United States v. Estes

• Decision Date: 07 February 1978
• Docket Number: No. CA 1-76-19.,CA 1-76-19.
• Citation: 448 F. Supp. 971
• Parties: UNITED STATES of America v. Billie Sol ESTES and Patsy D. Estes.
• Court: U.S. District Court — Northern District of Texas

448 F. Supp. 971

UNITED STATES of America v. Billie Sol ESTES and Patsy D. Estes.

No. CA 1-76-19.

United States District Court, N. D. Texas, Abilene Division.

February 7, 1978.

John J. McCarthy, Jr., Tax Div., Dept. of Justice, Washington, D. C., Claude D. Brown, Asst. U. S. Atty., Fort Worth, Tex., for the Government.

Jack Bryant, Abilene, Tex., for defendants.

OPINION ON MOTIONS FOR SUMMARY JUDGMENT

BREWSTER, District Judge.

The United States of America (Government) brought separate suits against Billie Sol Estes and wife, Patsy D. Estes, seeking a personal judgment against each of them for amounts they owed it as a result of assessments for certain income taxes, penalties and interest for the years 1959, 1960, 1961 and 1962, plus accrued interest as provided by law. Those suits were consolidated into this one action by agreement of all parties. By its amended pleadings, the Government predicated its suit upon (1) the liabilities under the respective tax assessments, and (2) the debts created by the existing final judgments of the Bankruptcy Court in the Billie Sol Estes proceeding and the Tax Court in the Patsy D. Estes case. The matter is now before the Court on separate motions for summary judgment filed by each of the parties before the consolidation.

It is agreed that there is no genuine issue as to any material fact, and that the case should be disposed of by summary judgment.¹

The Estes are residents of this judicial district. All requirements under 26 U.S.C. §§ 7401 and 7403 for the bringing of this character of action have been met. The Court has jurisdiction of the subject matter. 28 U.S.C. § 1340, and 26 U.S.C. § 7402(a).

The claims for delinquent taxes grew out of the failure of Billie Sol Estes to report and pay taxes on the receipt of many millions of dollars garnered by him during the years in question in his operation of a notorious, mammoth, far-reaching swindle.² On April 7, 1962, shortly after the operation collapsed, he filed in the Pecos Division of the United States District Court for the Western District of Texas a petition for arrangement under Chapter XI of the Bankruptcy Act.³ He was adjudicated a bankrupt in that proceeding on July 13, 1962. A final order of the Bankruptcy closing the proceeding was entered on December 5, 1969; but Billie Sol Estes was denied a discharge in bankruptcy.

After the adjudication that Billie Sol Estes was a bankrupt, the assessments here involved were made against him for a total of $21,094,955.33, plus accrued interest as provided by law. The dates of the assessments, notices and demands for the various years were: for 1959 and 1960—October 17, 1963; for 1961—August 9, 1963; and for 1962—January 23, 1967.

Under the circumstances, the income tax liabilities included in these assessments had to be litigated in the pending bankruptcy proceeding. 26 U.S.C. § 6871(b).⁴ Proofs of claim based upon each of the assessments were filed there. Objections to the tax liabilities and tax assessments for the years 1959, 1960 and 1961 were filed by the Trustee in the bankruptcy proceeding and by Billie Sol Estes.⁵ They claimed that the money Billie Sol bilked from his victims represented loans from them to him, rather than income. The referee in Bankruptcy disallowed the proofs of claim for the three years set out above. On a hearing on Petition for Review filed by the Government, the United States District Court set aside the order of the Referee, and allowed the proofs of claim. The Court of Appeals upheld the District Court's judgment to the extent that the claims are sued upon in the present action. Moore, Trustee v. United States, 5 Cir., supra, footnote 2.

Patsy D. Estes was not a party in any bankruptcy proceeding, so the procedure in regard to the litigation of her tax liabilities was different. Assessments totalling $24,558,024.90 were made against her for income taxes, penalties and interest for the years 1959, 1960, 1961 and 1962.⁶ After notices of the assessments and demands for payment thereof were served upon her, she filed petitions with the Tax Court of the United States, pursuant to Section 6213 of the Internal Revenue Code of 1954, as amended, seeking a redetermination of the tax liabilities asserted in the notices of deficiency. The Tax Court proceedings resulted in a decision on January 23, 1970 determining that she was liable for the taxes, penalties and interest listed in the assessments, plus accrued interest as provided by law. That decision became final on April 23, 1970.

