Appeal from the District Court of the United States for the Eastern District of New York.
Before MANTON, L. HAND, and SWAN, Circuit Judges.
In June, 1917, Benjamin Adriance paid some $82,000 as his income tax assessment for the year 1916. Subsequent to his death, the plaintiffs, as his executors, filed amended returns for the years 1915 and 1916, and, asserting an underassessment for the former year and an overassessment for the latter, claimed a refund of some $28,000 of the taxes paid for 1916. Upon an audit of these documents and the taxpayer's books, the Commissioner determined in 1923 that an overassessment of more than $81,000 had occurred with respect to the 1916 tax and an underassessment of some $52,000 with respect to the 1915 tax. On November 28, 1923, the Commissioner caused to be paid to the plaintiffs $28,872.23 in cash, and credited the balance of the overassessment against an additional assessment of $52,516.36 for the year 1915. This the plaintiffs accepted without objection, but more than five years later, having in the meantime suffered a change of heart, they demanded, on January 30, 1929, payment of the $52,516.36 so retained, with interest thereon, on the theory that the assessment in 1923 of an additional tax for 1915 was barred by the statute of limitations. On April 5, 1929, the Commissioner refused such demand, and on November 11, 1929, the present suit was begun against the United States.
The complaint sets up the foregoing facts and charges that, by the application of $52,516.36 of the admitted overpayment for 1916 to payment of the additional assessment for 1915, the United States "attempted to collect and did collect" said additional assessment on November 28, 1923, and that this was illegal because the collection of any additional assessment for 1915 was then outlawed. It was further alleged that the collector to whom the 1916 tax was paid and the collector who held office in 1923 were both out of office at the commencement of this suit. Judgment was demanded for the said sum of $52,516.36, with interest thereon from June 14, 1917. In defense the government's answer asserted (1) that the additional tax for 1915 was legally assessed because prior thereto the plaintiffs had consented in writing to the assessment; and (2) that the suit was barred by the statute of limitations. Trial was to the court, without a jury, upon stipulated facts, and resulted in a dismissal of the complaint.
The disposition of the case which we are to make renders unnecessary a determination of the question whether there was such a consent in writing as would permit assessment of the additional tax for 1915 under section 250(d) of the Revenue Act of 1921 (42 Stat. 265). We shall assume arguendo throughout the discussion which follows that such additional assessment in 1923 was illegal.
The appellants' brief has presented their suit as one founded upon the Commissioner's allowance in 1923 of the claim of over-assessment for the year 1916, and the failure of the United States to pay the full amount so allowed. Both the allegations of the complaint and the proofs adduced at the trial are sufficient to establish such a cause of action. Bonwit Teller & Co. v. United States, 283 U.S. 258, 51 S. Ct. 395, 5 L. Ed. 1018. But the appellee challenges the jurisdiction of the court to entertain such a suit, and this raises the first question for consideration.
It involves an interpretation of section 24 (20) of the Judicial Code, as amended in 1921 and 1926 (28 USCA § 41 (20). Prior to these amendments, section 24 conferred jurisdiction on the District Court, concurrently with the Court of Claims, of suits against the United States on "claims not exceeding $10,000 founded upon * * * any law of Congress, * * * or upon any contract, express or implied, with the Government of the United States. * * *" The plaintiffs argue that their cause of action is on the implied promise of the government to refund the allowed claim of overpayment of the 1916 tax and arose on November 28, 1923, upon delivery to them of a certificate of overassessment. They concede that prior to the amendment of section 24 the District Court would have had no jurisdiction, since the amount claimed was more than $10,000, but they assert that the amendment has removed the limitation as to amount in such a suit as this. The amendment added to section 24 a paragraph which reads as follows (44 Stat. 121):
"Concurrent with the Court of Claims, of any suit or proceeding, commenced after the passage of the Revenue Act of 1921, for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority or any sum alleged to have been excessive or in any manner wrongfully collected, under the internal-revenue laws, even if the claim exceeds $10,000, if the collector of internal revenue by whom such tax, penalty, or su was collected is dead or is not in office as collector of internal revenue at the time such suit or proceeding is commenced."
