Gillette Motor Transport, Inc. v. CIR, 17280.

• Decision Date: 01 April 1959
• Docket Number: No. 17280.,17280.
• Citation: 265 F.2d 648
• Parties: GILLETTE MOTOR TRANSPORT, INC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Fifth Circuit

265 F.2d 648 (1959)

GILLETTE MOTOR TRANSPORT, INC., Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 17280.

United States Court of Appeals Fifth Circuit.

April 1, 1959.

Joseph A. Maun, St. Paul, Minn., J. W. Bullion, Dallas, Tex. (Bundlie, Kelley & Maun, St. Paul, Minn., Thompson, Knight, Wright & Simmons, Dallas, Tex., on the brief), for petitioner.

Davis Morton, Jr., Melva M. Graney, Lee A. Jackson, Attys., Dept. of Justice, Charles K. Rice, Asst. Atty. Gen., Dept. of Justice, Charles Owen Johnson, Special Atty., Arch M. Cantrall, Chief Counsel, Int. Rev. Serv., Washington, D. C., for respondent.

Before HUTCHESON, Chief Judge, and CAMERON and BROWN, Circuit Judges.

JOHN R. BROWN, Circuit Judge.

This case presents the same question dealt with by the 8th Circuit in Midwest Motor Express v. Commissioner, 27 T.C. 167; 8 Cir., 1958, 251 F.2d 405, certiorari denied 358 U.S. 875, 79 S.Ct. 116, 3 L.Ed.2d 105. The problem is whether the amount received as a Fifth Amendment award of just compensation was from involuntary conversion of property under Section 117(j) of the Internal Revenue Code of 1939, 26 U.S. C.A. § 117(j). The facts, stipulated there and here, are substantially the same, but with great deference to that distinguished Court, we reach the opposite conclusion.

The case, as is so often the situation with tax matters, is hardly one of contemporary history. What is at stake here is compensation to Gillette for commandeering its motor truck business in 1944-1945. After the lines were turned back by the government in 1945, the owners sought to negotiate Fifth Amendment just compensation. The efforts were unavailing. One operator sought and obtained a Court of Claims judgment. Wheelock Bros., Inc. v. United States, 1950, 88 F.Supp. 278, 115 Ct.Cl. 733; vacated for jurisdictional reasons, 1951, 341 U.S. 319, 71 S.Ct. 730, 95 L.Ed. 966. Because the Government took the position that each of the more than 100 cases would have to be separately litigated through the Court of Claims, the trucking interests sought the intervention of Congress. Congress passed the Motor Carriers Claims Commission Act. Act of July 2, 1948, Chapter 808, 62 Stat. 1222, 49 U.S.C.A. § 305 note. It was agreed substantially that the R-B Freight Lines claim would be tried by both sides as a test case to "establish the pattern for disposition of the cases to follow." The Claims Commission decided the R-B Freight Lines case and pursuant to the Act the Government sought certiorari direct from the Supreme Court. This was denied, United States v. R-B Freight Lines, 1952, 342 U.S. 933, 72 S.Ct. 376, 96 L.Ed. 695. The agreed stipulation here reflects categorically that this test case "understanding * * was not followed. The Department of Justice refused to go along with the R-B Freight Lines decision as a basis for settlement or disposition of the other claims because it desired to present to the Motor Carrier Claims Commission new and additional evidence bearing upon matters which it had considered unimportant; and because it desired to reiterate and further express the arguments previously advanced." The Carriers then proceeded to submit to the Claims Commission nine cases including Gillette's. The stipulation further shows that with ten down and about eighty-four more claims to go, it "* * * appeared that there would be substantial delays in the processing of all of the remaining cases * * * as long as the Government reserved its right to process each case separately and use up the full six months' period under which it had the technical right to file further petitions for certiorari." Faced with this situation "the carriers, including Gillette, were in need of money and as a result, in 1952, authorized" their representative to make an agreement "under which the measure of compensation determined under the R-B Freight Lines principles would be reduced." Such agreement was made reducing the so-called rental value by approximately one-third.

The order and opinion of the Motor Carriers Claims Commission in Gillette's case which is part of the stipulated facts reflects that in that proceeding "the Government contended that such `interference' as petitioner may have encountered from Government action did not amount to a taking of its property but merely to regulation." At another point it was stated "The respondent Government contends that, if anything was taken, the taking was of something far short of possession, occupancy, use, enjoyment, and managerial discretion."

