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EcoVest Files Surreply Regarding Admissions in Easement Case

APR. 11, 2022

United States v. EcoVest Capital Inc. et al.

DATED APR. 11, 2022
DOCUMENT ATTRIBUTES
  • Case Name
    United States v. EcoVest Capital Inc. et al.
  • Court
    United States District Court for the Northern District of Georgia
  • Docket
    No. 1:18-cv-05774
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2022-12273
  • Tax Analysts Electronic Citation
    2022 TNTF 72-28
    2022 EOR 5-58
  • Magazine Citation
    The Exempt Organization Tax Review, May 2022, p. 255
    89 Exempt Org. Tax Rev. 255 (2022)

United States v. EcoVest Capital Inc. et al.

[Editor's Note:

View exhibits in PDF version of document.

]

UNITED STATES,
Plaintiff,
ECOVEST CAPITAL, INC., et al.,
Defendants.

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

THE ECOVEST PARTIES' MOTION FOR LEAVE TO FILE A SURREPLY IN SUPPORT OF THEIR OPPOSITION TO PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

EcoVest Capital, Inc., Alan Solon, Ralph Teal, and Robert McCullough (collectively, “the EcoVest Parties”) respectfully request leave to file a surreply in support of their Opposition to Plaintiff's Motion for Partial Summary Judgment (Plaintiff's “MSJ”) (ECF Nos. 349, 365). A copy of the surreply the EcoVest Parties request to file is attached.

As described in the attached surreply, soon after the EcoVest Parties filed their opposition to Plaintiff's MSJ (ECF No. 365), Plaintiff provided EcoVest with written statements in two other proceedings that contradict one of Plaintiff's core positions in its MSJ. Specifically, after the EcoVest Parties filed their MSJ opposition, Plaintiff memorialized in writing concessions that the appraisals for two of EcoVest's projects that are at issue in Plaintiff's MSJ were “qualified appraisals,” despite Plaintiff's arguments to the contrary in its MSJ. Declaration of Ian Palmer (“Palmer Decl.”), ¶¶ 3–7; Exs. 1 and 2; ECF No. 349-1 at 9–10, 15–26, 28–35. Plaintiff's representatives who made those statements knew of — and even made explicit reference to — Plaintiff's MSJ. Palmer Decl. at ¶ 4.

Plaintiff's recent statements directly contradict one of the arguments at the heart of Plaintiff's MSJ: that the EcoVest Parties knowingly and falsely stated the appraisals used in connection with their projects were “qualified appraisals.” See, e.g., ECF No. 349-1 at 9–10, 15–26, 28–35. Plaintiff asks this Court to find the appraisals were not “qualified” (and that the EcoVest Parties knew as much) while at the same time admitting in parallel proceedings that at least two of those appraisals were “qualified.” The EcoVest Parties' surreply would succinctly present that for the Court's consideration.1

This Court and the Eleventh Circuit have allowed Parties to file surreplies where “a valid reason for such additional briefing exists.” See First Specialty Ins. Corp. v. 633 Partners, Ltd., 300 F. App'x 777, 788 (11th Cir. 2008) (quoting Fedrick v. Mercedes–Benz USA, LLC, 366 F. Supp. 2d 1190, 1197 (N.D. Ga. 2005)); ECF No. 149 at 4. Plaintiff's post-briefing concessions on one of its core claims at summary judgment warrants short, additional briefing.

For the foregoing reasons, the EcoVest Parties respectfully request that the Court grant their motion and permit them to file the attached surreply. A proposed order is attached for the Court's consideration.

Respectfully submitted,

Dated: April 11, 2022

Sean Akins

Benjamin J. Razi (admitted pro hac vice)
Sean Akins (admitted pro hac vice)
Marianna Jackson (admitted pro hac vice)
Matthew V. Miller (admitted pro hac vice)
Nicholas Pastan (admitted pro hac vice)
Kandyce Jayasinghe (admitted pro hac vice)
Amee Frodle (admitted pro hac vice)
John Zipp (admitted pro hac vice)
Wesline N. Manuelpillai (admitted pro hac vice)

