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LA FAYETTE BREWERY, INC.

JUNE 14, 1949.-Committed to the Committee of the Whole House and ordered to be printed

Mr. JENNINGS, from the Committee on the Judiciary, submitted the following

REPORT

[To accompany H. R. 1601}

The Committee on the Judiciary, to whom was referred the bill (H. R. 1601) for the relief of La Fayette Brewery, Inc., having considered the same, report favorably thereon with an amendment and recommend that the bill as amended do pass.

The amendment is as follows:

Page 1, line 7, after the figures "$5,642," strike out "with interest at 4 per centum from January 28, 1944,".

The purpose of the proposed legislation is to pay the sum of $5,642 to the La Fayette Brewery, Inc., of La Fayette, Ind., in full settlement of all claims against the United States for refund of the value of 89 canceled internal revenue malt liquor stamps valued at $4,347 and of 24 uncanceled internal revenue malt liquor stamps valued at $1,295 burglarized from the safe of the La Fayette Brewery, Inc., of La Fayette, Ind., January 28, 1944, which sum has heretofore been paid to the United States.

STATEMENT OF FACTS

It appears that during the night of January 28-29 of 1944 at which time the burglars blew off the door of the safe and secured some cash and bonds which were in the safe proper. They abstracted from the safe a money chest and carried it away with them and such money chest and its contents have not been located or recovered since. Included in the contents of the money chest were 24 uncanceled internal revenue malt liquor stamps totaling a value of $1,295 and 89 canceled by perforation internal revenue malt liquor stamps totaling a value of $4,347. These stamps were in the following denominations: 13 stamps at $70; 11 stamps at $35; 24 stamps in all which had not been canceled and 56 stamps of $70 denomination, 7 stamps at $35 and 26

stamps of $7 denomination, totaling 89 stamps which had been canceled by a perforating machine which cut the name of the brewery and the date of cancelation. All of these stamps had been purchased by the La Fayette Brewery directly from the Federal Alcoholic Division for use in their brewery.

Claim was presented for refund on this loss to the Federal Alcoholic Beverage Division in the name of the La Fayette Brewery and on September 11, 1944, was rejected by Mr. Stuart Berkshire, deputy commissioner, on the ground that under section 3304 (a) Internal Revenue Code the Commissioner of Internal Revenue is powerless to give relief in such a case and the claimant was advised that the only method whereby relief might be secured would be by special act of the Congress of the United States authorizing refund in the sum of $5,642.

By reason of the burglary and the requirements of the Alcoholic Division the La Fayette Brewery was obliged to purchase replacement stamps in the amount of $5,642 and thereby has been obliged to pay to the Government a double tax in such amount

The company carried a burglary insurance policy and under this policy had the option of receiving payment in full for their loss of $5,642 from United States Fidelity & Guaranty Co. of Baltimore, Md., or receiving from the said United States Fidelity & Guaranty Co. a loan in said amount to be repaid by them to the said insurance company in the event of recovery of the property stolen or for reimbursement by the United States Government. If the first alternative was followed the United States Fidelity & Guaranty Co. was to be subrogated to all of the rights of the La Fayette Brewery as to subrogation against parties responsible for the loss or for reimbursement by the United States Government. If the second alternative were chosen it became the burden of the La Fayette Brewery to pursue all remedies for recovery of the property or reimbursement from the Government in their own name and right. The La Fayette Brewery chose the second alternative and a loan agreement was entered into in the sum of $5,642 and the money turned over under such loan agreement and since said time the La Fayette Brewery has pursued in its own name and right the claim against the United States Government in the nature of a special bill for relief.

It is a well-known fact and custom as to the use of malt-beverage revenue stamps that each brewery has a separate malt-revenue stamp account with its division of the Federal Government and practically and legally can and should be, with proper audit supervision, in balance on said account at all times. In other words, a purchase of stamps is the means of checking the production of the brewery and payment of the internal revenue required and, if upon audit any brewery is found to be long on its total of canceled and uncanceled stamps in its possession compared with its purchases of stamps, as a prima facie matter, such surplus would necessarily be determined and the brewery would be in a position of having stamps in their possession illegally obtained. If the thieves in this case had disposed of uncanceled stamps to another brewery efficient auditing by the Government itself could easily determine such fact and in such case the guilty purchasing brewery should be penalized and not the brewery who suffered the loss of the uncanceled stamps.

