Cooper Agency, Inc. v. McLeod, Civ. A. No. AC-1283

• Decision Date: 08 September 1964
• Docket Number: 1350,1353 and 1354.,1295,1351,Civ. A. No. AC-1283,1348,1349,1352,1309
• Citation: 235 F. Supp. 276
• Court: U.S. District Court — District of South Carolina
• Parties: COOPER AGENCY, INC., Plaintiff, v. Harold M. McLEOD, District Director of Internal Revenue and the United States of America, Defendants, and nine other civil actions.

235 F. Supp. 276

COOPER AGENCY, INC., Plaintiff, v. Harold M. McLEOD, District Director of Internal Revenue and the United States of America, Defendants, and nine other civil actions.

Civ. A. Nos. AC-1283, 1295, 1309, 1348, 1349, 1350, 1351, 1352, 1353 and 1354.

United States District Court E. D. South Carolina, Columbia Division.

September 8, 1964.

COPYRIGHT MATERIAL OMITTED

N. Welch Morrisette, Jr., Columbia, S. C., Arthur G. Howe, Charleston, S. C., Tompkins, McMaster & Thomas, and Cooper, Gary, Nexsen & Pruet, Columbia, S. C., for plaintiff.

Terrell L. Glenn, U. S. Atty., Columbia, S. C., and Norman E. Bayles, Dept. of Justice, Washington, D. C., for defendants.

MARTIN, Chief Judge.

These ten actions have their origin in certain jeopardy transferee assessments made by the District Director of Internal Revenue against certain members of the Cooper family and several corporations and associations on September 16, 1963, in a total amount of approximately $9,000,000. It appears from the complaints that the District Director proposed additional deficiencies against the plaintiffs, also in substantial amounts.

The first action was commenced by Cooper Agency, Inc. by the filing of its complaint with this Court on November 5, 1963, naming as defendants the District Director of Internal Revenue and the United States of America. Thereafter, Elmwood Cemetery Association and Elmwood Properties filed similar complaints on November 14, 1963, and December 5, 1963, respectively. The plaintiffs alleged the Court had jurisdiction over these actions by virtue of 28 U.S.C. §§ 1331, 1340, 2410 and 2463.

Each of the plaintiffs sought a preliminary injunction (to be made permanent at a later date) enjoining the defendants from taking any action to enforce the collection of the jeopardy assessments made against them, an order declaring the assessments liens, levies and seizures thereunder were null and void, and an order cancelling the tax liens of record so as to remove any cloud from plaintiffs' title to undescribed property.

The complaints in these three actions alleged generally with some variations that:

1. The defendants arbitrarily made illegal and factually unfounded transferee assessments against them and thereafter made illegal levies and seizures of plaintiffs' property.

2. The plaintiffs were not transferees within the meaning of the Internal Revenue Code in that no transfers were made to plaintiffs "without full, fair and adequate consideration."

3. The assessments in the guise of transferee liabilities had not been made in good faith and under no circumstances could plaintiff ultimately be found liable as a transferee.

4. The assessments, liens, and levies were illegal and without basis in law or in fact.

5. The applicable statute of limitations barred the assessments.

6. The plaintiffs were financially unable to post the bonds necessary to stay collection of the jeopardy assessments and were unable to pay the assessments and sue for refund and hence, plaintiffs were without an adequate remedy at law.

The defendants, prior to the expiration of the 90 day period within which the plaintiffs could have petitioned the Tax Court for a redetermination of their respective liabilities filed motions to dismiss the complaints on the following grounds:

1. The complaint fails to state a claim upon which relief can be granted.

2. The Court lacks jurisdiction over the subject matter of this action.

3. The United States has not consented to be sued in an action of this nature.

4. Plaintiff may obtain relief and inquire into the merits of the transferee assessments by filing a timely petition with the Tax Court of the United States, the time for so doing not having expired.

The Government contends the actions are barred by Section 7421(b), Internal Revenue Code of 1954, and 28 U.S.C. § 2201.

Subsequent to the filing of these three complaints, the other seven actions were commenced by the filing of complaints on January 28, 1964, which contain allegations identical in almost every respect to the allegations summarized above. The defendants again filed motions to dismiss each of the complaints identical to those above except that the fourth ground was changed as follows:

4. Plaintiff had an adequate legal remedy which he failed to exercise by filing a timely petition with the Tax Court of the United States. Plaintiff was advised of his rights by the statutory notice of deficiency as well as by letter from the Department of Justice but chose not to pursue the legal remedy provided by Section 6213 of the Internal Revenue Code of 1954.

