Brief for the Respondent in Opposition — Harvey Coal Corp. v. United States

7 Swine Se eee ote SOE PEELS ALOR LUC WR ERAN UED IE IESE TRIN

ROE OBEN ADM APHID 4 DRL A NARA Bs (Sr se mee Se ” ee eoeare: -

Aster sameeren

bi Page

PUNE MOL eons Sana oe tS ee Lee ek Some ines 1

DUO et aoc uln Dewees cee See Een ee 2

STAD INNO! wou So Lobe cet ee a oe ee 4

i DL cb neshnk co ninin band teh van men wawn mene 2 E

PRIS ifs ore Siler ae Shaan Dm ais ante wereie eed eae ies Siete Si eae 3 :

A) PSR Se gee epee gohan eet 7 :

I nian inners 5 bs pace ae ik ane dmnka eben aia wa omuee 10 i

Ca car knks dn adedhinntsuschineensteheeeubaauien 11 i

CITATIONS é

Cases: i

Commissioner v. Bryson, 79 F. (2d) 397. __._._._.__.___- 7 g

Denver Tramway Corp. v. Rumry, 98 Colo. 24__.________. f ze

Hull v. Commissioner, 87 F. (2d) 260..-.........-.----- 9 4

United States v. S. F. Scott & Sons, 69 F. (2d) 728.--_--_- 9 ¢

Statutes:

Revenue Act of 1921, 42 Stat. 227: i

cre ole iG i ine ile aks eaileien 11 e

Revenue Act of 1924, 43 Stat. 253: 4

POs EE Nee eer ear ou ko ech ee) cine oe 11 E

Revenue Act of 1928, 45 Stat. 791:

Sec. 607 (U.S. C., Title 26, Sec. 1670)_._.__...._. aS 11 ;

PRD aliipinsick ci ukeaia Dihis &aeadsreed neisuaauan ae ee 12

(1)

409537—41

Inthe Supreme Gourt of the Wnited States

OcrToBER TERM, 1941

No. 355

HARVEY CoAL CORPORATION, PETITIONER

v.

THE UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES CIRCUIT COURT OF APPEALS FOR THE SIXTH

CIRCUIT

BRIEF FOR THE RESPONDENT IN OPPOSITION

OPINIONS BELOW

The opinion of the District Court of the United

States for the Eastern District of Tennessee,

Northern Division (R. 44-52, 66-67) is not offi-

cially reported. The opinion of the Circuit Court

of Appeals for the Sixth Cireuit (R. 153-154) is

reported in 118 F’. (2d) 350.

(1)

2

JURISDICTION

The judgment of the Circuit Court of Appeals

was entered February 13, 1941 (R. 153). By order

entered April 14, 1941, a petition for rehearing was

denied (R. 154). After an order had been entered

extending the time within which to file the petition

to and including August 8, 1941 (R. 154), the peti-

tion for certiorari was filed August 7, 1941. The

jurisdiction of this Court is invoked under Section

240 (a) of the Judicial Code, as amended by the

Act of February 13, 1925.

QUESTION PRESENTED

In October 1917 taxpayer leased its coal prop-

erties under an agreement by which the lessee

undertook the payment of all taxes which might

be assessed against the lessor for 1917. In 1919,

after a deficiency notice had been addressed to the

taxpayer and received by the lessee, a claim for

abatement, in the name of the taxpayer, was filed,

signed by its former officer who was then employed

by the lessee. As a result of negotiations extend-

ing until 1924, the claim was allowed in part. The

taxpayer paid the balance in 1925. The question

is whether the claim for abatement was valid so as

to toll the statute of limitations under Section 611

of the Internal Revenue Act of 1928.

STATUTES INVOLVED

The statutes involved are set forth in the Ap-

pendix, infra, pp. 11-12.

» oe

PERE SN BPA ALN RTA NRA ALTER RII IEE MINS: AY RSE RRA SIR TTR

3

STATEMENT

The facts as disclosed by the record and the

opinion of the District Court (R. 44-52) may be

summarized as follows:

Harvey Coal Company is a Tennessee corpora-

tion organized on March 16, 1915 (R. 129). On

March 21, 1918, the company filed an income and

excess profits tax return for the year 1917 showing

taxes due and payable in the sum of $33,343.74.

The principal office was reported as Staub, Ken-

tucky, and the return, signed by its president and

treasurer, was filed with the Collector of Internal

Revenue for the District of Kentucky (R. 73, 132).

The tax reported was assessed and paid and is not

in controversy.

