Annotations- Embezzled Funds

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6332 Annotations: Embezzled Funds- Levy

 

Penalty for Failure to Surrender Property: Embezzled Funds

 

[40-1 USTC ¶9283]Hazel V. Kirkendall v. The United States

Court of Claims of the United States, No. 43504, 31 FSupp 766, 90 CtCls 606, Decided March 4, 1940

Recovery of seized property.--Funds in the safe deposit box of plaintiff's husband were the property of plaintiff and her husband, and were wrongfully seized in 1935 and applied toward the payment of income taxes owed by the husband's employer. The court allows recovery by plaintiff for herself and as administratrix of her deceased husband's estate.

Mr. Thomas V. Sullivan for the plaintiff. Mr. Frank E. McAllister was on the brief.

Mr. J. H. Sheppard, with whom was Mr. Assistant Attorney General Samuel O. Clark, Jr., for the defendant. Messrs. Robert N. Anderson and Fred K. Dyar were on the brief.

Opinion

WHALEY, Chief Justice, delivered the opinion of the court:

The plaintiff brings this action individually and as administratrix of the estate of James F. Kirkendall. The action is based on an implied contract for the recovery of money appropriated by the defendant under legal forms and applied to the unpaid taxes of another person.

[The Facts]

For many years there was solicited through the mails, and otherwise, subscriptions for the prosecution of a claim to collect a large estate supposed to be in England and known as the "Sir Francis Drake Estate." Promise was held out to those who contributed to receive a return in a thousand fold for each dollar subscribed. The prime mover in this venture was one Oscar M. Hartzell. Thousands of credulous people, believing in the existence of this estate and desirous of acquiring wealth in this manner, sent contributions in money, checks, and post-office orders to Oscar M. Hartzell at the Croydon Hotel in Chicago , Illinois .

Plaintiff and her husband honestly believed in the existence of this estate and contributed between sixteen and seventeen hundred dollars between them some ten years before his demise.

Plaintiff's husband, James F. Kirkendall, had been a travelling clothing salesman for many years. For two years before his death he had not been employed as a travelling salesman but had been engaged by Hartzell at a weekly stipend of between thirty and forty dollars for handling the funds which came to Hartzell. The checks and money orders were turned over to Kirkendall and he deposited them in his checking account in the bank. When they were collected he would draw the amount out of his checking account and place the money in an envelope in his safe deposit box at the bank. When these collections amounted to a substantial sum he would remit the amount to London or New York . The money received by Kirkendall for this fund was never commingled with his own funds in the safe deposit box.

On April 8, 1935, police officers of the City of Chicago raided the Croydon Hotel and arrested James F. Kirkendall and others in connection with this venture. Prior to Kirkendall's arrest, Oscar M. Hartzell had been arrested, tried, and convicted for the fraudulent use of the mail in connection with the Drake Estate and was serving a sentence in the penitentiary.

On the morning of his arrest, Kirkendall had remitted to New York , $4,000, being all the collections of the Drake Estate in his safe deposit box.

After Kirkendall's arrest by the police officers he informed them of his safe deposit box and was taken by the officers to the bank where the contents of the box, consisting of $13,800 in currency and 3241/2 English pounds, were confiscated and taken to the Dectective Bureau. Following the appropriation of his money by the police, Kirkendall was subjected to an exhausting and almost inhuman examination by the police authorities. This continued from about five o'clock in the afternoon until the Assistant State 's Attorney and the Postal Inspector were brought in and Kirkendall's statement was taken down at 1:57 the next morning.

At the time of his arrest Kirkendall was sixty-six years of age and in very frail physical condition. He was suffering from diabetes, chronic myocarditis, uraemia and prostate condition. He was transferred by the police to the jail hospital after nine hours of gruelling questioning. Kirkendall was in the jail hospital until five o'clock in the afternoon of April 19, 1935, at which time he was released on bond.

Later the money obtained from Kirkendall by the police was turned over to the Postal Inspector under a subpoena to be used as evidence in the trial of the promoters of the Drake Estate. Following the acquisition of this money by the postal inspector, the collector of Internal Revenue prepared and filed a return for taxes for Oscar M. Hartzell for the year 1934, which return disclosed a large tax due the Government. The collector then levied the tax and under a warrant of distraint on the post-office inspector obtained from him $13,800 and 3241/2 English pounds, which had been taken by the police suthorities from the safe deposit box of Kirkendall, and applied this amount as a credit to the outstanding assessment against Hartzell for the year 1934.

