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October 13, 2013 Presentation
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The J. Edgar Murdock American Inn of Court
Presentation on Mandamus and Interlocutory Appeals
2 Government attorneys, Sam and Bob
2 Taxpayer attorneys, Alex and Jim
The attorneys are opposing counsel in a TEFRA proceeding in district court, involving the notorious so-called "Bob's Big Boy" tax shelter. The shelter has been struck down as lacking economic substance in several circuit court opinions. Alex and Jim, representing the Tax Matters Partner, took the case hoping to win by challenging the validity of the FPAA, rather than trying the merits of the shelter. Shortly after initiating the suit, while discovery was ongoing, Alex and Jim filed a motion for summary judgment, alleging that the "generic" FPAA issued in this case was invalid because it was not properly addressed to the correct Tax Matters Partner. Sam and Bob opposed the motion on behalf of the United States, arguing that the Chomp case, decided by the Tax Court, established the validity of generic FPAAs. The Chomp decision was not appealed, and its holding has not received much attention at the appellate level, either negative or positive. In addition, Sam and Bob also moved to compel production of some documents that Alex and Jim had withheld as subject to the attorney-client privilege. Sam and Bob argued that these documents were not privileged, under the crime-fraud exception.
The district court has now ruled on both motions, denying the TMP's motion for summary judgment and granting the government's motion to compel. The court has directed Alex and Jim to produce the documents within 30 days. As a result of the court's orders, Alex and Jim have called a meeting with Sam and Bob to discuss the next steps in the case.
Alex: Hi Sam, hi Bob, thanks for meeting with us.
Sam: (feeling smug) Well, I knew as soon as I saw the judge's decision, you were going to call us to talk settlement. What kind of offer were you thinking about?
Alex: Sam, we didn't call this meeting to talk settlement.
Sam: Oh, you want to concede then? Ok, I accept. Do you want me to have Bob draft the stipulation?
Alex: No, no, no - we aren't conceding either.
Sam: Hmmm . . . no settlement, no concession, what are you guys planning? The Bob's Big Boy shelter has been struck down by eight different circuit courts on economic substance grounds. I know you're not telling me you want to take this case to trial.
Alex: Sam, the reason we wanted to talk with you today is because we are looking at the possibilities of seeking immediate appellate review of the district court's order denying our SJ motion, and we want to let you know about that and ask what the government's position would be. Also, we think we should get immediate review of the district court's order compelling us to turn over documents protected by the attorney-client privilege. We have an obligation to our client, plus we can't live with the judge's decision that the "crime/fraud" exception applied - but we don't want to go to jail either, and we only have 30 days to have it reviewed.
Jim: Actually, Alex, I think we are down to 25 days now.
Alex: My how time flies. But you get my point. We can't get a direct appeal on that until the case is over, or we get an interlocutory appeal, or the judge has put one or both of us in jail. Unless we file for mandamus to have the judge reversed, and I think we have a pretty good case on that one.
Sam: Interesting. So you are planning to get this immediate appellate review both on the substance and on the discovery?
Alex: Yes - we intend to seek mandamus on the discovery order, and will include the issue on a motion for interlocutory appeal as well.
Sam: Mandamus? How would that work?
Jim: Well, the Ninth Circuit, where our case is located, has identified five guidelines to determine whether mandamus is appropriate. The guidelines are: (1) whether the petitioner has no other adequate means, such as direct appeal, to obtain the desired relief; (2) whether the petitioner will be damaged or prejudiced in a way not correctable on appeal; (3) whether the district court's order is clearly erroneous as a matter of law; (4) whether the district court's order is an oft-repeated error or manifests a persistent disregard of the federal rules; and (5) whether the district court's order raises new and important problems or issues of first impression.
Sam: Sounds like you've done your research.
Alex: Yes, we have.
Sam: Well, then you know that mandamus is an extraordinary remedy that the Supreme Court has said will only be granted in exceptional circumstances that amount to a judicial usurpation of power. I hardly think the district court's ruling on a discovery motion warrants such drastic relief.
Sam: That's easy for you to say because you aren't the one going to jail.
Bob: I think you'll have trouble meeting those five guidelines in this case. First, you do have other adequate means to obtain your relief - you can appeal the final decision in this case, assuming you don't prevail on the merits.
Sam: (smug) Which is a pretty safe assumption . . .
Bob: And even if you could make an argument for prejudice, there's no way you can say that the court's order is clearly erroneous. This tax shelter was fraudulent, and you know it.
Bob: Regarding the fourth factor, the order is not an oft-repeated error and it doesn't represent a persistent disregard of the federal rules. And finally, the order does not raise an important issue or an issue of first impression. There's just no way that mandamus is an appropriate way to go on this discovery ruling. The government would definitely oppose this relief.
Alex: Well, like I say, it's something we are considering. I really think the best way to move forward in this case is for us to seek interlocutory appeal of the district court's order, and then maybe y'all could agree to a joint motion to stay the effective date of the discovery order pending resolution of the appeal. I think this would be the most efficient way forward for both the government and the petitioners, so it would be great if you would support our motion.
