Appeal from the United States District Court for the Northern District of California. D.C. No. CV-91-00476-CAL. Charles A. Legge, District Judge, Presiding.
Before: Alfred T. Goodwin, Diarmuid F. O'Scannlain, and Andrew J. Kleinfeld, Circuit Judges. Opinion by Judge O'Scannlain.
O'SCANNLAIN, Circuit Judge:
In this federal corporate income tax refund case, we must decide whether judicial determination of ownership of one portion of real property collaterally estops the United States from challenging title to the entire property.
This case arises from a boundary dispute involving lands owned by the Simpson Redwood Company and the State of California. The disputed boundary runs in a diagonal, stair-step fashion from northwest to southeast through township 12 north, range 1 east ("township 12-1") in Humboldt, California and divides land owned and logged by Simpson, to the east, from Prairie Creek State Park, to the west.
In 1882, S.W. Foreman surveyed township 12-1 (the "Foreman survey"). Four years later, John Gilcrest surveyed the adjoining township 12-2 (the "Gilcrest survey"). Under the Gilcrest survey, the boundary at issue was situated to the north and east of the boundary as identified in the Foreman survey. This inconsistency created a hiatus between the boundary lines of the State Park and what was later to become Simpson's property. Under the Foreman survey, the land in this hiatus belonged to Simpson's predecessors; under the Gilcrest survey, the land was part of the State Park. The State subsequently advised surveyors and property owners to rely on the Gilcrest survey.
In 1978, the area was surveyed yet again, this time by the United States Bureau of Land Management. Recorded in March of 1981, this survey reconfirmed the older Foreman survey. The effect was to shift the line separating the State Park and Simpson's property to the south and west, leaving a 161.49-acre strip of property between the newly established boundary and the boundary established by Gilcrest. That strip of land - claimed both by Simpson and by the State of California - constitutes the property at issue here.
The disputed property has been the subject of several lawsuits between Simpson, the United States, and the State of California. Of particular relevance is an action brought in federal court by the United States in April 1984, United States v. Simpson Timber Co., N.D. Cal. No. C-84-2028-TEH, May 24, 1988 (" Simpson I "), to condemn a 3.49-acre portion of property within the disputed strip for use as a federal highway bypass. Simpson cross-claimed against the State of California in this action, seeking to quiet title to the entire disputed area. The court dismissed Simpson's cross-claim, directing Simpson to file it in state court. Simpson did so (Simpson Redwood Co. v. State, No. 75916, Cal. Sup. Ct. (Aug. 1985)); ultimately, Simpson and the State settled the state-court suit by executing a stipulation for judgment. The stipulation provided that Simpson would dismiss its quiet title action and donate the lands in issue, less the 3.49 acres subject to condemnation, to the State. In return, the State agreed not to contest Simpson's claim to the federal condemnation proceeds.
Simpson then filed a motion for summary judgment in Simpson I. In an order entered May 24, 1988, the district court granted Simpson's summary judgment motion, ruling in pertinent part that:
1. the Foreman Survey of 1882 controls the location of all land within township 12-1 . . . and
2. on the date of taking, plaintiff Simpson owned all of the land in Township 12-1 which the government sought to condemn.
The United States did not appeal.
In late 1987, pursuant to the stipulation, Simpson quitclaimed the remaining 158 acres in question to the State. On its 1987 federal tax return, Simpson claimed a charitable deduction of $14,100,000 for this donation. The Internal Revenue Service disallowed Simpson's deduction and ...