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June 22, 1966

Gilberton Contracting Company, Inc.
Kenneth O. Hook, District Director of Internal Revenue; United States of America v. The Rhoads Co., Inc.; United States of America v. Gilberton Contracting Co., Inc., et al.

Kraft, District Judge.

The opinion of the court was delivered by: KRAFT

KRAFT, District Judge:

The gravamen of these three actions is the disputed ownership of a large deposit of silt on the surface of a 65.9 acre tract of land in Mahanoy Township, Schuylkill County, Pennsylvania. The tract is presently owned by Gilberton Contracting Company, Inc. (Gilberton), which instituted its action (C.A. 25474) against the District Director of Internal Revenue to compel a release of certain Government tax liens affecting the land.

 The tax liens arose from outstanding assessments made against The Rhoads Company, Inc. (Rhoads), and Park Trent Coal Company, Inc. (Park Trent) for sundry unpaid taxes due the United States under various statutes for the years 1947, 1952, 1954 and 1955.

 The United States filed separate actions to reduce to judgment the respective tax liabilities of the defendants Rhoads (C.A. 26079) and Park Trent (C.A. 27696) and to resolve the controversies over ownership of the pile of silt upon which the Government claims valid liens.

 The cases were consolidated for trial without jury and tried to our late, revered colleague, Judge Grim, whose untimely death intervened before a decision was rendered.

 By order dated December 23, 1965, Chief Judge Clary re-assigned these actions for our disposition. After a conference with counsel on February 7, 1966, the parties, through their respective attorneys, agreed that our adjudication should be made upon the record before Judge Grim, as supplemented by evidence adduced upon a further hearing before us on April 12, 1966, *fn1" at which Park Trent alone offered additional evidence.

 After careful review of this rather confused and unsatisfactory record, as supplemented, and full consideration of the oral argument, briefs and suggested findings of counsel, we make the following

 Findings of Fact

 1. On June 1, 1951, Williamstown Collieries Company conveyed to Counties Coals, Inc. (Counties) the surface of a 65.9 acre tract of land situate in Mahanoy Township, Schuylkill County, Pennsylvania.

 2. The deed was signed by H. R. Randall, (Randall) President of the corporate grantor. Randall and his son, D. V. Randall, were directors of the grantee, and the elder Randall's wife owned 30 of the 50 issued shares of Counties.

 3. At a meeting of the Board of Directors of Counties held on June 1, 1951, a resolution was adopted which authorized the officers of Counties to execute a lease of the tract and a coal breaker, known as Park No. 3, to Rhoads for the processing of steam sizes of coal, for an initial term of ten years at a rental of $200 monthly. The coal breaker did not then exist, but its immediate construction by Rhoads, sub nomine Rhoads Contracting Company, was in contemplation.

 4. Randall, who was also President of Rhoads, died before the trial of these actions, but his depositions were taken in May and June, 1963 for discovery purposes. Portions of his depositions were admitted in evidence at the trial on offer by the respective litigants.

 5. In his depositions Randall testified that a written lease authorized by the resolution aforesaid was entered into between Counties and Rhoads, but he did not produce the lease nor did he offer a reasonable explanation for its absence. The alleged lease was never produced or offered at the trial by any of the parties nor was any copy. We find no written lease between Counties, as lessor, and Rhoads, as lessee, was executed.

 6. On July 9, 1951, Rhoads, sub nomine Rhoads Contracting Company, borrowed $125,000 from the Hazleton National Bank for the purpose of constructing on the subject tract a wood and steel breaker for the processing of steam sizes of coal, identified as Park No. 3. It executed and delivered to the bank a collateral demand note for the amount of the loan, secured by its chattel mortgage on the coal breaker.

 As additional collateral security for this loan, Counties, on the same date, also gave a mortgage to the bank, in like amount, upon the surface of the subject 65.9 acre tract. Both mortgages were recorded in Schuylkill County during July, 1951. No mention of accumulated silt is made in either instrument, since no silt was deposited on the land prior to the time of the loan by the bank to Rhoads for construction of the coal breaker.

 7. However ill-defined may be the actual terms of any agreement between them, in light of the interlocking officers and directors of Rhoads and Counties, as well as of the informality of the dealings between the two corporations, Rhoads had implied permission, at least, from Counties to deposit on the land leased by Rhoads from Counties, the silt, which was the waste product of Rhoads' operation of Park No. 3.

