Commissioner of Internal Revenue v. Estate of Bosch

PETITIONER:Commissioner of Internal Revenue
RESPONDENT:Estate of Bosch
LOCATION:U.S. District Court for the Southern District of California, Central Division

DOCKET NO.: 673
DECIDED BY: Warren Court (1965-1967)
LOWER COURT: United States Court of Appeals for the Second Circuit

CITATION: 387 US 456 (1967)
ARGUED: Mar 22, 1967
DECIDED: Jun 05, 1967

Facts of the case

Question

Audio Transcription for Oral Argument – March 22, 1967 in Commissioner of Internal Revenue v. Estate of Bosch

Earl Warren:

The Second National Bank of New Haven, Petitioner, versus the United States.

Mr. Thompson.

Curtiss K. Thompson:

Mr. Chief Justice, if the Court pleases.

This suit for the recovery of federal estate taxes depends on the final analysis upon how much property the widow of the decedent receives under a residuary bequest.

The petition for certiorari presented two questions for review.

First, whether the Court of Appeals’ decision holding that estate taxes should not be apportioned between the widow and the grandchildren, who were the other residuary legatees, was in conflict with the law of the State of Connecticut.

And the second question is whether or not the decree of the probate court which decided the matter differently than the Court of Appeals did was binding in conclusive upon the Internal Revenue Service.

Mr. Brewster, when he made his will gave one-third of the residue to his widow in trust, and two-thirds to nine grandchildren each in a separate trust.

His will contained a tax clause which Your Honors will find printed on page 12 of the record, it was Article I of the will, and which is a little long to read.

The — it’s noteworthy that these two residuary bequests to the widow and the grandchildren, when the will was made, were equally taxable.

Therefore, it made no difference whether the testator directed that these estate taxes should be apportioned between the residuary bequests or whether he directed differently.

The estate would have been distributed in the same manner.

But Mr. Brewster made a codicil to his will.

And when he did that, he ordered the bequest to the widow, which as I said was in trust, so that it qualified for the marital deduction and became tax exempt.

Now, as soon as that change was made, it became important to both the widow and to the grandchildren as to whether or not the estate taxes were to be apportioned or prorated between them because the widow’s gift at that point was tax exempt.

Now, if you had a proration between those two gifts, the widow would bear no part of the estate taxes under residuary bequests, or under residual properties.

If there was no proration, she would thus the tax clause which was written when this — when it gets briefly taxable.

And when the testator did not have this problem in mind and did not speak to it, the question becomes whether that tax clause or what the effect of this act to the codicil he had written.

Potter Stewart:

He certainly had the general problem in mind when he wrote the codicil.

Curtiss K. Thompson:

When he wrote codicil —

Potter Stewart:

Because the codicil was obviously for the purpose of giving the residuary bequest to the widow, the benefit of the marital deduction generally, wasn’t it?

Curtiss K. Thompson:

Yes.

Yes, he wanted to make the gift to the widow tax exempt.

Potter Stewart:

That was the —

Curtiss K. Thompson:

That was the purpose of the codicil, yes.

Potter Stewart:

By giving her general power?

Curtiss K. Thompson:

Yes.

Potter Stewart:

For its right.

Curtiss K. Thompson:

That’s right.

Now, I think I ought to make it clear just exactly what taxes we’re talking about here.

Curtiss K. Thompson:

We’re not speaking of the Connecticut succession tax which is the chief death duty in Connecticut.

That is not involved here at all.

We’re speaking only of the estate taxes, and only of such — only about such part of them as arise out of the residual properties.

For example, the widow’s gift is nontaxable.

That generates no estate taxes.

The gifts to the grandchildren are taxable.

Therefore, the properties distributed to them generate taxes.

Also, out for the residue, a very substantial sum of money was paid for death duties.

Those death duties, of course, are not deductible items in computing taxes.

Therefore, the moneys that we use for the payment of the death duties also generate estate taxes and they are involved here.

The executers, of course, were aware of the problem that faced them in this matter and of the importance of it to the widow and to the grandchildren because the sums involved were substantial.

The executives first have to deal with the problem when they filed their federal estate tax return.

And they computed their tax obligations there on the premise that no part of these taxes, which I have described were to be born by the widow and that all were to be paid out of the grandchildren’s share.

The Internal Revenue Service could not agree with that treatment.

And eventually, they said that a deficiency would be assessed on that account.

Now, such a deficiency, as I indicated in my opening sentence, turns entirely upon the law of Connecticut and upon the amount of money that is distributable under Connecticut law to the will.

It does not involve any interpretation of the Internal Revenue Code.

At the time that the executor’s and Internal Revenue Service joined the issue on this matter, three years gone by since the testators’ death.

It was obvious to the executor’s that the matter was going to have to be settled and was going to have to be settled by a Connecticut court.

So at that time — excuse me a moment — the executor’s filed their first accounting.

I should say in Connecticut that all the states have judicial counties.

They filed that first accounting which showed the payment of all of the death duties that had been assessed at that time.

This was a statutory obligation of the executor’s.

They also accompanied their administration account with a petition to the Court to rule on this matter concerning the proration of estate taxes.

And accompanying that petition, they filed a proposed computation of the tax following the same premise that they had used in their federal estate tax return.

Now, the Government seems to think that in doing that, the executor’s were engaging in some slick trick.

It’s not clear from the Government’s brief but the implication I think is, that the executor’s should not have taken this matter to the fede — to the probate court but should have let it to the decision perhaps of some federal tribunal which one I don’t know.

Certainly, the District Court has no probate jurisdiction and neither does the tax court.

The executor’s and I wish to make this abundantly clear, had no alternative but to ask the probate court to do this because it involved an adjudication of property rights under the law of Connecticut and under the decedent’s will.

The executor’s would not have been able to charge these taxes that are in question against either the widow or against the grandchildren without having obtained an order from the probate court.

Curtiss K. Thompson:

And if you examined the decree that was finally issued, you will see that it authorizes the executor’s to make charges for these taxes against the grandchildren’s share.

The — at one point in its brief, the Government states that this was an effort to avoid estate taxes on the part of the executor’s, but that is not true.

It was a vital step necessary to the settlement of the state unless the executors wish to accept personal responsibility for whatever decision they make.

Byron R. White:

Do the executors take the position on them when they petitioned the probate court?

Curtiss K. Thompson:

The executor’s were required by statute to file a proposed computation of the prorates.

And they did file such a proposed computation and then a sense that is a petition — a position.

I don’t think that after the executor’s have discharged that initial duty, they have any responsibility other than to explain the matter for the probate court because the interested parties, the parties who are either gone to win or lose as a result of the property — of the determination of their property rights are the ones involved.

So the probate court schedule, the hearing on this petition, and notice was given to the widow and to the adult grandchildren, there were two of them, and to the guardian ad litem who represented seven minor grandchildren and he also appeared for the unknown remainderman of the trusts.

Also in conformity with Connecticut probate practice, there was a newspaper publication of the hearing because our probate proceedings are supposed to be in rem in character and notice is given to the world.

Also notice of this hearing was given to the District Director of Internal Revenue.Obviously, all parties as well as the judge were aware of the incidental effect that this determination of property rights would have upon the calculation of the estate tax.

Notice was given to the district director and he was provided with the copy, the copies of the executor’s petition and the computation was stay at filed.

The hearing was held on November 27, 1961.

The executives appeared by counsel and submitted the brief justifying or explaining the position which they had taken.

The widow did not appear and neither did the adult grandchildren and neither do the District Director of Internal Revenues.

The guardian ad litem did appear.

This was on November 27th.

After the hearing, time was allowed to guardian for filing a report.

And he did file a report dated December 22nd in which — which is in the record.

And in which he said that he had considered this matter, and despite the adverse financial affect upon the — his words rights, he thought that the computation that had been made by the executor’s was the proper one to make under Connecticut law.

The report that he filed — he filed a formal report and he also filed a letter.

He submitted a letter to the judge explaining his position.

And soon after that, if not immediately, the judge of probate passed his order and issued a short memorandum from which it appears that he clearly understood all of the issues that were involved, he understood the importance of the property rights that were at stake and he understood too the effect that this would have upon federal taxes.

And he cited in his memorandum the leading Connecticut authorities on the question and said that the computation as submitted by the executors was correct, and he ordered that the bequest of the grandchildren be charged with these taxes and were attributable to the residuary properties.

Now, the law of Connecticut on this matter is rather simple.

And I think the law of Connecticut agrees with the law in most of the states where they have apportionment statutes at least it’s identical with the law in the State of New York.

And that is the — the law is this that the apportionment statute was enacted to achieve equitable and remedial ends.

That’s a fair thing because it places upon each legacy the portion of the estate taxes that where legacy generates.

Therefore, the Court says that while the testator may direct against apportionment, if he wants to make a direction, his words must be so clear that all doubt as to the extent and limitation of his command must be completely dispelled.

I have quoted pretty exactly, I think some language from one of the Connecticut decisions, the common way of expressing the same concept is that the language of the exe — of the testator must be clear and unambiguous.

In the first case that came up in Connecticut, there was a direction on the will, pay all taxes out of the residue.

Curtiss K. Thompson:

In that case, it happened that the testator had constructed some inter vivos trusts and a question arose as to whether or not the residuary estate should pay the tax on the inter vivos trusts.

And the Court said, “No!

He hadn’t been specific about this.”

He said all taxes be paid out of the residue but he didn’t say that the taxes on the inter vivos trust should be taken.

Then there is the leading case in Connecticut New York Trust versus Doubleday, where again the testator said, “Pay all of the debt taxes out of the residue.”

And the same question that arose there arose here.

It was a gift to the widow that qualified for a tax exemption in the residue.

And the Court said that the direction to pay all taxes out of the residue was not a direction against proration within the — or between the residuary gifts.

And in the Doubleday case, the widow’s gift was born no part of these estate taxes.

Now, as I said at the outset, the will of the testator when it was made or when he made that will, the problem of proration between the residuary gifts was not at issue or in his mind at all.

Abe Fortas:

Well he did include this position on page 12.

Curtiss K. Thompson:

Pardon me, Your Honor.

Abe Fortas:

I said the testator did include that provision on page 12 of the record.

Curtiss K. Thompson:

That was — that was in his will.

Abe Fortas:

Yes.

Curtiss K. Thompson:

Yes.

And it was not changed by the codicil.

Abe Fortas:

Well that presents troublesome problem because that provision does say that is flatly as a loose language could that the provisions of any statute require a proration of taxes should be without effect in the settlement of a man’s estate.

Curtiss K. Thompson:

Well, the answer to Your Honor’s question or as I understand it has really been made by the Court of Appeals of New York where there was a case that is very similar to this that arose in connection with Mr. Schubert’s will.

He had a tax clause that directed payment out of the residue.

And the residue of his estate, there were four trusts.

He made a codicil.

And as a result of a codicil, one more of those trusts became charitable in nature and therefore tax exempt.

And the question was what effect did his tax clause have after the codicil was executed and these trusts became tax exempted?

And the Court of Appeals of New York said that that tax clause could not be read to direct the accomplishment of an object that was totally unnecessary when it was written.

In other words, the Schubert wills, there was no occasion for proration between the residuary gifts when the will became exe — was executed.

That became important only after the codicil.

The Schubert decree — Schubert judgment, opinion had not been decided when the probate judge acted on this matter.

But it was decided by the time that the — that this case reached the District Court.

And of course, it’s one of the authorities which that court relied upon because of its close similarity to this case.

Curtiss K. Thompson:

Now, the Court of Appeals when the case went there, they didn’t recognize and I submit this with all due respect.

They didn’t recognize the Connecticut law which said that as soon as you have a doubt as to what the testator’s intention were with respect to this matter, you do not resolve the doubt by the process of construction.

Rather you let the apportionment statute operate because that achieves an equitable end.

So the — the Court of Appeals and my brothers and the Solicitor General’s office attempt to circumvent the Connecticut law by the process of construction.

They do so admittedly.

The Court of Appeals characterized its own opinion as one construing the will.

And they did it in such fashion as this.

The testator when he executed the codicil had ample opportunity to provide for a special tax treatment for his widow if he chose to do so.

I don’t know on what facts that statement is founded, there’s nothing in the record about it, but the important points so far as I am concerned is that it’s not special tax treatment for the will.

It’s the ordinary tax treatment.

It’s the tax treatment which the legislature of Connecticut said she was entitled to have unless there’s this specific direction to the contrary.

The Court of Appeals also said, “We don’t think that the testator wanted such gross disproportion between his widow’s one-third share and the children’s.”

And of course, it doesn’t work out on a one-third and two-thirds basis if the children pay all the taxes.

