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Estate of Arthur K. Watson v. Blumenthal

decided: October 30, 1978.

ESTATE OF ARTHUR K. WATSON, ANN HEMINGWAY WATSON, HELEN W. BUCKNER, ANN C. H. WATSON AND JANE W. WATSON, AS EXECUTRICES OF THE WILL OF ARTHUR K. WATSON, DECEASED, APPELLEES,
v.
W. MICHAEL BLUMENTHAL, AS SECRETARY OF THE TREASURY, AND HUBERT J. HINTGEN, AS COMMISSIONER OF THE BUREAU OF THE PUBLIC DEBT, APPELLANTS.



Appeal from a judgment of the United States District Court for the Southern District of New York, Thomas P. Griesa, Judge, holding that Flower Bonds were property of the estate and granting plaintiffs a writ of mandamus against defendants for redemption of the bonds at par for payment of estate taxes. The judgment is reversed and the case remanded with directions to the district court to dismiss the complaint on the ground of lack of subject matter jurisdiction. Under the Tucker Act, the Court of Claims has exclusive jurisdiction for actions against the United States founded upon contract alleging more than $10,000 damages; the 1976 amendments to 28 U.S.C. § 1331 do not affect the Tucker Act; and there is no mandamus jurisdiction because the Court of Claims can provide an adequate remedy.

Before Oakes, Gurfein and Meskill, Circuit Judges.

Author: Oakes

This appeal, were there subject matter jurisdiction, would involve the very interesting, if not altogether novel, question of the extent of agents' authority under a general power of attorney after their principal becomes fatally comatose as the result of a serious accident. However, in this suit against the Secretary of the Treasury for declaratory and mandamus relief in connection with the redemption of certain United States Treasury bonds, commonly known as Flower Bonds, which plaintiffs seek to redeem at par for the payment of federal estate taxes due from decedent Arthur K. Watson's estate, we find a lack of subject matter jurisdiction in the district court. Accordingly, we reverse the judgment of the United States District Court for the Southern District of New York, Thomas P. Griesa, Judge, 442 F. Supp. 1000 (S.D.N.Y.1977), which held that the Flower Bonds purchased for Arthur Watson's estate after his fatal fall but before his death were the property of his estate and that redemption was accordingly required but did not discuss the jurisdictional aspects of the case other than to say that "plaintiffs are further entitled to a writ of mandamus directing defendants to so redeem and apply the bonds," Id. at 1003, citing our own Lovallo v. Froehlke, 468 F.2d 340 (2d Cir.), Cert. denied, 411 U.S. 918, 93 S. Ct. 1555, 36 L. Ed. 2d 310 (1972).

FACTS

On July 18, 1974, former Ambassador Arthur Watson fell down the stairs at his home in New Canaan, Connecticut, sustaining a laceration of the brain and fractured skull. No curative treatment was or could have been given to him; he remained comatose until his death eight days later. The day after the fall his brother and a member of the law firm of Cravath, Swaine & Moore, acting pursuant to a May 1, 1970, power of attorney, purchased $5 million worth of Treasury bonds, commonly called Flower Bonds, and three days later made a second bond purchase in the face amount of $3 million.

Treasury bonds in general and Flower Bonds in particular are issued under the authority given Congress in Article I, Section 8, Clause 2, of the Constitution "to borrow Money on the credit of the United States." Flower Bonds derive from the Second Liberty Bond Act, 31 U.S.C. § 752, and more particularly Section 20 of the Act, 31 U.S.C. § 754b, which was amended, 56 Stat. 189 (1942), so as to permit "under such regulations and upon such terms and conditions as the Commissioner of Internal Revenue with the approval of the Secretary of the Treasury may prescribe (bonds to) be receivable by the United States in payment of . . . taxes."*fn1 Regulations were adopted to permit certain bonds issues to be redeemed at par for purposes of paying federal estate tax. These issues are called Flower Bonds because in effect they bloom at the time of the death of the owner, prior to which, particularly because they bear low interest, they sell at a substantial discount on the open market. The Treasury Department could not issue Flower Bonds after March 3, 1971, because of a statutory repeal, 31 U.S.C. § 757c-4, but a number of issues made in the 1940s and "50s with maturity dates in the 1970s, "80s and "90s are outstanding, purchasable on the open market and ready to "bloom" upon the owner's death. In connection with each issue here involved,*fn2 the Treasury's Bureau of the Public Debt issued "offering circulars" that set forth the conditions for the redemption of the bonds. Although the language of each of the offering circulars varies somewhat, they all require ownership or actual ownership by the decedent at the time of his death. The circulars incorporate the regulations now appearing at 31 C.F.R. § 306.28, which also set forth, Subparagraph (b),*fn3 as the requirements for redemption of bonds under this section that (1) the decedent must have owned the bonds at the time of his death, and (2) the bonds must constitute a part of his estate.

