Levy Ex Rel. Estate of Levy v. United States

Case: 09-51082 Document: 00511308472 Page: 1 Date Filed: 12/01/2010
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
December 1, 2010
No. 09-51082 Lyle W. Cayce
Clerk
MICHAEL R. LEVY, as Independent Executor
of the Estate of Meyer Levy, Deceased,
Plaintiff-Appellant
v.
UNITED STATES OF AMERICA,
Defendant-Appellee
Appeal from the United States District Court
for the Western District of Texas
USDC No. 1:07-CV-339
Before JONES, Chief Judge, and REAVLEY and HAYNES, Circuit Judges.
PER CURIAM:*
The Estate of Meyer Levy seeks a refund of $3,236,377 in estate taxes
claiming the assessment overvalued Plano property at $23,286,412 and
undervalued the discount of the partnership interest. Judgment in favor of the
government is based on the jury verdict of $25 million value without allowing
any discount for lack of control and marketability due to partnership ownership.
*
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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .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.
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We affirm the judgment and address the numerous points of error raised by the
Estate.
Rulings on Evidence
The Estate argues that the trial court erred when it allowed the admission
of (1) evidence of the ongoing negotiations over the sale of the property,
specifically the offers and proposals; (2) evidence of the listing price of the
property, and the ultimate sale price of the property; (3) valuation testimony by
the Government's expert based on flawed methodology; and (4) opinion
testimony by a lay witness and hearsay testimony. Admission of evidence is
reviewed for abuse of discretion. Paz v. Brush Engineered Materials, Inc.1 "A
trial court abuses its discretion when its ruling is based on an erroneous view of
the law or a clearly erroneous assessment of the evidence." 2
The Estate argues that the evidence concerning the negotiations over the
property were not relevant to the determination of the fair market value of the
property on September 25, 2001. Offers to buy and sell property may not be
admissible as evidence of its fair market value. Sharp v. United States.3 It
depends on the specifics of each case. See Univ. Computing Co. v. Lykes-
Youngstown Corp.4 "In virtually every case which has utilized this general rule,
the offers came from third parties, frequently unidentified, and were mere
hearsay. Further, in most of these cases there was no evidence that the offeror
had the type of expert qualifications which would have entitled him to testify as
to his opinion on value had he been called at trial."5 Here, the proposals came
1
555 F.3d 383, 387 (5th Cir. 2009).
2
Id. (internal quotation omitted).
3
191 U.S. 341, 348, 24 S. Ct. 114, 115 (1903).
4
504 F.2d 518, 545–46 (5th Cir. 1974).
5
Id.2
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from identified, sophisticated developers who could be reasonably expected to
have investigated the value of the land before making a proposal. And,
presumably the developers could have been called to testify had the Estate
desired to test their knowledge under cross-examination.
Moreover, we have held that offers of purchase were admissible as
evidence of fair market value when they were part of ongoing negotiations
resulting in a contract with substantially the same terms. Sammons v. United
States.6 With one exception, which the parties agreed was unreasonable, the
offers on the property were between $20 million and $25 million. The Estate
resolutely held out for $25 million throughout all of the negotiations. And, the
final sale price was $25 million. The evidence of the negotiations was consistent
with the actual sale and was admissible.
Additionally, the Estate contends that the evidence of the final sale price
was inadmissible because the sale: (1) was too remote in time, and (2) was
contingent on rezoning. To be relevant, the eventual sale of the property must
be within a reasonable time. Atlantic Coast Line R. Co. v. United States.7 We
have held that "[i]t is well settled that the admissibility of comparable sales . .
. is a matter within the peculiar discretion of the trial judge." United States v.
Certain Land in City of Fort Worth, Tarrant County, Tx.8 In Jayson v. United
States, we held that a trial court did not abuse its discretion in admitting
evidence of the sale of comparable property three and a half years after the
valuation date.9 Here, the contract for sale was signed two years after the
6
433 F.2d 728, 731 (5th Cir. 1970).
7
132 F.2d 959, 963 (5th Cir. 1943) ("[A]n actual sale remote in time affords no
standard.").
8
414 F.2d 1029, 1031 (5th Cir. 1969).
9
294 F.2d 808, 810 (5th Cir. 1961).
3
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valuation date, and unlike the comparison in Jayson, the sale evidence was for
the actual land at issue, rather than comparable land. Additionally, the Estate's
expert testified that the Plano real estate market was relatively flat—increasing
approximately 3%—so the sales price would be an accurate comparator.
