Petitioners Reply Brief — Bank of America National Trust & Savings Ass'n v. United States

.

Lie »

. baa Fs

-~ % 3

jz -@

’ 2 52

, % é a = :

‘ :

—- ——— ad

5 "2 ok } by

>

’

a a

8 be -

- ° - ad

eo ?

i)

oe :

dane ar “fg :

v . -. a , . ve ¥.

i _ SUBJECT INDEX

Comment, upon the position of thé United States

eee ao : 1 ae

| . TIL. :

w ‘ “ “ / . 3 ~ 3

~ Conelizsion

& a 7

cr) ’ . rice. “bi

“a g

a .

a © i

4 2?

.- Tee %

4 2 e oe

a °

P :

? % 9 Pe

@

eee

Coe TABLE —— CITED |

gi “Cases Page

: Maniel v. Bank of California, 119 Cal. 470, 51

, EB viciicens “4

za of Nevada v. United States, 281. F. 2d 820 ..

Sc scueell 2 &S, 4 7

pace v. Gates, 42 Cal. 24752, 269 P. 2d 609 ..3, 4

Jones v. Mortimer, 28 Cal. 2a 627, 170 P. 24 893 |

3 7 3, 4

Marine Nationat Exchajge — v. | Kalt-Zimmers

Mfg. Co., 293 U.S. eke siemens 4

' Murchison v. Murchison, 219 Cal. App. 2d 672, : 33.

Cal. Rptr. 383 ... : a.

*~” National Association’ for the Advancement of Col-

‘ored People v. Button, 371 U.S. 415 bn mae

United States v. Bank’ oP Shelby, 68 F. 2d 538 ......5, 6

United States v. Bank of United States, 5 F. Supp.’ ”

942 pais 5, 6

. United States ¥. ‘Bess, 357 U.S. 51 ie 5

- United States v. Combest, 286 U.S. 424 ... ae

"Statutes | |

| California Code’ of Civil, Procedure, Sec. 440 ....

1,3,4, 5.

aternal I acetals Code of 1954, Sec. 6323 - eee a

Textbook | “4

8 Tulane [aw Review,. 2 423 ‘ctidinoigiitinienbipioentniceatn 4

al °

a: -

Rg te ’

Civil _

IN THE

2 Supreme Court of the United States

—e

October a 1965

‘No, 539

“BANK oF AMERICA NATIONAL TRUST AND SAVINGS

ASSOCIATION, a national banking association,

oe _ Petitioner,

Vs. ”

co x

UniTEp STATES OF AMERICA, ©

Rs : Respondent.

REPLY BRIEF OF PETITIONER.

Comment Upon the Position of the United States.

The respondent, United States, in its brief, distorts

the ‘record and the argument of. the petitioner Bank in

an attempt to. make | it appear that the courts below

deemed applicable and carefully. reviewed the law of

. California and came to the conclusion that ‘the coni-

_ struction of Section 440 of the ‘California Code of

rocedure contended for by the Bank is not sup-

orted by the appellate decisions of the California courts.

The lower courts did not’ concern themselves: with

. the law of California. Both thé trial court and the

—

Ninth Circuit a the position..that the decision in

Bank of Nevada v, United States,. 251 F: 24-820 (Sh .

Cir. 1957) which involved.a Nevada transaction’ was

- deterthinative of this matter. (App’x. B, Pet. p. 16.)

‘There is no discussion in the opinions below, or in —

fact, any mention of any decisions ‘of the California

appellate courts on the subject.

The only conclusion that can be drawn is that the

Ninth Circuit has in effect taken the position that: the

entire ‘question is a question of federal law and has

.Tefused to follow the decisions of. the Supreme Court

under “Section 6323 of the Revenue Code of 1954

_ dealing with. “property and rights to property”:

It is.true that the federal tax liens were rere

prior to the times when the obligations of the taxpayer

Edmondson to the Bank were incurred. Federal tax

liens, however, only attach to “property and: rights to

property”. The basic position of the Bank is tlt there .

was never a moment when the taxpayer Edmondson had

| any “property or rights to property” in the bank de-

"posits to which federal tax liens. could attach- Under

the applicable law—the law of California—the obliga- _

_ tion of the Bank to Edmondson was no. more than to

“pay to him or his order a debt equal in dollar amount -

to the deposits provided he first discharged his obliga-

tions to the Bank.

