Judges: "Beghe, Renato"
Attorneys: Robert Alan Jones , for petitioners in docket No. 19464-92. Henry E. O'Neill , for respondent.
Filed: Apr. 29, 2009
Latest Update: Nov. 21, 2020
Summary: T.C. Memo. 2009-89 UNITED STATES TAX COURT ROBERT HUNTER AND BARBARA A. GRIDLEY, ET AL.,1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 10588-83, 17646-83, Filed April 29, 2009. 27053-83, 10931-84, 28723-84, 38757-84, 13477-87, 19464-92, 621-94, 9532-94. Robert Alan Jones and Declan J. O’Donnell, for petitioners in docket Nos. 10588-83, 17646-83, 27053-83, 10931-84, 28723-84, 38757-84, 13477-87, 621-94, and 9532-94. Robert Alan Jones, for petitioners in docket No. 19464
Summary: T.C. Memo. 2009-89 UNITED STATES TAX COURT ROBERT HUNTER AND BARBARA A. GRIDLEY, ET AL.,1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent Docket Nos. 10588-83, 17646-83, Filed April 29, 2009. 27053-83, 10931-84, 28723-84, 38757-84, 13477-87, 19464-92, 621-94, 9532-94. Robert Alan Jones and Declan J. O’Donnell, for petitioners in docket Nos. 10588-83, 17646-83, 27053-83, 10931-84, 28723-84, 38757-84, 13477-87, 621-94, and 9532-94. Robert Alan Jones, for petitioners in docket No. 19464-..
More
T.C. Memo. 2009-89
UNITED STATES TAX COURT
ROBERT HUNTER AND BARBARA A. GRIDLEY, ET AL.,1 Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket Nos. 10588-83, 17646-83, Filed April 29, 2009.
27053-83, 10931-84,
28723-84, 38757-84,
13477-87, 19464-92,
621-94, 9532-94.
Robert Alan Jones and Declan J. O’Donnell, for petitioners
in docket Nos. 10588-83, 17646-83, 27053-83, 10931-84, 28723-84,
38757-84, 13477-87, 621-94, and 9532-94.
Robert Alan Jones, for petitioners in docket No. 19464-92.
Henry E. O’Neill, for respondent.
1
Cases of the following petitioners have been consolidated
herewith for purposes of this opinion: Ronald L. and Mattie L.
Alverson, docket No. 17646-83; Russell L., Sr. and Sally A.
Fleer, docket Nos. 27053-83 and 13477-87; Robert H. and Barbara
A. Gridley, docket Nos. 10931-84 and 38757-84; Arden L. and
Barbara G. Blaylock, docket No. 28723-84; Willis F., II and Marie
D. McComas, docket No. 19464-92; Wesley Armand and Sherry Lynn
Cacia Baughman, docket No. 621-94; and Norman A. Cerasoli and
Estate of Irene Cerasoli, Deceased, Norman A. Cerasoli, Executor,
docket No. 9532-94.
-2-
CONTENTS
Background . . . . . . . . . . . . . . . . . . . . . . . . . . 7
I. Kersting Tax Litigation Before Dixon V Remand . . . . . . 7
II. Dixon V Remand Proceedings . . . . . . . . . . . . . . . 12
A. Houston Status Conference . . . . . . . . . . . . . 12
B. Los Angeles Status Conference and the Thompsons’
Tax Records for Years Other Than 1979, 1980, and
1981 . . . . . . . . . . . . . . . . . . . . . . . 13
C. Motion for Limited Expedited Discovery and
Proposed Expert Witness Testimony of Victoria
Osborn . . . . . . . . . . . . . . . . . . . . . . 14
D. Las Vegas Special Session (Osborn Continued) . . . 16
E. Los Angeles Special Session and Motion for Summary
Judgment of 100-Percent Discount as Sanction
(Osborn Concluded) . . . . . . . . . . . . . . . . 18
F. Washington, D.C., Special Session and Petitioners’
Opening Brief . . . . . . . . . . . . . . . . . . . 20
G. Award of Appellate Fees and Our Determination of
the Scope of the Thompson Settlement . . . . . . . 21
H. Dixon V Remand Fee and Expense Requests . . . . . . 23
Discussion . . . . . . . . . . . . . . . . . . . . . . . . . 27
I. Application of Section 6673(a)(2)(B) . . . . . . . . . . 27
II. Adjustments to Requested Fees and Expenses . . . . . . . 29
A. Substantiation of Fees . . . . . . . . . . . . . . 30
B. Jones’s Hourly Rate . . . . . . . . . . . . . . . . 30
C. Respondent’s Objections to Fees and Expenses
Not Included in Current Request . . . . . . . . . 31
D. Fees and Expenses Included in Petitioners’
Dixon III Appellate Fee Request . . . . . . . . . . 32
E. Fees Incurred During the Appeal of Dixon III . . . 33
F. Fees Related to Closed Cases . . . . . . . . . . . 33
G. Excessive Time on Opening Brief . . . . . . . . . . 35
H. Client Relations . . . . . . . . . . . . . . . . . 36
I. Osborn Proposed Expert Witness Report . . . . . . . 40
J. Motion for Summary Judgment of 100-Percent
Discount as Sanction . . . . . . . . . . . . . . . 42
K. Inadequately Described Entries . . . . . . . . . . 44
L. Miscellaneous Objections and Adjustments . . . . . 45
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . 47
-3-
MEMORANDUM OPINION
BEGHE, Judge: This is the second opinion in our third set
of opinions on petitioners’ requests for attorney’s fees and
expenses incurred in the Kersting tax shelter project litigation
after the discovery and disclosure of the misconduct of
respondent’s trial counsel in Dixon v. Commissioner, T.C. Memo.
1991-614 (Dixon II), vacated and remanded per curiam sub nom.
DuFresne v. Commissioner, 26 F.3d 105 (9th Cir. 1994), on remand
Dixon v. Commissioner, T.C. Memo. 1999-101 (Dixon III), revd. and
remanded
316 F.3d 1041 (9th Cir. 2003) (Dixon V), on remand Dixon
v. Commissioner, T.C. Memo. 2006-90 (Dixon VI), supplemented by
Dixon v. Commissioner, T.C. Memo. 2006-190 (Dixon VIII), on
appeal (9th Cir., Dec. 28, 2006, and Jan. 3, 2007).
In our first attorney’s fees opinion, Dixon v. Commissioner,
T.C. Memo. 2000-116 (Dixon IV) (supplementing Dixon III), we
awarded Kersting project petitioners fees and expenses under
section 6673(a)(2)(B)2 for representation services in this Court
rendered by Attorneys Joe Alfred Izen (Izen), Robert Allen Jones
(Jones), and Robert Patrick Sticht (Sticht) during the DuFresne
remand.
2
Unless otherwise indicated, all section references are to
the Internal Revenue Code, and all Rule references are to the Tax
Court Rules of Practice and Procedure.
-4-
In the second set of attorney’s fees opinions, Dixon v.
Commissioner, T.C. Memo. 2006-97 (Dixon VII), and Young v.
Commissioner, T.C. Memo. 2006-189, we responded to the
supplemental mandate of the Court of Appeals for the Ninth
Circuit to rule on Kersting project petitioners’ requests for
appellate attorney’s fees and expenses incurred in the Dixon V
appellate proceedings. In Dixon VII we awarded appellate
attorney’s fees and expenses under section 7430 to Kersting
project petitioners represented in the Dixon V appeal by John R.
Irvine (Irvine) and his partner, Henry G. Binder (Binder), of
Porter & Hedges and by Michael Louis Minns (Minns). In Young we
awarded appellate fees and expenses under section 7430 to
Kersting project petitioners represented in the Dixon V appeal by
Izen and Jones.