A mere recital of the facts shows that the money taken from the Postal Inspector and applied to the taxes of Hartzell was not the taxpayer's personal property. The defendant knew at the time, or had reason to know, that Hartzell was serving a sentence for the fraudulent use of the mail in the collection of money for the Drake Estate. This fund either belonged to Kirkendall or to those from whom it had been collected. The action of the Government, in the conviction of Hartzell and the arresting of these other parties on a charge of conspiracy for the fraudulent use of the mail, stamps the fund as not belonging to Hartzell and it could not under any conceivable means be applied to the taxes due by him.

Plaintiff brings this action alleging that the money so taken belonged to her husband and herself and was wrongfully confiscated and applied to taxes due by another.

The only direct evidence in the case as to the ownership of this money is the testimony of the plaintiff. She testified that part of it was derived by her from her mother's estate and the balance was obtained by her husband through loans on life insurance policies and cash-surrender values of life-insurance policies. Plaintiff's statement is corroborated by the evidence obtained from the life-insurance companies which shows that over a number of years plaintiff's husband took out policies and subsequently borrowed on them, and, in other instances, after carrying policies for years, obtained their surrender values.

The only evidence contradictory to plaintiff's testimony is the so-called admission made by Kirkendall after his arrest and after he had been subjected for hours to the reprehensible methods and tactics of the police officers after turning over the contents of his safe deposit box.

Subjecting this sick, old man to hours of police questioning and wringing from him an admission stamps the so-called admission with every earmark which a court of law will not accept as the truth. After hours of questioning Kirkendall was placed in the jail hospital and remained in the hospital until he was released under bond on the afternoon of April 19, 1935. The evidence shows that he died three and one-half hours after his release. See Brown et al. v. Mississippi, 297 U. S. 278, and Chambers, et al. v. Florida , decided by the Supreme Court February 12, 1940.

The defendant has in its possession money to which it is not entitled and which has been wrongfully obtained from the plaintiff and her husband.

The defendant contends that this money, having been applied to taxes due by Hartzell under the Revenue Law and no timely refund claim having been made by the plaintiff, or her husband, cannot now be recovered. It is only necessary to say that a refund claim is an appropriate action under the revenue statutes to recover money paid as taxes when made by the party who paid the tax. There is no claim that either Kirkendall or the plaintiff paid, or had assessed against them, any taxes, and certainly a refund claim would not have been an appropriate action for them to take.

When the Government has illegally received money which is the property of an innocent citizen and when this money has gone into the Treasury of the United States , there arises an implied contract on the part of the Government to make restitution to the rightful owner under the Tucker Act and this court has jurisdiction to entertain the suit.

As was said by the Supreme Court in the case of United States v. State Bank, 96 U. S. 30, 35, 36:

* * * An action will lie whenever the defendant has received money which is the property of the plaintiff, and which the defendant is obliged by natural justice and equity to refund. The form of the indebtedness or the mode in which it was incurred is immaterial. * * *

* * *

But surely it ought to require neither argument nor authority to support the proposition, that, where the money or property of an innocent person has gone into the coffers of the nation by means of a fraud to which its agent was a party, such money or property cannot be held by the United States against the claim of the wronged and injured party.

See also Dooley v. United States, 182 U. S. 222; Basso v. United States, 239 U. S. 602; and Bull v. United States, 295 U. S. 247 [35-1 USTC ¶9346].

The Government has taken the money of the plaintiff and her husband and it is only common honesty that it should be returned. The United States is required to be honest with its citizens just as much as its citizens are required to exercise common honesty with their Government.

Plaintiff is entitled to recover $13,800, as administratrix, and 3241/2 English pounds, individually. The English pounds were converted into American currency by the Internal Revenue Bureau at the rate of exchange at that time, in the amount of $1,590.05.

Judgment will be entered in favor of the plaintiff individually in the amount of $1,590.05, and as administratrix of the Estate of James F. Kirkendall in the sum of $13,800.

It is so ordered.

WHITAKER, Judge; WILLIAMS, Judge; LITTLETON , Judge; and GREEN, Judge, concur.

 

[71-2 USTC ¶9618]Lelia Groseclose, et al. v. United States of America , et al.

