Burlington Northern, Inc. v. United States, 152-75.

• Decision Date: 14 July 1982
• Docket Number: No. 152-75.,152-75.
• Citation: 684 F.2d 866
• Parties: BURLINGTON NORTHERN INC. v. The UNITED STATES.
• Court: U.S. Claims Court

684 F.2d 866

BURLINGTON NORTHERN INC. v. The UNITED STATES.

No. 152-75.

United States Court of Claims.

July 14, 1982.

Andrew F. Reardon, St. Paul, Minn., attorney of record, for plaintiff. James W. Littlefield, Steven Z. Kaplan, Briggs & Morgan, St. Paul, Minn., of counsel.

George L. Squires, Washington, D. C., with whom was Asst. Atty. Gen. Glenn L. Archer, Jr., Washington, D. C., for defendant.

Before KASHIWA, BENNETT and SMITH, Judges.

ON PLAINTIFF'S REQUEST FOR INTERLOCUTORY REVIEW

BENNETT, Judge:

This matter is before the court, pursuant to plaintiff's request under Rule 53(c)(2)(ii), for interlocutory review of an order of the trial judge filed February 19, 1982, granting defendant's motion to limit plaintiff's proof at trial.

The underlying action, filed May 6, 1975, asserts an overpayment of federal income taxes by the Great Northern Railway Company for the years 1959, 1960, 1961 and 1962.¹ Claims for refund for years 1959 and 1960 were timely filed on June 26, 1969, and for years 1961 and 1962 on June 29, 1970. One of the grounds set forth in the claims for refund was that Great Northern is entitled, under section 167,² to a reasonable allowance for the depreciation of its railroad grading and tunnel bores. This aspect of the claims was disallowed on May 8, 1973, for the reason that plaintiff was determined to have failed to establish that the property in question had an estimated useful life. After stipulation by the parties, this ground for recovery now constitutes the sole affirmative issue pending in this action.

Subsequent to the issuance of the court's standard pretrial order on liability (Rule 111) on December 18, 1978, plaintiff served defendant with its pretrial submission, enclosing therewith schedules of its investments in and retirements of railroad grading and tunnels, and specifying therein that expert testimony would be offered at trial regarding the useful lives of such assets as determined by the actuarial method of life analysis.

On December 22, 1981, defendant filed its motion for an order restricting plaintiff's proof at trial to what it contended were the "factual grounds" asserted by plaintiff in its claims for refund. Specifically, defendant requested that the court limit plaintiff's proof of a useful life for Great Northern's grading and tunnel bores to the sole ground as stated in the refund claims: "Changes in railway technology can be assumed to lead to a remaining life of 50 years from 1959." According to defendant, by plaintiff's pretrial submission it evinced a clear intention to prove useful life on a ground substantially at variance with the one previously asserted, that is, by the use of statistical or actuarial proof based on a tabulation of aged retirements.

On February 19, 1982, the trial judge granted defendant's motion, finding that plaintiff's intended proof was at variance with the ground for recovery set forth in its claims for refund and limiting proof at trial to evidence of foreseeable future changes in railroad technology. The instant request for review followed.

As an initial matter, we must decide whether we should exercise interlocutory review pursuant to Rule 53(c)(2). As a general practice, we do not favor interlocutory review of trial court determinations because such review results in piecemeal treatment of litigation. DeLong Corp. v. United States, Ct.Cl. No. 563-78 (order entered April 21, 1981); Allied Materials & Equip. Co. v. United States, 223 Ct.Cl. 657 (1980). However, intermediate review is appropriate "upon a showing of extraordinary circumstances whereby further proceedings pursuant to the said order would irreparably injure the complaining party or occasion a manifest waste of the resources of the court or of the parties." Rule 53(c)(2)(ii).

Plaintiff's request presents just such "extraordinary circumstances" warranting our attention. The order in question sharply limits the evidence that plaintiff can permissibly introduce at trial, thereby affecting the manner in which both parties will prepare and present their cases. Should a ruling on the correctness of that order be denied, it could needlessly prolong and complicate the trial, certainly increasing the expenditure of time and money by all concerned.