The current set of opinions pertains to fees and expenses
Kersting project petitioners incurred in this Court during the
remand from Dixon V (Dixon V remand proceedings),3 which resulted
in Dixon VI, supplemented by Dixon VIII, determining the terms of
3
Respondent and petitioners represented by Sticht entered
into a comprehensive settlement agreement for fees and expenses
incurred from 1992 through 2006, including the Dixon V remand
proceedings. On Oct. 4, 2006, we ordered respondent to disburse
$1,254,368.11 to Sticht’s clients in satisfaction of that
agreement.
-5-
the Thompson settlement.4 Early in the Dixon V remand
proceedings respondent agreed that Kersting project petitioners
would be entitled under section 6673(a)(2)(B) to attorney’s fees
and expenses incurred in the Dixon V remand proceedings. All
attorneys who represented Kersting project petitioners in the
Dixon V remand proceedings have applied for attorney’s fees and
expenses incurred in the Dixon V remand proceedings.5 This
4
In the Dixon V remand proceedings, petitioners’ dockets
were consolidated for purposes of hearing, briefing, and opinion
with 23 other docketed cases of Kersting project petitioners
represented by Irvine, Izen, Minns, and Sticht.
5
The table below summarizes the legal fees and expenses (by
individual attorneys and in total) Kersting project petitioners
have requested with respect to petitioners’ attorneys’ services
in the Dixon V remand proceedings:
Attorney Fees Expenses Total
Jones $265,717.45 $15,965.97 $281,683.42
Minns 967,362.21 21,525.99 988,888.20
Izen 748,674.14 38,248.06 786,922.20
Irvine &
Binder 1,101,575.34 64,032.76 1,165,608.10
Total 3,083,329.14 139,772.78 3,223,101.92
In addition, respondent agreed that non-test-case petitioners
represented by Sticht were entitled to recover fees and expenses
totaling $317,708.03 for services Sticht rendered in the Dixon V
remand proceedings as part of the total award for Sticht’s
services. See supra note 3.
Declan O’Donnell (O’Donnell) has not filed a request for an
award of attorney’s fees. However, Jones and O’Donnell provided
joint representation to Robert H. and Barbara A. Gridley (the
Gridleys), Russell L., Sr. and Sally A. Fleer (the Fleers), and
Arden L. and Barbara G. Blaylock (the Blaylocks). We therefore
assume that the motion Jones filed on July 10, 2007, is the
Gridleys’, Fleers’, and Blaylocks’ sole fee and expense request.
-6-
Memorandum Opinion covers fees and expenses petitioners incurred
for Jones’s services in the Dixon V remand proceedings. Our most
recent Opinion, Dixon v. Commissioner, 132 T.C. __ (2009) (Dixon
IX), dealt with fees and expenses incurred for services provided
by Irvine, Binder, and other Porter & Hedges attorneys. A
subsequent opinion or opinions will deal with the pending fee
requests of Kersting project petitioners represented by Minns and
Izen in the Dixon V remand proceedings.
In the tables below we summarize the fees and expenses
petitioners have requested herein, respondent’s objections, fees
and expenses we will allow over respondent’s objections, and the
amounts we hold petitioners are entitled to recover for Jones’s
services and expenses in the Dixon V remand proceedings.
Fee Award
Fees petitioners request $265,717.45
Fees to which respondent
objects $116,873.75
Fees allowed despite
respondent’s objections 49,806.25
Fees disallowed 67,067.50
Fee award 198,649.95
Expense Award
Expenses petitioners request $15,965.97
Expenses to which respondent
objects $13,178.22
Expenses allowed despite
respondent’s objections 3,229.52
Expenses disallowed 9,948.70
Expense award 6,017.27
-7-
Background
The underlying facts in these cases are fully described in
Dixon II, Dixon III, Dixon IV, Dixon VI, Dixon VII, Young v.
Commissioner, supra, Dixon VIII, and Dixon IX. The parties have
provided additional pertinent facts in petitioners’ fee request
and respondent’s objections thereto. The parties have not
requested an evidentiary hearing, and we have found a hearing
unnecessary. Cf. Rule 232(a)(2).
I. Kersting Tax Litigation Before Dixon V Remand
Petitioners are non-test-case petitioners in the Kersting
tax shelter litigation. The Kersting tax shelter litigation
arose from respondent’s disallowance of interest deductions
claimed by participants in tax shelter programs promoted by Henry
F.K. Kersting during the late 1970s and the 1980s. Respondent’s
determinations of deficiencies against Kersting tax shelter
participants eventually resulted in the docketing of
approximately 1,800 cases in the Tax Court. Most Kersting
project petitioners entered into piggyback agreements with
respondent in which they agreed that their cases would be
resolved in accordance with the outcome of a small number of test
cases.
In Dixon II the Court upheld the deficiencies resulting from
Kersting tax shelter deductions claimed by petitioners in the
test cases. On June 9, 1992, shortly after the entry of the
-8-
Court’s decisions in Dixon II, respondent’s management discovered
that before trial respondent’s trial attorney, Kenneth W. McWade
(McWade), and his supervisor, Honolulu District Counsel William
A. Sims (Sims), had entered into secret settlement agreements
with test case petitioners John R. and Maydee Thompson (the
Thompsons) and John R. and E. Maria Cravens (the Cravenses).
Sims and McWade had not disclosed the Thompson and Cravens
settlements to their superiors, the Court, or the other test case
petitioners or their counsel. The primary purpose and final
effect of the Thompson settlement was to provide the Thompsons
refunds more than sufficient to pay the fees of Luis C. DeCastro
(DeCastro), the Thompsons’ attorney, to represent them in the
test case trial.
Respondent moved for the Court to conduct an evidentiary
hearing to determine whether the undisclosed settlement
agreements had affected the Tax Court’s decision in Dixon II.
The Court denied respondent’s motion for an evidentiary hearing,
entered decisions giving effect to the Thompson and Cravens
settlements, and allowed to stand the decisions sustaining
respondent’s adverse determinations against the other test case
petitioners. We also denied motions to intervene in the Thompson
and Cravens cases filed by Izen and Sticht on behalf of certain
test case and non-test-case petitioners.
-9-
The test case petitioners (other than the Thompsons and the
Cravenses) and the non-test-case petitioners seeking to intervene
appealed to the Court of Appeals for the Ninth Circuit. The
Court of Appeals vacated our decisions in the test cases, holding
that an evidentiary hearing was necessary to determine whether
the misconduct of respondent’s counsel had given rise to “a
structural defect voiding the judgment [in Dixon II] as
fundamentally unfair, or whether, despite the government’s
misconduct, the judgment can be upheld as harmless error.”
DuFresne v. Commissioner, 26 F.3d at 107. The Court of Appeals
directed the Tax Court to hold such a hearing and to consider the
merits of all motions of intervention filed by affected parties.
In an unpublished opinion, Adair v. Commissioner, 26 F.3d 129
(9th Cir. 1994), the DuFresne panel (Goodwin, Ferguson, and
Trott, JJ.) also affirmed our denials of the motions to intervene
in the Thompson and Cravens cases on the ground that those
decisions had become final.
To give effect to the direction of the Court of Appeals in
DuFresne to consider the merits of all motions to intervene by
affected parties, we further ordered the consolidation of 10 non-
test-cases with the remaining test cases. Petitioners were among
the non-test-case petitioners whose cases were so consolidated.
During the course of the evidentiary hearing, Izen sought
discovery of documents listed in respondent’s privilege log that
-10-
pertained to respondent’s conduct following the trial of the test
cases. Izen alleged that, among other things, respondent’s
activities after May 1992 amounted to an effort to conceal the
fraudulent conduct of the Government attorneys in the test cases.
We denied Izen’s discovery requests, sustaining various
privileges asserted by respondent. See Dixon III, Procedural
History of the Evidentiary Hearing III. Developments Following
Initial Evidentiary Hearing, C. Denial of Mr. Izen’s Motion To
Compel Production of Documents.
