Roebling Securities Corporation v. United States

• Decision Date: 21 August 1959
• Docket Number: Civ. A. No. 869-57.
• Citation: 176 F. Supp. 844
• Parties: ROEBLING SECURITIES CORPORATION, a New Jersey corporation in dissolution, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of New Jersey

176 F. Supp. 844

ROEBLING SECURITIES CORPORATION, a New Jersey corporation in dissolution, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 869-57.

United States District Court D. New Jersey.

August 21, 1959.

Wharton, Stewart & Davis, Somerville, N. J., by T. Girard Wharton, John W. Fritz and Richard H. Herold, Somerville, N. J., for plaintiff.

Chester A. Weidenburner, U. S. Atty., Newark, N. J., by John D. Wooley, Trenton, N. J., and Benjamin H. Pester, Atty., Dept. of Justice, Washington, D. C., for defendant.

FORMAN, Chief Judge.

The Roebling Securities Corporation, a New Jersey corporation in dissolution, has moved for summary judgment pursuant to Rule 56, F.R.C.P. in this action brought under 28 U.S.C. §§ 1340 and 1346(a) (1) (1952 ed.) to recover taxes and interest of $190,404.11 and $21,420.46 respectively, assessed and collected by the Government for the calendar year 1954.

The Government moves "for partial summary judgment * * * concerning the matters set forth in paragraphs 7 through 12 of the Amended Complaint * * *."¹ and for an order directing Roebling to produce:

"1. All correspondence had between Roebling and Curzen Dobell pertaining to the sale by Roebling on January 21, 1955 to Curzon (sic) Dobell of all its claims against Preload Inc., and all of the Preload Inc. stock which it owned, for an aggregate price of $200,000.

"2. All documents and records pertaining to the sale transactions set out in the preceding paragraph."

Roebling's motion will be considered first. It involves only one phase of the case which if decided in Roebling's favor would dispose of the entire suit.

The following pertinent facts inter alia have been stipulated:

1. Prior to the end of 1952 plaintiff engaged in the manufacture and sale of steel and copper wire and wire products and related business activities. On December 31, 1952, its corporate name was changed from John A. Roebling's Sons Company to The Roebling Securities Corporation.

2. On December 8, 1952, plaintiff entered into two agreements: one with the Colorado Fuel & Iron Corporation, (hereafter referred to as CF&I), and the other with the latter's subsidiary, the Colorado Steel Corporation, (hereafter referred to as Steel).

3. The agreement with Steel was for the sale of plaintiff's operating assets for $23,000,000, subject to certain adjustments² and the assumption of certain of plaintiff's liabilities.³

4. In the agreement with CF&I, plaintiff agreed to purchase from it 200,000 shares of 5½% cumulative preferred stock, which constituted the entire Series B issue, for $10,000,000.

5. Each agreement was expressly conditioned upon the simultaneous consummation of the other and each provided that if, for any reason, the other was not consummated the obligations of each party therein would cease and determine without liability on the part of either party to the other.⁴

6. These agreements were consummated simultaneously at a closing held on December 31, 1952, which occurred in the following steps:

(a) Steel paid plaintiff $10,000,000.

(b) Plaintiff paid $10,000,000 to CF&I for the issuance to it of the 200,000 shares of Series B preferred stock.

(c) CF&I paid to Steel $14,999,000.

(d) Steel paid plaintiff $13,000,000 of the $14,999,000 it had received from CF&I.

7. As of December 31, 1952 CF&I had issued and outstanding 2,478,684.25 shares of common stock of no par value; 47,521 shares of 5% preferred stock, Series A, of the par value of $50 a share; and 200,000 shares of 5½% preferred stock, Series B, of the par value of $50 a share, which entire issue was conveyed to the plaintiff on that date as stated above.

8. At the time of the closing, the 5% preferred stock, Series A, of CF&I was not listed on any stock exchange but was traded in the Over-the-Counter Market. At the end of December, 1952, CF&I Series A preferred stock was quoted at $40 bid and $43 asked. At the end of each of the last four months of 1952 and the first four months of 1953 this same issue was quoted as follows:

                Bid Asked
                    September, 1952          42      44
                    October, 1952            41      43
                    November, 1952           41      43
                    December, 1952           40      43
                    January, 1953            40      42
                    February, 1953           38      41
                    March, 1953              38      42
                    April, 1953              38      41
                

9. On March 31, 1954, plaintiff distributed the 200,000 shares of CF&I Series B stock to its shareholders. Immediately thereafter 153,187 of those shares were sold through a New York broker for $42.50 per share, less selling expenses of $3.08 per share, leaving a net price of $39.42. Said stock was first sold on an exchange on May 24, 1954, when 500 shares were sold at a high of $43.25 and a low of $43.

10. At the end of March, 1954, the bid and asked prices per share of the CF&I Series A stock were $41 and $43, respectively.

