# Brief for the Respondents in Opposition — Niagara Hudson Power Corp. v. Hoey

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Brief for the Respondents in Opposition
- **Published:** January 1, 1941
- **Citation:** 313 U.S. 571

## Text

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INDEX

Page
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RNRMNONN cls ne rhe io dee On as kas Seana evewadan cis 1
PON oats on Hk ase wees Disue ane cock ewee 2
Statutes and regulations involved__....__.__.__......___.___ tS
ptatement............ mee peo Iai dss Sh geass 4
NE A ea PENE Chin de Se uae ann aw kk ou sao ae au wis wien 8
DENIM Seo rea eae eta Sey ek ae eet 11
CITATIONS
Cases:
Founders General Co. v. Hoey, 300 U. 8. 268.._..._______ 8
Helvering v. Metropolitan Edison Co., 306 U.S. 522__.___- 11
Koppers Coal & Transportation Co. v. United States, 107 F.

Ra? PM wanda cena bee cakaaeeu les Eee eet ee eae
Morgan v. Commissioner, 309 U. S. 78._.__.___________- 11
Provost v. United Statrs, 269 U. S. 443_._._.___..._____. 8
Raybestos-Manhattan Co. v. United States, 296 U. S. 60____ 8
United States v. Merchants National Trust & Savings Bank,

SOAS ORO Pee ene he eas aia ig ngd.. 9,11
Week v. Kerckhef, 64 F. (9d) 206...................... 10

Statutes:
Revenue Act of 1926, c. 27, 44 Stat. 9:
Section 800 (U. 8S. C., Title 26, Sec. 900)_.__________ 2
Schedule A-3, as amended (U.S. C., Title 26, Sec. 902) _ 2
Miscellaneous:
Treasury Regulations 71 (1932 Ed.):
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aceidl h aim Anh Win ears Woda Wakeimanicew accismioen beaded 4

811357—41

Inthe Supreme Court of the Wnited States

OctToBER TERM, 1940

No. 871

NraGara Hupson Power CorPoRATION, PETITIONER
v.
JAMES J. Hoty, COLLECTOR OF INTERNAL REVENUE

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED
STATES CIRCUIT COURT OF APPEALS FOR THE SECOND
CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The opinion of the District Court (R. 83-87) is
reported in 34 F. Supp. 302. The opinion of the
Circuit Court of Appeals (R. 94-96) is reported in
117 F, (2d) 414.

JURISDICTION

The judgment of the Circuit Court of Appeals
was entered February 19, 1941 (R. 97). The pe-
tition for writ of certiorari was filed March 26, 1941.
The jurisdiction of this Court is invoked under
(1)

Section 240 (a) of the J udicial Code, as amended
by the Act of February 13, 1925.

QUESTION PRESENTED

Whether a corporation resulting from a consoli-
dation of two existing corporations under Section
86 of the New York Stock Corporation Law is
liable for the federal documentary stamp tax levied
by Section 800, Schedule A-3, of Title VIII of the
Revenue Act of 1926, as amended, upon the aequi-
sition of the stocks owned by the constituent
companies.

STATUTES AND REGULATIONS INVOLVED

Revenue Act of 1926, ¢. 27, 44 Stat. 9:

Src. 800. On and after the expiration of
thirty days after the enactment of this Act
there shall be levied, collected, and paid, for
and in respect of the several bonds, deben-
tures, or certificates of stock and of in-
debtedness, and other documents, instru-
ments, matters, and things mentioned
and described in Schedule A of this title,
* * * the several taxes specified in such
schedule. * * *.

