Donald A. Peck Judith W. Peck v. Commissioner of Internal Revenue

Inс., 1331, Works, instrumentality 581 F.2d Cir. injury any par- has 1978)); Simpson also Timber see Co. v. ticular connection to maritime navigation Parks, (9th Cir.1966), 369 F.2d 324 commerce, vacated other concerns such as the remanded, 388 U.S. demands of federalism override.” Id. remand, 18 L.Ed.2d shown, As we have those concerns are no (9th Cir.) (implicit Supreme impediment jurisdiction in this case. approval admiralty’s acceрtance of land Martinez is entitled to seek succor from the law), products denied, liability cert. admiralty. law of 126, 21 REVERSED and REMANDED. (1968). Despite vigorous dissent, a the Su preme Court has made clear that there is a protecting federal interest mari

broad activity. Foremost Ins. Co. v. Rich 668, 675,

ardson, PECK; Donald A. Judith W. up, injured To sum Martinez was on navi- Peck, Petitioners, gable performing traditionally waters work performed by performed seamen. He had such for four in the course of work COMMISSIONER INTERNAL OF Navy, attachment to the United States us- REVENUE, Respondent. ing operations equipment with an manual No. 88-7484. designed Navy. for use His work Appeals, United States Court of directly bore on the function of a vessel Ninth Circuit. and had an intimate connection with mari- Admiralty jurisdiction time commerce. ex- Argued and Submitted Dec. 1989. ists. Decided June reaching agree this conclusion we with the Fifth Circuit in Martinez v. Dixie Inc.,

Carriers,

1976). That case involved the death of a

shore-based tank cleaner who was killed he was overcome noxious fumes cleaning barge by

while tanks aboard a

means of a shoreside vacuum truck. The plaintiff

Fifth Circuit held that the

case, although using a shoreside source

suction, engaged type in precisely “was cargo stripping tank that a seaman ordinarily perform.”

could Id. at 471. The analysis

Fifth Circuit’s of what constitutes

doing converges a seaman’s work with our

analysis powerful support. and lends

Moreover, injury once the is ‍‌‌​​​​​​​‌​​​​​​​​‌‌​‌​​​​‌​‌​‌​‌‌‌​​‌​​​‌​‌​​​‌‍shown to af is, person doing

fect a seaman’s work there

as Fifth said in Woessner Corp.,

Johns-Manville Sales (5th Cir.1985), strong suggestion wrong

“that the rela bears

tionship activity” to traditional maritime strongly in favor of

which will “counsel Still,

exercising admiralty jurisdiction.” analysis not end “where does there for defendant, injury, nor the

neither the Cal., Jose, peti- for

Harry Kaplan, J. San tioners. Acting Atty. Asst. Knapp, I.K.

