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June 27, 1967

Peter Pan Seafoods, Inc., a Washington corporation, Plaintiff
The United States of America, Defendant

Boldt, District Judge.

The opinion of the court was delivered by: BOLDT

BOLDT, District Judge:

 P. E. Harris Co., Inc., a Washington corporation, now named Peter Pan Seafoods, Inc., is referred to herein as "New Harris." New Harris is the successor to P. E. Harris Co., a liquidated corporation herein referred to as "Old Harris." The Ajax Company, a Washington corporation, is referred to as "Ajax."

 In this action plaintiff seeks to recover income taxes and interest in the total amount of $286,886.26 which are alleged to have been erroneously assessed and collected by the Commissioner of Internal Revenue for the taxable years ended March 31, 1960 and March 31, 1961. The disputed transactions now before the court with respect to which the Commissioner made a determination of plaintiff's tax deficiency occurred during the tax year ended March 31, 1957.

 Immediately before trial and after the pretrial order had been signed and entered, the government gave notice Section 269 of the Internal Revenue Code of 1954 would be relied on as an additional ground for denying the income tax refund claimed by New Harris. New Harris objected to consideration of Section 269 because it was not specified as a basis of defense in the pretrial order and not cited by the Commissioner in his notice of deficiency. Also, New Harris contends Section 269 is not applicable to the facts of this case.

 In the present case, the particular contention proposed to be added to those stated in the pretrial order would add only additional statutory authority for denying the New Harris claim and does not otherwise affect or bear upon any fact issue stated in the pretrial order or raised in the trial. No new theory of the case or fact issue would be presented for determination if applicability of Section 269 be considered. The controlling issue remains: whether or not New Harris has overpaid income tax in the particular claimed. United States v. Pfister, 205 F.2d 538 (8th Cir. 1953); Roybark v. United States, 104 F. Supp. 759 (1952), aff'd 218 F.2d 164 (9th Cir. 1954). New Harris must prove that the United States has money which belongs to it. Lewis v. Reynolds, 284 U.S. 281, 76 L. Ed. 293, 52 S. Ct. 145 (1932); Dysart v. United States, 169 Ct. Cl. 276, 340 F.2d 624 (Ct. Cl. 1965). While the pretrial order specifies the contentions presented in a lawsuit, the contentions should be liberally construed to embrace all legal theories inherent in the issues stated therein. Century Refining Company v. Hall, 316 F.2d 15 (10th Cir. 1963). The citation of statutory authority, however belated, which does not affect preparation or presentation of evidence on fact issues ordinarily will not place an unfair or undue burden on the adverse party.

 No evidence introduced during the trial was objected to by New Harris as not being within the issues raised in the pretrial order. Rule 15(b), Federal Rules of Civil Procedure. It is not indicated any admitted evidence is applicable only under Section 269. This case was tried nonjury and the court was aware of the provisions of Section 269 while considering the evidence and the arguments of counsel. New Harris was afforded ample opportunity to make whatever legal contentions relative to Section 269 is deemed valid and all contentions asserted have been fully reviewed and considered. In the circumstances, it is entirely appropriate that the court should consider and construe any statutory authority that may determine the validity of plaintiff's refund claim. It is questionable whether the court may properly ignore a congressional enactment, possibly applicable, even though not cited by either counsel but otherwise discovered.

 The court is satisfied Section 269 should be enforced if applicable to the facts of the case. Other than inferences of fact drawn by the court from the entire record the facts below stated are largely admitted in the pretrial order.

 On March 23, 1950 New Harris executed two mortgage notes in the total amount of $1,668,432 for the purchase of Old Harris then in the process of liquidation. The notes were transferred to the Seattle First National Bank as Trustee, which issued certificates of beneficial interest to the sixty-eight former stockholders of Old Harris as beneficiaries. On December 31, 1954 the maturity date of the smaller note and interest on both notes were extended by the Seattle bank.

 On May 21, 1956 Bez and G. Hamilton Beasley, another officer and stockholder in New Harris, caused Ajax to be organized for the purpose of attempting to purchase the New Harris mortgage notes. Bez and Beasley then solicited stockholders of New Harris for pro rata contributions and the large majority (85.44%) of New Harris stockholders committed themselves to the purchase of Ajax stock and five-year notes, in the total amount of $142,228.52.

 Although clear control of New Harris was not held by any group or individual, no stockholder influential in New Harris, either by virtue of an executive office or because of substantial stock ownership, declined to participate in the formation of Ajax. Bez, personally and through his wholly owned corporation, Trans-Pacific Fishing and Packing, and its related interest in the partnership of Peninsula Packers, controlled the largest single amount of stock in both New Harris and Ajax. Beasley was president of Ajax and the largest individual stockholder in New Harris. He also was executive vice-president of West Coast Airlines of which Bez was president, and devoted his full time to the airline, New Harris and other enterprises in which Bez was interested.

 On February 21, 1957 the aggregate purchase price paid by Ajax for the New Harris mortgage notes was $774,288. The total amount of the New Harris indebtedness was then $1,861,514, including accrued interest. The Bank of California loaned Ajax $642,000 and this amount was combined with the $142,228 raised by soliciting stockholders ...

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