Court Opinion

ID: 9469752
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:48:08.346425+00
Date Added: 2024-06-11T17:41:32.741802
License: Public Domain

BECKER, Circuit Judge,
concurring in the result.
I agree that the judgment of the district court should be set aside and that this case should be remanded for consideration of the taxpayer’s claim for a partial refund. I am in fundamental disagreement, however, with the route that Judge Garth takes to arrive at this result. I believe that the district court erred in reaching the taxpayer’s claim that the Pennsylvania Inheritance and Estate Tax Act §§ 403, 404, Pa. Stat. Ann. tit. 72, §§ 2485-403, —4=04 (Purdon 1964 & Supp. 1982-83), violates the Equal Protection Clause.1 Judge Garth compounds this error by reversing on the merits. If the district court’s judgment on this claim does not bind the State, as I think it does not, then it is advisory, because it cannot affect the taxpayer’s federal estate tax liability under I.R.C. § 2055, Treas. Reg. § 20.2055-2 and Estate of Brooks v. Commissioner, 250 F.2d 937 (3d Cir. 1958). If I am wrong, and the State is bound, then the Tax Injunction Act, 28 U.S.C. § 1341 (1976), deprived the district court of jurisdiction. I address each of these points in turn.2
I.
Judge Garth assumes without deciding that the district court’s judgment cannot affect the State. It proceeds nonetheless to reach the merits because “it would be questionable at best to refrain from passing on a *420contention that a state tax statute is unconstitutional when — as here — the dispute over the taxpayer’s federal tax liability turns on that very contention.” At 415. We should not assume, but rather should decide, whether the district court’s judgment is binding, because, in fact, the taxpayer’s federal estate tax liability turns on the constitutionality of the state statute only if the State is bound.
Section 2055 permits the taxpayer to reduce the value of its federal taxable estate by “the amount of all bequests, legacies, devises, or transfers ... to or for the use of any corporation organized and operated exclusively for . . . charitable . .. purposes.” I.R.C. § 2055(a)(2). This deduction may not be taken for the amount of state death and estate taxes that are payable out of such charitable bequests. Id. at § 2055(c). The purpose of subsection (c) is to ensure that the taxpayer deducts only those sums that are certain to be dedicated to charitable uses. Accordingly, the regulation implementing section 2055 provides:
If an estate or interest has passed to, or is vested in, charity at the time of a decedent’s death and the estate or interest would be defeated by the subsequent performance of some act or the happening of some event, the possibility of occurrence of which appeared at the time of the decedent’s death to be so remote as to be negligible, the deduction is allowable.
Treas. Reg. § 20.2055~2(b)(1).
In Estate of Brooks, supra, we considered the relationship of section 2055 to the provision of the Pennsylvania inheritance tax act that taxes testamentary transfers at the time they come into possession. We held that the amount of the federal charitable deduction was properly diminished by the estate’s contingent liability for state taxes when the widow’s failure to exercise her power of appointment over a marital trust would make additional taxes due. Writing for the court, Judge Goodrich identified the critical question as whether “the funds may not end up being applied to a use of the type Congress has singled out for ... favorable treatment,” (i.e., the charitable use.) 250 F.2d at 939.
Estate of Brooks, in my view, controls the case before us. The district court held that the possibility that additional state inheritance taxes would become due from John Crain Kunkel’s estate after his widow’s death was not “so remote as to be negligible.” I agree with Judge Garth that this conclusion is sound. Estate of Brooks, then, is distinguishable only if the district court’s adjudication of the constitutional question ended the possibility that “the funds may not end up being applied” to a charitable use. It is elementary that the court’s ruling had this effect only if the State was bound by the judgment, but neither principles of res judicata and collateral estoppel nor the State’s failure to exercise its statutory right to intervene can make the judgment binding.
A judgment on the merits is conclusive for the parties to the action and, occasionally, for persons who have special relationships to the parties that make it fair for them to be bound. Relitigation of a whole cause of action by the same parties is barred by the doctrine of res judicata; re-litigation of an issue is barred by the principle of collateral estoppel. Although collateral estoppel does not require mutuality, estoppel can be invoked only against one of the parties to the action that decided the issue. Cramer v. General Telephone & Electronics Corp., 582 F.2d 259, 266-67 (3d Cir. 1978), cert. denied, 439 U.S. 1129, 99 S.Ct. 1048, 59 L.Ed.2d 90 (1979). Because the State is not a party to this action, it cannot be bound either by res judicata or collateral estoppel.
