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No Dispute of Fact Identified in IRS Summary Judgment Opposition

FEB. 18, 2022

Estate of Lois Horvitz et al. v. Commissioner

DATED FEB. 18, 2022
DOCUMENT ATTRIBUTES

Estate of Lois Horvitz et al. v. Commissioner

ESTATE OF LOIS U. HORVITZ, DECEASED, MICHAEL J. HORVITZ, EXECUTOR
Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.

UNITED STATES TAX COURT

JUDGE DAVID GUSTAFSON

PETITIONER'S REPLY TO RESPONDENT'S OPPOSITION TO MOTION FOR PARTIAL SUMMARY JUDGMENT

BACKGROUND

On October 14, 2021, Petitioner filed a Motion for Partial Summary Judgment pursuant to Tax Court Rule 121 (ECF no. 32, hereinafter “Motion”). On December 13, 2021, this Court issued an order requiring Respondent to file his opposition no later than January 19, 2022 (ECF no. 45). On January 7, 2022, Respondent filed his opposition with this Court and served it on Petitioner (ECF no. 48, hereinafter “Opposition”).

Respondent's Opposition, taken on its face, does not substantively dispute that this case is amenable to partial summary judgment. Instead, the Opposition: 1) cites a single fact, which Respondent claims is both material and in dispute, but which is neither; 2) requests additional discovery without articulating why it is necessary to his Opposition rather than just a fishing expedition; and 3) requests that the Court allow him to supplement the Opposition to argue that Petitioner is not entitled to summary judgment as a matter of law (i.e., to make the legal arguments that the Court ordered him to make by January 19, 2022 but that he chose not to make).

In other words, notwithstanding the Court's deadline, Respondent has failed to address the legal issues associated with the Decanting. Instead he persists in attempting to generate phony “fact” issues, for no apparent reason other than to avoid briefing the merits of the real legal issue in this case.1 Respondent's claim of a material issue of fact borders on the frivolous, however, and he should not be permitted to abuse the Court's direct orders in this manner.

This Court has been presented with all factual and legal information necessary to rule on Petitioner's motion for partial summary judgment. Petitioner respectfully requests that it do so, rather than reward Respondent's intentional disregard of Court deadlines by delaying the proceedings to enable Respondent to continue its wild goose chase for more irrelevant and immaterial information.

ARGUMENT

I. Respondent has not identified a dispute as to any material facts, and none exists.

“Summary judgment is appropriate if the pleadings and other materials show that there is no genuine issue as to any material fact and a decision may be rendered as a matter of law.” Sundstrand Corp. v. Comm'r, 98 T.C. 518, 520 (1992), aff'd 17 F.3d 965 (7th Cir. 1994).

Respondent cites a single statement by Petitioner to support the contention that a material fact is in dispute. In the Statement of Undisputed Material Facts in support of the Motion, Petitioner wrote that “Lois desired to leave additional assets to charity.”2 Respondent states that he is disputing “[w]hether the Modification and Distribution was undertaken to facilitate Lois' purported desire to leave additional assets to charity.” Respondent moreover asserts that, because this statement appears in a document headed “Statement of Undisputed Material Facts,” Petitioner must also believe that a dispute over Lois's desire to leave additional assets to charity constitutes a dispute over a material fact that is sufficient to deny partial summary judgment. Opposition at 3-4. Yet the validity of the Decanting is unaffected by the truth of the statement that “Lois desired to leave additional assets to charity.”

The Decanting was authorized by an independent, non-family trustee in order to broaden Lois's power of appointment to include charities as permissible appointees.3 It did not, by itself, mandate any distribution to charity. Such a distribution could only be accomplished after the Decanting was completed and only by Lois, who was under no compulsion to do so. Lois's decision to take advantage of the opportunity afforded her by the Decanting, and her reasons for making the distribution to charities, do not affect the central issue of whether the Decanting itself was undertaken in compliance with the trust instrument and applicable law. Thus, it is neither relevant nor material to the issue presented in this case.

