Court Opinion

ID: 8597035
Source: CourtListenerOpinion
Date Created: 2022-11-23 16:04:22.962396+00
Date Added: 2024-06-11T16:55:00.481612
License: Public Domain

KASHIWA, Judge,
with whom SMITH, Judge, joins,
dissenting:
I dissent on the following grounds.
In the first Michtom opinion, we held that "the essential facts are identical to the facts in [Stahl v. United States, 441 F. 2d 999 (1970)].” [Emphasis supplied.] 216 Ct. Cl. 12, 20, 573 F. 2d 58, 62 (1978). Accordingly, we adopted the rationale of Stahl and held the case was resolved by section 165, not section 166. 216 Ct. Cl. at 21, 573 F. 2d at 62. The majority errs by attempting to distinguish Stahl on an oversimplified basis.
The basis for distinction seized by the majority is the assertion that:
* * * In our case, unlike Stahl, the subordination agreement does allow for the sale of the securities and does create a claim for the proceeds in plaintiffs’ favor. This is significantly different from the taxpayer’s right in Stahl to the return of the securities themselves. * * * [Emphasis supplied.]
The majority thus limits the contractual obligation in Stahl solely to the return of the securities. However, that is not the case.
*420The majority’s analysis of the Stahl facts overlooks two very important paragraphs in Mrs. Stahl’s subordination agreement with her broker, which were considered in the first Michtom opinion. Such paragraphs are: (1) Paragraph 2, which provided that Mrs. Stahl agreed to subordinate to the claims of all present and future creditors of Balough & Company (her broker) her right to demand the return of the securities or to receive payment for them (294 F. Supp. 243 (1969)), and (2) Paragraph 8, which provided that "the securities loaned to Balough pursuant to this instrument may be used and dealt with by Balough as part of its capital and shall be subject to the risks of Balough’s business.” [Emphasis supplied.] Id. Furthermore, even Judge Leven-thal specifically found:
* * * What is more fairly intended to be conveyed [rather than free dominion of sale] was the power to sell upon the appearance of the need and occasion contemplated by the agreement, the unfulfilled demands of the firm’s creditors. * * * [441 F. 2d at 1002.]
The majority’s statement of the Stahl facts assumedly is derived from Judge Leventhal’s analysis of those facts in relation to the Government’s argument in that case. The Government espoused as a general rule that a loan of securities gives rise to a debt. After an examination of the intent of the widow Stahl and her broker, Judge Leventhal found the parties’ obligations did not fairly include a general option to return the cash equivalent of the securities. Be that as it may, it is clear from the face of the documents entered into by the parties and reprinted by the district court that in limited circumstances the broker in Stahl could return to Mrs. Stahl the cash equivalent of the securities loaned. Therefore, Mrs. Stahl’s contractual right to a return of the securities was subject to the claims of all present or future creditors of Balough & Company, in which event a money claim was created.
Similarly, in Michtom there was no general power to sell, but only a power to sell in response to a specified contingency — of the same essential nature as those in the Stahl facts: (1) to meet maturing obligations of Hayden Stone, (2) in the event of insolvency of Hayden Stone, or (3) upon the *421happening of certain events such as the bankruptcy of Hayden Stone. Even the Government apparently does not agree with the majority’s distinction of Stahl. In its briefing to the court in the first Michtom decision and in the current consideration, the Government substantially analyzed the interrelationship of the Stahl opinion with Michtom. In the face of rather extensive reliance on Stahl by the plaintiff, the Government never attempted to distinguish the two subordination agreements. In fact, the Government characterized Mrs. Stahl’s arrangement as a "very similar subordination agreement [as Mr. Michtom’s].” Ct. Cl. No. 253-76, Defendant’s Brief filed September 4, 1979, at page 17. See also Defendant’s Brief filed July 27, 1977, at page 32. In light of the above, the majority’s attempt to distinguish Stahl from the present case is not convincing. The logical inference to be drawn from the majority’s simplistic attempt to distinguish Stahl is that the majority believes the Stahl rationale is incorrect. If the majority does not wish to follow the rationale of Stahl, rather than attempting an oversimplified distinction of that case from the instant facts it should squarely face the issue and explain why Stahl is incorrect.
Additionally, since the majority decides not to follow Stahl there is a gap in the majority’s analysis. In the first Michtom opinion, our finding that section 166 did not apply was premised on our reliance on the Stahl decision. By holding that Stahl is inapposite, the majority necessarily leaves unanswered the issue of the applicability of section 166. The majority opinion states:
* * * Because the Government has dropped its contention that the 1970 loss is properly deductible under I.R.C. § 166, we need not decide whether what Mr. Michtom received on the sale of his stock by Hayden Stone is properly characterized as a debt.
I disagree.
The Supreme Court has held that where a debtor-creditor relationship is created the loss is governed by section 166, not section 165. Putnam v. Commissioner, 352 U. S. 82, 87 (1956); Spring City Foundry Co. v. Commissioner, 292 U. S. 182, 189 (1934). Therefore, since defendant earlier argued *422the facts created a debtor-creditor relationship, and since the sole basis of our dismissal of that contention (i.e., Stahl) has now been abrogated by the majority, we necessarily must consider whether, without Stahl, there was a debtor-creditor relationship. Since the majority chooses not to follow the Stahl rationale, I feel the proper resolution of this case rests on section 166(d), not section 165 as the majority finds, apparently by default.
When Hayden Stone sold plaintiffs securities under the subordination agreement, a money claim was created against Hayden Stone in favor of Mr. Michtom. This arrangement can be properly characterized under Treas. Reg. § 1.166-l(c) as a bona fide debt (i.e., arising from a "debtor-creditor relationship based upon a valid and enforceable obligation to pay a fixed and determinable sum of money” ($127,764.55)). The receipt of H. S. Equities, Inc. preferred stock was in satisfaction of this debt — rendering it partially worthless.1 Because the debt is only partially worthless, plaintiff is allowed no deduction for 1970. Section 166(d)(1)(B). Finally, there is a capital loss in 1974 upon the sale of the preferred stock for $2,500.

 I would not find this transaction to be a "retirement” of an evidence of indebtedness within the reach of section 1232(a)(1). However, this is another issue which has escaped any consideration by the majority.