AGNEW, Collector of Internal Revenue, et al. v. HAYMES, 141 F. 631

BOYD, District Judge (after stating the facts). The decision of the trial court in this case was based largely upon the construction which the judge presiding placed upon sections 970 and 989 of the Revised Statutes [U. S. Comp. St. 1901, pp. 703, 708j. In order to present the question fully, we give the two sections involved, which are as follows: “Sec. 970.

When, in any prosecution commenced on account of the seizure of any vessel, goods, wares, or merchandise made by any collector or other officer, under any act of Congress authorizing such seizure, judgment is .rendered for the claimant, but it appears to the court that there was reasonable cause of seizure, the court shall cause a proper certificate thereof to be entered, and the claimant shall not, in such case, be entitled to costs, nor shall the person who made the seizure, nor the prosecutor, be liable to suit or judgment on account of such suit or prosecution: Provided, that the vessel, goods, wares, or merchandise, be, after judgment, forthwith returned to such claimant or his agent.” “Sec. 989.

When a recovery is had in any suit or proceeding against a collector or other officer of the revenue for any act done by him, or for any recovery of any money exacted by or paid to him and by him paid into the treasury, in the performance of his official duty, and the court certifies that there was probable cause for the act done by the collector or other officer, or that he acted under the direction of the Secretary of the Treasury, or other proper officer of the government, no execution shall issue against such collector or other officer, but the amount so recovered shall, upon final judgment, be provided for and paid out of the proper appropriation from the treasury.” The court below held that the two sections were inconsistent, and that their provisions were so repugnant that the latter statute necessarily, by implication, repealed the former; and, following up the reasoning, the conclusion reached was, in effect, that in every case of seizure in which there was a failure to secure a forfeiture, the owner or claimant of the property seized had a cause of action for damages, and that reasonable cause for seizure was not a defense to a recovery, but only a protection, personally, to the officer making the seizure.

In other words, in every case of seizure, which wTas not prosecuted to judgment of forfeiture of property, the owner of the property is entitled to sue the seizing officer and recover judgment for damages, it being within the power of the court in which the recovery is had to certify that there was probable cause for the act done by the officer, or that he acted by direction of the Secretary of the Treasury, or other proper officer of the government; and thus transfer the liability for payment of the recovery from the officer to the government.

Examination of “An act to provide internal revenue to support the government, and to pay interest on the public debt,” approved July 1, 1863 (chapter 119, 13 Stat. 433) and also of “An act to prevent and punish frauds upon the revenue; to provide for the more certain and speedy collection of claims in favor of the United States; and for other purposes,” approved March 3, 1863 (chapter 76, 13 Stat. 737), will enlighten us as to the necessity for

section 989, which is a provision of the latter act. Under the act first mentioned, which was enacted more particularly for the support of the government in the midst of the Civil War then in progress, internal revenue taxes were levied upon numerous subjects, many of them such as manufactured articles of goods, wares, and merchandise of various kinds, as well as foods and products. The means provided by the act for its enforcement were, in many instances,

summary, authorizing collectors and deputy collectors of the internal revenue to make seizures of property and to hold it as forfeited to the United States for the non payment of taxes assessed upon it, and to proceed to its condemnation and sale without the intervention of the courts; in other instances, in cases of seizure for the violation or evasion of the law, proceedings in rem in the courts were provided.

In some cases it is provided that there shall be an absolute forfeiture of the property, and in others a sale of the property, and after deducting the amount of taxes due and the expenses of the seizure and sale, that the remainder shall be turned over to the manufacturer or to the person in whose custody and possession the articles were when seized. This statute also provides for the intervention of the owner or claimant of the property, and its return to him in case no taxes are found to be due, or the causes of forfeiture are not sustained.

Many of these subjects of taxation were perishable; many of a character such as to make them Hable to deterioration and consequent depreciation by being kept on hand, as they necessarily would be whilst under seizure- and pending proceedings for sale or for condemnation. No matter how great care might be taken, property in custody might be destroyed by fire, lost or injured in transportation, or by some unavoidable accident when the officer was not in fault. Still, if the government fails-to sustain its charges against the property the owner has his remedy to recover damages for the loss or injury.

