Cooper Agency v. United States

• Decision Date: 16 July 1969
• Docket Number: Civ. A. No. 68-533.
• Citation: 301 F. Supp. 871
• Court: U.S. District Court — District of South Carolina
• Parties: COOPER AGENCY, Plaintiff, v. UNITED STATES of America, Defendant.

301 F. Supp. 871

COOPER AGENCY, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 68-533.

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

July 16, 1969.

COPYRIGHT MATERIAL OMITTED

Charles F. Cooper, Columbia, S. C., for plaintiff.

Johnnie M. Walters, Asst. Atty. Gen., Myron C. Baum, Sidney B. Williams, Attys., Dept. of Justice, Washington, D. C., Klyde Robinson, U. S. Atty., Wistar D. Stuckey, Asst. U. S. Atty., Columbia, S. C., for defendant.

OPINION and ORDER

DONALD RUSSELL, District Judge.

This suit seeks recovery of that portion of a payment (i. e., $1,192,405.43) made in compromise settlement of certain income tax assessments against the plaintiff and some fourteen other parties which was assigned to the extinguishment or abatement of various tax assessments against the plaintiff as transferee.

It is the contention of the plaintiff that its liability on the assessments, refund of which is sought herein, was as transferee and that such derivative liability was imperfect both because the transfers to it were for full value and because the notices of deficiency on which the assessments were based were defective. While admitting the execution of a compromise settlement by the terms of which it bound itself not to seek a refund, it urges that such compromise agreement is not a bar, since, as to it, the agreement did not represent a compromise and, even if it did, the agreement is voidable for duress and coercion.

The defendant, on the other hand, rests its defense on (1) the compromise agreement and, particularly, the express provision thereof under which the plaintiff bound itself not to seek or sue for a refund and (2) on an estoppel against the plaintiff to repudiate such settlement. It, also asserts that a small part of plaintiff's claim was not filed within time and is accordingly barred in any event.

Certain interrogatories have been exchanged between the parties. In addition, both parties have filed certain affidavits. They have both cited and rely, though for different reasons, on the compromise agreement between the parties. On the basis of the record so made, both parties have moved for summary judgment.

It is obvious that, if the provision in the undisputed compromise settlement agreement proscribing any suit by the plaintiff for a refund is valid and enforceable, the motion of the defendant for summary judgment must be granted and the motion of the plaintiff denied. It is necessary, therefore, to review at the outset the undisputed facts, about which there is no genuine issue, leading up to and involved in the compromise settlement.

From the undisputed facts in the record before me, it appears that on September 16, 1963, there were tax assessments "in a total amount of approximately $9,000,000" outstanding against the plaintiff and "certain members of the Cooper family" and their "corporations and associations", as well as "proposed additional deficiencies * * * in substantial amounts."¹ None of the taxpayers involved either in such outstanding or proposed assessments, within the allowable period for that action, petitioned the Tax Court for a redetermination of their respective tax liabilities. To the contrary, the plaintiff and its associated interests hastened to file "ten actions", seeking of this Court injunctive relief against the outstanding or proposed assessments, contending, among other things, that the notices of deficiencies upon which the assessments were based were defective, thereby rendering "null and void" the assessments. Relief in those proceedings was denied the plaintiff and its associated interests. In the course of denying relief, the Court explicitly sustained the sufficiency of the notices of deficiency.²

Following the dismissal of this initial injunctive action, the plaintiff and associated parties began compromise negotiations. The plaintiff contended that, during such negotiations, an agent of the Commissioner "conceded" that the plaintiff's liability was "at most, only $198,000", even though, as plaintiff's complaint thereafter alleged, the actual assessments made against the plaintiff itself at the time aggregated $1,508,033.10. The extent of liability of the other transferees, as discussed during these negotiations, was not indicated in the record. Arguing that any assessments against it in excess of $198,000 were void as a result of such alleged "concession" and renewing its objections to the assessments made in its earlier action for defect in the notices of deficiency, the plaintiff filed a second injunctive suit against the District Director on September 27, 1965. Relief was denied plaintiff in this second action on October 28, 1965.³

