Amicus Curiae Brief — Ballard v. Commissioner

3 OCT 6 © 2003

. No. 03-184

—_—_—_—_—— E CLERK

IN THE

Supreme Court of the United States

CLAUDE M. BALLARD and MARY B. BALLARD,

Petitioners,

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent.

ON PETITION FOR A Writ OF CERTIORARI TO THE

Unitep STATES Court OF APPEALS FOR THE ELEVENTH Circuit

ees

BrieF OF JOSHUA S. KANTER, AS EXECUTOR OF THE ESTATE

or BurTON W. KANTER, AS AMICUS CURIAE

IN SUPPORT OF PETITIONERS

—————————————————————————————————— ss OIOMaSa>Ssa>*_—™—"

N. JeROLD COHEN RICHARD H. Pi_pes*

TERESA WYNN ROSEBOROUGH Professor of Law

MattHew J. Gries 40 Washington Square South

SUTHERLAND ASBILL & BRENNEN LLP Vanderbilt Hall, #322B

999 Peachtree Street N.E. New York, NY 10012

Atlanta, GA 30309 (212) 998-6377

(404) 853-8000

* Counsel of Record

RANDALL G. Dick

Law Orrice OF RANDALL G. Dick

744 Montgomery Street

Third Floor

San Francisco, CA 94111

(415) 288-9433

Counsel for Amicus Curiae

Bt

TABLE OF CONTENTS

TABLE OF CONTENTS..u.ccsssssscsssssssecsssssssesssssssecsesssnsesensee

TABLE OF AUTHORITIES ..........ccsssssssssssssssssssseesesssssessen i

INTEREST OF AMICUS CURIAE .....cssscssssssssssssssseessssseeen

RITE La BRE! SIT < 2

REASONS FOR GRANTING OR HOLDING THE

FS SE ee lor neseresseresninnencctsaninniomammnannneunninnneentnaninnedisi 8

I. THE TAX COURT’S DECISIONMAKING

PROCESS VIOLATES ELEMENTAL PRINCIPLES OF

ES ee crncnemrvnenantcsseneninnsasacsantaaninnseniiisiibaasiniti 10

Il. FEDERAL STATUTES REQUIRE DISCLOSURE

OF THE TRIAL JUDGE’S FINDINGS. .............. cece 17

Ill. THE PETITION FOR WRIT OF CERTIORARI

SHOULD, IN THE ALTERNATIVE, BE HELD............... 19

Se Rciceectorsnitinnsnsinenccenvnesanegnineminnnmmnnsieniiiiid 19

CASES

Anderson v. City of Bessemer City, N.C., 470 U.S.

I Uaitiliniiitiediiaddistsicethsignsnepmineneesenniions 14

Cullen v. United States, 194 F.3d 401 (2d Cir. 1999) 14

Edward J. DeBartolo Corp. v. Florida Gulf Coast

Building & Construction Trades Council,

GR PR GI ONT ccccncccsoccesecoccosecsocsecseses 18

Freytag v. Commissioner, 501 U.S. 868

ESS 3, 4,8

Hill v. Beyer, 62 F.3d 474 (3d Cir. 1995) ......0...... 14

In re Hipp, Inc., 895 F.2d 1503 (5th Cir. 1990)... 14

Honda Motor Co. v. Oberg, 512 U.S. 415 (1994) 11

Estate of Kanter v. Commissioner, 337 F.3d 833

I Passim

Estate of Lisle v. Commissioner, 341 F.3d 364

a 1, 15,19

Mathews v. Eldridge, 424 U.S. 319 (1976)

Service v. Dulles, 354 U.S. 363 (1957) .....cccccccce0e. 17

Stone v. Commissioner, 865 F.2d 342 (D.C. Cir.

