Court Opinion

ID: 9447728
Source: CourtListenerOpinion
Date Created: 2023-08-03 22:42:26.175484+00
Date Added: 2024-06-11T17:31:09.720780
License: Public Domain

SHACKELFORD MILLER, Jr., Circuit Judge
(dissenting).
I am of the opinion that the judgments in these cases should be affirmed on the authority of Corn Products Refining Co. v. Commissioner, 350 U.S. 46, 76 S.Ct. 20, 100 L.Ed. 29.
*283As pointed out in the opinion in that case, it is settled law that hedging transactions are essentially to be regarded as insurance rather than a dealing in capital assets and that gains and losses therefrom are ordinary business gains and losses. I recognize that in the present case it was stipulated by the parties that the taxpayer’s transactions in the commodity futures market during the taxable years in question did not constitute “true” or technical hedges as the term “hedge” is defined in General Counsel’s Memorandum 17322. But the transactions in commodity futures in the Corn Products Refining Co. case were not “true hedges,” and yet the resulting gains and losses were held to constitute ordinary income and ordinary deductions, for the reason that they were vitally important to the company’s business as “a form of insurance” against increases in the price of raw corn. Accordingly, the issue in the present case is not whether taxpayer’s dealings in commodity futures constituted a “true hedge” but whether they constituted an integral part of his livestock business. Corn Products Refining Co. v. Commissioner, supra, 350 U.S. 46, 50-51, 76 S.Ct. 20, 100 L.Ed. 29; Mansfield Journal Co. v. Commissioner, 6 Cir., 274 F.2d 284, 286.
As stated in the Corn Products Refining Co. case, this is essentially a factual question. The District Judge submitted this factual question to the jury by means of an interrogatory. Under this interrogatory, in order for the taxpayer to recover, the jury was required to find from the evidence that the taxpayer, in good faith, “engaged in purchasing and selling Commodity Futures with the sole and only purpose and intention of affording himself protection” from his business losses and that it “afforded a reasonable means for protection from such losses, in whole or in part, and in that respect and for that reason had such direct relation to the hazards of his business of purchasing and selling livestock as constituted his dealings in Commodity Futures an integral part of his livestock business.” I am of the opinion, and the parties seem to agree, that this interrogatory correctly presented the issue. It was not objected to by Government counsel. On this factual question the jury found for the taxpayer.
Accordingly, there is no legal issue involved in this appeal. It was purely a question of fact for determination by the jury under proper instructions from the Court. Unless the evidence was insufficient to take this factual issue to the jury, the judgment should be affirmed. Corn Products Refining Co. v. Commissioner, supra.
The Government put in evidence the testimony of three expert witnesses who testified to the nonrelationship between the risks of loss in taxpayer’s livestock business and his trading in commodity futures. In their opinion, the taxpayer could not protect himself against losses in his livestock business by his tradings in commodity futures. These witnesses, however, were not men with practical experience in the livestock business.
The taxpayer, in his behalf, introduced the testimony of a Mr. Weiss, who was the senior partner of a “Wall Street” firm of investors and business and financial advisors. Mr. Weiss began his business career in Wall Street in 1928, became a partner in a produce exchange, and later became affiliated with several firms, including the International Economic Research Bureau, which later became the Baxter International Economic Research Bureau, of which Mr. Baxter was the head. He was with the Baxter firm from about 1937 to 1955, becoming second to Mr. Baxter before leaving that firm. The Baxter firm did considerable work with such firms as Montgomery-Ward, Sears-Roebuck, Procter and Gamble, W. T. Grant Co., and Continental Can Co., and also had clients engaged in the packing industry.
Appellee was a client of the Baxter firm and had been in contact with it once or twice during 1945 or 1946. Mr. Weiss testified that during the early part *284of January 1947 appellee had a lengthy conversation with him over the phone about his business and its hazards. The taxpayer had at the time about $1,000,-000 of outstanding accounts receivable and was of the opinion that there was danger of a business depression or a severe decline in business in 1947. He was dealing with second, third and fourth-rate packers, who in the event of a business depression probably couldn’t pay. The taxpayer had gone broke twice before and asked Mr. Weiss if his organization could suggest some method to help him. Mr. Weiss stated that he would like to discuss it with others in his organization. After some ten days or two weeks he called the taxpayer and told him that his organization had two alternative suggestions, the first being to insure the accounts receivable, and the second being to enter the commodity futures market on a substantial scale. The taxpayer stated that he had already tried to insure the accounts receivable, but that the cost was prohibitive. Accordingly, the second suggestion was adopted and followed.