The Estate further argues that the sale price was inadmissible because
the rezoning of the land to single-family and retirement community use was not
foreseeable. Levy himself had tried to have the property rezoned to no effect.
They argue that the eventual sales price was unforeseeable and, therefore, the
land must instead be valued as though it is agricultural land. We disagree.
Levy's attempted rezoning was aggressive and unrealistic. And, the Plano
comprehensive land use plan anticipated that the property would be rezoned to
at least single-family homes. That the property would be rezoned to allow for
some type of development was entirely foreseeable. The district court did not
abuse its discretion in admitting evidence of the actual sale price of the property.
Nor did the court abuse its discretion in allowing testimony regarding the
listing price of the property. As long as it is not based on pure speculation, "[i]n
general, an owner is competent to give his opinion on the value of his property."
King v. Ames10 His testimony is admissible "because of the presumption of
special knowledge that arises out of ownership of the land." LaCombe v. A-T-O,
Inc.11
The Estate also contends that the district court erred when it denied the
Estate's motion to exclude the expert testimony of Jack P. Friedman—the
Government's valuation expert. We review a trial court's decision to admit
10
179 F.3d 370, 377 (5th Cir. 1999) (quotation marks and citation omitted).
11
679 F.2d 431, 434 (5th Cir. 1982) (quotation marks and citation omitted).
4
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expert testimony for abuse of discretion. United States v. Cooks.12 "[W]e have
recognized that district courts are given wide latitude in determining the
admissibility of expert testimony, and the discretion of the trial judge will not
be disturbed on appeal unless manifestly erroneous."13 "Manifest error is one
that is plain and indisputable, and that amounts to a complete disregard of the
controlling law." Guy v. Crown Equip. Corp.14
Admission of expert testimony is governed by Rule 702 of the Federal
Rules of Evidence as further developed by the Supreme Court in Daubert v.
Merrill Dow Pharmaceuticals, Inc.15 The only part of Rule 702 and Daubert that
the Estate urges on appeal is the methodology Friedman used to arrive at his
valuation of the property, which the Estate argues was novel and likely invalid.
Specifically, the Estate contends that using offers as part of his basis for
valuation was an "unrecognized appraisal method" and that Friedman's
assumption that the property would be rezoned improperly relied on hindsight
rather than on facts known to the parties at the time. Because we have already
recognized the admissibility of offers under the circumstances of this case, we
cannot say that the court abused its discretion in permitting Friedman to refer
to such offers, with appropriate contingencies, in his valuation analysis. And,
as explained above, Friedman's assumption that the property would be rezoned
for single-family housing was reasonable. The trial court did not abuse its
discretion in admitting Friedman's expert testimony.
12
589 F.3d 173, 179 (5th Cir. 2009). We note that the Estate cites Caracci v. Comm'r
of Internal Revenue, 456 F.3d 444, 456 (5th Cir. 2006), and argues that we review the
methodology used to determine value de novo. Caracci is inapposite because there we
reviewed the trial court's valuation methodology, not the admission of expert testimony.
13
Cooks, 589 F.3d at 179 (internal quotations and ellipses omitted).
14
394 F.3d 320, 325 (5th Cir. 2004) (internal quotation omitted).
15
509 U.S. 579, 113 S. Ct. 2786 (1993).
5
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The Estate also argues that the trial court improperly allowed Allen
Jordan—the Estate's real estate broker—to testify as to Levy's desired price; to
describe the property as the "crown jewel of undeveloped real estate in the city
of Plano, Texas"; to define "contract of sale" and "letter of intent"; and to opine
as to the legitimacy of the offers on the property from the various developers,
constituting hearsay and impermissible opinion testimony. Pursuant to Rule
803(1), testimony which "describ[es] or explain[s] an event or condition made
while the declarant was perceiving the event or condition, or immediately
thereafter" is not hearsay.16 Lay witness opinion testimony is governed by Rule
701, which provides that lay witness testimony "in the form of opinions or
inferences is limited to those opinions or inferences which are (a) rationally
based on the perception of the witness, (b) helpful to a clear understanding of the
witness' testimony or the determination of a fact in issue, and (c) not based on
scientific, technical, or other specialized knowledge within the scope of Rule
702." 17
Jordan testified based on his experience as a real estate broker, and his
familiarity with the property as its listing agent and as a long-time resident of
Plano. We find no place in the record—and the Estate cites none—where Jordan
testified that Levy told Jordan that he wanted a particular price for the
property. Jordan did testify to the price at which he listed the property, but he
is allowed to testify regarding his own actions. As to Jordan's statement that the
property was the crown jewel of Plano, that statement, while colorful, is
rationally based on Jordan's perceptions as an experienced real estate broker
and Planoite. Additionally, as admonished by the trial court, Jordan was careful
to define "contract of sale" and "letter of intent" based on his own understanding
16
FED . R. EVID . 803(1).