United States v. Raddatz, 447 U.S. 667

ES SEES 10, 13, 14

Universal Camera Corp. v. NLRB, 340 U.S. 474

Ti scsiiecitevennennnanentecessoenaesencssesncensesmneaneneens 14

STATUTES

UG. F 5 3

G UBL. 6 SOTA ceccccccceccesesccveccsccsosesescossesesssccsssooes 11

GARI. 6 Ti B sececcrescescevccceserscsccscrsseseccssesevssesssscssess 11

DRIES, 6 FOB ccceccccvercscesccecsencccssecssesnsessesnssesensesest 3

DE UBC. 6 TOGA cecccccccccccssvsscsccsscccsevecescssscsscssseseses 3

26 U.S.C. § 7443A(D)(5).......cccccccccceceseeresetereeenees 3,6

BE UBL. 6 DODD cacccccvesccssccsccescvecesscsscrseccssssssesnsences 17

2B UBL. § PAGBED) cccrccccccccsecccecsccrsccccccsessesssssecsees 18

DE GRBE.. 6 FOB cccccscccccccscesssescrsesescsscsssesesvesesssseses 17

BE UBC. 6 FABRE cccccccccceccessccccsessccsssccsccscessnees 3,17

RETR eee a 17

iv

Se rs UP Se cinerenncacinsncitnicinihentiiaiieliaiatiiliis 5, 18

SP an Op iiccriessiieniiiccpnicnniaciganimaimtinidens 12

RULES & REGULATIONS

United States Supreme Court Rule 37.6 ................. l

Seventh Circuit Operating Procedure No. 5.......... 19

PN ity Sees i Get iicterionidecnienctcinnenietnteninsnciniiicaniiaien 13

aS 8 ea ee 13

8 12

2 EERE er erneaaDE ne a Dn 5

tare SEE SEED icecsrtiersetscriisciniseneniiesinetrndaiemananacliden 4,17

eee I icaiieiieinitasiintataiibicntiaistaeicemeiaitl 4,5

EE a a 5

Be lire SOI ee Annccineninceninceriniiiecsnssecianiieieniniaiies 5

MISCELLANEOUS

Cornish F. Hitchcock, Public Access to Special Trial

Judge Reports, 2001 Tax Notes Today 199-

— aR. FD, FE) acccccsecsacscccnecseszccnecscncncsnes 8

Gerald A. Kafka & Jonathan Z. Ackerman, Fact-

Finding in the Tax Court: Access to Special

Trial Judge Reports, 91 Tax Notes 639

DF) 8

Final Report of Attorney General’s Committee on

Administrative Procedure 51 (1941).......... 12

INTEREST OF AMICUS CURIAE

The petition for certiorari arises out of a single Tax

Court trial over five weeks involving three taxpayers,

including Burton W. Kanter.’ Kanter, the main witness

at trial, was one of the leading tax and estate lawyers in

the country and taught for nearly 15 years as an adjunct

at the University of Chicago Law School. Because the

three taxpayers resided in different circuits, their

appeals were taken to different Courts of Appeals. In

Kanter’s case, the Seventh Circuit sharply divided, 2-1,

over whether the Tax Court’s trial processes violated

due process and other federal law. Estate of Burton W.

Kanter v. Commissioner, 337 F.3d 833 (7th Cir. 2003).

Kanter has sought e banc review, and the Seventh

Circuit has required the government to answer Kanter’s

en banc petition. The Seventh Circuit’s rules suggest a

final determination on whether to grant the en banc

petition no later than November 3, 2003.

Kanter, Claude Ballard, and Robert Lisle were

found in the Tax Court to have engaged in concerted

action to commit tax fraud. With respect to Lisle, the

Fifth Circuit, per Judge Higginbotham, overturned the

fraud judgment for lack of sufficient evidence. Estate

of Robert W. Lisle v. Commissioner, 341 F.3d 364 (Sth

Cir. 2003). With respect to Ballard, the Eleventh

Circuit panel upheld the fraud judgment and rejected

Ballard’s constitutional challenges. With respect to

Kanter, the Seventh Circuit panel divided 2-1 on

precisely the same constitutional issues presented in

' Pursuant to Rule 37.6 of the Rules of this Court, amicus states

that no person other than amicus and its counsel have made a

monetary contribution to the preparation or submission of this

brief. All parties have consented to the filing of this brief.

to

Ballard.

Kanter has a direct and obvious interest in this

Court’s determination whether to grant certiorari in

Ballard. Resolution of these issues in Ballard could

materially affect subsequent judicial treatment of those

issues in Kanter. Kanter has a significant interest, in

the alternative, in this Court holding the petition in

Ballard for a short time pending the Seventh Circuit's

decision on whether to grant en banc review. Holding

Ballard for this period will afford this Court a complete

record and final judgment in all Courts of Appeals on

the substantial constitutional issue that has divided

lower court judges.

STATEMENT

1. The fundamental issue in this case is whether

the trial structure of the Tax Court violates due process

or other federal law. Amicus curiae seeks to highlight

one critical fact about the proceedings below. The Tax

Court employs trial judges but keeps secret their legally

binding and “presumptively correct” findings of fact.

Tax Court decisions are legally required to rely upon

these findings, but these findings are not, at any time,

made part of the public record of the case. Neither the

taxpayer, the government, nor the reviewing Court of

Appeals is given access to the tnal judge’s

“presumptively correct” findings of fact and credibility

judgments. Yet these findings form the basis, in part,

of the Tax Court’s decisions.

The Courts of Appeals are legally obligated to

ensure that Tax Court findings of fact are supported by

the evidence and not clearly erroneous. But the

appellate courts cannot adequately perform this

function because they do not have access to the findings

of the judge who presided at trial. This non-transparent

process of decisionmaking is challenged in the Ballard

and Kanter cases as violating the due process rights of

taxpayers and the statutory obligations of the Tax

Court. Those statutory obligations include that “all

reports of the Tax Court. . . shall be public records.”

26 U.S.C. § 7461(a).

In Kanter, the Seventh Circuit panel divided 2-1 on

both the constitutional and statutory issues. In an

extensive, 28-page dissent, Judge Cudahy concluded

that the Tax Court’s decision-making structure is

indeed unconstitutional. The Seventh Circuit opinions

focus considerably greater attention on these issues than

does the Eleventh Circuit in Ballard.

2. Tax Court Special Trial Judges (STJs) preside

over many complex and financially significant cases,

including those involving allegations of fraud. The Tax

Court consists of up to 19 regular Tax Court judges

presidentially appointed for 15-year terms and

removable only for cause. 26 U.S.C. § 7443. The Tax

Court also includes 10 STJs. An STJ is appointed at the

discretion of the Chief Judge; has no statutorily

mandated term of office; and serves at the pleasure of

the Tax Court. 26 U.S.C. § 7443A. The Chief Judge

can assign any case, “regardless of complexity or

amount,” to an STJ for trial and initial findings of fact,

credibility judgments, and proposed decision. Freytag

v. Commissioner, 501 U.S. 868, 877-80 (1991); 26

U.S.C. § 7443A(b)(5). An STJ exercises “significant

governmental authority” and hence is an inferior officer

of the United States who can be appointed (unlike a law

clerk, a mere employee) only in accord with Article II

of the Constitution. Freytag, 501 U.S. at 880-82. This

case addresses the implications of Freytag. Now that

STJs preside over numerous cases of great complexity

and large amount, the Tax Court’s treatment of the trial

judge’s findings and credibility judgments has become

all the more important.

