280 F.

2d 462

UNITED STATES of America, Appellant

v.
COUNTY OF LAWRENCE, City of New Castle, City of New
Castle
School District, County of Lawrence Institution
District, Appellees.
No. 13058.

United States Court of Appeals Third Circuit.

Argued March 10, 1960.
Decided July 1, 1960.

Robert S. Griswold, Jr., Washington, D.C. (Perry W. Morton, Asst. Atty.

Gen., Hubert L. Teitelbaum, U.S. Atty., Thomas J. Shannon, Asst. U.S.
Atty., Pittsburgh, Pa., Roger P. Marquis, Attorney, Department of Justice,
Washington, D.C., on the brief), for appellant.
Robert C. Lea, Jr., Philadelphia, Pa. (Norris, Lex, Hart & Ross,
Philadelphia, Pa., Orville Brown, New Castle, Pa., Marshall G. Matheny,
New Castle, Pa., Howard C. Klebe, New Castle, Pa., on the brief), for
appellees.
Before GOODRICH, STALEY and FORMAN, Circuit Judges.
FORMAN, Circuit Judge.

This is an appeal from an order of the United States District Court for the
Western District of Pennsylvania1 dismissing the complaint of the appellant,
the United States, in which it sought to have declared void certain tax liens for
the year 1954 in the aggregate amount of $116,900 imposed by the appellees,
County of Lawrence, City of New Castle, City of New Castle School District
and County of Lawrence Institution District, governmental bodies and arms of
the state government of the Commonwealth of Pennsylvania.

Briefly the pertinent facts which were agreed upon by the parties are as

follows:
3

In 1942, the City of New Castle, in the County of Lawrence, Pennsylvania,

conveyed certain parcels of its land to the Defense Plant Corporation, a
subsidiary of the Reconstruction Finance Corporation. A defense plant was
constructed thereon known as Plancor 765 at a cost of approximately
$23,000,000. United Engineering and Foundry Company operated it under a
series of leases from 1943 to 1956. The Reconstruction Finance Corporation as
successor to the Defense Plant Corporation declared Plancor 765 surplus to its
needs under the Surplus Property Act of October 3, 1944,2 and on September 4,
1947, the War Assets Administration assumed the care, custody and
accountability for the property, until it was succeeded by the General Services
Administration.3

On June 13, 1950, the Reconstruction Finance Corporation conveyed the

property to the United States of America by a quit claim deed which was
recorded in Lawrence County on December 15, 1953.

On April 25, 1952, the Reconstruction Finance Corporation and the United
States, acting through the Administrator of the General Services, as of January
1, 1952, leased Plancor 765 to the United Engineering and Foundry Company
for a term of two years ending December 31, 1953. The lessee was required to
pay all taxes,4 assessments and similar charges which were assessed or imposed
upon the lessor or the lessee during the term of the lease.5 Several supplements
to the original lease were executed during its term.

On July 13, 1954, the United States and United Engineering and Foundry
Company executed an agreement as of January 1, 1954, which renewed the
1951 lease and its supplements, except as modified in the renewal. It provided
for a term of one year ending December 31, 1954 and for a month to month
tenancy from January 1, 1955 to June 30, 1955. By its terms the lessee was no
longer required to pay local taxes but rather was required to pay their equivalent
as additional rent.6

On August 12, 1955, Congress enacted legislation providing for the payment,
in lieu of taxes, to the appropriate taxing authorities, of

'an amount equal to the amount of the real property tax which would be payable
to each such State or local taxing authority on such date if legal title to such real
property has been held by a private citizen on such date and during all periods
to which such date relates.'7

Payments for 1955 and 1956 taxes have been made pursuant to the above Act.

10

The United States had filed a preceding complaint to this suit in the United
States District Court for the Western District of Pennsylvania against the same
parties as are appellees here under United States v. Hanlon, 165 F.Supp. 1, in
which it prayed to have taxes for the years 1954, 1955 and 1956 declared void.
That suit was dismissed without prejudice pursuant to an opinion and order
filed November 19, 1958.8

11

On July 19, 1956, and while the said suit was pending, the United States
conveyed the property to Mesta Machine Company by deed, without warranty,
and the purchaser executed a purchase price mortgage to secure its note in the
sum of $7,500,000.

