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UNITED STATES v. BOSURGI

February 25, 1975

UNITED STATES OF AMERICA, Plaintiff, against LEONE BOSURGI, et al., Defendants

Kevin Thomas Duffy, D.J.


The opinion of the court was delivered by: DUFFY

OPINION AND ORDER

KEVIN THOMAS DUFFY, D.J.

 The United States of America ( hereinafter "United States"), Chemical Bank New York Trust Company (hereinafter "Chemical Bank"), Benedict Ginsberg (hereinafter "Ginsberg") and the Sociedad Anonima de Inversiones Comercialese Industriales (hereinafter "SAICI") have each moved for summary judgment in this tax proceeding. *fn1" The United States, as plaintiff in this action, is attempting to obtain a judgment for the federal taxes allegedly due from the estate of Adriana Bosurgi, an Italian citizen and non-resident alien of the United States. The original defendants herein were Chemical Bank and Leone and Emilio Bosurgi, the sons of Adriana Bosurgi. SAICI and Ginsberg were later added as defendants.

 This action is intimately related to two earlier lawsuits in New York State courts involving the same parties (except for the United States). In 1966, Ginsberg was retained by the Bosurgi brothers to sue Chemical Bank for alleged mismanagement of a custodian account at Chemical Bank which had been opened by their mother in 1954, and which was maintained in their names after her death in 1963. The suit was filed in 1966, and on September 15, 1970, a stipulation settling the suit for $215,000 was dictated into the record in open court. However, before Chemical Bank paid any money to the Bosurgis, this suit was instituted on March 2, 1971. Shortly thereafter this Court entered an order, dated March 18, 1971, that required Chemical Bank to pay $215,000 to Ginsberg, who was to hold the amount in escrow pending further order of this Court. Then in June 1971, another suit was instituted in the State courts. This one involved a claim by SAICI that the funds involved in the other State court suit belong to SAICI and that the Bosurgi brothers were holding those funds in trust for SAICI's benefit. That suit was ultimately consolidated with the Bosurgis' action against Chemical Bank. *fn2" On December 12, 1973, the State court found that the Bosurgis held the assets in the Chemical Bank account as trustees for SAICI and that SAICI was entitled to the $215,000 settlement. It further ordered that the $215,000 was subject to a "retaining lien" in favor of Ginsberg for his services as an attorney. The Court set the amount of Ginsberg's fees at $68,080.37 plus 35% of all accrued interest to the date of payment plus his unreimbursed disbursements of $994.05.

 Three issues are raised by the summary judgment motions:

 
1) Does the State court ruling that the Bosurgis held the funds in Chemical Bank as trustees for SAICI bind this Court?
 
2) If not, did the Bosurgis hold the funds as trustees for SAICI?
 
3) Is the fee awarded to Ginsberg appropriate and should he be allowed to collect it now?

 I. BINDING EFFECT OF STATE COURT JUDGMENT

 Although the United States was fully aware of the State court proceedings and informally participated therein, it was not a formal party therein. *fn3" somewhat similar circumstances the United States Supreme Court has indicated that "when the application of a federal statute is involved, the decision of a State trial court as to an underlying issue of State law should . . . not be controlling." Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S. Ct. 1776, 18 L. Ed. 2d 886 (1967). The Court held that in such circumstances a federal court should give "proper regard" to the rulings of the State court. It concluded that such an approach "would be fair to the taxpayer and protect the federal revenue as well." 387 U.S. at 465. *fn4"

 In determining the proper regard to be given the State court proceedings in this particular case, I note that the judgment entered was not a default judgment, but rather was entered on the basis of a motion for summary judgment. Furthermore, I do not believe that the State court proceedings were in any way collusive as has been suggested by the United States. In making this suggestion, the United States relies principally on the fact that SAICI did not commence its State court action until it appeared that the Bosurgis' $215,000 recovery from Chemical Bank might be subject to federal estate tax liability. I find this argument unpersuasive. There was no reason for SAICI to be concerned about these proceedings until such tax liability was asserted. Up to that point the Bosurgis had adequately represented SAICI's interest. Not until this action was instituted was it important for SAICI to establish that it was the owner of this fund.

 The government also argues that the failure of the Bosurgis to appear in this action demonstrates collusion. I fail to see why. Since the Bosurgis were suddenly faced with the assertion of a substantial federal tax liability ($650,000 plus), they may well have wanted to avoid further connection with this litigation and thus leave it to SAICI to vindicate its interest.

 If the government seriously desires to suggest collusion, it must produce some evidence to that effect. Flitcroft v. Commissioner, 328 F.2d 449, 454 (9th Cir. 1964). It has failed to do so here. Indeed, in discussing the factors to be considered in determining whether there was collusion in the State court proceedings involved in Flitcroft, two of the factors listed by the Ninth Circuit were "whether the federal tax authorities have notice of the State court action and whether the State court reached the correct result." 328 F.2d at 455. I will discuss the latter issue in part II, but as to the question of notice, the United States certainly had notice of the State court proceedings in this case; the parties in the State court seemed anxious to have the government join in that proceeding. I conclude that the State court proceedings were not collusive. *fn5"

 Thus, there is no reason not to give proper regard to the State court proceedings herein. Indeed, since such interests as judicial economy are enhanced by allowing competent State tribunals to decide issues of State law, see Klein v. Walston Co., 432 F.2d 936, 937 (2d Cir. 1970), I think that it is proper here to give considerable weight to the fact that the State court has found that SAICI is the owner of the funds in the Chemical Bank account. See Miglionico ...


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