A. The factual statement is undisputed.

That Lois did in fact exercise her power of appointment to leave assets to charity should in itself be sufficient proof of her desire “to leave additional assets to charity.” Moreover, even if the act of leaving additional assets to charity were somehow not sufficient to establish the truth of this factual statement, the documents in question explicitly support that Lois desired to leave additional assets to charity.4 Specifically, Lois's “Exercise of Power of Appointment” flatly states, “I wish to exercise my power of appointment in favor of the private foundations established by my children.” Ex. H, page 2 (last “whereas” clause), executed May 13, 2013. A clearer statement of intent to leave assets to charity can hardly be imagined.

But the other documents cited also establish this fact. The new 2013 Trust Agreement establishing the Second QTIP Trusts specifically states (in the last “whereas” clause on page 2) that “this agreement grants a broader power of appointment to Lois” than the First QTIP Trusts.5 That “broader power” of course is the addition of charities to the permissible appointees in Paragraph B.(iii) of Article First of the 2013 Trust Agreement. Lois executed the 2013 Trust Agreement with this acknowledgement on May 7, 2013, just a week before exercising her power of appointment. See Ex. F, page 39. Although a non-family trustee, Jeffrey Biggar, was responsible for authorizing the Decanting, the May 7, 2013 distribution of all of the principal of the First QTIP Trusts to new trusts (the “Second QTIP Trusts”) was governed by a trust agreement dated February 2, 2013 (the “2013 Trust Agreement”).6 The resolution accomplishing it (Ex. G) again recognized that the main difference between the First QTIP Trusts and the Second QTIP Trusts is the broader power of appointment adding charities. See Ex. G page 2 (fourth “whereas” clause on that page). That resolution also was acknowledged by Lois on May 7, 2013. Id. page 4.

It is impossible to read these documents and review this sequence of events without concluding that all parties, including Lois, intended the Decanting to enable Lois to appoint additional assets to charity if she so desired. That the Decanting was then followed promptly by Lois's exercise of her testamentary power of appointment in favor of charities, clearly manifested her “desire[ ] to leave additional assets to charity.” In short, the statement in paragraph 17 is fully supported by the uncontroverted documentary evidence Petitioner submitted.

What evidence does Respondent cite allegedly disputing this fact? Ignoring all this evidence, Respondent cites a single email, not from Lois but from Michael Horvitz to his own children — which explains that the sequence of transactions is intended to enable more contributions to charity! It reads in pertinent part (cited by Respondent):

Each of us has our own foundation in place, and Pam, Peter, Grammy [Lois] and I are all willing to have the trust go to our own foundations instead of us. This would substantially enhance our ability to make charitable contributions and will benefit the family because we would be able to use less of our own resources to make those contributions. So the plan is to modify these two trusts so that after Grammy is gone, the assets go to our foundations and not to us.

Opposition, Ex. A (page HORV00094791). Apparently ignoring that the quoted language directly refers to Lois twice, Respondent asserts that the email “suggests that Lois never intended to appoint the trust assets to charity.” Even if this were true — which it isn't — it would be irrelevant in light of Lois's actual exercise of her power of appointment in favor of charity.

Instead of recognizing these undisputed facts, Respondent illogically claims that the Decanting “was devised to allow Lois' children to retain control over the trust assets.” Opposition at 5. Respondent cites no document or language in support of this proposition, and the language in Michael's email resoundingly demonstrates the opposite: that the contemplated transactions were intended precisely to “enhance” the family's “ability to make charitable contributions,” and that — consistent with the other evidence cited above — Lois knew that and approved of that aim. The foundations in question are themselves charities that are the subject of Respondent's own exemption letters.7 It is impossible to interpret Lois's exercise of her power of appointment in favor of the foundations as evidence of anything other than Lois's desire to leave additional assets to charity.

Far from creating a dispute of fact, the language Respondent relies on completely undercuts his own contention. Respondent's assertion that this fact is in dispute is not supported by any evidence whatsoever and is contrary to all of the ample undisputed documentary evidence.

