Petition for Writ of Certiorari — Sterling Consulting Corp. v. United States, 122 S. Ct. 921 (2002) (No. 01-694)

CD FILED

01 694 NOV -5 2001

+ OFFICE OF THE LEAK

Supreme Court of the United States

STERLING CONSULTING CORPORATION,

a Colorado corporation, as receiver for the

Indian Motorcycle Manufacturing Inc.,

a New Mexico corporation, —

Petitioner,

Vv.

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

Brent T. JOHNSON (

Counsel of Record

a“ JOHN M. TANNER

FAIRFIELD & WOODS, P.C.

1700 Lincoln Street

bi Suite 2400

Denver, Colorado 80203-4524

(303) 830-2400

Attorney for Petitioner

25 FP

i

QUESTIONS PRESENTED

The Tenth Circuit Court of Appeals has held taat the

tax exception of the Declaratory Judgmenit Act, 28 U.S.C. §

2201(a) and the Anti-Injunction Act, 26 U.S.C. § 7421(a)

prohibit the United States District Court for the District of

Colorado from ordering the Internal Revenue Service of the

United States of America to conclude its audit and make its

assessment in the receivership action. This holding raises

three substantial federal questions that warrant immediate

review by this Court:

1. Whether the determination by the Tenth Circuit of

Appeals violates the separation of powers provisions of the

United States Constitution, and therefore conflicts with the

decisions of this Court in Northern Pipeline Const. Co. v.

Marathon Pipe Line Co., 458 U.S. 50, 58-60 (1982), by

ceding an inherent power of the District Court to another

branch of government?

2. Whether the IRS’s voluntary intervention in an in

rem case subjects the IRS to orders of the District Court

entered in the ordinary course of resolving the in rem case

under well-settled principles of law established by this Court

in The Siren, 74 U.S. (7 Wall) 152,154 (1868) and United

States v. The Thekla, 266 U.S. 328, 340-341 (1924)?

3. Whether the facts of this case bring it within either

of two judicially-created exceptions to the prohibition on

declaratory judgments regarding federal taxes under Bob

Jones Univ. v. Simon, 416 U.S. 725, 736-737 (1974)?

li

PARTIES TO THE PROCEEDING

The following individuals and entities are parties to the

proceeding in the court below:

Sterling Consulting Corporation, a Colorado

corporation, as receiver in Jn Re: Indian Motorcycle

Manufacturing, Inc. and Concerning the United

States of America, 95-Z-777 (D-Colo., 1995); and

Internal Revenue Service of the United Stated of

America

CORPORATE DISCLOSURE STATEMENT

Petitioner, Sterling Consulting Corporation, is the

only party that is a corporation. It is not publicly held and no

publicly held company owns any shares of its stock.

eee

TABLE OF CONTENTS

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SII stall tcicdsicthiedtharthsnidicdiveseievoteenpennicuinniiesecwsivoveid ]

a ssnbueemusasensbonnatiing 2

RELEVANT PROVISIONS INVOLVED.............c:cssscssscessssensseeseeeees 2

I IIE sb adceciecvetinagnnebrevrteneenpueiniesbounensosen 2

REASONS FOR GRANTING THE PETITION ..........csscsessseesesesseeees 7

ara ic crcae mi nngemnadinneninebningnn 26

APPENDIX

NE I I ois ssctrcsninseoceenrtenseesodsoeenvesit la

DISTRICT COURT DECISION (5/9/2000)............c0cecceeeees 12a

DISTRICT COURT DECISION (1/10/2000).............:ccceeeeeee 15a

DISTRICT COURT DECISION (7/12/2000).............:cc0ceeeeee 17a

DISTRICT COURT DECISION (3/15/2000)............:ccccseeeees 12a

RELEVANT PROVISIONS INVOLVED..............c:eeccesseesseeeees 27a

iv

TABLE OF AUTHORITIES

CASES

AETNA V. HAWORTH, 300 U.S. 227, 240 (1937)..........cecs0ees 20

ALVARADO V. J.C. PENNEY Co., 997 F.2D 803, 805 (10TH

CO Fae wish sancitnitiiiabinatiltac han iasichsisdatephenitevodbasentnuies 1,23

BALDWIN, 291 U.S. 610, 615 (1934)

BARTON V. BARBOUR (1881) 104 U.S. 126.............cscsssesseeees 8

Bos JONES UNIV. V. SIMON, 416 U.S. 725, 736-737 (1974)

ocpivinnagniiamis cas Un ic aa 24, 29

BOWSHER V. SYNAR, 478 U.S. 714, 721 -727 (1986)............. 8

C. V. v. THE M/T RESPECT, 89 F.3D 650,656 (9TH Cir. 1996)

cocotevbiesiimssianiibidaasiieaibcicuiieiiaumia seine sie Tia clas 1, 10, 23

CHICAGO BANK OF COMMERCE V. MCPHERSON, 62 F.2D 393,

FOG (GT, Fa ceviecacnsibichsascstiasideodesestsicbecsdeshabioatine 13

COMMISSIONER OF INTERNAL REVENUE V. FIRST SECURITY

BANK OF UTAH 405 U.S. 394, 400 (1972) .........:ccccecseeeeeee 25

COMMONWEALTH TRUST Co. V. BRADFORD 297 U.S. 613

CG us: sescessiaicsinetbnssiociisncssilamcuieatlctiiaiaddeliataieiia dealin aiiike 13

DOYNE V. SAETELLE, 112 F.2D 155, 162(8™ Cir. 1940)..... 16

ELIA V. CONNET, 908 F.2D 521, 523, 526 (9TH CiR. 1990).. 24

FUTURES TRADING COM'N V. SCHOR, 478 U.S. 833, 850-51,

EE CIEE seihissiniicacinnsccsiecssdipaitesaaictiibaiciiaitanitibaiti insists 9

GENECOV V. WINE, 109 F.2D 265, 267 (8TH Cir. 1940)...... 17

HARR V. PIONEER MECHANICAL CORPORATION, 65 F.2D 332,

FSF CH Ns. RED sicvsciienditstdatachidaitehccnctiniisiineiatiaiidasactiabiesapa 13

HENO V. FEDERAL DEPOSIT INS. CorP., 996 F.2D 429 (17

COU, FI ee iisiinssicinssccsgcahscecncsincaiinssannciacptins dela tases 22

IN RE CUYAHOGA FINANCE Co., 136 F.2D 18 (6TH Cir. 1943)

scissile eascaieilciaaieca clipes adieeists halides taiaamaseaaia . 16

IN RE STATE OF CAL. V. REGAN, 641 F.2D 721, 722-23 (9TH

SR: BERR P iniccesivsinecscciininhdiarscinitanieteailaiilan atiaheaiadttce teaser 24

INS v. CHADHA, 462 U.S. 919, 951 (1983)...........cccccccseeessees 8

INS v. St. Cyr, U.S. __, 121 S. CT. 2271, 2290 N.44

Vv

IRVING TRUST CO. V. FLEMING, 73 F.2.3:° 3, 427 (4TH Cir.

