People of State of California v. Bruce, 104.

• Decision Date: 22 March 1941
• Docket Number: No. 104.,104.
• Citation: 37 F. Supp. 811
• Parties: PEOPLE OF STATE OF CALIFORNIA ex rel. McCOLGAN, State Franchise Tax Adm'r, v. BRUCE.
• Court: U.S. District Court — District of Nevada

37 F. Supp. 811

PEOPLE OF STATE OF CALIFORNIA ex rel. McCOLGAN, State Franchise Tax Adm'r, v. BRUCE.

No. 104.

District Court, D. Nevada.

March 22, 1941.

Earl Warren, Atty. Gen., of California, and Valentine Brookes and H. H. Linney, Deputy Attys. Gen., of California, for plaintiff.

Brown & Belford, of Reno, Nev., amici curiae.

A. P. Johnson, of Reno, Nev., for defendant.

NORCROSS, District Judge.

This is an action to recover an amount of income tax in the sum of $4,345.84, alleged to have accrued in 1937, while defendant and his wife were residents of the State of California, by reason of defendant, then becoming entitled to the sum of $70,000, as the proceeds of a winning ticket in the so-called Irish Sweepstakes, payment therefor being subsequently made to defendant in the State of Nevada.

A primary question to be determined is that of jurisdiction. By the pleadings, the question of jurisdiction is presented in a number of respects. The amended complaint alleges: "This Court has jurisdiction because this is a controversy between citizens of two states involving an amount in excess of $3,000. Charles J. McColgan is a citizen of the State of California and defendant * * * a citizen of the State of Nevada. * * * this is an action for taxes. Jurisdiction is founded on section 24 (5) of the Judicial Code * * *, 28 U.S.C.A. § 41 (5). * * * because Article IV, section 1 of the United States Constitution, commonly known as the full faith and credit clause, compels it to exercise jurisdiction." The answer denies these allegations excepting in respect to the citizenship of Charles J. McColgan and defendant.

As having a bearing on the question of jurisdiction, paragraph II of the amended complaint and the answer thereto are, also, here quoted:

"That Charles J. McColgan is the duly appointed, qualified and acting Franchise Tax Commissioner of the State of California and as such is authorized by law to administer the California Personal Income Tax Act, Statutes of California 1935, page 1090, as amended.

"That section 28 of said act provides in part as follows: `Foreign Action. The commissioner may bring an appropriate action (whether in the form of a common law action of debt or indebitatus assumpsit, or a code or other action), in any court of competent jurisdiction in the United States or in a foreign country, in the name of the people of the State of California, to recover the amount of any taxes and interest due under this act. The Attorney General or the counsel for the commissioner of this State must prosecute such action.'

"That Earl Warren is the duly elected, qualified and acting Attorney General of the State of California and as such is authorized by law to prosecute this action, and the State of California is one of the sovereign states of the United States."

The answer thereto reads: "Defendant admits the allegations contained in paragraph II of the plaintiff's complaint, except that he specifically denies that Charles J. McColgan, as State Franchise Tax Administrator, is authorized by law to prosecute this action. In this connection defendant alleges any and all moneys received by Charles J. McColgan, as State Franchise Tax Administrator, are the property of the State of California, and said McColgan has no right or duty therein, save and except to receive and to keep in his possession moneys for the State of California."

The salient facts of the case are that in the year 1936, while defendant and his wife were residents of the State of California, defendant purchased, from his earnings, a ticket in the Irish Sweepstakes, which ticket later drew a horse. Thereafter defendant sold a half interest in the ticket to a New York Syndicate for $5,000. About May 26, 1936, the race was run and the horse drawn by the said ticket won first place entitling the holders of the ticket to the first prize of $150,000. Payment was not immediately made to defendant for his interest by reason of a suit instituted by one William Leathe in Ireland who, also, claimed a half interest in the winnings. This case was finally settled by an agreement that an amount be paid to Leathe and his attorneys in the sum of $10,642.84. In May 1937, not later than May 5th, defendant and his wife left the State of California and established their residence in Nevada, since which time they have continuously so resided and are now such residents.

Defendant, after...