3. The constitutional issues presented in this case

arise from a complex civil tax fraud case, which was

tried for nearly five weeks in the Tax Court before an

STJ. Credibility judgments were critical. Sixty

witnesses testified; the STJ asked questions of 40 of

those witnesses. In such a case, as Judge Cudahy

observed, “[t]he detailed interconnection of the

credibility of different witnesses on different factual

issues makes the accumulated impressions of the

presiding officer irreplaceable.” Kanter, 337 F.3d at

886. After working more than four years post-trial to

prepare a report, the STJ filed his report, including his

findings of fact and proposed opinion.

This Rule 183 report must be prepared by the STJ

and filed with the Chief Judge under the Tax Court’s

own rules. T.C. Rule 183(b). The Chief Judge then

assigns the case to a reviewing Tax Court judge. The

Rule 183 report has direct, operative legal effect.

Rule 183 requires that: “Due regard shall be given

to the circumstance that the Special Trial Judge had the

opportunity to evaluate the credibility of witnesses, and

the findings of fact recommended by the Special Trial

Judge shall be presumed to be correct.” T.C. Rule

183(c). The United States Court of Appeals for the

District of Columbia Circuit, in an opinion by Judge

Williams, has construed “due regard” to permit the Tax

Court to overturn a trial judge’s findings only if those

findings can be shown to be “clearly erroneous.” Stone

v. Commissioner, 865 F.2d 342 (D.C. Cir. 1989). The

Courts of Appeals must ensure that Tax Court

reviewing judges adhere to the limits on their review

power. 26 U.S.C. § 7482. Subject to the

“presumptively correct” and “due regard” constraints,

the reviewing judge can adopt, modify, or reject, in

whole or in part, the trial judge’s report. T.C. Rule

183(c). The reviewing judge has no first-hand

knowledge of the trial or the testimony. The reviewing

judge also need not (and in this case, did not) hear

argument or receive additional briefs. /d. There is no

dispute that the “due regard” standard binds the

reviewing judge and imposes a legal constraint on the

reviewing judge’s authority to overturn the trial judge’s

findings.

Before 1983, Tax Court rules required the routine

disclosure of the STJ’s report. See T.C. Rule 182(b), 60

T.C. 1149 (1973). But without any explanation, the

Tax Court then amended the rule to eliminate disclosure

of the trial judge’s legally required report. 81 T.C.

1070 (1983) (renumbering as Rule 183). Thus, the Tax

Court now adopts the position that, as a per se matter, it

will refuse to make the trial judge’s report part of the

record. As far as amicus is aware, the Tax Court is, as

Judge Cuhady observed, “unique among all the

institutions in the law” in claiming the power to refuse

to disclose the “presumptively correct” findings of fact

of a trial judge or hearing officer. Kanter, 337 F.3d at

874. The Tax Court prohibits the trial judge’s report

from being made available in any litigation context, at

any stage of the proceedings, to any actor outside the

Tax Court. Even in a civil tax fraud case where

credibility findings are critical, it is impossible for the

Courts of Appeals upon review to take the trial judge's

“presumptively correct” findings in the Rule 183 report

into account in any way.

4. The government, on behalf of the Tax Court,

defends the following process: after the trial judge files

the legally operative Rule 183 report, the reviewing

judge and the trial judge may discuss the findings of

fact and credibility judgments. If the reviewing judge

disagrees with the trial judge’s initial findings, the

reviewing judge can privately “persuade” the trial judge

(employed at the pleasure of the Tax Court) to jointly

sign a new opinion with modified or alternative

findings. This reversal of the “presumptively correct”

findings filed in the Rule 183 report is never reflected

in the record. The trial judge’s findings and Rule 183

report remain secret, even from the reviewing court.

Instead, the Tax Court issues a final decision that

always (as in this case) starts with the following

boilerplate: the Tax Court judge “agrees with and

adopts the opinion of the special trial judge.” Like

Judge Cudahy in the Seventh Circuit, amicus has been

unable to find a single case without exactly this

formulaic language in the nearly 900 Tax Court

decisions decided pursuant to 26 U.S.C. § 7443A(b)(5)

ur its predecessor since 1983. Kanter, 337 F.3d at 876.

This unbroken pattern explains why the government

acknowledges that reviewing judges do regularly

modify or reject findings of fact, but behind the scenes

in a way that leaves no trace in the public record.

The government concedes that this boilerplate

language does not mean that the reviewing Tax Court

judge has accepted the original STJ’s findings of fact

and credibility judgments in the Rule 183 report.

