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January 20, 1969

United States of America, Plaintiff,
David Jacobs, New York Credit Men's Adjustment Bureau, Inc., Doris Kolmer, Richard Kolmer, as Executor of the Estate of Max Kolmer, deceased, and Arthur Levine, Herbert Levine and David Jacobs, as Executors of the Estate of Benjamin Levine, deceased, and Kolmer & Company, Inc., Defendants

Levet, District Judge.

The opinion of the court was delivered by: LEVET

Opinion, Findings of Fact and Conclusion of Law

LEVET, District Judge:

 The United States of America instituted this action (1) to recover judgment against defendant Kolmer & Company, Inc. on an assessment for unpaid taxes of $108,328.26 plus interest, and (2) to recover the amount of said judgment out of an escrow fund held by David Jacobs, an attorney. Jurisdiction is claimed pursuant to Title 28 USCA §§ 1340 and 1345.

 Defendant Kolmer & Company, Inc. (herein called "the corporation") does not dispute its liability for the taxes assessed. In fact, this corporate defendant, as well as Richard Kolmer as executor of the Estate of Max Kolmer, deceased, David Jacobs and Ben Levine, agree with the United States that the funds held in escrow by David Jacobs should be paid to the United States to the extent necessary to satisfy said tax liability, subject only to the payment of the escrowee's expenses. The claim of Marshall, Bratter, Greene, Allison & Tucker for attorneys' fees has heretofore been paid.

 Defendant Doris Kolmer, widow of Max Kolmer, claims that she is entitled to receive the sum of $16,000 (together with interest) from the escrow fund by reason of a judgment against her husband, said Max Kolmer, entered on March 3, 1961 in the office of the Clerk of New York County.

 Defendant New York Credit Men's Adjustment Bureau, Inc. (herein called "Credit Men's") claims that it is entitled to 90% of said escrow fund by reason of a trust agreement, dated January 7, 1960, irrevocably assigning 90% of the amount and value of the property in said escrow fund to the defendant Credit Men's in trust for certain creditors of Max Kolmer and the corporation whose claims aggregate more than $100,000.

 The case was tried to the court without a jury.

 After hearing the evidence submitted by the parties, examining the exhibits, the pleadings, the briefs and Proposed Findings of Fact and Conclusions of Law submitted by counsel, this court makes the following Findings of Fact and Conclusions of Law:

 Findings of Fact

 The Capital Stock Sale Agreement of June 30, 1957 1. On or about June 30, 1957, Richard Kolmer (son of Max Kolmer), Benjamin Levine and his son, Herbert Levine, three of the four stockholders of Kolmer & Company, Inc., sold their respective stockholdings to the corporation for the following sums: Sale Price Richard Kolmer $105,794.34 Benjamin Levine $273,000.00 Herbert Levine $110,294.34

 (Ex. 1, paras. 2-4) The book value of the stock on January 31, 1957 was as follows: Richard Kolmer $105,794.34 Benjamin Levine $211,206.13 Herbert Levine $110,294.34

 Max Kolmer, the sole remaining stockholder, was a party to the agreement. (Ex. 1)

 2. At the time of the said sale of stock, the balance sheet of the corporation as of January 31, 1957 contained no reserve with which to pay the Federal Internal Revenue Service ("IRS") if the deductions claimed by the corporation for the carry forward of pre-1954 losses of L. Saffer & Co. Inc., which had been merged with the corporation, were ultimately disallowed. (Doris Kolmer Ex. C) 3. The agreement of June 30, 1957 between the three stockholders mentioned and Max Kolmer, who then became the sole remaining stockholder, contained a provision whereby the four stockholders were to pay any subsequently determined tax liabilities against the corporation's income prior to January 31, 1957. The corporation was a party to the agreement. The liabilities of the four stockholders were to be apportioned in relation to their former holdings in the corporation as follows: Max Kolmer 26.47% Richard Kolmer 23.53% Benjamin Levine 26.47% Herbert Levine 23.53%

 (Ex. 1, para. 12)

