Daugherty v. Commissioner of Internal Revenue, 6856.

• Decision Date: 30 January 1933
• Docket Number: No. 6856.,6856.
• Citation: 63 F.2d 77
• Parties: DAUGHERTY v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Ninth Circuit

63 F.2d 77 (1933)

DAUGHERTY v. COMMISSIONER OF INTERNAL REVENUE.

No. 6856.

Circuit Court of Appeals, Ninth Circuit.

January 30, 1933.

Albert L. Hopkins, Jay C. Halls, and Peter L. Wentz, all of Chicago, Ill. (Hopkins, Sutter, Halls & De Wolfe, of Chicago, Ill., of counsel), for petitioner.

G. A. Youngquist, Asst. Atty. Gen., and Sewall Key, John G. Remey, and Wm. Cutler Thompson, Sp. Assts. to Atty. Gen. (C. M. Charest, Gen. Counsel, and E. L. Updike, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for respondent.

Before WILBUR and SAWTELLE, Circuit Judges, and CAVANAH, District Judge.

SAWTELLE, Circuit Judge.

The respondent determined that the entire proceeds of a certain contract, hereinafter set forth, were taxable as the income of petitioner, despite an assignment of one-half of the proceeds of the contract by petitioner to his wife. The Board of Tax Appeals held that the determination of the respondent was correct; and this appeal is from the decision of the Board.

The tax in question is for the calendar year 1926, and was assessed under section 213 (a) of the Revenue Act of 1926, 44 Stat. 23, 26 USCA § 954 (a).

In 1912, petitioner, an attorney at law, and one Robert J. Folonie were engaged in litigation in the state of Illinois to establish the rights of one Mrs. Estelle Howland in a trust estate created by her father-in-law, John D. Jennings, who died in 1889. This litigation terminated unsuccessfully to Mrs. Howland. Certain adverse interests were represented by the law firm of Campbell & Fischer, of Chicago. In 1923, Edwin Jennings, the last surviving son of John D. Jennings, and brother-in-law of Mrs. Howland, died. Mr. Campbell, of the firm of Campbell & Fischer, upon learning that petitioner still represented Mrs. Howland, stated to petitioner that, in connection with the prior litigation, he had studied and briefed the question of Mrs. Howland's rights in the trust estate, and that he had reached the conclusion that, in view of the death of Edwin Jennings, Mrs. Howland was entitled to a substantial interest therein. Campbell offered to give his brief to petitioner. Petitioner said that he would ascertain the wishes of his client with regard to the matter, but that in no event could he handle litigation for her, because a position he then held with the Standard Oil Company of Indiana occupied all of his time and attention. It was orally agreed between Campbell and petitioner that petitioner would not engage in any of the litigation, but that petitioner was simply to furnish the client. At a conference between Mrs. Howland and her husband and petitioner and Campbell, it was agreed that a bill to construe the will should be filed, and that all of the work in connection with the proceeding should be performed by the firm of Campbell & Fischer, and neither petitioner nor Folonie would be required to do any work in connection with the case. The contract executed by Mrs. Howland and the attorneys, in Chicago, on November 5, 1923, is as follows: "I hereby appoint Harry A. Daugherty petitioner, Robert J. Folonie, John G. Campbell and Herman A. Fischer, Jr., to act as my solicitors and attorneys in all matters pertaining to my interest in the trust estate founded by the last will of John D. Jennings, deceased. They are authorized to commence or participate in any proceedings they deem necessary in order to establish my interest therein. As their full compensation for services they are to receive an amount equal to forty per cent of any money or property I am awarded or receive in connection with the subject matter of said trust estate; it being agreed and understood that this compensation is to be in addition to any fees which may be awarded, either to me on account of my solicitors' fees, or directly to my solicitors, by any court, from the trust estate as a whole, on account of legal services rendered by them in any suit or suits which they instituted or participated in involving the subject matter above mentioned, but does not include anything which I may receive directly from the estate of Edwin Jennings, deceased, as distinguished from the said trust estate found by the will of John D. Jennings, deceased."

January 30, 1924, petitioner wrote a letter to his wife, inclosing his copy of the contract of employment with Mrs. Howland, and on the margin of the contract petitioner indorsed an assignment to his wife of an undivided one-half of his interest in the contract. Some time in 1925, petitioner orally advised Campbell of this assignment. At the time of this assignment or gift the litigation to which the contract related was pending and undetermined. There was no assurance that there would be a successful termination or settlement in favor...