CIN iiiaiscsissiiskatasissteicesnibctentepainsistcascesdetanndpinplicerelionesesiacss 17

KESUN Ol! Co. v. HAMILTON, 61 F.2D 215, 219 (9TH CIR

DO inti asdsiinisasiaccsticlibieicntashtebbectedssesoninsisenveibvnilonviebiosiadetve 17

LINK V. WABASH RAILROAD Co., 370 U.S. 626, 630-31

CP licshaiicciicicacistllasideatbinidiciiininttediediecisnecsouiosevivesbathests 18

MAGNO V. UNITED STATES, 636 F.2D 714 (D.C. Cir. 1980) 22

MILLER V. TONY AND SUSAN ALAMO FOUNDATION, 134 F.3D

DEG PEG TIER: FO iecitticsvcineiiticceciacisiasnctisttatcesboncicn 10

MILLER V. TONY AND SUSAN ALAMO FOUNDATION, 975 F.2D

SEF CN a TO assis is ii cialnsencsctivticesernavsevsoneniebisiveseces 10

NIXON V. ADMINISTRATOR OF GENERAL SERVICES, 433 U.S.

GES: BE ETD iasctetschctiinchtciscnsicntsinsivitbsenisstdevserenveceees 9

NORTHERN PIPELINE CONST. CO. V. MARATHON PIPE LINE

CO. S58 UG: SB; SS-GO (IGG Z) ccccscsscsesccccocsccrccosesceseeosssces 29

ORCUTT V. CRAWFORD, 85 F.2D 146, 147 (10TH Cir. 1936)17

PHELAN V. MIDDLE STATES OIL CORPORATION, 15 F.2D 88

CE FI witsiesctnsinctcssitchecssesivasinnionsnensiienenscestecsiess 12

RIEHLE V. MARGOLIES, 279 U.S. 218 Se akchaniaesinciecnieds 13

SCHILLING V. ROGERS, 363 U.S. 666, 677 (1960) ............... 20

SIREN, 74 U.S. (7 WALL) 152,154 (1868)............:c:scssseseee 29

SKELLY V PHILLIPS, 339 U.S. 667, 671 (1950) ............:e0000 20

SOUTH CAROLINA V. REGAN 465 U.S. 367, 374 (1984)....... 25

TAYLOR V. PRODUCERS PIPE & SuPPLY Co., 114 F.2D 785,

PE CE tie siniceccosectccpvsecesenciceidéchidornsereivacesesens 17

TCHEREPNIN V. FRANZ, 485 F.2D 1251, 1255-56 (7TH CIR.

Fa isaac vans iduecodciiciibinslanbbasdpapconiaieedetasinsec i itenetabiotaees 16

TEXAS Co. Vv. HAUPTMAN, 91 F.2D 449, 454 (9TH Cir. 1937)

PST CO oO PUI NS Ree IONE PONCE NDIA IMD OD SBS SS ME IT RE 17

THOMAS V. UNION CARBIDE AGRIC. PRODUCTS Co., 473 U.S.

I EE 5 Pe CED vinkitosessreractatintionbabinmentscssnbitaaineriice 9

TOLEDO, ST. L. & K.C.R. Co. v. CONTINENTAL TRUST Co.,

OS FSO EBC, TIO D cncetinertitctcearacesbicieapeieensnetuateirs 17

U.S. v. SMALLWOOD, 443 F. 2D 535, 539 (8TH Cir. 1971),

CERT. DENIED, 404 U.S. 853 (1971)........ssscsssssssssersserseeees 17

UNITED STATES V. AMERICAN BELL TELEPHONE, 159 U.S.

BO a i tiicsinsishohaivoniiicthevipibiecdinictivipsestomsenstaibecneseis 22

Vi

UNITED STATES V. MIODLE STATES OIL, 18 F.2D 231 (8TH

Es, a eemeEE Nee Ones 12

UNITED STATES V. NIXON, 418 U.S. 683, 713 (1974)........004 9

UNITED STATES V. STATE OF OREGON, 657 F.2D 1009, 1015-

BEG Cre Ci Fie i itscinsicnstrencamnenstacisiinsnceneninigeinenn 1, 23

UNITED STATES V. TABOR COURT REALTY CorpP, 943 F.2D

ea See © NG Rs: BOT Dicdiiiichacpcesintgonsssepnasceqnateborereqenitinnane 16

UNITED STATES V. THE THEKLA, 266 U.S. 328, 340-341

CTI sc ecicsvasesesennenenicisnianesentgrintsianneniapeinniivavinintemienen 29

WABASH RAILROAD V. ADELBERT COLLEGE, 208 U.S. 38, 54

Ca sicisccncsnseisencetretuinedtiteinendiarcaaiunicppeldaiiieetets 15, 20, 23, 24

WARDER V. BRADY, 115 F.2D 89 (4TH CIR. 1940).........00006 17

WHITE V. EWING, 159 U.S. 36, 39 (1895)..........ccceeseeees 15, 18

STATUTES

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DEES CB GF OO wesierisaceravietinintatoricabtisioiabiomniniinenees 25

Se Eas 0 FE hacen ctabinsevnteeeniecemnnsnreinitnmnsohionnnntt 1,9

EITC © Pr ciecscehsccccinersssitenivscinnticenioencnicahansetinbdtaciee 29

Fa SN isadschccsh nick ecules nioeemcinsinccdinbins GE eas I 11

ET sicinciinwviceveninitisaviininemnienaitenionn aid Latautaaies 14, 17

8 Oo itn ianiccdinvianteviniisvienaenitciiianeniinlanta 14,17

BA A BIO si ccertitintnnvinieivesinn sevsensbovinbniieabieoilivents 7, 8,24

Fe CED in tevetnissvcneniinnsdcanreciniititvvinseentialabieiaaniant 2

Fs BT issecinctitesevnevitnniinnsavineinnmnbiacniiniatieeintunis 3

Fe Fi nitclatcrinsnsiichivnenicbincinnisinaieevntieinhebanicn 2

DEB, BASRA cicdccceiecceensivtencsttncsnninhinsiaeatentanvitianicti 2

Silas ABT hits ntceennecseiscenrciestbiaviincetiinniomniniaianenaa 15

Bs 6 SA cactininincennsiinniacrinintmnincerauntinns 1, 9, 29

Fee Fe vais ittinnhen esshieviniicdtnnincheaiaensiinntaannatniinians 14

po SEE de | Se a eeOR Ry REMI OES Se OOO, A 13

a

PETITION FOR A WRIT OF CERTIORARI

_ §terling Consulting Corporation, (the “receiver”)

respectfully prays that a writ of certiorari be issued to review

the judgment of the United States Court of Appeals for the

Tenth Circuit in this case. Relying on the “tax exception” of

the Declaratory Judgment Act, 28 U.S.C. § 2201(a) (the

“Act”) and the Anti-Injunction Act, 26 U.S.C. § 7421 (a), the

court of appeals decided that the United States District Court

for the District of Colorado (“District Court”) had no

jurisdiction to establish procedures requiring the IRS to

address the federal income tax liabilities of the corporation

subject to the receivership even though the IRS had

intervened in the action. That decision is contrary to well-

established principles governing in rem actions recognized

long ago by this Court. It conflicts with decisions of Courts

of Appeal for the Ninth Circuit; Cororporacion Mexicana de

Servicios Maritimos, S. A. di C. V. v. The M/T Respect, 89

F.3d 650,656 (9" Cir. 1996); United States v. State of

Oregon, 657 F.2d 1009, 1015-1016 (g" Cir. 1981), as well as

the Tenth Circuit decision in Alvarado v. J.C. Penney Co.,

997 F.2d 803, 805 (10" Cir. 1997). It should therefore be

reversed.

OPINION BELOW

The decision of the court of appeals is reported at 245

F.3d 1161 (10™ Cir. 2001).

The orders of the District Court from which the IRS

appealed are not reported.

2

JURISDICTION

The judgment of the court of appeals was entered on

April 10, 2001. The Receiver’s Motion for Rehearing by

Panel an En Banc was denied on August 7, 2001. This Court

has jurisdiction under 28 U.S.C. § 1254(1). The District

Court in the underlying case had jurisdiction pursuant to 28

U.S.C. § 1332.