On October 30, 1917, prior to filing the 1917 re-

turn, the company leased its properties to Hazard

Jellico Coal Company, a Delaware corporation

(R. 130). Under the terms of the lease the lessee

agreed to pay all taxes, including income taxes and

excess profits taxes for the year 1917 which had

been or might be assessed against the lessor. It

was also agreed that E. L. Douglass, then general

manager of Harvey Coal Company, should be

placed in charge of the leased premises with full

power and authority to direct and control the min-

ing operations, improvement and development of

the premises, and that in the event of the death,

incapacity, or resignation of Douglass during the

term of the lease, the Harvey Coal Company should

have the right to name his successor (R. 130-131).

LAVALLE TLE EE Ty IMSL EIB

4

As contemplated in the agreement, Douglass left

the employ of Harvey Coal Corporation and be-

came vice president and general manager of the

Hazard Jellico Coal Company (R. 72-78, 82).

Subsequently an investigation and audit was

made of the 1917 tax return of the Harvey Coal

Company, and in April, 1919, additional taxes of

$44,319.50 were assessed (R. 33, 44, 86, 95, 123).

A letter determining this deficiency was addressed

to Harvey Coal Corporation, Staub, Kentucky (R.

95). This and other communications were re-

ceived by the taxpayer’s lessee at that address.

On July 24, 1919, in response to the demand for

the additional tax, a letter was sent to the Collee-

tor of Internal Revenue at Danville, Kentucky, en-

closing a check in the sum of $16,694.14, and a

claim for the abatement of the balance of $27,625.36

(R. 102-103). The letter and the claim for abate-

ment were signed in the name of the Harvey Coal

Company, ‘‘by E. L. Douglass, General Manager”’

(R. 103). Concerning the claim for abatement, a

letter from Harvey Coal Corporation, by C. H.

Harvey, President, to the Commissioner of In-

ternal Revenue, dated March 17, 1925, gives the fol-

lowing further information (R. 137) :

The officers of this company decided that

this Claim for Abatement be filed as they

had no information regarding this tax and in

as much as under contract the tax should

have been paid by the other parties all of the

files regarding same was in their hands.

5

There was considerable correspondence with ref-

rence to the claim for abatement, and at least one

conference was held at the request of Mr. Douglass

and the firm of Waite, Schindel & Bayless, of Cin-

cinnati.’ Upon cross-examination, Mr. Schindel,

a partner in this firm, testified that in his various

conferences and letters with the Bureau of Internal

Revenue he ‘‘invariably * * * gave them to

understand”’ that he was representing the Harvey

Coal Company (R. 81).

Several abatements were granted by the Bureau

of Internal Revenue (R. 15, 86, 105, 115). The

last was on November 17, 1924, when the taxpayer

was notified that it had been allowed an additional

amount of $2,346.37 on its claim, leaving a balance

due of $19,812.91 (R. 15,86). By this time Hazard

Jellico Coal Company as lessee had become finan-

cially unable to fulfill its obligation under the

lease agreement. It was in receivership from the

middle of April, 1924 (R. 80). Therefore, on Jan-

uary 28, 1925, pursuant to demand made by the

Commissioner of Internal Revenue, Harvey Coal

Corporation paid the balance, together with inter-

est in the amount of $9,203.06, or a total of $29,-

015.97 (R. 86-89). The corporation had been or-

ganized in 1924 and had taken over the assets and

‘In one instance during the negotiations the firm signed

a letter to the Deputy Commissioner of Internal Revenue as

“attorneys for the Harvey Coal Company” (R. 112, 118, 114,

149).

OR ae ONE

rete GS

Pre ee esteoicimeren mrp agsatiie.

Perera mene ates

6

liabilities of the Harvey Coal Company (R. 84,

130, 133).

After making the payment the taxpayer’ then

filed a series of claims for refund. The final claim

was signed and sworn to on April 30, 1937, and

stated as a further ground for refund that the

Government was barred by the statute of limita-

tions from collecting the amount claimed (R. 145),

This ground is the basis of the original petition filed

by the taxpayer (R. 1-11). The Government filed

a plea of confession and avoidance alleging that the

taxpayer had filed a claim for abatement which

tolled the statute of limitations (R. 15). An

amended petition (R. 18-24) was filed by the tax-

payer alleging additional grounds for refund, but

they are not pertinent to the issues raised by the

petition for certiorari. The District Court sus-

tained the Government’s motion to strike the

amended petition, and held, inter alia, that tax-

payer could not ‘‘be heard to contend that the

claims in abatement which suspend the statute of

limitations were not filed or authorized by it, and

that, therefore, the defendant’s collection of the

taxes was not after the statutory period expired”’

(R. 52). The decision of the District Court was

? For the purposes of this petition for certiorari, it will not

be necessary to distinguish between Harvey Coal Company,

against whom the tax was assessed, and Harvey Coal Cor-

poration, by whom it was paid. Both concerns will there-

fore here be referred to as the taxpayer.