17
FED . R. EVID . 701.
6
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of the terms as they were used in his business as a realtor. This testimony was
proper lay testimony because it "result[ed] from a process of reasoning familiar
with everyday life . . . [rather than] a process of reasoning which can be
mastered only by specialists in the field." United States v. Yanez Sosa.18 Nor is
Jordan's testimony regarding the offers improper, because he testified only as
to his firsthand knowledge of the negotiations and his impressions based on his
participation in those negotiations.
Denial of New Trial
The Estate argues that the trial court committed reversible error when it
denied the Estate's Rule 59 motion for new trial on the value of the property and
the discount because the jury's verdict was against the great weight of the
evidence. "[W]e review the denial of a motion for new trial brought on the
ground that the verdict is against the great weight of the evidence for abuse of
discretion, which we have held to mean that the denial will be affirmed unless
there is a clear showing of an absolute absence of evidence to support the jury's
verdict." Rivera v. Union Pacific R. Co.19 We will not disturb the jury's verdict
unless the Government failed to advance even marginal evidence in support of
its position.20
The record contains ample evidence to support the jury's verdict valuing
the property at $25 million. The Estate listed the property, and eventually sold
the property, for $25 million. It was immediately resold for $26.5 million.
Sophisticated developers with no stake in the current litigation engaged in
18
513 F.3d 194, 200 (5th Cir. 2008) (citing FED . R. EVID . 701, Advisory Committee
Notes to 2000 Amendments).
19
378 F.3d 502, 506 (5th Cir. 2004) (internal quotation omitted); see also Whitehead v.
Food Max of Miss., Inc., 163 F.3d 265, 269 (5th Cir. 1998) ("The district court has sound
discretion to grant or deny new trial motions; we affirm absent a clear showing that this
discretion has been abused.") (internal quotation omitted).
20
Riviera, 378 F.3d at 506.
7
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ongoing negotiations for the property for prices in the $20–25 million range. The
Estate's expert testified that the market in Plano remained relatively flat during
the period between levy's death and the sale of the property. Also Jordan
testified regarding the value of the property. Any of these provides sufficient
support for the jury's verdict on the property.
The jury verdict regarding the discount also finds support in the record.
The partnership agreement itself would be sufficient evidence. The jury could
have rationally found that no discounts for lack of control or marketability were
merited because the Estate controlled the general partner interest, which had
nearly unfettered control over the Partnership's assets. The trial court did not
abuse its discretion when it denied the Estate's motion for new trial.
Denial of Judgment as a Matter of Law
The Estate argues that the trial court erred when it denied the Estate's
Rule 50 motion for judgment as a matter of law. "A [motion for judgment as a
matter of law] challenges the legal sufficiency of the evidence to support the
verdict." Hodges v. Mack Trucks, Inc.21 "Our review is de novo, using the same
standard as the district court."22 "In reviewing the evidence, we draw all
reasonable inferences in the non-movant's favor, and disregard all evidence
favorable to the moving party that the jury is not required to believe." 23 "That
is, the court should give credence to the evidence favoring the nonmovant as well
as that evidence supporting the moving party that is uncontradicted and
unimpeached, at least to the extent that th[e] evidence comes from disinterested
witnesses." Reeves v. Sanderson Plumbing Prods. Inc.24
21
474 F.3d 188, 195 (5th Cir. 2006).
22
Id.23
Id. (internal quotation omitted).
24
530 U.S. 133, 151, 120 S. Ct. 2097, 2111 (2000) (internal quotation omitted).
8
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The Estate contends that the jury arbitrarily disregarded unequivocal,
uncontradicted, and unimpeached testimony of an expert witness, bearing on
technical questions of causation beyond the competence of lay people. The
Government counters that the jury had the partnership agreement in evidence
from which it could have determined that there was no lack of control or
marketability. "Credibility determinations, the weighing of the evidence, and
the drawing of legitimate inferences from the facts are jury functions, not those
of a judge," Palasota v. Haggar Clothing Co.,25 including the weight to be given
expert witnesses. V & S Ice Mach. Co. v. Eastex Poultry Co.26 "[E]vidence in the
record can support a jury verdict if it is of such quality and weight that
reasonable and fair-minded individuals in the exercise of impartial judgment
might reach different conclusions." Green v. Adm'rs of Tulane Educ. Fund.27 We
have a higher opinion of the ability of this jury to understand that the question
of control and marketability was shown by the control of the partnership's
assets.
