IRS Opposes Motion to Strike Portions of Its Appellate Brief
Sandra Shockley et al. v. Commissioner
- Case NameSANDRA SHOCKLEY, ET AL., Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee
- CourtUnited States Court of Appeals for the Eleventh Circuit
- DocketNo. 16-13473
- Cross-Reference
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2017-1729
- Tax Analysts Electronic Citation2017 TNT 23-34
Sandra Shockley et al. v. Commissioner
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
COMMISSIONER'S CERTIFICATE OF INTERESTED
PERSONS AND CORPORATE DISCLOSURE STATEMENT
Pursuant to 11th Cir. R. 26.1, counsel for the Commissioner hereby certify, to the best of their knowledge, information, and belief, that no publicly traded corporation has an interest in the outcome of this case, and that the following persons or entities may have an interest in the outcome of this case or have participated as attorneys or judges in the adjudication of this case:
Allsop Venture Partners III, L.P., petitioner in related Tax Court case Alta Subordinated Debt Partners III, L.P., petitioner in related Tax Court case
Alta V L.P., petitioner in related Tax Court case
Balahtsis, Steven N., Internal Revenue Service ("IRS") Office of Chief Counsel, trial attorney for Respondent-Appellee
Bricker, William L. Jr., defendant in related malpractice case
Campbell, Gail, IRS, trial attorney for Respondent-Appellee
Catterall, Arthur Thomas, attorney for Respondent-Appellee
Ciraolo, Caroline, Principal Deputy Assistant Attorney General, Tax Division, United States Department of Justice
Cohen, Mary Ann, United States Tax Court Judge
Commissioner of Internal Revenue Service, Respondent-Appellee
Curtis, Mallet-Prevost, Colt & Mosle LLP, defendant in related malpractice case
Erbsen, Diana L. Deputy Assistant Attorney General, Tax Division, United States Department of Justice
Johnson, Jenny, attorney for Petitioners-Appellants
Kaye, Aharon S., Trial counsel for Petitioners-Appellants
Kelly, Terence, petitioner in related Tax Court case
Klintworth, Dave, defendant in related malpractice case
Moore, Guinevere, trial attorney for Petitioners-Appellants
Murphy & Desmond, S.C., defendant in related malpractice case
Northern Communications Acquisition Corporation, entity involved in underlying transaction
Northern Communications Acquisition LLC, entity involved in underlying transaction
Northern Communications Holding Co., entity involved in underlying transaction
Northern Communications Statutory Trust, entity involved in underlying transaction
Pasch, Robert A., defendant in related malpractice case
Press, Lyle, IRS, trial attorney for Respondent-Appellee
Rothenberg, Gilbert Steven, attorney for Respondent-Appellee
RSM McGladrey, Inc., defendant in related malpractice case
Schmidt, Stephen A., defendant in related malpractice case
Shockley Broadcasting, LLC, entity involved in underlying transaction
Shockley Communications Acquisition, LLC, entity involved in underlying transaction
Shockley Communications Corporation, entity involved in underlying transaction
Shockley Delaware Corp., entity involved in underlying transaction
Shockley Holdings LLC, Petitioner-Appellant
Shockley, Sandra, Petitioner-Appellant
Shockley, Terry, Petitioner-Appellant
Smulkowski, Ziemowit T., trial counsel for Petitioners-Appellants
State of Wisconsin Investment Board, petitioner in related Tax Court case
Ugolini, Francesca, attorney for Respondent-Appellee
Vesselinovitch, Alexander S., trial counsel for Petitioners-Appellants
Wilkins, William J., Chief Counsel, Internal Revenue Service
* * * * *
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
APPELLEE'S OPPOSITION TO APPELLANTS' MOTION TO STRIKE PORTIONS OF
APPELLEE'S BRIEF AND APPENDIX
The Commissioner of Internal Revenue, appellee herein, by and through counsel, hereby opposes appellants' motion to strike portions of the Commissioner's brief and supplemental appendix. Pursuant to 11th Cir. R. 26.1-2(c), counsel for the Commissioner certify that they believe that the certificate of interested persons and corporate disclosure statement contained in the appellants' motion is complete.
