Homestake-Sapin Partners v. United States, 8527.

• Decision Date: 13 March 1967
• Docket Number: No. 8527.,8527.
• Citation: 375 F.2d 507
• Parties: HOMESTAKE-SAPIN PARTNERS, Appellant, v. UNITED STATES of America, Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

375 F.2d 507 (1967)

HOMESTAKE-SAPIN PARTNERS, Appellant, v. UNITED STATES of America, Appellee.

No. 8527.

United States Court of Appeals Tenth Circuit.

January 16, 1967.

Rehearing Denied March 13, 1967.

Harry L. Bigbee, Santa Fe, N. M. (G. Stanley Crout, Santa Fe, N. M., with him on brief), for appellant.

William Massar, Washington, D. C. (Richard C. Pugh, Lee A. Jackson, Harold C. Wilkenfeld, Washington, D. C., John F. Quinn, Jr., Ruth C. Streeter, Albuquerque, N. M., with him on brief), for appellee.

Before MURRAH, Chief Judge, and LEWIS and BREITENSTEIN, Circuit Judges.

MURRAH, Chief Judge.

This appeal presents the question whether the United States or Homestake-Sapin Partners is entitled to the proceeds of settlement of four civil actions brought by them as co-plaintiffs to recover taxes paid by Homestake under the New Mexico Emergency School Tax Act, 10 N.M.Stat.Anno.1953, §§ 72-16-1 to 72-16-47. The court granted summary judgment for the United States. For reasons hereinafter set forth, we think the court was clearly right.

A history of the litigation is essential to a proper understanding of our decision.

The Atomic Energy Commission contracted to buy uranium concentrate from several processors, among them Homestake-Sapin Partners and Homestake-New Mexico Partners.¹ The contracts covering the period in question, from approximately August 1, 1958, to April 1, 1962, all provided:

"1. Except as otherwise expressly provided herein the contract price is deemed to include all Federal, State and local taxes (including fees and changes), which would be payable in respect of this contract if no interest of the Federal Government were involved * * *.

"2. The Contractor agrees to credit toward payment of the contract price or to pay to the Commission the amount of any such Federal, State or local tax which, in consequence of a constitutional or statutory immunity or exemption under Federal, State, or local law based upon the direct or indirect relationship of the subject matter of this contract to the Atomic Energy Commission or the United States of America (hereinafter referred to as a `precluded tax\'), is either not paid or, if paid, is refunded, rebated, or credited for the benefit of the Contractor. * * *"

The contracts also gave the Commission the right to designate a "precluded tax", to direct the contractor to seek exemption from it, to direct that action be taken to preserve the right to a refund if exemption were refused, and to request the contractor to join with the Commission in a suit to recover such taxes for the benefit of the Commission. Finally, that part of the contract which became operative after April 1, 1962, gave the contractor the right to seek recovery for its own benefit of precluded taxes paid after that date. In other words, from and after April 1, 1962, the United States had no interest under the contract in so-called "precluded taxes".

New Mexico Emergency School Taxes were designated "precluded" and the contractors directed to pay them under protest. In June, 1960, six suits were brought in New Mexico federal court all seeking to recover precluded taxes paid through March, 1960; Homestake-Sapin was a co-plaintiff with the United States in one action, and Homestake-New Mexico co-plaintiff in a second. The suits invoked the tax provisions of the contracts and alleged that the taxes were unconstitutionally exacted because they discriminated against the United States and those with whom it deals and because they violated the intergovernmental immunity of the United States and its agencies from taxation by the states, and that the contractor was obligated to reimburse the Commission for any protested taxes which might be recovered. These six actions were dismissed for lack of jurisdiction on the ground, among others, that the United States was not a real party in interest. One of the six suits was appealed, apparently to test the jurisdictional question.² This court reversed holding that the United States was the real party in interest and remanded the case with directions to entertain suit. United States v. Bureau of Revenue of State of New Mexico, 10 Cir., 291 F.2d 677.³ Meanwhile, six similar actions were filed in New Mexico state court to recover taxes paid following the period embraced by the federal actions, i. e. April 1, 1960, to April 1, 1962. Again, Homestake-Sapin was co-plaintiff with the United States in one action and Homestake-New Mexico was co-plaintiff in the other. These six federal actions and six state actions will hereinafter be referred to as the twelve joint suits.

