RALSTON STEEL CORPORATION v. United States

• Decision Date: 22 January 1965
• Docket Number: No. 155-59.,155-59.
• Citation: 169 Ct. Cl. 119,340 F.2d 663
• Parties: RALSTON STEEL CORPORATION, Assignee of Morgan Manufacturing Corporation, v. The UNITED STATES.
• Court: U.S. Claims Court

169 Ct. Cl. 119, 340 F.2d 663 (1965)

RALSTON STEEL CORPORATION, Assignee of Morgan Manufacturing Corporation, v. The UNITED STATES.

No. 155-59.

United States Court of Claims.

January 22, 1965.

COPYRIGHT MATERIAL OMITTED

Max A. Reinstein, Chicago, Ill., for plaintiff. Harold C. Havighurst, Chicago, Ill., of counsel.

Sidney J. Wolf, Chicago, Ill., for Harry L. Lieberman, Herman C. and Nizzie B. Lieberman, and Eli J. and Jean Lieberman, Third Parties.

Julian L. Berman, Chicago, for intervenors Leo J. Schwartz and Arthur S. Freeman, doing business as Schwartz & Freeman.

Sheldon P. Migdal, Washington, D. C., with whom was Asst. Atty. Gen., Louis F. Oberdorfer, for defendant. Edward S. Smith, Lyle M. Turner and Philip R. Miller, Washington, D. C., were on the brief.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS and COLLINS, Judges.

DAVIS, Judge.

Receding from an arrangement it once made to advance money to settle the federal tax liabilities of unrelated taxpayers, plaintiff now seeks to recover that sum from the Federal Government. In 1951, the Banner Bed Company and its stockholders, the Liebermans, owed federal income taxes substantially in excess of $50,000. For reasons of his own, Morris Rubin, who owned and controlled plaintiff but was not connected with Banner or the Liebermans, decided to make available $50,000 for use in compromising these obligations of the others; he wished, though, to make sure that he would get this money back if the Government rejected or took no action on the compromise. To protect this interest, plaintiff's wholly owned subsidiary (Morgan Manufacturing Corporation)¹ handed over the money to a firm of lawyers (Schwartz & Freeman) as escrow agents, under an agreement that the money was to be used to settle the tax liability of the others, but on condition that any offer to the Internal Revenue Service was to expire on March 15, 1952, and also that if the offer was not accepted by that date, or if it was earlier rejected, the money was to be returned to the escrow agents for delivery to Morgan. An offer in compromise in the amount of $50,000 was then made by Banner and the Liebermans, stating that the money had been "borrowed" and was to be returned to Schwartz & Freeman if the offer was rejected or if no final action was taken by March 15, 1952. On the same day the escrowees sent a letter to the Service, enclosing a certified check of their own, and asking that it be returned in the same circumstances.

No action was taken by the Service for some time. In 1953, the deadline in the offer (of March 15, 1952) was eliminated with plaintiff's consent, and the Service was told that the money was to be returned to the escrow agents only in case of rejection. In 1957, the Service informed the several taxpayers that, to remedy technical objections, separate compromise offers would have to be made for each, in place of the lump sum offer previously tendered on behalf of all. As a result, later in the same year, separate offers totalling $50,000 were made for the individual taxpayers; Banner Bed Company (which by then was practically dead) was entirely eliminated. The funds which came from plaintiff remained on deposit for use in connection with the revised compromise offers. The plaintiff's escrow agents were aware of and approved the change and there is no reason to think that they exceeded their authority or acted contrary to plaintiff's wishes.

By the close of 1958, the Internal Revenue Service had not yet acted on the revised offers but the plaintiff, again for reasons of its own, was no longer willing to continue with the arrangement. In January 1959, the plaintiff, through its escrow agents, demanded the return of the funds. Upon refusal of its demand by the Service, plaintiff instituted suit in this court. In 1962, while the suit was pending, the Commissioner of Internal Revenue accepted the individual revised offers of compromise, subject to this court's determination that defendant was entitled to retain the funds.²

Two major issues are presented: (1) Does the court have jurisdiction over this action brought by a nontaxpayer to retrieve its funds deposited with the Government in connection with an offer for the compromise of tax deficiencies assessed against a third party? (2) If the court has jurisdiction, does the plaintiff or the escrow agency meet the conditions under which a nontaxpayer providing such funds has the right to withdraw them?

I. Jurisdiction

Our general jurisdictional statute, 28 U.S.C. § 1491, confers power on this court to render judgment on "any claim against the United States founded either upon the Constitution, or any Act of Congress, or any regulation of an executive department, or upon any express or implied contract with the United States, or for liquidated or unliquidated damages in cases not sounding in tort." Plaintiff alleges four separate jurisdictional grounds. i. e., that its action is founded upon provisions of the Internal Revenue Code and the Treasury Regulations, as well as upon an implied contract with the United States, and that its suit is for liquidated damages not sounding in tort. The defendant denies that we have jurisdiction under any of these heads.

