In re Kroger's Estate

• Citation: 145 F.2d 901
• Decision Date: 04 December 1944
• Docket Number: No. 9793.,9793.
• Parties: In re KROGER'S ESTATE. KROGER et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Sixth Circuit

145 F.2d 901 (1944)

In re KROGER'S ESTATE.

KROGER et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 9793.

Circuit Court of Appeals, Sixth Circuit.

December 4, 1944.

Elden McFarland, of Boston, Mass., and C. Chester Guy, of Washington, D. C. (Ike Lanier, of Cincinnati, Ohio, John E. Marshall, of Washington, D. C., and Edward J. Quinn, of Chicago, Ill., on the brief), for petitioners.

Carlton Fox, of Washington, D. C. (Samuel O. Clark, Jr., Sewall Key, and Helen R. Carloss, all of Washington, D. C., on the brief), for respondent.

Before HICKS, HAMILTON, and MARTIN, Circuit Judges.

MARTIN, Circuit Judge.

The Tax Court decided that there is an $8,647,700.89 deficiency in the estate tax due from appellants as executors of the will of the decedent, B. H. Kroger. The decision of the Tax Court was grounded upon its finding that the creation by the decedent of two trusts by indenture of February 13, 1928, and the contemporaneous transfer by him of Treasury notes of $12,000,000 face value, to the nominated trustees were for the purpose of barring the lady whom he was about to marry from any statutory rights as his wife in the transferred property should she survive him, and were made in contemplation of death.

The pertinent statute applied by the Tax Court is Sec. 302(c) of the Revenue Act of 1926, 26 U.S.C.A. Int.Rev.Code, § 811 (c) which provides:

"The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated

* * * * * * *

"(c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, * * * except in case of a bona fide sale for an adequate and full consideration in money or money's worth."

In McGrew's Estate v. Commissioner of Internal Revenue, 6 Cir., 135 F.2d 158, 160, we pointed to the holding of the Supreme Court in Colorado Nat. Bank v. Commissioner of Internal Revenue, 305 U. S. 23, 59 S.Ct. 48, 83 L.Ed. 20, that the decision of the Board of Tax Appeals (now the Tax Court) as to whether a transfer was made in contemplation of death is a question of fact upon which the decision of the Board, if supported by substantial evidence, is conclusive. In demonstrating the limited power of Circuit Courts of Appeal upon review of issues of fact in tax cases, we quoted (135 F.2d pages 160, 161) from Wilmington Trust Co. v. Helvering, 316 U.S. 164, 168, 62 S.Ct. 984, 986, 86 L.Ed. 1352, as follows: "It is the function of the Board, not the Circuit Court of Appeals, to weigh the evidence, to draw inferences from the facts, and to choose between conflicting inferences. The court may not substitute its view of the facts for that of the Board. Where the findings of the Board are supported by substantial evidence they are conclusive. Citing cases. Under the statute the court may modify or reverse the decision of the Board only if it is `not in accordance with law.'" See 44 Stat. 110, Sec. 1003(b), 26 U.S.C.A. Int.Rev.Code, § 1141(c) (1).

We listed other decisions of the Supreme Court to the same effect and referred to our case of Crowell v. Commissioner, 6 Cir., 62 F.2d 51, 53. To these authorities should now be added another from the highest source prescribing even more sweeping inhibitions upon the Circuit Courts of Appeal in reviewing the Tax Court. See Dobson v. Commissioner of Internal Revenue, 320 U.S. 489, 502, 64 S.Ct. 239, rehearing denied, 321 U.S. 231, 64 S.Ct. 495, where the mandate was given that "when the court cannot separate the elements of a decision so as to identify a clear-cut mistake of law the decision of the Tax Court must stand."

With these legal principles in mind and with the understanding that whether a gift inter vivos was made in contemplation of death within the meaning of a Revenue Act depends upon the dominant motive of the donor in the light of the circumstances of the case, United States v. Wells, 283 U.S. 102, 51 S.Ct. 446, 75 L.Ed. 867, we consider the insistence of appellants that the decision of the Tax Court should be reversed and the case remanded with instructions to redetermine the deficiency by excluding from the gross estate the value of the property transferred to the two trusts established by the instruments of February 13, 1928.

