Economy Plumbing & Heating Co., Inc. v. United States

• Decision Date: 12 December 1972
• Docket Number: No. 226-65.,226-65.
• Citation: 470 F.2d 585
• Parties: ECONOMY PLUMBING & HEATING CO., INC., et al. v. The UNITED STATES.
• Court: U.S. Claims Court

470 F.2d 585 (1972)

ECONOMY PLUMBING & HEATING CO., INC., et al. v. The UNITED STATES.

No. 226-65.

United States Court of Claims.

December 12, 1972.

Raymond E. Saunders, Chicago, Ill., for plaintiff and third-party plaintiff, A. Charles Lawrence, Chicago, Ill., attorney of record for plaintiff and for Transamerica Ins. Co., third-party plaintiff Gilbert A. Cuneo, Washington, D.C., of counsel.

Mark Segal, Washington, D.C., with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant.

Before COWEN, Chief Judge, and DAVIS, SKELTON, NICHOLS, KASHIWA, KUNZIG, and BENNETT, Judges.

ON PLAINTIFFS' MOTION FOR AMENDMENT OF OPINION AND JUDGMENT

SKELTON, Judge:

This suit was originally filed for the recovery of $477,587.66 representing a portion of an equitable adjustment on a contract entered into between Lieb Bros., Inc. (Lieb) and Economy Plumbing and Heating Co., Inc. (Economy) as joint venturers, and the United States for the construction of dormitories, mess halls, and other facilities at Scott Air Force Base near Belleville, Illinois, for the sum of $13,484,275.50. The work was reduced by a partial termination order, and was completed and accepted. In the meantime, Lieb was adjudged a bankrupt and is now insolvent. Its receiver did not participate in the appeal of this case and is not before the court. However, Transamerica Insurance Company (Transamerica), a surety and third-party plaintiff, intervened, because it acted as the surety on the performance and payment bonds of the contract.

In May 1960, the Corps of Engineers awarded the sum of $544,848.33 to the joint venture on its termination claim. The joint venture appealed to the Armed Services Board of Contract Appeals (ASBCA). In the meantime, the Internal Revenue Service (IRS) had asserted tax liens against Lieb. On November 18, 1960, without any notice to Economy or Transamerica, the General Accounting Office (GAO) paid $477,587.66 of the award to the IRS to satisfy the tax liens against Lieb. Of this amount, the sum of $4,576.80 was applied to unpaid payroll taxes, together with interest and penalty, owed by the joint venture in the performance of the contract. The remaining $473,010.86 was applied by the IRS to payroll and income taxes and interest and penalties owed by Lieb on other construction jobs it had performed which had no connection with the contract of the joint venture.

Economy and Transamerica (plaintiffs) filed timely income tax refund claims with the IRS for the $477,587.66. More than six months elapsed after the filing of such claims without any action having been taken by the IRS, so the plaintiff Economy filed this suit on July 8, 1965, and Transamerica intervened on May 2, 1966. After a trial in this court, our Trial Commissioner Mastin G. White, handed down a memorandum opinion on November 15, 1971, in which he recommended that plaintiffs be awarded judgment against the United States for the sum of $473,010.86. Nothing was said about interest. Thereafter, on February 3, 1972, the parties filed a joint motion for judgment under Rule 141(b) in which they asked that the opinion of the trial commissioner be adopted in which he had found that the plaintiffs were entitled to judgment against the United States for $473,010.86, "together with interest as provided by law." Pursuant to this joint motion, the court entered a per curiam opinion on March 17, 1972, approving and adopting the memorandum opinion of the trial commissioner and awarded plaintiffs a judgment against the United States for said sum of $473,010.86. The judgment did not provide for interest. See Economy Plumbing & Heating Co. v. United States, 456 F.2d 713, 197 Ct.Cl. 839 (1972).

On April 13, 1972, plaintiffs filed a motion requesting that the opinion and judgment of the court be amended by awarding plaintiffs interest at the rate of six percent per annum from November 18, 1960, on the principal sum of $473,010.86. The defendant has contested this motion. The case is before us on such motion.

The sole question before us is whether or not plaintiffs are entitled to interest on their judgment from the time the amount thereof was paid by GAO to the IRS to satisfy Lieb's tax lien.

It is important to note that when plaintiffs filed this suit they sought recovery of funds due them as an equitable adjustment on the contract which they alleged had been wrongfully withheld by the government. The suit was clearly one to recover funds due under a contract.

