they

are entitled, by failing to consider the facts presented be-

fore the special master appointed in the case and by deny-

1 Act of Puerto Rico No. 184, approved May 13, 1948, Puerto

Rico Laws 1948, page 348. Section 16 of this Act is set forth at

page 3, supra. Although the court below included in its opinion

a lengthy + the principal provisions of this Act (Record

34-37), we do not tt the provisions other than Section 16

were relevant to the pee or that they have any relevance to the

— presented by this petition for certiorari.

It was further alleged that the plaintiffs do not have any

further administrative remedy and no remedy whatsoever

in the courts of Puerto Rico (Record 9).

The prayers were that the court enter a judgment de-

claring that the plaintiffs are eligible for and entitled to

tax exemption under the Industrial Tax Exemption Act of

Puerto Rico, and that the denial of tax exemption to the

plaintiffs by the defendants constitutes a denial to them

of equal protection of the laws, deprives them of their

property without due process of law and subjects them to

unequal and discriminatory taxation (Record 9).

The District Judge, without considering the merits, dis-

missed the complaint for lack of federal jurisdiction, hold-

ing that the court was deprived of jurisdiction by the

Butler Act, 48 U. S. C. 872 (Record 12-26).

Without passing on the jurisdictional issue determined

by the District Judge (Record 33), the Court of Appeals

reviewed the allegations of the complaint, considered the

merits of the allegations, and affirmed the judgment of the

lower court upon the ground ‘‘that the factval allegations

of the complaint do not make out a case arising under the

Constitution or laws of the United States, and that conse-

quently the court below did not have jurisdiction of the sub-

ject matter’’ (Record 34).

SPECIFICATION OF ERRORS TO BE URGED.

The Court of Appeals erred:

1. In failing to follow, and give effect to the principle of,

the decision of this Court in Bell v. Hood, 327 U.S. 678, by

reversing the judgment of the District Court and remand-

ing the case for a judgment on the merits.

2. In failing to hold (a) that the Butler Act is not appli-

cable to a proceeding for declaratory judgment wherein no

relief is sought for the purpose of restraining the assess-

ment or collection of a tax; and (b) that the Butler Act in

no event deprives the United States District Court for

Puerto Rico of jurisdiction in a case where the plaintiffs

have no remedy whatsoever under the laws of Puerto Rico.

3. In deciding the case on the basis of the sufficiency of

the factual allegations of the complaint, a question which

was in no way involved in the decision of the District

Court, and in failing to pass on the jurisdictional issue as

to the applicability of the Butler Act as a bar to the instant

action, the issue on which the decision of the District Court

was based.

4. In looking to the merits of the allegations of the com-

plaint and affirming the judgment of the District Court on

the ground the allegations are insufficient to state a cause

of action on which relief can be granted by a federal court,

despite the fact jurisdiction of the complaint had not been

taken by the District Court.

REASONS FOR GRANTING THE WRIT.

1. The Judgment of the Court of Appeals, Affirming the

Judgment of the District Court, Is in Direct Conflict

With the Decision of This Court in Bell. v. Hood, 327

U. 8. 678, and Decisions Prior Thereto.

The District Court dismissed the complaint on the

ground that it was deprived of jur sdiction by the Butler

Act, 48 U.S.C. 872 (Record 12-26). The Court of Appeals,

eee

however, ignored that question, and affirmed the judgment

of dismissal on the ground ‘‘that the factual allegations of

the complaint do not make out a case arising under the

Constitution or laws of the United States, and that conse-

quently the [District Court] did not have jurisdiction of the

subject matter’? (Record 34), or, it was later stated,

because ‘‘the factual allegations of the complaint fall far

short of setting forth a substantial federal claim within

the jurisdiction of the [District Court] under 28 U.S.C.

§ 1331’’ (Record 41-42).

Although these statements are such as to give the

decision of the Court of Appeals the appearance of having

been rendered upon a jurisdictional ground, it is apparent,

when the decision is read as a whole, that the Court of

Appeals was in fact disregarding the jurisdictional issue

and deciding the case solely on its view of the legal suffi-

ciency of the complaint to state a claim upon which relief

could be granted.

After an exhaustive review of the allegations of the com-

plaint in conjunction with the provisions of the Industrial

Tax Exemption Act of Puerto Rico, the court below pointed

out that whether the plaintiffs’ operations come within

those provisions ‘‘is a matter of statutory interpretation,

as to which it can hardly be said that the language of the

Act is crystal-clear’? (Record 38), and finally reached the

point on which it rested its decision (Record 41):

* * * And so the ,!aintiffs here, in order to bring

their case within the jursidiction of the court below

under 28 U.S.C. § 1331, have alleged in the complaint

that the action of the Council deprived the plaintiffs

of the equal protection of the laws. However, some-

th ng more than the mere pleading of such an ultimate

conclusion of law is necessary to bring the complaint

within 28 U.S.C. § 1331.

It is true the complaint alleges that the defendants

intended to discriminate against these plaintiffs when

the Council denied their application after having

granted tax exemption to other applicants entitled

thereto, This is no more than an allegation that the

defendants, having granted tax exemption to other

applicants, intended to treat these plaintiffs differ-

ently. But it is not a denial of the equal protection of

the laws in a constitutional sense where the adminis-

trative body, upon an erroneous interpretation of a

local statute, denies a tax exemption to one person

after having lawfully and properly granted tax exemp-

tion to other persons differently situated. There must

be a purposeful discrimination against one person and

in favor of another person in like case, with no rational

basis for a differentiation between the two. The com-

plaint in the case at bar, however, carefully refrains

from alleging that tax exemption has been granted to

other persons in like case with the plaintiffs, engaged

in the mass production of low-cost housing.

We contend that the above quoted excerpt from the

opinion clearly shows that the decision of the Court of

Appeals, when stripped to its essentials, is based solely on

the proposition that the allegations of the complaint are

insufficient to state a cause of action on which relief can

be granted. The judgment of the court below is thus in

direct conflict with Bell v. Hood, 327 U.S. 678, 681, 682,

wherein this Court, in clear and unmistakable language,

laid down the principle that where a complaint in a fed-

eral court is so drawn as to seek recovery directly under

the Constitution or laws of the United States, the court

must entertain jurisdiction, except (1) where the alleged

claim clearly appears to be immaterial and made solely for

the purpose of obtaining jurisditcion or (2) where it is

wholly insubstantial and frivolous.

In that case this Court held that a complaint setting up

a claim for damages for violation of plaintiff's rights under

the Fourth and Fifth Amendments gave the district court

jurisdiction, and the case was remanded for a judgment

on the merits even though that judgment should dismiss

the complaint for failure to state a cause of action. See

United States v. Williams, 341 U.S. 58, at 66.

The judgment is also in direct conflict with the principle

laid down by this Court in Binderup v. Pathe Exchange,

263 U.S. 291, at 305-306:

* * * A complaint setting forth a substantial claim

under a federal statute presents a case within the

jurisdiction of the court as a federal court; and this

jurisdiction cannot be made to stand or fall upon the

way it may decide as to the legal sufficiency of the facts

alleged any more than upon the way it may decide as

to the legal sufficiency of the facts proven. Its decision

either way is predicated upon the existence of jurisdic-

tion, not upon the absence of it. Jurisdiction, as

distinguished from merits, is wanting only where the

claim set forth in the complaint is so unsubstantial as

to be frivolous or, in other words, is plainly without

color of merit. * * *

Even before Bell v. Hood and Binderup v. Pathe

Exchange, supra, it was well settled that a complaint

. setting forth a claim for an amount i excess of the statu-

tory minimum, arising under the Constitution or laws of

the United States, presents a case within the jurisdiction of

the federal courts, and that this jurisdiction cannot be

made to stand or fall depending upon whether the claim

ultimately is held good or bad. Swafford v. Templeton,

185 U.S. 487, 493; The Fair v. Kohler Die Co., 228 U. 8. 22,

25; Geneva Furniture Co. v. Karpen, 238 U. S. 254, 258-259.

The District Court expressly excluded the merits from

its consideration in reaching its decision in this case

(Record 26). And the court below, even after an exhaus-

tive review of the complaint, did not find the claim of

federal rights ‘‘so unsubstantial or devoid of merit as to

make it frivolous * * *.’? See Geneva Furniture Co. v.

Karpen, 238 U. S. 254, at 258. Instead, although the com-

plaint alleges in substance that defendants had arbitrarily

and capriciously determined and agreed to deprive and

had deprived plaintiffs of the tax exemption to which they

were entitled, and that pursuant to that agreement they had

not only delayed their decision contrary to the mandate |

of the statute, but had also made their decision without

reference to the facts in the case and on the basis of an

opinion by the Attorney General of Puerto Rico (himself

a defendant) which all the defendants well knew to be

erroneous (Record 6-7), the Court of Appeals characterized

this merely as a case ‘‘where the administrative body, upon

an erroneous interpretation of a local statute, denies a tax

exemption to one person after having lawfully and properly

granted tax exemption to other persons differently

situated’’ (Record 41).

