Central Oil & Supply Corp. v. U.S.
| Decision Date | 12 August 1977 |
| Docket Number | No. 75-2372,75-2372 |
| Parties | 77-2 USTC P 16,269 CENTRAL OIL & SUPPLY CORPORATION, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee, Appellant, v. James C. WATSON, William Watson, Mrs. Clemmie McIntosh Watson, and Gerald B. Watson, Additional Defendants on Counterclaim-Appellees. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Robert Lee Curry, III, J. Michael Hart, Monroe, La., for Central Oil & supply.
Donald F. Wood, John E. Kennedy, Houston, Tex., for Richard R. Broach, Jr., amicus curiae.
Donald E. Walter, U. S. Atty., Lawrence L. Jones, Asst. U. S. Atty., Shreveport, La., Scott P. Crampton, Asst. Atty. Gen., Tax Div., Gilbert E. Andrews, Acting Chief, Appellate Sec., Grant W. Wiprud, William A. Whitledge, U. S. Dept. of Justice, Washington, D. C., for the U. S.
George M. Snellings, III, Carrick R. Inabnett, Monroe, La., for James C. Watson et al.
Appeal from the United States District Court for the Western District of Louisiana.
Before WISDOM, CLARK and RONEY, Circuit Judges.
Central Oil & Supply Corporation (Central) filed this suit in the district court to secure a refund of federal excise taxes levied on the retail sale of diesel fuel for use in highway vehicles which it paid for the first quarter of 1969. The United States counterclaimed to obtain payment of the tax due on sales allegedly made by Central during the last three quarters of 1969, all of 1970 and 1971, and the first two quarters of 1972. It joined James C. Watson, Gerald B. Watson, and Clemmie M. Watson, d/b/a Watson's Truck Stop, as third party defendants to its counterclaim. The parties agree that taxable retail sales of diesel fuel were made, and that either Central or the Watsons made them. The sole issue presented by this case is whether the transfer of diesel fuel from Central to the Watsons was a "sale for resale" or a "consignment for sale." If it was the former, then the Watsons sold the fuel for use in highway vehicles and are liable for the tax; if it was the latter, then Central made the taxable sales through the Watsons' agency and must pay the tax owing. The district court resolved the controversy against Central. We affirm.
In 1968 James, Bill, 1 and Fred 2 Watson became interested in opening a truck stop on property they owned adjacent to the intersection of two major highways near Calhoun, Louisiana. They approached Central, a petroleum products jobber which distributes fuels and lubricants to a number of service stations and direct industrial customers, for assistance in financing and constructing the necessary improvements. The discussions proved fruitful. In exchange for Central's commitment to build the truck stop and arrange for a loan, the Watsons executed a promissory note secured by a mortgage on approximately 45 acres of their property which Central was to use to obtain interim financing for the project.
By January of 1969 the truck stop was ready for operation. Shortly thereafter, the Watsons replaced their first promissory note with a larger one made payable to a Central affiliate, W. J. & C. Sherrouse, Incorporated (Sherrouse), pledging their land and the new improvements as security. In a letter to the Watsons, Sherrouse and Central promised to periodically release portions of the land from the mortgage in order to reflect the amortization of the note. This obligation was conditioned on the Watsons' covenant not to market petroleum products other than those supplied by Central on the released parcels. The Watsons then leased the truck stop to Central for 15 years, renewable at Central's option for three additional terms of five years each, and assigned their rental income under the lease to Sherrouse. Central immediately leased the premises back to the Watsons for 15 years. The leaseback agreement, however, does not include a provision for renewal at the Watsons' option.
As a result of this exchange of leases, Central acquired a considerable amount of control over both the truck stop and the land on which it was built. The lease agreement authorizes Central to construct, install, and alter any additional improvements or equipment it wishes to place on the premises, and to paint any part of the truck stop whatever color it pleases. In addition, Central has the right to match any bona fide offer which the Watsons receive for the purchase of the truck stop or the property, and unrestricted permission to assign or sublease its leasehold interest. The leaseback agreement prohibits the Watsons from painting or modifying the existing structures and equipment, and from transferring their leasehold interest without Central's consent. It also gives Central the right to enter the premises without notice for the purposes of inspection and the making of repairs.
