Baptiste v. C.I.R., 93-4829

• Citation: 29 F.3d 1533
• Decision Date: 29 August 1994
• Docket Number: No. 93-4829,93-4829
• Parties: -6030 Richard M. BAPTISTE, Transferee, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (11th Circuit)

Page 1533

29 F.3d 1533

74 A.F.T.R.2d 94-6030

Richard M. BAPTISTE, Transferee, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 93-4829.

United States Court of Appeals Eleventh Circuit.

Aug. 29, 1994.

Paul J. Peter, Bruckner, O'Gara, Keating, Hendry, Davis & Nedved, P.C., Lincoln, NE, for petitioner.

Gary R. Allen, Chief, Christine A. Grant, David I. Pincus, Appellate Section, Tax Division, Dept. of Justice, Washington, DC, for respondent.

Appeal from a Decision of the United States Tax Court.

Before ANDERSON and BIRCH, Circuit Judges, and CONWAY ^*, District Judge.

BIRCH, Circuit Judge:

This case presents three challenges by the appellant, Richard M. Baptiste ("Baptiste"), to the tax court's grant of summary judgment to the government. Initially, Baptiste argues that his status as a transferee of an estate must be decided under state law and that genuine issues of material fact remain as to that issue. Next, he contends that the tax court erred in applying the doctrine of res judicata to him, a transferee of an estate, on the issue of the estate tax liability of the estate. Lastly, he asserts that the tax court misinterpreted the scope of the statutory limit on his personal liability when it determined that he was responsible for interest on his liability in excess of the value of the property he received from the estate. Because we agree with the tax court in all respects, we affirm the grant of summary judgment to the government.

I. BACKGROUND

Gabriel J. Baptiste (the "decedent"), the father of the appellant, died on September 26, 1981. He was a United States citizen, and at the time of his death he possessed incidents of ownership in an insurance policy on his life with a face amount of $150,000. At the time of his father's death, Baptiste was one of three named beneficiaries of this policy, each of whom held a one-third interest. He received $50,000 from the distribution of the proceeds of this policy on or about November 16, 1981.

On December 29, 1982, the decedent's estate filed an estate tax return. Thereafter the government issued a statutory notice of deficiency to the estate. This deficiency was contested by the executrix of the estate, Barbara Baptiste, the appellant's sister, by filing a petition with the tax court. The government and the executrix reached an agreement that an estate tax deficiency of $62,378.48 was owed to the government. On the basis of this agreement, the tax court, on May 13, 1988, entered a stipulated decision that the estate owed the agreed deficiency. The estate never satisfied this obligation.

On October 6, 1989, based on Baptiste's alleged status as a transferee of the estate, the government issued a statutory notice of deficiency to Baptiste, asserting an assessment for the unpaid estate tax in the amount of $50,000 plus interest as provided by law. Baptiste filed a petition in the tax court on January 2, 1990, to determine his liability on that assessment. In that petition, Baptiste did not challenge his status as a transferee, but rather argued that, for various reasons, the amount of estate tax assessed by the tax court in the earlier proceeding was incorrect.

In its response, the government, in addition to admitting and denying certain of Baptiste allegations, affirmatively asserted that Baptiste was liable, as a transferee at law, for the deficiency in the estate tax due. ¹ Baptiste did not respond to the government's affirmative allegations, thereby failing to comply with Tax Court Rule 37 ², which requires that a petitioner answer any affirmative allegations of the respondent, either admitting or denying them. On July 3, 1990, the government filed a motion under Rule 37(c), requesting that the court find that these allegations be deemed admitted. The court, on July 9, 1990, specifically granted Baptiste additional time, until August 9, 1990, to answer the allegations and avoid them being deemed admitted. On August 20, 1990, Baptiste having not responded to the affirmative allegations of the government, the court entered an order deeming said allegations admitted by Baptiste.

The government filed a motion for summary judgment requesting an adjudication in its favor on all issues. In this motion, the government relied in part on the deemed admissions of Baptiste. At this juncture, for the first time, Baptiste obtained counsel. Baptiste's attorney moved to suspend the proceedings in order to give him an opportunity to examine pertinent records. The motion alleged that Baptiste intended to seek a redetermination of the estate tax deficiency ordered by the tax court in the original proceeding against the estate. It also alleged that Baptiste might, upon review of the records, amend his petition to challenge the existence of any transferee liability on his part. Following the government's objection, the tax court denied Baptiste's motion.

