U.S. Supreme Court
Dorsheimer v. United States, 74 U.S. 7 Wall. 166 166 (1868)
Dorsheimer v. United States
74 U.S. (7 Wall.) 166
APPEAL FROM THE
COURT OF CLAIMS
The power entrusted by the Act of Congress of March 3, 1797, and that of June 3, 1864, as amended in its 179th section by the Act of March 3, 1865, to the Secretary of the Treasury to remit penalties, is one for the exercise of his discretion in a matter entrusted to him alone, and admits of no appeal to the Court of Claims or to any other court.
Dorsheimer, collector of internal revenue at Buffalo, New York, and two others, informers in the case, filed a petition in the Court of Claims to recover from the United States one-half of $220,102, which the government received on a compromise with Sturges & Sons, of a prosecution against property of one Rhomberg, a distiller.
The case was this:
The Act of June 3, 1864, "to provide internal revenue" enacts that any distiller who shall fail to make true entry and report of his stills, liquors &c., shall forfeit all the liquors made, and all the vessels, stills &c., and personal property on the premises &c.; and that these may be seized by any collector and held by him until a decision thereon according to law, [Footnote 1] and by its 179th section gives authority to collectors to prosecute for the recovery of fines, penalties, and forfeitures in the name of the United States, and confers the right to one moiety of them upon "the collector or deputy collector" who shall first "inform of the cause, matter, or thing, whereby such penalty may have been incurred." [Footnote 2]
The amendment to this section in the Act of March 3, 1865, [Footnote 3] gives this to any person who shall first inform, and adds that when
"the penalty is paid without suit or before judgment and a moiety is claimed by any person as informer, the Secretary of the Treasury shall determine whether any claimant is entitled to such moiety and to whom it shall be paid. "
An early act -- one of March 3, 1797 [Footnote 4] -- confers authority on the Secretary of the Treasury to mitigate or remit any fine, forfeiture, or penalty, incurred by any vessel, goods, or wares, by force of the laws for laying, levying, or collecting any duties or taxes, which, in his opinion, shall have been incurred without willful negligence, or any intention of fraud in the person or persons incurring the same.
With these acts in force, Rhomberg, a distiller at Dubuque, Iowa, violated the laws by making false returns and fraudulently withholding taxes to the amount of $195,000. Upon information furnished by Dorsheimer and the two other persons, his liquors, distilling apparatus, grain, and the cattle at the distillery were seized and proceedings for their forfeiture instituted in the several districts of New York, Illinois, and Iowa where the seizures were made.
After the seizure, Sturges & Sons of Chicago intervened, asserting that, without the least knowledge of Rhomberg's fraud, they had made very large advances on the property seized. And they paid to the United States $33,946, on confession, by Rhomberg, that that amount of taxes had been withheld by him.
The government, however, still holding on to the property seized, and the suits being in existence, Sturges & Sons entered into negotiations with the Commissioner of the Internal Revenue, who accordingly released the spirits seized, and dismissed the proceedings, excepting in Iowa, taking, in place of them, the bond of Sturges & Sons for $275,000, conditioned,
That, if it should be determined by the commissioner that the said spirits are not subject to the lien of the government for revenue duties, as against the advances made by the said firm, or if the obligors shall pay such sum of money as the commissioner should determine to be due the government for said property seized, then the obligation to be void; it being understood that the obligors are not liable, under the bond, for any penalty which the government may assess against Rhomberg, chanroblesvirtualawlibrary
but only shall be liable for the actual amount of duties found to be unpaid, together with proper costs and charges attending the investigation of the case and seizure of the property.
In the meanwhile, the United States continued its prosecution against the distillery, and to prevent the loss which would occur by stopping it, the officers in charge proceeded to use up the raw materials on hand which had been seized, and, in so doing, produced liquors valued at $150,000; the money (about $54,814) required to pay the expenses of so running the distillery, being furnished by Sturges & Sons.
