Citations
- 12 F. Supp. 570
Full opinion text
HAMILTON, District Judge.
The three above-styled causes relate to the same subject-matter, and for that reason this opinion is applicable to all of them, although they have not been consolidated for hearing.
The first suit is an action (Equity No. 996) instituted by nineteen corporations, all of them miners and producers of bituminous coal in the Eastern Kentucky coal field, and together they represent all the producers of any substantial size in that district except the producers of captive coal.
The plaintiffs state that Selden R. Glenn, defendant, is a citizen of the commonwealth of Kentucky, residing in Louisville, Jefferson county, in the Western district of Kentucky, and the duly appointed, qualified, and acting collector of internal revenue for the district of Kentucky, and as such collects all taxes, assessments, and levies made or attempted to be made by the United States which are collectible in Kentucky through the Internal Revenue Department.
This suit is one of a civil nature, arising under the Constitution and laws of the United States, and presents an actual controversy between each of the plaintiffs and the defendant, and the amount involved exceeds $3,000.
The plaintiffs, after setting out the provisions of Public No. 402, 74th Cong., H. R. 9100 (15 USCA § 801 et seq.) “An Act To stabilize the bituminous coal-mining industry,” claim it is unconstitutional and void on the following grounds:
Section 4 of the act (15 USCA § 805) requires the formulation by the National Bituminous Coal Commission, composed of five members appointed by the President, of a working agreement to be known as the “Bituminous Coal Code,’* such code to deal with matters enumerated in section 4 (15 USCA §§ 805-808) and to otherwise conform to the provisions and requirements of that section. The entire bituminous coal producing area of the United States, by section 4, is divided into nine minimum price areas, and further into twenty-three producing districts, each area embracing one or more producing district. Section 4 provides that the code required to be established in accordance with its terms shall be administered and enforced by the Commission, as to all matters other than labor relations between the producers and their employees, through district boards selected by each of the twenty-three districts in the manner therein provided; and as to labor relations, by the Commission through a Bituminous Coal Labor Board of three members, appointed by the President of the United States by and with the advice and consent of the Senate (15 USCA § 808 (c). Each district board, subject to the supervision and approval of the Commission, is required to immediately establish minimum prices free on board transportation facilities at the mines for all kinds, qualities, and sizes of coal produced in their respective jurisdictions, with full authority in establishing such minimum prices to make such classifications of coals and price variations as to mines and consuming market areas as it may deem necessary and proper.
It is further provided that in order to sustain stabilization of wages, working conditions, and maximum hours of labor, such minimum prices shall be established ¡so as to yield a return per net ton for each district in its minimum price area, equal as nearly as may be to the weighed average of the total costs per net ton to be determined according to the formula attempted to be set up in said section. The district boards are further required under the rules and regulations established by the Commission and subject to the supervision and approval of the Commission, to coordinate in common consuming market areas upon a fair competitive basis, the minimum prices, and the rules and regula-' tions established by them for their respective districts, and in effecting such co-ordination such district boards are required to take into account the factors set out and the rules attempted to be laid down in said section.
Said sectigm 4 (15 USCA § 807 (c) authorizes the Commission, whenever it deems necessary in order to protect the consumer of coal against unreasonably high prices, to fix maximum prices free on board transportation facilities for coal in any district, such maximum prices to be established in accordance with the formula therein attempted to be set out.
All contracts for the sale of coal below minimum or above maximum therefor approved and established by the Commission and in effect at the time of the making of the contract are declared by such section to be invalid and unenforceable, and after the date of the approval of the act, and until the minimum prices have been established as therein provided, producers accepting the code are prohibited from making any contract for the sale of coal calling for delivery more than thirty days from the date of the contract, and code members are further prohibited, while the act is in effect, from making any contract for the sale of coal calling for delivery after the expiration of the act at a price below the minimum or above the maximum therefor approved or established by the Commission, and in effect at the time of such making.
Section 4 (15 USCA § 807 (i) further provides that the code prohibits its members from engaging in certain practices enumerated in said section as unfair methods of competition, many of which are for the purpose of compelling the producer to sell his coal to all persons similarly circumstanced at the same price.
All producers accepting and operating under the code are prohibited from interfering with or denying the right of their employees to organize and bargain collectively through representatives of their own choosing and from requiring any employee, as a condition of employment, to join a company union and from prohibiting employees from selecting their own check weighmen to inspect the weighing and measuring of coal, and from requiring as a condition of employment that their employees shall live, in company houses or trade at the store of their employer.
Section 4 (15 USCA § 808 (g) also provides that the code formulated under its terms shall provide that whenever maximum daily or weekly hours of labor are agreed upon in any contract or contracts negotiated between the producers of more than two-thirds of the annual national tonnage production of bituminous coal for the preceding calendar year, and the representatives of more than one-half of the mine workers employed, such maximum hours of labor shall be accepted by and binding upon all code members, and that any wage agreement or agreements negotiated by collective bargaining in any district, or group of two or more districts, between representatives of producers of more than two-thirds of the annual tonnage production of such district or each of such districts in a contracting group during the preceding calendar year, and representatives of the majority of the mine workers therein, shall be filed with the labor board provided for in section 4 of the act (15 USCA § 808 (c) and shall be accepted as the minimum wages for the various classifications of labor by the code members operating in such district or group of districts.
Section 5 (d) (IS USCA § 809 (d) further provides that any code member injured in his business or property by any other code member, by reason of any breach thereof or the failure to do anything which is required by the act or the code formulated thereunder, may sue for damages on account thereof in any District Court of the United States in the district in which the defendant resides or is found, or has an agent, without respect to the amount in controversy, and shall recover threefold damages and the costs of the suit, including a reasonable attorney’s fee.
