The Evergreens v. Nunan

• Decision Date: 03 April 1944
• Docket Number: No. 127.,127.
• Citation: 141 F.2d 927
• Parties: THE EVERGREENS v. NUNAN, Commissioner of Internal Revenue.
• Court: U.S. Court of Appeals — Second Circuit

141 F.2d 927 (1944)

THE EVERGREENS v. NUNAN, Commissioner of Internal Revenue.

No. 127.

Circuit Court of Appeals, Second Circuit.

April 3, 1944.

Neilson Olcott, Valentine B. Havens, and Charles B. McInnis, all of New York City (Jerome Weinstein and J. D. Graves, both of New York City, of counsel), for petitioner.

Howard P. Locke, of Washington, D. C., and Samuel O. Clark, Jr., Asst. Atty. Gen., and Sewall Key and J. Louis Monarch, Sp. Assts. to the Atty. Gen., for respondent.

Before L. HAND, SWAN, and AUGUSTUS N. HAND, Circuit Judges.

L. HAND, Circuit Judge.

This case comes up upon a petition to review an order of the Tax Court, assessing deficiencies in income tax against the taxpayer for the years 1934 and 1935. The taxpayer is a cemetery company doing business in Brooklyn, in the course of which it sells burial lots. The question at issue is its "gains," (§ 111(a) of the Revenue Act of 1934, 26 U.S.C.A. Int.Rev. Code, § 111(a), upon the disposition of a part of its property during the two years in question; and that in turn depends upon the "basis" which it shall be permitted to deduct from the "amount realized": that "basis" being the value on March 1, 1913, of the property disposed of. § 113(a) (14), 26 U.S.C.A. Int.Rev.Code, § 113(a) (14). The company's property was of two classes: "fully improved" lots, and "partially improved." During the years 1934 and 1935 it sold a number of "fully improved" lots, and the City of New York took over for municipal purposes a large tract, composed of "partially improved" lots. This appeal concerns only the second. The Tax Court allowed, as the "basis" for the sale of the "fully improved" lots, $1.55 per square foot, and, as the "basis" for the "partially improved" lots, $.35 per square foot. It held, as to the value of the "fully improved" lots, that the Commissioner was estopped by a finding of the Board of Tax Appeals in an earlier proceeding, in which the company's income taxes for the years 1929 to 1933, inclusive, had been assessed. The Commissioner raises no question as to the correctness of this finding, and has not appealed. The Tax Court refused, however, to compute a "basis" for the "partially improved" lots by deducting from the "basis" of the "fully improved" lots, as found by the Board, the cost of fully improving the "partially improved" lots, which the Board had also found in the first proceeding. The Tax Court altogether disregarded the "basis" of the "fully improved" lots as the Board had found it, and proceeded to appraise the value of the "partially improved" lots from evidence taken in this proceeding. The taxpayer's position is that the Board's order in the first proceeding, not only estopped the Commissioner as to the value of the "fully improved" lots, but conclusively established that value as an indisputable premise from which, by deducting the cost of the improvements to infer the value of the "partially improved" lots. The taxpayer also asserts that the value of the "partially improved" lots was found in the first proceeding as a necessary step in finding the value of the "fully improved" lots, and in this the dissenting minority of the Tax Court agreed. However, nothing in the record of the first proceeding bears this out; so far as appears, the Board did not first find the value of the "partially improved" lots and then add the cost of improvement. The sole basis for the assumption that it fixed any value for the "partially improved" lots is that, in calculating the value of the "fully improved" lots, it considered as one element the delay necessarily incident to the disposition of all the taxpayer's lots. That is an altogether different matter from fixing the value of those lots as a step from which to proceed to the value of the "fully improved." Again, although it is true that the Board found that the cost of improving the lots was from eight to twenty cents a square foot, that was not necessary to determining the value of the "fully improved" lots, and is not an estoppel. Finally, the taxpayer apparently also asserts that the evidence in this proceeding was not enough independently to support the Tax Court's finding as to the value of the "partially improved" lots, but the testimony of the expert witnesses upon that issue is an answer to this position.