BACKGROUND
Tax Ct. R. 91(a)(1) requires the parties "to stipulate, to the fullest extent" possible, "all matters . . . which are relevant to the pending case," including "all documents and papers or contents or aspects thereof." A stipulation regarding a document attached as an exhibit generally establishes the document's authenticity. See Estate of Tanenblatt v. Commissioner, 106 T.C.M. (CCH) 579, 583 (2013). Any evidentiary objection to a stipulated document (i.e., on grounds other than authenticity) should be noted in the stipulation. Tax Ct. R. 91(d).
Executed stipulations (and related exhibits, which are "considered to be part of the stipulation") are generally filed by the parties at or before the commencement of the trial of the case. Tax Ct. R. 91(a), (c). Once filed, a stipulation "need not be offered formally to be considered in evidence." Tax Ct. R. 91(c). The parties filed the set of stipulations that is the subject of appellants' motion ("First Stipulation of Fact") approximately two months prior to the trial. (Doc. 24.) At the start of the trial, the court stated that "the exhibits attached to the stipulations will be received in evidence subject to the objections and to argument on them or curing the objections at a later time." (Tr. 6:24-7:2.)
Paragraph 97 of the parties' First Stipulation of Fact reads as follows:
97. Attached hereto as Exhibit 48-R is a copy of a Kalil internal memo dated September 25, 2000. (SCC042124). Petitioners object to the admission of this document on hearsay grounds.
(Doc. 24.) The referenced memorandum is from "Beese" (Richard Beesemyer) to "Frank" (Kalil) and "Shockley File." Richard Beesemyer, now deceased, was the main broker responsible for the Shockley account at Kalil & Co., a media brokerage company. (Doc. 24 ¶¶ 54-55; Tr. 62:13-24.) The memorandum refers to the fact (established elsewhere) that Terry Shockley had hired a company called Integrated Capital Associates (ICA) to effect the contemplated sale of Shockley Communications Corporation's (SCC's) television assets to Quincy Newspapers, Inc. (QNI) by means of a so-called "Midco" transaction, pursuant to which ICA "would purchase SCC's stock and [then cause SCC to] sell QNI the assets." (Op. 8-10; Tr. 164:7-165:6; Ex. 349-J.) As is relevant here, the memorandum contains the following statement: "Terry's instructions are that ALL formal documents, letters of intent, written offers, should be sent directly to Integrated Capital A.L." (Ex. 48-R.) The Commissioner did not attempt to overcome the appellants' hearsay objection to this exhibit.
The four sets of stipulations filed by the parties included almost 500 exhibits. (Docs. 24, 34, 35, 37.) The appellants included two trial exhibits in their two-volume appendix, citing one of those two exhibits in their opening brief.1 Br. 17. The Commissioner included 68 additional trial exhibits in his two-volume supplemental appendix, citing all 68 of those exhibits in his answering brief. Gov't Br. 6-22, 49, 55-59, 63-64.2 The appellants take issue with the inclusion of one of those 68 exhibits in the Commissioner's supplemental appendix, Exhibit 48-R, and with the Commissioner's lone citation to that exhibit in his answering brief.
The Commissioner made the following reference to Exhibit 48-R in his answering brief: "In an internal memorandum dated September 25, 2000 regarding the SCC/QNI negotiations, Richard Beesemyer of Kalil & Co. noted that 'all formal documents, letters of intent, written offers, should be sent directly to Integrated Capital [Associates].' (Ex. 48-R.)" Gov't Br. 8 (alteration in brief). In a footnote, we added (id. at 8 n.2):
This exhibit was admitted into evidence subject to taxpayers' objection on hearsay grounds. (Tr. 6-7; Doc. 24 ¶ 97.) Although the Tax Court never ruled on that objection, we are not citing the exhibit to establish the truth of the quoted statement.
The Federal Rules of Evidence define hearsay as follows:
(1) the declarant does not make while testifying at the current trial or hearing; and
(2) a party offers in evidence to prove the truth of the matter asserted in the statement.
The issue raised by appellants' motion appears to be a novel one: When a stipulated exhibit is received into evidence subject to a hearsay objection, and the offering party does not subsequently attempt to overcome the hearsay objection, is the exhibit excluded from evidence altogether, or does it remain in evidence for purposes other than proving the truth of the matters asserted therein? Although we have found no authority directly on point, we submit that the better answer -- at least where, as here, the offering party does not represent in the stipulation that it is offering the document into evidence for the purpose of proving the truth of any matters asserted therein -- is that the document remains in evidence but is not probative of the truth of any matters asserted therein.
