TARA C. TRENT, EXECUTRIX OF ESTATE OF PATRICK R. COLLINS, DECEASED, PETITIONER V. UNITED STATES OF AMERICA No. 89-1820 In The Supreme Court Of The United States October Term, 1990 On Petition For A Writ Of Certiorari To The United States Court Of Appeals For The Sixth Circuit Brief For The United States In Opposition TABLE OF CONTENTS Questions presented Opinions below Jurisdiction Statement Argument Conclusion OPINIONS BELOW The opinion of the court of appeals (Pet. App. 39a-55a) is reported at 893 F.2d 846. The opinion of the district court (Pet. App. 16a-28a) is unreported. JURISDICTION The judgment of the court of appeals was entered on January 11, 1990. A petition for rehearing was denied on February 21, 1990 (Pet. App. 56a). The petition for a writ of certiorari was filed on May 21, 1990. The jurisdiction of this Court is invoked under 28 U.S.C. 1254(1). QUESTIONS PRESENTED 1. Whether the court below correctly held that an Ohio trial court's attempted post-mortem modification of its prior marital dissolution decree was void under Ohio law. 2. Whether certain property was owned entirely by the decedent, rather than owned in part by the decedent and in part by his former wife, and was therefore includable in its entirety in the decedent's gross estate. STATEMENT 1. Patrick R. Collins and Norma Jean Collins were married in 1952. During their marriage, Patrick and Norma Jean had two children: Tara C. Trent (who in her capacity as executrix of her father's estate is the petitioner here) and Tamara L. Collins. On July 27, 1976, Patrick and Norma Jean executed a separation agreement (prepared by their attorney, J. R. Nieberding) providing for the disposition of "their mutual property rights to which either might be entitled in the event of dissolution" of their marriage (Pet. App. 3a, 40a). The agreement provided, inter alia, that Norma Jean would receive the couple's residence in Florida, that Patrick would receive the residence in Ohio, and that all other real estate owned "either individually or jointly" would be conveyed to a trust "for the use and benefit of Patrick" (id. at 5a). The separation agreement further provided that Norma Jean would receive alimony in the form of a $15,000 lump sum payment, $13,000 per year in equal, monthly payments, and a $5,000 payment every third year (id. at 6a-7a). The periodic alimony payments were to be adjusted for changes in the cost of living and reduced if Norma Jean remarried (id. at 6a). Patrick and Norma Jean executed a trust agreement on September 3, 1976 (Pet. App. 9a-11a). The trust agreement recited that Patrick and Norma Jean had conveyed ten pieces of real property to J. R. Nieberding as trustee "for the use and benefit of Patrick and to secure the payment of Alimony" (id. at 9a-10a). The trust agreement provided that Patrick would be responsible for all expenses relating to the real estate held in trust, that the trustee could not sell the real estate without the consent of Norma Jean and Patrick, and that the trust would terminate upon the death of Patrick or Norma Jean (id. at 10a). With Mr. Nieberding acting as counsel for both parties, Norma Jean and Patrick obtained a dissolution of marriage decree on September 8, 1976, in the Court of Common Pleas, in Hamilton County, Ohio. The separation agreement was adopted by the decree, and both parties were ordered to comply with the agreement. Pet. App. 1a-2a. Shortly thereafter, on November 18, 1976, Patrick executed a will prepared by Mr. Nieberding. The will declared that Patrick is "the owner of certain real estate held by my attorney, J. R. Nieberding, as Trustee, pursuant to the Separation Agreement executed on July 27, 1976, by and between my former wife, Norma Jean Collins, and myself" (Pet. App. 42a). The will also provided that if Norma Jean was living at the time of Patrick's death and did not consent to a settlement of her alimony claim, "all of said real estate held by J. R. Nieberding, as Trustee * * * shall be transferred to the Trustee hereinafter named (Tara C. Trent)" (id. at 41a-42a). Finally, the will provided that, upon the death of Norma Jean, this second trust would terminate and the trust property would go to the two daughters (id. at 42a). 2. Patrick Collins died on August 2, 1981. On April 9, 1982, Norma Jean filed a motion in the Court of Common Pleas to modify the dissolution decree's alimony provision (Pet. App. 12a-13a). /1/ Petitioner and her sister, the residual heirs of the estate, were represented by counsel (Mr. Nieberding), but did not oppose the motion (id. at 14a, 42a). The United States was not notified of the proceeding and did not become a party. The Court of Common Pleas, on April 27, 1982, entered a "modifying decree" in which the court found that, at the time the trust was created in 1976, Norma Jean and Patrick were joint owners of all the property conveyed to the trustee, which had a value of almost $3 million (id. at 14a-15a). The court awarded Norma Jean