Phinney v. Houston Oil Field Material Company

• Decision Date: 01 April 1958
• Docket Number: No. 16622.,16622.
• Parties: Robert L. PHINNEY and United States of America, Appellants, v. HOUSTON OIL FIELD MATERIAL COMPANY, Inc., and its Subsidiaries, Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

252 F.2d 357 (1958)

Robert L. PHINNEY and United States of America, Appellants, v. HOUSTON OIL FIELD MATERIAL COMPANY, Inc., and its Subsidiaries, Appellees.

No. 16622.

United States Court of Appeals Fifth Circuit.

February 26, 1958.

Rehearing Denied April 1, 1958.

Charles K. Rice, Asst. Atty. Gen., Davis W. Morton, Jr., and Ellis N. Slack, Attys., Dept. of Justice, Washington, D. C., John E. Banks, Asst. U. S. Atty., San Antonio, Tex., I. Henry Kutz and Grant W. Wiprud, Attys., Dept. of Justice, Washington, D. C., Russell B. Wine, U. S. Atty., San Antonio, Tex., for appellants.

M. S. McCorquodale, C. W. Wellen, Fulbright, Crooker, Freeman, Bates & Jaworski, Houston, Tex., for appellees.

Before CAMERON, JONES and WISDOM, Circuit Judges.

JONES, Circuit Judge.

The Court is here concerned with Federal income tax liabilities of the appellees, Houston Oil Field Material Company, Inc., and its subsidiaries. The facts are not in dispute. The tax year involved is 1948. Houston Oil and its subsidiaries then existing had filed separate returns for 1947. One of the subsidiaries, Wayside Oil Company, began business on September 1, 1947. It had a loss of $18,994.79 for the fiscal year ending August 31, 1948. This loss was reflected in a separate tax return of Wayside for the fiscal year. During the period of September 1, 1948, to December 31, 1948, Wayside had income of $4,546.34. The affiliated group, including Wayside, filed a consolidated return on a calendar year basis for 1948. In this return Wayside's income was computed as zero by reason of the carrying forward of sufficient of its loss from the return for its fiscal year ending August 31, 1948, to offset its income for the September through December, 1948, period. Adjustments under 26 U.S.C.A. (I.R.C.1939) § 122(d) reduced the unapplied Wayside loss to $11,626.92. The amended consolidated return of the affiliated companies for the year 1948, as filed, showed net taxable income of $943,742.66.

On April 9, 1949, HOMCO Service, Inc., a subsidiary of Houston Oil Field Material Company, the parent corporation in the affiliated group, was incorporated. HOMCO had a loss for 1949 of $129,906.53. Wayside had income in 1949 of $33,572.05. The consolidated return of the group for 1949 showed a loss of $456,698.85, which included the 1949 Wayside income and the HOMCO loss, but did not carry forward any of the unapplied 1948 Wayside loss. Of the reported 1949 loss, 74.828% was attributable to Houston Oil Field Material and 3.85% was attributed to Briggs-Weaver Machinery Co., a subsidiary, and these amounts were carried back and offset against the net income of those corporations for 1947 as reflected in their separate returns. The remaining 21.32% of the loss, or $97,368.19, was reduced by depletion to $88,991.39. This portion of the 1949 consolidated loss was attributable to Arizona Barite Company, another subsidiary of Houston Oil Field Material, and to HOMCO. Neither of these subsidiaries had any 1947 income against which any portion of the 1949 loss could be offset.

In March of 1953 the affiliated group filed a claim for refund. In it the contention was made that the 1949 consolidated loss should be increased from the $456,698.85 to $468,325.77. Such increase was to result from the application of Wayside's unapplied remainder of its 1948 fiscal year loss of $11,626.92 against Wayside's 1949 income as a loss carryover. The increase in the consolidated loss for 1949, so computed, was to be carried back, under the taxpayers' theory, in the same manner as the consolidated loss as originally computed. The claim for refund also asserted the right to carry-back against 1948 consolidated income the portion of the 1949 consolidated loss attributable to HOMCO and Arizona Barite. These proposed increases would be $88,991.39 plus 21.32% of $11,626.92 or $2,478.86. The Commissioner allowed the claim for refund based on the carry-back of the $88,991.39 loss. The refund so based was in the amount of $35,596.56, of which $34,583.13 was attributable to the HOMCO portion of the loss carry-back. The Commissioner denied the claim for refund to the extent it depended upon the carrying forward into 1949 of Wayside's fiscal year loss. The amount of the refund as allowed, which included items not here in controversy, was paid on or about September 1, 1954.

