Arkansas Oil & Gas, Inc. v. Commissioner , 114 F.3d 795 ( 1997 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 96-3024
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Arkansas Oil and Gas, Inc., *
*
Appellant, *
*
v. *
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Commissioner of Internal Revenue, *
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Appellee. *
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Appeals from the
No. 96-3025 United States Tax Court.
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Dale S. Braden, *
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Appellant, *
*
v. *
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Commissioner of Internal Revenue, *
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Appellee. *
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No. 96-3026
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Arkansas Leasing Service, Inc., *
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Appellant, *
*
v. *
*
Commissioner of Internal Revenue, *
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Appellee. *
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Submitted: April 14, 1997
Filed: June 11, 1997
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Before LOKEN, JOHN R. GIBSON, and MAGILL, Circuit Judges.
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MAGILL, Circuit Judge.
The Commissioner of the Internal Revenue Service
(Commissioner) issued notices of federal income tax
deficiencies and penalties to Arkansas Oil & Gas, Inc.
(Arkansas Oil & Gas), Arkansas Leasing Service, Inc.
(Arkansas Leasing), and Dale S. Braden (collectively, the
taxpayers). Braden, an attorney who specializes in oil
and gas matters, is the sole stockholder of both Arkansas
Oil & Gas and Arkansas Leasing. Each of the taxpayers,
through their counsel, Stephen E. Adams, filed a timely
petition in the tax court for a redetermination of the
asserted tax deficiencies and penalties. After the
taxpayers failed to prosecute their claims and after they
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failed to appear at trial, the tax court dismissed the
taxpayers’ petitions for failure to prosecute and
sustained the Commissioner’s determinations of tax
deficiencies and penalties for each
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taxpayer. The taxpayers did not timely appeal this
dismissal, but instead filed motions with the tax court
requesting that the tax court vacate its dismissal orders
and reopen their cases. The tax court denied the
taxpayers’ motions to vacate, and the taxpayers appeal
this denial. Because the tax court lacks jurisdiction to
hear the motions brought by the taxpayers, we vacate the
tax court’s denial of the taxpayers’ motions to vacate.
I.
In December 1992, the Commissioner issued notices of
federal income tax deficiencies and penalties to each of
the taxpayers, asserting numerous tax deficiencies and
penalties for various years from 1980 through 1988. The
asserted tax deficiencies and penalties totaled more than
$1.2 million. The Commissioner sought these deficiencies
and penalties on the ground that the taxpayers had
engaged in tax evasion and fraud.
The taxpayers chose Adams, an attorney certified to
practice before the tax court, to represent them in this
matter. In response to the Commissioner’s notices, each
of the taxpayers, through Adams, filed a timely petition
in the tax court on March 29, 1993, for a redetermination
of the tax deficiencies and penalties.
According to the taxpayers, sometime between March
29, 1993, and June 1993, Adams began to suffer from
severe and debilitating psychological problems that
prevented him from prosecuting the taxpayers’
redetermination claims. During the period from June 4,
1993, the date on which the Commissioner filed answers to
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the taxpayers’ petitions, through March 21, 1994, the
date on which the taxpayers’ petitions were set for
trial, neither the taxpayers nor Adams replied to the
Commissioner’s answers to the taxpayers’ petitions.
Furthermore, neither the taxpayers nor Adams responded to numerous
motions, requests, and telephone calls made by the
Commissioner. Finally, neither the taxpayers nor Adams conducted
discovery, responded to numerous orders entered by the
tax court, or appeared at the
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March 21, 1994 trial of their cases. The taxpayers
failed to take action during this period notwithstanding
that Adams was duly notified of each of the various
motions and orders and notwithstanding that the tax court
sent several notices to Adams, warning him that failure
to appear might result in the dismissal of the taxpayers’
petitions and entry of decisions for the Commissioner.
Despite Adams’s alleged psychological problems during
this period, he remained a member of the bar until at
least April 19, 1996. On April 1, 1994, and April 24,
1996, Adams’s office acknowledged receipt of documents
regarding the taxpayers that had been sent by the
Commissioner via certified mail. Moreover, according to
the Commissioner, none of the correspondence sent to
Adams was ever returned.