12

Concurrently with the delivery of the deed the General Services Administrator
entered into a 'side agreement' with Mesta Machine Company whereby the
United States obligated itself to continue the litigation then pending to vacate
the alleged illegal tax liens and to assume liability therefor should a judgment
be entered against the United States. Following the dismissal of the pending
suit this action was brought.

13

On the foregoing stipulated facts, among others, the district court dismissed the
complaint after concluding that the case before it was distinguishable on the
facts from Board of County Commissioners of Sedgwick County v. United
States, Ct.Cl.1952, 105 F.Supp. 995; that immunity with respect to the tax on
the property was waived by the Government; that it was estopped from
claiming its sovereign immunity and that it had failed to show a justiciable
interest in the property.9

14

The district court found that under Section 810 of the Reconstruction Finance
Corporation Act (47 Stat. 8, 15 U.S.C.A. 607), the constitutional immunity to
local taxation upon real property owned by the Reconstruction Finance
Corporation was waived.
It further found as follows:

15

'* * * Commencing as we do with taxability under the facts in this case, if it

was not waived, Plancor 765 became exempt on September 4, 1947, which was
the date of the acceptance of responsibility by the WAA (Exhibit 2). But the
government in this case did not choose to insist upon continued tax immunity. It
directed and subjected the property to local taxation by its lessee United

Engineering, from 1947 through and including 1953 and to July 13, 1954. On
the merits of this controversy, then, I hold that the United States, prior to July
13, 1954, had not withdrawn its waiver of immunity from the imposition of
local taxes on Plancor 765. Under Pennsylvania law, the property was placed
on the assessment rolls for the year 1954 in the fall of 1953. 72 P.S. 5020401(e). All the local taxes were levied before April 13, 1954, when the tax of
the school district of New Castle was levied. The government made no change
in the taxability of this property from the erection of the plant until July 13,
1954. At the latter date, the government itself took over the amount of local
taxes. Congress has since directed that the 1955 and 1956 taxes be paid in
accordance with the statute.' 173 F.Supp. at pages 313, 314.
16

In concluding that there had been a waiver of immunity the court commented:

17

'On the merits the government asks that this court strike down the lien of these
taxes. Under the factual situation, that does not seem fair, just or right. The
government here was the owner of and renting a property declared surplus.' 173
F.Supp. at page 314.

18

Since the opinion of the district court, filed on April 19, 1959, the Supreme
Court, on May 23, 1960, considered relatively the same issue in Rohr Aircraft
Corporation v. County of San Diego, 80 S.Ct. 1050. In that case the County of
San Diego assessed ad valorem real property taxes on property against the
Reconstruction Finance Corporation as owner for the fiscal years 1951 to 1955,
inclusive. Pursuant to a declaration made May 29, 1946, the Reconstruction
Finance Corporation had declared the subject property surplus to its needs and
the War Assets Administration and the General Services Administration as its
successor retained possession of it until September 1, 1949, during which
period it was used as a storage depot and a sales center for surplus property. On
September 1, 1949, it was rented to Rohr Aircraft's predecessor in a lease in
which the lessor was described as the 'Reconstruction Finance Corporation * *
* and the United States of America, both acting by and through the General
Services Administration under * * * the Surplus Property Act of 1944.' By the
terms of the lease the lessee undertook to pay all taxes legally assessed against
the property. Rohr Aircraft paid the taxes and, after claims for refund were
denied, filed suit to recover the taxes. The trial court found against it and the
Supreme Court of California affirmed. 51 Cal.2d 759, 336 P.2d 521. It took the
view that real property declared to be surplus under the Surplus Act of 1944,11
record title to which is in the Reconstruction Finance Corporation, continues to
be subject to local taxation under the waiver of the exemption provided for by
Section 8 of the Reconstruction Finance Act. In Continental Motors Corp. v.
Township of Muskegon, 1956, 346 Mich. 141, 77 N.W.2d 370, the Supreme

Court of Michigan held similarly. To resolve the conflict engendered by the

opposite conclusion of the Court of Claims in the Board of County
Commissioners of Sedgwick County v. United States, supra, the Supreme
Court agreed to hear the case.
19

The Court reviewed the history of the Reconstruction Finance Corporation,

pointing out that it was originally created for the purpose of making loans to
distressed business concerns. It noted that:

20

'* * * Apparently Congress was concerned that property obtained by the

Corporation through its financial operations in aid of economic recovery
policies would lose its taxable status * * *.' 80 S.Ct. at page 1052.