The plaintiffs state that the Congress under the Constitution of the United States has no jurisdiction over and no power to legislate upon the matters required by section 4 of the act, and charge particularly that the fixing of minimum and maximum prices of coal free on board transportation facilities at the mines; the requirement that coal shall be sold by producers to all customers similarly circumstanced at the same price; the regulation and control of contracts for the sale of coal; and the regulations of the relations between producers and their employees in the production of coal, including the regulation and fixing of wages and hours of service as authorized in part 3 of section 4 (15 US GA § 808), are all matters not within the competency of Congress under the Constitution of the United States, and their attempted regulation by Congress is violative of the due process clause of the Fifth Amendment to the Constitution, and of the reserved rights of the states and the people, secured to them by the Tenth Amendment. Plaintiffs also state that section 4 is unconstitutional because it attempts to delegate legislative power, and that notwithstanding the lack of power of Congress to legislate on the subjects required by section 4 to be embraced in the code to be formulated thereunder, it undertook through the pretended exercise of its taxing power under the Constitution to coerce all bituminous coal producers in the United States to submit to the act, and particularly to the unconstitutional regulations and requirements under section 4 and of the code required to be formulated thereunder.
Section 5 of the act (15 USCA § 809) provides that each producer of bituminous coal accepting membership in the code shall execute and acknowledge such acceptance on a form prepared and supplied by the Commission, and further provides that the membership of any such producer in the code, and his right to drawback on the taxes levied under section 3 of the act (15 USCA § 804) subject to the right of review as provided in the act, may be revoked by the Commission upon written complaint and hearing.
Each of the plaintiffs states it does not desire to accept the provisions of section 4 of the act, and of the code, and has no intention of accepting same and of submitting itself to the jurisdiction of the Commission and the other agencies charged with the administration and enforcement of such code, nor of operating under its provisions, but desires and intends to exercise its constitutional right to conduct its business of producing and selling bituminous coal, which is a private one and not affected with a public interest, free of the unconstitutional regulations and restrictions of said act, particularly in section 4, but by reason of sections 3 and 9 (15 USCA §§ 804, 813) they are and will be penalized for failure and refusal to accept and operate under the provisions of section 4 and of the code formulated thereunder, by the imposition of a penalty, denominated as a tax in the act, equal to 15 per cent, of the sale price at the mine of the coal produced by each of them, whereas the producers who agree to operate under the provisions of section 4 and of the code are awarded by a rebate and forgiveness of 90 per cent, of the tax, or penalty, which they would otherwise be required to pay.
Plaintiffs state that sections 3 and 9 of the act (15 USCA §§ 804, 813) in so far as they purport to impose upon those producers of bituminous coal who refuse to accept and operate under the provisions of section 4 of the act, and of the code thereunder, a tax equal to 15 per cent, of the sale price at the mine of the coal produced by them is not a good faith exercise of the taxing power conferred upon Congress by clause 1 of section 8, article 1 of the Constitution of the United States, but is an unconstitutional attempt by Congress under guise of taxation to punish those producers of bituminous coal who are unwilling to surrender their constitutional right to conduct their business free of unconstitutional interference and regulation by Congress, and the attempted imposition of such penalty operates to deprive these plaintiffs of their property without due process of law.
Plaintiffs state that the average total sale value at the mines of coal produced and sold by each of them each calendar month, and the amount of penalty which the said act attempts to impose upon them, in the guise of a tax, because of their refusal to surrender their right to conduct their business free of unconstitutional interference by the government, is approximately as follows:
Name of Plaintiff Average Total Sales Per Month Monthly Penalty or Tax
R. C. Tway Coal Company $44,000 $ 6,600
Kentucky Cardinal Coal Corp. 20,000 3,000
Harlan-Wallins Coal Corp. 130,925 21,000
Creech Coal Company 63,000 9,500
Harlan Central Coal Company 18,000 2,700
Harlan Fuel Company 54,000 8,100
Crummies Creek Coal Company 68,000. 10,000
Three Point Coal Company 33,000 4,900
Clover Fork Coal Company 14,000 2,100
Harlan Collieries Company 38,000 4,800
High Splint Coal Company 42,000 6,400
Cornett-Lewis Coal Company 42,000 6,300
Kentucky King Coal Company 7,000 1,100
P V & K Coal Company 9,416 1,400
Green-Silvers Coal Corp. ' 14,761 2,200
Mary Helen Coal Corp. 47,648 7,100
The plaintiffs state that the profit realized and realizable by each of them on the gross sale price of the coal produced by them each month over the cost of production, under prudent and economical operation, is not over 5 per cent., and such profit is not less than the profit realized by the producers generally in the field where plaintiffs’ mines are located. They state it is, therefore, apparent that the penalty of 15 per cent, imposed on them by sections 3 and 9 of the act (15 USCA §§ 804, 813) is far in excess of the profit realized by each of them on the gross sale price of the coal produced each month, less the cost of producing same, and that if required to pay such penalty they would operate at a disastrous loss each month, which can be met only out of their capital and surplus, and the necessary and deliberately intended result of the imposition of the so-called tax is to leave them no choice, if they refuse to operate under the provisions of section 4 of the act and of the code formulated thereunder, except to either close down their operations or else to operate at such monthly loss they will quickly be rendered insolvent and unable to operate, in either of which events the act operates to destroy and confiscate their property.and their investment therein. None of the plaintiffs, except the Crummies Creek Coal Company, Clover Fork Coal Company, and Harlan Collieries Company own the fee to the coal land upon which Its operation is located and from which it is mining coal; but with these exceptions, are operating under a lease requiring them to pay a stipulated royalty per ton for each ton of coal mined and sold. It is also stipulated in their leases that in event the total coal mined in any one year is not sufficient at the fixed royalty rate to produce the minimum royalty fixed in their respective lease, then, in addition, the lessee must pay such further sum as is required to bring the total royalty or rental payments for the particular year involved up to the stipulated annual minimum royalty. The mining plant of each of the lessee plaintiffs is located upon land owned by its landlord, and under the terms of the lease under which it is operating, the landlord has a first lien upon all the improvements placed upon the premises by the lessee, and upon all mining equipment of any kind used in its operation, to secure the landlord in the payment of the stipulated royalty, and the lease under which each of the lessee plaintiffs is operating reserves to the landlord the right to forfeit the lease if the lessee remains in default in the payment of roy: alty beyond the time stipulated therein. They state that if they should close down their mines because of the imposition of this tax and their inability to operate because of it, they would still be at a heavy expense in the upkeep of their properties, and in particular in keeping same free from water. Each plaintiff states that substantially all of its capital and surplus is invested in its mine and equipment, and the only way it could possibly raise money with which to pay the penalties imposed, over a substantial period of time, is to sell its property, or, if possible, to mortgage same, which would ultimately lead to a sacrifice under foreclosure, as it would have no earnings after paying such monthly penalties, out of which to satisfy such mortgage; and each of the lessee plaintiffs states it could only mortgage its plant and equipment with the consent of the landlord, subject to the prior lien of the landlord for unpaid royalties. Each plaintiff states it would be impossible to borrow money with which to pay such so-called taxes upon the security of its property for the further reason its operating statement would disclose it could not operate its mines and pay the monthly penalties exacted by the terms of the act without sustaining a tremendous loss each month. Therefore, a statement which a careful lender of money would demand, would clearly disclose that the money loaned could only be recovered through a sale of the pledged property.
