Shook v. U.S.

• Decision Date: 29 August 1983
• Docket Number: No. 82-7224,82-7224
• Citation: 713 F.2d 662
• Parties: 83-2 USTC P 9564 Robert P. SHOOK and Barbara I. Shook, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 662

713 F.2d 662

83-2 USTC P 9564

Robert P. SHOOK and Barbara I. Shook, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.

No. 82-7224.

United States Court of Appeals Eleventh Circuit.

Aug. 29, 1983.

William Bew White, Jr., Hobart A. McWhorter, Jr., Birmingham, Ala., for plaintiffs-appellants.

Caryl P. Privett, Asst. U.S. Atty., Birmingham, Ala., Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Chief App. Sec., Robert A. Bernstein, Mary L. Fahey, Tax Div., Dept. of Justice, Washington, D.C., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Alabama.

Before TJOFLAT and VANCE, Circuit Judges, and MORGAN, Senior Circuit Judge.

VANCE, Circuit Judge:

This is an appeal by taxpayers from a summary judgment for the government for a federal income tax refund suit. We reverse.

The precise question before the court appears simple: Is there a genuine issue of material fact as to what taxpayer Barbara I. Shook settled in exchange for a $200,000 convertible note that she received? The details, however, are much more complicated.

A logical starting point is April 15, 1943 when each of the three principal stockholders of a closed family corporation known as Ingalls Iron Works Company granted that corporation an option to purchase each stockholder's shares in the event of the stockholder's death or retirement from the corporation. A chronicle of some of the later intrafamily disagreements can be gleaned from the opinion of the Alabama Supreme Court in Ingalls Iron Works Co. v. Ingalls, 256 Ala. 124, 53 So.2d 847 (1951). That case resulted from the ouster of the son, Robert I. Ingalls, Jr., from the presidency of the corporation by his father, Robert I. Ingalls, Sr., and the corporation's unsuccessful attempt to exercise its option to purchase the younger Ingalls' stock. The same option is involved in the present case but the principals now are the two daughters of Ingalls, Jr.: taxpayer Barbara Ingalls Shook (Mrs. Shook) and her sister Elesabeth Ingalls Gillet, who at relevant times was Mrs. Sam M. Boykin, Jr.

The taxpayer asserts that it was the design and plan of Ingalls, Sr. and his wife (Mrs. Ingalls) that ultimately the stock in the corporation should be equally divided between their two granddaughters and their descendants. Ingalls, Sr. made a gift of fifty-five shares to Mrs. Gillet shortly after her birth. He never got around to making a like gift to Mrs. Shook. The reason for his failure is unknown but Mrs. Shook suggests that it had something to do with the difficulties between her grandfather and her father.

Mrs. Ingalls, who outlived both her husband and son before dying in 1969 at age eighty-one, included a provision in her will to leave Mrs. Shook an extra fifty-five shares and thereby equalize the holdings of the two granddaughters. At all times until the death of Mrs. Ingalls, however, Mrs. Gillet had fifty-five shares more than Mrs. Shook as a result of the gift from their grandfather.

At the time of her death, Mrs. Ingalls was chairman of the corporation's board of directors. The president was Samuel M. Boykin, Jr. who at that time was married to Mrs. Gillet. Mrs. Ingalls died of a stroke after being in a coma two or three weeks. Five days before her death a quorum of the executive committee of the corporation's board, consisting of Mr. Boykin and two others, purportedly exercised the 1943 option Mrs. Ingalls had granted to the corporation. The effect of such exercise was to perpetuate the fifty-five share disparity in favor of Mr. Boykin's then wife.

The executors of Mrs. Shook's estate were a bank, Mr. Boykin and another member of the corporation's executive committee. Two months after her grandmother's death, Mrs. Shook began prolonged discussions with the executors with respect to her right to the fifty-five shares. A dispute arose and formal demand for the fifty-five shares was made on Mrs. Shook's behalf. Finally on November 13, 1973, a formal settlement agreement was entered into between Mrs. Shook on the one hand and the corporation, the executors, Mrs. Boykin and various officers, directors and trustees on the other. The agreement, a copy of which appears as Appendix 1 to this opinion, is at the center of the present dispute. Under the agreement Mrs. Shook did not get the fifty-five shares but got the corporation's two hundred thousand dollar convertible, subordinated thirty year debenture bearing interest at fifteen percent (Appendix 2). ¹

On their joint return for 1973 the taxpayers treated interest received on the convertible note as income but did not report any portion of the principal amount of the note as taxable income. The Internal Revenue Service allowed the taxpayers to treat $47,630.00 of the note's principal, ² which it determined to be the value of the fifty-five shares, as an inheritance. It determined the remaining $152,370 of the principal to be ordinary income. The IRS assessed a deficiency based on taxpayers' income as thus increased. Taxpayers paid the assessment and filed this suit for refund.

