United States District Court, Northern District of Illinois, E.D
February 16, 1966
ALICE C. PETTENGILL, PLAINTIFF,
UNITED STATES OF AMERICA, DEFENDANT. RAE HANSEN KENDRICK, PLAINTIFF, V. UNITED STATES OF AMERICA, DEFENDANT. ALICE C. PETTENGILL, ADMINISTRATRIX, ETC., PLAINTIFF, V. UNITED STATES OF AMERICA, DEFENDANT.
The opinion of the court was delivered by: Parsons, District Judge.
These are three tax refund actions to recover about $67,000 in
income taxes alleged to have been erroneously assessed against,
and collected from, the estate of Arthur S. Hansen, for the years
1955 through 1958.
Case No. 64 C 2145 is brought by the decedent's widow, Alice C.
Pettengill, as Administratrix of his estate, to recover the
entire $67,000 allegedly due the estate. Case No. 64 C 2143 is a
claim by the widow, individually, to recover a one-third share
(as one of three heirs sharing equally) of any overpayment of
taxes by the estate. Count Three of Case No. 64 C 2144 is a claim
by the decedent's daughter, Rae Hansen Kendrick, also to recover
her one-third share. (The other daughter, Karen Hansen Lotz, a
resident of Florida, has filed a similar action there to recover
the remaining one-third share). The widow also sues individually
in Case No. 64 C 2143, Count I, to recover taxes paid out of her
own money under a joint income tax return for the year 1955,
which she filed on behalf of herself and the estate.
The United States has moved to dismiss the above claims on
various grounds. The cases have been consolidated for pretrial
purposes, pursuant to Rule 42(a) of the Federal Rules of Civil
Procedure, and are presently before the Court for ruling on
Taking as true the allegations of the complaint, as they must
be in ruling upon a motion to dismiss, it appears, among other
things, that the decedent, Arthur S. Hansen, owned and operated
an actuarial service business. On January 28, 1955, he died. His
widow, Alice, was appointed Administratrix of his estate on
February 7, 1955, by the Probate Court of Lake County, Illinois.
During the administration of the estate, the widow, as
Administratrix, filed income tax returns required of fiduciaries
for the years 1955 through 1958. She paid taxes assessed
thereunder. For the year 1955, she filed a joint income tax
return on behalf of herself and the decedent. Taxes on this
return were paid out of her own funds. On April 14, 1959, she
filed claims for refund, individually and as Administratrix, with
the Commissioner of Internal Revenue. Nine days later, the estate
was closed, when its assets (including the claims for refund)
were distributed to the heirs and Alice was discharged as
Administratrix. Subsequently, the claims for refund were
disallowed. Recently, the instant cases were commenced, just a
short time before the running of the statute of limitations would
bar bringing these actions.
The Government seeks dismissal of the suit brought by Alice C.
Pettengill, as Administratrix of the estate, on the grounds: (1)
That Alice lacks capacity to sue on behalf of the estate for a
tax refund due the estate once it has been closed and she has
been discharged, and (2) that the estate is no longer a real
party in interest, since any claims for refund passed from the
estate to the heirs by operation of law upon the final settlement
of accounts and distribution of the assets of the estate.
It is unnecessary to distinguish between defendant's two
contentions on this matter in view of plaintiff's own
acknowledgment, in her complaint and subsequently in her briefs,
that the claims for refund were among the assets of the estate
which vested in, and were distributed to, the three heirs in
equal shares at the time the Administratrix' final account was
approved and the estate closed.
The final distribution of the assets of the estate constituted
an assignment by operation of law, which is not proscribed by the
anti-assignment statute, 31 U.S.C. § 203. Erwin v. United States,
97 U.S. 392, 24 L.Ed. 1065 (1878); United States v. Aetna
Casualty & Surety Co., 338 U.S. 366, 70 S.Ct. 207, 94 L.Ed. 171
(1949); Kinney-Lindstrom Foundation v. United States, 186 F. Supp. 133
(N.D. Iowa (1960)) (executor cannot assign tax refund claim
while estate is still open and executor is still serving). Upon
distribution, the estate lost any interest in the claims for
refund. Despite the logic, simplicity, economy, convenience to
all parties and to the Court, and general desirability of having
the Administratrix of an estate bring a single action for refund
of taxes, it is equally logical and desirable that the legal
representative of an estate act while under local law that estate
is still in existence. Any exception to this rule would destroy
fundamental law relating to decedents' estates.
