Nunnally Investment Co. v. United States

36 F. Supp. 332, 92 Ct. Cl. 358, 26 A.F.T.R. (P-H) 336, 1941 U.S. Ct. Cl. LEXIS 159

• Court: United States Court of Claims
• Decided: January 6, 1941
• Docket: No. 42389
• Status: Published

Opinions

Green, Judge,

delivered the opinion of the court:

This is an action to recover the amount of $18,857.82 alleged to have been overpaid as income and profits taxes for the year 1920, together with interest thereon of $577.65.

On January 2, 1920, plaintiff sold all its business and assets. Part of the consideration of the sale was the assumption of certain taxes by the purchaser, which were paid in the years 1921 and 1922. The amount of these taxes was included by the Commissioner as part of plaintiff’s income for the year 1920, and the Commissioner in August 1926, accordingly assessed against plaintiff income and profits taxes for the year 1920 in the sum of $493,817.95 and interest thereon of $16,113.34, making a total amount of $509,931.29, which was demanded of plaintiff by the U. S. Collector of Internal Revenue and paid to the collector September 21, 1926.

The plaintiff duly filed a refund claim for the whole amount of taxes and interest paid, alleging that the Commissioner’s statement of income was erroneous by reason •of his understatement of the basis of the assets sold on January 2,1920. No other ground for refund was stated in the ■claim. More than six months later the plaintiff filed suit against the Collector of Internal Revenue on the same grounds that were stated in the claim. The case was tried by a jury which rendered a special verdict and a stipulation was entered into between the parties that judgment should be entered in favor of the plaintiff for $250,000, with interest and cost, which was accordingly done on July 6,1929. Pursuant, to this judgment a certificate of probable cause was granted and thereafter a certificate of overassessment was issued to-the plaintiff in accordance with the judgment, and the total’, amount due thereon was paid to the plaintiff by defendant about September 29, 1929.

On September 18, 1930, the plaintiff filed with the Collector of Internal Bevenue of Atlanta a claim for refund of $200,000, income and profits taxes for 1920. The claim was based on the alleged right to special assessment, and other grounds which have now been abandoned, and also upon the ground on which this suit is now based, namely, that additional income and excess-profits taxes paid in 1921 and 1922 by the purchaser in accordance with the terms of the agreement of sale of January 2, 1920, did not constitute income of the plaintiff for 1920 but only in the years for which the payments were made. This claim for refund having been rejected suit was begun thereon on March 18, 1933. Thereafter certain portions of the petition were stricken leaving only the claim that additional income and profits taxes paid by plaintiff’s purchaser in 1921 and 1922 did not constitute taxable income to plaintiff for the year 1920, the records and returns being kept on a cash receipts and disbursements basis.

Two questions are presented by the case. (1) Whether taxes for prior years assumed by the purchaser of plaintiff in 1920 were income to plaintiff in 1920, although the taxes were not actually paid in that year and (2) Whether plaintiff is precluded from recovery in this action of any refund of 1920 taxes by reason of the judgment obtained against the United States Collector of Internal Bevenue for the District of Georgia.

We think it is clear that the fact that plaintiff was on a cash basis makes the 1921 and 1922 payments not income in 1920. See W. A. Hoult v. Commissioner, 23 B. T. A. 804; A. W. Henn v. Commissioner, 20 B. T. A. 1133; and Charles C. Ruprecht v. Commissioner, 16 B. T. A. 919.

The question of whether plaintiff’s recovery is barred by reason of the judgment which it obtained against the defendant in the suit against the collector presents a much more difficult problem. The plaintiff insists that an unbroken line of decisions by the Supreme Court lay down the rule that a judgment against a collector for taxes illegally collected is personal, and does not prevent the taxpayer from bringing a later suit against the United States involving errors alleged to exist in the computation of taxes for the same years. Sage v. United States, 250 U. S. 33, is cited as the leading case promulgating this doctrine. In this case, like the one at bar, the taxpayer had sued the collector on the ground that the taxes had been illegally collected, and recovered judgment which was paid by the United States. A suit was later begun for a residue of the same taxes. In defense it was pleaded that the suit was barred by a former judgment. The court referred to the fact that it was the duty of the District Attorney to appear for the collector in such suits under the statutes; that the judgment is to be paid by the United States, and the collector is exempted from execution if a certificate is granted by the court that there was probable cause for his act. The court further said:

* * * But no one could contend that technically a judgment of a District Court in a suit against a collector was a judgment against or in favor of the United States. It is hard to say that the United States is privy to such a judgment or that it would be bound by it if a suit were brought in the Court of Claims. The suit is personal and its incidents, such as the nature of the defenses open and the allowance of interest, are different. It does not concern property in which the United States asserts an interest on its own behalf or as trustee, as in Minnesota v. Hitchcock, 185 U. S. 313, 388. At the time the judgment is entered the United States is a stranger. Subsequently the discretionary action of officials may, or it may not, give the United States a practical interest in the amount of the judgment, as determining the amount of a claim against it,, but the claim would arise from the subsequent official act, not from tbe judgment itself. United States v. Frerichs, 124 U. S. 315. But perhaps it would be enough to say that if the judgment otherwise were a bar the bar would be removed by the subsequent enactment of the Act of July 27, 1912, c. 256, 37 Stat. 240, upon which, as well as the Act of 1902, this claim is based.

Counsel for the defendant call attention to the last sentence bf the part of the opinion quoted above, and argue that it shows that the case was in fact decided upon a different ground from that which was first stated, and that ■all that is contained in the opinion with reference to the bar ■of a former judgment is merely dictum.

The principal contention of the defendant is, however, •that the Sage case, supra, has been overruled by the opinion in the case of Moore Ice Cream Co. v. Rose, 289 U. S. 373, 381, 382, 383, in which the Supreme Court, with reference to n suit against a collector, said:

His duty being imperative, he is protected by the command of his superior from liability for trespass * * *, and is entitled as of right to a certificate converting the suit against him into one against the Government.

And also that—

A suit against a Collector who has collected a tax in the fulfilment of a ministerial duty is today an anomalous relic of bygone modes of thought. He is not .suable as a trespasser, nor is he to pay out of his own purse. He is made a defendant because the statute has said for many years that such a remedy shall exist, though he has been guilty of no wrong, and though another is to pay.

*****

In such circumstances his presence as a defendant is merely a remedial expedient for bringing the Government into court.

The court further said with reference to the collector:

Execution can never issue against him upon any judgment recovered in favor of the taxpayer.

But in Bankers Pocahontas Coal Co. v. Burnet, 287 U. S. 308, 312, decided during the same term, but at a prior date, it was held that a judgment against a collector was not res judicata against the Commissioner or the United States, citing Graham & Foster v. Goodcell, 282 U. S. 409, 430, and Sage v. United States, 250 U. S. 33.

So also in Tait v. Western Maryland Railway Co., 289 U. S. 620, 627, the Supreme Court said:

In a suit for unlawful exaction the liability of a collector is not official but personal. Sage v. United States, 250 U. S. 33; Smietmika v. Indiana Steel Co., 257 U. S. 1; Graham & Foster v. Goodcell, 282 U. S. 409, 430. And for this reason a judgment in a suit to which he was a party does not conclude the Commissioner or the United States. Bankers Pocahontas Coal Co. v. Burnet, 287 U. S. 308, 311.

And in the case of Sunshine Anthracite Coal Co. v. Adkins, 310 U. S. 381, 402, 403, the court said:

A judgment is res judicata in a second action upon the same claim between the same parties or those in privity with them. Cromwell v. County of Sac, 94 U. S. 351. There is a privity between officers of the same government so that a judgment in a suit between a party and a representative of the United States is res judicata in relitigation of the same issue between that party and another officer of the Government. See Tait v. Western Maryland Railway Co., 289 U. S. 620. * * * Cases holding that a judgment in a suit against a collector for unlawful exaction is not a bar to a subsequent suit by or against the Commissioner or the United States (Sage v. United States, 250 U. S. 33; Bankers Pocahontas Coal Co. v. Burnet, 287 U. S. 308) are not in point, since the suit against the collector is “personal and its incidents, such as the nature of the defenses open and the allowance of interest, are different.” Sage v. United States, supra, p. 37.

The defendant contends that although the parties in the case at bar are not the same as those in the suit against the collector, the United States is privy to the case against the collector under the rules laid down in the Moore Ice Cream Co. case, supra, and that even if the doctrine of res judicata does not in a strict sense apply the plaintiff is nonetheless estopped by its judgment obtained against the collector. In support of this contention counsel for defendant cites the case of United States v. California Bridge & Construction Co., 245 U. S. 337, 341, in which the court said:

The doctrine of estoppel by. judgment, or res judi-cata, as a practical matter, proceeds upon the principle that one person shall not a second time litigate, with the same person or with another so identified in interest with such person that he represents the same legal right, precisely the same question, "pelicular con_ troversy, or issue, which has been necessarily tried and finally determined, upon its merits, by a court of competent jurisdiction, in a judgment in personam in a former suit. * * *

This same rule is applied by the Court of Civil Appeals of Texas in the case of Cauble v. Cauble, 2 S.W. (2d) 967, which notes a distinction between res judicata and estoppel by judgment.

