Wallace and Donnetta Duncan v. Commissioner , 121 T.C. No. 17 ( 2003 )

121 T.C. No. 17UNITED STATES TAX COURT
WALLACE AND DONNETTA DUNCAN, ET AL.,1 Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 16607-97, 13579-98, Filed November 24, 2003.
10022-02, 11095-02,
11313-02, 11324-02,
11326-02, 11327-02,
11338-02, 11339-02,
11441-02.
Certain factual issues common to these
consolidated cases have been submitted for voluntary
1
The following cases are consolidated herewith: Stevan B.
Little, docket No. 13579-98; Edward J. and Lillian C. Lefevre,
docket No. 10022-02; Frank M. and Maria B. Foley, docket No.
11095-02; Stephen M. and Linda M. Kirchner, docket No. 11313-02;
Bernard and Sherley H. Koteen, docket No. 11324-02; Richard E.
Briggs and Peggy E. Perry, docket No. 11326-02; Gregory S. and
Susan H. Lewis, docket No. 11327-02; Estate of Marion Cornell,
Deceased, Barbara A. Cornell, Administrator, and Barbara A.
Cornell, docket No. 11338-02; Arthur D. and Hildegard B. Lewis,
docket No. 11339-02; and Harvey B. Jacobson, Jr., docket No.
11441-02.
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binding arbitration pursuant to Rule 124. The
arbitration agreement requires the parties to submit
certain information to the arbitrator by a prescribed
deadline and gives the arbitrator discretionary
authority to request additional information. Ps made
a timely submission of information to the arbitrator
and another untimely submission to which R waived any
objection on condition that Ps submit no additional
information. Ps have moved to delay entering the
arbitrator’s findings in the record on the ground that
the arbitrator failed to request and consider certain
additional information that they consider essential to
their case. Held: Absent good cause, we shall not set
aside the terms of an arbitration agreement. Ps’
motion is denied.
Moshe Schuldinger, for petitioners.
Roger W. Bracken and Avery B. Cousins III, for respondent.
OPINION
THORNTON, Judge: A primary issue in these consolidated
cases is the fair market value of numerous West Virginia natural
gas wells with respect to which petitioners claimed charitable
contribution deductions. The parties have agreed to resolve this
factual valuation issue by voluntary binding arbitration,
pursuant to Rule 124.2 The case is now before us on petitioners’
motion to delay entering the arbitrator’s findings in the record.
2
Unless otherwise indicated, all Rule references are to the
Tax Court Rules of Practice and Procedure.
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Background
On April 14, 2003, the parties filed a Joint Motion for Rule
124 Arbitration, moving that certain factual issues common to
these consolidated cases be submitted for voluntary binding
arbitration. Attached as an exhibit to the joint motion was the
parties’ arbitration agreement, executed by the parties’
representatives. On April 18, 2003, this Court granted the joint
motion.
In the arbitration agreement (reproduced in the appendix
hereto) the parties agreed, as relevant herein, to place “no
limitations on the materials or sources used by the Arbitrator”.
The arbitration agreement states:
Given the Arbitrator’s unique knowledge of the facts
* * *, coupled with both parties’ confidence in the
Arbitrator’s good faith and neutrality in this
arbitration, the parties agree that there is no need
for either party to submit testimony, expert reports,
written summaries or affidavits supporting their
respective positions to the Arbitrator. * * *
The parties agree that the Arbitrator may request
that the parties clarify the Issues or request any
additional information that the Arbitrator deems
necessary, during any phase of the arbitration process
provided all parties are notified of such requests and
are given the opportunity to participate in any
discussions. * * * [Emphasis added.]
Pursuant to the arbitration agreement, the arbitration
schedule began with a 30-day discovery period, during which
petitioners were required to provide previously requested
information to the arbitrator, and each party was to provide “any
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additional information * * * relevant and probative” to the
arbitral issues. At the conclusion of the 30-day discovery
period, if the arbitrator determined that he had sufficient
information to prepare findings, then a 30-day review period was
to commence. If the arbitrator determined that he did not have
sufficient information to prepare findings, then the 30-day
review period could be tolled for up to 30 days to allow the
arbitrator to request and the parties to provide additional
information. At the conclusion of the review period, the
arbitrator was required to provide his written findings to both
parties simultaneously. Within 10 days thereafter, the parties
were required to submit the arbitrator’s findings to the Court.
