Menu
Tax Notes logo

Appraiser Tries to Stop Interlocutory Appeal in Easement Case

AUG. 27, 2021

United States v. Nancy Zak et al.

DATED AUG. 27, 2021
DOCUMENT ATTRIBUTES

United States v. Nancy Zak et al.

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

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

DEFENDANT CLAUD CLARK III'S RESPONSE IN OPPOSITION TO
THE UNITED STATES' MOTION TO CERTIFY
INTERLOCUTORY APPEAL

After the Court denied the government's motion to dismiss Claud Clark's Amended Counterclaim, the United States filed a motion seeking the “extraordinary measure”1 of certification of an interlocutory appeal of the denial pursuant to 28 U.S.C. § 1292(b). (Doc. 317). Because the governnment's motion falls well short of satisfying the high standard for an interlocutory appeal and fails to overcome the strong presumption against interlocutory appeals, Mr. Clark respectfully submits that the requested certification should be denied.

PROCEDURAL HISTORY

In its amended complaint, the government seeks injunctive relief and disgorgement against Defendants Nancy Zak, Claud Clark III, EcoVest Capital, Inc., Alan N. Solon, Robert M. McCullough, and Ralph R. Teal, Jr.2 (Doc. 225). The amended complaint alleges that the defendants violated various tax laws by claiming conservation easement tax deductions based, in part, on certain appraisals made by Mr. Clark.

Mr. Clark has asserted an amended counterclaim against the government under 26 U.S.C. § 6103 based on at least eleven unauthorized disclosures of his tax return information made by various government officials. (Doc. 206 at 3). The eleven statements alleged in the amended counterclaim are: (1) a sarcastic statement penned on a printout of a picture of Mr. Clark and exchanged between two IRS officials (Statement 1); (2) a statement in a December 19, 2018, DOJ Office of Public Affairs press release publicizing the allegations in the complaint in this case, which is alleged to have been drafted before filing of the complaint and to have included non-publicly available information (Statement 2): (3) a statement in a December 19, 2018, DOJ Office of Public Affairs press release describing allegedly “fraudulent conservation easement shelters” (Statement 3); (4) a statement made in a March 19, 2019, IRS news release referencing conservation easements and a December 2018 lawsuit (Statement 4); (5) statements made in a November 12, 2019, news release referencing audits and investigations into conservation easements and a December 2018 lawsuit (Statements 5 and 6); (6) statements regarding conservation easement lawsuits made to Richard Rubin of the Wall Street Journal by IRS officials on or about November 12, 2019 (Statement 7); (7) statements made by IRS officials at a November 14, 2019, tax conference (Statements 8, 9, and 10); and (8) a February 12, 2020, statement made by the Commissioner of the IRS to Senator Charles Grassley regarding enforcement actions based on conservation easements (Statement 11). Id. at ¶¶ 44-224.

The government moved to dismiss Mr. Clark's amended counterclaim. (Doc. 208). In seeking dismissal, the government raised two general arguments — that the alleged disclosures did not contain tax return information within the meaning of §6103, and that even if they did, the tax return information was in the public domain so as to preclude liability under the statute. Mr. Clark responded in opposition, arguing that there is no public record exception under § 6103 and that even if there were, dismissal would not be required because his amended counterclaim contains plausible allegations that the challenged statements extended beyond the publicly available information. (Doc. 218 at 17).

On July 6, 2021, the Court denied the government's motion to dismiss. (Doc. 309). In its order, the Court rejected the government's argument that § 6103 includes a blanket public records exception recognized by the Ninth Circuit. (Doc. 309 at 11–13). Instead, the Court adopted an approach taken by the Fourth, Fifth, Seventh, and Tenth Circuits, under which “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.” (Doc. 309 at 11–13).

The Court applied the source test to one of the statements enumerated in the amended counterclaim — Statement 2 — and concluded that “Clark has adequately alleged that at least one of the statements identified in his Amended Counterclaim improperly disclosed his tax return information, in violation of Section 6103.” (Doc. 309 at 15). Accordingly, the Court declined to address “whether each and every identified statement in the Amended Counterclaim does violate the statute — that is a question better answered upon a full evidentiary record.” (Doc. 309 at 15).

