U.S. v. Lucienne D'Hotelle De Benitez Rexach

• Decision Date: 20 June 1977
• Docket Number: No. 76-1117,76-1117
• Parties: 77-2 USTC P 9486 UNITED STATES of America, Plaintiff, Appellant, v. LUCIENNE D'HOTELLE de BENITEZ REXACH et al., Defendants, Appellees.
• Court: U.S. Court of Appeals — First Circuit

Page 37

558 F.2d 37

77-2 USTC P 9486

UNITED STATES of America, Plaintiff, Appellant, v. LUCIENNE D'HOTELLE de BENITEZ REXACH et al., Defendants, Appellees.

No. 76-1117.

United States Court of Appeals, First Circuit.

Argued Feb. 11, 1976.

Decided June 20, 1977.

John McCarthy, Atty., Tax Division, Dept. of Justice, with whom Scott P. Crampton, Asst. Atty. Gen., Washington, D. C., Julio Morales Sanchez, U. S. Atty., Jose A. Anglada, Asst. U. S. Atty., San Juan, P. R., Gilbert E. Andrews and Crombie J. D. Garrett, Attys., Tax Division, Dept. of Justice, Washington, D. C., were on brief, for plaintiff, appellant.

Roberto Buso Aboy, Santurce, P. R., for Maria Benitez Rexach Vda. de Andreu, defendant, appellee.

Rene Benitez pro se., and for Felix Benitez and Haydee Benitez, defendants, appellees.

Before COFFIN, Chief Judge, INGRAHAM, Circuit Judge ^*, CAMPBELL, Circuit Judge.

INGRAHAM, Circuit Judge.

This case and related lawsuits reflect the United States' efforts to tax income earned in the 1940's and 1950's by Felix Benitez Rexach, husband of Lucienne D'Hotelle de Benitez Rexach. ¹ The deaths of Lucienne and Felix have not halted the litigation. We hold that the district court erred in

ruling that Lucienne was not liable for taxes on one-half the income earned by Felix from November 10, 1949 to May 20, 1952. We do not disturb the refusal of the district court to dismiss Maria Benitez Rexach Viuda de Andreu as a party defendant.

FACTS

Lucienne D'Hotelle was born in France in 1909. She became Lucienne D'Hotelle de Benitez Rexach upon her marriage to Felix in San Juan, Puerto Rico in 1928. She was naturalized as a United States citizen on December 7, 1942. The couple spent some time in the Dominican Republic, where Felix engaged in harbor construction projects. Lucienne established a residence in her native France on November 10, 1946 and remained a resident until May 20, 1952. During that time § 404(b) of the Nationality Act of 1940 ² provided that naturalized citizens who returned to their country of birth and resided there for three years lost their American citizenship. On November 10, 1947, after Lucienne had been in France for one year, the American Embassy in Paris issued her a United States passport valid through November 9, 1949. Soon after its expiration Lucienne applied in Puerto Rico for a renewal. By this time she had resided in France for three years. Nevertheless, the Governor of Puerto Rico renewed her passport on January 20, 1950 for a two year period beginning November 10, 1949. Three months after the expiration of this passport, Lucienne applied to the United States Consulate in Nice, France for another one. On May 20, 1952, the Vice-Consul there signed a Certificate of Loss of Nationality, citing Lucienne's continuous residence in France as having automatically divested her of citizenship under § 404(b). Her passport from the Governor of Puerto Rico was confiscated, cancelled and never returned to her. The State Department approved the certificate on December 23, 1952. Lucienne made no attempt to regain her American citizenship; neither did she affirmatively renounce it.

In October 1952 the Dominican Republic (then controlled by the dictator Rafael Trujillo) extended citizenship to Lucienne retroactive to January 2, 1952. Trujillo was assassinated in May 1961. The provisional government which followed revoked Lucienne's citizenship on January 20, 1962. On June 5, 1962 the French government issued her a passport.

For the years 1944 to 1958, Felix earned millions of dollars from harbor construction in the Dominican Republic. He was aided by Trujillo's favor and by his own undeniable skills as an engineer. Felix, an American citizen since 1917, ³ was sued by the United States for income taxes. The court held that Lucienne had a vested one-half interest in Felix's earnings under Dominican law, which established that such income was community property. Since the law of the situs where the income was earned determined its character, Felix could be sued only for his half of the earnings. United States v. Rexach, 185 F.Supp. 465 (D.P.R.1960).

