Farley v. United States, 423-72.

• Decision Date: 14 July 1978
• Docket Number: No. 423-72.,423-72.
• Parties: Edward I. FARLEY and George B. Young, as Executors of the Will of Marshall Field, Deceased, v. The UNITED STATES.
• Court: U.S. Claims Court

581 F.2d 821

Edward I. FARLEY and George B. Young, as Executors of the Will of Marshall Field, Deceased, v. The UNITED STATES.

No. 423-72.

United States Court of Claims.

July 14, 1978.

James B. Lewis, New York City, atty. of record, for plaintiffs; Ronald W. Meister and Paul, Weiss, Rifkind, Wharton & Garrison, New York City, of counsel.

Allan C. Lewis, Washington, D.C., with whom was Asst. Atty. Gen. M. Carr Ferguson, Washington, D.C., for defendant; Theodore D. Peyser, Jr., and Robert S. Watkins, Washington, D.C., of counsel.

Before DAVIS, NICHOLS and KASHIWA, Judges.

OPINION

PER CURIAM:

This case comes before the court, without oral argument, on plaintiffs' motion, filed April 19, 1978, requesting that the court adopt the recommended decision of Trial Judge Philip R. Miller, filed February 17, 1978, pursuant to Rule 134(h), as the basis for its judgment in this case, defendant having filed no intention to except thereto and the time for so filing pursuant to the Rules of the court having expired. The court agrees with the trial judge's ultimate conclusion, and sets forth hereinafter his entire opinion. However, in view of the disposition of the case, the court finds it necessary to consider only the two issues discussed in the second half of the opinion, i.e. whether under Illinois law the widow here had enforceable rights in the decedent's estate which were recognized by the settlement, and whether the settlement was motivated by considerations other than recognition of the widow's rights under Illinois law. On those issues the court agrees with the trial judge's opinion and adopts that portion of the opinion as the basis for its judgment in this case. In view of that disposition, it is unnecessary to pass upon the broader and more general issue discussed in the first half of the opinion and the court neither adopts nor rejects the trial judge's opinion on that question, but sets it forth as the trial judge's views. It is concluded, therefore, that plaintiffs are entitled to recover overpaid taxes and interest and judgment is entered for plaintiffs accordingly, with the amount thereof to be determined in further proceedings pursuant to Rule 131(c).^*

OPINION OF TRIAL JUDGE

MILLER, Trial Judge:

This is a suit for refund of federal estate tax. Plaintiffs are the executors of the Estate of Marshall Field IV, who died on September 18, 1965. The question presented is whether or not the sum of $500,000 paid by the decedent's estate to his widow in settlement of a dispute over the proper method of computation of her statutory share of the estate in lieu of dower qualifies for the estate tax marital deduction under section 2056 of the Internal Revenue Code.¹

At the time of his death, Mr. Field was married to Lynne Templeton Field, his third wife. He was 50 years of age; she was in her early or mid-twenties. They had been married only slightly over 1 year, and they were contemplating divorce. Mr. Field was also survived by six children, two by his first marriage, three by his second, and one by his third.

Decedent's will made no bequest or devise to his wife, although it did make provision for their infant child, Corinne. After several specific bequests, the residue of Mr. Field's estate, which represented the bulk thereof, was divided into six equal portions, one to be distributed to a trust for each of his six children.

The widow renounced decedent's will and claimed her renunciative share pursuant to the Illinois Probate Act (Ill.Ann.Stat. ch. 3, § 16 (Smith-Hurd 1961)), which provides:

When a will is renounced by the testator's surviving spouse * * *, whether or not the will contains any provision for the benefit of the surviving spouse, the surviving spouse is entitled to the following share of the testator's estate after payment of all just claims: one-third of the personal estate and one-third of each parcel of real estate if the testator leaves a descendant * * * Emphasis supplied.

A dispute arose between Mrs. Field and the executors as to the proper method of arriving at her one-third share. The executors reduced the decedent's gross estate by the amount of the federal estate tax and then assigned to her one-third of the remainder. Mrs. Field calculated her share as one-third of the estate prior to any reduction for federal estate tax. The difference between the two calculations is almost $4 million.