More than a month after the denial of the motion to dismiss, the government filed a motion to certify an interlocutory appeal. (Doc. 317).

APPLICABLE STANDARD

Ordinarily, the Eleventh Circuit has “jurisdiction to hear appeals taken only from a district court's 'final decision.'” Sabal Trail Transmission, LLC v. 3.921 Acres of Land in Lake Cnty., 947 F.3d 1362, 1370 (11th Cir. 2020) (quoting 28 U.S.C. § 1291). And, although there is a “strong presumption against interlocutory appeals,” United States v. One Parcel of Real Prop. With Bldgs., Appurtenances & Improvements, 767 F.2d 1495, 1498 (11th Cir. 1985), there are “exceptions to the rule that only final decisions are appealable.”Drummond Co., Inc. v. Conrad & Scherer, LLP, 885 F.3d 1324, 1336 (11th Cir. 2018). One such exception is the certification procedure outlined in 28 U.S.C. § 1292(b), which provides:

When a district judge, in making in a civil action an order not otherwise appealable under this section, shall be of the opinion that such order 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, he shall so state in writing in such order. The Court of Appeals which would have jurisdiction of an appeal of such action may thereupon, in its discretion, permit an appeal to be taken from such order, if application is made to it within ten days after the entry of the order: Provided, however, that application for an appeal hereunder shall not stay proceedings in the district court unless the district judge or the Court of Appeals or a judge thereof shall so order.

28 U.S.C.A. § 1292(b).

By its terms, § 1292(b) allows for certification only when three requirements are met: “that the order (1) involves a controlling question of law, (2) as to which there is substantial ground for difference of opinion, and (3) that an immediate appeal may materially advance the ultimate termination of the litigation.” 16 Fed. Prac. & Proc. Juris. § 3930 (3d ed.) (internal quotation marks omitted). But where there is no dispute the identified question is an issue of law, the first and the third requirements merge such that a court need only ask “whether there is substantial disagreement over the issue[ ] . . . and whether . . . resolution would materially advance th[e] litigation.” Consumer Fin. Prot. Bureau v. Frederick J. Hanna & Assocs., P.C., 165 F. Supp. 3d 1330, 1334 (N.D. Ga. 2015). Because the burden is on the moving party to establish a right to an interlocutory appeal, CSX Transp., Inc. v. Kissimmee Util. Auth., 153 F.3d 1283, 1286 (11th Cir. 1998), the party seeking § 1292(b) relief bears the burden of establishing the requirements for certification. Monroe Cnty. Emp's Ret. Sys. v. S. Co., 335 F. Supp. 3d 1315, 1327 (N.D. Ga. 2018); Rodriguez v. Procter & Gamble Co., 499 F. Supp. 3d 1202, 1206 (S.D. Fla. 2020).

DISCUSSION

The government argues that the question of whether § 1292(b) includes a public disclosure exemption is a controlling issue of law. The government identifies this issue as “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?” (Doc. 317 at 2).

Mr. Clark does not dispute that, as framed, the motion for certification presents a question of law. See McFarlin v. Conseco Servs., LLC, 381 F.3d 1251, 1259 (11th Cir. 2004) (“The legal question must be stated at a high enough level of abstraction to lift the question out of the details of the evidence or facts of a particular case and give it general relevance to other cases in the same area of law.”). Accordingly, to be entitled to § 1292(b) certification, the government must show both that there is a substantial ground for difference of opinion on this issue and that the Eleventh Circuit's resolution of this issue may materially advance the termination of the litigation. Frederick J. Hanna, 165 F. Supp. 3d at 1334.

