Court Opinion

ID: 8589025
Source: CourtListenerOpinion
Date Created: 2022-11-23 15:42:35.665892+00
Date Added: 2024-06-11T16:54:22.200506
License: Public Domain

Whaley, Ohief Justice,
dissenting,
with whom LittletoN, Judge, concurs.
In my opinion the special answer and plea of fraud should be denied.
I am unable to agree with the majority that fraud has been proved by the clear and convincing evidence universally required in cases of this character and am unwilling to brand an individual as the perpetrator of a fraudulent act on the basis of presumptions, suspicions, and contradictory circumstantial evidence.
Whether fraud is practiced or attempted to be practiced is a question of fact which must be established by clear and *249convincing evidence and fraud is never to be presumed. It may be circumstantial but the circumstances themselves must be clearly proved and such evidence must be persuasive. Where circumstantial evidence is relied upon to establish a fact the circumstances must be proved, and not themselves presumed. When the evidence leaves a fact in the realm of speculation and conjecture it cannot be rightly found. C., M. & St. P. R. R. v. Coogan, 271 U. S. 472, 477. United States v. Ross, 92 U. S. 281, 284; Manning v. Insurance Co., 100 U. S. 693, 698. A mere preponderance of evidence which at the same time is vague or ambiguous is not sufficient. Lalone v. United States, 164 U. S. 255 The burden of proving fraud is on the party asserting it and the inquiry must therefore be whether defendant has satisfied the court by clear and convincing evidence of the charges made.
For many years prior to 1929 plaintiff had been engaged in the refining of petroleum in which business it had installed and was using using certain Burton stills. During 1929 plaintiff’s officers and directors gave consideration to further economical use of certain of these stills in its business and reached the conclusion that they were obsolete. In filing its Federal income tax return for 1929, no deduction was claimed for the obsolescence of these stills and they remained on the books as assets at least until 1932. However, in filing its returns for State and County tax purposes for 1929, the value of these stills was deducted in determining the value of its property and its State and County taxes were paid on that basis. An examination of these State and County tax returns shows the identical stills with which we are concerned listed as obsolete. These returns were filed in 1929 long before the present controversy arose and they were filed by the officers of the old company some three years before the present claims for refund were ever considered. That was three years before Lea ever became connected with the company. These facts abundantly substantiate the contention of plaintiff that corporate action and consideration was given to the obsolescence of these stills in 1929 even though not actually recorded in the minute books when the action was taken.
*250In 1932, after a change in ownership and management of plaintiff had taken place about March 1932, plaintiff filed claims for refund in which among other things a deduction was claimed for the obsolescence of certain stills designated as batteries 5, 6, 7, 11, and 12, the same batteries which were charged off in the State and County tax returns.
It is significant that the claims were recommended for allowance by three different parties, namely, the revenue agent, the valuation engineer, and the Income Tax Unit which reviewed their findings. The revenue agent and valuation engineer not only examined the properties and satisfied themselves of the fact of obsolescence but also interviewed the old officers and found that the requisite acts and events had occurred necessary for the allowance of the deduction under the statute and regulations.
It was after this approval that the attorneys in the General Counsel’s Office, to wThom the certificate of over-assessment had been forwarded for final review, asked for further substantiating evidence in the form of corporate minutes and in response to that request the questioned minutes were submitted under the circumstances set out in detail in the findings. Here it should be observed that the minutes were not required under the statute for the allowance of the claims; obsolescence is a question of fact which can be proven by any satisfactory evidence. Admittedly there were suspicious circumstances connected with the presentation of these minutes which all parties recognized from the very outset. When these suspicions were aroused, plaintiff’s responsible officers began a most searching inquiry to find who was responsible for the act complained of. In their painstaking investigation they had assisting them Judge Evans, a former president of the American Bar Association and a man of the highest repute and standing, Mr. Peddy, their own general counsel who had had long experience as a Federal and State prosecutor, and their local tax counsel in Washington. In addition, they employed a well-known handwriting expert who made a report after examining the minutes. The man, Lea, now named by the majority as the perpetrator of the act was faced by Mr. Peddy with all of the evidence which had been collected and accused of the *251act. He not only denied the act at that time but likewise denied it when called as a -witness by defendant in this proceeding. Mr. Peddy testified that after a most searching grilling of several hours he was not convinced that Lea had committed the act. I cannot read the testimony of Mr. Peddy and Mr. Wrightsman, plaintiff’s president, without being convinced of the thoroughness of their efforts and the sincerity of their conviction that it had not been established to their satisfaction that Lea had changed or forged the minutes.
After it had been unsuccessful in its efforts to solve the problem, plaintiff not only asked the Internal Kevenue Bureau to make a thorough investigation through all the forces at its command but also turned over to the Bureau all the evidence which it had collected. Such acts on their parte are inconsistent with the suggestion by the majority that officials of the company, other than Lea, might well have been connected with the act. Guilty parties do not usually ask to be investigated. The Bureau proceeded with investigations by the Special Intelligence Unit and the Federal Bureau of Investigation, and these investigators with all of their experience in matters of this kind and the resources at their command were likewise unable to satisfy themselves who was responsible for the act in question.
After these fruitless efforts by plaintiff and by the Bureau, plaintiff asked the Bureau to reconsider its claim in the light of the entire record, and with all of these facts before it a committee of attorneys for the General Counsel of the Bureau recommended the allowance of the claim. It is true that the claim was never allowed but in none of the letters from the Bureau denying the claim is- there any suggestion that the denial is on account of these so-called fraudulent minutes.
Substantially the same persons were interviewed in these investigations who testified in this proceeding and substantially the same documentary evidence was considered in these investigations as has been presented in this proceeding. I have examined this evidence most carefully and I am unwilling to say that the party has been identified who changed the minutes and thus place the stamp of u criminal *252on him. The circumstances are not connected, and must be largely assumed, and the suspicions become vague and contradictory when the evidence as a whole is considered. The preponderance of evidence is not enough. The rule governing this case is one between the greater weight of the evidence in civil cases and beyond a reasonable doubt in criminal cases. The mind must be satisfied the fraud was committed or attempted to be committed. An element of substantial doubt permeates the evidence.
One of the many factors which makes the solution difficult is the open hostility of the old officers, who were in charge of the affairs when the'minutes would have been adopted and recorded, toward'the present officers of plaintiff. We find them signing affidavits in support of the minutes, withdrawing those affidavits, and also suggesting that they would aid the plaintiff for a money consideration. We also have employees of the old company who were discharged by plaintiff when the change in corporate, entity took place, some of whom were not kindly disposed towards plaintiff. In addition we have the accountants who had made an examination of the books of plaintiff and on whom it would be a reflection to have overlooked the minutes in question. Their testimony is far from convincing and smacks of inconsistency. One of them was discharged by an accounting agency after this investigation.
To say, as does the majority, that the evidence is clear and convincing that Lea changed the minutes, it is necessary to consider only the favorable parts of the record and overlook that which is unfavorable to such a position. The most that can be said is that certain evidence indicates the possibility that the individual named by the majority could well have committed the act, whereas much doubt is cast on its sufficiency by other evidence. Under such circumstances, I am unwilling to say either that this individual did the act or that it was done by someone in a position of responsibility with plaintiff. Too many possibilities exist that some other persons not in a position of authority or responsibility may well have done the act and the corporation innocently presented the minutes without knowing they were genuine. To apply the harsh rule of forfeiture of plaintiff’s claim, which *253responsible agencies of tlie Burean have recommended for allowance, when the evidence is so wide the mark of being-clear and convincing, transcends my idea of justice and results in a gross inequity to which I am unwilling to subscribe.