LA BARGE WATER WELL SUPPLY COMPANY v. United States

• Citation: 325 F.2d 798
• Decision Date: 17 December 1963
• Docket Number: No. 17375,17376.,17375
• Parties: LA BARGE WATER WELL SUPPLY COMPANY, a Corporation, Appellant, v. UNITED STATES of America, Appellee. LA BARGE PIPE LINE SUPPLY COMPANY, a Corporation, Appellant, v. UNITED STATES of America, Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

325 F.2d 798 (1963)

LA BARGE WATER WELL SUPPLY COMPANY, a Corporation, Appellant, v. UNITED STATES of America, Appellee.

LA BARGE PIPE LINE SUPPLY COMPANY, a Corporation, Appellant, v. UNITED STATES of America, Appellee.

Nos. 17375, 17376.

United States Court of Appeals Eighth Circuit.

December 17, 1963.

Hugh E. Gibbons, St. Louis, Mo., Hocker, Goodwin & MacGreevy, St. Louis, Mo., for appellant.

Ralph Muoio, U. S. Dept. of Justice, Tax Division, Washington, D. C., Louis F. Oberdorfer, Asst. Atty. Gen., Washington, D. C., Meyer Rothwacks, Michael I. Smith, Stephen B. Wolfberg, Dept. of Justice, Washington, D. C., and also Richard D. FitzGibbon, Jr., U. S. Atty., St. Louis, Mo., for appellee.

Before VAN OOSTERHOUT and BLACKMUN, Circuit Judges, and DAVIES, District Judge.

BLACKMUN, Circuit Judge.

The two corporate taxpayers instituted these separate actions to recover payments of income tax deficiencies caused by surtax exemption disallowances under § 1551¹ of the Internal Revenue Code of 1954, 26 U.S.C.A. § 1551. The cases were consolidated for trial. The jury returned special verdicts in favor of the United States and judgments were entered accordingly. The taxpayers appeal.

La Barge Pipe and Steel Company, not one of the taxpayers here, began business in St. Louis in 1953 as Pierre L. La Barge, Jr.'s sole proprietorship. It was engaged in the warehousing and distribution of tubular products and piping materials. It made sales to, among others, the water well drilling industry and the gas and oil pipe line industry. The business was incorporated in March 1956 with La Barge the owner of over 99% of Pipe and Steel's outstanding shares.

In September 1956 the taxpayer La Barge Water Well Supply Company was incorporated in Missouri. It was to hold itself out as a specialist and take over and increase sales to the water well drilling industry. In May 1957 the taxpayer La Barge Pipe Line Supply Company was incorporated in Missouri to hold itself out as a specialist and handle sales to the gas and oil pipe line industry. Pipe and Steel transferred property to each taxpayer in return for stock. La Barge was president of Pipe and Steel and of both taxpayers.

The three corporations filed separate income tax returns. Each claimed the $25,000 surtax exemption provided for by § 11(c) of the 1954 Code. The Internal Revenue Service disallowed this exemption to Water Well for its fiscal years ended March 31, 1958, 1959, and 1960, and to Pipe Line Supply for its fiscal years ended March 31, 1958 and 1960.² This was on the ground that the exemption was not available because of the prohibition of § 1551.

The only part of § 1551 which is significant here is its provision that the exemption shall be disallowed "unless such transferee corporation shall establish by the clear preponderance of the evidence that the securing of such exemption * * was not a major purpose of such transfer". No issue is raised as to the satisfaction of all other conditions of the statute including the required control by Pipe and Steel. Further, the taxpayers concede that there is no question here as to the sufficiency of the evidence to support the verdicts.

The issues before us are: (a) Were the taxpayers deprived of a fair trial by the district judge's comments in the presence of the jury relative to the effect of the dissolution of Pipe Line Supply? (b) Were the taxpayers deprived of a fair trial by other statements made by the court in the presence of the jury? (c) Were the instructions and the special verdict forms erroneously prejudicial? We discuss these in order.

1. The court's comments as to Pipe Line Supply's dissolution. The complaint in Pipe Line Supply's action was filed April 9, 1962. Articles of dissolution of the corporation were filed, under V.A. M.S. § 351.470, with the Missouri Secretary of State one week later on April 16. La Barge testified that the corporation was dissolved because "We just didn't seem to be making enough progress in the industry to warrant continuance of the operation". V.A.M.S. § 351.565 provides:

"The dissolution of a corporation * * * by the issuance of a certificate of dissolution by the secretary of state * * * shall not take away or impair any remedy available to or against such corporation * * * for any right or claim existing, or any liability incurred, prior to such dissolution if suit or other proceeding thereon is commenced within two years after the date of such dissolution. Any such suit or proceeding by or against the corporation may be prosecuted or defended by the corporation in its corporate name."

