ENOCHS v. WILLIAMS PACKING CO.

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Argument of Oberdorfer

Chief Justice Earl Warren: Number 493, J. L. Enochs, District Director of Internal Revenue, Petitioner, versus Williams Packing and Navigation Company, Incorporated.

Mr. Oberdorfer.

Mr. Oberdorfer: Mr. Chief Justice, and may it please the Court.

This case involves the application of Section 7421 (a) of the Internal Revenue Code which provides very simply and very sharply that no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any Court.

The question precisely here is whether in the face of the statute, the District Court had jurisdiction to restrain as it did restrain the director of Internal Revenue from the collection from the taxpayer of a duly assessed social security and unemployment compensation tax, actually the tax for several years.

On account of services according to the theory of the assessment, rendered by captains and crews operating shrimp boats owned or leased by the taxpayers, that is they either own them or lease them from a related partnership and then made available by a legal relation which is in dispute to the captains and crews to operate them and fish from them in the Gulf of Mexico.

The case is here on writ of certiorari to the Court of Appeals for the Fifth Circuit.

That Court by a vote of two to one with Judge Reeves' dissenting affirmed the judgment of the District Court which had entered the injunction.

The injunction had been entered after a protracted hearing on the merits the -- the final injunction had been preceded by a preliminary injunction and a restraining order.

The issue between the director and the taxpayer arose by or initially and at the administrative level by an assessment made by the District Director through appropriate agents.

The District Director examined the taxpayer's books, had discussions with taxpayer's officers, and according to the record, investigated by interrogating captains and crews in the area.

After having made this determination that the tax was due, the taxpayer filed a claim through the administrative review process to abate the tax.

This claim for abatement was considered and the order of the -- or -- or letter of the Appellate Division refusing to abate the taxes in the record.

The order recites that the information offered by the taxpayers in support of his claim from abatement was considered and was respectfully -- the claim was respectfully denied.

Within a very short time, four or five days after receipt of the letter of determination denying the claim for abatement, the taxpayer, and this was before there had been any notice or demand which is a condition predicate to seizure and restraint, before any notice of demand, before any collection action had occurred insofar as the record shows, so far as we know, before any collection action had been attempted, the taxpayer filed a complaint for an injunction and for preliminary injunction.

The District -- the District Court granted a preliminary injunction that it was pending before the motion for restraining order, the United States attorney was authorized to go into our practice not to either agree or disagree to the entering or entry of restraining order until we could find the facts.

In any event, the Court had a preliminary injunction also without -- at that point without really hearing -- hearing any evidence or having made the -- any findings that the action of the director in making this assessment were arbitrary and capricious or otherwise susceptible to an equitable remedy.

This assessment was run -- the -- the -- the case came on for hearing and issue was joined as raised in the pleadings.

The complaint had alleged that the taxpayer would be put out of business by collection of the tax and alleged essentially that the tax was illegal because the individuals with respect to whom social security and withholding tax -- social security and unemployment compensation tax was being paid or not as a matter of law employees and the case was tried and the record shows -- the case was tried on two issues.

The -- the legal issue of whether or not as a matter of law, these employees were employees, the Government contending.

First of all, the taxpayer contending that because there was -- that because the -- the so-called employees were compensated on a share basis instead of being paid regular wages when the ship -- when the boat came in, the catch was sold and the proceeds of the catch were divided amongst the captain and the crew and the owner of the boat.

And this, according to the taxpayer, distinguished the relationship between the boat owner and the crews and captain from the relationship of employer-employee.

The Government of course contended that although the method of compensation was unique in a sense that it was traditional to this industry, it was ultimately the kind of compensation which Congress had intended, would be subject to the social security and unemployment compensation tax.

If the Court please, we're -- we're not here to -- to debate the merits of whether or not these crews and captains were or were not employees.

We are here to contend and we hope satisfy the Court that this legal issue of whether or not these particular individuals were employees or were joint venturers or were lessees, whatever, was an issue that shouldn't -- wherever it should've been tried out, should not have been tried out in an injunction proceeding.

The -- there is a procedure for the payment of a tax and a suit for refund.

This is the procedure contemplated by Congress.

There is if -- if that procedure is not available, it seems to us that it's fair to say that Congress intended that the -- the matter be disposed of administratively.