After the evidentiary hearing we issued our opinion in Dixon
III. In that opinion we allowed the Court’s decisions in Dixon
II to stand, holding that the misconduct of the Government
attorneys did not create a structural defect that prejudiced the
Court’s decision in Dixon II but amounted to harmless error. We
imposed sanctions against respondent by relieving petitioners of
liability for (1) the interest component of the addition to tax
for negligence under former section 6653(a), and (2) the
incremental interest attributable to the increased rate
prescribed in former section 6621(c). On April 1, 1999, the next
day after our issuance of the Dixon III opinion, we referred the
misconduct of Sims, McWade, and DeCastro to the Tax Court’s
Committee on Admissions, Ethics, and Discipline.
In Dixon IV we imposed additional sanctions pursuant to
section 6673(a)(2)(B) by ordering respondent to pay attorney’s
-11-
fees of Kersting project petitioners to investigate and present
the evidence of Sims’s and McWade’s misconduct to the Court.
The test case petitioners again appealed to the Court of
Appeals for the Ninth Circuit. We also certified the cases of
non-test-case petitioners represented by Izen, Sticht, Jones, and
Declan J. O’Donnell (O’Donnell) for interlocutory appeal. After
various procedural delays described in Young v. Commissioner,
T.C. Memo. 2006-189, the Court of Appeals accepted the
interlocutory appeals of the non-test-cases but held them in
abeyance pending resolution of the appeals of the test cases.
In the meantime, Minns replaced Izen as appellate attorney
for the Dixons, DuFresnes, and Hongsermeiers. Later, Irvine and
Binder replaced Minns as appellate attorneys for the Dixons and
DuFresnes. Minns remained appellate attorney for the
Hongsermeiers, and Izen remained appellate attorney for the
Youngs and the Owenses.
On January 17, 2003, a different panel of the Court of
Appeals (D.W. Nelson, Hawkins, and Wardlaw, JJ.) issued Dixon V
(amended March 18, 2003), reversing Dixon III and remanding the
test cases. The Court of Appeals held that the misconduct of the
Government attorneys was a fraud on the Court, for which no
showing of prejudice was required. Dixon V, at 1046. The Court
of Appeals directed that we extend terms equivalent to those of
the Thompson agreement to “Appellants and all other taxpayers
-12-
properly before this Court”. Id. at 1047. The Court of Appeals
left to the Tax Court’s discretion “the fashioning of such
judgments which, to the extent possible and practicable, should
put these taxpayers in the same position as provided for in the
Thompson settlement.” Id. n.11. The Court of Appeals took no
action on the denial of Izen’s discovery requests.
On March 14, 2003, another panel of the Court of Appeals
(Canby, O’Scannlain, and T.G. Nelson, JJ.) remanded the non-test-
cases that had been appealed and held in abeyance, directing
further proceedings consistent with Dixon V. On April 23, 2003,
the Tax Court received the primary mandate of the Court of
Appeals (the primary mandate) vacating Dixon III. On June 2,
2003, the Court received the supplemental mandate of the Dixon V
panel, directing us to consider petitioners’ appellate fee
requests.
II. Dixon V Remand Proceedings
A. Houston Status Conference
On July 7, 2003, after reviewing an April 30 motion by
respondent and petitioners’ status reports, we scheduled a status
conference, to be held in Houston on August 18, 2003. On July
11, 2003, we ordered the parties to file reports of their
suggestions for the agenda of that status conference. By August
12, 2003, counsel for the petitioners whose cases had been
consolidated for the Dixon V remand proceedings, as well as
-13-
counsel for other Kersting project petitioners, filed such
reports. In his report O’Donnell asserted that Kersting project
petitioners whose cases had been closed by stipulated decisions
(the closed cases) should also be entitled to the benefit of the
Thompson settlement.6
B. Los Angeles Status Conference and the Thompsons’ Tax
Records for Years Other Than 1979, 1980, and 1981
After the Houston status conference it became obvious that
the parties were in substantial disagreement about the terms of
the Thompson settlement. Specifically, petitioners contended
that the Thompsons derived tax benefits from the Thompson
settlement that went beyond the stated terms of the settlement
and decision documents. Petitioners also asserted that the
benefit extended to taxable years of the Thompsons other than
1979, 1980, and 1981, the taxable years at issue in the Thompson
test cases.
6
Several Kersting project petitioners whose cases had been
closed by stipulated decisions subsequently filed or attempted to
file motions to vacate decisions. In Hartman v. Commissioner,
T.C. Memo. 2008-124, reconsidering and superseding Lewis v.
Commissioner, T.C. Memo. 2005-205, we held that the Thompson
settlement sanction will be imposed against respondent in the
docketed cases of all Kersting project petitioners in which
stipulated decisions were entered on or after June 10, 1985, the
commencement date of the Court’s Honolulu trial session at which
the Court and representatives of the parties agreed to use the
test case procedure. Our Hartman opinion is the subject of
motions for reconsideration by respondent and some petitioners,
which raise primarily issues of implementation.
-14-
Because the parties could not agree on the terms of the
Thompson settlement, further evidentiary proceedings were
required to determine those terms and provisions. The Court
scheduled a status conference in Los Angeles, which was held on
September 5, 2003. At this conference Jones complained that
respondent had failed to provide transcripts of the Thompsons’
tax records. Jones argued that these records were needed to
determine whether the terms of the Thompson settlement extended
to years other than 1979, 1980, and 1981.
C. Motion for Limited Expedited Discovery and Proposed
Expert Witness Testimony of Victoria Osborn
On September 8, 2003, Jones filed a motion for limited
expedited discovery. Jones attached to this motion the
declaration of Victoria Osborn (Osborn), in anticipation of
seeking to qualify her as an expert witness. In her declaration,
Osborn asserted that the Internal Revenue Service (IRS) could
retrieve Return View (RTVUE) records, which would contain
information sufficient to satisfy Jones’s request for the
Thompsons’ tax records. Osborn asserted that RTVUE would provide
line-by-line records of the Thompsons’ tax returns, whereas the
Individual Master Files (IMFs) respondent had given petitioners
provided only general information. In an order dated September
17, 2003, we granted Jones’s motion for limited expedited
discovery.
-15-
On September 29, 2003, respondent’s counsel, Henry E.
O’Neill (O’Neill), sent Jones a letter stating that respondent
could provide petitioners only with IMF transcripts and not RTVUE
transcripts. Respondent’s letter explained that RTVUE
transcripts had never existed for years before 1990. Respondent
further explained that RTVUE files are automatically deleted
after 3 years and that therefore the Thompson RTVUE records were
not available for 1990 through 1994.
On October 2, 2003, the Court held a telephone conference
in which counsel for the parties and the Court discussed Izen’s
request for documents listed in respondent’s privilege log. Izen
asserted that those documents were no longer subject to privilege
and would provide information about the Thompsons’ tax records
for the years 1978 through 1993. In an order dated October 10,
2003, the Court informed Izen that those documents were not in
the Court’s possession and that Izen should request them from
respondent by motion.
During that conference Jones stated that he would contact
respondent informally with suggestions for possible alternative
sources for RTVUE transcripts. On October 31, 2003, Jones sent
respondent a fax reciting respondent’s general procedure for
requesting RTVUE transcripts. Jones did not provide or suggest
alternative sources for RTVUE transcripts. On November 3, 2003,
respondent filed a status report, including a copy of Jones’s
-16-
fax. On November 10, 2003, Jones filed his status report, again
requesting that respondent provide him with the Thompsons’ tax
returns for the years 1989 through 1993. Jones also requested
that the Court release certain documents under seal, which had
been provided by the Thompsons’ estate planning counsel,
pertaining to the Thompsons’ 1989 through 1993 tax records.
On November 24, 2003, respondent filed a supplement to the
November 3, 2003, status report. In that report, respondent had
continued to assert that RTVUE transcripts were no longer
available for any of the years 1990 through 1994 and that they
never existed for the years 1978 through 1989. The supplement
contained the declaration of Shirley Smart (Smart), a litigation
coordinator at the Fresno service center, that RTVUE transcripts
were no longer available for any of the years 1990 through 1994
and that RTVUE records never existed for years before 1990.