These contentions were categorically rejected by the Claims Commission in its order and opinion of March 31, 1952. "* * * The petitioner's transportation system and all its property used or useful in the operation of such system were taken for public use by * * * the United States, and were thereafter possessed, controlled and used by Government until * * * June 16, 1945." Concerning the argument that the "interference" was mere regulation, the Commission said, "To place any such construction on the acts done by the Federal Manager would be to belie the statements contained in the Executive Order * * Possession and control having been once taken, all things done by the Federal Manager were done by him as the representative of the United States charged with maintaining for the United States its possession and control." Again it was stated, "In our opinion, however, the Executive Order and the Notice and Order of Possession and control leave no room for doubt as to what the Government took. Both documents call for the taking of possession and assumption of control of petitioner's motor carrier transportation system `including all real and personal property and other assets, wherever situated, used or useful in connection with the operation of such system.' * * * We are concerned with what petitioner was deprived of. We find that petitioner was deprived of its property and of the right to determine what use should be made of it. * * *."

Now, seven years later, the Government is again contending that there was no taking of property. In the context of this income tax case, the Government contends that what Gillette received as Fifth Amendment just compensation was not for the taking of its property, but merely for its use.

We agree with the 8th Circuit that the problem may not be disposed of as one of res judicata, 251 F.2d 405, 411. But we do not so readily put to one side, as that Court seems to do, the findings of the Claims Commission. What was taken and how it was taken was the subject of that inquiry and decision. The payments received which are here the subject of the income tax claim as income or as capital gains came into being from that Award. As the Motor Carriers Claims Commission it did not, of course, have statutory authority to determine tax matters or consequences. But as to a claim submitted to it, it had exclusive jurisdiction to determine whether there was a taking, what was taken, and what "just compensation" was required. See United States v. Wheelock Bros., Inc., 1951, 341 U.S. 319, 71 S.Ct. 730, 95 L.Ed. 966.

Despite the disavowal in its brief that "We do not have any quarrel with taxpayer's argument that the facts show a `taking' of `property' within the meaning of the Fifth Amendment," the effect of the Government's argument is to once again challenge the basic nature of this seizure of a truck line and its property. It is substantially the same contention in a different garb. The contention briefly is that as title was not taken over and the truck equipment was commandeered only temporarily and thereafter returned ten months later, it is obvious that the Government did not take any property, and all it got was the use of it. Continuing to the next step, the Government says that since the use of property is not a depreciable item, the involuntary governmental seizure does not qualify under Section 117(j) because there was no conversion of any "property used in the trade or business."¹

So far as we are able to grasp the metaphysical dialectic which the Government's brief advances, it is the contention that conversion² of property under Section 117(j) arises only when full title is acquired or taken.³

When we bear in mind that "the tax law deals in economic realities, not legal abstractions," Commissioner of Internal Revenue v. Southwest Exploration Co., 1956, 350 U.S. 308, at page 315, 76 S.Ct. 395, at page 399, 100 L.Ed. 347, 354, we think there can be no basis for these gossamer distinctions. They ignore the nature of the actual taking here as found authoritatively by the Claims Commission. They ignore the nature of seizure or condemnation by the Government. And they ignore the language of Section 117(j) which expressly expands relief beyond "sales or exchanges."

We are here concerned with the "compulsory or involuntary conversion * * * as a result of * * * seizure, or an exercise of the power of requisition or condemnation * * *." § 117(j)(2). The idea of a peremptory commandeering of property by a sovereign is expressed in terms of a seizure, a requisition or a condemnation. As the sovereign was here the United States, it is positively established that the constitutional obligation of just compensation has little, if anything, to do with title. "Broadly speaking, the United States may take property pursuant to its power of eminent domain in one of two ways: it can enter into physical possession of property without authority of a court order; or it can institute condemnation proceedings under various Acts of Congress providing authority for such takings. Under the first method — physical seizure — no condemnation proceedings are instituted, and the property owner is provided a remedy under the Tucker Act * * * to recover just compensation." United States v. Dow, 1958, 357 U.S. 17, 21, 78 S.Ct. 1039, 1044, 2 L.Ed.2d 1109, 1114. Taking possession of the property is the "event which gives rise to the claim for compensation * *...