Appellants urge that there is no substantial evidence in the record to support the Tax Court's finding that the transfers in trust were made in contemplation of death; and assert that, on the contrary, the transfers were made by the decedent in contemplation of and in preparation for his marriage and were not and could not have been substitutes for testamentary disposition.

A biography of B. H. Kroger, whose vigorous life spanned from early in 1860 to midsummer in 1938, would doubtless stimulate any American youth ambitious to become a merchant-prince. The open sesame to Kroger's great wealth was the merchandising of food. At an early age, he engaged in the grocery business in his native city, Cincinnati, Ohio. Steadily growing and prosperous, the business was incorporated in 1902 under the name of Kroger Grocery & Baking Co., which became forthwith owner and operator of 30 stores. A quarter-century later, this company was operating 6,000 stores. Throughout this full period, Kroger had been the principal stockholder and the president of the company.

Upon completion of 25 years' successful operation of the company, Kroger received in late 1927 an offer for his stockholdings at a price which he considered so much in excess of its intrinsic value that he "could not afford to refuse it." So, in January, 1928, he sold his stock for $24,397,000 cash, and invested this sum largely in United States government securities.

While accumulating a fortune from the successful conduct of the grocery business, Kroger became interested in banking also, first as a substantial stockholder and director of the Provident Savings Bank & Trust Co., Cincinnati, Ohio, and in 1901 as president of that institution. In 1926 he was appointed a director of the Federal Reserve Bank of Cincinnati and served in that capacity until 1936. After selling his stock in the Kroger Grocery & Baking Co., he resigned as its president and also as president of the bank, but retained his official capacity as Chairman of the Board in both institutions.

Even during his active career, this dynamic business man was no slave to his desk. He took time out for exercise and recreation and kept himself physically fit, playing for some twenty years in a regular foursome 18 holes of golf almost daily over the hilly course of the Cincinnati Country Club. With pardonable pride, a one-time Treasurer of the United States testified that while Mr. Kroger took his game seriously, he was "only a fair golfer" and that the Treasurer — if not the Treasury — "could generally trim him out of a few dollars."

Nor were long vacations neglected. Beginning in 1920, Kroger went to Florida every winter — generally leaving Cincinnati after the November elections and sojourning in the fair land of flowers through April. He acquired a winter home in Palm Beach. His habits on Florida vacations, as described by his son, were to arise early and start playing his "inveterate" golf between half past eight and nine in the morning. After his golf game, followed a sun bath and swim, then a home luncheon at 1 p.m. and a bridge game in the afternoon at the Old Guard Society, an organization of Palm Beach golfers whose prerequisite to membership was winter residence in Palm Beach for at least five consecutive years. After dining at home, he usually attended a show or intermingled socially with friends. He drove his own automobile, not only around town in Cincinnati but on long cross-country trips. After attaining three score and ten, Kroger was an unusually physically active man for one who had lived to that mellow age.

Though testimony concerning his frequent but nonconfining colds, quinsy sore throat, nontoxic substernal goitre and chronic constipation was received at the trial, the Tax Court found — and we think justifiably on the evidence — that at the time he created the trusts in issue, the decedent was in good health and was not motivated by any concern for his health.

Looking now to the situation of the Kroger family and the circumstantial setting in which the trusts were created, we observe that decedent's first wife, mother of his two sons and four daughters, had died in 1899. For nearly 29 years, he remained a widower. He was thoughtful of his children and very fond of his grandchildren. The whole Kroger family appeared well knit. They frequently gathered for Sunday night suppers. The patriarch manifested affection for his daughters and concern for their welfare. His friendliness toward his sons-in-law was manifest. To his sons he wrote affectionate letters, conferred with them concerning his investments and entrusted them with the keys to lock boxes containing the bulk of his wealth. His affection for them and confidence in them was deep.

But at age sixty-eight the dynamic Kroger became tired of his unmarried status. He decided to re-marry — to marry a lady much younger than he. The exact difference in ages is not definitely revealed in the record.

In the latter part of January, 1928, his son Chester and his daughter-in-law visited him in Palm Beach. About three days after their arrival, he informed Chester that he intended to marry and asked him what he thought of it.

"That is for you to decide," his son replied.

"What will your sisters think about it?" the father questioned.

"I don't know. I think they should feel the same way I do," Chester answered.

"That's all right. I would like to make a prenuptial agreement with Alice the bride elect," the elder Kroger announced.

The son demurred: "What do you want to do that for?"

The...