Estate of Watson v. Simon, 75 Civ. 1983.

• Court: United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
• Citation: 442 F. Supp. 1000
• Docket Number: No. 75 Civ. 1983.,75 Civ. 1983.
• Parties: ESTATE of Arthur K. WATSON, Ann Hemingway Watson, Helen W. Buckner, Ann C. H. Watson and Jane W. Watson, as Executrices of the Will of Arthur K. Watson, Deceased, Plaintiffs, v. William E. SIMON, as Secretary of the Treasury, and Hubert J. Hintgen, as Commissioner of the Bureau of Public Debt, Defendants.
• Decision Date: 28 October 1977

442 F. Supp. 1000

ESTATE of Arthur K. WATSON, Ann Hemingway Watson, Helen W. Buckner, Ann C. H. Watson and Jane W. Watson, as Executrices of the Will of Arthur K. Watson, Deceased, Plaintiffs,
v.
William E. SIMON, as Secretary of the Treasury, and Hubert J. Hintgen, as Commissioner of the Bureau of Public Debt, Defendants.

No. 75 Civ. 1983.

United States District Court, S. D. New York.

October 28, 1977.

442 F. Supp. 1001

John R. Hupper, Cravath, Swaine & Moore, New York City, for plaintiffs.

Naomi Reice Buchwald, Asst. U. S. Atty., Robert B. Fiske, Jr., U. S. Atty., New York City, for defendants.

OPINION

GRIESA, District Judge.

This is an action by the Estate of Arthur K. Watson and the executrices of the estate, who hold certain United States Treasury bonds. Plaintiffs have brought this action against the Secretary of the Treasury and the Commissioner of the Bureau of Public Debt, and request a judgment declaring that the bonds are entitled to be applied against the federal estate tax of Arthur K. Watson's estate, and directing that the bonds be redeemed and so applied.

Defendants move to dismiss the action under Fed.R.Civ.P. 12(b) on the grounds that the court lacks jurisdiction over the subject matter, and the complaint fails to state a claim upon which relief may be granted. Plaintiffs have moved for summary judgment in their favor under Rule 56(a).

Defendants' motion for dismissal is denied. Plaintiffs' motion for summary judgment is granted.

The facts are undisputed. On July 18, 1974 Mr. Watson suffered severe head injuries from a fall. He remained unconscious from the time of this incident until his death on July 26, 1974.

Some years earlier, Mr. Watson had given a power of attorney to his brother, Thomas J. Watson, Jr., and his lawyer, George J. Gillespie, III, empowering them, among other things, to buy and sell securities. This power of attorney was still in effect at the time of Mr. Watson's fall. Mr. Watson did not, of course, revoke the power of attorney following the fall, since he was unconscious.

On July 19 and July 22, 1974 the attorneys-in-fact purchased $8 million in United States Treasury bonds for Mr. Watson. These bonds are what are commonly called "flower bonds." They carry relatively low interest rates and trade well below par value. There is a market for these bonds that yields less than the yields of high coupon treasury bonds largely because, under the terms of their issuance, they may be redeemed at par for the payment of the owner's federal estate tax.

The offering circulars pursuant to which the various bonds were issued contained the following language or its equivalent:

"Any bonds issued hereunder which upon the death of the owner constitute part of his estate, will be redeemed at the option of the duly constituted representatives of the deceased owner's estate, at

442 F. Supp. 1002

par and accrued interest to date of payment, provided:

(a) that the bonds were actually owned by the decedent at the time of his death;

(b) that the Secretary of the

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