ScHEDULE A.—StTaMP TAXES

* * * * *

3. (As amended by Section 723 (a) of the
Revenue Act of 1932, ¢. 209, 47 Stat. 169, and
the Act of June 29, 1936, ¢. 865, 49 Stat.
2029.) On all sales, or agreements to sell,
or memoranda of sales or deliveries of, or

3

transfers of legal title to any of the shares
or certificates mentioned or described in
subdivision 2, or to rights to subscribe for
or to receive such shares or certificates,
whether made upon or shown by the books
of the corporation or other organization, or
by any assignment in blank, or by any de-
livery, or by any paper or agreement or
memorandum or other evidence of transfer
or sale (whether entitling the holder in any
manner to the benefit of such share, cer-
tificate, interest, or rights, or not), on each
$100 of par or face value or fraction thereof
of the certificates of such corporation or
other organization (or of the shares where
no certificates were issued) 4 cents until
July 1, 1937, and 2 cents thereafter, and
where such shares or certificates are with-
out par or face value, the tax shall be 4
cents until July 1, 1937, and 2 cents there-
after, on the transfer or sale or agreement
to sell on each share (corporate share, or in-
vestment trust or other organization share
as the case may be). * * *.

Treasury Regulations 71 (1932 ed.) :

Art. 34. Sales or transfers subject to
tax.—The following are examples of trans-
actions subject to the tax:

* * * * *

(r) Upon a merger, the transfer of stock
owned by a corporation which is merged
into another corporation from the name of
the first to the name of the second corpora-

a

tion, such a transfer being effected by the
act of the parties and not wholly by opera-

tion of law.

* * * * *

Art. 35. Sales or transfers not subject to

tax.—The following are examples of trans-

actions not subject to the tax:
* * *

(x) Transfers of shares or certificates of
stock which result wholly by operation of
law are not subject to the tax. Transfers of
this character are those which the law itself
will effect without any voluntary act of the
parties, such as transfer of stock from
decedent to executor.

* * *

* *

* *

STATEMENT

The facts, which were stipulated (R. 17-81), may
be summarized as follows:

The petitioner was formed on February 1, 1937,
pursuant to Section 86 of the Stock Corporation
Law of New York, by the consolidation of two cor-
porations, Mohawk Hudson Power Corporation,
and another which bore the same name as peti-
tioner, and is therefore referred to herein as
“Niagara Hudson Power Corporation (constitu-
ent)’’ (R. 18).

The consolidation was effected by the following
procedure: A proposal to consolidate the constitu-
ent corporations, in accordance with a plan which
had already been formulated, was made at a meet-

os anti aiete _ - —
SENET ERTL PARNER ONS AMO a Oop Rane
ALIASES EAU ROMO

5
ing of the board of directors of Niagara Hudson
Power Corporation (constituent) held on Decem-
ber 18, 1936. <A certificate of consolidation con-
taining all of the terms, conditions and provisions
of the proposed consolidation was presented to
the meeting, and the board of directors approved
the plan and recommended it to the stockholders
of the corporation. The board also directed the
secretary to call a special meeting of the stock-
holders on January 29, 1937, to take action on the
plan, and directed the officers to give notice to the
stockholders of the meeting, and to secure the ap-
proval of the Public Service Commission of New
York State for the consummation of the consolida-
tion (R. 20-21, 34-45).

Similar action was taken at a meeting of the
board of directors of Mohawk Hudson Power Cor-
poration held on the same date (R. 22-23, 57-68).

Pursuant to the action taken at the meeting of its
board of directors, Niagara Hudson Power Corpo-
ration (constituent) sent to its stockholders a cir-
cular letter dated December 22, 1936, advising them
of the proposed consolidation and the terms there-
of, together with a notice of the stockholders’ meet-
ing to be held on January 29, 1937 (R. 21).

A similar circular letter dated December 22,
1936, was sent by Mohawk Hudson Power Corpo-
ration to its stockholders, together with a notice of
a stockholders’ meeting to be held on January 29,
1937 (R. 24).

