Appeal Sought on Disclosure Counterclaim in Easement Scheme Suit

UNITED STATES OF AMERICA,
Plaintiff,
v.
NANCY ZAK, at al.,
Defendants.

CLAUD CLARK, III,
Counterclaim-Plaintiff,
v.
UNITED STATES OF AMERICA,
Counterclaim-Defendant.

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION

UNITED STATES' MOTION TO CERTIFY INTERLOCUTORY APPEAL PURSUANT TO 28 U.S.C. § 1292(b)

The United States of America respectfully moves for certification of an interlocutory appeal under 28 U.S.C. § 1292(b) of the Court's order denying the Government's motion to dismiss Claud Clark, III's amended counterclaim for damages for the alleged unauthorized disclosure of his tax return information (ECF No. 309). Specifically, the United States requests that the Court certify the following question for interlocutory appeal to the Eleventh Circuit:

Whether 26 U.S.C. § 6103 prohibits publication by the government of taxpayer information that has already been lawfully and publicly disclosed by the government in a judicial proceeding pertaining to tax administration?

In support of this motion, the United States submits the attached memorandum of law.

Dated August 13, 2021.

Respectfully submitted,

DAVID A. HUBBERT
Acting Assistant Attorney General

THOMAS K. VANASKIE
D.C. Bar No. 1000405
BEATRIZ T. SAIZ
N.J. Bar No. 024761995
Trial Attorneys, Tax Division
U.S. Department of Justice
P.O. Box 14198
Washington, D.C. 20044
202-305-7921 (v)
202-514-4963 (f)
Thomas.K.Vanaskie@usdoj.gov

Of Counsel:

Kurt R. Erskine
Acting United States Attorney

Neeli Ben-David
Assistant United States Attorney
Georgia Bar No. 049788
Office of the U.S. Attorney
75 Ted Turner Drive, SW, Suite 600
Atlanta, GA 30303
404-581-6303 (v)
Neeli.Ben-David@usdoj.gov

Counsel for Counterclaim Defendant United States of America

---

UNITED STATES' MEMORANDUM OF LAW IN SUPPORT OF MOTION TO CERTIFY INTERLOCUTORY APPEAL PURSUANT TO 28 U.S.C. § 1292(b)

The United States respectfully submits this memorandum of law in support of its motion to certify an interlocutory appeal of the order denying the Government's motion to dismiss Claud Clark III's amended counterclaim (ECF No. 309). Specifically, we request that the Court certify the following question for interlocutory appeal to the Eleventh Circuit:

Whether 26 U.S.C. § 6103 prohibits publication by the government of taxpayer information that has already been lawfully and publicly disclosed by the government in a judicial proceeding pertaining to tax administration?

Under 28 U.S.C. § 1292(b), a district judge may certify interlocutory appeal of an order involving “a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.” The order denying the Government's motion satisfies those criteria.

First, the question for appeal is a controlling question of law involving the application of section 6103 of the Internal Revenue Code that can be answered “quickly and cleanly without having to study the record.” McFarlin v. Conseco Servs., LLC, 381 F.3d 1251, 1258 (11th Cir. 2004). Second, a substantial ground for difference of opinion exists. As the Court acknowledged in its order, this is a question of first impression in Eleventh Circuit, but one on which other Circuits' holdings differ. Last, resolution of this question may materially advance the ultimate termination of Clark's counterclaim. Indeed, because the Press Release announcing the filing of this case is central to Clark's counterclaim, a decision from the Eleventh Circuit may help avoid an unnecessary trial or shorten the litigation by narrowing the issues for discovery. For these reasons, the Court should certify this question for interlocutory appeal.

I. BACKGROUND

In this counterclaim, Claud Clark III seeks damages under 26 U.S.C. § 7431 for the alleged wrongful disclosure of his protected return information in violation of 26 U.S.C. § 6103. Clark alleges that the Government made unauthorized disclosures of his return information in eleven statements, including the DOJ Press Release announcing this suit to enjoin Clark and others from promoting a syndicated conservation easement scheme. (See ECF Nos. 123, 206).