?

— i

II.

Argument. | |

The effect of Section 440 of the California Code of

- Civil Procedure is clearly defined by the California Su- .

_ .preme Court in Jones v. Mortimer, 28 Cal. 2d 627, 170

P, 2d 893 (1946) and Hauger-v. Gates, 42 Cal. 2d 752,

269 P. 2d 609 (1954). Under these decisions, Section

440 of the Califorriia Code of Civil Procedure is_no or-

.. dinary set-off statute. These. cases, in effect, are rul-

ings that to the extent that cross-demands exist, they |

“are automatically deemed paid, discharged and extin-

4 quished. In other words, under California law, cross-

demands automatically compensate each other. No ac-

tion to ‘effect an offset is required of’ the parties.

: By. operation of law, one. claim offsets the other. To 1

paraphrase a statement of this court, the words of the

California Supreme Court have become the words of-the »

California statute. National Association for the Ad- :

vancement of Colored People v. Button, 37 1 U.S. 415,>

- 432 (1963). These key California ‘cases were completely

ignored by the courts below and in the. brief of the

: United States. Under such circumstances, can it possibly

be said that, this case involves only a question of Califor-

“nia law which was corréctly decided.in the courts below?

Our first point is that there was no real consideration of

the California law in the courts below. They attempt to

hide behind the label “set off” rather than determine the .

exact effect of Section 440 of the. California Code of

Civil Procedure as determined-by the California appel-

: s. om °

—~4—

late decisions.: This. necessarily follows from the fact

that the lower courts rested on Bank of N evada which

had nothing to do with the law of California.

The United States, in -its brief, cites the 1897 Cali-———

fornia Supreme Court case of Ainsworth” v. Bank of

California, 119 Cal. 470, 51 P. 552 (1897) apparent-

ly because in the decision, Section 440 of the Cali-

' fornia Code of Civil Procedure is referred to as a set-

'.. off statute. Other cases such as Murchison v. Murchi-

son, 219 Cal. App. 2d 672, 33 Cal. Rptr. 383 (1963)

appear to be cited for the same reason. There is nothing .

inconsistent in these decisions with the rulings of the

California Supreme Court in Jones and in Hauger.:

Unlike earlier California cases, Jones and Hauger

state how the offset or compensation is accomplis

under Section 440. of the California Code of Civil he

cedure. The United States does not meet the argument

of the Bank. by ignoring these definitive decisions or

by suggesting, without citing any cas€ i € in support there-

of, that the effect of Section 440 of the California

Code of Civil Procedure is different where a bank ac-

count: or the rights of a third party are involved. |

1The footnote in 8 Tulane Law Review 423 referred to in the

brief of the United: States purports merely to set forth the

opinion of the student writer as to the law of Louisiana and

France. Law review articles as to the “civil law” and decisions of

other jurisdictions and to other or even similar statutes even if we

were to indulge in the invalid assumption: that they represent the

weight of authority—are irrelevant. As to the California statutes -

‘the federal courts are bound by the interpretation of the California

Supreme Court. Marine National Exchange Bank. v. Kalt-

Zimmers Mfg. Co., 293 U.S. 357, 363; United States.w. ‘Combest,

286 U. S. 424, 427. yoo,

a oe | }

~~. The United States says (Br. 9)-that the crucial ques-

tion is “whether, at the time of the levy, the deposits

were in realty being held in the taxpayer’s accounts.”

The problem whether the alleged debtor holds “property

rights” subject to levy is not to be determined by mere’

labels. Neither is the test whether the deposits were

. being “held in the. taxpayer’s account”. (Gov. Br. p. 9).