The taxpayer asserts, however, that the State should be deemed to be a party for this purpose, because it was given an opportunity to intervene pursuant to 28 U.S.C. § 2403(b) (1976). This argument, if correct, means that section 2403(b) does not establish a right of intervention but rather an obligation to defend or suffer the consequences. Such a construction is plainly wrong. See S. Rep. No. 204, 94th Cong., 2d Sess. 14, reprinted in 1976 U.S. Code Cong. & Ad. News 1988, 2001 (statute gives State *421option to intervene); H.R. Rep. No. 1379, 94th Cong., 2d Sess. 3 (1976) (same). It is also true as a general matter that mere notice to an interested person is not enough to make a judgment binding. To be deemed a party a person must be subjected to the jurisdiction of the court by being served, appearing in court, or participating in the litigation. Restatement (Second) of Judgments § 34, Comment a (1982); see Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 329, 91 S.Ct. 1434, 1443, 28 L.Ed.2d 788 (1971) (“Due process prohibits estopping [litigants]” who did not appear in prior action.)
Thus the State was not bound by the district court’s constitutional ruling, and, accordingly, that ruling did not affect the possibility that the taxpayer will become liable for additional state taxes. In light of the fundamental principles that courts should avoid ruling on constitutional questions when it is unnecessary to do so and that federal courts should not issue advisory opinions, it is plain to me that the district court should have refrained from deciding this issue. See Poe v. Ullman, 367 U.S. 497, 502-03, 81 S.Ct. 1752, 1755, 6 L.Ed.2d 989 (1961); Ashwander v. Tennessee Valley Authority, 297 U.S. 288, 346-47, 56 S.Ct. 466, 482 — 483, 80 L.Ed. 688 (1936) (Brandeis, J., concurring); cf. Ensminger v. Commissioner, 610 F.2d 189 (4th Cir.), cert. denied, 446 U.S. 941, 100 S.Ct. 2166, 64 L.Ed.2d 796 (1980) (taxpayer cannot attack constitutionality of state statute making cohabitation illegal in federal refund action based on dependency deduction).
II.
Judge Garth also gives short shrift to the jurisdictional bar posed by the Tax Injunction Act.3 I cannot agree that the Act did not deprive the district court of jurisdiction even if the judgment is binding on the State.
Because the Act prohibits a district court from granting either declaratory or injunctive relief from a state tax assessment, California v. Grace Brethen Church, - U.S. --, -, 102 S.Ct. 2498, 2508, 73 L.Ed.2d 93 (1982); Exxon Corp. v. Hunt, 683 F.2d 69, at 72 (3d Cir. 1982), the Act was inapplicable to this case only if the taxpayer does not have a “plain, speedy and efficient” state court remedy. Judge Garth concludes that the taxpayer lacks an adequate remedy for two reasons: first, although the taxpayer’s federal tax liability turns on the constitutionality of the state statute, the taxpayer cannot seek a federal refund in state court; and second, the taxpayer’s ability to bring an action in the state courts now to enjoin the possible future collection of additional tax “is at best uncertain.” At 416 n. 7.
I concede that two of the premises of Judge Garth’s rulings are correct. First, it appears that the taxpayer cannot now bring an action in the state courts because its claim against the State is not ripe, even as a statutory matter. See Pa. Stat. Ann. tit. 72, § 2485-1001 (Purdon 1964) (taxpayer may appeal to Court of Common Pleas within sixty days after receiving notice of assessment). Until Katherine Kunkel dies, no one can know whether the rate of tax for transfers to collateral heirs will be applied to the marital trust. And second, the taxpayer cannot sue the United States in state court. Further, I am willing to ignore Estate of Brooks and assume for the purpose of analysis that the taxpayer’s federal tax liability turns on the resolution of its constitutional challenge to the state statute. I differ from Judge Garth simply because I do not think that these propositions are relevant to the proper inquiry under the Tax Injunction Act.
A “plain, speedy and efficient” remedy is one that “provides the taxpayer with a ‘full hearing and judicial determination’ at which she may raise any and all constitutional objections to the tax.” Rosewell v. *422LaSalle National Bank, 450 U.S. 503, 514, 101 S.Ct. 1221, 1229, 67 L.Ed.2d 464 (1981) (emphasis added). Neither Judge Garth nor the taxpayer contends that the available state remedy would be inadequate to deprive the district court of jurisdiction if the taxpayer had sued the State in federal court.4 Instead, it is found inadequate because it will not permit the taxpayer to sue the state in time to obtain a federal refund 5 or to sue for a refund in one action.