The 30-day discovery period began on May 5, 2003. In a
June 30, 2003, letter, the arbitrator advised the parties that he
was extending the initial 30-day discovery deadline from June 5
to July 1, 2003, after which “no additional information” could be
accepted. On June 13, 2003, petitioners submitted information to
the arbitrator. On July 6, 2003, 5 days after the extended
deadline, petitioners submitted additional information to the
arbitrator. Respondent alleges, and petitioners do not dispute,
that on July 24, 2003, the parties informally agreed that
respondent would not object to petitioners’ July 6, 2003,
submission as being untimely if petitioners would submit no
additional information to the arbitrator.
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On August 29, 2003, the arbitrator submitted his written
findings to the parties and the Court.3 On October 6, 2003,
petitioners filed a motion to delay entering the arbitrator’s
findings in the record. In their motion, petitioners note that
the arbitrator’s written findings include this statement:
Mr. Williams [petitioners’ consultant] correctly points
out that if all of the behind-the-pipe reserves were
immediately completed to produce, the discount for time
would be greatly reduced. However, there has been no
information provided to me that this practice had
become a standard procedure in 1993, or even since that
date. [Emphasis added.]
Petitioners argue that by failing to request the information
alluded to in the just-quoted passage, the arbitrator “reached
his conclusion as to the fair market value of the subject wells
without the benefit of * * * full and complete data and
information with respect to an essential element of Petitioners’
presentation.”
On October 23, 2003, respondent filed his opposition to
petitioners’ motion.
Discussion
Under Rule 124, “The parties may move that any factual issue
in controversy be resolved through voluntary binding
arbitration.” Rule 124(a). The parties must attach to their
motion requesting arbitration “a stipulation executed by each
3
Contrary to the terms of the arbitration agreement, the
parties have not submitted the arbitrator’s written findings to
the Court.
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party or counsel for each party” regarding the arbitral issues,
an agreement to be bound by the arbitrator’s findings, and other
matters related to the arbitration. Rule 124(b).
An arbitration agreement represents a contract between the
parties. See First Options of Chicago, Inc. v. Kaplan, 514 U.S.
938, 943 (1995); AT&T Techs., Inc. v. Communications Workers, 475
U.S. 643, 648 (1986); United Steelworkers of Am. v. Warrior &
Gulf Navigation Co., 363 U.S. 574, 582 (1960). Consequently, a
stipulated arbitration agreement, like other stipulations in this
Court, is governed by general principles of contract law, cf.
Bankamerica Corp. v. Commissioner, 109 T.C. 1, 12 (1997);
Dorchester Indus. Inc. v. Commissioner, 108 T.C. 320, 330 (1997),
affd. without published opinion 208 F.3d 205 (3d Cir. 2000);
Stamos v. Commissioner, 87 T.C. 1451, 1455 (1986); Robbins Tire &
Rubber Co. v. Commissioner, 52 T.C. 420, 435-436 (1969), and is
enforceable, like other contracts, according to its terms and the
parties’ intentions, see, e.g., First Options of Chicago, Inc. v.
Kaplan, supra at 947; Mastrobuono v. Shearson Lehman Hutton,
Inc., 514 U.S. 52, 63 (1995); Volt Info. Scis., Inc. v. Bd. of
Trs., 489 U.S. 468, 479 (1989). Absent good cause, we shall not
set aside the terms of an arbitration agreement. Cf. Dorchester
Indus. Inc. v. Commissioner, supra at 334; Saigh v. Commissioner,
26 T.C. 171, 176 (1956).
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In the instant case, the arbitration agreement provides a
schedule for submitting information to the arbitrator. After the
initial 30-day discovery deadline was extended from June 5 to
July 1, 2003, petitioners made an untimely submission of
information to the arbitrator on July 6, 2003. Respondent agreed
to waive any objection to the untimeliness of this submission on
the condition that petitioners submit no additional information.
