Marre' v. United States ( 1999 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
________________________
No. 98-20540
________________________
RICHARD L. MARRÉ; AGRITECH ENTERPRISES, INCORPORATED,
Plaintiffs-Appellees,
HP-84 NURSERY ASSOCIATES, INCORPORATED,
Intervenor-Plaintiff-Appellee,
v.
UNITED STATES OF AMERICA,
Defendant-Appellant.
________________________
RICHARD L. MARRÉ,
Plaintiff-Appellee,
v.
UNITED STATES OF AMERICA,
Defendant-Appellant.
________________________
AGRITECH ENTERPRISES, INCORPORATED,
Plaintiff-Appellee,
v.
UNITED STATES OF AMERICA,
Defendant-Appellant.
_________________________________________________________________
________________________
No. 98-20717
________________________
RICHARD L. MARRÉ; AGRITECH ENTERPRISES, INCORPORATED,
Plaintiffs-Appellees,
v.
UNITED STATES OF AMERICA,
Defendant-Appellant.
________________________
RICHARD L. MARRÉ,
Plaintiff-Appellee,
v.
UNITED STATES OF AMERICA,
Defendant-Appellant.
________________________
AGRITECH ENTERPRISES, INCORPORATED,
Plaintiff-Appellee,
v.
UNITED STATES OF AMERICA,
Defendant-Appellant.
_________________________________________________________________
Appeals from the United States District Court
for the Southern District of Texas
(H-88-CV-1103)
_________________________________________________________________
August 18, 1999
Before GARWOOD, DUHÉ, and BENAVIDES, Circuit Judges.
BENAVIDES, Circuit Judge:*
*
Pursuant to 5TH CIR. R. 47.5, the Court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
2
The United States of America (“Government”) appeals the
district court’s March 17, 1997 order for summary judgment and
May 26, 1998 award of attorneys fees to Richard Marré (“Marré”)
and Agritech Enterprises, Inc. (“Agritech”). The district court
granted summary judgment in light of its finding that Government
representations made during a February 1992 wrongful disclosure
trial judicially estopped the Government from later assessing
civil tax penalties pursuant to Internal Revenue Code (“I.R.C.”)
§§ 6700 and 6701. The district court additionally awarded
attorneys fees based upon its determination that the Government’s
position in defending against Marré and Agritech’s suit seeking
the refund of I.R.C. §§ 6700 and 6701 penalties was not
substantially justified. For the reasons set forth below, we
reverse and remand as to both the grant of summary judgment and
the award of attorneys fees.
I
This case has a long history. Richard L. Marré, through his
business Agritech Enterprises, Inc. (collectively “Appellees”),
marketed solar powered greenhouses to investors as tax shelters in
the early 1980's. During an Internal Revenue Service (“I.R.S.”)
investigation of Appellees’ tax shelter activities,2 the I.R.S.
improperly disclosed to third parties that Appellees were under
criminal investigation for tax violations. Appellees filed suit
under I.R.C. § 7431 against the IRS, seeking damages for the
2
In 1985, the Criminal Investigation Division of the IRS began
an investigation of Marré and Agritech relative to the greenhouse
promotion.
3
unauthorized disclosure of their tax return information (“wrongful
disclosure suit”). A bench trial was held in February 1992. After
Appellees prevailed on their wrongful disclosure suit,3 the I.R.S.
assessed civil penalties against Appellees pursuant to I.R.C.
§§ 6700 and 6701 for promoting abusive tax shelters and aiding and
abetting the understatement of tax liabilities. Appellees paid 15%
of the penalties and sued the I.R.S. for a refund (“refund suit”).