Conceptually, when a documentary exhibit to a stipulation of facts is conditionally received into evidence (i.e., at the start of the trial) subject to a hearsay objection, there are three possible outcomes in terms of its initially conditional evidentiary status: either (1) the condition will effectively be removed, such that the statements contained in the exhibit are treated as evidence of the truth of the matters asserted therein; (2) the conditional admission will effectively be revoked, such that the exhibit is excluded from evidence altogether; or (3) the condition will remain in effect, such that the exhibit remains in evidence, but not for purposes of proving the truth of the matters asserted therein. The first outcome occurs if the court overrules the hearsay objection. The second outcome occurs if the court, without more, sustains the hearsay objection. And the third outcome occurs if the court sustains the hearsay objection but allows the exhibit to remain in evidence for other purposes (i.e., for purposes other than proving the truth of the matters asserted therein). The issue here is whether the third outcome is limited to the "fallback" situation -- where the offering party unsuccessfully attempts to overcome the hearsay objection and then settles for "limited purpose" admissibility of the exhibit -- or can also occur on a default basis, i.e., by reason of the offering party simply not challenging the hearsay objection.
The problem with the more restrictive approach advocated by the appellants is that it assumes that every stipulated exhibit is offered for the purpose of proving the truth of the matters asserted therein. In other words, under the restrictive approach, the offering party would have to re-introduce every stipulated exhibit that was subject to a hearsay exception, even if the offering party never intended to offer the exhibit into evidence for the purpose of proving the truth of the matters asserted therein. But "[t]he purpose of the [Tax] Court's stipulation process is to permit a more expeditious trial of the case." Pan American Acceptance Corp. v. Commissioner, 57 T.C.M. (CCH) 1360, 1362 (1989) (fn. ref. omitted); see also Theodore Tannenwald, Jr., Tax Court Trials: An Updated View from the Bench, 47 Tax Law. 587, 591 (Spring 1994) (noting that "[t]o the extent that written material is stipulated, needless expenditure of time in marking exhibits and offering them into evidence is avoided") (fn. ref. omitted). The restrictive approach would therefore run counter to the purpose of the stipulation process, which has been called "the bedrock of Tax Court practice." Shami v. Commissioner, 741 F.3d 560, 573 (5th Cir. 2014) (internal quotation marks omitted); cf. Diebold Found., Inc. v. Commissioner, 736 F.3d 172, 177 n.3 (2d Cir. 2013) (rejecting taxpayer's argument that the Commissioner could not refer to stipulated documents that concededly could not be cited to establish the truth of the matters asserted therein). This Court should therefore reject the appellants' contention (Mot. 6) -- unsupported by any citation to authority -- that their "objection to Exhibit 48-R on hearsay grounds prevented the admission of that exhibit into evidence unless the Commissioner overcame the objection at trial."
Appellants do not seriously contend that we cited Exhibit 48-R to establish the truth of the quoted statement. Indeed, the quoted statement is not a statement of fact; it is simply a directive: "[A]ll formal documents, letters of intent, written offers, should be sent directly to Integrated Capital."3 (Ex. 48-R.) If we had included the introductory clause to that statement ("Terry's instructions are that"), then the augmented statement would have had a factual element, i.e., that the directive came from Terry Shockley. But we merely sought to draw the Court's attention to the existence of the directive, not its source. The appellants stipulated to the authenticity of the document, the court received it into evidence subject to the appellants' hearsay objection, and we did not cite it for the truth of any statements contained therein. Accordingly, there is nothing untoward about the Commissioner's reference to Exhibit 48-R. See Diebold, 736 F.3d at 177 n.3.
As indicated above, the appellants cite no authority in support of their assertion (Mot. 6) that their "objection to Exhibit 48-R on hearsay grounds prevented the admission of that exhibit into evidence unless the Commissioner overcame the objection at trial." Elsewhere (id. at 2-3), they cite Cont'l Illinois Corp. v. Commissioner, 57 T.C.M. (CCH) 1464 (1989), for the more general proposition that stipulated exhibits that are received into evidence subject to an objection "are not admitted into evidence unless the offering party successfully moves the exhibit into evidence at trial."4 In particular, appellants note that the court there, after overruling objections to certain stipulated exhibits, stated that "the exhibits are hereby made a part of this record." Id. at 1473.