On April 9, 1992, the tax court entered an order granting partial summary judgment to the government on the liability of Baptiste for the estate tax deficiency up to $50,000. The court specifically found that Baptiste was a transferee as a matter of law, that as a transferee he was liable for the estate's unpaid deficiency, and that the amount of the deficiency, decided in the earlier case against the estate, was res judicata and could not be relitigated by Baptiste. The court reserved the question of Baptiste's potential liability for interest in excess of the value of the property he received from the estate, $50,000. After briefing by the parties on the interest issue, the court, on April 30, 1993, entered an order holding Baptiste personally liable for interest on his underlying $50,000 obligation, thus raising his total obligation above the value of the property he received from the estate. It is from these two orders that Baptiste appeals.

II. DISCUSSION

We review the grant of summary judgment de novo, reviewing the facts and applying the same legal standards as the tax court. Thrasher v. State Farm Fire & Casualty Co., 734 F.2d 637, 638 (11th Cir.1984) (per curiam). Under Rule 121(b), summary judgment is appropriate if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that "there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law." Tax Ct.R. 121(b); see also Zaentz v. Commissioner, 90 T.C. 753, 754, 1988 WL 34876 (1988). The moving party has the burden of showing that no genuine issue exists as to any material fact and that he is entitled to judgment on the substantive issues as a matter of law. Espinoza v. Commissioner, 78 T.C. 412, 416, 1982 WL 11163 (1982). In deciding whether to grant summary judgment, the court views the facts and inferences drawn therefrom in the light most favorable to the non-moving party. Naftel v. Commissioner, 85 T.C. 527, 529, 1985 WL 15396 (1985).

In addition to the pleadings and other materials, the tax court, in granting summary judgment to the government, relied on facts deemed admitted by the court's grant of the government's Rule 37(c) motion. Facts deemed admitted pursuant to Rule 37(c) are considered conclusively established and may be relied upon by the government even in relation to issues where the government bears the burden of proof. Smith v. Commissioner, 926 F.2d 1470, 1476 n. 11 (6th Cir.1991); Marshall v. Commissioner, 85 T.C. 267, 272-73, 1985 WL 15379 (1985); Doncaster v. Commissioner, 77 T.C. 334, 336-38, 1981 WL 11223 (1981).

Baptiste argues that, since he was pro se at the time he failed to answer the affirmative allegations of the government, he should not be bound by the conclusive establishment of these facts under Rule 37(c). This argument is without merit. Following the government's Rule 37(c) motion, the court specifically granted Baptiste an additional month in which to reply to the government's allegations before the court would deem these allegations admitted. Despite the court's leniency to a pro se petitioner, Baptiste failed to respond. There was no abuse of discretion in granting the Rule 37(c) motion, and we accept these facts as admitted and conclusively established for purposes of our review. ³

A. Transferee Liability As A Matter Of Law

The first issue presented is whether the tax court was correct in holding that, as a matter of law, Baptiste is a transferee of the estate. Section 6324(a)(2) of the Internal Revenue Code (the "Code") ⁴ provides:

If the estate tax imposed by chapter 11 is not paid when due, then the spouse, transferee, trustee ..., or beneficiary, who receives, or has on the date of the decedent's death, property included in the gross estate under sections 2034 to 2042, inclusive, to the extent of the value, at the time of the decedent's death, of such property, shall be personally liable for such tax.

I.R.C. Sec. 6324(a)(2) (emphasis added). Baptiste argues that his status as a transferee should be determined as a matter of state law, and that, therefore, genuine issues of material fact remain as to whether or not he is a transferee liable under this section.

It is true that cases have held that, in the income tax area, a person's status as a transferee is to be established by reference to state law. See Commissioner v. Stern, 357 U.S. 39, 45, 78 S.Ct. 1047, 1051, 2 L.Ed.2d 1126 (1958); Edelson v. Commissioner, 829 F.2d 828, 833 (9th Cir.1987); see also Stoumen v. Commissioner, 261 F.2d 172, 174 (3d Cir.1958). However, the specific basis of these decisions undercuts Baptiste's reliance on them. In the above-cited cases, the rationale for referring to state law to determine one's status as a transferee was the fact that the statute under which the government assessed these putative transferees was purely procedural and did not, of itself, create liability. As the Court observed, "since Sec. 311 is purely a procedural statute we must look to other sources for...