On December 19, 2003, the Court issued an order for
production of all items described in the privilege log, except
item No. 123. The privilege log documents included the
Thompsons’ tax returns for 1989, 1991, and 1992.
D. Las Vegas Special Session (Osborn Continued)
On April 13, 2004, the Court issued a scheduling order,
setting the first session of the evidentiary hearing for
September 20, 2004, in Las Vegas, Nevada, and setting forth the
agenda for the hearing. The order stated that the hearing was to
-17-
be held for the sole purpose of determining the terms of the
Thompson settlement. It further stated that neither appellate
fees nor the closed cases would be addressed during the
evidentiary hearing. On August 27, 2004, Jones filed
petitioners’ motion for leave to submit out of time notice of
expert witness and a notice of expert witness to which Osborn’s
proposed expert witness summary report was attached.
Despite the late entry into the Kersting project proceedings
of the Porter & Hedges attorneys, counsel for the Dixon V
taxpayers informally agreed that Porter & Hedges, Binder in
particular, would essentially serve as lead counsel in the Dixon
V remand proceedings. On September 9, 2004, Binder filed
petitioners’ motion to allocate the burden of proof to respondent
on specified issues in determining of the terms of the Thompson
settlement.
On September 10, 2004, O’Neill informed petitioners that, on
September 7, 2004, he had discovered the Thompsons’ tax records
and returns for the years 1983 through 1989.
On September 20 through 22, 2004, the Court held the first
scheduled hearing session in Las Vegas. During this session, on
September 20, 2004, the parties submitted a joint stipulation of
facts that included among its accompanying exhibits the tax
records O’Neill had rediscovered on September 7, 2004.
-18-
Respondent also filed a motion in limine to exclude Osborn’s
proposed expert witness testimony. Because Osborn’s report was
little more than an outline, the Court postponed ruling on
respondent’s motion to give Osborn the opportunity to prepare a
more detailed report. On October 4, 2004, Jones submitted the
“Superseding Expert Witness Report of Expert Witness Victoria
Osborn.” On October 7, 2004, the Court issued an order denying
respondent’s motion in limine to exclude Osborn’s testimony,
without prejudice to renew if her superseding report should fail
to meet the requirements of rule 702 of the Federal Rules of
Evidence.
E. Los Angeles Special Session and Motion for Summary
Judgment of 100-Percent Discount as Sanction (Osborn
Concluded)
Many factual issues remained unresolved after the Las Vegas
session. On October 6, 2004, the Court issued a scheduling order
continuing the hearing to November 22, 2004, in Los Angeles. On
November 4, 2004, respondent filed a renewed motion in limine to
exclude Osborn’s testimony and her superseding report. On
November 5, 2004, the Court ordered Jones to respond to that
motion by November 15, 2004, and Jones filed a timely response.
On November 16, 2004, the Court granted respondent’s motion in
limine because Osborn’s report consisted primarily of legal
conclusions, which are not the proper subject of expert
testimony. See Rule 143(f)(1); Fed. R. Evid. 702 and 703. Even
-19-
though the report was not admissible as expert testimony, the
Court admitted the report into evidence “for the sole purpose of
ruling on respondent’s [renewed] motion in limine”.
On November 22, 2004, Jones filed a motion to strike and for
sanctions, claiming Osborn had been defamed by materials included
in respondent’s renewed motion in limine.
On December 10, 2004, the Court denied Jones’s motion to
strike and for sanctions. The Court’s order made clear that the
Court had not considered the materials Jones had complained about
in ruling on respondent’s motion in limine. Moreover, the
Court’s order also “forewarned” Jones that the Court would:
not be inclined to look with favor on the inclusion in
his fee application for post-mandate work in these
cases of the time spent and expenses incurred in the
preparation of the motion to strike and for sanctions.
The Court and counsel have been heavily burdened with
attempting to resolve the multiple aspects of this
difficult, protracted, and unique litigation. It
should have been clear to Mr. Jones more than a year
ago that Ms. Osborn had nothing useful to offer in
terms of producing relevant evidence to the Court.
On January 31, 2005, Jones and O’Donnell filed a motion for
summary judgment on behalf of petitioners Gridley and Fleer. The
motion contended that the Court should respond to the Dixon V
primary mandate by granting the Kersting project petitioners a
100-percent discount from the deficiencies as a sanction.7 On
7
In claiming that Kersting project petitioners should be
entitled to have the Kersting deficiencies eliminated, Jones and
O’Donnell ignored the decision of the Court of Appeals in Dixon V
(continued...)
-20-
February 24, 2005, respondent filed an objection to petitioners’
motion for summary judgment of a 100-percent discount as a
sanction. Citing Rule 121(b), respondent asserted that
petitioners were not entitled to summary judgment because there
were material facts in dispute. Agreeing with respondent, we
denied the motion for summary judgment for failure to satisfy the
requirements of Rule 121(b).
On March 29, 2005, O’Donnell and Jones filed their “Pre-
trial Memorandum of Petitioners Gridley & Fleer”. In that
pretrial memorandum O’Donnell and Jones again requested that we
reconsider our denial of petitioners’ motion for summary judgment
of a 100-percent discount. We retitled the memorandum as “Pre-
trial Memorandum of Petitioners Gridley & Fleer and Motion for
Reconsideration of Order Denying Motion for Summary Judgment”.
In an order dated March 29, 2005, we denied O’Donnell and Jones’s
motion for reconsideration of our denial of their motion for
summary judgment.
F. Washington, D.C., Special Session and Petitioners’
Opening Brief
On February 3, 2005, petitioners filed a motion for a third
and final evidentiary hearing session. On February 4, 2005, we
7
(...continued)
that “we will not enter judgment eradicating all tax liability of
these taxpayers. Such an extreme sanction, while within the
Court’s power, is not warranted under these facts.” Dixon V, at
1047.
-21-
issued an order setting the final hearing session for March 29,
2005, in Washington D.C. On February 23, 2005, Binder filed
petitioners’ supplemental motion to allocate the burden of proof,
augmented by a memorandum of points and authorities.
On March 29, 2005, in Washington, D.C., we commenced the
final 2-day session of the Dixon V evidentiary hearing. On the
second day of the Washington, D.C., session, the Kersting project
petitioners agreed to submit a joint opening brief, a task for
which the parties acknowledged Binder would do most of the work.
At that time Binder noted that the brief would take hundreds of
hours and referred to an earlier comment by Izen that the opening
brief would be a “Herculean effort”. Counsel for respondent and
the Kersting project petitioners further informed the Court that
they agreed that attorney’s fees incurred during the Dixon V
remand proceedings should be awarded under section 6673(a)(2)
rather than section 7430.
G. Award of Appellate Fees and Our Determination of the
Scope of the Thompson Settlement
On May 13, 2005, we ordered the parties to file reports, by
June 13, 2005, explaining their views on how we should award
attorney’s fees and expenses for the proceedings on remand and
appellate attorney’s fees in response to the supplemental mandate
of the Court of Appeals. On July 13, 2005, respondent filed a
response to our order of May 13, 2005. On July 14, 2005, Binder
filed a 189-page joint opening brief that was signed by all
-22-
petitioners’ counsel who had participated in the Dixon V remand
proceedings. On July 15, 2005, Jones, O’Donnell, and Izen
submitted a 21-page joint supplemental opening brief.
On July 15, 2005, Jones also submitted petitioners’ report
responding to our order of May 13, 2005. Petitioners’ report was
combined with the motion of appellant non-test-case petitioners
for award of attorney’s fees and expenses. In the motion,
petitioners requested an award of fees incurred through June 30,
2005.
On May 2, 2006, we issued our opinion in Dixon VI,
explaining our determination of the terms of the Thompson
settlement. On May 10, 2006, we issued our opinion in Dixon VII,
awarding fees and expenses incurred during the appeal from Dixon
III to petitioners represented by Porter & Hedges attorneys
Irvine and Binder and by Minns.
