*109 Decision will be entered for the respondent in part and the petitioners in part.
P and his former employer H were parties to a proceeding for an accounting in the Federal District Court for the District of Utah. H was successful in seeking an accounting from P, and the District Court found that P had "secretly [diverted] funds * * * for his own use and benefit." R, who was not a party to the accounting proceeding, seeks to offensively utilize collateral estoppel to preclude P from denying his diversion of the funds in connection with P's failure to report such amounts as income on his Federal income tax returns.
The use, in a current proceeding, of collateral estoppel as to factual matters was traditionally limited to use as an "ultimate" fact.
*274 Respondent, in a statutory notice dated May 24, 1977, determined deficiencies and additions to petitioners' income tax as follows:
| Year | Deficiency | 1 Sec. 6653(b) addition |
| 1968 | $ 26,141.28 | $ 13,070.64 |
| 1969 | 1,504,622.39 | 752,311.20 |
| 1970 |
The issues for our consideration*111 are: (1) Whether petitioners are collaterally estopped from relitigating certain facts found by the Federal District Court in an action for an accounting brought by Hughes Tool Co. against petitioner John Meier, 2 (2) whether petitioners failed to report income from the sale of mining claims to Hughes Tool Co. during taxable years 1969 and 1970; (3) whether deposits to bank accounts and cash investments made by petitioners during 1968 and 1969 constituted taxable income in those years; (4) whether any part of any underpayment of tax for the years 1968, 1969, and 1970 is due to fraud; and (5) whether the statute of limitations bars the assessment and collection of the deficiencies and additions to tax for the years 1968, 1969, and 1970.
*112 *275 FINDINGS OF FACT
At the time of filing their petition in this case, petitioners resided in British Columbia, Canada.
The factual predicate for this case, at least as to the mining claim transactions, is relatively simple. However, for a number of reasons, drawing the facts from the record has been an unnecessarily complicated and arduous task. 3 For purposes of clarity, a simplified macroscopic factual picture is presented prior to our detailed findings.
Factual SummaryPetitioner John Meier (Meier) was employed by Hughes Tool Co. (Hughes). In that capacity, he was apparently*113 directed to acquire silver mining claims. In derogation of his duty to his employer, Meier, through agents or co-conspirators, purchased such claims for nominal amounts, and then sold them to Hughes at immensely inflated prices. The sales proceeds were then channeled overseas, at petitioner's direction and for his benefit, to avoid detection by his employer and to avoid the incidence of the U.S. income tax.
Detailed Findings of Fact*114 The major underlying source of the determined deficiencies concern five mining transactions, namely: (1) The *276 Bogdanich sale; (2) the Hatsis sale; (3) the Belaustegui sale; (4) the Bida and Belaustegui sale; and (5) the Globe Minerals, Inc., sale. Some of the individuals involved in the mining transactions were:
Anthony Hatsis (Hatsis) -- a co-conspirator of Meier, and president of Globe Minerals, a corporation involved in buying and selling mining claims.
James Cowley (Cowley) -- attorney for Hatsis.
John Suckling (Suckling) -- attorney for petitioner.
Charles Adams (Adams) -- a tax attorney used to help plan the transfer of the sales proceeds overseas.
Robert Kahan (Kahan) -- a CPA used to help plan the overseas transfers.
Joseph Foley (Foley) -- attorney for Hughes.
Bogdanich, Bida, and Belaustegui -- these individuals were apparently "straw men" that acquired the claims from the original owners for Meier and Hatsis and then were named as sellers in the Hughes transactions.
The Bogdanich Sale -- $ 2,900,000This sales agreement was dated May 15, 1969. Most of the claims that were eventually sold through Meier to Hughes were originally sold to Bogdanich for consideration*115 of $ 99,000 and 100,000 shares of Westland Minerals stock (a company controlled by Hatsis). The full consideration was never paid. These mining claims were in turn sold for $ 2,900,000 to CPLD, a corporate shell of Hughes used to avoid publicity. The proceeds were deposited in an escrow account with Cowley as the escrow holder. Meier acted as agent for Hughes. Of the total consideration, Bogdanich received $ 150,000. John Suckling was paid $ 900,000 which was placed in his client's trust account. Hatsis was paid $ 350,000. Petitioner knew of the vast disparity between the relatively nominal acquisition cost of the mining claims and the inflated sale price to Hughes.
The Hatsis Sale -- $ 850,000On June 17, 1969, Hatsis purchased these claims from Columbia Investment Corp. for $ 25,000 and 30,000 shares of Globe Minerals stock. Under an agreement dated June *277 20, 1969, Hatsis agreed to sell these claims to Hughes, through Meier, for $ 850,000. After legal and escrow fees, the escrow holder, Continental Bank & Trust Co., distributed approximately $ 751,000 to Hatsis, $ 480,000 of which was paid to Maatschappij Intermovie, N.V. (Intermovie), 5 a Dutch corporation. *116
The Belaustegui Sale -- $ 1,500,000Belaustegui acquired his interest in these mining claims for no consideration. Belaustegui then assigned his interest to an alleged venture of Hatsis, Belaustegui, and Everd Van Walsum (Van Walsum). 6 By agreement dated September 4, 1969, Hughes, through John Meier, purchased these claims with Belaustegui named as the seller for $ 1,500,000. The escrow holder issued approximately $ 1,497,000 to Belaustegui, who turned the money over to James Cowley, who distributed $ 477,000 to Hatsis and $ 900,000 to Van Walsum.
The Bida and Belaustegui Sale -- $ 1,900,000The mining claims for this transaction were acquired*117 for $ 25,000. Hatsis advanced most of the purchase price. By agreement dated October 20, 1969, Bida and Belaustegui, the named sellers, sold these claims to Hughes through John Meier for $ 1,900,000. The escrow holder issued $ 1,881,000 to the named sellers, who turned the money over to Cowley. Cowley reimbursed Hatsis for the purchase price and distributed $ 165,000 to Bida and Belaustegui. Cowley also distributed $ 1,150,000 ultimately to Intermovie and approximately $ 550,000 to Hatsis.
Globe Minerals, Inc., Sale -- $ 1,400,000The mining claims for this sale were acquired for $ 57,000, advanced by Suckling from the $ 900,000 he had received from Meier in the Bogdanich sale. 7 By agreement dated December 2, 1969, Globe Minerals, Inc. (Globe), the named seller, sold these claims to Hughes for $ 1,400,000. An agent *278 for Globe received $ 1,387,000 from the escrowee, who delivered it to Cowley, who in turn delivered it to Van Walsum.
*118 In all the above-described transactions, the mining claims were purchased for relatively nominal consideration and subsequently sold to Hughes at greatly inflated prices. Meier, as Hughes' agent for these transactions, signed the escrow agreements in the Hatsis, Belaustegui, and Belaustegui-Bida transactions and was extensively involved in these transactions on behalf of Hughes. Petitioner also signed numerous other documents on behalf of Hughes in negotiating and consummating these transactions. Meier directly acknowledged his authority to acquire claims for Hughes and negotiated with Foley to provide a shell corporation (CPLD) to avoid publicity in the Bogdanich sale.
The total sales proceeds received from Hughes for the mining claims involved in the five transactions was $ 8,550,000. After reductions for escrow expenses and authorized payments, sales proceeds netted $ 8,401,587.72 for distribution from the various escrowees. Suckling, Intermovie, and/or Van Walsum received a total of $ 4,816,976.02 from the five sales, as follows:
| Hatsis sale | $ 480,000.00 |
| Bogdanich sale | 900,000.00 |
| Belaustegui sale | 900,000.00 |
| Bida-Belaustegui sale | 1,150,000.00 |
| Globe Minerals sale | 1,386,976.02 |
| Total | 4,816,976.02 |
*119 During the time these sales were taking place, Suckling engaged Charles Adams, Everd Van Walsum, and Robert Kahan, among others, to do some "tax planning" for Meier. While Meier could not appear, directly or indirectly, to be the owner of these funds, he undertook to retain control over these funds that were ultimately deposited into trust, or were placed under the control of other individuals or corporations for his benefit. When the initial overseas transfers took place, Meier's "advisers" did not know the source of the funds.
Hatsis told Meier that he was entitled to share with Meier in the funds that went overseas from the mining transactions. Van Walsum met with Hatsis at least 10 *279 times about the possibilities of transferring money to Europe. Hatsis told him how it was to be divided. Van Walsum said the "set up was to get the money out of the country, and make certain investments * * * the people we were doing that for, which are Mr. Meier and Mr. Hatsis." Hatsis also told Van Walsum how much money out of every transaction was to go overseas. The group -- Suckling, Adams, Van Walsum, Kahan -- was working for two clients, Meier and Hatsis, who "were the final owners*120 of the funds [handled] through the whole system."
The diversion scheme, planned by Meier and his "advisers," included the use of dormant and/or newly incorporated foreign entities. Sales proceeds from mining transactions were transferred to foreign corporations intended to appear as the owners of the proceeds. Documentation reflecting these transfers was subsequently created to corroborate the transfers. The named sellers of mining claims appeared to be acting for the foreign corporations. 8
The funds were transferred overseas in a convoluted manner. They were first transferred to Intermovie, a Dutch corporation, to minimize taxes in the Netherlands. The funds were, in turn, transferred to Inrespro, a Bahamian*121 corporation, to minimize Netherlands' tax. Intermovie retained a 4-percent fee for services under the pretense that it had acquired the properties sold for Inrespro.
The next step was the transfer of $ 1,100,000 from Inrespro to Curacao. These funds were used to establish trusts for the benefit of Meier and his family (Meier family trust and the Calliandra trust). Even though the terms of the trust provided that the trust corpus was to revert to the Van Walsum Management Co. at the end of the 10-year term, Van Walsum considered the funds to be Meier's.
At one point during the diversion scheme, Meier became impatient and demanded payments from and increased control over the overseas assets. Meier claimed he was entitled to complete control over the overseas funds and asserted that it was "[his] money." Meier asserted control over the use of the funds as he saw fit. For example, in *280 addition to the $ 900,000 that Suckling received from Meier and the trust arrangements, Meier directed a foreign company (Inriego) that had received some of the funds to transfer certain money in accord with his instructions. Also, Meier met with Van Walsum during the period these transactions*122 were taking place to arrange for the placement of the funds which insured that the funds would be for Meier's use and benefit.