These asserted deficiencies do not make the state remedy less than “plain, speedy and efficient.” “[PJlain means ‘clear’ or ‘manifest,’ speedy means ‘quick,’ [and] efficient means ‘characterized by effective activity.’ ” Id. at 516, 101 S.Ct. at 1230. There cannot be any serious contention that the state remedy is not “plain.” If it is not “speedy,” in Judge Garth’s view, that must be because the state remedy is foreclosed until and unless additional tax is assessed, i.e., until and unless the claim ripens. “Speedy,” however, is a procedural requirement, which merely distinguishes between ordinary and extraordinary delay in administrative and judicial proceedings. Id., at 519-21, 101 S.Ct. at 1232-1233. Finally, if the state remedy is not “efficient,” that must be because the taxpayer cannot sue both the state and the United States in the same action unless a federal forum is available. But efficiency also is a procedural requisite, ensuring only that the state remedy “imposes no unusual hardship ... requiring ineffectual activity or an unnecessary expenditure of time or energy,” id. at 518, 101 S.Ct. at 1231. See also Sipe v. Amerada Hess Corporation, 689 F.2d 396 at 407 (3d Cir. 1982) (remedy provided by the state need not be coextensive with that available in the federal courts in order for it to be considered “plain, speedy and efficient.”)
Unlike Judge Garth, I find nothing anomalous in requiring the taxpayer to wait until its claim ripens and to sue two taxing sovereigns each in its own court. To the contrary, assuming that the district court’s judgment binds the State, I think that to permit the taxpayer to proceed now in federal court when its state law claim is not ripe does not give the State the deference it is due in matters of tax administration. See California v. Grace Brethren Church, supra, - U.S. at -, 102 S.Ct. at 2508; Fair Assessment in Real Estate Ass’n v. McNary, 454 U.S. 100, 102 S.Ct. 177, 183-84, 70 L.Ed.2d 271 (1981); Rosewell v. LaSalle National Bank, supra, 450 U.S. at 522, 101 S.Ct. at 1233; Sipe v. Amerada Hess Corporation, supra; Exxon Corp. v. Hunt, supra, at 72.
California v. Grace Brethren Church is instructive. The taxpayers were several churches and religious schools that attacked the collection of California’s unemployment insurance tax from them. The challenged state statute was enacted to comply with the “covered” employment requirements of the Federal Unemployment Tax Act, which establishes a cooperative federal-state unemployment compensation program. The taxpayers sued the United States Secretary of Labor, to enjoin him from conditioning approval of the California program on the *423coverage of their employees, and the State, to enjoin it from collecting the tax. The Supreme Court held that the “plain, speedy and efficient” exception did not confer jurisdiction on the district court, even though the taxpayers challenged a federal-state program administered according to federal requirements and some of the defendants were federal officials. The Court reasoned that the federal defendants, who could not be compelled to submit to state jurisdiction, were not necessary parties to the resolution of the state law claim. The Court stated further that even if the taxpayers attacked only the federal act, the district court would not have jurisdiction; because the state statute was drafted to conform to the federal, “a challenge to [the federal act] would be a direct effort to ‘enjoin, suspend or restrain’ state tax officials from collecting unemployment taxes.” -U.S. at - & n. 38, 102 S.Ct. at 2513 & n. 38.
The federal and state tax claims raised in California v. Grace Brethren Church were tightly interwoven, more tightly than the federal and state tax claims in the case before us, but the Tax Injunction Act was held to deprive the district court of jurisdiction nonetheless. The Court declined to expand the “plain, speedy and efficient” exception, which must be narrowly construed, id. at -, 102 S.Ct. at 2510, in a way that would avail the taxpayer here.
III.
My conclusion that the district court should not have reached the taxpayer’s constitutional claim would mean that the taxpayer may not be able to obtain a refund of its federal estate taxes even if, at the appropriate time, the state courts held the state statute unconstitutional. See note 5 supra. I suspect that Judge Garth reaches the merits of this case out of a sense that the alternative is unfair. If so, I am in sympathy, but fairness in this context is not ours to determine, since the taxpayer’s dilemma is rooted in the different decisions of Congress and the Pennsylvania General Assembly about the time for payment of estate taxes. We can only apply these statutes. It must be the legislatures that amend them if they have consequences that are unfair.
Accordingly, I would direct the district court to dismiss the taxpayer’s constitutional claim. I concur only in the result.