The Court has twice considered whether Clark has stated a plausible claim for relief under § 7431. And on both occasions, the Court noted the lack of authority on point. (ECF No. 202 at 15, ECF No. 309 at 1, 9, 13.) But although the statements at issue are mainly the same,¹ the Court reached different outcomes. (Compare ECF No. 202 (granting the United States' motion to dismiss Clark's counterclaim) with ECF No. 309 (denying the United States' motion to dismiss Clark's amended counterclaim).)

In its order granting the United States' motion to dismiss Clark's original counterclaim, the Court held that the statements at issue did not disclose Clark's (or anyone else's) confidential return information. (See ECF No. 202 at 9 (“Although this case overall does relate to tax conservation easements and tax return strategies, this does not mean that any utterance about the case per se discloses a specific individual's tax return information or Mr. Clark's tax return in particular.”) In one example, the Court explained that a statement by Commissioner Rettig was “full of policy enforcement bravado . . . [that] does not appear to disclose any specific individual's return information or identity — but instead, the IRS's stated goal of stopping the use of allegedly fraudulent conservation easements through litigation.” (Id.) In another example, the Court found that if a statement by the then Principal Deputy Assistant Attorney General of the Tax Division contained any return information, it was the return information of Clark's clients, and thus Clark lacked standing to litigate that alleged disclosure. (Id. at 10-11.) And so, the Court held that the counterclaim was “simply too attenuated or bare to plausibly allege a disclosure of Clark's tax return information.” (Id. at 14.) But noting “somewhat of a dearth of case law” on § 6103, the Court gave Clark leave to amend his counterclaim.

Clark amended his counterclaim, and the United States again moved to dismiss. (ECF Nos. 206, 208.) This time, the Court denied the motion to dismiss. (ECF No. 309.) In doing so, the Court addressed only one of the eleven statements at issue — the DOJ Press Release — and held that Clark sufficiently stated a claim for wrongful disclosure based on the Press Release. (Id. at 5-15.) Noting the “absence of any instructive authority from the Eleventh Circuit” on this issue, the Court rejected the public records exception to § 6103 adopted by the Ninth and Sixth Circuits and, instead, followed the “approach taken by the Fourth, Fifth, Seventh, and Tenth Circuits”, which is known as the immediate source test. (Id. at 13.)

Under the public records exception, “once return information is lawfully disclosed in a judicial forum, its subsequent disclosure by press release does not violate [§ 6103].” Lampert v. United States, 854 F.2d 335, 338 (9th Cir. 1988). This is because a taxpayer has no right of privacy to information in the public domain, such as the allegations of a publicly filed complaint. Id.

The immediate source test takes a narrower approach to whether a press release improperly discloses protected return information. Under the immediate source test, if the immediate source of the information allegedly wrongfully disclosed is in the public domain, the later disclosure of that information does not violate § 6103. See Johnson v. Sawyer, 120 F.3d 1307, 1318-19 (5th Cir. 1997); Thomas v. United States, 890 F.2d 18, 21 (7th Cir. 1989); Rice v. United States, 166 F.3d 1088, 1091 (10th Cir. 1999). Thus, “liability under Section 6103 should . . . be based on 'the source of the information claimed to be wrongfully disclosed' instead of 'its public or non-confidential status.'” (ECF No. 309 at 11-12 (quoting Johnson, 120 F.3d at 1323).)

The source of the Press Release was the publicly filed complaint against Clark and others. But the Court reasoned that the DOJ Press Release — which publicizes only the allegations in the complaint filed in the underlying action — is distinguishable from a press release that publicizes a judicial order in a tax case. The Court explained that a judicial order in a tax case is a public document that is lawfully prepared by “an agency that is separate from the [IRS] and has lawful access to the tax returns.” (Id. (quoting Thomas, 890 F.2d at 21).) By contrast, “a complaint that was prepared by the lawyers representing the IRS is not a public document that was prepared by an agency that is separate from the IRS.” (Id.) Based on this reasoning, the Court held that Clark adequately pleaded that the Government disclosed his protected return information in violation of § 6103, even though the Press Release merely republished the allegations in its publicly filed complaint. (Id. at 15.)