It is of course well-settled law that a fact, once decided in an earlier suit, is conclusively established between the parties in any later suit, provided it was necessary to the result in the first suit. Southern Pacific R. Co. v. United States, 168 U.S. 1, 48, 18 S.Ct. 18, 42 L.Ed. 355; Tait, Collector, v. Western Maryland R. Co., 289 U.S. 620, 53 S.Ct. 706, 77 L.Ed. 1405. However, a "fact" may be of two kinds. It may be one of those facts, upon whose combined occurrence the law raises the duty, or the right, in question; or it may be a fact, from whose existence may be rationally inferred the existence of one of the facts upon whose combined occurrence the law raises the duty, or the right. The first kind of fact we shall for convenience call an "ultimate" fact; the second, a "mediate datum." "Ultimate" facts are those which the law makes the occasion for imposing its sanctions.

The first question is whether, in ascertaining which facts, of those decided in the first suit, are conclusively established, the court in the second suit may go beyond the judgment roll. It has been long the law that it can. Young v. Black, 7 Cranch 565, 3 L.Ed. 440; Doty v. Brown, 4 N.Y. 71, 75, 53 Am.Dec. 350; King v. Chase, 15 N.H. 9, 41 Am.Dec. 675. The next question is whether, after the court in the second suit has learned what the court in the first suit actually did decide, the judgment conclusively establishes for any purpose any other facts than those which were "ultimate" in the first suit; that is to say, whether any facts decided in the first which were only "mediate data" in that suit, are conclusively established in the second suit. Some courts hold that only facts "ultimate" in the first suit are conclusively established. King v. Chase, supra, 15 N.H. 9, 41 Am.Dec. 675; Winnipiseogee Lake Cotton & Woolen Manufacturing Co. v. Laconia, 74 N.H. 82, 65 A. 378; Campbell v. Milliken, 20 Colo.App. 299, 78 P. 620; Sullivan Machinery Co. v. Stowell, 80 N.H. 158, 114 A. 873; Louisville Gas Co. v. Kentucky Heating Co., 132 Ky. 435, 111 S.W. 374. (People ex rel. McCanliss v. McCanliss, 255 N.Y. 456, 459, 175 N.E. 129, 82 A.L.R. 1141, may possibly be in line with these.) The same notion was foreshadowed in the often quoted language of Coke: "Every estoppel * * * must be certain to every intent, and not to be taken by argument or inference." Co. Lit. 352b. DeGrey, C. J., probably had the same idea in mind in the Duchess of Kingston's Case: "But neither the judgment * * * is evidence of any matter which came collaterally in question * * * nor of any matter incidentally cognizable, nor of any matter to be inferred by argument from the judgment." Smith's Leading Cas. 424, 9th Am. ed. 1998, 20 How. St. Tr. (Eng.) 355. On the other hand, other courts refuse to distinguish between "ultimate" facts and "mediate data" decided in the first suit, so long as they were necessary to the result. Wright v. Griffey, 147 Ill. 496, 35 N.E. 732, 37 Am. St.Rep. 228; Farmers' & Fruit-Growers' Bank v. Davis, 93 Or. 655, 184 P. 275; Dobbins v. Title Guarantee & Trust Co., 22 Cal.2d 64, 136 P.2d 572. We read Freeman on Judgments, § 693, as in accord with these cases. We need not choose between these two doctrines, because, as we have seen, the Board decided nothing in the first proceedings which was both a "mediate datum" in that proceeding and necessary to the result.

The important question here is not therefore whether "mediate data" in the first suit are as conclusively established as "ultimate" facts in that suit. On the contrary, we are to decide what are the purposes in the second suit for which anything decided in the first suit — whether "ultimate facts", or "mediate data" therein — are conclusively established. Do the "ultimate" facts, or the "mediate data" decided in the first suit conclusively establish in the second, anything but facts "ultimate" in that suit? Do they also establish "mediate data" in that suit: i.e. premises from which to deduce the existence of any of the facts "ultimate" in that suit?

It...