James Allen, Gen., English Car- Gary R. David mack, Rosenberg, Tax Divi- Kenneth W. D.C., sion, Justice, Washington, Dept, of respondent. for LEAVY, HUG, WRIGHT, Before Judges. Circuit WRIGHT, Judge: A. EUGENE requires apply us to This case context. estoppel principles Peck, entered taxpayers, Donald and Judith property 30-year lease of into a real corporation. their controlled 1974 from the first change did not for The lease terms action, years. five un- rent the Pecks’ found that must der the for lease by the full amount be reduced taxes expenses and 26 U.S.C. decision, court affirmed 482.1 This dissenting part. Peck v. judge one Cir.1985) Commissioner, curiam) (Peck I). (per deficien- the IRS assessed In this and 1978 against the Pecks for 1977 cies in connec- their rental deductions Tax Court the same lease. The tion with estoppel, held applied collateral these terms lease because the for the same as those years were the two years, bound first were three I com- determination Peck the courts’ deductions. puting rent 90 T.C. Peck v. necessary prevent evasion of "in order to apportion in- IRS to 1. Section 482 allows income.” clearly reflect the[ir] taxes related between come and deductions gal which recur in the second ANALYSIS2 case. (empha- Id. 333 U.S. at 68 S.Ct. at 721 of collateral The doctrine added) (citations omitted). ‍‌‌​​​​​​​‌​​​​​​​​‌‌​‌​​​​‌​‌​‌​‌‌‌​​‌​​​‌​‌​​​‌‍sis The Court (issue intended to limit the preclusion) is concluded: of times a defendant number party Before a can invoke the collateral issue, litigate the same claim or forced to ..., estoppel legal matter efficiency judicial in the promote and to proceeding raised the second must in- putting litigation. end to system by an set volve the same of events or doc- Ben-Asher, 1407, 900 F.2d v. Gilbert legal umеnts and the same bundle of Cir.1990). (9th provides The doctrine 1409-10 principles that contributed to the render- litigated actually issue is that “once an ing judgment. of the first determined, that determination subsequent suits based is conclusive 601-02, (citing at 68 at 721 Id. S.Ct. Tait v. involving a cause of action but different Co., 620, Ry.Md. 289 U.S. 53 S.Ct. Western prior litigation.” party privy 706, (1933)). 77 L.Ed. 1405 Inc., 627 Rayonier, v. ITT United States The Court’s decision in Montana v. Unit (9th Cir.1980).3 996, F.2d 1000 States, 147, 970, ed 99 S.Ct. 59 appli- explained the Supreme Court separa calls Sunnen’s estoppel in the tax con- cation of collateral question. ble facts doctrine into v. Starker Sunnen, 333 U.S. text in v. Commissioner States, 1341, 602 United F.2d 1346 (1948). 715, Af- 591, 92 L.Ed. 898 68 S.Ct. Cir.1979). applica The Court limited the articulating re- special concerns with ter of tion Sunnen cases where there has application in tax spect to the doctrine’s “ ‘change legal been a in the 720, 598-99, actions, 68 S.Ct. at id. at ” Montana, 161, climate.’ 440 U.S. at 99 come to be known adopted what has (quoting S.Ct. at 977 333 U.S. at “separable facts” doctrine: as the 606, 723); Starker, 68 602 F.2d at course, fact question where a of Of 1347. Two circuits have concluded that actually liti- judgment essential to the separable facts doctrine is not Sunnen in the first tax gated and determined good law after Montana. American by that proceeding, parties are bound Int'l, Health, Secretary Medical Inc. v. of subsequent proceed- determination in a 118, Welfare, 677 F.2d 120 Education and though the cause of action is ing even Quak (D.C.Cir.1981) curiam); (per Hicks v. very if same different.... And Co., 1158, er Cir. Oats in the no others are involved facts and 1981). case, relating to a different second a case conflicting authority in this cir- There is con- year, prior judgment will be tax separable cuit as to whether Sunnen’s legal as to the same issues clusive Supreme doctrine is still alive.4 facts intervening doctri- appear, assuming no doc- rejected separable facts Court has change. the relevant nal But facts if terms, implied that general trine in but has separable, even the two cases are continuing validity in the tax identical, might col- they be similar or though Chemi- the le- context. United States estoppel govern does not Stauffer Starker, longer that "we no follow underlying out in 4.In we stated facts of this case are set 2. The similarity F.2d at 470-71. of facts.” detail in Peck I. 752 on the of ] [Sunnen However, we have also 602 F.2d at 1347 n. 4. hand, judg- judicata, "a res on the other 3. Under especially principles the Sunnen “are stated that prior suit bars a second ment on the merits in agency relitigation important in the context of privies involving the same or their suit public policy substantial of action.” Parklane based on the same cause implications.” Unit Western Oil & Gas Assoc. v. 5, Shore, Co., Hosiery U.S. 326 n. Inc. v. Agency, F.2d ed States Envtl. Protection 649 n. (9th Cir.1980). applies dif- Pecks' suit to tax Because the presents a different Peck this case ferent from judicata apply. does not and res cause period. See South over relevant n. Co., cal Riddell, Exploration Co. west (“What- (1984) ‍‌‌​​​​​​​‌​​​​​​​​‌‌​‌​​​​‌​‌​‌​‌‌‌​​‌​​​‌​‌​​​‌‍78 L.Ed.2d n. (9th Cir.1966) (applying