COVINGTON & BURLING LLP
850 Tenth St. NW Washington, DC 20001
Tel.: (202) 662-6000
Fax: (202) 662-6291
Email: sakins@cov.com

Thomas T. Tate
Georgia Bar No. 698879
Elizabeth L. Clack-Freeman
Georgia Bar No. 126888
ANDERSEN, TATE, & CARR, P.C.
One Sugarloaf Centre
1960 Satellite Blvd., Suite 4000
Duluth, Georgia 30097
Tel: (770) 822-0900
Fax: (770) 822-9680
Email: ttate@atclawfirm.com

Attorneys for Defendants EcoVest Capital, Inc.,
Alan N. Solon, Robert M.
McCullough, and Ralph R. Teal, Jr.

*I certify that this pleading has been prepared with one of the font and point selections approved by the Court in LR 5.1C.


THE ECOVEST PARTIES' SURREPLY IN SUPPORT OF THEIR OPPOSITION TO PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

EcoVest Capital, Inc., Alan Solon, Ralph Teal, and Robert McCullough (collectively, “the EcoVest Parties”) respectfully file this Surreply in Support of their Opposition to Plaintiff's Motion for Partial Summary Judgment (Plaintiff's “MSJ”) (ECF Nos. 349, 365). The EcoVest Parties file this Surreply to present for the Court's consideration admissions Plaintiff made after the EcoVest Parties filed their opposition brief to Plaintiff's MSJ. These admissions — that two of the appraisals at issue in Plaintiff's MSJ are “qualified appraisals” — flatly contradict Plaintiff's MSJ.

I. Plaintiff Recently Admitted that Appraisals at Issue in Its MSJ Are “Qualified Appraisals.”

In addition to pursuing this litigation, Plaintiff is auditing or has audited at least 53 of the 73 EcoVest-related partnerships at issue in this case. See ECF No. 348-2 at ¶ 89.

On March 10, 2022, EcoVest and Plaintiff participated in an Appeals Conference related to Plaintiff's audit of a partnership associated with EcoVest's Azalea Bay project.1 Declaration of Ian Palmer (“Palmer Decl.”), ¶¶ 3–5. Azalea Bay is one of the example projects cited throughout Plaintiff's statement of facts related to its MSJ. E.g. ECF No. 349-2 at ¶¶ 3, 5, 6, 17, 18. During the March 10 Appeals Conference, two IRS officials — an IRS Appeals Officer and an IRS Appeals Technical Guidance Coordinator — each stated that the Azalea Bay partnership had “no hazards of litigation” on “any legal issues” associated with the Azalea Bay project, except for the question of the value of the conservation easement. Palmer Decl. ¶ 3. When pressed on this statement, the IRS Appeals Technical Guidance Coordinator confirmed that there were “no hazards of litigation” as to whether the appraisal associated with the Azalea Bay project is a “qualified appraisal,” and both IRS officials further confirmed that the project's appraisal is a “qualified appraisal.” Id. Plaintiff's representatives who made those statements knew of, made explicit reference to, and quoted from Plaintiff's MSJ. Id. at ¶ 4.2

EcoVest asked that Plaintiff memorialize its statements in writing. Palmer Decl. at ¶ 5. On March 17, 2022, one day after the EcoVest Parties filed their response to Plaintiff's MSJ, Plaintiff reiterated, in a letter from an IRS Appeals Officer, that it “conceded in full any legal issues such as the qualified appraisal issue. . . .” Ex. 1.

On March 31, 2022, another Appeals Conference was held, this time for a partnership associated with a different EcoVest project, Magnolia Bay. Palmer Decl. at ¶ 6. During this conference, an IRS Appeals Officer acknowledged that the Magnolia Bay project had a “qualified appraisal” and the partnership faced no hazards of litigation on the question of whether the appraisal is a “qualified appraisal.” Id. Then, in an April 4, 2022 letter about that project, Plaintiff wrote, once again, that “Appeals conceded in full any legal issues such as the qualified appraisal issue. . . .”3 Ex. 2.

II. Plaintiff's Admissions Contradict Its MSJ Position that the Appraisals Are Not “Qualified Appraisals.”

Plaintiff's recent admissions acknowledging that the Azalea Bay and Magnolia Bay appraisals are “qualified appraisals” contradict its MSJ and support two points in the EcoVest Parties' opposition to Plaintiff's MSJ.