In the notice of deficiency, respondent determined that petitioner did not report any of the funds diverted from Hughes and increased petitioner's income by one-half of the sales proceeds received by Intermovie, as follows:
| Sale | Sales price | To Intermovie | Petitioner's share |
| 1969 | |||
| Bogdanich | $ 2,900,000 | $ 900,000 | $ 450,000 |
| Hatsis | 765,000 | 480,000 | 240,000 |
| Belaustegui | 1,500,000 | 900,000 | 450,000 |
| Bida/Belaustegui | 1,891,000 | 1,150,000 | 575,000 |
| Total | 1,715,000 | ||
| 1970 | |||
| Globe Minerals | 1,400,000 | 1,386,976 | 540,988 |
| Total | 540,988 |
The one-half share of proceeds was predicated on an equal partnership with Hatsis. Petitioner did not report any income from such sales on his returns for 1969 or 1970.
In 1968 and 1969, petitioner dealt extensively in cash transactions involving the purchase of several parcels of real estate and the investment in a corporation formed to construct a convalescent home.
In 1968, petitioners deposited $ 62,348, $ 22,680 in currency, in a bank account at the Bank of Las Vegas. Petitioner also received*123 a check for $ 15,000 from Basic Industries, Inc., which he deposited in an account with Irving Trust Co. Petitioners reported $ 48,076 and $ 66,399 gross income on their 1968 and 1969 returns, respectively. These amounts did not include the deposits discussed above or the funds diverted from Hughes.
On March 17, 1972, Hughes Tool Co. filed a complaint in the U.S. District Court for the Central District of Utah naming the following defendants: (1) Anthony Hatsis; (2) Toledo Mining Co.; (3) Globe, Inc.; (4) John H. Meier; (5) *281 John R. Suckling; (6) Charles W. Adams; (7) E.B. Van Walsum; (8) Malaga Investments, Ltd.; (9) Inrespro, Ltd.; and (10) Maatschappij Intermovie, N.V. The complaint contained, among others, the following allegations: That the "defendants conspired among themselves and with each other to sell to [Hughes] mining claims * * * for amounts of money far in excess of the value of said properties." "That defendant Meier was one of the agents of [Hughes], who was induced by defendants to forsake his fiduciary duties." The complaint goes on to allege the various sales already referred to in this opinion. The complaint concludes with the request for an accounting*124 seeking that "each of [the] defendants should be required to account" for the "wrongful benefits * * * believed to be in excess of $ 8,000,000.00."
After an unsuccessful attempt to dismiss the proceeding, Meier filed an answer on June 8, 1973, generally denying most of the allegations in the complaint and asserting various defenses. Meier also attempted, unsuccessfully, to stay the proceeding pending the outcome of a criminal income tax evasion indictment outstanding against him. The reason advanced in support of a stay was based upon
On December 21, 1977, Judge Aldon J. Anderson caused to be filed a "MEMORANDUM OPINION IN LIEU OF FINDINGS OF FACT AND CONCLUSIONS OF LAW [Under
that * * * Meier occupied a trusted fiduciary position with [Hughes] for the acquisition*125 of mining properties; that * * * Meier breached that duty by secretly diverting funds from the five sales to his own use and benefit and to the damage of [Hughes]; that there is no legal basis under which * * * Meier could have properly received for his own use and benefit any of such money; and that * * * Meier must account for the funds entrusted to his care in relation to these transactions. [
*282 OPINION
Use of Collateral EstoppelRespondent seeks to offensively utilize the doctrine of collateral estoppel to estop petitioner from denying the diversion of funds from Hughes for his own use. Once the diversion of these funds for petitioner's use and control is established, the failure to report said amounts for Federal tax purposes may be readily shown. Respondent also attempts to utilize the diversion of funds and substantial understatement of income along with other findings from our record to, in toto, carry his burden of showing that the understatement was fraudulent. In addition to relying on the doctrine of collateral estoppel, respondent offered a substantial amount*126 of documentary evidence and testimony. 9
In an effort to achieve "judicial economy" we first consider whether petitioner is collaterally estopped from relitigating certain facts found by the District Court in
*128 Thus, collateral estoppel is used to foreclose an adversary from relitigating an issue the adversary previously litigated unsuccessfully in a different action. Until recently, however, the scope of collateral estoppel was limited by the doctrine of mutuality of parties -- neither party could use the judgment as an estoppel against the other unless both parties were bound by the judgment.
*129 In
Collateral estoppel may be utilized in connection with matters of law, matters of fact, and mixed matters of law and fact. Historically, *130 with regard to factual matters, a distinction was made between (1) "ultimate" and (2) *284 "evidentiary" or "intermediate" facts. 12 This distinction was made with respect to the first proceeding (in which the fact is initially found) and the second proceeding (in which one of the parties attempts to establish the same fact by means of collateral estoppel). Early case law differed over whether the facts found in the first proceeding were limited to those which were "ultimate" or included both "ultimate" and "intermediate" facts. See
Contemporary case law and commentary have been critical of the Evergreens approach and the limitation of collateral estoppel to ultimate facts, either as taken from the first proceeding or as applied in the second proceeding. Comment j to
Determinations essential to the judgment. It is sometimes stated that when a determination is a necessary step in the formulation of a decision and judgment, the determination will not be conclusive between the *285 parties if it relates only to a "mediate datum" or "evidentiary fact" rather than to an "ultimate fact" or issue of law. It has also been stated than [sic] even *133 a determination of "ultimate fact" will not be conclusive in a later action if it constitutes only an "evidentiary fact" or "mediate datum" in that action. Such a formulation is occasionally used to support a refusal to apply the rule of issue preclusion when the refusal could more appropriately be based on the lack of similarity between the issues in the two proceedings. If applied more broadly, the formulation causes great difficulty, and is at odds with the rationale on which the rule of issue preclusion is based. The line between ultimate and evidentiary facts is often impossible to draw. Moreover, even if a fact is categorized as evidentiary, great effort may have been expended by both parties in seeking to persuade the adjudicator of its existence or nonexistence and it may well have been regarded as the key issue in the dispute. In these circumstances the determination of the issue should be conclusive whether or not other links in the chain had to be forged before the question of liability could be determined in the first or second action.
The appropriate question, then, is whether the issue was actually recognized by the parties as important and by the trier as necessary*134 to the first judgment. * * *
[
Most recently, the Court of Appeals for the District of Columbia expressed its preference for the Restatement test over the Evergreens rule.
*136 We find the reasoning in the Restatement to be the better view. Thus, we will no longer follows
We now consider the extent to which the doctrine of collateral estoppel may apply in this case. We first focus on the first prong of the Montana test, i.e., the issues decided and necessary to the decision in the Hughes accounting proceeding.
*137 Petitioner is correct in pointing out that his tax liability was not in issue in the earlier proceeding, and neither did the District Court decide whether he fraudulently omitted income. However, collateral estoppel applies to issues of fact or law previously litigated.
To better evaluate whether petitioner had a full and fair opportunity to litigate this issue in the earlier accounting *287 action we must consider the nature and purposes of such an action. An accounting is essentially an equitable remedy which is civil in nature. It is designed to prevent unjust enrichment by requiring the disgorgement of any benefits or profits received*138 as a result of a breach of fiduciary duty. The right to an equitable accounting arises generally from defendant's possession of money or property which, because of some particular relationship between himself and plaintiff, he is obliged to surrender. 1A C.J.S., Accounting, sec. 15 (1985);
As with other equitable actions, plaintiff must show that his remedy at law is inadequate.
Generally, there are two parts *139 to an accounting proceeding. 17 First, the party seeking an accounting must establish a right to an accounting. Plaintiff must show an inadequate legal remedy, fiduciary relationship, and the other prerequisites noted above. If this is shown, the court will order an accounting. After this order, the second part of the action proceeds. "After the order for an accounting, interlocutory in character, is entered, the burden shifts to defendant to show that the plaintiff, in fact, is not entitled to the money or property."
The District Court found that Meier had breached*140 his fiduciary duty to Hughes by converting Hughes' funds to his own use and control. The court ordered Meier to account *288 to Hughes for such funds. The key element in both cases is the diversion of Hughes' funds to Meier's use and control. It is clear that Meier's motivation and purposes in defending against the allegations in the accounting action are identical to his need to show that respondent's determination that he derived income from these same transactions is in error.
The extent of the controversy here is largely due to petitioners' failure to stipulate facts as required by Rule 91. 18 Making our task even more difficult, petitioners omitted any proposed findings of fact in their brief. Moreover, petitioners filed a 15-page reply brief which did not specifically respond to nearly 80 pages of proposed factual findings set forth in respondent's 124-page opening brief. The District Court in the Hughes case found --
that the defendant Meier occupied a trusted fiduciary position with the plaintiff for the acquisition of mining properties; that the defendant Meier breached that duty by secretly diverting funds from the five sales to his own use and benefit*141 and to the damage of his principal; that there is no legal basis under which defendant Meier could have properly received for his own use and benefit any of such money; and that the defendant Meier must account for the funds entrusted to his care in relation to these transactions. * * *. [
*142 There is a complete identity of factual issues in this case. Respondent must prove an underpayment exists of which some portion is due to fraud.
*289 Our analysis here is largely an application of familiar principles of taxation to the facts as found by the District Court. Gross income includes gains derived from dealings in property.
Also, petitioner argues that because he validly claimed the
Despite invoking the
*146 Petitioner's position seems to be that there can never be a full and fair opportunity to litigate in a civil case so long as there is a related criminal action pending. Petitioner misapprehends the scope of the
It appears that petitioner may have benefited from asserting the privilege, rather than it impairing his opportunity *291 to litigate. Petitioner, in the Hughes accounting action, could validly refuse to answer interrogatories and deposition requests, and would not be compelled to produce documents. Hughes had to obtain materials and testimony from third parties.
