Court Opinion

ID: 8596208
Source: CourtListenerOpinion
Date Created: 2022-11-23 16:03:26.717969+00
Date Added: 2024-06-11T16:54:57.204738
License: Public Domain

Kashiwa, Judge,
dissenting:
The majority adopts the recommended opinion of the trial judge without any change. I dissent for I do not agree *125with the trial judge’s holding that the doctrine of collateral estoppel is inapplicable to these cases.
The trial judge admits that the doctrine of collateral estoppel applies "where the matter raised in the second suit is identical in all respects with that decided in the first proceeding and where the controlling facts and applicable legal rules remain unchanged,” citing Commissioner v. Sunnen, 333 U. S. 591, 599-600 (1948) [Emphasis supplied].1
It is clear that the applicable legal rules have remained unchanged since the Fifth Circuit’s decision in American National Bank of Austin v. United States,2 previously cited in the trial judge’s opinion. The trial judge does not state in any part of his recommended opinion that there was an intervening doctrinal change. Neither has plaintiff argued that there has been such a change. The decision of the Fifth Circuit in the first case has been followed by the Sixth Circuit in Union Planters National Bank of Memphis v. United States, 426 F. 2d 115 (6th Cir.), cert. denied, 400 U. S. 827 (1970), and First American National Bank of Nashville v. United States, 467 F. 2d 1098 (6th Cir. 1972), and by a United States District Court in Third National Bank in Nashville v. United States, 27 Am. Fed. Tax R. 2d 818, ¶71-459 (M.D. Tenn., Feb. 16, 1971), aff’d per curiam *126as to another issue, 454 F. 2d 689 (6th Cir. 1972). Additionally, this court very recently in Citizens National Bank of Waco v. United States, 213 Ct. Cl. 236, 248-253, 551 F. 2d 832, 839-841 (1977), in an opinion by now Senior Judge Skelton, expressed its agreement with the first case and all of the above-cited decisions involving the financing by banks of purchases of municipal bonds by bond dealers. Since there has been no intervening doctrinal change between plaintiffs first case in the Fifth Circuit Court of Appeals and the present cases, the bar of collateral estoppel has not been lifted in the present cases by such a change. Union Bag-Camp Paper Corp. v. United States, 177 Ct. Cl. 212, 366 F. 2d 1011 (1966).
Next is the question of whether collateral estoppel is inapplicable due to a change in the "controlling facts.” The trial judge held that there was a change in the "controlling facts.” He states at pages 11-12 of his recommended opinion:
Thus, it was the supposed lack of risk on the part of the plaintiff that led the Court of Appeals in the first American National Bank of Austin case to conclude that, in substance, the transactions between the plaintiff and successful bidder-dealers during the 1962-64 period were loan transactions. On the other hand, the evidence in our present record shows that, when the crunch finally came and the matter was put to the test, the plaintiff actually bore the "basic risk of ownership of the bonds.” According to the evidence in this record, six bond dealers declined to exercise their options, the plaintiff had no legal recourse against them, and, as a consequence, the plaintiff sustained a large financial loss. [Footnote omitted.]
It is significant that in so holding the trial judge did not discuss whether facts equivalent to the evidence in the present case (showing that "six bond dealers declined to exercise their options, the plaintiff had no legal recourse against them, and, as a consequence, the plaintiff sustained a large financial loss”) were presented during the litigation of the first case. The trial judge did so even though defendant pointed out that equivalent evidence had been presented by the present plaintiff in the first case - especially with regard to the Municipal Securities Com*127pany of Dallas, Texas, owned by Mr. Harold J. Silver. As shown below, identical and equivalent facts, as in the six bond dealer incidents of May 1970, were presented in the first case. The Fifth Circuit carefully considered all the facts presented, including the facts relating to losses the present plaintiff incurred from its dealings with Mr. Silver, and concluded that in economic substance the relationship plaintiff had with the bond dealers was that of a secured lender. Since I find the matters raised in the second suit identical with those decided in the first case, I believe the doctrine of collateral estoppel is applicable to this case. Commissioner v. Sunnen, supra.
Fortunately, defendant introduced into evidence during the trial of these cases the pleadings, stipulation of facts, and a complete transcript of the oral testimony adduced in the first case. See Government’s Exhibit 2. The stipulation is lengthy, containing 43 paragraphs, and the transcript of oral testimony covers 176 typewritten pages. A careful examination of the Government’s Exhibit 2 demonstrates to me that the trial judge’s conclusion, that the plaintiffs evidence regarding the six dealers represented an "additional circumstance of considerable significance,” is erroneous. The identity of facts between the present cases and the first case is illustrated also by the trial judge’s first 44 findings which, except for his legal conclusions relating to the plaintiffs alleged ownership of the municipal bonds and the dealers’ so-called repurchase options, set forth the same factual background as involved in the first case.3
As found by the Fifth Circuit and the trial judge, the underwriting and distribution of new municipal bond *128issues in Texas were facilitated by the dealers’ selling efforts and the plaintiffs funds. The transactions in question were financially advantageous to the dealers who frequently did not have sufficient cash in their bank accounts to pay their bid prices to the issuing authorities at the time of actual delivery of the entire bond issue. The dealers would not obtain sufficient cash to pay their bid prices until they were paid by their customers from the sale of the bonds, but the dealers avoided the forfeiture of their good faith deposits to the issuing authorities by having the plaintiff supply the funds to pay their bid prices to the issuers. The plaintiff kept possession of the bonds until the dealer sold them to his customers. Plaintiff would further collect interest accruing on the bonds held by it while the dealers would realize a profit or incur a loss depending upon the difference between the market price for the bond issue and the bid price, plus reimbursement to the plaintiff for the dealers’ expenses.
The record before the Fifth Circuit in the first case revealed that while no dealer during the years 1962 through 1964 (the years in issue in the first case) had failed to exercise his so-called repurchase option, two bond dealers in prior years had failed to pay plaintiff the bid price of bonds held by the taxpayer, a significant fact which the trial judge ignored.4 At the trial of the present cases, plaintiffs former president testified regarding these two instances in which dealers declined to pay taxpayer the bid price of bonds held by it. See Trial Transcript, page 109.