After various negotiations -- Rhomberg's fraud standing confessed on the records of the Treasury -- the Secretary of the Treasury compromised with Sturges & Sons, thus:
He relinquished to them the distillery and the appurtenances, and also the product of the distillery, namely the $150,000 worth of liquor, free of tax, and also the moneys received at Dubuque, $54,814; also the proceeds of the cattle which had been sold, and the liquors seized, with the claim of the United States for forfeiture. The government also surrendered the bond for $275,000, given by Sturges & Sons, and assigned to them a bond given by Rhomberg to the United States. The government, on its part, received $220,102, "which amount the Secretary of the Treasury stated to be composed as follows:"
Deficiency of taxes . . . . . . . . . $195,102
In lieu of penalties and forfeitures. . 25,000
This compromise was made in face of a protest of Dorsheimer and his co-informers, against any settlement which should make a distinction between the share to be paid to the government and the share to be paid to them. The secretary professed to make it under the 44th section of the act of 30th June, 1864, which gives him power to "compromise" all suits "relating to the internal revenue."
The compromise being made, Dorsheimer and his co-informers claimed from the secretary one-half of the $220,102 chanroblesvirtualawlibrary
received. The secretary refused to pay them the half of that sum, but was willing to pay them half of the $25,000, this last sum being, as he considered, all that was received in lieu of penalties and forfeiture. Dorsheimer and his co-informers accordingly filed their petition in the Court of Claims setting forth the facts of the case as above, and claiming the half of the $220,102. The United States demurred, and the demurrer -- after argument, in which The United States v. Morris, reported in 10th Wheat. 246, was relied on to support it -- being sustained, and the petition dismissed, the case was brought here by the informers on appeal. chanroblesvirtualawlibrary
MR. JUSTICE GRIER delivered the opinion of the Court, and having quoted the Act of March 3, 1797, and the 179th section of that of June 3, 1864, as amended in the Act of March 3, 1865, all as already given in the statement of the case, [Footnote 5] proceeded as follows:
The purpose of penalties inflicted upon persons who attempt to defraud the revenue, is to enforce the collection of duties and taxes. They act in terrorem upon parties whose conscientious scruples are not sufficient to balance their hopes of profit. The offer of a portion of such penalties to the collectors is to stimulate and reward their zeal and industry in detecting fraudulent attempts to evade the payment of duties and taxes.
As the great object of the act "to provide internal revenue" is to collect the tax, the Secretary of the Treasury has no power to remit it. When the primary object of collecting the tax is obtained, as in the present case, the further infliction of penalties is submitted entirely to the discretion of the secretary. No discretion is given to the courts to act in the case further than to give their judgment, and if the penalties are not mitigated or remitted by the secretary, either before or after judgment, to enforce them by proper process.
The subject has been carefully examined by this Court in chanroblesvirtualawlibrary
the case of United States v. Morris, [Footnote 6] where it is decided
"that the Secretary of the Treasury has authority, under the remission Act of March 3, 1797, to remit a forfeiture or penalty accruing under the revenue laws at any time, before or after judgment, for the penalty, until the money is actually paid over to the collector,"
"such remission extends to the shares of the forfeiture or penalty to which the officers of the customs are entitled, as well as to the interests of the United States."
The court said that,
"It is not denied but that the customhouse officers have an inchoate interest upon the seizure, and it is admitted that this may be defeated by a remission at any time before condemnation. If their interest before condemnation is conditional and subject to the power of remission, the judgment of condemnation can have no other effect than to fix and determine that interest as against the claimant. These officers, although they may be considered parties in interest, are not parties on the record, and it cannot be said with propriety, that they have a vested right in the sense in which the law considers such rights. Their interest is still conditional, and the condemnation only ascertains and determines the fact on which the right is consummated, should no remission take place."
The right does not become fixed until the receipt of the money by the collector.
If these well settled principles be applied to the case before us, its solution is easy.
It was the first duty of the collector to collect the amount of duties or taxes on the property seized. The secretary had no right to mitigate, remit, or compromise that amount. Persons who had advanced money on the property in good faith offer the whole amount of the tax due, and finally agreed to pay the sum of $25,000 to have the penalties remitted. This offer was accepted, and the further prosecution of the suits was consequently ended.
The power entrusted by law to the secretary was not a chanroblesvirtualawlibrary
judicial one, but one of mercy, to mitigate the severity of the law. It admitted of no appeal to the Court of Claims, or to any other court. It was the exercise of his discretion in a matter entrusted to him alone, and from which there could be no appeal. Even if we were called upon to review the acts of the secretary, we see no reason to doubt their correctness, or that of the judgment of the Court of Claims in dismissing the case.
THE CHIEF JUSTICE and MR. JUSTICE NELSON dissented.
13 Stat. at Large 305.
1 Stat. at Large 506, made perpetual by Act of Feb. 11, 1800; 2 id. 7.
Supra, pp. <|74 U.S. 166|>166-167.