In our per curiam opinion in this case mentioned above, we adopted the statement of our trial commissioner as follows:

* * * This is an action for the recovery of $473,010.86, representing a portion of an equitable adjustment under contract No. DA-11-032-ENG-1232 ("the contract") that was — according to allegations in the petition — wrongfully withheld by the defendant. Footnote omitted. Id. 456 F.2d at 714, 197 Ct.Cl. at 841.

The suit as filed was a contract action and not a suit for a refund of overpaid taxes. As stated above, we entered judgment in favor of the plaintiffs for the amount due them under the contract as an equitable adjustment. Now the plaintiffs seek to change the whole theory of the case by claiming the suit was by taxpayers seeking a refund of overpaid taxes. The reason for this change in theory and tactics is clear. The plaintiffs want to collect interest on their judgment for the past 11 years and they well know that interest cannot be allowed on a contract claim against the United States unless the contract provides for interest, which is not the case here. See 28 U.S.C. § 2516(a) (1964).

The plaintiffs seek to bridge this obstacle by now contending that even though they were not originally taxpayers entitled to a refund of overpaid taxes, they became taxpayers when the government wrongfully applied their funds to the payment of Lieb's taxes. They contend further than when the government took this action, the funds so applied became overpayments of taxes by the plaintiffs, for which they filed claims for refunds, and that our judgment in their favor constituted a refund of their overpaid taxes. Consequently, they argue that they are entitled to interest on such amount. The plaintiffs say that the provisions of 28 U.S.C. § 2411(a) and Section 6611 of the Internal Revenue Code¹ entitle them to interest, especially since these laws provide for six percent interest on "any overpayment in respect of any internal revenue tax." They urge the proposition that this language fits their situation because the application of their funds to Lieb's taxes was an "overpayment in respect of an internal revenue tax."

The defendant contended in its answer and still argues that this suit was not one brought by a taxpayer suing for a refund of its taxes, and denies that this suit arose under revenue laws requiring the filing of a claim for refund. It says that the plaintiffs are not taxpayers in this case, but that Lieb was the taxpayer. Defendant says further that plaintiffs never overpaid their taxes and their recovery of contract funds in this case was not a refund of overpaid taxes. Consequently, defendant contends that plaintiffs cannot recover interest on their judgment, because no statute authorizes it and the contract contains no provision for interest, citing Rosenman v. United States, 323 U.S. 658, 65 S.Ct. 536, 89 L.Ed. 535 (1945).

We agree with the defendant that the plaintiffs are not taxpayers in this case with respect to these funds within the meaning of the revenue laws. Lieb was the taxpayer and it is not a party to this action. While it is true that there was a misapplication of plaintiffs' funds to the payment of Lieb's taxes, this wrongful act did not result in plaintiffs becoming taxpayers to the extent of the misapplied funds. Neither was there any overpayment of plaintiffs' taxes. In fact, the only taxes of the plaintiffs that were paid out of the contract award was the $4,576.80 applied on the payroll taxes of the joint venture which was not contested by the plaintiffs and is not involved in this case. The filing of the claims for refund by the plaintiffs did not help them, because the claims were unnecessary and of no consequence since plaintiffs were not taxpayers who had overpaid their taxes.

In support of the foregoing conclusions, we wish to point out and emphasize that Congress has established a well-defined and comprehensive administrative system for the recovery of overpaid taxes by taxpayers. All taxpayers who have overpaid their taxes are within this system and must follow the appropriate procedures and regulations, including the timely filing of claims for refunds for overpayment of taxes, if they are to have the benefits of the system. On the other hand, persons who are not taxpayers are not within the system and can obtain no benefit by following the procedures prescribed for taxpayers, such as the filing of claims for refunds. For example, there have been many cases where parties have sued to enjoin the assessment or collection of their moneys to pay the taxes of another, notwithstanding Section 263 of the Internal Revenue Code of 1939 (26 U.S.C. § 3653 (1952 ed.)) that provided that "no suit for the purpose of restraining the assessment or collection of any tax shall be maintained in any court."² The courts have allowed these suits because the parties filing the suits were not taxpayers and were outside the revenue system of which the above statute is a part. See Long v. Rasmussen, 281 F. 236 (D.Mont.1922); Rothensies v. Ullman, 110 F.2d 590 (3d Cir.1940); Raffaele v. Granger, 196 F.2d 620 (3d Cir.1952); and Bullock v. Latham, 306 F.2d 45 (2d Cir.1962). In Long v. Rasmussen, the court said:

* * * They the revenue laws relate to taxpayers, and not to nontaxpayers. The latter are without their scope. No procedure is prescribed for nontaxpayers, and no attempt is made to annul any of their rights and remedies in due course of law. * * * Id. 281 F. at 238.

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