Following Mr. Watson's death, his estate ratified the purchase by his attorneys-in-fact and tendered to the Bureau of the Public Debt, for application to federal estate tax due, bonds in the face amount of $4,742,000 for redemption at par and accrued interest in accordance with their terms. But the Bureau rejected the tender because it felt that under general rules of agency law, Mr. Watson's comatose condition at the time of the bond purchase vitiated the power of his attorneys-in-fact to act for him. The estate and the executrices thereof brought this suit against the Secretary of the Treasury and the Commissioner of the Bureau of Public Debt seeking declaratory relief and an order directing the Government to redeem the bonds at par and apply them with accrued interest in satisfaction of estate taxes due. Plaintiffs allege jurisdiction under 28 U.S.C. §§ 1331 (federal question), 1361 (mandamus), 1391(e) (relating to venue in civil actions against United States agencies or employees), and 2201 (Declaratory Judgment Act). Because § 1391(e) is, as indicated, a venue statute and does not in and of itself confer subject matter jurisdiction and § 2201 does not provide an independent basis for jurisdiction but simply increases the remedies available to a litigant, Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 70 S. Ct. 876, 94 L. Ed. 1194 (1950); Delavigne v. Delavigne, 530 F.2d 598 (4th Cir. 1976), we need not discuss those sections further.

FEDERAL QUESTION JURISDICTION

Jurisdiction lies under § 1331,*fn4 since 1976*fn5 without regard to the amount in controversy, against the United States, any agency thereof, or any officer or employee thereof in his official capacity, if the action "arises under the Constitution, laws, or treaties of the United States." However, under Section 1 of the Tucker Act, 28 U.S.C. § 1491,*fn6 the Court of Claims has jurisdiction "to render judgment upon any claim against the United States founded either upon the Constitution, or any act of Congress, or any regulation of an executive department, or upon any express or implied contract with the United States." Under § 1346(a)(2), also a part of the Tucker Act, the district courts have original jurisdiction concurrent with the Court of Claims of actions similarly founded only if they do not exceed $10,000 in amount.*fn7 For contract actions against the United States the Court of Claims has exclusive jurisdiction for claims over $10,000. See International Engineering Co., Division of A-T-O, Inc. v. Richardson, 167 U.S.App.D.C. 396, 512 F.2d 573, 577 (1975), Cert. denied, 423 U.S. 1048, 96 S. Ct. 774, 46 L. Ed. 2d 636 (1976); 17 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure § 4101, at 210 (hereinafter cited as Wright). Thus, simplistically viewed, our question in the first instance would be whether the present complaint is "founded upon" a contract, in which case only the Court of Claims would have jurisdiction because the amount in controversy far exceeds $10,000, or is one "arising under" an Act of Congress (the Second Liberty Bond Act) or a regulation of an executive department (the regulations above mentioned, 31 C.F.R. § 306.28) within the meaning of § 1331. The Government contends strongly for the contract position, the estate for what we may call the "arising under" position.