a lump-sum alimony payment of $1,412,228, an amount equal to one-half of the value of the real estate placed in trust (without regard to any mortgages), minus the amount of alimony that had already been paid to her (ibid.). On April 30, 1982, three days after the date of the modifying decree, Mr. Nieberding filed an estate tax return on behalf of Patrick's estate. On this return, the estate claimed a $1,412,228 deduction for alimony owed to Norma Jean -- the amount set by the Court of Common Pleas in its "modifying decree." Pet. App. 20a. 3. The Commissioner determined that the estate was not entitled to an alimony deduction in the amount claimed. He allowed instead a $273,190 deduction, which reflected the actuarial value of the periodic alimony payments still to be made to Norma Jean following Patrick's death, according to the 1976 separation agreement. /2/ The estate paid the resulting deficiency and filed an administrative claim for refund, which was denied. Pet. App. 20a. Thereafter, petitioner brought this refund suit in the United States District Court for the Southern District of Ohio. Petitioner presented alternative arguments in support of her position: first, that an amount equal to one-half of the trust property could not properly be included in the gross estate of Patrick because the property was in fact owned equally by Patrick and Norma Jean; and, second, that the amount deducted on the estate tax return represented a bona fide alimony claim against the estate and therefore was properly deductible from the gross estate. The district court ruled for petitioner on the second ground (Pet. App. 22a-26a). /3/ The district court held that the Court of Common Pleas retained jurisdiction to modify the alimony award (id. at 24a) and that, under Ohio law, the modification of the separation agreement gave Norma Jean a bona fide claim against the estate (id. at 25a-26a). The district court ruled, however, that the amount awarded by the Court of Common Pleas, reflecting the fair market value of the trust property, was excessive; the district court reduced the deduction by the amount of the mortgages attached to the property (id. at 26a-27a). 4. The court of appeals reversed and remanded the case for dismissal (Pet. App. 39a-55a). Relying on McClain v. McClain, 15 Ohio St. 3d 289, 473 N.E.2d 811 (1984), the court of appeals first held that under Ohio law the Court of Common Pleas was without jurisdiction to render the "modifying decree" (Pet. App. 47a). Accordingly, the court of appeals agreed with the Commissioner that only the actuarial amount of the periodic payments as set forth in the 1976 separation agreement ($273,190), and not one-half of the value of the property as set forth in the modifying decree ($1,412,228), was allowable as a claim against the estate for alimony (ibid.). The court of appeals then considered petitioner's alternative argument that Norma Jean was in fact the owner of one-half of the property conveyed to the trust. The court analyzed the various documents executed by the parties at or about the time the property was conveyed by Patrick and Norma Jean to the trustee and determined that they "demonstrate beyond doubt that Norma Jean retained only a security interest to guarantee payment of her alimony payments" (id. at 48a). The court accordingly concluded that it "would have been clearly erroneous" for the district court to find that, at the time of Patrick's death, Norma Jean owned one-half of the trust property (id. at 49a). Judge Nelson dissented (Pet. App. 50a-55a). Judge Nelson stated that, because Norma Jean was an unsophisticated woman who worked at her husband's side for many years, he thought that her case "would look very appealing" to "an Ohio common pleas court judge, elected by the voters to exercise all of the powers of a court of equity" (id. at 50a). More specifically, although Judge Nelson agreed that the Court of Common Pleas generally lacks jurisdiction to modify a prior separation agreement under Ohio law, he concluded that the order here was not such a modification because the separation agreement and trust agreement were silent with respect to the disposition of the property upon termination of the trust. Judge Nelson therefore concluded that the Court of Common Pleas here had the power to supply the "missing" provision, and that it correctly determined that the property should be equally divided between Patrick and Norma Jean or their testamentary representatives upon the termination of the trust. Id. at 54a-55a. ARGUMENT The court of appeals correctly held that the amount excludable from the decedent's estate as a claim for alimony is limited to the claim based on the 1976 separation agreement. This decision is quite fact-bound, and it does not conflict with any decision of this Court or of another court of appeals. Indeed, the legal question presented by petitioner is one of state law. Accordingly, there is no reason for review by this Court. 