I. There is No Substantial Ground for Difference of Opinion

As a general rule, “substantial ground for difference of opinion exists when a legal issue is (1) difficult and of first impression, (2) the district courts of the controlling circuit are split as to the issue, or (3) the circuits are split on the issue.” Id. at 1335 (collecting cases). But there are no bright line rules for this element. Rather, “[t]he level of uncertainty required to find a substantial ground for difference of opinion should be adjusted to meet the importance of the question in the context of the specific case.” 16 Fed. Prac. & Proc. Juris. § 3930 (3d ed.). Where, as here, the question is non-jurisdictional and would not terminate the case as a whole, a court should demand a high level of doubt as to resolution of the issue. See id. (“If proceedings that threaten to endure for several years depend on an initial question of jurisdiction, limitations, or the like, certification may be justified at a relatively low threshold of doubt.”).

The government argues that there is a substantial ground for difference of opinion based on “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.” (Doc. 317-1 at 9). None of these arguments satisfy the substantial ground requirement.

First “questions of first impression or an absence of binding authority on an issue, without more, are insufficient to demonstrate a substantial ground for difference of opinion.” Havana Docks Corp. v. Carnival Corp., No. 19-cv-21724, 2019 WL 8895240, at *1 (S.D. Fla. Oct. 8, 2019); In re Scientific-Atlanta, Inc. v. Secs. Litig, 2003 WL 25740734, at *1 (N.D. Ga. Apr. 15, 2003) (“[T]he mere lack of authority as to a disputed issue does not necessarily establish a substantial ground for difference of opinion under the statute.”) (collecting cases). Accordingly, the lack of controlling authority, standing alone, cannot satisfy the substantial ground element.

Similarly, a circuit split does not absolve the court of its duty “to analyze the strengths of the arguments in opposition to the challenged ruling when deciding whether the issue for appeal is truly one on which there is a substantial ground for dispute.” U.S. ex rel Anti-Discrimination Ctr. Of Metro N.Y., Inc. v. Westchester Cnty., No. 06-civ-2860, 2009 WL 970866, at *1 (S.D.N.Y. Apr. 9, 2009) (quoting In re Flor, 79 F.3d 281, 284 (2d Cir. 1996)). Because there can be no substantial ground for difference of opinion when resolution of the issue would be “clear” on appeal,3 the inquiry necessarily requires a comparison of the conflicting holdings against controlling law within the circuit. If the reasoning of one of the positions finds support in controlling precedent while the other does not, there can be no substantial ground for a difference of opinion. And, when compared against existing Eleventh Circuit precedent, there is no substantial ground for a difference of opinion on the issue of a public exemption.

The circuit split on the issue of the public exemption, to the extent one exists, centers on application of the rules of statutory interpretation. The Courts which have found no such exemption have focused on the plain language of § 6103, specifically the absence of such an exemption from the statute itself. See Mallas v. United States, 993 F.2d 1111, 1120 (4th Cir. 1993) (“Unless the disclosure is authorized by a specific statutory exception, section 6103(a) prohibits it.”); Johnson v. Sawyer, 120 F.3d 1307, 1319 (5th Cir. 1997) (“[W]e cannot conclude that Congress' failure to include in § 6103 the exception Appellants press upon us was unintentional.”). The Ninth Circuit, in contrast, held that the plain language of the statute should not control because reliance on the language would defeat the purpose of the statute which, according to the Ninth Circuit, was “to prohibit only the disclosure of confidential tax return information.” Lampert, 854 F.2d at 338. No authority was cited for this statement of purpose. See id.

Under Eleventh Circuit precedent, “[t]he plain meaning of a statute controls . . . interpretation of that statute unless the language is ambiguous or would lead to an absurd result.” United States v. Estrada, 969 F.3d 1245, 1264 (11th Cir. 2020). There is nothing ambiguous about the absence of a statutory exemption. See Jefferson Cnty. Pharm. Ass'n, Inc. v. Abbot Labs., 460 U.S. 150, 156–57 (1983). And, the absurdity exception to the plain meaning rule is “necessarily very narrow” and “applies only when a straightforward application of statutory text would compel a truly ridiculous . . . outcome.” CRI-Leslie, LLC v. I.R.S., 882 F.3d 1026, 1031 (11th Cir. 2018). To qualify as absurd, the result must be “monstrous.” Id. When the argument is that the absurdity flows from conflicting with the purpose of the statute, there must be “clearly expressed legislative intent to the contrary.” United States v. Alabama, 778 F.3d 926, 939 (11th Cir. 2015).