The Court did not decide whether Clark sufficiently pleaded his claim for the other statements at issue. Nor did the Court decide “whether each and every identified statement in the Amended Counterclaim does violate” § 6103 (Id. at 15.) Rather, the Court will decide whether each statement violated § 6103 “upon a full evidentiary record.” (Id.)

II. LEGAL STANDARD

Interlocutory appeals are governed by 28 U.S.C. § 1292. In limited circumstances, parties may file an interlocutory appeal as a matter of right. See 28 U.S.C. § 1292(a) (vesting the courts of appeals with jurisdiction over interlocutory orders in injunction actions, receiverships, and admiralty cases). In all other circumstances, as in this case, the District Court must certify an order for interlocutory appeal. 28 U.S.C. § 1292(b). The Court of Appeals then may, within its discretion, hear the appeal. Id.

A District Court may certify an order for interlocutory appeal if the order (1) “involves a controlling question of law”; (2) “there is a substantial ground for difference of opinion” on that question; and (3) “an immediate appeal from the order may materially advance the ultimate termination of the litigation.” Id. This standard allows for a “flexible approach,” rather than “blind adherence to a supposed need to construe strictly any permission to depart from the final-judgment rule.” 16 Wright & Miller, Fed. Practice & Procedure § 3929 (3d ed. 2021); see also Union Oil Co. of Cal. v. John Brown E&C, 121 F.3d 305, 311 (7th Cir. 1997).

Although § 1292(b) allows for a flexible approach, § 1292(b) does not permit the certification of an interlocutory appeal routinely. Section 1292(b)'s elements ensure that District Courts should certify orders for interlocutory appeal only “for situations in which the court of appeals can rule on a pure, controlling question of law without having to delve beyond the surface of the record in order to determine the facts.” McFarlin, 381 F.3d at 1259. Even then, there must be a “substantial dispute about the correctness of any of the pure law premises the district court actually applied.” Id. And the resolution of the question for appeal “must substantially reduce the amount of litigation left in the case.” Id.

III. ARGUMENT

The Court should certify under § 1292(b) an interlocutory appeal of the order denying the United States' motion to dismiss. The issue for appeal — whether 26 U.S.C. § 6103 prohibits publication by the government of taxpayer information that has already been lawfully and publicly disclosed by the government in a judicial proceeding pertaining to tax administration — is “a controlling question of law” that can be answered without delving beyond the surface of the record. 28 U.S.C. § 1292(b). There is a “substantial ground for difference of opinion” on that controlling question as shown by the lack of authority on the issue from the Eleventh Circuit, the split of authority between the Ninth Circuit and Fifth, Seventh, and Tenth Circuits, and this Court's articulation of the immediate source test in denying the Government's motion to dismiss. Id. And an immediate appeal to the Eleventh Circuit to answer that question will “materially advance the ultimate termination of the litigation.” Id.

A. The Proposed Issue for Appeal Is a Controlling Question of Law

To satisfy § 1292(b)'s controlling question of law requirement, the issue for appeal must be a “pure question of law” that controls “at least a substantial part of the case.” McFarlin, 381 F.3d at 1264. Pure questions of law are questions about the interpretation “of a statutory or constitutional provision, regulation, or common law doctrine.” Id. at 1258 (quoting Ahrenholz v. Board of Trustees of the Univ. of Illinois, 219 F.3d 674, 677 (7th Cir. 2000).) Thus, unlike a question of fact, pure questions of law are matters that the Circuit Court “can decide quickly and cleanly without having to study the record.” Id. (quoting Ahrenholz, 219 F.3d at 677); see also id. at 1259 (explaining that a pure, controlling question of law does not require the Circuit Court “to delve beyond the surface of the record in order to determine the facts”).