The administrative process is there, it's in the absence of a showing that it is unfair, that procedural shortcuts have been taken, that there has been discrimination.

It's the Government's position that Congress intended that the -- that matters like this be disposed off either administratively or in a suit for refund.

Justice John M. Harlan: This (Inaudible) that issue the tax itself to promote?

Mr. Oberdorfer: No Mr. Justice Harlan and I know how interested the Court is in -- in the administrative practice with respect to an issue and I've defined in our brief, did not include a published ruling.

In fact, in 1940, it is not cited in the brief and if the Court please, I'll -- I'll give the citation now.

It is SST, which must mean social security tax, 387 appearing in Cumulative Bulletin, 1940-1 at page 192.

Now this -- this ruling, and if I may describe it briefly, considered --

Chief Justice Earl Warren: 19 -- 1940 what?

Mr. Oberdorfer: The -- it's Volume 1 of the 19 -- Section 1 of the 1940 Volume of Cumulative Bulletin published by the Internal Revenue Service.

Chief Justice Earl Warren: And the page?

Mr. Oberdorfer: And the page is 192.

Chief Justice Earl Warren: 192.

Thank you.

Justice Mr. Justice Brenan: (Inaudible)

Mr. Oberdorfer: It's involved -- it is involved ultimately in this sense only, Mr. Justice Brenan.

We think that it's possible and -- to dispose of this case and to reverse the decision of the court below on the ground that irrespective of whether ultimately it is resolved as a matter fact in law that these individuals are employees.

The court below did not have jurisdiction to hear that issue in this proceeding, that is a proceeding initiated by a complaint in equity praying for an injunction against the Director of Internal Revenue.

As regards the -- the ruling, Mr. Justice Harlan, this was a ruling with respect to the liability of the owners of fishing schooners operating not for shrimp but for fish.

The essence of the issue was whether the share basis of compensation which is -- is not unique in the fishing industry.

It may not be universal but it is certainly not unique where the employees and the owners were compensated by dividing up the proceeds of the catch in a manner of share profits whether people in that capacity were employees for purposes of this tax.

And in 1940, the Internal Revenue Service Rule that there was that -- that where -- even though the compensation was -- by -- on a share basis, the crews and captains were nevertheless employees of the shipowners.

I -- I hasten to point out that the service in this ruling satisfied itself that there was the control necessary to the employer-employee relationship by looking to a contract which ran from the crews and captains to a labor union and from the owners to a labor union.

That particular fact or that particular evidence of control is not necessarily that I don't think is in this case, we have what we -- we thought we had other evidence of the control necessary to create an employer-employee relationship.

But if -- if -- if I understand your question correctly sir, the answer is that at least since 1940, the Internal Revenue Service has asserted and collected tax from both owners who operate them substantially in the same way that these boats are operated that is on a share basis.

In addition to that, we now have a number of cases pending on suits for refund all through the gulf coast where taxpayers have paid this tax, having been assessed and have sued for it's refund and I might point out that those are very -- those -- those refund suits are being very hotly contested.

Many of them are being tried before juries and as the Court may notice from our brief, we won one of those cases in January or a series of those cases in the District Court in Texas.

Justice Tom C. Clark: Is there any question about that as being available?

Mr. Oberdorfer: Back to the right to sue for refund?

The question that -- that -- in this case Mr. Justice Clark, we think that the -- that neither the taxpayer nor the Government was as imaginative as it might have been in -- in figuring out a remedy.

Of course, if a -- an assessment for a taxable period is beyond the means of the taxpayer, his only remedy is to submit to distraint and then sue to -- for a refund of the proceeds of the res -- of the distraint.

However, in this particular case and with respect to unemployment compensation and social security particularly, we suggest in our brief and -- and we venture to suggest as a possibility although it's not precisely before us that in a situation where a taxpayer would be driven to the wall by an assessment and collection of everything he owns that he could conceivably pay less than all of the assessments for all of the taxable periods to the extent of his reasonability to pay.

And without violating the rules established by this Court in the Flora case with respect to the income tax then sue for a refund without the Court being asked of jurisdiction, in other words, we think that a District Court could entertain a refund claim.

Justice Mr. Justice Brenan: Perhaps a quarter or something like that.

