Jacob v. Pacific Export Lumber Co.

• Decision Date: 14 April 1931
• Parties: JACOB v. PACIFIC EXPORT LUMBER CO.
• Court: Oregon Supreme Court

297 P. 848

136 Or. 622

JACOB v. PACIFIC EXPORT LUMBER CO.

Supreme Court of Oregon

April 14, 1931

Department 2.

Appeal from Circuit Court, Multnomah County; Jacob Kanzler, Judge.

Suit by Robert T. Jacob against the Pacific Export Lumber Company. From the decree, defendant appeals, and plaintiff cross-appeals.

Reversed with directions.

This is a suit to set aside an award made by the arbitrator amounting to $720.04 in favor of plaintiff, and to recover from defendant $7,500 for services and $720.04 for expenses. A decree was rendered by the circuit court setting aside the award and allowing plaintiff to recover from defendant the sum of $3,120.04. Defendant appeals.

Thomas G. Greene, of Portland, for appellant.

Alfred P. Dobson, of Portland, for respondent.

BEAN, C.J.

During the years 1917, 1918, and 1919, defendant was engaged in the export and import business, dealing principally in timber products and oriental merchandise on an extensive scale, its sales averaging approximately $2,750,000 per year. During the months of January and February, 1921, the Commissioner of Internal Revenue caused defendant's books and records to be audited and investigated. Based upon the revenue agent's report of such investigation, additional income and excess profits tax assessments were proposed as follows $9,513.46 for the year 1917; $19,764.10 for the year 1918 $4,031.16 for the year 1919--amounting in all to $33,309.02.

About March 12, 1921, defendant employed Messrs. Whitfield Whitcomb & Company to defend it against the proposed assessments--subsequently the firm was Whitfield, Jacob &amp Company, of which plaintiff was a member--and instructed plaintiff, who was at that time in charge of the income tax department of the firm, to make a close and careful analysis of its various records and accounts involved in the reports for the purpose of determining whether the findings and conclusions of the revenue agent could be refuted or in some manner absorbed by offsets or credits.

Upon the dissolution of the firm of Whitfield, Whitcomb & Company, Accountants, plaintiff Jacob succeeded to the account in controversy. Hereafter we will refer to the account as plaintiff's.

Plaintiff, after first having made a careful analysis of the reports, proceeded with the work contemplated by such engagement and continued therewith for a period of approximately four years and eight months, until about October 21, 1925, when the Commissioner of Internal Revenue, by letter, passed upon the last of defendant's claims presented and considered. Plaintiff asserts that as a result of such services the defendant was relieved of the payment of additional income and excess profits taxes for the years 1917, 1918, and 1919, including interest and penalties thereon, amounting to approximately $45,035.02. On November 6, 1925, the final bill for services was rendered by plaintiff, who had been paid $2,000 for his services and expenses during the course of the employment, amounting to a balance of $2,750 for services and $370 for expenses, making a total charge for services of $4,400, and expenses $720. Defendant contended that plaintiff had been paid in full. After considerable negotiation the parties agreed to submit the dispute to an arbitrator. Mr. Whitfield suggested Frank L. Shull as a competent person for that office. The following agreement of submission was executed by the parties:

"Pacific Export Lumber Co. Portland, Oregon, November 30, 1926. Messrs. Whitfield, Whitcomb & Company, c/o Wm. Whitfield, Esq., Pacific Bldg., Portland, Oregon. Dear Sirs:

"Further to numerous conversations, we agree to submit to the final and binding decision of Mr. Frank L. Shull, the dispute between us growing out of your claim for additional compensation for your services in our behalf in securing a reduction of our income and profit tax for the years 1917-18 and 19.

"As a starting point, it must be admitted that the expense of your travelling to and living in Washington was in the interests of numerous clients.

"We repeat our contention that we have already paid you in full.

"The foregoing proposal is final and is effective only if approved by Messrs. Whitfield, Whitcomb & Company, or by their qualified successors, by December 4, 1926.

"We mutually agree to be bound by the decision of Frank L. Shull, as outlined above, each side to pay one-half the arbitrator's fee. Yours very truly, Pacific Export Lumber Co., W. W. Payne, President. Confirmed: Dec. 2, 1926. Whitfield, Whitcomb & Co., By Wm. Whitfield. Whitfield, Jacob & Co., by Wm. Whitfield."

