Davidson v. Rafferty

• Decision Date: 19 June 1929
• Citation: 34 F.2d 700
• Parties: DAVIDSON v. RAFFERTY, Collector of Internal Revenue.
• Court: U.S. District Court — Eastern District of New York

34 F.2d 700 (1929)

DAVIDSON v. RAFFERTY, Collector of Internal Revenue.

District Court, E. D. New York.

June 19, 1929.

Frank Aranow, of New York City, for plaintiff.

Howard W. Ameli, U. S. Atty., of Brooklyn, N. Y., and C. M. Charest, Gen. Counsel, Bureau Internal Revenue, of Washington, D. C. (Albert D. Smith, Asst. U. S. Atty., of Brooklyn, N. Y., and Ottamar Hamele, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C., of counsel), for defendant.

INCH, District Judge.

This is a suit to recover the sum of $18,016.07 representing an additional estate tax on the estate of one Isaac Sanger, deceased. The tax was duly paid under protest, and its return duly demanded and denied.

Isaac Sanger died January 16, 1918, leaving an estate duly valued at $2,522,090.89. A tax thereon of $275,092.72 was duly assessed and paid. Mr. Sanger left a will executed October 11, 1910, and a codicil executed April 15, 1913. Both will and codicil were duly probated.

In October, 1922, the collector of internal revenue in reviewing the tax already assessed determined that an additional tax was due, and on or about August 29, 1923, the amount of this additional tax was fixed at approximately $16,000, which with interest represents the sum now sought to be recovered.

This suit was commenced September 15, 1927, and is brought against "John T. Rafferty, Collector of Internal Revenue." The complaint alleges that said defendant "now is and was at all the times hereinafter stated, the Collector of Internal Revenue for the First District of New York." The suit is for more than $10,000. It is not alleged that "he (the Collector) is dead or is not in office." Title 28, § 41 (20), U. S. C. A.

It would appear that this suit could not have been brought against the collector in his official capacity. Rankin Gilmour & Co. v. Newton (D. C.) 270 F. 332.

Jurisdiction cannot be presumed nor even inferred. Continental Ins. Co. v. Rhoads, 119 U. S. 237, 7 S. Ct. 193, 30 L. Ed. 380; Ex parte Smith, 94 U. S. 455, 24 L. Ed. 165; Robertson v. Cease, 97 U. S. 646, 24 L. Ed. 1057.

It cannot be conferred by consent. Chicago R. Co. v. Willard, 220 U. S. 413, 31 S. Ct. 460, 55 L. Ed. 521.

It cannot be shown by argument. Wolfe v. Hartford Ins. Co., 148 U. S. 389, 13 S. Ct. 602, 37 L. Ed. 493.

The merits of an action cannot be considered in determining the jurisdiction. Flanders v. Coleman, 250 U. S. 223, 39 S. Ct. 472, 63 L. Ed. 948.

It is the duty of the District Court to inquire into the question of its jurisdiction on its own initiative and at the outset of the litigation. Cunard Co. v. Smith (C. C. A.) 255 F. 846.

It is likewise the duty of the defendant to bring the matter to the attention of the court. Gilbert v. David, 235 U. S. 561, 35 S. Ct. 164, 59 L. Ed. 360.

The court, however, has jurisdiction to pass on the question of whether such jurisdiction exists. Nashville R. Co. v. Taylor (C. C.) 86 F. 168; Levinson v. U. S., 258 U. S. 198, 42 S. Ct. 275, 66 L. Ed. 563.

This suit must be on the theory that it is against Mr. Rafferty individually and the word "collector" simply used as an identification.

This suit is an exercise by plaintiff of a common-law right. U. S. v. Emery, Bird, Thayer Realty Co., 237 U. S. 28, 35 S. Ct. 499, 59 L. Ed. 825. It is purely personal in nature. Sage et al. v. U. S., 250 U. S. 33, 39 S. Ct. 415, 63 L. Ed. 828. It survives against the representatives of the deceased collector, Patton v. Brady, 184 U. S. 608, 22 S. Ct. 493, 46 L. Ed. 713, and not against his successor in office, Smietanka v. Indiana Steel Co., 257 U. S. 1, 42 S. Ct. 1, 66 L. Ed. 99; Detroit Hotel Co. v. Brady (D. C.) 275 F. 995. The basis of the suit is the receipt of the payment of tax, Phila. R. Co. v. Lederer (C. C. A.) 242 F. 492, on the theory that the collector had some agency in the subject-matter, Levy v. Wardell, 258 U. S. 542, 42 S. Ct. 395, 66 L. Ed. 758.