The executors' principal support for their position was the underlined portion of the Illinois statute and the decision of an Illinois intermediate appellate court in Northern Trust Co. v. Wilson, 344 Ill.App. 508, 101 N.E.2d 604 (1st Dist. 1951), leave to appeal denied, 410 Ill. 630 (1952). However, Mrs. Field's attorney, Brainerd Chapman, argued that since, because of the marital deduction, her share was not subject to federal estate tax, it should not bear any part of the burden of that tax. He contended that the Wilson case was distinguishable because Mr. Field's will, unlike Wilson's, contained a provision that taxes were to be paid out of the residue of the estate; and, therefore, the renunciative share not being a portion of the residue the decedent did not intend that such share should bear the tax burden. Mr. Chapman expressed the opinion that the Wilson decision could be overruled because: the issue had not been passed upon by the Supreme Court of Illinois; Wilson had been decided shortly after enactment of the federal estate tax marital deduction where there was yet little authority on the issue; and most of the appellate decisions in other states were in accord with the widow's position.

The dispute not having been resolved, in March 1968 Mrs. Field instituted an action in the Chancery Division of the Circuit Court of Cook County, Illinois (the Chancery Court), against the executors, the trustees of the residuary trusts and the six children who were beneficiaries to the trusts. The petition demanded a declaratory judgment that the widow was entitled to receive one-third of the decedent's estate before reducing the value of the estate by its obligation for federal estate taxes, an accounting for the property of the estate, a mandatory injunction, and other relief. In this action, Mr. Chapman associated with his firm one of the leading litigating law firms in Chicago, for the purpose of pursuing the matter to the Illinois Supreme Court if necessary. Such action, entitled Field v. Farley, was in litigation for 21 months, during which time it was contested in a fully adversary manner, with a great deal of work being done by both sides. On April 9, 1969, the Chancery Court granted the estate's motion to dismiss on the merits, relying on the authority of the Wilson case and on the absence of any intent by the decedent in his will to have his children bear the entire burden of the estate tax in favor of his widow, for whom he had made no provision at all. However, on May 8, 1969, Chancery Court granted leave to Mrs. Field to file a motion to vacate or to modify its ruling.

During the course of this litigation, a variety of views were expressed by the executors and their attorneys as to Mrs. Field's likelihood of success. David T. Washburn, a member of a New York law firm counseling the executors, advised that there was a substantial chance that Mrs. Field might prevail. Howard A. Seitz, a member of the same law firm, advised the executors that in the light of the Wilson decision Mrs. Field was unlikely to prevail, and that her suit was a nuisance case. The executors' Illinois counsel advised them that Mrs. Field had a better chance than Mr. Seitz believed although still not a very good chance. On the basis of such advice and his own independent evaluation as an attorney, executor George B. Young concluded that there was about one chance in three that the executors might lose the case. Mr. Edward I. Farley, the other executor, did not precisely calculate the possibilities of success but concluded that Mrs. Field's chance of overturning the Wilson case had to be reckoned with.

During the pendency of Field v. Farley, the executors and their attorneys held settlement discussions with Mr. Chapman, Mrs. Field's attorney. The settlement negotiations between the parties were conducted at arm's length. The executors were also trustees of the testamentary trust for the decedent's six children, only one of which was Mrs. Field's child, and they engaged in hard bargaining in order to retain as many as possible of the assets in the estate for the trusts rather than to have them go to Mrs. Field. There was also a considerable hostility between the decedent's two oldest children and Mrs. Field. They had vigorously opposed the marriage.

Initially, Mr. Chapman proposed a $2 million settlement based on a 50-50 evaluation of his client's chances to prevail. During the course of the litigation in Field v. Farley, both sides made offers and counteroffers. Finally, on January 29, 1969, there was a meeting of the minds between Chapman and the executors' attorneys. They agreed on a $500,000 payment in settlement of all issues. Despite the recommendations of the attorneys for the executors, initially the settlement was opposed by the decedent's two oldest children, Marshall Field V and Joanne Field Langdon, who had reached their majority. Finally, after the attorneys for the executors outlined all of the advantages of such a settlement to the estate, the trusts and the beneficiaries, Marshall V acquiesced. Then, after the trustees of the residuary trusts agreed to distribute $175,000 to Joanne from the trust for her benefit, Joanne agreed.

On October 22, 1969, the executors petitioned the Chancery Court for approval of the settlement, stating that the settlement was in the best interests of the estate and beneficiaries because (a) so long as the proceeding was not finally disposed of, the risk that plaintiff might prevail made it impossible to conclude the administration of the estate; (b) the cost to the...