Findley v. Odland

• Court: U.S. Court of Appeals — Sixth Circuit
• Writing for the Court: HICKS, ALLEN and MARTIN, Circuit
• Citation: Findley v. Odland, 127 F.2d 948 (6th Cir. 1942)
• Decision Date: 14 May 1942
• Docket Number: No. 9074.,9074.
• Parties: FINDLEY, County Treasurer, et al. v. ODLAND.

127 F.2d 948 (1942)

FINDLEY, County Treasurer, et al. v. ODLAND.

No. 9074.

Circuit Court of Appeals, Sixth Circuit.

May 14, 1942.

C. C. Sedgwick, of Bellaire, Ohio (Ross Michener, of Bridgeport, Ohio, and A. G. Lancione, of Bellaire, Ohio, on the brief), for appellants.

T. J. Kremer, of Woodsfield, Ohio (Arthur L. Limbach, of New Philadelphia, Ohio, on the brief), for appellee.

Before HICKS, ALLEN and MARTIN, Circuit Judges.

ALLEN, Circuit Judge.

This appeal arises out of an action brought by the appellee as receiver of the First National Bank of Bethesda, Ohio, hereinafter called the Bethesda Bank, against the county treasurer, the county auditor and the county recorder of Belmont County, Ohio. The receiver prayed that certain taxes levied upon the capital stock of the Bethesda Bank and of the Belmont National Bank of Belmont, Ohio, hereinafter called the Belmont Bank, for the taxable years 1928, 1929 and 1930, and certain penalties listed and assessed against the banks, be declared illegal and void; that the county officials be enjoined from collecting or attempting to collect the same, and that an order issue to the auditor of Belmont County, Ohio, instructing him to issue a remitter for the taxes and penalties to the treasurer of Belmont County, Ohio.

Each of the banks had paid-in capital stock of $25,000, represented by 250 shares of $100 par value. In February, 1931, the Bethesda Bank acquired all of the assets of the Belmont Bank and assumed all of its liabilities, and in December, 1932, the Belmont Bank was declared insolvent and a receiver was appointed. Its affairs have been completely liquidated except for the question of taxes involved herein.

The taxes in question are laid under Title 12 U.S.C. Section 548, 12 U.S.C.A. § 548, which permits the several states to tax the shares of national banking associations located within their limits. The pertinent portion of the statute is that the several states may "(1) tax said shares, or (2) include dividends derived therefrom in the taxable income of an owner or holder thereof, or (3) tax such associations on their net income, or (4) according to or measured by their net income * * *." It is also provided that imposition by any state of any one of the above four forms of taxation shall be in lieu of the others. Section 548, par. 1(a). In accordance with this statute, the Ohio Legislature enacted Sections 5408, 5409, 5411, 5412, 5413, 5414, 5672 and 5673, General Code of Ohio, providing for the taxation of shares of banks located within the state, and covering both state and national bank stock. The controlling sections are 5672 and 5673, which read as follows:

"§ 5672. Taxes assessed on shares of stock, or the value thereof, of a bank or banking association, shall be a lien on such shares from the first Monday of May in each year until they are paid.

"It shall be the duty of every bank or banking association to collect the taxes due upon its shares of stock from the several owners of such shares, and to pay the same to the treasurer of the county, in which such bank or banking association is located, as other taxes are paid, and any bank or banking association failing to pay the said taxes as herein provided, shall be liable by way of penalty for the gross amount of the taxes due from all the owners of the shares of stock, and for an additional amount of one hundred dollars for every day of delay in the payment of said taxes."

"§ 5673. Such bank or banking association paying to the treasurer of the county in which it is located, the taxes assessed upon its shares, in the hands of its shareholders respectively, as provided in the next preceding section, may deduct the amount thereof from dividends that are due or thereafter become due on such shares, and shall have a lien upon the shares of stock and on all funds in its possession belonging to such shareholders, or which may at any time come into its possession, for reimbursement of the taxes so paid on account of the several shareholders, with legal interest; and such lien may be enforced in any appropriate manner."