On June 15, 2006, we ordered Jones to respond to or rebut
any conclusions reached in Dixon VII. On July 19, 2006, Jones
filed his third supplement to petitioners’ request for an award
of appellate attorney’s fees.
On September 6, 2006, we issued our opinion in Young v.
Commissioner, T.C. Memo. 2006-189, awarding petitioners
represented by Jones and Izen attorney’s fees and expenses
incurred during the appeal from Dixon III. In Young we awarded
appellate fees and expenses for the period between May 2000 and
-23-
April 30, 2003, the date respondent had filed the motion for a
status conference. We specifically excluded from the awards fees
and expenses postdating the appeal, beginning with fees and
expenses related to respondent’s request for a status conference
on April 30, 2003.
H. Dixon V Remand Fee and Expense Requests
On May 4, 2007, we ordered petitioners to submit requests
for attorney’s fees and expenses incurred in the Dixon V remand
proceedings by June 8, 2007. On May 29, 2007, Jones filed
petitioners’ motion to extend the time to file such a request.
On May 30, 2007, we granted petitioners’ motion for extension.
On July 10, 2007, Jones filed petitioners’ motion for an
award of attorney’s fees (herein referred to as petitioners’
current fee and expense request). Petitioners’ current fee and
expense request included fees and expenses dating from May 1,
2003, through February 28, 2007. Because the dates covered in
petitioners’ current fee and expense request went back to May 1,
2003, it included fees we had disallowed as premature in Young v.
Commissioner, supra. The invoices submitted covering the
overlapping periods were identical except for the fees originally
submitted on invoice Nos. 4707, 4708, and 4709 in petitioners’
appellate fee request, which were submitted on a different
invoice, No. 4712, in petitioners’ current fee and expense
request. Other than the number of the master invoice in which
-24-
the fees are listed, there is no difference in the fees and
expenses submitted.
On July 27, 2007, we ordered respondent to submit a response
to petitioners’ current fee and expense request by August 27,
2007. On August 23, 2007, respondent filed a response to
petitioners’ current fee and expense request (herein referred to
as respondent’s current response). In the current response,
respondent objected not only to the fees and expenses in
petitioners’ current request but also to fees and expenses
petitioners had requested in their July 15, 2005, appellate fee
request. As part of respondent’s incorporation of respondent’s
objections to the appellate fee request respondent attached
copies of portions of respondent’s response to petitioners’
appellate fee and expense request: Pages 13-19 and Exhibit F of
respondent’s October 28, 2005, response and pages 15-16 and
Exhibit E of respondent’s March 1, 2006, response.
Respondent spent little effort to clarify exactly which
portions of the previous responses–-attached or not–-were
incorporated in respondent’s current response. In the current
response, respondent restated respondent’s objections, from
respondent’s October 28, 2005, response to petitioners’ request
for an award of appellate fees, to: $18,627.12 in fees
pertaining to closed cases, $8,175.62 in fees pertaining to
matters unrelated to the Dixon V remand, $29,389.70 related to
-25-
Osborn, $9,536.16 in undocumented expenses, and the
reasonableness of Jones’s hourly rate of $350. However, Exhibit
F, which respondent attached, described only $3,949.75 in fees
and expenses related to the closed cases and $3,470 in fees and
expenses unrelated to the proceedings on remand, and $1,946.62 in
fees and expenses related to Osborn. The response included no
explanation of which fees petitioners had failed to substantiate.
Even though Exhibit E of respondent’s March 1, 2006,
response included more than $35,856 in fees, respondent
specifically objected only to $3,477.50 of the fees from Exhibit
E under the heading “Spreadsheet (First Supplement) Questionable
Entries Robert Allen Jones Time and Fees” in respondent’s current
response. Respondent did not specify whether respondent was
renewing previous objections to the remaining $32,378.50 in fees
and expenses included in Exhibit E that were incurred before the
remand period.
In the current response respondent also objected for the
first time to: $10,436.07 in duplicate fees, $12,322.38 in
appellate fees, $12,349.70 in fees pertaining to the closed
cases, $11,497.50 in excess time spent preparing opening brief,
$33,946.90 in fees and expenses pertaining to client relations
and computations, $10,222.25 in fees and expenses that are
objectionable for a variety of reasons, and petitioners’ not
-26-
having paid or incurred the fees and expenses for which they had
applied.
On October 4, 2007, petitioners filed a reply to
respondent’s current response. Petitioners stated that the
appellate fees respondent objected to were not part of
petitioners’ current fee request. Petitioners also pointed out
that Exhibit E from respondent’s March 1, 2006, response to
petitioners’ appellate fee request contained numerous entries
dated before the remand period and that Jones had not included
these entries in petitioners’ current fee and expense request.
In their reply to respondent’s response, petitioners also
conceded that they should not receive an award for entries
related to the closed cases that they had included in their
current request. After conceding this point, however,
petitioners argued that some of the entries respondent claimed
were related to the closed cases were attributable to other
matters. Petitioners provided a list of the entries they
contended respondent claimed were related to the closed cases and
the amounts of those entries petitioners agreed should be
disallowed. The entries petitioners conceded were related to the
closed cases amounted to $17,359 in fees and $17.20 in expenses.
However, among the entries petitioners claimed respondent
objected to as related to the closed cases, petitioners
-27-
erroneously included fees and expenses respondent had objected to
on other grounds.8
Discussion
I. Application of Section 6673(a)(2)(B)
The parties agree that attorney’s fees and expenses should
be awarded, under section 6673(a)(2)(B), with respect to all
petitioners who participated in the Dixon V remand proceedings.9
Section 6673(a)(2) provides:
(2) Counsel’s liability for excessive costs.--
Whenever it appears to the Tax Court that any attorney
or other person admitted to practice before the Tax
Court has multiplied the proceedings in any case
unreasonably and vexatiously, the Tax Court may
require--
(A) that such attorney or other person pay
personally the excess costs, expenses, and
attorneys’ fees reasonably incurred because of
such conduct, or
(B) if such attorney is appearing on behalf
of the Commissioner of Internal Revenue, that the
United States pay such excess costs, expenses, and
attorneys’ fees in the same manner as such an
award by a district court.
8
The list provided in petitioners’ reply to respondent’s
response also contained numerous computational errors and
inconsistencies. To avoid confusion, we have not elaborated on
which of respondent’s objections correspond to individual entries
on petitioners’ list. However, we have disallowed, on the
pertinent grounds, all those entries petitioners conceded are
related to the closed cases.
9
We would expand the defined population entitled to awards
to include Kersting project petitioners whose interests were
represented in the Dixon V remand proceedings and who paid or
incurred the obligation to pay fees and expenses of attorneys who
provided services and have filed motions for awards.
-28-
During the Kersting tax shelter litigation this Court
awarded attorney’s fees and expenses under section 6673(a)(2)(B)
incurred in proceedings in this Court–-Dixon IV–-and under
section 7430 for fees and expenses incurred in the Dixon V
appellate proceedings--Dixon VII and Young v. Commissioner, T.C.
Memo. 2006-189.
In Dixon IV, Dixon VII, and Young, we explained the
distinction between fee-shifting prevailing party statutes, such
as section 7430, which are based on substantive policy that
allows prevailing parties to recover their fees as compensation,
and fee sanction statutes, such as section 6673(a)(2), which
emphasize punishment and deterrence of party and attorney
misconduct. See Chambers v. NASCO, Inc., 501 U.S. 32, 52 (1991);
Bus. Guides, Inc. v. Chromatic Commcns. Enters., Inc.,
498 U.S.
533 (1991); Cooter & Gell v. Hartmarx Corp.,
496 U.S. 384, 409
(1990). Both section 6673(a)(2) and section 7430 limit the award
of fees to reasonable fees and expenses. However, fee-shifting
statutes, such as section 7430, impose additional limitations
that do not apply under the sanction statutes, placing an hourly
rate cap on fees, imposing a net worth limitation on taxpayers
requesting reimbursement, and allowing awards to be made only in
favor of prevailing private parties.