B. The factual statement is not material.

Quite apart from this alleged factual “dispute,” Respondent never engages in any analysis as to why the statement in question, even if actually contradicted, would be material so as to preclude summary judgment. Instead, he seemingly adopts the conclusory position that because the statement was made in a document titled “Petitioner's Statement of Undisputed Material Facts” it must be so important that summary judgment cannot be granted. See Opposition at 3-4. The law requires more than such “gotchas;” it requires that the statement actually be material.

As the Supreme Court ruled in Anderson v. Liberty Lobby, Inc.:

[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact. As to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted.

477 U.S. 242, 247-48 (1986). This Court follows these standards. See Bauman v. Comm'r, T.C. Memo. 1988-122; Tax Court Rule 121(b) (summary judgment may only be granted if the materials submitted “show that there is no genuine dispute as to any material fact and that a decision may be rendered as a matter of law”).

As discussed in Petitioner's Memorandum of Law in Support of Petitioner's Motion for Partial Summary Judgment (“Pet. Mem.”), the issue before this Court is whether the Decanting was permitted under the terms of the 1971 Trust Agreement and Ohio law. The distribution provisions of the 1971 Trust Agreement were not limited by an ascertainable standard and thus were functionally unlimited, clearly meeting the threshold for a decanting under Ohio Law. As a result, Lois's intent in acknowledging the Decanting is irrelevant.

Facing a similar claim in connection with Respondent's motion to take deposition testimony (ECF no. 23), the Court previously noted the following:

The commentary in the Commissioner's deposition motion (quoted above) seems to indicate that the issue about which deposition testimony is sought is legal (i.e., “whether the Decanting was permissible under Ohio law”). We do not see how testimony on that subject would be proper. It would seem that instead we should examine the documents for their objective import and that subjective testimony about the settlor's intentions would be irrelevant.

Order (ECF no. 25) at 3 (emphasis added). Petitioner agrees.8 What was true of Harry Horvitz's intent in settling the First QTIP Trusts, or Mr. Biggar's intent in approving the Decanting, is equally true of Lois's intent in connection with the Decanting: it is irrelevant. The documents control, and as noted above, the documents clearly show that the Decanting was permissible and that Lois in fact directed more assets to charity.

II. Respondent has not carried his burden of showing that additional discovery is likely to uncover material facts.

Respondent argues, in the alternative, that if the single fact he cites is not found to be material, then further discovery is necessary to uncover additional material information. Unfortunately, it is unclear from Respondent's opposition why the discovery he seeks is reasonably calculated to yield material information. Respondent notes that Michael Horvitz, as executor of Lois Horvitz's estate, is a party to this case and asserts that his e-mails would be admissible for their truth. But Respondent does not engage in any legal analysis or explain how the remaining discovery could possibly relate to the issues before the Court. He doesn't even try to demonstrate why the legal issues in this case cannot be briefed because of his failure to obtain discovery. The contention is pure wishful thinking.

Some context may be helpful. Respondent has had the relevant documents — the various trust instruments, the documents effectuating the Decanting, the documents exercising the expanded power of appointment, and the materials underlying the estate tax return — for four years. Nevertheless, in response to Respondent's discovery requests in this case, Petitioner produced approximately 41,353 documents totaling 195,128 pages, a large part of which duplicates what was provided to Examination. As Petitioner demonstrates in the memorandum opposing Respondent's motion to compel production of additional documents (filed contemporaneously with this memorandum), the remaining disputes relate entirely to materials with respect to which Petitioner asserts various privileges (attorney-client privilege, the work product doctrine, or the I.R.C. § 7525 tax practitioner privilege). Respondent's demand for this material is of course entirely consistent with his assertion of the negligence penalty, which was clearly intended to push Petitioner into waiving privilege, and his unauthorized direct contacts with the attorneys for various parties.9