It is apparent that this amendment enlarges the District Court's jurisdiction by giving claimants who allege that money has been wrongfully collected under the internal revenue laws the privilege of suing the United States regardless of the amount of the claim, but only on condition that "the collector of internal revenue by whom such tax, penalty or sum was collected" is dead or out of office. This condition makes apparent the intent of the legislation, namely, to permit suit against the United States as an alternative to a suit against a deceased or retired collector. Of suits against a collector, the District Court already had jurisdiction unlimited as to amount. Jud. Code § 24(5) 28 USCA § 41 (5). Such a suit was personal to the collector, would survive his retirement from office and would not abate upon his death. See Smietanka v. Indiana Steel Co., 257 U.S. 1, 42 S. Ct. 1, 66 L. Ed. 99; Union Trust Co. v. Wardell, 258 U.S. 537, 42 S. Ct. 393, 66 L. Ed. 753; Patton v. Brady, 184 U.S. 608, 22 S. Ct. 493, 46 L. Ed. 713. We think it clear that the suits allowed under the amendment must be of the same kind as those for which they are a substitute. In other words, after the amendment, if the collector by whom the tax was wrongfully collected is still in office, the suit ust, as before, be brought against him, if the claim exceeds $10,000; but, if he is out of office, then it may be brought in the District Court against the United States regardless of the amount claimed. Hence, unless the plaintiff's suit is one that could be brought against a collector, it is not within the jurisdiction conferred on District Courts by the amendment.
Accepting the appellants' theory of their suit, the cause of action is grounded upon the Commissioner's determination evidenced by his certificate of overassessment. Bonwit Teller & Co. v. United States, 283 U.S. 258, 265, 51 S. Ct. 395, 75 L. Ed. 1018. The liability of the United States rests upon an implied promise to pay the allowed refund. United States v. Real Estate Savings Bank, 104 U.S. 728, 733, 26 L. Ed. 908; United States v. Kaufman, 96 U.S. 567, 570, 24 L. Ed. 792. But no such cause of action can arise against a collector. He can neither allow a refund nor drawn money from the Treasury to pay it. Hence no suit will lie against him based on the allowance of a refund. In Arthur C. Harvey Co. v. Malley, 60 F.2d 97, 100 (C.C.A. 1) the court said:
"If the appellant had declared as on an account stated, or a promise to pay by reason of the certificate of overassessment issued by the collector in May, 1923, as in Bonwit Teller & Co. v. United States, 283 U.S. 258, 265, 51 S. Ct. 395, 75 L. Ed. 1018, we think its action would have to be brought against the United States, as neither of the defendants had anything to do with issuing of the certificate of overassessment or were privy to any promise therein contained, either express or implied, to refund the overpayment."
Routzahn v. Reeves Brothers Co., 59 F.2d 915 (C.C.A. 6), is in accord. Cf. Peerless Paper Box Mfg. Co. v. Routzahn, 22 F.2d 459 (D.C.N.D. Ohio). See, also, United States v. Savings Bank, 104 U.S. 728, 734, 26 L. Ed. 908; where it is said that a rejected claim may be prosecuted against the collector, and an allowed claim, not paid, against the United States in the Court of Claims.
In the case at bar, the plaintiffs proved facts which created a contractual obligation on the part of the United States to pay over the allowed refund, and a breach of that obligation by retention of $52,000 for an unjustifiable reason; i.e., the illegally assessed additional tax for 1915. They urge that, regardless of the legal theory upon which their suit is based, it is a suit for a "tax alleged to have been erroneously or illegally assessed or collected," and so within the letter of the amendment expanding the District Court's jurisdiction. But the theory of the suit determines whether it is one which would lie against a collector if he were alive and in office; and, if it be not such a suit, then, for reasons already stated, we are satisfied that the amendment does not cover it. Two decisions of the District Court are cited as having assumed jurisdiction of a suit like the present. Brady v. United States, 24 F.2d 205 (D.C.D. Mass.); United Motors Corp. v. United States, 44 F.2d 407 (D.C.S.D.N.Y.). In the Brady Case it does not appear that more than $10,000 was involved. In the United Motors ...