We submit that a complaint alleging in substance that a

group of insular officials who are charged with the duty

of passing on applications of tax exemption conspired to

deprive certain applicants of the tax exemption to which

they were entitled, pursuant to which conspiracy they

rendered an adverse decision on the applications without

reference to the facts in the case and on the basis of an

opinion by one of their number which all the conspirators

knew to be erroneous, plainly states a claim of a denial of

equal protection of the laws and a deprivation of property

without due process of law. Though perhaps loosely drawn

and wanting in some factual allegations, the complaint is

so drawn as to seek relief directly under the Constitution

and laws of the United States, and clearly the claim of

federal rights asserted is neither immaterial nor insub-

stantial and frivolous.

The denial of jurisdiction in a comparable case was

deemed to raise a jurisdictional issue of sufficient

importance to require certiorari. Bell v. Hood, 327 U. 8.

678, at 680. The opinion in Montana-Dakota Co. v. Public

Serv. Co., 341 U. S. 246, 249, decided last term, illustrates

the necessity for constant vigilance on the part of this

Court to prevent lower courts from confusing the question

whether jurisdiction exists with the question whether the

complaint states a cause of action, in cases where jurisdic-

tion depends on subject matter. The error of the court

below in this respect is so flagrant as to require review by

this Court to prevent a dilution of the proper standards for

determining federal jurisdiction. .

The case at bar is a proceeding for declaratory judgment

and in its final analysis the complaint seeks merely a

declaration to the effect that the plaintiffs are not, as a

matter of law, ineligible for tax exemption under the

Industrial Tax Exemption Act of Puerto Rico.

The case made by the complaint is analogous to the case

of McGrath v. Kristensen, 340 U. S. 162.

In the Kristensen case, the Attorney General had refused

to grant Kristensen a stay of deportation upon the ground

he was, as a matter of law, ineligible for naturalization,

where eligibility for naturalization was a condition pre-

cedent to the exercise by the Attorney General of the power

to suspend deportation.

In the case at bar, the Executive Council of Puerto Rico

has denied the plaintiffs’ application for tax exemption

upon the basis of an opinion rendered by the Attorney

General of Puerto Rico to the effect that plaintiffs are, as

matter of law, ineligible for tax exemption.

In the Kristensen case, this Court held that ‘‘where an

official’s authority to act depends upon the status of the

person affected, * * * that status, when in dispute, may be

determined by a declaratory judgment proceeding after

the exhaustion of administrative remedies.’’ 340 U. 8.

at 169.

In the case at bar the complaint shows that the status

of the plaintiffs, with respect to eligibility for the tax

exemption denied them by the defendants, is in dispute and

that they have no administrative remedy (Record 9).

Plaintiffs having no remedy whatsoever under the laws

of Puerto Rico, makes the case one for federal jurisdiction.

Cf. Hillsborough v. Cromwell, 326 U. 8. 620.

As in the Kristensen case, a declaratory judgment could

be entered in the case at bar which would prevent the denial

of plaintiffs’ right on an erroneous interpretation of the

law, without in anywise interfering with any discretion

which the Executive Council or the Governor of Puerto

Rico may have in the premises. Cf. Perkins v. Elg, 307

U. 8. 325.

2. The Judgment of the District Court Presents Jurisdic-

tional Questions of Great Importance Which Ought to

be Settled, None of Which Was Decided by the Court

of Appeals.

Although the complaint alleges that the plaintiffs ‘‘have

no further administrative remedy, nor any remedy what-

soever in the insular court of Puerto Rico’’ (Record 9),

and although the Puerto Rican statute under which the

defendants acted to deprive the plaintiffs of their consti-

tutional rights expressly prohibits any administrative or

judicial review,” the District Judge refused to take juris-

diction of the case on the ground the court was deprived

of jurisdiction by the Butler Act* (Record 12-26).

The ruling of the District Judge was, we submit, tanta-

mount to a holding that the Government of Puerto Rico

has the power by statute to deprive a citizen of the United

States of the right to question in the courts of Puerto Rico

a violat n -f his constitutional rights by officials of the

Puerto Rican government, and to leave him without any

tribunal whatsoever with jurisidiction to protect him.

The question of whether or not the Butler Act deprives

the District Court of jurisdiction was the principal question

presented by the appeal, and although the Court of Appeals

recognized the fact that the District Judge based his judg-

2 Section 16, Industrial Tax Exemption Act of Puerto Rico:

‘* All resolutions and findings of the Executive Council and of the

Governor of Puerto Rico under the provisions of this Act shall be

pong and no judicial or administrative proceeding shall lie against

same,’”

$48 U. S. C. 872: ‘*‘No suit for the purpose of restraining the

assessment or collection of any tax imposed by the laws of Puerto

Rico shall be maintained in the District Co or Puerto Rico.’’

of the United States

ment dismissing the complaint on the prohibition of the

Butler Act (Record 33), it did not decide or even discuss

the question.

The question of whether or not the Butler Act is applic-

able to a proceeding for declaratory judgment wherein no

relief is sought for the purpose of restraining the assess-

ment or collection of a tax, and the question of whether

or not the Butler Act in any event deprives the District

Court of jurisdiction in a case where the plaintiffs have

no remedy under the laws of Puerto Rico, are, we respect-

fully submit, important questions of federal law which

ought to be settled by this Court.

The Court of Appeals specifically noted in Pawl Smith

_ Const, Co. v. Buscaglia, 140 F. 2d 900, at 901, that it had

never been called upon to decide whether the Butler Act,

despite its unqualified language, was subject to implied

exceptions, as where the taxpayer was without an adequate

remedy at law. Yet even though that question was squarely

presented on the appeal in this case, the court below failed

to answer it.

The rulings of the United States District Court

for Puerto Rico on this question can hardly be con-

sidered clear-cut or decisive. A previous district judge

stated in Boyce v. Buscaglia, 77 F. Supp. 753, at 756, that

he was ‘‘not prepared to hold that the Butler Act was in-

tended to prevent this Court from taking jurisdiction of

a case such as this provided it is clearly shown that there

is otherwise no adequate remedy.’’ Even in the case at

bar the District Court did not face the issue squarely, but

rather evaded it by holding that plaintiffs did have an

adequate remedy at law. Its reasoning was that although

Section 16 of the Industrial Tax Exemption Act purports

to bar any judicial review of the findings of the Executive

Council, nevertheless it is beyond the legislative power

thus to prevent judicial inquiry into the acts of administra-

tive agencies (Record 19). Such reasoning is obviously

fallacious in view of this Court’s holding in Mountain

States Co. v. Public Service Commission, 299 U. S. 167, 170.

There are two sound reasons why the Butler Act is not

applicable to the case at bar.

A. In the first place, the Butler Act is by its terms

applicable only to suits brought ‘‘for the purpose of

restraining the assessment or collection’’ of a tax imposed

by the laws of Puerto Rico, and the case at bar is a pro-

ceeding for declaratory judgment in which no relief is

sought for the purpose of restraining the assessment or

collection of a tax.

B. In the second place, even if the Butler Act were

applicable to 4 proceeding for declaratory judgment where-

in no relief is sought for the purpose of restraining the

assessment or collection of a tax, it would not operate to

deprive the District Court of jurisdiction of the case at

bar for the reason the complaint shows that plaintiffs have

no remedy whatsoever under the laws of Puerto Rico.

hen BNR

Butler Act not applicable to case at bar because no relief

sought for purpose of restraining the assessment or

collection of a taa.

The case at bar is a proceding for declaratory judgment,

and no relief is sought for the purpose of restraining the

assessment or collection of a tax. :

The Butler Act by its terms applies only to suits ‘‘for

the purpose of restraining the assessment or collection of

any tax imposed by the laws of Puerto Rico.’’

The Act being one imposing a limitation on the powers

of the courts, it should be strictly construed and given

no meaning beyond that demanded by the specific language

employed therein. A holding that the Butler Act is applic-

able to a proceeding for declaratory judgment wherein no

relief is sought for the purpose of restraining the assess-

ment or collection of a tax, would be legislation, not .

judicial interpretation.

_——

The phraseology of the Butler Act is not unique in the

history of Congressional legislation and the interpretation

of the words ‘‘restrain’’ and ‘‘restraining’’, as employed

in enactments other than the Butler Act, is of great signi-

ficance. Historically, the statutes in which these words have

been employed have been held to apply only to suits wherein

injunctive relief is sought, and i >t to proceedings for

declaratory judgment such as the case at bar. For example,

R.S. 3224 [now 26 U.S.C. 3653 (a)], the language of which

is virtually identical with that of the Butler Act, was held

not applicable to proceedings for declaratory judgment

wherein no injunctive relief was sought. Pen v. Glenn,

10 F. Suyy. 483, 486 (W.D. Ky. 1935); F. G. Vogt & Sons v.

Rothensies, 11 F. Supp. 225, 231 (E.D. Pa. 1935).