Mr. Oberdorfer: For a quarter or for a year.

For a quarter for all the employer owes or possibly for a quarter for all that he owes with respect to a particular employee.

Justice Mr. Justice Brenan: Is that an adjudicated in Flora, --

Mr. Oberdorfer: No sir.

Justice Mr. Justice Brenan: Mr. Oberdorfer?

Mr. Oberdorfer: Not to my knowledge Justice Brennan.

There's a footnote which we cite in the Flora opinion which suggests this possibility with respect to the excise tax suggesting that the excise tax is different from the income tax.

That it may be possible to pay the excise tax with respect to one transaction where there are many transactions.

That doesn't mean in all fairness that we couldn't go ahead and distrain nevertheless if this wouldn't stay as -- I hope we would be reasonable about such a -- a situation, but it does mean that a District Court would have just --

Justice Mr. Justice Brenan: What was the basis -- that was the basis below that there was no employee relationship, there's been no finding in this case?

Mr. Oberdorfer: There has been such a finding.

Justice Mr. Justice Brenan: And that there was no employee relationship.

Mr. Oberdorfer: That's correct sir.

Justice Mr. Justice Brenan: And on that premise, the Government still insists that believe by way of injunction is not available.

Mr. Oberdorfer: Yes sir.

Chief Justice Earl Warren: Mr. Oberdorfer.

If I --

Mr. Oberdorfer: Yes sir.

Chief Justice Earl Warren: -- I understood that the respondents said they were taken by surprise in this matter that they -- that the administrative practice was contrary to this regulation that you mentioned and that they -- they had never been required to pay this tax until after their -- after the antitrust suit against the -- against the seamen and as if wondering why that was the practice since 1940 that they only knew about it, at that late date.

Mr. Oberdorfer: Mr. Chief Justice, I -- it's -- it is conceivable -- quite conceivable to me that this taxpayer as a matter of fact hadn't thought he owed the tax or had -- it hadn't occurred to him that he owed tax.

In the antitrust case, in footnotes in that opinion in 236 F.2d, there is a reference to the fact that a number of people similarly situated were at the time of that case paying social security tax with respect to their crews and captains.

Chief Justice Earl Warren: Well, I -- I -- I thought also that the position of the parties is reversed in this case that in the antitrust case, I understood that they claim they were employees and therefore they were not violating antitrust and the Government contended that they were -- that they were not and now the situation is exactly reversed.

Mr. Oberdorfer: Mr. Chief Justice, in the antitrust case, the -- the defendant was a -- a -- really an -- an association of --

Chief Justice Earl Warren: Yes.

Mr. Oberdorfer: -- of fisherman sort of the labor union.

Chief Justice Earl Warren: Yes.

Mr. Oberdorfer: And they asserted a defense that the antitrust action couldn't lie because of the Norris-LaGuardia provisions or because there was a -- because it was a labor dispute.

And in order to -- in order for it to be a labor dispute, there had to be an employer-employee relationship more or less across the Board, all of the members of the union had to be employees.

And if the -- if the Court will notice the opinion of Judge Reeves in the antitrust case and incidentally, it is significant that Judge Reeves is the author of the court's opinion in the antitrust case and the author of the dissent in this case, this issue didn't seem to bother him.

But in the -- in the antitrust case, there were several categories of relationships.

There were in addition to the relationship at issue here, a very substantial number of crews who were -- of captains who own, literally own their own boat, could under no stretch of the imagination, be considered employees.

It is quite consistent with the ultimate result in the shrimp case -- in the antitrust case to say that there were some people involved there who were not employees and yet the particular taxpayer here had employees.

We don't believe that that is an irreconcilable conflict.

Mr. Chief Justice, the one -- one area of which -- the one authority which causes this issue on which the court below relied and which makes the -- the case more than ordinary concern is the real -- the -- the decision of this Court in the 1930's and stand -- in Miller against Standard Nut Margarine, 284 U.S.

The court below found in that case authority for its decision here.

And the Nut Margarine case was one in which an excise tax was assessed against the taxpayer, an excise tax aimed at oleomargarine made from animal or from some other sources, was assessed against this taxpayer because on the account of his product, made from peanut butter and peanut products.

The issue had been litigated by other taxpayers over and over again.

The Government had lost at least three cases in the courts and won none.