Bob: Interlocutory appeal, huh? Well, let's think this through.
Jim: As I'm sure you know, there are three requirements for certification of an interlocutory order for appeal. First, there must be a controlling question of law. Second, there must be substantial grounds for difference of opinion. And third, an immediate appeal may materially advance the ultimate termination of the litigation.
Sam: Yes, but now you know those factors are merely a guide for the court's discretion. The certification procedure is not mandatory, and a court can deny a motion for interlocutory appeal, in its discretion, even when the three factors are present. It's rare for a court to certify an issue for interlocutory appeal. You've got to have exceptional circumstances to justify departure from the basic policy of postponing appellate review until after entry of a final judgment. And even if the district court certifies the issue, that's no guarantee that the appellate court will take it up.
Alex: Yes, of course. But we think this is just the right circumstance for interlocutory appeal.
Jim: Exactly. We definitely have the first factor met on the substantive issue alone: the issue of the validity of a generic FPAA is a purely legal question that is dispositive of the case.
Bob: I don't know about that. The rule under Chomp is that an FPAA is valid if it provides adequate or minimal notice to the taxpayer that the IRS has finally determined adjustments to the partnership return. Whether notice is adequate sounds like a fact question to me, or at least a mixed question of fact and law. In order to be a pure legal question appropriate for interlocutory appeal, the issue has to be stated at a high enough level of abstraction so as to lift the question out of the details of the facts of our particular case and give it general relevance to other cases in the same area of law.
Alex: That's what we've got - the issue of the validity of a generic FPAA is a legal question of general relevance to other TEFRA proceedings.
Sam: Hmmmm . . . I'm not sure we're going to agree with you on that point. What's the second factor?
Bob: It's substantial grounds for difference of opinion. There's no way that factor is satisfied in this case.
Alex: Why do you say that?
Bob: Because you have to show a difference of opinion between the courts on this issue, and it doesn't exist. There's no court opinion that disagrees with Chomp or otherwise holds that generic FPAAs are invalid.
Alex: That may be true, but no appellate court has ruled on this issue, and since it's dispositive of the entire case, assuming the court of appeals sides with us, well, I think a court would still exercise its discretion to certify this issue for interlocutory appeal.
Jim: That's right, Alex, and that leads us to the third factor, which is definitely on our side: an immediate appeal is likely to advance the ultimate termination of the litigation. Once the court of appeals rules that the FPAA issued in this case was invalid, we've got nothing more to fight about. The case is over. You can't deny that we've got judicial economy and efficiency on our side. The Bob's Big Boy transaction is extremely complex, and our trial is scheduled to last at least four weeks. The prospect of avoiding all the time and expense of a lengthy trial is going to be very appealing to the judge.
Alex: I don't think you want to be on the wrong side of this argument, Sam. You wouldn't want to put yourself in the position of having to argue in favor of more wasteful government spending, would you?
Sam: It's so kind of you to be concerned about me, Alex. But honestly, avoiding the cost of trial is really the only point in your favor. And if that alone were enough to justify an interlocutory appeal, then every ruling on any number of claims, such as lack of jurisdiction or expiration of the statute of limitations, would be routinely certified for interlocutory appeal. That just doesn't happen. No court is going to routinely resort to interlocutory appeal. This is for exceptional cases only, and this case is far from exceptional.
Alex: Well, I think our position is strong. It really is the best way to move forward in this case for both parties, and I think it would be great if we could come together and make a joint motion to the court. But if you aren't agreeable to the motion, we are prepared to go ahead and make it on our own. And, in that event, we will also file the mandamus motion with the court of appeals if we don't have this resolved in sufficient time before we are scheduled to turn over the documents - I'm pretty sure that we can get a stay from the court of appeals on the discovery order while it considers the merits of the mandamus.
Sam: I just don't think we're going to see eye to eye on this one, Alex. But I appreciate you calling this meeting so that we can talk about it. Why don't you give us a few days to go back to our office and think it over.
Alex: Sure, why don't you give me a call by the end of the week and let me know your decision.
Sam: Sounds good. Thanks.
Alex: Thanks.
Questions for the group:
1. Has anyone successfully sought mandamus in a case? Can anyone describe a scenario that is good for mandamus? What about opening up discovery disputes to mandamus - will a court of appeals have particular problems with that issue?
2. Has anyone successfully sought interlocutory appeal of an issue? Have any judges in the room certified an issue for interlocutory appeal?
3. Has anyone had a trial court certify an issue for interlocutory appeal but then had the appellate court refuse to take it up? Does anyone have a sense of how receptive trial courts or appellate courts are to interlocutory appeals?
4. If you've had an interlocutory appeal, did you also seek to stay the trial court proceedings? (Because they are not automatically stayed.) What was your experience with that? What did you consider in determining whether to seek a stay of the trial court proceedings?