Each of the assessments against Billie Sol Estes and Patsy D. Estes included a 50% fraud penalty.

The Government was not claiming the total of the two amounts assessed against the taxpayers, as their income tax liabilities for the years 1959-1962, both inclusive, were joint. The pendency of the bankruptcy proceedings made it necessary to litigate the tax liabilities of the husband and wife separately in different forums. In his oral argument on the motions, counsel for the Government gave the following explanation for what he said were the apparent differences in the total amounts of the liabilities determined in the Bankruptcy Court and the Tax Court:

"MR. McCARTHY: Your Honor, basically we have the joint income tax liabilities of Billie Sol Estes, and his wife, Patsy Estes, for the year 1959, through 1962, which are the subject of both of these cases. They are joint liabilities, but they were litigated originally in different forums.

"Since they were litigated in different forums, they were assessed by the Revenue Service under different Revenue statutes, and were litigated at different times, so the liabilities appear to be in different amounts, and that is because of the way interest accrued on tax rates, and on other elements of the liabilities. But, they are joint liabilities."

The Government says that each of the following theories authorizes the entry of the judgment now sought by it:

1. There is both statutory and common law authority to maintain a suit on the liabilities evidenced by the tax assessments.

2. An action in debt on the basis of the existing judgments is authorized by common law.

The defendants contend that:⁷

1. Authority for the Government to recover judgment for income taxes assessed must be derived from a statute. 26 U.S.C. § 7403, relied upon by the Government, is not applicable to this type of action, because it authorizes only a suit to enforce a lien on some specific property of the tax-payer.

2. The tax liabilities of each of the defendants under the respective assessments against them were adjudicated in the Bankruptcy Court (Billie Sol Estes matter) and the Tax Court (Patsy D. Estes case). The pertinent judgments of those tribunals have long since become final, and are res judicata of the tax liabilities determined by them. They are therefore a bar to any further legal action on their underlying indebtednesses.

3. While courts have the authority to render judgment on the basis of an existing judgment, it is limited to those cases where it is necessary to expand the "geographical coverage" of the judgment sued upon. That necessity does not exist here.

4. This action is being maintained to make life more difficult for Billie Sol Estes while he is on parole on his fifteen year sentence for various offenses arising out of his fraudulent scheme heretofore mentioned.⁸ This point is too frivolous to require discussion.

The defendants argue that since the Government is not entitled to recover on any theory presented by the pleadings they are each entitled to summary judgment.

The Court is of the opinion that the Government is entitled to summary judgment based on the judgments of the Tax Court and of the Bankruptcy Court.

The Court agrees with the Government that as a general proposition an action to recover personal judgment against a taxpayer on the basis of a tax liability evidenced by an assessment against him is authorized both by statute (26 U.S.C. § 7402(a),⁹ and by common law (Damsky v. Zavatt, 2 Cir., 289 F.2d 46 (1961). That rule would be applicable to this case now if the tax liabilities under the assessments had not already been litigated in the Bankruptcy and the Tax Courts. The determinations of those tribunals are res judicata of all issues that were or could have been litigated in those actions.¹⁰ While the parties agree that those judgments are res judicata,¹¹ there is a difference between them as to the effect of the application of the rule. The plaintiff takes the position that res judicata forecloses any contest of the tax liabilities involved in the assessments, but does not bar an action of this kind. The defendants agree that they have no right to contest such tax liabilities, but say that the Government already has final judgments on such liabilities which are a bar to any further action on them.

The Court is of the opinion that the judgments of the Bankruptcy Court and the Tax Court bar any further litigation based on the causes of action there involved. If that were not so, res judicata would be meaningless in this case. "Res judicata" means that "a judgment `on the merits' in a prior suit involving the same parties or their privies bars a second suit on the same cause of action." Lawlor v. National Screen Service Corp., 349 U.S. 322, 326, 75 S.Ct. 865, 867, 99 L.Ed. 1122, 1126 (1955). If recovery were allowed here on the basis of the tax liabilities involved in the assessments in question, there would be two judgments on the merits of the same causes of action. Res judicata does not permit that.

The Government, may, however, recover a personal judgment against each of the defendants as prayed for on the basis of the judgments of the Bankruptcy and the Tax Courts. That is a cause of action independent of the ones involved in the Bankruptcy and the Tax Courts. "A judgment creates a new right in the judgment plaintiff and imposes a new duty on the defendant, independent of the cause of action...