Court Opinion

ID: 9653234
Source: CourtListenerOpinion
Date Created: 2023-08-23 17:41:43.269716+00
Date Added: 2024-06-11T18:12:57.237008
License: Public Domain

BRATTON, Circuit Judge
(dissenting).
I am unable to join in the conclusion reached by the majority respecting No. 816.
The facts are that under date of June 2, 1925, West Texas Refining '& Development Company, Hiekok Producing Company, J. S. Anderson, A. S. Close, A. S. Hiekok, and L. H. Prichard, on the one hand, and Standard Oil Company of California, on the other, entered into a written contract. Hiekok and Anderson were president and secretary, respectively, of West Texas Company, also of Anderson-Priehard Oil Corporation, a stockholder in West Texas Company. Hiekok and Close were president and secretary, respectively, of Hiekok Refining Company, likewise a stockholder in West Texas Company. The contract provided that Anderson, Close, Hiekok, and Prichard would transfer, or cause to be transferred, to Standard Company, 50 per cent, of the capital stock of a corporation owning the refinery, pipe lines, and gathering lines then the property of West Texas Company; also that they would transfer, or cause to be transferred, to Standard Company the entire undivided one-half interest of West Texas Company in certain mineral leases in the oil field near Colorado, Tex.; that Standard Company would pay $72,000, plus one-half of the cost of extra development and improvement of the refinery properties, for the stock, and $210,000 for the leases. Payment for the stock was to be made on September 1, 1925, and payment for the leases was to be made on the transfer thereof with approval of title.
Subsequent to the execution of the contract and for the obvious purpose of effecting the sale, Col-Tex Company was incorporated under date of August 24, 1925. The refinery, pipe lines, and gathering lines were transferred to that company. It issued two thousand shares of stock to West Texas Company. It issued a like amount to Standard Company. Acting as a clearing house, it received from Standard Company $184,771.-34 in cash, and immediately paid it to West Texas Company. The Commissioner found that the assets thus transferred by West Texas Company to Col-Tex Company were of the value of $314,969.80. I think that finding should be sustained. West Texas Company received therefor $184,771.34 — an amount insufficient to pay the debts of that company — and capital stock of undetermined value of Col-Tex Company. The cash was provided by Standard Company. West Texas Company applied the cash to payment of its debts and distributed the stock among its ■ stockholders on the basis of one share for each share owned in that company. After such payment and distribution it owned no property or assets of any kind.
The predominant purpose of the whole scheme from its inception to its conclusion was to effect a sale from West Texas Company to Standard Company. Bach preliminary and intermediate step was to achieve that end. Everything done was in furtherance of that purpose exactly as the parties contemplated from the outset. Every act in the play occurred in proper and ordered sequence, each player coming on the scene and performing his part in strict accordance with the will understood and common purpose of all parties concerned with the transaction.
Having divested itself of all assets, as contemplated from the outset, West Texas Company is unable to pay the tax. Col-Tex Company, having full knowledge of all the facts, not only acted in close concert with West Texas Company to achieve that end, but was a conduit through which to accomplish it. West Texas Company contends in the companion ease that the transaction was merely a corporate reorganization with no tax due. Failing in that contention, Col-Tex Company asserts here that it is not liable. The substance of the transaction, not its form, should be decisive. Tulsa Tribune Co. v. Commissioner (C. C. A. 10) 58 F.(2d) *83937; Reynolds v. Cooper (C. C. A. 10) 64 F.(2d) 644; Prairie Oil & Gas Co. v. Motter (C. C. A. 10) 66 F.(2d) 309.
It is my belief that the case should be affirmed.