During the course of litigating their refund suit, Marré and
Agritech moved the district court for summary judgment, arguing
that: (1) the Government ought be judicially estopped from
assessing I.R.C. §§ 6700 and 6701 penalties as a result of
representations made during the February 1992 wrongful disclosure
trial wherein the Government stated that its investigation of
Appellees had been closed; (2) the Government improperly duplicated
penalties in violation of I.R.C. § 6701(f)(3); (3) the Government’s
assessment of penalties constituted an untimely compulsory
counterclaim that the Government should have brought in response to
the Plaintiffs’ wrongful disclosure suit; and (4) laches and
statute of limitations precluded the assessment of penalties. The
district court granted summary judgment based on judicial estoppel,
addressing and rejecting Appellees’ alternative grounds for summary
judgment. Subsequently, the district court awarded Appellees
attorneys fees pursuant to I.R.C. § 7430 in light of its finding
3
The parties appealed this case twice to the Fifth Circuit
during this phase. See United States v. Marré, 38 F.3d 823, (5th
Cir. 1994) (“Marré I”); United States v. Marré, 117 F.3d 297 (5th
Cir. 1994) (“Marré II”).
4
that the Government’s position in defending Marré and Agritech’s
refund suit was not substantially justified.
The Government appeals the district court’s grant of summary
judgment and award of attorneys fees. In particular, the
Government challenges the district court’s finding that the
Government during the February 1992 wrongful disclosure trial
stipulated, or in any way represented, that all investigations of
Marré and Agritech were closed; that even if such a representation
had been made, the district court erred in finding that such a
statement judicially estopped the Government from assessing civil
tax penalties against Appellees for unlawful conduct discovered
during the investigation; and that the district court erred in
finding that the Government’s position in defending the refund suit
was not substantially justified. In response, Marré and Agritech
urge anew the arguments earlier made to the district court as
alternative grounds supporting summary judgment.4
II
A
We review the district court’s grant of summary judgment de
novo. In so doing, we view the evidence in the light most
favorable to the non-movant, i.e. the Government, and apply the
same standard as the district court. See Wenner v. Texas Lottery
Comm’n, 123 F.3d 321, 324 (5th Cir. 1997). If the pleadings and
4
HP-84 Nursery Associates (“HP-84") is a judgment creditor of
Marré intervening in this case to obtain any damages awarded to
Marré had we affirmed the district court’s ruling. HP-84 filed a
letter in lieu of a brief essentially adopting the position of
Marré.
5
other summary judgment evidence demonstrate that no genuine issue
as to any material fact exists, then we grant judgment as a matter
of law to the movants, i.e. Marré and Agritech. See Celotex Corp.
v. Catrett, 477 U.S. 317, 322-24, 106 S. Ct. 2548, 2552-53 (1986);
see also Fed. R. Civ. P. 56(c). With regard to attorneys fees, we
review the district court's award for abuse of discretion. See
Marré v. United States, 117 F.3d 297, 301 (5th Cir. 1997).
B
The Government argues that the district court erred in holding
that the Government’s stipulation and assertions at trial
judicially estopped it from assessing penalties against the
Appellees for the following reasons: (1) the Government did not
stipulate or assert at the wrongful disclosure trial that the civil
investigation of the Appellees was closed; (2) the question of
whether the Government stipulated that all investigation of the
Appellees was closed, rather than just the criminal investigation,
is a genuine issue of material fact precluding summary judgment for
the Appellees; (3) the Government did not “successfully maintain”
in the disclosure litigation that the investigation was closed; and
(4) even assuming that the Government did stipulate or assert that
all investigations of the Appellees were closed, judicial estoppel
does not prevent the Government from assessing penalties based on
conduct discovered in those investigations.
The doctrine of judicial estoppel “prevents a party from
asserting a position in a legal proceeding that is contrary to a
position previously taken in the same or some earlier proceeding.”
6
Ergo Science, Inc. v. Martin, 73 F.3d 595, 598 (5th Cir. 1996).
The doctrine “applies to protect the integrity of the
courts--preventing a litigant from contradicting its previous,
inconsistent position when a court has adopted and relied on it.”