But they don’t recognize the other side of the coin.

And actually, the converse is that the widow would pay one-third of all the taxes that were generated by the gifts to the children.

We feel very strongly that the Court of Appeals decision is in conflict with the established law of Connecticut, the law as established by our own Supreme Court and we ask that the judgment of the Court of Appeals be reversed for that account.

In our reply brief, I mentioned collaterally that we have a situation here where we had a guardian ad litem and we have a probate judge and we have a district judge, all highly experienced and capable Connecticut lawyers.

And they all saw eye-to-eye on this proposition which strikes me as being something pertinent.

I notice my white light is signaled.

The Government here has changed its base a little bit so far as the second question is concerned and the Government itself is now asking that the decision of the Court — judgment of the Court of Appeals be reversed and sent back for determination as to whether this was an adversary or nonadversary proceeding.

I’ve explained our position on that in our brief.

We feel that the decision of the probate court or the decision of any state court should be respected by the Internal Revenue Service if it is an honest exercise of the judicial function.

If it’s something less than that, then it’s not a good determination of property rights.

But so long as it determines those property rights knowingly and with an awareness of all the issues, and all the cases that decision so stand.

The Government says, “We produce some cases in our footnotes here which were never brought to the attention of the — of the probate judge.”

If those cases were of any importance, we might expect to find them cited by the Court of Appeals.

But out of 11 cases cited by the Government, only one appears in the decision of the Court of Appeals.

The decisions which the Government is referring to recite the usual tenants of construction about the intent of the testator and so forth and I say seriously that despite the three briefs that had been written on this subject, the Government — Government’s counsel with all their ability have been unable to cite one single case which militates against the decision of the probate court and of the Federal District Court.

I may have save a minute or two for reply.

I hope so.

Earl Warren:

Mr. Levin.

Jack S.Levin:

Mr. Chief Justice, may it please the Court.

The question presented by this case and by the succeeding companion case is whether an erroneous state probate court decree or it’s a —

Byron R. White:

How do you know it’s erroneous?

Jack S.Levin:

That of course is — is what my brother here has argued here at some length.

I think that we would not have brought the next case to this Court or acquiesced in this case if we thought that we are presenting to this Court solely a question or primarily a question of Connecticut law, or as in the next case of New York law.

In order for us to present the question which we seek here to present, we must first either assume or convince you that the decision of the Connecticut Probate Court is wrong.

Now, in this case —

Byron R. White:

As a matter of Connecticut law?

Jack S.Levin:

As a matter of Connecticut law.

Byron R. White:

You would agree, I suppose, that if this decision had been appealed and had been affirmed that the case would be over.

Jack S.Levin:

Well, in deciding — in deciding what Connecticut law is certainly a decision of the Connecticut Supreme Court or of the Connecticut Appellate Courts intermediate appellate courts would be very relevant.

This case was not appealed.

Byron R. White:

Would you say it would be binding or not?

Jack S.Levin:

If this case went to the Connecticut Supreme Court, it would certainly be binding.

Byron R. White:

For the purposes of this tax case.

Jack S.Levin:

Yes, for the purposes of this tax case and I should think that for the purposes of determining Connecticut law in any case —

Byron R. White:

Because I would assume you would think that —

Jack S.Levin:

Yes.

Byron R. White:

— you would say it is a matter of Connecticut law.

Jack S.Levin:

That’s correct.

Byron R. White:

And you say if it had been an adversary proceeding in the probate court, it would be binding in this case or should be held binding.

Jack S.Levin:

We would accept it as binding if it had been adversary in the lower court.

Byron R. White:

Even though in your view erroneous?

Jack S.Levin:

Even though in our view erroneous.

We think that’s further than the Government has to go but we think that that’s fair and reaches a just to accommodation between the interest of the state and federal courts.

Abe Fortas:

And even though it had not been appealed beyond the probate court?

Byron R. White:

That’s correct.

Now, as our brief in —

Abe Fortas:

In other words, you would accept as conclusive for this purpose a judgment of the Connecticut Probate Court provided that where an adversary proceeding such a proceeding —

Jack S.Levin:

Let me state my position at a slightly greater length because it’s — it’s not that easy to state.

As we point out in our brief, there are at least three possible views that can be taken.

The one view which is taken by the petitioner here is that a state probate or trial court decision is always binding on the federal government regardless of whether it’s erroneous, regardless of whether its adversary, it’s always binding.

Potter Stewart:

Not if it’s true.

I think he concedes that there may be degrees which are not binding if they’re truly collusive or fraudulent?

Jack S.Levin:

But they’re not binding on the party as I’ve said.

Well without exploring the very — the exact ramifications at what point, what collusive means, and at what point fraud becomes into play, in general, that’s his position.

I don’t mean to overstate his position.

Potter Stewart:

That if that — well alright.

I just decide to have a little bit.

Earl Warren:

Did the state court have jurisdiction here?

Jack S.Levin:

Yes.

The other Frueler view and one which we present in our brief is that the state court, trial court decision is never binding, that the federal government looks to the law of the state.

There is then an intermediate view that the state court decision should be accepted so long as it was an adversary decision and a genuine determination after all the parties appeared before.

There were conflicting interests.

A genuine controversy presented to the Court.

Both sides of the issue argued and the Court made an actual determination having been fully informed of the issues, the precedents, and having a — received the full judicial treatment what courts are all about.

That we would — we present in our brief those three positions.

We say that we are not abandoning here position which we have stated for the other — for the lower courts that the decision of a state trial court when it’s wrong is never binding.

We’re not abandoning that.

But after an examination of the question, the Government feels that the more just position, the more rational position, the way to your position, both with respect to congressional intent, the legislative history, the decided cases, the regulations and all other indications is that a state decision which is a genuine adversary litigation should be adopted by the Commissioner and followed.

Byron R. White:

And why do you think that — I take it your position in the lower courts was the Erie position.

Jack S.Levin:

In the lower court, we — we presented both positions.

Byron R. White:

And which position do you think the Court of Appeals took?

Jack S.Levin:

The Court of Appeals I think took the — tended toward the Erie position though not adopting the full scope.

They pointed —

Byron R. White:

Then why shouldn’t — why — why shouldn’t the Court of Appeals — why shouldn’t be the rule be the same that the tax cases as other cases where the matter is to be governed by state law?

Jack S.Levin:

Well, the rule for other cases being —

Byron R. White:

Ordinary diversity cases.

Jack S.Levin:

Well, because in the ordinary diversity case, the very parties before you have not litigated the issue.

Byron R. White:

I don’t understand that.

Jack S.Levin:

Well, in an ordinary diversity case, if A and B are litigating an issue, the federal court looks to state decisions —

Byron R. White:

That’s right.

Jack S.Levin:

— between X and Y —

Byron R. White:

That’s right.

Jack S.Levin:

— to determine what the law is.

But if A and B have already had their rights parceled out in a judicial determination in which they pointed out, the federal court will normally (Voice Overlap) by that.

Byron R. White:

The Erie doctrine also applies that those two parties attempted to get the question settled in a state trial court.

Jack S.Levin:

Well, I think that there is some question as to whether the Erie doctrine applies there or not.

We’ve set forth in our brief both sides of that issue.

I’m not sure that it’s clear that the Erie doctrine applies there.

Byron R. White:

Well, why shouldn’t it?

Jack S.Levin:

Well let me — let me try to present the issue in the context of a federal tax case.

This case was simplified facts to show why we think it’s unfair to the Commissioner to bind him by a nonadversary decision obtained by the parties who all took one side of an issue, and yet perhaps unfair to the parties to say that the Commissioner will ignore an adversary determination.

But it’s something that I can illustrate, I think better by using this chart in a simplified version of the facts of this particular case.

Now, as I say, this is a simplified version of the facts of this case.

The estate here is not 12 million but somewhere around 13.

But to make the figures work out, I have used the figure 12 million for the estate in this case.

The question is how much is the widow entitled to receive net under the terms of this will and without any relinquishment of their rights by the other beneficiaries.

It’s quite clear that the marital deduction gives a deduction to the estate for the amount which the widow was entitled to receive under the will, and that any action after the date of death by the other beneficiaries to relinquish their rights and to transfer more property to the widow, then she would have been entitled to receive, had everyone adhered to and demanded their full rights that that cannot increase the marital deduction.

In other words, if the widow is entitled to receive $2 million and the grandchildren were entitled to receive $4 million under the will as the Commissioner contends, and if the children had said, “No, we renounced our rights as to two extra million dollars so that they’ll pass to the widow and she’ll get four and we’ll get two,” it’s quite clear.

Now, there’s no dispute in this case about this point.

It’s quite clear that the widow would still only get that the estate would still only get a marital deduction for $2 million.

You cannot increase the marital deduction by this activity.

Now, under the position taken by the Commissioner which is that the will clearly unequivocally provide that the Connecticut proration statute will not apply, this would be the situation.

And if you will let me for a moment, I will assume that the Commissioner is correct.

And then later on, I will argue as I did in the brief what Connecticut law provides.

But I don’t think that that is — that the question have general importance here.

I will get to it.

If the Commissioner is correct, you got in estate of $12 million.

Jack S.Levin:

You got in estate tax payable of $6 million.

Now, I worked that out in advanced because the estate tax depends on the amounts the widow will get.

And the amounts the widow will get depend on the estate tax.

There’s a simple formula for working it out, it’s done all the time.

I’ve done it in advance.

The estate tax will be $6 million.

The remainder of $6 million will go as the will provides one-third to the widow or $2 million and two-thirds to the grandchildren or $4 million.

The Commissioner then says, “You’re entitled to a deduction of $2 million for the marital deduction.

And your estate tax is therefore $6 million.”

The petitioner goes into the probate court.

Now, I want to make this for this is after the Commissioner has taken his position, issued a 30-day notice of deficiency which is a formal letter stating his position.

After that has happened, the Commissioner has made his position clear.

Petitioner then goes into probate court and he files, the executor files a document there, requesting that the probate court hold that the will does not unequivocally negates the proration statute, and that the Court therefore holds that the estate be distributed differently.

He says, therefore, the widow should get one-third of the estate before any taxes are paid.

That is $4 million.

Once you determine that the widow gets $4 million that would make the estate tax $5 million.

And the remainder that’s left over or $3 million would go to the grandchildren.

Now, here’s the will that says one-third to the widow, two-thirds to the grandchildren.

And under their interpretation, the widow who is getting one-third would end up with more than the grandchildren who were suppose to get two-thirds.

That’s a question of Connecticut law.

I think we’re quite clearly correct, the Second Circuit agreed but I’m trying to illustrate a broader principle here.

Now, what happens as we see it, when you have this nonadversary proceeding in the probate court where all the parties come in and say, “We agree Your Honor.”

All the parties come in at filed briefs.

Their grandchildren — even though the grandchildren didn’t bother to appear the guardian ad litem policy, everybody said to the probate judge, “We have no objection”.

We agree the pro — the estate should be divided up like this.

What really happens is as follows.

What really happens is that the grandchildren have relinquished a portion of their rights to the extent of $1 million to the widow.

So that they’re not getting $4 million anymore, they’re getting $3 million.

They’ve transferred a million to the widow.

And the effect of their transferring $1 million to the widow is to give any greater marital deduction.

Jack S.Levin:

And by that effect, to force the Commissioner or the United States to give up an additional $1 million so that what happens is that by the grandchildren consenting to relinquish their rights to the extent of $1 million to the widow, decreasing their — decreasing their bequest from $4 million to $3 million, increasing her bequest from $2 to $3, they forced the Commissioner if that’s adopted, to reduce the estate tax from $6 to $5 and saving to the family is an additional million dollars.

So by transferring, by an intrafamily transfer agreed upon, nobody disputing it, everybody coming in and presenting a uniform position to the probate court by the briefs which don’t cite the cases that go the other way.

Don’t make the argument which we make.

By this intrafamily transfer of a million dollars which they disguised by having the probate court, approve it, they in effect cut the estate tax by $1 million.

Potter Stewart:

What’s the purpose of all this third greater that it take insofar as the issues in this case are concerned?

Jack S.Levin:

The purpose is to illustrate hopefully — hopefully without getting into too many numbers, the fact that what we have in most of these cases, and they arise quite frequently, the purpose is that when you have this probate court decreased, you have intrafamily shifts of property.

Potter Stewart:

Yes I know but the — there are two issues here, two questions, was the Connecticut Probate Court correct as a matter of Connecticut law and (b), whether correct or incorrect is its decree binding?

Jack S.Levin:

Yes.

Potter Stewart:

Now, what’s — what’s — those are the issues and what’s that going to do with either one of those issues?