The arbitrator took the required oath. The matter seemed to have rested until about June, 1927, when the plaintiff urged the arbitrator to have the defendant submit a statement. About August 24, 1927, plaintiff submitted his statement to the arbitrator, the commencement of which is:

"The question submitted for arbitration is the reasonableness of charges made by the complainants herein to the Pacific Export Lumber Company, as compensation for services rendered. The facts upon which we rely as a basis for our claims are as follows."

Here follows a detailed statement of the facts as claimed by plaintiff: Employment March 12, 1921, when no mention was made by Mr. Wheelwright or by either of the members of the firm of Whitfield, Whitcomb & Company regarding fees, rates, charges, or the basis of compensation for services; a certified copy of the original engagement order; letter of August 10, 1922, addressed to the president of defendant; letter of the treasury department dated November 1, 1926; statement of the value of the service as tax counselors, well trained in the income tax law, having had long and close familiarity with all the government's requirements in Portland and in Washington, D. C.; that efficient and valuable service for the defendant was performed, which is evidenced by the actual cash saving to the company of large amounts, making a total net saving to the company of $37,035.02; a statement of the fees charged, as follows:

Charge for Service .. $4,400.00 Expenses advanced ...... 720.04 _________ 5,120.04 Less: Payments on account July 23, 1921 .... 1,000.00 August 19, 1922 .... 500.00 August 19, 1924 .... 500.00 2,000.00 ________ ________ Balance of Fees and expenses now claimed as due ................. 3,120.04 Plus interest at 7% from December 10, 1925 to August 24, 1927 ..... 373.10 _________ Total due .................................................. $3,493.14

--together with a detailed statement and explanation as regards the expenses advanced, showing that the total expense of the trips to Washington were prorated with other clients of plaintiff; the time plaintiff devoted to the work and supervision of the case; statement of the investigations; preparation of amended returns for 1917 and 1918; work done in Washington with an attorney employed by defendant instructing him in the facts of the case and rudiments of the income tax law; hearings before the treasury department some twenty times; preparation of numerous briefs and claims; presentation and arguing of the same; the origin of the cause of additional tax; plaintiff's examination and preliminaries; the outstanding points involved in the revenue agent's report that were involved in the work; the question of making a consolidated return for the Pacific Export Lumber Company and the R. J. Brown Company, said to be an affiliated concern; the success in getting salaries allowed as paid to the officers of the defendant; the difficult problems involving the actual saving to defendant; the appeal taken from the Commissioner of Internal Revenue and the favorable result; the fact that the claim was previously filed for the year 1918 by an attorney for defendant but the commissioner refused to allow the claim; that the attorney's work was of no avail; that the assessment was set aside without payment or bond; statement and argument in regard to the character of the work performed by plaintiff; an explanation of the book reserve, $15,270.70, which defendant says plaintiff estimated as the liability of defendant at a time when there was a change in the ownership of the stock of defendant when purchased by W. W. Payne; a detailed statement of the services rendered after August 10, 1922, when a bill was presented to defendant for services rendered to that date; a letter of that date from Whitfield, Whitcomb & Company to W. W. Payne, president of defendant, reading in part as follows: "Replying to your request for a statement of probable further expense, beg to state it is impossible to give you any idea of this, but all of the detail work has heretofore been done and we do not anticipate it will be necessary to spend a great deal more time," and an explanation thereof; dates of the appearances before the department to present evidence and argument; a reanalysis of the accounts and rearranging the data of defendant; a detailed statement of the preparation of documents; statement of saving to defendant taxpayer, and an argument in regard thereto, which several matters were stated at length and reference made to exhibits and proof somewhat combined with argument in regard to plaintiff's claim.

In addition, the plaintiff submitted seven affidavits of experienced tax consultants and accountants of the northwest as to the value of the services performed by plaintiff, and clients of plaintiff for whom they had performed similar services, and the percentage charged, and a summation: "Summing up the facts in the case we have the following: * * * (8) We claim that the fees billed are exceptionally fair and reasonable, and justified by results accomplished for the client." The statement covers about seventeen pages of typewritten matter. Plaintif...