Instead, the reviewing judge “adopts the opinion” (not

the “report,” the legally specified term of art under Rule

183) of the trial judge after the findings of fact have

potentially been modified or even overturned. There is

no way for the reviewing Court of Appeals, the

taxpayer, or the government to know whether, in fact,

any such modifications have taken place in any specific

case. As Judge Cudahy concluded in the Seventh

Circuit, “I do not believe that the concealment of the

Tax Court’s revision process behind that [boilerplate]

verbal formula allows this court to conduct meaningful

appellate review.” Kanter, 337 F.3d at 888.

5. In this case, the trial judge’s Rule 183 report

was before the reviewing Tax Court judge for 15

months. According to uncontradicted, sworn

testimony, both the Chief Special Trial Judge and a Tax

Court judge, perhaps outraged by the secret reversal of

the trial judge’s credibility findings, came forward to

assert that the trial judge’s Rule 183 report findings had

been reversed outside the record.? Indeed, “those

sections containing findings related to the credibility of

witnesses and findings related to fraud were wholly

contrary to the findings made by [the trial judge] in his

report.”

6. The government’s position is that as long as the

trial and reviewing judges purportedly “agreed” at the

* Tax Court counsel filed an uncontradicted affidavit testifying to

these statements. Declaration of Randall G. Dick, App. at 1a.

Counsel did not raise these statements in his first two motions

seeking disclosure; only after these two motions were denied did

counsel believe his legal obligations to his client required

testifying to these statements.

> Id. 45.

end of the day to a second document ~ the final opinion

of the Tax Court - then the first document — the Rule

183 report — need not and cannot be disclosed. The

government asserts that Tax Court trial judges are the

equivalent of law clerks and the Rule 183 reports

tantamount to bench memos. This despite the fact that

the Rule 183 reports have legally operative effect and

include “presumptively correct” findings of fact and

critical credibility judgments.

Prior to this case, the Tax Court bar and the Courts

of Appeals had no way of knowing that the Tax Court

operated in the way that this litigation has revealed.

That revelation has produced considerable furor in the

Tax Court bar. Many commentators argue that the Tax

Court process violates due process.” In Kanter, Judge

Cudahy dissented at length to agree with that

conclusion. The Seventh Circuit is currently

considering whether to review that issue en banc.

REASONS FOR GRANTING OR HOLDING THE

PETITION

The constitutional question of whether STJ reports

must be disclosed is of exceptional practical and

national importance. Since this Court’s decision in

Freytag, STJs have come to be used more frequently in

some of the financially largest and most complex cases

before the Tax Court. In Freytag itself, the amount at

stake was $1.5 billion. 501 U.S. at 871 n.1. This case

involves one of the most complex cases before the Tax

* See Gerald A. Kafka & Jonathan Z. Ackerman, Fact-Finding in

the Tax Court: Access to Special Trial Judge Reports, 91 Tax

Notes 639, 642 (Apr. 23, 2001); Cornish F. Hitchcock, Public

Access to Special Trial Judge Reports, 2001 Tax Notes Today 199-

41 (Oct. 15, 2001).

Court. The trial took five weeks, the amount currently

at issue is at least $45 million, and witness credibility

was critical on the dispositive, complex issues of intent

and fraud. Since 1983, around 900 cases have been

tried to STJs employing the procedures used here.

Secret trial judge reports violate this Court’s

precedents on the constitutional role of factfinding,

credibility judgments, and appellate review in judicial

and administrative processes. In addition, Tax Court

secrecy of this sort violates the federal statutes

governing Tax Court proceedings and appellate review.

Only this Court’s review can bring uniformity and

transparency to a process of adjudication in the Tax

Court that offends core due process principles, involves

enormous financial and personal stakes, and affects

cases in every Court of Appeals. Resolution of the

issues presented here also has direct implications for the

role of hearing officers, administrative law judges, and

other finders of fact in administrative proceedings and

Article I courts. As Judge Cudahy recognized in the

Seventh Circuit, the constitutional issue raised here

affects “the whole administrative array of the federal

government;” if the decision below is not reversed, it

will lead agencies throughout the government to

conclude that they may “deny transparency when

engaging in like decisional processes” to those the Tax

Court uses here. Kanter, 337 F.3d at 875.

As an alternative to granting the Ballard petition at

this stage, the Court should hold Ballard until the

Seventh Circuit acts upon the en ban: petition in

Kanter. The due process issue is the focus of the 2-1

division within the Seventh Circuit panel. Given the

length and forcefulness of Judge Cudahy’s dissent,

there is obviously strong disagreement in the Seventh

Circuit on the fundamental constitutional issue raised

here.

A brief hold in Ballard will afford this Court the .-

benefit of full lower-court analysis of a substantial

constitutional issue that already is dividing lower-court

judges.”

I. THE TAX COURT’S DECISIONMAKING

PROCESS VIOLATES ELEMENTAL

PRINCIPLES OF DUE PROCESS

The final decision of the Tax Court depends, in

part, on an undisclosed trial judge’s report that has

legally operative effect under the “due regard” standard

of Rule 183. That report is part of the “private record”

of the case, but not the public record. This practice -

inconsistent with every federal agency or court of

which amicus is aware — surely violates due process,

particularly in a tax fraud trial where credibility is

critical.

This process violates a taxpayer’s due process

rights to a fair initial trial and adequate appellate

review. Because constitutionally protected property

and liberty interests are at stake in a tax fraud trial, the

three-part test of Mathews v. Eldridge, 424 U.S. 319,

335 (1976) and United States v. Raddatz, 447 U.S. 667,

677 (1980) must be applied for determining the process

required. That familiar test requires an assessment of

(1) the private interests at stake; (2) the extent to which

decisionmaking accuracy will be enhanced by

* The government acknowledged the importance of co-ordinating

judicial treatment of Ballard and Kanter in its motion for an

extension of time to file its en banc answer in Kanter. See App. at

4a.