On October 31, 1994, the tax court entered orders,
dismissing each of the taxpayers’ petitions for failure
to prosecute as well as sustaining the Commissioner’s
determinations of federal income tax deficiencies and
penalties. The tax court concluded that the taxpayers
had “clearly indicated, as shown by [their] conduct and
the overall record in this case, that [they] no longer
wishe[d] to contest any issue involved in this case.”
Arkansas Oil & Gas Mem. Op. (Oct. 11, 1994) at 7,
reprinted in Appellant’s Add. at 8; Braden Mem. Op. (Oct.
11, 1994) at 6, reprinted in Appellant’s Add. at 23; Arkansas Leasing
Mem. Op. (Oct. 11, 1994) at 6, reprinted in Appellant’s Add. at 38.
With respect to the proposed deficiencies and penalties,
the tax court held that, “[i]n light of the record taken
as a whole and reasonable inferences therefrom, we now
find that the facts in this case show, by clear and
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convincing evidence, that [the taxpayers] intended to
evade taxes known to be owing for the tax years at issue
by conduct intended to conceal, mislead, or otherwise
prevent the collection of taxes.” Arkansas Oil & Gas
Mem. Op. at 14, reprinted in Appellant’s Add. at 15; Braden Mem. Op.
at 29, reprinted in Appellant’s Add. at 8; Arkansas Leasing Mem. Op.
at 13, reprinted in Appellant’s Add. at 45. Notices of the October
31, 1994 orders were sent to Adams.
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Although Braden “stayed in contact with Mr. Adams on
a[n] as needed basis,” Dale S. Braden Aff. (Feb. 29,
1996) at 1, reprinted in Arkansas Oil & Gas App. at 249C,
the taxpayers allege that Adams never advised the
taxpayers of his psychological problems and that the
taxpayers did not immediately learn of Adams’s inability
and complete failure to prosecute their claims. Indeed,
according to Braden, the taxpayers “first had knowledge
of a problem when [Braden] began receiving notices of
Internal Revenue Service assessments.” Id. at 2,
reprinted in Arkansas Oil & Gas’s App. at 249D. The
first such notice that Braden received was dated March
29, 1995, nearly two years after the onset of Adams’s
alleged psychological problems. Id. Thus, by the time
Braden received the March 29, 1995 notice of assessment
from the Commissioner, the tax court had already entered
its October 31, 1994 judgment against the taxpayers.
Nearly one year after Braden received the March 29,
1995 notice of assessment from the IRS, each of the
taxpayers filed a motion to vacate the tax court’s
adverse judgment as well as a motion to reopen each of
their respective cases. Braden and Arkansas Oil & Gas
filed their motions to vacate and reopen on March 19,
1996. Arkansas Leasing filed its motions on March 22,
1996.
In support of their motions to vacate, the taxpayers
claimed that the Commissioner and the tax court violated the
taxpayers’ due process rights by failing to inform them
of Adams’s “constructive disappearance.” See Arkansas
Oil & Gas Mot. to Vacate (Mar. 19, 1996) at ¶ 2,
reprinted in Arkansas Oil & Gas App. at 234; Braden Mot.
to Vacate (Mar. 19, 1996) at ¶ 2, reprinted in Braden
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App. at 242; Arkansas Leasing Mot. to Vacate (Mar. 22,
1996) at ¶ 2, reprinted in Arkansas Leasing App. at 174.
The taxpayers also claimed that the Commissioner should
have notified them directly of its adverse decision after
it became “obvious that counsel was not properly
representing” the taxpayers. Arkansas Oil & Gas Mot. to
Vacate at ¶ 3, reprinted in Arkansas Oil & Gas App. at
234; Braden Mot. to Vacate at ¶ 3, reprinted in Braden
App. at 242; Arkansas Leasing Mot. to Vacate at ¶ 3,
reprinted in Arkansas Leasing App. at 174. However, the
taxpayers neither claimed nor presented any
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evidence that, prior to the taxpayers’ filing of their
motions to vacate, either the Commissioner or the tax
court had actual knowledge that Adams was allegedly
incapable of prosecuting the taxpayers’ redetermination
claims or that Adams no longer represented the taxpayers.
On May 16, 1996, the tax court entered an order
denying each of the taxpayers’ motions to vacate. The
taxpayers appeal these orders.1
II.
We must first consider whether the tax court had
jurisdiction to hear the taxpayers’ motions to vacate as
well as to hear their motions to reopen the taxpayers’
redetermination claims. We conclude that the tax court
did not have jurisdiction to hear the taxpayers’ motions.