CONSTITUTIONAL PROVISIONS

AND STATUTES INVOLVED

See Appendix

STATEMENT OF THE CASE

A. The Proceeding Below.

In 1995, Eller Industries, Inc. commenced this action

to appoint a receiver for Indian Motorcycle Manufacturing,

Inc. (““IMMI”). The Colorado District Court had jurisdiction

under 28 U.S.C. § 1332(a)(1) and appointed Petitioner

receiver (the “receiver”) of the corporation and its assets.

IMMI was one of six American companies with a colorable

claim to the famous Indian Motorcycle trademark (the

“Trademark”). In addition to IMMI, the Receiver obtained

de facto control over two of the other companies with

colorable claims to the Trademark. The three remaining

companies with colorable claims to the Trademark were in

bankruptcy (the “Bankruptcy Cases”), and were

Administratively Consolidated before the United States

Bankruptcy Court for the District of Massachusetts (the

“Massachusetts Bankruptcy Court”). With the approval of

the Colorado District Court and the Massachusetts

Bankruptcy Court, the assets of the Receivership Estate and

- 3

the Bankruptcy Cases were sold in early 1999 for cash and

other consideration as a single lot to a single purchaser.

Two years prior to the sale, the IRS moved to

intervene in the Receivership Action pursuant to F.R.C.P. 24,

claiming intervention was necessary “to protect its legally

recognizable interest in the assets of defendant.” The IRS

motion and the order allowing intervention had no condition

or limit to its status as intervenor on its face. After becoming

a party to the Receivership Action, the IRS participated in

hearings before both courts concerning the disposition of the

sale proceeds and admitted it was subject to the personal

jurisdiction of the District Court.

As more fully explained below, the IRS appeal to the

Tenth Circuit arose from orders of the District Court granting

the receiver’s motion to have the District Court approve

federal income tax returns for certain tax years of IMMI and

a related corporation, Indian Motor Co. (“Motor”). The IRS

objected, claiming that the District Court lacked jurisdiction

to grant this relief. After notice and hearing, the District

Court overruled the IRS’s objections; determined it had

jurisdiction; directed the IRS to respond to the merits of

receiver’s motion, but also found the jurisdictional issue was

ripe for appeal under 28 U.S.C. § 1292(b) (App 12-19). The ©

court of appeals granted the IRS’s petition to take an

interlocutory appeal and thereafter reversed the District

Court.

B. Statement of Facts

In February 1999, with the approval of the Colorado

District Court and the Massachusetts Bankruptcy Courts, the

combined assets of the Receivership Estate and Bankruptcy

Cases were sold for approximately $18 million and other

considerations as a single lot to a single purchaser. An

4

escrow of $3.5 million was established to pay claims in the

Bankruptcy Cases, subject to certain conditions. The tax and

related jurisdictional issues arose from the following events

in the Colorado District Court and Massachusetts Bankruptcy

Court:

In September 1999, the Massachusetts Bankruptcy

Court approved a settlement between the Receiver and the

trustee in the Bankruptcy Cases (the “Trustee”) regarding the

allocation of the sale proceeds. As a part of the settlement it

was agreed that, in addition to federal tax returns for the

Receivership Estate, the Receiver would ask the Colorado

District Court approve the federal tax returns of the

Bankruptcy Cases on an expedited basis.

On October 29, 1999, the Receiver requested an order

from the Colorado District Court determining that no

additional taxes were owed by the Bankruptcy Cases (“First

Tax Motion”). The IRS objected asserting lack of

jurisdiction. Its objection was overruled, first by the

Magistrate Judge supervising the Receivership on January 10,

~ 2000 and then by the Colorado District Court on March

16,2000.

Before the Colorado District Court order of March 16,

2000, the following occurred in the Massachusetts

Bankruptcy Court:

1. On December 22, 1999, the Trustee moved for

Massachusetts Bankruptcy Court approval of his final

accounts so he could make distributions to creditors before -

the end of 1999 and thereby avoid the issue of income taxes

derived solely from holding the sale revenues beyond the

year end of the Bankruptcy Cases (“Trustee’s Account

Motion”) As a part of that motion, and pursuant to the

September 1999 settlement, the Trustee was obligated to

distribute $1.2 million to the Receiver to be held in escrow

Ss

pending resolution of the tax issues facing the Bankruptcy

Cases.

y The IRS objected to the Trustee’s Account

Motion at a hearing before the Bankruptcy Court on

December 28. Because it claimed the tax liabilities of the

Bankruptcy Cases were approximately $1.2 million, the IRS

asserted the $437,000 escrow was insufficient.

3. On December 30, the Massachusetts

Bankruptcy Court entered findings of fact and conclusions of

law approving the Trustee’s final accounts, as modified by

the agreement of the Trustee and Receiver and, inter alia,

ordered the Trustee to deliver $1.2 million in escrow to the

Receiver. The escrow was to be distributed first to the IRS to

pay income taxes of the Bankruptcy Cases, then to

bankruptcy creditors until paid in full, and then to the

receiver (“Final Accounts Order”). The Final Accounts

Order repeated the receiver’s agreement “to prosecute the

[First Tax Motion] in an expeditious manner and to seek a

determination of the non-liabilities of the [Bankruptcy Cases]

for any taxes to the IRS.”

4. On January 7, 2000, the IRS appealed the

Final Accounts Order to the Massachusetts Bankruptcy

Appellate Panel for the First Circuit (the “BAP”) and later

prevailed. In April 2001, the BAP reversed the Final

Accounts Order, holding that the Massachusetts Bankruptcy

Court could not cede jurisdiction to determine the tax

liabilities of the Bankruptcy Cases to the District Court and

that the Massachusetts Bankruptcy Court lacked jurisdiction

to estimate their tax liabilities before the IRS had made an

assessment.

Back in the Colorado District Court, on March 3,

2000, while the IRS appeal was pending, the receiver filed its

Second Tax Motion and a supporting affidavit of its

6

president. That motion sought an order from the Colorado

District Court that the federal tax returns of IMMI and Motor

for 1993 through 1999 were true and correct and that the

receiver owed no taxes other than as stated in the returns.

The orders of the Magistrate Judge and later the Senior Judge

granting the Second Tax Motion produced the IRS appeal to

the Tenth Circuit and ultimately this petition.

The IRS’s objection to the Second Tax Motion

asserted the District Court lacked subject matter jurisdiction

because the IRS had not waived sovereign immunity.

Alternatively, if the court had jurisdiction, the IRS sought

additional time to respond. On May 10, 2000, the Magistrate

Judge overruled the IRS jurisdictional objection and ordered

it to respond to the merits by August 31, 2000. Ifthe IRS did

not conclude its consideration of the tax returns by that date,

the returns would be deemed to have been completed

correctly with no further tax liability.

The IRS objected to the Magistrate’s ruling to the

District Court. The District Court overruled the IRS’s

objection to the May 2000 order on July 17, 2000. In doing

so, the District Court found and concluded:

A. Until the tax liabilities of the Bankruptcy

Cases, IMMI, and Motor were determined, it would not be

feasible to wind-up the receivership.

B. The Magistrate Judge’s May 2000 Order

“represents an effort to resolve the question of the tax

liabilities so that the receivership can be terminated.”

+i “When the United State intervened in this

case, it subjected itself to the Court’s jurisdiction with regard

to the receivership. As IMMI and Motor are property of the

Receivership Estate, the Court has jurisdiction to order the

J

IRS to determine the tax liability of IMMI and Motor within

a reasonable deadline.”