Mr. Weiss testified that in his opinion as a financial and business advisor, going into the commodity futures market would provide the taxpayer protection against the risks in the livestock business; that in view of the high federal income tax bracket applicable to the taxpayer he would not have advised him to go into the commodity futures market under ordinary circumstances, but the advice was given because of the many hazards of his livestock business, and that it was their view, upon which the decision was made, that the taxpayer’s entrance into the commodity futures market was a reasonable means for the protection of the taxpayer against the risks and hazards of his livestock business. Mr. Weiss also testified that he and the taxpayer worked together in the matter, the taxpayer continually giving him his picture of the livestock market; that their consistent pattern was to follow livestock prices very closely and to make commitments in conjunction with livestock: prices; that if livestock prices rose, they took a position in accordance, if' livestock prices declined they took a position accordingly; that they consistently adhered to a policy of making commitments in those commodities associated* with the farm, livestock and farm products which generally went into feed, rather than metals and sugar, which they considered as having nothing to do with; the taxpayer’s livestock business. In his. opinion, the losses suffered by the taxpayer in the commodity futures in 1947,. 1948 and 1949 were solely and only the result of the protection and insurance-against the hazards in his livestock' business, like paying the premium on an insurance policy. He testified that the-purpose of their advice and the procedure under it was to try to minimize-the risks and hazards of taxpayer’s livestock business, and in his opinion the-commitments made in commodity futures-were an integral part of the taxpayer’s-livestock business.
It is pointed out that the operation: of the plan had the following practical-result. In the early part of the year the-taxpayer would sell short for delivery later in the year. If the price of the-futures went down, he made profits. If' the price of the futures went up, he had* losses. In the event of an economic decline the taxpayer would have losses in-his accounts receivable, but would have-offsetting profits in his commodity futures. If business improved instead of' declining, the taxpayer would have a-loss in his commodity future, but the-marginal packers would be able to liquidate taxpayer’s accounts receivable. Losses in the futures was the insurance-premium for the protection of the accounts receivable.
I recognize that Mr. Weiss’s testimony is not uncontradicted and may not be convincing to the Court. The majority opinion expresses such a view.. It contains persuasive arguments in sup*285port of its holding that taxpayer’s commitments in commodity futures were not an integral part of his livestock business. But it is not for the trial court or for this Court to decide whether under the conflicting testimony they did or did not constitute an integral part of his livestock business. It is well settled that “a verdict may not be directed for a defendant merely because the trial judge feels that, should the jury find in plaintiff’s favor, he would regard it as his duty in the exercise of a sound judicial discretion, to set the verdict aside.” O’Donnell v. Geneva Metal Wheel Co., 6 Cir., 183 F.2d 733, 739, rehearing denied 6 Cir., 190 F.2d 59, certiorari denied 341 U.S. 903, 71 S.Ct. 612, 95 L.Ed. 1342; Heatherly v. Southern Ry. Co., 5 Cir., 106 F.2d 894, 895. This Court said many years ago, “The test is whether there is such an utter absence of substantial evidence as to make it his duty, as a matter of law, to set the verdict aside independently of the exercise of discretion, and without reference to how greatly the court may think the conflict in testimony to preponderate in favor of defendant.” Begert v. Payne, 6 Cir., 274 F. 784, 788, and restated in Scott v. United States, 6 Cir., 161 F.2d 1009, 1012. I do not think that we are justified in completely discrediting and rejecting Mr. Weiss’s testimony. That is the province of the jury. Begert v. Payne, supra, 6 Cir., 274 F. 784, 787. Unless the evidence is of such a character that reasonable men in a fair and impartial exercise of their judgment would not reach different conclusions, the case should be submitted to the jury. Bailey v. Central Vermont Ry., 319 U.S. 350, 353, 63 S.Ct. 1062, 87 L.Ed. 1444. Mr. Weiss’s testimony was not so unreasonable or improbable as to cause it to be unanimously rejected by reasonable men. The jury obviously considered it reasonable and convincing. I think it was sufficient to take the case to the jury.
I would affirm the judgments.