11. On March 12, 1954, plaintiff was issued a certificate of dissolution by the Secretary of State of New Jersey, but continued to exist for the purposes of prosecuting suits and of settling its affairs as provided by the law of New Jersey.

12. Plaintiff reported no tax liability for 1954 in its income tax return for that calendar year.

13. Plaintiff realized a loss on the sale of its assets to Steel in 1952. In assessing a deficiency of $190,404.11 in plaintiff's 1954 federal income tax, defendant computed such loss as though plaintiff had received for such assets the sum of $23,000,000 (reduced by the aforesaid adjustment of $1,890,648.20 repaid by plaintiff to Steel on May 11, 1953.)⁵

14. Plaintiff paid this alleged deficiency plus interest on January 31, 1957 to the District Director of Internal Revenue, Camden, New Jersey.

15. On March 14, 1957, plaintiff properly filed a timely claim for refund of its payment in the sum of $211,824.57, together with interest.

16. On July 30, 1957, plaintiff was notified of the disallowance in full of this claim. It has not received any refund or credit therefor.

Based on the foregoing the Government contends that the plaintiff engaged in two separate arms-length transactions; and that in one it sold its assets for $23,000,000 and in the other used $10,000,000 of the former amount to purchase the CF&I Series B issue.

Plaintiff urges that it could not have left the closing on December 31, 1952 with $23,000,000 in cash, because the very terms of the agreements bound it to leave with $13,000,000 and the Series B issue which it says had a value of not more than $9,434,721.23.

The law is clear that in matters of taxation it is the substance and not the form of the transaction to which the court must look. Weiss v. Stearn, 1924, 265 U.S. 242, 44 S.Ct. 490, 68 L.Ed. 1001, Commissioner of Internal Revenue v. Moore, 10 Cir., 1931, 48 F.2d 526, Commissioner of Internal Revenue v. Court Holding Company, 1945, 324 U.S. 331, 65 S.Ct. 707, 89 L.Ed. 981, Jacobs v. Com'r., 9 Cir., 1955, 224 F.2d 412, Kanawha Gas & Utilities Co. v. Com'r., 5 Cir., 1954, 214 F.2d 685. Equally well settled is the proposition that a unitary transaction may not be separated or "atomized" into its components by either the taxpayer or the Government for purposes of taxation. Helvering v. New Haven & Shore Line R. Co., 2 Cir., 1941, 121 F.2d 985, certiorari denied 1942, 315 U.S. 803, 62 S.Ct. 631, 86 L.Ed. 1203, Hazeltine Corp. v. Com'r., 3 Cir., 1937, 89 F.2d 513, Ashland Oil & Refining Co. v. Com'r., 6 Cir., 1938, 99 F.2d 588, certiorari denied 1939, 306 U.S. 661, 59 S.Ct. 790, 83 L.Ed. 1057, Morgan v. Helvering, 2 Cir., 1941, 117 F.2d 334, Budd International Corp. v. Com'r., 3 Cir., 1943, 143 F.2d 784, certiorari denied 1945, 323 U.S. 802, 65 S.Ct. 562, 89 L.Ed. 640, Barker v. United States, 9 Cir., 1952, 200 F.2d 223, May Broadcasting Co. v. United States, 8 Cir., 1953, 200 F.2d 852, Kanawha Gas & Utilities v. Com'r., supra, Commissioner of Internal Revenue v. Moore, supra. All of these cases are concerned with corporate reorganizations including Moore, Barker, Hazeltine and May which alone specifically share the common fact of two contracts with the matter at hand. But this distinction is not critical for I see no reason why the legal principle involved should be less applicable to the instant matter than to a corporate reorganization.

The question therefore is whether or not plaintiff's sale of its assets to Steel and its purchase of CF&I's Series B issue were two transactions, or two steps in one transaction. In Morgan v. Helvering, supra, the court noted in affirming the finding of a single transaction that each party which performed its part could have compelled the other to perform. In the instant case the agreements provided an equal compulsion to the opposite end in that if either contract was not consummated, the other became of "no force and effect." Reading both agreements together as must be done because each is expressly conditioned upon the other's simultaneous consummation, it is apparent that the sale of plaintiff's assets would not have occurred without the contemporaneous purchase by plaintiff of the CF&I Series B issue. Such was the clear intent of the parties and is not to be overlooked. Von's Investment Co. Ltd. v. Com'r., 9 Cir., 1937, 92 F.2d 861, 863.

I am constrained to find that plaintiff CF&I and Steel engaged in and consummated a single transaction—indivisible for purposes of taxation, and I therefore conclude that plaintiff sold its assets to Steel for $13,000,000 and the CF&I issue of Series B preferred stock comprised of 200,000 shares.

It now becomes necessary to determine the value of the Series B preferred shares as of the day of their acquisition by plaintiff for its tax liability decreases with any diminution of the $50 value per share upon which the tax was based. Indeed plaintiff contends that the entire amount of tax and interest is extinguished if the valuation of the issue is brought down to, or under, $9,434,721.23 or 47.17 per share.

Pla...