REASONS FOR GRANTING CERTIORARI

I. THE TENTH CIRCUIT OPINION IS IN

CONFLICT WITH THE SEPARATION OF

POWERS REQUIREMENTS OF THE UNITED

STATES CONSTITUTION. AND IS CONTRARY

TO PRIOR OPINION OF THIS COURT AND

OTHER CIRCUIT COURTS OF APPEAL.

At bottom, this is a separation of powers case.

Receiverships are strictly judicial branch events and, as such,

receivership actions are not subject to interference from the

other two branches. Incursions into the exclusive judicial

domain of receivership actions by the executive branch has

not been tolerated by this Court previously, and should not be

tolerated now.

Only once has Congress altered the District Courts’

unfettered control over receiverships and the parties to

receiverships by statute, and it did this by expanding the

jurisdiction of other courts and allowing them to hear cases

against receivers in certain, limited circumstances. 28 U.S.C.

§ 959 was enacted to resolve a conflict between the

jurisdiction of District Courts in receiverships and the

Seventh Amendment right to a trial by jury.’ If Congress

'The second sentence of F.R.C.P. 66 (which codified the power of a

District Court to appoint a receiver) reads: “The practice in the

administration of estates by receivers or by other similar officers

appointed by the court shall be in accordance with the practice heretofore

followed in the courts of the United States or as provided in rules

promulgated by the district courts.” This facially simple sentence is, in

fact, quite complicated, and contains law that is not apparent from the

face of the section. The annotations that follow Rule 66 state: “The

second clause of the sentence merely incorporates the well-known and

were ever to try to narrow receivership court jurisdiction it

would violate the doctrine of separation of powers.

The Constitution nowhere contains an express

injunction to preserve the boundaries of the three broad

powers it grants. This Court has developed two separate

doctrines for resolving separation of powers issues

commonly referred to as the “formalist” and the “functional”

doctrines.

The formalist approach emphasizes the necessity to

maintain three distinct branches of government through the

drawing of bright lines demarcating the three branches from

each other determined by the differences among legislating,

executing, and adjudicating.” The functional approach

emphasizes the core functions of each branch and asks

whether the challenged action threatens the essential

general rule that, absent statutory authorization, a federal receiver cannot

be sued without leave of the court which appointed him, applied in the

federal courts since Barton v. Barbour (1881) 104 U.S. 126. See also |

Clark on Receivers (2d ed.) Sec. 549.”

The rule in the Barton case referred to in the annotation is the broad rule

that receivers may only be sued in the court that appointed them. The

tule in Barton was iron-clad, even to the point that it defeated the right of

a plaintiff injured by a receiver to have the claim heard by a jury or heard

in the district where the tort occurred. In enacting 28 U.S.C. § 959,

Congress provided a means for a very limited universe of plaintiffs to sue

receivers in foreign jurisdictions (i.e., outside the jurisdiction of the

appointing court), and without leave of the appointing court.

*The pressure inherent within each of the separate branches to exceed the

outer limits of its power . . . must be resisted. Although not expressly

sealed from one another, the powers delegated to the three Branches are

functionally identifiable. INS v. Chadha, 462 U.S. 919, 951 (1983);

Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S.

50, 64-66 (1982) (plurality opinion); Bowsher v. Synar, 478 U.S. 714, 721

-727 (1986).

9

attributes of the legislative, executive, or judicial function or

functions.”

The Tenth Circuit Opinion runs afoul of the

ion of powers requirements of the Constitution

regardless of which doctrine is utilized. The Court has

already held that the power of the District Court to appoint a

receiver and to administer the receivership estate is an

inherent power of the District Court. See discussion in

Section II, below. The Tenth Circuit Opinion ignores this

and assumes Congress, without any thought or legislative

history, intended to and succeeded in altering this Court’s

rulings that a District Court supervising a receivership has

inherent authority to issue any order needed to collect,

preserve, or distribute assets of the receivership.

As correctly pointed out by the Tenth Circuit Court’s

Opinion, the Declaratory Judgments Act, 28 U.S.C.

§ 2201(a), and the Anti-Injunction Act, 26 U.S.C. § 7421,

(collectively, the “Tax Limitation Acts”) both operate to

draw a bright line of demarcation between the judicial branch

and the executive branch by imposing a limit on the District

Court. The Tax Limitation Acts prohibit the District Court

from an incursion into the business of the IRS (i.e., prohibit

the District Court from declaring taxes before the IRS has

completed its work and assessed a tax). They maintain the

functional integrity of each branch. This would be the end of

the story, and the Tenth Circuit Opinion would be correct,

except for the intervention in an in rem case by the IRS.

>Commodity Futures Trading Com'n v. Schor, 478 U.S. 833, 850-51, 856-

57 (1986); Thomas v. Union Carbide Agric. Products Co., 473 U.S. 568,

587 , 589-93 (1985). The Court had first formulated this analysis in cases

challenging alleged infringements on presidential powers, United States v.

Nixon, 418 U.S. 683, 713 (1974); Nixon v. Administrator of General

Services, 433 U.S. 425, 442 -43 (1977), but it had subsequently turned to

the more strict test. Schor and Thomas both involved provisions

challenged as infringing judicial powers.

10

At its sole election, however, the IRS may abandon

the insulation provided by the Tax Limitation Acts and

submit itself and its issues to the District Court for

determination. This may be done directly (e.g., asking the

District Court for relief) or indirectly (e.g., by assessing a tax

in a pending bankruptcy case or receivership case). In this

case, it elected the former by intervening in an in rem case.

By intervening in an in rem case, the IRS intervened for all

purposes related to the res and waived sovereign immunity

for all purposes related to the res.* To allow the contrary is

“The receiver recognizes that in an in personam case the IRS can

intervene for a limited purpose. In an in rem case, however, intervention

by a sovereign is waiver of sovereign immunity for any purpose related to

the res. United States v. The Thekla, 266 U.S. 328, 339-340 (1924)

(“When the United States comes into Court to assert a claim it so far takes

the position of a private suitor as to agree by implication that justice may

be done with respect to the subject matter.”); The Siren, 74 U.S. (7 Wall)

152,154 (1868) (“[W]hen [the United States] proceed in rem, they open to

consideration all claims and equities in regard to the property libeled.

They then stand in such proceedings, with reference to the rights of

defendants or claimants, precisely as private suitors, except that they are

exempt from costs and affirmative relief against them, beyond the

demand or property in question.”). See also Cororporacion Mexicana de

Servicios Maritimos, S. A. de C. V. v. The M/T Respect, 89 F.3d 650,656

(9" Cir. 1996) (by intervening in an in rem action agency of the Mexican

Government waived sovereign immunity for all issues related to the res).

It is important to note the IRS’s intervention waives sovereign immunity

to the res of the case in which it intervened. The most recent Court of

Appeal explications of The Siren are found in Miller v. Tony and Susan

Alamo Foundation, 134 F.3d 910, 916 (8" Cir. 1998) (Miller 11), which

succeeded Miller v. Tony and Susan Alamo Foundation, 975 F.2d 547 (8"

Cir. 1992) (Miller J). In Miller I, the Millers had seized certain property

and had it sold at auction to satisfy a judgment against the Foundation.

The IRS had intervened, claiming a superior right to the $340,000

proceeds of the sale. The District Court had determined that Millers’

claims prevailed over the IRS, and the IRS had appealed to the Eighth

Circuit. The Eighth Circuit affirmed.