The Treasury Department had published a ruling, a published ruling that a product like the taxpayer's product was not taxable.

The department had gone on and issued a specific ruling to this taxpayer that he wouldn't be taxable if he'd gone ahead and produced, and he had produced this product in reliance on that ruling.

After he'd run out his inventory, the Government came back on him for a very heavy excise tax.

He claimed that this issue was already decided against the Government that it was in effect pure discrimination against him as distinguished from his competitors to make the claim of this tax against him particularly when it acted so heavily in reliance on the Government's concessions that he wasn't taxable.

They -- he also alleged and the Court there accepted his allegation that if this tax was paid by him in this circumstances, he would be put out of business.

We want to note that Justices Stone and Brandeis dissented from that decision.

A similar issue about -- that is an issue about the meaning of what -- of what has now said in 421, was before this Court in Allen against Regents of Georgia and in that case concurring opinions by Justices Reed and Black, suggest that they too have doubts -- had doubts that time about the Nut Margarine opinion but even assuming that Nut Margarine -- that Nut Margarine case stakes out an exception to the -- to the rule.

We think fairly clear rules stated by Congress in the statute.

We think that this Williams case is clearly distinguishable among other reasons because there is just -- there was no complaint in the pleadings and there was no basis proved at the hearing for a claim that the Government or the tax authorities had acted discriminatorily with respect to this taxpayer or had taxed him when they weren't taxing other people.

Justice William O. Douglas: What was the legislative history show since that decision, the Margarine decision?

Mr. Oberdorfer: The --

Justice William O. Douglas: Have the reports throw any light upon it?

Mr. Oberdorfer: No sir and --

Justice William O. Douglas: I noticed that the wording isn't quite the same (Voice Overlap) --

Mr. Oberdorfer: The -- the wording -- the changes in the wording don't -- don't mean anything to us.

Justice William O. Douglas: No, very irrelevant to this problem.

Mr. Oberdorfer: Yes sir.

Justice William O. Douglas: But they came in since the --

Mr. Oberdorfer: No sudden changes.

Justice Tom C. Clark: Yes.

Mr. Oberdorfer: But the Congress is certainly -- if you wanted to say it, you could -- if -- if you could say that the Congress has embraced the -- the Nut Margarine rule by reenacting the Internal Revenue Code over these years.

That's -- that is a possibility.

And yet, if the Congress wanted to overrule, for instance, if this Williams case, became the law and Congress wanted to say that -- that it didn't want courts to entertain injunction proceedings, I would be hard foot to suggest to them how they would amend the statute to make it any plainer than it is.

Chief Justice Earl Warren: Mr. Oberdorfer, before I forget it and because it isn't in your brief, I wonder if you would submit a short memorandum concerning this -- this regulation that you have mentioned, 387 and -- and also the administrative practice under it and counsel you may reply to it of course.

Mr. Oberdorfer: Thank you Your Honor.

Chief Justice Earl Warren: Mr. Morse.

Argument of George E. Morse

Mr. George E. Morse: Mr. Chief Justice, and may it please the Court.

We feel that the vital facts in this case at this point are that Williams Packing & Navigation Company did not owe a tax in the amount of $41,000 which was assessed against it.

That is a finding of fact which was affirmed by the Court of Appeals which Justice -- Judge Reeves did not touch upon in his dissent, his dissent is confined to procedural problems.

And that it is binding upon the Government on this appeal and therefore it should be accepted as a fact that Williams Packing & Navigation Company was assessed with a tax which he did not owe.

The Government characterizes that tax at this point as erroneous.

We think that it was illegal.

But as whether it was erroneous or illegal, we think that that is merely a quibble and semantics that it was a tax which was not owed by our client.

Chief Justice Earl Warren: If we accept that fact, is that all there is to the case (Voice Overlap) --

Mr. George E. Morse: No sir that is not because I'll proceed to the next point and that is an equitable consideration which was considered by the Court in the Miller case.

And that is that the payment of the assessment would have wrecked and ruin the corporation.

Now, we were not complaining in the lower court that the payment of social security taxes on men in the future would ruin our business.

We did not say that to the lower court.

We said that the assessment is so large and the corporation that this time is a deficit corporation that we simply cannot pay the full amount in order to sue and have a determination of the liability.