Predictably, the United States eventually sought to tax Lucienne for her half of that income. Whether by accident or design, the government's efforts began in earnest shortly after the Supreme Court invalidated Lucienne died on January 18, 1968. During her lifetime, Felix, as administrator of the marital community, retained and administered the community property, including Lucienne's share of the income earned in the Dominican Republic. Upon her death Felix did not return her share to the estate, but retained it. Lucienne's will named Maria Benitez Rexach Viuda de Andreu as executrix and Felix as sole beneficiary.

the successor statute ⁴ to § 404(b). In Schneider v. Rusk, 377 U.S. 163, 84 S.Ct. 1187, 12 L.Ed.2d 218 (1964), the Court held that the distinction drawn by the statute between naturalized and native-born Americans was so discriminatory as to violate due process. In January 1965, about two months after this suit was filed, the State Department notified Lucienne by letter that her expatriation was void under Schneider and that the State Department considered her a citizen. Lucienne replied that she had accepted her denaturalization without protest and had thereafter considered herself not to be an American citizen.

Lucienne's attorney officially notified the district court of Lucienne's death on October 25, 1973. The United States moved successfully to amend the complaint to add Maria and Felix as parties defendant. The amended complaint was filed on December 3, 1973. Maria failed to answer the complaint despite valid service of process. Default was entered against her on December 23, 1974. On April 14, 1975 Maria obtained an order from the Superior Court of Puerto Rico dismissing her as executrix. Her petition to that court included the admission that she had filed a tax return for the estate. The United States District Court denied her subsequent motion for dismissal as a party defendant.

The district court found that Lucienne was liable for taxes on her half of Felix's income from 1944 through November 9, 1949 in an amount to be computed in accordance with a stipulation of the parties. The court also found that Felix was obligated to pay this amount because (1) he was administrator of the marital community, (2) he had retained control and possession of the community property, thus making him a transferee at law of property subject to federal tax liens, and (3) he had tortiously converted property subject to federal tax liens. The district court absolved Lucienne of liability for taxes on income earned after November 9, 1949. Felix died on November 18, 1975. The United States filed a notice of death and moved to add Maria and Ramon Rodriguez as defendants in their capacities as co-executors of Felix's will. The motion was granted.

The United States appealed the denial of liability for the period November 10, 1949 to May 20, 1952. With this lengthy but skeletal summary we proceed to the merits.

LUCIENNE'S CITIZENSHIP

The government contends that Lucienne was still an American citizen from her third anniversary as a French resident until the day the Certificate of Loss of Nationality was issued in Nice. This case presents a curious situation, since usually it is the individual who claims citizenship and the government which denies it. But pocketbook considerations occasionally reverse the roles. United States v. Matheson, 532 F.2d 809 (2nd Cir.), cert. denied 429 U.S. 823, 97 S.Ct. 75, 50 L.Ed.2d 85 (1976). The government's position is that under either Schneider v. Rusk, supra, or Afroyim v. Rusk, 387 U.S. 253, 87 S.Ct. 1660, 18 L.Ed.2d 757 (1967), the statute by which Lucienne was denaturalized is unconstitutional and its prior effects should be wiped out. Afroyim held that Congress lacks the power to strip persons of citizenship merely Section 404(b) would have been declared unconstitutional under either Schneider or Afroyim. The statute is practically identical to its successor, which Schneider condemned as discriminatory. Section 404(b) would have been invalid under Afroyim as a congressional attempt to expatriate regardless of intent. Likewise it is clear that the determination of the Vice-Consul and the State Department in 1952 would have been upheld under then prevailing case law, even though Lucienne had manifested no intent to renounce her citizenship. Mackenzie v. Hare, 239 U.S. 299, 36 S.Ct. 106, 60 L.Ed. 297 (1915). Accord, Savorgnan v. United States, 338 U.S. 491, 70 S.Ct. 292, 94 L.Ed. 287 (1950). See also Perez v. Brownell, 356 U.S. 44, 78 S.Ct. 568, 2 L.Ed.2d 603 (1958), overruled, Afroyim v. Rusk, supra.

because they have voted in a foreign election. The cornerstone of the decision is the proposition that intent to relinquish citizenship is a prerequisite to expatriation.

We think the principles governing retrospective application dictate that either Schneider or Afroyim apply to this case. ⁵ This circuit has applied Afroyim retroactively. Rocha v. Immigration and Naturalization Service, 450 F.2d 946 (1st Cir. 1971) (per curiam ), withdrawing prior opinion, 351 F.2d 523 (1st Cir. 1965). Angela Rocha was born in Portugal in 1931. Her mother, a native American had married a Portuguese citizen in 1916 and moved to his homeland. Under the law then in effect Angela's mother was automatically divested of American citizenship by marrying a foreign national. Thus Angela was the daughter of two foreign nationals and, in the pre-Afroyim era, not an American citizen. In 1965 this court upheld the decision of the Board of Immigration Appeals that Angela was not a citizen. 351 F.2d 523. Upon granting a motion for reconsideration, the court held that Afroyim "clearly refutes" the notion that an American citizen can be involuntarily expatriated. 450 F.2d at 947. Thus Angela's mother was a citizen when Angela was born in 1931...