collateral 833, 837 separable Sunnen applicability ever [the depletion computation in the context, may have tax facts doctrine] relationship be applicability out- general reject its ... changed from parties had not tween the see also context.”); 18 C. side of subject period which the time Cooper, Federal & E. Wright, A. Miller States, v. United action); Jones 4425, at 255-57 Procedure Practice (10th Cir.1972) (apply 135-36 litigation may (stating that (1981) determining thе ing collateral for continued strongest “the case” present payments received under character separable Sunnen adherence which did terms contract which contained rule). period), change over the relevant separa- the whether need not decide We denied, cert. Assum- good is still law. ble facts (1973); Sydnes v. Commis the restric- deciding, that mоre ing, without Cir.1981) (8th sioner, F.2d that the applies, we hold test tive Sunnen determining estoppel in collateral (applying es- used the collateral properly Tax Court the same of under the character in this case. toppel doctrine action). in a mortgage considered relationship II in this case is The determining whether test for a lease. The in and decided litigated issue is “whether payments are reasonable rent of rent amount I was proper the Peck the in of what lessee paid is excess the sum 1974 lease Pecks’ under the pay he required to had have been would Applying corporation. controlled with its stranger.” length arm’s dealt at with standard, upheld we clearly erroneous the Tours, Carriage Inc. Mackinаc Island it (1) determination Tax Court’s the “ Commissioner, unrelated lessee unlikely an ‘highly was al 1972) (applying 26 U.S.C. which § paid have position would petitioners’ in gross income or for lows deductions the land the use $24,870 year of per expenses).5 dinary necessary and business taxes, responsibility for carrying while also ex gardening lease, and mortgage payments, long-term context of a In the ” finding (2) Tax Court’s penses,’ the is a reasonable of the determination what rent deductible appropriate inception. its the as of the of term is made date issue was years at Printing for the three Brown Co. the See lease Cir.1958) lease reduced (applying in the the stated 162); the Wil of to 26 U.S.C. predecessor the the § Sons, Inc. v. Commis payments. E. & liam Davis property taxes and (1981) (in sioner, (CCH) I, 472-73. 41 T.C.M. Peck at a lease determining terms of whether the collateral deciding whether In reasonable, pro examines its the court are determine we must applies under light the and circum of visions “the same involves proceeding this whether exec existing the time it was at stances the same set of events documents uted).6 legal principles that contributed of bundle this difference action between judgment.” the first rendering of Peck Peck I years the tax involved. We focus at 721. at three lease. I involved years the first relationship changed on whether support argue cited in that the cases 6. The Pecks adopted the context Although this test was equal applies proposition force place that the of the reasonableness U.S.C. § of 26 inception is to purpose 26 U.S.C. § 482 determined at the here. The rent term is position as same in the controlled rent all situations lease involved computing taxable in taxpayers in inception. uncontrolled at was reasonable term found Thus, deter goal in Peck was our come. They argue is determined that when lease wоuld rent the Pecks mine the amount of inception, collateral at be unreasonable length with a arm’s paid had if dealt argument. In a reject apply. We cannot this F.2d at 472. stranger. Peck the next two separa This case involves This fact is neither new nor lease, the terms of which did not the same inception ble. It existed at the of the lease five-year period. the entire change over Moreover, in 1974. dissenting opinion this court affirmed the Tax Court’s When itself indicates that this issue was before length of the arm’s rent determination panel in Peck I. The majority appar inception in amount at the lease’s ently rejected essence, it. what effectively proper determined the rent de- arguing Pecks are is that majоrity’s duction for the first five wrong. decision agreed Even if we noted, As the Tax Court lease.7 “[h]ad that Peck I was decided incorrectly, this is present case been consolidated for trial an insufficient applica basis to defeat the ease, one with the first uniform result tion of estoppel. Sydnes, See Peck, would have obtained.” (holding 647 F.2d at 815 that a seeking suit reject 90 T.C. at 168. We therefore a redetermination of the identical argument changes in Pecks’ that annual of a tax application statute’s in applying fair market rent are relevant opinion assertion that the court’s 482 to this lease.8 This case does not prior suit contains “untrue statements” is separable facts.9 involve barred). complaint The Pecks that their correctly The Tax Court determinеd that this action raises a factual issue different the controlling facts in this action are the Specifically, in from those raised Peck I. same as those in Peck I. alleged they that not they here did transfer corporation any in to their controlled 1974 on real subject liabilities Ill They

