Court Opinion

ID: 8875951
Source: CourtListenerOpinion
Date Created: 2022-11-26 19:02:56.807203+00
Date Added: 2024-06-11T17:06:21.428911
License: Public Domain

FRANK W. WILSON, District Judge
(concurring).
While I concur in the result reached by the majority, I must respectfully state an independent position upon the question of the effect to be given the adjudication of the Probate Court.
Whether or not the Probate Court had jurisdiction, and whether or not state court adjudications of property rights are generally binding under the Rules of Decisions Act (28 U.S.C. § 1652) upon federal courts in litigation of federal tax obligations, I would hold that this particular state court adjudication is not binding upon the District Court or upon this Court simply because of its collusive nature. By use of the word “collusive”, it is not meant that the parties, their attorney or any other person was guilty of fraud or improper conduct. The word is used in the context of the problem as it has been used by the courts for many years, that is, to characterize those proceedings in which the motive of avoiding tax liability to the federal government so dominates over the usual interest of the parties in protecting their own interests in property as to overturn what would otherwise be the result of such litigation under applicable state law.
Some of the cases dealing with collu-siveness in this context would seem to indicate that the mere lack of an adversary proceeding, of itself, is sufficient *453to rob a state court adjudication of any binding character. See Estate of Stallworth v. C. I. R., (C.A.5, 1958) 260 F.2d 760; Wolfson v. Smyth, (C.A.9, 1955) 223 F.2d 111; Brodrick v. Moore, (C.A. 10, 1955) 226 F.2d 105. On the other hand', at least one of the cases in this area appears to hold that the “collusiveness” required must partake of fraud or other improper conduct. Gallagher v. Smith, (C.A.3, 1955) 223 F.2d 218.
I think the better view is expressed in that line of cases flowing from Freuler V. Helvering, (1934) 291 U.S. 35, 54 S.Ct. 308, 78 L.Ed. 634, and best represented by Faulkerson’s Estate v. United States, (C.A.7,1962) 301 F.2d 231; Pey-ton’s Estate v. C. I. R., (C.A.8, 1963) 323 F.2d 438; and Estate of Pierpont v. C. I. R., (C.A.8, 1963) 336 F.2d 277. In Freuler, the Supreme Court spoke of “collusion” in this context “in the sense that all the parties joined in a submission of the issues and sought a decision which would adversely affect the Government’s right to additional income tax.” See 54 S.Ct. 312, 78 L.Ed. 634. The Court in the Peyton case extracted from Sauls-bury v. United States, (C.A.5, 1952) 199 F.2d 578, 580, language most apt here;
“By the word collusion, we do not mean to imply fraudulent or improper conduct, but simply that all interested parties agreed to the order and that it was apparently to their advantage from a tax standpoint to do so. We mean that there was no genuine issue of law or fact as to the right of the beneficiary to receive this income, and no bona fide controversy between the trustee and the beneficiary as to property rights under the trust instrument. The order of the state court frustrated the plan of the donor * * (Emphasis theirs.)
In the instant case, the District Judge found no collusion, but he restricted unduly the meaning of “collusion”, adopting the rationale of the Gallagher case and requiring evidence of fraud or other impropriety. See 232 F.Supp. 980, 981. In this respect, I think he erred and that the broader definition of “collusion”, as hereinabove discussed, should have been applied.
Here waivers of notice and consent were filed on behalf of all parties, no hearing was had on the merits, one law firm represented all “adversaries” and the result reached was obviously contrary to Michigan law, though it would, if binding, have the effect of restricting the federal government’s right to revenues. Both the Faulkerson and Peyton cases involved non-adversary proceedings with little or no hearing on the merits and in both instances the state court reached a result contrary to applicable state law. All these factors are proper as evidence of collusion.
I would hold that the proceedings in the Ottawa County Probate Court were collusive and thus not binding upon the District Court or this Court in the determination of federal tax liabilities.