Amended complaints were thereafter filed with the Court by four of the plaintiffs, Cooper Agency, Inc., Elmwood Cemetery Association, Elmwood Properties, and James D. Cooper, Trustee, on February 21, 1964. The apparent purpose of the amendments was to meet the Government's contention raised in the motions to dismiss that the allegations contained in the original complaints constituted nothing more than mere conclusions of law and of fact which were not deemed admitted by the Government's motions to dismiss. The substance of the amendments to each of the four complaints was to set forth the property which the Internal Revenue Service found to be transferred without fair and adequate consideration, and to then allege the consideration plaintiffs contended they gave in return for the property, together with their conclusion that the consideration alleged was adequate. In the case of certain property, plaintiffs alleged they never really held the property as owners thereof, and could not, therefore, be liable as transferees. The Government thereafter filed motions to dismiss the four amended complaints identical to those filed to the original complaints.

A hearing was held before this Court on March 6, 1964, on the Government's motions to dismiss each of the ten actions and because of the extraordinary circumstances involved in these cases, the complexity of the issues, the workload of the Court at that time due to two longstanding judgeship vacancies and the need for an early disposition of the issues, the ten actions were referred to a Special Master to hear and dispose of the motions to dismiss, and in the event the motions were overruled, to require that answers to the complaints be filed as required by law and that testimony and other evidence be received, with the Special Master to report his findings of fact and conclusions of law to this Court.

The Special Master, after having considered the briefs filed by the parties to these actions and having heard oral argument, made his very able and comprehensive report to this Court concluding the Court was without jurisdiction to entertain these actions and that the motions to dismiss should, therefore, be granted, for the reasons set forth hereinafter.

The plaintiffs thereafter filed timely objections to the report of the Special Master on the grounds that the Special Master erred as follows:

1. In finding and concluding that Section 7421(b) of the Internal Revenue Code of 1954 bars the injunctive relief sought by the plaintiffs since under the facts alleged in the complaints the defendants could under no circumstances prevail and that plaintiffs had no adequate remedy at law.

2. In finding and concluding the complaints failed to allege specific facts as opposed to conclusions of law and conclusions of fact.

3. In finding and concluding that plaintiffs had an adequate legal remedy at law by virtue of their right to petition the Tax Court for a redetermination of their respective liabilities.

4. In concluding that plaintiffs had an adequate legal remedy which they could have pursued, when there was no evidence before the Special Master to establish that a "proper notice of the Commissioner's determinations had ever been given the plaintiffs."

5. In finding and concluding that 28 U.S.C. Section 2201 precludes the declaratory relief sought in these actions.

6. In finding and concluding that 28 U.S.C. Sections 1331, 1340, 2410, and 2463 did not confer jurisdiction on the Court to entertain these actions.

7. In finding and concluding that 28 U.S.C. Section 2410 does not constitute a waiver of sovereign immunity so as to permit the joinder of the United States in actions such as these.

Three of the plaintiffs, Cooper Agency, Inc., Elmwood Cemetery Assn. and Elmwood Properties, Inc., although somewhat belatedly, filed motions to amend their first amended complaints shortly before the hearing before the Court on plaintiffs' objections to the Special Master's report. The second amended complaints appear to be almost identical to the first amended complaints except that plaintiffs alleged that defendants failed to furnish the plaintiffs with "legal and proper" notices of deficiency (90-day letters) as required by Section 6213(a) of the Internal Revenue Code of 1954 in that the notices of deficiency admittedly received did not include the "details" of any of the transfers forming the basis of the transferee assessments, such as the identity of the property involved and the date of the transfers, thus rendering the assessments null and void. Plaintiffs contend that because of the alleged defects in the notices of deficiency, they were deprived of their right to file a "proper" petition with the Tax Court, assuming arguendo that so doing would have given them an adequate legal remedy. The same three plaintiffs also filed motions for summary judgment which the Court does not find it necessary to reach for the reasons set forth hereinafter.

The Court does, however, over the Government's objection, grant the motions of Cooper Agency, Inc., Elmwood Properties, Inc. and Elmwood Cemetery Assn. to file their second amended complaints, but the Court's decision has no effect on the disposition by this Court of the motions to dismiss filed by the defendants since the amendments in no way affect the Court's conclusion that it is without jurisdiction to...