6

The stockholders’ meeting of Niagara Hudson
Power Corporation (constituent) was held on Jan-
uary 29, 1937, but no action was taken until the
convening of the adjourned meeting on January
30, 1937. At this meeting the proposed plan of
consolidation was considered, and was approved
by the holders of more than two-thirds of the vot-
ing stock of the corporation. Further action was
taken authorizing the officers of the corporation to
perform the acts necessary and proper to carry the
consolidation into effect, including the execution
and filing of the certificate of consolidation in the
Department of State of New York (R. 21-22,
48-56).

Similar meetings of the stockholders of Mohawk
Hudson Power Corporation were held on January
99 and January 30, 1937, at which similar action
was taken (R. 24-25, 71-80).

Pursuant to the authority granted at the stock-
holders’ meetings of the two constituent corpora-
tions, the certificate of consolidation, duly executed
by the corporate officers and accompanied by their
appropriate affidavits, was filed with the Secretary
of State of New York on February 1, 1937 (R. 26).

At the first meeting of the board of directors of
petitioner on February 1, 1937, the directors au-
thorized the issuance of certificates for the peti-
tioner’s capital stock in exchange for certificates
of the capital stock of the constituent corporations,
and appointed agents to receive the old certificates

PPS SE Ae ee Meese rey.

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7

for cancellation and to issue new certificates repre-
senting capital stock in petitioner in exchange
therefor (R. 26-27).

Niagara Hudson Power Corporation (constitu-
ent) had kept certificates representing stocks in
other corporations which it owned prior to the con-
solidation in a safe deposit box. After the consoli-
dation, and at the first meeting of petitioner’s
board of directors on February 1, 1937, certain of
its officers were authorized to have access to the
safe deposit box containing the securities men-
tioned (R. 26-27). The certificates for stocks in
other corporations held by Mohawk Hudson Power
Corporation prior to the consolidation were
shipped on February 3, 1937, to petitioner and
were deposited by it in the same safe deposit box
(R. 28-29).

Through the consolidation petitioner acquired
title to all of the assets, including a large amount of
capital stocks referred to above (R. 32-33), held
by the constituent corporations. Upon the trans-
fer to petitioner of these stocks, the Commissioner
of Internal Revenue assessed a tax under Schedule
A-3, Title VIII of the Revenue Act of 1926, as
amended, supra, in the sum of $260,960.04 (R. 29).
Petitioner paid this tax, filed a claim for refund
which was rejected, and then commenced this suit
(R. 29-30). The District Court sustained the
Commissioner (R. 87-88) and the court below
affirmed (R. 97).

8
ARGUMENT

1. The court below correctly held that the trans-
fer of the stocks owned by the constituent corpora-
tions to the petitioner was subject to the stamp tax
imposed by Section 800, Schedule A-3, Title VIII
of the Revenue Act of 1926, as amended, supra.
The broad scope of this statute was recognized in
Provost v. United States, 269 U. S. 443, 458, where
this Court pointed out that it evidenced a purpose
to tax all transfers of legal title to shares whether
technical sales or not. This view was reiterated in
Raybestos-Manhattan Co. v. United States, 296
U. S. 60, 62-63:

The stock transfer tax is a revenue meas-
ure exclusively. Its language discloses the
general purpose to tax every transaction
whereby the right to be or become a share-
holder of a corporation or to receive any
certificate of any interest in its property is
surrendered by one and vested in another.
* * * The reach of a taxing act whose
purpose is as obvious as the present is not
to be restricted by technical refinements.

And in Founders General Co. v. Hoey, 300 U. S.
268, 275, this Court observed that ‘‘The statute de-
fines the scope of the tax in terms whose breadth is
emphasized by the careful particularity of its
provisos.”’

Treasury Regulations 71 (1932 ed.), supra, re-
lating to the stamp tax, definitely support rather
than contradict the Government’s position here.
Article 35 (x), supra, upon which the petitioner
relies, classifies as exempt those transfers of shares

9

which result wholly by operation of law without
any voluntary act of the parties, such as from de-
cedent to executor. However, among the examples
of transactions subject to the tax set forth in the
preceding Article 34 (1), supra, is found the trans-
fer of stock owned by a corporation which is
merged into another corporation, such a transfer
being considered as resulting from the act of the
parties and not wholly by operation of law.

