Court Opinion

ID: 9653404
Source: CourtListenerOpinion
Date Created: 2023-08-23 17:46:10.598106+00
Date Added: 2024-06-11T18:12:58.844315
License: Public Domain

O’CONNELL, Circuit Judge
(dissenting).
As the majority opinion indicates, the case sub judice was heard by a division of this court on January 7, 1946. There was no contest as to the facts or inferences legitimately to he drawn therefrom. We concluded that the sole question presented for our determination was one of law; viz., had decedent made completed gifts in trust, with life income reserved, prior to the effective date of the Joint Resolution of 1931 ? In the case of the Standard Oil securities, the answer depended upon when decedent became irrevocably and filially bound by the Deed of 1915; in the case of the non-Standard Oil securities, the controlling factor was the nature of disposition of the extraordinary distributions. Our analysis of the problems presented led us to believe that the Tax Court had applied the law erroneously. Consequently, we reached the conclusion that the decision of the Tax Court should he reversed both as to all Standard Oil securities and as to those non-Standard Oil securities on which waivers were executed subsequent to March 3, 1931.
After the opinion of this court was filed on June 11, 1946, respondent petitioned for, and obtained, rehearing before the court cn banc. In my view, neither the petition for, nor written and oral arguments at, rehearing introduced any new matter or legal questions not previously considered by the court. Somehow, nevertheless, the “clear-cut questions of law,” in the eyes of the majority, suffered a change into a “mixed fact and law” question, with the consequent conclusion that the application of the Dobson doctrine prohibited our review.
Since the facts on the basis of which this case proceeded are undisputed, I still believe that the sole question is one of law unadulterated. As to the Standard Oil securities, taxability depends upon the legal effect of a writing described as a Deed of Family Settlement and Trust; what that effect was, is a question properly determinable by Pennsylvania law. As to the nonStandard Oil securities, decedent’s rights under an informal trust agreement likewise required resort to Pennsylvania law. A court of that state has ruled formally on both types of securities in this same estate. If the Tax Court fails to recognize that ruling, does the Dobson doctrine preclude our review? I believe not. See Helver-ing v. Stuart, 1942, 317 U.S. 154, 164, 63 S.Ct. 140, 87 L.Ed. 154; Trust of Bing-ham v. Commissioner, 1945, 325 U.S. 365, 381, 65 S.Ct. 1232, 89 L.Ed. 1670; Paul, 1946 Supplement, Federal Estate and Gift Taxation, § 14.22E, p. 602.
The majority opinion seems to me to be inconsistent with both the previous1 and present position of this court on the appli*586cation of tile Dobson doctrine. As recently as March 4, 1947, this court, in Hallowell v. Commissioner, 3 Cir., 160 F.2d 536, found the question presented' to be one purely of law, with the result that the Dobson doctrine could not be urged in support of the Tax Court decision. The criterion for adjudicating such cases as pure questions of law and this case as a mixed fact and law question does not appear in the opinions; nor, I submit, does an independent analysis of the facts of the cases reveal what essential element was lacking in one or present in another to require the unexplained invocation of, or rejection of, the Dobson doctrine.
I believe Trust of Bingham v. Commissioner, supra, and Commissioner v. Estate of Field, 1945, 324 U.S. 113, 65 S.Ct. 511, 89 L.Ed. 786, 159 A.L.R. 230, mark out the course to be followed in the instant case. In both cases, the Circuit Court had reversed the Tax Court on a question of law. The Supreme Court did not take refuge in the Dobson doctrine. Instead, it reviewed each case on the merits.
For the foregoing reasons, I believe that it was incumbent upon this court to examine the instrument in question and determine whether the Tax Court was correct in its application of law to the uncontested facts and inferences within its power to draw.
The concurring opinion does make the type of analysis which I believe is required in this case. I disagree, however, with the conclusion reached in that concurring opinion.
I. The Standard Oil Securities.
As was indicated above, a Pennsylvania court had occasion to interpret this same family agreement. In the course of , its ■opinion, that court said, “When Eleanor Houston Smith signed the family agreement in 1931, all parties entitled to become signatories had. signed the agreement and had surrendered their rights to revoke it. At that time the agreement became forever final and binding * * 2 This opinion has been interpreted by the Tax Court. In a prior case concerning the liability for an income tax on this same estate, the Tax Court said, “For convenience, we may regard the family settlement agreement as such 'assignment’ by the life tenant. The assignment became irrevocable and forever binding in 1931. * * * The Orphans’ Court denied the claim, holding that the dividend belonged to the trustees as principal of the trust under the 1915 agreement, which becmne binding on Sattie Houston Henry [decedent in this case] and others in 1931.” Estate of Sallie Houston Henry, 47 B.T.A. 843, 849 (1942; brackets and emphasis supplied). These two expressions the concurring opinion discounts as obiter dicta. Proceeding upon an independent analysis of the instrument in the light of certain terms of the instrument itself, the concurring opinion holds that the instrument intended to convey and did convey the interest of decedent when she signed it, because return of the property to decedent thereafter could be accomplished only by events beyond her control.
I consider myself bound by what the Pennsylvania court has said. “The determination by the New Jersey courts of the kind of interest transferred and the time when it was effected is a matter of local law binding on us.” Central Hanover Bank & Trust Co. v. Kelly, 1943, 319 U.S. 94, 97, 63 S.Ct. 945, 947, 87 L.Ed. 1282; emphasis supplied. If the agreement “became forever final and binding” when Eleanor Houston Smith signed, it follows that the agreement was not forever final and binding prior to that time. Something, then, was surrendered by decedent in 1931; for, if the instrument was not binding, decedent’s rights were the same as they had been in 1915, at which time it is conceded her legacy was greater than in 1931. It follows, therefore, that the decedent was holding a string on the entire transaction including the transfer of her interests until the last person who could upset it was bound. That person, according to the Orphans’ Court, was Eleanor Houston Smith. She could not and did not sign before July 23, 1931. At that time, in the words of the Orphans’ Court, “the agreement became forever final and binding.” Distribution previously made *587on an “interim” basis and as “authorized” then became a matter of permanent right. At that moment, Sallie Houston Henry became for all purposes bound by the Deed. She then lost all control over the Standard Oil securities. At that moment, the Joint Resolution of 1931 was operative. Its application to the securities thus transferred by Sallie Houston Henry is therefore not retroactive. Consequently, the inhibitive Hassett v. Welch, 1938, 303 U.S. 303, 58 S.Ct. 559, 82 L.Ed. 858, is not controlling.