We review de novo the issue of whether a tax court
has jurisdiction to hear a motion. See Nordvik v.
Commissioner, 67 F.3d 1489, 1491 (9th Cir. 1995), cert.
denied, 116 S. Ct. 1682 (1996); Harbold v. Commissioner,
51 F.3d 618, 621 (6th Cir. 1995). Absent extraordinary
circumstances, the tax court lacks jurisdiction to revise
or modify its decisions that have become final. See
Webbe v. Commissioner, 902 F.2d 688, 688 (8th Cir. 1990)
(“In this case we consider the extent of the power of the
United States Tax Court to revise or modify decisions
1
The taxpayers appeal only from the tax court’s May 16, 1996 orders. They do
not appeal from the tax court’s original October 31, 1994 orders, dismissing their
claims and sustaining the Commissioner’s determinations of tax deficiencies and
penalties.
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that have become final. We conclude that there is no
such power, at least in the absence of extraordinary
circumstances not present here.”); accord Nordvik, 67
F.3d at 1491 (“Once [its] decision becomes final, a tax
court generally lacks jurisdiction to consider a motion
to vacate or revise.”); see also Harbold, 51 F.3d at 621
(“[O]nce a decision of the Tax
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Court becomes final, the Tax Court no longer has
jurisdiction to consider a motion to vacate its
decision.”).
Except in certain situations not relevant to this
appeal, decisions of the tax court become final “[u]pon
the expiration of the time allowed for filing a notice of
appeal, if no such notice has been duly filed within such
time . . . .” I.R.C. § 7481(a)(1) (1994).2 The time
allowed for filing such notice of appeal is “within 90
days after the decision of the Tax Court is entered.”
I.R.C. § 7483 (1994). However, “[i]f a timely notice of
appeal is filed by one party, any other party may take an
appeal by filing a notice of appeal within 120 days after
the decision of the Tax Court is entered.” Id.
It is undisputed that none of the parties to this
litigation filed a notice of appeal within 90 days of the
tax court’s October 31, 1994 orders. Accordingly, the
tax court’s October 31, 1994 orders were final long
before the taxpayers filed their March 1996 motions to
vacate those orders and to reopen their redetermination
claims. As a result, absent extraordinary circumstances,
the tax court did not have jurisdiction to hear the
taxpayers’ motions.
The taxpayers argue that extraordinary circumstances
exist in this case. Specifically, the taxpayers argue
that the Commissioner and the tax court violated the
2
The exceptions to this rule are limited to certain cases involving: (1) disputes
involving less than $10,000, see I.R.C. §§ 7481(b), 7463 (1994); (2) interest
determinations, see I.R.C. § 7481(c) (1994); or (3) estate taxes, see I.R.C. § 7481(d)
(1994). None of these exceptions is implicated here.
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taxpayers’ due process rights. According to the
taxpayers, prior to the expiration of the 90-day period
following the entry of the tax court’s judgment against
each of the taxpayers, the Commissioner and the tax court
knew or should have known that Adams was not prosecuting
the taxpayers’ redetermination claims. The taxpayers
therefore argue that: (1) the Commissioner violated the
taxpayers' due process rights by failing to notify the
taxpayers that Adams, the attorney selected by the
taxpayers to represent
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them, was not prosecuting their redetermination claims,
and (2) the Commissioner and the tax court violated the
taxpayers’ due process rights by failing to notify the
taxpayers directly of the judgment entered against them.
We find the taxpayers’ attempt to shift
responsibility to the Commissioner and the tax court for
Adams’s so-called constructive disappearance to be
disingenuous.3 First, the taxpayers voluntarily chose
Adams to prosecute their claims, and they should not now
be heard to complain of his acts or omissions. Cf. Heim
v. Commissioner, 872 F.2d 245, 248 (8th Cir. 1989) (“We
therefore conclude that any errors committed by Jukkala,
[the taxpayers’ attorney,] even accepting the designation
of gross negligence, do not constitute an adequate
showing of ‘exceptional circumstances,’ warranting
vacation of the tax court decision. The [taxpayers]
voluntarily chose Jukkala to represent them, and they
cannot now avoid his acts or omissions in the
proceeding.”). Moreover, we find it nearly absurd that
the taxpayers now seek to blame the Commissioner and the
tax court for the fact that it took the taxpayers almost
two years to realize that Adams had failed to prosecute
their redetermination claims. The taxpayers make this
argument notwithstanding that Braden “stayed in contact
with Mr. Adams on a[n] as needed basis,” Braden Aff. at
3
The taxpayers have not sought monetary damages from Adams at least in part
because “[i]t appears [Adams’s malpractice] insurance coverage may have been
exhausted.” Appellants’ Reply Br. at 14.
