O'Gilvie v. U.S.
| Citation | 66 F.3d 1550 |
| Decision Date | 19 September 1995 |
| Docket Number | Nos. 94-3004,94-3031 and 94-3058,s. 94-3004 |
| Parties | -6752, 95-2 USTC P 50,508 Kelly M. O'GILVIE, Plaintiff-Appellant/Cross-Appellee, v. UNITED STATES of America, Defendant-Appellee/Cross-Appellant. UNITED STATES of America, Plaintiff-Appellant, v. Kevin M. O'GILVIE, Stephanie L. O'Gilvie, Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (10th Circuit) |
Kenneth W. Rosenberg, Tax Division (Loretta C. Argrett, Assistant Attorney General, and Kenneth L. Greene, Tax Division, of counsel: Randall K. Rathbun, United States Attorney, with him on the briefs), Department of Justice, Washington, DC, for U.S.
Linda D. King of Wilkinson & King, Wichita, KS, for O'Gilvies.
Before MOORE and LOGAN, Circuit Judges, and DAUGHERTY, District Judge. *
The substantive issue raised in these consolidated appeals is whether punitive damages recovered in a case involving physical injury are excluded from gross income under Sec. 104(a)(2) of the Internal Revenue Code (I.R.C.), 26 U.S.C. Sec. 104(a)(2), a question which has split the circuits four to one. 1 We must also decide three threshold questions relating to our appellate jurisdiction.
The punitive damages that are the subject of these appeals were awarded in a products liability action filed after Betty O'Gilvie died of toxic shock syndrome. Her widower, Kelly M. O'Gilvie, acting as administrator of her estate and as guardian of their minor children, Kevin M. O'Gilvie and Stephanie L. O'Gilvie, brought suit against International Playtex, Inc., which manufactured the tampons used by Betty O'Gilvie. The jury awarded actual damages of $1,525,000 and punitive damages of $10,000,000. See O'Gilvie v. International Playtex, Inc., 609 F.Supp. 817, 818 (D.Kan.1985), aff'd in part and rev'd in part, 821 F.2d 1438 (10th Cir.1987), cert. denied, 486 U.S. 1032, 108 S.Ct. 2014, 100 L.Ed.2d 601 (1988). The district court ordered a remittitur of the punitive award to $1,350,000, 609 F.Supp. at 819-20, but on appeal this court ordered reinstatement of the full punitive award, 821 F.2d at 1448-49.
In 1988, the O'Gilvie estate distributed the net proceeds of the punitive damages award to the beneficiaries, the taxpayers here. After attorney's fees and expenses the net proceeds were $4,967,292. Each of the three taxpayers reported their share of the punitive damages on their individual federal income tax returns for the 1988 tax year in the following amounts:
Kelly M. O'Gilvie $2,483,646
Kevin M. O'Gilvie $1,241,823
Stephanie L. O'Gilvie $1,241,823
In August 1989, taxpayer Kelly M. O'Gilvie filed a claim for refund with respect to his 1988 income taxes, asserting that punitive damages were excluded from gross income under I.R.C. Sec. 104(a)(2) as damages received "on account of personal injury." 2 When the Internal Revenue Service took no action on his refund claim he filed suit against the United States to recover the refund plus interest. He later filed an amended complaint in his suit, adding a claim for the refund of taxes paid on interest on the portion of the punitive damages award that was the subject of the remittitur. 3 The parties filed cross-motions for summary judgment, each asserting there was no genuine issue of material fact and that the taxability of punitive damages could be decided as a matter of law.
In November 1989, taxpayers Kevin M. O'Gilvie and Stephanie L. O'Gilvie filed claims for refunds asserting the punitives were excludable from income. 4 The IRS approved, and after submitting them to Congress as required for large refunds by I.R.C. Sec. 6405, processed the refunds. Kevin and Stephanie received refund checks in July 1990. Two years later, however, the IRS filed an action against each of them for recovery of an erroneous refund under I.R.C. Sec. 7405, asserting the punitive damages award was taxable. The parties in that case agreed to be bound by the decision in Kelly O'Gilvie's refund suit.
On May 26, 1992, the district court issued a memorandum and order in the refund suit, finding that the punitive damages were taxable. Kelly O'Gilvie moved for reconsideration of the district court's opinion, and on August 26, 1992, the district court reversed itself and entered a judgment holding that punitive damages were excludable from gross income under Sec. 104(a)(2). On October 26, 1992, the United States filed a notice of appeal to our court from the August 26 judgment.