When we consider these-subjects of taxation, and the powers conferred by the law for its enforcement, we can readily see the necessity for some provision s by which an owner might recover damages for the loss or depreciation, of his property, where there is a failure of condemnation, although the seizure was made by the officer in entire good faith, and upon, reasonable grounds. It seems plain to us-that the provisions of

section 989 would apply in such cases. This

section is a substantial reproduction of

section 12 of the act approved March 3, 1863, above-mentioned. By reference to this act it will be observed that it is devoted largely to the enforcement of the tariff laws and the collection of import duties. We think, however, that the law brought forward in the Revised Statutes as

section 989, is sufficiently comprehensive to-cover cases arising either under the tariff or the internal revenue laws of the government. The provisions of

section 970 would be of no-avail to the officer in a number of instances in which he might be sued for damages for

an act done in the performance of his official duty, for the provisions of that

section are confined solely to cases of seizure where there is a prosecution in court against the property seized. In such ca$es, although judgment is rendered in favor of the claimant,, the court is empowered to have entered a certificate of reasonable-cause for the seizure, and this prevents a recovery of the costs by the-claimant, and also bars his action for damages against the person making the seizure, and the prosecutor, provided the property is forthwith returned to the claimant or his agent. Whereas,

section 989-provides for the protection of the collector or other officer of the revenue from personal liability by reason of any act based upon probable cause, done by him in performance of his official duty or under the directions of the Secretary of the Treasury, or other proper officer of the government; and- it also affords protection in cases of recovery against the collector, or other officer for money exacted by him, by virtue of his office, and paid into the treasury. Judge Wallace, in Redden v. Iselin (C. C.) 31 Fed. 266, discussing

section 989, has well said: “However it may have been before, since the enactment of this provision it is plain that the laws of Congress do not contemplate the punishment of an officer of the revenue, by penalty or otherwise, for any act done in the honest discharge of his duty, or in obedience to the directions of the head of the department.” Both sections 970 and 989 have been frequently before the Supreme Court for construction and application. As far back as the case of Locke v. The United States, reported in 7 Cranch, 339, 3 L. Ed. 364, the provisions of the act of March 2, 1799 (1 Stat. 627, c. 22), which are substantially the same as those of

section 970, being under consideration, the court held that; “Probable cause means less than evidence which would justify condemnation ; it imports a seizure made under circumstances which warrant suspicion.” The provisions of the 1799 Act were practically re-enacted in the act of February 24, 1807 (2 Stat. 422, c. 19) being

section 89 of that act; and in the case of Gelston et al. v. Hoyt, reported in 3 Wheat. 246, 4 L. Ed. 381, there is a very full discussion of the rights of an officer making a seizure to defend, in an action of trespass, tinder his plea of justification, and the principle is also recognized there that probable cause for the seizure is sufficient to prevent recovery against him. These decisions, it is true, were before the act of March 3, 1863, in which the provisions of

section 989 were enacted, but, since then, these two sections have time and again been involved in cases decided by the Supreme Court, and both of them have been treated by the court as existing law. In Averill v. Smith, 84 U. S. 83, 21 L. Ed. 613, the decision was rendered nearly 10 years after

section 989 first became the law (1863) and in that case, full recognition is given to the provisions of

section 970. Many of the facts in Averill v. Smith are similar to those in the case now in hand: A collector of Internal Revenue seized a quantity of whisky, in barrels, as forfeited to the United States; an information was filed against it, and, under an order of the court, the property went into the hands of the marshal. The plaintiff appeared, and made claim that he was the true and bona fide owner of the property, and filed his answer, denying the material allegations of the information, to which the district attorney replied, tendering an issue.

Upon the trial the jury found that the property did not become forfeited as alleged in the information. The court rendered judgment in favor of the claimant that the property be discharged, but at the same time adjudged and certified that there was probable cause for the seizure. It was held in the case that an action of trespass, after this certificate, would not He against the collector, by virtue of the provisions of

section 89 of the act of February 24, 1807 (chapter 22, 1 Stat. 695), which, as before stated, is brought forward in the Revised Statutes as

section 970. Referring to the facts in the case, the court lays down, substantially, the general proposition so often repeated, that trespass will not lie in a case for the act of seizure, unless it appears that the act was tortious, or unauthorized; and says, referring to defendant: “As such collector bad good cause to believe, and did believe, that the property described in the information was forfeited to the United States for the illegal act of the owner, he was warranted in making the seizure.” Then, in United States v. Sherman, 98 U. S. 565, 25 L. Ed. 235, the court gives construction to

section 989, and Mr. Justice Strong, delivering the opinion in the case, says that when the certificate provided by this

section is given, the'claim of the plaintiff in the suit is practically converted into a claim against the government. In United States v. Abatoir Place, 106 U. S. 160,1 Sup. Ct. 169, 27 L. Ed. 128,

section 970 is again considered, and it is set forth, verbatim, in the statement of facts in the case; the decision in the case being that the action of the District Court, in denying the motion of the United States for a certificate under the provision of the act, was not reviewable by the Supreme Court. Then comes Schell v. Cochran, 107 U. S: 625, 2 Sup. Ct. 827, 27 L. Ed. 543, which involved the question of interest where a certificate had been given by the court of probable cause, under

section 989, in a judgment against a seizing officer, it being held that interest could not be recovered against the United States, except from the date of the certificate. These cases are mentioned in order to show that both of these sections have been frequently before the Supreme Court, and that no suggestion has been made that 989 in any way affected or interfered with the provisions of 970. The judge of the court below, in a very learned opinion, which shows great research and much thought, cites several of these cases. As to Averill v.