Here, the United States seeks certification of the following question for immediate appeal:

Whether 26 U.S.C. § 6103 prohibits publication by the government of taxpayer information that has already been lawfully and publicly disclosed by the government in a judicial proceeding pertaining to tax administration?

This question satisfies § 1292(b)'s controlling issue of law requirement. The proposed question is a pure question of law involving the proper interpretation of §6103. It can be answered “quickly and cleanly without having to study the record.” McFarlin, 381 F.3d at 1258 (citation and quotation omitted). And the proposed question is stated with “a high enough level of abstraction to lift the question out of the details of [this] case and give it general relevance to other cases in the same area of law.” Id. at 1259. Indeed, the Eleventh Circuit's answer to this question will clarify whether the Government may issue press releases announcing the filing of its civil and criminal tax enforcement actions. As it stands, it is unclear if the Government can make public statements announcing a civil complaint or a criminal indictment in a tax case in this District. The inability to issue press releases publicizing the Government's filings in proceedings pertaining to tax administration seriously impairs the Government's efforts to enforce the tax laws and inform the public of those enforcement efforts.

The proposed question controls most of, if not all, the claims Clark raised in his amended counterclaim. See McFarlin, 381 F.3d at 1264 (stating that the pure question of law must be “controlling of at least a substantial part of the case”). Given the Court's dismissal of Clark's original counterclaim, and the Court's exclusive focus on the public records exception and immediate source test in its most recent order, Clark's claim related to the Press Release represents his only objectively viable claim. Indeed, whether the Press Release disclosed Clark's protected return information in violation of § 6103 was the sole issue the Court addressed in its order. (ECF No. 309.) And nearly all the other alleged unauthorized disclosures — which the Court previously found to be statements about conservation easements in general that did not disclose Clark's return information — are tied directly to the Press Release. (See, e.g., ECF No. 206 ¶ 85 (alleging that Statement 3 reveals Clark's return information because it is in the Press Release that identifies Clark by name), ¶¶ 102, 104, 118, 120 (alleging that Statements 4 and 5 disclose return information because they refer to the Press Release), ¶¶ 136, 152, 167, 182, 197, 212 (alleging that Statements 6, 7, 8, 9, 10, and 11 disclose return information when read “[t]ogether with the DOJ Press Release”).) Thus, the order denying the United States' motion to dismiss raises a pure, controlling legal question and should be certified for an immediate appeal.

B. A Substantial Ground for Difference of Opinion Exists

A substantial ground for difference of opinion exists where the question for appeal “is difficult and of first impression,” and the courts that have addressed this issue are split. See United States ex rel. Powell v. Am. InterContinental Univ., Inc., 756 F. Supp. 2d 1374, 1378-79 (N.D. Ga. 2010). This requirement is also met, as evident from the Court's orders on the motions to dismiss.

As the Court already observed, the proposed question is difficult and of first impression in this Circuit. Section 6103 is a complex statute that seeks to protect return information as confidential. It has many exceptions, but it is an open question whether, under divergent interpretations of the statute in other circuit courts of appeals, publicizing the allegations of a publicly filed complaint in a tax enforcement action is an unauthorized disclosure. The Court's order shows that answering this question is difficult, especially without instructive authority from the Eleventh Circuit. (ECF No. 309 at 13 (highlighting the absence of instructive law from the Eleventh Circuit after discussing the circuit split on this issue); see also ECF No. 202 at 15 (noting the “dearth” of case law on point).)