Now, apparently, petitioners wish to have the arbitrator consider
additional information.
Petitioners have not persuaded us that they should not be
bound by the deadlines set forth in the arbitration agreement for
submitting information to the arbitrator. With respondent’s
agreement, they have already made an untimely submission of
additional information to the arbitrator. If petitioners failed
to include in prior submissions information that they now believe
would have been useful, they have only themselves to blame.
Furthermore, in the arbitration agreement, petitioners
agreed that there is no need “to submit testimony, expert
reports, written summaries or affidavits supporting their
respective positions to the Arbitrator” and that the arbitrator’s
authority to request additional information was discretionary.
Petitioners have no valid cause to complain that the arbitrator
did not exercise his discretion to request the additional
information that petitioners wish to have considered.
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Petitioners have not persuaded us that they should not be
bound by the terms of the arbitration agreement. Accordingly, we
shall deny petitioners’ motion. To reflect the foregoing,
An appropriate order
will be issued.
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APPENDIX
ARBITRATION AGREEMENT
The Petitioners and Respondent (collectively referred to as
“the parties” herein) voluntarily agree to submit certain factual
valuation issues (“the Issues”), present in the above-entitled
United States Tax Court cases, for binding arbitration. The
parties further voluntarily agree to the procedures and terms set
forth as follows in this Arbitration Agreement (“the Agreement”).
1. ARBITRATOR. The parties agree to select Forrest A.
Garb, Forrest A. Garb & Associates, Inc., (“the Arbitrator”), as
the sole arbitrator for the issues set forth in paragraph 2
below. The petitioners acknowledge that Mr. Garb was previously
employed by Respondent as his expert in the instant Tax Court
litigation. The parties further agree that the fees and costs of
the Arbitrator will be shared equally by the two parties, subject
to the applicable rules and regulations for Government
procurement, and that the specific costs and fees will be set
forth in a separate contract between the parties and the
Arbitrator.
2. ISSUES AND FINDINGS. The parties agree that the Issues
submitted for determination by the Arbitrator are solely factual
in nature and do not require the Arbitrator to render any legal
opinions. The parties further agree that the Arbitrator’s final
written determinations (“Findings”) should address the following:
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A. Determine the reserve volumes and classifications
as of December 31, 1993, for the following 16 natural gas wells
subject to this arbitration, all of which are located in the
Roaring Creek/Valley District, Randolph and Barbour Counties,
West Virginia:
Anderson 1 Lamb 1 Talbott 1
Flanagan 1 Ricottilli 1 Talbott 2
Findley 1 Ricottilli 81-22 Talbott 3
Keeley 1 Simmons 1 Thacker-Luff
King 1A Tahaney-Clark Wilson 2
King 2A
B. Prepare projections of production and revenue for
each of the subject wells using industry standard procedures,
considering all technical and economic data available.
C. Prepare summary projections of future net revenue
and discounted future net revenue by classification for the
subject reserves.
D. Determine a fair-market-value for the subject wells
using industry accepted guidelines and methods.
3. MATERIALS USED BY THE ARBITRATOR. The parties agree to
place no limitations on the materials or sources used by the
Arbitrator, except that the Arbitrator’s Findings should be based
solely on data that would have been available as of December 31,
1993. While the Arbitrator is not permitted to make any findings
of law, it may be necessary for the Arbitrator to refer to
existing applicable law, regulations and other industry
information normally relied upon and used by petroleum engineers
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in determining such valuation issues. To the extent that the
Arbitrator refers to any authority or information which he
believes is not usually relied upon in the petroleum/gas industry
in making similar determinations, such reference(s) should be
specifically detailed in or attached to his “Findings”.
4. ARBITRATION PROCESS. Given the Arbitrator’s unique
knowledge of the facts underlying the Issues listed in paragraph
2 above, coupled with both parties’ confidence in the
Arbitrator’s good faith and neutrality in this arbitration, the
parties agree that there is no need for either party to submit
testimony, expert reports, written summaries or affidavits
supporting their respective positions to the Arbitrator. The
parties further agree that there is no need for a formal
arbitration meeting of the arbitrator with the parties.