In Dixon IV we awarded fees and expenses under 6673(a)(2)(B)
because those fees were directly related to the misconduct of
-29-
respondent’s attorneys leading to our opinion and decisions in
Dixon III. In Young v. Commissioner, supra, and Dixon VII, we
denied awards of fees under section 6673(a)(2)(B), following the
reasoning in Cooter & Gell v. Hartmarx Corp., supra at 409, that
the appeal of a decision to sanction a party’s conduct was not
directly related to sanctionable conduct. Instead, we awarded
fees and expenses under section 7430 because petitioners
substantially prevailed on appeal.
In the Dixon V remand proceedings, we determined the terms
and scope of the Thompson settlement, which directly related to
the misconduct of Sims and McWade and our failure in Dixon III to
“get it right”. We now award fees and expenses under section
6673(a)(2)(B) that are attributable to services Jones performed
during the Dixon V remand proceedings.
II. Adjustments to Requested Fees and Expenses
We now turn to respondent’s objections to fees and expenses
in petitioners’ current fee and expense request, as supplemented.
Respondent first objects that the fees and expenses petitioners
request were not reasonably incurred because Jones has failed to
substantiate that the fees were, in fact, paid or incurred.
Respondent also objects to the reasonableness of hourly rates
charged by Jones and his staff, fees and expenses petitioners did
not submit in their current fee and expense request, fees and
expenses we declined to award in Young v. Commissioner, supra,
-30-
because they were related to the Dixon V remand proceedings, fees
and expenses incurred in preparing the appellate fee request,
fees and expenses related to the closed cases, the number of
hours Jones’s staff spent on the opening brief, fees and expenses
attributable to client relations, fees and expenses related to
proposed expert witness Osborn, fees and expenses related to
Jones’s and O’Donnell’s motion for summary judgment of a
100-percent discount as sanction, inadequately described fee and
expense entries, and miscellaneous other items.
A. Substantiation of Fees
Respondent also objected, in respondent’s response to
petitioners’ current fee and expense request, that petitioners
have not substantiated the amounts they paid between June 1,
2005, and April 30, 2007. In petitioners’ October 4, 2007, reply
to respondent’s response, Jones attached a list of the amounts
his clients had paid. We therefore conclude that petitioners
have substantiated the amounts paid.
B. Jones’s Hourly Rate
Respondent objects that Jones’s hourly rate of $350 is
unreasonable and urges us to allow Jones the same rate as we did
in Young v. Commissioner, supra, in which we awarded fees and
expenses under section 7430. Respondent is arguing in effect
that the capped rate under section 7430 applies to section
6673(a)(2). We disagree. As a fee-shifting prevailing party
-31-
statute, section 7430 places a cap on the hourly rate for an
award of attorney’s fees. Section 6673(a)(2), however, is a fee
sanctions statute and its provisions require only that the fees
awarded be reasonable. Section 6673 does not impose a cap on
hourly rates. See Harper v. Commissioner, 99 T.C. 533, 552
(1992).
Jones’s rate is reasonable. During the Dixon V remand
proceedings, Binder and Irvine billed at rates ranging from $310
to $425 before 2005 and $375 to $475 during and after 2005.
Sticht billed at $350 per hour for his services during the remand
period. Respondent has agreed that Binder’s, Irvine’s, and
Sticht’s rates are reasonable. At $350 per hour, Jones’s rate
approximates or equals the rates charged by Binder and Sticht.
Jones’s rate is also less than the rate charged by Irvine.
C. Respondent’s Objections to Fees and Expenses Not
Included in Current Request
We next address respondent’s objections to fees and expenses
petitioners did not include in their current fee and expense
request. In respondent’s response to petitioners’ request,
respondent renewed the objections from respondent’s October 28,
2005, and March 1, 2006, responses to petitioners’ July 15, 2005,
appellate fee request and its supplements. These renewed
objections date back as far as 1999. However, petitioners
requested fees and expenses incurred only after April 30, 2003,
1 week after our receipt of the Dixon V primary mandate. In
-32-
determining the award to petitioners in this opinion, we have
considered only those fees and expenses petitioners included in
their current fee and expense request. We therefore deny
respondent’s objections to fees and expenses not included in
petitioners’ current request.
D. Fees and Expenses Included in Petitioners’ Dixon III
Appellate Fee Request
Petitioners’ current fee and expense request includes
entries of $9,832.50 in fees and $333.57 in expenses that
petitioners also included in their appellate fee request.
Respondent argues that we have already addressed these fees and
expenses in Young v. Commissioner, T.C. Memo. 2006-189, and that
petitioners cannot include them in their current fee request. We
disagree; we disallowed these fees and expenses in Young because
they were related to the Dixon V remand proceedings, making
premature their inclusion in petitioners’ appellate fee request.
However, petitioners’ inclusion of those fees and expenses in
their current fee and expense request is timely. We make no
downward adjustment to petitioners’ award on the basis of
respondent’s objection that petitioners have included in their
current fee and expense request fees and expenses we denied in
Young.
-33-
E. Fees Incurred During the Appeal of Dixon III
Respondent also objects that $12,270 of fees and $52.38 of
expenses included in petitioners’ current fee and expense request
are related to the appeal of Dixon III and not related to the
Dixon V remand proceedings. Those fees are as follows:
Hours Amount
Jones 15.70 $5,495
Law clerk 67.75 6,775
Total 83.45 12,270
In their reply to respondent’s response, petitioners have
stated that none of the entries in their current fee request
relate to the Dixon V appellate proceedings. Despite this claim,
however, petitioners included fees and expenses related to the
appellate fee request in their current fee and expense request.
Petitioners’ request for appellate fees was not related to the
proceedings on remand. We awarded fees related to the appeal of
Dixon III in Young v. Commissioner, supra. Petitioners’ final
opportunity to apply for appeal-related fees has passed.
Accordingly, we disallow $12,270 of fees and $52.38 of expenses
related to the appeal of Dixon III.
F. Fees Related to Closed Cases
Respondent objects to $16,557.50 of fees and $91.20 of
expenses related to the closed cases. The hours and fees
respondent claims are attributable to work on the closed cases
are as follows:
-34-
Hours Amount
Jones 39.80 $13,930.00
Paralegal 7.29 890.00
Law clerk 4.50 537.50
Accountant 6.55 1,200.00
Total 58.14 16,557.50
In their October 4, 2007, reply to respondent’s response,
petitioners conceded that efforts to vacate stipulated decisions
in closed cases are separate matters, unrelated to the terms of
the Thompson settlement. However, petitioners argue that some of
the entries respondent claims are related to the closed cases are
not so related. They have provided a list, identifying 12.7
hours, amounting to $1,720 in fees, and $120.62 in expenses they
claim respondent incorrectly attributed to work related to the
closed cases.
After reviewing the relevant entries, we agree that
respondent incorrectly attributed .5 hours of attorney time to
work related to the closed cases. The entry dated June 6, 2006,
claims 1 hour of attorney time for “Conference call with
O’Donnell, Henry O Neill, IRS re: settlement stipulations,
attorney’s fees remand; Reopening partially settled cases,” and
cannot be completely attributable to work related to the closed
cases. We therefore allow 50 percent of that entry; .5 hours of
Jones’s services, amounting to $175 in fees.
-35-
We disallow the remaining 57.64 hours of fee entries
respondent objects to as related to the closed cases.10 This
results in reductions of petitioners’ fee and expense awards by
$16,382.50 and $91.20, respectively.
G. Excessive Time on Opening Brief
Respondent argues that the time Jones’s staff spent on the
joint opening brief is excessive and urges us to disallow a
portion of the related fees. Respondent claims the number of
hours Jones’s paralegal and law clerk spent on the opening brief
is not “reasonable” within the scope of section 6673(a)(2).