The plaintiffs state that while the socalh’.d tax provision of the act does not become effective until the first day of the third month following the dáte of the enactment of this act, and the monthly payments required thereunder do not become due until the first business day of the second succeeding month, yet the act imposes upon them such tremendous and unconscionable penalties for their refusal to operate under its terms, they cannot wait until the penalty or tax actually attaches, for the reason that should they do so, before their rights could be finally determined their property would be confiscated and destroyed through enforced payment while their rights were being determined. For this reason they directed their counsel to notify the defendant, to whom, as collector of internal revenue, they are required to pay the tax, that they regard the act as unconstitutional and have no intention of accepting or agreeing to operate under the provisions of section 4 thereof, or of the code formulated thereunder, and to inquire of the defendant what was his attitude with reference to its validity and his intention with reference to the collection of the so-called taxes imposed thereunder. They say that the defendant, Glenn, in response to such inquiry, stated that he regarded and intended to treat the act as constitutional, and intended to demand of each of the plaintiffs the amount of taxes assessable under its provisions as they matured, and upon their failure or refusal to pay, he would, by proper procedure, subject their property to the payment of the so-called tax.
Plaintiffs state that because each month’s payment exacted by sections 3 and 9 of the act (15 USCA §§ 804, 813) will be far in excess of the profits on each month’s operation, and can only be paid by a sale of their capital assets, or through a pledge of same under such conditions as would ultimately result in a sale thereof, and because of the further fact that if they should pay such so-called taxes as they accrue, it is within the power of the Commissioner of Internal Revenue, through delay in acting upon th.e application for refund, to prevent any suits to recover such so-called taxes until after the expiration of six months after the payment thereof, and even if they should promptly apply for a refund of the first month’s so-called taxes required by the act to be paid, after same have been paid, and the Commissioner should promptly deny such application, a suit for the recovery thereof could not be filed and an authoritative adjudication of their rights determined until the latter part of 1936, their capital and surplus will have been consumed, their property sacrificed, and they will have been rendered practically bankrupt before they can recover in a refund action the so-called taxes exacted of them by the act.
They say Congress has made no appropriation out of which and with which to pay any judgment for refund which may be ultimately secured by them, and it is therefore entirely uncertain when they would be reimbursed on account of the so-called taxes exacted of them by sections 3 and 9 of the act, even after they secure judgment for same. For all of these reasons, they state that the provision of the federal statutes which authorizes a suit for the recovery of illegally collected taxes does not afford the plaintiffs in this case a full, complete, and adequate remedy at law, and to compel them to resort to such remedy would operate to deprive them of their property without due process of law; but if they refuse to pay the illegal exactions imposed upon them by sections 3 and 9 of the act, unless'protected by the exercise of the equity powers of this court, their property will be sold to satisfy such illegal exactions, and they will each be subject to the imposition of a fine of not exceeding $10,000, and the officers in charge of their business to a fine of not exceeding $10,000, or imprisonment for twelve months, or both such fine and imprisonment.
Plaintiffs pray that said act be decreed and adjudged unconstitutional and that such relief as flows to them from so holding be granted.
The defendant, in his answer, denied the material allegations of the petition, and in addition thereto affirmatively pleaded that bituminous coal is consumed in every state in the Union in generating energy for the production of light, heat, and power, and that it is used to produce approximately 45 per cent, of the total energy consumed for such purposes in the United States.
It is further alleged that this use makes such coal indispensable to the economic life, health, and comfort of the inhabitants of every state, and is vital to the national public welfare. It is stated that commercial deposits of bituminous coal within the United States are limited to twenty-three producing areas within twenty-six states, and 70 per cent, of the total mined is in four states, and that 85 per cent, of the total produced is consumed (a) in states other than the state in which it was mined, or (b) by railroads engaged in interstate commerce; and that over 20 per cent, of the total annual production was used by interstate railroads for fuel. He further alleged that 17 per cent, of the total gross freight revenues was realized from the transportation of bituminous coal.