On November 11, Kelly O'Gilvie filed a motion for summary judgment asserting that the interest on the portion of the punitive damages award that was the subject of the remittitur was excludable from income under Sec. 104(a)(2) as a matter of law. The United States opposed that motion, arguing that the interest was taxable and requesting summary judgment in its favor. Because of the remaining issue concerning taxability of the interest, on October 27, 1992, the district court entered an order withdrawing the August 26 judgment. 5 On November 30, 1993, the district court issued a memorandum and order finding that the interest during the interim period was taxable, and granted the government summary judgment on that issue. On December 7, 1993, the district court entered an amended order stating:
IT IS ORDERED AND ADJUDGED that pursuant to the Memorandum and Order filed and docketed on the 26th day of August, 1992, the motion for reconsideration filed by the plaintiff is granted and his motion for summary judgment is also granted; IT IS FURTHER ORDERED that pursuant to the Memorandum and Order filed and docketed on the 30th day of November, 1993, the motion for summary judgment filed by the defendant is granted and the Court holds that the "additional Amount" on $8.65 million from the date of the district court's entry of remittitur to the district court's entry of judgment in accordance with the Tenth Circuit's mandate was interest and is taxable as income.
On January 5, 1994, Kelly O'Gilvie filed a timely notice of appeal (No. 94-3004). On February 1, 1994, the government filed its cross-appeal (No. 94-3031). 6
Taxpayer Kelly O'Gilvie argues that we do not have subject matter jurisdiction over the government's cross-appeal in No. 94-3031 because the notice of appeal was not timely. Taxpayers Kevin and Stephanie O'Gilvie assert that we lack jurisdiction over the government's appeal in No. 94-3058 because the government's suit against them for erroneous refund was untimely and because federal courts do not have jurisdiction to review refunds that have been approved by the Joint Committee on Taxation under I.R.C. Sec. 6405. We address these issues in turn.
When the United States is a party in a civil case, "the notice of appeal may be filed by any party within 60 days" after the date of entry of the judgment or order appealed from. Fed.R.App.P. 4(a)(1). The United States filed its notice of appeal more than sixty days after the district court entered its judgment of November 30, 1993, but less than sixty days after entry of the amended judgment of December 7, 1983. Thus, if the November 30 judgment was final and appealable the government's appeal was not timely; on the other hand, if the amended judgment of December 7 was the final and appealable order the government's appeal was timely.
Taxpayer Kelly O'Gilvie asserts that the amended judgment of December 7 merely corrected a clerical error in the first judgment under Fed.R.Civ.P. 60(a), and thus the time to appeal ran from November 30, 1993. See White v. Westrick, 921 F.2d 784 (8th Cir.1990). However, a careful reading of all of the memoranda, orders, and "judgments" entered in this case indicates that the October 27 order withdrew the August 26 judgment on the punitives issue. Thus the district court did not enter judgment on the punitive damages issue until December 7. The government's cross-appeal is timely.
Taxpayers Kevin O'Gilvie and Stephanie O'Gilvie argue that the government's complaint seeking recovery of refunds made to them was time-barred. "Recovery of an erroneous refund by suit under section 7405 shall be allowed only if such suit is begun within 2 years after the making of such refund." I.R.C. Sec. 6532(b). The complaint filed on July 9, 1992, alleged that the IRS refunded the taxes at issue on July 9, 1990. Taxpayers admit that they received the refund checks in the mail on July 9, 1990, but argue that a refund is made for purposes of Sec. 6532(b) when the check is mailed, rather than when it is received. Taxpayers assert that because the checks had to have been mailed before July 9, 1990, the suit was filed more than two years after the refund was made. The question thus is whether a refund is "made" under Sec. 6532(b) when the check is mailed or when it is received.
Taxpayers cite United States v. Steel Furniture Co., 74 F.2d 744 (6th Cir.1935), for their assertion that Sec. 6532(b) must be construed liberally in their favor. That case, however, construed the scope of the predecessor of Sec. 7405, which was not a statute of limitations provision. In interpreting the predecessor to the statutory limitations provision in Sec. 6532(b) the Supreme Court stated that "[t]he Government's right to recover funds, from a person who received them by mistake and without right, is not barred unless Congress has 'clearly manifested its intention' to raise a statutory barrier." United States v. Wurts, 303 U.S. 414, 416, 58 S.Ct. 637, 638, 82 L.Ed. 932 (1938). Further, generally statutes of limitations sought to be applied against the government are strictly construed in favor of the government. See, e.g., Badaracco v. Commissioner, 464 U.S. 386, 391, 104 S.Ct. 756, 760-61, 78 L.Ed.2d 549 (1984).
Although we have not addressed the precise question whether a refund is "made" under the current Sec. 6532(b) when the check is mailed or when it is received, in Paulson v. United States, 78...
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