Smith, supra, which we regard as a case of important bearing upon the questions involved here, he came to the conclusion that 989 had not been called to the attention of the Supreme Court when the case was under consideration, and he took the same view as to the case of Stacy v. Emery, 97 U. S. 642, 24 L. Ed. 1035, which we shall hereafter refer to. We think, too, that the case of Harding v. Woodcock, 137 U. S. 43, 11 Sup. Ct. 6, 34 L. Ed. 580, is important in that it shows that reasonable cause for action will avail an officer, although there was no proceeding under

section 970. That was a case in which an assessment was made against a distiller for taxes. The Commissioner of Internal Revenue, upon application of the distiller, refused to abate the taxes, and instructed the collector to collect them. Thereupon the collector, under warrant of distraint, seized the property of the distiller and sold it. A suit was brought by the government, upon the bond of the distiller, for the taxes, and, upon the trial, the government was defeated. Thereupon the distiller brought his action against the collector for alleged wrongful seizure and sale of his property.

The court held that the tax assessment certified to the collector by the Commissioner of Internal Revenue was a complete protection to him. As before stated, this case was entirely outside of the provisions of

section 970. It was a case in which the judge could neither give nor refuse a certificate of reasonable cause, under that section, because the property was seized and sold without ever being in the courts; and yet, in that case, the court held that, if the officer’s action was founded upon reasonable cause (and a tax assessment properly made and certified to him was held to be reasonable cause), he could not be subjected to damages at the instance of the distiller, who claimed that he was injured on account of the seizure of his property.

Gould & Tucker, in their notes upon the Revised Statutes of the United States (volume 1), treat of sections 970 and 989 both as existing law, citing decisions under the two statutes; and there is no intimation that the one repeals the other, or that they are at all inharmonious.

In order to support the theory that both sections 970 and 989 are the law, each having its separate and distinct purposes, besides the instances already mentioned of the seizure of property under the original internal revenue law, in which the property, by its detention, may perish or become depreciated in value before its return to the owner, we may call attention to seizures under

section 3460 of the Revised Statutes [U. S. Comp. St. 1901, p. 2282]. By the provisions of this statute, if a collector of internal revenue seizes property, which he believes has violated the law so as to become forfeited, of the value of $500 or less, the case is not transferred to the district attorney for action, by a proceeding in rem, unless a claimant intervenes and files bond for costs.

Let us take a case under this section, in which the collector, acting upon reasonable cause, makes a seizure, but after-wards, upon investigation, determines that the cause which he believed to exist at the time of the seizure cannot be sustained, and, without further action, releases the property, and returns it to the owner.

In such case, if the property is restored intact, the owner could not recover damages for its seizure and detention; but if, on the other hand, the property was lost or injured whilst in custody of the collector, without his default, the owner would have a right of action in which he would be entitled to recover for the actual value of the property lost, or the injury to it, and, upon such recovery, the court, by virtue of the provisions of

section 989, could certify the reasonable cause for the seizure and the liability for payment of the damages recovered would be upon the government. And the same principle would apply to an officer of the internal revenue, under

section 3298 of the Revised Statutes [U. S. Comp. St. 1901, p. 2153], which empowers such officer to take possession of and detain any package containing, or supposed to contain, distilled spirits, when there is reason to believe that the tax has not been paid on the spirits, or that the same is being removed in violation of the law, and to hold the package not exceeding 48 hours, in a safe place, until he determines that the property should be proceeded against as forfeited.

Suppose, for illustration, that an officer finds conditions about a package of spirits which lead him to the conclusion that it is untaxpaid, or that it is being unlawfully removed; and under this belief, he detains the package, but after investigation decides that the case is not sufficiently strong to warrant a forfeiture, and returns the property to the owners: Will any one contend that in a suit by the owner for damages for the seizure and detention of his property, the officer could not protect both himself and the government by showing that the conditions at the time of the seizure were such as to constitute probable cause, and to afford reasonable ground for the seizure?