In November of 1955, Houston Oil Field Material and its subsidiaries brought several suits against Robert L. Phinney, the District Director of Internal Revenue for the Austin, Texas, District, on claims involving disputes as to whether certain earnings were capital gains or ordinary income. Each suit was for an alleged overpayment in a particular year. One of the suits was with respect to the tax for 1948. All of the suits raised the same issue. This issue was determined and is not in the case as it comes before us. The United States intervened in the suit for a refund for 1948, asserting that the refund which had been paid in 1954 was erroneous in so far as it was based upon the HOMCO carry-back into the 1948 tax determination, and prayed for judgment in the amount of the refund made by the Commissioner in 1954. The corporations of the affiliated group answered, and by way of set-off and counterclaim asserted the right to carry the unapplied $11,626.92 of Wayside's fiscal year loss forward into the 1949 computation and to carry back the resulting increase of the consolidated loss for that year, and seeking judgment for the resulting reduction in taxes stated as $4,297.61. The issue on the original claims was submitted to the jury for a special finding and a verdict was returned, upon which judgment was entered, for the taxpayers. The claim of the Government, set up in its petition for intervention, was decided adversely to it. The district court decided for the taxpayers on their counterclaim and entered judgment against the United States for $4,297.61 and interest. The United States has appealed on both issues. The verdict of the jury on the issue submitted to it was returned January 31, 1956. On February 1, 1956, the defendant Phinney filed a motion for judgment non obstante veredicto and for a new trial. This motion related only to the matter submitted to the jury. On August 2, 1956, the court's judgment on all of the issues was entered. The court's order overruling the motion was entered on October 1, 1956. On November 24, 1956, the United States filed notice of appeal. The notice stated that the United States appealed from the judgment and from the order overruling the motion for judgment non obstante and new trial. Both Phinney and the United States were represented by the United States Attorney for the Western District of Texas. The notice of appeal was filed more than sixty days after the judgment was entered but within sixty days after Phinney's motion was overruled. The taxpayer group has moved to dismiss the appeal and insists that the time commenced with the judgment. The Government resists the motion and urges that the date of the order overruling the motion fixes the beginning of the period. Our consideration will first be directed to the motion.

Under Rule 54 and Rule 73(a), Fed.Rules Civ.Proc. 28 U.S.C.A., a motion timely made for a judgment n.o.v. or in the alternative for a new trial suspends the finality of a judgment adverse to the movant for the purpose of an appeal until a ruling is made upon the motion. 5 Moore's Federal Practice, p. 2332, Par. 50.10, 6 Moore's Federal Practice, p. 121, Par. 54.12 2. See Wilson v. Southern Railway Co., 5 Cir., 1945, 147 F.2d 165. The rule is applicable where the motion was made before but not overruled until after the entry of the judgment. Partridge v. Presley, 1951, 88 U.S.App.D.C. 298, 189 F.2d 645, certiorari denied 342 U.S. 850, 72 S.Ct. 79, 96 L.Ed. 642. Phinney's motion was timely made so that the time within which he could have appealed did not commence to run until his motion was denied on October 1, 1956. But Phinney, although having the right to do so, did not take an appeal. Was the finality of the judgment as to the United States suspended by the pendency of the motion so that the time within which it might appeal did not commence to run until the order on the motion was entered?

Rule 54(b), Fed.Rules Civ.Proc., 28 U.S.C.A., as revised by an amendment which became effective on March 19, 1948, provides:

"When more than one claim for relief is presented in an action, whether as a claim, counterclaim, cross-claim, or third-party claim, the court may direct the entry of a final judgment upon one or more but less than all of the claims only upon an express determination that there is no just reason for delay and upon an express direction for the entry of judgment. In the absence of such determination and direction, any order or other form of decision, however, designated, which adjudicates less than all the claims shall not terminate the action as to any of the claims, and the order or other form of decision is subject to revision at any time before the entry of judgment adjudicating all the claims."

Prior to the Federal Rules and under the original Rule 54(b) difficulties frequently arose in determining whether a particular order, judgment or decree was final. McGourkey v. Toledo & Ohio Central R. Co., 146 U.S. 536, 13 S.Ct. 170, 36 L.Ed. 1079; Dickinson v. Petroleum Conversion Corporation, 338 U.S. 507, 70 S.Ct. 322, 94 L.Ed. 299. See 49 Michigan Law Rev. 442. The Courts of Appeal can review only final judgments. 28 U.S.C.A. § 1291. Such is the rule at common law and it is frequently recognized in state statutes. 2 Am.Jur. 858, Appeal and Error § 21. In commenting on this policy of limiting appellate review to final decisions, the Supreme Court has said, "The foundation of this policy is not in merely technical conceptions of `finality.' It is one against piecemeal litigation. * * * Reasons other than conservation of judicial energy sustain the limitation. One...