Jack S.Levin:

Here’s — if you would have to argue the correct as the probate court decree first, that’s a question of Connecticut law.

I would like to deal with it very quickly.

I think it’s an easy issue.

You got a will which is as clear as any will I’ve ever seen in negating the proration statute, provides that I direct the executors to pay my taxes out of the residue of the estate and the provisions of any statute requiring the apportionment or proration of such taxes among the beneficiaries of this will, shall be without effect in the settlement of — of my debts.

It’s clearly as you can make it, he has provided that the proration statute shall not be applicable in his codicil, he provides that in all other respects, “I hereby republish and confirm my will.”

He has indicated no intention to change the — the proration statute negation which he put in this original will.

We have cited cases in our — in our brief which indicate that that’s the effect of it.

Abe Fortas:

Well, Mr. Levin, you’re taking the position if I understand you that even if the Connecticut court is wrong, that you’d be bound by Connecticut by its decision, provided these were an adversary proceeding, isn’t that right?

Jack S.Levin:

Right.

Abe Fortas:

Now, what if it’s wrong has got to do with anything?

Jack S.Levin:

Let me try to answer why.

I — the Government will be satisfied if the Court adopts the so-called Erie-Freuler position.

That is the easiest position for us to take in the lower courts and we’ll be perfectly happy to have that position as we state in our briefs.

But in fairness to the Court, we wish to point out to try to answer your question, Mr. Justice White’s question, we think we should point out the effect that this would have.

Assume for just a moment that the grandchildren —

Abe Fortas:

Well, it’s in effect that you — we don’t need all that —

Jack S.Levin:

Alright.

Abe Fortas:

— but that’s an effect that you say —

Jack S.Levin:

Assume for —

Abe Fortas:

— the Government’s perfectly willing to accept —

Jack S.Levin:

Alright.

Abe Fortas:

— if this was a bona fide proceeding in the probate court, isn’t that right?

Jack S.Levin:

No.

I don’t say bona fide proceeding.

I don’t know what bona fide means.

I’m talking about an adversary proceeding.

Abe Fortas:

Well, let’s try and get a little more — let’s say a leeway.

Jack S.Levin:

Well, here’s what I mean by that.

Assume that the grandchildren here and the widow were at odds with each other.

Perhaps they were the grandchildren by another marriage.

She was a later wife and they were at odds with each other.

That the grandchildren went into the probate court and said, “No, no we are entitled to the four $4 million, not the $3 million.”

And the widow took the — took the position that she was entitled to the $4 million.

And they actually tried and litigated the case.

And at the end of the litigation, the probate court reached a decision which was wrong.

Abe Fortas:

Where in service made on the district director of IRS here?

Jack S.Levin:

The district director was given notice that a proceeding would be held.

Abe Fortas:

At a probate court proceeding.

Jack S.Levin:

That’s correct.

Abe Fortas:

And a decision was made not to participate.

Jack S.Levin:

That decision was made over 20 years ago.

Abe Fortas:

I don’t know when it was made but whenever it was made, the decision was made —

Jack S.Levin:

That’s right.

Abe Fortas:

— not to participate.

Jack S.Levin:

That’s right.

Abe Fortas:

Now, I take it on the other side that in the probate proceeding, I have forgotten what Connecticut probate procedure is.

But in the probate proceeding I don’t — the IRS and the district director were not joined as a party, is that right?

Jack S.Levin:

Well, I —

Abe Fortas:

I don’t know whether you do that?

Jack S.Levin:

He would — they did not purport to join him as a party and of course, they did not have jurisdiction to sue him.

Abe Fortas:

But they did — but they did serve?

Jack S.Levin:

They gave him a piece of paper which told him that the hearing would be held.

That’s correct.

Now, that the question that you raised is, why shouldn’t I take it?

Why shouldn’t the district director’s people or the Government’s counsel appear in these probate courts?

And if they want to litigate the question, litigate it in the probate court.

Well it is our position that that’s a judgment for Congress to make and that Congress has made the judgment.

But here’s why.

Abe Fortas:

Oh but it seems — but it seems to there, I understand that there are lots of time here and that the Government’s position may have changed that you come — you come in here now and say that if it’s an adversary position, you would accept the decision of the Connecticut Probate Court, good, better, indifferent, right, or wrong, and the district director in our opportunity to litigate this question.

Now, maybe at that time the Government’s position was not formulated in this one.

Jack S.Levin:

No, the Government’s position was the same.

Abe Fortas:

It was?

Jack S.Levin:

The Government’s position was the same and it was formulated.

The reason that the Government has taken this position is because an assessment was made over 20 years ago as to whether the Government, United States should attempt to participate in the many, many hundreds perhaps thousands of probate proceedings, declaratory judgment proceedings.

As you’ll see in the next case, it was not a probate proceeding in Bosch.

It was sort of a declaratory judgment proceeding in the New York Supreme Court, the trial court there whether the Government should go around the country appearing in the various local courts especially probate courts.

And an assessment made of the manpower available, the familiarity of the Government with the procedures in these various courts.

You have now 50 states.

At that time you had 48 states.

You’ve got a limited amount of manpower.

You’ve got the situation where the Government doesn’t always know just what’s at stake.

If that rule were that the Government had to participate in all these proceedings, I suppose it would be very simple to amend all the forms so that in addition to giving 50 or 100 relatives notice of every type of hearing that went on in every probate court in the country, you merely added the district director’s name.

And the United States would get notice of all these proceedings.

The United States wouldn’t come near having the manpower under the existing appropriations, I don’t believe, to appear in these proceedings, to take a meaningful part, to ascertain in the flood of mail that would come in carrying notices of proceedings of all kinds.

Which proceedings were meaningful?

Which ones it should participate in?

For that reason, the Commissioner published, put out a release in 1947.

And if I have time, I’ll give the history up to 1947 but 1947, he put out a release, in which he said, and Judge Friendly discusses this in a footnote in his dissent in — in Bosch.

In which the Commissioners said that, “We will not go into these probate court proceedings.”

We will not attempt to answer notices and go in.

This is well known.

Jack S.Levin:

Everyone knows it.

I believe that Congress knows it.

I think the legislative history, as I’ll get to in just a moment of the marital deduction provision which was passed subsequently for the first time, tends to indicate that Congress knew that the Commissioner was not going to go in and create an adversary proceeding out of these proceedings which were really intrafamily proceedings in probate courts.

Now, if Congress wants to change it to appropriate additional funds, to make available of the additional lawyers that throughout the union in the 50 states so that the Government can appear, I think that’s a decision for Congress to make.

The Government, the executive branch, doesn’t feel that it can do it in the absence of this direction.

And that’s why we didn’t appear in this probate court proceeding.

Now, I don’t mean to say that the Government has never appeared in a probate court proceeding.

I don’t want to mislead the Court.

The Third Circuit has adopted, it’s the only circuit which has unequivocally adopted the contrary rule, the rule that tax bearer here seeks.

In the Third Circuit where for the last 11 years, we have been found by these nonadversary probate court proceedings, the Government has on a few occasions knowing that it was going to be bound in the absence of a later decision by this Court, appeared in the probate court.

But that’s one state in a few proceedings.

This —

Abe Fortas:

Is there any other situation in which important governmental decision that you know of, a decision federal government as to whether it will or will not accept the state court decision turns on the question of whether the proceeding is adversary in the sense that you describe here.

Jack S.Levin:

Well I — the only area that I was able to come up with as discussed in our fairly lengthy footnote, the social security area.

Sometimes you get in the question of whether state probate or declaratory judgment as to whether somebody was the widow or wife of someone else is relevant for social security.

And there, the lower courts have split on what relevance this has.

They’ve gone into the legislative history and looked to see what Congress intended and there are some decisions each way(Voice Overlap)

Abe Fortas:

It’s a question of deciding whether a proceeding is truly as distinguished from formally adversary.

This is I’m sure you realized the very difficult tricky question for example in the field of the divorce law and domestic relations.

Adversary proceedings are accepted as such.

And as a matter of fact, they did nothing more than a matter of complying with the few formal items.

Jack S.Levin:

It — in many respects, divorce law of course is different because divorce is a status which — which one can wonder whether the judiciary should get into in the legislative branch, and the executive of course have made these decisions in many states, every state that they should get into it.

But I think that marriage is in many respects different.

But even in the marriage area, this Court and the state courts have recognized that a nonadversary proceeding between husband and wife does not always bind other people issue as to rights of inheritance as to custody, as to alimony as to — as to other items.

I’m not saying that marriage is necessary an analogy here.

What I’m saying is that when you have a nonadversary proceeding in a state probate court which makes intrafamily shifts of property that that shouldn’t bind the Commissioner.

That shouldn’t bind the Commissioner anymore perhaps than the marriage situation binds third parties.

But here I think we’ve got —

Abe Fortas:

There’s a great deal of difference between saying that probate proceedings should be — should not be accepted as finding for tax purposes because it is nonadversary.

I’m saying that under a probate proceeding, the usual family situation can never be adversary.

Abe Fortas:

And I suspect that what you’re doing really is taking the later position saying, “Well I accept the probate court decision.”

Where the sort of impossible exists and that is where there is a family dispute in the courtroom.

This is adversary in the sense that the parties with different interests are all before the court.

And what do you expect them to do?

Fight when they don’t disagree?

Jack S.Levin:

We don’t ask them to fight.

Certainly we don’t ask them to fight.

Abe Fortas:

I mean what could — what could have happened if —

Jack S.Levin:

We just say that if they don’t want — if they don’t determine it among themselves.

And if they just come in and everyone takes the position, yes, give the widow $4 million.

Everyone takes that position.

They shouldn’t bind the Commissioner.

Abe Fortas:

But they have determined that among themselves.

And the Court has made an order here.

And the parties then — you’re saying that the — it sounds to me that you’re saying the Commissioner will accept this and to whether the parties are in disagreement where one will accept it when the parties are in agreement.

Jack S.Levin:

I’d be happy to go further and say that the Commissioner should never accept it.

We present that position in our brief.

We asked that court — we ask this Court to take the position that a probate court decree is never binding or a lower court decree is never binding.

The Government will succeed, will win these cases.

In fact, it would be a much easier rule for us to — to apply if you took the complete Freuler position.

The Government is never bound by a trial or probate court decree.

And I’d be happy to argue for that here.

I do at some length in the brief.

It’s just that it seems that in many cases in the few cases, not in many, in the few cases where there has been a genuine litigation, a genuine argument between the parties.

And one side has lost after making a full presentation to the Court that it seems more in accord with our adversary system for the Commissioner to accept that.

His regulations which have been extends since 1919 in one area, and since 1949 in the marital deduction area seemed to accept a — an adversary genuinely litigated decision right or wrong.

They go — they indicate that if it’s not a genuinely litigated decision, they will not accept it.

But Congress has reenacted the code many times since 1919.

The vast majority of the Courts of Appeals have adopted that view.

Now, legislative history is a marital deduction provision which was enacted in 1948 indicates that Congress too was adopting this view.

Jack S.Levin:

But I would be more than happy to have this Court come out with the so-called Erie position that the Government is never bound by a state trial court.

Byron R. White:

Is there any doubt that these parties once this probate decree was over were bound by at themselves in the sense that — in the sense that the grandchildren were going to get $3 million instead of $4 million?

Jack S.Levin:

Well, that’s not an easy question to resolve.

So far as I know this — this estate has not yet been distributed.

The money insofar as I know is still on the hands of the probate court.

The typical thing in these cases, in probate cases is to hold the money until the estate taxes are all parceled out.

But whether the Connecticut Probate Court could now reverse itself and go back the other way is something that —

Byron R. White:

Well, assume it doesn’t —

Jack S.Levin:

— Connecticut law —

Byron R. White:

Assume that —

Jack S.Levin:

— is not clear on —

Byron R. White:

Assume it doesn’t?

Jack S.Levin:

Yes.

Byron R. White:

Assume this probate court doesn’t — in the — are the parties precluded by the judgment?

Jack S.Levin:

Precluded from what?

Byron R. White:

Well, is there — is there any way that the grandchildren — let’s say the grandchildren changed their minds now but the Court didn’t, is there anything the grandchildren can do about it?

Jack S.Levin:

Well, certainly the grandchildren if they all agreed to do so could reverse themselves the decision originally made.

What you are asking is having in effect may the gift of a million dollar is over here, can they now say, “Well if the federal government won’t recognized if we can take it back.”

Byron R. White:

Well, that’s maybe the way you put it.

But the Court is construe — has construed Connecticut the will of Connecticut law and everything else that has been said that under the Connecticut law, the grandchildren legally are entitled only $3 million.