the lease. added this fact to their Finding that the separable facts are not complaint dissenting opinion based on does not I, inquiry. end our We next deter- in Peck which stated that the Tax Court ‍‌‌​​​​​​​‌​​​​​​​​‌‌​‌​​​​‌​‌​‌​‌‌‌​​‌​​​‌​‌​​​‌‍legal mine whether reducing principles in erred rent amount changed significantly mortgage payments of the the cor- since the first action. because 720; poration pay any portion did not assume or 333 U.S. at 68 S.Ct. at (Beezer, Montana, mortgage. of the 752 F.2d at 473 440 U.S. at 99 S.Ct. J., so, dissenting). If apply. does not lease, length paymеnt fixed rate the arm’s rental rabie from Peck I. Two of these cases are inception. Consequently, is determined at col- clearly distinguishable because do not in estoppel applies equal force in the legal relationship volve the same document or situation where the court in the first case finds period. over the relevant time Consolidаted Ed that the lease rent term is unreasonable. States, (2d ison Co. v. United 154 1960) (holding proper that under New York 7. The Pecks that because the court in Peck law, ty tax the assessed valuation and tax im lease, ignored the terms of the it makes no posed given parcel separable of land is rely sense to on that lease to determine the imposed from the valuаtion and tax on that years. reasonableness of rent terms in future parcel any year), aff’d, other U.S. ignore premise Their is incorrect. We did not rather, (1961); I; Glenshaw the terms of the lease in Peck Co., found that the rent term under that lease was Glass (1949) Inc. v. 13 T.C. approved unreasonable. We then the Tax (holding payments made for succes proper Court’s determination of the rent deduc- years employee plan sive an bonus are tion. The lease remained a valid doc- separate required separable because action is purposes. ument for all other year by each the board of directors and the year reasonableness of salaries for each is "nec supported by opinion 8. This our conclusion factors”). essarily upon different A third Having payment Peck I. found that the rent because, distinguishable although case is it in unreasonable, applied its lease, long-term volved the same it dealt with revised rent formula for all three at issue pur the tax characterization of different asset in that case. We affirmed that decision. Nei- chases in different fоr different amounts. attempted ther we nor the Tax Court to evaluate Publishing Journal-Tribune Co. v. Commission economic for each of the three circumstances er, (8th Cir.1965) (en 270-71 years. hand, banc). This on the other involves rely support on cases to 9. The Pecks several the same rent term in the same lease. argument presents sepa- their that this case The get opportunity. not They will Circuit rely on the Seventh Pecks here were de- presented v. Commission Lilly in Eli & Co. opinion change no in Peck I. There has been cided Cir.1988), for the er, principles. controlling facts or change there has been proposition that estoppel applies. Collateral area of 26 U.S.C. the law in the Assuming, determinations. reallocation AFFIRMED. is relevant deciding, Lilly that Eli without here, LEAVY, Judge, dissenting: it does presented the issues change in this court’s law. constitute Cf. tax court held that In Peck Johnson, Montana v. legitimate pur- served a business transfer Cir.1984)(indicating only en banc that the Commission- pose, and concluded decisions, decisions or Con Supreme Court the deduction be- could not “disallow” er circuit legislation overrule gressional him section 482 authorized cause that there has been We hold precedent). “distribute, certain apportion, or allocate” our change in the law since no Commissioner, 43 T.C.M. items. Peck v. in Peck I. decision (CCH) 291, 295 court went on to hold favor IV the contention that Commissioner argue that the Tax Finally, Pecks by the should be reduced rent deduction McDonough v. Commis- oрinion Court’s payments for of those additional (CCH) con- sioner, 43 T.C.M. directly to the land attributable case. The Tax of this trols the outcome (as corporation distin- to the transferred case that because held in that guished attributable proof, it turned on a failure of first action taxpayers). improvements retained subsequent case on not decide the could I holding in footnote 8 of Peck is Id. The at 1282. estoppel. Id. of collateral basis as follows: language in Peck I rely on the The Pecks payment property taxes Petitioners’ they to that had failed indicated payments to mortgage related both and persuasion in the Tax their burden meet improvements the real es- land and Court, and payments Only tate. those attributаble appli- operates prevent to the McDonough land and allocable to the lease to the estoppel. of collateral cation rent. The period constitute “excessive” purposes and the The decision Sunnen proper subject are a exact amounts estoppel do not of the collateral 155, Tax Court parties under Rule McDonough, and support the rule stated Re- Practice and Procedure. Rules of Tenth Circuit has reject it. As the assessor’s ra- spondent suggests noted: allocating value between land tio for adopted should to allo- improvements be effectively taxpayers’ case was not If the mortgage portion cate the taxes their the first trial it was presented at to the land. Peti- payments attributable fault; opportu- affording them a second method of did not offer another tioners matter, with litigate to nity in which object respon- and did not to allocation hindsight, would contra- the benefit pur- suggestion. Accordingly, for dent’s very principles upon which col- vene computing portion of taxes poses of is and should based attributable be allowed. land, are directed to use Jones, at 136. allocating 25 assessor’s ratio of the tax of the total market val- percent CONCLUSION course, all ue to the land. Of argument is that the Pecks’ gist the land. are attributable to wrong in this court were Id. at action, they would like to In this Peck I. holding that majority the dis- I dissent from to show introduce evidence taxрay- in footnote 8 binds the the formula senting judge correct. agree and 1978. I ers for holding taxpay- majority’s that the by collateral