U. S. District Court, No. Dist. Tex., Abilene Div., CA 1-468, 6/29/71

[Code Sec. 6332--Result unchanged by '69 Tax Reform Act]

Collection: Levy and distraint: Property exempt from levy: Money obtained under false pretext.--Funds obtained by two individuals from two women, under false pretexts, could not be seized by the government to satisfy income taxes owed by these individuals. Since the money was obtained under false pretexts, title to the funds did not pass to these two individuals under Texas law, but remained in the two women. Accordingly, these ladies were entitled to recover the funds seized by the government.

John T. Ferguson, Weaver & Ferguson, P. O. Box 1750 , Big Springs , Tex. , for plaintiffs. Wayne Basden, P. O. Box 1947 , Big Springs , Tex. , for defendants Smith and Taylor. Kenneth J. Mighell, Assistant United States Attorney, for U. S.

Amended Findings of Fact and Conclusions of Law

BREWSTER, District Judge:

In the findings of fact and conclusions of law filed herein the Court made a mistake as to the total amount found by the jury. It should have been $15,125.43. In addition, the Court intended to render judgment on the verdict of the jury. The last sentence of the conclusions of law reads, "The plaintiffs are entitled to recover the sum of $15,725.43, plus interest, from the United States of America ." The words, "if judgment should be rendered on the Court's findings of fact and conclusions of law rather than on the verdict of the jury" were omitted. For the purpose of correcting those mistakes, it is ordered that the findings of fact and conclusions of law heretofore filed by the Court be amended so as to read as follows:

General Statement

Richard Monroe Smith, Allen Quincy Taylor and wife, Virginia Higgins Taylor were arrested in Texas near the Mexican border on June 16, 1970, with a total of $15,725.43 on their persons. On the following day, the Internal Revenue Service levied income tax assessments on them for $15,725.43. Upon receiving service of such levies, the officers holding said money delivered it to the Internal Revenue Service which applied it on the foregoing tax indebtedness.

Smith and Taylor were professional con men. The plaintiffs, Mrs. Lelia Groseclose and Mrs. Louise E. Johnson, were elderly widows who fell victims to the pigeondropping game of Smith and Taylor. As always happens in the usual course of that kind of scheme, the time came when the women thought they had won large sums of money on bets with bookmakers on horse races. Neither woman ever saw a bookmaker. The con men were reporting to them on wagering transactions they were supposed to be having with their bookies. The transactions were, of course, fictitious. The con men were claiming that they were placing the bets on credit; but when the big bets were alleged to have been made, they informed each widow that the bookie had questioned the ability of the bettors to pay if they had lost. They demanded that money in the amount of the bets be shown them before they handed over the amounts the widows were supposed to have won. Each widow raised the necessary amount of money and turned it over to the con men for the purpose of their exhibiting it to the bookmaker, with the understanding that the money was to be returned when it was so used. That was the last time they saw the con men.

Mrs. Johnson delivered $8,000.00 to Smith and Taylor in Big Spring , Texas , in January, 1970. She had to borrow some of it. Mrs. Groseclose delivered $17,000.00 to them in the same city in February, 1970. Each delivery was for the purpose above stated, and accordingly amounted to theft by false pretext. Title to the money did not pass. The transactions with the two women were separate, and neither woman knew anything about the dealings of the con men with the other one. In each instance, the con men got almost every dime the widows could scrape up.

It was within a few months after running off with the $25,000.00 received from these two women that Smith and Taylor, along with Taylor 's wife, were arrested together near the border. They had not worked and had had no source of income since they had pulled the hoaxes on Mrs. Johnson and Mrs. Groseclose. For obvious reasons, they could not afford to deposit the wrongfully acquired money in a bank; so they carried it on their persons. They still had about 60% of it when they were arrested.

In their answer filed in this case, the defendants, Richard Monroe Smith, Allen Quincy Taylor and Virginia Higgins Taylor, admit that the money taken from them and levied upon by the Internal Revenue Service was money which they had received from Mrs. Johnson and Mrs. Groseclose on the two occasions above mentioned. The depositions of the two men substantiate that pleading. Mrs. Taylor's deposition was not taken.