Petitioner also refused to testify in the present case, based on the
The second prong of the Montana test is whether the controlling facts and legal principles have changed significantly since the first action. We find that there have been no such changes. As previously discussed, collateral estoppel in this case relates primarily to factual issues, thus the legal principles are largely unaffected. The factual underpinnings of the earlier action are identical to the present proceeding. The only factual matter that may differ is a claimed defense of petitioner in this case. Petitioner alleges that Howard Hughes authorized such transactions at the behest of the Central Intelligence Agency. We left the record open for the deposition testimony of respondent's former agent Kaminski, whom petitioner contends would substantiate his claim. 21 Petitioner failed to advance any testimony or other evidence in support of such claims during the trial or within the extended time that the record was left open. Thus, the second prong of the test has been met.
*149 The third prong of the Montana test is whether there are any special circumstances that would warrant exception to *292 the normal rules of preclusion. Petitioner has not presented any such circumstances. Petitioner had ample incentive to litigate, both here and in the District Court, because of the large amounts of money involved. In addition, the waste of judicial resources occasioned by the retrial of identical factual issues mitigates against petitioner.
Petitioners rely upon two Memorandum Opinions of this Court in further support of their contention that collateral estoppel should not apply. In
Petitioners' reliance on
We accordingly hold that petitioner is collaterally estopped from denying the facts which support the finding that he had diverted funds from Hughes to his own use and control, as found by the District Court.
Evidentiary ObjectionsWe next address the considerable evidentiary objections petitioner made both at trial and on brief. During trial, petitioner made innumerable objections based, for the most part, on relevancy and hearsay. 23
*152 Petitioner objected to the relevancy of most of the evidence offered by respondent. Apparently, petitioner's relevancy objections are based on the assertion that petitioner was not involved with the transactions at all. Relevant evidence is evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.
The next set of objections involves the hearsay rule. Respondent sought to introduce transcripts of trial testimony and depositions from the earlier proceeding. This evidence is admissible under
Concerning the hearsay objections,
The final category of objections involves documentary evidence. Petitioner stipulated that some of the documents were authentic, but reserved hearsay and relevancy objections. The relevancy objections were identical to those posed in connection with the testimony and are disposed of on the same grounds as the testimonial objections.
As to the authenticity objections, respondent relies on the former recorded trial testimony and depositions of petitioner's agents and "co-conspirators" in the mining transactions to authenticate the documents. We are satisfied, from our reading*155 of the former testimony and the interrelationship of the documents, that these documents were adequately authenticated and tested. 26
*295 Income From Mining Transactions and Reconstruction of IncomeWe now consider whether petitioner derived income from the Hughes' mining transactions in 1969 and 1970. Gross income includes all income from whatever source derived, including gains from dealings in property.
*157 Petitioner argues that there is no adequate foundation for asserting that he understated his income, and further, that the evidence establishes that Hatsis was the architect of the entire scheme. Therefore, none of the funds should be attributed as income to him. Petitioner also attacks the correctness of the determination that there was an equal partnership with Hatsis. Petitioner's arguments are unsupported by this record (and are at odds with the ultimate findings of the District Court).
With respect to transactions other than the mining transactions in 1968 and 1969, respondent increased petitioners' income based on amounts of cash deposits 28 and other cash expenditures. Petitioners argue that this method *296 is invalid, and respondent must use a net worth method of reconstruction, requiring beginning and ending net worth computations, which respondent has not proven. See
*158 The net worth method of reconstructing income is not the only method available to respondent. The Supreme Court, in
The cash expenditures method is based upon the assumption that the amount by which a taxpayer's cash expenditures during a taxable period exceed his known sources of income for that period is taxable income, unless the taxpayer can show his expenditures were made from some nontaxable source of funds. A proposed deficiency determined by use of the cash expenditures method is presumptively correct, and the burden of proof is upon the taxpayer to demonstrate otherwise.
In Holland v. United States, [supra], the Supreme Court sanctioned use of the net worth method of income reconstruction subject to certain safeguards. This method is substantially analogous to the cash expenditures method. The Supreme Court's safeguards may be summarized as follows:
(1) Respondent must track down relevant leads which might show alternative sources of nontaxable income if such leads are reasonably susceptible to being checked, and
(2) respondent must give proof of a likely source of taxable income.
Thus, the * * * satisfaction of the safeguards enumerated above [must be determined] in light of the facts and circumstances known to [respondent] subsequent to the filing of the petition.
Thus, petitioners' position that the cash expenditures method is not valid is incorrect. Before the safeguards in Holland are triggered, petitioner must either explain the source of or provide alternative nontaxable sources for the discrepancy in his expenditures and his reported income. This explanation commences respondent's investigative requirements under *160 Holland. 29 Petitioner failed to provide any *297 explanations for such discrepancy which would require respondent's investigation. We hold that petitioners failed to carry their burden of proving they did not understate their income as determined by respondent in the notice of deficiency.
Fraud/Respondent argues that petitioner's failure to report diverted funds and other income on his tax returns for 1968, 1969, and 1970 is fraudulent. If any part of any underpayment for the taxable years is due to fraud, the addition under
In a recently decided case,
Respondent has established that Meier's returns for the years involving the mining transactions were fraudulent. The first indicia of fraud in Bradford is understating income. We have already found that petitioner diverted funds of Hughes*163 to his own use and control and that said funds constituted substantial income from the mining transactions during the 1969 and 1970 taxable years. Through introducing petitioners' returns into evidence, respondent has shown the failure to report any of this income. The failure to report said income resulted in large understatements of income on petitioners' 1969 and 1970 joint returns.
Part of the evidence relied upon by respondent to carry his burden of establishing fraud has been established through the offensive use of collateral estoppel. Accordingly, we must consider the burden of proof required in both proceedings. Civil tax fraud must be proven by clear and convincing evidence.
*165 As previously indicated, plaintiff in an accounting action must show that through fraud or breach of a fiduciary duty, or both, he is entitled to money or property held by the defendant. There is no explicit burden of proof for accounting actions in Utah. However, where fraud is alleged it must be proven by clear and convincing evidence.
Fraud and breach of fiduciary duty can be separate bases for instituting an accounting action. An agent commits a breach of his fiduciary duty if he sells property to or buys property from his principal without full disclosure to his principal.
In
*168
The trial court in the Hughes case did not state with acuity the standard of proof it used. Although fraud was not expressly alleged, Hughes contended that Meier was its agent in the acquisition of mining claims, that Meier abandoned*169 his fiduciary duty to Hughes and, together with others, sold the mining claims to Hughes at inflated prices and secretly participated in the redistribution of money to *301 and for the benefit of defendant Meier and others.
All of the classic indicia of fraud are present in the Hughes case; a misrepresentation by Meier about the price and/or value of the mining claims, in addition to concealing his role on both sides of the transaction, reliance on his representations by Hughes, and damage to Hughes. See
The District Court in Hughes Tool Co. used language in its opinion indicating that the quantum of proof would have, at a minimum, met a clear and convincing standard. The Court held as follows: "In view of the foregoing findings, the court concludes as a matter of law defendant Meier must * * * render an accounting."
Defendant Meier appears to misapprehend the quantity and quality of the evidence which has been presented in this case to date * * *. As the court rehearsed in great detail * * * there is substantial evidence in the record upon which to base a ruling fixing liability on defendant * * *. That is, plaintiff established [the sales transactions and that the funds were the responsibility of Meier]. [
"The court is of the opinion that all of the evidence in this matter *171 shows that the sum of * * * is due the plaintiff."
Another indicia of fraud in Bradford is the failure to keep records or keeping inadequate records. In this case, many of the documents were back-dated or dated "as of" a certain date, to retroactively reflect the transactions in the light petitioner wanted them to appear, i.e., making the foreign corporations the owners of the claims. *172 Additionally, Meier's role on both sides of these transactions is not reflected in the records (of necessity, to conceal his involvement). In the context of this case, the records of the transactions are inadequate and were intended, at the very least, to conceal information from petitioner's employer and likely from the taxing authorities, including respondent.
Another indicia noted in Bradford is the concealment of assets. This is a highly probative factor here. The sales proceeds were almost immediately transferred overseas after the execution of the transactions. In addition, the documentation makes it appear that the foreign corporations were the owners of the funds, while the funds were under the control of and for the benefit of petitioner. We find it highly indicative of fraudulent intent that the funds, after being channeled through two different foreign corporations, ended up in a trust for the benefit of petitioner. This conduct, calculated to mislead and conceal, is indicative of fraud.
Petitioner contends that his so-called "fraudulent intent," because of the transfer of funds, was merely "tax planning" by a group of knowledgeable advisers. We find that the use of the foreign entities, in the context of this case, was a sham or subterfuge to disguise the real owner, avoid identification of petitioner, and to evade Federal income taxes.
A final factor relevant here is whether the activity was illegal. While we know of no State criminal charges filed in connection with this case, petitioner rather egregiously breached his fiduciary duty to his employer, to the extent of *303 benefiting by several million dollars. We find that this situation is not significantly different than a case involving embezzlement or other kind of theft. The lack of potential for criminal punishment or penalty seems to be a distinction without a difference in this setting; petitioner's activities are no less illegal or improper.
Respondent need not prove the precise amount of the underpayment resulting from fraud.
The next issue involves the statute of limitations on assessment. The notice of deficiency was mailed more than 3 years after the filing of the returns for the years at issue. See
*304 Respondent has determined that petitioner underreported his income for 1968 because petitioner's bank deposits exceeded his reported income by approximately $ 29,000. 35 In addition, petitioner engaged in large numbers of cash transactions during 1968, 1969, and 1970.
To reflect the foregoing,
Decision will be entered for the respondent in part and the petitioners in part.
*305 APPENDIX A
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH CENTRAL DIVISION
Filed in United States District Court, District of Utah Time DEC 21 1977 PAUL L. BADGER Clerk
HUGHES TOOL COMPANY*177 (now Summa Corporation), Plaintiff, v. JOHN H. MEIER, et al., Defendant.
MEMORANDUM OPINION IN LIEU OF FINDINGS OF FACT AND CONCLUSIONS OF LAW [Under
The trial of the above-entitled matter began before the Honorable Aldon J. Anderson, United States District Judge, on October 27, 1976. Edward W. Clyde, James L. Wadsworth, and D. Martin Cook appeared as counsel for the plaintiff. Robert Wyshak and Lillian Wyshak appeared as counsel for defendant John H. Meier, and C. Jeffrey Thompson appeared as counsel for defendant John R. Suckling. After the witnesses were sworn and testified, the exhibits received, and the presentation of evidence closed, arguments were continued to April 23, 1977, to allow for the hearing of a claim of fraud upon the court in connection with certain exhibits proffered during the trial of the case in chief. Time was allowed for the making of a transcript of the testimony to assist in this effort. The hearing of the claim of fraud was held and counsel made their arguments in the case at hand on April 23, 1977, and filed their post trial briefs on May 9, 1977. The court made its ruling on the claim of fraud on the 11th day of October, *178 1977, and having considered the effect of that ruling upon the case, and deeming itself fully advised is prepared to enter its ruling.