Jack S.Levin:

Second Circuit of course came out the other way very clearly.

Byron R. White:

It isn’t what I asked you — I just asked you whether — whether the Second Circuit said — whatever the Second Circuit said and may not have any effect or whatsoever on this — these probate proceedings.

Is there anything the grandchildren can do to get more out of this estate than — than $3 million other than to ask the probate court reverse itself?

Jack S.Levin:

I could give the money back, I suppose.

Byron R. White:

Who’s to give the money back?

Jack S.Levin:

The grandchildren, to give the money back if they have control.

Byron R. White:

Although they want more than the $3 million.

Jack S.Levin:

Excuse me, Your Honor.

The widow could give the money back.

You’re saying if the widow doesn’t consent, that the widow says, “Oh no, I’ve got — I’ve got the extra million.

Jack S.Levin:

It’s a come to me.”

Probate court won’t reverse itself and I won’t reverse myself.

The answer is no, I don’t see that there’s anything that they can do.

But the grandchildren are not paying any tax.

It’s not as if we’re taxing the grandchildren a million dollars they didn’t get — they don’t pay a tax.

The tax is paid by the estate.

The question is in computing the estate tax —

Byron R. White:

Yes but does it make any difference —

Jack S.Levin:

How do you —

Byron R. White:

— on how much — how much the grandchildren get, doesn’t it?

Jack S.Levin:

It would also make a big difference if the grandchildren being ignorant of federal estate tax law had come in and filed a renunciation said, “We renounced to the extent of $1 million.”

Probate courts says that I accept your renunciation —

Byron R. White:

I gather your —

Jack S.Levin:

— then —

Byron R. White:

— your answer is that the grandchildren as a result of this decision in the probate court is going to get $3 million and has got nothing to do about it now.

Jack S.Levin:

That may be very true if the probate court will not reverse itself.

That may be very — maybe the effect of renouncing your rights, of giving up your rights in a judicial proceeding of consenting.

You may then be bound and you may not be able to withdraw your renunciation at a later time.

I don’t think that’s unusual.

Potter Stewart:

Your position that this was a nonadversary proceeding, I gather from what you have kept saying during the arguments.

Jack S.Levin:

I think the record clearly shows that no one presented any other view.Everyone came in at filed briefs, saying that —

Potter Stewart:

So that’s — you’re taking quite a different position from the ones taken in your brief.

Jack S.Levin:

No, I don’t think that’s (Voice Overlap).

Potter Stewart:

Well, I thought in your brief — I thought in your brief you made very clear that you want us to remand it to the District Court to determine whether or not this was an adversary proceeding.

Jack S.Levin:

Well, if this Court — let me put it this way.

The reason we ask for a remand is because the decision was originally made on summary judgment.

There has never been a trial of this issue of adversary in this or not.

In other words, the petitioner came in and said to the court, “We don’t think whether it’s an adversary decision or not matters.”

We ask you to hold that the federal courts are bound by this decree, adversary or not.

They took the legal position that it wasn’t relevant.

Jack S.Levin:

The District Court disagreed with them but agreed with them on Connecticut law.

The Court of Appeals reversed this as a matter of Connecticut law, but also agreed that it wasn’t relevant whether there was an adversary proceeding or not.

The Court of Appeals has taken the position that you’re never bound by a state court decree adversary or not.

Potter Stewart:

Well, I know that, but I’m talking about your position in this litigation.

Jack S.Levin:

If this Court binds that whether the proceeding was adversary in the Connecticut State Probate Court is a relevant fact, then I think the Court has to remand for determination of that fact.

Potter Stewart:

So well now — so in other words you think it say it remains an open question.

Because of the fact that the District Court granted some prejudgment and didn’t have — have a full hearing on this subject.

It remains an open question whether or not this was an adversary proceeding.

Jack S.Levin:

The evidence in the record now so far, there’s a very strong and that this was a nonadversary proceeding.

But it would certainly be unfair if I were to preclude the petitioner from presenting any additional evidence it might have.

Potter Stewart:

I’m asking these questions not be — not to be technical about whether what your position is and whether or not you’ve changed it.

But I’m asking them because of the same kind of — the same purpose as I think my Brother Fortas was asking.

What is — what do you mean by an adversary proceeding?

Does there have to be a family fight in other words?

Jack S.Levin:

There doesn’t have to be any belligerency what we’re — with adversary proceeding as we explain it in our brief means that two sides come in.

Each say, “We believe that we’re entitled to win.”

They file a brief setting forth the arguments in their favor.

And they make it clear to the Court that they wish to win.

Here, this was just the opposite.

Everyone came in and says —

Abe Fortas:

Here, you’re exactly saying the same thing.

There’s got to be a difference of opinion —

Jack S.Levin:

That’s right.

Abe Fortas:

— in order for it to be an adversary proceedings but suppose there’s not, then they can’t be an adversary proceeding.

Jack S.Levin:

I think that’s correct.

There can’t be an adversary proceeding if everyone comes into a court and says, the winner says, “I think I should win” and the loser comes in and says, “I think I should lose.”

They don’t cite the relevant decisions to the Court.

They don’t inform the Court.

And the Court says, “Well, I supposed — the whole -the whole gist of our system of courts is for the courts to reserve their energies for the disputed cases where they actually have to decide an existing controversy.”

Potter Stewart:

Do you think that’s true about probate courts generally?

Potter Stewart:

In my limited experience, I contested the probate proceeding is the exception rather than the rule.

And that they — and the probate court devote its energy and its experience in time and ability to the administration of estate.

Jack S.Levin:

Well I —

Potter Stewart:

In which usually there’s not a family fight.

Jack S.Levin:

I think that in many of those cases, you don’t have everyone appearing and taking the same position.

You may just have the trustee coming in and saying, “Can I have permission to do a certain thing?”

The Court grants the permission, makes a cursory inspection.

Potter Stewart:

And certainly as Mr. Justice White suggested the — the probate court decrees are binding at all parties.

Jack S.Levin:

Yes.

Of course, as it’s a renunciation, and outright disclaimer that —

William J. Brennan, Jr.:

Mr. Levin, there’s another million dollars I gather has to be paid for the Government?

Jack S.Levin:

It’s already been paid.

William J. Brennan, Jr.:

Alright, the Second Circuit for if — now you have $4 million — $7 million on the proration statute up here, the black gap between the widow and their grandchildren, now it’s going to be only $6 million.

Now, to whom does the extra million dollars come?

Jack S.Levin:

Well, I think that’s up to the probate court to decide, I suppose.

William J. Brennan, Jr.:

In — in other words —

Jack S.Levin:

It’s a Connecticut law question.

William J. Brennan, Jr.:

And this — this Connecticut decree now in consequence of the Second Circuit decree is now revisable, is that it?

Jack S.Levin:

I think that’s a question of Connecticut law.

I can’t answer that simply.

I tried to research that as to whether how revisable Connecticut decrees are, what the practice of the probate court was.

There aren’t a lot of precedents on that because as Mr. Justice Fortas points out, there aren’t a lot of contested probate court decisions.

Byron R. White:

That something has to give because at the time the final distribution is granted, there’s not going to be $7 million dollars to satisfy the probate court’s formal — former decree.

Jack S.Levin:

The probate court has not entered a final order of distribution yet.

The only order it’s entered is an order regarding proration of the estate taxes.

Byron R. White:

That’s right but the consequences —

Jack S.Levin:

It has and yet said there will be $7 million.

Byron R. White:

There’s not enough money to satisfy the — with consequences of that order.

Jack S.Levin:

And I don’t — I don’t think the order says $12 million and then work it down to $7.

They just say, estate taxes will be allocated to the grandchildren’s share.

Jack S.Levin:

That’s what it says.

Hugo L. Black:

How old is this grandmother?

Jack S.Levin:

Excuse me, Your Honor.

Hugo L. Black:

How old is this grandmother?

Jack S.Levin:

I don’t believe the record shows her age.

It shows that some of the grandchildren are — at least two of the grandchildren are over 21 and three of the others are over 18 so that the grandchildren are in their 20s.

Hugo L. Black:

What happened when this decree, so-called decree was rendered?

Was there any evidence taken?

Jack S.Levin:

No.

Hugo L. Black:

Was there any agreement between the grandparents and the others that as to what decree should be added?

Jack S.Levin:

The — since this is a summary judgment proceeding, the record doesn’t show anything with regard to agreement.

The record thus shows that the executor came in and asked that the probate court allocate all of the taxes to the grandchildren’s trust, to the grandchildren’s share.

That then notice was given to all the relatives that the two adult grandchildren being faced with having their interest reduced by a $150,000 each, there were nine grandchildren, did not appear despite the clear language of the will.

And that the other seven grandchildren who were represented by a guardian ad litem, the guardian ad litem filed a brief in which he cited only the decisions which tended to indicate that the estate tax should be taken entirely out of the grandchildren’s trust.

He explain —

Hugo L. Black:

And was it understood at that time, members of the family agreed among themselves are acted in such a way that a certain conclusion was reached?

The Government would lose a million dollar by the taxes and that the members of the family would be the beneficiaries of that agreement and that —

Jack S.Levin:

Oh yes, Your Honor.

The Commissioner had already issued a notice of deficiency.

It was a month after the Commissioner issued a notice of deficiency that they went into the probate court as coun —

Hugo L. Black:

Who was there to prevent the Government from loosing its million dollars tax by the family arrangement?

Jack S.Levin:

There was no one there.

No one was there to present the Government’s arguments.

Hugo L. Black:

Now, why does the decree have to be binding upon anybody except the family if the others were not represented in any fashion by somebody who will look after their interest?

Jack S.Levin:

That’s exactly the position which we take, Your Honor.

And six of the eight Courts of Appeals that have ruled on it had come out our way.

Byron R. White:

But that isn’t your position, is it?

Your position is that — is that the Government can be absent and still be bound?

Jack S.Levin:

Our position is a two-fold one.

I would be content to come out with the full scope of the — of the provi — of the decision that we are never bound.

Jack S.Levin:

Our position, however, is that long ago the Commissioner gave in to a certain extent and that Congress has gone along with it.

The Commissioner said that although he’s not required to do so, he will go along with a genuinely litigated adversary judgment of a probate or trial court.

Now, the Commissioner may not have been required to go that far but the Congress seems to have gone along with them.

If this Court comes out with result that the Commissioner doesn’t have to go that far, then I assume the Commissioner will reassess his position.

It will —

Abe Fortas:

Well, where is it in your brief within that Mr. Levin in support of what you have now described as the Commissioner’s position.

Jack S.Levin:

Well we state in our brief, in the footnote on page 27 that we advocate this nonadversary rule as set forth in the brief because we believe that it better accommodates the conflicting interest more consistent with Congress’ purpose, etcetera.

Should the Court reject this rule, however, we urge it to adopt the Erie rather than the Gallagher approach.

That is we urge it to adopt the approach that the Commissioner is never bound.

Now, perhaps we went too far in trying to reach a just result, we felt the Commissioner had done that beginning in 1919.

He’d said that he would go along with an adversary decree although he didn’t appear to have to and that Congress seemed to have accepted that by its long in action on the point and by the legislative history of the marital deduction provision.

But if this Court finds that the Commissioner doesn’t have to accept it in any case, I’m sure the Commissioner reassess his position and we ask the Court to reach that result if it feels it the better one.

Hugo L. Black:

Have the probate court ever been considered throughout the nation as the court to settle Government tax claims than proceedings between members of the family?

Jack S.Levin:

No.

Your Honors, we point out in our brief the Government is entitled to litigate the merits of its tax claims in the federal courts rather than the probate courts.

And as the Second Circuit pointed out in its decision, in which it said that the Government was never bound by a Connecticut Probate Court decree regardless of whether this is adversary or not, pointed out that the characteristics of the Connecticut Probate Court were such that it was not the type of forum that should ever bind the Government.

That its judges were not — its judges were not required to be lawyers, that there was a de novo appeal from that court to another court, that the Connecticut Probate Court decisions were not reported, were not relied upon by the other — many other Connecticut Probate Courts, that a Connecticut Probate Court itself didn’t refer to its own earlier decisions, and that there were ways of collaterally attacking Connecticut Probate Court decisions.

And that it was the sort of a court that was there to sort out as are many of the probate courts in our nation to sort out and administer essentially nonadversary proceedings.

The grand permission to trustees to do this or that or permission to executors to take certain steps and that it was very seldom that you had an adversary proceedings and when you did have an adversary proceeding, it was typical to take it to a higher court, take the de novo appeal from the probate court or perhaps go into a higher level trial court, try it out.