The additional evidence presented by plaintiff in this case and set forth by the trial judge in his findings 45 through 48 — relating to the six bond dealers who declined to pay plaintiff the bid price for bonds held by the plaintiff, plaintiffs alleged lack of any legal recourse against the six dealers (based on advice of plaintiffs counsel), and plaintiffs loss incurred from the sale of one group of these *129bonds — was also present in the first case. The Fifth Circuit was squarely confronted with similar evidence showing that dealers in two prior instances declined to pay plaintiff the bid price for bonds held by the plaintiff, that plaintiff had no legal recourse against these dealers (again based on advice from plaintiffs counsel), and that it sustained losses from those bonds.5
*130Since the additional facts relating to plaintiffs isolated losses in six instances in May 1970 are merely repetitious of similar evidence before the Fifth Circuit in the first case, the taxpayer should be barred by collateral estoppel. Plaintiff has not offered any evidence which in substance was not considered and decided adversely to it in the prior proceeding. See United States v. Creek Nation, 201 Ct. Cl. 386, 407, 476 F. 2d 1290, 1303 (1973). In my view, the "controlling facts” have remained unchanged. In both cases, taxpayer bore some small degree of risk, not as an owner but as a lender.
This court emphasized in Hercules Powder Co. v. United States, 167 Ct. Cl. 639, 644, 337 F. 2d 643, 645 (1964), that to lift the bar of collateral estoppel the new factual elements, if any, must be material arid have legal significance. As I view it, the only variance in the facts stressed by the plaintiff is not material and has no legal significance as to the issue in the present cases. The Fifth Circuit in the first case expressly recognized that plaintiff bore the risk that *131the successful bidder-dealer on issues of high grade municipal bonds might not pay plaintiff the bid price for the bonds in a depressed market. The court concluded that the dealers were extremely unlikely to do so because of their business and economic dependence upon the plaintiff to participate with them in marketing new issues of Texas municipal bonds.6 Evidence of isolated actual losses sustained by the plaintiff, such as those in May 1970, did not persuade the Fifth Circuit that plaintiff was not a secured lender. Nor should this court hold differently in this case.7
*132In order to lift the bar of collateral estoppel, the plaintiff would have to present evidence that the area bond dealers as a regular course of action throughout the years in question declined to pay plaintiff the bid price for bonds where the then-existing market price was less than the book value reflected on the plaintiffs books. In short, the plaintiff would have to demonstrate that Texas municipal bond dealers actually treated their so-called repurchase options as genuine business options which would be exercised only when the market price of the bonds exceeded the option price.
The undisputed facts in the record are squarely to the contrary. While the plaintiff remained in its municipal bond business from January 1965 through April 1970, and participated with area bond dealers in thousands of the transactions in question involving millions of dollars of new issues of Texas municipal bonds, no bond dealer failed to pay plaintiff the bid price for bonds held by the plaintiff, even where the then-existing market price was less than the book value reflected on the plaintiffs books. Hence, the bond dealers, as in the prior suit, continued to protect the plaintiff against the risk of loss in a falling market.
The trial judge, therefore, failed to recognize that the action of the six bond dealers in May 1970 does not represent a significant factual distinction from the earlier litigation because the area bond dealers at that time were no longer economically dependent upon the plaintiff to help them market municipal bonds in Texas. The plaintiff had previously informed them in April 1970 that it was immediately withdrawing from its municipal bond business. The Fifth Circuit recognized that if the dealers no *133longer needed to utilize the plaintiffs services to underwrite and distribute municipal bonds in Texas, they would cease to insulate the plaintiff from loss. In the case of the Municipal Securities Company, owned by Mr. Silver, specifically referred to in footnote 5, Mr. Silver decided to terminate his municipal bond business and remain in the sale of stocks only. Mr. Silver’s quitting the municipal bond business caused plaintiff to lose its leverage against Mr. Silver. In the present cases, plaintiff, by terminating its municipal bond business, lost its leverage against the dealers who obviously would no longer be concerned about the adverse impact upon their businesses from the plaintiffs refusal to furnish its services to them. Therefore, in the first case the effect of the loss of leverage was considered on evidence presented by plaintiff regarding Mr. Silver and another bond dealer. Plaintiff again in the present cases attempted to relitigate identical facts relative to the loss of leverage on six bond dealers. He is not at liberty to do so under the doctrine of collateral estoppel, which prohibits relitigation of same issues.8
It should be remembered that collateral estoppel "is designed to eliminate the expense, vexation, waste, and possible inconsistent results of duplicatory litigation.” Hoag v. New Jersey, 356 U. S. 464, 470 (1958). In tax cases, the doctrine of collateral estoppel relieves the Government and taxpayer from "redundant litigation of the identical question of the statute’s application to the taxpayer’s status.” Tait v. Western Maryland Ry., 289 U. S. 620, 624 (1930). This court has, in Tanker Hygrade No. 18, Inc. v. United States, supra note 1, and Carter-Wallace, Inc. v. United States, supra note 1, applied the doctrine of collateral estoppel in accordance with the views and purposes above expressed by the Supreme Court. The trial judge, by refusing to apply the doctrine of collateral estoppel in the present cases, creates an inconsistent result *134by duplicatory litigation. The Fifth Circuit, Sixth Circuit, and the Tax Court have all decided for the defendant in similar cases. Now this court takes the opposite view. I regret to see such a split with the other courts for the reasons expressed in this dissent. Collateral estoppel should be applied to preclude plaintiff from relitigating the present cases and the decision of the Fifth Circuit should be followed.
CONCLUSION OF LAW
Upon the trial judge’s findings and foregoing opinion, which are adopted by the court, the court concludes as a matter of law that the plaintiffs are entitled to recover, together with interest as prescribed by statute, and judgment is entered to that effect. The amount of the recovery will be determined in subsequent proceedings under Rule 131(c).