As to the canceled stamps, the evidence of illegal purchase by another brewery is all the stronger because of the perforated character of the canceled stamps which bear the name of the brewery owning same. There seems to be no reason why a taxpayer should be penalized because of inefficient or lack of alertness in auditing on the part of the Government's own auditors or inspectors and such a reason for advising congressional action certainly casts a reflection on the Government's own servants in the discharging of their official duties. Since more than 5 years have elapsed without discovery of the money chest and without the discovery on the part of the Government auditors and inspectors of the use of these canceled stamps involved and apparently no discovery of any brewery out of balance on their stamp account, a very definite presumption is thereby established to the effect that the canceled and uncanceled stamps have not been used and have actually been destroyed.

The position of the Government not to reimburse subrogation claims on the part of insurance companies is reprehensible and serves only as an excuse to avoid the payment of obligations. Private businesses, under the rule of the courts, not only permit but favor subrogation of the rights of the claimant to his insurance company to prosecute against a wrongdoer and recover from such wrongdoer any amount that the insurance company might have been required to pay out by reason of its insurance contract to its insured. Such policy is well supported by reason in that it replaces the money, property, or other thing of value of the insured promptly thus medicating further loss and places in the hands of the competent people the procedure of damage claim against the person responsible for such damage. However, we are not confronted in this case by that situation since the courts of the United States generally have held that where an insurance settlement is made by a loan agreement and the person sustaining the loss himself pursues reimbursement in his own name the elements of subrogation do not apply. Thereby, the statement made to the effect that the claimant suffered no actual loss from the theft of the stamps since the files of the Bureau of Internal Revenue show that the claimant was indemnified for the full amount of the loss by the United States Fidelity & Guaranty Co. of Indianapolis, Ind., under an insurance policy, is erroneous in fact. They have not been fully indemnified by payment but have only been reimbursed financially by a loan with the brewery left to pursue relief for their loss whether from the wrongdoers or in the method now being pursued for relief by special act of Congress. The insured did assume a liability, for an account of a payment of the premium but, even though this were a subrogation claim, according to the private business practices, they still, as subrogee, are entitled to all the rights of the insured.

It is further stated in the report of the Acting Secretary of the Treasury, dated January 27, 1948, that even where the taxpayer was not indemnified for the loss, and as a reason for same states that such legislation would have a discriminatory effect, the only way such legislation could result in discrimination would rest on the failure and neglect of any person in similar circumstances in making and prosecuting his or her claim and such discrimination would not rest upon the Government of the United States but upon the person who was in such a manner neglectful of his own rights.

The report further states that the Government would suffer loss to the extent of the relief afforded the claim in the event the stamps should be used for tax purposes for any brewery and such use were not detected. It would appear that such a statement is definitely predicated on a specific reflection upon the ability, integrity, and efficiency of its own agents in the Alcoholic Department. It would seem much fairer and more gracious of the Government to resolve the very slightest doubt as to the reuse of all of these malt liquor stamps in favor of the petitioner for relief in this case than to insist on charging to some of its citizens a double tax, particularly where efficient and able acting inspectors and auditors could easily discover any reuse of said canceled and uncanceled stamps involved in this case.

Therefore, your committee, in fairness and justice, recommends favorable consideration for the relief of the La Fayette Brewery, which company is actually pursuing relief from their loss, and even though the net result of such favorable action would be to reimburse and insure payment under a burglary insurance policy. Fairness and justice would equally support favorable action, and therefore favorable consideration is recommended.

THE SECRETARY OF THE TREASURY,
Washington, January 27, 1948.

Hon. EARL C. MICHENER,
Chairman, Committee on the Judiciary,

House of Representatives, Washington, D. C.

MY DEAR MR. CHAIRMAN: Further reference is made to your letter of November 28, 1947, relative to H. R. 4131, a bill for the relief of the La Fayette Brewery, Inc.

The bill is similar to H. R. 955 (79th Cong.), for the relief of the United States Fidelity & Guaranty Co. of Indianapolis, Ind. It would authorize and direct the Secretary of the Treasury to pay to La Fayette Brewery, Inc., the sum of $5,642 in satisfaction of its claim for refund of the value of 89 canceled and 24 uncanceled internal revenue malt liquor stamps burglarized from its safe on January 28, 1944. The records of the Bureau of Internal Revenue show that on July 31, 1944, La Fayette Brewery, Inc., 806 North Fourth Street, La Fayette, Ind., filed a claim for refund of $5,642, representing the value of fermented malt liquor stamps alleged to have been stolen during the night of January 28, 1944, when the corporation's safe was robbed. The claimant reported that there were 24 uncanceled stamps valued at $1,295 and 89 canceled stamps valued at $4,347.

The claim was rejected on September 11, 1944, on the ground that the claim did not come within the purview of section 3304 (a), Internal Revenue Code, which authorizes the making of an allowance for or the redemption of internal revenue stamps under certain circumstances, and there was no statutory authority to refund the amount paid for the stamps.