The respective contentions of the parties were summarized in the district court's Memorandum of Decision as follows:

2. Plaintiffs Robert P. Shook and Barbara I. Shook here assert that the $200,000.00 Convertible Note was received by Barbara I. Shook from the Ingalls Company solely in compromise and settlement of Mrs. Shook's claim against the Executors of the Estate of Ellen Gregg Ingalls, deceased, for the 55 shares of Ingalls Company stock bequeathed to Mrs. Shook under the provision of Item 5(D) of the Last Will and Testament of Ellen Gregg Ingalls, deceased, (See Finding of Fact No. 5). On the basis of this assertion plaintiffs argue that no portion of the $200,000.00 Convertible Note is taxable to them as income, relying on the case of Lyeth v. Hoey, 305 U.S. 188, 59 S.Ct. 155, 83 L.Ed. 119. That case held that property received by an heir under an agreement compromising and settling his contest of the decedent's will is to be treated in the same manner as an inheritance and thus is not taxable under section 102(a) of the Internal Revenue Code. Plaintiffs argue that the $200,000.00 Convertible Note was received by Barbara I. Shook in lieu of the 55 shares of Ingall [sic] Company stock which she was due to receive under the Ellen Gregg Ingalls Will and therefore no portion of its value may be considered or treated as taxable income to Mrs. Shook.

3. Defendant, conversely, argues that the $200,000.00 Convertible Note was received by Barbara I. Shook not as a result of a will contest, but rather as a result of a settlement of a dispute or disputes between Mrs. Shook, the Ingalls Company and certain of its directors. Defendant alternatively argues that even if this case is considered to be governed by the principle of Lyeth v. Hoey only that portion of the $200,000.00 Convertible Note attributable to the value of the 55 shares of Ingalls Company stock which Mrs. Shook claimed under the Ellen Gregg Ingalls Will would be non-taxable with the remainder of the value of the Note being received in exchange for Mrs. Shook's agreement not to seek to enforce her Faced with cross motions for summary judgment the district court made extensive findings of fact and entered judgment for the government. Although recitation of the undisputed facts supporting summary judgment in the form of "findings of fact" are desirable, Melancon v. Insurance Co. of North America, 482 F.2d 1057, 1059 n. 4 (5th Cir.1973), the only required finding is that there is no genuine issue as to any material fact. Hindes v. United States, 326 F.2d 150, 152 (5th Cir.), cert. denied, 377 U.S. 908, 84 S.Ct. 1168, 12 L.Ed.2d 178 (1964). If any fact issues exist a trial judge must not make findings but is required to deny the motion and proceed to trial. Warrior Tombigbee Transportation Co. v. M/V Nan Fung, 695 F.2d 1294, 1296 (11th Cir.1983). Cross motions for summary judgment may be probative of the nonexistence of a factual dispute. Bricklayers, Masons and Plasterers International Union v. Stuart Plastering Co., 512 F.2d 1017, 1023 (5th Cir.1975). Indeed, when both parties proceed on the same legal theory and rely on the same material facts the court is signaled that the case is ripe for summary judgment. Where, as here, however, the parties disagree as to the facts and take inconsistent legal theories the mere filing of cross motions for summary judgment does not warrant the entry of such judgment. Vetter v. Frosch, 599 F.2d 630, 632 (5th Cir.1979); Schlytter v. Baker, 580 F.2d 848, 849 (5th Cir.1978); Bricklayers, Masons and Plasterers Union v. Stuart Plastering Co. at 1023. To justify entry of summary judgment here the government must have borne the heavy burden of demonstrating that there is no dispute as to any material facts with the evidence and all inferences drawn therefrom viewed in the light most favorable to the taxpayers. Warrior Tombigbee, 695 F.2d at 1296-97. On review we apply the same standard, Id. at 1296; Impossible Electronics Techniques, Inc. v. Wackenhut Protective Systems, Inc., 669 F.2d 1026, 1030 (5th Cir.1982), with no presumption favoring the trial court's grant of summary judgment.

rights under any other cause of action which she might have against the Ingalls Company, its directors, or against the Executors of the Estate of Ellen Gregg Ingalls, deceased.

On the basis of its findings the district court concluded that (1) the $200,000.00 note was issued in compromise of a number of claims in addition to Mrs. Shook's claim for the fifty-five shares, and (2) taxpayers were estopped from claiming that the fifty-five shares had a value any higher than $47,630.00, the amount for which IRS had already given credit before the computation of the deficiency.

In reaching its decision the court noted that IRS had assumed that Lyeth v. Hoey, 305 U.S. 188, 59 S.Ct. 155, 83 L.Ed. 119 (1938) applied and it...