 The Establishment of the Escrow Fund

 4. Immediately following the execution of the sales agreement but to be incorporated in it, Max Kolmer and Benjamin Levine each deposited certain securities, merchandise and property in escrow with David Jacobs (an attorney) to secure such payments of possible additional liabilities of the corporation for taxes. As part of this agreement, Max Kolmer guaranteed payment of his son Richard's liability and Benjamin Levine guaranteed payment of his son Herbert's liability "as if Ben and Max shall each be liable for 50% of any such liabilities." Under the agreement of June 30, 1957 (Ex. 1, para. 13) identical agreements of escrow were executed by Max Kolmer and by Benjamin Levine, each dated July 5, 1957. David Jacobs, as attorney for Max and Benjamin, prepared the agreements. (Exs. 2, 3)

 5. (a) The terms of the escrow agreements provided in substance that if Jacobs, the escrowee, received notice from the corporation of the assessment of taxes (as covered by the shareholders' agreement) and that one of the depositors failed to pay as agreed, etc., the escrowee was to sell securities of that defaulting party in an amount equal to the sum which he was required to pay, and turn over the proceeds to the corporation.

 (b) The escrow agreement (Ex. 2), when read in conjunction with the stockholders' agreement (Ex. 1) and Benjamin Levine's escrow agreement (Ex. 3), reveals an intent of the parties to those agreements that the fund guarantee, or assure, the payment of any potential tax liabilities in order to protect the other parties to the sales agreement from transferee liability.

 (c) It is obvious that the parties to the escrow agreements recognized that the government also would directly benefit from the agreement to secure any tax payments.

 The Tax Assessment

 6. By letter dated August 25, 1959, the IRS notified the corporation that it disallowed the carry over deduction claimed for the fiscal year ending January 31, 1955, and assessed a deficiency in the sum of $128,882.08 unless a petition was filed in the Tax Court within 90 days. (Ex. 4)

 7. Attorneys who were engaged, with the consent of Max and Benjamin, who guaranteed the lawyers' fees, proceeded in the Tax Court but before trial recommended a settlement of $83,882.08 conditioned upon the corporation waiving any loss carry forward for the years ending January 31, 1956 and January 31, 1957. (149-155) *fn1" Benjamin Levine and Richard Kolmer, executor of Max Kolmer (who had died in June 1960), recommended settlement but the Creditors Committee and Credit Men's, the holder in trust of a certain alleged assignment of Max Kolmer's interest in the escrow fund, refused to approve. (153-158, Ex. 16) 8. Thereafter, the following taxes were duly assessed against the corporation pursuant to the settlement of the Tax Court proceeding: Assessed Year Ending Tax Interest Total (Ex. 18) 1/31/55 $83,882.08 $36,069.29 $119,951.37 (Ex. 17) 1/31/56 67,486.29 25,977.60 93,463.89 (Ex. 19) 1/31/57 1,325.25 430.61 1,755.86

 The corporation did not pay any portion of the foregoing taxes. Benjamin Levine paid one-half of each year's assessment of taxes and interest. (167) (See column (f) of Exs. 17, 18, 19) 9. The balance of said assessments have not been paid, and there is presently due thereon the following (plus accrued unassessed interest): Year Ending 1/31/55 $ 59,975.69 1/31/56 46,731.94 1/31/57 878.01 $107,585.64 10. There are also due and owing from the corporation to the United States the following taxes (plus accrued and unassessed interest), which the plaintiff concedes are not within the terms of the escrow agreements: Period Tax Interest Total (E x. 20) Yr. ending 1/31/58 $406.54 $107.70 $514.24 (Ex. 21) 1959 FUTA 227.20 1.19 228.39

 The Assignment to Credit Men's

 11. In the fall of 1959, the corporation fell into financial difficulties and after meetings with creditors the corporation delivered an assignment for the benefit of creditors, in escrow, to Credit Men's, which had been designated Secretary of a Creditors Committee by the corporation's creditors. The assignment was never filed. (91-93, Exs. 6, 9)

 12. It appeared that Max Kolmer had personally guaranteed the indebtedness of the corporation to many creditors. Credit Men's was informed of the Jacobs' escrow and its purposes and of the tax hazard. (106-109) At this juncture the corporation agreed to pay its debts, which were entitled to priority, to pay a percentage in cash to unsecured creditors, and assigned to Credit Men's, as trustee ...

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