 A more recent Supreme Court ruling on collateral estoppel is in Sea-Land Services, Inc. v. Gaudet, 414 U. S. 573, 593 (1974), where the Court stated that
"Collateral estoppel applies
'where the second action between the same parties is upon a different cause or demand * * *. In this situation, the judgment in the prior action operates as an estoppel, not as to matters which might have been litigated and determined, but "only as to those matters in issue or points controverted, upon the determination of which the finding or verdict was rendered.” Cromwell v. County of Sac, [94 U. S. 351,] 353. And see Russell v. Place, 94 U. S. 606; Southern Pacific R. Co. v. United States, 168 U. S. 1, 48; Mercoid Corp. v. Mid-Continent Co., 320 U. S. 661, 671. Since the cause of action involved in the second proceeding is not swallowed by the judgment in the prior suit, the parties are free to litigate points which were not at issue in the first proceeding, even though such points might have been tendered and decided at that time. But matters which were actually litigated and determined in the first proceeding cannot later be relitigated.’ Commissioner v. Sunnen, 333 U. S., at 597-598.”
This court has followed the above rule in Tanker Hygrade No. 18, Inc. v. United States, 208 Ct. Cl. 488, 493, 526 F. 2d 805, 807 (1975), cert. denied, 426 U.S. 920 (1976). See also Carter-Wallace, Inc. v. United States, 204 Ct. Cl. 341, 496 F. 2d 535 (1974), wherein we applied the rule of collateral estoppel as expanded in Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U. S. 313 (1971).