ers are barred that the lease as written is

the contention However, decided, once that is

reasonable. required

the Commissioner exercise

his discretion under section 482. The tax-

payers should allowed to contest the be of that discretion rather than

exercise be by

bound a formula announced Peck I being applied prospectively.

which is now adjustment for an

The lease calls upon

rent after five the Con- is,

sumer Price Index. The lease as written know,

as far as we enforceable under local If

law. are bound for the by

years 1977 and 1978 a formula alloca-

tion, then fear will be bound remaining

same formula for the entire life By applying estop-

of the lease.

pel of the Commis- narrow power

sioner’s under section the ma-

jority may have rewritten the terms of ‍‌‌​​​​​​​‌​​​​​​​​‌‌​‌​​​​‌​‌​‌​‌‌‌​​‌​​​‌​‌​​​‌‍the If the deduction claimed the tax-

lease.

payers needs to reallocated to avoid the be designed pre-

ills that section 482 was

vent, year by it should done

year basis. RODRIGUEZ, al., et Plaintiffs,

Claude Gibbs,

Leroy Plaintiff-Appellant, E. CORPORATION;

GENERAL MOTORS Harriet; Committee; David

H.R.M. Hess; Bridges; Kenneth

Marlin K.C. Heinemann;

Beck; Richard Dennis

Conrad; al., Weatherly, et De- Robert

fendants-Appellees.

No. 88-6150. Appeals, States Court of

United

Ninth Circuit.

Argued April Submitted 6, 1990.

Decided June

Case Details

Case Name: Donald A. Peck Judith W. Peck v. Commissioner of Internal Revenue

Court Name: Court of Appeals for the Ninth Circuit

Date Published: Jun 5, 1990

Citation: 904 F.2d 525

Docket Number: 88-7484

Court Abbreviation: 9th Cir.