Brubaker v. United States
| Decision Date | 26 March 1965 |
| Docket Number | No. 14647.,14647. |
| Parties | Henry J. BRUBAKER and Civilla J. Brubaker, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Harold F. Ronin, Chicago, Ill., for appellant.
Louis F. Oberdorfer, Asst. Atty. Gen., Joseph M. Howard, U. S. Dept. of Justice, Washington, D. C., John Peter Lulinski, Asst. U. S. Atty., Chicago, Ill., Lee A. Jackson, Melva M. Graney, Thomas L. Stapleton, Dept. of Justice, Washington, D C. (Edward V. Hanrahan, U. S. Atty., Thomas J. Curoe, Asst. U. S. Atty., of counsel), for appellee.
Before DUFFY and CASTLE, Circuit Judges, and GRANT, District Judge.
This appeal is from the District Court's judgment in a suit for refund of excess profits tax in the amount of $25,312.09, and interest in the amount of $20,572.73 on that tax paid by the taxpayer to the Collector of Internal Revenue on or about March 25, 1957. The excess profits tax in question had been assessed in 1952 against the Des Plaines Oil Company, the assets of which taxpayer was the transferee, for the period from May 12, 1944, to April 30, 1945. The taxpayer bases his claim for refund on the contention that a 1955 compromise agreement purporting to settle certain renegotiation matters entered into between the United States and a group of individuals represented by attorney Harold F. Ronin included the presently contested excess profits tax liability of this taxpayer. The District Court entered judgment for the United States, rejecting taxpayer's contention and holding that the renegotiation matters were and are distinguishable from the excess profits tax assessment, and that the latter was not specifically referred to and thus not included in the 1955 settlement contract.1
The facts of this case are complicated, but not disputed. They were the subject of a stipulation between the parties in the District Court, which stipulation was adopted in toto in that Court's findings of fact. Briefly, they may be stated as follows:
The taxpayer, Henry Brubaker,2 became a principal stockholder during World War II in an Illinois Corporation called Des Plaines Oil Company. This company, which had been one of several business entities utilizing substantially the same personnel and facilities formed for the purpose of selling silica gel to the military, became inactive after the war and its assets were transferred to several individuals and former stockholders, one of whom was the taxpayer.
In November, 1951, the Commissioner of Internal Revenue assessed certain tax deficiencies against this corporation for the period May 12, 1944, to April 30, 1945. These deficiencies included $65,168.83 in excess profits taxes for the period and $24,944.40 in interest thereon. The reason for this deficiency assessment was the disallowance by the Commissioner of certain deductions claimed by the company in computing its income for that period. These deductions were $40-767.30 characterized as "royalties" by the company but found to have been distributions of earnings to the several stockholders and $53,192.30 characterized as "commissions" but found to have been a means of draining off company profit for the exclusive benefit of five members of the joint venture, one of whom was the taxpayer.
In March, 1952, the Commissioner proceeded to make an assessment against each of the transferees of the Des Plaines assets limited in each case to the value of assets each had received. The assessment against the taxpayer as a transferee of the assets for the deficiency in excess profits taxes was $25,312.09 with $10,178.93 in additional interest. Subsequently, on February 19, 1957, and March 26, 1957, the taxpayer paid this assessment with accrued interest in the sum total of $45,884.82. After disallowance by the Commissioner of taxpayer's claim for complete refund of this payment, taxpayer instituted the present suit.
Coincident with much of the above-described activity involving the Internal Revenue Service, taxpayer — also by virtue of his business capacity in the various concerns producing silica gel — was involved in certain renegotiation proceedings conducted by the War Contracts Price Adjustment Board (WCP AB). The Board, acting under the authority of the Renegotiation Act of 19433 to recover overcharges on war-time contracts with the military, demanded payment in the following amounts from the following business entities, as reduced by statutory tax credits:4
The basis for the Board's determination against the Des Plaines Oil Company was a finding that certain items designated by the company as contract expenses were in effect additional profits and overcharges not contemplated by the contracts. The Board found that $40,767.30 designated as "royalties" were not royalties but additional payments to stockholders, and that $35,986.00, in a category called "commissions", were not legitimate contract expenses.6
On October 27, 1948, certain stockholders and partners in these firms filed petitions in the Tax Court under Section 403 (e) of the Renegotiation Act for a redetermination of the fact and amounts of overcharges of Joliet Chemicals, Ltd. (three petitions were filed, the taxpayer's name appearing on one), and of Joliet Industrials, Inc. (one petition). The Des Plaines overcharges were not disputed by anyone and no petition for redetermination disputing the fact or amount of the Des Plaines overcharges was filed by any party. While these petitions were pending, on November 14, 1950, the United States commenced proceedings in the United States District Court for the Northern District of Illinois to enforce the findings of the WCPAB.
Negotiations were then conducted between attorney Harold F. Ronin, acting in behalf of the aforementioned business entities and the several stockholders, including the taxpayer, and the Department of Justice. For purposes of this cause, it appears that the negotiations commenced with Mr. Ronin's offer, made on behalf of his clients, of November 17, 1950, contained in his letter of that date. The negotiations were concluded upon the Department of Justice's acceptance of an amended offer, submitted by Mr. Ronin in the interim, the same effected by the Department's letter of October 17, 1955. It is the fruit of these negotiations — the contract of settlement or release arising out of the aforementioned offer and acceptance — that is at issue in this cause. Specifically, the sole issue for our consideration is whether the contract of October 17, 1955, admittedly a settlement of the renegotiation liability of the various parties, was also intended to, and in fact did, settle the taxpayer's excess profits tax liability. We feel that it did not, and that the District Court was correct in entering judgment for the defendant-appellee, United States.
The only evidence of the terms of the settlement contract is the correspondence between the parties. While the "Stipulation of Facts", agreed to by both sides and submitted in the District Court proceeding, makes mention of at least eleven separate letters exchanged by the parties, and while all have been evaluated by the Court, disposition of this issue can be effected by a specific reference to six of this number.
Mr. Ronin's letter of November 17, 1950, addressed to the Assistant U. S. Attorney in Chicago, states:
"I have been authorized to submit a firm offer of $5,000.00 in full settlement of all renegotiation claims against Joliet Chemicals, Inc., Joliet Industrials, Inc., Des Plaines Oil Co., Joliet Chemicals, Ltd. and all of the individual partners." (Emphasis supplied.)
The letter also states that three of Mr. Ronin's clients, including the taxpayer, have "agreed to raise that amount to dispose of all of the various renegotiation claims." Without doubt, this, the original, offer was intended to relate to the renegotiation claims exclusively of all others the taxpayer may have been subject to at the time.
The March 29, 1954, letter of Mr. Ronin to the Assistant U. S. Attorney in Chicago is relied on heavily by the taxpayer. With reference to the offer of compromise submitted by Mr. Ronin, the letter states that "All claims of the contractors against the Government * * would be released * * *" In another place is found: "The sum of Five Thousand Dollars ($5,000.00) in cash would be paid * * * in full satisfaction of all claims against the individual partners of Joliet Chemicals, Ltd." It is this language, taxpayer contends, that materially altered the original offer of November 17, 1950, to extend the subject matter of the proposed settlement to include taxpayer's excess profits tax liability. In support of its contention, taxpayer points out that the reference heading on the letter was as follows:
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