As a result of these decisions, Congress, in 1935, amended

the Declaratory Judgment Act so as to make it inoperative

insofar as suits involving federal taxes are concerned.

Congress did not, however, see fit to make the Act inopera-

tive as to suits involving either state or territorial taxes.

See Great Lakes Co. v. Huffman, 319 U.S. 293, 301.

This Court in the Huffman case found it unnecessary to

inquire whether the terms of the Johnson Act withdrawing

jurisdiction ‘‘to enjoin, suspend, or restrain the assessment,

levy, or collection of any tax’’ imposed by state law should

be so construed as to prohibit a declaration by federal

courts concerning the invalidity of a state tax, but

cautioned that ‘‘those considerations which have led

federal courts of equity to refuse to enjoin the collection

of state taxes, save in exceptional cases, require a like

restraint in the use of the declaratory judgment proce-

dure.’’ 319 U.S. at 299.

In Hillsborough v. Cromwell, 326 U.S. 620, 623, the

Huffman case was characterized as holding ‘‘that the policy

which led federal courts of equity to refrain from enjoining

the collection of allegedly unlawful state taxes should like-

wise govern the exercise of their discretion in withholding

relief under the Declaratory Judgment Act.’? From this

—

it would appear that as to declaratory judgment actions

in cases involving state taxes the Johnson Act does not

bar jurisdiction, but instead confirms a policy in respect

to the district court’s decision in exercising that jurisdic-

tion.*

Since the Johnson Act does not absolutely bar a district

court from taking jurisdiction of an action for declaratory

judgment involving the validity of a state tax, it should

follow that the similar provisions of the Butler Act do

not bar the United States District Court for Puerto Rico

from taking jurisdiction of a declaratory judgment action

involving the validity of a Puerto Rican tax. So far as

we have been able to determine, there has been no decision

interpreting this aspect of the Butler Act. In the single

reported case in which the Butler Act was invoked in a

proceeding for a declaratory judgment the appellant con-

ceded for the purposes of the appeal that ‘‘if the District

Court could not have granted an injunction * * *, then

the court in the appropriate exercise of its discretion

might properly have denied relief by way of declaratory

judgment’’ (Pauw Smith Const. Co. v. Buscaglia, 140 F. 2d

900, at 901); therefore, the question now raised was not

actually presented for decision.

We respectfully submit that in view of the construction

which the courts have consistently placed on statutes

similar in language to the Butler Act, and in view of the

fact that in making the Butler Act inoperative as to suits

involving federal taxes, Congress manifested an intention

of leaving the Declaratory Judgment Act applicable to

suits involving state and territorial taxes where relief by

way of injunction is not sought, the Butler Act cannot

properly be held to be applicable to the case at bar.

* Decisions of lower courts are in conflict. West Pub. Co. v.

McColgan, 138 F. 2d 320, 325 (C. C. A. 9, 1948), and Collier Adver-

ising Service v. City of New York, 32 F. Supp. 870, 872 (8S. D.

N. Y. 1940), hold that the ban of the Johnson Act includes a suit

for declaratory judgment even where an injunction is not sought.

Morrison-Knudsen Co. v. State Board of Equalization, 35 F. Supp.

/ 553, 555 (D. Wyoming 1940), sets forth a contrary conclusion.

_—

Even if Applicable to a Proceeding for Declaratory Judg-

ment, the Butler Act Would Not Deprwe the Court

of Jurisdiction for the Reason That Plaintiffs Are

Without a Remedy Under the Laws of Puerto Rico.

The complaint alleges that the plaintiffs ‘‘have no further

administrative remedy and no remedy whatsover in the

insular courts of Puerto Rico’’ (Record 9), and the Indus-

trial Tax Exemption Act itself expressly denies them any

remedy.

Section 16 of the Industrial Tax Exemption Act of

Puerto Rico provides (Record 37):

All resolutions and findings of the Executive Council

and of the Governor of Puerto Rico under the provi-

sions of this Act, shall be final, and no judicial or

administrative proceeding shall lie against the same.

Since Section 16 has not been declared unconstitutional

by the courts of Puerto Rico, we cannot treat it as non-

existent. This statute plainly denies any remedy in the

insular courts, and until it has been authoritatively con-

demned a plain, speedy, and efficient remedy cannot be

predicated upon the possibility that it may hereafter be

declared ineffective. Mountain States Co. v. Public Service

Commission, 299 U.S. 167, 170.

It is true that the Butler Act, 48 U.S.C. 872, unlike the

Johnson Act, 28 U.S.C. 1341 (which contains a similar

prohibition with respect to restraining the assessment or

collection of state taxes), does not in express terms make

its provisions inapplicable in cases when no ‘‘plain, speedy

and efficient remedy”’ exists. However, under the decisions

of this Court cited below, it seems clear that the Butler

Act must, nevertheless, be construed to be applicable only

in cases where a plain, speedy and efficient remedy exists

under the laws of Puerto Rico.

The language of the Butler Act is almost identical with

that of 26 U.S.C. 3653(a) [formerly R.S. 3224], as appears

from the following comparison:

[Except as otherwise provided] no suit for the pur-

pose of restraining the assessment or collection of

any tax shall be maintained in any court. (26 U.S.C.

3653(a)).

No suit for the purpose of restraining the assess-

ment or collection of any tax imposed by the laws of

Puerto Rico shall be maintained in the District Court

of the United States for Puerto Rico. (Butler Act, 48

U.S.C. 872; italics supplied.)

It will be seen that the provisions of these two statutes

here relevant are identical with the exception of the in-

sertion in the latter of the words ‘‘imposed by the laws

of Puerto Rico’’ and the substitution of the words ‘‘the

District Court of the United States for Puerto Rico’’, for

the words ‘‘any court’’.

This being true, 26 U.S.C. 3653(a) and the Butler Act are

subject to the same construction, and this Court has in a

number of instances held that the former is without applica-

tion where a plain, speedy and efficient remedy docs not

exist. E.g., Miller v. Standard Nut Margarine Co., 284

U.S. 498, 509-510; Allen -v. Regents of University of

Georgia, 304 U.S. 439, 449.

In the Miller case, this Court pointed out that R.S. 3224

(now 26 U.S.C. 3653(a)) is merely declaratory of the rule

generally followed by courts of equity that a suit will not

lie to restrain the collection of a tax upon the sole ground

of its illegality, and said (284 U.S. at 509) that although

the statute does not specifically refer to the generally recog-

nized exception to that rule, ie., that it is mot applicable

in cases involving exceptional circumstances, nevertheless,

‘the general words employed are not sufficient, and it

would require specific language undoubtedly disclosing

that purpose, to warrant the inference that Congress in-

-— ,

tended to abrogate that salutary and well established rule’’

(meaning the exception to the rule above stated.)

In the Allen case, this Court again expressly held that

R.S. 3224 ‘‘is inapplicable in exceptional cases where there

is no plain, adequate, and complete remedy at law.’’ 304

U.S. at 449.

An impelling reason why the courts should place the

same construction on the Butler Act which this Court placed

on R.S. 3224 in the Miler and Allen cases is that in adopt-

ing the Butler Act, it was unquestionably the intention of

Congress to give to Puerto Rico the same protection from

injunction which is afforded the States under R.S. 3224,

and nothing more.

This is clearly shown by the explanation made on the

floor of the Senate by Senator Bingham at the time the

Butler Act was being considered (68 Cong. Rec. 5025) :

‘*T will state that the change in the existing law is

this: The Organic Act of Porto Rico does not carry

to Porto Rico the general statutes of the United States.

Consequently, it has been possible and has proved an

extremely dangerous thing in the government of Porto

Rico for taxpayers to secure an injunction against

paying Porto Rican taxes in the court of the United

States. * * * This amendment is to apply the same rule

in Porto Rico that now applies on the continent of the

United States.’’ (Italics supplied.)

The rule to which Senator Bingham referred as then

applying ‘‘on the continent of the United States’’, was the

rule long followed by federal courts of equity, and

expressed in R.S. 3224, that an injunction will not be

granted to restrain the assessment or collection of taxes

where the taxpayer has a plain and adequate remedy at

law, which rule is, however, subject to the equally well

established exception enunciated and applied by this Court

in the Miller and Allen cases above cited, i.e., that the

courts will intervene and grant injunctive relief in such

cases where no plain and adequate remedy exists.

It is significant that later when Congress came to enact

the Johnson Act, it expressly included as a part of that

statute the exception applied by this Court in the cases

above cited.