1]

providing the procedure at issue; and (3) the public

interests implicated by the procedure at issue. In this

context, the second part of this standard is critical:

whether disclosure of the trial judge’s report will

significantly enhance the accuracy of the overall

decisional process. This Court has long recognized the

common-sense principle that accuracy is substantially

enhanced by including the trier of facts’ findings and

credibility judgments in the public record. Analysis of

the due process issue must be informed by this Court’s

decisions on the legal role of factfinding and credibility

judgments in _—_ judicial and administrative

decisionmaking.

Disclosure of the findings of a trial judge, hearing

officer, or analogous initial factfinder is such a

fundamental premise of fair and proper judicial and

administrative process that amicus has been unable to

find any area in modern law, outside the Tax Court,

where such disclosure is not routine. “As this Court has

stated from its first due process cases, traditional

practice provides a touchstone for constitutional

analysis” of due process issues. Honda Motor Co. v.

Oberg, 512 U.S. 415, 430 (1994) (citations omitted).

Transparency of agency and judicial decisionmaking

has long been a fundamental premise of American

practice. Even the Administrative Procedure Act

(APA) -- which applies to the less formal processes of

agencies, not to courts such as the Tax Court which are

presumably held to even higher standards -- requires

that the record on review must include any preliminary

findings from a hearing officer or administrative law

judge, regardless of whether the agency has de novo

power over facts. 5U.S.C. §§ 557(b), 706. The

12

framers of the APA considered this a_ critical

requirement, particularly “on matters which the hearing

commissioner, having heard the evidence and seen the

witnesses, is best qualified to decide... .”° As Judge

Cudahy noted in Kanter, “[w]hen a reviewing court

reviews agency findings on credibility for substantial

evidence, it is strongly influenced by the preliminary

findings of the ALJ who actually heard the witnesses -

influence that becomes even more significant when an

agency has reversed those preliminary credibility

findings.” Kanter, 337 F.3d at 885.

Congress has also required that the report of a

magistrate judge (who, unlike the STJ here, may be

employed only with the consent of the parties) be

served on the parties and be part of the record. That is

so even though the District Court has greater legal

authority in reviewing a magistrate’s actions than the

Tax Court does in reviewing the “presumptively

correct” findings of its trial judges. Unlike the Tax

Court, which is legally bound to treat its trial judge’s

findings as presumptively correct, a District Court can

make de novo factual findings on certain matters a

magistrate addresses. See 28 US.C. § 636(b)(1).

Similarly, a bankruptcy judge’s initial findings of fact

are part of the record and cannot be set aside upon

review in the District Court unless clearly erroneous;

the Distnct Court must also specifically give “due

regard . . . to the opportunity of the bankruptcy court to

judge the credibility of the witnesses.” Fed. R. Bankr.

P. 8013. The reports of Special Masters, including

findings of fact where required, must be filed with the

* Final Report of Attorney General's Committee on

Admunistrative Procedure 5] (1941).

13

clerk of the court; the parties must be notified of this

filing. Fed. R. Civ. P. 53(e)(1). See also Fed. R. Civ.

P. 52(a).

This Court, Congress, and the lower federal courts

have thus consistently concluded that the accuracy,

accountability, and integrity .of administrative and

judicial proceedings require including in the record the

initial findings of any preliminary factfinder. That is so

even for routine matters in which constitutionally-

protected liberty and property interests are not at stake.

That must be all the more so in a tax fraud trial, in

which constitutionally-protected property and liberty

interests are implicated. Decisionmaking accuracy,

within the meaning of Mathews, demands disclosure of

the Rule 183 report. That would be so even if the Tax

Court were not required to treat the findings in that

report as “presumptively correct.” Given that these

findings do legally constrain the reviewing Tax Court

judge, it is clear that accurate decisionmaking and

review is not only enhanced but only made possible by

disclosing a report that forms the basis for the Tax

Court’s decision. Because the added public cost of

disclosure is de minimis — if transparency is a cost at

all, as opposed to a benefit — Mathews requires

disclosure.

Due process protections for factfinding are even

more enhanced when, as here, credibility is at issue.

Raddatz makes clear the constitutional dimensions

surrounding the overtuming of a trier of fact’s

credibility judgments. Raddatz imvolved the

relationship between the District Courts and magistrates

in suppression-hearing contexts when the magistrate

has conducted a hearing and made credibility

14

judgments. In that context, this Court suggested, and

the lower courts have consistently concluded, that due

process is violated if a District Court overturns a

magistrate’s findings on credibility without hearing the

witnesses. 447 U.S. at 681 n.7; see, e.g., Cullen v.

United States, 194 F.3d 401, 406 (2d Cir. 1999)

(Newman, J.) (due process violated when District Court

without hearing witnesses rejects Magistrate’s

credibility findings regarding plea bargain); Hill v.

Beyer, 62 F.3d 474, 482 (3d Cir. 1995); In re Hipp,

Inc., 895 F.2d 1503, 1519-21 (Sth Cir. 1990). If the

District Judge cannot constitutionally reverse credibility

judgments without hearing the witnesses, it goes

without saying that the magistrate’s report must also be

part of the record. The decision below conflicts with

Raddatz and these decisions of the Courts of Appeals

and for that reason alone requires this Court’s review.