In June, 1962, Homestake filed a state court action to recover taxes paid after April 1, 1962 (this action was brought by Homestake alone and for its own benefit since, as previously noted, the United States had no claim under the contract for taxes paid after April 1, 1962; the asserted ground of invalidity was that the mining and processing tax discriminated against Homestake). This suit was never litigated; instead, the court entered judgment on the basis of a "Consent to Judgment" executed by Homestake and an "Admission of Facts" executed by the State. This judgment recited that the taxes in question were constitutionally levied, but that Homestake erroneously overpaid the privilege tax on mining and processing imposed by §§ 72-16-4.2, 72-16-4.3, when it paid on the basis of gross receipts from sales of ore and not on the basis of gross receipts attributable to mining and processing, i. e. the value added to the ore in place by performance of the mining and processing operations. The agreed judgment awarded Homestake a refund of 50% of the taxes involved in that suit.

After this judgment was entered, the six federal joint suits came on for trial pursuant to remand on stipulated facts before a specially constituted three judge court. The trial resulted in a second dismissal, United States v. Bureau of Revenue of State of New Mexico, D.C., 217 F.Supp. 849, on two grounds. First, the court reasoned that the only rights possessed by the United States were acquired by subrogation when it reimbursed Homestake for the taxes it had paid; it further reasoned that Homestake had no standing "* * * to challenge the tax and assert a right of refund on account of discrimination against the United States * * *"; therefore, the United States could not assert the unconstitutionality of the tax because Homestake had no standing to do so and the United States as subrogee could not rise above the rights of its subrogor.⁴ The second ground was that § 72-16-28 barred suit to recover any taxes paid more than four months before filing of the complaints (this apparently included the great majority of taxes involved in the six federal actions).

While the appeal of this decision was pending, the United States and New Mexico entered into settlement negotiations with respect to all twelve joint suits. A settlement of $1.25 million, or 47% of $2.6 million in taxes involved in the twelve joint suits was acceptable to both sides. However, Homestake refused to sign the documents necessary to consummate the proposed settlement because included was a document reciting that Homestake was entitled to no part of the settlement proceeds. Thereafter, Homestake and the United States made a separate agreement whereby they agreed to accept and consummate the proposed settlement, and to escrow the approximately $227,000 attributable to the four joint suits in which Homestake-Sapin or Homestake-New Mexico was a party pending determination of their respective rights to the settlement fund in this suit. The agreement specifically provided that "No plaintiff shall be deemed (by reason of having participated in the acceptance and consummation of any of said settlement offers or having entered into this stipulation) to have admitted or recognized that the plaintiff claiming adversely to it is entitled to any part of any settlement proceeds."

Pursuant to this agreement, the United States brought this suit against Homestake alleging the terms of the contract tax provisions, that it had designated the "precluded taxes" in question, that the only ground of invalidity alleged in the suits was the unconstitutionality of the taxes, and that the complaints in the four joint suits specifically alleged that Homestake was obligated to reimburse the United States for any such taxes refunded.

Homestake answered admitting all the allegations of the United States' complaint except that it denied that unconstitutional invalidity was the only ground alleged in the four joint suits to which it was a party. As to that, it affirmatively alleged that the settlement was not based on precluded tax claims, but instead on erroneously computed and overpaid claims to which it alone was entitled; that the taxes were not "precluded" within the meaning of the contract but were in fact nondiscriminatory and constitutional, i. e. constitutionally exacted but erroneously computed; that the United States owed and breached a fiducial obligation to recover the overpayments for the benefit of Homestake and was estopped to assert a claim to the escrowed fund. Homestake also counterclaimed alleging in substance the same claims made in its affirmative defenses.

Both sides submitted affidavits and documents to the court and moved for summary judgment. The court granted summary judgment in favor of the United States and awarded it the entire escrowed fund.

Homestake's first ground for reversal is based upon its first alleged defense, i. e. that the fund in suit represents a settlement of claims for taxes constitutionally exacted but erroneously computed and overpaid, not settlement of precluded tax claims. It points to the 1962 state court judgment which recited Homestake had overpaid its taxes and argues that New Mexico was ready to refund approximately 50% of the taxes involved in the twelve joint suits on the basis of the 1962 judgment; that the attorneys for the...