In further support of this contention defendant quotes from Paul’s Selected Studies in Federal Taxation (2d Ed.), pp. 124, 126, in which in commenting on the Western Maryland Railway Co. case and Bankers Pocahontas Coal Co. case the view is set forth that the real party in interest in these suits against a collector is always the United States, and that the decision of Justice Holmes in the Sage case, supra, that a suit against a collector is purely personal in nature must be considered as having been rendered inapplicable by the decision in the Moore Ice Cream Co. case.

The defendant further calls attention to an article in 46 Yale Law Journal, 1320 (1937), in which the author says (pp. 1342,1343), in substance, that in the Moore Ice Cream Co. case the Supreme Court specifically held that where the collector acted pursuant to an assessment, the United States becomes a party to the judgment as a matter of law, and further that the decision in the Sage case should no longer be followed.

Attention is also called to that part of the opinion in the Sunshine Anthracite Coal Co. v. Adkins, 310 U. S. 381, which holds that identity of the parties is not a matter of form but of substance and that “a judgment is res judicata in a second action upon the same claim between the same parties or those in privity with them.”

It might further be said that there can also be found in the decisions of the State courts many cases which hold that a litigant should be allowed but one opportunity to try his case on the merits in the interests of the public, and that on grounds of public policy, the principle of estoppel should be expanded so as to embrace within the estoppel of a judgment persons who are not, strictly speaking, either parties to the suit. Also it would seem that as the collector under the decision in the Moore Ice Cream Co. case was the duly authorized agent of the Government the question would arise whether the judgment in a case against him would be binding against the United States and render the matter of litigation res judicata.

All the matters presented for our consideration by the defendant would have much force and perhaps be sufficient to warrant a decision in its favor if it were not for the positive decisions of the Supreme Court to the contrary. We cannot treat the language used by Justice Holmes in the Sage case, supra, as merely dictum when there are three recent cases which cite the case as an authority that a judgment against a collector is not res judicata against the Commissioner or the United States. For the same reason we think that it cannot be held that the Moore Ice Cream, Co. case overrules the Sage case or the Bankers Pocahontas Coal Co. case, neither of which are mentioned in the first named decision.

As we have already shown the Supreme Court in the Tait case, supra, decided three weeks subsequent to the decision in the Moore Ice Cream Co. case again confirms the rule laid down in the Bankers Pocahontas Coal Co. case, and finally in the very recent decision of the Swnshine Anthracite Coal Co. case, supra, refers to the decision in the Sage case and the Bankers Pocahontas Coal Co. case as recognized authorities.

Without discussing the legal principles involved in the case now before us, we are of the opinion that the repeated holdings of the Supreme Court sustaining the Sage case and ignoring the Moore Ice Cream Co. case make it proper in the instant case to apply the doctrine of strn-e decisis and feel constrained to hold plaintiff’s action is not barred by the judgment against the collector. This conclusion makes it unnecessary to consider the other questions raised in the case.

The findings show that plaintiff’s purchaser agreed to pay taxes for 1917, 1918, and 1919 due from the plaintiff in the sum of $39,739.50. Although this amount was not paid until 1921 and 1922, it was erroneously included in the gross income of plaintiff for 1920 and plaintiff’s taxes computed accordingly. The plaintiff is entitled to recover the amount its taxes for 1920 were increased by this error, together with interest as provided by law. But neither party has submitted a calculation of the amount of plaintiff’s recovery, if entitled to judgment. The defendant presents a claim that plaintiff’s recovery cannot be properly calculated as a reason for not entering judgment in its favor. With this we do not agree. On the contrary we think it can be done. Each party is granted ten days in which to file a typewritten statement, which on the part of the plaintiff shall contain a calculation of the amount due in accordance with this judgment, and on the part of the defendant a memorandum containing such further observations as its counsel may see fit to present with reference to the amount of plaintiff’s recovery, and the papers so filed will be considered by the court in entering judgment.

Littleton, Judge; and Whaley, Chief Justice, concur.