Briefly, in the case in chief, the plaintiff seeks an accounting, claiming the defendant Meier, its trusted agent, breached that trust in handling the acquisition of certain mining claims, and diverted funds to his own use and that of others. Defendant denies the breach and claims a settlement agreement that he wants enforced.
In the course of moving the case to trial extensive domestic and foreign discovery has been had, and lengthy pretrial proceedings. Numerous motions have been filed, briefed, argued and ruled upon. An early attack was made upon the jurisdiction of the court over the defendants under the Utah long-arm statute. After hearing and argument *306 the court denied the motion. An interlocutory appeal was taken to the Court of Appeals of the Tenth Circuit where the ruling of the trial court was affirmed. A stay of discovery was allowed because of the serious illness of the defendant Hatsis. A further delay was granted to enable the completion of the criminal prosecution of the defendant Meier under an indictment filed in Nevada*179 for alleged tax fraud in connection with failure to report monies involved in the transactions under consideration in this case. This stay was terminated after Mr. Meier failed to appear for prosecution of the matter and his bail was forfeited. Time was given the parties to pursue a settlement effort that had been attempted, but without success. Defendant Meier filed a motion to stay proceedings on the theory that they were in the nature of criminal proceedings, and that in view of Meier's constitutional right to claim the
The defendant Meier filed a petition seeking enforcement of a claimed settlement agreement. Numerous motions were filed and argued on this matter. As a result an issue on the same appears in the pretrial order, and a non-jury trial of the claim of settlement was held October 20, 1976, and continuing to October 27, 1976. The court made its ruling denying enforcement of the claimed settlement agreement, stating its findings, and conclusions and order into the record. Immediately thereafter the trial of the case in chief took up, as above noted, on October 27, 1976.
By the time of trial settlements resulting in dismissals and defaults based upon service and failure to answer*181 were accomplished as to all of the defendants, except John H. Meier and John R. Suckling. During trial, after he testified, counsel advised the court that the plaintiff and Suckling had reached a settlement of their differences and the case was dismissed as to him.
The hearing on the claim of fraud upon the court involved the resolution of a motion by plaintiff and defendant Meier, upon agreement with the court, to determine whether a fraud had been perpetrated upon the court in the filing of certain documents by the parties in the case in chief. The plaintiff asked that this determination be made with respect to *307 Exhibits A and B attached to defendant Meier's motion dated November 10, 1976, and filed with the court on or about said date near the conclusion of the evidence of the case in chief. It asked for a change in the pretrial order and a continuance of the trial upon the affidavit of Mr. Wyshak that he hoped to show that the two affidavits of Mr. Hughes, filed in this case, assuring the court of his availability for deposition at the court's order, were forgeries. Exhibits A and B were filed by Mr. Wyshak in support of the motion. The defendant asked for the hearing*182 to have the court determine upon the basis of evidence which his counsel thought was available in the form of exhibits and expert testimony to show that Mr. Hughes had not signed the affidavits referred to. A difficult trial of this matter ensued, with a number of witnesses, many exhibits and highly technical expert testimony. As observed above, a written opinion has been filed in that matter, as a result of which the court determined that the burden to establish the forgery of the Hughes affidavits had not been met. Consequently, they stand in the file for what they purport to be.
Jurisdiction and VenueJurisdiction was invoked under Title
Process was served on the defendants Meier and Suckling*183 under Utah's long arm statute,
Defendant Meier contends there have been insufficient contacts with the State of Utah to subject him to in personam jurisdiction, and the court will deal with this question hereafter as an issue of law and an issue of fact.
Anthony G. Hatsis, Toledo Mining Company, Globe, Incorporated, and Charles W. Adams were named as defendants, but the action has been settled and dismissed as to them. Malaga Investments, Limited was never served. The rest of the named defendants have been served, but have defaulted. However, no default judgments have been entered against said other named defendants.
Plaintiff's Contentions(a) That John H. Meier was plaintiff's agent in the acquisition for the plaintiff of mining properties in the State of *184 Nevada; that defendant *308 Meier abandoned his fiduciary duty to the plaintiff and, together with others, sold the mining claims to the plaintiff at increased prices and secretly participated in the redistribution of the money to and for the benefit of defendant Meier and others.
That plaintiff contends as a matter of law defendant Meier had a fiduciary duty to acquire the mining properties for the plaintiff at the lowest available price, and that as a matter of law he breached his fiduciary duty in permitting the properties to be acquired from the long time owners thereof, in the names of strawmen sellers and in permitting the strawmen sellers to sell the same to the plaintiff at greatly inflated prices. Plaintiff contends that defendant Meier had a duty to account to the plaintiff for all of the monies paid for said properties by the plaintiff, except the real purchase price thereof, and the costs of the escrow and sale, and plaintiff, as a matter of law, will be entitled to a money judgment against defendant Meier for all such funds for which he does not properly account.
(b) That there were five mining claim sales transactions, which were consummated with plaintiff through*185 defendant Meier, in Utah escrows, as follows:
(i) A sale on or about the 24th day of June, 1969, by Anthony G. Hatsis to plaintiff. The purchase price was $ 850,000, and the escrow agent was Continental Bank & Trust Co. of Salt Lake City, Utah.
(ii) A sale on or about the 15th day of May, 1969, wherein a corporation named CPLD Company was the named purchaser, and Anthony Bogdanich was the named seller. The purchase price was $ 2,900,000. The actual buyer was the plaintiff, and the $ 2,900,000 was paid into the escrow by the plaintiff, and in its name.
(iii) A sale on or about September 4, 1969, wherein Leon Belaustegui was named as the seller and plaintiff was named as the buyer. The sale price was $ 1,500,000.
(iv) A sale on or about October 20, 1969, wherein Leon Belaustegui and Sam Bida were named as sellers, and plaintiff was the buyer. The purchase price was $ 1,900,000.
(v) A sale on or about December 2, 1969, wherein Globe Minerals, Inc. was named as seller and plaintiff was named as buyer. The purchase price was $ 1,400,000.
(c) That except as to the properties wherein Anthony Bogdanich was the named seller, the mining properties sold under the above identified transactions*186 were acquired by the named strawmen sellers simultaneously with or shortly before the sale of said properties to the plaintiff; that the price at which the properties were optioned to the named sellers by the previous or long-time owners was a relatively low price. The price was then increased, and the properties were sold to the plaintiff through defendant Meier. The named sellers in the above-identified sales to the plaintiff received a fixed and pre-agreed fee for a small portion of the sales price, and the remainder of the proceeds were redistributed by *309 various means to or for the use and benefit of defendant Meier and others.
(d) Specifically, plaintiff contends that $ 4,816,976.02 was wrongfully redistributed for the use and benefit of defendant Meier and others, and that of this amount ($ 900,000 was paid to John R. Suckling as attorney for defendant Meier, and the balance was delivered to E. B. VanWalsum and Maatschappij Intermovie and deposited in the Netherlands, in the account of Intermovie. Other sums, in addition to the $ 4,816,976.02, were diverted from the named sellers, and redistributed to defendant Hatsis, who was acting in concert with defendant Meier. *187 Still other sums were wrongfully paid to strawmen sellers for acting in that capacity.
(e) Plaintiff further contends that defendant John R. Suckling, E. B. VanWalsum, defendant Inrespro, Ltd., defendant Maatschappij Intermovie, defendant Charles W. Adams, Din Van Ruller, the managing director of Maatschappij Intermovie, and Tony In der Reiden, the manager of Inrespro, Ltd., were all working as agents or representatives of defendant John H. Meier, and that the $ 4,816,976.02 was turned over to said individuals and firms for the use and benefit of defendants Meier and Hatsis, and that the defendant Meier should be ordered to account for all of said money.
(f) That in addition to the money diverted to John R. Suckling, E. B. VanWalsum and Intermovie, as aforesaid, large sums of money were diverted from the strawmen, or named sellers in each of the above transactions, and paid to the defendant Hatsis, who was acting in concert with the defendant Meier, and that defendant Meier should also be required to account for all sums of money redistributed to the defendant Hatsis and others, in addition to the $ 4,816,976.02 referred to above, including all sums paid to the strawmen sellers.
*188 Defendant Meier's ContentionsDefendant Meier made a general denial of the allegations of the complaint, and denied any fiduciary relationship, any act of wrongdoing, or any breach of fiduciary duty, and put the plaintiff to plaintiff's proof on each element of plaintiff's case.
The court affirmed its preclusion order of October 19, 1976. Under it defendant Meier was precluded from calling or examining witnesses or offering exhibits, except as the same related to the jurisdictional facts and to his general denial. The court heard at length his claim to enforce a purported settlement agreement.
Defendant Meier refused to produce any documents, refused to make any admissions in response to requests by the plaintiff, and refused to answer questions asked on oral deposition, all on constitutional grounds, claiming the
The court concludes, on the basis of the evidence and for the reasons set forth more fully and explicitly hereinafter, that the plaintiff is entitled to an equitable accounting from the defendant Meier, and that judgment, at the appropriate time, should be entered requiring the defendant Meier to make restitution of any secret profits or benefits he*189 *310 realized in connection with the sale to the plaintiff of the mining claims and the subsequent diversion of the money for purposes other than to serve the interests of the principal.
Personal JurisdictionBefore reaching the merits, the court must consider defendant Meier's argument that he had insufficient contacts with the State of Utah to authorize this court, consistent with due process of law, to exercise jurisdiction over his person under the Utah long arm statute, based on notions of fair play and substantial justice.
The United States Supreme Court first enunciated the governing test for personal jurisdiction over non-residents under state long arm statutes in
[Due] process requires only that in order to subject a defendant to a judgment in personam, if he be not present within the territory of the forum, he have certain minimum contacts with it such that the maintenance of the suit does not offend "traditional notions of fair play and substantial justice."