To the extent the quoted language from Continental Illinois suggests that the exhibits were not already in evidence (subject to subsequent exclusion therefrom, see Estate of Tanenblatt, 106 T.C.M. (CCH) at 583), it conflicts with Tax Ct. R. 91(c), which provides that "[a] stipulation when filed need not be offered formally to be considered in evidence." See Siegal v. Commissioner, 63 T.C.M. (CCH) 3127, 3127-4 n.5 (1992) (rejecting taxpayer's argument that stipulated exhibits to which taxpayer had unsuccessfully objected were not in evidence, and noting that the Commissioner "did not have to offer them into evidence," since "[u]nder Rule 91(c), the documents become part of the evidentiary record when the stipulation is filed with the Court"). In any event, the exhibits to which the court in Continental Illinois was referring in the quoted language were the subject of relevance objections, which, unlike hearsay objections, generally result in exclusion from evidence for all purposes if sustained.
Appellants erroneously contend (Mot. 6) that "the evidentiary issues presented by Exhibit 48-R are identical to those presented by another exhibit that the trial judge explicitly excluded from evidence as unreliable hearsay when the Commissioner attempted to introduce it at trial." Appellants are referring to Exhibit 40-R, another internal memorandum prepared by Richard Beesemyer. The memorandum, which describes a telephone conversation with Terry Shockley, concludes with the following statement: "In summary, I get the very distinct impression that Terry would like to get this sale concluded as quickly as possible." (Ex. 40-R [emphasis added].) In response to the appellants' argument that the document did not have sufficient "indicia of reliability" to satisfy the business-record exception to the hearsay rule (Tr. 309:13), the court stated that "the problem" was "not whether it's a business record or not" (Tr. 310:13-14); rather, the court was "concerned about" the fact that Mr. Beesemyer "can't be cross-examined about his impressions." (Tr. 311:3-5 [emphasis added].) In contrast, in Exhibit 48-R, Mr. Beesemyer did not refer to his "impression" of his conversation with Mr. Shockley, and, in any event, the statement we quoted is not a factual statement (nor did we make any representation as to its source). Appellants' alleged concern about "trustworthiness" is a red herring.5
CONCLUSION
For the reasons stated above, appellants' motion to strike portions of the Commissioner's brief and supplemental appendix should be denied. In the alternative, if the court grants the motion, then the material to be stricken from the Commissioner's brief should be limited to the first sentence of the first full paragraph on page 8, the accompanying record cite and footnote, and the introductory clause of the next sentence ("Consistent with that convention,").
Respectfully submitted,
CAROLINE D. CIRAOLO
Principal Deputy Assistant Attorney General
Arthur T. Catterall
FRANCESCA UGOLINI (202) 514-1882
ARTHUR T. CATTERALL (202) 514-2937
Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044
Facsimile: (202) 514-8456
appellate.taxcivil@usdoj.gov
October 31, 2016
1 The appellants included 115 pages of trial testimony in their appendix, citing nine of those pages in their opening brief. Br. 12, 15, 17, 28-29.
2 Appellants complain (Mot. 2) that the Commissioner did not follow their practice of "sparingly supplement[ing] the Tax Court's findings" with record cites. If the record had been favorable to the appellants' case, we suspect that they would not have been so sparing with their record cites.
3 Nor is the quoted statement a "sentence fragment" (Mot. 8), at least not in the grammatical sense.
4 Appellants do not contend that there is a substantive distinction between the phrases "received into evidence" and "admitted into evidence." See Tax Ct. R. 143(d) (referring to depositions "received in evidence"), (e) (referring to documents "admitted in evidence").
5 Indeed, appellants themselves introduced one of the Kalil & Co. memos to which they had previously objected on hearsay grounds. (Doc. 24 ¶ 385; Ex. 285-R; Tr. 326:16-328:5.) See Mot. 6 ¶ 21. Apparently the trustworthiness of that particular memo was not a concern.
END OF FOOTNOTES
- Case NameSANDRA SHOCKLEY, ET AL., Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee
- CourtUnited States Court of Appeals for the Eleventh Circuit
- DocketNo. 16-13473
- Cross-Reference
- Code Sections
- Subject Area/Tax Topics
- Jurisdictions
- LanguageEnglish
- Tax Analysts Document NumberDoc 2017-1729
- Tax Analysts Electronic Citation2017 TNT 23-34