 Hereinafter referred to as "the first case.”

 In Government’s Exhibit lb, Answers to Interrogatories, filed by plaintiff in the present cases, plaintiff admits:
“1. The agreements between the plaintiff and all of the dealers relating to the acquisition and ownership of municipal bonds by the plaintiff and the option of the dealers to acquire such bonds during the years 1962 through 1964 were the same with respect to each dealer. * * *
"2. The agreements between the plaintiff and all of the dealers relating to the acquisition of municipal bonds by the plaintiff and the option of the dealers to reacquire such bonds during the years 1965 through 1970 were basically the same as in the years 1962 through 1964. * * *
"3. The rights and obligations of the plaintiff and the dealers under the agreements remained basically the same with respect to the purchases of municipal bonds made by plaintiff for all years.”

 It was the plaintiff who introduced the evidence of the prior two defaults in the first case in its endeavor to persuade the Fifth Circuit that it was the owner of the bonds. The Fifth Circuit considered the evidence of prior defaults and stated, "Indeed only twice in the history of taxpayer has a dealer failed to cause taxpayer to be paid the book value of bonds for which taxpayer had paid, together with taxpayer’s handling charge and incidental expenses.” Still, the Fifth Circuit held plaintiff was not the owner of the bonds.

 See Defendant’s Exhibit 2, specifically the transcript of testimony in the first case in which the following testimony appears:
"Q Now, have you ever — have you had any dealers who did not exercise their option?
"A Yes, we have had dealers who have exercised — have not exercised their option.
"Q How many?
"A I can recall two.
"Q Would you tell us about them?
"A Yes, we had one dealer back in these years who had sold us approximately a million and two or a million three hundred thousand dollars worth of securities, and he purchased back from us some of the securities, but he didn’t purchase back all of the securities.
"Q What kind of securities did he purchase from you?
"A He purchased the securities from us that he could sell on the market at a profit.
"Q He left you with the loss securities?
"A The securities he did not purchase when we inevitably disposed of them was at a loss.
"Q Did you sell them immediately, or hold them?
"A We held them for awhile, waiting for the market to improve.
"Q Do you recall how many issues of bonds were involved?
"A I would roughly state somewhere between thirty, thirty-three, thirty-four, somewhere in there.
"Q And how many did he leave you with?
"A Twenty-two or three.
[The name of the dealer who defaulted was Mr. Harold J. Silver, doing business as Municipal Securities Company of Dallas, Texas.]
"Q Can you recall that individual’s name?
"A Yes; his name is M. A. Hagberg [of Mr. Silver’s company],
"Q All right. Now, what, in substance, did you tell that gentleman?
"A He shipped out the securities that had a profit in them, and we credited his account with the profit, which amounted to approximately $38,000.00.
"Q All right. Now, was the account sort of inactive? Is that what caused you to call?
"A No, it wasn’t.
"Q What happened that caused you to call this man?
"A He only shipped out the bonds that had a profit in them, and the ones that didn’t have a profit in them, I noticed they weren’t going out.
"Q How do you know they didn’t have a profit in them?
"A How did I know? I know the market every day.
"Q In other words, you — the bonds that were left, you determined that the market for these bonds was poor?
"A Correct.
"Q Is that what caused you to call this man?
*130“A I called him to — in a falling market, to ask him if he wanted to purchase these securities. If he did not, I would sell them in the market.
"Q Does the bank make a practice of selling bonds at á loss?
"A We hope not. We have had a few'—
"Q Mr. Houser, we left off where I was questioning you about your calling the Municipal Securities Company to see about them taking up some bonds.
"A Yes.
"Q Now, you had said that you had determined that the market was poor, and that triggered your call to the manager of that company; is that correct?
"A Yes, that is correct.
"Q Now, what exactly did you tell that gentleman when you called him?
"A Well, I called the man there, Mr. Hagberg, and stated to him that we had heard he was going to discontinue his municipal bond account, and that he had purchased bonds in the account which were of premium value and had sold them, and I asked him did he want to purchase the balance of these securities. [Emphasis supplied.]
"Q Now, where had you heard that they were going to discontinue business?
“A They were going to discontinue their municipal bond department.
"Q Where had you heard that?
"A Several dealers in the market had told me that they had offered them
securities, and that they had stated that they didn’t want to buy any more securities, that they were going to close out their municipal bond department.”
The foregoing testimony was adduced on plaintiffs direct examination of its own witnesses and cross examination by the defendant. A more complete transcript of the relevant testimony is contained in an appendix attached to defendant’s reply brief in the present cases filed July 19, 1977.