Except for the payment of the first half of the taxes for 1928 by the Bethesda Bank, none of the taxes upon the shares of the respective banks were paid for the years in question and liens upon the real estate of the banks were accordingly perfected in accordance with Section 5694, General Code of Ohio, 114 Ohio Laws, 829. The value of the real estate standing of record in the names of the banks at the time of insolvency was $4,718.87. The real estate acquired by foreclosure and in closing the affairs of the banks amounted to $27,307.72. During each of the years 1928, 1929 and 1930, each of the banks had resources, in addition to the capital of $25,000, consisting of surplus in excess of sixty per cent of its capital and undivided profits, less reserve for current expenses, taxes and interest, in excess of the taxes appearing on the personal property tax duplicate for such years respectively, with respect to its shares. Each of the banks paid to its stockholders in each of the years 1928 and 1929, and the Bethesda Bank paid to its shareholders in each of the years 1930 and 1931, a dividend in excess of the amount of the taxes appearing on the personal property tax duplicate for such years respectively, with respect to its shares.

In this case the method of calculating the value of the shares for taxation is not questioned and we need not describe it in detail. But the method of listing the taxes is important. In each of the taxable years the taxes upon the shares were entered on the appropriate tax list and tax duplicate opposite the name of each bank. The names of the owners of the stock were not placed upon the tax books with respect to any tax upon their respective shares. This method of listing the taxes had been followed for a number of years during which each of the banks voluntarily paid the taxes and at no time asserted that they were invalid or irregular in any respect. After the taxes for the three years accrued and before they were entered upon the delinquent tax duplicate, each of the banks filed three separate actions in the state court, each action covering one tax-year period, seeking a permanent injunction against the county officials to prevent the collection of the taxes. In each of these cases filed in the state court a temporary restraining order was issued which continued in force until August 13, 1934, when each of the actions was dismissed without prejudice. Each of these petitions alleged that irregularity or infirmity did not exist with respect either to the method in which such shares of stock were assessed or to the manner in which the assessment thereof and the taxes due thereon were entered on the appropriate tax list or duplicate but that the taxes to which the original actions related respectively were invalid solely in that the shares were taxed at a greater rate than other money capital in the hands of individuals and competing financial institutions coming into substantial competition with the business of the bank and not representing merely personal investments.

Thereafter the then receiver of the Bethesda Bank filed an action in the state court on August 8, 1938, seeking authority to sell the real estate of the banks free from the tax liens and asking that "whatever claim or right said Belmont County may have against said banks by virtue of said taxes follow the proceeds derived from the sale of the said real estate in the hands of the receiver."

Hearing was had in this case and the court decreed that the tax lien against the real estate of the banks be cancelled and discharged; that the county officials be enjoined from asserting or attempting to assert a lien against the real estate of the banks; that the receiver be authorized to convey the real estate free from such tax liens and that whatever right or claim the county might have against the bank growing out of the taxes follow the proceeds of the sale of the real estate in the hands of the receiver. No appeal or error proceedings were prosecuted from this judgment.

In the instant case the appellee contends that the taxes are invalid and void. The appellants contend that the appellee is estopped from contesting the validity of the taxes by the institution of the various former proceedings in which validity of the assessment was admitted; that the District Court had no jurisdiction; that the taxes assessed are valid under Ohio and federal statutes, and that the liability for the taxes accruing prior to the insolvency is not altered by the insolvency of the banks.

The District Court held that no estoppel existed. It concluded that the taxes were illegal and invalid because they were certified to the recorder of the county with a ten per cent penalty as if they were assessments directly against the property of the bank and that therefore they were not levied or assessed under the authority of the federal or Ohio statutes. The court concluded that the agency of the banks to make collection of taxes upon their shares of stock under Sections 5672 and 5673, General Code of Ohio, terminated upon the insolvency of the bank; that collection of the taxes would result in direct taxation of the banks' assets, and was therefore illegal. The court set aside the liens, enjoined the county officials perpetually from collecting or attempting to collect the taxes and penalties, ordered the county auditor to issue the remitter prayed for, and ordered the county recorder to cancel and discharge the liens upon the records of the county.

Much argument has been expended by both parties on the question of the validity of the manner of listing the taxes and assessing the penalty against the banks. We do not regard it as of any independent legal significance that a ten per cent penalty for failure to pay the tax promptly was imposed against the banks. If the banks were properly charged with the payment of...