Respondent objects to a total of $11,497.5011 in fees related to
10
In the list of entries petitioners claim respondent
attributed to closed cases, petitioners mistakenly included
several entries to which respondent had objected for other
reasons, such as work related to Osborn, to the summary judgment
of a 100-percent discount as sanction, inadequately described
entries, and entries otherwise unrelated to the Dixon V remand
proceedings. We did not include these entries in our computation
of entries related to the closed cases, but in our computations
of entries related to the appropriate corresponding objections.
However, we have not allowed any of the entries petitioners have
conceded are noncompensable.
11
Respondent included $5,150 of fee entries in both
respondent’s objections to “duplicate” fees and respondent’s
objections to excessive hours spent working on the opening brief.
We counted the $5,150 only once in calculating the $116,873.75 of
“Fees respondent objects to” in our fee award table, see supra p.
7, because both sets of objections were to the same fees.
-36-
the opening brief. The fees corresponding to this objection are
as follows:12
Hours Amount
Paralegal 71.75 $9,327.50
Law clerk 21.70 2,170.00
Total 93.45 11,497.50
Respondent does not object to an award for any of the 26.3 hours
Jones spent on the brief.
We disagree with respondent. Jones’s staff did not expend
an excessive number of hours on the opening brief. The entries
in Jones’s invoices make clear that Jones and his staff were not
only writing the supplement to the opening brief Jones filed
separately with Izen and O’Donnell but also helping Binder with
the joint opening brief. In fact the billing statements Porter &
Hedges submitted specifically refer to a “portion” of the opening
brief on which Jones was working. Accordingly, we make no
deductions for time Jones’s staff spent on the opening brief.
H. Client Relations
Respondent objects to time respondent refers to as “client
relations”. Respondent asserts that $33,932.50 in fees and
$2,903.15 in expenses in petitioners’ current fee request are
12
Twenty-five law clerk hours and 21.5 paralegal hours
dedicated to the opening brief were included in respondent’s
objections to entries submitted in both petitioners’ appellate
and current fee requests. There is no indication that
petitioners have previously received any award for these hours.
-37-
attributable to client relations and should be disallowed. Those
fees are as follows:
Hours Amount
Jones 6.20 $2,170.00
Accountant 158.81 31,762.50
Total 165.01 33,932.50
We disagree with respondent. We may award fees for time
spent on client relations if that time is sufficiently related to
the matter for which petitioners are entitled to a fee and
expense award. See Dixon VII. Moreover, where petitioners do
not provide the subject matter for client communications, we may
determine the amount of those communications that is compensable.
In this case, if the subject matter of client communications is
unclear, we will allow petitioners an award of 50 percent of the
requested fee or expense.
In Dixon VII we addressed the issue of client relations when
we evaluated whether to award fees related to Binder’s and
Irvine’s client conferences. Because we did not know the subject
matter of these conferences, we assumed that 50 percent of the
time spent in the conferences related to the appeal (the matter
for which we were awarding fees) and the remaining 50 percent
related to noncompensable unrelated matters (client relations and
“hand holding”). We then awarded fees for the portion of the
time we allocated to appeal-related matters.
-38-
In Young v. Commissioner, T.C. Memo. 2006-189, we applied
the same approach in evaluating fee and expense entries that did
not specify the subject matter of client communications. We
allocated 50 percent of those communications to the appeals,
granting an award for that portion of the time, and 50 percent to
unrelated, noncompensable matters.
In the case at hand, the majority of the fee entries
respondent objects to as related to client relations are for the
calculation of petitioners’ deficiencies and overpayments
according to our decisions following Dixon VI and VIII.
These calculations were necessary to prepare the decision
documents to be submitted to the Court for entry of decision.
Because petitioners have appropriately documented the compensable
subject matter of these client-related matters, we allow these
entries in their entirety.
Most expenses that respondent objects to as client relations
are expenses for mailing copies of court filings to clients. We
disagree with respondent, finding that these expenses are
attributable to compensable aspects of client relations.
Among respondent’s objections, however, are three client
relations entries not attributable to the computation of client
deficiencies and overpayments or mailing copies of court filings
to clients. We apply the same reasoning we applied in Young v.
-39-
Commissioner, supra, and Dixon VII in determining the
compensability of these three entries.
The first entry, dated August 9, 2006, is a “Letter to
clients re: status; description of appeal possibilities.” This
entry consists of 1.25 hours of Jones’s services, amounting to
$437.50 in fees. It is clear that these communications were not
related to the matter on remand. We disallow the fees pertaining
to this entry.
The second entry is an expense labeled “Express to L. Wade.”
Because the subject matter of the letter is unclear, we apply the
approach of Young v. Commissioner, supra, and Dixon VII, and
disallow one-half of the fees pertaining to this entry, $7.20.
The third entry, “Review and execute joint letter to clients
with Declan”, comprises .25 hours of Jones’s services, amounting
to $87.50 in fees. In this case the contents of the
communication are not clear, so we disallow 50 percent of the
award requested, reducing petitioners’ award by $43.75.
Therefore, we will deduct a total of $481.25 in fees and $7.20 in
expenses from petitioners’ requested award because those sums are
related to noncompensable client relations. The fees and
expenses we have disallowed under this heading are as follows:
-40-
Hours Amount
Fees
Jones 1.38 $481.25
Accountant -0- -0-
Total 1.38 481.25
Expenses $7.20
I. Osborn Proposed Expert Witness Report
Respondent objects to $25,921.25 in fees and $9,783.52 in
expenses related to the services of proposed expert witness
Osborn. The fees corresponding to this objection are as follows:
Hours Amount
Jones 49.55 $17,342.50
Paralegal 36.24 4,378.75
Account manager 21.00 4,200.00
Total 106.79 25,921.25
We deny any award of attorney’s fees or expenses related to
Osborn and her proposed expert witness report that were incurred
after the filing of Smart’s declaration on November 24, 2003. In
our order of December 10, 2004, we stated that, after receiving
Smart’s declaration, Jones should have known that Osborn’s
testimony would not be useful to the Court and thus that fees and
expenses related to Osborn’s services that were incurred after
that date were not reasonably incurred. All fees and expenses
that respondent objects to as related to Osborn were incurred
after November 24, 2003.
This is not the first time that a court has questioned the
relevance and usefulness of Osborn’s expert testimony. In Jones
-41-
v. United States, 81 Fed. Appx. 209 (9th Cir. 2003), the Court of
Appeals affirmed the District Court’s unpublished ruling in Jones
v. United States, 89 AFTR 2d 2002-1816, 2002-1 USTC par. 50, 380
(D. Nev. 2002), that an affidavit Osborn provided did not
constitute newly discovered evidence that would have likely
changed the outcome of the case. The Court of Appeals similarly
discounted Osborn’s testimony in Parenti v. I.R.S., 70 Fed. Appx.
470 (9th Cir. 2003), affg. Parenti v. I.R.S., 91 AFTR 2d 2003-
1136, 2003-1 USTC par. 50,282 (W.D. Wash. 2003), holding that
arguments based on Osborn’s testimony claiming the assessment
against Parenti was time barred and that the District Court had
erred in excluding materials provided by Osborn lacked merit.
See Appellant’s or Petitioner’s Informal Brief at 5-6, 19-20. In
MacElvain v. Commissioner, T.C. Memo. 2000-320, the Tax Court
rejected Osborn’s testimony after determining Osborn had no
firsthand knowledge of the taxpayer’s cases docketed in the Tax
Court.
The Tax Court recently sanctioned Jones for attempting to
use Osborn’s testimony in Gillespie v. Commissioner, T.C. Memo.
2007-202, affd. on other issues 292 Fed. Appx. 517 (7th Cir.
2008), and Davis v. Commissioner, T.C. Memo. 2007-201, affd. 301
Fed. Appx. 398 (6th Cir. 2008), because her testimony addressed
the “post-cycle date” theory previously rejected in Dahmer v.
United States, 90 AFTR 2d 2002-6804, 2002-6809, 2002-2 USTC par.