OATES SE OSTIRISN EN Ct Nn DOr ted aE TIAN ca SY Bee ahi SARIS CSE EIR VEGA APTI SC IS A Ta LUBY ATR be

7

affirmed by the Circuit Court of Appeals (R. 153-

154).

ARGUMENT

The Circuit Court of Appeals held that under the

terms of the lease agreement the lessee was not

only obligated to pay the 1917 taxes but as a neces-

sary incident was vested with authority to con-

test their correctness and validity and to file a

claim of abatement. In these circumstances, the

claim which was filed on taxpayer’s behalf was

clearly effective to toll the statute of limitations,

pursuant to the provisions of Section 611 of the

Revenue Act of 1928, Appendix, infra. The con-

clusion of the court thus hinges primarily upon a

factual determination in respect of the scope of

the lessee’s authority. It is fully substantiated

by the terms of the lease agreement (R. 130).*

Further, the fact that taxpayer left the files re-

garding the tax with the lessee (R. 137) indicates

that the latter properly assumed responsibility in

the matter.

There is no conflict of authority with the deci-

sion below upon this question. Commissioner v.

*The state court decisions cited in taxpayer’s brief

(p. 14) do not militate against this conclusion; there is no

reason to disagree with the general principle enunciated in

Denver Tramway Corp. v. Rumry, 98 Colo, 24, 28, that:

“The relation of landlord and tenant exists by virtue of

contract, and a tenant is not the agent of the landlord for any

purpose, unless made so by specific agreement * * *.”

8

‘Bryson, 79 F. (2d) 397 (C. C. A. 9), the only cir-

cuit court opinion cited for the proposition that the

lessee here was not vested with authority to file the

claim of abatement, involved readily distinguish-

able facts. In that case Bryson had signed a tax

waiver as ‘‘Former Secretary of the Bryson-Rob-

ison Corp.,’’ a dissolved corporation (p. 399).

The court concluded (p. 401) that neither on its

face nor in the light of the accompanying letter

could the document be regarded as a valid waiver,

since it was signed by a former secretary as such

and since the letter emphatically put the Commis-

sioner on notice that the signer considered himself

only as a former officer of the corporation and that

he did ‘‘not presume to act’’ for it. Here, on the

other hand, the Hazard Jellico Coal Company was

obligated under the lease agreement to pay the

taxes and acted on behalf of the taxpayer in the

matter until its receivership.“

‘It is true that the attachments which accompanied the

claim for abatement in the instant case referred to E. L.

Douglass as “former General Manager” (R. 99-102). But

this alone cannot bring the case within the facts of the

Bryson case, where the court found that the Commissioner

was “emphatically” put on notice by the form of the waiver

and the expressly worded accompanying explanation. In

the instant case, there is no finding of. notice to the Com-

missioner. The terms of the lease, the method of Doug-

lass’ signature on the claim itself, the absence of any

disclaimer of presumption to act but, on the contrary, an

express representation throughout of authority to act on

behalf of taxpayer, all serve to dissipate the significance of

the reference to Douglass as former manager.

9

Nor is certiorari warranted in respect of other

issues raised in the opinion of the Circuit Court of

Appeals. The court’s decision does not rest upon

estoppel, or upon the proposition that taxpayer

may not assume an inconsistent position at the ex-

pense of the Government. Since the court already

found that the lessee was empowered to file a claim

of abatement on taxpayer’s behalf, the suggestion

that under one or the other of such principles the

taxpayer had no right to question the authority of

the lessee was merely offered at the end of its opin-

ion as an alternative and supplemental reason for

disapproving the refund.’

‘In any event, the authorities upon which taxpayer relies

in this connection (Pet. 15-16) are not in conflict with the

case at bar. In Hull v. Commissioner, 87 F. (2d) 260

(C. C. A. 4), the court found that the transaction had been

investigated and all the facts were before the Bureau of

Internal Revenue long prior to the expiration of the statute

of limitations. Under these circumstances, it was held that

the party knowing the facts cannot claim the benefit of

estoppel. Similarly, in United States v. 8S. F. Scott & Sons,

69 F. (2d) 728 (C. C. A. 1), the court pointed out that error

had originated out of misinterpretation of the law rather

than ignorance of the facts concerning the assessment of the

tax. Here, on the other hand, there has been no finding that

the Commissioner either knew or should have known that

the lessee was acting without authority on taxpayer's behalf,

and the Commissioner relied on the abatement claim in delay-

ing the collection of the tax.

NGOS IE LG BIEL IO

10

CONCLUSION

The decision of the court below is correct.

There is no conflict of authority. No sufficient

reason has been shown for review and the petition

should therefore be denied.

Respectfully submitted.

CHARLES Fany,

Acting Solicitor General.

SaMvEL O. CuaRK, Jr.,

Assistant Attorney General.

HELEN R. Car.oss,

Wu L. Cary,

Special Assistants to the Attorney General.

Avaust 1941.