Moreover, the issue raised by the trial judge's ruling is properly severable from the main action inasmuch as it concerns only an evidentiary matter, apart from the merits of the case. Given the stridency of the parties on the admissibility of the actuarial method, we are virtually guaranteed that the issue will have to be decided by this court at some time, regardless of the outcome of the litigation. In similar circumstances, review has been found to be proper. See National Presto Indus., Inc. v. United States, Ct.Cl. No. 301-76 (order entered January 25, 1980). Therefore, we find that it is entirely appropriate to review the substance of the trial judge's order at this time.

It is well established that a refund action cannot be brought in this court unless a claimant has first met certain statutory prerequisites. The specific requirements imposed are set forth in section 7422(a), which provides that:

No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected * * * until a claim for refund or credit has been duly filed with the Secretary or his delegate, according to the provisions of law in that regard, and the regulations of the Secretary or his delegate established in pursuance thereof.

A proper claim for refund must set forth in detail each ground upon which the refund is claimed and facts sufficient to apprise the Commissioner of the exact basis thereof. Treas.Reg. § 301.6402-2(b)(1) (1967). Any ground for refund not expressly or impliedly contained in the application for refund cannot be considered by a court in which a suit for refund is subsequently initiated. See Union Pac. R.R. v. United States, 182 Ct.Cl. 103, 108, 389 F.2d 434, 442 (1968), and cases cited therein. The reason for this is both to prevent surprise and to give adequate notice to the Commissioner of the nature of the claim, and its underlying facts, so that a thorough administrative investigation and determination can be made. United States v. Memphis Cotton Oil Co., 288 U.S. 62, 71, 53 S.Ct. 278, 281, 77 L.Ed. 619 (1933); Union Pac. R.R. v. United States, 182 Ct.Cl. at 108, 389 F.2d at 442.

The trial judge, upon examination of plaintiff's refund claims, decided that they did not give the Commissioner notice of past retirements as a basis for projecting the remaining useful life of its existing grading and tunnel bores. The relevant portions of the refund claims read as follows:

Great Northern Railway Company had a tax basis as of 1960 of approximately $319,015,907.00 in grading, tunnel bores and its track accounts — Account Numbers 3, 5 and 8-12. Except for certain portions of the grading and tunnel bore accounts subject to ratable depreciation, there has not been a recovery of such amounts by tax deductions. While costs associated with the track lives are normally not considered depreciable presumably due to the inability to establish a useful life, they can be properly depreciated.

Costs generally become depreciable on the ground of anticipated obsolescence insofar as external causes and events could lead to the diminution of value. For the above-identified railway facility accounts, where obsolescence is foreseeable, the question is only one of ratable recovery over the expected period of remaining usefulness. Initially, no obsolescence was anticipated in most cases and therefore provision for ratable recovery must be made at the time it becomes apparent that obsolescence becomes a factor. Rev.Rul. 65-264, 1965-2 C.B. 53 at P. 54, see also Virginia Electric and Power Co. v. U. S., 687 CCH Para. 7930. Under Bulletin "F" ratable estimated deductions are also provided for under "Retirement Accounting." Changes in railway technology can be assumed to lead to a remaining life of 50 years from 1959. Accordingly, taxpayer claims amortization of these assets commencing January 1, 1959.

From this, the trial judge found only one reason to be given in support of the claimed deduction: "* * * presently foreseeable obsolescence resulting from anticipated changes in railroad technology. The language employed contains not the slightest allusion to past retirement experience as a basis, independent or alternative, for such allowance."

Thus framed, the question for decision is whether the use of past retirement data by means of the actuarial method represents a new ground for recovery, the introduction of which would be precluded because of its omission from the refund claims, or whether such data is simply evidence probative of the factual basis clearly asserted in the claims and, therefore, is properly admissible at trial.

We find the latter choice to be the correct one. We cannot agree with the trial judge that plaintiff's intended proof is at variance with the contents of its refund claims, for we do not believe that the introduction of past retirement data constitutes a new or different ground for recovery. This conclusion follows from an understanding of the fundamental use of the actuarial method of life analysis. Admittedly, the specific application of the methodology is detailed and we do not undertake to explain its intricacies...