The defendant then states that in view of the importance of bituminous coal as a source of energy for industrial and domestic purposes, and in view of the necessity of transporting it across state lines to reach the majority of the users, it is of particular importance to the national public welfare that the distribution and marketing of bituminous coal in interstate commerce be not subjected to interruptions, dislocations, burdens, or restraints. For many years the distribution and marketing of such coal has been subject (a) to sudden unforeseeable, recurrent, and prolonged interruptions and stoppages in the shipment in interstate commerce; (b) to sudden, recurrent, and extremely wide fluctuations in the price of such coal to the consuming public, resulting in hardship and inconvenience to it in states other than the state of production, and tending directly and substantially to restrict and control the movement of coal in interstate commerce; . (c) to unfair and demoralized methods of competition throughout the industry which operate directly and substantially to burden and restrain interstate commerce in such coal. These burdens, restraints, and interruptions have operated with the effect to injure a multitude of the consumers of such coal throughout the country and cause a substantial waste of the coal resources of the nation and the bankruptcy of many coal producers, and widespread unemployment in the industry. These conditioiis have resulted in serious and widespread reigns of disorder and violence requiring resort by public authorities and private parties directly concerned therewith to the state and federal courts of law and equity, and necessitating the use of state militia and of federal troops to quell disorders. It is then alleged that the Congresses of the United States, since the year 1918, made or caused to be made twelve fact-finding investigations into the conditions under which bituminous coal is produced, distributed and marketed throughout the United States; and from the facts disclosed through these investigations that it is evident that the present burdens and restraints upon and interruptions to interstate commerce in bituminous coal are primarily and directly due to an abnormal and destructive competitive rivalry for markets between the several producing areas and between the producing units in the areas, and that such unbridled competition has resulted in a reduction of the mine realization price of such coal to a level frequently below the average cost of production thereof, and that 60 per cent, of the cost of producing such coal is attributable to labor going directly into its production, and that such labor cost is the principal element that is subject to appreciable adjustment, and as a direct result of such competition, wages in the bituminous coal industry have been progressively forced down to a point below subsistence levels; and that numerous controversies over wages have resulted in strikes and lockouts, and in the interruption, cessation, and dislocation of production and distribution, all of which was directly attributable to price and wage reductions, and because of the refusal of employers to bargain collectively relative thereto and to desist from various unfair labor practices. It is then alleged that in order to remove or control the aforesaid direct and substantial burdens upon and interruptions to interstate commerce in bituminous coal, it is necessary that competition between the various producing areas of such coal in the consuming markets of the several states be regulated by the elimination of unfair competitive marketing practices, by the fixing between fair and reasonable limits of the price at which said coal may be distributed in consuming markets and further by stabilizing and equalizing as between producing areas and between the producing units in the area, the wages and hours of labor of employees, and by otherwise eliminating the causes of strikes and lockouts.
It is then alleged that all of the plaintiffs are engaged in the business of producing bituminous coal for distribution and sale in interstate commerce, and in the conduct of such business are subj ect • to federal regulation to the extent and in the manner provided by the code in section 4 of the said Bituminous Coal Conservation Act.
It is then alleged that the Bituminous Coal Conservation Act of 1935 exempts the plaintiffs from 90 per cent, of the tax imposed by said act if they file an acceptance of the code to be formulated under said act, and they would be thus exempted so long as they remain members of the code, and if their membership were revoked, such revocation would be subject to judicial review before becoming effective. It is further alleged that the acceptance of the code would not preclude or estop any acceptor from contesting the constitutionality of any code provision, or its invalidity as applied to him.
It is then alleged that the acceptance of the code to avoid the payment of 90 per cent, of the tax by any or all of the plaintiffs would not affect any of their constitutional rights, and any or all of the plaintiffs could after the acceptance of said act protect all their rights by complete administrative or judicial remedy.
It is then alleged that the payment of 10 per cent, of the tax as provided under the bill, or the acceptance of the code as provided under the act, would not cause the plaintiffs, or any of them, any injury, irreparable or otherwise.
It is then alleged that the plaintiffs have voluntarily and arbitrarily refused to file their acceptance of the code referred to, and under such circumstances none of them are entitled to the relief prayed for in their petition.
It is then alleged that the bill of complaint of the plaintiffs is premature, since no tax is yet in effect.
It is then alleged that the court is without jurisdiction to grant the relief prayed for in the original petition because it seeks an injunction to restrain the collection of a tax, which is prohibited under section 3224 of the Revised Statutes of the United States, USCA title 26, section 154.
The second suit is an action (Equity No. 997) instituted by C. H. Clark, a citizen of the commonwealth of Kentucky, residing at Louisville in the Western District, a stockholder and a member of the board of directors of the defendant corporation, the R. C. Tway Coal Company. This defendant is one of the plaintiffs in action No. 996. It is alleged in the bill that it is engaged in the business of mining and producing bituminous coal from its mines located in Harlan county, Ky., and selling the coal so produced. Its affairs are conducted by a board of directors elected by the stockholders. R. C. Tway and L. A. Shafer are made parties defendant, and it is stated that each of them is a stockholder and director, and together with the plaintiff constitute the board of directors of the defendant corporation.
It is alleged that the suit is in equity, is of a civil nature, arising under the Constitution and laws of the United States, and involves the validity, construction, app’ication, and enforcement of the act of Congress approved August 30, 1935, known as the “Bituminous Coal Conservation Act of 1935” (15 USCA § 801 et seq.). The collusiveness of the action is denied, and it is alleged that the matter in controversy exceeds the sum of $3,000.
It is further alleged that the act referred to recognizes and declares that the mining of bituminous coal and its distribution by the producers thereof in and throughout the United States are affected with a national public interest, and that the general welfare of the nation requires that the bituminous coal industry shall be regulated as provided in the act referred to in the petition, and that the production of such coal and its distribution directly bear upon and directly affect interstate commerce.
The plaintiff then sets out the provisions of the act in detail, including the provision for the imposition of a monthly tax of 15 per cent, of the sale price at the mine when removed therefrom; if the defendant fails to accept the code referred to in the act. He then sets out that the Congress has the constitutional power to provide for all the things directed to he done in the regulation of the bituminous coal business as provided in the act.