Separately, the IRS had seized other property (the “Fort Smith/Nashville

Property”) owned by the Foundation, and the Millers had sought in

District Court for that property to be turned over to them. In this matter,

11

to allow the IRS to defeat the entire purpose of the

receivership actions—for a Court to determine all claims to a

res an then transfer it free and clear to a buyer—and thereby to

which resulted in Miller I], the IRS argued that such was not the proper

procedure for challenging the IRS’s seizure, and that the United States

had not waived sovereign immunity regarding the Fort Smith/Nashville

Property. The District Court ruled that the prior intervention in the earlier

proceeding regarding the $340,000 sale proceeds (Miller !) constituted a

waiver of sovereign immunity regarding the Fort Smith/Nashville

Property.

The Eighth Circuit reversed in Miller I], holding that the IRS intervention

in the $340,000 matter, while a waiver of sovereign immunity for that

matter, did not constitute a waiver of sovereign immunity regarding the

Fort Smith/Nashville Property:

We acknowledge the long-established principle “that

when [G]overnment itself seeks its right at the hands of

the court, equity requires that the rights of other parties

interested in the subject-matter should be protected.”

Thus, when the United States brings a claim in court, it

“‘waives immunity as to claims of the defendant which

assert matters in recoupment-arising out of the same

transaction or occurrence which is the subject of the

Government’s suit.”” But this waiver does not extend

“beyond the property in controversy.” The Siren, 74

U.S. (7 Wall.) 152, 154 (1868). Those claims remain

barred absent an unequivocal statutory waiver of

sovereign immunity.

These principles defeat the Millers’ argument. The

“property in controversy” the government intervened to

claim was $340,000 in proceeds from the Millers’

execution sale. Under the cases just cited, and more

importantly under 26 U.S.C. 7424, the district court

properly exercised jurisdiction over the Millers’ adverse

claim to that sum. It is equally clear, however, the

government’s intervention did not give the district court

jurisdiction over the Millers’ garnishment action on the

Fort Smith/Nashville property. The Millers’ execution

sale proceeds and the Fort Smith/Nashville property are

different matters, as we have observed before. (Some

citations omitted).

12

violate the seperation of powers requirements of the :

Constitution.

fl. THE TENTH CIRCUIT OPINION

INCORRECTLY RESOLVES A SEPARATION

OF POWERS QUESTION BY CEDING A

WELL-RECOGNIZED INHERENT POWER OF

THE DISTRICT COURT WITHOUT ANY

SHOWING CONGRESS INTENDED TO DO SO.

The Opinion below turns upon the assumption that

Congress granted to District Courts supervising receiverships

“his is not unfair to the IRS. All it need do to avoid this rule is not

intervene as a party in a receivership. In this case, it had already filed a

levy and gained nothing by its intervention.

*This same separation of powers issue has arisen repeatedly, the IRS

continuing to disregard orders on the subject by the Courts. For example,

United States v. Middle States Oil, \8 F.2d 231 (8th Cir. 1927), (cited as

recently as 1993) holds:

Counsel! for the United States insist in their argument

that the Court had no power to require the United States

to file its claim within any particular time, and refer to

the well-known doctrine that the United States is not

bound by any statute of limitations. ... The

government insists that it has the right to file its claim

for taxes apparently at any time it chooses, regardless of

= repeater di notcrsite si og pam

We suo wb detnon Wie Ge daant seed Gat inthe Ge

show cause order. [18 F.2d at 238 (emphasis added). ]}.

See also Phelan v. Middle States Oil Corporation, 15 F.2d 88 (N.D. Tex.

1926) (where receivership was held open an extra year at the request of

the Unites States Attorney so that taxes could be quantified, but still were

not quantified, proper to pay all creditors over objection of IRS).

13

the authority to issue declaratory relief by enacting the

Declaratory Judgments Act, 28 U.S.C. § 2401 (the “Act”).

As the Act expressly excludes the authority to issue

declaratory relief regarding taxes, the Court of Appeals

reasoned, the District Court lacks authority to do so.

The error by the Court of Appeals was in failing to

realize that District Courts supervising receiverships have

inherent power to issue declaratory relief and had been

exercising it long before the Act was passed. As Congress

did not give the Courts this power, and since there is no

reason to believe it was intending to limit this inherent power

when Congress amended the Act to exclude tax issues, the

Court of Appeals should have affirmed the District Court

Order that the IRS (which had intervened in the Receivership

Action) complete its assessment of any taxes due by the

Receivership Estate by a reasonable date or be barred from

assessing them later.

A. In this Jn Rem Action the District Court had

Power to Issue Declaratory Orders, any other

Provision of Title 28 Notwithstanding.

Prior to the passage of the Act receivership courts

routinely entered declaratory relief.’ They could do so

because, once a receivership was established, a District Court

had inherent power to issue any order necessary to wind-up a

receivership. E.g., Riehle v. Margolies, 279 U.S. 218 (1929).

” E.g., Commonwealth Trust Co. v. Bradford 297 U.S. 613 (1936)

(entering declaratory judgment prior to the passage of the Act); Harr v.

Pioneer Mechanical Corporation, 65 F.2d 332, 335 (2™ Cir. 1933) (court

sitting in equity had inherent power to issue declaratory relief ancillary to

case in chief); Chicago Bank of Commerce v. McPherson, 62 F.2d 393,

394 (6 Cir. 1932) (court sitting in equity had inherent power to issue

declaratory relief ancillary to case in chief despite “federal rule against

declaratory judgments.”).

14

Riehle, still the leading case on receiverships, questioned

whether a District Court had the authority to enter an

injunction against a state court to prohibit its interference

with the receivership being supervised by the District Court.

At the time, the Judicial Code (then Title 26) expressly

prohibited such an injunction.* The District Court entered an

injunction anyway, and this Court affirmed, stating that a

District Court supervising a receivership had the power to

issue:

any order .. . necessary for the preservation,

collection, and distribution of the assets. . .

.And it may, despite section 265 of the

Judicial Code (28 U.S.C. § 379), issue under

section 262 (28 U.S.C. § 377), or otherwisé,

all orders necessary to protect from

interference all property in its possession

exclusive jurisdiction to determine all judicial

questions concerning that property.

Thus in Riehle, just as in this case, a statute expressly

restricted the federal courts’ power. The fact that Riehle was

a receivership, however, made that restriction inapplicable.

Under Riehle, a receivership court has inherent power to

enter “any order necessary for the collection, preservation,

and distribution of assets.” . This is true notwithstanding “any

provision of Title 28 to the contrary.” The Court of Appeals

Opinion in the case at bar squarely conflicts with Riehle, and

* “Section 265” of the judicial code, the current version of which is 28

U.S.C. § 2283, provided at the time of Rieh/e: “The writ of injunction

shall not be granted by any court of the United States to stay proceedings

in any court of a State, except in cases where such injunction may be

authorized by any law relating to proceedings in bankruptcy.” 36 Stat.

1162, Ch. 231, A 265 (1911). Riehle was not a bankruptcy, it was a

receivership, thus the express exception did not apply and the statute, on

its face, did apply.

15

squarely conflicts with hundreds of years of receivership law

which are to the same effect.

Riehle was not new receivership law. Wabash

Railroad v. Adelbert College, 208 U.S. 38, 54 (1908) held:

When a court of competent jurisdiction has, by

appropriate proceedings, taken property into

its possession through its officers, the property

is thereby withdrawn from the jurisdiction of

all other courts. ... For the purpose of

avoiding injustice which might otherwise

result, a court during the continuance of its

possession has, an incident thereto and as

ancillary to the suit in which the possession

was acquired, jurisdiction to hear and

determine all questions respecting the title, the

possession or the control of the property.