It would certainly be an unusual case when a will, this clear, when the grandchildren were really intending to assert their rights and that they would lose over $1 million, the exact value is I think $1,300,000.

That they would with this will behind them stand there, lose $1,300,000 and then not take their de novo appeal, and in fact, not even have contested the point in the — in the Connecticut Probate Court but it stood there and said, “We have no objection.”

We don’t —

Hugo L. Black:

Well, there might not have even been adversary to one another and that the grandmother and the children?

Jack S.Levin:

Well, there’s certainly no evidence that their adversary did to each other.

In fact, the contrary is generally true if they can rearrange property within the family and save a million dollars, gain a million dollars for the family, the tendency generally is to go along with the rearrangement.

Hugo L. Black:

You already suggested that the United States Commissioner be forced to try its tax claim in that Court, that way.

Who suggested that?

Jack S.Levin:

Well, it was the petitioner who served it unnoticed.

Hugo L. Black:

Who is the petitioner?

Jack S.Levin:

Petitioner was the executor of the estate who is the petitioner in this case.

Jack S.Levin:

The same petitioner who’s here before you was the moving party in the probate court decree.

Hugo L. Black:

Well of course, it’s the rule of the probate proceeding that were handled by the executor —

Jack S.Levin:

That’s correct.

Hugo L. Black:

— who handles the executive and who handles the federal?

Jack S.Levin:

That’s right.

Hugo L. Black:

Sign of an intrafamily arrangement which would save over a million dollars tax.

Jack S.Levin:

Yes, Your Honor.

Earl Warren:

Mr. Levin, just what disposition do you suggest would it make for this case?

Jack S.Levin:

The disposition which we suggest is that this Court adopt the nonadversary view and remand the case for findings as to whether this was a nonadversary proceeding or not.

No evidence yet having been taken on that issue and the record not being fully developed on that issue.

On the other hand, if the Court, as some justices have indicated, feels that the Government is entitled to what we would think to be a stiffer position that the probate court decrees are never binding and that in order for anybody to get a decree which is ever binding on the Government they should have to take an appeal.

Well, then in that case, the Court should affirm the decision of the Second Circuit which decided the case on that basis in favor of the Government.

Earl Warren:

Well, suppose when it went back, the Court merely said was merely answered your question and said that this was not an adversary proceeding.

Where would we be then?

Jack S.Levin:

Then the — then the question which is already been determined by the Second Circuit would be is the Government correct on its interpretation of Connecticut law and the Second Circuit has already clearly answered that said that this is the proper interpretation of Connecticut law.

And then the taxpayers — taxpayer would lose in his refund action.

The Government would keep the $1,300,000 which they have paid in taxes.

William J. Brennan, Jr.:

I should think that in your position certainly isn’t trying to contribute the purpose stating federal court relationships if you have to try out in the federal court whether or not the state court proceeding was a proper proceeding had led to a judgment.

Well, I’m amazed you just don’t take the position.

It’s either not binding at all as I gather is your position in this throughout this so-called hearing.

Jack S.Levin:

That is one of our positions.

William J. Brennan, Jr.:

Or it is binding, one or the other.

The reason we don’t take that position outright is that the regulations have since 1919 in one area and 19 — since 1949, a year after the enactment of the marital deduction and the marital deduction have indicated that the Commissioner will accept the bona fide adversary dispute —

I know but do you —

Jack S.Levin:

— litigation.

William J. Brennan, Jr.:

Do you think that no merit in my suggestion that that does not only —

Jack S.Levin:

I think there’s a great deal of merit.

William J. Brennan, Jr.:

— contribute to harmonious federal state court relationship, doesn’t it?

Jack S.Levin:

Well, I don’t think that it contributes to harmonious federal state relationships if the probate court is determining in effect estate tax disputes.

The probate court here is petitioner considered during this argument.

Jack S.Levin:

He stated during his argument.

Probate court knew here that it was in effect determining whether the federal government got a million dollars in estate taxes and that there was an existing dispute between the Commissioner and the estate.

He only was deciding that.

I submit it to reach the result petitioner proposes is not going to contribute to harmonious federal state relationships.

William J. Brennan, Jr.:

Well, I’m only suggesting that for the purposes of the decision of this case, I would think it’d be preferable either to say that the revenue is bound by the state court judgment.

Jack S.Levin:

And we think —

William J. Brennan, Jr.:

Of all instances or that the revenue is never bound by the state court —

Jack S.Levin:

We —

William J. Brennan, Jr.:

— at any instance.

Jack S.Levin:

We think that the clear inference from the code and from the legislative history precludes us from taking the former position as well as common sense.

That is that we’re always bound by these intrafamily dispositions.

And as to the latter, we have presented both views to the Court.

We feel that it is a workable view to take the — what we call the nonadversary rule.

And it would be fair to the parties, and that would achieve a not unworkable interrelationship between state and federal courts to accept litigated decisions but not accept nonadversary decisions.

Abe Fortas:

I find this very difficult position that the courts said because — well I think I would pretty clearly conclude that the federal government cannot be compelled to accept the result of the state courts in the tax fee.

I think I would feel — I would come to the conclusion that the Government cannot be compelled if on the other hand, the federal government takes the position that in making this kind of tax decision, it wants to accept the state court decision.

I have some problem with the — ours telling that the federal government that, “No, you may not accept the state court decision here.”

Jack S.Levin:

I don’t — I don’t —

Abe Fortas:

And the provision that’s been put to us is the brief and argument is it seems to me distinctly equivocal.

Jack S.Levin:

No, I don’t think our brief goes that far.

We haven’t given the point away.

We haven’t said we want to be.

We’ve said there were two arguments which we presented to the lower court.

We presented both arguments to the lower court.

We won on the broader one.

In coming before this Court, we felt compelled to indicate which position the Government thought was the better position.

But we are urging upon this Court the broader position.

We are urging that position.

Hugo L. Black:

Do you think that it’s possible that any local probate judge of the United States who in the lawyer for their family and the executor came to him said, “Look here, is this million dollars tax estate paid to you by this family.”

And there you may either have to pay one million more or one million less calling to whether you let them arrange between themselves to divide this up in a different manner.

Hugo L. Black:

Do you think there’s any local probate judge in the United States that they try out any adversary proceeding?

Jack S.Levin:

No, Your Honor, I don’t know of a single instance in which it’s happened and I can’t conceive of one from my limited experience with a probate court.

Hugo L. Black:

Could the Court do that which the parties and the members of the family had agreed on this?

Jack S.Levin:

That’s right.

Hugo L. Black:

For the right lawyers?

Jack S.Levin:

That’s right.

Earl Warren:

You mean even if the will was to the contrary?

Jack S.Levin:

Well, Your Honor, I — I think it’s difficult to say just how contrary the will has to be.

Here I think —

Earl Warren:

Oh I didn’t ask that.

You’re answering precise question.

You —

Jack S.Levin:

Yes.

Earl Warren:

Would you say that even if the will was to the contrary?

Jack S.Levin:

I think that intelligent lawyers can frequently make ambiguity —

Earl Warren:

I didn’t ask you that.

Jack S.Levin:

You mean —

Earl Warren:

You may not answer if you don’t want to but I just ask you what I thought was a fair question.

Jack S.Levin:

If the will said I leave all my property to Mr. X and the family all came in and said, “By Mr. X, you really meant Mrs. Y is who happens to be his widow”, I really can’t answer whether a probate judge would do that.

But if the will was slightly more ambiguous left some very slight room for doubt, I am — I think —

Earl Warren:

Well you answered very — very lively and very quickly that no judge would consider the Government’s interest, didn’t you?

Well, that you had no difficulty in answering but as to this other précised then you find great difficulties, it seems to me.

But that’s alright.

Hugo L. Black:

I was asking you about the fact of this case, this case, with this will.

Jack S.Levin:

I understood —

Hugo L. Black:

And that matter.

Jack S.Levin:

I understood that I was answering on the basis of a — of this case or a case like it where there was of very slight room for ambiguity.

And I certainly didn’t mean to — to indicate a broader view on an unequivocal will where just couldn’t be anything to the contrary, Your Honor.

Hugo L. Black:

And that’s all I asked you.

Jack S.Levin:

Yes.

Jack S.Levin:

Thank you.

Earl Warren:

Mr. Thompson.

Curtiss K. Thompson:

May I answer Mr. Justice White’s question?

Earl Warren:

Would you step over to the lectern where we can all hear you?

Curtiss K. Thompson:

In answer to Mr. Justice White’s question about the effect of the probate decree, the probate court adjudicated the property rights of the widow and the grandchildren, and the remainderman of the cost.

And that decree is binding and the probate court cannot modify it nor so far as I can see can any court in the land.

That’s a final decision.

William J. Brennan, Jr.:

Well, what — I’m just wondering what happened if the Government gets these extra million dollars and what happens to the distribution made by the probate court?

Curtiss K. Thompson:

Well, the grandchildren will get less.

As a matter of fact —

William J. Brennan, Jr.:

You know that it will come out of them so that they’ll now get $2 million instead of $3 million, is that it?

Curtiss K. Thompson:

The Government has received the million dollars.

In effect, it has taken that away — in effect, it wants to take it away from that widow.

Under the probate decree, it will be charged against the grandchildren.

Now —

William J. Brennan, Jr.:

Well that’s it.

So they’ll now get $2 million and the widow will get $4 million, is that it?

Curtiss K. Thompson:

Yes, Your Honor, unless the decree is reversed.

Tom C. Clark:

The distribution has not been made yet.

Curtiss K. Thompson:

The petition —

Tom C. Clark:

The distribution of the estate had not been finally bound —

Curtiss K. Thompson:

I think it’s been made largely, Your Honor.

We don’t — in our probate — probate practice doesn’t require under these circumstances at least an order of distribution.

The will itself authorizes the executors to make the distribution.

And I’m sure that by this time, the grandchildren’s trusts have been established to the extent that they can be.

Tom C. Clark:

But the state hadn’t been well done, does it?

And a state in an existing (Voice Overlap)

Curtiss K. Thompson:

Not entirely, no.

No because we’re seeking — we’re seeking this refund.

Tom C. Clark:

And this is still an ongoing proceeding in the probate court.

Tom C. Clark:

As a matter of law, you can line it up to pay the federal taxes.

Curtiss K. Thompson:

But we have — we pay all of the taxes that —

Tom C. Clark:

Be paid.

Curtiss K. Thompson:

— around the horizon.

Tom C. Clark:

Yes.

Curtiss K. Thompson:

And we had paid all of the taxes at the time that the probate decree was entered with the exception of this deficiency.

William J. Brennan, Jr.:

Is this a refund suit?

Curtiss K. Thompson:

This is a suit for a refund.

William J. Brennan, Jr.:

Yes.

And that — if you get — if you — if you prevail, you got to add — let’s get back to either widow’s share or the children’s share only to the children’s share.

Curtiss K. Thompson:

A refund —

Potter Stewart:

For one-third or for —

Curtiss K. Thompson:

The probate decree has said charge these taxes against the grandchildren.

And the — the — the liability of the parties for the — for the taxes has already been determined and has been performed than discharge so that it goes back into the estate.

And it should be divided between all the legatees.

Thank you.

Earl Warren:

Number 673, Commissioner of Internal Revenue — versus Petitioner, versus the Estate of Herman J. Bosch.

Mr. Levin.

Jack S.Levin:

Mr. Chief Justice, may it please the Court.

In this case which presents in slightly different context approximately the same issue as was presented in the Second National Bank case.

The decedent died in 1957.

In order to give a complete picture of the case, I have to explain what the decedent did prior to his death and then move up to the situation at his death.

In 1930, he created a revocable trust.

And that trust is amended in 1931, granted to his wife the income from the trust for her life, and gave her a general power of appointment over the trust assets by her will.

If the decedent had died at that point, and if the marital deduction had been enacted.

So assume he died say in 1950, marital deduction have been enacted in 1948, his estate would have received a marital deduction for the value of the assets in that estate, because she was at that time entitled to all of the income generated by the entire trust for her life and she also had a general power of appointment over the trust assets.

However, in 1951, that’s approximately six years before the decedent died, Congress enacted the Powers of Appointment Act of 1951.

What that Act said in essence was that anyone who has a general power of appointment which would cause the assets subject to the general power to be crea — to be taxed in their estate of their death, here that means the widow, may release in toto or in part their general power of appointment without further tax significance.

So that it enabled someone such as Mrs. Bosch here to release her general power of appointment or to release enough of the general power so as to cut it down to a special power of appointment.

After consulting with the trustee and the bank here involved, Mrs. Bosch took advantage of that option.

