Opinion of the Court. 336 U.S. of any "agency" relationship in the Moline Properties, Commonwealth Improvement Co., and Southern Pacific cases, indicate the fallacy of the agency argument made in those cases. The same fallacy is apparent in the contention that petitioners are agents of Airco. They claim that they should be taxable on net income aggregating only $1,350, despite the fact that during the tax year (1938) they owned assets worth nearly 20 million dollars, had net sales of approximately 22 million dollars, and earned nearly four and one-half million dollars net. Their employees number in the thousands. We have passed the question whether Airco's interest in these assets is that of owner of the subsidiaries or lender, but whatever the answer, they do not belong to Airco as principal. The entire earnings of petitioners, except for trifling amounts, are turned over to Airco not because the latter could command this income if petitioners were owned by third persons, but because it owns and thus completely dominates the subsidiaries. Airco, for sufficient reasons of its own, wished to avoid the burdens of principalship." See Moline Properties, Inc. v. Commissioner, supra; Sheldon 21 The two main purposes for the adoption by Airco of the corporate subsidiary method of operation, as related by Mr. C. E. Adams, Chairman of Air Reduction Corp., were these: "Frankly, in 1918 and still, Air Reduction, Inc., was and is a New York corporation. Even at that early date it became evident, as I already said, we were going to have plants scattered all over the United States. We didn't want to domicile the parent company in 48 states of the Union and have us subject to service in all those states, that is, have the parent company subject to service in all those states, and that was distinctly a reason for using this corporate setup in connection with operations to be run as divisions, just as the contract sets forth. "Now, in addition to that, as a practical matter, out in the field and on the firing line, to have a representative, an officer, we will 422 Opinion of the Court. Building Corp. v. Commissioner, 118 F. 2d 835 (1941). Compare Forshay v. Commissioner, 20 B. T. A. 537 (1930). It cannot now escape the tax consequences of that choice, no matter how bona fide its motives or longstanding its arrangements. When we referred to the "usual incidents of an agency relationship" in the Moline Properties case, we meant just that-not the identity of ownership and control disclosed by the facts of this case. We have considered the other arguments made by petitioners and find them to be without merit. The judgment of the Court of Appeals is Affirmed. say, of Pure Carbonic, when trouble arises with a customer, a vice president of Pure Carbonic, who is not an officer of Air Reduction, Inc., at all, who goes in and straightens that out with that customer, increases his cudos [sic], helps him with all his negotiating efforts, with their competitors on the outside." It is thus apparent that Airco was attempting to avoid the status of principal vis-à-vis its subsidiaries. As principal it would have been subject to service of process through its agents; as owner of the subsidiary it was not. See Peterson v. Chicago, R. I. & P. R. Co., 205 U. S. 364, 391 (1907); Cannon Mfg. Co. v. Cudahy Co., 267 U. S. 333 (1925). The purpose of having officers of subsidiaries who could deal directly with customers does not indicate an agency relationship. On the contrary, the very purpose of the organization adopted was to lead customers to believe that they were dealing with top men in the company actually manufacturing and selling the products they purchased. Syllabus. 336 U.S. KRULEWITCH v. UNITED STATES. CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT. No. 143. Argued January 10, 1949. Decided March 28, 1949. Petitioner was convicted in a federal district court for inducing a woman (the complaining witness) to go from New York to Florida for the purpose of prostitution, transporting her from New York to Miami for that purpose, and conspiring with another woman to commit those offenses. At his trial, there was admitted in evidence over his objection testimony concerning a statement made by the co-conspirator to the complaining witness more than six weeks after the transportation to Miami had been completed, which implied that petitioner was guilty and suggested concealing his guilt. Held: 1. The hearsay declaration attributed to the co-conspirator was not admissible on the ground that it was made in furtherance of the conspiracy to transport. Pp. 441-443. 2. Nor was it admissible on the ground that it was in furtherance of a continuing subsidiary phase of the conspiracy-i. e., an implied agreement to conceal the crime. Pp. 443-444. 