State v. Gulf Oil Corp., 6 Div. 65

• Decision Date: 24 March 1971
• Docket Number: 6 Div. 65
• Citation: 256 So.2d 172,47 Ala.App. 434
• Parties: STATE of Alabama v. GULF OIL CORPORATION.
• Court: Alabama Court of Civil Appeals

Page 172

256 So.2d 172

47 Ala.App. 434

STATE of Alabama v. GULF OIL CORPORATION.

6 Div. 65.

Court of Civil Appeals of Alabama.

March 24, 1971.

Rehearing Denied May 12, 1971.

MacDonald Gallion, Atty. Gen., Willard W. Livingston, Asst. Atty. Gen., and Counsel, Dept. of Revenue, and William H. Burton, Asst. Atty. Gen., and Asst. Counsel, Dept. of Revenue, for the State.

Douglas Arant and William L. Hinds, Jr., Birmingham, for appellee.

BRADLEY, Judge.

The Department of Revenue of the State of Alabama (hereinafter referred to as State) on June 13, 1963 made a final assessment of state income taxes against Gulf Oil Corporation (hereinafter referred to as Gulf) in the amount of $45,146.57 for the calendar year 1959.

The deficiency assessment of state income taxes resulted from a transaction involving the sale by Gulf of certain of its interests in the Citronelle, Alabama oil fields to Bart B. Chamberlain and George H. Jett.

The State alleges that the sale by Gulf of its interests in the Citronelle oil fields brought to Gulf $1,500,000 more than it reported in its income tax return filed with the State for the calendar year 1959.

Gulf appealed this final assessment to the Circuit Court of Jefferson County, in Equity, pursuant to the provisions of Title 51, Section 140, Code of Alabama 1940, as Recompiled 1958.

The case was submitted to the trial court on December 15, 1969, on the basis of the amended bill of complaint, answer, pre-trial order, depositions of seven witnesses, and the oral testimony of Raymond Corcoran taken in open court.

A final decree was entered by said court on April 12, 1970 in favor of Gulf and against the State, the effect of which was to set aside the final assessment made by the State on June 13, 1963.

An appeal was taken to this court from said decree on May 12, 1970.

In 1956 Gerald Waldron, through his attorney Samuel Lane of New York, filed in the U.S. District Court for the Southern District of New York, a suit against Gulf and six other oil companies under the Clayton Anti-trust Act for the sum of $109,000,000 in damages.

Waldron said in his lawsuit that the companies had agreed to boycott the sale in the United States of oil that he had obtained from Iran.

Soon after this anti-trust suit was filed, a Mr. Searls, a lawyer for Gulf, contacted Lane and suggested that Gulf be dismissed as a defendant in Waldron's anti-trust suit. Searls stated that he informed Lane that Gulf would not pay any money directly or indirectly for the dismissal of Gulf from the lawsuit.

No monetary amount for settlement was ever discussed by Gulf and Lane.

Sometime in 1957 Sterling Oil Company of Oklahoma, Inc., acting through its president, J. A. True, made some efforts toward procuring certain interests owned by Gulf in the Citronelle oil fields; and, as a part of this effort, Sterling entered into an agreement with Waldron, through his attorney Lane, wherein for a consideration, Waldron would dismiss Gulf as a party defendant from his anti-trust suit and in return, Gulf would sell to Sterling certain of its holding in the Citronelle oil fields.

On February 19, 1959 Sterling assigned its interest in the above agreement with Waldron to Bart B. Chamberlain and George H. Jett.

Then on May 1, 1959, after much negotiation, Gulf entered into an agreement with Chamberlain and Jett to sell them certain properties in the Citronelle oil fields for 6 3/4 million dollars.

At the time the negotiations were going on between Gulf and Chamberlain and Jett for the purchase of Gulf's properties at Citronelle, Chamberlain was negotiating with Waldron and Lane for the release of Gulf from Waldron's anti-trust suit.

These negotiations were concluded on May 1, 1959, when Chamberlain agreed to pay $1,500,000 to Waldron in exchange for Waldron's promise to release Gulf from his lawsuit.

Chamberlain had agreed to pay the $1,500,000 as follows: $150,000 to be paid to Waldron upon his filing a motion in the U.S. District Court for the Southern District of New York asking that Gulf be dismissed as a party defendant from said lawsuit, executing a 'Covenant Not to Sue' and an 'Indemnification Agreement'; and, thereafter, $150,000 was to be paid each year for a period of nine years.

Waldron, through his attorney Lane, executed the instruments required of him by Gulf, and Gulf was dismissed as a party defendant with prejudice from Waldron's anti-trust suit on May 12, 1959 by order of the U.S. District Court.

The evidence reveals that several lawyers employed by Gulf were involved in various aspects of the dismissal of Gulf as a party defendant to Waldron's suit and the sale of Gulf's properties at Citronelle to Chamberlain and Jett.