Answering this question is even harder given the Circuit split on this issue. (See ECF No. 309 at 9 (acknowledging the split in authority between the Ninth Circuit and several other Circuits).) The Ninth and Sixth Circuits have adopted the public records exception to § 6103's general prohibition on disclosure of return information.² See Lampert, 854 F.2d at 338 (issuance of a press release publicizing a publicly filed complaint did not violate § 6103); Rowley v. United States, 76 F.3d 796, 797 (6th Cir. 1996) (publication of information disclosed on tax lien filings in a subsequent notice of sale did not violate § 6103); see also William E. Schrambling Acct. Corp. v. United States, 937 F.2d 1485 (9th Cir. 1991) (reaffirming the public record exception in Lampert). Under the public records exception, “once return information is lawfully disclosed in a judicial forum, its subsequent disclosure by press release does not violate [§ 6103].” Lampert, 854 F.2d at 338.

The Fifth, Seventh, and Tenth Circuits did not adopt Lampert's public record exception.³ Instead, they crafted a narrower approach known as the immediate source test. Those Circuits hold that where the immediate source of the information allegedly wrongfully disclosed is not a return or return information, the later disclosure of that information does not violate § 6103. See Johnson, 120 F.3d 1307 at 1318-19; Thomas, 890 F.2d at 21; Rice, 166 F.3d at 1091. As this Court noted, the inquiry under the immediate source test focuses on “the source of the information claimed to be wrongfully disclosed,” not “its public or non-confidential status.” (ECF No. 309 at 11-12 (quoting Johnson, 120 F.3d at 1323).)

Thus, under the immediate source test, the Government cannot disclose return information directly from IRS files simply because the Government made the information public in another setting. But it can publicize information about the taxpayer where the immediate source of that information is a document in the public record. As the Seventh Circuit explained, “the definition of return information comes into play only when the immediate source of the information is a return, or some internal document based on a return, . . . and not when the immediate source is a public document lawfully prepared by an agency that is separate from the Internal Revenue Service and has lawful access to tax returns.” Thomas, 890 F2d at 21 (emphasis added).

This Court declined to adopt the public records exception set out in Lampert. (ECF No. 309 at 13.) The Court instead found the immediate source test to be more persuasive. (Id.) But the Court limited its application to disclosures of facts from public sources that are not prepared by or associated with the IRS, resulting in a modified version of the immediate source test not previously recognized by the Circuits that have adopted that test. The Court's narrower approach underscores the difficulty of the proposed question for appeal and the substantial grounds for difference of opinion on this question. (See id. at 6-14.)

In sum, the lack of controlling authority, Circuit split, and the Court's formulation of the immediate source test show that a substantial ground for difference of opinion exists on whether a Government Press Release discloses protected “return information” in violation of 26 U.S.C. § 6103 by publicizing only the allegations of a publicly filed complaint in a tax enforcement action.

C. An Appeal Will Materially Advance the Ultimate Termination of the Litigation

Section 1292(b)'s final requirement is that the resolution of the issue on appeal “may materially advance the ultimate termination of the litigation.” This requirement ensures that interlocutory appeals are authorized only “for the purpose of minimizing total burdens of litigation on parties and the judicial system by accelerating or at least simplifying trial court proceeding.” 16 Wright & Miller, Fed. Practice & Procedure § 3930. Thus, where “resolution of a controlling legal question would serve to avoid a trial or otherwise substantially shorten the litigation,” this last requirement is met. McFarlin, 381 F.3d at 1259.

Although the last requirement is statutory, this Court has stated that “in reality” this requirement and the controlling issue of law requirement “operate the same way.” Consumer Fin. Protection Bureau v. Frederick J. Hanna & Assocs., P.C., 165 F. Supp. 3d 1330, 1334 (N.D. Ga. 2015). This is because “if the Court of Appeals were to resolve a 'non-controlling' issue of law — in other words, a side issue — that would hardly be likely to 'materially advance' the litigation.” Id.