Jack S.Levin:

She executed a release which stated that she released the power to appoint to herself for estate or creditors or the creditors of her estate which are the magic words for a general power of appointment under the Internal Revenue Code.

If that release is effective, she cut her power of appointment from a general power to a special power.

Thereafter, six years later in 1957, Mr. Bosch died.

So that if the release is effective, all she had at the date of his death was the right to the income from the assets for her life plus a special power of appointment.

Federal law is quite clear.

No one argues with the contrary that if a widow has only income plus special power, no marital deduction.

Commissioner came in, took the position that she was entitled to only a special power of appointment as of the time of Mr. Bosch’s death.

Therefore, no marital deductions to be allowed with regard to this trust.

There was a marital deduction with regard to some other property but not with regard to this trust.

After the case was in the tax court, the respondent initiated a suit in the Supreme Court of New York, state trial court, in which the respondent took the position that the Court should declare.

Now, this is the respondent in its capacity as trustee of the trust.

It was the same entity who was also executor of the will.

Respondent took the position that the release made in 1951 was invalid under New York law.

And therefore, the widow still had a general power of appointment.

In that proceeding — well first of all, the respondent concedes that this suit was prompted by the tax court proceeding, prompted at least in part by the tax court proceeding.

Three briefs were filed in that proceeding, one by the trustee executor, respondent here; one by the widow, by this time the widow, the life beneficiary; and one by a guardian ad litem or a possible minor beneficiary.

All three briefs took the same position.

All three briefs argued that the six-year old by this time I guess about eight or nine years old release was a nullity, was void.

And therefore, that she still had a general power of appointment.

In the tax court in describing this proceeding, counsel for respondent stated as follows in open court.

All these briefs, this is page 15 of the record, excuse me.

All these briefs took the same tap; this is counsel for respondent speaking.

All these briefs took the same tap, or presented the same side of the argument.

That is this 1951 instrument was a nullity.

And in effect, you have to cut down the general power of appointment.

Thereafter the court, the tax court judge asks this question, “Was the proceeding nonadversary in the sense that no one had any interest in the courts coming out one way or the other?”

Counsel for respondent replied, “You might say that that’s correct, Your Honor.

In effect, nobody raised the dissenting voice in these proceedings.”

There were 22 other possible beneficiaries who are in the same position as this minor who’ve been represented by a guardian ad litem.

The other 22 received notice.

Jack S.Levin:

They declined to appear.

No appearance was found, the only three briefs with the three arguing that it was a nullity.

The parties in their pleadings in the suit and in the briefs made it quite clear to the state court that a determination that this release was a nullity, we would say the substantial amount of estate tax for the family.

In addition, the parties in their briefs failed to cite relevant cases and to make relevant arguments to the Court which would have indicated that the release was valid.

The Court then adopted their unanimous contention.

Potter Stewart:

The question was whether you can make a partial release of the general power of appointment before you have the — the —

Jack S.Levin:

Power to exercise.

Potter Stewart:

The right to exercise the power.

Jack S.Levin:

Under New York law.

That was the question before the Court.

Potter Stewart:

Yes.

Jack S.Levin:

That’s right.

The —

Potter Stewart:

Do you say the Court was wrong in citing that —

Jack S.Levin:

Yes.

Potter Stewart:

The New York Court was wrong in deciding that.

Jack S.Levin:

That’s right.

I say the Court was wrong.

Judge Friendly in his dissent, Judge Friendly was the only judge in the Court of Appeals who reached the issue.

The majority of the Court of Appeals said, “It doesn’t matter whether the Court was right or wrong.”

It doesn’t matter whether the proceeding was adversary or nonadversary.

We’re bound.

That’s what the two judges in the majority in the Second Circuit said.

This is the same Court that decided the Second National Bank case that you just heard, three different judges sitting.

The Court said that we need not reach therefore the question whether it was an adversary proceeding.

We need not reach the question whether the New York Court was right or wrong.

Judge Friendly on the other hand in his dissent and that’s — that’s the only opinion I can say here on the merits of the New York case, examined it in some detail.

Found that the New York Supreme Court’s decision was clearly wrong.

Found that the parties had not cited to the New York Court the relevant decisions indicating that the release was valid.

Found that the only case cited by the New York Court in reaching its decision was in the matter of Piffard and decided by the New York Court of Appeals in 1888.

Jack S.Levin:

When in fact the New York statute which was here in question, which dealt with the issue of whether a power of appointment could be released wasn’t enacted until 60 years later.

So that in the matter of Piffard could be a scant authority on the question of whether a power of appointment can be released under a 1951 statute when it was decided in 1888.

Judge Friendly thereafter reached — reached the result first that the New York Court was clearly wrong.

Second, the relevant precedents and arguments have not been cited to it or made to it.

Third, the proceeding was clearly nonadversary.

And he said these, “Under these circumstances, it is not to be wondered that a judge sitting in the busy motion part of the Supreme Court for New York County should have erroneously ratified the parties unanimous contention citing only the in opposite decision of In re Piffard.”

Potter Stewart:

This was not the surrogate’s court?

Jack S.Levin:

That’s correct.

This was not a probate proceeding.

Potter Stewart:

Right.

Jack S.Levin:

They went here and initiated what was in essence a declaratory judgment in the county proceedings, something of that nature in the Supreme Court for New York County.

Potter Stewart:

To determine the validity of this partial release.

Jack S.Levin:

And as I understand it this was decided in — in the motion part.

And parties took this unanimous position there.

Do you consider these two parties to be reconciled?

Jack S.Levin:

Well, we think that it’s rather difficult to reconcile their decisions.

They purported to — by they, I mean the second panel, the panel in this case purported to reconcile its decision with the Second National Bank case by saying, well the Second National Bank case dealt with the probate court of Connecticut.

That’s a sort of a funny court.

Its judges don’t have to be lawyers.

There’s a de novo right of appeal.

Its decisions really aren’t very meaningful.

The thing that troubles us about that is that the authorities of Connecticut have reposed in the Connecticut Probate Court the authority to make decisions, just as the authorities of New York that reposed it in the New York Supreme Court.

And we think it would be a very difficult rule to administer to say that it depends on the statute or the status of the court.

And that you have to go into the judicial system of the 50 states and examine the type of courts you have here.

William J. Brennan, Jr.:

Was any en banc hearing sought?

Jack S.Levin:

Excuse me I —

William J. Brennan, Jr.:

Any en banc hearing sought?

Jack S.Levin:

No en banc hearing was sought by the governments, Your Honor.

One of the reasons for that was that this was not merely an intracircuit conflict.

There was a much more general conflict.

Jack S.Levin:

You have eight Courts of Appeals which have passed on this issue.

Of the eight, six Courts of Appeals have adopted the nonadversary view.

The seventh Court of Appeals is the Court of Appeals for the Third Circuit.

That Court of Appeals initiating what we call the Gallagher rule has adopted the rule that anything that’s binding on the parties is binding on the Government.

And I don’t think I’ve overstated their position because they say if there was fraud involved, well then it’s not binding on the parties.

But I think that it goes first say it’s binding on the parties as binding on the Government.

The Second Circuit up until these two decisions had gone along with the majority rule which was the six — six courts that said nonadversary.

The first case, the Second National Bank case, pushed the Second Circuit over at least so far as the Connecticut Probate Court was concerned into the Freuler position never binding.

Didn’t make it clear what its position would be on other courts.

Then this case, the Bosch case, pushed the Second Circuit way off in the other direction and aligned it with the Third Circuit, what Judge Friendly called the mechanical rule that what’s binding on the parties is binding on the — on the federal government.

Abe Fortas:

Mr. Levin, am I correct in that Judge Friendly put a good deal of emphasis upon the fact that this issue was had that the Court decision, New York Court decision in this case, had no purpose except to affect tax liability?

That is to say that the parties just decided that they present this question to the New York Supreme Court for the purpose of contending a determination which would affect tax liability and your adversary of the preceding case, I don’t know if this is right or not, suggested that the Connecticut Probate Court in the ordinary course of its administration had to decide the issue which affected tax liability.

Jack S.Levin:

Well, I don’t — I don’t think Judge Friendly and that the Second Circuit was wrong in the Connecticut National Bank, the Connec — the Second National Bank case and that it should have come out the other way and held that one binding, but this one not binding.

He did say this and I think this was a sentence to which it refers.

What makes this case so easy is that the state court proceeding had no significant purpose other than the reduction of tax liability.

Mrs. Bosch was not shown to have the slightest intention of using the general power the New York Court was led to thrust upon her.

Or even the special one if she was held to have only that.

In a practical sense, the decision was thus to void of any effect except upon taxes.

Well, I don’t think it makes any difference whether you call a decision a regular decision, one that the parties had to seek or whether you say that they went out and got a decision they didn’t need.

Respondent in this case argues that their decision was one that they had to seek.

No accounting had been sought for this trust in the 33 years of its existence.

So they said, “We had to go into a court and get into accounting.”

Now, in the process of getting this accounting which of course was prompted by the existing federal tax case, we also presented the issue to the Court of whether this was a general or a special power which is the issue of whether the release was valid.

Now, of course they say, “We had to get a ruling on this at some time because the widow might have exercised the power.

And she’s entitled to know what her powers are.

And we’re entitled to know so we’re not in breach of our trust.”

I don’t think that that makes any difference if they go into the Connecticut Court, here the New York Court.

And they present one side of an issue to a busy motion part of New York County.

And they don’t cite the cases on the other side.

And they take a unanimous position.

Jack S.Levin:

I don’t think it matters whether it’s a part of a regular probate proceeding that they — that they get it or whether it’s especially initiated accounting suit.

Did the Commissioner — did the Commissioner have noticed of the state court proceeding?

Jack S.Levin:

He knew about it because of course, proceedings were going on a tax court at this time.

And the Commissioner knew that these parties were going to go off to the New York State Court and seek some sort of declaratory judgment on that.

The lawyer for the Commissioner stated in open court that it is a policy of the Commissioner, uniform policy for many years, not to participate in these proceedings going on in probate courts or state trial courts across the country.

And that that was his position.

He told the parties in advanced that that was our position and that we would not be bound by it.

They went of —

Abe Fortas:

I beg your pardon.

Here is again — that you’re urging us that the determinant of fact should be whether the state court preceding was adversary or nonadversary.

Jack S.Levin:

Here again, as in the last case, the Government has two theories which it’s asserting.

I’m pointing out that the fact that it was a nonadversary proceeding, is what it makes it such a nice — I don’t want to use a word that that is derogatory device say such a nice device for obtaining post death — post mortem estate planning by intrafamily arrangements.

The fact that it’s a nonadversary proceeding where everybody goes in knowing what result they would like to reach and succeeding in getting the court to reach that result is what makes it so susceptible.

But of course, we are here also urging the broader view.

Abe Fortas:

Is that in your brief?

Jack S.Levin:

Yes, Your Honor.

Abe Fortas:

Because —

Jack S.Levin:

Our brief —

Abe Fortas:

I understand that you’re suggesting that the Commissioner should not have a — the determination of this issue.

That he should not determine the issue at anytime.

That the issue should be determined by a state court unless it’s a nonadversary proceeding, isn’t that right?

That is you don’t take the position that the question which affects the marital deduction is one that is properly accorded determination by the Commissioner.

Do you take the position that it should be determined in adversary state court proceeding?

Jack S.Levin:

No, if that’s — it’s a question perhaps of emphasis, Your Honor.

In the typical run of the mind case, the vast majority case, you had no state proceeding whatsoever.

The vast majority of the cases that come up in the federal court, the state court hasn’t determined the state issue.

And you have the federal courts setting to litigate tax issues, deciding state issues all the time, applying the Erie doctrine and saying now, “What is the law of Connecticut on this point or the trust law?”

It happens that an income tax cases, estate tax cases, every kind of tax case, they typically decide it.

It’s the infrequent case where the parties in the process of a tax dispute true brought to the state court and ask the state court to give them a decree which they can then go back to the federal court and waive and say, “See, the state court has decided this precise issue and we are now bound by it, and you should be.”

That doesn’t happen except in a very small percentage of the cases.

Abe Fortas:

Well, that may be a little overstatement.

I don’t know what matter it is which adversary now the case, the preceding case said that the Connecticut Probate Court decision came by in ordinary course, and there has been judgment of as whether they get it or did not.

Jack S.Levin:

Well, I assume it did come about in ordinary course.

But very frequently the estate waits until the federal government has determined the estate tax and made these determinations.

Then they go back to the state court with the federal government’s determinations.

If they want to litigate it, they litigate it in the federal courts.