But the decanting issue before the Court is susceptible to summary judgment based solely on the terms of the documentary materials, particularly the 1971 Trust Agreement, and applicable Ohio law. Respondent cannot explain why the content of privileged communications would be probative of whether the Decanting was legally permitted. Instead, Respondent simply hopes to come up with some (other) vague factual issue — which of course will suddenly become the focus of this case. In similar situations, this Court has refused to delay consideration of a motion for summary judgment to permit further discovery. “If all one had to do to obtain a grant of [further discovery] were to allege possession by movant of 'certain information' and 'other evidence,' every summary judgment decision would have to be delayed while the non-movant goes fishing in the movant's files.” Whistleblower 14106-10Wv. Comm'r, 137 T.C. 183, 188-89 (2011) (quoting Keebler Co. v. Murray Bakery Prods., 866 F.2d 1386, 1389 (Fed. Cir. 1989)). Such an argument is tantamount to saying, “we have no factual basis for opposing summary judgment, but, if you stay proceedings, we might find something” Id.

Respondent must present more than conclusory statements about information that he seeks. See Caney v. Comm'r, T.C. Memo. 2010-90 at *2 (refusing to delay disposition of motion for summary judgment where petitioners had failed “to show that further discovery would likely yield any fact essential to their opposition to the motion”); Countryside Ltd. Partnership v. Comm'r, T.C. Memo. 2008-3 at *23 (“respondent has already undertaken extensive discovery, and it is sheer speculation on the part of respondent's counsel that, by additional discovery or (in a Perry Mason moment) by cross-examination, she will be able to elicit an admission . . .”). As this Court stated in Hellweg v. Comm'r, “[w]hile respondent may require discovery to obtain the evidence necessary to resolve the factual issues that are in dispute, the absence of discovery should not prevent him from being able to identify what those disputed issues are.” T.C. Memo. 2011-58 at *4.

In Hellweg, there was no disagreement as to each step of the transaction in question. Similarly, in this case, the terms of the relevant documents here are not in dispute. Further discovery is not necessary to inform any material issue. As the Hellweg court aptly stated, “Respondent's professed need for discovery is nothing more than a fishing expedition. As we have previously warned: 'tax cases are to be thoroughly investigated before — rather than after — the notice of deficiency is issued.'” Id. (quoting Westreco, Inc. v. Comm'r, T.C. Memo. 1990-501).

As in the cases cited above, Respondent's desire for more discovery does not justify his failure to address the legal issues in this case. The Court should not entertain it as a reason for not granting partial summary judgment to Petitioner on the decanting issue.

III. Respondent should not be permitted a second bite at the apple as a result of his refusal to brief the legal issues before the Court.

This Court's November 5, 2021 Order (ECF no. 42) set a briefing schedule under which Respondent was required to file his opposition to Petitioner's Motion for Partial Summary Judgment by December 20, 2021. In this Court's subsequent, December 13, 2021 Order (ECF no. 45), Respondent was granted an extension of time and given a new deadline to “file his opposition no later than January 19, 2O22.”10 Respondent complied and filed the Opposition. In that Opposition memorandum, however, Respondent never contests the legal analysis presented in connection with Petitioner's motion. It is not, presumably, because Respondent does not know his own position.11 Instead, Respondent has intentionally kept the Court in the dark about Respondent's position. He asks this Court only to make a determination as to whether he has presented a dispute of material fact and, if the answer is no, then to permit him the opportunity to redo his Opposition and argue that Petitioner is not entitled to summary judgment as a matter of law. In essence, Respondent is asking this Court to rule on Petitioner's motion for partial summary judgment twice — but only if he loses the first time.

Respondent was given ample opportunity to brief the legal issues presented in Petitioner's motion and he has deliberately chosen not to do so, even after having been granted an extension. Respondent was given until January 19, 2022 to file his opposition to Petitioner's motion. Respondent did file the Opposition by that date. The fact that Respondent consciously chose not to brief the legal issues presented should not be used as an excuse to permit Respondent to delay this case further. Perhaps Respondent felt that Petitioner's legal argument merited no response; perhaps he felt that the law is so clear that the Court would agree sua sponte with Respondent or that the Court would do its own legal research to determine whether Petitioner's legal analysis is correct; perhaps he decided to roll the dice to see if the Court really meant that the Opposition needed to be filed by January 19, 2022. Whatever the reason, however, Respondent should not be permitted to waste Petitioner's and the Court's time and to flout this Court's orders regarding the briefing schedule. In addition, Petitioner should not be prejudiced by an interim ruling giving Respondent an opportunity to cure defects that are of his own making or to change his strategy. Respondent should not be allowed another bite at the apple.