"such contacts of the corporation with the state of the forum as make it reasonable, in the context of our federal system of government, to require the corporation to defend the particular suit which is brought there."
This court has also extensively analyzed the implications of the application of the International Shoe minimum contacts standard to personal jurisdiction over non-resident defendants under the state long arm statute. In
[traditional] notions of fair play and substantial justice require a qualitative analysis of each defendant's contacts with the forum in order to ensure fairness and reasonableness to the defendants and territorial respect for sister states.
*311 The plaintiff contends, and the record supports, that the defendant Meier, or agents acting at his direction and for his benefit, was a key party in a conspiracy implemented in Utah, and had numerous contacts with the State of Utah in connection with the mining claims transactions in issue, even though the claims themselves were located in the State of Nevada. Clearly there was the transaction of business in Utah and the causing of injury by tortious conduct in the jurisdiction. As provided in 78-27-24,
The specific significant contacts of the defendant Meier or his agents in each of the five transactions are as follows:
1. The Bogdanich Sale - $ 2,900,00.
The Memorandum of Agreement, dated May 15, 1969, was made and entered into in Salt Lake City, Utah (Ex. 5 - R 446-450) by and between Anthony Bogdanich of Salt Lake City, Utah, as the named seller and CPLD Company, a Nevada corporation, as the named buyer. Joseph M. Foley testified that he was sent to Salt Lake City by John Meier to handle the Bogdanich sale and was present when the agreement was signed by Bogdanich. (R 804, 805.) During the course of arranging the transaction, the problem developed that CPLD, which lacked funds, needed a $ 5,000 down payment for the sale. Foley called Meier on the phone from Salt Lake City and explained the problem to Meier. Hatsis then said he would advance the $ 5,000. Mr. Hatsis took the phone and discussed it with Meier and it was "effected." Foley signed the documents in behalf of CPLD. (Exhibit 5, the agreement*194 of sale and Exhibit 6, the escrow agreement.) Foley further testified the 2.9 million for the sale came from Hughes Tool Company through CPLD. Exhibit *312 103 was received which shows Meier made a request of Hughes Tool Company for payment of the 2.9 million through CPLD. (R 806-808.) Hatsis with defendant Meier's approval on the telephone advanced the $ 5,000 for the transaction. (R 804, 805.) In following the seller's escrow instructions, attorney James P. Cowley, the Salt Lake City escrow holder, distributed the funds, including a $ 900,000 cashier's check (Ex. 11) payable to John Suckling that Cowley delivered to Hatsis in Salt Lake City. (R 462.) Although direct testimony is not available due to the assertion of the constitutional privilege, presumably Hatsis delivered the $ 900,000 cashier's check to Meier since Meier personally delivered the check (Ex. 75) to Suckling in Las Vegas, Nevada. (R 1500.) The evidence that will be discussed hereinafter in relation to the merits clearly establishes defendant Meier's involvement in arranging the Bogdanich transaction through CPLD Company.
2. The Hatsis Sale - $ 850,000.
The memorandum agreement entered into at Salt Lake*195 City, Utah on June 20, 1969, named Anthony G. Hatsis, a Utah resident (R. 638), as seller and the plaintiff as buyer. The agreement was signed "Buyer, Hughes Tool Company, by John H. Meier, Hughes Nevada Operations." (Ex. 58.) The transaction was closed through a Utah escrow holder, Continental Bank & Trust Company (Ex. 60), on the basis of an escrow agreement signed by the plaintiff "by John H. Meier, Hughes Nevada Operations." (Ex. 63.) Meier, by letter dated August 7, 1969, still representing himself as acting for Hughes Tool Company, directed the bank to withhold certain funds until a title problem was cleared, and to otherwise distribute the funds. On August 11, 1969, the bank closed the escrow, and after payment of legal and escrow fees a disbursement was paid to Hatsis of $ 750,915.06. (Ex. 61 - R 546.) The accounting of the bank as escrow shows it received $ 850,000 from the Hughes Tool Company, the sales price to Hatsis. (Intermovie was paid $ 480,000 from this transaction.) (R 964-6, 997 and 1402.) The evidence establishes that the defendant Meier actively participated in the Hatsis sale, which included numerous Utah contacts of which Meier was aware.
3. The Belaustegui*196 Sale - $ 1,500,000.
An escrow agreement dated Spetember 4, 1969, named Belaustegui, a Nevada resident, as the seller, the plaintiff as the buyer, and Continental Bank of Salt Lake City, Utah, as the escrow agent. The escrow agreement was signed for the plaintiff "by John H. Meier, Hughes Nevada Operations." (Ex. 18 - R 473, 493.) All the documents relating to the Belaustegui transaction were executed by Belaustegui in Cowley's Salt Lake City offices. (R 480.) Cowley distributed the escrow funds, including $ 900,000 that went to VanWalsum (Exs. 23, 29) whose connections with the transfer of funds overseas will be explained more fully hereinafter. At his request, $ 50,000 of the $ 950,000 was to be paid to Hatsis. (Ex. 23.) His address is shown on the escrow agreement as in care of James P. Cowley, Salt Lake City, Utah. He came to Salt Lake City in connection with this sale three or four times. (R 481.) The bank accounting (Ex. 21) shows the escrow received from plaintiff $ 1,500,000. *313 The net released to seller was $ 1,497,262.34. It was turned over to Cowley. He issued checks on this amount. One for $ 900,000 went to VanWalsum (Exs. 23 and 29). The deeds were*197 notarized and executed in the offices of Cowley. Cowley said he was looking after the interest of Belaustegui, (R 503), though not hired by him. Belaustegui said he had not hired Cowley as his attorney, and that he was Hatsis' attorney (R 691). Cowley acted as attorney for Hatsis although Hatsis was not named a party to the sales transaction. (R 503.)
4. The Bida and Belaustegui Sale - $ 1,900,000.
An escrow agreement dated October 20, 1969, (Ex. 33 - R 502) named Bida and Belaustegui as sellers, the plaintiff as buyer, and Continental Bank of Salt Lake City as the escrow agent. The agreement was signed for the plaintiff "by John H. Meier, Hughes Nevada Operations." (Ex. 33.) Bida and Belaustegui came to Salt Lake City for the purpose of signing the agreement in Cowley's offices (R 502), where the deeds were in fact signed and notarized (Exs. 83 and 84 - R 645, 646). The bank's accounting (Ex. 36 - R 508-510) establishes, and the court so finds, that the plaintiff deposited the agreed amount of 1.9 million. The net amount accounted for and paid to the named sellers was $ 1,880,843.50. (R 508-510.) The named sellers, in turn, delivered the total net amount to Cowley (R *198 509) who redistributed the funds according to the written instructions of Bida, Belaustegui, VanWalsum and Hatsis (Ex. 43 - R 511). Cowley made checks to Hatsis for $ 22,270 to repay funds advanced for exercising an option to support the transaction. Further checks for $ 512,730 and $ 30,843.50 were given Hatsis. Bida and Belaustegui received a check for $ 165,000 (R 513-515). VanWalsum received $ 1,150,000 in accordance with the instructions. (Exs. 43, 73, 74 - R 591, 592.) The role of VanWalsum in acting for the ultimate benefit of Meier to transfer the funds overseas will be detailed hereinafter. VanWalsum directed Cowley to deliver the $ 1,150,000 to Hatsis. (R 518.) Julia Feist, a Los Angeles attorney, came to Salt Lake City to pick up the $ 1,150,000 which she delivered to John Suckling (R 1404, 1405).
5. Globe Minerals, Inc. Sale.
This transaction is reflected in an escrow agreement dated December 2, 1969, naming Globe Minerals, Inc. as the seller, plaintiff as buyer, and Continental Bank of Salt Lake City as escrow agent. (Ex. 46.) The escrow was signed in behalf of Globe by Al T. Hays, who resided in Salt Lake City (R 578). The banks accounting showed it received*199 $ 1,400,000 from plaintiff; that the transaction closed. (Ex. 54.) After discussing with Meier various disbursements, Mr. Suckling sent checks for $ 57,000 payable to Jackson Mining Company (R 531-534, 1315, 1558); two checks totaling $ 110,000 to Globe (Ex. 98 - R 534, 1315, 1562-3), and a check to Bida and Belaustegui for $ 38,000 (Ex. 52 - R 1562). These checks were sent by letter to Cowley by Suckling (R 529, 739). He gave the $ 57,000 check to VanCott, Bagley law firm for Jackson to clear the titles. The named seller received $ 1,386,976.02 after the close of escrow and gave it to Cowley (R 532, 535). Cowley purchased a cashier's check in that amount and delivered it to VanWalsum in Salt Lake City (R 537, 538). *314 While a more detailed analysis of VanWalsum's role is made hereinafter, at this point it is sufficient to state that VanWalsum was acting in the State of Utah to transfer the money overseas for the benefit of Meier and Hatsis (R 1275, 1287, 1702).
In addition to these transactions conducted either from outside the State of Utah (e.g., signing the escrow agreements in the Hatsis or Belaustegui sales) or through agents coming into the State of Utah, the defendant*200 Meier had come into the State of Utah for purposes of transacting business or aiding in the ongoing negotiations and transfer of monies overseas. Defendant Meier had been to Salt Lake City in February (Ex. 109 - R 816) and March (Ex. 108 - R 815) during the period of the negotiations, particularly for the earlier transactions: the Bogdanich and Hatsis sales. When asked of the purpose for his visits during his deposition, the defendant Meier asserted his constitutional privilege not to answer.
The United States Supreme Court recently stated "the prevailing rule" in
In addition, John Rix, the comptroller for Toledo Mining Company, testified that he met defendant Meier "[two] or three times" in the Toledo offices in 1969 during the time when "Toledo was negotiating the sale of some mining leases to the Hughes Tool Company." (R 1378.) According to the testimony of VanWalsum, the defendant Meier came to Utah on or about February 1, 1970, in a private plane to pick up Hatsis for a trip to the Netherlands Antilles to have a conference with In der Rieden in Curacao about their matters of mutual interest. (R 1285, 1286.)