Certainly, Congress did not intend to adopt a rule for

Puerto Rico more liberal than that which applies to the

States, for there can be no reason why, in the exercise of its

powers of taxation, a territorial possession such as Puerto

Rico should be subject to less surveillance by the federal

courts than one of the sovereign states of the Union. To

the contrary, both logic and political policy impel the con-

clusion that since a territory is a political unit of inferior

sovereignty, it should be subject to even greater federal

control than one of the sovereign states. This conclusion

has been reached by the courts in a number of instances:

* * * the theory of the relation between the federal

government and the states of the Union does not en-

courage or justify the independent equity interference

with the laws of the states that would be deemed

reasonable, necessary, and justifiable im respect to a

possession like Porto Rico, (Italics supplied.)

Benedicto v. West India, etc. Tel. Co., 256 Fed. 417,

at 419 (C.C.A. 1, 1919).

*** There is no interference with the insular courts

by the District Court of the United States for Puerto

Rico in the same sense as between state courts and

federal courts, as the insular courts and the District

Court of the United States for Puerto Rico were both

created by the same act and have no independent source

of existence.

Munoz v. Porto Rico Light & Power Co., 83 F. 2d

262, at 267 (C.C.A. 1, 1936); ef. Stainback v. Mo Hok

Ke Lok Po, 336 U.S. 368, 377.

There can be no basis for a contention that in adopting

the Butler Act, Congress intended to deprive the United

States District Court for Puerto Rico of jurisdiction in a

—_7_

case such as the one at bar where the taxpayer is afforded

no remedy whatsoever under the laws of Puerto Rico.

8. The Decision of the Court of Appeals Is on the Merits

and Amounts to an Unauthorized Exercise of Original

Jurisdiction by an Appellate Court.

As we have pointed out above (supra, pp. 6-8), the

decision of the Court of Appeals is based solely on the

proposition that the allegations of the complaint are in-

sufficient to state a cause of action on which relief can be

granted.

The court below did not pass on any of the jurisdictional

questions presented by the appeal.

It did not pass on the question of whether or not the Dis-

trict Court is required to take jurisdiction in a case where

the complaint is so drawn as to seek relief directly under

the Constitution and laws of the United States and the

claim of federal rights asserted is neither immaterial nor

wholly insubstantial and frivolous.

It did not pass on the question of whether or not the

Butler Act is applicable to a proceeding for declaratory

judgment wherein no relief is sought for the purpose of

restraining the assessment or collection of a tax, and where

the plaintiff is without any remedy whatsoever, under the

laws of Puerto Rico.

The Court of Appeals simply confused the question of

jurisdiction with the question of sufficiency of the allega-

tions of the complaint to state a cause of action.

The former question is one to be determined solely from

the form of the complaint and the intention of the pleader

as disclosed by the allegations. The latter question cannot

be determined except by inquiry into the merits of the alle-

gations after, and not before, jurisdiction is assumed. Bell

v. Hood, 327 U. S. 678.

We recognize the general principle that an appellate

court has the power to affirm a judgment of a lower court

on a ground or theory other than that on which the judg-

ment of the lower court is predicated. However, a court

of appeals has no original jurisdiction, and where, as in

the case at bar, the lower court has refused to take juris-

diction and has dismissed a complaint for lack of jurisdic-

tion, a court of appeals is without power to determine a

question which the lower court itself could have determined

only by the exercise of jurisdiction. The powers of a court

of appeals are solely those of an appellate court, and it

can pass on the merits of a cause only by way of review.

Stephenson v. Equitable Life Assur. Soc., 92 F. 2d 406, 410

(C. C. A. 4, 1987). Where the district judge did not pass

on the merits but dismissed the cause for lack of jurisdic-

tion, the merits are not before the court on the appeal and

only the jurisdictional question is before the appellate

court. Mississippi Power & Light Co. v. City of Jackson,

116 F. 2d 924, 926 (C. C. A. 5, 1941), certiorari denied, 312

U. S. 698; Purcell v. Summers, 126 F. 2d 390, 395-396

(C. C. A. 4, 1942), certiorari denied, 317 U. S. 640; cf.

Tripplehorn v. Cambron, 250 Fed. 605 (C. 0. A. 6, 1918).

The decision of the court delow is in conflict with all

the authorities cited above as to the proper scope of review

on appeal of a case which was dismissed by the district

court for lack of jurisdiction. Moreover, it is in conflict

with the decision of this Court in Bell v. Hood, supra, where

the complaint was drawn to state a claim arising under the

Constitution, and this Court reversed a judgment of dis-

missal for lack of jurisdiction and remanded the case for

a judgment on the merits even though that judgment should

dismiss the complaint for failure to state a cause of action.

See United States v. Williams, 341 U. 8. 58, at 66.

Surely, if this Court was without power to determine

the legal sufficiency of the allegations of the complaint in

the Bell case because the lower court had not taken juris-

diction, the Court of Appeals for the First Circuit exceeded

its powers in determining the legal sufficiency of the alle-

gations of the complaint in the case at bar.

| caer

In discussing the decision in Bell v. Hood, supra, in his

“Commentary on the United States Judicial Code,’’ Pro-

fessor James William Moore places his finger directly on

the reason for the error of the Court of Appeals in the

case at bar, when he says (page 144) :

‘Some courts have not fully understood this prin-

ciple, and have, after extensive analysis of plaintiff’s

claim, decided that the federal law did not support it

and dismissed the action for want of jurisdiction,

whereas, under the analysis of Bell v. Hood, the judg-

ment should be on the merits for the defendant.’’

There are sound reasons why an appellate court, in a

case where it has no original jurisdiction, does not and

should not have the power to determine the legal sufficiency

of the allegations of a complaint where jurisdiction has

not been assumed by the lower court.

In the first place, being on the merits, such a determina-

tion could not be made until after jurisdiction had been

assumed.

Where the lower court has refused to take jurisdiction

to determine a case on the merits, the appellate court can-

not do so. Its powers on appeal would be limited to a

consideration of the question of whether or not the lower

court in fact had jurisdiction. It could not affirm the judg-

ment denying jurisdiction on the ground the facts alleged

in the complaint fail to state a cause of action on which

relief could be granted, because a determination of that

question would in and of itself constitute the exercise of

jurisdiction. It would amount to the exercise of original

jurisdiction by the appellate court.

In the second place, a determination of the legal suf-

ficiency of the allegations of the complaint being on the

merits, would be a bar to a further proceeding in another

court and would result in a litigant’s rights being precluded

by the judgment of a tribunal which in fact has no juris-

diction of the subject-matter.

In the third place, if jurisdiction exists, the right of

amendment exists, and the litigant would be deprived of

this right by the decision of the appellate court.

In the case at bar, had the District Court assumed juris-

diction, the plaintiffs might have amended the complaint

so as to set out with more clarity and preciseness their

theory that the defendants had, with the express purpose

and intention of denying to the plaintiffs their constitu-

tional rights, entered into a conspiracy to deprive, and in

pursuance of such conspiracy, had deprived the plaintiffs

of the tax exemption to which they are entitled under the

laws of Puerto Rico.

Had the Court of Appeals reversed the judgment of the

District Court and remanded the case for a judgment on

the merits, the plaintiffs still might have amended their

complaint and remedied the defects pointed out by the

Court of Appeals.®

5 The suggestion of the court below (Record 42) that this case

was rendered moot by a Puerto Rican statute approved September

5, 1950, provides no proper ground for the denial of relief to pe-

titioners. That statute, Act No. 29, Laws P. R., 5th to 12th Spec.

Sess. 19551, p. 216 amends the Industrial Tax Exemption Act to

eliminate entirely the functions of the Executive Council in the ad-

ministration of the Act and to vest in the Governor the whole ad-

ministrative disposition of applications for tax exemption. The

court’s suggestion involves the question of abatement of actions

and subsitution of parties rather than mootness, and we submit

that the provisions of Rule 25(d), Federal Rules of Civil Procedure,

are not brought into play since the defendant territorial officials

have neither died nor resigned, nor have they ceased to hold office

within the meaning of that Rule.

This is not an action for mandamus to compel some specific

action by the defendant officials, as in Snyder v. Buck, 340 U. S. 15,

cited by the court below. Instead, it seeks a judgment declaring the

illegality of the denial by such officials of petitioners’ tax exemp-

tion application, thus establishing that such denial was null and

void ab initio. Petitioners’ application will therefore still be pend-

ing and can properly be acted on by the person who is Governor

just as in the case of all other applications that were pending on

September 5, 1950, when the Act was amended. Unless the results

of respondents’ illegal conspiracy can be undone in this way, thus

restoring petitioners’ application to a pending status, there is noth-

25.

We respectfully submit that the authority of the Court

of Appeals in the case at bar was limited to a determina-

tion of the jurisdictional question presented by the Dis-

trict Court decision from which the appeal was taken, and

that its action in disregarding that question and deciding

the case on the merits was an assumption of original juris-

diction and such a departure from the accepted and usual

course of judicial proceedings as to call for the exercise

of this Court’s power of supervision.