3. Since it cannot be said on the record in this case that the erroneous admission of the hearsay declaration may not have tipped the scales against petitioner, it cannot be considered a harmless error under 28 U. S. C. (1946 ed.) § 391; and the conviction is reversed. Pp. 444-445. 167 F.2d 943, reversed. Petitioner was convicted in a federal district court of violations of the Mann Act and of conspiracy to commit those offenses, 18 U. S. C. §§ 88, 398, 399 (now 18 U. S. C. §§ 371, 2421, 2422). The Court of Appeals affirmed. 167 F. 2d 943. This Court granted certiorari. 335 U. S. 811. Reversed, p. 445. Jacob W. Friedman argued the cause and filed a brief for petitioner. Robert W. Ginnane argued the cause for the United States. With him on the brief were Solicitor General 440 Opinion of the Court. Perlman, Assistant Attorney General Campbell, John R. Benney, Robert S. Erdahl and Joseph M. Howard. MR. JUSTICE BLACK delivered the opinion of the Court. A federal district court indictment charged in three counts that petitioner and a woman defendant had (1) induced and persuaded another woman to go on October 20, 1941, from New York City to Miami, Florida, for the purpose of prostitution, in violation of 18 U. S. C. § 399 (now § 2422); (2) transported or caused her to be transported from New York to Miami for that purpose, in violation of 18 U. S. C. § 398 (now § 2421); and (3) conspired to commit those offenses in violation of 18 U. S. C. § 88 (now § 371). Tried alone, the petitioner was convicted on all three counts of the indictment. The Court of Appeals affirmed. 167 F. 2d 943. And see disposition of prior appeal, 145 F. 2d 76. We granted certiorari limiting our review to consideration of alleged error in admission of certain hearsay testimony against petitioner over his timely and repeated objections. The challenged testimony was elicited by the Government from its complaining witness, the person whom petitioner and the woman defendant allegedly induced to go from New York to Florida for the purpose of prostitution. The testimony narrated the following purported conversation between the complaining witness and petitioner's alleged co-conspirator, the woman defendant. "She asked me, she says, 'You didn't talk yet?' And I says, 'No.' And she says, 'Well, don't,' she says, 'until we get you a lawyer.' And then she says, 'Be very careful what you say.' And I can't put it in exact words. But she said, 'It would be better for us two girls to take the blame than Kay (the defendant) because he couldn't stand it, he couldn't stand to take it.'" Opinion of the Court. 336 U.S. The time of the alleged conversation was more than a month and a half after October 20, 1941, the date the complaining witness had gone to Miami. Whatever original conspiracy may have existed between petitioner and his alleged co-conspirator to cause the complaining witness to go to Florida in October, 1941, no longer existed when the reported conversation took place in December, 1941. For on this latter date the trip to Florida had not only been made the complaining witness had left Florida, had returned to New York, and had resumed her residence there. Furthermore, at the time the conversation took place, the complaining witness, the alleged co-conspirator, and the petitioner had been arrested. They apparently were charged in a United States District Court of Florida with the offense of which petitioner was here convicted.' It is beyond doubt that the central aim of the alleged conspiracy-transportation of the complaining witness to Florida for prostitution-had either never existed or had long since ended in success or failure when and if the alleged co-conspirator made the statement attributed to her. Cf. Lew Moy v. United States, 237 F. 50. The statement plainly implied that petitioner was guilty of the crime for which he was on trial. It was made in petitioner's absence and the Government made no effort whatever to show that it was made with his authority. The testimony thus stands as an unsworn, out-of-court declaration of petitioner's guilt. This hearsay declaration, attributed to a co-conspirator, was not made pursuant to and in furtherance of objectives of the conspiracy charged in the indictment, because if made, it was after those objectives either had failed or had been achieved. Under these circumstances, the hearsay declaration attributed to the alleged co-conspirator was not admissible 1 The Florida grand jury failed to indict and the cases there were closed without prosecution in February, 1942. The New York indictments were not returned until January, 1943. |