The plaintiff then alleges that notwithstanding the validity of the regulatory act, that the majority of the board of directors of the corporate defendant, prior to September 10, 1935, over his protest and contrary to his wishes, concluded that the act of Congress referred to was unconstitutional and that the defendant would not comply with any of its terms, and immediately after the action of said board of directors, he requested the board in writing to reconsider its action, to accept the provisions of the act, sign the code as provided, and in response to his demand the board of directors of the corporation held a special meeting, and at said meeting, over his protest, reaffirmed' their former action and spread on the minutes of the meeting a resolution to not comply with any provisions of said act because of its unconstitutionality.
Plaintiff then states that a special meeting of the stockholders of the corporate defendant was held, and he appealed to them to accept the provisions of the act referred to, and over his protest the stockholders of the corporate defendant, excluding himself, unanimously voted to not accept the provisions of said act or any part thereof, and by resolution duly spread on the minutes of the meeting so declared.
Plaintiff states that by reason of the corporate defendant refusing to accept the provisions of the Bituminous Coal Code that it subjects itself to a tax of 15 per cent, on the sale price of the coal mined and produced by it, as provided by section 3 of the act (15 USCA § 804) and that the profit realized by the corporate defendant for many years past and at the present time, and as he believes, in the future, will not be in excess of 5 per cent, of the sale price of the coal mined and sold, and that the tax of 15 per cent, imposed upon the corporate defendant for its failure to accept the code will have to be paid out of its capital assets, which will result in a disastrous loss to the company and ultimately lead to its bankruptcy and the entire loss and destruction of the value of plaintiff’s stock in the corporate defendant.
He further states that under the provisions of the act, the corporate defendant is subject to a fine not exceeding $10,000 for each failure to report and pay the taxes provided in said act, and the imposition of fines on the corporate defendant will also deplete the assets of said defendant, which would reduce the value of the stockholders’ shares in said company.
Plaintiff states that in view of the facts alleged in the petition, it is the duty of the corporate defendant, in the proper performance of its corporate functions, to accept and operate under all the provisions of the Bituminous Coal Code, and that it is the duty of the individual defendants, Tway and Shafer, to join with the plaintiff, as directors of the corporate defendant, to cause it to accept the said code and operate under its provisions, and that their failure to do so will work irreparable damage and injury to the corporate defendant, and to the plaintiff and stockholders, and that he is without remedy, except in this court sitting as a court of equity.
Plaintiff asks the court to adjudge that it is the duty of the corporate defendant, and its officers and directors, to accept the provisions of the act of Congress, approved August 30, 1935, known as the “Bituminous Coal Conservation Act,” and use its equity powers to compel the corporate defendant and its officers to take all steps necessary to comply with said act.
The plaintiff invited the District Attorney for the Western district of Kentucky to appear in the proceeding instituted by him, and aid and assist him and his attorneys in sustaining the constitutionality of the act referred to in the petition, and the District Attorney filed a brief amicus curise.
The plaintiff and defendants filed a stipulation in the action, in which it was stipulated and agreed that if the matters dealt with in section 4 of the Bituminous Coal Code and the provisions set out in part 3 of said section (15 USCA § 808) were matters within the- competency of Congress under the Constitution, and if Congress had thé power to impose the 15 per cent, tax on the producers who refuse to accept and operate under the code provided under section 4 and to exempt producers accepting the provisions of the code from payment of 90 per cent, of such tax, it would be an abuse of the corporate functions of the company and of the powers vested in the directors to conduct the affairs of the corporation, to refuse to accept said code and operate thereunder because of the additional burden of taxation on the corporation.
It was stipulated that the plaintiff was authorized to invite the Department of Justice of the United States, and the United States’ Attorney for the Western district of Kentucky to appear and defend the constitutionality of the Bituminous Coal Conservation Act of 1935, but this consent was not to be construed as an agreement that the invited parties should control the progress of the action or unduly delay its decision by the court.
A supplemental stipulation was filed, in which the parties stipulated that bituminous coal was used in generating energy for light, heat, and power in all parts of the United States, and that substantially 45 per cent, of the total energy used in the United States was produced from the use of such coaL
It was further stipulated that 86 per cent, of such coal was transported in interstate commerce from the place of production to destination by rail, and that only 14 per cent, of such coal was consumed in the state where produced. It was also stipulated that 18 per cent, of the gross freight revenues of the railroads engaged in interstate commerce was realized from the transportation of bituminous coal, and that approximately 20 per cent, of the total annual production of bituminous coal in the United States was used for fuel by railroads engaged in interstate commerce.
It was further stipulated that approximately 450,000 men were employed in the United States in the mining of bituminous coal, and that approximately 60 per cent, of the cost of producing such coal was represented by wages paid to them.
It was further stipulated that the United States District Attorney for the Western district of Kentucky had been invited to appear in said cause and present any additional facts which he deemed pertinent to a decision of said cause, but that said attorney had not offered or produced any evidence.
The defendants, after admitting the right of the plaintiff to maintain this action, moved its dismissal for the following reasons:
“1. Because Congress, under the Constitution of the United States, has no jurisdiction over and no power to legislate upon the matters required by section 4 of the Act to be embraced in the Bituminous Coal Code therein required to be formulated, and particularly because the fixing of minimum and maximum prices of coal free on board transportation facilities at the mines; the requirement that coal shall be sold by producers to all customers similarly circumstanced at the same price; the regulation and control of contracts for the sale of coal; and the regulation of the relations between producers and their employees in the production of coal, including the regulation and fixing of wages and hours- of service, as authorized in part III of section 4, are each and all matters not within the competency of Congress, under the Constitution of the United States, and the attempted regulation by Congress .of the above enumerated matters is violative of the due process clause of the Fifth Amendment to the Constitution of the United States, and of the reserved rights of the States and the people, secured to them by the Tenth Amendment thereof.