Once a receivership is established, it is necessary that

a receivership court have such jurisdiction; otherwise, a

receivership might never be wound up.” As a result, for

hundreds of years receivership courts have exercised

jurisdiction beyond what is provided for in Title 28 or,

indeed, provided for in Article III of the United States

Constitution. See also White v. Ewing, 159 U.S. 36, 39

~ (1895):

[Where an insolvent corporation is placed in

the hands of a receiver of the circuit court,

*Much of the development of what was originally called auxiliary,

pendent, or ancillary jurisdiction and now called supplemental

jurisdiction, as codified in 1990 at 28 U.S.C. § 1367, was driven by

receivership cases. E.g., Wabash R. Co. v. Adelbert College, 208 U.S. 38

(1908). The reason behind this is obvious: If the Court has possession of

a thing or res, it must be able to address all claims to that res, else it will

not be able to deliver clean title when the in rem proceeding is concluded.

16

such appointment draws to the jurisdiction of

that court the control of its assets, so far as

persons having claims to participate in the

distribution of such assets are concerned... .

[Such] . . . parties must go into that court in

order to assert their rights, prove their

demands, and receive what ever may be due

them, or their share or interest in the estate.

[T]he Court proceeds upon its own authority

to collect the assets of an estate, with the

administration of which it is charged; and, if

the receiver in such cases appears as a party to

the suit, it is only because he represents the

court in its inherent power to wind up the

estate of an insolvent corporation, over

which it has by an original bill obtained

jurisdiction. (Emphasis added.)'® When

Lest the Court think Riehle, Wabash Ry., White, et al. are aberrations,

there are numerous other cases which contain the same general principal,

i.é., a court acting in rem may enter any order necessary to collect,

preserve, and distribute assets. Ex parte Baldwin, 291 U.S. 610, 615

(1934) (court may issue injunction to protect its jurisdiction from

interference due to general principle that, where a court of competent

jurisdiction has, through its officers, taken property into its possession,

the court may issue all writs necessary to protect its possession from

physical interference); United States v. Tabor Court Realty Corp, 943

F.2d 335, 341 (3 Cir. 1991) (appointment of receiver confers upon the

court federal jurisdiction to decide all questions incident to the

preservation, collection and distribution of assets whether such questions

are raised in the original suit or ancillary proceedings); Tcherepnin v.

Franz, 485 F.2d 1251, 1255-56 (7 Cir. 1973) (so long as an action

commenced by a court-appointed receiver seeks to accomplish the ends

sought and directed by the suit in which the appointment was made, such

action or suit is ancillary so far as the jurisdiction of the federal court is

concerned); /n re Cuyahoga Finance Co., 136 F.2d 18 (6" Cir. 1943)

(appointment of receiver confers upon court jurisdiction to decide ali

questions incident to preservation, collection, and distribution of assets);

Doyne v, Saetelle, 112 F.2d 155, 162(8" Cir. 1940) (“Federal court may

grant injunction without violating § 265 when proceeding in State court

affects the control, possession or disposition of a res of which the federal

17

the receiver moved to have the IRS address

the tax issues, the receiver did so as an officer

of the Court, not as a representative of a

private party. Porter v. Sabin, 149 U.S. 473,

479; U.S. v. Smallwood, 443 F, 2d 535, 539

(8" Cir. 1971), cert. denied, 404 U.S. 853

(1971). In seeking that relief the receiver

represented “the court in its inherent power to

——

court has first acquired jurisdiction”); Genecov v. Wine, 109 F.2d 265,

267 (8 Cir. 1940) (noting that actual or constructive possession of

debtor’s property gives court exclusive rights to determine all questions

incident to collection, preservation and distribution of such property);

Taylor v. Producers Pipe & Supply Co., 114 F.2d 785, 788 (10" Cir.

1940) (receivership court has jurisdiction to decide all matters in dispute

and decree complete relief); Warder v. Brady, 115 F.2d 89 (4" Cir. 1940)

(receiver has federal jurisdiction to decide all questions incident to

preservation, collection, and distribution of assets and “may, despite

section 265 of the Judicial Code (28 U.S.C. § 379) issue under section

262 or otherwise, all writs necessary to protect from interference all

property in its possession”); Texas Co. v. Hauptman, 9\ F.2d 449, 454

(9" Cir. 1937) (power of court to issue injunction to protect its

jurisdiction is an application of the general principle that, where a court of

competent jurisdiction acquires possession of property, the court may

issue all writs necessary to protect its possession from physical -

interference and determine all questions respecting the same); Orcutt v.

Crawford, 85 F.2d 146, 147 (10 Cir. 1936) (receivership court has

power to decide all questions relating to the preservation, collection, and

distribution of the assets, including making of orders in the original

proceeding and cognizance of ancillary actions appropriately instituted by

the receivers in behalf of the estate); /rving Trust Co. v. Fleming, 73 F.2d

423, 427 (4" Cir. 1934) (where a court of competent jurisdiction has

taken possession of property, the court may not only issue all writs

necessary to protect its possession from physical interference, but is

entitled to determine all questions respecting the same); KeSun Oil Co. v.

Hamilton, 61 F.2d 215, 219 (9" Cir. 1932) (federal receivership court

may, despite section 265 of the Judicial Code (28 U.S.C.A. § 379), issue

under section 262 (28 U.S.C.A. § 377), or otherwise, all writs necessary

to protect from interference all property in its possession); Toledo, St. L.

& K.C.R. Co. v. Continental Trust Co., 95 F. 497 (6" Cir. 1899) (where

receiver court has possession of all property, court has jurisdiction over

all suits and proceedings with respect to the property ).

18

wind up” the receivership estate. White v.

Ewing, 159 U.S. at 40. When the District

Court entered the subject orders it did not do

so to “assist a taxpayer in b ing” IRS

procedures, as characterized by the court of

appeals. 245 F.3d at 1167. To the contrary,

the District Court entered those orders

pursuant to the “inherent power. . .

necessarily vested in courts to achieve the

orderly and expeditious disposition of cases.”

Link v. Wabash Railroad Co., 370 U.S. 626,

630-31 (1962) (internal quotation marks

omitted) and only after the IRS indicated it

could meet the timetable established by the

District Court."

The leading commentator on receiverships describes

the proposition as follows:

When a court of equity takes into its possession

property and appoints a receiver thereof, it is the

court’s duty to protect that property against the

wrongful act of anyone, be he party to the original

suit or other person. Ordinary processes of the law

can reach and appropriate the property in custodia

legis.... This jurisdiction exercised by the

appointing court is called auxiliary jurisdiction and

sometimes called ancillary jurisdiction.

A court which is administering property already in.

its hands through a receivership may properly

'' It cannot be disputed that the District Court found the orders were

necessary to wind-up and terminate the receivership. “Until the tax

liabilities of the various entities are determined, it will not be feasible to

wind-up the receivership. Magistrate Judge Schlatter’s Order of May 9,

2000 represents an effort to resolve the question of tax liabilities so that

the receivership can be terminated.” (App ??)

19

draw to itself all disputes as to liens and other

rights upon or pertaining to such property. This is

done on the broad principle that every court has

inherent equitable power to prevent its own process

from working injustice to anyone and may entertain a

petition by an aggrieved person, either in the form of

a simple motion or by intervention pro interesse suo

in the case in which the process issued, by auxiliary

or dependent bill in equity.

1 Ralph Ewing Clark, Clark on Receivers § 280 (4" Ed.

1959) (emphasis added; citations omitted).