And therefore, the Court should give us the equitable consideration of enjoining the attempted or the prospective assessment in collection of this tax and permit us to litigate the liability per se without having to pay it.

We say sir that the remedy -- the only remedy in such taxes as this, provided by Congress and we're in agreement with this, with the Government on this, that you must pay the full amount, file a claim for refund and sue to get it back in order to have the liability per se litigated.

Except for the fact that we think that Miller stands for an exception where the payment of the assessment would be ruinous on the plaintiff or the respondent or the perspective taxpayer.

Justice Mr. Justice Brenan: As I understood --

Mr. George E. Morse: Sir?

Justice Mr. Justice Brenan: -- Mr. Oberdorfer have suggested that perhaps the Flora rule would not apply to this kind of facts, maybe something less than --

Mr. George E. Morse: Well, I say and we discuss in our brief this Flora case, this footnote.

Of course the Flora case didn't decide that -- it was decided exactly to the contrary.

Our search of the footnote 37 and 38 and other decided decisions has not given us any indication, at the time the suit was filed, that there was a judicial determination or an administrative determination that such a remedy was available to us at the time.

And nor did I think today that there is one, nor do I think that the Government is now contending that this Court should adjudicate that we have one at that time because the Government merely passes in the statement of its case in the brief on the Flora decisions saying, "Inferentially, you had the right to pay $2000 and sue to get it back."

But the Government does not develop in that argue -- that statement in its argument of the case and in no way do I see, I asked this Court to reverse this case on that point.

We say with respect to that sir, that while the Government says that perhaps we were not as imaginative as we should have been nor were they perhaps as imaginative as they should have been.

That route was not available to us because it is a flexible position.

The Government can move, if you sue or to get an injunction, the Government can say, “No, you pay a quarter."

If you pay the quarter, the Government says, “No, you must pay the full amount.”

So we say that is not a clear, adequate and plain remedy at law.

Justice Hugo L. Black: Didn't he initiate (Inaudible).

Mr. George E. Morse: No, sir.

Justice Hugo L. Black: I thought you did a moment ago.

Mr. George E. Morse: Sir, I'm speaking -- I thought you -- of the trial as it proceeded.

Was there an affirmative statement in the pleadings by the Government that we could pay less than the full amount?

There was not.

There was no position urged by the Government.

Justice Hugo L. Black: And do you take what Mr. Oberdorfer said a few minutes ago as the indication at least that you could pay a quarter and --

Mr. George E. Morse: Well, I take it sir that Mr. Oberdorfer and I recall his statement on that.

It is a concession before the Supreme Court of the United States that perhaps two years ago we might have done that.

It is the first time that that concession, to my knowledge, has been made in this particular case.

Certainly, in future cases, I will be as imaginative that he says I was not then but I -- does that answer your question?

Justice Hugo L. Black: Is there a -- has the company paid any of the tax?

Mr. George E. Morse: Sir?

Justice Hugo L. Black: You haven't paid any of the tax?

Mr. George E. Morse: No, sir, the tax has not been paid.

The $41,000 -- sir?

Justice Hugo L. Black: You're in the same position when we started except the crew since that time, is that right?

Mr. George E. Morse: That's right, sir.

That is right, the same position.

Now, I would say this that I don't know what this regulation that Mr. Oberdorfer decided to have.

I would appreciate the opportunity to file a reply brief to that.

I would say this though, that in the Biloxi-Gulfport and Pascagoula area where this case arose, there did occurred a case in which the United States Government imposed the sanctions of the Sherman Antitrust Act against the union which was composed of mostly the fisherman and both captains and crews in and about Biloxi.

That is the antitrust case which the Chief Justice commented on a moment ago.

In that case, it was incumbent upon the Government to prove that the men were not the employees or the packers to whom they sold their product.

The union on the other hand contended that they were.

The Government was successful in its prosecution of the union before a jury.

The jury determined as a matter of fact on the instructions from the lower court that the captains and members of the crew were not employees at the persons to whom they sold their product.

Now, that occurred in the neighborhood where this case occurred.

This case and at no doubt, the Court can understand if the antitrust case generated considerable interest in the packing industry in and about Biloxi where this case arose.

And that was the position taken by the Government which was direct -- directly contrary.