“2. Because sections 3 and 9 of the Act, insofar as they purport to impose upon those producers of bituminous coal who refuse to accept and operate under the provisions of section 4 of the Act, and of the code formulated thereunder, a tax equal to fifteen per cent of the sale price at the mine of the coal produced by them, is not a good faith exercise of the taking power conferred upon Congress by clause 1, section 8, article 1, of the Constitution of the United States, but is an unconstitutional attempt on the part of Congress, under the guise of taxation, to coerce all producers of bituminous coal into accepting and operating under the Bituminous Coal Code provided for by section 4 of the Act, and to punish those producers of bituminous coal who are unwilling to surrender their constitutional right to conduct their business free of unconstitutional interference and regulation by Congress; and the imposition of such penalty operates to deprive producers who refuse to accept the provisions of the code of their property without due process of law, in violation of the Fifth Amendment, and is an unconstitutional invasion of the rights of such producers, reserved to them by the Tenth Amendment to the Constitution of the United States.
“3. Because section 4 of the Act undertakes to delegate legislative power to the National Bituminous Coal Commission, and to the other agencies created by the Act.
“4. Because the tax attempted to be imposed upon those producers who refuse to accept and operate under the provisions of the code required to be formulated under section 4 of the Act is arbitrary, capricious and confiscatory, and was deliberately intended by Congress to be confiscatory.”
Equity No. 808 is a petition filed by John N. Mackall and Sterling S. Lanierj Jr., this court’s receivers appointed in the case of Baltimore Trust Company v. Norton Coal Mining Company, engaged in the business of operating coal properties in the Western Kentucky coal field, and in producing and marketing bituminous coal. The petitioners, after setting out their operating losses and the impossibility of paying a tax of 15 per cent, on the sale price per ton on the coal mined, alleged substantially the same facts as stated by the plaintiffs in action No. 996, and in defendants’ answer in that same action, and further said they were unable to decide what course of action they should pursue under said facts and their unwillingness to assume responsibility for a decision, and requested the court to advise them as to whether or not they should ignore said act or comply .with.its provisions.
All of these actions have been submitted to the court for final decision.
"Hie parties to actions No. 996 and No. 997 have filed stipulations of fact and introduced oral testimony concerning factual matters considered by the Congress in passing the legislation which it is now claimed is unconstitutional. Their reason for seeking' the aid of testimony in passing on the congressional power to legislate on this subject is said to be supported by the opinion of the Supreme Court in Borden’s Farm Products Co. v. Baldwin, 293 U. S. 194, 213, 55 S. Ct. 187, 79 L. Ed. 281. An examination of this case shows that the matter before the court was the validity of a statute of the state of New York, referred to as the “New York Milk Control Law” of April 10, 1933, authorizing the Milk Control Board to fix minimum prices for sales of fluid milk in bottles by milk dealers to stores in a city of more thin 1,000,000 inhabitants, establishing a differential of 1 cent a quart in favor of dealers not having a well-advertised trade-name.
The court in that case said that where a legislative action is suitably challenged, and a rational basis for it is predicated upon the particular economic facts of a given trade or industry, which are outside the sphere of judicial notice, these facts are properly the subject of evidence and findings, and the Supreme Court sent the case back to the lower court for a final hearing upon pleadings and proof, with directions that the facts should be found and conclusions of law stated as required by Equity Rule 70½ (28 TJSCA following section 723).
This case turned on the administration of the act in the construction that the Milk Control Board had placed on the phrase “well advertised trade name,” and its application to the appellant. It did not involve, except indirectly, the 'constitutionality of the act under which the Milk Control Board made its classification.
I have followed the wishes of counsel in putting into the record factual matters as far as it is concerned, but in writing this opinion I have assumed that this court is without power to hear evidence or find facts upon the constitutionality of the congressional act here in question.
Where a proceeding directly attacks an act of Congress, as unconstitutional as contradistinguished from constitutional rights being invaded by the administration of the act, it seems to me a court would be treading on dangerous ground to attempt to go into a factual field ’in determining its constitutionality. The effect of evidence in such proceeding is, of course, a collateral attack upon the legislative inquiry, judgment, and declaration (that is to impeach it).
The Congress has already investigated the facts as a basis for its action. Tf its findings may be impeached by the testimony of opinion witnesses, the act might be found to be constitutional in one case and unconstitutional in another, depending on the testimony. As many conclusions might be reached as to constitutionality as there might be judges, or upon such facts as ingenuity might suggest as matters of opinion or actual facts in evidence.
The courts, so long as they recognize the doctrine of separation of governmental powers, which is fundamental under our system, will not attempt to exercise the power of another branch. Judges will be careful to observe the ideal expressed by the letter and spirit of the Constitution to avoid encroachment upon other departments, and will be quick to sustain each in the exercise of its legitimate function, and so the rule prevails that every inquiry into the validity of a legislative act is approached with the presumption that the Congress observed the Constitution, and when the validity of an act depends upon the existence of certain facts, the legislative determination will be conclusive on the courts, unless the contrary is shown by facts which the court may judicially notice. If it cannot be made to appear that a law is in conflict with the Constitution by argument deduced from the language of the law itself, or from matters of which the court can take judicial notice, then the act must stand. Soon Hing v. Crowley, 113 U. S. 703, 711, 5 S. Ct. 730, 28 L. Ed. 1145; Minnesota v. Barber, 136 U. S. 313, 320, 10 S. Ct. 862, 34 L. Ed. 455; New Orleans v. Warner, 175 U. S. 120, 20 S. Ct. 44, 44 L. Ed. 96; Angle v. Chicago, etc., R. Co., 151 U. S. 1, 27, 14 S. Ct. 240, 38 L. Ed. 55.