 8. From the latter part of 1951 through most of 1954 Rhoads operated a fine coal plant, designated as Park No. 3, on the subject tract. A by-product of this operation was a fine waste material known as silt, *fn2" which was deposited on the premises by Rhoads.

 Rhoads, through Randall, regarded the silt unsaleable during the years Rhoads operated the fine coal plant. Because of his conviction of the unmarketable character of the silt, Randall believed it was "advantageous" for Rhoads to utilize the silt to fill a large cavity in the land caused by earlier strip mining.

 9. Rhoads intended to and did abandon all its right, title and interest in and to the accumulating silt, which resulted from its operation of Park No. 3, as, from day to day, the deposits thereof were made on Counties' land.

 10. Counties became owner of the silt deposited by Rhoads on Counties' land as it was deposited from day to day, because of Rhoads intentional abandonment.

 11. On September 2, 1954, Rhoads granted an option, in writing, to a Mrs. Joseph C. O'Malley and a Mrs. Michael J. O'Malley to purchase sundry rights and properties at various locations, which included the Park No. 3 plant. Significantly, a specific reservation was contained in this option reserving to Rhoads the right, for the life of the lease thereon, to 2000 tons of silt per week to another location, to wit, on the site of the Hazleton Lease. No such reservation was made in the option of any of the silt on the Park No. 3 site, the silt involved in this case, nor was any language employed which manifested any interest or right of Rhoads in this silt.

 12. On November 29, 1954, Randall, as agent for Rhoads only, entered into a written lease with Joseph O'Malley, husband of one of the optionees, who acted, inter alia, as trustee for sundry participants in three prospective corporations, one of which was Park Trent, in purported accordance with the aforementioned option of September 2, 1954, to sell to the latter, for $190,000 net, sundry rights and properties of Rhoads at various locations including, inter alia, the fine coal plant known as Park No. 3, and certain land surfaces of Continental Coal Co. and of Counties, neither of which latter corporations were or were purported to be parties to this agreement.

 Significantly again, Rhoads reserved rights to remove 2000 tons of silt per week under the Hazleton lease (a different site) and also reserved all cinder banks on the surface of the land, but made no mention or reservation of the accumulated silt on Counties' land, here in controversy.

 To what extent the agreement to sell, dated November 29, 1954, was consummated by actual sales and conveyances does not appear, but Counties did not sell and convey to Park Trent or any other grantee the land on which the coal breaker, Park No. 3, was situate; nor did Counties sell or abandon to Park Trent the accumulated silt which Counties owned by reason of Rhoads abandonment thereof.

 13. From December, 1954 until October 15, 1955, Park Trent operated the fine coal plant at the Park No. 3 site and deposited the silt emanating from its operation on top of the silt accumulation previously deposited by Rhoads.

 14. Park Trent had knowledge and notice, when the agreement to sell, dated November 29, 1954, was executed, that Rhoads and Counties were separate corporations, and that title to the surface of the land was in Counties, subject to the bank's mortgage of record.

 15. On January 21, 1955, Park Trent procured two fire insurance policies on the Park No. 3 fine coal plant, each in the amount of $25,000 with a mortgagee clause in favor of Hazleton National Bank.

 16. Park Trent made various monthly payments to Rhoads during the period of approximately eleven months that Park Trent operated the Park No. 3 fine coal plant, leaving an unpaid balance due Rhoads of $140,476.06 as of September 30, 1955.

 17. During the span of its operations Park Trent made daily analyses of the quality of the coal content of the waste being deposited by it on the silt bank of the Park No. 3 breaker. These tests revealed that the refuse being deposited was rich in coal content.

 Park Trent made one sale of about 1000 tons of its silt to the New Jersey Zinc Company while Park Trent was in possession.

 18. During the period of its occupancy of the land Park Trent did not exercise or attempt to exercise any dominion or rights of ownership over the silt earlier abandoned by Rhoads and then owned by Counties.

 19. In August of 1955 financial difficulties began to affect the operations of Park Trent and it was obliged to default in its payments to Rhoads. It was unable to meet its payroll on October 15, 1955 and then ceased its operations and surrendered possession to Rhoads, which did nothing to re-assert dominion or rights of ownership to the silt it had previously abandoned to Counties.