The parties agree that the Arbitrator may request that the
parties clarify the Issues or request any additional information
that the Arbitrator deems necessary, during any phase of the
arbitration process provided all parties are notified of such
requests and are given the opportunity to participate in any
discussions. The parties further agree that there shall be no ex
parte communications between the Arbitrator and a party or agent
for a party and that any information provided to the Arbitrator
must be provided to all parties simultaneously.
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The parties agree on the following arbitration time frames
and procedures:
A. As of the later of the date the parties’ Joint
Motion for Rule 124 Arbitration (with an original of this
executed Arbitration Agreement) is granted by the Tax Court, or
the date the Arbitrator’s fee and costs contract with the parties
has been executed, an initial thirty (30) day discovery period
will commence during which the Petitioners must provide the
Arbitrator with responses to the information request previously
submitted to them by Mr. Garb, as well as any additional
information that either Petitioners or Respondent believe is
relevant and probative on the Issues set forth in paragraph 2
above.
B. If, at the end of this initial 30 day discovery
period, the Arbitrator states in writing to the parties that he
has sufficient information to determine his Findings, a 30 day
review period commences. If, however, at the end of the initial
30-day discovery period, the Arbitrator states to the parties in
writing that he needs additional information from either party,
the commencement of this 30 day review period is suspended as
follows: (1) A period not exceeding fifteen (15) days after the
end of the initial discovery period will be provided for the
Arbitrator to prepare and pose in writing any requests for
additional information. Copies of such requests or any other
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correspondence from the Arbitrator will be provided to all
parties simultaneously. (2) From the date they receive any
requests for additional information, the parties will have a
period not exceeding 15 days to respond in writing to the
Arbitrator. (3) The Arbitrator’s 30 day review period will
commence on the earlier of: (a) the sixteenth (16th) day after
the parties receive any written request for additional
information from the Arbitrator; or (b) the date the Arbitrator
states in writing to the parties that he has sufficient
information to make his Findings.
C. By the end of his 30-day review period, the
Arbitrator will prepare his written Findings on the Issues.
These Findings should state, to the extent necessary, the reasons
for any material revisions to the conclusions contained in the
2001 expert witness report previously submitted by Mr. Garb which
is currently lodged with the Tax Court. The Arbitrator must
provide his written Findings to both parties simultaneously no
later than the 30th day of his 30 day review period. The parties
will submit the Arbitrator’s Findings to the Tax Court within 10
days thereafter.
5. FINALITY. The parties agree to be bound by the
Arbitrator’s Findings and that the Findings are final and can not
be appealed. While the parties agree that the Findings regarding
the Issues specified in paragraph 2 above shall be conclusive and
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binding on the parties, both parties also recognize that there
are additional legal issues present in these docketed cases which
may give rise to further legal proceedings, including if
necessary, a Tax Court trial.
The parties further agree that while the Findings are not
binding on any other participants in the various FMF gas well
enterprises who are not petitioners in this consolidated group of
Tax Court cases, there is no prohibition against offering the
Arbitrator’s factual Findings as evidence in any subsequent court
proceeding concerning these docketed cases or any other
proceeding. Any settlement reached by the parties through the
Arbitration, however, shall not serve as an estoppel in any other
proceeding.
6. CONFIDENTIALITY. Petitioners acknowledge that the
Arbitrator (and any agents he may use during the arbitration
process) may have access to Petitioners’ returns and return
information pertaining to the Issues being arbitrated.
Respondent’s agents involved in the arbitration and the
Arbitrator (and any agents he may use during the arbitration
process), are subject to the confidentiality and disclosure
provisions of I.R.C. §§ 6103(n), 6103, 7213 and 7431. The
parties acknowledge that employees of the Service and all other
Treasury employees involved in this arbitration are bound by
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I.R.C. § 7214(a)(8) and must report information concerning
violations of any revenue law to the Secretary of Treasury.
B. JOHN WILLIAMS, JR.
Chief Counsel
Internal Revenue Service
/s/ By: /s/
MOSHE SCHULDINGER WARREN P. SIMONSEN
* * * * * *
Date: 4/9/03 Date: 4/11/03