The theft of the stamps did not necessarily render them useless or unfit for the purpose for which they had been issued, that is, payment of the tax on fermented malt liquors. This is particularly true in respect of the 24 uncanceled stamps. Uncanceled fermented malt liquor stamps bear no date or any marks indicating the name of the brewer to whom they are issued. They are unidentifiable and untraceable and might be used by any brewer in paying the tax on fermented malt liquors. Such stamps obtained illegally would be indistinguishable from any other stamps of the same denomination purchased directly from the Government. The stamps bearing the brewer's cancellation marks would be traceable if used fraudulently, provided such use was detected.

It is, of course, possible that if the stamps in question should come into the possession of another brewer and be used by him and such use reported, it could be discovered by audit under the system of accounting set up in the regulations that the brewer had obtained more stamps than he had purchased from the collector. Likewise, if the stamps should be recovered and used by the brewer to whom they were originally issued and such use reported, it could be discovered that the brewer had used more stamps than he had purchased from the collector. But detection in either case would depend upon the alertness of the auditor or inspector in counting and examining the stamps, and even where detection resulted

it would be impossible to prove, especially in the case of the uncanceled stamps, how or under what circumstances the brewer had obtained the additional stamps. Further, the claimant suffered no actual loss from the theft of the stamps. The files of the Bureau of Internal Revenue show that the claimant was indemnified for the full amount of the loss by the United States Fidelity & Guaranty Co. of Indianapolis, Ind., under an insurance policy. It is, therefore, assumed that the purpose of the claimant is to reimburse the insurer for its loss. If the relief sought were granted the result would be reimbursement of the insurer from public funds for a loss suffered in the normal course of its business. The insurer in its contract of indemnity undoubtedly assumed, for and on account of the payment of a sufficient premium by the claimant, the risk of loss.

The Department has consistently opposed the granting of legislative relief in cases of this nature, even where the taxpayer was not indemnified for the loss. The reason for this position is that the legislation would have a discriminatory effect, in that it would provide relief for one person under circumstances in which relief would be denied all others similarly situated who may not secure the benefit of special legislation. Furthermore, it is clear that if the proposed legislation were enacted the Government would suffer a loss to the extent of the relief afforded the claimant in the event the stamps should be used for tax payment purposes by any brewer, and such use were not detected.

It is the opinion of the Department that the bill should not be given favorable consideration.

The Director, Bureau of the Budget, has advised the Treasury Department that there is no objection to the presentation of this report.

Very truly yours,

A. L. M. WIGGINS, Acting Secretary of the Treasury.

FEBRUARY 5, 1944.

Memorandum: 41-B-1508—La Fayette Brewery, Inc., IMS-80597, loss January 29, 1944.

The above file involves the blowing of the safe at the La Fayette Brewery, Inc., shortly after 3:25 a. m. on January 29, 1944, at La Fayette, Ind. The assured is in the business of brewing and distributing beer and has a large plant spread over considerable territory. The safe involved is a square Herring-Hall-Marvin safe with large steel concrete reinforced outer doors and combination, and a double sheet iron inner door. Inside the safe was contained a money chest which was bolted to the bottom of the safe.

The writer met John Leuther, secretary-treasurer of the concern, on February 2 and proceeded with the investigation. Lewis R. Harbit, the watchman, was interviewed and his statement taken, as was John Leuther, whose statement was also taken. Briefly, Harbit, the watchman, while entering the boiler room was held up at the point of a gun, his eyes taped and his hands and legs taped together and he was seated on a chair while the robbers proceeded with their business. The outer doors were blown open in one operation and while the outer steel shell remained on the hinges, the big doors were blown outward and the inner shell and the concrete contents of the door together with the combination were blown out onto the floor of the office. The second operation apparently blew the inner double sheet iron doors loose after which the safe robbers emptied the currency drawers of the safe, and removed entirely the money chest and took it away with them.

The robbers apparently wore gloves as no fingerprints could be developed of any kind. It is presumed that they were also equipped with a gas mask since a tear gas bomb which was fastened to the combination of the inside of the safe was broken and the tear gas was still very apparent when the police arrived shortly after 5 a. m.

It appears that the money chest was removed from the premises without an attempt to open it.

The watchman could give no definite information as to means of ingress but thought that egress was made through the boiler room door which had been locked prior to the robbery but was found unlocked afterward. Harbit finally escaped from the ropes which had been used to tie him up and gave the alarm to the police at 4:56 a. m. the robbery having occurred shortly after 3:25 a. m. and several squads of the La Fayette police came and investigated, and are still working on the case. The job was very similar to a safe robbery at the La Fayette stock yards which occurred about a week previous to this, at which time the watchman was held up at the point of a pistol, bound with tape, and the safe broken open.

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