As this court held in United States v. Bess, 357 U.S. 51,

55-56 (1958), the existence of the requisite “property”

under state law is to be determined by ascertaining

whether the. taxpayer had rights to enjoinment. that

could. be enforced by the taxpayer under the state law. ©

' We say therefore, the crucial question is whether the

taxpayer had under California law a legal right at any

- time to the deposits as against the Bank. |

Ts, As far as Bank of Nevada is concerned, there. is

no statute in Nevada similar to Seétion 440 of the

California Code of Civil Procedure.’ Besides, Bank of

Nevada is distinguishable upon the facts, is basically

wrong in concept, and should be overruled because it is

2In United States v. Bank of United States, 5 F. Supp.’ 942 —

(S.D.N.Y. 1934) the Court ruled that the fact that the taxpayer

was permitted to use the account up until the time of the levy |

was not determinative and that in effect the bank had merely

‘given the taxpayer a revocable license to use the account. :

8The Court in Bank of Nevada makes no mention of United

States v. Bank of Shelby, 68 F. 2d 538 (5th Cir. 1934) or United

States v. Bank of United States, supra, both of which were de-

cided in 1934 and are directly contrary to the position taken by

the Court in Bank of Nevada. The United States attempts to

distitguish these cases on the basis that the indebtedness owing

the bank arose prior to the recording of the Federal tax liens.

‘In Bank of Shelby, the deposits were made on June 8, 1925,

and on June 18, 1925 the tax lien levy was made and offset

effected. The deposit against which the offset was made was the

. . - J .

4

2

sean:

basically inconsistent with the subsequent decisions of

the Supreme Court’ in the line of cases. beginning with

United States v. Bess, supra) aes,

+ at sone

~ ee

The importance ‘of the question to California banks -

is attested to in the amicus brief filed on behalf of the

California Bankers di pager in support of the Bank’s

_-petition. It is of utmost importance that this Court

settle. once ‘and for all ‘the question here involved. There

is no basis whatsoever ‘for the statement that a favor-

able: decision to the Bank would result in impossible

bookkeeping problems for banks as is suggested by - the

United States in ity briet. os L

result of a loan transaction entered into on June & 1925.

- . The decision in no way turns upon the fact that there were in-

debtednesses of the taxpayer to the bank which antedated the

recording of, the federal tax lien. Surely, the federal tax lien could

not have attached at any time prior to the deposit on June 8, 1925.

The same basic factual situation is found in Uni

of U: nited States, supra.

*On August 27, 1959 the date of the levy in the instant case,

there was due on the matured. indebtednesses of the taxpayer

nited States v. Bank

aaa oe

Edmondson to the Bank an amount in excess of the monies on ©

deposit in the bank accounts. In Bank of Nevada, the court rea-

soned that there was no showing that any sum was due until after

the levy when an attempt was made to accelerate the indebtedness

on the basis-of an seeieeaion agreement and. financial statement

of the taxpayer filed with.the Bank of Nevada. It was argued that

the indebtedness was evidenced by a demand note, but this argu-

-ment was rejected by the court on the ground that the note was —

yable “on demand; if no demand is made then-on August 14,

1955,” and that such an obligation is not a true demand note —

which is due from its date but. becomes due only upon actual.

demand or upon. the specified date. Levy ‘in that case was made

prior to August 14; 1955 and no demand was made until after

the levy. In short,, "Bank of Nevada involved a situation where

the court in effect took the’ ‘position that there was no evidence

whatsoever that the monies. were due from the bank customer

' and > cadhvacg to the bank at the time of the levy or any time prior

the other hand, the United States, in the instant ©

case, upon ‘whom the burden of proof rests, has failed to prove .

that there was ever a time when the taxpayer Edmonson could

—

eae

* Conclusion.

°

eam,

It is submitted that the writ of certiorari should —

be granted -in order ‘to review the judgment of the

, court below or in the alternative to vacate and remand

for a more careful determination of the property rights

of the petitioner and the taxpayer-depositor under the

applicable state law. 7

Respectfully submitted,

SAMUEL B. STEWaRT,

Rosert H.-FasrAn,

ALFRED T. TwIGG,

' Attorneys. for Petitioner: |

ae rae 7

WIL.1AM D. DONNELLY,

it

©

&

insist upon the bank paying to him the deposits. in question with-

out first discharging his indebtednesses to the bank. In Bank of

Nevada, the court speaks of the taxpayer's inchoate’ agreement

relative to acceleration. Here, we are not concerned with any:

inchoate agreement. First in time, first in right, has nothing to

- do with the matter. We are involved with the threshold. question

what, if any, were the property and the property rights of the

taxpayer. .

od

w

Oo