Estoppel
For the first time on appeal, the Estate argues that the Government is
estopped from challenging the Estate's valuation of the property because the IRS
approved the Estate's election under § 2032. The Estate contends that when the
Government agreed that the election of the alternate date under § 2032 was
proper, and thus that the value of the estate as a whole declined after Levy's
death on March 25, 2001, it must also have agreed that the Estate's valuation
of the property as of March 25, 2001, was proper. "Under our general rule,
25
499 F.3d 474, 480 (5th Cir. 2007) (internal quotations omitted).
26
437 F.2d 422, 426 (5th Cir. 1971).
27
284 F.3d 642, 653 (5th Cir. 2002), abrogated on other grounds by Burlington N. &
Santa Fe Ry. Co. v. White, 548 U.S. 53, 126 S.Ct. 2405 (2006).
9
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arguments not raised before the district court are waived and will not be
considered on appeal unless the party can demonstrate 'extraordinary
circumstances.'" State Indus. Prods. Corp. v. Beta Tech. Inc.28 "Extraordinary
circumstances exist when the issue involved is a pure question of law and a
miscarriage of justice would result from our failure to consider it." Dunbar v.
Seger-Thomschitz.29 There is no miscarriage of justice when an error is not plain
or obvious. Conley v. Bd. of Trs. of Grenada County Hosp.30 Since estoppel is an
equitable doctrine and the Estate characterized the issue as one of first
impression, the Estate waived this argument by failing to raise it at the trial
court level.
Jury Instructions
The Estate contends that the trial court erred when it (1) improperly
instructed the jury on the definition of fair market value; (2) improperly
instructed the jury regarding the Discount; (3) placed the burden of proof on the
Estate; (4) submitted the question of the Discount to the jury; and (5) failed to
give an instruction to cure any bias against the Estate arising from the
Government's presentation of evidence in support of its § 2036 affirmative
defense. "In reviewing the jury charge we ask whether the jury charge properly
stated the applicable law and, if not, whether the challenged instruction affected
the outcome of the case." Smith v. Xerox Corp.31
First, the Estate argues that because the definition of fair market value
did not specify that the value is determined by a hypothetical willing buyer and
seller, the jury gave improper weight to Levy's desire to sell the land for $25
28
575 F.3d 450, 456 (5th Cir. 2009).
29
615 F.3d 574, 576 (5th Cir. 2010).
30
707 F.2d 175, 178 (5th Cir. 1983).
31
602 F.3d 320, 325 (5th Cir. 2010).
10
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million. While the Estate did not specifically raise this objection at the Rule
51(b) hearing, the word "hypothetical" was in its requested charge and the trial
court issued a blanket ruling covering requested but not incorporated jury
instructions. Their objection, at least on this point, is therefore arguably
preserved.32
The trial court instructed the jury that "the 'fair market value' is the cash
price at which property would change hands between a willing buyer and a
willing seller when the buyer is under no compulsion to buy and the seller is not
under any compulsion to sell and both the buyer and seller have reasonable
knowledge of all relevant facts." The Estate is correct that "[t]he buyer and
seller are hypothetical, not actual persons[.]" Estate of Jameson v. Comm'r of
Internal Revenue.33 However, the instruction given by the court does not suggest
otherwise and is a correct statement of the law, closely mirroring the Fifth
Circuit's Pattern Jury Instructions' definition of fair market value.34 The
instruction described a willing buyer and a willing seller rather than the actual
buyer and the actual seller. The jury would not have been misled by this
instruction. The court therefore properly instructed the jury on the definition
of fair market value.
Second, the Estate argues that the trial court erred when it used the
phrase "if any" in its instruction on the Discount, improperly suggesting that a
32
But see FED . R. CIV . P. 51(c)(1) ("A party who objects to an instruction or the failure
to give an instruction must do so on the record, stating distinctly the matter objected to and
the grounds for the objection."); Positive Black Talk Inc. v. Cash Money Records, Inc., 394 F.3d
357, 368 (5th Cir. 2004), abrogated on other grounds by Reed Elsevier, Inc. v. Muchnick, 130
S. Ct. 1237 (2010).
33
267 F.3d 366, 370 (5th Cir. 2001).
34
FIFTH CIRCUIT PATTERN JURY INSTRUCTIONS (CIVIL ) § 13.3 (2009) ("Fair market value
means the amount a willing buyer would have paid a willing seller in an arms-length
transaction, when both parties are fully informed about all of the advantages and
disadvantages of the property, and neither is acting under any compulsion to buy or sell.").