They don’t try to jump the gun so to speak and to get the Connecticut Probate Court to rule in advance as to how you allocate federal estate taxes when the federal estate taxes haven’t been computed yet and they’re engage in a dispute with the Commissioner over and to do that, especially in a nonadversary proceeding where everyone files briefs pointing the same way, and leaves out the decisions.

The reason that we think that the question of nonadversary is a relevant one is because for one thing, there could arise a case, I don’t know of a single one.

But there could arise a case whether it has actually been litigation.

And the parties have resolved the disputes for litigation.

The Court has reached the decision which is close but perhaps later proves to be erroneous on closer examination.

And in that sort of a case, it seems rather unfair for the Commissioner to refuse, to accept that result.

But in the case where the parties make no effort in — in this case that the other beneficiaries in the Second National Bank case, the grandchildren, make no effort to assert their obvious rights.

But rather by their whole demeanor and their position, they show that they are relinquishing their rights without a fight.

It’s really no different than if they are giving away their rights.

And the Commissioner shouldn’t be required to treat it.

And now you can go to full — to full extent and say, “Well because that sort of a determination is difficult to make whether it was adversary or nonadversary, we will hold the state trial court or probate court decision as never binding.”

Potter Stewart:

The tax court here Judge Raum apparently accepted the view that the — that a state court decision is always binding unless it’s subject to collateral attack by the parties themselves.

Jack S.Levin:

No.

I don’t — I don’t think it’s quite that strong.

Judge Raum here had a situation where the tax court had unanimously along with six of the circuits adopted fairly unanimously adopted the nonadversary view through the years, long history back beginning as early as 1926.

And he knew that that the Courts of Appeals at least the Third Circuit had disagreed.

He wrote in opinion here which I don’t think it’s clear on just what position he is taking.

He ends his position by his — his opinion by saying that he need not determine whether the decision is binding on him or not.

Potter Stewart:

Well, I thought that he summed it up by saying, “We contend ourselves here with following the general rule in Blair against the Commissioner.”

And earlier in his opinion, he characterizes Blair against the Commissioner as standing for the proposition that in general where the operation of the federal tax law turns upon a nature of property interest created under state law and adjudication by a state court in respect to the very property interest involved is final where that Court has jurisdiction over the subject matter, and the proceeding is not collusive.

And he says that’s the rule I’m going to accept first.

Jack S.Levin:

He ends his opinion with these two sentences on page 24 of the record.

Nor is it necessary to say that we are bound by the New York decision, it is sufficient merely the state that in a foregoing circumstances we accept the New York decision as an authoritative exposition of New York law and the adjudication of the property rights involved.

Now, I can’t do anymore than to read that and try to interpret it.

Jack S.Levin:

He said he doesn’t feel himself bound but then he goes on to say something that doesn’t seem quite consistent.

That of course, as I’ve said, is a departure from the view of the tax court long held.

The history and perhaps what help it by very briefly sketch out the history of this from the earliest indications of congressional intention on it.

And that, there as follows, in 1919, long before the marital deduction had been enacted, the Commissioner promulgated regulations under what is now Section 2053 of the Code, we’ve set the regulations for.

The question there is does the estate get a deduction for a claim against the estate?

In other words, a probate court determines Mr. X is a creditor.

Mr. X happens to be the testator’s son.

Do they get a deduction for that if he was a genuine creditor that gets a deduction?

Some people had go into probate courts and the logical beneficiary would come in and say, “My father really owed me $400,000 so please distribute it to me as creditor rather than his beneficiary.”

There have been decisions to that effect.

So the 1919 regulations under that section indicate that the Commissioner will not accept the decision that Mr. X is a creditor unless it was — it was wrong.

If it was wrong, it won’t be accepted unless it was litigated adversary proceeding.

Then in 1926 in the Krause case, the tax court for the first time had a — that sort of a question before it.

And it indicated that it was going along with this sort of reasoning.

And the tax court decisions thereafter up until this one are fairly well along that line.

The next relevant guide post is the Brainard decision by the Seventh Circuit in 1937 so far as I know the first Court of Appeal decision on that.

We quote from that in our brief.

That decision can be read two ways.

It can be read as supporting either the so-called Erie view was never bound or the adversary view.

The Court says, “This is a decision of Cook County, Illinois Circuit Court.”

We’re not bound by it.

There are lots of courts but they went out of their way to point out the circuit court decision from Cook County was a proceeding between this man and his wife, and mother.

And he ends with the sentence.

It is no doubt true that the preferred decree is binding up on the parties to that suit.

And it will not be appealed from because all the parties thereto are satisfied with it.

So this 1937 decision contains the germs of the nonadversary rule.

He’s saying it was a proceeding between the man, his mother, and his wife, and nobody appealed because everybody was satisfied with it.

That in 1940, the Third Circuit, the circuit is now against this, in the Mechanics Bank case also adopted the same sort of a rule.

And of course was subsequently departed from.

In 1947, the Commissioner published disposition that he’s not going to go in and litigate the state probate courts and trial courts.

Jack S.Levin:

Then in this context, in 1948, one year after this pronounced by the Commissioner, Congress enacts the marital deduction provision.

And Congress in the legislative history says that in interpreting the question in whether you get a marital deduction as to an interpretation of the will.

How much does the widow entitled to under the will if she had enforced her rights and everyone had enforced their rights?

Congress said this in the legislative history cited on page 16 of our brief.

In this connection, proper regard should be given to interpretations of the will rendered by a court in a bona fide adversary proceeding.

Later on in that same page, Congress went on to say; that a settlement between the parties is not binding on the Commissioner will not be accepted even if it sets the party’s rights.

Now, in this context, one year later, the Commissioner enacted regulations under the marital deduction provisions.

It was set forth in the appendix to our brief.

These regulations, very much like the 1919 regulations for claims against the estate indicate that the Commissioner is not bound unless you have a proceeding in a state trial court rendered on the merits in an adversary proceeding following a genuine and act of contest.

At that point, the litigation is still going on.

1954, of course Congress reenacted the marital deduction provision in this context of what I think clear legislative history, clear and uniform proceedings.

In 1955, a year later, the Third Circuit decides the Gallagher case in which it overrules in effect its older cases, and decides that from now on, the Commissioner is bound by a nonadversary proceeding.

The Third Circuit went so far as in the Beecher case decided a short time later to say that where the sons and daughters came in and said, “We’re really creditors and sought quickly to prove their claims against the estate that’s binding on the Commissioner.”

Earl Warren:

We’ll recess now.

John W. Burke:

May it please the Court.

The state proceedings below were not adversary proceedings.

Now, I think it is a fair statement by Judge Friendly that the primary purpose of the state court proceeding was to effect estate taxation.

But let us examine the situation in which the trustee found itself when its counsel suggested to it that the release, purported release of the power of appointment by the wife, may not have been valid.

It sounded very patriotic thing I suppose for trustee to give up the assets of the estate to the federal government, but it’s unlawful for their standpoint.

And no matter having been called to his attention, he had to have a resolution of it.

He sought this — he sought this resolution by an action or an accounting.

That action was pending when the tax court proceedings was pending.

The tax court granted a stay of the tax court proceedings pending the outcome of this state court proceeding which was to be determined at due of the property rights involved in the estate tax proceeding.

But there’s no way of vouching the Commissioner and has been suggested a Commissioner 20 years ago said that he would not participate in any proceedings even to protect this on the federal fist.

And I heard the argument before this case in which he didn’t want to come in to protect one million dollars in taxes, I thought that perhaps he could afford to employ lawyers but I — I’m not going to suggest that I’m better than administrator than he.

But it seems to me that if he had an opportunity to litigate the issue in the state court, he should have taken advantage of it.

Now, in the state court proceeding, there was no arrangement between the judge and the trustee as has been suggested not in our case but in possibly other cases.

The matter was submitted to him for his — the court’s independent determination upon briefs or be it all supporting the same proposition.

The trustee couldn’t find another adversary to make this an adversary proceeding if he wanted to.

There wasn’t anybody who would contest the issue even the guardian ad litem for the infant.

John W. Burke:

It was a matter of indifference to him whether the release was valid or invalid because if it was valid, the wife had a special power of appointment that he could have appointed to the infant.

If the general power of appointment, it was the same thing as far as the guardian ad litem was concerned.

If she didn’t exercise either power, his word had rights.

I address myself to the policy of the proposed rule.

That is, that there be a recognition of all adversary judgments and the declamation to recognize any nonadversary situations.

I don’t know just where the dichotomy lies but in cases I concede that there are cases in which the Commissioner should not be bound by what is it in effect.

The agreement of the parties, rubberstamped by the Court, I doubt that there are many although, there may be some.

I doubt that a judge of a state court for example, having in mind property rights which maybe of — may affect his own state’s ability to tax would blindly be hood-wigged into a decision for the accommodation of the parties.

When does a matter become adversary?

Who’s going to judge when it is an adversary proceeding?

And there are varying degrees of abilities in advocates?

Is the federal court going to look to the competence of the litigation as conducted by an advocate?

Is he going to look to the briefs to see whether a case was cited which might be determined at it?

Is he going to hold the trial of the issue of adversariness if I may invent a word?

At what degrees, at what point, what standards are, what norms are there to guide the federal judge in determining when a judgment regularly obtained is presented to him which determines property rights?

Is he going to apply the Erie rule and look into what the highest court of the state should or would have settled on the matter of these property rights?

He comes — he has a much easier task if he may look at the published decisions, if he may conclude that the property rights of the parties have been fixed thereby excluding any necessity for the application of the Erie doctrine.

That I suggest is a much easier rule.

On our case in the state court, this question was submitted —

Earl Warren:

I understood you Mr. Burke —

John W. Burke:

Yes sir.

Earl Warren:

— so to say there were some circumstances, some cases where he would be entitled to adapt to another procedure.

Would you — would you mind telling us what those instances —

John W. Burke:

Yes sir.

Earl Warren:

— might be?

John W. Burke:

If there is any evidence of fraud, I say that the district judge in the competent federal controversy involving taxation should ignore the judgment just as to any other party might ignore it.

But beyond that, I don’t think the federal district judge should be required to go.

In our instance —

Earl Warren:

Would you say a lack of consideration to one of the parties and still a consent with the — would be tantamount to that?

John W. Burke:

I would exclude all consent judgments.

John W. Burke:

If the federal judge is presented only with a consent judgment, I would ignore it because a consent judgment is in effect, an agreement among the parties and the parties should not be permitted to agree in a manner in which the federal fisc would be affected.

But I say that is a simpler and fairer rule for the judge to look at the judgment that has determined absent fraud.

In our instance, this question was presented to a justice of the Supreme Court in the State of New York which is the highest court at the origin of jurisdiction.

It was brief as I’ve said that not only one side, but the judge made an independent consideration of the facts as presented.

By they way, there were no, there were no — there was no conflict among in the facts, the facts were stipulated.

They were stipulated in the tax court and the same stipulation was presented to the justice of the state court.

He rendered a recent opinion which was published — which has precedential value.

Other lawyers, if the question ever arises as the construction of 183 of the real property law, the first thing the judge or the lawyer will look to is this opinion, the only one in point of the State of New York.

Now my adversary said that there were other decisions that should have been presented to the judge, none of them was in point.

Each of them involved a release of a power of appointment which had already vested by reason of the death of the donor of the power, and was exercisable by deed.

It was in effect the property of the donee of the power of appointment, and to do what you please with your own property.

Here there was an illusory grant by the husband to the wife of a general power of appointment.

She couldn’t exercise it until his death.

And she couldn’t exercise it by deed but only by will.

She had in effect nothing to release.

Now, I heard it said here that the judgment of the state court justice was erroneous.

Who’s going to say it was erroneous?

I have my opinion, anybody else can have his.

But it is I can just review what the statute was, is or was I should say because of an amendment to accommodate the situation such as this.

The statute said that every power of appointment which is exercisable by will, by deed, or by deed and will may be released.

But as I’ve just indicated to the Court, this wife had nothing but an illusory grant of power.

And the judge I think properly gave effect to the term exercisable.

It has a meaning, a distinctive meaning in the law of trusts.

A trust for example which creates a — or a donor who creates a trust and grants to the donee of the power, the power presently to appoint to himself, his creditors, his estate, or the creditors whose estate, is an exercisable power which conveys the theme.

Exercisable means a great deal of that context and creditors can reach the property.

I say that the law of State of New York has been authoritatively fixed and settled by the decision of the Supreme Court of the State of New York.

And that it should be followed by the District Court and by the Court of Appeals.

Hugo L. Black:

May I ask you?

John W. Burke:

Yes sir.