The following fact-finding investigations into the conditions under which bituminous coal is produced, distributed, and marketed throughout the United States have been- held or authorized by Congress: Hearings before the Committee on Manufactures of the Senate on Shortage of Coal (65th Cong., 2d Sess., 1918); Hearings before the Committee on Interstate Cpmmerce of the Senate on Increased Price of Coal (66th Cong., 1st Sess., 1919, 1920, 1921); Hearings before the Committee on Reconstruction and Production of the Senate on Coal and Transportation (66th Cong., 3d Sess., 1920, 1921); Hearings before the Committee on Education and Labor of the Senate on Conditions in the West Virginia Coal Fields (67th Cong., 1st Sess., 1921, 1922); Hearings before the Committee on Labor of the House of Representatives on Labor Conditions in the Coal Industry (67th Cong., 2d Sess., 1922); Report of the United States Coal Commission pursuant to the Act of September 22, 1922, published in 1925; Hearings before the Committee on Interstate and Foreign Commerce of the House of Representatives on Coal Legislation (69th Cong., 1st Sess., 1926); Hearings before the Committee on Interstate Commerce of the Senate on Conditions in the Coal Fields of Pennsylvania, West Virginia and Ohio (70th Cong., 1st Sess., 1928); Hearings before the Committee on Interstate Commerce of the Senate on Proposed Bituminous Coal Legislation (70th Cong., 2d Sess., 1929); Hearings before the Committee on Mines and Mining of the Senate on the Creation of Bituminous Coal Commission (72d Cong., 1st Sess., 1932); Hearings before the Committee on Interstate Commerce of the Senate on Stabilization of the Bituminous Coal Mining Industry (74th Cong., 1st Sess., 1935); Hearings before the Committee on Ways and Means of the House of Representatives on Stabilization of the Bituminous Coal Mining Industry (74th Cong., 1st Sess., 1935).
All of the ultimate facts shown in these reports are presumed to have been considered by the Congress before the passage of the act in question, and this court may consider them as well as all other facts of which it may take judicial notice in passing on the validity of this act. Board of Trade v. Olsen, 262 U. S. 1, 43, 43 S. Ct. 470, 67 L. Ed. 839.
Based on these reports and matters of common knowledge, the following facts were before the Congress at the time of the passage of the act here involved:
More important than winds and water for the production of power and of heat is coal mining of all kinds. Mechanical transportation, manufacturing, and domestic heating all largely depend upon coal. Water power and oil have in a recent age relieved somewhat the burden upon coal, but it still is, and will long continue to be, the principal source of energy in the United States. It is the most valuable mineral in all the world. It is, with oil,' one of the twins of black gold. The utilization of coal awaited the development of the steam engine, but when James Watt developed the latter, it, together with coal, brought on an industrial revolution which changed the course of history and the life of mankind.
Coal not only heats our homes and public buildings, provides power for railroads and steamships, and keeps alive the great furnaces that transform iron ore into pig iron, but it enters into everyday living in many ways, for coke, gas, ammonia, and tar are all derived from coal, and they in turn have derivatives that are now considered indispensable to modern civilization. Sixty-three valuable chemical by-products are obtained from coal. This mineral is an indispensable requisite to our continued progress.
The production of bituminous coal by states, in millions of tons per annum, is approximately as follows: Pennsylvania 140, West Virginia 124, Illinois 68, Kentucky 54, Ohio 29, Indiana 22, Alabama 22, Virginia 12. Twenty other states produce bituminous coal in small quantities, but the eight states above mentioned produce the major part. All of the states of the Union use bituminous coal in large quantities, and it is the principal article in freight tonnage moved by interstate" railroads. It is the largest single source of gross freight revenue to these roads, and is also the principal source of power.
The paramount importance of the bituminous coal mining industry in the ecoomic and social life of this country cannot be denied. With the exception of agriculture, it employs more men than any other single industry in the United States. It is the foundation of our iron and steel, shipbuilding, and engineering trades, and, indeed, of our whole industrial life.
The industry has a human as well as a technical side. The risk and uncertainties of mining, the importance of the industry, and the national welfare combine to make the life of the miner a matter of public concern.
From the days of the Molly Maguires in 1875, to the present time, the bituminous industry has been the theater of unrest which constantly gives rise to stoppages of work in the industry and occasionally develops into labor disputes on a national scale. The announcement of strikes is sometimes made long in advance of the contemplated event, and large sums of working capital of railroads engaged in interstate commerce, and manufacturers producing products entering into such commerce are invested in reserve supplies of coal, and the storage thereof displaces other necessary appliances and utensils used by the carrier, and the product of the manufacturer, and in addition adds to the burden of both the carrier and the manufacturer by the use of unnecessary capital.
The miners seek to make a wage scale applying to producing coal areas in more than one state, and the scale of wages in one state affects the production and movement of coal in another state with a different wage scale.
Mining is recognized as one of the most hazardous occupations of man, and it has exacted its toll 'in thousands of deaths and many more injuries in comparatively few years. New methods of extraction, and the use of labor saving appliances have greatly increased the output in tons per man. Most of the coal reserves of the United States in production are located where mining is the only gainful occupation, and when slack work comes, those thrown out of employment can find no other occupation in which subsistence may b.e had. The high number pqr thousand of population on the relief rolls in the mining areas of the United States compared with the other sections of the country is impressive testimony of the vital interest the government has in the rehabilitation and stabilization of the coal industry.
No other industry in the United States has had the prolonged intimate and painstaking study of its conditions as the bituminous .coal industry. The Fuel Production Committee of 1917, the Fuel Administrator from 1917 to 1919, the Bituminous Coal Commission of 1921, the Federal Fact Finding Commission, not to mention the various congressional and state legislative committees, have all examined the ills of the mining industry and fully reported on them. The average earnings of the miner have been in constant decline since 1922, and generally have not been sufficient to maintain him and his family above the recognized line of subsistence. For more than ten years this industry has been in chaos. There have been misunderstandings without number between the operator and the miner. No other industry has caused so much public anxiety, and the disorders in it have vitally affected the interstate steam transportation system of the country and its repercussions have been felt in other industries.