The cross-examination of Mr. La Barge led to testimony and remarks of counsel and the trial judge which indicated initial misunderstanding as to the facts and significance of the dissolution and its date.³ There was no motion for a mistrial.

The taxpayers argue that the court emphasized in the presence of the jury an incorrect situation relating to Pipe Line Supply's dissolution, that it cast aspersions when it demanded to know how a dissolved company could be a party to a lawsuit, that the complaint was in fact filed before dissolution was effected and not afterward, that, under § 351.565, the suit could properly be maintained in Pipe Line Supply's name anyway, and that the court's comments were not only incorrect as a matter of Missouri law but constituted reversible error.

We do not agree. This court has often observed, see Goldstein v. United States, 63 F.2d 609, 613 (8 Cir. 1933), that it is difficult for an appellate court on a cold record to reproduce accurately for itself the warm vigor and atmosphere of the jury trial. But we cannot equate the court's remark as to counsel's statements not being true with an accusation of outright falsehood. The court, the witness and counsel were all, for the moment, in error as to the dates and the result of the dissolution but this was clarified after the noon recess. The court then advised the jury of its own error, the jury's nonconcern with the dissolution, and its desire not to be understood as having accused the taxpayer's counsel of lying. Of course, errors and statements of this type by a judge can, in a proper case, constitute error which is not subject to correction by apology or directions to the jury if the atmosphere of a fair trial is to be retained. The situation before us, however, is not of that category. Everyone, including the court, suddenly found himself in factual confusion over a matter which the court mistakenly thought was jurisdictional and for its immediate concern. The trial court readily recognized its error and premature conclusion. In our opinion it sufficiently clarified the matter with the jury in a way which left no prejudice in their minds and which was not inconsistent with substantial justice. The error was harmless within the scope of Rule 61, F.R.Civ.P.

2. Other statements by the court before the jury. The taxpayers also complain that the district court, in its questioning of witnesses, in its running comments upon testimony, and in its characterization of it, overstepped the bounds of judicial propriety and deprived the taxpayers of the fair trial which was due them.

Much of this material is set forth in footnote 3. We have carefully examined the entire record and, specifically, the other portions to which our attention has been called by the taxpayers. They need not be quoted here.

This trial judge is experienced and able. He obviously readily grasped the issues and was anxious to get on with the litigation. Each judge has his own manner and his own idea of proper judicial activity or inactivity in a lawsuit. One is relaxed and content to let counsel present evidence in his own way and unmolested. Another is less patient and prefers a tight rein. As an appellate court we certainly cannot dictate a trial judge's every move. Our responsibility is only to see that the court has not stepped into the area of unfairness and prejudice. We have said:

"An appellate court should be slow to reverse a case for the alleged misconduct of the trial court, unless it appears that the conduct complained of was intended or calculated to disparage the defendant in the eyes of the jury and to prevent the jury from exercising an impartial judgment upon the merits." Goldstein v. United States, supra, p. 613 of 63 F. 2d.

"While we find that the comments of the trial judge and his participation in the questioning of the defendant and his witnesses exceeded the bounds of judicial propriety, we must nevertheless also conclude that such activities prejudiced the defendant before a new trial may be ordered on such grounds." Woodring v. United States, 311 F.2d 417, 420 (8 Cir. 1963), cert. denied 373 U.S. 913, 83 S.Ct. 1304, 10 L.Ed.2d 414.

Goldstein and Woodring were criminal cases; their standard has equal pertinency for civil causes.

We understand the concern of counsel, but apart from the subsidiary question whether appropriate objections were noted, we are convinced, and we so hold, that the trial court's questions and comments did not constitute reversible error. In reviewing the record we observe, incidentally, that it contains instances of corresponding restraints and comments to government counsel. We find this record less extreme and objectionable than the situations described in Hickey v. United States, 208 F.2d 269, 274-75 (3 Cir. 1953), cert. denied 347 U.S. 919, 74 S.Ct. 519, 98 L.Ed. 1074; American Motorists Ins. Co. v. Napoli, 166 F.2d 24, 27 (5 Cir. 1948); and Knapp v. Kinsey, 232 F.2d 458, 465-67 (6 Cir. 1956), cert. denied 352 U.S. 892, 77 S.Ct. 131, 1 L.Ed. 2d 86, pressed upon us by the taxpayers, and those in our own cases of Agee v. Lofton, 287 F.2d 709 (8 Cir. 1961); Myers v. George, 271 F.2d 168, 83 A.L. R.2d 1121 (8 Cir. 1959); and Berry v. United States, 283 F.2d 465, 466-67 (8 Cir. 1960), cert denied 364 U.S. 934, 81 S.Ct. 380, 5 L.Ed.2d 366, where new trials were granted. Compare Throckmorton v....