The Court's own independent findings would be the same as those of the jury, except for the one fact that the Court believes that the entire amount of $15,725.43 seized by the Internal Revenue Service was the same money as that which was received by Smith and Taylor from Mrs. Johnson and Mrs. Groseclose on the occasions in question. The jury found that amount to be $15,125.43, obviously giving credit for $600.00 which Smith had on his person during his dealings with Mrs. Johnson in January, 1970.

Mrs. Johnson and Mrs. Groseclose brought this suit seeking judgment for the respective amounts of their losses, $8,000.00 and $17,000.00. They recognize that the amounts of their recoveries are limited by the total amount seized. They have stipulated that in the event each one of them is granted judgment, the amount in favor of each shall be determined by the proportion her loss bears to the total amount, whether that is $15,125.43, or $15,725.43.

These findings and conclusions are being prepared at the request of the government because of its contention that the jury verdict in this case is advisory only. The findings and conclusions represent the Court's own independent decisions; but the filing of them does not mean that the Court agrees with the government's position. Judgment will be rendered for the plaintiffs on the verdict of the jury for the total amount of $15,125.43, plus interest as provided by law. Should it be determined that the jury verdict is advisory only, the total amount of the judgment should be $15,725.43.

The findings and conclusions in this general summary and the more specific findings and conclusions that follow should be considered together as a composite whole. They are intended to supplement each other.

Supplementary Findings of Fact

I. On or about January 9, 1970, Mrs. Louise E. Johnson delivered $8,000.00 cash to Richard Monroe Smith and Allen Quincy Taylor in reliance upon their representation that it was to be used for the purpose of establishing their credit with their bookmaker in order to collect a bet which they had already won.

II. On or about February 10, 1970, Mrs. Lelia Groseclose delivered $17,000.00 cash to Richard Monore Smith and Allen Quincy Taylor in reliance upon their representation that it was to be used for the purpose of establishing their credit with their bookmaker in order to collect a bet which they had already won.

III. On June 16, 1970, Richard Monroe Smith, Allen Quincy Taylor and Virginia Higgins Taylor were arrested in Del Rio , Texas , and the total sum of $15,725.43 was taken from them.

IV. On June 17, 1970, tax assessments were made against Richard Monroe Smith, Allen Quincy Taylor and Virginia Higgins Taylor in the total amount of $15,725.43 and notices of levy were served upon the officers holding this fund and said amount of money was delivered to the representative of the Internal Revenue Service who applied it on the foregoing tax indebtedness, thereby paying it in full.

V. The funds in the possession of Richard Monroe Smith and Allen Quincy Taylor on June 16, 1970, in the total amount of $15,725.43 consisted entirely of money belonging to the plaintiffs and taken from them on the occasions above described.

Supplementary Conclusions of Law

The total amount of $25,000.00 which was delivered by the two plaintiffs in this cause to Richard Monroe Smith and Allen Quincy Taylor was taken from them under such conditions as to constitute theft by false pretext under the laws of the State of Texas and therefore title to this money did not pass from the plaintiffs to Richard Monroe Smith and Allen Quincy Taylor.

The plaintiffs would be entitled to recover the sum of $15,725.43, plus interest, from the United States of America , if judgment should be rendered on the Court's findings of fact and conclusions of law rather than on the verdict of the jury.

Verdict of the Jury

We, the Jury, return our answers to the following questions as our verdict in the case.

Question No. 1

Do your find from a preponderance of the evidence that Mrs. Louise E. Johnson delivered her $8,000.00 cash to Smith and Taylor on the occasion in question in January, 1970, in reliance upon their representation that it was to be used for the purpose of establishing their credit with their bookmaker in order to collect a bet which they had already won?

ANSWER:

-- She did deliver her money in reliance upon such representation.

¨ She did not deliver her money in reliance upon such representation.

Question No. 2

Do your find from a preponderance of the evidence that Mrs. Lelia Groseclose delivered her $17,000.00 cash to Smith and Taylor on the occasion in question in February, 1970, in reliance upon their representation that it was to be used for the purpose of establishing their credit with their bookmaker in order to collect a bet which they had already won?

ANSWER:

-- She did deliver her money in reliance upon such representation.

¨ She did not deliver her money in reliance upon such representation.

Question No. 3

How much, if any, of the money seized by Internal Revenue Service from Smith, Taylor and Mrs. Taylor on June 17, 1970, was the same money that was received by Smith and Taylor from Mrs. Johnson and Mrs. Groseclose on the occasions in question in January and February, 1970?