First, Plaintiff's admissions demonstrate, at minimum, that there is a “genuine dispute” (see FRCP 56(a)) that the appraisals are “qualified appraisals.” To prevail on the relevant portion of its MSJ, Plaintiff must demonstrate that (a) the appraisals at issue are not “qualified appraisals” and (b) the EcoVest Parties knew or should have known as much. ECF No. 349-1 at 9–10, 15–26, 28–35. Plaintiff's admissions that the appraisals are “qualified appraisals” undermines — if not outright contradicts — its contrary position in this litigation. See Thyssen Elevator Co. v. Drayton-Bryan Co., 106 F. Supp. 2d 1355, 1360 (S.D. Ga. 2000) (noting courts “have allowed introduction of prior inconsistent pleadings as substantive evidence”); Fed. R. Evid. 801(d)(2); Rev. Proc. 64-22, 1964-1 CB 689 (“It is also important that care be exercised not to raise an issue or to ask a court to adopt a position inconsistent with an established Service position.”).

Second, the EcoVest Parties suggested in their opposition that an award of costs may be appropriate for the fees Plaintiff needlessly forced them to incur in responding to Plaintiff's MSJ. ECF No. 365 at 3, n. 2. Plaintiff's recent admissions reinforce that suggestion.

III. Rule 408 Does Not Bar Consideration of These Statements

Even though Plaintiff made its statements in connection with Appeals Conferences where settlement discussions took place, Federal Rule of Evidence 408 does not bar the Court's consideration of the statements for two reasons.

First, for the exclusionary rule to apply, “Rule 408 unambiguously requires that the claim as to which a settlement offer was made and the claim at issue in the litigation in which the offer is proffered as evidence must be the same claim.” Armstrong v. HRB Royalty, Inc., 392 F. Supp. 2d 1302, 1304–05 (S.D. Ala. 2005); see also American Pegasus SPC v. Clear Skies Holding Co., LLC, 2015 WL 10891937 at *6 (N.D. Ga. Sep. 22, 2015) (citing Armstrong). Here, Plaintiff made its statements in connection with separate audit proceedings that involve different claims from those at issue here. Plaintiff agrees that this is the case. See, e.g., ECF No. 380 at ¶¶ 280–82.

Second, Rule 408 does not bar consideration of Plaintiff's contradictory positions with respect to whether or not Plaintiff brought its MSJ in good faith. See Towerridge, Inc. v. T.A.O., Inc., 111 F.3d 758, 770 (10th Cir. 1997) (stating Rule 408 does not bar consideration of settlement-related evidence used to show, inter alia, a party's purported bad faith); Fears v. Keystone Petroleum Transp., LLC, 2014 WL 11531066, at *4 n.9 (N.D. Ga. Apr. 22, 2014) (holding that there was no Rule 408 violation where a party presented a settlement offer to rebut the opposing party's claim that the party and their counsel “acted in bad faith, not to prove or disprove the validity of Plaintiffs' claims or the amount of those claims.”).

IV. Conclusion

For the foregoing reasons, the EcoVest Parties respectfully request that the Court consider Plaintiff's statements related to the Azalea Bay and Magnolia Bay projects in ruling on Plaintiff's Motion for Partial Summary Judgment.

Respectfully submitted,

Dated: April 11, 2022

Sean Akins
Benjamin J. Razi (admitted pro hac vice)
Sean Akins (admitted pro hac vice)
Marianna Jackson (admitted pro hac vice)
Matthew V. Miller (admitted pro hac vice)
Nicholas Pastan (admitted pro hac vice)
Kandyce Jayasinghe (admitted pro hac vice)
Amee Frodle (admitted pro hac vice)
John Zipp (admitted pro hac vice)
Wesline N. Manuelpillai (admitted pro hac vice)

COVINGTON & BURLING LLP
850 Tenth St. NW
Washington, DC 20001
Tel.: (202) 662-6000
Fax: (202) 662-6291
Email: sakins@cov.com

Thomas T. Tate
Georgia Bar No. 698879
Elizabeth L. Clack-Freeman
Georgia Bar No. 126888
ANDERSEN, TATE, & CARR, P.C.
One Sugarloaf Centre
1960 Satellite Blvd., Suite 4000
Duluth, Georgia 30097
Tel: (770) 822-0900
Fax: (770) 822-9680
Email: ttate@atclawfirm.com

Attorneys for Defendants EcoVest Capital, Inc., Alan N. Solon, Robert M. McCullough, and Ralph R. Teal, Jr.