In short, the Act did not “grant” the right to issue a

declaratory judgment to a receivership court, as the Court of

Appeals incorrectly stated. A receivership court already had

that right as an inherent power.’

In the case at bar, the Court of Appeals said, “there

are no relevant exceptions under the Declaratory Judgment

Act that permit the district court to determine their tax

liabilities.” 245 F.3d at 1166. It also said, “the Anti-

Injunction Act prohibits the district court from enjoining the

IRS from assessing and collecting the corporations taxes for

failure to evaluate their tax returns by the court-imposed

deadline.” /d., at 1167. Not once in its opinion did the

court acknowledge the in rem nature of the receivership,

nor the copious opinions from this Court which hold that

Title 28 does not affect the inherent power of a District Court

supervising a receivership. It did not recognize the District

Court’s “exclusive jurisdiction to determine all judicial

questions concerning the res.” Wabash Railroad, 208 U.S. at

"To complete the thought, what the Act granted was the power to a court

sitting at law, or with no other equitable claims before it, the right to enter

declaratory relief. As the cases cited in note 10 show, a court sitting

supervising a receivership already had that authority.

20

38. Nor did it recognize the District Court’s inherent power

to enter to subject orders. That was its fatal error.'?

At the time of the District Court orders concerning the

tax issues the res of the receivership consisted in partof _

approximately $1.2 million derived from the 1999 sale. All

of the receivership’s creditor and administrative claims had

been paid in full. Quantifying the supposed federal income

tax liabilities payable from the res was the last major obstacle

to winding up the receivership. '*

In this circumstance, we have a distinguished, senior

federal judge waiting for a mid-level bureaucrat who

intervened in her courtroom to decide that the District

Court’s agenda is sufficiently important for the bureaucrat to

complete an assessment that could have been completed

'® In the Opinion, the Court of Appeals stated that the Declaratory

Judgments Act was jurisdictional. 245 F.3d at 1166. This is squarely in

conflict with opinions of this Court. E.g. Schilling v. Rogers, 363 U.S.

666, 677 (1960) (the Act is merely remedial, not jurisdictional); Skelly v

Phillips, 339 U.S. 667, 671 (1950) (Congress enlarged the range of

remedies available in the federal courts but did not extend their

jurisdiction); Aetna v. Haworth, 300 U.S. 227, 240 (1937) (“Thus the

operation of the Declaratory Judgment Act is procedural only. In

providing remedies and defining procedure in relation to cases and

controversies in the constitutional sense the Congress is acting within its

delegated power over the jurisdiction of the federal courts which the

Congress is authorized to establish.”).

‘The District Court had also ordered the IRS to complete its assessment

of three related bankruptcies. This was also reversed in the Court of

Appeals’ Opinion. The Receiver does not seek certiorari on this issue;

only on the issue of receivership taxes. The receiver also notes that the

Tenth Circuit Opinion, claiming the receiver was relying on 26 U.S.C.

§ 505(b) for authority for the District Court to order the IRS to complete

its assessment of receivership taxes, is incorrect, and probably arose out

of the Tenth Circuit's confusion in this regard. The receiver was relying

on § 505(b) for authority to order the IRS to assess on the Bankruptcy

Cases. As to the receivership taxes, the subject of this petition, the

receiver relied on Riehle v. Margolies, supra, and the other cases

discussed in that section of this Petition.

21

years ago. Simply put, the Tenth Circuit resolved that

separation of powers issue by ceding an inherent power to the

bureaucrat, and it should have been resolved in favor of the

Judge.

B. The Legislative History of the Declaratory

Judgment Act Shows It Was Not Intended to

; Restrict the Inherent Power of the District

Court.

Since it is clear under the above cited authorities (and

others too numerous too list here) that a receivership had

jurisdiction to enter a declaratory order before passage of the

Act, the questions raised are (a) whether Congress could take

away such authority and (b) whether Congress, in fact, did

so. Although the answer to the former is unclear, the answer

to the latter is clearly, “no”.

As enacted in 1934, the Declaratory Judgment Act

contained no exception for tax issues. It was amended in

1935, however, to add the “tax exception.” The House of

Representatives, Conference Report 74-1-1885 (August 22,

1935) provides the entirety of the legislative history on that

exception as follows:

DECLARATORY JUDGMENTS AS TO TAXES

The Amendment also adds a section making it clear

that the Federal Declaratory Judgments Act of

June 14, 1934 has no application to Federal Taxes.

(Emphasis added.)

This history shows that the tax exception affects only

the statutory remedy originally granted in the 1934 Act, and

was not intended to restrict the pre-existing inherent power of

federal receivership courts, confirmed by the decisions of this

22

Court, to enter “any order” necessary for the distribution of

assets, “any other provision of Title 28 notwithstanding.” If

Congress had intended the tax exception to restrict that

power, that intent surely would appear in the legislative

history. Congress’ silence on the matter effectively disclaims

such an intention. E.g., INS v. St. Cyr, U.S. __, 121 S. Ct.

2271, 2290 n.44 (2001) (finding silence in legislative history

significant on the theory that “where construction of

legislative language makes so sweeping and so relatively

unorthodox a change as that [purportedly] made here, . . .

judges as well as detectives may take into consideration the

fact that a watchdog did not bark in the night.”) (internal

quotation marks and citation omitted).

Moreover, the legislative history expresses an intent

to change only the “application” of the Act, thus there is no

hint Congress intended to try to take away a long-standing,

inherent power. Given the breadth of powers then enjoyed

by receivership courts, if Congress had intended to limit

those powers it would have said so. To find a broader

congressional intent would be contrary to established rules of

statutory construction. E.g., United States v. American Bell

Telephone, 159 U.S. 548 (1895) (where statute purports to

restrict otherwise existent jurisdiction, it must be narrowly

construed); Heno v. Federal Deposit Ins. Corp., 996 F.2d 429

(Sth Cir. 429) (enactments limiting federal court jurisdiction

are to be narrowly construed); Magno v. United States, 636 -

F.2d 714 (D.C. Cir. 1980) (“in areas where Congress has

limited judicial review over questions which are within the

normal competence of the courts, those jurisdictional

limitations are interpreted narrowly . . .”).

The Court of Appeals was concerned that the District

Court’s determination of tax questions would impede the

government’s collection and assessment of taxes. 245 F.3d at

1166. That concern is misplaced in the present setting. The

District Court did not drag the IRS into this case. Instead, the

23

IRS injected itself into this case on its own motion. By

voluntarily intervening, without condition or qualification,

the IRS made itself “vulnerable to complete adjudication” by

the District Court of the issues in litigation. United States v.

State of Oregon, 657 F.2d at 1014; Alvarado v. J.C. Penney

Co., 997 F.2d at 805. It thereby acceded to the District

Court’s jurisdiction to decide “all questions respecting the

title, the possession or the control of the” receivership

property. Wabash Railroad v. Adelbert College, 208 U.S. 38,

54

Further, it should be noted that the IRS does not

suggest it could not have finished its assessment on the time

table Ordered by the District Court. Rather, it simply argues

that it cannot be made to do so. Having intervened in the

'SThe proper defense to a receiver trying to obtain a declaratory judgment

regarding taxes when the IRS has not intervened is not found in the Act,

but in the doctrine of sovereign immunity. The intervention, however,

waived that sovereign immunity for ail purposes relating to the res in an

in rem case. United States v. The Thekla, 266 U.S. 328, 340-341 (1924)

(“When the United States comes into Court to assert a claim it so far takes

the position of a private suitor as to agree by implication that justice may

be done with respect to the subject matter.”); The Siren, 74 U.S. (7 Wall)

152,153 (1868) (“{W]hen [the United States] proceed in rem, they open to

consideration all claims and equities in regard to the property libeled.