We think not. And yet, if the property was lost or injured during its detention, by the negligence or fault of the officer, he would be personally liable to the owner; but if, on the other hand, such loss or injury should occur by accident or circumstances over which he has no control, the owner would still be entitled to recover the value of his property, or such damages as resulted from the injury; and this would be a case in which the court could protect the officer by the certificate provided under

section 989. Thus we see that these two sections are not inconsistent or repugnant, 970 being intended to prevent prosecutions for damages in cases of proceedings in court for forfeiture, which fail, but in which the judge certifies reasonable cause, and the property under seizure is forthwith returned to the claimant or his agent; and 989 being intended to meet other cases in which there is reasonable cause for the action of the officer but in which the owner of the property seized recovers damages for its loss or injury. The purposes of the provisions of the act of March 3, 1863 (now

section 989) are further evidenced by the act of July 28, 1866 (chapter 298, 14 Stat. 328), by which the said provisions are extended to embrace cases arising under the captured and abandoned property laws. The protection afforded by

section 989 is confined to officers of the revenue, whilst

section 970 applies to all seizures under any act of Congress; and the latter has been the law of the land almost since the foundation of the government. In the present case there was a proceeding in rem which was dismissed without ¿trial, or hearing upon the merits. No certificate under

section 97Ó was given, nor does it appear that any was asked, and the question to be determined is as to what protection a seizing officer has under such circumstances. We hold that the right of the officer to defend under the plea of reasonable cause is not destroyed by such a proceeding, but that in an action brought against him by the owner of the property for the recovery of damages based upon the unlawful and wrongful seizure of the same, the officer still has the right to interpose his plea of reasonable cause for his action; and, if it is adjudged in his favor, the plaintiff cannot recover.

For this reason we conclude that the trial court was in error in refusing to instruct the jury as requested by defendants, which wás, in substance, that if, at the time, the defendants had reasonable cause for the seizure, the plaintiff could not recover; and the court, in our opinion, under the circumstances, should have gone further and instructed the jury that the order of the Commissioner of Internal Revenue to the collector of the district, directing him to make the seizure, was, in law, reasonable cause, and a protection to the defendants against damages for their action. “The question of probable cause, the facts being undisputed, is one of law.” United States v.

Gay, 2 Gall. 369, Fed. Cas. No. 16,193. The facts here were uncontroverted that the officers of the internal revenue had examined Haymes’ distillery, and had found in and about it conditions which led to the belief that it was not being operated according to law, and that the government was being defrauded of the taxes upon its product. The report of the revenue agent to the commissioner, set out in full in the record, and which was introduced in evidence upon the trial, shows this fact.

Upon this report the commissioner came to the conclusion that the distillery and fixtures, and the distilled spirits on hand, were forfeited to the government; and we must say, upon the conditions about the distillery, which the report of the revenue agent shows, it was such a conclusion as would be naturally arrived at. In Munn v. De Nemours, 3 Wash. C. C. 37, Fed. Cas. No. 9,926, which is reiterated and approved in Stacey v.

Emery, supra, probable cause is held to be “a reasonable ground of süspicion, supported by circumstances sufficiently strong in themselves to warrant a cautious man in the belief that the party is guilty of the offense with which he is charged”, and in the last named case the opinion quotes from Ulmer v. Leland, 1 Greenl. 135, 10 Am.

Dec. 48, the following upon the same subject: “Such a state of facts as would lead a man of ordinary caution to believe or to entertain an honest and strong suspicion that the person is guilty.” If the defendants acted bona fide, and the seizure was based upon reasonable cause, then every element of damages, save those of actual loss of the property, or injury to it whilst in custody, was eliminated.

Otherwise, in every criminal proceeding, where an arrest is made, although the officer making it may act in perfect good faith, and be armed with the process of law, yet, if the prosecution should fail, the person arrested would have the right to recover from the officer damages for injury resulting to his character and business reputation by reason of the arrest. It is a recognized principle of the law, in cases of seizure and forfeiture under the revenue laws, that it is the property, and not the owner which offends.

The property is treated as the defendant in the proceedings—as a thing guilty, susceptible of being tried and condemned, whilst, as is said by the law writers, the owner merely gets notice along with the rest of the world, and may appear for his property or not. It follows, therefore, if an officer, armed with the proper process, or authority, arrests property upon the charge that it has offended the law, the same principles protect him as in cases of the arrest of individuals.

