Before Friendly and Smith, Circuit Judges, and Watkins, District Judge.*fn*
This appeal concerns the civil side of the long-standing tax controversy between the United States and Raymond A. O'Connor of Niagara Falls. O'Connor was convicted in 1954 and again in 1957 of wilfully attempting to evade payment of his income taxes for 1946-1949; both convictions were reversed by this Court on grounds not going to the merits of the Government's claim, 1956, 237 F.2d 466; 1959, 273 F.2d 358.
On September 12, 1951, the Commissioner made jeopardy assessments against Raymond O'Connor and his wife Bertha for deficiencies in income taxes, fraud penalties and interest totalling $409,370.28 for the years 1943-1949, Int. Rev. Code of 1939, § 273(a), 26 U.S.C.A. § 273(a). Thereafter Raymond and Bertha filed a petition in the Tax Court requesting a redetermination of the deficiencies and penalties; however, no bond to stay collection of the tax was filed, as permitted by § 273(f) of the 1939 Code. The Commissioner answered and taxpayers replied; no further proceedings have been taken. On August 4, 1952, the Commissioner made transferee assessments, under § 311, in the sum of $261,209.00 against Elizabeth F. Fitzpatrick as alleged transferee of certain real property deeded to her by Bertha O'Connor on July 31, 1951.
On August 23, 1957, just before the six year statute of limitations, Int. Rev. Code of 1954, § 6502, 26 U.S.C.A. § 6502, would have run on the O'Connor assessments, the Government brought this action under § 7403. The complaint alleged, in addition to certain of the facts set forth above, that the assessment lists covering the assessments against the O'Connors had been received by the Collector in Buffalo on September 14, 1951, notice and demand upon the taxpayers made that day, and notices of the tax liens filed on September 21; that, in the case of the Fitzpatrick assessment, the assessment lists were received August 7, 1952, notice and demand made that day, and notice of lien filed on August 8; that seven parcels of real estate and a mortgage standing in the name of Bertha O'Connor but allegedly owned by Raymond had been fraudulently conveyed to Mrs. Fitzpatrick; that O'Connor had an interest in an accounting partnership, held a claim against Chisholm Ryder Co., Inc., and wholly owned and controlled two other companies, Burt Packing and Warehouse, Inc. and Burt Cold Storage Co., Inc. which owed him large sums; and that other named defendants claimed interests or liens upon or against O'Connor's properties. The complaint sought a personal judgment against the O'Connors for the amount assessed; the setting aside of the transfers to Mrs. Fitzpatrick; judgment against Raymond O'Connor, as executor of her estate, for the amount of the transferee assessment; determination of the validity and priority of all liens and claims with respect to the O'Connors' properties; sale and distribution to satisfy the liens; and, finally, the appointment of a receiver to enforce the Government's liens against the properties of the O'Connor's and the two Burt corporations with the powers of a receiver in equity. Annexed to the complaint was a certificate of the Commissioner, § 7403(d), that appointment of a receiver for the O'Connors and the two companies was in the public interest.
The late Judge Morgan issued an order requiring defendants to show cause on July 28, 1958, why the prayer for the appointment of a receiver should not be granted. On the return day the Government presented a "Memorandum of Points Relied Upon" and affidavits. Some of these, by E.C. Coyle, Jr., then District Director of Internal Revenue, related to the facts of assessment, notice and demand, filing, etc.; they recited also that in September, 1951, large tax deficiencies, not alleged in the complaint, had been assessed against the two Burt companies, and notice and demand made. The Memorandum of Points stated that, for proof of other facts to support the appointment of a receiver, the Government relied on other affidavits attached to the Memorandum, on copies of deeds and of probate papers relating to Mrs. Fitzpatrick, and on the entire transcripts of the two criminal trials. The Government also served a subpoena on Raymond O'Connor.
At the hearing on July 28, counsel for the defendants asked the Court to quash the subpoena as violating O'Connor's Fifth Amendment privilege against selfincrimination and for time to brief and prepare to argue "various questions of law with respect to the validity of the Government's lien after certain sales of real estate which were deeded out of Bertha O'Connor, the defendant, prior to the filing of assessment rolls in this case"; he indicated he might also wish to object to use of the transcripts of the criminal trials. The judge set times for the filing of answering affidavits and briefs and adjourned the matter until September 2; the defense filed a brief dated August 18 but no answering affidavits. Apparently no proceedings were had on September 2. On September 4, Judge Burke announced that, due to serious illness, Judge Morgan was unable to be present as expected, but that he had made a decision, which Judge Burke distributed.
The decision recited the facts; determined that, although the Court in its discretion would not consider any portion of the transcript of the first criminal trial before Judge Knight, it would consider the entire transcript of the second trial, over which Judge Morgan had presided; granted the prayer for the appointment of a receiver, who was also to determine the issues of fact and law raised by the complaint; and denied the motion to quash the subpoenas, which appears to have been rendered moot. The judge said his decision was based on the oral argument, presumably on July 28, and the briefs, and that "in the considered opinion of this Court, further argument and/or testimony is unnecessary for the exercise of the discretion of the District Court in the appointment of a receiver." There followed, on September 10, 1958, the order, here under appeal, appointing Clarence R. Runals as receiver and also as special master.