To protect the STJ’s factfinding role on credibility

and other matters, the trial judge’s report must similarly

be part of the record. This Court’s substantive

emphasis on the role of credibility findings in proper

adjudicative processes surely requires the procedural

measure of including in the record the findings and

credibility judgments of the STJ who presided over the

tnal. See Anderson vy. City of Bessemer City, N.C., 470

U.S. 564, 575 (1985) (“When findings are based on

determinations regarding the credibility of witnesses,

[the clearly erroneous standard] demands even greater

deference to the trial court’s findings . . . .”); Universal

Camera Corp. v. NLRB, 340 U.S. 474, 496 (1951)

(“[E]vidence supporting a conclusion may be less

substantial when an impartial, experienced examiner

who has observed the witnesses and lived with the case

a ——

:

:

15

has drawn conclusions different from the Board’s than

when he has reached the same conclusion. ... The

significance of [the presiding judge’s or examiner’s]

report, of course, depends largely on the importance of

credibility in the particular case.”) (Frankfurter, J.).

This case highlights how essential the trial judge’s

findings are to preserve due process and the right to

adequate appellate review. Intent and credibility are

critical elements in this tax fraud case. To establish

fraud, the government must prove by clear and

convincing evidence that underpayment occurred with

the intent to evade taxes that the taxpayer knew or

believed to be owed. This case involves three taxpayers

who the government claims were involved in a

conspiracy to commit tax fraud. But the Court of

Appeals for the Fifth Circuit, in an opinion by Judge

Higginbotham, has already held clearly erroneous the

Tax Court’s fraud judgment in this very case with

respect to one of the purported “co-conspirators.”

Estate of Lisle v. Commissioner, 341 F.3d 364 (Sth Cir.

2003). In addition, in upholding the Tax Court’s

findings against Kanter, the Seventh Circuit at least

eight times gave central importance to the Tax Court’s

purported judgments regarding Kanter’s credibility or

his “intent.” Indeed, the divided panel held that “the

lack of credibility of Kanter’s testimony,” which the

Tax Court purportedly found, was a central justification

for upholding the judgment of fraud. Kanter, 337 F.3d

at 846. Yet undisputed record evidence shows that the

actual trial judge found that Kanter and Ballard were in

fact credible and had no intent to defraud. Those

original findings and the reasons the reviewing judge

gave for overturning them are, at the least, relevant —

16

indeed, they would likely be critical — to federal

appellate review of Tax Court decisions.

Before this case, the Tax Court’s procedure was

itself shrouded in secrecy. Neither the Tax Court rules

nor any other document of the Tax Court of which

amicus is aware publicly described this policy. The

government's briefs remained enigmatic. The Eleventh

Circuit mistakenly thought petitioners’ arguments were

moot because the trial judge ultimately signed the

second document, the final Tax Court opinion.

But the view that the due process issue is moot

misunderstands the essential constitutional challenge

here. That challenge does not depend on whether the

Tax Court reviewing judge and the special tral judge

(who is employed at will by the Tax Court) can

appropriately be characterized as “agreeing” at the end

of the day — even assuming there were any way of

knowing or determining this fact. The Rule 183 report,

legally required, is itself a legally operative document

whose “presumptively correct” findings of fact must be

given “due regard.” There is a world of difference

between a factfinder committing findings to the record,

with those findings then reviewed under the appropriate

standard, and a factfinder negotiating and modifying

those findings in secret with a reviewing judge under an

unknowable standard of review not capable of being

judicially enforced. The integrity of the legal process

— and hence due process itself — depends on a

differentiation between the roles and functions of

different legal actors, such as factfinders and reviewing

judges.

The Tax Court must comply with its own rules,

and the federa] courts must ensure that the Tax Court

17

has done so. See, e.g., Service v. Dulles, 354 U.S. 363,

388 (1957). It is not a lawful process for the trial and

reviewing judges to negotiate their own private

understanding of what “due regard” means, and

whether it has been given, and then make these

determinations unreviewable. No court can just

announce that it “has complied with all legal

requirements” and, by that bare proclamation, insulate

its decision from all appellate review.

Moreover, as Judge Cudahy’s dissent in the

Seventh Circuit analyzed in detail, the structural

imbalance of power between an at-will trial judge and

the Tax Court makes any purported final “agreement”

between trial and reviewing judge too shaky a

foundation on which to rest the due process rights of

taxpayers. In nearly 900 cases since 1983, not a single

disagreement between an STJ and reviewing judge has

ever emerged on the record. Whether this unbroken

pattern reflects genuine agreement or the fact that STJs

serve at the pleasure of the Tax Court is not a question

on which this Court need speculate. Either way, the

Rule 183 report must still be made part of the record.