It is not a rare occurrence that individuals are arrested, held in custody—sometimes incarcerated, and yet, upon the trial, they are acquitted. However, if the officer making the arrest was duly authorized, and acted within the limits of his duty, he cannot be mulcted in damages for the arrest and consequent injury to reputation and business credit.

In the enforcement of the revenue laws, an officer, within the scope of his authority, and with proper process in his hand; or, under circumstances affording reasonable cause, has the right to arrest property and hold it as forfeited to the government for a violation of its laws.

In such case, although the proceeding to condemn may fail, yet the officer cannot be subjected to damages, based alone upon alleged injury to the credit and reputation of the owner, resulting from the seizure and detention of his property, and consequent suspension of the business in which the property was engaged; and in no event can the government be subjected, either directly or indirectly, to the payment of such damages.

The commissioner is the head of the internal revenue bureau, invested by law with the power to exercise his judgment and discretion in the administration of the responsible duties which attach to his position. It is his duty, as far as possible, to see that all laws and regulations relating to the collection of internal revenue taxes are faithfully executed and complied with, and to use the instrumentalities provided him in the prevention, detection, and punishment of fraud in relation thereto.

The law gives him the right to order a seizure when, in his opinion (based upon information derived from his agents and other sources which he deems reliable), the property has become forfeited—indeed, he is empowered by

section 3166 of the Revised Statutes [U. S. Comp. St. 1901, p. 2058] to specially authorize any officer of the internal revenue to make a seizure. It was in the exercise of this power that the commissioner gave the instruction to the collect- or to make the seizure of Haymes’ property. This instruction was not only sufficient warrant to authorize the defendant Agnew to make the seizure, but it made it his duty to do so, as a subordinate officer receiving a mandate from .his superior.

It follows, therefore, that if the superior officer had cause which in law would justify his act, his order, which his subordinate was required to obey, is a protection to the latter.

Upon the principles which we have laid down, we not only hold that there was error in the refusal of the court to give the instructions requested by the defendants, but that there was also error in the rule laid down by the court to govern the jury in estimating the damages, which was as follows: “The jury shall take into consideration the loss of profit sustained by the plaintiff during the time his business was suspended, and the loss to him by damage to his credit and reputation; and as to each item they shall not, In any event, allow more than was stated in the bill of particulars.” It will be observed that the plaintiff below, in his declaration, set up as one of his causes of' action the loss of a quantity of distilled spirits, and also claimed damages for alleged injury to his machinery and fixtures whilst held under the seizure, but, in his amended .bill of particulars, both of these grounds are omitted, and in the testimony on the trial no reference is made to the loss of the spirits, or to the depreciation of the property, the evidence relating substantially to damages alleged to have resulted to the plaintiff by reason of the closing of his distillen', and the loss of profits from its operations whilst in custody; and damages for alleged injury to his reputation and credit, caused by the suspension of his business.

Thus it appears that finally the plaintiff sought to recover damages only for these causes, and the instruction above quoted was given in view of that fact. The grounds upon which we conclude this instruction was error have been, we think, already sufficiently discussed, and it is not, therefore, necessary to repeat them here. It is evident, from the facts we gather from the record, that the suit which the plaintiff below had brought against S.

Brown Allen and the Fidelity & Deposit Company, the recovery in which was set up by the defendants as a bar to the present action, but which, as appears in the statement of facts, was not considered in the trial, was a suit for the value of the spirits alleged to have been lost, and for damage to the property whilst in custody; and this accounts for the abandonment of these elements of damage in the trial below. We take official notice of the fact that S.

Brown Allen was, at the time, United States Marshal for the Western District of Virginia; and the record shows that the Haymes property was taken in custody by him about the time the proceeding in rem was commenced. In the bill of particulars $50 is claimed for. amount paid out in having property released from seizure, but the testimony of Haymes shows that this was composed of the fee paid to his attorney, and the outlay which he claims to have made in attending court.

The judge, in his charge'to the jury, made no mention of this claim for damages, and it probably was not considered; but, however that may be, it falls within the principles which we have before stated, and is not recoverable in this case.

The reference we make to the suit of Haymes against Brown and the surety company is more explanatory than otherwise, it being our purpose to base our decision in this case upon the principle that the defendants, having had reasonable cause for the seizure of Haymes’ property, cannot be subjected to damages for the suspension of the business of the distillery whilst it was in custody, during the pendency of the proceeding in rem, nor to damages for alleged injury to business reputation and credit of the owner, as a result of the seizure and detention of the property.

This disposes of the questions raised by exceptions to the judge’s charge, which we are now considering. The judgment of the Circuit Court is reversed, and the case remanded for such proceedings as may be necessary, in accordance with this opinion. Reversed.