Here, resolving the proposed question of law will materially advance the ultimate termination of this litigation for the same reasons the proposed question is a controlling question of law. Clark's allegation that the Press Release discloses his return information in violation of § 6103 is the only real dispute here. This is evident when the Court's two orders are read together. The first order, which did not explicitly address the Press Release, found that the alleged disclosures were statements about conservation easements in general and the Government's tax enforcement efforts. (See ECF No. 202 at 9.) The second order addressed only the Press Release and found that Clark adequately alleged an unauthorized disclosure of return information in violation of § 6103. (ECF No. 309 at 15.) Thus, the Court tacitly recognized that whether the Press Release improperly disclosed Clark's protected return information is the primary, controlling issue in this counterclaim.

Although the Court stated that whether the other alleged disclosures violate § 6103 “is a question better answered upon a full evidentiary record,” resolution of the question for appeal will have a direct effect on the validity of those alleged disclosures. The additional alleged disclosures are inextricably linked to the Press Release. Indeed, Clark alleges that the nearly all the alleged disclosures identify him indirectly when taken together with the Press Release. (See, e.g., ECF No. 206 ¶¶ 85, 102, 104, 118, 120, 136, 152, 167, 182, 197, 212.) As a result, whether the Press Release disclosed Clark's protected return information in violation of § 6103 bears on the validity of the entire counterclaim.

Resolution of the proposed question will minimize the burdens of litigation of Clark's claims on the parties and the Court. As it stands, discovery will likely proceed on all the alleged wrongful disclosures of Clark's return information, the application of the good faith exception in 26 U.S.C. § 7431(b)(1), and Clark's damages, if any, under 26 U.S.C. § 7431(c). Discovery on these topics will be voluminous and may result in many depositions. Undertaking this discovery will be costly and time consuming for the parties and the Court. And trial on these issues is likely to be long.

At this early stage of litigation — where discovery has not yet started “and motions for summary judgment and trial are specks on the horizon” — resolution of the controlling issue is likely to obviate the need for this extensive discovery and lengthy trial. Benson v. Enterprise Leasing Co. of Orlando, LLC, Case No. 6:20-cv-891-RBD-LRH, 2021 WL 1078410, *8 (M.D. Fla. Feb. 4, 2021). Indeed, because the Press Release underpins each of the other alleged disclosures comprising Clark's amended counterclaim, a ruling in the Government's favor will essentially end this matter. If, however, claims related to other alleged disclosures survive that ruling, the parties likely can litigate those alleged disclosures more efficiently than they could if the proper application of the immediate source test remained an open question. Similarly, a ruling by the Eleventh Circuit that adopts the version of the test articulated for the first time by this Court will materially advance this case by clarifying the controlling law which, in turn, narrows the issues for discovery and trial. And so, § 1292(b)'s “materially advance” requirement is met.

IV. CONCLUSION

This case presents the exceptional circumstances that warrant certification of an interlocutory appeal. The order denying the United States' motion to dismiss Clark's amended counterclaim “involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.” 28 U.S.C. § 1292(b). Accordingly, the Court should certify that order for appeal and identify as the pure question of law the following issue:

Whether 26 U.S.C. § 6103 prohibits publication by the government of taxpayer information that has already been lawfully and publicly disclosed by the government in a judicial proceeding pertaining to tax administration?

Dated August 13, 2021.

Respectfully submitted,

DAVID A. HUBBERT
Acting Assistant Attorney General

THOMAS K. VANASKIE
D.C. Bar No. 1000405
BEATRIZ T. SAIZ
N.J. Bar No. 024761995
Trial Attorneys, Tax Division
U.S. Department of Justice
P.O. Box 14198
Washington, D.C. 20044
202-305-7921 (v)
202-514-4963 (f)
Thomas.K.Vanaskie@usdoj.gov

Of Counsel:

Kurt R. Erskine
Acting United States Attorney

Neeli Ben-David
Assistant United States Attorney
Georgia Bar No. 049788
Office of the U.S. Attorney
75 Ted Turner Drive, SW, Suite 600
Atlanta, GA 30303
404-581-6303 (v)
Neeli.Ben-David@usdoj.gov

Counsel for Counterclaim Defendant United States of America