. Judge Fullam represents that he is not deciding the constitutionality of the Pennsylvania Inheritance and Estate Tax Act §§ 403, 404, Pa. Stat. Ann. tit. 72, §§ 2485-403, -404 (Purdon 1964 & Supp. 1982-83), but only “making the kind of prediction required for determining the correct federal estate tax” and, en route to his “predictive assessment,” “expressing the view that a constitutional challenge to a state inheritance tax statute would be unlikely to succeed.” He has therefore not joined in Judge Garth’s opinion. While I commend Judge Fullam's efforts to bridge the gap between Judge Garth’s views and mine, I perceive that he, like Judge Garth, has decided the constitutional question. Accordingly, while my comments herein, for the sake of convenience, are directed to Judge Garth’s opinion they apply for the most part to Judge Fullam’s opinion as well.

. As Judge Garth notes, at 414 n. 5, the taxpayer contends that the Commissioner cannot attack for the first time on appeal the district court’s decision to hear the taxpayer’s constitutional challenge. Judge Garth believes that “exceptional circumstances,” Altman v. Altman, 653 F.2d 755, 758 (3d Cir. 1981), including the importance of avoiding unnecessary constitutional rulings, justify relaxation in this case of the rule that new issues cannot be raised on appeal. While 1 do not disagree, I think that we need not decide whether the Altman test is satisfied. The Commissioner attacks the subject matter jurisdiction of the district court, and questions of subject matter jurisdiction can, of course, be raised at any time.

. The Act provides that “[t]he district courts shall not enjoin, suspend nor restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such State.” 28 U.S.C. § 1341 (1976).

. Nor could they persuasively do so. Pennsylvania law allows the taxpayer to protest an inheritance tax assessment within sixty days of notice of the assessment, either by notice to the Department of Revenue or by immediate appeal to the Court of Common Pleas. Pa. Stat. Ann. tit. 72, § 2485-1001 (Purdon 1964); In re Estate of Gillespie, 462 Pa. 455, 458 n. 3, 341 A.2d 471, 473 n. 3 (1975). The court is empowered to consider all of the taxpayer’s objections to the assessment, including “any and all constitutional objections.” See, e.g., In re Cochrane’s Estate, 342 Pa. 108, 20 A.2d 305 (1941); In re Kelly's Estate, 336 Pa. 305, 9 A.2d 734 (1939) (per curiam). This procedure is more advantageous to the taxpayer than the schemes held to be “plain, speedy and effident” in California v. Grace Brethren Church and Rosewell v. LaSalle National Bank, both of which required the taxpayer to pay the disputed tax and seek a refund through state administrative and judicial proceedings.

. At the time of John Crain Kunkel’s death, federal estate taxes had to be paid within fifteen months (now nine months). Act of Aug. 16, 1954, ch. 736, 68A Stat. 751 (current version at I.R.C. § 6075(a)). Although the taxpayer may claim a credit for state taxes paid, the credit is allowed only for taxes paid within four years after the federal return is filed. I.R.C. § 2011(c).