Section 7122 of the Internal Revenue Code of 1954 gives the Secretary of the Treasury (or his delegate) authority to compromise criminal and civil tax cases (prior to reference to the Department of Justice), and prescribes the procedure by which formal compromises may be effected. Section 7809 provides for the placement of funds offered in compromise in a deposit fund account, and for the return of such funds to the offeror in the event of rejection by the Secretary of the Treasury. Treasury Regulation on Procedure and Administration (1954 Code), § 301.7122-1(d) (4), states that "an offer in compromise may be withdrawn by the proponent at any time prior to its acceptance."³ Plaintiff claims entitlement to the $50,000 under these statutes and the regulation.

Nevertheless we are without jurisdiction, defendant insists, because these provisions, properly interpreted, do not grant plaintiff the rights it asserts, and therefore its claim is not in truth "founded" upon an Act of Congress or an executive regulation, as 28 U.S.C. § 1491 requires. This contention wrongly equates the issue of jurisdiction with the merits. "As frequently happens where jurisdiction depends on subject matter, the question whether jurisdiction exists has been confused with the question whether the complaint states a cause of action." Montana-Dakota Utilities Co. v. North-western Public Service Co., 341 U.S. 246, 249, 71 S.Ct. 692, 694, 95 L.Ed. 912 (1951). See, also, Romero v. International Terminal Operating Co., 358 U.S. 354, 359, 79 S.Ct. 468, 3 L.Ed.2d 368 (1959). Defendant in effect advocates that a determination, on the merits, that a plaintiff does not fall within the class upon whom rights are conferred by the statute or regulation upon which his case is based necessarily entails a holding that this court was without jurisdiction ab initio. That is not the way to decide this court's jurisdiction — any more than it would be correct to argue that a district court was without jurisdiction under 28 U.S.C. § 1331, when asked to rule that a complainant had certain rights under the Constitution or other federal authority, because it ultimately held that those rights had not been given. See Montana-Dakota Utilities Co. v. Northwestern Public Service Co., supra; Bell v. Hood, 327 U.S. 678, 681-682, 66 S.Ct. 773, 90 L.Ed. 939 (1946); Levering & Garrigues Co. v. Morrin, 289 U.S. 103, 105, 53 S.Ct. 549, 77 L.Ed. 1062 (1933); The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25, 33 S.Ct. 410, 57 L.Ed. 716 (1913). If the plaintiff asserts that his claim "arises under" or is "founded" on federal legislation or regulation (see United States v. Emery, Bird, Thayer Realty Co., 237 U.S. 28, 32, 35 S.Ct. 499, 59 L.Ed. 825 (1915)), `to determine whether that claim is well founded," the court "must take jurisdiction, whether its ultimate resolution is to be in the affirmative or the negative." Montana-Dakota Utilities Co. v. Northwestern Public Service Co., supra, 341 U.S. at 249, 71 S.Ct. at 694. It is "well settled that the failure to state a proper cause of action calls for a judgment on the merits and not for a dismissal for want of jurisdiction. Whether the complaint states a cause of action on which relief could be granted is a question of law and just as issues of fact it must be decided after and not before the court has assumed jurisdiction over the controversy. If the court does later exercise its jurisdiction to determine that the allegations in the complaint do not state a ground for relief, then dismissal of the case would be on the merits, not for want of jurisdiction." Bell v. Hood, supra, 327 U.S. at 682, 66 S.Ct. at 776. "Unsuccessful as well as successful suits may be brought" upon a federal act or regulation. The Fair v. Kohler Die & Specialty Co., supra, 228 U.S. at 25, 33 S.Ct. at 411.

These same principles have applied, and still apply, to this court, within the ambit of its limited jurisdiction. In general, a claimant who says that he is entitled to money from the United States because a statute or a regulation grants him that right, in terms or by implication, can properly come to the Court of Claims, at least if his claim is not frivolous but arguable.⁴ Where an Act of Congress (e. g., United States v. Emery, Bird, Thayer Realty Co., supra, 237 U.S. at 30-32, 35 S.Ct. 499 (1915)) or an executive regulation (e. g., Greene v. United States, 376 U.S. 149, 84 S.Ct. 615, 11 L.Ed.2d 576 (1964) (competence of this court not questioned)) arguably confers such rights upon the claimant, the court will assume jurisdiction and decide his case on the merits, even though the defendant may ultimately prevail.⁵ See, e. g., South Puerto Rico Sugar Co. Trading Corp. v. United States, Ct.Cl., 334 F.2d...