1. The tax base against which the estate tax is imposed is the gross estate minus allowable deductions (e.g., expenses, taxes, claims against the estate, and charitable and marital deductions). See 26 U.S.C. 2053. The value of the gross estate includes the value of property to the extent of the decedent's interest therein at the time of death. 26 U.S.C. 2033. In this case, the government has argued, and the court of appeals agreed, that the gross estate includes the full value of the trust property minus the value of Norma Jean's claim against the estate for alimony based on the 1976 separation agreement. Petitioner has argued that an amount equal to one-half of the value of the trust property must be subtracted from the gross estate, based on two alternative theories: (1) that the modifying decree entered by the Court of Common Pleas was valid and established a deductible claim for alimony against the estate in the amount of one-half of the value of the property; or (2) that Norma Jean owned a one-half interest in the trust property at the time of Patrick's death and therefore half of the value should never have been included in the gross estate under Section 2033. The court of appeals correctly rejected both of these theories. a. This Court has established that, where federal estate tax consequences follow from a determination regarding property interests, that determination is made under state law. In making that determination, however, a federal court is not bound by a state trial court's ruling, but rather must follow what it determines the state law to be, based on the rulings of the highest court of the state. Commissioner v. Estate of Bosch, 387 U.S. 456 (1967). Although petitioner praises Justice Douglas's dissent in Bosch, she does not appear to dispute that Bosch is controlling here. See Pet. 9-15. /4/ Following the principles of Bosch, the court of appeals concluded that the modification of the decree did not establish a valid claim for alimony under state law. The court reasoned that, under the precedent of the Ohio Supreme Court in McClain v. McClain, 15 Ohio St. 3d 289, 473 N.E.2d 811 (1984), the Court of Common Pleas lacked jurisdiction to make the modification. Petitioner disputes the correctness of this holding (Pet. 21-23), arguing that the court of appeals misconstrued Ohio law. /5/ This contention plainly does not warrant further review. First, a dispute that turns solely on a construction of state law does not present an issue that warrants the exercise of this Court's certiorari jurisdiction. Indeed, even when reviewing a case on the merits, this Court ordinarily does not disturb the construction of state law made by the court of appeals. See Butner v. United States, 440 U.S. 48, 57-58 (1979); Bosch, 387 U.S. at 462. In any event, the court of appeals correctly determined and applied Ohio law. In McClain v. McClain, 15 Ohio St. 3d at 290, 473 N.E.2d at 813, the Supreme Court of Ohio held that "a court * * * lacks authority to modify the amount of alimony payments originally agreed to by the parties." That is precisely what happened in this case. Asserting that she and the executrix could not agree on a settlement of the outstanding alimony obligation, Norma Jean filed a motion in the Court of Common Pleas to modify the original decree (Pet. App. 12a-13a). The motion was unopposed, and the court ordered that "the Decree of Dissolution entered herein on September 8, 1976, be modified and that Norma Jean Collins be awarded the sum of $1,496,875.00 as and for her alimony as of September 8, 1976" (id. at 14a-15a). Thus, there is no merit to petitioner's contention (Pet. 21-22) that the order of the Court of Common Pleas was merely a clarification of uncertainties arising under the separation agreement. Rather, it was a modification of the clear terms of that agreement specifying the alimony obligation, and the court of appeals correctly held that the Court of Common Pleas was without jurisdiction under Ohio law to make such a modification. /6/ b. Petitioner also disputes (Pet. 15, 23-27) the court of appeals' conclusion that Norma Jean did not own one-half of the trust property. This contention is entirely factbound and presents an issue of state law having little or no significance beyond this case; clearly, it does not merit review by this Court. See, e.g., NLRB v. Hendricks County Rural Electric Membership Corp., 454 U.S. 170, 176 n.8 (1981); United States v. Johnston, 268 U.S. 220, 227 (1925). In any event, the court of appeals carefully examined the relevant documents and concluded that it was the intent of the parties that Norma Jean not retain an ownership interest in the trust property (see Pet. App. 47a-49a. Petitioner presents no convincing evidence to the contrary; indeed, even the district court indicated its belief that such was the intent of the parties (see id. at 21a). 