CONCLUSION.

The decision of the Court of Appeals affirming the judg-

ment of the District Court presents a situation which has

always been thought to be impossible under our form of

government and system of jurisprudence.

The decision leaves your petitioners—citizens of the

United States—without any tribunal whatsoever to hear

their plea that they have, by the unconscionable acts of

officials of the Puerto Rican Government, been deprived of

rights guaranteed to them by the Constitution.

The Industrial Tax Exemption Act of Puerto Rico, un-

der color of which the officials acted, expressly prohibiting

any review, administrative or judicial, your petitioners’

plea cannot be heard in the courts of Puerto Rico.

The District Judge having dismissed your petitioners’

complaint for lack of jurisdiction and that judgment hav-

ing been affirmed by the Court of Appeals, there is no

tribunal to which petitioners can turn, unless this Court

grants the writ of certiorari prayed for and it is finally

ing on which the Gov/rnor can act, as there is no showing that

the Governor has any authority to reopen or reconsider any action

of the Executive Council.

In any event, if the court below took its own suggestion seriously,

the only proper action for it to have taken would have been to

vaeate the judgment of the District Court and remand with direc-

tions to dismiss the action without prejudice to its renewal against

the proper party. See Snyder v. Buck, 340 U. 8. 15, 17-18, 22;

Updegraff v. Pace, 188 F. 2d 646, 649 (App. D. C. 1951).

held that the District Court is required to take jurisdiction ’

of the complaint. 4

Wuererorz, your petitioners pray that a writ of cer-

tiorari be granted under the seal of this Court, directed to”

the United States Court of Appeals for the First —

to the end that this cause may be reviewed and determined

by this Court as provided for by the statutes of the United g

States; and for such other and further relief as to this”

Court may seem | roper. 4

Respectfully submitted,

JosePpH B. Keenan,

Auvin O. West,

Rosert M. Ho.ires,

Water L. Newsom, Jz.,

j Wiis G. Grant,

( Attorneys for Petitioners.

eet pee eee

I Ueae

INDEX.

Page

ND 5 sng id's < chN OM b ob nah de Use ECE EOY 1

IE. wks SX viv Ads co oe 08S eke ea Oe 2

Q POON Seca aS ESS cS evice es 2

‘St I, a0. an sine ax nKpnceccnabasaanad oes. 3

“Gounterstatement of the Case ...............2-+.-2- 4

) The Allegations of The Amended Complaint... 4

). The Decisions. Below .................0..scec0ssees% 5

{c) Petitioners’ Argument. ..................40- 6

PRE Mac eh knot eRe Se Se ELD 6

Introductory Statement ....................... 6

The Court: of Appeals Correctly Held: That the

Complaint: Does Not State a:Federal’Claim...... 7

(a). The action does notiarise-under the-Constitu-

tion, laws or:treaties: of the United.

within the meaning. of Section 1331 of the

Judicial Code, 28 U.S2C. $1831. ............ 7

(b). The factual allegations are insufficient to

; make out a case for federal jurisdiction. ..... 8

8. As the Trial Court Held, This Suit is.Barred by

ee NON AE Seek AEE 9

_ (a) Petitioners have an adequate remedy at law 9

me (b)- od teas Act governs: suits for declaratory

i ie. ere reer er ester Seeks 11

> 4. As the Court Below Held (BR. 34), There are Other

Difficulties Which Defeat Petitioners’ Action. . 12

(a) There is no ‘case or controversy”’ within the

meaning of Article IIT, Section 2, of the Con-

OR tine pete y Greys gs SRR SERRE 12

ii Index Continued.

Page

(b) This is a suit against the Government of

Puerto Rico to which it has not consented. . 13

no legally enforceable right ............ Pers

GIN 6.0 1 ben nsk dk os Sates chided se eeRU bac bib cows 15

TABLE OF AUTHORITIES.

CaSEs:

Alabama Public Service Commission v. Southern By.,

OE AA IRs oo ov whee cd oho ha eee eeeie was 12

Denes ¥. cee, wee Ue i TG. on ks So ein shal cess 8,9

Bell’s Gap R. ae v. Commonwealth of Pennsylvania,

Ms TR ER idee kos vowel ys bensiiesece ce vouae 7, 14

Charleston, ores Ass’n v. Alderson, 324 U. 8. 182.. 9

Chicago & Southern Air Lines, Inc. v. Waterman S. 8.

RI Ie BAe le MUO nash ance p id done odtecodecaes 13

Christ Church v. Philadelphia County, 24 How. 300,

Be AT G8 iis vi ceo ON cA a Seok Oh aes 14

Colgrove v. Green, 328 U. S. 549................... 11

East Saginaw Salt Mfg. Co. v. East Saginaw, 13

WUE POM PE ME: OER 6 Sis onc ooh wks co bcs vavie e's 14

Fiddler v. Tax eens, Gof. BR 180. os os 1

Ford Motor Co. v. Dep ’t of Treas. of Indiana, 323

SEAS ESSE OE pp omg Ur oy ER ey Se 11, 13

Frisbie v. United States, 157 U. S. 160 ............ 14

Georgia Railroad and we Co. v. Redwine, — U.

S. —, 20 L. W. 4108 (decided January 28, 1952). 9, 10, 13

Grand Lodge of Louisiana v. New Orleans, 166 U. 's.

SURGE CNL EEES DROR EUR Cue kk wkd bonae kes Bees 14

‘Great Lakes Dredge & Dock Co. v. Huffman, 319

U. ~ TD ose env s sacs oso wK othe ce eadeew cas 2,11

PEE heknGpaeehens Cas Galen ss Via RN is Ces 7

tae v. Domestic & Foreign Commerce Corpora-

SON, ET te I hk hw hh ie a 8 ooo ce Sk oe oes 13

— and Nashville R. Co. v. Mottley, 211 U. &

EF ia APES AREA CHR Rea wb Kine CESK CORKAD RE WiEDS 7

Madden v. Commonwealth of Kentucky, 309 U.S.184 9

McGrath v. Kristensen, 340 U. S. 162.............. 8

Minot .v. Philadelphia, Wilmington & Baltimore

Railroad Company, 18 Wall. 206 21 L. Ed. 888, 894 14

Index Continued. iii

Page

Mine Safety Appliances Co. v. Forrestal, 326U.S.371 14

Missouri v. Dockery, 191 U. S. 165..............+.-- 9, 14

Mobile & O. R. Co. v. Tennessee, 153 U. S. 486....... 14

Perkins v. Elg, 307 U. 8S. 325..........-...-0--00 8

Puerto Rico v. Russell & Co., 288 U. S. 476........ 7

Rogers v. Hennepin County, 240 U. S. 184.......... 7

Skelly ane v. Phillips Petroleum Co., 339

BIRO IET R e ees Oo eee

Snowden v. Hughes, 321 U.S.1..........----+-000> 9

Stark v. Wickard, 321 U. S. 288 ..........--.....- 14

Toomer v. Witsell, 334 U. S. 385 ..........-----ees 11

Tucker v. Ferguson, 22 Wall. 527, 22 L. Ed. 805..... 14

United States ex rel; Burnett v. Teller, 107 U. S. .

Be icc caves SARS bu eee winare mene erenceans i

United States v. Williams, 341 U.S. 58 ............ 8

Welch v. Cook, 97 U. S. 541, 24 L. Ed. 1112 ........ 14

West Wisconsin R. Co. v. Board of Supervisors of

County of Trempealeau, 93 U. S. 595, 23 L. Ed. 814 14

Wisconsin & M. R. Co. v. Powers, 191 U. 8. 379 .... 14

Worcester County Trust Co. v. Riley, 302 U. 8. 292 13

ConsTITUTION AND STATUTES.

Article III, Section 2 of the Constitution of the

DE TOU oo von kas Car sene bh usaeaeaeanaeees 2,12

ETT Th © PCRS oops bods aces eoeceasbouernes 2

Oe, Be ee BO ok 03s Ces nee ews aner POPE.

ee OSM ind cacpawi vane asad anvenbeeveko 4, 7,8

BT A), SB AOEE inn si benkaesk<cceuswsenweeenon 10

Sm See hy eM Ep Sane rare nn 4

The Federal Declaratory Judgment Act (28 U. 8S. C.

BE SS A BIG) oo 50 nk canned cece mecsaen neers

The Butler Act (47 Stat. 158, 48 U. S. C. §872) .2, 4, 5, 6,9

The Industrial Tax Exemption Act of Puerto Rico

(Act 184 of May 13, 1948, Laws P. R. 1948, pp.