The form of your answer will be "None" or in dollars and cents.

ANSWER:

¨ None.

$15,125.43.

 

[62-2 USTC ¶9668]United States of America, Plaintiff v. Seaside Properties, Inc., a corporation, Defendant United States of America, Plaintiff v. William F. Nielsen and Seaside Properties, Inc., Defendants

U. S. District Court, So. Dist. Fla., Miami Div., No. 11,112, 11,113-M-Civil EC, 7/10/62

Levy and distraint: Surrender of property subject to levy: Debt owed to shareholder: Capital contribution v. loan.--Money due and owing to a shareholder, as reflected in the balance sheets of the corporation, was in fact a capital contribution made by the shareholder, and not a loan to the corporation. The corporation, therefore, could not be required to pay the money to the United States in satisfaction of taxes owed by the shareholder.

R. L. McGuire, Tax Division, Dept. of Justice , Washington 25, D. C., for plaintiff. G. T. DeLoach, 311 SW 27th Ave., J. E. Abras, Industrial National Bank Bldg., Miami, Fla., for defendants.

Findings of Fact and Conclusions of Law

Final Judgment

CHOATE, District Judge:

This cause came on to be heard, pursuant to written stipulation between counsel for the plaintiff, United States of America, and counsel for the defendant, Seaside Properties, Inc., that said matter would be considered upon pleadings, depositions, exhibits, written briefs and authorities of law, and the Court having fully considered the foregoing and being otherwise advised in the facts and the premises, the Court finds as follows, that the parties have stipulated substantially to the facts of this case;

1. That this was an action by the United States of America against the defendant, Seaside Properties, Inc., to recover a penalty, pursuant to Section 6332(b) of the Internal Revenue Code of 1954, based upon the plaintiff's contention that the defendant failed to surrender property or rights to property, which were subject to levy, after a demand by a delegate of the Secretary of the Treasury.

2. That the defendant, Seaside Properties, Inc., contended that the monies due and owing, as reflected by the balance sheets of the defendant corporation, were not an outstanding indebtedness but represented monies advanced to the corporation as contributions to capital, and that the co-defendant, William F. Nielsen, did not have any right to withdraw these sums at will, either as a repayment of a debt or as a withdrawal of capital.

3. That the plaintiff, United States of America, contended that it succeeded to the rights of William Nielsen and had a right to demand a withdrawal of this sum in payment of the obligation owed by the defendant, William F. Nielsen, to the United States Government for past-due income taxes for the years 1951, 1952 and 1953, totalling approximately $7,864.77, together with interest.

Conclusions of Law

4. That after careful review of the foregoing facts, pleadings and authorities of law, the court finds as conclusions of law as follows:

a. That this Court has jurisdiction of the subject matter and of the parties.

b. That the financial transactions between the defendant, Seaside Properties, Inc., and the co-defendant, William F. Nielsen, as reflected under the section of the balance sheet as "loans and advances" from officers, directors and stockholders, was in fact, contributions to capital made by the defendant, William F. Nielsen, over a period of years.

c. That it was the intention of the defendant, Seaside Properties, Inc., and William F. Nielsen, to treat all monies advanced to the defendant corporation by the said defendant Nielsen as capital advances, and not as any indebtedness.

d. That the nature of these capital contributions did not contain any proviso for withdrawal upon demand by the defendant, William F. Nielsen, and therefore, he could not demand it at his pleasure or at anytime.

5. It is therefore clear that the defendant, Seaside Properties, Inc., did not have in its possession any property or rights to property belonging to the defendant, William F. Nielsen at the time that the plaintiff, United States of America, made a demand upon the defendant, Seaside Properties, Inc., under the provisions of Section 6332(b) of the Internal Revenue Code of 1954. It is therefore

Final Decree

ORDERED and ADJUDGED that the defendant, Seaside Properties, Inc., is not guilty of failing to surrender property or rights to property belonging to William F. Nielsen, and therefore, this Court enters final judgment in favor of the defendant, Seaside Properties, Inc., against the plaintiff, United States of America, on its claims and contentions against the defendant, Seaside Properties, Inc., and said plaintiff go hence without day, and it is further

ORDERED and ADJUDGED that said plaintiff pay all costs in and about this action.