2. Petitioner errs in contending (Pet. 16-20) that the decision below conflicts with Natchez v. United States, 705 F.2d 671 (2d Cir. 1983). In that case, the Second Circuit held that payments required by a separation agreement that is incorporated, but not merged, into a valid divorce decree are valid claims against the estate deductible under Section 2053(a)(3), even though the separation agreement itself would be unenforceable without the decree. The decision below is fully consistent with Natchez; the court of appeals gave full effect to the separation agreement incorporated into the original decree of dissolution by allowing the estate to deduct the present value of the periodic payments due under the separation agreement. The refusal of the court below to allow the deduction sought by petitioner is attributable to its holding that the Court of Common Pleas here (unlike the local court in Natchez) lacked jurisdiction to modify the separation agreement, not to any unwillingness to recognize the validity of an alimony obligation contained in a separation agreement. The decision below thus does not turn upon a legal issue addressed by the Second Circuit in Natchez, but rather upon a determination under Ohio law. /7/ CONCLUSION The petition for writ of certiorari should be denied. Respectfully submitted. KENNETH W. STARR Solicitor General SHIRLEY D. PETERSON Assistant Attorney General DAVID I. PINCUS DAVID A. HUBBERT Attorneys JULY 1990 /1/ The motion indicated that in calculating the appropriate amount of alimony to be paid to Norma Jean, the parties had mistakenly valued the real estate in question at $1.5 million, when it was in fact worth almost $3 million (Pet. App. 12a-13a). /2/ The estate does not contest the computation of the actuarial value (Pet. App. 43a n.2). /3/ The court accordingly did not fully consider the first argument. It noted, however, that petitioner's contention that Norma Jean owned one-half of the trust property at the time of Patrick's death was "problematic" because the estate did not report on the estate tax return that Norma Jean was a joint owner of the trust property, although it did list other property as being jointly owned (Pet. App. 21a). /4/ Petitioner never argued below, and does not argue here, that Bosch should be overruled. Petitioner notes that Bosch involved the marital deduction under 26 U.S.C. 2056, whereas the estate tax dispute in this case involves the ownership of property to be included in the gross estate under Section 2033 and the amount of deduction for an alimony claim under Section 2053. Petitioner correctly acknowledges, however, that "the rules established by Bosch * * * are not limited to cases involving the marital deduction statute" (Pet. 11). See generally 1 B. Bittker & L. Lokken, Federal Taxation of Income, Estates & Gifts Paragraph 4.2.1, at 4-16 n.44 (2d ed. 1989); Estate of Rowan v. Commissioner, 54 T.C. 633, 637 (1970). /5/ Petitioner also briefly suggests (Pet. 15) that, in rejecting the modification of the alimony award by the Court of Common Pleas, the court of appeals failed to follow Bosch's injunction to give "proper regard" (387 U.S. at 464) to the decisions of lower state courts. This suggestion is clearly mistaken. First, the court of appeals properly considered the lower court's determination and concluded that it was inconsistent with the Supreme Court of Ohio's decision in McClain v. McClain, supra. Moreover, even two of the three dissenters in Bosch would have agreed that no weight should be given to the decree of the Court of Common Pleas here because that decree did not result from a "genuinely adversary proceeding." 387 U.S. at 481 (Harlan, J., dissenting); see also id. at 483-484 (Fortas, J., dissenting). Indeed, even the dissent below and the district court refused to accept the decision of the Court of Common Pleas, finding that the amount awarded by that court exceeded that allowable under state law. See Pet. App. 27a, 55a. /6/ Moreover, Ohio law has been amended in a way that renders the state law question presented here of little continuing importance. For dissolutions of marriage after May 2, 1986, the Ohio statutes now provide that a court retains jurisdiction to modify the amount and terms of alimony if the separation agreement contains a provision authorizing the court to modify the alimony and the court determines that the circumstances of either party have changed. Ohio Rev. Code Ann. Sections 3105.65(B), 3105.18(D)(2) (Page 1989); see Colley v. Colley, 43 Ohio St. 3d 87, 538 N.E.2d 410, 412 (1989). /7/ Similarly, the decision below is fully consistent with this Court's decision in Harris v. Commissioner, 340 U.S. 106 (1950). The court below did not suggest that an alimony obligation contained in a separation agreement incorporated in a divorce decree could not give rise to a deduction under Section 2053. It simply disagreed with petitioner as to the amount of that alimony obligation -- because it concluded that the attempted modification of the separation agreement by the Court of Common Pleas was ineffective.