Settlement negotiations on behalf of both the plaintiff and all associated parties were thereupon renewed. In the meantime, the District Director had levied upon certain property of the plaintiff and its associated interests and was in the process of advertising same for sale under levy. On November 24, 1965, the plaintiff, acting "on behalf of all taxpayers involved", and represented by four able and experienced counsel, submitted in writing an offer of $1,250,000 in compromise settlement of "all assessments made or proposed * * * including any issues now pending before the Appellate Division, Internal Revenue Service, whether assessed or not" "for all years up to and including taxable years ending in 1961" against the plaintiff and related interests or family connections. The taxpayers to be granted relief under the proposed settlement included 10 corporate parties and 5 named individuals along with "their children, wives, and grandchildren." The offer included these two specific conditions:

"1. No claims or suits for refund will be made for the years involved in the settlement.

* * * * * *

"4. The parties shall agree upon the allocation of the payment made hereunder, upon any effect that the payment hereunder may have on basis of property and otherwise upon the basis of property which may be involved, but it is expressly stipulated and agreed that no controversy or issue of any kind or character whether as to basis or allocation or any other dispute as to mechanics or details of carrying out the agreement shall prevent or delay payment of the $1,250,000.00 beyond sixty (60) days from the date hereof."

After submission to and approval by the Commissioner of Internal Revenue and the Attorney General of the United States,⁴ the offer of the plaintiff, as incorporated in its letter, was accepted and the District Director, Internal Revenue Service, duly evidenced such acceptance on their behalf by affixing his signature to a form of acceptance included in the letter of the plaintiff, copy of which was furnished the plaintiff.

After acceptance of the offer, the plaintiff paid, within the sixty days provided, the sum agreed upon and the District Director proceeded to release the federal tax liens and property seizures, to abandon any sales under advertisement and to cancel all collection activities arising out of the assessments described in plaintiff's letter of November 24, 1965. In addition, the Internal Revenue Service abandoned its claims of liability pending in the Appellate Division and agreed to Orders in the Tax Court to the same effect, thereby fulfilling that part of its agreement.

After payment was made by the taxpayers, the District Director requested the plaintiff and its associated taxpayers to submit their proposed allocation of the compromise settlement payment among the various assessments as contemplated in condition 4, quoted supra, of the settlement offer. The plaintiff, acting apparently again for all the taxpayers, proposed that $1,192,405.43 be "allocated to cover full payment of any transferee liability claims against Cooper Agency" and that the remaining $57,594.57 "be allocated to the complete settlement of all tax deficiencies through the year 1961 and all transferee liabilities of all those named in the agreement except any amounts owed by Cooper Agency as transferee." As of November 24, 1965, the net outstanding assessments against the plaintiff totaled, with interest and penalties, $1,795,466.63, and the outstanding assessments against the other parties involved in the settlement were in excess of $15,000,000. An employee of the District Director thereafter advised the plaintiff that the District Director accepted the proposal for allocation of the payment as submitted by the plaintiff.

Exactly two years to the day after the settlement agreement (but within two years of payment of all the settlement save $70,000 thereof), the plaintiff filed a claim for refund in the amount of $1,192,405.43, being the amount of the settlement assigned to the discharge of plaintiff's tax liabilities. The basis for such claim, as assigned therein by the plaintiff, was that the plaintiff was "not liable for any amount as a transferee of property from any taxpayer at any time." Upon the rejection of that claim this action was commenced.

The defendant, by its motion, contends that the admitted compromise agreement and settlement between the parties, in which the plaintiff specifically waived any right to sue for a refund, bars the plaintiff from recovery herein and requires summary judgment in its favor. I agree.

It is well-settled that a compromise settlement of tax liabilities, conforming to the requirements of Section 7122, 26 U.S.C.A., is a contract, governed by the rules applicable to contracts generally;⁵ and its terms are to be enforced as expressed, unless they violate some public policy. And this is true, even though it later appears no tax was due. Seattle-First Nat. Bank v. United States (D.C.Wash.1942) 44 F. Supp. 603, 610, aff. 136 F.2d 676, aff. 321 U.S. 583, 64 S.Ct. 713, 88 L.Ed. 944. The instant settlement includes as one of its express terms and conditions, the explicit agreement of the plaintiff, that "No claims or suits for refund will (would) be made"...