Hercules Powder Company v. The United States

DAVIS, Judge

(dissenting):

I do not agree that defendant is barred by collateral estoppel from relitigating the issued decided in Hercules Powder Co. v. United States, 180 F.Supp. 363 , 149 Ct.Cl. 77 (1960). This suit involves a different tax year. In such a case, the Supreme Court has told us, the doctrine of collateral estoppel is inapplicable if (a) “the relevant facts in the two cases are separable, even though they he similar or identical” (Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 601 , 68 S.Ct. 715, 721 (1948), emphasis added); or (b) there has been “a change or development in the controlling legal principles” (id. at 599, 68 S.Ct. at 720 ), “a judicial declaration intervening between the two proceedings [which] may so change the legal atmosphere as to render the rule of collateral estoppel inapplicable” (id. at 600, 68 S.Ct. at 720 ), or “a sufficient change in the legal climate” to render the bar unavailable (id. at 606, 68 S.Ct. at 723 ). In my view, both of these alternatives are fulfilled here.

*648 As Judge Whitaker’s opinion points out, many of the relevant facts are precisely the same, not separable from, those in the earlier litigation. But that is not true of all of the facts, and Sunnen has confined collateral estoppel in tax cases to instances where “the very same facts and no others are involved in the second case” (id. at 601, 68 S.Ct. at 721 , emphasis added). Moreover, I consider the annual resolutions to be a critical element in the continued execution of the bonus plan. Nothing could be done until the resolution for the particular year was adopted —or apart from the terms of that resolution. Even if the wording of the resolution for the taxable year was identical with those in the prior case, 3 the documents are, quite plainly, separate and distinct. Sunnen declares that, if “the second proceeding may involve an instrument or transaction identical with, but in a form separable from, the one dealt with in the first proceeding,” then the “court is free in the second proceeding to make an independent examination of the legal' matters at issue” (id. at 601, 68 S.Ct. at 721 ). This principle is illustrated by the holding in Sunnen itself. One tax issue concerned royalty payments growing out of license contracts which were identical in all important respect with an earlier contract which had been the subject of the first tax decision. The Supreme Court squarely held that “[f]or income tax purposes, what is decided as to one contract is not conclusive as to any other contract which is not then in issue, however similar or identical it may be” (id. at 602, 68 S.Ct. at 721 , emphasis added).

There has also been, in my opinion, a “development in the controlling legal principles,” “a change in the legal atmosphere” and the “legal climate.” This standard does not mean that the earlier decision must have been overruled or limited strictly to its facts, or that the second ruling must necessarily be inconsistent with the first. The language used in the Sunnen opinion suggests, rather, that the second court should be freed from the prior determination if there has been some marked advance or alteration in relevant orientation, approach, reasoning or principles. Just such a change has occurred within this court, as a comparison of the opinion in Hercules Powder in 1960 with that in General Electric (and also in Penn-Texas) in 1962 will show. 4 It makes no difference that the decisions may all be reconcilable on their differing facts; for the application of collateral estoppel, the significant point is that the court’s approach to this type of case has veered sharply since the first Hercules Powder. The way is therefore open for us to consider the issue, in the present context, on its merits.

On the merits I would hold for the defendant. Because of the intervening development, the former adjudication need not be followed, even as a precedent. See Mississippi River Fuel Corp. v. United States, Ct.Cl., 314 F.2d 953, 958 , decided April 5, 1963 (concurring opinion). We can proceed de novo. This is not as clear a case for the Government as General Electric, but as I read the balance the needle does swing against taxpayer. Judge Jones’ dissent in the earlier case is persuasive that the company dealt with the treasury stock, in and around the years of the bonus payments, as it could and would have dealt with another corporation’s shares, or with *649 cash. That conclusion is underlined, for the present taxable year (1953), by the terms of the resolution implementing the bonus plan. The directors determined that “the portion of the bonus fund allocated to any individual may consist entirely of treasury stock, or entirely of cash, or partly of treasury stock and partly of cash, all in the discretion of the President” (finding 29). The equation, in the directors’ minds, between cash and the treasury stock is thus made plain on the face of the resolution. So far as the policy-making board was concerned, the entire bonus could as well have been paid in cash. For the year 1953, this effectively nullifies, I think, the assumption that the purpose of the bonus, at least in part, was to give the recipients a stake in the corporation. I do not say that taxability results simply because the company, if it had desired, could have substituted cash for the stock. My point is that this company actually .contemplated using cash and affirmatively decided that it was immaterial in which coin the bonus was paid. This is a controlling circumstance showing that the taxpayer, in fact, dealt in its own shares as it might in cash or the stock of another firm. See General Electric Co. v. United States, 299 F.2d 942, 948-949 , 156 Ct.Cl. 617, 627-629 (1962), cert. denied, 371 U.S. 940 , 83 S.Ct. 319 , 9 L.Ed.2d 275 (1962); Penn-Texas Corp. v. United States, 308 F.2d 575, 578-580 , 158 Ct.Cl. 575, 581-585 (1962). 5

JONES, Senior Judge, joins in the dissenting opinion.

. Ia fact, the resolutions are not identical, or nearly so. Compare finding 29 in the present case with finding 24 in the earlier one, 180 F.Supp. 363 , 149 Ct.Cl. at 93-94 .

. For one thing, the Hercules Powder opinion cast doubt on the validity and theory of the Treasury Regulation. Both General Electric and Penn-Texas explicitly refer to and reaffirm its validity. Another major difference is that Hercules Powder seems to consider the regulation’s criterion of taxability as limited to a corporation “huckstering its shares in the same way that any speculator or investor would do with the shares of any corporation.” 180 F.Supp. at 366 , 149 Ct.Cl. at 82 . Neither General Electric nor Penn-Texas takes that narrow a view of the regulation. See, also, n. 5, infra.

. In General Electric, a bonus payment case, tbe majority said that the facts of that case and of tbe first Hercules Powder “are closely alike”; the opinion specifies no differentiating facts or factors but contents itself with saying that “the facts of the instant ease, we believe, bring it within the regulations” ( 299 F.2d at 949 , 156 Ct.Cl. at 629).

Penn-Texas, in which the court decided against taxability, did not concern bonus payments but the isolated exchange of treasury stock for property owned by interests which were anxious to obtain a proprietary stake in the taxpayer-corporation. The facts are entirely different from those in the Hercules cases and there was, of course, no occasion to reconsider the first Hercules decision. But the Penn-Texas opinion clearly departs from the restricted approach of the opinion in the first Hercules. That decision is cited only for the accepted proposition that certain factors are not conclusive in and of themselves. In general rationale and approach, although one holds for the taxpayer and the other against, the Penn-Texas opinion is far closer to General Electric than to the earlier Hercules.