The estate is no longer a sufficient legal entity to be a real
party in interest here, and therefore cannot have attributed to
it a standing to sue. If the estate were reopened by the Lake
County Court, I, thereafter, could recognize its legal
representative. That, however, is not the situation here.
Accordingly, defendant's motion to dismiss Case No. 64 C 2145
must be, and the same hereby is, allowed.
Defendant also seeks dismissal of the alternative individual
refund claims of two heirs, who here seek to pursue the same
course that has been set by a third heir, who has brought an
individual refund action in a Florida District Court.
The Government contends that where claims for refund of income
taxes paid by an estate have been distributed to the heirs, the
heirs may not maintain separate actions for their respective
shares, but, rather, they are all required to join, as
indispensable parties, in a single action. Many practical
administrative considerations justify this contention.
At the same time, the heirs might have brought their individual
claims in one forum, to be tried by one jury, were it not for a
venue provision. Section 1402 of Title 28 precludes the filing of
a tax refund action in a district in which plaintiff is a
nonresident. Many practical administrative considerations justify
this provision. Accordingly, the Florida heir could not have sued
in this district. A still further procedural obstacle would
prevent transfer of the Florida action to this Court, no matter
how convenient this forum might be. Hoffman v. Blaski,
363 U.S. 335, 80 S.Ct. 1084, 4 L.Ed.2d 1254 (1960). Adoption of the
Government's position would bar suit in a Federal District Court
in all cases such as this, whenever heirs reside in different
The heirs here could all have sued in the distant Court of
Claims, but trial by jury would not be available. They chose to
file refund actions in their respective districts of residence.
The crucial issue thus raised by the Internal Revenue Service is
whether the absent Florida heir, kept absent here by virtue of
Internal Revenue Law, is an indispensable party to the instant
actions. "Wherefore, these actions may not be maintained." There
are no reported decisions directly in point.
It has been said that the conceptual test of "indispensability"
under Rule 19 of the Federal Rules of Civil Procedure is both
incomprehensible and nondescriptive of what Courts do in fact.
Wright, Proposed Changes in Federal Civil Procedure, 35 F.R.D.
317, 336-337 (1964). Situations in which the rule has been
invoked present two conflicting interests. On the one hand, it is
desirable not to proceed until all interested persons have been
made parties, so that an absentee's interests will not be
prejudiced, and multiplicity of suits can be avoided. On the
other hand, it is frequently impossible to join all interested
persons, and the Courts prefer to give plaintiffs such relief as
can fairly be given, rather than send them away without remedy,
because there is no forum in which everyone can be joined. See,
Payne v. Hook, 74 U.S. (7 Wall.) 425, 431, 19 L.Ed. 260 (1869).
Viewing carefully these conflicting interests, the Supreme Court
said that "indispensability of parties is determined on practical
considerations", not on inflexible rules. Shaughnessy v.
Pedreiro, 349 U.S. 48, 75 S.Ct. 591, 99 L.Ed. 868 (1955).
Proposed Amended Rule 19 (34 F.R.D. 379-383) codifies modern
judicial thinking on compulsory joinder, enumerating the relevant
factors considered by Courts in the discretionary balancing of
interests. The Court, in exercising its discretion, should
consider whether judgment in the absence of an allegedly
"indispensable" party would prejudice him or the existing
parties, the extent to which the relief can be shared to lessen
or avoid prejudice, whether judgment in his absence would be
adequate, and whether plaintiffs have any other adequate remedy
if the action is dismissed. Accord, Green v. Green, 218 F.2d 130
(7th Cir. 1954), cert. denied, 349 U.S. 917, 75 S.Ct. 606, 99
The Government explains the many problems it faces in
multiplicity of suits, if numerous heirs in different localities
were allowed to maintain separate refund actions for taxes
overpaid by an estate. In the same voice, the Government explains
the many problems it would face if a taxpayer were permitted to
sue for refund in a district other than that of his residence.