Central furnishes the Watsons with gasoline and diesel fuel pursuant to an unwritten understanding which closely tracks Central's customary practices in dealing with other service stations over the years. While the truck stop was under construction, Central installed underground storage tanks, connecting lines, and dispensing pumps on the premises. This equipment remains Central's property, and neither the Watsons nor their employees can open the pumps or unlock the access ports to the tanks. As soon as the truck stop opened for business Central placed gasoline and diesel fuel in the underground tanks. While in the tanks, connecting lines, and pumps, the fuel belongs to Central and the Watsons have no responsibility for it. Central carries the fuel stored at the truck stop as an inventory item on its books, insures it against loss, and increases or decreases the volume of fuel stored in the tanks whenever it wishes.
The Watsons are totally dependent on Central for their supply of diesel fuel. Central routinely inspects the underground tanks and determines the volume of fuel they contain as a precaution against theft and the Watsons' receipt of fuel from other suppliers, but the Watsons learn of the amounts of fuel in the tanks only on those rare occasions when they pump them dry. When this occurs, the Watsons telephone Central to request the delivery of additional fuel. Once, while the petroleum fuel shortage was especially acute, Central was unable to meet the Watsons' demands. Although the Watsons succeeded in locating an alternative source of supply, they could not purchase the fuel because they had nowhere to store it. Instead they were forced to notify Central, which then purchased the fuel from the alternative source and delivered it to the truck stop.
A Central representative visits the truck stop every Friday to check the cumulative meters on the pumps and to determine how much fuel has been removed from the storage tanks during the preceding week. He bills the Watsons for the amount of fuel pumped at the rate per gallon on which they had agreed the previous Friday. At the same time, the price that the Watsons will be charged for fuel removed from the tanks during the ensuing week is negotiated, and after an agreement is reached, the Central representative sets the pump price at the level specified by the Watsons. The Watsons retain as their profit the difference between the pump price and the price they agreed to remit to Central. This difference is narrowed by the Watsons' policy of discounting the pump price in order to keep abreast of their competitors. It is undisputed that the Watsons exercise exclusive control over the prices they charge their customers, the terms of credit they offer, and the truck stop's hours of operation. Nevertheless, the record indicates that all of the diesel fuel removed from Central's storage tanks by the Watsons during 1969-71 and the first two quarters of 1972 was pumped directly into the tanks of diesel-powered highway vehicles.
There was no written agreement between Central and the Watsons concerning either the nature of the arrangement under which diesel fuel was transferred between them or the allocation of liability for the federal excise tax on the sale of diesel fuel. Each apparently assumed that the other was paying the tax. 3 When the Internal Revenue Service assessed them with nearly identical deficiencies of more than $125,000 (the entire amount of the unpaid taxes, plus interest), they both paid the amount due for the first quarter of 1969 and filed refund claims. As soon as Central discovered that its claim had been disallowed, it brought this suit to overturn the Commissioner's determination. The United States counterclaimed for the balance of the tax and interest due, and joined the Watsons as additional defendants to its counterclaim. On cross motions for summary judgment filed by Central and the United States, the district court ruled that the relation between Central and the Watsons was one of consignment, and held Central liable for the tax. Central appeals. The United States has filed a protective cross-appeal from the dismissal of its claim against the Watsons, and from the district court's command that it refund to the Watsons the tax and interest they paid for the first quarter of 1969. It urges that we direct the district court to enter summary judgment against them should Central prevail here.
A litigant is entitled to summary judgment if, and only if,
the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show (1) that there is no genuine issue as to any material fact and (2) that the (he) is entitled to a judgment as a matter of law. Fed.R.Civ.P. 56(c).
Since the United States has met its burden of demonstrating that these two requirements are satisfied, the district court's decision granting its motion for summary judgment against Central was correct.
We agree with the district court's...
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