We contend to the position which they took when they investigated the affairs of Williams Packing & Navigation Company and subsequently arrived at a $41,000 assessment.

We think that that is an equitable consideration rather it can to the equitable considerations in Miller where the Government had taken -- had taken positions and had lost their positions in that case.

The Government, in our case took positions inconsistent with the position that they now take.

And while we understand that it's probably not the law of the case, the (Inaudible) Association will not be the law of the case in this case.

It was an effort on the part of the Government to define this relationship, which is after all is the crux of this lawsuit.

Chief Justice Earl Warren: You were not a party to the --

Mr. George E. Morse: Sir?

Chief Justice Earl Warren: -- antitrust suit?

Mr. George E. Morse: No, sir, that, we were not.

That was between the Government and the association.

Chief Justice Earl Warren: Yes.

Mr. George E. Morse: However, as I point out in our brief, the president of the respondent here was called as a witness to testify before the grand jury which ultimately indicted the union.

Justice Hugo L. Black: What year is that?

Mr. George E. Morse: Sir?

Justice Hugo L. Black: What year is the antitrust?

Mr. George E. Morse: The antitrust case, as I recall, occurred about 1953.

The reported decision in the Fifth Circuit is that date as I recall, so that our tax years involved here to some extent overlap that procedure in the antitrust suit.

Now sir, at this point, we have this, summing up briefly but not in inclusion.

We have a respondent which conceded now by the Government does not owe a $41,000 tax, did not owe it.

The fact showed it, the District Court found it, the Court of Appeals had found it.

Secondly, the tax, we have a finding of fact by the lower court which is not urged to be reversed before this Court that the payment of the assessment of $41,000 would have wrecked and ruined the taxpayer.

Third, we have inconsistent actions taken on the part of the Government with respect to the relationship which as I said is the crux of the matter in this lawsuit.

Those things were considered in Miller to be material to -- for a showing other request for equitable relief.

We have this and further, the Government says if they take -- they took the position that they would consent to the issuance of a temporary restraining order.

The complaint in this case doesn't pray for temporary restraining order, it prayed for preliminary injunction and the Government, we take the position, consented to the issuance of this temporary injunction.

Now, the Government takes position in their brief that this procedure places the orderly collection of taxes in jeopardy.

If that is so, then they could resist the issuance of the temporary injunction or should have done so at the time the request was made, and we feel again as another equitable consideration that it then moves the Government to complain now that our action, our suit, interfered with the orderly collection of revenue when they neither resisted the issuance of the temporary injunction nor did they consent to it but that the U.S. attorneys in Jackson, acting on orders of the Department of Justice in Washington, told the Court that we (Inaudible) needed to resist nor denied.

I believe --

Chief Justice Earl Warren: There was the added factor in -- in the Nut Margarine case was there not?

The Government had loss in -- in identical situations?

Mr. George E. Morse: That is true, the Government had loss.

I would say this.

I have obtained the Fifth Circuit's record in the Miller case to find out just what went on in the lower court in that case.

I don't know what the record before this Court contained.

It may have contained less.

But the Miller case presented a rather lengthy bill of complaint in which these cases which the Government had lost are set forth and they're copied (Inaudible).

They're just --- the decision and the opinions are written out in the complaint.

And in the Miller case, the lower court considered the -- whether or not the bill stated the cause of action and said that it did.

In the Miller case, the Government took the position and denied that the particular nut product was not manufactured in the way which the complainant said it was.

And so we had an issue of fact after the court determined that the complaint stated a cause of action.

The court took proof on an issue of fact, the issues of the evidence being run, how the product was manufactured.

The ingredients that went into the product, was it churned with milk or was it churned with butter?

Why was it wrapped in one pound cartons and divided into quarter pound sticks?

Was it not sold, as a matter of fact, sold as a substitute for butter?

These were factual issues which I contend were closely and hotly litigated in Miller.

And the court -- the lower court determined those issues against the Government and found that as a matter of fact, the product was not taxable.

Now, the statements with respect to whether the issuance of the tax or the -- levy of the tax in Miller was arbitrary, capricious and so on, I submit, are made from the vantage point of hindsight by the Court of Appeals and by the Supreme Court of the United States.

There is no evidence in the Miller case that we there dealt with a vengeful collector who is out to break the company.