David T. Searls, while a member of a law firm in Houston, Texas, represented Gulf in the Waldron litigation and first approached Lane about dismissing Gulf as a party defendant in said litigation. However, it was much later, and after Searls became a fulltime employee of Gulf in Pittsburg, that the negotiations for dismissal of Gulf from Waldron's anti-trust suit were finalized. Even then, the instruments required to be signed by the parties to the litigation were prepared by Raymond Corcoran, a lawyer in Gulf's law department at Houston, and Frederick L. Scofield, an attorney for Gulf in New York; although the documents prepared by these two lawyers were finally approved by Searls.

Searls stated that no amount of money was paid by Gulf to Waldron or offered to Waldron for the dismissal of Gulf from his lawsuit.

Searls further stated that he knew nothing about Gulf's sale of properties in Citronelle to Chamberlain, nor about Chamberlain's negotiations with Lane and Waldron to obtain Gulf's dismissal from Waldron's anti-trust suit.

Yet, Corcoran, who was involved in the dismissal of Gulf from Waldron's lawsuit, stated that the dismissal of Gulf from the lawsuit was a 'part of the transaction.' Mr. Chamberlain testified that he also understood that this was Gulf's requirement, i.e., that Gulf must be released from Waldron's lawsuit before it would sell its Citronelle properties to Chamberlain and Jett.

Lane wrote a letter to Scofield on May 1, 1959, in which he enclosed the documents required of Waldron by Gulf, and stated in said letter that Scofield was to hold all of said documents in escrow until Chamberlain paid Lane the first installment on the $1,500,000 which would be $150,000. Scofield agreed to this arrangement. The money was paid on that day, and Gulf was dismissed from the lawsuit on May 12, 1959, by order of the District Court.

Mr. Corcoran, the lawyer who was helping with the Waldron litigation, also introduced Mr. Chamberlain to the executives in Gulf's production department at Houston, with whom Mr. Chamberlain later negotiated for the purchase of certain properties belonging to Gulf in the Citronelle oil fields.

During the taking of Corcoran's deposition, there was testimony by him as to the requirement of Gulf that it be dismissed as a defendant from Waldron's anti-trust suit simultaneously with the sale to Chamberlain and Jett of certain of its holdings in the Citronelle field; and, in support of this testimony, a letter from Corcoran to Chamberlain and Jett was introduced into evidence as an exhibit to the deposition and the import of the letter was that the sale of Gulf's Citronelle properties was 'conditioned upon the execution of the instruments listed in that certain letter from Samuel M. Lane to Raymond Corcoran dated March 22, 1958, * * *' said instruments having been heretofore referred to and all pertaining to the dismissal of Gulf from Waldron's anti-trust suit.

The issue in this case as raised by the assignments of error, therefore, is whether or not Gulf is liable for the income tax assessment levied against it by the State, which said assessment was based on the payment of $1,500,000 to Waldron by Chamberlain and Jett to obtain Gulf's release from Waldron's anti-trust suit.

The State contends that the $1,500,000 which was paid to Waldron by Chamberlain and Jett to obtain Gulf's release from Waldron's lawsuit was part and parcel of the sale to Chamberlain and Jett by Gulf of certain of its interests in the Citronelle oil fields.

In propounding such a contention, the State relies principally on the testimony of Corcoran and Chamberlain that the release of Gulf from Waldron's lawsuit was, if not a pre-requisite, a co-equal requisite, to the sale by Gulf of its interests in certain properties at Citronelle. This testimony is supported by written evidence.

Gulf's contention, on the other hand, appears to be that no taxable income inured to it by reason of the payment of the $1,500,000 to Waldron by Chamberlain and Jett to obtain Gulf's dismissal from Waldron's anti-trust suit.

Gulf said that its dismissal from the lawsuit had nothing to do with the sale of certain of its oil properties at Citronelle to Chamberlain and Jett; and that it had no knowledge of the amount of money being offered to Waldron for the release of Gulf from his lawsuit, i.e., Gulf wanted to be released from the anti-trust suit, but it would not pay any money for such a dismissal and the amount of money asked for the sale of certain of its properties at Citronelle to Chamberlain and Jett would not be affected by its dismissal from Waldron's anti-trust suit.

As we understand Gulf's argument, there was no benefit received as a result of being dismissed as a defendant in Waldron's lawsuit, and, in fact, Gulf contends that it had no knowledge of the amount agreed to be paid for its release from said lawsuit.

It is also contended by Gulf that the $1,500,000 paid to Waldron by Chamberlain and Jett was in the nature of a finder's fee or commission for helping persuade Gulf to sell certain of its oil properties at Citronelle to Chamberlain and Jett.

The question presented to this court for answer is apparently a novel one.

Both parties to this appeal state that they were unable...