I consider the fact that the property could revert to decedent only by events beyond her control to be immaterial. The sole test, in my opinion, is whether the property could revert. Examination of the cases on this subject seems to support this contention. In Helvering v. Hallock, 1940, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. 604, 125 A.L.R. 1368, the reversionary interest of the settlor depended upon his surviving his wife, an event beyond his control.3
Paragraph 6 of the Deed says: “But if at any time in the future any one or more of the descendants of Henry H. Houston or Sallie S. Houston are not satisfied with this Deed of Family Settlement and Trust, and not willing to become signatories thereto and acquiesce in this disposition of the Standard Oil securities, hereinbefore referred to, and also the disposition of the assets of the residuary estate of Sallie S. Houston, deceased, as hereinbefore provided, then, in such case, it is distinctly understood and agreed by all of the parties hereto that the said three children of Henry II. Houston, deceased, and the other signa-, tories hereto, shall be restored in theii rights, whatever they may be, to such legal situation as existed with reference to such Standard Oil securities and the assets of the Estate of Sallie S. Houston, deceased, as though this instrument had never been executed * * Decedent voluntarily became party to an instrument which reserved to her those rights she had prior to the signing of the instrument, if an event occurred. At the time she signed, most of the eleven grandchildren of Sallie Houston who eventually became signatories had not signed. That it was to their financial interest to do so is undisputed; but it requires no elaboration to point out that humans do not always pursue the course most favorable to their financial well-being. Why else should the decedent have required the grandchildren to bc.comc parties? Further, it would have been to the financial interest of Gertrude Houston Woodward and Samuel F. Houston to urge one of their children to refuse to sign; for, under the instrument, these two branches of the family undertook to surrender to decedent’s branch a share of what they were almost certain to receive under1 Sallie Houston’s will — a decision of which they might well have repented as time wore on. It was only when Eleanor Houston Smith actually signed, sixteen years later, that such possibilities as these vanished. The Tax Court recognized that the possibility of upsetting the instrument existed, and called it “extremely remote”; hut we now know that remoteness is immaterial. Commissioner v. Estate of Field, 324 U.S. at page 116, 65 S.Ct. 511, 89 L.Ed. 786, 159 A.L.R. 230.
Thus far, I have avoided use of such terms of art as “condition precedent,” “condition subsequent,” and the like. I have done so because I believe that the clear mandate of Helvering v. Hallock, supra, was intended to eliminate such casuistries from consideration in the imposition and adjudication of taxes. Even if respondent’s contention, that a condition subsequent was here involved, is accepted, nevertheless I believe that the tax would still apply. If my understanding of Helvering v. Hallock, supra, is correct, that case likewise involved a condition subsequent (309 U.S. at page 115, 60 S.Ct. 444, 84 L.Ed. *588604, 125 A.L.R. 1368); and yet the reversionary interest was deemed sufficient to warrant the imposition and collection of an estate tax. I know of no reason why this particular condition subsequent, if such it be, should receive preferential treatment.
ÍI. The Non-Standard Oil Securities.
The non-Standard Oil securities present a very different situation. As pointed out by the Tax Court, these securities were not referred to or affected by the Deed. The Orphans’ ■ Court adjudication, which the Tax Court and concurring opinion concede to be probably binding, informs us that these distributions on these securities were to be retained as principal in the same manner as the Standard Oil Company stock dividends. The life tenants made no demand for these distributions and signed annual waivers and approvals for the years 1928 to 1936, inclusive. Each of these approvals, the Orphans’ Court said, constituted an irrevocable release.
Thus, decedent each year surrendered absolutely distributions to which she was entitled under Henry Houston’s trust. Each time she signed the waiver, she was irrevocably bound. No string, therefore, was retained on those distributions concerning which she signed waivers prior to March 3, 1931, and an estate tax would not be applicable. After March 3, 1931, since she chose by waiver to permit the distributions to become principal,4 she effectually created trusts in which she had reserved a life estate in the income. This brings her four-square within the provisions of the Joint Resolution of 1931. That these latter distributions may escape taxation by treating them as “minuscule,” on the basis of their constituting less than 1% of the value of the corpus of a trust approximating $14,000,000, seems to me a novel concept. May the incidence of tax, minuscule or not, be excused by our court without congressional authorization?
It cannot be overemphasized that the Pennsylvania adjudication noted a cardinal distinction between the Standard Oil and non-Standard Oil securities; with the latter, decedent was irrevocably bound each year from 1928 to 1936; with the former, she became irrevocably bound only when Eleanor Houston Smith signed the Deed.
For the reasons stated, I adhere to the original decision of this court that decedent’s share of the extraordinary distributions on the Standard Oil securities, and her share of the “stock dividends and other extraordinary corporate distributions” of the non-Standard Oil securities on which she executed waivers subsequent to March 3, 1931, are taxable to her estate; and I would affirm the Tax Court only as to the non-Standard Oil securities on which she executed waivers prior to March 3, 1931. I wish to add, however, that, if May v. Heiner is no longer law, and if the retention of a life estate in the income is sufficient to warrant imposition of an estate fax, all securities involved in this case would be an appropriate object of taxation by the Commissioner. My comments concerning the degree of vitality left in the May v. Heiner doctrine are contained in the dissenting opinion filed in the case of Commissioner v. Church, 3 Cir., 1947, 161 F.2d 11.