21

Hence, it reasoned, the right of state and local governments to tax property
coming into the hands of the Corporation was preserved through Section 8 of
the Act. Note was also taken of the widening sphere of functions of the
Corporation in 1940 with the approach of World War II and the necessity for
the acquisition of large tracts of land resulting in the extension of the waiver to
real estate holdings of the Defense Plant Corporation. See 55 Stat. 248.

22

But with the passage of the War Surplus Act of 1944 the functions of the
Reconstruction Finance Corporation with relation to such lands changed. Of
this the Court commented:

23

'It appears to us that the purpose of the waiver provision was to permit taxation
of real property being used by the Reconstruction Finance Corporation in the
performance of its functions. Such use was terminated when the property was
declared surplus in 1946. At that time another agency of the Government took
both the occupancy and complete control of the property for the purpose of
management and disposition. The Reconstruction Finance Corporation, under
the specific provisions of the Surplus Property Act, thereby lost all power and
control over the property, which came into the hands of the Administrator for
the account of the United States, any proceeds therefrom being ordered paid
into the United States Treasury. Thereafter, the Administrator elected, as he
had the statutory power to do, to lease the property to appellant's predecessor.
The real property, however, remained in the account of the United States, not
the Reconstruction Finance Corporation * * *. We think that the land here was
'owned' by the United States.' 80 S.Ct. at page 1053.

24

The Court assayed the decision of the Supreme Court of California in this case
and that of the Court of Claims in Sedgwick County, supra, and said:

25

'* * * We agree with the Court of Claims 'that the cloak of immunity descended
upon the property (when it was declared surplus) and no tax liability for the
property could arise thereafter." (105 F.Supp. 1002.) 80 S.Ct. at page 1054.

26

The facts in the Rohr case are generally the same as in the case at bar. There,
too, the property was leased for a completely private purpose of the tenant but
the waiver of immunity of the sovereign to taxation found by the district court
in this case was denied.

27

The district court buttressed its position that immunity must be denied with the
theory that the United States was equitably estopped from claiming it.
Apparently the basis for that conclusion was that prior to 1954 the taxes were
paid by the government itself until the first lease under the War Surplus Act
and thereafter the taxes were paid by the government's lessee; and that the
government, under the factual situation as found by the court, in renting the
property to a private lessee, was exercising a proprietary function. That there
was a prior waiver by Congress of the immunity furnishes no basis to estop the
government from later claiming it. Maricopa County v. Valley Nat. Bank, 1943,
318 U.S. 357, 362, 63 S.Ct. 587, 87 L.Ed. 834. The activities involved in this
case were the lawful acts of corporations and agencies created by the United
States and were governmental in nature. See Federal Land Bank of St. Paul v.
Bismark Lumber Co., 1941, 314 U.S. 95, 102, 62 S.Ct. 1, 86 L.Ed. 65; Mayo v.
United States, 1943, 319 U.S. 441, 448, 63 S.Ct. 1137, 87 L.Ed. 1504. The
taxes were paid by the government only under the express authority of the
Reconstruction Finance Corporation Act. Otherwise they were paid by the
lessee, induced by the government's requirements in the provisions of its leases.
Evidently both the government's officials and the lessee regarded the imposition
of taxes as lawful. That they were not, forms no basis for an estoppel against
the government, equitable or otherwise, to claim its sovereign immunity against
the local taxes. Utah Power & Light Co. v. United States, 1917, 243 U.S. 389,
37 S.Ct. 387, 61 L.Ed. 791; Automobile Club of Michigan v. Commissioner,
1957, 353 U.S. 180, 183, 77 S.Ct. 707, 1 L.Ed.2d 746. In view of the foregoing
we find it unnecessary to discuss the failure to show here the essential factual
elements to establish an equitable estoppel in any event.

28

It should be recalled that a quit claim deed for this property was delivered to
the United States by the Reconstruction Finance Corporation on June 13, 1950
and recorded on December 15, 1953. Of this the district court commented:

29

'* * * I hold that the execution and delivery of the quit claim deed and the
recording of it made no change in the tax status of Plancor 765 * * *.' 173
F.Supp. at page 313.

But the Court in Rohr Aircraft remarked:

30

'There would be no question as to the exemption of the real property involved

had the record title been in the name of the United States * * *.' 80 S.Ct. at
page 1053.