Afram Carriers, Inc. v. Moeykens, 145 F.3d 298, 303 (5th Cir.
1998).
In a stipulation filed with the district court one month
before the wrongful disclosure trial, the Government agreed to the
following:
The parties agree and stipulate that Appellees Richard L.
Marré and Agritech Enterprises, Inc. are no longer under
any grand jury or administrative criminal tax
investigation and that Appellees have never been charged
or indicted as a result of the I.R.S. investigation
conducted by Special Agent Lindell Parrish or the grand
jury. The United States objects to the admissibility of
this stipulated fact on the ground that it is not
relevant.
Additionally, the Government’s trial counsel made similar
representations to the district court during the wrongful
disclosure trial.
While it would appear that the Government at most represented
that Marré and Agritech as of the time of the wrongful disclosure
trial were no longer under criminal investigation, resolution of
the appeal now before us does not turn on the characterization of
the Government’s representations to the district court regarding
the status of I.R.S. investigations of Marré and Agritech. Even if
we were to find that the Government represented that all
investigations had been terminated (including any civil
investigation), such a representation would not be inconsistent
7
with the assessment of penalties pursuant to I.R.C. §§ 6700 and
6701. The fact that the I.R.S. may have closed its investigations
into the conduct of Marré and Agritech does not necessarily mean
that the I.R.S. could not at some later time choose to reopen an
investigation. Additionally, the fact that an investigation has
been closed does not prevent the Government from later assessing
penalties based on improper conduct discovered during the course of
that investigation. Because the Government at no time represented
to the district court that tax penalties would not be assessed
against Marré and Agritech, we find that the district court
improperly concluded that the Government was judicially estopped
from assessing civil tax penalties. For this reason, we hold that
the district court erred in granting summary judgment on this
ground.
C
As an alternative basis for the district court’s grant of
summary judgment, Marré and Agritech argue (1) that the
Government’s assessment of penalties under the Internal Revenue
Code constituted a compulsory counterclaim which in accordance with
Fed. R. Civ. P. 13 should have been brought in response to the
Appellees’ wrongful disclosure suit and (2) that the Government
duplicated penalties against the Appellees in violation of
§ 6701(f)(3). The district court denied summary judgment as to
both these grounds. First, the district court rejected Marré and
Agritech’s compulsory counterclaim argument relying on Pfeiffer Co.
v. United States, 518 F.2d 124, 130 (8th Cir. 1975) (“[B]ecause the
8
Government has a wide range of extra-judicial tax collection
devices at its disposal, we doubt that the Federal Rules of Civil
Procedure can be read to compel the Government to litigate when, as
in this case, for reasons of its own it chooses not to.”) and
Gustin v. United States, 876 F.2d 485, 490 n.1 (5th Cir. 1989)
(“The strictures of Fed.R.Civ.P. 13 simply do not apply to
counterclaims for delinquent taxes.”). Second, consistent with the
requirements of § 6701(f)(3) which provides that “no penalty shall
be assessed under section 6700 on any person with respect to any
document for which a penalty is assessed on such person under
subsection (a),” the district court rejected Appellees’ duplicated
penalty claim noting that “[n]othing in the record supports Marré
and Agritech’s argument that the assessments were based on the same
document.” Marré v. United States, Civil Action H-88-1103, slip
op. at 3 (S.D. Tex. Mar. 18, 1998).
After careful review of the record, we adopt the conclusions
of the district court on these points and find that neither
provides a basis for summary judgment. With regard to the district
court’s award of attorneys fees pursuant to I.R.C. § 7430, we find
that Marré and Agritech no longer qualify as “prevailing part[ies]”
and therefore reverse that award. See Internal Revenue Code
§ 7430(a) (providing that a prevailing party may be awarded a
judgment for reasonable litigation costs in any court proceeding
against the United States).
III
For the foregoing reasons, we reverse both the district
9
court’s grant of summary judgment and award of attorneys fees.
REVERSED
10