Il. FEDERAL STATUTES REQUIRE

DISCLOSURE OF THE TRIAL JUDGE’S

FINDINGS

The Tax Court practice also violates the federal

statutes that govern the Tax Court. See 26 U.S.C. §§

7459, 7461, and 7462. Section 7461(a) requires that

“all reports of the Tax Court . . . shall be public

records.” The STJ’s Rule 183 report is such a report, as

the plain language of Rule 183 itself recognizes. See

T.C. Rule 183(b) (requiring preparation and filing of

the “Special Trial Judge’s Report”). The statutory text

18

does not exempt the STJ’s Rule 183 report from the

statute’s disclosure requirements. The plain language

of Section 7461(a) therefore requires that this report be

a public record. Similarly, Section 7459(b) requires

that “[t]he Tax Court shall report in wniting ail its

findings of fact, opinions, and memorandum opinions”

(emphasis added). The Rule 183 report includes

findings of fact and opinions of the Tax Court. In

addition to the plain language of the statutes, the

general purposes of these statutes reflect a not

surprising congressional policy commitment to

transparency in Tax Court adjudications. The Tax

Court’s refusal to disclose the findings of its trial judges

is flatly inconsistent with the text and purposes of these

Statutes. In light of the constitutional problems

otherwise presented, these statutes should be construed,

as Judge Cudahy in the Seventh Circuit also concluded,

to require disclosure of the Rule 183 tnal judge's

report. See Edward J. DeBartolo Corp. v. Florida Gulf

Coast Bldg. & Constr. Trades Council, 485 U.S. 568,

575 (1988).

In addition, Congress has assigned the Courts of

Appeals the duty to review decisions of the Tax Court.

See 26 U.S.C. § 7482. That appellate obligation must

include the ability to review the legally relevant record

as a whole. Findings of fact that are legally binding on

the Tax Court, that form part of the basis for decision,

but that are secret and not part of the record on review

preclude the Courts of Appeals from performing their

Sstatutorily-assigned role. In light of the serious

constitutional questions at stake, the appellate review

Statute should also be construed to require disclosure of

the Rule 183 report.

19

Ili. THE PETITION FOR WRIT OF

CERTIORARI SHOULD, IN THE

ALTERNATIVE, BE HELD

This case and Kanter arise from the same

underlying Tax Court decision and raise the same legal

issues. The Seventh Circuit is scheduled to issue a

determination whether to grant the pending petition for

rehearing in Kanter no later than November 3, 2003

Seventh Circuit Operating Procedure No. 5. This Court

should hold Ballard until the Seventh Circuit acts on

the pending en banc petition. In essence, the appellate

court proceedings reviewing the Tax Court action are

not yet concluded; this Court should await a “final

order” of the Seventh Circuit before acting on the

Ballard petition. Counsel for Ballard have filed a letter

with the clerk of this Court making a similar request.”

A short hold of this petition until the Seventh

Circuit rules on rehearing would give this Court the

benefit of full lower-court analysis and consideration of

the constitutional questions raised here. The petition

for certiorari should therefore be held pending the

Seventh Circuit’s ruling on the Kanter rehearing

petition. If the Seventh Circuit denies the Kanter

rehearing petition, Kanter intends to file a petition for

writ of certiorari expeditiously.

CONCLUSION

The petition for writ of certiorari in Ballard should

be granted. Alternatively, the Court should hold that

* The fraud judgment in Lisle was held clearly erroneous in the

Fifth Circuit, resulting in a reversal of most of the deficiency and

penalties assessed against the Lis/e estates by the Tax Court. The

time in which a petition for certiorari can be filed in Lis/e will

expire on October 28, 2003.

petition until the Seventh Circuit acts on the pending en

banc petition in Kanter. The Court should then

consider the Ballard petition and any petition in Kanter

together.

Respectfully submitted,

Richard H. Pildes

Professor of Law

40 Washington Square South

Vanderbilt Hall #322B

New York, NY 10012-1099

(212) 998-6377

N. Jerold Cohen

Teresa Wynn Roseborough

Matthew J. Gries

Sutherland Asbill & Brennan LLP

999 Peachtree Street NE

Atlanta, GA 30309-3996

(404) 853-8000

Randall G. Dick

Law Office of Randall G. Dick

744 Montgomery St., 3rd FI.

San Francisco, CA 9411]

(415) 288-9433

Counsel for Amicus Curiae

October 6, 2003

APPENDIX

la

APPENDIX A — DECLARATION OF

RANDALL G. DICK

DATED AUGUST 21, 2000

UNITED STATES TAX COURT

Docket Nos. 43966-85, 712-86, 45273-86, 1350-87,

31301-87, 33557-87, 3456-88, 30830-88, 32103-88,

27444-89, 16421-90, 25875-90, 26251-90, 20211-91,

20219-91, 21555-91, 21616-91, 23178-91, 24002-91,

1984-92, 16164-92, 19314-92, 23743-92, 26918-92,

7557-93, 22884-93, 25976-93 and 25981-93

INVESTMENT RESEARCH ASSOCIATES, LTD.,

AND SUBSIDIARIES, et al.,

Petitioners,

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent.

DECLARATION OF RANDALL G. DICK

Randall G. Dick, for his Declaration under penalty of

perjury, pursuant to 28 U.S.C. § 1746, states as follows:

1. Iam of full age, and if called to testify, would be

competent to give the testimony as to the following

matters.

2a

Appendix A

I am counsel for Investment Research Associates,

Ltd. and Subsidiaries and for Burton and Naomi

Kanter.

In its Opinion in this matter filed on December 15,

1999 (T.C. Memo 1999-407) the U.S. Tax Court

concluded, with respect to Issue 1, that payments

made by Hyatt, Frey, Schaffel, Schnitzer and Eulich

(the “Five”) were taxable to the individual

Petitioners and the individual Petitioners were liable

for the fraud additions to tax and penalty with respect

to such income. (Opinion, 226-319).