The paralleling of these two separately understandable aids to
orderly administration of the Internal Revenue Laws creates a
dilemma for the taxpayer. The practical aspects of both sides
must be weighed in determining the question of indispensability.
In the instant case, each heir has asserted claims for refund
of taxes paid personally, as well as those paid by the estate.
Such joinder is required by the rule that an individual taxpayer
cannot maintain successive suits on different items for the same
year. Chicago Junction Railways v. United States, 10 F. Supp. 156,
80 Ct.Cl. 824, 1935; Bowe-Burke Mining Co. v. Willicuts,
45 F.2d 394 (D.Minn. 1930). Accord, Commissioner v. Sunnen, 333 U.S. 591,
68 S.Ct. 715, 92 L.Ed. 898 (1948). There are now two lawsuits
pending in this Court (the suit on behalf of the estate having
just been dismissed) and one in Florida. If the Government's
motions were allowed, there would still be three personal refund
actions, and, in addition, there might have been the fourth
action, in which all the heirs would have been joined before the
Court of Claims seeking overpayment of taxes by the estate.
Unfortunately, dismissal of the instant actions would leave the
heirs totally without remedy as to their estate refund claims,
since the applicable statute of limitations already has run. §
3772(a)(2) Internal Revenue Code of 1939. Even if the statute
could be tolled by a transfer-on-condition or estoppel approach,
this action could not be transferred to the Court of Claims under
28 U.S.C. § 1406 (c) because its jurisdiction is not "exclusive".
If, as must be assumed in ruling upon defendant's procedural
motions, each heir is entitled to a tax refund which may well
exceed $22,000, a manifest substantive injustice results from the
pursuit of procedural requirements.
I reject any suggestion that the Government, by the position it
takes in these cases, seeks to block plaintiffs' claims in order
to become unjustly enriched. It seeks only to maintain
unabridged, even by these cases, important procedural
restrictions which serve in the many less complicated situations
than these, and, in the long run, to protect the general best
interests of all.
It is true that the Government might have agreed to waive the
procedural defenses of improper venue and statute of limitations
to an action filed in this district by the Florida heir. Compare,
International Harvester Co. v. Rockwell Spring & Axle Co.,
339 F.2d 949, 953 (7th Cir. 1964). Conceivably, the Government might
agree not to assert the anti-assignment statute if the heirs were
to reopen the estate case in Lake County and then reassign their
unlitigated claim for refund of taxes paid by the estate back to
its representative, who in turn could then reopen Case No. 64 C
2145 just dismissed.
If I find the Florida heir dispensable, the Government must
defend three suits. The same defense should serve all three
cases. If I find her indispensable, the taxpayers are completely
deprived of any remedy. Since for the purposes of the motion
before me I must assume the remaining claims before me to be
valid and allowable, it seems to me that the practical
considerations to which the Supreme Court referred in Shaughnessy
v. Pedreiro, supra, and to which the 7th Circuit referred in
Green v. Green, supra, weigh more heavily in favor of the
dispensability of the Florida heir than in favor of her
indispensability. I do so find, and, accordingly, defendant's
motions to dismiss Count V of 64 C 2143 and Count III of 64 C
2144 must be, and the same hereby are, denied.
One further matter remains for disposition. It is the
Government's motion to dismiss the widow's individual action to
recover taxes paid under a joint return for the year 1955 out of
her own money. The Government contends that the estate must be
joined as a party plaintiff, for the reason that one of the
taxpayers on a joint income tax return may not sue alone for
refund of taxes paid thereupon out of plaintiff's own money. No
authority has been cited in support of this position. Considering
Revenue Ruling 56-92, 1956-1 C.B. 564, it would seem that joint
and several liability for underpayment produces a concomitant
joint or several right to recovery for overpayment of taxes.
Here, the widow herself, individually, paid all of the taxes
under the joint return out of her own personal funds. Under these
circumstances, I find no basis upon which I can refuse to permit
her to maintain her action individually.
Accordingly, defendant's motion to dismiss Count I of Case No.
64 C 2143 must be, and the same hereby is, denied.
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