The foregoing facts clearly establish that the defendant Meier had sufficient minimum*202 contacts with the State of Utah to make it reasonable for the defendant to defend this action in Utah. The defendant had extensive dealings in the State of Utah through those acting on his behalf. Some of those are Utah residents and were co-defendants. He signed the escrow agreements on behalf of the plaintiff fully aware that his dealings were oriented toward Utah and would involve the consummation of agreements with purported Utah sellers and the closing of escrows with Utah escrow agents. The defendant Meier had taken full *315 advantage of using the facilities and banking institutions of the state to transact his business in this state. The notions of fair play and substantial justice are not offended by requiring the defendant to defend this action in the forum where a significant portion of his business activities in relation to the controversial mining claims took place, and where the basic actions of conspiratorial fraud took place. The court, therefore, concludes as a matter of law that the court has in personam jurisdiction over the defendant under the Utah long arm statute.
Equitable Action for AccountingWith respect to the claim for accounting, the plaintiff*203 contends that the defendant Meier was a trusted agent of the plaintiff; that in that capacity he had certain fiduciary obligations toward the plaintiff; that by receiving monies from the inflated sales of mining claims through strawmen sellers the defendant Meier breached that duty; and that the defendant Meier must now account for the amounts, if any, he received in breach of his fiduciary obligation and must also account for all money that came into his possession so that the plaintiff can ascertain the amount which was not devoted to furthering the plaintiff's best interests as the defendant Meier was charged to do. If an accounting is ordered by this court, the plaintiff seeks a judgment for restitution of that amount wrongly diverted or otherwise disposed of from the sales to the defendant Meier's benefit.
The defendant has entered a general denial and asserted a defense of settlement which he sought to have enforced. The latter was ruled upon by the court, adversely to the defendant Meier. Meier has at times alluded to the fact that Mr. Hughes approved of his having any money he received. However, he did not file a motion to so amend his complaint over the years of the prosecution*204 of this case. As late as September 8, 1976, at the pretrial hearing with the court, Mr. Wyshak for the defendant Meier asserted that the proceeding was like a criminal proceeding and he did not have to show any exhibits or disclose any witnesses. (P.19 Transcript of Proceedings before the court on September 8, 1976.) On that date Mr. Clyde was complaining to the court that defendant had been informed of plaintiff's witnesses and exhibits, while defendant had not and still refused to advise whether he was admitting he had diverted the funds but had been given authority by Hughes to keep them, or whether he was standing on his general denial, which his earlier counsel, Mr. Gardiner, had clearly said was his position. Nor had the defendant plead or proposed any other defense or combination thereof, if such there be. At the conclusion of the pretrial hearing the court ordered the defendant's attorney to meet with plaintiff's attorney and work out the problems complained of, state their witnesses and exhibits, and have a pretrial order for the court. Mr. Wyshak made a motion to stay the case, claiming it was like a criminal case and because of defendant's assertion of the
On October 19, 1976, the court denied defendant's motion to reconsider a request for further discovery, for jury trial and for stay of proceedings. The court also denied an oral request that the court recuse itself from the trial of the case on the merits.
Mr. Clyde on October 1, 1976, filed his motion for a preclusion order reciting the same complaints and further noting that two attorneys' conferences had been held with defense counsel still declining to disclose witnesses or exhibits he intended to offer. He noted Mr. Wyshak's statement at pretrial that he was going to treat the case as a criminal case and was not disposed to reveal witnesses and exhibits. On October 19, 1976, at the "final pretrial" with the court, the preclusion order*206 was granted, for the reasons argued by plaintiff. When the pretrial order was finally signed, October 27, 1976, and left with the court (not stamped until November 10, 1976), the trial of the settlement phase of the case had been substantially completed. The pretrial order affirmed the preclusion order. The effect of that order was to preclude the defendant Meier from introducing "surprise" testimony and exhibits on the theory, sometimes advanced by the defendant, that Howard R. Hughes had approved the distribution of the funds to Meier. The defendant Meier was held to introduce only evidence that would support his claimed general denial and enforcement of the claimed settlement agreement.
In addition to the court's findings on the jurisdictional facts of the five contested transactions, the plaintiff established a maze of facts leading through the acquisition of the mining claims, the sales thereof to the plaintiff through strawmen sellers, the distribution of the sales proceeds through Cowley, the transfer of funds overseas through VanWalsum and others, and the eventual use of the funds for the benefit of the defendant Meier. Rather than trace the steps of each individual transaction, *207 the court will summarize the steps that are common to each of the transactions. The plaintiff's burden is not, after all, to prove a chain of evidence for the monies allegedly taken by the defalcating agent. Rather, the plaintiff's burden is to prove that the defendant Meier had a fiduciary obligation to the plaintiff, that the defendant breached that obligation by receiving monies through the strawmen sellers that came from the plaintiff, in violation of his obligation to act fairly in the plaintiff's interest, and that the plaintiff has been injured by the defendant's acts.
The defendant contends that he owed no duty to the plaintiff because, in fact, he was employed by Robert A. Maheu & Associates. This position ignores the evidence of his agency for plaintiff and the fact that Meier signed the escrow agreements in the Hatsis, Belaustegui, and Belaustegui-Bida transactions and was extensively involved, as explained hereinabove, on behalf of the plaintiff. As previously noted, defendant Meier signed numerous documents on behalf of the plaintiff in negotiating and consummating these transactions. Among them, in the Hatsis *317 sale, Meier signed an affidavit entitled, "Affidavit*208 of Realty Transferred" (Ex. 100 - R 786) and signed as the grantee's "agent," the grantee being the plaintiff herein, and verified the value of the realty transferred in the Hatsis transaction as $ 850,000. The defendant Meier signed the Request for Disbursement of the sales proceeds in the same amount from the plaintiff to the respective buyers in the Hatsis sale (Ex. 105 - R 812), the Belaustegui sale (Ex. 107 - R 812, 813), and the Bida & Belaustegui sale (Ex. 104 - R 811). The defendant Meier directly acknowledged his authority for plaintiff to acquire claims and negotiated with Joseph Foley to provide a shell corporation (CPLD) that would take title to the mining claims in the Bogdanich sale to avoid publicity that the plaintiff was acquiring the claims (R 800-01, 1098). Substantial evidence supports the court's finding that the defendant was self-dealing in violation of his fiduciary duty.
In addition to the facts already noted in the Bogdanich transaction, the defendant Meier personally authorized Foley to let Hatsis advance $ 5,000 (R 805) as the down payment in the Bodganich sale. In the Globe Minerals sale, the defendant Meier gave his attorney, John Suckling, authority*209 to approve quite a number of disbursements requested by VanWalsum and which Meier had reviewed with Suckling. Meier also acknowledged to him that he knew the source of the funds was from the transactions for plaintiff in question (R 1562-1572).
The court finds that Meier knew of and helped arrange for the transfer of the major portion of the sales proceeds to overseas accounts, investments, and trusts through VanWalsum and Intermovie and other business entities. While the tax laws were such that the defendant Meier could not appear, directly or in-directly, as an owner of these funds, (see R 1411, 1414, 1430), the court finds that Meier undertook to retain practical control over these funds that were ultimately deposited into trust (R 1435-1505) or were placed in the control of other individuals including Gillerion (R 1016-19), the VanWalsum Management Company and in Inriego and Inrespro in the Netherlands Antilles. The fact of Meier's claim to share in the funds that went overseas, from the mining transactions in question, was established by Suckling, who heard Meier and Hatsis reach agreement on an additional payment to be made to Hatsis, with additional stock credits (R *210 1435-1442) and monies to be divided between Hatsis and Meier as further distributions took place.
The court finds the defendant Meier knew or was in a position to know, either personally or through agents acting at his direction and for his benefit, that the mining claims were purchased for relatively nominal consideration and sold to the plaintiff, with Meier acting as plaintiff's agent, at greatly inflated prices.
1. The Hatsis Sale.
Anthony Hatsis purchased these claims from Columbia Investment Corporation on June 17, 1969 (Ex. 59) for $ 25,000 and 30,000 shares of Globe Minerals stock (R 543-44). Three days later these claims were sold through the defendant Meier to the plaintiff by Hatsis for $ 850,000 (Ex. 58, 60).
*318 2. The Bogdanich Sale.
The evidence establishes that most of the claims that eventually were sold through the defendant Meier to the plaintiff were originally sold by Bida and Belaustegui to Bogdanich for consideration of $ 3,000 per month for 33 months and 100,000 shares of Westland Minerals stock. (Ex. 88.) This consideration was never fully paid for the claims. (R 714-15.) These claims were then sold to the plaintiff, in the corporate shell *211 of CPLD, via the defendant Meiers agent, with Bogdanich as seller, for $ 2,900,000. (Ex. 5.) Of that consideration, Bogdanich received $ 150,000. Cowley also disbursed $ 900,000 of that consideration by check payable to Meier's attorney, John Suckling (R 1708). Cowley gave it to Hatsis (R 471). The defendant Meier later gave the $ 900,000 check to Suckling. (R 1500.) $ 350,000 was paid to Hatsis out of this money to repay a loan of $ 30,000 to $ 35,000 gambling debts of Mr. Bogdanich, and for some stock he never received, although Hatsis was not a party to the transaction (R 1708-1711). The court finds that the defendant Meier knew of the vast disparity in the relatively nominal acquisition cost of the claims subsequently sold to the plaintiff for an exorbitant amount in the Bogdanich Sale.
3. The Belaustequi Sale.
Belaustegui acquired his interest in these mining claims for no consideration (R 676). Belaustegui then assigned his interest to an alleged venture of Hatsis, Belaustegui, and VanWalsum (R 679-80). The escrow agent at the closing of the sale from Belaustegui to the plaintiff gave Belaustegui $ 1,494,262.34 as the remaining sales proceeds from the transaction *212 with the plaintiff (R 482, 483). Belaustegui then delivered that amount to Cowley (R 482, 483). Cowely then distributed those funds including $ 476,762.34 to Hatsis (R 485) and $ 900,000 to VanWalsum (Exs. 23, 29).