11
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finding of no discount could be appropriate. According to the Estate, both the
Government's failure to prevail on its § 2036 defense and the language of the
partnership agreement meant that the Estate was entitled to at least some
discount. However, § 2036 and the Discount amount are not linked in the way
the Estate urges. The Government's § 2036 affirmative defense required proof
that the Partnership had no legitimate non-tax purpose. If the Government met
its burden of proof on this issue, then the Partnership would not have been
entitled to a Discount. But, it does not follow that a limited partner's interest
in a Partnership with a legitimate non-tax purpose is automatically worth less
than 100%. The jury was free to make its finding and was not misled.
The Estate's three remaining objections to the jury instructions were not
raised at the Rule 51(b) hearing, directly or indirectly. Tardy jury instruction
objections are reviewed, if at all, under the plain error standard. Tompkins v.
Cyr.35 To succeed on plain error review, the Estate must show "(1) that an error
occurred; (2) that the error was plain, which means clear or obvious; (3) the plain
error must affect substantial rights; and (4) not correcting the error would
seriously affect the fairness, integrity or public reputation of judicial
proceedings." Highlands Ins. Co. v. Nat'l Union Fire Ins. Co.36 "It is the unusual
case that will present such an error."37
First, the Estate argues that the trial court improperly placed the burden
of proof on it for two reasons. The Estate contends that 26 U.S.C. § 7491 shifts
the burden of proof to the Government if "a taxpayer introduces credible
evidence with respect to any factual issue relevant to ascertaining the liability
35
202 F.3d 770, 783 (5th Cir. 2003); see also FED . R. CIV . P. 51, Notes to 2003
Amendments.
36
27 F.3d 1027, 1032 (5th Cir. 1994) (internal quotation omitted).
37
Id.12
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of the taxpayer."38 This is the Estate's suit for refund and the Estate proposed
a jury instruction stating that it had to prove every essential element of its
refund claim by a preponderance of the evidence. Along the same lines, the
Estate next argues that because the Government asserted § 2036 as an
affirmative defense, it should have had the burden of proof on the Discount
issue. But, the Government's § 2036 affirmative defense—on which it would
have had the burden of proof—did not go to the jury. The Government's § 2036
defense has no bearing on the Estate's burden to prove its claim as presented in
the jury instructions.
Second, the Estate argues that trial court's instruction on how to calculate
the discount confused the jury because it referred to the Estate's net assets
rather than the Estate's limited partner assignee interest in the Partnership.
We disagree. The jury instruction specifically stated that "[t]he discount to be
applied, if any, to the net asset value of the partnership discount determines the
fair market value of the partnership interest." We see no likelihood of confusion
from this instruction. The instruction regarding the Discount is therefore not
plainly erroneous.
Third, the Estate also contends that the question regarding the Discount
should never have gone to the jury because the parties had stipulated that the
court would determine the Discount. The parties stipulated that "any disputed
issues of fact that are necessary to determine the tax refund owed to the Estate,
if any, other than disputed fact issues relating to the fair market value of the
Plano property and to the factors underlying the Government's affirmative
defense of 'offset' under Section 2036 should be heard and determined by the
Court, not by the jury, after the jury returns its verdict." Despite this
stipulation in the joint proposed pretrial order, at no point did the Estate object
38
26 U.S.C. § 7491(a)(1).
13
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to the presence of a jury question or the instruction on the Discount. The
inclusion was not reversible error, because even if it were error to submit the
question to the jury—and we do not so hold—the error was not plain because as
the Estate points out "[n]o court has squarely addressed whether a joint
stipulation can be waived."
And last, the Estate argues that the evidence introduced by the
Government in support of its § 2036 affirmative defense led to an accumulation
of evidence concerning Levy's alleged bad faith in forming the Partnership. The
Estate maintains that the trial court erred when it failed to instruct the jury to
cure the harm done by this improper evidence. We conclude it was not plain
error. As we outlined above, the record contains sufficient evidence to support
the jury's finding that the Partnership was not entitled to a discount absent any
allegedly improper evidence of bad faith.39
AFFIRMED.
39
Although we have declined to set aside the jury’s verdict of zero discount, we note that
the actual discount applied in taxing the Estate was thirty percent. Given the valuation found by
the jury, it would have had to find a discount of larger than thirty percent for the verdict to make
a difference to the judgment in this case.
14