31

Finally the district court concluded that the appellant's complaint must be
dismissed because it conveyed the property in question to the Mesta Machine
Company on July 19, 1956 without including any warranty of title in its deed. It
held:

32

'* * * There is nothing in the complaint in the instant action nor is there any
evidence in the agreed statement of facts or elsewhere that the security for the
payment of the purchase money is in any way jeopardized by the so-called tax
liens against Plancor 765. It is true that the government says that the 'National
Security Clause' which was made a part of the deed to Mesta may be
jeopardized by the tax liens. Such a possibility is so remote and incidental as
not to justify this court in refusing to strike down these tax liens. See S.R.A.
Inc. v. State of Minnesota, supra. Further, in the opinion of this court there is no
justiciable issue between the government and these defendants. It is not a 'case
or controversy' within the meaning of the constitution, Article 3, 2, in which the
jurisdiction of the United States District Court may be invoked. Moreover,
defendants assert before this court and this court will presume that the
defendants will abide by their assertion, that they will not subject any interest of
the United States in the property to tax sale or otherwise jeopardize the
government's mortgage security * * *.' 173 F.Supp. at page 315.

33

It is clear that the United States by its 'side agreement' obligated itself to
continue the litigation pending at the time it sold the property and that if
unsuccessful therein would assume liability for the payment of the liens or
would

34

'otherwise cause the lien of said taxes for the year 1954 * * * to be withdrawn,
settled or otherwise expunged from the record so that there shall be no lien or
purported lien for said taxes.'

35

We do not agree with the district court. The agreement was tantamount to a
warranty and the unpaid taxes for 1954 constitute a lien against the property.
The United States has an interest in removing the lien in accordance with the
obligation of its agreement and in view of the substantial incumbrance it retains
against the property by way of its mortgage. Contrary to the district court's

finding we must conclude that it had before it a justiciable issue between the
appellant and the appellees over which its jurisdiction had been properly
invoked under 28 U.S.C.A. 1345.
36

We have not overlooked the argument of the appellees that Rohr Aircraft
decided only the narrow issue that property which was taxable in the hands of
the Reconstruction Finance Corporation 'becomes immune when custody and
possession are transferred to another agency of the United States.' They
emphasize that the latter decision:

37

'* * * says nothing on the doctrine of the Michigan cases that a state may
impose a non-discriminatory tax on the lessees of Federal property and these
cases are not cited in the opinion.'

38

They contend that the instant tax is valid under the doctrine laid down in a
trilogy of Michigan cases decided by the United States Supreme Court on
March 3, 1958.12 However, the Michigan cases are clearly distinguishable from
the present case. In none of those cases was there a tax on the federal
government or its property. The effect of the Michigan statute authorizing the
taxes therein imposed is made clear by the Court in United States v. City of
Detroit, 355 U.S. 466, at page 469, 78 S.Ct. 474, at page 476, 2 L.Ed.2d 424,
where it said:

39

'The Michigan statute challenged here imposes a tax on private lessees and
users of tax-exempt property who use such property in a business conducted for
profit. Any taxes due under the statute are the personal obligation of the private
lessee or user. The owner is not liable for their payment nor is the property
itself subject to any lien if they remain unpaid. So far as the United States is
concerned as the owner of the exempt property used in this case it seems clear
that there was no attempt to levy against its property or treasury.'

40

Here the tax is levied directly on the property of the United States and that
property is subjected to a lien. It is patent that what was levied was nothing
'other than the old and widely used ad valorem general property tax' and as such
it was invalid. United States v. Allegheny County, 1944, 332 U.S. 174, 64 S.Ct.
908, 914, 88 L.Ed. 1209.

41

The appellees have not brought themselves outside the established doctrine that
federal property is immune from local taxation regardless of the use to which it
may be put. McCulloch v. State of Maryland, 1819, 4 Wheat. 316, 4 L.Ed. 579;
United States v. Allegheny County, supra; Board of County Commissioners of

Sedgwick County v. United States, supra; Rohr Aircraft v. San Diego County,
supra.
42

The vigor with which the appellees seek to sustain the taxes in this case, and the
sympathetic view of the trial judge are understandable in the light of the
hardship wrought upon local authorities when they are confronted with tax
immune ratables which would otherwise share the mounting costs of their
governmental service. However, alleviation of the hardship for the year 1954
could only come by way of legislative grant. That there is absent any intent
upon the part of Congress to make relief available prior to the 1955 statute (40
U.S.C.A. 521-524) is made clear by the concluding passages of the opinion of
the Supreme Court in Rohr Aircraft, supra, 80 S.Ct. 1050.