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1, reprinted in Arkansas Oil & Gas App. at 249C, and
notwithstanding that Braden, himself, is an attorney.4
4
We also note that, consistent with the general tenor of this litigation, it took the
taxpayers nearly a full year to file their motions to vacate. Braden must have received
the Commissioner’s March 29, 1995 notice of assessment sometime in April 1995, yet
the taxpayers did not file their motions to vacate until March 1996. Notwithstanding
this delay, the taxpayers offer no evidence in the record that would support an
explanation for why it took them so long to file their motions to vacate.
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Furthermore, in urging that the Commissioner should
have informed the taxpayers that Adams was not properly
representing them, the taxpayers essentially claim that
they were denied their right to effective assistance of
counsel. Cf. Heim, 872 F.2d at 247 (concluding that “the
[taxpayers’] argument here is essentially directed toward
the adequacy of the representation that they received”
where taxpayers argued that the tax court’s denial of
their motions for leave to file a motion to vacate should
be reversed because their attorney was grossly
negligent). However, the taxpayers did not have a right
to effective assistance of counsel in these proceedings.
See Keene Corp. v. Cass, 908 F.2d 293, 297 n.3 (8th Cir.
1990) (“[T]here is no constitutional right to effective
assistance of counsel in a civil case.” (citing Glick v.
Henderson, 855 F.2d 536, 541 (8th Cir. 1988); Allen v.
Barnes Hosp., 721 F.2d 643, 644 (8th Cir. 1983))). As a
result, the Commissioner could not have violated, and
therefore did not violate, the taxpayers’ right to
effective assistance of counsel.
Finally, for purposes of the jurisdictional issue
presented here and based on the facts of this case, it
was not an extraordinary circumstance that the
Commissioner and the tax court notified only Adams of the
judgment entered against the taxpayers. As a general
rule, in civil proceedings, "clients must be held
accountable for the acts and omissions of their
attorneys.” Pioneer Inv. Servs. Co. v. Brunswick Assocs.
Ltd. Partnership, 507 U.S. 380, 396 (1993); cf. United
States v. Boyle, 469 U.S. 241, 249-50 (1985) (With
respect to the filing of federal estate tax returns,
“Congress has placed the burden of prompt filing on the
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executor, not on some agent or employee of the executor.
The duty is fixed and clear; Congress intended to place
upon the taxpayer an obligation to ascertain the
statutory deadline and then to meet that deadline, except
in a very narrow range of situations. . . . That the
attorney, as the executor’s agent, was expected to attend
to the matter does not relieve the principal of his duty
to comply with the statute.”). The Court has explained
that, under “our system of representative litigation, .
. . each party is deemed bound by the acts of his lawyer-
agent and is considered to have notice of all facts,
notice of which can be charged upon the attorney.”
Pioneer Inv. Servs., 507 U.S. at 397 (quotations and
citations omitted).
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In the present action, the taxpayers do not claim,
nor is there any evidence in the record, that Adams
received inadequate notice of the judgment entered
against the taxpayers. Moreover, there is no evidence
that either the Commissioner or the tax court had actual
knowledge of Adams’s alleged inability to prosecute the
taxpayers’ petitions. As a result, when Adams received
notice of the judgment entered against the taxpayers, the
taxpayers were “considered to have notice of” the
judgment entered against them because notice of the
judgment “can be charged upon the[ir] attorney.” Id.
(quotations and citations omitted). Thus, in the present
action, no extraordinary circumstances exist that would
give the tax court jurisdiction to hear the taxpayers’
motions.
Because the tax court did not have jurisdiction to
hear the taxpayers’ motions, it could not have granted
those motions. Accordingly, we vacate the tax court’s
orders denying the taxpayers’ motions to vacate. Thus,
we leave undisturbed the tax court’s October 31, 1994
orders dismissing the taxpayers’ petitions and sustaining
the Commissioner’s asserted tax deficiencies and
penalties.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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