482-514, as amended by Act No. 29 of September

5, 1950, Laws P. R. 5th to 12th. Spec. Sess. 1950-

SBS oh, BEB) iis hs scncss ecpuweuner ss 3, 4, 5, 6, 7, 11

Puerto Rican Act No. 232 of May 10, 1949 (Laws

PB, B. 1940, pp. 790-722) oss. sare sa's slieescndans 4,10

Puerto Rican Act No. 328 of May 13, 1949 (Laws

P. TR 2080, pe. DUS-1000) «o.oo n ecb tin eas 4,10

IN THE

Hupreme Court of the Anited States

Ocroser Term, 1951.

No. 558.

EverLastine DeveLopmMEenT Corporation, LoNG CORPORATION,

and L. D. Lone, Petitioners,

So. Luis Descartes, Jornce J. Jimenez, Vicente GrIcEL

Poutanco, Mariano Vittaronaa, Ramon Coton Torres,

Fernanpo Sierra Berpecia and Juan A. Pons, as mem-

bers of the Executive Council of Puerto Rico, and

Vicente Grice Potanco, as Attorney General of

Puerto Rico, Respondents.

BRIEF IN OPPOSITION TO PETITION FOR WRIT OF

CERTIORARI TO THE UNITED STATES CIRCUIT

COURT OF APPEALS FOR THE FIRST CIRCUIT.

OPINIONS BELOW.

Petitioners have applied for a writ of certiorari to re-

view the judgment of the United States Court of Appeals

for the First Circuit entered in this case on November 2, *

1951 (R. 42)... The opinion of the Court of Appeals (R.

33-42) is reported in 192 F.2d 1 (1951). That Court af-

firmed an order, entered on March 6, 1951, by the United

States District Court for the District of Puerto Rico, grant-

ing Respondents’ motion for dismissal of the complaint

(R. 26). The opinion of the District Court (R. 12-26) is

reported at 95 F’. Supp. 954.

JURISDICTION.

The jurisdiction of this Court is invoked under Section

1254(1), Title 28, United States Code.

QUESTIONS PRESENTED.

1. Whether the Court below correctly dismissed the com-

plaint for lack of federal jurisdiction of the subject matter,

because the complaint did not ‘‘make out a case arising un-

der the constitution or laws of the United States.’’

2. Whether the District Court properly dismissed the

complaint because jurisdiction was barred by the Butler

Act, 48 U.S.C. § 872, and under the equitable principles

stated by this Court in Great Lakes Dredge & Dock Co. v.

Huffman, 319 U.S. 293.

3. Whether, in any event, the complaint was dismissible,

for lack of jurisdiction, because it raised no ‘‘case or con-

troversy’’ within the meaning of Article III, Section 2 of

the Constitution of the United States.

4. Whether, in any event, the complaint was dismissible,

for lack of jurisdiction, because suit was brought against

the Government of Puerto Rico without its consent.

5. Whether, in any event, the complaint was dismissible,

for lack of jurisdiction, because petitioners had no legally

enforceable right to tax exemption.

1 The petition for rehearing was denied on November 30, 1951

(R. 43).

STATUTES INVOLVED.

1. (a) The Industrial Tax Exemption Act of Puerto Rico

(Laws P. R, 1948, pp. 482-514).

As its preamble states, the purpose of the Act is to de-

velop the economy of Puerto Rico by encouraging the estab-

lishment of new industry (Laws P. R. 1948, pp. 482-486).

The Act provided in substance that exemption from insular

taxes might be granted to persons who demonstrated ‘‘to

the satisfaction of the Executive Council’’ of Puerto Rico

(Laws P. R. 1948, p. 494) that they had established new

facilities for the production of a ‘‘manufactured product

on a commercial scale’’, unless ‘‘in the exercise of a sound

judgment’’, the Council found that tax exemption would

accord the favored party a ‘‘substantial advantage’’ over

competitors already producing ‘‘similar articles of com-

merce’’ in Puerto Rico (Laws P. R. 1948, pp. 492-494). In

the latter event, the exemption might nevertheless be

granted by the Council in the exercise of its discretion,

but only if similar exemption were accorded to competitors

(id. 494).

The Act further stipulated that ‘‘a grant of tax exemp-

tion approved by the Executive Council shall not be effec-

tive until the same has been approved by the Governor of

Puerto Rico’’ (Laws P. R. 1948, p. 508) (Emphasis sup-

plied).

The finality of determinations of the Executive Council

and the Governor was prescribed as follows (Laws P. R.

1948, p. 512):

‘*Section 16. A!! resolutions and findings of the Exec-

utive Council and of the Governor of Puerto Rico un-

der the provisions of this Act, shall be final and no

judicial or administrative proceeding shall lie against

the same.’’

(b) The Industrial Tax Exemption Act of Puerto Rico,

as amended by Act No. 29, approved September 5, 1950

(R. 42); (Laws P. R. 5th to 12th Spec. Sess. 1950-1951, p.

216).

The effect of the amendments was to eliminate the func-

tions of the Executive Council in respect of tax exemption

and to vest entire responsibility therefor in the Governor.

Section 16 was left unchanged except for the deletion of

the reference to the Council.

2.(a) Puerto Rican Act No. 232 of May 10, 1949, au-

thorizing taxpayers to sue in the Tax Court of Puerto Rico

for the recovery of insular taxes already paid (Laws P. R.

1949, pp. 720-722). :

(b) Puerto Rican Act No. 328 of May 13, 1949, author-

izing litigation of liability for insular taxes in the Tax

Court of Puerto Rico, upon the posting of a security bond

by the taxpayer (Laws P. R. 1949, pp. 998-1000).

3. The Butler Act (48 U.S.C. § 872), which provides as

follows:

‘*No suit for the purpose of restraining the assess-

ment or collection of any tax imposed by the laws of

Puerto Rico shall be maintained in the District Court

of the United States for Puerto Rico.’’

4. 28 U.S.C. § 13381.

5. The Federal Declaratory Judgment Act (28 U.S.C.

$§ 2201 and 2202. —

COUNTERSTATEMENT OF THE CASE.

(a) The Allegations of The Amended Complaint.

1. The amended complaint, alleging jurisdiction solely

under 28 U.S.C. § 1331, was filed in the United States Dis-

trict Court for the District of Puerto Rico on March 3,

1950 (R. 2). A declaratory judgment was prayed that peti-

tioners ‘‘are eligible for and entitled to tax exemption’’

under the Industrial Tax Exemption Act of Puerto Rico

(R. 9).. Named as defendants were seven individuals in

their capacity as members of the Executive Council of

Puerté Rico, 48 Stat. 1168, 48 U.S.C. § 777, and the Attor-

eI"

ney General (R. 3, 34). The Governor was not joine%, al-

though his approval was necessary to a grant of tax exemp-

tion (R. 3).

2. The complaint alleged that petitioners had entered

into ‘‘the production and sale on a commercial scale in

Puerto Rico of low-cost houses as a manufactured product

... 7? (BR. 3). Such houses were described as ‘articles

of commerce’’ (R. 3) produced by a ‘‘new plant, factory,

machine, or machine ensemble’’, which performed the func-

tion of ‘‘the assembly and joining of members and parts”?

(R. 4).

3. It was complained that defendants ‘‘granted tax ex-

emptions to all other industrial units qualified therefor

under the Industrial Tax Exemption Act of Puerto Rico’’

(R. 6), but ‘‘arbitrarily, eapriciously, unlawfully and with

intent to discriminate against these plaintiffs denied the

exemptions to which they are entitled’ (R. 8-9). There

was no suggestion that tax exemption had been granted to

any applicant similar to plaintiff or engaged in construct-

ing houses.

4. While the case was pending before the District Court,

an amendment te the Industrial Tax Exemption Act ap-

proved September 5, 1950, eliminated the Council’s func-

tions and vested sole responsibility for the grant of exemp-

tions in the Governor (R. 42; Laws P. R., 5th to 12th Spee.

Sess. 1950-1951, p. 216), who is not a party to this action.

(b) The Decisions Below.

5. The District Court sustained defendants’ motion to

dismiss the complaint (R. 26), holding that the action was

barred by the Butler Act, 48 U.S.C. § 872, which prohibits

suits in the United States District Court to restrain assess-

ment of Puerto Rican taxes. The Court rejected the claim

that no remedy was available in the insular courts, point-

ing out that ‘‘an adequate procedure’’ was specifically pro-

vided by insular law in which constitutional questions

might be litigated and, further, that under 28 U.S.C. § 1293

an appeal from the insular decision could be carried to the

federal appellate courts (R. 18, 20).

6. On appeal, the United States Court of Appeals for the

First Circuit, after noting that ‘‘there are other difficulties

with appellant’s case’’ (R. 34), affirmed on the ground that

the ‘‘factual allegations of the complainant fall far short of

setting forth a substantial federal claim within the juris-

diction of the court below under 28 U.S.C. § 1331’ (R.

41-42).