This being so, "a complaint against a collector `individually' must show that the Constitution and laws of the United States are involved or diverse citizenship of the parties, to be maintainable in the United States District Court." Rankin Gilmour & Co. v. Newton, Collector (D. C.) 270 F. 332.

The complaint here does not allege diverse citizenship, but it does allege that a federal law is involved to wit, the Revenue Act of 1916 (39 Stat. 756). U. S. v. Emery, Bird, Thayer Realty Co., 237 U. S. 28, 35 S. Ct. 499, 59 L. Ed. 825.

I shall therefore consider that this court has jurisdiction.

The sole question urged on the trial is one of law. The parties have submitted an agreed statement of the facts, which includes agreed copies of the will and codicil, the papers relating to the assessment of the tax and the rejection of the claim for refund, a contract between Mr. Sanger and his former partners made during his lifetime, to which reference will be subsequently made, and a contract between the surviving partners of Mr. Sanger's firm, to which reference will also be made.

It does not appear from the record that this agreed statement of facts was formally marked in evidence when the case was called for trial before me, but, as both parties stated at the trial that this was the agreement between them as to the facts, and argued accordingly, I shall consider that the same is duly before me as a part of the record.

A short time after the death of Isaac Sanger, the survivors of the copartnership and the representatives of the estate of Isaac Sanger and his legatees, joined, as was previously contemplated, in incorporating the corporation, Sanger Bros., and all the assets of the firm were duly transferred to it.

In my opinion, there is no ambiguity about the documentary evidence before me.

The question is, both parties contend, simply one of law. It arises over said tax on the sum of $122,958.23, transferred, after Isaac Sanger's death, on the books of the corporation, Sanger Bros., to the credit of Samuel Sanger.

This question can best be stated by reference to the arguments of the parties.

The government claims that this sum so credited was a part of the estate of Isaac Sanger; that it was not so placed to the credit of Samuel Sanger as a creditor of the estate of Isaac Sanger, nor was it paid to Samuel Sanger as a legatee under the will of Isaac Sanger.

The plaintiff claims that this sum does not represent any portion of Isaac Sanger's interest in the partnership; that it represents merely the extent to which his invested capital was greater than the real value of his interest; that Samuel Sanger had a good and valid claim against Isaac Sanger, and later his estate, for the crediting of this sum, and therefore this sum was not subject to the additional tax; that the sum did not represent any interest in any property which Isaac Sanger had at the time of his death, but was rightfully the property of Samuel Sanger by virtue of a contract between Isaac Sanger, Samuel Sanger, and others made four years before.

The tax was imposed pursuant to the provisions of the Revenue Act of 1916 (Act of September 8, 1916, 39 Stat. 756), which read as follows:

"Sec. 201. That a tax (hereinafter in this title referred to as the tax), equal to the following percentages of the value of the net estate, to be determined as provided in section two hundred and three, is hereby imposed upon the transfer of the net estate of every decedent dying after the passage of this Act, whether a resident or nonresident of the United States: Schedule of rates.

"Sec. 202. That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated: (a) To the extent of the interest therein of the decedent at the time of his death, which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate.

"Sec. 203. That for the purpose of the tax the value of the net estate shall be determined —

"(a) In the case of a resident, by deducting from the value of the gross estate —

"(1) Such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, and from theft, when such losses are not compensated for by insurance or otherwise, support during the settlement of the estate of those dependent upon the decedent, and such other charges against the estate, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered; and

"(2) An exemption of $50,000. * * *"

The tax is on the net estate. The net estate is arrived at by first ascertaining the gross estate. The gross estate is found by taking all decedent's property of every kind and then finding what decedent's interest therein was at his death.

This ascertainment of decedent's interest is accomplished by duly considering his own proposed distribution thereof and its subjections to charges against it and the expenses of administration.

The charges to be thus considered are in general form set forth in the statute, and one of them is a valid existing claim or right on the part of another against the decedent's estate. As to this the act in different words and as to taxation expresses the well-known phrase applied to distribution that a decedent "must be just before he is generous."

Before proceeding to a decision of the matter, the conceded facts should be briefly stated.

For many years prior to 1914 a partnership, consisting of Isaac Sanger, Alexander and Cornelia Sanger, under the name of Sanger Bros., had conducted business at Dallas, Tex. Samuel Sanger and another were likewise, during this time, conducting business, with equal shares, under the partnership name of Sanger Bros., at Waco, Tex. On or about ...