In Lampert, the Ninth Circuit did not purport to consider whether there was a clearly expressed legislative intent regarding confidentiality. It simply stated what it “believe[d]” to be the purpose. 854 F.2d at 338. In this sense, the Ninth Circuit used a standard for overriding the statute's plain language that is inapplicable to existing Eleventh Circuit precedent.For this reason, Lampert, and its resulting circuit split, should not be used to support a finding of a substantial ground of difference of opinion.4

Finally, the government argues that the Court's order “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 the test.”(Doc. 317-1 at 14–15). According to the government, “[t]he Court's narrower approach underscores the difficulty of the proposed question for appeal and the substantial grounds for difference of opinion on this question.” (Doc. 317-1 at 15). However, contrary to the government's contention, both the test adopted by the Court and the ultimate result denying the motion to dismiss are wholly consistent with the analytical framework of those courts which applied the immediate source test. See Thomas v. United States, 890 F.2d 18, 22 (7th Cir. 1989) (no § 6103 liability “when the immediate source is a public document lawfully prepared by an agency that is seprate from the Internal Revenue Service and has lawful access to tax returns”); Rodgers v. Hyatt, 697 F.2d 899, 906 (10th Cir. 1983) (testimony of IRS agent in federal proceeding did not preclude liability for separate disclosure of same information).

In sum, Eleventh Circuit law requires that a Court give effect to a statute's plain meaning unless doing so would produce a monstrous result, such as where the result would conflict with the statute's clearly stated purpose. Because no public records exemption exists in the statute and because there is no indication expressing a legislative intent that such an exemption should exist, there is no substantial ground for a difference of opinion on this point. Case law which has declined to recognize such an exemption has made clear that the IRS' disclosure of tax return information in a judicial proceeding does not preclude liability for a later disclosure of the same information. For these reasons, there is no substantial ground for a difference of opinion on the issue presented.

II. Resolution of the Issue Would Not Materially Advance Termination of this Litigation

The third requirement demands “that resolution of [the] issue would serve to avoid a trial or otherwise substantially shorten the litigation.” McFarlin, 381 F.3d at 1259. Conclusory assertions that an identified issue would satisfy this standard are insufficient to support § 1292(b) relief. See, e.g., In re United Plastic Recycling, Inc., No. 2:17-cv-700, 2017 WL 5075251, at *3 (M.D. Ala. Nov. 3, 2017) (§ 1292(b) certification inappropriate when the court is “left guessing as to what (if any) facts, circumstances, and issues . . . might . . . justify interlocutory appeal”); Barboza v. Village of Liberty, No. 13-cv-4067, 2016 WL 8653502, at *4 (S.D.N.Y. Jan. 21, 2016) (“[O]ther than one conclusory sentence . . . Defendants fail to . . . show[ ] that certification would materially advance the termination of the litigation.”); Moreover, the fact that the appeal would resolve one claim in a larger action does not, standing alone, satisfy the requirement. McFarlin, 381 F.3d at 1262 (interlocutory appeal did not satisfy third requirement when “[i]t might dispose of [one] claim, but . . . would leave the others standing”). Here, resolution of the identified issue would not even dispose of one claim, much less all of them.

The government's argument with respect to the third element is somewhat difficult to follow, but appears to be that although the Court's order denying dismissal only addressed one of the statements alleged in the complaint (the press release in Statement 2), “[t]he additional alleged disclosures are inextricably linked to the Press Release” such that “whether the Press Release disclosed Clark's protected return information in violation of § 6103 bears on the validity of the entire counterclaim.” (Doc. 317-1 at 16–17). The United States then argues, without offering any specifics, that resolution of the entire counterclaim would avoid “voluminous” discovery and the possibility of “many” depositions. Id.