*I certify that this pleading has been prepared with one of the font and point selections approved by the Court in LR 5.1C.


[PROPOSED] ORDER

Upon consideration of the EcoVest Parties' Motion to File a Surreply in Support of Its Opposition to Plaintiff's Motion for Partial Summary Judgment, and good cause having been shown,

IT IS HEREBY ORDERED that the EcoVest Parties may file a surreply in support of their opposition to Plaintiff's Motion for Partial Summary Judgment.

IT IS SO ORDERED this ___________ day of ___________ 2022.

Hon. Amy Totenberg
Senior United States District Judge


DECLARATION OF IAN PALMER IN SUPPORT OF THE ECOVEST PARTIES' MOTION FOR SURREPLY AND SURREPLY

I, Ian Palmer, pursuant to 28 U.S.C. § 1746, declare as follows:

1. I am an employee of EcoVest Capital, Inc. (“EcoVest”), which is one of the defendants in this matter, and I make this Declaration based upon personal knowledge.

2. I am in-house Tax Counsel at EcoVest. In my role as Tax Counsel at EcoVest, I have participated in Appeals Conferences with the U.S. Government related to audits of partnerships involved in EcoVest's real estate projects.

3. On March 10, 2022, I participated in an Appeals Conference with IRS officials. The March 10 Appeals Conference related to the ongoing IRS audit of Azalea Bay Resort, LLC, a partnership associated with EcoVest's Azalea Bay project, one of 70 such EcoVest projects at issue in Plaintiff's Motion for Partial Summary Judgment. During the March 10 Appeals Conference, two IRS officials (an IRS Appeals Officer (John Thull) and an IRS Appeals Technical Guidance Coordinator (Brian Gilroy)) each stated that Azalea Bay Resort, LLC had “no hazards of litigation” on “any legal issues” associated with the Azalea Bay project, except for the question of the value of the conservation easement. When pressed on this statement, the Appeals Technical Guidance Coordinator confirmed that there were “no hazards of litigation” as to the question of whether the conservation easement appraisal submitted to the IRS in connection with the Azalea Bay project was a “qualified appraisal.” Both IRS officials further confirmed that the Azalea Bay project's appraisal was a “qualified appraisal.”

4. During the Azalea Bay Appeals conference, the Appeals Technical Guidance Coordinator: (i) acknowledged his awareness of the above-captioned case, (ii) stated that he was aware of Plaintiff's Motion for Partial Summary Judgment, and (iii) on one occasion quoted from Plaintiff's Motion for Partial Summary Judgment.

5. Following the Azalea Bay Appeals conference, I asked outside counsel representing Azalea Bay Resort, LLC to request that the IRS memorialize their admissions in writing.

6. On March 31, 2022, I participated in another Appeals Conference with IRS officials. The March 31 Appeals Conference related to the IRS audit of Magnolia Bay Resort, LLC, a partnership associated with EcoVest's Magnolia Bay project, one of 70 such EcoVest projects at issue in Plaintiff's Motion for Partial Summary Judgment. During that March 31 Appeals conference, the Appeals Officer (John Thull) acknowledged that Magnolia Bay Resort, LLC had no hazards of litigation on any legal issues — including as to the question of whether the appraisal associated with the Magnolia Bay project was a “qualified appraisal” — except for the question of the value of the conservation easement.

7. Following the Magnolia Bay Appeals conference, I asked outside counsel representing Magnolia Bay Resort, LLC to request that the IRS memorialize their admissions in writing.

8. I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct.

Executed April 11, 2022 in Atlanta, GA

Ian Palmer
EcoVest Capital, Inc.