 The Fifth Circuit opinion reads:
"The only real risk that taxpayer incurred during the course of its transactions with the bond dealers was that the successful bidder for high-grade ('BAA’ or above) bonds would, in a falling market, be either financially unable to take the bonds from taxpayer or be indifferent to the consequences of not taking them. Taxpayer enjoys a position of predominance in the distribution of municipal bond issues in Texas. Its refusal to provide its unique services to a bond dealer would bode ill for that dealer’s business in the Texas bond market. The record shows clearly that dealers, so long as they desired to continue marketing new issues of Texas municipal bonds, insulated taxpayer from market fluctuations in the price of bonds that taxpayer held. The testimony of taxpayer’s own witnesses establishes that bond dealers understood that taxpayer’s continued participation with dealers in new-issue transactions depended upon the continued protection of taxpayer from the risk of loss in a falling market. Thus the basic risk of ownership of the bonds was incurred by the dealers.”
[American National Bank of Austin v. United States, 421 F. 2d at 453.]
The accuracy of the Fifth Circuit’s holding, that in substance the plaintiff was a secured lender because of its economic power, is dramatically illustrated by the losses which plaintiff did have. The evidence in the record shows plaintiff had eight dealers who defaulted (two prior to 1962 and six in May 1970). Of these eight, it is established that seven of the dealers defaulted only when plaintiff lost its economic leverage over them due to the dealer going out of the municipal bond business (Mr. Silver’s case) or the plaintiffs discontinuing its municipal bond business. Had plaintiff not discontinued its municipal bond business in April 1970, it is highly probable that the six defaults in May 1970 would not have occurred.

 The record before the Fifth Circuit was much more favorable to the plaintiffs position than the record in the present cases. The plaintiff there had entered into 33 transactions involving an aggregate total of $1,200,000 of municipal bonds with a financially solvent dealer who chose to pay the book value only on those bonds which he could sell on the market for a profit and refused to pay to taxpayer the book value on the remaining 22 issues of bonds with an approximate total dollar amount of $800,000, which loss the dealer would incur. This dealer was discontinuing its municipal bond business while remaining in the general securities business and could have paid the bid price of the bonds to the plaintiff. Plaintiff was subsequently advised by its attorneys that it had no legal recourse against this dealer and it further sustained actual losses when it sold the bonds on the market.
In the present cases, plaintiff points to the six dealer losses in 1970. In support thereof, plaintiff points to its trial exhibits (Plaintiffs Exhibits 20-30), which show that it paid the bid price of bonds in 1965 through 1968 and 1970 and held them until May 1970 when the six bidder-dealers declined to pay the bid price to it. From these skimpy facts, plaintiff unconvincingly surmises that these six bidder-dealers as early as 1966 or 1967 did not intend to pay the bid prices and would leave it with a loss *132from these bonds.
None of the six bidder-dealers testified as to whether they intended to repay the bid price on the bonds held by the taxpayer during the years in question, and the trial judge made no findings on this matter. Defendant notes that the bulk of the bond issues (Plaintiffs Exhibits 20-30) upon which the six dealers failed to pay the book value represent non-rated issues. Such issues represented only a very small minority of the bonds involved in the transactions in question. As explained by Mr. Wroe, taxpayer’s president during the years in question, taxpayer normally agreed to pay the bid price only on high grade (i.e., BAA, A, AA, AAA) municipal bonds; but occasionally it would do so on non-rated issues. The dealers presumably would need more time to sell and would have greater difficulty in finding a market for a non-rated municipal bond issue.

 I do agree that a "controlling fact” was changed when plaintiff notified the bond bidder-dealers in April 1970 that it was discontinuing its municipal bond business. At that point the economic substance of plaintiffs relationship with the dealers was changed, for plaintiff lost its economic power to protect itself against loss. Subsequent to April 1970 plaintiff may well have been the owner of municipal bonds for tax purposes. But we do not have that issue before us. We are here dealing with the period starting in 1965 and ending in April 1970.