Before DUFFY, Chief Judge, and MAJOR and SWAIM, Circuit Judges.
The petitioner, Julian Lentin, seeks a review of the decision of the Tax Court of the United States, 23 T.C. 112, which held that petitioner was not entitled to the deduction of $34,985.94 which petitioner claimed in his income tax report for the year 1946 as an "ordinary and necessary" expense incurred in carrying on his business during that year.
The amount claimed was paid by the petitioner to satisfy his part of a judgment which was rendered against him in the United States District Court for the Northern District of Illinois, Eastern Division, in a civil action brought against him and another by the Price Administrator for having "knowingly and willfully" sold lumber at prices in excess of the maximum prices established pursuant to the Emergency Price Control Act of 1942, as amended, 56 Stat. 23 et seq., 50 U.S.C.A.Appendix § 925(e). The District Court in that action expressly found that the overcharges had been made knowingly and willfully and therefore fixed the amount of the judgment at twice the amount of the overcharges, as permitted by the Act only where the overcharges had been willfully made.
Prior to a hearing before the Tax Court, held in Chicago November 30, 1953, the parties stipulated that the entire record in the OPA case should be considered in evidence in the tax case. This stipulation recited the facts as to the District Court action against petitioner and showed that the District Court expressly found that when such sales were made Lentin knew that they were over the maximum prices fixed by the OPA and that the sales were in violation of OPA regulations. By this stipulation the parties agreed that either party might introduce further evidence, but in the November 30, 1953, hearing before the Tax Court the parties presented no further evidence and agreed that the case had been fully "stipulated."
The Tax Court sustained the Commissioner of Internal Revenue in his denial of the petitioner's claim of a deduction for the amount of the judgment which the petitioner had paid. The Tax Court recognized that the principal issue before it was whether or not the petitioner's violations of the Price Control Act were willful, and held that it was not necessary for it to redetermine the question since "the District Court's decision, affirmed on appeal, is res judicata, as to the issue of petitioner's willful violation of the Price Control Act."
The petitioner here contends that the Tax Court committed error: (1) in holding that the determination of the District Court, that petitioner's violations of the Price Control Act were willful, was res judicata as to the issue of willfulness in the proceeding in the Tax Court; (2) in refusing to allow that amount of the judgment representing the overcharge as a proper deduction; and (3) in refusing to allow an amount of the judgment equal to cost of goods sold as a proper deduction.
We think that the Tax Court in this case properly applied the doctrine of collateral estoppel in determining the question of whether the petitioner had willfully charged overceiling prices in violation of the Price Control Act. There was before the Tax Court in this case the entire record of the action against the petitioner in the District Court, including all of the evidence and the express finding of the District Court that Lentin willfully and knowingly made sales at prices in excess of the maximum prices permitted by OPA regulations. This record also included the judgment for twice the amount of the overcharges, which amount was authorized only upon the court's finding of willful and knowing violations by the petitioner.
The petitioner contends that neither the doctrine of res judicata nor of collateral estoppel could have been properly applied by the Tax Court in the instant case.
The distinction between res judicata and collateral estoppel was pointed out and discussed by the Supreme Court in Cromwell v. County of Sac, 94 U.S. 351, 24 L. Ed. 195. The Court there, after explaining the doctrine of res judicata, said, 94 U.S. at page 353, as to collateral estoppel: "But where the second action between the same parties is upon a different claim or demand, the judgment in the prior action operates as an estoppel only as to those matters in issue or points controverted, upon the determination of which the finding or verdict was rendered. In all cases, therefore, where it is sought to apply the estoppel of a judgment rendered upon one cause of action to matters arising in a suit upon a different cause of action, the inquiry must always be as to the point or question actually litigated and determined in the original action, not what might have been thus litigated and determined.Only upon such matters is the judgment conclusive in another action."
The courts have consistently recognized and applied the doctrine of collateral estoppel. Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 595, 68 S. Ct. 715, 92 L. Ed. 898; Lawlor v. National Screen Service, 349 U.S. 322, 327, 75 S. Ct. 865; Lynch v. Commissioner of Internal Revenue, 7 Cir., 216 F.2d 574, 579.
In Lynch v. Commissioner of Internal Revenue, supra, this court discussed and applied the doctrine of collateral estoppel as that doctrine was explained in Commissioner v. Sunnen, supra. The most recent decision concerning the doctrine of collateral estoppel which has come to our attention is Lawlor v. National Screen Service, supra, which was announced by the Supreme Court June 6, 1955. In that decision the Court again recognized that the doctrine of res judicata applies where there is an attempt to retry the same cause of action, while collateral estoppel applies where the cause of action is not the same but there is an attempt to relitigate an issue which has theretofore been litigated between the same parties.
The petitioner insists that all of the cases cited by the Government on collateral estoppel involved two actions before the Tax Court and are therefore inapplicable in the instant case because here the first action was before the District Court. We have found no case which so limits the applicability of the doctrine of collateral estoppel, and we can think of no reason why such doctrine should be so limited.
The petitioner also contends that the nature of the Tax Court, as shown by the 1924 Act which created its predecessor, the Board of Tax Appeals, and designated it as an independent agency in the executive branch of the Government, precludes the Tax Court from determining facts on the doctrine of res judicata or collateral estoppel. The petitioner says that in that original Act the Board of Tax Appeals was designated as an independent agency in the executive branch of the Government; that this designation has been continued in subsequent laws; and that the Board of Tax Appeals and the Tax Court were given as their primary function the finding of facts in tax disputes. The petitioner admits, however, that the function of the Tax Court is of "an inherently judicial nature." Counsel for petitioner admits that he has found no decisions which expressly say that the Tax Court may not determine the facts in a case by the use of the doctrines of res judicata or collateral estoppel.Nor do we know of ...