CONCLUSION

As set forth above, Respondent has not identified a disputed issue of material fact, has not shown that further discovery would lead to additional material evidence, and has not challenged Petitioner's legal arguments regarding the propriety of the Decanting and the estate's eligibility for a charitable deduction for the assets left to the foundations from the Second QTIP Trusts. For the reasons set forth herein, in Petitioner's Motion for Partial Summary Judgment, and the related materials submitted to the Court, Petitioner requests that the Court grant its motion for partial summary judgment without further delay.

Dated: February 18, 2022

Respectfully Submitted,

CHRISTOPHER S. RIZEK
Tax Court Bar No. RC0369
CAPLIN & DRYSDALE, CHARTERED
One Thomas Circle, N.W.
Suite 1100
Washington, D.C. 20005
Telephone: 202/862-8852
crizek@capdale.com

BETH SHAPIRO KAUFMAN
Tax Court Bar No. KB0145
CAPLIN & DRYSDALE, CHARTERED
One Thomas Circle, N.W.
Suite 1100
Washington, D.C. 20005
Telephone: 202/862-5062
bkaufman@capdale.com

MEGAN E. WERNKE
Tax Court Bar No. WM0603
CAPLIN & DRYSDALE, CHARTERED
One Thomas Circle, N.W.
Suite 1100
Washington, D.C. 20005
Telephone: 202/862-5088
mwernke@capdale.com

Attorneys for Petitioner

FOOTNOTES

1Petitioner has several times pointed out to the Court that Respondent's efforts are plainly intended to avoid confronting the merits of the decanting issue. See Opposition to Motion for Leave to File First Amendment to Answer by Respondent (ECF no. 22) at 8; Objection to Motion to Take Deposition Pursuant to Rule 74(c)(3) (ECF no. 29) at 5, 8. Respondent's current position with respect to Petitioner's motion for partial summary judgment continues this trend.

2See Statement of Undisputed Material Facts in Support of Petitioner's Motion for Partial Summary Judgment (ECF no. 32), para. 17.

3Statement of Undisputed Material Facts in Support of Petitioner’s Motion for Partial Summary Judgment (ECF no. 32), para. 18-19.

4See Statement of Undisputed Material Facts in Support of Petitioner's Motion for Partial Summary Judgment (ECF no. 32), para. 22; Declaration of Michael J. Horvitz (ECF no. 34) (“MJH Decl.”), Exs. G-H.

5MJH Decl., Ex. F.

6Statement of Undisputed Material Facts, para. 19; MJH Decl., Exs. F and G.

7See MJH Decl. (ECF no. 34), Exs. I-K.

8Petitioner previously explained why. See Memorandum in Support of Motion for Partial Summary Judgment (ECF no. 33) at 5-6 n.3, and at 31; Objection to Motion to Take Deposition Pursuant to Rule 74(c)(3) (ECF no. 29.) at 4-5.

9See Opposition to Motion for Leave to File First Amendment to ANSWER by Respondent, (ECF no. 22), para. 16; Objection to Motion to Take Deposition Pursuant to Rule 74(c)(3) (ECF no. 29) at 6-7.

10Petitioner consented to the extension, expressly noting that he would not consent to further extensions. See Motion to Compel Production of Documents (ECF no. 47), Ex. H (bottom page 3).

11Although the notice of deficiency is somewhat abrupt, stating in pertinent part only that “the decedent did not have authority to appoint the residue of a QTIP trust to charity” (Petition, ECF no. 1, Exhibit 1 at page 3), Respondent audited the estate for almost the entire time allowed by the limitations statutes, engaged in extensive discussions with Petitioner's counsel over that period, submitted a lengthy memorandum to the Independent Office of Appeals when this case was referred for settlement discussions, and has had this case pending for over two years. That should be sufficient time to settle on a legal theory.

END FOOTNOTES

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