Standard Lime and Cement Co. v. United States, 77-597.
| Decision Date | 03 November 1980 |
| Docket Number | No. 77-597.,77-597. |
| Citation | 503 F. Supp. 938 |
| Parties | STANDARD LIME AND CEMENT COMPANY, Plaintiff, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Western District of Michigan |
Dennis I. Meyer, Baker & McKenzie, Washington, D. C., for plaintiff.
Donald A. Davis, Asst. U. S. Atty., James S. Brady, U. S. Atty., Detroit, Mich., Steven Z. Kaplan, Trial Atty., Tax Division, Dept. of Justice, Washington, D. C., for defendant.
In this action the Plaintiff seeks a refund for taxes paid during the period 1955 to 1959. Plaintiff contends that it was entitled to compute its depletion allowance deduction upon the basis of its income from magnesium hydroxide, rather than from its brine. At the time of the allegedly erroneous payments of income tax, Plaintiff was a wholly owned subsidiary of American-Marietta. In 1959, the parent company decided that it would be desirable to liquidate the Plaintiff and operate its assets as a division. Although the directors approved a plan of liquidation on November 30, 1959, the Plaintiff was never dissolved, and there is some uncertainty whether the entire plan of liquidation was executed.
This action is currently before the Court on Defendant's Motion to Dismiss which is based on the premise that venue is improper. There are two facets to this venue argument. Defendant contends that the Plaintiff assigned its interest in the tax refund claim to its parent, American-Marietta, upon liquidation and that the Plaintiff is not the real party in interest. Defendant further argues that even if no assignment is found, that venue should not be in this Court because the Plaintiff does not have a principal place of business or principal office or agency within this jurisdiction. The decision of this Court, with respect to the real party in interest issue, makes it unnecessary to reach the second part of the argument forwarded by the Defendant.
Federal Rule of Civil Procedure 17 requires that: "Every action shall be prosecuted in the name of the real party in interest ..." The meaning of such a requirement is explained in Moore's, Federal Practice, 17.09(1) at 17-82:
The primary purpose of the real party in interest provision was to change the common law rule that an action upon an assigned chose in action had to be prosecuted in the name of the assignor ... a suit on the assigned chose in action must be brought in the name of the transferee.
FRCP 17 also provides that: "such ratification, joinder or substitution shall have the same effect as if the action had been commenced in the name of the real party in interest." Therefore if this Court determines that the tax refund claim had been effectively assigned by Plaintiff to American-Marietta, this corporation would have to be substituted for Standard Lime and Cement, and venue decided accordingly.
At the time American-Marietta decided to operate the Plaintiff as a division, instead of a wholly owned subsidiary, it acted with two, potentially conflicting objectives in mind. One; it wanted to act in such a manner as to take advantage of a tax-free reorganization privilege under Internal Revenue Code § 332. Two; it desired to avoid adverse consequences under the Assignment of Claims Act, 31 U.S.C. § 203. The assignment of Claims Act requires certain procedures to be followed if the assignee is to be able to assert his claims against the United States. Those persons responsible for planning the corporate restructuring were uncertain if the liquidation plan would be exempted from the strictures of the Claims Act. The problem was compounded by the tax rule in § 332 which permits a corporation to completely liquidate a subsidiary and receive a distribution of the subsidiary's property without recognizing any gain or loss. In order to comply with § 332 both tangible and intangible property must be transferred to the parent corporation, but the subsidiary need not be dissolved, Treasury Regulations 1.332-2(c). The difficulty presented was the potential consequence of invalidation of the assignment by the United States. If the attempted transfer of the tax refund claim were voided, then the parent company might be denied benefits of a tax free reorganization under § 332.
To allay such discomfiture, William R. Stead, Assistant Counsel to American-Marietta, wrote to the District Director of the Internal Revenue requesting a ruling (Ex F). The position of American-Marietta was further elucidated in a letter to Mr. Paschall, Chief of Reorganization and Dividend Branch, in which it was stated:
In any event it should be noted that upon completion of the enclosed Plan of Liquidation (Exhibit 3) Standard will retain only the bare legal title to so much of the claims for refund of federal taxes as is invalidated by the Assignment of Claims Act. The total beneficial interest in such claims will rest in American-Marietta. Title to all other assets of Standard will have been transferred to American-Marietta ... (Ex G)
In response to such queries the Director of Tax Rulings Division issued a letter stating that the "transaction would qualify as a complete liquidation of a subsidiary within the purview of § 332"; such decision being expressly based on the assumption that:
Standard will continue in existence after the transfer of its assets, retaining only bare legal title to so much of the claims for refund as are not assignable under the Assignment of Claims Act. (Ex H)
Defendant does not deny that it intended to assign the tax refund claim to American-Marietta as of the date of the above communication, nor does it deny that it availed itself of § 332 of the IRC for tax free treatment; but it now denies that a transfer of the claim was actually made. As one argument, Plaintiff states that even were such transfer attempted, it would have been rendered null and void by the Assignment of Claims Act. Such an argument ignores the line of cases that hold that corporate restructuring does not generally fall within the purview of the Claims Act as noted by Moore, supra, 17.09(1.-2) at 17-103:
Merger of a corporation holding a claim against the United States with another corporation is not an assignment within this statute, Seaboard Air Line Ry. v. United States (1921) 256 U.S. 655, 41 S.Ct. 611, 65 L.Ed. 1149; nor is a transfer of stock by a stockholder or a corporation holding a claim Kellogg Bridge Co. v. United States (1879) 15 Ct. Claims 111; nor are assignments to shareholders in dissolution of a closely held corporation, United States v. Improved Premises (S.D. N.Y.1962) 294 204 F.Supp. 868.
Furthermore the cases bandied about by Plaintiff (and Defendant) do not include the case of Roomberg v. United States, 40 F.Supp. 621 (E.D.Penn.1941), which involved substantially the same situation as the case at bar. In Roomberg the plaintiff also was the sole stockholder of the corporation, and he acquired its assets and assumed its liabilities at the time he surrendered its capital stock. Similarly, thereafter, the corporation ceased doing business. In holding that the...
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Laxalt v. McClatchy
...insufficient under Rule 17(b), and that actual corporate bodies were real parties in interest); see also Standard Lime and Cement Co. v. United States, 503 F.Supp. 938 (W.D. Mich.1980) (where corporate division retained only formal independent existence, parent corporation was real party in......