 Orphans’ Court, Philadelphia County, per Judge Sinkler, adjudication filed October 8, 1941; emphasis supplied.

 Cf. Fidelity-Philadelphia Co. v. Rothensies, 1945, 324 U.S. 108, 65 S.Ct. 508, 89 L.Ed. 783, 159 A.L.R. 227; Commissioner v. Estate of Field, 1945, 324 U. S. 113, 65 S.Ct. 531, 89 L.Ed. 786, 159 A.L.R. 230; and Goldstone v. United States, 1945, 325 U.S. 687, 65 S.Ct. 1323, 89 L.Ed. 1871, 159 A.L.R. 1330. These cases are apropos, in that settlor’s reversionary interest was dependent upon, survival, which obviously was beyond settlor’s control. While these eases differ from that at bar in that the gifts assumed an aspect not unlike that of a testamentary disposition, the similarity nonetheless persists that all involve a reversion which settlor could do nothing to bring about or prevent.

 The exact words of the Orphans’ Court were: “By the oral agreements as to securities other than those of the Standard Oil Company, and the repeated affirmation of such agreements found in the approval of the various accounts, the life tenants released to the principal of the trust any claims to stock div-Mends and other extraordinary corporate distributions to which they might be entitled as the income Beneficiaries of the trust. When made, this release was irrevocable * * (Emphasis supplied.) It should be noted that the Tax Court did not inquire into the nature of the' oral agreements.