Hugo L. Black:

Do you think that there was any legal duty on the part of the United States Commissioner to go in until they could have an adversary proceeding?

Hugo L. Black:

And if so, from what source do that power —

John W. Burke:

I suggest that Your Honor, a person with such an interest in a million dollars should be vouched in or should be allowed to come in to present his views.

Hugo L. Black:

But suppose the Government doesn’t want this case filed in that jurisdiction.

They want this tax question decided in the federal court.

John W. Burke:

It has been traditional in our system of government to have property rights determine of the state jurisdiction.

And it’s —

Hugo L. Black:

And has it been — has it been traditional to have cases that involved tax question, decided the federal tax, decided in the state court without the federal government’s consent.

What bothers me is what power do they have affect of change of jurisdiction in where the case should be charged by summoning and underlying in the federal government?

John W. Burke:

Well, I suggest Your Honor that in cases of this import like the case of the preceding one, the Commissioner should come in and assert this —

Hugo L. Black:

He should but what law requires it?

John W. Burke:

It doesn’t — no law requires but no law —

Hugo L. Black:

But if no law requires —

John W. Burke:

— forbids it.

Hugo L. Black:

— then how can he be force to do?

John W. Burke:

He is as my adversary said in the Third Circuit, the Government comes in and defends — and litigates these issues of state law.

The reason being that the Court of Appeals for the Third Circuit has laid down the rule that that the courts — districts courts are found in a federal controversy by determinations absent fraud by a state court.

Hugo L. Black:

But that reaches before us now was that Third Circuit is right.

John W. Burke:

Well would — I don’t know if anything that would prevent the Commissioner have been doing it otherwise he wouldn’t be there.

Hugo L. Black:

Why does the Government tried the tax cases?

John W. Burke:

I beg your pardon sir.

Hugo L. Black:

Why does the Government elect to try its tax cases when it sues for tax cases?

John W. Burke:

It will sue for taxes only in the United States District Court.

Hugo L. Black:

Why?

John W. Burke:

Because the Government should be in control of its own fisc in respect of the taxability of something in the interpretation of a statute.

But when it comes to the determination of state laws, our Government has been very willing to accept determination of some state of —

Hugo L. Black:

How can it accept the determination if there a — if there’s a question about the house, only issue of a house.

No taxes involved.

State court decides and the Government accepts it —

John W. Burke:

That’s —

Hugo L. Black:

— deciding a law of that case but it’s quite different when you try to drag the Government in to try a case in state court which basically as far as the Government is concerned involved nothing but it’d like to collect the tax.

John W. Burke:

Well that’s our situation, Your Honor.

There was no question involved in the state court proceeding of federal estate tax law.

The only thing determined there —

Hugo L. Black:

But then you say it is and they gave that to exempt it, a decision.

John W. Burke:

Your Honor, if it involves the construction of a federal statute, the — the state court has no powers whatever.

That construction must be by a federal court.

But here, there’s no question of the construction of the federal statute.

It —

Hugo L. Black:

No, hold it —

John W. Burke:

— as I —

Hugo L. Black:

But this is a question on which government tax depends.

John W. Burke:

Well I can think of a situation suggested by Mr. Justice Fortas that our fisc could be controlled at a measure by a Mexican judgment.

According to my recollection even a unilateral divorce decree obtained in Mexico permitted the husband to deduct what he paid to his wife and require the wife to pay what she received.

Now that affects the federal fisc of foreign jurisdiction.

Hugo L. Black:

Does the federal government go in as a defendant in it?

John W. Burke:

The Commissioner of our —

Hugo L. Black:

In the divorce case?

John W. Burke:

No sir, it was a divorce suit.

Hugo L. Black:

That they have dragged him into the divorce case because it was going to affect the Government’s taxes?

John W. Burke:

But the Government could have inquired into whether this was adversary or nonadversary and made its regulation depending upon —

Hugo L. Black:

I’m not talking about the Government agreeing to go in and try.

That raises quite a different question.

John W. Burke:

But if —

Hugo L. Black:

I’m talking about the Government being forced to come in and against its will.

John W. Burke:

Well, if I had a million dollars at stake, I’d be there somehow.

Hugo L. Black:

You might and you might not because you might not only try in that jurisdiction that the jurisdiction amounts to, allowed it on a certain law.

John W. Burke:

But the — if the Government were a party, it would have all the rights of appeal right up to this Court perhaps.

I don’t understand why it shouldn’t be there.

Hugo L. Black:

Well it might —

John W. Burke:

I —

Hugo L. Black:

It might choose to be so but where do you get your authority and in its federal statutes purports the Government to go in and litigate it because it incidentally involved its tax —

John W. Burke:

All I can ask —

Hugo L. Black:

— in the state court.

John W. Burke:

All I can answer to that question, Your Honor is that the Commissioner does just that all the property does that on the Third Circuit.

Now who am I to say they’re acting illegally?

Hugo L. Black:

But sure, but that’s the issue we have before, seven other circuits have decided the point here, have they not?

John W. Burke:

Oh yes.

Hugo L. Black:

And that’s one circuit?

John W. Burke:

Yes.

Hugo L. Black:

Now what I’m asking is where they got their power to force the federal government to go in and litigate its tax question which incidentally affects its tax in the state court.

John W. Burke:

I can give you no answer except what I — a tip that —

Hugo L. Black:

Well that’s what I wanted to find out.

(Inaudible)

Hugo L. Black:

If the Government — if the state court had ruled in this case that the power — that the release of the power of appointment was valid, we wouldn’t be here.

But it might not have gone in because it knew that the family had already arranged how to handle it.

John W. Burke:

That’s not our case, Your Honor

Well but that’s involved in the issue as shown by the petitioner’s point.

John W. Burke:

Well I’m — I cannot say the case just before me but I know that in this case, the question of property rights was submitted for the independent determination of the Supreme Court for the State of New York.

And if it had determined that question adversely to the — to the respondent here, we wouldn’t be here.

That would be the end of the case.

Byron R. White:

Mr. Burke, I suppose that the Congress could or the Commissioner could if such is permitted him to determine that state law has no relevant or whatsoever to tax decisions.

And that say even the state court decisions on the night of the attorney would not be (Voice Overlap) could not be final.

So what is the source of the rule in that these cases which say that to the will refer to the state law to determine property rights.

Is that —

John W. Burke:

Well, I hesitate to suggest that it’s a constitutional question that would involve the due process and the confiscation of property.

I haven’t brief it.

I just pondered it so I can’t give you a very good answer.

Byron R. White:

But it doesn’t say so that the statute said.

John W. Burke:

No sir.

Byron R. White:

So it is matter of — it really is the matter of court decision.

John W. Burke:

I think that is right.

Byron R. White:

So that — and the United States in this case and the one to the court concede that it’s state law that governs the issue.

John W. Burke:

Yes sir.

Byron R. White:

And really the question is when and under what circumstances will be held that the state law has been properly ascertained.

John W. Burke:

Yes sir.

William J. Brennan, Jr.:

Do you suppose Mr. Burke in your case — the Court of Appeals would have taken the view as it did if in fact there existed, if in fact there were a decision of the Court of Appeals of New York contrary to the conclusion reached by the judges of the Supreme Court?

John W. Burke:

I seriously doubt it.

William J. Brennan, Jr.:

Then we’re not to take —

John W. Burke:

But for mo —

William J. Brennan, Jr.:

— the — we’re not to take the language which in effect is that the federal courts help us to do anything about, that’s concluded by what the Supreme Court did in the proceeding involved in this very party.

John W. Burke:

I think that’s right, Your Honor.

I think since the law of the State of New York had been made in the construction of the statute, and there was no higher court decision, the inclination would be to follow the only state court decision.

But if they were Court of Appeals’ decision, I am quite sure that the — there’ll be an opposite —

William J. Brennan, Jr.:

Or I take it if there were absent appellate decision —

John W. Burke:

Yes.

William J. Brennan, Jr.:

— which was contrary —

John W. Burke:

Yes.

William J. Brennan, Jr.:

— to the result.

John W. Burke:

I agree.

Hugo L. Black:

Do you think it’s necessary the appellate in effect that the federal government law recognizes that state law governs with reference to the ownership of property that it necessarily follows that the state court can drag the Government in to try that issue?

John W. Burke:

I don’t think you can drag the federal government in against its will.

But I did pick up the suggestion but what —

Hugo L. Black:

But I’ve gathered from a question I asked you that have indicated that that’s enough to authorize the suit against the Government to the federal court to where that state law governs the ownership of property in connection with taxation.

John W. Burke:

Yes, I think that is the law.

Hugo L. Black:

Yes, so do I.

I agree with you

But does it follow from that, that that means that the federal government has consented to be sued in the state court either directly or incidentally?

John W. Burke:

Certainly not, Your Honor, directly.

Earl Warren:

Mr. Levin.

Jack S.Levin:

In the very brief time that I have remaining, I’d like to make just two of perhaps three very short points.

Jack S.Levin:

First is that the law of the 50 states is not at all clear but the United States has the right to intervene in every conceivable type of proceeding.

We haven’t had time to research the law of all the states but at least in Connecticut, it certainly not clear that the United States could have come in to this probate court, intervene, obtain the right to appeal about if the decisions were against it, etcetera.

This is something that’s rather tricky and rather difficult even if the United States wanted to go in even if Congress appropriated all the money so that we could go in and hire the requisite attorneys to be present in all these states to appear in these proceedings.

Second in this case, the Court of Appeals did not decide the question of New York law as I explained for the majority decline to decide it.

And what I take it respondent is saying is that even if there were a decision of the New York Court of Appeals directly contrary to its position which had not been cited by any party to the New York Supreme Court.

And the reason it had not been cited is because nobody was presenting that position but that that they had gone in there and wait —

William J. Brennan, Jr.:

I must say I didn’t get that impression from Mr. Burke’s answer to my question, Mr. Levin.

Jack S.Levin:

Well I —

William J. Brennan, Jr.:

I thought he says the matter how it got there, if in fact there were an appellate decision.

I’ve known the appellate decision or of the Court of Appeals which came to the attention of the federal court which in — which was contrary the result reached by the Supreme Court judge in this — in this case.

But he did not think that he should be or that the go — the federal court would have thought it was included by what happened when this case of the Supreme Court.

Jack S.Levin:

Well, that’s certainly not — not the decision stated by the parties, detectors, and either these cases in their briefs.

William J. Brennan, Jr.:

Well, perhaps I misunderstood that —

Jack S.Levin:

Their position —

William J. Brennan, Jr.:

— about that going, he answered my question.

Jack S.Levin:

Their position and the position of the Third Circuit and of the Second Circuit in this case is that a decision of the state lower court, the state probate or trial court is final and binding.

Not that there’s an exception if you can find a state decision of another court that goes the other way.

Final and binding, and that’s the end even if it’s adversary and even if it’s clearly wrong.

That’s their position as I understand it.

And a very —

Hugo L. Black:

If there’s wrong on that.

And this case is still open, that point is still open, the decision here now by in that all you want.

Jack S.Levin:

The decision as to —

Hugo L. Black:

If it be true that question is open for us to decide in this case.

Jack S.Levin:

Which question, Your Honor?

Hugo L. Black:

The question as it was raised about what the law of the State of New York.

Jack S.Levin:

Well we did not ask this Court to decide the law of the State of New York.

I didn’t think that was a relevant question to bring before this Court.

Especially because the New York legislature has now overruled the instant decision by a statute as we point out in our brief.

So that it’s a question of no continuing importance to the particular New York question.

Jack S.Levin:

But it’s the sort of thing that comes up all the time.

If this Court adopts our view, then it can remand the case to the federal Court of Appeals to pass for the first time on the question of New York law.

We believe that we’re clearly correct if it ever reaches the question of New York laws, Judge Friendly points out.

Hugo L. Black:

Well that’s — but if it be true, because what the purport of Brother Brennan’s question, but that question is open now, here, why should it be remanded for that purpose?

Jack S.Levin:

Well, I think that this Court may well decide that question.

I don’t whether it’s a — we should ask you with the Solicitor General’s option, ask you to decide it and spend your time on it.

Hugo L. Black:

I understand it.

I understand it but if you are conceding that, I’m not sure —

Jack S.Levin:

I think —

Hugo L. Black:

— that he did not.

Jack S.Levin:

Yes, I think your —

Hugo L. Black:

But if he’s conceding that, does not get precisely what you’re asking for except that it’s said to being remanded, the Court might pass on it.

Jack S.Levin:

Yes, that’s correct.

I think this Court can dispose the case ultimately and finally here.

Earl Warren:

Well, we’ll recess then.