The government is incorrect that resolution of the identified issue would compel dismissal of the counterclaim as a whole. As noted above, it is Mr. Clark's position that even if the Eleventh Circuit were to adopt the Ninth Circuit's blanket public records exemption, dismissal would not be required because there is an issue of fact as to whether some of the disclosures alleged in the amended counterclaim extended beyond the publicly disclosed information.

The United States is also incorrect that all claims in the amended counterclaim necessarily depend on whether the disclosure in Statement 2 was proper. As pled, many of the challenged statements did not specifically identify Mr. Clark. But, as the Court observed in this case, “Section 6103(b)(8) defines disclosure broadly to include directly or indirectly making known to any person in any manner whatever.” United States v. Zak, 481 F. Supp. 3d 1305, 1308 (N.D. Ga. 2020). Consistent with this law, the amended counterclaim pleads that when read with the explicit identification of Mr. Clark in the Statement 2 press release, many of the statements indirectly disclosed Mr. Clark's information. Put differently, it is Mr. Clark's position that by virtue of the personally identifying information in Statement 2, the United States improperly disclosed his tax return information in other statements. This argument, which is based on the general identification of Mr. Clark in Statement 2, does not depend on the validity of the disclosure in Statement 2.

Even if resolution of the issue could dispose of the amended counterclaim in its entirety, certification would still be unwarranted because the United States has failed to show that resolution of the amended counterclaim would substantially shorten this litigation. When a party argues that an interlocutory appeal would substantially shorten the litigation by avoiding discovery, it must show that resolution of the issue would “significantly limit” the future discovery. DeBose v. Univ. of S. Fla. Bd. of Trs., No. 8:15-cv-2787, 2018 WL 8919876, at *7 (M.D. Fla. Mar. 23, 2018). To satisfy this standard, the party should identify the evidence that would be impacted and compare that evidence to “the amount and nature of other evidence in this case.” Maxey v. Gen. Motors Corp., No. 3:95-cv-6, 1996 WL 737537, at *3 (N.D. Miss. Dec. 16, 1996). The government has made no effort to identify the discovery that would be avoided should the amended counterclaim be dismissed (or limited). Nor has it attempted to show that any limitation would be “significant” when compared to the discovery on the claims that would remain.

Thus, the government has failed to sustain its burden of showing that resolution of the issue identified by government's motion for certification would substantially shorten this litigation. It follows that certification of the appeal under § 1292(b) is unwarranted.

CONCLUSION

Certification of an interlocutory appeal is an extraordinary remedy that should be used sparingly.It should not be used to force piecemeal litigation upon a prevailing litigant based on nothing more than a conclusory statement that the appeal would have some unspecified impact on discovery. Mr. Clark respectfully requests that government's motion for certification be denied.

Dated: August 27, 2021

Respectfully submitted,

KHAYAT LAW FIRM

Robert C. Khayat, Jr.
Georgia Bar No. 416981
75 Fourteenth Street, N.E.
Suite 2750
Atlanta, Georgia 30309
Telephone: (404) 978-2750
Facsimile: (404) 978-2901
Email: rkhayat@khayatlawfirm.com

FOOTNOTES

1Consumer Fin. Protection Bureau v. Frederick J. Hanna & Assocs., P.C., 165 F. Supp. 3d 1330, 1334 (N.D. Ga. 2015).

2Ms. Zak is no longer a party to the case.

3See McFarlin, 381 F.3d at 1258 (no substantial ground for difference of opinion when “resolution [is] clear”).

4It does not appear the government intends to argue that there is a circuit split based on United States v. Rowley, 76 F.3d 796, 802 (6th Cir. 1996), which held that information set forth in a tax lien is public so as to preclude liability under § 6103. To the extent Rowley contained little, if any, independent analysis on the issue of the public exemption, it offers no ground to find a substantial ground of difference of opinion.

END FOOTNOTES

DOCUMENT ATTRIBUTES
Copy RID