Duke Laboratories, Inc. v. United States

Decision Date01 July 1963
Docket NumberCiv. No. 9332.
Citation222 F. Supp. 400
PartiesDUKE LABORATORIES, INC., Plaintiff, v. UNITED STATES of America, Defendant.
CourtU.S. District Court — District of Connecticut



Walter Maguire, John N. Cole and Peter Bentley, of Maguire, Cole & Bentley, Stamford, Conn., for plaintiff.

Herman Wilson and John Hammerman, Attys., Tax Div., Dept. of Justice, Washington, D. C., and Robert C. Zampano, U. S. Atty., New Haven, Conn., for defendant.

TIMBERS, District Judge.

Defendant has made a timely motion, pursuant to Rule 50(b), Fed.R.Civ.P., to set aside the jury verdict in the form of answers to special questions and the judgment in favor of plaintiff entered thereon; for entry of judgment in favor of defendant in accordance with defendant's motion for a directed verdict; or, in the alternative, for a new trial.

Plaintiff brought this action, pursuant to 28 U.S.C. § 1346(a) (1), to recover $478,040.71 of accumulated earnings taxes claimed to have been erroneously assessed and collected for the years 1956, 1957, 1958 and 1959.

After an eight day trial, the jury returned a verdict1 in the form of answers to special questions, attached hereto as an Appendix. The jury found for each of the four years involved (i) that plaintiff had permitted its earnings or profits to accumulate beyond the reasonable needs of its business, but (ii) that plaintiff had not made such accumulations for the purpose of avoiding the surtax on plaintiff's stockholders.

Pursuant to a stipulation entered into between counsel, prior to submission of the case to the jury, for the entry of judgment depending upon the jury's answers to the special questions submitted, a judgment has been entered in favor of plaintiff in amount of $475,133.35 plus interest thereon according to law.2

Defendant's motion raises issues with respect to the correctness of the Court's denial of defendant's motion for a directed verdict; the sufficiency of the evidence to support the jury's answers to the second special question; and the correctness of the Court's charge to the jury on the second special question. Specifically, with respect to the charge, defendant claims "that the jury was improperly instructed that the proscribed purpose must be the purpose of the accumulations."3

The Court denies defendant's motion. An order has been entered accordingly.

The reasons for denying the motion are reflected in the annotations to the charge hereinafter set forth, it being the belief of the Court that the portions of the charge challenged by defendant can best be evaluated in the context of the charge as a whole and in the light of the authorities upon which the Court relied.

The Court's charge to the jury, annotated to indicate the authorities relied upon, was as follows.4


THE COURT: Ladies and gentlemen, we have now reached the point in this trial when it becomes our joint function — the function of the jury and the function of the Court — to perform our respective duties. It is the function of the Court to instruct you to the best of its ability with respect to the law applicable to this case. You members of the jury are the sole and exclusive judges of the facts. You will apply the law, which the Court gives you, to the facts as you find them. You then will render a verdict by a unanimous vote.


In this action, plaintiff Duke Laboratories, Incorporated — from this point on I will refer to it as the plaintiff — is suing to recover accumulated earnings taxes paid under protest to the United States Government — hereafter referred to as the defendant — for the tax years, which are also the calendar years in this instance, 1956, 1957, 1958 and 1959.

The case arose as follows: Plaintiff paid the regular corporate income tax upon its earnings in the four tax years involved at the maximum rate of fifty-two per cent. Defendant caused an audit to be made of plaintiff's tax returns for these four years, which was the defendant's right, to audit the returns. As a result of the audit, defendant determined that plaintiff had allowed its earnings during these four years to accumulate beyond the reasonable needs of its business. Defendant accordingly assessed the accumulated earnings tax provided by the statute. This resulted in the assessment of taxes and interest, in addition to the regular corporate income tax theretofore paid, against plaintiff in the following amounts for the four years in question. These are the four amounts applicable to each of the tax years involved, not with interest. These are the amounts of principal tax claimed to be due, accumulated earnings tax claimed by the Government to be due from the plaintiff:

                         1956 — $129,021.56
                         1957 — $125,257.35
                         1958 — $104,877.71
                         1959 — $118,884.09

These amounts, totaling, if my arithmetic is correct, $478,040.71, were paid by plaintiff under protest. Plaintiff has brought this action, as provided by law, to recover this amount, plus interest.

The regular corporate income tax which plaintiff paid upon its earnings at the maximum rate of fifty-two per cent for each of the tax years involved, is not involved in this action. What is involved, and the only tax that is involved, is an additional tax known as the accumulated earnings tax, which was assessed because defendant claimed that profits or earnings of plaintiff were accumulated instead of being distributed as dividends to the stockholders, for each of the tax years involved, and the defendant claims that this was done for the purpose of avoiding the income tax of the shareholders on these dividends, had they been declared.