As so often occurs in such matters, the characterization of the claim as one founded upon a contract or arising under a law or regulation of the United States, although determinative of the outcome, is a question by no means simple of solution. Judge Gignoux has suggested in a similar case in the District of Maine that a plaintiff would have difficulty meeting the "arising under" requirement of § 1331 because the suit arises "primarily under a contract and not directly under the laws of the United States." Estate of Pingree v. Blumenthal, No. Civ-77-3-ND at n. 5 (D.Me. Mar. 3, 1978). As District Judge Albert Johnson said in United States v. Dauphin Deposit Trust Co., 50 F. Supp. 73, 76 (M.D.Pa.1943), in connection with savings bonds under the Second Liberty Bond Act, "(e)ach of said bonds, together with the Statutes, Treasury Regulations, and Circulars constitute a valid and binding contract determining the rights of the parties therein and . . . ownership and title to the said bonds are controlled by Section 22 of the Second Liberty Bond Act, as amended, and the aforesaid Treasury Regulations and Circulars"; he accepted the Government's contention that "the (federal) Regulations must be read into the contract between the United States and (the bond purchaser) so as to become a part thereof." See Bodek v. Department of the Treasury, Bureau of the Public Debt, 532 F.2d 277, 279 n. 7 (2d Cir.), Cert. denied, 429 U.S. 849, 97 S. Ct. 137, 50 L. Ed. 2d 122 (1976); Wolak v. United States, 366 F. Supp. 1106, 1111-12 (D.Conn.1973); Spicer v. United States, 217 F. Supp. 44 (D.Kan.1963), Aff'd, 332 F.2d 750 (10th Cir. 1964). See also Clearfield Trust Co. v. United States, 318 U.S. 363, 63 S. Ct. 573, 87 L. Ed. 838 (1943) (federal common law applies in actions on contracts with the United States). Thus although this case has some aspects of a suit arising under a federal law or executive department regulation, the bonds are themselves contracts, and the regulations are incorporated into those contracts; accordingly, one may view the claim as essentially being "founded upon a contract" and hence a matter exclusively for the Court of Claims. Our decision that because of the contract aspects of this case the Tucker Act assigns jurisdiction to the Court of Claims and not the district court is reinforced by the Court of Claims' authority even over cases founded upon an Act of Congress or a regulation. Thus the Court of Claims has jurisdiction over this action whichever way it is characterized, and that jurisdiction is on these facts exclusive.

However, as we have said, this analysis may be simplistic if it involves simply an attempt to pigeonhole the case under one label ("arising under") or another (contract) in the hope that the pigeonholing itself will solve the problem. Fortunately or unfortunately, as the case may be, the law pertaining to federal jurisdiction in the area of suits against the United States upon United States obligations does not consist simply of convenient pigeonholes. See generally Cohen, The Broken Compass: The Requirement That a Case Arise "Directly Under Federal Law," 115 U.Pa.L.Rev. 890 (1967).

A more sophisticated analysis must also take into account the matter of sovereign immunity. The Tucker Act itself, after all, was a waiver of sovereign immunity for actions founded upon contract. See United States v. Sherwood, 312 U.S. 584, 586-87, 61 S. Ct. 767, 85 L. Ed. 1058 (1941); See also Glidden Co. v. Zdanok, 370 U.S. 530, 556-57, 564, 565, 82 S. Ct. 1459, 8 L. Ed. 2d 671 (1962). A suit as here seeking specific relief against an officer of the sovereign acting not in any individual capacity but strictly as an official is a suit against the sovereign and absent a waiver of immunity is not maintainable because of the absence of subject matter jurisdiction. See Larson v. Domestic & Foreign Commerce Corp., 337 U.S. 682, 688, 69 S. Ct. 1457, 93 L. Ed. 1628 (1949). As Larson put it, following Goldberg v. Daniels, 231 U.S. 218, 34 S. Ct. 84, 58 L. Ed. 191 (1913), and rejecting the theory of Goltra v. Weeks, 271 U.S. 536, 46 S. Ct. 613, 70 L. Ed. 1074 (1926):

(T)he action of an officer of the sovereign (be it holding, taking or otherwise legally affecting the plaintiff's property) can be regarded as so "illegal" as to permit a suit for specific relief against the officer as an individual only if it is not within the officer's statutory powers or, if within those powers, only if the powers, or their exercise in the particular case, are constitutionally void.

Id. at 701-02, 69 S. Ct. at 1467 (footnote omitted). In Larson, the Court distinguished suits for damages, where it would give "hospitable scope" to broadening the sovereign's liability, from suits for specific relief such as an injunction, a writ of mandamus, or a declaration. Id. at 703-04, 69 S. Ct. 1457. The latter involve "direct judicial interference," Id., with functions of Congress and the executive branch. Judge Gignoux, in his very thoughtful opinion above mentioned, Estate of Pingree v. Blumenthal, recognized, applied, and held ...


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