325 F.2d 798 (8th Cir. 1963), 17375, La Barge Water Well Supply Co. v. United States

Docket Nº:17375, 17376.
Citation:325 F.2d 798
Party Name: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.
Case Date:December 17, 1963
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit
 
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Page 798

325 F.2d 798 (8th Cir. 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.

Page 799

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

Page 800

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.

Page 801

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...

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