There is no evidence that he was acting completely at bad faith.

And what this Court said in the Miller case was "that the assessment was illegal," and then went on to say, "And to apply these additives, it was so illegal as to appear to be arbitrary and capricious."

As I understand the Government's position in this case, our case should fail because the assessment does not appear affirmatively to be arbitrary, capricious or proceed from a sentence to motive.

And our answer to that is the majority opinion in Allen versus Regents case decided subsequent to the Miller case in which this Court passed upon the procedural -- two things, passed upon the procedural right of the Regents of Georgia to attack the validity of an assessment through the injunctive route.

And the second point was whether or not that subject tax was a burden on a governmental function of the State of Georgia.

And in that case, the Regents won in the court below and when it came to this Court, these two things were passed upon, the Government urged first of all, in the Regents that we should not reach the question of whether the tax was a burden on a governmental function, because the lower court did not have jurisdiction to entertain this suit.

We shouldn't even reach that, which they are doing here.

They are arguing that here.

This Court held that it was proper, under the unusual circumstances existed in that case to proceed the -- by the injunctive route and then went on the whole that the tax was not a burden on a governmental function.

So we submit to the Court that reading Miller together with Allen versus Board of Regents, that this was a proper procedure given the unusual circumstances which we have in this case.

But that's not all, a ruinous tax consent by the Government to this procedure try inconsistent proceedings taken by the Government.

No clear adequate remedy at law.

We state the question a little differently at this point, as whether financial ruin is the only alternative open to the respondent against to which the Government assessed to threaten to collect a tax which it did not owe.

The Government and we recognize that the taxes keep this country going that they should be paid and we should follow order -- normally follow the statutory routes open to us.

The Government agrees with us, I believe, and does not now urge that Miller be reversed, but the Government agrees that Miller is an exception to the no injunction statute.

We had another one.

We had Allen versus Board of Regents as another exception.

And we say this, that while Congress has not provided a clear adequate remedy in cases such as this for us to proceed without the payment of the full tax equity, the conscious of the sovereign will not permit an unconscionable wrong to be done and we submit that it would have been an unconscionable wrong for the District Court to dismiss this case at the threshold and not even reach the ultimate fact of whether or not our client owed the tax.

We submit that within the equitable con -- jurisprudence that the lower court had the right to accept this case, take it into the bosom of the Court particularly when the Government consented to this route, determine the ultimate facts, decide it whether or not we owed the tax and permanently enjoined the Government, not withstanding the no injunction statute.

We submit that the case should be a finding.

Chief Justice Earl Warren: Mr. Morse.

Mr. George E. Morse: Yes sir.

Chief Justice Earl Warren: Wouldn't it be a rather late restriction on 7421 (a) that -- that any taxpayer could go into Court to merely claim that this tax was illegally assessed and that it would bankrupt him if he had -- had to pay it and then be entitled to a preliminary injunction to prevent the commissioner from collecting it?

Mr. George E. Morse: I think it -- I agree with the Court that it would and it has been attempted many times and in some cases, particularly social security case -- cases.

The court has done this, the lower courts have entertained jurisdiction to determine if in truth and fact what this taxpayer says is true, will it wreck and ruin him?

Does he owe it?

Now so, I think that it is -- unless Congress wants to do otherwise, the Congress can trust to the judiciary that it's going to act for the betterment of the Government.

It's going to follow the law, the Court will.

But the courts should have this escape that they will not commit an unconscionable wrong.

Now, I don't see where, as the court stated the question to me, whether there is any great danger to the collection for the revenue.

I believe that if Congress considers that that's the danger in social security and unemployment taxes, Congress may give us a remedy to pay less than the full amount in cases such as this.

In some cases that have come to this Court, in excised tax cases, I don't know if it comes to this Court, but the taxpayers only paid $50 in order to litigate the rights.

We would have had to pay $41,000 when the assets of the company taken at best for only $20,000.

We submit its an unusual circumstance and that is the controlling facts, unless the other questions are (Inaudible).

Chief Justice Earl Warren: Very well.

Mr. Oberdorfer.

Rebuttal of Oberdorfer

Mr. Oberdorfer: I have nothing more Your Honor unless there are questions.

Chief Justice Earl Warren: Very well.