The operators and owners of mines, shortly after the close of the war, fell upon hard times and profits practically vanished. It was not possible to lower freight rates affecting the industry. The only place where the cost of production could be decreased was in wages, and thus came a period, which still continues, of lower standards of living for the miners, and the loss of an economic wage.
The business of coal mining, that is to say bringing coal from the seam to the surface and preparing it for sale by screening or washing, is not carried on in isolation from other businesses. It is usually sold to be transported in interstate commerce before mining is commenced, and the production thereof is closely associated with its utilization in other industries, not only using it for the production of power, but also its by-products in the manufacture of many articles that are absolutely essential to the comfort and convenience of the American people.
The production of bituminous coal was greatly expanded during the period of the late war, and at the conclusion of peace, the mining area had been increased far beyond the needs of consumers, and capital invested in the business became frozen. The difficulties of the industry were further increased by the substitution of oil, natural gas, and water power for the production of energy. Bankruptcies of concerns engaged in the business have clogged the court dockets, and it has been a prolific source of equity receiverships. Reorganizations authorized under the amended bankruptcy acts have been of no substantial benefit to the coal industry. The Norton Coal Company, heretofore referred to in this opinion, has been in receivership in this court for an undue period, and it is impossible to find a purchaser for its properties at any substantial price, although at one time it was a highly profitable concern and now owns a large acreage of bituminous coal readily accessible for mining. The unfavorable condition in the coal industry, due to overproduction and overcapitalization, has led to many unfair trade practices. An illustration of some of them is what is usually referred to as “distress coal,” which is the production of different sizes of coal for which there is no market in order to obtain a marketable size. Because of a lack of storage facilities at the mines, the distress coal is placed on cars at the producers' tracks, which become so congested that production must be stopped or cars moved, which is done by sending the unsold cars to billing points on consignment, which depresses the price of other coal at the point of consigned destination. Often distress coal is not marketable at any price after being shipped on consignment. Demurrage charges accumulate on standing cars, and interstate transportation facilities are thrown out of movable use. “Pyramiding” of coal is another unfair trade practice, which occurs when a producer authorizes several persons to sell the same coal, and they in turn offer it to othqr dealers, which causes the coal to compete with itself in the market, resulting in abnormal and destructive competition.
Other unfair trade practices could be cited, but these are sufficient to illustrate the point.
The bituminous coal fields of the United States in production are widely separated. The greater part of them are in the Eastern and Middle States. The West Coast must depend for its supply on long stretches of interstate or water transportation.
It may be said that if the supply of bituminous coal were suddenly cut off, many manufacturing plants would shut down, trains stop, and steamships be helpless.
It is claimed by the defendant in action No. 996, that it is premature because the tax or penalty which the plaintiffs claim they will be required to pay is not assessable or due until January, 1936, and on the further ground that before the defendant, as collector, has any authority to collect these taxes or penalties, they must first be assessed by the Commissioner of Internal Revenue.
While the taxes are not payable until January, 1936, they are determined on a basis of coal mined after November 1, 1935, and prudent business management would require each of the plaintiffs to begin maintaining a reserve for the taxes gs they accrue. The sums due would enter into the cost of coal produced, and if the act here in question is constitutional and the plaintiffs resist it and refuse to comply with its terms, each would add the tax to the cost of coal produced if a market could be found with the addition.
It is provided in section 7 of the act (15 USCA § 811) that all the provisions of the law, including penalties and refunds relating to the collection and disposition of internal revenue taxes, shall, in so far as applicable and not inconsistent, be applied to taxes imposed under the act.
Rev. St. § 3164, as amended, USCA 26, § 26, provides it shall be the duty of every collector of internal revenue having knowledge of any willful violation of any law of the United States relating to the revenue, within thirty days of the coming into possession of such knowledge to file with the District Attorney of the district in which any fine, penalty, or forfeiture may be incurred, a statement of all the facts and circumstances of the case within his knowledge.
Under the provisions of Rev. St. § 838, USCA 28, section 486, it is made the duty of the District Attorney to collect the fine or penalty reported to him by the collector. Various other provisions of the Internal Revenue Law, unnecessary to cite here, require the collector to diligently inquire into all tax delinquencies and take prompt action to assess and collect all taxes found to be due and unpaid in his district.
A court of equity acts before injury is done. All that is necessary to determine is the impending damage. This action is not premature. Pierce v. Society of Sisters, 268 U. S. 510, 45 S. Ct. 571, 69 L. Ed. 1070, 39 A. L. R. 468; Hill v. Wallace, 259 U. S. 44, 42 S. Ct. 453, 66 L. Ed. 822; Nashville, C. & St. L. Ry. Co. v. Wallace, 288 U. S. 249, 251; 53 S. Ct. 345, 77 L. Ed. 730, 87 A. L. R. 1191; Vicksburg Waterworks Co. v. Vicksburg, 185 U. S. 65, 22 S. Ct. 585, 46 L. Ed. 808; United States v. Murphy (D. C.) 264 F. 842, 843; Ex parte Young, 209 U. S. 123, 28 S. Ct. 441, 52 L. Ed. 714, 13 L. R. A. (N. S.) 932, 14 Ann. Cas. 764; City Bank Farmers’ Trust Co. v. Schnader, 291 U. S. 24, 54 S. Ct. 259, 78 L. Ed. 628.
It is also contended by the' defendant that section 3224 of the Revised Statutes, 26 USCA § 154, prevents this court from issuing an injunction against the defendant, although all the facts alleged in plaintiffs’ petition are true. It is provided in this section that no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court. It has been many tim