They then stand in such proceedings, with reference to the rights of

defendants or claimants, precisely as private suitors, except that they are

exempt from costs and affirmative relief against them, beyond the

demand or property in question.”). See also Cororporacion Mexicana de

Servicios Maritimos, S. A. di C. V. v. The M/T Respect, 89 F.3d 650,656

(3 Cir. 1996) (by intervening in an in rem action agency of the Mexican

Government waived sovereign immunity). As payment of taxes is

necessarily something that affects the res, an Order that the IRS complete

its assessment in a reasonable time is proper.

The Tenth Circuit decision is contrary to The Thekla, The Siren, and the

cited decisions of the Ninth Circuit. It is also contrary to an earlier Tenth

Circuit decision, Alvarado v. J.C. Penney Co., 997 F.2d 803, 805 (10"

Cir. 1997).

24

case, it has waived sovereign immunity and must be treated

like any other party. See n.15.

Ill. THE OPINION IS ALSO CONTRARY TO

PRIOR OPINIONS OF THIS COURT

RECOGNIZING JUDICIALLY-CREATED

EXCEPTIONS TO THE ACT

Even if, contrary to the analysis above, the Act did

govern the District Court’s power in this case, the tax

exception of the Act would not apply. This case falls within

both of two judicially-created exceptions to that exception,

which authorize declaratory relief when, as here, (1) the

taxpayer has no other forums for relief; and (2) the IRS has

no chance to prevail on the merits. Bob Jones Univ. v.

Simon, 416 U.S. 725, 736-737 (1974) (recognizing two

unwritten, judicially created exceptions to the prohibition on

declaratory judgments regarding federal taxes); Elia v.

Connet, 908 F.2d 521, 523, 526 (9th Cir. 1990) (same); Jn re

‘ State of Cal. v. Regan, 641 F.2d 721, 722-23 (9th Cir. 1981)

(same).

The receiver cannot get relief outside the receivership

court. The receiver is an arm of the District Court and the

District Court has exclusive jurisdiction over claims,

including the tax claims of the United States. E.g., 28 U.S.C.

§ 959; Wabash Ry. Co. v. Adelbert College, 208 U.S. 38, 53

(1908) (receivership court’s possession of the property gives

such court exclusive jurisdiction to hear and determine all-

questions affecting title, possession, or control of the

property); Oppenheimer v. San Antonio Land & Irrigation

Co., (Sth Cir. 1917) (an effect of the receivership court’s

25

taking possession was withdrawal of the property from the

jurisdiction of all other courts); 26 U.S.C. § 6871(c)(1)'®.

In South Carolina v. Regan 465 U.S. 367, 374 (1984),

this Court held that the prohibition against injunctive suits

would not apply if Congress did not provide the moving party

with an alternative. Here, Congress has not provided an

alternative. To the contrary, the IRS has simply refused to

assess, despite its repeated admissions that it is capable of

doing so. There appears to be no point to the IRS’s actions

except to prove that it is not subject to the power of the

United States District Court, even in cases where it has

intervened.

Moreover, the IRS cannot prevail in this case. For the

IRS to prevail, it first must assess. It has not done so, and

until it does the Court must rely on the receiver’s CPA and

the original IRS field agent working on this case, both of

whom indicated no taxes are due. In short, there is no claim

for taxes upon which the IRS can prevail.

Further, for there to be a tax, the IRS must either

reallocate sale proceeds’’ that were distributed long ago or

'°The exceptions reflect that the Acts apply only in the typical situation

where a taxpayer invokes the District Court’s in personam jurisdiction

despite alternative remedies. The Acts were not designed for this unusual

situation, where the District Court’s in rem powers as a receivership give

it exclusive authority to resolve the tax issues based upon the IRS’s

intervention under Fed.R.Civ.P. 24.

'’ The IRS has suggested that it can re-allocate the sale proceeds only for

tax purposes under 26 U.S.C. § 482. That section can only be invoked,

however, against a “controlled taxpayer.” As set forth in Treasury

Regulation § 1.482-1A(b), “[t]he purpose of section 482 is to place a

controlled taxpayer on a tax parity with an uncontrolled taxpayer ...

[where the] standard to be applied in every case is that of an uncontrolled

taxpayer dealing at arms length with another uncontrolled taxpayer.” The

leading case on the application of 26 U.S.C. § 462 is Commissioner of

Internal Revenue v. First Security Bank of Utah 405 U.S. 394, 400

(1972).

26

disregard Orders that were entered while it was a party. For

the IRS to prevail, it must show that the Trustee or the

receiver was under the “control” of another taxpayer. As

both fiduciaries were under the control of their respective

Courts, neither was under a “controlled taxpayer” within the

meaning of 26 U.S.C. § 482. If this Court has any doubt

about the IRS’s chances of prevailing, the proper course is a

remand to the District Court for a determination of the “Bob

Jones exceptions.”"®

CONCLUSION

The decision of the Tenth Circuit ignores controlling

precedent and thereby reached an erroneous result. By

intervening without qualification or condition, the IRS

waived sovereign immunity and acceded to the District

Court’s exclusive jurisdiction to answer all questions

question affecting the receivership property. This included

the inherent power to issue declaratory relief.

The Court had inherent power to enter the subject

orders, unaffected by the Declaratory Judgment or Anti-

Injunction Acts. Both Acts were intended to keep the judicial

branch from interfering with the executive branch at the

behest of a private taxpayer. That intention is not implicated

when the executive branch intervenes in a receivership, and,

in order to wind-up that receivership, the District Court

orders the executive branch to do its job within a reasonable

time. Unless the court has that power, the judicial branch

becomes subordinate to the executive branch. The decision

of the Tenth Circuit cedes an inherent power of the District

'* A remand to determine whether either Bob Jones exceptions applies

will go a long way to getting the Receivership Estate past the procedural

roadblock the IRS has created. To respond, the IRS will have to do its

job and quantify taxes owed, which is all the Order reversed by the

Opinion required it to do in the first place.

27

Court and deprives the District Court of necessary remedies

to properly administer the receivership.

The Tenth Circuit opinion is also contrary to well-

established principles governing in rem proceedings, and

cannot be correct. In an in rem proceeding, a court must be

able to address all claims to the res, and this includes tax

claims. If the IRS did not desire to have its tax claim heard

by the receivership court, all it needed do was . . . nothing.

By not intervening, it would not have waived sovereign

immunity and not subjected itself to Article III.

Finally, even if the Tax Limitation Acts apply, the

Tenth Circuit should have remand for determination of the

Bob Jones exceptions, rather than simply reversing. Because

the District Court had ruled that the Tax Limitation Acts did

not apply, there had been no need for the Bob Jones

exceptions to be addressed. As the Tenth Circuit was the first

court to determine the Tax Limitation Acts do apply, an

analysis of the Bob Jones exceptions by the District Court

would be appropriate.

WHEREFORE, Sterling Consulting Corporation, as

receiver, prays that this Court grant certiorari on the three

questions submitted above, or any of them, and for such other

and further relief as the Court deems just and proper.

Respectively submitted this 5" day of November,

2001.

Brent T. JOHNSON

Counsel of Record

JOHN M. TANNER

FAIRFIELD & WOODS, P.C.

1700 Lincoln Street

Suite 2400

28

Denver, Colorado 80203-4524

(303) 830-2400