I might say parenthetically, that not only is the jury not concerned in any way with the regular corporate income tax of Duke Laboratories, which has been paid for the four years involved, reflected in tax returns which are in evidence, but the jury also is in no way concerned with whether or not the tax of Mr. Herzog individually for those years has been paid. In fact, it is undisputed, and the record is clear that his returns were filed in time, and his taxes were paid in full. You are in no way concerned with either the personal income tax of Mr. Herzog for that period of those four years, or with the regular corporate income tax of the plaintiff corporation.

This action is brought against the United States because the taxes sought to be recovered were paid by the taxpayer — that is, by the corporation — to the Treasury Department, an agency of the United States. The plaintiff as a private corporation is a taxpayer. In bringing this suit for a refund, the plaintiff is exercising its right as a taxpayer. The fact that the plaintiff is a corporation, and that the defendant is the United States, makes no difference whatsoever in this action. It is simply a civil action between two parties, as I have indicated. Those two parties, the plaintiff, Duke Laboratories, and the defendant, the United States, are equal before the law. Each should be given the same fair and equal treatment by you.

Before taking up the statute which we have here involved and a rather detailed analysis for you ladies and gentlemen of the principles of law which you should apply in answering the two basic questions which will be submitted to you and which are substantially the two that I mentioned to you at the outset of this trial — before getting to those matters, which I think Mr. Wilson quite correctly characterized yesterday in his argument to you as the tax law part of the case — I am going to take up first what Mr. Wilson characterized as the non-tax law aspects of the case. That is, the general rules of evidence which govern. First a brief statement of what the evidence is, what it consists of here, the matter of burden of proof, to what extent you may take into account circumstantial evidence, and how you go about determining issues of credibility. I am going to take up those matters and then I will follow that with instructions to you as to the applicable statute and the rules of law which govern, which I hope will help you in reaching a verdict.


What is evidence? The evidence in the case consists first of the sworn testimony of the witnesses. I believe there were four witnesses on the stand: Dr. Herzog; Mr. North; Mr. Hesse, the bookkeeper of Duke Laboratories, who was made available to identify books; and Mr. Logan, who, I believe, was the Internal Revenue Service agent yesterday. They were the four witnesses who testified. The evidence also includes any depositions or portions of depositions which were read to you or in any way used by counsel on either side. The evidence includes all exhibits, all of which will be with you in the jury room when you begin your deliberations; that is, all exhibits which have been received as full exhibits in evidence. Plus any stipulations of fact which have been entered into between the lawyers in your presence, and which have been brought to your attention.

Any evidence as to which an objection was sustained by the Court, and any evidence ordered stricken by the Court, must be entirely disregarded by you.

Statements and arguments of counsel are not evidence in the case, unless made as an admission or stipulation of fact.


In this case the burden of proof on all issues is on the plaintiff, that is, Duke Laboratories, Incorporated. And that burden of proof never shifts. It remains with the plaintiff throughout the case and throughout your deliberations until you reach a verdict. The burden in this civil case, as in any civil case, is on the plaintiff to establish each essential element of its case by a preponderance of the evidence. What do we mean by a preponderance of the evidence? To establish by a preponderance of the evidence means very simply to prove that something...

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  • Bryant v. Thomas
    • United States
    • U.S. District Court — Southern District of New York
    • August 3, 2017
    ...understood than either of them in relation to the intermediate standard of clear and convincing evidence."); Duke Laboratories v. United States, 222 F.Supp. 400, 406 (D.Conn. 1963) ("To establish by a preponderance of the evidence means very simply to prove that something is more likely tha......
  • Floyd v. City of N.Y.
    • United States
    • U.S. District Court — Southern District of New York
    • August 12, 2013
    ...preponderance of the evidence means very simply to prove that something is more likely than not so.” Duke Labs., Inc. v. United States, 222 F.Supp. 400, 406 (D.Conn.1963), aff'd,337 F.2d 280 (2d Cir.1964). 102. “In an action tried on the facts without a jury ..., the court must find the fac......
  • J.H. Rutter Rex Mfg. Co., Inc. v. C.I.R.
    • United States
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    • September 7, 1988
    ...for accumulation of funds, if made in good faith, will not render that accumulation unreasonable. Duke Laboratories, Inc. v. United States, 222 F.Supp. 400, 414 (D.Conn.1963), aff'd, 337 F.2d 280 (2nd Cir.1964); Treas.Reg. Sec. 1.537-1(b)(2). Nor does the actual occurrence of the contingenc......
  • Shaw-Walker Company v. CIR
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    • February 13, 1968
    ...of large public corporations." Bremerton Sun Publishing Co. v. C. I. R., 44 T.C. 566 at 584-585. Cf. Duke Laboratories, Inc. v. United States, 222 F.Supp. 400, 412 (D.Conn.), aff'd 337 F.2d 280 (2d In essence the Tax Court, although referring to the standards set out in Smoot, disregarded t......
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