The contention that the transfer of legal title
here was a transfer wholly by operation of law
(Pet. 5-6) is refuted by all of the acts preliminary
to the filing of the certificate of consolidation, in-
cluding those of the boards of directors, officers and
stockholders, which are summarized in the state-
ment of facts, supra. In this respect, a ‘‘consoli-
dation’’ cannot be distinguished from a ‘*merger,”’
as petitioner suggests; in both cases there is a
definite change in the stockholders’ interest in a
business, and in both that change occurs because
the stockholders, directors, and officers will it.
The decision below is thus in full accord with
Koppers Coal & Transportation Co. v. United
States, 107 F. (2d) 706 (C. C. A. 3d), in which the
stamp tax was held applicable to a transfer of
stocks resulting from a Delaware merger.

2. Petitioner asserts a conflict with United States
v. Merchants’ National Trust & Savings Bank, 101
F, (2d) 399 (C. C. A. 9th). In that case the trust
department of one bank was sold to another bank
pursuant to Section 31 of the California Bank Act,

RRL RNY LRN

10

and the question was whether the resultant trans-
fer of title to the securities held in the trust ac-
counts was subject to the stamp tax. The court
held that the transfer was not subject to the tax, in
part because the transferee bank was deemed to
have succeeded to the securities solely by operation
of California law. Irrespective of the correctness
of that decision, the facts upon which it was based
are obviously very different from those here in-
volved. The conflict between the decisions, if any,
relates solely to the effect to be given to state law
in applying the Regulations; the Cireuit Court
of Appeals for the Ninth Cireuit believed that the
question of whether a transfer is “‘by operation
of law”? within the meaning of the Regulations de-
pends solely upon local law, while the court below,
although deeming state court decisions to be ‘‘of
persuasive value,”’ held that they ‘“‘cannot be deter-
minative as to what is a transfer under federal
law” (R. 96). That this apparent difference in
view may be a result of a difference in statement
rather than of a difference in opinion is indicated
by the earlier decision of the Circuit Court of Ap-
peals for the Ninth Cireuit in Welch v. Kerckhoff,
84 F. (2d) 295, in which the court squarely held
that the operation of the federal stamp tax statute
is not dependent on state law. But even if the
cases may be considered as being in conflict on this
point, the conflict may be taken to have been re-
solved by the decision of this Court in Morgan V.
Commissioner, 309 U. S. 78. That decision, al-
though concerned with the estate tax rather than

1

11

the stamp tax, plainly discredits the principle
enunciated in the Merchants’ National Bank case.

Furthermore, since the question at issue relates
to the operation of the Regulations, rather than to
the meaning of a specific statutory provision, any
necessary clarification can readily be secured
through administrative action.

3. There is no conflict with Helvering v. Metro-
politan Edison Co., 306 U. 8. 522. The question
there was whether there had been a merger, a ques-
tion necessarily to be determined under local law.
The question here, on the other hand, is whether
the type of transfer accomplished by a statutory
consolidation under the law of New York is the
type of transfer which Congress has subjected to
tax. On that issue, federal law is plainly decisive,
classification of the transaction under local law be-
ing immaterial. Morgan v. Commissioner, supra.

CONCLUSION

The petition for a writ of certiorari should be
denied.
Respectfully submitted.

CHARLES Fany,
Acting Solicitor General.
SAMUEL O. CLARK, Jr.,
Assistant Attorney General.

SEWALL Key,
RicHarp H. DEMvUTH,
JOSEPH M. JONES,

Special Assistants to the Attorney General.

‘Aprit 1941.

U. S. GOVERNMENT PRINTING OFFICE: 1941

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA43086415_0428%3A3. Public record. Not legal advice.