7. Petitioners argue that the complaint ‘‘though perhaps

loosely drawn and wanting in some factual allegations’’

(Pet. br. 10), sets forth a claim for relief directly under

the Constitution of the United States. This claim, they

assert, is found in the allegations of the complaint that

respondents wilfully, arbitrarily, capriciously and with in-

tent to discriminate, denied tax exemption to petitioners,

and that this denial violated the equal protection and due

process clauses. Petitioners also argue that the Butler Act

does not bar a proceeding for declaratory judgment, or, in

the alternative, that the Butler Act is not applicable be-

cause petitioners have no adequate remedy under Puerte

Rican law since the Industrial Tax Exemption Act pro-

vides that the decisions of the Executive Council and the

Governor of Puerto Rico shail be final ‘‘and ao judicial or

administrative proceeding shall lie against the same.’’

ARGUMENT.

1. Introductory Statement. The Industrial Tax Exemp-

tion Act of Puerto Rico, as its preamble recites, is designed

to aid in improving the economic conditions of Puerto Rico

by encouraging industrialization (Laws P.R. 1948, pp.

482-484). For this purpose the legislature provided for

grant of tax exemption to restricted classes of new indus-

tries. The statute prescribes general standards of eligi-

bility for exemption and commits determinations there-

under to the judgment and discretion of the executive

branch of the government.

2. The Court of Appeals Correctly Held That the Com-

plaint Does Not State a Federal Claim.

(a) The action does not arise under the Constitution,

laws or treaties of the United States, within the meaning

of Section 1331 of the Judicial Code, 28 U.S.C. § 1331.

The amended complaint shows on its face that the question

presented is primarily one of local law concerning the con-

struction of the Industrial Tax Exemption Act of Puerto

Rico. Petitioners’ first prayer for relief asks a declaration

that they are ‘‘eligible for and entitled to tax exemption

under the provisions of Act 184 of May 13, 1948 of the Leg-

islature of Puerto Rico’’ (R. 9). In substance, they allege

that Respondents wrongfully construed and applied the

provisions of the Act. Their whole case is based on that

‘‘local’’ question. In such circumstances, the cause of ac-

tion does not arise under the Constitution or laws of the

United States for purposes of jurisdiction of the United

States District Courts. Skelly Oil Company v. Phillips

Petroleum Co., 339 U.S. 667; Gully v. First National Bank

in Meridian, 299 U.S. 109; Puerto Rico v. Russell € Co.,

288 U.S. 476; Louisville and Nashville R. Co. v. Mottley,

211 U.S. 149, 152.?

2 Petitioners do not challenge the validity of the Tax Exemption

Act itself. Nor could they. It was long ago settled that the equal

protection clause does not outlaw tax exemption statutes. Rogers v.

Hennepin County, 240 U. 8. 184, 191; Bell’s Gap R. Co. v. Common-

wealth of Pennsylwania, 134 U. S. 328, 237. The instant case differs

from Georgia Railroad and Banking Co. v. Redwine, — U. 8. —,

20 L. W. 4108 (decided January 28, 1952), which involved a suit to

erjoin the assessment or collection of taxes which the railroad as-

serted were unconstitutional in that the railroad had been granted

exemption from the taxes in question by its charter of incorporation

and that later legislation purporting to revoke such exemption was

an impairment of the obligation of contract in contravention of

Article I, Section 10 of the Constitution.

Such cases as Bell v. Hood, 327 U.S. 678, and United

States v. Williams, 341 U.S. 58, 66, are of no aid to peti-

tioners. The relief sought in this case does not derive di-

rectly from the federal Constitution or laws. The right

asserted here is to tax exemption under a non-federal stat-

ute. Hence, the amended complaint is not, as Bell v. Hood

requires, ‘‘so drawn as to seek recovery directly under the

Constitution or laws of the United States’’ (id. at 681);

nor do ‘‘the alleged violations of the Constitution . . . form

... the sole basis of the relief sought’’ (id. at 683). Rather,

within the meaning of that case, ‘‘the alleged claim under

the Constitution or federal statutes clearly appears to be

immaterial and made solely for the purpose of obtaining

jurisdiction’’ (id. at 682). The federal courts will not as-

sume jurisdiction in such cases under Section 1331 of the

Judicial Code.*

(b) The factual allegations are insufficient to make out

a case for federal jurisdiction. As the Court of Appeals

found, the complaint merely alleges that the Executive

Council of Puerto Rico ‘‘upon an erroneous interpretation

of a local statute’’ denied tax exemption to petitioners,

having properly granted it to other persons differently

situated (R. 41). As the Court stated, ‘‘The complaint in

the case at bar, however, carefully refrains from alleging

that tax exemption has been granted to other persons in

like case with the plaintiffs, engaged in the mass produc-

tion of low cost housing.’’ (Jd.)

In these circumstances, the complaint clearly fails to

state facts upon which a claim of denial of due process or

equal protection of the laws may be based. The general

allegations in the complaint that respondents acted ‘‘arbi-

* Petitioners cite McGrath v. Kristensen, 340 U. S. 162, and Per-

kins vy. Elg, 307 U. 8. 325 (Pet. Br. 11, 12), apparently to ’show that

federal jurisdiction may be invoked to determine “‘status”’. Both

of those cases, however, concerned a preliminary question of status

under a federal statute and not, as here, a demand for relief under

a local tax exemption law.

err

trarily, capriciously, unlawfully and with the intent to dis-

criminate’’ (R. 6, 8), are of no avail. Such ‘‘opprobious

epithets’? are meaningless (Snowden v. Hughes, 321 U.S.

1, 10; Missouri v. Dockery, 191 U.S. 165, 172).*

The Court of Appeals, therefore, correctly affirmed the

dismissal of the complaint, on the grounds of failure to

state a claim under the federal Constitution or laws. Snow-

den v. Hughes, 321 U.S. 1, 13. In the words of that case:

“There is no allegation of any facts tending to show that

in refusing to [exempt] petitioner[s] . . . the [Council]

was making any purposeful discrimination between per-

sons or classes’’ (321 U.S. at 7) (Emphasis supplied).

In the light of the foregoing principles, which the Court

of Appeals correctly applied, the amended complaint in

this case falls far short of meeting the requirements for

the statement of a cause of action arising under the Con-

stitution or laws of the United States and was therefore

properly ‘‘dismissed for want of jurisdiction’ (Bell v.

Hood, 327 U.S. 678, 682).°

3. As the Trial Court Held, This Suit is Barred by The

Butler Act.

(a) Petitioners have an adequate remedy at law. This

suit is clearly within the ban of the Butler Act, 47 Stat.

158, 48 U.S.C. § 872, which provides:

4 Legislatures have the test freedom”’ in establishing classes

for tax purposes (Madden v. Commonwealth of Kentucky, 309 U. 8.

184, 191), imeluding classes of exempt institutions or property.

Rogers v. Hennepin Cow , 240 U. S. 184, 191. Allegations of

| erroneous denial of an application do not raise a constitutional issue.

Charleston, ete. Ass’n. v. Alderson, 324 U. 8. 182, 190. The same

standards governing review of challenged legisietion «ply to exeeu-

tive action. Snowden v. Hughes, 321 U. S. 1, 10.

5 Petitioners appear to argue that the Court below merely found

that the allegations of the complaint were insufficient to state «

constitution or laws.

‘*No suit for the purpose of restraining the assess-

ment or collection of any tax imposed by the laws of

Puerto Rico shall be maintained in the District Court

of the United States for Puerto Rico.’’

As the trial court noted (R. 22), even if the Butler Act,

like the comparable legislation applying to the states (28

U.S.C. § 1341), were limited to cases where there is ‘‘a

plain, speedy and efficient’’ local remedy, it would bar this

case. Local procedures are available whereby petitioners

may litigate any constitutional questions through the In-

sular Tax Court, with the right of appeal to the Supreme

Court of Puerto Rico and the federal appellate courts (R.

18-20). They may (i) post bond and litigate their tax lia-

bility (Laws P. R. 1949, pp. 998-1000) or (ii) pay the taxes

and sue to recover them (id. pp. 720-722). Following the

judgment of the District Court in this case, suit was in

fact filed under these provisious (Case No. I-182 in the

Tax Court of Puerto Rico, on September 17, 1950; see

note 7, infra).

Petitioners challenge the adequacy of the local remedy

only on the ground that Section 16 of the Industrial Tax

Exemption Act accords finality to the decisions of the Ex-

ecutive Council and the Governor. They apparently argue

that because the statute accords finality to these decisions,

petitioners will be unable to obtain adjudication of their

contentions in proceedings begun in the insular courts.