-42-
50,806, at 86,219 (W.D. Mo. 2002). We also sanctioned Jones in
these cases for making frivolous arguments related to Osborn’s
proposed testimony. We sustain in their entirety respondent’s
objections to fees and expenses attributable to Jones’s efforts
to include the proposed expert witness report of Osborn.
J. Motion for Summary Judgment of 100-percent Discount as
Sanction
Respondent objects to including in the award fees incurred
in preparing and filing the motion for summary judgment of a 100-
percent discount as a sanction and the motion to reconsider that
motion, claiming that motion was “borderline frivolous”.
Respondent objects to $2,600 in fees on these grounds, as
follows:
Hours Amount
Jones 7.00 $2,450
Paralegal 1.50 150
Total 8.50 2,600
We agree with respondent and disallow fees incurred in the
preparation and filing of the “Motion for Summary Judgment of
100-percent Discount as Sanction” in their entirety. Rule 121(b)
governs the disposition of motions for summary judgment filed in
this Court. For the Court to grant a motion for summary
judgment, (a) the moving party must show the absence of dispute
as to any material fact and that a decision may be rendered as a
matter of law; (b) the factual materials and the inferences to be
-43-
drawn from them must be viewed in the light most favorable to the
party opposing the motion; (c) the party opposing the motion
cannot rest on the mere allegations or denials, but must set
forth specific facts showing there is a genuine issue for trial.
Brotman v. Commissioner, 105 T.C. 141, 142 (1995) (citing O’Neal
v. Commissioner,
102 T.C. 666, 674 (1994)).
In our order of March 2, 2005, we denied the motion for
summary judgment of a 100-percent discount as a sanction,
stating: “The motion for summary judgment does not appear to be
a genuine attempt to resolve, even in part, the issues before the
Court.” It should have been obvious to Jones and O’Donnell that
there were numerous outstanding issues of fact. Moreover, on
March 29, 2005, even after we denied their first motion, Jones
and O’Donnell filed a second motion in which they asked the Court
to reconsider their motion for summary judgment. We summarily
denied their March 29, 2005, motion the day they filed it. The
primary mandate of the Court of Appeals in Dixon V required us to
determine the terms of the Thompson settlement. In Dixon V at
1047 the Court of Appeals stated:
we will not enter judgment eradicating all tax
liability of these taxpayers. Such an extreme sanction,
while within the court’s power, is not warranted under
these facts. Instead, we remand to the trial court
with directions to enter judgment in favor of
Appellants and all other taxpayers properly before this
Court on terms equivalent to those provided in the
settlement agreement with Thompson and the IRS.
[Citation and fn. ref. omitted.]
-44-
If we had awarded summary judgment of a 100-percent discount as a
sanction, we would have completely disregarded the mandate of the
Court of Appeals. We deny in its entirety petitioners’ request
for fees related to the motion for summary judgment of a 100-
percent discount as a sanction.
K. Inadequately Described Entries
Respondent also claims that $4,895 in fee entries in
petitioners’ current request are not detailed enough to determine
whether those entries are related to the proceedings on remand
and, thus, compensable. The hours and amounts attributable to
those entries are as follows:
Hours Amount
Jones 9.75 $3,412.50
Law Clerk 10.50 1,482.50
Total 20.25 4,895.00
The following amount to 9.75 hours and $3,412.50 in
attorney’s fees: “Brief with ML for Dixon”, “Discussion re:
draft from Binder on sanctions with ML”, “Call to O’Donnell”,
“Work on brief with ML; conversation with Joe Izen,” “Work with
ML on sentencing,” “Beghe order of 7/29 re: remittance to ML,”
and “Soliation”.
In their reply petitioners did not explain who “ML” is and
why communications with “ML” would be necessary or the meaning of
“Soliation”. As a result, we cannot determine whether these
entries are related to the Dixon V remand proceedings. We
-45-
therefore disallow the corresponding $3,412.50 of attorney’s
fees.
Respondent also identifies 10.5 hours of law clerk services
amounting to $1,482.50 in fees that petitioners have not
adequately described: “Reviewed recent pleadings”, “Read recent
pleadings”, “Calls to Garrett, Gruen and Hinrich”, and “Call from
Attorney Binder”. Petitioners have not explained the subject or
purpose of any of the above entries, any of which could pertain
to something other than determining the terms of the Thompson
settlement. We disallow $1,482.50 of inadequately described law
clerk fees. Petitioners’ fee request is reduced by a total of
$4,895 for inadequately described work.
L. Miscellaneous Objections and Adjustments
Respondent also objects, on various grounds, to including in
the award $4,517.50 in fees and $14.20 in expenses as follows:
Hours Amount
Jones 7.25 $2,537.50
Paralegal 17.70 1,980.00
Total 24.95 4,517.50
The entries that respondent objects to under this heading
include work related to a potential appeal, a motion to recuse
the judge, and routine file maintenance. The first of these
objections concerns work related to a potential appeal, to which
a total of $2,137.50 in fees is attributed: 4.25 hours of
-46-
Jones’s time, amounting to $1,487.50 in fees, and 6.5 hours of
the paralegal’s time, amounting to $650 in fees.
We agree with respondent. Work related to a potential
appeal is not related to the Dixon V remand proceedings.
Therefore, we disallow $2,137.50 in fees for services related to
a potential appeal.
Respondent also objects to an entry related to a motion to
recuse the judge, amounting to 5.2 hours of paralegal time and
$520 in fees. We agree with respondent. Petitioners never filed
a motion to recuse. We will disallow an award of fees amounting
to $520 related to this subject.
Respondent objects to fee requests for routine file
maintenance; 6 hours and $810 in fees are attributable to
paralegal time and 1 hour amounting to $350 in fees is
attributable to attorney time. We agree with respondent.
Routine office tasks are not sufficiently related to the
proceedings on remand. Therefore, we disallow fees for these
entries and deduct an additional $1,160 in fees.
Two other entries are not sufficiently related to
proceedings on remand: One for “Refund Claims” for 1 hour of
work at Jones’s rate of $350 per hour and another for “Powers of
Attorney” for 1 hour of attorney time, amounting to $350. We
will not award fees for either of these entries and disallow an
additional $700 from petitioners’ requested amount.
-47-
Respondent objects to $28.80 in miscellaneous expenses;
“EXPRESS TO DECLAN O’DONNELL” and “Express to L. Wade”. We
deducted $14.40 for the entry “Express to L. Wade” earlier in our
“closed cases” section. Accordingly, we will not deduct that
amount here again. However, we agree with respondent that the
entry “EXPRESS TO DECLAN O’DONNELL” is an inadequate description.
After considering respondent’s miscellaneous objections, we
reduce the requested award by a total of $4,517.50 in fees and
$14.40 in expenses.
Conclusion
We disallow a total of $67,067.50 in fees and $9,948.70 in
expenses from petitioners’ requested award. Our downward
adjustments are tabulated below:
Summary of Disallowances
Objection Fees Expenses
Duplicative fees -0- -0-
Dixon III appeal $12,270.00 $52.38
Closed cases 16,382.50 91.20
Opening brief -0- -0-
Client relations 481.25 7.20
Osborn 25,921.25 9,783.52
Summary judgment of a 2,600.00 -0-
100-percent discount
Inadequately described 4,895.00 -0-
entries
Miscellaneous 4,517.50 14.40
Total 67,067.50 9,948.70
-48-
After these amounts are deducted from the petitioners’ fee and
expense request, petitioners are entitled to an award of
$198,649.95 in fees and $6,017.27 in expenses.
Giving effect to our concluding determination in Dixon IX,
we shall invoke our inherent power to require respondent to pay
to petitioners additional amounts equal to interest at the
applicable rates for underpayments under sections 6601(a) and
6621(a)(2) on $198,649.95 and $6,017.27 from July 10, 2007, the
date Jones filed petitioners’ motion for attorney’s fees and
expenses. We shall address the manner in which the award is to
be paid and its allocation among Jones’s clients in the order
implementing the determinations in this opinion.
To give effect to the foregoing,
An appropriate order will be
entered.