DECLARATION OF SEAN AKINS IN SUPPORT OF THE ECOVEST PARTIES' MOTION FOR SURREPLY AND SURREPLY

I, Sean Akins, pursuant to 28 U.S.C. § 1746, declare as follows:

1. I am a partner with the law firm of Covington & Burling LLP. I am an attorney of record for EcoVest Capital, Inc., Alan Solon, Robert McCullough, and Ralph Teal (collectively, the “EcoVest Parties”) in this matter, and I make this Declaration based upon personal knowledge.

2. Exhibit 1 to this Declaration is a true and correct copy of a letter regarding EcoVest's Azalea Bay project that IRS Appeals Officer John Thull sent to me on March 17, 2022.

3. Exhibit 2 to this Declaration is a true and correct copy of a letter regarding EcoVest's Magnolia Bay project that IRS Appeals Officer John Thull sent to me on April 4, 2022.

4. I declare under penalty of perjury under the laws of the United States of America that the foregoing is true and correct.

Executed April 11, 2022 in Washington, DC

Sean Akins
COVINGTON & BURLING LLP

FOOTNOTES

1As described in more detail in the attached surreply, it is of no moment that Plaintiff made its contradictory statements in Appeals Conferences connected to potentially settling two of its audits. See Armstrong v. HRB Royalty, Inc., 392 F. Supp. 2d 1302, 1304–05 (S.D. Ala. 2005) (“Rule 408 unambiguously requires that the claim as to which a settlement offer was made and the claim at issue in the litigation in which the offer is proffered as evidence must be the same claim.”); see also American Pegasus SPC v. Clear Skies Holding Co., LLC, 2015 WL 10891937 at *6 (N.D. Ga. Sep. 22, 2015) (citing Armstrong); Towerridge, Inc. v. T.A.O., Inc., 111 F.3d 758, 770 (10th Cir. 1997) (stating Rule 408 does not bar consideration of settlement-related evidence used to show, inter alia, a party's purported bad faith).

1Appeals Conferences are administrative proceedings held by the IRS Independent Office of Appeals (“Appeals Office”) when an audit ends with unagreed issues. See 26 U.S.C. § 7803(e). The purpose and duty of the Appeals Office is to, inter alia, resolve tax controversies in a manner that is “fair and impartial to both the Government and the taxpayer” and that “promotes a consistent application and interpretation of, and voluntary compliance with, the Federal tax laws.” 26 U.S.C. § 7803(e)(3). The Appeals Office must “[h]andle conferences objectively with a goal of reaching a sound decision based upon the merits of the issues in dispute” and a resolution that “reflects, on an issue-by-issue basis, the probable result in the event of litigation.” Internal Revenue Manual (“IRM”) pt. 8.6.1.5(5) (Oct. 1, 2016), 8.6.4.2(2) (June 16, 2020).

2The fact that these admissions were made by IRS officials rather than attorneys at the Justice Department is of no consequence. The IRS is a political unit of the United States, is the Justice Department's client in this case, and is the agency tasked with making determinations related to, among other things, whether an appraisal submitted in connection with a conservation is a qualified appraisal.

3The Appeals Officer's acknowledgement that these appraisals are “qualified” is consistent with IRS findings in earlier audits. See ECF No. 365 at 17–18. Plaintiff made some of its previous concessions on IRS Form 886-A, a formal communication that sets forth an IRS agent's proposed adjustments, including his or her analysis and conclusions, which must be made “on th[e] merits” and “in a fair and impartial manner.” IRM pt. 4.46.4.2(5) (Sept. 23, 2021), 4.46.4.13 (Dec. 13, 2018).

END FOOTNOTES

DOCUMENT ATTRIBUTES
  • Case Name
    United States v. EcoVest Capital Inc. et al.
  • Court
    United States District Court for the Northern District of Georgia
  • Docket
    No. 1:18-cv-05774
  • Code Sections
  • Subject Area/Tax Topics
  • Jurisdictions
  • Tax Analysts Document Number
    2022-12273
  • Tax Analysts Electronic Citation
    2022 TNTF 72-28
    2022 EOR 5-58
  • Magazine Citation
    The Exempt Organization Tax Review, May 2022, p. 255
    89 Exempt Org. Tax Rev. 255 (2022)
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