4. Bida & Belaustegui Sale.
The mining claims for this transaction were acquired from Sellas and Hollopeter for $ 22,270 and monthly lease payments totaling $ 2,730 for a total of $ 25,000 purchase price. Hatsis, rather than Bida and Belaustegui, advanced the $ 22,270 portion of the purchase price (R 512). Hatsis was then reimbursed for that amount from the sales proceeds (R 511-13). These claims were then sold to the plaintiff through the defendant Meier for $ 1,900,000. Bida and Belaustegui then returned the net amount of the sales proceeds to Cowley (R 509) who distributed the funds including $ 1,150,000 that was given to VanWalsum (R 511) for transfer overseas where it was placed for the ultimate practical benefit and use of the defendant Meier. Hatsis received checks of $ 512,730 and $ 30,843.50, and Bida and Belaustegui were paid $ 165,000, through Mr. Cowley.
5. Globe Minerals, Inc. Sale.
The mining claims for this sale were acquired for $ 57,000 from*213 Jackson Mountain Mining Co. (Ex. 55). The purchase amount of $ 57,000 was delivered by Suckling out of the $ 900,000 he had received from Meier in the Bogdanich sale (R 529-531, 1315). These claims were then sold to the *319 plaintiff for $ 1,400,000. The net sales proceeds were delivered to Cowley from Al Hays of Globe (R 584). Cowley then distributed that amount by cashier's check to VanWalsum who was waiting in front of the Continental Bank to take the check (R 537, 538). From other evidence the reasonable inference is he transferred it overseas.
It appears that in the close of the escrows on the five transactions, which are described in detail herein, the named sellers, in all cases except the one where Hatsis was the named seller, received the money from the escrow holder, and gave full control over the funds to Cowley, attorney for Hatsis (R 503). The instructions to the escrow holder were given by the sellers, but they knew little of the reasons and did not really make the decision how it should be distributed, nor did the named sellers participate in the real negotiation of the sales. They got their agreed fees and left the remainder with Hatsis, VanWalsum and *214 Cowley for distribution (Belaustegui R 656, 647, 667, 671, 689; Hayes R 582, 583; Bogdanich 1700, 1706; VanWalsum R 968). The details on the Hatsis sale are unknown because the two persons who signed the sale agreement took the
From the five sales referred to, a total of $ 4,816,976.02 was paid to Suckling, Intermovie or VanWalsum (R 1402, 1216) and was part of a tax and investment program for the use and benefit of Meier and Hatsis. (R 1220, 1173, 1198, 1199, 1200, 1207, 1208, 1255, 1434, 1296.) The record shows this total came from the following sources:
| Hatsis Sale | $ 480,000 (R 1402, 965 - Ex. 111, 112) |
| Bogdanich Sale | $ 900,000 (R 1402, 1500 - Ex. 75, 11) |
| Belaustegui Sale | $ 900,000 (R 1402, 965) |
| Bida-Belaustegui Sale | $ 1,150,000 (R 1404, 973, 577, 1405 - Exs. 73, 74) |
| Globe Mineral Sale | $ 1,386,976.02 (R 1406, 537 - Ex. 54) |
| $ 4,816,976.02 |
The final step in the transactions was the transfer of the funds overseas for the defendant Meier's use and benefit and with his knowledge. The court will summarize the more salient facts since the record contains numerous*215 details bearing on defendant Meier's knowledge of the diversion of the funds and that they were to be transferred for his financial gain. Out of the Bogdanich sale, the defendant Meier at least received the use and benefit of $ 900,000 which he gave personally to his attorney Suckling (R 1500). Suckling paid his (Meier's) attorney's fees and costs from the money (R 1388), $ 100,000 was paid to plaintiff's superintendent in charge of mining (Ex. 93 - R 1340), and $ 100,000 by check to Intermovie, and $ 312,000 was either given to VanWalsum or sent to the addressee, Mr. Jack Holmstrom of First Security Bank of Salt Lake City to buy 200,000 shares of stock from Bogdanich (R 1318-1320).
Hatsis told Meier at the settlement talk in Los Angeles in December, 1970, that he was entitled to share with Meier in the funds that went overseas from the mining transactions (R 1434). VanWalsum met with *320 Hatsis in Salt Lake City in July, 1969, to talk about possibilities of transferring money to Europe (R 1145). He talked to him at least ten times. Hatsis told him how it was to be divided (R 1181). VanWalsum said the "set up was to get the money out of the country, and make certain investments*216 . . . the people we were doing that for, which is Mr. Meier and Mr. Hatsis." (R 1207, 1208.) Hatsis told VanWalsum how much money out of every transaction was to go overseas (R 1287). VanWalsum makes it clear the five were working for two clients, Mr. Meier and Mr. Hatsis in all this, and that "they were the final owners of the funds we were handling through the whole system." (R 1255.)
The demand by Hatsis, through his attorney Cowley, upon Suckling, Meier's attorney, for an accounting leaves little doubt he believed they had an understanding and that he was entitled to an accounting (R 557, 1428, 1429). A fortiori, plaintiff should be entitled to an accounting (R 1434-1445). They met and worked out a division at the Los Angeles airport that brought Hatsis $ 450,000 more through a complex sale of stock, etc., which would net Hatsis $ 450,000 in cash. They agreed on a 50-50 deal on future transactions (R 1443).
In February, 1970, defendant Meier came to Salt Lake City in a private plane to pick up Hatsis for a trip to Curacao to talk with In der Reiden about the overseas fund (R 1285, 1394-95). A trust arrangement, funded with $ 1,100,000 of the money from the mining transactions*217 was established for the benefit of Meier and his family. (Exs. 117, 119 - R 1674.) Even though the trust corpus was to revert to the VanWalsum management company at the end of the ten-year term, VanWalsum testified that the money belonged to Meier (R 1022). Meier was told about the trusts by Suckling and approved the use of the family names (R 1507, 1508).
Meier claimed complete control over the overseas funds and that it was "my money," as VanWalsum (R 1179-80, 1019) and Suckling (R 1513-1514, 1674) testified. VanWalsum's testimony clearly shows the involvement of Meier in asserting control over the use of the money and his right to use the money as he saw fit. For example, in addition to the $ 900,000 that Suckling received from Meier and the trust arrangements that have been discussed previously, Meier directed a foreign company (Inriego) that had received some of the funds to transfer certain money from Anglo-American Pictures to Gillerion. Meier met with VanWalsum during the period that these transactions were taking place to arrange for the placement of the funds to insure that they would be for his use and benefit. Meier requested transfers of $ 25,000 and $ 16,000 from*218 Anglo-American Pictures, to his personal numbered account (R 1212-15). Suckling's testimony essentially corroborates that of VanWalsum on these points concerning Meier's involvement with the overseas funds and their placement.
The investment tax plan required the use of a resident Dutch corporation, Intermovie, to minimize taxes in the Netherlands (R 1410, 1411, 1668, 1669) and so Meier could not have direct control or ownership of the funds. The money was moved to Curacao to minimize taxes in the Netherlands. Suckling testified Inrespro was the ultimate recipient of all *321 the mining money, and that Inrespro didn't have any funds other than that which came from Intermovie. (R 1414, 1427, 1520.)
It was the intention Meier would earn substantially more from the money than he would have netted otherwise (R 1569, 1670, 1671, 1673). Meier agreed to the plan. As noted above, however, he became impatient and made demands for payments and increased control.
Meier told Suckling of the source of the funds in January of 1970 and explained the suspect acquisition of wealth as a way Hughes had of rewarding good service, although Foley, the attorney for plaintiff, and Gray and Morgan, *219 of plaintiff company, were not so advised, and the business procedures did not otherwise show any intention of such. In addition, because of rulings the court has made there is no issue on this claim.
In summary, the plaintiff has established that there were five transactions and a total of their sales prices equals $ 8,550,000 as received from plaintiff. Less escrow expenses and authorized payments, there was released for distribution from the escrows to Cowley, Hatsis, et al., the sum of $ 8,401,587.72; that there was $ 4,816,976.02 diverted from the five transactions to accounts overseas through VanWalsum, Suckling, and Intermovie as well as other overseas business entities, with Meier's knowledge and for his substantial benefit. The plaintiff now seeks to have the defendant Meier account to the plaintiff for these amounts and prays the court to retain jurisdiction to enter a final judgment for restitution following an accounting. The court is of the opinion, and so finds and concludes, that the defendant Meier occupied a trusted fiduciary position with the plaintiff for the acquisition of mining properties; that the defendant Meier breached that duty by secretly diverting *220 funds from the five sales to his own use and benefit and to the damage of his principal; that there is no legal basis under which defendant Meier could have properly received for his own use and benefit any of such money; and that the defendant Meier must account for the funds entrusted to his care in relation to these transactions. The defendant Meier, therefore, has the burden of showing exactly how the funds entrusted to his care were expended and used and any credits to which he may be entitled. See
CONCLUSIONS OF LAW AND ORDER
In view of the foregoing findings, the court concludes as a matter of law defendant Meier must, and he is herewith ordered, to render an accounting of the funds that were diverted by the defendants from the proceeds paid by plaintiff for the purchase of the mining properties in question. Said accounting shall be provided in thirty (30) days from the*221 date of this order.
Because of the rulings of the court as set out above, the accounting herewith required of defendant Meier shall be without leave to claim *322 approval by plaintiff, or its agents, for his retention of the funds received, if such he now acknowledges.
DATED this 20 day of December, 1977.
I hereby attest and certify on 3/8/85 that the foregoing document is a full, true and correct copy of the original on file in my office, and in my legal custody
CLERK, U.S. DISTRICT COURT CENTRAL, DISTRICT OF CALIFORNIA ADELA BARBOSA Deputy
(S) Aldon J. Anderson
Aldon J. Anderson
United States District Judge[SEAL]
Footnotes
1. All section references are to the Internal Revenue Code of 1954 as amended and in effect during the years at issue. All Rule references are to the Tax Court Rules of Practice and Procedure.↩
2.