43

Accordingly the order of the district court of April 17, 1959, dismissing the
complaint and civil action is reversed and judgment will be entered in favor of
the United States.

The opinion of the United States District Court is found in 1959, 173 F.Supp.
307

58 Stat. 765

See Federal Property and Administrative Services Act of 1949, c. 288, 63 Stat.
377, 40 U.S.C.A. 472 et seq

The district court found that under a series of leases prior thereto the lessee
agreed to pay local taxes and did so through December 31, 1953. The leases
required a minimum rental with a profit sharing right to the lessor running from
7 to 11.6 percent of net sales

Paragraph 11 of the lease contained the following provisions:

'11. Lessee agrees to pay to the proper authority, when and as the same
becomes due and payable, all taxes, assessments and similar charges which at
any time during the term of this lease may be taxed, assessed or imposed upon
the Lessor or Lessee with respect to or upon the leased premises or any part
thereof, or upon the occupier thereof, or upon the use or operation of the leased
premises, provided, however, that such taxes, assessments or similar charges
shall be prorated and apportioned as of the date of commencement and as of the
effective date of expiration, termination or cancellation of this lease,
respectively, but the obligation of Lessee with respect to the payment of such

taxes, assessments or similar charges shall include the amount thereof properly
applicable during the term of this Lease, Lessee also agrees to contract in its
own name for and to pay all claims or charges for or on account of water, light,
heat, power and any other service or utility furnished to or with respect to the
leased premises or any part thereof.
'In the event Lessee fails to pay, when due, any taxes, assessments, utility bills
or similar charges, as above set forth, then Lessor may, at its option, pay such
taxes, assessments, bills or other charges and require Lessee to immediately
reimburse it for such cost, which amount is hereby declared to be additional
rental and shall become immediately due and payable. Lessor reserves the right
to contest the validity or amount of any tax or assessment and Lessee agrees to
give Lessor notice of all taxes and assessments immediately upon receipt
thereof by Lessee.'
6

The pertinent provision in the 1953 renewal is contained in Paragraph VI,

amending paragraph II, of the 1951 lease and reads as follows:
'11(a). In addition to any and all rentals required by this Lease, as amended, to
be paid, Lessee shall pay to Lessor, as additional rent, the sum of $110,008.41
for the period from January 1, 1954 to December 31, 1954, in quarterly
installments of $27,502.11 in advance during the calendar year 1954, and the
sum of $9,167.37 in advance for each month or part thereof the Lessee occupies
the leased premises hereunder during the period January 1, 1955 to June 30,
1955.
'(b) In the event the leased premises, or any part thereof, during the lease term,
becomes taxable for real estate taxes for any reason whatsoever, whether by the
enactment of Federal legislation or otherwise, Lessee shall pay to the proper
local authority all such taxes, assessments and/or similar charges in lieu of taxes
which at any time during the lease term may be taxed, assessed or imposed
upon the Lessor or Lessee with respect to or upon the leased premises or any
part thereof, or upon the occupier thereof, or upon the use or operation of the
lease premises, and in such event, the additional rent provided by subparagraph (a) of this paragraph 11 shall be renegotiated so as to provide for a
reduction of said additional rent in an amount (not to exceed the said additional
rent) representing the actual amount of taxes, assessments and/or similar
charges in lieu of taxes properly due and payable during the lease term or
applicable portion thereof.'

c. 874, 3, 69 Stat. 722, 40 U.S.C.A. 523

The filing of the complaint in this case followed on May 13, 1957

See footnote 1, supra

10

Section 8 (as amended): '* * * any real property of the Corporation shall be
subject to * * * State, Territorial, county, municipal, or local taxation, to the
same extent according to its value as other real property is taxed.'

11

See footnote 2, supra

12

United States v. City of Detroit, 355 U.S. 466, 78 S.Ct. 474, 2 L.Ed.2d 424;
United States v. Township of Muskegon, 355 U.S 484, 78 S.Ct. 483, 2 L.Ed.2d
436; City of Detroit v. Murray Corporation, 355 U.S. 489, 78 S.Ct. 458, 2
L.Ed.2d 441