Subsequent to the issuance of the Tax Court’s

Opinion, Declarant was informed by two judges of

the Tax Court, that in his original report submitted

to the Chief Judge pursuant to Rule 183(b), Special

Trial Judge D. Irwin Couvillion concluded that

payments made by the Five were not taxable to the

individual Petitioners and that the fraud penalty was

not applicable.

In my conversations with the judges of the Tax Court,

I was told the following: That substantial sections

of the opinion were not written by Judge Couvillion,

and that those sections containing findings related

to the credibility of witnesses and findings related

to fraud were wholly contrary to the findings made

by Judge Couvillion in his report. The changes to

Judge Couvillion’s findings relating to credibility

and fraud were made by Judge Dawson.

3a

Appendix A

Judge Dawson's revisions resulted in a finding that

over nine million dollars is taxable to the individual

Petitioners. This finding, based upon credibility of

witnesses, results in liability of the individual

Petitioners for tax, penalties and interest in an

amount in excess of $30,000,000.

1 confirmed the information in paragraphs 4 and 5

above with another judge of this Court, who

informed me that, in faci, the Opinion was changed,

and that to his knowledge, it was the first time the

Tax Court had made an outright rejection of

credibility findings made by a Special Trial Judge.

I was also told by a judge of the Tax Court that the

changed sections of the report were written in such

a way so that wherever there was the “slightest issue

of doubt, it went against” the Petitioners.

I declare under penalty of perjury that the foregoing is

true and correct and that this Declaration is executed in San

Francisco, California on August 21, 2000.

s/ Randall G. Dick

RANDALL G. DICK

4a

APPENDIX B — MOTION FOR EXTENSION OF TIME

IN WHICH TO FILE ANSWER TO PETITION FOR

REHEARING AND PETITION FOR REHEARING

IN BANC DATED SEPTEMBER 12, 2003

IN THE UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Nos. 01-4316, 01-4317, 01-4318, 01-4319. 01-4320

01-4321, 01-4322, 02-1220 )

ESTATE OF BURTON W. KANTER, DECEASED

and NAOMI R. KANTER, .

Petitioners- Appellants

V.

COMMISSIONER OF INTERNAL REVENUE,

Respondent- Appellee

MOTION FOR EXTENSION OF TIME

IN WHICH TO FILE ANSWER

TO PETITION FOR REHEARING

AND PETITION FOR REHEARING IN BANC

Comes now the Commissioner of Internal

and through his counsel, and respectfully oman 7

extension of time in which to file his answer to the petition

for rehearing and petition for rehearing en banc in the

above-entitled consolidated cases for a period of 21 da

from September 23, 2003, to and including October 14, 2003

In support of this motion, counsel states as follows: |

Sa

Appendix B

1. The Commissioner’s answer to the petition for

rehearing and petition for rehearing en banc in the

above-entitled case is currently due to be filed and served on

or before September 23, 2003, and no request for an extension

of time with respect to the answer has previously been sought.

2. The above-entitled cases are among a group of three

cases that arose out of the same proceedings before the

Tax Court, and which involve challenges to the procedures

employed by the Tax Court in its use of special trial judges.

The other two cases are Ballard v. Commissioner (S.Ct. No.

(3-283), and Lisle v. Commissioner (Sth Cir. No. 01-60639

through 01-60642). The Government's response to the

petition for a writ certiorari filed in Ballard is due to be filed

in the Supreme Court on October 6, 2003.

3. As a result of the filing of the petition for a writ of

certiorari in Ballard, the Office of the Solicitor General now

has responsibility over that case. Because the issue in Ballard

and the above-entitled case are essentially identical, it will

be necessary to coordinate with the Office of the Solicitor

General in preparing the response to the petition for rehearing

and rehearing en banc filed in the above-entitled cases.

In order to allow for this coordination, an extension of time

until a short period after the due date for filing of the response

to the petition for a writ of certiorari in Ballard is needed for

the Commissioner to file the answer to the petition for

rehearing and rehearing en banc filed in the above-entitled

cases.

6a

Appendix B

4. In addition, I could not turn to preparation of a draft

answer to the petition for rehearing and rehearing en banc

immediately in any event due to the press of previously

assigned work, including preparation of the brief for

the United States in Crigler v. Commissioner (4th Cir.

No. 03-1861), due on extension on September 18, 2003, and

preparation of the draft brief in opposition to a petition for a

writ of certiorari in Shell Petroleum, Inc. v. United States

(S.Ct. No. 03-283), currently due to the Supreme Court on

September 22, 2003, and for which we anticipate that an

extension of time to October 22, 2003 will be sought.

5. We have today provided a copy of the foregoing

motion, by facsimile (in addition to service thereof), to

Richard H. Pildes, counsel for the appellants.

WHEREFOR, for the reasons stated, the Commissioner

respectfully moves that the time for filing and serving his

answer to the petition for rehearing and petition for rehearing

en banc be extended from September 23, 2003, to and

including October 14, 2003.

s/ Steven W. Parks

STEVEN W. PARKS

Attorney, Appellate Section

Tax Division

Department of Justice

Post Office Box 502

Washington, D.C. 20044

(202) 514-2954

Counsel for the Commissioner

Dated: This 12th day of September, 2003.