That, of course, is without substance. The constitutional-

ity and effect of Section 16 of the Industrial Tax Exemp-

tion Act may be adjudicated in the insular as well as in

the federal courts, and petitioners may litigate before the

insular courts any appropriate constitutional issues.®

® The situation in Georgia Railroad & Banking Co. v. Redwine,

supra, is entirely different from the instant case. In the Redwine

case, this Court held that none of the three remedies which the State

of Georgia suggested was available to appellant constituted a ‘‘ plain,

speedy and efficient’? remedy. One of the remedies had already

been held by the Georgia courts to be unavailable. As to the other

_ two remedies, one required the filing of more than 300 separate

- =

As the trial court stated with respect to this question

(R. 20) : iad

‘¢When the insular courts acquire jurisdiction by rea-

son of the plaintiffs bringing an action pursuant to the

tax appeals procedures of insular law, it will be the

duty of those courts to inquire into the merits of the

alleged violations of the constitutional rights of the

plaintiffs and to preserve those rights unimpaired.

That it is obligatory upon the Tax Court of Puerto

Rico to make such inquiry is made clear by the deci-

sion in Fiddler v. Taw Court, 65 P.R.R. 189, 191-192.’’

The adequacy of petitioners’ remedy at law is accordingly

plain. Toomer v. Witsell, 334 U.S. 385, 392; ef. Ford Mo-

tor Co. v. Dept. of Treas. of Indiana, 323 U. 8. 459, 470".

(b) The Butler Act Governs Suits for Declaratory Re-

lief. The complete answer to the argument that the Butler

Act does not apply to suits for declaratory judgment (Pet.

Br. 14) was stated as follows by this Court in Colgrove v.

Green, 328 U. S. 549, 551-2:

‘‘The Declaratory Judgment Act ‘only provided a new

form of procedure for the adjudication of rights in

conformity’ with ‘established equitable principles.’

Great Lakes Dredge & Dock Co. v. Huffman, 319 U. 8.

293, 300, 63 S. Ct. 1070, 1074, 87 L. Ed. 1407. And so,

suits in 14 different counties and the other remedy was applicable

to recover less than 15% of the amount in controversy. No such

obstacles are present here.

ended May 31, 1950, in the very same situation that

to litigate in this action. Its complaint alleged that it was

to tax exemption under Act No. 184 of May 13, 1948, and that

Executive Council has ‘‘erroneously, arbitrarily.

in derogation of plaintiff’s constitutional

i I rights”

it. (Case No. I-182 in the Tax Court of Puerte

the test for determining whether a federal court has

authority to make a declaration such as is here asked

is whether the controversy ‘would be justiciable in this

Court if presented in a suit for injunction...’ ”’

Petitioners’ view, indeed, would emasculate the Butler Act

and its state counterpart. In any event, as the trial court

discerned (R. 22-26), the adequacy of the local remedy

would deny the exercise of federal jurisdiction on ordinary

principles of equity, wholly apart from the proscription of

the Butler Act. Great Lakes Dredge & Dock Co. v. Huff-

man, 319 U.S. 293; ef. Alabama Public Service Commission

v. Southern Ry., 341 U.S. 341.

4. As the Court Below Held (R. 34), There Are Other

Difficulties Which Defeat Petitioners’ Action. ;

(a) There is no ‘‘case or controversy’’ within the mean-

ing of Article III, Section 2, of the Constitution. The

courts could not enter a legally effective order in this case.

The only defendants are the members of the Executive

Council. The Governor is not a party. Tax exemption

could not become effective under the statute as it was in

effect when the complaint was filed, without the approval

of the Governor (Laws P.R. 1948, p. 508). While this action

was pending in the District Court and long before it

entered its judgment, the functions of the Executive Coun-

cil were eliminated and vested entirely in the Governor

(R. 42; Act No. 29, approved September-5, 1950, Laws P.R.

5th to 12th Spec. Sess. 1950-1951, p. 216). Consequently,

under either the original or the amended legislation, the

complaint did not permit the entry of an order legally

effective to establish petitioners’ rights as against the off-

cials vested with final authority. A judgment that peti-

tioners were entitled to tax exemption—an indispensable

premise to a finding for petitioners on the constitutional

issues—would have been ‘‘an advisory opinion in its most

obnoxious form.’’ (Chicago & Southern Air Limes, Ime. vv.

Waterman S. 8. Corp., 333 U.S. 103, 113."

(b) This is a suit agamst the Government of Puerto Rico

to which it has not consented.

This is in substance an action against the Government

of Puerto Rico. This Court has ‘‘previously held that the

nature of a suit as one against the state is to be determined

by the essential nature and effect of the proceeding” (Ford

Motor Co. v. Department of Treasury of State of Indiana,

323 U.S. 459, 464). Since petitioners seek a determination

of tax exemption which respondents could have granted

only in their collective official capacity as the Executive

Council of Puerto Rico, the suit must necessarily fail as

one against the sovereign. Ford Motor Co. v. Department

of Treasury of State of Indiana, supra; Worcester County

Trust Co. v. Riley, 302 U.S. 292; Larson v. Domestic &

Foreign Commerce Corporation, 337 U.S. 682. The issue

is particularly clear here since the relief sought is ‘‘affir-

mative’’ action by respondents—the issuance of a certi-

ficate of tax exemption. To quote the Court in the Larson

case, supra (337 U.S. at 691, footnote 11) :

‘*Of course, a suit may fail, as one against the sover-

eign, even if it is claimed that the officer being sued

has acted unconstitutionally or beyond his statutory

powers, if the relief requested cannot be granted by

merely ordering the cessation of the conduct com-

plained of but will require affirmative action by the

sovereign or the disposition of unquestionable sover-

eign property.’’

See also Georgia Railroad & Banking Co., v. Redwine,

supra, 20 L. W. at 4110, footnote 15. The character of the

suit as one against the sovereign is, of course, unaffected

® Considering the purpose and provisions of the Insular Exemp-

tion Act, even if the Governor had been joined, judicial power would

not be exercisable to control his action (Chicago & Southern Air

Lines, Inc. v. Waterman 8. 8. Corp., 383 U. S. 103, 111-112.)

by the circumstance that the prayer for relief seeks only a

declaratory judgment. See, e.g., Mine Safety Appliances

Co. v. Forrestal, 326 U.S. 371, 375, and note 4.

Legally Enforceable Right.

This Court has repeatedly characterized statutes grant-

ing tax exemption as conferring no rights, but only ‘‘a mere

gratuity or bounty’’ (Grand Lodge of Louisiana v. New

Orleans, 166 U.S. 143, 149). Christ Church v. Philadelphia

County, 24 How. 300, 16 L. Ed. 602;Hast Sagmaw Salt

Mfg. Co. v. East Saginaw, 13 Wall. 373, 20 L. Ed. 611;

Tucker v. Ferguson, 22 Wall. 527, 22 L. Ed. 805; West Wis-

consin R. Co. v. Board of Supervisors of County of Tremp-

ealeau, 93 U.S. 595, 23 L. Ed. 814; Welch v. Cook, 97 U.S.

541, 24 L. Ed. 1112; Wisconsin & M. R. Co. v. Powers, 191

U.S..379. Moreover, it has long since been established that

tax exemption may be constitutionally accorded to some

and withheld from others, notwithstanding the equal pro-

tection clause of the federal Constitution. Bell’s Gap R

Co. v. Commonwealth of Pennsylvania, 134 U.S. 232, 237;

Missouri v. Dockery, 191 U.S. 165, 171; Minot v. Philadel-

phia, Wilmington & Baltimore Railroad Company, 18 Wall.

206, 225, 21 L. Ed. 888, 894.

The jurisdiction of the courts over petitioners’ claim of

right to tax exemption was thus effectively barred, par-

ticularly in light of Section 16 of the Tax Exemption Act.

‘*To reach the dignity of a legal right in the strict sense, it

must appear from the nature and character of the legisla-

tion that Congress intended to create a statutory privilege

protected by judicial remedies’’ (Stark v. Wickard, 321

U.S. 288, 306). See also Untted States ex rel. Burnett v.

Teller, 107 U.S. 64, 68; Frisbie v. United States, 157 U.S.

160, 166; Mobile & O. R. Co. v. Tennessee, 153 U.S. 486, 501.

CONCLUSION.

We respectfully suggest that the attempt to invoke federal

jurisdiction in this situation is directly counter to the de-

cisions of this Court and the development of Congressional

policy, both of which have increasingly insisted upon fully

recognizing the jurisdiction of Puerto Rico institutions of

government, and upon narrowly restricting federal juris-

diction.

For the foregoing reasons, the petition for certiorari

should be denied.

Respectfully submitted,

Victor Gutrerrez FranQul,

Attorney General of Puerto Rico.

By: Jost Trias Monaez,

Ase Forras,

Special Assistant Attorneys Gen-

eral of Puerto, Rico,

Attorneys for Respondents.

Of Counsel:

Norman Dtamonp,

Arno, Fortas & Porter,

1200 18th St., N. W.,

Washington, D.C.

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