An order appointing a receiver is appealable under 28 U.S.C. § 1292(a)(2). An order appointing a special master, standing alone, would not be, although it could normally be attacked by a petition for mandamus to the court and prohibition to the master, La Buy v. Howes Leather Co., 1957, 352 U.S. 249, 254-260, 77 S. Ct. 309, 1 L. Ed. 2d 290; Webster Eisenlohr, Inc. v. Kalodner, 3 Cir., 1944, 145 F.2d 316; United States v. Kirkpatrick, 3 Cir., 1951, 186 F.2d 393. Our jurisdiction under § 1292(a)(2) over the order appointing the receiver would surely empower us to remove from the appointee functions that a receiver may not properly perform, 28 U.S.C. § 2106. Whether it would extend to deciding that no special master may properly be appointed is doubtful, and we must consider that question even though the Government has not raised it. In the Ninth Circuit the problem would be solved by treating the appeal, insofar as it related to an order non-appealable but susceptible of attack by mandamus, as a petition for the latter, Shapiro v. Bonanza Hotel Co., 9 Cir., 1950, 185 F.2d 777; Steccone v. Morse-Starrett Products Co., 9 Cir., 1951, 191 F.2d 197; our seemingly contrary position, Abbe v. New York, N.H. & H. Ry. Co., 2 Cir., 1948, 171 F.2d 387; Mottolese v. Preston, 2 Cir., 1949, 172 F.2d 308; Zamore v. Goldblatt, 2 Cir., 1953, 201 F.2d 738, has been characterized as "a very peculiar doctrine for a modern court to espouse." 6 Moore, Federal Practice (1953 ed.) p. 93; cf. Magnetic Engineering & Mfg. Co. v. Dings Mfg. Co., 2 Cir., 1950, 178 F.2d 866; Arrowhead Co. v. The Aimee Lykes, 2 Cir., 1951, 193 F.2d 83. Whatever the reasons for requiring a formal petition addressed to the judge may have been in the three cases cited, there can hardly be any in a case where the judge is no longer able to respond*fn1 and a portion of his order is within the interlocutory appeal statute; it would be undue formalism for us here to refuse to express our views on an issue where mandamus would lie and perhaps thereby lead the District Court, in deference to Judge Morgan, into action that would provoke a later petition for mandamus and affirmative action thereon. Cf. Florida v. United States, 8 Cir., 1960, 285 F.2d 596, 599-601, where the non-appealable order was not of the sort as to which mandamus would issue.
Appointment of the Receiver
(1) Appellants claim they were deprived of a fair hearing. They were not. The proceedings on July 28 made plain that any further factual material was to be presented in affidavits rather than in open court; appellants chose not to file any. The adjourned session was to be only for further argument a privilege the judge was not required to grant, see F.C.C. v. WJR, The Goodwill Station, 1949, 337 U.S. 265, 275-276, 69 S. Ct. 1097, 93 L. Ed. 1353. Still it might be argued that, having granted it, he was obliged to go through with it, since appellants might have refrained from presenting relevant legal considerations in reliance on his promise. That contention is not open here, for two reasons: The first is that appellants did file a brief which appears to have made a complete presentation of their legal case. The second is that any relevant legal claims are still open in this court - it would be absurd to reverse to allow the District Court to hear arguments against Judge Morgan's power to appoint a receiver which we would deem it error for that Court to accept; and it is apparent that any arguments going to discretion were fully made on July 28 and in the brief. Of course, the procedure here followed was not a desirable one; but it was pursued only because of Judge Morgan's serious illness and we cannot see that it deprived appellants of any substantial rights.
(2) Appellants' second attack is that the Government failed to prove demand, which § 3670 of the 1939 Code, 26 U.S.C.A. § 3670, requires before the lien of a tax may attach. They make much of the point that Coyle's affidavit alleges there were sent to the O'Connors in 1951 forms of Statements of Income Tax Due, labelled Form 17-A, which, in fact, did not then exist, the then applicable form of notice of assessment and demand for payment being Form 7658. However, there were also annexed to Coyle's affidavits copies of the Assessment Certificate and accompanying Assessment List in regard to the O'Connors and also in regard to Mrs. Fitzpatrick, and the "Remarks" column of these lists carries a reference "[7658 - Sept 14 1951]" for the O'Connors and "[7658 - Aug 7-1952]" for Mrs. Fitzpatrick. This sufficiently proved the mailing of Form 7658 in the absence of countervailing evidence.
(3) Appellants' claim that the pendency of the Tax Court proceedings prevented the appointment of a receiver flies in the face of the reasons underlying the statutory provisions for jeopardy assessments.These were necessary concomitants to establishment of the procedure whereby normally taxpayers may obtain a review of the Commissioner's determination in advance of payment; without provision for jeopardy assessments there would be too many cases in which the time spent in such a review might defeat collection of the tax. As explained in Sen. Rep. No. 52 (69th Cong. 1st Sess.), pp. 26-27, incident to the Revenue Act of 1926 (1939 - 1 Cum. Bull. 332, 352), the system of jeopardy assessment "does not interfere in any manner with the regular course of deficiency letters, petitions to the Board, and appeals therefrom to the circuit court of appeals"; but neither do the latter stay collection of the tax when a jeopardy assessment has been made, unless the taxpayer files a bond as permitted by § 273(f) of the 1939 Code. If, ...