 20. Shortly thereafter, Rhoads, in turn relinquished possession of the tract Park No. 3 and the breaker to Hazleton National Bank, which, upon default by Rhoads, foreclosed the collateral mortgage on the surface of the land given the bank by Counties.

 A writ of fieri facias real estate, dated October 20, 1955, was issued pursuant to which the land was sold at Sheriff's sale to Hazleton National Bank on November 18, 1955.

 The Sheriff's return of the writ discloses "nulla bona" as to personal property.

 21. Prior to the foreclosure sale Randall advised Park Trent that the Hazleton Bank intended to foreclose its mortgage. Park Trent was not served with official notice of the sale. No one on behalf of Park Trent attended the sale.

 22. Randall was present at the Sheriff's sale which was conducted by his then brother-in-law. Randall made no claim nor did he give or attempt to give notice of any claim of ownership or other interest of Rhoads in the Park No. 3 silt before, during or after the sale.

 Rhoads never, by lawsuit or otherwise, attempted to assert any property right or interest in the silt following the sale.

 23. By reason of Rhoads' default, the bank also took peaceful possession of the Park No. 3 breaker, which was the subject of the chattel mortgage given to the bank by Rhoads as collateral security for the latter's demand note. The bank, at the same time, took peaceful possession of the silt which had been abandoned by Rhoads to Counties and the silt deposited by Park Trent.

 24. The Hazleton National Bank received a deed to the surface of the land from the Sheriff dated November 18, 1955. This deed contained no mention of the silt bank involved herein.

 25. Counties intended to and did abandon to the bank, in November, 1955, the silt which Counties owned by reason of Rhoads' abandonment.

 26. More than a year after foreclosure and possession, the bank, on December 11, 1956, conveyed the same premises to Gilberton for $30,000. Before delivery of the deed to Gilberton the following clause was included in the instrument:


"TOGETHER with all culm banks, railroad sidings, cleaning plant and all other structures, buildings and improvements of any kind or nature whatsoever."

  27. The bank, in 1956, manifested its intention to and did appropriate and exercise dominion and rights of ownership of the silt in its possession which had previously been abandoned by Rhoads to Counties, as well as of the silt deposited by Park Trent which had not been abandoned.

 28. During the month of January, 1957, following the conveyance of the premises, Gilberton denied Park Trent the right to remove any of the silt from the land.

 Counsel for Park Trent then advised the solicitor for the bank, by letter dated January 23, 1957, of the unsuccessful efforts of Park Trent to remove silt which Park Trent claimed, and requested the assistance of the bank in obtaining from Gilberton, information concerning any documents upon which Gilberton based its claim to the silt.

 29. Park Trent never intended to and did not abandon the silt it deposited during its occupancy and operation of Park No. 3 and is still owner of that silt.

 30. The bank, in 1956 and prior to its conveyance to Gilberton, acquired, by appropriation, ownership of the silt of Counties which Counties abandoned to the bank. Gilberton now owns that silt as the bank's grantee-assignee.

 31. The bank never acquired ownership of the silt deposited by Park Trent.

 32. Neither Rhoads nor Park Trent paid or offered to pay the bank or Gilberton for the use of the land occupied by the silt deposited at any time after the bank's foreclosure or the conveyance of the tract to Gilberton.

 33. Before the sale to Gilberton, Randall had advised the bank to make a deal for the silt when it sold the land. The bank previously had attempted, unsuccessfully, to sell the silt to the Pennsylvania Power and Light Company before it executed the deed to Gilberton, but the Pennsylvania Power and Light Company declined because it believed the silt to be of little or no value. 34. The District Director of Internal Revenue made assessments of withholding taxes, taxes imposed under the Federal Insurance Contributions Act, taxes imposed under the Federal Unemployment Tax Act, income and excess profits taxes against the defendant, Rhoads, the total amount of which, now owing, is $204,917.07 plus interest. Kind Tax Notice Notice of and Date and of Tax Period Int. Assess. Demand Lien WH 4th Qtr. *$18,035.74 3-16-53 4-9-53 12-24-53 FICA 1952 WH 3rd Qtr. 8,841.01 11-15-54 2-17-54 6-15-55 FICA 1954 WH 4th Qtr. 4,377.17 2-15-55 3-15-55 6-15-55 FICA 1954 Income & Ex. Profits 1947 ** 181,144.05 2-28-57 3-7-57 4-27-57 FUTA 1954 3,643.18 2-23-55 3-8-55 8-31-55


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