Hughes Tool Co. v. Meier, 489 F. Supp. 354">489 F. Supp. 354↩ (D. Utah 1977), affd. per curiam No. 78-1565 (10th Cir., Apr. 24, 1980). "Petitioner," when referred to in the singular, refers to petitioner John Meier.3. The complication and arduousness were due mainly to the parties' practical failure to stipulate to anything; respondent's almost exclusive reliance on collateral estoppel, testimony, and depositions taken in the prior Hughes Tool action which was also protracted and complex; petitioners' failure to submit proposed findings of fact on brief as required by Rule 151(e); and the convoluted manner in which the transactions took place.↩
4. Prior to and at the beginning of the trial in this case, respondent moved for summary judgment based solely upon the use of collateral estoppel derived from
Hughes Tool Co. v. Meier, 489 F. Supp. 354">489 F. Supp. 354 (D. Utah 1977). Respondent sought to satisfy his burden with respect to the additions to tax undersec. 6653(b) for all 3 taxable years. We were not disposed to grant the motion, but chose to take it under consideration in rendering this opinion. With regard to the mining transactions, the ultimate factual findings fromHughes Tool Co. v. Meier, supra , are sufficient to establish that petitioner diverted his employer's funds for his own use and control during petitioners' 1969 and 1970 taxable years. However, the factual findings from that proceeding are not sufficient, standing alone, to satisfy respondent's burden of proving fraud.The record in our case is comprised of the testimony of numerous witnesses and more than 100 documentary exhibits. Respondent offered an extensive amount of testimony in the alternative if no part of their collateral estoppel position was approved or to supplement any effective use of collateral estoppel. The testimony and documentary evidence received in this case was used in our consideration of whether respondent satisfied the burden of showing that petitioner was subject to an addition to tax under
sec. 6653(b)↩ . The only findings established by means of collateral estoppel are the quoted ultimate findings from the Hughes accounting action, which appear at the end of our findings in this case. The remainder of our findings are supported by the evidence in this case.5. The role of Intermovie is discussed later in connection with the flow of the funds overseas.↩
6. The role of Van Walsum is considered later in the findings regarding the transfer of the funds overseas.↩
7. Suckling also sent $ 110,000 to Globe, and $ 38,000 to Bida and Belaustegui.↩
8. We surmise that it was intended that the mining claims would appear to be capital assets of foreign corporations not connected with a U.S. business. Accordingly, it was possible that the sales proceeds received by the foreign corporations might not have been subject to Federal income tax. See sec. 881(a).↩
9. Respondent advanced three alternative approaches to prove a fraudulent understatement, as follows: (1) Petitioner is estopped to deny that the District Court's findings establish fraud; or (2) fraud is established based upon collateral estoppel supplemented by the documentary evidence and testimony evidence in our record; or (3) the documentary evidence and testimony evidence in our record alone support a finding of fraud. Respondent would not prevail upon the first alternative and the second alternative was utilized to realize judicial economy.↩
10. The Restatement defines the doctrine in the following manner: When an issue of fact or law is actually litigated and determined by a valid and final judgment, and the determination is essential to the judgment, the determination is conclusive in a subsequent action between the parties, whether on the same or a different claim. 1
Restatement, Judgments 2d, sec. 27↩ (1982).11. In the setting of this case, "asserting a claim" is the equivalent of respondent's attempting to carry his burden of proof.↩
12. Ultimate facts are "those facts upon whose combined occurrence the law raises the duty or right in question," while evidentiary facts are "those facts from whose existence may be rationally inferred the existence of an ultimate fact."
Amos v. Commissioner, 43 T.C. 50">43 T.C. 50 , 54 (1964), affd.360 F.2d 358">360 F.2d 358 (4th Cir. 1965), citingThe Evergreens v. Nunan, 141 F.2d 927">141 F.2d 927↩ (2d Cir. 1944).13. One commentator saw this more strict interpretation as an attempt to differentiate which facts were actually litigated and necessary to the first judgment and which were not. See C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure, sec. 4424 (1981 & Supp. 1987). We do not have to address this distinction because the use of collateral estoppel in this case is limited to facts which were ultimate facts from the "first case."↩
14. Although we adopted the Evergreens↩ approach requiring the establishment of ultimate facts by means of collateral estoppel, our stated standard for the facts found in the first proceeding was that they be "necessary or essential to the result." We made no distinction between ultimate and intermediate facts in the first proceeding.
15. Petitioners (Meiers) resided in British Columbia (outside of the United States) at the time of filing of their petition. Accordingly, their appeal, if any, would lie in the Court of Appeals for the District of Columbia. See sec. 7482(b)(1)(E). Further, we consider opinions of the circuit to which a case is appealable to be controlling. See
Golsen v. Commissioner, 54 T.C. 742">54 T.C. 742 (1970), affd.445 F.2d 985">445 F.2d 985 (10th Cir. 1971), cert. denied404 U.S. 940">404 U.S. 940 (1971). With respect to the Evergreens rule only, we will no longer followAmos v. Commissioner, 43 T.C. 50">43 T.C. 50 , 54 (1964), affd.360 F.2d 358">360 F.2d 358↩ (4th Cir. 1965), irrespective of the "Golsen rule."16.
Commissioner v. Sunnen, 333 U.S. 591">333 U.S. 591↩ (1948), requires that a question of fact be "actually litigated" and "essential" to the judgment.17. Some court opinions and treatise material reflect that both parts may be addressed either in a single proceeding or opinion, or both. In the Hughes action, Judge Anderson first ordered that Meier was to account to Hughes and required him to do so within 30 days. Upon Meier's failure to come forward to account within 30 days, Judge Anderson↩ entered final judgment against Meier.
18. Petitioners offered to stipulate to facts found by the District Court, but withdrew their offer when respondent continued to offer into evidence exhibits and depositions from the prior trial. The District Court had the onerous task of unraveling this complicated set of facts. Petitioners have not set forth any convincing reason why we should have to go through the same process again. Most of respondent's presentation in this case consisted of testimony and depositions from the prior action. Petitioner made exactly the same objections as in the prior case, urging that the District Court's evidentiary rulings were erroneous. Petitioners' actions in making the same objections is another indicator that the issues and petitioner's motivations herein are either identical or substantially the same as those in the prior action.↩
19. The Court of Appeals for the Tenth Circuit went so far as to describe petitioner's tactics as "dilatory." Hughes Tool Co. v. Meier, No. 78-1565 (10th Cir., Apr. 24, 1980) (
slip op. p. 2 ). In addition, it has come to the Court's attention that petitioner was convicted of obstruction of justice by knowingly submitting false documents to the District Court in the Hughes action. SeeUnited States v. Meier, 484 F. Supp. 1129">484 F. Supp. 1129↩ (D. Utah 1980).20. Petitioner has not referred us to any cases which hold that simultaneous civil and criminal actions deprive an individual of a full and fair opportunity to litigate in either case. Additionally, the District Court and Circuit Court of Appeals for the 10th Circuit refused to stay the accounting action on the same
Fifth Amendment↩ grounds.21. In the District Court case, Meier also attempted to show that his activities were not on behalf of Hughes but instead that he was acting on behalf of a Mr. Maheu. That claim was summarily rejected by the District Court judge and did not meet with any success in diverting the Court's attention from the facts proven by Hughes.↩
22. The taxpayer was collaterally estopped from denying participation in the bribery scheme.↩
23. As we previously stated with respect to the collateral estoppel issue, petitioner made identical objections here as in the prior action. We meticulously ruled on these objections, substantially agreeing with the District Court Judge.↩
24. Three-fourths of one deposition is solely cross-examination by petitioner's counsel.↩
25. Most, if not all, of the documents were objected to on the hearsay ground, but there was a group (labeled as "A" documents) to which petitioners did not pose authenticity objections.↩
26. Because of the reliance upon collateral estoppel and the substantial effect that it has upon the findings in this case, our reliance upon the questioned documentary evidence is lessened. The documents generally provide corroborative or transitional support for our findings. Most factual findings would stand without reference to the documents which were questioned as to authenticity, hearsay, and relevance (referred to as category "C" documents at trial). See also note 4 supra↩.
27. Even if the funds had been obtained with the consent of his employer, petitioner's taxability on such amounts would be unaffected.↩
28. Cash bank deposits are just another form of cash expenditure. Cf.
Estate of Mason v. Commissioner, 64 T.C. 651">64 T.C. 651 (1975), affd.566 F.2d 2">566 F.2d 2↩ (6th Cir. 1977) (bank deposits are prima facie evidence of income).29. Respondent need not negate all the possible nontaxable sources of income advanced by taxpayers.
Holland v. United States, 348 U.S. 121">348 U.S. 121 , 138↩ (1954).30. We are not certain whether the Restatement's recommended exception would apply equally to facts which are established as "evidentiary" in the second case. Where an evidentiary or ultimate fact from the first case is used as an ultimate fact in the second (without further evidence) a comparison of the degree of the burden of proof would be necessary. In a setting where a collaterally estopped fact is merely a part of the evidence considered to determine whether a party has met his burden of proof, the need for an equal or higher burden of proof in the first case is less obvious. We do not have to address this nuance because the burden of proof in both cases under consideration is by "clear and convincing evidence."↩
31. Comment "a" to
sec. 389 of the Restatement, Agency ↩ 2d (1957), indicates that "an agent who is appointed to sell or give advice concerning sales violates his duty if, without the principal's knowledge, he sells to himself or purchases from the principal through the medium of a 'straw.'"32. The dissenting opinion did not think that the facts were shown by clear and convincing evidence, as was necessary in a fraud case, quoting
Pace v. Parrish, 122 Utah 141">122 Utah 141 , 247 P.2d 273">247 P.2d 273↩ (1952).33. Most of the documents and testimony received in the District Court were offered and received in this case.↩
34. Although neither party brought this matter to our attention, it is obvious that respondent has only proven that petitioner-husband fraudulently intended to evade Federal income tax.
Sec. 6653(b) , in part, provides: "In the case of a joint return under sec. 6013, this subsection shall not apply with respect to the tax of a spouse unless some part of the underpayment is due to the fraud of such spouse." Respondent has not shown that any part of the underpayment is due to fraud on the part of petitioner-wife (Jennie E. Meier). The addition to tax undersec. 6653(b) is not applicable to petitioner-wife for any of the 3 taxable years in issue. However, petitioner-wife has not otherwise alleged or proven that she is an "innocent spouse" within the meaning of sec. 6013 for any of the 3 taxable years in issue. Thus, petitioner-wife is jointly and severally liable with petitioner-husband for the income tax deficiency, but she is not liable for any addition to tax undersec. 6653(b) .Stone v. Commissioner, 56 T.C. 213">56 T.C. 213↩ (1971).35. Respondent also included other amounts in petitioner's income, a $ 9,000 cash insurance premium payment, $ 137.25 of interest income, and approximately $ 7,000 without a designated origin.↩